PUC Rejects ALJ Recommendation to Return Residential Fixed Rate Automatic Renewal Customers to Default Service After Contract Expiration

In an  order  just released from the Pennsylvania Commission’s based on the October 22, 2026 public meeting discussion regarding the motion of Chairman DeFrank to modify the ALJ’s recommended decision in FirstEnergy’s Default Service Plan (DSP).

Specifically, the Pennsylvania PUC modified the recommended decision and non-unanimous settlement in FirstEnergy Pennsylvania’s default service proceeding, rejecting a proposed prohibition on automatic renewals of fixed-price residential electric contracts in a 3-2 decision.

As previously reported the proposed restriction would have required residential customers to return to default service at the end of their fixed-rate contract unless they affirmatively consented to continue with their retail supplier.

The settlement also proposed requiring suppliers to obtain affirmative customer consent quarterly for residential variable-rate, month-to-month contracts and provide an attestation confirming that consent.

Commission recommendation on return to default service for fixed and variable rate attestation upon contract expiration

“While the claims on the record here do raise obvious concerns, we are hesitant to make such profound revisions at this time in the retail electric marketplace of a single EDC. First, Section 54.10 of the Commission’s regulations, 52 Pa. Code § 54.10, underlies the existing market rules applicable to these circumstances, permitting EGSs to retain customers upon contract expiration after proper notice. Second, we are unable to ascertain the root cause of the increased costs highlighted in the Settlement. Third, we question whether it is appropriate to make this modification in a single service territory or if such a determination is best implemented universally across the state, for instance, through a rulemaking. Therefore, we are interested in conducting a more comprehensive and diligent review of this issue to ascertain what portion of the costs noted on the record here are the result of customers choosing value-added products, renewable products, long-term fixed rates products, time-of-use, or other types of products, versus those costs that were manifested due to customer inaction. Should retail market modifications be needed, we are interested in determining how best to implement those modifications.”

“Our preference, therefore, is to deny and eliminate these provisions from Paragraph 66 of the Settlement. Instead, it is appropriate at this time to direct the Commission’s Office of Competitive Market Oversight (OCMO) to conduct a paper proceeding on an expedited basis intended to review these concerns statewide. This review would be separately docketed and culminate with any recommendations that OCMO deems prudent to be provided to the Commission by June 1, 2027, whether that be via a proposed rulemaking, order, advisory memo, report, or any other transmittal deemed appropriate.”

“Since the Settlement includes provisions in direct contrast to existing Regulations, the parties also seek a waiver of Section 54.10(3) of the Commission’s Regulations for the time-period that FirstEnergy’s DSP VII is in effect. As noted above, this regulation addresses what happens when an electric supply contract expires and permits EGSs to retain customers upon contract expiration after providing proper notice. Since we are removing the aforementioned provisions from Paragraph 66 of the Settlement, the associated waiver request has become moot.”

“We acknowledge this action involves modifying the instant Settlement and may result in parties’ withdrawal from the Settlement. Further, we acknowledge that such potentiality may result in this proceeding passing the nine-month period for the Commission to issue a final order as required by the Code. Section 2807(e)(3.6) of the Code states in pertinent part:

If the commission fails to issue a final order on the plan within nine months of the date that the plan is filed, the plan shall be deemed to be approved and the default service provider may implement the plan as filed.

66 Pa.C.S. § 2807(e)(3.6) (emphasis added). Should the Settlement be withdrawn, we ask that FirstEnergy consider acting in good faith to not implement the DSP VII as originally filed in order to permit the Commission time to make a prudent and final determination as expeditiously as possible.”

In terms of purchase of receivables (POR) beginning June 1, 2027, the Commission adopts the proposal that would limit POR participation to retail suppliers using rate-ready billing and charging rates at or below the utility’s price to compare (PTC).

In comments in a letter filed by UGI Energy Services (UGIES) voices opposition to the proposed purchase of receivables (POR) eligibility restrictions in FirstEnergy Pennsylvania’s Default Service Plan VII settlement. Beginning June 1, 2027, the proposal would limit POR participation to retail suppliers using rate-ready billing and charging rates at or below the utility’s price to compare (PTC). UGIES argues that the restrictions would effectively cap competitive supplier prices, increase collection costs, and discourage fixed-price and renewable energy products. UGIES recommends alternatives, including adjustments to the existing clawback mechanism or POR discount rates, and urges the PAPUC to address statewide POR policy through a broader industry proceeding rather than an individual utility settlement. This position was not ultimately adopted by the Commission.

Commission Disposition on POR Program

“According to FirstEnergy, the Settlement addressed concerns the current POR program eliminates the risk to EGSs that their customers may not pay their bills. FirstEnergy noted the POR program provides little incentive for EGSs to moderate prices. FirstEnergy argued these issues are compounded by POR-related uncollectible expenses disproportionately contributing to FirstEnergy’s overall uncollectible expense. . . The Settlement modified eligibility for the POR program and required all EGSs wishing to utilize the program to offer rate-ready billing and charge a rate that is at, or below, the FirstEnergy default service price at the time of a customer’s enrollment or rate change transaction. Settlement at ¶ 67. FirstEnergy asserted the proposals included in the Settlement are reasonable and focused on protecting all customers from unnecessary and excessive costs associated with collection of EGS uncollectibles.

