MOI·gan Lewis

Anthony C. DeCusatisOf Counsel+1.215.963.5034anthony.decusatis@morganlewis.com

March 16, 2018

VIA eFILlNG AND FEDERALEXPRESS

Rosemary Chiavetta, SecretaryPennsylvania Public Utility CommissionCommonwealth Keystone Building400 North StreetHarrisburg, PA 17120

Re: Respond Power LLCv. Pennsylvania Electric CompanyDocket No. C-2016-2576287

Re: Respond Power LLCv. West Penn Power CompanyDocket No. C-2016-2576292

Re: Respond Power LLCv. Pennsylvania Electric CompanyDocket No. C-2017-2631326

Re: Respond Power LLCv. West Penn Power CompanyDocket No. C-2017-2631331

Dear Secretary Chiavetta:

Enclosed for filing in the above-referenced matter is the Initial Brief on behalf ofPennsylvania Electric Company and West Penn Power Company. The "Public"version of the Initial Brief is being eFiled. The "Confidential" version is being filed inhard copy only in a sealed envelope marked "Confidential". Copies have been servedupon presiding Administrative Law Judge David A. Salapa and all parties of record asindicated on the attached Certificate of Service.

Vi IIY tru.ly yours, .~ '. ( -~

.tlt-J-tl~J2i(~L~Anthony C. Dectatis

Enclosures ~c: Per Certificate of Service (w/encls.)

Morgan, Lewis & Bockius LLP

DB1/ 96362081.11701 Market StreetPhiladelphia, PA 19103-2921United States

0+1.215.963.50000+1.215.963.5001

BEFORE THEPENNSYLV ANIA PUBLIC UTILITY COMMISSION

RESPOND POWER LLCv.

PENNSYLVANIA ELECTRICCOMPANY

Docket No. C-2016-2576287

RESPOND POWER LLCv.

WEST PENN POWER COMPANYDocket No. C-2016-2576292

RESPOND POWER LLCv.

PENNSYLVANIA ELECTRICCOMPANY

Docket No. C-2017-2631326

RESPOND POWER LLCv.

WEST PENN POWER COMPANYDocket No. C-2017-2631331

CERTIFICATE OF SERVICE

I hereby certify and affirm that I have this day served a copy of the Initial Brief on behalf

of Pennsylvania Electric Company and West Penn Power Company on the following persons,

in the manner specified below, in accordance with the requirements of 52 Pa. Code § 1.54:

VIA ELECTRONIC MAIL AND FEDERAL EXPRESS

The Honorable David A. SalapaAdministrative Law JudgePennsylvania Public Utility Commission400 North Street, 2nd Floor WestCommonwealth Keystone BuildingHarrisburg, PA 17120dsalapa@pa.gov

DB1/ 96362263.1

Karen O. MouryEckert Seamans Cherin & Mellot, LLC213 Market Street, 8th FloorHarrisburg, PA 17101kmoury@eckertseamans.comAttorneysfor Respond Power LLC

Aron J. BeattyHayley E. DunnOffice of Consumer Advocate555 Walnut Street5th Floor, Forum PlaceHarrisburg, PAl 7101-1923abeatty@paoca.orghdunn@paoca.org

Susan E. BruceCharis MincavageAllesandra L. HylanderMatthew L. GarberMcN ees Wallace & Nurick, LLC100 Pine StreetP.O. Box 1166Harrisburg, PA 17108-1166sbruce@mcneeslaw.comcmincavage@mcneeslaw.comahylander@mcneeslaw.commgarber@mcneeslaw.comAttorneys for the Met-Ed Industrial UsersGroup. the Penelec Industrial CustomerAlliance and the West Penn PowerIndustrial Intervenors

Dated: March 16,2018

DB1/96362263.1

Daniel G. AsmusOffice of Small Business AdvocateCommerce Tower, Suite 202300 North Second StreetHarrisburg, PA 17101dasmus@pa.gov

Patrick M. CiceroElizabeth R. MarxKadeem MorrisPennsylvania Utility Law Project118 Locust StreetHarrisburg, PA 17101pulp@palegalaid.netAttorneysfor Coalitionfor Affordable UtilityServices and Efficiency in Pennsylvania

Allison C. KasterPennsylvania Public Utility CommissionBureau of Investigation & EnforcementCommonwealth Keystone Building400 North Street, 2nd FloorHarrisburg, PA 17120akaster@pa.gov

R :spectfully submitted, '

tU,'-KlU1L d ~D~}{l~---Anthony C. D usatis (Pa. No. 25700)Brooke E. M linn (Pa. No. 204918)Morgan, Lewis & Bockius LLP1701 Market StreetPhiladelphia, PA 19103-2921215.963.5234 (bus)215.963.5001 (fax)anthony.decusatis@morganlewis.combrooke.mcglinn@morganlewis.com

Attorneysfor Pennsylvania Electric Companyand West Penn Power Company

2

TABLE OF CONTENTS

Page

-i-

I. INTRODUCTION AND OVERVIEW ............................................................................. 1

II. STATEMENT OF THE CASE .......................................................................................... 3

A. Background Of The Companies’ POR Programs And The Need For A Mechanism To Address Excessive POR-Related Write-Offs ..................... 3

B. Respond Power’s Opportunity To Challenge The POR Clawback Provision Approved In The Companies’ DSP IV Proceeding ............................... 5

C. Implementation Of The POR Clawback Provision Consistent With The Final DSP IV Order ........................................................................................ 7

D. Respond Power’s Opposition To The Companies’ Invoices Issued on September 27, 2016 And The Entry of An Emergency Order .......................... 8

E. The Pleadings ......................................................................................................... 9

F. Schedule, Testimony and Hearings...................................................................... 11

III. STATEMENT OF ISSUES, BURDEN OF PROOF AND LEGAL STANDARDS.................................................................................................................. 12

A. Statement Of Issues.............................................................................................. 12

B. Respond Power’s Burden of Proof ...................................................................... 16

C. The Preclusive Effect Of A Prior Commission Order Under Section 316 Of The Public Utility Code .............................................................. 17

IV. SUMMARY OF THE ARGUMENT .............................................................................. 20

V. ARGUMENT ................................................................................................................... 23

A. Respond Power’s Complaints Are A Collateral Attack On The DSP IV Final Order That Are Barred By Section 316 Of The Public Utility Code .............................................................................................. 23

B. Respond Power Has Not Demonstrated Facts Or Circumstances That Would Render Application Of The Commission-Approved Clawback Provision In The Companies’ Supplier Coordination Tariffs To Respond Power Unjust Or Unreasonable ........................................... 29

1. The Clawback Provision is Not Retroactive in Nature ............................ 31

2. The Design of the Clawback Provision Is Reasonable And Ensures Fair Recovery of Excessive EGS Write-Offs From Only Those EGSs Responsible For Creating Higher Uncollectible Accounts Expense ............................................................. 36

-ii-

3. The Second Prong Of The Clawback Provision Screening Test Does Not Limit EGS Prices And Is An Appropriate Benchmark For Assessing Excessive EGS Prices That Drive Higher Than Average Write-Offs .................................................. 45

4. The Clawback Provision Does Not Have An Adverse Impact On Retail Competition ................................................................. 48

C. The Companies Did Not Make Computational Errors In Calculating the Clawback Charges That Are The Subject Of The Complaints ........................................................................................................... 49

VI. CONCLUSION ................................................................................................................ 50

APPENDIX A – Proposed Findings of Fact, Conclusions of Law and Ordering Paragraphs

-iii-

TABLE OF AUTHORITIES

Page(s)

COURT CASES

Brockway Glass Co. v. Pa. P.U.C., 437 A.2d 1067 (Pa. Cmwlth. 1981) ...................................................................................14, 16

Cheltenham & Abington Sewerage Co. v. Pa. P.U.C., 344 Pa. 366, 25 A.2d 334 (1942) .............................................................................................14

Lancaster Ice Mfg. Co. v. Pa. P.U.C., 185 Pa. Super. 615, 138 A.2d 262 (1957) ................................................................................14

Lehigh Valley Power Comm. v. Pa. P.U.C., 563 A.2d 557 (Pa. Cmwlth. 1989) ...........................................................................................17

The Pennsylvania State University v. Pa. P.U.C., 988 A.2d 771 (Pa. Cmwlth. 2010) .....................................................................................18, 19

Schneider v. Pa. P.U.C., 479 A.2d 10 (Pa. Cmwlth. 1984) .............................................................................................18

Shenango Twp. Bd. Of Supervisors v. Pa. P.U.C., 686 A.2d 910 (Pa. Cmwlth. 1996) .....................................................................................15, 16

West Penn Power Co. v. Pa. P.U.C., 174 Pa. Super. 123, 100 A.2d 110 (1953) ................................................................................14

Zucker v. Pennsylvania Public Utility Commission, 401 A.2d 1377 (Pa. Cmwlth. 1979) .........................................................................................16

COMMISSION CASES

Investigation of Pennsylvania’s Retail Nat. Gas Supply Mkt., Docket No. I-2013-2381742, 2014 Pa. P.U.C. LEXIS, (Order entered Aug. 21, 2014) .........................................................................................................................27

Investigation of Pennsylvania’s Retail Elec. Mkt. Intermediate Work Plan, Docket No. I-2011-2237952 (Order entered Mar. 21 2012) ....................................................28

Investigation of Pennsylvania’s Elec. Mkt.: Recommendations Regarding Upcoming Default Serv. Plans, Docket No. I-2011-2237952 (Order entered Dec. 16, 2011 ....................................................27

-iv-

Joint Application of West Penn Power Co. d/b/a Allegheny Power, Trans-Allegheny Interstate Line Co. and FirstEnergy Corp. for a Certificate of Pub. Convenience under Section 1102(a)(3) of the Public Utility Code Approving a Change-In-Control of West Penn Power Co. and Trans-Allegheny Interstate Line Co., Docket Nos. A-2010-2176520 and A-2010-2176732 (Order entered Mar. 8, 2011)..............................................................................................................................3

Joint Petition of Metropolitan Edison Co. and Pennsylvania Elec. Co. for Approval of Their Default Serv. Programs, Docket Nos. P-2009-2093053 and P-2009-2093054 (Order entered Nov. 6, 2009) .............................................................................................................................3

Joint Petition of Metropolitan Edison Co., Pennsylvania Elec. Co. and Pennsylvania Power Co. for Approval of Their Default Serv. Programs, Docket Nos. P-2011-2273650, et al. (Order entered Aug. 16, 2012) ......................................35

Joint Petition of Metropolitan Edison Co., Pennsylvania Elec. Co. and Pennsylvania Power Co. for Consolidation of Proceedings and Approval of Energy Efficiency and Conservation Plans, Docket Nos. M-2009-2092222, et al., 2010 Pa. PUC LEXIS 561 (Order entered Jan. 28, 2010) ..................................................................................................34

Joint Petition of Metropolitan Edison Co. Pennsylvania Elec. Co., Pennsylvania Power Co., and West Penn Power Co. for Approval of Their Default Serv. Programs, Docket Nos. P-2013-2391368, et al. (Order entered July 24, 2014) ...................................3, 28

Petition of Duquesne Light Co. for Approval of a Default Serv. Plan for the Period January 1, 2008 Through December 31, 2010, Docket No. P-00072247, 2007 Pa. PUC LEXIS 36 (June 22, 2007) ......................................27

Petition of Duquesne Light Co. for Approval of a Default Serv. Plan for the Period January 1, 2008 Through December 31, 2010, Docket No. P-00072247 (Recommended Decision entered May 8, 2007) ......................................................................................................................27, 33

Petition of Metropolitan Edison Co., Pennsylvania Elec. Co., Pennsylvania Power Co. and West Penn Power Co. for Approval of a Default Serv. Program for the Period Beginning June 1, 2017, through May 31, 2019, Docket Nos. P-2015-2511333, P-2015-2511351, P-2015-2511355 and P-2015-2511356 (Recommended Decision issued Apr. 15, 2016)............................................7

Petition of Pennsylvania Power Co. for Approval of its Default Serv. Program, Docket No. P-2010-2157862 (Order entered Nov. 17, 2010) ..................................................27

-v-

Petition of the Pennsylvania State Univ. for Declaratory Order Concerning the Generation Rate Cap of the West Penn Power Co. d/b/a Allegheny Power, 103 Pa. P.U.C. 472 (Recommended Decision issued July 28, 2008) ......................................18

Petition of the Pennsylvania State Univ. for Declaratory Order Concerning the Generation Rate Cap of the West Penn Power Co. d/b/a Allegheny Power, 103 Pa. P.U.C. 451 (Order entered Sept. 11, 2008) .................................................................19

STATUTES & REGULATIONS

52 Pa. Code § 69.1814 .....................................................................................................................3

66 Pa.C.S. § 316 ..................................................................................................................... passim

66 Pa.C.S. § 332(a) ........................................................................................................................16

I. INTRODUCTION AND OVERVIEW

This proceeding was initiated by Respond Power’s Complaints filed on November 17,

2016 and October 27, 2017 challenging the application of the Commission-approved “clawback”

provision in the Electric Generation Supplier Coordination Tariffs (“Supplier Coordination

Tariffs”) of Pennsylvania Electric Company (“Penelec”) and West Penn Power Company (“West

Penn”) (individually, a “Company” and collectively, the “Companies”), effective on August 1,

2016, to Respond Power, an electric generation supplier (“EGS”) in each Company’s respective

service territory. The clawback provision imposes an administrative charge on EGSs that elect

to participate in the Companies’ purchase of receivables (“POR”) programs and that: (1)

operate under a business model that results in their accounts receivables producing a write-off

percentage (write-offs for non-payment as a percentage of revenues) that exceeds 200% of each

Company’s average EGS write-off percentage; and (2) charged prices for generation service that,

on average, exceeded 150% of the applicable Company’s average Price-to-Compare (“PTC”).

The clawback provision was approved by the Pennsylvania Public Utility Commission

(“PUC” or the “Commission”) in its Final Order approving the settlement of the Companies’

fourth default service program (“DSP IV”) proceeding. Respond Power was served with the

Petition that initiated that proceeding, which set forth the terms of the clawback provision as

initially proposed,1 and was also served with the accompanying direct testimony, which

described the clawback provision in detail and explained how it would operate. Respond Power

chose not to intervene in the DSP IV proceeding. Other EGSs and the trade association for EGSs

in Pennsylvania intervened and participated actively in the proceeding by addressing, among

other things, the terms of the clawback charge.

1 As part of the settlement, the terms of the clawback provision were made materially more favorable to EGSs than the terms the Companies initially proposed.

2

Respond Power contends it should not be bound by the Commission’s Final Order in the

DSP IV proceeding because, despite having been served with the Companies’ DSP IV Petition

and direct testimony, it nonetheless did not receive “notice” that a change in the Companies’

POR programs was being proposed. On that basis, Respond Power claims that it should be

allowed to collaterally attack the Commission’s Final Order approving the DSP IV settlement

and challenge the “justness and reasonableness” of the clawback provision. As the record

evidence shows, however, Respond Power has simply characterized its own failure to read the

Companies’ DSP IV Petition as an alleged lack of “notice.” Accordingly, Respond Power’s

attempt to collaterally attack the Commission’s DSP IV Final Order is legally barred; Respond

Power is bound by the terms of that order; and Respond Power cannot lawfully mount an after-

the-fact challenge to the Commission’s prior approval of the clawback charge.

Despite the Commission’s findings to the contrary, Respond Power contends that the

clawback charges imposed by invoices issued by the Companies on September 27, 2016 and

September 29, 2017 are not “just and reasonable” because: (1) the use of historical data to

determine whether the charge would apply to an EGS constitutes unlawful retroactive

ratemaking; (2) the “structure” of the charge allegedly makes it inequitable as applied to

Respond Power; and (3) Respond Power regards the charge as an attempt to “limit” the “price”

that EGSs can charge. Respond Power also contends that the clawback charge will have a

material adverse effect on Respond Power and on electric retail competition in Pennsylvania.

These arguments constitute the substance of Respond Power’s unlawful collateral attack on the

DSP IV Final Order and should be rejected for that reason alone. In addition, the record

evidence in this case demonstrates that Respond Power’s arguments have no basis in fact or law

and, therefore, even if those arguments were considered on their merits, should be rejected.

3

II. STATEMENT OF THE CASE

A. Background Of The Companies’ POR Programs And The Need For A Mechanism To Address Excessive POR-Related Write-Offs

As explained in the direct testimony of the Companies’ witness, Kimberlie L. Bortz,

consistent with the Commission’s Policy Statement at 52 Pa. Code § 69.1814, each of the

Companies agreed to provide, and the Commission approved, POR programs for residential and

small commercial accounts served by EGSs. Penelec’s POR program was proposed in the

context of its first default service program as part of the settlement that was approved by the

Commission’s Final Order entered November 9, 2009.2 Prior to the merger of Allegheny

Energy, Inc. and FirstEnergy Corp. in 2011, West Penn purchased EGS account receivables with

full recourse for uncollectible accounts. Following the merger, West Penn revised its POR

program to purchase EGS accounts receivable at a zero discount and without recourse.3

Thereafter, further revisions to West Penn’s POR program and recovery of uncollectible

accounts expense related to purchased receivables were addressed in the settlement of its 2013

default service program filing.4 Penelec/West Penn (“PE/WP”) St. No. 1, p. 9.

Under the terms of their POR programs, the Companies purchase the accounts receivable

of participating EGSs at face value (i.e., with no discount for uncollectible accounts) and without

recourse for amounts not collected from EGSs’ customers. Accordingly, the Companies and

2 Joint Petition of Metropolitan Edison Co. and Pennsylvania Elec. Co. for Approval of Their Default Serv. Programs, Docket Nos. P-2009-2093053 and P-2009-2093054 (Opinion and Order approving settlement entered Nov. 6, 2009) (“Penelec/Met-Ed DSP I Order”).

3 Joint Application of West Penn Power Co. d/b/a Allegheny Power, Trans-Allegheny Interstate Line Co. and FirstEnergy Corp. for a Certificate of Public Convenience under Section 1102(a)(3) of the Public Utility Code Approving a Change-In-Control of West Penn Power Co. and Trans-Allegheny Interstate Line Co., Docket Nos. A-2010-2176520 and A-2010-2176732 (Final Order entered Mar. 8, 2011), p. 32.

4 Joint Petition of Metropolitan Edison Co. Pennsylvania Elec. Co., Pennsylvania Power Co., and West Penn Power Co. for Approval of Their Default Serv. Programs, Docket Nos. P-2013-2391368, et al. (Opinion and Order approving settlement entered July 24, 2014).

4

their customers bear the risk of customer accounts that must be written off. Each Company

recovers uncollectible accounts expenses associated with purchased receivables through its

Default Service Support Rider (“DSS Rider”) up to the allowance for uncollectible expense

approved in the Companies’ 2016 base rate cases. PE/WP St. No. 1, pp. 9-10.

On November 3, 2015, the Companies, with their affiliates, Metropolitan Edison

Company (“Met-Ed”) and Pennsylvania Power Company (“Penn Power”), filed a Joint Petition

(“DSP IV Joint Petition”) requesting that the Commission approve, inter alia, each Petitioner’s

proposed DSP IV, their proposed rates for default generation service, the continuation of their

customer referral programs and a revision to their POR programs to add a clawback provision.

