Order 15683 - Aurora Natural Gas v. Prov. Gas Co.

I. INTRODUCTION

On December 1, 1997, Aurora Natural Gas, LLC (hereinafter "Aurora") filed a complaint against the Providence Gas Company ("PGC," "ProvGas" or "the Company") with the Rhode Island Public Utilities Commission ("RIPUC" or "the Commission"). [1 Exh. DPU-1. (The complaint letter is dated November 26, 1997, and has a PUC date stamp of December 1, 1997)]  The Aurora complaint alleged that PGC had violated both the Commission's Regulations for Utility Interaction with Gas Marketers (the "Regulations") as well as provisions of its tariff. In its complaint Aurora asserts that through the alleged violations of the Commission's gas marketing regulations and the Company's tariff, PGC's gas marketing affiliate, Providence Energy Services, Inc. (PES) was provided preferential treatment that unfairly advantaged PES in the enrollment of customers for unbundled natural gas services under the ProvGas Business Choice Program.

On December 24, 1997, Providence Gas Company filed its response to the Aurora complaint.  [2 Exh. DPU-3.]  In that response, the Company asserted that its investigation of the Aurora Complaint found no evidence that PES had been provided either advance knowledge of PGC policy decisions or any preferential treatment under the terms of its tariff. PGC also asserted that in all cases its investigations suggested that all marketers had been treated in a uniform and non-discriminatory manner in both the communication of information and the application of its tariff.

The parties, Aurora and PGC, were unable to resolve the issues presented in the Complaint. The Commission referred the matter to the Division for investigation and resolution at a January 20, 1998 open meeting. [3 This is the first complaint the Division has investigated under the Commission's Regulations.]

The Division undertook an extensive process of discovery and evidentiary hearings to expand its understanding of the circumstances surrounding the Aurora complaint. Prior to and during the hearing process, multiple discovery requests were made of both PGC and Aurora. In its pursuit of this investigation, the Division has endeavored to respect the market sensitive and confidential nature of data relating to certain elements of issues raised. The Division also recognizes the constraints that confidentiality concerns may place on the parties. As the complainant, Aurora did not have access to confidential or market sensitive information that was in the possession of Providence Gas Company which might have been useful to Aurora in pursuing its complaint.

Public hearings were held on March 20, April 6, and April 7, 1998. In addition, a closed hearing to address potentially confidential matters was held on April 1, 1998. The closed hearing was held to explore the marketing practices and strategies of PGC's affiliate, PES, which were matters arguably deserving of proprietary treatment. Thus, out of an abundance of caution the Division decided to explore these issues through a closed hearing.

The following appearances were entered:

For Aurora Natural Gas LLC:                     Katherine B. Edwards, Esquire

For Providence Gas Company:                   Dennis J. Duffy, Esquire

For Providence Energy Services:                 Dennis J. Duffy, Esquire

For the Division:                                         Paul J. Roberti, Special Assistant Attorney General

Simultaneous initial briefs were filed by Aurora and Providence Gas Company on April 28, 1998. Reply briefs were filed by both parties on June 1, 1998. By letter dated June 8, 1998, ProvGas submitted rebuttal comment to arguments raised by Aurora's Reply Brief.

II. BACKGROUND

Providence Gas Company, implementing the terms of a settlement entered into by the parties in Docket No. 2552 and approved by the Commission, began accepting applications in September 1997 for Large and Medium commercial and industrial (C&I) customers to commence purchasing unbundled natural gas services as of December 1, 1997, as part of its "Business Choice Program" (i.e., Phase II of the Company's rate unbundling program). [4 Phase I of the Company's rate unbundling program commenced in June 1996, but participation was limited to customers qualifying for the Company's Extra Large C&I rate classifications (approximately 70 customers).]  The Business Choice program provided customers two service options. Those options included FT-1 service (i.e., a daily metered service with the ability to obtain storage and peaking resources from third-party providers) and FT-2 service (i.e., a monthly metered service with storage and peaking resources assigned to the customer's selected marketer from resources controlled by Providence Gas Company). The enrollment period for FT-1 and FT-2 service for Large and Medium C&I customers was scheduled to continue through November 1, 1997, subject to the limitation that participation during the Company's 1997-98 fiscal year could not exceed 10 percent of its projected annual firm gas sales volume.

On October 21, 1997, Mr. Stephens, the President of Providence Energy Services, Inc. contacted ProvGas to request reconsideration of the requirement for use of dedicated telephone lines for the transmission of telemetering data to the Company. Throughout PGC's Phase I unbundling program the Company had required the use of dedicated telephone lines for all telemetered customers, and its initial determination for Phase II was that it would continue to require the use of dedicated telephone lines for Phase II customers who elected FT-1 service. On October 28, 1997, three (3) days before the end of the initial enrollment period for Phase II (Business Choice Program) service, however, ProvGas issued a memorandum to all marketers informing them that the Company had decided to permit the use of non-dedicated telephone lines by Medium and Large C&I customers who elected the FT-1 service option.

By the end of the scheduled enrollment period, Providence Gas Company had received nearly 900 applications from Large and Medium C&I customers for participation in the Business Choice program. Nine (9) different gas marketers were named by customers on those service applications, with a total of 571 customers requesting FT-1 service and a total 321 selecting the FT-2 service option. Significantly, over 600 service applications (more than two-thirds of the total applications) were received by ProvGas on the last day of the enrollment period.

Of the 571 customers electing the daily metered FT-1 service, Providence Energy Services, Inc. (PES), PGC's gas marketing affiliate, enrolled 470 customer accounts (or 82% of the total number of customers electing FT-1 service under the Business Choice Program). By contrast, PES enrolled no customer accounts in FT-2 service. Aurora enrolled no customers in FT-1 service, but signed-up 34 customer accounts for FT-2 service under the Business Choice Program. [5 See PGC's responses to Division Data Requests DIV-1-1, DIV-1-2, DIV-1-26 and DIV-1-27.]

All customers electing FT-1 service were required by the Company's tariff to have "in place and operational" telemetering equipment prior to the commencement of FT-1 service. [6 The Providence Gas Company tariff at Section 5, Transportation Terms and Conditions, Schedule E, Sheet 18, states, "Transportation service [for FT-1 customers] shall not commence until the telemetering equipment [for that service] is in place and operational."] Since some of the customers selecting the FT-1 service option had more than one meter, those customers required the installation of more than one telemetering device. As a result, the 571 customers electing FT-1 service required 634 telemetering equipment installations. [7 See the Providence Gas Company response to Division Data Request DIV-1-3.]  Although the commencement date for service under the Business Choice Program was scheduled for December 1, 1997, ProvGas had only one telemetry installation completed prior to November 1, 1997, and 13 telemetry installations completed by November 17, 1997. [8 See the information provided in the Providence Gas Company response to Division Data Request DIV-1-7.]  Thus, PGC was left with the task of completing over 600 telemetering installations in less than two weeks. By the end of November, the Company had completed 165 of the required 634 telemeter installations, but PGC determined that none were operational as of December 1, 1997. [9 Ibid.]  According to the Company, installation of telemetry equipment in and of itself did not qualify a customer for "operational" status. In addition, the customer must obtain the installation of a telephone line, the telephone line must be connected to the telemetry equipment, and ProvGas must perform several days of successful testing before operational status can be achieved. [10 4/6 Tr. 238. Also, see the attachment to PGC's response to Division Data Request DIV-3-3. Of the 165 installations "completed" by the Company prior to the end of November 1997, the Division finds that only 51 were considered operational by January 1, 1998.]

Through a faxed memorandum to "Marketers with FT-1 Aggregation Pools" dated November 21, 1997 ("November 21 Memo"), ProvGas informed marketers that it would not be able to complete the required number of telemeter installations prior to the scheduled December 1 commencement date for service under the Business Choice Program. [11 See the Providence Gas Company response to Division Data Request DIV-1-36.]  Rather than denying service to FT-1 customers for whom telemetering equipment was not "in place and operational" as of December 1, the Company announced in its November 21 Memo that it would create a "temporary solution for interim implementation of the tariff." ProvGas identified that temporary solution for those customers lacking the in place and operational telemetry equipment required for FT-1 service under the Company's Transportation Terms and Conditions as "FT-1/Non-Operational" service. [12 Ibid.]

III. THE AURORA COMPLAINT

The Aurora Complaint, dated November 26, 1997, makes allegations of improper behavior on the part of Providence Gas Company which placed Aurora at a competitive disadvantage in its efforts to market unbundled gas supply services under the Business Choice Program. In addition, during the hearing process Aurora expanded its complaint to include allegations that Providence Gas provided preferential treatment to its affiliate, Providence Energy Services, Inc. in the sale of natural gas and interstate pipeline capacity to third parties.

Aurora's filed complaint against PGC lists four basic allegations. Those allegations are:

1. That ProvGas violated the PUC's Regulations by providing its affiliate, Providence Energy Services, Inc., with advance knowledge of its decision to permit the use of non-dedicated telephone lines for FT-1 telemetering.

2. That ProvGas violated the provisions of its tariff and PUC marketing regulations by waiving the provision requiring dedicated telephone lines for metering. [13 This allegation was withdrawn during hearings. (3/20 Tr. 138).]

3. That ProvGas violated its tariff and the PUC's marketing regulations by waiving the requirement that telemetry be in-place and operational before the commencement of unbundled gas transportation service for FT-1 customers.

4. That questions on the ProvGas Electronic Bulletin Board that were provided to aid customers in assessment of gas marketers were skewed in favor of its affiliate, Providence Energy Services, Inc.

In its Brief, Aurora expanded upon its complaint against Providence Gas Company by arguing that the evidence supported nine specific findings by the Division. [14 The additional issues argued in Aurora's Brief had been raised by the Division during the proceeding as the Division expanded the scope of the review to include other aspects of ProvGas' interactions with its marketing affiliate. See infra Section V.]  Those are:

a) PGC provided advance information to its affiliate;

b) PGC continually changed the rules [of the Business Choice Program] to benefit its affiliate;

c) PGC violated its tariff and regulations by providing service to non-operational [FT-1] customers;

d) PGC's creation of non-operational FT-1 service provides unduly discriminatory benefits to PES;

e) PGC rates for storage and peaking inventories billed to FT-2 customers were not cost-based and were not on file with the Commission;

f) PGC provided illegal pricing and flexibility preferences to PES;

g) PGC illegally shared sensitive marketing information with its affiliate;

h) PGC and PES illegally shared the same corporate logo;

i) PGC and PES had insufficient separation of functions and employees.

Each of these allegations is examined in the subsequent sections of this decision. In addition, this decision will address a number of broader considerations which gained focus through the Division's investigation of the Aurora complaint. Those considerations relate to PGC's implementation of unbundled firm transportation services, PGC's procedures for making changes in policy determinations during an enrollment period, the need for changes in future PGC rate unbundling programs, and the separation of management of the utility and the affiliated gas marketer.

IV. DISCUSSION OF AURORA'S ALLEGATIONS

This being the first complaint filed by a marketer since the commencement of retail rate unbundling, the Division has attempted to signal to both marketers and utilities that such complaints should not be frivolously pursued. In this context, the Division has rigorously investigated all aspects of the potential constraint on competition and customer choice while endeavoring to respect the rights of all parties and protect the confidentiality of market sensitive information. Although primarily focused on the specifics of the Aurora complaint, the Division has also used the opportunity this forum provided to examine the appropriateness of procedures and policies associated with the implementation of unbundled gas services and the adequacy of the Commission's Regulations.

A. Provision of Advance Information to an Affiliated Marketer

One of the most prominent concerns of Aurora is that PGC provided information to its affiliate regarding a decision by the Company to permit the use of non-dedicated telephone lines for the telemetering of FT-1 service. Section V.A.2 of the Commission's Regulations states:

To the extent a utility provides a marketing affiliate information related to transportation which is not readily available or generally known to other gas marketers, including but not limited to utility customer lists, it must contemporaneously provide that information to all gas marketers on its system.

