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PA Bulletin, Doc. No. 01-1307

RULES AND REGULATIONS

Title 52--PUBLIC UTILITIES

PENNSYLVANIA PUBLIC UTILITY COMMISSION

[52 PA. CODE CHS. 3 AND 62]

[31 Pa.B. 3943]

[L-00000150]

Licensing Requirements for Natural Gas Suppliers

   The Pennsylvania Public Utility Commission (Commission) on April 19, 2001, adopted a final-form rulemaking order establishing licensing requirements for natural gas suppliers (NGS). The contact persons are Robert Bennett, Bureau of Fixed Utility Services, (717) 787-5553 and Patricia Krise Burket, Law Bureau, (717) 787-3464.

Executive Summary

   On June 22, 1999, Governor Thomas J. Ridge signed into law the Natural Gas Choice and Competition Act (66 Pa.C.S. §§ 2201--2212) (act). Under the act, beginning on November 1, 1999, retail customers have had the ability to choose their NGS. Previously, consumers procured their natural gas supply requirements as a package from the jurisdictional public utility. The package, previously mentioned, included what are now the basic components of competitive natural gas supply service, commodity, capacity and storage, balancing and aggregation services of the natural gas utility.

   On July 15, 1999, the Commission issued a Final Order which adopted interim licensing procedures and a license application. These interim licensing procedures were to be temporary in nature, and would be replaced by regulations. As the first step in promulgating these final-form regulations, on April 13, 2000, the Commission adopted a proposed rulemaking order establishing licensing requirements for NGSs. Comments regarding the proposed licensing regulations were filed. The Commission amended the regulations accordingly, and has put forth the final-form rulemaking.

Regulatory Review

   Under section 5(a) of the Regulatory Review Act (71 P. S. § 745.5(a)), on June 2, 2000, the Commission submitted a copy of the notice of proposed rulemaking, published at 30 Pa.B. 3073 (June 17, 2000), to the Independent Regulatory Review Commission (IRRC) and to the Chairpersons of the House and Senate Committees for review and comment.

   Under section 5(c) of the Regulatory Review Act, IRRC and the Committees were provided with copies of the comments received during the public comment period, as well as other documents when requested. In preparing these final-form regulations, the Commission has considered all comments from IRRC, the Committees and the public.

   Under section 5.1(d) of the Regulatory Review Act (71 P. S. § 745.5a(d)), on May 23, 2001, these final-form regulations were deemed approved by the House and Senate Committees. Under section 5.1(e) of the Regulatory Review Act, IRRC met on June 7, 2001, and approved the final-form regulations.

Commissioners Present: John M. Quain, Chairperson; Robert K. Bloom, Vice Chairperson; Nora Mead Brownell; Aaron Wilson, Jr.; Terrance J. Fitzpatrick

Public Meeting held
April 19, 2001

Final Rulemaking Order

   On June 22, 1999, Governor Thomas J. Ridge signed into law the Natural Gas Choice and Competition Act (66 Pa.C.S. §§ 2201--2212) (act). Under the act, beginning on November 1, 1999, retail customers have had the ability to choose their NGS.

   Section 2208(a) of the act (relating to requirements for natural gas suppliers) requires that no entity engage in the business of an NGS unless it holds a license issued by the Commission. See section 2208(a) of the act. An NGS is defined as:

   [a]n entity other than a natural gas distribution company, but including natural gas distribution company marketing affiliates, which provides natural gas supply services to retail gas customers utilizing the jurisdictional facilities of a natural gas distribution company. The term includes a natural gas distribution company that provides natural gas supply outside its certificated service territories. The term includes a municipal corporation, its affiliates or any joint venture, to the extent that it chooses to provide natural gas supply services to retail customers located outside of its corporate or municipal limits, as applicable, other than:
   (i)  as provided prior to the effective date of this chapter, pursuant to a certificate of public convenience if required under this title;
   (ii)  total natural gas supply services in de minimis amounts;
   (iii)  natural gas supply services requested by, or provided with the consent of, the public utility in whose certificated territory the services are provided; or
   (iv)  natural gas supply services provided to the municipal corporation itself or its tenants on land it owns or leases, or is subject to an agreement of sale or pending condemnation, as of September 1, 1999, to the extent permitted by applicable law independent of this chapter.
   The term excludes an entity to the extent that it provides free gas to end-users under the terms of an oil or gas lease. Notwithstanding any other provision of this title, a natural gas supplier that is not a natural gas distribution company is not a public utility as defined in section 102 (relating to definitions) to the extent that the natural gas supplier is utilizing the jurisdictional distribution facilities of a natural gas distribution company or is providing other services authorized by the Commission.

