Energy Deregulation Benefiting Consumers

By Caleb Taylor | PA Independent

The deregulation of Pennsylvania's electricity market has lowered costs for residential consumers, but the loss of subsidies for large manufacturers has forced them to pay higher prices. 

Industry officials and regulators spoke Aug. 2 before the House Consumer Affairs Committee about the state of retail competition in the electric industry. 

“Deregulation has worked across the board, except for large manufacturers,” said state Rep. Bob Godshall, R-Montgomery, committee chairman. “Residential prices have come down. I’m not willing to go back to the regulated market where manufacturers were heavily subsidized.” 

Prior to 1996, Pennsylvania regulated electricity prices, leaving consumers without a choice of electric provider. Following deregulation, customers could select their provider, but they had to pay the original power company for the delivery of electricity, which accounts for about 40 percent of the overall cost. In the old system, manufacturers were given subsidies to help offset their higher usage, based on a system regulated by the the state's Public Utility Commission.

Advocates of deregulation argue choice has brought down prices in Pennsylvania. In the deregulated economy, residential and commercial users may buy their electricity from any producer in the country. 

However, David Ciarlone, global energy manager of Alcoa Industrial Energy Consumers of Pennsylvania, an organization that lobbies on behalf of industry interests, said deregulation is not the major reason electricity prices have dropped. 

“While some (electricity) rates are indeed lower, this is the result of a tragedy, not a triumph,” said Ciarlone. “It is truly astonishing to see people celebrating the results of the worst global recession in over 80 years. Energy prices, like all commodity prices, are lower globally (due to the recession).” 

State Rep. Bryan Barbin, D-Cambria, agreed that deregulation has worked out better for residential than industrial customers. 

Prior to deregulation, Pennsylvania electric customers paid about 15 percent more than the national average. Today, the average cost of electricity in Pennsylvania is 12-cents per kilowatt hour, slightly above the national average of 11-cents per kilowatt hour. 

Industry officials were critical of the default service structure that allows customers to keep the electric company they used prior to deregulation, if they don’t switch providers. 

“Many millions of customers are not taking advantage of the benefits of a competitive market,” said Ritchie Hudson, Pennsylvania chairman of the Retail Energy Supply Association, a national organization representing electric companies and other energy suppliers. “The single sole driver of this lack of involvement with the competitive energy market is the current default service model here in Pennsylvania.” 

According to the state Public Utility Commission, while 80 percent of industries in Pennsylvania are shopping on the competitive market, only 20 percent of residential consumers are exploring their options. 

Businesses "have competitive pressures to reduce their energy costs as much as possible,” said Terry Fitzpatrick, president of the Energy Association of Pennsylvania, an industry group representing energy companies. "I’m not surprised smaller customers have been slower to change. They don’t have as much of an incentive to do that.” 

Although the deregulation law was passed more than a decade ago, the last in a series of rate caps that limited the amount an electricity company could increase charges expired just last year. Last week's hearings were intended to determine how the market has adjusted following the removal of the caps.

The Legislature included the rate caps in the 1996 law to prevent prices from jumping in the years immediately following its passage.