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How
will customer choice be implemented?
Under
the Pennsylvania electric utility restructuring law,
the first phase of restructuring implementation is pilot
retail access programs. Under these programs, about
five percent of each utilities' EAPAk loads began selecting
competitive electricity suppliers in November 1997.
The pilot programs are experimental exercises in retail
electric competition designed to allow consumers, utilities,
regulators, and other stakeholders to learn how competition
will work when it is fully implemented.
Beginning on January 1, 1999, other customers will be
phased in to allow a deliberate, smooth transition to
a fully competitive market. By January 1, 2001, all
Pennsylvania electricity consumers will be able to select
their providers.
See Pennsylvania's Electricity Restructuring
Law for more detailed information.
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What
else does the electricity restructuring law do?
Pennsylvania's
restructuring law gives the Pennsylvania Public Utility
Commission (PUC) the authority to license any suppliers
that want to sell electricity in the state. The PUC
ensures that these parties abide by requirements that
protect the public interest. So far, the PUC has licensed
over 50 providers. (Click
here for a complete, up-to-date list of licensed suppliers
from the PUC.)
The Pennsylvania law also provides for utilities to
recover costs that will be rendered uneconomic in the
competitive market, or "stranded"
costs. Utilities incurred these costs through
their obligation to serve customers or because of regulatory
requirements, but in a competitive environment, utilities
will not be able to effectively compete if they are
required to absorb these costs.
Utilities will be required to unbundle
their rates-that is, separate them into their distinct
components of generation, transmission, and distribution
on customer bills, rather than combine them into a single,
lump-sum as they have in the past. Generation is the
only component that will be open to competition. Other
charges, such as transition charges used to recover
utilities' stranded costs, will apEAPAr on customer
bills also. In the future, customers may receive two
bills-one from the local utility for transmission, distribution,
and transition charges, and another from the power supplier
for generation charges.
The restructuring law also ensures that energy conservation
programs are in place and that low-income energy assistance
programs will be continued.
See Pennsylvania's Electricity Restructuring
Law for more detailed information.
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How
do the pilot programs work?
Pennsylvania's
pilot retail access programs began in November 1997.
The programs, required by the state's restructuring
law, are designed as a "trial run" for electricity
choice, so that consumers, utilities, regulators, and
competitive suppliers can learn about how competition
will work before it is fully implemented.
Five percent of each utility's EAPAk loads are allowed
to select competitive suppliers under the programs.
Each rate class is involved. This makes Pennsylvania's
competitive electricity market-with about 230,000 consumers
being served by competitive suppliers-the most active
in the U.S.
The 230,000 pilot participants will be among the first
block of consumers allowed to choose beginning January
1, 1999.
See Pilot Retail Choice Programs
for more detailed information.
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Who will be the competitive suppliers?
When
you have the ability to select your electricity supplier
you will have a number of options. You will have the
option of selecting your current utility, or a new electric
generation supplier. For example, you might work with
a power marketer, which purchases wholesale power from
generators for resale. Or, you might consider a load
aggregator, which pools together the energy needs of
large numbers of customers to bargain for lower prices.
You might also deal with a power broker. Brokers arrange
for the sale of power from a seller, such as a power
marketer, to a buyer. There will be a variety of paths
you can take, and you will likely be approached by many
different kinds of suppliers wishing to sell you power.
So far, the PUC has licensed over 50 providers.
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What
are the transition charges?
The
PUC approved the use of transition charges to recover
utility costs that were incurred during the regulated
era and are currently included in customer rates. These
costs, which were incurred to serve customers and approved
by regulators, will be stranded because utilities will
not be able to recover them in a competitive market.
Other industries that have restructured in the past
have employed similar mechanisms.
The Competitive Transition Charge (CTC) represents those
costs already included in the rate structure that will
not be recoverable under competition. The Intangible
Transition Charge (ITC) represents payments on "transition
bonds" utilities will issue to reduce their stranded
costs and, therefore, costs to consumers. The CTC will
be reduced to reflect any savings brought about by the
sale of the transition bonds.
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Will
I save money?
The
big question on electricity customers' minds, though,
is "Will I save?" The cost of generation is
expected to drop due to competition, so you will likely
save on that portion of your bill. Also, there are provisions
in the Pennsylvania law that prevent total electricity
prices from rising for up to nine years.
However, the Competitive Transition Charge (CTC) and
Intangible Transition Charge (ITC) could be levied on
customers' bills for the next ten years, which may offset
some of the savings expected from lower generation costs.
After the transition charges are phased out, though,
greater savings can be expected.
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What is the point of competition?
There
are several reasons competition is desirable. Most important,
it may allow you to purchase power tailored to your
needs or desires for price, source, reliability, and
other characteristics.
In the bigger picture, competition will help encourage
greater efficiency, more innovation, and customer service
improvements in the electricity industry.
And, by lowering prices, competition could help attract
business to Pennsylvania and, in turn, create new jobs
and stimulate the economy.
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