PROPOSED RULEMAKING

PENNSYLVANIA PUBLIC UTILITY COMMISSION

[ 52 PA. CODE CH. 62 ]

[39 Pa.B. 3461]
[Saturday, July 11, 2009]

[L-2008-2069114/57-269]

Natural Gas Distribution Companies and the Promotion of Competitive Retail Markets

   The Pennsylvania Public Utility Commission (Commission) on March 26, 2009, adopted a proposed rulemaking order which ensures that consumers of natural gas will be able to shop for gas that is marketed on a level playing field for all market participants.

Executive Summary

   The purpose of this proposed rulemaking order is to remove barriers to retail competition in the market for natural gas supplies in this Commonwealth. To facilitate the completion of our responsibility under the Natural Gas Choice and Competition Act (Competition Act), 66 Pa.C.S. §§ 2201--2212, the Commission is undertaking this rulemaking proceeding. Section 2204(g) of the Competition Act required the Commission to investigate as to whether there is ''effective competition for natural gas supply'' 5 years after passage of the Competition Act. If the Commission found there is no effective competition, the Competition Act required it to explore avenues for encouraging increased competition in the Commonwealth. Having found that there is no effective competition in the Commonwealth, the Commission is initiating three different rulemaking proceedings to encourage competition.

   This rulemaking addresses issues pertaining to natural gas distribution companies (NGDCs). It does this by requiring NGDCs to remove the effect of certain costs from base rates and to record them as if they were recovered through fuel acquisition costs so that there will be a more accurate price to compare for shoppers. Moreover, the proposed regulations require that NGDCs record and report gas supply costs on a monthly basis so as to provide consumers with more accurate price signals. Rules for programs by which NGDCs purchase the accounts receivables of electric generation suppliers are also included as are rules requiring that the release of interstate pipeline capacity held by NGDCs be nondiscriminatory and at the applicable pipeline rate. NGDCs are also given the opportunity to recover their incremental costs of implementing these rules as well as a direct recovery of the Commissions annual assessments from customers.

   The contact persons for this proposed rulemaking are Assistant Counsel Lawrence F. Barth, Law Bureau (717) 772-8579, lbarth@state.pa.us (legal) and Richard Wallace, Bureau of Audits, (717) 787-7236, riwallace@state.pa.us (technical).

Public Meeting held
March 26, 2009

Commissioners Present: James H. Cawley, Chairperson, Statement attached; Tyrone J. Christy, Vice Chairperson, Statement attached; Robert F. Powelson; Kim Pizzingrilli; Wayne E. Gardner

Natural Gas Distribution Companies and the Promotion of Competitive Retail Markets; Doc. No. L-2008-2069114

Proposed Rulemaking Order

By the Commission:

   The Competition Act was enacted by the Legislature in 1999 with the purpose of restructuring the natural gas industry to allow the retail sale of natural gas in an open market. Based upon our experience to date, we are initiating a rulemaking proceeding to adopt regulations governing the relationships between NGDCs and the Natural Gas Suppliers (NGSs) which sell, or seek to sell natural gas to end users on the NGDC distribution systems. We initiated this rulemaking to comply with the Legislature's directive, explained below, and to ensure that consumers of natural gas will be able to shop for gas that is marketed on a level playing field for all market participants.

   The Competition Act allows individual customers to choose from independent suppliers of gas which are not necessarily affiliated with the local gas utility. Additionally, the Competition Act in section 2204(g), required the Pennsylvania Public Utility Commission (Commission) to initiate a look-back appraisal of how retail competition is progressing after passage of the Competition Act. This investigation was to include participation of all interested parties so that a thorough examination of retail competition might be completed. Id.

   In October 2006, we issued our Report to the General Assembly on Pennsylvania's Retail Natural Gas Supply Market (Report to the General Assembly),¹ in which we determined that effective competition did not exist in Pennsylvania's retail natural gas market. If the Commission found that ''effective competition'' did not exist, it was to reconvene the stakeholders in the natural gas industry to ''explore avenues . . . for encouraging increased competition in this Commonwealth.'' Id. As the Report to the General Assembly noted:

Based on the factors we have adopted to consider whether ''effective competition'' exists for purposes of Section 2204(g), these findings support the ultimate conclusion that there is a lack of ''effective competition'' in Pennsylvania's retail natural gas supply market at this time.

   Report to the General Assembly at 67. We, therefore, convened the Natural Gas Stakeholders Group to explore avenues for increasing competition.

