Deregulation is working: Competition for electricity is spurring innovation in Pennsylvania

July 20, 2010

As reported by David Fein  Post-Gazette

For nearly a decade, Pennsylvanians paid the same rate for electricity with no increase in price to account for inflation and global increases in commodity prices. No other commodity in Pennsylvania was price-fixed this way. Not natural gas or heating oil or water.

Yet for some reason, the end of electricity rate caps in Pennsylvania was predicted to be the apocalypse for businesses. But Jan. 1, 2010, came and went, and doomsday never arrived.

In fact, Pennsylvania has a good story to tell when you look back at the first quarter of electric competition in the PPL Corp. service area and look ahead to the opening of the Allegheny/West Penn market locally in 2011.

No less than 27 power providers are competing to serve residents, businesses, schools, universities, hospitals and units of local government where PPL used to have sole purview — and such competition can mean lower rates for customers. As a result, in only three months, 363,000 residential users opted for a new company to deliver their electric needs.

PPL estimates that 55 percent of large industrial users have taken advantage of the competitive marketplace and switched to other suppliers, as well. As important, this doesn’t include the businesses that have weighed their options and exercised their choice to stay with PPL.

After only one quarter in an open electricity market, it’s already clear the entrepreneurial spirit of Pennsylvania is alive and well. Businesses, universities and local governments are making smart decisions that not only help their bottom line, but that also provide stability across several industry sectors during an uncertain time in our national economy.

That level of performance reveals how Pennsylvania is well on its way to having one of the most successful competitive markets in the nation.

States from Texas to New York have opened their electric markets to retail competition but none had shown such immediate and dramatic results. Pennsylvania’s numbers will continue to grow as more businesses and other customers explore an open and competitive market — and as new marketplaces open on Jan. 1 for customers in areas serviced by Allegheny Power, Metropolitan Edison, PECO and Penelec.

While it’s early to forecast savings for Pennsylvania’s electricity customers, we can look to the experience of states like Illinois that have had competitive electricity markets for more than a decade. Over that period it is estimated that retail customers saved in excess of $1 billion. Pennsylvania has made the right decision for the long term.

Competition also has bred the development of new products and services not typically found in closed, monopoly-regulated markets. Today’s market opens the door to new possibilities for businesses to embrace environmentally friendly and cost-effective alternative energy sources such as wind or solar energy.

For example, the Harrisburg Regional Chamber and Capital Region Economic Development Corp. did something many would have thought impossible a few short years ago; it purchased wind energy certificates to power its Business Expo.

New energy companies in the PPL market also are challenging each other on new technological fronts to provide savings for their customers. Businesses no longer have to wait for monthly electric bills to set energy budgets; they can monitor their energy usage on more frequent intervals. This gives businesses the opportunity to plan ahead as to how they use energy, depending on what it costs at any given time.

Energy companies vying for business in a competitive, open marketplace foster innovation and new technology. In time, as customers become more sophisticated in exploiting the power of competition, they will demand greater innovation and specialized services from electric suppliers, and new products and services will be developed that provide greater control over energy usage and how that energy is generated.

The development of competition helps families and businesses control energy costs and allow units of government to preserve ever-shrinking resources. Such possibilities would never have developed under the old regulatory system.

Pennsylvania policy makers have developed a well-structured environment for competition to flourish — which will bring many benefits to Pennsylvanians for years to come.

Our Perspective:

The deregulated market offers great opportunities for savings for those companies that are paying more than $3000 a month for electric. HBS has clients in the PPL territory that are saving over 20%.

Granted the cost may be higher than what you have paid in the past 12 months, but when PA lifted their rate cap in Jan 2010, prices jumped.

The current PPL price to compare is arond $.105 cents per kwh. Depending on your usage patterns and cuurent market conditions, we were able to lock our clients in the $.082 to $.086 cent range.

Starting in January 2011, Peco customers will be joining the deregulated market. For commercial clients, Peco will be making 4 purchases from Sept 2009 to sept 2010. They have completed 3 of the 4 purchases and will be releasing a price to compare shortly.

For more information on saving in the deregulated utility market in PA email george@hbsadvantage.com

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