NOTICES

PENNSYLVANIA PUBLIC UTILITY COMMISSION

Implementation of Act 155 of 2014

[45 Pa.B. 2331]
[Saturday, May 9, 2015]

Public Meeting held
April 23, 2015

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

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

Final 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). On December 18, 2014, the Commission issued a Tentative Implementation Order (December 18th Order) which proposed 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. That Order also addressed the proposed adjustments to the Commission's assessment calculation to account for the fees collected by the Commission pursuant to the Federal Unified Carrier Registration (UCR) Act.

 This Final Implementation Order will set forth the methodology by which the Commission will establish such fees for NGSs and EGSs, as well as address the treatment of UCR fees. The precise fees for each EGS and NGS firm will be calculated and charged at the time the Commission issues its annual assessments under Section 510 of the Public Utility Code, 66 Pa.C.S. § 510.

 In response to the December 18th Order, the Commission received comments from the Retail Energy Supply Association; EQT Energy, LLC; Noble Americas Energy Solutions LLC; the Pennsylvania Independent Oil & Gas Association; WGL Energy Services, Inc.; FirstEnergy Solutions Corp.; the National Energy Marketers Association; UGI Energy Services, LLC; the Industrial Energy Consumers of Pennsylvania, Duquesne Industrial Intervenors, Met-Ed Industrial Users Group, Penelec Industrial Customer Alliance, Penn Power Users Group, Philadelphia Area Industrial Energy Users Group, PP&L Industrial Customer Alliance, and West Penn Power Industrial Intervenors (collectively, the Industrial Customers Groups); and Dominion Retail, Inc.; Shipley CHOICE, LLC, Rhoads Energy Corporation, and AMERIgreen Energy (collectively, the Natural Gas Supplier Parties). On February 23, 2015, Representative Robert W. Godshall filed a letter with Chairman Robert F. Powelson regarding the Commission's proposals set forth in the December 18th Order.¹ These comments and letter solely addressed NGS and EGS issues. No comments were filed with respect to our proposed treatment of UCR funds for assessment purposes.

NGSs and EGSs Annual Fees

 As set forth in the December 18th Order, 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) and Section 2809(g) to the Public Utility Code. These new sections 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 new 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 and each year thereafter.

Treatment of Direct Costs

 In the December 18th Order, the Commission proposed basing a portion of the annual fee to be charged to NGSs and EGSs on the direct hours of staff time that are allocated to NGS and EGS oversight activities. In the Commission's judgment, this approach is consistent with the ''reasonable cost basis'' requirement of Act 155. The Commission already has specific billing cost center codes currently in use by employees for hours directly attributable to NGS and EGS activities to determine the direct costs attributable to NGS and EGS firms.

 Many of the commentators to the December 18th Order do not oppose the Commission's allocation of direct costs to NGS and EGS firms. In its comments, the Retail Energy Supply Association (RESA) only requested that the Commission ''establish clear direction to its timekeepers to ensure that only those costs directly related to the oversight of suppliers be captured'' in the direct cost portion of the annual fee. RESA Comments at 9. The Commission has and will continue to take all reasonable measures necessary, including the establishment of time codes specific to the NGS and EGS groups, to ensure that Commission staff is appropriately capturing costs related to the oversight of suppliers in the direct cost portion of the annual fee established herein.

Treatment of Indirect Costs

 In the December 18th Order, the Commission proposed basing a portion of the annual fee to be charged to NGSs and EGSs on indirect costs incurred by the Commission. Specifically, the Commission proposed allocating indirect costs to NGSs and EGSs based on their gross intrastate operating revenues, using the methodology set forth in Section 510 of the Public Utility Code, 66 Pa.C.S. § 510.

 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. Indirect costs must be allocated to various public utility groups in accordance with the requirements of Section 510 of the Public Utility Code. Therefore, it is also appropriate to assign indirect costs to NGS and EGS firms to properly reflect the cost of regulation of these firms.

 Although indirect costs must be allocated to NGS and EGS groups to appropriately cover the cost of oversight of these industry groups, the Commission agrees with many of the parties² who commented on the December 18th Order that the Commission should not base indirect cost allocation on NGS and EGS gross intrastate operating revenues, as set forth in 66 Pa.C.S. § 510 for public utilities. The Commission recognizes that using the 66 Pa.C.S. § 510 methodology to allocate indirect costs to NGS and EGS firms results in those firms being assigned a significant portion of the Commission's total indirect costs. Indeed, using intrastate revenues to allocate indirect costs would, for NGS and EGS firms, result in an allocation of indirect costs that far exceeds the direct costs of regulation. As such, the Commission agrees with many of the commentators that indirect costs should not be allocated to NGS and EGS firms based on the traditional 66 Pa.C.S. § 510 methodology used for public utilities.

