NOTICES

Implementation of Act 155 of 2014

[45 Pa.B. 121]
[Saturday, January 3, 2015]

Public Meeting held
December 18, 2014

Commissioners Present: Robert F. Powelson, Chairperson, joint statement follows; John F. Coleman, Jr., Vice Chairperson; James H. Cawley, joint statement follows; Pamela A. Witmer; Gladys M. Brown

Implementation of Act 155 of 2014; M-2014-2448825

Tentative Implementation Order

By the Commission:

 On October 22, 2014, Governor Corbett signed into law Act 155 of 2014 (Act 155), which amends Chapters 5, 14, 22 and 28 of Title 66 of the Pennsylvania Consolidated Statutes (Public Utility Code). In particular, Act 155 amends Chapters 22 and 28 of the Public Utility Code to allow the Pennsylvania Public Utility Commission (Commission) to establish annual fees to fund the Commission's oversight of Natural Gas Suppliers (NGSs) and Electric Generation Suppliers (EGSs). Act 155 also amends Chapter 5 of the Public Utility Code to allow the Commission to include the intrastate operating revenues of licensed entities in determining its budget cap and to exclude, from the budget cap, funds received from the federal government and other sources to perform functions unrelated to our regulation of public utilities and licensed entities.

 This Tentative Implementation Order will: (1) propose a methodology by which the Commission will establish annual fees related to the reasonable costs incurred by the Commission for its oversight of NGS and EGS firms pursuant to the Public Utility Code, and (2) explain the adjustments to be made to the Commission's assessment calculation to account for the fees collected by the Commission pursuant to the Federal Unified Carrier Registration (UCR) Act.

Assessment of NGSs and EGSs

 Act 155 amends Chapters 22 and 28 of the Public Utility Code to allow the Commission to establish annual fees to fund the Commission's oversight of NGSs and EGSs. Specifically, Act 155 adds Section 2208(h), which provides that ''the commission may establish, by order or rule, on a reasonable costs basis, fees to be charged for annual activities related to the oversight of natural gas suppliers.'' 66 Pa.C.S. § 2208(h). Similarly, Act 155 adds Section 2809(g), which provides that ''the commission may establish, by order or rule, on a reasonable costs basis, fees to be charged for annual activities related to the oversight of electric generation suppliers.'' 66 Pa.C.S. § 2809(g).

 A. Current Cost Allocation and Assessment Methodology for Public Utilities

 The methodology for allocating costs and determining the assessment for public utilities is described in 66 Pa.C.S. § 510(b). The intent and purpose of Section 510 is to determine each public utility's ''reasonable share'' of the costs incurred by the Commission in administering the Public Utility Code. 66 Pa.C.S. § 510(f). The Section 510 cost allocation methodology is based on accounting for both (1) the Commission's direct costs attributable to the regulation of each utility group, and (2) its indirect costs attributable to administrative and overhead costs.

 To establish direct costs, Commission employees directly log hours to a particular utility group using a cost center billing code. The Commission then uses these hours to determine its direct costs attributable to each utility group.

 To establish indirect costs, the Commission calculates its administrative and overhead costs that are not directly attributable to the regulation of utility groups. Section 510(b) then requires the Commission to allocate its indirect costs to each utility group in the proportion that each group's gross intrastate operating revenues for that year to the gross intrastate operating revenues of all public utilities for that year.

 B. Proposed Cost Allocation and Annual Fee Methodology for NGS and EGS Firms

 New Sections 2208(h) and 2809(g) of the Public Utility Code authorize the Commission to establish annual fees for NGS and EGS firms, and read as follows:

The commission may establish, by order or rule, on a reasonable cost basis, fees to be charged for annual activities related to the oversight of natural gas suppliers. 66 Pa.C.S. § 2208(h).

The commission may establish, by order or rule, on a reasonable cost basis, fees to be charged for annual activities related to the oversight of electric generation suppliers. 66 Pa.C.S. § 2809(g).

