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Energy retailer asks Maryland Supreme Court to reconsider the Maryland Public Service Commission’s re-writing of the Maryland Telephone Solicitations Act

On March 31, 2021, the Public Service Commission of Maryland (Commission) issued Order No. 89795 which proposed to drastically re-write the Maryland Telephone Solicitations Act (MTSA) and, if permitted to stand, may fundamentally change the way business is conducted in the state. In Order 89795, the Commission was resolving a complaint filed by Commission staff against SmartEnergy, a Maryland retail energy supplier. The complaint alleged that SmartEnergy engaged in false and misleading advertising in connection with a mailing solicitation campaign that resulted in consumers calling SmartEnergy to sign up for the service advertised in the mailed postcards, and then subsequently becoming disgruntled with the service or the terms. Ultimately, the Commission found SmartEnergy had violated the MTSA and imposed penalties and sanctions, but Order 89795’s re-writing of the MTSA has much broader implications than just the issues and interests alleged in the complaint.

The MTSA is a consumer protection law that was enacted to protect Marylanders from telemarketers and merchants cold-calling and enrolling unsuspecting consumers into vague and un-memorialized contracts over the phone. Maryland law tasks the state’s attorney general with enforcing the state’s consumer protection laws, so there is a threshold question in this case of whether the Commission even has jurisdiction to apply and enforce the MTSA. Even if it does, in order for the MTSA to apply to a phone call between a merchant and a consumer, the solicitation call must occur “entirely” over the phone and be “initiated” by the merchant. The Commission’s Order in the SmartEnergy case seems to write out the prerequisites for the MTSA to apply. The Commission found that SmartEnergy’s solicitation started with the mailing campaign and that consumers called SmartEnergy in response to the postcards it sent. By the Commission’s own findings of facts, while part of SmartEnergy’s solicitation attempts, including consummation of the contract, occurred over the telephone, SmartEnergy’s “entire” sales attempt did not occur via telephone; similarly, it was the consumer, not SmartEnergy, that “initiated” the call and so, on its face, it is difficult to reconcile how SmartEnergy’s phone conversations are subject to the MTSA. Additionally, for calls that fall under the MTSA, in order to comply with the law, merchants are required to provide follow-up written contracts that lay out terms of the agreement. SmartEnergy provided written terms to the consumers that signed up for its service, but the Commission found the follow-up communications were insufficient.

The implications of the Commission’s Order are significant. If a consumer calls a merchant of goods or services to place an order or schedule an appointment – think take-out food or calls to the doctor, a lawyer, or a plumber – and a contract is formed over the telephone, under the Commission’s interpretation that phone conversation is subject to the MTSA. It means that to order a pizza, the pizza parlor is going to be required to provide a written contract with the terms and conditions for the take-out order memorialized. It will construct new barriers for Marylanders to conduct everyday business.

For these reasons, SmartEnergy has petitioned the Maryland Supreme Court to hear its case and revisit the Commission’s Order (and the appellate courts that affirmed the Order). Several amicus briefs have been filed in support of SmartEnergy’s request for the court to hear its case; a decision by the court about whether to hear the case is expected in the coming months. The case is In the Matter of SmartEnergy Holdings, LLC d/b/a SmartEnergy, Case No. SCM-PET-0363-2022.

Why the Skeptics are Wrong about Supplier Consolidated Billing

The Pennsylvania Public Utility Commission opened a docket[1] this year to examine whether it should encourage or require supplier consolidated billing (“SCB”)[2].  SCB is when competitive energy suppliers, rather than the utility, bill the customer for all the services associated with their energy supply, including the utility’s distribution charges – sort of the opposite of how it happens today.  The reason I suggest that SCB is “sort of” the opposite of how things are done at present, is that when utilities bill and collect for suppliers now, they normally do so under a program called “purchase of receivables” or (“POR”) where the utility bills and collects from the customer and pays the supplier – regardless of whether the customer pays the utility.  The supplier pays a fee for this benefit equal to the utility’s bad debt percentage, which is known as the “POR discount”. For example, if a utility can’t collect 4% of what it charges to customers as a group, suppliers only get 96 cents on the dollar for the product they sell, even if the utility collects a larger percentage of charges to the supplier’s customers, which is often the case.  However, under the proposed SCB, the supplier would be required to remit 100% of charges back to the utility and manage the entire risk of uncollectible debts on its own.

