Recently, I was reading through some provider reviews and found several classic examples where customers made mistakes with their with their Pennsylvania electricity plans that wound up costing them more. In the interest of helping our other energy customers I’m sharing a few edited examples as common mistakes to show how other customers can avoid problems with their energy suppliers.
Variable Rate Plans Have Rates That…Vary?
“I signed up for a promotional rate. The good rate held steady for several months, then it went from less than 5 cents per kWh, to 5 1/2 cents, to 9 cents and then up to 12 cents! I never got any notification about the increases. Are they within their rights?”
The short answer— yes.
If you sign up for a variable rate plan, then your Pennsylvania electric rate will probably change every month. In some variable rate plans with promotional rates, the “good rate” only applies for a short time. But after that introductory time period ends, the rate will vary each month afterwards.
In a related example, another customer knowingly signs up for a variable rate plan but puts their trust in what the sales rep tells them about future rates.
“I switched to XZ Company because they had a low variable rate and no cancellation fee. When I signed up I asked if the rate would stay around the current level and was told that it would. They also said that the rate I got was not a teaser rate. However, I only got the low rate for one month. The second month the rate was increased by 70% and the third month was almost double the first month.”
Clearly, the frustration and anger of these customers is understandable, especially since they don’t see that they did anything wrong. Variable rate plans in Pennsylvania are really attractive to some customers. They’re usually month-to-month, no contract, no cancellation fee plans. PA electricity suppliers often offer them with low introductory rates that are well below the wholesale price. They’re cheap, no commitment nature usually distracts customers from giving them a closer look. And that’s the problem. Seemingly great rate deals distract customers and they quickly forget that variable rate plans do VARY their rates from month to month.
Why Do Energy Rates Vary From Month To Month?
Energy rates change depending on supply, demand, and weather. The higher the demand in one region, the higher the price, especially if there are transmission constraints in bringing the supply of electricity or natural gas to where it’s needed. The amount that energy rates change depends on the market price of electricity or natural gas in your state’s wholesale market. Consequently, price fluctuations on variable rate plans during winter and summer can get pretty painful.
The Annual Energy Price Cycle
Saving money on energy plans isn’t as impossible as it sounds. Energy prices follow a predictable yearly cycle and generally stay within a normal-ish range. The Energy Information Agency’s Pennsylvania historical energy rates tracks past energy rates. Each year, lower demand from moderate weather tends to lower both electricity and natural gas prices. In fact, these “shoulder months” in fall and spring are the best times to shop for a cheap fixed rate energy plan.
However, once May arrives, summer heat begins increasing demand for air conditioning. With more generators burning natural gas, “power burn” drives up that price, too. In southern parts of the country, early summer rates can spike suddenly, rocketing wholesale prices to the moon and staying high through late August.
Read the Plan Summary
While sales people can be helpful, they’re not a reliable source of unbiased information. A sales person could conceivably say almost anything about future rates —but they don’t know for sure. After all, they’re not energy analysts, they’re in sales. At the end of the day, that’s what they’re interested in.
In our examples, our customers seem to have signed on to their plans without fully understanding the plan summary. Basically, a plan summary says what the plan is called, the price per kWh. whether it has a fixed or variable rate, whether the rate is an introductory rate or not, the term or duration, and delivery charges. Customers NEED to read their plan summaries when comparing and shopping for electricity plans. The terms of the plan summary ARE part of the legal agreement between customer and company. Consequently, customers should always read and understand the terms of the plan summary before agreeing to the plan.
Remember that you can still leave a plan even if you agree to it over the phone. Under the Pennsylvania Right of Rescission for retail electricity sales, you have three business days to reconsider the energy contract after you receive it in the mail and cancel it if you’re not satisfied.
How Variable Plans Can Work for You
But variable rate plans are not inherently evil. Variable rate energy plans work best when customers know how and when to use them. They can be just the thing for some customers wanting an extra month to shop around for a new fixed rate energy plan. They sign up for an introductory plan to power their home, compare offers, and then PowerSwitch when the end of the month comes. During the “shoulder months” in spring time and autumn, a variable rate plan can make this tactic much more cost-effective. The trick is to pay attention and switch to that fixed rate plan at just the right time.
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One of life’s best ways to learn is to make mistakes. By learning from these examples, I’m hoping that energy customers will be better able to understand what they can expect and need to do in order to avoid having problems with their energy suppliers.