PPL Corp.'s decades-long campaign to push electric heat onto homeowners has set up the Lehigh Valley, and Lehigh County in particular, for a big shock.
When the Allentown utility's electricity rate increase takes effect Saturday, it will have a disproportionately large impact on this region, according to an analysis of U.S. Census data.
Thirty-seven percent of homes in Lehigh County have electric heat. No other populous U.S. county so far north relies as heavily on electricity for heating, outside the hydro-electricity-rich Pacific Northwest.
The figures aren't much different in other local PPL service areas, such as Northampton and Bucks counties, the analysis found.
PPL credits its marketing for the dependency. From the 1950s through the 1990s, PPL used a variety of ways to promote electric heat, such as advertising all-electric "Gold Medallion" and "Four Star" homes as simple, clean and cheap. The company offered discounts on monthly bills, though most have expired.
It also went as far as paying home builders to install electric heat instead of alternatives, such as oil and natural gas. By one account, it pumped $25 million into such efforts over a 12-year period.
"They took care of the builders," said Lou Tepes, president of the Lehigh Valley Builders Association. "What PPL was doing was going in and locking up the development."
PPL did so even though the consensus was -- and is -- that electric heat can be painfully expensive or simply ineffective in cold climates.
After PPL's 8 percent rate increase, the average residential customer with electric heat will pay $1,527 a year in electricity bills, according to the Pennsylvania Public Utility Commission. That figure, however, includes those living in apartments; the actual expense for homeowners is significantly higher.
PPL's actions have been characterized, in numerous interviews and in a little-known lawsuit the company quietly settled out of court in 1997, as exploitative. Future homeowners after all, had yet to appear on the scene to defend their own interests.
For many, a new, mid-priced home with oil or gas wasn't an option. In the late 1980s, 85 percent of the region's new homes had electric heat. To this day, nearly all the homes in vast swaths of suburban townships, such as Upper and Lower Macungie, are electric. Converting to today's most popular heating source is out of the question. The mains and pipes for natural gas are missing, and the time to lay that infrastructure has long since passed.
Heat pumps called inefficient
In 1970, Richard Gober, an electrical engineer in the market for a new home in the Lehigh Valley, was in a unique position to witness PPL's marketing prowess.
The previous summer, the former Navy man who went to college on the G.I. Bill, worked as an intern for an electric utility in Delaware. There, he learned about various business divisions, one of which was supposed to sell electric heating to home builders.
"They said they couldn't give that stuff away," he recalled.
Gober chatted with a salesman at the Delaware utility during a coffee break. Nobody wanted it, he was told.
Even today, the federal government discourages heat pumps, one of the most common electric heating devices, in the North. They "operate very inefficiently at sub-freezing temperatures," a U.S. Department of Energy Web site warns.
Gober then moved to the Lehigh Valley for a manufacturing job. At first, he looked at apartments.
"I was amazed," he said. "I couldn't believe the amount of [electric] baseboard heat in this area."
Then he looked at single-family homes. "More of the same," he said.
Although aware of the drawbacks, Gober ended up buying a new home, in Whitehall Township, with electric baseboard heat. Little else was available. Plus, PPL made it sound so appealing.
Electric baseboards had some strong selling points at the time, said Douglas Krall, a strategic manager at PPL. To developers, they were easy and cheap to install, requiring no plumbing or ductwork. For homeowners, they were clean and virtually maintenance-free -- no small thing in an era when coal stoves were still commonplace.
What's more, according to Krall, PPL's historically low electric rates have made electric baseboards economically comparable to the alternatives. At the moment, at least, PPL's rates are 12 percent lower than the Pennsylvania average -- though that advantage is about to shrink later this week when PPL's rate increase takes effect.
Even so, Gober has felt compelled to do what he could to reduce his electricity bills. Over the years, he has replaced the windows, added insulation and installed digital thermostats.
Today, the electricity bills for his 1,800-square-foot home add up to roughly $1,700 a year.
How that compares to homes with oil or natural gas is difficult to say. Government and industry efforts to study the matter have been confounded. No two homes are exactly the same, either structurally or in their energy consumption.
But, after 31/2 decades with electric heat, Gober has an opinion on the matter: "It's just an expensive way to heat your house."
Grants, rebates for builders
Tepes, the Lehigh Valley Builders Association president, is all too familiar with the methods PPL employed.
Among the hundreds of homes Tepes has built over the years was his own, in the late 1960s. It was an all-electric Gold Medallion home.
