Most customers opting to stick with Peco - forgoing discounts

Posted: May 08, 2011

Spring is in the air. Temperatures are rising. And so are Philadelphia electricity rates.

Peco Energy Co., which now adjusts its electricity rates quarterly in the newly deregulated power market, says its residential price-to-compare will go up about 4 percent July 1, from 9.99 cents per kilowatt-hour to 10.4 cents.

Alternative electric suppliers, which have signed up 18 percent of Peco's 1.6 million customers since market rates took effect Jan. 1, are also boosting the prices of their offers to reflect the wholesale cost for power, which typically increases during the summer when there is more demand.

But alternative suppliers are still offering fixed-rate deals more than 10 percent below Peco's default rate. The default rate is the amount charged to customers who don't switch.

And Peco's power-hungry residential customers - those with central air conditioners - could reap savings of more than 20 percent by switching to avoid a Peco summer surcharge on excess consumption. The extra charge does not apply to alternative suppliers.

"There really are benefits for Peco customers to shop before the summer begins," said Irwin A. "Sonny" Popowsky, Pennsylvania's consumer advocate.

Despite the discounts and a relentless education campaign by the Pennsylvania Public Utilities Commission, most residential customers have stayed put.

Robert F. Powelson, who was appointed by Gov. Corbett to be chairman of the PUC, says many customers are reluctant to switch because they mistakenly believe Peco will lose business and will punish customers who leave.

"You're just picking the commodity piece of your bill," Powelson said. "Peco is agnostic about where you get your power. They don't care. So go out there and save money."

Under the state's Electric Choice Act, the power industry was broken into two parts - companies that generate electricity and "wires companies" such as Peco that distribute power on their networks of wires. After more than a decade of transition, the law went into full effect Jan. 1 for Peco customers.

Customers are free to shop around for a supplier. But under the law, the traditional utilities are required to supply power to customers who don't shop.

By law, utilities have to buy the default power supply at the lowest cost. And they're not allowed to make a profit on it - the cost is passed along to customers without markup. That's the default rate, also known as the price to compare.

Peco still earns a profit on every customer connected to its system, regardless of who supplies the power. Peco collects a distribution charge for every kilowatt-hour it delivers. That charge is regulated by the PUC, and it includes Peco's profit.

Peco says 38 alternative suppliers are now active in the residential marketplace, though only 26 have posted their offers with the PUC and the Office of the Consumer Advocate.

One of latest entries to the residential market is PPL Energy Plus, the retail-marketing arm of PPL Corp., of Allentown. PPL Energy Plus had been active in the market for industrial and commercial customers and is now targeting residential customers.

There are a variety of offers facing customers who want to shop. Some rates vary from month to month, putting the customers at the mercy of the markets. Others are fixed for terms ranging from six months to several years. Some companies charge cancellation fees.

Many are marketing "green" options that derive their electricity partly or entirely from renewable power sources.

A typical residential customer who uses 750 kilowatt-hours a month might save $90 a year by switching. But intrepid shoppers - and those who consume lots of power - can find even better deals.

BlueStar Energy Solutions is one of the companies still offering a one-year fixed-rate price below 9 cents a kilowatt-hour - at 8.89 cents, it's nearly 15 percent less than Peco's estimated default rate after July 1. But customers who cancel early will face a penalty charge.

Direct Energy offers a fixed rate of 9.42 cents per kilowatt-hour, the same amount it charged a few months ago. Yet it has lowered its online discount offer to seniors and military personnel from 9.22 cents to 8.79 cents.

Spark Energy recently increased its fixed-rate offer from 8.93 cents to 9.59 cents per kilowatt-hour. But a group reseller, AlphaBuyer, is offering a limited-time online deal with Spark at 8.79 cents per kilowatt-hour - the same company, but at 8 percent less.

The comparison shopping gets even more complicated for some customers who use a lot of power in the summer, because Peco charges a higher rate on excess use from June through September.

The higher charge, which regulators call the inverted block rate, will be phased out by 2013 as the PUC requires Peco to simplify its default rate. But this summer, Peco estimates the charge will amount to 11.66 cents per kilowatt-hour for consumption above 500 kilowatt-hours - that's 25 percent more than some of the best current fixed-rate offers from alternative suppliers, who don't charge a higher rate.

How does that add up?

A customer who uses 1,500 kilowatt-hours a month in the summer who locked in with an alternative supplier at 8.89 cents per kilowatt-hour will pay $35 a month less than a customer who remains on Peco's default rate. That's a 21 percent savings on the commodity part of the bill.

"That rate differential kicks in, and if you have air-conditioning and you're using more than 500 kilowatt-hours a month," said Popowsky, the consumer advocate, "there's some real savings to be had."

Contact staff writer Andrew Maykuth

at 215-854-2947


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