State PUC decision helps GPU avoid summer crisis

By Peter Panepento
Staff writer

The state Public Utility Commission approved a plan Thursday that will allow GPU Inc. to avoid a summer financial crisis while ensuring that
the electricity company's Pennsylvania customers will not have to face a rate increase until at least 2010.

The decision — which stems from a compromise signed by GPU, FirstEnergy Corp., state Consumer Advocate Sonny Popowsky and PennFuture president
John Hanger — heads off an earlier proposal by the company to raise its retail electric rates by as much as 14 percent.

But the deal has some watchdogs and legislators concerned that ratepayers will still be forced to foot the bill for GPU's financial woes if the company's merger with Ohio-based FirstEnergy falls through.

In addition, it also leaves open the possibility that consumers will be paying more for electricity after 2010 than they would have without the deal.

GPU had been seeking a rate increase to make up for losses associated with soaring wholesale electricity costs.

Because GPU is bound by state law to keep its rates capped in its former Penelec and Metropolitan Edison service areas, it has been unable to raise its retail rates to recover those losses. Those losses totaled $47 million in 2000 and are expected to total about $250 million this year, according to the company.

Thursday's decision gives the utility a way to account for the losses, satisfy its creditors and keep its retail rates intact for the next decade, according to the PUC.

Consumers could be left in the dark, however, if GPU's proposed merger with FirstEnergy fails to receive regulatory approval.

The PUC approved the merger on May 24, but the companies still need New Jersey to give its consent. The Board of Public Utilities in that state has received a recommendation from its staff to deny the deal.

"If the merger fails for any reason, the settlement terms get worse," said Roger Odisio, an economist with Citizen Power, a consumer advocacy group. "GPU ratepayers will pay all of GPU's ... costs incurred, beginning June 1, with only the precise timing yet to be worked out."

That fact has proponents of the settlement deal, including Popowsky and Hanger, rooting for the merger to go through.

Popowsky and Hanger said this week that consumers will be best served with a combined company, because FirstEnergy has enough resources to help GPU recover from its financial woes. It also has substantial power-generation capacity.

While the merger is not yet a done deal, the settlement improves the possibility that FirstEnergy will stick with the deal and guarantees that GPU will not be faced with a financial emergency, according to PennFuture, an industry watchdog group.

Because of the losses GPU is sustaining in the wholesale market, the company faced the possibility of running out of cash and credit to buy more power. As a result, GPU could have been left in the position of being unable to provide electricity to its Pennsylvania customers if it didn't get the emergency rate hike, PennFuture officials said.

Hanger said the settlement deal, while not perfect, heads off that potential crisis, without increasing the already established rates for at least the next nine years.

"For GPU customers, they are paying no more for electricity today than they did back in January 1997 and that situation will continue until 2010 under this agreement," he said. "What other commodity has a 14-year price freeze? That's a pretty good deal for consumers."

Instead of charging customers extra for GPU's wholesale losses, the decision instead allows the company to collect those costs through an already established transition charge that had been established under GPU's restructuring agreement.

The company can use that charge to pay off the wholesale costs until 2010. After that point, GPU is required to write off any losses that are not paid off.

GPU officials say that mechanism will allow the company to satisfy its creditors and to account for its losses.

"The ruling was the correct way to deal with a very difficult issue and we recognize the PUC for its leadership in solving what was a real problem for GPU Energy and the commonwealth of Pennsylvania," GPU president Fred Hafer said in a written statement.

Still, critics of the deal — including state Rep. Camille "Bud" George of Houtzdale, Clearfield County, D-74th Dist.; Citizen Power; and the Clean Air Council — maintain that GPU ratepayers will be getting hit with a bill for those increased wholesale costs after 2010.

That's because the company will continue to collect the transition charge until 2015 to pay for "stranded costs" stemming from its 1998 restructuring agreement.

The transition charge was established to cover those stranded costs. But GPU is diverting some or all of the money collected from that charge to pay for the wholesale losses, putting off the stranded cost repayment until after 2010.

"They cannot collect both costs without an increase," said David Hughes, Citizen Power's executive director. "This is really just a terrible deal for consumers."

But Popowsky said consumers might actually be saving money from the deal. Although the transition charge had not yet been set for after 2010, GPU had the option to include the charge on its bills until 2020.

Under Thursday's agreement, the company can only collect stranded costs until 2015 — not 2020. After that year, the company would have to write off its losses, he said.

"They do have an incentive to keep their costs down or they will have to eat them," Popowsky said.

At the same time, Popowsky also acknowledges there is no way to determine whether consumers will save money under the new deal, because the transition charge had not yet been established beyond 2010.

"It could have been a very low level," Popowsky said. "It could have been zero. ... But it's likely people will pay less than they would have without this settlement."

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