66 Pa.C.S. § 2202.

   As used in the previous definition of an NGS the term natural gas supply services includes (i) the sale or arrangement of the sale of natural gas to retail customers; and (ii) services that may be unbundled by the Commission under section 2203(3) of the act (relating to standards for restructuring of the natural gas utility industry). Natural gas supply service does not include distribution service. See section 2202 of the act.

   On July 15, 1999, the Commission issued a Final Order that adopted interim licensing procedures and a license application for NGSs. These interim licensing procedures were temporary in nature, and would be replaced by regulations.

   On April 13, 2000, the Commission adopted an order in which it revised its interim licensing procedures and redrafted them as proposed regulations. This proposed rulemaking order was published for comment at 30 Pa.B. 3073.

   Comments regarding the proposed licensing regulations were filed by the Office of Consumer Advocate (OCA), the Pennsylvania Gas and Oil Association, Pennsylvania Independent Oil and Gas Association (IOGA), Amerada Hess Corporation and TXU Energy Services (Hess), National Energy Marketers Association (NEM) and UGI Energy Services d/b/a GASMARK (GASMARK). IRRC also submitted comments. Letters in support of various commenters were submitted by T.W. Phillips Energy and Open Flow Gas Supply Corporation. On February 6, 2001, Kevin J. Moody, Esq. submitted late-filed comments in the form of a White Paper entitled ''Pennsylvania Public Utility Commission Assessments in a Deregulated Energy Industry'' (White Paper).

   We thank the commentators for their input and will address the comments in relation to the applicable regulation.

I.  Section 62.101.  Definitions.

   This section provides a list of definitions relevant to this subchapter.

''Marketing Services Consultant'' and ''Nontraditional Marketer''

   In regard to the definition of ''Marketing Services Consultant'' and ''Nontraditional Marketer,'' IRRC notes that both definitions include commercial entities. IRRC comments that we should clarify the definitions to account for any distinctions between these two terms.

   OCA in its comments supports the Commission's determination to exempt nontraditional marketers and marketing services consultants from licensing requirements.

Resolution

   ''Marketing services consultants'' can be distinguished from ''nontraditional marketers'' in that nontraditional marketers are business, civic and social community-based organizations whose main activity is not the sale of natural gas supply services. They are not commercial entities as are ''marketing services consultants'' that provide support services such as telemarketing and direct mail service, to licensed NGSs. For clarity, we will eliminate the term ''commercial entity'' from the definition of ''nontraditional marketer'' to further distinguish the two groups.

   We will also amend the definition of ''marketing services consultants'' to include those commercial entities that act as energy consultants for consumers. The rationale for this addition is discussed in § 62.102 (relating to scope of licensure).

Natural Gas Distribution Company; Natural Gas Supply Services; and Retail Gas Customer

   IRRC comments that the definitions of these terms in the regulation differ from the definitions of the same terms in the act. IRRC recommends that the definitions of these terms in the final-form regulation should conform to the statutory definitions or reference the act.

Resolution

   The Commission agrees with IRRC's comments that the definitions should be consistent with those provided in the act. Thus, we will revise those definitions by reference to the definitions in the act.

NGS--Natural Gas Supplier

   IRRC comments that the definition of this term in the proposed regulation differs from the definition of the same term in the act. Specifically, the definition in the regulation does not include the entire last paragraph of the act's definition.

   In its comments, POGAM argues that the Commission does not have the authority to regulate NGSs as public utilities, and suggests the addition of a sentence that states that an NGS is not a public utility.

Resolution

   In response to IRRC's comments, we will amend the definition of ''natural gas supplier'' by referencing the definition in the act. We believe by doing so, we have satisfied the matter raised by POGAM in its comments.

II.  Section 62.102.  Scope of licensure.

   This section identifies the entities that need to be licensed by the Commission. Subsections (d) and (e) exempt nontraditional marketers and marketing services consultants from the licensure requirement. The act defines a ''natural gas supplier,'' in part, as an entity that ''provides natural gas supply services to retail customers.'' ''Natural gas supply services'' are defined in the act to include ''the sale or arrangement of the sale of natural gas to retail customers.''

   IRRC comments that it appears that both nontraditional marketers and marketing services consultants ''arrange the sale of natural gas'' between the NGS and the customer and would seem to fall within the definition. IRRC requests that the Commission explain its statutory authority for the exemptions in subsections (d) and (e).

   NEM suggests that the Commission strike this section. It urges the Commission to regulate with a light-hand and expresses concern that the reporting requirements involving an NGS's relationship with nontraditional marketers would reveal proprietary information. It also states that the added costs of reporting requirements will increase the cost of energy to consumers.

