RULES AND REGULATIONS
Title 52--PUBLIC UTILITIES
PENNSYLVANIA PUBLIC UTILITY COMMISSION
[52 PA. CODE CHS. 1 AND 74]
[27 Pa.B. 5420] [L-970122]
Perfection of Security Interests in Intangible Transition Property The Pennsylvania Public Utility Commission (Commission) on July 10, 1997, adopted a final rulemaking to establish the processes necessary for the perfection of security interests in intangible transition property required by 66 Pa.C.S. § 2812(d) (relating to approval of transition bonds). These bonds may be necessary to help electric utilities manage the transition to electric competition in this Commonwealth. The bonds would help retire the stranded costs a utility faces. Stranded costs represent the expenses a utility incurred to provide electricity before competition, which expenses may not be recovered now that competition is going to be implemented in this Commonwealth.
Executive Summary
At its public meeting of July 10, 1997, the Commission adopted an order establishing final regulations for the perfection of security interests in intangible transition property under section 2812(d) of the Electric Generation Customer Choice Act of 1996 (act), 66 Pa.C.S. § 2812(d). Final regulations are necessary to facilitate the issuance of the transition bonds allowed under 66 Pa.C.S. § 2812.
At its public meeting of April 10, 1996, the Commission adopted an order that proposed regulations for the perfection of security interests in intangible transition property under 66 Pa.C.S. § 2812. A public comment period of 20 days was provided. The Commission also took other steps, including dissemination of the order and proposed regulations on its electronic bulletin board and mailings to members of the legal and financial communities, to facilitate input about the proposed regulations. The staff had several meetings with the interested parties on the myriad technical details necessary to creating a workable regulations. The changes in the final regulations reflect the Commission's response to those comments.
The Commission contact persons are Joseph K. Witmer, Assistant Counsel, Law Bureau, (717) 787-3663 and Shirley M. Leming, Regulatory Coordinator, Law Bureau, (717) 772-4597.
Regulatory Review
Under section 5(a) of the Regulatory Review Act (71 P. S. § 745.5(a)), the Commission submitted a copy of the final rulemaking, which was published as a proposed rulemaking at 27 Pa.B. 2134, for a 20-day comment period and served on April 21, 1997 to IRRC and the Chairpersons of House Committee on Consumer Affairs and the Senate Committee on Consumer Protection and Professional Licensure for review and comment. In compliance with section 5(b.1), the Commission also provided IRRC and the Committees with copies of all comments received, as well as other documentation.
In preparing these final-form regulations, the Commission has considered all comments received from IRRC, the Committees and the public.
These final-form regulations were deemed approved by the House Committee on Consumer Affairs and by the Senate Committee on Consumer Protection and Professional Licensure, and were approved by IRRC on September 4, 1997, in accordance with section 5(c) of the Regulatory Review Act.
Commissioners Present: John M. Quain, Chairperson; Robert K. Bloom, Vice-Chairperson; John Hanger; David W. Rolka; and Nora Mead Brownell
Public Meeting held
July 10, 1997
Final Rulemaking Order By order adopted and entered April 10, 1997, we initiated a rulemaking at Doc. No. L-00970122 to adopt regulations governing the perfection of security interests in intangible transition property. The regulations, which are required under 66 Pa.C.S. § 2812(d)(3), were undertaken as part of the implementation duties performed by the Commission under the Electricity Generation Customer Choice and Competition Act.
Background On December 3, 1996, Governor Tom Ridge signed into law the ''Electricity Generation Customer Choice and Competition Act'' (act). The act revised the Public Utility Code, 66 Pa.C.S. §§ 101, et seq., by, inter alia, adding Chapter 28, relating to restructuring of the electric utility industry.1
On April 10, 1997, the Commission adopted an Opinion and Order setting forth proposed regulations under Chapter 28 with a 20-day public comment period. Moreover, the Commission took several measures to extend the public comment period beyond the formal 20 days set forth in the April 10, 1997 Order.
The proposed regulations at Doc. No. L-00970122 were published for comment at 27 Pa.B. 2134 (May 3, 1997). The deadline for public comment was May 23, 1997. Written comments were provided by the following parties:
--Pennsylvania Electric Association (PEA);
--Philadelphia Electric Company (PECO);
--Public Utility Commission Office of Trial Staff (OTS).
In addition, copies of the proposed regulations were provided to the Pennsylvania Bankers Association, the Pennsylvania Bar Association, the Article 9 Committee of the Pennsylvania Bar Association, the Global Power Group of Fitch Investors, L.P., the Asset Backed Finance Group of Merrill Lynch, the Securities Commission and the Department of State.
