Realigning Utility Incentives

Commissioner Wayne E. GardnerPennsylvania Public Utility Commission

Keystone Energy Efficiency AllianceSept. 20, 2011

Overview of the PA PUC• Much like other state utility regulatory agencies, the

Pennsylvania Public Utility Commission strives to:

– Balance the needs of consumers and utilities to ensure safe and reliable utility service at reasonable rates

– Protect the public interest

– Educated consumers to make independent and informed utility choices

– Further economic development

– Foster new technologies and competitive markets in an environmentally sound manner

2

Authority Over Utility Rates

American Recovery and Reinvestment Act Investigation

- To determine measures to ensure that utility financial incentives are aligned with helping their customers use energy.

– To ensure that Commission ratemaking policies provide timely cost recovery and timely earnings opportunities for utilities in ways that promote utility customers to use energy more efficiently. 3

Water DSIC Legislation• In 1997, the Public Utility Code was amended to provide for an

adjustment clause for the recovery of costs related to distribution system improvement projects designed to enhance water quality, fire protection reliability and long-term system viability.

• A distribution system improvement charge that includes a surcharge on customers’ bills to accelerate the replacement of existing brittle and corroded system.

• System improvement charges reduce the frequency and the associated costs of base rate cases while maintaining a high level of customer protections.

4

Revenue Decoupling•

• 20 million residential customers out of the 65 million residential customers nationwide receive service from natural gas utilities that have this in place.

• In June 2006, NFG filed for a base rate increase, which included a revenue decoupling mechanism to remove the disincentive for gas distribution companies from promoting conservation on their systems. The settlement included removal of this proposal.

• Another example: Columbia Gas5

• An Act amending Title 66 (Public Utilities) of the Pennsylvania Consolidated Statutes, further providing for valuation of and return on the property of a public utility; and providing for alternative regulatory mechanisms.

• PUC believes it would be a positive regulatory tool to help manage utility infrastructure costs ensuring that the bill includes appropriate protections for all consumers.

• Consumer protections include an opportunity to file complaints, a pre-established cap on the amounts that can be recovered, a provision to prevent any excess earnings, and subsequent audits of the collections. 6

HB 1294 and ARM