Didn't pick electricity provider? Supplier may be picked for you

October 28, 2013
Andrew Maykuth

The 3.6 million Pennsylvania utility customers who have not picked a competitive power supplier may have the decision taken out of their hands.

Legislation promoted by electricity marketing firms would eliminate the system in which incumbent utilities such as Peco Energy Co. provide default service for customers who don't shop.

Under the proposed system, default-service customers would be assigned by an auction process to competitive suppliers. About 1.1 million Peco customers, mostly residential, would be affected.

One big beneficiary: The state treasury. Suppliers would pay the state $100 per switched customer, a one-time budget jolt of $360 million.

Consumer advocates say the proposal would upend a system that has already induced more customers to switch than any state other than Texas, where all customers are required to shop.

"The default service we have now assures we have affordable electrical service under reasonable terms," said Tanya J. McCloskey, the state's acting consumer advocate. "In our view, this is not the path forward."

Ray Landis, the AARP's advocacy representative in Pennsylvania, said he's worried that many customers would be at the mercy of a complicated market.

"We have a pretty good system now that's working for people who want to shop and working for people who don't want to shop," he said.

Proponents say it would extend the benefits of electric competition to all customers – even those who have decided they don't want it.

"Customers are under the false impression that remaining on default service is a good thing, when in fact the numbers don't support that," said Ron Cerniglia, a spokesman for Direct Energy, one of the suppliers behind the bill.

Peco customers who remained on default service last year left $164.5 million on the table – about $162 per household, said Cerniglia, Direct Energy's director-government and regulatory affairs. That was the difference between Peco's default rate and the lowest 12-month fixed rate. Statewide, customers could have saved $357 million last year.

The measure, dubbed the Electric Competition Benefits Enhancement Act, or Senate Bill 1121, was introduced this month by Sen. Bob Mensch (R., Montgomery).

"If we can encourage people to get away from default service to a more competitively priced product, it helps a lot of people," Mensch said.

Under Pennsylvania's current system, which was enacted in 1996 and went into full effect in 2011, competitive power suppliers flocked to the state. More than 70 suppliers have offers for Peco customers, including some who market renewable, or "green," energy.

The suppliers get paid through the generation charge – typically the biggest part of the bill.

For customers who don't shop, utilities are required to provide default service, priced at cost. That is known as the "price to compare," a benchmark from which consumers can measure the offers from competitive suppliers.

Regardless of the supplier, incumbent utilities like Peco still deliver the power over their wires and collect a distribution charge set by the Public Utility Commission.

Under the proposed legislation, default service would be eliminated.

Customers would be transferred to competitive suppliers in June 2015 and would receive a 12-month fixed rate, but they could switch to another supplier without a penalty. The suppliers would be required to give the new customers a $50 credit.

The suppliers would also have to pay the state $2 per customer to finance an education campaign so the public understood how the new system works.

Only 33 percent of Peco customers – and 37.5 percent of customers statewide – have switched suppliers despite some impressive discounts.

Many customers say they can't be bothered choosing a supplier. Some are confused by the plethora of offers. Others distrust the marketing companies, some of which the PUC has punished for shady sales tactics.

Mensch said the bill contains safeguards to protect consumers from getting slammed by rate increases at the end of their terms.

The AARP's Landis is skeptical.

"Without the price to compare, we're concerned a lot of people who aren't sophisticated shoppers are going to end up paying more than they should," he said.

Peco is noncommittal.

"We support accelerating customer participation in retail choice, including possibly moving away from utility default service, provided that measures are put in place to ensure a smooth transition for customers," said Peco spokeswoman Cathy Engel Menendez. "We do, however, have concerns that the bill, in its current form, does not accomplish this objective."

The bill's advocates have put up a website promoting the measure: energyconsumersfirst.com.

The site lists Direct Energy and other suppliers among the proponents: Dominion Retail, IGS Energy, NRG Energy, and Walmart.

The inclusion of Walmart is curious. Walmart owns a PUC-licensed supply company, Texas Retail Energy, to buy power for its stores. Its interest in the legislation could signal that the world's largest retailer may also see an opportunity in selling power to its customers.

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