   The work and report of that stakeholders' working group is detailed in our Final Order and Action Plan² (Action Plan) issued in September 2008. We concluded that there were a number of steps which we could take to help promote the development of competition in the retail markets for natural gas supply in the Commonwealth. There were three areas in which we believed it was appropriate to commence rulemakings to adopt regulations which were consistent with the goal of nurturing a robust retail market for natural gas. Action Plan at 7.

   Today we address the first of those areas, that relating to NGDCs and their relation to the retail supply market. Action Plan at 13-23. There are five issues which address the duties, rights and obligations of NGDCs. They are set forth in Annex A and discussed immediately as follows.

1.  Reformulation of the Price to Compare

   The Price to Compare (PTC) lies at the heart of retail choice. It is the means by which consumers can judge whether the price offered by an NGS is more or less than the default service rate. We have found that there are two obstacles to market entry, originally identified by suppliers, which impede the growth of the market:

The first barrier involved the costs that are incurred in the acquisition of natural gas supply, but that were excluded from the NGDC's PTC. Because the NGDC's PTC does not include all of the costs of gas supply acquisition, the PTC may present an artificially low price, making it difficult for the NGSs to compete against the NGDCs for customers. Report to the General Assembly, p. 60.

The second barrier identified by suppliers was the quarterly adjustment of the PTC pursuant to Section 1307(f). 66 Pa.C.S. § 1307(f). This adjustment creates a lag in recognizing increased gas costs so that consumers are confused as to the actual cost of the natural gas over time, and are lulled into thinking that the PTC is an annual fixed rate. In actuality, the NGDC's PTC represents a variable price with quarterly true-ups. Report to the General Assembly, p. 61.

Action Plan at 14.

   The proposed regulation in § 62.223 is intended to remove the effect of those natural gas procurement costs now included in NGDC base rates which mask and understate the true cost of the commodity. Eventually, as NGDCs file base rate proceedings under 66 Pa.C.S. § 1308(d), these procurement costs will permanently be removed from base rates. The purpose of this regulation is to make the PTC rate reflect the same type of commodity costs which are incurred and charged to their customers by the NGSs. The more commonality between the elements of the NGDC and NGS natural gas supply costs, the easier it will be for consumers to compare prices and make choices among those offers of natural gas for sale. As much as possible that comparison should be one of apples to apples. This change should help make that so.

   Generally, purchase gas cost (PGC) expenses include the cost of the natural gas itself as well as everything spent to get the gas through the interstate pipeline system to the city gate:

[T]he terms ''natural gas costs'' and ''gas costs'' include the direct costs paid by a natural gas distribution company for the purchase and the delivery of natural gas to its system in order to supply its customers. Such costs may include costs paid under agreements to purchase natural gas from sellers; costs paid for transporting natural gas to its system; costs paid for natural gas storage service from others, including the costs of injecting and withdrawing natural gas from storage; all charges, fees, taxes and rates paid in connection with such purchases, pipeline gathering, storage and transportation; and costs paid for employing futures, options and other risk management tools. ''Natural gas'' and ''gas'' include natural gas, liquified natural gas, synthetic natural gas and any natural gas substitutes.

66 Pa.C.S. § 1307(h). However, there are elements of gas procurement expense which remain in base rates. We are not going to specify every individual cost which should be removed from base rates. Differences in operations and nomenclature would make such a task unwieldy and risk missing some costs because the specific name was not included. However, it should be obvious that this will apply to all fuel procurement-related costs. This includes, for example, operation and maintenance expense, any procurement-related investment costs, and payroll costs for employees involved in supply acquisition.

   By creating the net gas procurement adjustment tariff rider to recognize the amount of procurement costs currently in base rates and moving the impact of these costs along with the PGC costs to the PTC, there will be a more valid comparison between NGDC and NGS rates and, therefore, an accurate PTC. We believe these can be adjusted annually within the context of the section 1307(f) process. Nonetheless, we recognize that these proceedings may require more time, at least initially. Therefore, we will direct that it be filed contemporaneously with the NGDC's section 1307(f) filing, but docketed separately. The two cases may be consolidated for litigation purposes, but the 1307(f) rate, which must be implemented based upon a firm schedule, can go into effect when scheduled without waiting for the conclusion of the determination of the tariff rider.

   We shall also require NGDCs to adjust their PGC gas cost monthly, instead of quarterly. We have noted that under the present approach the NGDC gas price does not reflect actual market fluctuations which may be due to changes in weather, the seasons and other factors. Action Plan at 16. As a result, it operates as an impediment to making valid comparisons between offers from NGSs and NGDCs. For the PTC to become a meaningful price indicator, it must be adjusted on a timely basis. Monthly adjustments should accomplish this. Therefore, we will suspend and waive the requirement in 52 Pa. Code § 53.64(i)(5) that the PGC be adjusted quarterly and require that it be adjusted on a monthly basis.

