Case No. 13-G-0031 GAS NON-FIRM SERVICES PANEL REBUTTAL - GAS

Case No. 13-G-0031

GAS NON-FIRM SERVICES PANEL REBUTTAL - GAS

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Q. Please state your names. 1

A. Our names are William A. Atzl, Jr., Peter Carnavos and 2

Tomas Hernandez. 3

Q. Have you previously submitted testimony in this 4

proceeding? 5

A. Yes. We previously submitted initial testimony on 6

January 25, 2013, as the Gas Non-Firm Services Panel 7

("Panel"). 8

Q. What is the purpose of the Panel’s additional 9

testimony? 10

A. We are responding to testimony addressing the 11

Company’s proposals for gas interruptible rates from 12

the following parties: 13

• Staff Gas Rates Panel (“Staff”); 14

• New York City (“NYC”) witness Gorman; 15

• New York City Policy Panel (“NYCPP”); 16

• Consumer Power Advocates ("CPA") witness Dowling; 17

• Consumer Power Advocates witness Mellusi; and 18

• New York Energy Consumers Council (“NYECC”). 19

Q. Please provide a brief description of the Company’s 20

interruptible gas service classifications. 21

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A. Interruptible gas service is provided by the Company 1

under SC Nos. 9 and 12. 2

Under SC No. 9, the Company provides transportation 3

service to customers who purchase their gas supply 4

from a marketer. Under SC No. 12, the Company 5

provides sales service to customers who elect to 6

purchase their gas supply from the Company. 7

Under both of these service classifications, 8

interruptible customers are segregated into two 9

groups: interruptible customers and off-peak firm 10

customers. Interruptible customers are designated 11

as Rate 1 customers and Rate B customers in SC Nos. 12

12 and 9, respectively. Off-peak firm customers are 13

designated as Rate 2 customers and Rate C customers 14

in SC Nos. 12 and 9, respectively. In keeping with 15

the convention established in our initial testimony, 16

we will refer to SC No. 12 Rate 1 and SC No. 9 Rate 17

B customers as "Rate 1 Customers" and we will refer 18

to SC No. 12 Rate 2 and SC No. 9 Rate C customers as 19

"Rate 2 Customers." We will refer to these two 20

groups together as "Interruptible Customers." 21

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Q. What issues will you be addressing? 1

A. We will be addressing proposals or comments made by 2

the aforementioned parties regarding the following 3

issues: 4

• Commission policy regarding interruptible pricing 5

and bill impacts; 6

• Interruptible rate design; 7

• Rate 1 annual reconciliation; 8

• Costs incurred by interruptible customers; 9

• System benefits of interruptible service and 10

minimum volume threshold; 11

• Studies; 12

• Non-Firm Revenue Imputation and Sharing 13

Mechanism; 14

• Notice of interruption and penalty for failure to 15

interrupt; and 16

• Pending proposal to eliminate temperature control 17

service. 18

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Commission Policy Regarding Interruptible Pricing and Bill 1

Impacts 2

Q. What is CPA witness Dowling's position regarding the 3

Company's proposed changes in interruptible service 4

pricing? 5

A. On page 19, lines 15-16 of his testimony, Mr. Dowling 6

states, "All of the increases and other changes 7

proposed by the Company are arbitrary, without 8

justification by the Company’s cost of providing 9

interruptible service, result in unacceptable bill 10

impacts services, ignore the interruptible customers’ 11

costs of maintaining interruption capability, are 12

contrary to economic theory and Commission policy, may 13

potentially undermine vital community services and/or 14

serve otherwise to undermine other public policy 15

goals." 16

Q. Does Mr. Dowling provide any support for his 17

contention that the Company's proposals are contrary 18

to Commission policy? 19

A. No. The Company asked Mr. Dowling through an 20

interrogatory to cite the Commission policy referred 21

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to in the statement above. He was unable to cite a 1

specific Commission policy. 2

Q. Is there a specific Commission policy regarding the 3

setting of interruptible rates? 4

A. Yes. The Commission's website contains a section 5

entitled "Guidance Documents." This area of the 6

website provides a variety of Commission orders and 7

policy statements. One such document is Opinion 94-8

26, Opinion and Order Establishing Regulatory Policies 9

and Guidelines for Natural Gas Distributors, issued 10

December 20, 1994. 11

Q. What guidance does Opinion 94-26 provide regarding 12

interruptible rates? 13

A. Opinion 94-26, (p. 26) states: 14

LDCs should have a great deal of discretion to 15 set the prices of their own services to non-core 16 customers (including any standby and back-up 17 services) so that they are comparable to the 18 prices of the alternatives available to those 19 customers. Should non-core customers come to the 20 conclusion that gas will consistently be the 21 economical choice, they will always be free to 22 reserve its future availability (i.e., become 23 firm customers), in which case the rates they pay 24 for gas service will no longer be set with 25 reference to their opportunity costs. If, on the 26 other hand, those customers wish to remain in a 27 more broadly defined energy market where 28

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consumers have the option of choosing not to 1 purchase gas (and the freedom to avoid paying for 2 the full fixed costs of the gas delivery system), 3 there is no apparent reason why one segment of 4 suppliers to that energy market, the LDCs, should 5 not have suitable pricing flexibility. 6 7

Q. What guidance does this provide? 8

A. First, the Commission states that LDCs should have a 9

great deal of discretion to set the prices of their 10

own services to non-core customers. Mr. Dowling's 11

proposal (p. 23, lines 11-12) to set a maximum rate 12

for Rate 1 customers at the currently applicable rate 13

is contrary to this policy. Moreover, Mr. Dowling 14

provides no basis or rationale for selecting the 15

current interruptible rate to be the maximum rate. 16

Accordingly, Mr. Dowling's proposal is arbitrary. As 17

discussed further below, the firm rate as the maximum 18

rate is consistent with Commission policy. 19

Q. In commenting on the Company's proposed new rate 20

structure for its Rate 1 customers, CPA witness 21

Dowling (p. 23) disagrees with the concept of 22

maximizing benefits to firm customers. Is there 23

Commission guidance on this subject? 24

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A. Yes. In a May 12, 1995 order in Case No. 94-G-0786 1

regarding the interruptible rates of Long Island 2

Lighting Company ("LILCO Order") (p. 9), the 3

Commission states, "The stated goal of the company’s 4

proposal, i.e., to maximize interruptible revenue 5

margins for the benefit of core firm service 6

customers, is consistent with established policy and 7

practice and with the Commission’s Opinion No. 94-26 8

in the gas restructuring proceeding." Therefore, the 9

Company's Rate 1 proposal is consistent with the 10

Commission's policy to maximize benefits to firm 11

customers. 12

Q. Is a policy from 1994 still relevant? 13

A. Yes. The fact that the Commission includes Opinion 14

94-26 in its Guidance Documents indicates the 15

relevance of this order. In addition, in his direct 16

testimony (p. 57), Staff witness Henry relies on a 17

Commission policy from 1977. 18

Q. What is Staff's view regarding the Commission's 19

interruptible rate policy? 20

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A. Staff (p. 28) agrees that the Company should set rates 1

