REPLY BRIEF OF EXELON GENERATION COMPANY, LLC · Company, Pennsylvania Electric ... Inc. d/b/a...

COMMONWEALTH OF PENNSYLVANIA

PENNSYLVANIA PUBLIC UTILITY COMMISSION

Joint Petition of Metropolitan Edison

Company, Pennsylvania Electric

Company, Pennsylvania Power Company

and West Penn Power Company For

Approval of Their Default Service

Programs

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:

:

:

:

:

:

:

Docket Nos. P-2013-2391368

P-2013-2391372

P-2013-2391375

P-2013-2391378

REPLY BRIEF OF

EXELON GENERATION COMPANY, LLC

Divesh Gupta

(PA Bar # 307892)

Asst. General Counsel

Exelon Business Services Corp.

100 Constellation Way, Suite 500C

Baltimore, MD 21202

Telephone: (410) 470-3158

Facsimile: (443) 213-3556

[email protected]

Counsel for Exelon Generation Company, LLC

Dated: April 10, 2014

mailto:[email protected]

2

TABLE OF CONTENTS

I. INTRODUCTION 4

B. THE PARTIAL SETTLEMENT 6

C. THE RESERVED ISSUE 6

II. COLLECTION OF NETWORK INTEGRATION TRANSMISSION

SERVICE COSTS 7

A. THE “PLAIN LANGUAGE” OF THE COMPETITION ACT AND OTHER RECENT

COMMISSION DECISIONS IN FACT SUPPORTS RECONSIDERATION AND

APPROVAL, RATHER THAN REJECTION, OF THE NITS PROPOSAL. 7

1. The NITS Proposal will not result in a “rebundling” of transmission costs “in contravention

of the Competition Act.” 7

2. The Industrial Intervenors will maintain the ability to seek out arrangements that would

provide additional predictability with respect to transmission costs. 10

B. THE NITS PROPOSAL DOES NOT VIOLATE COMMISSION REGULATIONS AND

RECENT COMMISSION DECISIONS SUPPORT RECONSIDERATION OF PRIOR

COMMISSION DECISIONS REGARDING SUCH PROPOSALS. 11

1. Recent Commission decisions support approval of the NITS Proposal and reconsideration of

the Commission’s prior decisions regarding similar proposals. 11

2. The Industrial Intervenors misconstrue the Commission’s Price-to-Compare (“PTC”)

Regulations and erroneously argue that they require EGSs to provide customers with transmission

service. 13

C. THE RISK OF “DOUBLE COLLECTION” IS A RED-HERRING AND SEVERAL

MITIGATING FACTORS AND MECHANISMS EXIST TO REDUCE EVEN THE

MINIMAL CHANCE OF A SHOPPING CUSTOMER PAYING TWICE FOR NITS. 16

1. The Industrial Intervenors erroneously base their concerns of double-collection on one

customer’s experience. 17

2. Several mitigating factors and mitigation mechanisms exist which more than adequately

address the minimal risks that a customer may pay twice for NITS. 18

D. A “LARGE C&I” CARVE-OUT FROM THE NITS PROPOSAL IS UNNECESSARY IF

THE COMMISSION ADOPTS ONE OR MORE OF THE MITIGATION MEASURES

PRESENTED HEREIN. 20

III. CONCLUSION 21

APPENDIX – ADDITIONAL PROPOSED FINDINGS OF FACT AND

CONCLUSIONS OF LAW 22

3

TABLE OF AUTHORITIES

1. Act 129 of 2008, 2008 Penn. Act 129 (enacted Oct. 15, 2008).

2. Electric Generation Customer Choice and Competition Act, 66 Pa. C.S. §§ 2801, et

seq.

3. 66 Pa.C.S.A. §§ 2802 (13), (16); 2803; 2804 (3).

4. Order on Ancillary Services Filing and Providing Guidance, 119 FERC ¶ 61,311

(June 22, 2007).

5. Order Conditionally Accepting the California Independent System Operator’s

Electric Tariff Filing to Reflect Market Redesign and Technology Upgrade, 116

FERC ¶ 61,274 (Sept. 21, 2006).

6. Devon Power, LLC, et al., 111 FERC ¶ 63,063 (June 15, 2005).

7. 52 Pa. Code §§ 5.21-5.24; 54.3(1); 54.4(a) - (b); 54.5(c), (f); 54.182; 54.187(d).

8. Pennsylvania Consumer’s Dictionary for Electric Competition, (available at

www.puc.state.pa.us/consumer_info/electricity/electric_competition_dictionary.aspx)

9. Final Order, Commission Docket No. I-2011-2237952 (Feb. 14, 2013).

http://www.puc.state.pa.us/consumer_info/electricity/electric_competition_dictionary.aspx

4

REPLY BRIEF OF

EXELON GENERATION COMPANY, LLC

I. INTRODUCTION

Exelon Generation Company, LLC (“ExGen”) hereby submits its Reply Brief for

consideration by the Pennsylvania Public Utility Commission (“Commission”), with regard to

the Default Service Implementation Programs filed by Metropolitan Edison Company,

Pennsylvania Electric Company, Pennsylvania Power Company, and West Penn Power

Company (collectively, “FirstEnergy-PA”) on November 4, 20131 (with supporting testimony

from FirstEnergy-PA circulated on that same date2) (the filing herein referred to as the “Default

Service Plan” or “DSP”).

