Rule-Making Notices (Hearing Notices)

5. Designating by rule for purposes of the “manual" registration exemption in new statute section 551.202 (2) (d), Wis. Stats., certain nationally recognized securities manuals.

6. Among the broker-dealer-related rule revisions, the temporary agent licensing rule in DFI-Sec 4.085 is repealed because that procedure is included in new statute 551.408 (2), Wis. Stats.

7. The extensive series of bank agency transactions rules in current s. DFI-Sec 4.10 are repealed as being superseded by the language of the exclusion from the definition of broker-dealer in s. 551.102 (4) (c) of the new law [based on federal Graham-Leach-Bliley legislation] relating to permitted securities-related activities of banks.

8. The extensive series of rules in DFI-Sec 4.11 dealing with brokered certificates of deposit (i.e. sales to persons in Wisconsin by broker-dealers of federally insured certificates of deposit in specified financial institutions) are also repealed.

9. Included among the investment adviser-related rule revisions are additional “dishonest or unethical practices" under existing rule DFI-Sec 5.06 based on current NASAA Model Rules (such as guaranteeing results, offering “free" reports or analyses that really are not free, or disclosing clients' identity or financial information) which, under new s. 551.412 (4) (m), Stats., can be a basis for denial, suspension or revocation of an investment adviser registration. Also added are currently proposed NASAA Model Rules on subject areas that include principal trading by an adviser, making misrepresentations or omissions of material facts in soliciting advisory customers, and effectuating certain prohibited agency cross-transactions.

10. Revisions to existing advisory rules would raise (up to $1200 from the current $500) the dollar threshold of permitted prepayment of adviser fees six months or more in advance to thereby harmonize with a pending SEC proposal on that subject.

11. The examination waiver provided for investment advisers and investment adviser representatives in current DFI-Sec 5.01(4) (a) based upon passage of the Series 7 and Series 63 examination is repealed to make Wisconsin uniform with other state jurisdictions -- virtually none of which recognize such exams as a basis for waiver of the investment adviser examination requirement.

12. The “temporary hardship exemption" from compliance with the electronic-filing-with-the IARD requirement currently contained in DFI-Sec 5.01(8) is being repealed because in the seven years since the SEC and states (including Wisconsin) have adopted that exemption,, the Division's information is that it has never been used or relied on at the federal or state level.

13. Added to the Administrative Procedure Chapter are 2 separate rules relating to ability of parties to conduct discovery and to utilize information acquired subsequent to issuance of a summary order.

14. Revisions to the Franchise Law rules include (i) changing the rule defining “timely" in DFI-Sec 31.01 (8) [with respect to providing required disclosures] from the previous 10 business day requirement to the new 14 calendar day requirement under the new FTC Franchise Rule and as established in amended s. 553.27 (4), Wis. Stats., in 2007 Wisconsin Act 150; and (ii) amendments to the franchise registration and registration amendment filing procedures in DFI-Sec 32.06 and 32.07 to reference the new FTC Franchise Rule and its Disclosure Document requirement, as well as the recently developed and adopted conforming NASAA 2008 Franchise Registration Disclosure Guidelines.

Each Section that contains a substantive adoption, amendment or repeal of a rule is followed by a separate Analysis which discusses the nature of the revision as well as the reason for it.

A copy of the entirety of the proposed rule revisions to be considered may be obtained upon request to the Division of Securities, Department of Financial Institutions, 345 West Washington Avenue, 4th Floor, P.O. Box 1768, Madison, Wisconsin 53701. Additionally, the full text of the proposed rule revisions is available on-line at the DFI Website: www.wdfi.org/securities&franchising.

Initial Regulatory Flexibility Analysis

Types of small businesses that could be affected

Broker-dealer and investment adviser registrants under the new Wisconsin Uniform Securities Law with fewer than 25 full-time employees who meet the other criteria of sec. 227.114 (l) (a), Wis. Stats. The proposed revisions to both the procedural and substantive securities broker-dealer and investment adviser registration rules, as well as the Rule of Conduct and Dishonest or Unethical Practices provisions are applicable equally to all broker-dealers and investment advisers because the requirements involved are for the protection and benefit of Wisconsin customers of those firms. All Wisconsin customers of securities broker-dealers and investment advisers are entitled to the public investor protection benefits of such rule requirements, irrespective of the size of the firm providing the securities services.

All of the small-business capital formation registration exemptions under the current Wisconsin Securities Law rules are retained in the rules as revised.

Reporting, bookkeeping and other procedures required for compliance with the rules.

No new or additional reporting, bookkeeping, or other procedures are contained in this rulemaking package.

Fiscal Estimate

Summary

No one-time revenue fluctuations.

State fiscal effect

None

Local fiscal effect

None

Long-range fiscal implications

None

Notice of Hearing

Public Service Commission

rulemaking_notices CR 08-070 CR 08-070

NOTICE IS GIVEN that pursuant to s. 227.16 (1), Stats., the Commission will hold a public hearing on proposed rule changes to repeal and recreate Chapter PSC 116, relating to a fuel cost rate adjustment process for electric utility service.

