Rate Caps on Electricity Prices are Expiring

Posted: December 5, 2007

Depending on which utility company provides your electricity, your rate cap protection may have already expired.

Rate caps on the price of electricity have been in effect throughout the state (with the exception of the areas served by the Rural Electric Cooperatives) since late in 1996 when the deregulation of electricity generation was approved.  These rate caps - enforced by the PA Public Utility Commission (PUC) - provide price protection to the consumers.  The utility companies were protected as well by the tangible and intangible transition fees (a.k.a. stranded investment fee) that consumers paid with each monthly billing statement.  The bottom line is that consumers have experienced no more than nominal annual price increases in electricity (~5% or less) since 1996.  These small increases have been occurring at the same time that prices for oil, natural gas, propane, coal and even wood have skyrocketed.

But now the rate caps that have kept the price of electricity relatively low are expiring.  Depending on which utility company provides your electricity, your rate cap protection may have already expired.  But the rate caps are still in effect for the large utility companies in PA until:

December 31, 2009: PPL

December 31, 2010: Allegheny Power, Met Ed, Penelec, Philadelphia Electric (PECO)


There is lots of uncertainty concerning what happens with the price of electricity in 2-3 years.  I have not heard any utility company or PUC official predicting that the prices will stay at the present level; all are predicting increases in price.  I have heard predictions ranging from a low of a 40% increase to as high as a 200% increase.  We all know that such price increases will have a profound impact on the expenses on the dairy farm.  How can you prepare for the almost certainty that electricity prices will be increasing?

Let’s start with the basics of using electricity - and other forms of energy - in a more efficient manner.  Switch from incandescent bulbs to compact fluorescent bulbs for all those lights that are used at least three hours per day.  Make sure fan blades are cleaned on a regular basis and that the fan blades are turning in the proper direction of rotation.  Whenever an electric motor needs to be replaced, be sure to replace it with a high efficiency or premium efficiency motor.  Higher efficiency motors cost more initially, but the benefits of reduced operating expenses will quickly pay back the extra investment needed for the efficient motor.

Establish dual or triple-fuel flexibility so that you can select your energy source for heating water, drying crops, and any space heating requirements.  The prices of energy are likely to become more dynamic in the future so it will be important to be able to switch from one fuel to another depending on which fuel is cheaper at the time, based on cost per million BTU. It is only when you compare different forms of energy on the basis of dollars per million BTU that you can make true “apples-to-apples” comparisons.

Manage your demand for electricity and natural gas to avoid spikes in demand.  Just one spike in electricity demand in one month has a significant impact on the electricity bill for that month.  If the spike occurs during a summer month in PECO territory, there is a penalty for that spike during each of the next eight months following September.  Utility companies are beginning to provide services (some free and some for a fee) for a customer to monitor his/her profile of electricity use.  Then it will be easier to document when the spikes are occurring and to decide what management changes are needed to reduce the probability of costly spikes.

Keep accurate, up-to-date, easily accessible records of your energy use.  Maintaining complete records of energy consumption will enable you to evaluate the different offers for energy you are likely to receive.

Remember that the cheapest energy is always going to be the energy that you do NOT use because of an EFFECTIVE energy management program!

Dennis Buffington, Department of Agricultural and Biological Engineering