Could you be paying too much for electricity?
Shopping for the Lowest Electric Rates
by Lynn Bulmahn
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How would you like to shop the rate that you pay for electricity? No longer do you pay whatever the electric company wants to charge you. Now, at least in some states, you can shop around and choose which company you want to supply your electricity based on their rates and service.
In 16 states and Washington, D.C., electric providers compete at the retail level, according to a paper written by Dr. Philip R. O'Connor for the COMPETE Coalition, which advocates consumer choice.
His report, "Customer Choice in Consumer Markets: From Novel to Normal" says more than 13 million residential customers have been getting their electricity from companies that are in competition with other retail providers. By late 2011, nearly one out of every five kilowatt hours of electricity in the United States was being supplied by retail electric providers chosen by consumers.
Areas allowing competition include Connecticut, Delaware, the District of Columbia, Illinois, Maine, Maryland, Massachusetts, New Hampshire, New Jersey, New York, Ohio, Pennsylvania, Rhode Island and Texas. Some other states are considering it, as well.
This situation is similar to when the "Ma Bell" telephone monopoly was broken up, and customers could get landline long distance service from numerous providers. In areas where electric competition is allowed, instead of one electric utility per area, there are numerous "retail" providers of electricity. Customers choose their electric company. Marketplace competition causes prices to fall!
I've purchased my electric service from competing retailers since moving to Texas in 2006, and I've seen big savings. When I moved here, my apartment manager recommended I sign up with a newer company. I did, and I was so glad I did!
That summer, my next door neighbor moved out. We lived in identical townhouses. She told me she couldn't afford her electric bill; it was double mine. She'd gone with the company that once was the solo act in town.
The electricity is the same. It comes to my house via the electrical generating company, which is different from the retail provider. The generating company oversees the transmission of electricity from generating plant to my house via the electric power lines. But, I get to choose which retail provider I pay for that power. In a free marketplace, there are sometimes drastic differences between retail providers' prices.
Shopping for electrical service is not unlike shopping for any other major purchase. Different plans have different features. For instance, do you want all your electricity to be generated from renewable sources, such as solar or wind power? That may cost a tad more, but it's great for the environment.
What about service? Do you need to call your retail provider about bills during weekends or evenings? Some companies only are open 8 to 5 weekdays. (However, in case of a power outage, you call the electrical generating company's 24-hour hotline.)
With retail electricity, you can go "month to month," or you can sign up for a certain term of service like six months, one year, two years, etc.
As with any contract, read the fine print. Many providers charge early termination penalties that can be as much as $150 to $200. Some require deposits. If your power usage goes too low, they may tack on a basic fee.
I've found switching providers very profitable. Rates fluctuate, so a new provider may be cheaper. One company's customer service rep told me that their rates change about every two weeks. Indeed, O'Connor's report says competitive retail electricity allows consumers to quickly benefit from lower wholesale prices.
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How can you find out about retail choices, if any, where you live? National Association of Regulatory Utility Commissioners has a list of public utility regulatory commissions in each state. You may access this list by going to www.naruc.org/Commissions/CommissionsList.cfm. Find the information for your state and then contact that agency. It can tell you whether or not your state has a competitive marketplace for electricity or other utilities, and if so, it can tell you where to go for information about various providers.
Some states operate "Power to Choose" websites, giving details about the various electric providers. The Retail Energy Supply Association also has information on how to find energy suppliers in states allowing choice. Go to www.resausa.org/shop-energy/find-energy-suppliers for more information. If your state doesn't allow competition, why not contact your state rep and ask them to sponsor a bill?
Does it pay to shop around? Yes! One family wrote a fan letter to their new provider, saying they saved $80 the first month. So savings can be significant!
Take the Next Step:
- Visit the TDS Library for more ways to reduce energy costs.
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