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BEFORE THE PHILADELPHIA CITY COUNCIL
May 27, 1999
My name is Sonny Popowsky. I have been the
Consumer Advocate of Pennsylvania since 1990 and I have worked for the
Office of Consumer Advocate in Harrisburg since 1979. My job is to
represent the interests of Pennsylvania utility consumers before the
Public Utility Commission and other state and federal agencies, courts
and legislative bodies on matters involving Pennsylvania utility
services.
Part of my job for much of the last twenty
years was to help represent customers of PECO Energy (formerly
Philadelphia Electric Company) in a series of rate proceedings and
investigations that revolved primarily around the construction and
operation of PECO's nuclear plants. As the members of this Council know
only too well, the final result of those proceedings was to produce rate
levels for PECO customers that were among the highest in the Nation.
It is in light of my own prior experience that
I view the last couple of years of PECO's "restructuring" in a somewhat
positive light. On January 1, 1999, the rates for all PECO customers
were reduced by eight percent. In the year 2000, the guaranteed rate
reduction will still be at least six percent below the pre-1999 level.
In 2001, the rates will return to their pre-1999 level, but will then be
"capped" for several more years into the future.
Importantly, while those rates will be reduced
or capped at pre-1999 levels for customers who continue to purchase
their electric generation service from PECO Energy, those customers who
shop for their electric generation supply can reduce those rates even
further. As I will discuss later in my testimony, the additional savings
that can be achieved from shopping are significant, particularly for
residential customers who use a lot of electricity in the summer months.
The question here, of course, and the reason
for this hearing, is whether consumers have adequate information and
knowledge to take advantage of the lower prices and alternative choices
that have been made available to them as a result of electric industry
restructuring.
Again, I'd like to start with the positive
side of that issue. There is little doubt in my mind that we are sitting
here today in the center of the most active retail electricity market in
the Nation. I have attached to my testimony a set of statistics that my
Office has collected regarding the number of customers and the
percentage of customer load of each of Pennsylvania's major electric
utilities that was being served by alternative generation suppliers as
of April 1, 1999. For PECO, more than 205,000 customers had switched
suppliers, which is more than the rest of Pennsylvania combined. It is
also substantially more than the approximately 129,000 customers who are
being served by alternative suppliers in the entire state of California,
which was fully opened to retail competition in 1998. Of particular note
on the last page of these statistics is the fact that after three months
of competition, more than one third of PECO's entire load, including
more than one half of its industrial load, was being served by
alternative suppliers. For residential customers, the percentage of load
served by alternative suppliers is about 14.5%.
I should hasten to say that these statistics
do not, in my view, measure the "success" or "failure" of electric
restructuring in Pennsylvania. The question from my perspective is
whether consumers as a whole have benefitted from our state's electric
restructuring program. In Pennsylvania, I think consumers have
benefitted. We have seen about $450 million in guaranteed rate
reductions for the year 1999 and we have seen prospective funding for
low-income universal service and energy conservation programs increase
to nearly $100 million per year. Perhaps most significant are the
long-term caps on the rates that can be charged by existing utilities to
customers who continue to buy generation from those utilities. What this
means is that while customers may have the opportunity to see lower
prices as a result of competition, even those customers who stay with
their utility will be protected against rate increases for many years
into the future. These rate caps effectively prevent the shifting of
stranded costs from customers who depart from traditional utility
service onto those customers who remain.
With those protections in place, however, I
still think that much more needs to be done in the way of consumer
information and education in order to maximize the benefit that
consumers can obtain from the Pennsylvania Electric Choice Program.
If I could get one message out to the
residential consumers of Philadelphia at today's hearing, it is that now
is truly the time and the Philadelphia area is truly the place for
people to shop for electricity and to save some real money on their
electric bills. To make this point, I've attached to my testimony a copy
of an article that appeared in the Philadelphia Inquirer of May 9, 1999,
that I wish I could get every residential consumer in Southeast
Pennsylvania to read immediately. That article starts by stating that if
you "think choosing an electric supplier isn't worth the hassle ... you
may want to reconsider if you plan on using an air conditioner this
summer." The article explains that the savings that are available to
PECO residential customers this summer can be substantial. For regular
(Rate R) PECO customers who use 1,500 kilowatt hours per month in the
summer months (June through September), the savings from shopping can
amount to $20 per month. This is because of the fact that PECO's
generation rates go up in the summer for all usage over 500 kilowatt
hours per month. Because of this, the savings a consumer can receive
from shopping go up as well.
