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PENNSYLVANIAPUBLIC UTILITY COMMISSION
Harrisburg, PA 17105-3265
Public Meeting Held: October 14, 2011
Commissioners Present:
Robert F. Powelson, ChairmanJohn F. Coleman, Jr., Vice ChairmanWayne E. GardnerJames H. Cawley - AbsentPamela A. Witmer, Statement
Pennsylvania Public Utility Commission R-2010-2215623Office of Small Business Advocate C-2011-2224985Office of Consumer Advocate C-2011-2224941James M. Landis C-2011-2224944Marie A. Weaver C-2011-2225050Margaret M. Sentz C-2011-2225828Albert E. Jochen C-2011-2225878Columbia Industrial Intervenors C-2011-2227004Patsy Orlando C-2011-2227222Pennsylvania State University C-2011-2230067Maureen A. Doerr-Roman C-2011-2231015Pennsylvania Communities Organizing C-2011-2232186
For Change, et al.
v.
Columbia Gas of Pennsylvania, Inc.
Pennsylvania Public Utility Commission R-2010-2201974Office of Small Business Advocate C-2010-2208133Office of Consumer Advocate C-2010-2208503
v.
Columbia Gas of Pennsylvania, Inc.
OPINION AND ORDER
TABLE OF CONTENTS
I. History of the Proceeding..........................................................................1
II. Discussion of the Partial Settlement..........................................................5
A. Introduction..........................................................................................5
B. Terms and Conditions of the Partial Settlement...................................6
C. Areas of Concern Raised by the Commission.....................................18
1. Cast Iron and Bare Steel Replacement Program.............................18
2. Installation of Automatic Meter Reading.........................................19
3. Effect of Proposed DSIC...................................................................19
4. PGC C-Factor versus E-Factor with Gas Storage Interest................20
5. Design Day Class Cost of Service Study..........................................20
6. Levelized Distribution Charge for Residential Customers...............21
7. Proposed BTU Content Adjustment.................................................21
8. Proposed Pilot HEEP and Senior Citizen Programs..........................21
D. Legal Principles Applicable to Review of Settlements........................22
E. Disposition of the Partial Settlement..................................................24
III. Discussion of Litigated Issues...............................................................27
A. Burden of Proof..................................................................................27
B. Residential Rate Structure.................................................................29
1. Positions of the Parties....................................................................29
2. ALJ’s Recommendation....................................................................38
3. Exceptions and Reply Exceptions....................................................39
4. Disposition.....................................................................................51
C. CAP-Plus Program...............................................................................53
1. Introduction.....................................................................................53
2. Discussion.......................................................................................56
IV. Conclusion.............................................................................................57
V. Order.......................................................................................................57
BY THE COMMISSION:
Before the Pennsylvania Public Utility Commission (Commission) for
consideration and disposition are: the Joint Petition for Partial Settlement (Settlement)
filed July 1, 2011 in the above-captioned docketed proceedings; the Recommended
Decision (R.D.) of Administrative Law Judge (ALJ) Katrina L. Dunderdale, issued on
August 10, 2011; and the Exceptions to the Recommended Decision filed by Columbia
Gas of Pennsylvania, Inc. (“Columbia” or “Company”), the Pennsylvania Utility Law
Project representing Pennsylvania Communities Organizing for Change, d/b/a ACTION
United (“PCOC”), the Office of Consumer Advocate (“OCA”) and the Bureau of
Investigation and Enforcement (“BI&E”) 1 on August 22, 2011. Reply Exceptions were
filed by the OCA, PCOC, Columbia, BI&E and the Office of Small Business Advocate
(“OSBA”) on August 29, 2011.
I. History of the Proceeding
Columbia is a natural gas distribution company providing natural gas retail
sales and transportation service subject to the jurisdiction of the Commission in parts of
western and central Pennsylvania.
On September 29, 2010, Columbia filed Supplement No. 156 to Tariff-Gas
Pa. P.U.C. No. 9 (Supplement 156) to become effective November 27, 2010, and
requested approval of a modification of Tariff Rule No. 15. Supplement 156 proposed a 1 The Commission’s former Office of Trial Staff has been incorporated in the Commission’s new Bureau of Investigation and Enforcement as a result of the Commission’s recent reorganization. See, Implementation of Act 129 of 2008; Organization of Bureaus and Offices; Docket No. M-2008-2071852 (Final Procedural Order entered August 11, 2011). Initially, the Office of Trial Staff intervened in this proceeding using its then official designation. In this Opinion and Order, we will refer to the Office of Trial Staff using the current designation of the Bureau of Investigation and Enforcement or BI&E except within direct quotes utilizing the former OTS designation.
4
modification to provide for a BTU content adjustment to the monthly determination of
customers’ billing MCFs in addition to existing adjustments for pressure and temperature.
On October 22, 2010, the OSBA filed a Formal Complaint against
Columbia at Docket No. C-2010-2208133. On November 5, 2010, the OCA filed a
Formal Complaint against Columbia at Docket No. C-2010-2208503.
On November 19, 2010, the Commission suspended Supplement 156 by
operation of law, pursuant to 66 Pa. C.S.A. § 1308(d), for six months, or until
May 27, 2011, unless permitted by Commission Order to become effective at an earlier
date. On December 3, 2010, Columbia filed Supplement No. 160 to Tariff-Gas
Pa. P.U.C. No. 9, pursuant to the Commission’s Order which suspended the effective date
of Supplement 156 until May 27, 2011.
On December 8, 2010, the Columbia Industrial Intervenors (“CII”) filed a
Petition to Intervene in the proceeding, which was granted by Administrative Law Judges
Wayne L. Weismandel and Conrad A. Johnson on December 10, 2010.
On January 14, 2011, Columbia filed Supplement No. 163 to Tariff-Gas
Pa. P.U.C. No. 9 (Supplement 163) to become effective March 15, 2011, requesting a
general increase in base rates pursuant to 66 Pa. C.S.A. § 1308(d), designed to produce an
increase in annual operating revenues of $37.8 million based on projected level of
operations as of September 30, 2011. That proceeding is docketed at R-2010-2215623.
On January 20, 2011, Columbia filed a Motion to Consolidate the
proceeding docketed at R-2010-2201974 with the rate base proceeding at
R-2010-2215623. Columbia averred that consolidation would promote judicial and
administrative efficiency in light of the fact that both proceedings relate to the calculation
of customer use and recovery of Columbia’s costs. Columbia agreed voluntarily to
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further extend the effective date of Supplement 156 (at Docket No. R-2010-2201974) to
coincide with the effective date of the base rate filing (at Docket No. R-2010-2215623).
There was no opposition to the Motion to Consolidate. On January 21, 2011, the
proceeding at Docket No. R-2010-2201974 was reassigned to ALJ Dunderdale.
On February 15, 2011, a Petition to Intervene was filed by Dominion
Retail, Inc., Interstate Gas Supply, Inc., and Shipley Energy Company (collectively
“NGS”).
On June 2, 2011, Columbia submitted an unopposed Motion for Protective
Order pursuant to the provisions of 52 Pa. Code § 5.423(a). On June 3, 2011, ALJ
Dunderdale issued the Protective Order at Docket Nos. R-2010-2215623 and
R-2010-2201974.
On June 10, 2011, the ALJ conducted the evidentiary hearing in these
proceedings. ALJ Dunderdale appeared telephonically from the Commission’s hearing
room in Pittsburgh, Pennsylvania while the Parties appeared with the court reporter in the
Commission’s hearing room in Harrisburg, Pennsylvania. At the hearing, the Parties
submitted the written direct testimony and written rebuttal/surrebuttal testimony, with
signed affidavits from each witness, and exhibits of the various witnesses pursuant to an
agreement between the Parties that cross-examination would not be necessary.
On June 10, 2011, and June 16, 2011, the ALJ issued two interim orders
granting a petition of the OCA and the OSBA, respectively, to admit written testimony
and exhibits that inadvertently were not included in the record at the evidentiary hearing
on June 10, 2011.
During these proceedings and in accordance with the Commission’s Rules
of Practice and Procedure, 52 Pa. Code §§ 5.224 and 5.231, the Parties met in person and
6
by telephone to attempt to settle either the entire proceeding or at least certain issues. As
a result of the information produced during discovery, both formal and informal, written
direct testimony and exhibits of the Company, public input and settlement discussions,
the Parties reached a settlement of all issues except for two issues that remain unresolved:
the Residential Rate Structure, and Columbia’s Customer Assistance Program-Plus
(CAP-Plus).
On June 27, 2011, Main Briefs on the issues reserved for litigation were
filed by Columbia, the BI&E, OCA, and OSBA. Reply Briefs were filed by these Parties
on July 11, 2011.
On July 1, 2011, the Settlement was filed with the Commission. At the
time of the filing, the Settlement was signed by counsel for Columbia, BI&E, OCA,
OSBA, CII, NGS, Pennsylvania State University (“PSU”), PCOC and two named
individuals (Joint Petitioners). The Settlement included Statements of Support from
Columbia, BI&E, OCA, OSBA, CII, NGS, PSU and PCOC.
Columbia served a copy of the Settlement on July 1, 2011, upon each of the
six individual Complainants (James M. Landis, Marie A. Weaver, Margaret M. Sentz,
Albert E. Jochen, Patsy Orlando, and Maureen A. Doerr-Roman), who were non-
signatories to the Settlement.
On July 1, 2011, the ALJ issued a letter which gave each individual
Complainant the option either to join in the Settlement or file objections to the
Settlement. The individual Complainants were instructed that the ALJ must receive
either the signed “Joinder in Settlement,” with which they were provided, or their written
objections within thirteen days of the date of the ALJ’s letter, or by July 14, 2011. No
objections or comments were received and no other Party exercised the option of joining in
the Settlement.
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The record consists of 137 transcript pages and the above-referenced
testimony, exhibits, and documents. The record closed on July 15, 2011, after receipt of all
briefs and the transcript from the June 10, 2011 hearing.
The Commission issued ALJ Dunderdale’s Recommended Decision on
August 10, 2011. In her Recommended Decision, the ALJ found that the Settlement is an
equitable, fair, and reasonable resolution of the consolidated proceedings, and
recommended that the Commission approve the Settlement submitted in this matter. The
ALJ also recommended that the Commission deny the request of Columbia to implement
a Levelized Distribution Charge (LDC) for the Residential customer class. The ALJ
further recommended that the Commission require Columbia to apply the Low Income
Home Energy Assistance Program (LIHEAP) grants to each individual LIHEAP
recipient’s account without deducting the annualized CAP-Plus payments first.
Exceptions and Reply Exceptions to the Recommended Decision were filed
as noted above.
II. Discussion of the Partial Settlement
A. Introduction
The Joint Petitioners agreed to the Settlement covering all but two issues in
the proceeding. The Settlement will result in an increase in distribution revenues of
$17.0 million, which is $20.8 million less than the $37.8 million originally proposed by
the Company. The two issues reserved for litigation concern the rate design for
residential customers and PCOC’s challenge to Columbia’s existing CAP-Plus model.
Joint Petitioners have agreed to a base rate increase, to an allocation of that revenue
increase to the rate classes and to a rate design for the non-residential rate classes. Based
8
on the consensus of the Joint Petitioners, we are of the opinion that the resulting rates
contained in the Settlement are just and reasonable, and that approval of those rates is in
the best interest of the Company and its customers. As such, for the reasons contained in
this Opinion and Order, we shall grant the Exceptions in part and deny them in part and
adopt the ALJ’s Recommended Decision, as modified, to approve the Settlement in its
entirety.
B. Terms and Conditions of the Partial Settlement
The Settlement consists of the Joint Petition containing the terms and
conditions of the Settlement, and eleven appendices. Appendix A to the Settlement sets
out the Revenue Allocation. Appendix B to the Settlement sets out the Rate Design for
all classes other than residential rate classes. Appendix C to the Settlement contains the
Tariff changes included in Supplement No. 163, to be filed and to become effective in
accordance with the Settlement. Appendices D through K to the Settlement are the
Statements in Support of the Settlement by Columbia, BI&E, OCA, OSBA, CII, NGS,
PSU, and PCOC, respectively.
