A quiet switch Pa.'s Dec. 31 lift of electric rate caps not as tumultuous as utility originally expected

Posted December 20, 2010

Mike Bradwell

After 13 years, Pennsylvania's electricity rate caps will end Dec. 31, but for most customers of Allegheny Power, the expiration date may be anticlimactic.

Allegheny Power spokesman Doug Colafella said last week that the state's move back in 1997 to take power companies out of the generation business to try to make electric rates more competitive began with placing caps on rates to give power companies time to develop competitive strategies.

For its 700,000 customers, Allegheny Power was able to phase in rate increases over the past five years, while designing a program aimed at offering numerous ways to reduce power consumption, ranging from discounts on purchases of compact fluorescent light bulbs to rebates on new energy-efficient appliances.

The only thing missing from the company's original plan is the introduction of new, high-tech "smart meters," which will be gradually phased in over the next 15 years.

Unlike some other power companies around the state, which opted to enact giant, one-time increases when their caps were removed, Allegheny, which was traditionally a low-cost leader, sought to maintain that role by receiving permission from the Pennsylvania Public Utilities Commission to begin a series of rate increases. Those began in 2006 with 5 percent jump; followed by increases of 4.6 percent in 2007; 4.8 percent in 2008; 11 percent last year and a 3 percent bump this year.

"It was a very successful approach," Colafella said. "It allowed us to keep up with inflation and the costs of fuel," while customers weren't shocked with a one-time surge in rates.

What is changing as of Jan. 1 "is that new rates will be entirely based on market prices," Colafella said, noting that the average monthly bill for the company's residential customers will go up by just over 3 percent. The average bill for a small business will rise by about 3.2 percent, while mid-sized companies will see an average increase of 3.9 percent.

"Wholesale power prices are low right now," Colafella said. "We're still in a recession, so power prices are low right now."

A year ago, as Allegheny Power began mailing notices to its customers about the coming expiration of rate caps, it assumed it would be inundated by calls from customers asking what they could do to keep rates as low as possible, but Colafella said the alarm bell never sounded.

"By and large there hasn't been a lot of reaction from a residential point of view," he said, adding that the company has seen more activity in the commercial and industrial sectors.

"The vast majority of our large customers are shopping or have already switched to another supplier," he said.

The big difference with the move to market-driven rates, he explained, is that prices will fluctuate. Customers of all types are encouraged to shop for the lowest rates, but there's no penalty to return to the utility if they're dissatisfied with a supplier or if the supplier goes out of business. Allegheny Power has been sending letters to its residential customers explaining how they can shop for competitive rates.

In addition to being able to shop for rates, customers have a lot of other options for reducing their electric consumption through the company's "Watt Watchers" program.

The tips, which appear on the company's website, range from adding insulation, sealing air leaks and replacing furnace filters to installing programmable thermostats and compact fluorescent bulbs, purchasing Energy Star rated appliance, which use 10 to 50 percent less energy than standard models and using a power strip to turn off televisions when they're not in use.

The program was created to comply with the state's Act 129, which requires all Pennsylvania utilities to develop cost-effective plans to reduce electricity consumption by 1 percent next year, and by 3 percent by 2013. The act also requires utilities to achieve a 4.5 percent reduction in peak demand by 2013.

While the company wasn't deluged by customer calls about the move to market-based electric rates, it did have significant response to some of its "Watt Watchers" initiatives.

According to figures provided by Allegheny Power, through early December, its residential customers had received nearly 16,000 rebates for the purchase of high efficiency appliances. In addition, more than 150,000 customers received rebates and discounts for the purchase of compact fluorescent light bulbs. Others took advantage of a "point of purchase" discount program for CFLs the company initiated with Home Depot, Lowes, Sam's Club and Wal-Mart that started in late summer.

One option that has been temporarily put on hold was a plan to have residential customers purchase "smart meters," which lets participating customers receive information on a themostat-like device in the home and track fluctuating prices for electricity so they can adjust their energy use, such as running a washer or dishwasher at times when energy prices are lower.

According to Colafella, after much analysis, Allegheny Power determined that the cost of making the smart meter technology available - estimates showed the meters being introduced at $4 per month, but later rising to $15 monthly - was too expensive.

"We were looking at a pretty heavy surcharge for our customers," he said, adding that the company filed a revised Act 129 plan with less emphasis on the smart meters, instead offering several voluntary programs for residential and industrial customers to opt-in.

He added that the company would have had to revamp its entire customer management system to convert to a full-scale smart meter program. He said the company will fully deploy the new metering program over a 15-year period.

In the meantime, he said, if customers follow at least some of the recommendations of the Watt Watchers program, they should be able to offset the 3 percent increase in rates.

What appeared to have the makings of a tumultuous change just 12 months ago, now looks to be minimal.

"At this point, it doesn't look like it's going to have a real major impact," Colafella said of the disappearance of rate caps next week. "We're succeeding in putting a fairly smooth transition in place."

Additional information is available by accessing www.alleghenypower.com and clicking on the "Watt Watcher" logo, or by calling 1-877-928-8928.

Copyright Observer Publishing Co.