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Pennsylvania: Public Utility Commission Reduces Request
For Stranded Cost Recovery By $1.2 Billion Initially, PP&L asserted that it had the right to recover 100% of its stranded cost under a "regulatory compact" theory and under the provision of the United States Constitution which prohibits the unlawful taking of property. The PUC’s administrative law judge ("ALJ") endorsed PP&L’s "regulatory compact" theory and permitted PP&L to recover $4.0 billion of stranded cost. The PUC ruled, however, that it is not required to grant PP&L 100% of its claimed stranded cost under either constitutional grounds or the "regulatory compact" theory. In addition, the PUC noted that the legislative history of the Pennsylvania Restructuring Act ("PaAct") indicates there was no intent to provide for 100% recovery of a utility’s claimed stranded investment. The PUC stated that the legislative history of the PaAct indicates that it differs from the California Restructuring Act in this respect. The PUC also stated that under traditional rate regulation a utility was never entitled to a guaranteed recovery, but rather rates were set to provide a reasonable opportunity for the utility to earn its anticipated revenue requirement. The PUC order rejected PP&L’s proposal to determine the stranded costs associated with its generating assets. Under its proposal, PP&L had projected that its generating assets resulted in "lost revenues" of approximately $3.5 billion. The PUC rejected the "lost revenues" approach, stating that it was not conceptually sound. The PUC reasoned that the major flaw in the PP&L lost revenues approach was that it assumed a revenue stream which purported to duplicate expected regulated revenues in a competitive environment. The PUC stated this assumption is inconsistent with the goals of the PaAct and inconsistent with traditional ratemaking. Instead, the PUC ruled that stranded costs associated with a utility’s generating assets should be derived using an "asset valuation" method. Under this method, the net book value of a utility’s generating plants as of January 1, 1999 are to be compared to the value of the generating plants in a competitive market. In addition, the PUC ruled that the market value of PP&L’s generating assets was approximately $2.5 billion and, therefore, the resulting stranded cost was $1.5 billion. The PUC authorized PP&L to recover $2.8 billion of stranded costs through the CTC until June 30, 2007 notwithstanding the fact that the PaAct generally required the recovery of stranded cost by December 31, 2005. The PUC permitted PP&L to recover stranded costs over this extended period: because of the large amounts involved; to assure that competitive power suppliers have reasonable opportunity to compete; and to ensure consumers have a reasonable opportunity to save during the transition period. The PUC also noted that PP&L had not requested securitization of its stranded cost but stated that a substantial portion of PP&L’s stranded cost should be securitized thereby benefitting consumers and PP&L. In accordance with the PaAct, PP&L will act as the supplier of last resort. This duty to serve, according to the PUC, applies not only to customers who do not choose a competitive supplier, but also applies to customers who cannot find a willing supplier and to the provision of backup energy supply. The PUC rejected PP&L’s proposal that PP&L honor this statutory requirement by using its competitive supplier affiliate to provide this energy service. Rather, the PUC ruled that all customer who do not have a competitive supplier shall be served by PP&L pursuant to the applicable tariff. In addition, the PUC noted that customers returning to this service shall be treated no differently than customers who never selected a competitive supplier. Recently, PP&L requested the PUC to reconsider the order.
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