Now you might ask why those uppity suppliers would want to turn the tables and take on the responsibility for billing customers for the utility’s charges, especially since this chore comes with the added risk of uncollectables?  The reasons are many, but first and foremost, suppliers have realized for some time that she who sends the bill “owns” the relationship with the customer.  Consider the case where a consumer makes a purchase with Amazon, you get one bill from the company you made the purchase with, Amazon.  The product may be sold by Amazon or one of its partners, but you never receive a bill from anyone other than Amazon, not the delivery company, whether it’s UPS, FedEx or USPS who delivers the product to your door, and not the partner company who may have actually made or sold the product. In fact, if you think about your relationship with the providers of most services you consume: banks, utilities, car dealerships, etc., the most tangible means by which you interact is often the bill (or in the case of a bank, the monthly statement).  You open the bill because you need to pay it, and you read it because you need to understand what you are being charged.  The same sort of compulsion is not present for most other communications we receive, by mail, email or otherwise.

Getting the customer’s attention at least once a month is important, but why?  Having the customer see your name as her energy provider once a month builds your brand and the customer’s brand loyalty, assuming the supplier is providing quality products and services to the client.  That is important.  But the supplier also gets the opportunity to provide the customer with a better bill, one with more information, perhaps on how to save energy, or how to at least gain more control on how the customer consumes energy through connected devices like smart thermostats and connected appliances.  These opportunities are generally unavailable presently because if a product cannot be billed as [energy consumed] x [price] = [what you owe], an energy utility, in Pennsylvania and most other states, will not bill for it.  Spoiler alert — most of these innovative products can’t be billed using that simple formula.  And, by the way, space on the utility bill is guarded like sacred ground and the one or two square inches the utilities presently concede to suppliers to list the equation above would hardly suffice to bill something as complex as, say, a time of use product.

If the supplier were to control the bill, however, not only would the supplier get the chance to improve its customers’ experience with the bill, but the supplier also would gain the chance to offer the customer other products and services the customer may want. These services might be energy related, like warranty service for a furnace, or a new more efficient HVAC system, or could be something like a customer loyalty program where the customer could earn airline miles for simply buying electricity.  The point is that there is really no limit, except good sense, to what sorts of offerings could be made, allowing suppliers to encourage greater customer satisfaction, and providing a better path for suppliers to get beyond the deceivingly complex, risky, and sometimes boring, business of selling only kilowatt hours.

Let’s recap the benefits of SCB.  First, SCB provides competitive suppliers with the ability to compete with innovative and diverse offerings that go beyond price competition on a risky commodity.  SCB provides customers with the chance to get products they may want, like tools to reduce energy consumption, or at least to control and manage consumption on their terms.  It also provides customers with more enriched billing experiences, that include such innovations as flat bills or being able to choose the date you are billed, to name a few. SCB also provides suppliers the means to form a closer relationship with their customers.  I should mention that SCB is already being used in Texas and Georgia, and problems are virtually non-existent.  For the utilities and their customers, SCB means less collection risk and lower costs for collections, and ultimately, better cash flow.  So why, other than the fact that we’ve always done it this way, would we not want allow suppliers who are qualified, willing and able, to provide SCB to customers who opt to take it, and more importantly, who would oppose it?

On June 14, 2018, the Commission held the first of two en banc hearings, with all five Commissioners in attendance to hear first-hand why the Commission should, or should not, go down the SCB road.[3]  True to form, multiple panels of suppliers presented the arguments raised above, and the Commissioners seemed very interested.  Then the ratepayer advocates got their chance.  The advocates’ approach oscillated between specious claims that SCB is illegal and unsupported predictions of dire consequences if SCB is permitted.  The attacks on legality simply mis-state the law.[4]  EGSs are subject to the same quality of service regulations as public utilities.[5]  Oddly enough, the crux of the “anti” argument appears to be that those who advocate for customers want all customers to have fewer choices.  It is not a matter of allowing some customers to choose and others to be left with no choice, like Customer Assistance Program (“CAP”) customers not being permitted to shop for energy.  No, the advocates argue that no customer should be able to receive a bill for all her energy charges from her competitive supplier as opposed to her utility.  The OCA apparently does not believe that: 1) suppliers are scrupulous enough; and/or, 2) customers are sophisticated enough to manage the determination of which party will send their electricity bill.  What the OCA does not want to acknowledge is that while not all customers would engage the opportunity, many others will, and those who want it, want it now.[6] Suggesting that certain segments of the market may not have the sophistication to be able to understand or take advantage of the new features that SCB will bring is not a sufficient reason to not do it.  We can’t simply allow 20% of the market to control the opportunities for the other 80%.  If absolutely necessary, there are ample means of ensuring that certain customers are either permanently or temporarily isolated from SCB opportunities, but by no means should the improved market be stymied or delayed any further.  The dire consequences suggested by the advocates are based on the premise that suppliers will not be capable of managing the collection process and ultimately, the ability to order a customer shut-off for non-payment.  There is simply no basis for this anti-supplier rhetoric.  It may be true that there have been a very small number of suppliers who lacked the sophistication or business acumen to provide service in Pennsylvania over the long term, but through attrition and in some cases, enforcement, the number of those entities is trivial in comparison to the substantial number of prudent, innovative and financially sound suppliers that have been leading the market and investing in Pennsylvania.  To cite the sins of a few as a basis for preventing these good corporate citizens from offering world class service to Pennsylvania customers who want it is nonsensical.

