PENNSYLVANIA
PUBLIC UTLIITY COMMISSION
Harrisburg, PA 17105-3265
Public Meeting held May 22, 2014
Commissioners Present:
Robert F. Powelson, Chairman
John F. Coleman, Jr., Vice Chairman
James H. Cawley
Pamela A. Witmer
Gladys M. Brown
Petition of Columbia Gas of Pennsylvania, Inc. for P-2012-2338282
Approval of its Long-Term Infrastructure
Improvement Plan
Petition of Columbia Gas of Pennsylvania, Inc. for P-2012-2338282
Approval of a Distribution System Improvement
Charge
8
OPINION AND ORDER
BY THE COMMISSION:
Before the Pennsylvania Public Utility Commission (Commission) for consideration and disposition are the Exceptions of Columbia Gas of Pennsylvania, Inc. (Columbia or the Company); the Office of Consumer Advocate (OCA); and The Pennsylvania State University (Penn State) filed on March 26, 2014, to the Recommended Decision (R.D.) of Administrative Law Judges (ALJs) Mark A. Hoyer and Jeffrey A. Watson, issued on March 6, 2014, relative to the above-captioned proceeding. Columbia and the OCA filed Replies to Exceptions on April 7, 2014. For the reasons set forth herein, we shall deny the Exceptions filed by Columbia, the OCA, and Penn State and adopt the Recommended Decision.
I. History of the Proceeding
On February 14, 2012, Governor Corbett signed into law Act 11 of 2012, (Act11), which amended Chapters 3, 13 and 33 of the Public Utility Code (Code). 66Pa. C.S. § 101, et seq. Act 11, inter alia, provides jurisdictional water and wastewater utilities, electric distribution companies, and natural gas distribution companies or a city natural gas distribution operation with the ability to implement a distribution system improvement charge (DSIC) to recover reasonable and prudent costs incurred to repair, improve, or replace certain eligible distribution property that is part of the utility’s distribution system. The eligible property for the utilities is defined in 66 Pa. C.S. §1351. Act 11 states that, as a precondition to the implementation of a DSIC, a utility must file a long-term infrastructure improvement plan (LTIIP) with the Commission. 66Pa. C.S. § 1352. On August 2, 2012, the Commission entered its Order in Implementation of Act 11 of 2012, Docket Number M-2012-2293611 (Final Implementation Order), which established procedures and guidelines necessary to implement Act 11 and included a Model Tariff for DSIC filings.
On December 7, 2012, Columbia filed its Petition for Approval of its Long-Term Infrastructure Improvement Plan (LTIIP Petition), and on January 2, 2013, Columbia filed its Petition for Approval of a Distribution System Improvement Charge (DSIC Petition) (collectively, Petitions), both filed at this Docket. Columbia’s DSIC Petition included proposed Supplement No. 194 to Tariff Gas – Pa. P.U.C. No. 9 (Supplement No. 194) to introduce the DSIC Rider into the Company’s tariff with an effective date of March 3, 2013. The filing was made pursuant to Section 1353 of the Code, 66 Pa. C.S. § 1353, and in accordance with the Final Implementation Order.
On December 27, 2012, Columbia Industrial Intervenors (CII) filed Comments regarding Columbia’s LTIIP Petition. On January 22, 2013, CII filed a Petition to Intervene and Answer regarding Columbia’s DSIC Petition.
The OCA filed Comments regarding Columbia’s LTIIP Plan on January4, 2013, but did not initially request hearings. Columbia filed Reply Comments on January22, 2013, in response to the OCA’s Comments.
On January 22, 2013, the OCA filed a Notice of Intervention, a Formal Complaint and Public Statement, and an Answer to Columbia’s DSIC Petition. In its Answer to the Columbia DSIC Petition, the OCA stated that the Commission should deny Columbia’s Petition as filed, suspend the proposed Supplement No. 194, and order a full hearing and investigation pursuant to the OCA’s Complaint.
On January 22, 2013, the Office of Small Business Advocate (OSBA) filed a Notice of Intervention and an Answer in relation to Columbia’s DSIC Petition. The OSBA requested hearings and such relief as may be necessary or appropriate. Also, on January 22, 2013, Penn State filed a Petition to Intervene in Columbia’s DSIC Petition proceeding.
On January 30, 2013, G. Thomas Smeltzer filed a Formal Complaint. Letters expressing opposition to the Columbia DSIC were received from other individual customers.
By Order entered in these proceedings on March 14, 2013 (March 2013 Order), the Commission approved Columbia’s proposed LTIIP Plan and the DSIC charge, consistent with the terms of the Order. The Commission approved the DSIC charge subject to refund and recoupment, pending final resolution of the issues raised in the Parties’ filings and identified in the March 2013 Order. The issues identified in the March 2013 Order included: the recovery of costs related to customer-owned service lines; the impact of accumulated deferred income taxes associated with DSIC investments; the calculation of the state income tax component of the DSIC revenue requirement; and the return on equity.