Following public comment, State Representative William R. Lloyd, Jr. (D-69th) and the Independent Regulatory Review Commission (IRRC) submitted written comments.
No other parties provided written comments. However, the Department of State participated extensively in several meetings and provided feedback on the proposed regulations. The Department of State's comments were largely confined to Uniform Commercial Code implications as well as public information and access issues.
Following review of the comments and several meetings with the interested parties, the Commission developed the final-form regulations incorporating the appropriate comments of the interested parties. These regulations are basically similar in function to those finalized by our order entered April 10, 1997, at Doc. No. L-00970122 except for some revised language as discussed in more detail below. The changes are largely due to the persuasive comments of the interested parties.2
Discussion The regulations are necessary because the Commission is required under 66 Pa.C.S. § 2812(d)(3) to promulgate regulations governing the perfection of security interests arising under any Commission-issued QRO. 66 Pa.C.S. § 2812(d)(3). The Commission is also required by 66 Pa.C.S. § 2812(d)(4) to establish and maintain a separate system of records to reflect the date and time of receipt of all filings. The Commission may also provide for the filing of a notice of a transfer of intangible transition property to an assignee in accordance with such a system.
The PEA and PECO largely agreed on the comments they separately provided. Both parties disputed the distinction in the proposed regulations between the Filing Date and the Effective Date and urged the Commission to make the regulations' definitions consistent with those in Chapter 28. They also urged the Commission to simplify the number system used for security filings and to correct some inadvertent transpositions in terminology. In addition, they asked the Commission to delete the references to liberal construction, retention of discretion, informational filings with the Secretary of State and the use of UCC Forms 1 and 3. Finally, they disputed the Commission's proposed filing fees as excessive in light of the services rendered to the filing parties. 3
IRRC's comments reflected those of the PEA and PECO with regard to the filing date and effective date, making definitions consistent with Chapter 28, correcting the reversal of release and retransfer, and the deletion of provisions governing liberal construction, retention of discretion and the use of UCC Forms 1 and 3. IRRC also agreed with PEA and PECO that the proposed fees were disproportionate to the benefit conferred and that there was no reason to require informational filings with the Department of State.4
IRRC's comments also went beyond those of the PEA and PECO in specific instances. IRRC urged the Commission to clarify the definitions of ''certificate'' and ''file number'' and to eliminate unnecessary language in the definitions section in § 74.2. IRRC also urged the Commission to combine subsections (a) and (b) in the information, filing and hours section in § 74.4 and simplify the language governing termination notices in § 74.8.5
Finally, Rep. Lloyd commented on an apparent ambiguity between ''intangible transition property'' and ''intangible transition notice'' in the proposed regulations. The OTS' comments urged the Commission to retain the distinction between the filing and effective date. The OTS also proposed definitions for ''intangible transition property'' and ''qualified rate order'' different from those set forth in the proposed regulations.6
General Issues. Our April 10, 1996 order solicited comments on five general issues concerning the proposed regulations. We dispose of those issues as follows:
Issue 1: The Filing Date vs. The Effective Date. The Commission's proposed regulations made a distinction between the Filing Date and the Effective Date for perfection of a security interest. Upon consideration of the comments, the Commission is deleting this requirement consistent with our following discussion. The Commission agrees with the comments that the ministerial nature of the task involved does not lend itself to such a refined distinction.
Issue 2: Definitions. The Commission defined terms under the act and also crafted new definitions. Consistent with our discussion, the Commission has confined all terms to the language of Chapter 28 whenever that language is provided. In the absence of that language, the Commission relied on the comments of the interested parties, in particular the PEA, PECO and IRRC, to develop clear definitions that reflect the realities of the financial markets.
Issue 3: Liberal Construction. The Commission proposed a provision allowing for the liberal construction of the proposed regulations. Upon consideration, the Commission will delete this provision based on the comments suggesting that the provision was unnecessary, redundant and could cause more harm than good to the perfection process provided for in Chapter 28.
Issue 4: Retention of Discretion. Section 74.9(a) of the proposed regulations preserved administrative discretion. Upon consideration, the Commission agrees with the comments to the extent that the express retention of discretion is unnecessary and counterproductive.
