Talk about a shock.

Residents heating their homes with electricity provided by Pennsylvania Power Co. will see their rates fall 10 percent, the utility and the state Public Utility Commission said yesterday.

The monthly bill for an average Penn Power residential heating customer using 2,000 kilowatts a month will drop from $186.26 to $167.97.

Penn Power residential rates other than heating will see a rise based on consumption. The monthly bill for an average residential customer using 750 kilowatts a month will increase from $111.62 to $114.21, a 2 percent hike, while those using 1,000 kilowatts will see a 4.8 percent increase.

All the residential rates would be effective from June 1 through May 31, 2010.

With energy prices surging on almost every front, electric brokers and analysts had been predicting double-digit increases from Penn Power.

Lee McCracken, president of Premier Power Solutions in Grove City, an electric broker and energy consulting company, was among those earlier this year forecasting a major hike.

Under Pennsylvania’s electric deregulation program enacted 18 months ago in Penn Power’s territory, the utility sought electric rates in an open market auction. Residential rates at that time rose between 20 and 33 percent. Before that, rates approved by the PUC had been capped for 10 years.

“I’m pleasantly surprised,’’ McCracken said yesterday. “Anytime rates are lower I like that. But I’m scratching my head as to how this happened. If I went to auction right now, we wouldn’t be getting these results.’’

Since January, wholesale electric rates have surged by about 30 percent, with much of the increase coming in just the last few months. The bidding process for Penn Power’s residential customers was conducted in two phases, one in mid-April and the other in mid-May.

The three successful bidders for Penn Power’s residential customers were: Constellation Energy Commodities Group Inc., FirstEnergy Solutions Corp. and Sempra Energy Trading LLC. FirstEnergy Solutions is a power generator owned by FirstEnergy Corp., which also owns Penn Power.

“This is the way we believe competition was supposed to work,” said Scott Surgeoner, a FirstEnergy Corp. spokesman. “When you got a group of customers that begins to get relatively large, you are going to see suppliers that owns generating capacity and wants to sell that generation.”

Under deregulation, consumers, commercial and industrial customers can seek to buy their electricity from power generators of their choice. The idea was that opening up the market would stimulate competition among generators, thereby giving electric buyers a better deal. Under the old method, utilities had to get their rates approved by the PUC.

In April, Penn Power announced rate increases for small and medium commercial customers effective June 1 that ranged from 2.72 to 3.84 percent. However, every three months the PUC is allowing Penn Power to adjust rates up or down for these customers. Those adjustments are based on a variety of factors, such as unanticipated administrative costs, and if the utility under- or over-collected on rates during the prior quarter based on their revenues and expenses. Previously, Penn Power’s commercial rates were fixed.

Penn Power serves more than 150,000 customers in all of Mercer and Lawrence counties and sections of Allegheny, Beaver, Butler and Crawford counties.

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