Independents EGSs Urge Pennsylvania to Adopt Retail Market Enforcement Hotline, Require EDC or EGS Disgorgement for Conduct Violations

A group of Independent Electric Generation Suppliers (EGSs) has recommended that the Pennsylvania PUC adopt an anonymous enforcement hotline, and require disgorgement for any violations of the code of conduct governing relations between electric distribution companies (EDCs) and retail suppliers.

The Independent Electric Generation Suppliers included Champion Energy Services, LLC; Hess Corporation; Just Energy; Mint Energy, LLC; Noble Americas Energy Solutions, LLC; and TriEagle Energy, L.P. The group's comments were filed in the PUC's proceeding reviewing proposed changes to the Code of Conduct regulations, codified at 52 Pa. Code § 52.122, applicable to EDCs and EGSs engaged in the retail electricity market (Docket No. L-2010-2160942).

The Independent EGSs recommended the establishment of an anonymous enforcement hotline for Pennsylvania similar to the enforcement hotline established at the Federal Energy Regulatory Commission. "Like the FERC's hotline, a Pennsylvania hotline would assist with the informal resolution of disputes in matters within the Commission's jurisdiction without resort to litigation or other formal, lengthy proceedings, if possible. An anonymous hotline would invite market participants, in-house individuals and the general public to call, email, or write to complain about or report market activities or transactions that may constitute market manipulation, abuse of an affiliate relationship, a tariff violation, or other possible violations or concerns," the Independent EGSs said.

All information and documents obtained through the hotline would be non-public. The Independent EGSs noted that, according to the FERC's website, past hotline calls have included complaints about:

• Market Manipulation;

• Bidding anomalies;

• Price spikes;

• Inappropriate use of financial instruments;

• Fluctuations in available capacity on electric transmission lines and natural gas pipelines;

• Interconnection discrimination;

• Possible Tariff violations; and

• Undue preferences to affiliates

"The importance of this mechanism cannot be overstated. By way of example, recent use of the FERC's hotline prompted the FERC to recently launch an investigation into market manipulation after receiving two anonymous hotline calls. What started as two phone calls to its hotline, according to the FERC order approving the settlement in the investigation, resulted in a determination by the FERC's enforcement office that market manipulation occurred that 'resulted in widespread economic losses to market participants who bought and sold energy' in the New York and New England wholesale markets," the Independent EGSs said, referencing the recent settlement of a FERC investigation into Constellation Energy Commodities Group, which the Independent EGSs noted is now an affiliate of a Pennsylvania electric distribution company (EDC).

"Implementation of a similar hotline in Pennsylvania can be equally effective in ensuring the efficient and thorough investigation, identification, and fair settlement of anticompetitive conduct that, left unchecked, could erode the integrity of the Commonwealth's retail electric market," Independent EGSs said.

Additionally, the Independent EGSs asked the PUC to, "ensure this Code of Conduct has meaningful financial ramifications to remove market crippling behavior."

The Independent EGSs noted that Section 3301 of the Public Utility Code limits civil penalties to a maximum of $1,000 per day per violation. While it is possible for civil penalties to accumulate for "continuing offenses," the Independent EGSs, "have substantial concerns that any civil penalties imposed under the proposed regulations, as drafted, would be trivial, would lack teeth, and would not be significant enough to deter future Code of Conduct violations."

"Given the size and financial fitness of the EDCs and EGSs participating in the retail market, the imposition of a civil penalty of a few thousand dollars would not deter nor penalize for bad behavior of an EDC or EGS. It must be recognized that a Code of Conduct violation might very likely provide the violating company with substantial profits as well as other competitive and/or financial advantages," the Independent EGSs said.

The PUC should also be able to order the disgorgement of any profits earned or received by an EDC or EGS in connection with a Code of Conduct violation, the Independent EGSs said.

"The competitive retail electricity market demands a level, equal playing field, and any EDC or EGS that, intentionally or unintentionally, disregards or otherwise fails to comply with the competitive safeguards established to foster the competitive market should not be entitled to retain profits or otherwise be unjustly rewarded financially for such behavior," the Independent EGSs said.

The Independent EGSs "strongly support" the proposed regulation prohibiting any EGS from having the same or substantially the same name or fictitious name as an EDC or its corporate parent.

"Without such a prohibition, the potential simply is too great for customer confusion, abuse by an EGS, and/or an inherent competitive advantage. The Independent EGSs also support the proposed six-month time frame for an EGS to change its existing name in compliance with the regulation."