As ExGen submits in more detail in its Initial Brief filed on March 27, 2014, in order to

meet the goals of Act 129 of 2008 (“Act 129”),3 all electric distribution companies’ (“EDCs”)

Default Service plans must be designed in such a way as to promote the lowest costs for

consumers, both by encouraging the broadest participation by wholesale suppliers, and by

ensuring robust, competitive offerings from electric generation suppliers (“EGSs”) in the

Commonwealth. FirstEnergy-PA’s DSP, as revised by the Joint Petition for Partial Settlement

1 Joint Petition of Metropolitan Edison Company, Pennsylvania Electric Company, Pennsylvania Power

Company and West Penn Power Company For Approval of Their Default Service Programs, Commission

Docket Nos. P-2013-2391368, P-2013-2391372, P-2013-2391375, P-2013-2391378 (Nov. 4, 2013).

2 Direct Testimony of Metropolitan Edison Company, Pennsylvania Electric Company, Pennsylvania Power

Company and West Penn Power Company, Commission Docket Nos. P-2013-2391368, P-2013-2391372, P-

2013-2391375, P-2013-2391378 (Nov. 4, 2013) (collectively, the “FirstEnergy-PA Direct Testimony”).

3 Press Release, Governor Rendell Signs Energy Conservation Bill to Save Consumers Millions on Electricity;

Urges Legislature to Pass Rate Mitigation Bill, Pennsylvania Office of the Governor (Oct. 15, 2008)

(http://www.portal.state.pa.us/portal/server.pt?open=512&objID=2999&PageID=431162&

mode=2&contentid=http://pubcontent.state.pa.us/publishedcontent/publish/global/news_releases/

governor_s_office/news_releases/governor_rendell_signs_energy_conservation_bill_to_save_consumers_millio

ns_on_ electricity__urges_legislature_to_pass_rate_mitigation_bill.html).

5

(“Partial Settlement”) executed by certain parties (“Joint Petitioners”),4 will be consistent with

the Competition Act5 and the requirements of Act 129, if further revised to include Network

Integration Transmission Service (“NITS”) costs within those collected on a non-bypassable

basis through FirstEnergy-PA’s Default Service Support (“DSS”) Riders (herein referred to as

the “NITS Proposal”). As explained in detail in the ExGen Initial Brief and supported further

herein, with this limited change, FirstEnergy-PA’s proposed design will be more likely to

encourage the broadest and most competitive participation by wholesale suppliers and EGSs, is

likely to more effectively meet the goals of Act 129 and the Competition Act, and will be in the

public interest.

Through this Reply Brief, ExGen responds primarily to the arguments of the Industrial

Intervenors against the NITS Proposal, and asks the Commission to reject the Industrial

Intervenors’ arguments on the basis that:

The “plain language” of the Competition Act and other recent Commission decisions in

fact supports reconsideration and approval, rather than rejection, of the NITS Proposal;

The NITS Proposal does not violate Commission Regulations and recent Commission

decisions support reconsideration of prior Commission decisions regarding such

proposals; and

4 The Joint Petitioners are: Metropolitan Edison Company, Pennsylvania Electric Company, Pennsylvania Power

Company and West Penn Power Company (collectively, “FirstEnergy-PA”); the Bureau of Investigation and

Enforcement (“BI&E”); the Office of Consumer Advocate (“OCA”); the Office of Small Business Advocate

(“OSBA”); the Met-Ed Industrial Users Group, the Penelec Industrial Customer Alliance, the Pennsylvania

Power Users Group and West Penn Power Industrial Intervenors (collectively, “Industrial Intervenors”);

Dominion Retail, Inc. d/b/a Dominion Energy Solutions and Interstate Gas Supply, Inc. (collectively,

“Dominion”); Direct Energy Services, LLC (“Direct Energy”); the Retail Energy Supply Association

(“RESA”); ExGen; FirstEnergy Solutions Corporation (“FES”); the Coalition for Affordable Utility Services

and Energy Efficiency in Pennsylvania (“CAUSE-PA”); Duquesne Light Energy, LLC (“Duquesne”); NextEra

Energy Services Pennsylvania, LLC and NextEra Energy Power Marketing, LLC (collectively, “NextEra”); the

Pennsylvania State University (“PSU”) and Washington Gas Energy Services, Inc. (“WGES”) (collectively, the

“Joint Petitioners”).

