PECO customers could face double-digit electricity bill increases next year

💡 Get Philly smart 💡
with BP’s free daily newsletter

Read the news of the day in less than 10 minutes — not that we’re counting.

Home electricity bills in Philadelphia and the region are poised to climb significantly next year, and go up again the year after that as well.

PECO wants to hike its charges for delivering power to homes and businesses by 12.3% in January. That would amount to $16.67 a month more — or $200 a year — for the typical residential customer bill, and would be followed by another increase of $2.07 per month in 2026.

On top of that, a huge jump in capacity prices will hit next June. Those are fees power plants receive to ensure they can supply customers on the hottest and coldest days of the year. PECO says that will result in a series of hikes could raise bills a further 10% over two years, while other analysts say the increase could be even bigger.

Consumer advocates, government agencies and major energy users like Walmart and the University of Pennsylvania are challenging parts of PECO’s proposed rate increase, and the Pennsylvania Public Utility Commission could order the company to trim it down.

But the commission will likely approve at least part of the increase, and the separate series of bill hikes due to capacity costs — which are out of PECO’s control — will also go ahead.

Advocates say they’re concerned that the double- or triple-whammy of successive increases could lead many lower-income Philly residents to endure extreme temperatures in their homes rather than run up high heating and cooling bills, and eventually contribute to a wave of power shutoffs across the city.

“You’re going to see households not paying for prescription medication or other necessities, or diverting money from rent one month to try and pay their utility bill, and then diverting money from the utility bill the next month to try and pay their rent,” said Joline Price, an attorney at Community Legal Services in Philadelphia who helps low-income clients fight shutoffs and get payment assistance. “Really just struggling to make those ends meet.”

Arguing over how much revenue PECO should earn 

PECO is an energy distributor; it owns cables and pipes in Philadelphia, Bucks, Chester, Delaware, and Montgomery counties, but doesn’t produce electricity or gas. It raises its base rates for power delivery about every three years. 

Its current request is substantially higher than in the past cycles. In 2021 PECO and its parent company, Exelon, asked for an increase in electricity distribution charges for the typical residential customer of $9.68 a month, or about 9.7%, and the PAPUC ended up cutting it down to $6.66. An increase approved in 2018 added $1.27 to monthly bills.

If approved in full, the new request would boost the company’s annual revenues by $464 million, according to its filing with PAPUC. However, as in past years, regulators are likely to reduce the size of the hike.

PECO argues that it’s investing billions in infrastructure upgrades and needs the earnings boost to ensure its continued financial health. Without a guaranteed higher revenue stream, it’ll lose opportunities to attract capital investments, jeopardize its ability to make more upgrades, and have higher borrowing costs, which would lead to further bill hikes, the company said.

Some of the added revenues would go toward increasing support for low-income customers by expanding “the outreach and education of energy-assistance programs,” spokesperson Ben Armstrong said, and “support investments to further enable the electric grid to accommodate the expanding digital and electrified world, including EVs, solar interconnection, battery storage, microgrids and other technologies.”

The state Public Utility Commission hasn’t yet released all of the objections and arguments made against PECO’s proposal. However, in an early legal filing in April, the state Office of Consumer Advocate, which represents the needs of utility customers, noted that it would result in a “rate of return” — one way of measuring company earnings — of nearly 8%.

“The proposed rate of return is excessive and, if accepted, would result in rates that are unjust and unreasonable in violation of (state law), sound ratemaking principles, and public policy,” lawyers in the consumer advocate’s office wrote. PECO’s proposals “seek to shift risk away from the company and on to its customers in ways that include … a proposed return on equity that exceeds reasonable bounds.”

The state’s consumer advocate, Patrick Cicero, declined to comment, citing the ongoing rate case before the PAPUC. 

A massive increase in the cost of peak demand power

In addition to the fees PECO charges to distribute power, a number of other factors shape the electricity bills that residents receive every month. 

One is the cost that power-generating companies — owners of coal, natural gas, nuclear, solar, wind, and battery storage facilities — charge to feed electricity into the grid daily. Another is the payments they get for having the capacity to reliably provide power at times of peak demand, when temperatures are high and everyone is running their AC on max, or when winter chills drive up heating use.

The capacity prices help companies predict future revenues and plan their power plant projects, and are critical for ensuring more electricity will be available in the coming years to satisfy growing demand. 

The amount that power producers charge for those capacity commitments is determined through an auction run by PJM Interconnection. PJM manages the power grid for all or part of 13 states, including all of Pennsylvania, and Washington D.C. 

The most recent auction ended July 30 and resulted in a projected total capacity cost of $14.7 billion for 2025-2026, compared to just $2.4 billion for the current year. PJM blames the massive increase on an imbalance of supply and demand as coal-fired power plants shut down and the region’s power needs are projected to grow.

“The new demand is from the electrification of vehicles and buildings, manufacturing increases, and data centers in Illinois, Ohio, Virginia, New Jersey, Maryland, and other places,” PJM spokesperson Susan Bueher said. “In addition to demand growth, there has been an acceleration of generating plants that are retiring and closing throughout the PJM footprint.”

The high cost of sticking with natural gas

However, many experts say the real problem is that for years PJM has been far too slow to approve requests from companies that want to build renewable power projects — solar, wind, and battery storage — and connect them to the grid. PJM has one of the lowest percentages of renewables among U.S. grid operators.