The essential terms and conditions of the Settlement are set forth in
Section III. Settlement ¶¶ 35-67 at 7-17. The Joint Petitioners agreed to the following
terms and conditions:
35. The following terms of this Settlement reflect a carefully balanced compromise of the interests of all the Joint Petitioners in this proceeding. The Joint Petitioners unanimously agree that the Settlement, which resolves all but the two issues previously identified, is in the public interest. The Joint Petitioners respectfully request that the 2011 Base Rate Filing, including those tariff changes included in Supplement No. 163 and specifically identified in Appendix
9
“C” attached hereto, be approved subject to the terms and conditions of this Settlement specified below:
A. Revenue Requirement
36. Rates will be designed to produce an increase in operating revenues of $17.0 million based upon the pro forma level of operations at September 30, 2011.
37. Commencing with the effective date of rates in this proceeding, Columbia shall convert from flow through to normalization accounting procedures with respect to the benefits of the tax repairs deduction. In addition, with regard to the $37,487,634 tax refund previously received by Columbia that is attributable to the change in method for the repairs deduction, commencing with the effective date of rates in this proceeding, the remaining amount of $33,557,479 shall be amortized over 2.25 years, rather than the current 10 year pass back period. This accelerated amortization results in an annual reduction of $14,914,435 to the Company’s claimed income tax expense. The amortization shall continue to be without interest and without a deduction of the unamortized balance from rate base. Any change in the refund amount, above or below the $37,487,634, shall be reflected in accumulated deferred income taxes to be created under the normalization method adopted by this Settlement.
38. Columbia will be permitted to recover the amortization of costs related to the following:
i. Long Wall Mining – Continuation of previously-approved five year amortization of the total amount of $266,189 related to long wall mining costs that began on October 28, 2008.
ii. Blackhawk Storage – Continuation of the previously-approved 24.5 year amortization of the total amount of $398,865 to be included on books and in rate base as a regulatory asset to reflect the total original cost that began on October 28, 2008.iii. Tax Credit – Amortization of the unamortized portion of the $37,487,634 total tax credit
10
($33,557,479) at $14,914,435 per year for 2.25 years as per the Company’s Supplemental Direct Testimony beginning upon implementation of rates approved at this Docket.
39. Commencing with the effective date of rates, Columbia will be permitted to defer the difference between the annual OPEB expense calculated pursuant to FASB Accounting Standards Codification (“ASC”) 715, Compensation – Retirement Benefits (SFAS No. 106) and the annual OPEB expense allowance in rates of $1,898,955. Only those amounts attributable to operation and maintenance would be deferred and recognized as a regulatory asset or liability. Amounts recorded as a regulatory asset or liability will be collected from or returned to customers in the next rate proceeding. Columbia will report the deferrals in its next base rate filing. In addition, rates reflect the amortization of deferred OPEB amounts to be refunded of $1,500,000 annually.
40. Columbia will continue to deposit into irrevocable trusts the gross annual OPEB accrual. This amount includes the annual expense calculated by its actuary pursuant to ASC 715 and the annual amortization of the transition obligation. If annual amounts deposited into trusts, pursuant to this Settlement, exceed allowable income tax deduction limits, any income taxes paid will be recorded as negative deferred income taxes, to be added to rate base in future proceedings.
B. Revenue Allocation and Rate Design
41. Revenue allocation shall be as set forth in Appendix “A.” Rate design for all classes other than residential rate classes shall be as set forth in Appendix “B.” Revenue allocation and non-residential rate design reflect a compromise, and do not endorse any particular cost of service study result.
42. This Settlement resolves all revenue requirement and universal service issues except the challenge by PCOC to Columbia’s continued use of CAP-Plus, which remains at
11
issue. The Settlement also does not resolve issues related to residential rate design.
43. It is agreed that Commission resolution of the issues that continue to be litigated does not and shall not affect or otherwise alter the agreed upon revenue requirement amount identified in this Settlement.
44. Both the Company and OTS residential rate design proposals increase revenue stability with the Company proposal providing for a greater degree of stability. As such, the adoption of either would give rise to a corresponding adjustment to the cost of common equity to reflect such increased stability.
45. OTS and Columbia have considered the effects of such increased revenue stability in establishing the revenue requirement in this proceeding.
46. As stated in paragraph 68 below, the issues related to residential rate design continue to be fully litigated and detailed positions on those issues have been placed on the record by a number of parties to this proceeding.
C. DTH Billing
47. Columbia currently bills customers on an Mcf basis. As part of its filing in the BTU factor proceeding, Columbia proposed to adjust customers’ Mcf billings by a BTU factor adjustment, to reflect the relative heat content of gas used by customers in different areas of Columbia’s service territory. In addition, as part of its filing in this case, Columbia forecasted its future test year volumes based on a heat factor of 1.097 Dth per Mcf. Subject to the continued litigation of residential rate design as stated in paragraph 68, Columbia accepts OCA’s proposal to bill base rates and commodity costs on a Dth basis, in lieu of the adjustment mechanism proposed by the Company in its filing. Under the OCA method, the Dth per Mcf conversion will be determined for each Pipeline Scheduling Point (“PSP”) area on a monthly basis, and applied to the volumetric (Mcf) meter read for each customer in each PSP in each month. To provide time for education of customers and conversion to Dth billing, Dth
12
billing shall begin no later than with bills rendered June 2012. Prior to implementing the billing unit change, Columbia will work with the Parties to reconcile the data Columbia uses to measure gas received and the throughput data Columbia uses for rate design and billing – system-wide and by PSP area. Rates from the effective date of the Commission’s final order until the commencement of Dth billing will be on an Mcf basis, without a BTU adjustment applied to customers’ bills. The Company will submit compliance tariffs both on an Mcf and a Dth basis.
i. Pro forma future test year volumes on an Mcf Basis as presented by Columbia will be revised to reflect 1.073 Dth per Mcf, based on the actual heat content in the historical year, and rates will be developed on these volumes. These volumetric rates will apply during the interim period, ending by June 2012, while Columbia is converting to Dth billing and educating its customers about the billing change. For non-residential customers, these volumes and rates are shown in Appendix B.
ii. The base rates on a Dth basis will be designed on billing units reflecting Columbia’s pro forma test year billing units as set forth in subpart i, with the Mcf quantities converted to Dth at 1.073 Dth per Mcf. These rates will apply to Dth billing, which will begin (as stated above) no later than June 2012.
D. Universal Service and Conservation
48. Columbia withdraws its proposal to implement its Safe at Home Senior Program, its Senior Universal Service Program (“USP”) Rider Waiver and its Senior Flexible Due Date Program.
49. Any changes in the CAP Plus approach; including programming changes, will be reflected under Columbia’s Universal Service Rider.
50. Commencing with 2012, Columbia will implement a two-year pilot program (“Pilot”) to evaluate all CAP customers with a CAP credit of $1,000 or more (“Maximum
13
CAP Credit”). The initial Maximum CAP Credit of $1,000, effective January 1, 2012 will be adjusted each January 1, commencing January 1, 2013, to reflect the percentage increase or decrease in PGC rates approved for the period commencing on October 1 of the immediately preceding year as compared to PGC rates that become effective October 1, 2011. The Maximum CAP Credit shall also be adjusted for any increase in base rates subsequent to the increase in base rates in these consolidated proceedings.
51. Upon commencement of the Pilot, Columbia will evaluate each CAP customer that exceeds the Maximum CAP Credit. Columbia will review the list for customers with the highest consumption that have not received weatherization services through Columbia’s Low Income Usage Reduction Program (“LIURP”). Columbia will prioritize those customers for weatherization within the parameters of Columbia’s LIURP. Columbia will survey the remaining customers to determine the existence of any control limit exceptions as defined in the CAP policy statement. The 200 highest users that have received LIURP weatherization, and to whom a valid control limit exception does not apply, will be referred to the Remedial Energy Efficiency Program (“REEP” – previously known as “HURP”) in Columbia’s approved Universal Service and Energy Conservation Plan. After twelve months of participation in the REEP, any customers who have not reduced their consumption will have their CAP payments raised. Columbia will review the remaining accounts that do not qualify with a valid exception individually, and raise payments such that the CAP discount for the next twelve month period is projected to be less than the Maximum CAP Credit.
52. Columbia will provide a status report once the survey is completed, which will include the number of customers who fall within the three categories identified above. Then, Columbia will track the customers in each category, and one year after the survey, Columbia will provide a report on all Pilot customers’ current account status and any program consumption savings results. Columbia will provide an annual cost of the program including administrative costs, programming costs, as well as uncollectible expenses. All of
14
the reports referred to in this paragraph will be served upon the parties of record in this proceeding.
53. At the end of two years, the Pilot will be evaluated on a cost benefit basis. All administrative costs for this Pilot will be recovered through the USP Rider.
54. There will be an increase in annual LIURP funding from $3,000,000 to $4,000,000, commencing with the effective date of rates in this proceeding. This $1 million increase in LIURP spending is reflected in the agreed-upon $17 million increase in operating revenue, as shown in Paragraph 36. LIURP funding will continue to be recovered under Rider USP. Any resulting unspent balance in the designated LIURP fund account shall carry over and shall remain in that account.
55. In recognition of the additional LIURP funding provided by this Settlement, Columbia withdraws the proposed Pilot Home Energy Efficiency Program at this time.
56. Columbia agrees that it will continue to waive late payment charges as to CAP customers and customers with incomes equal to or less than 150% of the Federal Poverty Level that enter into payment arrangements with Columbia, as long as such customers comply with such payment arrangements.
E. DSIC2
57. Columbia withdraws its Rider DSIC proposal from this proceeding. However, Columbia reserves the right to propose a DSIC if authorized by the General Assembly, to reflect amounts not included in rate base in this proceeding. In calculating any future DSIC charge related to eligible facilities included in the six months immediately following the Future Test Year of this case, Columbia will deduct $11.6 million. That deduction will reflect the inclusion in rate base of CWIP as of September 30, 2011, in the calculation of revenue requirement under this Settlement. All Parties reserve the right to oppose any filing by Columbia
2 Distribution System Improvement Charge15
proposing a DSIC and to challenge the details of how the DSIC will be calculated.
F. Natural Gas Supplier Issues
58. Columbia agrees to raise the volumetric limit under Rate SCD – Small Commercial Distribution to 6,000 Mcf/year. Customer charges for Rate SCD will be the same as those for Rate SGSS as shown in Appendix B. Eligible customers will be permitted to switch between Small General Distribution Service (“SGDS”) and Choice in accordance with the expiration and renewal terms of their existing General Distribution Agreement.
59. Columbia agrees to provide natural gas suppliers with a rescind file, which will notify suppliers if a newly enrolled distribution service customer has elected not to complete an enrollment within 10 days of signing up with a natural gas supplier.
60. Columbia agrees to provide on a monthly basis to each natural gas supplier actively serving customers on Columbia’s system, without charge, a synchronization list (ACT file).
61. Columbia agrees to discuss the remaining administrative process/rules issues in a separate collaborative process with the NGS Parties to begin as soon as practical. For purposes of this provision the issues to be discussed will include: data retention, elimination of fees, discontinuance of “black-out dates”, and drop the practice of check digits.
62. Columbia agrees to revise the cash in/cash out adjustment factors as follows:
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RADS Section:
Under Adjustment
3.6.4(1) 0%-10% 120%10.01% and over 130%
3.6.4(2) Over0%-10% 80%
10.01% and over 70%
3.11.4 Under0%-5.00% 105%5.01%-10% 110%
10.01%-15.00% 120%15.01% and over 130%
3.12.4 Over0%-5.00% 95%5.01%-10% 90%
10.01%-15.00% 80%15.01% and over 70%
63. Columbia agrees to limit the availability of Rate NSS to competitive situations, where a customer would not initiate service from Columbia or would no longer take service from Columbia, but for the availability of service under Rate NSS. Columbia agrees to transition existing NSS customers that are not in competitive situations to other services (Sales or Transportation) upon contract expiration but no later than July 1, 2012.
64. All other NGS Parties’ proposals in this proceeding are withdrawn. In addition, the NGS Parties agree, individually and collectively, that for a period of thirty (30) months from the effective date of the final order in this case, they will not present any of the withdrawn proposals either through the filing of a separate complaint, petition or application, or through intervention in a base rate or other proceeding of Columbia.
65. Commencing with the effective date of rates in this proceeding, the unbundled gas cost portion of uncollectible accounts, also referred to as the uncollectible expense ratio for purposes of Columbia’s Purchase of Receivables Program, shall
17
be 1.52%. As a result, the discount rate for purchased Choice NGS receivables shall be 2.11% (1.52% + 0.59% administrative adder).
