If you’re moving out on your own for the first time or you’ve lived in a regulated electricity market for most of your life, then you will need to learn how to compare electricity rates. At first glance, the contract summary can be filled with language or terms you’ve never heard before. On the other hand, if an energy supplier is offering you a simple rate without the details of the plan that seems too good to be true, then it probably is. Most people have been victims of hidden charges or additional costs that show up on the monthly bill.
So, what do you look for when you compare electricity rates? How do you know you’re getting a good rate or whether you should keep shopping around? The first step to take when you compare electricity rates is to learn the common terminology that can be found in most energy contracts. Understanding the terminology is a good way to compare apples to apples when looking at several offers. This will assure you’re getting an accurate comparison and will help avoid any surprises that may show up on the electric bill.
Basic Terms for Comparing Electricity Rates
Every state has a public utility commission that oversees the energy market. Regulations have made it easier for residential customers to compare electricity rates. Energy suppliers are required to include all components of the supply charge for residential customers. This makes it easier for customers to compare rates and cuts down on the shenanigans that still take place on the commercial side. However, it is still good to learn the basic terms found in most residential energy agreements. Knowing the terms can help you select the right electricity rate for your home.
- Kilowatt-hours (kWh) – A kilowatt-hour is a measurement of energy and is the equivalent of the consumption of 1,000 watts for every hour. The electric bill will show the monthly kilowatt-hours consumed in a billing cycle.
- Kilowatt (KW) – A kilowatt is equal to 1,000 watts. The electric bill shows the peak kilowatt usage during the month.
- Energy Charge – This will be the rate the customer pays per kWh consumed during the monthly billing cycle.
- Base Charge – It is common for energy suppliers to include a monthly base charge on top of the rate. This is sometimes referred to as a meter fee charge. This charge can cost the customer an additional $5 to $20 every month.
- Bill Credit – Some energy plans may include a $100 bill credit if the customer stays above or below a set usage amount (measured in kilowatt-hours).
- Early Cancellation Fee – Energy suppliers may charge their customers an early cancellation fee if they change suppliers before the expiration of the current agreement.
Charges That Impact Energy Pricing
The above are the most common terms that can be found in a basic energy contract. From all the terms listed above the two that can sometimes be deceiving are the monthly base charge and the bill credit. If you come across an energy rate that seems too good to be true then it’s most likely one of these two factors you are overlooking.
If an electric supplier is advertising an energy rate below its competitors, then it can make up the difference by charging a high monthly base charge. Usually the lower the rate advertised, the higher the monthly base charge. The base charge will show up as a separate line item on the electric bill. This charge can easily make the overall costs of the energy plan more expensive than initially thought.
The monthly bill credit can also play a factor in making the energy rate advertised much lower than it actually might be. Most energy suppliers will advertise the energy rate assuming the customer qualifies for the bill credit. However, if you don’t use the required monthly usage then expect the energy rate to be much higher!
Choose the Right Energy Product
Along with understanding the terminology of an energy plan, it is important to understand the function of the energy product you choose. For example, it is common for energy suppliers to advertise a low introductory rate that can increase during the term of the agreement. Most of these rates are variable rates that can change at the sole discretion of the energy supplier. These rates are often advertised lower than fixed rates but can end up costing you more money in the long run. Below are the pros and cons of the most popular energy products on the market.
| Electric Rate Products | Pros | Cons |
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Fixed Rate |
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Variable Rate |
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Index Rate |
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Renewable Energy Rates |
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Read the Terms and Conditions
Once you understand the basic terminology in an energy contract then you can start easily comparing energy rates. Never sign up for an energy plan without reviewing the terms and conditions. This can lead to unwanted surprises that can show up on the electric bill. Energy suppliers must include all fees in the terms and conditions. Understanding the charges in an energy plan will save you from future headaches.