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Governor Rendell to Legislature: Help Consumers Avoid $1.6 Billion Increase in Electricity Rates; Pass Energy Legislation Now

Posted on: Thursday, 8 May 2008, 12:00 CDT

HARRISBURG, Pa., May 8 /PRNewswire-USNewswire/ -- Citing a letter from the state's Consumer Advocate that warns residential customers could pay $1.55 billion more than today's rates for electricity by 2011, Governor Edward G. Rendell today called on the legislature to end more than a year of delay and pass the Energy Independence Strategy legislation.

"The longer this legislation is stalled, the more difficult it's going to be for Pennsylvania residents to manage the double-digit increases in electricity rates that are lurking just around the corner," said Governor Rendell. "Families are already struggling with higher gas prices that are making it more expensive to fill up their cars and pushing up the price of food and other products.

"Last month, knowing that the last of the existing electric rate caps are set to expire in 2010, I asked Pennsylvania's consumer advocate to estimate how much more our households could expect to pay. The numbers are staggering. West Penn Power consumers can expect rate increases of 60 percent, while the typical PPL customer can expect to pay an extra $42 a month for service -- that's more than $500 per year on top of what they're paying now."

The Governor said Pennsylvania has a unique opportunity to act before the full brunt of the expiring rate caps are felt by consumers. Other states acted in different ways only after the electricity market had fully deregulated and rates spiked causing considerable consumer outcry.

"This situation is not isolated to Pennsylvania," said Governor Rendell. "Maryland's rates jumped more than 70 percent and businesses closed their doors. After rates spiked 50 percent in parts of Illinois, lawmakers quickly enacted legislation to protect consumers and require that utilities pay $1 billion in rebates. And, when deregulation didn't yield lower rates for consumers in Virginia, Virginia simply re-regulated its electricity market.

"We don't have to go that route here," said Governor Rendell. "I am asking for legislative action to protect consumers by ensuring that electric utilities purchase power at the lowest cost possible."

H.B. 2201 requires utilities to buy power for their customers in a competitive manner so that consumers benefit from service at the lowest reasonable rate. The bill will require utility service providers to procure power through a mix of short- and long-term contracts and spot market purchases, and obligate the Public Utility Commission to ensure that the procurement process is free of fraud, collusion or market manipulation.

"We know this train is bearing down on us, and if we act now, we can get off the track," the Governor said. "The Senate should also act to pass the three bills that were overwhelmingly approved by the House months ago that will help consumers save on their utilities bills and that will stimulate the growth in companies that help generate lower cost alternative sources of electricity and fuels."

Fifteen months ago, Governor Rendell unveiled his Energy Independence Strategy. Three bills embodying the initiative to protect residents and invest in the economy are awaiting action in the Senate:

-- Special Session House Bill 1, which passed by the House on March 11, will provide funding to develop solar, wind and other advanced energy industries, make it easier for consumers to purchase and install solar panels, continue the state's leadership in energy-efficient green buildings, and give consumers help in purchasing high-efficiency heating/cooling equipment and appliances. The bill allows Pennsylvania to attract $3.5 billion in private investment by leveraging $850 million in new resources in projects that will help create 13,000 new, green-collar jobs in the commonwealth. -- H.B. 2200 was passed by the House on Feb. 12, and will help consumers save on their energy bills by conserving electricity and using it more efficiently. Once fully implemented, House Bill 2200 will save consumers $1.3 billion by 2012 on their energy bills through conservation and bringing down the cost of electricity during peak load times -- when demand is highest and electricity is most expensive. -- H.B. 1202, or Governor Rendell's PennSecurity Fuels Initiative legislation, has been awaiting action by the Senate since June. It requires nearly 1 billion gallons of biofuels to be produced and consumed in the commonwealth. By 2017, 1 billion gallons will equal what Pennsylvania is expected to import from the Persian Gulf.

"Short-term solutions sound good but we need to make a dramatic change in how and where we get our energy and improve our conservation efforts," said Governor Rendell. "These are the only strategies that will have a real impact on the cost that consumers and companies have to pay for energy."

For more information on the Energy Independence Strategy, visit http://www.depweb.state.pa.us/, and click on the "Fueling Energy Savings" icon.

The Rendell administration is committed to creating a first-rate public education system, protecting our most vulnerable citizens and continuing economic investment to support our communities and businesses. To find out more about Governor Rendell's initiatives and to sign up for his weekly newsletter, visit http://www.governor.state.pa.us/.

EDITOR'S NOTE: The text of the letter from Pennsylvania's Consumer Advocate Sonny Popowsky to Governor Rendell is attached.