In this instance the Division finds that the advance release of information to an affiliate regarding FT-1 telemetering requirements would represent a significant violation of the Commission's Regulations. The significance of such an alleged violation is underscored by a ProvGas assessment that its decision to permit use of non-dedicated telephone lines for FT-1 service "will save customers on the on-going costs of a dedicated line," and "may influence ... customers' selection of service." [15 See the Memo to All Marketers re: Telemetering Phone Line Requirements attached to PGC's response to Division Data Request DIV-1-10.]

Aurora supports its claim of improper provision of advance information to a marketing affiliate with:

- Allegations that PES representatives made statements to customers which reflected a knowledge that use of non-dedicated lines would be permitted well in advance of the public announcement of that PGC decision; and

- Observations regarding the number of customer applications for FT-1 service that PES submitted one day before PGC informed all marketers of its decision.

The Division finds several questionable aspects of the appropriateness of the PGC decision and the timing of its announcement which will be discussed later in this decision. However, no competent evidence of advance knowledge of that decision by PES has been presented for examination in the record of this proceeding. [16 Through both pre-hearing discovery requests and on-the-record requests during public hearings, the Division sought evidentiary support, in either confidential or non-confidential format, for Aurora's allegations of PGC provision of advance information to PES. Aurora offered no response until the filing of its Initial Brief on April 28, 1998, well after the conclusion of the hearing process. At that time, Aurora provided the Division a confidential document listing names of persons who purportedly could attest to representations made by PES representatives regarding the use of non-dedicated telephone lines in advance of the PGC policy announcement. Notably, no affidavits were filed with that list. Thus, the Division has given no weight to this late filed and still unverified information.]  Furthermore, the linkage between the number of applications submitted by PES just prior to PGC's announcement of its decision to permit use of non-dedicated lines and prior knowledge of that decision by PES is not well-developed and, at best, circumstantial.

On the other hand, any discussion of this matter would be incomplete without recognition of the dual roles served by certain key individuals during the period over which this policy change was being considered. The fact that during the period in question, certain persons served in key management or advisory positions for both PGC and PES raises a potential for transfers of information between those organizations that would be difficult to verify or refute. [17 PGC's responses to Division Data Request DIV-1-32 and DIV-2-6 document that several PGC employees served in a dual capacity. In addition, the record indicates that Mr. Yurkevicz, a PEC employee has simultaneously served as a marketing advisor to both PGC and PES.]  Key among those individuals who serve both organizations was Mr. James DeMetro. At the time, Mr. DeMetro served as both a Senior Vice President for PGC and as a member of the PES Board of Directors. [18 Mr. DeMetro resigned his position on the Board of Directors of PES in March of 1998 during the pendency of this proceeding.]  Mr. DeMetro maintains that he was not involved in day-to-day decision making for ProvGas and had no input to the Company's decision regarding the use of non-dedicated telephone lines for FT-1 service telemetering. [19 Tr. 4/1 182.]  According to Mr. DeMetro, the Company's decision to permit use of non-dedicated telephone lines was primarily an operational issue, not a strategic issue, and therefore, did not require his active participation. [20 Tr. 4/1 176-184.]

Thus, the investigation into the specific allegation that PES was provided advance knowledge of PGC's decision to permit use of non-dedicated telephone lines for telemetering FT-1 service leaves the Division with at best a clouded image of what actually transpired. What is clear, however, is that greater separation between PGC and its marketing affiliate would reduce the potential for (a) actual and perceived conflicts of interest and (b) improper transfers of information between organizations. Moreover, as will be discussed in greater detail later in this decision, there is a demonstrated need for tighter limits on the policy making discretion of the Company where such discretion is expected to directly effect the economics of customers' gas service alternatives offered in a competitive market, particularly where an affiliated entity is an active participant in that market.

B. PGC Continually Changed Rules to Benefit its Affiliate

Aurora argues that through continual changing of the rules for unbundled service, PGC unfairly advantaged its marketing affiliate, PES, who it asserts had "inside knowledge of ProvGas' changing policies." [21 Aurora Initial Brief, p. 8.]  In support of this argument, regarding PGC's changing rules for transportation services, Aurora claims that "independent marketers did not receive consistent or accurate information about the cost of telemetry." [22 Ibid.]  As evidentiary support for this claim, Aurora cites portions of the transcript which note different ranges of costs and uncertainties associated with telemetry costs for specific installations. [23 Ibid.]

Although the Division has concerns regarding PGC's communication of telemetry costs to marketers and its billing of customers for costs that the Company incurred to complete telemetry installations, the Division finds that Aurora has not met its burden of proof on this element of its complaint. The existence of a range of costs for telemetry installations is understandable and well explained by Company witnesses. [24 4/6 Tr. 152, 244-249.]  Moreover, evidentiary support for the claim that PES had inside knowledge of changing ProvGas policies is mostly circumstantial. As will be discussed later in this decision, the Division finds substantial evidence that PES benefited from changes in PGC transportation policies that were implemented at the expense of other ProvGas customers. The Division also finds that PES gained unfair market advantage as a result of changes that ProvGas unilaterally made in its transportation rates and policies.

C. Offering of FT-1/Non-Operational Service

Aurora asserts that ProvGas illegally waived Section 2.02 (Schedule E, Sheet 18) of the Transportation Terms and Conditions in its tariff by providing FT-1 service without operational telemetry in place and without seeking formal authorization of the Division. [25 Aurora Initial Brief, p. 8.]  Aurora also contends that the Company's waiver of Section 2.02 of its tariff violated Sections V.B.3 and V.B.4 of the Commission's gas marketing Regulations.

Section 2.02 of the PGC tariff, which relates specifically to FT-1 service, states that "Transportation service shall not commence until the telemetering equipment is in place and operational." Faced with the large number of FT-1 service applications received late in the enrollment period for the Business Choice Program, the Company recognized in mid-November 1997 that it would be unable to complete the total number of telemetry installations required for FT-1 service applicants prior to the scheduled December 1, 1997, commencement date for that service. By memorandum dated November 21, 1997  [26 In response to Division Data Request DIV-1-39, PGC provided copies of transmittal forms to document the transmission of the referenced memorandum. Each transmittal form includes the hand written date of November 21, 1997. However, the transmittal message confirmation report printed on each transmittal form reflects a November 20, 1997, date. The Company indicates (4/7 Tr. 83) that the dates printed as part of the confirmation reports are in error. Yet, given the importance placed on such confirmation dates as verification of the timing of communications, the presence of such alleged errors on important time sensitive communications raises concerns regarding the reliability of fax transmittal forms as verification of time sensitive communications.]  to "Marketers with FT-1 Aggregation Pools," ("the November 21 Memo"), the Company informed marketers of the situation and announced the creation of a temporary "non-operational" status for FT-1 customer accounts for which operational status could not be achieved prior to the scheduled commencement date. [27 Exh. DPU-6.]

There appears to be no dispute that the Company departed from the provisions of Section 2.02 of its Transportation Terms and Conditions. Rather, the questions in dispute relate to:

a) Whether the Company exceeded its authority by implementing a "non-operational FT-1 status" without first obtaining approval of the Division;

b) Whether the Company's departure from the provisions of its tariff were reasonable, appropriate and justifiable; and

c) Whether the offering of a non-operational status provides equitable and non-preferential treatment of all marketers and customers.

PGC asserts that it "did not proceed unilaterally [with the offering of FT-1/Non-Operational service]." [28 PGC response to Division Data Request DIV-2-7.]  Rather, the Company suggests that it was "confronted with unforeseen operational circumstances that would make literal tariff application impractical and unduly burdensome to retail customers," and it responded to that situation by first contacting the Division to discuss and review the proposed solution. [29 Ibid. (Emphasis Added.)]  The Company also submits: (1) that the Division has the authority in the case of an emergency "to permit any public utility to temporarily alter, amend, or suspend any existing rates, schedules, and order relating to or affecting any public utility ... in this state;" and (2) that it proceeded with its announcement of this departure from its approved tariff language on the basis of what it "believed" that the Division had decided regarding its proposal. [30 Ibid.]

The record shows, however, that PGC's transmittal to the Division of a draft of its announcement to marketers was in the form of a faxed draft of its November 21 Memo to Marketers regarding "Phased Implementation of FT-1 Telemetering Equipment." The transmittal of that document occurred within hours of when the final document was transmitted to marketers. [31 Exhibit DPU-11 indicates that a draft of the memo to marketers with FT-1 aggregation pools was transmitted to the Division at 4:01 PM on November 20. PGC response to Division Data Request DIV-1-39 indicates that transmittal of the final version of the memo to marketers began at 12:52 PM on November 20 (or November 21, if PGC's explanation of an error in the programmed date on the fax transmittal confirmation reports is accepted).]  That limited fax communication (including the fax cover sheet) contained no indication of an emergency situation and no request for specific relief from approved tariff provisions. [32 4/7 Tr. 87, 88.]  In addition, that faxed communication offered no information regarding the number of customer accounts that would be served under the proposed non-operational status or the period of time that would be required to eliminate the need for such a special classification of customers. Furthermore, the communication provided no clear statement of when ProvGas planned to finalize the memo or transmit it to marketers. Finally, ProvGas never informed the Division of its decision of October 28, 1997 to allow the use of non-dedicated lines. Although PGC has suggested that a follow-up conversation occurred between Mr. Scialabba of the Division and Mr. Czekanski, a rate analyst for PGC, the record raises questions as to whether any substantive discussion of this matter between Division and PGC personnel occurred prior to transmission of the final memo to marketers.

Regardless, of what may or may not have been discussed between the Division and PGC personnel, the Company's decision to proceed on the basis of what it "believed the Division had decided" without any documentation of the Division's position represents an ill-advised, unwarranted and inappropriate action. As previously noted, the Company understood that it was the Division, not PGC, that has the authority in the case of an emergency to permit the temporary alteration, amendment, or suspension of rates, schedules and orders. The Division appreciates that the Company felt that it needed to act on a timely basis, but PGC's failure to obtain even after-the-fact written verification of the position that it "believed" the Division had taken reflects a disregard for appropriate regulatory process that cannot be condoned. Importantly, the record reflects that no formal petition was ever made to the Division for waiver or modification of the tariff pursuant to R.I.G.L. Section 39-3-13. Further, no finding of the existence of emergency conditions by the Administrator was sought or obtained as required by that statute. [33 See New England Tel. & Tel. Co. v. Kennelly, 75 R.I. 422, 67 A.2d 852 (R.I. 1982), which indicates that the administrator of the Division is the sole judge as to whether an emergency exists and a utility is not entitled to relief merely because it considers a situation to represent emergency conditions.]  The sole document that was transmitted to the Division suggesting the Company's desire to create an FT-1/Non-Operational service status failed to communicate a single factual circumstance that would suggest an exigency or emergency, as required by Section 39-3-13. Moreover, the first time that PGC portrayed the situation as an emergency was in its response to a Division data request that PGC filed almost four months after the fact. [34 PGC response to Division Data Request DIV-2-7 dated March 17, 1998.]

ProvGas portrays its creation of a "Non-Operational" FT-1 status as a necessary emergency response to "unforeseen operational circumstances." However, the Division observes that such a situation was not unforeseen and that the tariff specifically addresses the manner in which ProvGas should address problems associated with unmanageably large numbers of applications for transportation service. The tariff states:

The Company reserves the right to restrict the availability of Transportation Service should the number of customers exceed the capability of the Company to reliably administer the service ...  [35 PGC tariff, Section 5, Transportation Terms and Conditions, Schedule E, Sheet 2, paragraph 1.0.]

