NOTICES
PENNSYLVANIA PUBLIC UTILITY COMMISSION
Integrated Resource Planning for Gas Utilities; Section 115 of the Energy Policy Act; Doc. No. L-00920066
[26 Pa.B. 203] Commissioners Present: John M. Quain, Chairperson; Lisa Crutchfield, Vice-Chairperson; John Hanger; David W. Rolka; Robert K. Bloom
Public meeting held
June 29, 1995
Opinion and Order By the Commission:
The provisions of the Energy Policy Act of 1992 (Act) (P. L. 102-486) require State commissions to consider whether adoption of certain standards would carry out the purposes of the Public Utility Regulatory Policies Act of 1978. 15 U.S.C.A. §§ 3201--3211. These purposes, as defined in section 101 of PURPA, and mirrored in PURPA Title III, are to encourage (1) conservation of energy supplied by electric and gas utilities, (2) optimization of the efficient use of facilities and resources by electric and gas utilities, and (3) equitable rates to consumers. 15 U.S.C.A. §§ 3201, 3203.
Section 115 of the Act deals specifically with gas utilities and amends PURPA sections 302 and 303, 15 U.S.C.A. §§ 3202--3203, by adding two new standards for consideration under PURPA Title III. These two standards include (1) the use of Integrated Resource Planning (IRP) by each gas utility and (2) the encouragement of investments in conservation and demand-side management (DSM) mechanisms. 15 U.S.C.A. §§ 3202--3203. The IRP standard has as its objective that each gas utility employ integrated resource planning ''in order to provide adequate and reliable service to its gas customers at the lowest system cost.'' 15 U.S.C.A. § 3203(b)(3). The investment in conservation and demand management standard requires that rates are such that ''the gas utility's prudent investment in, and expenditures for, energy conservation and DSM are at least as profitable as a utility's prudent investments in, and expenditures for, the acquisition or construction of supplies or facilities.'' 15 U.S.C.A. § 3203(b)(4).
Section 115 requires states to consider and make determinations regarding the implementation of the following standards:
INTEGRATED RESOURCE PLANNING.--Each gas utility shall employ, in order to provide adequate and reliable service to its gas customers at the lowest system cost. All plans or filings of a State regulated gas utility before a State regulatory authority to meet the requirements of this paragraph shall (A) be updated on a regular basis, (B) provide the opportunity for public participation and comment, (C) provide for methods of validating predicted performance, and (D) contain a requirement that the plan be implemented after approval of the State regulatory authority. Subsection (c) shall not apply to this paragraph to the extent that it could be construed to require the State regulatory authority to extend the record of a State proceeding in submitting reports to the Federal Government.
INVESTMENTS IN CONSERVATION AND DEMAND MANAGEMENT.--The rates charged by any State regulated gas utility shall be such that the utility's prudent investments in, and expenditures for, energy conservation and load shifting programs and for other demand-side management measures which are consistent with the findings and purposes of the Energy Policy Act of 1992 are at least as profitable (taking into account the income lost due to reduced sales resulting from such programs) as prudent investments in, and expenditures for, the acquisition or construction of supplies and facilities. This objective requires that (A) regulators link the utility's net revenue at least in part, to the utility's performance in implementing cost-effective programs promoted by this section; and (B) regulators ensure that, for purposes of recovering fixed costs, including its authorized return, the utility's performance is not affected by reductions in its retail sales volumes.
15 U.S.C.A. § 3203(b).
In addition, section 303 of PURPA, 15 U.S.C.A. § 3203(c), requires State commissions to determine that the standard is consistent with State law, and is otherwise appropriate. Moreover, the Commission is required, in the case of implementation of either of the Act's two gas efficiency standards, to consider the impact that the standard would have on small businesses engaged in the design, sale, supply, installation, or servicing of energy conservation, energy efficiency, or other demand-side management measures, and to implement the standard in a way to assure that utility actions would not provide such utilities with unfair competitive advantages over such small businesses. 15 U.S.C.A. § 3203(c).
At the March 11, 1993 public meeting, the Commission approved an order, at Docket No. L-00920066, to amend reporting requirements for integrated resource planning for natural gas utilities. At that time, current reporting requirements were deemed inadequate in order for the Commission to monitor and plan appropriate Commission natural gas policy. The proposed regulations provided for the integration of supply-side and demand-side resource options, including the integration of all feasible supply-side resources. These proposed regulations were published at 23 Pa.B. 4095 (August 28, 1993). Comments were submitted by Columbia Gas of Pennsylvania, Inc. (Columbia Gas); Equitable Gas Company (Equitable Gas); National Fuel Gas Distribution Corporation; Office of Consumer Advocate (OCA); Pennsylvania Gas Association; Peoples Gas Company; PECO Energy; T. W. Phillips Gas and Oil Co.; Pike County Light and Power Company and UGI Utilities, Inc.--Gas Division.
On June 30, 1994, the Commission issued an order requesting supplemental comments pertaining to the section 115 requirements of consideration and determination. The order was published at 24 Pa.B. 3587 (July 23, 1994).