The facts are plain, as of the writing of this post it seems likely that the General Assembly and Governor will have authorized the Commission to implement “alternative regulation” over the rates of utilities, which will perhaps finally put the dagger in the heart of distribution rates that are based primarily on consumption, in a world where energy efficiency and innovation have been driving down per capita consumption, while costs continue to climb.  This development will allow utilities to overcome the disincentive to engage in activities that reduce consumption and should open the door to even more diverse offerings from innovative providers of both commodity and associated services.

It would seem, at this juncture, that the advocates intend that utilities alone would have the opportunity to devise and implement new strategies for billing, and perhaps new products, while simultaneously preventing suppliers from doing the same thing.  Suggestions that the answer to this market demand is that the utilities should simply be required to bill for suppliers, are simply unworkable.  What competitor — make no mistake, the utilities clearly compete with suppliers – wants to be forced to share its new and innovative product concepts, with its competitor, before it can offer the product to customers, while being subject to the competitor’s determination of whether and on what terms it will bill for the product?  The answer is obvious; None!

If Pennsylvania wants to continue operating a successful energy market, where suppliers continue to make substantial investments in the Commonwealth, and customers gain the full benefit of a competitive market for energy and related products, the Commission needs to take the next step in the evolution and allow suppliers to bring those new products to market.  The only way that works is if suppliers have the ability to build a firm and constant relationship with the customers, and that means SCB.

 

[1] Notice of En Banc Hearing on Implementation of Supplier Consolidated Billing, Docket No. M-2018-2645254 (entered May 14, 2018).

[2] To be clear, no one is presently advocating that SCB be mandatory, i.e., that if a customer buys energy from a competitive supplier, said supplier must use SCB.  Rather, all proposals are for the customer to be able to choose a product or service which may include SCB, so long as the SCB component is adequately disclosed.

[3] A second hearing is scheduled for July 12, 2018 at 1:00 in Hearing Room No. 1 of the Commonwealth Keystone Building.  The second en banc hearing will include utility representatives and a few additional EGSs.

[4] The Consumer Advocate stated a number of times during her testimony that the seminal case means that EGSs are not public utilities for any purpose and thus cannot be considered to be utilities for purposes of Chapter 14 of the Public Utility Code, 66 Pa. C.S. §§ 1401, et seq., citing the Pennsylvania Supreme Court’s decision in, Delmarva Power & Light, t/a/ Conectiv Energy v. Comm. Of Pa and Pa. PUC, 870 A.2d 901 (Pa. Supreme Ct. 2005) (“Delmarva”).  The OCA’s citation to Delmarva is simply wrong.  The court plainly held that electric generation suppliers were not public utilities for purposes of 66 Pa. C.S. § 510, which allows for the Commission to assess utilities for the fiscal expenses of the Commission.  The Court also found that EGSs are public utilities for the limited purposes of 52 Pa. Code § 56.01, et seq., which addresses billing and customer service.

[5] 66 Pa. C.S. §2809; Delmarva, 870 A.2d 901, 912.

[6] Smart Energy Consumer Collaborative Report, April 10, 2018, https://www.utilitydive.com/news/three-things-consumers-want-from-electricity-providers-1/520821/

Commonwealth Court Denies PA PUC Authority to Rule on the Meaning of “Customer-Generator” under AEPS

In Sunrise Energy v. FirstEnergy Corp. and West Penn Power Company,[1] the Pennsylvania Commonwealth Court affirmed the lower court’s ruling, in a 5-2 decision, that the Pennsylvania Public Utility Commission does not have primary, let alone exclusive, authority to adjudicate claims arising under the Alternative Energy Portfolio Standards Act[2] (“AEPS”) because the General Assembly failed to delegate such authority to the Commission.

