COMMONWEALTH OF PENNSYLVANIA HOUSE OF REPRESENTATIVES HOUSE CONS^ER AFFAIRS COMMITTEE
IRVIS OFFICE BUILDING ROOM G-50 HARRISBURG, PENNSYLVANIA
WEDNESDAY, JANUARY 13, 2 010 2:06 P.M.
IN RE:
PUBLIC HEARING PENNSYLVANIA PUBLIC UTILITY COMMISSION
BEFORE:
HONORABLE JOSEPH PRESTON, JR., CHAI^IAN HONORABLE ROBERT W. GODSHALL HONORABLE WILLIAM F. ADOLPH, JR. HONORABLE SHERYL DELOZIER HONORABLE BRIAN ELLIS HONORABLE MARC GERGELY HONORABLE SETH M. GROVE HONORABLE NICK KOTIK HONORABLE ROBERT MATZIE
BRENDA S. HAMILTON REPORTING P.O. BOX 165 ELM, PENNSYLVANIA 17 521 717.627.1368 (FAX) 717.627.0319 (CONT'D)
HONORABLE TINA PICKETT HONORABLE DAVE REED HONORABLE DOUGLAS REICHLEY HONORABLE TIMOTHY J. SOLOBAY ALSO PRESENT:
HONORABLE BRENDAN F. BOYLE GAIL DAVIS, MAJORITY EXECUTIVE DIRECTOR JAKE SMELTZ, MINORITY EXECUTIVE DIRECTOR DAVID V. VITALE, ESQUIRE TIM SCOTT, RESEARCH ANALYST BETH ROSENTEL, RESEARCH ANALYST MARCI SANTORO, COMMITTEE LEGISLATIVE ASSISTANT CARL FITZSIMMONS, LEGISLATIVE ASSISTANT
BRENDA S. HAMILTON, RPR REPORTER - NOTARY PUBLIC INDEX
NAME PAGE
JAMES CAWLEY, 10 CHAIRMAN, PENNSYLVANIA PUBLIC UTILITY COMMISSION P R O C E E D I N G S
CHAI^IAN PRESTON: Good morning. I'd like to call the committee members to order. I'd like to wish everybody a Happy New Year. And if we would start to my right, to the audience's left, we'll start at the -- in the rear and have individuals introduce themselves.
No. My right.
MS. ROSENTEL: Oh. Beth Rosentel,
Chairman Preston's office.
MR. VITALE: David Vitale, legal counsel to the Committee.
MR. SCOTT: Tim Scott, Chairman Preston's office.
MR. FITZSIMMONS: Carl Fitzsimmons. I work for Bob Godshall.
REPRESENTATIVE PICKETT: Tina Pickett,
Bradford, Sullivan and Susquehanna Counties.
REPRESENTATIVE BOYLE: Representative
Brendan Boyle, Philadelphia and Montgomery
Counties.
REPRESENTATIVE ELLIS: Representative
Brian Ellis, Butler County.
REPRESENTATIVE KOTIK: Representative Nick Kotik, Allegheny County.
REPRESENTATIVE MATZIE: You forgot me,
Nick. You skipped me.
REPRESENTATIVE KOTIK: Oh, I'm sorry.
CHAI^IAN PRESTON: That's an Allegheny
County thing that we have going on here.
REPRESENTATIVE MATZIE: That's correct.
Rob Matzie, the Beaver end of Allegheny County.
REPRESENTATIVE SOLOBAY: Can you guys not fight now? Representative Tim Solobay from
Washington County.
MR. SMELTZ: Jake Smeltz, committee director for the Republican Caucus.
REPRESENTATIVE GODSHALL: Representative
Bob Godshall, Montgomery County.
CHAIRMAN PRESTON: Representative Joe
Preston. I work with Bob Godshall.
MS. DAVIS: Gail Davis, committee director for the Democratic Caucus.
REPRESENTATIVE REICHLEY: Doug Reichley,
134th District.
REPRESENTATIVE GROVE: Seth Grove, 196th
District, York County.
CHAIRMAN PRESTON: I think, as you know, one of our members, Senator Mensch, decided to go to the higher chamber; and we have Mr. Ellis, who is the newest member appointed by the Speaker, to be -¬ to represent him -- or not to represent him, to replace him. But now he is on the committee. He is now here. And we do want to be able to welcome you. We look forward to your participation.
REPRESENTATIVE ELLIS: Thank you very much, Mr. Chairman. I am extremely pleased to be working with both of you gentlemen again, having served on committees with you guys in the past.
I've been looking forward to this committee meeting and am excited to be a part of the committee.
REPRESENTATIVE GODSHALL: I'd just like to tell -- remind the new member that if you want to speak at any time, try to make arrangements well in advance because we have a limited time schedule, especially for our newer members. In the committee meetings, we're very concerned about that sometimes.
REPRESENTATIVE ELLIS: Fair enough.
CHAIRMAN PRESTON: A little over, more than a year ago, we start off with the Public
Utility Commission. From there we've dealt with a wide myriad of subjects dealing with the industry and dealing with some Public Utility Commission's consumer issues across the Commonwealth of
Pennsylvania.
And I think that one of the things that we clearly heard from -- at that time from the new chairman of the Public Utility Commission was a sense of direction of where they had intentions of going, some of the things that they were going to need to do it effectively so that they could set a tone for the future in dealing with Pennsylvania.
And -- and I'd also like to remind the members that the Public Utility Commission is a phenomenal entity and in reality, some people may point their fingers, as I say, Mr. Chairman, at you, but I won't. Because if you weren't there, then we would be handling the rate increases.
And I want the members to be able to realize that, that in some sense historically the
PUC was committed and -- created so we would not have to do the due diligence of raising and lowering rates and going over all the tariffs ourselves.
So in a sense we are a working body and working together and I'm glad you're there. I really am.