April 30, 2008 Hon. Edward G. Rendell Office of the Governor Room 225 Capitol Harrisburg, PA 17120 Re: Electric Rate Increases Dear Governor Rendell:

I am writing in further response to your letter of April 4, 2008, in which you asked me to estimate the rate increases that Pennsylvania electric consumers can expect to experience when the remaining generation rate caps on our electric utilities expire at the end of 2009 and 2010. As you know, five major electric utilities, serving the great majority of Pennsylvania electric consumers, are still subject to rate caps. Of those five companies, the rate cap of PPL expires on December 31, 2009, while the rate caps of the remaining four companies - PECO, Met Ed, Penelec, and Allegheny (West Penn) expire on December 31, 2010.

As I stated in my initial response to you on April 8, 2008, it is not possible to determine with certainty what electric market prices will be when rate caps come off. That is because the retail prices that Pennsylvania customers will pay will be largely determined by the unregulated prices that our electric utilities will be paying for power in the PJM wholesale markets. All five of the companies that are still subject to rate caps are served through the PJM markets.

We do, however, have some indication of the magnitude of our anticipated rate increases, based on the results of wholesale power auctions that already have been conducted by PPL to provide service to customers in the year 2010. The retail price of power for residential customers resulting from the most recent PPL auction held in March 2008 for service in 2010 was $108.80 per megawatt hour, or 10.88 cents per kilowatt hour. The average retail price for the three PPL auctions held to date for generation service in 2010 has been 10.52 cents per kilowatt hour. To put these numbers in perspective, a typical PPL residential customer using 1000 kilowatt hours per month is currently paying generation charges (including stranded cost recovery) of about $62.57 per month. If the PPL generation rate increases to 10.52 cents per kilowatt hour, that customer will be paying generation charges of $105.22, or about $42.65 more each month, and over $500 each year.

None of the other four utilities whose rate caps are expiring have acquired any power for the post-rate cap period, but based on recent results in the PJM markets, we would expect that the wholesale prices for PPL's neighboring utilities in Eastern Pennsylvania - PECO and Met Ed - would be comparable to those in PPL's most recent auction, while the results for the PJM utilities in Western Pennsylvania - Penelec and Allegheny (West Penn) - would be somewhat less. We project that the latter two companies' generation prices would be about 9% less than PPL's price, or slightly below 10 cents per kilowatt hour.

It is also important to note that the starting point, that is, the current rates, for each of these companies is quite different. PECO, for example, already has very high generation rates, while Allegheny (West Penn) has very low rates. So the absolute and percentage rate increases that the customers of these companies can expect to experience will be quite different as well.

Based on the assumptions set forth above, we have estimated the following approximate percentage increases in the overall rates of residential customers, comparing rates that are in effect today and rates that would be expected to be in effect for each company after the rate caps have expired:

PPL - 37% Met Ed -54% PECO - 8% Penelec - 50% Allegheny (West Penn) - 63%

I would note that in the case of Allegheny (West Penn), the projected rate increase will not occur all at once, since the current generation rate cap is already set to increase by a total of about 1.2 cents per kilowatt hour in 2009 and 2010. Even then, however, the projected increase for residential customers at the end of 2010 under these assumptions would be about 41%.

In terms of the total dollar impact on residential customers of the increases for these five companies, we estimate that the increases would amount to approximately $1.55 billion per year, as compared to current rates. While I have not attempted to prepare a similar analysis for commercial and industrial customers, I would note that residential sales comprise about one third of total sales for Pennsylvania electric utilities, so I would expect that the total rate impact on the residential, commercial and industrial consumers of these five utilities will be substantially higher than the $1.55 billion estimated increase for residential customers alone. I would also note in this regard that the average of the first three PPL auction results for commercial customers have been slightly higher than the results for residential customers, and that, based on those results PPL itself has projected a range of average rate increases for commercial customers of between 23.8% and 42.8%.

Needless to say, while the actual rate increases that we experience may be higher or lower than these estimates, increases of this order of magnitude will have a dramatic impact on millions of households and businesses across Pennsylvania. I believe there are steps we can take, however, with respect to procuring the lowest cost generation resources and developing new resources to serve customers, as well as assisting Pennsylvania consumers to conserve energy and use electricity more efficiently, that can help ameliorate some of these future potential impacts. I also believe that it is critical to act now, however, rather than to follow the path of several of our surrounding states, who have responded to similar rate crises through legislative actions only after rate caps had expired and consumer outrage was intense.

Thank you for your letter requesting this information. I hope this response is helpful, and I look forward to continuing to work with you and all members of the General Assembly as Pennsylvania confronts this extraordinary challenge.

Sincerely, Sonny Popowsky, Consumer Advocate CONTACT: Chuck Ardo 717-783-1116

Pennsylvania Office of the Governor

CONTACT: Chuck Ardo of the Pennsylvania Office of the Governor,+1-717-783-1116

Web Site: http://www.depweb.state.pa.us/http://www.governor.state.pa.us/

Source: PRNewswire-USNewswire

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