Before the Court, on interlocutory appeal, were FirstEnergy’s and West Penn Power’s (collectively “WPP”) preliminary objections (and an amicus curiae brief on behalf of the Commission) asserting that the Commission, not the Court of Common Pleas, has exclusive jurisdiction to hear Sunrise Energy’s contract dispute, or at the very least had primary jurisdiction to rule on whether Sunrise was a “customer-generator” under AEPS. The dispute arose after Sunrise, a solar developer, and WPP agreed to an Electronic Services Agreement (“ESA”) whereby WPP purchased electricity generated by Sunrise at a specified price.

However, shortly after the ESA was signed by the parties in 2014, the Commission proposed an amendment to its regulations that would “require customer-generators to maintain ‘an independent retail load.’”[3]  In short, the Commission attempted to develop regulations setting forth the qualifications to participate in net metering.  Although these proposed amendments have twice been rejected by the Independent Regulatory Review Commission and they have not yet been published, the Commission still appears poised to enact these amendments as evidenced by its filing of an amicus brief in this case.

As a result of the Commission’s proposed amendments, WPP terminated the ESA citing that Sunrise was not a “customer-generator” but was actually an Electric Generation Supplier and therefore would be paid at a rate different than what the parties had agreed upon. In turn, Sunrise initiated the underlying complaint.

WPP presented the Court with two unpersuasive theories as to why the Commission, not the Court of Common Pleas, was the proper venue to resolve Sunrise’s claims: 1) the Commission has “exclusive jurisdiction” to determine the meaning of “customer-generator” under AEPS, or alternatively, 2) the Commission has primary jurisdiction over the statutory issue of the meaning of “customer-generator.”

In responding to WPP’s first theory for Commission jurisdiction, the Court affirmed the trial court’s finding that Sunrise’s claim was a question of statutory construction and such an exercise is a matter for the courts. The Court also discussed, at some length, the law for when agencies or the courts have jurisdiction under legislative acts and concluded that an agency has exclusive jurisdiction over a matter “where the legislature has given it the power to adjudicate on a particular subject matter”[4] and when that remedy is “adequate and complete.”[5]  In the instant case, the Court simply found that there was no “statutory remedy provided in [AEPS] for resolving disputes arising thereunder.”[6] And because agency jurisdiction is determined by a delegation in a given statute, lack of such delegation in AEPS is a bar to the Commission having jurisdiction over the meaning of “customer-generator.”

WPP’s second theory was that the Commission had primary jurisdiction to resolve the question of whether Sunrise qualified as a “customer-generator” and if the Commission determined Sunrise did qualify, then the Court of Common Pleas would retain jurisdiction to resolve the contract and quasi-contract claims.[7] The Commission in its amicus brief also argued that it should be permitted to determine the meaning of “customer-generator” under AEPS because, if the courts are left to construe the statute, “it will lead to different results … and thereby balkanize the electric service industry.”[8]  Both WPP and the Commission pointed to Morrow v. Bell Telephone Company of Pennsylvania[9] in support of their positions. The Court rejected WPP and the Commission’s arguments because in Morrow, unlike the instant case, the subject at issue was a utility’s rates or tariff, to which the legislature expressly conferred jurisdiction to the Commission. And, despite WPP’s argument that its Net Energy Metering Rider is at issue as it is part of the ESA and WPP’s retail electric Tariff No. 39, the court sharply dismissed the argument, noting that tariffs state “what the utility will collect for its service”[10] but the net metering tariff states “what the utility will pay for electricity.”[11]

The Court went on to dismiss the policy arguments espoused by the Commission in support of its position for jurisdiction, stating that such concerns are appropriately addressed to the legislature and not the courts. Essentially, the Court ruled that without a statutory remedy included in AEPS, Commission jurisdiction cannot be found; and, only the legislature is equipped to add such a remedy, which is why the Commission’s concerns should be taken to the General Assembly.

In the dissent joined by Judge Covey, Judge Jubelirer criticized the majority for evaluating AEPS in a “vacuum” instead of in pari materia with the Public Utility Code and other applicable legislative acts. In support of its argument, the dissent pointed to Elkin v. Bell Telephone Company[12] which required “judicial abstention in cases where protection of the integrity of a regulatory scheme dictates preliminary resort to the agency which administers the scheme.”[13] In short, the dissent opined that, because the legislature granted the Commission with “the power to carry out the responsibilities delineated within [the AEPS] Act” and to “monitor the performance of all aspects of the act,” the Commission had at the very least primary jurisdiction over Sunrise’s claim.