Thus, the Division finds that PGC's actions did not represent a response to unforeseen operational circumstances. Moreover, the Division rejects the Company's characterization of the situation as an "emergency" and offers four specific rationales to support its position.

First, the Division finds that a specific remedy for the type of problem that ProvGas encountered is provided in PGC's tariff.

Second, in the event that an FT-1 customer did not have in place and operational telemetry equipment as of December 1, 1997, there is no indication that the flow of gas to the customer would be disrupted. Rather, the customer would be able to continue to receive bundled gas service from the Company until such time that an operational status could be achieved.

Third, nothing in either the draft of the Company's November 21 Memo or the fax transmittal form that accompanied that draft suggests that the problem which lead to the Company's creation of an FT-1/Non-Operational service proposal was of an emergency nature.

Fourth, the record shows that the failure on the part of a significant number of customers to obtain timely installation of required telephone lines was a substantial contributing factor to the Company's inability to obtain operational status for greater numbers of customers by December 1, 1997.  [36 4/6 Tr. 129.]

In the context of the foregoing, PGC's action to implement a non-operational status for FT-1 service without specific Division approval of that action represents an unauthorized departure from the requirements of the provision of its tariff, as well as a violation of the "filed rate doctrine." [37 As recently reaffirmed by the Supreme Court of the United States, the "filed rate doctrine" exists to ensure that the provisions of a utility's tariff are uniformly applied and to bar potentially discriminatory rate applications that are premised on unauthorized departures from filed tariff language. American Telephone and Telegraph Company v. Central Office Telephone, Inc., 118 S. Ct. 1956 (June 15, 1998). In its decision, the Court concluded that the doctrine necessitates strict application of a utility's tariff: "Regardless of the [utility's] motive-whether it seeks to benefit or harm a particular customer - the policy of nondiscriminatory rates is violated when similarly situated customers pay different rates for the same services. Id at 1962 (emphasis supplied).]  Furthermore, PGC's unauthorized departure from the provisions of its tariff included both (1) a failure to conform with the requirement that FT-1 customers have "in place and operational" telemetry equipment before the commencement of FT-1 service and (2) a failure to utilize the specific relief provided in Section 1.0 of its Transportation Terms and Conditions which addresses the very type of problem that confronted PGC when it received an unexpectedly large number of applications for FT-1 service on the last day of its scheduled enrollment period for the Business Choice Program.

Having determined that the Company implemented FT-1/Non-Operational service without proper authorization, the next question is whether the Company's departure from the provisions of its tariff were otherwise reasonable, appropriate and justifiable. Aurora asserts that this action by ProvGas provides unduly discriminatory benefits to PES. Furthermore, Aurora alleges in its Initial Brief that the FT-1/Non-Operational status PGC created provides "the same quality of service as FT-2," but does so without FT-1 customers having to pay charges comparable to those assessed for FT-2 service. This focuses Aurora's concerns regarding unduly discriminatory treatment of PES on differences in the Company's pricing of services to similarly situated customers served under different rate schedules. Aurora further submits that since PES enrolled the bulk of FT-1 Non-Operational customers and since FT-1 Non-Operational service received preferential treatment relative to FT-2 service, the Company's pricing of FT-1/Non-Operational service primarily benefited PES, ProvGas' unregulated marketing affiliate.

ProvGas responds to Aurora's arguments with a representation that Section 2.02 of the FT-1 rate schedule was uniformly applied. According to PGC, "the only issue is whether PGC applied the tariff provision in question ... in a uniform and even-handed manner." [38 PGC Reply Brief, p. 4.]   PGC's argument centers on provisions of the Regulations that "recognize and acknowledge that there will be variances in tariff application" and provide that "utilities must (i) apply any tariff provisions relating to transportation in the same manner to similarly-situated gas marketers, (ii) uniformly enforce tariff provisions for all transportation customers, and (iii) offer any discount, rebate, or waiver for tariff service to its marketing affiliate to all similarly situated marketers."  [39 Ibid.]  ProvGas further argues that its creation of a Non-operational status for FT-1 service is not unduly discriminatory as Aurora alleges because:

1. It does not constitute a violation of Section V.B.6 of the Regulations since the FT-1/Non-Operational service does not involve a discount, rebate, or fee waiver; and

2. Contrary to Aurora's arguments, functional differences do exist between the FT-1/Non-Operational and FT-2 classes. [40 Ibid. p. 5.]

Moreover, PGC argues that Aurora's assertions regarding a lack of functional distinction between the FT-1/Non-Operational class and the FT-2 class is based upon three legal and factual misstatements, which it identifies as follows:

1. That Aurora is incorrect when it suggests daily balancing is not required of PES under FT-1/Non-Operational service, since the Company's FT-1/Non-Operational policy (as announced in PGC's November 21, 1997 memo to Marketers with FT-1 Aggregation Pools) states that "the pool's daily imbalances shall be subject to penalty provisions outlined ... in the Transportation Terms and Conditions;"

2. That contrary to Aurora's assertions PES did have to pay for storage and peaking service; and

3. The cost of the telemeter will in all cases be invoiced to the FT-1 customers, but FT-2 customers will bear no such costs.

Finally, ProvGas' argued in its Initial Brief that the Company was obligated under contractual law to provide FT-1 service to all customers requesting that service during the Business Choice program enrollment period. According to ProvGas, the Company as an obligor, "may not refuse to perform its obligations because of the non-occurrence of a condition if the obligor contributed materially to such non-occurrence." [41 PGC Initial Brief, pages 10-11.]  In support of that argument, ProvGas cites testimony from Mr. Lyons which it characterizes as suggesting that "PGC's own logistical problems had been a material factor" in PGC's inability to have all FT-1 service applicants operational by the scheduled service commencement date. [42 Ibid. p. 10.]

The Division agrees with Aurora that FT-1/Non-Operational service effectively provides essentially the same quality of service as FT-2 service, and that the FT-1/Non-Operational service status the Company created has resulted in unduly preferential treatment to marketers with customers accorded FT-1/Non-Operational status. The Company's assertion that it uniformly applied its FT-1 rate policies to all FT-1 marketers and customers does not address the fact that absent operational telemetering equipment, FT-1 customers were similarly situated to FT-2 customers. Although PGC argues that other functional differences between FT-1/Non-Operational service and FT-2 service justify the Company's treatment of FT-1/Non-Operational customers, the Division does not find those arguments compelling.

One argument that ProvGas offers in support of its treatment of FT-1/Non-Operational customers suggests that a functional distinction between FT-1/Non-Operational service and FT-2 service existed due to the Company's continuation of requirements for daily balancing for FT-1 aggregation pools. However, that argument does not address either the manner in which daily imbalances are measured for non-operational FT-1 customers or the effective pricing of daily balancing services for non-operational FT-1 customers. Without daily metering of gas usage, the daily imbalance provisions of the Company's FT-1 service are effectively no different from those for FT-2 service. In recognition of this relationship, PGC's tariff explicitly provides that FT-1 service is for customers "electing to have Gas Usage recorded on a daily basis at the Point of Delivery." [43 PGC tariff, Section 5, Transportation Terms and Conditions, Schedule E, Sheet 17.]  On the other hand, the Company's tariff expressly states that FT-2 service is offered to customers "without the requirement for recording daily Gas Usage at the Customer's Point of Delivery." [44 PGC tariff, Section 5, Transportation Terms and Conditions, Schedule E, Sheet 21.]  Thus, these tariff provisions identify the key functional distinction between FT-1 and FT-2. Moreover, the absence of "in place and operational" telemetering equipment for FT-1/Non-Operational customers eliminates the most important functional distinction between those services. [45 In this context, Mr. V. Duffy agreed during cross-examination that the Company must rely on the same monthly metering data to bill FT-1/Non-Operational service that it uses for billing FT-2 service (i.e., no daily metering data is available for measurement or billing of daily imbalances for FT-1/Non-Operational accounts). 4/7 Tr. 162-163.]

The Division also observes that the Company's policies for FT-1/Non-Operational customer accounts ensure that those accounts have neither positive nor negative impacts on aggregation pool daily imbalance determinations, as long as sufficient gas is delivered each day to meet the aggregate Forecasted Daily Usage (FDU) for the marketer's FT-1/Non-Operational accounts. As explained in the Company's November 21, 1997 memo to Marketers with FT-1 Aggregation Pools, "ProvGas will use its estimating routine developed for FT-2 customers to provide an estimate of gas usage for the next gas day" for FT-1 Non-Operational customers. [46 See the attachments to PGC's response to Division Data Request DIV-1-36.]  Thus, without telemetering to record actual daily usage for an FT-1 customer, there is no distinction between a customer's forecasted daily usage and its actual daily usage, and the balancing requirements for non-operational customer components of FT-1 Aggregation pools become essentially the same as those for FT-2 aggregation pools. As a result, a marketer with FT-1/Non-Operational customers essentially receives free daily balancing for deviations between forecasted and actual usage for those customers. [47 The Division is concerned that PGC's remaining unbundled firm gas sales service customers may ultimately bear the costs of daily balancing services that are effectively provided without charge for non-operational customers within FT-1 aggregation pools.]

The PGC November 21 Memo states that for FT-1 Non-Operational customers "ProvGas will use its estimating routine developed for FT-2 customers to provide an estimate of gas usage for the next gas day." As a result, as mentioned above, the daily usage determinations for FT-1/Non-Operational customers as well as the balancing requirements for non-operational customer components of FT-1 aggregation pools are essentially the same as those for FT-2 aggregation pools. However, gas marketers with FT-2 aggregation pools must pay ProvGas for storage and LNG inventory costs that are not billed to marketers with FT-1/Non-Operational service. In addition, marketers with FT-2 aggregation pools must pay higher Monthly Aggregation Pool charges. The Division concludes that there are no substantive differences between FT-1/Non-Operational service and FT-2 service except for the price paid for each service, with FT-2 service being more costly. PGC's policies for FT-1/Non-Operational service unduly discriminate against similarly situated FT-2 customers and have the effect of providing FT-1/Non-Operational accounts with free daily balancing service.

The Division also is not compelled by PGC's arguments that PES did have to pay for storage and peaking services. Although the Division acknowledges that PES had a responsibility to deliver 100% of its daily requirements to PGC's citygate, the Division finds no evidence of the amount of storage and/or peaking resources, if any, that PES actually purchased for the 1997-98 winter period. More importantly, the Company's arguments ignore the greater gas supply flexibility that marketers with FT-1 aggregation pools are provided relative to marketers with FT-2 aggregation pools. For FT-2 aggregation pools, marketers must purchase storage and peaking inventories from ProvGas in amounts and at prices determined by the Company subject to the provisions of its Transportation Terms and Conditions. The amounts of inventory that such marketers must buy are based on average load characteristics for the customers rate class, and the ProvGas charges for storage and peaking inventories reflect average inventory costs. However, marketers with FT-1 aggregation pools are free to both determine the amounts of storage and peaking resources that best reflect their customers requirements and negotiate prices for the purchase of those requirements in an open market environment.

The Division's understanding of the importance of the flexibility provided to marketers with FT-1 aggregation pools is underscored by the testimony of Mr. Stephens of PES. [48 4/1 Tr. 72-74 The testimony the Division relies upon is sealed as part of the confidential record, as it related to the marketing strategies of PES.]

It is the Division's understanding that many marketers would like to be able to offer an FT-2 service without the obligation to purchase storage and peaking inventories from ProvGas. However, the policy determinations reflected in the settlement in Docket No. 2552 link the ability of a marketer to engage in open market purchases of storage and peaking resources for an aggregation pool to a requirement for telemetering of daily gas usage. That requirement is imposed to ensure that marketers electing to procure storage and peaking supplies through open market transactions do, in fact, meet those obligations on a day-to-day basis and do not take unfair advantage of the utility and its other firm gas service customers. Thus, the Company's policy decision to grant marketers with FT-1/Non-Operational customers the ability to determine how much storage and/or peaking resources they must purchase and at what price they would make those purchases represents a major concession to those marketers. That significant concession was not part of the Settlement in Docket 2552 nor has it been justified before the Commission from either a cost or operational perspective.

