Save Money to Invest: Shop for Electricity

Looking for a way to cut your budget so you’ll have extra cash to invest? Take a close look at your electric bill and your options for buying electricity.

Like most consumers, the thought of saving money on electrical power never occurred to me—until I received a bill this spring with the new rates my local utility would be charging. Potomac Electric Power Company—PEPCO—was jacking up summer rates for “generation services,” the major part of what you’re charged for when you buy electrical power, by 13.5%. The rest-of-year rates were going up too, though by a less severe 1.65%.

Given that energy prices have been at historic lows since the financial crises hit last fall, the prospect of actually paying more for electricity seemed inherently wrong. So I did some research, and learned that my state—Maryland—was deregulated, so I could buy power from other companies. With a few mouse clicks, I was on the Maryland Public Service Commission’s web page searching for alternative suppliers, and promptly found two companies offering a better deal over the next year in my area. The one with the best prices was the local gas utility, Washington Gas & Light, Inc, so I signed up for a one-year contract that will save us a whopping 18% on PEPCO’s summer rates this year, and 9.6% on the rest-of-year rates that come into effect in October. The contract price is even lower than last year’s PEPCO rates.

What’s precious about this is that there is no discernable downside. PEPCO will still distribute my power, handle the billing, and restore service in the event of disruption.

In fact, we’ll continue to pay distribution rates to PEPCO, but ironically those went down this year, so we’ll get the best of both worlds.

If saving money this way interests you (and why wouldn’t it?), you’ll want to check to see whether you live in a deregulated state. Then, if so, you’ll want to see what the power situation is for your area—electricity prices vary widely across the United States—and then see whether alternative providers offer a better deal than your local utility. Sometimes companies offer long-term contracts that lock you into now lower rates for two or three years, but that carries risk that the regulated rates will drop and you’ll be locked into higher rates.  If that’s the case, you may be able to get out of the contract, but with a penalty. So if you’re looking to minimize risk, see what regulated rates have been announced and how long they’ll be in effect, and if you can find an offer for that period for a better price from an alternative provider, jump at it.

Of course this will not work for everyone. Since our home has electrical heating in addition to air conditioning, my household was a good candidate to save money on power to start with. Not everyone will be in this situation, but if you are you may save hundreds of dollars a year by checking this out. Better to have that money going towards investments than earn you more rather than keeping the wrong power company fat and happy.

My final suggestion here is to act fast as it can take awhile for the companies to make the switch. In my case, it will take about six weeks to begin paying at the lower rate. And I’m really looking forward to it!

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  2 comments for “Save Money to Invest: Shop for Electricity

  1. January 20, 2010 at 1:31 am

    Cool article. This was really great read if anyones ask me. hope everyone can read it and learn something new.

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