We addressed an awful lot of situations across this state. In some ways, too, we passed some legislation. We even passed a bill. We passed one bill out of here unanimously, even though it was supposed to be contentious, and then the body politic that is of the body whole seemed not to be able to move it. So, you know, that's phenomenal when you think about that. So I'd like to be able to thank the committee members.
But Chairman Cawley, I think, has really set a tone.
I won't forget the time that, you know, our -- my staff, my side, we sat down and met with each commission member, and I think it was anywhere from 40 minutes to an hour and a half with each -¬ with each commission member.
And I remember it was very refreshing that you had a sense of direction of where you wanted to go.
You also realized that you had four other people that you had to put together. I'd like to commend you, and I think that you've done that. I watched a certain level of cohesiveness that has happened, and we look forward to hearing, and I know that you're still waiting for -- oh, it's here already?
Okay. So with that being said, if -- we're going to have the chairman of the commission -- of the Public Utility Commission,
Commissioner Cawley. It's your time.
COMMISSIONER CAWLEY: Thank you, Chairman
Preston, Chairman Godshall, members of the committee.
I've -- I always approach these -- these hearings with some trepidation because -- the Public
Utility Commission's jurisdiction, as the Chairman has noted, is very broad and -- and we are exceedingly visible and, therefore, I always worry about having knowledge that is a mile wide and an inch deep about a lot of issues.
I'm sure you run into the same thing, because your plate is infinite, and there are always times when you wish you understood issues a little better than -- than you do when you have to vote on something.
Tomorrow is an example. We have some very important decisions in our regular public meeting tomorrow -- at our public meeting tomorrow and as soon as I'm done here I've got to go sit down and see what my other four colleagues have in mind and what my staff has in mind for me tomorrow.
I want to commend all of you for taking the time to listen to what's on our minds. Chairman
Preston was kind enough to just say to me we would like you to -- we'd like an update.
He -- and he left it to me to relate to you what's on our minds and what's most pressing. I could talk about dozens of things, but here are the things which are most pressing in our minds.
And let me say that I have -- I do have the pleasure of dealing with four colleagues who are a delight to work with. We are very collegial. My colleagues are very hard working. We work at this job. The jurisdiction demands it.
And because of legislative actions in the last few years, we have been entrusted with implementing laws that have taken up an enormous amount of time.
I can tell you that Act 129 of 2008, which added, among other things, energy efficiency and conservation standards, has maxed us out. We literally ran out of administrative law judges in order to do all the input hearings and evidentiary hearings necessary to get the -- the public's view of all of this.
But we are on time. We have implemented
Act 12 9 on time so far. And we have done the same with the Alternative Energy Portfolio Standards
Act.
But let me begin with the same topic that you've heard me talk about before, and I know many of you are already convinced, but let me reiterate this again.
The most pressing issue on our minds is gas pipeline safety, particularly with the advent of the Marcellus shale play that's going on in
Pennsylvania.
This -- the development and the drilling in Pennsylvania -- I know you know -- is going gangbusters. In order to get that gas to market, a number of gathering lines and intrastate transmission lines have been built and are being built.
We have gas safety inspectors who on a regular basis inspect Public Utility gas mains and service lines. We do not have jurisdiction over all gathering lines and intrastate pipelines.
The federal government has substantial jurisdiction over these lines and use us, not only us, but other state gas inspectors around the country, to do this job for them.
But there are pipelines that even the Feds don't regulate. The federal government reimburses us for this work. It's not a question of money.
They're willing to give us the money.
We anticipate that we could use another 13 gas inspectors to get this done and at least 60 percent of that cost would be covered by the Feds.
I can't emphasize enough that the federal -- our federal counterparts and their gas safety people are growing increasingly anxious about what is going on in Pennsylvania. We could -¬
REPRESENTATIVE GODSHALL: Do they have to be re-elected every two years like we do or is that a pretty steady job, pretty steady work?
COMMISSIONER CAWLEY: I'm talking about -¬
I'm talking about -¬
REPRESENTATIVE GODSHALL: Pretty steady work?
COMMISSIONER CAWLEY: I'm talking about people who do not have to be elected.
REPRESENTATIVE GODSHALL: Oh, okay.
COMMISSIONER CAWLEY: But who are going to be held responsible and the elected officials will be held responsible if anything untoward happens.
This is safety we're talking here. Enough said. I know a number of you are familiar with this issue.
We -- we have had ongoing discussions with the drilling industry and the producers, and we've assured them we're not trying to empire build here.
We -- we don't have any interest in economic regulation. We're not trying to set the rates for what they charge.
This is safety. We want just safety jurisdiction.
And we don't want to do it in the state forests and -- and -- and very sparsely populated areas. We want to do it under the federal categories where densely populated areas get the attention. And, of course, that's where it's needed most.
I won't say anything more about that.
Secondly -- and this is still -- this is still gas safety. There are a number of entities in this Commonwealth that have gas distribution lines and steam generation -- steam distribution lines that we do not have the authority to inspect, and many of these instances are behind the meter.
So-called the master meter situations. Anything from universities to hospitals to cooperatives, to the Philadelphia Housing Authority. In fact, if the service of the
Philadelphia Housing Authority was a regulated entity, it would probably be the -- in the top five of the gas companies in Pennsylvania.
Behind that meter we can't look at the -¬ the safety of these pipelines. Again, we don't want -- we don't want to interfere with these people's businesses. We -- just for the public's safety, we want to be able to inspect these facilities.
And I'd be happy to go into it with you individually, but my people tell me stories that make me very nervous. And I'm -- I'm talking not just about gas, I'm talking about steam systems in this Commonwealth as well.
The Public Utility Commission only has jurisdiction over three gas -- I mean three steam systems, NRG Harrisburg, NRG Pittsburgh, Trigen in
Philadelphia. There are several other steam systems that are outside of our jurisdiction. Again, safety only. Not economic regulation.
