PUC Remands POR Clawback Charge Complaint To ALJ, Ruling Appears To Heavily Favor Requiring A Hearing On Reasonableness Of Clawback Tariff Provision

The Pennsylvania PUC, in an order on an interlocutory appeal, has remanded to an ALJ a complaint filed by Respond Power against Penelec and West Penn Power concerning purchase of receivables clawback charges imposed on Respond by the EDCs

As only reported by EnergyChoiceMatters.com, the PUC approved a POR clawback mechanism under the FirstEnergy EDCs' most recent default service plan

Click here for more details on the new POR Clawback mechanism

The FirstEnergy EDCs had moved to withhold nearly $500,000 from Respond to offset amounts that would be due under application of the clawback

Respond filed a complaint concerning the clawback, calling its implementation (including the sought offset) inconsistent with the dispute resolution procedures contained in the supplier tariffs.

More broadly, Respond argued that the clawback, while adopted in May 2016, amounts to impermissible retroactive ratemaking, since it relies on a 12-month historic view of a supplier's uncollectibles, and therefore, the clawbacked charges in dispute relate to service prior to the PUC approving the clawback (and for which Respond could not alter its business to mitigate any impact from the clawback)

In a January 2017 ruling, an ALJ dismissed from the complaint case the issue of whether the POR clawback tariff provision itself was just and reasonable, finding that the reasonableness of the provision had been settled through its prior adoption by the PUC

"Public utility tariffs have the force and effect of law and are binding on the public utility and its customers ... Tariff provisions previously approved by the Commission are prima facie reasonable," the ALJ had ruled

"In this case, the Commission approved the clawback provision as part of Penelec’s and West Penn’s DSPs. The Commission approved Penelec’s and West Penn’s tariff filing implementing the clawback provision. No party to Penelec’s and West Penn’s DSP proceedings appealed the Commission’s approval of the tariff. Penelec’s and West Penn’s clawback provision tariff therefore has the force and effect of law and is binding on Respond, Penelec and West Penn," the ALJ had concluded

"Since the Commission has approved the clawback tariff, it is prima facie reasonable. In order to overcome this presumption of reasonableness, Respond must allege in its complaint that the facts and circumstances leading to the creation of the tariff provision have changed so drastically as to render the application of the tariff provision unreasonable. Respond has not done this," the ALJ had concluded

"Respond has not alleged any change of circumstances since the Commission’s approval of the clawback tariff that render it unreasonable. As stated above, the Commission cannot direct Penelec and West Penn to deviate from the provisions of the clawback tariff in order to provide relief to Respond even if the Commission were to conclude it is in the public interest to do so. The tariff must be applied in a non-discriminatory manner ... Respond fails to allege any facts or circumstances in its complaint that have changed since the Commission’s approval of the clawback tariff that now render the provision unreasonable," the ALJ had concluded

The ALJ also found that inclusion of the proposed clawback in the EDCs' initial default service plan filing, which was served on all EGSs, constituted adequate notice.

Due to such conclusions, the ALJ said that a hearing on whether the clawback tariff is just and reasonable is not necessary

As a result of the ALJ's ruling, Respond's complaint would be limited to a challenge of "computational issues" arising with respect to the proper arithmetic derivation of clawback charges assessed pursuant to the tariff.

Respond appealed the ALJ's ruling, and posed the following questions for interlocutory review and answer:

A. May an entity to whom a utility tariff provision is applied file a complaint with the Commission challenging the application of the tariff?

B. Are Commission-approved tariff provisions subject to a just and reasonable standard?

The PUC noted that, on review of the questions, "we agree ... that the questions are of such generic elocution that they do not fully convey the substance of the matters that are in dispute," though the PUC went on to note that the dispute raises substantial considerations under the provisions of the Public Utility Code, 66 Pa. C.S. §§ 101, et seq., (Code) concerning formal complaints.

The PUC ruled that the following material question(s) are answered in the affirmative:

A. May an entity to whom a utility tariff provision is applied file a complaint with the Commission challenging the application of the tariff?

B. Are Commission-approved tariff provisions subject to a just and reasonable standard?

The PUC remanded the matter to the Office of Administrative Law Judge, "for such further proceedings as may be necessary."

While the PUC did not provide prescriptive direction as to such further proceedings (and whether they are, in fact, necessary), the discussion in the PUC's order appears to heavily favor granting Respond a hearing to provide Respond with an opportunity to prove its, admittedly heavy, burden in showing that the tariff is not reasonable.

The PUC said that, "The statutory requirements of Section 701 and 703 of the Code, 66 Pa. C.S. §§ 701; 703, as they have been interpreted in Duquesne Light Co. [Duquesne Light Co. v. Pa. PUC, 715 A.2d 540 (Pa. Cmwlth. 1998)], appear to be most legally analogous to the dispute in the present case."

"All Parties agree that a Commission-approved tariff is prima facie reasonable, has the full force of law and is binding on the utility and the customer ... However, Section 701 of the Code must be considered when a complaint is filed against a tariff. Where a complaint involves an existing, Commission-approved tariff, the burden falls upon the customer to prove that the charge or rule is no longer reasonable. The burden of proof is on the Complainant to show that the application of the existing tariff at issue is applied unreasonably. The burden of showing that a tariff is either unreasonable or discriminatory, therefore, is on Respond. This burden is described as a 'heavy' burden because tariff provisions that have been properly submitted to and approved by the Commission are prima facie reasonable," the PUC said

"Nonetheless, this is a burden that is statutorily constituted and cannot be summarily overlooked," the PUC said

In brief, in Duquesne Light Co., the PUC dismissed a formal complaint filed by a township without a hearing. The Court found that the PUC abused its discretion in not granting a hearing on such complaint, noting that, per 66 Pa. C.S. § 703, "Each complainant has a right to have the Commission hear and consider its evidence, unless 'a hearing is not necessary in the public interest.'"

"Respond, therefore, is statutorily entitled to an opportunity to meet its burden of proof as the complainant and proponent of a rule or order from this Commission, notwithstanding the presumptions of reasonableness that attach to a Commission-approved tariff," the PUC ruled

While the clawback tariff was approved by adopting a stipulation among parties in the default service case, the PUC said, "While this Commission encourages the efforts all Parties in achieving reasonable compromises that further the goals of the Act, Act 129, and the DSP proceedings, the fact that a tariff has resulted from these efforts cannot serve to elevate such tariff to a status which insulates it from a colorable challenge concerning the justness and reasonableness of its application under a fact-specific complaint filed under Section 701 of the Code."

Docket C-2016-2576287