Issue 5: Use of Proposed Forms and UCC-1 and UCC-3. The Commission proposed use of Form A and Form B as well as UCC-1 and UCC-3. Upon consideration, the Commission concludes that UCC Form-1 and UCC Form-3 are unnecessary and no longer in the public interest. The Commission agrees with the comments that any perfection under Chapter 28 can be readily attained by simply filing Form A or Form B.
Detailed Discussion of the Final-Form Regulation. Section 74.1 sets forth the purpose of the regulations. The original § 74.1 contained a general statement of purpose. The revised § 74.1 sets forth a more concise purpose of the regulations in response to the comments of the interested parties.
Section 74.2 (relating to definitions) provides a list of definitions for the regulations. The original definition section consisted of a general statement of meaning with definitions taken from both Chapter 28 and the comments of others.
The revised § 74.2 contains a narrower general statement in response to IRRC and the new definitions. The new definitions for ''assignee,'' ''financing party,'' ''intangible transition property'' and ''qualified rate order'' are limited to their meaning in Chapter 28 in response to comments from PECO, the PEA, Rep. Lloyd and IRRC. The definition of ''assignment'' has been deleted as confusing based on comments from PECO. The definitions of ''certificate'' and ''file number'' have been revised in response to comments from IRRC. The remaining definitions are edited for clarity and to correct minor errors. The Commission agrees with the comments that definition revisions are needed for clarity and brevity.
The original § 74.3 provided for the liberal construction of the regulations to facilitate perfection of security interests. That provision has been deleted in response to comments from the PEA, PECO and IRRC. The Commission agrees with the commenting parties that the provision was unnecessary and counterproductive to its intended purpose.
The original § 74.4 set forth the location for information about the filing and the hours for receipt of filings. The revised § 74.3 combines the original § 74.4(a) and (b) into one section. The Commission agrees with IRRC that both sections served a similar function and need not be replicated.
The original § 74.5 mandated an informational filing with the Department of State's Corporation Bureau and determined the effect of a successor entity on a filing. The revised § 74.4 imposes no mandatory filing obligations on a filing party. Instead, the Commission will forward a copy of a filing under this chapter to the Secretary of State for informational purposes. The Commission agrees with the comments that another mandated filing by a filing party could undercut the purpose of Chapter 28 and provoke litigation over technical compliance.
The original § 74.6 set forth the general rule and requirements for filing an intangible transition property notice and the procedures that would govern minor errors, amendments and recharacterizations. The revised § 74.5 retains most of the same requirements.
The original § 74.6(a)(5) and (7) governed the filing of public statements and identification of a filing party. The revised § 74.5(a) combines both functions in one subsection. The Commission agrees with PECO that the requirements of the original § 74.6(a)(5) and (7) are better met through a revised § 74.5(a)(5) that sets forth both requirements in one clause.
The original § 74.6(d) and (f) governed what forms had to be filed for perfection. The revised § 74.5(d) only requires the filing of Form A with the Commission. The revised § 74.5(f) only requires the filing of Form B with the Commission. The Commission agrees with the parties that the regulations should minimize any confusion between perfection under this chapter and the Uniform Commercial Code. The Commission also agrees with the parties that Form A and Form B are all that is necessary to secure the perfection sought by this chapter.
The original § 74.7 governed the filing of notices, the duration of notice, lapses in notice and the role of the filing officer under the regulation. The revised § 74.6 retains most of these functions with some modifications.
However, the original § 74.7(a) granted the filing officer the discretion to reject or otherwise return an unreasonable and insufficient filing. The revised § 74.6(a) deletes this discretionary authority. The Commission agrees with IRRC, the PEA and PECO that express statements about the authority are redundant and could lead to unnecessary litigation over when a party perfected a filing.
In addition, the original § 74.7(e)(3) required the filing officer to place perfected filings in a general docket and the Commission's qualified rate order docket. The revised § 74.6 deletes this filing obligation. The Commission agrees with the PEA, and Hugh Dougan in particular, that the perfection requirements contemplated by this chapter will require a discrete file number for every filing made under this chapter. The Commission also agrees with PECO, and E. Carolan Berkley in particular, that filings by the filing officer in the general docket and qualified rate order docket should not relate to the perfection provided under this chapter.
The original § 74.7(g) governed the fees for services performed under this chapter. The revised § 74.6 deletes this language here and in the other sections of the proposed regulations. The revised regulations combine the fee requirements in § 74.12 of the final-form regulations. The Commission agrees with the comments of the PEA and PECO that the fee provisions originally scattered throughout the proposed regulations are better consolidated in one subsection of the final-form regulation.
