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Energy deal may mean lower rates

September 23, 1999|By BRENDAN KIRBY

Allegheny Energy Thursday announced a settlement that will govern its transition from a regulated monopoly to one of many companies competing in an open market in Maryland.

The settlement, which must be approved by the Maryland Public Service Commission, was negotiated by the Hagerstown-based utility, consumer advocates and other organizations.

Under the agreement, Allegheny Energy, which does business as Allegheny Power, will cut rates to residential consumers by 7 percent in 2002. Rates will remain frozen through at least 2008.

Allegheny Power customers face two rate hikes before then to compensate the company for its cost of purchasing electricity from the AES Warrior Run Power Station in Cumberland, Md.

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Those two increases will total about 6 percent, said Michael P. Morrell, Allegheny Power's vice president and chief financial officer

The rate freeze to which Allegheny Power agreed Thursday is longer than those that other power companies in the state have agreed to, the Office of the People's Counsel, an independent state agency that represents electricity customers, said.

Under a deregulation law the Maryland General Assembly passed this year, power companies were required to reduce residential rates by between 3 percent and 7.5 percent.

Power companies also were ordered to cap rates until at least 2004.

Jason A. Feuchtwanger, a spokesman for the People's Counsel, said the law's intent was to provide a cushion for consumers while competition takes root.

"It's going to take some time for competition to develop. Who knows how many suppliers the market will bring?" he said.

Under a deregulation plan Allegheny Power submitted last year, the utility asked to recoup $240 million in so-called "stranded costs" from customers.

Those are costs for power plants, lines and other facilities that the company incurred while the industry was regulated, Morrell said.

Power companies say they cannot recover those costs in an open market when they will compete against companies that did not make those investments.

Under the agreement announced Thursday, Allegheny Power would not be able to pass those costs along to consumers.

The agreement also moves up the timetable for open competition, which was to have been phased in over three years beginning in 2002.

But Allegheny Power agreed to begin facing competitors almost immediately; the company's 41,845 customers will be able to shop for the best deal starting next July.

Morrell said Allegheny Power's rates are the lowest in the state and predicted the company will do well in an age of competition.

The company is competing in parts of Pennsylvania outside its traditional service district and is preparing to compete in New Jersey, he said.

"In this state, we'll look to go east," competing for customers in the Baltimore and Washington, D.C., areas, Morrell said.

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