GPU/FirstEnergy reach rate agreement with Pennsylvania regulators

By the OGJ Online Staff

HOUSTON, June 12 -- GPU Inc. and FirstEnergy Corp. agreed to retain a cap on electric rates and to defer collecting the shortfall that has accumulated for wholesale electricity purchases as a condition of their merger.

The utilities and intervenors filed an agreement over rates with the Pennsylvania Public Utility Commission Monday. The PUC will vote on the pact Thursday. Regulators approved the merger pending a settlement of the rate issue earlier.

Much like California's utilities, GPU, Morristown, NJ, was squeezed between providing electricity for ratepayers at a capped rate and having to buy power at rising wholesale prices. Under Pennsylvania's restructuring law, GPU had opted to be a transmission and distribution utility and sold all of its generation.

But the state, among the first to deregulate its retail electricity market, has not been too successful in weaning ratepayers away from protected rates of the incumbent utilities, including GPU which must continue serving them whether it owns generation or not. Few alternative suppliers actually offer lower rates to consumers.

The agreement means GPU, which is still serving most of its original customers, can recoup the cost of purchased power over a longer period of time and earn an approved rate of return while those purchases remain on the books unpaid.

The rate cap remains in place until 2006. In the meantime, GPU will give consumers an incentive to decrease peak demand for electricity and pay less for power by offering customers advanced meter systems, according to the agreement.

"The systems will give customers the right to know the real-time cost of their electricity and the ability to shift their electricity to cheaper times," said John Hanger, CEO of Citizens for Pennsylvania's Future in a statement. Hanger said this provision will allow customers to use and pay for power based on the real cost rather than the average cost of power.

Also as a part of the agreement, FirstEnergy, Akron, Ohio, will be able to sell power from its own generation to Metropolitan Edison Co. and Pennsylvania Electric Co., utilities owned by GPU. Under the original merger agreement, the holding company was prohibited from selling power to its distribution utility units.

"The parties recognized that GPU needed access to competitively priced generation," said Ralph DiNicola, FirstEnergy spokesman. "The costs of this generation will be subject to approval by the PUC through 2010."

FirstEnergy can seek regulatory relief if an environmental regulatory or statutory provision prevents the company from using that generation after December 2005, or if the companies are prevented from earning a fair rate of return though.

"All major intervenors including most consumer groups agreed with this stipulation," said DiNicola. The merger was proposed in August 2000.