How to Choose a Texas Electric Provider the Wrong Way

by Robert Nagle on 9/16/2011

in Consumerism,global warming,Texas/Regional

Recently I read an analysis by Dr. Dan Wallach on Chuck Kuffner’s blog about how to find the best deal on electricity in Texas. Some areas in Texas allow consumers to choose the provider of electricity to their homes. (But not all – some cities – notably San Antonio and Austin – allow residents to purchase electricity only through a municipal provider. The jury is still out about whether privatizing electricity utilities in Texas has resulted in lower prices.   Many analysts have concluded that privatizing actually brings higher prices – but I continue to have hope that privatizing will eventually bring lower prices – and if not, an electrical grid that is more in keeping what Texas citizens want.

When you have to choose an electric provider yourself, you can make mistakes (as Dan Wallach explains). One mistake is trying to comparison-shop by comparing variable rates. When purchasing electricity using the Powertochoose.org website, they mix variable rates with fixed rates. Variable rates always start out low, but increase in price without ever seeming to go down. As a result, it becomes  practically impossible to compare these plans – and to do the diligence to monitor the plans actively enough to know when to switch again. Fixed rates are easier-to-compare, and I have found over the years I have found that fixed rate plans lasting 12 months tend to provide the best rates. 6 month rates are a little cheaper, and 24 months tend to be a lot more expensive (I think the 24 month plans factor in market uncertainty – a lot can change in 24 months!). The problem with these fixed rate plans is that after they expire, you are rolled onto a variable rate plan, with its ever-escalating rates. To this date, no electric provider has never sent me a reminder that my plan has expired or is about to expire; from the provider’s perspective, they benefit if you don’t notice that the fixed rate plan has expired, so why should they have to do your homework for you? (Fortunately, there is an easy solution—sign up for an email reminder service and instruct it to email you when the term is about to expire).

I am amazed at how easy it is to make a bad decision about electric providers.  A college friend with a PhD in Economics chose an expensive coal-laden TXU plan because he had just moved back to Texas and wasn’t aware that you had the ability to choose your provider – he just went with whatever someone told him about. (In two minutes, I was able to find him a plan which was 10% cheaper and 100% green).  Various acquaintances have chosen plans for the most illogical of reasons. One chose “Reliant” because it sounded “reliable” (Reliant-reliable – get it? I guess getting your name on the downtown stadium was good for something).  Another signed up for the coal-dirty Reliant because it had balanced-billing – never mind that it was significantly more expensive than the other plans. A friend chose a plan simply because a friend of hers had recommended it – that was also more expensive. Another friend opted not to choose the “renewable” plan because she didn’t want to have to renew it each time the fixed rate expired.  There are other not-so-obvious problems. When I had Dynawatt (a company I don’t recommend),  I could not make head or tail of the bill (no matter how long I studied it). Everything on the printed bill contradicted what the terms of my contract were, and when I called telephone support several times, each agent quoted me a different rate on my current plan – something which didn’t exactly inspire confidence.

4 Things You Need to Know about Choosing an Electric Provider in Texas

This blogpost is going to ramble, so I’ll summarize for people who are in a hurry and need  fast tips.

  1. Texas consumes more fossil fuels than any other state in the US. If Texas were a nation, it would be the 7th largest emitter of greenhouse gases. Electric plants in Texas (population 25 million) emit as much CO2  as electric plants in the COMBINED states of   New York, California, Florida, Massachusetts and Oregon (population: 86 million)
  2. 1 year Fixed-rate plans for 100% green (renewable) energy plans are on average 5-10% higher than comparable coal/natural gas plans.
  3. Don’t choose an electric provider which has received too many complaints. (Check the complaint scorecards on the PUC site and also Yelp if you want).

There is a fourth point, but let’s save that until the end.  First, let’s go over these three points.

1. Texas and Fossil Fuels

Texas has a massive climate change problem. Whenever you hear conservatives say that the real climate change problem is in India or China, remember this:  Texans emit probably 20-25 metric tons of CO2 every year, while Chinese consume about 5 (source); it isn’t even close. If you persuaded 10,000 Texans to adopt a greener lifestyle, that would produce a far greater ecological bang for the buck than if you persuaded 10,000 Chinese).

Compare the carbon footprint of California with that of Texas.  The population of California is 37 million people (compared to 25 million people in Texas). Here are the CO2 emissions for just the electric companies (i.e., that excludes transportation and industrial emissions).  Texas emits 242.8 million metric tons, while California emits 59.4 million metric tons. Here is a 2009 state-by-state comparison from the EIA website.

co2-rank

In one month, here is the source generation for electric power. Here it is for California:

cal-net-generation

Here it is for Texas:

texas-net-generation

In other words, California power companies produce substantially less electricity and they do it with substantially less natural gas and coal.

