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Pennsylvania State University v. Public Utility Commission

January 22, 2010

THE PENNSYLVANIA STATE UNIVERSITY, PETITIONER
v.
PUBLIC UTILITY COMMISSION, RESPONDENT



The opinion of the court was delivered by: Judge McGINLEY

Argued: September 14, 2009

BEFORE: HONORABLE BERNARD L. McGINLEY, Judge, HONORABLE RENÉE COHN JUBELIRER, Judge, HONORABLE JIM FLAHERTY, Senior Judge.

OPINION

The Pennsylvania State University (PSU) petitions for review of the order of the Pennsylvania Public Utility Commission (PUC) which adopted the Recommended Decision of the Administrative Law Judge's (ALJ) denial of PSU's Petition for Declaratory Order to apply an extended generation rate cap for service to PSU's University Park campus (University Park) under the Tariff*fn1 37 account.

PSU is a major generation, transmission and distribution service customer of West Penn Power Company, d/b/a Allegheny Power (Allegheny Power) at University Park. PSU received service to University Park under the Tariff 37 account.*fn2 PSU is the only customer receiving service under the Tariff 37 account. Definitive Form Brief for Petitioner The Pennsylvania State University (PSU Brief) at 11. All other customers receive retail electric service from Allegheny Power under Tariff 39 accounts, which also includes additional PSU service locations.*fn3

I. Procedural History

A. 1998 Restructuring Settlement

In 1998, Allegheny Power submitted a restructuring filing to the PUC pursuant to the Electricity Generation Customer Choice and Competition Act (Competition Act).*fn4 Under the terms of the 1998 Restructuring Settlement, first, Allegheny Power's generation rate caps*fn5 were extended for three additional years beyond the statutory rate cap period from the end of 2005 through the end of 2008 for all Allegheny Power customers. Second, the 1998 Restructuring Settlement established stranded costs payment obligations for customers and Allegheny Power recovered $670 million in stranded costs*fn6 through a reconcilable surcharge that was to expire at the end of 2008. The extension and stranded costs obligations applied to both Tariff 37 and Tariff 39 accounts. At that time PSU was an intervenor to the Allegheny Power restructuring proceeding and a signatory to the 1998 Restructuring Settlement.

In 1999, PSU and Allegheny Power negotiated a stranded cost settlement agreement consistent with Section 2808(b) of the Competition Act, 66 Pa.C.S. § 2808(b). Under this agreement a customer was provided with the statutory option of voluntarily paying off its stranded or competitive transition charge (CTC) obligation.*fn7 The Competitive Transition Charge Buyout (CTC Buyout) accelerated PSU's monthly payment of its stranded cost liability with a reduced interest rate. PSU made its final payment under the CTC Buyout agreement in August 2003. PSU continued to receive generation service at a capped rate after its final payment.*fn8 The CTC Buyout agreement, however, did not modify the terms of the 1998 Restructuring Settlement regarding the generation rate cap for the Tariff 37 account which was set to expire at the end of 2008.

B. 2003 Petition to Extend the Stranded Cost Recovery Period

On November 25, 2003, Allegheny Power filed a Petition and Request for Expedited Action (2003 Petition) which sought authorization from the PUC to extend the stranded cost recovery period beyond December 31, 2008, which was the planned end point of Allegheny Power's stranded cost recovery period and generation rate cap as set forth in the 1998 Restructuring Settlement. Allegheny Power projected that the stranded costs for Tariff 39 accounts would not be fully collected by the end of 2008. Allegheny Power represented that it expected a short fall of more than $157 million in the recovery of its stranded costs by the end of 2008, absent an extension. Allegheny Power Exh. No. GBB-2 at 2; R.R. at 482a. The 2003 Petition, which sought the extension of the stranded costs recovery period, did not request a generation rate cap extension.

Allegheny Power's stranded costs recovery request was met with opposition from other customers because the customer's generation rate protection wound not be continued through 2009 and 2010 while Allegheny Power continued to recover stranded costs. In September 2004, the Office of Consumer Affairs (OCA), the Office of Small Business Advocate (OSBA), and the West Penn Power Industrial Power, as intervenors, argued that generation rate cap protection contained in the 1998 Restructuring Settlement, which also initially approved the stranded costs recovery period, was needed to continue if stranded costs were recovered later than 2008.

