RULES AND REGULATIONS
Title 52—PUBLIC UTILITIES
PENNSYLVANIA PUBLIC UTILITY COMMISSION
[ 52 PA. CODE CH. 54 ]
[ L-2014-2421001 ]
Automatic Adjustment Clauses Related to Electric Default Service
[45 Pa.B. 7161]
[Saturday, December 19, 2015]The Pennsylvania Public Utility Commission (Commission), on June 11, 2015, adopted a final rulemaking order establishing a symmetrical rate of interest which will be applicable to both over and under collections resulting from the reconciliation of utilities' actual costs and revenue collected through automatic adjustment clauses regarding electric default service.
Executive Summary
On May 22, 2014, the Pennsylvania Public Utility Commission (Commission) issued an Advance Notice of Proposed Rulemaking Order (ANOPR Order) proposing to establish a symmetrical rate of interest which will be applicable to both over and under collections resulting from the reconciliation of utilities' actual costs and revenue collected through automatic adjustment clauses regarding electric default service. On October 2, 2014, the Commission issued a Proposed Rulemaking Order setting forth similar proposals. The Commission received comments in response to the May 22, 2014 ANOPR Order and the October 2, 2014 Proposed Rulemaking Order from the Office of Consumer Advocate, the Office of Small Business Advocate, the Independent Regulatory Review Commission, the Energy Association of Pennsylvania, PPL Electric Utilities Corporation, PECO Energy Company, and the Metropolitan Edison Company, Pennsylvania Electric Company, Pennsylvania Power Company and West Penn Power Company.
The Commission proposed to establish a symmetrical rate of interest applicable to over and under collections resulting from reconciliation of automatic adjustment clause costs and revenues related to electric default service to better ensure that utilities' current prices reflect current costs as accurately as is feasible. Based upon our review and consideration of the comments filed in response to our May 22, 2014 ANOPR Order and the October 2, 2014 Proposed Rulemaking Order, the Commission proposes to adopt the final regulations as set forth in Annex A of the Final Rulemaking Order.
Public Meeting held
June 11, 2015Commissioners Present: Gladys M. Brown, Chairperson; John F. Coleman, Jr., Vice Chairperson; James H. Cawley; Pamela A. Witmer; Robert F. Powelson
Automatic Adjustment Clauses Related to Electric Default Service; Doc. No. L-2014-2421001
Final Rulemaking Order By the Commission:
On October 2, 2014, the Pennsylvania Public Utility Commission (Commission) issued a Proposed Rulemaking Order proposing to establish a symmetrical rate of interest which will be applicable to both over and under collections resulting from the reconciliation of default service providers' (DSPs) actual costs and revenue collected through automatic adjustment clauses regarding electric default service. In order to fully recover the cost of providing service, DSPs, which currently are electric distribution companies (EDCs), are permitted to utilize automatic adjustment clauses to increase or decrease rates to reflect changes in certain costs. The Commission has determined that traditional methods of reconciliation accounting could, however, cause a great deal of volatility in default service rates associated with the recovery of revenue and cost imbalances created by the use of these automatic adjustment clauses.
In order to alleviate these concerns, the Commission proposed to establish a uniform policy regarding whether interest is recoverable when reconciling costs through automatic adjustment clauses and the rate of interest that is paid or collected. Based upon our review and consideration of the comments filed by the Office of Consumer Advocate (OCA), the Independent Regulatory Review Commission (IRRC), and Metropolitan Edison Company, Pennsylvania Electric Company, Pennsylvania Power Company and West Penn Power Company (collectively, the First Energy Companies), we shall adopt the final regulations as set forth in Annex A to this Order.
