Beware of... a Minimum Usage Fee?!
The Minimum Usage Fee for Electricity in Texas
What is a minimum usage fee and how can it affect your bill?
Find out everything you need to know about minimum usage fees on your electricity bill in Texas
What Is a Minimum Usage Fee?
A minimum usage fee is a surcharge or rate spike that applies to customers who consume less than a certain amount of kWh per month. This charge has become increasingly popular among retail electric providers in recent years; as a Houston Chronicle investigation revealed in 2015, 70% of electric plans in the Houston area contain provisions that penalize customers with low monthly consumption.
With most REP plans, the typical monthly usage range required (to avoid a minimum usage fee) is between 1000 - 2000 kWh per month, though some retailers will waive a minimum usage charges after 500 kWh consumed. Most providers tend to charge around $7 - $10 for minimum usage fees, though according to a 2013 survey of the Oncor service territory, the fee charged can be as high as $20.
Did You Know? Many retailers that don't charge minimum usage fees provide usage credits to customers who consume over a certain threshold of kWh in a month, which essentially achieves the same result of penalizing small power consumers.
Some retail electric providers don't charge a minimum usage fee, but charge a monthly base charge that may be reduced or waived when customers consume over a certain amount of kWh in a month. While this isn't labelled a minimum usage fee, it works in the exact same way.
Minimum usage fees do not violate any rules set by the Public Utilities Commission, but they must be clearly indicated in the Electricity Facts Label. In 2015, Rep. Sylvester Turner proposed a bill (HB 2254) to discourage this practice of charging minimum usage fees by requiring more reporting by the PUC on the details of minimum usage fees and usage credits. Unfortunately, this bill has since been "Left pending in committee" and is considered "dead".
Why Do Retail Electric Providers Charge Them?
Retail electric providers say that minimum usage fees allow them to recover the fixed costs relating to providing service to their customers (such as maintainning their customer service call center, or for printing and posting of paper bills). Some also say that minimum usage fees allow them to recover some of the risk associated with offering fixed rates (such as the risk associated with buying too much or too little power for their customer base, or of having to swallow the costs if electricity prices rise above the fixed rates paid by their consumers).
As these kinds of costs are fixed and don't increase considerably with increased customer consumption, retail electric providers are able to cover their costs with higher-consuming customers, which enables them to avoid paying the minimum usage fee.
Do You Have to Pay a Minimum Usage Fee?
In short, you have the choice! For larger electricity consumers (i.e. 2000 kWh per month or more), minimum usage fees are something you'll more than likely not need to worry about, as most REPs require 1000 kWh - 2000 kWh per month. Although a Maximum Usage Fee doesnt exist, some REPs charge a higher kWh rate when passing the 2000 kWh monthly mark. This tiered rate price must be documented in you plan's EFL.
With the average Texas household consumption at about 2000 kWh per month, most families will not have to worry about paying a minimum usage fee for their electricity. Minimum usage fees are more of a concern for smaller households (i.e. 1 - 2 persons), who live in smaller homes.
Average Bill on a Minimum Usage Fee Plan
Let's check out some current plans pulled from REPs within the CenterPoint service area. It´s important to note that utility companies do not issue any type of minimum usage fee to pass through providers on to consumers.
To decide which REPs and plans to use, we have first considered the pricepoint for the most marketed kWh mark, 1000 kWh. An interesting observation is that the Minimum Usage Fee was not present in plans with a 1000 kWh price between 9.2¢/kWh and 9.7¢/kWh - which can be considered a safe "middle ground" should you want to avoid this type of fee altogether.
Lowest Marketed Rate for 1,000 kWh
Apart from Infuse Energy's eye-catching, low rate of 6.2¢/kWh it's difficult not to be distracted by the rates at the 500 and 2000 kWh marks: 12.6¢/kWh and 10.5¢/kWh, respectively. We can get a better idea on how to play the pricing game with Infuse by sneaking a peek at the Electricity Facts Label (EFL).
The Infuse Energy charge would be a flat rate of 7.506¢/kWh (no base fee is charged)BUT, based on the final total of kWhs for a billing cycle (as opposed to "month"), one of three monetary impacts may be relfected on the bill:
- Less than 500 kWh = a $4.95 charge
- 500 to 999 kWh = pay the rate for use, no charge / credit
- 999 to 1,501 kWh = a $60.00 credit on bill
- 1,500 to 2,001 kWh = a $30.00 credit on bill
Taking into consideration the average Texan uses 1,174 kWhs in a typical month, residents would see the advantageous $60 credit to their bill. Within a CenterPoint service area (and excluding taxes) this would come to $82.17 and includes the standard TDU (CenterPoint) delivery charges (4.23¢/kWh & $4.39/mo)- averaging the rated kWh price at 1,174 kWh to 7¢/kWh.
