Picking Your Own Energy Supplier May Not Save You Anything

In New York, residents can choose to buy their energy from competing energy supply companies, or ESCOs. The idea is you can end up saving money by choosing from a field of competitors. In reality, says the New York Times, your energy bills frequently increase, and when you try to switch again you might be charged a contract termination fee.

The idea of New York’s “Power Your Way” program was to open up the market to competition, which in theory should drive down prices, but “It remains a crapshoot about whether or not you’re going to save money, pay more money or have it come out a wash,” says Jason K. Babbie, a senior environmental policy analyst for a consumer advocacy group. Another consumer advocate flat out says it’s not worth the trouble:

“You can’t shop your way out of the problem we’re facing,” said Gerald A. Norlander, executive director of the Public Utility Law Project, an advocacy group for energy users based in Albany. “If people want to get their bills down, the best thing to do is conserve. No one has ever shown that resident customers who switched have saved any significant amount of money.”

Mr. Norlander said he was concerned about a trend where ESCO’s come in when prices increase and begin marketing rates to customers that appear to be lower, but in the long run turn out to be higher. Some companies also lock people in to a contract for a year or two with penalties for early termination.

“Buyer Beware in Seeking Lower Energy Costs” [New York Times]
(Photo: Getty)

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  1. thedannimonster says:

    Ugh, various “alternate” energy supply company salesmen come to my door at least once a month. They can be very pushy (literally trying to hold the door open) and don’t even know anything about their own product. They very obviously target poorer neighborhoods. As far as their prices… absolutely terrible if you actually read them.

    I have thought about looking into an alternate supplier, but only online and after research. There should be consumer protection laws against the shark companies that batter down people’s doors.

  2. Munsoned says:

    I’ve comparison shopped Pepco’s rates (MD/DC/VA). It looks to me like the competition comes out slightly more expensive here too.

  3. forever_knight says:

    this is a problem in Texas also. the “choice” that energy de-regulation has given consumers is much higher electricity rates. the areas that chose not to de-regulate (like Austin) have much much lower rates than the rest of the state.

    it was a brilliant scam by energy companies—it has screwed the general public.

  4. Gari N. Corp says:

    It might sense if a company says to you “we have an awesome bunch of energy traders, who are really skilled at getting a good deal from electricity producers, and we can lock you in this cheaper rate per kWh for a set, hopefully long, period of time. But they haven’t got anyone who’s any good at keeping power costs down – those guys all work for hedge funds and investment banks. Instead they all use bait and switch marketing and pyramid selling schemes. I can see the point of some of the more reputable green energy plans, if you want to put your money where your conscience is, but the rest of it is just hot air.

  5. azntg says:

    Every time I get my family’s Con Edison (New York City) bill, there’s always a pamphlet telling me about the “Power Your Way” citing lower taxes among one of the benefits.

    Checked out the website that they touted, and sure enough, while I didn’t do all the math, from what I saw already, the options “available” to me had the potential to break even, if not be more expensive than just staying with Con Ed. What a crock of sh*t!

  6. Skiffer says:

    @forever_knight: Yeah, unfortunately de-regulation has had nothing but negative effects. It sounds like a good idea, but in reality consumer costs have gone up – mainly since electricity is a spot market, not a futures market.

    It’s also given more economic incentive to build more peaking generating stations rather than cheaper baseload stations.

    Luckily, a lot of states are re-introducing regulations…eventually these door-to-door parasites will go away.

  7. HRHKingFriday says:

    @forever_knight: I thought Austin was deregulated. Oh well.

    Anyways, looks like their taking a page from cell phone and cable companies. Competition doesn’t mean jack if you’re locked in a contract. I remember when you could simply call your cable and axe it. Now it seems like the only plans available are 1-2 year contracts.

  8. sven.kirk says:

    De-regulation sucks. From phone, utilities, to tv, the cost always trends to increase after a few months.

  9. char says:

    How exactly is power “De Regulated” anyways? it’s still produced at a central source, still sent over municipal infrastructure. So what am i paying for, someone to buy it from the power company and resell it to me? How does that benefit anyone but the middle man.

    That wasn’t supposed to be sarcastic, I really don’t understand how we create competition in utilities.

  10. DallasDMD says:

    @forever_knight: how much do you pay per KWh and what is your base fee (if any)? I’d like to see if you are right or not. I’m in a deregulated area in Dallas, Texas.