As initially proposed, the clawback charge could have been imposed if any EGS’s average

accounts receivable write-off percentage for the preceding annual period exceeded 150% of the

average write-off percentage for all POR-participating EGSs. If that threshold were crossed, an

EGS that wished to remain in the POR program would, as a condition of doing so, have to pay a

fee equal to the difference between its actual write-offs and what its write-offs would have been

at 150% of the average write-off percentage for all participating EGSs. See PE/WP St. No. 1, p.

17.

The Companies proposed the addition of a clawback provision to their POR programs in

DSP IV to reduce the Companies’ and customers’ exposure to increased uncollectible expense

due to excessive EGS write-offs. In analyzing growth in uncollectibles since their 2014 base rate

proceedings, the Companies identified an approximate $7 million increase in POR-related net

write-offs since 2012, when they began tracking discrete categories of write-offs. The

Companies further identified a wide variance in percentages for EGS write-offs as a percentage

of generation revenues billed over a twelve-month period. In order to address this disparity in

5

EGS-related write-off percentages, the Companies proposed to collect a portion of growing

uncollectible accounts expense from EGSs – specifically, those EGSs who are driving higher

write-offs as a consequence of the types of offers they make to customers. In addition, the

clawback provision was designed to ensure that if uncollectible accounts expense is less than the

baseline amount included in the Companies’ base rates, the clawback revenues are returned to

distribution customers. PE/WP St. No. 1, pp. 7, 10-11.

B. Respond Power’s Opportunity To Challenge The POR Clawback Provision Approved In The Companies’ DSP IV Proceeding

The DSP IV Joint Petition together with all of its accompanying direct testimony and

exhibits was served upon, inter alia, all EGSs licensed to sell electric generation in the service

areas of the Joint Petitioners, including Respond Power and the Retail Energy Supply

Association (“RESA”), a trade association of EGSs of which Respond Power, through its parent,

is a member.5 As discussed in Section V.A, infra, the DSP IV Joint Petition, as well as the

accompanying testimony of Ms. Bortz, included a detailed description of the proposed clawback

provision and explained why it was being proposed.

A Notice was published in the November 14, 2015 edition of the Pennsylvania Bulletin

explaining how any interested party could intervene in the proceeding initiated by the DSP IV

Joint Petition. The Notice also stated that a Prehearing Conference was scheduled for December

1, 2015, commencing at 10:00 A.M., before Administrative Law Judge David A. Salapa, to be

held in Hearing Room 4 of the Commonwealth Keystone Building in Harrisburg. Contact

information for Judge Salapa was also provided. In addition, the Commission issued a Notice of

5 See RESA’s website at https://www.resausa.org/members. Respond Power and Spark Energy are subsidiaries of a common parent. See Respond Power LLC License Update at Docket Nos. A-2010-2163898, C-2014-2427659 and C-2014-2438640 (May 4, 2016), which updated Respond Power’s EGS license to reflect a change in ownership when it became a subsidiary of Spark Energy.

6

such Prehearing Conference and Judge Salapa issued his Prehearing Conference Order, both of

which were served on all the same parties that received the DSP IV Joint Petition, including

Respond Power, as evidenced by the accompanying service list. PE/WP St. No. 1, pp. 13-14.

Various parties intervened in the DSP IV proceeding, including RESA and two EGSs that

market generation services in the Companies’ service areas, and the testimony of various

witnesses addressed the proposed clawback charge. Despite having been actually served with

the legal pleading and all accompanying testimony and exhibits that initiated the Companies’

DSP IV proceeding, Respond Power chose not to intervene. PE/WP St. No. 1, pp. 16-17.

The parties to the Companies’ DSP IV proceeding subsequently achieved a settlement of

all issues related to the DSP IV Joint Petition (“Settlement”). The terms of the clawback

provision agreed to by the settling parties were substantially more lenient to EGSs than the

Companies’ original proposal. Specifically, the Settlement narrowed the application of the

proposed clawback fee in two ways which, in turn, significantly reduced the number of EGSs

that potentially could be subject to the charge. First, the write-off threshold was raised from

150% to 200% of the average write-off percentage of all EGSs. Second, another screening

feature was added such that, even if an EGS crossed the 200% threshold, it would not incur a

clawback fee unless, during the review period, the average price it charged for generation was

more than 150% of the applicable Company’s average PTC for the same period. The parties also

agreed that the clawback provision would be implemented for two years on a “pilot” basis, after

which it would be subject to further review. RESA signed the Joint Petition for Settlement and

no other EGSs that intervened in the DSP IV proceeding opposed it. PE/WP St. No. 1, p. 17.

In its Final Order approving the DSP IV Joint Petition, as modified by the Settlement, the

Commission found the Settlement terms to be in the public interest, including implementation of

7

a POR clawback charge on a pilot basis for two years. 6 The Commission’s Chairman issued a

separate statement supporting the Settlement. No party filed an appeal. 7

C. Implementation Of The POR Clawback Provision Consistent With The Final DSP IV Order

As Ms. Bortz explained in her direct testimony, the Companies applied the screening test

under the clawback provision in the same manner to all EGSs serving residential and small

commercial customers in their service territories. Specifically, the Companies first analyzed

revenues and write-offs during the applicable test period ending August 31 for each EGS

participating in the applicable Company’s POR program to calculate individual write-off

percentages and the overall average EGS write-off percentage. Write-offs are customer accounts

receivable balances that become delinquent due to non-payment and are written off the

Company’s books approximately 182 days after a customer’s account is final billed. The

Companies next calculated an average rate for each EGS based on its revenues and kilowatt-

hours sold over the applicable twelve-month test period and compared that rate to 150% of the

weighted average quarterly PTCs for residential and small commercial customers over the same

period. For those EGSs identified by both prongs of the test, the annual clawback charge

6 See Petition of Metropolitan Edison Co., Pennsylvania Electric Co., Pennsylvania Power Co. and West Penn Power Co. for Approval of a Default Serv. Program for the Period Beginning June 1, 2017, through May 31, 2019, Docket Nos. P-2015-2511333, P-2015-2511351, P-2015-2511355 and P-2015-2511356 (Recommended Decision issued April 15, 2016) (“Recommended Decision”), p. 31 (“I conclude that the provision of the joint petition for settlement establishing the POR clawback charge is in the public interest. As the parties recognize, any unpaid bills for service rendered are borne by all the utility’s ratepayers. The POR clawback charge addresses FE’s concerns about increasing amounts of unpaid bills and the resulting write-offs while balancing the concerns of the other parties as outlined above.”). The Recommended Decision was adopted by the Commission without modification by Final Order entered May 19, 2016 (“DSP IV Final Order”).

7 Supplier Coordination Tariff supplements setting forth all of the revisions to the Companies’ POR programs, including the clawback provision, were agreed to by the settling parties, attached to the Joint Petition for Settlement and approved by the Commission pursuant to the DSP IV Final Order. However, because the supplements filed with the Joint Petition for Settlement did not bear supplement numbers, they were not included in the Companies’ tariff books at the Secretary’s Bureau. When this came to the Companies’ attention, they filed the Supplements with the Secretary and, by Secretarial Letter dated November 10, 2016, the Supplements were accepted nunc pro tunc with an effective date of August 1, 2016.

8

assessed is the difference between the EGS’s actual write-offs and what its write-offs would be if

calculated at 200% of the average EGS write-off percentage for each Company. PE/WP St. No.

1, pp. 18-19.

For the twelve months ended August 31, 2016, the Companies identified Respond Power

and two other EGSs that were subject to clawback charges and calculated Respond Power’s

charges of $305,890.63 and $178,907.06, for Penelec and West Penn, respectively. PE/WP

Exhibit KLB-1; RP Exhibit AS-2. On September 27, 2016, the Companies issued Respond

Power invoices for those amounts (“2016 Clawback Charges”). RP Exhibit AS-1. For the

twelve months ended August 31, 2017, based on the Companies’ analyses, Respond Power also

satisfied both prongs of the screening test, along with two other EGSs. PE/WP Exhibit KLB-1.

On September 29, 2017, Penelec and West Penn issued Respond Power invoices for the amounts

of $142,973.13 and $68,039.41, respectively, for the amount of Respond Power’s write-offs over

200% of the EGS average write-off percentage for each respective Company (“2017 Clawback

Charge”). RP Exhibits AS-9 & AS-10.

D. Respond Power’s Opposition To The Companies’ Invoices Issued on September 27, 2016 And The Entry of An Emergency Order

On October 21, 2016, Respond Power sent letters to Penelec and West Penn objecting to

the 2016 Clawback Charges and requesting a waiver and extension of the due date. On October

26, 2016, Respond Power filed a Petition for Issuance of Ex Parte Emergency Order seeking an

extension of the due date for payment of the clawback charge. On October 27, 2016,

Commissioner Andrew Place granted the ex parte petition and issued an Emergency Order. On

November 1, 2016, the Companies filed an Answer to Respond Power’s Petition for an

Emergency Order in which it explained why Respond Power was not entitled to the relief it

9

requested. The Commission ratified the Emergency Order at its public meeting held on

November 10, 2016.

The Commission’s ratification order directed that a hearing be held on the Emergency

Order within ten days. A hearing was, therefore, scheduled for November 17, 2016. On

November 16, 2016, Respond Power filed a single Complaint against Penelec and West Penn

challenging the validity of the clawback charge and, in particular, seeking to nullify the clawback

provisions back to the date of the DSP IV Final Order. At the request of the Commission’s

Secretary, Respond Power filed separate Complaints against Penelec and West Penn on

November 17, 2016 (“2016 Complaints”).8

E. The Pleadings

As previously noted, this case was initiated on November 17, 2016 by Respond Power’s

2016 Complaints. On December 8, 2016, each of the Companies filed Answers and New Matter.

They also filed Motions for Judgment on the Pleadings (“Motions”) requesting dismissal on the

principal grounds that the 2016 Complaints are unlawful collateral attacks on a Commission final

order and, as such, are barred by Section 316 of the Public Utility Code (“Code”).

The Office of Consumer Advocate (“OCA”) and the Office of Small Business Advocate

each filed a Notice of Intervention and Public Statement on December 8, 2017 and December 13,

2017, respectively, in response to the 2016 Complaints. The Coalition for Affordable Utility

Services and Energy Efficiency in Pennsylvania (“CAUSE-PA”) and the Penelec Industrial

8 After the 2016 Complaints were filed, the Companies confirmed with Respond Power that the 2016 Clawback Charges billed to Respond Power were “disputed” and, pursuant to the terms of their Supplier Coordination Tariffs, collection efforts could not, therefore, be renewed until the Commission resolved the dispute. Accordingly, Respond Power withdrew its Petition for an Emergency Order, which had become moot. Judge Salapa cancelled the hearing scheduled for November 17, 2016, and approved the withdrawal. The 2016 Clawback Charges remain unpaid, and the Companies have postponed any collection efforts until this case is adjudicated.

10

Customer Alliance, the West Penn Power Industrial Intervenors and the Met-Ed Industrial Users

Group (jointly) also filed Petitions to Intervene. On December 14, 2016, the Commission’s

Bureau of Investigation and Enforcement (“I&E”) filed a Notice of Appearance.

On January 23, 2017, Judge Salapa issued his Order Granting In Part, Motion For

Judgment On The Pleadings (“January 2017 Order”). The “In Part” in the Order’s title refers to

the Companies’ acknowledgment, which the Judge accepted, that their Motions did not extend to

Respond Power’s averments that the Companies allegedly made computational errors in

calculating the charges that are the subject of the 2016 Complaints.

In response, on January 26, 2017, Respond Power filed a Petition for Interlocutory

Review and Answer to Material Questions (“Petition”) and posed the following two questions

for the Commission’s consideration:

A. May an entity to whom a utility tariff provision is applied file a complaint with the Commission challenging the application of the tariff?

B. Are Commission-approved tariffs subject to a just and reasonable standard?9

On July 13, 2017, the Commission entered an Opinion and Order granting interlocutory review,

answered the foregoing questions in the affirmative and remanded the matter to the Office of

Administrative Law Judge. The ALJ’s January 2017 Order and the Commission’s Opinion and

Order are discussed in more detail in Section III, infra.

On October 27, 2017, Respond Power filed separate Complaints against Penelec and

West Penn disputing charges for the second year that the clawback provision was in effect and

assessed in the Companies’ September 29, 2017 invoices (“2017 Complaints”).10 On November

9 See Petition at 1-2.

10 The direct testimony of Respond Power’s witness, Adam Small, made clear that Respond Power’s 2016 Complaints disputed charges for the first year the clawback provision was in effect, even though his testimony was served over two weeks after Respond Power received the Companies’ September 29, 2017 invoices.

11

8, 2017, the 2016 and 2017 Complaints were consolidated for hearing and decision. See

Prehearing Order #3 (November 8, 2017). On November 20, 2017, the Companies filed

Answers and New Matter to the 2017 Complaints. On December 8, 2017, Respond Power filed

Answers to the Companies’ New Matter.

F. Schedule, Testimony and Hearings

A Prehearing Conference was held on September 13, 2017 before Judge Salapa to whom

this matter was assigned, the 2016 Complaints were consolidated, and a schedule was established

for submitting written testimony, holding evidentiary hearings and filing briefs. See Prehearing

Order #2 (September 14, 2017). The litigation schedule provided that Respond Power’s and

other parties’ written direct testimony were to be filed on October 18 and November 8, 2017,

respectively; Respond Power’s written rebuttal and other parties written surrebuttal were to be

filed on November 21 and December 6, 2017, respectively; and evidentiary hearings were to be

held on December 13 and 14, 2017. After Respond Power served the written direct testimony of

its witness, Adam Small, on October 18, 2017, that schedule was amended, by the parties’

agreement, pursuant to Judge Salapa’s Prehearing Order #3 issued on November 8, 2017

consolidating the 2016 and 2017 Complaints as noted above. The revised schedule allowed for

Respond Power to submit supplemental direct testimony in support of its 2017 Complaints on

November 29, 2017, extended the remaining dates for the submission of written testimony, and

rescheduled evidentiary hearings for January 31 through February 2, 2018.

Pursuant to Prehearing Order #3, Respond Power submitted the supplemental written

direct testimony of its witness Adam Small on November 29, 2017. As scheduled, the

Companies served the direct testimony of their witness, Kimberlie L. Bortz, on December 21,

2017. Respond Power submitted the written rebuttal testimony of Mr. Small on January 11,

12

2018, and the Companies submitted the written surrebuttal testimony of Ms. Bortz on January

25, 2018.

An evidentiary hearing was held in Harrisburg on February 1, 2018. At the hearing, Mr.

Small and Ms. Bortz were presented and cross-examined, and their written testimony and

exhibits were admitted into evidence.

III. STATEMENT OF ISSUES, BURDEN OF PROOF AND LEGAL STANDARDS

A. Statement Of Issues

As previously explained, the ALJ’s January 2017 Order granted in part the Companies’

Motion for Judgment on the Pleadings. In that Order, the ALJ found and determined that:

(1) Respond Power had “notice and opportunity to be heard” as to the DSP IV proceeding and, in particular, the clawback provision; therefore, “its due process rights were adequately protected”11;

(2) The clawback provision (although not strictly construed as a “rate”), when taken together with the other provisions that constitute the POR program, is properly included in the Companies’ Supplier Coordination Tariffs12;

(3) A tariff includes “rules, regulations and practices of a public utility” in addition to “rates”13;

(4) The clawback provision is part of the “set of operating rules” that control the interaction between electric distribution companies (“EDCs”) and EGSs; that “set of operating rules” is essential to EDCs’ provision of “service” to retail distribution customers, as “service” is defined under the Public Utility Code14;

(5) As a consequence of the direct relationship between the “operating rules” in the Supplier Coordination Tariff and the provision of service to an EDC’s

11 January 2017 Order, p. 9. See also id. at 8 (“Respond first argues that it did not receive adequate notice from the captions in the DSP proceedings resulting in the Default Service Order that Penelec and West Penn were proposing the clawback charges. Therefore, Respond argues that imposition of the POR clawback charges on it violates principles of due process. This is incorrect.”).

12 Id. at 10.

13 Id.

14 January 2017 Order, pp. 10-11.

13

distribution customers, a Supplier Coordination Tariff is a “tariff” as defined by Section 102 and is subject to the jurisdiction and authority of the Commission under the Public Utility Code15;

(6) Public utility tariffs “have the force and effect of law,” are “binding on the public utility and its customers,” are “prima facie reasonable” and “must be applied” in accordance with their terms16;

(7) The Commission “approved Penelec’s and West Penn’s tariff filing implementing the clawback provisions,” “no party appealed” the DSP IV Final Order, and the “clawback provision tariff therefore has the force and effect of law and is binding on Respond Power, Penelec and West Penn.”17

As a consequence, Respond Power is barred from raising any challenge that would seek to invalidate the clawback charge retrospectively, because that tariff provision has the “force and effect of law” and is “binding” on Respond Power and the Companies unless and until it is changed by the Commission; and

(8) To the extent Respond Power is challenging the clawback charge’s prospective application (i.e., during the remainder of the second year of the two-year pilot), it has failed to allege any “facts and circumstances leading to the creation of the tariff provision” that have “changed so drastically as to render the application of the tariff provision unreasonable.”18

As noted in the preceding summary, the ALJ properly drew a distinction between the

retrospective and prospective aspects of Respond Power’s Complaints. The retrospective aspect

is Respond Power’s attempt to challenge the clawback charge for the first year of its application,

which had already expired by the time Respond Power filed its Complaints. The prospective

aspect is Respond Power’s challenge to the application of the clawback charge during the

subsequent twelve months.

The January 2017 Order correctly found and determined that the retrospective and

prospective distinction has legal significance because well-established precedent holds that the

15 Id. at 11.

16 Id.

17 Id.

18 Id.

14

provisions of a tariff, once approved by the Commission, are protected from retroactive reversal.

While this doctrine has most often been applied to “Commission-made rates,”19 it is broadly

applicable to rates, regulations, and terms of service that are part of a Commission-approved

tariff, all of which have the force and effect of law.20 Simply stated, whether the clawback

charge is deemed to be a “rate” or not,21 the Companies’ Supplier Coordination Tariffs, including

the clawback charge provisions set forth therein, were approved by the Commission and cannot

be retrospectively reversed.22

In its Opinion and Order on interlocutory review, the Commission focused on the portion

of the January 2017 Order that articulated the legal standard for determining whether a utility

tariff provision that was approved by the Commission – and, therefore, has the full force and

effect of law23 – may be changed prospectively. The ALJ correctly described the “changed

circumstances” standard that a complainant must satisfy to successfully challenge an existing,

approved tariff provision. That standard was succinctly summarized by the Commonwealth

Court in a decision that the Commission itself cited and relied upon in its Opinion and Order (p.

17):

19 Cheltenham & Abington Sewerage Co. v. Pa. P.U.C., 344 Pa. 366, 369, 25 A.2d 334, 337 (1942); Lancaster Ice Mfg. Co. v. Pa. P.U.C., 185 Pa. Super. 615, 626, 138 A.2d 262, 267 (1957); West Penn Power Co. v. Pa. P.U.C., 174 Pa. Super. 123, 131, 100 A.2d 110, 114 (1953).

