Factors to Consider when Choosing an Electricity Supplier

September 25, 2017

In addition to price, electricity suppliers differ considerably in their contract terms and conditions. Each supplier may take a different approach towards payments terms, contract expiration, and facility closure. So, before you sign your next electricity contract, you may want to ask these questions.

What are my payment terms?

Most supplier contracts specify the timeframe within which a customer’s monthly electricity bill needs to be paid. They also usually cite the interest rate or fee charged on unpaid balances. In practice, however, suppliers differ on whether they enforce their payment terms or penalize late payments.

What happens when contracts expire?

Energy contracts typically specify what happens when the agreement expires. Most specify that the supplier may, at their discretion: (1) continue to supply retail energy to your account(s) on a month-to-month holdover basis (a variable rate) or (2) move your account(s) to a market-based price or tariff class that it deems appropriate. In either case, your contract automatically renews and continues unless the supplier is notified. Of course, at any point you can negotiate a new agreement, default to the utility, or contract with another supplier. The burden, however, is on the customer to provide sufficient notification and act to terminate the contract.

Can I add, remove, or relocate facilities under my current contract?

Some suppliers simply require notice of facility changes while others reserve the right to charge for any damages (lost revenue) incurred. Some also consider a change in facilities as a default and charge an early termination fee. In short, suppliers vary a lot on this issue so if you think you might add, delete, or move a facility during the term of your contract, make sure you have the flexibility to do so without penalty.

Can the price I pay for my “fixed price” contract change?

There are situations where that may occur. Every supplier includes a “change-of-law” or “material change” clause in their energy contract. These clauses state that if any new or modified statute, rule, regulation, order, etc., by any government authority impacts the supplier’s “costs to perform or economic returns”, the supplier may “pass-through” the costs to customers. As you can imagine, regulatory conditions are constantly changing and many directly impact supplier costs. Suppliers tend to differ, however, as to whether they typically pass-through change-of-law costs or absorb them. Some suppliers pass-through every cost they can justify while others tend to hold the line and rarely change the price they have promised customers. Knowing how different suppliers handle change-of-law costs is a critical factor in securing the best energy contract.

Can my “fixed price” contract be adjusted due to PLC tags or rate changes?

Local utilities must calculate and deliver the peak load capacity required to meet customer’s peak load demand for electricity. Peak loads normally occur in the summer, when cooling demand is highest. Each year, the utility will identify five of the highest peak demand days and record customers’ capacity peak load contribution. The average of these five peak demand days then determines a customer’s Peak Load Contribution (PLC) and/or transmission charges for the following year. PLC charges typically account for 20-30 percent of a customer’s total electric bill.

Suppliers differ as to whether they pass-through PLC tag/rate changes for a fixed rate contract. Some will estimate potential PLC changes and build them into their fixed rate price, while others quote a low price and pass PLC charges through as they occur. Unfortunately, it is not always apparent how suppliers will handle PLC changes. In most cases, you need to specifically ask about this issue when comparing different supplier offers.

Do I have a right to rescind my contract?

Many suppliers have a “right to rescind” clause in their contracts that allow customers to cancel the agreement within a certain number of days following its initial execution. Without this clause, customers must pay an early termination or default fee.  Several states mandate that smaller customers be allowed to rescind their energy contract within a certain period (i.e., 3 days).

Is GRT included in contract the price?

Electric distribution companies (utilities) and electricity suppliers pay a Gross Receipts Tax (GRT) in Pennsylvania. The current GRT rate is 5.9%, but because of a “gross-up” factor, the actual GRT paid to the state is 6.27%. While GRT always applies, not all suppliers include GRT in the fixed price quoted to customers. Rather, GRT is “passed through” to the customer in their monthly bills based on the “change-of-law” clause in their electricity contracts. It is therefore important to understand whether a supplier’s price for electricity in Pennsylvania includes GRT when comparing supplier offers.

The bottom line is that the terms and conditions of supplier contracts significantly impact your energy bill. The lowest price is not always the best deal. Comparing contract terms and knowing how different suppliers manage their agreements is critical to optimizing energy costs. APPI Energy heavily vets the suppliers we work with, and assist customers by determining the best supplier contract to fit their specific needs.