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PA Bulletin, Doc. No. 05-2209



Provisions of Default Service; Reopening of the Public Comment Period

[35 Pa.B. 6541]

Public Meeting held
November 10, 2005

Commissioners Present: Wendell F. Holland, Chairperson; James H. Cawley, Vice Chairperson; Bill Shane; Kim Pizzingrilli; Terrance J. Fitzpatrick, dissenting statement follows

Rulemaking Re Electric Distribution Companies' Obligation to Serve Retail Customers at the Conclusion of the Transition Period Pursuant to 66 Pa.C.S. § 2807(e)(2); Doc. No. L-00040169

Petition of Direct Energy Services, LLC to Reopen the Comment Period; Doc. No. L-00040169

Implementation of the Alternative Energy Portfolio Standards Act of 2004; Doc. No. M-00051865


By the Commission:

   This Order will serve to reopen the public comment period for the Commission's proposed default service regulations. The Commission takes this action as part of its implementation of the Alternative Energy Portfolio Standards Act of 2004 (''Act 213''), 73 P. S. §§ 1648.1--1648.8, its consideration of the mandates of the Energy Policy Act of 2005 (''EPAct 2005''), and to more fully examine the issues raised in the comments of the Independent Regulatory Review Commission. The Commission will provide separate notice to all interested parties of the schedule and format for this additional comment period.


   The Electricity Generation Customer Choice and Competition Act (''Competition Act''), 66 Pa.C.S. §§ 2801--2812, requires the Commission to promulgate regulations defining the obligation of electric distribution companies to serve retail customers at the end of the restructuring transition period. 66 Pa.C.S. § 2807(e)(2). The Commission commenced this formal rulemaking process in late 2004. Rulemaking Re Electric Distribution Companies' Obligation to Serve Retail Customers at the Conclusion of the Transition Period Pursuant To 66 Pa.C.S. § 2807(e)(2), Docket No. L-00040169 (Order entered December 16, 2004). The public comment period for these proposed regulations concluded on June 27, 2005.1 The Independent Regulatory Review Commission (''IRRC'') issued its comments on the proposed regulations on July 27, 2005. The Commission must either withdraw the proposed regulation or deliver a final-form regulation to IRRC within two years of the close of the public comment period on June 27, 2007. 73 P. S. § 745.5a.

   Cost-recovery for electric distribution company (''EDC'') compliance with Act 213 is one of the key issues that must be addressed in this rulemaking. Act 213 costs are identified '' . . . as a cost of generation supply under 66 Pa.C.S. § 2807.'' 73 P. S. § 1648.3(a)(3). The Commission briefly noted in the proposed default service regulations that alternative energy costs would be recovered consistent with the provisions of Act 213. The Commission chose to defer the inclusion of greater detail on this issue until after it had the opportunity to fully study all the implications of Act 213. The Commission also wished to avail itself of the input of interested parties on this issue before it prepared a final-form default service regulation. We have previously announced that this issue would be referred to the Alternative Energy Portfolio Standards Working Group for consideration. Implementation of the Alternative Energy Portfolio Standards Act of 2004, Docket No. M-00051865 (Order entered July 18, 2005).

   The Commission recognizes that the successful implementation of Act 213 will require significant investments by the private sector in new alternative energy projects. It is the nature of many of these projects that they may require long-term contracts to be economically viable. The Commission acknowledges that the private sector seeks some assurance that long-term alternative energy contracts between EDCs and generators are not contrary to either the Competition Act or Act 213 before making these investments. Because the alternative energy market is a new and emerging marketplace, in contrast to more mature, conventional energy markets, it appears that competitively procured, long-term generation contracts may be the prevailing market instrument for EDCs to comply with Act 213. As such, these costs would qualify as reasonable costs fully recoverable under Section 2807(e)(3) of the Public Utility Code, 66 Pa.C.S. § 2807(e)(3). We note that Act 213 mandates the recovery of EDCs compliance costs pursuant to an automatic adjustment clause under Section 1307 of the Public Utility Code, 66 Pa.C.S. § 1307. 73 P. S. § 1648.3(a)(3).

   Several other factors contribute to our decision to reopen the default service rulemaking. One, IRRC's comments identified several issues on which parties may desire the opportunity to file comments with the Commission. These issues include comments on the need of issuing default service regulations in the immediate future, as opposed to a time closer to the end of the transition period for all EDCs. Two, the Commission must consider and address the mandates of EPAct 2005. For example, EPAct 2005 amends the Public Utility Regulatory Policies Act of 1978 to require that electric utilities offer time-based rate schedules to all retail electric customers. 16 U.S.C. § 2621(d)(14). The Commission is instructed to consider and render a decision on the adoption of this standard. 16 U.S.C. § 2622(b)(4). Some parties may desire to comment upon the provisions of EPAct 2005 with regard to this rulemaking process.

