What is a Flat Rate Electricity Plan
Flat rate plans are sometimes called Tiered Plans. We will use the two terms interchangeably here. You may also see them referred to as fixed cost electricity plans. They are plans that charge a flat dollar amount for any electricity usage up to a certain amount. These tiers usually come in 1000 kWh increments. This type of plan is design to allow the plan to have its cheapest electricity rates at either 1000 kWh or 2000 kWh.
These levels are important because these are the levels at which electricity plans are marketed in Texas. If an electricity provider can show that their plan is cheaper at 1000 kWh or 2000 kWh of monthly usage it creates a big advantage for them in attracting customers who are comparing rates.
Here is an example of a flat rate / tiered electricity plan
This plan is called the 12 Month Flat Tier 12 plan from Constellation Energy. As far as simplicity goes, this plan is very straight forward.
The plan charges customers a flat monthly rate of $99 for any amount of electricity up to 1000 kWh. If you exceed 1000 kWh in a billing cycle you are charged an additional $99 for an additional block of 1000 kWh. For anything above 2000 kWh the plan charges 11.5¢ per kWh.
TDU delivery charges which are usually passed through to customers are included in the $99 charge.
How do Tiered Plans Effect my electricity rate?
The main selling point for these types of plans is predictability on your electric bill. If you always use less than 1000 kWh, then you know your bill will always be $99 (excluding taxes or any other local fees). If you always use less than 2000 kWh, then you can count on a $198 electric bill every month.
But when it comes to determining your average electricity rate, this pricing structure creates an interesting dynamic. This chart shows what your average electricity rate will be dependent on how many kWh of electricity you use for the month.
Your first kWh of the month costs you $99 and every kWh after that costs nothing until you exceed 1000. This means your average electricity rate starts out very high then steadily declines as you approach 1000 kWh. But kWh 1001 will cost you another $99. After that, the process of declining electricity rates starts all over until you reach 2000 kWh. At that point your electricity rate is back down to the rate the plan is marketed at.
Is a Flat Rate / Tiered electricity plan right for me?
If you live in an apartment or use very little electricity, this particular plan would probably not be your best option. If you only use around 500 kWh of power, you would be paying $99 which would average out to 19.8¢ per kWh. If you shop around, you can probably find a better rate than that.
If your electricity usage is closer to 1000 and somewhat predictable you might consider a plan like this. Just remember that even 1 kWh of usage above 1000 and you will get an additional $99 tier charge added to your bill. That could end up being one expensive cell phone charge.