GPU offers deal that could save merger

By Peter Panepento
Staff writer

GPU Inc. has reached an 11th-hour agreement with a group of Pennsylvania consumer advocates and watchdog groups that could head off the electricity company's rate hike plan and cement its merger with Ohio-based FirstEnergy Corp.

GPU had been seeking a rate increase to make up for losses associated with soaring wholesale electricity costs. Because the company is bound under a rate-cap agreement in its former Penelec and Metropolitan Edison service areas, it has been unable to recover those losses, which the company estimates will total about $250 million this year.

Consumer advocates, including state Consumer Advocate Sonny Popowsky and Penn Future president John Hanger, had been fighting GPU's rate plan, saying that Pennsylvania consumers should not be required to pay for the company's shortfall.

The settlement proposal, obtained Tuesday by the Times-News, gives the company an accounting mechanism to collect those costs, while still keeping rates frozen for GPU's Pennsylvania customers through 2010.

The company is able to collect those costs through an already established transition charge that had been established under GPU's restructuring agreement.

The deal also allows GPU to put its wholesale power losses into a deferral account through 2005 and keep those losses on its books until 2010. Any losses that remain in 2010 would be written off.

"We're satisfied that this is a good settlement for the combined companies, for Pennsylvania and, in the very remote chance the merger is not settled, it provides a stipulation for the (provider of last resort) request," GPU spokesman Jeff Dennard said.

The deal awaits approval by the state Public Utility Commission, which was scheduled to vote Thursday on GPU's rate hike request.

But the settlement deal has already earned the endorsement of Popowsky and Hanger, who signed off on the agreement and claim that GPU's customers are being protected under the deal.

"If the merger occurs, this allows FirstEnergy to come in and help GPU through its financial stress," Popowsky said. "They get a way to carry out the merger without a financial crisis this summer. ... We're actually better off if the merger does occur."

At least one other watchdog group, however, has refused to sign the deal, saying that the agreement does not adequately protect consumers.

"We are very concerned that the merger, if approved, will have an adverse effect on competition in Pennsylvania," said David Hughes, executive director of Pittsburgh-based Citizen Power, a watchdog group that looks after customer interests in Pennsylvania and Ohio. "There's no way to know how big this rate increase will be."

The PUC has already approved the GPU/FirstEnergy merger, which would create a combined company that would stretch from western Ohio to New Jersey, have 4.3 million customers and generate annual revenues of $12 billion. GPU's customers in Erie County and in 30 other Pennsylvania counties are included in that territory.

Many observers had worried that GPU's financial troubles in Pennsylvania would doom the merger. The two companies agreed to the deal in August 2000 —- months before GPU began getting stung by rising wholesale electricity prices.

As a result, the PUC's decision on the company's rate request was earning national attention, particularly from investment analysts who worried that the commission would scuttle the deal by rejecting the rate hike, which would have driven up customer rates by as much as 14 percent.

Those fears intensified last week when the commission's attempt to negotiate a settlement between the utility company and consumer advocates broke down.

But the two sides continued discussions late last week, according to Popowsky, who said the companies had offered a deal that would have included a $60 million to $70 million a year increase for the next four years.

Consumer advocates balked at that offer, but continued talks with the utilities over the weekend.

"They finally agreed to take it out," Popowsky said. "The companies made a good-faith effort with the elimination of the rate increase for the next 10 years."

In addition to protecting the rate caps, the settlement deal also includes a stipulation that would require the combined company to set aside $15 million to spend on creating renewable energy projects in GPU's Pennsylvania territories during the next five years.

It also allows the combined company to have access to extra funds in the existing pension funds for GPU and FirstEnergy employees. That access was not allowed in the PUC's decision to approve the merger deal.

GPU officials said that language does not affect the regulated portion of each company's pension fund, which cannot be touched by federal law. But it allows the combined company to use the overfunded assets.

The company did not comment on how much each pension plan is technically overfunded.

Officials from International Brotherhood of Electrical Workers Union Local 459, which represents GPU workers in the Erie area, did not return phone calls Tuesday.

The five-member PUC, meanwhile, will likely have only three voting members when it makes its decision Thursday.

Former Commissioner Nora Mead Brownell was sworn in Tuesday to her new post as one of the five members of the Federal Energy Regulatory Commission. Her post on the PUC is now vacant.

PUC Chairman John Quain, who is leaving the commission at the end of the month, has said he will abstain on Thursday's vote because it could create a potential conflict of interest with a possible job in the private sector.

Officials said a majority of the three remaining members — Vice Chairman Robert Broom and commissioners Aaron Wilson and Terrence J. Fitzpatrick — need to endorse the settlement plan before it can be approved.

PETER PANEPENTO can be reached at 870-1707. Send e-mail to