Everyone wants to save money on electricity, and finding the lowest rate is a good place to start. If you live in a location that has deregulated its electricity market (enter your zip in the box to check), you’re in luck; you have the ability to choose an electricity provider from a whole field of companies competing to offer you a good deal. Just remember that if you’re signing up for a variable-rate plan, your rate changes from month-to-month (and sometimes even daily). This means you need to know more than the advertised initial rate; you also need to understand your future commitments and how your electricity bill will change over time.
About Electricity Rates
Electricity is usually billed by the kilowatt-hour – how many thousands of watts you use, for how many hours. If you want to figure out exactly how much an appliance is costing you, Energy.gov provides a formula for estimating energy consumption.
A typical electricity rate is in the range of ten cents per kilowatt-hour (10 cents/kWh), although this rate can vary depending on location, supplier, and type of customer. Businesses, for example, can often negotiate lower rates due to their higher volume of consumption, while residential and small business customers can shop around but not negotiate.
The federal Energy Information Administration has a chart of electricity statistics by state and sector, along with a map that displays the information. We see rates of over 15 cents per kilowatt-hour and above on the coast; the lowest rates, found in interior states like Wyoming and Oklahoma, fall below 7 cents per kilowatt-hour.
Why Rate Isn’t Everything
When you’re searching for the best electricity contract, there are some factors to consider in addition to rates.
The length of the contract matters. Some contracts last one or two years; others are simply temporary arrangements from month-to-month with no cancellation fee. The convenience of a deal that you can leave at any time might be more attractive to you than a difference in rate, but you’ll likely be paying higher rates over time, compared to longer plans.
Rate types and changes are also important. A variable-rate plan will change along with the market. A fixed-rate plan is more predictable; you pay the same rate each month, no matter what.
There’s also the issue of source. Rather than choosing the lowest possible rate, it may be worth it to you to sign a contract for green electricity. Electricity sourced from 100% renewable sources often costs slightly more than electricity sourced from coal—but it takes less of a toll on the environment and helps to support a worthwhile industry. Many green providers offer 100% renewable electricity rates well below the utility’s Price-to-Compare.
Some companies offer other incentives, such as signup bonuses that will sweeten your deal. In exchange for signing a new contract, the company may give you rewards such as airline miles, hotel points, cash-back, and other freebies. Depending on your needs, bonuses might outweigh a small difference in rate, but you should always consider the rate, contract length, rate types, and source before factoring in bonuses and rewards.