NEW YORK (Reuters) - After Superstorm Sandy, many people are probably thinking that it would be nice to change their electricity supplier. But can you really save money and get better service that way?
The hypothesis behind alternate electric companies was that competition would drive down prices. But there have been growing pains since the late 1990s when the federal government set out to deregulate electricity.
Currently, 13 states - mostly in New England and the Midwest, as well as Washington, D.C. - allow alternative providers to offer energy to homeowners. Six additional states, including Michigan and Virginia, offer limited access to deregulation, in which customers are placed on waiting lists before being able to choose a competing electric utility.
Four states have had their restructuring laws repealed or delayed, and California has mostly suspended deregulation efforts, which stalled after large-scale blackouts in 2000 and 2001.
In 2011, 13.3 million U.S. households purchased 685 million megawatt hours from a competing alternative electric company, according to Compete Coalition, a trade association consisting of electricity stakeholders, including suppliers. Four years ago, in 2008, 8.7 million households were using an alternate electric supplier. This is still a drop in the bucket at the moment; 50 of the largest power companies still bring in 85 percent of $120 billion in revenue, according to the industry intelligence firm, First Research.
In the deregulated states, homeowners are bombarded with mailings and phone calls from aggressive salespeople eager to convince residents that making the switch to a new electric company will bring savings.
Receiving such calls can be a draining experience, according to David Griffith, president of Texzon Utilities, an energy broker in Red Oak, Texas, which works with residents and businesses in deregulated states, in an effort to bring down electric bills.
“People are getting hounded in states where there is deregulation, and that usually leads to paralysis,” said Griffith. “The more calls people get, the less likely they are to do anything about it - and that usually leads people to paying more for their utilities.”
So if you are in the position of possibly changing your electric company, here are some things to mull over:
Myth 1: You are getting something different from a new energy provider.
Truth: If you leave your utility for another electric company, your power still comes over the lines and on the same grid it always has. In many cases, the utility you have always used will still send you the bill. You are simply paying for electricity supplied by another company. So nobody should change their electric company and think that with the next hurricane they will have a different outcome with a new supplier.
Myth 2: The green energy suppliers are supplying your home with alternatives like solar, wind or other renewable energies.
Truth: Technically, the green energy supplier you work with is putting the energy you are paying for on the grid, and you may or may not actually have that green energy coming into your house, points out Atlanta-based utility consultant Joel Gilbert. Your supplier has no control over exactly what electrons power your computer, lights and clock radio.
But by paying for green energy, you are helping to create a demand for green energy, so arguably, you are still making a difference.
In some states including Texas, you can get very specific with how green your electric utility is, such as finding a company that delivers power specifically from wind, said Gilbert.
Myth 3: Alternative is always much cheaper.
Truth: Griffith said his company is usually able to help homeowners reduce electric bills by 5 to 15 percent. Gilbert is less optimistic, saying that most consumers in reality will save “about the equivalent of a latte a month.”
“There’s no question that if you work the problem, you can save money,” said Gilbert. “For me, I’d just wonder, ‘Is this worth me taking the time?’ And when you make the decision to go with an alternate supplier, it doesn’t mean the phone calls stop, it doesn’t mean you get off a list.”
Myth 4: It does not cost extra to switch energy suppliers.
Truth: When switching energy suppliers, you may be receiving an introductory rate which will only last a few months, so you need to consider how long your contract is. “One of the real ‘gotchas’ is, what happens at the end of three months? Can they double your price and not tell you until you get your next bill? That’s been a problem for consumers in some states,” said Bruce Bullock, director of the Maguire Energy Institute at the Cox School of Business at Southern Methodist University in Dallas.
This happened to Virginia Stuart, a 57-year-old public relations director in Dallas, who is on her second electric supplier in two years. She does not remember exactly what her bill jumped to when her contract ended with her first alternate supplier, but she said it was very high. She was able to find another electric company that brought her bill down 23 percent. But that contract ends at the beginning of 2013, and she will have to go on the hunt again.
Bullock notes that for people looking for an alternate electric company, most states with deregulation offer state-run websites listing suppliers, with information about each.
Myth 5: If you have buyer’s remorse, you can just switch back to your main supplier.
Truth: You need to be aware that if you break a contract early, you could be given a switching fee and then a return fee if you go crawling back to your original electric utility.
Not that those disincentives will stop anyone from switching if they are unhappy. “My loyalty is based solely upon the price of the product and service received,” said Stuart. “If either of those variables change, I’ll switch providers in a heartbeat.”
Follow us @ReutersMoney or here; editing by Beth Pinsker Gladstone and Matthew Lewis