As reported by Pennsylvania PUC

Electric customers in Pennsylvania were among the very first in the United States to have the ability to choose the company that supplies their electricity. You may be able to choose your electric generation supplier (EGS) in areas where competitive electricity supplies are being offered. Consumers may be able to secure supply rates below the prices offered by their utility. Generation supply costs comprise the majority of the average electric bill. Consumers are encouraged to proactively engage competitive suppliers – whose price is unregulated by the Pennsylvania Public Utility Commission (PUC) – to obtain pricing information for the generation portion of their bill. Competitive offers may not be available in all areas.

The PUC has engaged consumer advocates and industry experts in efforts to mitigate any price increases in future electric generation prices. The PUC has been working to educate consumers; develop strategies to remove barriers for suppliers providing competitive electric service; approve phase-in or pre-payment plans and direct all utilities to file such programs if electric rates increase by more than 25 percent; update low-income programs that provide customer assistance; and implement default service pricing that reflects the least cost to consumers over the long term. We also are continuing to implement reasonable, cost-effective programs that consumers and companies can implement to conserve energy or use it more efficiently.

Why are there rate caps, and why are they expiring?

Under the 1997 Electricity Generation Choice and Competition Act, electric rates – which are comprised of generation, transmission, and distribution – were capped to ease the transition to competitive markets.

The 1997 law allowed residential customers to have direct access to and purchase power from independent EGSs, while still having their electricity physically delivered by electric distribution companies (EDCs) regulated by the PUC. The law also permitted the EDCs to recover “stranded costs.” Stranded costs include investments in infrastructure made before the law was passed that may have become uneconomic and unrecoverable in a competitive environment. With limited exceptions, once rate caps expire, the companies can no longer collect for stranded costs.

In exchange for the recovery of stranded costs, generation, transmission and distribution rates were capped at 1996 levels. The caps on transmission and distribution rates all have expired. After litigated proceedings before the PUC, the generation rates were extended for many of the electric companies. As determined by those proceedings, all utility rate caps will expire by Jan. 1, 2011.

 

Caps 

Company

 

 

Generation Rate Cap Status

 

 

% of PA Ratepayers

 

 

Citizens Electric Co.

 

 

Expired

 

 

0.1

 

 

Duquesne Light Co.

 

 

Expired

 

 

10.6

 

 

Pennsylvania Power Co.

 

 

Expired

 

 

2.8

 

 

Pike County Light & Power Co.

 

 

Expired

 

 

0.1

 

 

UGI Utilities Inc.

 

 

Expired

 

 

1.1

 

 

Wellsboro Electric Co.

 

 

Expired

 

 

0.1

 

 

PPL Electric Utilities Inc.

 

 

Expired

 

 

24.6

 

 

Metropolitan-Edison Co.

 

 

Dec. 31, 2010

 

 

9.5

 

 

Pennsylvania Electric Co.

 

 

Dec. 31, 2010

 

 

10.6

 

 

PECO Energy Co.

 

 

Dec. 31, 2010

 

 

27.8

 

 

West Penn Power Co.

 

 

Dec. 31, 2010

 

 

12.7

 

 

 
 

What will happen once the generation rate caps expire?

The PUC expects that customers may see an increase in their bills after the expiration of rate caps. While Pennsylvania consumers’ rates have been capped, the market prices for electricity have risen. The magnitude of those increases will depend upon market prices when the EDC acquires its power.

Do I have to pay what the EDC is charging for electric generation (default service)?

Customers do not have to pay the EDC prices. They will have the ability to choose between an EDC and competitive supply prices for the generation portion of the bill. An EGS may be able to offer a better price for the generation. Customers will be able to compare the EDC price to a competitive supplier price to find the best option.

The amount you might save depends on issues such as:

• How much you pay now for electric generation supply;

• How much electricity you use;

• How market prices change in the future;

• What products and service are included in the EGS price such as renewable energy produces or other demand side and conservation services; and

• The price offered by the suppliers serving your area.

Who can take part in Electric Choice?

Every electric customer has the option to take part in electric choice, pending the availability of competitive suppliers in the service territory. As of January 2009, the Commission licensed more than 45 EGSs. While the Commission may license an EGS, it cannot force the EGS to offer services.

Can I save money by choosing a competitive supplier?

In the territories where rate caps already have expired, an increase in the number of EGSs offering services to residential customers has occurred. In some areas, the EGSs rate is as much as 10 percent cheaper than the default service price offered by the utility. An EGS may be willing to negotiate on price or other services to entice you into switching suppliers. The Office of Consumer Advocate offers consumers a direct comparison of the utility prices versus the supplier price. You can view the “Price to Compare” at http://www.oca.state.pa.us.

