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Law would restrict Middletown’s use of electric funds, might mean increase in taxes

By Dan Miller

danmiller@pressandjournal.com

717-944-4628
Posted 1/3/18

Each year Middletown uses a big chunk of the money it gets from selling electricity to residents and businesses to help cover the cost of providing services like police, taking care of roads and …

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Law would restrict Middletown’s use of electric funds, might mean increase in taxes

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Each year Middletown uses a big chunk of the money it gets from selling electricity to residents and businesses to help cover the cost of providing services like police, taking care of roads and parks, etc.

Doing so allows the borough to keep providing these services without having to raise the property tax. The borough has not increased that tax since 2008, although council came very close to raising the tax by 0.5 mills for 2018.

Council avoided it only by transferring more money from the electric fund to plug the deficit hole in the general fund.

In total, council is transferring $1.6 million from the electric fund to the general fund in 2018, an amount equal to raising the property tax by 6.5 mils.

This is standard procedure in Middletown. For example, council in 2017 used money from the electric fund to subsidize the general fund to the tune of $1.3 million. In 2016 just under $2.1 million was transferred.

From 2013 to 2015 the borough relied on transfers from the electric fund of $1.5 million to $2.2 million a year, according to budgets posted on the borough website. In years before that, council had transferred as much as $5 million from its electric fund to subsidize the general fund, according to comments attributed to former council President Chris McNamara.

Hearings on bill

That could all change in 2018, if Republican state Rep. Aaron Bernstine of Ellwood City has his way.

A hearing is to be held in February on legislation Bernstine has introduced, that would make it illegal for Middletown and the 34 other municipalities in Pennsylvania that sell electricity from using any of the money received from selling power to help cover the cost of providing services.

The bill is in the Local Government Committee. While no hearing date has been posted on the committee website, a hearing has been set for Feb. 7, Bernstine told the Press & Journal.

Legislation like this has been introduced before. In past years the bills have gone nowhere. In 2011 a state senator from Washington County introduced legislation to put municipally owned electric companies under control of the Pennsylvania Public Utility Commission.

But Bernstine’s bill has 84 co-sponsors, and according to Bernstine is supported by AARP, the Pennsylvania Chamber of Commerce, Pennsylvania Manufacturers Association, Pennsylvania Realtors Association, Pennsylvania Utility Law Project, Americans for Prosperity, and the Service Employees International Union.

Bernstine’s legislation — House Bill 1405 — has the attention of Middletown officials, and of the Pennsylvania Municipal Electric Association, which represents Middletown and the 34 other municipalities in Pennsylvania that have their own electrical system.

During council’s Dec. 20 meeting, Middletown Borough Manager Ken Klinepeter noted that Bernstine had sent an email to elected officials in Middletown and to those in the 34 other municipalities, inviting them to a Jan. 11 conference call to discuss the legislation.

As Klinepeter also noted, Bernstine’s email was followed by a letter from PMEA, informing Bernstine that PMEA and its members would not be participating in the Jan. 11 conference call. Instead, PMEA and its members plan to testify at the upcoming hearing, according to the letter from PMEA President Vance E. Oakes.

Bernstine’s legislation would eliminate the ability of these municipalities — all boroughs — to transfer what Bernstine calls “profits” collected by a municipally owned power company to the general fund.

The legislation also would require that a public meeting be held any time changes to electric rates are considered, that rate changes cannot be made more frequently than once every three months; and that security deposits, payment arrangements, and shut-offs all be regulated in the same way that private investor-owned utilities like PPL and Metropolitan-Edison are regulated by the Pennsylvania Utility Commission.

Bernstine didn’t mention it in his email, but his legislation would allow for electric rates charged by Middletown and the other boroughs to be challenged by anyone in county court.

Local control?

David Woglom, executive director of the PMEA, acknowledges that Middletown and the other boroughs that provide power are not regulated by the PUC or by any other entity in state or federal government.

That’s as it should be, Woglom told the Press & Journal. The electric rates and electrical systems in all of these boroughs is run and regulated by the elected members of borough council, who are “directly answerable to their residents and taxpayers.”

“We are decentralizing authority here right down to the lowest possible level it could be,” Woglom said, allowing each borough to run its electrical system the way it sees as most beneficial to its residents, instead of coming under a one-size-fits-all form of state-imposed rules and regulations.

For example, while most of the 35 public-power boroughs — including Middletown — clearly rely on cash transfers from their electric revenue, some of the boroughs choose not to make these transfers, for their own reasons, Woglom said.

