How ESCos Are Supposed To Work

While we’re talking about IDT Energy and Con Ed and Midtown Promotions and DS-MAX, let’s learn about another acronym, ESCos, which stands for “energy service companies” (the kind of company IDT Energy is).

A public utility offers two main services to its customers:

1) Electrical Distribution
2) The Sale of the Electricity

When larger utility services company, like Con Ed, are deregulated, then the electricity can now be sold independently to the customer by an ESCo. As part of the service, the ESCo also provides billing and customer support to the customer.

ESCos buy electricity on the open market and sell it to utility companies. They will buy electricity from a plant in one area, purchase transport rights, then move it across the grid, a process called wheeling.

The ESCo charges you for the sale of power, and the utility charges you for the distribution over the lines. Switching to an ESCo should essentially be a win/win situation: With energy and distribution bundled together as one payment prior to deregulation, then the entire cost to the consumer was taxed. Separated, distribution is tax-free and only the electricity usage is taxed. Instant savings.

Let’s look at a pretty picture…


howescoswork.jpgSuch, at least is the promise provided by ESCos and energy deregulation. But have any of you readers used ESCos and experienced differences in your utility bills? Let us know, either way, in the comments.

Customers shopping for an ESCo need to read their contracts carefully. Sometimes people will get drawn in by a low rate, only to find out later that the rate is variable.

There is a huge push to get people to sign over to ESCo’s in NY right now. Con Edison even has its own ESCo set up: Con Ed Solutions. — THOMAS MOORE

FURTHER READING:
Shopping For Electricity [AskPSC]
YOUR HOME; The Shock Of Electric Deregulation [NYT]
RELATED:
Consumerist Undercover At IDT Energy: The Job Interview
Consumerist Undercover At IDT Energy: Day One

Comments

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  1. rbcat says:

    For those of you who live in Texas (howdy neighbors), here’s the match-up here:

    Electric generating company: Generation company

    Utility company: Local wires company (think ONCOR/TXU Electric Delivery or Texas-New Mexico Power, etc)

    ESCo: Retail electric provider (TXU Energy, First Choice Power, Green Mountain, etc)

    Other than the labels, the process is pretty much the same, except that, most often, the generation company and the local wires company are the same entity.

  2. glorpy says:

    Please be considerate of the environmental footprint of the ESCO you eventually choose.

    New York ESCOs are required to report their relative sulfur dioxide, nitric oxide and carbon dioxide output, as well as their energy sources.

    ConEd Solutions is one of the worst polluters across the board and the monetary savings aren’t all that great.

    Unfortunately, I don’t think you can find this information online; it comes in my bill once a year. New York residents can compare prices at energyguide.com

  3. mantari says:

    At first I thought my local politicians were being stupid by not deregulating our utilities a year or two back. But today, I’m really starting to wonder.

    Allegedly, consumers were supposed to save big $$$ by deregulation. It didn’t happen, did it?

  4. aixwiz says:

    From my experience deregulation == new ways to get more money out of the consumer because the company doesn’t have anyone watching over our business practices.

    Don’t believe me? Read up on Enron.

  5. Sudonum says:

    I worked for a large natural gas user in CA in the early ’90’s. As soon as the gas market was deregulated we went to a new supplier, Enron rather than The Gas Company. That was one product Enron actually produced, natural gas. We saved tons of money. So much money that we were actually looking forward to the electricity market deregulating. I left the company prior to that fiasco. But we all know how it turned out.

  6. Seth_Went_to_the_Bank says:

    I’d challenge the author of the article to find consumers that are actually saving money with ESCos. His article should read “How ESCos Are Supposed to Work.”

    Thus far, the ESCo revolution hasn’t happened. A number of ESCos have come and gone with dot.com stability because, oops, it’s very hard for the ESCos themselves to make money. How can you save the consumer money when you are losing it? You can’t.

    Also, note that ConEd in NY is now asking for a 17 percent rate hike for just its portion of the bill, a move that some feel is a result of the very deregulation plan that was supposed to save us all money.

  7. roamer1 says:

    Here in Georgia, electricity isn’t deregulated yet, but natural gas in areas served by Atlanta Gas Light is, and things work pretty much like in NY, except that one has to choose one of the ten or so gas marketers (akin to the ESCos in NY), as there is no option to get gas directly from AGL. (AGL’s parent company has its hands in one of the gas marketers, Georgia Natural Gas.)

    Here, gas rates went up significantly for a lot of people after deregulation because of changes in the pricing structure (I pay ~$30/mo for nearly no gas usage, largely because of all the charges passed through from AGL), and a number of marketers have changed ownership (as mine did — Southern Company, parent of Georgia Power, sold their natural gas marketer business to Cobb EMC, who renamed it Gas South) or left the market entirely over the past few years.

  8. bluewyvern says:

    I live in NYC, and just recently switched to an ESCo. Haven’t gotten the bills yet, we’ll see.

    I also had a visit from one of those IDT guys pretending to be from ConEd (he definitely identified himself as from ConEd), asking to look at a copy of my bill so he could save me money by signing me up for an ESCo. It seemed fishy and kind of creeped me out. I wasn’t about to go digging for my personal papers to show to some man at the door, so I said I’d take care of it myself and sent him away.

    I don’t remember what ESCo I ended up choosing — it was kind of random since I didn’t have much basis for choosing, and couldn’t find any reviews or comparisons — but I hope it wasn’t IDT. I think I picked one that claimed to be the largest and longest-established in the city.

  9. mac-phisto says:

    heheh. gotta love the deregulation. electricity rates are double the national average in connecticut (& four times higher than they were a few years ago).

    yet another reason i cringe every time a politician gets the idea he’s gonna save me money.

  10. Anonymous says:

    I have a friend who’s husband does the accounting for a large pharmacuetical firm in NY…..he signed the firm up and is saving them approx $5000.00 a month….about 7%….I think the esco’s help the larger accounts more than small residential accounts. You also have to make sure you’re with a reputable company that will give you a guarantee IN WRITING. There are a few good ones….you just have to find them.