Public Utility Commission

Commonwealth Court Confirms Affirmative Public Benefits Standard Still Has Teeth in Fair Market Value Acquisitions (Reversing PA PUC Approval of Aqua Acquisition of East Whiteland Township)

Whitney Snyder on July 31, 2023

In Cicero v. Pennsylvania Public Utility Commission, ___ A.3d ___, (Pa. Cmwlth., No. 910 C.D. 2022, filed July 31, 2023) (“Cicero”), the court reversed the Pennsylvania Public Utility Commission’s (PUC) approval of Aqua Pennsylvania Wastewater Inc.’s acquisition of East Whiteland Township’s wastewater system assets. The court found Aqua had not proven that the acquisition would provide affirmative public benefits and confirmed that proving net benefits outweigh detriments of a transaction remains the standard for approving fair market value (FMV) acquisitions of municipal assets. Cicero, slip op. at 21 (“[I]n every Section 1329 case, it must be shown that the affirmative public benefits that arise from and are specific to a transaction outweigh the harms of the transaction, such that approval of the transaction will ‘affirmatively promote the service, accommodation, convenience, or safety of the public in some substantial way.’”).

Cicero does not change the law; it finds the PUC failed to apply the law and provides clarification on fact-specific application of the affirmative public benefits test in FMV acquisition proceedings where the selling entity is already providing safe and adequate service. The court reasoned that the PUC cannot merely rely upon benefits derived from the technical, managerial, and financial fitness of a utility like Aqua because general fitness characteristics: (1) are not specific to the system being acquired and thus do not arise from the transaction; and (2) do not outweigh the burdens to consumers of Aqua’s FMV acquisitions. Cicero, slip op. at 19 (“Holding that a transaction will result in substantial affirmative public benefits because it will provide the same services as already being provided is not a benefit, let alone a substantial affirmative public one as required by statute and our caselaw.”). The court further held that while “aspirational statements” are substantial evidence of an affirmative public benefit, the benefit must be considered in context and here the benefits do not outweigh the burdens to consumers of Aqua’s FMV acquisitions. Cicero, slip op. at 20-21(“[T]hese cases[1] do not support a conclusion that the public benefits arising from aspirational statements will always constitute affirmative public benefits that will be substantial enough to outweigh known harms.”).

The burdens on consumers derive from changes to how a utility can earn profit and recover costs from a municipal acquisition. Act 12 of 2016 added Section 1329 to the Public Utility Code, which allows for utilities to acquire municipal or municipal authority assets at FMV and recover transaction and transition costs of the acquisition with a truncated six-month approval process. Section 1329 incentivizes utilities to acquire municipal/authority assets through various changes. The most drastic of which is allowing the acquiring utility to include the FMV of the assets in its rate base on which it earns a profit; whereas prior to Section 1329, the value of the assets includable in rate base was original cost minus depreciation. As opponents to various Aqua 1329 acquisitions have pointed out, Aqua’s acquisitions at FMV of systems that are already operating adequately and safely needlessly increase customer rates because unlike a municipality or authority which does not earn a profit, does not pay taxes, and has a generally lower cost of debt, Aqua is entitled to a profit on its investments, pays taxes, incurs higher debt costs, and then recovers these profits and costs from ratepayers. Thus, a 1329 acquisition will result in higher costs to ratepayers than if the acquisition had not occurred.

That is not to say that all FMV acquisitions are a net detriment to the public. Section 1329 acquisitions can have affirmative public benefits that outweigh the higher rates under public utility ownership. For example, where a municipal system is failing to provide safe service and the municipality is unwilling or unable to make improvements, a Section 1329 acquisition can provide much needed investment in infrastructure and customer service.

Despite a lack of net affirmative benefits in some transactions, the PUC has approved every Aqua 1329 acquisition to date. Thus, Cicero disrupts the PUC’s repeated refusal to appropriately apply the affirmative public benefits standard to Aqua’s 1329 acquisitions and likely results in enhanced opportunities to challenge acquisitions and prevail.

Whitney Snyder, a partner at HMS legal, represents a variety of entities dealing with Public Utility Commission regulation and litigation, such as utilities, large customers, and municipalities, including opposing Aqua 1329 transactions.