Background
On May 22, 2014, the Commission issued an Advance Notice of Proposed Rulemaking Order (ANOPR Order) proposing to establish a symmetrical rate of interest which will be applicable to both over and under collections resulting from the reconciliation DSPs actual costs and revenue collected through automatic adjustment clauses regarding electric default service. Based upon our review and consideration of the comments filed in response to the May 22, 2014 ANOPR Order by the OCA, the Office of Small Business Advocate, the Energy Association of Pennsylvania, PPL Electric Utilities Corporation, PECO Energy Company, and the FirstEnergy Companies, the Commission proposed the regulations set forth in the October 2, 2014 Proposed Rulemaking Order.1
In the October 2, 2014 Proposed Rulemaking Order, the Commission proposed to establish a symmetrical rate of interest which will be applicable to over and under collections resulting from the reconciliation of DSPs' costs and revenues resulting from automatic adjustment clauses related to electric default service. The proposed applicable rate of interest on over and under collections would be interest at the prime rate for commercial borrowing in effect on the last day of the month the over or under collection occurred, as reported in the Wall Street Journal (or other publically available source identified by the Commission). For example, the interest rate applied to over or under collections in the month of March would be the prime rate that was in effect on March 31 as reported in the Wall Street Journal.
This proposed rate of interest would be computed monthly from the month the over collection or under collection occurs to the effective month that the over collection is refunded to customers or the under collection is collected from customers. Additionally, this rate of interest would apply universally to all over and under collections reconciled through automatic adjustment clauses related to electric default service filed with the Commission pursuant to 52 Pa. Code § 54.187(b) (relating to default service rate design and the recovery of reasonable costs), including:
• Price-to-Compare (PTC)
• Hourly Pricing Default Service Rider (HPDSR)
• Transmission Service Charge (TSC)
• Generation Supply Charges 1 & 2 (GSC-1 & GSC-2)
• Generation Supply Adjustment 1, 2, 3, 4 (GSA 1, 2, 3, 4)
• Generation Supply Service Rate (GSSR)
• Default Service (DS)
• Default Service Supply (DSS)
• Generation Supply Rate (GSR)
Discussion
In response to our proposed regulations set forth in the October 2, 2014 Proposed Rulemaking Order and Annex A thereto, the Commission received comments from the OCA, First Energy Companies and IRRC. In their comments, both the OCA and the First Energy Companies generally support the Commission's proposal to establish a symmetrical rate of interest which will be applicable to over and under collections resulting from the reconciliation of electric default service rates. Specifically, the OCA commented that a ''symmetric market-based approach to the application of interest might make some EDCs [DSPs] more amenable to reconciliation periods which will better serve customers and make price comparisons easier.'' OCA Comments at 5. Similarly, the First Energy Companies comment that ''[e]stablishing symmetrical interest rates for over and under collections is equitable to both customers and EDCs [DSPs] because it provides for identical treatment.'' First Energy Comments at 2.
Although the First Energy Companies support the Commission's proposed application of a symmetrical rate of interest to default service reconciliations, they have a concern with the use of the prime rate for commercial borrowing as the applicable symmetrical rate of interest due to its ''historical volatility.''2 First Energy Comments at 2. The First Energy Companies comment that customers could be exposed to significant swings in interest rates if the prime rate of interest is symmetrically applied to default service reconciliations without providing for an ''escape hatch.''3 Id. at 3. Accordingly, the First Energy Companies suggest that the Commission use a symmetrical interest rate at the legal rate of interest. Id.
As explained in the October 2, 2014 Proposed Rulemaking Order, the Commission believes that using the prime interest rate is the most appropriate rate of interest to apply to default service reconciliations as it is the rate which is most commensurate with market rates. Additionally, the prime interest rate is publicly known, available, and transparent. Further, the prime interest rate reflects the terms and risks inherent in the utility reconciliation process.
Although the Commission believes that using the prime rate of interest is most appropriate here, the Commission will slightly modify our proposed regulations to alleviate the concerns raised by the First Energy Companies (and echoed by IRRC). Specifically, we will revise our proposed regulations to provide that the applicable rate of interest on over and under collections will be interest at the prime rate for commercial borrowing, which rate shall not exceed the legal rate of interest. The Commission believes that this modification will protect customers from significant swings in interest rates and will provide the ''escape hatch'' the First Energy Companies have requested in the event the prime rate of interest becomes volatile in the future.
