Customer Assistance Programs / Universal Service Charge
Issue:
On November 6, 2019 the Public Utility Commission issued a final policy statement in Docket M-2019-3012599. In this policy statement the Commission, “hereby adopts the following changes to the CAP Policy Statement, subject to the requisite implementation processes through the amended CAP Policy Statement adopted by this Order and/or utility-specific proceedings.” One of the changes has the potential for significant cost shift to industrial customers:
“17. Utilities should be prepared to address recovery of CAP costs (and other universal service costs) from any ratepayer classes in their individual rate case filing.[15]
[15] We are not making a final precedential decision regarding cost recovery in this docket. “
The total program cost are in the order of $400 million. Therefore this could result in a significant cost increase to industrial and large energy users.
IECPA Position:
IECPA supports utility rates based on cost of service - meaning the cost to serve each customer class should be collected from that customer class. Therefore these residential customer assistance program costs should continue to be recovered within the residential class.
Details:
At the end of March 2018, the Commission issued a Secretarial Letter announcing the formation of a statewide Universal Service Workgroup in order to further discuss and provide ongoing recommendations relating to the future framework and structure of Universal Service and Energy Conservation Programs. Although none of the prior Orders or secretarial letters in the CAP Affordability docket (or the most recent stakeholder meetings) spoke to or invited comment on the issue of cost allocation and recovery, the issue was raised in the comment process for that docket in May 2019 by the Office of Consumer Advocate and low-income advocates. The individual utility Industrial Groups and Penn State University submitted comprehensive responsive arguments also in May, but those arguments were to no apparent avail, as it appears that this issue is high on the agenda for Vice Chairman Sweet and Commissioner Place.
IECPA will be evaluating the Final Policy Statement Order, with a focus on the single element of the Motion addressing the cost allocation and recovery issue. To reiterate, however, although the Motion may portend of the Commission’s willingness to entertain a socializing of US/CAP costs, the issue would need to be raised in a future utility rate case in which it would be fully litigated with all the process that is due, preserving the opportunity for IECPA to participate.
Update 12/30/2019
Overview: The Commission’s Final Order and revised Policy Statement on Customer Assistance Programs (“CAP”) and Universal Service was finally issued on November 5th, after having been approved at a Public Meeting in September. The effect of the Order is to amend the Commission’s CAP Policy Statement and to apparently require EDCs and NGDCs to make filings to update their current Universal Service and Energy Conservation Program (USECP) plans, as necessary. (As a note, CAP programs are one of four Universal Service programs, but they are by far the most costly and extensive). This “compliance” filing requirement is quite unusual since the Order is approving policy statement changes. The Order also opens up the issue of CAP cost recovery from all customer classes to be addressed in the next rate case for each electric or natural gas utility, whenever that may be filed.
Policy changes: The Order adopts (and the amended Policy Statement reflects) 17 specific changes. The first 16 of those changes address various elements of establishing and administering CAP programs, such as energy burden thresholds, definitions of “payment-troubled” and “household income,” low-income thresholds, payment arrearage criteria and exemptions, etc. Per the Order, these 16 changes are to be addressed, at least initially, by each utility in USECP “addenda” filings to be made within 60 days of the Order (early January). The 17th change is of relevance to large users as set forth below, but it is not subject to any imminent filing.
Policy change 17: It states that “Utilities should be prepared to address recovery of CAP costs (and other universal service costs) from any ratepayer classes in their individual rate case filing.” It is footnoted with: “We are not making a final precedential decision regarding cost recovery in this docket.” Unlike the other 16 changes, this policy statement change will not be addressed until a utility files its next rate case.
Cost Recovery Discussion/Decision: In the Order, the Commission reviews various comments and positions taken by multiple parties on the issue of cost recovery, focusing mostly on the coalition of utility-specific industrial groups on the one hand and the Office of Consumer Advocate on the other. The ultimate dispute is whether such costs should be recovered on a cost-causation basis from the class that benefits as has been done generally for nearly 25 years (the industrial argument) or whether these costs should be socialized among all classes because they constitute a cost for a public good needed because of broad socio-economic problems (the OCA/low-income argument).
Ultimately, the Commission’s decision in the Order parses the issue by noting that no statute, rule, or policy restricts CAP cost recovery to the residential class, and because the Commission is concerned that that such costs are becoming more of a burden on all residential customers (not just those who benefit directly), then the issue should be opened up in future rate cases. The Order states: “Utilities and stakeholders are advised to be prepared to address CAP cost recovery in utility-specific rate cases consistent with the understanding that the Commission will no longer routinely exempt non-residential classes from universal service obligations.”