[1] Popowsky v. Pennsylvania Public Utility Commission, 937 A.2d 1040 (Pa. 2007); City of York v. Pennsylvania Public Utility Commission, 295 A.2d 825 (Pa. 1972).

Net Metering is Back in Pennsylvania

Todd Stewart on February 17, 2021

The Supreme Court today affirmed the Commonwealth Court’s invalidation of Pennsylvania Public Utility Commission (“PUC” or “Commission”) regulations that had the effect of blocking alternative energy project developments of 5 MW or less that propose to use net metering. The PUC’s regulation had defined a developer of a net metering project as a “utility”; because the legislature in the PUC-administered Alternative Energy Portfolio Standards Act (“AEPS”), 73 P.S. §§1648.1, et seq. prohibited a “utility” from participating in net metering, the PUC’s regulation made it impossible for an alternative energy project developer from availing itself of net metering, essentially rendering such projects uneconomic. The Independent Regulatory Review Commission (“IRRC”) had voted to disapprove this attempt by the PUC to block developers from using net metering in their projects,[1] but the PUC submitted the regulations for legislative approval anyway, and because the general assembly was not in session, the IRRC process allowed the regulations to become law.

David Hommrich, a developer of solar energy projects, sued in the Commonwealth Court seeking a declaration that the PUC’s definition of “utility” and other related net metering regulation provisions are unlawful, arguing that the PUC acted beyond the scope of its statutory authority, and that the regulations were otherwise unreasonable. In a May 2020 opinion, [2] Judge Wojcik, writing for a panel of the court, agreed, and granted most of the relief requested by Mr. Hommrich, ruling that several of the sections of the Commission’s regulations, namely, Sections 75.12, 75.13(a)(1) and the definitions of “utility” and “customer generator” and are invalid and unenforceable. The Supreme Court has now rejected the PUC’s appeal, affirming the Commonwealth Court in a single sentence order.

What this means in a practical sense is that those sections of the Commission’s regulations that were declared unenforceable are no longer part of the regulations. Absent amendment, future codifications of those sections will likely note that they have been declared unenforceable and those seeking the guidance of those rules will need to make sure that they read the notes. The Commission need not engage in a further regulatory process to revise its regulations, but it may choose to do so, and should. 52 Pa. Code § 75.12, which was struck down, contains definitions that are relied upon throughout the entirety of Subchapter B, the section of the regulations that addresses net metering. Also stricken was the independent load requirement for net metering that would have imposed an extra-statutory requirement that there be some specific, non-alternative energy system load to offset the production of the renewable facility, in order for net metering to be permitted. The definitions of “utility” and “customer generator”, while at the heart of the Commission’s regulatory over-reach, could simply be deleted. “Customer generator”, is already defined in the statute, and no definition of “utility” is necessary. For those who rely on these sections, utilities, and renewable project developers in particular, it will be as if those sections don’t exist; any attempt to rely upon them as authority would be futile.

So, what does this all mean for the future of renewable energy projects in Pennsylvania? It means that project developers who focus on net metering projects, i.e., up to 5 MW, are back in business and can develop and participate in those projects as they could pre-2016, that funders can finance those projects, and that utilities and the Commission cannot reject them on the basis that developer is a “utility” as the Commission vainly attempted to define that term. Hopefully, this will also serve as a reminder to regulators that they cannot, through regulations, rewrite a statute they are tasked with administering in the way they wish the legislature had written it. Rather, they need to pay attention to the words and intent, because the courts most certainly will.

[1] See, IRRC Shoots Down AEPS Regulations a Second Time.

[2] Hommrich v. Pa. P.U.C., 231 A. 3d 1027 (Pa. Cmwlth. 2020).

Crystal Ball .21

Todd Stewart on January 14, 2021

A new year is upon us; and while that may facially seem like a good thing, the continued uncertainty has people anxious. I feel challenged to consider what issues, concerns, and hot topics are likely to rise the surface in the next twelve months. With the pandemic still at the top of the news queue most of the time, and with many people still working from home, if they are working at all, picking the possible hot-button issues is no easy task. The trick, if there is one, is to narrow down the range of probable outcomes – in this case, to things that were begun and not finished. What follows are my predictions for those industries regulated by public utility commissions – and the Pennsylvania Public Utility Commission (“PaPUC”) in particular.

