PECO, the Philadelphia Energy Company, merged with Unicom of Chicago to form Exelon.
Like most energy/utility companies, residents of Philadelphia do not have much of a choice as to who they choose. PECO is their choice. Orrr.. you could always go with PECO, they are a viable alternative. Did I mention PECO is pretty competitive with them, too? I think you get the point :) And I think that explains why PECO services 2 million+ people in Southeastern PA.
Recently, PECO has been advertising an “Early Phase-In Program.”
Early Phase-In Program For What?
Starting on January 1st, 2011, PECO will begin charging market-based rates. That means that PECO, starting this summer, will purchase the energy to meet customers needs for January 1st, 2011 and beyond.
Even though energy prices seem to be stabilizing a bit (based on the market, at least), PECO’s customers could experience a 10-20% increase. The actual amount is not known at the moment so there exists a degree of risk for consumers who budget for their energy bills.
Therein lies the reason PECO created the Early Phase-In Program. Customers are given the option to opt-in to an optional energy savings account. Starting Wednesday (July 2009), customers who opt-in will pay extra each month for a period of 18 months.
How will this work? For the balance of 2009, starting in July, customers will pay an additional $.0053/kWh (approximately half of a penny) for energy usage. For the entirety of 2010, customers will pay an additional $.0107/kWh (approximately one penny) for energy usage. If you use 1,000 kWh of electricity every month, on average, you will pay an extra $5.30 per month for the rest of 2009. Once you get to 2010, you will pay an additional $10.70 each month.
Over the course of 18 months you will pay in: $31.80 (2009) + $128.40 (2010) = $160.20.
Why Participate?
So, why should you fork over your hard earned dollars to PECO so that they can help you hedge your energy costs, essentially? Well, for starters, they are paying you to do so!
If you participate they will credit your bill $9.70/month in 2011 and $4.86/month in 2012. All in all, you will get out $116.40 (2011) + $58.32 (2012) = $174.72.
You get an extra $14.52 per 1,000 kWh from PECO for participating in the program, which amounts to a 6% interest on the money you loaned them (that’s essentially what you are doing!).
By participating you do not lock yourself into any agreement. You can cancel at anytime, without penalty, and get your deposits back with interest. This seems like a great deal, especially when the highest interest rates you can find are 3.75%, even on a 5 year CD. Might as well get 6% on something you know you will use!
How to Participate
There are three ways to get information on the early phase-in program:
- Your May bills should have information on joining the program. You return the sign up form with your June payment. You can always enroll late.
- You can call 1-800-494-4000.
- You can check the PECO Phase-In site.
Any Other Locales Offering This?
Just curious, are any other energy companies doing anything like this?
It seems like a great deal for the consumer, but feel free to correct me if I am wrong.
It makes me think, though, why is PECO doing this? I could only think of two things:
- It may lower defaults on bills, which makes it worth the 6% interest (especially when they are probably putting it in an investment that gets a decent return to offset that cost)
- They may need capital investment, so they decided to get it by having customers do advance payments on bills, essentially.
Any other reasons you can think of that would lead to them doing this?
I'm MLR. After graduating from college debt free, I decided to write a blog encouraging people to adapt responsible and sensible personal finance rules.
June 30th, 2009 at 6:54 am |
What an interesting concept by the utility. I was figuring they were hoping people would forget, move, etc. and not be able to take their money out, but if you can stop at any time…
I guess you could still forget if you moved and then you’d be out of luck.
No Debt Plan´s last blog ..Frugal Carpet Care: Using a Steam Cleaner
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MyLifeROI Reply:
July 1st, 2009 at 5:22 am |
@No Debt Plan,
Yeah, perhaps they are counting on people forgetting.
I tend to lean towards the reason that they are motivated to do this to cut down on bad debts. They get your money up front and can do either capital investments in their infrastructure or put the money away and earn some interest on it. Meanwhile, they offset any bad debts they could incur because of increased prices in the next few years.
Maybe I am giving them too much credit? :)
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June 30th, 2009 at 8:34 am |
I wonder if it affects their bond ratings? Maybe they’re trying to avoid “debt” that could ding their bond rating (and affect the interest rate on future loans).
Depending on how the IRS construes this (probably as a discount on services, and not interest income), you will probably earn a “true” 6%, rather than the post-tax equivalent – even better.
kosmo @ The Casual Observer´s last blog ..Open and shut
[Reply]
MyLifeROI Reply:
July 1st, 2009 at 5:24 am |
@kosmo @ The Casual Observer,
Good question regarding bond ratings! I should ask a PECO PR person :)
And, very good point on the “true” 6%. I didn’t even think about that, which is silly, because taxes are a huge part of the investment return! So that makes this 6% more like 7.1% at 15% capital gains! Good return, indeed :)
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June 30th, 2009 at 1:35 pm |
6% locked-in return, for a fairly short time period: Not a bad deal. :)
Totally off-topic question: I’ve been looking around a bit for a plugin to create a tabbed sidebar widget. Unfortunately, all I’ve found so far is one that apparently hasn’t been updated to work with WP 2.8 yet.
What did you use to create yours?
ObliviousInvestor´s last blog ..Competing for Attention
[Reply]
MyLifeROI Reply:
July 1st, 2009 at 5:26 am |
@ObliviousInvestor,
Definitely not a bad deal at all! For every 1000 kWh you use you enjoy a free $15? I’ll take it :)
If you’d like to email me about the tabbed sidebar, I’ll talk about it with you! Mine is hard coded in, no plugin.
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