RESA Seeks Order from Pennsylvania PUC Declaring Home Rule Opt-Out Aggregations Illegal

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November 1, 2010

The Retail Energy Supply Association has filed a petition at the Pennsylvania PUC for a declaratory order regarding the ability of home rule municipalities to conduct opt-out aggregations under the current legislative regime (P-2010-2207062).

RESA requested that the PUC:

(1) Issue an immediate order or Secretarial Letter directing any electric generation supplier engaging in opt-out municipal aggregation to stay any such activities and not to execute any contract;

(2) Initiate an investigation into the municipal aggregation activities of electric generation suppliers (EGS) in Pennsylvania to determine the extent of their activities and to determine the appropriateness of fines and penalties for any violations of the Public Utility Code or any applicable Commission rule or regulation;

(3) Upon completion of the investigation, issue an order declaring that:

(i) activities by any EGS in Pennsylvania to secure approval of home rule municipalities or other municipalities to enter into opt-out aggregation contracts is contrary to the Public Utility Code and the Commission's rules and regulations, and therefore illegal, and

(ii) any EGS engaged in opt-out municipal aggregation must cease and desist from pursuing or entering into such aggregation contracts in Pennsylvania pending any Commission investigation or until such time as these aggregation arrangements are authorized by statute or Commission rule.

As only noted by Matters, FirstEnergy Solutions has pitched opt-out aggregations to several home rule municipalities, arguing that they have the ability to conduct the aggregations pursuant to their home rule charters.  The City of Meadville has agreed to such an aggregation to be supplied by FirstEnergy Solutions.  Additionally, RESA's petition noted that the Borough of Edinboro has also adopted an ordinance for an opt-out aggregation to be supplied by FirstEnergy Solutions.

"[T]he Home Rule law contains limitations and prohibitions on home rule authority," RESA said.

"The prohibition applicable to this situation is that no home rule municipality may engage in a proprietary or private business activity, such as the provision of electricity service, without authorization by the Pennsylvania General Assembly," RESA argued.

RESA cited City of Philadelphia v. Pa. P.U.C. (2003) [relating to natural gas], as well as a water case, as establishing "beyond dispute" that a municipality's provision of utility service is a proprietary or private business activity rather than a governmental activity.

"The provision of electric generation service, or the arrangement of electric generation service as an intermediary, is clearly a proprietary or private business activity, as shown by the dozes of for-profit competitive electric generation suppliers, brokers and consultants engaged in the business and licensed by the Commission," RESA said.

"Another home rule prohibition is that a home rule municipality may not exercise power in violation of basic preemption principles," RESA said.

"It is well established that the provision of electricity in Pennsylvania is an issue of statewide concern to be dealt with exclusively by the PUC," RESA argued, thus invoking the preemption principle.

"In Chester, our Supreme Court explained that local governments cannot be allowed to establish their own regulations for electric service because such regulations 'could become so twisted and knotted to affect adversely the welfare of the entire state," RESA noted.

RESA raised several questions concerning the opt-out process, arguing that the process appears to violate Commission rules.  RESA asked the PUC to address the following:

• Is the municipality acting as an EGS or broker without obtaining the necessary license from the PUC?
• Does the opt-out process violate the PUC's regulations which require, absent a PUC-approved opt-out process, that a customer affirmatively elect to be switched to an EGS?
• Does the aggregation contracting process violate PUC rules which require, unless the PUC authorizes otherwise, that the EGS obtain customer consumption data via EDI only after receiving valid customer authorization?
• Does the aggregation process violate PUC rules that, unless the PUC authorizes otherwise, an EGS may not switch a customer without obtaining direct oral confirmation or written authorization from each customer?
• Does the process violate PUC orders approving specific default service programs for Pennsylvania EDCs?

RESA said that the terms of the ordinances enacted by Meadville and Edinboro do not automatically exclude EGS customers from the FirstEnergy Solutions aggregation pools.  "This omission creates a significant likelihood of illegal slamming of these EGS customers," RESA said.

   
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