Tuesday, November 3, 2009

Pennsylvania Electricity Deregulation – Weathering the Storm Part 1

In 1996, the Pennsylvania General Assembly approved the deregulation of electricity generation. When that event happened, it set the course of how you would use electricity and its cost. For PPL customers, deregulation begins January 1, 2010, and for Allegheny Power customers, it is January 1, 2011. But what does that mean for you? It probably means, according to most PPL officials, a 30 percent increase in their residential customers’ electric bills. Whoa…

PPL has an insert with its November bill that is offering a deferral option of spreading out the higher electricity costs.

“You defer some of the charges you would otherwise pay in 2010 and pay them back later, plus interest, on top of your full bill,” states the insert. That’s fine, but my question is do you really want to go down that road?

How can you brace for this approaching storm to your household budget? My upcoming series of articles will help guide you to the day of reckoning, but before we move forward we need a little history and background on deregulation.

Implemented by the Pennsylvania Public Utility Commission (PUC), electricity rate caps (price controls) were to stabilize prices during the upheaval leading to the complete deregulation of electricity generation. Except for the PUC-granted, minimal annual increases, electricity prices have changed little since 1996, as compared to, and this is important, other energy sources. Additionally, if you look at your bill, you will see monthly tangible and intangible transition fees, or stranded invest¬ment fees. Those have been used to compensate the utilities as they moved toward and into deregulation.

The primary reason to remove the rate caps was to open the electric industry to competition, thereby enabling PA residents, institutions, businesses, and industries to shop around and buy electricity at lower costs. Originally, the deregulation was to be completed statewide by January 1, 2001 with rural electric cooperatives and municipal-operated utility companies exempt from the legislation. That date was well-missed, which leaves us with the final drop dead dates on the horizon.

Theoretically, you could choose a supplier since 1996, when rates were capped. But in reality, other suppliers couldn’t compete with the big utilities’ artificially low rates, so they stayed out of the market. Now, with the rate caps coming off, companies that can beat the price of the current suppliers can begin making offers to PPL’s and other utilities’ customers.

To understand the deregulation of electricity generation, you need to know some of the following:

1. Generation is the production of electricity at a power plant.

2. Transmission is movement of high voltage electricity from the generation plant to the point of distribution (substations).

3. Distribution is the local part of the delivery system of electricity from the transmission lines, and it includes substations that transform high voltages to lower levels for delivery to your home or business. Distribution also includes the maintenance of the electricity lines, restoration of electricity after storms and accidents, and customer billing and financial assistance to low-income customers. Such services will continue to be provided by your electric distribution com¬pany and regulated by the PUC.

1. Electric Distribution Company (EDC) is the company that owns, operates, and maintains the power lines and equipment to deliver electricity from the transmission lines to the customers. EDCs are regional public utilities like PPL and Allegheny Power. ECDs are responsible for customer services. It is where your bill comes from.

2. Electric Generation Supplier (EGS) is a PUC licensed person, corporation, generator, broker or marketer that sells electricity to customers by using the transmission or distribution facilities of an electric distribution company (EDC).
The generation of electricity will be open to competition. Most importantly, you, the consumer, can shop for an electricity supplier, because electricity becomes a commodity that can be purchased from any licensed supplier or broker (EGS).

Nevertheless, according to PPL spokesman George Lewis, your current public utility is the “default supplier.”

“The public utility is required to provide electric supply for any customer that doesn’t have his own supplier,” said Lewis.

In other words, if you are a PPL customer and you don’t choose a supplier, then you will stay with PPL.

When you select a licensed electricity supplier, just where will your electricity come from after deregulation is completed? It will come from the PJM just as it always has.
Great, one more three-letter initialism. EDC, EGS, PUC, PPL and now PJM. Bear with me; it will come together.

PJM stands for the Pennsylvania, New Jersey, Maryland Interconnection LLC, also known as the Mid-Atlantic power pool. It is a large independent system operator that manages the regional transmission system for 13 states in the Northeast and Midwest, including most of Pennsylvania. PJM is our grid.

Your selected supplier will provide electricity to the grid that you use. If your supplier cannot deliver the necessary amount of electricity to the grid, then your EDC will provide the electricity to the grid, at its price.

Keep in mind; you cannot be penalized by your EDC for selecting another supplier, and there will not be any retaliatory brownouts. Again, even if your supplier fails to deliver, your EDC, because of its default supplier status, will provide you with power. So you’ll have that safety net of service.

There will be changes to rate tariffs. Current rate features you see on your bill probably will be gone for gener¬ated electricity (energy and capacity), but they may be retained for the distribution charges. Other possible changes or opportunities are on-peak and off-peak rates.

It is my opinion that we have only two options. One, start shopping, and make this marketplace work. Two, we have to learn to conserve and be more efficient in our use of the juice.

For more information on deregulation see Dennis Buffington’s “Deregulation of Electricity Generation in Pennsylvania – 2009 Update Part 1. The Legislation and the Implementation” at www.abe.psu.edu/extension/factsheets/h/energyindex.htm. Also check the educational inserts enclosed with your utility bill, and visit your utility’s website.

Next time in Part II, we will cover “Shopping for an Electricity Supplier,” and we will answer the question, “If deregulation creates competition, then why will my
electricity bill jump 30% or more?” Stay Tuned.