Numerous states in the US have decided to move from a regulated energy market to a deregulated one (at least to some extent) over the past 15-20 years or so. Pennsylvania is one of these states. In fact, in the past decade, Pennsylvania is one of the most successful places in both the United States and Canada to have transitioned to an deregulated energy market.
What does this really mean?
How does deregulation impact the electric service and costs for homes and businesses in Pennsylvania? And why did the state decide to make such a big change?
What is Deregulation?
Simply put, in “regulated” energy markets, utilities handle all elements of electricity — from generation to customer service. In deregulated markets, utilities allow entities called electricity providers to handle the supply side of electricity. In deregulated markets, providers can sell and market electric rates, plans, and services directly to consumers.
For a more in-depth explanation, learn more about how deregulation works.
Events Leading to Deregulation in Pennsylvania
Pennsylvania decided in favor of deregulation in hopes that it would lower the rates of electricity. Prior to electricity deregulation, the state’s consumers paid $10 billion in electricity per year. By opening up the supply of electricity to competition, the state hoped that the rates would drop to reach the national average. This would save consumers a total of $1.5 billion every year. If the prices dropped even further, to the anticipated or estimated electric rates, then the state’s consumers would save $2.5 billion every year.
Towards the end of 1996, Pennsylvania enacted House Bill 1509. This Bill is known as the Electricity Generation Customer Choice and Competition Act.
House Bill 1509 – A Summary
Bill 1509 (available online) outlines a schedule. This schedule defines a slow transition from an energy regulated business model to an energy deregulated business model. One third of the state’s electric customers could begin to choose their electricity supplier in January 1999, two thirds by January 2000 — reaching 100% of customers by January 2001. By September 1997, this bill also required all utilities to provide a restructuring plan.
The Bill itself states: “THE GENERAL ASSEMBLY FINDS AND DECLARES AS FOLLOWS: BECAUSE OF ADVANCES IN ELECTRIC GENERATION TECHNOLOGY AND FEDERAL INITIATIVES TO ENCOURAGE GREATER COMPETITION IN THE WHOLESALE ELECTRIC MARKET, IT IS NOW IN THE PUBLIC INTEREST TO PERMIT RETAIL CUSTOMERS TO OBTAIN DIRECT ACCESS TO A COMPETITIVE GENERATION MARKET, AS LONG AS SAFE AND AFFORDABLE SERVICE IS AVAILABLE AT LEVELS OF RELIABILITY THAT ARE CURRENTLY ENJOYED BY THE CITIZENS AND BUSINESSES OF THIS COMMONWEALTH.”
After Bill 1509
A few months later, lotteries decided which utilities would adopt pilot programs. These pilot programs were the largest in the country and became a huge success as more than 72,000 people participated. By July of 1998, a select group of the state’s electricity customers had the option to sign up and participate in phase-one of the Electric Choice Program.
Within a week, more than 1.1 million consumers had signed up.
By September 1998, approximately 1.8 million Pennsylvania consumers received a “How to Shop” guide. These consumers also registered to select their preferred electric generation supplier. At this time, residential customers accepted into the pilot programs received a rate that was 8% lower from what they had paid before. In addition, “Green-e” products start being offered as an alternative option. These products produce electricity that is generated with 50 – 100% renewables.
In September of the following year, approximately half a million customers had made a switch to a supplier.
2000 – Present Day
In January of 2000, all Pennsylvania electricity customers were allowed access to available electricity suppliers. At this time, slightly over 507,000 customers had taken advantage of the option to choose their preferred energy supplier. The Pennsylvania Department of Revenue estimated that by 2004, energy deregulation would help to generate over 36,000 new jobs for the state.
Shortly after, the Pennsylvania Public Utility Commission (PUC) made an agreement that helped to increase the support of renewable energy, the use of different electricity generation suppliers, and preserve rate caps. The following year, in 2002, the Pennsylvania Office of Consumer Advocate noted that energy suppliers were providing service to approximately 300,000 customers.
More recently, in January 2010, rate caps expired in several service areas for several utilities. Other utilities saw these rates expire in 2011.
Key Players in Pennsylvania’s Deregulated Market
There are several groups or organizations that are involved in monitoring, maintaining, regulating and selling energy. These organizations include:
Pennsylvania Public Utility Commission (PUC)
The Pennsylvania PUC has several responsibilities. Established in 1937, these responsibilities include:
- Balancing the needs of utilities and customers
- Monitoring the safety and reliability of utility services
- Protecting public interest
- Educating customers in making informed, independent choices
- Promoting a competitive energy market with reasonable rates
Pennsylvania General Assembly
Previously known as the Pennsylvania Provincial Assembly, the Pennsylvania (PA) General Assembly is the governing entity responsible for the state’s legislature. In August 2000, a report from the Pennsylvania Department of Revenue was sent to the PA General Assembly. This report estimated that energy deregulation would generate an additional 36,000 jobs for the state by 2004. This report helped the PA General Assembly to make a decision on energy deregulation for the state. In addition, House Bill 1509 was also reviewed and eventually approved by the PA General Assembly. This is why Pennsylvania is and remains a state with a deregulated energy market.
