On May 18, 2017, House Bill 1405 was introduced into the Pennsylvania General Assembly. The proposed legislation, which would restrict a municipality’s ability to utilize revenue generated by a municipal electric system, would significantly impact 35 municipalities in PA that purchase wholesale power on behalf of residents and distribute the power through municipal-owned electric distribution system.
Apparently, in response to complaints of high electric service costs from Ellwood City residents, HB 1405 was introduced to prohibit Ellwood City from using revenues from its purchased power and electric retail distribution services for any purpose other than paying the expenses for such services. However, as currently drafted, HB 1405 would apply not just to Ellwood City, but to all 35 boroughs in the Commonwealth that purchase and distribute power for their local communities. This bill would dramatically upset the status quo, as the Borough Code currently does not prevent boroughs from using electric service revenues to fund a variety of other operating expenses such as police, fire, and public works services.
In addition to banning the use of electric revenues to fund other municipal services or projects, HB 1405 would allow residents to challenge a borough’s electric rates in the local court of common pleas, restrict boroughs from adjusting electric rates more than quarterly, set rules for delinquent customer payment agreements, and prohibit termination of electric service for low-income customers during winter months.
Following its introduction to the House, HB 1405 was referred to the Committee on Local Government. Various groups have announced support for the bill, including AARP, the Service Employees International Union, and the Pennsylvania Chapter of Americans for Prosperity (a tax reduction and deregulation advocacy group). Opponents of the bill include the Pennsylvania State Association of Boroughs and the Pennsylvania Municipal League.
Of potential concern to many municipalities, HB 1405 would change the administration of borough-owned electric systems across the state based on complaints from customers in a single municipality. Without expressing an opinion on the issues in Ellwood City, we note that many municipalities offer electric service to residents at competitive rates while also using electric revenues to fund general expenses that would otherwise require tax hikes for residents.
If you are interested in learning more about the status of HB 1405 and its impact on your municipal electric operations, please contact Adeolu Bakare at abakare@mcneeslaw.com or Kathy Bruder at Kbruder@mcneeslaw.com.