G. Flexed Rates
66. Columbia agrees to join with OTS, OCA and/or OSBA in a request that the Commission initiate a generic investigation or rulemaking to address whether flex discounts solely as a result of competition from other NGDCs should be permitted to continue and, if permitted to continue, under what circumstances it will be considered appropriate. Other Parties reserve the right to challenge the necessity for any such investigation or rulemaking. The terms and conditions of this Settlement proposal are in no way conditioned upon the Commission commencing the requested generic investigation or rulemaking.
67. Columbia agrees to clarify the process to be used for affidavits related to flex rates, and to maintain requested customer information confidential as follows:
a) In implementing the provisions of Tariff Rule 20 - Flexible Rate Provisions, Columbia shall require that the customer provide the “all-in” burner tip price in its sworn affidavit for Columbia to evaluate whether a flexed rate should be offered to the customer. Columbia shall undertake its own review of the facts surrounding the customer’s competitive alternatives to assess the reasonableness of the asserted price. In accordance with its tariff, if Columbia has questions concerning the reasonableness of the asserted price, Columbia reserves the right to verify the accuracy of statements included in this affidavit. Columbia commits that it will make initial requests to verify the accuracy of statements included in a customer’s affidavit based on non-confidential information. To the extent that Columbia then requests additional confidential information, upon customer’s written request, Columbia will have the ability to review such confidential information at the customer’s place of business, but will not be permitted to remove documents containing confidential information from the customer’s place of business. However, Columbia
18
will be permitted to take notes of information provided to allow it to analyze the requested flex, subject to the confidentiality agreement below. In addition, Columbia affirmatively agrees that customer may redact all supplier identifying information prior to allowing the Company to review any confidential information. Further, Columbia shall agree to enter into a confidentiality agreement, which shall provide that: (1) the requested information is competitively sensitive, proprietary in nature, and confidential and will only be used for evaluating whether to extend a flexed rate offer to the customer; and (2) distribution of such confidential information shall be limited to only those employees involved with negotiating and approving flexed agreements. Columbia confirms that the employees involved with negotiating and approving flexed agreements will not provide any confidential information to the department responsible for pricing the Negotiated Sales Service.
b) Columbia shall not further release such information except where required as part of Commission proceedings, or where the law or a court requires disclosure. In the event Columbia is requested to disclose such information, Columbia shall advise the affected customer with as much advance notice as possible. If a customer refuses to provide requested information, Columbia may take such refusal into account in deciding whether to offer a flexed rate.
c) Columbia agrees that interested parties will have the ability to review and provide input regarding the above mentioned confidentiality agreement prior to finalizing same. Columbia recognizes that modifications to the pro forma confidentiality agreement may be necessary to meet individual customers’ needs.
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d) This process will not affect any statutory party’s right to review and challenge Columbia’s rate recovery of discounts from flex rate agreements in future cases.
Settlement at 7-17.
In addition to the specific terms to which the Joint Petitioners have agreed
to settle the rate proceeding and consolidated application proceeding, there are certain
general, miscellaneous terms that should be mentioned. Paragraph No. 72 of the
Settlement establishes the procedure by which any of the Joint Petitioners may withdraw
from the Settlement and proceed to litigate this case, if the Commission should act to
modify the Settlement. In addition, Paragraph Nos. 75 through 77 of the Settlement state
that the Settlement does not constitute an admission against, or prejudice to any position
which any of the Joint Petitioners might adopt during subsequent litigation, or further
litigation of this case, in the event the Settlement is rejected by the Commission, or any of
the Joint Petitioners withdraw under Paragraph No. 72.
On the basis of these and other provisions of the Settlement, the Joint
Petitioners request that the Commission: (a) approve the Settlement including all terms
and conditions thereof, without modification; (b) permit Columbia to file a tariff or tariff
supplement containing the rates and rules in Appendix “C” to the Settlement;
(c) terminate the rate investigations at Dockets R-2010-2215623 and R-2010-2201974,
and dismiss the Complaints of OSBA, OCA, CII, PSU and PCOC at Docket Nos.
C-2011-2224985, C-2011-2224941, C-2011-2227004, C-2011-2230067 and
C-2011-2232186, respectively; and (d) dismiss all customer Complaints associated with
this proceeding, including the Complaints of James Landis, Marie Weaver, Margaret
Sentz, Albert Jochen, Patsy Orlando and Maureen A. Doerr-Roman, at Docket Nos.
C-2011-2224944, C-2011-2225050, C-2011-2225828, C-2011-2225878,
C-2011-2227222 and C-2011-2231015, respectively.
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C. Areas of Concern Raised by the Commission
Columbia notes the Commission identified, in its March 17, 2011 Order to
suspend and investigate Supplement No. 163, eight areas of concern to be investigated
and addressed by the Parties in this proceeding. The Company asserts that its 2011 base
rate filing, as modified by the terms and conditions of the Settlement, satisfies the issues
and areas of concern identified by the Commission and should be approved. The eight
areas of concern and their proposed resolutions are discussed below.
1. Cast Iron and Bare Steel Replacement Program
In 2007, Columbia began to accelerate the replacement of unprotected bare
steel and cast iron pipe, which represents approximately twenty-six percent of
Columbia’s distribution system.3 Between 2007 and 2010, Columbia replaced 1,554,812
feet of cast iron and bare steel (CIBS) mains.4 This replacement rate represents a
ninety-seven percent increase in Columbia’s CIBS replacements, as compared to 2002
through 2005. Further, as addressed in Columbia’s Supplemental Direct Testimony, the
Company received an incremental allotment of $24 million for capital expenditures from
its parent company in 2011, $19 million of which is allocated to the replacement of CIBS
pipe.5
The Joint Petitioners thoroughly investigated Columbia’s CIBS
replacement program through informal and formal discovery. After extensive
investigation, no party challenged the Company’s claim related to this program.
3 Columbia St. No. 9 at 16-17.4 Columbia St. No. 9 at 17.5 Columbia St. No. 9-Supp at 2.
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2. Installation of Automatic Meter Reading
Currently, Columbia installs automated meter reading (“AMR”) technology
at the request of a customer and as part of the Company’s pipeline replacement program.6
This strategy resulted in the Company installing approximately 70,000 AMR devices
across Columbia’s entire service territory.7 Columbia asserts, however, there must be an
adequate number of AMR devices installed within a particular geographic territory in
order to fully realize the benefits of AMR. Consequently, Columbia began to expand its
installation of AMR devices in February 2011 under a plan that will result in AMR
installation on the remaining 354,000 meters over a two year period. Once AMR devices
are fully deployed, Columbia will be able to provide customers with enhanced services,
such as actual meter readings each month, reduced non-access issues, and fewer
estimated bills. Further, as noted above, Columbia received an incremental $24 million
in capital dollars for 2011; $5 million of this incremental capital has been earmarked for
AMR deployment.8
The Joint Petitioners thoroughly investigated Columbia’s AMR proposal
through informal and formal discovery. After extensive investigation, no party
challenged the Company’s claim related to this program.
3. Effect of Proposed DSIC
Columbia’s proposed adoption of the DSIC was contingent upon legislative
authority for a gas DSIC.9 As the Pennsylvania General Assembly has not yet adopted
legislation granting the Commission authority to implement a DSIC for a natural gas
6 Columbia St. No. 9 at 5-6.7 Columbia St. No. 9 at 6.8 Columbia St. No. 9-Supp, p. 2.9 Columbia St. No. 3 at 3.
22
utility, Columbia agreed, subject to the terms of the Settlement, to withdraw its Rider
DSIC proposal from this proceeding.10
4. PGC C-Factor versus E-Factor with Gas Storage Interest
On November 12, 2010, Columbia filed its Petition of Columbia Gas of
Pennsylvania, Inc. for an Order Authorizing the Company to Revise its Accounting
Methodology for Gas in Inventory (“Petition”), at Docket No. P-2010-2209925. In that
Petition, Columbia Gas requested the Commission approve Columbia Gas’ conversion
from Last In First Out (“LIFO”) accounting to a Weighted Average Cost of Gas
(“WACOG”) accounting methodology, and on March 31, 2011, the Commission
approved Columbia’s Petition. As a result, the storage interest adjustment ceased to be
computed effective January 1, 2011.
The matter of whether gas storage interest in the Purchased Gas Cost
C-factor versus the E-factor has become moot as is reflected in the currently pending
resolution of Columbia’s purchased gas cost proceeding at Docket No. R-2011-2228696.
5. Design Day Class Cost of Service Study
Columbia notes that the Joint Petitioners proposed a variety of class cost of
service studies and cost allocations. Although the Joint Petitioners did not agree on a
class “cost of service,” they agreed to a revenue allocation that is within the range of
revenue allocations proposed by the Joint Petitioners in this proceeding. Columbia
believes, and asserts, that this revenue allocation meets the “cost of service” standards
adopted by the Courts and the Commission.
10 Settlement at ¶ 57.23
Columbia submits that it is not possible to precisely calculate the extent to
which the Settlement moves rates closer to cost of service for all classes because of the
disagreement over cost allocation studies and the “black box” nature of the Settlement.
However, Columbia asserts that the Settlement achieves progress in the movement
toward cost-based rates and should be approved by the Commission.
6. Levelized Distribution Charge for Residential Customers
Columbia notes that issues related to residential rate design have been
reserved for litigation in this proceeding.
7. Proposed BTU Content Adjustment
Columbia asserts the Joint Petitioners thoroughly investigated, through
informal and formal discovery, multiple rounds of testimony and numerous settlement
discussions, Columbia’s proposal to adjust customers’ Mcf billing by a BTU factor to
reflect the heat content of gas. After extensive investigation, the Joint Petitioners reached
a settlement of the Company’s proposed BTU factor proceeding as more thoroughly
addressed above.
8. Proposed Pilot HEEP and Senior Citizen Programs
As addressed above, Columbia agreed to withdraw its proposed Pilot Home
Energy Efficiency (HEEP) Program due to the additional LIURP funding provided by
this Settlement.11 In addition, under the terms of the Settlement, the Company agreed to
withdraw its proposal to implement its Safe at Home Senior Program, its Senior
Universal Service Program Rider Waiver and its Senior Flexible Due Date Program.12
11 Settlement at ¶ 55.12 Settlement ¶ 48.
24
D. Legal Principles Applicable to Review of Settlements
The purpose of this investigation is to establish distribution rates for
Columbia’s customers that are “just and reasonable” pursuant to Section 1301 of the
Public Utility Code (Code), 66 Pa. C.S. § 1301. A public utility seeking a general rate
increase is entitled to an opportunity to earn a fair rate of return on the value of the
property dedicated to public service. Pennsylvania Gas and Water Co. v. Pa. PUC,
341 A.2d 239 (Pa. Cmwlth. 1975). In determining what constitutes a fair rate of return,
the Commission is guided by the criteria set forth in Bluefield Water Works and
Improvement Co. v. Public Service Comm’n of West Virginia, 262 U.S. 679 (1923) and
Federal Power Comm’n v. Hope Natural Gas Co., 320 U.S. 591 (1944). In Bluefield the
United States Supreme Court stated:
A public utility is entitled to such rates as will permit it to earn a return on the value of the property which it employs for the convenience of the public equal to that generally being made at the same time and in the same general part of the country on investments in other business undertakings which are attended by corresponding risks and uncertainties; but it has no constitutional right to profits such as are realized or anticipated in highly profitable enterprises or speculative ventures. The return should be reasonably sufficient to assure confidence in the financial soundness of the utility and should be adequate, under efficient and economical management, to maintain and support its credit and enable it to raise the money necessary for the proper discharge of its public duties.
25
A rate of return may be too high or too low by changes affecting opportunities for investment, the money market and business conditions generally.
Bluefield, 262 U.S. at 692-3.
The policy of the Commission is to encourage settlements and the
Commission has stated that settlement rates are often preferable to those achieved at the
conclusion of a fully litigated proceeding. 52 Pa. Code §§ 5.231, 69.401. A full
settlement of all the issues in a proceeding eliminates the time, effort and expense that
otherwise would have been used in litigating the proceeding, while a partial settlement
may significantly reduce the time, effort and expense of litigating a case. A settlement,
whether whole or partial, benefits not only the named parties directly, but, indirectly, all
customers of the public utility involved in the case.
Rate cases are expensive to litigate and the reasonable cost of such
litigation is an operating expense recovered in the rates approved by the Commission.
