RULES AND REGULATIONS
[52 PA. CODE CH. 54]
[28 Pa.B. 3775] [L-970127]
Adjustment of Electric Distribution Company Rates for Changes in State Tax Liability The Pennsylvania Public Utility Commission (Commission) on April 23, 1998, adopted a final rulemaking to address the requirements of 66 Pa.C.S. § 2804(16) (relating to standards for restructuring of electric industry) that the Commission by regulation allow an electric distribution company (EDC) to recover changes in its State tax liability by establishing the time, manner, form and State tax liability under 66 Pa.C.S. §§ 2801--2812 (relating to Electricity Generation Customer Choice and Competition Act) (act). The contact persons are Lawrence Barth, Law Bureau (717) 772-8579 and Robert Wilson, Bureau of Fixed Utilities Services (717) 783-6162.
Executive Summary
On December 3, 1996, Governor Tom Ridge signed into law the act which is codified as Chapter 28 (relating to restructuring of electric utility industry). The act establishes standards and procedures to create direct access by retail customers to the competitive market for electricity generation while maintaining safe and reliability electric service and tax revenue neutrality to this Commonwealth. The act includes two new taxes: a use tax on electricity to complement the tax on gross receipts from retail sales of electricity, and a revenue-neutral reconciliation (RNR) allowing the Commonwealth to recoup State tax losses that may result from the restructuring of the electricity industry and the transition thereto.
The regulations address the requirement of section 2804(16) of the act that the Commission by regulation allow an electric distribution company (EDC) to recover changes in its State tax liability by establishing the time, manner, form and information content of the filings required by an EDC seeking recovery of changes in its State tax liability under the act.
Minor modifications have been made to the draft regulations adopted by the Commission on November 7, 1997, based upon comments from the Office of Consumer Advocate and the Independent Regulatory Review Commission (IRRC) regarding the effective date of EDC filings to recover changes to State tax liabilities and various other clarifications.
The Commission accepted recommended modifications and issued a final rulemaking order at its public meeting of April 23, 1998.
Regulatory Review
Under section 5(a) of the Regulatory Review Act (71 P. S. § 745.5(a)), on January 16, 1998, the Commission submitted a copy of the final rulemaking, which was published as proposed at 28 Pa.B. 490 (January 31, 1998) to IRRC and the Chairpersons of the House Committee Consumer Affairs and the Senate Committee on Consumer Protection and Professional Licensure for review and comment. Under section 5(c) of the Regulatory Review Act, 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.
Under section 5.1(d) of the Regulatory Review Act (71 P. S. § 745.5a(d)), these final-form regulations were deemed approved by the House and Senate Committees on June 8, 1998, and were approved by IRRC on June 18, 1998, in accordance with section 5.1(e) of the Regulatory Review Act.
Public Meeting held
April 23, 1998Commissioners Present: John M. Quain, Chairperson; Robert K. Bloom, Vice Chairperson; John Hanger; David W. Rolka; Nora Mead Brownell
Final Rulemaking Order By the Commission:
By Order entered November 7, 1997, the Commission initiated a rulemaking at Docket No. L-00970127 to adopt regulations governing the adjustment of EDC rates for changes in State tax liability. The regulations, which are required by 66 Pa.C.S. 2804(16), were undertaken by the Commission to implement the act. The act establishes standards and procedures to create direct access by retail customers to the competitive market for electricity generation while maintaining tax revenue neutrality to the Commonwealth.
Recognizing that restructuring the electric industry would affect the State taxes associated with the production, delivery and sale of electricity in this Commonwealth, the General Assembly enacted a use tax on electricity in addition to the tax on gross receipts from retail sales of electric energy. 66 Pa.C.S. §§ 2806(g)(3)(iii) and 2809(c)(2). The Legislature also established a RNR to ''recoup losses that may result from the restructuring of the electric industry and the transition thereto.'' 66 Pa.C.S. § 2810(a). The intent of the RNR is to maintain the proportional tax obligations among customer classes and individual EDCs.
Section 2804(16) of the act requires the Commission to issue regulations that allow an EDC to recover changes in its State tax liability to the extent that the resulting rate does not exceed the rate cap established, except as provided in the act. 66 Pa.C.S. § 2804(16)(i). The act also permits an EDC to seek recovery of State tax liability changes under the act when the recovery would produce rates above the rate cap.
