Pennsylvania Rate Cap Expirations: A Primer for Consumers

The upcoming expiration of Pennsylvania’s rate caps means tremendous opportunity for consumers to shop for lower-cost electricity supply. With an influx of competitive options, many residential and business consumers may be wondering how to get the most of their choices.
 
The move to competitive markets is best understood with some background. Prior to the 1996 state law which opened the state’s electricity market to competition, Pennsylvania’s utilities were “bundled,” meaning power generation, energy transmission, and local distribution were all controlled by the same company. Consumers were assigned a power supplier based on where they lived, and had no options if their utility raised rates. This all added up to electric rates 15 percent higher than the national average.
 
Since then, Pennsylvania’s electricity market has become competitive, meaning power suppliers beyond the utility can bid their product into the market and compete for a customer’s business based on price or service. Local utilities still own the power lines that deliver the power, but customers can now choose the company supplying the electricity for a home or business.
 
Rate caps have already expired for 40 percent of Pennsylvanians and statewide, more than 650,000 customers have switched to a competitive supplier. On December 31st, rate caps will expire in the PECO, West Penn Power, Met-Ed, and Penelec utility service territories. Because artificial rate caps held prices down for so long, utility rates will likely increase because the cost of electricity has risen over time, similar to other commodities like gasoline.
 
Here’s where competition comes into the picture.
 
Since utilities will now charge customers based on the actual cost of generating electricity, a new default service rate will take effect on January 1st. This rate is called the “price-to-compare” (PTC) and is the rate customers will be charged if they do not switch to a competitive supplier. All four utilities switching to a competitive market have announced their PTC.
 
When competitive suppliers know what an incumbent utility’s PTC will be, they determine if their rates will be lower than the incumbent’s. If their price is competitive, they enter the market and offer competitive electricity service to the incumbent utility’s existing customers. To date, more than 150 competitive suppliers are making offers across the state.
 
Customers now have many options to choose from, depending on which utility territory they reside in, and making the right choice means doing a little homework. The first step in switching suppliers should be to log onto www.papowerswitch.com, the website created by the Pennsylvania Public Utility Commission to help consumers compare offers and switch suppliers. On the website, customers can compare rates and available plans and start the switching process. The local utility will still send a bill and be responsible for power outages, but the power will come from the new supplier.
 
Pennsylvania’s rate cap expirations mean tremendous opportunity for Keystone State consumers. With a little homework, residents and businesses can take full advantage of the economic benefits of competition in the New Year.

Joel Malina | December 17, 2010