Nuclear Power and Pennsylvania’s Competition Act
Although it’s less well-known than the Alternative Energy Portfolio Standards Act of 2004 (AEPS), Pennsylvania’s 1996 Electricity Generation Customer Choice and Competition Act may be the state’s most important energy law. Legislators are currently focused on amending the AEPS to establish subsidies for nuclear power. But understanding the Competition Act is critical to understanding why nuclear plants are struggling economically in the first place – and why Pennsylvania is building so much new natural-gas-fired power, despite the carbon pollution it produces. The answer lies in the flawed rules of competition that govern the state’s power sector.
NRDC’s recent letter about nuclear legislation to Pennsylvania legislators discusses the Competition Act in a footnote. This blog takes up that discussion at greater length.
The Competition Act “restructured” Pennsylvania’s electric power industry by separating electricity generation and electricity distribution into separate businesses. It was part of a wave of regulatory reform that sought to introduce competition in various utility functions after the end of the Cold War, following “what was seen as the successful economic deregulation of many other industries, including airlines, railroads, telecommunications, gasoline retailing, and the production of oil and natural gas.” Restructuring is sometimes also called “deregulation.”
Before the Act, Pennsylvania’s electric utilities were “vertically integrated,” meaning that they both (1) built and operated power plants and (2) distributed electricity to homes, businesses, and factories. Utilities had a monopoly on both functions (subject to oversight by the state Public Utility Commission), and when a utility wanted to build a power plant, it had to get approval from the PUC. The point of PUC review was to ensure that construction of the plant was “prudent,” since the cost of building the plant would be reflected in the price of the utility’s electricity, and customers had no choice but to buy that electricity.