Barbara Alexander
Barbara Alexander, consumer affairs consultant and former director of the Consumer Assistance Division of the Maine Public Utilities Commission. She has testified on behalf of public advocates in more than 30 states.
In some states, residents can choose which company supplies their electricity— but they probably shouldn’t. Electricity typically is supplied by a local utility, but if you live in Connecticut, Delaware, Illinois, Maine, Maryland, Massachusetts, Michigan, New Hampshire, New Jersey, New York, Ohio, Oregon, Pennsylvania, Rhode Island, Texas or Washington, DC, you have the option of choosing a retail supplier to provide generation supply. The local utility remains responsible for distribution and maintaining the electric grid. If you live in Texas, selecting a retail electricity supplier is required—there’s no default option of sticking with the utility.
Residents of these states almost certainly have received mailings, phone calls or in-person sales calls from retail suppliers promising lower rates or even renewable energy. Some suppliers advertise “peace of mind” with fixed rates. Don’t believe it—studies in seven of these states all found that consumers who switch pay more for electricity, on average, than those who stay with their local utility over a reasonable period. The low rates promised by retail suppliers often are “teaser” rates that soon climb, or there are hidden fees that boost customers’ bills. Most of these contracts allow the supplier to renew your contract by negative option—that is, without your affirmative agreement to new terms.
In these states, default service is provided by the local utility, but it is purchased in the wholesale market through competitive bids and there is no profit attached. Retail suppliers usually can’t beat the default service prices because they have to spend big money on marketing to attract customers.
In almost every state, the public utility commission requires that the default service have a fixed price. Both the utilities and the retail competitors tend to purchase the power they sell to consumers on the same wholesale market, so it’s extremely rare for retailers to overcome these disadvantages.
But none of this means that deregulating electricity markets is a bad idea— there’s some evidence that competitive markets lower electricity costs for consumers through the default service competitive- bid process. But, ironically, it’s customers in these states who don’t switch suppliers who reap the benefits.
What to do: The vast majority of people should purchase power from their local utility and reject all offers to switch. Two exceptions…
If you’re a careful consumer who is willing to invest some time, you might be able to save money by switching repeatedly from one retail electricity supplier to another, taking advantage of low introductory rates, then moving on when those intro rates increase.
Texas residents must choose a retail supplier—Texas has no default option.
If either of these conditions applies to you, read supplier contracts carefully before signing up so you understand the per-kilowatt-hour rates being offered, when and how much those rates can increase, the length of your contractual commitment and whether you could be charged fees for cancelling. Do not let a telemarketer or door-to-door salesperson pressure you into switching suppliers without first reading the contract.
