Less than a year ago, I took advantage of “Electric Choice” in Maryland and locked in a great rate for my electricity.
Electric Choice allow residents of states that have deregulated utilities to shop around for the supplier of their electricity. Your local utility delivers it, bills you, and otherwise is your point of contact… but another company supplies the juice. Most states are regulated but those who live in Connecticut, Delaware, Illinois, Maine, Maryland, Massachusetts, Michigan, New Hampshire, New Jersey, New York, Ohio, Oregon, Pennsylvania, Texas and Washington (DC) can pick their supplier.
Just yesterday, I looked at my electric bill and noticed that it was abnormally high for the second month in a row. That alone isn't suspicious, we have a kind of odd pattern of electricity use with respect to the temperature outside. If it's super cold, our heating oil furnace runs fairly regularly and keeps the house warm. If it's mildly warm, one part of our house is heated with electric baseboard.
When it's mildly warm, the whole house furnace doesn't kick on as often but our electric baseboard heating does because that room has a ton of windows. We've had a mild winter so a higher electricity bill coupled with a lower rate of heating oil consumption balances out a bit so our overall heating costs are the same.
But curious as I am, I looked at the bill. Our rate per kilowatt was like 75% higher than the local utility's standard rate (it's listed on the bill) because we moved from a fixed low rate to a floating variable rate after 3 months. I wasn't happy.
10-20% higher? OK, I can accept that. 75% is robbery.
I called to cancel. That's when they offered a 3-month contract at a half cent premium over my local utility's winter rates, plus a $150 check PLUS an adjustment for the past month down to the much cheaper rate. As unhappy as I was, money talks. That offer was a few hundred dollars better than canceling, so I accept it.
Afterward, I put my palm to my face because it was so obvious.
This is how the game worked.
You're supposed to call in after the lock-in period ends to renegotiate your deal. You don't just let it float and expect to be charged market rates. I paid the ignorance tax.
That's when I realized something bigger — if something has a contract, it's negotiable. In fact, the idea is even stronger than that.
If it has a contract, you must negotiate it.
Every. Single. Time.
We know this about cable television, we know this about cell phones, we know this about many of the things we sign contracts for… but electricity?
But it makes sense. They are massive companies and they need predictability over optimization. They sell electricity to each other, to meet customer demand, but having your own customers will always yield the highest profits. Especially if those customers are complete fools and pay the variable rate that is 75% over their already profitable rates!
If you don't negotiate, you're subsidizing the folks that do. Always negotiate.
After this latest 3-month contract expired, I called again to see if they'd offer me anything. Nope! So I switched to North American Power, got a $25 gift card (you can too through that link), lower electricity rates through the end of 2017, and will do this dance all over again. I'll just set a reminder in my calendar to check back in on December 1st, 2017.
Another example?
SiriusXM radio is a pretty good service that'll charge you $30 a month if you let them.
But if you negotiate it, you can save a staggering 75% on SiriusXM service and get 6 months for just $25. From $30 a month to less than $5. If you pay for Sirius XM radio at the regular price, you're subsidizing the customers who spend a few minutes paying the game every six months.
Now I just schedule a calendar reminder, with all the information I need for the call, and will dance the dance when it's time.
Negotiate all the things!
Seems like a step backward to have to remember to negotiate your electricity rate (even with calendar warnings).
Relying on ignorance tax seems to be an unfair consumer practice in my opinion. It reminds me a little of the FreeCreditReport.com scheme that was less than “free” for many.
However, if you can work the system and get a discount, I guess it’s no worse than stacking up credit card points by paying attention and staying “on point.”
Great insight Jim! Your post was an incredibly insightful read especially to anyone who’s looking to gain an extra step towards saving but are unsure of some of the hidden secrets. I wasn’t aware of these hidden hacks until one of my friends informed me it was possible to negotiate my subscription with Sirius. They’d much rather have you pay something per month than nothing. I just tweeted this, excited to read more content from you!
