PHILADELPHIA -- First came the slick letters offering to sell her electricity for less. TV ads, billboards and dinner-hour phone calls followed, pitching a bewildering variety of power plans from companies she'd never heard of.
Baffled, Shirley Lynch almost passed up her chance to become a pioneer in the unsettling new era of electricity deregulation.
"I stalled around because I didn't understand it," the 65-year-old retired computer operator recalls. "I'm not good in math."
Since Jan. 1, more than 3 million residential and business customers in this state have been free to shop for cheaper or less polluting electricity. Pennsylvania is the fourth state to introduce competition into an industry that has been a government-regulated monopoly for decades. Others are following suit, mainly in the Northeast and mid-Atlantic regions.
As Maryland's General Assembly ponders a similar move, consumer experiences here offer some insight into the promise -- and pitfalls -- of moving to electricity competition.
Homeowners and renters in the Philadelphia area, for example, can save as much as 18 percent on their power bills by shopping around, but to do that they must wade through a marketing morass akin to the long-distance phone hustles that ensued when that industry was deregulated nationally.
While 475,000 of Pennsylvania's 5.4 million electric customers have switched suppliers, the vast majority are either so confused or put off that they have stayed put.
"Competition only works if you're alert and capable and informed," says Tim Carney, marketing director for the Energy Cooperative Association of Pennsylvania, a small nonprofit buying service here that has attracted 7,500 members by peddling low-priced and "green" energy plans. "It's not the best arena for those in too much of a hurry to do their homework."
Where 11 investor-owned utilities once had exclusive rights to sell power in different parts of Pennsylvania, 85 companies are now licensed to do business in the state. Most are in the lucrative commercial and industrial market, but 18 vie with the utilities for the residential business.
'Giving people a choice'
"I think we did it right," says John M. Quain, chairman of Pennsylvania's Public Utility Commission. "What this legislation was all about was giving people a choice."
The degree of choice varies across the state. In western Pennsylvania, where Allegheny Power has maintained some of the lowest rates in the country, few companies compete for the household market because they can't afford to sell as cheaply.
In the Philadelphia area, where PECO Energy Co.'s regulated residential rates were more than double those paid by Allegheny customers, homeowners and renters now have a baker's dozen of energy suppliers and as many as 20 plans from which to choose.
Environmentally minded shoppers have their pick of "green" plans, in which 50 percent to 100 percent of their electricity supposedly is generated by renewable energy sources, such as wind, solar or geothermal generators. Vermont-based Green Mountain Energy Resources promotes its products like coffee blends, with names like "Nature's Choice."
From cheapest to most expensive, the rates of the suppliers vary by about 2 cents per kilowatt-hour, the standard measure of electricity use. A penny or two may not seem like much, but the average household consuming 500 kilowatt-hours per month can save $5 or $6 a month by switching from PECO to a cheaper supplier.
That freedom to shop for savings comes at a price. Consumers like Lynch wishing to sever ties with their old, unloved utilities have had to sort through a confusion of competing claims, as well as endure irritating delays and glitches in getting their accounts switched.
Lynch says she had a tough time figuring out amid the "kilowatts and all that biz" which company's offer was the best.
She didn't need a calculator, though, to know she was paying too much for lights and appliances at her four-bedroom Cape Cod in the suburbs. For years, PECO customers in southeastern Pennsylvania have been saddled with some of the highest electric rates in the country.
"I just had to try somebody else," Lynch says. She pays $130 a month on the budget plan for a combined electric and natural gas bill, and last year found herself owing a hefty balance at the end of the year.
So Lynch took the plunge, signing on with a small energy cooperative that promised her lower rates. But many more chose not to change, or simply did nothing.
"I just decided I didn't want to deal with it," says Ruth Jones, 77, as she and three friends play dominoes at the Philadelphia Senior Center. She figures she wouldn't save much since her three-room apartment only costs her about $35 a month for power.
The elderly aren't the only ones befuddled by the brave new world of electric choice.
Tiffaney Moore, 23, health and fitness coordinator at the senior center, says with a sheepish smile that she has yet to switch electricity suppliers, even though she chafes at paying PECO's rates.
"I really don't like them," she says of PECO, "but I haven't changed because it's convenient." Last month's bill for her duplex apartment was $80, but it soars in summer when she runs the air conditioner.
