Pa. PUC Makes Additional Commodity-Related Procurement Costs of SOLR Gas Service Bypassable

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January 14, 2011

As first reported by Matters yesterday in our live blog, the Pennsylvania PUC adopted final regulations relating to the natural gas market which, among other things, will include all supply-related procurement costs incurred by the local distribution companies in the Price to Compare (L-2008-2069114).

A written order was not available yesterday.

The Commission adopted, 3-2, Chairman James Cawley's motion to adopt the regulations with one modification from Staff's recommendation.  Specifically, Staff had recommended that the bypassable supply procurement costs unbundled from base rates and included in the Price to Compare include only those costs avoided by the LDCs when customers shop.

Under Cawley's adopted motion, the Price to Compare will include all commodity-related procurement costs, both those avoided by LDCs when a customer shops and those which are unavoidable by the LDC and are constant regardless of migration.  Such commodity-related procurement costs will be fully bypassable.

The bypassable commodity-related procurement costs will include:

(1) Natural gas supply management costs, including natural gas supply bidding, contracting, hedging, credit, risk management costs, and administrative and general expenses related to those activities.

(2) Non-choice and Supplier of Last Resort Service related administrative costs, including education, regulatory, litigation, tariff filings, working capital, information system and associated administrative and general expenses.

(3) Applicable taxes, excluding sales tax.

The unbundled supply-related procurement costs do not include procurement costs related to storage and transportation capacity for Supplier of Last Resort service, which will remain in base rates.

"As noted by [the National Energy Marketers Association], in the absence of full rate unbundling, shopping customers are penalized with a double payment of commodity-related costs - those paid to the competitive supplier from which they are currently receiving service and to the utility from which they are no longer receiving commodity service.  Unbundling of utility rates avoids this inequitable result," Cawley said.

Dissenting from Cawley's motion were Vice Chairman Tyrone Christy and Commissioner Wayne Gardner, who argued that allowing customers to bypass supply procurement costs which are fixed will result in non-shopping customers subsidizing the ability of shopping customers to return to SOLR service.

The commodity-related procurement costs will be unbundled and included in a new bypassable Gas Procurement Charge (GPC) rider.  Such unbundling will occur in a 1308(a) proceeding, which Christy opposed, stating that the unbundling should only occur in a full rate case, especially as many current rates are the result of black box settlements without specific charges established for procurement functions.

The final regulations, according to Christy, will also include the reconciliation factor for prior supply costs/revenues, or E-factor, in the Price to Compare.  However, the E-factor is not bypassable for customers for the first 12 months after they leave SOLR service, prompting Christy to oppose its inclusion in the Price to Compare.

According to Christy, the final order will also find that the Commission has authority to mandate Purchase of Receivables programs, but will maintain the voluntary approach that the PUC has taken with respect to POR to date.

Consistent with the advanced notice of rulemaking, the final regulations do not include the development of any forward projections of SOLR commodity rates, as suggested by Christy.

The final regulations also remove the ability for LDCs to institute a surcharge to recover costs of implementing competition-related market enhancements, though such costs may be deferred for future recovery.

The final regulations also, "provide guidance to ensure that the release, assignment or transfer of capacity by an [LDC] to a [supplier] is nondiscriminatory and is at the applicable contract rate."  Absent a written order, specific capacity release provisions are unknown.

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