I want to compliment this Committee and the House for passing House Bill 1128 which increased the gas pipeline safety violations to make them commensurate with federal law. Chairman Preston, that's your bill. You got it through the House. We can't seem to get it through the Senate. It really has a lot of merit, and I compliment the Committee for taking the first step to cure these gaps in pipeline safety.
Let me move more generally to the utility infrastructure --
CHAI^IAN PRESTON: Mr. Chairman -¬
COMMISSIONER CAWLEY: -- replacements.
CHAI^IAN PRESTON: Mr. Chairman, if we could just one time, just in case a member may have a question, if they'll forward their name, and maybe so that -- if we could, you know, have precise questions relative to the subject matter you just covered.
COMMISSIONER CAWLEY: Uh-huh.
CHAI^IAN PRESTON: And that way we won't have to go back at another time.
COMMISSIONER CAWLEY: Okay.
CHAIRMAN PRESTON: And I know that
Representative Reichley had a question.
REPRESENTATIVE REICHLEY: Do you want to let him finish?
CHAI^IAN PRESTON: I'm dealing with the gas safety issue. REPRESENTATIVE REICHLEY: No, I was dealing with the electricity.
CHAI^IAN PRESTON: Okay. Well, wait till he gets to that then.
REPRESENTATIVE REICHLEY: I was.
CHAI^IAN PRESTON: Okay. All right.
That's what I'm talking about.
Go ahead.
REPRESENTATIVE GODSHALL: On a serious note, when you talk about the inspection of pipelines and the safety inspections and so forth, you're not talking about inspectors out there inspecting lines going in the ground.
What type of safety inspections are you -¬ you know, are you doing? Or else you have people out there, you know, seven days a week, you know,
365 days.
What kind of safety inspections are you looking at?
COMMISSIONER CAWLEY: Our inspectors look at above-ground facilities, the valves, the pumping stations, and what-have-you.
I'm -- I'm not an engineer, but I -¬
REPRESENTATIVE GODSHALL: The lines run in the ground? COMMISSIONER CAWLEY: The lines are under the ground, but we look at the safety, at their -¬ their records, what they're doing for cathodic protection on the lines, anything certainly that's visible.
But we also question them closely about what they're doing to protect their lines, to make sure there's not moisture in the gas, what-have-you.
I can certainly -- I can have our people, of course, give you a much more complete answer of what they do, but -¬
REPRESENTATIVE GODSHALL: Well, as a pipeline is being put in right now, say from wellhead to, you know, to a line, does anybody at all inspect that line that's going in the -¬
COMMISSIONER CAWLEY: No.
REPRESENTATIVE GODSHALL: The federal government, there's no inspections?
COMMISSIONER CAWLEY: No.
REPRESENTATIVE GODSHALL: It's totally up to the company more or less?
COMMISSIONER CAWLEY: Right. Right.
REPRESENTATIVE GODSHALL: Okay. Thank you. CHAIRMAN PRESTON: One of the things I came across several years ago with the National
Conference of State Legislators, you know, we have the product of gas coming in from as far away as
Texas, Louisiana, you know, Canada, and there's an awful lot of major transmission lines that come in through here.
Whether or not -- it's a question as to who is really responsible for them if there is a situation or a problem or, let's say, an accident.
That's part of the issue that, you know, has been raised about who is really responsible for everything.
And that's never totally been clear. It's just like some of us as members, you know what we go through about -- if there's a railway going through, who really is responsible for, you know, maintaining it?
And that's something that the Commissioner is -- is raising that I think we have to take a look at.
Go ahead, Commissioner.
COMMISSIONER CAWLEY: I'm going to go quickly through these things.
Accelerating utility infrastructure replacements, this is -- I will say it again as long as I'm able. This is another safety issue. This is the Gas Distribution System Improvement Charge which would mirror the Water Utility Distribution System
Improvement Charge, which is a model for the nation.
I think we are one step away from -- from getting acceptance of this, and it seems to revolve around the issue of -- of how you -- whether or not you net out depreciation of an existing plant.
Let me just say this. The calculation of how you do this is rather complex. The bottom line is that if you insist on net depreciation this is just never going to happen.
And the issue is, are you serious about accelerating the replacement of brittle and noncathodic protected pipe or aren't you?
The amount of money, the impact on customers is minuscule. The issue is reliability and safety. We're talking about replacements only.
And I can assure you that if we continue with the current pace of replacements of pipeline in this state that absolutely need it, given the amount of capital that a gas company derives from normal rate making, none of us are going to be alive when the job gets done.
The only way you're going to resolve this problem is to accelerate the pace of these replacements, and the only way you're going to do that is you're going to incent these companies with additional money to do it.
Now, if the money was to go for country club memberships or the like, that's one thing.
It's not. It's going for replacement in the ground of pipe that absolutely needs to be replaced.
Now -- and you've heard me testify before that I -- I -- rather than getting too specific in the legislation, you ought to leave it to us.
Because we've had 12 years or 13 years now of implementing the water DSIC and it's been an unqualified success.
And we were entrusted with putting the regulations in place to make it work; and, frankly,
I think we've done a good job. So, please, again, I know Representative Solobay and -- and -- has been championing this for a very long time, and others, including the Chairman. It's a good cause, and it ought -- this ought to be pushed over the line.
I would say the same thing about the
Wastewater Collection System Improvement Charge. And I'll forewarn you. If I'm here next year, you're going to hear me start saying that, oh, by the way, the electric industry is going to have to start replacing its distribution system in the next ten years.
I can -- I can tell you that -- that at least one of our major utilities has already done a study, and they've got to spend $2 billion in the next ten years because the book -- the useful life of what they've got in place is already over its useful life.
You cannot put off this kind of replacements forever. Because if you do, service starts suffering.
And it's my opinion that the people don't mind paying a reasonable amount of money in order to assure good reliability. Enough said on that subj ect.
Let me say in passing, again, about
Philadelphia Gas Works, if you want, you know, electric -- electric rate caps are -- are down on the list when it comes to my concerns.
My chief concern is the Philadelphia Gas
Works, and it's not -- I don't mean to criticize present management. The present management is excellent.
