BEFORE THE

PENNSYLVANIA PUBLIC UTILITY COMMISSION

Pennsylvania Public Utility Commission : R-2013-2350914

Office of Small Business Advocate : C-2013-2354071

Daniel Killmeyer : C-2013-2355180

Office of Consumer Advocate : C-2013-2355226

Elizabeth F. Smith : C-2013-2359509

:

v. :

:

Peoples Natural Gas Company LLC :

RECOMMENDED DECISION

Before

Conrad A. Johnson

and

Jeffrey A. Watson

Administrative Law Judges

39

TABLE OF CONTENTS

I. History of the Proceeding 1

A. The Filings 1

B. Prehearing Conference and Peoples’ Motion for Protective Order 3

C. Orders Granting Motion for Protective Order and Modifying Litigation

Schedule 3

D. The Evidentiary Hearing 5

E. Settlement Petition Filing, Objections Period and the Record 6

II. TERMS OF THE SETTLEMENT 7

A. Approval of the 2013 Definitive Filing as Modified 7

B. Natural Gas Supply Rates as of October 1, 2013 7

C. Retainage Levels 8

D. Retainage Waivers 8

E. Capacity Release/Off System Sales/Parks and Loans Sharing Mechanism 9

F. Lost and Unaccounted For Gas 9

G. Banking, Balancing and Advancing Service (BB&A) 9

H. Gas Supply Portfolio 10

I. Least Cost Fuel Procurement Policy – Reconciliation Period 10

J. Least Cost Fuel Procurement Policy – Projected Period 10

K. Conditions of Settlement and Reservation of Rights 11

III. FINDINGS OF FACT 12

IV. DISCUSSION 16

A. Applicable Legal Principles 16

B. Statements of the Parties in Support of the Settlement 16

1. Peoples’ Position 17

a. Natural Gas Supply Rates as of October 1, 2013 17

b. Retainage Levels 18

c. Retainage Waivers 22

d. Capacity Release/Off System Sales/Parks and Loans

Mechanism 23

e. Lost and Unaccounted For Gas 23

f. Banking, Balancing and Advancing Service 25

g. Gas Supply Portfolio 25

h. Hedging 26

i. Other Gas Costs 26

j. Miscellaneous Uncontested Items 27

k. Section 1318 Requirements 27

2. OCA’s Position 28

a. Peoples’ Purchased Gas Cost Rate 28

b. Peoples’ Retainage Charges 28

c. Other Issues Addressed in the Joint Petition 29

3. OSBA’s Position 29

a. Retainage Rates 30

b. Extension of Sharing Mechanism 31

c. Judicial Efficiency 32

4. I&E’s Position 32

5. Disposition of Non-Settling Parties’ Formal Complaints 33

a. Formal Complaint of Daniel Killmeyer 33

b. Formal Complaint of Elizabeth F. Smith 34

C. Summary 35

V. CONCLUSIONS OF LAW 36

VI. RECOMMENDED ORDER 37

39

This decision recommends approval of the Joint Petition for Settlement of All Issues of the Section 1307(f) Rate Investigation (Joint Petition, Settlement Petition or Settlement) submitted in this proceeding by Peoples Natural Gas Company LLC (Peoples or Company), the Office of Small Business Advocate (OSBA), the Office of Consumer Advocate (OCA), and the Bureau of Investigation and Enforcement (I&E) of the Pennsylvania Public Utility Commission (the Settling Parties or the Joint Petitioners).

I. HISTORY OF THE PROCEEDING

A. The Filings

Peoples, as a provider of retail gas sales and transportation services to customers in western Pennsylvania, is a public utility and a natural gas distribution company subject to the Pennsylvania Public Utility Commission’s (Commission) regulatory jurisdiction. Peoples, on March 1, 2013, filed with the Commission’s Secretary’s Bureau (Secretary), as required under 52 Pa. Code §§ 53.64 and 53.65, pre-filing data in support of a tariff supplement proposing changes in rates for recovery of purchased gas costs (PGC).

