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The myth about electricity prices

Ignore the scary stories about expiring rate caps. Competition has already saved Pennsylvanians billions.

By Jan Jarrett

The Wiktionary defines the term urban legend as: "A widely circulated story that is untrue or apocryphal, often having elements of humor or horror." There is an urban legend that is in wide circulation these days and it goes something like "Soaring electric prices are looming in Pennsylvania. Electric retail competition has failed."

That's pretty horrible.

Urban legends are notoriously resistant to facts and the truth. And the legend that retail electric competition has failed is no exception. For years, PennFuture has been pointing out that competitive electricity markets have saved Pennsylvanians billions of dollars and that retail competition is thriving. Today, residential electricity rates across the state are either unchanged or lower than they were in 2000 when adjusted for inflation.

In the Duquesne service territory in the Pittsburgh region, where rate caps expired in 2004, more than half of the electricity demand is being served by a power supplier other than Duquesne Light. Residential customers can choose among three competitors, and commercial and industrial customers can choose among 24 competitive suppliers. Residential, commercial, and industrial customers in the West Penn service territory, where rate caps expired in 2007, have similar options.

In fact, competition for customers in the two service territories where rate caps have expired is fierce. More than 90 percent of industrial customers have switched power suppliers as at least 24 companies vie for their business.

OK, so it has worked out west. What can we expect when rate caps expire in the rest of the state? The New Year will bring the expiration of PPL's rate caps. PPL rates will increase by about 30 percent because the utility purchased power to serve its customers in 2008, when prices were high. And guess what? Six companies have now entered the PPL market and are competing for residential customers by offering them lower prices. PPL consumers can choose among both suppliers and a number of plans, including a clean renewable power choice.

None of the apocalyptic predictions of soaring electricity rates takes into account the role that energy conservation and a growing renewable energy supply will play in suppressing prices. As a result of the passage of landmark energy conservation legislation last year, Pennsylvania electric utilities will launch robust conservation programs that will reduce the demand for electricity and help keep prices down. As more and more wind and solar energy comes on line, the increased supply of clean energy will also put a downward push on prices.

When the electric competition act was passed in 1996, Pennsylvania's electric rates were 15 percent above the national average. Today, they are 5 percent below the national average. Electric competition is working in Pennsylvania and will take off as rate caps expire. And that's no urban legend.