Natural Gas Unbundling Set the Way for Customers to Purchase Gas from Other Suppliers—GT 95-4; GT 96-1; GT 96-2; GT 96-3

In 1995, Washington Gas Light Company (“WGL”) filed the first of several proposals with the Public Service Commission of the District of Columbia (“Commission”) requesting permission to change the way it did business in the District of Columbia. WGL’s goal was to allow natural gas customers of all classes the opportunity to choose whether they want to obtain gas from a supplier other than Washington Gas. WGL’s tariffs proposed to “unbundle,” or separate out, the costs of different components of its service so customers can see exactly what they pay for each component (e.g., the cost of gas, pipeline costs, delivery costs, etc.) The Commission ultimately approved tariffs which authorized WGL to unbundle charges for non-residential customers, authorized large commercial customers to purchase gas from third party suppliers and receive delivery service from WGL, and authorized a program for residential gas customers to purchase gas from third party suppliers and receive delivery service from WGL. The effect of WGL’s unbundling tariffs was to change WGL from a monopoly utility providing totally bundled natural gas service to one offering selected unbundled services in a more competitive market. The impact on WGL’s natural gas consumers is they now have the ability to select a company other than Washington Gas to provide them with natural gas. Additionally, WGL continues to deliver gas to all consumers, regardless of who sells the commodity.

Elimination of the “Touchtone” charge;

Requirement that rates for other “basic” services can only be increased or decreased based on inflation;

Creation of separate investigations before the PSC regarding universal service; and

Commitment from BA-DC for the creation of job training programs.

Pepco Sells Its Generation Facilities And No Longer Sells Energy-F.C. 945

December 1999 was a pivotal year in the history of electric restructuring in the District. In Formal Case No. 945, the Commission approved a non-unanimous settlement agreement that allowed the Potomac Electric Power Company (“Pepco”) to sell (divest) its power plants and other electricity-generating assets. OPC did not sign the settlement agreement because it did not believe that electric retail competition would benefit residential and small business consumers. Additionally, in 2001, the D.C. Council passed legislation approving retail electric competition which allows more than one company to offer electric service in the District. The main impact on residential consumers of divestiture is that after rate caps expired, residential consumers have experienced a huge increase in the cost of generation and a commensurate increase in their total electric bills.

To implement retail competition in the District, the Commission established a Working Group consisting of various entities, including the Office of the People’s Counsel, and directed the Working Group to recommend a plan of action to address the various issues related to the implementation of retail competition in the District. To that end, the Commission adopted procedures and standards regarding consumer protection and supplier licensing and operations standards, approved a post-divestiture unbundled rate structure for Pepco, established the Renewable Demonstration Grant Program, approved the listing and publishing of price-to-compare data to allow residential consumers to evaluate electricity supplier rates and charges, adopted a market monitoring program, adopted an interim code of conduct while it considers a District-specific code of conduct for energy suppliers, approved energy efficiency, universal service and renewable programs funded by the Reliable Energy Trust Fund, approved net energy metering rules, approved a two-year consumer education campaign to provide electricity consumers with clear, concise, and unbiased information regarding consumer choice, approved rules to implement the Renewable Energy Portfolio Standards Act.

Standard Offer Service is Provided as a Default Service to Electric Consumers-F.C. 1017

Prior to 2001, the Commission regulated electric generation and distribution services allowing Pepco to receive its costs plus a reasonable rate of return on such services, as determined by the Commission. On January 1, 2001 the District’s retail electric market was restructured resulting in the deregulation of electric generation service and the advent of retail consumer choice which was expected to provide consumers with competitive choices from suppliers. Deregulation means the Commission does not regulate the price of electric generation services.

To ensure that District consumers have electric generation service if they do not choose a competitive supplier, the Council of the District of Columbia provided for Standard Offer Service (“SOS”). Pepco was required to provide electric generation service under capped rates to District consumers until February 8, 2005. At the expiration of the capped period, a SOS supplier would offer electricity at market rates. The Commission subsequently decided Pepco would be the SOS provider charged with serving the District customers that were not being served by a competitive supplier. SOS procures generation services in a competitive auction and awards a contract to the winning bidder.

Since February 8, 2005, the generation service rate paid by District consumers is the average price of the awarded contract plus an administrative charge plus taxes. Due to an increase in price at the wholesale level, SOS consumers have seen an 85% increase in their generation rate since the caps were removed from the generation portion of consumer bills. Because this service is no longer regulated, the Commission has no control over the amount of the generation service rate.

OPC filed a complaint with the Commission in June 2006 requesting that the Commission conduct an investigation into SOS procurement practices. Specifically, OPC requested that the Commission investigate the use of a long term diversified portfolio management approach with the goal of procuring long term stable prices at the least cost.

OPC Succeeds In Preventing D.C. Consumers From Paying For Expensive Energy Supply Contracts

In an effort to prevent district ratepayers and consumers from being saddled with costly energy supply agreements that provide no tangible benefits for district consumers, OPC successfully fought Mirant’s efforts to have a bankruptcy court absolve it from financial responsibility under such agreements. Without such effort, district ratepayers were facing $541 million in energy supply contract costs.

In June 2000, Mirant purchased Pepco’s power plants for approximately $2.65 billion. As part of that purchase agreement, Pepco was allowed to assign its entire energy supply contracts, known as purchase power agreements (“PPA”) to Mirant, however, a number of the PPAs contained contract language that required Pepco to obtain the PPA supplier’s consent before it could assign that particular PPA. A PPA is an agreement under which Pepco was obligated to purchase power from outside suppliers at a fixed rate. The parties agreed to reduce the power plant purchase price by almost $260 million if Pepco could not obtain consent to assign certain PPAs.

