Electric Choice Works in Pennsylvania: 1996 Act 138 Pennsylvania Electricity Generation Customer Choice and Competition Act Title 66 as Amended

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THE ACT'S GOALS

* Allow consumers to choose the company that generates their electricity.

* Pass lower, wholesale electricity prices on to customers.

* Encourage reliable, affordable electricity and technological innovations by creating a competitive market.

WHAT THE ACT DID

* Creates competition at the retail level--for generation only. Competition was phased in from November 1997 through Jan. 1, 2001, allowing all Pennsylvanians to select their electricity provider.

* Allows the Public Utility Commission to set the "shopping credit" (also known as "price to compare"), which is a few cents per kilowatt-hour (kWh) that companies can charge for generation. This appears on each customer's bill. If a customer finds a company that can provide generation for less than the "shopping credit," he saves money.

* Continues oversight by the Public Utility Commission to ensure quality of electric service, along with maintenance of transmission and distribution systems. Monopoly utilities still transmit and distribute power.

SEVEN YEARS LATER

California gave electric restructuring a bad reputation. But Pennsylvania's similar venture has met with more success. What's happened seven years after the law passed?

"Pennsylvania shows that electric competition can work if done thoughtfully and carefully," says Ken Malloy, president of the Center for the Advancement of Energy Markets.

"Pennsylvania's program has been very successful in many areas, especially when you see the problems that some other states have encountered," says Representative Carole Rubley.

Pennsylvania began a gradual change from a utility system monopoly to a competitive electricity marketplace in 1997. Customers in almost every utility service area can now select from several generators. Half the states have passed similar laws, but Pennsylvania is widely regarded as the most successful.

Restructuring has saved money. Before the change, Pennsylvania's electric rates were 15 percent above the national average. Now, they are about 4.4 percent below the average. Dramatic savings exist in Pittsburgh, where rates are down 20 percent to 50 percent.

"We've returned to 1981 levels," says John Hanger of environmental group PennFuture. "Consumers are the single biggest winners ... no consumer is paying more for electricity than in 1996." Total savings for residential and commercial consumers are between $5 billion and $6 billion.

"I'm pleased with where we've gone," says Sonny Popowsky, the state's consumer advocate at the Public Utility Commission. "One major key to our success is that we took a conservative approach to restructuring. We put in protections so that even if things didn't go as we expected, consumers would still be protected."

The law includes a mandatory cap on electric rates and more help for low-income consumers. Rate caps helped keep prices stable through the transition phase and also shielded rates from price spikes in electricity-producing fuels like natural gas.

Not all the benefits, however, are found in lower rates. "Many have chosen green power, which is a new option," says Popowsky. Consumers who wish to support renewable energy are willing to pay a bit more. The new renewable energy industry has brought some $200 million of private investment into the state.

Representative Rubley says restructuring has done "a good job of keeping a cap on electricity costs." But lawmakers are disappointed that "we haven't gotten as many companies into the market as we would have wanted." Indeed, a limited number of companies have entered the state to vie for customers. And customers haven't shopped around very much.

WHY AREN'T PEOPLE SHOPPING?

Customers switching companies is one sign of a truly competitive market. It shows that citizens are shopping for a low rate. In Pennsylvania, shopping is made easier by the "price to compare," which electric utilities must highlight on customers' bills. …