Kenneth Elder's Blog

The View From Philly

Energy price fluctation and economic development in Onorato’s Allegheny County

With the expiration of electricity rate caps quickly approaching, it is interesting to look at the debates that energy pricing have sparked in the past. The cost of energy is intimately tied to Pennsylvania’s economy in ways that are not immediately visible, as highlighted by a 2006 presentation to the Public Utilities Commission by Dan Onorato, a current Democratic gubernatorial candidate. The presentation urged the Public Utilities Commission to find a solution to an energy crisis here in Pennsylvania. The crisis was not environmental, it was economic.

Price fluctuation in energy rates was troubling Onorato. The cost of energy was forcing businesses to make tough decisions. In his presentation to the PUC in 2006 Onorato explained how energy prices could impact his plan for spurring business development here in Pennsylvania. “Although the competitive market may evolve on its own over the long term, industrial customers are being forced to consider all means necessary to lower electricity and operating costs,” he said. “If they choose to leave Allegheny County, a region that has been built upon and sustained by industry may be devastated.”

Now, businesses are being forced to cut operational costs even more than they were in 2006 and energy deregulation is looming on the horizon.

In the 2006 encounter with the PUC, Onorato explained that 57,000 jobs were at that time vulnerable to price instability in electric supply and distribution. Energy intensive companies, companies like U.S. Steel and Allegheny Technologies, were some of the fastest growing industries. Price stability was critical to keep such businesses, and the jobs they provided, in Pennsylvania, and regulation was the moderator that kept prices stable. There was no other alternative. “In the case of large industrial consumers, the market is simply not robust and dynamic enough yet in Pennsylvania for deregulation to work,” Onorato told the PUC.

In 2007, House Bill 1530 was passed, which gave public utilities companies the option of selling multi-year contracts to energy consumers. The bill was praised by Onorato as another step towards price stability. “To retain our industrial employers,” he said, “we must be able to maintain competitive electricity prices.”

While increased energy bills is one half of the story of energy deregulation here in Pennsylvania, job security is the other half. These lessons from 2006 suggest that, as we approach the expiration of rate caps, energy price fluctuation could be difficult to stomach for energy intensive industries. To look at the price of energy and say that families cannot shoulder the addition 30% increase is to ignore the much more endemic costs that we could face as a society if energy prices were to fluctuate dramatically.