Electricity rates for PPL Electric Utilities Corp. customers would increase 20 percent to 30 percent in 2010 if state regulators approve a power purchasing proposal the Allentown company filed Wednesday in an attempt to avoid even larger increases.
PPL Electric wants to spread its energy purchases over a period of years as a way of averaging what it pays for power. Other utilities have been burned by having to buy all their electricity at premium prices. One in Pike County bought power at post-Katrina highs, helping trigger a 72 percent rate hike.
The PPL Electric proposal "would significantly lessen the likelihood that customers would be overly exposed to price spikes in the wholesale markets," PPL Electric President John Sipics said in a written statement.
Jennifer Kocher, a spokeswoman for the state Public Utility Commission, said state regulators will accept public comment on PPL's proposal and probably hold a hearing before an administrative law judge. The PUC board can accept, decline or modify the judge's recommendation. There is no statutory deadline for the board to act.
Caps on electricity rates for PPL Electric customers expire at the end of 2009.
Since the state began deregulation in 1996, electricity rates for most Pennsylvanians have been capped. As part of the deregulation process, those caps are now expiring, with dramatically mixed results. For Duquesne Light customers, the expiration on caps initially provided a drop in electricity charges; for Pike County Light & Power customers, rates rose.
In papers filed with the PUC on Wednesday, PPL Electric outlined an electricity purchasing plan it hopes will help it avoid Pike County's experience.
The company wants to buy the electricity it will need in 2010 for residential and small business customers during six sales to be held in March and September of 2007, 2008 and 2009. It also wants to acquire the electricity it needs for its large commercial and industrial customers in the two 2009 auctions.
PPL Electric wants to buy its electricity by soliciting bids from generating companies and then selecting the lowest bids during the six sales, which would be administered by an independent third party working with the PUC.
Currently, PPL Electric purchases its electricity from PPL Energy Plus, another subsidiary of PPL Corp. That contract expires with the rate caps in 2009.
At that time, PPL Energy Plus would have to compete with other generating companies to provide electricity to PPL Electric. (Before deregulation, the generating plants of PPL Energy Plus and the electric lines of PPL Electric were owned by the same entity, rather than being sister subsidiaries.)
By purchasing electricity over time, PPL Electric officials hope to smooth out price fluctuations.
"Some of the company's procurements will be at higher prices, and some will be at lower prices, but, over time, the overall cost will be an average of the year 2010 market prices," PPL Electric's filing says.
Based on that buying strategy, PPL Electric estimates that its customers' rates will rise 20 percent to 30 percent. But, it cautioned, the actual increase "could be higher or lower based on actual market prices."
Prices are expected to be higher than current prices because of increases in the price of the fossil fuels burned to make electricity.
The six sales would only provide PPL Electric its electricity needs through 2010. At the end of 2010, rate caps come off at most other electric companies. At that point, PPL Electric wants the state to create a statewide auction program in which all companies could receive bids for electricity. The PUC is working on regulations for companies whose caps are nearing expiration.
PPL Electric also is asking for a promise from the PUC that it will not take steps to mitigate increases in consumer prices, as it did with Pike County Light & Power.
When Pike County Light & Power reached its cap expirations last fall, it purchased the power it needed for the next 18 months at an auction held just after Hurricane Katrina, a time when gas and electricity prices soared. Pike County Light & Power customers ended up with the 72 percent increase in their electricity bills.
Faced with customer outrage at the huge jump in electricity costs, the PUC arranged for a second auction for a pool of disgruntled customers. That bid resulted in slightly lower rates, and all but 14 of Pike County Light & Power patrons jumped to the alternative generating company.
PPL Electric doesn't want the PUC to do something similar with its customers. If generating companies know there's a risk that customers could go elsewhere, their bid prices would go up in compensation for lost sales from lesser demand, PPL spokesman Dan McCarthy said.
Kocher wouldn't comment on the specifics of the PPL Electric proposal, but said that as part of deregulation, by law, customers have the choice to leave any electricity supplier.
Other components of the PPL Electric proposal:
A three-year consumer education program to inform customers of electricity choice, pricing, energy conservation and other electricity deregulation issues.
Increasing the company's spending from $27.5 million to $33 million beginning in 2010 for programs designed to aid low-income customers.
Expanding programs that help customers manage electricity usage, including a program that allows customers to pay different rates for peak and off-peak electricity. This would allow customers to pay lower rates for using electricity at night.
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