Comparing ESCO Supply Offers: Making Two Prices Line Up

Two offers quoted in the same units still are not comparable until the fees, the promotional periods and your own usage have been folded into them.

Two retail energy offers arrive in the same week, quoted in the same units,
and they still cannot be compared as they stand. One is fixed for a year, one is
promotional for three months and then something undefined, one carries a monthly
account fee and one does not. Turning them into numbers that mean the same thing
takes about fifteen minutes and one figure off your own bill.

Comparing ESCO Supply Offers: Making Two Prices Mean the Same Thing

Everything here concerns the supply portion of your electricity or gas only.
Delivery, the fixed customer charge and the surcharges attached to delivery are
set by your utility’s tariff and no supplier can change them. What the clauses in
an offer actually commit you to is a separate subject, covered in
reading an ESCO contract;
this is about making the numbers line up once you have understood the words.

Step one: establish your benchmark

Every comparison needs a reference, and the correct one is the price you
would pay if you did nothing — your utility’s own supply rate. It is published,
it moves on its own schedule, and it is what the supplier’s number is actually
competing against.

Look it up rather than assuming it, and look at more than one month, because
utility supply pricing varies through the year. A single month is a snapshot of
a moving figure, and a snapshot taken in an unusual month is exactly how an
offer comes to look better or worse than it is.

Step two: put the offer’s fees into the unit price

A monthly account fee is not a per-unit price, but it becomes one once you
divide it by the energy you actually use. That means the same fee makes a bigger
difference to a small household than to a large one, and it means two offers with
identical headline rates can be materially different for you and not for your
neighbour.

The number to divide by is your own consumption, not an average. Pull twelve
months of usage off your bills or your utility’s online account — the exercise in
finding your monthly kilowatt-hours —
and use your real annual figure. Winter and summer consumption differ enough
that a single month will mislead you here too, which is the pattern described in
why a year of bills looks the way it does.

Step three: price the whole term, not the headline

An offer with a promotional period is at least two prices. Weight each by the
share of the term it applies to, and if the second price is variable then be
plain about the fact that the back half of the offer has no price at all — it has
a mechanism. You cannot average an undefined number, so the honest way to record
it is as a known price for part of the term and an open question for the rest.

The comparison people get wrong

The most common error is comparing a supplier’s supply rate against the total
per-unit cost of the whole bill. Total bill divided by kilowatt-hours produces an
all-in figure that contains delivery, taxes and surcharges, and it is a genuinely
useful number for other purposes — it is the right input for
working out a cost per mile,
for instance. It is the wrong benchmark here, because a supplier cannot touch
most of what is in it. Compare supply against supply, and the difference between
the two offers will be small and real rather than large and imaginary.

What a fixed rate is actually buying

It is worth being straight about this, because the sales framing is usually
savings and the product is usually stability. A fixed rate removes your exposure
to a moving utility supply price for the term. Whether that ends up costing or
saving depends on what the benchmark does over those months, which nobody knows
in advance — and the benchmark does move, on its own schedule, as
how rate changes work in New York
describes.

So the useful question is not “will this save money” but “how much
predictability am I buying, over how long, and what does it cost me if the
benchmark falls”. A household that would find a bad winter genuinely difficult
values that differently from one that would not, and that is a legitimate reason
to choose a fixed rate even if the arithmetic is a coin toss.

If you have solar or storage, add one question

Where a system exports to the grid, the credits it earns are applied against
components of your bill, and moving the supply component to a third party changes
who bills that component. Ask both the utility and the supplier, in writing,
exactly how your credits will be applied afterwards before you sign anything —
the mechanics being those in
how net metering credits work.
It is the one part of this decision that is difficult to unwind.

A comparison you can finish in fifteen minutes

• Write down your annual usage, from your own bills.
• Write down your utility’s supply rate, averaged over several months.
• For each offer: supply rate, plus any fee converted to a per-unit figure
  using your usage.
• Split any promotional offer into its periods and weight them.
• Mark any variable period as unpriced rather than estimating it.
• Note the early termination fee beside each one.
• Compare the resulting figures against the benchmark, not against each
  other alone.

Done that way, most offers turn out to be close to the benchmark, differing
by a small margin in one direction or the other, with the real variable being
what happens at the end of the term. Which is the honest conclusion, and a more
useful one than a headline rate.

Frequently Asked Questions

What should I compare an ESCO offer against?

Your utility’s own supply rate, which is what you pay if you do nothing. It is published and it moves through the year, so take an average over several months rather than a single snapshot. Comparing against your total bill instead is the most common error, because a supplier cannot change delivery, taxes or the fixed customer charge.

How do I account for a monthly account fee?

Divide it by your own monthly usage to turn it into a per-unit figure and add it to the quoted rate. Because it is a flat charge, the same fee costs a small household much more per unit than a large one, which is why two offers with identical headline rates can rank differently for you than for a neighbour.

How do I compare an offer with a promotional rate?

Treat it as two prices and weight each by the share of the term it covers. If the rate after the promotional period is variable, do not estimate it — record that portion as unpriced. Averaging an undefined figure produces a number that looks precise and means nothing.

Is a fixed rate cheaper than staying with the utility?

Nobody knows in advance, because it is measured against a utility supply price that moves on its own schedule. What a fixed rate reliably buys is predictability for the term. That can be worth choosing on its own merits for a household that would find an unexpected winter bill genuinely difficult, whatever the arithmetic does.

What does a renewable or green product actually add?

Compare it against the same supplier’s standard offer rather than against the utility, and the difference between the two is what the certificate purchase costs you. Ask what is being bought on your behalf and where it is documented, because the electrons arriving at your house are the same either way.

Does the early termination fee matter if I intend to stay?

It matters because it prices being wrong. If the benchmark falls well below your fixed rate partway through the term, that fee decides whether leaving is practical. Note it beside every offer you are comparing rather than treating it as a detail that only applies to other people.

I have solar. Is there anything extra to check?

Yes, and check it before signing. Export credits are applied against components of your bill, and moving supply to a third party changes who bills that component. Ask both the utility and the supplier in writing how your credits will be applied afterwards, because this is the part of the decision that is hardest to unwind.