Understanding the terms of the agreement or contract with a Third Party Supplier (TPS) is critical.
Contracts with TPSs are based upon a FIXED price per unit, a VARIABLE price per unit, or a combination where the price is fixed for a set period of time and then changes to a variable price. The unit of measurement for electric supply contracts is kilowatt-hours (kWh) and the unit of measurement for gas supply contracts is therms. Regardless of the type of pricing you select, it’s important that you read and understand the terms of your contract. Your contract is a legal document and like any legal document you must be sure to read and understand the terms of the agreement.
Once you have an understanding of the different forms of pricing, you can visit the websites of TPSs serving residential customers in your area to compare current plans and pricing.
What is FIXED pricing?Fixed pricing refers to a set price per unit that will be charged over a set period of time as defined by the contract. A fixed price is the assurance that your price will not change during the period of time indicated regardless of fluctuations in market pricing.
If a TPS signs up a customer or renews a customer for an energy supply price that the TPS characterizes as "Fixed" or "firm", the TPS must provide the time period for which the price is fixed; and the TPS may not charge the customer a rate that is higher than the fixed rate during the period for which it is fixed, unless there is an increase in a cost that they are required by law to collect from customers, such as Sales and Use Tax.
Fixed pricing could potentially be an advantage if the market rate for electric or natural gas supply increases, and could potentially be a disadvantage if the market rate for electricity or natural gas decreases. Understanding the terms of your contract, the length of your contract, what happens when the contract (or the fixed price term) ends, and cancellation penalties, if any occur, is important.
If you are considering signing up for fixed pricing, it is important to ask the supplier if the rate can become variable during the contract term. If it can, it is important to ask the supplier the questions recommended in the below section entitled, "What is Variable Pricing?"
What is VARIABLE pricing?A Variable price is any price that is not “Fixed” as that term is described above. Variable pricing allows the price you pay per unit to rise or fall on a periodic basis as the wholesale cost of the commodity changes. If you are considering signing up for variable pricing, it is important to ask the supplier the following questions:
- How often will the variable price change (daily, weekly, monthly)?
- Is there is a cap, or maximum price, that the TPS can charge you, or is there no limit to how high the price can go?
- How will the variable price be set? Is there a specific formula that will be included in the contract that is tied to a published index or tied to the utility Price to Compare, or can the supplier change the variable rate in a non-specific manner based upon market conditions and supplier costs?
Whether you can get the best price for your energy supply by choosing a TPS variable price offer, a TPS fixed price offer, or the utility’s Price to Compare will depend upon the basis of the variable price changes, the market rate of natural gas or electric supply, and seasonal and market changes in the utility’s Price to Compare. It’s important to know that there is no “one size fits all” best answer. It is equally important is to understand what cancellation penalties may be incurred if you switch suppliers, and how long it may take to change suppliers.
How often does the utility price change?Each of the electrical distribution companies in the state of New Jersey, namely Atlantic City Electric (ACE), Jersey Central Power and Light (JCP&L), Public Service Electric and Gas (PSE&G), and Rockland Electric (RECO) offer electric supply. Their electric supply prices will generally change seasonally on June 1st and October 1st of each year to reflect changes to the energy, capacity, and ancillary service components. However, they will also change from time to time to reflect other changes. The price offered by the utility that serves your area may be higher or may be lower than the price offered by a TPS.
Each of the natural gas companies in the state of New Jersey, namely Elizabethtown Gas Company (ETG), New Jersey Natural Gas Company (NJNG), Public Service Electric and Gas (PSE&G), and South Jersey Gas Company (SJG) offer natural gas supply. Their gas supply prices will generally change on October 1st of each year to reflect changes to the wholesale cost of natural gas, the cost of transporting the natural gas to the utility’s system, and a reconciliation of costs from the prior year. However, they can also increase on December 1st and February 1st of each year if costs increase significantly. The utility is also permitted to self-implement rate decreases (or bill credits/refunds) at any time. The price offered by the utility that serves your area may be higher or may be lower than the price offered by a TPS.
Learn more about the utility’s Price to Compare.