Pa. PUC Denies Utility's Proposed Natural Gas Carbon Offset Product -- EnergyChoiceMatters.com

Pa. PUC Denies Columbia Gas' Proposed Natural Gas Carbon Offset Product

PUC Says Proposed Carbon Offset Program Cannot Be Offered As A Tariffed Service

June 15, 2023

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Reporting by Paul Ring • ring@energychoicematters.com

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Reversing a recommended decision from a group of ALJs, the Pennsylvania PUC denied the proposal from Columbia Gas of Pennsylvania to offer customers a voluntary carbon offset product on a pilot basis

See background on the proposal here

Under Columbia's proposed Green Path Rider (GPR or pilot), Columbia would purchase renewable natural gas (RNG) environmental attributes and carbon offsets to match the customer’s election of either a 50% or 100% reduction in their emissions, and the customer will be charged an additional fee per therm that reflects the cost of the RNG environmental attributes and carbon offsets purchased by Columbia on behalf of the customer.

Columbia proposed the carbon offset product via a tariff supplement (Tariff Supplement No. 343)

However, the PUC found that the nature of the service did not meet the standard to be a tariffed service, and therefore could not be approved

Notably, because the program was proposed as a tariffed service, the PUC noted that, "It is significant that, if approved, the costs associated with the program would be recoverable as part of rate base from Columbia’s customers, even if restricted to customers who voluntarily participate in the offering/program. "

"If the Commission were to approve Tariff Supplement No. 343, Columbia would be authorized, from an accounting standpoint, to treat the revenue and costs associated with the program as 'above the line,' as necessary for the provision of utility service," the PUC said

However, the PUC said that, "The purchase of such offsets is not 'used or useful' in Columbia’s provision of gas distribution utility service. Therefore, Columbia’s proposed Tariff Supplement No. 343 fails to establish a rate which qualifies as a tariffed rate under Section 1307."

"Under the 'used and useful' standard for inclusion in rate base, it becomes evident that Tariff Supplement No. 343 pertains to a 'below the line' service which, albeit a desirable option for some customers, with a laudable goal of contributing to global decarbonization efforts, is not necessary for Columbia’s provision of public utility service," the PUC said

"In fact, the offering, as proposed by Columbia is more like a utility’s nontariffed offering of goods or services such as the sale of appliances. Such items are considered 'below the line' or excluded from rates as they are unnecessary to the provision of utility service," the PUC said

Additionally, the PUC found that Columbia's Tariff Supplement No. 343 does not sufficiently specify a rate to be charged, as required under Sections 1307 and 1308 of the Code

While Columbia had proposed specific initial rates for the carbon offsets themselves, the PUC said that a specific rate was not contained in the proposed tariff because, among other things, administrative and similar costs would be spread over an unknown number of participants who end up joining the program

"We conclude ... that Tariff Supplement No. 343 does not propose a specific rate and is, therefore, not just and reasonable. As noted by the OCA, the 'rate' to be charged for the optional service proposed under Tariff Supplement No. 343 is neither known or firm, nor knowable, where the Company’s proposed method for recovery of costs, which would spread the initial costs and ongoing operating expense associated with the GPR among the customers which elect to participate. See, OCA Exc. at 1. Since the number of customers to participate is an unknown variable, there can be no 'firm' or known rate for the proposed GPR tariff rate," the PUC said

Further concerning rate matters, the PUC said that the program poses a financial risk to all customers, even where the costs are said to be applied to only pilot participants

In particular, the PUC raised concerns about arrears which may accrue among pilot customers, particularly as Columbia did not propose to prohibit all low-to-moderate income customers from joining the pilot (though CAP customers and customers currently arrears in would be prohibited). Higher arrearages are to the financial detriment of all ratepayers, the PUC said

"It would be difficult for Columbia to determine what amount of the customers’ payments were applicable to the GPR [pilot] costs. Removing customers from the GPR program after three months of default [as proposed] would be too long. Customers may not be able to recover from that amount of arrears. If a customer finds the program too costly and withdraws, the costs may remain in arrears or unpaid," the PUC said

