Third-Party Electric Suppliers
In the US energy system, third-party electric suppliers are companies that sell electricity to customers instead of utility companies, giving electricity customers a choice of where their electricity comes from. Third-party suppliers buy electricity in bulk from utilities and then sell it to consumers at a competitive (i.e., lower) price than utilities. They also tend to have more flexible contracts than utility companies. However, they also have a history of exploiting vulnerable consumers—including low-income individuals, individuals with low English proficiency, and communities of color. Keep reading to learn more about third-party electric suppliers, how they can be predatory, and more.
Why do third-party electric suppliers exist?
When your electric supplier is your utility, you pay the utility for both supply and delivery of your electricity. Graphic: Climable, 2024
Third-party electric suppliers—also referred to as competitive energy retailers or third-party electric retailers—exist because of deregulated state energy markets. All energy markets in the US were regulated until the 1990s. Consumers could only receive electricity from their local or incumbent utility. Eventually, policymakers felt this gave utilities too much power over electric prices. So, new laws were passed allowing for deregulated markets and, in turn, non-utility companies to sell electricity to consumers. Fourteen states, including Massachusetts, now have third-party suppliers. The goals of deregulation and third-party suppliers were to bring down electricity prices through competition and offer consumers more choice and control. Massachusetts deregulated its energy markets in 1997 and third-party electric suppliers began selling soon after. For a while, they did reduce energy bills for their subscribers. But it only lasted until 2002.
When your electric supplier is a third-party company—i.e., not your utility—then you pay a supplier for your electricity and the utility for delivery. The supplier purchases electricity in bulk from utilities and generation plants, and sells it to customers Graphic: Climable, 2024
Can third-party electric suppliers save you money?
It’s common for a third-party electric supplier to advertise that they will save you money on your electric bill. And they may for the first few months. However, this often changes over time. According to a 2023 report released by the Massachusetts Attorney General’s Office, from July 2015 to June 2021, people in Massachusetts who received their electricity from third-party electric suppliers lost $525.5 million compared to people who got their electricity straight from their utility company. Moreover, people using third-party electric suppliers pay on average $0.14 per kilowatt hour (kWh). In comparison, people who get their electricity straight from their utility company only pay $0.10 per kWh on average. So, there are some drawbacks to using a third-party electric supplier.
“Your utility company or government would not send people door-to-door to give or receive information. They would inform you by mail or email, never in person.”
How can third-party electric suppliers be predatory?
However, third-party electric suppliers have been found to adopt predatory practices when attempting to gain customers' business. They target low-income and minority communities by overcharging and not saving them money as advertised. Third-party electric suppliers are known to go door-to-door knocking, saying to anyone who answers that they’re from their utility company or town government in order to gain their information and nonconsensually sign them up for their electric supply program. If you ever get a knock on the door like this, it’s either a scam or a predatory third-party retailer. Do not fall for it. Your utility company or government would not send people door-to-door to give or receive information. They would inform you by mail or email, never in person.
How can you tell who your energy supplier is?
To see who your energy supplier is, you can look at your most recent energy bill from your utility company—which, yes, your bill still comes from your utility, even if you use a third-party retailer because the utility company is responsible for delivering the electricity. The three main utilities in Massachusetts are Eversource, National Grid, and Unitil.
The name of your supplier can be found on your utility bill.
Images: Eversource sample bill from Eversource, National Grid sample bill from National Grid, Unitil sample bill from Unitil. Red emphasis circles added by Climable, 2024
Above is a sample bill from each company showing where to find the name of your electric supplier: Under the “Current Charges for Electricity'' section on page one for Eversource, the “Details of Current Charge” section on page 2 for National Grid, and the “Electric Supplier Service” section on page 3 for Unitil. This may be Eversource, National Grid, Unitil, or another utility. For those subscribed to a third-party supplier, it will list the name of the particular company. If your utility is not one of the three shown above, your supplier name may be listed elsewhere on your bill, but it will be listed somewhere. You can see which energy suppliers are available in your area at the Energy Switch Massachusetts website by Mass.gov.
What is the difference between third-party suppliers and community choice aggregation?
What is community choice aggregation?
Community choice aggregation (CCA), or municipal aggregation, is a program in which a town or city purchases electricity from a single supplier in bulk on behalf of its residents. They’re aggregating, or grouping, the area’s electrical demand into one. By doing so, local governments have the leverage to negotiate for a lower electricity price for residents compared to the cost charged by the existing utility. In addition to lowering prices, CCAs can help a city or town reduce its carbon footprint by switching to a supplier that produces clean energy. Many localities are adopting CCAs for this reason.
How do they compare to third-party electric suppliers?
In many ways, a CCA is similar to a third-party electric retailer. They both can only exist in a deregulated energy market, like Massachusetts (multiple MA municipalities have adopted a CCA including Boston, Cambridge, Lowell, and Worcester); both aim to give residents more control over where their electricity comes from; and both supply electricity to customers in place of the incumbent utility—while still relying on the utility’s transmission and distribution services (i.e., sending the electricity across power lines to customers).
A major difference between the two is that a third-party retailer is a private company, while a CCA is a program run by a city or town. This has a few ramifications. For one, CCA programs are structured to provide residents with more transparency and greater control over electricity costs and decisions. The second is that CCAs, as government-run programs, are subject to greater restrictions and scrutiny than a third-party supplier. This means customers on CCAs have great protection and the means to dispute any issues that arise.
Read more about Boston’s community choice program here.
What is the difference between third-party suppliers and community solar programs?
Community solar and third-party electric suppliers have many similarities—they both supply electricity to customers instead of the incumbent utility. Community solar programs provide electricity that is strictly generated from solar energy. On the other hand, third-party retailers provide electricity from the same mix of sources as your utility (i.e., varying percentages of oil, natural gas, various renewables, etc.). Notably, community solar projects can be owned by third-party organizations. These third-party organizations would take care of the maintenance of the solar arrays, often based on terms set by a Solar Power Purchase Agreement (SPPA). As is the theme with third-party suppliers, they can be predatory in the case of community solar by collecting the benefits of the state and federal tax incentives without passing them onto their customers, and by providing limited customer service. These companies also often target low-income households and lock them into lengthy contracts that can harm the resale value of their houses if they try to sell before the end of their contract. Learn more about community solar here.
Current Massachusetts news regarding third-party electric suppliers
In January 2023, Massachusetts Representative Tackey Chan introduced Bill H.3155, “An Act Modernizing Competitive Energy Supply.” The bill aims to reform third-party electric suppliers so customers stop getting scammed or losing money to them. However, some policymakers and energy market experts believe it’s not worth reforming third-party electric suppliers because their predatory practices and false advertising are too ingrained in their business methods. Due to this belief, State Senator Brendan Crighton introduced a competing bill—Bill S.2106, “An Act Relative to Electric Ratepayer Protections”—in February 2023. It would ban third-party electric suppliers from signing any new residential customer contracts. This bill will effectively phase third-party electric suppliers out of the energy market. As of August 1st, 2024, neither of these bills has passed. However, the fact that these bills were introduced indicates that legislators are aware of the issues third-party suppliers pose. Hopefully, they will keep pushing to protect residents by reforming or phasing these suppliers out of existence.