Electric Deregulation:
The Real Energy Crisis
By Senator Lisa M. Boscola
America's energy crisis is real. As real as the pain you feel paying four dollars for a gallon of gasoline - and the pinch you feel at the grocery store when you're paying twice as much for bread and milk. It's a struggle today to fill up your gas tank and your grocery cart at the same time.
I'm proud the legislature recently agreed with Governor Rendell to plant the seeds of solar, wind and renewable sources of energy today that will yield a bountiful energy harvest for future generations. Our children and our grandchildren will be far less dependent on foreign oil and will reap the long-term benefits of far more sustainable energy resources.
But even this wise investment of nearly one billion dollars in alternative, "green energy" initiatives cannot put off, postpone or prevent the "real" energy crisis we face in 2010. In less than 18 months, rate caps that date back to 1996 will finally expire for the five largest energy companies that serve you and I and 85 percent of Pennsylvania's electric customers.
Electric deregulation was a bold attempt to turn an old statewide monopoly of public utility companies into a brand new, competitive marketplace. Congress and the Federal Energy Regulatory Commission (FERC) paved the way for 20 states, including Pennsylvania, to deregulate their energy industries. Trucking and airline companies had already taken off the chains of government control. Deregulation was just the antidote for "big government" and poisonous, bureaucratic red tape. After all, competition is the American way. Just get government "off our backs" and let us decide for ourselves.
But deregulation didn't live up to its promises of real competition, more choices, and cheaper electricity. Not in Maryland, Connecticut, Kansas, Texas, Ohio, Virginia, Illinois or in any other deregulated state in the country. Once rate caps expired, electric customers in each of those states saw their monthly bills increase by as much as 85 percent. That's not just "my opinion," that's what actually happened. The facts.
There's a big difference between "need and greed." Any company that made a 51-percent profit last year is not being "forced" to either raise the price of its product by 50 percent or else go bankrupt. Power companies are making record profits, higher than at any other time in company history for some of them - even while they kept their rates capped. They also ran to the bank with $12 billion from Pennsylvania ratepayers to erase their public debt ("stranded costs") and become more profitable. So far, consumers have received nothing in return except empty promises and endless excuses. In 1996, deregulation promised consumers more choices, more competition and lower monthly electric bills. But in 2010 all we will see are record rate increases and record corporate profits.
How will your family budget cover your electric bill when it goes up from $250 a month to $400 a month? How will small businesses afford to stay in business when the cost of just "turning on the lights" becomes twice as expensive? And how many industrial plants will close and good jobs disappear when higher energy costs put them in the red?
As if that's not bad enough, don't forget about the "ripple effect." The same reason higher gasoline prices led to higher grocery bills. Your local school district will have to raise property taxes to be able to keep copiers working, computers running and the lights on in every classroom. Hospitals will be forced to raise the price of providing medical care. Even closer to home, your local borough or municipality will be forced to raise taxes just to keep the streetlights on and to provide the daily services you rely on.
Free-market champions and defenders of deregulation want you to believe that "competition" is good even if it costs you an extra $200 a month on your electric bill. Companies are even running television commercials (that we're paying for) to convince us how hard they're working to save us money on our electric bill.
As State Senator, I still believe we can fix what went wrong with deregulation if we have the political will to do the right thing. In the face of this energy crisis, we must work together and make sensible decisions that will have good consequences for you and for our Commonwealth as a whole. The stakes are too high to sit back and do nothing. Above all, we must be guided by the principles of fairness. Power companies deserve to make a fair and reasonable profit - and electric customers deserve fair and reasonable rates. There are no simple answers or off-the-shelf solutions. But the legislature can take steps to help keep the price of electricity affordable and avoid the economic train wreck that lies ahead:
First, the Pennsylvania legislature must act before rate caps begin coming off in 2010. That's an important lesson we can learn from observing what happened when legislatures in our neighboring states failed to see a crisis coming until it was "too late." Lawmakers in Maryland and Texas are still trying to deal with the consequences of deregulation years later. Trying to clean up the mess after power companies are allowed to double their rates and triple their profits is like waiting until after a hurricane rips through your house to put plywood over your windows. If we cannot enact meaningful legislation by the end of next year, we must extend the current rate caps to prevent homeowners (especially those on fixed incomes), small businesses and industrial customers from being thrown to the wolves and at the mercy of so-called "market" pricing.
Second, provide real incentives for out-of-state "merchant generators" to compete for electric customers on the basis of price and innovative services. Today there is no "competitive market" in Pennsylvania. Just sitting back and waiting for "real" competition to magically appear is a foolproof recipe for making sure that it will never materialize. There are basic, fundamental conditions that must exist first. As long as incumbent power companies can continue to manipulate energy "auctions" and take advantage of PJM's arbitrary pricing scheme, they will continue to inflate wholesale electric prices and "legally" steal billions of dollars from their customers.
Third, return excess company profits to customers as a "deregulation dividend." Lawmakers in Illinois required power companies to return $1 billion to their customers when rate caps expired there - which the companies did. When power companies can afford to do that (without going bankrupt), it makes you wonder whether they really "needed" to increase rates so much in the first place.
Finally, soften the blow of higher electric rates by gradually phasing them in over five years. At a time when our economy is suffering through a recession and working families are struggling to pay higher gasoline and grocery bills (and still make their monthly mortgage payment), no one can honestly expect consumers to simply "tighten their belts" and be able to pay an extra $200 on top of their monthly electric bill. This also applies to commercial and industrial customers that are trying to stay afloat during this economic downturn.
To be sure, there is much more we can - and should - do to fundamentally address the long-term problems posed by electric deregulation. But our first priority should be to protect ratepayers from the "real" energy crisis that faces us in 2010.