to maximize benefits to firm customers, a view that is 2

also consistent with the Commission policy described 3

in Opinion No. 94-26. 4

Q. On page 16 of his direct testimony, Mr. Dowling states 5

that changes in local law requiring the eventual 6

elimination of the cheapest alternative boiler fuels, 7

No. 4 and No. 6 fuel oil, and the current large 8

disparity between the wholesale price of gas and oil 9

have exposed interruptible customers to unreasonable 10

and unjust increases in interruptible delivery 11

services. Do you agree with his assessment of the 12

impact of New York City's phase-out of No. 4 and No. 6 13

oil? 14

A. No. In fact, in the LILCO Order, the Commission 15

envisioned an environment in which No. 4 and No. 6 are 16

not alternative fuels and it did not cause the 17

Commission to alter its interruptible pricing policy. 18

In the LILCO order (p. 5) the Commission approved the 19

elimination of a separate interruptible pricing 20

category for customers using No. 4 and No. 6 oil as 21

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their alternate fuel based on LILCO's assertion that 1

the overwhelming majority of its customers use No. 2 2

oil as their alternate fuel. Therefore, in an 3

environment without No. 4 and No. 6 oil as alternate 4

fuels, the Commission continued to support the 5

policies set forth in Opinion 94-26. 6

Q. Mr. Dowling (p. 29) characterizes the impacts of the 7

Company's Rate 2 proposal on customers as "extreme." 8

Do you agree? 9

A. No. When focusing on percentage impacts on a very low 10

rate, such as the delivery component of the Rate 2 11

rate, the result can look extreme. However, one must 12

also look at the impact on the price of the overall 13

service being provided. As shown in Exhibit ___ 14

(NFSP-2), the average Rate 2 total rates (delivery and 15

supply) for a three-year agreement (the most common 16

agreement applicable to the Company's Rate 2 17

customers) for the last two years were approximately 18

59 cents per therm and 58 cents per therm for monthly 19

usage up to 500,000 therms and monthly usage above 20

500,000 therms, respectively. The Company's proposed 21

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increase to 11.5 cents per therm represents increases 1

of 7.6% and 7.7% for monthly usage up to 500,000 2

therms and monthly usage above 500,000 therms, 3

respectively. 4

Q. Are these impacts "extreme"? 5

A. No. In fact, in the LILCO order, the Commission dealt 6

with the issue of bill impacts for interruptible 7

customers. In the LILCO Order (p. 10), the Commission 8

found increases of 15, 18 and 32 percent as being 9

"significant." 10

Q. Did the Commission disallow these increases? 11

A. No. The Commission approved the increases, but did 12

find that they warranted a phase-in. 13

Q. Does the impact of the Company's Rate 2 proposal 14

warrant a phase-in? 15

A. No. 16

Q. Why not? 17

A. In the LILCO Order (p. 10), the Commission assessed 18

the need for a phase-in and the annual percentage 19

increase by reviewing LILCO's then-historic 20

interruptible prices. The Commission concluded that, 21

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since LILCO's interruptible customers commonly 1

experienced rate changes of the magnitude of 10 2

percent, a 10 percent phase-in per year would be 3

comparable to the magnitude of historical swings. 4

Q. Is this instructive in determining the reasonableness 5

of the Company's Rate 2 proposal and determining 6

whether or not a phase in is needed? 7

A. Yes. Exhibit ___(NFSP-2) shows the monthly percentage 8

change in Rate 2 rates (delivery and supply) for a 9

three-year agreement (the most common agreement) for 10

the last two years. In addition, Exhibit __(NFSP-2) 11

shows the absolute values of the monthly percentage 12

changes and the average percentage changes for the two 13

year period. These average monthly percentage changes 14

are 10.1% and 10.3% for monthly usage up to 500,000 15

therms and monthly usage above 500,000 therms, 16

respectively. Based on the Commission's criteria 17

regarding the need for a phase-in, as described in the 18

LILCO Order, no phase-in of the Company's Rate 2 19

proposal is necessary since the bill impacts are less 20

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than the average monthly changes commonly experienced 1

by Rate 2 customers. 2

Q. Does Opinion 94-26 provide guidance regarding caps on 3

interruptible rates? 4

A. Yes, in Opinion 94-26 (p. 26) the Commission stated, 5

"We shall, accordingly, leave unchanged the prevalent 6

policy of setting the upper limit for the price of a 7

market-priced non-core service equal to the rate (or 8

net-of-gas margin) for the core service that would 9

otherwise be taken." In describing the price of the 10

core service that would otherwise be taken, the 11

Commission defines the rate as the "net of gas 12

margin." That is, in effect, the delivery rate. 13

Therefore, the Company's proposal to perform the 14

annual reconciliation based on delivery rate 15

components is also consistent with Commission policy. 16

Q. Does NYC witness Gorman make any representations about 17

Commission policy on interruptible rates? 18

A. Yes. On page 8 of his testimony and in response to 19

the question, "Are you aware of any Commission rule 20

preventing the Commission from basing interruptible 21

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rates on something other than the cost of alternate 1

fuels?" Mr. Gorman states: 2

No. In the past, however, the Commission has 3 stated that interruptible sales service should be 4 priced to avoid imposing costs on firm customers 5 (see Case 00-G-0996, In the Matter of Criteria 6 for Interruptible Gas Service, Order Establishing 7 Interruptible Service Guidelines for Keyspan 8 Energy Delivery Long Island (January 31, 2011) at 9 6). I agree with this Commission position and, as 10 I explain in more detail below, adopting my 11 recommendation should have minimal impact on firm 12 customers. At the same time, pricing 13 interruptible rates based on alternate fuels can 14 have the perverse impact of negatively impacting 15 Con Edison’s cost of firm service, which is 16 contrary to the Commission policy set forth in 17 Case 00-G-0996. 18

