Court says utility can't use rates to cover costs

By Todd Spangler, THE ASSOCIATED PRESS

Saturday, February 23, 2002

A state court upheld FirstEnergy's merger with GPU Inc., but said the company cannot use a portion of rates charged to more than one million customers in central and eastern Pennsylvania to recover losses from the purchase of electricity.

FirstEnergy, based in Akron, Ohio, may appeal the decision by Commonwealth Court on Thursday to the state Supreme Court. Citizen Power, a utility watchdog group that brought the case against FirstEnergy, called the ruling a victory for consumers.

"(It) would have granted GPU hundreds of millions of dollars in unjustified relief from a rate cap bargain it struck just a few short years ago," said David Hughes, executive director of Pittsburgh-based Citizen Power.

Citizen Power may appeal the court's approval of the merger, however.

The court's decision won't change rates customers now pay, but limits how FirstEnergy can spend a special fee it charges.

FirstEnergy's merger with GPU, which was based in Morristown, N.J., was completed in November and created one of the nation's largest investor-owned electric utilities, with 4.3 million customers in Ohio, New Jersey and Pennsylvania.

The court ruling Thursday potentially affects charges collected from Pennsylvania Electric Co.'s 580,000 customers in northern and central Pennsylvania and Metropolitan Edison Co.'s 495,000 customers in the eastern part of the state. Both former GPU companies are now FirstEnergy subsidiaries.

Unaffected are 138,000 customers of Penn Power, which provides service in western Pennsylvania.

In the 1990s, the state deregulated electric utilities and the two GPU subsidiaries were obligated to provide power at specific rates to customers who did not select an alternative provider. Like other utilities, they were also allowed to collect a "transition charge" to pay for costs which had been previously incurred, according to the Public Utility Commission.

When wholesale power prices went up, GPU which had already sold its power plants incurred losses because it had to pay more for electricity on the wholesale market than it was collecting from customers.

A settlement was reached allowing FirstEnergy to use excess amounts paid through the transition charge to cover those losses, as part of the merger agreement, the PUC said. Other costs, currently totaling about $219 million, would be deferred until 2010.

FirstEnergy spokesman Ralph J. DiNicola said that amount would hopefully decrease as wholesale prices of electricity went down.

But Citizen Power and the other plaintiffs said the company had no right to recover the costs through the transition charge or to defer costs, arguing it amounted to a rate hike.

The court agreed, saying the transition costs were only there to help pay for costs previously incurred "in a regulated environment that they would be unable to recover through prospective market-determined prices."

"They were not meant to pay for costs associated with the current delivery and generation of electricity," the court said.