Energy costs for electric customers are going up by as much as 50% across Pennsylvania next week, the latest manifestation of across-the-board energy price increases impacting gasoline, heating oil, propane, and natural gas.
Eight Pennsylvania electric utilities are set to increase their energy prices on Dec. 1, reflecting the higher cost to produce electricity. Peco Energy, which serves Philadelphia and its suburbs, will boost its energy charge by 6.4% on Dec. 1, from 6.6 cents per kilowatt hour to about 7 cents per kWh. Energy charges account for about half of a residential bill.
PPL Electric Utilities, the Allentown company that serves a large swath of Pennsylvania including parts of Bucks, Montgomery, and Chester Counties, will impose a 26% increase on residential energy costs on Dec. 1, from about 7.5 cents per kWh to 9.5 cents per kWh. That’s an increase of $40 a month for an electric heating customer who uses 2,000 kWh a month.
Pike County Light & Power, which serves about 4,800 customers in Northeast Pennsylvania, will increase energy charges by 50%, according to the Pennsylvania Public Utility Commission.
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“All electric distribution companies face the same market forces as PPL Electric Utilities,” PPL said in a statement. Each Pennsylvania utility follows a different PUC-regulated plan for procuring energy from power generators, which explains why some customers are absorbing the hit sooner rather than later, it said.
There are ways customers can mitigate the impact. Utilities offer a host of programs and grants to support low-income customers, and they encourage anyone struggling to pay their bills to call the utility for help. Customers can also control their costs by conserving energy. It may be time to put on a sweater and weatherize the house.
Peco recently introduced time-of-use rates that include steep discounts for customers who can shift electric usage to late night hours — that’s you, electric vehicle owners.
» READ MORE: Peco plans hourly rates to encourage customers to shift energy use to off-peak periods
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There’s also a clever opportunity available for many Pennsylvania customers called the “standard offer” that might save you some real money, but you need to act before the new charges take effect on Dec. 1 to lock in the best rates.
Why are the price hikes happening?
But first, how did we get here?
Energy charges are rising for a simple reason: Fuel prices for power generators are increasing, and that’s driven mostly by natural gas. It’s pushing up electricity prices in wholesale power markets.
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“It’s all market forces right now,” said Nils Hagen-Frederiksen, PUC spokesperson. Energy charges are strictly a pass-through cost for utilities. Utilities aren’t allowed to mark them up.
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The increase in utility energy charges does not affect customers who buy their energy from competitive power suppliers. About 27% of Pennsylvania’s 5.9 million electric customers who shop for electricity from third-party suppliers either pay fixed rates, whose price remains stable, or are on a variable-rate plan tied to market prices. The variable-rate electric bills have probably already increased to reflect the higher cost of generating power.
Most New Jersey electric customers are shielded for now from rising energy costs. New Jersey sets annual energy prices for customers who don’t shop for power. Those rates go into effect on June 1 and stay in place for 12 months. The current energy market fluctuations will be reflected in new rates that take effect next summer, said Lauren Ugorji, a spokesperson for Public Service Electric & Gas Co., New Jersey’s largest utility.
For each utility, its own plan
Pennsylvania has a different system for setting utility energy charges, which are also known as the “default rate,” because that’s the price a customer gets by default if they don’t shop for power. The default rate is also the same thing as the “price to compare,” a term the PUC has adopted so consumers can make an apples-to-apples comparison between a utility’s energy charge and the price offered by a competitive supplier.
Each of the state’s 11 PUC-regulated electric utilities prepares its own “default service plan,” that governs the method by which they procure power on wholesale markets. Electric distribution companies like Peco are required to buy the lowest priced power. They typically buy power in blind auctions conducted by independent agents, so that there’s no favoritism for affiliated power generators
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Some utilities adjust charges quarterly, and others do it semi-annually. “This means that each [utility’s] resulting price to compare will vary as the market changes, some taking longer to reflect price changes, both up and down,” PPL said in a statement. PPL conducted its semi-annual auction in October, when energy prices were rising sharply.
Most utilities buy power from suppliers under contracts of varying durations, both long-term and short-term. The contracts are staggered so market price fluctuations are smoothed out. One utility, Pike County Power & Light, buys all its power on the spot market, which explains why its energy charge will surge by 50% on Dec. 1. Pike County’s energy charge will also be quicker to decline when wholesale prices subside, as they are expected to next year.
Peco adjusts its energy charge quarterly, but it conducts power auctions semi-annually. It buys about 40% of its power in one-year contracts, and 60% in two-year contracts, and does not buy any power on spot markets, said Richard G. Webster Jr., Peco’s vice president of regulatory policy and strategy.
