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How Energy Choice Works

July 12, 2019

If you live in a deregulated state, as a consumer, you have “energy choice”. Energy choice is the option to purchase energy from a licensed retail energy supplier, like AEP Energy, or from the utility. Deregulation began with the National Energy Policy Act in 1992, which created the outline for a competitive wholesale electricity generation market. Private market competition was then possible within wholesale electricity generation.

If you’re unfamiliar with energy choice, deregulation can be confusing, and it’s important to know what your options are when it comes to your energy spend, so we’re going to break it down. Wherever your home or business is located, there’s a utility that provides energy. In a deregulated state, retail energy suppliers are licensed to sell energy in the eligible utility’s territory and offer different rates and products.

The Nuts and Bolts

Electricity, much like most other commodities, is capable of being bought, sold and traded, on the open market. In this competitive market environment, participating retail energy suppliers closely monitor energy prices and purchase electricity for customers based on current market prices. The market prices of electricity and natural gas can change daily and so do the rates offered by suppliers.

This price can be locked in by the consumer over a term length to avoid high energy prices during periods when energy demand has increased due to extreme temperatures, shortages in supply or delivery constraints. Suppliers then sell this power to consumers, which helps save money on the generation portion of their bill.

Utilities are regulated by the state’s regulatory commission, which dictates and enforces specific rules preventing utilities from actively participating in the open market. These rules are put into place to avoid allowing utilities the ability to monopolize electricity generation.

The rates charged by the utility may fluctuate due to seasonality, utility fuel and other costs, and are set by the state’s regulatory commission. Because competitive retail energy suppliers like AEP Energy purchase energy in the competitive market environment, they can offer a variety of different fixed and variable pricing, terms and options.

Benefits of Choice

One upside to purchasing energy from a competitive retail energy supplier, aside from a potentially lower rate and more customized options, is that the same utility will continue to provide reliable service, energy and maintain lines and outages, with no interruption to your energy service. Whether you participate in energy choice or not, the supply is distributed in the same way. The difference is that consumers benefit by selecting a supplier of their choice that offers the price, term and percentage of renewable energy of their liking.

In short, working with a supplier allows you to customize a price and plan based on how you use power, what your goals are and how comfortable you are with market risk exposure. Suppliers should look at your usage history and discuss with you why you should or should not work with a supplier, and what factors you can change regarding your usage patterns to help you cut energy costs and get better pricing for your energy.

Interested in Making the Switch to an Energy Supplier?

It’s easy! To find out what energy suppliers service your area, you can contact your local utility commission. Once you find out who you can use as a supplier, make sure the supplier is reputable and can offer a variety of customizable price plans, like AEP Energy, that can meet your needs. Once you sign a contract, the retail energy supplier will notify your utility to make the switch. Depending on who you select, you may receive a separate bill from your new supplier, or you’ll see your new energy supply price as a line item on your existing bill.

Questions? We’re happy to help! Contact us 1-866-258-3782 to at learn how AEP Energy can tailor an energy plan that’s right for your home or business.

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