ENERGY BILL HELPS CONSUMERS, BUT MORE WORK REMAINS

     HARRISBURG, October 8, 2008 – The state Senate passed an amended piece of energy legislation (HB 2200) today that helps electric utility customers in several crucial ways, but does not yet provide relief from potential huge monthly bill increases that will hit them when rate caps expire in the next few years, Senator Vince Fumo (D-Philadelphia) said.

     Fumo, who was the main force behind the imposition of rate caps after Pennsylvania deregulated electric generation in the late 1990s, said he is confident that the General Assembly will address the looming rate hikes during the 2009-10 legislative session that begins in January. Fumo is not running for re-election, and therefore will not be a member of the Senate in the next session.

     “I and many other members of the legislature would have preferred to extend rate caps in this legislation,” Fumo said. “Unfortunately, we were unable to gain enough support for that at this time. That is a fight that will have to wait for another day. But if we don’t act now, the problem will get worse.”

     Fumo and several other Senate Democrats were heavily involved over the last few months with Senate Republican leadership, officials of the Rendell Administration, and electric utilities in trying to reach a comprehensive energy compromise that would include limits on consumer price increases that could be as large as 60 percent when caps come off for most electric company customers in 2010. While they reached agreement in several key areas, a deal on rates eluded them.

     The bill does, however, contain important protection for consumers that should be enacted now, he added. Fumo stressed that some consumers would be financially vulnerable to utility company pricing practices if this bill were not to be approved.

     “This is a major step in the right direction. The procurement portions of this bill will result in immediate customer savings,” Fumo said.

     With the amendments that Fumo and others successfully negotiated into HB 2200, it now contains two critical sets of provisions – one that requires utilities to purchase their wholesale energy at least cost and another that mandates reductions in energy usage. Both measures will produce cost savings for electric customers and lessen the impact of the expiration of rate caps.

     The energy procurement parts of the legislation have four main components.

     1. All utility companies must obtain electric power generation for their customers at “at least cost.” Current law only requires a utility to obtain electric generation at “prevailing market rate,” which is the market average. There is a requirement that the utility get the best deal or lowest price for the customer.

     2. All utility companies must obtain electric power generation for their customers pursuant to a “prudent mix of long, short term and spot market contracts.” Current law has no such requirements. As a result, all a utility company has to do is enter into a contract for power and get approval from the PUC. The new law will force the utility company to develop a prudent, diverse portfolio of energy contracts in an effort to obtain a stable price for electricity at the least cost.

     3. Utility companies would be permitted and required to enter into long term contracts of four or more years for a portion of their energy load. This will provide price stability and lessen exposure to the spot market. Currently, the PUC has not favored long term contracts. Without this change, customers will continue to be exposed to the significant price instability and rate spikes.

     4. This amendment will impose significant safeguards intended to prevent market manipulation and self dealing. Pennsylvania is the only state in the nation without an antitrust law or strong market manipulation safeguards. This amendment would require the PUC to ensure that each utility company’s energy procurement plan is free from any market manipulation. This would prevent the abuses that occurred in the California electric market when companies like Enron and Reliant Energy withheld energy generation from the market in an effort to create an artificial shortfall and increase prices.

     “All of these provisions alter current law,” Fumo pointed out. “If we don’t pass this legislation, consumers would be left unprotected against artificially high rate levels, against utility practices that provide no incentive to reduce costs, and against market manipulation.”

     He noted that all of the changes are support by the state Consumer Advocate.

     The demand reduction measures in the bill require utilities to reduce electricity sold to consumers by three percent by 2013, and by 4.5 percent at high-cost, peak usage times. Utilities will perform energy audits and devise an energy reduction plan for customers. The utility may help the consumer obtain energy efficient production equipment, solar photovoltaic panels, energy efficient lighting, geothermal heating, insulation, energy efficient appliances or efficient HVAC systems or other technologies that will reduce energy usage. The utilities will be allowed to surcharge customers’ bills an amount up to 2% to finance these programs that are to reduce electrical usage.
 
     “On the demand side we have long-term goals that will save us energy in the long run. Future generations will be the beneficiaries,” Fumo said.

     Smart meter technology will be available to customers who want it prior to the scheduled replacement date of their current meter if they are willing to pay the net costs of the meter. For new construction and customers who are due a meter, they will have a smart meter installed. Smart meters help consumers use their household electricity at peak possible efficiency by monitoring energy consumption in greater detail than conventional meters.

     “By addressing procurement and demand reduction, this bill accomplishes two of the three main objectives we had this fall. We recognize that some control of rates when the caps come off in the next several years is critically important. The incentive for the legislature to provide rate relief will only increase as customers become aware of the massive price hike that is going to it them in the near future,” Fumo said.    

     The bill must now return to the House of Representatives for concurrence in Senate amendments.

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