With a new administration taking the reins of government in Washington and the President’s party set to control both the House of Representatives and the Senate for at least the next two years, there can be no doubt that the direction of federal energy policy is going to change. At a high level that means a shift to less reliance on fossil fuels and greater emphasis on renewables. While this trend shift is nothing new, many expect it to accelerate during Joe Biden’s Presidency.

In the past several years, the Federal Energy Regulatory Commission (“FERC”) has made it easier for small scale generation and storage projects to interconnect with the grid, and with distribution systems, depending on the service to be provided: i.e., voltage support, reserves, etc. At the same time, PJM, at FERC’s behest, has made things more difficult – its Minimum Offer Price Rule (“MOPR”) has complicated the ability of projects that might participate in state mandated renewable portfolio programs to participate in capacity markets and also receive revenue from renewables credits. How that quandary shakes out remains to be seen. But in PJM at least, it seems likely that we will see small scale renewable energy projects continue to participate in Renewable Portfolio Standard(“RPS”) programs that may include net metering, and larger scale projects that forgo the RPS revenue in favor of participating in what are typically the more lucrative capacity markets. There are a number of appeals pending on the MOPR orders that hopefully will be resolved soon.

Storage also is likely to come to the fore in 2021. The PaPUC issued a request for comments late last year, seeking industry feedback on the use of electricity storage resources to enhance distribution system resiliency and reliability. Unfortunately, the focus is on utility-provided storage that would be included in utility rate base, rather than considering that others in the market are already providing economic solutions that can enhance resilience, and provide additional benefits, without saddling ratepayers with substantial increased costs that may outlive the usefulness of today’s technology. While the PaPUC’s singular focus on distribution systems is a disappointment, there are multiple extant avenues for firms to bring storage to bear; to support renewables, or to support the grid by providing FERC regulated ancillary services. The future clearly has a place for more storage. Moreover, storage in the future may not mean solely batteries. Other technologies – pumped storage for instance – have received renewed attention recently and may be a more environmentally friendly means of providing a large-scale storage solution in the proper application. In any event, storage has a bright future.

From a purely Pennsylvania perspective, I hope we finally see the passage of a community solar statute.[1] Many other states in our region have had such programs for years, and they appear to be quite successful at democratizing access to the benefits of ownership of a renewable energy project. In Pennsylvania’s last legislative session, two bills were introduced in the General Assembly to bring these same benefits to Pennsylvanians, but they went nowhere, presumably due to opposition from utilities that grouse about the burdens of administering the Alternative Energy Portfolio Standards Act.[2]

I think we can also look forward to the General Assembly moving the bill that was introduced last legislative session as SB 1365. This bill was introduced by Senator Phillips-Hill, along with its sibling, HB 2555 that was introduced by Representative Metzgar. These bills address some of the significant and more controversial competitive issues that remain on the PaPUC’s plate after all these years, including supplier consolidated billing, removing the subsidies to default service that are hidden in distribution rates, and allowing customers to enroll with suppliers wherever they may be. These have proven to be thorny issues. For example, utilities are intent on retaining their present monopoly over the ability to communicate with customers via their energy bill and the customer relationship that goes along with that power.[3] Suppliers have long recognized that such a relationship is vital for them to be able to continue to participate in competitive markets.[4] It seems fairly certain that these bills will be back on the General Assembly’s calendar for the coming session, and while the outcome is uncertain, it is clear that Pennsylvania’s energy markets will not see sustainable competition until these issues are fairly addressed.