Partial or full settlements allow the parties to avoid the substantial costs of preparing and
serving testimony and the cross-examination of witnesses in lengthy hearings, the
preparation and service of briefs, reply briefs, exceptions and reply exceptions, together
with the briefs and reply briefs necessitated by any appeal of the Commission’s decision,
yielding significant expense savings for the company’s customers. For this and other
sound reasons, settlements are encouraged by long-standing Commission policy.
Despite the policy favoring settlements, the Commission does not simply
rubber stamp settlements without further inquiry. In order to accept a rate case settlement
such as that proposed here, the Commission must determine that the proposed terms and
conditions are in the public interest. Pa. PUC v. York Water Co., Docket No.
R-00049165 (Order entered October 4, 2004); Pa. PUC v. C. S. Water and Sewer Assoc.,
74 Pa. PUC 767 (1991).
26
With regard to the burden of proof in this matter, Section 315(a) of the
Code provides:
§ 315. Burden of proof
(a) Reasonableness of rates.—In any proceeding upon the motion of the commission, involving any proposed or existing rate of any public utility, or in any proceedings upon complaint involving any proposed increase in rates, the burden of proof to show that the rate involved is just and reasonable shall be upon the public utility. The commission shall give to the hearing and decision of any such proceeding preference over all other proceedings, and decide the same as speedily as possible.
66 Pa. C.S. § 315(a). Consequently in this proceeding, Columbia has the burden to prove
that the rate increase proposed by the Settlement is just and reasonable. The Joint
Petitioners have reached an accord on many of the issues and claims that arose in this
proceeding and submitted the Settlement. The Joint Petitioners have the burden to prove
that the Settlement is in the public interest.
The ALJ found that the proposed Settlement is in the public interest and,
with the minor clarifications set forth herein, recommended that it be approved without
modification. The proposed Settlement was unopposed by any party.
E. Disposition of the Partial Settlement
As noted above, a Settlement in principle of the majority of issues was
reached prior to the hearing dates, thereby negating the need for the scheduled
evidentiary hearings on the settled issues. The Parties also agreed to waive cross-
examination on the two issues that remained in dispute. As such, the Joint Petitioners
requested that the ALJ hold a hearing to allow for the introduction and admission into
evidence of all testimony and exhibits. The Settlement is not signed by all Parties, but it
27
is also not opposed by any litigating Party. The Settlement also was served on the six
individual Complainants who were non-signatories to the Settlement, none of whom filed
a response.
As noted previously, it is in the public interest to provide a public utility
with the financial ability to proffer safe, efficient, and adequate service to its customers.
In terms of revenue requirement, as originally filed, Columbia’s Supplement 163 sought
an increase in rates of $37.8 million per year, or an approximate 7.7 percent increase over
its present rates. Under the terms of the Settlement, the amount of the increase has been
reduced to $17.0 million per year, or approximately 3.5 percent, over present rates. This
increase in revenues represents approximately forty-five percent of the requested rate
increase.
As originally proposed, the average Columbia residential customer would
have seen an annual bill increase of 18.91 percent. Under the settlement rates, that
customer will see an annual bill increase of 7.75 percent.
According to the ALJ, the Settlement of this consolidated proceeding
constitutes a significant reduction in the revenue increase originally requested by
Columbia. As such, upon consideration of the terms and conditions of the Settlement,
and the statements of the Parties in support thereof, the ALJ was of the opinion that the
Settlement is an equitable, fair, and reasonable resolution of this consolidated proceeding,
and recommended that the Commission should approve the Settlement submitted in this
matter. (R.D. at 72)
There are a number of settled issues within the Partial Settlement that are
beneficial to customers. Among these provisions are: (1) the reduced rate increase as
compared to the originally proposed rates; (2) the agreement that the Commission’s
resolution of the issues reserved for litigation does not and shall not affect the agreed
28
upon revenue requirement; (3) the acceleration of the return of the tax refund due
customers due to an IRS accounting change via a shorter amortization period;
(4) the conversion to a Dth based billing methodology beginning in June 2012 rather than
the Btu-adjusted Mcf methodology proposed by Columbia; (5) the withdrawal of
Columbia’s proposed DSIC mechanism avoiding the need to litigate this contentious
issue; (6) the adoption of a class revenue allocation intended to reasonably move classes
toward the system average rate of return; (7) the withdrawal of the special programs
proposed by Columbia based solely on age; (8) the withdrawal of the limit proposed by
Columbia on CAP enrollment; (9) the implementation of a two-year pilot program to
evaluate all CAP customers with a CAP credit of $1,000 or more; (10) an increase in
Columbia’s annual LIURP budget from $3.0 million to $4.0 million in lieu of Columbia’s
proposed Home Energy Efficiency Program; (11) the agreement to raise the volumetric
limit of its Choice program for Rate SCD – Small Commercial Distribution to
6,000 Mcf/year; (12) an agreement whereby Columbia has revised the cash in/cash out
adjustment factors related to seasonal flow orders, consumption in excess of deliveries
and for deliveries in excess of consumption; and (13) the reduction of the unbundled gas
cost portion of uncollectible accounts for purposes of Columbia’s Purchase of
Receivables Program to 1.52 percent resulting in a 2.11 percent discount rate for
purchased NGS receivables.
We find that these many beneficial aspects within the Settlement all support
a finding that the Joint Petition for Partial Settlement is in the public interest. The
Settlement resolves the majority of the issues impacting residential consumers, small
business, large business customers, natural gas suppliers and the public interest at large.
The benefits of the Settlement are numerous and result in significant savings of time and
expenses for all Parties involved by avoiding the necessity of further administrative
proceedings, as well as possible appellate court proceedings. For the reasons stated
herein and in the Joint Petitioners’ Statements in Support, we agree with the ALJ’s
conclusion that the Joint Petition for Partial Settlement is in the public interest. We also
29
are satisfied that the Settlement resolves each of the issues and areas of concern we
enumerated in our March 17, 2011 Order. Accordingly, we shall adopt the ALJ’s
recommendation to grant the Joint Petition for Partial Settlement and approve the
Settlement without modification.
III. Discussion of Litigated Issues
A. Burden of Proof
Typically in proceedings before the Commission, the public utility has the
burden to establish the justness and reasonableness of every element of its rate increase in
all proceedings conducted under Section 1308(d) of the Code, 66 Pa. C.S. § 1308(d). The
standard of proof which a public utility must meet is set forth in Section 315(a) of the
Code, 66 Pa. C.S. §315(a), which specifies that, “[i]n any proceeding upon the motion of
the Commission, involving any proposed or existing rate of any public utility, or in any
proceeding upon complaint involving any proposed increase in rates, the burden of proof
to show that the rate involved is just and reasonable shall be upon the public utility.”
Pennsylvania’s Commonwealth Court has upheld this standard of proof 13
and has applied it in base rate proceedings.
In this proceeding, the burden of proof lies squarely with Columbia.
Columbia is the public utility seeking permission from the Commission to increase its
base rates and to implement and/or alter programs. The burden of proof does not shift to
a statutory party or individual party (whether an entity or an individual) which challenged
the requested rate increase. Instead, the utility’s burden, to establish the justness and
13 Lower Frederick Twp. v. Pa. PUC, 409 A.2d 505, 507 (Pa. Cmwlth. 1980). See also, Brockway Glass v. Pa. PUC, 437 A.2d 1067 (Pa. Cmwlth. 1981).
30
reasonableness of every component of its rate request, is an affirmative one and remains
with the public utility throughout the course of the rate proceeding.14
Under the Code, rates charged by public utilities must be just and
reasonable and cannot result in unreasonable rate discrimination.
66 Pa. C.S. §§ 1301 and 1304.
A public utility seeking a general rate increase has the burden of proof to
establish the justness and reasonableness of every element of the rate increase request.
66 Pa. C.S. § 315(a); Pa. PUC v. Aqua Pennsylvania, Docket No. R-00038805,
236 PUR4th 218, 2004 Pa. PUC LEXIS 39 (Order entered August 5, 2004).
As the Commonwealth Court explained: “While it is axiomatic that a
utility has the burden of proving the justness and reasonableness of its proposed rates, it
cannot be called upon to account for every action absent prior notice that such action is to
be challenged.”15 Therefore, while the ultimate burden of proof does not shift from the
utility, a party proposing an adjustment to a ratemaking claim bears the burden of
presenting some evidence or analysis tending to demonstrate the reasonableness of the
adjustment.16
Further, a party that raises an issue that is not included in a public utility’s
general rate case filing bears the burden of proof.
14 See also, 66 Pa. C.S. §1501, requiring a utility to have reasonable rules governing service. There is no similar burden placed on parties which challenge a proposed rate component. See, Berner v. Pa. PUC, 382 Pa. 622, 631, 116 A.2d 738, 744 (1955).
15 Allegheny Center Assocs. v. Pa. PUC, 570 A.2d 149, 153 (Pa. Cmwlth. 1990).
16 See, e.g., Pa. PUC v. PECO, Docket No. R-891364, et al, 1990 Pa. PUC LEXIS 155 (Order entered May 16, 1990); Pa. PUC v. Breezewood Telephone Company, Docket No. R-901666, 1991 Pa. PUC LEXIS 45 (Order entered January 31, 1991).
31
As we proceed in our review of the various positions espoused in this
proceeding, we are reminded that we are not required to consider expressly or at great
length each and every contention raised by a party to our proceedings. University of
Pennsylvania, v. Pa. PUC, 485 A.2d 1217, 1222 (Pa. Cmwlth. Ct. 1984). Moreover, any
exception or argument that is not specifically addressed herein shall be deemed to have
been duly considered and denied without further discussion.
B. Residential Rate Structure
1. Positions of the Parties
a. Columbia’s Position
Columbia’s currently effective Residential rate design is comprised in part
of a $12.25 monthly customer charge and a single delivery rate of $2.6981 per Mcf.
Columbia Exh. 103 at 1. Additionally, each customer would pay, on a monthly basis,
Columbia’s currently effective Purchased Gas Cost (PGC) rate and Universal Service
Program (USP) costs rate for each Mcf of gas commodity used. Id.
Columbia’s proposal is to create a LDC comprised of a monthly customer
charge of $36.88, thereby eliminating the current delivery rate and maintaining the
separately billed PGC and USP charges as noted above. Id. With the exception of the
PGC and USP charges, Columbia’s proposed LDC would recover the entirety of its base
rate costs. Columbia Exh. 111.
Columbia acknowledged that its proposal represents a substantial departure
from the customer charge/usage charge rate structure that Pennsylvania gas utilities
traditionally have used for residential rate design. Columbia M.B. at 7; R.D. at 77.
Columbia asserted that its LDC proposal most accurately reflects how costs
are incurred because distribution costs to serve residential customers do not vary with 32
customer usage. Id. Accordingly, Columbia’s proposed rate design will recover the
same level of distribution costs from each residential customer regardless of their level of
consumption. Id. Columbia also asserted that the current usage-based recovery of fixed
costs improperly causes the lower-use customer to be subsidized by the higher-than-
average use customer. Id. at 7, 8; R.D. at 77.
Columbia averred that, due to the current usage-based recovery structure, it
is discouraged from aggressively assisting customers to adopt cost-effective energy
efficiency measures. Id. at 8; R.D. at 77. Columbia is of the opinion that its LDC
proposal will remove the utility’s disincentive to encourage energy efficiency measures,
and will remove the volumetric losses due to customer efficiency improvements as a
driver of rate cases. Id.
Lastly, Columbia stated its need to raise capital at cost-effective rates as a
compelling reason for Commission approval of its LDC proposal. Id.; R.D. at 78.
Columbia described its capital needs as immediate, ongoing and substantial, and as
driven by its CIBS pipe replacement program. Id. Columbia further averred that utilities
across the country have extensive infrastructure replacement needs, and will be
competing with Columbia in the capital markets. Id. Columbia also believes that
investors will favor utilities with progressive rate designs, such as the proposed LDC,
over those utilities that have substantial revenue volatility due to usage-based rate
designs. Id.
In summary, Columbia’s position is that the Commission should exercise
its authority to establish a rate design that matches cost recovery to cost incurrence.
Id. at 8, 9; R.D. at 78. The proposed LDC will, according to Columbia, encourage
utility/customer partnership to improve energy efficiency and will provide important
signals to capital markets to encourage investment in Pennsylvania’s infrastructure. Id.