The Division likewise rejects the ProvGas argument that FT-1/Non-Operational service is distinct from FT-2 because FT-1 customers will in all cases bear the cost of the telemeter, while FT-2 customers are not responsible for such costs. The Division finds that this argument misses the essence of the issue. The fact that an FT-1/Non-Operational customer may be billed at some point for telemetry costs does not establish a functional difference between the FT-1/Non-Operational service and FT-2 service.

If an FT-1 customer has "in place and operational" telemetry, then a functional distinction exists which differentiates that customer from an FT-2 customer, and the customer has, in fact achieved FT-1 Operational status. Billing such a customer for telemetering equipment installation costs is reasonable and appropriate under PGC's tariff. On the other hand, a customer in an FT-1/Non-Operational status is not likely to be obligated to pay for a telemetry device until the Company has completed its installation and testing. If subsequent to the completion of the Company's installation of telemetry equipment, the customer remains in a non-operational status due to the customer's failure to obtain the required telephone line installation, the existence of the telemetering equipment in and of itself does not create a functional distinction between that customer and an FT-2 customer. Nor does the customer continuing in a non-operational status, due to a failure to meet its obligations under the tariff for FT-1 service, relieve the customer from responsibility for the costs of the telemetry that the Company has installed. Thus, the Division finds that the Company's argument regarding an FT-1 customer's responsibility for the costs of telemetry equipment is irrelevant to questions regarding functional distinctions between FT-1 Non-Operational service and FT-2 service.

Furthermore, the Division finds that PGC's argument, that its contractual obligations to FT-1 customers necessitated its unilateral implementation of FT-1/Non-Operational service, ignores basic elements of the contracts between ProvGas and those FT-1 service marketers and customers. Specifically, those arguments fail to address the sections of those agreements under the heading "PUBLIC REGULATION." Within the PGC Transportation Service Agreement, Section 5.0, Public Regulation, states:

This Agreement is subject to any limitation, modifications or amendments ordered by the Commission, regardless of whether said order resulted from a petition, request or other solicitation directed to the Commission by a party to the Agreement, Compliance by ProvGas with any order, rule, regulation or policy statement of the Commission, or of any other federal, state or local governmental authority, whether issued before or after the effective date of this Agreement, shall relieve ProvGas of any liability for its failure to perform any of its obligations hereunder as a result of such compliance. In the event of the issuance of any order of the Commission which materially modifies the provisions of this Agreement, either ProvGas of the Customer shall have the option to terminate this Agreement by giving written notice of termination to the other party at any time within thirty days after the issuance of the order. [49 PGC tariff, Section 5, Transportation Terms and Conditions, Schedule E, Sheet 35.]

Similar language is found in Section 3.1 of the Company's Marketer Aggregation Pool Service Agreement. [50 Ibid. Sheet 39.]  In addition, Section 5.2 of PGC's Transportation Service Agreement and Section 3.2 of the Company's Marketer Aggregation Pool Service Agreement state:

This Agreement shall be subject to ProvGas' General Terms and Conditions and Transportation Terms and Conditions on file with the Commission to the extent those Terms and Conditions are not inconsistent with the provisions of this Agreement. [51 Ibid. Sheets 35 and 39.]

Clearly, under these provisions of the customer and marketer agreements, ProvGas has the ability to seek relief from tariff obligations without violating its contractual responsibilities to customers. In addition, when confronted with the submission of large numbers of the FT-1 service applications in the last week of October, previously cited language of Section 1.0 of the Company's Transportation Terms and Conditions provided ProvGas the explicit ability to limit unilaterally its service obligations to FT-1 customers. Thus, PGC's expressed fear of "extensive litigation with customers under newly executed FT-1 service contracts" is groundless. Both its tariff and its service agreements provide opportunities for relief from tariff obligations which ProvGas elected not to exercise, and fear of extensive litigation does not justify the Company's chosen course of action.

The Division also does not accept the Company's suggestion that "its own logistical problems had been a material factor in the non-satisfaction of [customer's requests for FT-1 service beginning December 1, 1997]." [52 PGC Initial Brief, p. 10.]  The Division finds, despite the Company's own representations in Brief, that PGC's inability to achieve operational status for new FT-1 service applicants as of December 1 was primarily attributable to:

1. The large number of applications for FT-1 service that PGC receive in the last few days of the enrollment period, [53 The data provided in PGC's response to Division Data Request DIV-1-1 indicate that the Company logged over 380 FT-1 service applications after October 30, 1997. That is more than double the number of applications received in the prior six weeks of the enrollment period, and 4 to 5 times the number of FT-1 customers enrolled in Phase I.]  and

2. Longer than anticipated lags in the installation of telephone lines by FT-1 service applicants. [54 The record of this proceeding is replete with references to problems associated with lags in the completion of required telephone line installations by FT-1 service applicants. See for example 4/1 Tr. 53, 104, 106, 117; 4/6 Tr. 137-138, 193, 236, 259; and 4/7 Tr. 32, 48-49, 156-157, 261.]

Therefore, the Division rejects the notion that ProvGas' contractual obligation necessitated its unilateral implementation of FT-1 non-operational service.

D. FT-1/Non-Operational Service Provides Unduly Discriminatory Benefits to PES

Aurora alleges that the creation of a non-operational status for FT-1 customers allowed customers served under that status to receive the same quality of service as FT-2 customers without having to pay the storage, peaking, throughput, and the more costly Aggregation Pool charges associated with FT-2 service. Furthermore, Aurora complains that with PES enrolling over 82% of the total number of customers electing FT-1 service during the Phase II sign-up period, [55 Aurora Initial Brief, p. 10. Also, the Division notes, data provided in PGC's response to Division Data Request DIV-1-27, PES captured 83.8% of the annual volume requirements for Medium and Large C&I customers enrolling in PGC's Business Choice Program.] PES was the primary beneficiary of the ProvGas decision to offer a FT-1/Non-Operational status.

PGC responds to Aurora with the assertion that "PES did not receive any application of Section 2.02.0 that differed from the general application of such provision to all other customers." [56 PGC Reply Brief, p. 5.]  Thus, ProvGas suggests that only those benefits PES received from FT-1/Non-Operational status were those that were provided to all FT-1 marketers.

The Division finds no evidence that Section 2.02.0 of the Company's Transportation Terms and Conditions, as well as modifications to that section embodied in the ProvGas November 21, 1997, Memo to Marketers, were applied in a less than uniform manner to FT-1 customers. However, PGC's response to arguments in Aurora's Initial Brief does not answer concerns regarding potential discrimination between marketers with FT-1 aggregation pools and marketers with FT-2 aggregation pools. It also does not address issues regarding whether the Company's application of Section 2.02.0 conveyed preferential treatment to an affiliate who unquestionably holds a dominant position in the market for FT-1 service. The Division concluded in the prior section of this Decision that PGC's treatment of FT-1/Non-Operational customers was unduly discriminatory to FT-2 customers and marketers. The question of whether that discriminatory behavior unduly benefited the Company's marketing affiliate will be addressed in a later section of this Decision.

E. Charges for Storage and Peaking Inventories

Aurora asserts in its initial brief that the rates charged to marketers of FT-2 service for storage and peaking inventories had not been filed with the PUC and were not cost-based. Aurora further asserts that PGC's failure to file these charges with the PUC represents a violation of fundamental filed rate doctrine principles, as well as a violation of Rhode Island law, which requires that all rates be on file with, and approved by, the Commission.

ProvGas responds that the methodology for computing charges for storage and peaking inventories is detailed in Section 2 of its tariff which relates to the Company's Gas Charge Clause. ProvGas also submits that the details of the computations supporting the specific storage and peaking inventory charges that it has billed to marketers with FT-2 aggregation pools are provided in its response to a Division data request. [57 PGC response to Division Data Request DIV-2-5.]  The record indicates, however, that the referenced data response only provided support for the Company's storage inventory cost computations. No supporting data is provided for PGC's peaking inventory costs and peaking inventory charges for marketers with FT-2 aggregation pools. [58 4/7 Tr. 124.]

The Division finds no evidence that the charges for storage and peaking inventories that ProvGas billed to FT-2 customers were ever filed with the Commission. [59 4/7 Tr. 128.]  The Division also finds that the Company's charges for storage inventories were based on estimates of inventory costs, rather actual inventory costs, and no provision has been made for reconciliation of those estimates with actual costs. Furthermore, there appear to be valid concerns regarding whether the charges billed by ProvGas were properly computed.

The Company's use of estimates appears, at least in part, to be related to the October 1, 1997 commencement of gas supply agreement that PGC entered into with Duke Energy Trading Company (Duke) as part of its Docket No. 2581 Rate Stabilization Plan. It is the Division's understanding that under the Duke agreement ProvGas transferred its storage and peaking inventories to Duke as of October 1, 1997. As a result, the Company did not have title to any specific storage inventories as of the commencement date for FT-2 service. Thus, in the absence of specific booked inventory costs, it appears that ProvGas attempted to compute charges for storage inventories in compliance with the terms of its tariff using an estimate of what its costs of storage inventory would have been at the start of the Business Choice Program, if planned injections to storage inventories were not interrupted by PGC's gas supply agreement with Duke.

The Division appreciates that the stipulation and settlement in Docket No. 2581 and the Duke agreement may have introduced considerations in the determination of storage and peaking inventory charges for marketers with FT-2 aggregation pools that were not anticipated when Phase II rate unbundling issues were resolved in Docket No. 2552. PGC should have brought those considerations to the Division or the Commission when ProvGas encountered the need for the use of estimates in the computation of charges for storage and peaking inventories. The pricing of such inventories is a key element of the Company's FT-2 service offering. Determinations regarding appropriate pricing of such inventories could have a significant influence on decisions of marketers and customers regarding the relative attractiveness of FT-2 service.

For these reasons, the Division finds that, in the absence of an agreement among the parties regarding necessary and appropriate modifications to the existing procedures for pricing storage and peaking inventories, the issue of appropriate pricing of storage and peaking inventories should be referred to the Commission for hearing before any further enrollment in PGC's rate unbundling program is permitted.

F. PGC Provided Illegal Pricing and Flexibility Preferences to PES

Aurora alleges that ProvGas provided preferences in pricing and nomination flexibility to its affiliate PES. In support of this allegation, Aurora cites the testimony of Mr. Craig Peterson, a former employee of Providence Gas Company and a current employee of Aurora. [60 Mr. Peterson left ProvGas to join Aurora in December 1997, after Aurora had filed its initial complaint in this proceeding. 4/6 Tr. 64.]   Mr. Peterson testified as to his experience in PGC's Gas Supply Department and cited examples of what he perceived to be preferential treatment of PES by Gas Supply Department personnel during his tenure in that department. [61 3/20 Tr. 93-97.]  In particular, Aurora cites testimony from Mr. Peterson in which:

a) A transaction already approved was overruled by a superior and redone in a manner that favored PES;

b) He was instructed by a superior to "make it work" when discussing transactions with PES;  [62 3/20 Tr. 94, 96, 125, and 134.] and

c) He was chastised for failing to be sufficiently flexible in dealings with PES. [63 3/20 Tr. 29 and 96.]

ProvGas counters that Mr. Peterson's discomfort was largely due to his inexperience and his confusion between maximizing revenues and maximizing price. The Company also cites to a portion of Mr. Peterson's testimony in which he states that his supervisor warned him that he was not to show preference to any marketer, [64 3/20 Tr. 95.] as well as testimony in which Mr. Peterson agreed that Mr. DeMetro never specifically told him to give preferential treatment to PES.

