PENNSYLVANIA PUBLIC UTILITY COMMISSION [52 PA. CODE CH. 54] [28 Pa.B. 2139] [L-980132]
Competitive Safeguards for the Electric Industry The Pennsylvania Public Utility Commission (Commission), on January 29, 1998, adopted an order to promulgate a proposed rulemaking to establish competitive safeguards for interaction between electric distribution utilities, electric generation suppliers and customers in the competitive market in electric generation to be established under 66 Pa.C.S. Chapter 28 (relating to Electricity Generation Customer Choice and Competition Act) (act). The contact person is John Levin, Assistant Counsel, Law Bureau, (717) 787-5978.
Executive Summary
With the passage of the act, the General Assembly amended 66 Pa.C.S. (relating to Public Utility Code) (code) and established a comprehensive scheme for the restructuring of the Commonwealth's electric industry. This proposed rulemaking establishes competitive safeguards for interaction between electric distribution utilities, electric generation suppliers and customers in the furtherance of the act's provisions directing the establishment of a new, vibrant and effective competitive market in electricity generation in this Commonwealth by January 1, 2001.
Regulatory Review
Under section 5(a) of the Regulatory Review Act (71 P. S. § 745.5(a)), on April 28, 1998, the Commission submitted a copy of these proposed regulations to the Independent Regulatory Review Commission (IRRC) and to the Chairpersons of the House Committee on Consumer Affairs and the Senate Committee on Consumer Protection and Professional Licensure. In addition to submitting the proposed regulations, the Commission has provided IRRC and the Committees with a copy of a detailed Regulatory Analysis Form prepared by the Commission in compliance with Executive Order 1996-1. Acopy of this material is available to the public upon request.
If the Legislative Committees have objections to any portion of the proposed regulations, they will notify the Commission within 20 days of the close of the public comment period. If IRRC has objections to any portion of the proposed regulations, it will notify the Commission within 10 days of the close of the Committees' review period. The notification shall specify the regulatory review criteria which have not been met by that portion. The Regulatory Review Act specifies detailed procedures for review, prior to final publication of the regulations, by the Commission, the General Assembly and the Governor of objections raised.
Public Meeting held
January 29, 1998Commissioners Present: John M. Quain, Chairperson; Robert K. Bloom, Vice Chairperson; John Hanger, Concurring--Statement follows; David W. Rolka; Nora Mead Brownell
Proposed Rulemaking Order By the Commission:
This proposed rulemaking establishes competitive safeguards in furtherance of the act, and the act's provisions directing the establishment of a new, vibrant and effective competitive market in electricity generation in this Commonwealth by January 1, 2001.
With the passage of Chapter 28 of the act on December 3, 1996, the General Assembly amended the code and established a comprehensive scheme for the restructuring of the Commonwealth's electric industry. Prior to the enactment of Chapter 28 of the act, electricity was provided by utilities which were essentially vertically integrated companies responsible for supplying generation, transmission and distribution of electricity to electricity customers within their service area. Wholesale generation and transmission rates and conditions of service were governed by the Federal Energy Regulatory Commission (FERC), under the Federal Power Act (16 U.S.C.A. §§ 791a--825r), while retail services were regulated as to rates, terms and conditions by the Commission. Rates were generally determined by utilizing a traditional rate base/rate of return ratemaking methodology. The rate regulation in theory establishes just and reasonable rates and provides the regulated utility with an opportunity to recover its expenses and a fair return on its investment in public utility property devoted to the public service.
With the issuance of Order 888, Order No. 888, 61 FR 21,540 (May 10, 1996), FERC Stats. & Regs. ¶31,036 (1996), FERC restructured the transmission industry, opening it to equal and open access by anyone who might wish to transport electricity. That, in turn, set the stage for the creation of a competitive market in electricity by anyone who had generation and wished to sell it to anyone who might wish to buy it. FERC also asserted jurisdiction over what were previously considered to be state-regulated transmission facilities. In effect, FERC invited the states to establish a retail competitive market in electricity generation. Although Order 888 did not and could not direct states to create the competitive energy markets within their borders, the Commonwealth was among the first states to do so. By creating a competitive market in electricity at the retail level, the General Assembly has adopted the position that competition yields greater benefits to the public than even the most diligent and careful rate regulation. At the same time, the Legislature recognized that transmission and distribution remain natural monopolies and will likely continue to be regulated in the traditional manner by existing entities.
