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Facts about Switching Electricity Providers
How electricity service works
Until recently, all phases of electricity production and distribution in the U.S. were managed by government-regulated utilities. This included everything from electricity generation at power plants through long-distance transmission, to local distribution to individual homes and businesses. A single public utility company was responsible for generation, transmission, and distribution within a certain region. Rates and operating territories were controlled by state regulators.
Beginning in the 1990s, individual states began developing “deregulation” – market reform efforts to separate the business of generating electricity from the business of transmitting and distributing it.
In deregulated markets, customers can choose to buy their electricity directly from a variety of competing retail suppliers, who either generate electricity themselves, or buy it from generators at wholesale. Long distance transmission and local distribution are still managed by state-regulated utility companies, who deliver electricity to individual customers no matter who the electricity was purchased from.
14 states have put some form of plan in place and have partly or fully rolled out deregulation, including Maine, New Hampshire, Massachusetts, Rhode Island, Connecticut, New York, New Jersey, Pennsylvania, Delaware, Maryland, Ohio, Michigan, Illinois, Texas, and the District of Columbia.
Pennsylvania started deregulating electricity in 1997, with the passage of the Pennsylvania Electric Generation Customer Choice and Competition Act, which allowed new suppliers to enter the market. To ensure a smooth transition, the Pennsylvania Utility Commission ordered electric utility companies (such as Philadelphia Electric Company (PECO), and People's Power & Light (PP&L)) to become the “default service supplier” within their service region. This means the utility must continue to provide electricity to customers in its region who don't switch to an alternative supplier, but at no profit. To avoid sudden price increases, the PUC also continued to set the price utilities could charge for electricity generation. These 'rate caps' were gradually removed region by region, allowing utilities to raise their rates, but also creating opportunities for other suppliers to sell electricity at better prices than the utility.
As of January 1, 2011, all rate caps in Pennsylvania have been removed, and customers in most parts of the state can choose from among several alternative suppliers offering lower prices. For Pennsylvanians, switching to a different supplier has no effect on their electricity service other than price. The local utility still handles service calls, meter reading, and billing, and guarantees a reliable, uninterrupted supply.