As coal fades, PJM has been depending more on power produced by burning natural gas, a cheaper fossil fuel. But it turns out that gas plants are not reliable during extreme weather, as was starkly illustrated during a winter storm in Texas three years ago. When blizzards swept across parts of the Midwest and Northeast in December 2022, PJM reportedly lost nearly a quarter of its power plant capacity.

That means PJM has access to even less power that it can truly rely on during peak demand periods, further reducing supply and escalating power prices.

“Natural gas-fired generation is unreliable because of climate disruption, the very thing that natural gas generation is contributing to,” said John Quigley, a senior fellow at UPenn’s Kleinman Center for Energy Policy, and past secretary of the state Department of Environmental Protection. The power bill increase expected in June 2025 “essentially stems from a lack of preparing for the energy transition.”

The grid operator has a backlog of projects needing approval, 97% of which are renewables, he noted. As of May it reportedly had more than 3,000 active projects sitting in its queue awaiting action, some of them several years old.

As climate change creates dangerous “urban heat islands” in Philadelphia and other cities, and causes more frequent and dangerous storms and other impacts, it’s even more urgent that PJM allow more non-fossil fuel power sources to come online, Quigley said.

“Now they have got to essentially move heaven and earth to achieve that vision,” Quigley said. “The climate’s not waiting.”

Few options for finding more power quickly

Alternately, fossil fuel companies and their defenders argue that the problem is the hasty retirement of coal-fired plants. They’re calling on the state to subsidize their operations.

“Renewable energy and battery projects … alone can’t replace the reliability value of power plants capable of operating around the clock,” wrote Terry Fitzpatrick, CEO of the Energy Association of PA and a former PAPUC chairman, in a recent article. “To keep the lights on, it may unfortunately become necessary for the government to intervene in the market to support power plants capable of operating 24/7 to offset the mandates and subsidies given to renewable energy.”

Meanwhile, PJM’s Buehler defended the grid operator, saying it’s speedily moving projects along following reforms to its interconnection process in 2022. It’s working to advance 230 gigawatts worth of projects, including 72 gigawatts by the end of next year, she said. 

A gigawatt is enough energy to power about 750,000 homes. Pennsylvania can produce about 48 gigawatts, mostly from natural gas.

PJM’s sped-up process doesn’t mean those projects will get built quickly, or at all. Once they know they’ll be able to connect to the grid, project owners still have to arrange financing, get local building permits, and deal with potential supply chain issues. Many projects never make it to the finish line, especially after sitting in the PJM queue for years.

That would seem to mean that there’s not much PJM can do to prevent the series of capacity-related cost hikes that will begin next June.

However, Claire Lang-Ree, a clean energy advocate at the National Resources Defense Council, pointed out that the organization will have another capacity auction in December. Because of the way the auctions work, bringing just a couple new power sources online, or requiring a couple older coal plants to participate in the auction, could bring costs down considerably, she said.

It’s essential “that PJM fixes its interconnection queues, gets new resources on as soon as possible, and builds enough well-planned transmission to make sure they can all connect to the grid,” Lang-Ree said.

Aid needed to get through the transition

Even if capacity prices rise as expected, it’s still unclear exactly how much the power bills of individual households and businesses will go up in 2025 and 2026.

NRDC has estimated that retail bills across PJM’s 13-state area could increase as much as 29% over time, while potentially varying among subregions because of local transmission limits and other factors.

PECO has no control over capacity prices and passes them onto customers as part of the power supply portion of electricity bills, said Armstrong, the company spokesman. The utility expects residential customers will see their bills go up 10% over two years due to the higher capacity costs, with increases coming in June and December 2025 and June 2026, he said.

The impact could be lessened if the current price of electricity falls, and could be different for customers who opt to buy power from an alternate supplier in Pennsylvania’s deregulated electricity market, he said.

As for PECO’s separate base rate increase, history suggests the PAPUC is likely to approve a smaller hike than the proposed 12.3%. In addition, Community Legal Services and other advocacy groups are demanding that the PAPUC require PECO to do a better job of enrolling ratepayers in assistance programs that reduce their total monthly energy bills. 

Lower-income families face a number of energy challenges, said Elizabeth Marx, executive director of the Pennsylvania Utility Law Project in Harrisburg. Some have poor Internet access, making it difficult for them to apply for assistance programs, and many — particularly people of color — live in lower-quality housing with drafty windows, inefficient appliances, and other problems that boost their energy usage and costs beyond what they can afford to pay, she said.

Among other asks, Marx said PECO should be required to help streamline enrollment in aid programs “so  that households aren’t required to jump through 1,000 hoops to get enrolled.”

“If they’ve provided their income information to one agency or one utility, they should be able to get enrolled in all the assistance programs that are offered,” she said. “That alone would be a significant improvement.”

Better coordination is needed to make sure those families get access to funds for home weatherization and efficiency improvements from the federal Inflation Reduction Act, she said. 

In addition to being better administered, assistance programs need more funding so that grants to individual families are large enough to cover climbing energy costs and more of them get help, advocates said. 

They called for the federal LIHEAP program, which helps with winter heating costs, to be expanded to cover summer cooling costs; for LIHEAP’s budget to be increased to make up for the loss of funds related to pandemic aid programs; and for the state government to start contributing to LIHEAP as Pennsylvania and the region make the slow transition to cleaner and hopefully less-expensive renewable energy.

“There’s pretty broad support for some state LIHEAP funding. It’s time, especially as we grapple with what Pennsylvania is going to do as we transition,” Marx said. “We’re transitioning as we speak. Now it’s about making sure that there are resources in place so that we don’t have the bottom drop out.”