Pennsylvania Rate Cap Expirations Forecast Robust Competition and Affordable Energy Bills

Pennsylvania’s organized electricity market unleashed “astounding” competition among energy market participants and switching rates among customers in 2010. However, with only two months remaining until all remaining artificial rate caps expire on January 1, 2011, the best may very well be yet to come.
 
The ability to compete for new energy customers has triggered a rush of alternative power suppliers to bid into the Keystone State‘s markets. Overall, around 140 suppliers have been licensed by the Pennsylvania Public Utility Commission (PUC) to market energy in the state. While not all of those suppliers will enter the new markets, nearly 70 power providers announced they will participate in the MetEd, PECO, Penelec and Allegheny utility territories opening their markets to competition in 2011.  
 
For consumers, an abundance of alternative power suppliers often means potential savings on their bills. The Pennsylvania PUC recently estimated that consumers should be able to save money when rate caps expire in these four territories, according to an October 25 Restructuring Today report.
 
The PUC estimate was based on studies it has conducted since 2008 that forecast what customers could expect to pay in any given quarter if rate caps expired at that time. The comparison of market rates versus existing capped rates has consistently been trending cheaper, and the latest estimates for PECO estimated residential customers could save over 11 percent, and Commercial and Industrial (C&I) customers could save over 18 percent compared to current capped rates.
 
The lynchpin to accurately predicting economic benefits to customers is the “price to compare” – the incumbent utility’s default rate. Customers in PECO Energy’s utility territory, the largest remaining capped utility territory, recently learned the utility would increase rates five percent on January 1.
 
PECO’s announcement not only alleviated concerns that rate cap expiration would create a large increase in default rates, but also set the mark for alternative power suppliers to bid competitively priced electricity into the market. Several alternative suppliers have announced cheaper rates than PECO, including one green energy offer that is seven percent lower than PECO’s.
 
2010 set Pennsylvania on course toward one of the strongest competitive electric markets in the country. Switching levels in the PPL Energy utility market, which opened to competition on January 1 2010, now hover around 40 percent of small commercial customers, 80 percent of large C&I customers, and nearly 400,000 residential customers.
 
Energy industry consultant KEMA forecast the state’s market would fuel much of the growth in competitive shopping nationwide in coming years. Based on the immediate and dramatic results in PPL, combined with the pre-cap expiration activity in the rest of the state, competition is certain to provide unprecedented benefits for Pennsylvania consumers in 2011.