Regulations to implement these provisions of the act were developed by the Electric Competition Tax Working Group, which includes Commission staff, the Office of Consumer Advocate (OCA), the Office of Small Business Advocate, the Department of Revenue (DOR), the Pennsylvania Electric Association and its member EDCs and electricity suppliers. The regulations establish the time, manner, form and information content of the filings required of an EDC seeking recovery of changes in its State tax liability under the act.
Specifically, § 54.93 (relating to manner of filing) requires proposed rate changes under Chapter 54 (relating to adjustment of electric generation customer choice) to comply with the existing Commission regulations at § 53.51(c) and (d) (relating to perfection of tariffs or tariff supplements and service of proposed rate changes).
Section 54.94 (relating to recovery of changes in State tax liability) sets forth the information that must be provided when an EDC seeks recovery of changes in its State tax liability when the resulting rates do not exceed the rate cap.
Section 54.95 (relating to recovery of RNR tax liability producing rates above the rate cap) provides information and procedures that apply when an EDC seeks recovery of changes in its RNR tax liability when the resulting rates would exceed the rate cap.
Section 54.96 (relating to recovery of sections 2806(g) and 2809(c) tax liability producing rates above the rate cap) provides information and procedures that apply when an EDC seeks recovery of changes in its tax liability under 66 Pa.C.S. §§ 2806(g) and 2809(c) when the resulting rates would exceed the rate cap.
Section 54.97 (relating to State tax adjustment surcharge) provides information and procedures that apply when an EDC seeks to modify its State Tax Adjustment Surcharge (STAS) to recover new or increased taxes under the act.
Finally, § 54.98 (relating to customer notice requirements) requires proposed rate increases under Chapter 54 to comply with existing Commission regulations at §§ 53.41--53.45 (relating to posting of tariffs and notices).
On November 7, 1997, the Commission adopted an opinion and order setting forth proposed regulations under Chapter 28 of the act and providing for a 30-day comment period after publication in the Pennsylvania Bulletin. The proposed regulations were published for comment at 28 Pa.B. 490 (January 31, 1998). Written comments were provided by the Pennsylvania Electric Association (PEA), Pennsylvania Power and Light Company (PP&L), UGI Utilities, Inc.--Electric Division (UGI) and the OCA. Following public comment, the Independent Regulatory Review Commission (IRRC) submitted written comments.
Discussion
The PEA, PP&L and UGI comments supported the regulation and recommended that it be approved as drafted. The OCA and IRRC had several recommendations to improve the clarity of the regulation and facilitate the review of related filings.
In § 54.94(b)(2), the OCA sought a fixed date of 60 days after filing for an effective date, rather than 30 days after the perfection of the filing. The OCA states that tying aneffective date to the perfection of the filing is too indefinite and that this kind of tax filing should be effective in much the same fashion as the revenue-neutral reconciliation under the statute. See 66 Pa.C.S. § 2804(16). We agree, and have modified § 54.94 to require an effective date that is 60 days after the filing date. This modification is also made to § 54.96.
The OCA also points out, with respect to § 54.94(b)(2), that an EDC would be allowed to recover tax payments under sections 2806(g) and 2809(c) of the act from ratepayers without first seeking recovery from the defaulting electric generation supplier.
We will clarify that recovery from EDC ratepayers through the provisions of this regulation will occur only after other means are exhausted by the Department of Revenue (DOR) and the EDC, to recover the taxes owed by the EGS. The act provided that bonds from the EGS when it obtains its license would be available to cover taxes that are due. The act also gives the EDC the ability to seek payment first from the EGS and the individual ratepayer that used the electricity. The act contains a provision for tariff indemnification language and PUC license revocation as incentives for the EGS licensees to pay their taxes. It is the Commission's understanding that the DOR will explore all of the remedies available to it before it provides a written notice to the EDC that it is being assessed the unpaid taxes of the EGS. This will include attaining the funds from the bond required by the act, where the Commission has been named beneficiary, thus giving it control over those funds. Should the funds from the bond be unavailable or inadequate to pay the liability, the DOR will assess a use tax upon the EDC. See 66 Pa.C.S. § 2809(C)(2). The EDC would then be allowed to attempt to recover the use tax from the EGS or the ''appropriate party'' which used the electricity. Only upon failure to recover the use tax, would the EDC attempt to recover the taxes from its entire customer base through the provisions of the instant regulation.
IRRC raised a similar concern with § 54.94 and recommended a provision requiring the EDC to provide a statement of the reason for the proposed rate change.
