*1 LLOYD, Jr., R. Small William Advocate,
Business
Petitioner
v. PUBLIC UTILITY
PENNSYLVANIA
COMMISSION, Respondent. Popowsky, A. Consumer
Irwin
Advocate, Petitioner
v. Utility
Commission, Respondent. Opportunity, on Economic
Petitioner
v. Utility
Pennsylvania Public
Commission, Respondent.
PP&L Industrial Customer
Alliance, Petitioner
v. Utility
Pennsylvania Pubic
Commission, Respondent. Pennsylvania. Court of
Commonwealth May
Argued Aug.
Decided *2 Judge PELLEGRINI. BY
OPINION petitions for re- Before this Court 22, 2004 order of the December view of the Utility Commission Pennsylvania Public *3 (Commission) Lloyd, R. filed William of Small Busi- on behalf of the Office Jr. (OSBA); A. Popow- Irwin ness Advocate of Consumer of the Office sky on behalf (OCA); of Eco- the Commission Advocate (CEO); L and PP & Opportunity nomic (PPLICA) Alliance Industrial Customer in PPL Electric an increase Utili- granting (PPL) retail distribution Corporation’s ties Harrisburg, peti- Gray, Steven C. rates, transmission reimbursement and tioner, Lloyd, R. Jr. William of Hurri- incurred as a result certain costs Isabel, public for certain cane Barth, Counsel, Har- Lawrence F. Asst. programs. risburg, respondent. appeals began impetus for these 29, 2004, Supple- filed PPL1 March when MacGregor, Philadelphia, for David B. seeking No. with the Commission ment 38 intervenor, Corpora- PPL Electric Utilities and trans- retail distribution to increase tion. $221,638,000. It filed for mission rates knowledge that the the increase with McGINLEY, Judge, BEFORE: Electricity imposed by caps” “rate SMITH-RIBNER, PELLEGRINI, Judge, Competi- Choice Generation Customer FRIEDMAN, Judge, Judge, Act)2 were still (Competition Act tion LEADBETTER, Judge, COHN 1308(d) of the pursuant effect to Section LEAVITT, JUBELIRER, Judge, (Code), 66 Pa.C.S. Utility Code suspended 1308(d),3 filing § would Judge. operations and distribution 1.According to the Administrative Law decision, operations. (ALJ) generation deregulated Judge’s what is recommended from 2001, completed a Corpora- Corporation strate- Utilities now known as PPL Electric In PPL separa- originally 1920 gic founded in the structural tion or PPL was initiative to confirm eight Corporation electric consolidation of Electric Utilities tion of PPL Lehigh subsidiary companies as a direct PPL Electric Corporations’ and from PPL Corporation. It continued compa- Power Securities affiliated Corporation’s other Utilities merge with other electric acquire Corporation Utilities nies. PPL Electric 1930s, and in companies in the 1920s and presently only” company. PPL now "wires 1939, Lehigh Securities was dissolved. Power million customers approximately 1.3 serves subsidiary 10,000 of National territory PPL then became square mile throughout a Light Company. 21, 1945 and Between (ALJ's Power October counties. 1994, 1947, independent. In PPL became 9-11.) at 2004 decision energy incorporated as an and utili- PPL was company known as ty holding and became §§ 2. 66 Pa.C.S. 2801-2812. PPL, PPL, 2000, PPL Inc. became Inc. In Corporation, and the name Electric Utilities 1308(d) provides, in relevant 3. 66 Pa.C.S. Corpo- holding company PPL became part: 2000, Corporation July ration. On (d) Whenever General Increases. Corporation com- PPL Electric Utilities with the commission there is filed realignment separate corporate pleted a (l)(i), paragraph regulated described Corporation’s PPL Electric Utilities after, caps had ex- the rate months, paid but and the desired effective for seven January pired. of the rates would be date day cap after the rate ended. appeals, these have consolidated We issue(s) individu- party’s each will address filed complaints Numerous ally.4 rates, PPL’s increased against proposed OSBA, the from the including complaints I. a peti and PPLICA. The CEO filed OCA Af unopposed. to intervene that was BACKGROUND her many hearings, the ALJ issued ter issues, it addressing specific Before ul which the Commission recommendation *4 Competi- necessary to understand the OSBA, OCA, timately adopted. the wrought changes tion Act and appealed have from PPLICA and the CEO regu- public electric utilities would be how party with each the Commission’s order utilities in “Historically, electric lated. issues, parties raising different but some to Pennsylvania provided three services parties on various issues. joining other transmission generation, customers: in Specifically, parties have raised ... electricity These and distribution challenges their whether by one performed services were ‘bundled’ properly: monopoly that held a over utility local Imposed a rate structure for trans- (cid:127) However, encourage service area. un- mission and distribution rates that electric market and competitive wholesale reasonably against discriminated cer- consumers, in provide savings cost tain customer rate classes because Act was Competition December they subsidizing were other customer in competition the sale enacted to establish service; rate classes’ cost of Pennsyl- ARIPPA v. power.” of electric funding to the Approved appropriate (cid:127) Commission, Utility vania Public 792 Fund, energy Energy Sustainable (Pa.Cmwlth.2002). Electric A.2d 642 program, conservation and the On- utility’s monopo- deregulation up broke funding program, Track an assistance electricity. New ly providing over customers; for program low income generate would be allowed suppliers markets and electricity wholesale sell marketers, or resell- generators Approved recoupment of costs for ex- new retail (cid:127) to sell that electricity, Hur- would be able traordinary damage storm from ers before, The other two electricity to the consumer. ricane Isabel incurred effective, law, (ii), (vi) (vii) permit tariff to become "public such of the definition of (relating utility” section to defini- tariff except 102 that absent such order such tions), public utility as the and such other suspended for a not to ex- shall be regulation may by di- commission rule or from the time such rate ceed seven months rect, any stating a new rate which tariff otherwise become effective. would increase, general the com- constitutes a promptly shall enter into an investi- mission Commission’s scope of review of the 4. Our gation analysis filing and of said tariff determining whether the order is limited setting may by its reasons there- order forth necessary findings supported substan- fore, upon upon complaint or its own mo- was an error and whether there tial evidence notice, tion, upon upon enter reasonable George v. violation. of law or a constitutional concerning hearing the lawfulness of such Commission, Utility rate, may, at time and the commission 1999). (Pa.Cmwlth. A.2d 1282 majority of a of the members of vote serving with in accordance commission network to the transmission or distribution and distribution—(cid:127) functions-—transmission in whose ter- company here, electric are at issue would remain located. Howev- ritory the customer was regulated.5 er, being utility paid for a exchange for the three setting the rates When costs, caps imposed its stranded 2804(3) services, traditional electricity, charge rate it could on the 2804(3), Act, Competition 66 Pa.C.S. or until December only for 54 months shall provided that rates for each service 31, 2004, being rates were used as these stating: separately be set (i.e., the “future test project expected costs the un- require The commission shall year.”)7 services, tar- bundling of electric competitive to a market also The move separate bills to iffs customer on certain potential impact had the charges generation, low-income programs, including purpose may The commission distribution. energy pro- conservation assistance and services. require unbundling of other were funded based on the grams, which added.)6 (Emphasis being and rates utility having monopoly See also ARIPPA. Act, In bundled. *5 market to By switching regulated from a authorized Assembly specifically General market, costs” competitive “stranded programs by those continued created which not be recovered were could 66 Pa.C.S. “non-bypassable” rates. by utility § at market rates. “Stranded 2802.
