Deregulation of electricity generation in Pennsylvania–it’s coming soon

June 4, 2010

Deregulation of electricity generation in Pennsylvania was approved in the PA General Assembly in December 1996. The primary impetus for the legislation was to open the electricity industry to competition, thereby enabling Pennsylvania residents, institutions, businesses and industries to buy electricity at lower costs. Originally the deregulation was to be completed statewide by Jan. 1, 2001. There have been numerous delays in this arduous process. Now the anticipated deadline for completion throughout the state is Dec. 31, 2010 for all investor-owned utility companies. The rural electric cooperatives and municipal-operated utility companies are exempted from this legislation.

Electricity rate caps (or price controls) were implemented by the PA Public Utility Commission (PUC) to ensure relative price stabilityduring the potentially tumultuous years leading to the complete deregulation of electricity generation. The price of electricity has remained nearly constant since 1996 with annual increases ranging from 0 to about 5 percent, while the prices of other sources of energy were skyrocketing. During this same period, customers were required to payeach month the tangible and intangible transition fees (also known as stranded investment fees) to compensate the utility companies as they transition to the deregulated environment.

PECO Customers

The balance of this article is geared specifically to those customers served by Philadelphia Electric Company (PECO), which includes all the mushroom farmers in Chester County. The information pertinent to PECO customers is similar (but not identical) to the information pertinent to customers of the other investor-owned utility companies throughout the state.

The rate caps for electricity that have kept the electricity prices fairly low expire when the deregulation of electricity is completedat the end of 2010. The customer’s responsibility to pay the transition fees also expires at the same time, thereby completing the deregulation of electricity generation. Then what?.

Each customer will have the opportunity to shop for a supplier of generated electricity. Generated electricity will become a commodity that can be purchased from any licensed supplier or broker that you choose. Whenever considering generated electricity, we need to think in terms of both energy (kWh) and capacity (kW). If a customer opts not to shop for an electricity supplier, then PECO will serve as the “default service supplier” or the “provider of last resort.” If your selected electricity generation supplier is ever unable to provide the electricity you need, PECO will supply you with electricity at the prevailing price.

The transmission and distribution of the electricity as well as local service will continue to be provided by PECO. It doesn’t matter which company you select as your electricity generation supplier; you will remain a customer of PECO for distribution and local services. PECO will be responsible for providing line maintenance, restoring service after storms and accidents and providing on-going customer services including billing. These functions will remain regulated by the PUC for the foreseeable future.

Rate Design Changes

There will be numerous changes in the PECO rate designs. The familiar rate features listed below will be eliminated for generated electricity (energy and capacity) for all commercial and industrial customers starting the first of the year 2011. However, the rate features listed below will be retained for transmission and distribution.

* Demand ratchet * Winter heating rate

* Night service rider * Construction rider

* Interruptible rates * Curtailment rider

* Economic incentive & competitive alternative riders * Several other less-used features

The rate features of declining block rate structures and demand charges will be phase]d out over the three-year period 2011-2013 for generated electricity but will be retained for transmission and distribution.

What are your options for buying generated electricity? For the medium-sized customer (with kW demand greater than 100 kW but less than500 kW), the options are:

* Contract with a licensed retail supplier * Obtain default services from PECO at a flat, fixed rate of x cents per kWh.

For the large customer (demand greater than 500 kW), the options are:

* Contract with a licensed retail supplier * Obtain default services from PECO at day-ahead hourly prices

* Obtain default services from PECO at a flat, fixed rate of x cents per kWh. (this option available just for 2011.)

It does not matter what size customer you are, your most importantactivity to get lower prices for electricity is to manage your peak demand. An indicator of how well you are managing peak demand is the load factor. Next month’s article will focus specifically on load factor and how you can manage it to get electricity at lower prices.

You have 6 months to prepare for the deregulation of electricity. Take advantage of this lead-time. Start your homework now!

Brief Definitions

Demand: Unit of electrical power, expressed in kilowatts (kW).

Distribution: Delivery of electricity from the substation to the retail customers.

Generation: Production of electricity at a power plant or on-site facility.

Investor-Owned Utility: A utility company owned and operated by private investors.

Load Factor: Relationship of peak demand (kW) to electricity usage(kWh).

Peak Demand: Maximum amount of electrical power (kW) used over a 30-minute interval in the billing period.

Public Utility Commission (PUC): Pennsylvania regulatory agency that provides oversight, policy guidance, and direction to electric public utilities as well as other public utilities.

Transmission: Transport of high voltage electricity from the generation plant to substations.

Dennis E. Buffington Professor

Dept. of Agricultural & Biological Engineering Penn State University

Our Perspective:

Hutchinson Business Solutions is an independent energy management consultant. We have been providing deregulated energy saving solutions to our clients for over 10 years. To learn more about the the deregulated savings opportunities for your business email george@hbsadvantage.com or call 856-857-1230.

4 Responses to “Deregulation of electricity generation in Pennsylvania–it’s coming soon”

  1. […] the rest here:  Deregulation of electricity generation in Pennsylvania–it's coming … By admin | category: PENNSYLVANIA STATE University | tags: agricultural, energy-saving, […]

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