   This waiver shall be effective for a period of 3 years from the date each NGDC files rates in its first proceeding under 66 Pa.C.S. § 1307(f) after this rule becomes effective. Two years after the rule becomes effective, the Commission shall conduct a review of the retail markets in order to gauge the success of the waiver. This will also allow time to take appropriate action based upon the results of that review before the waiver expires.

2.  Purchase of Receivables

   NGS commentators have stated that the use of purchase of receivables (POR) ''programs can promote efficiencies, reduce costs to consumers and reduce barriers to market entry by alternative natural gas suppliers.'' Action Plan at 17. Some Pennsylvania utilities have POR programs now.³ Moreover, we have recently adopted interim guidelines for voluntary POR programs.⁴ The guidelines were drafted to be consistent with the law and the Commission's policy to promote the use of POR programs to increase supplier participation in the retail natural gas supply market.

   We are now proposing a regulation in § 62.224 to make permanent rules for the establishment of POR programs. We have substantially adopted the interim guidelines with a few modifications. The programs appear to have worked well for those utilities that are using them now and we are aware it will be some time before these rules reach final approval. As new programs come on line through the guidelines the industry will gain new experience. If need be, we can modify these proposed rules as we find appropriate.

   Under the rules, we will require the NGDCs and NGSs to negotiate the parameters of any discount arrangements. We are not going to impose such strictures at this time. Additionally, we will allow NGDCs which agree to share their gains or losses with their customers to include losses, after an appropriate period of time, as part of their uncollectible expense when they next file a base rate case. In the Action Plan order, we recognized that POR programs can be beneficial for NGSs and their customers. Action Plan at 11-13. The efficiencies created by such programs can be helpful for NGDCs too. Moreover, we are proposing to allow NGDCs to share losses and gains from these programs with their customers. This will make the benefits of the POR programs evident to all participants.

   In a departure from the interim guidelines, we will not require NGSs participating in POR programs to use only NGDC consolidated billing services. By forcing NGSs to use the utility's billing system we forbid them to build other nonsupply value added services into the billing program. This could have the effect of stifling innovative products such as demand response, efficiency or green products. Moreover, we are not convinced that more advanced supply products can be billed through existing NGDC billing systems. If that is so, it could stifle innovative supply products.

3.  Mandatory Capacity Assignment

   We have noted in our Action Plan that it might be helpful to the development of the retail markets if the ability of NGDCs to control their capacity on interstate natural gas pipelines were not as strong. Action Plan at 18-20. We also were aware that such a change would require a change in the existing law found at 66 Pa.C.S. § 2204(d)--(f). Id. Until such a change is made, we have decided to formalize our regulations in harmony with the existing law in order to give both NGDCs and NGSs some guidance and to ensure that requirements that the release, assignment or transfer of capacity by a NGDC shall be on a nondiscriminatory basis and shall be at the applicable contract rate for such capacity. This regulation will be found in § 62.225.

4.  NGDC Costs of Competition Related Activities

   In our Action Plan, we concluded that the NGDCs ''should be able to recover reasonable costs that are prudently incurred in connection with the implementation of any changes designed to promote the development of effective competition in the retail market.'' Action Plan at 21. Such costs also include expenses associated with increasing customer participation in the market such as modifications to NGDC billing systems or increased consumer education activities. Id. We determined that we would allow NGDCs to recover these costs through a surcharge with an automatic adjustment mechanism. We are proposing such a mechanism today in § 62.226. However, we note that to the extent it helps promote competition, the surcharge for competition related activities benefits all customers and, therefore, it should be paid by all customers, shoppers and non-shoppers alike. Because of that, this surcharge should not be considered in the calculation of the price to compare.

5.  Regulatory Assessments

   We are also creating a surcharge (§ 62.227) to allow NGDCs to recover the cost of their annual regulatory assessments to fund the Commission, Office of Consumer Advocate and Office of Small Business Advocate. See, 66 Pa.C.S. § 510, 71 P. S. § 309-4 and 73 P. S. § 399.46. The surcharge would be calculated and adjusted annually. This is similar to how NGDCs recover the state taxes they pay each year. Insofar as the costs of the annual assessments have been collected in base rates in the past, we are directing that the effect of those costs be removed from base rates until such time as the NGDC again files a rate case under 66 Pa.C.S. § 1308(d).⁵

   Insofar as all customers have paid these costs in the past, all customers should continue to pay them through the new surcharge. Therefore, it is to be applied to shoppers, non-shoppers and all classes of customers alike. Because of that, this surcharge should not be considered in the calculation of the price to compare.

