The coming war over electric rate caps
I've long predicted that as the end of electric rate caps for the largest utilities in Pennsylvania drew closer, members of the General Assembly would begin to get anxious and look for ways to forestall or even prevent what will be a massive wealth transfer from the public and businesses large and small to a few large corporations and their shareholders. Rightly or wrongly, that is what it will be, and the consequences will be immense.
Today at 11:30 a.m., several Senate Democrats, led by Sen. Vince Fumo of Philadelphia and Lisa Boscola of Lehigh County, are holding a news conference in the Capitol Media Center about the end of the rate caps and what it will mean to consumers.
Rate caps were part of the deal for electric competition that the General Assembly approved in 1996. As each of the state's electric utilities were restructured for competition, they had their rates capped in exchange for the right to bill their customers for their so-called "stranded costs"--assets like nuclear plants that it was wrongly assumed would lose value under competition. You've been paying for those "stranded costs" since the late 1990s, even though their value has soared in many instances. So don't shed a tear for the utilities. They gave as good as they got.
PPL's generation rate cap will end Dec. 31, 2009, while those of PECO Energy, Metropolitan Edison, and Pennsylvania Electric will end Dec. 31, 2010. When rate caps ended in Maryland and Pike County, Pennsylvania, in 2006, electric rates shot up by about 72 percent. Pike County, served by a tiny electric utility owned by New York's Con-Ed, had a rate cap expiring at the end of 2005. I won't get into everything it did wrong in this column, but consumers, the school district, and small businesses were devastated. And it could happen again.
PPL has estimated in an SEC filing that its profits in 2010 after its rate cap ends will soar by more than $800 million. PECO, Met-Ed, and Penelec (the latter two are owned by FirstEnergy Corp. of Ohio) haven't released a similar figure, but you can be sure their profits will be about the same. They've all been doing quite well under rate caps--PPL has reported record profits by and large. It is a fair question whether they need the extra income when it will pose so much harm to the state's economy. It is also a fair question whether the genie can be put back in the bottle at this stage.
But the General Assembly will try, or at least make noises in that direction. Stay tuned.