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PRIOR PRINTER'S NOS. 3414, 3555 PRINTER'S NO. 3646
THE GENERAL ASSEMBLY OF PENNSYLVANIA
HOUSE BILL
No. 2224
Session of
2026
INTRODUCED BY FIEDLER, BURGOS, PROBST, WAXMAN, HOWARD, HILL-
EVANS, D. WILLIAMS, RIVERA, GIRAL, FREEMAN, BOYD, CIRESI,
CEPEDA-FREYTIZ, CURRY, GILLEN, STEELE, SHUSTERMAN,
HOHENSTEIN, HANBIDGE, HADDOCK, PROKOPIAK, KINKEAD, McNEILL,
SALISBURY, KAZEEM AND KHAN, MAY 18, 2026
AS AMENDED ON SECOND CONSIDERATION, HOUSE OF REPRESENTATIVES,
JUNE 17, 2026
AN ACT
Amending Title 66 (Public Utilities) of the Pennsylvania
Consolidated Statutes, in rates and distribution systems,
providing for return on equity; IN SERVICE AND FACILITIES,
FURTHER PROVIDING FOR BILLING PROCEDURES; AND, IN
RESTRUCTURING OF ELECTRIC UTILITY INDUSTRY, FURTHER PROVIDING
FOR REVENUE-NEUTRAL RECONCILIATION.
The General Assembly of the Commonwealth of Pennsylvania
hereby enacts as follows:
Section 1. Chapter 13 of Title 66 of the Pennsylvania
Consolidated Statutes is amended by adding a subchapter to read:
SUBCHAPTER C
RETURN ON EQUITY
Sec.
1380. Definitions.
1381. Default authorized return on equity.
1382. Competitive equity auction.
1383. Annual reporting and transparency.
1384. Applicability to State-jurisdictional rate base.
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1385. Applicability to ratemaking.
§ 1380. Definitions.
The following words and phrases when used in this subchapter
shall have the meanings given to them in this section unless the
context clearly indicates otherwise:
"10-year treasury." The market yield on United States
Treasury securities at 10-year constant maturity, quoted on an
investment basis, as reported by the Federal Reserve System.
"Auction-clearing return." The uniform rate of return
established as the clearing price in a competitive equity
auction conducted under section 1382(e).
"Auction equity interest." The following:
(1) An economic interest issued under a competitive
equity auction under section 1382 (relating to competitive
equity auction). An auction equity interest represents
participation in the financial performance of a specific
regulated service, which carries the auction-clearing return
as adjusted under section 1382(c), and is distinct from the
covered utility's base common stock. The following shall
apply to an auction equity interest:
(i) The authorized return and financial performance
of an auction equity interest shall be determined solely
by reference to the regulated service to which it relates
and shall not be affected by the financial performance
of, or returns applicable to, any other regulated service
or any activity of the covered utility not subject to the
jurisdiction of the commission.
(ii) Except if auction equity interests are issued
by a regulated service corporation established under
section 1382(l), auction equity interests issued directly
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by the covered utility are obligations of the covered
utility and may be subject to all risks applicable to the
covered utility generally, including the risk of
insolvency or bankruptcy of the covered utility.
(iii) If the covered utility has established a
regulated service corporation and regulated service LLC
under section 1382, auction equity interests shall be
issued by the regulated service corporation rather than
by the covered utility itself.
(2) As used in this definition, the term "covered
utility's base common stock" shall mean the stock of the
regulated service corporation retained by the covered
utility.
"Authorized return on equity." The rate of return on common
equity authorized by the commission for ratemaking purposes.
"Competitive equity auction." A process overseen by the
commission in accordance with this subchapter that provides a
market-based determination of the cost of equity for a covered
utility.
"Cost of equity." The minimum rate of return necessary to
attract equity capital to invest in a specific regulated
service.
"Covered utility." An investor-owned electric distribution
company, natural gas distribution company or water or wastewater
public utilities regulated by the commission.
"Default authorized return." The authorized return on equity
determined under section 1381 (relating to default authorized
return on equity).
"Rate period." The time period in which a covered utility
collects rates that are authorized and approved by the
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commission.
"Regulated service." A service provided by a covered utility
for which the commission determines an authorized return on
equity. If a covered utility provides more than one category of
service subject to the jurisdiction of the commission, each
category shall be treated as a separate regulated service for
purposes of this subchapter and consistent with the property
segregation requirements of section 1305 (relating to advance
payment of rates; interest on deposits), unless the commission
determines that consolidated treatment is appropriate.
"Regulated service corporation." A corporation organized
under the laws of any state, formed or designated by a covered
utility under section 1382(l) that:
(1) Is treated as a corporation for Federal income tax
purposes.
(2) Conducts no activities other than holding a
membership interest in a regulated service LLC and serving as
the issuer of auction equity interests for the regulated
service associated with that regulated service LLC.
"Regulated service LLC." A limited liability company that is
a wholly owned subsidiary of a regulated service corporation,
formed or designated under section 1382(l), to hold assets,
rights, franchises and obligations associated with a regulated
service. A regulated service LLC shall be treated as a
disregarded entity for Federal income tax purposes.
§ 1381. Default authorized return on equity.
(a) Default authorized return.--Unless an authorized return
on equity is established under section 1382 (relating to
competitive equity auction), the commission shall set the
authorized return on a covered utility's common equity equal to
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the sum of the 10-year treasury and 2%.
(b) Annual reset.--The default authorized return shall be
reset annually as of January 1 of each year to reflect the
average of the 10-year treasury rate on the 60 business days
immediately prior to January 1 of that year.
(c) Alternative benchmark.--If publication of the 10-year
treasury is ceased or interrupted, the commission shall identify
and use for the calculation the alternative benchmark the
commission determines to be the best substitute for carrying out
the purposes of this section.
