Skip to content
Link copied to clipboard

Peco's electric-heating discount ending

During America's great expansion into the suburbs, the electric-power industry extolled the virtues of clean, modern, "flameless" electric heat. General Electric Co. spokesman Ronald Reagan urged homeowners to "Live Better Electrically." All-electric houses were sold as "Gold Medallion Homes."

During America's great expansion into the suburbs, the electric-power industry extolled the virtues of clean, modern, "flameless" electric heat.

General Electric Co. spokesman Ronald Reagan urged homeowners to "Live Better Electrically." All-electric houses were sold as "Gold Medallion Homes."

Peco Energy Co. did its part to promote electric heat. In the late 1960s, when Peco built power plants to supply a growing summer air-conditioning load, it had spare winter generation capacity and offered a discount for heating customers. About 160,000 Peco households - mostly in Philadelphia's suburbs - still receive the below-market rate.

They can say goodbye to that sweetheart deal.

Over the next two years, Peco's discounted rate for electric-heating customers will go the way of rotary phones, leaded gasoline, and bell bottoms.

An unadvertised aspect of the coming era of electric deregulation is that Peco must discontinue a host of special electric rates. The residential heating rate - called "Rate RH" in electric-tariff jargon - saves a typical family about $40 a month during the heating season.

Heating customers won't lose their special rate this winter. The discount will be cut by half during the 2011-12 heating season, however, and by the end of 2012, it will disappear altogether.

Loss of the discount could lead to some steep increases in the monthly heating bills of power-hungry customers.

But, to help soften the impact, the utility is planning to introduce programs to help customers cut costs and consumption, Peco spokeswoman Cathy Engel said.

"A typical RH customer not taking advantage of these programs could expect their total monthly bill to increase an additional 5 percent per year in 2012 and 2013 as the discounted generation prices are phased out," Engel said.

This change in the special-heating rate is not to be confused with the much-anticipated lifting of electric-rate caps at the end of this year. On Jan. 1, Peco's residential fees are scheduled to increase about 5 percent for all customers who do not sign up with the growing legion of electric suppliers flooding the market with discount offers.

Peco's heating customers will not find better offers, though. Ten alternative suppliers have listed discount offers for Peco's regular residential customers on the Pennsylvania Public Utility Commission website, yet none is extending savings to heating customers - an indication that Peco's RH rate cannot be beat, for now.

The upheaval in Pennsylvania is the result of the industry's move toward market rates, much as the telecommunications industry has restructured since the 1980s. Similar changes in electric markets are under way in New Jersey.

Under Pennsylvania's Electric Choice Act, traditional utilities such as Peco divested their power plants and became solely distributors of electrical power.

Customers are not required to shop for electricity suppliers. For those who choose to stay, the PUC ordered utilities to provide basic default generation service. It is quoted as the "price to compare."

But basic default service is just that - a simple, plain-vanilla offering for all customers in a rate class. By 2013, Peco's default rate will be the same for all residential customers.

"The commission regulations essentially require the elimination of the special winter heating rates, though we have tried to do this over a multiyear period," said Irwin A. "Sonny" Popowski, Pennsylvania's consumer advocate.

The heating discount is not the only special deal that will be sacrificed in the name of deregulation.

Peco will also phase out its off-peak offering, Rate OP, which it charges to 81,000 customers whose water heaters are on separate, discounted meters.

Gone, too, will be the "inverted block rate" - the premium price Peco charges residential customers who use more than 500 kilowatt-hours in the summer, which would include most households with central air-conditioning.

The emerging alternative electric market may come to the rescue of heating customers, according to the consumer advocate.

"I do expect that Peco will come out with time-of-use rates that might be advantageous to residential heating customers, because costs are generally lower in the winter than in the summer," Popowsky said. "It is possible that marketers will offer those kinds of rates as well, but so far they haven't."

Although the PUC approved the changes in April 2009, Engel said Peco did not plan to roll out the announcement about discontinuation of the heating discounts until next year.

Until the recession hit, Peco and the PUC had been worried that the end of rate caps would trigger disruptive increases of up to 30 percent in 2011. The PUC deliberately delayed the end of the discount so that RH customers would not get pummeled with a double dose of increases.

That happened in Illinois in 2007, when electric-heating customers lost their winter discount and their rates shot up more than 50 percent.

Even though Peco customers do not face a big immediate rate increase, the impending end of the heating discount is pertinent to homeowners or builders considering whether to replace or install electric heat pumps.

All-electric houses are no longer as fashionable as they were in the 1950s, when the Edison Electric Institute launched the "Live Better Electrically" campaign. Again in the 1970s, developers built all-electric subdivisions because they had no other choice - natural gas was in short supply, and utilities had stopped extending new service.

But electricity never really caught on as the preferred heating choice, said Marshal Granor, a principal of Granor Price Homes in Horsham.

Electric baseboard heating was "just awful," Granor said, and the first-generation heat pumps were economical - as long as the weather was not too cold.

"The new generation of electric heat pumps work well, as long as the house is well-insulated," he said. Natural gas furnaces remain the top choice for customers, he added.

About four years ago, his company went all-electric when it developed the Smith's Corner condominium project in Harleysville, Montgomery County. There was no natural gas service in the area, and Granor did not feel comfortable installing oil or propane tanks in an upscale townhouse development.

"So we went with electric," he said. "It wasn't great. I'm sure we lost sales because of it."

Michael Simone, who bought one of the units at Smith's Corner, said he's not sure what to make of the end of the heating discount since he wasn't even aware that he got it. (The discount is listed on bills as "Electric Residential Heating Service.")

"I never understood the bills," Simone said. "I just pay them."

Power Shopping

The Pennsylvania Public Utility Commission explains electrical choice and lists alternative suppliers at

Peco Energy Co. responds to customer questions at