5 Electric Generation Customer Choice and Competition Act, 66 Pa. C.S. §§ 2801, et seq. (“Competition Act”).

6

The risk of “double collection” of NITS represents a red-herring and several mitigation

mechanisms exist to reduce even the minimal chance of a shopping customer paying

twice for NITS.

B. The Partial Settlement

For purposes of this Reply Brief, with respect to the Partial Settlement, ExGen reiterates

only that the Partial Settlement includes provisions for the recovery of non-market based

(“NMB”) charges similar to NITS on a non-bypassable basis through FirstEnergy-PA’s DSS

Riders, which NMB charges include:

(1) PJM Regional Transmission Expansion Plan (“RTEP”) charges;

(2) PJM Expansion Cost Recovery (“ECR” or “TEC”) charges;

(3) PJM charges associated with reliability must run (“RMR”) unit declarations and

deactivation of plants for which charges are set after the approval of the Revised DSP

Programs by the Commission;

(4) Historical out of market tie line, generation and retail meter adjustments; and

(5) Unaccounted for energy. 6

C. The Reserved Issue

The sole issue that was reserved for litigation and a decision by the ALJ and the

Commission was the NITS Proposal. The Industrial Intervenors were the only party to submit an

initial brief against the NITS Proposal.7 On the other hand, the NITS Proposal drew support

6 See Partial Settlement at ¶¶ 47-48 and Exh. G-2 at p.4.

7 See Initial Brief of the Met-Ed Industrial Users Group, the Penelec Industrial Customer Alliance, the

Pennsylvania Power Users Group and West Penn Power Industrial Intervenors, Commission Docket Nos. P-

2013-2391368, P-2013-2391372, P-2013-2391375, P-2013-2391378 (Mar. 27, 2014) (“Industrial Intervenors

Brief”).

7

from all other parties submitting initial briefs, including FirstEnergy-PA, FES, RESA and

ExGen.8 All of these parties support the notion that NITS costs should be collected through

FirstEnergy-PA’s DSS Riders on a non-bypassable basis, as is the case for other similarly

unhedgeable NMB charges pursuant to the Partial Settlement.

II. COLLECTION OF NETWORK INTEGRATION TRANSMISSION SERVICE

COSTS

Throughout their initial brief, the Industrial Intervenors provide unsupported statements

of fact and policy, and provide false citations to Commission Regulations that the Industrial

Intervenors purport, incorrectly and misleadingly, to support their positions. The Commission’s

actual Regulations and recent decisions, as well as the weight of the evidence in the record, in

fact support reconsideration and approval of the NITS Proposal, for good cause shown herein.

A. The “Plain Language” of the Competition Act and Other Recent Commission

Decisions in Fact Supports Reconsideration and Approval, Rather than

Rejection, of the NITS Proposal.

1. The NITS Proposal will not result in a “rebundling” of transmission costs

“in contravention of the Competition Act.”9

The Industrial Intervenors throughout their brief inappropriately interpret the

Competition Act’s language requiring “the unbundling of electric utility services, tariffs and

customer bills to separate the charges for generation, transmission and distribution” to mean

8 See Initial Brief of Metropolitan Edison Company, Pennsylvania Electric Company, Pennsylvania Power

Company and West Penn Power Company, Commission Docket Nos. P-2013-2391368, P-2013-2391372, P-

2013-2391375, P-2013-2391378 (Mar. 27, 2014) (“FirstEnergy-PA Brief”); see also Initial Brief of FirstEnergy

Solutions Corp., Commission Docket Nos. P-2013-2391368, P-2013-2391372, P-2013-2391375, P-2013-

2391378 (Mar. 27, 2014) (“FES Brief”); see also Initial Brief of the Retail Energy Supply Association,

Commission Docket Nos. P-2013-2391368, P-2013-2391372, P-2013-2391375, P-2013-2391378 (Mar. 27,

2014) (“RESA Brief”).

9 Industrial Intervenors Brief at p.8.

8

specifically that transmission must be competitively priced and removed from the EDCs’ bills

and rates and that, therefore, the NITS Proposal would result in a “rebundling” of transmission

costs in contravention to the Competition Act.10

They argue incorrectly that “the plain language

of the Competition Act . . . requires that only distribution costs should continue to be charged by

a shopping customer’s EDC.”11

In support of their arguments, the Industrial Intervenors

continuously cite to 66 Pa.C.S.A. § 2802 (13) and § 2804 (3).12

Upon careful review of these sections, however, it cannot be said that the “plain

language” of the Competition Act prohibits the NITS Proposal; arguably, the primary focus of

the Competition Act is to encourage competition specifically for generation supplied to the

Commonwealth’s customers. The primary section on which the Industrial Intervenors rely, 66

Pa.C.S.A. § 2802 (13), provides in its entirety that:

Under current law and regulation there exists some competition in the

wholesale market for the generation of electricity, but the generation,

transmission, distribution and retail sale of electricity is provided

generally by public utilities under bundled rates regulated by the

commission. The procedures established under this chapter provide for a

fair and orderly transition from the current regulated structure to a

structure under which retail customers will have direct access to a

competitive market for the generation and sale or purchase of electricity.13

66 Pa.C.S.A. § 2804 (3), meanwhile, provides that:

The commission shall require the unbundling of electric utility services,

tariffs and customer bills to separate the charges for generation,

transmission and distribution. The commission may require the

unbundling of other services.14

10

Industrial Intervenors Brief at pp.8-9.