One reason it is not surprising that a politician like Rick Perry would be unapologetic about climate change is that he knows that the economy and the lifestyle of Texas is uniquely dependent on fossil fuels.  (We’re not even talking about the industrial emissions by petrochemical companies or auto gasoline consumption – although you can find more data here about it).

It is true that Texas has also been producing a lot of energy from wind power – that is  a recent development.  That has happened not only because Texas has increased the amount of wind power in its state energy portfolio, but also because electric providers are selling renewable energy credits on the free market.

2. 100% Green Energy Plans cost only about 5-10% more than Dirty Energy Plans

I don’t know if Dr. Wallach did  this on purpose or just made a mistake, but his data  imply something  inaccurate. He shows you a comparison of “dirty plans” with “100% clean plans.” The dirty plans he selects  cost from 5.3 cents  to 5.5 cents per kilowatt, while the 100% clean plans cost 9.3 cents to 10.4 cents. That is something which would make most consumers pause – even if they wanted to choose green plans.

Unfortunately this data is wrong or misleading. I don’t know what the specific zip code or what day he did the query (prices change on a daily basis), but it seems to me that he is comparing the variable dirty plans with the fixed rate clean plans. But he just got done demonstrating how misleading it is to judge a plan by its variable plan and then he proceeds to use it as a legitimate basis for comparison.

I agree that variable rate quotations are misleading. They include promotional offers as well as lots of uncertainties (and unspecified price increases).  A far more reliable comparison is to compare fixed rate dirty plans with fixed rate clean plans.

Here is what I found for comparing 1 year fixed plans in the zip code 77057  on September 20. Unfortunately the browser only displays the top 3 plans, but in fact under the top 3 are about 5-7 companies with similar prices.

Here are the top dirty plans:

fixed-rate-dirty1

 

Here are the top clean plans:

fixed-rate-clean1

 

Unlike Dr. Wallach’s misleading charts (which show a spread as wide as 4 cents a kilowatt), in fact the spread is only .5 cents as kilowatt. Perhaps you may say the  day I chose  is a fluke; but try it yourself if you don’t believe me.  The reason I know that there’s only a 5% cost difference is that in my checking over the last 5 years, it has almost always been true.

Renewable Energy Credits: Is It Really Green Energy?

The original article by Dr. Wallach casts doubt about whether the 100% renewable plans are in fact green.   There are valid concerns about the effects of using Renewable Energy Credits (REC’s), but the criticism is usually wrong-headed.

When Texas privatized its energy market, it created Retail Electric Providers (REPs) and Transmission and Distribution Utilities (TDU). The REPs are private companies, while TDUs are the utilities that service the actual lines (in my area, the TDU is Centerpoint). The  Electric Reliability Council of Texas  (ERCOT)  is the corporation that maintains the power grid.Oh, the acronyms!

The important thing to remember here is that generally the REPs are not in the business of power generation; they are in the business of customer service and buying energy  from the open market which it packages to consumers.  I don’t know the nitty gritty details of how this open market works; suffice to say it’s a tightly regulated industry with  oversight and probably subject to political influence.

So when you say that the green plan you purchased is not a “genuine” green plan because the REP doesn’t run the windmills is simply restating the obvious; it is beside the point.

When you purchase a green plan, you are authorizing the REP to purchase a Renewable Energy Credit (REC)  which are issued by ERCOT for producing renewable energy. RECs are used not only in places with privatized energy markets, but also other states and even  Texas municipal power companies like CPS (San Antonio) and Austin Energy (Austin).

The original article implied that REC’s are not reliable or effective. It linked to a PDF of a study which purports to show the problems with RECs. The PDF linked to comes from the Center for Energy Economics/Bureau of Economic Geology, an energy thinktank at UT-Austin. This sounds neutral enough, except that most of its research and published reports seem to be about natural gas – curiously they have no reports about carbon emissions or impact of climate change or even renewable energies. The main funders of the CEE  read like a who’s who list of the world’s most notorious polluters and carbon emitters. So I remain cautious about the source. (Dec 2012 Update: My hunch was well-founded. Apparently CEE has been implicated in a major conflict of interest about a recent fracking study — the University “found numerous errors and flaws with how the study was conducted and released, as well as University of Texas policies for disclosing conflicts of interest.” I think this raises issues about the other studies as well).

The Off the Kuff blogpost implies that  the REC market is defective and cites as an example for this that once the REC prices  went negative. Actually there was a good explanation for why that happened, and the concern is not really relevant now.

But first, it is necessary to mention another acronym: RPS (which means Renewable Portfolio Standard). Before a market for energy was created, states determined the mix of their fuel sources. Now, with privatization, this authority has been decentralized, but states are still entrusted with setting overall goals about the fuel source.

