Senate Bill No. 396

Introduced By foster, simon, thomas, grady, beaudry, hertel, knox, debruycker, pavlovich, grinde, denny, ryan, wilson, quilici, kottel, dowell, mccarthy, harrington, sliter

A Bill for an Act entitled: An Act allowing natural gas utilities to provide for customer choice; allowing natural gas utilities to use transition bond financing for transition costs; ALLOWING FOR FUNCTIONAL SEPARATION AND CONSUMER PROTECTION; requiring the public service commission to license natural gas suppliers; establishing reciprocity for all natural gas suppliers; PROVIDING FOR OPTIONAL PERFORMANCE-BASED RATEMAKING; REQUIRING THE REVENUE OVERSIGHT COMMITTEE TO CONDUCT A TAX REVENUE ANALYSIS AND REPORT TO THE 56TH LEGISLATURE; providing for universal system benefits programs; and providing an immediate effective date and a retroactive applicability date.


A statement of intent is required because this bill provides the public service commission with rulemaking authority.

Be it enacted by the Legislature of the State of Montana:

Section 1.  Short title. [Sections 1 through 9] may be cited as the "Natural Gas Utility Restructuring and Customer Choice Act".

Section 2.  Definitions. As used in [sections 1 through 9], the following definitions apply:

(1) "Customer" means a natural gas customer or consumer of natural gas supply or natural gas transmission facilities, storage facilities, or distribution facilities.

(2) "Distribution facilities" means those facilities that are not transmission facilities:

(a) by and through which natural gas is received from a transmission services provider and transmitted to the customer; and

(b) operated by a distribution services provider.

(3) "Distribution services provider" means a person controlling or operating distribution facilities for distribution of natural gas to the public.

(4) "Natural gas supplier" means a person, including aggregators, market aggregators, brokers, and marketers, licensed by the commission that is offering to sell natural gas to retail customers in the state of Montana.

(5) "Natural gas utility" means a utility regulated by the commission on [the effective date of this act] that provides natural gas services to the public.

(6) "Open access" means that a natural gas utility has made its transmission facilities, storage facilities, or distribution facilities available to all natural gas suppliers, transmission services providers, distribution services providers, and customers on a nondiscriminatory and comparable basis.

(7) "Performance-based ratemaking" means those forms of regulation that include but are not limited to the use of revenue indexing, price indexing, ranges of authorized return, gas cost indexing, and innovative use of utility-related assets and activities, such as system sales of excess natural gas supplies, release of upstream pipeline capacity, and performance of billing services for other natural gas suppliers. A performance-based regulation may also include a mechanism for automatic annual adjustments of revenue to prices to reflect changes in any index adopted for the implementation of the performance-based form of regulation.

(8) "Storage facilities" means those facilities that are owned, controlled, or operated by a person offering storage service for natural gas and generally means any underground reservoir suitable for the storage of natural gas and the facilities used to inject and withdraw natural gas into and out of that underground reservoir.

(9) "Transition costs" means:

(a) a natural gas utilitys net, verifiable production- and gathering-related costs, including costs of capital, that become unrecoverable as a result of customer choice and open access. These costs include but are not limited to:

(i) regulatory assets and deferred charges that exist as a result of current regulatory practices and that may be accounted for up to the point in time that the commission issues a final order in a docket addressing transition costs[, including all costs, expenses, and fees related to the issuance of transition bonds];

(ii) the above-market costs associated with existing gas supply commitments;

(iii) other natural gas utility investments rendered uneconomic as a result of implementation of customer choice and open access;

(iv) the costs associated with renegotiation or buyout of existing natural gas purchase contracts; and

(v) the costs associated with the issuance of any related transition bonds authorized by the commission pursuant to [section 3].

(b) the costs of refinancing or retiring debt or equity capital of the natural gas utility and associated federal and state tax liabilities or other utility costs for which the use of transition bonds would benefit customers.