12 See Industrial Intervenors Brief at pp.8-9.

13 66 Pa.C.S.A. § 2802 (13) (emphasis added).

14 66 Pa.C.S.A. § 2804 (3) (emphasis added).

9

First, nowhere in these Regulations is the Commission required to prohibit EDCs from

collecting transmission costs from customers, nor is the Commission prohibited from requiring

EDCs to in fact collect transmission costs on behalf of customers. Under the Industrial

Intervenors’ reading of these sections, if transmission costs are no longer allowed to be collected

and charged by EDCs, then the EDCs must also be prohibited from collecting and charging for

distribution costs, since both of these charges are included (along with generation) in the list of

those subject to “unbundling.” This cannot be true. The language more correctly requires that

the Commission ensure that costs for these three components appear unbundled on customers’

bills and the EDCs’ tariffs, which would in fact continue be the case under the NITS Proposal.

Specifically, NITS charges would be separate from distribution and generation charges as part of

the DSS Riders’ NMB charges.

On the other hand, in the sections on which the Industrial Intervenors rely, the language

specifically provides that retail customers should have “direct access to a competitive market for

the generation and sale or purchase of electricity,” which would remain consistent even under

the NITS Proposal. The Competition Act specifically defines “transmission and distribution”

together as “[a]ll costs directly or indirectly incurred to provide transmission and distribution

services to retail electric customers,”15

and explains that “[i]t is in the public interest for the

transmission and distribution of electricity to continue to be regulated as a natural monopoly

subject to the jurisdiction and active supervision of the commission.”16

In fact, in this way, the NITS Proposal may be considered more consistent with these

notions and the intent of the Competition Act, in that generation and its related products for

15

66 Pa.C.S.A. § 2803 (providing the definition of “Transmission and distribution costs”).

16 66 Pa.C.S.A. § 2802 (16).

10

which competitive hedging markets exist will be the primary focus of competitive offers from

EGSs.

2. The Industrial Intervenors will maintain the ability to seek out

arrangements that would provide additional predictability with respect to

transmission costs.

The Industrial Intervenors additionally argue that the NITS Proposal would undermine

the spirit of the Competition Act by reducing the options that shopping consumers such as large

commercial and industrial (“Large C&I”) customers may seek. They specifically claim that the

NITS Proposal would “directly eliminate the ability of customers to structure a different

transmission arrangement with their EGSs, namely a fixed price arrangement that would provide

predictability for budgeting purposes.”17

However, this argument ignores the fact that – even

subject to the NITS Proposal – a competitive market allows for innovation and creativity in the

products offered by EGSs to meet customers’ specific needs.

For instance, if a Large C&I customer (“Customer A”) nevertheless seeks budget

certainty on its full electric costs, including transmission costs, it could work to negotiate a

contract under which the EGS (“EGS 1”) guarantees the costs that Customer A will pay to the

EDC for NITS (and, perhaps all other components including distribution). EGS 1 could, for

instance, fix NITS costs at $XX/MWh; NITS costs for a particular month can be readily

identified on PJM Interconnection, L.L.C.’s (“PJM”) bills in a particular region and EDC zone.18

If the EDC charges Customer A more than $XX/MWh for NITS (or, alternatively, the PJM bill

amounts for NITS exceed this agreed upon NITS rate in Customer A’s contract) during the

course of Customer A’s contract term, EGS 1 could credit the difference to Customer A. In this

17

Industrial Intervenors Brief at p.9.

18 See, e.g., FirstEnergy-PA Brief at p.6 (identifying the specific line items in the PJM bill that make up NITS

costs).

11

way, Customer A could achieve the budget certainty it sought with respect to NITS.19

Thus, the

Industrial Intervenors under the NITS Proposal will maintain the ability to seek out EGS

arrangements that would provide additional predictability with respect to transmission costs.

B. The NITS Proposal Does Not Violate Commission Regulations and Recent

Commission Decisions Support Reconsideration of Prior Commission

Decisions Regarding Such Proposals.

1. Recent Commission decisions support approval of the NITS Proposal and

reconsideration of the Commission’s prior decisions regarding similar

proposals.