Additionally, in the October 2, 2014 Proposed Rulemaking Order, the Commission proposed to use the prime rate of interest ''as reported in the Wall Street Journal or other publically available source identified by the Commission.'' In their comments, IRRC recommends deleting the phrase ''or other publically available source identified by the Commission'' to avoid confusion in the future. IRRC Comments at 1. Specifically, IRRC mentions that including the phrase ''or other publically available source identified by the Commission'' creates ambiguity as to: (1) what other rate source the Commission would contemplate in the future, (2) how notice of a different rate source would be provided, and (3) what opportunity there would be for comment prior to a change in rate source. Id. Additionally, IRRC notes that such proposed phrase technically permits a utility to choose between the Wall Street Journal rate ''or'' a new rate identified by the Commission in the future. Id.
The Commission agrees that the phrase ''or other publically available source identified by the Commission'' creates ambiguity in the proposed regulations and should be deleted. The Commission also agrees with IRRC that should the Wall Street Journal no longer be the most appropriate market index for purposes of determining the prime rate of interest in the future, the Commission can use its general powers to rescind or modify regulations pursuant to 66 Pa.C.S. §§ 501(a) and (b) in order to determine a more appropriate rate source. As such, the Commission will revise Section 54.190(c) of the proposed regulations to state as follows:
(c) Interest collectible on over collections and under collections. When revenues exceed costs, the over collections shall be refunded to customers with interest. When costs exceed revenues, the under collections shall be collected from customers with interest. Interest on over collections and under collections shall be computed at the prime rate of interest for commercial banking, not to exceed the legal rate of interest, in effect on the last day of the month the over or under collection occurs, as reported in the Wall Street Journal.In their comments, the First Energy Companies request that the Commission allow them to maintain their current interest charge calculation process until the new process can be ''adequately transitioned, reviewed and audited.''4 First Energy Comments at 3. As set forth in the October 2, 2014 Proposed Rulemaking Order, all electric DSPs, other than the First Energy Companies, are using the interest calculation proposed by the Commission for purposes of their automatic adjustment clauses related to electric default service. Additionally, as stated in our Proposed Rulemaking Order, the Commission will only require DSPs to implement the proposed interest rate methodology commencing with the first 66 Pa.C.S. § 1307(e) reconciliation period after the effective date of any regulations adopted pursuant to this rulemaking process.
To illustrate, if the effective date of the regulations adopted by this rulemaking is December 31, 2015,5 the First Energy Companies will not be required to transition their current interest charge calculation until the 66 Pa.C.S. § 1307(e) reconciliation period beginning June 1, 2016. At a minimum, the First Energy Companies will have six months to transition their current interest charge calculation process prior to their first 66 Pa.C.S. § 1307(e) reconciliation period following the effective date of any regulations adopted by this rulemaking. The Commission, however, estimates that such transition will merely involve changing the interest charge calculation method on the First Energy Companies' accounting spreadsheets, which will require minimal time (less than one month) to complete. As such, the First Energy Companies will have a reasonable amount of time to transition their current interest calculation practices to conform to those proposed by the Commission herein.
Although all electric DSPs, other than the First Energy Companies, are using the interest calculation proposed by the Commission, the Commission recognizes that the interest rate structure proposed herein does not currently comply with the Commission's regulations, 52 Pa. Code §§ 1.1—111.14, and/or DSPs' current tariffs regarding electric default service. Therefore, commencing with the first 66 Pa.C.S. § 1307(e) reconciliation period after the effective date of any regulations adopted pursuant to this rulemaking process, all electric DSPs must revise their tariffs and tariff riders to implement the proposed interest rate methodology set forth in Annex A of this Final Rulemaking Order.
