United States Steel Corp. v. Pennsylvania Public Utility Commission

850 A.2d 783

• Court: Commonwealth Court of Pennsylvania
• Decided: May 12, 2004
• Status: Published

Opinions

OPINION BY

Judge PELLEGRINI.¹

United States Steel Corporation (U.S.Steel) petitions from an order of the Pennsylvania Public Utility Commission (Commission) granting Duquesne Light Company’s (Duquesne) petition and concluding, inter alia, that a Generation Avoidance Energy (GAE) provision in Du-quesne’s High Voltage Power Service (HVPS) rate class does not violate the rate cap protections in Section 2804(4)(ii) of the Electricity Generation Customer Choice and Competition Act (Competition Act), 66 Pa.C.S. § 2804(4)(ii).²

Duquesne is a Commission-regulated public utility that transmits and distributes electricity to retail customers, including U.S. Steel, a Pennsylvania corporation engaged in the production and sale of steel. On December 21, 1987, the Commission approved an amendment to Duquesne’s tariff to include a new HVPS rate class, which included a provision for the supply of GAE.³ Duquesne is the only electric distribution company that has the HVPS rate class, and since 1987, Duquesne and U.S. Steel have entered into the GAE rate.⁴ Apparently, since the adoption of the HVPS rate class, U.S. Steel has had a standing order for GAE, and Duquesne has sold GAE to U.S. Steel whenever such supply was physically available in a given month, even when Duquesne had to purchase additional electricity from another supplier.

In 2000, as a consequence of its 1998 restructuring settlement, Duquesne auctioned its generation assets to Orion Power Holdings, Incorporated (Orion). However, Duquesne was still required by the Public Utility Code to serve as a provider of last resort for all generation service to those distribution customers that did not purchase electricity from an alternative supplier. See 66 Pa. C.S. .§ 2807(e). In order to meet this obligation, Duquesne and Orion entered into a generation-supply agreement on September 24, 1999 (POLR I Agreement). Under the POLR I Agreement, Orion was to provide generation service to all non-shopping Duquesne customers until the conclusion of the transition period for every rate class, currently January 1, 2005, and the term of every then-existing special contract. In addition, Du-quesne acquired the generation supply that it needed from Orion to fulfill its provider of last resort obligations. The POLR I Agreement called for Orion to be paid for generation service according to the terms and conditions that existed under Duquesne’s tariff, i.e., the discounted GAE rate.

First evidenced in a letter dated May 22, 2001, Orion began objecting to Duquesne’s practice of providing U.S. Steel with GAE and, in turn, paying Orion at the GAE rate. Orion asserted that the decision to provide GAE rested with it and not Du-quesne. Duquesne believed that its tariff obligated it to provide GAE to U.S. Steel at the discounted rate and, therefore, that Orion was also obligated to provide GAE at the discounted rate under the terms of the POLR I Agreement. Orion was later acquired by Reliant Resources, Incorporated (Reliant) in February of 2002.⁵

On October 25, 2002, Duquesne filed a petition for declaratory order asking the Commission to hold that it had been correctly interpreting the GAE provision of the HVPS rate schedule. Duquesne’s application of the,GAE provision was objected to by Reliant, and the Commission’s Office of Trial Staff (OTS) and Reliant filed answers opposing Duquesne’s tariff interpretation. In its answer, Reliant argued that pursuant to the tariff language, it has the ability to determine if and when GAE will be available to U.S. Steel. U.S. Steel also filed answers in the matter in support of Duquesne’s tariff interpretation.

