PENNSYLVANIA HOUSE OF REPRESENTATIVES HOUSE CONSUMER AFFAIRS COMMITTEE informational MEETING TUESDAY, FEBRUARY 10, 2015 (10:00 AM)

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1 PENNSYLVANIA HOUSE OF REPRESENTATIVES HOUSE CONSUMER AFFAIRS COMMITTEE informational MEETING TUESDAY, FEBRUARY 10, 2015 (10:00 AM) TESTIMONY OF JOHN R. EVANS, SMALL BUSINESS ADVOCATE PENNSYLVANIA OFFICE OF SMALL BUSINESS ADVOCATE Good morning, Chairman Godshall, Chairman Daley, and distinguished members of the House Consumer Affairs Committee. And, good morning as well, to my esteemed colleagues (and friends) from the Office of Consumer Advocate and the Public Utility Commission. Thank you for this invitation to present to your committee today. As many of you already know, my name is John Evans, and I serve as Pennsylvania's Small Business Advocate. It is my pleasure to be here today, to provide the Committee, and other interested stakeholders, with an overview of the Office of Small Business Advocate (the "OSBA"), and to discuss the key role the OSBA plays in representing the interests of Pennsylvania's small business consumer class in proceedings that come before the Pennsylvania Public Utility Commission ("PUC"), any comparable federal regulatory agencies, and in the courts. Back in 1988, the Pennsylvania legislature recognized that the Commonwealth's small businesses- our critical, statewide job creators- were unintentionally falling through the cracks when it came to the provision of a fair and balanced representation in matters concerning the purchase and/or utilization of utility services. Pennsylvania's larger companies had the resources necessary to hire corporate attorneys to represent their interests in utility industry matters; and Pennsylvania's Office of Consumer Advocate had already been well-established with a focus on representing the ongoing interests of our individual- or residential- utility consumers and ratepayers. But before 1988, there was no organization devoted solely to representing the interests of Pennsylvania's small business utility customers- those enterprises with fewer than 250 employees that receive their utility services under a "small commercial," "small industrial," or "small business" rate classification; and thus, often- and certainly unintentionally- small business customers received a disproportionate share of Pennsylvania's utility rate increases.

2 So, with the successful passage of Act 181, which officially operates under Act 181 of December 21, [P. L. 1871, No. 181, known as the Small Business Advocate Act, 73 P.S et seq. {the "Act")], the Office of Small Business Advocate was created and charged with representing the interests of Pennsylvania's small business consumer class in any proceedings that come before the PUC, before comparable federal regulatory agencies, and in the courts. Since its creation, the OSBA has demonstrated an invaluable expertise in legal representation of the interests of small business utility customers in the regulatory process. Over the years, in fully litigated cases, the OSSA has successfully presented expert testimony and legal argument, aimed specifically at relieving Pennsylvania's small businesses from paying more than their fair share for utility services. Moreover, since the OSSA's inception, numerous full or partial settlements have been successfully negotiated, consistent with the best interest of small business consumers, while avoiding unnecessary administrative costs for both the Commonwealth and our small business entities. In addition, the OSBA has worked with the PUC in developing and promoting a mediation program for small businesses to resolve informal complaints directed to the PUC with fewer costs and without the need for attorneys. Thus, in 1993, given the OSBA's overwhelming and demonstrated success in representing the interests of Pennsylvania's small business class in a variety of utility~specific rate increase cases, the legislature {via Act 44 of 1993, Article XIII of the Workers' Compensation Act) assigned the OSBA additional responsibilities, specifically involving the administration of Pennsylvania's workers' compensation system. Pursuant to Act 44, the Office of Small Business Advocate was also directed to serve as the representative for Pennsylvania employers~ of ALL sizes~ in cases and proceedings before the Insurance Department, specifically for any filings by rating organizations or insurance companies that involve the premiums charged for workers' compensation policies issued to our Pennsylvania employers. These duties require the OSBA to review the "loss cost" filings that are made each year by the Pennsylvania Compensation Rating Bureau and the Coal Mine Compensation Rating Bureau of Pennsylvania. Given the evolutionary dynamic of our state, national, and global utility and energy industries, and the growing number of related proceedings that come before our regulatory agencies each year, the Small Business Advocate is granted broad discretion when determining whether or not to actively