It's just that the company is now so far in debt it is living off debt. The capital improvement program has -- has either come to a stop or it has been slowed to the point where it's nonexistent. And this is a gas utility in
Pennsylvania -- I'm reverting to the safety issue again -- where we've got 3,300 miles of the most brittle, cast iron pipe in the Commonwealth in this -- in this gas utility.
That's one of the reasons why the gas DSIC bill needs to get done because one-third of that bill deals with the Philadelphia Gas Works, specifically to allow it to fund its capital improvements in a manner which will be cheaper to do and will, in fact, allow capital improvements to go forward.
That bill is needed for a lot of reasons and the Philadelphia Gas Works is another part of it.
Let's talk about electric rate cap expirations.
CHAIRMAN PRESTON: I guess we have to, right?
COMMISSIONER CAWLEY: Well, it has taken up a great deal of our time. And it's -- it's -¬ and I -- and I don't mean just recently.
The Public Utility Commission has been anticipating this -- particularly the PPL expiration of rate caps, for at least three years. And -- and the material includes my slides. You can see various things we have done.
We are -- we have been twisting arms, not only PPL's but a number of electric generation suppliers, to make sure that they are making offers to customers. And I am absolutely thrilled to tell you that the response we're getting is -- is record setting so far.
The offers began in December, and the last figures I saw is -- is almost 20 percent of the company's $1.4 million -- 1.4 million customers have switched and it's growing every day.
We have at this point five competitive suppliers making offers to residential customers and at least a dozen making offers to -- to commercial industrial customers, almost all of them, the larger customers have switched. They know it's in their interests to do this.
The task, of course, is to dispel the confusion and educate people that it's in their interests and the people -- and PPL does not care if -- if they choose another supplier. It's -¬ because PPL is compensated for delivering the power, not for the actual electricity.
The electricity is -- it comes from the grid. It's wholesale power. The cost of which is passed through to the customers dollar for dollar.
PPL doesn't make any money on the -- on the electricity itself. Nor does any gas company in
Pennsylvania make any money on the commodity itself.
That is passed through dollar by dollar as it is acquired on a least cost basis from the wholesale marketplace. People don't understand this. Seventy percent of their bill is dollar for dollar from the wholesale market.
I get blamed for that 70 percent when I really only have control over the distribution part of the bill, the remaining 30 percent.
But from what we have seen so far, the efforts of many people are paying off. And we also -- we also know that we've got -- we've got to be vigilant about this. That there are a lot of people who still don't understand this, despite the fact that all the commissioners and several of our staff have spent the last three years going around the state trying to explain how this works.
The bottom line is you can save money.
And if you stay -- if you stay with your electric utility, you're going to pay more because that power has to be acquired ahead of time. And when those generators bid to supply that power, they didn't know what their costs were going to be in 2010, when they contracted to deliver it, so they put a risk premium in there.
The electric generation suppliers can get it now, nearer the time when it must be sold, and, therefore, it can be more nimble about the price.
And that's why they can -- they can get -¬ they can get it cheaper now and they can sell at a discount from what the utility is contracted to obtain it for if you won't or can't switch to another supplier.
At the same time, we have substantially increased the customer assistance programs for all of the electric utilities to account for the fact that if the -- that the bills are going up.
The electric and gas companies of
Pennsylvania have increased their terminations as a result of adding Chapter 14 to the Public Utility Code.
But they've also had almost an equal number of reconnections, and they've also -- and here's what's really important -- they have added to their customer assistance programs for those customers who really can't afford to pay their bill.
In 2008, the electric and gas companies in
Pennsylvania contributed several hundred million dollars to these cap programs. We are approaching a half billion dollars in these cap programs to help low income individuals.
And as a part of Act 129 of 2008, there are specific energy efficiency programs for low income customers. We have lots more to do. The rate caps don't come off until the end of this year for PECO, Allegheny Power, Penelec and Met-Ed.
I don't anticipate that the increase will be that great in the Allegheny Power service territory because there's -- there's a built-in ramping of the rates for that service territory that resulted from a settlement of six years ago.
The increase in the PECO service territory should not be great. This doesn't mean that there won't be shopping opportunities for people. We'll have to wait and see where the wholesale market is at the end of this year.
The increases in the Penelec and Met --
Met-Ed service territories are going to be greater, and it will be very important for the customers in those territories to be shopping. But, again, we have to see where the wholesale market is going to be.
In the meantime we have learned lessons from -- particularly from the last year or two -¬ from implementing the expiration of rate caps in the
PPL service territory. So those lessons learned are going to be applied to the remaining companies whose rate caps have not expired.
In the meantime, we're doing everything we can to harangue the Federal Energy Regulatory
Commission about the wholesale electricity market.
We are limited to advocacy. We've increased the number of attorneys who are doing this to three. They spend all their time monitoring what goes on at the Federal Energy Regulatory Commission and making filings before them regarding issues of interest to Pennsylvania.
Act 129, again, I -- we're on schedule with it, with implementation of the Act. We are approving -- we've already approved the plans and made modifications to the energy efficiency and conservation plans.
But, as the law provides, if we make changes, then the utility has a -- has a period of time in which to make the changes and file compliance filings with us.
They've done that and by probably about the middle of February we have -- we will have approved these compliance filings and customers will begin to see energy efficiency initiatives by their electric company, which will include everything from discounts on CFL bulbs to home energy audits to programs to replace major appliances to rebates and other assistance for replacement of heating and cooling systems. These were extensive, extensive plans.
These companies, of course, are under threat of penalty if they don't achieve the energy reductions that you mandated by the summer of 2011 and then again by the summer of 2013.
The PUC reorganization, which was also authorized by Act 129.
CHAI^IAN PRESTON: Mr. Chairman, before we go to that -- COMMISSIONER CAWLEY: Okay.
CHAIRMAN PRESTON: -- can we just stick with the utility issues and I know that -¬
COMMISSIONER CAWLEY: Okay.
