Ellwood City electric bills spur move to restrict municipal power company spending

Just 35 of the state’s nearly 2,600 municipalities act as their own community power companies — including six in Allegheny, Butler, Beaver and Lawrence counties. They purchase power at a wholesale rate, then charge a retail rate to deliver electricity to their residents and businesses.

Most of those governments use surpluses from their electric services to fund things like police departments and road work while keeping borough property taxes low or, in some cases, eliminating them.

But a bill with broad support in the Pennsylvania House would alter the way electric revenue can be spent by municipalities that own and operate their own electric utilities. House Bill 1405 would end transfers between a community’s electric account and its general fund.

The bill’s sponsor, Republican Rep. Aaron Bernstine, was inspired to act after residents in Ellwood City in his Lawrence and Beaver counties district complained of erratic and expensive electric bills from the borough power company.

At a press conference in May at the Ellwood City home of Karen Boyle, he illustrated the $1.45 million in electric revenue that the borough spent on government functions in 2016 by using an oversized check made out to the “General Fund for Reckless Spending.”

“It’s never the same thing,” Ms. Boyle said about her monthly electric bill. “It can go from $200 to $300, and we just need some help here.”

Unlike investor-owned electric utilities, like West Penn Power and Duquesne Light, the municipal power companies’ rules and rates are not regulated by the state Public Utility Commission. People in those jurisdictions cannot shop for an alternative electric supplier.

The line workers are borough employees and the bosses are the elected members of borough council.

Advocates of the small, local systems say those features make them uniquely responsive — if residents don’t like the way the system is run, they can vote out senior management in the next election.

“It is democracy at its pure level. It is democracy at its smallest level,” said David Woglom, executive director of the Pennsylvania Municipal Electric Association, which represents the 35 state boroughs with community-owned power.

Mr. Bernstine argues the borough power companies are monopolies that set power rates as a form of taxation.

The bill, which has 81 co-sponsors from both parties, would require municipal power companies to have “reasonable and uniform” rates — the same standard that applies to municipal sewer and water authorities — and energy revenues could only be used to pay for the borough’s expenses for producing and distributing electricity.

It authorizes legal challenges to municipal electric services in county courts, prohibits rate changes more frequently than once every three months, establishes standards for payment agreements with delinquent customers and sets rules for winter shutoffs for low-income households.

The bill’s supporters include interest groups across the ideological spectrum, including the regional affiliate of the Service Employees International Union and the state chapter of Americans for Prosperity, as well as business groups, utility affordability advocates and the AARP.

Opponents include the Pennsylvania State Association of Boroughs and the Pennsylvania Municipal League.

Defenders of the local power companies say each one handles variability in the price of power differently and the price swings that spurred the bill are muted in their communities.

Ellwood City passes more of the variability in wholesale electric prices on to residents in their monthly bills. Other communities, like Zelienople and Tarentum, adopt fixed rates for the year and cover the losses if their cost estimates are too low.

“Mr. Bernstine is angry at one municipality,” Mr. Woglom said. “He is taking out his displeasure by introducing legislation to affect all 35.”

The boroughs’ biggest concern is the restriction on how they can spend electric revenue.

“They don’t understand the implications for a municipality like us and how devastating it would be,” Zelienople borough manager Donald Pepe said.

In that Butler County borough, property taxes at a rate of 5.31 mills make up about 1.5 percent of the $11 million budget this year, while revenue from the public power company makes up 50 percent.

The electric rate in the borough of roughly 3,800 residents is 16.867 cents per kilowatt hour.

Mr. Pepe estimates it would take a property tax increase of 48 to 50 mills to make up for the loss of electric revenue without drastically cutting services.

A tax hike that large is “not even allowed by law,” he said. “It’s crazy.”

In Tarentum, the borough transfers about $500,000 a year from its electric revenue to the general fund, which helps the community of 5,000 people afford a police department with 8 full-time and 2 part-time officers, borough manager Michael Gutonski said.

“Without this money, you’re probably talking about losing half of your workforce,” he said.

Tarentum’s property tax rate has stayed the same for a decade at 5.48 mills, a point less than the average municipal millage for Allegheny County.

The fixed electric rate of 11.34 cents per kilowatt hour has been the same since 2008, Mr. Gutonski said. “It is probably the second or third lowest in the state.”

Mr. Bernstine counters that if massive tax increases would be necessary to offset the towns’ electric revenue, it demonstrates that the municipalities’ spending is exorbitant.

“What do the other 2,600-ish municipalities do? Well, they have to live within their means,” he said.

To defend themselves, the municipalities with their own electric utilities often have to begin by explaining the fact that such public power companies exist.

There are only about 2,000 similar nonprofit, community-owned electric utilities in the United States and many of them have been around for a century. The largest provide power to Los Angeles and San Antonio, but most serve small communities. In Pennsylvania, more than half are in boroughs with fewer than 5,000 people.

Nationally, residential public power customers paid an average of 1.4 cents per kilowatt hour less than customers with private, investor-owned utilities in 2012, according to the American Public Power Association, which represents community-owned utilities and opposes Mr. Bernstine’s bill.

Communities that use their electric revenue to fund basic government services — as 83 percent of the public power companies nationally do — say it is a fairer way to spread the cost of those services than property taxes.

“In each community, we have tax-exempt entities that are not paying real estate tax — schools, churches, nonprofits — but those same property owners are paying electric bills,” Mr. Woglom said.

House Bill 1405 was introduced in May and has been assigned to the chamber’s local government committee, which Mr. Bernstine expects will hold a hearing on the proposal after the summer recess.

Laura Legere: llegere@post-gazette.com

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