It may come to a surprise to Washington DC residents that they have the ability to shop for competitive electricity prices, but that is the case thanks to the passing of an electricity restructuring act that was approved by the District of Columbia Public Service Commission which first went into effect in 2001 under a pilot program. Under the choice program all electricity customers serviced by PEPCO in the District of Columbia service area have the ability to shop for an electricity generation and transmission supplier. PEPCO energy continues to act as the regulated distribution company in charge of all matters related to the power lines and wires in the area.
While competition officially started 15 years ago, it has not been until recent years that shopping activity has seen significant activity, with the majority being in the commercial and industrial sector. The reason for the slow progress can be contributed to unfavorable wholesale energy price movements that have not presented retail suppliers with the ability to offer savings to existing PEPCO customers. Washington DC customers who do not shop for competitive electricity prices pay a default rate with PEPCO. The default rate is determined through a series of auctions held at various times. In contrast, a competitive retail supplier can purchase power at any given time and sell it to customers. In order to incentivize customers to leave the default rate and purchase competitive power, it is imperative to offer a rate below the default rate, especially for first time buyers of competitive power who are unfamiliar and weary of the process. Finding these savings opportunities has been a struggle for competitive retail suppliers until recently.
As is the case with every successful electricity choice market, the commercial and industrial customer base have been the first consumers to take advantage and participate in the market. This is largely a result of the competitive suppliers allocating resources to reach out to the larger customers and simultaneously educate these customers while finding energy rate products and contracts that are beneficial to the customers. As of January 2016 over 83% of the power demand supplied to non-residential customers were being supplied by competitive suppliers as opposed to just 14.9% of residential power demand. The 83% power demand was being consumed by just 34% of the non-residential customer pool, revealing that the customers participating in choice are heavily skewed to larger power users.
As electricity choice awareness increases in the Washington DC area, it will provide an opportunity for both small business and residential customers to take advantage and potentially lower their electric bills. Recently PEPCO raised their default rates for their District of Columbia residential customer pool. The new higher default price went into effect on June 1, 2016 and will remain through the end of May 2017. Some analysts feel that a bottom in energy prices has been reached as prices across most energy markets have been in an upward trend for the last half of year. If this trend continues, the PEPCO DC default rates might go even higher when the current default rate expires in May of next year.
In order to offset the higher PEPCO default rate and gain a budget certainty for the future and avoid a potential price hike, residential customers are starting to look at the options that electricity choice provides. The obvious advantage is in finding a lower electricity price compared to the PEPCO default rate which will result in clear savings on the monthly PEPCO DC electric bill. However, price savings are not the only advantage that has resulted from Washington DC electricity choice. As noted before, budget certainty and peace of mind can be a huge advantage to price sensitive customers in a volatile energy market. Locking in a fixed electricity contract for a two or three year period can protect customers from another potential default rate hike next year. Competitive electricity suppliers offering prices in Washington DC have long term rate products available that can provide protection against rising wholesale energy prices.