What is the Price-to-Compare/Standard Service Offer?
The Price-to-Compare (PTC) or the Standard Service Offer (SSO) is the default supply rate that is charged by the electric utility company to those customers who have not enrolled in an individual or aggregation-based retail energy contract for their electricity supply. What does that mean? Let’s take a closer look:
Electric Power Supply Background
All electric utility customers receive four types of essential services from their utility company:
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”.
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”.
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”.
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”. In Ohio, customers are primarily billed through a utility-consolidated process in which the electric utility bills for all services, even if the customer is receiving supply/generation from a non-utility competitive supplier.
Each of these services are necessary components to a functional electric utility operation. And each of these services have costs, which are passed along to customers as distinct charges:
Energy supply charges (or “generation service charges”)
Transmission service charges
Distribution service charges
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 Electric 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 power grid during the period of the agreement, and the customer is committing to pay an agreed rate (listed on the electric bill in cents (¢) per kilowatt-hour [kWh]) 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” or “SSO” — the default supply offer from the electric utility
What if a customer does not enroll with a retail energy supplier/CRES? 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 also 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.
The PTC is not a fixed rate. The PTC is a variable regulated rate authorized and frequently changed through rate-making 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 SSO 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 rate-making practice of crediting and debiting over- and under-collections causes the PTC to fluctuate seasonally.
The PTC is slow to react to market changes. The PTC has an underlying cost of service. Electric supply 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 (a primary fuel in generating electricity) and other factors. To reduce market volatility, the utility company holds competitive supply auctions, allowing power providers to make their best offers at a rate determined by the auction bidding process for up to a three-year period. The addition of market-based costs and administrative fees for the utility to hold these auctions create a final energy supply rate for the utilities’ anticipated amount of SSO customers. This means that the PTC will react slower to changes in the cost of power from the market since these auctions are only held a few times a year at most. This insulation from the market is both good and bad for consumers. The good news is that if the energy market for electric power rises and day-to-day retail energy prices become more expensive, the PTC will provide rate security for consumers during the period that the PTC has been established. 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 various CRES offers. 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.
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 the public process itself, has significant value for protecting customers. Many customers are taken advantage of through retail energy contracts that feature automatic month-to-month renewals at above-market variable rates. The PTC offers an advantage to predatory business practices. The PTC is a plain and simple rate for electric power supply.
The PTC is the automatic supply option. The PTC is the default supply arrangement for electric 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.
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 any time if the market offers greater savings elsewhere.
Wrapping Up 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, even against CRES-supplied aggregation programs. All said, the PTC remains 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. SOPEC strives to create an electric aggregation program rate that beats the PTC over the program’s 1-3 year supply contracts while also creating additional value for member communities.
Learn more about the services provided to Member Communities and their Enrolled Customers.