We accept the OCA recommendation to require an affidavit at the time of filing, which assures that the EDC has not recovered the taxes through the tariff indemnification and that it has been assessed the tax liability by the DOR. A statement of the reason for the rate change is also a filing requirement.
IRRC provided comments with respect to § 54.95, recommending that clarifications be made in a number of areas. Based upon those recommendations, the following modifications are being made to the regulation.
Section 54.95 is reorganized to put individual directives into separate subsections with respect to type of filing, timeframes, nature of the review process and required information. We shall address the IRRC concern regarding the clarity of notification process by the DOR. In the act, the publication in the Pennsylvania Bulletin by DOR of the RNR rate change will serve as the notification to the EDC of a tax rate change, triggering the need for information from the EDC in 30 days, if it wishes to collect increased taxes from ratepayers.
The final-form regulations are also modified to clarify what is meant by the requirement for ''demonstrating the impact'' of the rate change upon customers. The demon-stration of impact is also modified in § 54.96 under the IRRC recommendation.
The OCA has recommended that § 54.96 filing requirements be modified to include an income statement for the most recent 12-month period, providing ''recent earnings data to allow the Commission to adjudicate whether the rates are just and reasonable.'' The EDCs must provide detailed quarterly earnings reports, including an income Statement and rate base calculations, under §§ 71.1--71.9. Additional monthly data to support a tax increase filing is therefore, unnecessary. No modification has been made to the final-form regulations in this regard.
IRRC has asked that § 54.97(a)(2) be modified to clarify the phrase ''Gross receipts tax rate under to the RNR.'' The draft regulation of the November 7, 1997, opinion and order did not contain this language. The language appears to have been mistakenly changed during the printing process. The correct language, as set forth in the following and in the regulation will be maintained:
(2) Adjustments to the gross receipts tax rate pursuant to the RNR.IRRC has also asked that we clarify the meaning of ''the complement of the gross receipts tax rate'' in § 54.97(a)(4). A complement is a mathematical term which means one minus. The subsection has been modified to make this clarification.
Accordingly, under sections 501, 1301 and 2804(16) of the Public Utility Code, 66 Pa.C.S. §§ 501, 1301 and 2804(16), and the Commonwealth Documents Law (45 P. S. § 1201 et seq.) and the regulations promulgated thereunder at 1 Pa. Code §§ 7.1--7.4, we adopt the regulations in §§ 54.91--54.98 as noted above and as set forth in Annex A as final-form regulations. Therefore,
It is Ordered that:
1. This order, together with Annex A, be published as final in the Pennsylvania Bulletin.
2. The Secretary shall submit this Order and Annex A to the Office of the Attorney General for approval as to legality.
3. The Secretary shall submit a copy of this Order, together with Annex A, to the Governor's Budget Office for review of fiscal impact.
4. The Secretary shall submit this Order and Annex A for formal review by the designated standing committees of both Houses of the General Assembly, and for formal review by IRRC.
5. The Secretary shall duly certify this order and Annex A and deposit them with the Legislative Reference Bureau for publication in the Pennsylvania Bulletin.
6. The Secretary shall provide a copy of this Order and Annex A for placement on the Commission's site on the World Wide Web.
7. These final-form regulations become effective upon publication in the Pennsylvania Bulletin.
8. 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-00970127, and upon all jurisdictional electric distribution utilities and licensed EGSs; the OCA and the Office of the Small Business Advocate.
9. 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 (800) 654-5988.
10. The regulations of the Commission, 52 Pa. Code Chapter 54, are amended by adding §§ 54.91--54.98 to read as set forth in Annex A.
JAMES J. MCNULTY,
Secretary(Editor's Note: For the text of the order of the Independent Regulatory Review Commission relating to this document, see 28 Pa.B. 3338 (July 11, 1998).)
Fiscal Note: Fiscal Note 57-188 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 D. ADJUSTMENT OF ELECTRIC DISTRIBUTION COMPANY RATES FOR CHANGES IN STATE TAX LIABILITY Sec.
54.91. Purpose. 54.92. Definitions. 54.93. Manner of filing. 54.94. Recovery of changes in State tax liability. 54.95. Recovery of RNR tax liability producing rates above the rate cap. 54.96. Recovery of sections 2806(g) and 2809(c) tax liability producing rates above the rate cap. 54.97. State tax adjustment surcharge. 54.98. Customer notice requirements. § 54.91. Purpose.
