Testimony of Terrance J. Fitzpatrick,
President & CEO
Energy Association of Pennsylvania

October 23, 2017

Good morning Chairman Godshall, Chairman Caltagirone and members of the House Consumer Affairs Committee. I am Terry Fitzpatrick, President and CEO of the Energy Association of Pennsylvania (“EAP” or “Association”), a trade association comprised of electric and natural gas utilities—also known as distribution companies—operating in Pennsylvania. Thank you for this opportunity to appear on behalf of our members1 and testify regarding House Bill 1782, which addresses alternative ratemaking for electric and natural gas utilities.

House Bill 1782 would clarify the authority of the Public Utility Commission (“PUC”) to approve proposals by electric and gas utilities to establish alternative forms of rates. Currently, utilities recover a majority of the costs of their distribution systems through usage-based (aka, “volumetric”) charges even though most of the costs of these systems are fixed—that is, they do not vary with usage. This longstanding, traditional method of cost recovery came into use in the previous century at a time when energy usage grew along with the economy. The growth in energy usage coupled with volumetric rates helped to maintain stable funding for electric and gas distribution systems and minimized the need for utilities to file frequent, time-consuming, costly general rate increases.

Over the past few decades, however, the link between growth of the economy and energy usage has weakened. Changes in the economy, technology, and government policy have contributed to this trend. In the home, improved insulation and more efficient appliances have reduced energy use even as the size of homes and the number of electronic devices used in them has increased. To cite two examples, since 1980 the energy use of new clothes washers has declined by more than 70% and the energy use of new homes per square foot has declined by nearly 20%.2 In the electric industry, the development of new technologies along with government policies mandating and subsidizing energy efficiency and subsidizing the growth of customer-owned generation have further contributed to the trend.