FOR ALL THE ATTENTION FOCUSED ON NEW LAWS AND regulations designed to create competition in electric power markets, too few people seem to grasp how a market can work. That will change, however, now that Pennsylvania is the first large state to embrace market pricing.
Pennsylvania's lawmakers and three of its five utility commissioners have developed a market to deliver the benefits of competition to consumers.
Rather than "guarantee" politically attractive rate reductions, the Pennsylvania Public Utility Commission, led by Commissioner John Hanger, has challenged market force to deliver more savings than contemplated in any supposed guarantee. The PUC's decision in the PECO Energy restructuring case
provides a guidepost for utility commissions around the nation for dealing with electric restructuring (see sidebar, "A History Lesson").
Also, as we will discuss, PECO Energy's proposed competitive transition charge, as spelled out in a partial settlement, did not reconcile efficiently with the company's estimate of its stranded costs. By discounting PECO's proposed CTC to derive expected present value, we found a difference of nearly $2 billion with the company's $5.46-billion claim for stranded costs. That difference reflects the concern with the utility's assumed zero-percent demand growth rate and the possibility that securitization might not proceed exactly as planned. These necessary assumptions and inherent uncertainties only serve to illustrate the difficulty in founding a restructuring plan upon government-backed guarantees of consumer pocketbook savings.
The key element of the PUC decision was the replacement of anticompetitive caps on retail electricity prices with a credit. The credit allows (em if not motivates (em consumers to shop for the lowest price.