NOTICES
PENNSYLVANIA PUBLIC UTILITY COMMISSION
Section 1307(e) Reconciliation Statement Pilot Program
[45 Pa.B. 3446]
[Saturday, June 27, 2015]Public Meeting held
June 11, 2015Commissioners Present: Gladys M. Brown, Chairperson; John F. Coleman, Jr., Vice Chairperson; James H. Cawley; Robert F. Powelson; Pamela A. Witmer
Section 1307(e) Reconciliation Statement Pilot Program; Doc. No. M-2013-2345492
Final Implementation Order By the Commission:
On July 1, 2013, the Pennsylvania Public Utility Commission (Commission) implemented a one-year pilot program (the Pilot Program or the Pilot) intended to streamline administrative procedures governing the filing and review of Section 1307(e) reconciliation statements. See Section 1307(e) Reconciliation Statement Pilot Program, Doc. M-2013-2345492 (Order entered May 9, 2013); see 66 Pa.C.S. § 1307(e). On June 30, 2014, the Commission, upon noting the success of the Pilot, extended the Pilot Program for an additional year through July 1, 2015. Through this final order, we make permanent the Section 1307(e) Reconciliation Statement Pilot Program.
Background
Automatic Adjustment Clauses
Section 1307 of the Public Utility Code sets forth procedures governing automatic adjustment clauses. 66 Pa.C.S. § 1307. An automatic adjustment clause is a cost recovery mechanism in a tariff provision that is intended to allow a public utility to recover, outside the context of a base rate case, certain variable operating costs, such as fuel or purchased power. Historically, Commission review of automatic adjustment clauses was a four-step process. First, the Commission reviewed a Section 1307(a) automatic adjustment clause proposed by the utility, approving a final version of the clause via Public Meeting action. See 66 Pa.C.S. § 1307(a). Second, the Commission reviewed subsequent automatic adjustment clause rate change filings. Third, the Commission reviewed and held an in-person, evidentiary hearing regarding the Section 1307(e) reconciliation statements and, absent any issues, approved via Public Meeting action. Fourth, the Commission conducted audits of reconciliation statements and, upon completion, the Bureau of Audits issued a public report via either Public Meeting action or via Secretarial Letter pursuant to delegated authority. The Two-Year Pilot Program streamlined administrative procedures governing Step Three: review of Section 1307(e) reconciliation statements.
History of the Section 1307(e) Reconciliation Statement Process
Section 1307 of the Public Utility Code is a ratemaking provision that involves automatic adjustment reports and proceedings. 66 Pa.C.S. § 1307. Section 1307 was designed to provide utilities with a method to increase or decrease rates to reflect changes in specific costs in an efficient manner without the extensive filing requirements and review process of a traditional base rate case.1 The specifics of a utility's automatic adjustment clause, such as the date of the reconciliation period, are contained in the utility's tariff. Section 1307(e)(1) requires public utilities using an automatic adjustment clause to annually file a statement showing revenues received and expenses incurred pursuant to the automatic adjustment clause within 30 days following the end of the 12-month period specified in the tariff. 66 Pa.C.S. § 1307(e)(1). The Code requires the Commission to ''hold a public hearing'' within 60 days of the filing of the reconciliation statement. 66 Pa.C.S. § 1307(e)(2). Within 60 days of that hearing, the Commission is required to issue an order directing refunds of over-collections to the utility's patrons or recovery of under-collections from the utility's patrons. Section 1307(e)(3). In actuality, these orders did not direct refunds or recovery in the vast majority of cases because the refund or recoupment of the over/under collection amounts in reconciliations had already been provided for as part of the automatic adjustment clause rate change filings that occur outside the Section 1307(e) reconciliation process. Thus, absent any issues raised pertaining to the utility's use of the automatic adjustment clause, those orders regarding the reconciliation statements became mere administrative formalities providing no additional substance or necessary legal effect.
