Utilities seek to skirt rate process

They say a faster approach is necessary to finance infrastructure upgrades.

  • The explosion that claimed the lives of five people in Allentown in February is the impetus behind proposed legislation that would make it easier for utilities to raise rates to pay for infrastructure improvements.
The explosion that claimed the lives of five people in Allentown in February… (Donna Fisher/Morning Call…)
November 28, 2011|By Sam Kennedy, Of The Morning Call

Electric, natural gas and waste water utilities may soon be able to raise prices without the public hearings and other costly, time-consuming steps that have long been part of the rate-making process in Pennsylvania.

Legislation that would allow the change, which proponents say is necessary to upgrade aging infrastructure, has already made it through the state House and is now under consideration by the Senate. Final passage could come next month, when Harrisburg bustles with end-of-the-year activity.

Already, the matter has pitted the state's official consumer advocate against the agency that oversees utilities.

"Either we replace this stuff or we wake up and have more situations like we had in Allentown," said Robert Powelson, chairman of the Public Utility Commission, referring to the deadly natural gas explosion in February that killed five people and leveled a city block.

That accident, which may be tied to a cracked section of an 83-year-old UGI Utilities pipe at 13th and Allen streets, was the impetus for House Bill 1294. A string of widespread power outages, the most recent of which occurred with last month's early snowstorm, has provided further rationale.

What's more, according to utilities and other supporters of the bill, so-called alternative rate hikes would finance the kind of projects that create jobs in a stagnant economy. As Powelson put it: "This is statewide stimulus without a check from the federal government."

Leading opposition to the bill is Pennsylvania Consumer Advocate Sonny Popowsky, who argues the existing rate-making process is fair because it demands deliberation.

"My concern is the bill would allow for automatic rate increases every time the utility spends money, without taking into account declining expenditures in other areas," he said.

Also opposed, albeit in different ways, are the AARP and a coalition of unions led by the International Brotherhood of Electrical Workers.

The AARP, which represents the interests of seniors, is opposed to alternative rate-making only for electrical and waste water utilities, not for natural gas utilities, according to spokesman Ray Landis.

"With gas, we're seeing explosions," he said. "We don't like it, but we understand the justification."

For the IBEW, the primary concern is jobs. Spokesman Mike Welsh said H.B. 1294 doesn't require adequate oversight of utility expenditures.

"We need jobs right now," he said. "We're looking to be sure that [rate hikes] would go to additional work, not work that [utilities] would do anyway."

At issue are the duration and cost of the existing rate-making process. If, say, UGI or PPL Electric Utilities wants to charge customers more to cover the cost of new pipes or transformers, they must first win approval from the PUC in what's known as a base rate case.

The typical base rate case takes about nine months, during which time a utility hosts public hearings and files reams of supporting documentation to the PUC. It costs on average $1 million — an expense ultimately borne by utility customers. So burdensome is the process that utilities typically go years between base rate cases. PPL typically initiates a new case every three to five years. PECO, Philadelphia's electric utility, once went two decades between cases.

Such lags, they say, can make it difficult to plan and pay for infrastructure projects that can cost billions of dollars, especially since doing so inevitably requires securing funding through financial institutions. (PPL, for example, is in the first year of a planned five-year, $3.4 billion capital investment campaign.)

In fact, winning approval for a new way of doing business has been a top priority for electric, natural gas and waste water utilities for years. A bill similar to the current H.B. 1294 expired at the end of the 2009-10 legislative session.

Water utilities, which have had approval for alternative rate-making since 1997, serve as the model.

Under the new rules, water utility infrastructure improvement has surged to 80 miles of mains a year, up from 25-30 miles, according to a 2009 PUC report.

During that period, the PUC has not received one consumer complaint about alternative rate-making, said Chairman Powelson. He described the experience of water utilities as "remarkably successful."

While alternative rate-making would probably lead to more frequent rate hikes, it would not necessarily mean consumers would pay more, according to the PUC. They would merely see small, incremental price increases instead of a single big hike every few years or so.

"This is not a rubber stamp for the [utility] industries," Powelson said.



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