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  <H1>
  <CENTER>STATEMENTS OF POLICY</CENTER></H1>
  <H2>
  <CENTER>Title 52=97PUBLIC UTILITIES</CENTER></B></H2>
  <H3>
  <CENTER>PENNSYLVANIA PUBLIC UTILITY COMMISSION</CENTER></B></H3>
  <H3>
  <CENTER>[&#8201;52 PA.&#8201;CODE CH. 69&#8201;]<BR></CENTER></B></H3>
  <H4>
  <CENTER>[40 Pa.B. 2289]<BR>[Saturday, May 1, =
2010]<BR></CENTER></B></H4>
  <H5>[M-2009-2140580/57-272]<BR></H5>
  <H3>
  <CENTER><TTLSTRT>Default Service and Retail Electric=20
  Markets<TTLEND><BR></CENTER></B></H3>
  <P>Public Meeting held<BR>January 14, 2010<BR></P>
  <P><I>Commissioners Present</I>:&#8194; James H. Cawley, Chairperson; =
Tyrone J.=20
  Christy, Vice Chairperson; Kim Pizzingrilli; Wayne E. Gardner; Robert =
F.=20
  Powelson</P>
  <H3>
  <CENTER></B><I>Proposed Policy Statement Regarding Default Service and =
Retail=20
  Electric Markets; Doc. No. M-2009-2140580</CENTER></I></H3>
  <H3>
  <CENTER></B><I>Proposed Policy Statement</CENTER></I></H3>
  <P><I>By the Commission</I>:</P>
  <P>&#8195;On October 15, 2008, Governor Edward Rendell signed House =
Bill 2200, Act=20
  129, into law. Act 129 became effective on November 14, 2008. Act 129 =
has=20
  several goals including reducing energy consumption and demand. Act =
129 also=20
  revises the default service requirements contained in Chapter 28 of =
the Public=20
  Utility Code. This proposed policy statement hereby opens a proceeding =
to=20
  consider amendments to our current policy statement regarding Default =
Service=20
  and Retail Electric Markets in 52 Pa.&#8201;Code =A7=A7&#8194;69.1801, =
1817, as required by=20
  the enactment of Act 129 so that our policy statement shall be =
consistent with=20
  the Act.</P>
  <P><I>Procedural History</I></P>
  <P>&#8195;Historically, the local electric utility company was =
responsible for=20
  generating or purchasing and delivering electricity to the customers'=20
  premises. However, the Electric Generation Customer Choice and =
Competition Act=20
  (Competition Act) of December 3, 1996 (P.&#8201;L. 802, No. 138), =
codified at 66=20
  Pa.C.S. =A7=A7&#8194;2801, <I>et seq.</I>, required electric =
distribution companies=20
  (EDCs) to unbundle transmission, distribution and generation rates for =
retail=20
  customers. The Competition Act deregulated electricity generation and =
provided=20
  all customers in Pennsylvania the opportunity to choose their electric =

  generation supplier (EGS). 66 Pa.C.S. =A7&#8194;2806(a). The EDC is =
responsible for=20
  delivering the electricity to those customers who choose to buy from =
an EGS.=20
  Additionally, the EDC is responsible for both acquiring and delivering =

  electricity for those customers who do not shop or buy their =
electricity from=20
  an EGS, or whose EGS fails to provide the promised electricity.</P>
  <P>&#8195;When an EDC acquires electricity for customers not served by =
an EGS, the=20
  EDC is functioning as the ''default service provider'' (DSP). =
Currently, the=20
  rates charged to most Pennsylvania customers are capped. The =
Competition Act=20
  provided that an EDC's generation rates be capped until the EDC had =
completed=20
  its stranded cost recovery. Many of the larger EDCs agreed to extend =
rate caps=20
  as part of their electric restructuring settlements. For most of these =

