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Electricity prices averaged $72.80 a megawatt-hour in Allegheny Energy Inc.'s (AYE) first auction to buy power for its utility customers in Pennsylvania.

The power company, based in Greensburg, Pa., is required to supply customers once rate caps expire at the end of next year in its service territory, which includes the Pittsburgh suburbs.

The move in Pennsylvania away from rate caps could boost earnings for Allegheny's generation business and other power producers as they move from long-term contracts to market prices. The auction results provide a first look at prices that Allegheny's utility business will pass through to ratepayers once the caps are lifted Jan. 1, 2011.

The auction, however, comes amid a sharp drop in wholesale power prices since last summer. The slide has been driven by slumping demand and a deep dip in natural gas futures, which are trading at 6 1/2-year lows. Allegheny moved up the date of its the first auction from June to take advantage of the current market prices.

The average price in Allegheny's auction came in below analysts' expectations. Credit Suisse in a recent report forecast an average price of around $74 a megawatt hour, while Deutsche Bank estimated a price of $77 a megawatt hour.

Allegheny is one of several utilities buying power ahead of the expiration of rate caps. The default service is for consumers who don't sign up with a retail energy provider. PPL Corp. (PPL) and Exelon Corp.'s (EXC) Philadelphia utility PECO are going through similar processes.

Prices in the auction are for full requirement service, which includes a variety of factors beside energy such as variations in customer demand. Allegheny is scheduled to hold seven additional auctions over the next three years.

If the average retail power price of the remaining auctions are also $72.80/MWh, a typical Pennsylvania residential customer's bill will increase by about $7.75, or 8.5%, over 2010 levels.

Shares of Allegheny Energy were recently down 46 cents, or 1.7%, at $26.65 apiece.

-By Mark Peters, Dow Jones Newswires; 201-938-4604; mark.peters@dowjones.com

(Christine Buurma contributed to this article.)