John M. Quain, chairman of the Pennsylvania Public Utility Commission (PUC), blasted GPU Energy earlier this month for “deliberately alarming consumers and elected officials” by suggesting a crisis like the one in California could occur in Pennsylvania.
“I am outraged that GPU would even hint that a similar energy crisis could happen to Pennsylvania,” said Quain. “This appears to be a thinly veiled attempt to influence a decision pending before the PUC.
“I assure consumers and legislators that what is happening in California will not happen in our state,” he said. “GPU has an economic problem, not a supply problem.”
GPU warned that its wholesale power costs were escalating rapidly while its retail rates remain capped. GPU in November petitioned the PUC for the right to collect from customers in future years more than $82 million in projected losses from purchasing electricity. On Jan. 19 it told the PUC its latest estimates show a 2001 supply loss of $145 million (pre-tax) because a significant number of customers have been returning to the utility in its customer choice pilot resulting in an increased load of 175 MW. GPU is the supplier of last resort (SLR) in its customer choice program and it is seeking changes to its SLR role. If all shopping customers were to return for the full year to the utility, its supply losses could rocket to $250 million (pre-tax), the company said. Under GPU’s 1998 restructuring settlement, generation rates for customers are capped through 2010 for Met-Ed customers and through 2009 for Penelec customers. The two companies are subsidiaries of GPU.
The utility said that the California experience demonstrates that “substantial impairment of earnings and a substantial loss of cash flow will most assuredly follow if wholesale supply costs continue to skyrocket out of control. However, the PUC sharply criticized the utility for blaming wholesale market conditions, when, in fact, the losses resulted from GPU’s own business decisions. Last week, the PUC deferred a decision on the issue, combining it with its review of GPU’s merger with First Energy Corp.
“The decision to divest their generation was made in their boardroom,” said Kevin Cadden, a spokesman for the PUC. “The decision not to enter into long-term power contracts with suppliers was made in their boardroom. These decisions were not made by the PUC.”
In recent weeks Quain has stressed that three critical factors separate Pennsylvania from California:
1) Pennsylvania produces more power than it consumes, is a net exporter of electricity and the second largest producer of electricity in the U.S.
2) Pennsylvania did not require utilities to sell their generation plants as a part of restructuring as California did. Nearly all of Pennsylvania’s electric utilities own their own generating plants. GPU chose to sell all of theirs.
3) Pennsylvania does not prevent utilities from entering into long-term power contracts with suppliers. GPU chose not to enter into a sufficient number of these contracts.
“The request for relief will be decided on the basis of the record and law developed in the pending proceeding, and will not be swayed by unfounded comparisons to California,” Cadden said.
The PUC said Pennsylvania’s electric choice program has saved customers nearly $2.8 billion to date in guaranteed rate cuts and savings. More than 550,000 customers have selected an alternative electric supplier under the program.
Meanwhile, GPU is awaiting a PUC ruling on its merger with FirstEnergy, which announced plans last August to buy GPU for $4.5 billion in cash and common stock. FirstEnergy also would absorb $7.4 billion of GPU’s preferred stock and debt (see NGI, Aug. 14, 2000).
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