GPU Bid For PA Electric Rate Cap Exception Stirs Controversy

A bid by GPU to raise rates by approximately $316 million in Pennsylvania is quickly turning into a larger debate over whether the utility should be allowed to avoid electricity rate caps already in place in the state. As the Pennsylvania Public Utility Commission prepares to consider GPU's rate increase request later this week, the plan has received criticism from a number of fronts, including PUC Commissioner Nora Mead Brownell and Pennsylvania's consumer advocate.

The PUC last month approved the merger of GPU and FirstEnergy by a 5-0 vote, but decided to postpone a decision on GPU's request to raise rates by $316.7 million, with Brownell dissenting (see NGI, May 28). In addition, the PUC directed parties in the case to meet starting at the end of May to negotiate a settlement related to the rate matter. The PUC this Thursday is scheduled to make a decision on the GPU rate increase petition. GPU argues that the rate increase will offset its estimated losses resulting from provider of last resort obligations in Pennsylvania due to the increased costs of procuring power on behalf of its state customers.

But any rate increase would mean that GPU would be allowed to bypass existing electricity rate caps in the state. Brownell, one of two new commissioners at the Federal Energy Regulatory Commission, raised this issue in her dissent last month. Among other things, Brownell argued in her dissent that GPU has produced "no credible evidence," on a company-wide basis, that its power purchases will not allow it to earn a fair rate of return. In addition, Brownell said that one of the key issues in this matter is how GPU responded to volatility in the wholesale energy markets. "The answer is that it bet heavily on the spot market and a short-term portfolio without appropriate hedging mechanisms," wrote Brownell. "The fact that it lost the bet does not automatically trigger rate relief," she added.

Pennsylvania Consumer Advocate Irwin Popowsky, in an interview with NGI, said that his office is "adamantly opposed" to the proposed rate increase for GPU and that the rate cap should stay in place. "We don't think a rate cap exception is justified and we also think that the rate cap is the most important provision in the Pennsylvania restructuring law," Popowsky added.

Popowsky pointed out that GPU's problems stem from the fact that the company divested itself of all its generation, while failing to enter into long-term contracts. In contrast, he noted that although Pennsylvania-based Duquesne Light sold all of its generation assets, the company also entered into contracts with the buyer in order to meet Duquesne's obligation to serve its remaining customers at capped rates. Pennsylvania's other major power companies all held on to their generation assets by creating generation companies within their corporate structures, Popowsky pointed out.

Meanwhile, Pennsylvania State Senator Clarence Bell (R) recently indicated that a committee he chairs may hold a hearing this summer looking into the GPU rate case and the electricity rate cap issue. "We're watching this like a hawk," Bell told NGI. He chairs the Pennsylvania State Senate Consumer Protection and Professional Licensure Committee.

In the meantime, it remains unclear how many PUC commissioners will actually be on hand to vote on the GPU rate increase plan this week. Popowsky said that Brownell is "scheduled to leave any day now," but said he wasn't sure the exact date of Brownell's exit. PUC Chairman John Quain has said that he's leaving the commission at the end of his term this month and that he doesn't intend to vote on the GPU rate case, according to Popowsky.

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