RULES AND REGULATIONS
PENNSYLVANIA PUBLIC UTILITY COMMISSION
[52 PA. CODE CH. 53]
[L-00990143]
Recovery of Natural Gas Costs and the Fixed Rate Option
[30 Pa.B. 3441] The Pennsylvania Public Utility Commission (Commission) on May 11, 2000, adopted a final rulemaking implementing changes in requirements mandated in the Natural Gas Choice and Competition Act, 66 Pa.C.S. §§ 2201--2211 (act) for natural gas distribution companies (NGDC) regarding recovery of natural gas costs.
Executive Summary
On June 22, 1999, Governor Thomas J. Ridge signed into law the act. Under 66 Pa.C.S. § 1307(f)(1)(II) (relating to sliding scale of rate adjustments), a natural gas distribution company may file a tariff to establish a mechanism by which its rates for natural gas sales may be adjusted on a regular basis but no more frequently than monthly. This monthly adjustment is to reflect actual or projected changes in natural gas costs currently reflected in rates. In the event that the NGDC adjusts rates more frequently than quarterly, it shall also offer retail gas customers a fixed rate option which recovers natural gas costs over a 12-month period.
This rulemaking concerns the following: 1) the reconciliation mechanism and period; 2) the contract period and customer sign-up procedures; and 3) applicability to Chapter 56 (relating to standards and billing practices for residential utility service) regarding the Commission's standards and billing practices for residential utility service.
Regulatory Review
Under section 5(a) of the Regulatory Review Act (71 P. S. § 745.5(a)), on September 20, 1999, the Commission submitted a copy of the final-form rulemaking to the Independent Regulatory Review Commission (IRRC) and the Chairpersons of the House Committee on Consumer Affairs and the Senate Committee on Consumer Protection and Professional Licensure for review and comment.
In compliance with section 5(c) of the Regulatory Review Act, the Commission also provided IRRC and the Committees with copies of the comments received, as well as other documentation. In preparing this final-form rulemaking, the Commission has considered the 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)), this final-form rulemaking was approved by the House Committee on Consumer Affairs and was approved by the Senate Committee on Consumer Protection and Professional Licensure. Under section 5.1(e) of the Regulatory Review Act, IRRC met on June 8, 2000, and approved the final-form rulemaking.
Commissioners present: John M. Quain, Chairperson; Robert K. Bloom, Vice Chairperson; Nora Mead Brownell; Aaron Wilson, Jr.; and Terrance J. Fitzpatrick
Public meeting held
May 11, 2000
Final Rulemaking Order By the Commission:
On June 22, 1999, Governor Thomas J. Ridge signed into law the act. Under the act, retail customers will have the ability to choose their natural gas supplier.
With regard to service for customers who continue to purchase gas from their natural gas distribution company (NGDC), the act provides that each company may file a tariff which would permit it to adjust its gas cost rates on a regular basis, as frequently as once a month. See section 1307(f)(1)(ii) of the act. Prior to the act, utilities were limited to making these adjustments no more frequently than once per quarter.
Now under the act should an NGDC choose to adjust its rates more frequently than quarterly, it must offer its retail customers a fixed rate option which recovers natural gas costs over a 12-month period subject to annual reconciliation. See section 1307(f)(1)(ii) of the act.
On August 13, 1999, the Commission entered a proposed rulemaking order, published at 29 Pa.B. 5098 (October 2, 1999) which set forth for comment proposed regulations which would apply to each NGDC offering a fixed rate option. Comments were received from the Office of Trial Staff (OTS), the Pennsylvania Gas Association (PGA), the Office of the Consumer Advocate of Pennsylvania (OCA), and the Independent Regulatory Review Commission (IRRC).
DISCUSSION
A. Application
1. Position of the Parties
IRRC and the OCA commented that the act limits the applicability of a fixed rate option to NGDCs with gross intrastate operating revenues in excess of $40 million. The OCA Comments, p.2; IRRC Comments, p.1. These parties note that section 1307(f)(1)(ii) of the act does not apply to other natural gas distribution companies that employ a gas cost rate established under section 1307(a)--(e).
2. Resolution
We agree. The language of the act places the $40 million limit on the applicability of the fixed rate option. See section 1307(f)(1) of the act. The fixed rate option regulations shall apply only to those NGDCs with gross intrastate operating annual revenues in excess of $40 million whose natural gas costs are recovered through section 1307(f) of the act.