The Industrial Intevenors Brief cites to the Competition Act and certain Commission

decisions over the last few years in order to supposedly support their position that the

Commission should reject the NITS Proposal. In their arguments, the Industrial Intervenors also

erroneously dismiss the Commission’s recent decision in the Final Order in Docket No. M-

2013-2362961 (“FP Order”) providing guidance to EGSs on the appropriate use of the “fixed-

price” label when presenting offers to potential customers. The Industrial Intervenors

specifically misrepresent FES’ and other arguments which cite to the FP Order, incorrectly

stating that FES and others believe that the FP Order in and of itself “justifies a non-bypassable

NITS collection.”20

19

These types of contracts are not unheard of in the energy marketplace. See, e.g., Order on Ancillary Services

Filing and Providing Guidance, 119 FERC ¶ 61,311 (June 22, 2007) at ¶ 74 (explaining that “load-serving

entities will be able to enter into bilateral supply contracts . . . and a contract for differences or similar

arrangement could then be used to hedge against potential price risk”); see also Order Conditionally Accepting

the California Independent System Operator’s Electric Tariff Filing to Reflect Market Redesign and Technology

Upgrade, 116 FERC ¶ 61,274 (Sept. 21, 2006) at ¶ 465 (explaining that a “contract for differences” model is

one “in which payment is made based on the difference between the [locational marginal price] at the intertie

and the contract price”); see also Devon Power, LLC, et al., 111 FERC ¶ 63,063 (June 15, 2005) at ¶ 420

(explaining that a “‘one-way contract for differences’ (CFD) . . . specifies a price, and any revenues above that

price must be returned to the CFD holder”).


12

In fact, the FP Order does not itself justify the NITS Proposal; rather, the Order provides

part of the basis for which the Commission should reconsider its decisions regarding similar

proposals in the past, decisions which the Industrial Intervenors cite to and discuss at length in

their initial brief.21

For instance, FES points out that, with respect to the NITS Proposal, “the

instant evidentiary record presents substantial, credible evidence that circumstances have

changed . . . .”22

FES further explains:

The [FP] Order provides guidance that will limit a retail supplier’s ability

to automatically pass through unanticipated costs, some of which are

unhedgeable, to a residential or small business customer with a contract

labeled as “fixed price.” These unanticipated costs include increases in

unhedgeable NITS costs. Without assurance that they can pass through

such costs, suppliers who wish to continue to market retail products

labeled “fixed price” must take the risk of absorbing these costs entirely,

attempt to obtain customer consent to a price increase reflecting these new

charges at the risk of losing customers, or price any such costs attributable

to those customer classes into the fixed price at the outset of the contract

(which will result in higher prices than necessary if a forecasted NITS

increase does not occur). Removing NITS costs from the responsibility of

suppliers and designating the Companies to be responsible for these

services for both shopping and non-shopping customers will allow

suppliers to continue to offer a variety of longer term fixed price contracts

in the years to come as envisioned by the [FP] Order, and will ultimately

result in lower prices to customers.

* * *

The Commission’s DSP II Order relied upon a finding of fact that NITS

costs are predictable. That assumption has since been proven not to be

true.23

ExGen does not herein argue that the Commission has not rejected similar proposals in

the past. Rather, ExGen supports FES’ position that “it is now appropriate for the Commission

21

See, generally, Industrial Intervenors Brief at pp.11-12.

22 FES Brief at p. 8.

23 FES Brief at pp. 9-10.

13

to reconsider its prior position and to treat NMB NITS costs as a charge that should be recovered

through a competitively-neutral, non-bypassable charge by the EDC to all customers.”24

2. The Industrial Intervenors misconstrue the Commission’s Price-to-

Compare (“PTC”) Regulations and erroneously argue that they require

EGSs to provide customers with transmission service.

The Industrial Intervenors next once again raise the false notion that the NITS Proposal

“runs afoul of the Commission’s Regulations implementing the Competition Act,”25

this time

arguing incorrectly that the NITS Proposal will be incongruent with the Commission’s PTC

Regulations.26

The Industrial Intervenors correctly point out that “PTC” is defined by the

Commission’s Regulations to be “the line item on a default service customer’s bill that . . .

should be “equal to the sum of all unbundled generation and transmission related charges to a

default service customer for that month of service.'”27

They, however, go on to extrapolate that

this “indicates that the Commission envisioned that shopping customers would be charged for

transmission service by an EGS,” specifically on the basis of 52 Pa. Code § 54.187(d).28

This

section of this Commission’s Regulations states in its entirety, however, as follows:

The rates charged for default service may not decline with the increase in

kilowatt hours of electricity used by a default service customer in a billing

period.29

That is, 52 Pa. Code § 54.187(d), the section of the Commission’s Regulations on which the

Industrial Intervenors rely, refers only to declining block concerns, and makes no mention of

how transmission costs must be allocated as between EGSs and EDCs.

24

FES Brief at p.10.



27 Industrial Intervenors Brief at p.12 (referring to 52 Pa. Code § 54.182) (emphasis added).


29 52 Pa. Code § 54.187(d).