   GASMARK opposes the exemption of nontraditional marketers and consultants. GASMARK states that the typical nontraditional marketer--community groups, buyers cooperatives and trade associations--derive profit from decision-making consumers in the same way as ''traditional'' marketers do. GASMARK also claims that the exemption of nontraditional marketers and consultants from licensing discriminates against those who must be licensed and will deter marketer participation in customer choice. GASMARK concludes that all service providers working with gas consumers should be subject to the same regulatory requirements.

   Hess states that the Commission has no authority over nontraditional natural gas marketers and that no other marketing or sales relationship is required to be revealed to the Commission. Hess sees no reason for imposing these reporting requirements on this unique approach to the market. Hess claims that there is sufficient protection for consumers through the natural gas distribution company's (NGDC) requirements for supplier financial fitness and other operating requirements in the supplier tariff. Hess suggests striking subsections (d) and (e).

Resolution

   Initially we note that as the agency responsible for implementing and enforcing the Public Utility Code and the act, we are afforded great deference by the courts in our interpretation of the law. When a statute is interpreted by the agency charged with the responsibility for its administration, interpretation shall be accorded great weight and shall not be overturned unless such construction is ''clearly erroneous.'' Cherry v. Pennsylvania Higher Education Assistance Agency, 620 A.2d 687, 691 (Pa. Cmwlth. 1993); Hawkins v. Pennsylvania Housing Finance Agency, 595 A.2d 712 (Pa. Cmwlth. 1991). This is particularly true when the interpretation involves construction of a statutory mandate in a new regulatory environment. Barasch v. Pennsylvania Public Utility Commission, 521 A.2d 482 (Pa. Cmwlth. 1987).

   Under our authority to interpret our enabling legislation, the Commission is authorized to interpret the definitions of ''natural gas supplier'' and ''natural gas supply services'' that are referenced in the definition for ''natural gas supplier.'' Generally, under the act, an NGS is an entity engaged in the provision at retail of natural gas supply services. Natural gas supply services are defined in general as ''the sale or the arrangement of the sale of natural gas to retail consumers.'' In interpreting ''natural gas supply services,'' it is not clearly erroneous for us to distinguish certain activities that would fall within that definition from those activities that would fall outside of that definition. Based on an entity's activities, it is not clearly erroneous for this Commission to identify entities who are not engaged in providing natural gas supply services to retail customers, and to exempt those entities from licensing requirements.

   In this instance, the Commission defined for exemption from the licensing requirement at section 2208 of the act, the marketing services consultant, entities that are engaged in providing marketing and sales support services to licensed NGSs under a contract. Marketing service consultants would include commercial businesses involved in telemarketing, direct mail service or information dissemination through auction-type or information only websites and electronic newsletters. Based on their activities, the marketing services consultants are indistinguishable from the NGS's own employees, who would not be required to be individually licensed under the act. Accordingly, it is not clearly erroneous for us to identify this group as falling outside the definition of ''natural gas supplier.''

   Nontraditional marketers such as fraternal organizations, unions, civic organizations or governmental organizations may provide endorsements of an NGS's service to its membership or constituency. In these types of affiliations, the sole role of the nontraditional marketer is to make the endorsement that its members are free to accept or reject on its merits. If the member decides to accept the service offered, the transaction is between the contracting member and the licensed NGS. The nontraditional marketer is not involved in the financial transaction between the licensed supplier and the customer. Under this scenario, the nontraditional marketer is not engaged in providing natural gas supply services to retail customers.

   Additionally, as the competitive energy marketplace has developed over the previous 4 years, the Commission staff has received a number of requests to exempt from licensing those entities who act, not on behalf of licensees, but on behalf of retail customers as energy consultants. These energy consultants gather and evaluate information about various energy supply offerings and then make recommendations to the consumer regarding the best offer available. These consultants are not generally involved in the actual transaction for the gas supply services in that they are not responsible for paying the producer, the supplier or the NGDC for costs related to gas supply service and they are not responsible for the procurement or the scheduling for transport of natural gas supplies.

   Based on their activities, it is our interpretation that energy consultants are not engaged in the sale or arranging the sale of natural gas supply services to retail consumers. Thus, they would fall outside the definition of an NGS at section 2202 of the act. We believe that our interpretation on this point is not clearly erroneous, and that the exemption from licensing of these energy consultants would not be detrimental to the public interest because consumers would be transacting business through a licensed supplier. Accordingly, we will revise our definition of ''marketing services consultant'' to include those entities who act as energy advisors to consumers.

