Electric Choice Works in Pennsylvania
Jun 10 - State Legislatures
Act 138
Title 66 as Amended
THE ACT'S GOALS
* Allow consumers to choose the company that generates their electricity.
* Pass lower, wholesale electricity prices on to customers.
* Encourage reliable, affordable electricity and technological innovations by
creating a competitive market.
WHAT THE ACT DID
* Creates competition at the retail level-for generation only. Competition
was phased in from November 1997 through Jan. 1, 2001, allowing all
Pennsylvanians to select their electricity provider.
* Allows the Public Utility Commission to set the "shopping credit"
(also known as "price to compare"), which is a few cents per
kilowatt-hour (kWh) that companies can charge for generation. This appears on
each customer's bill. If a customer finds a company that can provide generation
for less than the "shopping credit," he saves money.
* Continues oversight by the Public Utility Commission to ensure quality of
electric service, along with maintenance of transmission and distribution
systems. Monopoly utilities still transmit and distribute power.
SEVEN YEARS LATER
California gave electric restructuring a bad reputation. But Pennsylvania's
similar venture has met with more success. What's happened seven years after the
law passed?
"Pennsylvania shows that electric competition can work if done
thoughtfully and carefully," says Ken Malloy, president of the Center for
the Advancement of Energy Markets.
"Pennsylvania's program has been very successful in many areas,
especially when you see the problems that some other states have
encountered," says Representative Carole Rubley.
Pennsylvania began a gradual change from a utility system monopoly to a
competitive electricity marketplace in 1997. Customers in almost every utility
service area can now select from several generators. Half the states have passed
similar laws, but Pennsylvania is widely regarded as the most successful.
REPRESENTATIVE
CAROLE RUBLEY
PENNSYLVANIA
Restructuring has saved money. Before the change, Pennsylvania's electric
rates were 15 percent above the national average. Now, they are about 4.4
percent below the average. Dramatic savings exist in Pittsburgh, where rates are
down 20 percent to 50 percent.
"We've returned to 1981 levels," says John Hanger of environmental
group PennFuture. "Consumers are the single biggest winners ... no consumer
is paying more for electricity than in 1996." Total savings for residential
and commercial consumers are between $5 billion and $6 billion.
"I'm pleased with where we've gone," says Sonny Popowsky, the
state's consumer advocate at the Public Utility Commission. "One major key
to our success is that we took a conservative approach to restructuring. We put
in protections so that even if things didn't go as we expected, consumers would
still be protected."
The law includes a mandatory cap on electric rates and more help for
low-income consumers. Rate caps helped keep prices stable through the transition
phase and also shielded rates from price spikes in electricity-producing fuels
like natural gas.
Not all the benefits, however, are found in lower rates. "Many have
chosen green power, which is a new option," says Popowsky. Consumers who
wish to support renewable energy are willing to pay a bit more. The new
renewable energy industry has brought some $200 million of private investment
into the state.
Representative Rubley says restructuring has done "a good job of keeping
a cap on electricity costs." But lawmakers are disappointed that "we
haven't gotten as many companies into the market as we would have wanted."
Indeed, a limited number of companies have entered the state to vie for
customers. And customers haven't shopped around very much.
WHY AREN'T PEOPLE SHOPPING?
Customers switching companies is one sign of a truly competitive market. It
shows that citizens are shopping for a low rate. In Pennsylvania, shopping is
made easier by the "price to compare," which electric utilities must
highlight on customers' bills. This tells them if a competing company offers a
better price.
In most restructured states, customers rarely choose a new electricity
supplier. But, on average, Pennsylvania has one of the highest rates of customer
switching.
That average, however, doesn't tell the whole story. As the competition pilot
program got underway in 1996, a surprisingly high number of consumers chose an
alternative to their familiar utility. More than a million Pennsylvanians
volunteered for the 230,000 initial slots. But the pace of switching has slowed
dramatically since then.
Around Pittsburgh and Philadelphia, an unusually high number of households
(23 percent) no longer buy power from their old regulated utility company. But
many of these customers didn't choose to switch suppliers. They were part of an
effort by the state to stimulate competition and bring lower rates to customers.
State officials asked for bids on about 6 percent of Pennsylvania Electric
Company's (PECO) residential customers who are mostly in Philadelphia. New
Power, an Enron affiliate was the low bidder. After Enron imploded, PECO
accepted the customers back into its 'competitive discount service'-still at
lower rates than conventional PECO service. In the Pittsburgh area, lots of
people switched from their old utility, Duquesne, because of strong competition,
and lower prices, for wholesale power.
PENNSYLVANIA CUSTOMERS SWITCHING UTILITY COMPANIES (2000-2004)
Other than these two cases, almost nobody has chosen a new electric
supplier-less than 0.5 percent of customers in most of the state.
At the same time, the number of companies competing with the utilities has
become smaller. One of the law's goals-creating a thriving market with a large
number of competitors-has not come to fruition.
WHAT'S NEXT?
Pennsylvania's electric system is more reliable than ever, according to
PennFuture. But more could be done to ensure a dependable flow of power into the
future. "We haven't focused like we should on the demand side," says
PUC Commissioner Glen Thomas. The state could help control demand for power, for
example, by encouraging people to use less energy at peak times, like summer
afternoons.
Pennsylvania regulators are considering how to establish rates after the caps
end in 2010. Rates may go down, as they did when the Pittsburgh company Duquesne
removed its cap. Price caps may have deterred some power companies from entering
the market, but there is also little doubt that they have helped keep rates
relatively low for most customers.
Pennsylvania has certainly attained goals like lower rates (largely due to
the rate cap) and a smooth transition from the old way of doing business.
Popowsky credits Pennsylvania's wisdom in taking "a balanced and flexible
approach-allowing long-term contracts and giving utilities room to adjust."
The Keystone State may not have met every goal it set. But if and when more
states embark upon restructuring, they're likely to look at Pennsylvania for
hints on doing it right.
WHAT SETS PENNSYLVANIA APART?
There are many reasons why Pennsylvania has had more success with electric
competition.
Supply: Compared to California, Pennsylvania has more than enough power
available.
Who Owns the Plants: California strongly influenced the utilities to sell
their power plants to for-profit companies, Pennsylvania did not.
Long-Term Contracts: Pennsylvania also allows power companies to set
long-term contracts with utilities that deliver the power. Several states,
including California, did not allow this.
Monitoring: The operator of the grid monitors wholesale prices, watching for
price manipulation.
Copyright National Conference of State Legislatures Jun 2004