20 See Opinion and Order, p. 19, citing Brockway Glass Co. v. Pa. P.U.C., 437 A.2d 1067 (Pa. Cmwlth. 1981).

21 The ALJ concluded that the clawback charge is not a “rate.” January 2017 Order, p. 9. The Commission did not specifically affirm or reverse that finding. The ALJ also determined that the Supplier Coordination Tariffs are “tariffs” and, as such, have the “force and effect of law.” Id., p. 11. The Commission did affirm that determination. Opinion and Order, p. 19. As a Commission-approved term of the Companies’ Supplier Coordination Tariffs, the clawback charge is entitled to protection from retroactive reversal for all the reasons discussed above whether or not it is specifically determined to be a “rate.”

22 See Lancaster Ice Mfg. Co. v. Pa. P.U.C., supra. See also Cheltenham & Abington Sewerage Co., supra (“[A] commission-made rate furnishes the applicable law for the utility and its customers until a change is made by the commission.”).

23 See Opinion and Order, p. 17: “All parties agree that a Commission-approved tariff is prima facie reasonable, has the full force of law and is binding on the utility and the customer.”

15

Because Pennsylvania courts have repeatedly held that tariff provisions previously approved by the PUC are prima faciereasonable, Zucker v. Pennsylvania Public Utility Commission, 43 Pa. Commw. 207, 401 A.2d 1377 (Pa. Cmwlth. 1979), a complainant seeking to evade the effect of an existing tariff provision, such as Shenango, carries a very heavy burden to prove that the facts and circumstances have changed so drastically as to render the application of the tariff provision unreasonable. Id.; see also Brockway Glass Co. v. Pennsylvania Public Utility Commission, 63 Pa. Commw. 238, 437 A.2d 1067 (Pa. Cmwlth. 1981). The PUC held Shenango did not meet this burden, and following our review of the record, we must agree.24

Although the ALJ found and determined that Respond Power’s Complaints failed to

allege facts that, if proven, could sustain its “heavy burden” to show that there has been a

“drastic” change in “facts and circumstances” since the terms of the Companies’ Supplier

Coordination Tariffs were approved, the Commission was of the opinion that the issue should

not be decided on a dispositive motion and, instead, Respond Power should be afforded a

hearing. The Commission’s focus on the “changed circumstances” standard makes it clear that

only the prospective aspect of Respond Power’s Complaints is – or could be – at issue in the

hearing it directed the ALJ to conduct.25 Moreover, under the well-established appellate court

precedent previously cited, the Commission has no legal authority to grant Respond Power any

retrospective relief even if it were to find that Respond Power could carry its “heavy burden” to

override the Companies’ existing approved tariffs.

For all the preceding reasons, at this point in the proceeding, the only issue that Respond

Power is not legally barred from raising with regard to the clawback provision is whether it can

24 Shenango Twp. Bd. Of Supervisors v. Pa. P.U.C., 686 A.2d 910, 914 (Pa. Cmwlth. 1996).

25 It is possible that – while not stated expressly in its Opinion and Order – the Commission believed Respond Power should be given an opportunity to present evidence on its contention that it did not receive “notice” of the Companies’ proposed revision of the POR program. That hearing has now been held, and the evidentiary record clearly shows that Respond Power did, in fact, have “notice” that fully satisfies due process criteria. Indeed, “notice” cannot get any better than actual service of the pleading initiating a proceeding.

16

carry its “very heavy burden to prove that the facts and circumstances have changed so

drastically as to render the application of” the Commission-approved terms of the Companies’

Supplier Coordination Tariffs “unreasonable” for prospective application. With respect to the

application of the clawback provision for the period that expired prior to Respond Power filing

its Complaints, the only issue that the January 2017 Order left open for examination was whether

the Companies made computational errors in calculating the September 2016 clawback charges

in the invoices previously issued to Respond Power. However, Respond Power has now

conceded that there are no computational errors.

B. Respond Power’s Burden of Proof

This case involves Complaints against the existing Supplier Coordination Tariffs of

Penelec and West Penn. As such, Respond Power has the burden of proof. See 66 Pa.C.S. §

332(a). That burden is substantially increased in this case because, as noted above, Respond

Power is asking the Commission to set aside approved tariff rules and reverse the Commission

Order on which they are based.

Pennsylvania appellate precedent has firmly established that the terms of a Commission-

approved tariff are “prima facie reasonable”26 and have the force and effect of law.27

Consequently, “a complainant seeking to evade the effect of an existing tariff provision . . .

carries a very heavy burden to prove that the facts and circumstances have changed so drastically

as to render the application of the tariff provision unreasonable.”28

Respond Power has not shown that any “facts and circumstances have changed” at all –

let alone changed “drastically” – to justify a finding that the Companies’ Commission-approved

26 Zucker v. Pa. P.U.C., 401 A.2d 1377 (Pa. Cmwlth. 1979). See also 66 Pa.C.S. § 316.

27 Brockway Glass Co. v. Pa. P.U.C., 437 A.2d 1067 (Pa. Cmwlth. 1981).

28 Shenango Twp. Bd. Of Supervisors v. Pa. P.U.C., 686 A.2d 910, 914 (Pa. Cmwlth. 1996).

17

clawback provision should be invalidated. In reality, the essence of Respond Power’s Complaint

is that the clawback provision has operated precisely the way it was designed to function. The

clawback provision’s two-part test identified those EGSs that, as actual historical data

demonstrate, operate in a manner that drives excessive write-offs (i.e., greater than 200% of the

overall average of all EGSs). And, consistent with the well-accepted ratemaking principle of

cost-causation, the EGSs thus identified were charged an administrative fee for participating in

the Companies’ POR programs – a fee that, at least in part, compensates the Companies and their

customers for bearing those excessive write-offs. In short, Respond Power’s complaint is not

that anything has “changed” since the Commission approved the clawback provision. To the

contrary, the “facts and circumstances” specifically envisioned as the basis for imposing the

clawback charge when it was approved were created by Respond Power’s mode of operation, the

nature of the products it sold, and the prices it charged. The record evidence cannot support a

finding that Respond Power has carried its “heavy burden” as required “to evade the effect of an

existing tariff provision.”

C. The Preclusive Effect Of A Prior Commission Order Under Section 316 Of The Public Utility Code

Section 316 of the Public Utility Code provides in relevant part as follows:

§ 316. Effect of commission action.

Whenever the commission shall make any rule, regulation, finding, determination or order, the same shall be prima facie evidence of the facts found and shall remain conclusive upon all parties affected thereby, unless set aside, annulled or modified on judicial review. . . .

18

It is well-established that Section 316 precludes a collateral attack upon a Commission order that

has not been reversed upon appeal.29

Pursuant to Section 316, a prior order of the Commission has preclusive effect on all

affected parties if they were provided due process prior to the entry of that order.30 However,

due process is fully satisfied when parties are afforded notice and the opportunity to appear and

be heard. In short, the party against whom Section 316 is invoked need not have been a

participant in the proceeding that resulted in the final order being given preclusive effect so long

as that party had notice and an opportunity to appear and be heard.31 For precisely that reason,

Administrative Law Judge Louis G. Cocheres, in a 2008 Recommended Decision,32 held that a

party that received notice of a proceeding and did not intervene was precluded by Section 316

from thereafter challenging the final order entered in that case:

Section 316 of the Public Utility Code (66 Pa. C.S. § 316) specifies that whenever the Commission promulgates an order, it is prima facie evidence of the facts found and remains binding on all the parties affected by it. In other words even though the University was not a party (but should have been), all of Penn State’s arguments about the failure to mention Tariffs 37 or 39 or the failure to specifically say Tariff 37 was excluded from the new [rate] caps extension are invalid.

Judge Cocheres’ Recommended Decision was adopted and approved by the Commission,

which held, in relevant part, that the Pennsylvania State University (“PSU”) was provided

29 See Lehigh Valley Power Comm. v. Pa. P.U.C., 563 A.2d 557, 565 (Pa. Cmwlth. 1989).

30 The Pennsylvania State University v. Pa. P.U.C., 988 A.2d 771, 783 (Pa. Cmwlth. 2010); Schneider v. Pa. P.U.C., 479 A.2d 10, 12 (Pa. Cmwlth. 1984).

31 Id.

32 Petition of the Pennsylvania State University for Declaratory Order Concerning the Generation Rate Cap of the West Penn Power Company d/b/a Allegheny Power, Docket Nos. P-2007-20018 et al., 103 Pa. P.U.C. 472, 485 (Recommended Decision of Administrative Law Judge Louis Cocheres issued July 28, 2008) (“PSU/West Penn Rec. Dec.”). A copy of the PSU/West Penn Rec. Dec. was provided as Appendix A to each Company’s Motion for Judgment on the Pleadings.

19

reasonable notice of the prior proceeding by a notice published in the Pennsylvania Bulletin and,

therefore, it had the opportunity to appear and be heard, which is all that due process requires for

a final order to have preclusive effect under Section 316:

PSU could have filed comments to the Joint Petition within twenty days after publication of the notice in the Pennsylvania Bulletin. Additionally, several parties intervened in the 2003 Proceedings following publication of the notice. Consequently, we conclude that the Pennsylvania Bulletin notice was reasonably calculated to put PSU on notice that the Joint Petition could impact its rights and provided PSU with a meaningful opportunity to object to the proposal.33

PSU appealed to Commonwealth Court. The Court affirmed the holdings of the

PSU/West Penn Rec. Dec. and Final Order granting preclusive effect to the Commission’s earlier

order, as required by Section 316. In so doing, the Court held that PSU had been given due

process in the earlier proceeding:

Therefore, the PUC properly concluded that pursuant to the customer bill inserts and the Pennsylvania Bulletin PSU “had reasonable notice of the scope of the 2003 Petition case and that its Tariff 37 rights could be impacted . . . [and] all of its due process rights were properly protected, and it failed to use its opportunity to participate in that case due to its own inactions . . .” PUC Opinion adopting ALJ Recommended Decision at 36m 40; R.R. at 1068a, 1072a. Consequently, PSU was not denied due process.34

The PSU/West Penn Rec. Dec. and PSU/West Penn Final Order also demonstrate the

error in Respond Power’s claims that it did not receive adequate “notice” despite actually having

been served with the entire Joint Petition and all of its accompanying testimony and exhibits. In

the PSU case, Judge Cocheres, the Commission and the Commonwealth Court all concluded that

33 Petition of the Pennsylvania State University for Declaratory Order Concerning the Generation Rate Cap of the West Penn Power Company d/b/a Allegheny Power, Docket Nos. P-2007-20018 et al., 103 Pa. P.U.C. 451, 468 (Final Order entered Sept. 11, 2008) (“PSU/West Penn Final Order”). A copy of the PSU/West Penn Final Order is attached as Appendix B to each Company’s Motion for Judgment on the Pleadings.

34 The Pennsylvania State University v. Pa. P.U.C., 988 A.2d at 783.

20

PSU’s due process rights had been fully protected where it received notice that was far less

robust than the actual service of the DSP IV Joint Petition on Respond Power that occurred

here.35

IV. SUMMARY OF THE ARGUMENT

Any charges assessed under the clawback provision are imposed based on the principle of

cost causation. EGSs that have much higher than average write-offs and charge prices much

higher than the PTC impose costs that, absent the clawback charge, would be borne entirely by

the Companies and their customers. Accordingly, the clawback provision is a reasonable

administrative fee charged to POR-participating EGSs that are responsible for creating excessive

uncollectible accounts expense. It appears Respond Power would prefer if the Companies

imposed a one-size-fits-all, across-the-board discount to purchased receivables to offset high

uncollectible accounts (see Respond Power St. 1, pp. 5-6). However, that approach ignores cost

causation and would have EGSs with lower write-off percentages subsidizing EGSs like

Respond Power, whose business model involves charging prices well above the PTC and thereby

generating very high write-off percentages.

Respond Power also errs in contending that there is any possibility for double recovery of

accounts written-off. The clawback charge has been carefully designed to ensure that if actual

uncollectible accounts expense is less than the amount included in the Companies’ rates, the

clawback revenues are returned to distribution customers.

The Structure Of The Clawback Charge Is Not “Unjust And Unreasonable.”

Respond Power witness Small raised alleged concerns about the “structure” of the clawback

35 The details surrounding the form of “notice” provided to PSU and PSU’s arguments that such notice did not meet minimal due process requirements are set forth at pages 21-28 of each Company’s Motion for Judgment on the Pleadings.

21

provision, including the order of posting partial payments, the service periods to which the

written-off amounts relate and crediting of post-write-off payments. None of those alleged

concerns is valid and they certainly do not provide any basis for the Commission to conclude that

the application of the clawback provision to Respond Power is “unjust and unreasonable.”

Respond Power witness Small repeatedly ignored the most important feature of the

clawback provision, namely, that it does not measure an EGS’s experience relative to an absolute

standard. Instead, it assesses each individual EGS’s experience relative to the average of all

EGSs providing service in a Company’s service area. The Companies use the same methodology

to calculate all of the EGSs’ write-offs and average prices and, based on that consistent

approach, identify the EGSs that exceed the write-off and price thresholds used to determine the

application of the clawback charge. To illustrate, while the Companies did not credit post-write-

off payments in calculating Respond Power’s write-off percentage, they did not credit such

payments for any other EGSs either; hence, there is a fair “apples to apples” comparison. So

long as the same approach is used consistently for all EGSs, Respond Power is not being treated

unreasonably or inequitably.

The Clawback Provision Does Not Limit The Prices An EGS Can Charge. Nothing

about the clawback provision limits EGSs’ prices. It is simply a mechanism designed to track

cost-causation and, as such, implements the clawback charge for EGSs that create the greatest

risk of excessive write-offs. Charging prices that exceed 150% of the PTC is one (but only one)

of the indications of increased risk of imposing excessive levels of write-offs. In fact, a number

of EGSs charged prices that exceeded 150% of the PTC but were not subject to the clawback

charge in 2017. See PE/WP Exhibit KLB-1. That is because the clawback provision has two

screens (price relative to the PTC and write-off percentage relative to other EGSs).

22

The Clawback Charge Did Not Have, And Will Not Have, A Material Adverse

Effect On Either Respond Power Or The State Of Retail Electric Competition In

Pennsylvania. Contrary to Mr. Small’s contentions, Respond Power provided no financial

information that would support its claim that paying clawback charges totaling $484,797.69 and

$211,012.54 in 2016 and 2017, respectively, would put it in a difficult cash flow position. The

statements of cash flow provided by Respond Power in the discovery process directly contradict

this claim. See Confidential PE/WP Exhibit KLB-7.

Mr. Small also errs in claiming that the clawback provision discourages EGSs from

serving mass market customers in the Companies’ service territories. In fact, the

implementation of the clawback provision has not had any adverse impact on competition in the

mass market. Following the DSP IV settlement, the Companies resumed hosting supplier

workshops to provide the opportunity for EGSs to ask questions and address any concerns they

might have regarding the Companies’ and their Pennsylvania EDC affiliates’ default service

program. The workshops were well attended by, among others, Mr. Small. Yet, there were no

questions or concerns voiced by the attending EGSs regarding the clawback provision. Notably,

none of the EGSs subject to clawback charges in 2016 and 2017 have left the market since it was

implemented. In fact, Mr. Small himself could not say that Respond Power would cease

participating in the retail electric market in the Companies’ service areas if the Commission

declines to invalidate the clawback provision as Respond Power advocates. See Tr. at 64.

Moreover, there is no evidence that Spark Energy – the publicly-traded parent of Respond Power

– has created a reserve for the clawback charges that have thus far been invoiced, which would

appear to be required if such charges were deemed to have a material adverse impact on a

company required to adhere to Securities and Exchange Commission financial reporting

23

requirements. See Tr. at 63. Finally, according to PaPowerSwitch.com, as of December 19,

2017, there were 113 offers from forty-eight different suppliers for residential supply in

Penelec’s territory and 105 offers from thirty-five suppliers in West Penn’s territory. As those

figures attest, there is no evidence to suggest that the clawback provision has adversely affected

mass market electricity competition in the Companies’ service areas.

V. ARGUMENT

A. Respond Power’s Complaints Are A Collateral Attack On The DSP IV Final Order That Are Barred By Section 316 Of The Public Utility Code

In its Complaints and the testimony of its witness, Adam Small, Respond Power contends

that the clawback charges imposed by invoices issued by the Companies are not “just and

reasonable” for the alleged reasons summarized in Section IV, supra. Respond Power St. Nos. 1,

pp. 11-12, 15-28 & 1-Supp, pp. 11-20. While Respond Power’s “unjust and unreasonable”

contentions are demonstrably incorrect and should be rejected on their merits for the reasons

discussed in Section V.B. below, they represent arguments that should not be considered at all

because Respond Power’s Complaints are unlawful collateral attacks on the DSP IV Final Order

and are barred by Section 316. Indeed, Respond Power itself recognized as much and tried

unsuccessfully to preempt the application of Section 316 by alleging that it was denied “due

process” because it did not receive “notice” that a change to the Companies’ POR programs was

being proposed as part of the DSP IV Joint Petition. See Respond Power St. Nos. 1, pp. 12-14 &

1-Supp, pp. 8-10. As alleged support for this contention, Respond Power offers a series of

arguments that attempt to divert the Commission’s attention from one unalterable fact: Respond

Power received the DSP IV Joint Petition and its accompanying testimony and exhibits, but

chose not to intervene. Respond Power’s arguments should be rejected for several reasons.

24

First, Respond Power does not dispute that it received actual service of the Companies’

DSP IV filing. Respond Power St. No. 1, p. 13. The DSP IV Joint Petition, supporting

testimony and accompanying Supplier Coordination Tariff supplements clearly delineate the

terms of the proposed clawback provision, why it was being proposed and how it would be

calculated. As explained by Ms. Bortz in her direct testimony, Respond Power had to read no

further than the second paragraph of the DSP IV Joint Petition (starting on page 2 and continuing

to page 3 of that pleading) to see that the Companies and their affiliates were proposing revisions

to their POR programs. The nature of those changes was provided in three pages of text under

the bolded and capitalized heading of Section V.A., which was titled: PURCHASE OF

RECEIVABLES – EGS-Related Write Offs. The clawback provision was also discussed at

length in the testimony of Ms. Bortz accompanying the DSP IV Joint Petition and in the

summary of Ms. Bortz’s testimony at page 5 of the DSP IV Joint Petition. Ms. Bortz also

sponsored Met-Ed/Penelec/Penn Power/West Penn Exhibits KLB-4 through KLB-7, consisting

of proposed supplements to each of the Companies’ Supplier Coordination Tariffs, which

included the terms of the proposed clawback provision. PE/WP St. No. 1, pp. 14-15.

Notably, Mr. Small, who is Respond Power’s General Counsel and is responsible for

reading and reviewing legal pleadings served on Respond Power,36 acknowledged that the

clawback provision was discussed in several portions of the Companies’ DSP IV filing and

conceded “being aware” that the Companies were making proposals to modify their POR

programs in their DSP IV filing. Respond Power St. No. 1-R, pp. 14-15; Tr. at 25, 38-40.37

Nonetheless, he contends that the DSP IV Joint Petition, the testimony and the supplements to

36 See Confidential PE/WP Exhibit KLB-2.

37 At the evidentiary hearing, in response to cross-examination, Mr. Small could not recall if he became aware of the Companies’ proposed POR changes through “Energy Choice Matters” or by reading the DSP IV Joint Petition. See Tr. at 38-40.

