A verdict on electricity deregulation?
More people shop for electricity as rates go down, but marketplace puts consumers at a disadvantage.
PPL residential customers pay about 12 cents a kilowatt hour, or about 12 percent more than they did during the final days of electricity rate caps. (Stephen Harvilla/Special to The Morning Call)
Can we say, one way or the other, whether taking a big chunk of Pennsylvania's electric industry and turning it over to the marketplace was good idea? Has doing so led to a more robust and efficient electric system? Has it allowed consumers to shop? Has it given them a meaningful choice?
Most importantly, has deregulation saved ratepayers any money?
First, a little background: For just about as long as Pennsylvania had electricity, rates were determined through an elaborate legal process overseen by public regulators. Utilities would petition for rate hikes, and customers would protest, but the regulators had the final say.
Then in 1996, an 84-page measure to deregulate Pennsylvania's electric industry was slipped into a bill that had originally called for a one-word change in the state's taxicab law. The arcane text had been crafted behind closed doors under the consultation of Houston energy company Enron, which at that point was still famous, in a good way. Finally, then-Gov. Tom Ridge persuaded lame-duck lawmakers to pass the taxicab-turned-deregulation bill in their last, frantic act before heading home for Thanksgiving.
That, in a nutshell, is how Pennsylvania came to be a state — one of 15, plus the District of Columbia — with some form of deregulated electricity.
Subsequently, implementation took place in phases, and it varied from one region of the state to next. In 2005, at the very moment the 4,500 customers of tiny Pike County Light & Power Co. were reeling from a 72 percent rate hike, PPL Electric Utilities customers were enjoying a decade of relatively stable prices, the result of an extended cap on generation charges.
For most Lehigh Valley residents, the full impact of deregulation wouldn't be felt until Jan. 1, 2010. That's when the cap came off and PPL rates jumped 30 percent. (The schedule for Met-Ed, the utility that serves eastern portions of the region, was a year behind PPL's.)
The big increase in electricity rates was tied to the high price of power plant fuel — coal, oil, natural gas and uranium — bought on contract before the Great Recession, and before the Marcellus Shale gas boom. In a quirk of how generation rates are determined on the Mid-Atlantic power grid, the price of natural gas has disproportionate influence. So it follows that PPL's electricity rates track natural gas, and that the rates have fallen in inverse proportion to the recent increase in domestic gas extraction.
Today, PPL residential customers pay about 12 cents a kilowatt hour, or about 12 percent more than they did during the final days of rate caps.
But at the same time, residents of other parts of the state are paying less because of deregulation. Philadelphia and Pittsburgh, for example, had some of the highest electricity rates in the country in the mid-1990s. But today their rates are closer to those of the Lehigh Valley.
Pennsylvania Consumer Advocate Sonny Popowsky describe the changes as "an evening-out of prices across the state."
According to PPL, a forceful advocate of deregulation since its inception, the marketplace has imposed a healthy discipline on the electricity business. On the retail side, for example, customers have reduced energy consumption in response to rising prices. (For PPL's Electric Utilities, a division of PPL Corp. of Allentown, the trend resulted in a 4 percent drop in revenues in 2010.) a division of PPL Corp. of Allentown
"The decisions and investments made by consumers toward energy efficiency will provide long-term benefits when generation prices rise again eventually," PPL spokesman Michael Wood said in an email.
And on the wholesale side, power plants are more efficient than ever. Specifically, they spend less time idled for maintenance and more time actually generating electricity.
"Suppliers are incented by the market to keep the plants available, well maintained and productive," Wood said. "Otherwise, they wouldn't earn any return."
Another benefit of the marketplace touted by deregulation advocates is "choice." Indeed, consumers may switch from one electricity supplier to another — provided they are willing to put the necessary time and effort into the multistep process of doing so. (The state office of consumer advocate posts directions on its web site, http://www.oca.state.pa.us.) About 40 percent of PPL's residential customers are now buying electricity from a supplier other than PPL.
At this point, a little explanation may be helpful: Think of the supplier as the vendor directly connected to actual electricity generation. The vendor is also involved with transmission — that is, moving the electricity over high-voltage power lines so it can reach your local distribution network. Generation and transmission charges are bundled together on your bill, and account for about two-thirds of the total rate. The remaining charge on your bill is for distribution, or the delivery of electricity directly to your home over local wires.
Generation is the unregulated expense. You can change what you pay for generation by switching to a supplier with a different rate. But what you pay for transmission and delivery is still overseen by regulators, and it doesn't change if you switch suppliers.