19

Q. Where you able to verify that Commission policy, and 20

is it relevant? 21

A. It appears that the date of the order is incorrect. 22

The Commission has not issued an order in Case No. 00-23

G-0996 since 2004. It seems that the order Mr. Gorman 24

refers to was actually issued on January 31, 2001. We 25

were able to verify that, in the January 31, 2001 26

order in Case No. 00-G-0996 ("Keyspan Order")(p. 6), 27

the Commission did state, "To avoid pricing 28

interruptible sales service such that it would impose 29

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costs on firm customers, the company should use tools 1

readily available, including but not limited to, 2

making intra-month interruptible rate changes and 3

hedging prices.” 4

Q. Is this relevant to Mr. Gorman's opposition to the 5

Company's proposals for changes to its interruptible 6

delivery rates? 7

A. No. First, our goal to enhance the benefits to firm 8

customers resulting from the Company's interruptible 9

services is fully consistent with the above-referenced 10

statement from the Keyspan Order, as well as the 11

Commission's policy as set forth in Opinion 94-26. 12

Second, the Keyspan order deals primarily with the 13

criteria for implementing interruptions, not the 14

Commission's policy for setting interruptible delivery 15

rates. 16

Interruptible Rate Design 17

Q. What is Staff's proposal for Rate 1 rates? 18

A. Staff recommends (pp. 24-25) a blocked rate structure 19

similar to that proposed by the Company. However, 20

Staff's proposed rate structure includes a monthly 21

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minimum charge which includes the first three therms 1

of usage. Staff recommends that its proposed minimum 2

charge be phased in over a three-year period. Since 3

Staff's proposed minimum charge includes 3 therms 4

rather than the 250 therms proposed by the Company, 5

Staff has added a rate block for usage above 3 therms 6

and up to 250 therms. Staff's additional rate blocks 7

for usage above 250 therms up to 5,000 therms and for 8

usage above 5,000 therms, both with rates determined 9

monthly by the Company based on market conditions, are 10

consistent with the Company's proposal. In addition, 11

the rate for Staff's proposed rate block for usage 12

above 3 therms and up to 250 therms would be 13

determined monthly by the Company and dependent on 14

market conditions. 15

Q. Do you agree with Staff's proposal for a minimum 16

charge based on 3 therms and a phase-in? 17

A. No. We believe the level of 3 therms is unnecessarily 18

low and no phase-in of the minimum charge is 19

necessary. The Company's proposed level of 250 therms 20

in the minimum charge is a monthly usage level typical 21

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of a very small gas customer. Interruptible customers 1

should be customers with usage well above this level 2

to provide any appreciable benefit to the Company's 3

gas system when interrupted. The 250 therm block 4

threshold associated with the minimum monthly charge 5

ensures a minimum revenue contribution from Rate 1 6

Customers. 7

Q. What is Staff's assessment of the Company's proposal 8

for Rate 1 rates? 9

A. With regard to the Company's Rate 1 rate proposal, 10

Staff (p. 24) states, "The monthly minimum charge 11

should capture costs incurred by the Company to 12

maintain service of interruptible Rate 1 customers. 13

The additional component of 250 therms priced out at 14

the tail block rate of the otherwise applicable firm 15

rate is not consistent with a fixed charge, and should 16

not be included in a mechanism to directly assign 17

fixed costs incurred by the Company to serve the 18

interruptible Rate 1 customers." Do you agree with 19

Staff's assessment? 20

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A. No. There is no prohibition on the inclusion of a 1

minimum volume of gas usage in a minimum charge 2

applicable to interruptible customers. The 3

Commission-approved interruptible rate structures of 4

other New York gas utilities include minimum volumes 5

of gas usage in their minimum charges. Examples are: 6

New York State Electric & Gas Corporation's Service 7

Classification No. 2 (500 therms), Niagara Mohawk 8

Power Corporation's Service Classification No. 6 (100 9

therms) and the Company's affiliate, Orange and 10

Rockland Utilities, Inc.'s Service Classification No. 11

8 (1,000 Ccf). 12

Q. Other than the usage quantity included in the minimum 13

charge and phase-in, does Staff agree with the 14

Company's Rate 1 rate design proposal? 15

A. Yes. 16

Q. What is NYC witness Gorman's position regarding the 17

Company's interruptible rate structures? 18

A. Mr. Gorman (p. 5) states, "Con Edison’s proposal to 19

benefit firm customers without regard to fair 20

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treatment of interruptible customers is not just and 1

reasonable, and fails to meet its own goals." 2

Q. Does this statement have merit? 3

A. No. 4

Q. Why not? 5

A. First, we believe interruptible customers are treated 6

fairly. In fact, it bears emphasis that the term 7

“interruptible” in the context of this rate class is a 8

two-way street and historically customers elect to 9

interrupt use of the Company’s service to use oil when 10

oil is less expensive (i.e., interruptible customers 11

have little or no commitment to use gas service) and 12

significantly more than the Company has interrupted 13

service to customers. Accordingly, the primary focus 14

of the Company’s rate design (and Commission policy) 15

is properly to minimize the costs of firm customers 16

that have made a commitment to the Company’s service 17

and are responsible for the costs of the system 18

whether or not interruptible customers choose to take 19

service. 20

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Second, the Company’s interruptible rates are just and 1

reasonable. Interruptible customers receive gas 2

service at rates less than firm in exchange for being 3

available to cease their use of gas at the Company's 4

direction. And as a practical matter, the service to 5

interruptible customers is close to firm in terms of 6

interruptions by the Company. For example, during the 7

last three years, interruptible customers have had gas 8

delivery service available to them over 98 percent of 9

the time. Interruptible customers are expected to 10

make a contribution to system costs which benefits 11

firm customers. This is consistent with Commission 12

policy to maximize benefits to firm customers, as 13

previously described. Since the rate charged to 14

interruptible customers will drop, and has in the past 15

dropped, significantly when oil prices drop, there is 16

nothing unreasonable about increasing interruptible 17

rates subject to the firm cap when oil prices rise in 18

relation to gas prices. 19

Q. Mr. Gorman (pp. 6-7) argues that, "Although the 20

Commission’s past practice may have been to adopt 21

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interruptible rates that were based on the cost of 1

alternate fuels, specifically the cost of oil, this 2

practice is no longer supportable given the 3

development of significant new natural gas supplies." 4

Do you agree? 5

A. The oil to gas price relationship which exists today 6

doesn't warrant an abandonment of current Commission 7

policy regarding interruptible service. The Company 8

does not set its interruptible service prices based 9

solely on the prices of alternate fuels. If the 10

Company did set interruptible prices in this manner, 11

those prices would be well in excess of the price of 12

gas. If interruptible customers were willing to give 13

up their right to switch to a less expensive 14

alternative fuel and keep back-up fuel for emergency 15

purposes only, the Company could consider a different 16

rate design. But since the Company has no control 17

over market prices, which may change dramatically 18

during short periods, and unless and until 19

interruptible customers are willing to give up their 20

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flexibility to fuel switch, the current pricing 1

flexibility is appropriate. 2

Q. Does Mr. Gorman offer an alternative methodology for 3

setting Rate 1 interruptible rates? 4

A. Yes. Mr. Gorman proposes a fixed rate structure, that 5

is a rate structure in which rates do not vary month 6

to month,based on modified cost of service data 7

applicable to SC2 firm service customers. 8

Q. Do you agree with this approach? 9

A. No. Mr. Gorman’s proposed fixed rate approach is 10

contrary to the Commission's policy on interruptible 11

rates, which provides gas utilities with considerable 12

flexibility in setting interruptible rates to maximize 13

benefits to firm customers. A fixed rate limits the 14

Company's ability to maximize benefits for its firm 15

customers when alternate fuel prices are higher than 16

gas prices and it limits the Company's ability to 17

compete when alternate fuel prices are competitive 18

with gas prices. 19

Q. Does Mr. Gorman propose a customer charge for Rate 1 20

customers? 21

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A. Yes. However, he compares the Company's proposed Rate 1