Although the Commonwealth Court ruling does not put an end to the Sunrise Energy litigation and likely does not spell the end for the issues addressed in this interlocutory appeal – remanded to the trial court to continue with litigation – as of now, the Commission is left waiting to see what its role will be in administering AEPS in the future.


[1] Slip Op., No. 1282 C.D. 2015 (Oct. 14, 2016)(“Opinion”).

[2] Act of November 30, 2004, P.L. 1672, 73 P.S. §§1648.1 – 1648.8.

[3] Opinion, 4.

[4] Id. at 13.

[5] Id. at 12.

[6] Id. at 16.

[7] Id. at 16–20.

[8] Id. at 16.

[9] 479 A.2d 548 (Pa.Super. 1984). (sustaining preliminary objections and dismissing a civil action where the plaintiff sought damages for being overcharged for utility services because the claim necessarily implicated the utility’s rates, a subject in which jurisdiction was expressly conferred to the Commission).

[10] Opinion, at 19.

[11] Id.

[12] 420 A.2d 371 (Pa. 1980).

[13] Dissent, at 3.

PUC Streamlines Gas Cost Rate Filings for Small Gas Companies

The Pennsylvania Public Utility Commission (PUC) recently issued a final rule making order concerning recovery of fuel costs by gas utilities at Docket No. L-2013-2346923.  The full order can be found here:  http://www.pabulletin.com/secure/data/vol46/46-4/110.html  The Order is designed to simplify and streamline information and procedures for small gas utilities (gross intrastate operating revenues of $40 million or less) when submitting gas cost rate (GCR) filings with the PUC.

Specifically, in this Order, the PUC implements the following changes to its regulations: (1) classify all natural gas utilities not qualifying for 1307(f) treatment as small gas utilities; (2) modify the schedules included in small gas utilities’ GCR filings for purposes of efficiency; (3) provide small gas utilities with uniform time schedules to allow more accurate gas cost projections as winters approach; (4) allow small gas utilities to collect interest, at the prime rate for commercial borrowing, on both net over and under collections from ratepayers; (5) eliminate the requirement that at least 90% of a small gas utility’s annualized gas costs be rolled into base rates; and (6) implement a GCR interim tariff filing procedure to be effective on ten days’ notice.

Highlights of each Section:

52 Pa. Code 53.63 – classifies gas utilities into two types: Large (gross intrastate operating revenue over $40 million) and Small ($40 million or less).

52 Pa. Code 53.66 – sets filing requirements for small gas utilities when filing GCR tariffs under 1307.  Subsection (a)(1) lists 11 Schedules that must be included with the filing.  Subsection (a)(2) allows for small gas utilities to file a preliminary and a final GCR to be effective November 1.  The preliminary filing is to be made by September 2.  The final filing should be made on October 2.  Subsection (c) requires small gas utilities to file a reconciliation statement under 1307(e) for the 12-month period running from Sept. 1 through August 31 by October 1.  Subsection (d) allows small gas utilities to collect interest on both over and under collections from ratepayers.  Subsection (e) states the notice requirements to customers when recovering fuel costs under the GCR and Subsection (g) requires small gas utilities to monitor GCR activity to avoid becoming materially over/under collected by more than 2% which would allow the small gas utility  to submit an interim GCR filing to be effective on 10 days’ notice.

52 Pa. Code 53.68 – requires small gas utilities filing a GCR to provide notice within 5 days of the preliminary filing (or by Sept. 7) by publishing in a major newspaper within the utility’s service area.

Water and Natural Gas Remain High on EPA’s New and Expanded National Enforcement Initiatives

On February 18, 2016, EPA Announced its Triennial National Enforcement Initiatives (“Initiatives”).  The EPA issues these Initiatives once every three years in order to help “focus time and resources on national pollution problems” according to Cynthia Giles, assistant administrator for enforcement and compliance assurance at EPA.  The latest round of Initiatives will begin on October 1, 2016 and once again will list natural gas producers and water authorities as targets for EPA inspections and enforcement.

Natural gas producers and water authorities fall under the following Initiatives:

  • “Ensuring Energy Extraction Activities Comply with Environmental Laws” and
  • “Keeping Raw Sewage and Contaminated Stormwater Out of the Nation’s Waters”

In a related Initiative, EPA is also expanding its existing Initiative relating to leaks, flares, and excess emissions from refineries. The full list of EPA’s new Initiatives can be found at http://www.epa.gov/enforcement/national-enforcement-initiatives

Energy Extraction

Despite acknowledging that natural gas is an important “bridge fuel”, (epa.gov/enforcement-energy extraction) the EPA believes that current techniques for extraction pose intolerable and significant public health and environmental risks.  Since 2011, the EPA has conducted more than 3000 inspections and evaluations that have resulted in more than 196 enforcement actions.  Part of EPA’s motivation for keeping Energy Extraction on the Initiatives is that the Department of Energy projects that greater than 20% of the total U.S. gas supply will come from shale gas by 2020.