33
b. The BI&E Position
The BI&E proposal is the creation of a minimum charge, designed to
collect only direct customer costs,17 that would increase the amount of guaranteed
revenue the Company could expect to collect. BI&E St. No. 3 at 45. The BI&E included
the following costs in its analysis: meters and house regulators, customer installations,
services, meter reading, customer records and collection and customer assistance costs.
BI&E Exh. No. 3, Schedule 20. The BI&E proposal would mitigate the increased bills
for small volume customers that would occur under the Company’s LDC proposal.
BI&E M.B. at 9, 13; R.D. at 78. Lastly, the BI&E contended its proposal will create a
more uniform increase throughout the range of usage and does not produce a decrease in
the monthly bills of larger use customers. Id.; BI&E Exhibit No. 3, Schedule 25.
The BI&E also explained that its calculations are based generally upon the
method approved by the Commission in a recent PPL Gas Utilities Corporation (PPL
Gas) rate case: Pa. PUC v. PPL Gas Utilities Corporation, Docket No. R-00061398,
255 P.U.R. 4th 209. (Order entered February 09, 2007). BI&E St. No. 3 at 45.
In PPL Gas, which involved another jurisdictional gas distribution utility,
the OCA’s residential customer cost analysis was based only on direct customer costs
(those costs that vary directly with customer connections). The Commission determined
that the OCA’s proposed customer charge using such customer cost analysis was
supported by the record evidence, supported the public policy of gradualism, and was less
likely to erode conservation by customers. BI&E’s approach presented here regarding
residential rate design took into consideration and reflected the statements of the
Commission in that 2007 Order. BI&E M.B. at 16.
17 The BI&E has excluded from its calculation certain costs, such as regulatory commission expense, injuries and damages, property insurance, employee pension and benefits, outside services employed, etc. See BI&E Exhibit No. 3 Schedule 20.
34
Also in PPL Gas, the Commission referenced with approval the OCA’s
position that a smaller increase in the current customer charge is appropriate because high
fixed monthly charges are inconsistent with the Commission’s general goal of fostering
energy conservation. When more money is collected in high fixed charges, volumetric
(per ccf or mcf) charges are low, thus affecting the conservation decision. Id.
The BI&E believes that its rate design proposal addresses and accomplishes
each of the Company’s stated goals. R.D. at 80. These goals generally include providing
the Company with more revenue stability than it would have under a traditional customer
charge, the need for fewer rate cases, less volatile bills, and preventing customers from
overpaying or underpaying each month. Id. Furthermore, the BI&E stated that the
Company’s LDC proposal burdens low-usage customers with an unreasonably high
increase and provides high-usage customers with a rate decrease. BI&E St. 3, at 22, 23;
BI&E Exh. 3, at Sch. 25; R.D. at 80. The BI&E further contended that its rate design
proposal will provide a low usage customer with a far more reasonable increase while not
providing any customer with a rate decrease. Id. Accordingly, BI&E argued its rate
design proposal should be adopted by the Commission.
The BI&E’s proposed usage charge of $2.8658 per Mcf for all usage over
the two Mcf allowance was determined after incorporating the restated residential
volumes as presented in the Company’s response to OCA-VII-003, and after allocating
$1 million of the $12.7 million settlement increase to the revenues collected under Rider
USP. The $1 million increase to revenues collected under the USP rider increases the
current rate under Rider USP from $0.9865 per Mcf to $1.0222 per Mcf.
R.D. at 82, fn 144.
35
Using the updated figures, the BI&E’s residential rate design proposal is:
Customer Charge: $13.00 (same as initial position)
Usage Allowance: $ 5.730 (updated from $6.90 for 2 Mcf usage)
Minimum Charge: $18.730
Usage Charge per Mcf $2.8658 (updated from original $3.5048 per Mcf)
R.D. at 83.
Columbia’s proposed LDC is $36.88, and does not contain any usage
allowance. This is an increase of $24.63 or 201% above the currently effective Columbia
customer charge of $12.25. In comparison, as described above, the BI&E’s proposal
includes a usage allowance of two Mcf plus a fixed charge amount of $13.00. The
BI&E’s recommendation of $18.73 represents an increase of approximately 52.9% above
Columbia’s current rate of $12.25.
The BI&E notes that paragraph 44 of the Settlement contains an express
acknowledgement by the Company that adoption of the BI&E’s proposal would enhance
revenue stability, where it states in full:
44. Both the Company and OTS residential rate design proposals increase revenue stability with the Company proposal providing for a greater degree of stability. As such, the adoption of either would give rise to a corresponding adjustment to the cost of common equity to reflect such increased stability. Joint Petition, at 10.
R.D. at 83.
The BI&E emphasized that, while the Company’s proposed LDC rate
structure removes the disincentive for utility promotion of energy efficiency, the adoption
36
of a flat rate, such as the LDC proposal, may also reduce the benefit for consumers to
conserve and use less of the commodity. BI&E M.B. at 25; BI&E St. No. 3, at 47, 48;
R.D. at 84.
The BI&E submits that its recommended residential rate design is
fundamentally fair and eminently more reasonable than the proposal put forth by
Columbia. The BI&E also believes that Columbia has failed to meet its burden of
proving its proposed atypical residential rate design is just and reasonable.
BI&E M.B. at 26.
c. The OCA’s Position
The OCA’s position is that Columbia’s proposed LDC rate design is
unreasonable, contrary to sound ratemaking principles, and inconsistent with
Commission precedent and direction. OCA M.B. at 10. Additionally, the OCA offers
that the Commission has consistently held that fixed customer charges should reflect only
the direct costs of hooking up and maintaining a customer’s account. OCA St. 5 at 34;
OCA M.B. at 10; See, e.g., Pa. PUC v. PPL Gas Util. Corp., 2007 Pa. PUC LEXIS 2;
Pa. PUC v. National Fuel Gas Dist. Corp., 83 Pa. PUC 262, 371 (1994); Pa. PUC v.
West Penn Power Co., 1994 Pa. PUC LEXIS 144, *154 (1994); Pa. PUC v. Metropolitan
Edison Co., 60 Pa. PUC 349 (1985); Pa. PUC v. West Penn Power Co., 59 Pa. PUC 552
(1985).
Using the customer cost analysis methodology approved by the
Commission, the OCA determined Columbia’s monthly per customer cost to be $10.51 to
$12.12 per month using the OCA’s and Columbia’s recommended cost of capital,
respectively. OCA M.B. at 11; OCA St. 5 at 34. In the interest of rate continuity,
however, the OCA recommended maintaining the current rate of $12.25 with any further
37
increase in the overall residential revenue responsibility to be collected through the
volumetric usage charge. Id.
The OCA shares the BI&E’s position that recovery of all base rate costs
through a fixed monthly charge could reduce any disincentive that Columbia may have to
promote conservation; however, that same rate design will have exactly the opposite
effect on consumers’ incentive to conserve usage. OCA M.B. at 11. Also, as noted by
the OCA, subsequent to 1992, when the Federal Energy Regulatory Commission directed
that fixed interstate pipeline costs be recovered through an annual fixed demand charge
and not through variable usage charges, the fixed charge mechanism, as proposed here by
Columbia, greatly reduced the price of incremental usage which in turn caused the
demand for and use of natural gas to increase significantly. OCA St. 5 at 32, 33;
OCA M.B. at 12.
The OCA also concurs with the BI&E that Columbia’s proposed LDC will
disproportionately affect low-use and low-income customers. However, the OCA does
not agree with the BI&E’s rate design recommendation that includes a usage allowance
of two Mcf per month. OCA M.B. at 40; BI&E St. 3 at 50, 51. The OCA submits that
movement toward fixed rate pricing is not in the public interest and is at odds with sound
economic pricing policy. OCA M.B. at 40.
The OCA’s principal objection to the BI&E’s proposed minimum
allowance is that it results in higher customer charges and is a departure from
Commission precedent on the costs to be recovered through customer charges. The OCA
submits that creation of a minimum allowance is not consistent with Commission policy,
as evidenced by several Orders. OCA M.B. at 40; Pa. PUC v. PPL Elec. Util. Corp.,
38
237 PUR4th 419, 461 (Pa. PUC 2004); Pa. PUC v. Total Envtl. Solutions, Inc. - Treasure
Lake Water Div. and Treasure Lake Wastewater Div., 103 Pa. PUC 110, 160-161 (2008).
Consistent with these decisions and with the Commission’s intention to
encourage conservation through customer charges that reflect only direct costs, the OCA
recommends that the BI&E proposal to create a minimum allowance, and Columbia’s
LDC proposal, be rejected. Instead, the OCA submits that the current customer charge of
$12.25 should be continued. OCA M.B. at 42.
d. OSBA’s Position
Columbia’s LDC proposal does not impact any of the non-residential rate
classes represented by the OSBA. The OSBA normally would not have filed testimony
concerning this issue. However, to preempt the possibility of the proposed LDC being
applied to small business customers, the OSBA filed testimony in case any party
attempted to broaden the scope of the LDC to include non-residential customers in this or
future rate proceedings. OSBA R.B. at 5. It is the OSBA’s opinion that some of the
logic Columbia uses to support its proposal potentially could be advanced to apply to
small business customers. OSBA R.B. at 6. The OSBA determined that it should explain
why the LDC approach is not appropriate for small business customers, should such a
proposal be advanced by another party in this proceeding or by Columbia in a future
proceeding. Id. In essence, the OSBA believes that Columbia’s proposal, if applied to
small business customers, would result in unreasonable intra-class cross-subsidies from
smaller customers to larger customers. Id.
The OSBA asserted that, in its Main Brief, Columbia cited the OSBA’s
testimony in a way that implies the OSBA believes “[i]t may be appropriate to consider
demand-based or other innovative structures for commercial and industrial classes in the
39
future,” including rate design options similar to the proposed LDC. OSBA R.B. at 8.
This portion of Columbia’s text (the first half of one complete sentence) cited
“OSBA St. 2, p. 29.” Columbia M.B. at 11. Columbia’s citation was presumably to
footnote 14 on page 29 of OSBA Statement No. 2, wherein Mr. Knecht said that “[o]ther
more innovative options are available, which can make tariff charges behave more like
demand charges.” OSBA R.B. at 8.
The OSBA further asserted that Columbia used this citation out of context.
Id. The OSBA stated that the Company ignored the fact the footnote was to an
observation that because “[f]ew NGDCs impose demand charges on smaller customers…
[t]he question then becomes whether it is better to recover the demand-related costs in a
customer charge (as Columbia proposes to do in this proceeding) or in a commodity
charge.” OSBA St. No. 2 at 29; OSBA R.B. at 8. Furthermore, the OSBA believes it is
evident from its testimony on the issue of the LDC, that the recovery of demand-related
costs through customer charges or a demand charge for smaller non-residential customers
was not advocated by the OSBA. OSBA R.B. at 8.
Unfortunately, by citing a footnote within the OSBA testimony as authority
for the Company’s own position, Columbia has implied that the OSBA might “consider
demand-based or other innovative structures for commercial and industrial classes in the
future,” including LDC-style rates. Id. The OSBA’s testimony does not support such an
inference. Id.
For the reasons discussed above, the OSBA urges the Commission to
refrain from making recommendations or conclusions in this proceeding regarding the
application of the LDC to any of Columbia’s non-residential rate classes. Id. at 9.
40
e. PCOC’s Position
PCOC argued that, based upon record evidence, the Commission must
reject Columbia’s alternative residential rate design structure. PCOC R.B. at 25, 26. In
support of its position, PCOC stated that Columbia’s proposed LDC disproportionately
affects low-income and low-volume residential customers. The LDC also would
significantly reduce customer incentive to conserve natural gas usage. Lastly, PCOC
asserted that Columbia has not demonstrated a need to implement a new rate design
structure. Id.
2. ALJ’s Recommendation
The ALJ found that the Company’s LDC proposed rate design to eliminate
the volumetric distribution usage charge and force all residential ratepayers to pay a fixed
monthly customer charge, which would recover all base rate costs except universal
service program costs, is unreasonable, contrary to sound ratemaking principles,
inconsistent with Commission precedent and contrary to the public interest. R.D. at 96.
Further, the ALJ stated that Commission precedent consistently limits fixed customer
charges to direct costs only, such as the cost to hook up and to maintain a customer’s
account. Id. Consequently, the ALJ found that the Company did not carry its burden of
proof on this issue and thus recommended that Columbia’s LDC rate design be
rejected. Id.