  companies, generation rate caps do not expire until December 31, 2010. =
Other=20
  EDCs, most notably Duquesne Light Company and several smaller EDCs had =
shorter=20
  stranded cost recovery periods that expired much sooner, as early as =
1999 for=20
  Citizens Electric Company of Lewisburg, Inc.</P>
  <P>&#8195;Following the expiration of rate caps, the Competition Act =
provided that=20
  default suppliers ''acquire electric energy at prevailing market =
prices'' to=20
  serve default service customers and that default suppliers ''recover =
fully all=20
  reasonable costs.'' 66 Pa.C.S. =A7&#8194;2807(e)(3). There has been =
disagreement over=20
  what ''prevailing market prices'' means as applied to default service=20
  rates.</P>
  <P><I>History of Default Service Regulations and Policy =
Statement</I></P>
  <P>&#8195;On February 9, 2007, the Commission issued a Proposed Policy =
Statement=20
  Order regarding default service at Docket No. M-00072009. On May 10, =
2007, the=20
  Commission entered a Final Rulemaking Order at Docket No. L-00040169. =
The=20
  default service regulations became effective on September 15, 2007. =
The policy=20
  statement contained guidelines for DSPs in the areas of procurement, =
rate=20
  design, and cost-recovery. The default service regulations set forth =
detailed=20
  requirements for default service plans. The regulations require DSPs =
to=20
  acquire default supply at prevailing market prices. The regulations =
further=20
  require that electric generation supply be acquired by competitive bid =

  solicitations, spot market purchases or a combination of both. 52 =
Pa.&#8201;Code=20
  =A7&#8194;54.186(b)(4). Competitive bid processes are subject to =
monitoring by the=20
  Commission. 52 Pa.&#8201;Code =A7&#8194;54.186(c)(3). The regulations =
allow DSPs to use=20
  automatic adjustment clauses for recovery of non-alternative energy =
default=20
  service costs. 52 Pa.&#8201;Code =A7&#8194;54.187(f). The default =
service Policy Statement=20
  provides additional guidance to EDCs regarding energy procurement, bid =

  solicitation processes, default service cost elements, rate design, =
rate=20
  change mitigation, rate and bill ready billing, purchase of =
receivables=20
  programs, customer referral programs and supplier tariff =
uniformity.</P>
  <P><I>Act 129</I></P>
  <P>&#8195;Even though the retail provision of electric generation =
service has been=20
  subject to competition for nearly a decade, the vast majority of =
residential=20
  customers continue to obtain their generation supplies from their =
''default''=20
  supplier, that is, their regulated electric distribution utility. =
Under the=20
  1996 Pennsylvania electric restructuring law, the electric =
distribution=20
  companies (or alternative Commission-approved default suppliers) were =
required=20
  to serve non-shopping customers after rate caps ended by acquiring =
electric=20
  energy ''at prevailing market prices.'' Act 129 explicitly repealed =
the=20
  prevailing market prices standard, and declared instead that the =
utilities'=20
  generation purchases must be designed to ensure adequate and reliable =
service=20
  at the least cost to customers over time. 66 Pa.C.S. =
=A7&#8194;2807(e)(3.4).</P>
  <P>&#8195;In reviewing a utility's default service plan, the =
Commission must=20
  consider ''the default service provider's obligation to provide =
adequate and=20
  reliable service to customers and that the default service provider =
has=20
  obtained a prudent mix of contracts to obtain least cost on a =
long-term,=20
  short-term and spot market basis.'' 66 Pa.C.S. =
=A7&#8194;2807(e)(3.7).</P>
  <P>&#8195;Another substantive change is that contracts for supply =
formerly were=20
  defined as being up to 3-years in length. Now, under Act 129, a =
long-term=20
  purchase contract is generally defined as a contract ''of more than =
four and=20
  not more than 20 years.'' 66 Pa.C.S. =A7&#8194;2807(e)(3.2)(iii).</P>
  <P>&#8195;In summary, under Act 129, electric power shall be procured =
through=20
  competitive procurement processes and shall include one or more of the =

