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It’s a swindle because of the marketing of the plans and the exorbitantly high maximum rate caps. Every person who has knocked on my door to sell variable rate

by dangus 3y ago

It’s a swindle because of the marketing of the plans and the exorbitantly high maximum rate caps. Every person who has knocked on my door to sell variable rate plans emphasizes the upside of the deal: why pay more than the current rate? You’re wasting your money on paying for the fixed rate that’s mostly higher than the going rate. Like you said, most of the time you save a good amount of money. The salespeople and marketing pamphlets emphasize that. Do you really believe that the executives at these utilities are ignorant to the fact that most of their customers don’t fully understand the implications? I think they sell the plans specifically because customers don’t understand them. Worse for Texas, their system’s market pricing setup incentivizes power utilities to minimize their overhead capacity. The closer their supply is to demand, the higher the price they can get. But it leaves very little wiggle room for emergency situations (99% Invisible has a good episode about this). Therefore, their grid is more prone to spikes in variable rate pricing than other states. Like financial instruments such as options trading, financial games like this make sense for the wealthy who have a cushion of risk tolerance. I can make more money faster with options trading compared to an index fund! But for the median and below wage earner, sudden bill surprises shouldn’t be something that the government enables for basic necessities like utilities.

9659 3y ago
we agree on all the facts. i paid my $2,300.00 monthly electrical bill without complaint. (usual about $75) the upside and downside were understood.
- dangus 3y ago
  Great. I am sure that you can understand why you’re probably the exception in: 1. Fully understanding the potential of the downside. and 2. Being able to financially cover the downside. The median transaction account balance in America is $5,300, which includes money in the accounts for things like paying mortgage and rent. https://www.bankrate.com/banking/savings/savings-account-average-balance/ https://www.bankrate.com/banking/savings/savings-account-ave... So the median person signing up for that plan has to be ready to liquidate half their cash on an electric bill. If you’re below the median you’re even more screwed. And I'm sure to all this you'll say "I made an informed choice and I should have that choice," but I think that's a highly debatable concept that depends a lot on the details – one of those critical details is the maximum rate.
  - Dylan16807 3y ago
    But if we use the numbers above, that person is also saving $800 per year in a typical year. So even with the emergency liquidation, I'm not convinced they're worse off when we measure them across 5 or 10 years.
    - dangus 3y ago
      I can save a bunch of money on mortgage interest by buying a house in cash, too. But of course that option isn’t realistic for the vast majority of people. The piece of data I’m missing is how often a huge spike in costs like the one described happens. It’s unpredictable, it could happen any day for any reason. Like I’ve said a couple of times, I’m doubtful that most people with these variable plans sincerely knew that a spike that high was even possible. If you bought a variable rate mortgage to save money you wouldn’t expect it to ever be adjusted to 200% APR. And the truth of the matter is that a $2,000+ electric bill isn’t reflecting anything close to the actual cost of generating the electricity, just like paying $50 for a roll of toilet paper during the pandemic wouldn’t reflect the real cost of producing the item plus a reasonable profit margin. That’s another good analogy because everywhere else in our society, price gouging due to emergencies is illegal.
      - Dylan16807 3y ago
        > But of course that option isn’t realistic for the vast majority of people. Your own numbers had it as doable but unpleasant. Should I not use those? > I’m doubtful that most people with these variable plans sincerely knew that a spike that high was even possible. That's a problem but it's a separate issue from whether they're better off financially. > If you bought a variable rate mortgage to save money you wouldn’t expect it to ever be adjusted to 200% APR. That would be pretty surprising, yeah, but if it was only affecting the payment for one month then it could still be a better deal overall. > And the truth of the matter is that a $2,000+ electric bill isn’t reflecting anything close to the actual cost of generating the electricity, just like paying $50 for a roll of toilet paper during the pandemic wouldn’t reflect the real cost of producing the item plus a reasonable profit margin. That's not true at all. It's not gouging. The underlying principle of the Texas grid is that power plants that are almost never used get 0 dollars for months or years on end, and then they make all their money in a short window. The reason wholesale prices are allowed to go that high is to encourage those power plants to exist, because otherwise those power plants would not be built. That huge price is paying for years of maintenance and deprecation.

by dangus 3y ago

9659 3y ago

we agree on all the facts. i paid my $2,300.00 monthly electrical bill without complaint. (usual about $75) the upside and downside were understood.

dangus 3y ago
Great. I am sure that you can understand why you’re probably the exception in: 1. Fully understanding the potential of the downside. and 2. Being able to financially cover the downside. The median transaction account balance in America is $5,300, which includes money in the accounts for things like paying mortgage and rent. https://www.bankrate.com/banking/savings/savings-account-average-balance/ https://www.bankrate.com/banking/savings/savings-account-ave... So the median person signing up for that plan has to be ready to liquidate half their cash on an electric bill. If you’re below the median you’re even more screwed. And I'm sure to all this you'll say "I made an informed choice and I should have that choice," but I think that's a highly debatable concept that depends a lot on the details – one of those critical details is the maximum rate.
- Dylan16807 3y ago
  But if we use the numbers above, that person is also saving $800 per year in a typical year. So even with the emergency liquidation, I'm not convinced they're worse off when we measure them across 5 or 10 years.
  - dangus 3y ago
    I can save a bunch of money on mortgage interest by buying a house in cash, too. But of course that option isn’t realistic for the vast majority of people. The piece of data I’m missing is how often a huge spike in costs like the one described happens. It’s unpredictable, it could happen any day for any reason. Like I’ve said a couple of times, I’m doubtful that most people with these variable plans sincerely knew that a spike that high was even possible. If you bought a variable rate mortgage to save money you wouldn’t expect it to ever be adjusted to 200% APR. And the truth of the matter is that a $2,000+ electric bill isn’t reflecting anything close to the actual cost of generating the electricity, just like paying $50 for a roll of toilet paper during the pandemic wouldn’t reflect the real cost of producing the item plus a reasonable profit margin. That’s another good analogy because everywhere else in our society, price gouging due to emergencies is illegal.
    - Dylan16807 3y ago
      > But of course that option isn’t realistic for the vast majority of people. Your own numbers had it as doable but unpleasant. Should I not use those? > I’m doubtful that most people with these variable plans sincerely knew that a spike that high was even possible. That's a problem but it's a separate issue from whether they're better off financially. > If you bought a variable rate mortgage to save money you wouldn’t expect it to ever be adjusted to 200% APR. That would be pretty surprising, yeah, but if it was only affecting the payment for one month then it could still be a better deal overall. > And the truth of the matter is that a $2,000+ electric bill isn’t reflecting anything close to the actual cost of generating the electricity, just like paying $50 for a roll of toilet paper during the pandemic wouldn’t reflect the real cost of producing the item plus a reasonable profit margin. That's not true at all. It's not gouging. The underlying principle of the Texas grid is that power plants that are almost never used get 0 dollars for months or years on end, and then they make all their money in a short window. The reason wholesale prices are allowed to go that high is to encourage those power plants to exist, because otherwise those power plants would not be built. That huge price is paying for years of maintenance and deprecation.