Family feud illustrates complexity of electric deregulation
Sunday, July 04, 2010
By Len Boselovic, Pittsburgh Post-Gazette
More than a decade ago, Pennsylvania's lawgivers deemed
it wise to deregulate the utility industry. Here are some observations on what
the guardians of the public interest have wrought, based on the perspective of
one Penn Power customer.
An alternative purveyor of electricity recently gave
select Penn Power customers in Western Pennsylvania the opportunity to purchase
electricity for 6.85 cents per kilowatt hour through May 2011. As someone who
used a tad more than 1,000 kilowatt hours over the most recent monthly billing
period, the offer represents savings of roughly 2 cents per kilowatt hour, or 30
That's the kind of significant savings envisioned by
This triumph of free market economics was made possible
by FirstEnergy Solutions, whose offer to Penn Power customers expired Wednesday.
FirstEnergy Solutions is the merchant power arm of Akron, Ohio-based utility
FirstEnergy. That connection may seem odd to observant Penn Power customers who
have seen this statement at the top of their monthly bill: "Penn Power, a
Which raises the question: Is this competition, or two
family members fighting over the same piece of pie?
David Hughes says the family feud "describes the
craziness of the whole system." Mr. Hughes, who has opposed deregulation since
the dawn of the new era, is executive director of Citizen Power, a consumer
"It's really laughable that deregulation proponents can
proclaim there's competition," he said. "The bottom line here is the money all
goes to the same shareowners."
Deregulation separated the companies that generate the
electricity from those that deliver it. Penn Power, Duquesne Light and other
utilities continued delivering the electricity, but consumers could buy
electricity from whomever offered the best terms. If they didn't shop, the
company that delivered their electricity would buy it for them at auctions and
charge them default rates blessed by the state Public Utility Commission.
At first, there was a proliferation of power providers.
But many of them left the market, and competition was not as robust as
deregulation's advocates had hoped. That is reflected in the amount of
electricity Pennsylvanians are buying from alternative suppliers.
As of April 1, the amount of power residential,
commercial and industrial customers were buying from alternative suppliers was
31 percent below levels of a decade ago, according to the Pennsylvania Office of
Consumer Advocate. The number of business customers -- who account for about 80
percent of electricity consumption -- shopping around is down. The decline has
not been offset by a 7 percent jump in the number of residential customers
shopping for the best deal.
"If this is the best that can be achieved after 11
years, I think it's clear electricity doesn't lend itself to the volatility of
the marketplace," Mr. Hughes concludes.
Advocates of deregulation -- and there are plenty of
them -- document that shopping is on the rise. Some of that has been spurred by
the demise of rate caps regulators maintained to ease the transition to a free
market. That phenomenon has been tracked by the Compete Coalition, a Washington,
D.C., group that backs deregulation.
The group reported in January that less than a month
after the elimination of rate caps for PPL customers, nearly 20 percent of that
utility's customers had switched to other suppliers, lured by discounts of up to
10 percent. According to Pennsylvania's Consumer Advocate, 28 percent of PPL's
customers were buying electricity from someone else in April vs. just 4 percent
a decade ago.
Based on the jump in shopping here and developments in
Ohio and other states, "this steady drumbeat of increasing competitive shopping
rates in competitive retail markets continues [to] demonstrate that our nation's
competitive electricity markets" are benefiting consumers, Compete blogger Joel
Malina wrote last week.
The statements of Mr. Hughes and Mr. Malina
notwithstanding, this Penn Power customer can't help but take pause at the fact
that two arms of FirstEnergy are vying for his business. Evidently, competition
is not only good for the goose, it's good for the gander.
"It's not an easy concept," said FirstEnergy spokeswoman
Ms. Francis notes that when Penn Power secures
electricity for customers who don't shop, it negotiates multiyear deals. Prices
can change over the time period, allowing FirstEnergy Solutions and other power
merchants to offer consumers more favorable terms, she says.
Currently, the only non-FirstEnergy option for Penn
Power customers who want to pay less is Dominion Peoples Plus. (There are
options to pay more for those who want to subsidize wind and renewable
One final word: As a demand meter customer, my bill is
based on a two-tier Penn Power rate structure designed to encourage energy
conservation. FirstEnergy Solutions is offering a flat rate, meaning my last
kilowatt hour will cost no more than my first.
In this feud between two FirstEnergy siblings, I wonder
which child Mom likes best?