Many Pennsylvania electricity consumers who selected a variable rate plan over the last two years saw huge and unexpected increases on their electric bills in February. With normal electricity rates in the 7 to 10 cent range over the last few years, consumers were shocked to open up bills that reported they were paying over 20 cents in January and February. ElectricRate.com, a energy price comparison website, reported people calling in stating that their current supplier had charged them as much as $0.2999 (29.99 cents) per KWh in the PECO service area where current fixed competitive rates are as low as $0.0870 (8.7 cents) per KWh.
Electricity companies offering variable electric rate plans to customers had been successful at keeping their rates somewhat low over the last two years as wholesale energy rates had remained stable. Competitive electricity companies have different wholesale buying strategies, but with variable rate structures they are unable to lock in rates for a long time as their customers have the flexibility to leave in any given month. This causes electricity companies to buy the power for their variable customer pool one month at a time. When the market remains stable everyone is happy, but as soon as the market sees a sharp spike the electricity company is forced to buy the next months power at a higher rate and pass it on to the customer.
In the last year the Pennsylvania electricity choice landscape had seen many small companies pop up offering low introductory variable rate plans. These companies marketed their rates with the flexibility that customers can leave the plan at any time. The reality in Pennsylvania is that a electricity company switch can only happen once per month on the customer’s meter read date, and a 12 day notice is needed. Unfortunately, when customers received their electric bills in February informing them that they were charged over 20 cents per KWh for the previous month, even if they locked in a low fixed rate right away, chances are they will see at least one more month with the high variable rate.
Pennsylvania electricity customers, both residential and commercial, should always be in a fixed electricity contract. The fixed rate provides low pricing and stability. Furthermore, the variable electric agreement allows the electricity company to raise rates at any time. The wholesale market doesn’t have to spike for the retail variable electric rate to increase, it can also increase when the market goes down. However you can be sure that when prices do rise, the electricity companies offering a variable rate will not hesitate to pass on the expenses, no matter how high, to their customers. In contrast, fixed electric rates protect the consumer from such actions.