1 minimum monthly charges to SC 2 minimum monthly 2

charges and concludes that the Company's proposed Rate 3

1 minimum monthly charges are "excessive and not cost 4

justified." 5

Q. Is that a valid comparison? 6

A. No. As noted in our initial testimony (pp. 11-12) the 7

Company's proposed minimum monthly charge is designed 8

to assess the costs associated with maintaining 9

customers on interruptible service directly on the 10

customers that cause the Company to incur them -- the 11

interruptible customers. The Company's proposed 12

minimum monthly charge was set based on: a) a fixed 13

component designed to recover costs associated with 14

administering interruptible service (e.g., personnel, 15

billing, meter reading, systems); and b) the minimum 16

volume of 250 therms priced at the tail block rate of 17

the otherwise applicable firm rate structure. Staff 18

has disputed the volume included in part b) above, but 19

no party has disputed the costs included in part a) 20

above which amounts to $100 per month as shown in 21

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Exhibit __ (NFSP-1) to our initial testimony in this 1

proceeding. Mr. Gorman's comparison of our proposed 2

interruptible Rate 1 minimum monthly charges to the 3

Company's proposed SC 2 minimum charges and customer 4

costs is not relevant and ignores the fact that the 5

costs associated with administering interruptible 6

service are different than the costs associated with a 7

minimum charge applicable to firm customers. 8

Q. What is Mr. Dowling's view on the Company's proposed 9

Rate 1 minimum charge? 10

A. Mr. Dowling (p. 28) states, "While a minimum charge 11

may have been valuable for the Company in the past, it 12

is certainly not needed now. In any event, the 13

current disparity between the prices of gas and of 14

alternate boiler fuels greatly reduces the risk of 15

interruptible sales loss. In the long term, the 16

elimination of the use of No. 4 and No. 6 oil has the 17

same effect. Minimum charges for interruptible 18

service continue to be unnecessary, and are 19

increasingly so." 20

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Q. Do you agree that the need for a minimum charge is 1

dependent on the price and availability of alternate 2

fuels? 3

A. No. Our proposed minimum charges are based on the 4

costs of administering interruptible service and they 5

are not related to the price or availability of 6

alternate fuels, so Mr. Dowling's position should be 7

rejected. 8

Q. Does Staff agree with the Company's proposals 9

regarding Rate 2 rates? 10

A. Staff (pp. 34-36) agrees with the Company in certain 11

respects. Staff agrees with: eliminating multi-year 12

contracts; grandfathering current contracts; and 13

continuing the one cent per therm discount for monthly 14

usage in excess of 500,000 therms. However, Staff 15

proposes a fixed, flat rate of eight cents per therm. 16

Q. Do you agree with Staff's proposed rate of eight cents 17

per therm? 18

A. No. Staff's rationale for its proposal is a perceived 19

potential for competitive disadvantage for customers 20

whose existing contracts expire and are subject to the 21

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new rate before others whose contracts expire later. 1

We do not believe the change in the Rate 2 delivery 2

rate we are proposing will cause a competitive 3

disadvantage for customers since the Rate 2 delivery 4

rate is a very small component of a customer's overall 5

cost of natural gas service and an even smaller 6

component of a customer's overall operating expenses. 7

Also, as we noted in our initial testimony, the Rate 2 8

rate has not increased since its inception in 1993, 9

while firm delivery rates have increased by 10

approximately 41%. For the twelve-month period ended 11

June 30, 2012, the percentage difference between Rate 12

2 delivery rates and otherwise applicable firm 13

delivery rates is approximately 66%. This is in 14

contrast to a 46% average difference between Rate 1 15

delivery rates and otherwise applicable firm delivery 16

rates. Our proposal of 11.5 cents per therm would 17

provide a benefit to firm customers commensurate, on a 18

percentage basis, with the increase in firm rates they 19

have experienced since the inception of Rate 2. Under 20

the Company's proposal, Rate 2 customers would still 21

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enjoy a percentage difference between Rate 2 delivery 1

rates and otherwise applicable firm delivery rates of 2

approximately 50%. Staff's proposal would do very 3

little in this regard. Under Staff's proposal, the 4

percentage difference between Rate 2 delivery rates 5

and otherwise applicable firm delivery rates would be 6

approximately 63%. 7

Q. Does Mr. Gorman make a proposal regarding the 8

Company's Rate 2 rates? 9

A. Yes. Similar to his analysis regarding Rate 1, Mr. 10

Gorman proposes a fixed rate structure based on 11

modified cost of service data applicable to SC2 firm 12

service customers. 13

Q. Do you agree with this approach? 14

A. No. Mr. Gorman's proposal for Rate 2 simply maintains 15

the status quo and extends the long time period during 16

which gas delivery rates for the Company's firm 17

customers have increased while the contribution from 18

Rate 2 customers has not. 19

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Rate 1 Annual Reconciliation 1

Q. Did Staff comment on the Company's proposed change to 2

the annual revenue reconciliation performed for SC No. 3

12 Rate 1 customers to base it on delivery components 4

only and thereby make it consistent with the 5

reconciliation performed for SC No. 9 Rate 1 6

customers? 7

A. Yes. Staff states (p. 27), "Interruptible Rate 1 8

customers taking full service under SC 12 should 9

continue to be reconciled on a total bill basis. The 10

Company’s proposed change would result in no assurance 11

to interruptible Rate 1 SC 12 customers of having a 12

total bill of no more than firm customers." 13

Q. Is the Company's proposal consistent with Commission 14

policy? 15

A. Yes. As we previously mentioned, in Opinion 94-26 (p. 16

26) the Commission stated, "We shall, accordingly, 17

leave unchanged the prevalent policy of setting the 18

upper limit for the price of a market-priced non-core 19

service equal to the rate (or net-of-gas margin) for 20

the core service that would otherwise be taken." In 21

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describing the price of the core service that would 1

otherwise be taken, the Commission defines the rate as 2

the "net of gas margin." That is, in effect, the 3

delivery rate. Therefore, the Company's proposal to 4

perform the annual reconciliation based on delivery 5

rate components is also consistent with Commission 6

policy. 7

Q. What is Staff's position regarding the Company’s 8

proposal that Rate 1 customers not pay less than the 9

minimum monthly charge under any circumstances? 10

A. Staff disagrees with this proposal citing its 11

perceived need for interruptible customers to receive 12

an incentive for being on interruptible service. 13

Q. Do you agree with Staff's position regarding the 14

minimum charge? 15

A. No. Customers with usage so low as to cause their 16

bills determined under firm rates to be lower than the 17

Company's proposed Rate 1 minimum charge should not be 18

on interruptible service since they do not provide any 19

significant benefit to the system when they are 20

interrupted. Under no circumstances should an 21

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interruptible customer pay less than a cost-based 1