Hearing Information

August 4, 2008   Amnicon Falls Hearing Room
Monday   Public Service Commission Bldg.
9:30 a.m.   610 North Whitney Way
  Madison, Wisconsin,

This building is accessible to people in wheelchairs through the Whitney Way (lobby) entrance. Handicapped parking is available on the south side of the building.

The Commission does not discriminate on the basis of disability in the provision of programs, services, or employment. Any person with a disability who needs accommodations to participate in this proceeding or who needs to get this document in a different format should contact James Wagner or Michael Ritsema, as indicated below.

Contact Person

Questions regarding this matter should be directed to James Wagner, Docket Coordinator, [phone], [e-mail]; or Michael Ritsema, [phone], [e-mail]. Media questions should be directed to Tim Le Monds, Director of Governmental and Public Affairs at [phone]. Hearing or speech-impaired individuals may also use the Commission's TTY number; if calling from Wisconsin use [phone], if calling from outside Wisconsin use [phone].

Copy of Proposed Rule

A copy of this entire notice, including the text of the proposed rule, may be accessed from the electronic regulatory filing portion of the Commission's website (psc.wi.gov).

Submission of Written Comments

Any person may submit written comments on these proposed rules. The hearing record will remain open for written comments from the public until Wednesday, August 6, 2008. All written comments must include a reference on the filing to docket 1-AC-224. File by one mode only.

Industry:

File comments using the Electronic Regulatory Filing system. This may be accessed from the Commission's website psc.wi.gov.

Members of the Public:

If filing electronically: Use the Public Comments system or the Electronic Regulatory Filing system. Both of these may be accessed from the Commission's website psc.wi.gov.

If filing by mail, courier, or hand delivery: Address your comments as shown below.

If filing by fax: Send fax comments to [phone]. Fax filing cover sheet must state “Official Filing," the docket number 1-AC-224, and the number of pages (limited to 25 pages for fax comments).

Address comments to:

Sandra J. Paske

Secretary to the Commission

Public Service Commission

P.O. Box 7854

Madison, WI 53707-7854

FAX [phone]

The deadlines for receiving comments are:

Comments Due: Wednesday, August 6, 2008 - Noon

FAX Due: Tuesday, August 5, 2008 - Noon

At the hearing or in written comments, persons are encouraged to address the following:

1. Please quantify the risk associated with the current chapter PSC 116 and the risk associated with the proposed chapter PSC 116.

2. Please describe how the proposed rule achieves or undermines the four goals of these rules as set by the Commission:

•   Insulate electric utilities from the high-risk created by volatile fuel costs.

•   Create incentives for good fuel management practices.

•   Promote rate stability.

•   Minimize the administrative burden to the Commission.

Analysis Prepared by the Public Service Commission

Statutory authority

Sections 196.02 (1) and (3), 196.03 (1), 196.06, 196.20, 196.37, 196.395, and 227.11, Stats.

Statute interpreted

Section 196.20 (4), Stats.

Explanation of agency authority

The Commission may promulgate a rule with respect to a fuel cost rate adjustment process for electric utility service under ss. 196.02 (1) and (3), 196.03 (1), 196.06, 196.20, 196.37, 196.395, and 227.11, Stats. For general rulemaking authority, statutes grant the Commission, “the jurisdiction to supervise and regulate every public utility in this state and to do all things necessary and convenient to its jurisdiction." s. 196.02 (1), Stats. This includes the power to, “adopt reasonable rules to govern its proceedings and to regulate the mode and manner of all inspections, tests, audits, investigations and hearings." s. 196.02 (3), Stats. Also the Commission “may promulgate rules interpreting the provisions of any statute enforced or administered by it, if the agency considers it necessary to effectuate the purpose of the statute. s. 227.11 (2) (a), Stats.

Chapter 196, Stats., confers upon the Commission exclusive authority to establish just and reasonable rates for public utility service. Waukesha Gas & Electric Co. v. Railroad Commission of Wisconsin, 181 Wis. 281, 287, 194 N.W. 846 (1923). The Commission enforces a utility's duty to “furnish reasonably adequate service and facilities" at just and reasonable rates. s. 196.03 (1), Stats. A utility may only increase its rates, “by order of the commission, after an investigation and opportunity for hearing." s. 196.20 (2m), Stats. If the Commission, “finds rates, . . . to be unjust, unreasonable, insufficient . . . or unlawful, the commission shall determine and order reasonable rates . . . to be imposed, observed and followed in the future." s. 196.37 (1), Stats.

In addition to the Commission's broad ratemaking powers, s. 196.20 (4) (c), Stats., states, “[i]f an increase in fuel costs is of an extraordinary or emergency nature, the commission, after a hearing limited in scope to the question of the increase in fuel costs, may grant a rate increase to an electric public utility." s. 196.20 (4) (c), Stats. This subsection diminishes none of the Commission's other powers to investigate and change rates. Therefore with respect to a fuel cost rate adjustment process for electric utility service the Commission has discretion to establish any necessary and convenient process that must include a hearing before rates may increase.