(d) Burden of proof.--The burden of demonstrating that the
default authorized return on equity is insufficient to attract
capital shall be exclusively with the covered utility. The
default authorized return shall be presumed just and reasonable
unless rebutted through the competitive equity auction process
specified in section 1382.
(e) Initial rate period.--For a rate period commencing
between the effective date of this subsection and the first
reset date under subsection (b), the 10-year treasury component
shall be determined using the averaging methodology prescribed
in subsection (b) and applied to the 60 business days
immediately preceding the effective date of this subsection.
(f) Rate adjustment.--
(1) If the authorized return on equity for a regulated
service changes under this section or section 1382, the
commission shall adjust the rates applicable to the regulated
service to reflect the new authorized return on equity.
(2) The adjustment shall be implemented through the
mechanism the commission determines to be most expedient,
which may include a surcharge or credit applied to existing
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tariffs, an automatic rate adjustment mechanism or
incorporation into the covered utility's next general rate
proceeding.
(3) The commission shall implement an adjustment no
later than 90 days after the change in authorized return on
equity takes effect.
(g) Risk insurance.--Nothing in this subchapter shall
preclude a covered utility from procuring third-party insurance
to hedge material idiosyncratic risks, with the cost of the
insurance recoverable in rates as an operating expense subject
to the commission's determination of prudence.
(h) Performance-based ratemaking.--
(1) Nothing in this subchapter shall preclude the
commission from establishing or maintaining a performance-
based ratemaking plan for a covered utility if a plan is
designed for the expected value of performance-based
adjustments to the authorized return on equity to be neutral.
(2) The performance-based ratemaking plan may not permit
the aggregate effect of performance-based adjustments to
increase the covered utility's realized return on equity for
a regulated service by more than two percentage points above
the authorized return on equity for that regulated service as
determined under this subchapter.
(3) For purposes of this subsection, the term
"performance-based ratemaking plan" means a plan, mechanism
or order that adjusts the authorized return on equity of a
covered utility based on measured utility performance against
specified benchmarks. The term does not include revenue
decoupling mechanisms, formula rate plans or other mechanisms
that operate on revenue, cost recovery or rate design without
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adjusting the authorized return on equity.
(i) Interaction with alternative ratemaking plans.--
(1) An alternative ratemaking plan approved by the
commission under section 1330 (relating to alternative
ratemaking for utilities) which is in effect as of the
effective date of this paragraph shall remain in effect in
accordance with the plan's terms, unless a component of the
plan that determines, adjusts or is calculated by reference
to the authorized return on equity is recalculated using the
authorized return on equity upon the next scheduled
adjustment or reset of the component, as determined by the
commission under this subchapter.
(2) Non-return-on-equity components of a plan, including
decoupling mechanisms, revenue-per-customer caps, price cap
mechanisms and any distribution system improvement charge
approved under section 1353 (relating to distribution system
improvement charge) without limitation, shall not be affected
by this subchapter.
(3) An alternative ratemaking plan filed with the
commission under section 1330 on or after the effective date
of this paragraph shall incorporate the authorized return on
equity as determined by the commission under this subchapter.
(4) The commission may not approve a plan that permits a
return on equity that is greater than the authorized return
on equity determined by the commission.
(5) Nothing in this subsection shall limit the authority
of the commission to approve or maintain a distribution
system improvement charge under section 1353 if the return
component of the charge is calculated using the authorized
return on equity determined by the commission under this
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subchapter.
(j) Initial implementation.--
(1) Notwithstanding any other provision of this
subchapter, title or prior order of the commission, the
default authorized return on equity established under this
section shall apply to each regulated service of a covered
utility immediately upon the effective date of this
paragraph, regardless of whether a rate proceeding under
section 1308(d) (relating to voluntary changes in rates) is
pending and when a rate proceeding was last concluded.
(2) A rate component reflecting or implicitly permitting
an authorized return on equity greater than the default
authorized return established under this section may no
longer be considered just and reasonable as of the effective
date of this paragraph, except to the extent established
through a competitive equity auction conducted under section
1382. To implement this subsection, the commission shall:
(i) No later than 60 days after the effective date
of this subparagraph, issue an order for each covered
utility setting the authorized return on equity for each
of its regulated services to the default authorized
return determined under subsection (a), as adjusted under
subsection (e) for the initial rate period.
(ii) No later than 120 days after the effective date
of this subparagraph, implement corresponding adjustments
to customer rates, applying the mechanism the commission
determines to be most expedient under subsection (f),
which may include a surcharge or credit applied to
existing tariffs or an automatic rate adjustment
mechanism and which shall not require the initiation of a
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base rate proceeding under section 1308(d).
(iii) Implement a true-up adjustment for the period
commencing on the effective date of this subparagraph and
ending on the date adjusted rates take effect, calculated
as the difference between the revenue actually collected
by the covered utility during the period and the revenue
that would have been collected during the period had the
default authorized return been reflected in rates
throughout, with interest accruing at the default
authorized return calculated from the midpoint of the
period.
(3) A covered utility that believes the default
authorized return is insufficient to attract capital may, at
any time following the effective date of this paragraph,
petition the commission for a competitive equity auction
under section 1382(a). The pendency of a petition shall not
delay or suspend the implementation required by this
subsection.
(4) Nothing under this subsection shall be construed to
disturb a non-return-on-equity component of a rate currently
in effect, including the authorized capital structure or the
cost of debt, except to the extent that the components must
be adjusted as a mathematical consequence of the change in
authorized return on equity required by this subsection.
(k) Rate base.--
(1) For purposes of determining the authorized return on
equity for a regulated service of a covered utility under
this subchapter, whether the return is determined under this
section or under a competitive equity auction under section
1382, the commission shall determine a rate base to reflect
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the full value of all assets prudently invested by or on
behalf of the covered utility for the benefit of the
regulated service, including construction work in progress
and net of accumulated depreciation.