While the boroughs buy power on the wholesale market and resell it, the retail rate each borough sets varies. Some are higher than privately owned utilities in surrounding municipalities, some are lower, but “generally speaking we are very competitive” with the retail rates of private utilities, he said.

Moreover, Woglom said that allowing public-power boroughs such as Middletown to transfer money from its electric fund to subsidize the general fund is a “more equitable” way of paying for municipal services than relying almost solely on the property tax, as most other municipalities in Pennsylvania must do.

Most municipalities, Middletown included, have within their borders property owned by churches and school districts that is exempt from the property tax. But in a public-power borough, all these entities pay an electric bill, helping to ensure that everyone pays their fair share, according to Woglom.

Instead of holding all residents and businesses “hostage” to a public-power “monopoly,” these boroughs should seek changes in the tax law that allows these entities to be exempt, Bernstine said.

But doing so would shift the burden to school districts and “take even more money away from our education system,” he added.

Moreover, if the public-power system was really as equitable as Woglom says, the property tax in Middletown wouldn’t be as high as it is, Bernstine countered.

Only four other municipalities in Dauphin County have higher property tax rates, according to Bernstine — although Middletown appears to rank ninth, based on the current millage rate table found on the Dauphin County website.

But according to Bernstine, the poster child for what is wrong with the public-power system in Pennsylvania is Ellwood City, Bernstine’s base in the 10th District.

Ellwood City has raised taxes 67 percent over the last four years and has the second highest property tax rate in the county, according to Bernstine, although Ellwood City lies in both Beaver and Lawrence counties so it was not clear to which county he was referring.

“To say this keeps property taxes low is not only disingenuous, but it’s actually reckless,” he said.

According to Woglom and the association, Bernstine’s entire proposal is rooted in his “anger” over the situation in just one public-power borough — Ellwood City.

Ellwood City only?

Bernstein admits that is true. He contends that electric rates for some residents in Ellwood City have gone up by more than 100 percent from month to month, regardless of the amount of electricity consumed.

He told stories of elderly people who have come into his district office to complain about their electricity being shut off by Ellwood City.

“There are no rules on shutting off an 85-year-old who needs to charge his oxygen tank. There are egregious fees for restarting electric,” Bernstine said. “It’s not the fault of the consumer but paperwork mistakes made by the borough, but the people still have to pay. There is no oversight. They can do whatever they want because they are not bound by the PUC.”

But Woglom said claims Bernstine has made that electric rates in Ellwood City have fluctuated by as much as 200 to 300 percent are “not even close to true. We have statistics from Ellwood City billing rates to support that.”

As proof that Bernstine’s ire is directed solely at Ellwood City, Woglom points to Bernstine “several times” having sought PMEA’s endorsement to support legislation that would only regulate Ellwood City and exempt Middletown and the other public-power boroughs from the law.

“That is the level of displeasure and anger he has with Ellwood City,” Woglom said of Bernstine.

Bernstine said that in April 2017 — before introducing House Bill 1405 in May — he approached PMEA with a resolution that would have exempted from the legislation Middletown and all the other public-power boroughs that are outside of the 10th District.

PMEA refused, as did the Pennsylvania State Association of Boroughs — both of which Bernstine labels as “taxpayer-funded” lobbying groups because municipalities use tax dollars to pay their dues.

Bernstine said he did not intend to make his legislation a “one-size-fits-all” form of rules and regulations, but PMEA “chose to make it that when they refused to work on pieces of legislation that would protect consumers in Ellwood City.”

To Bernstine, PMEA’s refusing to participate in the Jan. 11 conference call is further proof of the group’s intransigence.

PMEA “is making a decision not in the best interests of Middletown borough residents to obtain additional information” on the legislation, he added. “It is irresponsible at best but very typical for an organization such as theirs, and further proves that (PMEA) is not interested in working toward an amicable resolution.”

Bernstine said no complaints regarding the electrical system in Middletown have been brought to his attention.

He was not aware of the lawsuit that was brought against the borough in Dauphin County Court in December 2016 by Librandi Machine Shop, over Librandi trying to stop having to pay what the company contends is “excessive” electricity bills to Middletown (see related story, page A1).

However, “we know this issue is happening in other places” besides Ellwood City, Bernstine said.

“Pennsylvania has granted them (the public-power boroughs) the authority to be a monopoly,” he added. “These people don’t have supplier choice, they are locked into purchasing in a monopolistic system. This hurts companies and job growth and it is not good for the economy. Anytime you have a monopoly, you need oversight and regulation to provide consumer protection.”

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