“At any given time, we’re replacing about a third of our supplied portfolio,” he said.
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The utility’s energy charge affects only part of the monthly bill. For a Peco residential electric customer who uses 700 kWh per month, the Dec. 1 energy charge increase will boost monthly bills by $2.94 per month, or 2.9%. For an electric heating customer who uses about 2,000 kWh per month, the change will boost bills $8.40 a month, or about 3.5%, said Greg Smore, a Peco spokesperson.
(Energy charges, which pay for the cost of the power generation, are different from utility distribution charges, which pay for the upkeep of the distribution grid and are assessed on all customers, regardless of who supplies their power. Peco was recently granted an increase in its distribution charge, which will go into effect on Jan. 1, which will boost monthly bills about 6.6%. That’s in addition to the Dec. 1 increase in the energy charge.)
» READ MORE: Prepare to pay more for electricity after Pennsylvania approves Peco rate increase
How to cut your costs
How can you cut your energy costs, aside from turning down the thermostat and using energy-efficient devices?
Many customers buy their power from third-party suppliers, whose robocalls and junk-mail offers frequently tout their discounts to the utility’s rate. There are fewer savings to be found these days on the PUC’s website, papowerswitch.com, because in rising energy markets it’s tough for a reputable supplier to compete with the utility’s price.
But there is kind of a backdoor entry into competitive energy markets called the “standard offer.” The PUC this week encouraged default-service customers to examine the often-overlooked deal, offered by most larger electric utilities. “If consumers are interested in that, we definitely recommend that they move quickly,” said Hagen-Frederiksen, the PUC spokesperson.
Here’s how the standard offer works: Customers who call their utility will get randomly assigned to a competitive supplier that has agreed to offer a 12-month fixed-rate plan at 7% below the utility’s current price. Under the PUC’s rules, customers can cancel a standard offer any time over the year with no early cancellation or termination fees.
That means customers can lock in now at 7% below Peco’s current default rate before the charge goes up on Dec. 1. PPL customers can lock in at 7% below the current default rate before the charge goes up 26% next week, a hefty $50 a month savings for a heating customer who uses 2,000 kWh a month. Customers who wait until Dec. 1 will only get 7% off the higher rates.
“We have found that the standard offer can be a ‘win-win’ for the electric shopper and supplier alike,” PUC Chairman Gladys Brown Dutrieuille said in a statement.
Ignore that letter at your peril
The standard offer program is basically a customer acquisition program for competitive suppliers. For customers, the price is attractive and suppliers often lose money during the 12-month term. But they acquire a new customer who can become profitable to them in the long term.
“The only thing I’d remind customers is to be sure to pay attention at the end of the 12 months in terms of what you’re paying and what the price might change to,” said Peco’s Webster.
Though the PUC requires suppliers to send two notifications to customers when the contracts are about to expire, a surprising number of customers ignore the letters and take no action. They do so at their peril. They are usually switched to plans that cost more than the utility’s default rate, effectively wiping out any previous savings.
PPL last year told the PUC that most standard offer customers remained with their suppliers after the 12-month deal lapsed, and nearly all of them paid at or above the utility’s default rate after the initial contract expired. Over half the customers paid at least 25% over the utility’s default rate. Many paid 50% more than they would pay with the utility.
“If a customer is actively shopping, and concludes that their existing supplier should be retained, that is their choice,” Michelle Lawall-Schmidt, PPL’s director of customer service operations, told the PUC in written testimony. “However, there is a concern if customers are passively remaining with their supplier, and as a result, are paying more than default service rates.”
The utility said some standard offer customers whose contracts were rolled over to higher priced deals then fell behind on payments, filed complaints, and blamed PPL for the increase in energy price.
PPL asked the PUC to modify its standard offer plan so that customers who did not affirmatively elect to stay with their supplier would be automatically returned to the utility’s default rate. Elizabeth H. Barnes, a PUC administrative law judge who heard its case, recommended the PUC approve the utility’s request.
But energy suppliers pushed back. And the PUC in the end rejected PPL’s proposal, saying its standard offer plan would be inconsistent with the plans offered by other Pennsylvania utilities, as well as longstanding PUC rules that allow suppliers to roll over customers at the ends of their contracts, unless the customers choose otherwise.
“While I would probably not have supported the use of rollover contracts initially, they have become an ingrained feature of shopping,” David W. Sweet, then a member of the commission, said last December in the PPL case.
Buyer beware.
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