On February 6, 2003, the Commission issued an order granting Duquesne’s petition for declaratory order, but rejecting its interpretation of the GAE provision. Rather, the Commission endorsed the tariff interpretation advocated by Reliant finding that Duquesne’s interpretation was not just and reasonable as required by Section 1301 of the Public Utility Code (Code), 66 Pa.C.S. § 1301.⁶ In interpreting the tariff, the Commission found that it was an option to only be exercised when it was in the best interest of both parties and, in addition, it did not require that it had to be sold below the tariff rate available to other suppliers anytime there was power available. Specifically, it stated:

We now turn to the actual language at issue here. First, we note that the tariff requires that the customer “must inquire as to the availability of generation avoidance for the billing month.” The tariff language contemplates that Generation Avoidance energy may not be available at all in some circumstances, and that its availability will vary on a month to month basis. Duquesne and U.S. Steel insist that Generation Avoidance energy is available whenever there is some power for sale that can be transmitted and distributed to U.S. Steel facilities. In effect, they are asserting that power only would be unavailable if every kilowatt of generation that could be transmitted and distributed to the customer was already under contract or otherwise accounted for (i.e., unavailable due to plant maintenance, etc.)

It is hard to believe that this type of scenario is what Duquesne envisioned when it filed its tariff supplement in 1987. As noted previously, Duquesne had significant generation resources at that time and was concerned that it would lose a large portion of its industrial load. Duquesne had no expectation that it was going to find enough customers in its service territory for every known kilowatt of its available generation then and for the foreseeable future. If they had had such an expectation, Duquesne never would have proposed the creation of the HVPS rate class. Why would a utility, on its own initiative, create a discounted rate when the demand for generation equaled or exceeded supply? In fact, Duquesne was concerned that some of its generation capacity would be idled due to a declining customer base. The more reasonable interpretation of this tariff language, therefore, is that Generation Avoidance was meant to be available when it was in the economic interest of both the customer and the supplier, and not simply when it was physically available.

Second, Duquesne’s interpretation would also lead to extreme results in certain circumstances that would not be in the interest of the public. One can envision a scenario, during a time of an energy emergency, for example, where a generation supplier would be required to provide Generation Avoidance power to U.S. Steel at prices grossly below market rates month after month, even to the point of severe financial harm. We do not believe that either Duquesne or Orion/Reliant agreed to undertake such a risk when Duquesne filed this tariff supplement or they entered into the POLR 1 Agreement.

We must also consider a hypothetical situation where Reliant did not fulfill its obligations under the POLR 1 Agreement. The Commission was previously faced with a similar situation due to the bankruptcy of New Power Holdings, Inc. In such an event, U.S. Steel would be presented with the option of either acquiring all of its generation from an alternative supplier at market rates or requiring, Duquesne, as a provider of last resort, to supply generation under the terms of the HVPS rate class of its tariff. U.S. Steel would likely prefer to acquire a portion of its energy needs from Duquesne at the discounted Generation Avoidance rate. As Duquesne has no generation assets of its own, it would, thus, have to obtain power on the open market to meet U.S. Steel’s needs. Du-quesne would incur a financial loss with every such transaction. It is unclear how Duquesne would recover, if ever, the costs of these Generation Avoidance purchases. It would not seem consistent with the goals of electric reliability and universal service to impose this type of financial burden on one of our providers of last resort in order to bestow a subsidy to a limited number of customers.

Finally, we note that the tariff provision states that “a mutually agreeable demand threshold” must be reached every month for the provision of Generation Avoidance energy. What would happen if the parties cannot arrive at a “mutually agreeable” threshold? Presumably no Generation Avoidance energy would then be provided. The possibility that Generation Avoidance could not be provided militates against Du-quesne and U.S. Steel’s interpretation of the tariff. If Generation Avoidance energy must really be made available whenever it is demanded, then U.S. Steel should be able to unilaterally set a demand threshold. However, the tariff provision expressly states that the demand threshold must be “mutually” set. This language strongly suggests that economic considerations are a factor in whether Generation Avoidance is available, and that its provision is at the discretion of the supplier.

(Commission’s February 6, 2003 Order at 14-16.) The Commission ultimately concluded that:

[T]he just and reasonable interpretation of the [GAE] provision of Duquesne’s tariff is that such energy is to be provided at the discretion of the generation supplier. Reliant, as the generation supplier for Duquesne’s distribution customers, cannot be compelled to provide such service to members of the HVPS rate class. Duquesne is not obligated to provide [GAE] either.