One critical and often overlooked aspect of last session’s SB 1365 is that it includes provisions that seek to ramp-up compliance efforts. It has not gone without notice that yet again, what appears to be a small group of competitive energy suppliers have been flouting the law and engaging in illegal and market-damaging customer engagement efforts. It seems that no one in the Commonwealth is safe from the “this is an apology from your electric utility” scam calls or their close kindred. These types of calls clearly violate the existing PaPUC regulations, and also violate the newly passed anti-robo-call provisions of the Telemarketer Registration Act.[5] One of the centerpiece provisions of SB 1365 was to require suppliers to annually go through training and to certify that they understand the laws that apply to their behavior and to agree to abide by those laws. The PUC also is likely to take up the issue of telemarketing and may seek to push the envelope with even more restrictive requirements for energy telemarketers, perhaps expanding the requirement that suppliers not confuse customers as to the origin of a call, not mis-identify themselves as representing the utility, and possibly creating a more complete list of actions that it considers illegal. It appears that the bad conduct of a handful of marketers could inspire such changes, which will make life more complex – i.e., more difficult and more expensive – for all marketers regardless of their conduct; and that would be unfortunate. Tracking down and prosecuting the offenders, however, is not easy because the offender typically hangs up when challenged. The only way to find out which suppliers are behind this scam is to agree to the switch the scammer is proposing and then file a formal complaint against the new supplier once the switch occurs and its identity is revealed. But that is a path few are willing to go down. Let’s hope we can come up with tools to abate the efforts of these bad actors without harming the majority of suppliers that follow the rules.

A one time-critical issue that has been getting more press lately, most of which is long-overdue, is the effort to deploy broadband internet to un-served and under-served areas of this country. Pennsylvania has many rural areas, with connectivity infrastructure from a bygone era, where internet reliability and speeds are inadequate to support our modern world of online learning and rural household and business data consumption. The problem, as we all know, is that the last mile[6], and often the middle mile[7] in very remote areas, are simply too capital intensive to allow serving those areas to be profitable over any reasonable time horizon. That is about to change. On December 7, 2020, the FCC announced the results of the Rural Digital Opportunity Fund Phase I Auction that will award $9.2 billion in support dollars to 180 bidders that will allow the providers to deploy broadband to 5.2 million homes across the country over the next 10 years.[8] The support is derived from the universal service surcharges that land-line telephone customers pay. The better news is that $368 million of that money will be put to work in rural places in Pennsylvania! This level of support will be a substantial aid in ensuring that the digital divide no longer prevents rural kids from going to school online during a pandemic, or a rural business from having a workable website. With the supports being allocated in the auction, and the efforts of other community organizations in the Commonwealth the have put rural broadband deployment at the top of their agendas,[9] this problem can be eliminated. A number of localities are seeking whatever funding is available to allow them to deploy solutions in the first quarter of 2021 that will provide broadband access to the most citizens possible. These efforts are timely, if not overdue, in light of a pandemic that has forced millions of Pennsylvania students, from kindergarten to college, to do school remotely.

Finally, I would be remiss if I did not mention the impact that COVID-19 has had on the PaPUC and the utilities it regulates. In response to Pa Governor Wolf’s Emergency Proclamation that was initially issued March 6, 2020, the PaPUC took several actions that have had serious repercussions for the industries it regulates. First, on March 16, 2020, the PaPUC suspended the ability of Electric Generation Suppliers and Natural Gas Suppliers to market to customers door-to-door.[10] Despite a number of attempts and repeat attempts, the PaPUC held firm and has to date not allowed door-to-door marketing to return. It seems likely that at some point in the coming year the PaPUC will change direction on the issue. The PaPUC also issued an order that banned electric, gas, water, sewer and steam utilities from terminating customers for non-payment.[11] The moratorium was the subject of a number of animated discussions at PaPUC public meetings and was finally lifted on November 9, 2020.[12] For customers whose annual household income is at or below 300% of the federal poverty level, the moratorium continues, as these are considered “protected customers” who are not subject to shut-off in the winter; or from November 30 to April 1.[13] As part of the emergency order and the Order lifting the moratorium, the PaPUC recognized that utilities could be facing extraordinary non-recurring expenses related to COVID-19 and required them to record these expenses as a regulatory asset. The Commission has yet to announce how it would expect utilities to recover these expenses (i.e., in a rate case or some other manner) and that issue almost certainly will be on the agenda for 2021.

Remembering the old curse, “may you live in interesting times,” I hesitate to suggest that any of my predictions will come to pass, because something more urgent and/or important can always lurk behind the next news cycle. I do feel confident, however, that eventually these issues will be decided. Time will tell.

[1] https://www.hmslegal.com/community-solar-inching-its-way-to-pennsylvania/

[2] 73 P.S. § 1648.1, et seq.