  following: (1) auctions; (2) requests for proposals; or (3) bilateral=20
  agreements. 66 Pa.C.S. =A7&#8194;2807(e)(3.1). Additionally, the =
electric power that=20
  is procured shall include a prudent mix of: (1) spot market purchases; =
(2)=20
  short-term contracts; and (3) long-term purchase contracts of more =
than 4 and=20
  not more than 20 years. 66 Pa.C.S. =A7&#8194;2807(e)(3.2). Long-term =
contracts may not=20
  constitute more than 25% of projected load absent a Commission =
determination=20
  that good cause exists for a higher percentage to achieve least cost=20
  procurement. 66 Pa.C.S. =A7&#8194;2807(e)(3.2)(iii).</P>
  <P>&#8195;The ''prudent mix'' of contracts shall be designed to =
ensure: (1) adequate=20
  and reliable service; (2) the least cost to customers over time; (3)=20
  compliance with the procurement methodologies described previously, =
that is,=20
  through auctions, requests for proposals; or bilateral agreements. 66 =
Pa.C.S.=20
  =A7&#8194;2807(e)(3.4) and (e)(3.1). ''Bilateral contract'' is a new =
term defined=20
  under 66 Pa.C.S. =A7&#8194;2803 (relating to definitions).</P>
  <P>&#8195;In terms of process, the DSP must file a plan for =
competitive procurement=20
  with the Commission and obtain Commission approval of the plan =
considering=20
  certain factors and standards under 66 Pa.C.S. =A7&#8194;2807(e) =
before the=20
  competitive process is implemented. The Commission shall hold hearings =
as=20
  necessary on the proposed plan. If the Commission fails to issue a =
final order=20
  on the plan within 9 months of the date that the plan is filed, the =
plan is=20
  deemed to be approved and the default service provider may implement =
the plan=20
  as filed. 66 Pa.C.S. =A7&#8194;2807(e)(3.6).</P>
  <P>&#8195;When evaluating a default service plan, the Commission must =
consider the=20
  DSP's obligation to provide adequate and reliable service to the =
customers and=20
  that the DSP has obtained a prudent mix of contracts to obtain the =
least cost=20
  on a long-term, short-term and spot market basis. The Commission is =
required=20
  to make specific findings that include: (1) the DSP's plan includes =
prudent=20
  steps necessary to negotiate favorable generation supply contracts; =
(2) the=20
  DSP's plan includes prudent steps necessary to obtain least cost =
generation=20
  contracts on a long-term, short-term and spot market basis; and (3) =
neither=20
  the DSP nor its affiliated interest has withheld generation supply =
from the=20
  market as a matter of Federal law. 66 Pa.C.S. =
=A7&#8194;2807(e)(3.7).</P>
  <P>&#8195;Further, under Act 129, DSPs have a right to recover default =
service costs=20
  pursuant to a reconcilable automatic adjustment clause and residential =
and=20
  small commercial and industrial customers' rates cannot change more =
frequently=20
  than quarterly. 66 Pa.C.S. =A7&#8194;2807(e)(3.9). Default service =
plans approved by=20
  the Commission prior to the effective date of Act 129 shall remain in =
effect=20
  through the approved term. However, the DSP may propose amendments to =
an=20
  approved plan. 66 Pa.C.S. =A7&#8194;2807(e)(6).</P>
  <P><I>Discussion</I></P>
  <P>&#8195;Consistent with the language of Act 129, the Commission =
proposes to make=20
  the following revisions to our policy statement regarding default =
service and=20
  retail electric markets, and invites the public to comment within 30 =
days of=20
  publication of this proposed policy statement in the <I>Pennsylvania=20
  Bulletin</I>.</P>
  <P><I>=A7&#8194;69.1803.&#8194;Definitions.</I></P>
  <P>&#8195;We propose adding definitions for ''bilateral contract'' and =
''default=20
  service provider'' such that the definitions mirror 66 Pa.C.S. =
=A7&#8194;2803.</P>
  <P><I>=A7&#8194;69.1805.&#8194;Electric generation supply =
procurement.</I></P>
  <P>&#8195;We propose amending this section to define long-term =
contracts as being=20
  neither less than 4 nor greater than 20 years in length. The section =
already=20
  states a prudent mix of arrangements should be included in a proposed=20
  procurement plan.</P>
  <P><I>=A7&#8194;69.1806.&#8194;Alternative energy portfolio standard =
compliance.</I></P>
  <P>&#8195;We propose updating this section to reflect that the DSP =
should procure=20
  electric generation supply for default service customers in compliance =
with=20
  Act 129. We invite comment on this section.</P>
  <P>&#8195;Although we see no need to amend =
=A7=A7&#8194;69.1809=9769.1817 of the policy=20
  statement, we invite comments on those sections as well.</P>
  <P>&#8195;Interested parties will be given 30 days from the date of =
publication of=20
  the proposed policy statement in the <I>Pennsylvania Bulletin </I>for =
the=20
  submission of an original and 15 copies of comments. The contact =
person is=20
  Elizabeth Barnes, Law Bureau, (717) 772-5408 (legal). A copy of all =
comments=20
  should be electronically mailed to Elizabeth Barnes at=20
ebarnes@state.pa.us.</P>
  <P><I>Conclusion</I></P>
  <P>&#8195;The Commission welcomes comments on all aspects of this =
proposed policy=20
  statement. It must be observed that this policy statement is closely =
related=20
  to the final outcome of the default service regulations rulemaking at =
Docket=20
  No. L-2009-2095604. A final policy statement will be promulgated for=20
  publication in the <I>Pennsylvania Bulletin </I>before the Commission =
issues=20
  its Final Rulemaking Order. Should the Independent Regulatory Review=20
  Commission or other entity require changes to the final-form version =
of the=20
  rulemaking, this policy statement may need to be revised for =
consistency;=20
  <I>Therefore,</I></P>
  <P><I>It Is Ordered That</I>:</P>
  <P>&#8195;1.&#8194;The proposed amendments to 52 Pa.&#8201;Code =
=A7=A7&#8194;69.1803, 69.1805 and 69.1806,=20
  as set forth in Annex A, are issued for comment.</P>
  <P>&#8195;2.&#8194;The Secretary shall submit this order and Annex A =
to the Governor's=20
  Budget Office for review of fiscal impact.</P>
  <P>&#8195;3.&#8194;The Secretary shall certify this order and Annex A =
and deposit them=20
  with the Legislative Reference Bureau for publication in the =
<I>Pennsylvania=20
  Bulletin</I>.</P>
  <P>&#8195;4.&#8194;Interested parties shall have 30 days from the date =
of publication in=20
  the <I>Pennsylvania Bulletin </I>of the proposed policy statement and =
Annex A=20
  to file an original and 15 written comments to the Pennsylvania Public =
Utility=20
  Commission, Attention: Secretary Rosemary Chiavetta, P.&#8201;O. Box =
3265,=20
  Harrisburg, PA 17105-3265.</P>
  <P>&#8195;5.&#8194;A copy of the comments should be electronically =
mailed to Elizabeth=20
  Barnes, Assistant Counsel at ebarnes@state.pa.us, and these comments =
in turn=20
  will be placed on the Commission's web site for public viewing at=20
  www.puc.state.pa.us. Attachments may not exceed three megabytes.</P>
  <P>&#8195;6.&#8194;Comments should, where appropriate, address the =
issues identified in=20
  this order and should include, where applicable, a numerical reference =
to the=20
  attached Annex A which the comments address, proposed language for =
revision,=20
  and a clear explanation for the recommendation.</P>
  <P>&#8195;7.&#8194;A copy of this order and Annex A be filed at Docket =
No. M-2140580 and=20
  Docket No. L-2009-2095604 and be served upon all electric distribution =