(2) Reductions to a rate base shall solely be for
capital that is not supplied by investors, which shall be
limited to the following:
(i) Accumulated deferred income taxes, to the extent
that deferred tax liabilities exceed deferred tax assets.
(ii) Customer deposits.
(iii) Customer advances for construction.
(3) The commission may not exclude from the rate base of
a regulated service an asset on the basis that the asset has
not yet been placed in service if the investment has been
determined to be prudent and is being undertaken for the
benefit of the regulated service.
(4) This subsection shall be implemented on the same
schedule as the initial implementation required by subsection
(j), and the commission's 60-day order and 120-day rate
adjustment under subsection (j) shall reflect both the change
in authorized return on equity and the rate base determined
in accordance with this subsection.
§ 1382. Competitive equity auction.
(a) Utility-initiated auction.--
(1) If a covered utility believes that its cost of
equity exceeds the default authorized return, the covered
utility may petition the commission to oversee a competitive
equity auction.
(2) If the covered utility fails to take all necessary
steps to facilitate the competitive equity auction based on
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the timeline and procedures determined by the commission, the
petition shall be deemed withdrawn and the covered utility is
deemed to have accepted the default authorized return.
(3) A petition under paragraph (1) shall be filed no
later than 30 days after the effective date of this paragraph
or the most recent reset of the default authorized return
under subsection (b), whichever is later.
(4) Upon certification of the auction results by the
commission, the auction-clearing return shall become the
authorized return on equity for the regulated service, and
the commission shall adjust customer rates in accordance with
section 1381(f) (relating to default authorized return on
equity) no later than 90 days after the certification.
(5) The commission shall implement a true-up adjustment
under this subsection that is calculated as the difference
between the revenue actually collected by the covered utility
during the period from the filing of the petition through the
date on which adjusted rates take effect and the revenue that
would have been collected during that period had the auction-
clearing return been reflected in rates throughout. The
interest on the difference shall accrue at the auction-
clearing return and be calculated from the midpoint of the
period.
(6) An adjustment to customer rates required by the
reset of the default authorized return under section 1381(b)
shall be implemented in accordance with section 1381(f)
independently of an auction petition, and the true-up
adjustment under paragraph (5) shall apply only to the period
commencing on the date of the petition under paragraph (1).
(b) Commission-initiated auction.--
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(1) The commission may, on its own motion or upon
petition by the Office of Consumer Advocate, order that a
competitive equity auction be conducted for a covered utility
if the commission finds reasonable cause to believe that the
default authorized return materially exceeds the covered
utility's cost of equity for a regulated service.
(2) An auction initiated by the commission under this
subsection may be ordered no earlier than 30 days after the
effective date of this paragraph or the most recent reset of
the default authorized return under section 1381(b),
whichever is later, and no later than 60 days after the
reset.
(3) Upon certification of the auction results, the
auction-clearing return shall become the authorized return on
equity for the regulated service, and the commission shall
adjust customer rates in accordance with section 1381(f) no
later than 90 days after the certification.
(4) The commission shall implement a true-up adjustment
under this subsection that is calculated as the difference
between the revenue actually collected by the covered utility
during the period from January 1 of the year in which the
auction is conducted through the date on which adjusted rates
take effect and the revenue that would have been collected
during that period had the auction-clearing return been
reflected in rates throughout. The interest on the difference
shall accrue at the auction-clearing return and be calculated
from the midpoint of the period.
(5) If a covered utility fails to take all steps
required to facilitate an auction ordered under this
subsection on the timeline prescribed by the commission, the
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default authorized return for that regulated service shall be
reduced by 0.10 percentage points beginning on the date of
the failure and continuing until the covered utility has
complied with this subsection.
(6) If the covered utility fails to facilitate a
subsequent commission-initiated auction for the same
regulated service, the reduction shall be cumulative.
(7) Upon compliance with this subsection, a reduction
under this subsection shall cease to apply prospectively and
no retroactive adjustment shall be made for any period during
which the reduction was in effect.
(c) Duration and effect.--
(1) Holders of auction equity interests issued at an
auction under this section shall receive the auction-clearing
return for the full duration of the interests. The auction-
clearing return shall be adjusted for differences between
realized and anticipated profits in a manner determined by
the commission's order issued under this section.
(2) The rate of return under paragraph (1), whether
greater or less than the default authorized return, shall
determine the authorized return on equity for the regulated
service in accordance with subsection (d), until the
following January 1, at which time the covered utility may
elect that the default authorized return shall apply to the
covered utility's common equity in the regulated service.
(3) An election made under paragraph (2) shall not
affect the return applicable to outstanding auction equity
interests, which shall continue to receive the auction-
clearing return for the full duration of the interests.
Following an election, the authorized return on equity for
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the regulated service shall be determined in accordance with
subsection (d).
(d) Multiple auctions.--
(1) Where different equity interests in a regulated
service bear different authorized rates of return, either for
multiple auctions being conducted at different times or the
covered utility has elected that the default authorized
return shall apply to the covered utility's common equity
under subsection (c), the authorized return on equity for the
regulated service shall be the weighted average of the return
applicable to each equity interest, which shall be weighted
by its outstanding equity amount.
(2) For the purposes under paragraph (2), the covered
utility's common equity shall bear the auction-clearing
return established in the most recent auction or the default
authorized return following an election under subsection (c).
If no auction equity interests remain outstanding, the
default authorized return shall apply to the full equity
component of the regulated service.
(e) Auction mechanism.--The commission shall oversee a
sealed-bid competitive auction administered independently of the
covered utility. The following shall apply:
(1) The commission shall determine for each auction
whether bids are to be expressed as an absolute number or as
a premium to the 10-year treasury or another index, with the
applicable interest rate to be reset periodically.
(2) Qualified bidders shall bid the minimum target
return on equity they require.
