Big users, small consumers join forces against charge by Pa. energy utilities

A curious coalition of mammoth industrial users and small consumers is challenging a rule that allowed Pennsylvania electrical utilities to charge $12 billion in transition costs in the last decade during the migration to a more competitive market.

The Pennsylvania Steel & Cement Manufacturers Coalition and Citizen Power Inc., a Pittsburgh advocacy group, have asked regulators to review the transition charge. The fee allowed utilities to recover power-plant investments made in a regulated business environment that would be uneconomical - "stranded" - in a competitive market.

In a filing with the Pennsylvania Public Utility Commission, the consumer advocates argue that the utilities collected too much money from the transition charges and that it was ratepayers, rather than the utilities, who were left stranded.

"Pennsylvania electricity consumers have potentially been the victims of a classic 'bait-and-switch' scheme," the Aug. 23 petition said.

An association of utility companies this week denounced the petition as an attempt to undo a done deal.

Terrance J. Fitzpatrick, president of the Energy Association of Pennsylvania, said the trade group would ask the PUC to dismiss the petition.

"They've raised this issue in the General Assembly, and we're glad it's over at the commission now," he said, "because we think it has no merit."

Fitzpatrick said consumers had benefited from the arrangement reached after the legislature voted to deregulate utilities in 1996.

The Electricity Generation Customer Choice and Competition Act allowed customers to buy power from alternative suppliers, though they are still the captives customers of regulated distribution monopolies that own the wires and transmission equipment.

In practice, little retail competition has taken place because rates were frozen at 1996 levels during a transition period to allow utilities to recover their stranded investments. With rates capped, alternative suppliers found it hard to compete.

In Peco Energy Co.'s territory, the transition period draws to a close at the end of the year, when rate caps expire and the transition charges disappear.

Third-party suppliers are already scrambling to sign up commercial and industrial customers.

It remains to be seen if discount suppliers will jump into the residential market. Under a rate settlement Peco announced Tuesday, the Philadelphia utility told state officials that residential charges are expected to increase about 7 percent Jan. 1.

The end of the transition period has prompted critics of electric restructuring to call on the PUC to reevaluate the fee to compensate utilities for stranded investments, including some of the state's giant nuclear reactors.

Paul R. Williams, a Philadelphia energy consultant who is advising steel and cement manufacturers - some of the state's biggest power consumers - believes the transition charges generated at least twice as much revenue as the utilities were entitled.

"We believe something substantially less than $12 billion was stranded," Williams said. He said competitive electrical markets had failed to develop as robustly as anticipated.

David Hughes, executive director of Citizen Power, said the PUC should resolve whether the transition charges were fairly calculated.

"The least you can do is a reconciliation to see if the charges were fair or accurate," he said.

But Hughes, whose organization opposed the transition agreement from the beginning, said he was "not optimistic" the PUC would revisit the issue. He said his group might try to mount a political challenge in the legislature.

"We're not asking for a refund right now," he said. "Just an investigation."

Pennsylvania Consumer Advocate Irwin A. "Sonny" Popowsky said his office would not endorse reopening the original transition arrangement, since he was a party to the pact.

But Popowsky agreed that the power-generation market had not developed as vigorously as expected in the current state and federal regulatory climate.

He said that the barriers for power producers to enter the market were still high - financing costs, access to transmission lines - and that the industry was at risk of concentrating.

"We have concerns," he said, "about whether the current structure is sufficient to keep prices down in the future."