In September 2015 as part of the previous triennial Initiatives, EPA issued a Compliance Alert because it identified compliance issues with storage vessels, tanks, and containers at onshore oil and natural gas production facilities.  The alert provided engineering and maintenance practices that could bring these facilities into compliance.  The natural gas industry’s rapid growth in technology and production has also kept this Initiative on the list because EPA fears that such rapid growth will lead some of the industry participants to take short cuts.

An integral part of EPA’s renewed focus on the Energy Extraction Initiative will be “Next Generation Compliance” or NGC.  NGC boils down to an increase in electronic monitoring and reporting in the hopes that non-compliance will be easier to detect and resolve.  But as EPA’s own, Ms. Giles, acknowledged “the most effective way to achieve compliance with the law is to make it easier to comply than to violate.”  So even before hi-tech monitoring and reporting equipment are implemented, the EPA regulations should be streamlined and redrafted so that compliance could be first more easily understood and second more easily instituted.

Water

EPA is taking enforcement actions against municipal sewer systems where violations of the Clean Water Act are found.  Some of the major violations found at these systems were caused by stormwater runoff.  EPA’s enforcement actions seek to reduce the negative impacts of stormwater runoff through long-term agreements with system authorities.  Part of these long-term agreements contain “green infrastructure” improvements such as green roofs, rain gardens, permeable pavements, and revitalization of vacant lots.

Since 2011, the EPA has addressed over 850 water treatment systems resulting in over 60 enforcement actions.  Additionally, in 2015 there were in excess of 30 civil judicial consent decrees addressing combined sewer systems.

Emissions from Refineries

Because EPA believes that refineries and other industrial plants emit more hazardous air pollutants (HAP) then they report, this Initiative will be expanded from its earlier position in the last triennial Initiatives.  This Initiative will be expanded to include targeting large product storage tanks that treat, store, and dispose of hazardous waste.  Some of the largest sources of HAP come from leaking equipment and improperly operated flares at natural gas extraction points and refineries.  In the new Initiatives, the leaks and flares will be more closely monitored through NGC (new generation compliance) techniques.

Of all the Initiatives past and current, the EPA touts the reduction in HAP due to addressing illegal and excess emissions from leaks and flares at refineries as one of its most successful.  EPA has a track record of success under its enforcement agreements that includes:

  • Over 2000 total facilities evaluated and
  • Over 500 total enforcement actions

No one appreciates overreaching regulation.  Hopefully the EPA will not use these new Initiatives to stifle competition or innovation or put onerous and unnecessary additional costs on companies.  Rather, EPA Initiatives should seek to level the playing field for responsible compliant companies.

What does the future hold for Pennsylvania’s competitive energy markets?

As the PA PUC embarks on its investigation of the natural gas markets, what evidence can we discern about how the agency sees competitive energy markets and how those markets should evolve?

On August 21, 2014, the PUC issued a Tentative Order that identified a laundry list of issues that its Office of Competitive Market Oversight (“OCMO”) will be tasked with investigating. The list includes such items as the assignment of storage and pipeline capacity, tolerances/penalties for system balancing, customer education and switching timeframes, to name a few. However, the list is perhaps most notable for issues not included. There will be no discussion of the natural gas distribution companies (“NGDC”) exiting the merchant function and no discussion of standard offer referral programs.

Looking first at the issues that will be examined, many involve nuts and bolts operational issues. Capacity assignment, switching timeframes, access to on-system delivery points, and so on. Improvements in the efficiency and fairness of these aspects of the interaction between natural gas suppliers (“NGS”) and NGDCs will make the market more seamless, reduce costs for NGSs and potentially NGDCs, and will provide a better customer experience. All of these would be good outcomes, and I am not aware of any party that opposes taking a look to see what tweaks or even more substantial changes are needed. This operational focus– regulating the market and making sure the existing structure works as best it can – is something the PUC views as within its wheelhouse, an area of core competency.