(3) All bids shall be ranked in ascending order and the
commission shall accept bids in that order until the total
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amount of equity offered in the auction has been fully
allocated.
(4) All successful bidders shall receive the same rate
of return, equal to the highest accepted bid.
(5) If the aggregate amount bid at the clearing rate
exceeds the remaining amount of equity to be allocated, the
bids shall be accepted on a pro rata basis. For the avoidance
of doubt, all bids submitted at returns below the clearing
rate shall be accepted in full but a pro rata reduction shall
only apply to bids submitted at the clearing rate itself.
(6) The amount of equity to be offered within each
auction shall be the greater of 2.5% of the equity component
of the regulated service rate base and the lesser of
$50,000,000 and 5% of the equity component of the regulated
service rate base.
(7) The commission shall certify the results of an
auction if at least five qualified bidders submitted bids and
the aggregate equity amount bid by all qualified bidders was
at least 1.5 times the total equity amount offered in the
auction.
(8) If either threshold under paragraph (7) is not met
in a utility-initiated auction under subsection (a), the
auction result shall be certified if the auction-clearing
return does not exceed the default authorized return by more
than two percentage points but, if not exceeded, the auction
result shall be void and the default authorized return shall
be applied.
(9) If either threshold under paragraph (7) is not met
in a commission-initiated auction under subsection (b), the
auction result shall be void and the default authorized
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return shall continue to apply.
(10) In a commission-initiated auction under subsection
(b), regardless of whether the participation thresholds are
met, the auction result shall be binding only if the auction-
clearing return is less than the default authorized return.
(11) If the auction-clearing return equals or exceeds
the default authorized return in a commission-initiated
auction under subsection (b), the default authorized return
shall continue to apply.
(12) If the aggregate equity amount bid in an auction
under subsection (a) or (b) is less than the total equity
amount offered, the auction-clearing return shall apply to
the equity amount actually subscribed and the default
authorized return shall apply to the remainder, in which the
authorized return on equity for the regulated service shall
be determined in accordance with subsection (d).
(f) Cost recovery.--All reasonable costs incurred by a
covered utility in connection with a competitive equity auction
under this section, including costs of any required securities
registration or offering preparation, reasonable registration
costs under subsection (g), reasonable management time allocable
to the auction and professional fees, shall be treated as
prudently incurred costs for ratemaking purposes and shall be
recoverable in rates.
(g) Commission authority and regulations.--The commission
shall adopt and promulgate rules and regulations to implement
the competitive equity auction procedures under this section,
which shall include the following:
(1) An application process, eligibility criteria and
other measures necessary to ensure that bidders are qualified
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to participate in an auction.
(2) Ongoing disclosure obligations applicable to the
covered utility and to holders of auction equity interests.
(3) Guidelines for an independent auction administrator
to conduct an auction.
(4) Determination of the duties and requisite expertise
of the independent auction administrator.
(5) Consumer protection standards.
(6) Auction disclosure documentation which states that
the depreciation and amortization schedule is subject to
prospective adjustment in subsequent rate proceedings and may
affect the timing of return of capital to holders of auction
equity interests.
(7) Requirements for the independent auction
administrator to disclose to all qualified bidders prior to
each auction the conditions in which the auction result will
be binding, including whether the auction is utility-
initiated or commission-initiated and the consequences
thereof for bid acceptance.
(8) The form and content of the disclosure required
under subsection (l)(2).
(h) Securities law compliance.--
(1) The economic interests offered under this section
may constitute securities within the meaning of the
Securities Act of 1933 (48 Stat. 74, 15 U.S.C. § 77a et
seq.), as amended, and the Securities Exchange Act of 1934
(48 Stat. 881, 15 U.S.C. § 78a et seq.), as amended, and
shall be subject to the registration requirements under
section 1901 (relating to registration of securities to be
issued or assumed).
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(2) Each auction under this section shall be structured
to qualify for an available exemption from registration under
Federal securities law. Permissible exemptions may include
limiting the offering to accredited investors under Rule 506
of Regulation D under the Securities Act of 1933 or
conducting an intrastate offering exempt under section 3(a)
(11) of the Securities Act of 1933 and applicable rules under
the Securities Act of 1933.
(3) The commission may, in its discretion, direct that a
specific auction be conducted on a registered basis if the
commission determines, based on the expected size of the
offering and an analysis of anticipated investor demand, the
following:
(i) The expected reduction in the auction-clearing
return attributable to broader investor participation
enabled by registration is reasonably expected to
outweigh the costs and delays of the registration
process.
(ii) The auction will not be delayed by more than 30
days beyond the timeline that would apply to an exempt
offering.
(4) Any direction by the commission to conduct an
auction on a registered basis shall be issued by the
commission sufficiently in advance of the covered utility's
auction petition to permit timely registration.
(5) Nothing in this subsection shall be construed to
confer upon the commission any authority to regulate
securities except as expressly provided in this subsection.
(i) Instrument design.--
(1) A covered utility may not be required to offer its
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common stock for sale in the auction, but the auction equity
interests offered shall, as approved by the commission,
provide prospective investors with the following:
(i) Economically equivalent position to that of the
covered utility's equity interest in the regulated
service which may consist of the covered utility's common
stock where auction equity interests are issued directly
by the covered utility or the covered utility's retained
stock interest in the regulated service corporation where
the interests are issued by a regulated service
corporation.
(ii) Adequate protections against dilution or
impairment of value through related-party transactions or
other transfers involving the corporation's parent
holding company.
(iii) If the covered utility's realized profits of
the regulated service in each period equal those embedded
by the commission in the rates approved to achieve the
authorized return on equity, prospective periodic
distributions calibrated for holders of auction equity
interests to realize an internal rate of return equal to
the auction-clearing return which accounts for periodic
distributions and any return of equity capital over the
life of the interests.
