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Did you know that you can shop around and choose what company you buy energy from? That’s right, you don’t have to purchase your electricity or gas from the company that pipes it to your door. Our municipality just negotiated a new two year contract on behalf of residents for electric and after seeing the results of said negotiations I was left with more questions than answers.
The new two year fixed opt-out rate is for 5.6¢ per kilowatt hour (kWh) plus an additional 0.1¢ city imposed fee on top of that for managing the aggregation program. That rate is for raw energy, and that energy still has to get from where it is generated to your house, and that is the distribution charge that you pay to your electric company. In our case, we have Ameren. Ameren’s website has a list of suppliers that you can purchase from so I did what any good nerd would do and opened up a blank spreadsheet and got to work.
Here is the result of a lunch break’s worth of internet sleuthing (click on it for a PDF version).
Most of the suppliers were more costly than the negotiated aggregate rate. I would kind of hope that the collective bargaining power of 30,000+ households could beat an anonymous internet quote. With that said, there were two suppliers that offered better one year fixed rates than the default Homefield Energy.
MidAmerican Energy offers a 4.54¢/kWh one year fixed rate with no cancellation fee. Viridian Energy offers a slightly higher 5.49¢/kWh one year fixed rate with a cancellation fee. Both options beat the city negotiated rate.
Apples to Oranges
I hear you saying, “Okay Andrew, this isn’t a very good comparison.” These lower rates are one year vs two year, and that is true. In order for it to balance out, rates in the second year would have to increase to 6.7¢/kWh for MidAmerican Energy. A number that is hardly even seen on the price matrix as of today. I would peg the probability of such a rate increase in one year’s time as very small.
“Well, what about the environment Mr. Smart Guy?!” Each energy supplier has their own breakdown of how their energy is generated (MidAmerican, Homefield Energy). Coal, one of the worst polluters is also one of the cheapest forms of electric generation. So how do Homefield Energy and MidAmerican Energy compete in terms of ‘greenness’?
Taking coal and natural gas together (arguably the two worst polluters) pins Homefield Energy as the dirtier supplier with 72.33% of their electrical generation coming from those two sources. So in this case, it is not a matter of paying more to Homefield because they offer cleaner electrons. In fact, MidAmerican has about 30% renewable energy (in the form of wind) compared to Homefield’s dismal 6%.
A Penny or Two Matters
So MidAmerican is cheaper and cleaner, but does it really matter to John and Jane Doe consumer? I mean, it is only 1.06¢ difference per kWh. According to U.S. Energy Information Administration, EIA, the average U.S. residential utility customer used 10,908 kWh in 2013. Multiply that usage by the cost difference between these two suppliers (.0106) and you end up with $115.62 in savings per year. Not too shabby for spending 5 minutes on an enrollment website. We personally stand to save about $58 based off our usage (5514 kWh) in 2014. Alternatively, we could spend an extra $50 and go with Viridian’s 100% renewable one year rate at 6.49¢/kWh.
At the end of my hour traipse through different electric supplier’s websites I am still left with the question of why our municipality agreed to the contract that they did. There are cheaper options available and there are greener options as well. Heck, for a cash strapped city that is always claiming to look for more revenue, it doesn’t take much creativity to set the opt-out rate at MidAmerican’s low price of 4.54¢/kWh and then add on a surcharge of 1.06¢/kWh to bring it up to their current contract rate. The city would pocket about 3.9 million dollars!!
34,131 households * 10,908 kWh (average annual usage) * $0.0106
The precedent for adding a surcharge is already there, they currently add one and nobody has raised a fuss. A spokesperson for one energy supplier said that less than 10% of customers opt out of aggregate contracts. Most people simply don’t care.
Perhaps MidAmerican couldn’t generate enough electricity for 30,000 households. That still leaves the possibility of using Viridian’s one year fixed rate @ 5.49¢/kWh. Not only is it 50% renewable, quite an improvement over 6%, but if the same money raking strategy was employed here the city would still be able to generate over $400k in revenue.
34,131 households * 10,908 kWh (average annual usage) * $0.0011
I may be missing a piece of the puzzle, but it seems to me that there is a drastically better solution available than the one that has been presented to the public. The current 0.1¢ surcharge to manage the aggregate program is estimated to generate about $370,000. I spent a lunch break and found a better rate.