The Public Utility Commission this week established a process for discussing the issues and possible policy action that would mitigate potential future significant increases in electricity prices when price caps come off in 2009 and 2010.

"Combating potentially significant electricity price increases at the expiration of rate caps approved under electricity restructuring proceedings presents difficult policy choices," said Commissioner Terrance J. Fitzpatrick in his motion initiating the discussion. "However, these choices will not get easier by waiting until the reality of higher prices is upon us. While we cannot predict with certainty the future course of energy prices, a number of factors are currently pushing up prices for all forms of energy. By beginning to prepare now, it is clear that we will have many more tools to combat the social and economic impacts of a significant increase in electricity rates."

Commission Chairman Wendell F. Holland said, "We must begin in earnest the conversations about how to best protect the public interest as the transition period to full retail competition ends. We must all work together to develop a plan to alleviate future shock for electric consumers and add stability to electric prices. At the same time, we must work to educate consumers about energy prices and the need for conservation measures so that they may begin to prepare now for volatile energy costs."

Commissioner Bill Shane said in a statement, "There are other elements at work in the wholesale energy market which will cause 'competitive' wholesale electric charges to be even higher than they are at the present time. I am sure that the vast majority of Pennsylvania's consumers know little or nothing about these elements. They will continue to look to this Commission for answers and solutions as they have in the past."

The Commission voted unanimously to begin a process that may lead to the development of policies to mitigate higher electricity prices. Most Pennsylvania electricity consumers are paying capped generation rates and will continue to do so until the end of 2009 or 2010.

Recent events in Pennsylvania, Maryland and Delaware have shown that consumers of electricity can be exposed to sudden dramatic price increases when long-term generation caps expire. The long-term caps were agreed upon during state restructuring proceedings.

An en banc hearing to consider the ideas and perspectives of consumers, competitive suppliers, utilities and others is scheduled for June 22, 2006. Written comments on the issues should be filed with the Commission by June 15, 2006. The Commission may use the information gathered during this process as a basis for action.

The Commission identified some options to address the potential significant increases, including the possibility of phasing in higher energy prices over several years. One option includes gradually raising retail prices prior to the expiration of the rate caps and setting aside the additional money collected, plus interest and using it to reduce the magnitude of retail price increases when the caps expire.

The Commission said it is looking for comment on that idea plus other creative approaches that may assist in addressing potential significant price increases. The Commission also asked those who wish to participate in the process to address specific topics such as actions needed to:

· Educate consumers;

· Encourage conservation;

· Reduce peak demand for electricity;

· Consider alternatives for avoiding abrupt, large price increases;

· Review issues concerning programs to assist low-income customers; and

· Review interplay with the wholesale energy markets.

In his statement, Commissioner Shane also asked that the following issues be addressed: use of multiyear contracts for default energy service supplies; impact of hourly default service rates; identify solutions to system congestion; and estimating the marginal cost of air conditioning in July, August and September.

The text of motions and statements are available online.

5/19/2006