  companies and all electric generation suppliers operating in the =
Commonwealth,=20
  the Office of Consumer Advocate, the Office of Small Business =
Advocate, the=20
  AFL-CIO Utility Caucus, the Pennsylvania Utility Contractors =
Association and=20
  the Energy Association of Pennsylvania.</P>
  <P>&#8195;8.&#8194;The contact person is Elizabeth Barnes, Law Bureau, =
(717) 772-5408,=20
  ebarnes@state.pa.us.</P>
  <P><I>By the Commission</I></P>
  <P align=3Dright>ROSEMARY CHIAVETTA,&#8195;<BR>Secretary</P>
  <P>&#8195;<B>Fiscal Note:&#8194;</B>57-272. No fiscal impact; (8) =
recommends adoption.</P>
  <P>&#8195;(<I>Editor's Note</I>:&#8194;For a proposed rulemaking =
relating to this proposed=20
  statement of policy, see 40 Pa.B. 2267 (May 1, 2010).)</P>
  <H3>
  <CENTER>Annex A</CENTER></B></H3>
  <H3>
  <CENTER>TITLE 52.&#8194;PUBLIC UTILITIES</CENTER></B></H3>
  <H3>
  <CENTER>PART I.&#8194;PUBLIC UTILITY COMMISSION</CENTER></B></H3>
  <H3>
  <CENTER>Subpart C.&#8194;FIXED SERVICE UTILITIES</CENTER></B></H3>
  <H3>
  <CENTER>CHAPTER 69.&#8194;GENERAL ORDERS, POLICY STATEMENTS AND =
GUIDELINES ON FIXED=20
  UTILITIES</CENTER></B></H3>
  <H3>
  <CENTER>DEFAULT SERVICE AND RETAIL ELECTRIC MARKET=97STATEMENT OF=20
  POLICY</CENTER></B></H3>
  <H3>=A7&#8194;69.1803.&#8194;Definitions.</B></H3>
  <P>&#8195;The following words and terms, when used in this section and =
=A7=A7&#8194;69.1801,=20
  69.1802 and 69.1804=9769.1817, have the following meanings, unless the =
context=20
  clearly indicates otherwise:</P>
  <P>
  =
<CENTER>*&#8195;&#8195;*&#8195;&#8195;*&#8195;&#8195;*&#8195;&#8195;*</CE=
NTER>
  <P></P>
  <P>&#8195;<B><I>Bilateral contract</I>=97The term has the same meaning =
as defined in=20
  66 Pa.C.S. =A7&#8194;2803 (relating to definitions).</B></P>
  <P>
  =
<CENTER>*&#8195;&#8195;*&#8195;&#8195;*&#8195;&#8195;*&#8195;&#8195;*</CE=
NTER>
  <P></P>
  <P>&#8195;<I>DSP=97Default service provider</I>=97The <B><FONT =
size=3D+1>[</FONT>incumbent=20
  EDC within a certificated service territory or a Commission approved=20
  alternative supplier of electric generation service<FONT =
size=3D+1>]</FONT> term=20
  has the same meaning as defined in 66 Pa.C.S. =A7&#8194;2803 (relating =
to=20
  definitions)</B>.</P>
  <P>
  =
<CENTER>*&#8195;&#8195;*&#8195;&#8195;*&#8195;&#8195;*&#8195;&#8195;*</CE=
NTER>
  <P></P>
  <H3>=A7&#8194;69.1805.&#8194;Electric generation supply =
procurement.</B></H3>
  <P>&#8195;A proposed procurement plan should balance the goals of =
allowing the=20
  development of a competitive retail supply market and also including a =
prudent=20
  mix of arrangements to minimize the risk of over-reliance on any =
energy=20
  products at a particular point in time. In developing a proposed =
procurement=20
  plan, a DSP should consider including a prudent mix of supply-side and =

