Commonwealth Court Upholds Commission Determination That Line Loss Costs Are Not Transmission-Related, Remands Carrying Charge Issue For Reconsideration

Last week, the en banc Commonwealth Court  upheld in Metropolitan Edison Co. v. Pa. Pub. Util. Comm’n, No. 532 C.D. 2010 (Jun. 14, 2011), the Pennsylvania Public Utility Commission’s (“Commission”) decision in two consolidated cases in which the Commission held that “marginal transmission losses” or “line losses” are generation-related costs and are not recoverable from ratepayers under the Companies’ Transmission Service Charge Riders.  In a surprising upset for the Commission, however, the court remanded the case in-part for further consideration on whether Companies should be permitted to collect carrying charges.

Despite an exception filed by the Office of Small Business Advocate (“OSBA”), the Commission’s Order made no specific reference to the Administrative Law Judge’s recommended decision approving the Companies’ request to collect carrying charges – that is, interest on the Companies’ net under-collection of transmission costs.  On appeal, OSBA argued that the Commission’s lack of discussion violated Section 703(3) of the Public Utility Code, 66 Pa.C.S. § 703(e), which requires that the Commission’s findings be sufficient to enable a court on appeal to determine the question at issue and whether the Commission gave proper weight to the evidence.

The court relied on its decision in National Fuel Gas Distribution Corp. v. Pa. Pub. Util. Comm’n, 677 A.2d 861, 864-65 (Pa. Cmwlth. 1996), where it held that the Commission’s “failure to provide any analysis to support its decision on a particular issue or a sufficient explanation for changing its position from a prior, factually similar situation prevent[s] this Court from performing judicial review.”  Applying this precedent, the court clarified that the Commission need not make an itemized consideration of each and every minor allegation, but that it “should expressly consider evidence and arguments that raise legitimate and significant questions regarding whether these proposed collection of carrying charges is just, reasonable, and lawful.”  Because this issue was one of only two exceptions raised by the OSBA with respect to the ALJ’s recommended decision, it was not a minor issue.  When the court is deprived of meaningful judicial review as a result of such an omission, remand is required.

As to line loss costs, the main hurdle confronted by both the Commission and the court was that neither the Electricity Generation Customer Choice and Competition Act, 66 Pa.C.S. §§ 2801-2812, nor any other provision of the Public Utility Code defines “generation costs.”

The commonwealth distinguished transmission-related costs from generation-related costs, relying on its holding in Met-Ed Industrial Users Group v. Pa. Pub. Util. Comm’n, 960 A.2d 189 (Pa. Cmwlth. 2008), that congestion costs are transmission-related costs.  Congestion costs are transmission-related, because they are the result of providing reliable transmission service during times of peak usage.  According to the court, line loss costs are generation-related, because they are not incurred directly or indirectly to provide transmission service but instead are an unavoidable and incidental dissipation of energy that occurs whether or not electricity is actually moving down the wire – line losses occur with any electrified line, regardless of whether current is being drawn from the end-use of that line or not.  The court was also guided by the historical treatment of line loss costs, which have been and are being collected as part of companies’ generation rates and subject to their generation caps.

The court also held that the Commission’s decision did not violate the Filed Rate Doctrine or conflict with existing precedent set by the Federal Energy Regulatory Commission (“FERC”).  The court noted that the FERC decisions cited to the contrary did not expressly or unambiguously state that such costs are transmission-related, and it was this fundamental flaw that undermined any arguments concerning FERC’s “position” on line loss costs as well as any argument that the Commission’s decision violated the Filed Rate Doctrine, since such argument inherently requires that line loss costs be transmission-related costs.

Finally, the court upheld the Commission’s determination that, if distribution line loss costs are generation-related, then the marginal transmission losses at issue in this case must be generation-related as well.  The determining factor relied upon by the court was that the position taken in Application of Metropolitan Edison, that “energy lost during distribution ‘should be arranged for and paid for by the supplier” and that “line losses are generated related and should be recovered as a separate charge to enable suppliers to competitively procure this service,’” was not excepted to by any of the parties and therefore the court discerned no error in the Commission’s reliance on this logic.