CHAIRMAN PRESTON: Representative Reichley had a question.
REPRESENTATIVE REICHLEY: Thank you,
Mr. Chairman, and I -- I don't mean to break up the
Chairman's --
CHAI^IAN PRESTON: No. No. No. This is good because this is -- this is how we have a positive dialogue.
REPRESENTATIVE REICHLEY: Good. Well, I appreciate that.
And coming from the PPL service territory, obviously the end of the rate caps is a --is an issue of interest.
The -- my question for you -- and I do not have a preset plan. So it's really an open question to you.
I gather there was an editorial in the
Patriot News on December 29th raising the issue of whether your commission should do an investigation into stranded the cost issue that were associated with the utilities and -- and deregulation, and I think you probably know my concern has been not only do we have to address the residential side of -- of rate caps but also employers are seeing unsustainable energy costs and, therefore, engaging in job layoffs. Everything we've done to assist residential customers won't do any good if they don't have any jobs.
So I'm just curious, what's your viewpoint or the Commission's viewpoint about the issue of looking into the stranded costs and -- and whether there needs to be a true-up audit on that.
COMMISSIONER CAWLEY: Well, you may have also seen my response to that Op-Ed piece.
My response was this. This was a legislative decision where -- of 12 years ago, 13 years ago, in which the legislature decided that customers should have choice.
And in order to give customers choice, there was a necess -- there was a necessity to compensate investor-owned electric utilities for those assets, those generation assets which were no longer going to be needed to absolutely, positively ensure that service would be provided, so-called stranded investments that were -- the utility -- the electric utilities were going to have no way they were ever going to recover those investments in place, if you're going to let somebody else sell the electricity.
That was the best decision that the legislature could make at the time. Had you had a crystal ball and you would have seen where wholesale prices were going to go, if you could have anticipated the hurricanes in the Gulf, if you could have anticipated world energy politics, maybe you would have made another decision.
Perhaps what you may have done, had you seen that wholesale prices were going to go up as much as they have and the cost of generating electricity, perhaps you would have put an automatic percentage increase in the rate cap over the -- per year or a quarter percent.
In other words, you would have -- you would have had customers pay a little, incrementally, more over the last 13 years rather than keeping the electricity, the generation part, at January 1st, 1997 levels.
And perhaps you would not have kept a rate cap on the distribution and transmission part of the bill either. For instance, in the PPL service territory, the customers of PPL enjoyed rate caps on not only the electricity cost but the -- the transmission and distribution costs until the end of
2004. It's only been since 2005 that any increase has been granted on the distribution side for PPL.
My point is, you did -- you took your best shot 13 years ago on -- on how this all should roll out, and the utilities were allowed to recover their stranded investments.
In return, customers have enjoyed rate caps, substantial rate caps, which have saved them billions of dollars, literally, over 13 years.
And in addition to that, the fuel adjustment charge on bills was eliminated. There was a fuel adjustment charge, if you may recall, that bumped up the cost of generation periodically to reflect the increased cost of generation. That was eliminated. So as a result, customers have saved an awful lot of money.
Now, the individual who wrote that piece in the Patriot News wants to ignore all the savings and wants to go back and Monday-morning quarterback about whether the utilities recovered too much stranded investments simply because they're making money over -- with those assets over in the wholesale market. He also ignores the fact that when you use those assets in the wholesale market you are at risk of not making any money. So as a result, the power plants that used to be in the rate base and all those inefficiencies and all those cost overruns and all those nuclear fuel delays, all those costs which used to be borne by -- by captive utility customers, are now borne by investors. And if the plant doesn't operate efficiently, they don't get paid.
But customers are not saddled with those kind of risks any longer.
I regulated under the old system, and I regulate now under this system. I much prefer this system. Because all of those costs, which we tried to guess at and disallow, we didn't catch them all.
In fact, all those inefficiencies used to land on customers. That's not the case anymore.
The short answer is you've got to look at the savings as well as the stranded cost recovery.
My advice is don't waste your time. Don't waste your time. That was a deal that was made 13 years ago. Customers have enormously benefited.
Is the balance exact? I don't know. I -¬ and trying to find out at this point would be the same useless exercise that I went through when a new -- in the early '80s when I was on the
Commission and we tried to determine whether a nuclear power plant and the value of it should go in the rate base as the utility claimed and whether there -- the place -- and the plant had been built efficiently or not and whether the cost overruns were justified. It's impossible.
I would -- I wouldn't waste your time. I don't want to waste my time trying to do a true-up.
Let's get on with it.
People have had subsidized electric rates now for 13 years which has not encouraged energy efficiency and conservation. When you're not paying the true cost of electricity, you tend to be wasteful of it.
It's time to get on with electric competition and make it work. Please, don't make the Public Utility Commission go through the exercise of a true-up.
CHAIRMAN PRESTON: Appreciate your frankness. We've also been joined by some other members of the committee. I'd like them to introduce themselves and the county they represent.
REPRESENTATIVE DELOZIER: Representative
Sheryl Delozier, 88th District, Cumberland County. REPRESENTATIVE GERGELY: Representative
Mark Gergely, 35th District, Allegheny County.
REPRESENTATIVE ADOLPH: Representative
Bill Adolph of Delaware County.
CHAI^IAN PRESTON: Thank you.
I also had a member, and since there's no
-- you brought up one specific area, too, and
Representative Boyle, who is also -- he's not a member of the committee but asked if he could come here and if there's no other questions, I'll give him a chance -- relative to only Philadelphia Gas that he had a couple questions that he would like to be able to ask your opinion on.
Representative Boyle.
REPRESENTATIVE BOYLE: Well, thank you,
Chairman Preston and Chairman Godshall.
My questions relate to PGW and specifically their very high debt position that they currently have.
How does that -- in other words, how does that relate to other analogous utilities and other major cities across the country to the best of your knowledge?
