Pa. ALJs Would Adopt FirstEnergy-Allegheny Non-Unanimous Stipulation Without Modification

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December 21, 2010

An initial decision from two Pennsylvania ALJs would accept without modification a non-unanimous stipulation which would approve the merger of FirstEnergy Corp. and Allegheny Energy (A-2010-2176520 et. al.).

"[W]hile the Joint Applicants will clearly be an aggressive player in retail energy markets, the Joint Applicants are not likely to engage in anticompetitive or discriminatory conduct which will prevent retail customers from obtaining the benefits of a properly functioning retail market," the ALJs said, finding that the non-unanimous settlement provides, "sufficient benefits to a sufficient spectrum of stakeholders to be in the public interest."

The ALJs rejected all conditions sought by Direct Energy and the Retail Energy Supply Association concerning default service and other retail market enhancements.

Notwithstanding three market power screen failures identified by the joint applicants in their own analysis, the ALJs said that they were not convinced that that the failures cause any competitive concerns.  "The failures ... identified occur in very narrow circumstances and ... are unlikely to provide any real incentive for the Joint Applicants to engage in discriminatory conduct in the market," the ALJs said.

Additionally, the ALJs called arguments that the merger would remove a competitor -- Allegheny Energy Supply Co. -- from the retail market speculative, given Allegheny Energy Supply's currently minimal activity in the retail market.

Regarding Direct Energy's retail auction proposal, the ALJs said, "Direct Energy wants to use the merger proceedings as a vehicle to put in place an unprecedented departure from default service which would apply only to the FirstEnergy distribution companies, but offers no analysis of the implication of treating these EDCs differently from the other EDCs within the Commonwealth which presumably operate in the same fatally flawed competitive market."

"Clearly, these proceedings are not the appropriate venue for Direct Energy's proposal for a radical departure from the current default service regime," the ALJs said.

The ALJs also dismissed any concerns regarding the joint applicants' intention to pursue municipal opt-out aggregation.  The Office of Small Business Advocate had originally sought a condition barring the applicants from engaging in opt-out aggregation until 2013.

Notwithstanding FirstEnergy Solutions' activities in some half a dozen communities to pass resolutions permitting opt-out aggregation, the ALJs said that, "any threat posed by municipal aggregation is too speculative and not sufficiently related to the proposed merger."

The ALJs also denied conditions sought by OSBA relating to the joint applicants' generation, such as locating each applicant's generation in separate subsidiaries which cannot coordinate regarding whether to bid in a particular default service procurement.

"While the acquisition of Allegheny Energy's generating assets by FirstEnergy may provide it with some competitive advantage, the OSBA has not presented any evidence related to the other aspects of FirstEnergy's retail marketing goals which would permit the conclusion that the advantage is necessarily unfair or rises to the level of being anticompetitive," the ALJs said.

The ALJs found that the non-unanimous settlement's proposed purchase of receivables program at West Penn Power is sufficient, and denied enhancements sought by RESA such as elimination of an all-in/all-out provision.  The ALJs also denied RESA's conditions for a lowering of the hourly pricing cutoff and more spot market purchases for default service.  The ALJs rejected RESA's proposed default service load caps as potentially harmful to ratepayers

Direct Energy said that it would file exceptions to the initial decision and vowed to, "continue to fight for consumer choice and the tangible benefits electricity competition can bring to customers in the FirstEnergy and Allegheny Power service territories."

"We read with interest the administrative law judges' recommended decision, and respectfully disagree with their conclusions," said Ron Cerniglia, Director of National Advocacy for Direct Energy.

Cerniglia cited Direct Energy's recent polling data showing that 84% of Pennsylvania electric customers support, "allowing a company other than the utility company," to provide default electricity supply if all of the current consumer protections remain in place (10/4).  Cerniglia noted Direct Energy's auction proposal would produce direct customer rebates of $150 to $500 per account.

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