Ex-Governor Tom Ridge's hidden legacy emerges from the shadows

The long-standing love affair which a majority of Pennsylvanians
have had with former Governor Tom Ridge is likely to come to a
screeching halt for many of them in the next couple years.

That’s when one of Ridge’s hidden gubernatorial legacies, a ticking
time bomb, emerges after two decades from the shadows.

A product of the law of unintended consequences, it’s the impending
reversal of the deregulation of electrical rates throughout the
commonwealth which Ridge sponsored and championed as governor in the
mid-1990s.

The return to unregulated electricity rates will complete the triple
whammy of energy consumer cost explosions, and exacerbate the
adverse economic impact which has followed the dramatic increases in
gasoline and heating fuels over the past year.

Depending upon location within the state, electric rates are
expected to jump anywhere from 12 percent to 72 percent in 2010 and
2011, with a statewide average of more than 40 percent.

That’s when the rate caps imposed by the Electricity Generation
Customer Choice and Competition Act - signed into law by Ridge in
1996 after a robust campaign promoting it - will expire.

The catalyst for the concerns about a forthcoming crisis in the
skyrocketing consumer cost of electricity is a study recently
released by the Pennsylvania Public Utility Commission (PUC).

It found that if the rate caps were to come off today, electric
rates in Pennsylvania would rise virtually overnight by an average of 43
percent, and impose a calamitous burden on home, commercial and
industry users.

The spike in electric prices is expected to be highest in the western
part of the state, where they look to rise by as much as 67 percent
in Allegheny County, and 50 percent in northwestern Pa., according to
the PUC study.

Some experts believe impending deregulation will precipitate a mass
exodus of industry and commerce from Pennsylvania, cause thousands
of small businesses throughout the commonwealth to fail, result in
massive unemployment, and further impoverish low income residents,
all of which the 1996 deregulation act was designed,
over-optimistically as it turns out, to forestall.

After the fall, the act will allow electricity producers to charge
rates based upon their costs of production and delivery.
Previously, they could not recover those costs through proportional
rate increases because of the ceiling placed on rates by the 1996
act, signed by Ridge after a high visibility promotional campaign.

But with the caps due to come off at staggered intervals throughout
the state in 2010 and 2011, electricity producers will be able to
charge rates which putatively reflect their costs of acquiring the
fuels needed to generate electricity – primarily oil, natural gas
and coal. Those costs have risen exponentially since the electric
rate caps were first applied in 1997.

Normally, the powerful electricity-producing lobby would have been
able to thwart passage of legislation in 1996 regulating and
putting caps on electrical rates. But what gave deregulation its
impetus in the mid-90s was a disarming Faustian bargain between the
popular Ridge administration and the general assembly on one hand,
and the electric industry on the other, the unintended consequences
of which are only now beginning to appear.

It provided that in exchange for acquiescing to rate caps, the
industry would be allowed by the state through the PUC to bill and
recover from consumers the costs of constructing new electrical
generating plants, a practice previously disallowed.

Ridge’s rationale centered on the theory that lower electrical rates
than those in other states would attract new industry to
Pennsylvania, produce tens of thousand of new jobs, and give rank
and file Pennsylvania users more affordable electricity.

In the first years following deregulation, Pennsylvania surpassed
other states in electrical rate-lowering, ranking first in the
nation. In a February 7, 2001 press release Ridge said: “Once again
we were named the No. 1 state for electric deregulation. Why? We
have plenty of juice…we’re plugged in. Customers have greater
choices. And consumers and businesses have saved $3 billion. So if
any companies in California are listening,” Ridge gloated, “come on
over to Pennsylvania. We’ll leave the lights on for you.” Ridge said
at the time deregulation “will create more than 36,000 new jobs in
Pennsylvania by 2004.” That never happened.

Ridge’s theory was based on the optimistic premise that the capped
rates would bring new electric-producing competitors into the state
and lower rates overall through wider competition. The flaw in the
theory was that it self-destructed.

Newcomers couldn’t compete in Pennsylvania with the big existing
producers. Even with the rate caps, existing producers were able to
generate healthy profits since deregulation went into effect 20
years ago because of the absence of new competition.

With the unshackling of the rate caps two years hence, they will
make a killing of unprecedented proportions at the expense of
consumers unless the legislature and the PUC enact and devise
remedies to interdict them against what is expected to be a
powerful lobbying effort by the industry to make sure the rate caps
disappear forever.

How is retribution exacted from a former governor whose failed
vision 20 years after the fact results in punitive consequences on
an unprecedented scale for his onetime constituents?

By elevating him, apparently, to one of the nation’s leading
cabinet level positions and, possibly, to the second-highest office
in the land.