PPL Electric Utilities has proposed a three-year plan for securing electricity to meet customers’ needs in 2010. The plan is designed to help ensure a smooth transition to competitive electricity markets when rate limits on generation expire at the end of 2009.
Our proposal, filed Aug. 2 with the Pennsylvania Public Utility Commission, is about securing supply for 2010 only. PPL Electric Utilities also has recommended to the PUC a long-term strategy for 2011 and beyond, as highlighted in the last issue of Powerlink.
The attached questions provide details about our proposal for 2010. To read official documents filed with the PUC, click here.
The company has proposed a three-year plan to obtain the electricity it needs to meet customers’ needs in 2010. The plan, which must be approved by the PUC, is designed to help ensure a smooth transition to competitive electricity markets.
Under the proposal, which applies to customers who do not choose an alternative electricity supplier, we would buy power needed for 2010 by entering into wholesale market contracts over the next three years.
By spreading out purchases in this way, we would lessen the likelihood that customers would be overly exposed to short-term price spikes.
Based on current prices for future power, we believe customer bills could increase on the order of 20 percent to 30 percent in 2010.
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> Why is this proposed plan needed?
When customers do not choose a competitive electricity supplier, PPL Electric Utilities purchases and supplies the electricity as the “provider of last resort” (POLR). Today, we do this through a long-term supply agreement. That agreement ends Dec. 31, 2009.
Our proposal to the Pennsylvania Public Utility Commission seeks approval of a process that would be administered by an independent third party, with PUC oversight. That process would secure power for 2010.
Prices for the energy needed for 2010 would be passed through to customers. PPL Electric Utilities would make no profit on these sales.
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> How would the proposed plan work?
Under the proposal, the company would solicit competitive bids twice a year — in late spring and late summer of 2007, 2008 and 2009 — to secure POLR supply for residential, small commercial and small industrial customers.
The company would solicit competitive bids twice in 2009 — late spring and late summer — to secure POLR supply for large commercial and industrial customers that opt for a fixed, annual POLR rate for 2010. Large commercial and industrial customers are those that receive service at 12,470 volts or higher.
Large commercial and industrial customers must decide by late 2008 whether to opt for the fixed POLR rate. Those that do not opt for the fixed rate and do not choose an alternative supplier will buy electricity in 2010 at hourly market rates through PPL Electric Utilities.
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> Why wait until 2009 to secure POLR supply for large customers?
Large industrial and commercial customers are much more likely to shop for electricity suppliers, and the demand involved is substantial. Having these large customers commit to a fixed POLR rate for 2010 by the end of 2008 enables PPL Electric Utilities to know how much electricity it needs to procure.
Waiting until 2008 also gives large commercial and industrial customers more time to make an informed decision.
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> Does the proposed plan affect charges other than the generation charge?
No. The proposed plan would affect only the generation charges on customers’ monthly bills.
Customers will continue to pay a distribution charge to PPL Electric Utilities. This charge covers our costs to maintain and repair the wires, poles and equipment that deliver electricity to you.
Customers will also continue to pay a transmission charge, which includes the costs involved in moving electricity from the power plants where it is generated across the high-voltage transmission network to our local distribution system.
Transition charges, which customers pay today, will disappear in 2010.
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> Would PPL Electric Utilities’ proposal affect prices before 2010?
No. Rates for the generation portion of customer bills are set through 2009. The contracts PPL Electric Utilities would enter into over the next three years would affect prices only in 2010.
Existing rate limits on the generation portion of customers’ bills have provided a significant benefit to customers and have kept electricity rates well below market prices for several years.
These low prices will continue through 2009.
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> What happens beyond 2010?
The Pennsylvania Public Utility Commission has begun a rule-making proceeding and is leading a collaborative effort to determine how best to complete the transition to a competitive generation market. No decisions have been made.
While rate limits will expire for PPL Electric Utilities at the end of 2009, remaining rate limits for several other utilities will expire at the end of 2010. We have recommended that all utilities follow a common schedule and state-run process to secure POLR supply for 2011 and beyond.
Our recent proposal would bridge the gap in 2010 until a common schedule starts.