We announced in our February 13, 1997, order at M-00960890, Folder 0003 (Tentative Order Re: Electric Utility Restructuring Filings Made Pursuant to 66 Pa.C.S. § 2806(e)) that we would convene a series of working groups open to public participation to consider various issues of generic importance in the restructuring process, in order to develop a public consensus on solutions.1
The initial meeting of the Competitive Safeguards Working Group (the ''working group'') was held Friday, May 9, 1997. Additional meetings were held on July 15, July 23, August 6, August 13, August 27 and September 10, 1997. Participation grew over time and at the time of the working group's final meeting on September 10, 1997, it comprised 35 stakeholder members and four Commission representatives. On October 6, 1997, the working group issued its final report to the Commission.2 The group proposed ten consensus principles for adoption as proposed regulations.
Two suggested principles were deferred by consensus for later consideration because the resolution of the principles will require detailed fact-based analysis or investigation. The deferred proposals include a provision dealing with electric generation market share reporting and another dealing with suspension of provisions during system emergencies. With regard to the former proposal, while it was the group's consensus that the reporting would be a critical Commission tool in assessing market power, it was also the group's consensus that, due to operational considerations, detailed study was needed to determine the most feasible method of collecting the data.
Two significant matters with regard to which the working group was unable to reach consensus were joint marketing by electric generation suppliers and their affiliated electric distribution utilities, as well as the various proposals to separate the operation of electric generation suppliers from related electric distribution utilities. Both issues are discussed in the following paragraph.
The effort and product of those that participated in the working group are greatly appreciated by the Commission, and we wish to express our thanks to the members of the working group for their devotion of time and energy in this important endeavor. We have largely adopted verbatim all of the consensus principles of the working group for the purpose of this proposed rulemaking with but one minor exception. With regard to principle ''C,'' which prohibits false or deceptive advertising, the working group made it applicable to electric distribution utilities only, but recommended that a parallel provision apply to generation suppliers. We have simply added language making it applicable to generation suppliers.
As noted above, the working group identified two issues which could not be resolved by consensus: joint marketing by related electric distribution utilities and electric generation suppliers and the separation of the operations of related electric distribution utilities and electric generation suppliers to prevent unlawful discrimination and cross subsidy. We have prescribed rules to provide for separation of employes, records, communications and information systems of related transmission, distribution and generation companies. These rules are modeled to some extent on parallel rules prescribed by FERC. Open Access Same-Time Information System (formerly Real-Time Information Networks) and Standards of Conduct, 18 CFR 37.4, 61 FR 21,737, 21,764 (May 10, 1996). Commentators are asked to supply an analysis of proposed § 54.122(k) with respect to the scope of the Commission's jurisdiction to enforce rules regulating electric distribution company personnel interactions with transmission suppliers.
We have not prescribed rules restricting joint marketing, except as are already included in the working group's consensus recommendations. It is suggested that enforceable separation rules which prevent an electric generation utility from using distribution and transmission functions to give related generation functions an unfair or unlawful competitive advantage should address most of the concerns regarding denial of direct access or unfair discrimination and cross subsidy. We are also reluctant to become the arbiter of frequent and subtle disputes over advertising unless the advertising is alleged to be false, deceptive or misleading.
Comments on this proposed rulemaking are due 30 days from publication of this order in the Pennsylvania Bulletin. Comments should be clear, concise and as brief as reasonably possible. Comments on specific provisions of the proposed regulations or suggestions for additional provisions should track the organization of Annex A, and should contain suggested alternative language in support of the comments. Commentators suggesting changes or nonadoption of the proposed draft regulations on the basis of allegations of financial or technical hardship are directed to disclose in detail the basis of the allegations, including all cost studies or technical analyses upon which the allegations are based. Commentators alleging that any provision of these proposed regulations are contrary to provisions of the constitutions, laws or judicial decisions or in conflict with other regulations or directives of the United States or the Commonwealth shall provide verbatim copies of the provisions relied upon, and sufficient explanation of the controlling nature of the precedent.