In the Commission's judgment, the work done to that date on the rulemaking at this docket paralleled to a large extent the ''considerations and determinations'' regarding conservation and energy efficiency standards set forth in the Federal legislation at section 115 of the Act. As such, we believed then, as we do now, that our State's obligations under the Act for gas utilities were already in the process of being completed. Accordingly, the Commission identified those aspects of the Act which were not yet addressed by the rulemaking and requested further comment and input from interested parties concerning these areas. The Commission wrote:
[I]n order to satisfy the consideration and determination requirements of section 115 of the Act, the Commission has decided to issue this order for comment, pertaining to the effects of IRP and DSM on the rate structure of natural gas utilities. The specific requirements of section 115 of the Act are restated in Appendix A. In particular, the Commission now requests supplemental comments regarding whether any additional information is required pursuant to the Act which was not addressed during the proposed rulemaking proceeding at this docket. The supplemental comments herein should be limited solely to the Commission's need for information concerning the Commission's statutory requirement under section 115 of the Act. Comments submitted earlier to the Commission will be considered in this process but should not be duplicated herein.
Order at 4 (attachment omitted).
Supplemental comments were filed by Columbia Gas, Equitable Gas, OCA, Pennsylvania Industrial Energy Coalition (PIEC), PGA and T. W. Phillips jointly (Gas Association). The Gas Association filed supplemental reply comments addressing supplemental comments of the OCA and PIEC.
The Commission has reviewed the comments and supplemental comments filed in this proceeding. We are encouraged that the respondents were, for the most part, in agreement that the Commission meets the standards and purposes of the Act in that it promotes the implementation of IRP and DSM programs. In addition, no respondent recommended a radical departure from existing methodologies. We will discuss the standards more specifically below.
Standard No. 1. Integrated Resource Planning
Section 115 requires that the Commission consider the following:
. . . All plans or filings of a State regulated gas utility before a State regulatory authority . . . shall (A) be updated on a regular basis, (B) provide the opportunity for public participation and comment, (C) provide for methods of validating predicted performance, and (D) contain a requirement that the plan be implemented after approval of the State regulatory authority . . . .
15 U.S.C.A. § 3202(b)(3).
IRPs filed on a regular basis. By order entered November 9, 1995 at this docket, the Commission ordered that Gas IRPs be filed annually. Accordingly, the Commission has considered and has determined that this component of the Act's IRP standard is currently adopted in Pennsylvania.
Opportunity for public participation and comment. PIEC was the only commentator which requested a full evidentiary hearing regarding IRP filings. PIEC claimed that input will be ''hampered and informal'' without an evidentiary hearing to provide for a detailed review. The utility companies did not support this idea. Equitable Gas, for example, noted that formal procedures should not be mandated but review and comment should satisfy due process requirements. Columbia Gas further commented that a procedure in which notice of the IRP filing, with an opportunity for comment should satisfy the requirements of the Act. Finally, the Gas Association reminded the Commission that it has the authority to order an evidentiary hearing if deemed necessary. PIEC also remarked that a more formal IRP for local distribution companies (LDC) is not necessary given the comparatively small level of non-natural gas costs that can be impacted by IRP outside the context of a section 1307(f) proceeding. 66 Pa.C.S. § 1307(f).
We believe that a full evidentiary hearing is not warranted to review IRP filings. Our current review process is adequate and provides for public participation and comment as written in the Act. Accordingly, we have considered and determined that this component of the Act is presently adopted by this Commission.
Validating predicted performance. The OCA commented that DSM activities will be subject to specified cost/benefit analyses and the integration of options requires economic evaluations which must be iterated in the report. After the fact evaluation is most appropriately conducted in a rate proceeding rather than annually due to the length of the planning period and the multitude of experts which assemble during a rate proceeding. We believe that prescribed DSM cost/benefit tests, economic analysis of integration of options, and after the fact review in the context of a rate proceeding satisfy our obligations for validating performance under the Act.
Plan be implemented after approval of the State regulatory authority. The Gas Association commented that the plan be implemented as written in our proposed regulation (that is, 2 years) rather than be confused with the 10 year forecast period contemplated by the proposed regulations. We affirm, however, that as warranted by changing conditions, an LDC is not bound by its plan when a mid-stream correction may be preferable and can be supported. To this end, we will require LDCs to report significant departures from the plan to the Bureau of CEEP, the Secretary's Bureau, OCA, the Office of Small Business Advocate and the Commission's Office of Trial Staff in writing as an addendum to the plan. We conclude that we have satisfied our obligation regarding this section of the standards. Accordingly, we have considered this component of the Act and determined that the implementation and approval of the IRP is best determined in the context of a rate proceeding.
Standard No. 2. Demand-side Management
Section 115 requires that the Commission consider the following:
The rates charged by any State regulated gas utility shall be such that the utility's prudent investments in, and expenditures for, energy conservation and load shifting programs and for other demand-side management measures which are consistent with the findings and purposes of the Energy Policy Act of 1992 are at least as profitable (taking into account the income lost due to reduced sales resulting from such programs) as prudent investments in, and expenditures for, the acquisition or construction of supplies and facilities. This objective requires that (A) regulators link utility's net revenue at least in part, to the utility's performance in implementing cost-effective programs promoted by this section; and (B) regulators ensure that, for purposes of recovering fixed costs, including its authorized return, the utility's performance is not affected by reductions in its retail sales volumes.