Remember, regardless of who generates your electricity, you will still continue to call your EDC for emergency services and questions regarding your residential service including outages. The quality, reliability, and maintenance of your electric service should not change as it is still monitored by the Commission. However, if you have a question about your generation charges you should first call your EGS.

If I choose a new EGS, can I change my mind and choose another EGS?

Yes. However, you should carefully check the terms of the agreement with the EGS, especially for length of contract and any penalty clauses.

I participated in a pre-pay program with my utility, but would like to choose another supplier. What happens to my money?

The money that you deposited in a pre-pay plan and any interest will be applied to your account, no matter who supplies your electricity.

For further information, contact the Public Utility Commission:

Call

1-800-692-7380

For people with speech or hearing loss, dial 7-1-1 (Telecommunications Relay Service)

Write

PA Public Utility Commission

Bureau of Consumer Services

P.O. Box 3265

Harrisburg, PA 17105-3265

Visit our website

January 2010

 

 

Dave Gardner
Published: April 7, 2010

Age-old questions about the proper role of government are lighting up Harrisburg as the state debates its role in the deregulated market for electricity.

Pennsylvania House Bill 1909, introduced by State Rep. Camille “Bud” George (D-Clearfield), seeks to create an independent Commonwealth Energy Procurement and Development Agency to purchase and sell electricity.

Supporters claim the process would lower rates for electricity and spur development of new generation sources within the state. Opponents charge that Harrisburg has no business becoming directly involved with electric generation.

“What we are proposing is necessary to create real price competition and to build more generation capacity through large contracts,” says George, who has been a vocal opponent of electric price deregulation. “Regional electric pricing is now a reality for consumers and business, yet all of the power comes off the PJM grid. This is a negative for those customers who aren’t located in lower pricing areas.”

According to George, Pennsylvania’s recent deregulation has already proven to be a flawed system because true competition between electric suppliers has not materialized.

He also charges that the public was misinformed about the real consequences of deregulation, and claims that PPL Corporation bought electric plants outside of the state with the money they collected from increased rates. 

“This money should stay in Pennsylvania,” says George. He predicts that the long-term consequences of deregulation will be ongoing rate increases, and that this will force industry to leave Pennsylvania. George also predicts that, through his plan, one cent per kilowatt hour of savings across the board would create a total savings of billions of dollar throughout the state. “We must also help develop new plants for baseline generation,” he adds.

Financial risk?

George Lewis, spokesperson for PPL Corporation, calls the George plan a very large commitment for Harrisburg to assume that would put the state at financial risk. He says this type of risk should only be carried by private investors.

“No perfect electrical model exists, but increasing competition through the free market is the best way to provide competitive prices in Pennsylvania,” says Lewis. “The state will be subject to the same forces PPL and the others companies must deal with, such as unstable fuel prices and environmental regulations.”

Lewis says it is hard to envision how a state agency could generate substantial savings and build and run power plants better than experienced private firms can. He also questions if Harrisburg could ever recover its cost of investment, and says that all decisions by the government authority would be taxpayer financed.

Tyrone J. Christy, vice chair of the Pennsylvania Public Utility Commission (PUC), says the bill is designed to introduce real competition in the state’s electric generation market. He adds that the plan would offer long-term contracts for private investment, thereby enabling investors to take commitments to lenders.

“Our new deregulated market, which is really under PJM control, is doing well with reliability but not with competitive pricing,” says Christy.

He explains that generation prices in the state are now based on the peak natural gas generation price. However, 90 percent of Pennsylvania’s base load is still generated by coal and nuclear power, which Christy calls cheap generation.

Because the generation pricing is based on gas prices during peak periods, profits for the majority of generation are substantial. 

Christy also voices concerns that prices for generation will increase as the American economy improves. He states that market forces will allow new plants to be built only if pricing gets “ugly,” despite the fact that electricity is an essential service.

“Can we wait for market volatility to fix this?” questions Christy. “It is now necessary to build nuclear plants, which cost big dollars, but no one will do this without long-term commitments.”

Christy also takes issue with the impact of deregulated pricing on Pennsylvania’s industrial customers. He says the business plans of these companies were based on cheap affordable power, but these firms have received the biggest price increases since deregulation.

“Yes, I want generation to be profitable, but our industrial base is now paying for huge generation profits,” says Christy. “Are we doing the right thing to retain and attract industry with deregulation? The fact is Pennsylvania is not desirable for industry.”

Disguised promotion?