There is kind of an inherent conflict between these two mechanisms. RPS is a top-down mechanism (as are city-owned utilities), while REC’s are more closely tied to the market and fluctuate according to supply and demand. Most states like Texas have committed to expanding an RPS while at the same time allowing REC’s to be bought and sold by licensed generators of electricity.

Each REC has a serial number valid for 3 years which indicates

  • the facility where the electricity was generated
  • the type of renewable resource
  • the year and quarter of generation and
  • a unique identifier for specific MWh produced by the facility that produced that quarter.

All power companies which sell electricity to residents are required to buy these kinds of RECs. Texas uses Green-E, “the nation’s leading independent consumer protection program for the sale of renewable energy and greenhouse gas reductions in the retail market.”  Green-e uses a verification process to ensure that it

  • is from new projects. It’s important that renewable energy certificates (RECs) support new projects built for the voluntary market, not to satisfy a state or federal requirement. That’s because consumers who are buying renewable energy want their money to go toward expanding the renewable energy market. Green”‘e Energy Certified RECs come from new facilities built with the voluntary market in mind.
  • is verified. Sellers of Green”‘e Energy Certified renewable energy are reviewed twice a year to ensure that they live up to their advertising claims, and that their customers are getting what they paid for. Certified energy is accounted for and tracked through the annual Green”‘e Energy verification audit process.
  • has not been double-counted. Certified renewable energy sold to a consumer cannot also be counted toward a state’s renewable energy goal (a renewable portfolio standard, for example). Renewable energy must only be attributed to the individual customer purchasing it.

In fact, after Texas started dealing with REC’s, in 2005, it was considering a a bill which might have resulted in the  RECs being  double-counted towards the overall portfolio. As a result, Green-E threatened to decertify all of Texas’ RECs. In response,  the Texas legislature in 2007 passed language that essentially made this double-counting impossible. Subsequently, Green-e revoked its warning.

Using RECs for renewable energy is a tested market mechanism, and in Texas it has basically worked as planned.  The blogpost pointed out that the price of RECs temporarily went negative, but that was simply a market hiccup when wind energy was coming  online more quickly than anticipated and transmission capability of the power grid was temporarily unable to handle the load. Eventually the transmission capability caught up, and it has no longer been a problem. Even the report cited in the original article reached the conclusion that “Transmission expansion will remove the need for negative bidding unless of course a lot more wind or non-wind generation capability is built in West Texas than the CREZ lines can handle (p 20).

So the original article’s FUD regarding REC seems unjustified. Using RECs is an indirect mechanism for purchasing energy, but it is verified, and it has the socially desirable effect of encouraging more renewable energy to be produced and sold.  Interestingly, there have been times when renewable energy has been cheaper than dirty energy and in August, when there was extreme demands on the power grid,  and   power supplies were stretched to their limits,  extra wind generation – not the allegedly reliable coal or natural gas –  made up the difference.

The Moral Argument for Renewable Energy

Now it is time for me to make my fourth point.

4. Because of the disproportionate amount of carbon emissions made by Texas, residents have a special responsibility to become more informed about their energy choices and express their preferences with their wallets.

You can’t just be neutral about what fuel source you are using to power your home. In privatized markets, you can’t pretend that the only consideration is the base energy price when your choice could have long term implications on what kind of world that  future generations will be living in.

That’s the main problem I had with the original blogpost. Its argument seemed to work like this: because there were questions about using RECs, therefore Texans are justified in choosing any dirty energy plan they damn well please.  I reject both premises, but  why we can’t admit that reducing carbon emissions is in fact an important and worthy goal?

Sure, I’ll grant that using R.E.C. may sometimes be an imperfect financial mechanism in the real world,  but is that a reason never to use them? The reason that RECs are important is that they are the primary way that consumers have for supporting a low-carbon economy in Texas.  Choosing which electric plan you use for your residence may be the single most important act you can do to reduce future climate change.

The original blogpost talked about the need to conserve energy and perhaps adding a mechanism for consumers to sell back energy they generated from solar energy. Sure, I’ll support that! Conservation and solar energy are an important long term strategy. Below is an image of solar water heaters on the roof in China. Do you know that 10% of Chinese homes use solar heaters whereas usage in the US is still barely taking off?

image

But solar energy is one part of the picture. It is also important to reduce the usage of electric plants which emit CO2! And in Houston, where the price difference remains 5-10%, that doesn’t seem like such a hideous sacrifice.

I have to wonder. Why doesn’t the powertochoose.org website  view as one of its functions to educate consumers about carbon emissions?  Why can’t it show warning labels on the powertochoose.org site (akin to the cigarette warning labels?) Why doesn’t the PUC and powertochoose stress the economic and environmental benefits of choosing renewable energies?