14

To be sure, the PTC Regulations refer only to the costs which must be identified on the

EDC’s bills for default service. These costs are specifically to include both generation and

transmission. These Regulations do not require that EGS charge or bill for transmission costs.

In fact, other Commission Regulations governing billing and EGSs’ disclosure statements

support the notion that transmission costs need not be collected by EGSs. For example, with

respect to the Commission’s Regulations that are applicable to Large C&I customers, EGSs are

required only to “[u]se common and consistent terminology in customer communications,

including marketing, billing and disclosure statements,” and to “[u]se the terms as defined in the

Commission’s ‘Consumer’s Dictionary for Electric Competition’ (Dictionary) maintained on file

in the Commission’s Office of Communications.”30

The Dictionary, meanwhile, provides the

following definitions:

Generation Charges[:] Part of the basic service charges on every

customer’s bill for producing electricity. Generation service is

competitively priced and is not regulated by the Public Utility

Commission. This charge depends on the contract between the customer

and the supplier.

* * *

Transmission Charges[:] Part of the basic service charges on every

customer’s bill for transporting electricity from the source of supply to the

electric distribution company. The Federal Energy Regulatory

Commission regulates retail transmission prices and services. This charge

will vary with your source of supply.31

In this way, with respect to Large C&I customers, the Commission’s Regulations and policies do

not require that NITS be charged by EGSs, rather they only require that EGSs use clear defined

terms when referencing generation versus transmission, and require that the EDC includes

30

52 Pa. Code § 54.3(1).

31 Dictionary (avail. at www.puc.state.pa.us/consumer_info/electricity/electric_competition_dictionary.aspx) at

“G” and “T”.

http://www.puc.state.pa.us/consumer_info/electricity/electric_competition_dictionary.aspx

15

transmission costs in the PTC for default service customers. These Regulations do not preclude

the EDC from being the entity that procures and charges for transmission (or, more specifically,

NITS).

With respect to other, smaller customers, the Regulations provide additional color and

also fail to preclude or prohibit the NITS Proposal. For example, the Commission’s Regulations

provide that, for smaller customers, “EGS prices billed must reflect the market prices and the

agreed upon prices in the [EGS’s] disclosure statement,”32

and that “an entity [that] has

responsibility for billing customers” – i.e., the EDC in the case of utility-consolidated billing –

must show in “distinct section[s]” of the bill33

“(i) Generation charges . . . (ii) Transmission

charges . . . [and] (iii) Distribution charges” among other items.34

In addition, the Regulations

state:

For customers who have chosen electric generation services from a

competitive supplier, the customer’s bill shall include the following

statements which may appear together in a paragraph:

(i) “Generation prices and charges are set by the electric generation

supplier you have chosen.”

(ii) “The Public Utility Commission regulates distribution prices and

services.”

(iii) “The Federal Energy Regulatory Commission regulates transmission

prices and services.”35

The same language is required to appear in EGSs’ disclosure statements for small customers.36

Finally, the Regulations state only that in these disclosure statements for small customers, “The

32

52 Pa. Code § 54.4(a).

33 52 Pa. Code § 54.4(b).

34 52 Pa. Code § 54.4(b)(3)(i)-(ii).

35 52 Pa. Code § 54.4(b)(10)(i)-(iii).

36 52 Pa. Code § 54.5(f)(1)-(3).

16

contract’s terms of service shall be disclosed, including the following terms and conditions, if

applicable: (1) Generation charges shall be disclosed according to the actual prices.”37

These

“terms and conditions” do not include any statement regarding transmission.38

It is thus clear that, while the PTC that an EDC includes on retail customers’ bills must

include generation and transmission, there is no requirement that provides that EGSs must supply

to their customers both generation and transmission. For an appropriate comparison to an EDC

PTC that includes generation and transmission, for instance, subject to the NITS Proposal, an

EGS may couple its offered generation service rate for generation that the EGS will supply with

NITS charges known at that time (e.g., NITS as identified by the EDC or on PJM bills for that

EDC’s zone in the applicable month) for the NITS that will be procured and supplied by the

EDC.

For all of these reasons, the Industrial Intervenors have clearly misconstrued the nature of

the PTC Regulations and have no basis in the Regulations to support the notion that an EGS

must supply both generation and transmission. The NITS Proposal can and will operate

appropriately within the Commission’s existing Regulations.

C. The Risk of “Double Collection” Is a Red-Herring and Several Mitigating

Factors and Mechanisms Exist to Reduce Even the Minimal Chance of a

Shopping Customer Paying Twice for NITS.

From the outset, the Industrial Intervenors’ primary argument against the NITS Proposal

has been their allegedly significant risk of having to pay twice for NITS – once through their

existing EGS contracts, and again through FirstEnergy-PA’s bills. This argument is unfounded,

37

52 Pa. Code § 54.5(c)(1).

38 52 Pa. Code § 54.5(c)(1)-(13).

