Low natural gas prices bring good news in electric bills

Residential electricity prices in Pennsylvania and New Jersey continue to move downward, thanks to the low cost of natural gas.

PPL Electric Utilities this week became the latest utility to reduce its default generation charge. The Allentown company said its electricity supply fee, which is adjusted quarterly, will decrease nearly 11 percent March 1.

"Low natural gas prices have driven down the price of electricity in wholesale markets," said Kurt Blumenau, a spokesman for PPL, which serves a large swath of eastern Pennsylvania, including parts of Bucks and Montgomery Counties.

The charge for basic generation service at New Jersey's four electric utilities will drop June 1, according to a plan the New Jersey Board of Public Utilities approved this month. Customers of Public Service Electric & Gas Co. will pay 3.6 percent less for power, and Atlantic Electric customers will pay 2.8 percent less.

The generation charge for residential customers of Peco Energy Co., which serves Philadelphia and surrounding counties in Pennsylvania, will increase slightly from 9.92 cents per kilowatt hour (kWh) to 10.06 cents on April 1. The increase is smaller than the utility had projected just a month ago, reflecting falling wholesale prices.

The fees being adjusted cover only the commodity portion of customers' bills. In Pennsylvania and New Jersey, those charges fluctuate to reflect market conditions. Customers can also switch to competitive suppliers, often at a discount, rather than stay with the utility and pay the "price to compare."

Regardless of who supplies their power, all customers pay a distribution charge to their utility for using its wires. Those rates are fixed.

Utilities set their default supply charges by conducting periodic auctions to buy some of their electricity. The prices they set are based on an average of their supply contracts, which vary in duration.

New Jersey utilities secure their supply contracts annually. The agreements they sign this year replace contracts made in 2009, when prices were higher.

Pennsylvania utilities adjust their supply contracts quarterly based upon a basket of long-term and short-term contracts.

PPL's residential default rate will go from 7.769 cents per kWh to 6.935 cents March 1. Customers using 1,000 kWh a month would save $8.84.

PPL's prices are typically lower than Peco's because power costs less to generate and transmit in PPL's less-congested territory. But the 30 percent advantage PPL has over Peco is unusual.

PPL's price appears to have come in remarkably low because 10 percent of its power is set by spot-market contracts, which are very cheap because the natural gas that fuels power generators is selling for its lowest price in a decade.

"There's no real magic here," said Dennis Urban, PPL senior director of rates and regulatory affairs. "It's just the structure and timing of our procurement process."

PPL's prices are so low that alternative suppliers may be hard-pressed to compete. Most competitive suppliers with prices posted on the Public Utility Commission's website, papowerswitch.com, are above PPL's default rate.

Regulators require utilities to pass along generation costs without markup - utilities make their profit on the distribution charge, not on the power itself.