15 U.S.C.A. § 3203(b)(4).
Utility investments in demand-side management be at least as profitable as investments in supply-side resources. Our regulations at 52 Pa. Code § 69.23 state that such investments ''shall be afforded rate treatment at least on a par with any other supply options.'' As a practical matter, however, we may lack the ability to guarantee in advance such profitability for all demand-side investments because of a recent Commonwealth Court ruling which prohibits guaranteed future recovery of certain deferred costs (FASB 106 costs) outside the context of a rate case. Popowsky v. Pa.P.U.C., 164 Pa. Commonwealth Ct. 338, 642 A.2d 648 (1994), allocatur petition pending. This is not to say that demand-side investments will not ultimately be as profitable as supply-side investments, but rather that we may not be able to guarantee cost recovery in advance of a rate case adjudication in which a claim for the firm's demand-side investments is made.
Regulators link utility's net revenue to the utility's performance in implementing cost-effective programs. The Act requires that the Commission consider the linkage of utility revenues with plan performance. The Gas Association, Columbia and PIEC all commented that existing regulations at 52 Pa. Code § 69.36 are adequate for purposes of satisfying the Act's requirements. We agree. Our regulations at 52 Pa. Code § 69.36 require that the Commission review utilities' performance regarding development of energy supply alternatives in the context of rate or other proceedings. Accordingly, we determine that this regulation satisfies the purposes of the Act because these requirements are currently in place before this Commission.
Assurance that utility's performance is not affected by reduction in its retail volumes. The OCA and PIEC both oppose automatic recovery of lost revenue, and the utilities advocate such an automatic mechanism. In fact, the Gas Association and Columbia suggest the Commission authorize gas utilities to recover DSM costs through a surcharge with a true-up mechanism which will result in full recovery of costs recognizing competitive market conditions. This issue, however, is not before the Commission at this docket and will not be determined in this context.
Because we cannot guarantee the result of an adjudication proceeding, we are unable to adopt this standard. At present, the issue of lost revenue resulting from sales reductions caused by successful DSM programs is properly the subject of an adjudication proceeding with the utility having the burden of proof under 52 Pa. Code § 69.32 to demonstrate that allowing lost revenue recovery is necessary to ensure the profitability of the DSM investment relative to a similar supply-side investment.
Small Business Impact The Act requires that the Commission consider and make determinations regarding the local distribution companies' competitive advantage over small businesses. The Act states:
If a State regulatory authority implements a standard established by subsection (b)(3) or (4), such authority shall--
(1) consider the impact that implementation of such standard would have on small businesses engaged in the design, sale, supply, installation, or servicing of energy conservation, energy efficiency, or other demand-side management measures and
(2) implement such standard so as to assure that utility actions would not provide such utilities with unfair competitive advantages over such small businesses.
15 U.S.C.A. § 3203.
The Gas Association commented that they would expect participation by small businesses in the provision of certain DSM services because of the likelihood that utilities will outsource part or all of DSM program work. They concluded, then, that the Commission's adoption of the IRP and DSM standards would not negatively impact small business and rather, may provide small business with increased business opportunities. Columbia agreed with this premise and added that it would not be competing with small businesses. No commentator offered evidence contrary to this position. Accordingly, we believe that this component of the Act has been considered and is presently adopted by this Commission.
Conclusion
Having considered the comments and discussion as they pertain to the purposes of the Act, we confirm that our regulations are, for the most part, in compliance with section 115 of the Act. The only exception to this tenet is with regard to guaranteed profitability and lost revenue due to sales reductions caused by DSM programs.
Because there is no flexibility in the Federal standards, we will reject the standards in part and adopt those standards consistent with our current practice, as discussed herein. Furthermore, the whole question of whether gas IRP is desirable must be addressed. The evolution of competition, both upstream and inside the city-gate, will make gas IRP a less necessary Commission function in order to insure least-cost gas service. If properly structured, competition will minimize the discrimination against efficient gas conservation because the LDC will be increasingly decoupled from the adverse consequences of the reduction in sales. Hence, the Commission will continue to review its regulations as necessary, while rejecting the Act's standards in part and adopting the standards in part, as they are consistent with the Commission's current practice, as discussed herein, Therefore,
It Is Ordered:
1. That the Federal standards listed in section 115 of the Energy Policy Act, 15 U.S.C.A. §§ 3202--3203 are considered and are hereby rejected in part and adopted in part.
2. That this order shall be served upon all natural gas utilities in Pennsylvania, the Pennsylvania Gas Association, the Office of Consumer Advocate, Office of Small Business Advocate, the Pennsylvania Energy Office, and the Industrial Energy Consumers of Pennsylvania.
3. The Secretary shall duly certify this order and deposit it with the Legislative Reference Bureau for publication in the Pennsylvania Bulletin.
JOHN G. ALFORD,
Secretary
[Pa.B. Doc. No. 96-63. Filed for public inspection January 12, 1996, 9:00 a.m.]
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