As such, Tepes enjoyed a temporary discount on electricity.
During the 1970s, the energy crisis would give electric heat an unexpected boost. Oil and natural gas prices soared, even leading to some government restrictions on use of gas.
But later, after the crisis subsided and natural gas became real competition, PPL employed new tactics. It awarded grants and rebates to home builders who installed heat pumps, Tepes recalled.
The company also established a trade association to promote heat pump technology, which works by capturing outside heat and transferring it indoors and can double as an air-conditioner. As an electric utility, PPL received advanced notice on new home construction, allowing the company to target its communications with pinpoint accuracy, as it later would be alleged in the lawsuit against PPL.
"PPL ran a good marketing program," Tepes said. "We always had [PPL] marketing people out here promoting some sort of package."
PPL is not the only utility to strike a bargain with builders.
The Valley's two cable companies have done so as well. Typically, one cable company paid a developer to exclude its competition from laying cable in the development's utility trenches.
Both Service Electric and RCN have used so-called exclusive agreements, though RCN recently renounced the practice. As a result of the agreements, much of the Valley is now a patchwork of neighborhood-sized cable monopolies, an examination by The Morning Call found last year.
Similarly, many homes are more or less stuck with electric heat. Because most of the discounts PPL initially offered, such as those in its Gold Medallion program, have expired, homeowners will have to deal with the impending rate increase on their own.
As for Tepes, the builder eventually sold his all-electric home to his son. But before he did, he upgraded the insulation.
PPL settles lawsuit
By the early 1990s, a group of 18 oil dealers, including several from the Lehigh Valley, had had enough.
They sued PPL.
The dealers alleged in the first-of-its-kind case that the utility, which has a legal monopoly over the sale of electricity, tried to dominate the home-heating market as well. They said PPL's strategies, including the use of grants and rebates, amounted to anti-competitive behavior.
PPL used its advanced notice on new home construction to target its communications, according to the dealers. But its efforts were not limited to new homes; it also offered cash payments to contractors and customers to convert existing homes to electricity.
PPL's grants and rebates totaled $25 million between 1983 and 1995, the dealers said. Individual payments could be as high as $1,200.
The oil dealers weren't the only victims, their suit concluded. Many people who bought homes with electric heat eventually had to choose between buying a new heating system or paying excessive heating bills indefinitely.
PPL's Krall defended the utility's methods, rejecting any suggestion that it might have profited at the expense of its customers.
"If you take the entirety of the homeowners' needs, you may come to a different conclusion," he said.
Electric resistant-heating such as baseboards or ceiling coils offered simplicity; heat pumps provided dual use, as both heater and air conditioner. Coupled with low electricity rates, they were a good deal. "We provided a product that customers wanted at the time," he said.
PPL stopped marketing electric heat several years after the suit was filed.
The case, however, continued to bounce around federal court. It was first dismissed, then reinstated on appeal.
Finally, in January 1997, a judge decided that most of the dealers' charges had enough merit to go to trial. PPL quickly agreed to negotiate, and a settlement was announced a month later.
PPL would pay the dealers $6.5 million.
But the deal also came with restrictions, recalled one of the plaintiffs, James Yeager of Yeager's Fuel in Allentown. He and the others in his group could not comment on the case. They and their lawyers could not sue PPL in the future. All evidence collected for the aborted trial was to be returned to the other side or destroyed.
As such, the story didn't get much publicity, Yeager said. "It went away."
UGI incentives for builders
As fate would have it, another utility has emerged as the big winner -- not the oil dealers.
Today, natural gas heating systems make their way into most new homes in the Lehigh Valley, according to natural gas provider UGI Corp. of Valley Forge.
UGI, it turns out, has a marketing program of its own. Sliding into the role PPL relinquished, the gas utility now offers home builders a variety of incentives, including rebates and advertising subsidies, to install gas heat.
As a testament to the long-term success of PPL's strategy, however, electric heat continues to be the leading source of heating in Lehigh County, and is common throughout much of the rest of PPL's 29-county service area.
In the first nine months of this year, PPL Corp. netted $55 million on its electric utility, or 11 percent of the company's earnings during the period. PPL has a big advantage over other electric companies:
Most utilities sell more electricity in the summer, when air conditioning drives up wholesale prices and squeezes profit margins - - but not PPL. With electric heat in so many homes, winter is PPL's big money-making season.
Computer-assisted reporter Christopher Schnaars contributed to this story.