Pa. PUC Trial Staff Opposes FirstEnergy Solutions Home Rule Opt-Out Aggregation Petition

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November 24, 2010

Opt-out municipal aggregation programs, regardless of whether they are run by home rule municipalities, "operate in contravention to 66 Pa. C.S. § 2807(d)(1) and 52 Pa. Code § 57.173, thereby making them impermissible," the Pennsylvania PUC Office of Trial Staff said in supporting petitions for a declaratory order from the Retail Energy Supply Association and Dominion Retail asking for such a finding, and requesting that the Commission deny a petition from FirstEnergy Solutions seeking authority to conduct such aggregations (P-2010-2207062 et. al.; see 11/11, 11/4).

"The Commission maintains exclusive authority to regulate the actions of all jurisdictional utilities within the Commonwealth.  This authority includes oversight of the activities of Electric Distribution Companies and Electric Generation Suppliers," Trial Staff said.

"To the extent the municipal aggregation programs rely on ordinances that conflict with the Public Utility Code, they must be considered void.  Local ordinances cannot preempt the regulation of public utility activity as provided for in the Public Utility Code," Trial Staff added.

Trial Staff maintained that the opt-out provision, absent authority from the General Assembly, "violates the Public Utility Code because it allows for the switching of a provider without an affirmative notification of consent."

"[F]ailing to respond to an opt-out notice does not constitute the type of affirmative consent contemplated under the Public Utility Code," Trial Staff said.

Trial Staff cited 66 Pa. C.S. § 2807(d)(1) which holds that, "[t]he Commission shall establish regulations to ensure that an Electric Distribution Company does not change a customer's electricity supplier without direct oral confirmation from the customer of record or written evidence of a customer's consent to change of supplier."

"Furthermore, the Commission's Regulations provide that an Electric Generation Supplier must obtain the customer's consent to switch.  This consent to switch can either be in writing or by a voice recording acknowledging the request. The very nature of the offered program conflicts with the provisions of the Public Utility Code and the Commission's Regulations as it does not provide for the necessary affirmative representation by the customer," Trial Staff added.

While FirstEnergy Solutions has attempted to rely on the Pike County order as "definitively" setting precedent allowing opt-out aggregations, Trial Staff responded that the Pike County circumstances are "[c]learly" distinguishable from the circumstances presented in the opt-out aggregation plans sought by FirstEnergy Solutions.

"In fact, the Commission in its Pike County order explicitly stated that, 'this action should not be construed as precedent in future proceedings, but as a solution to a unique problem.'  The Commission went on to say that '[it] supports opt-in programs as its clear precedent with regard to retail choice,'" Trial Staff noted.

Trial Staff also rebutted FirstEnergy Solutions' arguments that the opt-out aggregation would necessarily benefit customers since the programs would guarantee a rate lower than default service.

"The authority to aggregate a large number of default service customers to an alternate supplier will impact the purchasing plans of incumbent EDCs.  This uncertainty may result in an artificially high price to compare, thereby impacting any perceived savings," Trial Staff said.

"Furthermore, municipal aggregation without adequate protections may drive suppliers out of Pennsylvania resulting in a negative impact on competition.  It is conceivable that an EGS may view the risk of an aggregated customer source being transferred from their service impacting the ability to operate profitably in Pennsylvania.  Robust competition will be attained when barriers are removed; not when they are constructed," Trial Staff added.

Trial Staff recommended that the stay of any electric distribution company or electric generation supplier switching a customer pursuant to an opt-out aggregation, initially instituted in a Secretarial letter pending resolution of the petitions for a declaratory order, be extended pending resolution of the controversy through a, "thorough investigation of the program with the development of a full and complete record to support any findings."

Other Opposition
FirstEnergy Solutions’ request that the PUC allow opt-out municipal aggregations for home rule municipalities absent enabling legislation drew opposition, or at least concern, from several additional parties, including the Office of Consumer Advocate, Office of Small Business Advocate, Duquesne Light, Citizens Electric Company and Wellsboro Electric Company, and industrial customers.

