Electric rates to rise in 1999

February 18, 1997


Staff Writer

Local electric rates will rise because AES Warrior Run won't negotiate a buyout of its contract to supply Allegheny Power with electricity from a $405 million power plant under construction near Cumberland, Md., Allegheny Power officials said Tuesday.

"We see no alternative to paying the price under the contract and increasing rates," Allegheny Power Senior Vice President and Chief Financial Officer Michael P. Morrell said in a presentation to the Washington County Commissioners.

As a result of the agreement, electric rates in seven counties in Maryland, including Washington and Frederick counties, will jump an estimated 13 percent, raising the average residential bill by $9.65 a month, from $72 to $81.65, according to the utility's estimates.


The rate hike will be phased in between November 1999 and October 2000, Morrell said.

AES Warrior Run Development Manager Steve Hase said that Allegheny Power has exaggerated the size of the rate increase by not taking into account the cost of buying power from outside the state if the Cumberland plant isn't built.

Hase estimated that electric rates will go up between 2 percent and 7.6 percent the first year.

The rate increase must be approved by the Maryland Public Service Commission, which has agreed to let Allegheny Power pass on the costs of the AES Warrior Run agreement to ratepayers, Morrell said.

Md. Gov. Parris Glendening has said he approves the plan.

Washington County Commissioners President Gregory I. Snook asked Morrell why Maryland's approximately 200,000 ratepayers will be the only ones affected by the rate increase.

Allegheny Power serves five states.

Morrell said the Maryland Public Service Commission agreed that the state's ratepayers would absorb the cost of the agreement when the Warrior Run Plant project was moved from Pennsylvania to Maryland.

For the past several months, Allegheny Power has been publicly lobbying for a buyout of its 1988 agreement, renegotiated in 1992, with AES/Warrior Run to purchase 180 megawatts of electricity from the coal-powered plant scheduled to open in 1999.

Allegheny Power claims it was forced into the agreement by a federal law that requires utilities to negotiate future purchases of electricity with non-utility generators like AES Warrior Run.

The fees negotiated in the 30-year contract are substantially higher than the market price for wholesale electricity, Morrell said.

If the AES Warrior Run plant isn't built, Allegheny Power could purchase the electricity needed from the cheapest source since there is a glut on the market now, he said.

But AES Warrior Run officials maintain that the project will be an economic boon to Allegany County, bringing jobs and increased tax revenue.

Without the prospect of a buyout, the project will go forward unless AES Warrior Run changes its position, fails to meet its contractual obligations or the contract itself is legally revised by some governmental or judicial body, Morrell said.

If Allegheny Power walked away from the contract now the utility likely would be sued and probably would lose, he said.

Hase said that while AES has "always been interested in talking with Allegheny Power about how to make this a better coal project for all parties," the power plant developer has maintained that it would not sell out the project.

Allegheny Power approached AES about discussing the contract last July but both parties agreed to keep the content of those discussions confidential, Hase said.

A buyout would have cost "hundreds of millions of dollars," which would have been passed on to ratepayers, he said.

As the plant's construction progressed, "the cost of breaking those commitments is enormous," Hase said.

Construction on the AES Warrior Run plant is only about 20 percent complete, but the large equipment already is being manufactured in factories, meaning that more than half of the plant's $405 million cost already has been committed, Hase said.

The project's economic benefits outweigh Allegheny Power's "speculative projections" of future rate increases, he said.

According to AES Warrior Run, those benefits include creation of about 1,000 jobs in Western Maryland - 600 to 700 construction jobs over the next three years, about 200 mining and transportation jobs and 65 to 70 permanent operating jobs at the plant.

A study funded by Allegheny Power estimated that a 10 percent electric rate increase would cost a total of 88 jobs a year in the seven Maryland counties served by the utility.

Allegheny Power's major industrial customers in Washington and Frederick counties have expressed concern about the effect of the projected rate increase on their competitiveness and have urged a buyout.

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