minimum charge, i.e., the minimum contribution 2

necessary to pay for the costs to serve them. 3


Company's annual reconciliation proposal? 5

A. Mr. Gorman (p. 12) states, "Under the Company’s 6

interruptible pricing proposal for SC 12 Rate 1/SC 9 7

Rate B interruptible service, interruptible service 8

prices can be equal to or higher than firm service 9

prices (see response to DPS IR-262). Pricing 10

interruptible customers at a price equal to firm 11

service is inappropriate in and of itself because the 12

level of service, by definition, costs less to 13

provide. Pricing interruptible customers at rates 14

higher than firm service customers is a significant 15

disincentive for customers that are capable of taking 16

service on an interruptible basis and logically will 17

lead to interruptible customers seeking to migrate to 18

firm service, which would present many challenges for 19

the Company." 20

Case No. 13-G-0031


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Q. Is Mr. Gorman accurate in his statement that 1

interruptible delivery service prices can be equal to 2

or higher than firm service prices? 3

A. No. Mr. Gorman makes this statement with regard to 4

the total bills for SC 12 Rate 1/SC 9 Rate B 5

customers, which includes both delivery and supply. 6

Mr. Gorman's statement is not accurate with regard to 7

the SC 9 Rate B customers which are interruptible 8

transportation customers, i.e., delivery only. We 9

have not proposed a change to the reconciliation 10

process for the SC 9 Rate B customers. However, as 11

noted in the Company's response to DPS IR-262, SC 12 12

Rate 1 customers, which are interruptible sales 13

customers, will not have assurance that they will not 14

have an annual total bill that is greater than the 15

annual total bill at the otherwise applicable firm 16

rate. Mr. Gorman is correct that, under some 17

circumstances, interruptible sales customers may pay 18

more on a total bill basis than they would pay under 19

firm rates. This may occur if gas supply prices 20

allocated to interruptible sales customers exceed gas 21

Case No. 13-G-0031


-31-

supply prices for firm sales customers. This would 1

not be the result of any change in the Company's gas 2

purchasing strategies. The Company remains committed 3

to its objective to obtain a reasonably-priced gas 4

supply that reflects its efforts to (i) maintain a 5

reliable gas supply, (ii) minimize gas costs to their 6

firm customers, and (iii) reduce gas price volatility. 7

The gas costs allocable to interruptible sales 8

customers also reflects least-cost purchasing and no 9

margin is added to the cost of gas allocable to 10

interruptible sales customers. 11

Q. If a customer is dissatisfied with the price of the 12

Company's SC 12 interruptible sales service, is the 13

customer's only other option firm service, as implied 14

by Mr. Gorman? 15

A. No. Since the inception of gas transportation 16

service, a robust competitive market for gas supply 17

has developed and SC12 customers can participate in 18

this market and seek alternatives to the Company's gas 19

supply if they are dissatisfied with the price of such 20

Case No. 13-G-0031


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service. Currently 65% of Rate 1 customers purchase 1

gas from alternate suppliers. 2

Costs Incurred By Interruptible Customers 3

Q. CPA witness Dowling (p. 20) cites CPA witness 4

Mellusi's statement that the Company's estimates of 5

the costs incurred by interruptible customers to 6

maintain dual fuel capability are wildly 7

underestimated. Do you agree with that statement? 8

A. Mr. Mellusi's statement pertained to a comparison 9

between estimates of interruptible customer costs 10

provided by the Company in response to CPA-1-3 and his 11

estimate of the costs for Montefiore Hospital, one of 12

the very largest interruptible gas users. Mr. 13

Mellusi's statement is not relevant for the over 900 14

other interruptible gas customers, most of whom use 15

only a fraction of the gas used by Montefiore 16

Hospital. Therefore, Mr. Dowling's reference to Mr. 17

Mellusi's statement is irrelevant. 18

Q. What is the impact of the Company's Rate 2 proposal on 19

Montefiore Hospital? 20

Case No. 13-G-0031


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A. Mr. Mellusi states (p. 3) that, under the Company's 1

proposed Rate 2 rate, Montefiore's cost of gas 2

delivery service will increase from $775,000 to 3

$1,159,000 per year. That is an increase of $384,000 4

per year. 5

Q. Does that amount represent a significant increase for 6

Montefiore Hospital? 7

A. The definition of "significant" is very much customer-8

specific, however, in its 2011 Annual Report (p. 52), 9

Montefiore reported annual operating expenses of $2.91 10

billion. The projected increase in Montefiore's gas 11

delivery costs represents an increase of about 0.013 12

percent in its annual operating expenses. 13

Q. In his testimony (p. 4), Mr. Mellusi states, "Without 14

the savings made available by the current 15

interruptible rates, prudence would require Montefiore 16

to consider converting to firm service, because of the 17

additional operating and maintenance costs associated 18

with the use of fuel oil." He reports an annual 19

purchase of about 60,000 gallons of No. 2 fuel oil at 20

a cost of approximately $250,000 for use in 21

Case No. 13-G-0031


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Montefiore's dual fuel boilers and reciprocating 1

internal combustion engines. The Company asked Mr. 2

Mellusi through an interrogatory how much of this 3

amount was used in the dual fuel boilers and 4

attributable to Montefiore's participation in the 5

Company's interruptible service. To date, the Company 6

has not received a response from Mr. Mellusi. Mr. 7

Mellusi also cites another $200,000 per year of annual 8

operating costs associated with maintaining oil 9

burning capability. 10

Q. Have you determined what Montefiore's annual gas 11

delivery bill would be under firm rates? 12

A. Yes. Under firm rates, Montefiore's annual gas 13

delivery bill would be approximately $2.24 million. 14

Even with the $384,000 increase associated with the 15

Company's proposal, Montefiore would be saving 16

approximately $1.08 million per year, a difference of 17

about 52 percent from firm delivery rates. Based on 18

this, it seems unlikely that a switch to firm service 19

would be financially prudent for Montefiore. 20

Case No. 13-G-0031


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Q. Staff (p. 28) states, "While we agree that the Company 1

should set rates to maximize benefits to firm 2

customers, there should also be an incentive for being 3

an interruptible customer. Interruptible sales 4

customers provide a benefit to firm customers by 5

exiting the gas system and providing relief when the 6

system is constrained. Under Con Edison’s proposal no 7

such incentive exists.” Do you agree that there is no 8

incentive to being a Con Edison interruptible 9

customer? 10

A. Assuming for purposes of argument that there should be 11

an incentive for customers to participate in 12

interruptible service, we believe the current rate 13

structure provides such an incentive in terms of 14

significantly lower rates as compared to firm rates 15

(for Rate 2 and in many/most cases for Rate 1). 16

Moreover, interruptible service should be structured 17

in a manner that assesses rates on customers 18

commensurate with the level of service provided, and 19

customers' ability to use an alternate fuel, while 20

providing an appropriate level of benefits to firm 21

Case No. 13-G-0031


-36-

customers. If there was no "incentive" to being an 1

interruptible customer, the Company would not have 2

over 900 interruptible customers, many large and 3

sophisticated. 4

Finally, if by incentive Staff is suggesting that the 5

Company structure rates so as to steer new or existing 6

customers to interruptible service instead of firm 7

service, we disagree. Interrupting service to 8

interruptible customers on cold days prevents 9

detrimental impacts on firm customers. It does not 10

reflect a benefit from interruptible customers. No 11

facilities were built for them and they are not 12

foregoing any rights to service by interrupting gas 13

usage on cold days. They are simply meeting the 14

commitments that go hand and hand with the discounted 15

rates they pay. Moreover, the Company sees no current 16

impediment to meeting the needs of new firm customers 17

on a reasonable schedule and Staff has provided no 18

study that indicates that the rates to firm customers 19

will be lower by increasing the interruptible class 20

instead of building the firm class. 21

Case No. 13-G-0031


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System Benefits Of Interruptible Service and Minimum Volume 1

