If you ask vendors and electricity retailers which states get them most excited about future business opportunities, Texas and California often top the list. But there is another state that has energy management vendors, demand response providers and electricity retailers salivating.
Starting in 1998, Pennsylvania began to unbundle its electricity services, detaching generation, transmission and delivery. During the unbundling, rate caps were put in place. It wasn’t until the end of 2010 that the last of the regulated utilities saw their rate caps expire. In the past year, 1.4 million Pennsylvania homes and businesses have shopped around for electricity generation providers.
“Shopping is increasing through 2011 and we believe it will continue to grow,” said Nick Fernandez, director of POLR at First Energy, a supplier that’s active in Pennsylvania.
The figures are strong in the first year, with about 22 percent of residential customers (as a percentage of total load) and 85 percent of industrial customers switching electric generation supplier.
But there are still bumps in the road. Although PPL has seen nearly three-quarters of its customers shop around, many individuals are still confused or turned off by the process. Customers are usually switched over on meter read dates, mostly due to legacy billing systems, Dennis Urban, senior director of rates and regulatory affairs at PPL Electric Utilities, asked during a RestructuringToday webinar, “Is there a future for default service?”
There is also a regulatory requirement in Pennsylvania that the distribution company must provide a notice that the customer has been enrolled with a new supplier; they then have 10 days to respond. It can take up to 45 days to switch.
In addition to this lengthy delay, there are even more basic problems. Customers are sometimes hesitant to leave the utility they have always known. Although the Pennsylvania Public Utility Commission has set up a website, PAPowerSwitch.com, some customers just are not familiar with how to shop around, said Urban. Lastly, the difference of three or four dollars a month just isn’t enough to motivate some people to explore their options.
To combat some of these issues, the state’s PUC launched an investigation in April of this year to assess the status of the retail market and will recommend changes to the system in coming months.
But shopping is just one measure of a successful deregulated market. Texas is by far the most successful deregulated market in the U.S. in terms of switching rates. But in many ways, it remains in a nascent stage when it comes to the options presented to customers, especially individual homeowners.
Texas boasts many options, including differences in pricing, contract lengths and generation options. However, additional offerings, including home energy management, automated demand response, and sophisticated time-of-use pricing plans, are just starting to come to market despite the fact that the state has been deregulated for a decade.
Electric suppliers like First Energy say that cost remains the primary focus in Pennsylvania. “We think we should give customers the products that they want,” said Fernandez, “which tend to be products with the lowest possible price.”
However, price may be just the starting point. Retailers in Texas entice customers with more than just competitive pricing, including offers from their favorite sports team or frequent flier miles.
In Pennsylvania, the market is too young to provide robust, differentiated offerings, let alone extensive choices for residential demand response and energy efficiency. But with Act 129, which mandates a 4.5 percent reduction in peak load in the state, there is an opportunity to get customers involved in more than just shopping for low rates.
An evolving regulatory structure will also help ensure that customers become -- and remain -- engaged. Many states allow for customers to shop around, but because of default costs, there isn’t a lot of incentive to switch providers or for new companies to enter the market. In Pennsylvania, most residents have more than 30 companies to pick from so far, which is far more than some other states that have been “deregulated” for years.
Pennsylvania could also be the new Texas after taking a page out of the Lone Star’s playbook, offering a comprehensive, dedicated website that compares rates from different suppliers and explains why it’s important to evaluate options. As a bonus, the new website helps customers understand their utility bill.
The process of transitioning to a truly deregulated market is a marathon, not a sprint. Stan Wise, Chairman of the Georgia Public Service Commission, has been fine-tuning the state’s deregulated gas market for more than a decade.
His advice for any other state that is looking for comprehensive deregulation? Wise emphasizes that the process requires education for utilities, legislators and regulators. Oh, and customers. “People like choice,” said Wise, “but they don’t like change.”