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Deregulation and PECO Customers in 2011

New Year’s Day marked a new beginning for many Pennsylvania consumers, who can expect more choice when it comes to paying for electricity beginning this year.

Customers of PECO Energy Co. (PECO), the state’s largest public utility, gained the power to choose from 17 alternative retail electricity providers, including Spark Energy, when PECO’s decade-old electricity rate caps expired Dec. 31.

The expiration of PECO’s rate caps was the culmination of a deregulation process that began in 1995, when the Pennsylvania Legislature passed the Electricity Generation Customer Choice and Competition Act, which broke up the state’s public utility monopolies in 1997 and opened the state’s electricity market for the competition from alternative retail electricity providers.

Although retail electricity providers were allowed to operate in PECO’s service territory beginning in 2000, when the rate caps were initially put into place, the rate caps kept wholesale electricity prices artificially low for the next 10 years and essentially discouraged competition.

Now that the rate caps have expired, however, competition among electricity providers is expected to increase, and PECO customers who switch to an alternative electricity provider are expected to benefit from savings of up to 10 percent on their monthly electric bills.

Deregulation: Before and After

Before deregulation, PECO customers bought their electricity from PECO, which generated the electricity, sold it to customers, transmitted it to the grid, distributed it to homes and businesses, and responded to power outages and fixed things like power lines, poles, and transformers.

As a result of deregulation, PECO customers have the choice to stay with the utility or shop the various retail electricity providers for a lower rate. Either way, PECO will continue to transmit the electricity and distribute it to homes and businesses and will remain responsible for responding to power outages.

3 Changes PECO Customers Can Expect

There are several changes PECO customers can expect from the deregulation of Pennsylvania’s electricity market:

1. The 5 percent PECO delivery rate increase will end Jan. 31

All electricity customers will see a 5 percent increase in their electric rates due to a one month bump in PECO’s delivery rates for January. The increase was meant to help PECO recover electricity generation investments, like the Limerick nuclear plant, that the utility had to divest itself of when the market was deregulated. The delivery rate increase is scheduled to end Jan. 31.

2. The existing PECO transmission charge is being phased out

An existing transmission charge for all electricity customers in PECO’s service area, regardless of which electric company they buy their power from, is being phased out. The transmission charge, like the delivery rate, was meant to help PECO recover costs from electricity generation investments.

3. There will be more competition from alternative retail electricity providers

In addition to the rate caps, which kept PECO’s electricity prices artificially low from 2000 to 2010 too low for alternative retail electricity providers to effectively compete hurricanes Katrina and Rita caused energy prices to soar.

But now that the energy market has recovered from the hurricanes and the rate caps have expired, competition for PECO customers’ electricity dollars should increase dramatically.

Although PECO’s customers might be able to save up to 10 percent on their monthly electric bills by switching to an alternative electricity provider, savings will vary based on fluctuations in the wholesale electricity market and how much electricity customers use.

Source: Power Play: Why You’re Getting New Choices in Deregulation, The Times-Herald, Dec. 31, 2010.

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