How to Read Utility Bills

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The Price-to-Compare (PTC) is the default energy supply rate that is charged by the utility company to those customers who have not enrolled in a retail energy contract for their energy supply. What does that mean? Let’s take a closer look.

Energy Supply Background

All electric utility customers receive four types of essential services from their utility company:

  1. The first service is the production or “supply” of energy itself. This service is performed by power plants and is often called “generation services” or “energy supply services”.

  2. The second service is the delivery of that energy from the production facility to the community. This service uses high voltage transmission lines and is simply called “transmission services”.

  3. The third service is the delivery of that energy throughout the community in a form and manner that is safe, reliable, and useful. This service is called “distribution services” or “local distribution”.

  4. And the final services are the administration, metering, billing, and customer support between the utility company and its customers. These services are called “customer services”.

Each of these services are necessary components to a functional energy utility operation. And each of these services have costs, which are passed along to customers as distinct charges:

  1. Energy supply charges (or “generation service charges”)

  2. Transmission service charges

  3. Distribution service charges

  4. Customer charge

Under Ohio’s deregulated energy generation market, customers in Ohio have some options when it comes to the charges for the first service—energy supply.

In Ohio, customers can choose to enroll their utility account with a Certified Retail Energy Supplier (CRES) for their energy supply services. By enrolling their account with a CRES, the CRES is agreeing that it will arrange and pay for the power that the customer will use from the energy grid during the period of the agreement, and the customer is committing to pay an agreed rate to the CRES supplier for their energy supply. For example, a residential customer might enroll under “Premier Energy Solutions”, where “Premier” takes full responsibility for the customer’s energy supply costs from the grid for a period of 36 months in exchange for a fixed rate of 5.2 cents/kWh from the customer on all usage during that period. Customers can compare these energy supply options at the PUCO Apples-to-Apples comparison chart.

the “PTC” - a default supply offer

What if a customer does not enroll with a retail energy supplier? Well, the customer still requires energy supply services, but those services are instead arranged for and paid for by the utility company through its Standard Service Offer (SSO). The SSO is the default energy supply option provided to customers in Ohio for customers who have not selected a retail energy supplier. And the rate charged by the utility company for SSO energy supply is called the Price-to-Compare (PTC). The PTC is expressed in cents per kilowatt hour so it is directly comparable to price offers from retail energy suppliers.

But the PTC is more than just a supply rate in cents per kilowatt hour. The PTC has some important features that customers should understand before selecting it as an energy supply option.

  1. The PTC is not a fixed rate. The PTC is a variable regulated rate authorized and frequently changed through ratemaking practices between the utility company and the Public Utilities Commission of Ohio (PUCO). Many factors lead the PUCO to change the PTC. The most common factor is the over-collection of charges from customers. If customer usage is higher than the rate case forecast, then the monopoly utility company will over-collect from its captive customers. To reconcile the over-collection, the PUCO orders the utility company to refund the over-collection back to customers by providing customers with a lower energy supply rate. The lower energy supply rate is achieved by adding a negative reconciliation rider to the other cost components of the PTC supply rate. When added to the other cost components, the negative reconciliation rider serves as a credit and reduces the PTC beneath the true cost of service for energy supply. However, once the refund has been fully issued, the negative reconciliation rider is removed, and the PTC increases to reflect the true cost of service. These same principles and practices also apply when customer usage is beneath forecast and the utility company under-collects. Combined, the ratemaking practice of crediting and debiting over- and under-collections causes the PTC to fluctuate seasonally.

  2. The PTC is slow to react to market changes. The PTC has an underlying cost of service. Energy production must be purchased by the utility company from the power plants on the grid. However, the energy rates charged by power plants fluctuate hourly with the price of natural gas and other factors. To reduce market volatility, the utility company hedges these costs by contracting with power providers at an agreed rate for up to a three-year period. But this also means that the PTC will react slower to changes in the cost of power from the market. This insulation from the market is both good and bad for consumers. The good news is that if the energy market rises and retail energy prices become more expense, the PTC will provide rate security for consumers during the period that the PTC has already been hedged. The bad news is that if the energy market decreases and retail energy prices become cheaper, the PTC will cause an increased rate for customers compared to the market. And customers who don’t pay attention and don’t enroll with a retail energy supplier at the latest and cheapest rates will end up paying more for their energy supply.

  3. The PTC is regulated. The PTC is a rate established by a statewide government agency and with scrutiny from pro-consumer attorneys working for the Office of the Ohio Consumers’ Counsel. That type of scrutiny and public process has a lot of value for protecting customers. Many customers are taken advantage of through retail energy contracts that feature automatic month-to-month renewals at variable rates. The PTC doesn’t feature any of those shenanigans. The PTC is a plain and simple rate for energy supply. It’s about as boring as the government. But it’s safe for consumers.

  4. The PTC is the automatic supply option. The PTC is the default supply arrangement for energy utility customers. That means that customers who do not enroll with a retail energy supplier, or who do not have a governmental energy aggregation program in their community, will be automatically enrolled for energy supply at the PTC rate.

  5. The PTC is a free option.  The PTC is a regulated rate that is completely free for customers to enter and exit at will. That’s great news for customers. If customers enroll in a retail energy contract with no early termination fee or a low early termination fee, customers can terminate their retail contract and return to the PTC if and when the PTC rate offers worthwhile savings. Similarly, customers can leave the PTC with no exit costs at anytime if the market offers greater savings elsewhere.

Concluding thoughts about the ptc

The PTC has some odd features as a supply option. The PTC is slow to react to market changes. That means that sometimes the PTC is higher than the market---other times the PTC is lower. The PTC is also a variable rate, which makes it more challenging to budget years into the future. And the PTC features oddly-timed refunds or surcharges that correct for over- and under-collections of the regulated utility, but distort the PTC rate and make it challenging to compare the PTC to the rates offered in the market.

All of that being said, over the long run, the PTC has demonstrated strong savings against most retail energy supply rates and even against aggregation programs. And that makes the PTC one of the best options for customers who want a safe, low rate with no frills and with an ongoing free option to enroll in anything else when a worthwhile opportunity presents itself. And the fact that the PTC is the default supply option in communities without a governmental energy aggregation program is a great feature of the PTC.

Learn more about how the SOPEC Market Advantage program guarantees savings against the PTC.

 

 

 

 

BasicsEddie SmithBasics