America's energy crisis is real. As real as the pain you feel paying four dollars for a gallon of gasoline - and the pinch you feel at the grocery store when you're paying twice as much for bread and milk. It's a struggle today to fill up your gas tank and your grocery cart at the same time.
I'm proud the legislature recently agreed with Governor Rendell to plant the seeds of solar, wind and renewable sources of energy today that will yield a bountiful energy harvest for future generations. Our children and our grandchildren will be far less dependent on foreign oil and will reap the long-term benefits of far more sustainable energy resources.
But even this wise investment of nearly one billion dollars in alternative, "green energy" initiatives cannot put off, postpone or prevent the "real" energy crisis we face in 2010. In less than 18 months, rate caps that date back to 1996 will finally expire for the five largest energy companies that serve you and I and 85 percent of Pennsylvania's electric customers.
Electric deregulation was a bold attempt to turn an old statewide monopoly of public utility companies into a brand new, competitive marketplace. Congress and the Federal Energy Regulatory Commission (FERC) paved the way for 20 states, including Pennsylvania, to deregulate their energy industries. Trucking and airline companies had already taken off the chains of government control. Deregulation was just the antidote for "big government" and poisonous, bureaucratic red tape. After all, competition is the American way. Just get government "off our backs" and let us decide for ourselves.
But deregulation didn't live up to its promises of real competition, more choices, and cheaper electricity. Not in Maryland, Connecticut, Kansas, Texas, Ohio, Virginia, Illinois or in any other deregulated state in the country. Once rate caps expired, electric customers in each of those states saw their monthly bills increase by as much as 85 percent. That's not just "my opinion," that's what actually happened. The facts.
There's a big difference between "need and greed." Any company that made a 51-percent profit last year is not being "forced" to either raise the price of its product by 50 percent or else go bankrupt. Power companies are making record profits, higher than at any other time in company history for some of them - even while they kept their rates capped. They also ran to the bank with $12 billion from Pennsylvania ratepayers to erase their public debt ("stranded costs") and become more profitable. So far, consumers have received nothing in return except empty promises and endless excuses. In 1996, deregulation promised consumers more choices, more competition and lower monthly electric bills. But in 2010 all we will see are record rate increases and record corporate profits.
How will your family budget cover your electric bill when it goes up from $250 a month to $400 a month? How will small businesses afford to stay in business when the cost of just "turning on the lights" becomes twice as expensive? And how many industrial plants will close and good jobs disappear when higher energy costs put them in the red?
As if that's not bad enough, don't forget about the "ripple effect." The same reason higher gasoline prices led to higher grocery bills. Your local school district will have to raise property taxes to be able to keep copiers working, computers running and the lights on in every classroom. Hospitals will be forced to raise the price of providing medical care. Even closer to home, your local borough or municipality will be forced to raise taxes just to keep the streetlights on and to provide the daily services you rely on.
Free-market champions and defenders of deregulation want you to believe that "competition" is good even if it costs you an extra $200 a month on your electric bill. Companies are even running television commercials (that we're paying for) to convince us how hard they're working to save us money on our electric bill.
As State Senator, I still believe we can fix what went wrong with deregulation if we have the political will to do the right thing. In the face of this energy crisis, we must work together and make sensible decisions that will have good consequences for you and for our Commonwealth as a whole. The stakes are too high to sit back and do nothing. Above all, we must be guided by the principles of fairness. Power companies deserve to make a fair and reasonable profit - and electric customers deserve fair and reasonable rates. There are no simple answers or off-the-shelf solutions. But the legislature can take steps to help keep the price of electricity affordable and avoid the economic train wreck that lies ahead:
First, the Pennsylvania legislature must act before rate caps begin coming off in 2010. That's an important lesson we can learn from observing what happened when legislatures in our neighboring states failed to see a crisis coming until it was "too late." Lawmakers in Maryland and Texas are still trying to deal with the consequences of deregulation years later. Trying to clean up the mess after power companies are allowed to double their rates and triple their profits is like waiting until after a hurricane rips through your house to put plywood over your windows. If we cannot enact meaningful legislation by the end of next year, we must extend the current rate caps to prevent homeowners (especially those on fixed incomes), small businesses and industrial customers from being thrown to the wolves and at the mercy of so-called "market" pricing.
Second, provide real incentives for out-of-state "merchant generators" to compete for electric customers on the basis of price and innovative services. Today there is no "competitive market" in Pennsylvania. Just sitting back and waiting for "real" competition to magically appear is a foolproof recipe for making sure that it will never materialize. There are basic, fundamental conditions that must exist first. As long as incumbent power companies can continue to manipulate energy "auctions" and take advantage of PJM's arbitrary pricing scheme, they will continue to inflate wholesale electric prices and "legally" steal billions of dollars from their customers.
Third, return excess company profits to customers as a "deregulation dividend." Lawmakers in Illinois required power companies to return $1 billion to their customers when rate caps expired there - which the companies did. When power companies can afford to do that (without going bankrupt), it makes you wonder whether they really "needed" to increase rates so much in the first place.
Finally, soften the blow of higher electric rates by gradually phasing them in over five years. At a time when our economy is suffering through a recession and working families are struggling to pay higher gasoline and grocery bills (and still make their monthly mortgage payment), no one can honestly expect consumers to simply "tighten their belts" and be able to pay an extra $200 on top of their monthly electric bill. This also applies to commercial and industrial customers that are trying to stay afloat during this economic downturn.
To be sure, there is much more we can - and should - do to fundamentally address the long-term problems posed by electric deregulation. But our first priority should be to protect ratepayers from the "real" energy crisis that faces us in 2010.
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