Posted on Tue, Oct. 11, 2011

By Andrew Maykuth

Inquirer Staff Writer

Peco Energy Co. electric customers may be feeling a little deregulatory

Since market rates went into effect this year for the Philadelphia utility’s
1.6 million customers, the price for residential electric power has gone up 12
percent. The biggest quarterly increase took effect Oct. 1 and will be reflected
in bills that go out later this month.

But take heart, customers. Without fanfare, Peco last week posted its
projected prices for Jan. 1, 2012, and it estimates residential rates will fall
dramatically, back to the point where they started in 2011.

“This is good news,” said Catherine Engel Menendez, Peco’s spokeswoman.

The quarterly adjustments are a feature of electric deregulation that went
into effect this year for Peco customers.

The major factors behind the rise and fall of rates are seasonal fluctuations
in wholesale power prices that were invisible to customers under the old
fixed-rate system. The variations became noticeable after rate caps came off and
Peco’s rates were adjusted every three months.

The price fluctuations are exaggerated in the current quarter – up 7 percent
– because Peco is allowed to recover money it did not collect earlier this year
when wholesale prices were higher than expected. The state requires utilities to
reconcile under- or over-collections in the next quarter.

Peco’s quarterly price swings add a wrinkle to the process of shopping for an
alternative electric supplier.

Under Pennsylvania’s Electric Choice Act, customers are free to shop for
power suppliers, whose charges make up about two-thirds of the monthly bill.
(Peco still collects a distribution fee from all customers for using its wires,
regardless of who generates the electricity.)

Since rate caps were lifted, about 370,000 Peco customers have switched to
alternative suppliers. Some suppliers are currently ramping up marketing
campaigns to capture Peco customers, pointing out that their rates are
substantially less than Peco’s Oct. 1 rate of 11.14 cents per kilowatt-hour.

For instance, Constellation Energy Group Inc., a Maryland supplier, is
currently offering a 12-month fixed price of 9.98 cents per kilowatt-hour, which
it advertises is about 10 percent less than Peco’s price.

But customers who opt for Constellation’s fixed-rate contract could find they
will be paying slightly more than Peco customers after Jan. 1, when
Peco’s rate is projected to drop to 9.91 cents per kilowatt-hour.

Peco’s impending price decrease will create new challenges for suppliers as
they set their prices for next year, said Jossi Fritz-Mauer, codirector of the
Energy Cooperative of Pennsylvania, whose current rate is greater than Peco’s
projected price in January.

“The Energy Cooperative is still in the process of finalizing our prices for
2012, but this certainly presents a new dynamic for Peco customers looking to
shop,” said Fritz-Mauer.

Jennifer Kocher, the spokeswoman for the Pennsylvania Public Utility
Commission, said that customers were becoming increasingly sophisticated as the
markets mature and that more were switching in response to price changes.

She said the PUC advises customers contemplating a switch to compare prices
at the commission’s website.

“We would hope that anybody who is shopping would do their due diligence,”
she said.

Irwin “Sonny” Popowsky, Pennsylvania’s consumer advocate, said the price
fluctuations underscored the risks and rewards of locking into fixed-rate
contracts when market rates are high or low.

“Some suppliers are able to beat Peco’s rate, but perhaps not as much as they
did a year ago,” he said.

Indeed, Peco customers who locked in last December with suppliers offering
12-month fixed-rate deals of 8.89 cents per kilowatt-hour are currently paying
20 percent less than customers who stayed with the utility. For a customer using
500 kilowatt-hours a month, the monthly savings amount to about $11.20.

Not every Peco customer benefits by switching to an alternative supplier.

Alternative suppliers are still unable to beat the utility’s discounted rates
for about 160,000 residential heating customers and 80,000 customers with
electric water heaters, said Engel Menendez.

But those below-market rates are scheduled to be eliminated at the end of
2012, and the utility expects suppliers to begin courting those customers at the
end of next year.

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LindaPeterson  of West Chester was eager to switch from Peco Energy Co. at the end of last year.
She signed up for an alternative electricity supplier offering avariable rate that would fluctuate depending upon market conditions.

AsPeterson  discovered, variable rates sure can vary.

For a few months this year, Peterson’s rate was very attractive, indeed. But it went up
58 percent from May to June. At 15.63 cents per kilowatt hour – that’s just the
generation charge – her last bill was about $23 more than it would have been had
she stayed with Peco.

“I knew there would be some variation, but that’s just a huge, huge increase,” said
Peterson, who is semi-retired.

A representative from her supplier, Palmco Power PA L.L.C., did not return a phone call about
Peterson’s bill. But its customer-service department, in an unsigned e-mail,
blamed an “unusual” wholesale price spike for the increase.

“Thankfully,however, shortly after the wholesale price increase, wholesale prices dropped,and our
price billed to our customers dropped accordingly,” it said.