Although Mr. Peterson obviously felt that he was pressured to treat PES in a preferential manner, the evidentiary support for that allegation is not strong. In an attempt to document Mr. Peterson's claims, the Company produced, at the Division's request, copies of two notebooks (or logs) that Mr. Peterson referenced in his testimony as having documentation of preferential pricing activities. However, the Division finds nothing in the contents of those two logs that provides verification that preferential treatment was accorded PES in the pricing or nomination activities.

Still, the Division is somewhat troubled by the context in which the "make it work" or "make it happen" phraseology was used by senior ProvGas personnel. [65 3/20 Tr. 94, 96; 4/7 Tr. 182.]  A directive to "make it work" might be appropriate in the context of a safety or service reliability issue, but it does appear to be appropriate in terms of negotiating transactions with an affiliate.

The Division is also troubled by the testimony of Mr. DeMetro regarding his role in a dispute regarding the pricing of capacity release transactions between ProvGas and PES. Mr. DeMetro's testimony in the record of this investigation demonstrates the lack of adequate separation that existed between ProvGas and PES. First, the concerns of PES were brought directly to Mr. DeMetro, who at the time carried key management responsibilities for both ProvGas and PES. Second, those concerns were presented to Mr. DeMetro by Ms. Caroline Tortolani. Mr. DeMetro had testified that he had hired Ms. Tortolani to run PES, and he had assisted her in setting up the Company. [66 4/1 Tr. 163-164.]  Third, Mr. DeMetro testified that while he could not "bust" a deal between ProvGas and an unaffiliated organization, he would step in to "bust" a deal between ProvGas and PES if he thought the deal were inappropriately priced.

Although Mr. DeMetro's threat of intervention in transactions between PGC and PES may have been well intended, it reflects a lack of arm's length dealing between ProvGas and PES, as well as uneven treatment of PES and other marketers. Similar demonstrations of the lack of arm's length dealing between PES and PGC are reflected in other portions of Mr. DeMetro's testimony. For example, Mr. DeMetro testified on the record that "PES was directed to come to ProvGas first for capacity release transactions." [67 4/7 Tr. 241.]  A truly independent gas marketer would not be subject to such directives.

G. PGC Illegally Shared Sensitive Marketing Information With Its Gas Marketing Affiliate

The Aurora Initial Brief argues that ProvGas illegally shared market sensitive information, including customer names and volumes with personnel responsible for the marketing strategy of its affiliate PES. [68 Aurora Initial Brief p. 13.] Aurora asserts that such transfers of market sensitive information represent violations of Section IV.A.3.(a) [69 Although the Aurora Initial Brief cites Section IV.A.2 of the Regulations, it follows that cite with a quotation from Section IV.A.3.(a).] of the Commission's Regulations for Utility Interaction with Gas Marketers, which states:

The use of a utility employee by a gas marketer or the use of a gas marketer employee by the utility is not allowed if it is likely to result in the sharing of market sensitive information or an unfair competitive advantage for either party.

Aurora also submits that ProvGas violated Sections IV.C.2 and IV.C.3 of those Regulations "which prohibit disclosure of 'account or market sensitive information of the utility to the gas marketer.'" [70 Ibid. p. 14.]

As evidentiary support for its claim of improper sharing of market sensitive information, Aurora cites to portions of the transcript in which:

a) Aurora witness Peterson testifies that during the period when he was an employee of ProvGas he was instructed to provide market sensitive information to Mr. Yurkevicz of Providence Energy Corp. [71 3/20 Tr. 104 and 4/6 Tr. 24.]

b) PGC witness DeMetro verifies that such information was provided to Mr. Yurkevicz of Providence Energy Corp. but not to any third-party marketer. [72 4/7 Tr. 210.]

c) Witness DeMetro discusses Mr. Yurkevicz role with respect to PES. [73 4/7 Tr. 280-283.]

PGC responds to these Aurora assertions in its reply brief. In that reply the Company argues:

1. That Section IV.A.3 of the Commission's Regulations does not apply to Mr. Yurkevicz since that section only applies to "utility operating personnel" and Mr. Yurkevicz never performed operational-level gas functions.

2. That Sections IV.C.2 and IV.C.3 were not violated because Mr. Yurkevicz did not pass the market information provided to him by ProvGas to any PES officer or employee.

3. That the information provided to Mr. Yurkevicz contained only data relating to Phase I customers.

4. That, contrary to alleged implications of the Aurora Initial Brief, Mr. Yurkevicz's marketing role was limited to assuring brand consistency, and specifically excluded efforts to find customers for PES.

5. That the brand consistency functions Mr. Yurkevicz performed fell within the scope of shared services specifically allowed by PGC's Master Services Framework Agreement, and thus, did not violate the Commission's Regulations.

The Division agrees with ProvGas that Section IV.A.3 applies to "utility operating personnel," and accepts that Mr. Yurkevicz did not perform operating-level gas functions. However, the Division finds little comfort in the suggestion that Mr. Yurkevicz did not pass the market information provided to him by ProvGas to any PES officer or employee considering Mr. Yurkevicz's marketing-related role with PES, as well as his role as an owner's contact for PES. Thus, the Division finds that the actions by PGC employees to pass individual customer information to Mr. Yurkevicz constitute violations of Section IV.C.2 of the Regulations regardless of what use he made of that information after it was received.

The fact that the data provided to Mr. Yurkevicz contained only information relating to Phase I customers does not negate this violation. The Regulations were applicable during the portion of the Company's Phase I activities in which these violations occurred, and nothing in the Aurora complaint limits the applicability of its concerns to Phase II activities. Moreover, Aurora has marketed services to Phase I customers for whom individual customer information was provided to Mr. Yurkevicz.

The Division also takes exception to a suggestion in the testimony of Mr. DeMetro that provision of market sensitive information to Mr. Yurkevicz was appropriate since it was only intended to "give him a sense of what was happening with respect to transportation services." [74 4/7 Tr. 194.]  If the only objective was to provide Mr. Yurkevicz a "sense of what was happening" in transportation markets, that could have been accomplished through the provision of aggregate data (i.e., not individual customer data). Furthermore, the Division fails to see why a person such as Mr. Yurkevicz, who purportedly is engaged in only a limited marketing communication role, [75 Ibid.] would have any need for a series of monthly reports containing individual transportation customer data.

The potential for undocumented transfer of market sensitive information to PES and/or its use to benefit that affiliated marketer is too great to be ignored. As Mr. DeMetro conceded, he was not present at all meetings between Mr. Yurkevicz and PES personnel. [76 4/1 Tr. 235.]  Therefore, Mr. DeMetro's representation that Mr. Yurkevicz transmitted no confidential data to PES must be weighted accordingly. [77 4/7 Tr. 195-196.]  In addition, the Division does not find that the "brand consistency functions" that Mr. Yurkevicz performed fell within the scope of the shared services specifically allowed by PGC's Master Services Framework Agreement (MSFA). The Division's review of the MSFA finds that the MSFA is an agreement exclusively between ProvGas and Providence Energy Services, Inc. The organization that employs Mr. Yurkevicz, Providence Energy Corporation, is not a party to that agreement, and there is no reference in that agreement to either PEC or any of its employees. The Division also notes that the MSFA is defined in the Commission's Regulations at Section II.H. as a "Commission-approved contractual agreement," and PGC's MSFA does not appear to meet that criterion. [78 Although PGC's MSFA was filed with the Commission in October 1996, the Division finds no indication that the Commission has ever taken action with regard to approval of that agreement.]

Finally, the Division does not agree with Mr. DeMetro's testimony that, "Mr. Yurkevicz is not a marketer." [79 4/7 Tr. 209.]  The record establishes that Mr. Yurkevicz was involved in the management of Providence - Southern (P/S). [80 The relationship between PES and P/S is explained in the record by both Mr. Stephens and Mr. DeMetro. Mr. DeMetro also indicated that PES and P/S are the same organization. (4/1 Tr. 58-61, 143, 147-148).]  He was named to the management committee for P/S, and Mr. Stephens, the President of both PES and P/S, [81 4/1 Tr. 59.] perceived that he reported directly to that management committee. [82 4/1 Tr. 58, 61.]

H. PGC and PES Illegally Shared the Same Corporate Logo

Section IV.D. of the Regulations specifically states that a utility and a marketing affiliate may not share trademarks or logos. Aurora, in its Initial Brief, cites evidence that PGC and PES shared use of the same logo. [83 Aurora Initial Brief, p. 14; Exhs. DPU-4, DPU-5 and DPU-6.]  On the other hand, Mr. Stephens testified that PES has no logo of its own, [84 4/1 Tr. 82.] the evidence to which Aurora refers shows the Providence Energy Corporation logo, not that of Providence Gas Company.

ProvGas further responds to Aurora's allegations regarding the use of logos by suggesting that the advertisements Aurora cites as support for its claim of a violation of the Commission's Regulations "simply identify that PES is affiliated with PEC and "do not show any trademark or logo that is 'shared' by PES in contravention of the Regulations." [85 PGC Reply Brief, p. 8, footnote 8.]  According to PGC, such advertising conforms with the first sentence of Section IV.D. which states, "Promotional materials may allow marketers to be identified as affiliated with utilities."

The Division recognizes that promotional materials that simply identify PES as an affiliate of PGC do not violate the Regulations. However, the record demonstrates that at least in two instances the intent of the cited advertising and the use of the PGC logo was not simply to identify PES as an affiliate of ProvGas. Rather, the Division finds that the referenced advertising attempted to market PES services using the Gas Company's 150 years of experience. [86 Exhs. DPU-4 and DPU-6; and 4/1 Tr. 83-84 and 231.]  These instances clearly went beyond the simple identification of PES as an affiliate of ProvGas. Thus, the Division finds that these attempts to use the experience of the regulated utility (PGC) to attract customers to PES and sell PES services violated Section IV.D. of the Regulations which prohibits "joint promotions between the utility and the marketing affiliate."

Furthermore, the Division finds that the only substantive difference between the ProvGas logo and the PEC logo is found in the text written adjacent to the logo; one reads "Providence Gas Company" and the other reads "Providence Energy Corporation." The shape of the logo is exactly the same (i.e. a capital letter "P" with a flame in the middle). The Division finds that as long as PGC and PEC share the same logo, the use of that logo in PES advertising is inappropriate and violates the Section IV.D. prohibition against shared use of trademarks or logos by a utility and a marketing affiliate. As further rationale for this finding, the Division notes that identification of a marketer as an affiliate of the utility does not require use of a logo. The Division is of the opinion that if PES wants to use the PEC corporate logo in its advertising, then PEC should more clearly differentiate its logo from that for ProvGas.

V. OTHER ISSUES

Through discovery and hearings the Division has identified a number of concerns regarding the Company's implementation of unbundled firm transportation rates, some of which were not included in, or fully articulated by, either the Aurora complaint or its post-hearing briefs. This section presents a discussion of those concerns, as well as additional Division findings regarding those concerns.

During hearings and in its Brief, PGC challenged the Division's Authority to review matters that arguably extend beyond the scope of the Aurora complaint. PGC does not dispute the Division's authority to investigate matters related to the Company's dealings with PES. [105 4/1 Tr. 77 and 79-80.]  PGC argues, however, that the Division should consider only those allegations raised in Aurora's complaint. In PGC's view, any additional matters should be investigated through a separate proceeding concurrent with, or subsequent to, the Division's investigation of the Aurora complaint. At the closed hearing on April 1, 1998, the Division ruled that it would proceed to address all matters in this proceeding relating to Providence Gas Company interactions with both affiliated and non-affiliated gas marketers under the Regulations. This was explained to include both those matters directly related to Aurora's allegations and those matters which came to the Division's attention through the discovery and hearings conducted as part of its investigation. [106 4/1 Tr. 77-82.]

