Power to Choose is a a website published by the Public Utility Commission that publishes the various retail electricity providers advertised pricing. There is presently a review of the way that some companies that base their rates upon usage credits that lower the average rate per kWh based upon usage levels. Some of these plans allow the retail electricity provider quote rates at 1¢/kWh based upon lower electrical usage. Transmission and delivery charges may not even be covered by this lower rate.
When rates don’t even cover the transmission and delivery charges the rate being charged is a money loser for the retail energy provider when a customer is in the lower usage bands. Why would they offer this low rate?
In most cases they are offering a lower electrical usage rate to get your future business. The fact is that the Power to Choose website is a cheap way to advertise the service and when a prospective customer searches for the lowest rate the lower rates are first.
While we do not dispute a REP charging 1¢/kWh will not recover its T&D charges, a case can be made that it is still economic to make such offers to customers, and that REPs charging “real” rates of 5-6¢ routinely show why it would be economic to do so.
Lower Electrical Usage
In fact, 1¢/kWh power would be economic even without usage credits that limit the low rate’s applicability. If the 1¢ power was made available regardless of usage this rate applies.We come to this conclusion given the acquisition costs Texas REPs are willing to pay to enroll customers. The fact that the Power to Choose site is a zero-cost acquisition channel the costs are low.
Remember that this low rate is designed for lower electrical usage. Once the kilowatt usage is past the lower usage band the retail energy providers may charge a higher rate. Since the cost of acquiring a customer is anywhere from $100 to $400 by using the free Power to Choose website the cost of acquisition is significantly lower.
On a short term six month contract the Retail energy provider can endure the loss with the expectation that they will renew the customer with a better contract in the future.