(10) "Transmission facilities" means those facilities owned, controlled, and operated by a transmission services provider that are used to transport natural gas from a gathering line or storage facility to a distribution facility, storage facility, or end-use customer.

(11) "Transmission services provider" means a person controlling or operating transmission facilities.

(12) "Universal system benefits charge" means a nonbypassable rate or charge to be imposed on a customer to pay the customers share of universal system benefits program costs.

(13) "Universal system benefits programs" means public purpose programs for cost-effective local energy conservation, low-income weatherization, and low-income energy bill assistance.

Section 3.  Customer choice. (1) A natural gas utility may voluntarily offer its customers choice of natural gas supplier and provide open access to its transmission facilities, storage facilities, or distribution facilities.

(2) If a customer choice offering results in transition costs, the commission may allow those transition costs to be recovered in separate identifiable charges to customers. Upon commission approval, the natural gas utility must have the opportunity but not the obligation to finance the fixed transition costs and related financing costs using transition cost financing as provided for in [sections 3 and 31 of Senate Bill No. 390].

Section 4.  Functional separation -- code of conduct -- emergency services -- customer protection. (1) A natural gas utility that provides customer choice and open access on its system shall:

(a) functionally separate its natural gas production and gathering from its natural gas transmission, storage, and distribution services and remove natural gas production and gathering from the rate base;

(b) adopt and comply with commission-approved standards of conduct to be included in a tariff to govern its natural gas transmission, storage, and distribution services; and

(c) provide emergency natural gas supply and related services to the extent necessary to maintain the operational integrity of the transmission system as determined by the commission.

(2) The commission shall develop standards that protect consumers and natural gas suppliers from anticompetitive and abusive practices.

(3) [Sections 1 through 9] do not reduce or otherwise change the authority of the commission to review the prudence of natural gas purchases made by a natural gas utility for its customers that do not have a choice or that have not made a choice of natural gas suppliers or have not been assigned a natural gas supplier.

Section 5.  Licensing -- procedures -- commission rulemaking. (1) The commission shall license natural gas suppliers and enforce licensing provisions pursuant to this section.

(2) A natural gas supplier shall file an application with and obtain a license from the commission to sell natural gas to customers in the state of Montana.

(3) A licensee shall:

(a) provide copies of all license applications to the commission and to all distribution services providers; and

(b) update information and file annual reports.

(4) A license application becomes effective 30 days after filing with the commission, unless the commission rejects the application during that period. If the commission rejects a license application, the commission shall specify the reasons in writing and, if practical, shall identify alternative ways to overcome deficiencies.

(5) The commission shall promulgate rules requiring licensing information that identifies the licensee and ensures that the natural gas supply is provided as offered and is adequate in terms of quality, safety, and reliability.

(6) The commission may require proof of a licensees financial integrity and a demonstration of adequate firm deliverability to meet load requirements.

(7) Pursuant to its own investigation or upon the complaint of an affected party, the commission may institute a proceeding to revoke or suspend a license of a natural gas supplier for just cause.

Section 6.  Reciprocity. (1) All natural gas suppliers are afforded the comparable opportunity to compete.

(2) A natural gas distribution services provider or its affiliates may not use another natural gas distribution services provider's facilities in the state of Montana to sell natural gas to customers in the state of Montana unless the natural gas distribution services provider or its affiliates offer customer choice and open access to their natural gas distribution facilities.

Section 7.  Optional performance-based ratemaking for natural gas utilities -- commission rulemaking.  (1) The commission may, upon application and after giving notice and conducting a hearing as provided in 69-3-303, authorize any natural gas utility to implement an optional form of rate regulation using a performance-based ratemaking methodology.

(2) The commission may approve a performance-based ratemaking methodology if it finds that the methodology:

(a) preserves adequate service to all classes of customers, including transportation-only customers;

(b) does not unreasonably prejudice or disadvantage any class of natural gas utility users;

(c) provides incentives for improved performance by the natural gas utility in the natural gas utility's public duties;

(d) results in rates that are not excessive; and

(e) is in the public interest.

