Pennsylvania: the electricity deregulation blues

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[Two articles follow, see my comments at the end. --Andre]

[1] Headline: Electric suppliers regroup: Some raise rates, dump customers

Source: Philadelphia Daily News, 2 May 2001

URL: http://dailynews.philly.com/content/daily_news/2001/05/02/local/POWR02C.htm

You were told that in the new age of deregulation, competing electric companies would fight for your business. But now you learn the company you chose doesn't want you anymore.

Across Pennsylvania, thousands of households are being dumped by their electricity suppliers or forced into plans that will cause their monthly bills to swell.

Folks who chose Exelon Corp. as their supplier recently received a letter saying that if they wanted to stick with Exelon they'll be charged more and that they'd be better off returning to Peco. (Exelon Energy is an unregulated subsidiary of Exelon Corp., the new name for the company formed by the merger of Peco with Unicom of Chicago.)

"We're fundamentally withdrawing from the local market," said Exelon Energy spokesman Jerry Rhodes. "If customers want to stay with us, they can, but we haven't hidden anything. If they choose to stay, they won't save money."

People who left GPU Energy in favor of Allegheny Energy Supply have been notified by GPU that Allegheny "has elected to end its contract" with them and they should get a new supplier.

And some who wanted to stay with Peco Energy have been notified that Peco has turned their account over to another company, New Power.

What's going on?

"Basically this is the result of being in a transition period in which the electricity market is neither a monopoly nor fully competitive," said John Hangar, former state Public Utility Commission member and now president of Citizens for Pennsylvania's Future.

In 1998, the PUC mandated a 12-year transition period in which electric rates would be capped at 1997 levels until the end of 2007 and capped at slightly higher levels until 2010.

Peco Energy area customers are required to pay for Peco's past investments in nuclear power plants - referred to as "stranded costs" - whether they switch to a new supplier or not.

"In the beginning, it was possible for competing suppliers to meet those conditions and still offer attractive rates," Hangar said. "But through last fall and winter, there was a huge run-up in natural-gas prices and natural gas plays an important role in electricity generation costs. The wholesale cost of electricity rose, and many power suppliers found they could no longer offer competitive rates."

And if they don't want to serve customers, they don't have to.

Dumped customers won't lose power. They can simply return to their local utility company's service. Also, there are still competing companies out there - though their prices often are higher than the local utilities.

Customers who were involuntarily switched from Peco to New Power, even as other companies are sending their customers back to Peco, are getting a good deal, Hangar pointed out. The switch occurred because of a PUC-Peco settlement that requires Peco to ensure that at least 35 percent of its customers are served by competitors.

In a few months, said Hangar, if natural gas prices start to fall, some electricity suppliers might return to the market.

Exelon spokesman Jerry Rhodes says his company will look for the right moment to "jump back in."

Pennsylvania Consumer Advocate Sonny Popowsky said that the wholesale power cost increases have affected marketers who do not own their own generation plants as do Peco, GPU, PPL and others. And while the increases have made it hard for marketers to offer lower rates as they have in the past, "they're not as high as in California and nothing to get hysterical about."

"The long-term solution," said Popowsky, "is that we've got to get the wholesale electricity markets operating better. This area is ahead of the rest of the country in that because utilities here are members of PJM - an interconnection of utilities in Pennsylvania, New Jersey and Maryland."

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[2] Headline: Judge OKs GPU merger, rate hike [excerpts]

Source: Associated Press via Carlisle Sentinel [PA] newspaper, 26 April 2001

[no URL, this is typed by hand]

An administrative judge has recommended that state regulators approve a proposed merger of GPU Inc. and DirectEnergy Corp. and allow GPU to raise rates for Pennsylvania customers to recoup losses it has incurred due to rising wholesale power costs...

...GPU serves about 1 million customers in Pennsylvania, most of them in the eastern and central part of the state.

The proposed merger, announced in August, would create one of the biggest investor-owned electric utility concerns in the nation, serving about 4.3 million customers in Ohio, Pennslyvania, and New Jersey...

...The utility [GPU] said it needs relief because thousands of customers who left GPU after Pennsylvania deregulated its electric industry began returning last winter, increasing its load.

The utility had asked the PUC [public utility commission] to allow it to collect increased energy supply costs from customers on a "deferred" basis, sometime after 2004... The utilityís predicament was compounded because it sold off all its power plants as part of its restructuring agreement...

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I post these two articles because they affect me directly, and because Pennsylvania is so often cited as an example of how well electric deregulation can work, in contrast to California. Well, it may not be doing so well. (I know, I know, the failure of "the market" to be left unrestrained is part of the problem -- the first article above notes that price caps are in fact still in effect here, just as in California.)

On a personal note: My residence in rural southcentral PA is served by GPU as the "local utility." The key point is that GPU is the direct caretaker of the wires that deliver the electrons (letís skip the scientific accuracy) to my house. When the wires fall because of falling trees or drunk drivers hitting poles or a building on fire, itís a GPU work crew that eventually comes out to fix the problem.

Where I live, literally at the end of the power lines in an area known for summer cabins, we have a lot of downed lines. Power outages are not unusual at all. Sometimes (often) GPU denies they have customers here, or take many many hours to show up...even when lives are in danger and a pole number is given to them. (This happens even when there isnít a widespread problem like an ice storm; in those circumstances we know we are at the bottom of the repair list.) The local fire company has waited 5 hours and more for power to be shut off by GPU so they can safely fight a fire or pull an injured driver from a car. You canít make this stuff up. In the recent past the local fire company has actually billed GPU for vehicle fuel and refreshments for volunteer firefighters to sit for hours waiting for GPU to come turn off the power...and GPU has paid! This reflects in part budget cuts by GPU maintenance as well as low priority -- the perception that no one lives here, itís all summer cabins. Let me hasten to add again that this is all understood-- if not happily accepted-- by we full-time local residents; it comes with the territory.

What does this rural tale have to do with deregulation? When PA introduced "Electric Choice," most people where I live, myself included, stuck with GPU as our electron provider because when the wires were down and we were arguing with GPU, we could at least point out that we paid a monthly bill to their company so clearly we _were_ GPU customers, and they dang well ought to come out to fix the wires so the whole mountain didnít burn or whatever. We figured that a few pennies less per monthly bill by switching wouldnít make up for the extra hassle. It wasnít disinterest in deregulation, merely a weighing of the hassle versus bottom-line gain.

Now, GPU is complaining that they have too many customers, and the alternative power suppliers are backing away from the PA market. Wonderful. Last month GPU sent a fairly nasty letter to its PA customers (including my household) saying they would be trying to raise rates. The letter essentially said the cause was the deadbeats that GPU had to accept as the power supplier of last resort plus rising wholesale power costs. The letter implied GPU was grudgingly accepting my business and I ought to seek my grid power elsewhere...but as the article above says, that may not be such a great option either.

Iím not complaining here on GICC about the rising cost of power, thatís not my point: rather itís to point out that deregulation isnít going quite so smoothly. PAís governor ought to shut up about how deregulation is "saving consumers money" unlike in California. Right.

Your mileage may vary, but not by much I expect.

--Andre



-- Andre Weltman (aweltman@state.pa.us), May 02, 2001


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