On March 13, 2013, I&E filed a Notice of Appearance. On March 20, 2013, OSBA filed a Notice of Appearance and Formal Complaint at Docket No. C-2013-2354071. On March 25, 2013, Daniel Killmeyer (Complainant Killmeyer or Mr. Killmeyer) filed a Formal Complaint at Docket No. C-2013-2355180. Complainant Killmeyer asserts, “Deny the rate increase and make them lower the rates. This is their third increase in the past 2 years.”

On March 29, 2013, OCA filed a Notice of Appearance and Formal Complaint at Docket No. C-2013-2355226.

On April 1, 2013, Peoples filed with the Commission Supplement No. 16 to Peoples Tariff Gas – Pa. P.U.C. No. 45 (Supplement No. 16) reflecting actual and projected changes in natural gas costs and other tariff changes. Supplement No. 16 was filed with an issue date of April 1, 2013 and an effective date of October 1, 2013. The Company also filed direct testimony and exhibits in support of Supplement No. 16. In the Settlement Petition the Company’s Supplement No. 16 together with the supporting direct testimony and exhibits are collectively referred to as the “2013 Definitive Filing.” For consistency and clarity, the same reference is used herein.

The Prehearing Conference Order issued on April 2, 2013 informed the Settling Parties and Complainant Killmeyer that the proceeding was assigned to the undersigned Administrative Law Judges (ALJs or Presiding ALJs) for a telephonic prehearing conference conducted from the Commission’s Pittsburgh Hearing Room on April 11, 2013. Harrisburg parties were directed to report to the Commission’s Harrisburg Hearing Room and Pittsburgh area parties were invited to participate from the Pittsburgh Hearing Room. The Prehearing Conference Order directed, inter alia, the parties to file Prehearing Memoranda by April 9, 2013. All parties with the exception of Complainant Daniel Killmeyer filed Prehearing Memoranda. In a separate notice sent on April 2, 2013, by the Commission’s scheduling staff, the parties were informed that the prehearing telephonic conference before the ALJs was set for 1:30 p.m. on April 11, 2013.

Also on April 2, 2013, Elizabeth F. Smith (Complainant Smith or Ms. Smith) filed her Formal Complaint against Peoples’ proposed rate increase with the Commission’s Secretary. The Secretary docketed Ms.Smith’s complaint at Docket No. C-2013-2359509 and published it to the web on April 24, 2013. On the same date, the Secretary served a copy of Ms.Smith’s complaint upon Peoples. Ms. Smith submits, “The reason for my complaint is that I am on a fixed income and cannot afford an increase in any of my bills.” For relief Ms. Smith says, “I would like my complaint to be resolved by not increasing my gas bill any amount.”

B. Prehearing Conference and Peoples’ Motion for Protective Order

The prehearing conference proceeded as scheduled on April 11, 2013. Respective counsel for I&E, OCA and OSBA (Statutory Parties) and Peoples participated in the

prehearing conference, during which they agreed upon a litigation schedule.[1]

On April 19, 2013, the ALJs issued a Prehearing Order Setting Litigation Schedule and Consolidating Complaints.[2] The order scheduled an evidentiary hearing in this matter for June 5-6, 2013, in Harrisburg.

On May 3, 2013, Peoples filed a Motion for Protective Order, alleging that highly confidential and proprietary information had been sought in discovery and presented in exhibits. Therefore an order was needed to protect Peoples’ commercially-sensitive data. The Motion, in part, stated, “Peoples has consulted with all of the active parties to this proceeding (Office of Consumer Advocate, Bureau of Investigation and Enforcement, and the Office of Small Business Advocate), and none of them have an objection to the granting of this Motion.” Complainants Daniel Killmeyer and Elizabeth F. Smith (Individual Complainants Killmeyer and Smith) did not file any objection to the Motion.

