Deregulation of Electricity Generation in Pennsylvania–Begin Preparing Now

Deregulation of electricity generation in Pennsylvania was approved in the PA General Assembly in December 1996. The primary motivation for the legislation was to open the electricity industry to competition, thereby enabling PA residents, institutions, businesses, and industries to buy electricity at lower costs. Originally the deregulation was to be completed statewide by January 1, 2001. There have been numerous delays in this arduous process. Now the anticipated deadline for completion throughout the state is December 31, 2010 for all investor-owned utility companies. The rural electric cooperatives and municipal-operated utility companies are exempted from this legislation.

Electricity rate caps (or price controls) were implemented by the PA Public Utility Commission (PUC) to ensure relative price stability during the potentially tumultuous years leading to the complete deregulation of electricity generation. The price of electricity has remained nearly constant since 1996 with annual increases ranging from 0 to about 5%, while the prices of other sources of energy were skyrocketing. During this same period, customers were required to pay each month the tangible and intangible transition fees (also known as stranded investment fees) to compensate the utility companies as they transition to the deregulated environment.

The rate caps for electricity that have kept the electricity prices fairly low will expire (or may have already expired) when the deregulation of electricity is completed at the end of 2010. The customer’s responsibility to pay the transition fees also expires at the same time, thereby completing the deregulation of electricity generation. Then what?

Each customer will have the opportunity to shop for a supplier of generated electricity and the transmission of the electricity. Generated electricity - and transmission of that electricity - will become a commodity that can be purchased from any licensed supplier or broker that you choose. Whenever considering generated electricity, we need to think in terms of both energy (kWh) and capacity (kW). If a customer opts not to shop for an electricity supplier, then your local utility company will serve as the “default service supplier” or the “provider of last resort”. If your selected electricity generation supplier is ever unable to provide the electricity you need, your local utility company will supply you with electricity at the prevailing price.

Distribution of the electricity as well as local service will continue to be provided by your local utility company. It doesn’t matter which company you select as your electricity supplier; you will remain a customer of your local utility for distribution and local services. Your utility company will be responsible for providing line maintenance, restoring service after storms and accidents, and providing on-going customer services including billing. These functions will remain regulated by the PUC for the foreseeable future.

You have more than 16 months to prepare for the deregulation of electricity. Take advantage of this lead time. Start your preparation now by understanding how and when you use electricity. Think of ways in which you can use less electricity without sacrificing milk production, milk quality, labor requirements, and conveniences that you and your workers have grown accustomed to over the years. More importantly, think of how your operation could be modified so that you do not have many large electrical loads stacking on top of each other that create demand spikes. Also think creatively of how much of your electricity load can be shifted to off-peak periods. Future articles in Dairy Digest will deal with these and other issues as we migrate to the deregulated market for electricity.

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Dennis Buffington,
Department of Agricultural and Biological Engineering