First-Time Residential Electricity Buyers: Tips for Parents of College Grads

Tuesday May 17, 2011
Posted at 08:20

College graduates will soon need to make some decisions on their electricity provider

If you’re the parent of a college student graduating this spring, then you’re probably hoping, after years of helping out, that your student will be able to find a job, get an apartment and become self-sufficient.

You may already have had conversations with your student about the ins and outs of things like interviews, apartment lease agreements and paying bills. But if your student is going to live in a deregulated electric market, you should also consider talking to them about making a smart decision when it comes to buying residential electricity. Here are a few tips to help you out.

Utility vs. Alternative Electric Supplier

As you know, in a deregulated electric market, your student will have the power to choose which electric company to buy electricity from, whether it’s a utility or a retail electric supplier. Some deregulated electric markets have more retail electric suppliers than others and there are lots of different deals out there.

Have your student go online and research electric suppliers in their area, and remind them that no matter who they buy their electricity from, it will still be delivered to their apartment or home by the utility. Also let them know that, contrary to what some people think, utilities don’t punish customers who buy their electricity from alternative electric suppliers by not delivering power, failing to respond to outages or refusing to fix things that break.

Fixed Rate vs. Variable Rate Residential Electricity Plans

When it comes to deciding on a fixed-rate or variable-rate plan, you should consider your peace of mind, because that’s what’s at stake.

If you think that electric rates will go up, then you might advise that your student lock in a low rate for an extended period with a fixed-rate plan. On the other hand, if you think that electric rates might come down, then you might advise they opt for a variable-rate plan that allows the monthly electric rate to fluctuate with the market.

If you guess right, you’ll save money. If you guess wrong, you’ll spend more. Unfortunately, there’s no way to accurately predict whether choosing a fixed-rate or variable-rate plan today will be better months, or even years, down the road.

Contract Terms

A residential electric plan contract is a lot like a cell phone contract — you sign up for a certain length of service and there are terms that regulate items like monthly fees, early termination fees and how you’re required to pay your bill. Here are some things you should tell your student to look for when they research a residential electric plan:

- Early termination fee — Like cell phone contracts, a lot of residential electric companies will charge customers a fee for terminating their contract before it’s set to expire.
- Monthly fees — Some residential electric plans charge monthly fees outright, while other plans charge customers a fee if they don’t use enough electricity during the course of a month.
- Online-only plans — Sometimes you can get a better deal on electricity if you sign up for a plan online. Many times, these plans also require that you sign up for electronic billing or automatic bill pay. In the case of automatic bill pay, the electric company will debit your student’s bank account every month when their bill is due. In these cases, make sure that your student understands they need to have enough money in the bank to cover the debit or they can incur additional fees from their bank or have their payment declined.

Promotional Offers

Sometimes utilities and alternative electric suppliers will offer potential customers promotional offers, such as $200 off their electric bills over the length of the contract, in order to try and compete with plans from other electric companies that may have lower electric rates. However, these deals won’t always save your student money.

For example, if electric company A offers a 12-month, fixed-rate plan for 13 cents per kilowatt-hour — along with a promotion for $100 off over the course of the contract — your student will end up paying about $130 a month for 1000 kilowatt-hours, minus the monthly promotional savings of $8.33, for a total bill of about $121.63 per month.

However, if electric company B offers the same plan for 12 cents per kilowatt-hour — without a promotion — your student will pay only $120 per month for the same amount of electricity.

In this case, the promotional offer wasn’t the better deal. Encourage your student to brush off the math skills they learned in college and crunch some numbers to determine if a promotional offer will actually save them money in the end.

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