25

the Companies’ Supplier Coordination Tariffs that accompanied the Joint Petition were

insufficient to put a reasonable POR-participating EGS on notice that historical data would be

used in applying the clawback provision’s screening test. However, Paragraph No. 51, at pages

17-18 of the DSP IV Joint Petition, and page 17 of Met-Ed/Penelec/Penn Power/West Penn

Statement No. 3 (the Direct Testimony Ms. Bortz submitted in the DSP IV case) explained that

the proposed clawback provision would be applied based on historical data and identified the

date that the first administrative charge would be assessed on EGSs that satisfy the two-part

screening test:

In order to be able to maintain the POR program for all EGSs serving residential and small commercial customers, the Companies propose the addition of a clawback clause to their POR programs related to EGS write-offs. Under this clause, an annual charge would be assessed, beginning September 2016, to those EGSs that exceed 150% of the average supplier write-offs as a percentage of revenue as calculated separately for each of Met-Ed, Penelec, Penn Power and West Penn for each twelve-month period ending August 31st.

PE/WP St. No. 1-SR, p. 3 (emphasis added). The foregoing explanation makes it clear that the

first charge would be assessed in September 2016 on EGSs that triggered the clawback provision

based on write-off data for a twelve-month period ending August 31.

In his oral rejoinder testimony at the evidentiary hearing, Mr. Small acknowledged that

he did not read the language quoted above (Tr. at 25) that is certainly sufficient to put a

reasonable POR-participating EGS on notice that historical data would be employed to apply the

proposed clawback provision. As a result, Respond Power argues, in effect, that the Commission

should find that it was reasonable for Respond Power not to intervene in the DSP IV proceeding

despite the fact that Mr. Small repeatedly emphasizes the importance to Respond Power of

participating in the Companies’ POR programs on a “non-recourse” basis. Tr. at 41; see also

Respond Power St. Nos. 1, pp. 3-4, 1-Supp, p. 6 & 1-R, pp. 6-7. Respond Power’s belief that its

26

action was reasonable is self-evidently wrong. 38 It is also directly contradicted by the PSU/West

Penn Final Order that was discussed in Section III.C., supra. In the PSU/West Penn case, the

Commission found that due process was not violated when PSU received “notice” (by

publication in the Pennsylvania Bulletin) that required it to make a separate investigation to

obtain the information it needed to discern if its rates would be affected by the filing in question.

Here, Mr. Small admits he was aware the Companies’ DSP IV case involved POR changes and,

therefore, all he had to do was flip to the bolded all-capitalized Section V of the DSP IV Joint

Petition – a legal pleading served on Respond Power and publicly available on the Commission’s

website – which made it perfectly clear that the Companies were proposing the addition of a

clawback provision effective September 2016. Significantly, other POR-participating EGSs – as

well as the trade association for EGSs in Pennsylvania – intervened in the DSP IV proceeding for

the express purpose of pursuing issues surrounding the application of the clawback charge.39

Accordingly, Judge Salapa correctly found that Respond Power had “notice and opportunity to

be heard” as to the DSP IV proceeding and, in particular, the clawback provision and, therefore,

“its due process rights were adequately protected.”40

38 This assertion is even more unreasonable when offered as an excuse by a subsidiary of a New York Stock Exchange (“NYSE”) listed parent that is represented by in-house and outside counsel. While Mr. Small professed to lack knowledge of the corporate structure of Respond Power and its affiliates (see Tr. at 62), Spark Energy, Inc. is, in fact, the ultimate parent of Respond Power and trades on the NYSE under the ticker symbol SPKE.

39 See, e.g., Prehearing Memorandum of RESA, Paragraph 7: “In addition, the [Companies’] petitions address various issues directly related to the ability of EGSs to provide competitive alternatives to retail customers. These include proposed changes to the Companies’ purchase of receivables program which include assessing charges on specific EGSs . . .”

40 January 2017 Order, p. 9. See also id. at 8 (“Respond first argues that it did not receive adequate notice from the captions in the DSP proceedings resulting in the Default Service Order that Penelec and West Penn were proposing the clawback charges. Therefore, Respond argues that imposition of the POR clawback charges on it violates principles of due process. This is incorrect.”).

27

Second, Respond Power’s contention that it is somehow improper to consider POR issues

in a default service proceeding41 is contrary to the Commission’s policy, practice and precedent.

In fact, the Commission has expressly stated that, “in the electric industry . . . PORs are usually

the subject of default service plan filings.”42 The POR programs of the Companies and their

Pennsylvania affiliates were also adopted or revised in the context of default service

proceedings.43 The same is true for other electric distribution companies (“EDCs”) in

Pennsylvania. For example, Duquesne Light Company’s (“DLC’s”) POR program was adopted

in a default service proceeding that was concluded by a Final Order entered June 22, 2007.44

Furthermore, the Commission itself has employed default service cases to address and decide

many issues unrelated to generation procurement, including retail market enhancement issues.

To cite only two significant examples, in Investigation of Pennsylvania’s Retail Electricity

Market: Recommendations Regarding Upcoming Default Service Plans,45 the Commission

directed EDCs to include in their then-upcoming default service plans retail opt-in auctions and

standard offer customer referral programs. These directives were repeated in the Commission’s

41 Respond Power St. 1, pp. 13-14.

42 Investigation of Pennsylvania’s Retail Nat. Gas Supply Mkt., Docket No. I-2013-2381742, 2014 Pa. P.U.C. LEXIS, at * 74 (Order entered Aug. 21, 2014).

43 Met-Ed adopted its POR program in the context of its first default service proceeding, which was consolidated with Penelec’s default service program for hearings and decision. Penelec/West Penn DSP I Order. Penn Power’s POR program was also adopted in connection with a default service program proceeding. Petition of Pennsylvania Power Co. for Approval of its Default Serv. Program, Docket No. P-2010-2157862 (Opinion and Order approving settlement entered Nov. 17, 2010).

44 E.g. Petition of Duquesne Light Company for Approval of a Default Service Plan for the Period January 1, 2008 Through December 31, 2010, Docket No. P-00072247, 2007 Pa. PUC LEXIS 36 (June 22, 2007) adopting the Recommended Decision issued May 8, 2007, approving a settlement and various stipulations. See Rec. Dec., p. 10 (“The default service plan, as amended by the Settlement, also advances retail competition by offering rates at prevailing market prices, adopting a POR program for Residential and Small C&I customers, providing for an MST collaborative, and eliminating, over time, energy demand charges and declining block energy rates.” (emphasis added.)) The adoption of a POR program in Duquesne’s default service case was called out for special recognition in a separate statement issued by Vice-Chairman Cawley in that case on June 21, 2007.

45 Investigation of Pennsylvania’s Retail Elec. Mkt.: Recommendations Regarding Upcoming Default Service Plans, Docket No. I-2011-2237952 (Final Order entered Dec. 16, 2011), pp. 21-44.

28

March 2, 2012 Order in Investigation of Pennsylvania’s Retail Electricity Market: Intermediate

Work Plan.46 EGSs themselves have introduced non-procurement issues, such as shopping by

customers enrolled in customer assistance programs and recovery of certain charges imposed by

PJM Interconnection, L.L.C. (“PJM”), in default service proceedings. Indeed, the clawback

provision is not the first change to the Companies’ Supplier Coordination Tariffs that has been

approved in the context of a default service program. For example, in prior default service

proceedings, the Commission approved revisions to the Supplier Coordination Tariffs of the

Companies and their Pennsylvania affiliates related to the acquisition of certain transmission

services and the recovery of associated costs through the Companies’ DSS Riders.47 PE/WP St.

No. 1, pp. 5-6, 15-16.

Finally, as alleged support for not advising Respond Power to intervene in the DSP IV

proceeding, Mr. Small asserts that Respond Power could only have received adequate “notice” of

the clawback provision’s terms if the docket number of the Companies’ prior default service

program effective June 1, 2015 through May 31, 2017 (“DSP III”) had been placed in the caption

of the DSP IV proceeding or the Companies had made a stand-alone Supplier Coordination

Tariff filing. Respond Power St. No. 1-R, pp. 12-14, 16. This assertion is wrong and should be

rejected.

Although the Companies’ POR programs were initially adopted or revised in the context

of default service proceedings, those POR programs are not tied to the DSP III term or any other

specific elements of the Companies’ default service program. In other words, neither the

46 Investigation of Pennsylvania’s Retail Elec. Mkt: Intermediate Work Plan, Docket No. I-2237952 (Final Order entered Mar. 2, 2012). Standard offer customer referral programs are delineated at pages 20-32. Retail opt-in auction programs are discussed at pages 33-71. The Commission directed that both programs be developed in the context of EDCs’ then-upcoming default service plans. See pp. 30-31 and 36-37.

47 See Joint Petition of Metropolitan Edison Co., Pennsylvania Electric Co., Pennsylvania Power Co. and West Penn Power Co. for Approval of their Default Serv. Programs, Docket Nos. P-2013-2391368, P-2013-2391372, P-2013-2391375 and P-2013-2391378 (Order entered July 24, 2014), pp. 15, 22.

29

duration nor the effective date of periodic revisions to POR programs is co-terminus with the

term of any particular default service program contrary to Mr. Small’s assertion. PE/WP St. No.

1-SR, pp. 4-5. In any event, as previously explained, the DSP IV Joint Petition and Ms. Bortz’s

direct testimony that accompanied it explicitly stated that the clawback charge would be assessed

in September 2016 based on historical data for a preceding twelve-month period. Therefore, the

date the clawback charge would first be assessed was readily apparent to anyone who reviewed

the DSP IV filing and discerned that it included changes to the Companies’ POR programs.

For all of the foregoing reasons, there is no valid basis for Respond Power’s contention

that, absent a specific request by the Companies tying the proposed change to their POR

programs to the term of their prior DSP III, the clawback provision could not possibly apply

prior to June 1, 2017 – a conclusion Respond Power reached without even reading the portions

of the DSP IV filing that described the POR program changes in detail.

In summary, as Judge Salapa determined in the January 2017 Order, Respond Power

received ample “notice” of the DSP IV proceeding and of the contents of the DSP IV Joint

Petition and its accompanying testimony. Respond Power had a full and fair opportunity to

appear and be heard, which is all that due process requires. Therefore, Respond Power is bound

by the DSP IV Final Order, which must be afforded finality under Section 316.

B. Respond Power Has Not Demonstrated Facts Or Circumstances That Would Render Application Of The Commission-Approved Clawback Provision In The Companies’ Supplier Coordination Tariffs To Respond Power Unjust Or Unreasonable

In this case, Respond Power seeks to avoid the application of a Commission-approved

tariff, namely, the clawback provision added to the Companies’ Supplier Coordination Tariff and

implemented in accordance with the DSP IV Final Order. As previously explained in Section

30

II.A, supra, the clawback provision is an administrative fee that is imposed prospectively, and is

designed to align with cost causation principles in order to reflect the additional costs that some

EGSs – whose write-offs exceed the overall EGS average by more than 200% and are charging

prices substantially above the PTC – are imposing on the Companies and their customers.

Accordingly, the first prong of the screening test measures an EGS’s write-off experience

relative to the average of all EGSs to ensure that only those individual EGSs responsible for

causing higher uncollectible expense trigger the clawback provision. As the evidence in the case

demonstrates, that is exactly what the clawback charges invoiced by the Companies in 2016 and

2017 will accomplish.

Most importantly, Respond Power’s results under the two-part screening test depart

significantly from the average for the population of all EGSs in the Companies’ service areas –

and that divergence occurred in both years that the clawback provision applied. In each year,

Respond Power was one of only three EGSs that met both parts of the test for applying the

clawback charge. As shown on PE/WP Exhibit KLB-1, Respond Power’s write-off percentages

are a minimum of three times, and up to seven times, 200% of the average write-offs experienced

by over sixty-five other EGSs. In fact, in 2016, Respond Power had the highest write-off

percentage of any EGS. Respond Power is also charging some of the highest prices for

generation in the market, which are, on average, more than 250% of the applicable PTC. PE/WP

St. No. 1, pp. 18-19.

In addition, as shown by data the Company provided in response to discovery

propounded by CAUSE-PA and Respond Power, virtually all of the customers whose accounts

were written off were low-income customers and had significant unpaid balances that were owed

to the Companies or to EGSs other than Respond Power at the time they enrolled with Respond

31

Power. Confidential PE/WP Exhibit KLB-1SR; Confidential RP Exhibit AS-18. Similarly, the

vast majority of Respond Power’s customers whose write-off amounts formed the basis of the

2016 Clawback Charges were on a month-to-month contract subject to a variable rate that

reflected volatile market prices and a profit margin for Respond Power. See PE/WP St. No. 1, p.

32; Confidential PE/WP Exhibit KLB-5; PE/WP Exhibit KLB-6.

For all of the reasons discussed in Section V.A., supra, the Commission should reject

Respond Power’s attempt to collaterally attack the DSP IV Final Order and dismiss the

Complaints on that ground alone. As explained in the following sections of this Initial Brief,

Respond Power has failed to even allege facts, let alone present evidence, that would satisfy its

“heavy burden” to demonstrate “facts and circumstances leading to the creation of the tariff

provision” have “changed so drastically as to render the application of the tariff provision

unreasonable.”48 Accordingly, even if the relief requested in the Complaints were considered on

its merits – which the mandate of Section 316 prohibits – the Complaints should be dismissed.

1. The Clawback Provision is Not Retroactive in Nature

Respond Power contends that, because the clawback provision employs screening

measures that are based on historical data to identify EGSs engaged in business practices that

result in a level of write-offs substantially above that of other EGSs participating in the

Companies’ POR programs, its application to Respond Power is “retroactive” and “unjust and

unreasonable.” Respond Power St. Nos. 1, pp. 15-16, 1-Supp, pp. 11-12 & 1-R, pp. 18-21. In

particular, Mr. Small emphasized that a significant amount of write-off data accrued for Respond

Power prior to the application of the screening test in both 2016 and 2017. Respond Power St.

48 See Section III.B., supra.

32

Nos. 1, p. 16, 1-Supp, p. 11 & 1-R, pp. 19, 25. Respond Power’s position is flawed in several

significant respects.

First, the clawback charge is a fee that is applied prospectively to EGSs who, based on

reasonable criteria, are shown to impose additional costs on the Companies and their customers.

In applying those criteria, it is not unreasonable or “retroactive” to examine the historic data of

the Companies’ entire EGS population to identify those EGSs whose results indicate are

imposing costs well above the average for the entire EGS population. It does not impose any

charge “retroactively” or modify the terms of the sale and purchase of EGS accounts receivable

under the Companies’ POR programs prior to the entry of the DSP IV Final Order. Simply

stated, examining historical write-off data to identify those EGSs who are most likely to be

imposing higher costs does not make the clawback charge “retroactive.” Therefore, contrary to

Mr. Small’s contention, it does not matter when Respond Power’s write-offs started to

accumulate compared to the effective date of the clawback provision or the date of the invoices

issued by the Companies to Respond Power. PE/WP St. Nos. 1, pp. 6, 20 & 1-SR, pp. 6-7.

Second, Respond Power’s assertion that the clawback provision is “retroactive” because

the Companies use historical write-off data to identify EGSs subject to the charge is contradicted

by prior Commission approval of a similar practice for other EDCs. Specifically, DLC’s

Commission-approved supplier coordination tariff includes a mechanism for imposing what it

denominates as a “penalty” on EGSs for excessive POR-related write-offs, which is based on a

historic twelve-month review period comparable to the one employed in the clawback provision.

Under the terms of its revised POR program, DLC monitors individual EGSs’ uncollectible

percentage rates and, if an EGS’s rate exceeds 5% for the most recent preceding twelve-month

33

period, DLC may increase the discount rate for that EGS’s accounts by the difference between its

uncollectible percentage rate and 2%.49 PE/WP St. No. 1, pp. 20-21.

Similarly, as described in the direct testimony of Ms. Bortz, there are a number of

examples of rates and charges imposed by the Companies that rely on historical data generated

prior to the approval and implementation of such rates and charges:

Rate Schedules GS Small and GS Medium. In their 2014 base rate cases,50 the

Companies and their affiliates, Met-Ed and Penn Power, proposed uniform rate schedules (GS

Small and GS Medium) for Commercial customers. Those rate schedules included a “demand

ratchet” that could set customers’ minimum billing demand equal to “fifty percent (50%) of the

highest billing demand established during the preceding eleven (11) months.” The terms of the

proposed rate schedules were approved by the Commission. Thus, the largest element of the

billing determinants for GS Small and GS Medium customers, which would determine their bills

for future service, was based on data that predated the approval and implementation of the new

rate by as much as eleven months. The reliance on historical data to establish bills for future

service was found to be just and reasonable and, in fact, no party – including representatives of

the directly-affected customer classes – objected on grounds of “retroactive ratemaking” or on

any other grounds.51

49 See DLC Electric Generation Supplier Coordination Tariff, Third Revised Page No. 30A, ¶ 12.1.7.2.2 (Effective September 1, 2017). DLC’s POR program, including the purchase price discount for individual EGSs that exceed the uncollectible percentage rate threshold, was initially established as part of its default service program for the period January 1, 2008 through December 31, 2010 (known as “POLR IV”). See Petition of Duquesne Light Co. for Approval of a Default Serv. Plan for the Period January 1, 2008 Through December 31, 2010, Docket No. P-00072247 (Recommended Decision issued May 8, 2007), Appendix A, ¶ 5. The POLR IV Recommended Decision was adopted and approved without modification by Commission Order entered June 21, 2007. A copy of DLC Statement No. 5 and its accompanying exhibit consisting of DLC’s tariff supplement imposing the previously described POR discount adjustments was attached as Appendix A to the Answers and New Matter filed by Penelec and West Penn on December 8, 2016.

50 Docket Nos. R-2014-2428745 (Met-Ed), R-2014-2428743 (Penelec), R-2014-2428744 (Penn Power) and R-2014-2428742 (West Penn).

51 PE/WP St. No. 1, pp. 21-23.

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Penn Power’s Rate Schedule GS Large. In its 2014 base rate case, Penn Power

proposed a new Rate Schedule GS Large conforming to the rate schedules of its Pennsylvania

affiliates. The new rate schedule would apply to customers with at least 400 kW of billed

demand determined on the basis of historical demands during the twelve months preceding the

implementation of the new rate. Assigning a customer to the new Rate Schedule GS Large

directly determined the rates that customer would pay (i.e., Rate Schedule GS Large versus the

rates for the classifications that would have applied prior to approval of Penn Power’s

compliance tariff). Penn Power’s new Rate Schedule GS Large was approved by the

Commission and became effective on May 3, 2015. As such, it is another example of billing

determinants for future service established – with Commission approval – based on historical

data predating the effective date of a new rate. Once again, this rate was found to be just and

reasonable.52

Met-Ed And Penelec Energy Efficiency and Conservation (“EE&C”) Proceeding. In

their 2009-2010 EE&C proceeding, the Commission sua sponte directed Met-Ed and Penelec to

implement a rate to recover EE&C costs for large commercial and industrial customers through

demand charges “based on a customer’s PJM Peak Load Contribution (“PLC”) as the cost

recovery mechanism. 53 The PLC was established during the year prior to implementation of the

rate and, as such, reflected peak load that was set before the affected customers could have

known that their prospective EE&C rate would be based on a historic billing determinant. The

52 PE/WP St. No. 1, pp. 23-24.

53 Joint Petition of Metropolitan Edison Co., Pennsylvania Elec. Co. and Pennsylvania Power Co. for Consolidation of Proceedings and Approval of Energy Efficiency and Conservation Plans, Docket Nos. M-2009-2092222 et al., 2010 Pa. PUC LEXIS 561 (Final Order entered Jan. 28, 2010) (“EE&C Order”).

