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On Rehearing, PUC Addresses Arguments Submeterers Could Escape Jurisdiction By Setting Up An Affiliate Retail Supplier For Sole Purpose Of Meeting Safe Harbor

January 10, 2019

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Copyright 2010-19
Reporting by Paul Ring •

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In an order on rehearing concerning jurisdiction over entities engaged in submetering, the Public Utilities Commission of Ohio addressed arguments that a submetering reseller could, under the mechanism adopted by PUCO in a prior order, establish an affiliate to act as a retail supplier for the sole purpose of escaping PUCO jurisdiction and classification as a public utility

As more fully discussed below, a safe harbor from PUCO jurisdiction exists for submetering resellers who merely pass-through the cost from a competitive retail contract

As previously reported by, PUCO previously established how a jurisdictional test would be applied to submetering resellers and ordered that, under this test, a submetering reseller shall be, under a rebuttable presumption, considered a public utility if the reseller charges an amount that is greater than what the submetered residential customer would have been charged through the local public utility's default service tariffs

Specifically, PUCO previously found that a submeterer would not be subject to regulation as a public utility if the reseller's annual charges for a utility service to an individual submetered resident do not exceed what the resident would have paid under the local public utility's default service tariff for equivalent annual usage on a total bill basis. This exception is justified, PUCO said, because the resident can not be considered harmed by the submetered arrangement if the resident is paying the same amount as if the resident was served directly by the public utility.

Additionally, PUCO created a "safe harbor" under which a reseller could overcome the rebuttable presumption in the case where the reseller is merely passing-through the costs of a competitive retail contract

In a 2017 order, PUCO had held that, "A Reseller will overcome the rebuttable presumption and thus will not be subject to Commission jurisdiction under the third prong of the Shroyer Test if the Reseller demonstrates that (1) the Reseller is simply passing through its annual costs of providing a utility service charged by a local public utility and competitive retail service provider (if applicable) to its submetered residents at a given premises; or (2) the Reseller's annual charges for a utility service to an individual submetered resident do not exceed what the resident would have paid the local public utility for equivalent annual usage, on a total bill basis, under the local public utility's default service tariffs."

PUCO would apply the test and Safe Harbor on a case-by-case basis

In rehearing requests, AEP Ohio and Duke Energy Ohio has claimed that the Safe Harbor protections are fundamentally flawed because such protections could be nullified through the use of an affiliated supplier. AEP Ohio and Duke Energy Ohio cautioned that use of an affiliated retail supplier to claim Safe Harbor could lead to resellers creating affiliated suppliers to pass-on inflated rates under the Safe Harbor

To address this concern, AEP Ohio and Duke Energy Ohio proposed that the two branches of the Safe Harbor discussed above should be applied conjunctively. In other words, to claim an exemption from PUCO jurisdiction, the reseller would have to show that it both passed through costs from a retail contract, and that such costs did not exceed the otherwise applicable default service costs

As such, the utilities requested that a "no markup" restriction be imposed to prevent a reseller from colluding with an affiliated retail supplier (CRES) to circumvent the first branch of the Safe Harbor by claiming that the reseller is simply passing through its annual costs from the CRES

PUCO denied rehearing on this issue, stating that the case-by-case analysis it will employ in submetering cases will include consideration of whether the reseller's use of an affiliated supplier is an attempt to invoke Safe Harbor protections.

PUCO also denied the "no markup" rule sought by the utilities as PUCO found that such a rule would be consistent with court cases which have affirmed that an electric utility cannot prohibit the resale of electric service by a landlord to a tenant if the resale takes place on the landlord's property.

"In this proceeding, the EDUs fail to distinguish how their no-markup proposal, that any Reseller who marks up master meter service and resells it at a profit is 'engaged in the business of supplying electricity' under R.C. 4905.02 and 4905.03, is substantially different than those rejected by the Court in Pledger," PUCO said

Direct Energy had said in comments to PUCO that a no-markup rule would result in the unlawful regulation of retail supplier pricing, and may negatively impact Ohio's retail market if resellers are found to be public utilities based on a comparison of CRES prices to EDU rates, which are based on the usage and consumption of the building and may not translate to residential costs or usage.

PUCO also denied other requests for rehearing in the case (Case No. 16-2401-EL-CSS) setting forth the submetering provisions and Safe Harbor

Separately, in Case 16-2401-EL-CSS, PUCO denied rehearing in a specific complaint against a submetering entity in which PUCO had applied the Safe Harbor review.

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