Upon receiving a reconciliation statement required by Section 1307(e)(1), the Commission assigns the matter to the Bureau of Audits (Audits) to review the statement and verify mathematical accuracy and compliance with the tariff. Audits prepared a hearing exhibit and summary of the filing for the Bureau of Investigation and Enforcement (I&E). I&E then filed a notice of appearance in the Office of Administrative Law Judge (OALJ) proceeding. Parties could object to and challenge the reconciliation statement in writing. OALJ scheduled and held a hearing. An I&E attorney attended, sometimes with and an Audits employee who was occasionally sworn in as a witness. A utility's attorney would also attend with a witness. Several hearings were often held consecutively on the same day. The assigned Administrative Law Judge (ALJ) admitted the reconciliation statement into record on motion of the utility or I&E. I&E offered a statement into evidence indicating that acceptance of the statement is subject to further review as to accuracy or reasonableness of the underlying transactions. The ALJ then issued a recommended decision and accepted the filing insofar as it was undisputed, noting that it is subject to further review and revision as may be necessary as a result of an audit or other proceeding. The ALJ also noted that acceptance did not constitute approval of accuracy or reasonableness of underlying transactions. Finally, the Commission adopted the recommended decision through an order at Public Meeting. Since reconciliation statements were rarely contested, the Commission decided to embark on the Section 1307(e) Pilot Program.
Procedural History of This Proceeding
In an effort to save time and resources for the Commission and interested parties, the Commission issued a Tentative Order on February 28, 2013 proposing a one-year pilot program with streamlined procedures governing the filings of Section 1307(e) reconciliation statements. See Section 1307(e) Reconciliation Statement Pilot Program, Doc. M-2013-2345492 (Tentative Order entered Feb. 28, 2013).
In its Tentative Order, the Commission proposed eliminating an evidentiary hearing, a recommended decision, and Commission Public Meeting action regarding Section 1307(e) reconciliation statements when there is no material issue of fact in dispute. When there is no material issue of fact in dispute, the Commission proposed foregoing the evidentiary hearing process and instead issuing a Secretarial Letter accepting the reconciliation statement. When there is a material issue of fact in dispute or other challenge that requires an evidentiary hearing, the Commission proposed that OALJ, after hearing and briefing, issue an initial decision rather than a recommended decision. If no exceptions are filed and no Commission review is requested, the initial decision would become final by operation of law. This would eliminate the need for the Commission to act at a subsequent Public Meeting.
The Energy of Association of Pennsylvania (EAP) filed comments in response to the February 28, 2013 Tentative Order, concerned that the statutory language in the Public Utility Code may require a traditional, in-person hearing for the review of all 1307(e) reconciliation statements. See 66 Pa.C.S. § 1307(e)(2)—(3). Therefore, EAP suggested a statutory amendment would be the ideal course of action. The OCA in comments stressed that since Section 1307(e) reconciliation statements serve an important role in setting just and reasonable rates, any pilot program intended to streamline the process should ensure that all rights remain protected in accordance with due process and the Public Utility Code.
The Commission entered an order on May 9, 2013, which directed the implementation of the Section 1307(e) Reconciliation Statement Pilot Program for a one-year pilot period, effective for statements filed on or after July 1, 2013. See Section 1307(e) Reconciliation Statement Pilot Program, Doc. M-2013-2345492 (Implementation Order entered May 9, 2013). The Commission implemented the Pilot Program, as proposed in the Tentative Order, except that the Commission would issue a recommended decision instead of an initial decision when an interested party files written objections to a Section 1307(e) reconciliation statement filing. In the May 9, 2013 order, the Commission also provided a thorough legal framework responding to the due process concerns raised by EAP and the OCA. See id. at 5-8. The Commission also clarified that the Pilot Program would encompass all non-Section 1307(f) automatic adjustment clause tariff filings, including Section 1358 Distribution System Improvement Charges. See 66 Pa.C.S. § 1358(e).
On June 30, 2014, the Commission, upon noting the success of the Pilot, extended the Pilot Program for an additional year through July 1, 2015.
Discussion
During the Two-Year Pilot Program, the Commission eliminated an evidentiary hearing, a recommended decision, and Commission Public Meeting action for Section 1307(e) reconciliation statements when there is no material issue of fact in dispute. When there was no material issue of fact in dispute, the Commission would not hold an trial-type evidentiary hearing, and instead issued a Secretarial Letter accepting the reconciliation statement as to the statement's mathematical accuracy, subject to further review and revision as may be necessary as a result of an audit or other proceeding.
If there was a material issue of fact in dispute or other challenge, the Commission would provide parties with 30 days to file objections. The OALJ would have conducted an evidentiary hearing and briefing, followed by the issuance of a recommended decision. The recommended decision would have been acted on by the Commission at a Public Meeting.
