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REGARDING H.B. 937, Natural Gas Legislation
BEFORE
MEMBERS OF THE HOUSE CONSUMER AFFAIRS COMMITTEE
My name is Sonny Popowsky. I am the Consumer Advocate of Pennsylvania.
Thank you for the opportunity to appear before this Committee on the
issue of competition in the natural gas industry in Pennsylvania and, in
particular, on the terms of House Bill 937.
I have testified at this Committee's prior hearing, in May 1997, on
retail natural gas competition and I also was an active participant in
the collaborative stakeholder process of affected industry participants
that attempted to provide consensus legislative language for
consideration by the members of the General Assembly. That process was
led by Public Utility Commission Chairman Quain and former Commissioner
Hanger last year and more recently by Chairman Quain and Commissioner
Wilson. I want to commend all of these Commissioners and their staffs
for their tireless efforts to bring disparate parties together in an
attempt to craft legislative language that the members of this Committee
and other members of the General Assembly could consider in arriving at
a balanced legislative package.
Obviously, as you can determine from the range of testimony that you
will hear at this week's hearings, the stakeholders were not able to
achieve complete consensus on the issues that we discussed. It is not my
intent to downplay any of the concerns that you may hear from witnesses
who did not support the draft that has been substantially incorporated
in House Bill 937. I do intend, however, to state why I believe that HB
937 -- particularly when it is coupled with the proposed elimination of
the gross receipts tax on natural gas utility customers -- represents a
reasonable compromise that will benefit consumers as we transition to a
more competitive natural gas industry.
In prior hearing in both the Senate and House on this issue, one
message came through loud and clear from various Committee members. That
message was that we must not jeopardize the reliability of service to
natural gas customers, particularly during the cold Pennsylvania winter
months. In my view, HB 937 strengthens, rather than weakens the
reliability obligations of the local gas distribution companies as well
as the Commission's authority to ensure that those obligations are met.
The Bill calls for each natural gas distribution company to file annual
reliability and supply plans to ensure that all of the peak day and
seasonal requirements of all customers can be met. The Commission must
review and approve such plans for purposes of reliability and supply as
part of each company's annual natural gas cost review.
Of equal importance to me, the Bill does not deregulate the price of
natural gas that will be charged by local gas distribution companies to
those customers who continue to purchase gas from those companies.
Rather, the Bill keeps in place the requirements of Section 1307(f) of
the Public Utility Code under which local gas distribution companies
have an obligation to secure gas supplies for their customers consistent
with a least cost procurement policy and the Commission has an
obligation to review those costs on an annual basis. While the Bill
maintains the possibility that an alternative supplier of last resort
may serve such customers in the future, that can only occur with the
approval of the Commission and only after the Commission promulgates
regulations to ensure that the rates charged by any alternate supplier
of last resort are just and reasonable. Thus, whether or not competitive
market suppliers provide less expensive or more desirable gas supply
services, residential gas customers will retain the ability to purchase
gas from their local distribution company or an alternative supplier of
last resort at rates that will remain subject to regulation by the
Public Utility Commission.
It might be tempting to try to "jumpstart" competition, by allowing the
local distribution companies to raise gas prices above their cost-based
regulated levels in order to allow new competitors to come in and "beat"
those prices for those customers who are willing to shop around. But as
we are already learning in the electric industry in Pennsylvania, it is
not likely that all, or even a majority of residential customers will
immediately switch to competitive suppliers or that all competitive
suppliers will immediately begin to serve residential customers. Just as
we imposed long-term rate caps on the generation rates of our electric
utilities to protect non-shopping customers, HB 937 continues the
protection of regulated purchased gas cost rates for customers who
either choose to stay or who are forced to stay with their current
natural gas provider.
In addition, if the General Assembly eliminates the gross receipts tax
on natural gas sales, it will effectively reduce the rates of all
current local gas distribution customers by five percent and will
eliminate the discrimination that is applied to those customers under
current Pennsylvania tax law. As you know, the only gas customers who
pay gross receipts tax today are those customers who buy gas from their
local gas distribution companies. Customers who buy gas from unregulated
marketers do not pay gross receipts tax on any part of their gas bills.
By eliminating this tax altogether, the General Assembly would end this
unfair discrimination and would allow all customers to choose their gas
supplier without having to take into account this artificial tax
advantage.
By adopting legislation, the General Assembly would also end the
current situation in which customer choice is only provided to customers
of those companies who choose to make such programs available. This
legislation would require all companies to allow customer choice and
would properly move the restructuring decision process from the
utilities to the Public Utility Commission. In addition, all gas
distribution companies would be required to implement consumer education
programs and to file universal service and energy conservation programs
to help low income customers pay their bills and save energy. I believe
this was an extremely important provision of our electric restructuring
legislation and must be a part of any future gas restructuring as well.
The bill also would require the licensing of all natural gas suppliers
as well as requiring consumer protections on such matters as termination
of service, price disclosure, and "slamming", or the unauthorized
switching of gas service suppliers. Today, we have "pilot" natural gas
choice programs in some or all of several gas service territories, but
we have no coordinated consumer education efforts and no generic
regulations on such matters as price disclosure requirements or
slamming.
While it would be easy to change this legislation in ways that would
increase competitive opportunities for natural gas suppliers, I would
strongly urge you to reject any proposals that would simply shift costs
from shopping customers to non-shopping customers. As I have testified
before on both telephone and electric issues, there are no competitive
benefits to Pennsylvania when the "costs" of competition are simply
shifted on to customers who are the least likely to be offered any real
competitive choice.
In conclusion, I think that House Bill 937 fairly addresses the needs
of Pennsylvania gas consumers in a manner that preserves the overall
reliability and integrity of the natural gas system. The Bill would give
our Commission the clear legislative authority to require customer
choice for all currently regulated local distribution companies and to
have licensing oversight over all retail natural gas suppliers. The Bill
is designed to prevent cost-shifting onto non-shopping customers and, if
coupled with the elimination of the gross receipts tax, would end a
long-standing discriminatory impact upon consumers who buy gas from
their local distribution companies.
I would be happy to answer any questions you may have at this time. The
resources of my office will, of course, remain available to you and your
staffs as you continue your deliberations on this important legislation.
April 27, 1999
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