dlprmb14Oct08

Economic & Demographic Economic & Demographic Consequences of Consequences of

Eliminating Price Caps on Eliminating Price Caps on Electricity Rates in Electricity Rates in

PennsylvaniaPennsylvania

Economic & Demographic Economic & Demographic Consequences of Consequences of

Eliminating Price Caps on Eliminating Price Caps on Electricity Rates in Electricity Rates in

PennsylvaniaPennsylvania

Rose M. BakerRose M. Baker

David L. PassmoreDavid L. Passmore

dlprmb14Oct08

Penn State Workforce Education & Penn State Workforce Education & Development InitiativeDevelopment Initiative

Rose BakerRose Baker

David PassmoreDavid Passmore

DirectorDirectorCenter for Regional Economic & Center for Regional Economic & Workforce AnalysisWorkforce Analysis

DirectorDirectorCenter for Regional Economic & Center for Regional Economic & Workforce AnalysisWorkforce Analysis

Professor & DirectorProfessor & DirectorPenn State Institute for Research inPenn State Institute for Research inTraining & DevelopmentTraining & Development

Professor & DirectorProfessor & DirectorPenn State Institute for Research inPenn State Institute for Research inTraining & DevelopmentTraining & Development

dlprmb14Oct08

Regulation, Deregulation, Caps…Regulation, Deregulation, Caps…

Natural monopolyNatural monopoly– GenerationGeneration– TransmissionTransmission– DistributionDistribution

Regulation Regulation DeregulationDeregulation Rate CapsRate Caps

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Methods…Methods…

• Baseline forecast of the Baseline forecast of the Pennsylvania economy through Pennsylvania economy through 20152015

• Rate removal forecast conducted by Rate removal forecast conducted by simulating 10% increase in simulating 10% increase in electricity rates through 2015electricity rates through 2015

• Benchmark of effects of rate Benchmark of effects of rate removal =removal =– Rate removal forecast Rate removal forecast minusminus– Baseline forecastBaseline forecast

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Scenarios through 2015 for Scenarios through 2015 for residential, commercial, & industrialresidential, commercial, & industrial

PP QQxx SalesSales==

10%10%Over 2006Over 2006

priceprice

Three megawattThree megawattforecasts:forecasts:• • Linear growthLinear growth• • Linear +10%Linear +10%• • Linear – 10%Linear – 10%

Three sales Three sales forecasts forecasts for price – for price – quantity quantity pairspairs

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REMI policy variables…REMI policy variables…

• Electricity Fuel Costs—Electricity Fuel Costs—IndustrialIndustrial

• Electricity Fuel Costs—Electricity Fuel Costs—CommercialCommercial

• Consumer price Consumer price (equivalent amount) — (equivalent amount) — Household operationHousehold operation

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JobsJobs—4,183 to 8,000 loss initially; —4,183 to 8,000 loss initially; 6,000 to 11,700 by 20156,000 to 11,700 by 2015

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Gross state productGross state product—$365 million to —$365 million to $672 million loss initially; $718 million $672 million loss initially; $718 million to $1.3 billion by 2015to $1.3 billion by 2015

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Real disposable incomeReal disposable income—$636 —$636 million to $1.3 billion loss initially; million to $1.3 billion loss initially; $720 million to $1.5 billion by 2015$720 million to $1.5 billion by 2015

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PopulationPopulation—3,624 to 4,851 loss —3,624 to 4,851 loss initially; 9,824 to 19,028 by 2015 initially; 9,824 to 19,028 by 2015

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Implications Implications ? ?Depends on your perspective…Depends on your perspective…

• Impact on economy and Impact on economy and demography depends on demography depends on perspective perspective

• Impact on individual Impact on individual households could be households could be substantialsubstantial

dlprmb14Oct08

Impact on economy & Impact on economy & demography…demography…

• Substantial, in terms of Substantial, in terms of absolute numbersabsolute numbers

• Small, as a % of total Small, as a % of total economy and economy and demographydemography

For every 10% price increase

For every 10% price increase

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Impact on individual households…Impact on individual households…

• Small, but real, risk of job and Small, but real, risk of job and income lossincome loss

• Risks and changes affect low Risks and changes affect low income household more than high income household more than high income householdsincome households

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Two changes in lifestyle likely…Two changes in lifestyle likely…

• Conservation — Reduce Conservation — Reduce electricity expenditures as electricity expenditures as part of household part of household operationsoperations

• Substitution — Shift Substitution — Shift expenditures to pay for expenditures to pay for higher electricity costshigher electricity costs

dlprmb14Oct08

What will the rate cap removal mean What will the rate cap removal mean for households & businesses?for households & businesses?

Your thoughts?Your thoughts?

dlprmb14Oct08

Economic & Demographic Economic & Demographic Consequences of Consequences of

Eliminating Price Caps on Eliminating Price Caps on Electricity Rates in Electricity Rates in

PennsylvaniaPennsylvania

Economic & Demographic Economic & Demographic Consequences of Consequences of

Eliminating Price Caps on Eliminating Price Caps on Electricity Rates in Electricity Rates in

PennsylvaniaPennsylvania

Rose M. BakerRose M. Baker

David L. PassmoreDavid L. Passmore