[3] https://www.puc.pa.gov/docket/C-2019-3013805

[4] https://www.hmslegal.com/why-the-skeptics-are-wrong-about-supplier-consolidated-billing

[5] https://www.hmslegal.com/revamp-of-telemarketer-act-cuts-into-robo-calls-but-falls-short-of-needed-changes/

[6] https://en.wikipedia.org/wiki/Last_mile

[7] https://en.wikipedia.org/wiki/Middle_mile

[8] https://www.fcc.gov/document/fcc-auction-bring-broadband-over-10-million-rural-americans

[9] https://sapdc.org/2020/11/07/sapdc-announces-broadband-study-kick-off-meetings/

[10] https://www.puc.pa.gov/pcdocs/1658467.pdf

[11] https://www.puc.pa.gov/pcdocs/1658422.pdf

[12] https://www.puc.pa.gov/pcdocs/1682379.doc

[13] The 300% level specified in the PaPUC’s October 13, 2020 Order at Docket M-2020-3019244, differs from the requirements listed at 14 Pa. C.S. § 1406(e)(1), which sets a 250% of federal poverty level threshold for electric and gas utilities subject to the ordinary winter termination restrictions. Moreover, this restriction would appear to apply to all utility shutoffs, including water, sewer and steam.

Why the Skeptics are Wrong about Supplier Consolidated Billing

Todd Stewart on June 28, 2018

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

Micah Bucy on October 24, 2016

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.

PA Supreme Court Further Demolishes Act 13 in Robinson Township Remand Appeal

Whitney Snyder on September 30, 2016

On September 28, 2016, the Pennsylvania Supreme Court (Court) ruled[1] on a Commonwealth Court remand decision[2] of the Robinson Township 2013 Court decision,[3] where the Court held key provisions of Act 13[4] (the statute implementing major changes in Pennsylvania’s oil and gas laws and the ability of local government to regulate this industry) were unconstitutional (HMS Blog). In the 2016 Robinson Township decision, the Court: (1) upheld the Commonwealth Court’s holding that provisions related to Public Utility Commission (PUC) review of local ordinances are unseverable from unconstitutional provisions and thus unenforceable, and (2) held four additional provisions of Act 13, including the grant of eminent domain, unconstitutional.

The Supreme Court Decision

The Court agreed with the Commonwealth Court’s decision (HMS Blog) that provisions of Act 13 related to PUC and Commonwealth Court oversight of municipal zoning laws are unseverable from Sections 3303 and 3304, which prohibited local governments from enacting or enforcing environmental legislation regulating oil and gas operations and mandated that all ordinances regulating oil and gas be uniform, and that certain drilling activities be allowed in all zoning districts regardless of existing zoning laws. The Court’s 2013 plurality opinion found Sections 3303 and 3304 of Act 13 unconstitutional under the Environmental Rights Amendment of the Pennsylvania Constitution. Here, the Court held Act 13 Sections 3305 through 3309 are unseverable from Sections 3303 and 3304, and thus unenforceable, completely stripping the PUC of local zoning oversight under the Act.

The Court disagreed with the Commonwealth Court and ruled unconstitutional four other sections, including the Act’s grant of eminent domain power to entities transporting, selling, or storing natural gas that are not public utilities. Section 3241 granted corporations transporting, selling or storing natural gas the right to appropriate an interest in real property located in a storage reservoir or reservoir protective area if the area is or has been commercially productive of natural gas The Commonwealth Court had upheld the constitutionality of Section 3241 because its grant of eminent domain power to a corporation “empowered to transport, sell, or store natural gas in this Commonwealth” is the equivalent of the power traditionally conferred on public utilities that engage in similar activities. The Supreme Court disagreed, reasoning that Section 3241 conferred the power on a class of entities much broader than public utilities, and that corporations exercising eminent domain power under Section 3241would be acting with a primarily private purpose as opposed to a public purpose, in violation of both the Fifth Amendment of the U.S. Constitution and Article 1, Sections 1 and 10 of the Pennsylvania Constitution.