(3) The commission may, after giving notice and conducting a hearing as provided in 69-3-303, modify or discontinue a natural gas utility's performance-based ratemaking previously authorized under this section if the commission finds that:

(a) natural gas service to one or more classes of customers has deteriorated or will deteriorate;

(b) any class of natural gas utility customer is being unreasonably prejudiced or disadvantaged;

(c) the performance-based ratemaking is not providing or will not provide reasonable incentives for improved performance by a natural gas utility in the performance of its public duties;

(d) rates are excessive compared to a natural gas utility's cost of service;

(e) terms ordered by the commission in connection with the approval of a natural gas utility's implementation of performance-based ratemaking have been violated; and

(f) the performance-based form of regulation is not in the public interest.

(4) The commission shall promulgate rules for monitoring a natural gas utility that has implemented performance-based ratemaking to ensure that the natural gas utility is in compliance with the requirements of this section.

Section 8.  Universal system benefits programs -- establishing nonbypassable rate. (1) A natural gas utility shall implement, upon commission approval, a universal system benefits program that considers existing universal system benefits programs in the state.

(2) The commission shall establish a universal system benefits charge that either all natural gas transmission services providers or all distribution services providers, or both, in the state of Montana shall charge to all end-use customers, taking into consideration the current level of expenditure by the natural gas utility, cost-effectiveness, and similar costs imposed in other states. The method of assessing those rates may not disproportionately burden a large transmission services provider's customers. Within the universal system benefits charge, a natural gas utilitys annual funding requirement for low-income weatherization and low-income energy bill assistance is established at 0.42% of a natural gas utilitys annual revenue. A natural gas utility must receive credit for its internal programs or activities that qualify as universal system benefits programs.

(3) On or before July 1, 2002, the commission shall conduct a reevaluation of the ongoing need for universal system benefits programs and annual funding requirements and shall make recommendations to the 58th legislature regarding the future need for universal system benefits programs. The determination should focus specifically on the existence of markets to provide for any of the universal system benefits programs or on whether other means for funding those universal system benefits programs have developed. These recommendations may also address how future reevaluations will be provided, if necessary.

Section 9.  Tax revenue analysis.  (1) The revenue oversight committee, as provided for in 5-18-102, shall analyze the amount of state and local tax revenue derived from previously regulated natural gas suppliers that will enter the competitive market and shall report to the legislature on how revenue to the state or local government is changed by restructuring and competition.

(2) On or before November 30, 1998, the revenue oversight committee shall recommend to the 56th legislature legislative changes to address the establishment of comparable state and local taxation burdens on all market participants in the supply of natural gas.

Section 10.  Saving clause -- retroactive applicability. (1) Except as provided in (2), [this act] does not affect rights and duties that matured, penalties that were incurred, or proceedings that were begun before [the effective date of this act].

(2) [This act] applies retroactively, within the meaning of 1-2-109, to restructuring filings filed with the public service commission after June 1, 1996.

Section 11.  Severability. If a part of [this act] is invalid, all valid parts that are severable from the invalid part remain in effect. If a part of [this act] is invalid in one or more of its applications, the part remains in effect in all valid applications that are severable from the invalid applications.

Section 12.  Codification instruction. [Sections 1 through 9] are intended to be codified as an integral part of Title 69, and the provisions of Title 69 apply to [sections 1 through 9].

Section 13.  Coordination instructions. If Senate Bill No. 390 is not passed and approved or as passed and approved does not include [sections 3 and 31], then:

(1) [sections 2(9)(a)(v) and (9)(b) and 3(2) of this act] are void and the subsections of section 2(9) are renumbered; and

(2) the bracketed language contained in [section 2(9)(a)(i) of this act] is void.

Section 14.  Effective date. [This act] is effective on passage and approval.