Understanding Electricity Pricing

If you live in a deregulated state, you have the power to purchase energy from an energy supplier or from the local utility. With so many options, it can be difficult to know what to look for when selecting a plan. In this blog, we will explain the price components and differences between energy suppliers and utilities.

How does energy supplier pricing work?

• Market-based prices – like most commodities, electricity and natural gas can be bought, sold and traded on the open market where suppliers closely monitor energy prices and purchase when the rates are lowest.
• Variety of price plans – suppliers can offer fixed rates, sometimes lower than the utility’s Price to Compare (PTC), in a variety of terms, giving customers a stable rate for the duration of their contract.
• Variety of products – another benefit suppliers offer is their variety of options such as renewable energy plans, offering natural gas with electricity and fixed or variable rates.
• Potential savings from switching – because suppliers have the flexibility to recognize a price, competitive term and location when purchasing electricity, this allows them to offer it to the customer immediately, creating potential savings when customers switch from the utility.
• Shop and compare prices – not only do suppliers watch for the best prices on the market before purchasing energy, but so can you! Deregulated states have Public Utilities Commission sites that compare energy prices, allowing consumers to shop for the best plan for their home or business. For example, in Ohio on Apples to Apples, or in Pennsylvania on PA PowerSwitch, you can see current options offered by suppliers with service territories in those states.

How does utility pricing work?

• Price to Compare (PTC) – is the generation charge portion of the electricity bill and is the charge replaced by the supplier when a customer switches. To determine potential savings from a supplier or utility, a customer would compare the rate offered by the supplier to the PTC of the utility.
• Wholesale auctions – in many deregulated states, utilities are required to have competitive wholesale auctions where they secure energy capacity requirements for their customers that aren’t with an energy supplier. The winning bids from the auctions are blended together to determine the generation rates the customer is charged by the utility.
• Stability versus volatility – because the PTC is based on multiple winning bids of a variety of prices and terms blended together, and the rate of a supplier is based on energy purchased singularly, there is often more volatility and potential for rate changing with utility pricing and more stability with supplier pricing.

How do suppliers and utilities work together after a customer has switched to a supplier?

• Who handles what – the utility continues to seamlessly deliver energy to homes or businesses without interruption, read meters, maintain and repair power lines and handle emergencies and power outages. The supplier enables the customer to select a rate and term of their choice.
• Who sends the bill – the utility will continue to send the bill, but the generation charge will now come from the supplier and will listed as a separate line item.

When to contact the utility once switched to a supplier:

For questions about billing and to report power outages or power line repair requests.

When to contact the supplier:

To renew your contract or if there are questions about the generation supply portion of your bill.

AEP Energy is a proud supplier of electricity and natural gas! Seasonal factors may cause the price you pay to fluctuate monthly with your local utility’s standard choice program. With AEP Energy, you can secure a fixed rate plan so that you can have the peace of mind knowing that you will have a stable price that will not change. And, the best part is that with our residential plans, you can cancel at anytime without any early termination fees if you are not 100% satisfied.

We are happy to answer all your questions about our residential price plans, small business and commercial and industrial offerings. Learn more about AEP Energy here!

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