C. 2004 Petition to Extend the Generation Rate Cap

The parties to the 2003 Petition proceeding reached a settlement which was proposed to the PUC. The proposed 2004 Joint Petition For Settlement And For Modification of the 1998 Restructuring Settlement (2004 Petition), unlike the 2003 Petition, proposed an extension of Allegheny Power's generation rate cap. The 2004 Petition permitted Allegheny Power to extend its stranded cost recovery period for an additional two years through 2010 in return for a companion two year extension of Allegheny Power's generation rate cap. Allegheny Power Exh. No. GBB-3; R.R. at 514a. The 2004 Petition also preliminarily required notice to the parties in the 1998 Restructuring Settlement and to Allegheny Power customers.

As a result, Allegheny Power included a bill insert that outlined the 2004 Petition terms in its September 30 to October 28, 2004, customer billing cycle. The notice stated that the "proposed settlement would have the following effect" on the generation rate cap of Allegheny Power customers: "Generation rate protection through generation rate caps, which was to end in 2008, will be extended for two years until the end of 2010 to all customers. The generation rate caps for all customers increases each year between 2006 and 2010 to specified levels." PSU Exh. No. 1; R.R. at 283a.

Additionally, the full text of the 2004 Petition was published in the Pennsylvania Bulletin on September 25, 2004. Allegheny Power Exh. No. GBB-4; R.R. at 596a. The text referred to specific proposed rates in an Appendix A that would be applicable to customers as new capped generation rates for 2009 and 2010. The listed rate schedules in Appendix A were limited to Tariff 39 accounts.

D. Amended Joint Petition for Settlement And For Modification Of The 1998 Restructuring Settlement (2005 Settlement)

On May 11, 2005, the PUC issued an Order that approved the 2005 Settlement which referenced a Revised Appendix A where it extended the stranded cost recovery and modified a capping for Allegheny Power's generation rates for 2009 and 2010.*fn9

II. Current Controversy

A. Petition for Declaratory Order

On December 3, 2007, PSU filed a Petition for Declaratory Order with the PUC and sought a declaration that the extension of Allegheny Power's generation rate cap from the end of 2008 through 2010, pursuant to the May 11, 2005, Order,*fn10 applied to electric generation service provided to PSU at University Park under the Tariff 37 account as well as to customers under Tariff 39 accounts. Without capped generation rate protection, PSU alleged that it would be exposed to increased market prices for electric generation for 2009 and 2010 for approximately $9.2 million per year. PSU Exh. No. 1 at 10; R.R. at 77a.

Allegheny Power filed an answer and new matter and requested the PUC to dismiss PSU's Petition for Declaratory Order. Allegheny Power argued the May 11, 2005, Order, which approved the 2005 Settlement, extended the generation rate caps through 2010 for specific rate schedules for Tariff 39 accounts because Allegheny Power was under-collecting its stranded costs for customers serviced under Tariff 39 accounts. Therefore, PSU's rate cap under the Tariff 37 account was not extended under the May 11, 2005, Order. PSU replied to Allegheny Power's New Matter. The OSB and the OCA intervened.

B. Petition for Default Service Procurement Plan

On January 21, 2008, Allegheny Power filed a Petition with the PUC for approval of a Default Service Procurement Plan (DSPP Petition) to establish the terms and conditions under which Allegheny Power would supply Provider of Last Resort (POLR) service to PSU's University Park campus under the Tariff 37 account for 2009-2010 if PSU did not obtain generation service from a PUC-licensed competitive electric generation supplier. The proposed DSPP Petition was based upon Allegheny Power's assertion that the restructuring transition period and generation rate cap for the Tariff 37 customers account expired on December 31, 2008.

PSU filed an Answer and a Petition to Intervene on February 8, 2008, and a Protest to the DSPP Petition on March 10, 2008. PSU again stated that the extended generation rate cap approved by the PUC in the May 11, 2005, Order also applied to service rendered by Allegheny Power to University Park under the Tariff 37 account. PSU argued that the issue concerning the extension of the generation rate caps under Tariff 37 account needed to be initially determined because if the rate cap extensions applied, there was no need to determine the issue of default service supply for PSU at University Park for 2009 and 2010.

The PUC consolidated PSU's Petition for Declaratory Order with Allegheny Power's DSPP Petition.*fn11 On June 18 and 19, 2008, ...


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