Published August 26, 20148 min read
Electricity is a commodity, and in many states, you have the right to treat it like one. Energy deregulation, a catch-all term used to describe a series of state laws that gives customers the right to choose their energy provider, is giving customers across the country a chance to save money on their electric bills. In New York, one of the twenty-eight deregulated states, electricity prices are the second highest in the nation, with rates that are 54% higher than the national average. Some New York residents might shrug and accept it as a cost of living in the Big Apple and the Empire State, but you don’t have to. To help you save save money on your electricity bill, we put together answers to some of the most common questions about energy choice, ESCOs, rates, and more.
Energy choice refers to the consumer’s choice to choose who is providing the energy that is delivered to your home. The deregulation of the electricity industry is intended to increase competition and reduce prices for consumers. Twenty-eight states have deregulated electricity, natural gas, or both, with choice of ESCOs available to either all or a limited number of customers. Despite the intention to help consumers save money on electricity, only 28% of Consolidated Edison's (New York City's regulated utility) customer base has chosen an ESCO.
ESCO stands for Energy Service Company, an all-encompassing term that describes any company providing electricity. In New York, you’ll see ESCO used to specifically describe companies that provide an alternative to Con Edison, New York’s regulated utility company. As of writing, Con Edison’s PowerYourWay website lists 72 different ESCOs that provide electricity, gas, or both.
Like Con Edison, ESCOs do not generate their own electricity. Instead, they buy it on the open market. ESCOs do not compete with Con Edison, as Con Ed does not make money off of supplying energy. Con Ed sells all of their electricity at cost, and only makes a profit off of energy delivery. According to a Con Ed representative contacted by PolicyGenius, Con Ed has an obligation to get the best prices that they can, but ESCOs can provide certain deals that can make their prices lower than Con Ed’s.
While Con Ed advertises the consumer’s ability to choose energy through its PowerYourWay campaign, it does little to actually inform users about their options. Con Ed provides a list of every ESCO approved to do business in New York, but offers no way to compare prices or additional services. Consumers choosing this route must call each company individually in order to find out this information.
The New York State Public Service Commission provides a rudimentary search and comparison tool through their Power To Choose website. While their tool provides more information than Con Ed’s list, it is still difficult for consumers to find the best plan for them through this website. (A unique tool that the PSC provides on a different website is an ESCO Residential Complaint Scorecard, which lists ESCOs based on how many complaints have been filed with the PSC.)
The best energy choice tool that we’ve seen is Choose Energy, a company that lets you directly compare ESCO prices, deals, and features. According to John Tough, Choose Energy’s Head of Operations and Business Development, Choose Energy "only works with the best suppliers and we audit all of our contracts from our suppliers to make sure there are no hidden fees or teaser rates for our customers." In short: Choose Energy does all of the hard work for you.
There are many reasons why you would want to choose an ESCO, but the main one is cost. As we mentioned before, the entire idea behind deregulation of the electricity industry is to increase competition and reduce prices. According to Choose Energy, consumers who choose the cheapest energy option available on their website save, on average, 9% on the Con Ed cost for a total savings of almost $75 per year.
There are a number of reasons why ESCOs can afford to provide cheaper energy costs than Con Ed. According to John Tough of Choose Energy, ESCOs can leverage their purchasing power to buy large amounts of energy at a fixed price, which it then resells to consumers at a slight premium. This is similar to what Con Ed does, except that Con Ed does not plan for price fluctuations, which leads to high variance in energy prices over the calendar year. Con Ed’s volatility spread, which measures the difference between the lowest monthly rate and the highest monthly rate in a calendar year, was almost $100. Good ESCOs work behind the scenes with energy trading firms to avoid the spikes that can destroy a household budget. The average volatility spread of ESCOs chosen through Choose Energy’s website was $42, leading to much more predictable rates even in expensive months.
Many ESCOs also provide fixed-rate plans, which give consumers the option to buy electricity at a locked-in rate for a specific time period. If you don’t want to deal with variable rates or you have a fixed monthly income, like many retired and elderly consumers, fixed-rate plans can make budgeting easy and more predictable. Fixed-rate plans lock you into a contract for a minimum of six months and as many sixty. Fixed-rate plans can save consumers money if they lock in a good rate in a low-cost month, but can also cost a small premium if energy rates go down and you’re locked in at a higher price.
If you’re green energy conscious, you can also choose an ESCO that guarantees that a certain amount of energy you consume will be green energy. Some plans can even offer 100% green energy usage. Unfortunately for the average consumer in New York, these plans will not save you money at present, due to the state of green energy production. Currently, the average green energy rate is 50% higher than the Con Ed rate. In states like Texas, which have more green energy production, rates are only 5% higher than the standard provider’s.
On paper, there is nothing risky about choosing an ESCO. ESCOs do not control the power grid, which will still be maintained by Con Ed. (Con Ed will also still charge you a delivery fee, which makes up about 50% of your bill.) All ESCOs are required by law to provide the same level of dependability and reliability. The only difference between having your power provided by an ESCO versus Con Ed is price.
The only difference between having your power provided by an ESCO versus Con Ed is price.
Unfortunately, not every ESCO is created equal. Because of the lack of consumer awareness about ESCOs and energy choice, some ESCOs have used predatory tactics to get customers on plans that are much more expensive than Con Ed’s rates. One practice, known as "slamming," is where an ESCO signs up people for their service without consent. ESCOs will sometimes send representatives to individual homes to push people into signing up and to steal information from Con Ed bills. Until this past February's ban, some ESCOs misled customers about their rates and used promotional rates to entice customers to change based on false pretenses.
To compound the issue of consumer trust in ESCOs, there’s been a lot of press questioning the claim that consumers can save money by switching to an ESCO. One New York Times article from 2007 told the story of a man who paid $250 more than he would have if he’d stuck with Con Ed. A story from Syracuse.com, a website covering the city in upstate New York, had readers sharing their ESCO rate comparisons, with many finding that they ended up paying more.
A key issue with many of these complaints is the lack of transparency. Though the objective of energy deregulation is to increase competition, neither the ESCOs nor Con Ed make it particularly easy to shop around. As we mentioned earlier, Con Ed limits you to a list of phone numbers, while the Public Service Commission’s tool is rudimentary at best. For many consumers, choosing an ESCO isn’t just a headache, it’s also a huge risk.
The biggest issue holding back good ESCOs is the lack of transparency.
Luckily, there are good ESCOs out there. Choose Energy, the best tool we’ve found to compare ESCO rates, has partnered with ESCOs that have agreed to be audited by Choose Energy. They’re also given access to tools and analytics that help them change their pricing to become more competitive. There are other ESCOs out there that help users save money, but it will take a little more homework on part of the consumer to find them.When calling an ESCO for more information, be conscious of the pitfalls that can lead you to paying more than Con Ed’s rate. Here’s a list of questions to ask and things to watch out for when shopping for ESCOs:
If the plan you’re looking at is variable rate, ask how the rate is decided: market-price, usage, or time-of-day.
Ask about early termination fees, a security deposit, or any recurring fees.
Check the length of the contract and procedures for complaints about the supplier.
Are there incentives for signing up? Some companies offer gifts for new customers, while others offer referral bonuses.
We want to know about your experience with ESCOs in New York and across the country. Did you end up saving money? How did you learn about ESCOs? Any tips for new consumers? Give us a shout in the comments.
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