Competitive Electricity Costs
Electricity costs are becoming uncompetitive for major industrial users.
The cost of electricity is an important component of southwestern Pennsylvania’s business climate for many types of businesses, particularly metals and specialty chemical manufacturers. Historically, utilities in Pennsylvania and other states have charged lower rates to commercial and industrial customers using large volumes of electricity than to residential customers, partly because of the higher and more consistent volumes of electricity they purchase, and partly as a proactive economic development initiative to attract and retain these businesses and the jobs they create.
Under Pennsylvania’s Electricity Generation Customer Choice and Competition Law, utilities will no longer be able to charge significantly lower rates to large industrial customers as they have in the past. This has occurred first in Duquesne Light’s service territory (Allegheny and Beaver County). Large industrial customers have not been able to buy power in the competitive market at rates similar to what Duquesne Light had charged in the past, resulting in increases of 40-100% in their electricity costs. Similar increases in the price of electricity will likely be experienced by industrial customers served by other utilities in southwestern Pennsylvania and in the rest of Pennsylvania as these utilities transition to deregulation over the next five years.
Although states to the east of Pennsylvania, such as Maryland, New Jersey, and New York, have deregulated electricity rates, states to the west, such as Kentucky and West Virginia, have not. Regulated states still allow utilities to offer lower rates to certain classes of customers, particularly large commercial and industrial users. As a result, large industrial users in southwestern Pennsylvania are not only experiencing increases in electricity prices, but they will be paying prices that are as much as double the price available to similar firms in states such as Kentucky and West Virginia. This creates a serious competitive disadvantage for these businesses compared to similar businesses located in the regulated states. Some deregulated states, such as New York, have instituted special programs to continue offering low electricity rates to businesses.
These impacts were not anticipated when Pennsylvania’s Electricity Generation Customer Choice and Competition Law was passed a decade ago in 1996, but they must be addressed promptly in order to avoid Pennsylvania losing thousands of high wage jobs in industries that depend on low electricity prices to be competitive.
What will happen if this is not addressed? Look across the border to Maryland — a state that also deregulated electricity — where Alcoa has announced it is closing one of its facilities because of the high cost of electricity. (See additional newspaper coverage of this issue.)
To solve this, Governor Rendell, the Pennsylvania Public Utility Commission, the Department of Community and Economic Development, the Department of Environmental Protection, and the Pennsylvania General Assembly will need to take the necessary steps to establish a system that enables all industrial customers which use large volumes of electricity as part of their operations – both those currently located in Pennsylvania and those considering locating here – to obtain electricity at rates that are competitive with other states.
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