B. § 53.69(a)
1. Position of the Parties
This section of the proposed regulations sets forth the gas costs covered by the fixed rate option and would allow the fixed rate option to apply either for the heating season or another time period which is not to exceed 12 months.
The OCA submitted that a fixed rate option for less than a 12-month period, such as the heating season, was not contemplated by the General Assembly. The OCA comments, p 4. The OCA argued that it did not believe that it was advisable at this time to implement such an option even if the statute could be interpreted to allow for it. The OCA stated that it anticipated that most competitive gas supply offers would be for a 12-month period and not vary by season. The OCA further argued that the intent of the act concerning the fixed rate option was to provide a stable option for the entire year rather than a price that fluctuated by season.
IRRC stated that the proposal to allow a fixed rate option for either the heating season or another time period appeared to be in direct conflict with the act. IRRC Comments, p.1. IRRC believes that the General Assembly did not contemplate allowing a distribution company to offer the fixed rate option for time periods shorter than 12 months. IRRC cited specific language in section 1307(f)(1)(ii) of the act that refers to the recovery of ''natural gas costs over a 12-month period.'' IRRC also cites references to 12-month periods in section 1307(f)(3) and (5) of the act.
2. Resolution
While the Commission believes that the act may be interpreted to allow the implementation of a fixed rate option covering a heating season with section 1307(f) of the act type rates covering the balance of the 12-month period, we are persuaded by the arguments of the OCA concerning the need to establish a stable option to the anticipated 12-month service offers by competitive natural gas suppliers. We will, therefore, amend this section of the proposed regulations to delete references to the heating season or another time period.
C. § 53.69(b)
1. Position of the Parties
This section of the proposed regulations sets forth the reconciliation of the fixed rate option sales, revenues and costs.
The OCA submitted that the fixed rate option should be designed to recover an annual level of gas costs, reconciled on an annual basis and should not be separately reconciled from the gas costs for non-fixed rate option customers. Moreover, customers should be permitted to select the fixed rate option or switch to the fixed rate option with minimal limitations. The OCA Comments, pp. 3-5. The OCA stated that the statutory language contemplated a fixed rate for gas supply for a 12-month period with an annual reconciliation. The OCA argued that this procedure was to give customers a more stable option than the option provided for those companies with section 1307 adjustment procedures which impose changes more frequently than once per quarter. The OCA stated that the fixed rate option was designed to provide customers with a choice as to the level of stability of the gas prices and was not intended to provide customers with a separate gas supply with a different underlying amount of costs.
The OCA believes that to utilize separate gas supply assets to serve fixed rate option customers, as compared to monthly-reconciled customers, would be a quantitatively different service offering. The OCA submits that the fixed rate option is not contract rate, but a tariff rate that should be equally available to customers as a more frequently adjusted rate and should have no limitation on its availability. Finally, the OCA criticized the ''no reconciliation'' procedure because it states a reconciliation procedure is mandated by the act and must be utilized.
IRRC stated that the Commission does not have the statutory authority to allow the fixed rate option proceedings with no reconciliation. IRRC Comments, pp.1-2; citing section 1307(f)(1)(ii) of the act.
The OTS recommended that the reconciliation period under the fixed rate option coincide with the section 1307(f) reconciliation period and that annual filings be made in connection with the annual section 1307(f) filing. OTS Comments, pp.1-3. The OTS stated that this would enable all parties to the proceeding to verify and review the companies' direct assignments and/or allocations of gas costs to the traditional section 1307(f) customers and the fixed rate option customers. The OTS supported a separate fixed rate option reconciliation calculation to prevent cross subsidization between customers. The OTS stated that the separate reconciliation implies the development of separate E-factor over/under collection for section 1307(f) and fixed rate option customers. The OTS stated that this was its preferred option in the initial year of restructuring. The OTS also stated it supported a fixed rate option without reconciliation. The OTS believes that this would be consistent with a gradual movement toward incentive regulation and would reflect a movement toward deregulating the merchant function to promote competition for natural gas commodity sales. However, the OTS believes that the ''no reconciliation'' option should be requested by the NGDCs in connection with a base rate proceeding so that any base rate implications could be addressed.
