Pennsylvania Electricity Market

With my dissertation on the horizon, over the past few months I’ve been exploring a variety of possible research settings. One idea I have considered involves studying the Pennsylvania Electricity Market as an in vivo cultural-economic-political experiment (ala Michel Callon and colleagues). At the risk of simplifying a relatively complex situation, three major pieces of state legislation have recently collided: deregulation, renewable portfolio standards, and consumption management. At the same time, the EPA is imposing new emissions reporting requirements on utility companies. All of this has generated a number of controversies, many of them entangled with issues related to sustainability, accounting and temporality — all themes I am hoping to explore in my dissertation.

1. Deregulation started in 1996 with the passage of the Electricity Generation Customer Choice and Competition Act. By January 1, 2001 all Pennsylvanians – theoretically – had the freedom to select their electric generation suppliers (“EGSs”). However, at the same time, the Act permitted the electricity distribution companies (“EDCs”) to recover their “stranded costs,” meaning “investments in infrastructure made before the law was passed that may have become uneconomic and unrecoverable in a competitive environment” (source). In exchange for the right to recover these stranded costs, electricity rates were capped. These caps expired in phases, with the last of the caps set to expire on January 1, 2011. Thus, despite some 14 years of “competition,” there is little to no retail competition in most regions of the state. However, PPL’s rate caps expired Jan 1, 2010, with bills expected to rise 30%. Early evidence suggests PPL customers are switching en masse, with 16.9% of residential, 23.3% of commercial and 68.6% of industrial customers having switched by January 16 (source). As one result, there is an unfolding debate over whether or not deregulation works.

2. Although deregulation is an interesting story on its own, the situation is complicated by the Alternative Energy Portfolio Standards Act (“AEPS” or Act 213 of 2004). AEPS requires that an annually increasing percentage of electricity sold to retail customers in Pennsylvania by EDCs and EGSs be derived from alternative energy resources. The level of alternative energy required increases according to a fifteen year schedule, including minimum thresholds that must be met for the use of Tier I (8% by 2020), Tier II (10% by 2020), and solar photovolatic resources. Of note, EDCs were exempted from compliance with AEPS for the duration of their “cost recovery period” as specified under the 1996 Customer Choice Act. In other words, not only are utilities such as PPL faced with new competitors, but at the very same time they are also subject to renewable portfolio standards. As a result utilities must supply a minimum percentage of their electricity from specified sources, even while face price pressures and uncertain overall demand. And while alternative suppliers (EGSs) face the same constraints, the result is an entirely new set of market dynamics.

3. Act 129 of 2008 imposed new requirements on EDCs , with the overall goal of reducing energy consumption and demandThe Public Utility Commission (PUC) will implement the Act in phases. The first phase will deal with the PUC’s obligation to adopt an energy efficiency and conservation program by Jan. 15, 2009. Subsequent phases of the Commission’s Act 129 implementation process will address EDC and default service provider responsibilities; conservation service providers; smart meter technology; time-of-use rates; real-time pricing plans; default service procurement; market misconduct; and cost recovery. The Act also expanded the types of alternative energy sources that qualify as Tier I alternative energy sources under the AEPS Act to include specific categories of low impact hydropower and biomass energy.

Against this backdrop, other events are unfolding. For example, another piece of legislation — Clean Energy and Green Jobs legislation (HB 80 and SB 92) — seeks to extend the AEPS to 2024, while increasing the Tier I requirement from 8% to 15%, including 3% from solar power. Those in favor of such legislation recently published a study by Black & Veatch. The study concludes that the pending legislation “will lead to nearly 130,000 new jobs and save between $1.9 and $4.6 billion for Pennsylvania consumers.”

Update March 26, 2010: It looks as if some others at Penn State think the Pennsylvania Electricity Market is an interesting research setting too.