HARRISBURG – State Rep. Camille “Bud” George, chair of the House Environmental Resources and Energy Committee, today noted that a study by a national group indicates that ratepayers paid higher rates under deregulation despite continuing profits by deregulated utilities and sharply lower wholesale electricity costs.
“The study by the American Public Power Association shows consumers suffered a double-whammy last year from the recession and deregulation,” said George, D-74 of Clearfield County. “Despite the economic downturn and lower wholesale costs for electricity, ratepayers faced higher prices while deregulated utilities showed consistent and even higher profits.
“The report is an indictment of the regional wholesale distributor of power, PJM Interconnections, and those who consider oversight of the utilities to be “silly.’” said George, whose House Bill 1909 would create a public power agency to purchase cheaper electricity on behalf of Pennsylvania’s citizens and businesses and spur development of new generation in the state.
APPA, the national service organization for more than 2,000 community- and state-owned, not-for-profit electric utilities serving 45 million customers, said the study “at a minimum demonstrates that the question of whether the [Regional Transmission Organizations] RTO-operated markets are providing benefits to consumers in terms of just and reasonable rates has not been answered.”
“A reasonable person would think the state Public Utility Commission would make answering this question a priority and prompt the Legislature to consider fixing the 14-year-old deregulation debacle,” Rep. George said. “Instead, we’re force-fed the ruse that consumers are saving money by shopping and paying more for electricity.”
According to the APPA report:
? Earnings by companies, including Pennsylvania utilities, “indicate that their revenues from the sale of electricity greatly exceed their costs of producing electricity”;
? The continued profitability of these companies is a direct indicator of insufficient competition and higher costs for consumers;
? Most of the primary owners of unregulated generation in PJM reported returns on equity about even with 2008 and significantly above regulated returns;
? Three of the subsidiaries owning unregulated generation increased their profits between 2009 and 2008;
? Gross margins from the sale of electricity increased in 2009 for three of the four companies reporting this measure;
? Shareholder gains for the companies in the study greatly exceeded returns from investments in the S&P 500 by almost $40 billion over the last 10 years.
The report notes that PPL’s supply segment earnings from continuing operations increased from $303 million to $333 million. Net income from competitive energy services for First Energy – which includes Met-Ed and Penelec — increased from $472 to $517 million between 2008 and 2009.
“An often-made claim is that under deregulation, these profits are justified because it is the companies who bear the risks of excess costs, while consumers are freed from such risks,” the APPA report said. “But the persistence of these high earnings and stockholder prices raises the question of whether companies are in fact bearing such risk.”
In a news release, APPA President and CEO Mark Crisson said the study strongly suggests once again that wholesale electricity markets “are producing undue profits for merchant generators at the expense of electricity consumers.”
“If these RTO-run wholesale electricity markets were truly competitive, during a time when demand and energy prices are falling, generator profits shouldn’t be increasing,” Crisson said. “Yet publicly available data identified in this new analysis shows that most generators continue to enjoy increased profits above what one would expect in a competitive market.”
The report, “2009 Financial Performance of Owners of Unregulated Generation:
High Profits Earned in Restructured Wholesale Electricity Markets During the Recession,” is available online.