It’s easy to shop for an electricity plan. But for many consumers living in states with electricity deregulation? Well, the process of how to shop for an electricity plan can seem overwhelming.
After all, many states have a large number of electricity providers. Each provider offers different plans that often look very similar at first glance. If you’re not sure how to get started shopping for electricity plans, you’re not alone. This short guide will get you started.
In our first section we talk about how deregulation works. But if you’re in a hurry, you can skip down to How to Shop for an Electricity Plan or the difference between shopping for an electricity company vs. an electricity plan. We also cover the 5 top reasons to shop for electricity.
Want to learn more about shopping for electricity in Texas? It’s the biggest deregulated state, and the hardest to shop in. That’s why we wrote The Definitive Guide to Shopping for Electricity in Texas. In 10 minutes you’ll know everything there is to know about how to find the best electricity plan in Texas.
How Deregulated Electricity Works
In states where the electric utility is deregulated, customers have a choice for who provides the power that comes to their home or business.
This means that customers can choose from among numerous electricity companies who are selling the power supply. These are known as electricity providers or electric suppliers.
This does not mean that you can replace your local utility company. The electric utility still maintains the power lines, utility poles, and the electric infrastructure. That’s what everyone depends on to deliver the electricity. (After all, can you imagine if every electricity company had to run their own wires?)
Power gets to your home over the same poles and wires. All that changes is that the electricity supplier is responsible for supplying the power that flows through those lines to their customers.
Deregulation split old-school regulated electric utilities into three distinct functions: generation, transmission, distribution and supply.
Four Parts of the Deregulated Energy Market
Here are the parts of the deregulated energy market and how they work together.
Generation: Somewhere on the grid, coal, natural gas, nuclear, hydroelectric, wind or solar are in use at a generation company. These generators sell electricity in large volumes on the wholesale market. Electricity utility companies or electricity providers then re-sell it at retail to the general public in the form of electricity plans.
Transmission: Electricity travels from the electricity generation point to its destination over a grid of wires and transformers, to neighborhood substations. In a state with deregulated electricity, either utility or transmission companies own the transmission lines. An independent system operator (ISO) or a regional transmission organization (RTO) manages scheduling power transmission.
Distribution: From the substation, your power finds its way to your home, on demand. Your local electric utility company is responsible for the distribution, or delivery, of electricity to your home or business. The state public utility commission approved the utility distribution rates (also called delivery rates.)
Supplier: In regulated markets, your distribution company or utility is also your supplier. In most deregulated markets, you can choose to buy your supply from the utility company or you can shop for an electricity supplier.
You can learn more about each of these roles in our post on the difference between an electricity provider vs. an electric utility.
Deregulated Electricity in Your State
You can find a full list of states with electricity deregulation in our blog post on that topic.
But here are some examples of how deregulation has played out in some states.
For Ohio electricity supply and Connecticut electricity supply you can choose to stay with your local utility company and get power from them. That’s usually called a “standard service offer.” Your rate will change 2-3 times per year. You have no control over it. Or, you can choose to purchase your supply from an authorized electricity supplier. You can get a fixed rate electricity plan, and in Ohio you can even get renewable energy.
>>Find out more about Ohio electricity shopping
>>Find out more about Connecticut electricity shopping
In deregulated areas of Texas electricity, you must choose an electricity supplier. And that retail electricity supplier will handle your customer service and billing.
>>Find out more about shopping for electricity in Texas
The important point of deregulation is this. Where your electricity comes from is up to you. Whether you stay with the utility or pick a another electricity provider, the choice is yours. But here’s a tip — you can only benefit from shopping around for a better deal.
How to Choose an Electric Company vs. Choose an Electricity Plan
When you’re shopping for electricity, one thing you have to decide is whether you are shopping for an electricity supplier or an electricity plan.
If you want to just shop for an electricity company, you’ll be looking at things like:
- Length of time in business
- BBB or Public Utility Commission Reviews
- Customer service reputation
But any of the companies on ElectricityPlans.com have already passed one level of assessment. We only feature companies where the staff have solid industry experience, brand reputation and great prices.
Most people who are shopping for an electricity company are more focused on how to choose an electricity plan.
Choosing the right electricity plan determines how much you will pay per kWh for your electricity. And in most cases? We find the electricity rate is more important than the company you are with. So when you are shopping to choose a new electricity company, pay close attention to the price and the electricity plan.
What Is An Electricity Plan?
So just what is an electricity plan? Most people think of the rate or the price per kWh when they think of an electricity plan. Because it’s more than just the rate.
An electricity plan is contract between a customer and an electricity provider to provide electricity service to a home or business.
An electricity plan includes the following:
- Electricity rate or price per kilowatt hour. In most states, this is the energy supply rate. In Texas, the advertised rates are an average price based on usage that includes both energy and delivery.
- Type of Plan. Is the rate going to be fixed, variable, or indexed?
- Contract Term Length. This is the length of time the price is valid for. And it’s the length of time you’re committed to that company.
- Contract Cancellation Fee. If you cancel before the end of the contract, what kind of early termination fee will you have to pay?
- Renewable Percentage. Is it a 100% renewable plan or just a percentage green?