Commission Disposition

“Upon review of the Exceptions in this matter, we shall deny the Exceptions and adopt the Recommended Decision without modification. In doing so, we approve the Settlement’s proposal modifying the eligibility requirements for EGSs to utilize the POR program.

Foundational to our denial of the Exceptions is that EGS participation in POR programs is voluntary and subject to modifications to address issues such as consumer protection, functioning of the retail market, and obligations to provide electricity at the least cost over time. As the Commission has previously held in Respond Power:

…participation of EGS in a POR is voluntary and as such, the EGS has implicitly assented to modifications of the program, assuming such modifications are reviewed and approved by the Commission according to procedural due process.

Further, it is well settled the Commission may exercise its authority to “bend” competition under the Choice Act and the Code to address “important concerns.”

“The Commission recognizes the significant benefits provided to EGSs and suppliers by POR. As Town Square/WGL noted, “POR removes supplier credit and collections risk so suppliers can compete on price and product innovation, rather than their ability to finance bad debt and manage collections.” Town Square/WGL St. 1 at 9. However, the documented harm discussed above provides a substantial basis for conditioning access to POR.”

“It is also critical that the Settlement preserves POR for the Company’s DSP VII and that EGSs remain free to charge rates higher than the PTC, market renewable products, and offer long-term fixed-price contracts or any other non-price features. UCB will also remain available to all EGSs, whether they utilize rate-ready billing or not. There is no attempt to prevent or preclude EGSs from offering these options to customers, nor any restriction on EGSs offering products at prices above the PTC. Thus, we find there is no undue discrimination toward EGSs pursuant to 66 Pa.C.S. § 1502, nor any direct or indirect rate regulation in contravention of the Choice Act.”

“These facts are critical and undercut the suggestions made by Opposing Parties that the Settlement will result in the “destruction” of the retail market. They also differentiate the Settlement from the Maryland example utilized by the Opposing Parties. As alleged by the Opposing Parties, Maryland experienced a sharp reduction in the number of EGS offerings and market participation after making wholesale changes to its retail market. However, the changes in Maryland went much further than the narrowly tailored proposal here. Maryland ended UCB services to third-party suppliers for residential accounts and also ended all residential purchases of third-party supplier receivables. See Maryland Public Service Commission, Administrative Docket No. PC 65 (Order issued April 28, 2026).32 Here, as noted above, the Settlement preserves UCB and POR for DSP VII, rendering the Maryland example distinguishable from the present case, and therefore, unpersuasive to our decision.”

“Finally, the Commission is persuaded by the fact that no system changes are necessary to implement the POR changes, and that the Company will not incur material implementation costs because EGS pricing for POR eligibility, and attestation of affirmative customer consent, will be processed through electronic data interchange transactions. FirstEnergy St. 1-R at 13. The ending of the clawback mechanism will also reduce the administrative burden on FirstEnergy.”

“For the reasons outlined above, and consistent with the record and discussion above, we shall approve the Settlement’s proposed POR rules. In doing so, we find the amended POR rules are appropriately measured and targeted to address substantial evidence of harm and preserve POR and UCB eligibility for suppliers who wish to have guaranteed payment and alleviation of collections costs, while protecting residential and commercial customers from the payment of excessive collections costs associated with higher-than-PTC EGS pricing.”

“Accordingly, we shall deny the EGS Parties’ Exception No. 1, Town Square and WGL’s Exception Nos. 3 and 4, and RESA’s Exception Nos. 1 through 4, as they relate to this issue, and adopt the ALJs’ recommendation.”

Other Contested Issues – Residential Class Default Service Products

“FirstEnergy proposed a 100% FPFR product for the residential class with each tranche consisting of a 100% fixed price, load-following full requirements portion with 12-month (45%), 24-month (45%), and 60-month (10%) delivery terms. According to FirstEnergy, reliance upon a full-requirements product contributes to a procurement strategy that is designed to ensure the least cost to customers over time while providing reasonable rate stability, by relying on suppliers’ portfolio-management expertise. FirstEnergy St. 3 at 9-11. Under the agreements with PJM, winning suppliers will be responsible for fulfilling all the associated requirements of a LSE, including energy, capacity, transmission, ancillary services, and PJM administrative expenses, as well as providing all necessary alternative energy credits for AEPS compliance.”

“No Exceptions were filed objecting to the ALJs’ recommendation on this issue. We find the ALJs’ recommendation to be reasonable and supported by substantial evidence in the record. Therefore, we shall adopt the ALJs’ recommendation to adopt the Settlement concerning Residential Default Service Products, without further comment.”

