News

August 31, 2008

Study: Pa. will lose jobs when electricity rate caps expire

Higher bills will force employers to cut jobs, the Penn State researchers found.

MARC LEVY Associated Press Writer

HARRISBURG — In a little more than two years, nearly everyone across Pennsylvania will feel the pain of substantially higher electricity bills as degregulation-era rate caps expire.

What two Penn State researchers are trying to calculate is just how much it will hurt.

David Passmore and Rose Baker, who run the university’s Workforce Education and Development Initiative, applied a modeling formula to show what kind of impact they think the increases will have on employment, population, production and income.

“It’s not a hurricane disaster,” Passmore said in an interview. “It’s something that’s going to be noticeable, and you don’t want it to happen, but it’s not going to destroy the Pennsylvania economy. It’s going to require adjustment.”

Individual families could feel a substantial blow from the increased electricity bills, expected to be anywhere between 20 percent and 63 percent, the report said. Undoubtedly, the people who make the least amount of money will suffer the most.

People, businesses, government agencies and others will spend less on necessities and luxuries, squeezing employers. When employers begin cutting back, workers in the lowest 20 percent of income earners are likely to bear two times the job loss and income loss as will the people in the top 20 percent, the Penn State report said.

“If you’re in the lowest income, you’re going to have to do something,” Baker said.

Jobs will be cut, or workers will not be replaced when they leave. The businesses that will feel the most pain are the ones that rely on purchases for households, the report said.

All told, the study found that a 10 percent increase in electric bills will cost more than 9,600 jobs by 2015, if the consumption of electricity continues to rise by 1 to 2 percent a year. If electric bills rise by 70 percent, the cost in jobs will be more than 67,000 — about 1 percent of the full- and part-time jobs Baker and Passmore expect Pennsylvania to have by then.

In Maryland, where rate caps expired last year, more people sought public assistance in paying their bills and there was an increase in the number of customers whose power was shut off by the utilities, said Theresa Czarski of the Maryland Office of People’s Counsel. She said, however, that it is hard to know how much of the blame rests in the deregulation and how much can be attributed to other factors like the stagnant economy.

Pennsylvania’s caps, which froze electric rates at 1990s levels, were imposed on utilities as part of a deregulation designed to deliver lower bills in a competitive marketplace.

But competitors are really only active on the margins — they say they cannot compete because of the unforeseen increase in the price of fossil fuels — and consumer advocates say the federally regulated wholesale market sets prices artificially high, delivering a windfall to the power companies.

Once the caps expire, utilities can bill customers for the wholesale price of the power they use.

Some utility caps in Pennsylvania have expired. Most residential customers of Pennsylvania Power Co. saw bills increase by 20 percent to 30 percent when the northwestern Pennsylvania utility’s rate caps expired last year. The largest industrial customers saw bills rise an average 61 percent.

On Jan. 1, 2010, rate caps come off in PPL’s service territory. On Jan. 1, 2011, rate caps are coming off in the territories of Allegheny Power, Metropolitan Edison, Peco Energy and Pennsylvania Electric.

The state’s utility consumer advocate, Sonny Popowsky, said the higher electric rates will hit on the heels of huge runups in the price of home-heating fuels that have already stretched budgets.

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