Pennsylvania Office of Consumer Advocate

 

 

Pennsylvania Office of Consumer Advocate
555 Walnut Street
5th Floor Forum Place
Harrisburg, PA 17101-1923

Phone: 717-783-5048 or toll free 800-684-6560
Fax: 717-783-7152

Email: consumer@paoca.org

TESTIMONY OF IRWIN A. POPOWSKY, CONSUMER ADVOCATE OF PENNSYLVANIA

REGARDING RETAIL ELECTRICITY COMPETITION IN PHILADELPHIA

 

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. 1

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.

 

 

 

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