Residential Electricity Consumer Watchlist

Residential Electricity is usually a mystery as far as what a consumer is actually paying for or even agreeing to before signing a contract. The beginning decision on who to switch to can be such a nightmare many consumers stay on a higher electric rate simply because the information available to determine what to look for when choosing electricity companies is not available. The Texas market happens to be the biggest market in terms of choosing a competitive retail electricity provider. Because of this it’s important to see how they have done things in Texas in order to know what to do in the newly deregulated markets throughout the United States.

Illinois has just begun to deregulate their electricity market and there will be millions of residential customers wondering what they should do when deciding on who to switch to. To begin lets take a look at an electric bill. There are three components to an electric bill. There is the “Energy only” portion of the bill. This is the portion of the bill that has become deregulated and is available to be competitively priced. You then have the “Wires charges”, these also go by the name “TDSP charges”, “Transmission and Distribution charges” and “Pass thru charges”. These charges are regulated by the government and will always be regulated. There will never be more then one electric pole and wire coming to a residential house. The final charges on the bill are the “Taxes”.

Knowing the three components of the bill helps in determining what questions to ask a Retail Electric Provider who may call on the phone or send a mail advertisement attempting to switch a consumer to their residential electricity product. Usually the Retail Electric Supplier will quote a retail consumer a “energy only” rate that will be low and attractive sounding. The questions a consumer should ask are, “Is this a fixed electric rate or a variable electric rate?” If the provider says it is variable then that means it can change. The rate may be good for the first month but can then increase dramatically on the second month and from then on. The exception to this would be if it was a true follow the market rate that followed the natural gas market. If this were the case then the rate could go up or down based upon what natural gas is doing. The consumer would be taking on this risk and so the rate should be much lower then the standard fixed rate offered by the same electric company. If the fixed rate is not much different then it would be better to stay on a fixed rate or find an alternative electric company.

The next question to ask would be, “Are there any fees that have been taken out of the Retail “Energy only” rate and added in a line item somewhere else in the contract?” Sometimes a Retail Electric Provider will strip out some charges that normally appear in the “energy only” rate and put this in a line item close to the “TDSP charges”. Several providers do this and a consumer should look out for this unethical but legal business practice. So far the Texas PUC has not legally come down against any of the Retail Electric Providers that have done this. We expect that eventually one of the electric companies will be sued and the PUC will rule that this type of clever contract term and agreement clause cannot be done. Until then look out for this. A consumer may think they are signing up on the best electric rate when it may be one of the worst electric rates. Another question to ask is, “What is the early termination fee?” Most electric providers charge a standard penalty that is something like $10 -$15 a month of however many months remain on the electric contract. This would be considered a fair penalty. The reason this would be fair is because the Retail Electric Providers buy this energy out on the open market, hedge it, split it up and then resell it. It is not like a cell phone contract. It’s more like buying a stock and watching it go down and deciding that you want your original investment back. The Electric Provider is of course not going to be willing to let you out of the contract unless rates are even higher then where they were when you got in. The worst case electricity contract early termination penalty that we have seen was with Gexa Energy charging 3 months averaged out bills as the penalty. This of course would be a large sum for a family who most likely is being evicted or moving out of state having to now pay an unreasonable cancellation penalty.

The final question would be to ask if the “TDSP charges” have the energy only charge bundled in with it. Occasionally a provider will quote an electric consumer a bundled rate that includes both the “TDSP charges” and “Energy only” charges. Since an electric consumer cannot do anything about the “TDSP charges” it should not be a consideration when pricing among several electric providers. If this is the case the “Energy only” portion of the rate needs to be determined so the consumer can succesfully compare the rate with other competitive electric rates being offerred.

In summary, be sure to compare residential electricity rates wth multiple electric companies and suppliers before making a decision. Also, most states require the electric provider have an electricity facts label as a step to educate and inform the consumer so they do not buy something they were not properly educated about beforehand. This electricity facts label along with this article will help in educating an energy consumer to make good buying decisions when finally deciding on an electricity company.

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