When Customer Choice Isn’t
Pennsylvania’s electricity deregulation law that took effect in January 1999 meant that everyone in the state could shop for the best deal and buy electricity from the electricity generator of their choice.
But it hasn’t worked out that way for customers of electric cooperatives in Pennsylvania.
Electric co-ops in Kentucky have warned that restructuring of the electric utility industry could shortchange people who don’t live in the city. That’s among the reasons they’ve urged a go-slow approach in the deregulation debate.
The Pennsylvania experience seems to prove that deregulation would cut electric co-op members out of the promises of lower rates. So I decided to travel to that state to find out more about how co-op members are faring under a restructured industry.
I learned that when Pennsylvania ended electric monopolies, more than 500,000 customers changed their electricity supplier. By May of this year, more than 90 companies had been approved as electric generation suppliers, or EGSs, which means they are authorized to compete for customers in the state.
But no one has written or phoned any of the 600,000 Pennsylvanians who get electricity from one of the 14 electric cooperatives in the state. In fact, if a co-op member took the initiative to call one of the EGSs, they’d be told that the company doesn’t serve that section of the state.
Why don’t co-op members have a choice? People with the Pennsylvania co-ops and the state Public Utility Commission listed several reasons:
Electric co-ops already have low rates: “Co-ops have very competitive generation prices,” says Richard Osborne, vice president of power supply and engineering with Allegheny Electric Cooperative, the Harrisburg-based power producer for Pennsylvania’s electric co-ops. While the average rate in Pennsylvania is higher than the national average, co-op members have been paying less than the national average.
Electric co-op service areas aren’t as profitable: The reason electric co-ops were set up in the first place 60 years ago is that city utilities didn’t think they could make a profit off the relatively few people living out in the country. Pennsylvania’s deregulation experience seems to show that’s still true. Osborne says, “Is a company going to spend a huge amount of money to get 50 consumers? No.”
Deregulation is still in its early stages: There’s general agreement that while the first phase of deregulation involves competition for the biggest customers, like large industrial customers, competition will eventually come to co-op service areas. Public Utility Commissioner Nora Mead Brownell calls electric co-op territory “a difficult and expensive market to serve. It’s tough to come in and beat their price. Long term, there may be more efficient ways to serve those areas.”
Electric co-ops do a good job: “We found out we were just as good as we thought we were,” says Osborne. “Wouldn’t you expect your rural electric cooperative to be able to deliver electricity cheaper than anybody else? We did it 60 years ago and we are still delivering the most competitive generation.”
Or, as Pennsylvania Rural Electric Association Communications Director Perry Stambaugh says, “We found out that co-ops and competition are not exclusive.”
Stambaugh says that the success of the co-ops in Pennsylvania deregulation has proven the value of co-op principles like democratic control, not-for-profit service, and concern for the community. Stambaugh says, “Co-op principles translate well from a monopoly to a competitive environment.”
Focus on those principles produced another co-op success story out of the deregulation experience. Looking for a cooperative approach to being part of their newly competitive state, Pennsylvania co-ops formed their own electric generation supplier, American Cooperative Services, which markets co-op electricity to non-co-op customers.
American has already signed up more than 7,000 customers, including more than 5,000 businesses.
Ben Ricci, director of retail marketing for American Cooperative Services, says, “American has given co-ops a huge opportunity to extend their reach, and has enlightened a number of industries with regard to co-ops and cooperative principles.”