Threshold 2

Q. What, if any, benefit do interruptible customers 3

provide to the Company’s gas system? 4

A. As noted above, interruptible customers do not 5

"provide a benefit" to the Company's system and its 6

firm customers at colder temperatures. Based on the 7

interruptible customers' choice of service option, the 8

Company's gas system was not designed to accommodate 9

their peak loads. Therefore, rather than providing a 10

benefit to firm customers, when the Company interrupts 11

service to its interruptible customers, interruptible 12

customers are simply meeting their obligations, where 13

failure to meet such obligations would possibly cause 14

a detrimental impact on the firm customers by making 15

use of a gas system, funded by firm customers, that 16

was not built to accommodate both interruptible 17

customer and firm customer loads at colder 18

temperatures. There would be no significant impact to 19

the gas system if future customers below a usage 20

threshold of 100,000 therms annually are excluded from 21

Case No. 13-G-0031


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interruptible service. Under the Company’s proposal, 1

existing interruptible customers will not be subject 2

to this restriction. 3

Q. On what basis does the Company conclude that there 4

would be no significant impact to the system from 5

excluding new customers below a certain threshold? 6

A. The Company’s conclusion is based on a review of 7

existing interruptible customers, which demonstrated 8

that interruptible customers below the 100,000 therms 9

threshold currently account for less than 10% of the 10

total interruptible usage. Additionally, fewer than 11

1% of all new and conversion customers have selected 12

interruptible service over the past two years. Based 13

on these facts, the Company concluded that excluding 14

new customers below the 100,000 therms threshold from 15

qualifying for future interruptible service would not 16

significantly impact the gas system on the coldest 17

days. 18

Q. How does the Company respond to assertions that 19

restricting the availability of interruptible service 20

to customers with annual usage of 100,000 therms or 21

Case No. 13-G-0031


-39-

more will adversely impact the Company’s ability to 1

serve firm customers? 2

A. These assertions are not supported by analysis nor are 3

they based on any knowledge of or familiarity with the 4

Company’s gas system. 5

Q. Mr. Gorman agrees that small interruptible customers 6

provide little benefit individually, but claims that, 7

when aggregated, they can produce significant system 8

conservation and utilization efficiencies. Does the 9

Company agree with this claim? 10

A. No. Using the population of current interruptible 11

customers as a basis, customers with annual usage 12

volumes of less than 100,000 therms represent less 13

than 10% of the total interruptible load. These 14

customers are not located within a geographic area 15

that could potentially be impacted by their aggregated 16

load. Instead, they are located throughout the 17

Company’s distribution system in Manhattan, Queens, 18

Bronx and Westchester which spreads their impact 19

throughout the Company’s franchise territory. They 20

Case No. 13-G-0031


-40-

are also connected to various non-connected subsystems 1

which further reduce their accumulated impact. 2

Q. Please describe the impact to the Company’s gas system 3

if new customers with usage below the proposed 4

threshold take firm, rather than interruptible, 5

service. 6

A. As these smaller customers along with all other future 7

customers are connected with firm service, the Company 8

assesses the impact of load growth and monitors system 9

performance to ensure that the reliability of the gas 10

system is maintained. 11

Q. Mr. Dowling (p. 24) states that the Company proposes 12

that customers who fail to use 90,000 therms in two 13

consecutive years should be required to convert to 14

firm service. Is that true? 15

A. Mr. Dowling appears to be referring to the Company's 16

Gas Rates Panel's proposal (pp. 45-46) for tariff 17

language to implement our minimum annual volume 18

threshold of 100,000 therms per year for new Rate 1 19

Customers. The language proposed by the Gas Rates 20

Panel will require such customers to maintain a 21

Case No. 13-G-0031


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minimum annual usage of 90,000 therms for two 1

consecutive years to maintain eligibility to be served 2

as an interruptible customer. This is necessary to 3

establish requirements for continued eligibility to be 4

served on interruptible rates. This provision, like 5

our proposed minimum annual volume threshold, would 6

apply only to new Rate 1 customers, i.e., those Rate 1 7

customers who commence service on or after January 1, 8

2014. This proposal strikes an appropriate balance 9

between being fair to existing customers by 10

grandfathering them, but holding new interruptible 11

customers accountable for meeting the revised minimum 12

requirements for interruptible service. 13

Q. Is this type of provision typical of utility tariffs? 14

A. Yes. Utility tariffs contain requirements for various 15

types of service. When a customer no longer meets 16

such criteria, the customer should be moved to the 17

appropriate service classification or rate option. 18

For example, the Company's Schedule for Electricity 19

Service, P.S.C. No. 10 - ELECTRICITY, contains similar 20

provisions governing the transfer of customers between 21

Case No. 13-G-0031


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SC 2, General - Small, and SC 9, General - Large. SC 1

2 is applicable to general uses where the customer's 2

requirements do not exceed 10 kilowatts. SC 9 is 3

applicable to general uses where the Customer's 4

initial requirements are expected to be in excess of 5

10 kilowatts. If an SC 9 customer's demand does not 6

exceed 5 kilowatts for a period of 12 consecutive 7

months, the Customer will be transferred to SC 2. 8

Studies 9

Q. Does the Company agree with Staff’s recommendation to 10

conduct a study to quantify the value/benefit of 11

interrupting interruptible customers? 12

A. No. The Company does not see the benefit of 13

performing such a study. As discussed earlier, when 14

the Company interrupts service to its interruptible 15

customers, the Company is preventing the interruptible 16

customers from possibly causing a detrimental impact 17

on the firm customers by making use of a gas system 18

that, at the interruptible customers' option, was not 19

built to accommodate their loads. The smallest of 20

these customers do not significantly impact the gas 21

Case No. 13-G-0031


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system. Any study to examine the potential impact of 1

