Thursday, December 22, 2016

Kleinman Center Study: Electric Competition Driving Down Prices, Increasing Reliability

By Coleen P. Engvall, Joint Conservation Committee

In 1996, the Electricity Generation Customer Choice and Competition Act became law, allowing Pennsylvanians to choose from a catalogue of different electricity suppliers. Still in effect today, customers can shop through various options, with information about price, variability, bonuses and renewable sourcing.
This market-based approach, coupled with the low cost of natural gas, has resulted in benefits to consumers and the environment, according to a study by the Kleinman Center for Energy Policy at the University of Pennsylvania.
The researchers examined electricity generation and consumption in the state since the utility company monopoly on generation was dissolved.
Overall, the competition has appeared to produce positive effects for the state, as well as for consumers.
Before the Act was passed, Pennsylvania’s electricity prices were 15 percent higher than the national average. Today, they are slightly below it.
Specifically, the report notes that the commercial sector has experienced the bulk of the savings from the new system, while residential consumers are actually paying slightly more. This may be due to households switching away from the default provider towards a more expensive option such as renewably sourced power or rewards programs.
The market-based system has allowed utility electricity generators to be replaced by new investments and new energy mixes.
This allowed natural gas to easily become a dominant resource in the market following the shale gas boom here in Pennsylvania.
Alongside cheaper energy bills, this shift brought cleaner air across the region. The report notes that carbon dioxide, nitrogen oxides and sulfur dioxides all decreased after the Act was passed.
The report concludes with several policy recommendations aimed at building on the successes of the current law to maintain healthy competition, reduce pollution, cut costs and assure grid reliability.
The first set of recommendations deals with retail guidelines.
The researchers begin by tasking legislators with pursuing a comprehensive statewide strategy to modernize supplier operations, instead of simply reacting to challenges as they arise.
They also emphasize the importance of grid reliability and security, with emphasis on extreme weather events and cyber threats.
The researchers note that the transportation sector increasingly uses electricity with the recent growth of full-electric vehicles. Using the right policies, this transition could benefit the electricity sector.
The final retail recommendation encourages lawmakers to revisit the debate about default service, with some seeing it as a hindrance to promoting competition, and proponents defending it as a government-regulated choice for customers.
With respect to wholesale policy, the researchers warn that regulations and subsidies can impact the flexibility of a market-based system.
In terms of grid capacity and reliability, the report addresses several concerns, from seasonal challenges to balancing state mandates with marketplace efficiency.
The “polar vortex” of 2014 revealed many challenges related to energy dependence as well as grid security.
Finally, the report calls on FERC [Federal Energy Regulatory Commission] and other policy makers to consider the changing energy landscape, particularly in regard to distributed energy resources.
These resources are smaller generators that can be incorporated into a smarter grid. Examples include renewables and power storage solutions, which are both experiencing a revolution in technology and capacity.
The report urges stakeholders and policymakers to preempt and maximize the opportunities in this budding industry.
A copy of the report is available online and visit the Kleinman Center for Energy Policy at the University of Pennsylvania webpage to learn more about energy policy.
For more information on Pennsylvania’s electricity market, visit the Public Utility Commission’s Electricity webpage.
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(Reprinted from the December Environmental Synopsis from the Joint Air and Water Pollution Control and Conservation Committee.)

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