Rendell backs "reasonable' extended rate caps

But PPL says it could lose $100 million a month, be bankrupted by such a move.

By Sam Kennedy | Of The Morning Call

November 15, 2007

Gov. Ed Rendell voiced qualified support for extending caps that freeze electricity rates but are due to expire in 2010 and 2011. "There's a better way to do it than extending rate caps," Rendell said Tuesday while promoting his own wide-ranging energy plan.

But "if the Legislature sent me a bill with reasonable rate capsI would sign it," he said.

His comments come amid an ever-expanding backlash against rising electricity rates in states that chose to deregulate their electric industries a decade ago.

Illinois forced electric companies this fall to refund customers $1 billion. A New York lawmaker last week called for reregulation. Ohio is debating the details of its reregulation plan.

"There clearly appears to be an increased level of apprehension [about] relying on competitive markets to set the price of electricity," said Paul Patterson, an analyst at Glenrock Associates an energy consulting firm in New York City. "How the industry meets that challenge is unclear at this time."

PPL Corp. of Allentown, whose rate cap is due to expire in 2010, is vehemently opposed to an extension. (Caps for other major Pennsylvania electricity providers, including Metropolitan Edison Co. and PECO, are to end in 2011.)

An extension could force PPL subsidiary PPL Electric Utilities, which serves 1.4 million Pennsylvania customers, into bankruptcy, PPL spokesman Dan McCarthy said Wednesday.

On Jan. 1, 2010, PPL rates are expected to surge 35 percent for residents and up to 42 percent for some businesses. The rising cost of coal, oil, natural gas and other power-plant fuel have made electricity more expensive to produce -- although critics of electricity deregulation say fuel cost doesn't fully explain the increase in prices.

According to PPL, if rates were held in place beyond 2010, PPL Electric Utilities could lose $100 million a month.

"We think any extension of the rate cap is just bad public policy," McCarthy said. "All it would do is postpone the inevitable move to the market [prices]."

In Harrisburg, Sen. Lisa Boscola, D-Northampton, has been among the most vocal proponents of rate-cap extensions. She is working on legislation to extend rate caps for five years, her spokesman Bernard Kieklak said Wednesday.

Rendell said he would not support Boscola's bill or any extension that doesn't adjust caps for inflation.

Under intense lobbying by the electric industry and large electricity consumers, Pennsylvania decided to deregulate its electric industry in 1996. The change meant the state's Public Utility Commission would no longer be able to set electricity prices, as it had for decades.

Rate caps were put in place to protect customers from temporary price spikes associated with the new way of doing business -- one in which prices would be determined by market forces. The end of rate caps in 2010 and 2011 represents the final step in Pennsylvania's long transition into deregulated electricity.

Morning Call Harrisburg reporter Christina Gostomski contributed to this story.