The fact is that there are a number of
residential marketers who are charging less than PECO's rate for every
kilowatt hour of the year. These marketers are identified in the chart
attached to the Inquirer article and include locally-based companies and
organizations as well as marketers selling "green" power. As the article
explains, the benefits of shopping by PECO residential customers are
particularly great in the summer, and I hope that consumers will at
least take a look at the options they have available to them right now
to save money.
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I applaud this Committee for holding this
hearing in order to raise public understanding of this issue. I
personally intend to take every opportunity such as this one to inform
consumers of the benefits of electric choice and what they need to do in
order to obtain those benefits. Nevertheless, it is clear that more
needs to be done.
Specifically, I believe that the Pennsylvania
Electric Choice Program -- in which I have actively participated has
done a good job, through its television advertising campaign and other
means, of making the public aware that they now have a choice of
electric generation providers in Pennsylvania. What we have not yet
done, and what we need to focus on as we move forward, is to explain to
people how to shop and how to maximize the benefits they can obtain from
shopping.
For example, most consumers know how to shop
for gasoline. They are generally familiar with the different grades of
gasoline and how to compare prices on an apples to apples, or gallons to
gallons basis. But what is a kilowatthour of electricity? How much does
it cost? Does the price vary depending on the time of year or the amount
of use? These are all questions that most
electric consumers have not had occasion to ask in the past because at
the end of each month they had no choice but to pay their total bill to
their one electricity provider. Now that customers have a choice as to
at least a portion of their electric service, it is essential for
consumers to understand what part of their bill is "in play" and how to
compare prices to get the best deal.
In my opinion, it is therefore critical that
the consumer education campaign focus on giving consumers the
information and the tools they need in order to make informed electric
shopping decisions. I doubt that this can be done through 30-second
television ads. Rather, I think we will need to focus more of our
efforts on readily understandable and widely disseminated written
information, as well as carefully prepared and coordinated grass-roots
training, preferably in small groups.
In order to succeed, however, I think that
consumer education must be supported by two additional factors.
First, consumers need a reason to take the
time and effort to shop for electricity. That reason must be supplied,
at least in part, by the competitive marketers. If the marketers have
savings to offer, they need to let consumers know about it. Once
consumers know that they can save money or that they can have access to
different types of energy generation, they are more likely to seek out
or read the information they've already received about how to shop.
Second, consumers need assurances that they
can shop without fear of any reduction in the quality or reliability of
the service they receive. It was particularly unfortunate in this regard
that PECO Energy sent out letters to all of their customers which, in my
opinion, discouraged customers from shopping for electricity.
The fact is that each electric distribution
company is absolutely obligated to provide the same quality of
distribution service to all customers regardless of where they buy their
power. Moreover, even in a worst case scenario, if a competitive
generation supplier disappeared from the face of the earth, their
customers' lights would not go off. Rather, those customers would
continue to receive uninterrupted service from the electric distribution
company in its role as supplier of last resort.
In essence, the marketers need to market their
product; and the electric distribution companies need to fulfill their
end of the bargain by educating consumers about the benefits of customer
choice, not encouraging customers to "do nothing" and thereby missing
out on the lower prices and alternative generation choices that are
currently available.
As I said earlier, hearings like this one are
an important opportunity to inform the consumers of Pennsylvania about
how they can benefit from electric choice. I want to thank you for the
opportunity to testify at this hearing and I would be happy to work with
any members of this Committee in helping to bring the benefits of
electric restructuring to all consumers.
PA Electric
Shopping Statistics (pdf 11.6KB)
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The Inquirer article and my comments
focus on the great majority of PECO residential customers, who are
served under PECO's regular residential rate, Rate R. Customers who have
electric heat and are served under Rate RH need to look at their own
individual usage patterns to see if they will save money by switching.
That is because PECO's generation rate for Rate RH customers is very
high in the summer months but very low in the winter months in
comparison to the rates offered by competitive suppliers. Also, PECO
residential customers who receive "off- peak" service under Rate OP are
unlikely to find any competitive offerings that can "beat" this special
rate. |
