The House Consumer Affairs Committee Monday held a hearing on House Bill 1782 (Delozier-R-Cumberland) providing for alternative ratemaking for natural gas and electric distribution companies designed to encourage energy efficiency improvements and distributed energy resources such as renewable energy projects (sponsor summary).
Public Utility Commissioner Andrew Place told the Committee the Commission has been actively studying the alternative ratemaking issue since it approved a Secretarial Letter in December of 2015 soliciting comments on the issue.
On March 2 of this year, Place said the Commission issued an order seeking further comments on alternative ratemaking for electric, gas and water utilities, including-- decoupling mechanisms generically, including Lost Revenue Adjustment Mechanisms (LRAs) and Straight Fixed / Variable (SFV) Pricing, as well as Cost Trackers (also known as Surcharges or Riders), Choice of Test Years, Multiyear Rate Plans, Demand Charges, Standby and Backup Charges, and Demand Side Management Performance Incentive Mechanisms.
He said comments are now being reviewed by the Commission.
Place said the PUC is neutral on the legislation, but urged the Committee to review the language of the bill to determine how to resolve conflicts with existing law on issues like improper single-issue ratemaking, retroactive ratemaking and violation of the just and reasonable rate standard.
Terry Fitzpatrick, President of the Energy Association of PA, said his group supports the legislation because it modernizes the state’s current utility ratemaking system, but notes the bill does not mandate alternative ratemaking and the flexibility for more competitive pricing of energy.
Greg Dudkin, President of PPL Utilities, supported the legislation saying decoupling with multi-year rates will best provide for consumers because of the reliability of pricing, price-adjustment refunds and accessibility to energy conservation measures. Click Here for more.
Bill Roland, Director of Government Affairs for Peoples Natural Gas, said they see House Bill 1782 as a way to help customers and expand the economy, adding because of the changing dynamics of energy use, flexibility in pricing is needed for customers.
Eric Miller, Director of Policy for the Keystone Energy Efficiency Alliance, said the legislation is a critical step to getting away from a rate model that compensates utilities based on how much energy they sell and not necessarily the other services like energy conservation.
Tanya McCoskey, Acting PUC Consumer Advocate, said alternative ratemaking mechanisms “pose significant risks to Pennsylvania ratepayers by disrupting this careful balance” of utility benefits and consumer protections.
She said decoupling is not a just solution to the decrease in energy use because the trend would most likely continue.
John Evans, PUC Small Business Advocate, echoed McCoskey’s concerns and said the legislation is not needed.
John Cox, Director of Rates and Regulatory Affairs at PA American Water, also supported the bill recommending the bill be expanded to operators of water and wastewater facilities.
He added because of the overall decrease in water use, the current utility rate structure penalizes conserving water because the price minimizes the effect of being resourceful. Decoupling also limits rate shock and provides revenue directly for infrastructure improvements.
Also providing testimony to the Committee were: Jackson Morris, Director of the Eastern Energy Program; Leah Gibbons, Director of Regulatory Affairs for NRG Energy; Kristina Montgomery, Manager of Regulatory and Government Affairs for Just Energy; Elizabeth Triscari, Deputy PUC Small Business Advocate; Patrick Cicero, Executive Director, Pennsylvania Utility Law Project; and David Ciarlone, Manager of Energy and Carbon Strategy for Arconic Inc.
Written comments were provided to the Committee by Mark Sybist, Senior Program Advocate at the Natural Resources Defense Council; PJM Power Providers Group; Dick Webster, Vice President, PECO; Rod Nevirauska, PA American Water; and Richard Riazzi, President, Duquesne Light Co.
Click Here to watch a video of the hearing when posted.
PA Environmental Council Comments
According to an analysis of the bill distributed to the Committee by the PA Environmental Council, the bill will allow for the voluntary use of alternative ratemaking mechanisms by natural gas and electric utilities, including decoupling; performance-based rates; formula rates; multiyear rate plans; cost-recovery mechanisms; rates to support and fully recover the allocated costs to deploy infrastructure and distributed energy resources; or rates based on a combination of these approaches.”
The Council continued, saying, “The ways in which energy, particularly electricity, is produced and used continue to evolve, and thus, it is sensible to allow the mechanisms for setting rates to also evolve. We appreciate that the bill’s language is not prescriptive, allowing each utility the freedom to adopt new ratemaking mechanisms that best meet the needs of its territory, pending the Public Utilities Commission’s (PUC) ultimate approval.
“We believe this aspect of the legislation is important because utilities differ in many ways, including the age and condition of infrastructure, the populations they serve, and the amount and types of distributed generation in their service territory, and thus a one-size-fits-all ratemaking structure across all utilities is not appropriate.
“We are particularly interested in the potential to use alternative ratemaking to reduce or eliminate the so-called “throughput incentive,” which ties utility compensation to the amount of energy used, thus putting the utility business case at odds with energy efficiency and distributed generation efforts.
“Performance-based ratemaking, in comparison, ties utility compensation to its financial and operational outcomes, rather than the amount of natural gas or electricity used, thus allowing the utility to develop an innovative business case that serves the needs of ratepayers, helps to achieve environmental outcomes, and allows for the expansion of emerging technologies.
“Perhaps most importantly, the legislation allows for alternative ratemaking, but does not mandate it, allowing each utility, with PUC approval, to set the ratemaking mechanism(s) that best meet the needs of its customers.”
Rep. Robert Godshall (R-Montgomery) serves as Majority Chair of the Committee and can be contacted by sending email to: rgodshal@pahousegop.com. Rep. Thomas Caltagirone (D-Berks) serves as Minority Chair and can be contacted by sending email to: RepCaltagirone@pahouse.net. (Based in part on reporting by PA Legislative Services.)
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Legere: House Bill Aims To Modernize Utility Rates For A Greener Grid
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