While most Pennsylvania commercial businesses, looking to get off their electric utility high default rate, will choose to lock in a fixed electric rate, another option for larger users is the index product. A growing number of alternative electricity suppliers who wish to remain competitive in the market will offer the index electric product to commercial clients who use a minimum of 500,000 k=KWhs per year. The electricity index product is a type of rate structure that ties the customer directly into the wholesale market for electricity. Because this product requires a supplier to be constantly buying and selling electricity in real time, a business customer on this product can usually opt out of his power contract without penalty. On the other hand fixed electric rate products require a supplier to buy the estimated amount of electricity a customer is expected to use during the term of their contract in advance and then sell it back them proportionally in the form of their monthly electric bill; this is the reason fixed rate customers will be charged a penalty if they try to break their contract.

It is important for Pennsylvania commercial electricity customers not to confuse the index product with other variable electric rate structures offered by suppliers. The index product will tie you directly into the wholesale market of electricity and can be monitored at PJM, the regional transmission organization that coordinates the movement of wholesale electricity for Pennsylvania and surrounding states. If wholesale power prices go down you can rest assure your commercial electric bill will reflect the lower charges. However if the market drops and you are on a variable rate that does not tie you directly into the wholesale market there is a good chance your rate will remain the same or even go up!

Since the expiration of the cap rates in PPL and PECO, the Index product has outperformed Pennsylvania fixed electric rates on an annual basis. However customers on the index product are subject to the high volatility of the energy market. In 2008 energy prices soared causing real time pricing to sharply increase. Those businesses who were tied directly into the wholesale market saw their electric bill triple in one month’s time. During periods of rising prices a customer on the index product may switch over to a fixed rate to protect against rising prices. Once locked into a fixed rate you will not be able to go back to index pricing until your contract expires. If you are a large business with a tight budget you may want to weigh the risk associated with the Index product before getting off of the more conservative fixed rate structure.

By Todd Yasbin

The competitive commercial electricity market in Texas provides small business owners the ability to take bids from over thirty licensed electricity providers licensed by the Public Utility Commission of Texas. Businesses can elect to choose from several rate products ranging from basic fixed pricing to variable price methods tied to specific wholesale energy markets, not to mention several hybrid rate products that allows the consumer to lock in a portion of their power supply while riding the rest on wholesale markets. However, sometime too many options results in more confusion than is necessary.

When Texas first deregulated their electricity market in 2002 the commercial market was the first customer segment that the new competitive electricity providers pursued. With electricity choice still a new concept for most people, and with wholesale energy prices resting at low levels, it made the most sense for energy providers to push simple fixed rate contracts. The concept of fixing a price for a specific period time through a legal contract was not new for most business owners.

As competitive electricity awareness gained traction, and as more energy providers entered the market, the competitive market brought more options and innovative products to consumers. Instead of just offering a low fixed price, in order to stay competitive energy providers now had to offer index pricing tied to the wholesale market of electricity, on/off peak pricing products which might lock in the price of electricity during the day when prices are most volatile while letting the customer ride the variable wholesale market at night, and other rate options that included different types of contract concessions. All of a sudden finding the lowest electric rate in Dallas for a businessman might not be as simple as just getting the lowest fixed rate offer.

Unfortunately, consumer education on these different product options has lagged behind the product innovations. This has provided energy providers with an upper hand and ability to take advantage of business owners who put their trust into salespeople working at the electricity providers. Not all competitive electricity companies engage in these type of practices, but certainly many customers have become victims of hidden charges outlined in messy power supply contracts.

Some small businesses have turned to electricity brokers to handle their power supply contract negotiations. However even some brokers are ill qualified to examine some provider contracts that are designed to give the provider the upper hand and ability to impose added charges and fees when necessary.

Business owners need to be aware of the electricity contracts that they are signing, or work with a broker who they trust who is qualified and experienced in reviewing competitive power bids. With so much flexibility in the way providers are able to present their bid offers it is hard to get a true apples to apples price comparison among several competing providers. Qualified electricity brokers should be able to work with several electricity providers to ensure price certainty on an equal playing field.

About the Author
Todd Yasbin is the President and co-founder of National Energy Management LLC, an energy consulting firm with multiple state electricity broker licenses. He is also acting editor in chief at ElectricityWatch.org, an industry watch dog and information source for electricity markets in the United States. Mr. Yasbin can be contacted at yasbin@nembrokers.com

Since the cap rates expired in 2010 for businesses serviced by Pennsylvania Power & Light, just about 50% of PPL commercial customers have switched over to a competitive commercial electric rate. Those who were early to take advantage of deregulation have enjoyed annual savings of 30% or more. The other 50% is set up on a default electric generation rate set by PPL which is determined by a series of auctions. Customers still on the default rate have the freedom to switch to an alternative electricity supplier at anytime without being charged a penalty.