 Rather, a reasonable approach to allocating indirect costs to NGSs and EGSs is to base this allocation on the ratio of NGS/EGS costs to total Commission direct costs. In particular, the Commission will calculate these indirect costs by multiplying (a) the ratio of NGS or EGS direct costs to total Commission direct costs by (b) the total Commission indirect costs. In formula form, the calculation would read as follows:

(NGS or EGS Direct Costs/Total Commission
Direct Costs) * Total Commission Indirect Costs = NGS or EGS Indirect Costs

 To illustrate this formula, if the percentage of direct costs attributable to the EGS group (e.g. $1.4 million) in relation to the total amount of Commission direct costs (e.g. $38 million), is 3.6%, the indirect costs allocated to the EGS group will be 3.6% of the total indirect costs of the Commission. Accordingly, if the total indirect costs of the Commission are $14 million, the allocation of indirect costs to the EGS group would be $504,000 ($14 million x 0.036).

 This indirect cost methodology is designed on a ''reasonable cost basis'' and results in an allocation of indirect costs that is ''related to the oversight'' of NGSs and EGSs as this methodology specifically relates the amount of indirect costs to the reporting of direct costs by Commission staff. As staff time spent on supplier activities increases and/or decreases, the amount of indirect costs the Commission spends on staff responsibilities related to the oversight of suppliers would also logically increase and/or decrease. Therefore, this indirect cost methodology will correlate with the direct time spent by Commission staff on supplier activities, thus making this methodology compliant with the ''related to the oversight'' language of Act 155.

 As set forth in the December 18th Order, the Commission will then combine these indirect costs and direct costs attributable to NGSs and EGSs to compute the total costs of regulatory oversight of NGS and EGS groups in accordance with 66 Pa.C.S. §§ 2208(h) and 2809(g). The Commission will use this total cost allocation as a percentage to determine actual budget year costs for NGS and EGS groups. Accordingly, using the example above, the resulting total costs of $1.904 million for EGS firms ($1.4 million in direct costs plus $504,000 in indirect costs) would then be used to determine the proportion of the Commission's approved budget for the 2015-16 fiscal year that is recoverable from the EGS group.

Total Cost Allocation

 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 each individual EGS and NGS firm. In the December 18th Order, the Commission proposed to base the individual annual fee on gross intrastate operating revenues. Under this approach, the allocation 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 the Commission will use for NGS and EGS firms as this approach avoids a ''one size fits all'' fee mechanism that would penalize small firms and new entrants to the market.³

 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'' fee being charged to individual NGSs and EGSs, which vary greatly in size and intrastate revenues.

 In order to implement this approach to the allocation of total costs, the Commission will use the gross intrastate operating revenues currently reported by NGS and EGS firms to the Commission on or before April 30th of each year pursuant to 52 Pa. Code § 62.110 (relating to NGS annual reporting requirements) and 52 Pa. Code § 54.39(b) (relating to EGS annual reporting requirements). NGSs and EGSs can access the ''Natural Gas Supplier Annual Report Form'' and the ''Electric Choice Annual Report'' on the Commission's website.

Minimum Fee

 As noted in the December 18th Order, the Commission is aware of the unique nature of registered NGSs and EGSs who serve as ''brokers.'' That is, NGS and EGS brokers may not necessarily report gross intrastate operating revenues for the Commission to use as a basis for determining their reasonable share of the annual fee. However, the Commission does incur costs associated with regulating brokers. As such, the Commission will charge each individual NGS and EGS, including those who serve as ''brokers,'' a minimum $350 fee,⁴ regardless of reported gross intrastate operating revenues.⁵

 The total minimum flat fee collected from all NGSs and EGSs will be subtracted from the total cost of NGS/EGS regulatory oversight for the fiscal year. For instance, if the Commission collects a total combined minimum fee of $200,000 from all NGSs and EGSs, the total cost of regulatory oversight (direct costs plus indirect costs) will be reduced by $200,000 before the total fee allocation by gross intrastate revenues is calculated. As such, each individual NGS and EGS will pay a minimum fee of $350 in addition to their portion of the adjusted (to remove the total collected minimum fee amount) total cost of oversight based on gross intrastate operating revenues.⁶

Annual Fee Computation Summary

 In summary, by this Order, the Commission will 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 ratio of NGS/EGS costs to total Commission direct costs. Individual NGS or EGS firms will be charged a rate based on the particular entity's total gross intrastate operating revenues. Further, each NGS and EGS shall pay a minimum $350 fee, regardless of reported gross intrastate operating revenues. The total of all NGS and EGS fees computed in this manner will be designed to equal the total reasonable cost of their regulatory oversight for the fiscal year.

