niscak LLP cikeori &r February 2, 2015 VIA ELECTRONIC FILING

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1 M ATTORNEYS AT LAW cikeori &r S niscak LLP Todd S. Stewart Office: x242 Direct: tsstewart(hmsiegal.com 100 North Tenth Street, Harrisburg, PA Phone: Fax: VIA ELECTRONIC FILING Rosemary Chiavetta, Secretary Pennsylvania Public Utility Commission Commonwealth Keystone Building 400 North Street, Filing Room Harrisburg, PA February 2, 2015 RE: Implementation of Act 155 of 2014; Docket No. M ; COMMENTS OF NATURAL GAS SUPPLIER PARTIES TO TENTATIVE ORDER Dear Secretary Chiavetta: Enclosed for electronic filing with the Commission are the Comments of Natural Gas Supplier Parties to Tentative Order in the above-captioned matter. TSS/jld Enclosure If you have any questions, please do not hesitate to contact me. Very truly yo s, Todd S. Stewart z Counselfor Dominion Retail, Inc. d/b/a Dominion Energy Solutions, Shipley CHOICE, LLC d/b/a Shipley Energy, Rhoads Energy Corporation and AMERIgreen Energy MAILING ADDRESS: P.O. BOX 1778 HARRISBURG, PA 17105

2 BEFORE THE PENNSYLVANIA PUBLIC UTILITY COMMISSION Implementation of Act 155 of 2014 Docket No. M COMMENTS OF NATURAL GAS SUPPLIER PARTIES TO TENTATIVE ORDER NOW COME, Dominion Retail, Inc. dlb/a Dominion Energy Solutions ( DES ), Shipley CHOICE, LLC dlb/a Shipley Energy ( Shipley ), Rhoads Energy Corporation ( Rhoads ), and AMERIgreen Energy ( AMERIgreen ) (collectively NGS Parties ) and hereby offer their comments as requested by the Pennsylvania Public Utility Commission ( Commission ) in its Order at this Docket, entered December 18, Within the coalition of suppliers that comprises the NGS Parties, all are licensed natural gas suppliers ( NGS ), while three are also licensed Electric Generation Suppliers (Shipley, AMERIgreen and DES). As competitive market participants, much of the regulation that applies to traditional utilities does not apply to the NGS Parties because they are NOT public utilities. For example, their rates are not regulated by the Commission, nor do they ownloperate physical facilities that are subject to Commission regulation. Rather, they are regulated strictly on their service. It also is important to note that EGSs and NGSs ( Suppliers ) are not afforded a mechanism that would allow them the dollar for dollar recovery of assessment costs from their customers, as is true for most utilities. This is another way of pointing out that Suppliers are not public utilities and assessing them in the way utilities are assessed is neither warranted nor fair. In 2014 DES completed the sale and assignment of all of its Pennsylvania retail electricity customers to another EGS. DES has filed a petition with the Commission to abandon its EGS license but that request has not yet been granted.

3 I. BACKGROUND As the Commission acknowledges in its Order, the statutory model for assessing utilities has been the two bucket approach described in 66 Pa. C.S. 5 10(b) The overall goal is to recover from utilities the entire cost of administering the Public Utility Code 66 Pa. C.S. 510(f). The first bucket collects each utility s reasonable share of the costs incurred by the Commission that are directly attributable to that group of utilities. 66 Pa. C. S. 51 0(b)( 1). The second bucket collects all the indirect costs (up to 40% of the Commission s overall expenses) that are not attributable to any specific utility group. 66 Pa. C.S. 510(b)(2). The costs in the first bucket are directly assessed to the individual groups. The costs in the second bucket are allocated to the groups based upon the ratio of that group s bucket one expenses to the total of all bucket one expenses. Finally, once the overall assessment has been calculated for each group, it is then allocated within the group of utilities on the ratio of each utility s direct costs to the direct costs of the entire group. This process is intended to ensure that all the costs of running the Commission are recovered from the utilities. There are; however, several important distinctions between utilities and suppliers. Utilities have franchised service territories with captive customers who are not able to avoid paying their largely regulated rates, and most have the ability to pass-through regulatory assessment costs to customers through those regulated rates. Suppliers by contrast, do not have these things. Suppliers can only charge a price if that price can compete with other prices in the market, and their customers are by no means captive. Moreover, the major components of EGS prices are the recovery of the wholesale costs of generation and transmission and all the ancillary costs that go along with the wholesale market, while NGS costs are largely a pass-through of wholesale gas costs and transmission costs. That is, Supplier prices are driven by wholesale 2

