Company plans to buy future power over the next three years to prepare for expiration of rate caps at end of 2009.
By Tim Mekeel
Published Sep 26, 2006 13:45
They help explain PPL Electric Utilities’ strategy to limit rate increases when a state-mandated cap expires at year-end 2009 and how that strategy might affect your bill.
PPL Electric Utilities, which delivers power to nearly the entire county, wants to buy that future power over the next three years.
That way, PPL Electric Utilities estimates that its rates would rise 20 to 30 percent. It’s an educated guess, based on current prices and trends.
While that’s hefty, it’s a fraction of the 60- to 70-percent increases ravaging some utilities.
These utilities, including some in Pennsylvania, Maryland and Delaware, had the recent misfortune of seeing their rate caps expire, then having to buy all their power at one time — a market peak.
If the wholesale electricity market takes a surprising downturn at year-end 2009, allowing other suppliers to get and sell cheaper power, then PPL’s 20 to 30 percent becomes a customer’s worst-case scenario.
“Nobody really knows what prices are going to be in 2010 at this point,” acknowledged John F. Sipics, PPL Electric Utilities president.
But his company’s strategy of buying over time would protect customers from a spike in market prices when the cap expires, he said.
“We were a little afraid of waiting. You see how volatile the energy market is,” Sipics said Monday at PPL’s Lancaster service center on Delp Road.
“We thought by buying over time we’ll be sure to get a market price, as opposed to happening to buy at an unfortunate time,” he added.
If PPL’s prediction comes true, it would be the sharpest rate increase since the mid 1980s, when rates rose to reflect the cost of constructing the Susquehanna nuclear plant.
Rate jumps in 1983 and 1985 boosted residential rates a total of 25 to 31 percent, depending on usage.
Allentown-based PPL filed its rate proposal with the state Public Utility Commission in August. A decision could come as early as March.
Under the proposal, PPL would buy its 2010 power needs a sixth at a time. The buys would come in the spring and fall of 2007, 2008 and 2009; prices tend to dip during those seasons.
PPL would continue to use that strategy going forward. So, for 2011, it would buy power in the spring and fall of 2008, 2009 and 2010, and so on.
Sipics noted that PPL’s roles in the deregulated electric industry include doing more than just delivering power.
It’s also the “provider of last resort,” meaning it supplies power to customers who don’t shop for an alternative source.
With alternative sources dried up by capped prices that are below market prices, nearly every customer in PPL territory has turned to PPL as its provider.
To meet that demand, it needs to have power at its disposal. Currently it has a contract to obtain that power from a sister generating company, but that deal also runs out at year-end 2009.
That’s why it’s moving now to get future sources secured.
Should the market prices at year-end 2009 turn out to be cheaper than what PPL has secured over those three years, Sipics noted that “nobody’s forcing anybody to take (PPL’s) price.
“We have a responsibility to have power for those who choose not to shop or who can’t shop, and we want to get that at a price that’s reasonable and representative of the market, which is why we propose to buy it in six (purchases),” he said.
What expires at year-end 2009 is the cap is on the charge for generating power, the biggest portion of a customer’s total bill. The cap on the charge for delivering that power ran out at year-end 2004.
Talkback on LancasterOnline
Welcome to the new TalkBack on LancasterOnline. Please use the comment box below to share your opinion on this
article. If you would prefer to use the previous TalkBack forums instead, please use this link.
