Understanding Energy Choice and How to Choose Your Energy Supplier

How Energy Pricing Works

Energy pricing is regularly in the news given the rate increases many people and businesses are experiencing. You might wonder why electricity is so expensive and why electricity prices are increasing. To answer both questions, it helps to know how electricity pricing works.

The price of fuel is one of the major influences of energy pricing and your residential electricity rates. Natural gas is one of the most used power plant fuels. The laws of supply and demand, together with regional factors, affect the price of natural gas and other fuels. When natural gas prices go up, you will likely see an electricity price increase, too.

As demand for a commodity like natural gas increases, so does the price. Similarly, when demand wanes, prices may fall. The amount of available supply can also affect your rates. If a surplus exists, prices may decrease; and when supplies run short, energy prices often increase. These are the largest factors to explain why your energy bill is so high.

Factors that influence energy price increases

Beyond supply and demand, other factors also influence energy pricing. These factors can drive an energy price increase and explain why electricity is so expensive today:

Power generation availability. Demand may require additional generation plants to produce enough power to support consumption.
Weather. Extreme temperatures and weather conditions are a common cause of power outages and increased energy demand.
Supply chain issues. Replacement parts for turbines and other equipment can get held up between the manufacturer and the power plant.
Grid infrastructure damage. If any part of the power grid suffers damage, it can limit the amount of power available to consumers.
Climate change and natural disasters. Weather events are a common cause of power outages and increased demand.
Grid infrastructure and distribution. It takes time to add high-voltage transmission lines and switches to the grid, so supply may not grow as fast as demand.
World events. International events such as health crises and wars or border conflicts can disrupt energy production and distribution.

While the national grid is robust, if multiple variables combine, energy rates can go up fast. We have seen many of these occur in the last two years, and the resulting electricity price increases continue to linger. A fixed-rate energy plan can help you deal with the risk of market volatility so you can lock in your electric rate. You can also change your energy use patterns to use energy-hungry appliances when electricity rates are lowest.

Natural gas prices can also affect electricity prices

How do natural gas prices affect electricity prices? During many hours of the year, the power plants that set energy prices run on natural gas, and the cost of fuel is the single largest component of the overall cost of operating those plants. As more and more plants running on coal either close or convert to running on natural gas, the number of hours when gas plants set energy prices has increased in many regions of the U.S.

How to Shop for an Electricity or Natural Gas Plan

Shopping for energy is a lot easier than you might think. Once you get a few basics down in order to make an educated decision about which gas or electricity plan to choose, the rest is an easy sign-up process. Being able to choose your best energy plan not only provides the ability to compare energy companies for their competitive rates, but also allows you to have a fixed-rate plan, customer perks, and exceptional customer service.

What to Know Before You Shop for an Electricity or Natural Gas Plan

things to consider before shopping for an energy plan graphic

There are a few important things that, as an energy consumer, you’ll need to know before you shop for an energy plan. Here are a few elements to consider before making a decision about which energy plan to choose.

1. Determine what kind of energy you need

What energy does your home or business use? Do you have only electric heaters, boilers and stovetops? Or do some of your major appliances use natural gas? Perhaps you have a mix of both. Knowing what kind of energy you need is the first step in picking the right energy plan.

2. Check your current contract and plan

Find past energy bills or go online to view your current utility or energy supplier contract. See what you’re currently paying per energy unit. This number is expressed as kWh for electricity and therm for natural gas usage. Learn how to read and calculate your energy bills.

When you know what you’re paying for energy currently, you can weigh that against alternatives when you shop for energy from other providers.

3. Consider your energy patterns

While you’re looking at your energy bill, pay attention to the times you’re consuming the most energy. Chances are, your energy usage fluctuates by season, the weekend vs. weekday, and perhaps day vs. night.

Your energy bill may also show you how your rates vary from month to month. This information can help you choose which kind of contract will work best for your home or business. With a variable-rate plan, you might not know what you’re paying for your energy units until the bill comes. With a fixed-rate plan, you know exactly the rate you’ll pay for each unit of energy you use.

