(a) General rule.--Any public utility, except common carriers and those natural gas distributors with gross intrastate annual operating revenues in excess of $40,000,000 with respect to the gas costs of such natural gas distributors, may establish a sliding scale of rates or such other method for the automatic adjustment of the rates of the public utility as shall provide a just and reasonable return on the rate base of such public utility, to be determined upon such equitable or reasonable basis as shall provide such fair return. A tariff showing the scale of rates under such arrangement shall first be filed with the commission, and such tariff, and each rate set out therein, approved by it. The commission may revoke its approval at any time and fix other rates for any such public utility if, after notice and hearing, the commission finds the existing rates unjust or unreasonable.
(b) Mandatory system for automatic adjustment.--The commission, by regulation or order, upon reasonable notice and after hearing, may prescribe for any class of public utilities, except common carriers and those natural gas distributors with gross intrastate annual operating revenues in excess of $40,000,000, a mandatory system for the automatic adjustment of their rates, by means of a sliding scale of rates or other method, on the same basis as provided in subsection (a), to become effective when and in the manner prescribed in such regulation or order. Every such public utility shall, within such time as shall be prescribed by the commission, file tariffs showing the rates established in accordance with such regulation or order.
(c) Fuel cost adjustment.--In any method automatically adjusting rates to reflect changes in fossil fuel cost under this section, the fuel cost used in computing the adjustment shall be limited, in the case of an electric utility, to the cost of such fuel delivered to the utility at the generating site at which it is to be consumed, and the cost of disposing of solid waste from scrubbers or other devices designed so that the consumption of Pennsylvania-mined coal at the generating site would comply with the sulfur oxide emission standards prescribed by the Commonwealth. The cost of fuel handling after such delivery, or of waste disposal, other than as prescribed in this section, shall be excluded from such computation. In any method automatically adjusting rates to reflect changes in fuel cost other than fossil fuel cost under this section, the fuel cost used in computing the adjustment shall be limited, in the case of an electric utility, to the cost of such fuel delivered to the utility at the generating site at which it is to be consumed after deducting therefrom the present salvage or reuse value of such fuel, as shall be established by commission rule or order.
(d) Fuel cost adjustment audits.--The commission shall conduct or cause to be conducted, at such times as it may order, but at least annually, an audit of each public utility which, by any method described in this section, automatically adjusts its rates to reflect changes in its fuel costs, which audit shall enable the commission to determine the propriety and correctness of amounts billed and collected under this section. Whoever performs the audit shall be a person knowledgable in the subject matter encompassed within the operation of the automatic adjustment clause. The auditors report shall be in a form and manner directed by the commission.
(e) Automatic adjustment reports and proceedings.--
(1) Within 30 days following the end of such 12-month period as the commission shall designate, each public utility using an automatic adjustment clause shall file with the commission a statement which shall specify for such period:
(i) the total revenues received pursuant to the automatic adjustment clause;
(ii) the total amount of that expense or class of expenses incurred which is the basis of the automatic adjustment clause; and
(iii) the difference between the amounts specified by subparagraphs (i) and (ii).
Such report shall be a matter of public record and copies thereof shall be made available to any person upon request to the commission.
(2) Within 60 days following the submission of such report by a public utility, the commission shall hold a public hearing on the substance of the report and any matters pertaining to the use by such public utility of such automatic adjustment clause in the preceding period and may include the present and subsequent periods.
(3) Absent good reason being shown to the contrary, the commission shall, within 60 days following such hearing, by order direct each such public utility to, over an appropriate 12-month period, refund to its patrons an amount equal to that by which its revenues received pursuant to such automatic adjustment clause exceeded the amount of such expense or class of expenses, or recover from its patrons an amount equal to that by which such expense or class of expenses exceeded the revenues received pursuant to such automatic adjustment clause.
(4) For the purpose of this subsection, where a 12-month report period and 12-month refund or recovery period shall have been previously established or designated, nothing in this section shall impair the continued use of such previously established or designated periods nor shall anything in this section prevent the commission from amending at any time any method used by any utility in automatically adjusting its rates, so as to provide the commission more adequate supervision of the administration by a utility of such method and to decrease the likelihood of collection by a utility, in subsequent periods, of amounts greater or less than that to which it is entitled, or, in the event that such deficiency or surplus in collected amounts is found, more prompt readjustment thereof.
(f) Recovery of natural gas costs.--
(1) Natural gas distribution companies, as defined in section 2202 (relating to definitions), with gross intrastate annual operating revenues in excess of $40,000,000 may file tariffs reflecting actual and projected increases or decreases in their natural gas costs, and the tariffs shall have an effective date six months from the date of filing. The commission shall promulgate regulations establishing the time and manner of such filing, but, except for adjustments pursuant to a tariff mechanism authorized in this title, no such natural gas distribution company shall voluntarily file more than one such tariff in a 12-month period: Provided, That:
(i) Nothing contained herein shall prohibit any party from advising the commission that there has been or there is anticipated to be a significant difference between the natural gas costs to the natural gas distribution company and the costs reflected in the then effective tariff or the commission from acting upon such advice.
