Since 1996, electricity rates for Pennsylvania's residential, commercial and industrial customers have either remained stable or decreased when adjusted for inflation. In addition, competition has grown by leaps and bounds, allowing electric customers across the state to obtain better rates on the generation portion of their electric bills and gain access to new and innovative products.
These benefits are due largely to Pennsylvania's "Electricity Generation Customer Choice and Competition Act," (Competition Act) which was signed into law on December 3, 1996, fourteen years ago this month. The Competition Act restructured the Pennsylvania electricity market by ending electric utility monopolies and capping generation rates at 1996 levels. While many may still debate the merits of electric restructuring, the benefits to Pennsylvania ratepayers cannot be disputed.
The price of electricity: now and then
In 2006, PennFuture issued a series of E3 reports including It Just Isn't So and It Just Isn't So: Part Two that examined the effect of competition on electricity prices. Today, as the Pennsylvania electricity market makes the full transition to uncapped rates, it is an opportune time to reexamine how electricity prices have fared since 1996.
In 1996, Pennsylvania's electric rates were 15 percent higher than the national average. Now thanks to innovative policies like the Competition Act that increased wholesale and retail competition to promote efficiency and end monopolies, Pennsylvania's electricity rates, allowing for inflation, are 5 percent lower than the national average and have remained relatively stable.
Since 1996, residential customers in Pennsylvania have fared quite well. In constant dollars, residential customers across the state are paying anywhere from 21 percent less to only 5 percent more than they did in 1996. The savings are even greater when you take into account the lower electric rates currently being offered by competitive electricity suppliers across the state.
This is truly a bargain when one compares electricity to other energy products. Fuel oil is up 183 percent in constant dollars since 1996. Gasoline has increased by 124 percent and natural gas piped by a utility is up 71 percent in constant dollars since 1996.
Perhaps the most telling of these figures are the rate decreases seen in utility service territories where rate caps have already expired. Instead of seeing skyrocketing rates from exposure to the wholesale market, many experienced savings. The average electric bill for a residential Duquesne Light customer decreased 20 percent in constant dollars since 1996. Residential customers in the Penn Power service territory are also paying less in 2010 than in 1996, with an 18 percent decrease in constant dollars.
Even in the PPL service territory, where residential electric bills increased by 30 percent after rate caps expired, customers have only had a 5 percent increase since 1996 when adjusted for inflation.
While these savings are due in part to the current state of the market and declining energy prices, they are also due to increased efficiencies in the marketplace. For example, since the Competition Act, nuclear and coal power plants in Pennsylvania have increased their efficiencies. According to a report by Bates White, LLC, the Commonwealth's nuclear power plants - divested as a result of the Competition Act - are producing 1.7 million megawatt-hours (MWh) more today than 10 years ago. In addition, electric restructuring has also spurred the development of well over 9,000 MW of new generation, including 16 wind farms with an installed capacity of 748.1 MW.
These benefits also pertain to commercial and industrial customers. Commercial rates, adjusted for inflation, have also decreased by 12 percent since 1996, and industrial rates decreased by 8 percent.
Such price trends are remarkable, considering electricity prices across the nation for all customer classes have increased on average by 33 percent since 1996 (in constant dollars).
The competitive marketplace
Fortunately, for consumers who want to find an even better deal on their electricity, the Competition Act also gave electric customers the right to choose who supplies the generation portion of their bill. The competitive marketplace has grown significantly in utility service territories where caps have expired. Rates in those service territories now reflect the current wholesale cost of supplying generation, which allows other suppliers to enter the market and offer competitive pricing.
As shown in the chart below, the competitive marketplace has increased dramatically over the years in the Duquesne Light, Penn Power and PPL service territories where rate caps have ended. Almost 100 percent of the industrial load in these service territories is served by a competitive supplier.
Opportunities are also growing in PECO, West Penn Power, Pennsylvania Electric (Penelec) and Metropolitan Edison (Met-Ed) service territories, where rate caps are about to expire. According to the PA Power Switch website, there are already 17 competitive suppliers registered in the PECO service territory offering lower prices to residential customers for 2011.
Pennsylvania's growing competitive marketplace has gained national attention. Distributed Energy Financial Group's Annual Baseline Assessment of Choice in Canada and the United States, lists Pennsylvania as one of the top competitive electricity markets in the nation. According to the report, Pennsylvania ranks fourth in the nation for residential customer choice and sixth for commercial and industrial customer choice. Pennsylvania currently has 33 competitive suppliers serving the commercial and industrial sector and 18 serving the residential sector.
These competitive suppliers offer a wide variety of innovative products that can help ratepayers save money and better manage their electricity usage.
Commercial and industrial customers
Pennsylvania currently has 33 competitive suppliers serving the commercial and industrial sector. These suppliers offer a wide variety of products to fit most needs.
There are slightly fewer competitive suppliers for the residential sector than businesses, with 18 suppliers offering 34 product offerings currently.
While residential customers typically have less experience with managing their energy profiles, there are still numerous innovative products available.
Renewable energy products
All customer classes also have access to the various renewable energy products being offered by competitive suppliers. There are two main renewable energy products available today, Renewable Energy Certificates (RECs) and renewable electricity.
A Renewable Energy Certificates represents the environmental attributes or benefits of renewable electricity generation and can be sold separately from the physical electricity. Consumers that purchase RECs help to build a market for renewable electricity and support generation. The purchase of RECs helps offset conventional electricity generation in the region where the renewable electricity generator is located. A variety of suppliers offer RECs separate from electricity service - customers don't need to switch from their current electricity supplier in order to purchase these certificates. A consumer that signs up will pay a fee in addition to their normal electricity bill for a certain quantity of RECs. Both Community Energy and PPL EnergyPlus offer this option across the state.
The second option for a consumer interested in supporting clean energy is to switch to a competitive supplier that offers a renewable electricity product. This type of product allows a consumer to purchase electricity generation from a mix of green sources, typically from solar, wind, biomass (plant and animal waste), or hydro. For example, one supplier may offer a 100 percent product made up of a mix of Pennsylvania low-impact hydro, wind, and solar power, while another supplier may offer a 100 percent renewable product made up of wind power from across the region.
When purchasing a renewable electricity product it is important for consumers to do their homework. The Green-e website will confirm if the product has been certified. The supplier can add more details, including the generation mix of the renewable product and the geographic origin. A customer wishing to support wind power in Pennsylvania, for instance, will need to make sure that the product is just that, and not hydro from the Midwest.
Stay tuned for a more detailed analysis of renewable energy products in the marketplace in the near future.
For more information on switching to a competitive supplier please visit the PennFuture Shopping for Electricity webpage or visit the Office of Consumer Advocate's Residential Consumer's Electric Shopping Guide.
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