   The Commission has considered the comments regarding the filing of agreements between suppliers and nontraditional marketers and marketing services consultants. Our major concern is customer confusion in the situation where a customer deals with an agent of the licensee and not an employee of the licensee. Because the licensed supplier is responsible for any violations of law committed by its agent, our purpose in requiring that these agreements be submitted is to identify those entities that had partnered with licensed suppliers to provide marketing or other sales support services. The Commission believed that this information will assist the Commission and its staff in answering consumers' questions and resolving customer complaints.

   Upon consideration of the comments, however, we will revise the requirement. In light of the purpose to be achieved, it appears that it is sufficient that a licensed supplier disclose the names and addresses of nontraditional marketers and marketing services consultants with whom it has arranged for service. Thus, we will require the licensee1 to make this disclosure as part of the annual reporting requirements in § 62.111 (relating to bonds or other security).

   We have revised the regulation accordingly.

III.  Section 62.103.  Application process.

   This section outlines the process an applicant must follow in order to apply for a license.

   IRRC comments that subsection (c) requires that copies of completed applications, with supporting documentation, be served upon five specified State regulators and each NGDC in whose service territory the applicant intends to provide natural gas supply services. However, subsection (e) provides that an applicant may designate those items, in the application, that it believes are confidential and privileged. IRRC inquires as to whether the confidentiality provisions apply to copies provided under subsection (c). If the confidentiality provision applies, IRRC suggests the addition of an introductory qualifying clause to subsection (c) that makes the disclosure of information subject to the limitations of subsection (e).

   IRRC also recommends that the reference to ''. . . each NGDC in whose service territory the applicant intends to provide natural gas supply services'' be made a new paragraph (6) under subsection (c).

Resolution

   We will accept IRRC's suggestions for revision of this section and clarify that the copies provided to OCA, the Office of Small Business Advocacy (OSBA), Office of Attorney General (OAG) Bureau of Consumer Protection (Bureau), the Department of Revenue and relevant NGDCs will be subject to applicant requests for confidentiality under subsection (e).

   We will also accept IRRC's suggestion to separate the text referencing ''each Natural Gas Distribution Company'' in a new subparagraph, numbered 5. This change is necessitated by our revision that consolidates the OAG and the Bureau into one item in subparagraph, numbered 3. This revision was necessitated by an error introduced in editing the Commission's order for publication.

IV.  Section 62.104.  Application form.

   This section describes the information an applicant must supply in order for the Commission to evaluate the applicant's financial and technical fitness to render service in this Commonwealth.

   IRRC comments that subsection (a)(6) requires an applicant for a license to provide financial information that is ''sufficient to demonstrate financial fitness.'' Additionally, the regulation provides examples of the type of information that ''may'' be submitted. IRRC states that it is unclear how the Commission will determine if the financial information is ''sufficient.'' To improve clarity, IRRC suggests that the minimum documentation that is required or the criteria it will use to determine if the information submitted is ''sufficient'' be listed.

   NEM comments that § 62.104(a)(7) should not be implemented as it is burdensome. NEM also claims that the reporting requirements in subsection (a)(8) are also burdensome and add to energy costs for consumers. NEM claims that subsection (a)(9) reporting requirements are unnecessary and pose barriers for the formation of a competitive market. NEM also states that § 62.104(b)(5) and (6) should be eliminated because the number of Commonwealth employees and the Commonwealth assets of an NGS are not related to the technical or financial fitness of marketers or the degree of protection afforded to Commonwealth customers. Hess agrees with NEM that only Commonwealth affiliates should be identified.

   GASMARK also comments that subsection (a)(7) and (8) should be eliminated because requiring an applicant to provide information on competency and regulatory experience is invasive, burdensome and unrelated to the requirements of the act. GASMARK also claims that the requested information is commercially sensitive and divulging it in the application, even under confidentiality provisions, is detrimental to suppliers.

   Hess suggests revisions to the language in subsection (a)(7). Hess suggests that the evidence that must be produced in support of the application should be qualified as being ''structured depending on the classes of customers the applicant wishes to serve.'' The rationale for this change, Hess reveals, is that the technical competence needed to serve a discreet number of industrial customers is different from that needed to serve hundreds of residential customers.

   Also in regard to subsection (a)(7), Hess proposes the elimination of the specific types of evidence of technical fitness that may be submitted in support of the application and the substitution of evidence of a more general nature: ''proposed and/or existing marketing, operational and back office capabilities.'' Hess's rationale for the change is that the listed evidence will be out of date before the application is processed and the information has nothing to do with proving technical competence. Hess also proposes similar language changes as those discussed for subsections (a)(7), (a)(8)--(9).

