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Don't Be Fooled By "Low" kWh Prices

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In a complex energy market, it can be easy to misunderstand the terms of your electricity contract. Even for large organizations, buyer’s remorse is a real concern. 

This is especially true when you’re locking into a longer term with built-in price premiums. It’s essential to understand exactly what’s included in your supply price and whether there will be additional mandatory fees charged by the utility, such as capacity, transmission or distribution. 

What’s at stake when you’re signing a power contract?

Take, for example, a youth sports league.

The league used approximately 57,500 kilowatt hours per month and needed a fixed electricity contract with a low rate. They solicited quotes from multiple suppliers with the intention of choosing the lowest rate.

Seems like a straightforward task, right?

Unfortunately, in many cases, comparing energy quotes can be deceptively difficult. Suppliers usually offer quotes based on a fixed rate per kilowatt hour. But it can be hard to discern what’s included in this fixed rate, what the additional charges could be, if any, and whether those costs are subject to change for any reason over the course of your contract.

The sports league received the following quotes from Direct Energy Business and another competing supplier:

   Direct Energy Business Competing Supplier
Quoted Rate $0.103750/KWh $0.103500/KWh
Projected Monthly Cost $5,965.63 $5,951.25

 

When comparing these prices at face value, the competitor’s quote is slightly lower by about $14.00 per month. Happy to take the best price, even by a small margin, the league signed off with the competing supplier.

Here’s the problem

What we suspected – and what we confirmed later on – is that the difference between these quotes goes deeper than the kilowatt per hour price tag. 

It’s critical to also compare contract language about how mandatory utility fees will be billed. And if those fees are wrapped into the fixed rate, you need to ask what will happen if the utility increases fees during your contract. Will you receive a surprise bill?

That’s exactly what happened to the youth sport league. The utility raised fees and the supplier passed those increases along to the league on the next bill.  What should have been a bill for $5,951.25 arrived as a bill for $6,113.06 – a difference of $161.81

   Direct Energy Business Competing Supplier
Actual Monthly Cost $5,965.63 $6,113.06

 

Add that up over the course of a year, and that’s nearly $1,800 more annually than the Direct Energy Business contract – based on one price adjustment. As it’s not uncommon for utilities to adjust fees multiple times per year, the budget consequences over time could have been even worse.

Why can quote comparisons be so deceptive?

There many reasons that consumers can get overcharged for energy. While sometimes businesses fall prey to actual scams, more often, consumers get overcharged because of hidden costs and misconceptions about line items on the bill. 

When utilities increase fees, some suppliers choose to absorb the loss on behalf of their customers. But for some utility fee adjustments, the costs and risks are too great for suppliers to cover. When they fail to inform customers of the almost inevitable reality of increasing utility fees, they allow their customers to be blindsided. 

In the case of the youth sports league, the competitor’s quote didn’t account for increasing utility fees. And they didn’t inform the league that they would potentially be on the hook for costs in addition to the fixed rate. 

As a business development manager from Direct Energy Business pointed out, this energy consumer was specifically price-driven, but still failed to understand the complete breakdown of costs: 

“Most larger customers are aware of rising pass through charges, but they are not aware of some issues with the change in law language that some of our competitors use. When asked if ‘capacity is included’ our competitors will say yes, but they don’t explain that there is a good chance that sometime during the contract term there will be additional capacity costs that will be billed to the customer.”

What’s the moral of the story?

If nothing else, it’s absolutely essential to read through your contract language and ask questions about how all supply and utility costs will be handled throughout the contract. Pose scenarios about changes to your usage year-over-year and make sure any guarantees are included in the contract. Only do business with trusted suppliers who have a good track record of business in your area, or consult with a third-party energy strategist to make sure you’re getting the best deal – and the full story.

The youth sports league ended up paying more for their electricity than necessary. Why? Because a direct rate comparison presented a deceptive view of the total costs.

The good news?

When their contract with the competitor ended, the league returned to Direct Energy Business and got a second chance to enjoy a low rate – free from the surprise bills they had received before. And perhaps more importantly, they could now benefit from a relationship with a trusted supplier who set them up for success. 

For more insight on how to get the best electricity rate for your large business in a changing energy market, check out our report “Electricity is Cheap, So Why is My Bill So Expensive?”

Read the Report

Posted: August 16, 2018

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