 This statutory language neither specifies nor excludes any particular cost allocation method or fee structure. Rather, the guiding principles to be applied are that the annual fees must be computed ''on a reasonable cost basis'' and must be ''related to the oversight of [NGSs and EGSs].'' 66 Pa.C.S. §§ 2208(h) and 2809(g). In addition, we note that Sections 2208(h) and 2809(g) allow the Commission to establish the annual fees by order, which the Commission will do to allow for establishment of the annual fee for fiscal year 2015-2016.

Treatment of Direct Costs

 To implement the annual fee to be charged to NGSs and EGSs on a reasonable costs basis, the Commission proposes to base its determination of the annual fee on the direct hours of staff time that are allocated to NGS and EGS oversight activities. In the Commission's judgment, an approach that does not begin with direct hours of staff time associated with NGS and EGS oversight activities would not be ''a reasonable cost basis,'' as required by Act 155. The Commission already has specific billing cost center codes currently in use by employees for hours directly attributable to EGS and NGS activities. As the Commission currently does for other regulated entities, the Commission proposes to use these hours to determine the direct costs attributable to NGS and EGS firms.

Treatment of Indirect Costs

 In addition to direct costs, the Commission also incurs indirect costs that, based on fundamental cost accounting principles, must also be allocated to NGS and EGS oversight activities. Indirect costs typically include costs that cannot be attributable to any single or multi-industry group, but nonetheless are necessary to accomplish the Commission's regulatory duties. These indirect costs must be allocated to various industry groups in a fair and reasonable manner in order to determine the full cost of regulation for each industry group. Therefore, a decision to not account for indirect costs would understate the Commission's costs of regulatory oversight for NGS and EGS groups.

 There are at least two reasonable bases upon which to allocate the Commission's indirect costs to EGS and NGS firms to determine a reasonable cost-based annual fee. One method would be to allocate the Commission's indirect cost based on the proportion of direct hours of staff time incurred for EGS and NGS-related activities. A second basis would allocate indirect costs in proportion to EGS and NGS gross intrastate revenues.

 There may be yet other bases upon which to allocate indirect costs, but given that the General Assembly has approved using gross intrastate revenues for regulated public utilities, the Commission tentatively proposes to use this same allocation method for NGS and EGS firms. In order to implement this approach to the allocation of indirect costs, EGS and NGS firms would be required, by order, to submit their gross intrastate operating revenues for the preceding calendar year to the Commission on or before March 31 of each year, beginning on March 31, 2015.

 Accordingly, the Commission tentatively proposes to combine direct and indirect costs in this fashion to compute the total costs of regulatory oversight of EGS and NGS firms in accordance with 66 Pa.C.S. §§ 2208(h) and 2809(g).

Flat Fee vs. Flat Rate

 Once the total costs of regulatory oversight of EGS and NGS firms are computed based on direct and indirect costs, the next step is to determine the means by which the total costs are to be collected or assessed to individual EGS and NGS firms. Again, there are various approaches that may be employed. A single flat annual fee that is the same for each licensed EGS and NGS firm is possible, but is likely to be unfair to smaller firms or those just entering the market.

 Alternatively, an annual fee based on gross intrastate revenues would match the magnitude of the annual fee with the size of the enterprise. Under this approach, the assessment rate itself would be the same for each EGS and NGS firm, but the dollar amount of the annual fee would depend on the gross intrastate revenues of the firm. This is the approach taken by the General Assembly in Section 510(b) to account for public utilities that vary greatly in size, and it is the approach that we propose for EGSs and NGSs as well.¹

Annual Fee Computation

 In sum, the Commission tentatively proposes to combine direct and indirect costs to establish the NGS and EGS total costs of regulatory oversight. The annual fee for each individual NGS or EGS within these groups will be based on (1) the direct costs incurred based on employee time sheet data and (2) an allocation of indirect costs based on the proportion of the EGS' and NGS' gross intrastate operating revenues to the total gross operating revenues of all regulated entities. Further, the Commission tentatively proposes that each individual NGS or EGS will not pay a single flat fee, but rather will be charged a flat percent or assessment rate based on the entity's total gross intrastate operating revenues. The total of all EGS and NGS fees computed in this manner will be designed to equal the total reasonable cost of their regulatory oversight for the fiscal year.

