Pennsylvania Electricity Deregulation
The Beginnings of Pennsylvania Electric Deregulation
The first legislation for the state of Pennsylvania's electricity market to be deregulated was passed in December, 1996, making it one of the earliest in the nation to adopt deregulation. Prior to that event, the whole state of Pennsylvania was entirely regulated. In this previous regulated environment, it is estimated that Pennsylvanians spent about $10 billion on electricity in 1995.
As with most deregulation plans, the goal in Pennsylvania is to eliminate monopolies held by electric utilities and create a competitive environment for electricity. The benefit for the consumers and business owners is the freedom of choice among electric suppliers, along with lower rates (driven down by competition).
Deregulation Impact for Pennsylvanians
Prior to deregulation, Pennsylvanians were paying about 15% above the national average electricity rate for their power. That statistic would soon see a favorable decline, not long after the passing of House Bill 1509 in 1996.
Also called the “Electricity Generation Customer Choice and Competition Act”, House Bill 1509 became the first stepping stone to a deregulated market in Pennsylvania. In the summer of 1997, parts of the PA power market became deregulated, allowing Pennsylvanians their own choice of Electric Generation Supplier (EGS).
Over the next 13 years, Pennsylvania expanded deregulation to territories statewide, spurring greater competition while the PA energy industry adapted to market-based rate systems. These progressive years saw a strong response from commercial and industrial customers to switch suppliers, while residential customers adopted electric choice more gradually.
PA Deregulation Now
Nearly all of Pennsylvania is now deregulated and customers have begun to reap the benefits. At the end of the third quarter in 2010, Pennsylvania electric rates were only slightly higher than the national average, but well below averages for other Mid-Atlantic states in the region. (see table below)
U.S. 11.32 10.03
PA 12.58 10.11
Mid‐Atlantic 15.42 13.61
(based on national averages, cents per kilowatt-hour)
For the majority of Pennsylvanians, choosing to switch to an alternative EGS instead of their incumbent utility has largely been a matter of price – specifically the “Price to Compare” (PTC). While many residents and business owners have opted to stay with their utilities, this trend will likely change swiftly in 2011, along with the factors by which PA residents compare suppliers.
Up until 2011, utilities in PA had state-imposed rate caps on generation supply costs in order to ease the transition to the competitive market. Many utility customers (who did not switch prior to 2011) maintained rates that would have otherwise increased (often up to 25% higher) without caps as energy prices surged.
Now that all rate caps in PA have expired, the electric generation supply costs which were the subject of such rate caps have (as predicted) since led to increases of up to 120% on electric bills even for C&I customers.
While competition in the deregulated market serves to drive electricity rates down, the generation, transmission and distribution charges are rising as utilities adjust to the absence of rate caps. Not only will the dramatically rising electric bills push more customers to participate in PA electric choice in 2011, but it will also require more scrutiny while shopping, as the generation and distribution rates will be equally as important as the price per kilowatt-hour for power.
As of April, 2011, the PA Power Switch website reports that about 1,065,000 customers have switched to an alternate EGS through electric choice.