Additionally, by adapting your energy consumption habits and practicing energy conservation, you will be able to bring down your monthly electricity or natural gas bill and contribute to a cleaner planet.

4. Discover whether you live in a deregulated state

Energy markets have been deregulated in many states, which allows for energy choice. This means you can choose to buy energy from one of several suppliers and you can choose what energy plan will work best for you.

Most states that have deregulated power markets for residents have also done the same for small businesses. New laws give these companies options for trimming their energy expenses. The following resource provides additional information about deregulation for small businesses.

How to Choose the Best Energy Plan For Your Home

how to start shopping for energy plans graphic

When you are ready to start shopping for energy, here are some tips and considerations for choosing the right plan:

1. Find an energy supplier in your area

Constellation offers energy plans to 16 states across the United States as well as Washington, D.C.

map of states with energy plans from constellation

Explore energy plans by state for your home

Explore energy plans by state for your small business

2. Choose the best energy rate plan based on your needs

In deregulated markets, you are no longer limited to what the utility company offers you. You will find a variety of options, some of which can save you money. The most common energy plans for energy customers are fixed-rate and variable-rate plans.

Fixed-rate energy plans lock in a price for energy that applies through the length of your contract term. No matter how much your usage spikes or what happens in the energy market, you have a predictable rate upon which you can build your budgets, set your pricing, and manage your profits. You don’t have to worry about any surprise rate increases.

Variable-rate plans are usually offered by utility companies, and sometimes energy suppliers. For example, Constellation currently only offers variable-rate plans to residential customers in Texas. Under variable-rate plans, energy rates fluctuate with the weather, demand spikes, and changes in the energy market. Learn more about how the energy markets affect pricing.

3. Compare Prices

Identify the energy companies that serve your area and then explore the plans, programs and rates they offer. To view Constellation’s energy rates, enter your zip code, and promo code if you have one, and see which fixed-rate energy plans work for you:

Residential Plans

Provide your zip code and/or promo code to compare rates in your area

4. Research additional energy plan costs

Your work shopping for a gas or electricity plan isn’t quite finished. Your energy bill is likely to include several other energy costs. Some of these you can control; others you can’t. Additional energy costs do vary from state to state, yet here are some of the more common add-on energy costs:

Delivery. This charge is for moving energy through power lines, gas pipelines and meters.
Transmission. Covers the cost of the bulk transfer of energy from power plants to electrical substations.
Capacity. A fee electricity companies include to ensure enough electricity is always available on the grid at peak times.
Ancillary services. Differs from each supplier, but includes cost of services like regulation, black start, voltage control, and more.

When learning how to choose the right energy plan for you, check each energy supplier’s additional costs so you’re able to fully understand the amount when it comes to what you will pay for electricity.

5. Determine the contract length of your fixed-rate plan

While year-long contracts are common, you may have reasons to opt for one that runs only a few months. You can also choose plans with longer duration. You typically are balancing flexibility against a predictable energy rate.

How long is a contract with an energy supplier?

In shopping for short-term vs. long-term energy contracts, you are likely to find different contract length options, such as:

6-month energy plans
12-month energy plans
24-month energy plans
36-month energy plans
48-month energy plans
60-month energy plans

6. Know when you can switch

Your contract term matters because you may not be able to switch to a better energy provider until your contract ends. While you can get out early, you will have to pay a penalty, eliminating some of the savings you might achieve.

Can I switch electricity or natural gas plans before my current contract expires?

If you’re currently using a utility for your energy service, you can switch energy providers at any time with no hassle. However, if you’re currently with another energy supplier and haven’t reached the end of your contract, you may be subject to an early termination fee. Check your current contract end date to know when you will be able to switch.

Tips to Choose the Best Electricity Plan

In evaluating which electricity plan is best, you must compare your options with care. The nuances of electricity vs. other energy sources that are important to address when choosing the right electricity plan including looking at term details, perks and other aspects.

Learn How Much You Can Save on Energy with Constellation

Because electricity rates may change throughout the year, it pays to keep an eye on prices and plans. One of the best pieces of advice in how to choose an electricity plan is to to stay up-to-date on your options. Find the latest home energy options from Constellation here.