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Looming rate hikes for electricity demand action in Harrisburg

Energy is on the minds of just about everyone these days. Gasoline prices are the most visible of our energy costs, and oil at $100-a-barrel is a shock.

In winter, the focus is on the cost of natural gas and home heating oil. Electricity generally doesn't get the same attention. But is should, and it will soon, at least in Pennsylvania.

The reason for the need to pay attention to the electricity market is that a 1996 experiment to introduce price competition into the electricity market by the administration of Gov. Tom Ridge is not working. Rates were capped and utilities were allowed to charge customers more to pay for "stranded costs" associated with their power plants. Generation was separated from transmission and deregulated.

Not surprisingly, the Electricity Generation Customer Choice and Competition Act of 1996 was a complicated plan. Similar programs were enacted across the country with high hopes of lower prices. But so far, the part of the plan that was supposed to introduce competitive market forces has failed.

The result is big rate increases as caps expire. Different companies' rates come off at different times, but the early evidence suggests consumers are in for a shock — to the tune of a 30 percent jump in electricity costs.

In one part of the state it was far worse. In 2005, Pike County Light & Power Co. hit its customers with a 72 percent rate hike when its caps came off.

One solution, promoted by some in the General Assembly is an extension of the existing rate caps. Gov. Ed Rendell has in the past said he might support such a move.

Another solution is legal action. Recently, a complaint was filed with the Federal Energy Regulatory Commission (FERC) over rates charged by PJM Interconnection, the Valley Forge-based operator of the Mid-Atlantic power grid, which impacts rates in 13 states, including Pennsylvania.

A similar complaint filed with FERC over skyrocketing rates in Illinois following the removal of rate caps there resulted in a ruling that produced a $1 billion rebate to customers for rates determined to be unreasonably high.

Tyrone Christy, a Butler native and resident of Meridian, is a commissioner with the state Public Utility Commission and his primary focus on the commission is to help find solutions to what is generally seen as a broken market for electricity.

Christy, who stopped at the Butler Eagle last month to explain his concerns over the impact of expiring rate caps, described a symptom of the broken market place. Christy pointed out that Pennsylvania gets most of its electricity from low-cost coal-fired plants, but a small percentage of the time generation from higher-priced natural gas kicks in. Based on rules used by PJM, the higher (natural gas) rate can applied to the all the electricity produced, including the large portion from low-cost coal-powered plants. "It's nuts," is the way Christy described the situation.

Many generating facilities that have been deregulated have been found to be making what most characterize as unreasonable profits, taking advantage of market conditions or regulatory loopholes. This results in electricity prices that are much higher than necessary.

It might not be another Enron, but it clearly demands the attention of state and federal officials.

In response to the emerging national crisis over spiking electricity rates, many states are threatening to reregulate or are trying to make the competitive market work the way it should. In some cases, there also is talk of imposing special, targeted taxes on generators.

One way or the another, the electricity market has to be changed. True competition might be the best outcome, but if that can't be achieved, utilities should expect to be brought back under tighter government pricing controls.

With a few years remaining before most rate caps come off in Pennsylvania, now is the time for electricity users — that means everybody, from homeowners to industry — to contact their state representatives about the need to fix the competitive electricity market.

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