17

however, because it is based on a single anecdote of the Industrial Intervenors’ witness’ EGSs,

and because several existing mitigating factors and potential mitigating mechanisms are apparent

based on a careful review of the record, which factors and mechanisms will more than

adequately address any minimal risks of “double collection.”

1. The Industrial Intervenors erroneously base their concerns of double-

collection on one customer’s experience.

First, the Industrial Intervenors base their argument on the notion that there exist EGSs

that will force shopping customers to be subject to double collection.39

As explained in the

Industrial Intervenors Brief, Mr. Plank’s company, Knouse Foods Cooperative, Inc. (“Knouse”)

is a Large C&I customer in FirstEnergy-PA territory.40

Mr. Plank explains that “Knouse spent a

significant amount of time and resources working with its EGSs only to ultimately submit to a

double collection of RTE[P] and TEC costs in order to avoid the additional costs arbitrarily

imposed by its EGSs as part of an illegal unwinding of Knouse’s contracts.”41

The Industrial

Intervenors point only to this one example their witness Frank Plank provides as support for their

perceived significant risk. Other active and prominent EGSs in this proceeding illustrate that this

is not the experience that they as EGSs provide to their customers.42

However, even if this one

example is evidence of a limited problem, there exist significant mitigating factors and potential

mitigating mechanisms that will more than adequately address such limited risk.

39

Industrial Intervenors Brief at p.22 (stating, “As evidenced by the recent transition from EGS to EDC collection

of RTEP and TEC costs, at least some EGSs have not shown a willingness to remove these costs on their own,

but instead may subject shopping customers with fixed price contracts to a double collection of these costs or

additional charges based on unwinding customers’ contracts without justification”.).



42 See, e.g., ExGen Initial Brief at pp.12-13 (explaining that EGSs are motivated to maintain positive relationships

with their customers); see also FES Brief at p.7 (explaining that “EGSs operate in a competitive market . . . and

must be sensitive to customer concerns,” and that “[i]f they are not, they may lose them”).

18

2. Several mitigating factors and mitigation mechanisms exist which more

than adequately address the minimal risks that a customer may pay twice

for NITS.

The evidence in the record is clear that, even if there is a minimal risk of double

collection of NITS, mitigating factors and mitigation mechanisms exist which will more than

adequately address such risk. First, as explained by ExGen witness David I. Fein and supported

by others:

the vast majority of EGSs would be motivated to work with their

customers to address any worries that supply contracts may already

include costs that would subsequently be collected through the DSS Rider

if they are interested in maintaining a relationship with those customers.43

Mr. Fein explains that, with respect to the situation with RTEP and TEC costs mentioned above:

ExGen’s EGS affiliate, Constellation, proactively reached out to its

customers and indicated that, for those customers whose contracts

included fixed prices for these costs, beginning with customers’ June 2013

meter reading invoices Constellation would credit to such customers the

contract amounts related to these costs as a new line item on their invoices

through the remaining terms of their contracts.44

Taking such proactive and customer-friendly measures was natural for the EGS in order to

“[maintain] a relationship with those customers.”45

After the handling of this situation by

Knouse’s EGS as explained by Mr. Plank, there would be little reason for Knouse to return to

service with that EGS once its current contract expires, and other similarly situated companies

that come to know of Knouse’s experience will be unlikely to want to do business with that EGS.

The Commission also provides mitigating structures which are meant to protect

customers from the type of situation in which Knouse found itself previously. If Knouse’s EGS

has taken part in an “illegal unwinding of Knouse’s contracts” or any other illegal or anti-

43

ExGen St. 1-R at p.6 (lines 19-22) (emphasis added).

44 ExGen St. 1-R at p.7 (lines 1-6).


19

consumer action, Knouse has the ability to file a complaint against the EGS (including a process

for optional mediation),46

with limited time and energy, to which the EGS will have to respond.

To the extent that the complaint is not resolved by the parties, the Commission can make a

determination as to an appropriate customer remedy or EGS penalty. It is not clear from the

record whether Knouse took advantage of the Commission’s protective oversight in such a way.

Next, FirstEnergy-PA correctly explains in its initial brief that the minimal risk of double

collection is further mitigated by the timing in which the NITS Proposal will be implemented.

As FirstEnergy-PA explains:

the concern expressed by the Industrial Intervenors is unfounded because

Knouse’s current EGS contract will expire on January 1, 2015 – well

before the [NITS Proposal] will take effect [on June 1, 2015]. If Knouse

believes that the [NITS Proposal] might warrant a reduction in its EGS’s

contract prices, it has the flexibility to renegotiate that pricing with its

current suppliers or other suppliers.47

To the extent that the Commission is concerned that this time period does not suffice, RESA and

ExGen have proposed a one-year lag implementing the NITS Proposal.48

In addition, in order to avoid filings of complaints related to NITS Proposal

implementation issues, as suggested by ExGen, the Commission could “assign a specific

ombudsman from its Staff with whom parties can get in touch in the event that they reach an

impasse,” in order to “serve as a neutral third party to hear out concerns and help two parties

work towards an amicable solution.”49

46

See 52 Pa. Code § 5.21-5.24.

