The Pennsylvania model is based on five fundamental principles: everyone must benefit, markets are fragile and must be nurtured over time; demand and capacity must be kept in balance, the independent service operator (ISO) must be truly independent; and market transparency is essential.

Guided by these principles, competition is alive and well in the Keystone State:

More than 560,000 customers are purchasing their energy from a competitive supplier.

In some service territories, over 30 percent of the residential customers are being served by competitive entities.

Customers across Pennsylvania have saved nearly $3 billion since the inception of electric choice in 1997.

Over 20,000 megawatts of new generation is expected to come on line in the next five years.

Finally, through Pennsylvania's careful implementation of electric choice, an estimated 36,000 new energy jobs will be created.

These positive developments did not happen by accident. They resulted from carefully crafted legislation, effective implementation., and a fundamental belief that the free marketplace creates more opportunities for customers and business than any government agency. Four factors were key to success: sufficient generation capacity, collaboration among all parties, consumer empowerment, and business planning.

Generation: As Pennsylvania founding father Benjamin Franklin penned, in "Poor Richard's Ahnanac:" "an empty bag does not stand." While I know that Franklin dabbled in electricity, I doubt he was talking about the electric market. But he could have been. Absent sufficient generation to meet customers' needs, the wholesale price of electricity will increase. Even the best regulator cannot overturn the economic principle of supply and demand. In my state, new generation is expected to increase by 20,000 MW or 20 percent, over the next five years, while demand is expected to increase 5 percent. Pennsylvania was, is and will remain a net exporter of power. Obviously, when you restructure the electric market, it is much easier when you have sufficient capacity and can attract new capapity.

Collaboration: Get everyone involved. That was the directive that Gov. Tom Ridge gave to the Public Utility Commission, which was charged with the responsibility to write and implement our electric restructuring model. This included the Consumer Advocate, representatives from small and big business, the environmental community, suppliers, generators, utilities, and labor. This collaborative process was not only successful in drafting the legislation and working through the morass of restructuring fillings but also these groups were helpful in educating the public about electric choice. Even more important, the group helped ensure that all the pieces fit together -- working together on how data is transferred back and forth between electric distribution companies and suppliers and on how to educate customers to shop for a utility supplier. Everyone understood that the sum of the parts had to equal the whole.

Consumer empowerment: One of the keys to Pennsylvania success was a strong consumer education program. Not only did we run an effective mass media campaign at the statewide level, but also we used surrogates to help us in our local education efforts. The results were and remain impressive, a 95 percent awareness and understanding about how to shop for electricity. Of the more than half-million customers who shopped for a new supplier, Pennsylvania's program was able meet unique customer demands for those with environmental concerns. More than 80,000 customers have selected "green" power, bringing new investment to the state in the form of wind farms.

Business planning: The whole theme of the Pennsylvania utility restructuring program can be summed up in one word: choice. To create a truly free market you cannot dictate. You can and should nurture the opening of the market but directing how incumbents manage themselves is a grievous error. The opening of the electric market represents not only choice for customers but also choice for the incumbent utilities, particularly in regards to how they want to manage their generation assets and how they manage their market. In Pennsylvania, some companies made the business decision to sell their assets while others decided to retain their assets. Customers in either case remain protected by rate caps that in some instances extend to the end of the decade.

Next winter the competitive transition charge (CTC) imposed on the customers of Duquense Light Company that serves Pittsburgh will be eliminated, similar to what customers in San Diego experienced last spring. But unlike San Diego, the residents of Pittsburgh will see their rates go down 21 percent. Coincident with the elimination of the CTC, the "price to compare" will increase about a penny per kilowatt-hour, giving more opportunities for competitive entities to beat the price charged by the incumbent utility. In addition, rates for customers who choose not to shop or wish to return to their incumbent utility will be capped until the end of 2004, thus protecting non-shopping customers from the vagaries of the marketplace. This scenario will unfold because the incumbent utility made the business decision to divest itself of its generation assets and then enter into a long-term contract for energy from the company acquiring their assets. From what I understand, such a scenario was not permissible under the California model.

There are many differences between California and Pennsylvania market models and market conditions. The point is that competitive models should and do work. While our collective goal must be to help solve the California situation, it is equally important to look at lessons learned in Pennsylvania, Texas and other states that opened their markets without disastrous results.

The solution is not to abandon deregulation, but to make it work for everyone.

[Illustration] 1 DRAWING; Credit: Barry Fitzgerald

Credit: Brownell is a member of the Pennsylvania Public Utility Commission and president of the National Association of Regulatory Utility Commissioners.