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Why Perkasie’s Electric Company Makes Financial Sense

For the past two months, I’ve been researching several questions a lot of us ask in Perkasie:  Am I paying too much for borough-provided electric and shouldn’t I be able to buy electric from other companies? Here’s what I found out – which isn’t exactly what I expected.

I started doing my research on Election Day 2017, when I asked voters at my polling place at St. Andrew’s Lutheran in South Perkasie how they felt about our electric company and electric rates. There were two answers. Most people thought electric rates were high but they valued the department’s service more – and they mentioned Hurricane Sandy. A few people said the electric rates were too high and didn’t mention the hurricane. Then, I did a poll on the Perkasie Facebook group page about which issue people wanted addressed by local government; of course, electric rates were the top response in this unscientific sample.

perkelectric1929

Perkasie’s Electric Department in 1929

After looking at a ton of documents, including the official PPL and PECO filings, here are the answers to those questions.

  1. Perkasie residential electric rates are usually higher but competitive. A common way to look at electric rates is for an average monthly bill for 1,000 kWh of usage. My family uses 500 kWh; a bigger family can use 2,000 kWh.

There are three parts of your electric bill if you have PECO or PPL:

  • The supply rate is what you pay for electric that is generated somewhere else and sent to your town over high-voltage wires.
  • The distribution rate is the cost to convert that electric to low voltage locally and deliver it to your house.
  • The third cost is a connect charge to pay for metering and administrative expenses.  PECO and PPL charge the same rate per kWh no matter how much you use.

Perkasie is different. We have a monthly connect charge like PECO and PPL. But there is one kWh rate that combines supply and distribution, and the rates are cheaper for higher consumption. In Perkasie, you pay $0.1524 for the first 200 kWh, then $0.138 for the next 800 kWh and then $0.118 for any electric over 1,000 kWh.

This means that Perkasie residential electric is cheaper than PECO if you use a lot of electric. Here are the rates:

Perkasie Rates v. PPL and PECO Price-to-Compare Rates

Fees PPL Price To Compare (kWh) PECO Price To Compare (kWh) Perkasie (kWh)
Supply and Transmission $0.0750 $0.0722
Distribution $0.0430 $0.0640
Combined Per kWh Rate $0.118 $0.137 $0.1524 (200 kWh)
$0.138 (800 kWh)
$0.118 (1000 kWh)
Connect Charge $17.11 per month $8.43
per month
$14 per month
Total Bill: 500 kWh $75.90 $76.73 $85.88
Total: 1000 kWh $134.68 $145.02 $154.88
Total: 2000 kWh $252.25 $281.61 $272.88
Total: 3000 kWh $369.82 $418.20 $390.88

2. Buying from a third-party electric supplier could save you money but it has risks

Under the current Pennsylvania laws, borough-owned electric companies don’t have to offer deregulated electric supply rates if they don’t sell electric outside the borough. There is a long story behind that we’ll skip for now: Let’s look at how much you could save if you could buy the supply part of your bill from a third party; this is from 55% to 65% of your total bill.

Perkasie Rates v. PPL and PECO Lowest Third-Party Rates

Costs/Fees PPL Lowest Third-Party Price (kWh) PECO Lowest Third-Party Price (kWh) Perkasie (kWh)
Supply + Transmission $0.066 $0.061
Distribution $0.043 $0.064
Combined Per kWh Rate $0.109 $0.125 $0.1524 (First 200 kWh)
$0.138 (Next 800 kWh)
$0.118 (Usage Over 1000 kWh)
Connect Charge $17.11 month $ 8.43 month $14 month
Total Bill: 500 kWh $71.48 $71.75 $85.88
Total: 1000 kWh $125.85 $133.86 $154.88
Total: 2000 kWh $234.59 $259.29 $272.88

Because PECO’s distribution costs are so high, PPL is your best bet for saving money. So what are the risks? The cheapest PPL third-party prices are short-term introductory rates – like you get from mobile phone and cable TV providers. Many contracts also have fine print that allow them to raise rates with no notice and that bar you from suing them if they do that.  The majority of PPL and PECO customers don’t buy third-party electric.

3. What if Perkasie just cut electric rates by 25 percent to be competitive?

That may actually happen if western Pennsylvania politician Aaron Bernstine gets his way. Bernstine wants to ban the 35 Pennsylvania boroughs with electric companies from using electric service fees to pay for police officers, public works and other expenses. This would drop Perkasie’s residential electric rate by 25 percent but also trigger a 500 percent local real estate tax hike to pay for the lost revenue.

There are two big benefits for Perkasie taxpayers owning their own electric company: our local property taxes are really low and we have great electric service.

Quakertown also owns its own electric company and it has the lowest local real estate taxes (1.625 mills) in Bucks County; Perkasie has the 9th lowest at 6.25 mills. The average in Bucks County is about 15 mills. In general, borough-owned electric companies provide much-faster service. In Pennsylvania, the average outage time is 13 minutes for a borough electric company, compared to 109 minutes for a utility like PECO or PPL.