Buyer beware: Falling outside of this $60-credit range of 999kWh to 1,501kWh could be less than ideal. Pre-tax, worst case scenarios of:
- landing the Minimum Usage Fee at 499 kWh per billing cycle = $67.90
- Clearing the Minimum Fee (500 kWh) but not reaching the credit worthy usage (999 kWh): 500 kWh = $63.07 and 998 kWh = $121.51
- or a high 2,002 kWh would put the bill total at $239.34
Mid-Marketed Rate for 1,000 kWh
In the exact middle of plans and the first after the minimum fee-less range (9.2¢ to 9.7¢ per kWh), we find that YEP Energy markets their "9 Month Fixed Rate Autopay E-Plan" with a 1,000 kWh rate of 9.8¢/kWh and a Minimum Usage Fee note. At a glance, with 12.2¢/kWh at 500 kWh and 9.6¢/kWh at 2,000 kWh, the damage from its Minimum Usage Fee can be seen.
Diving into the Electricity Facts Label (EFL), YEP Energy boasts their own fixed energy price of 5.10¢/kWh (and safely note that the utility's charges are not included). The higher rate imposed is due to YEP's $9.95 Minimum Usage Fee if less than 1,000 kWhs are used per billing cycle. The fact that no credits are issued at certain rate marks makes the picture a bit easier to see:
- 0 kWh to 999.9 kWh per billing cycle = pay the rate for use plus the $9.95 Minimum Usage Fee charge
- 1,000 kWh and higher = pay the rate of use with fee from YEP
Using the Texan average of 1,174 kWhs for a typical month, customers would clear the Minimum Usage Fee hurdle by 174 kWh ... a pretty close call. Putting the CenterPoint charges (4.23¢/kWh & $4.39/mo) together with YEP´s plan- the average bill would come to $113.92 or 9.7¢/kWh.
Buyer beware: This plan has no perky credits for hitting higher usage milestones so the more you use, the more you'll pay. The optimal usage place to be would be at that 1,000 kWh/ billing cycle mark when your total would be released from the $9.95 fee.
Needless to say, the most expensive rate you would want to avoid is just before the 1,000 kWh line since coming in at 999 kWhs would put you at a rate of 10.8¢/kWh an set you back $107.55 (the same amount as using 1,105.6 kWhs). One kWh more (at 1000 kWh) brings the bill back $9.86 to $97.69 (marketed rate of 9.8¢/kWh).
Highest Marketed Rate for 1,000 kWh
TXU Energy's "Saver's Deal 12" takes the spotlight for highest rate price of 15¢/kWh at 1,000 kWhs on a plan implementing Minimum Usage Fees or Credits.The 500 kWh and 2000 kWh marks reveal some insight before going into the Electricity Facts Label (EFL).
At 16.4¢/kWh and 10.9¢/kWh, respectively, and understanding TXU's seemingly standard base fee of $9.95 on plans, this appears to be more of an clear-the-base-fee minimum usage mark type of plan more than one that issues credits.
On the EFL, it turns out that TXU's plan plays the rate-per-usage tier game along with an unavoidable base fee charge no matter how much energy is used.
- Base Fee: $9.95/mo.
- 0 to 1,200 kWh = 9.3¢/kWh
- 1,201 to 2,000 kWh = 4.7¢/kWh
- over 2,000 kWh = 9.8¢/kWh
Calculating our average Texan electricity bill -with 1,174 kWhs in a typical month- within a CenterPoint service area (excluding taxes) our eyes would water at the $173.18 total which implies a 14.8¢/kWh rate. (Note: CenterPoint's mandatory TDU delivery fees are not included in the usage rates above.)
Buyer beware: This plan is designed for a relatively narrow user: the 1,200 kWh per month energy users (and notably just slightly over the Texan average). Hitting the "Saver´s Deal 12" ideal 1,201 kWh mark to escape the Minimum Usage Fee (in the form of a higher rate) would total $121.59 translating into 10.1¢/kWh.
How Can You Avoid Paying Minimum Usage Fees?
There are a couple of things you can do to avoid paying a minimum usage fee:
- Do your research: the most important thing you can do to avoid paying minimum usage fees is to find out which contracts and which suppliers include minimum usage fees. While many retail electric providers charge minimum usage fees, not all of them do. Some REPs offer special rates with no minimum usage fees or base rates included; others charge lower minimum usage fees and/or will waive the fee at a lower threshold. You can find the minimum usage fee charges in the EFL. Make sure to look out for any base charges or usage credits, as these can often be constructed to work in the same way as a minimum usage fee
- Find out how much you consume per month: if you don't find a minimum usage fee-free contract that appeals to you, it is important to know how much you consume in a month. The minimum usage required before the fee is waived varies by REP, so you may be able to avoid minimum usage fees charged by some REP but not others. You can check out our estimation tool if you don't know how much you consume in a month.