Guest Column by Matthew Woessner
I must confess that, as a conservative, I have an almost religious attachment to the power of free markets.
So, when Pennsylvania moved to deregulate the power industry, permitting consumers to select electricity providers on the basis of who had the best rate, I held out hope that, through the magic of the free market, consumers would experience improvements in services and lower prices.
However, free markets benefit consumers only under a set of conditions, the most important of which is transparency. While the consumer is perfectly capable of looking out for his or her own best interest, regulatory agencies can play an important role in forcing companies to disclose the true cost of their products and services.
My renewed appreciation for the virtues of regulatory oversight came recently when I opened my electric bill, only to discover that my discount carrier, PalmCo Energy, had charged me more than twice the going rate for the month of June. Whereas other energy providers in our area were charging 8.5 cents per kwh for generation (not including transmission and other costs), PalmCo billed me for 16.3 cents per kwh.
So how did this happen? How does a power company marketing itself as a cost-effective alternative to Met-Ed, double its advertised prices practically overnight?
At the heart of the problem are serious defects in the way deregulation was implemented in Pennsylvania, providing some companies with the ability to conceal the true costs of their services. While I have to presume that PalmCo Energy has not violated state and federal law in setting its monthly utility rates, the company has nonetheless taken advantage of lax disclosure requirements as it advertises its services.
To protect the integrity of a deregulated electricity market, the Pennsylvania Utilities Commission should institute simple reforms that empower consumers to make more informed decisions about the true cost of selecting an energy provider.
First, the Pennsylvania Utilities Commission should improve its website, forcing variable-rate energy providers to more fully disclose the terms of their service. For example, during the same month PalmCo tried to charge me 16.3 cents per kwh for power, the PUC lists its variable-rate price as 7.4 cents. The PUC’s website is clear that the rate is not an introductory price. Yet in the fine print of the pricing agreement, PalmCo reserves the right to raise electricity prices practically at will.
If companies such as PalmCo Energy are, in fact, offering customers a teaser rate to attract new business, like the credit card companies, they should be compelled to clearly identify the length of this special rate as well as the present energy costs to existing customers.
Second, the Pennsylvania Utilities Commission’s website should provide additional information about the potential swings in utility prices under a variable-rate contract. Any customer who has considered a variable-rate mortgage is familiar with how rates vary depending on market conditions.
Accordingly, while variable rate customers (whether for energy or interest rates) might pay somewhat lower prices in one month, it is equally likely that they’ll pay somewhat higher prices in another.
However, unlike the gradual and somewhat predictable changes in home mortgage rates, swings in variable-rate utility prices can be sudden and dramatic. Even now, as PalmCo is charging double the rates of its fixed-rate competitors, the PUC permits it to list its price as 7.4 cents per kwh, with no mention of the remarkable price fluctuations to which its customers might be exposed.
To give customers a chance to make a more informed decision, PalmCo should be required to clearly disclose the highest and lowest price it has charged consumers in the last 12 months. Consumers considering giving their business to PalmCo should be made aware that while their electricity rates will start out at the advertised 7.4 cents, many of its customers were recently paying as much as 16 cents per kwh for electricity.
Third, in an effort to bring transparency to the electrical utility market, the PUC should require variable rate providers to post up-to-date information on the monthly cost of their electric services.
As it stands now, variable-rate customers are playing a kind of Russian roulette, as they consume electrical power with little or no idea of how the energy will be billed at the end of the month.
While we hope that consumers are ever-vigilant to reduce their electric bill, conservation takes on new urgency when consumers are aware that their variable-rate bill spiked as a result of changes in the market. Additionally, if the variable electrical rates rise too sharply, consumers can make arrangements to switch to an alternative supplier before they’re locked into the service for yet another billing cycle.
Whatever the virtues of deregulation, the PUC ought to compel variable-rate energy providers to step into the sunlight, provide consumers with clear rules on the pricing of electricity, and keep them informed of dramatic changes in their electricity rates.
Only when electric consumers are provided with clear and consistent information can deregulation control costs and improve services for citizens of the commonwealth.
Matthew Woessner is associate professor of political science and public policy at Penn State Harrisburg.
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