Gaming the rankings on the Texas Power to Choose website: TPUC’s simple solution

The Texas Public Utility Commission has implemented a fix to the “gaming the rankings” problem. The fix itself can be gamed a bit – is already being gamed a bit – but the offers gaming the fix are less misleading than before. It is an improvement.

Here is what is going on:

Creative retail electric suppliers in the competitive retail electric power market in Texas crafted some of their retail supply offers to appear at the top of the search results on the Public Utility Commission’s customer choice website Power to Choose. By default the website ranks results by average price for a customer consuming exactly 1,000 kWh/month, so some retail suppliers designed offers with credits kicking in exactly at that level. As of early June 2015 the top offer was an amazing 1¢/kWh offer (amazing because the average retail power price in Texas is over 10¢/kWh).

The rates were misleading because consumers using a bit less or a bit more power could end up paying a much higher rate. For example, a supply offer showing up at 1¢/kWh on the state website could actually cost a consumer 9¢ or 10¢/kWh. See my previous discussion of the problem from a few weeks ago and last year for more background and the analysis showing how a 1¢/kWh offer could cost consumers more than 11¢/kWh.

The state has changed the website behavior. A few weeks ago Texas utility commissioners once again complained about the practice, like they had a few months back, but this time the Commission implemented a fix. While a 1¢/kWh offer is currently still available on the Power to Choose website, it no longer appears in the top spot by default. The state has added an option to search for rates with or without minimum usage fees and credits and the website defaults to the “without” option.

Now the top offer in a default search for residential rates in downtown Houston (zip code 77002) is 6.1¢/kWh, not 1¢/kWh. To find the 1¢/kWh offer requires clicking the “Show all plans” button and refreshing the results.

It is a simple fix, and it too can be gamed. The 6.1¢/kWh is designed to average out at that price only for consumers using exactly 1,000 kWh of energy during a month. Consumers using more or less than exactly 1,000 kWh will pay a higher average rate, but as shown below not dramatically different rates except at much higher levels of consumption. Without large credits that kick in over narrow ranges of consumption, retail suppliers compete for the top spot mostly by offering low rates for consumers using up to 1,000 kWh in a month.

For comparison, here are the average rates actually faced by a consumer under the “6.1¢” rate at levels of consumption just one kWh different from the three estimated average rates reported on the website (for consumption of exactly 500 kwh, 1000 kwh, and 2000 kwh). You will notice that unlike the sharp jumps up and down in rates for the 1¢/kWh offer shown in Table 1 of the earlier post, the average here drops slowly toward 6.11¢ as consumption approaches 1,000 kWh and then steadily marches up.

Table 1: Calculated average rates at various levels of monthly consumption

Monthly usage 499 kWh 500 kWh 501 kWh
Average rate per kWh  7.36¢ 7.36¢  7.35¢
Monthly usage 999 kWh 1000 kWh 1001 kWh
Average rate per kwh 6.11¢ 6.11¢ 6.12¢
Monthly usage 1999 kWh 2000 kWh 2001 kWh
Average rate per kwh 10.16¢ 10.16¢ 10.16¢
Note: Calculations by the author based on the information described above.

Another way to judge whether the big bold 6.1¢/kWh is misleading is to consider estimated monthly bills over a year for a customer who averages 1,000 kWh in monthly consumption with relatively normal seasonal variation. (These calculations, too, can be compared to similar calculations for the 1¢ rate discussed in the earlier post.)

Table 2: Estimated bills and average prices by month for a “6.1¢/kWh” rate

Month Consumption Estimated Bill Average price
January    600  $41.18  6.9 ¢/kwh
February    600  $41.68  6.9 ¢/kwh
March    500  $36.31  7.3 ¢/kwh
April    500  $36.31  7.3 ¢/kwh
May    900  $55.79  6.2 ¢/kwh
June  1,500 $131.70  8.8 ¢/kwh
July  1,800 $174.33  9.7 ¢/kwh
August  2,100 $216.96 10.3 ¢/kwh
September  1,700 $160.12  9.4 ¢/kwh
October    700  $46.05  6.6 ¢/kwh
November    500  $36.31  7.3 ¢/kwh
December    600  $41.18  6.9 ¢/kwh
Totals  12,000 $1,169.04  8.5 ¢/kWh avg.
Note: Calculations by the author based on the information described above.

Averaging out to 8.5¢/kWh suggests an overall fairly reasonable offer when compared with the average rates paid by residential Texas electric consumers. The “6.1¢” may be a little misleading, but it is much less misleading that the “1¢” offer (yielding a 9.7¢/kWh average using the Table 2 method) that landed the top spot on the state’s Power to Choose website before the fix.