In Pennsylvania’s buyer-beware world of deregulated utilities, Peterson can’t do much but switch to
another supplier. Her agreement, like most with variablerates, does not carry an
early cancellation fee.

According to the state Public Utility Commission, a supplier can bill a variable-rate customer
at whatever price it believes the market will bear, even if the customer
originally thought he or she was getting a discount.

A company also can offer different rates to different customers. The variable rate that is
on a customer’s bill does not have to be the same as the initial price posted on
the PUC’s website,

“A supplier could have one rate for PowerSwitch . . . while offering a different rate
door-to-door . . . yet a different rate for enrolling by mail,”Denise McCracken,
the PUC’s spokeswoman, said in an e-mail. “They could offer me one rate . . . my
neighbor a different rate (as long as they are not discriminatingon the basis of
race, gender, etc. of course).”

In Pennsylvania and New Jersey, where dozens of electrical suppliers are competing, customers
accustomed to a lifetime of regulated utility prices now face a dizzying array of
choices – fixed rates, variable rates, and”green” rates from renewable-power
generators. Next year, Peco customers will begin seeing rates that vary hourly,
according to the market.

More than 20 percent of Peco customers have switched since Jan. 1. But despite promises of
savings, most residential customers seem unwilling to leave the protective comfort of the regulated utility.

On Monday, the Retail Energy Supply Association launched a campaign to educate customers
about the benefits of switching, but it faces headwinds generated bycustomers such as Peterson, who share their experiences.

“My neighbors are very scared about switching,” said Peterson, a clinical social worker with a
small private practice.

Peterson was an early adopter of electricity choice. She had switched suppliers in the late
1990s, when limited deregulation was introduced into the Peco market. Competitive
suppliers eventually pulled out because they could no longer beat the utility’s
capped rates. But when Peco’s rate limits were lifted at the endof 2010,
competitive suppliers returned en masse.

Peterson signed up with Palmco, the marketing arm of a Brooklyn fuel-oil dealer, which posted a
price on the PUC’s website. She liked the company’s low-key marketing,compared
with the blustery direct-mail appeals she received from bigger suppliers.

“The fact that they weren’t doing a lot of heavy marketing, I guess I trusted them
a little,” she said. “I didn’t expect them to escalate the price like that.”

According to a review of Peterson’s bills, Palmco’s rate was very generous during the first
few months. It charged her an introductory rate of 5.78 cents perkilowatt hour,
clearly a below-market 42 percent off Peco’s rate. But by May,Palmco’s rate had
increased to 9.91 cents – just about the same rate Peco was charging.

And then in June came the whopping 58 percent increase – to 15.63 cents per kilowatt hour.
Peterson averages about 475 kilowatt hours a month.

The owner of Palmco, Robert Palmese, did not return a phone call. But his
company’scustomer-service department offered this response:

“Our family has been in the energy business since 1938, 73 years. We know from experience
that it is always in the best interest of our customers to keep prices for energy
as low as possible.”

In an interview in October, Palmese offered reassurance to customers who might consider
his company.

“We have very casual marketing,” he said. “We’d like our customers tolike us. Just try
us, you may like us.

“You are always free to leave.”


Our Perspective

HBS is a independent deregulated energy management consultant. We have been providing deregulated energy solutions to our clients since 2000. We have heard stories like the one experienced above, countless times.

While the energy market prices are at their low point, it would be smart to lock into a fixed price contract for natural gas or electric for a minimum of 1 year but also be willing to look at the 2 year option. Fixed priced contracts normally provide a 10% to 15% savings under what Peco ic currently charging.

Do not be fooled by the variable rate options.

It is a good marketing ploy….

no contract…

month to month float….

But you will only pay more in the long run.


To learn more about deregulated opportunities for yopur business email

Visit us on the web

PA Deregulation

August 6, 2010

Excerps reported by Commercial Utility Consultants

This is an article we found to be very informative. It presents a very thorough overview of how the current electric market works and what to expect as of Jan 2011.

As you may be aware, PECO’s rates are in the process of being restructured and the new rate structure will take effect January 1, 2011.  The good news is that the Transition charges that are currently applied to all PECO customers’ bills will no longer be applied.  These charges were awarded to PECO when electric deregulation was initiated in Pennsylvania back in 1998 and have been collected via customers’ billings for the last 11 years. Effective January 1, 2011, transition charges which range from approximately 25% to 30% of total PECO billings will be eliminated from the bills.

At the same time the Transition charges are phased out, PECO will begin to charge market based prices for generation.  In return for the Transition charges that PECO was awarded in 1998, the PUC mandated that PECO cap their generation charges at essentially the 1998 rates.  The generation rate caps that have been in effect since 1999 are scheduled to expire on December 31, 2010 and the new charges for generation will be effective on the January to February 2011 billings.  Since generation charges currently constitute more than 50% of PECO bills, these increases will more than offset the impact of the phase out of the transition charges.