Citing Duquesne Light Co. v. Upper St. Clair Twp, OCA noted that the Pennsylvania Supreme Court found that, "the General Assembly entrusted the regulation of public utilities to a commission of statewide jurisdiction.  Local authorities not only are ill-equipped to comprehend the needs of the public beyond their jurisdiction, but, and equally important, those authorities, if they had the power to regulate, necessarily would exercise that power with an eye toward the local situation and not with the best interests of the public at large as the point of reference.  We believe that the General Assembly never intended to bestow a power upon first class townships which is in headlong conflict with the power already given the Public Utility Commission."

"This discussion is instructive to the matter here," OCA said.  "While the OCA recognizes the interest and desire of local officials to assist the families and businesses in their communities, the action of removing a large number of customers from default service, without their consent, can result in the imposition of additional costs on an EDC's default service and the wholesale generation providers from whom they purchase default service supplies.  These costs are, in turn, passed on to the remaining default service customers now and in the future.  This is the very concern for the public at large that the General Assembly has entrusted to the Commission through the Public Utility Code," OPA said.

FirstEnergy Solutions has argued that the aggregations in question would not affect default service since they amount to 1% of the load at the affected EDCs.  However, OCA noted that FirstEnergy Solutions has not included the load of other communities that FirstEnergy Solutions has approached for an opt-out aggregation, but which have yet to pass an aggregation ordinance, in its calculation, particularly the entirety of Erie County.  Furthermore, OCA noted that 71 communities have adopted some form of home rule, and if opt-out aggregation were pursued at all of these municipalities, the impact on default service would be "significant."

In arguing that home rule municipalities may conduct opt-out aggregation, FirstEnergy Solutions has claimed that the municipality is not competing in the electric industry, and thus does not run afoul on the prohibition of municipalities engaging in proprietary or private business.

Duquesne Light rebutted this argument, stating that "[b]y taking customers at the expense of an already PUC-approved default service plan and also the wholesale suppliers providing power, the municipalities with FES are competing with the industry in taking these customers."

Furthermore, while FirstEnergy Solutions has said that the fact that the municipalities will not receive revenue from the aggregation means the aggregation is not a private business, Duquesne Light cited a three-prong test, established in Morris v. School District of Township of Mount Lebanon and more recently in Beaver Dam Outdoors Club v. Hazelton City Authority, which determines when an activity is proprietary.  Under this test, Duquesne Light said that an activity is proprietary if any of the following conditions are met: a governmental unit is not statutorily required to perform it, or if it may also be carried on by a private enterprise, or if it is used as a means of raising revenue.

"Even if there is no compensation, the municipal aggregation meets the first and second prong and it is thus a proprietary business," Duquesne Light said.

The Retail Energy Supply Association rebutted FirstEnergy Solutions' reliance on Nutter v. Dougherty (Pa. 2007), which FirstEnergy Solutions had claimed limited the PUC's pre-emption authority.  As noted by Matters, FirstEnergy Solutions had argued that pre-emption may occur only if a home rule program runs afoul of a specific law enacted by the General Assembly.  FirstEnergy Solutions claimed that because the code is "silent" with regard to governmental aggregation, pre-emption cannot occur.

RESA, however, noted (as Matters did) that the Code is not silent with regard to several PUC regulations which are directly impacted by opt-out aggregation, including authorization for customer switches, access to EDC jurisdictional facilities, and customer information.  Accordingly, the PUC has pre-emption authority over opt-out aggregations due conflicts with such regulations, RESA said.

Also notable is that Brighten Energy LLC, TXU's recently licensed affiliate in Pennsylvania, has quickly become active in the Pennsylvania regulatory process and filed comments in opposition to FirstEnergy Solutions' requested relief.

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