How a bill passed in the wee hours by state lawmakers 12 years ago set the stage for surging electricity rates

June 22, 2008
The Morning Call
Sam Kennedy

Pushed by Enron and crafted behind closed doors, the 84-page measure to deregulate Pennsylvania's electric industry was slipped into a bill that called only for a one-word change in the state's taxicab law.

"This legislation," then-Gov. Tom Ridge promised on the eve of the vote, "will mean lower electric bills for working Pennsylvania families, more jobs for working Pennsylvanians and more choices for Pennsylvania consumers."

Passage by bleary-eyed lawmakers came in a last-minute vote in the middle of the night.

Nearly 12 years have passed since then, and there's yet another year and a half to go before electricity deregulation takes full effect in the Lehigh Valley. Instead of going down, PPL Corp.'s rates are expected to surge an unprecedented 34 percent for homes and up to 43 percent for some businesses on Jan. 1, 2010, when a cap on what the Allentown company can charge for electricity is due to expire.

Businesses are threatening to leave the state. The choices they thought they'd get have yet to materialize. In the PPL service territory, for example, most customers have only one source of electricity -- the same one they've always had: PPL.

Yet, most of the key figures responsible for bringing deregulation to Pennsylvania in the 1990s stand by their words and actions.

"It was part of a package to make Pennsylvania a leader among states," says Ridge, now a consultant in Washington, D.C. "I still think that, at the end of the day, competition is the better model."

Says former PPL Chief Executive Officer William Hecht, an influential early advocate of deregulation, "Fundamentally, it was in the consumer interest. It still is."

He makes his case with a familiar argument: "It will result in the most efficient power supply system." And he offers a new one, about conservation: "I believe that raising the price [of electricity] is going to be a very powerful reducing the environmental impact of human activity."

Other industries exposed to the forces of the marketplace delivered lower prices. Airlines and telephone companies both experienced a sharp increase in competition and a wave of innovation after deregulation; suddenly, people could fly cross-country at bus-ticket prices and call long-distance at local rates.

But electricity, it turns out, is just different -- on both sides of the supply/demand equation.

First, power plants cost billions of dollars to build. Would-be competitors to PPL and the other big, established electric companies don't enter the market either because they can't come up with that kind of money, or because they're afraid they won't recoup their investment. Other than a restored coal-fired power plant, no new major baseload generation (the kind that's used year-round) has come online in Pennsylvania under deregulation.

And then, electricity is, unlike air travel and telephone service, a necessity with no substitute. If the price of a plane ticket goes up, people may choose to travel overland or simply stay put. But they have no alternative to electricity when it comes to lighting and powering their homes and businesses; they must buy it, no matter the price.

Such issues have raised doubts that the marketplace will ever deliver the lower electricity rates predicted by free market advocates. Indeed, rates are rising faster in states that restructured their electric industries than in those that retained traditional regulatory control, according to an analysis of U.S. Department of Energy data by Power in the Public Interest, a watchdog group in Olympia, Wash.

Still, the original proponents of deregulation caution against a rush to judgment.

"Deregulation, we knew, was a long-term proposition," says John Quain, former chairman of the Pennsylvania Public Utility Commission. "Once those rate caps come off, I'm still convinced, philosophically, that competition will beat regulation."

Competition -- it was one of the all-American-sounding words Enron employed in the mid-1990s to win converts in Pennsylvania. The Houston company had sent its lobbyists on a nationwide crusade to transform the electric industry.

In Harrisburg, they found a ready audience. Not only were Philadelphia and Pittsburgh burdened with some of the highest electricity rates in the country, but the newly elected Ridge, a Republican whose party also dominated the Legislature, was eager to put his stamp on the state.

Only a few people spoke up during a brief legislative debate that preceded the vote on the taxicab-turned-deregulation bill. Among the most vocal of these was Sen. Vincent Fumo, D-Philadelphia.

Fumo predicted it would lead to "the largest transference of wealth between the poor and middle class to affluent corporations that has ever occurred in America."

Others just wanted more time to consider the arguments. "Most members have not been given a chance to read this bill," Rep. John Lawless, R-Montgomery, pleaded on the House floor.

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