In addition to the proposed interest rate structure set forth herein, the Commission reminds DSPs to consider filing an interim rate adjustment and/or cost reconciliation when the DSP anticipates substantial over or under collections. In fact, the Commission recognizes that such interim rate adjustments and cost reconciliations are in the public interest as they provide DSPs with a mechanism to reduce significant imbalances in over and under collections. For example, Section 69.1809(c) of the Commission's regulations regarding default service provide in relevant part that:
It may be in the public interest to reconcile default service costs more frequently than at each PTC [price-to-compare] adjustment interval. The DSP [default service provider] should propose interim reconciliation prior to the next subsequent PTC adjustment interval when current monthly revenues have diverged from current monthly costs, plus any cumulative over/under recoveries, by greater than 4% since the last rate adjustment. . . . Interim reconciliation proposals should result in a PTC adjustment that will resolve cumulative under or over recoveries by the time of the next PTC adjustment interval.52 Pa. Code § 69.1809(c).
Although the Commission cannot completely eradicate all imbalances in the amount of costs that are over and under collected, the proposed symmetrical interest rate structure set forth herein is designed to deter DSPs from inaccurately forecasting costs and sales to improperly increase interest earnings. This symmetrical application of interest to over and under collections uses the prime rate of interest which is not only commensurate with market rates, but is also publicly known, available and transparent. Overall, application of the symmetrical rate of interest, at prime rate, to over and under collections reflects the terms and risks inherent in the utility reconciliation process.
Regulatory Review
Under section 5(a) of the Regulatory Review Act (71 P. S. § 745.5(a)), on February 27, 2015, the Commission submitted a copy of the notice of proposed rulemaking, published at 45 Pa.B. 1258 (March 14, 2015), to IRRC and the Chairpersons of the House Consumer Affairs Committee and the Senate Consumer Protection and Professional Licensure Committee for review and comment.
Under section 5(c) of the Regulatory Review Act, the Commission shall submit to IRRC and the House and Senate Committees copies of comments received during the public comment period, as well as other documents when requested. In preparing the final-form rulemaking, the Commission has considered all comments from IRRC, the House and Senate Committees and the public.
Under section 5.1(j.2) of the Regulatory Review Act (71 P. S. § 745.5a(j.2)), on November 10, 2015, the final-form rulemaking was deemed approved by the House and Senate Committees. Under section 5.1(e) of the Regulatory Review Act, IRRC met on November 12, 2015, and approved the final-form rulemaking.
Conclusion
Establishing a symmetrical rate of interest applicable to over and under collections resulting from reconciliation of automatic adjustment clause costs and revenues is designed to better ensure that DSPs' current prices reflect current costs as accurately as is feasible. The Commission, therefore, formally adopts the final regulations as set forth in Annex A to this Final Rulemaking Order.
Accordingly, pursuant to its authority under sections 501, 1301, 1307 and 2804 of the Public Utility Code (66 Pa.C.S. §§ 501, 1301, 1307 and 2804) and sections 201 and 202 of the act of July 31, 1968 (P. L. 769, No. 240) (45 P. S. §§ 1201 and 1202), and the regulations promulgated thereunder at 1 Pa. Code §§ 7.1, 7.2 and 7.5; section 204(b) of the Commonwealth Attorneys Act (71 P. S. § 732.204(b)); section 5 of the Regulatory Review Act (71 P. S. § 745.5); and section 612 of The Administrative Code of 1929 (71 P. S. § 232), and the regulations promulgated thereunder at 4 Pa. Code §§ 7.231—7.234, we will adopt as final the regulations as set forth in Annex A; Therefore,
It Is Ordered That:
1. The regulations of the Commission, 52 Pa. Code Chapter 54, are amended by adding § 54.190 and by amending § 54.187 to read as set forth in Annex A.
2. The Secretary shall submit this order and Annex A to the Office of Attorney General for approval as to legality.
3. The Secretary shall submit this order and Annex A to the Governor's Budget Office for review of fiscal impact.
4. The Secretary shall submit this order and Annex A for review by the designated standing committees of both houses of the General Assembly, and for review and approval by the Independent Regulatory Review Commission.
5. The Secretary shall duly certify this order and Annex A with the Legislative Reference Bureau for publication in the Pennsylvania Bulletin.
