PROPOSED RULEMAKING
PENNSYLVANIA PUBLIC UTILITY COMMISSION
[52 PA. CODE CH. 53]
[29 Pa.B. 5098] [M-00991249F0007 and L-00990143]
Natural Gas Choice and Competition The Pennsylvania Public Utility Commission (Commission) on August 12, 1999, adopted a proposed rulemaking implementing changes in requirements mandated in the Natural Gas Choice and Competition Act for natural gas distribution companies regarding recovery of natural gas costs. The contact persons are Thomas P. Maher, Fixed Utility Services, (717) 787-5704, and Lawrence F. Barth, Law Bureau, (717) 772-8579.
Executive Summary
On June 22, 1999, Governor Thomas J. Ridge signed into law 66 Pa.C.S. §§ 2201--2211 (relating to the Natural Gas Choice and Competition Act) (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 natural gas distribution company 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.
The proposed regulation establishes parameters for 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.
Through this proposed regulation, the Commission is seeking comments and reply comments from interested parties.
Public meeting held
August 12, 1999Commissioners Present: John M. Quain, Chairperson; Robert K. Bloom, Vice Chairperson; David W. Rolka; Nora Mead Brownell; Aaron Wilson, Jr.
Proposed Rulemaking Order By the Commission:
I. Introduction
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.
Previously, most consumers bought natural gas supply requirements as a bundled product from their jurisdictional public utility. The cost of this natural gas supply typically included the cost of transporting the gas through the interstate pipeline system, storing the gas if necessary, delivering the gas and the cost of the gas itself. As each natural gas distribution company's service is restructured, all customers will have the ability to purchase gas from sources independent of their local distribution company.
With regard to service for customers who continue to purchase gas from their natural gas distribution company, the act provides that each company may file a tariff which would permit it to adjust its rates on a regular basis as frequently as once a month. See 66 Pa.C.S. § 1307(f)(1)(II). Prior to the act, utilities were limited to making these adjustments no more frequently than once every quarter. Regardless of how frequently a utility chooses to adjust its rate, recovery of its costs is subject to annual reconciliation. Id.
Should a natural gas distribution company 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 which is subject to annual reconciliation. Id.
The act directs us to promulgate rules or regulations governing the adjustments discussed above as well as the fixed rate option. In that regard, we are today setting forth for comment the proposed regulations which shall apply to each natural gas distribution company offering a fixed rate option.
II. Discussion
A. General Information
We must note at the outset that the fixed rate option is not a novel concept in itself. The New York Public Service Commission (NY PSC) has been experimenting with just such an option and now has adopted it on a permanent basis. In the Matter of the Commission's Request for Gas Distribution Companies to Reduce Gas Cost Volatility and Provide for Alternative Gas Purchasing Mechanisms, Case 97-G-0600, Order (Issued August 31, 1998). The NY PSC directed utilities to offer customers a fixed price option after steep increases in the price of natural gas experienced during the winter of 1996-97. In the Matter of the Commission's Request for Gas Distribution Companies to Reduce Gas Cost Volatility and Provide for Alternative Gas Purchasing Mechanisms, Case 97-G-0600, Order (Issued June 5, 1997).
We will. . .require each LDC [local natural gas distribution company] to submit proposals for a fixed price option. . . . Our preference is for proposals that would fix all elements of cost (including commodity, capacity, and LDC margin). We anticipate that this would be coupled with an outreach and education program to be conducted by LDCs to inform the public of this new option.Id. at 2. The NY PSC also directed its natural gas utilities to review their gas procurement practices and to consider using purchase options such as indices, cash market and financial transactions in an attempt to foster price stability. Id.
With respect to the fixed price options, the NY PSC let the customer decide whether the fixed price would be in effect for the heating season or longer, but in no event would the price remain fixed for more than 1 year. In the Matter of the Commission's Request for Gas Distribution Companies to Reduce Gas Cost Volatility and Provide for Alternative Gas Purchasing Mechanisms, Case 97-G-0600, Order Resolving Petitions for Rehearing and Requiring the Filing of Fixed Price Option Tariffs (Issued October 7, 1997) at 4. Consistent with this, the NY PSC limited contracts to no more than 1 year. Id. at 5.
