Competition Complaint Against PPL Dismissed; Another Rises

Sep 10, 2007 (The Energy Daily/Access Intelligence via COMTEX) -- PPL | charts | news | PowerRating -- A federal judge last week dismissed claims by 14 Pennsylvania towns that PPL Corp. unlawfully raised their power prices and prevented them from competing for customers by exerting monopoly power in the region's wholesale electricity market and selling them wholesale power at high rates.

But while Pennsylvania-based PPL beat back that challenge, it faces another court battle with the Montana Consumer Counsel over its power supply operations in that state, with the consumer advocate charging that PPL is exerting market power and overcharging ratepayers.

In the politically sensitive Montana case, the consumer counsel has brought suit in the U.S. Court of Appeals for the 9th Circuit challenging rulings by the Federal Energy Regulatory Commission that sided with PPL and rejected the advocate's charges that the generator was charging excessive rates.

FERC's action in the Montana case has drawn questions from state officials, with Sen. Jon Tester (D-Mont.) being especially displeased with the commission.

The consumer counsel last week took an additional step in the case, filing a petition with FERC asking the commission to investigate the "justness and reasonableness" of PPL's rates--and to set the "earliest permissible" date for potential refunds by the generator in case the appeals court overrules the commission's prior decisions on the matter. The consumer counsel said it was taking the action as a "protective matter" to ensure that any refunds due to the state's ratepayers are paid promptly.

However, things went PPL's way in the Pennsylvania competition case last week, with Judge William Yohn of U.S. District Court for the Eastern District of Pennsylvania ruling that the 14 towns complaining about the utility's behavior had failed to provide sufficient evidence to even proceed to trial on their claims.

In general, the towns, located in PPL's eastern Pennsylvania service territory, charged that PPL created an unlawful "price squeeze" by selling them power at wholesale rates that were higher that retail prices charged by PPL to its industrial and commercial customers. The towns said that PPL in that way sought to prevent the towns from competing to serve those customers.

Yohn noted that in a decision last year, he dismissed a number of other competition complaints made by the towns against PPL because they were barred by the "filed rate doctrine," which says antitrust complaints cannot be brought over rates that have been approved by FERC.

However, Yohn said the price squeeze complaint was not barred by the filed rate doctrine because neither FERC nor state regulators had full jurisdiction over PPL's entire rate structure, and thus it was wrong to invoke antitrust immunity on that matter.

Upon review, however, Yohn said the towns failed to present key evidence needed to make their case against PPL. For example, the judge said the towns did not present actual rate data needed to show that PPL sold them power at wholesale rates that were above the retail rates charged to industrial and commercial customers by PPL.

He also said the towns presented no convincing evidence that PPL exerted market power in the region's wholesale market, nor did they provide persuasive evidence that PPL's rates were unreasonably high or that it demonstrated clear intent to shut out the towns as competitors.

In fact, the judge noted that the towns sought to find lower prices from other power suppliers, but ultimately decided to buy from PPL because they could not get a better deal.

Overall, the towns "failed to provide sufficient evidence from which a jury could find that PPL had the specific intent to serve its monopolistic purposes at the boroughs' expense by creating a price squeeze," the judge wrote. "From the evidence in the record, no reasonable juror could find that the alleged price squeeze resulted from deliberately anticompetitive, as opposed to legitimate, conduct."

The Montana case appears significantly different in that PPL controls major coal-fired power plants in the state and is the primary supplier to NorthWestern Energy, the state's main distribution utility, which divested all its generation under the state's former deregulation program.

The state recently revamped its deregulation law due to customer anger over high prices. Among other changes, the lawmakers hope to reduce the state's exposure to market-based rates charged by merchant generators such as PPL by allowing NorthWestern to propose new plants to be put in its rate base.

In its lawsuit, the consumer counsel said FERC was wrong to grant PPL continued market-based rate authority because the generator had clearly shown it had market power by sharply raising the prices it was charging NorthWestern Energy, which has limited transmission capacity to import power from out-of- state suppliers.

"The rates PPL offered to NorthWestern Energy pursuant to the most recent grant of market-based rate authority are significantly higher than previous rates for the power produced by the same units," the consumer counsel told FERC in its September 5 request to FERC to set a refund effective date pending action by the appeals court on its complaint.

Further, the consumer counsel said the 42 percent price increase charged by PPL to NorthWestern in July 2007 followed a 42 percent increase in July 2002.

The consumer advocate noted arguments by PPL that power prices across the nation have risen, in part due to higher fuel costs, but said that has not been the case in Montana.

"Although it may be the case that electricity rates have risen nationwide, these nationwide increases cannot explain the increases in the NorthWestern control area and market, where costs have remained largely unchanged, as one would expect for in-service, substantially depreciated baseload coal plants," the consumer counsel said.

The consumer counsel also said its request that FERC set a refund date was necessary in case PPL sought to evade a refund order.

"PPL may take the position that such refunds are not available," he said. "Out of an abundance of caution, the Montana consumer counsel requests that the commission set a refund effective date so that the commission's jurisdiction to order refunds will be clear.

"Setting a refund effective date will do no harm, because it will have an effect only if PPL's rates are found to be unjust and unreasonable; in the absence of a refund effective date, on the other hand, a decision by the 9th Circuit Court of Appeals that PPL has market power may well lead to otherwise unnecessary litigation regarding the commission's jurisdiction to order refunds."

The Energy Daily, Vol. 35, No. 173

Morning Coffee with TradingMarkets -- Free Newsletter

More News:   Market Updates | Stock Alerts | All Trading News | Stock Index