   As we stated in the Action Plan:

The Commission is very much aware of consumer concerns about a company's recovery of costs outside of a base rate case. However, the establishment of a surcharge with an automatic adjustment clause that allows for the timely recovery of regulatory assessments which will include costs of the Commission actions to promote and facilitate natural gas competition can be a fair and efficient means to recover costs from stakeholders.

Action Plan at 23.

   Accordingly, under section 501 of the Public Utility Code, 66 Pa.C.S. § 501, and the Commonwealth Documents Law, Act of July 31, 1968, P. L. 769, as amended, 45 P. S. §§ 1201, et seq., and regulations promulgated thereunder at 1 Pa. Code §§ 7.1--7.4, we propose to add the regulations in §§ 62.221--62.227 as noted previously and as set forth in Annex A; Therefore,

   Under section 5(a) of the Regulatory Review Act (71 P. S. § 745.5(a)), on June 26, 2009, the Commission submitted a copy of this proposed rulemaking to the Independent Regulatory Review Commission (IRRC) and the Chairpersons of the House and Senate Committees (Committees). In addition to submitting the propossed rulemaking, the Commission provided IRRC and the Committees with a copy of a detailed Regulatory Analysis Form prepared by the Commission. A copy of this material is available to the public upon request.

   Under section 5(g) of the Regulatory Review Act, if IRRC has objections to any portion of the proposed rulemaking, it will notify the Commonwealth within 30 days of the close of the public comment period. The notification shall specify the regulatory review criteria that has not been met by the portion of the proposed rulemaking to which an objection is made. The Regulatory Review Act specified detailed procedures for review, prior to final publication of the amendments, by the Commission, the General Assembly and the Governor of objections raised.

   It Is Ordered That:

   1.  The proposed rulemaking at the previous-captioned docket will consider the regulations set forth in Annex A.

   2.  The Secretary shall submit this order and Annex A to the Office of Attorney General for review as to form and legality and to the Governor's Budget Office for review of fiscal impact.

   3.  The Secretary shall submit this order and Annex A for review and comment to IRRC Review Commission and Legislative Standing Committees.

   4.  The Secretary shall certify this order and Annex A, and deposit them with the Legislative Reference Bureau to be published in the Pennsylvania Bulletin.

   5.  An original and 15 copies of any comments referencing the docket number of the proposed regulations be submitted within 45 days of publication in the Pennsylvania Bulletin to the Pennsylvania Public Utility Commission, Attn: Secretary, P. O. Box 3265, Harrisburg, PA 17105-3265.

   6.  A copy of this order and Annex A shall be served upon the Energy Association of Pennsylvania, all jurisdictional natural gas utilities, the Office of Trial Staff, the Office of Consumer Advocate and the Office of Small Business Advocate.

By the Commission

JAMES J. MCNULTY,   
Secretary

Statement of Chairperson Cawley

   The Natural Gas Choice and Competition Act, 66 Pa.C.S. §§ 2201--2212 (Competition Act), was enacted by the Legislature in 1999 with the purpose of restructuring the natural gas industry to allow the retail sale of natural gas in an open market. Based upon our experience to date, this Commission is initiating a rulemaking proceeding to adopt regulations governing the relationships between Natural Gas Distribution Companies (NGDCs) and the Natural Gas Suppliers (NGSs) which sell, or seek to sell, natural gas to end users on the NGDCs' distribution systems. This rulemaking is being initiated to comply with the Legislature's directive to ensure that consumers of natural gas will be able to shop for gas that is marketed on a level playing field for all market participants.

   As part of this rulemaking, we are advancing some relatively broad provisions with regard to capacity release. Being very broad, these regulations may not be sufficiently specific to address every alleged inequity in the allocation of upstream transportation and storage capacity and the costs of this capacity assigned to NGSs that assume the firm service obligations of their retail customers. For this reason, I strongly encourage NGSs that regard existing release capacity provisions in NGDC tariffs as a barrier to retail natural gas competition: (1) to provide specific examples of these barriers in the Pennsylvania retail market; and (2) to suggest alternative regulatory language (to that set forth in Annex A to the Commission's Order) that would resolve these barriers within the bounds of existing legislation, and that would reasonably accommodate the operational constraints of NGDCs.

JAMES H. CAWLEY,   
Chairperson

Statement of Vice Chairperson Tyrone J. Christy

   Before the Commission for consideration is the initiation of a proposed rulemaking proceeding to promulgate regulations that are designed to encourage increased natural gas supply competition among our jurisdictional Natural Gas Distribution Companies (NGDCs) and licensed Natural Gas Suppliers (NGSs). The genesis of this rulemaking is the Commission's Report to the General Assembly on Pennsylvania's Retail Natural Gas Supply Market that was released in October 2005. In that report, the Commission determined that effective competition did not exist in Pennsylvania's retail natural gas market, and reconvened the stakeholders in the natural gas industry to identify existing barriers to competition. In our SEARCH Final Order and Action Plan issued on September 11, 2008, the Commission identified several initiatives to eliminate these barriers to competition. The rulemaking before us today, which addresses five specific issues regarding the NGDCs, is the first of these pre-identified initiatives.

