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Does Changing Electricity Providers Save Money?

Aug 31, 2018

Most areas in the United States have deregulated electricity markets. Deregulation was put into place in order to encourage increased competition amongst electric companies. With more electricity suppliers entering markets, consumers, businesses, and municipalities are provided with more choice in their electric suppliers. Electric supply differs from electric delivery. While households and businesses may have dozens of choices in electric suppliers, they always remain with the same delivery service. The delivery service is the company that maintains the wires and other equipment that the electricity travels through. For example, Comed is a common electric delivery service in many areas. The price charged for electric delivery comes from a delivery service, such as Comed, while the cost of the electricity itself comes from the supplier, though these charges are generally included in one utility bill. Many consumers wonder if they can save money by changing electric suppliers. This depends on the rates being charged in the local area. Some areas have many choices, which makes a lower rate likely. Other areas may be under municipal aggregation agreements, where the entire municipality may be serviced by one supplier. The purpose of municipal aggregation is to get the best rate for the entire community, so a lower rate may be difficult to find.

Finding a New Electric Supplier

Locating new suppliers is a relatively easy process. Suppliers are required to provide a fact sheet about each plan. This sheet lists the electricity rate, as well as any terms. Some plans require a contract period. There are also choices between fixed-rate and variable-rate plans. Some suppliers also offer plans with a level payment each month of the year. These details can be located by visiting the webpage for your state's utility commission. They will have a section on electricity and a link to a page that lists electric suppliers in your area.

Though a fixed rate plan seems to offer more stability, one must remember that a fixed rate is not a level payment. A fixed rate simply means you will pay the same amount per kilowatt. Your bill will then vary according to how many kilowatts you use. On the other hand, a variable-rate plan adjusts the per-kilowatt charge each month according to market fluctuations.

The electric supplier determines the fixed-rate price on a yearly basis. It does this by estimating what the level cost is for the year. In essence, in months where the market rate exceeds the fixed rate, the electric supplier eats the difference. For the months that the market rate falls below the fixed rate, you eat the difference. Variable rates keep your cost at market rates at all times.

The best plan for you comes down to your seasonal usage. If you use a lot of electricity during months when it is expensive, a fixed-rate plan may help with keeping your bills more even; however, if you still tend to use a lot of electricity during months of the year when overall demand is low, you will overpay dearly during those months. The best procedure is to analyze whether, on a fixed-rate plan, you would overpay by so much during the off-peak months that you can't make up for it during the on-peak months.

Frequently Asked Questions

Q: If my municipality contracts with an electric supplier, can I still switch?

A: This depends on your state and local area. Some jurisdictions require you to remain with the municipality's supplier. In other areas, you have the right to opt out. Opting out can be accomplished through the process of switching. Once you decide to switch, your new electric supplier will handle to opt out notifications and make the switch for you.

Q: Are there penalties for switching providers?

A: Usually not. However, before switching, read the terms of the new plan carefully. Some require a minimum term and could charge a fee if you terminate before completing it.

Q: Do I need to cancel with my current provider in order to switch?

A: No. Once you inform the new provider that you want to switch, the new provider will notify the old supplier and delivery company. It works in a similar way to switching your cell phone and keeping your phone number.

Q: Who do I call if there is an outage?

A: Outage service is provided by the delivery company, not the supplier. Regardless of what supplier you choose, outage service will always be provided by the same delivery company that handles your area.

Q: Will electric service be affected by switching?

A: No. You will continue to receive delivery like normal. Service is affected by your delivery, not by the supplier. Any issues with service are related to the company that handles the electric wires and grid in your local area.

Q: Are there any electricity scams?

A: Cases of slamming and cramming have been reported. Slamming occurs when your electric service provider is changed without your permission. Cramming involves adding optional services to your bill without your permission. If an electric supplier won't resolve these issues, contact your state or local authorities.

Q: Are there other ways to save on electricity costs?

A: In addition to choosing the right plan, consider a programmable thermostat. These are especially helpful if you live in a very hot climate or a cold climate if you use electric heat. By programming the thermostat to lower the temperature while you are asleep and away from home, you can drastically reduce your usage during the seasons where electricity costs are highest.