Costs and benefits of retail energy providers

Depending on the market you're in, the price of electricity, and many other factors, there are various benefits to purchasing your energy from a retail energy provider (REP):

1. Greater control over the source of your energy

2. Quality customer service and care

3. Support clean energy and renewables development

There are also financial costs and benefits to consider before switching providers from your regulated utility company.

Electricity supplied by utilities in regulated markets is reliable and generally cost-competitive, but, as the end consumer, you have no control over where the electricity comes from. By switching to energy provided by a REP in a deregulated state, you can take control of the energy you consume by intentionally choosing where it comes from and how it's generated.

REPs don't have a guaranteed source of customers as a traditional utility does. Because REPs must earn and retain customers, they often have many unique customer perks. REPs can offer a variety of services to consumers, including:

• Online bill payments

• Mobile apps

• Energy usage monitoring tools

• Promotional product offerings like smart thermostats

• Better than average customer support representatives

Another way REPs provide opportunities for improving energy choice is through their renewable energy offerings. Many REPs offer electricity plans that source some or all of the energy they provide from renewables like solar and wind power, making them a great way to support the development of clean energy resources and reduce your carbon footprint. REPs can offer these renewable energy plans to consumers at competitive rates due to the continually declining costs of both large- and small-scale renewable projects.

There are two main options for REP contracts: fixed price and variable price. One plan may be more advantageous depending on your individual needs and budget.

A fixed price plan specifies a price per kilowatt-hour (kWh) that will be the same each month for the contract duration. For example, an energy provider might charge 9.0 cents per kWh for electricity during your contract (usually 12 or 24 months). Notably, a fixed rate plan does not mean you pay the same monthly electricity bill—your overall costs will rise and fall depending on how much energy you use during each billing period. A fixed-rate plan keeps your rate in cents per kWh consistent from month to month, but your ultimate monthly electricity bill results from multiplying that rate by your monthly energy consumption.

Advantages of fixed-rate plans

There are several advantages to enrolling in a fixed-rate REP plan. First, suppose your utility's electricity rates increase every six to twelve months, a recent trend for electricity prices nationwide. In that case, you can save money by locking in a rate for a longer period with a REP.

Second, a fixed electricity rate makes it easy to forecast your energy costs for the duration of the contract because you'll know the exact rate you will pay for electricity each month. By multiplying that rate by your expected monthly usage, which you can estimate using old utility bills, you can get a good idea of what your electric account will look like from month to month. This is an important benefit for anyone with a fixed monthly income or looking to reduce risks in their financial portfolios.

A third benefit of fixed-rate plans is more accessible budgeting. It's easy to estimate monthly electric bills and plan an overall budget around them by keeping track of your electricity usage and seasonal trends.

Disadvantages of fixed-rate plans

Of course, a few potential cons to a fixed-rate REP plan exist. First, suppose the market price of electricity falls throughout your contract. In that case, you may be stuck paying a higher price than you would have if you continued to buy electricity from your existing utility.

Second, fixed-rate plans usually have early cancelation fees. This is because the REP supplying your energy will typically buy the electricity needed to serve your contract upfront for the duration of your contract to get a better deal on the energy. Terminating a fixed-rate REP contract may still be possible, but it will often require paying a fee. This policy protects REPs from the repercussions of customers backing out early if the fixed rate plan isn't working the way they want it to financially.

Is a fixed-rate plan right for you?

Fixed-rate plans can be a smart move for energy customers who fit some or all of the following characteristics:

• Live somewhere with highly seasonal/variable weather patterns

• Have a fixed income

• Don't track the energy market

For many consumers, fixed-rate plans are a great option because of their predictability and simplicity. There's no need to watch energy market prices and adjust your energy usage accordingly on a fixed rate plan—you'll pay the rate you signed up for no matter what. Additionally, the ability to budget and forecast energy spending on fixed-rate plans makes them a logical option for anyone on a fixed income who wants to avoid being at the mercy of seasonal price swings, as may be the case in areas that experience variable weather patterns. This is because the demand for electricity increases during the hot summer and cold winter months (due to the increased use of air conditioning and heating systems), leading to higher power prices.

A variable rate plan doesn't give an exact per kWh rate; instead, the rate you pay for energy will fluctuate based on the wholesale price of electricity, representing how much power plants charge energy providers to buy the electricity they produce. On a variable rate plan, the cost of your energy can change by the hour, day, or month, depending on your contract terms.

Advantages of variable rate plans

The most apparent advantage of variable rate REP plans is the ability to save money when energy prices fall. While a fixed rate contract won't lead to additional savings when wholesale energy prices drop, a variable rate plan tracks those pricing changes and transfers the associated savings to the consumer.

Another advantage of variable rate plans is their lack of early termination fees or long-term contracts. Generally, variable-rate plans are easier to opt out of than fixed-rate plans, so you can change providers or plans whenever you want. Additionally, if you move before your contract period has expired, you won't have to worry about being locked into a contract that isn't available at your new home.

Disadvantages of variable rate plans

While variable-rate plans can save you money when the market prices for energy fall, you're also at the mercy of increased prices. Unlike a fixed-rate plan, seasonal fluctuations in energy prices will directly impact the prices that consumers on variable-rate plans pay. This can lead to surprisingly high energy prices, especially after extreme weather events.

A second disadvantage of variable rate plans is the lack of predictability regarding energy costs. This can make monthly budgeting and forecasting much more difficult. While your monthly electricity bill in fixed-rate plans depends solely on energy usage, a variable-rate plan can lead to higher costs even if you reduce your use due to pricing changes in the energy market.

Is a variable rate plan right for you?

For someone who keeps a keen eye on the energy market and likes to shop around for different options, a variable rate plan could be a great option to save money on your electricity bill. Because there are usually no long-term contracts or early termination fees, switching to a fixed rate plan or different energy provider is easy, given that you're tracking the energy market and where prices are moving.