COMMISSIONER CAWLEY: Well, Philadelphia
Gas Works is a municipally-owned gas utility. And its -- its credit fortunes are dependent, and it's actually vice-versa, on the city of Philadelphia.
We're in a position where it doesn't do any good to fine them because the money comes out of ratepayers and the city -- city people no matter how you look at it.
It isn't like you can't -- you can fine an investor of a utility and make sure that the shareholders bear the fine. You can't do that with a municipal system.
But specifically the -- a typical gas utility, any gas utility, we try to have the debt and the equity, the investor's equity, be roughly the same. Roughly about 50/50 or -- or could be -¬ it could be a little bit one way or the other. But you don't want -- you don't want it to get too out of whack.
With Philadelphia Gas Works, it's all debt. It is all debt. The debt service that the people of Philadelphia are paying is enormous.
It's -- you have -- it is -- you -- you're having the fortunes of the company dictated by the debt holders, and the city fathers and the Public Utility
Commission have commensurately little to say because you're -- they are just so dependent on the banks and the bondholders because if -- because those debt covenants provide for a certain level of revenues and if those revenues are not met, well, the interest rate goes up even more.
I mean it's just an untenable situation.
REPRESENTATIVE BOYLE: So you had mentioned before reportedly -- repeatedly the situation is untenable. I was going to ask when is the breaking point, but it sounds like we're at it now.
CHAI^IAN PRESTON: We're getting very close to it. And one of the things I would encourage you to do, because I think this committee in the last year has gone into great depth about this. We have been following and working -- both our staffs -- with the Public Utility Commission where we met also with the executives and the administration of Philadelphia Gas Works, along with some individual PUC commissioners.
It is something that in the next couple of months we're going to be looking at again. They have made phenomenal strides from where it was, but it was four years ago that I started really being very hard about the debt ratio where they are.
I can't say that the people who are in charge right now are directly responsible for it.
They're doing the best they can. But as
Commissioner Cawley has just said the debt ratio is so unten -- it's so high and -- and -- and some of the programs that they have that they think are softening some of the load are only increasing the debt ratio.
And some ways -- at one time the debt ratio was increasing at an increasing rate, and we've tried to very hard -- and one of the things I would encourage you to do is -- and I'd like to have -- have -- maybe a little later have the staff meet with you and give you what we've done in the last 18 months, some of the legislation that is still pending -- and I think it's in
Appropriations -- that also has certain situations that we may deal with.
And I don't think that we should be at this time even looking and listening to some of the -- some of the situations that we're dealing with, whether or not it still exists or whether it should be taken over, but there's a lot of different options that we have in legislation to be able to put in and what we've done with it and I'd like to be able to get with you and give you an update on it.
REPRESENTATIVE BOYLE: I -- I appreciate that. I will definitely be happy to -- to take a look at that and further legislation, and thank both of you for -- for your work on this vital issue.
And as a Philadelphia resident, quite frankly, it frightens a number of my constituents, myself included, because of this ticking time bomb.
Thank you.
CHAIRMAN PRESTON: Any other questions relating to the rates?
COMMISSIONER CAWLEY: Shall I finish?
CHAI^IAN PRESTON: Take your time.
COMMISSIONER CAWLEY: Act 129 authorized the Commission to reorganize the named bureaus in the Commission. I just want to tell you that that work is proceeding.
We competitively bid for a -- an expert to help us. They have been conducting interviews, not only with us and our staff, but other stakeholders, including those we regulate, and public officials.
The work, we should have a recommendation no later than this June. And before we do anything, of course, we will come to you and discuss it with you. It may or may not require legislation. Motor carrier transportation assessments,
I hesitate to even get into this thicket.
REPRESENTATIVE GODSHALL: So do I.
COMMISSIONER CAWLEY: The Commission must be funded and one of the ways -- the way we do it is you assess those we regulate, and interstate motor carriers traditionally have funded their share of the burdens placed on regulation.
Unfortunately the United States Congress in its wisdom decided to take that assessment ability away from the states and create a pile of money in Washington.
What we've discovered in the two years that we have participated in this program is about
15 percent of those who should pay don't and we don't have any ability to make them by yanking whatever authority that we have over them.
In fact, it's not even clear under the
Public Utility Code whether we have any authority to even participate in this method of assessment. So that needs clarification.
And -- and -- and -- and if -- if -- if it is clarified that we can do it this way, we would at least like to have our enforcement officers be able to stop these trucks and -- and -- until their owners pay their due.
Enough said.
Bureau of Consumer Services backlog. It's my opinion that Chapter -- the addition of Chapter
14 in the Public Utility Code on balance has done, I think, what it was intended and that was to increase the collection percentages of utilities.
It has caused hardships. I'm not saying that that part of the law is perfect, but I do know that -- that what -- one probably unintended effect is that it has created a lot of factual situations that are brought to our attention by means of an informal complaint as opposed to a written formal complaint that -- that causes the matter to go to an administrative law judge.
Most of these things start by informal complaints. It could be a telephone call. Usually is a telephone call.
The backlog is embarrassing. We have been -- we have -- we have thrown people at this.
We have thrown overtime at this.
But I'd rather hear you -- have you hear it from me than to get it from your constituents who in some instances, in fact, 8,535 instances, as of
January 8th, have been waiting six months for us to resolve a telephone complaint to us. That's simply unacceptable.
We are in the process of choosing a new director of our Bureau of Consumer Services. The former director retired after 30-some years. And that new individual, obviously, is going to have to deal with this issue.
The reorganization effort, by the way, does not affect this, because the law, Act 129, left in place three of our bureaus, administrative law judges, law, and the Bureau of Consumer Services.
The handle -¬
REPRESENTATIVE GODSHALL: In the typical -- in the typical complaint, like a telephone complaint, is it basically, you know, my rates will -- you know, what is the typical complaint coming in there?
COMMISSIONER CAWLEY: An awful lot of what this is is my circumstances have changed under
Chapter 14. Well, how have your circumstances changed?
