Region braces for energy rate hike

HARRISBURG - Paying more than $4 a gallon at the pump may be bad enough, but Pennsylvanians should prepare for another painful pinch to the pocketbook.

In 2010, state-imposed rate caps on electricity prices are set to expire, and utilities are positioning themselves for massive increases. In some parts of Pennsylvania, depending on the provider, residential customers could have to pay an additional 70 percent or more.

Peco Energy, which serves most customers in Philadelphia and its suburbs, predicts it will raise rates by 20 percent starting in 2011.

Some state lawmakers say the pending spikes, little noticed by the public, will be equivalent to the biggest tax increase since the days of Ben Franklin.

Now a group of legislators is promising to take on the big utilities and push to limit the hikes in what could be an epic battle.

"Let's get ready to rumble," Sen. Jim Ferlo (D., Allegheny) told utility lobbyists in the audience of a news conference last week.

The looming confrontation dates to the mid-1990s when Harrisburg deregulated the state's electric industry in the hope of saving consumers money by opening the market to competition.

In exchange for being allowed to bill customers for building costly power plants, utilities agreed to institute rate caps for electricity use.

The problem was that competition never materialized. The primary reason: It was too costly for utilities not already established in the state to come in and build plants.

Since then, large Pennsylvania utilities have reaped hefty profits despite the caps, and their stock prices have soared.

Once caps are lifted starting in 2010 for 85 percent of the state, those profits are expected to grow even larger, legislators argue.

Sen. Lisa M. Boscola (D., Northampton) called the pending rate hikes "the perfect storm that is coming," and blamed "nothing but profiteering and runaway greed."

She and other lawmakers, including Sen. Vincent J. Fumo (D., Phila.), have pushed legislation to tackle the matter for more than a year. One option they are advocating is extending the caps indefinitely. Another would cap rate increases year to year at the rate of inflation or 5 percent, whichever is lower.

But Peco and other utilities strongly oppose an extension, arguing that it could impose a major financial strain on them since they are now buying power at higher costs.

Such a move could "wreak havoc in the electric market and jeopardize service to customers," said Mary R. Rucci, Peco's director of communications.

Others say it would run afoul of the 1990s deal that created the caps.

"Rate caps were never intended to be a permanent fixture," said Terrance J. Fitzpatrick, chief counsel of the trade group Electric Power Generation Association.

He said that customers had reaped the benefits of the caps for years, and that now the bill was coming due.

Before deregulation, Pennsylvanians paid 15 percent more for their electricity than the national average, Fitzpatrick said. With the caps, those customers are paying 2 percent less than the average.

"Instead of seeing gradual increases, customers are going to see them all at once," added Fitzpatrick, a former member of the Pennsylvania Public Utility Commission.

Instead of extending caps, utilities are advocating conservation and other programs to reduce customer bills. The industry is also pushing a compromise that would phase in the higher rates to smooth the transition.

"Everyone has the same goal," Rucci said. "We need to work through this and determine the best solution for customers and also to allow the utilities to be healthy."

Peco provides electricity throughout Philadelphia and Delaware County and much of Bucks, Montgomery and Chester Counties - 1.6 million customers in all. Electric rates for those customers are set to increase by 20 percent Jan. 1, 2011.

Consumers in other parts of the state would suffer even more pronounced kilowatt shock.

The 1.4 million customers in eastern and central Pennsylvania served by PPL Electric Utilities, including portions of the Philadelphia suburbs not covered by Peco, could see increases of 37 percent, according to the Pennsylvania Consumer Advocate's Office. Bills for Allegheny Power customers in the western part of the state could spike 63 percent.

And bills have already shot up 75 percent for some Pike County Light & Power customers in northeastern Pennsylvania, where caps expired in 2006.

Peco's planned hikes are less than others in part because it currently charges a higher rate for electricity.

Gene Stilp, a longtime Harrisburg activist and founder of Taxpayers and Ratepayers United, predicted the rate hikes would force businesses to move to other states in search of lower utility bills, costing Pennsylvania thousands of jobs.

"The gas crisis is nothing," Stilp said. "It's child play compared to what's coming."

Unlike ever-rising gas prices, state lawmakers say, electricity is a cost they can do something about, even in a marketplace that has been deregulated for a dozen years.

"This is Exxon in our backyard that we can control," Fumo said.

But getting anything done on this issue in Harrisburg has been a struggle.

Lobbyists and advocates on both sides have bogged down legislation. Even the parts of Gov. Rendell's wide-ranging energy plan that dealt with the expiring caps stalled during this year's budget process.

Legislators now pin their hopes on what they called the "outrage factor" that they are sure will come once word of the rate hikes sinks in.

"If we were to tell people that we were going to raise their taxes by $365 a year or more - and get nothing back for it - there would be an outrage," Fumo said. "There would be a rebellion, and everybody would be up here yelling and screaming."