Depending where you live, you may save money by switching if you do your homework and stay on top of contract renewals. But if you rush into it, you could lose money instead. “I kept the temperature of my condo between 64 and 67 all winter,” Renee Ladmirault of Northwest Washington wrote to me in an email. “And yet, I've had astronomical electric bills. Last month it was $222.” When I looked into her situation, it turned out Ladmirault had signed up for an alternative electric supplier without scrutinizing the terms of the deal.
In states with competitive energy markets, your familiar utility still delivers electricity or gas into your home but a different company called a “supplier” generates or provides that energy. A Massachusetts report found that citizens who switched to alternative power suppliers paid nearly $177 million more between 2015 and 2017 than they would have if they had stuck with their old-fashioned utility. That’s about $226 more per household per year. That’s why Massachusetts Attorney General Maura Healey is calling for an end to the competitive energy market in her state.
Kiran Bhatraju, chief executive of Arcadia Power, which does not sell power but instead helps customers buy it, said shutting down energy competition would be a shame because consumers can save substantial money — if they know what they’re doing. He knows, because Arcadia has a program called Price Alerts that helps people find and switch to cheaper, greener energy. Arcadia discovered that its residential customers in the District, Maryland and some other states were paying 27 percent more than they had to for electricity. By switching them to alternative suppliers, Arcadia says it saved some customers nearly $1,000 a year. “People should be able to save money by switching providers,” Bhatraju said. “The problem is that most people don’t review their options, or they attempt to . . . and end up in a sea of misinformation and confusion.”
Here’s what you need to know to save money on power.
Check to see whether your state is deregulated
Maryland and the District have deregulated both their electric and gas industries, and about 30 states have deregulated at least one. Virginia has deregulated its gas companies only. (Wholesale natural gas prices do not vary as much as electricity prices, so there may be less opportunity to save in Virginia.) Another couple dozen states have deregulated electric, gas or both. The American Coalition of Competitive Energy Suppliers provides a state-by-state map. Confirm with your state regulators because policies are always evolving.
Find alternative suppliers
To find alternative energy suppliers licensed to do business in your state, it’s best to check with the agency that regulates them. In Maryland and the District that’s the Public Service Commission. In Virginia it is the State Corporation Commission. To give you an idea, Maryland customers have more than 30 choices of alternative electricity suppliers.
Check for complaints
Some states provide a complaint scorecard about these alternative power suppliers. If yours does not, check for complaints on the Better Business Bureau and other websites before switching. Keep in mind that the alternative power supplier is not responsible for outages and other reliability issues because the traditional utility will still be the one delivering gas or electricity to your home. Instead, complaints are more likely to relate to rates, contracts and fees.
Beware of slamming
Slamming is when an alternative energy supplier switches you to its service without permission. It’s illegal. You can protect yourself by never revealing your gas or electric account number until you are ready to switch.
Check your utility bill to find the average rate you paid in the past year. For electricity, you are looking for the number of cents per kilowatt hour. For gas, find the price per thousand cubic feet. Compare those with alternative suppliers’ promised rates.
Know your commitment
Alternative power suppliers can ask you to sign a contract. Most suppliers ask for a commitment of three to 36 months. You should know the length of your commitment so that you know when you’re able to shop around again.
Watch out for auto-renewal
You want the chance to go elsewhere at the end of your contract, so avoid contracts that automatically re-enroll you.
Choose a fixed or variable rate
Many early adopters got into trouble when they switched to what they thought were fantastic low rates, but those rates turned out to be variable and went up sharply. Of course, if wholesale power prices go down, a variable rate is good for you. Still, unless you are ready to track energy markets, it’s safer to switch to a fixed-rate plan with no surprises. Also beware of hybrid plans that offer a fixed rate at first but switch to a variable rate later.
Shop for an introductory rate (or don't)
Sort of like credit card offers, many alternative power deals come with a low “teaser” rate that goes up later. One option is to avoid these offers. If you do sign up for a deal like this, know how long the introductory period lasts and what happens to your rate when it’s over.
Beware termination fees
Most states require alternative power suppliers to give you between three days and two weeks to cancel penalty-free if you change your mind soon after signing up. If you wish to cancel later, you may owe a termination fee. Some states cap this at $50 or $150. Find out the size of this fee and factor it into your financial decision.
Research other fees
Find out whether the alternative company charges any other fees besides the rate per kilowatt hour or per thousand cubic feet. Don’t accept a verbal answer. Get it in writing. Taxes levied by your state should remain the same regardless of which company generates your power.
Consider the type of power
Many alternative power suppliers generate their energy from clean, renewable sources, so you have an environmental choice to make as well. Clean energy has come of age and may actually be less expensive. “Green or clean power is cheaper than fossil fuels and has been for a while,” Bhatraju said. “Lower monthly costs and cleaner energy should go hand in hand.”
Still unsure about switching? Here’s another option: Shop around for a lower price on power. Then ask your traditional utility to match it.