35

Commission determined that the rate was just and reasonable – indeed, it ordered that rate on its

own initiative.54

Consolidated DSP II Order. In their consolidated DSP II proceeding, the Companies,

Met-Ed and Penn Power proposed to recover certain non-market based (“NMB”) transmission

service charges from all customers on a non-bypassable basis through their DSS Riders on a per-

kWh basis. The Commission determined that some, but not all, of the NMB transmission service

charges could be recovered from all customers through the DSS Rider but, contrary to the

Companies’ proposal, directed that the NMB costs be allocated among customer classes based

upon the “one coincident peak methodology” employed by PJM.55 As a consequence, the cost

allocation determining the NMB charge under the DSS Rider was based on coincident peaks

determined for a historic period that pre-dated the approval and implementation of that charge.

The charge thus used to bill customers for future service was based on a billing determinant that

used historical peak data for a period ending before the approval of that rate. Once again, the

Commission found that relying on historical data predating rate approval to determine

customers’ bills for prospective periods was lawful, just and reasonable.56

Finally, Respond Power’s related argument that the clawback provision “retroactively”

converts the Companies’ POR programs from “non-recourse” to “with recourse”57 should also be

rejected by the Commission. Contrary to Respond Power’s assertion, the Companies do not

reconcile the face value of accounts receivable purchased from EGSs with the actual amounts

collected from customers under the clawback provision. Tr. at 89. Therefore, an EGS

54 PE/WP St. No. 1, pp. 24-25.

55 Joint Petition of Metropolitan Edison Co., Pennsylvania Elec. Co. and Pennsylvania Power Co. for Approval of Their Default Service Programs, Docket Nos. P-2011-2273650 et al. (Final Order entered Aug. 16, 2012) (“DSP II Order”).

56 PE/WP St. No. 1, pp. 25-26.

57 Respond Power St. Nos. 1, pp. 9-10, 15, 1-Supp, pp. 8, 10-11 & 1-R, pp. 5-9.

36

participating in the Companies’ POR programs continues to avoid the costs and risks associated

with collecting any delinquent amounts owed by customers. Significantly, DLC’s Supplier

Coordination Tariff makes clear that DLC will purchase accounts receivable “without recourse”

notwithstanding the clawback provision in its POR provision described above. PE/WP St. No. 1-

SR, p. 8. Furthermore, as explained by Ms. Bortz, the clawback provision is structured such that

the vast majority of EGSs will be able to continue to enjoy the benefits of a non-recourse POR

program that offers a zero discount rate. Specifically, the clawback provision is directed to those

specific EGSs who are creating excessive write-offs due in large part to charging prices that

significantly exceed the applicable Company’s PTC and therefore are driving higher

uncollectible expenses for the Companies and their customers. PE/WP St. Nos. 1, pp. 12-13 &

1-SR, pp. 6-7.

For the foregoing reasons, the use of historical data, on a consistent basis, to identify

those EGSs that satisfy the first screening measure does not provide a valid basis for Respond

Power to avoid application of the clawback provision.

2. The Design of the Clawback Provision Is Reasonable And Ensures Fair Recovery of Excessive EGS Write-Offs From Only Those EGSs Responsible For Creating Higher Uncollectible Accounts Expense

In his written testimony, Mr. Small offered various reasons why he believes the design

and structure of the first prong of the screening test are purportedly unfair or unreasonable. First,

he asserts that while write-offs were accruing, Respond Power had no knowledge customers

were not paying their bills and no ability to manage its write-off amounts by, for example,

returning customers to default service.58 Second, he complains that under the Companies’

58 Respond Power St. Nos. 1, pp. 10, 12, 18-20, 1-Supp., pp. 8, 12-14, & 1-R, pp. 5, 23.

37

payment posting priority, partial payments go to unpaid distribution charges.59 Third, Mr. Small

asserts that the service periods for Respond Power’s write-off amounts include unpaid charges

dating back to 2013 and do not match the period for the PTC price comparison screen.60 Mr.

Small next contends that the clawback provision is a tool to change EGS behavior and would

amount to a “double recovery” of uncollectible accounts expense through the clawback charge

and base rates.61 Mr. Small also claims that because no credit is given for post write-off

payments by customers, the Companies can collect the same amounts twice – once from

Respond Power and once from the customer that made the payment.62 In addition, Mr. Small

argues that Respond Power refunded $5 million to customers it served between January and June

2014 to settle the Polar Vortex investigation and the Companies’ attempt to assess clawback

charges for any of those customers’ write-offs would result in Respond Power being “penalized”

twice.63 Finally, Mr. Small suggested that Respond Power might not have served the customers

with written off accounts for the entire period during which the receivable was generated.64

These concerns are not valid – as the evidence clearly shows – and, therefore, they do not

provide any support for the relief requested in the Complaints, as discussed below.

The Write-Off Test For Applying The Clawback Provision Is Made Among EGSs

On A Consistent Basis And Using Comparable Data. As explained by Ms. Bortz, Mr. Small’s

criticisms of the structure of the clawback provision, including the order of posting partial

payments, the service periods to which the written-off amounts relate and crediting of post-write-

59 Respond Power St. Nos. 1, p. 20 & 1-Supp., p. 14.

60 Respond Power St. Nos. 1, pp. 21-22 & 1-Supp., pp. 14-17.

61 Respond Power St. No. 1, p. 23.

62 Id.

63 Respond Power St. Nos. 1, pp. 23-24 & 1-Supp, p. 17.

64 Respond Power St. Nos. 1, pp. 25-26 & 1-Supp, p. 18.

38

off payments, lack merit because he ignored the fact that the write-off screen compares an EGS’s

experience to the average for a Company’s entire EGS population and provides a margin of

200%. PE/WP St. Nos. 1, pp. 26-33 & 1-SR, pp. 8-10. Each of Mr. Small’s individual concerns

is addressed, in turn, below.

First, Mr. Small’s concern that partial payments go to unpaid distribution charges first is

unwarranted because the Companies’ posting practices, which are consistent with Commission

regulations, are applied uniformly to all EGSs. PE/WP St. No. 1, p. 29. As a consequence,

Respond Power’s write-off experience is assessed relative to the average for the entire EGS

population and Respond Power is not disadvantaged by the posting priority of partial payments.

Mr. Small’s additional complaints that the service periods for write-offs relate to the

Polar Vortex, date back to 2013, and do not match the time period for the pricing information for

the clawback provision’s screening tests fail for the same reasons. While the service periods for

Respond Power’s write-off amounts include some unpaid charges dating back to the time of the

Polar Vortex in 2014, as Mr. Small acknowledges in his rebuttal testimony, all EGSs

experienced the same market conditions that caused wholesale price spikes at that time.

Moreover, as explained in Ms. Bortz’s direct testimony, unpaid charges that began accruing in

2013 were included in the calculation of the write-off percentages for all EGSs participating in

the Companies’ POR programs for both the 2016 and 2017 test periods. Thus, gaps between

when unpaid charges accrue and write-offs occur, as well as unpaid charges related to the Polar

Vortex, are not unique drivers of Respond Power’s higher than average write-off percentage.

The design of the clawback provision also does not require that the period of the write-offs

match the time period for pricing information because the thresholds for write-off percentages

39

and prices are two independent screens that are applied consistently to all EGSs to determine if

an EGS will be assessed a clawback charge. PE/WP St. Nos. 1, p. 30 & 1-SR, pp. 14-15.

Finally, Mr. Small’s concern that no credit is given under the screening test for post-

write-off payments is not a valid basis for treating Respond Power differently than other EGSs.

Again, the Companies employed the same methodology of excluding post-write-off customer

payments for all EGSs. If credits for payments received after August 31 in the relevant test

period were applied to all EGSs’ pre-August 31 write-offs, as Mr. Small proposes, that approach

would reduce the average EGS write-off percentage and potentially could result in Respond

Power’s write-off percentage being higher than it already was, with a corresponding increase in

the charge to Respond Power. PE/WP St. No. 1, p. 30.

In short, the write-off screening measure does not hold any EGS to an absolute standard,

but, instead, provides a consistent comparison across the entire population of the Companies’

EGSs where all data are derived and employed in the same way. Therefore, the clawback

provision is fair and reasonable in its application to all EGSs, including Respond Power. While

Mr. Small suggests that it is unfair to treat all EGSs equally in his rebuttal testimony,65 Respond

Power is actually asking the Commission to exempt Respond Power from being held to the same

standards as all other POR-participating EGSs. PE/WP St. No. 1-SR, pp. 8-10. Clearly, that is

not a valid basis for overturning the clawback provision.

The Clawback Provision Is Designed To Address The Disparity In EGS Write-Off

Percentages And, Thereby, Reduce The Companies’ And Customers’ Exposure To Those

Individual EGS Write-Offs That Are Excessive Compared To Their Peers. Mr. Small does

not dispute that the Companies have experienced incremental uncollectible accounts expense, but

65 Respond Power St. No. 1-R, p. 21.

40

suggests that it should be addressed through a POR discount. See Respond Power St. Nos. 1, p.

5 & 1-Supp, p. 3. While the Companies considered the one-size-fits-all approach recommended

by Mr. Small, they did not propose a uniform discount rate because such a rate would force the

majority of EGSs to provide a subsidy to the smaller number of EGSs that have disproportionally

higher write-offs than their peers and whose business model involves charging prices well above

the PTC. As Ms. Bortz emphasized throughout her written testimony, a clawback charge is

imposed, based on principles of cost causation, only on EGSs whose comparative data indicates

they are responsible for excessive write-offs. It was not designed to change the behavior of

EGSs as Mr. Small contends in his rebuttal testimony (p. 22). PE/WP St. Nos. 1, pp. 11-12, 26

& 1-SR, p. 13.

Mr. Small is also wrong to contend that there could be any “double recovery” as a result

of the clawback provision. As explained in Section II.A., supra, and in Ms. Bortz’s direct

testimony, the uncollectible accounts expense included in base rates is the baseline. If

uncollectible accounts expenses exceed the baseline, the Company is compensated through the

clawback charge, and if they are less than the baseline, the clawback revenues are returned to

customers to reduce the cost burden they otherwise would bear. Absent the clawback provision,

either the Companies or customers would provide a subsidy to EGSs whose business practices

produce much higher write-offs than the average for the entire EGS population and charge

exorbitant prices. PE/WP St. No. 1, pp. 10, 12.

Respond Power is in the Same Position as All Other EGSs to Manage Write-Off

Amounts. Contrary to Respond Power’s assertion, because EGSs do not have access to real-

time information regarding the payment status of their customer accounts and do not directly

control the Companies’ collection efforts is not a valid basis to withhold the application of the

41

clawback provision to Respond Power. In fact, Respond Power – like any EGS – is free to

request information regarding its non-paying customers form the Companies’ Supplier Services

website, and requests are not limited to being made on an individual customer basis. At the

evidentiary hearing, in response to questions on re-direct examination, Ms. Bortz reiterated that

the Companies would, upon request, provide an EGS an arrearage report listing the EGS’s non-

paying customers with outstanding balances for its supplier charges. Tr. at 91. The day after the

hearing, Mr. David Sobel, on behalf of Respond Power, sent two e-mails to the Companies’

Supplier Services website requesting a “list of all of [Respond Power’s] customers that did not

pay their December ’17 bill yet.” See PE/WP Exhibit KLB-5SR. After further e-mail

correspondence, on February 7, 2018, the same employee from Supplier Services that fielded

Mr. Sobel’s inquiry provided a report for each Company detailing, by Respond Power’s

customer numbers, a list of customers with past-due Respond Power balances as of January 31,

2018. In addition, the reports set forth “aged” arrearage data, which shows the amounts unpaid

for the then-current bill as well as unpaid balances segmented by approximately thirty-day

intervals for periods of 30, 60, 90, 120 and greater-than 120 days. See PE/WP Exhibits KLB-

6SR & KLB-7SR. As a result, Respond Power received the information that Ms. Bortz testified

the Companies would provide upon request – the same information Mr. Small testified would be

most valuable to Respond Power to manage write-offs (Tr. at 26, 32-33).

Not only did Respond Power wait over a year since the clawback charges were first

invoiced on September 27, 2016 to request any information regarding its non-paying customers,

it did not attempt to offer more affordable contracts to the customers identified in Confidential

RP Exhibits AS-5 and AS-11, as Mr. Small testified that Respond Power would have been able

42

to do if it was aware that its customers were not paying their bills.66 Moreover, while EGSs

cannot deny service for credit-related reasons, nothing prevents the use of a credit screen to

determine whether to offer a new contract with a lower rate to a low-income customer. PE/WP

St. No. 1, p. 29; PE/WP Exhibit KLB-4.

Mr. Small’s claim that Respond Power had no way of knowing that its customers were

not paying their bills is also refuted by the Polar Vortex litigation initiated against it by the

Attorney General (“AG”) and OCA (jointly) and I&E in June 2014 and August 2014,

respectively. The initiation of those proceedings, as well as the numerous formal and informal

complaints against Respond Power referenced in the AG/OCA’s complaint, should have alerted

Respond Power to the fact that customers were experiencing payment problems related to its

high prices and variable price contracts. Indeed, Respond Power agreed to extensive business

modifications as part of the settlement of the Polar Vortex litigation related to product offerings,

marketing, training and quality assurance compliance. See RP Exhibit AS-21, pp. 21-45. Yet,

Respond Power did not track whether customers were paying or could afford to pay the prices it

was charging after the Polar Vortex litigation was resolved. In sum, while Respond Power may

have determined that the benefit of monitoring the payment status of its customers and offering a

new contract with a lower rate was not worth the cost, such business decision does not support

exempting Respond Power from the application of the clawback provision.

Finally, Mr. Small’s argument ignores the second prong of the screening test – EGS

prices must, on average, exceed 150% of the applicable average PTC. To avoid triggering the

clawback provision, Respond Power would only need to monitor the quarterly changes in the

PTC, ascertain the average price it is charging in a Company’s service area and then maintain an

66 Respond Power St. Nos. 1, p. 18 & 1-Supp, p. 13.

43

average price within a healthy margin of less than 150% of the average PTC. PE/WP St. Nos. 1,

pp. 28-29 & 1-SR, p. 18.

The Fact That The Companies Did Not Account For Polar Vortex Refunds In

Determining Respond Power’s Write-Off Percentage Does Not Render The Clawback

Charges Assessed In 2016 Or 2017 Unjust Or Unreasonable. Contrary to Mr. Small’s

unsupported contention, Respond Power has not shown that any refunds paid to comply with the

settlement of its Polar Vortex litigation (“Polar Vortex Settlement”) were paid to, and cashed by,

customers listed on RP Exhibits AS-5 and AS-12. Indeed, neither Mr. Small nor anyone else

reviewed the monthly reports provided by the third-party administrator of the Polar Vortex

Settlement refund pool (which identified customers by name and stated the amounts disbursed)

in order to ascertain whether any of the Companies’ customers whose accounts were written off

and formed the basis of the 2016 or 2017 clawback charges actually received a refund.67 Tr. at

59. Mr. Small also concedes that, as of March 31, 2017, of the $4 million in refund checks

issued by Respond Power, only 35,427 totaling $2.4 million were cashed and paid.68 Id.

In any event, Respond Power kept the payments that the Companies made at the face

value of Respond Power’s accounts receivable and did not check with the Companies to see if

any of its customers to whom it owed a refund had an unpaid balance with the Companies and,

therefore, should have been issued a bill credit instead of a check. For this reason, the

Companies implemented a new Supplier Coordination Tariff provision in DSP IV, as Mr. Small

notes in his direct testimony (p. 24), to address EGS refunds. PE/WP St. No. 1, p. 31. Even

67 See RP Exhibit AS-21, p. 20 (“The Settlement Administrator shall provide monthly reports to OCA, OAG, Respond Power and designated Commission staff that include at a minimum, the customer’s name and other available identifying information, the amount of funds disbursed to each customer and the period for which funds were disbursed.”).

68 See March 2017 Refund Report, McCloskey v. Respond Power, Docket Nos. C-2014-2427659 and C-2014-2438640 (filed April 10, 2017).

44

though that tariff provision was not memorialized in the Companies’ Supplier Coordination

Tariff at the time the refunds were disbursed, Respond Power’s failure to check the payment

status of accounts being paid refunds under the circumstances of a comprehensive settlement of

major consumer protection litigation requiring the magnitude of refunds that Respond Power

itself claims were significant was not reasonable. PE/WP St. Nos. 1, p. 31 & 1-SR, p. 14.

Accordingly, the fact that the Companies did not account for Polar Vortex refunds in

determining Respond Power’s write-off percentage does not justify treating Respond Power

differently than other POR-participating EGSs.

Respond Power Has Not Demonstrated That An Opportunity To Explain Why Its

Write-Off Amounts Were Higher Than Average Is Necessary Given The Second Prong Of

The Screening Test. Respond Power’s claim that EGSs should have the opportunity to

demonstrate that higher than average write-offs are due to circumstances not related to their

business models69 should be rejected. Mr. Small pointed to DLC, which may (in its sole

discretion) waive the upward adjustment to its POR discount for an individual EGS if it

determines the explanation is credible. However, a similar discretionary waiver is not necessary

here because, unlike DLC, the Companies’ clawback charge is based on individual EGS data

compared to the average performance of all EGSs and has a second screening measure that

captures only EGSs that pass the first screen and are charging rates substantially above the

annual average PTC. PE/WP St. No. 1, pp. 31-32. Significantly, the Companies submitted

extensive evidence showing that the primary driver of Respond Power’s substantial write-offs is

its high prices charged under variable month-to-month contracts. See PE/WP Exhibits KLB-1,

KLB-5 (Confidential) & KLB-6. And, as demonstrated by the information furnished on PE/WP

69 Respond Power St. Nos. 1, pp. 25-26 & 1-Supp, p. 18.

45

Exhibit KLB-1SR, the vast majority of Respond Power customer accounts that were written off

during the 2016 and 2017 application periods were low-income customers on variable price

contracts. Indeed, Mr. Small admitted that an EGS’s prices are an important factor in

determining the ability of a customer to pay its EGS bill. Tr. at 49.

Only Unpaid Respond Power Charges Factored Into the Write-Off Percentage

Calculation. As Ms. Bortz made clear in her testimony, the write-off amounts that form the

basis of the 2016 and 2017 Clawback Charges are only for actual Respond Power accounts

receivable. A customer’s pre-existing unpaid balance did not factor into the screening test used

to identify EGSs subject to a clawback charge or the calculation of the charge itself. PE/WP St.

