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The electricity bills that could sink Pennsylvania

by Tom Knox

Prior to its sinking, the Titanic received numerous warnings of dangerous heavy ice from other ships on the same transatlantic route. These warnings were either ignored or dismissed, resulting in one of the country’s worst maritime disasters. Unfortunately, history is about to repeat itself as Pennsylvania is on a collision course with an economic iceberg—electric deregulation. While much has been reported on Harrisburg’s proposed personal income tax rate increase and budget deficit, the expiration of the existing caps on electric utility rates will have a greater impact on the monthly budgets of families and Pennsylvania businesses than any proposed tax currently being debated.

To avert this economic collision, Harrisburg must act quickly. First, existing rate caps should be extended for a period of three years, allowing an annual increase not to exceed 1.5 percent plus the cost of inflation. Second, we need to follow the example of New York and establish a public “power purchasing authority” that would become the default supplier of electricity for all residential customers, thereby leveraging the state’s large buying power to produce cost savings that would be passed onto ratepayers. Lastly, the laws related to the termination of electric service to customers that are behind in their bills needs to be amended to prevent winter terminations and make it easier for service to be restored. Once rate caps expire, more working families will struggle to pay their monthly bill.

Enacted in 1996, the Electric Generation Deregulation Act was touted as a way of introducing retail competition to the electric generation market as a means of providing lower rates and improved service. Unfortunately, 14 years later, there is little to no retail competition in most regions of the state. A recent survey by the Pennsylvania Public Utility Commission confirms that there is absolutely no retail competition in the MetEd, Penelec and PPL territories, which service the majority of northeastern Pennsylvania.

As a consequence, when the existing caps on electric rates expire next year, residential customers in those service areas are projected to face $540-$780 annual increase in electric utility costs. Projected rate increases are even higher for small businesses and large industrial operations. Higher rates are not simply an inconvenience, but mean potential job losses as businesses cut operations or relocate to states with lower regulated electric service. Maryland, Massachusetts, Rhode Island, Illinois and Texas, all states that deregulated the retail sale of electric generation, have experienced rate increases ranging from 55 percent to 79 percent.

According to a recent study by the American Public Power Association, states that ended utility rate regulation pay on average 54 percent more for electricity than the majority of states that have not deregulated. Once the rate caps expire, rates will be set by an artificial pricing mechanism that favors utility companies. For example, according to a 2007 report to PPL shareholders, the company boasted that 97 percent of its electric generation output was anticipated to be produced at a cost of $16/MWh or less, and sold to its consumers at a cost of $91.42/MWh—a mark-up of over 550 percent. Electric deregulation is working, just not for customers.

Remarkably, Harrisburg’s only response has been to consider House Bill 20—legislation that would permit customers to “defer” future rate increases, but forces them to pay for the deferred amount three years after the expiration of rate caps. In other words, House Bill 20 provides no protections to ratepayers; it simply postpones the crisis. Not only does the bill fail to address the underlying cause of the problem, but it make it worse by giving ratepayers little more than a 3 year “balloon loan,” making future rates more expensive.

Pennsylvania already finds itself in difficult economic waters resulting from a national recession. It remains to be seen whether Harrisburg will demonstrate the leadership needed to confront the utility companies and steer away from the economic iceberg that is in our path.

Please join me in petitioning Harrisburg to take action against electric utility deregulation. Only together can we stop this corporate extortion in Pennsylvania.

The writer, a Philadelphia businessman and former deputy mayor, is a Democratic candidate for Governor. His petition to lawmakers can be found at www.stoptheparipoff.com.

July 9, 2009 at 9:31 am

--Tom Knox

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