 The Commission could compute the EGS and NGS annual fees separately, and then deduct those amounts from the net amount to be assessed to public utilities under Section 510, as is done to account for the estimated fees to be collected under Section 317, the balance of the Commission's appropriation not spent in the prior fiscal year, the pipeline fees to be collected under Act 127, and, as to be proposed herein, the federally-established fees to be collected under the UCR Act. See 66 Pa.C.S. § 510(a) (''The remainder so determined, herein called the total assessment, shall be allocated to, and paid by, such public utilities in the manner prescribed.'') The Commission seeks comments on this approach.

Summary

 The cost allocation methodology tentatively proposed herein for NGSs and EGSs is the same combination of direct and indirect costs used by the Commission when calculating assessments for all regulated utilities. As this is the cost methodology set forth in Section 510(b) of the Public Utility Code, the Pennsylvania General Assembly has determined that this methodology has a ''reasonable cost basis,'' as required by Act 155. Specifically, this methodology reasonably establishes direct costs attributable to this group of licensed entities based on the employee hours associated with NGS and EGS regulatory oversight. Additionally, this methodology reasonably and proportionally establishes indirect costs attributable to NGS and EGS firms by comparing NGSs' and EGSs' total gross intrastate operating revenues to those of all entities regulated by the Commission for the particular year. The resulting annual fee charged to each individual NGS and EGS is also reasonably based on the entity's gross operating revenues to avoid a ''one size fits all'' fee mechanism that would penalize small firms and new entrants to the market.

 By basing the direct and indirect costs allocation and resulting annual fee to be charged to each individual NGS or EGS on the entity's gross intrastate operating revenues, the Commission is ensuring that each entity is paying its fair share of such assessment. Entities with smaller intrastate revenues will pay less than entities with larger intrastate revenues. As such, this methodology reasonably avoids a ''flat'' or ''one size fits all'' fee being charged to individual NGSs and EGSs, which vary greatly in size and intrastate revenues.

 The Commission notes that this proposal for allocating the annual fee to each individual NGS or EGS is preliminary in nature. The Commission specifically seeks comments on alternative approaches for determining the reasonable costs of regulatory oversight, allocation of those costs, and the structure of the annual fee, including, but not limited to using a flat fee or sliding scale fee. Further, given that the Commission has only recently been given the authority to allocate costs to NGSs and EGSs, we will also consider comments on the institution of an interim annual flat fee before adopting a permanent fee methodology.

 The Commission is also aware of the unique nature of registered NGSs and EGSs who serve as ''brokers.'' That is, NGS and EGS brokers may not necessary report gross intrastate operating revenues for the Commission to use as a basis for determining their reasonable share of the annual fee. As such, the Commission seeks comments on alternatives for assessing brokers, including, but not limited to charging brokers a flat fee or a minimum EGS/NGS fee. If comments are submitted on this subject, commenters should include what they believe to be an appropriate assessment amount and an explanation as to how that number was derived.

Treatment of Federally-Established UCR Fees

 Act 155 also amends Chapter 5 of the Public Utility Code to allow the Commission to include the intrastate operating revenues of licensed entities in determining its budget cap, and to exclude from the budget cap funds received from the federal government and funds from other sources to perform functions unrelated to our regulation of public utilities and licensed entities. The Act adds the following language to Section 510 of the Public Utility Code:

Section 510(a)—Determination of Assessment.—Before November 1 of each year, the commission shall estimate its total expenditures in the administration of this part for the fiscal year beginning July of the following year, which estimate shall not exceed three-tenths of 1% of the total gross intrastate operating revenues of the public utilities and licensed entities under its jurisdiction for the preceding calendar year, except that the estimate may exceed this amount to reflect federal funds received by the Commission and the funds received from other sources to perform functions that are unrelated to the regulation of public utilities and licensed entities.

