Press Release

PUC Certifies Penn Power Competitive Bidding Process as Transparent, Non-Discriminatory and Reflecting Market-Based Prices

Published on 10/19/2006

Filed under: Electric

HARRISBURG – The Public Utility Commission (PUC) today certified that the process used to determine the provider of last resort (POLR) prices for Pennsylvania Power Co. (Penn Power) customers was transparent and non-discriminatory, and reflected market-based prices.

The Commission voted 4-0 that the competitive bidding process produced electric generation prices for Penn Power that reflect prevailing market prices. The competitive bidding process was conducted by an independent group on behalf of Penn Power.  

The market-based prices mean the average residential heating customer will see about a 20 percent increase in their total bill; the average residential non-heating consumer will see about a 33 percent increase in their total bill.

The Commission verified that the new prices accurately reflect the results of the auction and checked the company’s calculations to ensure the new retail electricity prices accurately reflected the electricity costs resulting from the auction. The prices are not set by the PUC, but rather are set by the wholesale market, over which the PUC exercises no jurisdiction.

The 1996 electric competition law requires electric companies, or a Commission approved alternative supplier, to provide default electric generation service to customers who have not selected an alternative generation supplier. This is commonly called provider of last resort service, or POLR. The POLR prices for electric generation service are required to reflect “prevailing market prices,” according to the law.

The electric generation prices for Penn Power customers have not increased since 1992. Those 1992 rates are set to expire Dec. 31, 2006. The rates were capped as a result of settlement agreements reached during the state restructuring proceedings. During the same period, inflation went up about 45 percent while the prices of natural gas and coal, both of which are used in the generation of electricity, doubled.

Customers do have the right to choose an electric generation supplier other than Penn Power. The current number of licensed alternative electric generation suppliers offering services in Penn Power territory is limited. While the Commission has licensed many electric generation suppliers, the price caps that have been in place have deterred these generation suppliers from offering service in the Penn Power territory. However, the new market-based pricing may trigger electric generation supply marketers to come into the territory and begin to offer alternative products.

The prices below compare the average Penn Power total bill during the transition period and the new tariff prices, effective Jan. 1, 2007. The auction produced the following prices:

• The monthly bill for an average residential, non-heating customer using 500 kWh will increase from $61.27 a month to $81.18 (33 percent).
• The monthly bill for an average residential, heating customer in the winter using 2,000 kWh will increase from $135.57 a month to $ 162.03 (20 percent).
• The monthly bill for an average small commercial customer using 2,000 kWh (10 kW demand) will increase from $219.88 a month to $225.04 (2.4 percent).
• The monthly bill for an average small commercial customer using 60,000 kWh (300 kva demand) will increase from $6,023.12 a month to $6,228.05 (3.4 percent).
• The monthly bill for an average large commercial customer using about 300,000 kWh (720 kva demand) will increase from $18,340 a month to $27,430 (50 percent).
• The monthly bill for an average large commercial customer using about 2.9 million kWh (5,810 kva demand) will increase from $159,081 a month to $255,574 (61 percent).

After considering comments from all stakeholders in the process, the Commission approved a competitive bidding process at its April 20, 2006, meeting that was designed to provide consumers with the best possible price by encouraging participation in a competitive auction by suppliers.

The Pennsylvania Public Utility Commission balances the needs of consumers and utilities to ensure safe and reliable utility service at reasonable rates; protect the public interest; educate consumers to make independent and informed utility choices; further economic development; and foster new technologies and competitive markets in an environmentally sound manner.

For recent new releases, audio of select Commission proceedings or more information about the PUC, visit our website at www.puc.state.pa.us.

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Docket No. P-00052188

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