Variable Electric Rates Could Lead to Shock
By Rep. Robert Godshall, chairman
House Consumer Affairs Committee
February 2014

I have received numerous calls to my district office related to electric generation rate increases experienced by customers who have entered into variable rate contracts with competitive generation suppliers. From these contacts, it is clear that consumers often do not understand or anticipate the degree to which variable rate contracts can fluctuate, and I want to take this opportunity to provide information regarding electric generation service offered by competitive suppliers.

Competitive electric generation suppliers are not public utilities and although they are required to be licensed by the Public Utility Commission (PUC), their rates are not subject to PUC regulation. These suppliers operate in a competitive, free market environment. The terms and conditions of service offered by a competitive supplier are contained in the contracts it offers to customers. Whenever you sign up with a competitive generation supplier, you should carefully review the terms and conditions of service as it contains important information regarding the type of rate (fixed or variable), how the rate is determined, if the rate includes taxes and fees and if the contract is subject to early termination or cancellation fees.

Unlike default generation service providers (electric utilities) who may not profit from the electric generation they sell to non-shopping customers, competitive suppliers are in the business of selling electric generation. Like any business, they hope to earn a profit and develop business models that promote success. Suppliers market their business by offering promotional rates, rebates, gift cards and other incentives to encourage customers to choose them as their electric generation supplier. Suppliers offer both fixed and variable rate contracts in an effort to provide products and services that best serve the needs of individual customers.

Under fixed rate contracts, consumers are charged the same price for electric generation for the duration of their service contract with a competitive generation supplier. Variable rate contracts are generally subject to a promotional rate period followed by fluctuating monthly rates based on wholesale electric prices. I have heard of situations where a consumer received an initial rate of 6 cents per kilowatt hour (kWh) for the first month of service or other promotional period but then, such as in January, received bills charging as much as 30 cents/kWh for the generation portion of their electric bill. I cannot stress enough that variable rates change based on wholesale market conditions. These types of contracts may work for many consumers, but anyone considering a variable rate contract for electric generation needs to be aware that dramatic rate increases may occur.

Variable rate contracts for electric generation are just like variable rate loans and mortgages. The low promotional rate offered in the beginning may seem like a good deal in the short term, but fluctuations in the rate may make choosing a variable rate less attractive in the long term. Variable rates change monthly based on wholesale market prices, and sometimes on other factors such as the time of day a consumer uses electricity. Market prices for electric generation are constantly in flux. A recent article by the trade publication Environment and Energy Publishing discussed how the extremely cold weather experienced in January caused wholesale market prices for electric generation to skyrocket. According to the article, in January, wholesale electric prices in the PJM Interconnection (wholesale electric grid manager) electric market, exceeded $1,000 per megawatt hour (MWh) during peak usage hours for the first time ever. Wholesale electric prices were as high as $500/MWh during non-peak times. The historic seasonal wholesale electric price is $40-50/MWh. Consumers with variable rate contracts are impacted by these record breaking wholesale prices and have or will see increases in their monthly bills as a result. Conversely, customers with fixed rate contracts are not impacted and will continue pay the fixed contract rate. For fixed rate contracts, the competitive supplier must absorb the additional costs incurred to purchase enough electric generation to meet its customer demand.

Consumers who sign up for variable rate contracts have a greater responsibility to monitor the prices charged by their supplier than customers who sign up for fixed rate contracts. Customers who agree to a variable rate should contact their supplier on a regular basis to find out the rate the supplier is charging for that day/month. Initial promotional rates are often much lower than the going market price and consumers should know when the promotional rate ends and switch to another supplier prior to the expiration of the promotional period if they are unhappy with the post-promotion variable rates charged by the competitive supplier. Customers should also be aware of any early termination or cancellation fees associated with their contracts. If you choose to switch to another supplier, please be aware that it takes one or two billing cycles for the switch to be completed. During this time, you will continue to be a customer of the “old” supplier.

If you believe you are being charged a rate that is inconsistent with your supplier contract, you should first contact the supplier and attempt to resolve the issue. If the supplier is unable to resolve the complaint or is unresponsive, you may file a complaint with the Public Utility Commission. Complaints may be filed through the PUC’s website (www.puc.state.pa.us) or by calling 1-800-692-7380. If you believe the competitive supplier has violated PA’s Unfair Trade Practices and Consumer Protection law or has engaged in price gouging, you may file a complaint with the Attorney General’s Office through its website (www.attorneygeneral.gov) or by calling 1-800-441-2555.
 
 
 
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 Watch my comments on the subject here.