 66 Pa.C.S. § 510(a) (emphasis added on additions made by Act 155). The language added by Act 155 regarding federal funds has implications for the proper treatment of fees collected by the Commission under the Federal Unified Carrier Registration Act for the property and passenger motor carriers subject to that program.

 The Federal Unified Carrier Registration (UCR) Act went into effect on January 1, 2007. 49 U.S.C.A. § 14501(a) et seq. Pennsylvania, through the Commission, participates in the UCR program. The UCR Act requires motor carriers (including for-hire, private and exempt motor carriers), leasing companies, freight forwarders, and brokers that operate in interstate commerce to register with the program and pay a fee. Id. The UCR Act is not applicable to businesses whose operations are wholly intrastate. Interstate carriers that also hold operating authority from the Commission and pay the UCR fee must still pay a Commission assessment on revenue earned from non-UCR operations.

 The UCR fees collected by the Commission from UCR carriers are federally established pursuant to the Federal UCR Act. The Commission is preempted by federal law from assessing UCR carriers and, instead, is authorized under the UCR Act to collect a capped UCR fee amount. 49 U.S.C. § 14504a(c); Regency Transportation Group, Ltd. v. Pa. Pub. Util. Comm'n, 44 A.3d 107, 111—112 (2012). As such, the UCR fees are similar to the other fees and amounts that are deducted from the Commission's appropriation under Section 510 in order to determine the net amount assessable to public utilities. 66 Pa.C.S. § 510(a).

 Therefore, under Act 155, it is appropriate for the UCR fees and the gross intrastate revenues associated with those fees, to be deducted under Section 510(a) of the Public Utility Code from the amount that would be normally assessable. Accordingly, the Commission proposes to remove the UCR fees collected from the total amount of the General Assessment to be allocated among the groups. Put another way, the $4,945,527 in UCR fees collected will be deducted from our approved budget of $64,571,000, i.e. ''off the top'', before that amount is divided according to directly attributable costs and gross intrastate operating revenues.

 In a similar manner, the Commission proposes to reduce the attendant gross intrastate operating revenues of the property and passenger transportation groups by those portions attributable solely to the UCR. By doing so, the Commission can avoid collecting what would amount to a second or double assessment with respect to interstate operating revenues.

Conclusion

 Act 155 amends Chapters 22 and 28 of the Public Utility Code to allow the Commission to establish annual fees to be charged for annual activities related to the Commission's oversight of NGSs and EGSs. The Commission proposes to establish such annual fee for NGSs and EGSs by using the same cost allocation methodology as it currently uses for its regulated utilities pursuant to Section 510(b) of the Public Utility Code. This proposed methodology is reasonable as it bases the direct and indirect cost allocation and resulting annual fee to be charged to each individual NGS or EGS on the entity's gross intrastate operating revenues, thereby ensuring that each entity is paying its fair share of such assessment.

 Act 155 also amends Chapter 5 of the Public Utility Code to allow the Commission to make certain adjustments to its budget to account for funds received by the federal government and other sources to perform functions unrelated to our regulation of public utilities and licensed entities. The Commission proposes to deduct UCR fees from the total budget to determine the net amount assessable to public utilities. Similarly, the Commission proposes to deduct the gross intrastate operating revenues of the UCR carriers used to allocate indirect costs since those carrier's costs have already been accounted for in the federally-established UCR fees.

