The pros and cons of alternative utility companies

Your monthly bill may be the only correspondence you get from an electric or gas company. But if you live in one of the dozen or so states (or Washington, D.C.) that offer competitive pricing for your gas or electricity, you may have also received a phone call or a flyer dangling low promotional prices or incentives such as free gasoline, airline miles, and cash for switching energy suppliers.

If you do, your utility will still be responsible for delivering electricity or gas to your home and maintaining the wires and lines that supply it. But the electricity or gas itself is being offered by a company that competes with the utility to offer you a better price. At least that’s the theory.

Energy prices fluctuate, so you generally won’t know in advance whether your choice will actually save you money. Even if you can find out which company has been the least costly, it may not have the lowest prices in the future. Certain suppliers will guarantee a flat percentage savings off whatever the traditional utility will charge, though it can be difficult to verify whether you’ll actually get those savings. That’s because you’d have to find out what you would have been charged each month had you stuck with the traditional utility, then compare. Many utility and state regulatory websites are of little help, providing little more than basic instructions and a list of approved suppliers. Even the best websites with information on current and historical rates and interactive bill calculators left us scratching our heads about whether consumers would save anything at all.

Checking sample electric bills for 11 companies, prepared by the Public Service Commission in Washington, D.C., for example, we found that a household using 700 kilowatt-hours of electricity each month—about average in Washington, D.C.—might reduce its monthly bill by up to $5 compared with buying from the traditional electric company, a $60 annual savings. But the sample bills, according to the agency, didn’t include possible charges that some companies might impose, including the supplier that gave us the greatest savings. Just as frustrating, some of the other comparisons, which looked like they might save more, were good only for a single month because the rates are variable, making it impossible to estimate how much you’d save annually, if anything.

Bottom line. Even if you shop carefully, you could still end up paying more than you would if you stuck with a traditional utility. If you decide to shop suppliers, check the Better Business Bureau and the Internet for customer reviews and complaints. And as much as you may not want to, you should read all the small type in the contract to make sure you’ll get the savings you expect. Here are some gotchas to look out for:

Low promotional rates that can climb significantly after the first month or two.
Variable rates that change monthly or daily with market conditions.
Contracts that are renewed automatically.
Sign-on fees or high late-payment fees.
Cancellation fees or any other penalties for switching to a new supplier or back to your old one.

For more energy-saving ideas read our Home Improvement Guide, which also has information on renovation projects and top-rated products.