Particularly lacking in persuasion, according to the ALJ, is the Company’s
contention that it will not be sufficiently motivated to promote and utilize conservation
measures unless it can stabilize its residential income stream by implementing the
proposed LDC. Id. The Commission has proven it can sufficiently and successfully
motivate utility companies to encourage conservation from ratepayers, even if the
conservation measures result in cyclical and/or seasonal fluctuations in a utility’s income
41
stream. Id. Conservation of natural gas is more quickly and more efficiently
accomplished by allowing consuming ratepayers the power to control the size of the
monthly bill through the control of consumption. Id.
Under this proposal, and as described above, lower income individuals –
who tend to reside in residences with less square footage that requires a lower volume of
commodity – would pay proportionately more than would higher income individuals –
who tend to reside in residences with greater square footage requiring a higher volume of
commodity. Accordingly, the ALJ found that not only would Columbia’s proposal
reduce ratepayers’ incentive to control energy usage directly but it also would impact low
volume consumers at a disproportionately greater level than higher volume
consumers. Id.
Lastly, Columbia’s proposal applies only to the residential class without
any justification for why the residential class is singled out for this treatment. R.D. at 97.
The ALJ stated that, if the purpose of the proposed LDC is to remove the utility’s
disincentive to conserve, then there should be an even greater incentive to conserve if the
LDC were applied to the nonresidential classes as well. Id. Yet as noted by OSBA,
imposing the LDC on nonresidential ratepayers would result in an intra-class
subsidization of larger customers by smaller ones. Id. The ALJ found that the result
would be unfair and contrary to the public interest. Id. For all the foregoing reasons, the
ALJ recommended that the Commission deny the request of Columbia to implement an
LDC for the Residential class. The ALJ recommended adoption of the OCA’s
recommendation. Id.
3. Exceptions and Reply Exceptions
In its Exceptions, Columbia avers that the ALJ erred in recommending
rejection of the LDC for residential customers. Columbia admits that the LDC represents
42
a major change from the customer charge/usage charge rate structure that the
Commission traditionally has used to develop residential rate designs for gas utilities as it
would recover all distribution costs via a fixed monthly distribution charge. However,
according to Columbia, despite the fact that the LDC does represent a change in
residential rate design, it is a change that is supported by the record and is right for the
times. Columbia requests that the Commission utilize this opportunity to reaffirm its
position as a leader in progressive utility regulation and adopt the LDC.
Columbia Exc. at 4-6.
First, Columbia faults the ALJ for failing to mention the most important
aspect of the LDC, that it aligns rates with the costs incurred to serve residential
customers. Columbia avers that the evidence it submitted to demonstrate that the LDC
matches rates to cost incurrence is simple, compelling and unrebutted. According to the
Company, with a slight exception for gas odorant, none of the Company’s distribution-
related costs increase as customers consume more gas. Also, Columbia states that its
delivery service costs do not vary materially from month to month, further demonstrating
that usage variances do not drive distribution costs. Columbia avers that these simple
facts of cost causation are alone sufficient to conclude that usage-based distribution rates
for residential customers fail to comport with principles of designing rates to match the
manner in which costs are incurred. Columbia Exc. at 6-7.
Also, Columbia avers that a gas utility designs and installs a distribution
system to meet customers’ design day requirements. These distribution facilities, which
include the city gate, mains, regulators, services and meters, are fixed once installed and
do not vary with the amount of gas consumed. Columbia further states that the system
investment required to serve residential customers does not vary between residential
customers by customer usage because the design day requirements of residential
customers can be satisfied by the minimum size pipe installed on Columbia’s system,
a two-inch main. According to Columbia, the smallest sized main that it installs is
43
effectively able to serve any residential customer, further supporting its position that
residential customer usage does not affect its cost to serve. Columbia Exc. at 7-8.
Next, Columbia opines that the Commission should consider the effect of
the LDC on investment in critical infrastructure replacement. Columbia notes that the
Commission is well aware of the need of Pennsylvania gas utilities to replace aging CIBS
pipe, noting that it is in the midst of a multi-year program to replace approximately
1,900 miles of CIBS pipe in its distribution system. According to Columbia, this
replacement will require a substantial and ongoing need for capital, with the Company
spending over $86 million in 2011 alone. Columbia states that this requirement exists
nationwide and is evidenced by a number of recent public utility commission decisions
approving infrastructure replacement programs for other NGDCs across the country. In
this environment, where Columbia is competing with others for capital, utility
creditworthiness is a heightened concern. Columbia Exc. at 8-10.
Columbia is of the opinion that alternative recovery mechanisms and
decoupling mechanisms that are being developed in more than twenty other states are
positive developments from a credit rating agency perspective as they enable utilities to
project cash flows more accurately and reduce earnings volatility. As a result, Columbia
avers that investors will demand substantial premiums to invest in a utility like Columbia,
which currently recovers most of its residential customer revenues through usage-based
charges, as compared to investing in a utility with an approved decoupling/revenue
stabilization mechanism. Columbia requests Commission approval of its progressive
LDC rate design in consideration of this situation. Columbia Exc. at 10-11.
Next, Columbia states that the ALJ failed to align utility and customer
interests in order to advance cost effective energy efficiency measures. Columbia claims
this is so because the current mechanism of recovering fixed costs through usage based
rates unavoidably discourages utility interest in conservation. According to Columbia,
44
there is no incentive for a utility to encourage cost effective energy efficiency measures
where fixed costs are recovered on a usage basis. In fact, Columbia states that it is
discouraged from helping customers use energy more efficiently when it only leads to
under recovery of distribution costs and the need for further rate relief. Columbia
requests that the Commission should not choose the worn “command and control
approach” to conservation efforts, but rather should move to a more cooperative and
constructive approach between the utility and a customer. Columbia offers that while the
Commission may have the authority to direct utilities to undertake actions to drive
reduced customer usage, forced conservation actions by utilities that only lead to an
unending cycle of further rate cases is not the right solution. Columbia maintains that a
better approach is to encourage customer and utility partnerships by removing the
utility’s disincentive to encourage energy efficiency, which can be accomplished through
adoption of the LDC. Columbia Exc. at 11-15.
Next, Columbia maintains that the Commission should consider other
benefits from the LDC that were not mentioned by the ALJ. For example, Columbia
states that aligning rates with the cost to serve will simplify rate cases since issues such as
weather normalization and sales forecasting are eliminated for the residential class. Also,
Columbia opines that the residential LDC achieves bill simplicity and promotes
customer’s comprehension of the true cost to serve. Columbia avers that switching to a
flat rate form of billing should not be confusing as residential customers already are
accustomed to paying for many basic consumer services on a fixed monthly basis.
Columbia cites telephone service, cellular telephone service, cable television, satellite
television, internet access, home security, trash removal and automobile leases as
examples. Also, Columbia avers that by eliminating usage based distribution charges,
customers will have a clearer understanding of the “Price to Compare” and marketers’
price offers as these costs will be the only charges reflected on a usage basis.
Columbia Exc. at 16-18.
45
Additionally, Columbia states that the ALJ reaches an incorrect conclusion
regarding intra class subsidies and the LDC with her statement that “…poor people will
be subsidizing the payment of distribution costs for the wealthy people if required to pay
the same flat monthly rate.” Columbia avers that this conclusion is not correct as the
record demonstrates that recovery of fixed costs through a flat monthly fee rate design
will eliminate residential intra class subsidies. Columbia maintains that its cost to serve
does not vary among residential customers by usage. In fact, Columbia opines that low
use customers should receive a substantially greater increase in bills because they are
being, and have long been, subsidized by high use customers under current rate design
methodology. Columbia offers that the LDC does not cause the low use customer to
subsidize the high use customer; it simply removes the subsidy of the low use customer
under the current rate design. Columbia claims that the possible effects on some low
income low use customers should not be used as the basis for rejecting the adoption of an
appropriate rate design when its CAP provides a solution. Columbia Exc. at 18-22.
Columbia also excepts to the ALJ’s criticism of Columbia for only
proposing the LDC for residential customers. Columbia avers that the LDC was
proposed because it best matched rates to cost causation for residential customers since
expenses and plant investments do not vary by customer usage. Columbia avers this is so
because all residential customers can be served by the same sized meter, service and
minimum sized main installed on its system. According to Columbia, the LDC was not
proposed for commercial and industrial customer classes because there is less
homogeneity of demand among these classes than there is within the residential class.
Columbia notes that it did not undertake any examination of rate design changes for these
customer classes in this case, that no party argued that it was improper to apply the LDC
only to residential customers and that current rate designs for non-residential classes
already have significantly higher customer charges and lower usage-based charges.
Columbia Exc. at 22-23.
46
Columbia states that the ALJ erred in recommending adoption of the
OCA’s rate design proposal, which places the entire residential rate increase in the usage
based distribution charge. Columbia interprets the ALJ’s conclusion to be an acceptance
of the concept of setting customer charges on the basis of “direct customer costs.”
However, Columbia opines that this concept substantially limits the definition of
customer costs to meters and services investment and certain directly associated expenses
such as meter reading and collections. The result is to shift recovery of millions of
dollars in fixed costs into usage charges. Columbia explains that this lack of
consideration given to the mains that must be in place to provide service results in
customer charges that are well below the real cost of the system that is in place
throughout the year to serve customers’ needs. Columbia Exc. at 23-24.
Columbia acknowledges that the concept of setting customer charges based
on “direct customer costs” without recognition of the distribution mains has been
Pennsylvania’s policy for a number of years. However, Columbia reiterates that
whatever justification may have once existed for this policy, it is no longer relevant,
especially in cases like this one where the rate increase is primarily driven by Columbia’s
accelerated investment in replacing mains. Columbia requests that the Commission reject
the concept of “direct customer costs” for limiting customer charges and instead
recognize that appropriate rate design based on cost causation principles weighs in favor
of recovering all fixed costs through fixed rates for residential customers as proposed by
the LDC. Columbia Exc. at 25.
In reply, the OCA submits that the Commission should adopt the ALJ’s
recommendation to reject Columbia’s rate design proposal. The traditional method
whereby rates are set to recover a utility’s distribution revenue requirement through
volumetric rates and a reasonable, fixed customer charge reflecting direct customer costs
encourages conservation, is supported by economic theory, and is consistent with the way
prices have been set for regulated utilities and in competitive markets for decades. The
47
OCA further submits that the same reasons support the ALJ’s rejection of the BI&E
proposal to move gradually toward a straight-fixed variable (SFV) rate design by adding
a minimum allowance to the customer charge. See OCA M.B. at 39-42; OCA R.B. at 22;
OCA R.Exc. at 9.
Regarding the ratepayers’ incentive to reduce usage and thereby lower their
monthly bills, the OCA offers the following example: Using the rates in effect during the
historic test year, for each Mcf that a customer saves, that customer would save $2.6891
from avoided usage-based distribution charges under the current rate design and $0 under
Columbia’s proposed SFV rate design. OCA R.B. at 12 (citing Columbia M.B. at 15,
fn. 9). The OCA’s opinion is that this is clearly inconsistent with The American
Recovery and Reinvestment Act of 2009’s (ARRA) statement that the desired regulatory
policy must be accomplished “in a way that sustains or enhances utility customers’
incentives to use energy more efficiently.” The American Recovery and Reinvestment
Act of 2009, Pub. L. 111-5, § 410(a). OCA R.Exc. at 4.
Further, the OCA states that, if Columbia’s rates will continue to increase
regardless of rate design, that is more reason to maintain the current rate design, which
gives customers the opportunity to lower their bills by reducing their usage. Id.
In its Exceptions, Columbia argues that customers are likely to make
temporary, rather than sustained, conservation efforts without utility involvement in the
process. Columbia Exc. at 15. Columbia also submits that its LDC proposal will
encourage Company involvement by making it indifferent to the amount of gas customers
use. Id. In reply, the OCA states that Columbia’s proposed LDC does not create any
positive incentive for Columbia to promote conservation or to achieve substantial or
sustained energy improvements. OCA R.B. at 13; Columbia St. 2 at 38; OCA R.Exc at 4.
Thus, there is no direct conservation benefit from the proposed LDC; however, there is a
direct and quantifiable harm in the form of reduced savings to customers from avoided
48
usage-based distribution charges. Id. at 5. Weighing this evidence, the OCA believes
that the ALJ properly decided to maintain usage-based distribution rates that encourage
energy efficiency measures by individual customers. R.D. at 95-97; OCA R.Exc. at 5.
Thus, the OCA believes that this Exception should be denied and the ALJ’s decision
should be adopted. OCA R.Exc. at 5.
