Third-Party Energy Suppliers and the Variable-Rate Jump

Why this matters

Some of the worst bill calls a shop takes have nothing to do with anything in the house. The customer signed up with an energy supplier at the door or online, got a low fixed rate for six or twelve months, forgot about it, and the rate quietly rolled to a variable one. Same house, same use, a much bigger bill, and the timing lands right after the shop installed something. If the tech goes looking for a fault, they will find either nothing or something to replace. If the tech reads the supply section of the bill, the answer is usually printed there in one line.

Delivery and supply are two different businesses

Every electric and gas bill pays for two things:

• Delivery (also called distribution, or transmission and distribution): getting the energy to the house through wires or pipes, maintaining them, reading the meter, answering outages. The local utility always does this, and its delivery rates are set by the state regulator.
• Supply (also called generation for electricity, or commodity for gas): the energy itself. In most of the country the utility buys it and bills it at a regulated or pass-through rate.

In states with retail choice, also called deregulated or competitive markets, the customer may buy supply from a third-party company, often called a supplier, marketer or retail energy provider. The utility still delivers, still reads the meter, and usually still sends the bill, with the supplier's charges printed in their own section.

Which states allow it, for electricity, gas or both, is set state by state, and the rules differ widely. Pennsylvania, Ohio and Illinois are among the states where a residential customer can choose an electric supplier while the utility stays the default. Texas, in its competitive areas, goes further: there is no utility supply to fall back on, and every customer buys from a retail provider who bills them directly. Much of the Southeast and West has no residential electric choice at all. Gas choice is its own map; parts of Georgia, for example, require customers to choose a gas marketer. Check your state public utility commission for where your customers stand.

How the rate jumps

The common shape:

1. An introductory fixed rate. The customer signs up for a fixed rate per kWh or per therm for a set term, often 6 to 24 months. It may be below the utility's default rate at signup.
2. The term ends. The contract says what happens next. Commonly it rolls to a month-to-month variable rate, which the supplier can change each billing cycle, or to a new fixed term at a different rate.
3. The variable rate floats. It may track wholesale prices, or simply be whatever the supplier sets. In a tight winter or a hot summer it can move up sharply.

States with retail choice generally require the supplier to notify the customer before a fixed term ends, with what the notice must say and when it must arrive set by the state commission. Some states have also restricted residential variable-rate offers. The notice often arrives as a separate letter or email the customer did not read.

None of this shows up as a change in use. The kWh line on the bill is flat; the supply rate per kWh is not.

What it looks like on the bill

Bill layouts differ by utility, but the sections are nearly always there. A simplified electric bill, with the rates written as symbols:

ELECTRIC BILL  30 DAYS  941 KWH  (LAST BILL 936 KWH)

DELIVERY - YOUR UTILITY
  Customer charge      fixed            same as last
  Distribution         941 kWh x D      D unchanged
  Transmission         941 kWh x T      T unchanged
  Riders               941 kWh x R      R unchanged

SUPPLY - SUPPLIER NAME, ACCT NO.  <- LOOK HERE
  Plan type            VARIABLE         was FIXED
  Supply               941 kWh x S2     S2 = 1.6 x S1
  Supplier phone and contract end date

UTILITY PRICE TO COMPARE           P per kWh

What to find on a real bill:

• The supplier's name, at the top of the supply section. If it names a company other than the utility, the customer is on a third-party supplier.
• The supply rate per kWh or per therm, and last month's for comparison.
• A plan type or contract end date. Some bills print it; many do not, and the customer has to check with the supplier.
• A price to compare, which some states require the bill or the utility to publish: the utility's default supply rate, so a customer can see what they would pay without a supplier.

Worked example: same use, 31 percent more on the bill

A customer calls in February. The shop replaced their water heater in December, and the February bill is up sharply from January. They are sure it is the water heater.

Read the bill before anything else.

Use. January was 936 kWh over 30 days, February 941 kWh over 30 days. 941 / 936 = 1.005, half a percent more use. The days match, so no billing-day adjustment is needed.

Delivery. The customer charge, distribution, transmission and rider rates are unchanged between the two bills.