In 2011 PECO and MET-ED followed suit with their more than decade long capped supply rates coming to an end. Less than 2 years since deregulation more than 47% of PECO businesses and 33% of MET-ED business customers have switched over to a competitive rate. This number is expected to continue to grow as electricity choice pushes commercial prices down. Like PPL, both PECO and MET-ED are required by law to offer a default rate to commercial customers who have not already chosen a competitive supplier. The default rate is often much higher than many of the competitive commercial electric rates and does not offer any price security. Starting in October PECO will raise their default rate. Those who stay with PECO will see a 20% or more increase on their next electric bill they receive in November.

If you are one of those businesses that are still on the default service right now is a great time to start looking for a competitive rate. Commercial electricity rates are currently near a 10 year low due to high supply and low demand in the wholesale natural gas market, which highly correlates to the commercial electricity market. However, the volaitlity of the energy market is very high alowing rates to easily spike up in a short time period. Pennsylvania businesses should not take for granted the current low electricity prices caused by low gas prices and a weak economy.

In Pennsylvania, where the electricity market has been deregulated, the majority of consumers have a choice of who they want to buy their electricity from. However, depending on what part of the state that you live in will depend on just how many choices are available.

While consumers have a choice of who supplies their power, the utility company that delivers the power through the lines and wires remains regulated. The utility companies are the same brand names that existed before deregulation – PECO, PP&L, MET-ED, Duquesne Light, etc. To competitive energy companies, each utility service area is a different market with a different set of pricing rules and marketing campaigns that need to be followed. In order to provide rates in a utility area, the competitive energy company must first get approved by the Pennsylvania Public Utility Commission.

As the largest provider of electricity service in the state, PECO Energy customers are leading the way in energy choice options. Included in the PECO Energy service area is the city of Philadelphia. Due to high PECO price to compare rates, historically low energy prices, and energy choice laws that are favorable to competition, more and more electricity companies are entering the market and trying to scoop up their share of Philadelphia customers. Consumers can find low electric rates in Philadelphia by doing online energy comparison shopping. With so many options, it is a good idea to find a site that shows at least five electricity company options with savings over the PECO price to compare rate.

The PECO Energy competitive market is still relatively new, however it has been deemed a great success so far with over a dozen energy companies offering service and over 25% of households already buying their power from competitive suppliers over the PECO energy price to compare default rate.

For the second straight summer, residential and business customers of the central Pennsylvania utility Pennsylvania Power & Light will see their generation electricity rates rise drastically. PP&L customers who have not looked for lower electric rates will see their default power prices rise by 15% this summer. Consumers who have searched, compared, and selected to buy their electricity from alternative energy companies will not be effected by the increase and instead continue to pay prices that they have found through alternative suppliers.

The generation and transmission prices are the charges that will see the summer rate increase while distribution charges will not be effected. Generation and transmission are the charges that make up the Price to Compare component of the default electric rate that customers who have not selected a competitive supplier pay. Pennsylvania allows consumers to have the ability to shop for lower electric rates that replace the default generation and transmission charges resulting in a lower electric bill.

Business customers in the PPL region will see an even more drastic rate increase. Commercial consumers will see their generation and transmission electric rates increase by 43% from $0.06387 to $0.09154 per KWh. More than 50% of commercial customers are paying the default PPL electric rates, which means that these businesses will see their electric bills increase by 43% on June 1, 2012. With competitive electric rates near all time lows, businesses are being urged to shop for competitive power prices. Still, many small business owners remain skeptical and uneducated on the benefits and structure of Pennsylvania electricity choice.

The majority of Maryland electricity consumers who have not shopped for competitive electric prices will see their electric rates increase in June. Baltimore Gas & Electric (BG&E), Potamac Electric Power (PEPCO), and Delmarva Power will all increase their rates for default paying residential customers. The larges increase will be placed on Delmarva customers who will see their rates increase 11% from 8.35 cents to 9.28 cents.

While prices will be increasing, consumers actually have the ability to pay even less than they are currently paying for their power supply by shopping for lower electric rates through the Maryland energy choice market. Maryland energy choice simply gives the consumer the option to purchase their power from an alternative supplier. Perhaps an alternative supplier is offering an electric rate that is less than the current price to compare default rate, or perhaps they are offering a green energy plan that you wish to take part in. The majority of people who decide to shop and compare electric rates do so to save money.

Many Maryland energy consumers would rather pay higher prices and “stay loyal” with their incumbent utility company. The reality is that the local utility companies (BGE, PEPCO, Delmarva, Allegheny) do not care if their customers shop for lower rates. With Maryland electric choice, the local utility continues to deliver power to their customers, as well as manage the lines and wires and respond to power failures and emergencies, no matter which electric supplier is chosen. The Maryland utilities are no longer in the business of offering competitive generation supply rates and only offer their default rates because they are forced to do so by the Maryland Public Service Commission.

For example, if you are a customer of Baltimore Gas & Electric, and decide to buy power from a competitive supplier who is offering a lower rate than the BG&E price to compare, here is what will happen: You will still continue to receive your monthly electric bill from BG&E (assuming the supplier does consolidated billing which they should); on your monthly electric bill you will see distribution charges that are regulated by the state, and supply charges which include the generation and transmission costs. The competitive offer you choose will include the generation and transmission charges and be displayed in the supply section. If an emergency occurs such as a power failure, BG&E will still send out their repairmen to rectify the situation. The repairmen will not act slower to repair your home because you have switched suppliers. This is another big misconception.