Treatment of Federally-Established UCR Fees

 UCR fees collected by the Commission from UCR carriers are established pursuant to the Federal UCR Act. 49 U.S.C. § 14504a. Those funds are dedicated to motor carrier safety and enforcement programs. 49 U.S.C. § 14504a(e). 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 can be used to offset the Commission's appropriation under Section 510 in order to determine the proper amount assessable to public utilities. 66 Pa.C.S. § 510.

 In the December 18th Order, the Commission proposed to offset the total amount of the assessment to be allocated, pursuant to Section 510 of the Public Utility Code (66 Pa.C.S. § 510), among the passenger and property utility groups by the amount of UCR fees already collected from those groups. Similarly, the Commission proposed to exclude the gross intrastate operating revenues of UCR property and passenger carriers from the assessment calculation since those revenues are not assessable. The Commission notes that it received no comments in response to its proposals regarding the treatment of UCR funds.

 Accordingly, by this Order, the Commission will offset the total amount of the assessment to be allocated, pursuant to Section 510, among the passenger and property utility groups by the amount of UCR fees collected from those groups. The Commission will also exclude the gross intrastate operating revenues of UCR property and passenger carriers from the assessment calculation. However, as with the annual fees for EGS and NGS firms, the precise assessment factor for each passenger and property carrier will be calculated and charged at the time the Commission issues its annual assessments under Section 510 of the Public Utility Code, 66 Pa.C.S. § 510.

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. This fee methodology proposed herein is reasonable as it: (1) bases direct costs on the direct hours of staff time that are allocated to NGS and EGS oversight activities; (2) equitably allocates indirect costs based on the ratio of NGS/EGS costs to total Commission direct costs; (3) allocates the resulting overall annual fee to be charged to each individual NGS or EGS based on the entity's gross intrastate operating revenues, thereby ensuring that each entity is paying its fair share of such assessment; and (4) charges a minimum fee to each individual NGS and EGS to account for ''brokers'' who do not report gross intrastate revenues.

 Additionally, we will apply UCR funds to offset the assessment charges to the passenger and property carrier utility groups as well as exclude the gross intrastate operating revenues of UCR carriers within those groups from the assessment calculation.

Therefore,

 It Is Ordered That:

 1. By this Final Implementation Order, the Commission hereby adopts the methodology set forth herein for establishing annual fees related to our oversight of Natural Gas Suppliers and Electric Generation Suppliers as permitted by Act 155 of 2014.

 2. The precise annual fees for each Natural Gas Supplier and Electric Generation Supplier will be calculated and charged at the time the Commission issues its annual assessments under Section 510 of the Public Utility Code, 66 Pa.C.S. § 510.

 3. The Commission will apply UCR funds to offset the assessment charges to the passenger and property carrier utility groups as well as exclude the gross intrastate operating revenues of UCR carriers within those groups from the assessment calculation.

 4. The precise assessment factor for each passenger and property carrier will be calculated and charged at the time the Commission issues its annual assessments under Section 510 of the Public Utility Code, 66 Pa.C.S. § 510.

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

 6. A copy of this Final Implementation Order be served on all Natural Gas Suppliers and Electric Generation Suppliers; all parties who commented on the December 18, 2014 Tentative Implementation Order; and the transportation associations.

ROSEMARY CHIAVETTA, 
Secretary

[Pa.B. Doc. No. 15-894. Filed for public inspection May 8, 2015, 9:00 a.m.]

_______

¹  Although such letter was filed after the comment filing deadline, the Commission considered this letter as no party or entity, including the Commission, was prejudiced by this delay.

²  See generally, comments of RESA; EQT Energy, LLC; Noble Americas Energy Solutions, LLC; Industrial Customer Groups; Natural Gas Supplier Parties; the Pennsylvania Independent Oil & Gas Association; and the National Energy Marketers Association.

³  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.

⁴  This $350 minimum fee is reasonable as it is similar in amount to the fees the Commission currently charges for similar utility applications and filings and will provide some minimal level of cost support for total costs of regulating this industry.

⁵  The Commission is aware that some EGS or NGS firms may be licensed with the Commission as both ''generation suppliers'' and as ''brokers.'' In these situations, such NGS or EGS firms will only be charged one minimum fee per firm rather than per license.

⁶  Under this approach, an EGS ''broker'' reporting no gross intrastate operating revenues will pay the minimum fee of $350. However, an EGS reporting intrastate operating revenues will pay the minimum fee of $350 plus a portion of the total EGS oversight costs (based on gross revenues).

---

No part of the information on this site may be reproduced for profit or sold for profit.

This material has been drawn directly from the official Pennsylvania Bulletin full text database. Due to the limitations of HTML or differences in display capabilities of different browsers, this version may differ slightly from the official printed version.

---