(iv) A stated initial equity amount per auction
equity interest equal to the purchase price paid by the
winning bidder in the auction, which shall be an equity
amount to be returned to holders over the life of the
interests at a rate and on a schedule consistent with the
commission's treatment of rate base depreciation and
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amortization for the regulated service for ratemaking
purposes. If the equity component of the regulated
service rate base is reduced through depreciation and
amortization, a commensurate portion of the initial
equity amount shall be returned to holders.
(v) A specification of the shortfalls and excesses
in realized profits, as determined by the commission
under paragraph (2).
(2) The commission shall establish rules or promulgate
regulations specifying the methods and calculations in which
shortfalls and excesses in realized profits of the regulated
service relative to the earnings embedded in approved rates
are to be allocated between holders of auction equity
interests and the covered utility's common equity, including
the allocation methods in the event of multiple outstanding
series of auction equity interests.
(3) The commission's regulations governing an auction
under this section shall specify the initial equity amount
per auction equity interest, the formula for calculating
periodic distributions by applying the auction-clearing
return to the outstanding equity balance for each period and
the schedule for return of equity capital. The commission
shall ensure that holders of auction equity interests will
realize an internal rate of return equal to the auction-
clearing return if the covered utility's realized profits of
the regulated service in each period equal those embedded in
the rates approved to achieve the authorized return on
equity.
(4) Each series of auction equity interests under this
subsection shall be redeemed at its book value currently in
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effect until the earlier of 40 years from the date of
issuance or the end of the first fiscal quarter in which the
outstanding equity amount of such series is less than 5% of
the initial equity amount at issuance.
(5) The covered utility or regulated service
corporation, as applicable, shall fund a redemption under
paragraph (4), whether through retained earnings, a capital
contribution from the covered utility's parent company or any
other source of equity capital. Upon the redemption, the
equity represented by the redeemed series shall revert to the
covered utility's common equity in the regulated service. The
commission may defer the mandatory redemption date by not
more than two years upon a demonstration by the covered
utility that immediate redemption would materially impair its
financial condition.
(6) In the event of a merger, acquisition or change of
control of the covered utility or, where applicable, the
regulated service corporation, the successor entity shall
assume all obligations to holders of outstanding auction
equity interests on terms no less favorable than the terms in
effect immediately prior to the transaction.
(7) A transaction under paragraph (6) shall not be
consummated without determination by the commission that the
rights of holders of auction equity interests will be
adequately preserved. The commission may require the terms of
each series of auction equity interests to include a
provision entitling holders to redemption at the book value
then currently in effect upon any change of control, at the
option of the holder.
(8) In the event of the insolvency or dissolution of a
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regulated service corporation or regulated service LLC or the
permanent discontinuation of the regulated service to which
auction equity interests relate, outstanding auction equity
interests shall participate in any distribution of remaining
assets on a pari passu basis with the covered utility's
common equity in the regulated service, in proportion to
their respective outstanding equity amounts, in accordance
with the commission's specifications under paragraph (2).
(9) Nothing under paragraph (8) shall be construed to
create a priority or preference in favor of, or against,
holders of auction equity interests relative to the covered
utility's common equity.
(j) Participants.--
(1) An auction under this section shall be open, at
minimum, to all accredited investors as that term is defined
under applicable Federal securities law.
(2) Each qualified bidder shall, as a condition of
participation, certify in writing to the independent auction
administrator the following:
(i) The bidder is submitting its bid based solely on
the bidder's own assessment of the risk-adjusted
financial return of the auction equity interest and not
for the purpose or with the effect of artificially
suppressing or inflating the auction-clearing return.
(ii) The bidder is not acting in concert with any
other bidder or with the covered utility or any of its
affiliates with respect to the formulation of its bid.
(3) A bidder that is a covered utility subject to cost-
of-service regulation by a Federal or State regulatory
authority, or a holding company that directly or indirectly
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controls the covered utility, shall not be eligible to
participate as a bidder, except that the covered utility, its
parent company and any affiliates may participate as bidders
and shall be subject to any existing code of conduct policies
for affiliate transactions and any further eligibility
requirements established by the commission to prohibit
inappropriate preferential treatment in the bidding process.
(4) The exclusion under paragraph (3) shall not apply to
a registered investment company, investment adviser or other
institutional investor whose ownership of a covered utility
is solely as a passive investor in diversified portfolios.
Holdings by the institutional investors in auction equity
interests issued under this subchapter shall not be counted
toward an investment limitation applicable to ownership of
the covered utility or the covered utility's common equity
under applicable State law.
(5) The commission shall establish rules or promulgate
regulations to implement the exclusion and certification
requirements under this subsection, including procedures for
investigation and disqualification of bidders that submit
false certifications or are found to have violated the
prohibition on coordinated bidding.
(k) Misconduct and risk attribution.--
(1) If the commission or a court of competent
jurisdiction has made a formal finding that a covered utility
has engaged in unlawful or imprudent conduct which has
materially increased the covered utility's cost of equity for
a regulated service, the commission may exclude the portion
of an increase in the authorized return on equity for the
regulated service that is attributable to the conduct from
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the return applicable to the covered utility's common equity.
(2) An auction equity interest, whether issued before or
after a finding under paragraph (1), shall not be subject to
the exclusion under paragraph (1) and all auction equity
interests shall continue to bear the auction-clearing return
established in the auction in which the interests were issued
without reduction on account of any exclusion under this
subsection.
(3) Nothing in this subsection shall limit the authority
of the commission to impose penalties, disallowances or other
remedies available under applicable law.
(l) Regulated service corporation and regulated service
LLC.--
(1) A covered utility may, at any time before or after
conducting a competitive equity auction, form a regulated
service corporation and a regulated service LLC for a
regulated service. The following shall apply:
(i) The regulated service corporation formed shall
be a wholly owned subsidiary of the covered utility,
organized as a corporation under the laws of any state
and treated as a corporation for Federal income tax
purposes.