Additionally, the PUC expressed concern with how Columbia will recover the fixed costs of the pilot program if there is a shortfall in actual customer participation. "[W]we find merit in the observation of the RESA/NGS Parties that there is a very real possibility that the costs of the GPR [pilot] program will ultimately be incurred by all of Columbia’s ratepayers," the PUC said. Thus, the tariff does not set forth a specific "rate" to be charged given such potential unknown cost recovery issues,. the PUC said

"We find that Tariff Supplement No. 343, as proposed, does not sufficiently specify a rate to be charged, as required under Sections 1307 and 1308 of the Code, and pertains to 'below the line' non-tariffed products or services (RNG attributes and carbon offsets) which are not appropriate for approval as tariffed products or services, as they are not 'used or useful' for the provision of gas distribution utility service. Further, because we conclude that Tariff Supplement No. 343, as proposed, does not pertain to Columbia’s rate base, it cannot be found to be 'just and reasonable' or in the public interest as required by Section 1301, and other provisions of the Code," the PUC said

As the PUC found that the proposed carbon offset pilot may not be a tariffed program, and rejected it on such grounds, the PUC did not address concerns raised by retail suppliers regarding competitive products, the application of the Standards of Conduct, and nondiscrimination in billing, as such questions were rendered moot

Among other things, the RESA and NGS parties has argued that the ALJs' recommended decision had erred by: (1) failing to recognize that the GPR is a competitive product; (2) failing to mandate the application of the Standards of Conduct to the GPR; and (3) failing to require that Columbia’s proposed on-bill billing for the GPR would require Columbia to offer on-bill billing to NGSs for similar products

"[W]we find the separate questions raised by the Exceptions of the RESA/NGS Parties (pertaining to a competitive product offering subject to Section 2209 of the Code, application of the Standards of Conduct under 52 Pa. Code §62.142, non-discrimination in billing under Section 1509 of the Code ... to be moot," the PUC said

The PUC did not opine on the ability of a utility to offer such a program on a non-tariffed basis, which would implicate other rules and precedent concerning billing

The PUC also raised concern over the PUC's lack of a statutory mandate concerning RNG (as opposed to renewable electricity), and that there is no state agency charged with verifying claimed offsets and reductions (unlike with the renewable electricity AEPS program)

"We further note our concern regarding the assertion of jurisdiction to approve environmental carbon offset products for which the Commission possesses no special expertise. Columbia’s proposal involves the approval for tariffed treatment of carbon emissions offset products which implicitly suggests the Commission’s sanctioning of the product for the environmental purposes it purports to serve. Unlike under the AEPS Act, in the present case there is no interagency jurisdiction regarding the gas utility industry by which the DEP would ensure and verify that the proposed carbon emissions offset products would meet any relevant environmental standards. The lack of DEP oversight for verification of the environmental standards applicable to the proposed products weighs against our approval of Tariff Supplement No 343," the PUC said

"[W]hile we do not expressly conclude that the Commission lacks jurisdiction to approve Tariff Supplement No. 343, we find that there are serious policy considerations and facts which raise jurisdictional questions which weigh against its approval," the PUC said

The PUC also expressed concern about how the program would be presented to customers

"We are concerned that the information about the program provided to consumers, thus far, has been unclear. The surveys, although answered by only a limited number of customers, focused on renewables -- particularly RNG, which may lead customers to believe that Columbia would offer them the option to support the use of RNG, not RNG attributes or carbon offsets," the PUC said

"The notice regarding the proposed GPR [pilot] indicated that it could 'reduce' a customer’s emissions, which is not entirely accurate," the PUC said

While Columbia had cited customer certain survey responses as favoring adoption of the pilot, the PUC expressed, at length, concerns about the survey methodology, respondent pool size, and data

Among other things, the PUC said, "the initial surveys Columbia used to gauge interest in RNG (not RNG attributes or carbon offsets) were limited in their usefulness because of the small number of responses and their inapplicability to the proposed GPR pilot."

R-2022-3032167

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