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Variable-rate electricity contracts in Pennsylvania can cost customers plenty

| Wednesday, Nov. 19, 2014, 12:01 a.m.
Sidney Davis | Tribune-Review
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A $634.12 electric bill in February — about five times higher than normal — soured Forrest Lehman and his wife, Megan, on electric choice.

The bill was the result of a variable rate plan that spiked when severe cold weather caused a volatile swing in wholesale electric prices. For the next month, the Lehmans turned off lights and didn't use the stove or the dryer.

As cold weather makes a return, the Lehmans don't have to worry. They have rid themselves of their variable rate plan and their competitive power company. Their decision means there will be no surprises when wholesale prices fluctuate because they are getting power from a traditional utility whose rates are set by regulators.

“We simply don't trust those outside groups anymore,” Forrest Lehman said. “It may be a little bit more than the other guys, but they can't just jack up your rates a ridiculous amount.”

The Lehmans are among 53,559 Pennsylvania electric consumers who have ditched competitive power suppliers since last winter's surprise surge in bills that spurred a flood of consumer complaints to the state attorney general and utility regulators.

The trend is a marked turnaround from 2013, when 123,359 residential customers left their default utilities, according to the state Public Utility Commission, with many of them likely lured by the promise of cheaper rates.

To be fair, many people are still happy with their competitive supplier and are not bolting back to their traditional utility. The PUC says 1.83 million residential customers, 38 percent of the market, received their power from a competitive supplier at the end of October.

Officials are encouraging those and others who are considering a switch from a default utility to pay careful attention to their contracts heading into the winter season to make sure that their rates aren't variable or, at least, are fixed for the winter when prices are likely to be volatile.

“It's just a dangerous, dangerous situation for a residential customer to go into a variable rate,” said state Rep. Bob Godshall, R-Montgomery, who sponsored legislation to cap price increases in variable rates after consumers complained last winter. The measure didn't come up for a vote, and Godshall said he will reintroduce it in the next session.

Some people who were blindsided by costly bills last winter were unaware that their rates were variable. Some had signed up for a fixed-rate plan that expired after a period and became variable. The Lehmans, who live in Williamsport, were among them. They said they didn't notice their fixed plan changed to a variable rate.

The Energy Department has forecast lower electric bills this winter, but an early cold snap gripping the area, and reaching as far south as Florida, is focusing attention on the problem that can come with harsh weather and variable rate plans — spikes in the price of electricity in wholesale markets that companies pass along to customers.

Forecasters say this winter will be cold — but not necessarily as cold as a year ago. Nevertheless, the price of natural gas, a key fuel for heat and for electric generators, has become volatile. In late October and early November, the futures price of natural gas rose 24 percent over nine days. It dropped 10 percent in four days then climbed again. Prices are 17 percent higher than last year, settling at $4.24 per 1,000 cubic feet.

State lawmakers didn't pass a cap in variable rates, but the PUC imposed new rules that will make it easier for customers to switch electric companies. That change, effective Dec. 15, allows customers to switch plans in three days instead of 60 and requires companies to notify them 52 days before a contract expires. Companies are required to explain rate variations and the contract in clear language.

The PUC received 9,000 complaints last winter, 40 percent more than the year before, from customers who were switched to a variable rate after their fixed rate plan expired during the winter, said Denise McCracken, PUC spokeswoman. The state Office of Consumer Advocate received a record 3,000 complaints from customers whose bills jumped 300 to 600 percent, said Tanya McCloskey, the agency's acting head.

The PUC does not track how many customers are on fixed or variable rate plans, but 16 companies offer variable rate plans in the Pittsburgh region, according to the agency. Nine traditional electric utilities operate in the state and 300 companies sell fixed and variable plans in the competitive market.

Responding to complaints from consumers and concerns from lawmakers and state agencies, some of these competitive suppliers have taken steps to repair their reputation. Some are steering customers away from variable plans and highlighting fixed-rate contracts.

The number of new fixed-rate plans in Allegheny County has nearly doubled since March, said Ritchie Hudson, Pennsylvania Chairman for the Retail Energy Supply Association.

Constellation Energy, for example, is asking its customers on a variable electric rate to switch to a fixed one, said Bruce Stewart, senior vice president and chief marketing officer.

Constellation and Direct Energy, which serves 200,000 customers statewide, are offering customers rebates on Wi-Fi thermostats that monitor energy use to encourage them to sign up for fixed-rate plans.

“It gives customers more control over their energy usage and gives them price certainty,” said Ron Cerniglia, director of government and regulatory affairs for Direct Energy. “Customers were concerned about volatility and pricing, and that's why we've done things to fix the price.”

For the Lehmans, variable rates and competitive suppliers are the last things on their minds this winter. They eventually got a check from their competitive power company to offset the spike in their February bill. Playing the electric market isn't worth any initial savings, they said.

“We have so many other things in our lives. We just don't have time to fight with our electric company on top of it all.” Forrest Lehman said.

Katelyn Ferral is a staff writer for Trib Total Media. She can be reached at 412- 380-5627 or kferral@tribweb.com.

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