   I have some specific concerns with certain aspects of this proposed rulemaking that I request parties to consider addressing in their comments, which are due within 45 days of publication in the Pennsylvania Bulletin. First, with regard to the Price to Compare, the proposed rulemaking intends to remove natural gas procurement related costs from NGDC base rates and include them within the Price to Compare. The amount of these embedded gas procurement costs would be determined in individual NGDC proceedings held in conjunction with the first purchased gas cost proceeding after the regulations become final. At this time, the Commission is not attempting to identify every individual gas cost that should be removed from base rates. These costs likely will vary from NGDC to NGDC and it may be difficult to reach consensus on this issue. Also, if these costs are not avoidable and are included within the Price to Compare, then they may not be recovered by the NGDCs, potentially resulting in stranded costs. Under this scenario, consumers of the NGDCs who choose not to shop will be paying higher costs to support those customers who do choose to shop.

   Furthermore, once the amount of these costs are identified and included within the Price to Compare, the proposed regulations require NGDCs to adjust their Price to Compare on a monthly basis, instead of quarterly. The alleged purpose of the monthly adjustment requirement is that the present approach does not reflect actual market prices and does not allow for meaningful price comparisons between offers from NGSs and the NGDC Price to Compare.

   I am inclined to disagree with the proposed requirement to implement monthly NGDC pricing as I question whether it is sound public policy to make SOLR service volatile or ''ugly'' simply to encourage fixed price offers from competitive natural gas suppliers. I believe that the existing quarterly adjustment process represents a fair compromise between annual and monthly adjustments and should be retained. This allows natural gas consumers to have some period of stability in their gas costs.

   However, I have an overriding concern regarding the entire Price to Compare concept, whether it will be adjusted quarterly or monthly. Today, when natural gas customers decide to switch to an alternative supplier, many of these customers have no idea if the offered price will continue to be more attractive than the NGDC's Price to Compare. Simply providing the currently effective Price to Compare does not allow consumers to make informed decisions when considering offers from competitive suppliers. More information is necessary, especially if natural gas customers are exposed to NGS proposals which require a long term commitment. Consumers need to be provided projected natural gas price forecasts to make informed, educated choices. I request that commenters address whether the Commission should develop a monthly projection of natural gas prices for the ensuing twelve months based upon the best available market information. This information could be posted on our web site and the Commission could require each NGDC to provide this information to its customers on a regular basis. Without this type of information being readily available, consumers will be unaware if the choice they are making today will continue to be the right choice two, four or six months down the road.

   Natural gas consumers need to be informed as much as possible in order to make reasoned decisions if the competitive gas market is to succeed. In my opinion, the development of gas price forecasts will help reduce the number of cases where marketers take advantage of uninformed consumers with price offers that in reality cost consumers more than if they simply not had shopped. These gas price forecasts are readily available and should be made available to all natural gas customers.

   Another area of concern is the currently effective migration riders, which are not made easily available to consumers. Again, without the knowledge of what it will cost a customer to switch to an alternative supplier, that customer is literally gambling as to what decision to make.

   Therefore, I request that commentators address my proposal, or offer other proposals that would better educate and inform Pennsylvania consumers. Because of my disagreement with the proposed monthly adjustments, I will concur in the result only of this proceeding for the purpose of seeking comments from interested parties.

TYRONE J. CHRISTY,   
Vice Chairperson

   Fiscal Note: 57-269. No fiscal impact; (8) recommends adoption.

Annex A

TITLE 52. PUBLIC UTILITIES

PART I. PUBLIC UTILITY COMMISSION

Subpart C. FIXED SERVICE UTILITIES

CHAPTER 62. NATURAL GAS SUPPLY CUSTOMER CHOICE

Subchapter G. NATURAL GAS DISTRIBUTION COMPANIES AND COMPETITION

§ 62.221. Purpose.

   To foster a competitive retail marketplace for natural gas service to residential and small commercial customers, it is essential that consumers be able to compare the price of gas purchased from their incumbent NGDCs with that offered for sale by NGSs. This subchapter sets forth a number of regulatory changes which will provide a more level playing field between NGDCs and NGSs and, therefore, promote competition for natural gas supplies.

§ 62.222. Definitions.