   Hess comments that subsection (b)(5) and (6) should be eliminated. Hess claims that the number of Commonwealth employees and the Commonwealth assets of NGSs have nothing to do with either technical or financial fitness of marketers, and data may be misleading with respect to marketer competence.

Resolution

   In answer to IRRC's comments, Commission staff works closely with each license applicant to ensure completion of the application and the filing of ''sufficient'' financial fitness documentation. The proposed regulations provide guidance without requiring specificity in order to diminish the costs incurred to seek a license.

   In addition, the Commission intentionally avoided specifying creditworthiness measures as a means to encourage new applicants who may not be able to produce historical financial information that would be available only from long-term established energy suppliers or other entities. The Commission would, of course, accept for evaluation any measures of creditworthiness that the applicant might offer. These would include credit reports, bank references, audited financial statements, annual reports, 10K or 10Q filings prepared in past 12 months, confirmation that the applicant is not operating under bankruptcy or insolvency law, confirmation that no significant lawsuits or judgments are outstanding, confirmation that the applicant is not aware of any adverse condition which could cause a material change in its financial condition, a list of its parent company and other affiliates, three trade references, additional financial information, Dun & Bradstreet financial credit ratings or access to unused lines of credit.

   Concerning the comments of NEM, GASMARK and Hess to subsection (a)(7)--(9), the Commission notes that it has consistently taken into consideration the specific services proposed to be provided in determining the information that an applicant must provide. This proposed regulation is in fact required by section 2208(b) of the act that reads as follows:

   [a] license shall be issued to any applicant, off arising the whole or any part of the service covered by the application, if it is found that the applicant is fit, willing and able to perform properly the services proposed and to conform to the applicable provisions of this title and the orders and regulations of the commission, including those concerning standards and billing practices, and that the proposed service, to the extent authorized by the license, will be consistent with the public interest. Otherwise, such application shall be denied.

66 Pa.C.S. § 2208(b) (emphasis added).

   Accordingly, each applicant must demonstrate its technical and financial fitness to provide services to the consumers it wishes to serve. The proposed regulations provide examples of information that ''may'' be filed to meet the requirements of the act in order to be granted a license.

   As to NEM and Hess recommendations that subsection (b)(5) and (6) be eliminated because it has nothing to do with either the technical or financial fitness of the marketer and may provide misleading information, the Commission disagrees. The Commission believes that information concerning the applicant's assets and employees located in this Commonwealth is useful in the evaluation of technical fitness of the supplier to perform the service for which it has sought to be licensed.

   The additional information required by this section would not seem to be difficult to obtain nor excessively invasive into the applicant's operations. If an applicant is concerned that the information being provided is confidential, it may request confidential treatment under § 62.103(e).

   Finally, we have several revisions to subsection (7)(iii) and (iv), (8), 8(iii) and 8(iv) to correct errors that were introduced in editing the proposed regulation for publication.

V.  Section 62.105.  Change in organizational or operational status.

   This section outlines what is considered to be a material change in the organizational structure or operation that affects an applicant's or a licensee's operation in this Commonwealth.

   NEM suggests that the clauses be modified to add ''in Pennsylvania'' to each clause. NEM states that the scope of the Commission's concerns should be limited to the companies that it regulates. Hess has submitted a similar comment on this regulation.

Resolution

   The Commission will not accept NEM and Hess's suggested revisions to this regulation as we do not find them to be persuasive. With the convergence of the electric and natural gas industries and the regionalization of the energy market, it is essential that the Commission understand the relationships between a supplier licensed to provide service in this Commonwealth and its affiliates, both in-State and out-of-State, and any changes that affect those relationships. Depending on the dynamics of the regional and National energy markets, affiliates can become sources of supply for the licensed supplier serving in this Commonwealth, or they can become competitors for that same supply source. Considering that the Commission is charged with monitoring the gas market for reliability and anticompetitive activity, the need for this information far outweighs the burden of its production.

VI.  Section 62.106.  Open and nondiscriminatory access.

   This section references the standards for open and nondiscriminatory access that must be demonstrated before a municipal corporation is permitted to provide natural gas supply services as a licensed NGS. IRRC states that for clarity, the final-form regulation should specifically cite the relevant sections of the act. IRRC also states that the criteria that will be used to determine if a municipal corporation is providing open and nondiscriminatory access to its gas distribution system should be clarified.