costs” the difference between specific appeals. Now we will turn to the have been amount of revenue could market and those II. regulated recovered in a deregulated recoverable under the new and OSBA’s APPEALS PPLICA’s stranded Competition Act. To recover Rates Distribution and Transmission costs, Assembly created the General many in having to be had a rate increase competitive transition cost—costs Not by the were frozen accessing years because rates by ratepayer each paid whatsoever, directly received or and whether and distribution costs” are 5. "Transmission rules, regulations, prac- by Competition indirectly, any "[a]ll Act as costs defined tices, affecting any provide directly indirectly or contracts or incurred classifications fare, toll, compensation, charge, to re- or rent- and distribution services transmission such § This includes the re- tail electric customers. 66 Pa.C.S. al.” on facilities and other turn of and return necessary provide capital Act, investments 2804(4)(i) 7.Section and as- transmission and distribution services 2804(4)(i), provides, § relevant in 66 Pa.C.S. including appli- operating expenses, sociated part: § 66 Pa.C.S. 2803. cable taxes.” (4) utility following caps electric apply: "[e]very rates shall "Rate” in the Code is defined rental, (i) individual, fare, toll, of 54 months from charge, For joint or or chapter until an elec- date of this or compensation any public effective whatsoever of other vehicle, longer recovering utility no tric distribution by utility, or carrier motor contract made, demanded, costs any its transition or stranded or received for rendered, intangible offered, charge competitive transition or part, or fur- within this charge all the customers of an transition utility, car- by public or contract nished such vehicle, utility can choose an al- currency, electric distribution rier motor whether in thereof, kind, tender, generation, provider of electric in ternative legal evidence or is shorter. whichever any medium or manner services or in other factors —what increase request PPL filed in 2004 to mined two “caps,” by existing increase its distribution and produced revenues over those they effect on rates so that would take utility a fair give is needed to rates 1, 2005, January year was after test rate of return and what increased reve- completed cap expired.8 and the rate allocated in the rates going nues are goal limiting an announced request had classes, i.e., the various rate among the for all classes of custom- the rate increase rate structure.10 ers to below 10% of the total bill. Be- how revenues are raised and Regarding still generation component cause the classes, allocated between rate Section caps imposed by under the Com- Code, Utility 1304 of the Public 66 Pa.C.S. petition going up Act and would not be at 1304, § provides: now all, using the total bill as a measure in- percentage masked the true overall or main- public No shall establish sought crease distribution and transmis- any tain unreasonable difference as sion revenues which was The other 32.8%.9 rates, as between localities or as either objective announced was to move each cus- of service. between classes system average tomer class closer to the rate of return for distribution service. In Philadelphia Transporta- Suburban v. Public Company rates, setting When 1301 of the Commission, Utility 3 Pa.Cmwlth. Code, Utility 66 Pa.C.S. (1971), quoted 281 A.2d we with provides made, “[e]very demand- approval following language from a ed, any or public utility, received opinion in another case as jointly, two or more utilities *6 properly descriptive principles appli- of the just reasonable, shall be and in con- and formity fixing cable to the of reasonable regulations with or orders of the commission.” The rate made is deter- schedules: power charge. delivery distribution
8.Electric delivered to home The cost of through system business and distri- to the customer is the distribution transmission system. charge. power bution The electric transmis- system power sion transfers bulk electrical place place, usually long from over dis- paid 9. The total distribution rates before tances, through power overhead lines. Due RS custom- rate increase the residential or involved, $293,920,000, large power to the amount of trans- er class was and after the rate $774,883,000. increase, generator mission is between the electric at was to be For the it class, very high voltages regional to a substation the rate GS-1 customer commercial $61,460,000 voltage stepped where down for further went from increase $83,478,000. transmission to distribution substations for voltages. pow- to distribution conversion system er is then sent to the distribution and by taking simi- 10. Rate classes established eventually, voltage, stepdown after further larly customers with similar charac- situated to customers. PPL obtains ser- type (e.g. of service residen- teristics as Pennsylvania-New Jersey-Ma- tial, industrial) vices from the type and the commercial (PJM), ryland pool comprised Interconnect (e.g. usage and demand of service amount of serving portions load) 11 electric utilities of designed of demand and rates that are Pennsylvania, Jersey, Maryland, Dela- serving New class. to recover the cost of ware, increase, Virginia, the District of Columbia and it must When a files for a rate electricity generating study assigning stations to each to move from file cost-of-service system. delivering upon operating its distribution The cost of customer class a rate based grid providing that ser- power the electric to the costs that it incurred in Exhibit C. IV. E. system service vice. 52 Pa.Code 53.53. distribution is the transmission in this case is the overall Not involved that rates for requirement is no There must be ei- in revenues to which is enti- classes of service different increase they tled, or that must differential in equal ther uniform or but at issue is whether Differences profitable. equally be rate classes for distribution rates between of customers rates between classes justified can charges and transmission quantity on such criteria as the based as reasonable. used, electricity the nature use, use, pattern the time of the A. use, of con- or based on differences service, of service are or cost