Devoting time to competitive market operational details, however, diverts resources and attention from the larger issues that will decide whether Pennsylvania’s competitive market will endure and thrive. For now, at least, it appears the PUC wants nothing to do with any discussion of NGDCs exiting the merchant function. There could be several reasons for the Commission’s reticence, considering that only a few short years ago, the Commission appeared to be seriously considering programs in the electricity markets that could have transitioned many customers into the competitive market, and at least one electric distribution company was seriously considering a formal exit. One possible explanation is that the Commission has what golfers call a case of the “yips” — the inescapable feeling that you have lost your “game” which results, inexorably, in losing your game. The loss of confidence started with the abrupt manner in which the electric market RMI process was turned around at the last possible minute, dropping programs that would have transitioned many customers to competitive service. Last year’s “polar vortex,” which brought the PUC undeserved criticism for “allowing” a roiling of the retail electric markets, when the problem was a wholesale market issue, slowed forward progress even more. The fallout from that period is still being felt. The Commission promulgated regulations to police disclosure of variable rates; while House Consumer Affairs Committee Chairman Godshall wanted legislation that would have imposed rate regulation on “deregulated” retail EGS rates. The resulting, and rather public, falling out between Chairman Godshall and Commission Chairman Powelson seems to have made the PUC even more reluctant to take bold action. It seems clear that there simply is not the political will, and possibly not the political capital, to advance the deregulation agenda that the Commission clearly signaled in the past, especially in light of the impending gubernatorial election.

But neither the polar vortex aftermath nor politics explains why the PUC has shied away from at least examining whether standard offer programs, so successful in electric deregulation, should be used in natural gas retail choice programs. Standard offers were responsible for migrating many customers off of default service and into one year fixed rate electric contracts. Perhaps the Commission is taking a practical approach, waiting to see what happens at the transition when the one year electricity contracts expire to make sure that it has a handle on the issues that can crop up. Perhaps the Commission wanted to wait and see whom the voters pick on the first Tuesday in November, to see how things change across the street—if at all. Regardless, it may be that the very fact that the Commission chose to wait and see rather than move ahead with a program, even if doing so appears, by most accounts, to be rational, is a signal of a change in attitude at the PUC. More practical, less policy – at least for now. The recent focus on the passage of House Bill 939, the re-authorization of Chapter 14, which also includes the authorization for the Commission to assess NGSs and EGSs, may be further evidence of this approach.

What does all this mean for the future of energy markets, natural gas and electricity, in Pennsylvania? In the short term it probably means that the Commission will appear to be unwilling to go down the road of opening the natural gas RMI proceeding to include issues related to merchant function exit, even if the enabling legislation expressly provides for such a result. It means the RMI will remain focused on operational issues. In the electricity markets, it appears unlikely that there will be any new proceedings to address the competitive market, at least until people stop holding their collective breath over concern about the potential repeat of last winter’s extreme run-up in wholesale prices. In other words, nuts and bolts are fine, but let’s not get into any policy fights just now.

In the long term, things may be more hopeful for those seeking change in the structure of the retail energy markets, if we can put the remnants of the recent past behind us and step out from under the microscope long enough. Both gubernatorial candidates appear to favor competitive markets, although it is not clear how far either would go toward endorsing significant market changes at this juncture. It does not appear that the positions of the individual Commissioners on competitive markets have changed, either. Rather, it appears that circumstances outside their control have forced them to take the practical road for now.

So what does the future hold? The answer is, it depends. As is so often the case, policy in this area is dictated by reactions to current events. It depends on how volatile the retail markets become, and to a lesser extent, the cause of that volatility; it depends on who wins the race for governor, and the makeup of the Commission; and it depends on the marketers deciding to remain in Pennsylvania and staying engaged in the process. This last factor may be the most important.

PUC Proposes Rules For Improving Competitiveness Of Electricity Markets

On December 15, 2011 the PUC issued two orders designed to make Pennsylvania’s retail electricity market fully competitive. Both orders are a product of the PUC’s ongoing Investigation of Pennsylvania’s Retail Electricity Market (“RMI”), Docket No. I-2011-2237952. The first order (“RMI Final Order”) addresses the desired features of soon-to-be-filed electric utility default service plans and programs that will be implemented as part of those plans. The second order (“RMI Work Plan Order”) provides granular detail on specific components, including consumer education, accelerating of switching time frames, customer referral programs, and retail opt-in auctions.

Retail Markets Investigation to Bear Fruit

The first product of the PUC’s Retail Markets Investigation is expected in the form of a Tentative Order to be voted on at the PUC’s October 13, 2011 Public Meeting, and will address the Electric Distribution Company (“EDC”) Default Service Plans for June 1, 2013 and beyond.

The Retail Markets Investigation, which was launched earlier this year with the intention of making “improvements to ensure that a properly functioning and workable competitive retail electricity market exists in the state,” has been hard at work for several months and this Tentative Order will be the first tangible product of the effort.

