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Consumer Choice in Electricity: A Critical Appraisal

Fortnightly Magazine - October 1 1998

Penn Power Co. system average rate for 1999 would be 4.72 cents per kWh. The company's total rates would be reduced by 15 percent.

The U.S. Energy Information Agency found in 1996 that only six states had average rates of less than 5.2 cents per kWh. Three states had rates equal to 5.2 cents per kWh, while only 4 states showed average rates less than 4.7 cents per kWh. The West Penn Power Co. case, therefore, indicates that probably very few states have regulated monopoly rates below the competitive price of electricity for that region.

Unbundled Rates:

Generation and T&D

At the heart of Pennsylvania's restructuring cases has been the unbundling of each utility's current bundled electric rate into its separate components for generation, transmission and distribution. Table 2 shows the T&D rates set by the PUC. Table 3 sets forth the unbundled generation rates found in the restructuring cases and shows the competition transition charge as a percentage of each utility's unbundled generation rate.

As represented by the CTC, stranded costs range from a low of 18.75 percent (for West Penn Power Co.) to a high of 39.15 percent (for Duquesne Light) of the generation portion of current regulated rates.

While stranded costs mark a substantial portion of unbundled generation rates for Pennsylvania utilities (assuming that the competition price of generation is 3.5 cents per kWh), the range by which unbundled generation rates exceed competitive generation prices runs from a low of 0.34 cents per kWh to a high of 3.48 cents per kWh.

Table 4 shows, for each utility, how far the current regulated generation rates climb above the market price floor of 3.5 cents per kWh.

If the market price is 3.5 cents, then regulated generation rates are now 10 to 99 percent above competitive price levels. As such, these regulated generation rates represent the triumph of politics over economics. The winners of this traditional political process that is called public utility regulation plainly have been the monopolists and their shareholders, while the consumers have been fleeced in a way that would have been impossible in a competitive market.

Shopping Credits and Stranded Costs

In its Dec. 11, 1997, 3-2 decision in the PECO electric restructuring case, the PUC established a system average shopping credit of 4.46 cents per kWh - a figure that set the precedent for Pennsylvania's subsequent electric restructuring cases. It also was the largest shopping credit set by any state to date. Had the majority that I led not prevailed on Dec. 11, 1997, a PECO system average shopping credit of 2.8 cents per kWh would have been established, and Pennsylvania would have followed the course of California, Rhode Island and Massachusetts, where low shopping credits have meant little or no competition, especially for small-volume consumers.

Pennsylvania's comparatively high shopping credits have created the most competitive retail electricity market in the country, though certainly other states may be forced into fewer concessions, which could further boost competition.

Furthermore, to prevent possible market manipulation that could diminish the purchasing power of shopping credits, the PUC, the