To the Editor:
The recent spike in unsolicited offers from competitive electricity suppliers is directly related to the spike in the cost of electricity this winter. Several people have asked for my opinion of these offers, and for information on the rate increase in general. Hopefully this memo will help readers understand these issues.
Before I get to the competitive supply offers, I’d like to provide a brief summary of the factors that caused the recent spike in electric rates. I think it’s essential to understand these factors when considering a change of supplier.
The price of electricity in New England is higher from January through March due to natural gas pipeline-constraint issues. Approximately 50 percent of the electricity generated for the New England grid uses natural gas for fuel.
In addition to electricity generation, natural gas is used for space heating. This creates competing demand: Occasionally natural gas is consumed as quickly as our infrastructure can supply it. This increased demand causes winter prices to spike three to four times higher than spring and fall prices. With no new pipelines planned for the short term, the New England natural gas market is likely to continue this pattern of wide seasonal price fluctuation for the next several years.
It’s worth noting that the current dip in oil prices has a negligible effect on electricity prices. Oil is used as a fuel for generating New England electricity during peak demand times only. During theses peak demand times, only 6 percent of New England electricity comes from oil. Most of the time, less than 1 percent of New England’s electricity comes from oil.
Competitive supplier offers
The variation in seasonal rates provides an opportunity for power suppliers to offer teaser rates that are lower in the short term but increase over time. Remember, our electric rates are likely to decrease for the second half of the year, so changing suppliers now, while the default supplier charge is high, may work against you for the second half of the year. Many competitive suppliers include fees for cancellation of service, so attempting to switch back in July could cost more than maintaining your current supplier relationship. As with any contractual relationship, it makes sense to read the terms and conditions thoroughly before signing. The following is a list of things to consider when doing so:
- What is the contract term, and what happens at the end of that term? Will the rate become variable?
- What are the fees associated with early termination of the contract?
- Will the supplier offer a written contract for review before signing?
- What are the monthly fees charged in addition to the charges for electricity?
- How will changes in your usage affect the rate?
- Is there a clause that enables supplier cancellation of the contract if the economics change for the supplier?
- Will the rate change if you install a net-metered solar PV system?
- What happens if the utility regulations change? Is there an opportunity for the supplier to add a fee in reaction to regulatory or policy change?
I certainly don’t want to create the impression that all competitive supplier offers have pitfalls. Some of them may well provide a better option. I’m merely suggesting that readers evaluate any offer thoroughly.
Mr. Meyers heads up the Energy Services division of South Mountain Co. —Ed.