Pa. House passes $1.7B tax cut on electricity, reins in utility company profits

The House unanimously passed a measure Monday that would establish a formula for a “reasonable return” on utility company investments in infrastructure and eliminate nearly $1.7 billion in taxes that electricity companies now pass along to consumers as part of their bills.

The legislation’s prime sponsor, House Energy Committee Chairperson Elizabeth Fiedler (D-Philadelphia), said House Bill 2224 is intended to help Pennsylvanians who are working multiple jobs to make ends meet and seniors forced to decide between medication or cooling their homes.

“For each of these people, we are making a decision today to help lower their utility bills,” she said.

State and federal policymakers have grappled with sharply rising energy costs as the nation faces an unprecedented forecast for greater electricity demand, driven largely by data centers and increased electrification of industry and transportation. In some parts of the commonwealth, electricity prices have jumped by up to 20% over the last two years. 

But regulators and lawmakers have also eyed utilities’ requests to increase the amount they charge customers for delivering their services. Two major Pennsylvania utilities in the last year have requested to hike their rates by hundreds of millions of dollars. 

“We hear over and over that utilities have to jack up our rates, the bills we pay, just to provide us with safe and reliable service, but we know that’s not true,” the bill’s prime sponsor, House Energy Committee Chairperson Elizabeth Fiedler (D-Philadelphia), said during debate on the chamber floor Monday. 

“We know utility companies are compensated dollar for dollar for both the wages and the materials they need to do infrastructure upgrades and to pay the people who do that important work,” she said

Under the Public Utilities Code, investor-owned utilities are permitted to charge rates that allow them to collect a “reasonable return” on their investments. The law, however, does not define reasonable. 

According to the fiscal note on H.B. 2224, the bill establishes a default return on equity (ROE) at “the 10-year U.S. Treasury bond yield plus two percentage points.” It also establishes a competitive equity auction process, similar to the auctions PJM uses to establish electricity prices, as an alternative to the formula.

A utility that objects to the formula-based ROE may use the auction system to “let lenders openly bid and establish the absolute minimum return required by the market.”

The proposal would also eliminate the state’s nearly 6% gross receipts tax on electricity, requiring utility companies to pass on the reduction to consumers. The chamber passed Rep. Carl Metzgar’s (R-Somerset) amendment June 17 to cut the tax to zero in a 196-6 vote.

House Republicans called that the largest tax cut in Pennsylvania history. 

“Our constituents need relief, and we have advocated, as the House Republican caucus, that the number one way to address the affordability crisis is to ensure that people have more of their hard-earned dollars in their pockets, their wallets, their pocketbooks,” House Minority Leader Jesse Topper (R-Bedford) said.

Some Republicans were critical of the bill capping utility profits, saying it would result in greater costs being passed to consumers and prevent investment in the commonwealth’s electricity infrastructure.

“While this bill defies some free market principles, which ultimately I believe lower the cost for consumers, we need to step in now, and this is about affordability and accountability for our consumers,” Rep. Valerie Gaydos (R-Allegheny) said.

The measure now goes to the Senate for consideration amid negotiations over the commonwealth’s next budget. The General Assembly’s deadline to pass the budget is June 30.

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While the House passed its version of Gov. Josh Shapiro’s $53.3 billion spending plan in April, the Republican-led Senate has yet to respond with its counter proposal. 

Shapiro has also taken action to rein in electricity costs, suing PJM to cap the maximum price in its auctions for generators to keep power plants on standby to meet peaks in demand. 

His administration also intervened directly, persuading Philadelphia-area gas and electricity utility PECO Energy to withdraw a request to increase rates by $510 million a year. That would have increased some customers’ bills by more than $34 a month, according to the governor’s office. 

Last year PPL Electric asked the PUC for approval to charge customers $356.3 million more annually. The increase would have resulted in a 7% larger bill for an average residential customer.

The PUC earlier this month approved a settlement in PPL’s rate case that provides a $275 million in additional revenue, or about a 4.9% increase for customers.

In addition to eliminating the gross receipts tax on electricity, the bill establishes fines of $1,000 to $5,000 for utilities that do not pass the savings to consumers. And it prevents water and sewer utilities from pursuing payment for unbilled after more than 12 months have passed.