Beatrice Lang
Third-party electric suppliers are companies that sell electricity to customers instead of utility companies. They are also referred to as competitive energy retailers or third-party electric retailers. They buy electricity in bulk from utilities and generation plants and then sell it to consumers at a competitive (i.e., lower) price than utilities. They also tend to have more flexible contracts than utility companies. However, they have been known to exploit vulnerable consumers, including low-income individuals and communities of color.
What does third-party electric mean?
| Characteristics | Values |
|---|---|
| Definition | A third-party electric supplier is a company that sells electricity to residential and business customers but is not the incumbent utility. |
| Purpose | Third-party electric suppliers aim to increase consumer choice and may offer lower prices than utilities. |
| Market | Third-party electric suppliers operate in deregulated markets, where non-utility companies are allowed to sell electricity to consumers. |
| Pricing | Third-party electric suppliers may offer competitive or lower prices than utilities, but there have been reports of price increases over time. |
| Contract Flexibility | Third-party electric suppliers typically offer more flexible contracts than utility companies. |
| Sources of Electricity | They buy electricity in bulk from utilities and generation plants and then sell it to customers. |
| Customer Service | Third-party electric suppliers have a history of exploiting vulnerable consumers, including low-income individuals and communities of color. |
| Solar Energy | Navigating third-party energy suppliers can be tricky for customers with solar systems due to net metering complexities. |
| Consumer Protection | Community Choice Aggregation (CCA) programs, run by cities or towns, offer greater transparency, control, and protection to customers compared to third-party suppliers. |
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What You'll Learn
Third-party electric suppliers
In the United States, more than half of the states have deregulated their electricity markets to allow third-party electric suppliers to serve customers. For example, Massachusetts deregulated its energy markets in 1997, and third-party suppliers began selling electricity soon after. Prior to the 1990s, all energy markets in the US were regulated, and consumers could only receive electricity from their local or incumbent utility company. However, policymakers eventually decided that this gave utilities too much power over electric prices, leading to the introduction of deregulated markets and third-party suppliers.
The introduction of third-party suppliers has benefits and drawbacks. On the one hand, they can offer lower prices and more flexible contracts, increasing consumer choice and control. On the other hand, there have been reports of third-party suppliers exploiting vulnerable consumers, and some customers have reported being charged significantly higher prices than they expected. Additionally, navigating third-party energy suppliers can be tricky, especially when solar energy is involved.
When considering a third-party electric supplier, it is important to carefully study the contract terms, as they may include clauses that allow the supplier to raise rates suddenly and at any time, potentially erasing any initial savings. It is also worth comparing prices and checking ratings and reviews to ensure you are getting a good deal and a high level of customer service. Public Utility Commission websites and city or utility company sites usually provide listings of licensed third-party electric suppliers in your area.
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Benefits of third-party electricity
Third-party electricity refers to electricity supplied by a company that is not the incumbent utility company. In the US, third-party electricity suppliers emerged in the 1990s when policymakers passed laws to deregulate energy markets, allowing non-utility companies to sell electricity to consumers.
There are several benefits of third-party electricity suppliers:
- Increased consumer choice and control: Third-party electricity suppliers give consumers the option to choose their electricity provider, increasing competition in the market. This empowers consumers to have more control over their electricity costs and decisions.
- Potential cost savings: Third-party electricity suppliers buy electricity in bulk from utilities and generation plants and then sell it to consumers at competitive rates, often lower than the rates offered by utility companies. This can result in potential cost savings for consumers, especially in the initial months of their contract.
- Flexible contracts: Third-party electricity suppliers typically offer more flexible contracts than utility companies, providing consumers with a range of options to suit their power usage patterns.
- Improved customer service: Third-party electricity suppliers are known for providing better customer service, responding to customer inquiries promptly and efficiently.
- Innovation in contract design: These suppliers offer innovative contract options and help handle the complexities of procuring power, minimizing the risk of surprise charges and hidden fees.
However, it is important to note that the benefits of third-party electricity suppliers may vary depending on the supplier and the consumer's specific situation. In some cases, third-party suppliers have been known to increase costs for consumers over time, and there have been concerns about predatory practices targeting vulnerable communities.
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Drawbacks of third-party electricity
Third-party electricity suppliers are companies that sell electricity to customers instead of utility companies. They buy electricity in bulk from utilities and then sell it to consumers at a competitive (i.e., lower) price than utilities. They also tend to have more flexible contracts than utility companies. However, despite the benefits, there are several drawbacks to third-party electricity suppliers.
