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Overview of Electricity Deregulation

The generation of electricity is being deregulated, which means you will have the opportunity to shop around for the electricity-generation supplier of choice.

Why the Legislation?

Supporters of the legislation say all electricity customers will be beneficiaries because of lower rates for electricity. In 1995 in the regulated environment, Pennsylvanians spent $10 billion for electricity. If the PA rates for electricity drop to the national average, then about 15 percent ($1.5 billion) will be saved each year. If the rates fall to the anticipated competitive price for electricity, then an estimated 25 percent ($2.5 billion) will be saved each year in Pennsylvania.

What Is Deregulation?

For the electric industry, deregulation means the generation portion of electricity service will be open to competition. However, the transmission and distribution of the electricity will remain regulated and your local utility company will continue to distribute electricity to you and provide customer services to you. The generation of electricity is being deregulated, which means you will have the opportunity to shop around for the electricity-generation supplier of choice. Deregulation is not new; you probably remember previous deregulations involving trucking, airline travel, and long-distance telephone service.

What Guidelines Did PUC Set for Deregulation?

The PA Public Utilities Commission (PUC) has been very active in developing rigorous guiding principles concerning the deregulation of electricity generation. These principles include:

  • universal service and energy conservation programs
  • consumer education
  • consumer services
  • reliability of supply electricity

Each utility company must document that its levels of consumer services and reliability equal or exceed the levels that existed on January 1, 1997. In addition, the PUC has capped electricity rates so that rates for the vast majority of customers will not exceed the rates that existed on January 1, 1997. This rate cap will be in effect for the next four to nine years.

What Is the Local Utility Company's Role in Deregulation?

Your local utility company--whether it is an investor-owned company or a rural electric co-op--will continue to distribute electricity to you and provide customer services to you. It does not matter who you may select as your electricity-generation supplier, you will remain a customer of your local utility company for transmission, distribution, and local services.

These services will remain regulated for the foreseeable future. Your local utility company will be responsible for providing line repair and maintenance, restoring service after storms and accidents, and providing customer services, including metering and billing. When your local utility company is restoring electrical service after a storm or accident, the line crews cannot give preferential treatment to those customers purchasing electricity from the company.

Your local utility will also serve as "the electricity generator of last resort." In other words, if your selected electricity-generation supplier is unable to provide the electricity you need, your local utility company will supply you with electricity at the prevailing price. When you shop for electricity, you should certainly consider your local utility company as one of the possible suppliers of your electricity.

What Changes Can You Expect?

A number of changes are likely to take place as a result of deregulation. We have already seen mergers of utility companies. For example, Allegheny Power was created by the merger of Monongahela Power, Potomac Edison , and West Penn Power. GPU Energy was created by the merger of Penelec, MetED, and JCP&L. We may see additional mergers in the future.

Electricity pricing will certainly change. Today, the investor-owned utilities are guaranteed the opportunity to make a profit in the regulated environment, with oversight provided by the PUC. Rural electric co-ops are not guaranteed to make a profit since they are operated as nonprofit cooperatives governed by a board of directors elected by all customers. In the competitive environment, the utility companies will no longer be guaranteed the opportunity to make a profit on the generation of electricity.

A few relatively easy-to-understand pricing options are currently available. It is anticipated that in the deregulated environment, many pricing options will be available, some of which may be very complex.

Utility bills for electricity now include one total price for all these components: generation, transmission, distribution, and local service. There are separate additional charges for fuel adjustment and taxes. Utility bills in the deregulated environment will be "unbundled," meaning that each of the components will be itemized separately with a price per kilowatt hour (kWh) for each. In addition, there may be a competitive transition charge or stranded investment charge for each kWh.

Additional customer choices will also be available in the future. Today, you buy just your electricity from your designated utility company. In the near future, companies and brokers will offer many products and services in addition to electricity. These additional products and services may include propane, diesel fuel, energy services, financing, equipment, and equipment maintenance.

How Can You Get More Information?

You will need much additional information before you can select the most appropriate electricity provider. More information is available from your local utility company, Agricultural and Biological Engineering Extension, trade journals, popular press, and PA Public Utilities Commission.