Billing disputes. Complaints about landlord/tenant service. I mean it runs the gamut.
This is the most difficult job at the
Public Utility Commission, these people who handle these things, because it's very often people who are upset, angry, abusive, and it doesn't make it any better when they have to wait and wait and wait for an answer.
But it runs the gamut, representative. It runs the gamut.
But particularly because of the criteria under Chapter 14 for allowing the Commission to enter into -- to require a new payment arrangement with the customer, these are facts -- very often fact-intensive inquiries.
We do -- these -- our customer service reps do their best to resolve these things informally over the phone, and they must make some decision. They obviously don't like to make a decision unless they are comfortable with both sides of the story and the utility is given an opportunity to explain itself.
But if the customer doesn't like it, they can file a formal complaint and then it goes before an administrative law judge. But you got to go by the informal part.
And this is where this level of unresolved, informal complaints is too high.
REPRESENTATIVE GODSHALL: Thank you. COMMISSIONER CAWLEY: I'll tell you more as we try to deal with this.
And, finally, I would mention that I'm happy to report that Dominion Peoples Gas Company in
Pittsburgh is finally going to have a new owner.
For those of you from Pittsburgh who followed this, Equitable Gas, who was going to buy them, and then after a great deal of litigation the
Federal Trade Commission finally said no. Equitable bowed out. A -- a hedge fund funded essentially by pension funds was then going to buy them. They dropped out.
Now, a company or now another -- another fund, I shouldn't call it a hedge fund -- SteelRiver
Infrastructure Fund, much like the Macquarie interests that bought Duquesne Light Company, has now closed the deal with Dominion, which is the big utility in Richmond that owned this company, to buy this property.
At long, long last. And I say, I express frustration because this went on for a very long time because Dominion insisted that the buyer purchase not only the Pittsburgh property but the
West Virginia gas company as well.
And when the West Virginia Commission turned down that part of the deal, my colleagues and
I put our foot down and -- and told Dominion that we had enough of this being held hostage. We had approved the sale of the property to SteelRiver
Infrastructure Fund in Pennsylvania and we wanted it done. Or if they weren't going to do that, then we expected them, within a month, to tell us how they were going to spend the several hundred million dollars improving the service and bringing up the capital program in Pittsburgh of this company. We were tired of waiting.
So, finally, Dominion decided it would be wise for them to sell the Pittsburgh property separately, and they have done so.
This is good news for the 525 employees of the company in Pittsburgh and its 360,000 customers. An awful lot of work needs to be done with that company. And we're going to be watching it very carefully to make sure the new owner does it.
So with that, you asked what's on our mind. Well, that's just the top level.
CHAIRMAN PRESTON: First, it was very interesting that you didn't mention anything about telecommunications. So those two are -- COMMISSIONER CAWLEY: Well, would you like me to add something?
CHAI^IAN PRESTON: No. Unless it's a major situation, if you'd like to bring -- I mean if you want to give us an update on the employment issue.
COMMISSIONER CAWLEY: I will say one thing on telecom. In a competitive environment you can't have subsidy.
In the old days, when ATT provided services in Pennsylvania and owned all the telephone service, there were subsidies. The densely populated areas subsidized the rural areas.
CHAIRMAN PRESTON: You want to say that again just to make sure that some -¬
COMMISSIONER CAWLEY: That's -¬
CHAIRMAN PRESTON: -- of my colleagues heard that?
COMMISSIONER CAWLEY: It's -- it's more costly to serve rural areas because there are fewer customers per density of line. It's just a matter of common sense.
But that all ended on 1/1/84 and ever since everybody has had charges on his or her telephone bill. I looked at mine this past time. I'm paying $15 a month just in federal and state taxes, but also something called the Universal Service
Fund. We have a Pennsylvania Universal Service
Fund. We have a Federal Universal Service Fund.
I'll just say something about the Federal
Universal Service Fund. It funds not only so-called high cost rural areas, but it funds schools and libraries, communications to them, and it also funds rural health care facilities.
Pennsylvania -- Pennsylvanians pay into the federal fund $300 million a year. Our rural carriers and our schools and libraries get back all but $180 million.
But that 180 million net payment to the
Federal Universal Service Fund puts us about third or fourth in the country. And at a time when my colleagues and I are trying to keep the basic local services fund at no more than $18 a month, that
Universal Service Fund that we're paying into every year is subsidizing states where the local service rates aren't even $10 yet.
And what's -- what's of real concern is that the Federal Communications Commission within -¬ they've asked for a month's extension from Congress. They are now thinking of funding broadband deployment throughout the country using the Universal Service Fund.
And guess what that means for
Pennsylvania?
I'm so concerned about this I've accepted a position on the federal/state joint board. There are four state commissioners working with the five
FCC commissioners. The other three state commissioners are from Vermont, Indiana, and Oregon, all are net receiving states. Pennsylvania now is the only -- I hold the only seat on this board where we're a net payer state.
This all -- this obviously is of concern because if we're already net paying in $180 million as of 2008. I'm sure we paid in more than that in
2009. And if we're going to fund broadband deployment using the Universal Service Fund, we're going to be a net payer in to helping everybody else do what we did with Chapter 30 and we at least have to get early adoptor credit for what we've done.
Because we've already -- we've already paid for broadband deployment in Pennsylvania. We don't -- we don't want to have to do it again, plus subsidize other states doing it. There. I've gotten that off my chest now,
Mr. Chairman.
CHAI^IAN PRESTON: Thank you. Sometimes we really need to hear where we're going.
Also I really do want to commend you and your leadership and the rest of the commissioners on the issue of dealing with Dominion. Because, you know, you hear a lot of things about -¬
Mr. Chairman, when we talk consumers, this is the first time we'll see a larger company bring the customer service back to Pennsylvania with live individuals.
And if anything, we as elected officials get the complaints that it seems to be going the opposite. I want to be able to commend you.