   The following words and terms, when used in this subchapter, have the following meanings, unless the context clearly indicates otherwise:

   Act--66 Pa.C.S. §§ 2201--2212 (relating to Natural Gas Choice and Competition Act).

   GPC--Gas procurement charge--A mechanism by which the effect of natural gas procurement costs removed from an NGDC's base rates are recovered.

   GPRR--Gas procurement reduction rate--An equal offsetting credit to the GPC, billed to all residential and small commercial customers.

   NGDC--Natural gas distribution company--As defined in section 2202 of the act (relating to definitions).

   NGPA--Net gas procurement adjustment--A tariff rider designed to create a rate neutral adjustment to currently existing base rates and the PGC rate to develop a reasonable PTC by shifting SOLR costs related to procurement from the base rate cost of distribution to the PTC.

   NGS--Natural gas supplier--As defined in section 2202 of the act.

   Natural gas supply service--The provision of natural gas to end users as defined in § 62.72 (relating to definitions).

   PGC--Purchase gas cost--Natural gas costs which are collected, with adjustments, by NGDCs from their customers under 66 Pa.C.S. § 1307(f) (relating to sliding scale of rates; adjustments).

   POR--Purchase of receivables--Program by which an NGDC purchases the accounts receivable of NGSs.

   PTC--Price to compare--A line item that appears on a retail customer's monthly bill for SOLR service. The PTC is equal to the sum of all unbundled natural gas costs and natural gas procurement costs-related charges to a default service customer for that month of service.

   SOLR--Supplier of last resort--A supplier approved by the Commission under section 2207(a) of the act (relating to obligation to serve) to provide natural gas supply services to customers who:

   (i)  Contracted for natural gas that was not delivered.

   (ii)  Did not select an alternative NGS.

   (iii)  Are not eligible to obtain competitive natural gas supply.

   (iv)  Return to the supplier of last resort after having obtained competitive natural gas supply.

   Small business customer--As defined in § 62.72.

§ 62.223. PTC.

   (a)  An NGDC shall establish a GPC. The GPC shall be added to the cost of supply rate developed under 66 Pa.C.S. § 1307(f) (relating to sliding scale of rates; adjustments) to create a comparable PTC. The GPC shall be adjusted and reconciled annually in conjunction with the § 1307(f) process to become effective with new PGC rates.

   (b)  An NGDC shall remove all natural gas procurement costs from its base rates as part of its next filing under 66 Pa.C.S. § 1308(d) (relating to voluntary changes in rates). The expenses shall be recovered through a separate GPC surcharge. The NGDC shall include a proposed tariff rider to establish a GPC within the requirements of 66 Pa.C.S. § 1307 (relating to sliding scale of rates; adjustments).

   (c)  An NGDC, in its next purchased gas cost filing under 66 Pa.C.S. § 1307(f), shall submit a proposed tariff rider to establish a NGPA within the requirements of 66 Pa.C.S. § 1307.

   (d)  The NGPA shall be designed to create a rate neutral adjustment to currently existing base rates and the PGC rate to develop a reasonable PTC by shifting SOLR costs related to procurement from the base rate cost of distribution to the PTC.

   (e)  The proposed NGPA tariff rider shall establish a GPC on a per MCF/DTH basis to be applied to customers' bills receiving SOLR service for the recovery of gas procurement costs currently recovered through base rates, and a GPRR on a per MCF/DTH basis, as an equal offsetting credit to the GPC, billed to all residential and small commercial customers.

   (f)  The GPC and NGPA riders must identify:

   (1)  How the surcharge will be calculated.

   (2)  Which costs will be recovered through the surcharge by:

   (i)  Customer class and cost category

   (ii)  Federal Energy Regulatory Commission account number including the specific sub-accounts used to recover eligible procurement costs.

   (g)  The NGPA rider shall remain in effect until establishment of new base rates and a PGC rider following a base rate proceeding under 66 Pa.C.S. §  1308(d).

   (h)  The GPC shall be adjusted monthly.

   (i)  The GPC shall be subject to audit.

   (j)  An NGDC shall adjust its PGC monthly.

§ 62.224. POR programs.

   (a)  Program design.

   (1)  An NGDC may purchase accounts receivable from licensed NGSs which operate on the NGDC system and who wish to sell the receivables.

   (2)  An NGDC may purchase receivables associated with natural gas supply service charges and may not purchase other receivables that may be incurred by NGSs. The NGS shall certify that charges do not include receivables for any other products or services.

   (3)  An NGDC may voluntarily purchase NGS accounts receivable at a discount to recover incremental costs associated with POR program development, implementation and administration.

