Pepco 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.