Rate caps expire for the PPL region—which includes the majority of central Pennsylvania—in 2010, and for several other electricity providers the following year. The Governor has publicly supported proposals like House Bill 20 that would limit rate increases to 15 percent per year for three years following the expiration of rate caps. While the goal is to keep prices low for consumers, phase-ins and rate cap extensions will increase the cost of power by preventing competition and pushing rate increases further down the road. At the same time, these policies discourage the construction of the additional capacity as the demand for power increases, thus creating more scarcity.
Worse yet, delaying the expiration of rate caps could provoke legal action from utilities that have made critical decisions based on the current statutory timeline. Companies can delay rate increases, but only by charging additional consumer fees to offset rising production outlays. In an attempt to mitigate rising costs, Governor Rendell is advocating proposals that will increase prices in the long term and inhibit economic growth from outside companies looking to invest in the state’s wholesale electricity market.
At the same time, Rendell supports additional mandates increasing the amount of electricity that must be produced from expensive “alternative energy,” which would increase the price of electricity for consumers. House Bill 80 requires 33 percent of all electricity to come from specific alternative sources by 2026 compared to 5.7 percent today. These requirements ignore estimates that only 12.5 percent of all US generation will come from renewable sources by 2030, even with extensive taxpayer subsidies. The standards specifically increase solar targets to 3 percent by 2026, which is 3,000 times the current amount of energy produced from solar power in Pennsylvania.
Such a policy would force generators to use alternative energies like wind and solar, regardless of the cost. It is counterintuitive for the Governor to champion rate mitigation in the name of cheaper energy and then turn around and promote a new series of regulations that will increase the cost of producing power.
Finally, the Governor has promoted a natural gas severance tax as a new budget revenue source. Taxing an infant industry would be devastating to those families in economically stagnant regions that are reaping royalties and lease payments from natural gas companies. While Rendell is demanding higher taxes at the threat of laying off a few hundred state workers, he is willing to undermine the possibility for creating 98,000 jobs.
Unfortunately, the Governor believes he should decide which business ventures succeed and fail. Rendell attempts to manipulate consumer behavior through a barrage of mandates and subsidies like the Alternative Energy Investment Fund, while less politically profitable resources like clean-burning natural gas are considered easy tax targets. Taxing one industry while propping up another is not sound energy or tax policy.
Despite the Governor’s rhetoric, his policies will prevent economic opportunities through needless regulation. Attempting to meet Pennsylvania’s energy needs through politically popular schemes is economically unwise. The Governor should be consistent and let the energy industry operate without unnecessary interference that will increase energy prices for Pennsylvania families.
Elizabeth Bryan is a Research Associate with the Commonwealth Foundation (www.CommonwealthFoundation.org), a public policy education and research institute located in Harrisburg.