As we've previously noted, electric rate caps are expiring for the remaining utility territories in Pennsylvania on January 1, 2011, including at PECO, Met-Ed, Penelec, and West Penn Power (Allegheny). On an average basis, business customers could see electric rates jump 30% if they remain with their utility and don't shop for a lower cost energy supplier.
However, the 30% average rate increase doesn't tell the whole story of the risks and costs facing Pennsylvania businesses if they don't shop for a lower electric rate. For medium and large commercial and industrial customers, not only are they facing large rate hikes if they remain with the utility, they are also going to see much more volatile electric prices throughout the day, meaning their bills could spike much higher than 30%.
That's because medium and large Pennsylvania business customers who don't shop for an alternative electric supplier will be placed, by default, on what is know as "hourly" pricing. Today, most Pennsylvania businesses pay a single, flat rate for their electricity regardless of the time of day. Whether they use power in the middle of the day, or during the second or third shift at night, they pay the same electric rate.
However, the wholesale electric market, where utilities buy their power, fluctuates as often as every five minutes. As you would expect, when there are more people using power, the price increases throughout the day. That means afternoons on hot summer days, when the grid is strained from air conditioning load and the electric load is at its "peak," is when the highest prices occur, which can be three to five times the normal price for power, if not higher.
Under hourly pricing, business customers will essentially be exposed to these volatile, fluctuating electric rates. The rate paid by business customers for electricity will change each hour, to reflect changes in the wholesale price of electricity. That means that a business which uses most of its power during the afternoon, during the electric system peak, is going to see spiking electric rates for that usage. Instead of paying 6¢ or 7¢ per kilowatt-hour for using power in the afternoon, a business customer could end up paying rates that are 25¢ or 30¢, based on the "hourly" price during the electric system peak.
While the cutoff for how large a business has to be to be defaulted to hourly pricing varies by utility area, generally most mid-sized to large businesses will fall within the hourly pricing class.
Hourly pricing is a "double whammy" for most business customers whose heaviest electric consumption comes during the peak. Not only will they face higher rates from the expiration of rate caps, the utility's hourly pricing system will force them to pay an additional, hefty premium for consuming power during the peak time.
Fortunately, customers do not have to remain on hourly pricing, and are free to leave the utility for a competing electric generation supplier. These competing electric suppliers can customize their rate structures to meet the individual usage patterns of each customer. If a customer uses most of their power during the system peak, the alternative energy supplier can design a rate plan that gives them a traditional flat rate to protect them against price shock, shielding them from the volatility of the wholesale market.
SaveOnEnergy.com offers Pennsylvania businesses the fastest and quickest way to find a competing energy supplier that offers them a lower rate and can shield them from hourly price volatility. SaveOnEnergy.com's experts can work with businesses to analyze their usage and select the right electric product and rate design to maximize their savings, so customers aren't stuck paying spiking electric rates for using power in the middle of the day.