Switching Energy Suppliers

Terms to Know When Switching Energy Providers

Half of the states in the US are deregulated energy markets, at least to a certain extent. This means that in these states, residents have the power to choose their own supplier for their electricity or natural gas services. In some states, residents have a choice for both, electricity and gas.
When you’re ready to choose your own energy supplier, understanding the terms used in the industry is crucial to getting the best deal for you.

From contract price to green energy plans, from the type of company selling the energy to the one delivering it, there are many variables involved in buying electricity or natural gas. When shopping for an energy supplier, it’s important to understand the basics of your energy bill.

Here are the definitions for the most common terms you’ll find on your energy bill:

Utiliy Company and Utility

A utility is the company that delivers energy in form of electricity or natural gas to end-users in their service area. Your local utility will deliver the power to your home or business, regardless of where you purchase your power.

Utility companies can be corporations, agencies, or authorities which own and operate the infrastructure to distribute the electricity or gas to their customers. They’re also called electric distribution companies (EDCs) because they own the energy distribution infrastructure and equipment.  Also, they provide the service, maintenance, and customer service in their respective service areas.

While municipal utilities are owned and operated by a city or municipal government, most utilities are owned by private investors and operated by public corporations for a profit. These investor-owned utilities (IOUs) provide service to about 75% of Americans.

Energy Supplier

In deregulated markets, consumers can buy power directly from utilities or from a retail energy supplier. Energy suppliers are the companies that supply electricity or natural gas to their customers. They buy power on the wholesale market from power producers or generators, which own the generation plants, and sell it to consumers at a competitive rate.

Suppliers can be licensed energy marketers or energy services companies (ESCOs). They’re also called electric service providers or, mainly in Texas, retail electric providers (REPs). ESCOs offer electricity but also customized energy services and products to their customers.

If you choose to purchase your power from an alternate energy supplier, the electricity or natural gas will still be delivered to your home by the local utility company.

Price to Compare

If you’re shopping for an alternate energy supplier, you’ll want to know how their electricity or gas rates compare to the ones you’re currently paying. This rate is your utility’s “price to compare” with rates offered by alternate suppliers to determine the possible savings.

The price to compare is established by your local utility and it’s subject to change. It’s listed on every utility bill, broken down to the price per kilowatt-hour (kWh) for electricity or the price per therm for natural gas. The price to compare is usually the total of the itemized supply costs on your energy bill. ng the year).

Supply Changes

In deregulated energy markets, electric and gas services are unbundled, and your energy bill is generally broken down into its basic components. Supply and delivery of your energy are priced and charged separately. The supply charge is measured in kilowatt-hours for electricity and therms for natural gas. It covers the costs to procure the energy.

The supply charge, or energy charge, is the portion of your utility bill that indicates how much you pay for the electricity or gas supplied by your utility or alternate energy supplier. The supply cost for your energy will be passed on to you from the supplier by your utility regardless of whether you have switched to an alternate supplier.

Delivery Charges

The delivery portion of the bill goes to your local utility. It covers the costs to distribute the electricity or gas from the transmission system to your home. It pays for the power infrastructure, equipment, and other expenses to deliver the energy. Delivery charges will be billed regardless of whether you purchase your energy from your utility company or a retail supplier.

Variable Energy Rate

If you choose a variable-rate plan, your electricity and natural gas prices will fluctuate based on the energy prices on the wholesale market. The rate you pay each month is based on the current market price and the price per kilowatt-hour of electricity or therm of gas can change significantly. Consumers in regulated markets or those who choose to buy power directly from their utility are typically under a variable-rate plan.

Fixed Energy Rate

A fixed-rate plan allows you to lock in a rate at the time you sign up for the duration of the contract, regardless of the price your supplier pays on the market. Fixed energy rate plans are typically available for 6, 12, or 24 months and make it easier for you to budget your energy cost. With a fixed rate energy plan, the only variable on your bill is typically the number of kilowatt-hours you’ve used, except for seasonal differences in energy pricing.

Green Energy

If you want to decrease your carbon footprint and reduce pollution, you can switch to a green energy plan. Using green energy sources lessens the impact on the environment significantly as compared to using fossil fuels. Green energy sources create low or no pollution, no carbon dioxide emissions, and reduce the direct impact on ecosystems. Renewable energy is generated from resources that naturally replenish.

Some power suppliers offer renewable energy plans for a small premium. Customers can purchase electricity generated from renewable or green energy sources or they can choose to purchase only a portion of their demand as green energy. When you select a green energy electric plan, your utility or energy supplier redeems renewable energy certificates (RECs) on the market to offset your usage. Your electricity will continue to be delivered to you by your local utility.