At least one major utility company has been selling coal to itself from its own subsidiery mines at inflated prices and passing those prices on to the consumer, according to a report by the Government Accounting Office.
The report cites the Pennsylvania Power & Light Co., which serves eastern Pennsylvania, for purchasing some 43 percent of its total coal requirements from five affiliated mining companies at disproportionately high prices.
"PP&L's average coal costs from its affiliated mining companies are about $8 per ton higher than its average spot purchase costs," the report states. The GAO study was presented to two House subcommittees on small business in hearings yesterday.
GAO officials testified that PP&L was the only one of the eighth utilities they canvassed with "captive" coal mines, but said that the arrangement was "not uncommon in the industry."
Three of the PP&L-affiliated mines charged the utility $20 per ton, one charged $30 and the fifth charged $60, according to the report. "PP&L had been passing these high costs on to their customers until the practice was noted by recent Pennsylvania Public Utilities Commission audits," the report states.
According to GAO, the utilities commission then reached an agreement with PP&L that the utility would absorb most of the excess development and operating costs it had been using as justification for higher coal prices.
Because all utility power charges are regulated to limit profit margins to a legal maximum, this action was characterized regulators as an attempt to inflate profits at the expense of the consumer. The utility attributed the higher costs to abnormally high operating expenses.
Since the Pennsylvania PUC has a policy of encouraging utilities to develop mining affiliates, it felt it could not order PP&L not to use the mines. Instead, the reports states, "the commission also hopes the operation problems will be resolved and production costs will drop, eventually resulting in lower prices compared to those from non-affiliated sources."
In other findings, GAO Deputy Director of the Energy and Minerals Division, J. Dexter Peach, told the panels that the small businessman is being charged the highest rates for energy.
Citing figures from utilities in Pennsylvania, New York and Michigan, Peach said that in all three states the cost of electricity was higher for commercial users than for industrial or residential customers.
"Utilities justify the higher rates charged small businesses by claiming that it costs more to service this class of customers," the GAO report says.
Residential charges are usually computed by a fixed rate - the lowest base rate, according to the report. But large commercial and industrial customers frequently get discounts for large purchases.
In some states, the public utility commissions even allow the power companies to make more money on commercial, or small business, accounts.
In Michigan, for example Consumers Power Co. can make an 11.6 percent profit on commercial accounts, 6.2 percent on residential accounts and 8.9 percent on industrial accounts.