On March 20, 2013, the Commission’s Bureau of Investigation and Enforcement (I&E) filed a Notice of Appearance. Also on March 20, 2013, Columbia filed Supplement No. 195 to Tariff Gas – Pa. P.U.C. No. 9 (Supplement No. 195) in compliance with the March 2013 Order. Supplement No. 195 was filed to become effective April 1, 2013, and established Columbia’s DSIC at 1.5% of distribution revenues applicable to bills rendered on and after April 1, 2013.
On March 27, 2013, Columbia filed a revised calculation of the DSIC to be effective April 1, 2013. This revision incorporated a modification to the accumulated depreciation used to derive DSIC-eligible plant subject to return, but did not change the DSIC, which remained at 1.5%. By Secretarial Letter issued April 9, 2013, the Commission stated that suspension or further investigation was no longer warranted and that Supplement No. 195 was effective as of April 1, 2013.
An evidentiary hearing was held on September 19, 2013. The record consists of a transcript of seventy-four pages and the various testimonies and exhibits of the Parties.
Main Briefs were filed by Columbia and the OCA on October 24, 2013, and by Penn State on October 25, 2013. Columbia, the OCA, and Penn State filed Reply Briefs on November 22, 2013. Of the issues identified by the Commission in the March 2013 Order, only Accumulated Deferred Income Tax (ADIT), the calculation of state income taxes, and the OCA’s proposal to modify the DSIC Tariff language regarding competitive customers remained at issue.[1]
On December 4, 2013, the ALJs issued a Second Interim Order Closing the Record in this matter.
In the Recommended Decision, issued on March 6, 2014, the ALJs, inter alia, approved the DSIC calculation proposed by Columbia and adopted the OCA’s proposed language to be included in Columbia’s tariff addressing the application of DSIC to customers with competitive alternatives. R.D. at 39, 64, 75, 78.
As previously noted, Columbia, the OCA, and Penn State filed Exceptions on March 26, 2014. Also, on March 26, 2014, I&E and CII each filed a letter indicating that they would not be filing Exceptions. Columbia and the OCA filed Replies to Exceptions on April 7, 2014. Also, on April 7, 2014, I&E and CII each filed a letter indicating that they would not be filing Replies to Exceptions.
II. Background
In its DSIC Petition, Columbia indicated that it has undertaken a significant distribution system infrastructure evaluation, repair, and replacement program focused mainly on the portions of its system which were constructed using cast iron and bare steel pipe. Columbia averred that the DSIC will enable it to continue this process without the risk of uncertainty or delay. DSIC Petition at 1. Columbia designated its DSIC-eligible property to include piping, couplings, gas service lines, valves, excess flow valves, risers, meter bars, meters, unreimbursed costs related to highway relocation projects, service lines, and other related capitalized costs. Id. at 4.
Columbia also explained its DSIC calculation in its DSIC Petition and attached tariff Supplement. Initially, Columbia proposed a DSIC of 1.90%, which the Company averred was calculated consistent with the Model Tariff in the Final Implementation Order. DSIC Petition at 4. As noted above, Columbia filed Supplement No. 195 in compliance with the directives set forth by the Commission in the March 2013 Order. Supplement No. 195 established a DSIC of 1.50%. The formula Columbia used for calculation of the DSIC was as follows:
DSIC = (DSI * PTRR)+Dep+e
PQR
Where:
DSI = Original cost of eligible distribution system improvement projects net of accrued depreciation.
PTRR = Pre-tax return rate applicable to DSIC-eligible property.
Dep = Depreciation expense related to DSIC-eligible property.
e = Amount calculated under the annual reconciliation feature or Commission audit.
PQR = Projected quarterly revenues for distribution service (including all applicable clauses and riders) from existing customers plus revenue from any customers which will be acquired by the beginning of the applicable service period.
Supplement No. 195, First Revised Page No. 179.
In accordance with the Model Tariff and Section 1358 of the Code, Columbia’s Supplement No. 195 also includes the following customer safeguards:
1. A 5.0% cap on the total amount of revenue that can be collected by Columbia as determined on an annualized basis;
2. Annual reconciliations performed by Columbia;
3. Audits conducted by the Commission;
4. Customer notice of any changes in the DSIC;
5. A reset of the DSIC to zero as of the effective date of new base rates that include the DSIC-eligible plant; and
6. Provisions for the charge to be set at zero if, in any quarter, Columbia’s most recent earnings report shows that Columbia is earning a rate of return that exceeds the allowable rate of return used to calculate its fixed costs under the DSIC.