  demand-side resources such as long-term, short-term, staggered-term =
and spot=20
  market purchases to minimize the risk of contracting for supply at =
times of=20
  peak prices. <B>Short-term contracts are contracts up to and including =
3 years=20
  in length. Long-term contracts are contracts neither less than 4 years =
nor=20
  greater than 20 years in length</B>. Long-term contracts should only =
be used=20
  when necessary and required for DSP compliance with alternative energy =

  requirements, and should be restricted to covering a relatively small =
portion=20
  of the default service load. An over-reliance on long-term contracts =
would=20
  mute demand response, create the potential for future default service=20
  customers to bear future above market costs and limit operational =
flexibility=20
  for DSPs to manage their default service supply. The plan should be =
tailored=20
  to the following customer groupings, but DSPs may propose alternative=20
  divisions of customers by registered peak load to preserve existing =
customer=20
  classes.</P>
  <P>
  =
<CENTER>*&#8195;&#8195;*&#8195;&#8195;*&#8195;&#8195;*&#8195;&#8195;*</CE=
NTER>
  <P></P>
  <H3>=A7&#8194;69.1806.&#8194;Alternative energy portfolio standard =
compliance.</B></H3>
  <P>&#8195;In procuring electric generation supply for default service =
customers, the=20
  DSP shall comply with the Alternative Energy Portfolio Standards Act =
(73 P.&#8201;S.=20
  =A7=A7&#8194;1648.1=971648.8) <B>and the amendments provided under the =
act of October 15,=20
  2008 (P.&#8201;L. 1592, No. 129) (Act 129)</B>. <B><FONT =
size=3D+1>[</FONT>The=20
  Commission's default service regulations neither prohibit nor mandate =
the use=20
  of long-term contracts to satisfy the use of long-term contracts to =
satisfy=20
  the alternative energy portfolio standards obligation. In satisfying =
theis=20
  obligation, a DSP's procurement strategy should reflect the incurrence =
of=20
  reasonable costs.<FONT size=3D+1>]</FONT></B></P>
  <P>
  =
<CENTER>*&#8195;&#8195;*&#8195;&#8195;*&#8195;&#8195;*&#8195;&#8195;*</CE=
NTER>
  <P></P>
  <H5>
  <CENTER>[Pa.B. Doc. No. 10-776. Filed for public inspection April 30, =
2010,=20
  9:00 a.m.]</CENTER></H5>
  <P>
  <HR>
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------=_NextPart_000_0005_01CAEB68.1E859EC0--

