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Pennsylvania PUC Orders EDCs, Suppliers Not to Switch Any Customers Pursuant to Opt-Out Aggregations Until Further Notice

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November 11, 2010

The Pennsylvania PUC issued a Secretarial Letter on November 10 directing electric distribution companies and electric generation suppliers to not switch any customers pursuant to an opt-out municipal aggregation plan until the Commission resolves legal issues surrounding such aggregations.

"Given the important legal issues raised in the three petitions [concerning opt-out aggregation] and, in particular, the lawfulness of opt-out municipal aggregation programs in the absence of either Commission oversight or authorizing legislation, the Commission directs each Electric Distribution Company to not switch any customer to an Electric Generation Supplier pursuant to an 'opt-out' municipal aggregation contract until these legal issues are addressed and resolved by the Commission. Similarly, the Commission directs each Electric Generation Supplier to not switch any customer from default service (or the customer's existing electric generation supplier) pursuant to an 'opt-out' municipal aggregation contract until these legal issues are addressed and resolved by the Commission," the Secretarial Letter said.

Additionally, the Secretary consolidated three petitions concerning opt-out municipal aggregations, two previously reported petitions from retail suppliers seeking an order finding such aggregations, including for home rule municipalities, to be illegal absent enabling legislation (11/4), and a newly filed petition from FirstEnergy Solutions seeking an order from the PUC confirming that no approvals are needed for suppliers to participate in municipal opt-out aggregations (P-2010-2209253).

Specifically, FirstEnergy Solutions sought confirmation that no approvals are necessary for participation in programs developed by the City of Meadville, Borough of Edinboro, City of Warren, and City of Farrell, all of which are a home rule municipality (under one classification or another). Except Farrell, which is in the Penn Power territory, all of the municipalities are in the Penelec service area.

Home rule municipalities may not engage in a proprietary or private business. FirstEnergy Solutions argued that, "[i]n every case where a court has determined that a municipality is engaging in a proprietary or private business, the municipality was receiving compensation, raising revenue, or competing within a particular industry."

"[A]n opt-out municipal aggregation does not create a situation where a municipality is competing within the electric industry," FirstEnergy Solutions argued.

"Additionally, and of significant importance, the municipality is neither raising nor receiving any compensation or revenue from offering the benefits of municipal aggregation to its residents," FirstEnergy Solutions said.

Aside from the question of revenue generation, FirstEnergy Solutions did not expand on it assertion that a municipality is not competing within the electric industry through opt-out aggregation. While it can plausibly be argued that the municipality is not competing with load-serving entities, it's unclear how the city's aggregation is not in direct competition with aggregators licensed by the PUC and other intermediaries which do not take title to the electricity.

FirstEnergy Solutions further argued that the opt-out aggregations are not pre-empted by the Public Utility Code, "which does not either expressly or implicitly preempt a municipal law allowing for opt-out aggregation."

Citing Nutter v. Dougherty (Pa. 2007), FirstEnergy Solutions said that the Pennsylvania Supreme Court has identified only three areas where "complete field" pre-emption exists: alcoholic beverages, banking, and anthracite strip mining. "As a result, preemption may occur only if the Programs run afoul of a specific law enacted by the General Assembly," FirstEnergy Solutions said.

"Yet the Code is silent with regard to governmental aggregation, and preemption cannot occur in an area in which the General Assembly has not affirmatively acted," FirstEnergy Solutions said.

The Code is not silent, however, with respect to the authorization required from the customer to execute a switch.

Specifically, 66 Pa. C.S. § 2807(d)(1) requires that the Commission, "establish regulations to ensure that an electric distribution company does not change a customer's electricity supplier without direct oral confirmation from the customer of record or written evidence of the customer's consent to a change of supplier."

However, FirstEnergy Solutions argued that the PUC has previously ruled that opt-out aggregation programs do not violate the requirements of §2807(d)(1), citing the Pike County aggregation program as well as several other orders, including the PECO Market Share Threshold program.

FirstEnergy Solutions claimed that the PUC "definitively" stated, in its order approving the Direct Energy opt-out aggregation at Pike County, that, "[w]e conclude that an opt-out program is not prohibited by Section 2807(d)(1)"

While FirstEnergy Solutions selectively quoted from the 2006 Pike County order, the Commission immediately after the cited quote explains in the order that "[t]his statutory provision and regulations promulgated thereunder are directed toward the prevention of unauthorized switching of retail customers, or 'slamming.' The implementation of the retail aggregation program, under this Commission's oversight and according to the terms and conditions of the Request For Proposals attached hereto [emphasis added], does not constitute slamming or violate the prohibitions of the statute."

Nonetheless, FirstEnergy Solutions claims that, "[a]lthough a number of other findings in the Commission's order on Direct Energy Services' proposal may not be precedent as a result of the unique circumstances presented in that case, this statement is a definitive interpretation of Section 2807(d)(1) of the Competition Act, on which Home Rule and Optional Plan form municipalities and licensed EGSs are entitled to rely."

FirstEnergy Solutions also said that customers already being served on competitive supply would not initially be included in the aggregation programs for which it is seeking approval, but could later elect the aggregation service. However, while FirstEnergy Solutions cited several sections of the underlying municipal ordinances which exclude other customers from the aggregation (such as those on special contracts with the distribution company or certain customer assistance programs), FirstEnergy Solutions did not cite any section or text in the ordinances which prohibits the opt-out aggregations from including competitive supply customers in the initial opt-out pool.

Although FirstEnergy Solutions laments what it called inaccuracies in petitions from other retail suppliers which have asked the PUC to find the aggregations to be illegal, the Retail Energy Supply Association's petition never alleged that competitive supply customers were to be included in the aggregation. Rather, RESA said that nothing in the ordinances automatically excluded such customers from the opt-out pools -- an observation that FirstEnergy Solutions has not challenged with any citation to the ordinances. Instead, FirstEnergy Solutions said that the exclusion of competitive supply customers will be addressed in a later contract with the municipalities.

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