(ii) The regulated service LLC shall be a wholly
owned subsidiary of the regulated service corporation,
organized as a limited liability company and treated as a
disregarded entity for Federal income tax purposes.
(iii) The regulated service LLC shall hold all
material assets, rights, franchises and obligations
associated with the regulated service.
(iv) The regulated service corporation shall serve
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as the issuer of auction equity interests for that
regulated service.
(v) The formation of a regulated service corporation
and regulated service LLC shall not be a prerequisite to
conduct an auction under this section.
(vi) The absence of the entities shall not impair
the validity of auction equity interests issued by the
covered utility.
(2) In a competitive equity auction conducted prior to a
regulated service corporation and regulated service LLC being
established, the commission shall require the covered utility
to disclose to all qualified bidders that auction equity
interests are being issued as direct obligations of the
covered utility and are subject to the risks of any
insolvency, bankruptcy or restructuring proceedings affecting
the covered utility or the covered utility's affiliates.
(3) The commission shall require each covered utility to
ensure that all long-term indebtedness with a stated maturity
greater than one year issued or incurred on or after the
effective date of this paragraph, whether in the form of
bonds, notes, debentures or otherwise, includes a covenant
expressly permitting the covered utility to transfer the
assets, franchises, rights and obligations associated with
each regulated service to a regulated service corporation or
regulated service LLC without the transfer constituting a
default, event of default or breach under the indebtedness.
(4) The commission may not approve any long-term debt
financing by a covered utility that does not include a
covenant under paragraph (3).
(5) Nothing in this subsection shall be construed to
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require a covered utility to restructure, refinance or assign
any indebtedness outstanding as of the effective date of this
paragraph in advance of the formation of a regulated service
LLC under paragraph (1).
(6) Each covered utility that has not yet established a
regulated service corporation and regulated service LLC shall
use commercially reasonable efforts to do so by no later than
five years after the effective date of this paragraph or five
years after the date of the covered utility's first
competitive equity auction, whichever is later. The
commission may extend the period under this paragraph upon a
showing by the covered utility of good cause, which may
include the inability to obtain required bondholder or
creditor consents despite commercially reasonable efforts.
(7) Whenever a covered utility has established a
regulated service corporation and regulated service LLC, each
entity shall be structured and operated as a bankruptcy-
remote special-purpose entity. The commission shall adopt or
promulgate rules or regulations to ensure the compliance of a
regulated service corporation and regulated service LLC,
which shall include the following:
(i) Maintenance of books of account, bank accounts
and financial records separate from those of the covered
utility and any affiliate.
(ii) Prohibition on commingling of assets.
(iii) Requirements for the organizational documents
of the regulated service LLC to include at least one
independent manager whose affirmative consent is required
for a voluntary bankruptcy filing by the regulated
service LLC or the regulated service corporation.
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(iv) A covenant by the covered utility not to cause
or encourage any involuntary bankruptcy filing against
the regulated service corporation or the regulated
service LLC.
(v) Restrictions on indebtedness of the regulated
service corporation and the regulated service LLC unless
approved by the commission.
(8) The regulated service corporation may not conduct
activities other than holding a membership interest in the
regulated service LLC and serving as the issuer of auction
equity interests. The corporation may not hold any assets
other than the corporation's membership interest in the
regulated service LLC and any cash or other assets incidental
thereto.
(9) Formation of both the regulated service corporation
and the regulated service LLC shall require any approvals
that may be required under applicable law, including any
certificate of public convenience required under section 1102
(relating to enumeration of acts requiring certificate) for
the transfer of utility assets or franchises, and any
approval required under Chapter 21 (relating to relations
with affiliated interests) for transactions between the
covered utility and the entities.
(10) If any assets are associated with more than one
regulated service, the assets may be held by the regulated
service LLC as co-owner with one or more other regulated
service LLCs, with each LLC's interest proportionally
allocated in a manner approved by the commission for
ratemaking purposes.
(11) For the capital structure and indebtedness of the
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regulated service LLC, the following apply:
(i) Each regulated service LLC shall maintain a
capital structure for the regulated service consistent
with the capital structure authorized by the commission
for ratemaking purposes, including debt and equity
components.
(ii) The equity component of the regulated service
for the applicable authorized return on equity shall
consist of the regulated service corporation's equity
interest in the regulated service LLC which is funded by
the proceeds of auction equity interests and the covered
utility's retained interest.
(iii) For ratemaking purposes, the interest on
indebtedness of the regulated service LLC shall be
treated as a cost of the regulated service.
(iv) Upon formation of a regulated service LLC, the
commission shall determine the portion of the covered
utility's outstanding indebtedness that shall be
allocated to the regulated service by applying the
methodology used or to be used to allocate the covered
utility's capital structure among regulated services for
ratemaking purposes.
(v) The regulated service LLC shall assume allocated
indebtedness as primary obligor in which the covered
utility shall provide an unconditional and irrevocable
guaranty of all assumed indebtedness for the remaining
term of each obligation.
(vi) An assumption of allocated indebtedness shall
not constitute a default, acceleration event, assignment
or breach under the indebtedness, notwithstanding any
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provision of the applicable instrument to the contrary.
(vii) Upon formation, the regulated service LLC
shall issue its own debt to finance the debt component of
the regulated service LLC's capital structure which shall
be secured by the regulated service assets held by the
regulated service LLC.
(viii) Unless the commission determines that a
guaranty is necessary to obtain financing on terms
consistent with public interest, the regulated service
LLC's debt may not require a guaranty by the covered
utility. If the commission determines that a guaranty is
necessary, it shall be limited in scope and for a minimum
duration to fulfill its obligations.
(ix) For any period during which the covered utility
guarantees indebtedness of a regulated service LLC, the
covered utility shall be entitled to a guaranty fee in an
amount and under the terms determined by the commission.