ditions PPL used filing, In its different methods often are de- only permissible calculating allocating increased necessary to achieve sirable and even among needs the rate classes for revenue economy of efficiency and reasonable transmission rates set- structure, which is an operation. Rate For distribution ting its rate structure. essential, of rate- integral component rates, PPL submitted a new distribution merely a mathematical making, is not study establishing a of service new cost principles. applying exercise theoretical for the various classes of rate structure on the Rate structure must be based Regarding the commercial GS-1 service. life and a com- hard economic facts of businesses, class or small customer un- thorough knowledge and plete and represents, class OSBA customer circum- derstanding all the facts and study of service indicated PPL’s cost services; which affect rates and stances customer class was GS-1 the commercial to fur- designed must be and the rates of service distribution cost overpaying its satisfactory nish the most efficient proposed rate increase as prior to the price at lowest reasonable 9.28%, where as a rate of return showed customers, greatest for the number class or residential service the RS class i.e., generally. While cost aver- system a 1.60% with a showed other relevant fac- important, serve is This meant that that age return of 3.9%. may tors also be considered. under-recovering costs rates were the RS case, Philadelphia Suburban In a later *7 over-recovering costs rates were and GS-1 v. Company Water simply amount. More by a substantial Commission, A.2d 1060 Utility 808 rates, commercial cus- under the old put, (Pa.Cmwlth.2002), being a rate was where cus- subsidizing residential tomers were unreasonable, we stated: challenged as cost of service. tomers’ to sur- order for a rate differential [I]n assign PPL filing, proposed In rate its brought under Section challenge vive a every increases to rate ing distribution Code, Utility 66 Pa. of the Public class, class, including the GS-1 customer must show C.S. overall $164.4 it recover the so that could justified by the can be the differential requested. increase million distribution to required in costs deliver difference its distribution to increase proposed It cannot be to each class. The rate pro and average an of 32.8% charges illegally for one class and illegally high the distribution an increase to posed Ludlum Allegheny another. low for the GS-1 class of 35.8% charges paid by Overall, A.2d at 611. Corp., 612 That meant on a total bill basis. 9.94% must advance efficient differentials of allocation a revenue proposing PPL was greatest num- satisfactory service to the $80,930,691that RS custom approximately charge. ber at the lowest overall $21,958,604 class to less pay and that GS-1 increase for each customer ers would PPL pay. customers would Under on ba- than calculated a “total bill 10% increase proposal, proposed GS-1 sis.”12 of
provided a rate return at 16.17% as rate of the opposed funding compared to a rate of for the return 5.29% across- charge increase customers, with rate of re RS an overall con- flat increase percentage the-board turn of 8.8%.11 Competi- it would tending that violate filing In transmis- its rate relief for cost of requirement Act’s PPL in charges, sought sion an increase and that electric service unbundled charge the customer’s transmission service “transmission rates should be viewed “pass through” for trans- customers rates, be set stand-alone should purchased mission services from PJM (ALJ’s from distribution rates.” isolation the amount of million. Unlike $57.2 184.) 21, 2004 decision at To set October charges, perform did manner, it argued, in that resulted rates study, pro- a cost of service instead bearing disproportionate large customers posed charge that the transmission service transmission, making al- amount of the passed through would be customers ready discriminatory even more dis- a uniform basis at rates per kWh $0.0564 goal limiting criminatory.13 argued would aid its the overall It also trans- agreed assignment pay OCA com 11. The with PPL’s that GS-1 customers would million agreed gradu principles pared proposed $21.9 revenues and PPL. to the million alism, avoidance of and funda “rate shock” required ap supported arguing proposal mental fairness a “measured 12. The OCA this bringing way proach” to rates in line with costs. that a uniform rate a reasonable however, OCA, pe- disagreed during cost this with PPL’s collect transmission revenues transition, ”[T)he study provided stating: of service own calcula OCA riod of further keep strongly supports objective to what it this all tions as believed was a fair measure bringing the rates the costs. under in line with rate schedules’ revenue increases approach effectively elimi- The OSBA also submitted a cost-of-service 10%—an shock, study incorporates principle proposing $117.1 RS cus million that nates rate recognizes pay proposed gradualism, $162.3 tomers would the transitional PPL's compared operate.” million distribution rate increase in which PPL continues to 133.) (ALJ’s $80.9 proposed $9.1 million PPL and October 2004 decision at chart below shows that the total interclass subsidization was substantial: *8 81.) 22, 2004 at December decision It had to be set and calculated mission rates rates, i.e., way as the distribution proposed the same further determined that PPL’s study for each based on a cost-of-service at the current appropriate allocation was customer class. “just time and led to a and reasonable” result, moving it was not albeit
While both the ALJ and the Commission quickly direction as as the OSBA wanted it noted that there were substantial differen- rate to move. tials in the rate structure between distribution and transmis- classes for both Regarding charges, transmission service, dif- they believed that those sion approach PPL’s adopted ALJ and recom- and were ferentials were not unreasonable in- mended that across-the-board rate justified principle gradual- based on the per approved kWh be crease $0.0564 mitigation of rate shock.14 Dis- ism and Dismissing of customers. all classes exceptions to the missing the OSBA’s exceptions, Commission PPLICA’s pro- recommendation that PPL’s ALJ’s stating adopted the ALJ’s recommendation adopted, allocation be posed revenue so, doing we note “[i]n PPL and the agreed with arguments. in its Howev- persuasive ceiling that “a 10% on rate schedule OCA PPL er, the OCA that agree we with appropri- on a total bill basis is increases competition. to full now in a transition case to methodology ate this address gradualism,15 Accordingly, principles need to move rate schedules closer to the stability and rate of rate shock mitigation recog- while system average rate of return extremely important. As moves nizing principles gradualism transition, (Commission’s possible in its it is along further mitigation of rate shock.” and the utilities design pressure on the Commission principle is a of rate ''Gradualism” gradually increased to avoid dampen that rates will be rate increases. by transi- "rate shock”—in this case caused capped set tion from rates to rates more explained "gradualism” was The need ratemaking process closely to the traditional Kasper, relied on expert, Oliver PPL’s by "gradually” reducing of return differ- approach. justify its the Commission Large entials the classes. rate in- between He testified that: potential "rate creases have the to cause filing in rate increase [PPL’s] This is first Technically, among shock” customers. circum- years. Under normal applies a rate increase is associ- almost ten shock when stances, i.e., significant drop usage, caps, ated with a reflect- rates [PPL's] no rate ing unwillingness inability of customers changed in- probably in small would have pay Due to the inelastic for those services. past over the occasions crements on several services, utili- demand for essential such as years. and distri- ten [PPL’s] ties, any usage and tran- decrease in is minor subject to the rate bution have been rates sitory. a non-technical definition There is filings could not cap, so these more modest used to describe the "rate shock” result, larger percentage be made. As a public outcry with rate increases. associated this, required. Because of increase is now shock, mitigate forms of rate To both the total amount determined to limit [PPL] *9 i.e., "gradualism,” phasing in rates remedy is to "rate class of the increase to 10%. longer peri- closing rate differentials over with the also is consistent This limitation gradually allowing to od of time consumers design. principle gradualism in rate of adjustments part "elastic” of make the in the 89a.) (Reproduced Record at pay increased spending their so as to for costs, lessening utility the not mention