The state is spending $20 million this year on advertising to let Pennsylvanians know they have a choice of electricity suppliers. A state survey found that more than 20 percent of the state's 5.4 million electricity customers had shopped, and 9 percent said they had picked a new supplier -- a greater proportion than in other states that have deregulated.
One reason that more people haven't switched might be that regulators negotiated $458 million in temporary rate cuts with the utilities for customers who stay put. Those discounts range from 3 percent to 8 percent in the first year, and basic rates have been capped -- meaning they can't go up -- for up to nine years.
But some consumer advocates say many more people would abandon their old utilities if they knew how much more they could save by picking a different supplier.
Although the state tells consumers via the Internet and a toll-free phone line how to contact electric suppliers, it does not give out rates. Customers must sort through power contracts with varying fees and terms that make them tough to compare.
Quain, the utility commission chairman, contends that it is not government's role to advise consumers on which company is cheapest. "The savings are different from one [region] to another," he says. "It also depends on how adroit the consumer is in making his choice."
'They see dollar signs'
PECO has tried to corner price-conscious shoppers by offering the lowest rate in the area through a subsidiary, Exelon Energy Corp. And adding to consumers' confusion, the utility spent nearly $900,000 last year on folksy television commercials that suggest there's no need to shop around -- and implying that its competitors can't be trusted.
"When outside electric companies look at Havertown, they see dollar signs," one PECO ad said. "At PECO Energy, we see a community where honest and hard work lead to success." The utility commission called the spots misleading last week and ordered PECO to stop using them.
PECO isn't the only company being accused of deception. The Pennsylvania Environmental Network has called for a boycott of Green Mountain Energy Resources, questioning its claims of promoting clean, renewable electricity. Activist Mike Ewall said the company is "repackaging the same energy that's already out there and charging you more for it."
Meanwhile, some who overcame their doubts and confusion to switch energy suppliers are still waiting to see the savings because of billing foul-ups. The old utilities are still handling the billing for most customers who switch, adding the unregulated charges for power from new suppliers to the still-controlled fees for carrying the power over their wires.
But the utilities did not get all the charges on last month's mailing. Green Mountain, for one, elected not to charge its customers until it could sort out the situation.
"We have a lot of chaos," says Chris van de Velde, manager of the energy co-op.
A successful switch?
Even with such problems, many credit Pennsylvania with doing a better job of giving its citizens a chance to shop and save on their power bills than California and Massachusetts, which were among the first to deregulate.
The main reason Pennsylvanians have more choice, experts say, is that the state whittled down utilities' demands to be repaid $18 billion for nuclear power plants and other costly generators they built while their business was regulated. Such so-called stranded costs are typically paid off via a fee tacked onto customers' bills, even if they switch to another company. That fee inflates the cost of power under deregulation.
Consumer advocates are more skeptical about Pennsylvania's success, noting that electricity was relatively expensive here to begin with, and that much of the savings enjoyed by consumers comes from the temporary rate reductions mandated by regulators.
Even so, John Hanger, a former utility commissioner who helped steer the state into electric competition, contends that Pennsylvania consumers are better off.
"A genuinely competitive market will protect the consumer better than any regulatory body will," he says. "That doesn't mean prices will never go up, just that they will go up less than they would have otherwise."
Effect of electricity deregulation
Electric generation rates for residents living in the PECO service area of Southeastern Pennsylvania, in cents per kilowatt-hour.
COMPANY RATE
PECO Energy 5.65
Allegheny Energy Solutions 4.95
Columbia Energy 4.79
Conectiv Energy 4.89-6.19 (50% and 100%
renewable energy packages)
DTE Edison America 3.93 plus monthly fee
($12/month or $120/year)
Touchstone AEC 4.85
Edison Source 4.85
Energy Cooperative Assoc. 4.79-5.99 (50% & 100%
renewable of Pennsylvania
packages)
Exelon Energy 4.69 (15-month contract 4.89
(standard 12-month contract)
Green Mountain Energy 5.3-6.8 (non-nuclear/coal,
50% & 100% renewable
packages)
Penn Power Energy 4.89
The Mack Services Group 5.05
Total Gas & Electricity 5.09
SOURCE: Energy Cooperative Association of Pennsylvania and individual companies
Pub Date: 3/15/99