Pennsylvania Power & Light Co. will stop buying electricity from an independent power producer in Hazle Township, Luzerne County, under an agreement announced Wednesday (2/28) between PP&L and Continental Energy Associates.
The agreement will save PP&L retail customers about $114 million and will provide the Continental plant, which filed for bankruptcy protection in late 1994, with money to reduce its debt.
Once the agreement is approved and becomes effective, PP&L will pay Continental $91 million during the next five years, and Continental will cease selling power to PP&L.
The agreement needs approval from the Pennsylvania Public Utility Commission and the United States Bankruptcy Court for the Middle District of Pennsylvania before becoming effective.
"This is a good arrangement for both Continental Energy and PP&L," said Bill Dussinger, PP&L's manager of Electric Market Strategies and Operations. "It will reduce electricity rates for PP&L customers and give Continental an opportunity to reduce its debt and restructure its operations if it chooses to do so."
The prices PP&L pays to purchase electricity from the plant — which were agreed to in 1985 and were consistent with estimates of future prices made at that time — are now higher than what it costs PP&L to generate electricity or to purchase electricity on the open market. In 1986, the PUC approved the price PP&L pays to Continental for electricity.
"Contracts like this one have locked utilities into paying prices above the current market value of electricity," Dussinger said.
Customers pay for the costs of power purchase agreements with independent power producers through the Energy Cost Rate portion of electric bills.
"The $91 million buyout amount is much less than what it would cost PP&L and its customers to continue buying power from the plant during the 13 years that remained on the contract," Dussinger said. "Ending this contract provides PP&L retail customers with a net savings of about $114 million in rates during the next 13 years."
PP&L will request PUC approval to recover the applicable portion of the $91 million in buyout costs through the company's Energy Cost Rate during a five-year period.
"Even including the $91 million cost of buying out the contract and the cost of replacement power, the Energy Cost Rate charges to customers during the first five years of the buyout period will be less than what energy costs would have been to customers under the existing contract," Dussinger said.
Continental Energy is an independent, 140-megawatt power plant located in the Humboldt Industrial Park. PP&L purchases 100 megawatts of the plant's electricity and transmits the other 40 megawatts to Consolidated Edison Co. of New York.
"We are not purchasing the power plant," Dussinger said. "We are terminating our obligation to buy the power. If Continental chooses to do so, it is free to continue operating the plant and to sell its power to wholesale customers other than PP&L."
PP&L entered the contract to purchase Continental's power in 1985 under the requirements of the federal Public Utilities Regulatory Policies Act, or PURPA. That law, passed in 1978, mandates that electric utilities purchase electricity from small, independent power producers that seek contracts with the utilities.
PP&L serves about 1.2 million customers throughout a 10,000-square-mile area in 29 counties in central and eastern Pennsylvania. PP&L is a subsidiary of PP&L Resources Inc. Both companies are headquartered in Allentown, Pa.