SB 897 puts utility profits first, ratepayers and reliability last

Senate Bill 897 represents a costly and unnecessary abandonment of Pennsylvania’s successful competitive power market. Despite its proponents’ spin, the legislation will increase prices and jeopardize grid reliability while increasing the bottom line of utilities. The bill is riddled with flaws and must be rejected.  

The bill represents an opportunistic attempt by some utilities to return to a time when captive customers paid above the national average for electricity and shouldered all the risks of building and operating power generation.

Amid energy policy debates on meeting rising demand and affordability, Pennsylvania must not lose sight of the long-term benefits competitive markets have provided to consumers. 

Even with recent capacity auction increases, Pennsylvania’s electricity rates are consistently below the national average. Independently owned competitive power generators have created a massive in-state surplus of electric power while solely bearing the costs and risks of building new power plants. The current market fosters competition and drives efficiency, as evidenced by Pennsylvania’s prodigious generation surplus and competitive rates.

The proposed legislation marks a significant policy shift that would ignore the fortunate position Pennsylvania enjoys thanks to competitive markets. The Commonwealth currently has 40% more power than it needs to meet peak demand. This enviable surplus means Pennsylvania nearly always exports power to neighboring states with generation deficits, no matter how much demand fluctuates.

To be clear, if Pennsylvania customers are required to again pay for new power generation built by regulated utilities, it will be to meet the electricity needs of other states, not Pennsylvania’s.

Although never mentioned by SB 897’s proponents, utilities can create a non-regulated affiliate company to build new power generation. In fact, most Pennsylvania utilities at one point owned such affiliates that competed on a level playing field with other competitive generators. The utilities ended this practice because they found the business affiliates too financially risky and not profitable enough. 

SB 897 would allow utilities to build, own and rate-base new power plants—something that Pennsylvania utilities have been unable to do for 30 years. The risks associated with new power generation investments would be transferred from investors to utility ratepayers. This creates a risk-free financial environment for utilities while obligating ratepayers to subsidize generation projects, regardless of performance or market competitiveness.

In contrast, competitive generators rely entirely on market forces, assume all performance and financial risks, and do not have guaranteed cost recovery. 

The most recent PJM capacity auction demonstrated that competitive market signals are driving investment and boosting grid stability with the addition of 2,669 MW and the reversal of 1,100 MW of retirements. This positive trend—with new generation being introduced, existing resources preserved and retired capacity brought back online—is undeniable.

Left unexamined and unchecked, the utility-driven approach proposed in SB 897 is one of self-interest, assuming that consumers will be used as shields to fund utility power generation ventures and subsequent profits. Its proposal is a dramatic departure from the provisions of the 1996 Competition Act, which has provided huge benefits to retail customers across the Commonwealth—a law that many Pennsylvania utilities championed for decades.

The bottom line is that competitive power markets have been an enormous success story in Pennsylvania, and there is no reason for policymakers to jeopardize that success by supporting SB 897. Are there challenges ahead? Definitely. However, Pennsylvania’s competitive power markets have proved to be remarkably resilient and beneficial for all consumers. They have endured recessions, polar vortexes, inflation, high- and low-interest rates, pandemics and natural disasters, all while delivering data-verified value to consumers through lower rates, unprecedented investment and remarkable emissions reductions.

Pennsylvania’s competitive market structure is more than capable of getting the Commonwealth through the challenges ahead.

Mr. Thomas is president of PJM Power Providers Group (P3 Group), and served on the Pennsylvania Public Utility Commission and served on the Pennsylvania Public Utility Commission from 2001 to 2005.