Electric Bill Spikes--Was it Really Just That Cold?

Apr 29, 2014

Credit Flickr user hubgoat

Spring has finally arrived, but you might still be paying the price for the colder-than-usual winter. Some customers under variable rate electricity agreements saw major spikes in their bills after the polar vortex in January. Since then, more than fifty thousand have switched back to their default energy providers.

So what caused the bill spikes?  And now that winter is over, are Pennsylvanians in the clear?

Libby Gage sure hopes so.  She was hit especially hard when the cost of electric went through the roof because she pays the bills for five meters: four at a Bellefonte house she rents to students, and one at her own home in State College.

Gage switched from her default provider, West Penn, to Ethical Electric last year, when a company representative cold-called her.  Ethical Electric’s selling point isn’t its affordability—instead, the company draws customers who want to support renewable energy. The initial fixed rate of around 6 cents per kilowatt hour for renewable, Pennsylvania-generated energy seemed reasonable enough to Gage. But she says once her rate went variable after the initial introductory fixed-rate period, her rate went from around 6 cents to 14.9 cents per kWh over the span of two months.  She also noticed “other charges” to the tune of several hundred dollars on her bills.  When Gage called Ethical Electric to ask about the charges, a customer service representative told her the high bills were a result of the cold winter.  But Gage is skeptical that the cold weather in itself is the reason for the bill spikes.

“I’ve lived through cold winters before and I’ve never in my life ever—I can see maybe an extra $50 a month?  Or an extra $100?"  Gage says, "The highest I’ve ever paid for my home account is $180 last year.  This coming month it’s $558.”

She adds, “Something is so very fishy about this.  Like, why?”

Tom Matzzie, CEO of Ethical Electric, says it was absolutely colder than it has been in a long time. 

“And not just in Pennsylvania, but we had widespread cold across the entire country," says Matzzie.

He says the cold weather meant his customers used more electricity during this time—up to six to seven times more than usual. And due to demand, the wholesale price of electricity hit record highs. But Matzzie says even though Ethical Electric’s customers saw much higher-than-usual bills, they could have been a lot higher. He says Ethical Electric had to pay around 30 cents per kilowatt-hour for energy across Pennsylvania.

“I just couldn’t in good conscience raise the price that high for our customers. We took a significant chunk of those costs as a loss in order to prevent higher bills for our customers." Matzzie says, "We’re financing them and spreading them out over a year or so.  It’s been very expensive and very difficult for us.”

Relating to high demand, energy experts say increasing dependency on natural gas for electricity generation is also to blame.  While natural gas has brought energy prices down on the whole, it makes prices more volatile. During the winter, demand for natural gas is especially high because it’s also used as a heating fuel. And high demand raised the price for natural gas this winter, which in turn raised the price for all power. 

That’s because the wholesale price of energy is determined by the most expensive power plant that’s turned on to meet demands—which, this winter, was always a natural gas-fueled plant. Prices were so high the operator of the power grid that serves PA allowed participants to sell electricity beyond the $1,000 per megawatt-hour price cap for the very first time.

Matzzie says the design of the energy market can be very efficient during normal times.  But during extreme situations like this past winter, it can be very unfair.  He says those who own natural gas reserves and pipelines can see huge windfalls while customers—and companies like his—suffer.

Matzzie says, “Somewhere, there’s somebody driving a Ferrari because of people’s high power bills this winter.”

Mary O’Driscoll, a spokesperson for the Federal Energy Regulatory Commission, says they’re still investigating, but so far they haven’t found signs of market manipulation.

Seth Blumsack, and associate professor in Penn State’s Department of Energy and Mineral Engineering, says companies can charge what they want—short of gouging—because of deregulation in recent years.

Blumsack says, “Companies make their own decisions about how they are or are not going to pass costs onto their customers.  Then customers can decide whether they liked the things that their generators did.”

Jennifer Kocher, a spokesperson for the Pennsylvania Public Utility Commission, says while they don’t have jurisdiction over prices and profitability, the PUC is working to introduce new regulations to protect customers from what happened last winter.  One proposed change is to shorten the wait to switch providers to just three business days, from the 10 – 40 days it currently takes to switch. They’re also updating the PUC-run website, PApowerswitch.com, where Pennsylvania residents can go to compare and switch energy providers. Kocher says they want to make disclosure statements easier to understand and more uniform.

If you’ve felt lucky you stuck with your default electricity provider—or if you are one of the thousands who recently switched back, you may not be completely off the hook. Customers of West Penn, the default provider in State College, are about to see their rate go up. West Penn’s “fixed” rate is more like a “regulated” rate, subject to change every quarter.  As a default provider, West Penn charges customers exactly what it costs to provide power. So if your default provider spent more than it charged you, they can request a rate adjustment. Which West Penn did late this month.

Charles Fullem, Director of Rates and Regulatory Affairs for Pennsylvania at FirstEnegy (West Penn’s parent company) says they’re changing the rate for the months of June, July, and August to reflect the higher costs of energy in January.  The new rate will be 7.47 cents from the current 4.9 cents per kWh. At least relative to the price spikes those on variable rate plans have seen, it may not seem like much.  West Penn wasn’t hit nearly as hard when wholesale energy prices went up because only 10% of its supply is from the variable wholesale market.  90% comes from fixed one-and-two-year contracts. 

And Fullem points out with an open electricity market, current West Penn customers who don’t want to pay the increased rate can avoid it altogether by switching before the June rates become effective.

But not all customers decide on an electricity supplier based solely on the bottom line.  Libby Gage from Bellefonte says while she can’t afford an $800 electric bill, she wants to use renewable energy.  So she’s hedging her bets.  She’s moved to a fixed-rate provider for her rental, but she didn’t cut ties with Ethical Electric altogether.  After a company representative worked with her to reduce her much higher-than-average bills, she decided to stay on with Ethical Electric as her provider at home.  She says she’s going to give renewable energy another chance.

Additional information:

Visit PA Power Switch to see available electric suppliers in your area.

Visit Ethical Electric's website.