State regulators on Thursday rejected Metropolitan Edison Co.'s request to raise electricity generation rates ahead of schedule.
A smaller hike, relating primarily to the costs of electricity transmission over high-tension power lines, was approved by the Pennsylvania Public Utility Commission.
Overall, the ruling is a major victory for Met-Ed's 153,000 customers in Berks County and a total of 70,000 in Northampton County and a small part of Lehigh County.
Met-Ed had hoped to raise rates 19 percent, or $216 million a year. That would have required the PUC to allow Met-Ed to break the rate cap on electricity generation the company had promised, under Pennsylvania's deregulation plan, to hold in place until Jan. 1, 2011.
Instead, what Met-Ed got was a 5 percent hike, or $59 million.
"We're going to have to look closely over our operations to see what effect this ruling is going to have on future spending," said Scott Surgeoner, spokesman for Met-Ed's parent company, FirstEnergy Corp. of Akron, Ohio.
Company officials had said a double-digit hike was necessary to keep up with rising expenses. They said the cost of coal and natural gas used to generate electricity had more than doubled since the company's last rate increase in 1992.
Generation, one of three main charges on a power bill, accounts for slightly more than half of a typical bill. Other major charges cover transmission and distribution costs.
Met-Ed also argued increasing generation rates now would help customers adjust to the higher prices they will face in four years, when the generation rate cap ends and prices are set on the open market.
In 2001, Met-Ed made a similar pitch to the PUC. It, too, was rejected.
As it did then, this time around Met-Ed faced intense opposition from state Consumer Advocate Sonny Popowsky, who represents everyday residents in utility-related decisions by the state. He argued the PUC had no reason to let Met-Ed out of its 1998 rate cap agreement.
No other electric company in Pennsylvania has been allowed to raise its generation rates before its cap expired.
Indeed, PPL Corp. of Allentown, whose own rate cap expires in 2010, took the unusual step of filing a brief to the PUC in opposition of Met-Ed.
"They agreed to a rate cap as part of the transition to more competition," Popowsky said of Met-Ed. "That was the primary protection given to customers."
The PUC's ruling on Thursday ended a seven-month process that included public hearings throughout Met-Ed's service area. An administrative law judge then reviewed the evidence and suggested rejecting the proposed generation rate hike -- a decision the commissioners adopted in a 4-0 vote.
PPL, which has 1.3 million electricity customers in Pennsylvania, went through a similar process in 2004, although that case concerned distribution and transmission rates, not generation. After seeking a 10 percent hike, the company got permission to raise rates 8 percent.
By comparison, the margin between what Met-Ed asked for and what it actually got was much wider.
Not only did the PUC reject Met-Ed's proposed generation rate hike, but it also ordered the company to decrease its distribution rate. Essentially, Met-Ed will have to pass on to customers the savings that have come from recent mergers and acquisitions.
Met-Ed has 30 days to appeal the ruling.
"We'll look at all our options carefully," FirstEnergy's Surgeoner said.
Metropolitan Edison Co. electricity customers:
Northampton and Lehigh counties: 70,000
Berks County: 153,000
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