How do you shop for electricity?
If you are in a deregulated area you can shop for electricity. You can choose the Retail Electric Provider, the term length of the contract, and the price. Learn more below!
My #1 suggestion when shopping for electricity is not to procrastinate! If you wait until your contract is almost over, you won’t have many good prices to choose from. Shopping for electricity is not always fun, but we can prevent procrastination by being disciplined and setting reminders. Why procrastinate when there is money to be saved?
Deregulation is a term that describes an energy market that has been set up to allow for competitive pricing of electricity. In deregulated areas, one company, the wires or TDSP or Supply company, will maintain the poles, wires, transformers, meters and street lights in a geographical area. Then there is another company that buys the actual electricity in bulk and sells it to consumers. This company is called the Retail Electric Provider. This is the company that sends you the bill that you pay for electricity.
In regulated areas, there is only 1 electric company that purchases and sells electricity and maintains the wires, poles, transformers, etc.
States With Deregulated Energy Markets
Here is an excellent list of states with deregulated energy markets.
Shop for Electricity Residential
Residential customers can use online electricity shopping websites to shop for their next electric plan. You can also check the Retail Electric Provider companies websites directly to see what prices they have and you can call them to see what prices they have. Each different method you use will give you a different price. Also prices fluctuate daily, so what you see today will be gone tomorrow. Try a variety of different shopping methods until you find the right price. Residential consumers in Texas can use the Power to Choose website to shop for electricity. There are also many other websites out there that provide online shopping market places for electricity. Just be sure you check more than one site, because I am pretty sure some of these sites are adding a margin to the price per kwh to get paid by the electric companies. Follow these guidelines to get the best rate:
- Start shopping at least 3 months before your contract is up
- Try to set your contract length to where it ends in the fall or spring. Summer and winter months are the worst times to renew
- Try out 2 or 3 different energy shopping websites to get a comparison of rates
- Don’t get a tiered rate plan. These are bad for your wallet.
- Get a fixed rate plan.
Shop For Electricity Business
Businesses can use an energy broker to shop for electricity or they can shop around themselves by calling Retail Electric Providers directly. Sometimes brokers will have better prices. Brokers get better prices than what you would get if you just called up the utility company. However brokers add on a small margin to the price per kwh. So You could technically get pricing from a broker and then call around to do some shopping yourself to see if you are getting the best price. But most people don’t have time for all of that so they just choose a broker or an online shopping site for electricity.
What are Energy Brokers
Energy brokers are individuals or companies that get bids from Retail Electric Providers and prepare those bids in an organized easy to comprehend manor to their clients. Brokers put their clients best interest in mind when shopping around for energy contracts. Or should I say MOST brokers put their clients best interest in mind. Brokers are important because they educate consumers about electric plans and pricing and about the pitfalls of energy contracts. They bridge the gap between electric customers and big scary electric companies
What are Energy Aggregators
Aggregators are similar to brokers, but they combine customers together in a pool to get the best price for them. They usually have aggregator fees and maybe a margin added on the price per kwh.
How are Energy Brokers Paid
Energy brokers are paid by the Retail Electric Providers. You don’t pay them directly. What they do is add on a margin to the price per kwh that constitutes as their fee. This margin is small and measured in mils (a tenth of a cent – .001). So for example, if a broker gives you a quote for a .07 cent contract, they may be getting .01 cents per kwh for the duration of your contract. BUT the actual price of the energy is .06 cents per kwh. You are just paying a higher price because you went through a broker. This is all fine, because they do provide a service, but just make sure your broker tells you their fee up-front. I suspect that some of the online energy shopping websites that aren’t government sites add on a margin to the price per kwh. Any broker or aggregator or shopping site you use is going to get a piece of the pie. Aside from maybe the government sponsored sites, such as Power To Choose.org. Does that mean Power to Choose has the best prices? Not necessarily.
Types of Energy Plans
There are several different energy plans you can get. You can get 6 month plans or 5 year plans. You can get fixed rate plans or indexed plans. You can get renewable energy plans and non-renewable plans. The sky is the limit!
Tiered Energy Plans
Tiered energy plans are garbage! Don’t get a tiered energy plan. You can get one but you have to be 100 percent sure you aren’t going to go over their kwh threshold. And how are you going to do that? You’re not! Unless you are tracking your energy usage every day and modifying your behavior to make sure you don’t go over the kwh threshold. So do your self a favor and don’t get the tiered energy plan. For example, on a tiered energy plan, if you go over 1000 kwh a month you will get charged one price. Then, if you go over 2000 kwh, you will be charged another price. Usually one of these tiers is a very high rate that almost seems like a penalty. So please stay away from these, unless if you are some kind of expert and know how to manupulate your energy usage and the weather at the same time. What if there is an extremely hot summer or an extremely cold winter and you end up going over 2000 kwh and get charged the higher tiered rate that month? You’re bill is going to scare the crap out of you!!! STAY AWAY AT ALL COSTS!!!
Fixed Rate Energy Plans
Most of the time you are going to want to get a fixed rate energy plan, so your bill is somewhat predictable. Some people don’t know this, but there are several different types of fixed rate energy plans.
Fixed All In
The Fixed All-In plan is just what it sounds like. Everything in a fixed all-in plan will be included in the price per kwh. The only thing that will not be included is the TDSP charges and the taxes and fees. The TDSP charges are what the wires company charges to maintain the wires, poles, meters, etc. that make up the grid.
Fixed with Basis or Nodal Congestion Passed through
In energy pricing there is something called basis or nodal congestion that is either included in the fixed price or passed through to the customer. This small piece of pricing fluctuates with the market. Be sure when you are comparing prices to know if basis is included or not. Sometimes brokers will pass this through to you while giving you the impression of having a lower fixed price.
Indexed Energy Plans
Indexed energy plans are based on the price in the market and that price changes daily. Most people do not choose these plans because your bill will be very unpredictable.
When to Renew
Depending on how long your contract term is, you can literally renew your contract the day after you start it. I know that sounds silly, but you can! For example, you sign a year long contract that starts a month from now. Well you can go out and get bids for your next contract that will begin after the 12 months are up. When requesting bids, just put the move-in date at the date that the contract ends.
Its good to shop around for electricity early and not wait until your contract ends. Did you know that in some cases, businesses can shop around and buy energy contracts 5 to 6 years in advance?! It’s TRUE! Retail Electric Providers are able to price out contracts that far in advance. So if you have, for example, a 2 year contract that expires in 1 year, its a good time to start shopping!
Other things to take into consideration are the time of year you shop and the time of year your contract ends. If your contract ends in the dead of summer or the dead of winter, you may be shopping in higher price ranges than if your contract ends in the spring or fall. Prices are just higher in the summer and higher in the winter and that’s how it is. Now this is all speculative and based on past market performance. No one can predict the market. Not me, not you, not anyone. But we can use past performance and market factors such as natural gas storage levels and production levels and weather trends to try to predict what is going to happen in the market. So, shop in the spring, shop in the fall, and get a contract that ends in the spring or ends in the fall.
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