6. These regulations shall become effective upon publication in the Pennsylvania Bulletin.
7. All electric default service providers must revise their tariffs and tariff riders regarding electric default service to implement the proposed interest rate methodology set forth in Annex A of this Order commencing with the first 66 Pa.C.S. § 1307(e) reconciliation period after the effective date of any regulations adopted pursuant to this rulemaking process.
8. This order and Annex A be posted on the Commission's web site.
9. A copy of this order and Annex A shall be served on the Bureau of Investigation and Enforcement, the Office of Consumer Advocate, the Office of Small Business Advocate, and all parties who commented in response to the October 2, 2014 Proposed Rulemaking Order.
10. The contact person for legal matters for this final rulemaking is Krystle J. Sacavage, Assistant Counsel, Law Bureau, (717) 787-5262. Alternate formats of this document are available to persons with disabilities and may be obtained by contacting Sherri DelBiondo, Regulatory Coordinator, Law Bureau, (717) 772-4597.
ROSEMARY CHIAVETTA,
Secretary(Editor's Note: For the text of the order of the Independent Regulatory Review Commission relating to this document, see 45 Pa.B. 6862 (November 28, 2015).)
Fiscal Note: Fiscal Note 57-307 remains valid for the final adoption of the subject regulations.
Annex A
TITLE 52. PUBLIC UTILITIES
PART I. PUBLIC UTILITY COMMISSION
Subpart C. FIXED SERVICE UTILITIES
CHAPTER 54. ELECTRICITY GENERATION CUSTOMER CHOICE
Subchapter G. DEFAULT SERVICE § 54.187. Default service rate design and the recovery of reasonable costs.
(a) The Commission may modify contracts or disallow costs when after a hearing the party seeking recovery of the costs of a procurement plan is found to be at fault for either of the following:
(1) Not complying with the Commission-approved procurement plan.
(2) The commission of fraud, collusion or market manipulation with regard to these contracts.
(b) The costs incurred for providing default service shall be recovered on a full and current basis through a reconcilable automatic adjustment clause under 66 Pa.C.S. § 1307 (relating to sliding scale of rates; adjustments), all reasonable costs incurred under 66 Pa.C.S. § 2807(e)(3.9) (relating to duties of electric distribution companies) and a Commission-approved competitive procurement plan. The use of an automatic adjustment clause shall be subject to audit and annual review, consistent with 66 Pa.C.S. § 1307(d) and (e).
(c) Except for rates available consistent with § 54.190 (relating to universal interest applicable to over collections and under collections resulting from reconciliation of automatic adjustment clauses costs and revenues related to electric default service), a default service customer shall be offered a single rate option, which shall be identified as the PTC and displayed as a separate line item on a customer's monthly bill.
(d) The rates charged for default service may not decline with the increase in kilowatt hours of electricity used by a default service customer in a billing period.
(e) The PTC shall be designed to recover all default service costs, including generation, transmission and other default service cost elements, incurred in serving the average member of a customer class. An EDC's default service costs may not be recovered through the distribution rate. Costs currently recovered through the distribution rate, which are reallocated to the default service rate, may not be recovered through the distribution rate. The distribution rate shall be reduced to reflect costs reallocated to the default service rate.
(f) A DSP shall use an automatic energy adjustment clause, consistent with 66 Pa.C.S. § 1307 and Chapter 75 (relating to alternative energy portfolio standards), to recover all reasonable costs incurred through compliance with the Alternative Energy Portfolio Standards Act (73 P. S. §§ 1648.1—1648.8). The use of an automatic adjustment clause shall be subject to audit and annual review, consistent with 66 Pa.C.S. § 1307(d) and (e), regarding fuel cost adjustment audits and automatic adjustment reports and proceedings.
(g) The default service rate schedule must include rates that correspond to demand side response and demand side management programs, as defined in section 2 of the Alternative Energy Portfolio Standards Act (73 P. S. § 1648.2), when the Commission mandates these rates pursuant to its authority under 66 Pa.C.S. Chapter 1 (relating to general provisions).