Accordingly, under 66 Pa.C.S. §§ 501, 502, 504--506, 508, 701, 1301, 1304, 1501, 1502, 1505, 1701--1705, 2101--2107 and 2801--2811, the Commonwealth Documents Law (45 P. S. § 1201 et seq.) and the regulations promulgated thereunder at 1 Pa.Code §§ 7.1--7.4, we are considering adopting the proposed rules set forth above and in the manner set forth in Annex A; Therefore,
It is Ordered that:
1. A rulemaking proceeding shall be initiated to consider the proposed regulations set forth in Annex A hereto.
2. This order shall be published in the Pennsylvania Bulletin. Interested persons may submit written comments, an original and 15 copies, as well as a copy of the comments on a 3.5" MS-DOS readable diskette to the Secretary, Pennsylvania Public Utility Commission, P. O. Box 3265, Harrisburg, PA 17105-3265, and shall have 30 days from the date the order is published in the Pennsylvania Bulletin to submit comments. Commentators are strongly encouraged, if suggesting changes or additions to the proposed regulations, to supply alternative regulatory language. Commentators suggesting changes or nonadoption of the proposed draft regulations on the basis of allegations of financial or technical hardship are directed to disclose in detail the basis of the allegations, including all cost studies or technical analyses upon which the allegations are based.
3. A copy of this order and Annex A shall be served upon the Office of Consumer Advocate, the Office of Small Business Advocate, the Office of Trial Staff, all members of the Competitive Safeguards Working Group, all jurisdictional electric companies, all licensed electric providers and the Pennsylvania Electric Association.
4. The Secretary shall submit this order and Annex A to the Office of the Attorney General for approval as to legality, and to the Governor's Budget Office for review of fiscal impact.
5. The Secretary shall submit this order and Annex A for review by the designated standing committees of both Houses of the General Assembly, and for review by IRRC.
JAMES J. MCNULTY,
SecretaryStatement of Commissioner John Hanger The Notice of Proposed Rulemaking being issued today concerning Competitive Safeguards is a crucial beginning as the Commission addresses an important responsibility under the Electric Generation Customer Choice and Competition Act. As the electric industry undergoes a transition from monopoly to competitive markets, this Commission must ensure that the terms of competition are fair to all participants.
I concur with the initiation of this rulemaking while recognizing that the proposed regulations provide only a starting point for what will become a final set of competitive safeguards. The proposed regulations are based upon the efforts of a Working Group composed of many parties, including utilities, competitive suppliers, and consumer representatives with diverse interests. I truly appreciate the time and effort provided by the members of the Working Group to define issues and ascertain common ground. This common ground is an appropriate starting point for the rulemaking.
It would be inappropriate, however, to assume that such common ground reflects a complete set of competitive safeguards that fulfill the Commission's responsibility to serve fully the public interest as defined in the Act. To the contrary, the common ground by definition reflects the most noncontroversial matters, or the ''least common denominator'' of the issues considered.
All interested parties now have an opportunity to provide comments and suggestions for a complete set of standards so that the Commission may consider the more difficult issues. I encourage parties to consider the following comments that I have adopted from the debate of these issues to date in Pennsylvania as well as in other jurisdictions:
1. In a fully competitive market, an EDC has no reason or ability to treat its competitive supplier affiliates any differently that any other competitive supplier. What additional rules are necessary to fully implement this principle?
2. Some regulated utilities and other interested parties have proposed divestiture of generation assets as the best way to implement this principle. Section 2804(5) provides that the Commission may permit but not require a utility to divest itself of facilities or to reorganize its corporate structure. Chapter 11 of the Public Utility Code requires the Commission to approve transfers of utility assets such as divestiture, only upon finding that the transaction is in the public interest. Should the regulations provide specific guidelines for divestiture of generating assets in response to the restructured industry? Should transfers to unrelated parties be treated the same as transfers to unregulated affiliates? Should the Commission require that transactions with divisional affiliates be subject to the same standards as transactions with legally distinct affiliates?
3. Chapter 21 of the Public Utility Code requires the Commission to determine that a proposed contract with an affiliate is in the public interest. Should the regulations provide more specific guidelines or ''safe harbors'' for affiliate transactions to ensure that such transactions do not inappropriately cross-subsidize a competitive affiliate? For example, should the regulations affirm that transactions between an EDC and a competitive affiliate, even if approved by the Commission prior to the competitive era, are not valid without filing a new Affiliated Agreement for approval by the Commission pursuant to Chapter 21? Should the request for approval specify documentation of competitive bidding or other assurances that the transaction cannot be provided by an unrelated entity and that the full value of the goods or services are being compensated without cross-subsidization? Should the regulations specifically prohibit or discourage transactions related to competitive generation services unless it is for goods or services made available to all competitors on comparable terms and conditions?