future small interruptible customers affected by the 2

minimum threshold proposal would require assumptions 3

relating to so many unknown (and unknowable) 4

variables, that the study would provide little or no 5

value. Among these unknown variables are data related 6

to customer locations, their proposed usage and 7

existing infrastructure capacity and the timing of 8

their service requests. 9

Non-Firm Revenue Imputation and Sharing Mechanism 10

Q. What is Staff's position on the Company's proposal to 11

increase the customer’s share of non-firm revenue 12

above $58 million from 75% to 80%? 13

A. When asked if they agree with the Company's proposal 14

to increase the customer’s share of non-firm revenue 15

above $58 million from 75% to 80%, Staff responds, 16

"No. Firm customers should continue to benefit at a 17

level that would be expected historically." However, 18

Staff (pp. 31-32) goes on to state, "We are proposing 19

a base rate revenue imputation of $58 million in non-20

firm revenue in the rate year and the Company be 21

Case No. 13-G-0031


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allowed to retain 20% of any non-firm revenue beyond 1

the imputation. To the extent non-firm revenue is 2

less than $58 million the Company should not be 3

allowed to recover any of the shortfall from firm 4

customers. 5

Q. Please comment on Staff's proposed mechanism. 6

A. First, it seems that, although Staff initially stated 7

that it disagreed with the Company's proposal to 8

increase the customer’s share of non-firm revenue 9

above $58 million from 75% to 80%, Staff has 10

incorporated this provision into its proposal. 11

Therefore, Staff seems to agree with the Company's 12

proposal for the disposition of non-firm revenues 13

above $58 million. However, to the extent non-firm 14

revenue is less than $58 million, Staff proposes that 15

the Company should not be allowed to recover any of 16

the shortfall from firm customers. 17

Q. Is that consistent with the currently-effective 18

mechanism? 19

A. No, it is not. Historically, the Company’s gas rates 20

have reflected a high imputation of non-firm revenues 21

Case No. 13-G-0031


-45-

to reduce firm rates initially, subject to full 1

reconciliation if the imputed revenues are not 2

achieved. Staff's proposal to put the Company at risk 3

for revenues below $58 million represents a dramatic 4

and unwarranted change from historical practice. 5

Q. Does Staff provide a valid rationale for this change? 6

A. Staff asserts (pp. 31-32) that it is important to 7

reflect "the impact of the changes in the non-revenue 8

neutral rate structure." Staff goes on to discuss 9

historic levels of non-firm revenues as part of the 10

rationale for their proposal. Staff also states, "A 11

slight increase in the imputation and no recovery by 12

the Company of non-firm revenue below the imputation 13

assures that non-firm revenue will continue to accrue 14

to the benefit of firm customers." 15

Q. Do these reasons provide a valid basis for Staff's 16

proposal? 17

A. No. We believe Staff's reference to "the impact of 18

the changes in the non-revenue neutral rate structure" 19

is a reference to the Company's proposed changes to 20

Rate 1 interruptible rates. The fact that our 21

Case No. 13-G-0031


-46-

proposed changes are not necessarily revenue neutral 1

is not a valid reason for changing the non-firm 2

revenue sharing mechanism. Rate 1 interruptible rates 3

have historically varied month to month and have never 4

been revenue neutral, so revenue neutrality, or lack 5

of it, is not a valid rational for increasing the 6

Company's risk for revenues below $58 million. 7

Moreover, Staff has recommended that the Company 8

provide an "incentive" in its interruptible rates that 9

presumably would reduce interruptible revenues. 10

As to assuring that firm customers continue to benefit 11

from non-firm revenues, there is no basis for 12

providing such assurance. Non-firm revenues of the 13

product of the Company’s efforts to maximize the value 14

of assets and commitments undertaken to provide 15

service to firm customers, for the benefit of firm 16

customers. Staff has provided no basis for 17

establishing a mechanism that would effectively 18

penalize the Company if market conditions constrain or 19

possibly eliminate interest in non-firm services. 20

That is, the level of non-firm revenues reasonably 21

Case No. 13-G-0031


-47-

achievable is primarily subject to market conditions 1

over which the Company has no control. 2

Q. Is Staff's reliance on the Company's historic non-firm 3

revenues reasonable for developing a non-firm revenue 4

mechanism in this proceeding? 5

A. No. As discussed in the rebuttal testimony of Company 6

witness Carnavos, significant changes are occurring 7

with respect to the Company's expectations of 8

discretionary capacity release revenues that make 9

reliance on the past unreasonable. 10


non-firm revenue imputation and sharing mechanism? 12

A. Mr. Gorman (p. 11) states, "Allowing Con Edison to 13

retain non-firm revenues in excess of a target revenue 14

amount results in customers paying more than Con 15

Edison’s cost of service and provides Con Edison’s 16

investors with the opportunity to earn more than a 17

fair return on its investments in utility plant and 18

equipment." On page 24 of his testimony, Mr. Gorman 19

states, "Con Edison should no longer be allowed to 20

retain a percentage of interruptible rate revenues." 21

Case No. 13-G-0031


-48-

He then states, "I recommend all $53 million of non-1

firm revenue be used as an offset to the cost of 2

service paid for by firm customers. If Con Edison 3

collects more than $53 million of non-firm revenue it 4

will show it as an improvement to its earned return on 5

equity, and help establish whether its rates should be 6

changed (up or down).” 7

Q. Do you agree with this assessment? 8

A. No. Mr. Gorman's statement that, "Con Edison should 9

no longer be allowed to retain a percentage of 10

interruptible rate revenues" is at odds with his later 11

statement that, "If Con Edison collects more than $53 12

million of non-firm revenue it will show it as an 13

improvement to its earned return on equity", which 14

implies that the Company would retain all non-firm 15

revenues above the target. 16

Q. What is Mr. Dowling's position regarding the non-firm 17

revenue imputation and sharing mechanism? 18

A. Mr. Dowling (p. 31) states, "The only change proposed 19

by the Panel is to increase the firm customers’ share 20

of the excess over $58 million to 80%. This treatment 21

Case No. 13-G-0031


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puts no risk of revenue loss on the Company or its 1

stockholders, nor does it recognize any potential 2

increase in interruptible revenue caused by the 3

extreme rate increases proposed by the Panel." 4

Q. Do you agree with Mr. Dowling's assessment? 5

A. No. Mr. Dowling's first sentence above is accurate. 6

We did propose to increase the customers' share of 7

non-firm revenues above the $58 million target from 8

75% to 80%. We proposed this for the Rate Year if our 9

proposed changes to the Rate 1 interruptible rate 10

structure are adopted by the Commission. We disagree 11

with Mr. Dowling's assertion that our proposal does 12

not recognize any potential increase in interruptible 13

revenue. On the contrary, as note on Page 21 of our 14

initial testimony in this proceeding, we stated, "in 15

order to take account of the fact that Rate 1 Customer 16

revenues are likely to increase if the Company’s Rate 17

1 proposals are adopted and may be the reason the 18

Company exceeds the $58 million non-firm revenue 19

target, we propose to increase the customers' share of 20

non-firm revenues above the $58 million target from 21

Case No. 13-G-0031


-50-

75% to 80% for the rate year if the proposed changes 1

to the Rate 1 interruptible rate structure are adopted 2

by the Commission." This proposal clearly recognizes 3

the potential for an increase in interruptible 4

revenues and provides additional benefits to firm 5

customers for non-firm revenues above the $58 million 6

target. It should be noted that Mr. Dowling's and 7

other parties' proposals to restrict the Company's 8

flexibility in setting Rate 1 interruptible rates 9

increase the Company's risk by reducing potential 10

revenues from Rate 1 interruptible customers. 11

Q. Does Mr. Dowling make a proposal regarding the non-12

firm revenue sharing mechanism? 13

A. He proposes a 100 percent reconciliation of non-firm 14

revenues. This proposal contradicts past Commission 15

precedent to provide gas utilities with a mechanism 16

that encourages them to maximize benefits for firm 17

customers and should not be adopted. 18

Q. Should Staff's, Mr. Gorman's or Mr. Dowling's 19

positions on non-firm revenues be adopted by the 20

Commission? 21

Case No. 13-G-0031


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A. No. As discussed above, Staff's position is punitive. 1

