What competition?

By Kim Leonard
TRIBUNE-REVIEW
Sunday, December 4, 2005

Price comparison shopping for toys and electronic gadgets is in full swing. But nobody can work up enthusiasm these days for saving money on the electricity or natural gas.

That's because traditional utilities like Duquesne Light Co. and Equitable Gas Co. have little or no competition, despite state efforts in the 1990s to create a marketplace where energy suppliers would undercut each others' prices.

This fall, only 3.6 percent of Pennsylvania's 5.5 million residential electric customers -- about one of 27 -- are buying power from an alternate supplier. And just 6.6 percent of the 2.53 million natural gas customers -- one of 15 -- are "shopping" beyond their local utility.

"The bad news is, we really don't have effective competition," said Terrance Fitzpatrick, a Public Utility Commission member who helped to draft the 1996 electric deregulation law.

The law took effect in January 2000 -- about a year before rising demand for energy started to sharply drive up market prices for power and natural gas. This drove several competitors such as Allegheny Energy Supply, a unit of Greensburg-based Allegheny Energy Inc., out of Duquesne Light's service area, which had seen the highest shopping rates.

Today, there are no consistently available, less expensive options to local utilities, and anyone who looked forward to companies' undercutting each others' prices for typical household accounts was left disappointed.

"Customers were promised competition that would restrain prices," said David Hughes, executive director of the consumer group Citizen Power. In exchange, they were forced to gradually pay off the electric utilities' "stranded" costs, such as investments in power plants that the companies figured they couldn't recover in a deregulated market.

"We didn't get what we were promised," Hughes said, and the utilities unrestrained by competition have continued to raise their rates. "The whole bargain has been reneged on."

Supporters of deregulation point to the positives: Because the law effectively separated the supply portion of utility service from the costs to deliver the energy, bills became easier than ever to read.

While Austin, Texas-based Green Mountain Energy's retreat from Pennsylvania last month renewed questions about whether competition ever will return, a few alternate suppliers -- including "green" companies that support solar and wind energy -- are serving the state.

Duquesne Light, which sold off its power generating plants during deregulation, still is charging rates lower than those before the law passed.

"If you look at the big picture," Fitzpatrick said, "at the time the law was passed, (Pennsylvania's) electricity prices were 15 percent above the national average. Now we are about 7 percent above the national average."

The biggest factor keeping power prices relatively low also is the main reason why it still may be too soon to judge the results of deregulation. Almost all electric utilities statewide still are charging capped rates that they agreed to under the law, until as late as 2010. Duquesne Light is charging a fixed price through 2008.

Rates at Allegheny Energy's utility unit -- Allegheny Power -- are capped at about 3.3 cents per kilowatt hour. "The market is pushing 5 or 6 cents," said Ron Magnuson, vice president of customer service.

Allegheny Power has seen virtually no shopping in its service area, because of its traditionally low prices. Neighbors in Duquesne Light territory, though, knew they were paying around 40 percent more, and by January 2001 more than 176,000 were enrolled with other suppliers.

Bill Lewis, of Mt. Lebanon, was happy to escape Duquesne Light's high rates. He found cheaper electric and natural gas suppliers, and recalls saving about $100 a year in each case before the companies stopped serving Pennsylvania. Now he's back with Duquesne Light and Equitable Gas.

"I concluded that this attempt by the state to create competition failed," Lewis said, adding few people seemed to be aware at the time that "utility choice" applied only to one part of their bills. "Most people, once they got into this, found it was much ado about almost nothing."

Former Green Mountain customers Peggy Denham, of Penn Hills, and her husband, Vincent Ombres, have been weighing whether to return to Duquesne Light or sign up with the only other choice, Community Energy, another company promoting renewable energy.

"We don't need a lot of alternatives. We just need some good alternatives," said Denham, a six-year Green Mountain customer.

Early on, the electric competitors had an advantage, because the utilities' capped rates for power were set high enough for other companies to earn a margin, Fitzpatrick of the PUC said.

But growing demand for power and rising prices for the natural gas that fuels many generation plants began to send electric prices upward, and the marketers saw their margins disappear. Despite the state's "Utility Choice" promotions, many customers didn't understand the program, or were unimpressed with the promised savings.

Dominion Peoples Plus, a subsidiary Dominion Gas Co., maintains 125,000 electric customers on long-term, fixed price contracts, including many acquired from Allegheny Energy Supply when it dropped out of the market.

While its customers saved money for years, the company will hike its rate above Duquesne Light's with January renewals, and change it monthly before offering a new fixed-price contract in May. Dominion Peoples Plus currently isn't taking any new customers.

Green Mountain quit offering regular service in Pennsylvania because of rising market prices, leaving about 15,000 customers in Duquesne Light and Allegheny Power territory.

That leaves Community Energy Inc. of Wayne, Chester County, as the only green power source, and the company primarily markets to commercial and industrial customers in Western Pennsylvania. Statewide, Community has about 17,000 customers that pay a premium atop the regular utility rate.

The deregulation movement was most popular in the Northeast and western states, known for high energy prices. Some states -- Arkansas, New Mexico and Oklahoma -- put the brakes on deregulation efforts after California's experience.

"When competition came about, everybody thought prices would drop," said Rob Schain, president of Regulatory Research Associates Inc. of Jersey City, N.J., but deregulated states learned that their prices can go down, or up.

Kim Leonard can be reached at [email protected] or (412) 380-5606.