Consumer Choice in Electricity: A Critical Appraisal

Fortnightly Magazine - October 1 1998
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FOR YEARS NOW ARGUMENTS ABOUT WHETHER RETAIL electric competition would benefit consumers and would serve the public interest have raged. Often saying there is little to be gained from competition and many dangers, powerful voices have urged opposition to competition or a glacial schedule for implementation of customers choice.

The Pennsylvania electric restructuring cases, however, should help end the arguments about the benefits of retail electric competition. The outcomes of these cases powerfully indict the traditional policy of government price regulation of electric generation monopolies, as practiced in Pennsylvania and most of the nation. Indeed the Pennsylvania experience is a clarion call to speed up implementation of retail electric competition.

The seven principal Pennsylvania electric restructuring cases reveal that Pennsylvania's regulated rates are about $2.4 billion to $3.4 billion higher per year than the competitive price for electricity, even if one assumes 1999 market clearing prices of 3 to 4 cents per killowatt-hour - prices that the utilities said were too high in their stranded cost arguments. This is a stunning result with national implications, considering that Pennsylvania's regulated electric rates are about 16 percent above the national average but are not among the nation's highest. Typically, depending on the survey and the rate class, 12 states are found to have higher average rates.

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