As temperatures rise, electric rates for Peco, competitors are falling

Hand holding bundle of power cables isolated on white background. credit © iStockphoto.com / Elenathewise
Hand holding bundle of power cables isolated on white background. credit © iStockphoto.com / Elenathewise
Posted: June 24, 2012

In a typical year, the cost of electricity goes up in the summer as the electrical grid groans from the strain of millions of air conditioners.

But these are not typical times in the energy world.

Just as the region enters the hottest months of the year, Peco Energy Co.'s residential price for electricity is set to decrease 14.7 percent on July 1, the lowest price the Philadelphia utility has charged since market rates went into effect 18 months ago.

Some competitive suppliers have dropped their prices even lower and are offering discounts of more than 10 percent off Peco's default rate. The default rate is the amount that Peco charges customers who have not switched. About 70 percent of the utility's 1.6 million customers still receive power supplied by Peco.

Electricity prices have plunged for several reasons. The economic recovery is sluggish, suppressing demand for power. And the price of natural gas is very low because of overproduction from new resources such as Pennsylvania's Marcellus Shale. Natural gas prices directly affect the price of electricity.

"What you're seeing are decreases because natural gas prices are lower," said Cathy Engel-Menendez, Peco's spokeswoman. "Natural gas is used to generate electricity, and lower wholesale prices for electricity are being passed on to customers."

Without lifting a finger, a typical Peco customer who uses 9,000 kilowatt hours of electricity a year is paying $115 less a year on an annualized basis than at the beginning of 2011. Most of the customers who have switched to alternative suppliers are saving even more.

Since Pennsylvania's electric markets were opened to competition in 2011, more than 31 percent of the state's 5.7 million electric customers have switched suppliers, according to the Pennsylvania Public Utility Commission. The customers who have switched consume 57 percent of the electricity in the state.

More than 451,000 of Peco's customers have switched, including nearly half the commercial customers and 89 percent of industrial customers. Larger customers have more to gain by switching.

Under Pennsylvania's 1996 law establishing electric choice, customers are free to shop around for alternative suppliers of electricity. The suppliers produce power or buy it on wholesale markets; their charge typically makes up about two-thirds of a customer's monthly bill.

Peco is required to buy power on behalf of customers who don't switch, and it is required to pass through the cost without markup. Its default price, which is adjusted quarterly, is also called the "price to compare."

Regardless of who supplies a customer, Peco remains the distribution company, responsible for billing, customer service and maintaining the wires and transformers. Peco makes its profit from the distribution charge, which is regulated by the PUC.

New Jersey customers can choose electrical suppliers, as well, though the market is not promoted by authorities as it is by Pennsylvania regulators, which lists comparative prices at its website, www.papowerswitch.com. The Pennsylvania Office of the Consumer Advocate also lists rate offers at its website, www.oca.state.pa.us, or it will mail a list to customers who call 1-800-684-6560.

In Peco territory, some competitive suppliers are offering discounts of more than 10 percent off the default rate of 8.64 cents per kilowatt hour. ConEdison Solutions, Castlebridge Energy Group and Reliant Energy L.L.C. are offering prices ranging from 7.75 cents to 7.79 cents per kWh, fixed for periods ranging from five months to a year with no cancellation fee.

Several other suppliers are offering fixed-rate deals at slightly lower prices that include cancellation fees of up to $150 for switching before the end of the term. Other suppliers offer variable rates as low as 7 cents a kilowatt hour, but those are "introductory" rates that are likely to become less attractive after a few months and require customers to be vigilant about reviewing their monthly bills.

Some suppliers offer green-power packages in which some or all of the electricity is generated from renewable sources. One supplier, Washington Gas Energy Services Inc., is offering to supply 100 percent wind-power at 8.5 cents per kWh — less than Peco's default rate for electricity derived from conventional power plants.

The discounted prices actually understate the savings some customers could achieve this summer. Peco's default rate has two tiers, which includes a slightly higher rate of 9.17 cents for consumption that exceeds 500 kilowatt hours a month. Customers with central air-conditioners can easily consume more than 1,000 kWh.

Under deregulation, the state is forcing Peco to phase out by the end of 2012 its two-tier summer rates, as well as its discounted winter rate for customers who use electricity to heat their homes — so-called RH customers — and for off-peak customers who have a separate meter on their water heaters. By 2013, Peco will offer one residential rate for all customers.

A few suppliers are already offering special deals for RH customers, who use a lot of power in the winter. Those offers are listed at the PUC's website, or through the consumer advocate's office.

Contact Andrew Maykuth at 215-854-2947 or amaykuth@phillynews.com or follow on Twitter @Maykuth

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