How To Choose an Energy Provider
If you live in one of the 30 states with deregulated energy, you may have the option to choose which company supplies your household’s electricity, gas, or both through what is often referred to as an Energy Choice program.
Historically, many utility companies in the U.S. began as monopolies in their market regions. Since the 1980s, however, many state governments have pushed to increase competition so that a single energy provider can’t take advantage of consumers. Energy Choice programs exist so residential consumers like you can get better energy rates and service.
In some states, like Texas and Georgia, most residents are required to choose an energy provider. In the other deregulated states, consumers may choose to pay the default price set by their local utility known as the “price to compare” or enroll with a third-party energy provider, who often delivers power through the incumbent utility’s infrastructure.
Switching energy providers could save you money on your energy bill. It also provides peace of mind knowing that your bill won’t fluctuate with varying energy market conditions, provided you opt for a fixed-rate contract. (Find more on that below.)
Consider These Issues When Choosing an Energy Provider
When comparing electricity providers in your area, here are the key factors to consider plus some questions to ask before you lock in a contract.
What’s it going to cost you? The rate will be stated in cents-per-kilowatt-hour (kWh). For some perspective, the average U.S. rate for electricity in 2022 is 13.83 cents/kWh. You can find the average rate for your state.
You’ll want to compare advertised rates from new energy providers against the current and/or future rates on your monthly bill to determine whether it’s better than what you already have and if you’ll benefit from securing your rate now.
The best rates for contracts are available when demand is seasonally low. In Texas, for example, that’s typically from December to March. If you wait until summer when demand is high with everyone’s A/C running, rates are likely to be higher.
Contract Type and Duration
When comparing offers, you should also look closely at details like whether it’s a fixed or variable plan and the contract length.
A fixed-rate contract locks you into a predictable electricity rate for the next 12, 24, or 36 months, though sometimes shorter contracts are available. A fixed-rate plan is much easier to budget for, as your electricity usage per month tends to be pretty consistent, the main variable being heating and cooling during summer and winter.
By contrast, variable-rate plans aren’t technically contracts at all. With a variable plan, you’ll pay whatever the going market rate is, which can fluctuate daily or even hourly. Also, during peak hours or emergencies, the rate can surge for some surprisingly costly bills. Because they make it hard to predict costs for a monthly budget, variable plans aren’t recommended.
Hidden Fees and Charges
Are there any fees in addition to the fixed rate? For example, some energy providers also charge a monthly service fee or a base charge. In essence, these fees ensure that the energy company makes something off of you each month, even if your energy use is extremely low or you’re not using electricity at all during a given month. Ask that all fees be disclosed clearly and upfront in your contract and make sure that any fees in addition to your fixed rate aren’t costing you more than if you hadn’t switched.
Other types of fees to look out for are for sign-up or early termination. These are one-time fees for switching to a new provider or for ending your contract before the agreed-upon end date. While sign-up fees are rare, early-cancellation fees are far more common, though you would only have to pay this as a penalty for ending your contract early.
In Texas, where choosing your electricity provider is mandated, a refundable deposit may be required for a new contact based on your credit score.
New Customer Incentives
On the other hand, you might save some money by switching because energy providers often offer incentives to lure you in as a first-time customer. These incentives may take the form of a low fixed rate for your first contract, gift cards, or smart home devices. All other factors being equal, this may give one energy provider the edge as your top choice.
It’s always good to clarify when your new rates will go into effect. Unless you set a specific start date, you should expect one to two billing cycles before your new rate shows up on your bill. You’ll see your new provider listed in the “electricity supplier” portion of your bill. (If you live in Texas, your bill will come from your chosen provider.)
Beware of scams! Retail electricity providers must be licensed by the state’s utility regulator. Your State Public Utilities Commission website will list all licensed energy providers. Legitimate electricity providers will also provide their license numbers on their websites.
Consider these questions:
- Is this a trustworthy provider? Check online reviews.
- Do they offer convenient payment options? Ask to see all options before you sign up.
- When the power goes down, does the provider communicate effectively about outages and timelines for when power will return? Again, check online reviews and ask how you can get outage updates during an emergency.
In the End, It’s All About Confidence
When you ask the right questions and have the right info at your disposal, then you’ll also have peace of mind knowing whether you’re getting a fair rate from a company you can trust to meet your needs and preferences. Don’t feel pressured to switch immediately! You should feel confident in the rate and provider you’re signing up for.
About the Author
Mitchell Terpstra is a professional journalist and copywriter based in Seattle, WA. His most frequently covered topics include the energy industry, manufacturing, and food production. His writing has appeared in numerous and diverse places, from academic textbooks and Entrepreneur to NFL stadiums, wine bottles, and T-shirts. When not working, he can be found losing in a footrace to his rescued greyhound, Bearbear.