The Court held the other three sections of Act 13 unconstitutional as “special legislation” forbidden by Article III, Section 32 of the Pennsylvania Constitution:

Section 3218.1, requiring DEP to notify, after investigation, any public drinking water facility that could be affected by a spill;
Section 3222.1(b)(10), (the medical “gag rule”) limiting disclosure by the fracking industry to health professionals of identities and amounts used of chemicals claimed to be proprietary or trade secrets and only allowing disclosure where medical professional executes a confidentiality agreement and a statement that the information is needed for diagnosing or treating an individual; and
Section 3222.1(b)(11), allowing health professionals limited opportunity to request such information in a medical emergency and verbally agree to confidentiality and acknowledge purpose of information.

The Court enjoined further application and enforcement of these provisions, but stayed the injunction with respect to 3218.1, DEP spill notifications, for 180 days in order to give the General Assembly time to enact remedial legislation.

Justice Todd authored the opinion, in which Justices Donohue, Dougherty and Wecht joined, Chief Justice Saylor concurred and dissented, and Justice Baer concurred and dissented.

Public and Industry Reaction

The decision is clearly a win for both environmentalists and municipalities, which describe the decision as a recognition of citizen’s rights over the gas industry’s political power.[5] On the other hand, the industry claims the decision will not actually provide any environmental or safety benefits all the while increasing difficulty of investing and creating jobs.[6]

With many of Act 13’s provisions now unenforceable, it remains to be seen whether the General Assembly will be able to strike a balance between oversight and regulation of oil and gas drilling with the interests of citizens and the industry in future legislation. However, the 2013 plurality opinion in Robinson Township has given the Environmental Rights Act teeth and the Court’s 2016 decision has reinforced that the Court will closely scrutinize legislation that encourages natural resource development at the expense of private property rights and environmental concerns.

[1] Robinson Township v. Commonwealth of Pennsylvania, 104 MAP 2014, ___ A.3d ___ (Pa. Sept. 28, 2016).

[2] Robinson Township v. Commonwealth of Pennsylvania, 96 A.3d 1104 (Pa. Cmwlth. 2014).

[3] Robinson Township v. Commonwealth of Pennsylvania, 83 A.3d 901 (Pa. 2013).

[4] Act 13 of Feb. 14, 2012, P.L. 87 (Act 13).

[5] Susan Phillips, PA Supreme Court rules with environmentalists over remaining issues in Act 13, StateImpact (available at https://stateimpact.npr.org/pennsylvania/2016/09/28/pa-supreme-court-rules-with-environmentalists-over-remaining-issues-in-act-13/); see also Don Hopey, High court strikes down Pa. law on shale gas, Pittsburgh Post-Gazette, PowerSource (Sept. 28, 2016) (available at http://powersource.post-gazette.com/business/legal/2016/09/28/US-appeals-court-hears-arguments-in-Clean-Power-Plan-case-2/stories/201609280043).

[6] Id.

Uber Update – PUC Upholds $11M Penalty

Whitney Snyder on September 6, 2016

Last week, the Public Utility Commission (PUC) sustained the $11 million fine it imposed against ride-sharing service Uber, voting 4-1 to deny reconsideration of its May 2016 order imposing this penalty against Uber for its unprecedented number of violations of PUC regulations, including operating without PUC authority via a certificate of public convenience.

The Commissioners voting to uphold the penalty stressed that Uber intentionally continued to commit regulatory violations and highlighted that it had reduced the $50 million penalty the Administrative Law Judges recommended in this proceeding.

Commissioner Powelson dissented, as he did to the PUC’s prior order, emphasizing his concern that the penalty is excessive and unfavorable to business innovation.

The PUC’s press release on this order provides an informative timeline of the Uber proceedings and links to Commissioner statements. For more details on prior Commonwealth Court and PUC decisions related to the civil penalty against Uber, see our “Uber Week for Uber in PA” blog.

PUC Requests Comments on Taxi Regulations

Whitney Snyder on August 12, 2016

On August 11, 2016, The PUC acting pursuant to Act 85 of 2016, which requires the PUC to promulgate new regulations in response to changes in the industry, requested public comment on ride sharing companies such as Uber and Lyft. Uber and Lyft have spurred and created controversy in both the Public Utility Commission (PUC) and Commonwealth Courts. The PUC requested comments include “specific suggestions for any proposal, including suggested regulatory language, with appropriate citations to current regulations that address the particular comment. Additionally, comments must provide the underlying rationale to support any suggested temporary regulations.” Comments are due 30 days from publication in the Pennsylvania Bulletin, which is published each Saturday. The rulemaking is docketed at L-2016-2556432.

