University appeals PUC decision that will cause electric rates to soar

University Park, PA — Penn State has filed an appeal in Commonwealth Court to a recent ruling of the Pennsylvania Public Utility Commission (PUC) that will cause electric rates on the University Park campus to increase by an estimated $18 million over the next two years.

The PUC ruling came in mid-September after a disagreement between electricity supply company Allegheny Power and Penn State over whether or not the University was entitled to rate caps for 2009-2010 like all other Allegheny Power customers.

Penn State receives its electricity for the University Park campus from Allegheny Power and like all other Allegheny Power customers in the state, the University had a fixed-rate cap agreement with the electricity supplier. That rate-cap agreement is part of the transition process that Pennsylvania is going through to move from a regulated electricity market to a more competitive and open market. The rate caps will remain in place until 2011 for all Allegheny Power customers — except the University Park campus, which is what Penn State officials are contesting.

For years, Allegheny Power was the only power supplier in Centre County until the state began deregulating the utility market. As a result, Allegheny began charging its customers "stranded costs." These are fixed costs that cannot be recovered through the market after the introduction of competition -- such as investments in infrastructure, which may carry long-term debt. Allegheny Power is permitted to collect stranded costs through 2011 in exchange for providing capped rates.

Like all other Allegheny Power customers, Penn State was assessed stranded costs.  But unlike all other Allegheny Power customers, Penn State took advantage of a provision in the law and paid those costs up front, saving the University $1 million in interest. With the recovery of stranded costs from the University, Allegheny Power now claims Penn State is no longer eligible for capped electric rates and starting in 2009, should begin paying market rates – two years earlier than all other customers in the state. The PUC ruled in favor of the Allegheny Power position, prompting the University to appeal to Commonwealth Court.

"We don't believe Penn State students should be the only electric customers served by Allegheny Power to be treated differently and face higher rates," said Ford Stryker, associate vice president for the Office of Physical Plant at Penn State. "We believe it’s unfair and we need to look at all possible avenues for a remedy to this unprecedented action."

A final decision on the matter from Commonwealth Court could take up to a year to be determined.
 

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Last Updated March 19, 2009