1019 a rate closely provide rates principles separately more set and that those will be for each of on stand-alone basis and cost will move to structure balanced causation (Commission’s 22, If wants those services. the Commission the fore.” December 78.) added.) utilizing justify differences rates (Emphasis 2004 decision at shock, gradualism rate of and
principles
must
argues that
the Commission
B.
separate
of setting
in the context
do so
appealed
the OSBA
has
While
and
rates
distinct
for distribution
rate
and PPLICA
structure
Moreover, both the
transmission services.
both
appealed
has
the distribution
that rather
and PPLICA contend
OSBA
structures,
contend
transmission
both
gap
in cross class subsidi-
closing
than
that distribution and transmission
principle
would
gradualism
zation as the
of
and in viola-
structures
“unreasonable”
order exacer-
suggest,
Commission’s
Utility
tion of Section 1304 of the Public
increasing the
the discrimination
bates
Code,
1304,
the rates
66 Pa.C.S.
because
subsidization.
against
discriminated
commercial and/or
increasing
disputing
customers
commercial and
industrial
further
Not
they
providing
paying
the subsidies that
customer classes are
industrial
residential
further
in distribution
customers. PPLICA
more
and/or
Commission,
they should,
of
applying
principles
contends
rates than
gradualism and rate
total
the rate set
argue
shock on a
bill
the OCA and
basis,
Compe-
discrimina
the Commission violated the
here was not unreasonable nor
It
for
explains
prior
tory
tition Act.
to the
there
no set formula
because
Act,
Competition
determining
proper
among
reviewed
ratios
any rate relief
the “total bill” basis
customer
for cost of ser
different
classes
vice,
justi
expenses
generation,
which included
in rates can be
differences
discrepa
transmission and distribution.
It was
if there is some basis for the
fied
Company
v.
ncy.16 Peoples
Natural Gas
against
that total bill that
rate structure
Commission,
Pennsylvania
Utility
Public
argues
It
passage
set.
(Pa.
512,
Act
required
un-
446
rates
47 Pa.Cmwlth.
409 A.2d
Cmwlth.1979).
requires
bundled
the Commission
Because the Commission
115,
codes,
trol,
(2000);
including
16. While most
252 Conn.
1021 that it can be PPL indicated “gradualism” proceeding, 10% While that increase. seeking authority to recover loss- justify differences between was not used rate, customers, “total it intended to each but classes for unbundled es from bill” is inconsistent with in the rate impact recovery standard of those losses seek 16, implemented by Competi- January changes By dated proceeding.18 order principle gradual- petition To allow the granted Act. the Commission on a when applied ism to total bill basis the de- any be without assurance rate structure each service is stand-alone or be included amounts could ferred saying like that the Commission would be in rates. amortized principle apply gradualism could for though Even reimbursement total case based on a customer’s electric from Hurricane Isabel costs sustained bill, i.e., payer a rate utility amount and not during cap period the rate electric, gas, and tele- pay would for water exception cap, when any to the rate within services. communications PPL filed its rate increase distribution Accordingly, we vacate the Commis- charges, sought it re- and transmission regarding transmission and sion’s order million amortization cover $15 rates and remand for the set- distribution earning any return years over five without rates ting non-discriminatory reasonable Janu- on the uncollected amounts19 after for and rate structure each service. ary cap period when the rate was position in effect. PPL’s longer no III. (relating to stan- that 66 Pa.C.S. 2804 & PPLICA’s APPEALS OCA’s industry restructuring for of electric dards rates) changes caps and on discussed Caps Rate and did not collection of in rates discuss 20, 2003, PPL filed with On October costs. of PPL Elec- Petition argued and Corporation Authority tric for The OCA Utilities cap pe- Accounting during for Financial Re- incurred expenses Defer and paid from out of the revenues porting Purposes Certain Losses riod had during Extraordinary from rates in Damage Storm and collected effect utility incurred could defer period Amortize Such Losses that because after the end of accounting caused Hurricane for costs for collection until Isabel did, If it would consti- reporting During cap. financial the rate purposes. and 2804(4)(i) charge competitive provides, through a transition Act intangible charge and all the cus- part: transition relevant utility of an can tomers electric following interdependent standards provider of electric choose an alternative govern the assessment shall commission's generation, whichever is shorter. utility’s approval re- and each structuring plan, oversight transition alleged in ex- $15 million 19. PPL regulation process and of the restructured $3,631,282 wages for penses included industry: utility electric $3,529,212 time); wages (regular for benefits $279,744 (overtime); employ- for and benefits $423,846 miscellaneous; (4) following utility caps electric ee meals $371,159 equipment; for materi- apply: vehicles rates shall $21,781 (i) supplies; customer out- For a of months from als reach; miscellaneous; $163,983 chapter of this or until an date effective crews, $6,590,942 for a total of longer re- for outside no electric distribution $15,011,949. covering costs its transition or stranded *12 tute a de cap exception experienced rate or a had not such a storm for 80 facto Competition They violation of the Act. also years. regular wages contended that the and ben- The OCA and exceptions PPLICA filed efits should be excluded from claim again to the ALJ’s determination arguing large portion because a of expenses were the allowance of future recovery of regular for and overtime salaries Hurricane Isabel costs would constitute a wages. cap exception de rate and violate facto long- Because the Commission had a 2804(4) Section of the Competition Act. standing practice allowing utility to Agreeing with the ALJ’s findings, compensation collect extraordinary for or exceptions Commission denied the of the abnormally large historic costs adopted OCA and PPLICA and the ALJ’s amortization, agreed the ALJ with PPL recommendations.
