Groups: Utilities may have charged too much

Tuesday, August 24, 2010

By Len Boselovic, Pittsburgh Post-Gazette

A coalition of consumer and business groups wants state regulators to determine whether customers are due a multi-billion dollar refund based on erroneous assumptions about what would happen to electricity rates when utilities were deregulated more than a decade ago.

Citizen Watch and the Pennsylvania Steel & Cement Manufacturers Coalition say the state-approved fees utilities charged customers were based on the assumption that deregulation would lower rates. The coalition said that did not happen.

The fees, known as stranded costs, were imposed because utilities felt competition would lower the rates they could charge so much that they wouldn't be able to recover the costs of building the plants that generate electricity. Based on projections of falling prices, the state Public Utility Commission allowed utilities to collect nearly $12 billion in stranded costs.

The two groups say that may have been billions of dollars too much. On Monday, they asked the PUC to determine whether utilities collected too much. If the PUC determines they did, customers should get a refund, the groups said.

"Market prices went up instead of down," said Paul R. Williams, a Philadelphia consultant who advises steel and cement producers on energy issues. "There were billions in [stranded] costs that were projected that were never stranded because people didn't shop," said Mr. Williams, president of Liberty Energy Group.

Citizen Power, which has opposed deregulation from the start, said a refund would enable consumers to offset rate increases they have been hit with as caps on electricity prices are removed. The caps were imposed as part of the state's deregulation plan.

David Hughes, executive director of Citizen Power, said deregulation failed to create the robust competition its proponents advertised. Because rates didn't fall, electric utilities collected more than they should have, he said.

"There haven't been any rate reductions based on competition and choice," Mr. Hughes said.

Mr. Hughes estimated that the average Duquesne Light customer could be entitled to a refund of a few hundred dollars.

The stranded cost fee, also known as a competitive transition charge, has disappeared from many customers' bills.

Duquesne Light customers have not paid the stranded cost fee since 2002 because of the Pittsburgh company's decision to sell its power plants. Allegheny Power spokesman David Neurohr said the charge ended June 25 for about 715,000 West Penn Power customers in western and central Pennsylvania.

Mr. Neurohr said the Greensburg-based utility had not seen the petition and could not comment.

PUC spokeswoman Jennifer Kocher said consumers still paying a stranded cost charge won't have to once the remaining rate caps are removed at the end of the year.