A new report found that over the last five years, Pennsylvania has been ahead of the national average in electricity rate increases. But honestly, everyone paying an electric bill in the commonwealth is probably already aware of this.
For those who like to look on the bright side, among states that experienced higher-than-average rate increases over the last half-decade, Pennsylvania fared better than most. Also worth mentioning is that, compared to our regional neighbors, Pennsylvania’s electricity rates are lower than those of New York, New Jersey, Maryland and the District of Columbia. Only Ohio and West Virginia fared better.
With an influx of data centers and the increased electrification of our everyday lives, this report is important because it offers an honest assessment of why electricity rates are rising. Without this knowledge, it’s hard for lawmakers and regulators to make changes that will help stabilize or even lower electricity rates. It’s also important to educate the public about energy, so an informed electorate can hold politicians accountable.
So why are rates going up in Pennsylvania? The primary reason is that wholesale electric prices are rising. These are the operating expenses the utilities recover from customers at cost, and they don’t translate into corporate profits. At the heart of the problem is that Pennsylvania participates in the PJM Interconnection, which links electric grids from the Carolinas to Illinois.
Pennsylvania joined PJM through a process called deregulation, which limited our regulated utilities (i.e., PECO, PPL, Duquesne Light) to pole-and-wire companies that were no longer allowed to generate and sell electricity. The rationale was that electric utilities earned profits from building new generation sources. Therefore, they were inclined to overbuild — and create excess electricity that wasn’t needed, but customers had to pay for.
Through deregulation, only independent power producers, or IPPs, would be allowed to build power plants. IPPs would build more generation if the PJM market sent demand signals (higher electricity prices) to increase power supply. Well, PJM has been sending signals for years now that more electricity will be needed, but the IPPs haven’t responded. Part of this is the fault of PJM’s bureaucracy. But the bigger challenge is that the IPPs don’t want to spend money to devalue their current assets by building new power plants.
In other words, for IPPs, as electricity becomes scarcer and the cost of an electron rises, it makes financial sense to not build new generation, so their existing power plants become even more valuable.
This is also why some lawmakers in the state want to allow regulated utilities to construct power plants and sell electricity again, because they are financially incentivized to build more power plants.
Lastly, the report found that electricity costs have risen over the past five years because the cost of natural gas has increased, with notable price spikes. The more it costs to produce electricity, the more customers have to pay on their electric bills.
The good news for Pennsylvanians is that Gov. Josh Shapiro is perhaps the most proactive executive in the nation, seeking realistic policy options to help lower electricity costs. Because prices are rising for systemic causes, it won’t be easy or quick to fix these challenges. But being honest about why power bills are going up is the first step to fixing the problem.
Trish Reilly served as the chief of staff to former Pennsylvania Congressman Tim Holden and is a member of the Centrist Democrats of America.
