Rate caps have squelched competition in Pennsylvania.
Terrance J. Fitzpatrick is general counsel of the Electric Power Generation Association in Harrisburg, Pa. He formerly was chairman and commissioner of the Pennsylvania Public Utility Commission. The views expressed in this article are solely his.
When I was a member of the Pennsylvania Public Utility Commission in 2001, I wrote an article in Public Utilities Fortnightly (October 2001) evaluating retail electricity competition in the Commonwealth. The bottom recently had dropped out of Pennsylvania’s retail market, with the amount of electric load purchased from competitive suppliers plummeting from a high of 35 percent in April 2000 to 9 percent in July 2001. An increase in wholesale electricity prices and inflexible caps on the supply charges of utilities had combined to force competitive suppliers out of the market.
To revive competition, I recommended: 1) relaxing the rate caps so that utility supply charges would reflect higher wholesale market prices, thereby providing competitive suppliers with an opportunity to re-enter the market; 2) applying the extra revenue from these higher prices to eliminate customers’ stranded-cost obligations more quickly, thus shortening transition periods; and 3) changing the structure of retail prices gradually so they would more closely reflect the value of electricity, which varies over time.
These ideas did not attract political support, however, and the rate caps have remained unchanged.