Related statutes or rules

Section 196.20 (4) (a) 2., Stats., relates to the proposed rule because under s. PSC 116.01 (12), “utility" means an “electric public utility" as defined in s. 196.20 (4) (a) 2., Stats. Section 196.192 (2) (a), Stats., related to the proposed rule because under s. PSC 116.02 (1) (d), a payment made in conjunction with retail customer tariffs under s. 196.192 (2) (a), Stats., for voluntary curtailable load is an item that contributes to fuel cost.

Chapter PSC 117 relates to the proposed rule because “opportunity sale," as defined under s. PSC 117.03 (14), is included in the calculation of “energy market sale" under s. PSC 116.02 (1) (c). Also “planning reserve margin," as defined under s. PSC 117.03 (16), is included in the calculation of “energy market purchase" under s. PSC 116.02 (2) (a).

Objective of the rule

The Commission sets the rates a Wisconsin electric public utility may charge customers. During periodic rate case proceedings the Commission finds reasonable forecasts of the utility's revenues and costs and establishes rates designed to give a utility the opportunity to recover its costs plus a reasonable rate of return on equity. Except for the cost of fuel used to generate electricity, significant differences between forecasted and actual costs rarely occur. Significant discrepancies between the predicted and actual fuel cost occur because of the volatile nature of this cost. These shifts in fuel cost may cause rates to become unjust and unreasonable, requiring a rate change.

As early as the 1920s many state utility commissions, including Wisconsin's, allowed a utility to place in its tariff a formula under which rates adjusted automatically according to changes in fuel cost. More than 25 years ago the Wisconsin Legislature prohibited large investor-owned electric utilities from using this automatic adjustment clause by enacting s. 196.20 (4), Stats. Intended to add public scrutiny to the process while recognizing the need for a quick response, this section authorized the Commission to order a rate increase caused by “an increase in fuel costs . . . of an extraordinary or emergency nature, . . . after a hearing limited in scope to the question of the increase in fuel costs." s. 196.20 (4) (c), Stats.

Chapter PSC 116 implements s. 196.20 (4), Stats. Originally promulgated in 1985, the current rule reflects an update in 2002 designed to streamline the fuel cost rate adjustment process and reduce the number of such proceedings. However, once promulgated the rule update met with changed circumstances its design did not address. These circumstances included the following factors that further increase fuel cost volatility: (1) the implementation of Midwest Independent Transmission System Operator?Day 2 Market, (2) increased demand on some fuels, increased transportation costs of some fuels, and (3) the effects of severe weather on the availability of some fuels. This increased volatility has significantly augmented a utility's risk of an unreasonable loss when costs go up and a customer's risk of paying unreasonable rates when costs go down. This situation prompted the Commission to seek a redesign of the fuel cost rate adjustment process that resulted in this Proposed Rule.

Summary of proposed rule

The proposed rule establishes a process by which the rates for the state's large investor-owned electric utilities may be changed to reflect changes in the cost of fuel. The process requires a utility to submit to the Commission an annual fuel cost plan that forecasts, for a one year period, the cost of specified fuel items. These fuel costs include the cost of materials that are converted to electrical energy, as well as items and programs that offset the cost of, or provide less expensive alternatives to, those materials. The Commission reviews each utility's fuel cost plan, and, after a hearing, establishes rates that recognize the cost in the plan.

During the course of the year to which the plan applies, the rule allows a utility to defer discrepancies between the fuel cost forecasted in rates and the actual cost. The rule provides for the Commission to reconcile the difference between the forecasted and the actual, reasonable and prudently incurred fuel cost on an annual basis. After a hearing, the Commission approves a reasonable adjustment to rates to implement this reconciliation. Also during a plan year, the Commission may adjust rates to avoid a reconciliation that causes a material change in rates. However, no utility may obtain a mid-year increase in rates under this provision more than once during a plan year.

Comparison with federal regulations

No comparable federal regulations exist. The proposed rule does not conflict with, overlap, or duplicate other rules or federal regulations.

Comparison with rules in adjacent states

Illinois, Iowa, and Minnesota allow rate regulated utilities to adjust rates based on a formula specified in that state's administrative code and published on the utility's approved tariff. Rates adjusted in this manner do not require a Commission order or hearing. As part of electric restructuring in Illinois, the largest electricity providers opted out of this method of cost recovery.

Michigan allows a utility to escrow discrepancies between the fuel cost forecasted in rates and the actual cost. The Michigan Public Service Commission reconciles the difference between the forecasted and the actual fuel cost on an annual basis and, after a hearing, approves an adjustment to rates to implement this reconciliation. The proposed rule is modeled after the Michigan process.

Initial Regulatory Flexibility Analysis