Overcharging of Gas and Electric by Investor Owned Utilities

by Dave Nichols

I’ve noticed my gas and electric bills are much higher than they were a few years ago. Reviewing old bills I found that during the past year gas/cubic feet went up 27% and electricity/kWh increased 18% annually for the last three years. Across the state the gas and electric rates have climbed in a similar trajectory. At a rate substantially higher than overall inflation.

Most of the gas and electricity in this country are distributed by investor owned utilities.  However about 30% of the electricity and 5% of the gas are distributed by publicly owned or co-op owned utilities. PPL and UGI are investor owned. Over the last three years investor owned utilities electricity rates have increased 49% more than inflation. In contrast, publicly owned utilities have increased 44% below the inflation rate.

Utilities are monopolies in that only one utility is allowed to operate in a given territory. There is a competitive market for the gas and electricity itself but the utilities own and charge for the infrastructure to distribute the energy to your home. You can see these charges separated out on your utility bill. Utilities have been given monopoly rights to the distribution because it is inefficient to have competing infrastructure such as gas pipelines and electric lines in the same area. The monopoly right is conditioned on a social contract that permits the utility to earn a reasonable profit for the investments they make to the infrastructure. However, the investment must be necessary, cost effective, and environmentally sound. This contract is regulated at the state level by the PUC, the Public Utilities Commission, appointed by the governor and approved by the state senate.

According to the organization, The American Economic Liberties Project, the crucial reason that the investor owned utility rates have increased well over the general inflation rate is that they are granted excessive rates of return by the utility commission. Concurrent with the excessive rate of returned allowed by Utility commissions is the incentive to invest in unnecessary projects. Public Utilities finance their infrastructure investment by selling bonds in the general market. Their cost is not influence by individual profit motive. The investor owned utilities have been able to unfairly charge consumers because of a weak public utilities commission. The American Economic Liberties Project has published an in depth discussion of the problem and recommendations such as having the state legislature enact codes that set utilities rate of return to market based cost of capital. They recommend the state provide legal assistance to consumer advocacy groups. They recommend that advocacy groups to decide upon a single economic model to define a fair rater of return on capital. They also recommend the commission provide clear explanation to the public on how to comment at public hearings. You can read the complete article on their web site. The link is provided in the written transcript of this talk on the UU Social Action web page.

Resources
Rate of Return Equals Cost of Capital: A Simple, Fair Formula to Stop Investor-Owned Utilities From Overcharging the Public
This discussion did not include the subject of electric grid improvements required for the transition to renewable energy, for re industrialization, and for data centers. If utilities are allowed to charge exorbitant rates for these grid investments, consumers will pay dearly. There is a proposed PPL rate increase hearing Monday Dec 8 @ 6:00 PM at the Scranton University Brennan Hall-Rose Room 5th floor, 320 Madison Avenue Scranton, PA 18510.

Tell the PUC: Pennsylvanians Should Not Pay for Data Center Energy Exploitation
The Sierra Club has more information about the hearing. You can find it at their website or use the link printed in the transcript.