 The Commission specifically notes that none of the proposals contained in this Order will increase the revenues collected by the Commission beyond what is approved by the General Assembly at 66 Pa.C.S. § 510(a). Rather, these proposals merely result in the shifting of certain costs among new and existing utility groups. If any revenues are collected by the Commission in excess of our statutorily mandated cap, they will be returned in accordance with Section 510(a) of the Public Utility Code. Therefore,

It Is Ordered That:

 1. The Commission hereby tentatively adopts the methodology for establishing annual fees related to our oversight of Natural Gas Suppliers and Electric Generation Suppliers as permitted by Act 155 of 2014 and Section 510 of the Public Utility Code.

 2. The Commission hereby tentatively adopts the methodology for the treatment of fees collected pursuant to Federal Unified Carrier Registration Act.

 3. The Commission hereby tentatively adopts the methodology for removal of the gross intrastate operating revenues associated with the Federal Unified Carrier Registration Act.

 4. A copy of this Tentative Implementation Order shall be published in the Pennsylvania Bulletin and posted on the Commission's website at www.puc.pa.gov.

 5. An original of any written comments regarding this Tentative Implementation Order be submitted within thirty (30) 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 Tentative Implementation Order be served on all Natural Gas Suppliers, Electric Generation Suppliers, RESA-Gas, RESA-Electric, the Energy Association of Pennsylvania, transportation associations, and the statutory advocates.

ROSEMARY CHIAVETTA, 
Secretary

Joint Statement of Commissioner James H. Cawley and Chairperson Robert F. Powelson

 Before us is the tentative order for the Implementation of Act 155 of 2014. One aspect of this order proposes the methods of how to establish annual fees to fund the Commission's oversight of Natural Gas Suppliers (NGSs) and Electric Generation Suppliers (EGSs). Pursuant to Act 155, the Commission may establish, by order or rule, on a reasonable cost basis, fees to be charged for annual activities related to the oversight of NGSs and EGSs.

 Under the current methodology for determining the assessment of public utilities, the Commission first determines the amount of its expenditures directly attributable to the regulation of each group of utilities furnishing the same kind of service for the preceding calendar year, and debits the amount so determined to each group.

 The Commission also must allocate indirect Commission costs. It has allocated such costs historically in proportion to each group's gross intrastate operating revenues. It has been estimated that indirect costs account for approximately 30%-40% of total Commission costs, and therefore the import of any cost allocation methodology is very material as it relates to any group.

 In the case of EGSs, there is a question as to whether or not the traditional method of allocating indirect costs is consistent with the legislative requirement that any fees imposed be consistent with the ''reasonable cost basis'' standard. EGSs' gross intrastate revenues are composed mostly of electric distribution company transmission charges, and electric generation related energy, capacity, and ancillary charges, all of which are wholesale pass-through costs for EGSs. Is it then appropriate to allocate costs to EGSs based on gross revenues that are largely related to the electric generator and electric utility industry?

 Similarly, NGSs' gross intrastate revenues are largely related to pass through of natural gas producer commodity costs and natural gas utility costs, such as upstream transportation charges, balancing charges, and the like.

 We must ensure that any fees and assessments on EGSs and NGSs are not discriminatory and do no skew competitive pricing. Utilities usually recover assessments through base rates, not in the Price to Compare (PTC) while NGSs and EGSs must recover any fees and assessments in their prices for electric and natural gas supply offers.

 Given these gross revenue realities and competitive issues, we are interested in receiving comments on other, perhaps more accurate methods of meeting the statutory requirement of establishing EGS and NGS fees on a ''reasonable cost basis,'' while ensuring competitive equity for supply services.

JAMES H. CAWLEY, 
Commissioner

ROBERT F. POWELSON, 
Chairperson

[Pa.B. Doc. No. 15-45. Filed for public inspection January 2, 2015, 9:00 a.m.]

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¹  Of the $7.2 billion in annual intrastate revenues reported by the 370 active EGSs in their annual reports to the Commission for calendar year 2013, $5.6 billion (or approximately 78) is attributable to only 18 EGSs. Similarly, of the $874.7 million in annual intrastate revenues reported by the 164 NGSs for calendar year 2013, $826.5 million (or 94) is attributable to only 15 NGSs.

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