(a) General rule.--Except as provided under subsections (d), (e), (f) and (g) and section 2212 (relating to city natural gas distribution operations), for a period from the effective date of this chapter until January 1, 2001, the total nongas cost charges of a natural gas distribution company for service to any retail gas customer shall not exceed the maximum nongas cost charges that are contained in the natural gas distribution company's tariff as of the effective date of this chapter.

(b) Recovery of deferred costs.--

(1) In a restructuring proceeding, the natural gas distribution company may identify categories of costs resulting from this chapter.

(2) The natural gas distribution company may seek permission in its restructuring proceeding to capitalize and to amortize such costs over an appropriate period to be determined by the commission. The amortization shall commence at the time when restructuring orders are issued. The natural gas distribution company may seek recovery of the unamortized balance of such costs in a future rate proceeding, and the commission shall allow recovery of such costs provided that the commission determines that such costs are reasonable and that the resulting rates are just and reasonable.

(c) Deferral of costs.--Costs recoverable under sections 2203(6) (relating to standards for restructuring of natural gas utility industry) and 2206(e) (relating to consumer protections and customer service) in excess of amounts already reflected in a natural gas distribution company's rates, which are incurred between the date of entry of the commission's restructuring order and the earlier of the date on which the commission authorizes commencement of recovery or June 30, 2002, may be deferred for recovery in the future. Such deferrals shall be without interest.

(d) Circumstances for exceptions.--A natural gas distribution company may seek and the commission may approve an exception to the limitations set forth in this section under any of the following circumstances:

(1) The natural gas distribution company meets the requirements for extraordinary relief under section 1308(e) (relating to voluntary changes in rates).

(2) The natural gas distribution company demonstrates that a rate increase is necessary in order to preserve the reliability of the natural gas distribution system.

(3) The natural gas distribution company is subject to significant increases in the rate of Federal taxes or other significant increases in costs resulting from changes in law or regulations that would not allow the natural gas distribution company to earn a fair rate of return.

(e) Interclass and intraclass cost shifts.--Except as provided in section 2212, for the period from the effective date of this chapter until January 1, 2001, interclass or intraclass cost shifts are prohibited. This prohibition against cost shifting may be accomplished by maintaining the cost allocation methodology accepted by the commission for each natural gas distribution company in the company's most recent base rate proceeding.

(f) State tax adjustment surcharge.--The natural gas distribution company, other than a city natural gas distribution operation, shall remain subject to the State tax adjustment surcharge and shall be permitted to adjust its State tax adjustment surcharge mechanism to reflect State tax changes or additions. The natural gas distribution company shall also remain subject to existing riders or surcharges for the collection of nongas transition costs pursuant to Federal Energy Regulatory Commission decisions.

(g) Provisions relating to interstate pipelines.--

(1) Notwithstanding any other provisions of this chapter, if a natural gas distribution company's current base rate revenues reflect the margins realized through the utilization of firm interstate pipeline transportation and storage capacity to serve the interruptible market when such capacity is not needed to make firm retail deliveries, then the natural gas distribution company shall be permitted to increase base rates and, at the same time, reduce purchased gas cost rates, as described in this chapter.

(2) The natural gas distribution company may propose such a change in treatment, consistent with the following requirements:

(i) Base rates of customers who pay purchased gas cost rates pursuant to section 1307(f) (relating to sliding scale of rates; adjustments) shall be increased by an amount equal to the margin received for service provided to existing interruptible sales and transportation service customers using capacity reflected in rates established under section 1307(f) based upon the revenue for such services for the most recent 12-month period immediately preceding the application.

(ii) Purchased gas cost rates established pursuant to section 1307(f) shall be decreased by an amount equal to the amount by which base rates are increased in subparagraph (i).

(iii) Purchased gas cost rates established pursuant to section 1307(f) shall thereafter be reconciled to reflect the margins realized from interruptible sales and interruptible transportation customers utilizing capacity reflected in rates established under section 1307(f).

(h) Interstate pipeline transportation.--

(1) Except as specifically set forth in this subsection, nothing in this section or section 2204(d) (relating to implementation) shall prevent a natural gas distribution company from recovering costs paid under the terms of interstate pipeline transportation and storage capacity contracts which are not fully recovered through a release, assignment or transfer of such capacity to another natural gas supplier if such unrecovered costs arise under the terms of a natural gas transportation pilot program approved by the commission for such company on or before February 1, 1999.

(2) Such unrecovered interstate pipeline transportation and capacity costs incurred under such programs through October 31, 2004, may be recovered from a class or classes of customers in accordance with such program provided that the total volumetric charge for such costs does not exceed 1% of the volumetric charge for residential natural gas sales service set forth in the natural gas distribution company's tariff in effect at the time.

(3) With respect to such pilot programs, the commission may determine to extend such programs to include all customers of that company pursuant to the requirements of this chapter, and nothing in this section or section 2204(d) shall prevent unrecovered interstate pipeline and transportation capacity costs incurred through October 31, 2004, under such programs from being recovered in accordance with such programs provided that the total volumetric charge for such costs does not exceed the 1% limit specified in paragraph (2) for pilot programs.