Power prices to rise sharply, utilities warn:

Rate increases of at least 30 percent could follow the removal of state cost caps beginning in 2010

May 12 - McClatchy-Tribune Regional News - Don Spatz Reading Eagle, Pa.

Brace yourself.

Electricity prices are expected to surge in 2010 and 2011 as Pennsylvania rate caps disappear.

The results may shock you, warn utility companies that serve Berks County customers.

PPL Electric Utilities Corp. predicts its rates could rise by 30 percent or more in 2010.

Metropolitan Edison Co. won't predict its rate increases. But it says other utilities nationwide increased rates by 30 percent to 70 percent after caps came off in other states, including Maryland.

The utilities are telling customers now so there will be no surprises when the rate hikes kick in, PPL spokesman Dan McCarthy said.

After Pennsylvania deregulated the electricity industry in the 1990s, customers -- including average homeowners -- were permitted to purchase power from any provider nationwide.

Additionally, monthly electric bills were divided into three parts, the largest part being the fee that the original plant charges for power -- typically about half the bill.

Most small customers continue to buy from local utilities, mostly out of convenience. But neither Met-Ed nor PPL generate their own electricity. Instead, they buy power from other companies, then pass along the cost to customers.

The rate that PPL and Met-Ed charge for that purchased power is the rate that's capped at the moment.

Because energy prices fluctuate, nobody knows where they'll be when the caps come off in 2010 and 2011, McCarthy said.

Marybeth Smialek, a Met-Ed area manager, echoed that view. The costs of coal and natural gas are at all-time highs, driving overall fuel prices up, she said.

But new power providers may enter the market when the caps come off, preventing prices from rising too high, she said.

Based on today's price for electricity to be delivered in 2010, PPL expects to raise rates by 30 percent that year, McCarthy said.

But PPL is trying to dampen its risk.

On Thursday, the state Public Utility Commission agreed to let PPL seek contracts in 2007, 2008 and 2009 for electricity that would be delivered in 2010.

The hope, McCarthy said, is that PPL will pay less for power, on average, over the three years than if it buys all at once in 2010.

"It's certainly a good idea, as compared with waiting and rolling the dice on, 2009 , " agreed Sonny Popowsky, the state's consumer advocate.

PPL's procurement strategy is something he's urged all utilities to do every year, Popowsky said.