4 supply costs and not by the assessment costs. Imposing large assessments on Suppliers could most certainly lead to devastating financial consequences if they are unable to recover the money from their customers. II. THE STATUTE Act 155 modified the Public Utility Code, 66 Pa C.S. 101, et seq., in a number of respects. Pertinent to the assessment process however, it modified three sections. First, it modified Section 510, 66 Pa.C.S. 510, to effectively raise the cap on the Commission s annual budget, by including revenues from licensed entities in the calculation of gross intrastate operating revenues that are the basis the Commission s budget cap. That is, by increasing the denominator against which the 1% cap is applied, the Commission s budget is not limited simply because customers purchase electricity and natural gas from licensed entities supplier revenues now count. The General Assembly also added similar Sections 2208(h) and 2809(g) to the Public Utility Code. 66 Pa. C.S. 2208(h) and 66 Pa. C.S. 2809(g). These sections provide: The Commission may establish, by order or rule, on a reasonable cost basis, fees to be charged for annual activities related to the oversight of natural gas suppliers. 66 Pa. C.S. 2208(h). The Commission may establish, by order or rule, on a reasonable cost basis, fees to be charged for annual activities related to the oversight of electric generation suppliers. 66 Pa. C.S. 2809(g). Contrary to the suggestion of the Commission s Order, it is absolutely clear that the General Assembly did not intend that the Commission would apply the assessment methodology of Section 510 to Suppliers. The language of the sections quoted above is entirely different from Section 510, and speaks of fees, established on a reasonable cost basis, to be charged for annual activities related to the oversight of [Suppliers]. There is no expressed intention, as is 3

5 present in Section 510(f), to recover all of the costs of implementing this part. Moreover, the General Assembly actually modified Section 510 as part of Act 155, and so it must be assumed that they know the difference between assessment and fee, and so it should be no surprise that the General Assembly simply did not add suppliers to the list of entities that are subject to the assessment process in Section 510. To the contrary, the General Assembly created new sections for each type of supplier and established a reasonable fee for each. Under the rules of statutory construction, words matter and the choice of location also matters. There can be no reasonable doubt that the General Assembly did not intend that the Commission implement those sections by simply turning around and subjecting Suppliers to the assessment provisions of Section 510. The NGS Parties submit that subjecting Suppliers to an assessment calculated on the basis of recovering all of the costs of implementing and enforcing Title 66, is not the same as the fee described in Sections 2208(h) and 2809(g). Despite the Commission s efforts to describe the assessment process as being on a reasonable cost basis, it clearly is not. In particular, the assessment process of Section 510 recovers both direct and indirect costs--that is, not costs solely related to regulating a particular industry, but also the overhead of running the Commission, otherwise known as indirect costs. These certainly are not costs related to the oversight of {Suppliersj and go far beyond what is contemplated by Act 155. The NGS Parties do not presently dispute the authorization to charge a fee based upon the direct costs of regulating their particular industry(s). However, they simply cannot agree that a fee that recovers more than direct costs is a reasonable fee or that such a fee complies with Act

6 Not only would a fee that essentially subjected Suppliers to the Assessment process not comport with the statutory requirements, the analysis purporting to support the reasonableness of the fee fails to consider the differences in the nature of electric generation supply business and natural gas business. As if that were not bad enough, because EDCs and NGDCs now recover the assessments related to indirect costs assessed to the electric and gas industries in their base rates, as do all other utilities, and requiring Suppliers to pay those costs now would cause Supplier customers to pay twice, until those utilities receive approval of their next base rate case. It also is without question that imposing higher assessments on suppliers will further the disparity between prices Suppliers can charge and the price to compare. The reason is simple; utilities recover assessment costs from every customer through base rates. Suppliers do not have base rates; they have a price for the supply service. Because natural gas and electric distribution companies do not recover their assessment costs through the price to compare, it creates another artificial mismatch, i.e., an unfavorable comparison as between the price to compare and Supplier prices. 5

7 III. CONCLUSION For all of these reasons, the NGS Parties respectfully submit that it would be patently unfair and unreasonable to impose assessments on NGSs and EGSs that are calculated using the methodology set out in 66 Pa. C.S. 510, and that such an approach would fly in the face of Act 155 s express requirements. Suppliers understand that it may be proper for them to bear the costs of regulating their specific industry, but contend that imposing the full measure of the assessment process goes well beyond a reasonable cost based fee. For these reasons were urge the Commission to revise its Tentative Order and base the fees solely on the reasonable direct costs of regulating the EGSs and NGSs, and not on indirect costs. Respectfully submitted, Todd S. Ste aii(attomey ID ) Hawke McKeon & Sniscak LLP Harrisburg Energy Center 100 North Tenth Street P.O. Box 1778 Harrisburg, PA (717) (717) (Fax) tsstewart(ll,hrnslegal.com DATED: February 2,2015 Counselfor Dominion Retail, Inc. d/b/a Dominion Energy Solutions, Shipley CHOICE, LLC d/b/a Shipley Energy, Rhoads Energy Corporation and AMERigreen Energy 6