Reliant Energy’s Cap and Save versus Bounce Energy’s Smart Saver

December 13, 2010

Which One is the Real Way to Save?

Since its launch this past summer, Reliant Energy has been filling the media with its Cap and Save energy plan. Reliant says it’s a plan with the security of a term plan and lower rates if energy prices fall. While it seems like a good idea, on closer examination, Reliant’s Cap and Save Plan is cashing in on consumer caution rather than giving consumers the tools and information they can use to save on their energy bills.

The Plan:

Reliant’s Cap and Save Plan is an indexed energy plan with a 12 month contract term. That means instead of the price being set at a fixed rate for twelve months, the price is indexed to the commodity price of natural gas on the New York Mercantile Exchange (NYMEX). As anyone knows, natural gas is a volatile commodity and its price varies from hour to hour depending on a variety of market forces and world events such as trouble in the Persian Gulf, oil spills in the Gulf of Mexico, and the amount of natural gas in storage in Texas. Theoretically, a consumer could lose their shirt if natural gas prices spiked like they did in 2008. However, Reliant has included a cap on their plan. If the price of natural gas increases to about $4.50 per MMBtu (one million British Thermal Units), consumers will not pay more than the indexed energy charge of 8.9¢/kWh (9.0¢ on the 100% wind plan).

How does indexing work? Reliant’s indexing plan is set up to provide consumers with a percentage discount. Reliant determines the discount by taking the settled price of natural gas at NYMEX (Henry Hub) every 15th day of the month, subtracting that from their initial natural gas price when the plan was offered (currently set at $4.50) and then multiplying the result by .003 MMBTU/kWh (million BTUs per kilowatt hours). The result of this is the natural gas Discount Factor (NGDF). For example, on November 5, the NYMEX price was $3.93. The NGDF was .00171. This number was subtracted from the Indexed Energy Price and resulted in a discount price of $.08729/kWh. If your bill was for 1,000 kWh, your electric bill would be $89.00 excluding the NGDF. When you figure in the NGDF, the discounted bill is $87.29 or a savings of $1.71. Ok, that’s really, really modest at best but it’s still a discount. Right?

What Reliant has only lately been making clear to its Cap and Save Customers is that the 8.9¢/kWh price is actually the base price and that is the only price used to calculate the NGDF. The TDU charges, which everyone pays for every energy plan in Texas, can amount to nearly 30% of a bill. So while you are paying $89.00 as your base price, there’s another 4¢/kWh that you must add onto your rate. So, if your rate was 8.729¢ (which includes the NGDF) per kWh, the TDU charges will increase your rate to around 12.729¢ — which is nosing near 13¢/kWh.

This begs the obvious question: why are people willing to pay more than 12¢/kWh for a 12 month indexed plan when there are so many other plans, both fixed and variable, that are at a significantly lower rate and include the TDUcharges in their rate? As of November 10, there were 70 other 12 month fixed plans (including other plans offered by Reliant) listed on powertochoose.org priced less than 12¢/kWh.

According to recent comments exchanged at the Texas Electricity Ratings Blog, Stephen Morisseau with Reliant Energy stated “Customers told us they want the security of a rate that will not go up, and the benefit of lower rates if prices fall.” In spite of repeated questioning, Morisseau would not address the fact that Reliant’s NGDF was incapable of cranking out the discounts its consumers signed up for. In fact, even if natural gas sold only for 1¢/MMBTU, Reliant’s NGDF would only return a discount of 1.347¢ from the base 8.9¢ price. Add in the TDU charges and customers would still pay around 11.5¢/kWh.

What are Reliant’s Cap and Save customers thinking? The key is in what Morisseau said: security. Reliant’s pitch to consumers is that their rate will be securely capped against a rise in the commodity price of natural gas. It sounds good, but this approach creates a perception that consumers should be afraid that natural gas prices are on the rise.

However, if you look at the NGDF, it’s pretty obvious that as long as natural gas prices stay low, Reliant will make a lot of money off the Cap and Save plan. If the actual natural gas price ever goes over $4.50 (Reliant’s Initial Natural Gas Price), Reliant will lose money. So, Reliant is betting an awful lot of money that natural gas prices will not rise through 2011.

And according to the US Department of Energy Energy Information Agency (EIA), natural gas prices are not expected to rise.

EIA’s Short Term Energy Report in the last week of October published:

“Prices are expected to remain below $4 per MMBtu in October but rise to $4.68 per MMBtu by January as space-heating demand increases this winter. EIA has revised its projections for natural gas prices downward through 2011.”

And on Nov. 9, EIA stated:

“EIA has lowered the average 2011 Henry Hub price forecast from last month’s Outlook by $0.27 per MMBtu, to $4.31 per MMBtu, based on the upward revisions in the domestic production and inventory forecasts.”

In short, the 2011 forecast for Natural Gas prices is to undergo some seasonal fluctuation but should remain low overall. And take note of that revised average price: $4.31. Reliant’s Initial Natural Gas Price is $4.50.

Falling prices can’t be capped, Reliant’s Initial Natrual Gas Price and NGDF won’t let you save very much, and the price for this “security” is way higher than many, many other plans in the market including a few of Reliant’s.

Why shackle yourself to an expensive indexed plan that gives you “security” against high natural gas prices even though those prices are going to be low? Why keep paying for a 12-month plan with a high fixed base-price and a tiny discount that can’t compete with 70 other plans?

Instead, you can sign up for a variable plan that follows the effects of changing natural gas prices in the Texas electricity market and won’t increase your rate more than 10% from month to month. Bounce Energy’s Smart Saver plan is for consumers who want to lower their electricity rate with a month-to-month plan that allows them to take advantage of fallling rates and allows them to switch plans or providers without a termination fee. There’s no pricing voodoo or complex mathematics. It’s a simple deal. Right now, in the 77004 zip code area (Centerpoint), the Smart Saver’s introductory rate is just 10.8¢/kWh. There is no limit to how low your rate could go from month to month and it will never increase by more than 10%. With natural gas prices now forecasted to be low, there is a greater chance that your rates will decrease through 2011. Plus, there’s no commitment; you can switch to a Bounce Energy fixed rate plan where you can lock in a low rate if prices do go up.

So if you think you’re going to “Cap and Save” real money for the next 12 months with Reliant Energy, here’s a news flash: you won’t. Switch to Bounce Energy and start saving real money today.

Plus, customers who sign up with any Bounce Energy electricity plan are automatically enrolled in the Bounce Energy Rewards Program. Through the Rewards Program, customers receive exclusive gifts for paying your bill on-time. After paying on-time for 6 months, customers can choose to receive 2 movie tickets or a free companion airfare ticket. 12 months of on-time payments rewards customers with a $75 bill credit on their electricity bill. After 18 months of on-time payments, customers can choose between a $15 gift card to Starbucks or 2 movie tickets. Customers who pay on-time for 24 months will receive a free month of electricity. And after 30 months of payments, loyal customers are granted Platinum status where they will receive a 3% discount on all future bills when they pay their bills on-time.

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