united states: February 18, 2010

As we saw on January 1, 2010 with Pennsylvania Power and Light (PPL), several other Pennsylvania power companies are poised to lift rate caps that have been in place for some 13 years.  On January 1, 2011, PECO, Metropolitan Edison, Allegheny, and Pennsylvania Electric (Penelec), will see the more than a decade old capped prices for the supply portion (generation) of their tariff rates expire.

On January 1, 2010, the much publicized, much anticipated new rates for PPL became effective and the sticker-shock was extreme.  Customers (residential, commercial & industrial) experienced price increases of anywhere from 10 percent to 45 percent.  The early rumbling is that PECO, Met Ed, Allegheny, and Penelec will see similar increases.

There are advocates on both sides of the fence are arguing the benefits and pitfalls of energy deregulation.  However, over the years, in all areas that have been deregulated, commercial and industrial consumers find the benefit to a deregulated market – be it in the ability to allow their pricing to “float” with the market with an eye to locking in at that opportune low point, or those that prefer the security of contracting for a fixed price, knowing that the energy cost going into their goods or services is not going to impact their budget.  And, it is on the backs of the commercial and industrial sectors that our economy rides.  In these areas, it is critical to give these business decision-makers the latitude and tools necessary to get the most out of their energy dollars.

So, as we see the 13 year old rate caps expiring and the threats - that will probably materialize - of 10 percent to 45 percent electricity cost increases, we must not lose sight of the fact that this increase is that which consumers would realize if they continue to have the supply/generation portion of their service provided by the regulated utility company.  While rate caps were in place for the past 13 years, the conflicting reality of price freeze and increasing costs over time would come to ultimately bite users - and it has done just that.  During this 13 year period, costs have increased and utilities have been experiencing shortfalls in covering their cost to supply their customers.

In addition, the rate freeze stifled the development of a competitive market.  However, as we saw in the PPL service area, the opportunity to go to a non-utility provider for the supply/generating portion of service will prove to be a cost saving opportunity for end users.  In PPL, by going to a third party supplier, consumers were able to parlay what might have been a 25 percent increase (staying with the utility company) to a 5 percent increase.  The result, 13 years of fixed cost electricity followed by a 5 percent increase - not a bad deal.