The authority of the Division to engage in a review of the issues surrounding Aurora's complaint is contemplated by the Regulations which precipitated the initiation of the instant docket as well as dictated by Rhode Island Law. While the Regulations apply broadly to "transactions, direct or indirect, between public utilities and gas marketers," [107 See Regulations, at Section 1.]  R.I.G.L. Section 39-3-30, entitled "Investigation and order as to transactions between affiliates," vests the Division with full power and authority to investigate the conduct of a public utility as it relates to an affiliate. Moreover, Section 39-4-10 vests the Division with the authority to investigate and make orders with respect to any "act" of a public utility that might be deemed "unjust, unreasonable, insufficient, preferential [or] unjustly discriminatory." Pursuant to this Section, the Division is authorized, upon completing a summary investigation as provided in Section 39-4-13, to make all orders "as shall be just and reasonable," including restitution measures as the Division deems necessary "to do equity to the parties." In light of this statutory mandate, and notwithstanding the applicable Regulations, the Division is obligated to conduct a thorough investigation of this matter and to address all evidence in its possession. The Division therefore exercises its discretion to review related matters in a singular proceeding, which, in the Division's view, is sanctioned by statute and provides for a more judicially efficient vehicle for addressing the Aurora complaint as well as other issues relating to PGC's interactions with gas marketers.

Finally, the Division recognizes its ability to review confidential and proprietary information not available to Aurora. The Division's access to such information, coupled with its technical expertise and overall institutional knowledge of public utility regulatory matters within Rhode Island, provide the Division with a more dynamic view of issues relating to Aurora's complaint. These factors also position the Division to render a thorough and well-considered evaluation of both the Aurora complaint and PGC's overall compliance with the Regulations.

A. Procedures for Changing Policies During an Enrollment Period

After the Commission's acceptance of the stipulation and settlement in Docket No. 2552 and the commencement of the enrollment period for the Business Choice Program, ProvGas implemented certain changes in its transportation service policies which may have impacted either customer or marketer assessments of the economics of service alternatives or the manner in which marketers approached customers. Although discretion on some matters was clearly provided to the Company under its Transportation Terms and Conditions, several aspects of the Company's decision making during the enrollment period for the Business Choice Program warrant review.

One of the most prominent of the Company's decisions during the fall 1997 enrollment period for the Business Choice Program was its decision to permit the use of non-dedicated telephone lines in the telemetering of FT-1 service. Although PGC's tariff provides the Company with the discretion to authorize use of non-dedicated telephone lines, no extra large C&I customers participating in the Company's Phase I unbundling program had been allowed to use a non-dedicated line. ProvGas had also consistently made representations in marketer workshops that it would require the use of dedicated telephone lines for the large and medium C&I customers who were eligible to participate in the Business Choice Program. At no point did the Company provide either customers or marketers with a detailed specification of the criteria upon which exceptions to its dedicated line policy might be considered or granted. Although several inquiries were made to the Company regarding steps that might be taken to lower telemetering costs, [108 Exh. DPU-9; PGC responses to Division Data Request DIV-2-8 and DIV-1-10; and 4/7 Tr. 19-20.]  the Company had neither recognized nor permitted any exceptions to its dedicated line policy for participants in Phase I of its rate unbundling program, for users of its non-firm transportation services, and throughout the series of marketer workshops that ProvGas sponsored in preparation for Phase II activities.

Only after Mr. Stephens, the President of PES, contacted the Company encouraging it to reconsider the use of non-dedicated telephone lines by FT-1 customers, was any serious investigation undertaken of the non-dedicated line alternative. [109 Mr. Stephen's inquiry was submitted verbally through a telephone contact with Mr. Duffy of ProvGas. Apparently no written documentation of that inquiry exists. The Division also notes Mr. Stephen's testimony that neither he nor anyone else in PES was familiar with the telemetry equipment that PGC was using for FT-1 customers.]  That contact occurred on October 21, 1997, (i.e., just 10 days prior to the scheduled end of the initial enrollment period for the Business Choice Program. Yet, as Mr. Stephens testified:

When I called Vincent Duffy on October 21st and presented the issue to him, my expectation was that it would be a fairly quick turnaround given the time frame we were within and the deadline that was approaching. [110 4/1 Tr. 51.]

A favorable decision was rendered by ProvGas just seven days later on October 28, 1997, i.e., three days before the end of the scheduled enrollment period. Further, the record indicates that more than one ProvGas employee felt pressure to render a decision on this matter that was favorable to the use of non-dedicated lines. [111 4/6 Tr. 260-262 and 4/7 Tr. 21-22.]

MR. OLIVER: ..........The response to Division data request 1-9 indicates you, Mr. Havrylik, were included among the persons who participated in discussions relating to the company's decision to permit the use of nondedicated telephone lines; is that correct?

MR. HAVRYLIK: Yes, that -- I was asked questions from time to time about that, yeah.

MR. OLIVER: Could you expand a little bit more about what the extent of your involvement on that decision was?

MR. HAVRYLIK: I guess the answer just says that I participated in internal discussions. I don't know if you want more.

MR. OLIVER: I was looking for more.

MR. HAVRYLIK: Yeah, okay. Well, being an operations person, my chief concern is getting these devices in and getting them in the most reliable fashion I can. So from day 1 I pushed hard for dedicated phone lines; because that's, from my experience from Phase 1 and the recommendations of Metscan and Itron, that's the ideal case. It's the simplest line to work on, it's the simplest line to trouble shoot, it's the most reliable type of line. And like, again, from a selfish reason, being a field person I want the most reliable information I can get, so I always push from that. I got a lot of push back from Mr. Duffy and Mr. Lyons, would it work the other way, and the answer was, yes, it could. But that's really not the way I'd like to go as a field person. An then finally it became, as they said earlier, the customers I guess fought this hard and pushed back so much on the added expense that they decided to just push me to the point where, "will it work"; and I had to say, yes, it probably will work, and we can take it case by case. As some of the testimony said earlier, Boston Gas was called, I personally called Bay State Gas. Their policy was put in any kind of line you want, if it doesn't work we'll have to change it to a dedicated line. So I kind of was pushed into that position. I got feedback from customers. (4/6/97, pp. 260-262)

Despite initial responses from the Company's telemetering equipment supplier, another utility, and in-house technical personnel, as well as input from Mr. Horton of Aurora, that there were likely to be problems with the use of non-dedicated lines, [112 Exh. DPU-3, PGC's response to DIV-1-37, 3/20 Tr. 195, and 4/6 Tr. 260-262.]  ProvGas aggressively pursued ways in which it might be able to permit use of a non-dedicated telephone line option.

The ProvGas October 28th announcement to "All Marketers" indicated that use of non-dedicated telephone lines would be allowed for any medium and large C&I customer electing FT-1 service.  [113 No notice of the change in Company policy regarding use of non-dedicated telephone lines for FT-1 telemetering was communicated directly to eligible customers prior to the conclusion of the scheduled enrollment period.]  It also informed marketers, that after the scheduled close of the enrollment period, customers who had met the enrollment deadline would be granted seven days to switch between the FT-1 and FT-2 service alternatives. [114 Again, no announcement of this grace period was made directly to customers.]  According to ProvGas, its non-dedicated line decision was intended to provide customers the opportunity for additional cost savings that the non-dedicated telephone line alternative would permit FT-1 customers. [115 See PGC's responses to Division Data Requests DIV-1-10 and DIV-2-8.]  No consideration was given to the impacts that the decision might have on either the Company's costs or resources, [116 The Division notes that at the time ProvGas announced its decision to permit use of non-dedicated telephone line, the Company had received over 180 FT-1 service applications, but installed only one telemetering device. See 4/7 Tr. 121-122.] nor was any consideration given to the impacts of the eleventh hour change in policy on either marketers' strategies for enrolling customers in the Business Choice Program [117 4/7 Tr. 108-109.] or PGC's communication of this policy change to eligible customers. ProvGas performed no field tests of non-dedicated lines prior to making a determination regarding their functionality or reliability, [118 4/6 Tr. 157-158.] and at no point did ProvGas openly solicit input on this matter from either the Division, all other marketers, or other participants in the resolution of Docket No. 2552 issues. [119 4/7 Tr. 108.]

Between October 28 and October 31, 1997, ProvGas logged the receipt of about 500 customer applications for participation in Business Choice Program. Of those, more than two-thirds (about 69%) requested FT-1 service. It is also notable that, where ProvGas had anticipated that FT-1 service was likely to attract only large volume and high load factor customers, [120 4/7 Tr. 4-5.] nearly 65% of the late period enrollments in FT-1 service were for Medium Low Load Factor customers. [121 Numbers and percentages of applications computed determined from data provided in PGC's response to Division Data Requests DIV-1-1 and DIV-1-2.]  In addition, many of those Medium Low Load Factor C&I customers had historic annual consumption levels of less than 10,000 Ccf. Obviously, a service alternative that the Company expected to appeal primarily to larger, high load factor, C&I customers was suddenly found to be attractive to large numbers of low load factor customers with comparatively small annual volume requirements.

Based on the foregoing discussion, the Division is troubled by the manner in which ProvGas exercised its discretion on the non-dedicated line issue. The Division recommends that the Commission place greater limits on the areas in which ProvGas is permitted discretion. In addition, the Division recommends that the Commission establish minimum procedures that the Company must follow before announcing a policy change during an enrollment period. Discretionary actions that may have seemed reasonable for bundled utility services in the absence of gas market competition, may not be appropriate where those actions may impact the economics of customer service alternatives and the marketing strategies of competitive suppliers of gas services. Although ProvGas recognized the significance of its non-dedicated line policy announcement on customer costs for FT-1 service, it showed no sensitivity to the potential impacts of such an eleventh-hour policy change on marketers.

In this instance, Aurora (and potentially others) had based their marketing strategies on a perception of the relative economics of the Company's FT-1 and FT-2 service offerings. Without attempting any assessment of the merits of the Aurora marketing strategy, the Division finds that the Company's change in its dedicated telephone line policy materially changed the information that ProvGas previously provided to marketers and undercut the basic premises upon which marketers such as Aurora had developed their marketing strategies. The Division believes that independent marketers should be free to develop and pursue marketing strategies without fear of eleventh-hour changes in utility policies.

Even if marketers, such as Aurora, had time to digest the ProvGas October 28, 1997 policy announcement and modify their marketing approaches to reflect the resultant improvement in the relative economics of the FT-1 service, a last minute shift in a marketer's pitch to customers may not have sounded credible to those customers. After initially hearing a marketer tout the advantages of FT-2 service, a sudden shift in the marketer's position that presents FT-1 service as the preferred alternative may not inspire customer confidence in either the marketer or its sales pitches. Moreover, the Company's granting of a seven day grace period for customers to switch between the FT-1 and FT-2 service options was of little, if any, value to marketers, and the Division is not surprised that no customers took advantage of that grace period. Furthermore, as noted by Aurora witness Hemingway, the ProvGas October 28, 1997 memo to marketers did not guarantee that a customer would in fact be allowed to use a non-dedicated line. [122 3/20 Tr. 190, 194-195.] Rather, the use of a non-dedicated line was contingent upon the Company's "timely and accurate receipt of usage information," [123 PGC response to Division Data Request DIV-1-10.] and the prior experience of Aurora personnel indicated that non-dedicated telephone lines do not work. [124 3/20 Tr. 195.]

