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Pennsylvania Gas Legislation in Limbo

October 5, 1998
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Pennsylvania Gas Legislation in Limbo

Pennsylvania may have blazed the trail for state electric restructuring, but it's still floundering in the quagmire of natural gas unbundling. A legislative effort started last year by Rep. Frank Tulli, Sen. Jeffrey E. Piccola and several other state lawmakers has stalled while stakeholders continue arguing over details in workgroups at the state Public Utility Commission and the governor grapples with a tough decision over the potential loss of $120 million/year in gross receipts taxes.

Meanwhile, the fall legislative session ends in November and the gubernatorial election campaign is heating up. Right now, the future of Pennsylvania gas unbundling doesn't look too bright. But a lot can happen in a few days, Tulli noted last week in an interview with NGI.

"Well, in the assign-and-die session, it's possible," said Tulli. "We can move things pretty quickly. We can assign them as a major amendment to a bill that is germane. It can happen. I'm hopeful."

Tulli has drawn up a new simplified version of his former gas bill, which called for statewide unbundling on Jan. 1, 1999. As it's currently worded, the new legislation would leave many of the most contentious issues for the PUC to settle. But legislators and a large group of industry stakeholders, including utilities, the PUC, marketers, large consumers and small consumer advocates, currently are working on resolving some the major unbundling problems to flesh out the content of the bill.

"The collaborative is working," said Tulli. "But I think some of them are waiting until the governor says something on the tax issue and then they will move to do the final contentious issues. I think that's like a two-day event."

The tax issue could be the weak link in the chain, however. If everyone in the state decided to choose an alternative supplier, the state would lose millions in tax revenue that comes out of utility gas sales.

"It's my opinion that we ought to just let the gross receipts tax go as it is, and as people leave their home utility and shop, they don't pay the gross receipts tax then," said Tulli. "[The state] would lose revenue gradually. I don't think it would be out all at once. ...[T]he general assembly can work with the governor and find other means to make the budget whole or reduce spending. I'm hoping that the governor is going to say let's just not put anything in the bill about taxes, and when people shop, they leave." Offering to cut taxes usually is a good decision for a governor to make in an election year, but it's one he hasn't tackled yet.

Even if the governor moves on the tax issue, however, there still are some other difficult issues that could stand in the way of legislation. Not all of the state's utilities are eager to exit the merchant function. If that requirement is included in the bill, it could hamper its passage.

"I think we'll probably let the utilities stay in the supply business if they want to," Tulli said, reluctantly. "You know philosophically I'm not there, but I'm a political realist. If they can find somebody to take the supplier of last resort position, then they could get out of the supply function, but there are some who don't want to find another supplier of last resort. They want to be it.

"I think we're going to come to some agreement before the bill goes forward. We're not there yet," he said, indicating he still may try to persuade the utilities to accept a phasing out of regulated gas sales.

Also still to be resolved in collaborative sessions is the issue of mandatory capacity assignment. Marketers are against it but may soften their position if given other concessions.

Even if all the issue are resolved, however, some observers fear lawmakers may want to wait until next year to push statewide customer choice in order to first evaluate the success of electric restructuring.

"This is not oblivious to what is happening on the electric side," said Tim Merrill, of competitive energy strategies, which represents energy marketers. "We are signing up people now until Nov. 1 for choice under the electric program. We have anywhere from one-third to two-thirds of all the people in the state that are going to have a choice of electricity suppliers on Jan. 1, 1999. This is the full caboose. So there is, I think, also an appreciation of those that say 'well maybe we better see what happens on electricity before we go charging into gas.' I would think the legislators might be in that camp."

As one state government official noted, "Gas just doesn't have the same push behind it that electric deregulation did," because the largest customers already can choose their gas supplier and the smallest customers don't see as wide a disparity in gas prices from utility to utility as they do in electricity prices.

"If you added it all up, you can pretty much come to the conclusion that it doesn't really seem likely that anything is going to happen this fall," said Merrill. "I try to be optimistic, but I have to be realistic as well."

Rocco Canonica

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