Power point: an industry on defense

The road to electric deregulation is growing bumpy.

By Sam Kennedy | Of The Morning Call

March 16, 2008

The future the electric industry has been working to create for itself has collided with the political realities of today.

Deregulated markets, new nuclear power plants and more high-tension power lines -- that is what big energy companies nationwide have had in mind. But first they'll have to overcome a sudden groundswell of resistance.

No one knows this better than PPL Corp., whose agenda largely mirrors that of the broader electric industry. In Harrisburg and Washington D.C., the Allentown company has suddenly found itself fending off challenges to its plans and attacks on its character.

"This legislature enacted [electricity] deregulation. And it's up to this legislature to fix it -- because it is not working," Sen. Lisa Boscola, D-Northampton, declared Wednesday in a state Senate speech. "I hope all the CEOs of all of Pennsylvania's energy companies are listening.... There is a difference between need and greed."

Much is at stake for PPL customers, as well. And the price of electricity in 2010, when rate caps expire, is only part of it.

Decisions now under debate at both the state or federal levels of government could affect the affordability and reliability of electricity for years to come.

Deregulation under debate

Under pressure from energy companies and some of their biggest industrial customers, Pennsylvania began to deregulate its electric industry in 1996. The change meant the Public Utility Commission would no longer be able to set electricity prices, as it had for decades; rather, prices would be determined by competitive market forces.

Temporary rate caps were put in place to protect customers from short-term price volatility. The final step in the gradual transition to deregulation, thus, is end of rate caps.

For PPL, that's supposed to be Jan. 1, 2010, when the company expects to raise rates 35 percent for residents and up to 42 percent for some businesses -- and to collect a record $1.5 billion profit.

But Boscola, D-Northampton, and Rep. Camille George, D-Clearfield, have drafted bills that would keep caps in place for years to come.

PPL, opposed to the Boscola and George proposals, says the rising cost of coal, oil, natural gas and other power-plant fuel have driven up the price of electricity. An extension could force PPL subsidiary PPL Electric Utilities, which serves 1.4 million Pennsylvania customers, into bankruptcy, according to the company.

Critics of the electric industry, however, argue that fuel cost doesn't fully explain the increase in electricity prices. They accuse energy companies of profiteering from an easy-to-manipulate, uncompetitive market.

In 2007, PPL earned a record $1.3 billion profit -- a 51 percent increase over the previous record set just a year earlier.

Tyrone Christy, a member of the Pennsylvania Public Utility Commission, is among those calling for re-regulation of some sort. For example, he wants electricity providers such as PPL subsidiary PPL Electric Utilities to be required to enter into long-term contracts.

Such contracts would give consumers stable prices, according to Christy. He says the regional spot markets and auctions that energy companies are now using to buy and sell electricity result in artificially inflated prices.

"Competition -- I'll just say it -- I think has failed," he said at a hearing in Harrisburg last month.

A bitter pill

Hoping to make a bitter pill easier to swallow, PPL has proposed a "phase in" plan. It would allow customers to divide their 2010 rate hike into smaller chunks that would start taking effect this summer.

Money from those payments made in 2008 and 2009 would be applied to bills in 2010, 2011 and 2012. As a result, rates for the average residential customer would go up about 7 percent in both 2008 and in 2009, and about 6 percent annually from 2010 through 2012.