   (4)  When an NGDC chooses to purchase accounts receivable at a discount, it shall negotiate the discount rate with the NGS on its distribution system.

   (i)  It shall give fair notice to the NGSs of the time and place of negotiation.

   (ii)  It shall apply the same discount rate to all accounts receivable it purchases on its system.

   (iii)  It shall renegotiate the discount rate not less than once every 5 years.

   (5)  POR programs must include only receivables on residential and small business customer accounts.

   (6)  When an NGDC purchases accounts receivable from an NGS through a Commission-approved POR program and the accounts receivable are comprised only of charges for basic natural gas supply, the NGDC may terminate service to customers for failure to pay NGS supply charges.

   (7)  To ensure that an NGDC's affiliated suppliers do not receive an advantage over nonaffiliated suppliers, a POR program shall be designed and implemented in accordance with §§ 62.141 and 62.142 (relating to standards of conduct).

   (8)  An NGDC POR program shall be included in a supplier coordination tariff, as defined by Commission rules, regulations and orders, and approved by the Commission prior to implementation.

   (9)  An NGDC may include the difference between its cost of the purchased receivables and the amounts it has actually collected as part of its uncollectible expense in its next base rate case when it agrees to share with its customers the losses or gains associated with POR program collections.

   (10)  The NGDC shall track its POR program purchases and collections.

   (b)  Customer care.

   (1)  An NGS shall follow Commission regulations relating to customer service including Chapter 56 (relating to standards and billing standards), §§ 62.71--62.80 (relating to customer information disclosure) and § 62.114 (relating to standards of conduct and disclosure for licensees).

   (2)  An NGS shall respond to customer complaints regarding rate disputes in not more than 30 days consistent with §§ 56.141, 56.151 and 62.79 (relating to dispute procedures; general rule; and complaint handling process).

   (3)  An NGDC shall follow 66 Pa.C.S. Chapter 14 (relating to responsible utility customer protection) and Chapter 56 when terminating service to a customer for failure to pay NGS natural gas supply charges purchased under the POR program.

   (4)  Reconnection of service to NGS customers following termination shall be made in accordance with 66 Pa.C.S. Chapter 14 and applicable regulations in Chapter 56.

   (5)  An NGDC shall agree to inform all customers that service may be terminated for failure to pay NGS supply charges by a separate bill insert that specifically describes the policy for termination of service.

   (6)  An enrollment letter issued by an NGDC at the time of selection of the NGS must inform customers that service may be terminated for failure to pay NGS supply charges.

   (c)  Satisfaction of the security requirements for licensing. An NGS's accounts receivable may be used to satisfy in full or in part the security required for licensing as a natural gas supplier.

§ 62.225. Release, assignment or transfer of capacity.

   (a)  An NGDC holding contracts for firm storage or transportation capacity, including gas supply contracts with Commonwealth producers, or a city natural gas distribution operation, may release, assign or transfer the capacity or Commonwealth supply, in whole or in part, associated with those contracts to licensed NGSs or large commercial or industrial customers on its system.

   (1)  A release, assignment or transfer shall be made on a nondiscriminatory basis.

   (2)  A release, assignment or transfer shall be at the applicable contract rate for capacity or Pennsylvania supply and be subject to applicable contractual arrangements and tariffs.

   (3)  The amount released, assigned or transferred shall be sufficient to serve the level of the customers' requirements for which the NGDC has procured the capacity determined in accordance with the NGDC's tariff or procedures approved in its restructuring proceedings.

§ 62.226. NGDC costs of competition related activities.

   (a)  As part of its next annual filing under 66 Pa.C.S. § 1307(f) (relating to sliding scale of rates; adjustments), an NGDC may include a proposed tariff rider to establish a nonbypassable reconcilable surcharge filed within the requirements of 66 Pa.C.S. § 1307 designed to recover the reasonable and prudently incurred costs of implementing and promoting natural gas competition within this Commonwealth.

   (b)  The surcharge shall be calculated annually and adjusted to account for past over- or under-collections in conjunction with the § 1307(f) process to become effective with new PGC rates.

   (c)  The surcharge shall be recovered on a per unit basis on each unit of commodity which is sold or transported over its distribution system without regard to the customer class of the end user.

   (d)  Before instituting the surcharge, an NGDC shall remove the amounts attributable to promoting retail competition from its base rates. This may be done through a 66 Pa.C.S. § 1308 (relating to voluntary changes in rates) rate case filed at least 5 years after first seeking recovery through a 66 Pa.C.S. § 1307 nonbypassable mechanism.

