Slash Energy Bills by 20%

It's a little-known bargain that's available to consumers in 18 states, including Arizona, Illinois, Michigan, Oregon, Texas and most states in the Northeast. Because of the deregulation of the electric industry, which some states implemented in as early as 1998, consumers are able to switch their public utility and opt to receive power from an alternative-service provider. The costs are typically lower compared with what the public utility offers, and many companies are involved in green energy production.

The typical savings run around 20%, according to Jerry Jackson, an energy economist and professor at Texas A&M University. That can result in meaningful dollars, especially if you have a larger home or live in a climate that requires air conditioning for the better part of the year. "The average person may only save $20 a month, but a larger household can save $70 or $80," he says.

Yet, according to Jackson, by February 2006 — the latest month for which data is available — only 29% of Texas residents had switched to an alternative provider, a choice they've had since 2002. And Texas is one of the states with the highest switch rates. The Energy Information Administration last issued nationwide statistics in 2003, when rates ranged between 3.6% in Maryland and 26% in Pennsylvania.

Why are consumers walking away from potential savings? For one thing, many don't know about the programs, says Joe Aliceaacosta, a managing partner at Houston-based Quantum, an energy consulting company. Most private energy providers don't market their services to residential customers, he explains, preferring to go after the bigger revenues brought in by industrial clients, schools, organizations and other large businesses.

And even when they find out they have other options, many consumers aren't willing to spend the time investigating them. Typically, state organizations like the Public Service Commission or the public utility itself are charged with educating consumers about their choices, but in many states consumers must call the alternative providers to research rates, fees and other contract terms. For some, the potential savings don't seem to justify the several hours they need to spend making phone calls and comparing confusing offers.

Most importantly, notes Jackson, many folks aren't exactly sure what happens if they make the switch. They're concerned that a private company may not be as responsive as their well-established public utility in emergencies, such as power outages. But that shouldn't be the case. "What happens when you switch providers is your local utility still has to maintain the power lines that bring electricity to your home," he says. In other words, you will still receive power — and in most cases, your bill — from the utility company you've always dealt with. But instead of buying that power from the utility, you are buying it from a competitor.

Still willing to give alternative-energy providers a chance? The best place to start your research is the Public Service Commission in your state. (For a map with links, click here.) It should provide a list of the companies that offer service in the area. Alternatively, call your public utility and ask where you can get more information.

Some states, like Texas and Pennsylvania, run consumer-friendly web sites that actually calculate your potential annual savings with the various providers, based on your zip code and the size of your typical monthly electric bill. New York, on the other hand, simply offers a list of providers and it's up to you to call and ask about prices. In either case, it's best to call the suppliers and confirm their rates.

Make sure you compare apples to apples, says Aliceaacosta: Ask the provider about any fees they may charge in addition to the basic rate. Typically, the utility will keep its basic service charge, which is basically the amount you pay for having electricity delivered to your house. The power provider, on its part, will charge for power usage. But it may also tack on taxes and assessments separately, while other providers factor these into the price per kilowatt hour. At the same time, some providers may offer incentives like offsetting the sales tax on the usage portion of your bill. These are typically state incentives that the providers pass on to the consumers.

Depending on your state, once you sign up you may receive two separate bills: one from the utility for the power delivery and one from the provider. In some states, you can request to have these combined for convenience.

With providers that require a contract, be sure to ask about early termination fees. You may be charged an "unwind fee," which is calculated based on the company's loss because of early termination. Typically, that's the estimated cost of unused electricity for each month remaining on your contract. Some companies charge a flat termination fee, for example, $12 for each remaining month. This may erase your savings if you have to move.

Sounds complicated, but it may be easier than you think. For Love, the experience has been entirely positive: "It wasn't a hassle to switch, my bill-paying experience is virtually unchanged, and it's cheaper than regular."