(Commission’s February 6, 2003 Order at 17.)

On February 21, 2003, U.S. Steel filed a petition for reconsideration, rescission and amendment (Reconsideration Petition). On May 1, 2003, the Commission denied U.S. Steel’s request to reconsider and reverse its prior order and affirmed the February 6th order in its entirety. U.S. Steel petitioned this Court arguing that the Commission’s decision: (1) violates the rate cap protections in Section 2804(4)(ii) of the Competition Act; (2) misapplied the “just and reasonable” rate standard in Section 1301 of the Code, 66 Pa.C.S. § 1301; (3) allowed a non-jurisdictional, wholesale supplier to determine service terms for a jurisdictional, retail customer; (4) failed to adequately consider the economic impact of its decision; (5) ignored the plain language of Duquesne’s tariff and over 15 years of its consistent application; (6) issued orders not supported by substantial evidence; and (7) failed to conduct an evi-dentiary hearing.⁷, ⁸

Initially, we note that as the administrative agency charged with regulating utilities under the Code, 66 Pa.C.S. §§ 101-3816, the Commission has a particular expertise in interpreting its utility tariffs, and its expert interpretation of those issues is entitled to great deference and should only be reversed if clearly erroneous. Aronson v. Pennsylvania Public Utility Commission, 740 A.2d 1208 (Pa.Cmwlth.1999), petition for allowance of appeal denied, 561 Pa. 700, 751 A.2d 193 (2000). While, admittedly, there may be more than one plausible interpretation of the GAE provision, we stress from the outset that we may only reverse if the Commission’s interpretation was clearly erroneous.

U.S. Steel first contends that the Commission’s interpretation of the GAE provision violates the rate cap protections in Section 2804(4)(ii) of the Competition Act because it requires U.S. Steel to pay a greater cost for the generation component of its electricity purchases. Section 2804(4)(ii) of the Competition Act was enacted to prevent utilities from increasing customer rates by changing the tariffs that existed at the time of the passage of the Act. However, that is not the case here as the Commission’s order did not change or eliminate any of Duquesne’s HVPS tariff provisions, nor did it force U.S. Steel or Duquesne to break rate caps; instead, it simply applied the plain language of a lawfully filed tariff that pre-dates the Competition Act.⁹ In fact, under the Commission’s interpretation, U.S. Steel is still eligible to receive GAE energy so long as the parties agree on the terms of the transaction. Essentially, the Commission’s order makes GAE energy an option, not a right. Because the Commission’s order only interpreted the language of a GAE provision adopted prior to the enactment of the Competition Act, i.e., it did not alter, change or eliminate the language of the provision, the Commission’s decision did not violate Section 2804(4)(ii) of the Competition Act.

Next, U.S. Steel contends that the Commission misapplied the “just and reasonable” rate standard in Section 1301 of the Code because Reliant is a non-jurisdictional, wholesale electricity supplier and, therefore, is not subject to the Commission’s jurisdiction because it is not a “utility as defined under the Code.¹⁰ Although the Commission did set forth the “just and reasonable” standard, from a reading of its opinion, it is evident that any application of that standard was nominal at best.¹¹ In applying the standard, we note that the Commission’s decision only discussed the standard in relation to Du-quesne’s interpretation of the tariff, not Reliant’s. (Commission’s February 6, 2003 decision at 10.) (“Duquesne’s interpretation of its tariff must be just and reasonable.”) Moreover, Reliant’s economic interests do not appear to have been a major factor in reaching the Commission’s final decision.¹²