4. Since the existing monopoly electric companies might not legally divest generation functions from EDC functions, most parties agree that ''functional separation'' is necessary. The proposed regulations address functional separation, but do not include any broadly applicable standard that ''complete'' functional separation is required. For example, the consensus regulations separately require comparable treatment of all suppliers in processing customer requests for service, disseminating customer information, disclosing operational status of the distribution system, providing regulated services and applying tariffs. Does this suggest that noncomparable terms are permissible for other activities or for competitive market transactions such as the sale of energy or capacity? Should the regulations make clear that all goods, services, tariffs and information must be made available and provided to all suppliers and customers on comparable terms without discrimination, unreasonable preference or advantage?
5. The proposed regulations include several provisions addressing separation of employes, records, communications and information systems related to EDC and competitive generation functions. Should specific training and enforcement standards or expectations be included in the regulations? How should an EDC or EGS be held accountable for noncompliance by an employe or other person on their behalf?
6. The consensus regulations include several prohibitions on EDC activities that could serve to promote a competitive affiliate, but do not specifically prohibit all activities that could serve to promote any particular supplier. Should more specific regulations be included, such as prohibitions on EDC recommendations to consumers or use of an EDC name?
I look forward to receiving detailed comments on this important rulemaking by all interested parties.
Fiscal Note: 57-195. No fiscal impact; (8) recommends adoption.
Annex A TITLE 52. PUBLIC UTILITIES PART I. PENNSYLVANIA PUBLIC UTILITY COMMISSION Subpart C. FIXED SERVICE UTILITIES CHAPTER 54. ELECTRIC GENERATION CUSTOMER CHOICE Subchapter E. COMPETITIVE SAFEGUARDS Sec.
54.121. Purpose. 54.122. Code of conduct. § 54.121. Purpose.
The purpose of these competitive safeguards is to:
(1) Assure the provision of open access on comparable terms to all customers and generation suppliers.
(2) Prevent unlawful discrimination in rates, terms or conditions of service by electric distribution utilities.
(3) Prevent the unlawful cross subsidization of service amongst customers, customer classes or between related electric distribution utilities and electric generation suppliers.
(4) Forbid unfair or deceptive practices by electric generation utilities and electric generation suppliers.
(5) Establish and maintain an effective and vibrant competitive market in the purchase and sale of retail electric energy in this Commonwealth.
§ 54.122. Code of conduct.
Electric generation suppliers (EGS) and electric distribution utilities shall comply with the following requirements:
(1) An electric distribution company (EDC) may not give an EGS, including without limitation its affiliate or division, a preference or advantage over any other EGS in processing a request by a distribution company customer for retail generation supply service.
(2) Subject to customer privacy or confidentiality constraints, an EDC may not give an EGS, including without limitation its affiliate or division, a preference or advantage in the dissemination or disclosure of customer information and any dissemination or disclosure shall occur at the same time and in a comparable manner. ''Customer information'' means all information pertaining to retail electric customer identity and current and future retail electric customer usage patterns, including appliance usage patterns, service requirements or service facilities.
(3) An EDC or EGS may not engage in false or deceptive advertising to customers with respect to the retail supply of electricity in this Commonwealth.
(4) An EDC shall, in cooperation with all stakeholders, establish and file with the Pennsylvania Public Utility Commission (Commission) dispute resolution procedures to address alleged violations of this section.
(5) An EDC may not illegally tie the provision of electric distribution service within the jurisdiction of the Commission to one or both of the following:
(i) The purchase, lease or use of other goods or services offered by the EDC or its affiliates.
(ii) A direct or indirect commitment not to deal with any competing EGS.
(6) An EDC may not provide a preference or advantage to an EGS in the disclosure of information about operational status and availability of the distribution system.
(7) An EDC shall supply all regulated services and apply tariffs to nonaffiliated electric generation suppliers in the same manner as it does for itself and its affiliated or division EGS, and shall uniformly supply all regulated services and apply its tariff provisions in a nondiscriminatory manner.
