More customers at PECO, which serves Philadelphia and surrounding areas of Pennsylvania, will soon be subject to electric rates which vary by the hour, if they continue to buy their electricity supply from PECO.
Currently, large commercial and industrial (C&I) customers at PECO with demands over 500 kW are subject to hourly pricing if they elect to take "default service" -- the program under which PECO supplies customers who do not shop for an alternative electric supplier.
Under hourly pricing, the electric rate paid by customers varies with each hour of the day, to mirror real-time conditions in the wholesale electric market. Prices are higher at peak times -- such as hot summer afternoons -- as more demand for power pushes the price higher. In contrast, rates during overnight periods are low.
In a recent decision, the Pennsylvania Public Utility Commission expanded the customers at PECO who will be subject to hourly pricing, if they take default service, to include medium commercial and industrial customers.
Specifically, once the installation of new smart meters (which can track usage at 15-minute intervals) is complete, customers with demands of over 100 kW will be subject to hourly pricing if they take default service (as the hourly pricing cutoff is lowered from 500 kW).
PECO intends to introduce hourly priced default service to medium C&I customers by June 1, 2016, and no later than December 1, 2016 if smart meter installation is not complete by June 1, 2016.
Commercial customers in the 100 kW to 500 kW range, who will be newly exposed to hourly electric rates, include supermarkets, big box stores, and similarly sized customers.
While hourly pricing has some advantages, not knowing the electric rate in advance (since it varies in real-time) makes budgeting difficult for businesses. Hourly pricing also exposes customers to the risk of electric rates during peak times which may be 10 times higher, or more, than their typical electric rate.
Business customers at PECO can avoid being subject to hourly prices by shopping for an alternative electric supplier. PECO, by law, will only be allowed to offer hourly pricing to mid-sized business customers, but alternative electric suppliers can offer any type of rate the customer desires -- one that is uniquely tailored to the customer's circumstances.
The rate can be fixed -- providing the customer with budget certainty -- or it can be variable to take advantage of market dips and avoid risk premiums. Moreover, competing electric suppliers can create hybrid electric rates which combine the best of both worlds -- fixing a component of electric rates to shield customers from wholesale market spikes, but with a design that still provides an opportunity to take advantage of market pricing at times when wholesale prices are low (such as off-peak hours).