Electric bills continue to rise, and Pennsylvania consumers are feeling the pain. For example, in Pittsburgh last yearmany residents saw their bills skyrocket by fifteen percent in June and over ten percent in December. Instead of adopting reforms that could lower prices, elected state leaders are engaging in petty political games. Democratic Gov. Josh Shapiro last letter to the municipal authoritiescalling on them to stop raising interest rates is more about scoring political points and making headlines than providing meaningful support to Pennsylvanians struggling to pay their bills.
The governor called on 24 Pennsylvania-based utilities to “control costs” and justify rate demands that he says place too much of a burden on consumers. This is an understandable political message at a time when families are feeling the pressure. But this is also a situation where there is a fundamental misunderstanding of how the system actually works and what actually causes interest rates to rise.
Currently, in Pennsylvania, utilities are largely prohibited from competing in electricity generation. Instead, the Commonwealth is tied to a regional grid operator called PJM Interconnection, which maintains policies in many states that limit utilities’ ability to build recent power plants. These regulations protect independent energy producers from competition and give them an artificial advantage in energy production. The result is a system that is much less competitive than advertised. No wonder demand is growing without adequate supply which led to an raise in retail electricity prices in PJM states at the level of 15-25 percent. annually.
In response to these problems, PJM is trying to keep costs under control. May 6 Reuters reported that PJM is “considering market changes that could change how electricity is purchased and sold system-wide.” One idea “would require most of PJM’s electricity to be sold through long-term contracts between suppliers and wholesale buyers at fixed rates, with the capacity market continuing to operate on a smaller scale.” Another path would require PJM stakeholders to decide “whether to limit capacity fees in exchange for reducing the reliability of electricity supply.” These proposals, which amount to changing the arrangement of deck chairs on the Titanic, have one thing in common: they do not address the elephant in the room. Until PJM states allow utilities to compete in power generation markets, demand will continue to outpace supply.
PJM understands the supply problem… to some extent. How Plac Centralny recently announced thisfor the first time in four years, PJM “announced that 811 next-generation projects want to connect to the grid in the first cycle of the reformed interconnection process.” These projects may seem promising, but they all involve the same incumbent suppliers, protected from competition. Profiling the “diverse mix of resources queuing for connection to the grid” obscures the true lack of competition in PJM states.
In addition to ignoring this critical supply issue, the governor is entering an area where he simply has no authority. In Pennsylvania, rate setting is the responsibility of the Public Utility Commission (PUC), an independent body tasked with making decisions based on evidence and established law. By publicly signaling opposition to certain interest rate determinations, the governor risks undermining the PUC’s independence and inserting politics into a process that is supposed to be technical and fact-based. While PUC decisions cannot actually replace market pricing, pricing under political pressure is a far worse outcome than independent PUC decision-making.
Even the voivode wants to General Meeting to they essentially dictate how return on equity (ROE) is calculated for already regulated services immediately after the law enters into force. That’s right: a statutory, mandatory return on investment applicable to any regulated service such as water, gas and electricity. This type of regulation has never been introduced in the U.S. before and would almost certainly hamper energy supplies.
If the goal is truly to lower electricity costs, the focus should be on increasing Pennsylvania’s supply and encouraging investment in recent power generation across the state by strengthening true competition in power generation. This includes re-examining regulations that prevent utilities from building and owning power plants alongside independent producers. A more balanced approach would raise reliability and support stabilize prices over time.
Efforts to limit returns or put pressure on utilities may be politically attractive, but they do nothing to change the dynamics underlying higher bills. Shapiro’s letter may attract attention, but it will do little to keep the lights on or lower prices.
This article has been republished with permission Central Square.