During the two year pilot program, the Commission and stakeholders saved significant financial and human resources. First, we will provide a legal framework for due process. Next, we will discuss the results and benefits of the two-year pilot program, including the costs and resources saved.
Legal Framework For Due Process
Determining the adequacy of particular due process procedures requires balancing the interests of a party in receiving certain procedural protections against the government's interest in proceeding without those protections. Pa. Coal Mining Assoc. v. Ins. Dept., 370 A.2d 685, 689, 691 (Pa. 1977) (citing Goldberg v. Kelly, 397 U.S. 254 (1970); Morrissey v. Brewer, 408 U.S. 471, 481 (1972)). The protections already provided by current procedures will be considered in determining whether due process requires more procedures. Id. at 692 (citing Boddie v. Conn., 401 U.S. 371, 378 (1971)). Notice, the most basic requirement of due process, should be reasonably calculated to inform interested parties of the pending action and to provide interested parties with an opportunity to present objections. Id. at 692-93.
In regard to hearings, the Pennsylvania Supreme Court has explained that while oral proceedings may be necessary for determinations likely to turn on witness credibility, written objections may be adequate when economic or statistical questions are at issue. Id. at 693 (citing Matthews v. Eldridge, 424 U.S. 319, 342 (1976)). If there is an absence of disputed facts and a lack of specific language in the statute requiring an oral hearing, the Commission's use of a ''paper'' hearing does not violate due process. Diamond Energy v. Pa. PUC, 653 A.2d 1360, 1367 (Pa. Cmwlth. 1995). The Commonwealth Court determined that a hearing or trial procedure is only necessary to resolve disputed questions of fact and is not required to decide questions of law, policy, or discretion. Id.; see also Painter v. Pa. Public Utility Commission, __A.3d__ , 2015 WL 2137628 (Pa. Cmwlth. May 8, 2015).
Additionally, the substance and not the form of the Commission action indicates whether the Commission has entered a final, definitive order. Dept. of Highways v. Pa. Public Utility Commission, 149 A.2d 552, 555 (Pa. Super. 1959) (determining that a letter issued by the Commission denying the reopening of a case had the effect of a law of an order); West Penn Power v. Pa. PUC, 100 A.2d 110, 113 (Pa. Super. 1953) (finding that a 'release' issued by the Commission had the same force of law as a Commission order based upon the substance of the release). Therefore, so long as a Commission Secretarial Letter orders, directs, or requires a party to do something, a Secretarial Letter will have the same equivalent force of law as a Commission Order. By reverse implication, if a Secretarial Letter does not order, direct, or require a party to do something, the Secretarial Letter will not have the force of law.
Due Process Concerns Regarding the Public Hearing Requirement in Section 1307(e)(2)
Because the Section 1307(e) reconciliation statement hearing process had become one of form with no real substance, the Commission proposed eliminating a trial-type evidentiary hearing and Public Meeting action regarding Section 1307(e) reconciliation statements when there is no material issue of fact in dispute. The Commission determined that its interest in eliminating those additional procedures is greater than proceeding with those procedures. See Pa. Coal Mining, 370 A.2d at 689, 691.
Section 1307(e) does require the Commission to ''hold a public hearing'' within 60 days of the filing of the reconciliation statement and to issue an ''order'' within 60 days of that hearing. 66 Pa.C.S. § 1307(e)(2)—(3). The EAP had expressed concern that the statute requires an oral, evidentiary trial-type hearing and the issuance of an order instead of a Secretarial Letter regardless of whether material factual issues have been raised. However, in the Commission's judgment, requiring an oral, evidentiary trial-type hearing (and the issuance of an order instead of a Secretarial Letter regardless of whether material factual issues have been raised) is an overly restrictive, formalistic, and impractical reading of Section 1307(e).2 Importantly, the Pilot Program fulfilled the basic due process requirements of providing interested parties with (1) adequate notice and (2) an opportunity to be heard and file objections.
