The benefits of allowing the marketplace to set the rates for Pennsylvania's electric industry, thereby making the industry more competitive and giving more options to consumers, was the topic of a hearing this week by the House Republican Policy Committee.

The hearing was co-chaired by Reps. Mike Turzai (R-Allegheny), chairman of the House Republican Policy Committee; Scott Hutchinson (R-Venango), Minority Chair of the House Environmental Resources and Energy Committee; and Stan Saylor (R-York), chairman of the House Republican Policy Committee's Energy Task Force.

The Republican Policy Committee held the hearing to discuss the best mechanisms to help smooth the transition from a state regulated industry to a competitive market as the rate caps are removed. All of Pennsylvania's rate caps are set to expire by 2011. Testifiers included a variety of experts from the energy industry.

House Republicans are committed to exploring all options to ease the transition to a competitive market. One option – the reduction of the Utility Gross Receipts tax – was praised by members of the panel as a creative approach that could jumpstart competition in Pennsylvania.

"We believe that one of the best ways to help consumers with rising energy costs is by cutting taxes," Rep. Saylor said. "Reducing the Utility Gross Receipts tax will put more money into the pockets of Pennsylvanians and ensure confidence in the marketplace."

"That is the most creative solution by a state that I've heard of," said Susan Tierney, managing principal for Analysis Group.

Allowing the marketplace to work without government interference was a common theme among all the testifiers.

"Pennsylvania has been a leader in the nation in delivering the benefits of electric competition to millions of consumers," said Jan Freeman, Exelon Generation vice president. "Competition has dramatically improved the operating performance of existing generating units and given incentive to the construction of new power generation, including alternative energy resources. Perhaps most significant, restructuring has shifted the financial risk of construction, operation and ownership of electric generation from consumers to merchant power plan investors."

According to Aldie Warnock, external affairs vice president for Allegheny Energy, western Maryland recently went through the deregulation process; he stressed the importance of consumer education. "People [in Maryland] did not even know they were under caps," he said.

"Rate caps have shielded consumers from the true cost of energy in many parts of the Commonwealth for a decade," said Doug Krall, manager of regulatory strategy for PPL Electric Utilities. "As a result, the expiration of rate caps will accelerate the deployment of advanced metering systems providing for time-of-use rates, and the development of energy efficiency and conservation programs; all of which are measures that can help customers make wise energy choices, take greater control of their electricity use and achieve savings on their energy costs."

The testifiers agreed that the implementation of these measures will help residential users succeed in Pennsylvania's new competitive energy market.

"The reality is that we must develop our existing domestic resources in order to lessen the impact of rate caps and achieve true energy independence," Rep. Hutchinson stated. "Increasing our traditional base-load production is imperative for success in a competitive energy market. Additional generation is a long-term necessity to meet increasing consumer demand and mitigate the skyrocketing cost of energy."

"We need to follow through with electric deregulation which will bring competition and market forces to the supply of electricity," said Rep. Turzai. "An important reason for deregulation is that consumers will move toward conservation and demand side management that will ultimately help the environment and check consumer costs.

"There are certain items we should do to mitigate electricity price increases in changing toward a free market system, first and foremost cutting the tax on consumers' electric bills. We eliminated this tax on natural gas usage, and now we need to do the same for electric usage," he added.

3/21/2008