Imagine your monthly electric bill suddenly soaring 60 percent. Imagine no more.
A deregulatory process begun years ago is about to crash over Pennsylvania consumers and is expected to bring dramatically higher utility bills. So far, just Pike County is feeling the pain. But over the next few years -- in 2009 for PPL Corp. -- rates are expected to soar across the state.
"This is only the first day in a long journey.
We are here today not to debate the efficacy of electric competition
but how to get from here to 2009," Pennsylvania Public Utility Commission member James Cawley said Thursday at a commission hearing on how Pennsylvania should prepare for the end of electric price caps.
The caps will expire in 2009 and 2010 for most of the state. Consumer costs for electricity generation have been frozen since deregulation began in 1997.
PUC members took testimony from some of the biggest names in the energy industry on how to handle the state's changing electricity market. Some company officials argued largely for advertising campaigns to soften the blow to consumers by educating them.
Others tried to convince the PUC they had the cheapest plan for how to buy electricity and sell it to consumers. The commission will set the rules for how utilities buy electricity in the new market.
PPL estimates that under its plan, customers will pay 20 percent to 30 percent more for electricity when the caps come off. PECO, whose caps will expire in 2010, estimates its charges will rise 11 percent.
"Pennsylvania consumers have been shielded from these forces by having their rates frozen at 1997 levels," said commission Chairman Wendell Holland.
When Pennsylvania deregulated its local utilities, allowing regulated utilities to sell their power plants, many believed that consumers would get cheaper rates because they would be able to buy power from companies other than the local utility.
But in places like Maryland and Delaware, which are farther ahead than Pennsylvania in the deregulation process, that hasn't turned out to be the case. And most energy experts say that at least initially, Pennsylvanians won't see lower prices either. In fact, they're far more likely to see price increases.
Pike County Light & Power Co. consumers saw their electric bills rise by more than 65 percent this year. In Delaware, Delmarva Power Co.'s residential electric rates jumped 59 percent in May. And in Maryland, Baltimore Gas and Electric Co. consumers are expected to see a 72 percent increase in their electric bills beginning in July.
The reasons for the higher prices? Natural gas and coal prices have soared since the caps were put in place, and the electric competition that deregulation was supposed to create never materialized. The caps deterred alternative power suppliers because they couldn't beat the utilities' capped rates.
"The main cost driver is fuel, no question about it, and that is going to continue," said William Brier, vice president of policy and public affairs for Edison Electric Institute, a trade association in Washington, D.C.
A price increase after a decade-long cap was inevitable, said John Hanger, president of the Harrisburg-based environmental group PennFuture, "Ten years' passage of time is going to lead to increases."
As part of deregulatory agreements made with utility companies in 1997, electricity generation and transmission rates were capped for most Pennsylvanians. The transmission rates have already expired, so consumers have seen increases on that part of their electricity bill.
Utility companies will buy electricity for residential customers in a wholesale market through long-term contracts. Much of the electricity will be purchased at auctions.
On Thursday, utility officials debated the cheapest way to buy electricity in the new market. Some argued for charging consumers more now and allowing utility companies to hold the money until the caps expire. If electricity costs more in 2009-10 than it does now, the money raised now would go toward that purchase price so that customers' electricity bills wouldn't dramatically increase.
If electricity costs less when the caps expire, consumers would be refunded their money plus interest. The downside to that plan: New customers who don't pay in now would still benefit.