3 engage in any particular proceedings before the PUC. In exercising this discretion, my team and I carefully consider the greater public interest, the resources required and available, and the substantiality of the effect that any particular proceeding will have on the interests of Pennsylvania's small business consumers. Although "administratively" situated within the Department of Community and Economic Development (DCED), the OSBA is actually an independent office with regard to its statutorily-assigned functions. Our utility-related regulatory operations are fully funded by assessments levied by the PUC on any public utilities that are subject to the PUC's jurisdiction, pursuant to a budget approved by the General Assembly. Similarly, all costs incurred by the OSBA in discharging its duties specific to any Workers' Compensation representation are paid directly from assessments made by the Insurance Department against any insurance companies that write workers' compensation insurance policies here in Pennsylvania. No General Fund revenues are used to support the ongoing and multidisciplinary work of the OSBA. Currently, the Office of Small Business Advocate is authorized for a total complement of seven (7) persons, including myself as the Small Business Advocate, plus four (4) attorneys, and two support staff personnel. Our Budget for Fiscal Year totals $1,400,000; and, as indicated earlier, is fully funded by assessments on Pennsylvania utilities and on workers' compensation insurers, in direct proportion to our expenses related to each industry group. Each year, any operational funds provided to the OSBA- that are not actually used to support our specific operations during the year- are returned to the utilities or insurance companies in the form of credits- to be applied toward any assessments made to support the OSBA's operations in future fiscal years. On a lean and streamlined budget, with just our small shop of attorneys and with the help of expert witness consultants, the OSBA actively engaged in 55 new cases during calendar year 2014 alone. Cases involve a variety of utility proceedings across the electric, gas, telecommunication, water, and steam industries. Specifically, OSBA lawyers represent the interests of our Commonwealth job creators in such critical matters, including: Electric industry default service cases; Review and evaluation of various electric utilities' Energy Conservation and Smart Meter Plans;

4 Litigation relative to "pass-through" charges to fixed rate electric shopping customers; Proceedings to set electric, gas and/or water distribution, transmission and generation rates; Investigations and rulemakings commenced by the PUC; Interventions in all purchased gas cost proceedings filed by PA's major local gas distribution companies; Review and evaluation of Long-term Infrastructure Plans and requests for a Distribution System Improvement Charge (DSIC); Proceedings relative to requests for natural gas Service Expansion Tariff Pilot Riders; and Telecommunications cases involving access charge reductions and PSI/SPI filings for Pennsylvania small business employers in these, and many other types of critical utility proceedings, have benefitted greatly over the years from the active involvement of the OSBA. The relationships that I, along with our attorneys, expert witnesses and professional staff, have developed across all arenas- including our colleagues at the OCA, PUC, various utility and energy corporations, and in the court systems- further demonstrates our collaborative spirit toward the achievement of common goals, and more importantly, ensures the continual and successful resolution of hundreds of potentially explosive litigation proceedings that may negatively impact future costs and operations for Pennsylvania's small business class- our job creators. As our state, national, and global utility and energy-related industries continually evolve, so does the Office of Small Business Advocate. Pennsylvania's own exciting and evolving future in the natural gas arena will continue to change the way our state utility industry operates. And, just as the OSBA was actively engaged on behalf of small businesses during Pennsylvania's most recent and uncertain times of utility rate cap removals, corporate mergers and increasing utility costs, the OSBA will remain steadfast in our support of our small businesses and job creators as we work together to navigate the waters of Pennsylvania's exciting natural gas industry growth and expansion. Pennsylvania's Office of Small Business Advocate is the only one of its kind, nationally. And as such, the Commonwealth serves as a "keystone"- or benchmark for excellence- for other states endeavoring to equitably represent the interests of their own small businesses and ratepayers relative to utility matters. As Small Business Advocate, I am routinely invited to participate at various local, state and national forums to discuss the work of the Pennsylvania OSSA, and to offer insight and

5 recommendations for how other states might afford similar expert representation for their own small business utility consumers and ratepayers. I also represent our Commonwealth at various national industry forums, affording Pennsylvania the latest information from United States federal policymakers, business and consumer advocates, and industry officials and stakeholders, including updates on the Environmental Protection Agency's Clean Power Plans, updates on grid modernization, natural gas safety, utility interdependencies, and more. This ongoing engagement at both the state and national level ensures that the OSBA- and Pennsylvania as a whole- remains knowledgeable and responsive to critical national discussions regarding the best regulatory practices and how to confront numerous challenges facing the regulated utility and workers' compensation insurance sectors. The expertise of the OSBA and our colleagues at the OCA and PUC afford Pennsylvania's legislators the unique perspective necessary to make fully informed decisions as you discuss and evaluate legislative ideas and initiatives involving our energy and utility policies. As Small Business Advocate, I will continue to monitor state and national activities relative to our work; and I welcome every opportunity to speak with you, your committees, constituent businesses, and regional utility/insurance economists and policy makers, to share all that the OSBA has learned via our daily operations and continual involvement in the ever-changing national arenas. have. Again, thank you for your time and attention. I welcome any questions or comments you may John R. Evans Small Business Advocate 300 N. Second Street, Suite 202 Harrisburg, PA (717) jorevan@pa.gov

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