Pepco files Maryland new Type II Standard Offer Service Rate

Electric MeterPepco has filed with the Maryland PSC new Type II SOS rates for the three-month period beginning September 1, 2012.

Customers who do not shop for supply from an alternate electric provider in Maryland receive Standard Offer Service, or SOS, from their utility. How SOS is priced depends on a customer’s class and size.

Large business and industrial customers (those above 600 kW) receive hourly prices from the PJM wholesale market. These prices vary with the spot wholesale market price of electricity, which is extremely volatile. Thus, most large customers have contracted with a competitive energy provider to avoid these hourly prices, and receive rate stability.

Medium-sized business customers (25 kW to 600 kW) receive an SOS price that changes quarterly, and are known as Type II customers. All the electricity supply to serve these utility SOS customers is bought every three months, meaning prices often vary widely during the year. Customers can avoid these price fluctuations by contracting with a alternative electric provider.

SOS prices for residential and small commercial customers (under 25 kW) change every six months. Supply for this class, known as Type I, has been “laddered” to shield customers from exposure to the wholesale market at any one time. The supply needs for these customers are split into quarters, and 25% of supply is procured every six months for a period of two years — meaning the SOS price is a revolving mix of old and current supply contracts. While intended to shield small customers from the price volatility witnessed by larger customers, this “laddering” can also raise prices through risk premiums. The SOS price also does not fall as quickly when the wholesale market price falls, because only a small part of SOS supply is being bought in the current market. Customers can take advantage of falling prices faster by choosing a competitive energy provider that offers lower rates when market prices fall.

Pepco-MD Generation Service Charge 9/1/12 – 11/30/12 (¢/kWh)

Schedule MGT LV II
On Peak: 6.143
Intermediate: 6.143
Off Peak: 6.143

Schedule MGT 3A II
On Peak: 6.059
Intermediate: 6.059
Off Peak: 6.059

As of this writing, the above prices are lower than alternative fixed price contracts that begin in September.  Since these SOS rates are only for three months, all market indicators tell us that on December 1, 2012, customers on the SOS rate will find their prices rising. Contracting for a longer term will protect customers from price volatility.

Nstar and National Grid to lower electricity rates for basic service

Massachusetts electricity ratepayers could soon see their electricity bills shrink as the lowest natural gas prices in over ten years make it cheaper to produce power.

Nearly 60 percent of the state’s electricity is generated by gas-fired power plants, and utilities – which have been paying less to buy that power – are passing the savings on to consumers.

NStar, now a subsidiary of Northeast Utilities of Boston and Hartford, asked state regulators on Monday to approve a nearly 16 percent cut in power rates for its 1.1 million electricity customers. That would bring the charge to its lowest in eight years.

Last week, National Grid, the state’s second largest utility, lowered its electricity supply charge by nearly 19 percent.

Both Nstar and National Grid typically provide prices for a period of  six months for fixed price customers (NStar: Jan to June and then July – Dec. National Grid: May – October and November – April). Industrial customer basic service prices are fixed for only three months.

The fixed prices that utilities contract with suppliers are based on auctions prior to the start date of the new fixed prices, in the same way that you, the commercial customer, contracts electricity.  When the utility fixed price offer expires, the new price will be based on market conditions at that time, which we forecast will be higher, since natural gas prices have come off of their lows.  Our recommendation is to contract for an eighteen month period at present, even if that price is slightly higher than what the utility standard offer is.  While the initial price might be higher, you will save when the present basic service price period ends, having locked in a fixed price for a longer period. Averaging those savings against the short-term price difference will protect you from price increases and control your energy budget.  Contact us for more information about controlling your electricity costs.