Proposal: No GPU increase 'til 2006
Under the proposed agreement, GPU and Akron, Ohio-based FirstEnergy Corp., which is planning to acquire GPU, would not be able to seek a rate increase for Pennsylvania customers until that year at the earliest, and only under certain circumstances.
Also, electricity rates would remain frozen at 1997 levels until the end of 2010, slightly longer than called for in GPU's current agreement.
However, the proposed agreement would allow Pennsylvania subsidiaries of GPU Energy to recoup from ratepayers some or all of the difference between its costs for buying power and what it can charge customers.
The proposal came out of negotiations among GPU, FirstEnergy and various consumer, industry and interest groups.
The negotiations were ordered late last month by the PUC, which approved the $123 billion acquisition but told the utilities and the other parties to seek a consensus regarding the rate-increase request by today.
The PUC is scheduled to vote on the matter Thursday.
A spokesman for the PUC said the commission would have no comment on the proposal until it had studied it more thoroughly.
But Jeff Dennard, spokesman for Morristown, N.J.-based GPU, said, “We think it is a good settlement for all parties, and we're hopeful the PUC will approve it.”
But a consensus was not reached. Reportedly several parties to the negotiations did not sign the agreement.
Among them was Citizen Power, a Pittsburgh-based consumer group, whose executive director, David Hughes, blasted the proposed settlement.
“If this is approved, it will be a major increase in costs over time to GPU ratepayers,” Hughes said. “It's disingenuous to claim there's no rate increase.”
Hughes charged that the increased costs to ratepayers are hidden in the settlement.
The settlement would allow GPU to place its wholesale power losses in a deferral account through 2005, and keep those losses on the books until 2010. Future wholesale power profits then would be credited against the losses, and the company would write off any remaining losses in 2010.
However, if the acquisition does not take place, GPU then can return to the PUC to seek rate relief, though its losses from Jan. 1 through May 31 would have to be absorbed.
Under electricity restructuring in Pennsylvania, GPU is required to supply power to its customers as a provider of last resort, but its costs on the open market for the power have risen dramatically.
The firm applied to the PUC for relief, stating that it would lose as much as $316 million under the terms of the provision.
However, Irwin “Sonny” Popowsky, Pennsylvania Consumer Advocate, was a party to the agreement and said it should be viewed by ratepayers as a relief.
“(A rate hike) would have opened up the door to all sorts of rate-cap exceptions around the state,” Popowsky said.
He also said the acquisition of GPU by FirstEnergy provides the firm with electric-generation backup.
“They will not be able to use as an excuse that they have no generation and are subject to the whims of the wholesale market,” he said. “Whatever is not collected by 2010, they write off or eat.”
GPU also faces a Friday deadline imposed by its bankers to obtain some kind of agreement acceptable to the PUC that would stabilize the company's cash flow and debt level. If GPU is unable to meet the deadline, it could be forced to suspend its dividend and forfeit about $720 million in collateral.
The Associated Press contributed to this article.
You can contact Tony Lucia at 610-371-5046 or email@example.com.