Moreover, the NY PSC noted that the plans submitted by the natural gas utilities differed as to what was to be fixed:
some would fix only the commodity cost of the gas while other plans would fix that element as well as additional costs, such as pipeline demand and transportation costs.Id. at 6. The NY PSC decided that each gas utility must, at a minimum fix the commodity cost of gas. Other elements of cost could also be fixed with subsequent reconciliation to account for variations in weather, pipeline rates and similar fluctuations.
The New York experience may be instructive to us, however, it need not dictate how we will require natural gas distribution companies to provide a fixed rate option. As neighboring states with a mix of urban, suburban and rural regions New York and the Commonwealth have much in common. However, we must note that the NY PSC acted on its own initiative implementing fixed price plans in response to a specific problem--upward price spikes during the winter of 1996-97. On the other hand, the General Assembly has changed preexisting Commonwealth law to permit utilities to adjust supply costs on a more frequently than quarterly basis and to require companies making such adjustments to offer a fixed rate option to their customers. This is part of a pervasive change to the regulation of natural gas distribution companies in this Commonwealth.
Based, in part, on the New York experience, we seek comments on the following proposed regulation for natural gas distribution companies which wish to adjust their rates more frequently than quarterly and, therefore, are required to offer a fixed rate option to their customers.
B. Reconciliation Mechanism
There are several reconciliation methodologies which may be considered regarding sales made under the fixed rate option. These could include the following:
1) inclusion of these sales, on an annual 12 month basis, within the current 66 Pa.C.S. § 1307(f), reconciliation process with no separate recognition given to the fixed rate option sales, revenues or costs;
2) a separate reconciliation on an annual 12 month basis, of the fixed rate option sales, revenues and costs which is clearly severed from the section 1307(f) reconciliation, and is performed in the same fashion and using the same mechanism as the section 1307(f) reconciliation;
3) a separate reconciliation on a heating season basis, of the fixed rate option sales, revenues and costs which is clearly severed from the section 1307(f) reconciliation, and is performed in the same fashion and using the same mechanism as the section 1307(f) reconciliation. The nonheating season sales would then be adjusted on a monthly basis;
4) no reconciliation of the fixed rate option sales, gas revenues and gas costs, which have been severed from the section 1307(f) reconciliation mechanism. This would mean that there would be no recovery by the natural gas distribution company of net undercollections and no refund to customers of overcollections.
We are seeking specific comments on two reconciliation methodologies. A separate fixed rate option reconciliation calculation, consistent with the Company's current section 1307(f) reconciliation mechanism could be employed for sales revenues and gas costs, pursuant to the fixed rate option. This reconciliation would clearly sever all sales, revenues and gas costs from the section 1307(f) reconciliation, and thus would prevent any cross subsidization between section 1307(f) customers and fixed rate option customers.
Alternatively, no reconciliation of the fixed rate option sales, revenues and gas costs would be required. The fixed rate option sales and costs would not be reflected in the section 1307(f) reconciliation charges. This method would be consistent with a competitive market place and also with the current practice of competitive Electric Generation Suppliers in the electric industry regarding kilowatt-hour (Kwh) sales, revenues and production costs.
We are interested in receiving comments on whether the fixed rate option should be reconcilable or if it should be severed from the section 1307(f) process.
C. Fixed Rate Option Reconciliation Period
The reconciliation period for a fixed rate option could track one of several time frames. The reconciliation period could conceivably be a calendar year or the company's Section 1307(f) rate effective period. It could also be based upon the company's selected year end.
We are seeking comments on the implementation of the reconciliation period to be utilized and whether companies which must make annual filings under section 1307(f), offering a fixed rate option should mirror their current section 1307(f) time frame. In addition, we seek comments on whether companies with gross interstate annual operating revenues less than $40 million and greater than $6 million may employ their current gas cost rate (GCR) reconciliation period regarding a fixed rate option offering.
