An administrative law judge finding that Pennsylvania Power & Light Co. has excess generating capacity fails to recognize the fact that all the company's generating facilities are providing essential service to customers, the Allentown-based utility said Tuesday (8/22).

The company emphasized that point in a formal filing related to a July 31 state Public Utility Commission law judge recommendation that PP&L should be granted a $61.7 million rate increase. The company had requested a $261 million increase.

PP&L also said that the law judge finding that the company should be permitted to earn only a 10.9 percent return on its common equity is a serious concern.

"The excess capacity and return on equity proposals are contrary to the evidence presented in the case and cannot be justified when measured against any standard," said Frank Long, PP&L's executive vice president and chief operating officer.

"We understand that no one wants to pay increased electricity rates, but there are basic fairness issues at issue in this request," said Long. "This is our first base rate increase request in 10 years, a record that is unmatched by any other utility in Pennsylvania."

Long noted that even if PP&L were to receive the full increase that it requested, the total price a PP&L customer pays for electricity would increase by only 8 percent in more than a decade. Over that same period, he said, the cost of living, as measured by the Consumer Price Index, has risen by about 30 percent.

PP&L and other parties in the case now have filed exceptions to the law judge recommendations and replies to those exceptions, ending the period in which the parties can comment. The case now is in the hands of the five PUC commissioners. The commission is expected to make a final decision by the end of September.

In his July 31 recommendation, the law judge ruled that 564 megawatts of the company's capacity is "excess," thus decreasing the allowed rate increase by $33 million.

"The proposed excess capacity disallowance is not only unfair, but it creates financial obstacles for PP&L and other electric utilities in the state to act in the best long-term interests of their customers," said Long.

"One only has to look back a few weeks to find evidence that all the company's generating capacity is needed," said Long. "During the recent heat wave, all available PP&L power plants were running full-out to serve customers. This often is the case during extremely hot or extremely cold periods.

"It is difficult to understand how generating capacity that is used at such crucial times could be considered excess," said Long. "This recommendation, if adopted by the full commission, could force the state's electric utilities to make decisions that would decrease the reliability of supplies."

Long added that PP&L's strong generating supplies enable it to regularly sell electricity to other utilities within the Pennsylvania-New Jersey-Maryland Interconnection. "Revenues from these sales are returned directly to our customers through the Energy Cost Rate on their bills. As the result of excellent plant performance of PP&L plants over the past year, combined with outages of some other units on the PJM, we expect that our customers will see a decrease in our ECR when we make our next filing," said Long.

Long noted that the law judge's excess capacity disallowance would save residential customers only about 2 cents per month.

He said that adequate reserve margins are important for the state's electricity supplies. Reserve margin is the amount of electricity supply that is available beyond the expected peak demand on the system. Reserves are necessary to prevent interruptions of service as the result of unexpected power plant outages.

Long said the law judge's opinion that PP&L has excess capacity is unfair because it limits the company to a 16 percent reserve margin, a level substantially below what is necessary to provide quality service to customers. And, it also is below what the PUC has allowed other utilities. Allowed reserve margins for other utilities range from 18 percent to 39 percent, Long said.

The company points out that components of the law judge's recommendation, if upheld, also could make the state's electric utilities reluctant: to cooperate with alternative energy suppliers; to implement programs that foster economic development; to upgrade facilities; or to generally take the necessary steps to assure reliable service.

In filing its exceptions, the company also took issue with the law judge's recommendation of a 10.9 percent return on common equity. The company provides additional support for its assertion that 13.0 percent is a more appropriate return on its common equity.

"We believe that the facts we presented in the case support a return that is higher than the 10.9 percent recommendation," said Long. The company points out in its exceptions that recent Pennsylvania commission decisions have awarded common equity returns of up to 11.5 percent in non-electric utility cases and that electric utility decisions in other states have awarded returns up to 12.28 percent.

PP&L also took exception to several other of the judge's recommendations, including:

• The disallowance of decommissioning costs for the company's fossil fuel plants.
• An adjustment in the depreciation lives of its fossil plants.
• The denial of costs associated with the placing into service of the Susquehanna 1 nuclear unit.