Deregulation of Pennsylvania Electricity Markets

Electricity rates in Pennsylvania could soon be on the rise. Businesses, federal agencies, non-profit organizations, and residents could soon experience an increase in their electric bills. The increase in price stems from the deregulation of the Pennsylvania electricity markets.

In the 1990s Pennsylvania lawmakers moved from a regionally monopolized electricity market to a competitive electricity market. Pennsylvania consumers were paying about 15% more for electricity than the national average, so the decision to embrace a competitive electricity market was easy to make. Legislators restructured electricity generation to promote more competition. However to achieve the transition from a regional electricity market to competitive electricity market, legislators had to institute rate caps to protect from unpredictable price fluctuations and implement a “stranded costs” provision for electricity providers to pay for former infrastructure investments. “In return for the loss of their monopoly status, utilities were allowed to collect a surcharge above the price of electricity, otherwise known as stranded costs. Rate caps already have expired for six utilities statewide, and the transition period will end for all state utilities in 2011—ending the rate caps and the collection of stranded costs.” 4/9/2009,, “Electricity Deregulation is a Win for Pennsylvania” –Elizabeth Bryan. As rate caps and the collection of stranded costs expire the Pennsylvania electricity market could experience unwanted changes during difficult economic times.

Electricity deregulation was established to promote competition and market efficiency. Unfortunately this is not always been the case. In 2001, California experienced the negative repercussions of a deregulated electricity market. California residents were forced to endure volatile electricity prices, while rolling blackouts plagued the state, and electricity could not be supplied during peak hours. For Californians, electricity deregulation equaled disaster.

The expiration of electricity rate caps could bring unwanted price increases to Pennsylvania. Consumers could experience percentage increases in their electric bills as regional rate caps expire. The following map exhibits regional Pennsylvania electricity territories and the electric providers that serve those areas. So far the consequences have been minor with rate cap expirations only affecting 14.1% of the Commonwealth. However from January 2010 – January 2011, rate caps for five major electricity service territories expire and the Pennsylvania electricity market will be completely deregulated.


Electricity rate caps for the Duquesne Light Company, PPL Electric Utilities, Inc., West Penn Power Company, Pennsylvania Electric Company, Metropolitan Edison Company, and PECO Energy Company expire between January 2010 – January 2011. This comprises 85.9% of Pennsylvania’s electricity market and could have an impact on electricity prices going forward. Fortunately Pennsylvania has learned from California’s missteps. Lawmakers are forcing utilities to diversify their electricity risk by securing both short- term and long-term contracts. This mixture of contracts could be helpful in mitigating risk, unlike California whose focus was concentrated on short-term contracts only. Regardless of the outcome, the Pennsylvania electricity market is one to monitor in the months and years to come.

Is there a way for Pennsylvanians to protect themselves from the upcoming deregulated electricity markets and future price uncertainty? The answer is yes. Pennsylvanians’ best solution is to embrace renewable energy. Solar energy can solve Pennsylvania’s electricity deregulation issue and act as hedges to potential higher electricity prices. Solar facilities level the playing field and allow businesses, federal agencies, non-profit organizations, and residents to participate in renewable energy, become less dependent on electric companies, and produce electricity during peak demand times. Parties that install solar facilities have the ability to achieve a fixed or reduced cost of electricity for an extended period of time, generate Alternative Energy Credits (AECs) (which are actively traded on Flett Exchange), and embrace clean energy that is absolutely vital to our environment. Pennsylvania also offers state incentives for affordable green energy. If you are a resident interested in solar click on, Pennsylvania Sunshine Program and for businesses interested in solar, click Pennsylvania Solar Energy Program to learn how to achieve clean energy.