that prospective recovery of deferred Hur- appeal, On the OCA and argue expenses ricane Isabel not would violate the Commission erred allowing a cap the rate and was prior consistent with payment retroactive for costs However, incurred practice. Commission the ALJ Hurricane Isabel because under recovery excluded from regular wages and 2804(4)(iii) Act, Competition of the years benefits stretched to 10 66 Pa. over the 2804(4)(iii), recovery period § excep- because storms like Hurri- C.S. there are limited cane Isabel PPL caps20 were rare occurrences as tions to the rate and there is no 2804(4)(iii) excep- recovery 20. 66 Pa.C.S. period magnitude lists those due to the of such costs, tions as follows: utility but shall be accounted for (iii) period on a levelized basis over the total utility may An electric distribution seek, generation portion utility’s which the of the may approve, and the commission an capped. rates are exception to the limitations set forth in sub- (C) (i) (ii) paragraphs utility The electric distribution is sub- of the ject significant following to circumstances: increases in rates of (A) utility significant Federal or State taxes or electric distribution meets other requirements change regulations extraordinary rate in law or that would not relief 1308(e) (relating voluntary utility under section to allow the to earn a fair rate of return. rates). (D) changes utility The electric distribution is sub- (B) utility ject significant Either the electric distribution to increases in the unit rate of required begin payment utility generation price pur- under contracts fuel for or the nonutility generation projects power with that have chased outside of the control orders, utility received commission has been unable of the and that would not allow the costs, mitigate utility such such costs are not earn fair rate of return. (E) competitive generation recoverable in a utility mar- The electric distribution is direct- previously independent sys- ket and such costs were not cov- ed the commission or an competitive charge operator equivalent ered in the transition or tem or its functional intangible charge, utility pru- expenditures repair upgrade transition or the make or cancellation, dently system. incurs costs related to transmission or distribution (F) buyout, buy renegotiation utility down or of nonutil- The electric distribution seeks to ity generating project obligations utility its allowance increase for nuclear decommis- (relating cogen- sioning consistent with section 527 costs to reflect new information not regulations) utility’s existing eration rule and and such costs available at the time the rates determined, previously competi- were not covered in the and such costs are not re- charge intangible competitive generation tive transition or transition coverable in mar- cancellation, charge. buyout, competitive Costs related to ket and are not covered in the buydown renegotiation charge intangible or shall be recovered transition transition ratepayers charge, from over a not to exceed and such not allow the costs would years, three unless the commission deter- to earn a fair rate of return. (G) (16). require longer permitted by paragraph mines within its discretion to As Act caps an under damages, exception storm even purchased power in the extraordinary because increases storm. i.e., control, beyond their by arguing costs were counter God, traditional instead were a business cap provisions did not invalidate act of extraordinary, ratemaking, gone allowed bad. decision had non-recurring expenses to be deferred ARIPPA was different because While *13 af- following the first rate case amortized to utility entitled a was involved whether pur- the expenses ter the occurred.21 For the caps under one of the rate breach recovering extraordinary expenses, of pose proposi- for the basic exceptions, stands matter that they argue that it should not made that the “deal” the utilities tion during the expenses the were incurred in receiving the billions of dollars stranded cap period recovery because would rate for 54 that rates were frozen costs was period cap after the rate ended. occur utility to going the was months in any the risk increased costs bear of in this case then issue unless the increased providing may the reimburse whether Commission Competition of the fell within one costs the rate expenses storm incurred when utility allowed to exceptions Act’s the in extraordinary as costs caps were effect of relief. net effect the Commis- seek subsequent filing in a rate to pursuant 1308(e) regulatory breach that rate sion order of the Code after the Section ARIPPA, allowing PPL caps expired. bargain impermissibly have In we dealt the rate expenses during a similar That incurred with issue. case dealt with recover receiv- cap period agreed electric which that it bear companies two Although sought excep ing in rates stranded costs. the Commis- increases under longstanding prac- to the on the that it has caps grounds tion rate sion states extraordinary they experienced allowing had substantial increases of or abnormal tice costs, period during in of power purchased provide costs historic effect, the caps of “provider last resort” services which rates were in Commission’s 1308(e) of under Section beyond general authority them control. In the alterna tive, they away, and the requested authority also to track the Code taken costs, extraordinary purchased power their them costs defer extraordinary those as costs award were and recover those costs stranded could rate exceptions forth to the competitive transition costs set in the their 2804(4)(iii) Competi- of in charges. compa caps We held that the electric for the Act. qualify exceptions nies did tion 1308(e) Code, substantially reducing employment, its Pa.C.S.