C. Orders Granting Motion for Protective Order and Modifying Litigation Schedule

On May 22, 2013, counsel for Peoples emailed the ALJs and advised them that the Company and I&E, OCA and OSBA had reached a settlement in principle. Therefore the Settling Parties requested suspension of the litigation schedule beginning with the May 24, 2013 due date for written rebuttal testimony. As a result, on May 23, 2013, the ALJs emailed the Settling Parties advising them that the rebuttal schedule would be suspended and an appropriate order would be issued revising the litigation schedule.

On May 24, 2013, the Presiding ALJs issued a First Interim Order Granting Respondent Peoples Natural Gas Company’s Motion for Protective Order for all Proprietary Information submitted by the Company and designated as “Confidential” or “Highly Confidential.”

On May 28, 2013, the Presiding ALJs issued a Second Interim Order Suspending and Revising, in Part, Litigation Schedule and Consolidating Complaints. The Second Interim Order modified the litigation schedule set forth in the April 19, 2013 Prehearing Order by removing from the schedule the due dates for written rebuttal and surrebuttal testimonies; changing the evidentiary hearing to a one-day telephonic hearing on June 6, 2013; reiterating June 28, 2013 as the due date for the finalized Settlement Petition together with Supporting Statement; and adding July 9, 2013 as the due date for the filing of any objection to the Settlement Petition.

The Second Interim Order also consolidated the Formal Complaints of OSBA at Docket No.C2013-2354071, Daniel Killmeyer at Docket No. C20132355180, OCA at Docket No. C-2013-2355226 and Elizabeth F. Smith at Docket No. C-2013-2359509 with Peoples Natural Gas Company LLC’s Purchased Gas Costs (PGC) filing pursuant to 66 Pa.C.S. § 1307(f) at Docket No.R2013-2350914.

The Second Interim Order inadvertently listed Respondent as “Peoples TWP LLC” in the caption. On May 31, 2013, the ALJs issued a Third Interim Order Correcting the Name of the Respondent in the Caption of the Second Interim Order to correctly identify Respondent as Peoples Natural Gas Company LLC.

D. The Evidentiary Hearing

The June 6, 2013 evidentiary hearing was conducted telephonically with the Presiding ALJs sitting in the Commission’s Pittsburgh Hearing Room and counsel for Peoples, I&E, OSBA and OCA in the Commission’s Hearing Room 3 in Harrisburg. The Second Interim Order advised the Individual Complainants Killmeyer and Smith, who both live closer to Pittsburgh than Harrisburg, that they could report to the Pittsburgh Hearing Room in order to participate in the evidentiary hearing. However, neither Mr. Killmeyer nor Ms. Smith appeared for the hearing.

Counsel for Peoples offered for admission into the record Statements and Exhibits, together with respective verifications, as follows:

a.  Peoples Preliminary Filing Made in Compliance with Section 1307(f) of the Public Utility Code, Act 74 of 1984 and Commission Regulations at 52 Pa. Code §§ 53.64(c) and 53.65 and Reconciliation Statement Required by 52 Pa. Code §53.64(i) (Peoples Prefiling Exhibit);

b. Peoples Statement No. 1, Direct Testimony of Jon Skoog, with Exhibits 1 through 16;

c. Peoples Statement No. 2, Direct Testimony of Anthony Caldro, with Exhibits 17 through 20;

d.  Peoples Statement No. 3, Direct Testimony of Jeffrey S. Nehr, with Exhibits 21 through 29; and

e.  Peoples Statement No. 4, Direct Testimony of Andrew P. Wachter, with Exhibit 30, as Revised, Calculation of Class Retainage Rates and Adjustments to System Wide LUFG (Lost and Unaccounted For Gas), Exhibit 31 - Marked Highly Confidential and Exhibit 32 - Supplement No. 16 to Tariff Gas ‒ PA PUC No. 45.