The PGA stated that reconciliation of the fixed and variable rate options separately must be rejected as unwarranted and unworkable. PGA Comments, pp.1-3. The PGA submits that section 1307(f) natural gas costs should be reconciled on a consolidated basis with no segregation of natural gas costs incurred to provide service under the fixed rate option. The PGA argued that all customers are equally exposed to price fluctuations and the effects of these fluctuations should be resolved through the section 1307(f) reconciliation process. The PGA believed that a consolidated reconciliation would entail fewer administrative burdens and would lessen the customers' incentives to migrate from fixed to variable service or vice versa depending on the relative difference between the reconciliation adjustments. Furthermore, the PGA argued that, if separate reconciliations were required, there would be a need to implement a second set of migration riders to account for the cost effects of customers switching between fixed rate and variable rate service. The PGA recommended that the Commission refrain from mandating a particular reconciliation methodology and allow the NGDCs to develop and advance specific proposals in individual section 1307(f) filings. The PGA believes that the ''no reconciliation'' concept may be worth exploring.
2. Resolution
We believe that competitive natural gas suppliers will offer customers natural gas supplies for fixed price for 12-month period without a reconciliation process similar to that employed under section 1307(f) of the act. This was the underlying reason the Commission requested comments on the ''no reconciliation'' alternative. Upon review of the parties' comments the Commission believes that it may lack sufficient jurisdiction under the act to implement a ''no reconciliation'' alternative. Therefore, the Commission shall not employ such a reconciliation option under the proposed fixed rate option regulations.
We acknowledge that separate reconciliations for fixed rate option customers and variable rate customers will add to the complexities and administrative burdens of the section 1307(f) process. However, the ability to vary natural gas charges on a monthly basis also adds to the NGDC's administrative burdens while offsetting cash working capital requirements due to undercollections of gas costs.
We are not persuaded by the arguments raised against separate reconciliations of the gas costs for fixed rate option customers as opposed to variable rate option customers. We believe that the OTS correctly notes the potential for cross subsidization. We believe that variable rate option customers would be called upon to pay unrecovered gas costs incurred by service to the fixed rate option customers. Variable rate option customers may see their gas costs fluctuate monthly. This should enable the NGDCs to match their monthly charges with their actual costs. The Commission believes that it is reasonable to assume that fixed rate option customers actual gas costs will vary more frequently from the fixed rate option charges and, therefore, the amount of unrecovered gas costs may be greater for a fixed rate option customer. Therefore, we will retain the requirement in the proposed regulation that a separate reconciliation calculation be performed for the fixed rate option service.
We do not believe that the requirement for a separate reconciliation necessitates the creation of an additional migration rider. A fixed rate option customer may be required to remain under the fixed rate option for a 12-month period. Any subsequent E-factor could be applied to the next year's fixed rate option customers. One annual E-factor would apply to all fixed rate option customers.
We recognize that requiring a fixed rate option customer to remain under this option for a 12-month period certainly limits the customer's ability to switch to the NGDC's variable rate. However, the fixed rate option customers should not be limited in their ability to switch to the services of a competitive natural gas supplier. We believe that issues of switching among services and the implementation of additional migration riders may be more appropriately addressed in the section 1307(f) proceedings which established a fixed rate option for a NGDC.
D. § 53.69(c)
1. Position of the Parties
This provision sets forth a time period during which a customer may elect to take service under a fixed rate option.
The PGA stated that if the fixed rate option is reconciled, a 3-month sign up period is feasible. PGA Comments, p.2. The PGA noted that a change in service to a fixed rate option should take effect on a meter read date so that the customer will not be billed two different rates in a single billing period. The PGA stated that, if the fixed rate option was not reconciled, then an enrollment period could not exceed 30 days because any period longer than 30 days would expose the NGDC to an unacceptable level of risk associated with potential gas cost increases.
IRRC requested that the Commission clarify this section and specified the timeframe for the enrollment in the Commission's final regulations. IRRC Comments, p.2.
2. Resolution
We are concerned that an annual enrollment period should be of sufficient length to allow consumers to make informed choices. However, the Commission realizes that the NGDCs may have some difficulty in proposing reasonable fixed price options if the enrollment periods are too long. In view of the fact that the Commission no longer considers the ''no reconciliation'' mechanism viable for a fixed rate option, the NGDCs would be exposed to a lesser level of risk. The Commission believes that to the greatest extent possible, the section 1307(f) process should be utilized for the implementation and reconciliation of a fixed rate option.
We appreciate the PGA's concerns over partial rate billings, the additional administrative costs in preparing such billings, and the inevitable customer confusion concerning the rates applicable for their service. Therefore, we will consider a fixed rate option plan, which allows the initiation of service to coincide with the customer's first meter reading following the initiation of the new annual section 1307(f) rates.