Firstly, third-party electricity suppliers have a history of exploiting vulnerable consumers, including low-income individuals, individuals with low English proficiency, and communities of color. They entice consumers with low introductory rates, but then overcharge them once the introductory period has lapsed. This predatory practice disproportionately affects older and lower-income customers, who may struggle to extricate themselves from confusing contracts and exorbitant cancellation fees.
Secondly, while third-party suppliers may offer lower electricity rates, they do not offer net metering, which is crucial for solar energy systems. Without net metering, consumers lose out on significant cost savings and waste tons of kWh, resulting in higher expenses over the lifespan of their solar system. Therefore, for those with solar energy, switching to a third-party supplier is not advisable as it could cost them a lot of money in the long run.
Thirdly, third-party electricity suppliers operate in deregulated markets, which can lead to unpredictable pricing and long-term contracts. While state leaders have implemented regulations to protect consumers, there is still a risk of being locked into unfavorable agreements with challenging exit terms. Additionally, third-party suppliers introduce an intermediary layer to the electricity supply chain, which can create complexities and potential points of failure in the system.
Lastly, switching to a third-party electricity supplier may not always result in cost savings. In some cases, the supplier's rates could be higher than those of the utility company, especially after the introductory period ends. Therefore, consumers should carefully study their contract terms and be vigilant about monitoring their utility statements to avoid surprise charges.
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Community choice aggregation (CCA)
Third-party electric suppliers are companies that sell electricity to customers instead of utility companies. They operate in deregulated markets, where consumers have a choice of where their electricity comes from. In the US, more than half of the states have deregulated their electricity markets to allow third-party electric suppliers to serve customers.
CCA programs are structured to provide residents with more transparency and greater control over electricity costs and decisions. As government-run programs, CCAs are subject to greater restrictions and scrutiny than a third-party supplier, offering customers greater protection. CCAs can also help communities reach their climate and economic goals, transitioning to a cleaner, more efficient energy supply.
In California, there are currently 25 operational CCA programs serving more than 14 million customers. California's Community Choice Association (CalCCA) was created to represent the interests of operational CCA providers at the California Legislature and regulatory agencies. CalCCA's mission is to create a legislative and regulatory environment that supports the development and long-term sustainability of locally-run CCA electricity providers in California.
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Third-party electricity and solar energy
Third-party electricity suppliers are companies that sell electricity to customers instead of utility companies. They buy electricity in bulk from utilities and generation plants and then sell it to consumers at a competitive price. In the United States, third-party electricity suppliers exist because of deregulated state energy markets. More than half of US states have deregulated their electricity markets to allow third-party suppliers to serve customers.
Third-party electricity suppliers offer an alternative to traditional utility companies and can attract customers by offering cheaper rates, more flexible agreements, or fixed rates. However, they have also been known to exploit vulnerable consumers, including low-income individuals and communities of color. In January 2023, Massachusetts Representative Tackey Chan introduced a bill to reform third-party electric suppliers and protect customers from predatory practices and false advertising.
Solar energy can be financed through third-party ownership in two main forms: solar leases and power purchase agreements (PPAs). In a solar lease, a customer signs a contract to pay for the use of a solar system over a specified period. With a PPA, the developer sells the power generated by the solar system to the customer at a fixed rate, usually lower than the local utility. A solar power purchase agreement (SPPA) is a type of PPA in which a third-party developer owns, operates, and maintains the photovoltaic (PV) system, and the customer agrees to site the system on their property and purchase its electric output.
If you have solar energy, you should not switch to a third-party energy supplier because you will lose out on net metering. Net metering gives you credit for kilowatt-hours (kWh) produced by your solar system that were not used at the time of production. Without net metering, you may end up wasting kWh and paying more for your electricity over time.
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Frequently asked questions
A third-party electric supplier is a company that sells electricity to customers instead of utility companies, giving electricity customers a choice of where their electricity comes from.
Utility companies transport electricity and provide other services to customers. Third-party electric suppliers buy electricity in bulk from utilities and generation plants and then sell it to customers at a competitive price.
Third-party electric suppliers increase consumer choice and may be able to offer lower prices than utilities. They also tend to have more flexible contracts than utility companies.
Third-party electric suppliers have a history of exploiting vulnerable consumers, including low-income individuals, individuals with low English proficiency, and communities of color. They may also raise their rates suddenly and at any time, which can erase any savings from signing up for a cheaper electricity rate.
Public Utility Commission websites and City or utility company sites usually provide current listings of licensed third-party electric suppliers.
