Peco Energy sets its ‘price to compare’ to alternative suppliers

November 1, 2010

By Andrew Maykuth The Philadelphia Inquirer

Oct. 15– Peco Energy Co. said Thursday that its overall residential electric rate would increase only about 5 percent Jan. 1, putting to rest fears that deregulation would lead to a gigantic boost in the cost of power.

And for customers willing to shop around in a rapidly emerging competitive market, their bills may actually go down on New Year’s Day.

In a filing Thursday with the Pennsylvania Public Utility Commission, Peco unveiled its long-awaited default rate for residential generation service, the “price to compare” to alternative energy suppliers.

For residential customers, that price will be 9.92 cents per kilowatt-hour — a number power discounters should be able to beat.

The announcement is likely to trigger a lively fight among alternative suppliers to sign up households, which make up most of Peco’s 1.6 million customers. A residential customer typically consumes about 700 kilowatt-hours a month.

The competition for large commercial and industrial customers is already fierce.

Several suppliers, large and small, said they were planning to offer discounts but were awaiting the company’s announcement to set up their own offers. Other “green” marketers are also likely to jump into the fray, offering renewable-energy deals.

Judging from the experience of neighboring utilities that have already deregulated, consumers should expect a marketing blitz (direct mail, telemarketing, door-to-door salespeople) to crank up in the coming months.

Consumer advocates caution Peco customers to pay close attention to the offers — whether the rates are fixed or variable, and if they contain cancellation fees.

Customers are under no obligation to switch suppliers. The PUC requires Peco to supply power at the default rate to customers who stay with the utility.

Indeed, in areas of Pennsylvania where markets have already opened up, a majority of customers stayed with the traditional utility because the potential savings — perhaps only $10 a month — were not enough motive to switch.

No matter which company sells the electricity, Peco still will serve every customer because it owns the power-distribution system. Peco makes money from a regulated distribution fee, not from generating the power itself.

The restructuring is the result of Pennsylvania’s Electric Choice Act of 1996, which forced traditional utilities to divest their power plants and become merely regulated distributors of electricity over their wires. The law’s aim was to stimulate competition and suppress prices.

The law allowed Peco’s rates to remain capped through 2010 to allow the utility to recover its investments in power plants through a “transition charge.” For most of those years, the capped rates were so low alternative suppliers could not compete.

But with the caps off at the end of this year, the transition charge disappears and third-party suppliers are in a stronger position to compete.

Peco set its default generation rate after signing contracts with power generators that competed in a series of auctions over the last year.

On Thursday, Peco announced the prices to compare for a range of customer classes.

Residential customers who heat with electricity will pay 9.74 cents for the first 600 kilowatt-hours each month, then the price drops to 5.35 cents.

For small commercial customers, the price to compare is 9.47 cents per kilowatt-hour. For medium-size commercial customers, it is 9.37 cents and 9.59 cents for large customers.

All the prices to compare include only charges for generation, long-distance transmission, and the Alternative Energy Portfolio Standard, a fee that reflects the cost for the renewable power the state requires utilities to buy.

Peco’s distribution charge — which covers the cost to maintain wires and transformers, customer service, and Peco’s profit — varies among customer classes.

Cathy Engel, a spokeswoman for the utility, said prices for some customers would actually go down in January, even if they did not switch. Small commercial customers will see a 5 percent decrease.

But large customers would pay 7 percent more if they stayed with Peco’s default rate. Many have already signed up with alternative suppliers.

One new wrinkle: Electric rates now will adjust slightly each quarter to reflect changes in the wholesale market, much as rates for natural gas change seasonally.

Alternative suppliers are likely to offer fixed-rate plans to appeal to customers who want price stability. Those plans guarantee no price increases over the term of the contract.

Even though alternative suppliers may offer attractive discounts, experts say that residential customers tend to resist change.

For example, PPL Electric Utilities Corp., the Allentown company that serves much of eastern Pennsylvania, says that even though alternative suppliers offered discounts up to 15 percent, two-thirds of its residential customers stayed with PPL after rate caps were lifted in January.

PPL’s price-to-compare this year was 10.4 cents. Its price for next year is expected to fall to about 9.4 cents.

But even in that market, alternative suppliers are still offering rates below 9 cents a kilowatt-hour. That suggests the marketers in Peco’s territory are likely to undercut its 9.92-cent rate.

“Even if it’s a half-cent savings, that’s still $50 to $60 a year in savings,” said Jennifer Kocher, a PUC spokeswoman.

Power Shopping

Peco responds to customer questions at http://www.pecoanswers.com

Pa.’s PUC offers a primer for understanding your Peco bill at http://go.philly.com/pecobill

Pa.’s PUC explains electrical choice, lists alternative suppliers at http://www.papowerswitch.com

3 Responses to “Peco Energy sets its ‘price to compare’ to alternative suppliers”

  1. You certainly have some agreeable opinions and views. Your blog provides a fresh look at the subject.

  2. extehinny said

    Very informative post. Thanks for taking the time to share your view with us.

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