Pennsylvania PUC Reverses Staff Action, Allows Assignment of Default Supply Contracts to FirstEnergy Solutions

Reversing a Staff action, the Pennsylvania PUC approved the application of Met-Ed and West Penn Power to allow the assignment of four default service tranches from BP, the winning bidder, to FirstEnergy Solutions.

A Staff letter had denied the requested assignment, finding that the assignment had not been shown to be in the public interest.

See prior story for more details

In its order, the Commission found that the assignment is consistent with and legally permissible under the Supplier Master Agreements, and that FirstEnergy Solutions would remain under the load cap after the assignment. Therefore, the PUC approved the assignment.

However, Commissioner Wayne Gardner dissented, stating: "I do not believe that this assignment is permissible under the terms of the existing affiliated interest agreements between the First Energy EDCs and FES. In the First Energy EDCs' last default service case, the Commission granted a blanket approval for FES to participate in the First Energy EDCs' generation procurements subject to certain load caps. Because wholesale market bid offers are time sensitive and often require regulatory approval within 24 hours, when the Commission approved First Energy's default service case, we approved the use of the pro forma SMA's that FES would execute if it were a winning bidder in an auction, and deemed those SMAs to be affiliated interest agreements. However, our approval of the pro forma SMA/affiliated interest agreements was contingent upon FES being a 'winning bidder in a procurement'. The SMA/affiliated interest agreement is not intended to cover affiliated interest transactions between the First Energy EDCs and FES where FES is not the 'winning bidder' in a competitive procurement."

"I believe that this type of affiliated interest assignment could jeopardize the integrity of the competitive process," Gardner said.

Commissioner Pamela Witmer also expressed concern, though did not dissent.

"While I agree that the assignment is legally permissible under Met-Ed and West Penn's SMAs, I believe that today's action has the potential to raise substantial issues regarding the integrity of the electric distribution companies' (EDCs) default service procurement auctions and the Commission's review of these results. I do appreciate the need for assignments in certain situations and I also do not believe it is appropriate for the Commission to micromanage a company's chosen business model, however, I do believe that the assignments should be more stringently limited. If contractual obligations can be assigned without more rigorous standards than those approved here today, there is a danger that wholesale energy suppliers will enter their bids speculatively, hoping that future market conditions are favorable but with an 'easy' exit clause available to relieve them of their responsibilities should their estimate prove incorrect. Such speculation can only serve to further distort the default service price signals relied upon by Pennsylvania's retail competitive market," Witmer said.