Resolution

   In response to the request for clarification by IRRC, the Commission refers to section 2208(g) of the act. Section 2208(g) requires that prior to allowing a municipal corporation to become a licensed NGS, it must be able to provide open and nondiscriminatory access to other suppliers to its distribution system. Specifically, this section of the law states that the Commission will make a determination of the openness of a municipal corporation's system ''taking into consideration the particular circumstances of the municipal corporation's ownership and/or operation of the gas distribution system.'' From this language, it is clear that the Legislature intended that this determination be made on a case by case basis. Therefore, the Commission does not believe that it is possible or appropriate to identify specific criteria that it will utilize in such fact-intensive proceedings. However, we will reference in this section the relevant provision of section 2208(g) of the act.

VII.  Section 62.107.  Publication of notice of filing.

   Subsection (b)(2) requires a notice of filing an application to be provided to the Commission in an ''acceptable electronic format.'' IRRC states that the term ''acceptable'' is vague. IRRC recommends that the regulation be amended to make this clarification, or direct an applicant to the location or phone number for the information.

   Hess and NEM both suggest the elimination of the second sentence in § 62.107(b). Hess states that allowing a third party to protest an application is inappropriate in a competitive market as it will delay the application process and cause increased costs for the applicant. Hess also states that the ability of a third party to have access to meaningful financial information beyond that which is publicly distributed is not likely.

   NEM states that it supports Hess's argument that allowing a third party to protest an applicant's technical or financial fitness will hamper the growth of the competitive energy market.

Resolution

   The Commission believes that it is in the public interest to provide public notice and opportunity to be heard concerning a proposed application to become a licensed NGS. In processing over 200 applications for electric generation supplier (EGS) licenses and interim NGS licenses, we have not seen that the opportunity for protest delays the application process. Moreover, competitive protests are not permitted, and where an entity abuses the protest process, penalties may be imposed. In addition, with the ability of the applicant to request that proprietary information be held confidential, we see no reason to accept NEM and Hess's comment.

   In regard to subsection (b)(2), IRRC has requested clarification concerning what is an ''acceptable electronic format.'' At present, the Commission utilizes Word® software, but as software choices are apt to change over time, we will revise the regulation to direct inquiries about software use to the Commission's Forms Officer.

VIII.  Section 62.108.  Protests to applications.

   Subsection (c)(3) states: ''If a protest is sufficiently documented, the application will be transferred to the Office of Administrative Law Judge for hearings or mediation as deemed appropriate.'' IRRC inquires as to whether there is some criteria that will be used to determine which protests will result in hearings and which will result in mediation. IRRC recommends that the Commission explain the process and criteria for establishing whether a protest goes to a hearing or to mediation. It also recommends the deletion of the phrase ''as deemed appropriate.''

   NEM suggests the elimination of this section because it believes that allowing a third party to protest the applicant's technical or financial fitness will hamper the growth of the competitive market. Allowing a competitor or similarly disposed parties an opportunity to delay or increase the costs of the applicant is not advisable.

Resolution

   NEM and Hess cited concerns of allowing a competitor an opportunity to delay or increase the cost of an application and the detrimental effects this could have on the development of a competitive marketplace. Under the proposed regulation, Commission staff members perform a cursory review of protests filed against pending applications in order to eliminate unsupported protests that are not in compliance with the Commission's regulation in § 5.52(a) (relating to content of a protest to an application). This regulation requires that the protest identify the right or interest that is sought to be protected so as to establish the standing of the protestant to participate in the proceeding, and the grounds for the protest with supporting facts.

   Only those protests that meet this preliminary test are sent to the Office of Administrative Law Judge for hearing or mediation. Accordingly, there is little risk that a frivolous protest will be allowed to proceed further and little risk that an application will be delayed or the costs to the applicant will be increased as a result of allowing for the opportunity for protest. As already discussed, penalties will be imposed on any entity that abuses the protest process.

   As to IRRC's concern regarding whether a protest is sent for mediation or hearing, the Commission's regulation at § 69.392 (relating to availability of mediation process) states that that decision rests with the Office of Administrative Law Judge. Moreover, the treatment of a protest depends on a number of individual factors. These include, inter alia, the issues raised by the protest, the involvement of other parties and most importantly, the willingness of the parties to enter into mediation to settle their differences. This is especially true of the protestant who has the burden of proof in regard to the protest and who must consent to the mediation. See § 69.392(d). The Commission therefore declines to accept IRRC's suggestion to delete the phrase ''as deemed appropriate'' from subsection (c)(3).

IX.  Section 62.109.  Approval.

   Section 62.109 summarizes the terms under which a license will be issued and notes that the completed applications will be processed within 45 days after acceptance by the Commission and will be deemed approved if not acted on within that time period unless the consideration period is extended. An applicant must comply with requirements of Chapter 56 (relating to standards and billing practices for residential utility service) to obtain a license to provide service to residential customers.