Furthermore, the adjective ''public'' does not necessarily connote a physical, in-person presence. The Commonwealth Court has invoked the common, ordinary definition of ''public'' as ''accessible to or shared by all members of the community.'' Council of Middletown Twp. v. Benham, 496 A.2d 1293, 1296 (Pa. Cmwlth. 1985) (aff'd 523 A.2d 311 (Pa. Mar 23, 1987)). Black's Law Dictionary similarly defines ''public'' as ''open or available for all to use, share, or enjoy.'' Black's Law Dictionary (10th Ed. 2014). Therefore, as to the Section 1307(e)(2) ''public hearing'' requirement, the Commission reasonably interpreted a ''public hearing'' in Section 1307(e)(2) as an accessible, public forum that provides interested parties with an opportunity to be heard and to file objections, if desired. Indeed, it would be an unreasonable interpretation of Section 1307(e) to require an in-person, oral hearing when no factual issues or even objections have been raised regarding the reconciliation statement, after adequate notice has been provided to all interested parties.
During the Pilot Program, the Commission required a public utility to file the reconciliation statement with the Commission and serve the OCA, the Office of Small Business Advocate, and I&E. The Commission publicized the filing online at the Commission's web site. Interested parties had 30 days to file objections. Therefore, public notice was reasonably calculated to inform interested parties of the filing and provided interested parties with an opportunity to present written objections. See Pa. Coal Mining, 370 A.2d at 692-693.
Here, written objections were sufficient since only arithmetic computations would have potentially been at issue and not matters of witness credibility. See Pa. Coal Mining, 370 A.2d at 693. As in Diamond Energy, the Commission does not violate due process by holding a ''paper'' or electronic hearing since an oral, trial-type hearing is only necessary to resolve disputed questions of fact. 653 A.2d at 1367. Therefore, the Commission's procedures in the Pilot Program satisfied legal due process requirements.3
Resource Benefits of the Two-Year Pilot Program
During the two year pilot program, the Commission and stakeholders saved significant financial and human resources by foregoing Section 1307(e) reconciliation statement hearings.
Since the inception of the 1307(e) Pilot Program in July 2013 through May 2015, the Commission's Bureau of Audits processed 190 Section 1307(e) reconciliation statements. No complaints or other objections were filed against any of the statements as to any material factual issues. Moreover, the Commission has not received any negative comments, problems, or concerns from the utilities or interested parties concerning the lack of a formal, in-person hearing process to address Section 1307(e) statements. The Commission believes that the 1307(e) Pilot Program is working well and should be made permanent, as it streamlines the process and reduces the efforts needed and resources expended by the Office of Administrative Law Judge, the Bureau of Investigation & Enforcement, the Secretary's Bureau, and the attorneys and witnesses of the utilities.
The Bureau of Audits has saved resources, as Audits no longer needs to assign a staff auditor to work with I&E to serve as a witness (as necessary), prepare a hearing exhibit, and attend a formal hearing. These savings have been partially offset by Audits' new responsibility to prepare, for service by the Secretary's Bureau, a Secretarial Letter accepting the 1307(e) statement subject to further review and revision as may be found necessary as the result of a subsequent Commission audit or some other proceeding. However, this saves time for the Secretary's Bureau. The Bureau of Investigation of Enforcement no longer needs to send an attorney to work with a witness to prepare an exhibit and attend a formal hearing. The Secretary's Bureau has also saved mailing and postage costs by not having to serve recommended decisions.
The Office of Administrative Law Judge has saved substantial resources by not having to process, schedule, coordinate, and hold Section 1307(e) reconciliation statement hearings. In 2012, the Office of Administrative Law Judge was responsible for conducting approximately 82 Section 1307(e) hearings. The Office strove to schedule multiple hearings on one day, but sometimes only one hearing could be scheduled on a particular day. The average hearing lasted 15 minutes, consisting of a ten page transcript. Commission employees at a hearing included the presiding administrative law judge, an I&E attorney, and I&E's technical witness from the Bureau of Audits. Usually, an expert witness would also be present with the utility's attorney. A court reporter, who transcribes the oral hearing, charged an appearance fee of $45 for one of the last held hearings in 2013. The minimum additional charge was $70, even if the transcript only came out to $25 at a rate of $2.50 per page. If multiple hearings were held on one day, an additional appearance fee would not be replicated, but the $70 minimum charge would be replicated. Under an estimate that the Office of Administrative Law Judge incurred $90 on average in fees per Section 1307(e) hearing for 82 hearings, then approximately $7,380 was incurred per year to hold 1307(e) hearings. The Office also saved postage costs by not having to mail hearing notices and pre-hearing orders. That $7,380 also does not include a monetary estimate of apportioned salaries and rates of Commission employees who expended their time and resources, during, before, and after a hearing on tasks such as case processing, case presiding, decision drafting, and decision review.