I can’t relate because our electricity is picked for us. I have records of my payments over the last three years and it hasn’t gone up much at all. Pretty lucky here in WA state with our mild weather.
Thanks for sharing I live in Maryland myself and always see ads for these alternative electric companies. I tend to stay away since our electric bill isn’t that high and I like to keep things simple.
You’re exactly right about the importance of negotiating. I had a similar experience with my verizon bill as the rep offered to cut my monthly expense nearly in half just because I called to cancel. I almost bit but I realized I called to cancel and that saved more money in the long term.
So funny that you wrote about this at the same time New Jersey residents were recently given the choice on who we get our electric from. The manner in which NJ made this change was terrible! People were confused and complaining non stop! Then customers got even more angry when a letter was sent stating “we received your request to choose xyz as your energy supplier…”. I even received this letter when I know for a fact I didn’t choose this company. For the past couple of months I get calls all day long from electric providers trying to get… Read more »
I feel like having an option IS better but it does take more time. Competition is good but it’s then incumbent on you to choose and comparison shop… some people don’t like it. 🙂
You’re welcome Asia — I guess? 🙂
no no! Seriously, I LOVE your emails and read each one! It’s just when I got the “sign up so & so & so” I thought there was a catch to it but come to find out, there’s not one and that you really are trying to help!
You even motivated me to unsubscribe using my throwaway junk email, create a login for this blog site, use my more daily email to subscribe, and even signed up to get notifications on your comments 😀
I recognize your point, but I can’t help but sympathize with folks who are elderly, or young and uninformed, or just timid by nature. They won’t negotiate, or will be easily dissuaded by a sales person who appears omnipotent. As to cable bills, here in York County PA we are offered only one cable option. Comcast recognizes this and won’t, to my knowledge, negotiate. If you want to leave them, they know you won’t go to another cable provider. I think I prefer utilities be regulated and prices controlled to allow reasonable profits, while ensuring access and afforability.
I sympathize with them too but unless you learn, you’ll continue to pay that tax.
There is and always will be the option to not have cable at all. Comcast knows this too. They need to pay their infrastructure costs whether or not you pay them for it so it’s often better to give you a sweetheart deal even if there are no other competitors.
My daughter was conned into signing up with a gas company by her new rental company and the gas company. I inquired what their rate was and was astonished that they were paying double the going rate advertised. I compared rates on line and got them a fixed rate at half the other rate. I was shocked that the evil gas company insisted that my daughter was establishing credit by paying this higher rate. When questioned the customer service agent insisted my daughters credit record had no value to the company and that the only credit you had to have… Read more »
I’ve always wondered what those customer service reps felt like when they were telling these stories. They know that it’s complete horse crap and they’re just tricking someone who doesn’t know any better. It’s a good thing she has you watching her back, this is the type of behavior that is allowed to exist when consumer protections aren’t in place. No surprise some companies want fewer protections, it pads the bottom line through BS like this.
Our experience with SiriusXM has been that when it is time to renegotiate, be prepared to be on hold for 30 minutes or more. And then the negotiations begin.
That’s a pain… I’ve only done it a couple times and each time it felt semi-painless. We drive long distance so infrequently now (on local drives we’ll just listen to NPR) it didn’t make sense to keep it, so we actually cancelled. $5 a month is cheap, for sure, but dealing with the game every 5 months was what made it not worth it!
This reminds me of the “switching game” many years ago involving AT&T vs. Verizon vs. T-Mobile vs. Sprint. I remember getting calls on a regular basis from the major phone companies, offering $50, $75, and more to switch to their company. No long term contracts. My friends and I would switch every two or three months, with the switching “bribes” far exceeding any phone bills during that time period.
Greed (and competition) is good!
I did this with SiriusXM a few months ago. Called to cancel saying it was too expensive and they eventually offered 6 months at next to nothing. How many times have you done this? I’m curious if they will catch on and stop offering the discount after I call in multiple times.
I stopped because I don’t drive enough to want to deal with calling but I’ve heard stories of folks who have done it many times.