We believe that the proposed 3-month enrollment timeframe is reasonable. Customers would begin service under the fixed rate option on the first day of the individual customer's billing cycle in which the annual section 1307(f) rate becomes effective.
E. Customer Application
1. Position of the Parties
IRRC noted that section E of the August 13, 1999 Order included a list of particular items that could be included in the customer's application form for a fixed rate option. IRRC Comments, p.2. Section E, page 8, lists the following information that could be included on the application, at a minimum: 1) customer name; 2) account number; 3) address; 4) billing address, if different; 5) a clear description of the fixed rate option program, including what components of the bill will be fixed; 6) the price per unit and; 7) any other information deemed relevant to provide a clear understanding of the fixed rate option program offering. IRRC recommended that these requirements should be included in a new proposed regulation.
2. Resolution
We will decline to adopt IRRC's recommendation. The information we listed in section E of the August 13, 1999 Order was very basic information. We believe that the details of any fixed rate option program can be addressed within each NGDC's section 1307(f) proceedings. This will give all interested parties an opportunity to comment on the specific elements of each individual fixed rate option program.
Accordingly, under sections 501, 1301, 1307 and 1501 of the Public Utility Code, 66 Pa.C.S. §§ 501, 1301, 1307 and 1501, and the act of July 31, 1968 (P. L. 769, No. 240) (45 P. S. § 1201 et seq.), and the regulations promulgated thereunder in 1 Pa. Code §§ 7.1--7.4, we propose to amend our regulations by adding § 53.69, as noted and as set forth in Annex A;
Therefore,
It Is Ordered that:
(1) The regulations of the Commission, 52 Pa. Code Chapter 53, are amended by adding § 53.69 to read as set forth in Annex A.
(2) The Secretary shall submit this order and Annex A for review by the designated standing committees of the General Assembly, and for review by IRRC.
(3) The Secretary shall submit this order and Annex A to the Office of the Attorney General for review as to form and legality.
(4) The Secretary shall submit a copy of this order and Annex A to the Governor's Budget Office for review of fiscal impact.
(5) The Secretary shall certify this order and Annex A and deposit them with the Legislative Reference Bureau for publication in the Pennsylvania Bulletin. This regulation shall become effective upon final publication in the Pennsylvania Bulletin.
(6) The contact persons for this matter are Robert Bennett, Fixed Utility Services, (717) 787-5553, bennettr @puc.state.pa.us, and Lawrence F. Barth, Assistant Counsel, Law Bureau, (717) 772-8579, barth@puc.state.pa.us. 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.
JAMES J. MCNULTY,
Secretary(Editor's Note: For the text of the order of the Independent Regulatory Review Commission, relating to this document, see 30 Pa.B. 3239 (June 24, 2000).)
Fiscal Note: Fiscal Note 57-207 remains valid for the final adoption of the subject regulation.
Annex A
TITLE 52. PUBLIC UTILITIES
PART I. PENNSYLVANIA PUBLIC UTILITY COMMISSION
Subpart C. FIXED SERVICE UTILITIES
CHAPTER 53. TARIFFS FOR NONCOMMON CARRIERS
RECOVERY OF FUEL COSTS BY GAS UTILITIES § 53.69. Fixed rate option.
(a) Components of the fixed rate option shall include all gas costs as defined in 66 Pa.C.S. 1307(f) (relating to sliding to scale of rates; adjustments). The natural gas distribution company may offer a fixed rate option to collect these costs over a 12-month period.
(b) Natural gas distribution companies adjusting rates for natural gas sales on a regular, less than quarterly but not more frequent than monthly, basis shall submit a separate reconciliation calculation of the fixed rate option service, consistent with the company's response to § 53.64(i) (relating to filing requirements for natural gas distributors with gross intrastate annual operating revenues in excess of $40 million).
(1) The reconciliation shall present the fixed rate option sales, revenues and costs, separated from the reconciliation of other retail sales.
(2) The reconciliation period of fixed rate option sales shall be the same period used to reconcile the company's other retail sales as presented in compliance with 66 Pa.C.S. § 1307(f)(3).
(c) Eligible customers may sign up for the fixed rate option during the 3-month period which ends when the annual section 1307(f) rates become effective, service under the fixed rate option starts on the first day of the customer's billing cycle in which the annual section 1307(f) rates become effective.
(d) Chapter 56 (relating to standards and billing practices for residential utility service) is applicable to all fixed rate option sales to residential customers.
[Pa.B. Doc. No. 00-1160. Filed for public inspection July 7, 2000, 9:00 a.m.]
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