STAFF ACTION CAUSES CONTROVERSY IN WHOLESALE MARKETS

In what will likely prove to be a controversial decision, the Staff of the Pennsylvania Public Utility Commission denied the request of First Energy Solutions (FES0 to be the assignee of two default service supply contracts, currently held by BP, for two tranches of supply each with Metropolitan Edison Company and West Penn Power Company. FEs has appealed Staff's action to the Commission itself.

The rationale for Staff’s action was that neither FES nor BP had stated a significant business reason as the basis of the need for the assignment.  The Staff cited as precedent for its view, its approval of the assignment of a default service contract in the PECO Energy Company service territory in which the wholesale supplier, Conectiv, was completely exiting the market.

The Staff’s action was issued on April 16, 2013 and in less than 24 hours, FES had filed a Petition for Appeal from it to the Commission. A decision is pending.  FES argued in its appeal that the Staff action will increase the risk for wholesale default service providers and therefore, decrease the willingness of wholesalers to participate in the auctions for that service. The implication of this argument is that default service pricing will increase due to the perceived increased risk caused by the new standard for assignability.  It is not clear how important assignability is to wholesale suppliers, but it is clear that the “new” standard will makes it more difficult for people who may wish to assign contracts for ordinary business purposes.

We await the Commission’s final determination on this matter, but expect that it will have implications for default service pricing if suppliers believe that free assignability of contracts is a significant requirement for such contracts and the imposition of the new standard by Commission Staff may restrict that ability and thus, increase their risk.  Stay tuned.