This subchapter implements Chapter 28 of the code (relating to Electricity Generation Customer Choice and Competition Act) governing adjustments to the rates of an EDC to reflect changes in its State tax liability. This subchapter establishes the time, manner, form and information content of the filings required by an EDC seeking recovery of changes in its State tax liability. This subchapter also establishes specialized procedures to supplement existing procedures relating to public utility rate changes. Finally, this subchapter establishes the effective dates of relevant EDC rate adjustments and the applicable customer notification requirements for these adjustments.
§ 54.92. Definitions.
The following words and terms, when used in this subchapter, have the following meanings, unless the context clearly indicates otherwise:
CTC--Competitive transition charge--The competitive transition charge as defined in section 2803 of the code (relating to definitions).
Code--The Public Utility Code, 66 Pa.C.S. §§ 101--3316.
Customer--A retail electric customer as defined in section 2803 of the code.
Department--The Department of Revenue of the Commonwealth.
EDC--Electric distribution company--An EDC as defined in section 2803 of the code.
Electric generation supplier or electricity supplier--An electric generation supplier or an electricity supplier as defined in section 2803 of the code.
ITC--Intangible transition charge--The intangible transition charge as defined in section 2812(g) of the code (relating to approval of transition bonds).
Rate cap or price cap--The limits on the allowable charges of an EDC, and the exceptions and exclusions from these limits, as prescribed by section 2804(4) of the code (relating to standards for restructuring of electric industry).
RNR--Revenue neutral reconciliation--Section 2810 of the code (relating to revenue-neutral reconciliation).
STAS--State tax adjustment surcharge--The State tax adjustment surcharge as defined in § 69.51 (relating to definitions).
Transition or stranded costs--The transition or stranded costs as defined in section 2803 of the code.
§ 54.93. Manner of filing.
Each proposed change in rates in this subchapter shall be perfected in accordance with § 53.51(c) (relating to general) and shall be served in accordance with § 53.51(d).
§ 54.94. Recovery of changes in State tax liability.
(a) The Commission will permit an EDC to recover from customers changes in its State tax liability arising from sections 2806(g), 2809(c) and 2810 of the code (relating to implementation, pilot programs and performance-based rates; requirements for electric generation suppliers; and revenue-neutral reconciliation) and §§ 69.51--69.56 (relating to inclusion of State taxes and gross receipts taxes in base rates) to the extent that the resulting rates do not exceed the rate or price cap.
(b) An EDC seeking recovery of changes in its State tax liability under this section shall provide the following information to the Commission:
(1) A description of the surcharge proposed by the EDC, and a statement of reasons for the proposed rate change.
(2) A statement that the surcharge becomes effective for service rendered beginning 60 days after the filing of the tariffs or tariff supplements.
(3) If applicable, the calculations supporting the amount of its tax liability arising from the RNR.
(4) If applicable, the amount of payments under sections 2806(g) and 2809(c) of the code for the immediately preceding 12-month period ending on June 30, plus interest accrued at 6% per year from the time of payment until the time the payments are reflected in customer rates, supported by a copy of the notification received from the Department assessing these taxes and related interest.
(5) If applicable, an affidavit which states that the EDC has not recovered the taxes through tariff indemnification tariff provisions or other means, and that the Department has assessed the taxes.
§ 54.95. Recovery of RNR tax liability producing rates above the rate cap.
(a) An EDC proposing to increase its rates above the rate cap due to the RNR shall file a single issue rate proceeding under section 1308(a) of the code (relating to voluntary changes in rates).
(b) The EDC's filing provides information which enables the Commission to determine if the filing is an accurate claim for the amount of its tax liability arising from the RNR and whether recovery of its RNR tax liability causes the resulting rates to exceed the rate cap.
(c) Within 30 days of receiving the Department's notice of the change in the applicable tax rate established by the RNR, an EDC proposing to increase its rates as described in this section shall provide the following information to the Commission:
(1) A statement that the reason for the proposed rate increase is to permit the EDC to recover that portion of its RNR tax liability that produces rates above the rate cap.
(2) A proof of revenue calculation by rate class demonstrating the impact of the proposed rate increase upon each class of customers. The EDC shall, at a minimum, show both the dollar and percentage change being proposed for each tariffed rate.
(3) A description of the surcharge for recovering the increased tax liability.
(4) A notice that the surcharge becomes effective 60 days from the date the EDC files the proposed rate increase.
§ 54.96. Recovery of sections 2806(g) and 2809(c) tax liability producing rates above the rate cap.