47 FirstEnergy-PA Brief at p.9.

48 See RESA Brief at p.9; see also ExGen Initial Brief at p.13.


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Finally, in addition to the above mitigating factors and potential new mechanisms, the

Commission could consider taking the same approach for the NITS Proposal as that agreed to by

parties – including the Industrial Intervenors – as part of the Partial Settlement with respect to

RMR. FirstEnergy-PA could collect through the DSS Rider only increases to NITS costs, and

Default Service suppliers and EGSs could maintain responsibility only for those NITS costs

known at the time the Revised DSP is approved by the Commission.

With existing mitigating factors and/or with any single or combination of the new

mechanisms proposed herein, the Commission can more than adequately address the minimal

risk of double collection perceived by the Industrial Intervenors.

D. A “Large C&I” Carve-Out from the NITS Proposal Is Unnecessary if the

Commission Adopts One or More of the Mitigation Measures Presented

Herein.

All of the reasons in support of the NITS Proposal stated herein and in ExGen’s Initial

Brief apply equally to both small customers and Large C&I consumers. In particular, the NITS

Proposal will – for all sizes of consumers – help to “create a structure where the market drives

prices charged by EGSs, where EGSs expand their investment in Pennsylvania due to certainty

and a more level playing field, and where consumers enjoy competitive prices and a wide variety

of innovative product offerings.”50

Moreover, with existing mitigating factors and/or with any

single or combination of the new mechanisms proposed herein, any perceived potential double

collection risk will be appropriately addressed, regardless of the size of customer. For this

reason, the Commission should reject the Industrial Intervenors’ proposed alternative carve-out,

and approve the NITS Proposal for all customer classes.

50

Final Order, Commission Docket No. I-2011-2237952 (Feb. 14, 2013) at p.15.

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III. CONCLUSION

ExGen’s proposed improvement to FirstEnergy-PA’s Revised DSP is supported by

substantial evidence in the record before the Commission. The FirstEnergy-PA Revised DSP,

with the NITS Proposal, will encourage more competitive procurements for FirstEnergy-PA’s

DSP, more appropriate competitive options from EGSs and, in turn, will better assure that

FirstEnergy-PA’s customers are able to receive benefits from the least costs for generation

supply contracts, whether remaining on Default Service supply from FirstEnergy-PA or taking

competitive service from an EGS.

For all of the reasons herein and in its Initial Brief, ExGen continues to support the

following Ordering Paragraph:

FirstEnergy-PA is ORDERED to include NITS costs in its NMB

Charges collected through the DSS Riders.

Respectfully Submitted,

Divesh Gupta

(PA Bar # 307892)

Asst. General Counsel

Exelon Business Services Corp.

100 Constellation Way, Suite 500C

Baltimore, MD 21202

Telephone: (410) 470-3158

Facsimile: (443) 213-3556

[email protected]

Counsel for Exelon Generation Company, LLC

Dated: April 10, 2014

mailto:[email protected]

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APPENDIX – ADDITIONAL PROPOSED FINDINGS

OF FACT AND CONCLUSIONS OF LAW

Additional Proposed Findings of Fact

1. NITS charges would be separate from distribution and generation charges as part of the

DSS Riders’ NMB charges.

2. Under the NITS Proposal, Large C&I customers will maintain the ability to seek out EGS

arrangements that would provide additional predictability with respect to transmission

costs.

3. The PTC Regulations do not require that EGS charge or bill for transmission costs.

4. An EGS may couple its offered generation service rate for generation that the EGS will

supply with NITS charges known at that time for the NITS that will be procured and

supplied by the EDC in order to appropriately compare to an EDC’s PTC.

5. Several existing mitigating factors and potential mitigating mechanisms are apparent

based on a careful review of the record, which factors and mechanisms will more than

adequately address any minimal risks of “double collection.”

Additional Proposed Conclusions of Law

1. The Commission’s Regulations do not require that EGSs provide to and bill customers

for transmission.

2. The Commission’s Regulations do not preclude the EDC from being the entity that

procures and charges for transmission (NITS).

3. The NITS Proposal is not prohibited under the Competition Act and the Commission’s

Regulations.

4. The NITS Proposal is consistent with the Competition Act’s stated intent that “[i]t is in

the public interest for the transmission and distribution of electricity to continue to be

regulated as a natural monopoly subject to the jurisdiction and active supervision of the

commission.”51

.

51

66 Pa.C.S.A. § 2802 (16).

REPLY BRIEF OF EXELON GENERATION COMPANY, LLC · Company, Pennsylvania Electric ... Inc. d/b/a...

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