Claims of Uniqueness Cannot Not Justify Legally Impermissible Action: What We Learned About Pennsylvania’s Competition Act From A Small Utility In Northeastern Pennsylvania
February 6, 2014
On the last day of 2013 – with no fanfare or media attention – the Pennsylvania Supreme Court declined to hear an appeal regarding the Pennsylvania Electric Generation Competition Act (“Competition Act”). See 66 Pa. C.S. §§ 2801-2812. This per curium decision is the end result of a long journey in the service territory of Pike County Light and Power (“PCL&P”) which began when its generation rate caps expired in 2007. While a number of important issues are implicated by the Supreme Court’s decision, the most significant one to us as we reflect on our involvement in these cases is the final demise of the flawed claim that the Pennsylvania Public Utility Commission (“PaPUC”) could do something legally impermissible by claiming “unique” circumstances are present.
With the Supreme Court’s decision, the appellate courts have made clear that the PaPUC has the legal authority to permit a utility to rely on just one contract type to secure supply for the default service plan. The default service plan sets forth how the utilities are required to procure supply for default service. Default service is the generation service provided by the utilities to consumers who do not receive generation service from a competitive supplier. PCL&P’s preference is to rely on one contract type – spot market purchases – to procure its default service supply. Our client, Direct Energy Services, LLC (a competitive generation supplier), has consistently supported this approach which the PaPUC first approved for the default service plan effective in 2008.
Several years later, for the default service plan effective in 2012, the Office of Consumer Advocate (“OCA”) argued to the Pennsylvania Commonwealth Court that the PaPUC lacked legal authority to rely on just one contract type. According to this advocacy, the default service plan was legally required to include at least one other contract type (i.e., a longer term contract). Although PCL&P’s reliance on spot market purchases was approved in two additional proceedings that were not appealed, the argument was made that PCL&P is “unique” and could not be relied upon more broadly regarding the PaPUC’s statutory authority. In other words, the argument was that the PaPUC could do something legally impermissible and justify such action by claiming that unique circumstances were present. For PCL&P specifically, the factors used to support its uniqueness included the small size of the service territory and the Opt-Out Retail Aggregation Bidding Program in place from 2006-2011 through which Direct Energy provided a guaranteed fixed price product to consumers who did not elect another supplier.
The action of the Supreme Court, however, put a definitive end to this flawed reasoning. While the PaPUC has discretion to determine what comprises the best default service plan for a specific service territory, the appellate decisions are clear that the PaPUC does not have the discretion to approve a legally impermissible plan and defend its actions under the guise of “uniqueness.” In other words, the spot market only approach of PCL&P was affirmed on appeal not because PCL&P is “unique” but because it is a legally permissible approach that made the most sense for PCL&P.
A copy of the PaPUC’s Order which was affirmed on appeal is available at: https://www.puc.state.pa.us/pcdocs/1178648.docx.