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Power company buys way out of contract

December 04, 1997

Power company buys way out of contract

By DAVE McMILLION

Staff Writer

Allegheny Power announced Wednesday it has paid $48 million to terminate its contract with the developers of a proposed new power plant near Pittsburgh, a move that will eventually save Allegheny Power's Pennsylvania customers $900 million, officials said.

The situation stemmed from a federal law passed during the energy crisis in 1978 that was designed to save electricity, said Allegheny Power spokeswoman Cynthia Shoop.

The law allowed developers to build new plants to supply power companies with the energy they were projected to need over 10 years, according to Shoop.

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Although the plants were designed to save power companies money, energy rates dropped so low in following years that the proposed plants became "very uneconomical," Shoop said.

"It was a bad law," Shoop said.

The proposed Washington Power Project near Pittsburgh was one of four cogenerating facilities which Allegheny Power had entered into agreements with to buy power. Allegheny Power has paid $94 million to terminate contracts with three of the facilities, but was unable to free itself from a contract to buy power from the proposed AES Warrior Run plant under construction near Cumberland, Md.

Because of the AES Warrior Run project, Allegheny Power officials are expecting rates in seven Maryland counties including Washington and Frederick counties to jump about 13 percent.

Some of Allegheny Power's biggest customers, like Independent Cement Corp. in Washington County, say they are worried how the rate increase will affect their ability to compete.

The AES Warrior Project is expected to start operations in 1999, Shoop said.

Of the $94 million it has paid to terminate contracts for additional power, Allegheny Power has been able to recoup $46 million of those costs without increasing customer rates, Shoop said.

Allegheny Power will put together a plan to recoup the $48 million it paid to end its contract with the Washington Power Project, but it is not clear if it will mean increased customer rates, Shoop said.

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