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Power restructuring five years later offers choice, savings

By: DAVID FALCHEK |

As part of Pennsylvania’s long path toward electricity market restructuring, rate caps in place for years were lifted five years ago this month amid uncertainty.

Would the private sector step in to market and sell competitively priced power? Would rates available to the state’s electricity customers compare favorably with what people in surrounding states were paying?

The anniversary gives participants and observers a chance to reflect on the impact of the change.

On Jan. 1, 2010, rates charged by regulated utilities were no longer moored by law, and able to float freely with the market. PPL Electric Utilities, now an electricity delivery company, moved rates up to more than 10 cents a kilowatt hour. But, as hoped, some competitive electricity suppliers — nonutilities — were ready to sell electricity to PPL’s customers.

So over the last five years, utility customers have always had access to less expensive power from retail marketers.

Bryan Lee of the Retail Energy Supply Association, the group that represents all those energy marketers, said the Keystone State is a model.

“Pennsylvania is considered one of the most successful markets in the country, with one of the highest rates of customer shopping (for electricity),” Mr. Lee said. “Pennsylvania learned from other states early mistakes and has been very successful.”

The majority of large businesses and industries now shop, meaning they buy power from a company other than the utility that delivers it, and about 36 percent of all households, a second- or third-highest rates of shopping among states with similar market structures.

State Consumer Advocate Tanya McCloskey agrees that the state is a national model. She would consider it a success even without high shopping rates. The goal was to give electricity consumers access to the wholesale market through utilities’ default rates, and the retail market in which marketers compete on price and product. Access and options is what matters, not necessarily participation.

“With default service available and competitive generation, we have a strong foundation with reasonable and affordable rates and prices,” she said. “The retail choice market has grown with diverse products that include renewable power, bonus miles, rebate cards, that can offer savings.”

One of the reasons to restructure the market was to get ratepayers off the hook for the cost of building and running their local utility’s generation facilities, instead offering them access to competitive power from the retail market, which was offering better rate outside of Pennsylvania. With PPL Electric Utilities now separate from its generation division, recently renamed Talen Energy, the utility buys power on the open market under a variety of wholesale contracts, a process approved by regulators, to provide that power to its customers who haven’t selected another supplier, the so called Provider of Last Resort, or POLR rate, often called the default rate or “Rate To Compare” for people looking for better deals.

There was a long shakeout period. When the electricity market first opened a decade ago, very few came to offer their service. As the regulations were drafted, the cost of generating electricity soared nationally and Pennsylvania, under the rate caps, enjoyed rates relatively low relative to other parts of the country. Other than some providers offering more expensive “green” energy choices, the private sector stayed away and no energy marketers came to do business.

The cap intended to be a high-water market, turned out to be pretty good price for the first couple years of deregulation. The removal of caps brought in competitive marketers with a variety of products, fixed and variable, as competing to beat PPL’s price to compares and beat each other. The onus to find and sign up was on the consumer, made easier by web sites run by the Public Utilities Commission that offered compilations of current offers and price comparisons.

Eric Epstein, a consumer-energy activists based in Harrisburg, said restructuring fell short of the promise. Beyond electricity competition and choice, he pointed to rhetoric at the time that promised economic prosperity, rate relief, 36,000 new jobs. Instead, the economy was a tailspin and still lags the nation, he doesn’t see the tens of thousands of new jobs. While the cost of power post-restructuring may be competitive, utilities, including PPL, have increased the rates they still control and benefit from – distribution rates and customer charges – repeatedly.

To be sure, restructuring wasn’t without hiccups or shortcoming. True time-of-use billing where rates are more closely hitched to real-time prices offering huge savings for those able to move their usage into the evening, remains elusive. PPL’s smart meters, state-of-the-art when they were installed 8- to 10 years ago, it was learned, are unable to collect and deliver the information necessary for innovating billing programs. The meters were also failing. PPL proposed a half billion dollar replacement plan.

Thousands of customers were lured by the low, if variable, incentive rates. While people expect variable rates to change, no one expected them to triple or quadruple almost immediately. Even the alert customer could find themselves paying gouge rates for two months trying to switch to a providers or seeking safe harbor in PPL’s default rate.

The retailers accused of gouging customers said they were passing on a spike in spot price of energy. Regulators responded by requiring that electricity marketers make it easier and quicker for people to switch. The PUC has fined some energy marketers for hard sell tactics and misrepresentation in building a customer base. Where consumers have never purchased electricity service, it was clear some failed evaluating the terms of energy deals, including whether rates are fixed or variable, and if the they are locked in for a period of time or face a severance fee switching.

While a model, Pennsylvania’s restructuring was not free of problems and not perfect. Ms. McCloskey said the market and the regulators respond when shortcoming emerge.

“There is still work to be done as we learn about the risks of the market and try to address them,” she said.