The original § 74.8 set forth provisions governing termination notices, filing officer duties, and fees. The revised § 74.7 retains similar provisions with the exception of minor adjustments made to correct errors and provide clarity. In addition, the revised § 74.7 deletes the language regarding fees and places it in § 74.12 of the final-form regulations. The Commission agrees with the comments on the fees provision based on our earlier discussion.
The original § 74.9 established procedures for the assignment of security interests, fees and the role of the filing officer. The revised § 74.8 retains most of these requirements with the exception of minor adjustments made to correct errors and provide clarity. In addition, the original fee provisions set forth in § 74.8(b) and (d) have been deleted and moved to § 74.12 of the final-form regulations. The Commission agrees with the parties on the fees provision based on our earlier discussion.
The original § 74.10 governed release or retransfers, filing fees and the duties of the filing officer. The revised § 74.9 retains the purpose of § 74.10. However, the inadvertent juxtaposition of release and retransfer is corrected in the revised § 74.9 consistent with the comments of IRRC, the PEA and PECO. In addition, the original § 74.10(a) language regarding the requirements for action under this subchapter have been broken out in a revised § 74.9(b) for clarity. Finally, the original § 74.10(b) language regarding fees was deleted and moved to § 74.12 consistent with our earlier discussion.
The original § 74.11 governed the procedures and fees for information requests, certificates and copies. The original § 74.11 contained a phrase dealing with a notice of a Federal tax lien. The revised § 74.10 deletes this phrase. The Commission agrees with the comments from the PEA and PECO that the phrase is redundant, unnecessary and handled elsewhere. The original § 74.11(b) language regarding fees was deleted in the revised § 74.10 consistent with our earlier discussion.
The original § 74.12 governed record retention, admissibility and filing officer requirements. The revised § 74.11 contains similar language with the exception of minor adjustments made to correct errors and provide clarity.
The original § 74.13 governed fees and the filing of notice changes. The revised § 74.12 contains similar language, with the exception of minor adjustments made to correct errors and provide greater clarity, and provides one all-encompassing discussion of the applicable fees. The Commission agrees with those comments consistent with our earlier discussion.
The original § 74.14 governed the duties and obligations of the Forms Officer. The original § 74.14 language regarding UCC Form-1 and UCC Form-3, however, has been deleted consistent with our discussion.
The revised § 74.14 allows a permissive filing by the Commission with the Department of State for a filing made under this chapter. The Commission agrees with the parties that a mandatory filing by a filing party is not necessary and it also agrees with the Department of State that an informational filing is in the public interest. The Commission believes this permissive filing strikes a balance between the PECO and PEA opposition to mandatory filings and the Department of State's concern with public access and information about perfection under this chapter.
The filing fees for the perfection of security interests under the act are set forth in § 1.43(a) (relating to schedule of fees payable to the Commission). The Commission has significantly reduced the fees established in the final-form regulations. The Commission takes this action in light of the comments from the PEA and PECO that the charges were excessive in light of the benefits conferred. The Commission accepts, for the time being, the claim that the number and frequency of these filings will not be so extensive, complex or time-consuming that the proposed fee was appropriate.
However, the Commission disagrees with IRRC that no fee should be charged for the services rendered to these entities. That is because the perfection services rendered by the Commission under this chapter are not the type of services that have previously been provided by the Commission. The type of services that will be rendered under this chapter are closer to those traditionally rendered by the Department of State. Moreover, the entities securing perfection services from the Commission under this chapter may not be public utilities normally subject to our traditional assessment process.
Finally, the perfection services provided under this chapter may extend for long periods of time under 66 Pa.C.S. §§ 2808 and 2812 of the act. The filing fees facilitate the fair and orderly transition to competition as required by 66 Pa.C.S. § 2802(13) and are flexible as required by 66 Pa.C.S. § 2812(b)(9). The filing fees would allocate the costs of providing the services closer to the source of cost causation consistent with the general principle of economic pricing.
Consequently, the Commission concludes that the filing fees, albeit significantly reduced, are a necessary and appropriate component to the regulations established under this chapter. The Commission's fees, albeit significantly reduced, are premised on the parties' comments on the anticipated level of service. The fees are intended to cover, at least partially, the reasonable costs, including staffing and related infrastructure support and development, of providing that anticipated level of service. The Commission reserves the right to revisit this issue in the event circumstances are different from those used today to set the fees.
