Does Switching Electricity Suppliers Save Money?
Last Updated February 18, 2024
By Michael Jones
Michael literally wrote the book on solar (it’s called The Homeowners’ Guide to Going Solar) and has been a solar consultant for over four years.
With electricity costs continuing to rise on Cape Cod, I often get asked if it’s worth switching electricity suppliers to curb at least some of the effects of those rate hikes. The answer I usually give, as with most things to do with electricity is, “it depends”.
In this article I’ll walk you through the complicated landscape of Massachusetts’ deregulated electricity market and help you understand the pros and cons of switching electricity suppliers.
I’ll explain some of the shady practices that third-party suppliers have been guilty of in the past and tell you which questions you need to ask before you switch electricity suppliers.
Before we start, though, it may help to explain a few basic points about your electricity bill.
Electricity Supply and Delivery
Broadly speaking, all our electricity bills are divided into two parts – the cost of the electricity itself and the cost of delivering that electricity to our homes. On Cape Cod, those costs are billed monthly by Eversource, which is the main electric utility here.
But that doesn’t mean that Eversource generates our power. All Eversource does is provide and maintain the infrastructure to deliver that power to us. For the electricity itself, the utility company strikes deals with third party providers who are responsible for generating that power.
So for decades, customers had no choice but to trust that Eversource was striking the best deals possible and acting in the customers’ best interests rather than their own when it came to purchasing power.
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Deregulating Massachusetts’ Electricity Supply
Then in 1997, it was decided that customers should have a right to choose who provided their electricity, so the Commonwealth became one of just a handful of states that allowed for the deregulation of electricity.
Massachusetts electricity customers were given the right to choose from, at first a handful, and later dozens of providers who would offer various deals to entice people to switch electricity suppliers away from the standard Eversource one.
Some would offer the promise of 100% green energy, others would promise to lock the rate in for a predetermined period, while still others would just flat out offer a lower rate (not always the best thing, BTW).
It was thought that the increased competition would be good for customers but, as with most things that “seemed like a good idea at the time”, it wasn’t quite that simple.
The Perils of Switching Electricity Suppliers
Electricity is confusing at the best of times and deregulation just made it even more so. And, sorry to say, several electricity suppliers took advantage of that confusion with some unethical marketing practices.
Calling people at home or approaching them in shopping malls and offering them rock bottom rates without fully explaining what would happen once the initial promotional period was over became a common practice.
To make matters worse, customers who switched suppliers were still allowed to have their electricity billed for on the regular Eversource bill. While that was more convenient, it tended to create a set-it-and-forget-it mindset that made it less likely that a customer would remember who their electricity supplier was and when their contract with them was about to expire.
At the same time, as paperless billing and direct debit became more common ways for people to pay, it wasn’t unusual for customers to go months or even years without even seeing their electricity bill, much less studying it to see what rate they were paying or what hidden fees there might be.
And all of these transgressions were targeted disproportionately at low income customers and the elderly.
In a study conducted by the Attorney General’s office, it was found that consumers throughout Massachusetts who had signed up for competitive supply between 2015 and 2021, paid a staggering $525.2 million more than they would have done had they stayed with the prevailing basic rate provided by their utility companies.
And I often run across people who are paying 50-60c/kWh for their power because they signed up for a “low-cost” supplier and then forgot all about it. At the end of the term the rate shot up without the customer noticing and they ended up paying the higher rate for months or even years without realizing it.
The Benefits of Switching Electricity Suppliers
So why would anyone do it?
It is possible to save quite a lot of money on your electricity bills by switching electricity suppliers. Depending on how much electricity you use, even a cut of a few cents per kWh can add up to hundreds of dollars over time.
But you have to pay attention. Read the fine print, ask questions and, above all, continue to monitor your bills throughout the term of the agreement.
As I always tell my customers, it’s a good idea to study your electricity bill at least once every few months. If you’ve opted for paperless billing, make a point of going online to take a look at it. Go really old school and print it out, if you need to.
Check to see who your supplier is and what rate you’re paying. Go to the Energy Switch website and compare your rate with what’s being offered there. In short, do what you would do when shopping around for any other product or service you buy.
Buying electricity is no different than signing up for a credit card in that regard. Look for the best deal and then keep looking to make sure that you’re still getting the best deal.
Questions to Ask When Switching Electricity Suppliers
While there is no doubt that you can save money on your power bills by switching electricity suppliers, there are a number of questions you need to ask before you switch, besides the obvious one about price.
1. Is the Rate Cheaper Than What You’re Currently Paying?
Price is usually the main reason people switch electricity suppliers but the per kWh rate that you’ll pay is not the only factor to consider. You also need to ask what other promotional features does the supplier have such as sign on bonuses, loyalty programs, referral programs, etc.
If you have a large family or a wide circle of friends who you could refer to Think Energy, for example, you could get as much as a 100% rebate on your electricity supply. That would be far more valuable than an extra penny per kWh that you might “save” with a lower rate from another supplier.
2. Is There an Early Termination Fee?
Sometimes it can cost as much as $150 to get out of an agreement before it has run its full term. So if prevailing Eversource rates drop and you find yourself locked into a higher rate with a third party supplier, you’ll have to do some math to work out whether it’s even worth the cost of switching back.
3. How Long is the Rate Fixed For?
Terms usually run anywhere from 9 months to 3 years. If you’re able to lock in a low rate for a year or more, that can be beneficial but beware of super low rates for a short term.
That may be the telltale sign of an introductory low rate, which soon jumps to one that is much higher than the market rate, with the supplier hoping that enough people will forget what they’ve signed up for and continue to pay that higher rate for months or years to come.
4. What happens at the End of the Term?
The phrase to watch out for here is “automatic renewal”.
This means that, unless you specifically request to either revert back to your Eversource rate or switch to a different supplier, you will be automatically enrolled for another term with this supplier. That can be at a higher rate (sometimes much higher) than the one you originally signed up for, even though the exact same supplier is offering a much lower rate to new customers.
The other question to ask is exactly what happens regarding notification about an impending end of term. Do you get multiple emails that explain what is about to happen? Maybe text messages?
Most suppliers don’t go out of their way to remind you that the end is near and that your rate is about to change. It’s worth asking exactly what they will do.
Final Thoughts on Switching Electricity Suppliers
Massachusetts is one of just thirteen states in the country that has a deregulated energy market where customers can choose their electricity suppliers. Theoretically that should mean that residents of the Bay state should be paying less for their electricity, and it is possible to save a lot of money.
But it takes more than just switching electricity suppliers once and then forgetting all about it. Yes, regulators need to do a better job of policing the market but as customers we also need to do our part.
There are some good third party suppliers out there who treat their customers ethically and offer real savings. As customers we need to do our homework, ask the right questions and pay attention to our power bills at least a couple of times a year.
If you do those things, switching electricity suppliers can save you a lot of money.
If you’d like more information on how save money on your electric bill, you can schedule a no-pressure chat with either of the Cape Cod Solar Guys here.
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