Columbia argues in its Exception that (1) recovery of all Residential
distribution costs through a fixed charge would remove an existing subsidy of low usage
customers under the current rate design and (2) many low income customers have above-
average usage and, thus, would not be disproportionately impacted.
Columbia Exc. at 18-22. In its reply to this Exception, the OCA states that Columbia’s
first contention is based on the assumption that it is appropriate to recover all of its
demand-related costs through fixed rates. OCA R.Exc. at 5. As discussed at length in the
OCA’s briefs, however, efficient prices are set based on long-run costs, which are
entirely variable or volumetric in nature. OCA R.Exc. at 5, 6. Using long-term costs to
design rates is consistent with the Commission’s practice of limiting the portion of a
utility’s distribution costs that are recovered through fixed versus volumetric charges to
“direct” customer costs. See, e.g., ARRA Order at 20; PPL Gas; Pa. PUC. v. National
Fuel Gas Dist. Corp., 83 Pa P.U.C. 262, 371 (1994) (NFGD 1994); Pa. PUC v. West
Penn Power Co., 1994 Pa. PUC LEXIS 144, *154 (West Penn 1994); Pa. PUC v.
Metropolitan Edison Co., 60 Pa. P.U.C. 349 (1985) (MetEd 1985); OCA R.Exc. at 6.
Also, in its reply the OCA states that the Company’s second, related
contention is that the ALJ’s finding that low income customers tend to be higher use
customers is not correct. Columbia Exc. at 20; OCA R.Exc. at 6. The Company argues
that, based upon the usage of its universal service program customers, Columbia’s low-
income customers will benefit from its proposed LDC because customers with lower
incomes who participate in energy assistance programs use more natural gas than the
Company’s average residential customer. Columbia St. 12 at 49; Columbia Exc. at 20;
49
OCA R.Exc. at 6. In response, the OCA states that the customers in Columbia’s energy
assistance programs represent less than one-third of Columbia’s low-income customers
and thus are not a representative sample. OCA M.B. at 23-24; OCA R.Exc. at 6.
Accordingly, the OCA’s Reply Exceptions contend that Columbia’s
arguments regarding the effect of its proposed rate design on low-volume and low-
income users do not support the adoption of a high LDC. OCA R.Exc. at 7. Thus the
Company’s Exception should be denied.
Columbia’s next Exception argues that the ALJ failed to consider that the
Company is at a disadvantage in the capital markets because it does not have a SFV rate
design. Columbia Exc. at 8-11. In support, Columbia points to twenty states where some
form of decoupling, including flat fee rate designs, have been approved. Id. at 10.
However, in reply, the OCA states that only three states have approved the type of SFV
proposed by Columbia. OCA R.Exc. at 7. According to the OCA, volumetric pricing
remains the preferred pricing mechanism of forty-one states. Id.
The OCA asserts that Columbia has not shown that it is appropriate, fair or
necessary to shift additional risk to customers by imposing the LDC rate design. Also,
the OCA affirms that it believes the ALJ struck the appropriate balance between
customer and utility interests by rejecting Columbia’s proposed rate design and adopting
a reasonable, limited customer charge. OCA R.Exc. at 8, 9.
Further, the OCA submits that the recovery of most or all of the Company’s
revenue increase through volumetric rates is consistent with how the vast majority of
jurisdictions set rates. OCA R.Exc. at 10. This is because volumetric pricing is efficient
and fair and serves as a surrogate for competitive pricing to the greatest extent
practical. Id.
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As a final matter, the OCA responds to Columbia’s suggestion in its
Exceptions that, if its LDC proposed rate design is not adopted, either of its two
alternative “customer cost” calculations should be used to increase customer charges to
$29.00 or to $26.50 per month. Columbia Exc. at 25; OCA R.Exc. at 10. The
Company’s first analysis is based on a cost of service study that has been consistently
rejected by this Commission because it only reflects peak day demands without
consideration of average demands, and allocates a portion of the cost of mains based on
customer counts. OCA M.B. at 36; OCA R.Exc. at 10, 11. Columbia’s second customer
cost analysis includes many costs beyond those direct customer costs that the
Commission has found should be included in the determination of the customer charge.
OCA M.B. at 37; Columbia Exh. 111, Sch. 3; OCA R.Exc. at 11. For each of these
reasons, the OCA believes that Columbia’s Exception and its alternative customer
charges should be rejected, and that the ALJ’s recommended $12.25 monthly customer
charge is reasonable, economically efficient, and provides direct incentive for customers
to control their energy usage. OCA R.Exc. at 11.
In its Reply Exceptions, the OSBA states that, if the Commission approves
the LDC for the residential class, it should refrain from extending application of the LDC
to any of Columbia’s non-residential rate classes in this or future proceedings.
OSBA R.Exc. at 3.
In its Exceptions, Columbia argues that the ALJ erred in her conclusion that
Columbia’s proposed alternative residential rate design was not just and reasonable.
PCOC, in its Reply Exceptions avers that the Commission should deny this Exception.
PCOC R.Exc. at 10. PCOC states that the ALJ thoroughly reviewed the Parties’
positions on this issue and reached the supportable conclusion that “Commission
precedent consistently states fixed customer charges are limited to reflecting direct costs
only, such as the cost of hook up and to maintain a customer’s account.” R.D. at 96;
PCOC R.Exc. at 10.
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Furthermore, PCOC believes that the ALJ correctly concluded, based on
the evidence in the record, that Columbia’s proposed LDC disproportionately affects low-
volume and low-income residential customers and would significantly reduce customer
incentive to conserve natural gas. R.D. at 96; PCOC R.Exc. at 10.
Lastly, PCOC states that Columbia has failed to demonstrate that there is
any basis to depart from traditional volumetric ratemaking, and its Exceptions fail to state
any ground for reversal of the ALJ’s recommendation. Accordingly, the Commission
should deny Columbia’s Exception and should affirm the ALJ’s rejection of Columbia’s
proposal to impose an alternative residential rate deign based upon a LDC.
PCOC R.Exc. at 10.
In its sole Exception, the BI&E asserts that the ALJ properly rejected the
Company’s proposal, but erred in finding the BI&E’s alternative to be unpersuasive.
BI&E Exc. at 5; R.D. at 95. BI&E argues that there is no justification for the ALJ’s
determination that, “[I]n addition, I am not persuaded by BI&E’s suggested alternative to
impose a 2 Mcf minimum charge but I find OCA’s argument to be persuasive.”
R.D. at 95; BI&E Exc. at 5. As such, the ALJ’s rejection of the BI&E position is not
supported. BI&E Exc. at 6. BI&E excepts to the ALJ’s recommendation and advocates
adoption of the BI&E position, again noting that the BI&E position as presented in this
proceeding also serves to provide a more moderate and reasonable alternative to the
Company’s far more radical flat distribution rate proposal for residential customers.
BI&E Exc. at 6. BI&E points out that the ALJ’s discussion contains no criticism(s) of
the BI&E position. Nor does the ALJ distinguish between the Company’s proposal and
the BI&E alternative proposal regarding the issue. According to the BI&E, the ALJ
failed to offer any rationale to support her determination that the BI&E position was not
persuasive. R.D. at 96, 97; BI&E Exc. at 6, 7.
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The BI&E contends that its review of the ALJ’s criticisms of the
Company’s proposal (R.D. at 96) is also illustrative of the merits of the BI&E proposal.
Specifically, as to the ALJ’s determination that the Company’s contention that it will not
be sufficiently motivated to promote conservation without a flat rate design, BI&E argues
that this determination is “[p]articularly lacking in persuasion …” The BI&E points out
that the BI&E Main Brief directly addressed the Company’s contention by shifting the
focus more appropriately to the fact that adoption of a flat rate may also reduce the
benefit for customers to conserve and use less of the commodity given that the usage
component in their distribution rate has been eliminated. R.D. at 96; BI&E M.B. at 25;
BI&E Exc. at 7. Thus, the BI&E contends that the ALJ’s criticism of the Company’s
position has no bearing on the BI&E position which retains a usage component, and in
fact is consistent with the BI&E argument. BI&E Exc. at 7.
The BI&E also excepts to the ALJ’s finding because it fails to acknowledge
the specifics of the BI&E position or its inclusion of a direct customer cost analysis
component to its recommended minimum charge, an approach completely lacking in the
Company’s flat rate proposal. Id. at 8.
The BI&E further excepts to the ALJ’s findings because the ALJ did not
recognize the BI&E position as being consistent with her criticisms of Columbia’s
proposal regarding the customer’s ability to control his monthly bill amount by
controlling his monthly usage, and her conclusion that the Company proposal would be
detrimental to low-usage and low-income ratepayers. R.D. at 96; Id. at 9.
The BI&E states that its residential rate design proposal is fundamentally
fairer and eminently more reasonable because it limits customers that use no gas in a
particular month to a lower increase and also provides the Company with increased
revenue stability. BI&E R.B. at 16, 17; R.D. at 80; BI&E Exc. at 9. Additionally, unlike
the Company's flat rate proposal, the BI&E proposal does not provide for a decrease over
53
current bills for customers that use 95 Mcf or more per month. BI&E M.B. at 22, 23;
BI&E R.B. at 16, 17; BI&E Exc. at 10.
The BI&E concludes that the purpose of its Exception is to identify and
make clear two points: (1) the ALJ’s criticisms of the Company’s position are valid and
provide a sound basis to reject its proposal, and (2) nothing about the ALJ’s criticisms of
the Company provide any support or guidance regarding the reason that she deemed the
BI&E position to be “not persuasive.” BI&E Exc. at 10.
4. Disposition
Upon our consideration of the evidence of record, we are persuaded by the
arguments of the BI&E and will adopt its alternative residential rate design proposal in
lieu of Columbia’s proposed LDC and in lieu of the ALJ’s recommendation to adopt the
OCA proposal. We make this determination in light of the limited viable alternatives
available to us in this record.
In reviewing changes in rate design, it is important that we balance the
interests of utilities and consumers. The utilities desire to stabilize revenues in light of
weather, economic and conservation factors, all of which create potential uncertainty to
recovering their approved Cost of Service. Further, consumers and utilities may benefit
from the lower cost of capital associated with stable revenues – including lower debt
costs, and lower expected return on equity by shareholders for stable revenue industries.
The OCA has rightfully noted the important factor that rate design plays in promoting
conservation and energy efficiency. By shifting virtually all distribution costs to the
fixed customer charge component of the rates as proposed by Columbia, we may be
stunting the incentives for consumers to take charge of their energy costs by reducing
usage. Such an anti-conservation policy may have serious long term implications for
long run costs in the energy industry in general.
54
Before us were two divergent positions, neither of which was perceived as
an optimal solution. Columbia proposed to recover all distribution costs in fixed
customer charges. Such a proposal would have achieved Columbia’s goals of stable
revenues, but at the expense of consumer interests in benefiting from energy efficiency
investments. On the other hand, OCA proposed to maintain the status quo – placing
Columbia’s business at greater risk of collecting their approved cost of service, but
benefiting consumer’s interests in better controlling their cost of distribution service.
The only alternative was offered by BI&E, who rendered a proposal to stabilize revenues
somewhat by marginally increasing the customer charge from $12.25 per month to
$18.73 per month. This increase, based on a 2 Mcf per month minimum charge, offers
the only viable alternative in this proceeding to better balance the interests of consumers
and the utility.
Given the lack of alternatives presented for our consideration in this
proceeding, the decision made today is applicable only to this proceeding and should not
be considered as precedential. Going forward, we encourage parties to present viable
alternative rate mechanisms for our consideration that may more optimally balance the
needs of consumers and utilities in delivering reliable natural gas safely, and at the
lowest, long term costs. Merely increasing customer charges, as OCA noted, may have
long term implications in dampening incentives for energy efficiency investments –
which will cause long term costs to increase.
A number of neighboring utilities have proposed alternative rate designs to
help stabilize utility revenue collections. These include utilities such as Baltimore Gas
and Electric Company, Washington Gas Light Company, and Columbia Gas of
Maryland, just to name a few to our immediate south. Additionally, the Regulatory
Assistance Project has provided a number of discussion topics on this issue.18 Parties
18 http://www.raponline.org/featured-work/utility-business-models-providing-incentives-for-energy-savings
55
are encouraged to explore these and other options so that more progressive solutions,
which optimally meet the needs of consumers and utilities, can be presented to the
Commission.