Nos. 1, pp. 32-33 & 1-SR, pp. 13-14. Mr. Small inexplicably and without basis simply rejects

the demonstrated fact that the Companies’ billing system employs a unique supplier code, which

allows the Companies to verify both the time periods a customer was served by Respond Power

and the unpaid charges that accrued during such billing periods. Thus, Mr. Small’s claim that

Respond Power’s write-off amounts may reflect unpaid charges of another EGS is entirely

without merit.

3. The Second Prong Of The Clawback Provision Screening Test Does Not Limit EGS Prices And Is An Appropriate Benchmark For Assessing Excessive EGS Prices That Drive Higher Than Average Write-Offs

As a threshold matter, Respond Power’s characterization of the clawback provision as an

unlawful EGS pricing limitation and “policing” mechanism70 is inaccurate. The clawback

provision does not limit EGS pricing practices in any way. It does, however, seek to address the

Companies’ increasing write-offs and ensure fair recovery of at least a part of those write-offs

from only those EGSs that are creating excessive write-offs and, thereby, driving higher

70 Respond Power St. Nos. 1, pp. 26-28, 1-Supp, pp. 19-20 & 1-R, pp. 30-31.

46

uncollectible accounts expenses. Further, as explained by Ms. Bortz, an EGS’s price relative to

the PTC is only one of the two screens employed by the clawback provision and therefore some

EGSs charged prices that exceed 150% of the PTC but were not subject to a clawback charge.

PE/WP St. No. 1, p. 34.

Respond Power’s objections to the use of 150% of the PTC as the benchmark for

excessive EGS prices leading to higher than average write-offs are also without merit. Mr. Small

first points out that the Companies’ PTCs have fluctuated by more than 150% over the last five

years. Those alleged variations are irrelevant for three primary reasons.

First, as Mr. Small acknowledged (see Tr. at 51), the Companies compare an average

annual EGS price based (on annual revenues and customer usage in kWh) to an average annual

PTC in applying the second prong of the screening test. Therefore, the variations of an EGS’s

price from the average PTC are smoothed-out over a twelve-month period.

Second, Mr. Small selectively compared the highest and lowest quarterly PTC for each

Company over a five-year period to assert that the Companies’ PTCs experienced swings of

more than 150%. As demonstrated by Ms. Bortz, the Companies experienced minimal

fluctuations in the PTC during the applicable 2016 and 2017 test periods, with the maximum

PTC only 15% over the average PTC for the two-year time period. PE/WP St. No. 1, pp. 15-16.

Third, Mr. Small’s hypothetical purporting to show how an EGS price could become

higher than the PTC over the course of a three-year contract term is irrelevant to the facts as they

are presented in this case because Respond Power did not offer three-year fixed-price contracts

on PaPowerSwitch.com and, as Mr. Small admits, Respond Power’s relationship with Penelec

and West Penn customers has been, on average, [BEGIN CONFIDENTIAL] .

[END CONFIDENTIAL] Confidential Tr. at 53-54.

47

In addition, Mr. Small claims that comparison of EGS prices to the PTC is not

“meaningful” because the PTC is established in a “regulated environment” and does not reflect

current market conditions. Respond Power St. No. 1-R, pp. 11-12. However, each Company’s

PTC is derived from independently administered, Commission-supervised auctions that solicit

competitive bids from default service suppliers. The prices bid by default service suppliers

reflect the prevailing market conditions at the time of bidding for the products being purchased

and incorporate the bidders’ view of market prices that will prevail when they supply power in

the future pursuant to the terms of the contracts being bid. PE/WP St. No. 1-SR, p. 16. And,

although Respond Power questions the use of the PTC as a benchmark, Respond Power’s prices

were also consistently higher than the average prices charged by other EGSs in the Companies’

service territory. See PE/WP Exhibit KLB-1.

Respond Power’s assertion that 150% above the PTC is an inappropriate benchmark for

the PTC is further belied by its own marketing materials that suggest to customers that Respond

Power is competing against, and offering savings from, the PTC. To illustrate, Respond Power’s

door-to-door marketing script for fixed price products references deregulation and utility prices:

[BEGIN CONFIDENTIAL]

[END CONFIDENTIAL] See Confidential PE/WP Exhibit KLB-4SR (emphasis in original).

48

4. The Clawback Provision Does Not Have An Adverse Impact On Retail Competition

In the Complaints, Respond Power asserts, without evidence, that paying clawback

charges totaling $484,797.69 and $211,012.54 in 2016 and 2017, respectively, would put it in a

difficult cash flow position. However, the statements of cash flow provided by Respond Power

in the discovery process directly contradict this claim. [BEGIN CONFIDENTIAL]

[END CONFIDENTIAL]

Respond Power also claims that the clawback provision will discourage EGSs from

serving the mass market customers in the Companies’ service territories,71 but does not cite any

evidence to support its claim. To the contrary, as Ms. Bortz explained, the Companies’ supplier

workshops regarding their DSP IV programs held on December 8, 2016 and August 10, 2017

were well attended, and in fact Mr. Small attended the 2016 workshop. Yet, there were no

questions or concerns voiced by any of the EGSs in attendance regarding the clawback

provision. Notably, none of the EGSs subject to clawback charges in 2016 and 2017 have left

the market since it was implemented. In fact, Mr. Small himself could not say whether Respond

Power would withdraw from the retail electricity market in the Companies’ service areas if the

clawback charges are not invalidated as Respond Power advocates. Tr. at 64. Finally, according

to PaPowerSwitch.com, as of December 19, 2017, there were 113 offers from forty-eight

different suppliers for residential supply in Penelec’s territory and 105 offers from thirty-five

suppliers in West Penn’s territory. PE/WP St. No. 1, p. 34. There is thus no basis for the

71 Respond Power St. Nos. 1, p. 30 & 1-R, p. 31.

49

Commission to conclude that the clawback provision has – or would have – any adverse impact

on retail competition.

C. The Companies Did Not Make Computational Errors In Calculating the Clawback Charges That Are The Subject Of The Complaints

In the Complaints, Respond Power alleged that the Companies made computational

errors in calculating the clawback charges invoiced on September 27, 2016 and September 29,

2017. Notably, in response to the Companies’ interrogatories, Mr. Small admits that Respond

Power has not identified any computational errors in the calculation of the 2016 clawback charge

invoices. See PE/WP Exhibit KLB-3. Similarly, even though the Companies provided the

source data and supporting calculations for the 2017 clawback charge invoices in the discovery

process on November 13, 2017, Mr. Small did not identify any computational errors in those

calculations in his supplemental direct testimony served on November 29, 2017. PE/WP St. No.

1, p. 19. Accordingly, this issue is no longer in dispute.

APPENDIX A

Proposed Findings of Fact, Conclusions of Law and Ordering Paragraphs

PROPOSED FINDINGS OF FACT

I. BACKGROUND

1. Consistent with the Commission’s Policy Statement at 52 Pa. Code § 69.1814,

Pennsylvania Electric Company (“Penelec”) and West Penn Power Company (“West Penn”)

(individually a “Company” and collectively, the “Companies”) agreed to provide, and the

Pennsylvania Public Utility Commission (“PUC” or the “Company”) approved, purchase of

receivable (“POR”) programs for residential and small commercial accounts served by electric

generation suppliers (“EGSs”). Penelec/West Penn (“PE/WP”) St. No. 1, p. 9.

2. Penelec’s POR program was proposed in the context of its first default service

program as part of the settlement that was approved by the Commission’s Final Order entered

November 9, 2009.1 Id.

3. Prior to the merger of Allegheny Energy, Inc. and FirstEnergy Corp. in 2011,

West Penn purchased EGS accounts receivable with full recourse for uncollectible accounts.

Following the merger, West Penn revised its POR program to purchase EGS accounts receivable

at a zero discount and without recourse.2 Thereafter, further revisions to West Penn’s POR

program and recovery of uncollectible accounts expense related to purchased receivables were

addressed in the settlement of its 2013 default service program filing.3 Id.

1 Joint Petition of Metropolitan Edison Co. and Pennsylvania Elec. Co. for Approval of Their Default Serv. Programs, Docket Nos. P-2009-2093053 and P-2009-2093054 (Opinion and Order approving settlement entered Nov. 6, 2009).

2 Joint Application of West Penn Power Co. d/b/a Allegheny Power, Trans-Allegheny Interstate Line Co. and FirstEnergy Corp. for a Certificate of Public Convenience under Section 1102(a)(3) of the Public Utility Code Approving a Change-In-Control of West Penn Power Co. and Trans-Allegheny Interstate Line Co., Docket Nos. A-2010-2176520 and A-20010-2176732 (Final Order entered Mar. 8, 2011), p. 32.

3 Joint Petition of Metropolitan Edison Co. Pennsylvania Elec. Co., Pennsylvania Power Co., and West Penn Power Co. for Approval of Their Default Serv. Programs, Docket Nos. P-2013-2391368, et al. (Opinion and Order approving settlement entered July 24, 2014).

2

4. Under the terms of their POR programs, the Companies purchase the accounts

receivable of participating EGSs at face value (i.e., with no discount for uncollectible accounts)

and without recourse for amounts not collected from EGSs’ customers. Accordingly, the

Companies and their customers bear the risk of customer accounts that must be written off. Each

Company recovers uncollectible accounts expenses associated with purchased receivables

through its Default Service Support Rider up to the allowance for uncollectible expense

approved in the Companies’ 2016 base rate cases. PE/WP St. No. 1, pp. 9-10.

5. On November 3, 2015, the Companies, with their affiliates, Metropolitan Edison

Company (“Met-Ed”) and Pennsylvania Power Company (“Penn Power”), filed a Joint Petition

(“DSP IV Joint Petition”) requesting that the Commission approve, inter alia, each Petitioner’s

DSP IV, their proposed rates for default generation service, the continuation of their customer

referral programs and a revision to their POR programs to add a clawback provision. PE/WP St.

No. 1, p. 17.

6. As initially proposed, the clawback charge could have been imposed if any EGS’s

average accounts receivable write-off percentage for the preceding annual period exceeded 150%

of the average write-off percentage for all POR-participating EGSs. If that threshold were

crossed, an EGS that wished to remain in the POR program would, as a condition of doing so,

have to pay a fee equal to the difference between its actual write-offs and what its write-offs

would have been at 150% of the average write-off percentage for all participating EGSs. Id.

7. The Companies proposed the addition of a clawback provision to reduce the

Companies’ and customers’ exposure to increased uncollectible expense due to excessive EGS

write-offs. In analyzing growth in uncollectible accounts since their 2014 base rate proceedings,

the Companies identified an approximate $7 million increase in POR-related net write-offs since

3

2012, when they began tracking discrete categories of write-offs. PE/WP St. No. 1, pp. 7, 10-

11.PE/WP St. No. 1, pp. 7, 10-11.

8. In order to address the disparity in EGS-related write-off percentages, the

Companies proposed to collect a portion of growing uncollectible accounts expense from EGSs –

specifically, those EGSs who are driving higher write-offs as a consequence of the types of

offers they make to customers. In addition, the clawback provision was designed to ensure that

if uncollectible accounts expense is less than the baseline amount included in the Companies’

base rates, the clawback revenues are returned to distribution customers. Id.

9. The DSP IV Joint Petition together with all of its accompanying direct testimony

and exhibits was served upon, inter alia, all EGSs licensed to sell electric generation in the

service areas of the Joint Petitioners, including Respond Power and the Retail Energy Supply

Association (“RESA”), a trade association of EGSs of which Respond Power, through its parent,

is a member.4 PE/WP St. No. 1, pp. 13-14.

10. The DSP IV Joint Petition, as well as the accompanying testimony of Ms. Bortz,

included a detailed description of the proposed clawback provision and explained why it was

being proposed. Id.

11. A Notice was published in the November 14, 2015 edition of the Pennsylvania

Bulletin explaining how any interested party could intervene in the proceeding initiated by the

DSP IV Joint Petition. The Notice also stated that a Prehearing Conference was scheduled for

December 1, 2015, commencing at 10:00 A.M., before Administrative Law Judge David A.

4 See RESA’s website at https://www.resausa.org/members. Respond Power and Spark Energy are subsidiaries of a common parent. See Respond Power LLC License Update at Docket Nos. A-2010-2163898, C-2014-2427659 and C-2014-2438640 (May 4, 2016), which updated Respond Power’s EGS license to reflect a change in ownership when it became a subsidiary of Spark Energy.

4

Salapa, to be held in Hearing Room 4 of the Commonwealth Keystone Building in Harrisburg.

Contact information for Judge Salapa was also provided. In addition, the Commission issued a

Notice of such Prehearing Conference and Judge Salapa issued his Prehearing Conference Order,

both of which were served on all the same parties that received the DSP IV Joint Petition,

including Respond Power, as evidenced by the accompanying service list. Id.

12. Various parties intervened in the DSP IV proceeding, including RESA and two

EGSs that market generation services in the Companies’ service areas, and the testimony of

various witnesses addressed the proposed clawback charge. Although it was served with the

legal pleading and all accompanying testimony and exhibits that initiated the Companies’ DSP

IV proceeding, Respond Power chose not to intervene. PE/WP St. No. 1, pp. 16-17.

13. The parties to the Companies’ DSP IV proceeding subsequently achieved a

settlement of all issues related to the DSP IV Joint Petition (“Settlement”). PE/WP St. No. 1, pp.

16-17.

14. The terms of the clawback provision agreed to by the settling parties were

substantially more lenient to EGSs than the Companies’ original proposal. Specifically, the

Settlement narrowed the application of the proposed clawback fee in two ways which, in turn,

reduced the number of EGSs that potentially could be subject to the charge. First, the write-off

threshold was raised from 150% to 200% of the average write-off percentage of all EGSs.

Second, another screening feature was added such that, even if an EGS crossed the 200%

threshold, it would not incur a clawback fee unless, during the review period, the average price it

charged for generation was more than 150% of the applicable Company’s average price-to-

compare (“PTC”) for the same period. The parties also agreed that the clawback provision

would be implemented for two years on a “pilot” basis, after which it would be subject to further

5

review. RESA signed the Joint Petition for Settlement and no other EGSs that intervened in the

DSP IV proceeding opposed it. PE/WP St. No. 1, p. 17.

15. In its Final Order approving the DSP IV Joint Petition, as modified by the

Settlement, the Commission found the Settlement terms to be in the public interest, including

implementation of a POR clawback charge on a pilot basis for two years.5 The Commission’s

Chairman issued a separate statement supporting the Settlement. No party filed an appeal.

16. Supplier Coordination Tariff supplements setting forth all of the revisions to the

Companies’ POR programs, including the clawback provision, were agreed to by the settling

parties, attached to the Joint Petition for Settlement and approved by the Commission pursuant to

the DSP IV Final Order. However, because the supplements filed with the Joint Petition for

Settlement did not bear supplement numbers, they were not included in the Companies’ tariff

books at the Secretary’s Bureau. When this came to the Companies’ attention, they filed the

Supplements with the Secretary and, by Secretarial Letter dated November 10, 2016, the

Supplements were accepted nunc pro tunc with an effective date of August 1, 2016.

17. The Companies applied the screening test under the clawback provision in the

same manner to all EGSs serving residential and small commercial customers in their service

territories. PE/WP St. No. 1, pp. 17-18. Specifically, the Companies first analyzed revenues and

write-offs during the applicable test period ending August 31 for each EGS participating in the

applicable Company’s POR program to calculate individual write-off percentages and the overall

average EGS write-off percentage. PE/WP St. No. 1, p. 18. Write-offs are customer accounts

5 See Petition of Metropolitan Edison Co., Pennsylvania Electric Co., Pennsylvania Power Co. and West Penn Power Co. for Approval of a Default Serv. Program for the Period Beginning June 1, 2017, through May 31, 2019, Docket Nos. P-2015-2511333, P-2015-2511351, P-2015-2511355 and P-2015-2511356 (Recommended Decision issued April 15, 2016) (“Recommended Decision”), p. 31. The Recommended Decision was adopted by the Commission without modification by Final Order entered May 19, 2016 (“DSP IV Final Order”).

6

receivable balances that become delinquent due to non-payment and are written off the

Company’s books approximately 182 days after a customer’s account is final billed. Id.

18. The Companies next calculated an average rate for each EGS based on its

revenues and kilowatt-hours sold over the applicable twelve-month test period and compared that

rate to 150% of the weighted average quarterly PTCs for residential and small commercial

customers over the same period. Id.

19. For those EGSs identified by both prongs of the test, the annual clawback charge

assessed is the difference between the EGS’s actual write-offs and what its write-offs would be if

calculated at 200% of the average EGS write-off percentage for each Company. PE/WP St. No.

1, pp. 18.

20. For the twelve months ended August 31, 2016, the Companies identified

Respond Power and two other EGSs that were subject to clawback charges. The Companies

calculated Respond Power’s charges of $305,890.63 and $178,907.06, for Penelec and West

Penn, respectively. PE/WP Exhibit KLB-1; RP Exhibit AS-2.

21. On September 27, 2016, the Companies issued Respond Power invoices for those

amounts (“2016 Clawback Charges”). RP Exhibit AS-1.

22. For the twelve months ended August 31, 2017, based on the Companies’ analyses,

Respond Power also satisfied both prongs of the screening test, along with two other EGSs.

PE/WP Exhibit KLB-1. On September 29, 2017, Penelec and West Penn issued Respond Power

invoices for the amounts of $142,973.13 and $68,039.41, respectively, for the amount of

Respond Power’s write-offs over 200% of the EGS average write-off percentage for each

respective Company (“2017 Clawback Charges”). RP Exhibits AS-9 & AS-10.

7

23. On October 21, 2016, Respond Power sent letters to Penelec and West Penn

objecting to the 2016 Clawback Charges and requesting a waiver and extension of the due date.

II. PROCEDURAL HISTORY

24. On October 26, 2016, Respond Power filed a Petition for Issuance of Ex Parte

Emergency Order seeking an extension of the due date for payment of the clawback charge.

25. On October 27, 2016, Commissioner Andrew Place granted the ex parte petition

and issued an Emergency Order. On November 1, 2016, the Companies’ filed an Answer to

Respond Power’s Petition for an Emergency Order in which it explained why Respond Power

was not entitled to the relief it requested. The Commission ratified the Emergency Order at its

public meeting held on November 10, 2016.

26. The Commission’s ratification order directed that a hearing be held on the

Emergency Order within ten days. A hearing was, therefore, scheduled for November 17, 2016.

On November 16, 2016, Respond Power filed a single Complaint against Penelec and West Penn

challenging the validity of the clawback charge and, in particular, seeking to nullify the clawback

provisions back to the date of the DSP IV Final Order. At the request of the Commission’s

Secretary, Respond Power filed separate Complaints against Penelec and West Penn on

November 17, 2016 (“2016 Complaints”).

27. After the 2016 Complaints were filed, the Companies confirmed with Respond

Power that the 2016 Clawback Charges billed to Respond Power were “disputed” and, pursuant

to the terms of their Supplier Coordination Tariffs, collection efforts could not, therefore, be

renewed until the Commission resolved the dispute. Accordingly, Respond Power withdrew its

Petition for an Emergency Order, which had become moot. Judge Salapa cancelled the hearing

scheduled for November 17, 2016, and approved the withdrawal. The 2016 Clawback Charges

8

remain unpaid, and the Companies have postponed any collection efforts until this case is

adjudicated.