(h) Default service rates may not be adjusted more frequently than on a quarterly basis for all customer classes with a maximum registered peak load up to 25 kW, to ensure the recovery of costs reasonably incurred in acquiring electricity at the least cost to customers over time. DSPs may propose alternative divisions of customers by maximum registered peak load to preserve existing customer classes.
(i) Default service rates shall be adjusted on a quarterly basis, or more frequently, for all customer classes with a maximum registered peak load of 25 kW to 500 kW, to ensure the recovery of costs reasonably incurred in acquiring electricity at the least cost to customers over time. DSPs may propose alternative divisions of customers by maximum registered peak load to preserve existing customer classes.
(j) Default service rates shall be adjusted on a monthly basis, or more frequently, for all customer classes with a registered peak load of equal to or greater than 500 kW to ensure the recovery of costs reasonably incurred in acquiring electricity at the least cost to customers over time. DSPs may propose alternative divisions of customers by registered peak load to preserve existing customer classes.
(k) When a supplier fails to deliver electric generation supply to a DSP, the DSP shall be responsible for acquiring replacement electric generation supply consistent with its Commission-approved contingency plan. When necessary to procure electric generation supply before the implementation of a contingency plan, a DSP shall acquire supply at the least cost to customers over time and fully recover all reasonable costs associated with this activity that are not otherwise recovered through its contract terms with the default supplier. The DSP shall follow acquisition strategies that reflect the incurrence of reasonable costs, consistent with 66 Pa.C.S. § 2807, when selecting from the various options available in these energy markets.
§ 54.190. Universal interest applicable to over collections and under collections resulting from reconciliation of automatic adjustment clauses costs and revenues related to electric default service.
(a) General rule. This section applies to automatic adjustment clauses related to electric default service filed with the Commission by a DSP under § 54.187(b) (relating to default service rate design and the recovery of reasonable costs).
(b) Definitions. The following words and terms, when used in this section, have the following meaning, unless the context clearly indicates otherwise:
Costs—The total amount of expenses, or class of expenses incurred, which is the basis of the automatic adjustment clause.
Over collection—The amount equal to revenues received under an automatic adjustment clause which exceeds the amount of costs incurred.
Revenue—The total proceeds received under the automatic adjustment clause.
Under collection—The amount equal to costs incurred under an automatic adjustment clause which exceeds the amount of revenues received.
(c) Interest collectible on over collections and under collections. When revenues exceed costs, the over collections shall be refunded to customers with interest. When costs exceed revenues, the under collections shall be collected from customers with interest. Interest on over collections and under collections shall be computed at the prime rate of interest for commercial banking, not to exceed the legal rate of interest, in effect on the last day of the month the over collection or under collection occurs, as reported in the Wall Street Journal. Interest shall be computed monthly from the month the over collection or under collection occurs to the effective month that the over collection is refunded or the under collection is collected.
[Pa.B. Doc. No. 15-2217. Filed for public inspection December 18, 2015, 9:00 a.m.] 1 The comments filed in response to the ANOPR Order were considered, reviewed and discussed by the Commission in the October 2, 2014 Proposed Rulemaking Order.
2 The OCA supports either the use of the prime rate of interest, as the Commission proposes to use, or a rate reflective of residential interest for residential customers as the rate of interest which will be applicable to over and under collections resulting from the reconciliation of electric default service rates. OCA Comments at 6.
3 In their comments, IRRC echoes the First Energy Companies' recommendation of providing for an ''escape hatch'' so that customers are not exposed to significant swings in interest rates. IRRC Comments at 2.
4 In their comments, IRRC echoes the comments of the First Energy Companies in this regard and asks that the Commission explain how the implementation timeline for the regulations set forth in this rulemaking are reasonable. IRRC Comments at 2.
5 As set forth on the Regulatory Analysis Form, the effective date of any final form regulations adopted by this rulemaking is estimated to be during or before the fourth quarter of 2015.
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