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Why is Pennsylvania's power industry "deregulated?"


Abby flat-coat via flickr

Abby flat-coat via flickr

Pennsylvania’s electric power industry has been deregulated since 1997 when the “Electricity Generation Choice and Competition Act” went into effect.

What does that mean?

Before deregulation, electric utilities had become natural monopolies, dominating the market in the geographic regions where they operated. They owned the plants that generated the power, as well as the polls and wires that distributed that power to customers. The industry was regulated to curb utilities from raising rates to build unnecessary new infrastructure.

The 1997 state law broke up those monopolies and split the market into two parts: electric generation suppliers (EGSs) and electric distribution companies (EGCs).

Under deregulation, customers can stick with their “default” utility or choose to shop for cheaper rates from other generation suppliers whose rates aren’t regulated by the Pennsylvania Public Utility Commission (PUC). If you switch suppliers, your bill will still come from the utility that maintains the wires distributing the power to your home or business, but you’ll see a separate line with the charge from your alternate suppliers.

The law also capped electric rates for consumers at 1996 levels to help the transition to competitive markets and allow utilities to recover “stranded costs,” such as investments in new infrastructure that were made before deregulation went into effect. Those rate caps all expired by the end of 2010. Since then, the PUC has encouraged consumers to shop for lower rates from alternate suppliers.

As of August 2014, about 45% percent of residential and 85% percent of industrial customers had switched to alternate suppliers, according to the PUC.

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