Overall, the General Assembly is a committee that reviews proposed bills or legislature and decides on which ones get approved or become law.
Pennsylvania Office of Consumer Advocate
This organization was created by the PA General Assembly in 1976. The Pennsylvania Office of Consumer Advocate (OCA) is the voice of the consumer in matters of utility regulation. They deal directly with the PUC, state and federal court as well as other federal regulatory agencies in place of the consumer. The OCA is also responsible for representing the consumer in utility competition and policy changes, utility complaint, and elements of consumer energy education.
PA Power Switch
Pennsylvania’s PUC runs PA Power Switch, Pennsylvania’s official “Electric Choice” program. Much like us at ElectricChoice.com, PA Power Switch is an entity dedicated to keeping consumers informed about their electricity supplier options.
Benefits of Electricity Deregulation in Pennsylvania
By 2001, the benefits to electricity deregulation in Pennsylvania were clear. A national study conducted by the Center for the Advancement of Energy Markets (CAEM) concluded that the state would receive a Retail Energy Deregulation (RED) Carpet Award for effectively transitioning from an energy regulated model to an energy deregulated model.
The study itself ranked each state on an index with 22 criteria, resulting in a score from 0 – 100. Pennsylvania received 66, which was the highest score — for the second time.
CAEM determined that through a careful and thoughtful approach, Pennsylvania was a great example of how successful energy deregulation can be for the United States. Due to the fact that the state ensured great electric provider choices and options, businesses and consumers combined had saved $3 billion in electricity costs. Prior to electric choice the PUC estimated that Pennsylvania rates were 15% above the United States average. After energy deregulation, those rates shifted to land 4.4% below the United States average.
At the time, the state’s energy supply was also expected to increase 25% over 5 years with new generation capacity. Utilities in Pennsylvania are not required to sell their generation plants as part of the energy deregulation restructuring process, nor does it stop utilities from making long-term agreements with energy suppliers.
More recently, in 2010 the annual Baseline Assessment of Choice in Canada and the United States ranked deregulation in Pennsylvania 4th out of 24 other electric markets for residential customers. The state also ranked 6th out of 23 for businesses.
Customers who have the biggest energy bills (commercial and industrial customers) tend to switch to a supplier at a higher rate compared to residential customers. At the time of the assessment, 97% of industrial, 83% of commercial and 40% of residential had taken advantage of switching to a competitive electricity provider.
Pennsylvania Energy Deregulation Statistics for 2016
The OCA offers electricity market statistics for the state of Pennsylvania. The most recent report includes information up until July 1, 2016 and includes the number of customers that receive service from an alternate supplier. The total number of customers signed up with an alternative provider (by type of customer) includes:
- Residential – 1,733,436
- Commercial – 320,995
- Industrial – 7,062
We can also take a look at these numbers in a different way — by percentage. This information reveals that 46% of the utility, PPL, 35.8% of PECO Energy, 32.7% of Duquesne Light, 35.1% of MetEd, 31.3% of Penelec, 28.7% of West Penn Power, and 1.8% of UGI’s customers, have an alternative suppliers.
Utilities in Pennsylvania
While switching to an electric supplier is a great way to save on your monthly energy bill, utilities still play a big role in the energy industry. Even in a deregulated energy market, utilities still take care of the delivery and maintenance components. For example, if you see a downed pole in your area, it’s your utility’s job to make the repairs.
Pennsylvania has many utilities that provide services to different areas within the state. Some of these utilities include:
- Citizens Electric of Lewisburg
- Duquesne Light Company (DQE)
- Pennsylvania Power Company (Penn Power)
- Metropolitan Edison Company (Met-Ed)
- Pennsylvania Electric Company (Penelec)
- PPL Electric Utilities
- PECO Energy Company
- Pike County Light & Power Company
- UGI Utilities Inc.
- Wellesboro Electric Company
Provider of Last Resort
In Pennsylvania, if your service provider leaves the market for any reason, your Provider of Last Resort automatically becomes your current provider. The reason for this is because if (for example) a service provider closes its doors, you won’t receive a disruption in service.
In many cases, the Provider of Last Resort is the utility that provides your delivery services.