In many states energy users now have a choice of who to buy their electricity from. While competition provides more options and lower prices for consumers in the long run, it can cause a great deal of confusion for many curious customers. With so many electricity companies competing for business, its not always easy to trust the information you are getting about your power bill options.
When making a comparison of different power bills, it is important to consider fixed rate monthly charges in addition the the rate being offered. Depending on how much electricity consumption you have on a monthly basis will determine how much that monthly fee will effect your overall rate per KWh. For example, a $5 monthly fee will only add $0.0025, or a quarter of a penny to the rate for a household using 2,000 KWh a month. However, if you live in a one bed room apartment that only uses 500 KWh a month, that $5 fee is equivalent to paying a full extra penny. So while an offer of $0.08 with a $5 monthly fee may be attractive to a large house, this offer would be equivalent to a $0.09 rate with $0 monthly fee for someone living in a small apartment.
From a marketing perspective, some power companies understand that some consumers will only shop and compare the electric rate and not bother looking at the monthly fee, believing that this is just a necessary charge. Playing to this misconception, consumers will find electricity rate offers that look attractive with low rates, but have high monthly fees as much as $10 on top of the rate. This can be a significant charge to someone who spends less than $150 a month on their power bill.
This practice is common in Texas where residential power companies are able to charge customers monthly fees on top of the rate. In other energy choice states, such as Pennsylvania, New Jersey, Connecticut, and Maryland, the local state utility commissions have outlawed this practice and instead require power companies to offer rates that include all components of the generation supply rate.
Another component to consider is if the rate is fixed or variable. Many electricity companies are offering variable rates with low introductory prices. The business model for these rate products is clear; get the consumer to agree to buy power at a variable rate, and slowly rise the rate month after month. It is much safer and in most cases smarter, to lock in a fixed rate.