- Value-Added features. These could include things like prepaid electricity, no deposit electricity, a rewards program, online tools or a smart thermostat.
These are all parts of the puzzle that come together to form an electricity plan.
The electricity rate is by far the one that most people consider. But you should also consider these other elements before you commit.
Below we go into each of the parts of the electricity plan.
Key Points When Shopping for Electricity Plans
Many electricity plans seem similar, and sometimes a bad deal can look like a really good one on first glance (or vice versa). You’ll have to read each electricity plan description carefully so you can be sure you get the plan that’s right for your budget.
When you shop on ElectricityPlans.com you can use our tools to understand the details of your electricity plan.
- Shop by features to see plans that are basic electricity versus those with 100% renewable energy, bill credits or special incentives
- Shop by type of plan. Most consumers prefer the stability of fixed rate electricity plans.
- Understand electricity plan details. We include the details in the Plan Summary.
- Calculate your average price with each plan (Texas only)
Here are a few very important points to consider when shopping for an electricity plan:
Electricity Contract Length
You can choose from plans that are locked in for years, plans that are renewed each month, or somewhere in between.
Long term plans are those that are more than 12 months long. These plans typically come with larger early termination fees. For 2021, long term electricity plans may offer you the best value and lowest pricing.
Short term plans are those that are 12 months or less. Many consumers prefer to buy 12 month contacts with an annual contract renewal.
Month-to-month electricity plans contracts give you flexibility, but the electricity rate can change from one month to the next.
Electricity Plan Types
There are three main plan types: fixed rate, variable rate, and indexed rate.
- Fixed rate plans have the rate per kilowatt-hour (price per kWh) locked in for the length of the contract.
- Variable rate contracts allow the rate to vary based on electricity costs and the discretion of your electricity provider. Month-to-month contracts are usually variable rates.
- Indexed rate plans are another type of variable rate plan. However, these are tied to an index, such as the price of natural gas. Time of use plans like free nights and weekends are also considered index plans.
Especially in Texas, watch out for tiered rates and bill credit electricity plans. These can look like a great price, until you read the fine print.
For more details see Understanding Electricity Plan Types: Fixed, Variable, and Indexed.
Green Energy and Electricity Plan Freebies
While price is a hugely motivating factor with electricity plans, you should also remember to check the green or renewable electricity percentages of plans and the incentives available.
Sometimes the really high percentage green electricity plans don’t cost much more than plans with little green energy.
There are other incentives too, if green isn’t your thing.
These include offers of gift cards, bill credits, veterans and active military discounts, or charitable contributions on your behalf. It pays to keep an eye on the details.
Once you’ve carefully compared your electricity plans, read all the documents involved. Check for any fees that might be additionally required. Once you are confident that you’ve found the best plan for your household, signing up is as simple as clicking a few buttons.
You typically have a few days to change your mind, depending on your state, but it’s still a good idea to be confident in your decision before you sign up for a new electricity provider and plan.
Why Should I Shop for an Electricity Plan? Five Reasons to Shop.
Here are the five most common reasons that electricity customers shop for a new electricity plan:
1. Save Money on Electricity
For many electricity customers, the biggest reason to switch electricity plans is to save money. It’s simple. Half a penny per kWh may not seem like much. But when you consider how many kilowatt-hours you use every month? That adds up on your electric bill. Over the course of a year it can amount to hundreds of dollars in savings.
2. Get a Fixed Rate on Electricity
In most deregulated states, you can choose to stay with the utility for your electricity. But if you do, your price will change on a regular basis. And you have no control over that.
And even if you have switched electricity companies, if your contract expires, you could end up a variable rate. That can mean real trouble in months when price fluctuation is dramatic. Have you ever received an electricity bill that was unusually high? It was probably due to variable rate pricing combined with high usage.
Fixed electricity rates give you security and protect you from rate changes.
3. Go Green with 100% Renewable Energy
Many electricity customers are looking for more ways to reduce their carbon footprint.
With the ability to select your own electricity plan, you have more control over how much of your electricity comes from cleaner sources like solar and wind.
When you’re shopping for electricity plans, you can see how much of that power is produced with renewable sources. Some plans guarantee as much as 100 percent of the electricity they provide will be green.
4. Electricity Plans with Freebies
Electricity providers commonly offer incentives for switching electricity plans. In exchange for signing a long-term contract with an electricity company, you could receive additional incentives. These could include prepaid gift cards, cash-back bonuses or a smart thermostat.
Make sure you consider how much value you get from this value-add. The electricity rates for these types of plans are usually higher.
5. Better Customer Service for Electricity
Electricity providers are very competitive. And customer complaints are reported to their state’s Public Utility Commission. So they have a vested interest in providing top-notch service. But some suppliers are better than others. Things to look for include energy usage reports and the ability to get customer service via email or chat.
If I Switch to a New Electricity Provider Will I Lose Electricity?
Many electricity customers worry that their lights will go off if they choose to switch to an electricity plan through another electricity provider.
Or they may be afraid that the utility or local delivery company won’t help them in the case of a power outage.
Those fears are rumors and urban myths.
Your local utility will continue to be responsible for your power lines and utility poles. And they are the company you’ll call if there’s a disruption in your electricity service. See our post on the differences between electricity providers and electric utilities for more information.