(x) The rate base of the regulated service LLC shall
be determined in accordance section 1381(k).
(12) Upon establishment of a regulated service
corporation and regulated service LLC, the regulated service
corporation shall become the issuer of all subsequent auction
equity interests for the applicable regulated service.
(13) If it is determined to be in the public interest,
the commission may authorize the covered utility to offer
holders of outstanding auction equity interests the option to
convert their interests to equivalent interests issued by the
regulated service corporation.
(14) Notwithstanding any other provision under this
subsection, a covered utility shall not be required to form a
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regulated service corporation or regulated service LLC if the
following apply:
(i) The covered utility provides only one regulated
service subject to the jurisdiction of the commission or
if multiple categories of service have been determined by
the commission to warrant consolidated treatment as a
single regulated service.
(ii) The covered utility does not engage in any
material business activity other than the provision of
that regulated service.
(15) A covered utility that meets the requirements under
paragraph (14) may issue auction equity interests directly,
in which case all references under this subchapter to a
regulated service corporation or regulated service LLC shall
be construed as references to the covered utility when
applicable.
§ 1383. Annual reporting and transparency.
(a) Reports.--Not later than January 15 of each year, the
commission shall submit a report to the Governor, the
chairperson and minority chairperson of the Consumer Protection
and Professional Licensure Committee of the Senate and the
chairperson and minority chairperson of the Consumer Protection,
Technology and Utilities Committee of the House of
Representatives on the implementation of this subchapter. The
annual report shall include all of the following:
(1) Each covered utility's requested return on equity,
rate of return and capitalization mix proposed as part of the
covered utility's most recent base rate filing under section
1308(d) (relating to voluntary changes in rates), including
the corresponding data for the preceding three base rate
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filings.
(2) The actual return on equity, rate of return and
capitalization mixes authorized by the commission for each
covered utility in the most recent three base rate
proceedings.
(3) The results of any competitive equity auctions
conducted under this subchapter for the previous five
calendar years.
(4) An analysis of the impact on average customer rates
resulting from implementation of this subchapter.
(5) In clear and accessible language, a description of
how authorized returns on equity have changed, reflect new
circumstances or remained the same during the previous year.
(6) All data used for calculations under this subchapter
which is not publicly available, including an explanation on
the necessity for using nonpublic data.
(7) A summary of enforcement actions taken under this
subchapter.
(b) Public information.--The annual report under subsection
(a) shall be made publicly available on the commission's
publicly accessible Internet website.
§ 1384. Applicability to State-jurisdictional rate base.
This subchapter shall apply only to the portion of a covered
utility's rate base that is subject to the ratemaking
jurisdiction of the commission. Nothing in this subchapter shall
be construed to apply to, modify or otherwise affect the return
on equity applicable to any facilities, assets or services for
which the rate of return is determined by the Federal Energy
Regulatory Commission or any other Federal regulatory authority.
To the extent that a covered utility's rate base includes both
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State-jurisdictional and federally jurisdictional components,
the commission shall establish procedures to allocate the rate
base between those components. The authorized return on equity
determined under this subchapter shall be applied solely to the
components subject to the commission's jurisdiction.
§ 1385. Applicability to ratemaking.
(a) Application.--This subchapter shall apply to each
covered utility and each regulated service of a covered utility
as of the effective date of this subsection regardless of
whether a rate proceeding under section 1308(d) (relating to
voluntary changes in rates) is pending and without regard to
when the proceeding was last concluded.
(b) Implementation.--The implementation timeline established
under section 1381(j) (relating to default authorized return on
equity) shall govern the commission's adjustment of customer
rates to reflect the authorized return on equity required by
this subchapter.
(c) Construction.--Nothing in this section shall be
construed to require the initiation of a rate proceeding under
section 1308(d) as a precondition to the application of this
subchapter to a covered utility.
(d) Duty to serve.--Nothing in this subchapter relieves a
covered utility of its obligation and duty to serve customers
through continued investment in maintaining a reliable
infrastructure through continued investment and utilizing a
qualified workforce to do so.
Section 2. This act shall take effect immediately.
SECTION 2. SECTION 1509 OF TITLE 66 IS AMENDED TO READ:
§ 1509. BILLING PROCEDURES.
(A) TIME PERIOD FOR PAYMENT WITHOUT PENALTY.--ALL BILLS
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RENDERED BY A PUBLIC UTILITY AS DEFINED IN PARAGRAPH (1)(I),
(II), (VI) OR (VII) OF THE DEFINITION OF "PUBLIC UTILITY" IN
SECTION 102 (RELATING TO DEFINITIONS) TO ITS SERVICE CUSTOMERS,
EXCEPT BILLS FOR INSTALLATION CHARGES, SHALL ALLOW AT LEAST 15
DAYS FOR NONRESIDENTIAL CUSTOMERS AND 20 DAYS FOR RESIDENTIAL
CUSTOMERS FROM THE DATE OF TRANSMITTAL OF THE BILL FOR PAYMENT
WITHOUT INCURRING ANY LATE PAYMENT PENALTY CHARGES THEREFOR.
(B) RECEIPT OF MONTHLY BILLS.--ALL CUSTOMERS SHALL BE
PERMITTED TO RECEIVE BILLS MONTHLY AND SHALL BE NOTIFIED OF
THEIR RIGHT THERETO.
(C) ITEMIZATION.--ALL BILLS SHALL BE ITEMIZED TO SEPARATELY
SHOW AMOUNTS FOR BASIC SERVICE, FEDERAL EXCISE TAXES, APPLICABLE
STATE SALES AND GROSS RECEIPTS TAXES, TO THE EXTENT PRACTICABLE,
FUEL ADJUSTMENT CHARGE, IF ANY, STATE TAX ADJUSTMENT CHARGE OR
SUCH OTHER SIMILAR COMPONENTS OF THE TOTAL BILL AS THE
COMMISSION MAY ORDER.
