GPU and FirstEnergy merger approved; rate increase pending

By the OGJ Online Staff

HOUSTON, May 25 -- Pennsylvania state regulators approved the merger of GPU Inc. and FirstEnergy Corp. of Akron, Ohio, with certain conditions.

The Pennsylvania Public Utility Commission also agreed to negotiate a settlement by July 13 to a rate request filed earlier by GPU.

The Morristown utility said it needed the rate increase to meet demand of customers that it had not anticipated serving. Under the state's deregulation laws, GPU's customers were supposed to choose one of the competitive electric generation providers for service. GPU had decided with state approval to focus on transmission and distribution and sold its generating plants.

Approval of the merger was conditioned on the following:

-- Customers must not pay the merger costs.

-- Transmission facilities must remain under the control of the PJM Interconnection.

-- Community programs and economic development initiatives must remain at same level.

-- Job cuts cannot be disproportionately weighted towards Pennsylvania.

-- Must develop a service quality index to measure and improve reliability and service quality.

Critics of the merger said the union was not in the public interest.

"Citizen Power does not take solace in the minimal conditions the commission attached. The law requires that any merger provide substantial benefits to the public," said Harvey Reiter, Citizen Power attorney. "There simply aren't any."

The merger will have an adverse impact on competition because one more supplier to the market will be lost, said Reiter. In fact, observers of the Pennsylvania market say that there are few suppliers now willing to serve the residential market.

Customers are returning to GPUs service "en masse," said Ned Raynolds, spokesman for GPU.

The utility is now providing generation as well as transmission and distribution services to 96% of its original customer base, he said.

"No other providers can afford to sell electricity to them," Raynolds said. "Customers are returning to us."

But rate caps were imposed on the utilities for this service of "last resort."

In fact, consumer advocates say the lower electric bills in Pennsylvania after deregulation are the result of the rate cap, not competition.

"Electric competition is in trouble in Pennsylvania," said Reiter.

At the same time, the cap has squeezed GPU because it must serve customers that return to its service or don't switch in the first place. GPU no longer owns its own power plants and must procure generation with contracts or on the spot market. The rate cap does not allow full recovery of costs, the company said.

"We need some kind of arrangement to recover costs or our credit rating will deteriorate," he said.

With the retail market deteriorating in Pennsylvania, and the rate cap interfering with full cost recovery, the situation, while not nearly so severe has some California-style overtones.

"But we don't talk about California here," said Raynolds.