What’s the Difference between Average Rate and Fixed Rate?

By Adam P. Newton, September 17, 2012, FAQs

Bounce Energy proudly offers a rather diverse set of fixed-rate plan options. We feel that one of the easiest ways for you to monitor your electricity usage each month is to lock in a specific fixed electricity rate for each kilowatt-hour (kWh) used at your home or business.

However, one of the most frequently asked questions heard by our Customer Service Representatives is, “What’s the difference between average rate and fixed rate?” It’s an understandable question since the rates advertised for any of our plans is an average rate based on 2,000 kWh of usage. We also provide you the average rate you pay per kWh on Page 2 of your Bounce Energy electricity bill. For people asking about starting service with Bounce, the follow-up question is typically “What is my rate if I don’t use 2,000 kWh in a billing cycle?” But active customers wonder, “What is an average rate? I thought I was on a fixed-rate plan with you!”

This is a reasonable concern, and we want to help you understand your bill and ensure that you are being charged a fixed energy rate per kWh. Our Customer Service Representatives typically reply that the average rate is based on how many kWh you use in a billing cycle. While this is quite true, it can give off the impression that a fixed-rate plan isn’t necessarily fixed – this is the impression we want to correct with this post.

The short answer is this: if you are on a fixed-rate plan, Bounce will charge you a fixed energy rate per kWh for the entirety of that contract term, while the average rate is the rate you pay per kWh when including the Base Charge and TDU Fees into the calculations.

The long answer? For starters, the energy rate is the price per kWh Bounce will charge you for your usage – if you’re on a fixed-rate plan, that energy rate will remain the same for the length of your contract term, but if you’re on a variable-rate plan, that energy rate will change, depending upon energy market demand at the time your bill is generated. For the detailed answer, it’s best to illustrate this explanation with a specific example, and it’s going to include a little bit of math (but not too much, so don’t worry).

On Wednesday, September 12, 2012, I entered a Houston, TX address at our plans page and learned that the Terrific 12 plan currently is 9.8 cents per kWh in that area. But in order to learn what energy rate I’ll really be paying and what other fees I might be charged, I have to look at the Electricity Facts Label (EFL) for that plan. That document is found here: http://www.bounceenergy.com/efls/terrific12-090612.pdf.

According to the top chart on that EFL, if I used 2,000 kWh in a billing cycle, my average rate will be that 9.8 cents per kWh, but I typically use 800 kWh in an average billing cycle. Thus, I’m going to look at the second chart on the EFL, located in the middle of the page. It’s there that I see rates for all 5 Transmission and Distribution Service Providers (TDSPs, also known as your utility company) for the following: Energy Charge (per kWh), TDU Delivery Charge (per month), and TDU Delivery Charge (per kWh). Houston is in the CenterPoint (CNP) service area, so if I enrolled in the Terrific 12 plan on 09/12/2012, I would get charged 5.7702 cents per kWh by Bounce, a flat monthly delivery charge of $9.54 by CenterPoint, and 3.5766 cents per kWh by CenterPoint. Bounce will also be charging me a $6.95 Base Charge for not using over 1,000 kWh in a billing cycle.

Based on my 800 kWh of usage and that rate and fee information, here is my bill estimate:

  • 800 kWh * 5.7702 cents per kWh to Bounce = $46.16
  • $6.95 Base Charge to Bounce
  • $9.54 flat monthly delivery charge to CenterPoint
  • 800 kWh * 3.5766 cents per kWh to CenterPoint = $28.61
  • $46.16 + $6.95 + $9.54 + $28.61 = $91.26
  • To learn my average rate per kWh, I divide $91.26 by my 800 kWh of usage, which equals 11.41 cents per kWh.

Sure, that average rate of 11.41 cents per kWh is higher than the 9.7 cents per kWh that was advertised, but I also didn’t use 2,000 kWh of electricity. However, regardless of whether I use 100 kWh or 10,000 kWh in a billing cycle, Bounce will always charge me a fixed energy rate of 5.7278 cents per kWh. The average rate will always fluctuate on my bill since I will rarely use the exact same number of kWh in each billing cycle, but the fixed energy rate that Bounce will charge me for my kWh usage will not change.

Why does Bounce show the average rate based upon 2,000 kWh of usage rather than the actual rate? Fair question, but please be aware that most electricity companies display an average rate when advertising their prices – it’s just that most of them base that average upon 1,000 kWh or 2,000 kWh of usage and then display their TDU Fees in various fashions. Bounce advises customers that the monthly TDU Delivery Fees are bundled into the average rate we advertise, but they will be unbundled on the actual bill.

Thus, our customers on a fixed-rate plan have nothing to fear – you are certainly being charged a fixed energy rate for the kWh you are using. When in doubt, you can view the EFL for the plan of your choice to view the breakdown of rates and fees assessed by Bounce Energy and your TDSP in more detail. And as always, please feel free to call Customer Service at 1-888-452-6862 to speak with a representative for more clarification of the charges and fees you see on your bill.

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