Direct Energy and Other Energy Plans
Are Direct Energy and the rest of these programs a good deal? A simple answer: No.
Ideally I would like to end this here and just have everyone believe me, but I doubt that will happen so I will attempt to go more in-depth as to why this isn’t a good idea.
The very concept should cause you to speculate whether or not this is a good idea. As resellers of services, these companies purchase a particular service from the main supplier at a discount and resell it to their customers (potentially you) for some profit. The sales pitch from these companies is that they will lock in your rate at a fixed price for the next 5 years.
The first question that springs to mind is, How do they make money? It seems obvious that if they were giving you a good deal then they wouldn’t be making money.
So here is where it gets interesting: they claim that 100% increases in the price of natural gas will occur over the course of the 5 next years. I have spoken to many people who have not seen such drastic increases over the years (but that is neither here nor there) and for the purposes of this article we will take their claims at face value. The real issue is that the rates that they offer are roughly 50% more than the current rates, and this figure works out in their favour over the 5-year term. I will use the example that I recently had proposed to me as an example.
I currently pay $0.26 (per cubic meter, from now on when speaking of prices you should assume that it is calculated in cubic meters) and they were offering me $0.39. Right off the bat alarm bells went off.
You must understand that rates don’t go up linearly, they go exponentially. Translated: prices do not go up a fixed rate. A 100% increase over 5 years would mean that the price would go up by $0.26 over that period, or $0.052 per year. Unfortunately it will not go up linearly or $0.05 per year. It will go up exponentially. The gas companies raise their rates 4 times a year, and 16 times over the termof your contract with Direct Energy. Of course during the first quarter of the year you are at your existing rate, so for periods 0 (the one you are in) to 15 (the last time that a rate increase affects you) the rates would go as such:
| Period | Rate |
|---|---|
| 0 | $0.26/m3 |
| 1 | $0.27/m3 |
| 2 | $0.28/m3 |
| 3 | $0.29/m3 |
| 4 | $0.30/m3 |
| 5 | $0.31/m3 |
| 6 | $0.32/m3 |
| 7 | $0.34/m3 |
| 8 | $0.36/m3 |
| 9 | $0.38/m3 |
| 10 | $0.40/m3 |
| 11 | $0.42/m3 |
| 12 | $0.44/m3 |
| 13 | $0.46/m3 |
| 14 | $0.48/m3 |
| 15 | $0.50/m3 |
Period 16 (the 5 year mark) is when the rate hits $0.52/m3 and effectively doubles. Of course by that points your contract is over so that does not affect you. Notice now that it is not until period 10 -more than halfway through- that the rate turns in your favour. Now to take this a bit further. Lets see what happens if you use 1000 m3 of gas in each of these periods, and how much it would cost you over the term. The amounts listed are totals.
| Period | Total With No Guaranteed Plan | Total With Direct Energy |
|---|---|---|
| 0 | $260 | $390 |
| 1 | $530 | $780 |
| 2 | $810 | $1170 |
| 3 | $1100 | $1560 |
| 4 | $1400 | $1950 |
| 5 | $1710 | $2340 |
| 6 | $2030 | $2730 |
| 7 | $2370 | $3120 |
| 8 | $2730 | $3510 |
| 9 | $3110 | $3900 |
| 10 | $3510 | $4290 |
| 11 | $3930 | $4680 |
| 12 | $4370 | $5070 |
| 13 | $4830 | $5460 |
| 14 | $5310 | $5850 |
| 15 | $5810 | $6240 |
As you can see that over the course of 5 years - 60 months or 15 quarters, however you would like to look at it - you would pay $430 more with Direct Energy. This makes the assumption that you do not keep your money and invest it to attain some sort of return in the first 2/3s of your contract.
In short, these companies are not doing you any favours by ‘locking in’ your rate. You are much better off to simply keep the extra money, invest it wisely and be confident that things are in your favour. The only real advantage to these programs is that your budgeted amount never changes . . . that is until your plan runs out and you are looking at a huge increase.
Beyond being locked in for 5 years, you are automatically renewed if you forget to opt out. There have been numerous bad experiences with these guaranteed rate plans, so just refuse.
(3 votes, average: 5 out of 5)
Loading ...Tags: Direct Energy, Direct Energy Complaints, Direct Energy Regulated Services, Direct Energy Scam, Electricity Plans, Energy Plans, Natural Gas Plans
May 5th, 2008 at 11:47 am
It really depends on how much the rate fluctuates when you’re not locked into any kind of plan. That’s where they try to get you - by saying that the rate is predicted to go to a certain price when that may not be the case. I personally don’t like to get locked into a rate that is higher than what I’m paying without a plan, but I may end up paying more in the long run, I may not.
August 31st, 2008 at 8:17 am
Direct Energy was already fined for fraud in Ontario, Canada in 2004.
The new twist in their list of frauds, besides forging customer signature, is aimed at seniors and/or immigrants. When you do not sign a contract, after 6-9 months, you get a Remittance for Cancellation of Electricity or Gas Contract with a penalty attached because “You had an existing agreement with another marketer.” Even if you did not sign a contract and of course you have a contract with a distributor, Direct Energy enrolls you in their Protection Plan without your consent.
I did the following: 1) filed a complaint with BBB asking a written apology (giving a benefit of doubt), but Direct Energy did not take the opportunity; 2) filed a complaint with Ontario Board of Energy (similar Authority is in any State or Province); 3) reported the fraud to the Police Fraud Task in my city; 4) informed all my friends about the danger and troubles coming from Direct Energy. We have to inform all friends, neighbours, colleags about this kind of practices and take Direct Energy down!