DEREGULATION UPDATE

PENNSYLVANIA II

Overview

In November 1997 Pennsylvaniafs investor-owned utilities began pilot programs. More than 230,000 residential, commercial and industrial customers (five percent from each customer class) had the opportunity to choose from one of the 53 suppliers registered to provide service to program participants.

Based on the results of the pilot program, the Pennsylvania Public Utility Commission (PPUC) created The Electric Choice Program. Beginning January 1999, each utility will allow two-thirds of its customers to choose their electricity provider. Customers who are currently participating in the pilot program will automatically be enrolled in The Electric Choice Program. Enrollment in the first phase of competition began July 1. Enrollment forms were sent by the utility or Electric Distribution Company to all of Pennsylvaniafs 5.2 million electricity consumers. Approximately 1.75 million have already signed up to participate. Customers are supposed to be notified by mid-August if they have been selected to participate in the first phase of retail choice. All remaining customers will be eligible to participate in 2000.

Shopping Power in Pennsylvania

The PPUC has issued a system average or "shopping credit" to each of the utilities. The shopping credit represents a customer classf average price of energy generation for that utility. Customers can use the credit to compare against the amount a supplier charges for energy generation. If a customer finds a supplier that charges less than the shopping credit, there is an opportunity to save on that portion of their bill. For example, if a total bill is 11 cents per kilowatt hour (kWh), and the customer finds an electricity service provider who will sell generation services at 3.5 cents per kWh, compared to a 4.0-cent shopping credit, the customer would save 0.5 cents and reduce the overall bill to 10.5 cents per kWh. The credit amount will vary depending upon customer class.

Potential for Delay

Pennsylvania regulators have, on average, reduced stranded cost recovery for Pennsylvaniafs eight utilities by 35 percent. While it has been determined that utilities will recoup stranded costs over a 7 to 12 year period through a transition charge, the amount to be recovered has not been agreed upon in most cases.

PECO, however, has reached an agreement with the PPUC, whereby all of its customers will receive at least an eight percent rate cut and it will be allowed to recover 100 percent in stranded costs.

Several utilities have resubmitted plans to the PPUC and challenged its rulings in federal and state courts. GPU Energy said one legal action, an appeal filed with Pennsylvaniafs Commonwealth Court, challenges the commissionfs decisions, claiming more than 40 errors of law.

Utilities have also submitted plans designed to put electric choice "back on track" and avoid decline in the quality of electric service.

Consumer Education

The state has launched a $17.5 million educational campaign to prepare for customer choice in Pennsylvania. The campaign utilizes direct mail, as well as television, outdoor, radio and print advertising to educate Pennsylvania electricity consumers on the coming competitive electric environment. The state has also hosted supplier fairs. To educate rural customers, the PPUC co-sponsored interactive videoconferences at eight sites. A website has also been created. The address is http://www.electrichoice.com/.

Summing It Up

Although the PPUC set up several working committees, it did not implement a collaborative process prior to issuing an order.   With a tight implementation schedule and limited participation of the competitive market players, there have been numerous oversights and many commission decisions have required last minute letters of clarification.  These last minute decisions have resulted in additional market uncertainty.

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