Electricity customers in the Philadelphia area who have not taken the time to learn about electricity deregulation and choice will see their electricity bills rise on April 1. PECO Energy, the local utility for the area, recently announced that their default price to compare electric rates will increase for both residential and commercial customers.

The electricity Price to compare is the official term that the Pennsylvania Public Utility Commission uses to describe default rates, or the electric rate consumers who have not chosen a competitive energy supplier pay for electricity generation supply service. Customers can avoid the increase and find savings between 10-25% by shopping and comparing low electric rates in PECO.

Despite the large savings available, many PECO business and residential customers have still not taken the time to compare electric rates and lower their electric bill. Much of the hesitation centers around confusion and not knowing who to trust. With so many competitive electric companies it is sometimes hard to know who is offering true savings and who has hidden charges. Business customers should work with an energy consultant who they can trust and will provide a true apples to apples savings. Residential customers are better protected by the Pennsylvania Public Utility Commission. The state ensures that all residential rates are an exact comparison to the price to compare. However, residential customers should worry about variable rate offers as these can increase from one month to the next without any cause or reason other than the energy supplier wants to make more money. Fixed rates, on the other hand, lock in your rate so that you know exactly how much you will be paying to light, heat, and cool your home.

Many variable rate electric companies will inch their prices up after a customer has been active for several months because they feel the customers has fallen into a routine of paying their bill without checking the rate.

In many states energy users now have a choice of who to buy their electricity from. While competition provides more options and lower prices for consumers in the long run, it can cause a great deal of confusion for many curious customers. With so many electricity companies competing for business, its not always easy to trust the information you are getting about your power bill options.

When making a comparison of different power bills, it is important to consider fixed rate monthly charges in addition the the rate being offered. Depending on how much electricity consumption you have on a monthly basis will determine how much that monthly fee will effect your overall rate per KWh. For example, a $5 monthly fee will only add $0.0025, or a quarter of a penny to the rate for a household using 2,000 KWh a month. However, if you live in a one bed room apartment that only uses 500 KWh a month, that $5 fee is equivalent to paying a full extra penny. So while an offer of $0.08 with a $5 monthly fee may be attractive to a large house, this offer would be equivalent to a $0.09 rate with $0 monthly fee for someone living in a small apartment.

From a marketing perspective, some power companies understand that some consumers will only shop and compare the electric rate and not bother looking at the monthly fee, believing that this is just a necessary charge. Playing to this misconception, consumers will find electricity rate offers that look attractive with low rates, but have high monthly fees as much as $10 on top of the rate. This can be a significant charge to someone who spends less than $150 a month on their power bill.

This practice is common in Texas where residential power companies are able to charge customers monthly fees on top of the rate. In other energy choice states, such as Pennsylvania, New Jersey, Connecticut, and Maryland, the local state utility commissions have outlawed this practice and instead require power companies to offer rates that include all components of the generation supply rate.
Another component to consider is if the rate is fixed or variable. Many electricity companies are offering variable rates with low introductory prices. The business model for these rate products is clear; get the consumer to agree to buy power at a variable rate, and slowly rise the rate month after month. It is much safer and in most cases smarter, to lock in a fixed rate.

Small businesses serviced by Jersey Central Power & Light (JCP&L) can save as much as 15% on their electric bills by choosing to purchase their power from an energy company offering a lower electric rate than the JCP&L basic generation service rate.  The basic generation service rate is a default electric rate that customers pay who have not taken the time to shop and compare energy prices.

New Jersey has one of the most successful electric choice markets in the country both in terms of number of customer participants and the amount of competitive electric suppliers who are active in the market.  Shopping for lower electric prices is simply about saving  money.  Even after a customer chooses an alternative supplier JCP&L continues to deliver the monthly electric bill, deliver the power through the state transmission and distribution lines, and respond to power outages.  Here are some current offers for small businesses in central New Jersey who receive their electric bill from JCP&L:

Commercial and industrial electricity consumers in Pennsylvania are getting more options when it comes to who they purchase their electricity from due to an increase in the number of competitive electric companies entering the Pennsylvania market.  These electricity companies are also increasing their individual product options giving businesses the option to sign long term fixed price contracts that yield price certainty, wind generation products, and short term variable rate products that are tied into the wholesale electricity market.

Businesses in the PPL and PECO regions, the states two biggest utility companies, have the most electric choice options.  PPL price to compare default rates increased by 33.4% on June 1.  PPL commercial customers who have not selected a competitive supplier can save 30% on their current electric bills by shopping for lower Pennsylvania commercial rates.  Currenty 52% of commercial customers serviced by PPL have not shopped for electricity.  These Pennsylvania businesses, largely located in Harrisburg and Lancaster, can reduce their electric bills by thousands of dollars just by shopping for the best electric rates in the area.