21. Section 1308(e), provides, part: provide in relevant more the rate of will no than (e) utility’s equity estab- common Extraordinary relief.-Upon petition return rate filing a to the commission at the time of the commission consideration lished request any during pen- at time except rate utility's filing, rate preceding dency proceedings request, file, on such rate a re- utility either with that no shall may extraordinary any public utility seek at quest general rate increase or portion relief the total rate of such during request, pendency of such a time requested to be im- as can shown relief petition this subsec- than one under more mediately necessary for the maintenance type particular pertaining to rates for stability in order to enable financial service, any supplement or amend- nor providing ser- to continue normal thereto, except permitted to do when ment customers, avoid reductions vices commission. so order of the programs, avoid its normal maintenance Accordingly, because and clean energy technologies, energy con- Act does not provide for reimbursement efficiency servation and which promote during the expenses, storm clean energy. Pursuant to the Joint Peti- the order of the Commission is reversed tion for Full Settlement of PPL’s Restruc- on this issue. turing SEF, Plan which created the
SEF was funded via transmission and dis- IV. tribution power rates on sold to all custom- ers, parties and all to the settlement were The last appeals two deal with continued agreement with that arrangement at the purpose programs —one time of the settlement.23 PPL proposed to dealing energy with conservation and the continue SEF’s funding part of its dis- other with low income customers. In one tribution rates at its current level of 0.01 appeal, party contends that usage cents per kWh for all customers for a *14 of money directed toward the fund is unre- period to end no 31, later than December lated to distribution service and should not 2009.24 PPL proposed include be funded ratepayers, while the oth- $3,689,000 in continued funding SEF er appeal, party argues that not to have it included anas allowable cost of enough money is being spent towards low expense. However, distribution service income customers to increase enrollment. out pointed parties to the longer settlement were no in consensus A. regarding the funding of SEF. PPL ar- PPLICA’s APPEAL gued that funding SEF should continue to (SEF) aid in reducing Energy demand from existing pro- Sustainable Fund jects and from projects future in the re- The SEF is a fund/Pennsylvania maining years of period. PPL’s transition non-profit corporation formed under the terms of the Joint Petition for Full Settle opposed funding continued ment of PPL’s restructuring plan.22 The SEF contending that cost was unrelated to purpose of the fund to promote distribution service and should not be development and use of energy renewable funded ratepayers. It also 22.Section E.5 of the Joint Petition for Full ed approved by the Joint Petitioners and Restructuring pro- Settlement of PPL’s Plan The operate Commission. fund shall vides: according procedures to the set forth in its by-laws, ap- which are to be reviewed and Energy Sustainable [PPL] Fund. will estab- proved by the Commission. The fund is to energy lish a sustainable fund which shall have an annual audit and is to make semi- be funded per from the 1.74 cents KWH reports annual to the Commission and to transmission and distribution rate at .01 parties. purpose The (less of the fund is to per cents applicable gross KWH re- promote tax) development and use renew- ceipts power on all sold for all custom- energy energy able technologies, and clean beginning ers January on 1999 and end- 31, 2004, energy ing efficiency on conservation and December or until the promote energy. Commission clean establishes new distribution rates, longer. whichever is The .01 cents words, In funding other SEF received its per automatically KWH shall not be consid- application of the SEF Rider in ered a cost upon expira- of service element expired PPL's Tariff No. 201 which on De- tion the transmission and distribution cember cap on December 2004. The Sus- Energy managed by tainable Fund shall be $3,689 designated an administrator a seen- 24. PPL included million as a distribu- member Board of Directors expense to be nominat- year. in the future test only through ratepayer funding an SEF argued including funding that SEF illegal PPL’s and un- the fund- expense in rate was It stated that December 2006. projects of SEF’s reasonable because none included the distribu- ing level within produced any for PPL rate- had benefits was 0.01 and tion rates for 2005 It also that the fund- payers. argued was kWh, per respectively. cents 0.005 actually was tax.25 ing hidden PPLICA contends that appeal, On pointed The first out that the set- ALJ PPL’s approval of SEF Commission’s per tlement 0.01 kWh stated cent reversed be- funding proposal should be not a cost-of- automatically was considered benefits to cause there is no demonstrable upon expiration element justification for the legal ratepayers or caps. ALJ disagreed there are “demonstra- program. Because was a tax hidden because benefits,” goes PPLICA then on ble board, open out and above justification no argue legal that there is kind that SEF’s activities were the funding the in distribution rates be- SEF encouraged had utilities to just get ratepay- really way cause it perform designed and were to fit with private ventures SEF ers fund functions as well as accentuate argues, funding, it con- subsidizes. Such conferring ratepayers. benefits on PPL’s ratepayers stitutes unlawful tax then ALJ recommended *15 Assembly has the which the General approve funding part SEF as pursuant to Article power impose rates, give but that it consid- PPL’s also Constitution, Pennsylvania 1 of setting declining eration to amounts so argument not the Commission. PPLICA’s years that the end of or December five 31, 2009, reasons. funding completed. fails several would be Dismissing exceptions, PPLICA’s ignores argument the core of that What examples Commission found that Assembly specifi- has General projects contained in the recom- ALJ’s cally public pro- that authorized mended decision well as those explained Recogniz- such be funded. grams as SEF exceptions supported SEF’s that there ing programs that certain funded under ratepayers was direct benefit to and that utility re- monopoly and bundled rate helped development SEF had foster once gime were at risk the electric indus- energy. of alternate sources of Addition- in the try deregulated, provided it ally, funding SEF had its managed funding that con- Competition Act such be had a net strong showing balance sheet it as an allow- tinued and that be funded $12,203,454 assets of as of June “non-bypassable expense able Nonetheless, it that Commission stated 2802(17)of the mechanism.” Section Com- begin time to appropriate was now an Act provides: petition reve- eliminating the use of distribution costs, public purpose certain SEF, There are agreed it support nues to