More Pennsylvania businesses are realizing they have to shop around for a better electric rate to avoid impending rate increases at PPL Electric Utilities that will be as high as 36% starting January 1, 2010.
Shopping, however, can be a complex and time consuming process for business owners. For example, the Sunbury Daily Item takes a look at how the Keystone Forging Co. in Northumberland is looking at their electricity rates.
Keystone President Joe Cipriani is still examining options to decide which energy provider is right for Keystone.
“Right now, we’re working on getting specifics — whether we want to go with a contracted rate or a market rate,” Cipriani said.
The type of electric rate to choose is one of the toughest questions for business owners. No longer are businesses stuck with a plain vanilla rate that's designed around a class average load shape, and doesn't meet the unique needs of business customers, each of which uses electricity differently. With competition, businesses can get customized rates tailored to their individual load factors and usage patterns, which can save them money.
Unlike under the monopoly utility system, where rates routinely fluctuated depending on the cost of fuel and wholesale power, businesses can now get fixed rates for 12, 24, or even more than 36 months, which are especially attractive now due to low energy prices caused by the recession. These fixed rates, aside from locking-in today's low rates, provide budget certainty for businesses planning their operations in the coming year, something that was impossible prior to competition.
Businesses wishing to take a little more risk can opt for a variable or "market" rate that fluctuates with wholesale energy prices. The variable rate allows businesses to take advantage of any future drop in energy prices, but also places the risk of any future increase in rates on them. However, energy companies have come up with innovative ways to mitigate this risk while still allowing their customers to take advantage of any drops in electric rates, through sophisticated products that lock-in certain costs but "float" other costs.
Such "blended" products take a variety of forms. For example, one common product may fix the price of costs that are more volatile and risky to leave open -- such as capacity and ancillary services. However, the product will allow the "energy" rate, which reflects the cost of actual electric supply from the wholesale market, to vary depending on market prices.
Another blended variation may fix the price of a base amount of electric usage, and price any usage above that threshold on variable rates that float with the market. Still another blended option may impose a cap or "collar" to allow the customer's electric rate to vary, but only within a predefined range. This collar allows customers to enjoy the benefits of any price drops while limiting their risk exposure, and still giving them some budget certainty by ensuring that their electric power rate never exceeds a set cap.