Accordingly, under sections 501 and 2812(d), 66 Pa.C.S. §§ 501 and 2812(d), of the Public Utility Code, and the act of July 31, 1968 (P. L. 769, No. 240) (45 P. S. §§ 1201--1208) and 71 P. S. §§ 745.1--745.15, the Commission adopts the regulations, following as Annex A of this order as final-form regulations; Therefore,
It Is Ordered that,
1. The regulations of the Commission, 52 Pa. Code, are amended by amending § 1.43 and by adding §§ 74.1--74.14 and Appendices A and B to read as set forth in Annex A, with ellipses referring to the existing text of the regulations.
2. This order, together with Annex A, be published as final in the Pennsylvania Bulletin.
3. The Secretary shall submit this order and Annex A to the Office of the Attorney General for approval as to legality.
4. The Secretary shall submit a copy of this order, together with Annex A, to the Governor's Budget Office for review of fiscal impact.
5. The Secretary shall submit this Order and Annex A for formal review and comments by the designated standing committees of both Houses of the General Assembly, and for formal review and approval by IRRC.
6. The Secretary shall certify this order and Annex A and deposit them with the Legislative Reference Bureau for publication in the Pennsylvania Bulletin.
7. The Secretary shall provide a copy of this Order and Annex A for placement on the Commission's electronic Bulletin Board, the Department of State's Corporation Bureau, the Pennsylvania Electric Association, the Pennsylvania Banking Association and the Commonwealth of Pennsylvania Securities Commission.
8. This regulation shall become effective upon publication in the Pennsylvania Bulletin.
9. A copy of this Order and Annex A shall be provided to all persons that submitted comments in the rulemaking proceeding at Docket No. L-00970122, and upon all jurisdictional utilities subject to the Commission's jurisdiction, the Office of Consumer Advocate and the Office of Small Business Advocate.
10. Alternate formats of this Order and Annex A are available to persons with disabilities and may be obtained by contacting Shirley M. Leming, Regulatory Coordinator, Law Bureau, at (717) 772-4597, or toll free, through the AT&T Relay Center at 1 (800) 654-5988.
By the Commission
JAMES J. MCNULTY,
Acting Secretary(Editor's Note: For the text of the order of the Independent Regulatory Review Commission relating to this document, see 27 Pa.B. 4879 (September 20, 1997).)
Fiscal Note: Fiscal Note 57-183 remains valid for the final adoption of the subject regulations.
Annex A
TITLE 52. PUBLIC UTILITIES
PART I. PUBLIC UTILITY COMMISSION
Subpart A. GENERAL PROVISIONS
CHAPTER 1. RULES OF ADMINISTRATIVE PRACTICE AND PROCEDURE
Suhchapter E. FEES § 1.43. Schedule of fees payable to the Commission.
(a) Fees for services. The fees for services rendered by the Commission are as follows:
Description Fee (in dollars) * * * * * Initial filing of Form A for intangible transition property notice $550 Subsequent filing of notice changes in intangible transition property notice on Form B $350 Chapter 74 public information requests relating to perfection of security interests $10 plus standard per page copying costs. * * * * *
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1 Chapter 28 authorizes the issuance of Qualified Rate Orders for the recovery of qualified transition expenses of an electric utility. Recovery of those expenses can give rise to Intangible Transition Property interests perfected under these regulations.
2 The Commission staff, consisting of Pat Burkett, Shirley Leming, James McNulty, Veronica Smith and Joe Witmer, convened several meetings and telephone conferences between IRRC, the PEA, PECO, the Department of State and the Commission's Law Bureau. IRRC's participants were Fiona Wilmarth and James Smith, PEA's participants were Hugh M. Dougan of Winthrop, Stimson in New York and Dave Everard and Dick Flati; PECO's participants were E. Carolan Berkley from Ballard, Spahr in Philadelphia and Ward Smith; and the Department of State's participants were Mike Frick, Patricia Hegedus, John Henderson and Bob DaSouza. The Commission and its staff recognize that their valuable contribution helped facilitate the timely completion of these regulations in an extremely short time period notwithstanding the complex and novel challenges presented by the regulations.
3 Comments on PECO Energy (May 21, 1997), pp. 1-25; Comments of PEA (May 23, 1997), pp. 1-13; Comments of E. Carolan Berkley (June 12, June 27, June 28, 1997, and June 30, 1997); Comments of Hugh Dougan (June 12, June 26, and June 30, 1997).
4 IRRC Comments, pp. 1-6.
5 IRRC Comments, pp. 1-6.
6 Rep. William R. Lloyd comments (June 12, 1997), p. 1; OTS Comments, (May 22, 1997), pp. 1-2.
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