and while including for low-income assis- programs for approving ALJ’s rationale with the others, tance, SEF, funding approved energy it also conservation continued had, already money spending it it position did take a on that 25. The OSBA not by ratepayers questionable whether SEF should be funded in the made investments stock 1, 2005, argued beginning January market, high expenses, it had administrative any paid that new should projects it selected were unfocused Development Authority Pennsylvania Energy internally. (PEDA). argued not that SEF was The OSBA However, implemented which have been and sup- based on substantial evidence ported by public SEF, utilities’ bundled presented the Commission found rates.26 The is to be purpose there benefits to the PPL distri- promoted by continuing universal ser- system projects bution from the SEF energy vice and policies, conservation provided ratepay- demonstrable benefits to services, protections and full ers, recov- including followingprograms: ery permitted such costs is to be link software—a de- (cid:127) PowerWeb.omni through a non-bypassable rate mecha- management mand side tool nism.27 helps manage industrial customers authorized, if argues Even during peak load periods; their SEF should be funded it because does Twin Valley School District’s (cid:127) not meet the “demonstrable benefits” stan- Leadership Energy Green and Envi- dard for the program- inclusion of social Design ronmental school which silver ming costs Specifically, rates.29 172,200 year per will save kWhs argues generation that SEF’s distributed load; base produced projects no demonstrable bene- energy system The advanced control (cid:127) ratepayers, fits to Technology for the Allentown Center farm projects wind no produced demon- develops city businesses strable benefits to PPL distribution rate- 1,325,050 year per and saves kWhs payers, and public policy advances to goals energy; and of encouraging energy renewable were not demonstrable support benefits for distribution Building Grant for the Green (cid:127) It ratepayers. goes on argue Association of Central theoretical benefits to customers were not design pro- “build the capacity quantified and outweigh did not up- fessional and building $3 owners *16 per year million in funding beyond that SEF re- grade building current code to during ceived 2005 and would continue to energy the advance of the standards if receive the Commission was affirmed on Building Leaderships U.S. Association this issue. Energy Design- and Environment 2804(9) Act, 2004, 30, 26. Competition signed of the 66 into law on which November 2804(9), Pa.C.S. defines service "universal did not exist at the time the record closed. energy conservation” as: Pennsylvania Utility 28. See Public Commis- Policies, protections help and services that Corp., PP sion v. & L Docket Nos. R- low income customers to maintain electric 00943271C001-C0145SEF, Order entered service. term includes customer assis- 27, 306, 1995, September 85 339- Pa.P.U.C. programs, pro- tance termination (1995). WL 1995 803507 policies help tection and that services manage income low customers to reduce or argues also that at PPLICA the time 29. energy consumption a effective man- in cost Settlement, Restructuring parties PPL ner, usage such as low income reduction only agreed funding to establish a mechanism programs, application of re- renewable 2004. That SEF December sources and customer education. specified funding for SEF settlement that the automatically argues also would not It failed considered Commission proper expense specific guidelines to include distribu- to consider the contained in PPL's any Energy 213 in Act or the Alternative Portfolio tion rates rate case filed after Decem- Act as It Standards to how SEF would be fund- ber did not state that SEF fund- caps expired ing Ergo, ed utilities’ distribution rate not be considered at all. would years. the next over several Act 213 was SEF that meant could be considered.
1027 directly gains projects 30 40% the funded SEF were Typically er.” this why system improvement energy use. related to distribution in the funding belonged SEF Although pointed projects out appar system tariff.30 were not with SEF fund- successful credible, and ently testimony that found ing, that the Commission stated there judgment will not our we substitute many projects also that were suc- were Commission when substantial cessful. Because was within its authori- on a matter supports decision evidence ty as factfinder to find that there were UGI expertise. the Commission’s within projects ratemaking to these benefits Utility v. Public Utilities questions require the exercise of Com- Commission, (Pa.Cmwlth. 863 A.2d it was within the expertise, mission’s well 2004). Commission’s discretion determine projects produced Accordingly, SEF ben- on the Commission’s demonstrable based v. ratepayers. Popowsky Penn- projects efits for determination that SEF Commission, sylvania Utility rate- 869 demonstrable benefit to distribution (Pa.Cmwlth.2005). Assembly not author- payers, A.2d We will that the General funding, fund- disturb determination. ized the continued SEF otherwise, tax, not a hidden or ing was PPLICA also contends that benefits directly related to a conservation program genera program from the SEF relate to programs that the General conservation service, service and to distribution funded, Assembly permitted to be particu and forces customers to subsidize fund- decision for continued Commission’s suppliers technologies lar generation ing program is affirmed. the SEF through distribution rates which is “anti thetical” to generation supply the notion of B. choice, thereby frustrating legislative underlying intent Act. Competition APPEAL CEO’s Again, it cannot be antithetical the Com Funding OnTrack petition Act Act because the specifically intends is PPL’s customer assis pro that conservation OnTrack grams program continue to for low income customers. pro be funded and tance annual increase by “non-bypassable proposed vides that it be funded has 25.6% *17 million to any requirement funding rates” without that it be in OnTrack $11.7 —from by directly the will allow an enroll by a rate that is benefited million which $14.7 15,000 17,000 event, custom any In the fund ment of between to program. projects service, restruc by ed 2007. Pursuant to its 1998 by SEF related to distribution ers agreement, PPL has testimony turing and offered how settlement expert SEF on 13; intervenor, SEF, grades. explains ST. at R. 259a. The as an in its brief SEF No.l energy directly why SEF conservation related to the distribution distribution benefits widely recog- system: management are and demand summary pre- First, nized. A of these benefits energy and demand conservation Manage- report in a entitled sented management projects bene- funded SEF Portfolio Electricity How Procure Resources ment: to system by reducing the cus- fit distribution Low-Cost, Reliable, to and Provide shifting to tomer load or that load lower- Efficient Customers, thus, Electricity To All Retail loading Services