Understanding your minimum usage fee

Retail electric providers (REPs) in Texas use a couple of different methods to charge consumers for energy use. The minimum usage fee is one method that some REPs choose to use in the electricity plans they offer. With a minimum usage fee, customers are charged for using less than a minimum amount of electricity per month. The goal is to promote the consumption of energy and increase your kWh usage on your electricity bill, while being penalized for using less. 

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 required (to avoid a minimum usage fee) is between 1000 - 2000 kWh per month, though some retailers will waive a minimum usage charge after 500 kWh consumed. Most providers tend to charge around $7 - $10 per billing cycle for minimum usage fees, though according to a 2013 survey of the Oncor service territory, the minimum usage fee 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.

Are minimum usage fees legal? 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".

Why do retail electric providers charge minimum usage fees?

Retail electric providers say that minimum usage fees allow them to recover the fixed costs relating to providing service to their customers (such as maintaining their customer service call center, or for printing and posting 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 costs are often fixed, and don't increase considerably with increased customer consumption, retail electric providers are usually 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 doesn't exist, some REPs charge a higher kWh rate when passing the 2000 kWh monthly mark. This tiered rate price must be documented in your plan's EFL.

With the average Texas household consumption at about 1,174 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 people), who live in smaller homes.

Average bill for a plan with a minimum usage fee

Let's look at some current plans promoted by REPs in the CenterPoint service area. When comparing energy plans, it´s important to note that your utility company does not set the minimum usage fee. The minimum usage fee is only set by your REP.

When comparing energy plans, the three most common usage levels are 500 kWh, 1000 kWh, and 2000 kWh. Naturally, the most marketed kWh usage mark for providers is right in the middle, at 1000 kWh. Providers, as businesses, design electricity plans in order to appear to have better rates at the 1000 kWh usage point. This is usually achieved by eliminating the minimum usage fee or issuing a usage credit when consuming more than 1000 kWh.

Below are plans that involve a minimum usage fee or higher usage credit system. The plans were selected based on their marketed rate at 1000 kWh: the lowest rate (6.2¢), a mid-range rate (9.8¢), and the highest rate (15.0¢) marketed plan.

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

Infuse Energy's Electricity Facts Label (EFL) shows a flat rate of 7.506¢/kWh (no base fee is charged) but, based on the number of kWhs used in a billing cycle (as opposed to "month"), the minimum usage fee / credit is added in usage rates (below).

(this includes CenterPoint's delivery charges of 4.23¢ /kWh & $4.39/mo)

Good for consumers that know and manage their energy usage Staying within 999kWh to 1,501kWh is the best electricity consumption range to get that $60 credit and avoid a minimum usage fee.

The worst case usage scenarios on the Infuse Energy minimum usage plan will result in the following charges:

• Consuming the highest "minimum" usage of 499 kWh with the minimum usage fee per billing cycle = $67.90 or 13.61¢ /kWh
• Avoiding a minimum fee (at 500 kWh) but not reaching the $60 bill credit: 500 kWh to 998 kWh = $63.07 to $121.51 (12.6¢ /kWh and 12.17¢ /kWh, respectively)
• Surpassing 2,002 kWh of electricity usage would put the bill total at $239.34 or 12¢ /kWh

Mid-marketed rate

YEP Energy's 9-month "Your Energy Plan Fixed Rate Autopay E-Plan" plan holds a 5.10¢ /kWh energy rate for any amount of usage but imposes a $9.95 fee for using less than 1000 kWh per month. CenterPoint's delivery charges of 4.23¢ /kWh & $4.39/mo need to be included as well to get the following total costs and rates:

Minimum usage fee and no higher use credit This plan has no promotional 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.

The worst-case usage scenario on YEP Energy's minimum usage plan:

• Using 999 kWh for the month = $107.55 or 10.8¢/kWh
• If you include the minimum usage fee, consuming 999 kWh costs the same as consuming 1,105.6 kWh (The $9.95 minimum usage fee is equivalent to consuming 106.6 kWh)
• Consuming one extra kWh (at 1000 kWh) reduces your bill by $9.86, to $97.69 per month (marketed rate of 9.8¢/kWh)

Highest marketed rate

TXU Energy's "Saver's Deal 12" is the highest-rated price of 15¢/kWh at 1,000 kWhs for a plan with minimum usage fees and/or credits. On the Electricity Facts Label (EFL), TXU's plan uses the rate-per-usage tier strategy AND an unavoidable base fee charge no matter how much energy is used.

Ideal for higher kWh consumer 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 not have to pay the rate) would total $121.59 or 10.1¢/kWh.

The worst case usage scenario on TXU Energy's minimum usage plan:

• Using less than 1201 kWh for the month, at 1200 kWh = $176.70 or 14.72¢ /kWh
• Using more than 2000 kWh for the month, at 2001 kWh = $295.08 or 14.75¢ /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.
• 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 REPs but not others. You can check out our estimation tool if you don't know how much you consume in a month.

Some providers offer special rates with no minimum usage fees or base rates; 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

Need financial assistance with paying utility bills?See what national and Texan Energy Assistance programs are available to help pay your electricity bill, the eligibility requirements, and how to apply!