   In its comments, Hess suggests the addition of the clause ''if applicant indicates potential service to such customers'' at the end of subsection (a)(1). Hess's rationale is that customers who do not serve residential customers do not have to comply with Chapter 56.

Resolution

   The Commission does not agree to the amendment as Chapter 56 regulations are applicable to some small commercial customers.2 The Commission notes, however, that it does not require an applicant who proposes to serve industrial and large commercial customers to demonstrate its compliance with Chapter 56.

X.  Section 62.110.  Regulatory assessments.

   Proposed § 62.110 (a) requires licensed NGSs to pay assessments to defray regulatory costs, under section 510 of the Public Utility Code (66 Pa.C.S. § 510). IRRC questions whether the Commission has the statutory authority to collect assessments from NGSs. IRRC states that section 510 only authorizes the Commission to collect regulatory assessments from public utilities, and the definition of ''natural gas supplier'' in section 2202 of the act states: ''Notwithstanding any other provision of this title, a natural gas supplier . . . is not a public utility as defined in Section 102 (relating to definitions). . .'' (emphasis added). IRRC states that the Commission should explain its statutory authority for collecting assessments from NGSs under section 510 or delete subsection (a).

   Hess proposes eliminating this section based on its interpretation of the Commission's statutory authority to regulate NGSs. IOGA has presented legal arguments to the effect that the Commission lacks statutory authority to assess suppliers. IOGA suggests assessing regulated transportation service of the utility because all customers would then bear the appropriate level of costs relating to the volume of gas delivered. Open Flow and TW Phillips also support the elimination of this section related to assessments. POGAM suggests language which would make assessments applicable only to city natural gas distribution operations (PGW) consistent with its argument that the act only provides the Commission with the authority to assess that entity for regulatory costs.

   On February 6, 2001, late-filed comments in the form of a White Paper were filed for consideration in this rulemaking. The White Paper concludes that the current assessment process needs to be changed if nonutility entities are to share in the payment of the Commission's operating budget. It recommends that the Commission explore with other industry groups potential changes to the current assessment system. It also recommends that the Commission consider requesting that the Governor create a blue ribbon committee to craft legislation that would adapt the Commission funding process to the realities of competition. Furthermore, it recommended that to preclude further deleterious impacts on the fragile state of gas markets, the current system in which gas marketers are not assessed should be continued. The White Paper proposes three alternatives. The first alternative is to assess public utilities only. The second alternative is to assess public utilities and collect user fees for marketers. The third alternative is to abandon the assessment process and fund the Commission from the General Fund.

Resolution

   On April 5, 2001, the Commission entered an order in the proceeding, Objections of the Pennsylvania Telephone Association on Behalf of its Members and Individually, to the Fiscal Year July 1, 1997 through June 30, 1998, General Assessment; Objections of the PTA to the Fiscal Year July 1, 1998 through June 30, 1999, General Assessment, at Docket No. M-00970994, et al. In this order, we recognized that the regulatory environment for electric, gas, telecommunications and motor carrier industries has dramatically changed over the last 5 years, and we directed that a Collaborative be convened for each industry to discuss the assessment process as it relates to its respective competitive environment. In light of the upcoming Collaborative on the natural gas industry, we believe that it is premature to promulgate a final-form regulation relating to the assessment of NGSs. Therefore, we will delete this section of the regulation and original § 62.114(a)(1). We will renumber the remaining sections as required.

XI.  Section 62.111.  Reporting requirements.

   This section describes the information that a licensee is required to file with the Commission annually.

   NEM suggests the elimination of subsection (1). NEM states that the reporting of gross receipts from the sales of natural gas by licensees implies an intent to tax or assess. NEM believes that this issue should be put on hold pending the promulgation of supplier of last resort regulations.

   Also, Hess proposes elimination of subsection (1). It states that requiring customers to report annually the number of residential customers served, by NGDC, will assist the Commission in monitoring market power.

Resolution

   The reporting of annual gross receipts is being proposed to provide information about the development of the competitive natural gas market in this Commonwealth. Under the act, the Commission has a duty to ensure the development of the market and the availability to all customers of a variety of natural gas supply services offered by suppliers. See 66 Pa.C.S. § 2203. This gross receipts information will provide a basis to examine competitiveness among the suppliers.

   The Commission notes that the commenters have not indicated that the requested information to be reported was burdensome to produce or that the provision allowing for the confidential treatment of information upon request was inadequate. Under the circumstances, the Commission believes that the reporting requirements are reasonable and will not revise this section of the regulations.

