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E-mailAllegheny Energy plan stirs debate
Opinions on Allegheny Energy's request last week ranged from it being a "reasonable compromise," to "yet another example of deregulation in Pennsylvania not working," to "when does competition begin?"
"Allegheny's original proposal was that they wanted two years longer to recover their stranded costs," said Irwin "Sonny" Popowsky, the state's consumer advocate. "We argued that they shouldn't be given the two years unless the rate caps remained in place for those two years. ... We see this as a reasonable compromise."
Stranded costs are investments in plants and equipment that utilities can't recover in a deregulated market. Allegheny Energy has proposed refinancing $115 million in such costs by bundling the debt into securities that it can sell. They would then be paid off over time.
As now proposed by Allegheny Energy's utility unit, Allegheny Power, the company would extend caps on its rates through 2008.
Between 2006 and 2010, Allegheny Power would be able to increase rates in each of the five years. Under a restructuring agreement with the state Public Utility Commission from 1998, rate increases were granted in 2006 and 2008.
Popowsky said that even with the increases, a cap would remain in place.
Power marketers say a rate cap is everything deregulation is not supposed to be. "We believe the Pennsylvania General Assembly enacted deregulation with the intent that competition would flourish with market-based prices," said Joel Weinberg, spokesman for Select Energy, the deregulated power marketing arm of Connecticut-based utility Northeast Utilities. "Continuing rate caps will delay the start of supplier competition."
Salisbury, Md., independent power consulting firm Affiliated Power Purchasers International has done business in Pennsylvania under deregulation but has not been able to make inroads in the Allegheny Power service territory.
"Our feeling is that anything that increases competition is a good thing," said Kathy Kiernan, vice president, business development for Affiliated Power. "Competitors can't come into Allegheny's service territory because we've been unable to find a competitive power supply."
One thing is certain: Allegheny Power's current rates are among the state's lowest, and the company has lost few customers since deregulation began in the late 1990s. According to the latest statistics from the Office of Consumer Advocate, as of July 1, Allegheny Power had lost just 841 total customers -- 0.1 percent of its total customer base.
Things haven't changed much since April 1999, when the Consumer Advocate's office first surveyed the impact of deregulation. At that time, Allegheny Power had lost just 1.8 percent of its customer base.
David Hughes, executive director of Pittsburgh-based consumer advocacy group Citizen Power, said compromise is not what electricity industry restructuring is about. "Anytime there is a rate increase, it is not good for consumers," Hughes said. "The real story here is that deregulation is not working, and this is a sign that people are scared to death what will happen under a total competitive situation."
Hughes said companies coming before the PUC with requests for rate increases should be made to explain why they need the additional funds. "We say 'Show us your costs,' but they won't open their books to show us," Hughes said. "We feel they should be granted their costs plus a fair rate of return," a scenario that ruled when the industry was regulated.
Hughes said Allegheny Power, neighboring utility Duquesne Light and other utilities that are or soon will be going before the PUC for rate increases, insist that extending the rate caps prevents customer rate shock once those rates are governed strictly by the market.
But Hughes disagrees.
"They say the extended caps prevent rate shock, but what if during the time the caps are in place, rates go down? The caps prevent customers from taking advantage of lower rates," he said.
