Third-Party Electricity Suppliers, Part 2

Part 2: My Research

Since Pennsylvania opened up to deregulation in 1996, consumers have had an overwhelming number of options.  Starting with the 121 company links listed on www.papowerswitch.com, I worked my way through each website, determining who had residential plans in Duquesne Light territory. As of February 1, that number turned out to be 55.  I recorded whatever information I could from each site, asking for further information when it was possible, either by phone, email form, or instant messenger box in the site.  Some companies were not forthcoming with information about their rates or grid mix, and some required your current account information before they would tell you anything.  That’s where I drew the line and moved on to the next one.

How is it Green?

I cannot stress enough that you should always read labels – whether it’s your food or your electricity.  Know what you’re buying.  I found more than one “green” plan that had nothing more than a green-sounding name and a green logo, with no guarantee of renewables included in the plan.  We live in a deregulated market, and there are no guidelines around using a green-sounding name. 

I was hoping to find a number of plans that had direct support to Pennsylvania-based generation, rather than simply purchasing Renewable Energy Credits, but for reasons stated in last week’s post, that is a much more complex process than most of us are aware.  Christian and I were also hoping for a plan that included some nuclear generation, as we both support it as a zero-carbon base load option.  Such a plan does not exist – at least not in our area – most likely because our pro-nuclear opinion is typically an unpopular one in the conservation community.  But that’s an argument for another post…

The spreadsheet attached to this post lists the following information that was readily available from each company: what sources are supported, the price per kWh on February 1 (they change often, so be sure to research prices yourself!), contract terms, and termination fees.  I also added a column for plans recommended by friends of mine and whether the company was willing/able to share historical pricing data.

How is it Priced?

The main reason I chose to break this post into two parts was not because it was getting too long (which it was), but because of a question that I could not answer and wanted more time to research…

As anyone who has had to deal with a phone or cable company knows, a lot of subscription-style companies offer a low introductory rate followed by an increased price at the end of the initial contract period.  This introductory rate can serve as a loss leader (they don’t actually make money on it), so the company counts on customers not paying attention to their bills and not canceling their service after the introductory period has ended, thus enabling the company to make up that loss with the higher rate later.

In this vein, we have friends who shop around for a good fixed electricity price and then cancel the service or switch to another provider at the end of the contract when the low fixed rate converts to a variable rate.  I will not fault anybody for looking out for his/her bank account.  Having a fixed cost per kWh is smart, and it is safe.  It is easier to plan ahead and not be surprised when the bill comes at the end of the month.

The question was this:
If we assume that the supplier’s plan is structured so that the fixed introductory rate is a loss leader, then wouldn’t cancelling the contract at the end of the fixed period leave the company in the red and consequently do them more harm than good (both for the company and the industry as a whole)?

I have spent some time looking into this issue, requesting historical variable rates, and even asking point-blank if a company’s pricing structure was set up to absorb potential cancellations at the end of the fixed period.  I have not been able to get any direct statements confirming or denying that practice, but from what I have seen, this is my best educated guess:

While different companies have different tolerances for risk, I believe that most, if not all of them, hedge their bets and account for some percentage of their customers leaving after their fixed period is up.  Capacity can be purchased in the PJM market up to three years in advance, which is why you see fixed-rate terms up to 36 months long.
I understand that the sale price of Renewable Energy Credits impact the price of these fixed rates, and it behooves these suppliers to sell RECs when the market price is right. Based on market prices when buying a block of energy or selling a bundle of RECs, companies can offer a range of prices per kWh to their customers. In fact, I encountered a wide variety of variable AND fixed prices in my research, each ranging from about 6 to 12 cents per kWh.

Locking customers in at a fixed rate means more profits for the company when weather is predictable and more losses when weather is extreme.  With temperature anomalies and weather events on the rise, these companies will need to be more cautious in their pricing to avoid losses.  Conversely, when a company allows its rates to fluctuate with the market, they reduce their risk during extreme events, but also limit their profits during predictable weather.

In short, I don’t believe any of these companies is going to knowingly put itself in a position to lose money because of customer behavior or market conditions.  I am sure there is a range of risk tolerance represented in this set of companies, and some probably do count on customers not paying attention to their bills.  Given that research, I tried to find information on historical variable rates… and the only companies able to share their variable rate history only had variable-rate plans (which doesn’t inspire a lot of confidence in those with fixed-rate plans…)

Where We Stand Now

As of this blog post, we have not yet picked a new plan, but we have it narrowed down to about three.   I personally would like to support generators directly, rather than using RECs (though that is not a deal-breaker).  Christian and I would both like a plan that includes support of nuclear, but I couldn’t find one (again, strong preference, but not a deal-breaker).  Finally Christian is hesitant to support a plan that can’t (or won’t) be transparent about its past pricing, and I am inclined to agree.   (“DISCLAIMER: Historical pricing is not a guarantee of future rates!” Yes, yes, we know…) 

The other questions I had while doing this research were: Why wouldn’t we just stick with Duquesne Light and purchase/retire RECs on our own?  Or just donate directly to a specific generator?  I suppose we could do that, but I am rather lazy, and it is much easier to have someone else take care of that for you.

So next steps for us will involve getting quotes, confirming “green-ness” (because two of those three made no mention of RECs, which implies that they own their own generation sources or support renewable generation directly), and comparing historical rates.  But for now, I’ll leave you with my research into sources, prices, and contract terms.  I encourage you to comment below on your own experiences with third-party providers.

All the disclaimers: I’m not endorsing any companies, your choices are your responsibility, always read contracts before signing them, etc.

Thanks for reading!

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