Enforcing Competition

on June 10, 2011 at 8:53 AM

Is free choice the same if you are forced to choose?

Encouraging residential electricity users to take a more active role in reducing their own electricity bills has proved difficult for many states, where regulators have proved hesitant to require active participation in programs that allow customers to use electricity providers that are not their traditional utilities.

In Pennsylvania, the state Public Utility Commission has begun to review more than a decade of market choice programs, and have been largely disappointed by what they’ve seen.

Some residential electric customers in Pennsylvania have begun to buy power from electric generation suppliers since the final round of rate-cap expiration on Dec. 31, 2010, but public acceptance of the reform lags well behind that in Texas, officials heard on June 8, 2011.

A hearing of the Pennsylvania Public Utility Commission to assess the progress of the retail market reform found consumer representatives and electric distribution companies broadly welcoming the reforms while electric generation suppliers argued for a more aggressive overhaul that they said would drive down prices and increase consumer choice.

“Not enough customers are taking advantage of what the legislature provided 15 years ago,” said Commissioner James Cawley, referring to a 1996 law allowing outside companies to compete with 11 established utilities.

19% of Pennsylvania’s residential customers have so far switched to a supplier other than their local utility, according to the PUC. But the rates vary widely among utility areas from a high of 39% in PPL territory to zero in UGI’s area.

The residential switching rates compare with 30% of commercial customers and 60% of industrial power users.

Despite lower rates offered by competitive suppliers, Cawley blamed a deep-seated loyalty to local utilities such as southeastern Pennsylvania’s PECO which have become the default providers for consumers who don’t “shop” for alternative energy companies.

Some customers avoid shopping because they think they will get poor service from their current distribution company if they go to the alternative provider, Cawley said. As a result, many consumers are paying higher electricity bills than they would if they switched.

“There are many who are leaving $100 bills on the sidewalk,” Cawley said. “All they have to do is pick up the phone.”

In Texas, seen as the national leader in electric market deregulation, 60% of residential customers have switched away from “legacy” providers who typically charge higher rates, Barry Smitherman, chairman of that state’s Public Utility Commission, told the hearing in Harrisburg.

The entry of new suppliers has driven down residential rates to as low as 5 cents a kilowatt hour compared with up to 12.9 cents in December 2001 before the Texas reforms were implemented in 2002, said Smitherman.

Texas power companies now compete not just on price but also on products and services such as whether customers want customer service delivered via the internet or by a live person on the phone; whether they want renewable fuel generation included in their power supply, or whether they want paper bills, Smitherman said.

Richard Riazzi, president of Duquesne Light, a power distributor in southwest Pennsylvania, said two-thirds of customers surveyed were considering switching suppliers, mostly because of price, while the remaining third had decided to stay with Duquesne as the default provider.

“Duquesne does not believe that dramatic change is necessary in its service territory,” Riazzi said.

But Gene Alessandrini, senior vice president of Marketing at PPL Energy Plus, said default suppliers such as Duquesne were only intended as a “last resort” and that competition in Pennsylvania should be sharpened by requiring those utilities to bring their rates into line with market prices.

Default providers should be prevented from offering incentives such as special rates that encourage consumers to stay with the utilities, Alessandrini said.

The Texas model was hailed by Pennsylvania Commission Chairman Robert Powelson who told the packed hearing that interest in the issue was so high that he was planning a second session.

At the end of the four-hour hearing, Powelson criticized officials such as Pennsylvania Consumer Advocate Sonny Popowsky who defended the default system as making it possible for all residential customers to reap the benefits of market reform even if they don’t switch to competitive suppliers.

“What we heard earlier was a status quo position, and I think that’s unacceptable,” Powelson said.