Difference Between Electric Suppliers and Utility Companies
Contents
- 1 Difference Between Electric Suppliers and Utility Companies
- 2 What are Electric Suppliers?
- 3 What is a Utility Company?
- 4 The Job of the Electric Supplier and Utility Company
- 5 The Advantage of Choosing an Electric Supplier
- 6 Rate Products Offered by Electric Suppliers
- 7 Electric Suppliers
- 8 Utility Companies
As more states begin to deregulate you may start to ask yourself whether it’s worth switching over to a competitive electric supplier. Electric suppliers and utility companies both play a vital role in the generation and delivery of power to the point of service. In regulated markets, the utility company acts as the supplier of last resort. Thanks to energy choice, electric suppliers are now free to compete for your business which has the effect of pushing down energy prices.
What are Electric Suppliers?
Retail electric providers (REPs) are commonly referred to as electric suppliers. The main job of these companies is to purchase power from their electricity generators or on the wholesale market. They then take this power and sell it to their customers on the retail end. Electric suppliers act as the middleman between the electricity generators and the consumers. To protect themselves from risk, electric suppliers can purchase electricity years in advance in the form of future-forward contracts.
The electricity purchased from electric suppliers can come from different sources of generation. The three most common sources to generate power are coal, nuclear, and natural gas. However, the landscape is changing as more businesses are demanding renewable energy sources. The government has artificially created this demand by creating incentives for businesses to switch. Renewable energy sources include wind, solar, and hydropower among others. All the power generated, regardless of the source, will flow into the same system.
No matter the state you live, electric suppliers are required to be registered or licensed by the state through the public utility commission. Your state’s public utility commission’s website will include a list of electric suppliers licensed to do business in the state. A business shopping for electric rates can also compare suppliers at ElectricRateSelect.com. We provide a platform that provides an apples-to-apples comparison between electric suppliers and the energy plans being offered.
Once the electric suppliers take possession of the energy, it is delivered to the point of service. The point of service is considered the local distribution company (LDC).
What is a Utility Company?
Depending on the state you live in, utility companies are often referred to as the local distribution company (LDC) or electric distribution company (EDC). The main job of the utility company is to distribute the electricity from the point of service to the physical business address or residential home. These companies maintain the lines and wires to safely and efficiently deliver the electricity to its destination. They employ line workers to help them manage this. If a business has already switched over to an alternative electric supplier, they will still contact the local utility company during any power outages.
Most utility companies encourage their customers to shop around for a competitive electric supplier. Their profit margins are mandated by the state and will not be affected by customers switching to an alternative electric supplier. The main job of the utility company is to maintain the lines and wires and be the supplier of last resort. This means the utility company will supply power to customers who choose not to switch to an alternate electric supplier.
The Job of the Electric Supplier and Utility Company
Customers will have their electric bill split up between two main parts that include the supply charge and delivery charge. In deregulated markets, residents that switch energy suppliers will be charged the supply cost by the new provider while the delivery costs will be charged by the utility company.
Customers may have the options to choose between single or dual billing. Single billing means the delivery and supply charges will be incorporated into one bill. Dual billing means a customer will receive one bill from the electric supplier for the supply charges, and a separate bill from the utility company for the delivery charges.
The Advantage of Choosing an Electric Supplier
States that have implemented energy choice or energy deregulation tend to enjoy lower energy prices. Opening up the energy market allows multiple electric suppliers to compete for your business. This high level of competition drives down prices as more suppliers are looking to expand their market share. Texas, one of the first states to deregulate, enjoys some of the lowest energy costs in the country. Depending on current market conditions, a business can easily save 10-30% by switching to a competitive supplier. This can be huge for a company looking to cut its bottom line.
The level of service and quality of power will be the same. The only difference between staying with the local utility company and switching to an electric supplier will be the lower rate that shows up on the supply side of the electric bill. The local utility company is still responsible for any issues dealing with power outages or disruption of service.
The switching process is seamless. When you sign up through ElectricRateSelect.com, our representatives will handle the entire process. You will immediately be switched over on your next available meter read. The average wait time to be switched to a competitive electric supplier is one billing cycle. After the contract term, a business can switch back to the utility company without penalty.
Rate Products Offered by Electric Suppliers
The three most common rate products offered by electric suppliers are fixed, variable, and index. Every small to medium-size business will qualify for the fixed and variable rate products. However, index pricing products are only offered to large industrial size companies that use well over a million kWhs per year.
Fixed electric rates are the most common choice for small to medium-size businesses. A fixed-rate product will not fluctuate during the term of the contract. This rate product seems to be the most conservative approach when forecasting financial liabilities. It protects the business from market volatility and allows predictions on energy costs for the months ahead.
Variable-rate products can fluctuate during the term of the contract. It is common for an electric supplier to offer a low introductory variable rate, then slowly increase the rate during the term of the contract. However, most variable rates tend to be on a month-to-month basis which allows a business to switch back to the local utility company anytime without penalty.
Index rate products are only offered to large users. A company is considered a large user if their electricity usage passes one million kWh’s per year. The index rate product has two components; the fixed retail adder and the wholesale price of electricity. A company on index pricing can keep track of the wholesale price of electricity on websites such as PJM. PJM is a regional transmission organization (RTO) that coordinates the wholesale price of electricity in parts of the northeast. Depending on market conditions, a company can save an additional 20% or more compared to the lowest fixed rates!
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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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