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Wholesale-Electricity Market Flaws Must Be Fixed

July 23, 2008

By Rick Stouffer, The Pittsburgh Tribune-Review

Jul. 23–Pennsylvania’s broken wholesale-electricity market must be fixed, or power users statewide will suffer a shock in two years when price caps expire, state legislators were told Tuesday.

The fix could include the creation of a Pennsylvania Power Authority, which would control the construction of new power plants to serve the state, said proponents during a public hearing before the House Environmental Resources and Energy Committee.

“Those who continue to believe that we should rely solely on the wholesale market to control prices must understand that the market is broken and isn’t producing competitive prices,” said Tyrone Christy, a state Public Utility Commission commissioner.

Christy was one of five presenters during more than two hours of testimony yesterday at Comfort Inn Pittsburgh East in Wilkins.

“In my view, the imminent increase to electric costs represents the most serious challenge to Pennsylvania’s economy in many years,” he said, referring to the end of caps on electricity prices for most consumers in 2010 and 2011.

Irwin “Sonny” Popowsky, state consumer advocate, estimates that when price caps come off Jan. 1, 2011 on Allegheny Power, rates will jump about 41 percent.

Penn Power customers within the company’s territory — stretching from Cranberry to the New Castle area — had their rates jump 46.7 percent on Jan. 1, 2007.

When price caps came off Duquesne Light Co. rates in 2005, rates jumped from 35 percent to 60 percent.

“The basic screenplay for electricity deregulation in Pennsylvania was regulation would end and customers would get a choice of energy providers with diverse cost structures and service offerings,” said David Hughes, executive director of energy advocate Citizen Power.

“What actually happened is that … customers have only seen rising prices and no choices,” he said.

When enacted in the late 1990s, electricity deregulation was expected to lower power costs by injecting competition into a system that for 100 years was a government-approved monopoly. The same company owned both power plants and transmission-distribution wires. Utilities were permitted to recover their costs, plus a set percentage above cost, as profit.

Pennsylvanians, however, have learned that choice and lower prices are non-existent, said many testifying yesterday.

Pennsylvania’s situation is like the other 14 or so states that deregulated their power industry in the 1990s.

Former PUC Commissioner Terrance J. Fitzpatrick, now general counsel to the trade group Electric Power Generation Association, argued yesterday that power prices are climbing everywhere — in deregulated and regulated states.

“Electricity prices are rising because of increases in underlying production costs, not because of competition of any flaws in wholesale markets,” Fitzpatrick told the House committee.

Not all on the House committee were convinced, however.

“That this is a significant crisis can’t be denied,” said Camille “Bud” George, D-Clearfield, chairman of the Environmental Resources and Energy Committee. “I never was a fan of deregulation, and I truly fear what lies ahead for consumers in the next several years.”

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