D. Fixed Rate Option Contract Period
The act provides for the recovery of natural gas costs over a 12-month period, subject to annual reconciliation. This recovery provision does not necessarily need to coincide with the contract period of the fixed rate option offering, which may be a calendar year, the company's section 1307(f) recovery year or some other 12-month term. Additionally, the contract period may be for a 12-month period with the fixed rate option effective only for the heating months, the non-heating months billings would be based upon a rate, adjusted monthly reflecting actual sales, revenues and gas costs.
We are seeking comments on a 12-month contract term which, however need not be a calendar year. We are also seeking comment on whether a 12-month term may provide the distribution companies with a manageable process regarding customer sign-up, gas supply procurement and billing options.
E. Customer Sign-up Period
The process of when and how customers may elect to sign up for participation in a fixed rate option offering needs to be established. We propose that customers eligible for the fixed rate option should be provided a 3 month window which ends on the first day of the contract period. This may be accomplished by each company providing notice to eligible customers along with each of the three billings preceding the commencement of the contract year. Each customer who is eligible for the fixed rate option program should be provided a clear and understandable method to request participation in the program. This application should include the following information 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.
F. Applicability of Chapter 56
Chapter 56 contains the Commission's Standards and Billing Practices for Residential Utility Service. It should be noted that all provisions of Chapter 56 will be applicable to customers receiving service under any fixed rate option program. Budget bill options required by § 56.12(7) will continue to be available to residential consumers.
Accordingly, under 66 Pa.C.S. §§ 501, 1301, 1307 and 1501, 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 propose to amend our regulations by adding § 53.69, as noted above and as set forth in Annex A; Therefore,
It Is Ordered that:
1. The Secretary shall submit this order and Annex A to the Office of the Attorney General for preliminary review as to form and legality.
2. The Secretary shall submit a copy of this order, together with Annex A, to Governor's Budget Office for review of fiscal impact.
3. The Secretary shall submit this order and Annex A for review and comments by the designated standing committees of the General Assembly, and for review and comments by the Independent Regulatory Review Commission.
4. The Secretary shall certify this order and Annex A and deposit them with the Legislative Reference Bureau for publication in the Pennsylvania Bulletin.
5. Within 30 days of the date of publication of this order in the Pennsylvania Bulletin, an original and 15 copies of any comments concerning this order shall be submitted to the Office of the Secretary, Pennsylvania Public Utility Commission, P. O. Box 3265, Harrisburg, PA 17105-3265. One copy of a diskette containing comments in electronic format should also be submitted. One copy of each comment should also be submitted to the contact persons below.
6. The contact persons for this matter are Thomas P. Maher, Fixed Utility Services, (717) 787-5704, maher@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) 772-4579.
7. A copy of this order and Annex A be sent to each natural gas distribution company subject to the Commission's jurisdiction, each natural gas supplier licensed to conduct business within this Commonwealth, the Office of Consumer Advocate, the Office of Small Business Advocate and the Commission's Office of Trial Staff.
By the Commission
JAMES J. MCNULTY,
SecretaryFiscal Note: 57-207. No fiscal impact; (8) recommends adoption.
Annex A
TITLE 52. PUBLIC UTILITIES
PART I. 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 section 1307(g) of the act (relating to sliding to scale of rates; adjustments). The natural gas distribution company may offer a fixed rate option to collect these costs for either the heating season or for another time period which exceeds the heating season in duration, but in no event exceeds 12 months.
(b) Natural gas distribution companies adjusting rates for natural gas sales on a regular, less than quarterly but no 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). This reconciliation shall present the fixed rate option sales, revenues and costs, separated from the reconciliation of other retail sales. 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 section 1307(f)(3) of the act.
(c) Eligible customers may sign up for the fixed rate option during the 3-month period which ends on the 1st day of the 12-month fixed rate option contract period.
(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. 99-1667. Filed for public inspection October 1, 1999, 9:00 a.m.]
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