After careful consideration of Monday's (9/21) state Public Utility Commission interim order that sets a price for capacity in the wholesale electricity marketplace, PP&L, Inc., said that the commission action presents a legal dilemma for the company.
"Our legal counsel are advising us that a portion of this PUC order is in conflict with long-standing federal law," said Frank Long, PP&L's executive vice president and chief operating officer. "Because of this dilemma, it will be necessary for us to ask the courts to step into this matter. In the meantime, the company has no choice but to continue to comply with the federal law.
"The commission order seeks to set a price for wholesale capacity instead of permitting the price to be set by the market. Such action is prohibited by federal law," said Long.
Electric companies buy and sell electricity from each other on a regional grid. In that wholesale market, there are two separate commodities: an energy commodity that is associated with the hour-to-hour costs to generate electricity; and a capacity commodity that reflects the longer-term, fixed costs associated with building and maintaining power plants. The proposed commission action would require Pennsylvania utilities to charge a set price for capacity.
Long pointed out that the PUC has no jurisdiction over the wholesale power market. The Federal Energy Regulatory Commission has exclusive authority over those transactions.
The company also is concerned, Long said, that the commission order would move Pennsylvania away from the intent of the Customer Choice Act, which was signed by Gov. Ridge in 1996.
"At the very heart of the Customer Choice Act is the belief that the competitive market buying and selling of electricity will result in lower prices for customers over the long term, encourage investment in the electricity business and provide important economic development benefits for all the people of Pennsylvania," said Long.
"This commission order retreats from using the forces of supply and demand to set electricity rates — forces that already have reduced rates. We believe this order would retard the development of this wholesale market and act as a disincentive to investment. This commission action puts at risk benefits that Pennsylvania would realize from the transition to customer choice of generating supplier."
PP&L believes, Long said, that we must allow the forces of supply and demand to set prices.
"Our company is one of dozens of buyers and sellers in this wholesale marketplace and those transactions — not PP&L — set the price," said Long. Since the Pennsylvania Customer Choice Pilot began almost a year ago, he said, hundreds of transactions have taken place. "Recently, many of these prices have been substantially above the price that the PUC proposes to set. It is marketplace transactions, not the commission, that must set the price if the citizens of the Commonwealth are to realize the benefit of choice," he said.
The PUC order, Long said, implies that companies which generate electricity can, by their actions, control the price for capacity in Pennsylvania. This is not true, Long said, pointing out that the Federal Energy Regulatory Commission rulings clearly show that no electric company in the region has the ability to control the prices of capacity in the wholesale market on the regional grid.
Long also pointed out that, contrary to some reports, PP&L, Inc., did not agree to sell capacity at a certain price as part of the company's restructuring settlement. "The Customer Choice Act clearly assumes that the PUC will not regulate wholesale transactions. This has never been in question," said Long.
"We are very disappointed that actions of some electric companies have been characterized as anti-competitive. In the case of PP&L, Inc., nothing could be further from the truth. PP&L, Inc.'s actions in the capacity marketplace have been legal, ethical and in keeping with good business practice. In fact, PP&L, Inc., was one of the early supporters of customer choice in Pennsylvania and we remain committed to a smooth transition to a competitive marketplace. All our actions are consistent with that commitment," said Long.