Based upon the foregoing discussion, we shall grant the Exceptions of the
BI&E, deny the Exceptions of Columbia and modify the findings and recommendations
of the ALJ.
C. CAP-Plus Program
1. Introduction
Columbia noted that it provides reduced rates/discounts to low income
residential customers pursuant to a CAP. Columbia Exh. 14, Sch. 2 at 143-147. In
general, the CAP provides for reduced residential rates to customers with incomes at, or
below, 150 percent of the federal poverty level. Discounts are based upon levels of
income and household size. Columbia’s CAP was established many years ago pursuant
to the Commission’s CAP Policy Statement, 52 Pa. Code § 69.261 et seq. (“CAP Policy
Statement”), and is reviewed every three years by the Commission through the Universal
Service and Energy Conservation Plan (“USECP”) filing required by
52 Pa. Code § 62.4(a)(1). Columbia M.B. at 27.
Prior to 2009, Columbia and other utilities in Pennsylvania that received
federal LIHEAP cash grants on behalf of CAP customers would apply the LIHEAP grant
to reduce the amount of the CAP credits to reduce the amount of the subsidy that non-
participating customers were required to pay. The CAP credit, also known as the CAP
shortfall, is the monthly amount which remains unpaid by a CAP customer after the
utility determines the percentage of the CAP customer’s income that should go towards
paying his or hers monthly bill. This pre-2010 method used guidelines established by the
56
Commission and set forth in the Commission’s CAP Policy Statement, and the method
was referred to as a Percentage of Income Payment Plan or (“PIPP”).
Columbia M.B. at 28.
In 2009, the Pennsylvania Department of Public Welfare (DPW) proposed
changing how Pennsylvania public utilities, who are “energy vendors” under DPW’s
guidelines, applied federal LIHEAP grants to CAP customers’ accounts. DPW later
finalized its proposed changes in its 2010 LIHEAP State Plan. DPW directed utilities,
such as Columbia, to apply the LIHEAP cash grant to the customer’s monthly asked-to-
pay amount and not to the CAP credit. Id.
On January 28, 2010, Columbia filed Supplement No. 144 to Tariff Gas-
Pa. P.U.C. No. 9 (a base rate increase proceeding) with a proposed effective date of
March 29, 2010. On March 25, 2010, the Commission suspended that filing, docketed at
R-2009-2149262, until October 29, 2010.
On April 9, 2010, due to DPW’s 2009 change in policy, the Commission
temporarily suspended provisions of its CAP Policy Statement at
52 Pa. Code § 69.265(9)(iii). R.D. at 101.
On June 25, 2010, the Parties at Docket No. R-2009-2149262 filed a Joint
Petition for Settlement, which specified, inter alia, that Columbia would adopt a CAP-
Plus program consistent with OCA’s recommendation. Id. at 98.
On July 21, 2010, the United States Department of Health and Human
Services (DHHS) issued LIHEAP Information Memorandum 2010-13 concerning the use
of LIHEAP funds coordinated with Vendor Assistance Programs. Id.
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On July 28, 2010, the Commission issued the ALJ’s Recommended
Decision in Docket No. R-2009-2149262 in which the ALJ recommended approval of the
Joint Petition in Settlement filed on June 25, 2010.
By Order entered on August 18, 2010, the Commission approved the use of
the CAP-Plus Program by Columbia in Columbia’s base rate proceeding. Pursuant to the
Commission’s Order, on August 25, 2010, Columbia filed a petition to amend its
universal service plan to include CAP-Plus. The Commission approved Columbia’s
proposed CAP-Plus by Order entered October 19, 2010 at Docket No. P-2010-2195759,
and served a copy of the Order on DPW. Columbia M.B. at 30, R.D. at 103.
One Party to this proceeding, PCOC, challenged Columbia’s approved
CAP-Plus program, and averred that it was in violation of federal and state LIHEAP
provisions.
On June 6, 2011, DPW issued a letter in this proceeding in which the
Interim Deputy Secretary for the Office of Income Maintenance, Philip Abromats,
indicated that neither DPW nor DHHS had approved Columbia’s CAP-Plus Program or
the CAP-Plus program in general. The same letter indicates that federal LIHEAP funds
are not intended to benefit or subsidize non-LIHEAP recipients or the energy vendor.
The letter indicates DPW’s opinion that Columbia’s CAP-Plus program may not be
consistent with DHHS’ Information Memorandum dated July 21, 2010. The DPW letter
acknowledges that the Commission determines the structure of CAP programs but DPW
is the entity responsible to authorize (or refuse to authorize) an energy vendor to use
LIHEAP grants in a way permitted by the federal provisions. R.D. at 99-100.
This letter dated June 6, 2011, was admitted into evidence in this
proceeding at the hearing conducted on June 10, 2011 at the request of PCOC, the
Company and the OCA. Id. at 75-77.
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In her Recommended Decision, the ALJ recommended that the
Commission approve the CAP-Plus program as implemented but require Columbia to
apply LIHEAP grants to each individual LIHEAP recipient’s account without deducting
the annualized CAP-Plus payments first. R.D. at 134, 138.
Columbia, the OCA and PCOC filed Exceptions to the ALJ’s
recommendation in regard to the CAP-Plus issue.
2. Discussion
Based upon our review and analysis of the record evidence presented with
regard to the challenge of PCOC to Columbia’s existing CAP-Plus program, we do not
believe that this matter can be resolved in the context of this proceeding. Therefore, we
will defer consideration of this issue and hold it in abeyance for disposition at a future
date. We take this unusual approach based on our concern that resolution of this issue in
this proceeding will have significant impact on all other similar, currently effective
programs of our other jurisdictional utilities. There is simply insufficient time to render a
thorough and reasoned decision on this matter within the regulatory time constraints
inherent in a 1308(d) base rate proceeding. In so doing, it is important to note that
Columbia itself did not propose any changes to its currently effective CAP-Plus program
in conjunction with its rate increase request. The issue rises solely due to a challenge of
Columbia’s existing CAP-Plus program by PCOC and does not have any effect on the
agreed upon revenue requirement contained within the Settlement. Therefore, we find
that this issue is severable from the resolution of the other issues within this proceeding,
and we will hold the CAP-Plus issue in abeyance until further action by the Commission.
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IV. Conclusion
Based on our review, evaluation and analysis of the record evidence, we
shall: (1) grant or deny the Exceptions filed by the various Parties hereto, consistent with
the discussion contained in the body of this Opinion and Order; and (2) adopt the ALJ’s
Recommended Decision to approve the Settlement; and (3) modify the ALJ’s
Recommended Decision with regard to the LDC, and hold in abeyance the ALJ’s
recommendation regarding Columbia’s CAP-Plus program, as discussed supra. As such,
our approval of the Settlement will reduce Columbia’s originally requested annual revenue increase of $37.8 million (a 7.7 percent increase in total annual operating
revenues) to $17.0 million (a 3.5 percent increase in total annual operating revenues). In
addition, we shall deny Columbia’s proposal to implement the LDC in the residential rate
class; rather, Columbia shall implement the residential rate design as proposed by BI&E.
We shall also direct Columbia to cease and desist its current practice under the CAP-Plus
program to use each recipient’s LIHEAP funds to first pay the costs of the CAP-Plus
program before applying the remainder to each LIHEAP recipient’s account. Instead,
Columbia shall apply LIHEAP funds towards reducing each LIHEAP recipient’s asked to
pay amount; THEREFORE,
V. Order
IT IS ORDERED:
1. That the Exceptions filed by Columbia Gas of Pennsylvania, Inc.,
the Office of Consumer Advocate, the Bureau of Investigations and Enforcement and
Pennsylvania Communities Organizing for Change to the Recommended Decision of
Administrative Law Judge Katrina Dunderdale are granted or denied, consistent with this
Opinion and Order.
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2. That the Recommended Decision of Administrative Law Judge
Katrina Dunderdale, issued on August 10, 2011, is adopted as modified, consistent with
this Opinion and Order.
3. That Columbia Gas of Pennsylvania, Inc. shall not place into effect the
rates, rules, and regulations contained in Supplement No. 156 to Tariff Gas-Pa. P.U.C. or
contained in Supplement No. 163 to Tariff Gas-Pa. P.U.C. No. 9, the same having been
found to be unjust, unreasonable, and therefore unlawful.
4. That the Joint Petition For Partial Settlement submitted by Columbia
Gas of Pennsylvania, Inc., the Bureau of Investigation and Enforcement, the Office of
Consumer Advocate, the Office of Small Business Advocate, Columbia Industrial
Intervenors, Dominion Retail, Inc., Shipley Energy Company, Interstate Gas Supply, Inc.,
the Pennsylvania State University, and Pennsylvania Communities Organizing for Change,
at Docket No. R-2010-2215623, including all terms and conditions, is hereby approved.
5. That Columbia Gas of Pennsylvania, Inc. is hereby authorized to file
the tariff supplement contained in Appendix “C” to the Joint Petition For Partial Settlement
on less than statutory notice, for service rendered on and after October 18, 2011, designed to
produce $17.0 million in additional annual base rate operating revenue based upon the pro
forma level of operations at September 30, 2011, consistent with this Opinion and Order.
6. That Columbia Gas of Pennsylvania, Inc. shall file detailed
calculations with its tariff filing, which shall demonstrate to this Commission’s satisfaction
that the filed rates comply with the proof of revenue, in the form and manner customarily
filed in support of tariffs.
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7. That Columbia Gas of Pennsylvania, Inc. shall comply with all
directives, conclusions and recommendations contained in the Commission’s Opinion and
Order that are not the subject of individual ordering paragraphs as fully as if they were the
subject of specific ordering paragraphs.
8. That Columbia Gas of Pennsylvania, Inc. shall allocate the
authorized increase in operating revenue to each customer class and shall implement the
rate design as set forth in Appendix “A” to the Joint Petition For Partial Settlement.
9. That the proposal of Columbia Gas of Pennsylvania, Inc. to
implement a Distribution System Improvement Charge is withdrawn. The Company
retains the right to propose a Distribution System Improvement Charge, if authorized by
the General Assembly, to reflect amounts not included in rate base in this proceeding.
The right of all parties to oppose any filing by Columbia Gas of Pennsylvania, Inc.
proposing a Distribution System Improvement Charge and to challenge the details of how
the Distribution System Improvement Charge will be calculated is reserved.
10. That the Formal Complaints filed against the base rate proceeding at
R-2010-2215623 by the Office of Consumer Advocate at C-2011-2224941; the Office of
Small Business Advocate at C-2011-2224985; Columbia Industrial Intervenors at
C-2011-2227004; and Pennsylvania State University at C-2011-2230067; are dismissed,
consistent with the Joint Petition For Partial Settlement.
11. That the Formal Complaints filed against the BTU content
proceeding docketed at R-2010-2201974 by the Office of Small Business Advocate at
C-2010-2208133 and the Office of Consumer Advocate at C-2010-2208503, are
dismissed, consistent with the Joint Petition For Partial Settlement.
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12. That the Formal Complaints of James M. Landis at Docket
Nos. C-2011-2224944; Marie A. Weaver at C-2011-2225050; Margaret M. Sentz at
C-2011-2225828; Albert E. Jochen at C-2011-2225878; Patsy Orlando at
C-2011-2227222; and Maureen A. Doerr-Roman at C-2011-2231015, are dismissed.
13. That Columbia Gas of Pennsylvania, Inc., shall not implement the
Levelized Distribution Charge in the residential rate class as proposed in its filing, and
shall instead implement the revised residential rate design, consistent with this Opinion
and Order.
14. That the litigated issue regarding the current Customer Assistance
Plan-Plus of Columbia Gas of Pennsylvania, Inc., and the Formal Complaint of
Pennsylvania Communities Organizing for Change, et al. at C-2011-2232186, are held in
abeyance until further action by the Commission. Columbia Gas of Pennsylvania, Inc.
shall maintain its currently effective Customer Assistance Plan-Plus program as presently
operated until further action of the Commission.
15. That after acceptance and approval by the Commission of the tariff
revisions filed by Columbia Gas of Pennsylvania, Inc., the investigation at Docket
Nos. R-2010-2215623 and R-2010-2201974 shall be terminated and the record shall be
marked closed with the exception of any record evidence with regard to the issue held in
abeyance.
BY THE COMMISSION,
Rosemary ChiavettaSecretary
(SEAL)
ORDER ADOPTED: October 14, 2011
ORDER ENTERED: October 14, 2011
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