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Understanding your electric options

November 10, 2010
 By Thomas Janowiak, Director of Energy Services, Utility Management Group

The deregulation of the electric market has led to many benefits for consumers, including lower rates and options to meet diverse budget needs. It has also, however, led to some confusion. Faced with a marketplace that has changed several times over the past few years and continues to change, coupled with an influx of suppliers, many of which offer different options and recommendations, it would be surprising if consumers were not confused. The good news is that once you understand a few basic concepts, the market and your choices are not so confusing. One of the most important factors you should understand is what you are being billed for.

If you review your electric invoice, you’ll notice that you are billed for quite a few charges. The majority of these charges are set by Com Ed and are not negotiable. Com Ed charges the same rates regardless of what supplier you select. The only charge that can be negotiated is your electricity, or supply charge. This rate is set by the supplier you select. Based on many factors, the rate offered by suppliers will vary.  Prior to entering into an agreement with a supplier, it’s important to understand how the supply charge and Com Ed pass through charges will be billed and under what conditions they can be changed. Depending on the program you are being offered and current market conditions, both options may offer benefits. Please make sure you clearly understand your options as well as the terms and conditions of your agreement. Doing so may help avoid future surprises .

Suppliers generally offer either an energy only product or an all-inclusive rate. Under the energy only product, the energy charge is negotiated and billed as a separate line item. Your energy charge will be billed as either a fixed or variable rate, depending on which option you selected. Com Ed’s pass through charges should be billed as separate line items with no mark up. It is important that your agreement define how these charges will be billed. Not doing so can give your supplier the option to increase your rates.

Under the all-inclusive option, your energy charge and most, if not all Com Ed pass through charges are billed as one line item. Before you make the decision to lock those rates, it’s important to understand that often those rates are not guaranteed. When locking charges other than the energy charge, suppliers are most likely locking rates they can not control. This gives them 2 options. Their first option is to insert a clause in their agreement allowing them to increase the rate they offered you in the event Com Ed raises their rate. This clause is often called a "Change in Law" clause. Their other option is to offer a rate that is truly locked, but hedge themselves against possible rate increases by increasing the amount they charge you for those pass through charges. Since it is unlikely a responsible, experienced supplier will place themselves in the position of charging you less than they are being billed by Com Ed for those pass through charges, it’s important to understand that you have guaranteed yourself a maximum rate increase.

Customers are often confused as to whether their rates are guaranteed and under what conditions they may be changed. Please review your agreement closely, as the agreement, not the proposal or the word of a sales representative is binding. If an agreement does not explain your charges in unambiguous language, we recommend having the supplier clarify the language prior to signing the agreement. If they will not do so, we recommend considering another supplier.

Editor’s note: The CATA encourages its members to explore the natural gas and electricity rate structures of Utility Management Group, a licensed Illinois energy broker. The company’s Elmhurst office is (630) 279-0117.