lock in rates for electricity?

Question

I live in Massachusetts, and NSTAR, my electricity provider, is offering me the choice to lock in a rate of 12.25 cents / kWh for the next three years. The current rate is 12.547 cents / kWh and changes every six months. That rate is 60% higher than the rate 3 years ago, according to a letter from NSTAR encouraging enrollment in the fixed rate plan.

I don't have a forecast for electricity prices and am inclined to lock in the 12.25 rate. I could absorb a big increase in electricity prices if I had to. What have other people done with similar offers? I wonder if on average there is "edge" in letting the rate float or in locking it in.

Will Trice · Accepted Answer

Assuming that NSTAR is not being legislatively or otherwise forced to offer this plan, what's in it for them? It seems like you'll buy more-or-less the same amount of power regardless of price (within reason), so why would they offer to lock you in at a discount to current rates? Are they anticipating a dramatic drop in the rates they can charge going forward?

-Will

william dot trice at ngc dot com

Ron Rosenfeld · Answer

Seems to me they are trying to keep you from switching to a different supplier. If you do switch, they can turn around and charge you the variable rate price for the months you were paying the fixed rate price.

--ron

Don · Answer

I have heard of similar deals offered by suppliers of oil and gas for home heating. That too suggests it is a plan to prevent customers from switching and not a matter of predicting the future price of electricity.

JoeTaxpayer · Answer

I saw that flyer and I thought it was from a competitor, not NSTAR. A 1/4 cent off the total 20 cent or so cost for delivered electricity hardly seemed worth the effort.Joe

Igor Chudov · Answer

They based old 12.547 cents price on $140/barrel oil, right?And they are generous enough to offer you to lock in 12.25 cents whenoil is $64 per barrel?

BreadWithSpam · Answer

You're probably right on. Dominion just offered a three-year lock-in rate for NStar customers who switch.

As far as I can tell, they are both offering to lock in prices at relatively high historic rates - based on end of the summer pricing and after a huge run-up in production costs (which have already been passed on via rate increases). (I can't find a real reference on price histories - anyone else know where to look?)

Note that they are only talking about locking in generation charges, not distribution charges. That's the only part where there is competition, of course. Even if one buys one's electricity from another supplier, the delivery is done by (and payments are made to) NStar.

Will Trice · Answer

OK, this makes more sense.  I've never lived in an area where I could choose between electricity providers, so this didn't occur to me.-Willwilliam dot trice at ngc dot com

Thumper · Answer

I haven't seen this offer but the last offer I did see also committed you to switch your gas bill to the same company if and when it became available to you. It was also only for the electricity and not delivery costs. Thumper

lock in rates for electricity?

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