Supply. January's supply rate was S1, a fixed rate. February's is S2 on a variable plan, and S2 is 1.6 times S1. The contract end date, once the customer looks it up, was in mid-January.

How much of the bill moved. On the January bill, supply was 52 percent of the total and delivery 48 percent (read the section subtotals). Hold use flat for a moment:

• Delivery stays at 0.48 of the old total.
• Supply becomes 0.52 x 1.6 = 0.832 of the old total.
• New total: 0.48 + 0.832 = 1.312, a 31.2 percent increase.

The extra 5 kWh add well under a point on top: 0.832 x 0.005 = 0.004 from supply, and at most 0.48 x 0.005 = 0.002 from the per-kWh delivery lines. So the bill rose about 31 to 32 percent on a use increase of half a percent.

Check it from the other direction. If the 31 percent had come from use instead of the rate, February would have needed about 936 x 1.31 = 1,226 kWh, and the meter read 941. The water heater cannot have done it, because the kWh did not move.

What the tech says. "Your use is the same as last month, within five kilowatt-hours. What changed is the supply rate in this section, from a fixed plan that ended in January to a variable one that is 1.6 times higher. That is a contract question for your supplier, not something in the house. Their number is here on the bill." Then point at the price to compare if the bill prints one, and stop.

What would have changed it. If the supply rate had held and the kWh had risen 30 percent, the supplier is irrelevant and the high-bill sequence takes over. See related: How to Diagnose a High-Bill Call in Order. If both moved, take the rate change out first, using the same section arithmetic above, and see what rise in use is left to explain.

Catching it from the office, before a truck rolls

Most of this can be done on the phone in three minutes with the customer holding both bills. The questions, in order:

1. "Read me the kWh, or therms, on this bill and on the last one." If they are within a few percent and the days match, the use did not change and the next two questions matter most.
2. "Is there a section called supply, generation or commodity, and whose name is at the top of it?" A company name that is not the utility's means a supplier.
3. "What is the rate per kWh, or per therm, in that section on each bill?" A rate that changed by a large multiple with flat use is the whole answer.

Then ask one more: "Did you sign up for an energy plan, at the door, by phone or online, in the last couple of years?" Many customers do not connect the enrollment with the bill. If the answers point at the supply rate, the office closes the call with where to look and who to call, and books nothing. If the use moved too, it goes into the normal high-bill intake. See related: How to Take a High-Bill Call at the Office.

The tech's lane, and its edges

• Point to it; do not resolve it. Show the customer the supply section and the rate change. The fix is a call to the supplier or a look at the commission's comparison resources, and that is the customer's decision.
• Do not recommend a supplier, a plan, or switching back to the utility. That is advice about a contract and a market, not about equipment, and the right answer depends on terms you have not read.
• Do not call the supplier on the customer's behalf or log into their account. If they want help, sit with them while they make the call.
• Watch for enrollments the customer does not recognize. A supplier name on the bill that the customer says they never chose, or a switch after a door-to-door visit they do not remember agreeing to, may be an unauthorized switch, sometimes called slamming. State commissions take those complaints directly; send the customer to theirs.

Where it hides

• The bill is from the supplier, not the utility. In some states the supplier bills both parts itself, and the delivery section is the one to find. In Texas competitive areas this is the norm.
• Gas, not electric. A customer with gas choice can see the same jump on a gas bill in the first cold month, which looks exactly like a furnace problem. Check the commodity rate per therm before anything else.
• Two bills. Some customers receive a separate bill from the supplier in addition to the utility's. Ask whether there is another envelope.
• Combined with a real change. A rate jump in the same month as a new load or a cold snap. Separate them with the section arithmetic: rate times use, piece by piece.

References

• The customer's state public utility commission, for retail choice availability, contract-expiration notice rules and complaint procedures
• See related: Anatomy of a Residential Electric Bill, Line by Line
• See related: Why a Bill Rises: The Causes That Are Not the New Equipment
• See related: Reading Customer's Electric Bill Reference
• See related: How to Take a High-Bill Call at the Office