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For a while, Pennsylvania seemed to be a bookend to California–doing correctly what the Golden State did not. Though the state's legislature passed a restructuring law only a few months after California's (in December 1996) the plan differed in several respects from its west-coast counterpart. The Pennsylvania law, for example, did not require utilities to divest their generating assets. Consequently, utilities could always fall back on power they produced rather than be totally dependent on the wholesale market, where prices could skyrocket for short (or long) periods of time. Moreover, the law also allowed utilities to arrange long-term contracts for wholesale power. They could therefore lock in prices for years ahead, which served as a hedge against high prices on the spot market. (By balancing long-term contracts and spot market purchases, buyers had the opportunity to obtain good prices at reduced risk.) Beyond these provisions in the law, Pennsylvania also was blessed with a few conditions missing in California. Unlike out west, Pennsylvania started competition in 1999 with a surplus of generation supply that allowed it to be a net exporter of power. Moreover, Pennsylvania enjoyed a long-tested and reliable transmission infrastructure (the “PJM interconnection system” which ties Pennsylvania's transmission grid to those of New Jersey, Maryland, and Delaware) that allowed for good flows of power into and out of the state. Partly because of these differences, the Keystone State's governor could crow about the success of competition in his state at the same time that the California crisis brought national attention to restructuring. In an address in March 2001, Governor Tom Ridge pointed out that more than one million Pennsylvanians had shopped for power, with savings to residents and businesses accumulating to $3 billion. Moreover, he noted that while electricity rates had been 15% higher than the national average before restructuring, rates had by 2001 dropped to below average. And in great contrast to the California experience, noted Ridge, the power kept flowing reliably and without interruption.[1] This rosy picture did not last. Within a year of the governor's speech, many Pennsylvanians began to question the value of restructuring. Partly because the state's utilities controlled so much of the generation supply (82%), they could control prices too easily, observers noted. And in January 2001, when the utilities raised the price they charged for the reserve (or backup) power that the PJM system required all member companies to own or buy, wholesale prices in general escalated. Consequently, retail prices increased to such a point that many customers could not find better deals for power than what was offered by utilities. About 44% of those customers who had chosen alternative suppliers reverted to their previous utility suppliers, and 26 of the 96 new competitive electricity suppliers dropped out of the market.[2] Despite these problems, some observers point out that Pennsylvania's rates are still considerably lower than when the state passed its restructuring law in 1996. And many people point to the fact that full-fledged competition will not occur until 2010, when the transition period ends (and utilities no longer receive a transition charge to help them pay off expenses incurred in the days of regulation). By that time, they contend, more than a decade of experience should make for a healthy, fair, and vibrant free-market for electricity.[3] To some observers, Virginia did not appear to be an ideal candidate for electricity competition. Unlike states that experienced high electricity rates, Virginia had relatively low rates. After all, many states that began restructuring hoped that bringing market forces to bear on electricity production would lower prices that already surged above the national average. In 2001, by contrast, Virginia's average electricity rate for all categories of users was 6.0 cents per kWh, about 15% lower than the national average. [4] Nevertheless, spurred largely by utilities in the state that sought to establish unregulated subsidiaries and to sell power outside state borders, the legislature passed a restructuring law in 1999. The law called for a two-year phase-in period during which competitive electricity markets would evolve, starting in January 2002. (Pilot programs, designed to help educate competitors and customers, started in the fall of 2000.) To protect residential customers, the law put a cap on the prices that could be charged until 2007, but the cap is not absolute. In other words the cap can be raised if certain costs of producing electricity, such as the cost of raw natural resources used, increases. At the same time, the legislation called for an educational campaign to help customers understand how to shop for competitively-offered electricity and what to beware of. Despite these educational efforts, Virginians have had little opportunity to take advantage of competitive markets. Because the so-called “price to compare” was set relatively low (artificially low, claim some consumer organizations) the few competitors that came into the state could not offer electricity at rates that would attract customers. One competitor in the eastern part of the state sent its 19,000 customers back to their old, regulated utility company.[5] Another firm, Pepco Energy Services, offered “green electricity” (power produced from environmentally preferable technologies such as water and wind turbines) but it too had to pull out of the state. Even though its customers were willing to pay premium prices, the company could not hold on to enough of them in light of much cheaper power from their former utility company.[6] In the southwestern part of the state, served by low-cost provider American Electric Power Company, no competitors have offered rates to potential customers.[7] Spurred by the absence of a marketplace for power, one disgruntled electricity shopper noted that competition meant either American Electric Power or Duracell (the battery maker).[8] Virginia government officials hope that during the transition period, which ends in 2004, more competitors will enter the state, making for a vibrant electricity market-place. Not everyone is so optimistic, especially advocates for consumer groups. Some feel that low-cost power providers will prefer to sell electricity to customers in neighboring states, where power can fetch higher prices. Rural customers may be hurt the most, they say, because competition will first reach easier-to-serve urban areas.[9] Overall, some people feel, the prospects for lower prices seem slim. Even Delegate Chip Woodrum, an active (but often skeptical) participant in the restructuring process in Virginia, noted in November 2001 that “prices have no where to go but up.”[10]
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