(ii) A natural gas distribution company may also file a tariff to establish a mechanism by which such natural gas distribution company may further adjust its rates for natural gas sales on a regular, but no more frequent than monthly, basis to reflect actual or projected changes in natural gas costs reflected in rates established pursuant to paragraph (2), subject to annual reconciliation under paragraph (5). In the event that the natural gas distribution company adjusts rates more frequently than quarterly, it shall also offer retail gas customers a fixed-rate option which recovers natural gas costs over a 12-month period, subject to annual reconciliation under paragraph (5). The commission shall, within 60 days of the effective date of this subparagraph, promulgate rules or regulations governing such adjustments and fixed-rate option, but the commission shall not prohibit such adjustments or fixed-rate option.
(2) The commission shall conduct an investigation and hold a hearing or hearings, with notice, to review the tariffs and consider the plans filed pursuant to section 1317 (relating to regulation of natural gas costs). Where there has been an indication of consumer interest, the hearing shall be held in the service territory of the natural gas distribution company. Prior to the effective date of the filing, the commission shall issue an order establishing the rate to be charged to reflect such changes in natural gas costs. The commission shall annually review and approve plans for purposes of reliability and supply. Such rates, however, are subject to the same types of audits, reports and proceedings required by subsection (d).
(3) Within 60 days following the end of such 12-month period as the commission shall designate, each natural gas distribution company subject to this subsection shall file with the commission a statement which specifies for such period:
(i) The total revenues received pursuant to this section.
(ii) The total natural gas costs incurred.
(iii) The difference between the amounts specified by subparagraphs (i) and (ii).
(iv) How actual natural gas costs incurred differ from the natural gas costs allowed under paragraph (2) and why such differences occurred.
(v) How these natural gas costs are consistent with a least cost procurement policy as required by section 1318 (relating to determination of just and reasonable gas cost rates).
Such report shall be a matter of public record and copies thereof shall be made available by the natural gas distribution company to any person upon request. Copies of the reports shall be filed with the Office of Consumer Advocate and the Office of Small Business Advocate at the same time as they are filed with the commission.
(4) The commission shall hold a public hearing on the substance of such statement submitted by a natural gas distribution company as required in paragraph (3) and on any related matters.
(5) The commission, after hearing, shall determine the portion of the company's natural gas distribution actual natural gas costs in the previous 12-month period which meet the standards set out in section 1318. The commission shall, by order, direct each natural gas distribution company subject to this subsection to refund to its customers gas revenues collected pursuant to paragraph (2) which exceed the amount of actual natural gas costs incurred consistent with the standards in section 1318 and to recover from its customers any amount by which the actual natural gas costs, which have been incurred consistent with the standards in section 1318, exceed the revenues collected pursuant to paragraph (2). Absent good reason to the contrary, the commission shall issue its order within six months following the filing of the statement described in paragraph (3). Refunds to customers shall be made with and recoveries from customers shall include interest at the prime rate for commercial borrowing in effect 60 days prior to the tariff filing made under paragraph (1) and as reported in a publicly available source identified by the commission or at an interest rate which may be established by the commission by regulation. Nothing under this paragraph shall limit the applicability of a defense, principle or doctrine which would prohibit the commission's inquiry into matters that were decided finally in the commission's order issued under paragraph (2).
(6) If the natural gas distribution company's actual natural gas costs exceed the revenues collected under paragraph (2) by more than 10% in the previous 12-month period provided for under paragraph (5) due to customers switching from sales service to transportation service, the natural gas distribution company shall have the right to fully recover the under-collection through a nonbypassable charge. A request for authorization to impose a nonbypassable charge shall be made to the commission in a natural gas distribution company's annual filing under this section or at the time of the filing.
(g) Recovery of costs related to distribution system improvement projects designed to enhance water quality, fire protection reliability and long-term system viability.--(Repealed).
(g.1) Surcharge recoverability and offset.--Notwithstanding any other provision of this title or prior order of the commission, a surcharge imposed on and paid by a public utility under section 1111-A of the act of March 4, 1971 (P.L.6, No.2), known as the Tax Reform Code of 1971, is recoverable under this section by such means as approved by the commission. Retail rates as adjusted in accordance with this subsection shall also reflect any reduction in Public Utility Realty Tax Act liabilities secured by the utility and adjustments in State taxes reflected in any applicable State tax adjustment surcharge as defined by commission regulations.
(h) Definition.--As used in this section, the terms "natural gas costs" and "gas costs" include the direct costs paid by a natural gas distribution company for the purchase and the delivery of natural gas to its system in order to supply its customers. Such costs may include costs paid under agreements to purchase natural gas from sellers; costs paid for transporting natural gas to its system; costs paid for natural gas storage service from others, including the costs of injecting and withdrawing natural gas from storage; all charges, fees, taxes and rates paid in connection with such purchases, pipeline gathering, storage and transportation; and costs paid for employing futures, options and other risk management tools. "Natural gas" and "gas" include natural gas, liquified natural gas, synthetic natural gas and any natural gas substitutes.