Could Municipalities Provide Cheaper Electricity?

Last week the State House Committee on Consumer Affairs held a hearing on legislation which would allow municipalities to act as electricity aggregators for residents, unless they opt-out for another supplier. Pennsylvania Consumer Advocate Sonny Popowsky explains:

The theory behind municipal aggregation is that by aggregating the buying power of a
large number of small customers, a non-profit municipal entity can get a better deal for those
customers than if those customers each go out and shop for electricity on an individual basis. In addition, many customers may have neither sufficient interest nor sufficient understanding to choose their own supplier of a product that they have never had to shop for.

While this could go a long way in encouraging competition, Duquesne Light and other Providers of Last Resort (POLR) point out that allowing entire municipalities to choose alternative suppliers creates more uncertainty, making it difficult for them to provide “least-cost” electricity through long and short-term contracts, as mandated in Act 129.

Any opt-out program should be free of restrictions or penalties that would prevent residents from leaving the municipalities program at any time. Municipal aggregators can be an effective tool to encourage more electricity shopping but, giving the power to elected leaders to negotiate contracts could easily lead to cronyism. Municipalities should stick to opt-in programs, where residents have to opt into the city’s electricity aggregation maximizing consumer choice.