   (e)  Until an NGDC which seeks a nonbypassable recovery of its costs of promoting retail competition files a base rate case under 66 Pa.C.S. § 1308(d), the NGDC shall eliminate the effect of recovery of these costs in base rates though the filing of a credit to its base rates equal to the amount in base rates. This may be established through the filing of a fully allocated cost of service study and a proposed tariff rider in the NGDC's proceeding under 66 Pa.C.S. § 1307(f) to establish a revenue neutral adjustment clause to credit base rates for the costs associated with promoting retail competition that are currently reflected in base rates and to recover fully those costs through a nonbypassable reconcilable surcharge. The credit and surcharge shall be adjusted at least annually through the 66 Pa.C.S. § 1307(f) process.

   (f)  The revenue neutral adjustment clause rider shall remain in effect until establishment of new base rates under 66 Pa.C.S. § 1308(d) which include a fully allocated cost of service study to remove these costs from base rates.

   (g)  The surcharge shall be subject to audit.

§ 62.227. Regulatory assessments.

   (a)  As part of its next annual filing under 66 Pa.C.S. § 1307(f) (relating to sliding scale of rates; adjustments), an NGDC shall include a proposed tariff rider to establish a nonbypassable reconcilable surcharge filed within the requirements of 66 Pa.C.S. § 1307 designed to recover the NGDC regulatory assessment payments made under to 66 Pa.C.S. § 510 (relating to assessment for regulatory expenses upon public utilities).

   (b)  The surcharge shall be calculated annually and include costs associated with regulatory assessments for the Commission in 66 Pa.C.S. § 510, the Office of Consumer Advocate under section 904-A.1 of The Administrative Code of 1929 (71 P. S. § 309-4.1) regarding assessment upon public utilities, disposition, appropriation and disbursement of the assessments, and the Office of Small Business Advocate under section 6 of the Small Business Advocate Act (73 P. S. § 399.46) regarding assessment upon public utilities; disposition, appropriation and disbursement of the assessments. The NGDC shall include the following in its annual filing:

   (1)  Copies of its most recent annual bills for the Commission for each assessment.

   (2)  Copies of adjusted bills or refunds received since its prior filing.

   (3)  Proof of payment of each bill.

   (c)  The surcharge shall be recovered on a per unit basis on each unit of commodity which is sold or transported over its distribution system without regard to the customer class of the end user.

   (d)  The surcharge shall be adjusted annually to account for past over- or under-collections in conjunction with the §  1307(f) process to become effective with new PGC rates.

   (e)  Before instituting the surcharge, an NGDC shall remove the amounts attributable to the regulatory assessments from its base rates. This may be done through a 66 Pa.C.S. § 1308 (relating to voluntary changes in rates) rate case filed at least 5 years after first seeking recovery through a 66 Pa.C.S. § 1307 nonbypassable mechanism.

   (f)  Until an NGDC which seeks a nonbypassable recovery of its regulatory assessments files a base rate case under 66 Pa.C.S. § 1308(d), the NGDC shall eliminate the effect of recovery of assessment payments in base rates though the filing of a credit to its base rates equal to the amount of assessment costs in base rates. This may be established through a fully allocated cost of service study and a proposed tariff rider in the NGDC's next proceeding under 66 Pa.C.S. § 1307(f) to establish a revenue neutral adjustment clause to credit base rates for the assessment costs reflected in rates and to recover fully those assessment costs through a nonbypassable reconcilable surcharge. The credit and surcharge shall be adjusted at least annually through the 66 Pa.C.S. § 1307(f) process.

   (g)  The revenue neutral adjustment clause rider shall remain in effect until establishment of new base rates under 66 Pa.C.S. § 1308(d) which include a fully allocated cost of service study to remove these costs from base rates.

   (h)  The surcharge shall be subject to audit.

[Pa.B. Doc. No. 09-1223. Filed for public inspection July 10, 2009, 9:00 a.m.]

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¹  The Report to the General Assembly was released in October 2005 at Docket No. I-00040103 and may be accessed at http://www.puc.state.pa.us/PcDocs/570097.pdf.

²  Investigation into the Natural Gas Supply Market: Report on Stakeholders' Working Group (SEARCH); Action Plan for Increasing Effective Competition in Pennsylvania's Retail Natural Gas Supply Services Market, Docket No. I-00040103F0002, Final Order and Action Plan entered September 11, 2008.

³  Columbia Gas of Pennsylvania, PECO Energy Company and Duquesne Light Company.

⁴  Establishment of Interim Guidelines for Purchase of Receivables (POR) Programs, Docket Nos. Docket No. M-2008-2068982 and I-00040103F0002, Order entered December 19, 2008.

⁵  We are making such a requirement for all costs which had been embed in base rates, but will now be collected through a surcharge mechanism as a result of this order.

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