New survey of Texas electricity shopping shows overpaying is a thing

Today, the Watchdog pulls the veil off the marketing practices of most Texas electricity companies, thanks to a new study from a Dallas company.
For more than a decade, I’ve scolded regulators, state lawmakers and governors for allowing electricity companies to purposely confuse consumers.
Now the Watchdog has a credible study released by EnergyBot.com. The findings are astonishing. Most likely, they affect everyone who shops for electricity, but not members of co-ops or municipal-owned systems. EnergyBot is a 6-year-old company with 17 employees that earns its money by helping businesses and industries find the best plan for their needs. The electricity companies pay EnergyBot a referral fee.
Bottom line: You likely are paying too much for your electricity. You’re buying into the repetitive showing of ads promoting “free” nights and weekends. You’re happy with your so-called bill credits, too.
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But it’s all a ruse, EnergyBot.com spokesperson Thad Warren says.
He said, “If you have Matthew McConaughey advertising something, a lot of people are going to think, ‘OK, this has to be good. If Matthew McConaughey is backing this up and vouching for it, then I’m going to sign up for that.’”
“Plus,” Warren added, “it says ‘free.’ What could be bad about that?”
Warren taught me something so obvious I’m miffed that I didn’t see it all along.
The influx of free electricity ads I recently wrote about reveals part of the story. Are companies like TXU, Reliant and Direct going to advertise their least profitable plans? Or will they advertise their moneymakers?
EnergyBot surveyed 501 customers in Dallas and Houston. The company also scours electricity company websites for the latest kWh prices.
The survey found that free nights and weekend plans cost 30% more than what it calls “traditional fixed-rate plans.” That 30% translates to about $1,400 in excess payments in a year.
Customers love their bill credits, another marketing tool. But the study shows that the credits cost 24% more than fixed-rate plans. That’s an extra $1,000 a year in payments.
Of the 501 customers surveyed, 87% wanted the cheapest plan. But when they were presented with 10 different plans, 98% were unable to figure which was the cheapest plan for them.
That’s stunning. Almost nobody got it right.
The Watchdog asked each of the three major companies — TXU, Reliant and Direct — for their response to the study. They have not yet responded.
The companies have gamed the system so that free plans and bill credit plans promise lower costs and then rank higher because by appearance they have the cheapest offerings.
The difference between an advertised price and what a user actually pays is 45% higher than the original price offering.
There are more than 100 companies, and they offer hundreds of plans that, the study says, lead “to confusion and, in some cases, higher-than-expected electricity bills.”
“This complexity,” it continues, can lead “to potential overcharges and dissatisfaction.” Tell me about it.
Almost three out of every four surveyed families – or 73% – are influenced by TV commercials and believe the advertised plans will save them money.
Another key finding: “The use of complex rate structures, such as multi-tiered rates and time-of-use pricing, further complicates the process for consumers to determine if the promoted plan will actually result in cost savings.”
After customers kept asking EnergyBot to expand its work to residential users, the company launched a residential component two years ago. Anyone who shops can go to the website, type in a ZIP code, give permission to use Smart Meter Texas (which you can use free to watch your usage) to find a home’s actual usage and match it up with the right plan. Consumers pay nothing.
Other companies try to do the same work, but I haven’t gotten any studies or surveys from them. I can see why. The results are not flattering to the industry. They show how the leaders in our state need to step in and update marketing rules to make them fairer and more transparent.
And consumers also must realize that when it comes to shopping for electricity in Texas, we are lost in the wilderness. And that’s on purpose.
Watchdog tips: I asked EnergyBot what fixes in the state’s deregulated electricity market it would like to see. The company came up with three suggestions.
– Show personalized bill estimates. Shopping results would show how much a total bill would actually be.
– Favor plans that are nontraditional with a fixed rate, rather than free nights or bill credit plans. “Because most people simply check the rate, they will overlook the nuances of a plan,” the company said in its wish list for system improvements. Fixed-rate plans are the cheapest for the vast majority of customers.
– Don’t ignore expiring teaser rates. Many companies offer low rates to new customers and then increase prices when a contract expires. They hope their customers don’t notice.