28. On December 8, 2016, each of the Companies filed Answers and New Matter to

Respond Power’s 2016 Complaints. They also filed Motions for Judgment on the Pleadings

(“Motions”) requesting dismissal on the principal grounds that the 2016 Complaints are unlawful

collateral attacks on a Commission final order and, as such, are barred by Section 316 of the

Public Utility Code (“Code”).

29. The Office of Consumer Advocate (“OCA”) and the Office of Small Business

Advocate each filed a Notice of Intervention and Public Statement on December 8, 2017 and

December 13, 2017, respectively, in response to the 2016 Complaints. The Coalition for

Affordable Utility Services and Energy Efficiency in Pennsylvania (“CAUSE-PA”) and the

Penelec Industrial Customer Alliance, the West Penn Power Industrial Intervenors and the Met-

Ed Industrial Users Group (jointly) also filed Petitions to Intervene. On December 14, 2016, the

Commission’s Bureau of Investigation and Enforcement (“I&E”) filed a Notice of Appearance.

30. On January 23, 2017, Judge Salapa issued his Order Granting In Part, Motion

For Judgment On The Pleadings (“January 2017 Order”). The “In Part” in the Order’s title

refers to the Companies’ acknowledgment, which the Judge accepted, that their Motions did not

extend to Respond Power’s averments that the Companies allegedly made computational errors

in calculating the charges that are the subject of the 2016 Complaints.

31. In response, on January 26, 2017, Respond Power filed a Petition for

Interlocutory Review and Answer to Material Questions (“Petition”) and posed the following

two questions for the Commission’s consideration:

9

A. May an entity to whom a utility tariff provision is applied file a complaint with the Commission challenging the application of the tariff?

B. Are Commission-approved tariffs subject to a just and reasonable standard?

32. On July 13, 2017, the Commission entered an Opinion and Order granting

interlocutory review, answered the foregoing questions in the affirmative and remanded the

matter to the Office of Administrative Law Judge.

33. On October 27, 2017, Respond Power filed separate Complaints against Penelec

and West Penn disputing charges for the second year that the clawback provision was in effect

and assessed in the Companies’ September 29, 2017 invoices (“2017 Complaints”). On

November 8, 2017, the 2016 and 2017 Complaints were consolidated for hearing and decision.

Prehearing Order #3 (November 8, 2017).

34. On November 20, 2017, the Companies filed Answers and New Matter to the

2017 Complaints. On December 8, 2017, Respond Power filed Answers to the Companies’ New

Matter.

35. A Prehearing Conference was held on September 13, 2017 before Judge Salapa to

whom this matter was assigned, the 2016 Complaints were consolidated, and a schedule was

established for submitting written testimony, holding evidentiary hearings and filing briefs.

Prehearing Order #2 (September 14, 2017).

36. The approved litigation schedule provided that Respond Power’s and other

parties’ written direct testimony were to be filed on October 18 and November 8, 2017,

respectively; Respond Power’s written rebuttal and other parties written surrebuttal were to be

10

filed on November 21 and December 6, 2017, respectively; and evidentiary hearings were to be

held on December 13 and 14, 2017.

37. After Respond Power served the written direct testimony of its witness, Adam

Small, on October 18, 2017, that schedule was amended, by the parties agreement, pursuant to

Prehearing Order #3 issued on November 8, 2017 consolidating the 2016 and 2017 Complaints.

The revised schedule allowed for Respond Power to submit supplemental direct testimony in

support of its 2017 Complaints on November 29, 2017, extended the remaining dates for the

submission of written testimony, and rescheduled evidentiary hearings for January 31 through

February 2, 2018.

38. Pursuant to Prehearing Order #3, Respond Power submitted the supplemental

written direct testimony of its witness Adam Small on November 29, 2017. As scheduled, the

Companies served the direct testimony of their witness, Kimberlie L. Bortz, on December 21,

2017. Respond Power submitted the written rebuttal testimony of Mr. Small on January 11,

2018, and the Companies submitted the written surrebuttal testimony of Ms. Bortz on January

25, 2018.

39. An evidentiary hearing was held in Harrisburg on February 1, 2018. At the

hearing, Mr. Small and Ms. Bortz were presented and cross-examined, and their written

testimony and exhibits were admitted into evidence.

III. THE EVIDENCE FULLY SUPPORTS THE FOLLOWING FINDINGS

40. Respond Power received actual notice that the DSP IV proceeding would address

issues related to the Companies POR, that the Companies were proposing a clawback charge,

and that the clawback charge would be calculated on the basis of the Companies write-offs of

EGS accounts receivable and EGS prices for the twelve-month periods ending August 31, 2016

11

and August 31, 2017. PE/WP St. No. 1, pp. 13-15; Respond Power St. No. 1-R, pp. 1-4; Tr. at

25, 38-40; PE/WP St. No. 1, p. 3.

41. Respond Power’s General Counsel did not read the pleadings and testimony, nor

did he review the accompanying exhibits, that initiated the DSP IV proceeding. Id.

42. Respond Power had a full and fair opportunity to participate in the DSP IV

proceeding and to challenge the clawback charge in that proceeding. Id.

43. Respond Power did not intervene in, or otherwise participate in, the DSP IV

proceeding. Id.

44. Other EGSs marketing in the Companies’ service territories as well as RESA –

the trade association for EGSs – intervened in the DSP IV proceeding, participated actively in

that case, and specifically addressed the terms of the clawback provision. PE/WP St. No. 1, pp.

16-17.

45. The terms of the clawback provision were changed to be more lenient to EGSs as

part of the settlement that of the DSP IV proceeding. PE/WP St. No. 1, p. 17.

46. The DSP IV Settlement, including the clawback provision, was approved by the

presiding Administrative Law Judge and by the Commission in the DSP IV Recommended

Decision and the DSP IV Final Order.

47. No party appealed from the DSP IV Final Order.

48. The Commission has not restricted the scope of DSP proceedings solely to default

generation procurement issues. The Commission itself has directed that many issues unrelated to

the procurement of generation supply should be addressed in DSP proceedings. Additionally,

EGSs have introduced non-procurement issues in DSP proceedings. PE/WP St. No. 1, pp. 15-16.

12

In the Companies’ DSP I, DSP II, DSP III and DSP IV proceedings nearly 50% of the total

number of pages of testimony were devoted to issues other than default generation supply

procurement, such as retail market enhancements, shopping by customers enrolled in customer

assistance plans and the initiation and revision of POR programs. PE/WP St. No. 1, p. 16.

49. The Companies POR programs were established or substantially revised in DSP

proceedings prior to DSP IV. PE/WP St. No. 1, pp. 15-16.

50. POR programs are not tied to the term of any particular DSP. Neither the

duration nor the effective date of periodic revisions to POR programs is co-terminus with the

term of any particular DSP. PE/WP St. No. 1-SR, p. 5.

51. Neither the two-part screening test for the application of the clawback charge nor

the method of calculating the clawback is retroactive in nature. PE/WP St. No. 1, pp. 20-26.

52. The clawback charge is an administrative fee that is applied prospectively to

EGSs who, based on reasonable criteria, are shown to impose additional costs on the Companies

and their customers. PE/WP St. No. 1, pp. 6, 20 & 1-SR, pp. 6-7.

53. Examining historic data for the Companies’ EGS population to identify those

EGSs whose operations indicate they have are imposing costs significantly above the average for

the entire EGS population is neither “retroactive” nor otherwise unjust or unreasonable. Id.

54. Examining historical write-off data to identify those EGSs who are most likely to

be imposing higher costs does not make the clawback charge “retroactive” irrespective of the

service periods that gave rise to the accounts receivable that were written off. Id.

55. The use of historical data to calculate a charge for excessive EGS write-offs was

previously approved by the Commission for Duquesne Light Company (“DLC”). PE/WP St. No.

13

1, 20-21. Under the terms of its POR program, DLC monitors individual EGS uncollectible

percentage rates and, if an EGS’s rate exceeds 5% for the most recent preceding twelve-month

period, DLC may increase the discount rate for that EGS’s accounts by the difference between its

uncollectible percentage rate and 2%.6

56. The Companies also provided relevant examples of other rates and charges they

are imposing that rely on historical data generated prior to the date such rates and charges were

approved by the Commission and implemented by the Companies. PE/WP St. No. 1, pp. 33-35.

57. The Commission-approved clawback provision does not retroactively convert the

Companies POR program from “non-recourse” to “with recourse” because the Companies do not

reconcile the face value of accounts receivable purchased from EGSs with the actual amounts

collected from customers under the clawback provision. Tr. at 89. Therefore, an EGS

participating in the Companies’ POR programs continues to avoid the costs and risks associated

with collecting any delinquent amounts owed by customers. PE/WP St. No. 1, pp. 12-13 & 1-

SR, pp. 6-7.

58. DLC’s Supplier Coordination Tariff clearly states that DLC continues to purchase

accounts receivable “without recourse” notwithstanding the penalty provision in its POR

provision described above. PE/WP St. No. 1-SR, p. 8. The clawback provision is structured

such that the vast majority of EGSs will be able to continue to enjoy the benefits of a non-

recourse POR program that offers a zero discount rate. PE/WP St. Nos. 1, pp. 12-13 & 1-SR, pp.

6-7. The clawback provision is an administrative fee directed to those specific EGSs who are

6 DLC Electric Generation Supplier Coordination Tariff, Third Revised Page No. 30A, ¶ 12.1.7.2.2 (Effective September 1, 2017). See Petition of Duquesne Light Co. for Approval of a Default Serv. Plan for the Period January 1, 2008 Through December 31, 2010, Docket No. P-00072247 (Recommended Decision issued May 8, 2007), Appendix A, ¶ 5. The POLR IV Recommended Decision was adopted and approved without modification by Commission Order entered June 21, 2007.

14

creating excessive write-offs due in large part to charging prices that significantly exceed the

applicable Company’s PTC and, therefore, are driving higher uncollectible expenses for the

Companies and their customers. Id.

59. The structure and design of the clawback provision is reasonable and ensures fair

recovery of excessive EGS write-offs from only those EGSs responsible for creating higher

uncollectible accounts expense. PE/WP St. No. 1, pp. 26-33 & 1-SR, pp. 8-10.

60. The write-off test for applying the clawback provision is made among EGSs on a

consistent basis and using comparable data and, therefore, various criticisms by Respond Power

witness Small of the “structure” of the clawback charge are not valid. Id

61. Mr. Small’s concern that partial payments are applied first to unpaid distribution

charges is unwarranted. The Companies’ posting practices are consistent with Commission

regulations and are applied uniformly to all EGSs. PE/WP St. No. 1, p. 29. Therefore, Respond

Power’s write-off experience is assessed relative to the average for the entire EGS population,

and Respond Power is not disadvantaged by the posting priority of partial payments. Id.

62. Mr. Small’s additional complaints that the service periods for write-offs relate to

the Polar Vortex, date back to 2013, and do not match the time period of the pricing information

used for the clawback provision’s second screening tests are not valid. PE/WP St. Nos. 1, p. 30

& 1-SR, pp. 14-15.

63. Although the service periods for Respond Power’s write-off amounts include

some unpaid charges dating back to the time of the Polar Vortex in 2014, all EGSs experienced

the same market conditions that caused wholesale price spikes at that time. Tr. at 32.

15

64. Unpaid charges that began accruing in 2013 were included in the calculation of

the write-off percentages for all EGSs participating in the Companies’ POR programs for both

the 2016 and 2017 test periods. Therefore, intervals between when unpaid charges accrue and

write-offs occur, as well as unpaid charges related to the Polar Vortex, did not affect only

Respond Power nor could they be the cause of its higher than average write-off percentage.

PE/WP St. Nos. 1, p. 30 & 1-SR, pp. 14-15.

65. The design of the clawback provision does not require that the period of the write-

offs match the time period for pricing information because the thresholds for write-off

percentages and prices are independent screens that are applied consistently to all EGSs to

determine if an EGS will be assessed a clawback charge. Id.

66. Respond Power witness Small’s concern that no credit is given under the

screening test for post-write-off payments does not make the clawback charge unreasonable in its

application to Respond Power. The Companies employed the same methodology of excluding

post-write-off customer payments for all EGSs. The Company credibly explained that, if credits

for payments received after August 31 in the relevant test period were applied to all EGSs’ pre-

August 31 write-offs, as Mr. Small proposed, that approach would reduce the average EGS

write-off percentage and potentially could result in Respond Power’s write-off percentage being

higher than it already was, with a corresponding increase in the charge to Respond Power.

PE/WP St. No. 1, p. 30.

67. The write-off screening measure does not hold any EGS to an absolute standard,

but, instead, provides a consistent comparison of an individual EGS to the entire population of

the Companies’ EGSs. All data used in that comparison is derived and employed in the same

consistent manner for all EGSs. PE/WP St. No. 1-SR, 8-10.

16

68. The clawback provision is fair and reasonable in its application to all EGSs,

including Respond Power. Id.

69. Respond Power is actually asking the Commission to exempt Respond Power

from being held to the same standards as all other POR-participating EGSs. PE/WP St. No. 1-

SR, 8-10. See Respond Power St. No. 1-R, p. 21.

70. The clawback provision has been designed to address the disparity in EGS write-

off percentages and, in that way, reduce the Companies’ and customers’ exposure to those

individual EGS’s write-offs that are excessive compared to their peers. PE/WP St. Nos. 1, pp.

11-12, 26 & 1-SR, p. 13.

71. Respond Power witness Small acknowledged that the Companies have

experienced incrementally higher uncollectible accounts expense. He testified that this increase

could be addressed by a uniform POR discount applied to all EGSs. See Respond Power St. Nos.

1, p. 5 & 1-Supp, pp. 8-9.

72. The Companies considered a uniform POR discount but declined to propose it

because such a uniform discount would force the majority of EGSs to provide a subsidy to the

smaller number of EGSs that have disproportionally higher write-offs than their peers and whose

business model involves charging prices well above the PTC. PE/WP St. Nos. 1, pp. 11-12, 26

& 1-SR, p. 13. A clawback charge, however, is imposed, based on principles of cost causation,

only on EGSs whose comparative data indicates are responsible for excessive write-offs. Id.

73. The clawback charge was not designed to create “incentives” to change the

behavior of EGSs as Respond Power witness Small contends. Id.

17

74. There is no possibility of any “double recovery” as a result of the clawback

provision. The uncollectible accounts expense included in the Companies’ base rates is the

baseline. If uncollectible accounts expenses exceed the baseline, the Company is compensated

through the clawback charge, and if they are less than the baseline, the clawback revenues are

returned to customers to reduce the cost burden they otherwise would bear. Absent the clawback

provision, either the Companies or customers would provide a subsidy to EGSs whose business

practices produce much higher write-offs than the average for the entire EGS population and

charge prices far above the average annual PTC. PE/WP St. No. 1, pp. 10, 12.

75. Respond Power is in the same position as all other EGSs to manage write-off

amounts. Respond Power – like any EGS – is free to request information regarding its non-

paying customers form the Companies’ Supplier Services website, and requests are not limited to

being made on an individual customer basis. Tr. at 91. At Respond Power’s request, on

February 7, 2018, FirstEnergy Supplier Services provided a report for each Company detailing,

by Respond Power’s customer numbers, a list of customers with past-due Respond Power

balances as of January 31, 2018, which also set forth “aged” arrearage data showing the amounts

unpaid for the then-current bills as well as unpaid balances segmented by approximately 30-day

intervals for periods of 30, 60, 90, 120 and greater-than 120 days. See PE/WP Exhibits KLB-

6SR & KLB-7SR As a result, Respond Power received the information that Ms. Bortz testified

the Companies would provide upon request – the same information Mr. Small testified would be

most valuable to Respond Power to manage write-offs (Tr. at 26, 32-33). The late filed exhibits

were admitted into the record at Respond Power’s request without objection from the

Companies.

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76. More than a year elapsed since the clawback charges were first invoiced

(September 27, 2016) before Respond Power requested information regarding its non-paying

customers. During that period, it did not attempt to offer more affordable contracts to the

customers identified in Confidential RP Exhibits AS-5 and AS-11. Respond Power St. Nos. 1, p.

18 & 1-Supp, p. 13.

77. Although EGSs cannot deny service for credit-related reasons, they are not

prevented from using a credit screen to determine whether to offer a new contract with a lower

rate to a low-income customer. PE/WP St. No. 1, p. 29; Exhibit KLB-4.

78. Respond Power knew, or should have known, that its customers were not paying

their bills because of information generated by the Polar Vortex litigation initiated against it by

the Attorney General and OCA (jointly) and I&E in June 2014 and August 2014, respectively.

PE/WP St. No. 1-SR, p. 12.

79. The initiation of the Polar Vortex litigation, as well as the formal and informal

complaints against Respond Power referenced in the AG/OCA’s complaint, put Respond Power

on notice that its customers were experiencing payment problems related to its high prices and

variable price contracts. Id.

80. Respond Power agreed to extensive business modifications as part of the

settlement of the Polar Vortex litigation related to product offerings, marketing, training and

quality assurance compliance. See RP Exhibit AS-21, pp. 21-45.

81. Respond Power did not track whether customers were paying, or could afford to

pay, the prices it was charging after the Polar Vortex litigation was resolved. Id.

19

82. Respond Power’s criticism that it lacked the ability to control the level of its

write-offs also ignores the second prong of the screening test. EGS prices must, on average,

exceed 150% of the applicable average PTC for the clawback provision to apply. PE/WP St. No.

1, pp. 28.

83. To avoid triggering the clawback provision, Respond Power could have

monitored the quarterly changes in the PTC, ascertained the average price it was charging in a

Company’s service area and then maintained an average price within the margin of less than

150% of the average PTC. PE/WP St. Nos. 1, pp. 28-29 & 1-SR, p. 18.

84. The fact that the Companies did not account for Polar Vortex refunds in

determining respond power’s write-off percentage does not render the clawback charges assessed

in 2016 or 2017 unjust or unreasonable. PE/WP St. No. 1-SR, p. 14.

85. Respond Power has not shown that any checks issued to comply with the

settlement of its Polar Vortex litigation (“Polar Vortex Settlement”) were sent to, and cashed by,

customers listed on RP Exhibits AS-5 and AS-12 whose written-off accounts were used to apply

the clawback screen. Neither Mr. Small nor anyone else at Respond Power reviewed the

monthly reports provided by the third-party administrator of the Polar Vortex Settlement refund

pool (which identified customers by name and stated the amounts disbursed) in order to ascertain

whether any of the Companies’ customers whose accounts were written off and formed the basis

of the 2016 or 2017 clawback charges actually received a refund. Tr. at 59. Mr. Small also

concedes that, as of March 31, 2017, of the $4 million in refund checks issued by Respond

Power, only 35,427 totaling $2.4 million were cashed and paid. Respond Power St. Nos. 1, pp.

25-26 & 1-Supp, p. 18.

20

86. Respond Power kept the amounts the Companies’ paid (at the face value of

Respond Power’s accounts receivable) without checking with the Companies to see if any of its

customers to whom it owed a refund had an unpaid Respond Power accounts receivable with the

Companies and, therefore, such customer should have been issued a bill credit instead of a check.

PE/WP St. No. 1, p. 31.