XII.  Section 62.112.  Bonds or other security.

   This section requires an NGS to post a bond or other security to receive a license to conduct business in this Commonwealth. This section also outlines the criteria to be used to determine the amount and the form of the security needed to ensure the licensee's financial responsibility.

   IRRC has a number of concerns with this section. First, IRRC comments that it does not include a prioritization of claims for payment under a bond or other security if an NGS defaults. Establishing this priority of claimants would be consistent with the EGS licensure regulations at § 54.40(f)(3) (relating to bonds or other security).

   Second, IRRC examines subsection (c) that states: ''The amount and form of the security . . . shall be reasonably based on the criteria established in this section.'' IRRC indicates that the term ''reasonably'' is unnecessary, and it should be deleted from this subsection.

   Finally, IRRC comments that subsection (e) includes the phrase ''unreasonable service.'' IRRC states that the phrase is unclear, and suggests that the Commission either define it or provide examples of ''unreasonable service'' in this section.

   In its comments, OCA submits that the Commission should modify this rulemaking to include a bonding requirement for consumer protection and to ensure compliance with the Commission's orders and regulations. OCA notes that the bonding requirement for EGSs at § 54.40 contains a purpose and recommends using that regulation as the framework for establishing a regulation for NGSs. OCA notes that elements regarding the Gross Receipts Tax would not be applicable to NGS licensing since the act eliminated this tax.

   GASMARK comments that it does not oppose the language in this section and encourages the Commission to be sure that all NGDC bonding requirements are reasonably implemented in the future.

Resolution

   In addressing IRRC's first comment, we note that the provisions relating to the security requirement of the act and the Electric Customer Choice and Competition Act (Electric Choice Act), are markedly different and those differences account for the differences in the regulations for EGSs and NGSs.

   In the restructuring of the electric industry, the Commission found it necessary to set forth a priority for the claims to be paid because of the multiple purposes for the security.

   According to 66 Pa.C.S. § 2809(c)(i) (relating to requirements for electric generation suppliers), the purpose of the bond was to ensure the financial responsibility of the EGS and the supply of electricity at retail in accordance with contracts, agreements or arrangements. One aspect of the supplier's financial responsibility involved the payment of Gross Receipts Tax. Under the electric restructuring legislation, a customer may pay Gross Receipts Taxes to its licensed EGS. In the event that the licensed EGS fails to remit the appropriate Gross Receipts Taxes, the Department of Revenue is authorized to collect these taxes from the electric distribution company (EDC), who in turn can collect them from the customer. In order to alleviate the potential for customers to pay these taxes twice, the Commission established the payment of Gross Receipts Taxes as the first priority for payment under the bond. The second priority is the reimbursement for the payment of Gross Receipts Taxes by the EDC and the third is other individuals who may have a claim because of failure of the EGS to supply electric generation in accordance with contracts, agreements and arrangements.

   In contrast, under the act, the purpose of the security is to ensure the safety and reliability of the natural gas supply in this Commonwealth. We believe that this is a more general requirement and have interpreted this provision to establish a purpose of the bond for the security is to afford natural gas distribution companies some financial protection for the costs of natural gas supplies in the event of supplier default on its obligation to provide supply for its customers or supplier bankruptcy. Gross Receipts Tax was eliminated for gas supply services. Thus, it is unnecessary to delineate specific priority for the payment of claims as the sole beneficiary by statute is the natural gas distribution company.

   As to IRRC's other comment, we agree that the word ''reasonably'' is unnecessary in this subsection and we will delete it.

   The OCA requests that the security include consumer protection provisions and provisions ensuring compliance with the Commission's orders and regulations. However, the request is without foundation in the act. As discussed, the purpose of the security requirement in the act is the financial protection of the NGDC and the supplier of last resort in the event of supplier default or bankruptcy. Unlike the Electric Choice Act, the act does not require the security to ensure the supply of natural gas supply service at retail in accordance with contracts, arrangements and agreements. Based on this difference in the legislation, we decline to grant OCA's request.

   In regard to IRRC's comment to subsection (e), the term ''unreasonable service'' refers to a determination made by the Commission upon complaint for unreasonable or inadequate service provided by the NGS. See 66 Pa.C.S. § 1501 (relating to character of service and facilities). The purpose of this subsection was to note that the provision of a bond or other security did not limit an NGS's financial exposure to penalties resulting from the adjudication of complaints. The term ''unreasonable service'' is not easily defined as it is a determination made by the Commission based on the facts of record established in each complaint proceeding. However, to clarify the regulation we will eliminate the phrase ''for unreasonable service, or'' leaving the reference to violations of the Public Utility Code.

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