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PPL Explains the Causes of Electric Rate Spikes

A combination of bad weather and a huge demand versus a short supply of electricity caused an unexpected upward spike in variable electric rates in January, a PPL Electric Utilities official said.

Theresa M. Bubeck, key accounts manager for PPL, told a Manufacturers and Employers Association energy roundtable group that January’s cold weather caused a demand for electricity the Pennsylvania-New Jersey-Maryland Interconnection – the regional power grid – could not meet economically.

“The price of variable rate electricity changes every single month, up or down, depending upon market conditions, weather and demand for electricity,” Bubeck said. “A lot of customers were on a variable rate, residential customers as well as commercial, and some of them didn’t realize it.”

First, the cold caused the demand.

“Depending which article you read, it was the coldest winter in 20 years or the coldest winter in 30 years,” Bubeck said. “During the month of January, I don’t think my heat shut off the entire month.”

Supply could not meet demand because of a malfunction in the power grid, Bubeck said.

“There were supply issues,” she said. “From what we understand, there were issues on a gas transmission line that prevented fuel from getting to PPL . In periods of high demand, there are power plants stationed all throughout the PJM territory that come on line when it is very hot or very cold. Those plants are fueled by natural gas. (The plants) couldn’t get the fuel, so they couldn’t come on line.”

Bubeck said the megawatt electric price for PJM was running about $44 in December and about $148 in January – about three times as much in one month.

“You can see how all of those factors play into making that price go up or down,” she said.

Bubeck gave an example of how rates went up for one customer.

“We have a large commercial customer on the variable rate,” she said. “Their normal bill is around $700,000 to $800,000 a month. Their price changes every hour because of the size of that customer. They got a bill for $1.7 million for one month.”

The first way to avoid such a repeat is for each customer – from small residential to large commercial or industrial – is to know whether they have a fixed electric price rate or a variable rate

“If you’re shopping, know what you’re buying,” Bubeck said. “Talk to your supplier. Ask questions. Make sure you thoroughly understand what you’re getting before you sign on the dotted line.”

There are no statistics that show how many people have a fixed electric rate and how many have a variable rate, either among residential or commercial customers.

Joe Matisko of PPL Energy said the state Public Utility Commission does not have a count, either. So there is no way of telling how many were affected by the spike.

Moral of the story – As an electric customer, avoid variable rates when switching electricity providers. Variable rates fluctuate just as the electric market varies. With a fixed rate, customers are guaranteed to pay the same amount for their electric supply each month, whether electricity is in high demand or not.