87. The Companies implemented a new Supplier Coordination Tariff provision in

DSP IV to address EGS refunds. PE/WP Statement No. 1, p. 31. Although that tariff provision

was not memorialized in the Companies’ Supplier Coordination Tariff at the time Respond

Power’s refunds were disbursed, Respond Power’s failure to check the payment status of

accounts receiving refunds under the circumstances of a comprehensive settlement of major

consumer protection litigation requiring significant refunds was not reasonable. PE/WP

Statement Nos. 1, p. 31 & 1-SR, p. 14.

88. Respond Power has not presented evidence that would support a finding that the

clawback provision is unreasonable for not providing an individual EGS an opportunity to

explain why its write-off amounts were higher than the average of all EGSs in the Companies’

service territories is necessary. Respond Power’s claim that EGSs should have the opportunity

to demonstrate that higher than average write-offs are due to circumstances not related to their

business models (Respond Power St. Nos. 1, pp. 25-26 & 1-Supp, p. 18) should be rejected.

89. Respond Power’s reference to the DLC penalty provision’s “explanation” term

does not provide a valid basis for comparison. DLC may (in its sole discretion) waive the

upward “penalty” adjustment to its POR discount for an individual EGS if it determines the

explanation is credible. A similar discretionary waiver is not necessary for the Companies

because, unlike DLC, the clawback charge is based on individual EGS data compared to the

21

average performance of all EGSs and has a second screening measure that captures only EGSs

that pass the first screen and are charging rates substantially above the annual average PTC.

PE/WP St. No. 1, pp. 31-32.

90. The Companies submitted substantial evidence showing that the primary driver of

Respond Power’s substantial write-offs is its high prices charged under variable month-to-month

contracts. See PE/WP Exhibits KLB-1, KLB-5 (Confidential) & KLB-6.

91. As demonstrated by the information furnished on PE/WP Exhibit KLB-1SR, the

vast majority of Respond Power’s customer accounts written off during the 2016 and 2017

application periods were those of low-income customers on variable price contracts.

92. Mr. Small admitted that an EGS’s prices are an important factor in determining

the ability of a customer to pay its EGS bill. Tr. at 49.

93. The write-off amounts that form the basis of the 2016 and 2017 Clawback

Charges are only those for actual Respond Power accounts receivable. A customer’s pre-existing

unpaid balance did not factor into the screening test used to identify EGSs subject to a clawback

charge or the calculation of the charge itself. PE/WP St. Nos. 1, pp. 32-33 & 1-SR, pp. 13-14.

94. The second prong of the clawback provision’s screening test does not limit EGS’

prices and is an appropriate benchmark for assessing excessive EGS prices that drive higher than

average write-offs. PE/WP St. No. 1, p. 33. The clawback provision has been designed to

address the Companies’ increasing write-offs and ensure fair recovery of at least a part of those

write-offs from only those EGSs that are creating excessive write-offs and, thereby, driving

higher uncollectible accounts expenses. Id.

22

95. An EGS’s price relative to the PTC is only one of the two screens employed by

the clawback provision and, therefore, some EGSs charged prices that exceeded 150% of the

PTC but were still not subject to a clawback charge. Id.

96. Alleged fluctuations of more than 150% in the PTC over the last five years does

not make the benchmark of 150% of average annual PTC unreasonable.

97. The Companies compare an average annual EGS price (based on annual revenues

and customer usage in kWh) to an average annual PTC in applying the second prong of the

screening test. (Tr. at 51). Variations in an EGS’s price from the average PTC are smoothed-out

over a twelve-month period. PE/WP St. No. 1-SR, pp. 15-16.

98. The comparison presented by Respond Power witness Small improperly selected

the highest and lowest quarterly PTC for each Company over a five-year period. The Companies

experienced minimal fluctuations in the PTC during the applicable 2016 and 2017 test periods,

with the maximum PTC only 15% over the average PTC for the two-year time period. Id.

99. Respond Power witness Small's hypothetical showing how an EGS price might

become higher than the PTC over the course of a three-year contract term is irrelevant to the

facts in this case. Respond Power did not offer three-year fixed-price contracts on

PaPowerSwitch.com. Mr. Small’s hypothetical is also contradicted by his testimony regarding

the duration of Respond Power’s relationship with Penelec and West Penn customers

Confidential Tr. at 53-54.

100. In addition, Respond Power witness Small testified that comparison of EGS prices

to the PTC is not “meaningful” because the PTC is established in a “regulated environment” and

23

does not reflect current market conditions. Respond Power St. No. 1-R, pp. 11-12. That

contention is rejected.

101. Each Company’s PTC is derived from independently administered, Commission-

supervised auctions that solicit competitive bids from default service suppliers. The prices bid

by default service suppliers reflect the prevailing market conditions at the time of bidding for the

products being purchased and incorporate the bidders’ view of market prices that will prevail

when they supply power in the future pursuant to the terms of the contracts being bid. PE/WP

St. No. 1-SR, p. 16.

102. Respond Power’s criticism of 150% of the annual average PTC as a benchmark

has no meaningful impact on the facts in this case because Respond Power’s prices were also

consistently higher than the average prices charged by other EGSs in the Companies' service

territory. PE/WP Exhibit KLB-1.

103. Respond Power’s own marketing material clearly suggested to customers that

Respond Power was competing against, and offering savings from, the Companies’ PTC.

Confidential PE/WP Exhibit KLB-4SR (emphasis in original).

104. Respond Power's objections to the use of 150% of the PTC as the benchmark for

excessive EGS prices leading to higher than average write-offs are rejected.

105. Respond Power asserts that paying clawback charges totaling $484,797.69 and

$211,012.54 in 2016 and 2017, respectively, would put it in a difficult cash flow position.

However, the statements of cash flow provided by Respond Power in the discovery process

directly contradict this claim. Confidential PE/WP Exhibit KLB-7.

24

106. Respond Power also claims that the clawback provision will discourage EGSs

from serving the mass market customers in the Companies’ service territories. Respond Power

St. Nos. 1, p. 30 & 1-R, p. 31. There is no evidence to support its claim, and the record evidence

shows the contrary.

107. The Companies held supplier workshops regarding their DSP IV programs held

on December 8, 2016 and August 10, 2017, and Mr. Small attended the former. There were no

questions or concerns voiced by any of the EGSs in attendance regarding the clawback

provision. PE/WP St. No. 1, pp. 33.

108. None of the EGSs subject to clawback charges in 2016 and 2017 have left the

market since it was implemented. Id.

109. Respond Power witness Small could not say whether Respond Power would

withdraw from the retail electricity market in the Companies’ service areas if the clawback

charges is not invalidated as Respond Power advocates. Tr. at 64.

110. PaPowerSwitch.com shows that, as of December 19, 2017, there were 113 offers

from forty-eight different suppliers for residential supply in Penelec’s territory and 105 offers

from thirty-five suppliers in West Penn’s territory. PE/WP St. No. 1, p. 34. Thus, there is no

valid basis on the current record for the Commission to conclude that the clawback provision has

had, or would have, any adverse impact on retail competition.

111. The clawback provision does not have, and will not have, an adverse impact on

retail competition.

25

112. In the Complaints, Respond Power alleged that the Companies made

computational errors in calculating the clawback charges invoiced on September 27, 2016 and

September 29, 2017.

113. Respond Power witness Small admitted that Respond Power has not identified

any computational errors in the calculation of the 2016 clawback charge invoices. PE/WP

Exhibit KLB-3.

114. The Companies provided the source data and supporting calculations for the 2017

clawback charge invoices in response to discovery on November 13, 2017. Mr. Small did not

identify any computational errors in those calculations in his supplemental direct testimony

served on November 29, 2017. PE/WP St. No. 1, p. 19.

115. There is no issue as to the accuracy of the Companies’ computations of the

clawback charges invoiced to Respond Power.

26

PROPOSED CONCLUSIONS OF LAW

1. The clawback provision was approved by the Commission in the DSP IV Final

Order. That Order was not appealed and became non-appealable after the 30-day period for

filing a Petition for Review had elapsed. Pa.R.A.P 1512.

2. Section 316 of the Public Utility Code provides, in relevant part, as follows:

§ 316. Effect of commission action.

Whenever the commission shall make any rule, regulation, finding, determination or order, the same shall be prima facie evidence of the facts found and shall remain conclusive upon all parties affected thereby, unless set aside, annulled or modified on judicial review . . .

3. Section 316 precludes a collateral attack upon a Commission order that has not

been reversed upon appeal. Lehigh Valley Power Comm. v. Pa. P.U.C., 563 A. 2d 557, 565 (Pa.

Cmwlth. 1989).

4. Pursuant to Section 316, a prior order of the Commission has preclusive effect on

all affected parties if they were provided due process prior to the entry of that order. The

Pennsylvania State University v. Pa. P.U.C., 988 A.2d 771, 783 (Pa. Cmwlth. 2010); Schneider

v. Pa. P.U.C., 479 A.2d 10, 12 (Pa. Cmwlth. 1984).

5. Due process is fully satisfied when parties are afforded notice and the opportunity

to appear and be heard. Id.

6. The party against whom Section 316 is invoked need not have been a participant

in the proceeding that resulted in the final order being given preclusive effect so long as that

party had notice and an opportunity to appear and be heard. Id.

27

7. Administrative Law Judge Louis G. Cocheres, in a 2008 Recommended Decision,

held that a party that received notice of a proceeding and did not intervene was precluded by

Section 316 from thereafter challenging the final order entered in that case:

Section 316 of the Public Utility Code (66 Pa. C.S. § 316) specifies that whenever the Commission promulgates an order, it is prima facie evidence of the facts found and remains binding on all the parties affected by it. In other words even though the University was not a party (but should have been), all of Penn State’s arguments about the failure to mention Tariffs 37 or 39 or the failure to specifically say Tariff 37 was excluded from the new [rate] caps extension are invalid.

Petition of the Pennsylvania State University for Declaratory Order Concerning the Generation

Rate Cap of the West Penn Power Company d/b/a Allegheny Power, Docket Nos. P-2007-20018

et al, 103 Pa. P.U.C. 472, 485 (Recommended Decision of Administrative Law Judge Louis

Cocheres issued July 28, 2008)

8. Judge Cocheres’ Recommended Decision was adopted and approved by the

Commission, which held, in relevant part, that the Pennsylvania State University (“PSU”) was

provided reasonable notice of the prior proceeding by a notice published in the Pennsylvania

Bulletin and, therefore, it had the opportunity to appear and be heard, which is all that due

process requires for a final order to have preclusive effect under Section 316.

PSU could have filed comments to the Joint Petition within twenty days after publication of the notice in the Pennsylvania Bulletin. Additionally, several parties intervened in the 2003 Proceedings following publication of the notice. Consequently, we conclude that the Pennsylvania Bulletin notice was reasonably calculated to put PSU on notice that the Joint Petition could impact its rights and provided PSU with a meaningful opportunity to object to the proposal.

Petition of the Pennsylvania State University for Declaratory Order Concerning the Generation

Rate Cap of the West Penn Power Company d/b/a Allegheny Power, Docket Nos. P-2007-20018

28

et al, 103 Pa. P.U.C. 451, 468 (Final Order entered Sept. 11, 2008) (“PSU/West Penn Final

Order”).

9. PSU appealed to Commonwealth Court. The Court affirmed the holdings of the

PSU/West Penn Rec. Dec. and Final Order granting preclusive effect to the Commission’s earlier

order, as required by Section 316. In so doing, the Court held that PSU had been given due

process in the earlier proceeding:

Therefore, the PUC properly concluded that pursuant to the customer bill inserts and the Pennsylvania Bulletin PSU “had reasonable notice of the scope of the 2003 Petition case and that its Tariff 37 rights could be impacted . . . [and] all of its due process rights were properly protected, and it failed to use its opportunity to participate in that case due to its own inactions . . .” PUC Opinion adopting ALJ Recommended Decision at 36m 40; R.R. at 1068a, 1072a. Consequently, PSU was not denied due process.7

The Pennsylvania State University v. Pa. P.U.C., 988 A.2d at 783.

10. The PSU/West Penn Rec. Dec. and PSU/West Penn Final Order demonstrate that

Respond Power received “notice” and an opportunity to be heard that satisfied all due process

requirements.

11. In the PSU case, Judge Cocheres, the Commission and the Commonwealth Court

all concluded that PSU’s due process rights had been fully protected where it received notice that

was far less robust than the actual service of the DSP IV Joint Petition on Respond Power that

occurred here.

12. The Respond Power Complaints are an unlawful collateral attack on the

Commission’s DSP IV Final Order and, as such, are barred by Section 316 of the Public Utility

Code, 66 Pa.C.S. § 316.

7 The Pennsylvania State University v. Pa. P.U.C., 988 A.2d at 783.

29

13. Under any circumstances, Section 316 bars Respond Power’s attempts to

challenge the clawback charge invoiced prior to the filing of its first Complaint. Section 316

clearly bars any attempt to retrospectively attack a tariff provision that had been approved by the

Commission. At most, only prospective relief would not be legally barred. Cheltenham &

Abington Sewerage Co. v. Pa. P.U.C., 344 Pa. 366, 369, 25 A.2d 334, 337 (1942); Lancaster Ice

Mfg. Co. v. Pa. P.U.C., 185 Pa. Super. 615, 626, 138 A.2d 262, 267 (1957); West Penn Power

Co. v. Pa. P.U.C., 174 Pa. Super. 123, 131, 100 A.2d 110, 114 (1953).

14. Even as to prospective relief, Respond Power must overcome the obstacle of a

final Commission Order finding and determining that the Companies’ tariff setting forth the

clawback provision are lawful, reasonable and proper for application to EGSs that pass its two-

part screen. See January 2017 Order. In its Opinion and Order granting interlocutory review, the

Commission stated: “All parties agree that a Commission-approved tariff is prima facie

reasonable, has the force of law and is binding on the utility and the Commission.”

15. Pennsylvania appellate court precedent imposes a “very heavy burden” on a

complainant seeking to evade the terms of a Commission-approved tariff:

Because Pennsylvania courts have repeatedly held that tariff provisions previously approved by the PUC are prima faciereasonable, Zucker v. Pennsylvania Public Utility Commission, 43 Pa. Commw. 207, 401 A.2d 1377 (Pa. Cmwlth. 1979), a complainant seeking to evade the effect of an existing tariff provision, such as Shenango, carries a very heavy burden to prove that the facts and circumstances have changed so drastically as to render the application of the tariff provision unreasonable. Id.; see also Brockway Glass Co. v. Pennsylvania Public Utility Commission, 63 Pa. Commw. 238, 437 A.2d 1067 (Pa. Cmwlth. 1981). The PUC held Shenango did not meet this burden, and following our review of the record, we must agree.

Shenango Twp. Bd. Of Supervisors v. Pa. P.U.C., 686 A.2d 910, 914 (Pa. Cmwlth. 1996).

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16. This case involves Complaints against the existing, Commission-approved

Supplier Coordination Tariffs of Penelec and West Penn. See January 2017 Order.

17. Respond Power has the burden of proof. 66 Pa.C.S. § 332(a). That burden is

substantially increased in this case because Respond Power is asking the Commission to set aside

approved tariff rules and reverse the Commission Order on which they are based.

18. Pennsylvania appellate precedent has firmly established that the terms of a

Commission-approved tariff are “prima facie reasonable” and have the force and effect of law.

Brockway Glass Co. v. Pa. P.U.C., 437 A.2d 1067 (Pa. Cmwlth. 1981); Zucker v. Pa. P.U.C.,

401 A.2d 1377 (Pa. Cmwlth. 1979). See also 66 Pa.C.S. §316. Consequently, “a complainant

seeking to evade the effect of an existing tariff provision . . . carries a very heavy burden to prove

that the facts and circumstances have changed so drastically as to render the application of the

tariff provision unreasonable.” Shenango Twp. Bd. Of Supervisors v. Pa. P.U.C., 686 A.2d at 914

(Pa. Cmwlth. 1996).

19. Respond Power has not shown that any “facts and circumstances have changed”

at all – let alone changed “drastically” – to justify a finding that the Companies’ Commission-

approved clawback provision should be invalidated.

20. Respond Power’s Complaint is, in effect, that the clawback provision has

operated in the manner it was designed to function. The clawback provision’s two-part test

identified those EGSs that, as actual historical data demonstrate, operate in a manner that drives

excessive write-offs (i.e., greater than 200% of the overall average of all EGSs). And, consistent

with the ratemaking principle of cost-causation, the EGSs thus identified were charged an

administrative fee for participating in the Companies’ POR programs. That fee is properly

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designed to compensate the Companies and their customers for bearing those excessive write-

offs.

21. The “facts and circumstances” specifically envisioned as the basis for imposing

the clawback charge when it was approved were created by Respond Power’s mode of operation,

the nature of the products it sold, and the prices it charged. The record evidence cannot support a

finding that Respond Power has carried its “heavy burden” to show the “drastically” changed

“facts and circumstances” that must be established by a preponderance of substantial evidence

“to evade the effect of an existing tariff provision.” Shenango Twp. Bd. Of Supervisors v. Pa.

P.U.C., supra.

22. Prior Commission precedent establishes that a rate is not unlawful or “retroactive”

because historical data that predates the approval of the rate are used to determine future charges

under that rate. Pa. P.U.C. v. Metropolitan Edison Co, Pennsylvania Electric Co., Pennsylvania

Power Co, and West Penn Power Co., Docket Nos. R-2014-2428745 (Met-Ed), R-2014-2428743

(Penelec), R-2014-2428744 (Penn Power) and R-2014-2428742 (West Penn) (Final Orders

entered Apr. 9, 2015); Joint Petition of Metropolitan Edison Co., Pennsylvania Elec. Co. and

Pennsylvania Power Co. for Approval of Their Default Service Programs, Docket Nos. P-2011-

2273650 et al. (Final Order entered Aug. 16, 2012) (“DSP II Order”); Joint Petition of

Metropolitan Edison Co., Pennsylvania Elec. Co. and Pennsylvania Power Co. for

Consolidation of Proceedings and Approval of Energy Efficiency and Conservation Plans,

Docket Nos. M-2009-2092222 et al., 2010 Pa. PUC LEXIS 561 (Final Order entered Jan. 28,

2010) (“EE&C Order”). See PE/WP St. No. 1, pp. 21-26.

PROPOSED ORDERING PARAGRAPHS

1. Respond Power’s claim for retrospective relief from the Companies’

Commission-approved tariff provision implementing a clawback charge is legally barred by

Section 316 of the Public Utility Code, 66 Pa.C.S. § 316 and applicable Pennsylvania appellate

court precedent as discussed above.

2. Respond Power has failed to present substantial evidence that would carry its

“very heavy burden” to show that the “facts and circumstances” that prevailed when the

clawback provision was approved and that formed the basis for such approval have “changed so

drastically as to render the application of the tariff provision unreasonable.” Shenango Twp. Bd.

Of Supervisors v. Pa. P.U.C., supra.

3. Respond Power is not entitled to the relief requested in its Complaints that have

been consolidated at the above-referenced dockets.

4. Respond Power’s Complaints are hereby dismissed, and Respond Power shall pay

the amounts set forth in the invoices previously issued by the Companies to Respond Power,

together with applicable interest.

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