U.S. Steel also contends that the Commission failed to adequately consider the economic impact of its decision on U.S. Steel and the public. In so contending, U.S. Steel requests this Court to reweigh historical, economic and policy factors that informed the Commission’s decision. When the Commission disposes of an issue involving its special expertise and requiring the exercise of discretionary judgment, absent an error of law or total lack of supporting evidence, the Court will not substitute its judgment for that of the Commission. West Penn Power Company v. Pennsylvania Public Utility Commission, 147 Pa.Cmwlth. 6, 607 A.2d 1132 (1992), petition for allowance of appeal denied, 539 Pa. 661, 651 A.2d 547 (1993); Kossman v. Pennsylvania Public Utility Commission, 694 A.2d 1147 (Pa.Cmwlth.1997).¹³

Finally, U.S. Steel contends that its due process rights were violated when the Commission failed to conduct an evidentia-ry hearing. First, we note that no party requested an evidentiary hearing in the initial pleadings. Second, the Commission explained that it decided the case solely upon an interpretation of the GAE provision and did not need to resolve disputes of material fact. Specifically, the Commission needed to decide what was meant by the phrase — “When [GAE] is available, the Company and the customer will mutually establish the demand threshold for [GAE].” (Reproduced Record at 18a.) That is a legal question upon which no findings of fact need to be made.¹⁴ Under that circumstance, it correctly determined that an evidentiary hearing was not required. See West Penn Power Company v. Pennsylvania Public Utility Commission, 659 A.2d 1055 (Pa.Cmwlth.1995).

Because the Commission’s interpretation of the GAE provision was reasonable and consistent with the Competition Act, the Commission did not err in its plain language analysis of the tariff language.

Accordingly, the orders of the Commission are affirmed.

Judge LEADBETTER did not participate in the decision of this case.

Judge SIMPSON dissents.

ORDER

AND NOW, this 10th day of May, 2004, the Order of the Pennsylvania Public Utility Commission, No. P-00021989, dated February 6, 2008, and its Order on Reconsideration, dated May 1, 2003, are affirmed.

1 . This opinion was reassigned to the author on March 30, 2004.

2 . Section 2804(4)(ii) provides:

In addition to the rate cap set forth in paragraph (i), for a period of nine years from the effective date of this chapter or until an electric distribution utility is no longer recovering its transition or stranded costs through a competitive transition charge or intangible transition charge and all customers of an electric distribution utility can choose an alternative provider of electric generation, whichever is shorter, the generation component of a utility's charges to customers who purchase generation from the utility, including the competitive transition charge and intangible transition charge, shall not exceed the generation component charged to the customers that has been approved by the commission for such service as of the effective date of this chapter.

3 . GAE provides customers that have the capability of generating their own electricity the option of purchasing electricity from Du-quesne at a rate lower than the standard HVPS rate so that they may avoid more expensive self-generation costs. On the face of the tariff itself, GAE is listed as an "option,” along with stating when such energy is available for purchase. Specifically, the GAE provision provides:

Generation Avoidance energy provides an option to customers who produce electricity for their own use by utilizing their own internal generating equipment. The customer may purchase energy in excess of that contracted for on this rate and avoid the increased use of alternate energy sources.

Prior to the start of each billing month, the customer must inquire as to the availability of generation avoidance energy for the billing month. When generation avoidance energy is available, the Company and the customer will mutually establish the demand threshold for generation avoidance energy. All kilowatt-hours in any 15 minute on-peak metered period that exceed the monthly stipulated demand level will be considered generation avoidance energy. Generation Avoidance energy will be billed at the average base rate price resulting from the charges calculated for the demand and energy under this rate.

(Reproduced Record at 18a.)

4 .U.S. Steel is the only entity to which the GAE rate currently applies.

5 . Reliant is a corporation that sells electricity at wholesale throughout the United States to various entities, including Duquesne.

6 . Section 1301 provides, in relevant part:

Every rate made, demanded, or received by any public utility, or by any two or more public utilities jointly, shall be just and reasonable, and in conformity with regulations or orders of the commission.

