UPenn study: Competition has brought Pa. cheaper, cleaner power

Pennsylvanians are getting a more reliable and cheaper electricity supply, and breathing cleaner air, since the state embraced electric competition in 1996, a University of Pennsylvania study concludes.

The study by the Kleinman Center for Energy Policy determined that the breakup of electric utility monopolies and the introduction of market-based competition saved consumers more than $800 million last year. The average retail price for electricity in Pennsylvania was 15 percent above the national average in 1996. Last year, the average price was 0.1 percent below the national average.

Competition has contributed to a massive switch in fuel sources to generate power — from coal to natural gas  — that has reduced emissions of carbon dioxide, nitrogen oxide and sulfur dioxide, according to the findings.

The study, presented Friday at a conference in Hershey, Pa., marking 20 years since the passage of the Electricity Competition and Customer Choice Act, was written by Christina Simeone, the Kleinman Center’s director of policy and external affairs, and John Hanger, the former state official who was one of the architects of electric choice.

Though the reduction in electricity prices was largely caused by cheap natural gas, the competitive market structure Pennsylvania put in place allowed those savings to flow through to consumers, said Hanger, who was a member of the state Public Utility Commission when electric choice was enacted.

“From a consumer perspective, that’s been nothing but good,” Hanger told the Innovation, Change and Challenge conference Friday at Hershey Lodge.

The study found that consumers overall have benefited from lower prices in the wholesale electricity markets, which are overseen by the regional grid operator, PJM Interconnection. Typically, the savings in wholesale markets are passed though to retail customers, whether they are served by competitive suppliers or by the utility’s “default” service for those who don’t shop.

But the study’s conclusions about retail electric markets — in which customers can choose an electricity supplier other than their local utility — were uneven. On average, residential customers who switched to competitive suppliers paid more than they would have if they had stayed on a utility’s default service.

“After examining statewide average annual figures, it is clear that retail restructuring has provided an opportunity for cost-savings benefits to the commercial and industrial customer classes through retail shopping,” the study said. “However, the same conclusion can’t be drawn from these data for the residential sector.”

That finding struck a nerve for retail suppliers, which are under fire from consumer advocates in several states who say the suppliers misrepresent that their products will save consumers money.

The suppliers say that many discount options are available for consumers, but that many customers choose to pay a supplier more because they receive a value-added service the utility can’t provide: a fixed price; renewable power; programmable thermostats; or other incentives including frequent-flier miles, gift cards, and rebates.

“Consumers clearly want options, even if their choices cost slightly more,” one supplier, NRG Retail, said in an analysis it released of the Kleinman Center study. “Just as people will choose one smartphone over another, they have personal reasons for selecting one electricity supplier over another.”

The study also found that competition had varying impacts on customers in the state’s different utility territories. Customers of some utilities saw more modest reductions in power-generation costs over the last two decades. Customers of West Penn Power are actually paying 7 percent more.

But customers of Peco Energy Co. in Philadelphia and Duquesne Light in Pittsburgh, whose high rates in 1996 paid for expensive nuclear-power plants, have experienced inflation-adjusted reductions of more than 40 percent in generation costs.

Peco customers alone are expected to spend $479 million less in generation costs this year compared with 1996 because the utility’s power plants were forced to compete in wholesale markets.

The gains many customers experienced in lower generation costs have been offset somewhat by higher distribution rates for utilities, according to the Kleinman report. Distribution charges, which are set by state regulators, cover the cost of the utilities’ networks of wires, and they are paid by all customers, regardless of who they chose as their generation supplier.