Mr. Gorman's position is unclear and internally 2

inconsistent. Mr. Dowling's proposal contradicts past 3

Commission precedent to provide gas utilities with a 4

mechanism that encourages them to maximize benefits 5

for firm customers. The Company's proposal, which 6

maintains a Company/customer sharing of revenue 7

surpluses, with enhanced customer sharing of amounts 8

above the sharing target, is reasonable and consistent 9

with long-standing Commission precedent for ratemaking 10

associated with Con Edison’s opportunities to develop 11

non-firm revenues. None of these parties has 12

demonstrated a change in circumstance that provides a 13

basis for discontinuing the current mechanism. 14

Notice of interruption and penalty for failure to interrupt 15

Q. Have you reviewed the testimonies of CPA witnesses 16

Dowling and Mellusi regarding interruptible response 17

times? 18

A. Yes. We will address each of the proposals made in 19

the CPA testimonies. 20

Q. What is CPA’s first recommendation? 21

Case No. 13-G-0031


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A. CPA recommends that the minimum notice period, 1

currently six hours, be stated in the tariff. CPA 2

states that this period is stated only in the 3

Company's Gas Sales and Transportation Operating 4

Procedures Manual ("GTOP") and not subject to pre-5

approval by the Commission. According to CPA, 6

inclusion of the notice period in the tariff will make 7

that requirement more visible to customers, and define 8

a process for revising it, if necessary. 9

Q. Do you agree with this recommendation? 10

A. No, we do not agree. Consistent with Commission 11

policy, gas utilities are required to file all GTOP 12

changes with the Secretary of the Commission. Changes 13

to the GTOPs become effective 30 days after providing 14

notice of such changes to the Staff of the Public 15

Service Commission and all Marketers and Direct 16

Customers. Staff can request modifications and or 17

refiling of the GTOP if there are any objections. The 18

minimum notice is the type of detail for which the 19

GTOP was established. Accordingly, the minimum notice 20

provision should remain in the GTOP. 21

Case No. 13-G-0031


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Q. What is CPA’s second recommendation? 1

A. CPA’s second recommendation is to increase the minimum 2

notice period for interruptions from six to eight 3

hours. 4

Q. Do you agree with CPA’s second recommendation? 5

A. No, we do not agree. The current six hours notice has 6

been in effect since February 1996 and was initiated 7

in Opinion No. 94-26 (the Gas Restructuring Order) for 8

interruptible sales customers electing notification in 9

lieu of temperature control. CPA’s testimony which 10

indicates, based on the representation of one 11

customer, Montefiore, that it has become difficult to 12

switch fuel on the current six hours notice. The 13

Company has received no complaints regarding the six 14

hour notice from any other customers. The Company 15

sees no need to increase the minimum notice period 16

from six to eight hours and CPA has provided no basis 17

for such an increase. 18

Q. What is CPA’s third recommendation? 19

A. CPA’s third recommendation is to amend the tariff to 20

waive penalties for failure to interrupt whenever 21

Case No. 13-G-0031


-54-

notice is not provided by the close of business the 1

day before the required interruption. 2

Q. Do you agree with CPA’s third recommendation? 3

A. No, we do not agree. In most cases in the recent 4

past, the Company has provided such early notice. 5

However, requiring the Company to provide notification 6

by the close of business the day before the required 7

interruption is not practical and has the potential to 8

compromise reliability or increase the number and 9

duration of interruption periods. 10

Q. What impact would CPA’s proposal have on reliability 11

to firm customers? 12

A. Under CPA’s proposal the Company would be required to 13

issue a notice to interrupt on a Friday prior to the 14

close of the business day addressing any period 15

through a Tuesday in the case of a weekend including a 16

holiday such as Martin Luther King Day or Presidents’ 17

Day. Weather patterns can vary significantly during 18

the overnight hours. The impact of changing weather 19

and uncertainty would be compounded with the potential 20

for almost a four-day notice period under CPA’s 21

Case No. 13-G-0031


-55-

proposal. Without the ability to provide notification 1

to interrupt as needed anytime during the winter 2

period, reliability of service to firm customers could 3

potentially be compromised. 4

Q. What impact does CPA’s proposal have on interruptible 5

customers? 6

A. To manage the uncertainty that would result under 7

CPA's proposal, the Company would be required to 8

implement more frequent and longer interruption 9

periods when a weekend or holiday weekend is involved 10

to remove the risk of not being able to implement a 11

necessary interruption. In summary, CPA’s proposal 12

would result in more frequent interruptions, potential 13

for increased use of oil and resulting higher 14

emissions impacting the environment than exists under 15

the Company’s current notification process. 16

Pending proposal to eliminate temperature control service 17

Q. Does NYC witness Gorman comment on the Company's 18

pending filing to eliminate temperature control ("TC") 19

service? 20

Case No. 13-G-0031


-56-

A. Yes. He argues (p. 27), "Based on my proposal to 1

price interruptible service at cost of service, and 2

use the proceeds as a revenue offset to firm cost of 3

service, adjusting any rate outside of a general rate 4

case would be inappropriate. Instead, Con Edison 5

should only be allowed to adjust its rates, both firm 6

and interruptible, within the context of a general 7

rate case where all revenues, expenses and rate 8

schedules can be reviewed at the same time. 9

Q. Does Mr. Gorman's argument have merit? 10

A. No. The Company's pending filing to eliminate the TC 11

option does not constitute an adjustment to rates as 12

described by Mr. Gorman. 13

Q. Does the Commission permit a change such as 14

elimination of the TC option outside a rate case? 15

A. Yes. In its memorandum order issued and effective 16

October 18, 2012, in Case No. 11-G-0543 the Commission 17

accepted, among other things, Con Edison’s request to 18

re-file its proposal to eliminate the TC option at a 19

later date. The Commission did not require that such 20

Case No. 13-G-0031


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a change be filed only in the context of a base rate 1

proceeding. 2

Q. Does this conclude your rebuttal testimony? 3

A. Yes, it does. 4