(D) FUEL ADJUSTMENT CHARGE GENERALLY.--ANY ELECTRIC OR GAS
PUBLIC UTILITY BILLING CUSTOMERS ON A BIMONTHLY OR QUARTERLY
BASIS AND RENDERING INTERIM STATEMENTS OR BILLS EACH MONTH SHALL
INCLUDE IN SUCH INTERIM STATEMENT OR BILL AN AMOUNT FOR THE FUEL
ADJUSTMENT CHARGE BASED UPON ONE-HALF OF THE TOTAL EXPECTED
BIMONTHLY KILOWATT HOUR OR CUBIC FOOT BILLING OR ONE-THIRD OF
THE TOTAL EXPECTED QUARTERLY BILLING AND USING THE FUEL
ADJUSTMENT CHARGE RATE APPLICABLE IN THE MONTH OF THE INTERIM
STATEMENT OR BILL. AT THE TIME OF PREPARING THE BIMONTHLY OR
QUARTERLY BILL, AN APPROPRIATE ADJUSTMENT SHALL BE MADE IN THE
TOTAL FUEL ADJUSTMENT CHARGE BILLING FOR THE PERIOD.
(E) CALCULATION OF FUEL ADJUSTMENT CHARGE.--ANY PUBLIC
UTILITY RENDERING BILLS ON A BIMONTHLY BASIS OR QUARTERLY BASIS
SHALL CALCULATE THE FUEL ADJUSTMENT CHARGE PER KILOWATT HOUR OR
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CUBIC FOOT FOR THE ENTIRE PERIOD AS THE WEIGHTED AVERAGE OF THE
TWO MONTHLY RATES OR THE THREE MONTHLY RATES WHICHEVER IS
APPLICABLE.
(F) PREVIOUSLY UNBILLED SERVICE.--
(1) EXCEPT AS PROVIDED IN PARAGRAPH (2), A PUBLIC
UTILITY AS DEFINED IN PARAGRAPH (1)(II) OR (VII) OF THE
DEFINITION OF "PUBLIC UTILITY" IN SECTION 102 MAY NOT RENDER
A BILL FOR PREVIOUSLY UNBILLED SERVICE THAT HAS ACCRUED
OUTSIDE OF THE PREVIOUS 12-MONTH PERIOD.
(2) PARAGRAPH (1) DOES NOT APPLY TO A BILL THAT IS
DELAYED AS A RESULT OF:
(I) PROCEEDINGS OF THE COMMISSION OR A COURT OF
COMPETENT JURISDICTION; OR
(II) FRAUD, THEFT OR METER TAMPERING.
SECTION 3. SECTION 2810(C) OF TITLE 66 IS AMENDED BY ADDING
A PARAGRAPH TO READ:
§ 2810. REVENUE-NEUTRAL RECONCILIATION.
* * *
(C) RATE.--
* * *
(2.1) THE FOLLOWING APPLY:
(I) NOTWITHSTANDING ANY PROVISION OF THIS SECTION OR
SECTION 1101.2 OF THE ACT OF MARCH 4, 1971 (P.L.6, NO.2),
KNOWN AS THE TAX REFORM CODE OF 1971, TO THE CONTRARY,
THE RATE OF TAX ESTABLISHED UNDER THIS SECTION SHALL BE
ZERO MILLS.
(II) NOTWITHSTANDING THE PROVISIONS OF SECTION
1101(B) OF THE TAX REFORM CODE OF 1971, THE RATE OF TAX
UNDER SECTION 1101(B) OF THE TAX REFORM CODE OF 1971
SHALL BE ZERO MILLS.
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(III) THE ENTIRE BENEFIT OF THE TAX ELIMINATION
UNDER THIS PARAGRAPH SHALL DERIVE TO THE BENEFIT OF THE
CONSUMER PURCHASING SERVICES FROM THE UTILITIES. THE
BENEFIT SHALL BE PROVIDED IN THE FORM OF THE ELIMINATION
OF THE STATE TAX SURCHARGE, WHICH SHALL BE CLEARLY
REFLECTED IN EACH CONSUMER'S BILL. FAILURE TO PASS
THROUGH THE ENTIRE BENEFIT OF THE TAX HOLIDAY TO THE
CONSUMER SHALL SUBJECT THE PUBLIC UTILITY TO A CIVIL
PENALTY OF AT LEAST $1,000, BUT NOT MORE THAN $5,000, AND
ADDITIONAL RELIEF AS THE COURT MAY DEEM APPROPRIATE.
* * *
SECTION 4. FOR THE 2026-2027 FISCAL YEAR AND EACH FISCAL
YEAR THEREAFTER, THE TRANSFER OF MONEY FROM THE TAX UNDER
ARTICLE XI OF THE ACT UNDER SECTION 6 OF THE ACT OF NOVEMBER 29,
2004 (P.L.1376, NO.178), KNOWN AS THE ALTERNATIVE FUELS
INCENTIVE ACT, SHALL BE NO LESS THAN THE AMOUNT TRANSFERRED
UNDER SECTION 6 OF THE ALTERNATIVE FUELS INCENTIVE ACT FOR THE
2025-2026 FISCAL YEAR.
SECTION 5. THIS ACT SHALL TAKE EFFECT AS FOLLOWS:
(1) THE FOLLOWING SHALL TAKE EFFECT JULY 1, 2026, OR
IMMEDIATELY, WHICHEVER IS LATER:
THE ADDITION OF 66 PA.C.S. § 2810(C)(2.1).
SECTION 4 OF THIS ACT.
(2) THE AMENDMENT OF 66 PA.C.S. § 1509 SHALL TAKE EFFECT
IN 60 DAYS.
(3) THE REMAINDER OF THIS ACT SHALL TAKE EFFECT
IMMEDIATELY.
20260HB2224PN3646 - 35 -
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