7 . This Court’s review of a Commission’s adjudication is prescribed in Section 704 of the Administrative Agency Law, 2 Pa.C.S. § 704. It provides that the Court shall affirm unless it determines that the adjudication is in violation of constitutional rights, that it is not in accordance with law, that provisions relating to practices of Commonwealth agencies in Sections 501-508 of the Administrative Agency Law, 2 Pa.C.S. §§ 501-508, have been violated or that any necessary finding of fact is not supported by substantial evidence. See also George v. Pennsylvania Public Utility Commission, 735 A.2d 1282 (Pa.Cmwlth.1999), petition for allowance of appeal denied, 563 Pa. 650, 758 A.2d 1202 (2000).

8 . Reliant argues that because U.S. Steel did not file a petition for review of the Commission's February 6, 2003 order within the 30 day time limit, only the Commission's May 1, 2003 order denying reconsideration is properly before this Court. However, when a party timely files a petition for reconsideration and the trial court or administrative tribunal grants reconsideration within the 30 day appeal period, the lower tribunal retains jurisdiction to rescind, amend or affirm its previous order, and the appeal period does not commence until the entry of a new order after reconsideration of the merits of the original order. Pa. R.A.P. 1701(b)(3); see 2 G. Ronald Darlington et al., Pennsylvania Appellate Practice §§ 1701:21 — 1701:27 (2d ed.2002); Barron v. City of Philadelphia, 754 A.2d 738 (Pa.Cmwlth.), petition for allowance of appeal denied, 563 Pa. 691, 760 A.2d 856 (2000). The Commission granted reconsideration of its February 6 order on March 6, within the 30 day time limit for filing a petition for review. Thus, the merits of that order are properly before this Court.

9 .Even Duquesne admits that this issue does not involve rate caps under Section 2804(4) because all of the rates that could be applicable to U.S. Steel under Duquesne’s tariff had been approved by the Commission as of the 1997 effective date of the Competition Act. (See Reply of Duquesne Light Company in Support of Its Petition for Declaratory Order ¶ 22; Reproduced Record at 119a.)

10 . The Code defines "Public Utility,” in relevant part, as follows:

Any person or corporations ... owning or operating in this Commonwealth equipment or facilities for producing, generating, transmitting, distributing or furnishing ... electricity ... to or for the public compensation.

66 Pa.C.S. § 102.

11 . Most likely, the Commission did not conduct a thorough just and reasonable analysis because it determined that it was not necessary. Section 1301 of the Code sets forth the general standard that in ratemaking, the final rates are to be just and reasonable; however, this case does not deal with setting new rates. The established rate in the HVPS tariff was set when it was adopted, and the issue before the Commission turned on applying the existing tariff, not on setting rates.

12 . The Commission’s power to fix just and reasonable rates requires the agency to make and apply policies concerning the appropriate balance between prices charged to retail customers and returns on capital to utility investors consonant with constitutional protections. Pennsylvania Public Utility Commission v. Pennsylvania Gas and Water Company (Water Division), 492 Pa. 326, 424 A.2d 1213 (1980), writ of certiorari denied, 454 U.S. 824, 102 S.Ct. 112, 70 L.Ed.2d 97 (1981).

13 . Related to this argument is U.S. Steel’s contention that the Commission's decision: (1) ignored 15 years of consistent application by Duquesne and U.S. Steel of the GAE provision; and (2) allowed Reliant to determine service terms for Duquesne. However, the fact that Duquesne and U.S. Steel allegedly had a history of interpreting the tariff differently is of no legal relevance. A tariff must be applied consistent with its language and not according to any private understanding. 66 Pa.C.S. § 1303; Byer v. Peoples Natural Gas Company, 251 Pa.Super. 75, 380 A.2d 383 (1977). Moreover, the Commission’s interpretation that GAE need only be supplied when available and only when the parties "mutually establish" the terms of the transaction is sound. In essence, the Commission found that because Reliant supplies all of Du-quesne’s power, Duquesne cannot make the determination of availability of power without Reliant's consent.

14 .For the same reason, we find that the Commission's orders were supported by substantial evidence.