How Do Third Party Energy Suppliers Work to Power Up Savings on Home Energy Bills?

In the spirit of free market competition—which, hey, is the spirit of America, right?—energy consumers can now choose between modern third party energy companies or their local utility company to power up their home. In 1992, President Clinton’s Energy Policy Act increased efficiency standards for building codes, required alternative fuel vehicles to be included in government fleets, and promoted renewable energy as a means to reduce foreign fuel dependence. This act was also the catalyst for a change in the utility market, restructuring it so that third party energy suppliers could now operate in many states alongside the once natural monopoly of traditional utility companies.  

If you live in one of the 16 states that have adopted new power regulations over the last couple of decades, including, but not limited to, Pennsylvania, New York, Ohio, Massachusetts, or Texas, you’ve probably already heard of third party energy suppliers. These companies purchase electricity in bulk, supplied by domestic power plants, at wholesale cost from energy traders. Then, the third party suppliers sell that power to retail consumers who know what it means to enjoy the liberty of a free market! We’re all energy conscious these days, so which one do you choose—modern suppliers or local utilities? Ask yourself who’s working to empower their customers with energy savings. We’re going to make the case for third party energy suppliers.

Different Energy Companies, Same Distribution Network

Regardless of whether you’re buying electricity from a utility or a third party supplier, your power is being delivered to your home by the transmission and distribution lines owned by the local utility. The reliability of your energy service, blackout recovery times, and standard maintenance and delivery services are equal and unaffected by who you choose as your supplier.

Third party energy suppliers don’t own their own transmission and distribution systems because of the vast amount of time, money, and space it would take to duplicate the current grid. Why bother when the systems we already have in place work so well? Third party companies simply utilize the same networks that the utilities have already built, meaning the utilities are the ones responsible for paying to maintain them.

Repairing and modernizing these networks costs billions of dollars each year due to the enormous—like really, really, enormous—scale of America’s various power grids that service a population of 325 million people. The US is the third most populated country in the world and America has nearly 200,000 miles of transmission lines and 5.5 million miles of distribution lines to deliver power to nearly all of the country’s population. The exclusion being a sprinkling of residents who have gone “off the grid.” You can probably imagine that while no single utility is responsible for the nearly six million miles of transmission and distribution lines, they still have to dedicate a considerable percentage of their budget each year to operating and updating them.

Now, that’s not to say that when you switch to a third party energy supplier you’re off the hook for the cost of transmission and distribution. No matter who you buy your energy from, a small additional delivery charge will be added by the utility company to help defray these costs. We can almost hear you thinking, “Hold the phone…if I’m paying for distribution anyway, how can third party energy suppliers save me any money? Even if they’re not on the hook for infrastructure costs, I still am, right?”

Buying in Bulk Beats Nickel-and-Diming

Thanks for bringing up such a great point. You are still responsible for paying for your transmission and distribution. However, since third party energy suppliers aren’t, they’ve got a lot of extra capital they can use elsewhere. They’re in the business of buying electricity, so that’s exactly what they use their capital for.

Ever go to Costco? Then you know first-hand that buying 200 rolls of toilet paper is cheaper per roll than buying 20. Most products, including electricity, are cheaper to produce in large quantities. It costs less per unit to buy almost anything in bulk. That doesn’t mean 200 rolls of toilet paper are cheaper than 20 rolls; it still takes more upfront cash to buy 200. You’re only actually saving money if you know you’ll buy 20 rolls ten times. If you don’t have the money to buy 200 rolls all at once, no problem. You can still get toilet paper a few rolls at a time, it’s just going to cost you a lot more in the long run.

Utility companies, who invest large amounts of their capital into grid infrastructure, don’t have cash on hand to make bulk electricity purchases. They’re paying as they go, and they’re passing on the cost of this spur-of-the-moment buying to you, the consumer. The price utilities pay for electricity changes constantly, affected by uncontrollable variables like changing fuel prices, fluctuating operational costs between various types of power plants, infrastructure costs, reduced demand due to increased energy efficiency, and regulatory changes. Local power utility customers then wind up getting charged whatever the going rate may be at that moment.

In the past, energy consumers really had no other choice than to be tossed around with the winds of fluctuating power prices. The power industry was a natural monopoly, but most Americans agree monopolies are bad for consumers. Enter, third party energy suppliers.

Third Party Energy Suppliers Capitalize on Liquid Capital

Third party energy suppliers don’t have to pay as they go; they can buy their toilet paper, er, energy, in bulk. They, and ultimately the consumer as well, both save money on each kilowatt-hour of electricity used.

Each time a new customer signs up to buy electricity from a third party supplier, typically for a period of 12 to 36 months, the supplier calculates how much energy they’ll likely need to purchase for that customer by comparing their past usage. They then add that figure to the amount of electricity all their other customers are expected to use during that same time period. That’s the total they take to large corporations like BP, Shell, and Exxon-Mobil to negotiate a bulk rate on their power purchase.

After negotiations, they’ve got a whole bunch of electricity bought and paid for. Since that energy is now a known cost to the third party energy supplier, they’re able to offer their customers a fixed rate based on their wholesale purchase price. Third party customers benefit not only from the savings generated by buying in bulk, but also from the fixed rate which protects them from the variable pricing that the utility’s customers are subjected to each month. By choosing a third party energy supplier over a traditional utility, consumers pay the same low rate, month after month. That’s liberty. That’s power. That’s why we’re called Liberty Power.

Third party energy suppliers like Liberty Power deliver residential energy with the same reliability as traditional utilities, but with the security of a never changing, fixed rate. Since we buy our electricity ahead of time, we can also choose which producers to source our power from. If our consumers want electricity generated by renewable sources like wind or solar, they have the option of purchasing renewable energy credits. This ensures that Liberty Power will buy a certain amount of energy from renewable sources. To learn more about how you can save your wallet and the environment by switching to a third party energy supplier, contact the friendly folks at Liberty Power today.

Liberty Power Editorial Team
The Editorial Team at Liberty Power is a swashbuckling group of passionate and creative Energy experts bringing you the hottest topics on exciting market trends, booming products and services, and the latest news in the industry.
April 4, 2017