Robert F. Powelson, commissioner with the Pennsylvania Public Utility Commission (PUC), calls the bill a disguised attempt to promote select rate payers.

“We want 1996 prices in 2010, but the collateral risk inherent in the state becoming active in the electric market will fall on the taxpayers,” says Powelson. “Risk that can produce mistakes should be taken only by private investors.” 

Powelson urges Pennsylvania’s citizens to embrace the competitive market and to pursue tactics in electric conservation. He points to data that indicate 25 percent of the state’s electric users have already switched suppliers, and adds that attempts at regulation in Georgia and Florida eventually produced huge price increases.

“In my view, this bill in Harrisburg is a bad piece of legislation,” says Powelson. “There is no evidence to support claims of price conspiracy here, and if the state were to build generation plants it would be a high risk matter.”

According to Powelson, a mature free market model is now working in Texas, where more than 100 suppliers are making product offerings that include fixed rates, variable rates, and green generation. Additionally, with natural gas prices depressed and additional gas beginning to flow from the Marcellus Shale, power prices in Pennsylvania may drop.

Ray Dotter, spokesperson for PJM, emphasizes that fuel prices are the key to electric generation rates. He states that generation therefore involves fixing risk at a set point. “Prices for contracts also depend on timing,” says Dotter. “Some of Pennsylvania’s local utilities have been criticized for buying contracts at peak times, and that certainly can create trouble. Pricing is cost based and this goes back to fuel costs. Who will actually bear the risk, because fuel costs are an unknown?”

New parameters

Gene Barr, vice president of government and public affairs with the Pennsylvania Chamber of Business and Industry, questions if big government can do a better job of buying energy than the private sector. These concerns are amplified by the fact that the deregulated market is evolving with many new parameters.

Barr also points out that the deregulated telecommunications market is an example of free market success. Before deregulation, costs for long-distance were much higher than they are today and popular cell phone technology had not been deployed.

“Should we entrust energy to the government?” asks Barr. “Government is notorious for making choices with political motivation.”

Our Perspective:

Deregulation was started back in 1998 to help introduce competition to the utility market. In the first couple of years we found opportunity for savings with the mid to large commercial and industrial clients. However, the market turned around 2005/06 and the commodity prices increased.  As a result, it made more sense in some instances to go back to the local providers.

In the meantime, PA put a moritorium on electricity and kept the prices well below market prices. In Jan 2010, PPL openned up the deregulated market and in Jan 2011, Peco will be entering the deregulated market.

The electric commodity market prices are the lowest they have been in the last 4 years. With the openning of the PA market to deregulation, we are currently finding great opportunities for savings in the PPL territory. The price to compare in PPL is currently around $.105 cents per kwh. We are finding opportunities in the mid $.08 cent per kwh depending on the size and usage  of the client. Although this may end up being a higher price that has been paid in the past due to the moritorium on pricing. With the lifting of the moritorium, the local providers will be increasing their prices and as shown, we are finding opportunities to save on electric pricing in the future.

Peco has been buying electric on the open market for the last 6 to 9 months preparing for the intoduction of deregulation in Jan 2011. We are currently waiting for Peco to release their price to compare. It is scheduled to be released by the end of May 2010. Many of the Peco clients are preparing for this transition. Our recommendation is that if you are shopping, do not jump to make a decision until Peco releases their price to compare. This will serve as a basis of comparison to make an objective decision.

Should you like to know more about opportunities for utility savings in the NJ and PA market, email george@hbsadvantage.com or call 856-857-1230.

On August 1 1999, New Jersey implemented electric deregulation in its state, opening its borders to competition and lower electricity prices. Electricity can be provided more cheaply in New Jersey where there is a number of competitive suppliers in the marketplace. Electric consumers need not change their electric supplier (it is the same electricity) and they only need to choose their electric provider. These electric providers buy electricity in bulk at competitive prices and redistribute savings to their customers.

Deregulated Electric and Gas

Natural Gas and Electric competition has substantially benefited industrial electric and gas consumers in the states of New Jersey, New York, Pennsylvania and Delaware.

Hutchinson Business Solutions (HBS) is an independent broker representing all the major deregulated providers in this area. We will provide a free cost analysis of your commercial / industrial annual electricity and natural gas supply expense. 

Your local providers purchase natural gas and electric in the wholesale market and then sells it to their customers at retail prices. HBS puts our clients in a wholesale position and the savings will fall to your bottom line.

To obtain your free analysis on your commercial, industrial or business electricity email your contact information to george@hbsadvantage.com.

In these hard economic times, Why Pay More!

Contact us today. HBS provides corporate utility financial solutions