(a) The Commission will permit an EDC to recover, through its State Tax Adjustment Surcharge or other appropriate mechanism, changes in its State tax liability and related interest under sections 2806(g) and 2809(c) of the code (relating to implementation, pilot programs and performance-based rates; and requirements for electric generation suppliers) when that recovery produces rates above the rate cap, upon certification by affidavit that the following apply:
(1) The EDC has not recovered the taxes due pursuant to its tariff indemnification provisions.
(2) The Department has not collected the taxes due under the other means set forth in sections 2806(g)(3)(iii) and 2809(c)(2).
(b) In addition to the affidavit required under subsection (a), the EDC shall file with the Commission:
(1) A statement of the amount of payments under section 2806(g) or 2809(c) for the immediately preceding 12-month period ending on June 30, plus interest accrued at 6% per year from the time of payment until the time the payments are reflected in customer rates, supported by a copy of the notification received from the Department assessing these taxes and related interest.
(2) A proof of revenue calculation by rate class demonstrating the impact of the proposed rate increase upon each class of customers. The dollar and percentage changes shall be shown for each tariffed rate.
(3) A description of the surcharge for recovering the increased tax liability.
(4) A statement that the surcharge becomes effective for service rendered beginning 60 days after the filing of tariffs or tariff supplements.
§ 54.97. State tax adjustment surcharge.
(a) Surcharge calculation. Every EDC subjected to new or increased State taxes under sections 2806(g), 2809(c) and 2810 of the code (relating to implementation, pilot programs and performance-based rates; requirements for electric generation suppliers; and revenue-neutral reconciliation) and §§ 69.51--69.56 (relating to inclusion of State taxes and gross receipts taxes in base rates) that proposes to modify its STAS to recover these taxes shall include the following information in its surcharge calculation:
(1) The amounts paid under sections 2806(g) and 2809(c) for the immediately preceding 12-month period ending on June 30, plus interest accrued at 6% per year from the time of payment until the time the payments are reflected in customer rates. The EDC shall also provide an affidavit that it has not recovered these taxes under the other means in sections 2806(g)(3)(iii) and 2809(c)(2) of the code.
(2) Adjustments to the gross receipts tax rate pursuant to the RNR.
(3) When applicable, paragraphs (1) and (2) shall be added to any other amounts recoverable under the STAS.
(4) The total of paragraph (3) divided by a factor which is the complement of the Gross Receipts Tax (GRT) rate (1 minus the GRT rate), adjusted by the RNR to the extent that recovery is approved by the Commission under section 2804(16) of the code (relating to standards for restructuring of electric industry).
(5) The quotient of paragraph (4) divided by gross intrastate operating revenues derived from service under rates subject to the jurisdiction of the Commission for the most recently completed calendar year, exclusive of the revenues produced by the surcharge permitted by subsection (a). This quotient shall be expressed as a percentage.
(2) If the EDC increased or decreased its rates under the Commission's jurisdiction during or after the most recently completed calendar year, it shall include in its computation the appropriate adjustments to paragraphs (1)--(5), as if the increased or decreased rates had been in effect for all of that calendar year.
(b) For rate changes that require the STAS to be filed under this section, every EDC shall provide the following information to the Commission:
(1) For a change in an EDC's RNR tax liability contained in a notice from the Department, the information described in § 54.94(b)(3) (relating to recovery of changes in State tax liability).
(2) For amounts paid by an EDC under sections 2806(g) and 2809(c) of the code, the information described in § 54.94(b)(4).
(c) Every tariff or tariff supplement modifying an EDC's STAS under this section shall carry an effective date which shall be 10 days after its filing with the Commission and shall be applicable for service rendered on or after the effective date.
§ 54.98. Customer notice requirements.
(a) An EDC proposing to increase its rates under § 54.94 or § 54.96 (relating to recovery of changes in State tax liability; recovery of sections 2806(g) and 2809(c) tax liability producing rates above the rate cap) shall provide customer notice as provided in § 53.45(g) (relating to public notice of new tariffs and tariff changes).
(b) An EDC proposing to increase its rates under § 54.95 (relating to recovery of RNR tax liability producing rates above the rate cap) shall provide customer notice and follow the tariff posting procedures in §§ 53.41--53.45 (relating to posting of tariffs and notices).
[Pa.B. Doc. No. 98-1271. Filed for public inspection August 7, 1998, 9:00 a.m.]
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