Settlement Reached in Appeal of PPL Electric Utilities’ Rate Allocation

Court-Ordered Revision Would Decrease Rates for Businesses, Increase Rates for Residential Customers Effective Aug. 1

Industrial and commercial customers of PPL Electric Utilities would see a reduction in electric bills, while bills for residential customers would increase under terms of a settlement agreement filed Friday (6/15) with the Pennsylvania Public Utility Commission.

Rate changes have been proposed to comply with a Commonwealth Court ruling that PPL Electric Utilities’ rates for different groups of customers do not accurately reflect the actual cost to serve them. In compliance with the court’s decision, the PUC directed PPL Electric Utilities to review its rates and reallocate the amount of revenue it collects from each group of customers.

The court’s ruling came from an appeal filed by groups representing business and industrial customers, who contended that their electric rates were subsidizing rates paid by residential customers. PPL Electric Utilities and the PUC appealed the Commonwealth Court ruling, but the state Supreme Court refused to consider the appeal.

The proposed agreement follows several weeks of settlement discussions involving PPL Electric Utilities, the Office of Small Business Advocate, the Office of Consumer Advocate, the PPL Industrial Customer Alliance and other parties involved in the case.

The agreement cannot become effective unless it is approved by the PUC. It first will be reviewed by a PUC administrative law judge, who will issue a recommended decision. The PUC commissioners will review the recommended decision and issue a final order that approves, rejects or modifies the settlement.

The settlement proposes new rates that are higher for residential customers and lower for business customers to reflect the reallocation of distribution and transmission revenue beginning Aug. 1. It also proposes temporary adjustments through Dec. 31, 2009, to address revenue that has been collected from various groups of customers since Jan. 1, 2005, when current rates became effective.

If the settlement is approved, the monthly electric bill for a typical residential customer using 1,000 kilowatt-hours would increase by 3.8 percent from $96.52 to $100.20.

Bills for industrial and commercial customers would decrease in the range of 2 percent to 5 percent per month, depending on their electricity use.

The parties to the settlement have proposed an effective date of Aug. 1, 2007, for these rate changes.

“The issue of rates reflecting the cost to serve each group of customers has been around for many years and is not unique to us,” said David G. DeCampli, president of PPL Electric Utilities.

“We continue to believe that a gradual phase-in of new cost allocations for residential customers over a period of years is the best way to address the issue,” he said. “In this proposed settlement, we are complying with the Commonwealth Court order in a way that minimizes the impact on our residential customers.”

PPL Electric Utilities will not profit from the rate changes. In fact, the court ruling disallowed a small portion of the total amount of revenue the company may collect. That revenue was to recover costs for damages caused by Hurricane Isabel in 2003.

The settlement rates would eliminate recovery of those hurricane costs and provide for a $3.7 million refund to customers, including interest, for revenue collected since Jan. 1, 2005. The refund would be reflected on customers’ bills from August 2007 through December 2009.

The effect of the court ruling also is reflected in PPL Electric Utilities’ pending request to increase rates by $83.6 million or 2.7 percent. To comply with the ruling and bring electric rates even closer to the cost of serving each group of customers, the increase would be greater for residential customers than for other groups, and some large industrial customers would see their rates decrease.