  11. DallasDMD says:

    @char:
    It used to be that you could only pay for electricity provided by the local electricity company that serviced the transmission wires (who also, AFAIK, operated the generation facilities as well).

    Since they’re all in the same grid, you can theoretically pay for someone else’s electricity who is hooked into the same grid. The catch is, of course, they are not allowed to sell more than they put into the grid.

    Because of deregulation, the transmission and generation are separated into different entities.

  12. SpdRacer says:

    The mayor of my city proposed seizing the power lines under eminent domain and then the city would would provide power just like water/sewer. The power/oil companies are all outta control, they say they aren’t making any money, but they all have had record profits over the last few years.

  13. forever_knight says:

    @DallasDMD: i have family north of dallas that pays 12-15 cents for power. i was shocked. that is deregulated rate.

    check out this link (from state of texas) on areas that aren’t deregulated:
    [www.puc.state.tx.us]

  14. Skiffer says:

    @DallasDMD: The theory was that if you would normally pay 10 cents/kW-hr from your local generator, but a generator in another station had excess power – the consumer should be able to sell it cheaper.

    (Note, de-regulation was initially pitched to industrial consumers who had the most to benefit)

    They separated the generating part from the transmission part to “de-regulate” certain markets. Now, in these markets, energy is traded on an exchange (hence, Enron) of whoever can generate it the cheapest.

    The problem comes in during peak hrs, when demand increases. Peaking units are easy to ramp up/down, at the expense of higher cost per kW-hr. Since electricity can’t be stored (practically), all the electricity is now sold at the peaking-unit price.

    (Before, it would typically be the average price).

    That is, for regulated markets, the utilities would take a loss during peak times from higher cost (usually gas turbine) peaking units and average their price.

    For de-regulated markets, the price goes to the highest price option (who can meet the demand vs. peaking). The thing is, the lower cost baseload units also get to sell their electricity at the peaking unit’s price

    It’s complicated, hope this helps some, but there’s a lot more to the issue.

  15. Skiffer says:

    @forever_knight: There was a good article in Businessweek, or some other mainstream paper, a couple months back, but can’t find it now.

    It showed de-regulation has resulted in higher prices than regulated markets for about all de-regulated markets.

  16. forever_knight says:

    @Skiffer: thanks. i will have to check that out.

    do you mean all de-regulated markets (not just energy/electricity)? the much-hyped deregulation the cable companies has resulted in price increases much higher than inflation.

  17. Skiffer says:

    @forever_knight: I (and the article, which I still can’t find…) was just referring to electricity markets.

    Here’s a blog post which looks like it thoroughly discusses electricity deregulation (no clue how accurate, I haven’t read through it yet):

    [energypathfinder.blogspot.com]

  18. CyGuy says:

    @char: There are three primary ways these companies CAN save you money.
    1) They act as a hedge against fluctuations in the energy markets by buying electricity or gas over longer periods and guaranteeing a certain rate or a certain mark-up.

    2) they have much smaller overheads compared to the entrenched utilities, they don’t have thousands of already retired workers who they are paying the pensions and healthcare for, and often they don’t have unionized workforces currently working for them.

    3) because they can pick and choose which customers they will sign-up, they can limit the number of deadbeat customers with unpaid bills, effectively lowering the utility’s customer credit risk.

    A fourth reason that might save you money in the short run, but not necessarily in the long run, is that they offer loss-leader pricing to get you signed up as a new customer. If you are thinking of signing up under such a deal read the fine print carefully to find out when you can break the contract and any penalties that might involved. But note, many if not all of these companies will have some sort of penalty for changing to another provider as they don’t want people to buy energy at a guaranteed fixed rate for the higher priced part of the year when they are taking a loss on your contract, only to jump ship when you get to lower cost period of the energy season. Also, one way they can offer lower longterm rates is by using financial hedges (like natural gas futures) to balance the risk they incur by offering the longterm fixed rates.

  19. LionelEHutz says:

    Deregulation has been a failure as far as saving money for consumers goes, but it’s been a success in boosting the bottom line for energy companies. Think about it — why on earth would energy companies push for a system that would reduce prices and their profit? They wouldn’t. They wanted a system that would boost their profits and they got it by, yet again, hoodwinking the gullible public and lawmakers.

  20. tange1 says:

    I work for an energy supplier and transmission company and I agree, you generally cant save much if anything by choosing another supplier. Generally choosing the supplier of last resort (whomever’s teritory your in) is what most consumers do.