The process was initiated by an Order dated April 29, 2011.  Investigation of Pennsylvania Retail Electricity Market, I-2011-2237952 (Order entered April 29, 2011).  The PUC then held an en banc hearing and has, since late August 2011, been in engaged in a technical conference process where various issues regarding the enhancement of the competitiveness of the electricity markets and the future state of the electricity markets in Pennsylvania, such as eliminating the merchant function role for EDCs, have been under discussion by a wide ranging group that includes market participants and customer representatives.  PUC Staff has been presiding over lengthy weekly telephone conference calls that produced lively debate on various subtopics ranging from the design of opt-in default service auctions and the EDCs’ exit from the merchant function to the design of customer information post cards that will be sent out by the PUC in the very near future.

The Tentative Order, to be voted on at the PUC’s October 13, 2011 Public Meeting, concerns the transition/bridge plans that will be needed to follow the utilities’ current default service plans that expire on May 30, 2013.  The PUC Staff is expected to recommend that the PUC adopt shorter term (probably one year) plans that will also include the adoption of a number of competitive enhancements that are likely to come out of the technical conference process.

Columbia Gas Files for $37.8 million Rate Increase

After only a few months of collecting the newly increased rates from its 2010 Rate Case, Columbia Gas of Pennsylvania is back before the Pennsylvania Public Utility Commission seeking an additional $37.8 million in annual revenue.

Columbia’s January 14, 2011 filing is notable for more than the timing of the filing, however.  Columbia has proposed a distribution system improvement charge, often referred-to as a “DSIC”.  The DSIC, which has been held to be unavailable to natural gas utilities under 66 Pa C.S. § 1307(a), would allow Columbia to collected a return of and a return on its investment in plant–between base rate cases–by means of a surcharge mechanism.  Columbia also has proposed a levelized distribution charge that would allow it to collect the costs of operating its system on a non-volumetric basis.  This concept is known as de-coupling.  Columbia argues in its filing that without decoupling, its revenue stream is tied to volumes of gas delivered, which are subject to variance for reasons beyond the control of the Company; while at the same time, its operating costs are unrelated to the volume of gas delivered. Columbia argues that the current rate methodology puts the company at risk, and therefore, Columbia seeks to de-couple its revenue stream from the volume delivered, providing it with far more stable revenues.  Rate requests of this magnitude are nearly always  suspended and investigated  for seven months by an order of the Commission issued under, 66 Pa. C.S. § 1308(d), and this case will most likely be assigned to an Administrative Law Judge for hearings.

PUC Approves New Rules Aimed at Improving Retail Natural Gas Competition

Today, in split vote, the PUC approved new regulations intended to level the playing field for natural gas competition.

PROPOSED RULEMAKING-PROMOTION OF COMPETITIVE RETAIL MARKETS,  L-2008-2069114.  While the final rulemaking order may not be publicly available for a few days, it appears that the new rules will require Natural Gas Distribution Companies to remove certain costs of providing default service from the base rate distribution charge, which all customers pay, and instead collect those charges as part of the gas cost rate, which is paid only by customers who remain on default service.

Based upon comments and earlier iterations of the rulemaking process, it appears likely that the Commission also will address Natural Gas Supplier requests to eliminate or shorten the recovery of prior period gas costs from customers who switch to a competitive provider from default service.  These payments are collected through a mechanism referred to as a “migration rider” and are now recoverable for a full year after a customer switches.  The new rules are expected to shorten the time period over which those costs may be recovered.

One other important change proposed by the new rules will be a further refinement of the Price to Compare.  The PTC, as it is known, is intended to assist customers in evaluating competitive offers by presenting the “rate” that the customer pays, in theory, to their local gas utility for the commodity portion of service.  The goal has always been for the PTC to provide a meaningful comparison point for competitive offers. Up till now, however,  the PTC has not reflected a similar basket of costs as those faced by competitive suppliers, some of which change significantly over time.  The new rules will require that additional costs that customers now pay as part of default service be explicitly included in the price to compare.  Significant among those currently unrecognized costs that will in the future be included in the PTC is what is known as the e factor, which varies quarterly and is intended to recover or refund differences in actual prior period gas costs from projected prior period gas costs.  It is the projected costs that form the basis of the rates customers actually pay. Including the e factor in the PTC is intended to make the PTC a better comparison point by making it more representative of the costs that a customer avoids by taking service from a competitive supplier.

The Final Rulemaking Order should be available within two weeks.