PECO customers will be divided into four distinctive classes for purposes of default service procurement.  These classes will be defined as the Residential Class (R), Small Commercial & Industrial Class (SC&I), Medium Commercial & Industrial Class (MC&I) and Large Commercial & Industrial Class (LC&I).  The following is how the last three of these rates classes will be defined:  The SC&I class is defined as Commercial Customers with an annual peak demand of less than or equal to 100 KW; the MC&I class is defined to be customers with a peak demand greater than 100 KW and less than or equal to 500 KW and the LC&I class is defined to be customers with peak demands greater than 500 KW.

The above rate classes will determine how PECO will procure default service supply for these customers.  The fixed price default service for calendar year 2011 for the SC&I and MC&I customers will be determined through a series of three auctions in the fall 2009, spring 2010 and fall 2010.  Default service for LC&I customers will be procured through two auctions; one in the spring 2010 and one in the fall 2010.


Since customers are not required to make a commitment prior to the auctions being completed and the price released, PECO will be asking suppliers to submit price quotes for an unknown quantity of power and for an unknown combined load profile.  Accordingly, suppliers will need to build a great deal of risk into their price quotes given the fact PECO will not know the amount of power they will need or the combined load profile of the customers they will be serving.  In addition, suppliers will not know the credit worthiness of the customers that will select the PECO fixed price option.  With the amount of risk each supplier will have to build into their price, we do not anticipate the PECO default fixed price service to be the most competitive price available.

Any LC&I customer that does not opt into the fixed price service and still wants to remain a full service PECO customer will receive day ahead hourly pricing for 2011 as its default service.  Under this scenario, PECO will measure the amount of electricity used each hour and apply the PJM LMP day ahead price to each hour’s usage. The hourly price of electricity is extremely volatile and most financial people shy away from this option as it is not very budget friendly.

Customers will also have the option to purchase power from a third party electric generation supplier (EGS) on a negotiated contract basis. Third party suppliers will offer customers a wide variety of options from a full requirement fixed price to hourly indexed pricing based on one of the several PJM markets.  PJM is the local power pool that handles energy transactions in PECO and many other utility areas.  PJM pricing can be extremely volatile.  The PJM market price for electricity in June 2008 was $98.00 per MWH or 9.8¢ per KWH.  In June 2009, the PJM market settled at $45.00 per MWH or less than half of what it was a year earlier.  The timing of PECO’s auction and when customers shop for their electric supply will be a major factor in determining what the best option will be.  HBS will be available to assist in this process and will be able to provide pricing from all major licensed EGSs should you be interested.

While there will be an increase in the cost of electricity for most customers, the increase for those customers receiving special discounts or riders will be more substantial. Most of the discounts and riders that PECO currently offers are scheduled to be phased out at the end of 2010 further impacting the increase in overall electric costs for some PECO customers.  Discounts currently applied will still be applied but only to the distribution portion of the bills.

There are two major ways to mitigate the increase in electricity costs that will inevitably occur in 2011.   The first would be to shift major electrical usage operations to off-peak hours when prices for electricity are cheaper.  The hourly price of electricity varies like no other commodity and prices can double or triple in a single hour.  This is especially true in summer months when hot weather is a major factor in determining the hourly PJM price.  Unfortunately, most industrial customers do not have the luxury of shifting major energy using operations to off-peak hours.

Another means to reduce projected costs would be to reduce consumption.  There are a number of ways in which this can be accomplished including increasing the electrical efficiency of major energy consuming equipment. In most cases, the most straightforward and cost effective way of reducing consumption is to replace inefficient lighting with newer higher efficiency lighting.  Typically, a payback period of less than two years is attainable.  While these lighting projects may not have made economic sense in the past when the cost of electricity was lower, with the future price of electricity increasing, the economics of these projects could improve significantly.  HBS is available to assist in analyzing the results of previous lighting studies, performing a new study and/or recommending reputable companies from which to solicit proposals to perform this type of work.

Our perspective:

There is a lot of information being bantered about regarding deregulation beginning in Jan 2011.

Be sure to know all the facts.

Just what part of your bill will be effected. What are you currently paying for those items and what are the projected cost.

Should you be speaking to a broker or one of the approved providers, bve sure to ask if the price is fully loaded.

Does it include 7% loss allowance and the gross receipt tax.

Some providers are not including these items but that does not mean you will not be paying them.

to learn more email

HBS is an independent energy management consultant. We have been providing deregulated saving to our clients for over 10 years.

We represent all the major providers selling energy in NJ and PA. We will define what provider(s) will be most competitive for your market and get you the best price.

Contact us today:

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