Fun with Math: Electric Bill Minimum Usage Fees

I don’t know how this works in the rest of the country…or world for that matter, but in Texas, we have the ability to get our electricity from dozens of providers offering hundreds of different plans. Your price will generally vary depending on the term of your contract, how much renewable energy you want ect…. Although prices are always changing…primarily drivem by the price of natural gas, I have seen prices from ~12.5 cents per kwh fixed for 5 years down to as low as 5 cents for a 3 month contract…or even lower for teaser month to month rates.

Last April, with my contract coming due, I started looking around, ultimately signing a one year contract at 8.5c per kwh….but with a $20 charge for anything under 1000kwh. This was a rather new development….I had seen minimum usage fees before, but they had been set much lower…at 500kwh and only $10.

Living in Houston, the AC generally runs from April to November….pretty much ensuring that I never have to “worry” about going under 1000kwh during those periods. However, looking at my historical usage for Dec-March it varies from 500 to 900kwh, the average usage is about 750kwh. Who cares right….my marginal cost for a kwh is still 8.5c right?

Well, penciling it out, the cost for 765 kwh adds up to about $85….including the $20 fee….the same as using 1000 kwh. so…if in a given month, it looks like I am going to hit 765, essentially I can get my next 235 kwh for free….if only I have a way to use them….and I can ensure that I can actually get to 1000. 1000 kwh may cost $85, but 999 kwh costs about $105.

So…what to do? My heating system uses natural gas, which generally speaking is cheaper than electric heat…but it’s not cheaper than free. Luckily, I have a couple of portable fan heaters rated at 1500 watts….so at full blast for 24 hours, they can “burn” 36kwh in a day each. They aren’t enough to keep the house warm when a polar vortex dips into south Texas, but they certainly reduce the load…and thus the amount of natural gas you need to use.

Now, clearly I lack the expertise to compare the efficiency of electric to natural gas. However, while it’s pretty much a slam dunk to bridge the gap between 765 and 1000 by using what is essentially free electricity (to me)…it occurs to me, it may even make sense at say…500kwh. Penciling it out…say I was going to use only 500kwh for a cost of  $62.50. My marginal cost to get from 500 to 1000 is only $22.50, or 4.5cents per kwh. At 600 kwh, that marginal cost is only 3.5cents per kwh. Is that cheaper than heating with natural gas?? Natural gas at $5 per mcf is pretty cheap, but it’s probably closer to $10 delivered. According to the intertubes, one kwh has about 3400 of btu’s…one mcf has about 1 million….giving me a ratio of about 300/1…and using that $10 per mcf….I hit break even at 3.3cents per kwh….of course assuming 100% efficiency from my gas heating. If that is true, then it makes sense to replace gas heat with electric heat starting right around a baseline usage of 600kwh.

This is all just food for thought. At the end of the day, odds are….it’s not worth the potential $20 savings when you factor in what a pain in the ass and risk space heaters can be….not to mention the time of penciling out your own numbers. Then…monitoring everything and making sure you don’t go over 1000 by too much….or under….in which case instead of screwing over the man….he’ll have pulled one over on you.

I guess the point of all this is that minimum usage fees encourage the use of electricity in certain usage bands… and perhaps the wasting of electricity. Since the electric grid in Texas is pushed to the brink of failure every time it gets below freezing in Houston…maybe they ought to think about prohibiting fee structures that incentivize people to crank up their space heaters at exactly the time the grid is least able to handle it.