How power is like potato chips: electricity choice

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Have you been called by a telemarketer recently, offering your household electricity at a supposedly lower price? Though the person on the other line may seem pretty sketchy (and sometimes is), there’s something behind those calls – many of us can get a better deal on what we pay for electricity, and can choose among power providers like among brands of potato chips at the grocery store…Here’s the lowdown on what’s behind those calls, and on your electricity options ...

Potato Chips

Have you been called by a telemarketer recently, offering your household electricity at a supposedly lower price? Though the person on the other line may seem pretty sketchy (and sometimes is), there’s something behind those calls – many of us can get a better deal on what we pay for electricity, and can choose among power providers like among brands of potato chips at the grocery store…Here’s the lowdown on what’s behind those calls, and on your electricity options:

It all started with deregulation of electricity markets: power used to be considered a “natural monopoly” - there’s only one set of wires to your house, so only one company can get you the electricity running through those wires. But then people realized there can still be competition among generators of electricity, just like among makers of potato chips.Deregulation Map No Border

In 15 states and the District of Columbia (see map), you can buy your electricity from a variety of “electricity retailers”. Since this is fairly new, most people don’t even know about it – they keep getting power bills from the firm that owns the wires - in the mid-Atlantic region, that’s Pepco or BGE, in New York it’s ConEd and in New England NSTAR or National Grid. They're paying these firms for the “standard offer” or “default” service, when they could choose among competitive providers that offer a different (and often cheaper) electricity contract or mix of sources.

Like any product where different brands are offering the same basic thing, companies try to cater to (and grow) a certain customer base: potato chips are all thinly sliced potatoes that have been fried and salted, but Lays, Pringles, Kettle, and co all try to set themselves apart through different packaging, logos, etc...and they all charge slightly different prices for the chips. Well, it’s the same for electrons going through your wires: the local utility is one “brand,” but then there are other retailers who offer power from a different mix of sources, or under different contract terms, with different prices…you can look for the company that offers you power at the lowest price (the cheapest bag of chips) or go for the energy equivalent of a local, organic chip brand by buying power from a company that promotes local renewable generation - see the examples in last week’s post.

The idea of electricity choice is catching on, though – especially among large users like commercial or industrial facilities: since electricity is a big part of their budget, they are quick to find companies that can offer them the best deal. The chart shows the total amount of power demand served by retail providers in recent years…it’s growing fast!Retailpowergrowthchart

But watch out: competing for your business can make these companies pretty aggressive – those telemarketers often promise huge monthly savings compared to the region’s standard power provider, then they don’t explain their rates or the terms and ask you for your utility account number. Often they say they “work for” or “are affiliated with” your region’s standard provider because that’s the name you’ll recognize from your power bill. Don’t be fooled! Get the facts about the different rates and conditions on offer: a common one is a 1 year fixed rate - but a variable rate may end up being cheaper overall if you are willing to take the risk of fluctuating prices, or you could lock in a price for two years since electricity prices are at multi-year lows.

As with all product choices, it pays to be an informed consumer – ClearlyEnergy is here to help: starting Monday October 22nd, you will be able to search your region’s electricity products and brands to see which ones best suit your needs, your preferences, and your pocketbook

By Lisa Zelljadt, you can find me on Google+

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