The Act also exempts the PUC from certain procedural regulatory review standards under the Commonwealth Attorneys Act and Regulatory Review Act.

The Commission’s temporary regulations will address the following topics:

(I) the use of log sheets and manifests, including the storage of information on digital or other electronic devices.

(II) metering addressing the use of a variety of technologies.

(III) vehicles’ age and mileage, including procedures to petition for exceptions to age and mileage standards.

(IV) marking of taxis, including advertising.

(V) the operation of lease-to-own taxi and limousine equipment subject to the following conditions:

(a) providing required levels of insurance on the vehicle.

(b) ensuring that the vehicle is subject to and complies with all vehicle inspection requirements.

(c) ensuring that the driver complies with all the requirements of 52 Pa. Code Ch. 29 subch. F (relating to driver regulations).

(d) terminating insurance provided to a driver who completes the purchase of the vehicle or who no longer provides driver services to the taxi or limousine company.

(VI) taxi tariffs, including rate and tariff change procedures for both meters and digital platforms. Regulations shall reflect reduced or flexible rates and tariffs as appropriate.

(VII) procedures for cancellations, no-shows and cleaning fees.

(VIII) limousine tariffs, including rate and tariff change procedures. Regulations shall reflect reduced or flexible rates and tariffs as appropriate.

(IX) driver requirements, including criminal history background check requirements and driving record requirements.

(X) vehicle requirements, including compliance with environmental, cleanliness, safety and customer service standards, including special safety requirements for children.

(XI) requirements for continuous service and exceptions for unexpected demand and personal health and safety.

The Act requires the PUC to promulgate temporary regulations by December 2016 (150 days from the effective date of the Act). The temporary regulations will expire at the earlier of the PUC’s promulgation of final-form regulations or two years from the effective date of the Act.

IRRC Shoots Down AEPS Regulations a Second Time

Todd Stewart on July 7, 2016

When Pennsylvania’s Independent Regulatory Review Commission (“IRRC”) voted unanimously at its June 30, 2016 meeting to disapprove for a second time the Pennsylvania Public Utility Commission’s (“PUC”) recent efforts to modify its regulations implementing the Alternative Energy Portfolio Standards(“AEPS”) Act,[1] it was aware that its action would at most place a speed bump in the PUC’s path, but it disapproved the regulations anyway.

The issue is the PUC’s proposed definition of “utility” and its impact on the future of Pennsylvania’s alternative energy market. Questioning the PUC’s representative, IRRC Commissioners tried repeatedly to get an admission that any sale of excess production from a net metered facility to an electric distribution company will make the seller a “public utility” under the PUC’s definition, to which he repeatedly responded “I disagree,” without elaborating. In the end, IRRC was unconvinced by the PUC’s position and voted to disapprove the regulations.

Procedurally, if the PUC decides to promulgate the regulations, the only possible roadblock would be the speedy passage of a General Assembly concurrent resolution, that the Governor must then sign. This approach seems unlikely given the status of the budget and the current legislative recess.

What is clear from the discussions so far is that the PUC has declared war on “merchant generators”. While the term “merchant generator” does not appear in the AEPS Act, and is nowhere defined in the proposed regulations, it nonetheless appears 21 times in the PUC’s Order that sent the proposed regulations to IRRC before this last rejection. A fair reading of the PUC’s Order reveals that the PUC believes that merchant generators are receiving net metering subsidies to which they are not entitled. Despite the efforts of IRRC to uncover the source of the PUC’s belief, the PUC produced no evidence to support this view. When one considers that the PUC’s proposed regulations also include a requirement that the PUC approve all net metering applications for projects over 500 KW, it seems fairly certain that the PUC is proposing a methodology by which it can exclude those whom it determines to be “merchant generators” from participating in net metering.