(8) Every EDC and its affiliated or divisional EGS shall formally adopt and implement this section as company policy and shall take appropriate steps to train and instruct its employes in their content and application.
(9) If an EDC customer requests information about EGS, the EDC shall provide the latest list as compiled by the Commission to the customer over the telephone, or in written form or by other comparable means. In addition, an EDC may provide the address and telephone of an EGS if specifically requested by the customer by name. To enable EDCs to fulfill this obligation, the Commission will maintain a written list of licensed EGSs. The Commission will regularly update this list and provide these updates to EDCs as soon as reasonably practicable. The Commission will compile the list in a manner that is fair to all EGSs and that is not designed to provide a particular EGS with a competitive advantage.
(10) An EDC or its affiliate or division may not state or imply that delivery services provided to an affiliate or division or customer of either are inherently superior, solely on the basis of its affiliation with the EDC, to those provided to any other EDS or customer or that the EDC's delivery services are enhanced if supply services are procured from its affiliate or division.
(11) An EDC which is related by affiliation or by other form of control to an EGS or transmission supplier (meaning a public utility that owns, operates or controls facilities used for the transmission of electric energy) which serves any portion of this Commonwealth; and an EGS which is related by affiliation or other form of control to an EDC or transmission supplier which serves any portion of this Commonwealth shall insure that its employes function independently of the other related companies as follows:
(i) Employes of EGS may not conduct transmission system or distribution system operations or reliability functions.
(ii) Employes of EGSs may not consult or discuss with employes of any related EDC or transmission supplier with regard to current or future operations of their own or related companies, except to the extent that the consultation is part of a process open to the public and expressly sanctioned by the Commission by written order.
(iii) Employes of EDCs may not consult or discuss with employes of any related EGSs or transmission supplier with regard to current or future operations of their own or related companies, except to the extent that the consultation is part of a process open to the public and expressly sanctioned and supervised by the Commission by written order.
(iv) Employes of EGSs may not provide to, obtain from or accept information from a related transmission supplier, except information as is comparably available its competitors. An employe of an EGS may not have access to the system control center or similar facility of a related transmission supplier or electric distribution utility in a manner that differs from access available to other EGSs.
(v) Electric distribution utilities subject to the jurisdiction of the Commission which are related to EGSs and transmission suppliers shall maintain books and records, communications systems, information systems and accounting systems separately from these related companies.
(vi) Employes of related EGSs, electric distribution utilities or transmission suppliers may not transfer between the functions to circumvent this section.
(12) In a complaint or other proceeding against an electric distribution utility or EGS brought under 66 Pa.C.S. § 2811(f) (relating to market power remediation) or any successor provision, it shall be a defense in mitigation of penalties to the extent relevant to the issues in the case that the respondent has adequately and physically separated its offices, communications and accounting systems, information systems, lines of authority and operations from its related EDC, EGS or transmission supplier to prevent the violation and that the respondent has actively and effectively enforced this subsection.
[Pa.B. Doc. No. 98-724. Filed for public inspection May 8, 1998, 9:00 a.m.] _______
1 The order stated: ''We would also like to direct the public's attention to the establishment of several working groups which we have organized for the purpose of providing the Commission with timely recommendations on broad areas of concern regarding certain issues of general interest in the restructuring process. These groups, which are currently considering issues relating to customer education, customer information and billing, universal service and conservation, service reliability, retail access phase-in, metering, competitive safeguards, and supplier/utility customer interaction are expected to produce timely recommendations which will service to guide our consideration of specific proposals. Additional groups may be formed. All participants in restructuring proceedings are invited and encouraged to participate in these work groups. For each topic a Working Group composed of any interested party will meet to discuss the issues raised and attempt to reach a consensus.''
2 Representatives from Alleghany Power Energy Associates, ARIPPA, Commission Staff, Competitive Energy Strategies, Inc., Enron Power Marketing, Inc. Horizon Energy, New Energy Ventures, IECPA, Office of Consumer Advocate, Pennsylvania Rural Electric Association, Pennsylvania Petroleum Assn., et al, PP&L, Pennsylvania Electric Association, and Schuylkill Energy Resources formally signed off on the report. Representatives from PECO Energy and the Pennsylvania Rural Development Council transmitted their formal agreement with the joint consensus principles after the report was issued.
