Pa. groups seek review of restructuring charges for potential refunds

By Corina Rivera

Two Pennsylvania groups representing electricity consumers, Citizen Power and the Pennsylvania Steel and Cement Coalition, are calling for state regulators to review "stranded" costs paid to utilities since electric industry restructuring was undertaken and order refunds if appropriate.

The groups claimed consumers have paid about $12 billion via transition charges since Pennsylvania restructured its electric utility industry in the mid-1990s, but that a fully competitive electricity market has not developed as anticipated. They want the state Public Utility Commission to compare the amount of transition costs collected from ratepayers with what those costs were originally estimated to be to determine if consumers overpaid and, if so, order refunds.

Electric industry restructuring was undertaken in Pennsylvania in 1996 with the expectation that competition in electricity markets would result in lower prices for consumers. Utilities were required to separate their power generation assets from their transmission and distribution assets. Some companies moved their power plants into new subsidiary companies, others sold them off completely. Reasoning that competitive markets would make certain generating assets no longer economic, utilities were allowed to recover their remaining investment in these so-called "stranded" assets from customers.

In a petition to the PUC, on Aug. 23, Citizen Power and the coalition requested that now, at the end of the stranded cost collection window, the commission:

* Compare the projected/expected stranded costs to the actual stranded costs after mitigation efforts for each electric distribution company.

* In the event that any utility has an egregious difference, for example, more than $50 million, between the expected stranded costs that have been collected from ratepayers and the actual stranded costs that a utility experienced, implement a mechanism to refund the over-collection back to those customers.

PUC spokeswoman Jennifer Kocher on Aug. 24 declined to comment on the specific petition, saying she cannot comment on anything that has not been filed.

She said some of the companies have collected their agreed amount with regards to stranded costs, while other companies will continue to collect them until the rate caps expire.

Affected electric utilities include Allegheny Energy Inc. subsidiary West Penn Power Co. d/b/a Allegheny Power; Duquesne Light Co., owned by infrastructure investor Macquarie Group Ltd.; Exelon Corp. subsidiary PECO Energy Co.; FirstEnergy Corp. subsidiaries Metropolitan Edison Co., Pennsylvania Electric Co. and Pennsylvania Power Co.; and PPL Corp. subsidiary PPL Electric Utilities Corp.

Paul Williams, president of Liberty Energy Group Inc. and an adviser to the steel and cement coalition said in a statement: "Our group, on behalf of all electricity consumers — residential and commercial — requests that the PUC not hold consumers liable for outdated stranded cost estimates that have proven so inaccurate. We are asking the PUC to do what the 1996 [Electricity Generation Customer Choice and Competition] Act expected them to do at the end of the stranded cost collection period. We simply want what is fair for all Pennsylvania residents and companies who do business in this state."

Citizen Power Executive Director David Hughes said in the statement: "We paid the $12 billion, but instead of competition and lower prices, we have unregulated monopolies that are now beginning the gouging process. A refund of stranded cost over-collections would help offset rate increases that are occurring as rate caps expire."

In a separate interview Aug. 24, Hughes said, "[T]he PUC should examine whether utilities over-collected on their stranded costs. We suspect that based on what has happened since 1999, the PUC will find that over-collections indeed did occur, likely in the billions of dollars."

The coalition said it is calling for the PUC to revisit the original stranded cost estimates given that actual market prices for electricity have exceeded the forecasts adopted when setting stranded costs levels.

For example, the groups said, PPL Electric Utilities uses a typical bill of 1,000 kWh per month for a residential customer. The stranded costs were a declining rate that averaged .839 cent over the 10-year recovery period. This is the equivalent to $1,246.80 per PPL residential customer and since PPL in actuality stranded virtually no costs, this would result in a refund of about $1,250 per household, the coalition asserted.

Michael Wood, senior manager of corporate communications with PPL Corp., said Aug. 24: "We feel our stranded cost recovery was fair and appropriate, and the PUC has audited our collections annually to ensure there was no over-collection. Our recovery of stranded costs ended in 2009 with a slight monthly credit this year that will expire later this year."

He said the commission approved PPL Electric Utilities' recovery of $2.97 billion in stranded costs and in exchange, the company capped its electric rates for more than 10 years. "Additionally, the company wrote off $1.6 billion in assets, its largest ever," Wood said. "During the transition period, PPL Corporation invested more than $5 billion in its generating facilities, and customers of PPL Electric Utilities did not pay anything toward those investments. The capped rates provided our customers with immediate and substantial benefits over a 10-year period while the competitive wholesale generation market matured."