Because at one time I thought when West
Virginia had said no we were going to possibly get stuck and I think that that set -- set a trend that will give maybe a lot more people a little bit more confidence that if you keep the dollars here and keep the dollars circulating, it also does help the consumers just as well.
You also brought up several statements that -- and -- and there's something I think in the last two years we're really trying to be able to reach. The issue of the product themselves and the -- the company doesn't make money from the product that it has to buy to be able to deliver the service and an awful lot -- as much as we try, the residents still don't -- still don't understand that, whether it's a local company, they're not making any money from that. And they have no choice if the cost is -- you know, is coming, whether we have Katrina or another issue that happens or it doesn't happen, but we don't really seem to explain it enough and often.
I want to commend you. Because I know that you've been out there in the public and you have had some very tough meetings, but at the same time, we, and I think all of us as legislators, continue to explain it as well as we're explaining it here on PCN.
So if you could, just go over it real quick, because we do have a -- you know, a couple new members here, about the issue of the cost away from -- you're not hearing it from the utility, but how it's actually -- is contrived in their bill.
COMMISSIONER CAWLEY: Well, in the case of both electric company -- or electric public utilities and natural gas public utilities, there is -- there is the acquisition of the commodity itself.
And by law and by PUC regulation, least cost procurement policies must be in place.
Effectively competitive acquisition of the supply must occur.
Now, on the natural gas side, we have -¬ annually we do an extensive evidentiary proceeding with all kinds of parties involved, including the
Consumer Advocate and the Office of Small Business
Advocate and our prosecutorial staff.
And you go over each natural gas company's program of acquiring gas to see if they have done it on a least cost basis. And we -- we don't -- we don't have the same procedure on the electric side.
But what we do require, and now Act 129 now requires us to do, is to oversee the process by which electric companies acquire their electricity ahead of time for those customers who do not choose an alternative supplier for their electricity.
In other words, we can control the process but not what -- what the wholesale market price is delivered. So we insist on auctions and request for proposals. We make the utility pay for an independent monitor and make sure that the -- that the competitive bid process is, in fact, competitive.
But once that price is determined, that -¬ that cost, that wholesale -- that acquired wholesale price of the commodity itself must be passed through to customers dollar for dollar.
In other words, the utility cannot mark it up in any fashion. The cost goes through dollar for dollar. That's federal law. And the federal law does not permit us -- permit us to modify it in any
-- in any way.
So 70 percent of the bill is determined that way. We get blamed for it. But the only part we really have in it is making them acquire the supply as competitively as possible.
We still -- we still have control over the distribution part of natural gas and electric systems where those are rate cases the way rate cases have always been, where the company has to come in periodically and demonstrate that its costs are prudent and that if it wants an increase that they've got to explain it. And they're subject to cross examination and days and days of evidentiary hearings and -- and a final vote.
So the distribution side remains regulated. The supply side does not.
CHAI^IAN PRESTON: Mr. Chairman?
REPRESENTATIVE GODSHALL: I just want to echo Chairman Preston's remarks. You know, I appreciate the responsiveness that we have had over the years, the last couple years with PUC, and you've been there and you've helped.
When we needed information, you've given it to us promptly and I think you're doing a good job over there.
I know that things are getting a little tight and have been that way for some time, but at the same time you -- you've -- you've been there when we needed you and I think the people in
Pennsylvania have benefited with what you've done over there.
But a great deal and they really don't know what -- what happens up here. In a lot of cases it's just, you know, looking at a piece of paper and who is responsible for this and they don't know what that paper could be if it wouldn't be for some work of some people up here in Harrisburg.
COMMISSIONER CAWLEY: Thank you, representative. I -- I think the PUC is the most misunderstood state agency. Everybody thinks we just raise rates when, in fact, when we do raise rates, it's only reluctantly and we put a brake on whatever is asked.
And the rest of the time, over and over again I say we are a consumer protection agency.
One way or another, that's what we've been doing for a hundred years. Whether it's customer complaints or doing inspections to make sure people have -- the carriers have insurance. They're auditing the books. They're auditing the physical property. Day in and day out, that's what we do.
And that's why I like to get out of bed and go to work in the morning, and I know that's why our staff works so hard at it. Even though we know we're misunderstood.
REPRESENTATIVE GODSHALL: Thank you.
CHAI^IAN PRESTON: Very well said. Any other questions from any other of the members?
I'd like to be able to again thank you for your continued hard work and all of your staff and attorneys, and -- and I understand the problem that we're going through.
I know one of the concerns that you even mention when we talk about the collection systems between the DSIC and the SIC plan, and -- and I'm looking now at hundreds, if not billions of dollars being spent on the stimulus package, and yet in a sense we're going -- you've heard me say this over again the last couple years -- we're going to pave these streets, we're going to dig these holes, and two to three years later we're going to come back again. We're going to pave these streets and dig these holes because we're not coordinating things enough.
We have a chance if we do the SIC or the
DSIC plan to be able to intermingle and reduce overall costs to the utilities, to the local municipalities, to the state, and even with our highway system, and still in a sense sometime -¬ just like when we were going through the rate cap hearings, I had members -- my members here say, well, competition will never come to Pennsylvania and eventually several -- as you know, several announcements with competition coming.
But if we don't do this now, an awful lot of the residents are going to be paying for it -¬ for it later, and I think that that's something that we really need to be able to look at when we can fix something and fix it and not worry about it for 20 to 30 or 50 years, I think we need to coordinate things amongst all of ourselves a little bit better.
So I really want to thank you for all your support and hard work as well.
COMMISSIONER CAWLEY: You're welcome.
CHAIRMAN PRESTON: That being said, tomorrow morning on House Bill 221, which is a consumer safety issue, we are adjourned. Be right back here tomorrow.
(The hearing was concluded at 3:10 p.m.) I hereby certify that the proceedings and evidence are contained fully and accurately in the notes taken by me on the within proceedings and that this is a correct transcript of the same.
Brenda S. Hamilton, RPR Reporter - Notary Public