B. Protection of Firm Sales Customer Interests

ProvGas has made several representations in this proceeding that elements of its decision-making related to the implementation of the Business Choice Program were intended to provide customers greater cost savings or to protect against customer dislocation. [125 PGC Initial Brief p. 3, 10, 11; and PGC responses to DIV-1-10, DIV-2-8 and DIV-2-9.]  Yet, most of those representations are made in the context of the Company's FT-1 customers. By contrast, the record appears devoid of any representations that the Company acted to protect the interests of its firm gas sales customers. ProvGas apparently was working from the perspective that under the Price Stabilization Plan there was little that could be done to adversely impact firm sales service customers. In fact, the Division's investigation has identified numerous actions by ProvGas that were taken to benefit FT-1 customers without regard to the impacts of those decisions or actions on firm gas sales customers. Examples of such instances, discussed in other parts of this decision, include:

- PGC's decision to permit use of non-dedicated telephone lines for FT-1 telemetering;

- PGC's incurrence of significant costs for labor overtime, as well as costs for multiple visits to customers' sites to install, and test the operation of telemetering equipment; and the PGC decision not to bill FT-1 customers for these costs;

- PGC's assumption of responsibilities for coordinating customer telephone line and telemetering installations;

- PGC's action to permit FT-1 customers to be served under a non-operational FT-1 service status, without any incentive for them to achieve operational status; and

- PGC's provision of what was effectively free balancing service to marketers for the non-operational customer components of FT-1 aggregation pools.

The Price Stabilization Plan only partially insulates firm sales customers from added costs associated with current activities. If the actions identified above serve to either reduce earnings which may otherwise be in excess of the Company's target ROE or lower its actual earnings to a level that would be below the ROE floor, firm sales customers will be adversely affected. In addition, if the Company in a future rate case should receive rate base treatment of labor costs associated with telemetering installations, then rates to firm sales service customers would be adversely affected.

C. Responsibility for the Costs of Telemetry

The Division finds that PGC's treatment of telemetry-related costs for FT-1 customers is problematic for three reasons. First, the Company's interpretation of its tariff with respect to billing of FT-1 customers for telemetering costs. Second, PGC has assumed costs and responsibilities for coordination of telephone line installations that are more appropriately borne by FT-1 customers and marketers. Third, the Division observes that the primary beneficiaries of PGC's decision to bill FT-1 customers only for telemetering equipment costs would be marketers whose marketing strategies are dependent upon use of FT-1 service and low telemetry costs, and PES is by far the largest of such marketers in the ProvGas service area.

The Providence Gas Company Transportation Terms and Conditions state that:

The Company will provide at Customer's expense, at the Point of Delivery to the Customer, a device that the Company will attach to its metering equipment for the purpose of monitoring the Gas Usage. [126 PGC tariff, Section 5, Transportation Terms and Conditions, Schedule E, Sheet 18.]

ProvGas, without consultation with the Division, has interpreted the language in this provision to indicate that the FT-1 customers, to whom this provision applies, are only responsible for the cost of the telemetering device itself. Implicitly, this interpretation of the Company's tariff suggests that the customers for whom such devices are installed should not be assessed directly for labor, transportation or other costs that ProvGas may incur to install the device or verify that it is operational. Rather, the Company's position is that it is free to seek rate base treatment of such other telemetry installation costs in a future base rate proceeding and collect these costs from firm gas customers. [127 4/6 Tr. 258-259.]

The Division disagrees with the Company's interpretation of the tariff on this matter. From the Division's perspective, the phrase "at Customer's expense" includes all costs incurred to complete the installation including labor costs, transportation costs, and other expenses, as well as the cost of the telemetry device. This matter is of particular concern to the Division because the labor costs for those installations have been significantly inflated by (1) an installation management plan which resulted in the Company's incurrence of considerable overtime expense, (2) substantial delays in customers' installation of required telephone lines which caused an increase in the amount of customer contact required to complete the installation of telemetry devices, and (3) frequent requirements for multiple visits to customer sites to complete telemetry installations. This matter also concerns the Division from the perspective of fairness and rate equity. The Company's treatment of telemetry costs introduces the potential that other rate classes might ultimately be called upon to subsidize telemetering equipment installations for FT-1 customers. Such a result is neither reasonable nor equitable. It also severely undermines the Commission's efforts to achieve cost-based rates for all classes of customers.

The record further indicates that timely installation of telephone lines for telemetering has been a major problem in the Company's efforts to achieve operational status for all of its FT-1 customers. The magnitude of that problem is illustrated in part by the following excerpt from the cross-examination of Mr. V. Duffy:

MR. OLIVER: There apparently have been problems in terms of getting timely installation of telephone lines; is that accurate?

MR. V. DUFFY: I'd say that's probably an understatement in my view. [128 4/7 Tr. 32.]

The PGC Transportation Terms and Conditions unambiguously state that the Customer "shall be responsible" to supply "a telephone line ... capable of transmitting information collected from the monitoring device [telemetering equipment] to the Company's computer system." [129 PGC tariff, Section 5, Transportation Terms and Conditions, Schedule E, Sheet 18.]  The tariff also provides that FT-1 service shall not commence until telemetering equipment is "in place and operational." In the context of those tariff provisions, it would appear that most of the burden of coordinating telephone line and telemetering equipment installations would fall on either (a) marketers who seek to sell unbundled gas services using the FT-1 service option or (b) customers who apply for FT-1 service, since neither can benefit from FT-1 service under the tariff until telemetry is operational. However, the record suggests that most of the burden of coordinating installations and reminding customers of their responsibility to effect timely installation of telephone lines has been assumed by ProvGas.

As of March 10, 1998 (i.e., more than four months after the end of the enrollment period for the Business Choice program), only 349 of 571 FT-1 customers had achieved "operational" status. [130 4/6 Tr. 182-183 and PGC's response to Division Data Request DIV-3-12.]  Although ProvGas had installed 98% of the telemetering units required for those 571 FT-1 customers by March 10, 1998, 222 FT-1 customers remained in a non-operational status as of that date. [131 4/6 Tr. 182-183 and PGC's response to Division Data Request DIV-3-12.]  Furthermore, the record suggests that as of late February or early March 1998 around 225 FT-1 customers had not installed the telephone lines necessary for "operational" FT-1 status. [132 4/6 Tr. 185.]  By the time of the Division's April 6, 1998 hearing on this matter, the number of FT-1 customers without the required telephone lines installed had purportedly fallen to about 50. Yet, the reduction in the number of customers without installed telephone lines for FT-1 telemetering was achieved only through PGC's efforts to "persuade," "coerce" and "harass them until they put in phone lines." [133 Ibid.]  As a result, ProvGas has incurred significant costs for the coordination of telemetry installations that are not being billed directly to those FT-1 customers and marketers whose actions, or lack of action, have caused such costs to be incurred.

Most notably PES, which enrolled 470 FT-1 customers (or over 82% if the total number of FT-1 customers enrolled in the Business Choice Program) did not even attempt to monitor the status of its customers' efforts to install required telephone lines. Despite PES representations that obtaining operational telemetry for FT-1 service was important to both PES and its customers, Mr. Stephens testified that his organization has done little to monitor telephone line installations. PES had no one within its organization specifically assigned to monitor customer telephone line installation activity, nor did it have any tracking system to keep abreast of customers' compliance with this key tariff provision. [134 4/1 Tr. 103-104.]  In addition, PES made no effort to assist customers in the identification of competitive suppliers of telephone line installation services. [135 4/1 Tr. 105-106.]

If ProvGas had enforced the requirement in its tariff that no gas shall flow under that rate until telemetering equipment is "in place and operational," both FT-1 customers and their gas marketers would have incentive to achieve the timely installation of telephone lines. However, with the creation of FT-1/Non-Operational status, neither FT-1 Non-Operational customers nor the marketers that enrolled those customers appeared to have much incentive to pursue the timely installation of required telephone lines. This lack of incentive is demonstrated, in part, through Mr. Stephens' testimony during examination by the Division. [136 4/1 Tr. 117. L. 14-23]

The Division also notes that the record of this investigation is devoid of evidence that any customer or marketer approached ProvGas with a claim that it was unable to find a firm to install the telephone line required for its FT-1 service on a timely basis. Thus, where PES controls over 80% of the FT-1 market, the decision by ProvGas to effectively eliminate customer and marketer incentives to achieve timely installation of telephone lines once again raises questions as to whether that decision was intended primarily to relieve its affiliate of implementation costs and responsibilities.

D. Functionality of the Non-Dedicated Line Option

In rebuttal comments filed June 8, 1998, ProvGas asserts that "the record does not support any question as to the feasibility of the [Company's non-dedicated line] policy." [137 PGC Reply Comments submitted by letter dated June 8, 1998 to Ms. Luly Massaro, p. 2.]  Yet, the Division's review of the record with respect to the technical feasibility of the ProvGas non-dedicated line policy produces a very different finding. Contrary to the Company's assertion, the Division finds that (a) the feasibility of using non-dedicated telephone lines for telemetering FT-1 service was not established prior to the October 28, 1997 announcement of that policy; and (b) despite the passage of several months since the announcement of that policy, significant questions regarding the technical feasibility of the non-dedicated line option remained unresolved as of the close of hearings in this proceeding. The Division also finds that the Company's initial determination of feasibility was premised on:

1. A lowering of the Company's previously applied functionality requirements for telemetering;  [138 4/6 Tr. 104-105, 260-262; 4/7 Tr. 21-22.] and

2. Inclusion in the Company's non-dedicated line policy of a provision under which ProvGas could insist on use of a dedicated line in the event that the Company is unable to obtain "daily reads" on a consistent basis.  [139 See the October 28, 1997 memo to "All Marketers" attached to PGC's response to Division Data Request DIV-1-10.]

The Company's non-dedicated line policy departed from its past practices and lowered the functionality of its telemetering systems in two ways. First, it eliminated the ability of the Company to obtain metering data by polling the telemetering equipment for any customer who chose to use a non-dedicated line. Second, the announced non-dedicated line policy eliminated the Company's ability to remotely assess the operational status of a customer's telemetering device, thereby, increasing the necessity of a visit to the customer's service location by ProvGas personnel whenever a problem is experienced in the receipt of metering data from the customer.

The Division can appreciate that the need to poll customers' telemetering devices may not be as critical from a gas management perspective for large and medium C&I customers as it is for non-firm transportation service customers and extra large firm transportation service customers. However, the Company's inability to remotely poll telemetry devices for customers using non-dedicated telephone lines has created other operating problems. Without remote polling capability, added visits to customers' service locations were necessary to address problems in the Company's receipt of metering data. Those added visits increased costs to the utility.

Furthermore, the Company's inclusion of a provision in its non-dedicated line policy announcement that a dedicated line could be required "if daily reads cannot be obtained on a consistent basis," does not adequately address the transitional problems that future conversion from a non-dedicated to a dedicated line could create. For example, some customers using non-dedicated lines require either a special device or special programming to provide "Dial 9" capability. [140 See PGC's response to Division Data Request DIV-3-3 and 4/6 Tr. 254-255.]  If conversion from a non-dedicated line to a dedicated line is required after completion of the Company's initial telemetry installation, an additional visit to the customer's service location by ProvGas personnel is likely to be required to eliminate the "Dial 9" programming. In addition, with the inevitable lag accompanying the installation of new telephone lines, substantial time may be lost during the transition period that would render the Company incapable of fully applying the provisions of the FT-1 service classification until the new dedicated line installation is completed.

Although the Division recognizes that it is clearly possible to transmit metering data over a non-dedicated line assessments of the technical feasibility of the non-dedicated line option must also consider other issues. The problems cited above, coupled with the Company's failure to perform any field tests of non-dedicated lines prior to its announced change in policy, represent a substantial challenge to the Company's assertion in its Rebuttal Comments regarding a lack of record support for any questioning of the feasibility of its non-dedicated line policy. Furthermore, based on its review of the record, the Division finds that:

1. The feasibility of the non-dedicated line option had not been demonstrated from either an operational perspective or a cost perspective prior to the decision of ProvGas to adopt the policy.  [141 The feasibility of the non-dedicated line option remains undocumented and needs to be addressed prior to any further unbundling.]