Responsibility for PJM Charges (including NITS) Under the Supplier Master Agreement

“NITS, with these charges embedded into prices for FPFR products. FirstEnergy Statement in Support at 9. These charges are currently recovered as part of the cost component in FirstEnergy’s PTC (residential and commercial classes) and HP (industrial) Riders. Id. (citing FirstEnergy St. 2 at 4-5, 11; FirstEnergy St. 4 at 5-6). The proposal included in the Settlement would, starting on June 1, 2027, remove NITS charges from pricing under the SMA. FirstEnergy would acquire NITS for its default service load and recover the actual NITS component, rather than the cost component, of the PTC and HP Riders.

FirstEnergy advocated that the changes to NITS responsibility “eliminates the need for default service suppliers to add premiums into their bids…” and may also result in increased participation in FirstEnergy’s auction, which would benefit default service customers. FirstEnergy M.B. at 16-17 (citing FirstEnergy St. 2-R at 9-10, FirstEnergy St. 4-R at 4-5; OCA St. 1-R at 8-11, OCA St. 1-SR at 18-20). FirstEnergy noted the NITS proposal was consistent with Commission-approved treatment of the charges for other EDCs and consistent with industry practice. FirstEnergy averred that the Settlement ensures default service customers pay actual NITS costs as opposed to estimated costs plus a risk premium.

In response to concerns raised by RESA, FirstEnergy stated that its proposal does not seek to eliminate the risk associated with NITS costs, but to instead ensure default service customers pay actual NITS costs rather than estimated costs plus a risk premium. FirstEnergy M.B. at 17. FirstEnergy argued this change is appropriate given the volatility and different, unhedgable nature of NITS costs.”

Commission Disposition

“We find the NITS bypass proposal included in the Settlement advances the statutory requirements and objectives of default service. It does so by preventing customers from paying the unnecessary risk premiums associated with embedding volatile and difficult to predict transmission costs into fixed-price FPFR products, with the Commission already endorsing this approach in approving similar procurement structures for other Pennsylvania EDCs. OCA M.B. at 11-12, n. 49. This Commission’s previous endorsement is an acknowledgement that removing NITS costs from FPFR contracts avoids unnecessary costs and promotes rate stability. Id.

Capacity Proxy Price

“FirstEnergy proposed to continue using a CPP mechanism in its auctions when PJM does not conduct a BRA in time for default service suppliers to incorporate the auction results into their bids. The Company states that the CPP will be equal to the clearing price in the most recent BRA conducted by PJM. FirstEnergy explained that the CPP reduces the need for bidders to add risk premiums if a portion of a FPFR product extends into an unpriced capacity period, lowering the cost to default service customers.”

In our view, the NITS bypass proposal results in a more cost-effective default service portfolio for customers, leaves EGSs to compete through their own product and offerings, and ensures transmission costs are recovered through an appropriate and transparent mechanism. Therefore, we shall deny the EGS Parties’ Exception No. 4 and RESA’s Exception No. 5 regarding the NITS bypass proposal and adopt the Recommended Decision on this issue, without modification.”

“RESA argued that the CPP shifts capacity price risk from wholesale default service suppliers to default service customers while reducing suppliers’ long-term hedging obligations. Further, RESA opined that wholesale default service suppliers are better positioned than customers to manage the capacity risk and should remain responsible for doing so, just as competitive retail suppliers remain responsible for managing capacity risk in their retail contracts. RESA declared that, under the Choice Act, FirstEnergy must demonstrate that transferring wholesale market risks from default service suppliers to default service customers, via the CPP, will provide the least-cost service over time. Arguing that the Company failed to do so, RESA asserted that the CPP must be rejected.”

Commission Disposition

“Upon review, we agree with the ALJs that FirstEnergy’s CPP proposal in the Settlement is in the public interest because it is supported by the record and is consistent with prior Commission Orders. The Commission has previously approved the use of a CPP in the default service procurements of other EDCs, finding that a CPP and true-up mechanism will maintain diversity of default service supply contracts, while mitigating embedded risk premiums if a portion of a fixed price full requirement would extend into an unpriced capacity period.”

“Furthermore, we disagree with RESA’s claim that the CPP is anti-competitive. There are differences between the business models and contractual obligations of EGSs and wholesale default service suppliers. Although the CPP will be available only to wholesale default service suppliers, EGSs may offer customers a variety of retail products and contract structures, including products with different pricing approaches and contract durations. For example, while wholesale default service suppliers can only bid on twelve-month, twenty-four-month or sixty-month contracts in FirstEnergy’s default service auctions, EGSs can offer products with any term length. See FirstEnergy R. Exc. at 22-23. Therefore, we conclude that the CPP proposal will not negatively impact the competitive market. For these reasons, we find the inclusion of FirstEnergy’s CPP proposal to be in the public interest and will approve it.”

 Read order for full details.