Companies have always considered line-loss as a cost of electricity generation. The Settlement Agreement set a limit on the generation rate for companies through 2010. Companies and Customer Groups fought over how to handle line-loss expenses. The PUC ordered Companies to file tariff supplement. The Penelec Order was preempted by federal law, according to the companies. Companies also claimed that the PUC Order violated their property right to recover the federally-approved cost of providing electric service.

In the amended complaint, Companies assert that the PUC Order “imposes a confiscatory rate on Companies” and is “unjust and unreasonable.” They argue that the PUC Order violates the Federal Power Act (“FPA”) since the rate isn’t “just and reasonable.” The PUC Defendants contend that Companies did not waive their arguments against pre-emption by filing an injunction in state court. The PUC Defendants argue that the PUC Order doesn’t violate the filed rate doctrine, because it “adopts a reasonable class of line loss costs.”

The PUC Order was upheld by the Commonwealth Court on three legal grounds. The PUC determined that line-loss costs are generated costs, which were recouped in the generation rates. The PUC concluded that congestion is related transmission, therefore it cannot be counted as a generation expense. The Commonwealth Court also confirmed the PUC’s classification of line loss costs under generation costs.

Count I asserts that the PUC Order violates the Fourteenth Amendment’s Due Process Clause. Count II claims that the PUC Order is “unjust and unreasonable” and is “contrary to the FPA’s requirement that rates be fair and reasonable.” Count III argues that the PUC Order violates the Supremacy Clause of the Constitution. Companies claim that the PUC Order is contrary to the FPA. They also assert that the PUC Order is against the Electric Competition Act.

Counts III and IV raise new questions. The companies claim that the PUC Order didn’t fully address the issues it was presented with. Specifically, Companies contend that the PUC Order’s refusal of line-loss expenses prevented Companies from passing the cost through to their customers. Companies also claim that the PUC’s decision not to classify line loss costs as transmission costs was arbitrary. The PUC rejected the ALJ’s recommendation to classify line losses as transmission costs. Companies’ proposal to classify loss line losses as transmission costs was also rejected by the PUC.

The Companies claim that the PUC Order was preempted by FERC exclusive jurisdiction. Companies argue that the conclusion of the PUC that line-loss costs were generation costs was a snare. They also claim that the PUC Order rejecting a transmission cost classification was a judicially null proceeding. The PUC asserted that the PUC decision is not “judicially overruled” because Companies were not informed of the proceedings.

The PUC Defendants argued Companies did not have to defend against pre-emption in the Commonwealth Court because Companies had already won their pre-emption case in federal court. The PUC Defendants also argued that Companies did not satisfy the five-prong issue preclusion test under Pennsylvania law.