John M. Quain, chairman of the Pennsylvania Public UtilityCommission (PUC), blasted GPU Energy on Friday for “deliberatelyalarming consumers and elected officials” by suggesting a crisislike the one in California could occur in Pennsylvania.

“I am outraged that GPU would even hint that a similar energycrisis could happen to Pennsylvania,” said Quain. “This appears tobe a thinly veiled attempt to influence a decision pending beforethe PUC.

“I assure consumers and legislators that what is happening inCalifornia will not happen in our state,” he said. “GPU has aneconomic problem, not a supply problem.”

GPU warned last week that its wholesale power costs wereescalating rapidly while its retail rates remain capped. GPU inNovember petitioned the PUC for the right to collect from customersin future years more than $82 million in projected losses frompurchasing electricity. On Friday it told the PUC its latestestimates show a 2001 supply loss of $145 million (pre-tax) becausea significant number of customers have been returning to theutility in its customer choice pilot resulting in an increased loadof 175 MW. GPU is the supplier of last resort (SLR) in its customerchoice program and it is seeking changes to its SLR role. If allshopping customers were to return for the full year to the utility,its supply losses could rocket to $250 million (pre-tax), thecompany said. Under GPU’s 1998 restructuring settlement, generationrates for customers are capped through 2010 for Met-Ed customersand through 2009 for Penelec customers. The two companies aresubsidiaries of GPU.

The utility said that the California experience demonstratesthat “substantial impairment of earnings and a substantial loss ofcash flow will most assuredly follow if wholesale supply costscontinue to skyrocket out of control. In order to avoid a similarsituation in Pennsylvania, a reasonable deferral mechanism shouldbe established before these financial impacts substantiallydeteriorate the company’s financial health.”

However, the PUC sharply criticized the utility for blaming itslosses on wholesale market conditions. The PUC said the lossesresulted from GPU’s own business decisions.

“The decision to divest their generation was made in theirboardroom,” said Kevin Cadden, a spokesman for the PUC. “Thedecision not to enter into long-term power contracts with supplierswas made in their boardroom. These decisions were not made by thePUC.”

In recent weeks Quain has stressed that three critical factorsseparate Pennsylvania from California:

1) Pennsylvania produces more power than it consumes andtherefore does not face an energy shortage like that in California.The state is a net exporter of electricity and the second largestproducer of electricity in the U.S.

2) Pennsylvania did not require utilities to sell theirgeneration plants as a part of restructuring as California did.Nearly all of Pennsylvania’s electric utilities own their owngenerating plants. GPU chose to sell all of their power plants.

3) Pennsylvania does not prevent utilities from enteringinto long-term power contracts with suppliers. In California,utilities are forced to buy electricity on the spot market, buyingpower at current market rates. GPU chose not to enter into asufficient number of these contracts.

Cadden said GPU’s request would follow standard PUC regulations.”The request for relief will be decided on the basis of the recordand law developed in the pending proceeding, and will not be swayedby unfounded comparisons to California,” he said.

The PUC said Pennsylvania’s electric choice program has savedcustomers nearly $2.8 billion to date in guaranteed rate cuts andsavings. More than 550,000 customers have selected an alternativeelectric supplier under the program.

Meanwhile, GPU is awaiting a PUC ruling on its merger withFirstEnergy, which announced plans last August to buy GPU for $4.5billion in cash and common stock. FirstEnergy also would absorb $7.4billion of GPU’s preferred stock and debt (see Daily GPI, Aug. 9, 2000).

The FirstEnergy-GPU combination, expected to be completed thissummer, would create the sixth largest investor-owned electricsystem serving about 4.3 million customers throughout 37,200 squaremiles of Ohio, Pennsylvania and New Jersey. The combined revenuesof the two companies for the 12 months ending June 30, 2000,totaled $12 billion, and the assets equaled $38.6 billion.

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