There being no objections, Peoples’ Statements and Exhibits were admitted into the record. Tr. 26-28.

Counsel for OSBA offered OSBA Statement No. 1, the Direct Testimony of Brian Kalcic to which Exhibits OSBA I-1 and I-2 were attached along with Mr. Kalcic’s verification. There being no objection, OSBA’s Statement and Exhibits were admitted into the record. Tr. 29-30.

Counsel for OCA also offered OCA Statement 1, the Direct Testimony of Jerome D. Mierzwa and to which Schedules JDM-1 and 2 were attached along with Mr. Mierzwa’s verification. There being no objection, OCA’s Statement and Schedules were admitted into the record. Tr. 30-31.

All counsel agreed to the submission of a Settlement Petition by June 28, 2013, accompanied by statements to support the necessary statutory findings required under Sections 1307(f) and 1318. Tr. 33.

E. Settlement Petition Filing, Objections Period and the Record

On June 28, 2013, the Company and the Statutory Parties filed with the Secretary’s Bureau for the Presiding ALJs’ recommendation and the Commission’s approval their Joint Petition for Settlement of All Issues of the Section 1307(f) Rate Investigation together with Peoples’ Supplement No. 16 to Peoples Tariff Gas - PA PUC No. 45 (Appendix A) and the Settling Parties’ respective Supporting Statements (Appendices B through E), proposing a full settlement of this case. The Settling Parties represent they are in full agreement that the Settlement is in the best interest of Peoples’ customers. They request approval of the Settlement without modification and that OCA’s and OSBA’s complaints be deemed satisfied, and dismissal of Mr. Killmeyer’s and Ms. Smith’s complaints. Counsel for Peoples attached a Certificate of Service to the Settlement Petition, certifying that the Statutory Parties and Individual Complainants Killmeyer and Smith were duly served with a copy of the Settlement Petition on June 28, 2013.

The Presiding ALJs did not receive any objection to the Settlement Petition within the time prescribed, July 9, 2013, for objections as set forth in the May 28, 2013 Second Interim Order. Accordingly on July 10, 2013, the Presiding ALJs issued a Fourth Interim Order Admitting Settlement Petition and Statements in Support into the Record and Closing the Record.

The record in this proceeding consists of the transcripts of the prehearing conference on April 11, 2013 and the June 6, 2013 evidentiary hearing, the aforementioned testimony and documents admitted into the record, orders issued herein, the Formal Complaints filed by OCA, OSBA, Daniel Killmeyer and Elizabeth F. Smith and the Joint Petition for Settlement of All Issues of the Section 1307(f) Rate Investigation with Appendices.

II. TERMS OF THE SETTLEMENT

The Settling Parties agree upon the below Terms of the Settlement.

A. Approval of the 2013 Definitive Filing as Modified

1. Peoples’ April 1, 2013 1307(f) Definitive Filing is approved except to the extent that it is modified by this Settlement.

B. Natural Gas Supply Rates as of October 1, 2013

1. Peoples shall, in lieu of Supplement No. 16, place into effect, for service rendered on and after October 1, 2013, the form of tariff supplement attached to the Settlement Petition as Appendix A, which reflects changes to the retainage rates set forth in Supplement No. 16 as explained below. Supplement No. 16 shall be subject to updates and tariff modifications traditionally performed on October 1.

C. Retainage Levels

1.  Effective October 1, 2013, the tariffed retainage rate under Rates RS, SGS and MGS will be set at 7.7%.[3] Similarly, the tariffed retainage rate under Rate LGS will be set at 6.8%.[4] The Settling Parties agree that this represents a compromise of the divergent views regarding the manner in which retainage rates are calculated. Further, the Settling Parties agree that Commission approval of this Settlement shall not be cited as a Commission endorsement of the retainage calculation methods employed by any party in this proceeding. Each Settling Party reserves the right to present alternative retainage calculation methods in any future proceeding.