First Energy Pays Price for Being First

The Pennsylvania Public Utility Commission (“PUC”) caused quite a stir with its August 16, 2012 Order[1] that partially approved the jointly filed default service plans of the four First Energy electric utility affiliates serving in Pennsylvania.

The First Energy Order, the result of a binding pole of the issues conducted at the PUC’s August 2, 2012 Public Meeting, made substantial changes to ALJ Elizabeth Barnes’ Recommended Decision which had been issued earlier in the summer.  Prominent among the modifications were the PUC’s changes to a Retail Opt-In (“ROI”) Auction program.  The ROI program is intended to encourage default service customers to shop by offering a discount off of the Price to Compare (“PTC”) and a $50 rebate to customers and has been the centerpiece of the PUC’s suite of proposed market enhancements.

First Energy had proposed the ROI in a form that largely reflected the PUC’s wishes for such programs as expressed in its Retail Markets Investigation Order,[1] and with a few exceptions, notably cost recovery, the ALJ had largely adopted First Energy’s proposal.  First Energy had proposed a 12 month ROI product with the discount set by a descending clock auction among participating electric generation suppliers (“EGS”).  The PUC rejected the descending clock auction, and the very concept of an auction, and replaced it with a ROI aggregation program in which any eligible supplier raising its hand can receive an assignment of a percentage of participating customers.  The PUC also modified the offer that would be provided to customers, replacing the 12 month fixed price with a four month offering at a fixed five percent (5%) discount off of the PTC at the time of the offer.  Customers will still receive a fifty dollar ($50) bonus payment if they stay with their assigned supplier for the initial four (4) month term.  In a new wrinkle, however, the PUC added an eight (8) month component to follow the initial 4 month term, but did not specify a price for the that component other than to say that the PUC would review the terms and conditions.  Importantly, the PUC deferred the issue of how to pay for the ROI to a collaborative process between First Energy and the supplier parties.  First Energy is required to make a compliance filing to the PUC within sixty (60) days -- by October 15, 2012 that reflects a consensus proposal.

The uncertainty created by several aspects of the First Energy Order, and the ROI program in particular, provoked Petitions for Reconsideration by the Office of Consumer Advocate (“OCA”) and the Retail Energy Supply Association (“RESA”) among others (including First Energy).  Answers were filed by a number of parties.  In general, most agree agree that the PUC should have provided more specific direction for the eight (8) month component of the ROI product, and should have addressed cost recovery more definitively.

First Energy, in its Petition for Clarification, raised concerns about the finality of the First Energy Order with regard to its procurement plan -- First Energy’s procurement plan has it beginning to purchase energy in October 2012.  In an apparent effort to emphasize its concern, on September 6, 2012 First Energy filed a revised Default Service Plan that made revisions to its procurement plan as required by the PUC’s Order.

At its September 13, 2012 Public Meeting, the PUC granted reconsideration of all six (6) Petitions for Reconsideration and/or Clarification that had been filed, pending further consideration on the merits.  The Commission’s action allows it to retain jurisdiction and effectively stops the appeals clock from ticking until the PUC enters an Order that clarifies and/or reconsiders its original Order.  The next Public Meeting is scheduled to be held on September 27^th.

All of this drama has occurred while the Default Service Plans of the other three (3) large electric distribution companies, PECO, PPL and Duquesne Light Company, are pending.  A Recommended Decision on PECO’s plan already has been issued by ALJ Dennis Buckley, and Exceptions and Replies to Exceptions were filed by a number of parties.  Both PPL and Duquesne have been through the hearing phase and briefs are due in early October, with ALJ decisions expected in November or early December.

The First Energy Order has created palpable uncertainty, particularly concerning the PUC’s intention to use the Order as a model for the default service plans yet to come before it.  The uncertainty has caused parties in those other proceedings, which were at various stages of litigation, to introduce alternative proposals that address the potential for the PUC to use First Energy as the standard.  A rapid and decisive PUC decision that clarifies the First Energy Order will allow parties in those ongoing proceedings to have the benefit of that information; at least for PPL and Duquesne, where the briefs have yet to be written.

In other related developments, the PUC is expected to issue a Secretarial Letter seeking comments in the RMI proceeding in late September.  That Secretarial Letter is expected to outline the PUC’s vision of the “end state” of the electricity market, and seek comments of interested parties prior to issuing final guidance on the “end state” in late November or early December 2012.