2. The Company's decision to offer a non-dedicated telephone line option to FT-1 customers did not adequately address or justify the loss of functionality that would result from the use of non-dedicated telephone lines.

E. Corporate Branding

The Division finds the efforts of Providence Energy Corporation to engage in "corporate branding" or "brand consistency," emerge from the record of this proceeding as central elements of the issues the Division has been called upon to investigate. The essence of that strategy is reflected in the following portion of the Division's examination of Mr. DeMetro:

MR. OLIVER: You've referenced a couple of times corporate branding strategy. I take it by that phrase you're referring to something that is marketing not the gas company, not PES, not the oil subsidiary, but the whole thing together; right?

MR. DeMETRO: Correct.

MR. OLIVER: As one overall energy service entity?

MR. DeMETRO: Well, it's the corporation primarily; and it's creating an image in the marketplace of the corporation in terms of what it does, And that image is created by or for customers.

MR. OLIVER: And that overall corporate image is trying to be used or designed to facilitate the marketing of all of the related activities?

MR. DeMETRO: Yeah, it facilitates the overall marketing of all affiliated entities.

MR. OLIVER: Including the gas company?

MR. DeMETRO: Including the gas company. [142 4/7 Tr. 238-239.]

The Division finds that the foregoing colloquy demonstrates a form of joint marketing which is prohibited by the Commission's Regulations.

Mr. DeMetro also testified, "good PR of the gas company will translate to good PR for the corporation." [143 4/1 Tr. 229-230.]  This relationship cannot be denied. Yet, Division finds a difference between (a) good public relations for the utility providing a by-product influence on the corporate image and (b) a corporate marketing strategy that is focused on building off the utility's good relationship with customers to market the services of non-regulated affiliates. As the following testimony excerpt demonstrates, PEC has premised a significant portion of its marketing strategy on building off the gas company's experience, credentials, and stability.

MR. OLIVER: Now, we earlier heard testimony that Providence Energy Corporation was formed in 1981?

MR. DeMETRO: Yes.

MR. OLIVER: So, that corporation is approximately 17 years old, it's not 150 years old; is that correct?

MR. DeMETRO: Apparently not, no.

MR. OLIVER: So when the energy corporation markets itself as having 150 years of years experience, it's playing off of its gas utility experience; is that correct?

MR. DeMETRO: The utility company, albeit none of us were around 150 years ago; but yes, the utility company is the entity that's been here for 150 years.

MR. OLIVER: So you -- don't you feel that when that advertising and marketing for either the Energy Corporation or the Energy Services entity, Providence Energy Services, references 150 years experience, you're building off of the good relationship that you've established with your gas utility customers?

MR. DeMETRO: Well, I think, again, that's a branding and advertising program that's designed to try to take advantage, much like taking advantage of the fact that as a corporate entity, okay, there is a lot of history, if you will, and successful history as a corporate entity.

MR. OLIVER: But the simple answer to my question is yes?

MR. DeMETRO: Yeah, that's part of what we're tying to communicate to customers as a corporate entity, that we have some experience that's very long and old and that that provides some stability, That is the corporate entity that owns the gas company that existed for 150 years. [144 4/1 Tr. 231-232.]  (emphasis added)

The Division's investigation concludes that regulated utility services are not properly included among those products and services that are subject to "branding" by a corporate parent where the corporate parent is engaged in non-regulated activities in its utility service territory. Corporate branding of regulated utility services necessarily provides a market advantage to an unregulated gas marketing affiliate within the utility's service territory, since the utility's parent is the only entity that can offer a full array of regulated and non-regulated gas service alternatives. The Division finds that PEC's efforts to market non-utility services off of the history and experience of the utility company is inappropriate, and violates the Commission's Regulations which prohibit joint promotions.

VI. SUMMARY OF FINDINGS

A review of the entire record as it relates to the Company's actions during the unbundling process leads the Division to conclude that the Company's ability to render objective decisions regarding the execution of its Business Choice Program was compromised by the nature of its relationship with its marketing affiliate, PES. In this Decision, the Division evaluated the Company's conduct as it pertained to numerous incidents that occurred during the unbundling process. The incidents include: (1) the Company's late decision to allow the use of non-dedicated phone lines for FT-1 service which improved the economics for FT-1 service; (2) PGC use of untested, lower cost telemetering systems which lowered the cost of telemetry for customers enrolled in FT-1 service; (3) the decision to waive meter installation costs for FT-1 customers even though repeat visits were often required for installation and testing of telemetry; (4) PGC's assumption of marketer and customer responsibilities for assuring customer compliance with telephone line installation requirements; and (5) the decision to deviate from established tariff requirements to allow non-operational FT-1 status and its attendant absence of daily metering. It is significant to note that all of the Company's decisions favorably impacted PES, while these same decisions negatively impacted firm ratepayers and marketers/customers of FT-2 service.

The manner in which the Company exercised decision-making authority, the outcome of those decisions and the respective impacts on customers and marketers form a common thread that pervades the evidence interweaving the Company's decision-making with the nature of PGC's relationship with PES. Most revealing is that while the above incidents occurred and decisions were made, the Company was simultaneously engaging in the following activities: (1) joint marketing of PGC, PEC, and PES; (2) joint management of PGC and PES operations through common management personnel which resulted in the lack of adequate separation between PGC and PES; (3) corporate branding of PGC, PES and other affiliates; (4) the provision of market sensitive customer information to PES personnel; (5) a tie-in of the compensation of senior PGC personnel responsible for the rate unbundling policy and implementation to the financial performance of PES; and (6) the creating of a corporate structure where both PGC and PES personnel have reporting responsibility to the same person.

These activities, and their inseparable ties to regulated utility functions, clearly impacted the decision-making of those PGC personnel who were responsible for overseeing the Business Choice Program. Not only did the activities listed above create an appearance of impropriety, but the totality of the evidence convinces the Division that these activities created divided loyalties that clouded the judgment of those PGC personnel responsible for making fair and impartial decisions for all parties affected by PGC's unbundling initiatives. We thus find that PGC's activities were inconsistent with, and an impediment to, the development of viable competitive supply markets within its service territory.

By necessity, this decision has addressed a broad range of issues associated with the Aurora complaint, PGC's implementation of unbundled gas transportation services, and PGC's relationship with PES, its gas marketing affiliate. To facilitate the readers understanding of this decision, the Division offers the following summary of findings: [145 This list of findings may not be comprehensive. The omission from this list of any finding presented in the preceding discussions in this decision neither nullifies nor diminishes the importance of such a finding.]

1. The Division finds that the ProvGas decision to utilize a non-operational status category within its FT-1 service constitutes an unauthorized and improper deviation from the terms and conditions of its tariff. In this context, the Division also finds that the Company's decision to create an FT-1 non-operational service:

a. Was implemented without ProvGas obtaining the necessary prior approval from either the Commission or the Division;

b. Has resulted in the application of charges for FT-1 "non-operational" service that have not been cost-justified.

c. Has resulted in unduly discriminatory treatment of similarly situated FT-2 customers; and

d. Has substantially benefited PGC's unregulated gas marketing affiliate, Providence Energy Services, Inc.

2. The Division finds that the Regulations for Utility Interactions with Gas Marketers have been violated through:

a. Joint marketing of service by ProvGas and its gas marketing affiliate;

b. Shared use of the Providence Gas Company logo by PEC, PES and Providence - Southern;

c. Provision of market sensitive, individual customer information and potentially market sensitive information to Mr. Yurkevicz of Providence Energy Corporation, who was also involved in management and marketing activities for Providence Energy Services, Inc.;

d. Provision of weather service data to PES without offering the same service at comparable cost to other marketers;

e. Participation by Mr. DeMetro, a ProvGas employee, in the hiring of Mr. Stephens as an employee of PES;

f. Shared use of PGC Corporate Marketing employees by PES.

g. Failure to treat similarly situated marketers (i.e., marketers with FT-2 aggregation pools and marketers with FT-1/Non-Operational pools) in a non-discriminatory manner.

3. The Division finds that the involvement of certain senior personnel in both ProvGas and PES activities created both the appearance of, and opportunity for, conflict of interest in the Providence Gas Company decision to implement a non-operational status for FT-1 customers. Moreover, the totality of the evidence in this proceeding demonstrates a systematic pattern of behavior whereby the Company's unregulated gas marketing affiliate benefited substantially, and firm sales service customers were potentially harmed, by ProvGas decision making and actions related to the implementation of its Business Choice Program.

4. The Division finds that the three-day period between the announcement of the Company's decision to allow use of shared telephone lines and the end of the sign-up period for firm transportation service was not adequate either: (1) to allow marketers not anticipating that change to adjust their marketing strategies; or (2) for marketers to educate customers regarding the significance of the change on the relative economics of the FT-1 and FT-2 alternatives.

5. The Division does not find compelling evidence that ProvGas provided preferential treatment in the pricing of either commodity gas sales or capacity release transactions to either Providence Energy Services, Inc. or any other affiliate during the tenure of Mr. Peterson in the Company's Gas Supply Department.

6. The Division finds that questions included in the ProvGas EBB have the potential of biasing customers' decisions regarding the selection of gas marketers.

7. The appearance of potential conflicts of interest for ProvGas officers, directors, and employees is a matter of considerable concern; and those potential conflicts which may have resulted in preferential treatment for an affiliated marketer suggest a need for:

a. Greater separation between Providence Gas Company and affiliate operations,

b. Greater restrictions on joint use of personnel by Providence Gas Company and its affiliates, and

c. Tighter monitoring of the Company's behavior by the Division and Commission to ensure that the development of viable and enduring competitive markets for natural gas services in Rhode Island is not impeded.

VII. (15683) ORDERED REMEDIES

After due consideration of the record in this proceeding, the arguments that the parties have presented in briefing, and the findings set forth herein, the Division orders the following remedies:

1. The Division assesses a fine of $23,000.00 against ProvGas for violations of the Commission's Regulations identified in the preceding sections of this order. The amount of this fine reflects an assessment of $1,000 for each violation, [146 The amount of the fine assessed per violation is based on the maximum penalty provided under RIGL 39-4-22] where the identified violations include:

a. The three violations of Section IV.D. for the joint marketing of utility and gas marketer services documented herein. There are two violations for use of PGC experience to market PES services and one for the inclusion of utility services in PEC corporate branding activities ($3,000.00);

b. Two violations of Section IV.D. for two documented instances of shared use of the Providence Gas Company logo by PES and PEC ($2,000.00);

c. Thirteen violations Sections IV.C.1.(d) and IV.C.2. for 13 separate instances of disclosure of market sensitive, individual customer information to Mr. Yurkevicz as a result of the provision of at least thirteen separate monthly reports to that individual ($13,000.00);

d. One violation of Section V.A.2. for the provision of weather service data to PES without making the same service available contemporaneously to other gas marketers ($1,000.00); and

e. One violations of Section IV.A.1.(a) for the participation of Mr. DeMetro in the hiring of Mr. Stephens as a PES (i.e., gas marketer) employee ($1,000.00).

f. One violation of Section V.B.3. for failure to treat marketers with FT-2 aggregation pools and marketers with FT-1/Non-Operational pools, who were similarly situated, in a non-discriminatory manner ($1,000.00).

g. Two violations of Section IV.A.1.(a) for the involvement of PGC Corporate Marketing Department personnel in PES activities ($2,000.00).

ProvGas is hereby directed to remit the aforementioned fine, payable to the State of Rhode Island, within thirty (30) days from the issue date of this decision. In the event ProvGas fails to satisfy the fine within the thirty day period, the Division will prosecute the recovery of the fine through the Superior Court, pursuant to Rhode Island General Laws, Section 39-4-24.