When the price of electricity soars in a year and a half, its hefty cost will hit the consumer's pocketbook over and over again.
Homeowners will pay for the increase not just in monthly bills, which could be more than 30 percent higher, but at the grocery store, the pizza shop and the movie theater.
Because businesses, whose rates could go up even higher, will look to recoup their own energy costs, consumers can expect to see prices on goods and services surge.
It's a domino effect that consumers should be bracing for as electricity rates, which have been strictly regulated by the state since the 1930s, become deregulated, giving electric companies such as PPL Corp. the authority to set their own prices.
"The cost of everything we purchase will be affected," said economist Kamran Afshar, president of the Bethlehem market research firm Kamran Afshar Associates Inc.
This would be bad news any time, but especially so when skyrocketing gasoline prices are already taking a big bite out of discretionary spending.
And it would be bad news anywhere, but particularly in the Lehigh Valley, which is already straining under record inflation.
The "ripple effect" will reduce people's spending power and exacerbate the economic impact of the PPL hike, Afshar explained. "We're all going to feel it."
The PPL rate hike will take effect on Jan. 1, 2010, when, in the final step of electricity deregulation, a cap on what PPL can charge is due to expire.
Bills for residential customers of PPL Electric Utilities will go up about 34 percent, according to the latest projections. The average customer, who now pays about $105 a month for electricity, would see the bill jump to more than $140.
PPL has said deregulation won't be to blame; the rate cap is at fault because it has kept prices artificially low, shielding customers from the rising costs of coal, oil, natural gas and other power plant fuels.
According to Afshar's adjusted data from the U.S. Bureau of Labor Statistics, Lehigh Valley residents who don't rely on electricity to heat their homes devote about 3 percent of their income to electric bills. For those who use electric heat -- about one-third of the region's homeowners -- electricity is a bigger expense.
By comparison, people in this area typically spend about 5 percent on health care, 3 percent on gasoline and 1 percent on telephone service.
While consumers will immediately feel the change in electricity costs, the resulting inflation of just about everything else will be felt gradually, as it filters through individual businesses, Afshar explained.
Already, Lehigh Valley inflation has outpaced national increases for five straight years, according to Afshar's local consumer price index. That includes a local rate of 6.8 percent in 2006, the highest annual figure in the index's 24-year history.
A continuation of this trend would eventually force people to alter their spending habits. Dining out, for example, is usually among the first expenses cut from a household budget when money gets tight. That would translate into declining profits and smaller payrolls for the region's restaurant industry.
"That's where [inflation] has the multiplier effect on the economy," Afshar said.
Richard Clinch, a University of Baltimore economist, put it another way: "It's simple math; if you take a dollar from a consumer...that's a dead-weight loss to the economy."
Businesses could be hit with an even bigger hike -- up to 43 percent -- than residents.
Air Products and Chemicals of Trexlertown, the Lehigh Valley's largest publicly traded company, figures the hike will drive up operating costs by more than $10 million at facilities across the state.
This "would negatively impact not only our businesses that compete in the global marketplace, but also our customers [and] employees," Air Products spokeswoman Beth Mentesana wrote in an e-mail.
Mack Trucks, another of the Lehigh Valley's biggest employers, is taking pre-emptive measures as part of an energy conservation program.
After it installed automated light and ventilation systems and patched compressed air leaks at its Lower Macungie Township plant, the amount of electricity used to build each truck dropped by about a third.
"We're saving millions," said Scott Morris, Mack's environmental affairs director. Now Mack is considering installing solar panels on the plant's roof.
"We need to be more energy-efficient in everything we do," he said.
The environment is a beneficiary of higher electricity prices, former PPL Chief Executive William Hecht, a leading proponent of electricity deregulation in the mid-1990s, said in a recent interview. Cheap electricity, in contrast, has only encouraged "wastefulness," he said.
"I believe that raising the price [of electricity] is going to be a very powerful tool...in reducing that wastefulness and in reducing the environmental impact of human activity," he said.
Other big electricity consumers, from the Blue Mountain ski resort in Lower Towamensing Township to Muhlenberg College in Allentown, are also trying to conserve.
"We will look to be as green as can be," said Denis Krell, the general manager at Blue Mountain, which has hired energy experts to identify ways it can keep its million-dollar annual energy bill under control.
Muhlenberg College has energy experts at work, as well. The school spends close to $1.5 million on electricity every year, so it faces the prospect of seeing its PPL bill increase by $500,000 in 2010.
"It's not pocket change. It would hurt," Muhlenberg Treasurer Kent Dyer said. "We're looking to save wherever we can."
Yet, conservation has its limits, economist Clinch noted. Over time, some electricity-dependent businesses can be forced to take dramatic action in response to rising rates.
He cited this example from his home state: After rate caps ended and electricity prices shot up in Maryland a few years ago, Alcoa shut down an aluminum smelting plant, laying off 600 employees.Copyright © 2015, The Baltimore Sun