The Public Utility Commission this week approved the final regulations and policy statement that will establish the rules for default service for electric generation as well as a plan to mitigate and prepare Pennsylvania electricity customers for potential significant price increases that included the possibility of a $5 million consumer-education campaign.

As part of this overall strategy for preparing consumers for potential increase in generation costs, the Commission voted 4-0 to approve a motion by Commissioner Terrance Fitzpatrick that included initiating consumer-education efforts regarding energy efficiency, conservation and demand side response and low-income programs. Chairman Wendell F. Holland issued a concurring and dissenting statement on the plan.

The Commission also voted unanimously to adopt the final rulemaking and policy statement that governs how electric generation service is provided to customers who choose not to obtain generation service from an alternate electric generation supplier.

The default service regulations are one of the most important rulemakings for the Commission since the restructuring of the electric industry. The Commission reopened the public comment period for the regulations in November 2005 to address conditions in the wholesale market and the relationship between the default service rulemaking and the Alternative Energy Portfolio Standards Act of 2004.

Rulemaking

In developing the final rulemaking, the Commission attempted to craft rules that represented a balanced approach to acquiring reasonable priced supply in a manner that balanced the interest of all stakeholders, while meeting the requirements of the 1996 electric competition law. The law requires electric distribution companies, or a Commission approved alternative supplier, to provide default electric generation service to customers who have not selected an alternative electric generation supplier.

The final rulemaking addresses: competitive safeguards; program terms and conditions of service; procurement and implementation plans; standards for transferring customer accounts; rate design including the “price to compare;” and recovery of costs.

The rulemaking now goes before the state’s Independent Regulatory Review Commission, the Office of Attorney General, Governor’s Budget Office and the standing committees in both houses of the General Assembly for review. Once that review is completed, the regulations would become file one published in the Pennsylvania Bulletin.

Policy Statement

The policy statement contains guidelines for the default service providers in the areas of procurement, rate design and cost recovery.

The Commission recognized that some elements of the default service rules should be addressed in a policy statement rather than a rulemaking because changes in markets and technology may result in an approach that is too narrowly tailored or too unresponsive to serve the state’s interests.

The policy statement includes:

· Addresses retail market issues;

· Recommends that default service providers give customers the option to defer paying some portion of a rate increase for a period of time under certain conditions;

· Addresses interim price adjustments and cost reconciliation;

· Allows default service providers to craft an approach for electric generation supply procurement that is best suited to its own territory; and

· Includes an array of guidelines intended to improve competitive solicitation processes.

The policy statement also establishes a Retail Markets Working Group to develop policy recommendations, which are aimed at removing barriers to retail market development including rate-ready billing, customer referral programs, uniform statewide supplier tariffs and a retail choice ombudsman at both the Commission and Electric Distribution Companies.

The policy statement will become effective when published in the Pennsylvania Bulletin. The policy statement may be revised based on experience gained from future proceedings. The Commission also may move some elements of the policy statement to the default service regulations in the future.

Policies to Mitigate Potential Electricity Price Increases

The Commission developed policies to mitigate and prepare Pennsylvania electricity customers for potential significant price increase that included a $5 million consumer-education campaign.

“This represents an important milestone in the Commission’s efforts to respond to the potential for significant electricity price increases as generation rate caps expire,” said Commissioner Fitzpatrick. “I agree with the policies established in the Order for consumer education by utilities, energy conservation and reduction in peak demand, alternatives to abrupt price increases, assistance to low-income customers, and the relationship between wholesale energy markets and retail rates. Together with the policies that will soon be established in related proceedings, such as those involving default service rules and demand side response, the Commission is establishing a reasonable, comprehensive framework to help consumers in Pennsylvania deal with the potential for higher electricity prices.”

Many of the comments filed in the proceeding said that consumer education is a vital element of any plan to mitigate price increases. To be consistent with the Public Utility Code, the Commission will include the $5 million in funding in its 2008-09 budget request to be submitted to the General Assembly and the Governor.

The consumer-education campaign assessment will be paid only by electric utilities as electric generation prices will be the focus of the information presented. These costs may be recovered from customers similarly to the way they recover other costs assessed by the Commission. The Commission’s Office of Communications is to convene interested stakeholders within 60 days to begin developing the campaign.

Under the plan, the state’s Electric Distribution Companies (EDCs) also will implement consumer-education plans for their service territory that will help mitigate the impact of price increases or educate customers about energy conservation and efficiency, and demand side response. The plans would be subject to Commission approval and be tailored to each service territory.

The Commission also will:

· Conclude its Investigation of Conservation, Energy Efficiency Activities, and Demand Side response by Energy Utilities and Ratemaking Mechanisms to Promote Such Efforts;

· Consider proposals to avoid large, abrupt retail electric rates on a case-by-case basis;

· Initiate a rulemaking process to modify its Customer Assistance Programs (CAPs) policy statement and regulations to address funding levels and cost recovery;

· Actively participate in the Universal Service Task Force and the Low Income Home Energy Assistance Program (LIHEAP) Advisory Committee to secure state funding for low-income energy customers;

· Address specific requests for Low Income Usage Reduction Program (LIURP) funding increases when opportunities arise; and

· Continue its policy of active participation in federal and regional proceedings that impact electricity prices.

The PUC final rulemaking order, policy statement on default service and policy statement on mitigating potential electric rate increases are available online.

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5/11/2007