Notably, today the Commission no longer has to utilize its employees to execute a rather formalistic, non-substantive function; rather, the Commission can utilize its employees to tend to substantive matters involving actual disputes and issues. Likewise, utilities may reallocate their resources elsewhere and save money on attorney and witness fees. While difficult to monetize the precise value of costs saved due to variables in hours expended at various hourly rates, a rough, conservative estimate indicates that Commission staff expended roughly 30 hours per hearing for 82 hearings in 2012, resulting in an approximate value of $80,000 annually in employee wages. In the 2014-2015 fiscal year the Commission utilized a Labor, Tax, and Benefit Load Factor of 60.07%, which accounts for personnel costs beyond payroll.4 Therefore, processing, preparing, and holding Section 1307(e) hearings and subsequently issuing recommended decisions likely cost the Commission, in terms of human resources and other expenses, at least $135,000—$140,000 annually.
Conclusion
Consistent with the above discussion, we will move forward and permanently implement the Section 1307(e) Reconciliation Statement Pilot Program. The Commission will no longer require a trial-type evidentiary hearing, a recommended decision, and Commission Public Meeting action regarding Section 1307(e) reconciliation statements when there is no material issue of fact in dispute. When there is no material issue of fact in dispute, the Commission will forego the trial-type evidentiary hearing process and issue a Secretarial Letter accepting the reconciliation statement as to the statement's mathematical accuracy, subject to further review and revision as may be necessary as a result of an audit or other proceeding.
When there is a material issue of fact in dispute or other challenge, the OALJ will conduct an evidentiary hearing, hear testimony, and accept briefs on the contested issues. The Commission will issue a recommended decision instead of an initial decision when an interested party has filed written objections to a Section 1307(e) reconciliation statement filing. A person or party must file a written objection within thirty (30) days to challenge a Section 1307(e) reconciliation statement. The recommended decision will then be acted on by the Commission at Public Meeting.
The Commission finds that permanently implementing the Section 1307 Reconciliation Statement Pilot Program is in the public interest; Therefore,
It Is Ordered That:
1. The respective Commission bureaus and offices permanently implement the above-noted procedures governing the filing and review of Section 1307(e) reconciliation statements as set forth in this Order.
2. A copy of this Order shall be published in the Pennsylvania Bulletin and posted on the Commission's website at www.puc.pa.gov.
3. A copy of this Order be served on the appropriate stakeholders in this matter, including all natural gas, electric, steam, water, and wastewater public utilities, the Bureau of Investigation and Enforcement, the Bureau of Audits, the Office of Administrative Law Judge, the Office of Consumer Advocate, and the Office of Small Business Advocate.
ROSEMARY CHIAVETTA,
Secretary
[Pa.B. Doc. No. 15-1222. Filed for public inspection June 26, 2015, 9:00 a.m.] _______
1 See National Fuel Gas Distribution Corp. v. Pa. Public Utility Commission, 473 A.2d 1109, 1117—1119 (Pa. Cmwlth. 1984) (describing the legislative intent behind Section 1307 of the Public Utility Code and emphasizing the Commission's power to ''[design] detailed procedures by which a utility shall translate a mandatory rate adjustment mechanism prescribed by the Commission into particular customer charges'').
2 The Rules of Statutory Construction provide that the object of all interpretation of statutes is ''to ascertain and effectuate the intention of the General Assembly.'' 1 Pa.C.S. § 1921(a). Where the words of a statute are clear and free from ambiguity, one must not look beyond the text to glean legislative intent. 1 Pa.C.S. § 1921(b); Com v. McCoy, 599 Pa. 599, 610 (2009). Importantly, we note here that, where there is ambiguity, the language should not be interpreted in a manner that would be ''absurd, impossible of execution or unreasonable.'' 1 Pa.C.S. § 1922(1).
3 The Commission is not aware of any due process concerns that arose during the two-year Section 1307(e) Reconciliation Statement Pilot Program.
4 The benefit load factor has increased in recent years from 47.90 146432n 2011-2012 to 67.90 590880n 2015-2016, primarily due to increases in healthcare costs and pension contributions. Here, we utilize the 60.07benefit load factor from 2014-2015 as a conservative estimate in case those costs would fluctuate down at some point in the future.
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