Yes, I said, economic benefits. Amidst all the pro-natural gas propaganda you find on the Hearst-owned Fuelfix site, this part is rarely covered. According to one economic analysis by University of Massachusetts,  private investments in renewable energies produce 3x more jobs than private investments in coal and natural gas (source). Several other analyses have reported similar results.  In a June 2011 speech to the Commonwealth Club of California,  Robert F. Kennedy remarked that whenever nations launch programs to decarbonize their economy, their society almost always experienced instantaneous wealth. (the mp3 is here—and it’s amazing; check especially the 10 minute mark).

Why isn’t our governor exhorting Texans to switch to green energy? I know – it’s Rick Perry, and he’s a bit of a lunatic, but wouldn’t a non-insane governor of Texas recognize the potential economic and political popularity of exhorting Texans to choose green?

Why does this state remain neutral about whether citizens choose dirty electric providers or clean ones? Why isn’t dirty electricity treated the same way in Texas as cigarettes – tolerated but vilified?

Finally, you remember my statistic about electric plants in Texas  emitting as much CO2  as the COMBINED states of   New York, California, Florida, Massachusetts and Florida. Why is this  true?  Is it because Texans are  stupid – or do we just not care?

Postscript:  Implications of Having a Crappy Web Interface

One last thing. I want to talk specifically about the  powertochoose.com website.

The fact that this site exists is a remarkable thing in itself.  It puts hard-to-find information in a central location, and lets the consumer filter  search results and compare companies according to certain criteria. Electric plans and options have often been confusing, and this interface makes it easy to find the basic facts. The filtering mechanisms are great!

On the other hand, a user may not be sure what  the interface actually means.

First, the viewing window  only shows 3 or 4 search results in the first screen.  You can scroll down, but when you require users to do that, you are implicitly discouraging users from scrolling down much. At best this limited viewing area only allows the user to consider the top 6 or 7 results. Often that is all the price-sensitive  customer wants, but  it prevents the consumer from considering plans which  might be more expensive … never mind the reason.

First,  they use a dropdown box for the field Renewable Content, and the default option is to choose ALL plans ( instead of Only 100%). This interface decision could have profound implications on user behavior.  How many users will simply leave it always on ALL  and see only the three cheapest plans  — which often happen to be the dirtiest energy?  As I have shown,  except for the misleading Variable Plans, the price difference between the clean and dirty plans is trivial, but the default view for the website is always to show the 3 or 4 cheapest & dirtiest plans.

It would have been relatively easy to change the GUI to make more information available to the consumer or to make the interface more neutral. Why couldn’t the filter panel on the left include two radio buttons (“100% Green”  and “Dirty” which would always be visible? Why doesn’t the interface have popup bubbles to explain what each feature means? It’s odd and quite pathetic that the most important option on the filter screen is politely hidden under an easily overlooked dropdown box.

bad-arrow

When the state whose electric power plants lead the nation (and possibly even the world) in emitting heat-trapping gases and whose consumer information site is configured not to show affordable green energy alternatives, I have to wonder if there is a connection.

Oct 21 2011 Update. The Texas Electricity Ratings blog is a helpful source of information about all Texas energy companies and especially reports about  bad customer service.  This post lists the parent companies  of all the electricity providers in Texas, and here’s a great graphic of who owns what in Texas power. I did not know all this.

Oct 24 Update. Texas Electricity Ratings provides a good explanation of why variable rates seem to increase in price so often. It happens because electricity providers are allowed to list promotional rates as their normal rate – even though the promotional rates can last for as little as a month:

the very nature of month to month plans means that the monthly rate can change, up or down, depending on the cost of natural gas or even just the discretion of the REP (Retail Electricity Provider). So the prices are likely to move from month to month anyway. However, one thing is certain, the chances are good that their monthly rate will be substantially higher than the one they see advertised on shopping websites. Probably somewhere between 15-30% higher per kWh. So a price listed at 8.0 might actually end up being between 9 and 10 cents per kWh. And that is typically true across the board, regardless of the REP. At some point, the month to month rate will get substantially higher after the promotional period expires.

….

People sign up for month to month plan, and their promotional rate ends up only lasting for a week or two, as opposed to their first month of service. So how does that happen, particularly when everything can be promoted as a “First Month” promotional rate? Well, this is where things get a bit confusing, and where hopefully a little more information will help customers understand the electricity process. It’s not really the first month a customer gets at a promotional rate, but their first billing cycle. REP’s are at the mercy of the TDSPs (Oncor, Centerpoint, etc.) in this matter, although customers really have no way of knowing that. A customer’s billing cycle is based upon when the TDSP reads a customer’s meter, which happens once a month. And that date is different for everyone, although typically the meters are read around the same time each month. But one neighborhood might have their meters read in the first week of every month, while others might have it read in the last week of every month. What is consistent, is that a customer’s billing cycle is based upon when a TDSP reads their meter and then passes that information along to the customer’s electricity company, who then bills the customer. But it’s important to understand that introductory rates are based upon a customer’s first billing period, and not actually their first calendar month.

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