Consumers getting ready for the big switch

No matter what happens in 2010, Carl Homish believes in the market system. Rising electricity rates will be a one-year ordeal, he hopes, a hiccup that draws in competition and gets to its business of ratcheting down prices.

“Competition is a great equalizer,” the Pittston Township resident said.

Like millions of people in the PPL Electric Utilities territory that stretches across much of Eastern and Central Pennsylvania, Homish has a big decision to make in the next few weeks that carries significant financial implications. PPL’s rate caps of more than a decade expire on Jan. 1, increasing overnight the price of every kilowatt-hour of power by more than a third.

The generation rates will increase so much that the entire bill will be 30 percent higher, meaning people spending $100 this month on electricity will be spending about $130 next month without using a single electron more. Coming during a recession, it places extra strain on already-stretched budgets.

“For me, it’s a big deal because I’m total electric,” said Tom James, meaning his home in Harding runs completely on electricity, from heating and cooling to cooking and hot water. Customers like him and Homish – whose home is also fully electric – are further exposed by rate increases because they can’t switch to an alternative fuel, such as natural gas, that might be cheaper. Whatever the electricity rates are, that’s what they’re stuck with.

But they do have options. Rate caps are only part of a larger, longer change in the state to deregulate electricity buying and selling. Caps stifled choice because they kept rates below market prices, but with caps expiring, retail suppliers have begun entering the market. For residential customers, four companies have already rolled out plans, and another two or three are likely to do so before caps expire.

Each one is offering different prices, packages, penalties for leaving early and reasons why they’re the correct choice. Because switching is based on when the meter is read and can take up to 45 days, customers need to act quickly to secure a new supplier before Jan. 1.

While rate caps have the most immediate impact on customers, they were really little more than an afterthought in the bigger picture of electricity deregulation. In 1996, the state voted to break up the monopolistic utilities and bring competition into the state, calling it “energy choice.” The idea was to force the utilities to sell off their power plants – many, however, simply turned them into a separate division of the corporation – and focus specifically on delivering the energy to customers, what the utility calls “the poles and the wires.”

At PPL, the separation created three divisions: Electric Utilities, which delivers the energy, Generation, which produces the energy, and Energy Plus, which markets the energy produced by Generation to energy deliverers like Electric Utilities.

Electric Utilities got its rates for 2010 through a financially sound, but ultimately wrong, strategy of buying the expected demand in six chunks in the open market over the past three years. The idea, by buying at different times, was to smooth out any spikes in energy prices and avoid the fate of Pike Co. Power and Light, which bought all its power at once right before its caps came off in 2006 and created an 80-percent rate increase.

But PPL’s careful planning fell through when the recession depressed the energy market this year because all the power it had previously bought was at higher rates.

That, however, opened the door for retail suppliers, who usually buy on a much shorter horizon, to undercut PPL, and so they are.

Dominion Retail

The first supplier to enter the market was Dominion, a massive corporation based in Richmond, Va. Similar to PPL, it has utilities in Virginia and North Carolina, but uses its marketing arm to sell energy in 12 states. Dominion has announced a straight 10-percent discount on whatever PPL’s rates turn out to be – the exact figure won’t be known until later this month.

As a large company, Dominion provides unshakeable stability for customers who want to set their electricity rate as they did with PPL and forget about it. Its single rate plan, however, isn’t customizable.

Direct Energy

When Pike County’s rates spiked, Direct Energy stepped in and offered far more competitive rates. It’s also the only company that has announced its contract cancelation fees, that has a long-term option or that offers a 100-percent renewable energy plan. Customers do pay a premium for all that wind.

Direct’s plans all include a three-month “introductory” rate, followed by a rate increase for the remainder of the contract. PPL’s projected rates are currently about 10.8 per kilowatt-hour. Direct offers three options, each of which includes a $100-per-year early-cancellation fee:

• One-year contracts for about 9 cents per kwh for the first three months, followed by about 9.5 cents for the rest of the year.

• One-year alternative-energy contracts for about 10 cents per kwh for the first three months and about 11.5 cents for the remainder. While not directly alternative energy, the contract will cover Direct Energy’s costs to buy renewable-energy credits to match the customer’s consumption.

The plans don’t have to be started on a particular day, meaning they last for the length of the contract starting from day a customer signs up. However, Direct’s current offers are only guaranteed until Jan. 1. After that, company officials have said, they could change.

Direct offers a variety of plans and lengths and has aggressively tried to educate the public about switching, holding informational meetings through the PPL territory.

To enroll by Jan. 1, customers must contact Direct Energy before Dec. 18. After that, the switch will take between 16 and 45 days, depending on the customer’s billing cycle. To enroll, call 1-888-734-0741.

MXenergy

Based in Stamford, Conn., MXenergy has been marketing power to many of the deregulated states surrounding Pennsylvania.

MXenergy hasn’t released much information about its plans, saying doing so could hurt its competitiveness and it isn’t quite ready to enroll customers. It expects to have fixed- and variable-rate plans to which customers will be able to be switched by February or March.

But Chief Executive Officer Jeffrey Mayer is selling his company on its stability. He believes its 10 years of experience in deregulated markets makes it one of the most reliable options.

Customers can go to www.mxenergy.com to switch, but PPL options don’t work yet.

Gateway Energy Services

Previously known as Econergy Energy Co. and rebranded in 2008, Gateway is the only company that’s making an economic impact in the Wyoming Valley and guaranteeing a local presence. It recently announced the opening of a call center just off the Cross Valley Expressway in Forty Fort. The company, based in Rockland County, N.Y., will be hiring about 90 employees throughout next year for telemarketing and a door-to-door sales force.

Like MXenergy, Gateway hasn’t released much information about its plans, saying it, too, won’t be taking on customers until February. It plans to announce prices to compare later this month. The company plans to offer a variety of plans, alternative-energy options and what it calls “affinity programs,” which would allow groups, such as churches or chambers of commerce, to pool their members into a customer group, which would receive a price break.

Coming attractions

There are also a few companies that haven’t announced yet, but say they plan to enter the territory soon. OnDemand, based in Pittsburgh, has already been working with chambers of commerce to market to member companies by pooling their energy demands together into larger blocks that fetch better offers in the market. It plans to extend its strategy to the employees of member companies.

Con Edison Solutions, a division of the New York energy giant, is announcing its entry on Tuesday in Harrisburg, complete with an expected endorsement from Pennsylvania Department of Environmental Protection Secretary John Hanger.

Liberty, which will likely be the only company offering plans completely exposed to the swings of the daily market, is working on a “price to compare” like other companies have announced. Liberty also has an odd contract cancellation policy.