Do your eyes glaze over at the thought of analyzing electric rates? If so, tell your legislator to defeat a bill that would force us to “shop” for electricity.
Historically, the local utility owned the power plants in which the electricity was generated and the lines that delivered that electricity to us. Because the utility was a monopoly, the state Public Utility Commission set the rate the utility could charge.
As a result of a 1996 state law, the electricity is now generated by a host of competing power plants and offered to utilities and individual customers by companies known as “suppliers.” We customers have the right to “shop” – in other words, to buy our electricity from a supplier of our choice.
However, we also have the right not to shop; in that case, the utility buys the electricity for us through a PUC-approved process. Regardless of whether we buy directly from a supplier or the utility buys for us, the local utility delivers the electricity to us.
Most of us received solicitations through the mail or over the telephone from suppliers that want to sell us electricity. Many customers are confused by these offers and simply ignore them. Consequently, 61 percent of us continue to rely on our local utility to buy our electricity. Unfortunately, a Senate bill will eliminate that option. In short, we will all be forced to shop.
If we do not shop, the PUC will assign us to a supplier on a random basis. We will remain with that supplier unless and until we shop for a different supplier. The rate we pay in the first year will be determined through a competitive process overseen by the PUC. However, the rates we are charged in subsequent years will be at the discretion of our supplier.
The rationale for this legislation is that those of us who do not shop are passing up the chance to save money.
There are numerous flaws in that argument.
-- The savings are usually modest. More than 75 percent of the suppliers listed on the PUC’s website for the Penelec territory are actually charging more than we currently pay to have Penelec shop for us. Furthermore, even if we were to contract with a cheaper supplier, we would be likely to save less than $100 per year.
-- Even these modest savings are not guaranteed. A supplier that offers the lowest rate in the first year may not offer an attractive rate in subsequent years. That means that our future savings depend on our willingness to shop periodically. If we are not willing or able to do that, we could end up paying more than if we had simply let the utility buy for us.
Unfortunately, most customers have little knowledge of electricity markets and are not interested in studying the fine print in contracts. Therefore, it is not surprising that hundreds of customers complained to the PUC when the rates charged by their suppliers unexpectedly doubled or tripled earlier this year. Both the PUC and the attorney general have initiated investigations, but it is unlikely that there will be refunds as long as the suppliers were following the contracts to which their customers agreed.
-- Unlike the local utility, suppliers are not legally obligated to stay in business. For example, the leading supplier advocate of the 1996 law was Enron. Within 10 years, Enron was bankrupt and some of its top officials were in prison.
-- The Senate bill requires a supplier to pay the state $100 for each of us assigned to that supplier by the PUC. This charge will provide about $300 million to help balance the state budget. However, if suppliers were not required to make payments to the state, competition would likely force them to pass at least part of the $100 along to us by lowering rates. Therefore, the levy will actually amount to a tax on electric customers.
The Senate legislation rests on the philosophy that government should force us to change our behavior whenever government decides that the change will be good for us. Whatever one thinks of this philosophy, it is far from certain that government intrusion in this case will actually benefit us in the long run.
Many of us are willing to count on the PUC to keep our rates reasonable. We do not want to spend the time and effort needed to save less than $100 per year. We just want to turn on the lights.
William Lloyd of Somerset represented Somerset County in the state House of Representatives (1981-1998) and served as the state’s Small Business Advocate (November 2003-October 2011). He writes a monthly column for The Tribune-Democrat.