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Proposed PPL rate hike gets bigger
The 2010 rate hike looming over PPL Electric Utilities customers keeps getting bigger.
According to the latest calculations announced Thursday, the hike for residential ratepayers grew by another 2 percent since October 2007. That means the price of electricity could go up overnight on Dec. 31, 2009, by more than 34 percent for homeowners.
The projected hike for small commercial and industrial customers now stands at 24 percent to 43 percent.
The actual size of the hike won't be finalized for another year and a half, after PPL Electric Utilities has bought all the power it needs for its 1.4 million Pennsylvania customers in 2010. That's when a cap on what the company can charge for electricity generation is due to expire under the state's gradual transition from a traditional regulated electric industry to one that is market-based.
PPL Corp. of Allentown disclosed the new figures Thursday after state regulators certified the third of six auctions through which PPL Electric Utilities, its subsidiary, is buying the power.
PPL blamed the increase on the rising cost of oil, coal, natural gas and uranium that fuel power plants, an explanation some industry critics have disputed.
"We can't control fuel costs," David DeCampli, president of PPL Electric Utilities, said in a news release.
At 34 percent, the Jan. 1, 2010, hike would translate into an extra annual expense of $432 for PPL's typical residential customer, who now uses 1,000 kilowatt-hours a month and pays $1,256 a year for electricity.
That would make it the biggest hike in PPL history, and it suggests what is in store for Metropolitan Edison Co. of Reading and most other major Pennsylvania electric utilities the following year, when they enter the final stage of deregulation.
"Today's auction results are proof positive times three that the idea that deregulation would bring lower prices is the biggest hoax ever put over Pennsylvania consumers," state Rep. Camille George, D-Clearfield, said. Both he and state Sen. Lisa Boscola, D-Northampton, have drafted bills that would block the 2010 hike -- although neither bill appears to have enough support to win passage.
According to PPL, its third auction was conducted by an independent third party, and 14 energy companies submitted bids to supply electricity to PPL Electric Utilities.
Under auction rules, participants are not supposed to be identified. However, one likely participant was another PPL subsidiary -- PPL EnergyPlus. Despite the intended secrecy, PPL Energy Plus revealed itself in a July 2007 filing with the Securities and Exchange Commission to be the primary winner of the first auction.
PPL's initial projection last year put the 2010 residential rate hike in the 20 percent to 30 percent range. The figure inched above 30 percent after the first auction in July, and then to 35 percent after second auction in October.
The latest figure for the hike -- 34 percent -- was determined by averaging the results of the first two auctions with the third auction. (It might seem the figure should have gone up, since the third auction resulted in the highest electricity prices yet; however, it actually went down by one percentage point because the calculation's base line -- PPL's current price of electricity -- rose with a 5 percent rate hike at the start of this year.)
The actual size of the 2010 rate hike will be determined after all six auctions have been completed and the results averaged. The remaining three auctions will be held later this year and in 2009.
The rationale for buying electricity in chunks over a three-year period is that doing so reduces exposure to temporary spikes in electricity prices.
Such a spike led to a 72 percent rate hike for the 4,500 customers of Pike County Light & Power Co., which is on an earlier deregulation schedule than PPL. It happened in 2005, shortly after Hurricane Katrina triggered a run-up in energy prices.
While PPL has attributed rising electricity prices to higher fuel costs, others, including a coalition of industrial customers, argue the deregulated electricity market isn't competitive. They point to skyrocketing energy company profits as proof.
PPL, for example, earned a record $1.3 billion profit in 2007 -- a 51 percent increase over the previous record set just a year earlier.
"It's certainly not a good thing," Sonny Popowsky, Pennsylvania's official consumer advocate on utility-related matters, said of PPL's latest auction results. "On the other hand it doesn't surprise me. This market is producing extremely high prices that are the opposite of what we hoped for when we restructured [the electric industry].
"I don't think we can continue to rely on these auctions."