In 1996, citizens of Pennsylvania paid electricity prices about 15% above the national average. The solution by lawmakers was a reorganization of the generation of power(about 60% of consumers’ bills) to spur competition.

This restructure of the generation mechanics is what we call ‘deregulation’. The transmission and distribution of electricity remain the same and is still regulated by the state.

In an effort to move from 9 regional monopolies to a competitive electricity market, the new legislation implemented a transition period that included rate caps for users and recovery of “stranded costs” for suppliers to offset prior investments.

Rate caps were enacted to protect consumers from unpredictable price fluctuations during the transition period.

The goal of the restructuring was to bring prices down, yet many argue that the policy has failed. Most naysayers point to deregulation disasters such as California’s 2001 blackouts. Energy shortage aside, Pennsylvania’s plan strays safely away from California’s missteps.

In California, utilities were prohibited from acquiring long-term contracts, thereby restricting them to buy power through expensive real-time markets. In Pennsylvania, utilities are allowed to diversify. They can buy power from generation companies through long-term contracts years in advance or purchase on a short-term basis as needed.

On the contrary, we can look at the Lone Star State.  While a few pockets of ‘regulated’ electricity structure remain on the fringe, Texas completed the transition to a fully restructured market in 2007.

Despite rising energy costs, the average rate of electricity in Texas is only about 2.8% higher than the inflation-adjusted rate in 2001. Most Texans can now choose from an array of nearly 30 providers, compared with only four back in 2002. We can take these facts as a breath of fresh air amidst the fears of outrageous electric costs.

Legislators can soften the blow of rising rates for citizens during the transition period by reducing the state gross receipts tax on electricity, eliminating red tape in licensing new electrical generation and softening environmental regulations.

Perhaps the most important function we can do is to educate consumers on why electricity choice is important and provide resources for easily comparing and choosing Pennsylvania electricity companies.

Creating an environment for a real electricity marketplace to emerge in Pennsylvania depends on consumers who can spur competition — and reduce their electricity bills — by taking the time to shop for electricity and practice better energy conservation.