Ordering Paragraphs: The Commission “suggests” (because this is a “policy” order) in the text of the Order that the first 16 policy changes should be made effective by 1 January 2021. But the Commission’s ordering paragraph proceeds to require that each EDC and NGDC must make an addenda or “compliance” filing (within 60 days) indicating how they intend to implement the policy changes within their USECPs. As for cost recovery, the relevant ordering paragraph merely reiterates that the utilities should “be prepared to address” the issue in their next respective rate case filings.
Additional Related Filings: The OCA has filed a reconsideration request to this Order seeking minor clarification on components to be included in the “compliance” filings due in early January.
More importantly, the utilities, through the Energy Association of Pennsylvania (“EAP”), have sought reconsideration arguing that a “compliance filing” for implementing the first 16 amended policies is inappropriate – as they argue, “policy statements … do not establish binding norms and do not have the force of law.” As such, they argue, the Commission cannot in this case establish what amounts to a compliance obligation – to do so is contrary to the law. EAP argues, therefore, that any additional filing should be accepted as merely “voluntary and informational,” and they request that the Commission accept that interpretation. (As a note, the manner in which the Commission addressed the policy on cost recovery – giving all parties notice that they intend to look at the issue closely in future rate cases – is the appropriate approach when indicating a potential policy change.)
Final Thoughts: We will monitor the PUC’s treatment of the EAP request and for any compliance filings (if they ultimately are made). With respect to the CAP cost recovery issue, as EDCs and NGDCs make any future rate filings, it seems certain the issue will be raised, and IECPA should closely evaluate participation in those cases when filed to address this issue, among others.
Update 2/17/20
We have been awaiting the Commission’s orders on reconsideration for the Energy Association of Pennsylvania (EAP) and the Office of Consumer Advocate in the above-referenced matter. Those Orders (one for each separate request) were released last week after being addressed at the Public Meeting on the 6th.
The Commission has rejected the OCA reconsideration request. The OCA had sought changes with respect specific program metrics for LIHEAP funding and the necessity for program cost data in the future. The Commission has denied both requests as having already been considered or satisfactorily addressed.
With respect to the EAP request, the Commission’s Order grants their request. Recall that EAP had argued that they could not be forced to make a compliance filing for a Policy Statement. The Commission’s Order clarifies that the requested filings are “voluntary,” and utilities are “encouraged” to comply with the Policy Statement. Thus the Commission has clarified that is requesting each utility to advise the Commission of the degree to which it is complying with the new Policy Statement, whether it intends to comply, and if so, how. The Commission concludes that it is not mandating compliance with the new Policy Statement; it only seeks the equivalent of status reports, which are within the Commission’s authority.
The Commission’s Order requests such utility reports be filed by no later than 21 February (for those who have not yet filed). We will lightly monitor for those filings.
Our biggest issue of concern is that the Commission has indicated that it will seek to address US/CAP cost allocation among all classes in each utility’s next base rate case. These Orders on Reconsideration do not address that issue; however, both Orders reference the fact that at Docket No. L-2019-3012600 the Commission has directed that a comprehensive universal service rulemaking be initiated by the end of the first quarter. The end product of that exercise would be actual regulations – with the force of law – thus the conclusions of the Policy Statement (including as to cost responsibility) may be promulgated as regulations.
We will monitor any final utility filings regarding the Customer Assistance Program Policy Statement, and of course we will be actively monitoring for the initiation of the Universal Service rulemaking.
Update 9/2/20
In UGI 2020 Natural Gas Rate Case (R-2019-3018835) both the OCA and CAUSE-PA recommended that all universal service and low-income customer assistance program costs now be incurred by all rate classes, and not just from the residential class. This follows the PUC's indication last year that it may consider a change in the current policy that assigns those costs only to residential customers, on a case-by-case basis in each utility's base rate proceedings. This is the first attempt at this significant shift in policy, which the OCA and CAUSE-PA are certain to propose for every utility after UGI.
On June 19, 2020 IECPA submitted Rebuttal Testimony to address the universal service and low-income customer assistance program cost allocation that would, if approved, shift significant costs to non-Residential customers, including industrial transportation classes.
Ultimately IECPA participated in settlement discussions and establishment of a settlement agreement which was approved by the PUC which resulted in no change to the universal service and low-income customer assistance program cost allocation.