How to get the best deal on energy costs

Maybe you get your power from one of the big energy companies, like PG&E or ConEd. But, from time to time, you get a knock at the door, or a telemarketing call from another energy company telling you they have a better deal for you. You listen to their sales pitch and perhaps end up even more confused! Since energy is the third biggest cost for homeowners (after mortgage and property taxes) it’s worth figuring out your best option, without any confusion. Let’s explore how to get the best deal on energy costs.

We needed an expert to really explain the ins and outs, as energy options can be complicated. To answer our questions about energy plans and energy marketers, we went directly to a 20 year veteran of the energy industry, Deirdre Lord, CEO of The Megawatt Hour. She knows everything about energy options and energy pricing. In fact, she founded her company specifically to provide transparency into the energy markets. 

What questions should you ask in order to tell what company to buy your power or gas from?

When you get a phone call from a telemarketer trying to sell you power or gas, or when looking up information on a power or gas rate, here’s what you should find out:

1. What product are you offering me and will it change in the future?

Just like mortgages, you can buy a fixed or floating rate power or gas product. Are they selling you a fixed price for all the power or gas that flows through your meter? Or is there a variable component to the rate? This question is important because it will let you  compare this product to what you would pay your current utility, and it will help you to understand how to budget your energy costs in the future.

You want to be careful about whether the product they are offering will change in the future.  Here’s an example: a telemarketer who called me told me that I was going to save 7% on my electricity bill. Sounds great, right? Well, because I am in the industry, I knew that would only last for the first three months (because I live in NY State) and that after that, the price was not set and could fluctuate. When I asked what my rate would be after the first three months, the telemarketer wouldn’t tell me. Red flag! This is why you should make sure it’s clear exactly what the product is and how if it might change in the future.

2. What will I really save?

The biggest reason to buy electricity or gas from a company other than your local utility is to get savings on your utility bill (of course!). Whether you save money and how much money you save will depend on the rate that your local utility currently charges (the so-called “default rate”).

Before you agree to purchase energy from a company other than your utility, make sure that you know the rate that your utility would charge you if you opted NOT to change provider. Then, compare your utility company rate that they will charge you to the new offer.

Of course, cost savings isn’t the only reason to consider switching to a different energy provider. Another common reason to switch is to try to reduce your household’s impact on the environment by choosing a “green energy” provider.

How do you know if the marketer is telling the truth and if you will actually see savings?

Ask the marketer to send you a document that shows what you have paid in the past 12 months, and a forecast of what you should be paying over the term of their contract compared to what they are offering you. If they can’t provide that information, then don’t buy from them and definitely don’t buy from them for savings.

How do you choose between paying a variable or fixed rate?

It’s tricky to project forward if the product you are buying is a variable rate. Variable rate products are often cheaper that fixed cost products. The reason for this is because energy costs fluctuate for the supplier, so, if they give you a fixed rate, the energy supplier takes on the market risk. They pay more if prices go up, and they have to eat the difference if you are on a fixed rate.

Still, it might make sense for you to go with a fixed rate product. As a result of buying a fixed rate, you will be able to budget and plan, though you may or may not save as much money.

What is the best reason to buy from a supplier other than your utility?

Before you do anything, consider your goals. What is your goal when buying power or gas? Do you want consistency to budget your costs? Or are you trying to save money compared to what you currently pay your utility? Do you want to “go green”, and impact global climate change by buying green power? Green power lets you to express your preference for renewable forms of energy without having to put solar panels on your roof (once again, when you choose a green supplier it is important to choose wisely, seek transparency and make sure you understand how the product and rate that you’ll be paying impacts your household expenses).

What are some red flags that homeowners should be aware of when considering energy suppliers?

Here are some of the major red flags to be aware of when purchasing power or gas supply for your home:

1. “It’s too complicated.” If someone tells you that providing you with a transparent view of what you’ll be paying is “too complicated” then you’re probably better off not doing business with that company.
2. “We’ll guarantee savings.” If a company guarantees savings, get it in writing and make sure you know that your savings are based on (i.e. what’s the benchmark)?
3. “I can’t tell you who your supplier is or what your price will be.” In the past, when I spoke with telemarketers about electricity supply, one of them told me this. That is a clear red flag. No one signs an agreement without knowing who is supplying the product and what they will be paying.
4. “If you sign up with us, you get (insert free product).” Electricity and gas should not come with a toaster oven. In the past, telemarketers have told me that I would receive things like discounted prescription benefits if I signed up with him. Don’t get swayed by disjointed offers like this one. If the company is offering you an energy-related product or service, then perhaps that’s worth considering. But I like to keep my prescriptions and my power purchases separate!
5. “You must sign up now to get this offer.” Yes, commodity markets move. Yes, there is volatility when buying energy (prices literally vary daily, just like interest rates). But you should never feel pressure to decide. Make your plan and stick to it.