Supplement No. 195, First Revised Page No. 180.
As a customer safeguard, the Model Tariff states that the DSIC shall be applied equally to all customer classes. Columbia added to its Supplement No. 195 a provision which provides the following: “The DSIC shall be applied equally to all customer classes, except that the Company may reduce or eliminate the Rider DSIC to any customer with competitive alternatives or potential competitive alternatives and customers having negotiated contracts with the Company, if it is reasonably necessary to do so.” Supplement No. 195, First Revised Page No. 180.
III. Discussion
Based on the positions of the Parties in their Exceptions and Replies to Exceptions, we will address the following four issues in this Opinion and Order: (1) the statutory interpretation of Act 11; (2) whether ADIT should be included in the DSIC calculation; (3) whether a state income tax gross-up should be included in the DSIC calculation; and (4) the application of the DSIC to customers with competitive alternatives.
A. Legal Standards
1. General Legal Standards
As the petitioner or moving party, Columbia has the burden of proof in this proceeding pursuant to Section332(a) of the Code. 66 Pa. C.S. § 332(a). To establish a sufficient case and satisfy the burden of proof, Columbia must show, by a preponderance of the evidence, that the relief sought is proper under the circumstances. SamuelJ. Lansberry, Inc.v. Pa. PUC, 578A.2d 600 (Pa. Cmwlth. 1990), alloc. denied, 529 Pa. 654, 602 A.2d 863 (1992). That is, Columbia’s evidence must be more convincing, by even the smallest amount, than that presented by an opposing party. Se-Ling Hosiery, Inc. v. Margulies, 364 Pa. 45, 70 A.2d 854 (1950). Additionally, this Commission’s decision must be supported by substantial evidence in the record. More is required than a mere trace of evidence or a suspicion of the existence of a fact sought to be established. Norfolk & Western Ry. Co. v. Pa. PUC, 489 Pa. 109, 413 A.2d 1037 (1980).
Upon the presentation by Columbia of evidence sufficient to initially satisfy the burden of proof, the burden of going forward with the evidence to rebut the evidence of Columbia shifts to the opposing party. If the evidence presented by the opposing party is of co-equal value or “weight,” the burden of proof has not been satisfied. Columbia now has to provide some additional evidence to rebut that of the opposing party. Burleson v. Pa. PUC, 443 A.2d 1373 (Pa. Cmwlth. 1982), aff’d, 501 Pa. 433, 461 A.2d 1234 (1983). While the burden of going forward with the evidence may shift back and forth during a proceeding, the burden of proof never shifts. The burden of proof always remains on the party seeking affirmative relief from the Commission. Milkie v. Pa. PUC, 768 A.2d 1217 (Pa. Cmwlth. 2001).
The ALJs reached fifteen Conclusions of Law. R.D. at 75-78. The Conclusions of Law are incorporated herein by reference and are adopted without comment unless they are either expressly or by necessary implication rejected or modified by this Opinion and Order.
Before addressing the Exceptions, we note that any issue or Exception that we do not specifically delineate shall be deemed to have been duly considered and denied without further discussion. The Commission is not required to consider expressly or at length each contention or argument raised by the parties. Consolidated Rail Corp. v. Pa. PUC, 625 A.2d 741 (Pa. Cmwlth. 1993); also see, generally, University of Pennsylvaniav. Pa. PUC, 485 A.2d 1217 (Pa. Cmwlth. 1984).
2. Act 11 Legal Standards Applicable to this Proceeding
Section 1350 of the Code, 66 Pa. C.S. § 1350, establishes a DSIC mechanism that allows certain utilities, including electric distribution companies; natural gas distribution companies (NGDCs); city natural gas operations; and water and wastewater companies, with distribution or collection systems to recover the costs related to the repair, improvement, and replacement of eligible property outside of a rate case.[2] Section 1351 of the Code sets forth the definitions for “eligible property” for each utility type, including NGDCs. 66 Pa. C.S. § 1351. Section 1353(a) of the Code allows a utility to petition the Commission for approval of a DSIC “to provide for the timely recovery of the reasonable and prudent costs incurred to repair, improve or replace eligible property in order to ensure and maintain adequate, efficient, safe, reliable and reasonable service.” 66 Pa. C.S. § 1353(a).
Section 1357 of the Code addresses, in detail, the elements of the DSIC computation. The DSIC calculation is described as follows:
(d) Calculation.
(1) The distribution system improvement charge shall be expressed as a percentage carried to two decimal places and shall be applied in a manner consistent with section 1358 (relating to customer protections) to each customer under the utility's applicable rates and charges. The charge shall not be applied to amounts billed for public fire protection service by water utilities and the State tax adjustment surcharge.