The PUC’s anti-merchant generator strategy is two pronged. First, it capped the size of entities that could participate in net metering at 200% of “independent load”[2]. Second, it defined “utility” in such a way as to allow the PUC to claim that “merchant generators” are “utilities”, and thus render them ineligible for net metering. The definition of “utility” is important because the statute uses the term “nonutility” to modify the terms “owner or operator” in the definition of “customer generator.”[3] So an entity that is a “utility” cannot be a “customer generator”. When the first prong (the 200% cap) was expressly rejected by IRRC, the definition of “utility” became critical. This was born out at the IRRC hearing where the PUC representative said that currently there are only two types of entities that meet the definition of utility: EDCs (i.e., traditional electric companies that are undeniably utilities); and electric generation suppliers (“EGSs”). The PUC is tossing EGSs into this game of “who is a utility” because EGSs provide electric generation supply service, which the PUC conveniently included in its definition of what makes you a utility. The rub is that the Public Utility Code makes it clear that EGSs are not public utilities except for very limited purposes enumerated in the code, and the AEPS Act is not one of those limited purposes.[4] The PUC’s end game is to define “utility” such that any entity that is not an owner of a project, i.e., an operator, that sells excess electricity back to the EDC, is an EGS and thus is not eligible for net metering. If allowed to be become effective, the changes will outlaw a business model employed by many renewables projects, both existing and planned, across Pennsylvania.

While we await the IRRC order disallowing the proposed regulations, it seems fairly certain that, failing the General Assembly and Governor moving very quickly, the only protection for project developers, particularly existing operating projects, may be to seek pre-enforcement review in the form of declaratory/injunctive relief from the Commonwealth Court.

[1] 73 P.S. §§ 1648.1, et seq.

[2] The term “independent load” also is not defined, or required, by the AEPS Act.

[3] 73 P.S. § 1648.2.

[4] 66 Pa. C.S. §§ 102, 2809, 2810

Columbia seeks yet another rate increase

Todd Stewart on March 27, 2015

Almost one year to the day from its 2014 rate increase filing, Columbia Gas of Pennsylvania is back before the Pennsylvania Public Utility Commission seeking an additional $46 million in revenue.

Columbia has continued its streak of rate cases, filing almost annually since the General Assembly passed the DSIC bill that was touted as being the antidote for frequent rate cases. In addition to seeking recovery of main replacement costs in excess of the 5% cap imposed by the DSIC statute, Columbia’s rate filing includes an innovative approach to extending its gas infrastructure to reach more customers.

PUC regulars will recall that in its last rate case, Columbia proposed a New Area Service rider (“NAS”) that allowed customers that did not have the ability to pay an upfront deposit for extending Columbia’s facilities to their premises to pay that amount, either the full or partial deposit, over a period of 20 years on a monthly basis. The testimony that was included in Columbia’s filing correctly points out that while the NAS program does help to mitigate one barrier to extending facilities, i.e., the sometimes significant upfront costs, it does not eliminate the cost, and those costs can add to customer’s bills for a long period of time.

In order to help, Columbia has proposed to develop new incentives that would encourage more customers to switch to natural gas service. The first would be a footage allowance for up to 150 feet of main line extension per applicant without the need of a net present value (“NPV”) analysis that is normally done; the second would be an allowance of 150 feet of service line in normal situations for those portions of Columbia’s service territory where the Company has lines; and third would be reimbursement of up to $1,000.00 for installation of house piping where the projected revenues exceed projected costs by a certain threshold, when the Company does the (“NPV”) analysis. What this means in real terms is that new customers will have the opportunity to receive gas service with an allowance of 150 feet of main-line extension and 150 of service line—at no charge, which should allow many new customers to connect to Columbia’s facilities.

With all these innovative programs that Columbia is proposing, it seems inevitable that they will have included a few items that parties will not like. In this case, Columbia has resurrected, yet again, its intention to charge shopping customers for the right to shop, by seeking to impose upon them a substantial charge, Rider CAC (customer access charge) that purports to recover Columbia’s costs of providing choice service. Columbia proposed the same Rider in its last rate case but withdrew it as part of a settlement. It is interesting that this charge recovers substantially more dollars than Columbia purports to spend on its own gas acquisition; and, therefore, it is much larger in order of magnitude on a per customer basis than the charge that Columbia is proposing to recover for its gas procurement costs (“GPC”). This seems a little odd to this observer.

This matter has not yet been assigned to an administrative law judge. The Pennsylvania Office of Consumer Advocate has filed a complaint, which almost ensures that the rate filing will be suspended and sent for hearings before an administrative law judge sometime this summer. Stay tuned.