If Rep. Bernstine’s bill HB 1405 becomes law, and Perkasie has to cut electric rates by 25 percent, the combined annual costs for electric and local property taxes would go up for almost everyone. Here is a look at my annual tax rate in Perkasie. My house is appraised at about $250,000, which is close to average for the borough. I pay $149 annually for my local real estate Perkasie tax. I pay about $75 a month for electric. If the local real estate tax goes up 500 percent, my combined electric and local tax cost goes up almost 44 percent. If I use more electric, at $154 a month or $200 a month, my costs still go up.

Perkasie Local Electric and Local Tax Rates, Combined After HB 1405
(For House Worth $250,000)

Local Real Estate Taxes (Year) Electric Bill per Month Electric Per Year HB 1405 Electric Rate Reduction Total Combined Costs Now Total After HB 1405 With Tax Hike Total Annual Increased Cost
$174 $75 $900 25% $1074 $1545 43.85%
$174 $154 $1848 25% $2022 $2256 11.57%
$174 $200 $2400 25% $2574 $2670 3.73%

The news is even worse for renters. Landlords will just add the tax hike onto your rent.

4. A 500 percent tax hike is insane! What else can we do?

For Perkasie, the proceeds from electric  pay for debt for the borough pool, the borough hall, and the police station; mandatory police and employee contracts; and road repairs. Those are fixed costs that can’t be cut without lawsuits, bankruptcy filings or gigantic potholes terrorizing Perkasie residents. At least a 300 percent tax hike would cover those costs if electric rates were cut 25 percent – leaving the borough to find $1 million in annual savings elsewhere.

What would Perkasie cut in the budget to make up that difference? Trash and recycling could be outsourced to Waste Management; there would be no farmer’s market, tree lighting and car show, because police overtime would be cut. The fireworks show would be affected. And for the family that uses 1,000 kWh per month, your combined electric and local tax bill will still be 3 percent higher than it is today with a 300 percent tax hike.

5. Why can’t we just sell the electric company, use the profits to pay off our debts, and then just use PPL for our electric service?

It is very rare for a big utility company to buy a small local electric company. It hasn’t happened in Pennsylvania since the 1950s. PPL is a $7 billion a year company making an 18 percent annual profit. Perkasie electric makes a $2.5 million profit. The company is too small for PPL to acquire, since by Pennsylvania law PPL has to offer the supply part of its rates – that 65 percent you pay each month – at no additional cost to consumers. Also, don’t forget, we wouldn’t have fast electric repair service like we do today.

6. Can’t Perkasie just allow people to buy the supply part of their bill – that 65 percent – from third-party companies?

The economics and laws don’t work here. To do that, someone has to manage supply prices from three dozen providers. Perkasie wouldn’t have the staffing ability to do it. It could outsource that work to PPL, but PPL would probably have to buy all the electric for Perkasie. When Perkasie buys electric now, it gets bulk electric at a discount because it doesn’t pay taxes like PECO or PPL.  We lose those savings when we can’t buy electric to resell. In a deregulated environment or under a forced 25% electric-rate cut, you may get cheaper electric, but your property taxes will also go up. Also, under the new federal tax regulations, you can only write-off up to $10,000 total in federal, local, sales and income taxes among itemized deductions. You won’t be able to offset that local property tax hike on your taxes.  

7.  So what are the best options for Perkasie?

Probably the best option is for Perkasie to stick with its current electric system. A big advantage we have is our abilty to buy electric wholesale without paying taxes. Pennsylvania is the second-biggest electric generator in the country, so wholesale electric could be even cheaper as more natural gas is used at generation plants. In time, Perkasie’s burden from the public pool and other debts will go away, lowering electric rates.

The other option is losing the electric company. With few buyers, the Borough won’t make out well in a transaction to sell the electric company. PPL or PECO would provide electric service repairs during outages – at great delays. You’ll pay almost the same electric rates, because PPL or PECO will add the costs of franchise fees and taxes it pays to maintain its distribution system to your bill. And we won’t have a lot of public events and your trash and recycling service will be with a private provider – which may cost you more.

The thing people value most about the Borough is its feel as a small town. Perkasie will cease being Perkasie if companies like PPL ($7.6 billion in annual revenue), PECO (owned by Exelon, $34.5 billion) and Waste Management ($14.5 billion) take over Borough services. Your cost of living won’t go down; your quality of life will.

Probably the best thing we can do is find ways to conserve electric use. That’s a realistic goal and one I plan to work on during my next four years on Borough Council. For years, Perkasie sold electric at a loss to taxpayers. Then, it lost control of prices, but in recent years the prices have been professionally managed and the service always has been great. While I respect those who disagree with me, most people I speak with want the electric company in the Borough, and I don’t see a persuasive  argument against that. But if HB 1405 passes in Harrisburg, we’ll find out if high taxes are better than marginally higher electric rates.

 

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