periods, reducing the peak appear evidentiary portions in the system of which ex- and stress on the distribution through pages ending delaying at 15 SEF tending the record its life and system up- expensive No. 1. R. 259a-R.261a. Statement need that proposed funding million of the be ministrative costs while increasing enroll- $3 “ramped up” by spend- increasing annual ment over 30%. PPL and CEO the ing by million per year $1 that if argued also it did not file another with the in funds col- ratepayer difference years, rate within two case the program spent lected and in to 2004-2007 escrowed would be underfunded and low income cus- higher years permit expenditures in the program be might tomers denied benefits. limiting 2008-2010. The OCA proposed adopted rec- The Commission the ALJ’s funding increase in to OnTrack $13.2 regarding two-year the nor- ommendation average million which is the the stating: expenses malization for OnTrack PPL proposed amounts in 2005 spend “PPL stated that it will file its next has 2006 or the years and first two PPL’s in and has years, base rate case two “ramp-up” period. argued that The OCA two-year claimed a normalization funding the reduced was be- appropriate expense. case The increased rate PPL cause could file another base beyond for Year 2007 and spending levels in years two only expendi- case and it has in can be addressed the next base plans ture “ramp up” period Therefore, this Exceptions case. PPL’s proposes to escrow the remainder. Addi- (Commission’s issue are denied.” Decem- tionally, testimony there was that 41.) at ber 2004 decision “ramp-up” period was consistent with the approach agreed successful par- Fund- Addressing the issue of OnTrack restructuring ties PPL’s 1998 settle- ing, argues that the Commission the CEO challenges ment reflected ex- by failing erred to address its decision panding program. inadequate funding levels of PPL’s argued proposed The CEO PPL’s It proposed Funding program. OnTrack was not enough requested increase June contends Commis- money from ratepayers up more to enroll previously program sion found that 100,000 customers, more but did not required funded as inappropriately was 100,000 document the need for more en- Poli- Act’s Declaration of specify rollees did not the amount of cy.31 Specifically, the CEO contends funding additional Because no needed. order, it in the Commission’s June 2003 objected one to the increase in funds and that an appropriate determined enrollment the CEO could provide specifics 17,000 number be no lower than support argument, the ALJ recom- However, 30,000. possibly high as adopt mended ignored proposed the order and adjusted amount, impose OCA’s 15,000 17,000 by the enrollment condition that held in an excess year Despite PPL’s blatant disre- interest-bearing escrow account. order, gard of the Commission’s neither *18 exceptions PPL and the nor the addressed CEO filed the ALJ Commission ALJ’s contending inappropriateness proposed the recommendation the of PPL’s proposed request- should program. 25.6% increase OnTrack The CEO is its granted proposed “ramp ing because the that PPL be directed to increase 30,000 up” period community is cus- organ- needed enrollment levels low income delivering programs. izations OnTrack to cover ad- for its OnTrack tomers policy provides: elec- "The Commonwealth who are low income to afford customers must, minimum, 2802(10) Compe- protec- at a the continue tric service.” Section tions, Act, 2802(10). policies § now and services that assist tition 66 Pa.C.S. order is funding the plan, out Commission’s point the and Both Commission this issue. pro- affirmed on CEO criticizes PPL’s while the posed program, the has not offered CEO Pennsylva- of the order the Accordingly, plan own. Fur- specific funding of its Utility dated De- nia Public Commission ther, it has the Commission contends that 2004, 22, cember is:. of continually oversight maintained active 1) appeals to the PPLICA vacated as the programs, the universal service and of issue the regarding the the OSBA sanctioning is incorrect it is CEO and Transmission Service Distribution in in conflict changes plan the the Com- Charges and is remanded to with June 2003 order. Commis- non-discriminatory rea- mission to set order, sion out that its June 2003 points for each rates and rate structure sonable an agree it not that PPL had to meet did service; 30,000. Having of reviewed enrollment order, agree. 2) we of reim- as to allowance reversed of Hurricane Isabel costs to bursement provides: order
The June 2003 PPL; and that, determines based The Commission 3) regarding appeal the affirmed of all the data and re- consideration regarding PPLICA SEF ports, num- appropriate enrollment regarding the CEO appeal and the 17,000 ber should be no lower than the program. OnTrack approved by enrollment slots the Com- 75,000 mission 2000 when there was Judge dissents SMITH-RIBNER customers, pos- overdue low income majority portion opinion to the 80,000, sibly high as as the number Utility affirms the Public order that in- enrollment slots recommended regarding decision Commission’s dependent third-party report evaluation Program. OnTrack pursuant submitted to 52 Pa.Code added.) (Emphasis 54.74. ORDER Here, Commission’s June 2003 order. NOW, day August, AND this
we find no fault with the Commission’s kth order allowing two-year “ramp- order current Commission, Utility dated December up” approach which would allow an enroll- 2004, is: 15,000 17,000 ment of between custom- Although ers the Commission 1) appeals by vacated as in its order that an stated appropriate issue regarding OSBA enrollment number should be no lower Service Distribution and Transmission 30,000, 17,000 possibly high
than as the Com- Charges and is remanded to in the great entitled to deference non-discriminatory mission to set rea- performance interpreta- of its Its duties. for each rates and rate structure sonable Act should not be tion of the service; it is that its con- overturned unless clear 2) of reim- as to allowance reversed George. Because struction is erroneous. costs to Isabel Hurricane bursement allowing PPL to PPL; and *19 program regarding shirk its duties 3) regarding appeal by affirmed monitoring program, and the still regarding the SEF no and the CEO has offered alternative appeal by the CEO regarding program. the OnTrack
Jurisdiction relinquished. JUBELIRER,
Robert C. Senator pro tempore
President Pennsyl- of the Senate,
vania Perzel, and John M.
Representative Speaker
Pennsylvania Representa- House of
tives, Petitioners
v. RENDELL,
Edward G. Governor of
Pennsylvania; Casey, Jr., Robert P.
State Pennsylvania; Treasurer of Mi- Masch,
chael Secretary J. Budget Pennsylvania; Administration Richman, Secretary
Estelle of Public Pennsylvania;
Welfare of Pennsylva- Department
nia Welfare; of Public Biehler, Secretary
Allen D. of Trans-
portation Pennsylvania; Pennsyl- Department
vania Transportation; Jeffrey
Colonel Miller, B. Commis-
sioner of the State Po-
lice; Pennsylvania Police, State Re-
spondents.
Commonwealth Pennsylvania. Court of
Argued April Aug.
Decided