   Accordingly, the Commission finds it to be in the public interest to reopen the comment period for this rulemaking so that these issues may be fully considered. We expect that those parties who have previously commented on these proposed regulations and the members of the Alternative Energy Portfolio Standards Working Group will participate in this process and be ready to assist the Commission in the examination of these subjects. At a minimum, parties will be asked to consider the following questions:

   *  Should Act 213 cost recovery be addressed in the Default Service regulations as opposed to a separate rulemaking? Is it necessary to consider Act 213 cost recovery regulations on a different time frame in order to encourage development of alternative energy resources during the ''cost recovery period''?

   *  Do the prevailing market conditions require long-term contracts to initiate development of alternative energy resources? May Default Service Providers employ long-term fixed price contracts to acquire alternative energy resources? What competitive procurement process may be employed if the Default Services Provider acquires alternative energy resources through a long-term fixed price contract?

   *  Should the force majeure provisions of Act 213 be integrated into the Default Service procurement process? Should Default Service Providers be required to make force majeure claims in their Default Service implementation filing? What criteria should the Commission consider in evaluating a force majeure claim? How may the Commission resolve a claim of force majeure by an EGS?

   *  Given that Act 213 includes a minimum solar photovoltaic requirement as part of Tier I, should these resources be treated differently from other alternative energy resources in terms of procurement and cost recovery?

   *  Should the Commission integrate the costs determined through a § 1307 process for alternative energy resources with the energy costs identified through the Default Service Provider regulations? How could these costs be blended into the Default Service Providers Tariff rate schedules?

   *  May a Default Service Provider enter into a long-term fixed price contract for the energy supplies produced by coal gasification based generation if the resulting energy costs reflected in the tariff rate schedules are limited to the prevailing market prices determined through a competitive procurement process approved by the Commission?

   The Commission will provide separate notice of the schedule, scope and format of this additional comment period to all interested parties; Therefore,

It Is Ordered That:

   1.  The public comment period for the rulemaking proceeding at Docket No. L-00040169 is reopened consistent with this Order.

   2.  The Petition of Direct Energy Services, LLC, is granted consistent with this Order.

   3.  The Law Bureau will draft a Secretarial Letter identifying the schedule, format and list of suggested topics for this additional comment period.

   4.  This Order be published in the Pennsylvania Bulletin and served on all jurisdictional electric distribution companies, all licensed electric generation suppliers, the Office of Trial Staff, the Office of Consumer Advocate, the Office of Small Business Advocate, and the Pennsylvania Department of Environmental Protection.


Dissenting Statement of Commissioner
Terrance J. Fitzpatrick

Public Meeting November 10, 2005; NOV-2005-L-0117*

Rulemaking Re: Electric Distribution Companies' Obligations to Serve Retail Customers

   The Commission's action today reopens the public comment period in the proceeding to develop regulations regarding default service by electric utilities, and lists several questions for comment by interested parties. Because it appears to me that a Majority of the Commission is moving in a direction that is contrary to existing law, I respectfully dissent.

   Both the staff recommendation and the Motion adopted by the Majority support the concept of electric utilities entering into 20 year fixed price contracts with alternative energy developers in order to ensure the economic viability of the developers. The Alternative Energy Portfolio Standards Act, 73 P. S. § 1648.1, neither compels nor authorizes electric utilities to enter into such contracts.

   In addition, the propriety of these contracts must be examined in light of another law administered by this Commission--the Electricity Generation Customer Choice and Competition Act (Competition Act), 66 Pa.C.S. § 2801, et seq. Section 2807(e)(3) of the Competition Act states that if a customer does not choose a competitive supplier, then the utility ''shall acquire electric energy at prevailing market prices to serve that customer and shall recover fully all reasonable costs.'' 66 Pa.C.S. § 2807(e)(3).

   In my view, it is impossible for a utility to sign a 20 year fixed price supply contract and still comply with the statutory requirement to purchase energy at ''prevailing market prices'' for non-shopping customers. The price that electric utilities pay for electricity must maintain some reasonable relationship to wholesale prices at any given time to satisfy the ''prevailing market price'' test, because customers can decide to enter or exit the market at any time. With a 20 year fixed price contract, it would be pure coincidence if the price of the contract in, say, year 12 reflected conditions in the wholesale market at that time.

   In the Duquesne Light decision last year, the Commission concluded that a six-year fixed price was inconsistent with the ''prevailing market price'' test. Petition of Duquesne Light Co., Dkt. No. P-00032071, Order adopted August 19, 2004. In addition, the Independent Regulatory Review Commission recently commented that supply contracts for default service should not exceed 3 years in order to remain in touch with prevailing conditions in wholesale markets. Comments of IRRC, No. 57-237 (IRRC #2463), p. 5. It is clear that authorizing utilities to sign 20 year fixed price contracts with alternative energy developers would represent a significant shift in policy in the Commonwealth.

   For these reasons, I respectfully dissent.

1 Direct Energy Services, LLC filed a Petition at this docket on October 19, 2005, requesting that the comment period be reopened. The period for Answers and Replies provided for under our regulations had yet to expire as of the time of this Public Meeting. 52 Pa. Code §§ 5.61--5.63. We note that our decision to reopen this proceeding is at least partially based on reasons additional to those cited in this Petition.

[Pa.B. Doc. No. 05-2209. Filed for public inspection December 2, 2005, 9:00 a.m.]

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