Pennsylvania Consumer Advocate Seeks Supreme Court Interpretation of Default Service Rules, "Prudent Mix" Standard

The Pennsylvania Office of the Consumer Advocate has petitioned the state Supreme Court to hear an appeal of a recent Commonwealth Court decision which found that electric default service relying on a single product type can meet the statute's requirement that default service shall include a "prudent mix" of contracts.

"The Commonwealth Court's decision ... presents an issue of first impression concerning the application of Act 129 of 2008, which establishes how electric service is to be provided to millions of Pennsylvanians. Default service is the only electric service required by law, and is a vital consumer protection for all Pennsylvanians," OCA said.

Although the instant case prompting the appeal only relates to Pike County Light & Power, OCA noted that the precedent reached in the PUC's decision, affirmed by the Commonwealth Court, has market-wide implications.

Indeed, to the extent legislative changes suggested by the PUC to give the PUC greater flexibility regarding default service procurement fail, the PUC's end-state market design of reliance on only shorter-term contracts for default service hinges on the interpretation that, under certain conditions, a "prudent mix" may include only one type of product.

"The issue below concerned the proper legal interpretation of amendments to the Public Utility Code regarding the provision of default electric service to consumers in Pennsylvania. The proper legal interpretation of the statute governing the provision of default electric supply is central to Pennsylvania cases concerning the procurement of energy supply to meet the essential electric needs of Pennsylvania consumers. Granting the instant Petition would provide the highest court of our Commonwealth an opportunity to address the proper legal interpretation of the amendments made by the General Assembly to the Public Utility Code in regard to this service," OCA said.

Specifically, Act 129 replaced the prior "prevailing market" price standard for default service, with a standard requiring a "prudent mix" of spot market purchases, short-term contracts, and long-term contracts. In Pike County, the PUC found, and the Commonwealth Court affirmed, that the sole reliance on spot market purchases at Pike County meets the prudent mix standard, given various conditions at Pike County, including its significant migration to competitive supply. See prior story for background on Pike County decision

The OCA opposes this interpretation, arguing that the term "mix" as used by the statute prohibits reliance on a single product type for default service. The OCA argued that the intent of the legislature, as established in the Act's preamble, was to require a prudent mix in order to diversify supply in a manner consistent with the goal of reducing "the possibility of electric price instability."

"Resolution of this issue would be of great interest and benefit to Pennsylvania electric consumers as it concerns the manner in which all Pennsylvanians are ensured a reasonably priced, reliable and stable price for electricity. In Sections 2807(e), 3.1 through 3.9, the General Assembly specifically repealed and replaced the original Section 2807(e) that provided only that the default service provider acquire energy at 'prevailing market prices.' This case represents the first review by the Courts as to how this vital service is to be provided throughout the Commonwealth under the amendments contained in Act 129. The intent and import of these changes to the Public Utility Code require a determination by this Court," OCA said.