To get around a contract provision that requires supplier consent to an assignment, Mirant and Pepco entered into a “back-to-back” agreement under which Mirant was obligated to purchase energy at the same FERC-approved rates as Pepco.The PPA required Mirant to pay higher than market rates for energy supply. Mirant filed for chapter 11 bankruptcy in July 2003. In its petition, Mirant sought, inter alia, to reject the back-to-back agreement because such agreements were causing Mirant to suffer financial losses. Mirant also sought, and received, an ex parte temporary restraining order preventing the federal energy regulatory commission (“FERC”) or Pepco from taking any actions to require or coerce Mirant to abide by the terms of the back-to-back agreement OPC intervened in the bankruptcy proceeding. Mirant engaged in an aggressive litigation campaign to shed its obligations and to impose costs on D.C. ratepayers and consumers.

A Texas federal court found that the only business justification supporting Mirant’s request to reject the back-to-back agreement was the losses it suffered because the rate for electricity that FERC approved for that agreement exceeds the market rate. Based upon this analysis, the court found that Mirant’s rejection request was a prohibited attempt to avoid their electric energy purchase payment obligations under the back-to-back agreement at the filed rates FERC has found to be just and reasonable. The court then held that the bankruptcy code does not provide an exception to FERC’s authority under the federal power act and that Mirant must seek relief from the filed rate in the back-to-back agreement in a FERC proceeding. Based upon this analysis, the court denied Mirant’s motion to reject the back-to-back agreement as well as its request for permanent injunctive relief. In a subsequent order, the court vacated the bankruptcy court’s injunctive relief because it would interfere with the performance of FERC’s regulatory oversight functions. The court then dismissed the case for failure to state a claim upon which relief could be granted. Mirant appealed the lower court actions.

On April 16, 2004, as the only party representing D.C. electric consumers’ interests, OPC filed a “friend of the court” brief with the united states court of appeals for the fifth circuit to protect Pepco’s interests in $541 million worth of energy supply contracts. On the same day, people’s counsel Elizabeth A. Noël publicly stated “... To save D.C. consumers, OPC must first save Pepco’s interests in these contracts.”

While the United States Court of Appeals for the Fifth Circuit concluded that the lower court acted inappropriately in dismissing the case, it declined to decide whether Mirant could reject the back-to-back agreement since the lower court and bankruptcy court failed to render a decision on the rejection request.

The Mirant-Pepco matter was subsequently settled in 2006 thus relieving Pepco and its customers of all obligations under the PPAs. Pepco will share amounts from the Mirant settlement and the transfer of a PPA with its District of Columbia residential customers in the form of a one-time credit of $16.84 on bills rendered for April 2009.

Representing D.C. electric consumers at the appellate level is another step OPC has taken toward protecting the public interest through an alliance forged with Pepco and FERC. FERC and OPC believe forcing Mirant to uphold its contracts is in the best interests of D.C. electric consumers. The settlement is a good result for consumers who would have paid millions under the rejected PPAs.

Smart Meter Pilot Program in D.C.—F.C. 1002

F.C. 1002 involved the proposed merger of Pepco and Conectiv. The formal case was eventually resolved as a settlement agreement between the parties in May 2002. A number of consumer benefits were included in the Settlement Agreement, including:

1) a cap on Pepco's distribution rates, from February 8, 2005 through August 7, 2007 and

2) the establishment of a smart meter pilot program.

The cap of Pepco’s rates benefited consumers as they saw no increase in the price of electric service from 2005-2008. The smart meter pilot program developed into the demand response pilot program known as PowerCentsDC. This pilot allows stakeholders in the District of Columbia to understand whether consumers will respond to advanced price signals by lowering their use of electricity during peak times. The pilot also benefits consumers as it serves as a learning laboratory for the implementation of smart grid technology in the District of Columbia now being considered by the Commission in Formal Case No. 1056.

Energy Efficiency is Mandated-F.C. 1037

One of the goals of the Retail Competition and Consumer Protection Act of 1999 (Act) set for the Reliable Energy Trust Fund (RETF) was to promote energy efficiency. Consistent with the Act, in March 2005, the Commission approved several energy efficiency programs paid for by the RETF. These energy efficiency programs included a home audit program called the Home Energy Rating Systems Program, an Energy Efficient Mortgages and Loan Promotion Program, the installation of energy efficiency measures in the non-profit, small business and institutional sectors, Energy Star rebates for appliances and energy efficiency programs for low-income consumers including weatherization and the use of energy efficiency appliances. The Commission also approved energy efficiency programs under the Natural Gas Trust Fund (NGTF) such as the Heating System Repair Replacement and Tune-up program.

In October 2008, the D.C. City Council adopted a new mechanism for delivering energy efficiency programs to District consumers. Specifically, the City Council adopted the Clean Air and Affordable Energy Act of 2008 (SEU Act). The SEU Act creates a Sustainable Energy Utility (SEU) that will restructure the way energy efficiency programs and renewable energy programs are delivered to energy end-users in the District. The SEU Act eliminated the electricity and natural gas trust funds and replaced them with the Sustainable Energy Trust Fund and Energy Assistance Trust Fund. Ratepayers will continue to pay the bill for energy efficiency through surcharges, regardless of who administers the programs. The programs will cost more than they did under the RETF and NGTF.