BEFORE THE



BEFORE THEPENNSYLVANIA PUBLIC UTILITY COMMISSIONPennsylvania Public Utility Commission:R-2013-2355886Office of Small Business Advocate:C-2013-2364669Office of Consumer Advocate:C-2013-2364471Dawn D. Spielvogel:C-2013-2364680Charles Glendening:C-2013-2369476Neil Cooper:C-2013-2369509Megan Rummel:C-2013-2370635Susan Hilliard:C-2013-2370725Carol George:C-2013-2370736Kathleen Tack:C-2013-2371780Lawrence Sumansky :C-2013-2371794Amy and John Beiler:C-2013-2371818Gertrude Blair:C-2013-2372633Tim Oesterling:C-2013-2373589:v.::Peoples TWP LLC:RECOMMENDED DECISIONBeforeKatrina L. DunderdaleAdministrative Law JudgeTABLE OF CONTENTSI.History of the Proceeding1Introduction1Public Input Hearing4Description of the Company11Base Rate Request11II.SETTLEMENT TERMS AND CONDITIONS11A.Revenue Requirement12B.Revenue Allocation and Rate Design13C.Universal Service and Conservation15D.DSIC-Related Provisions16Other Provisions17III.DISCUSSION18Legal/Policy Standards for Settlement Approval18Description and Terms of the Settlement18C.Additional Settlement Provisions19IV.DISCUSSION OF SETTLEMENT19Settlement of the Rate Case19Peoples TWP’s Statement in Support21Revenue Requirement21Acquisition Credit23Sales Volumes23Post-Retirement and Post-Employment Benefits24Revenue Allocation and Rate Design25Customer Class Revenue Allocation26Rate Design – Customer Charges28Merchant Function Charge (MFC) and Gas Procurement Charge (GPC)29Acquisition Credit Allocation30Rate Natural Gas Powered Vehicles (NGPV)31Rate Field Transportation Service (FTS)32Other Tariff Changes32Universal Service and Conservation33Customer Assistance Program33Low-Income Usage Reduction Program (LIURP)34Emergency Furnace and Line Repair Program34Residential Customer Personally IdentifiableInformation (PII)35DSIC-Related Provisions35Zeroing Out of DSIC35Reinstitution of DSIC36Other Provisions36Competitive Discount Customers36Reporting Provisions37Early Effective Date of Rates38Response to Issues Raised in Public Input Hearing38Bureau of Investigation and Enforcement’s Statement in Support39Settlement Terms and Conditions42Revenue Requirement42Revenue Allocation and Rate Design43Universal Service and Conservation45DSIC-Related Provisions46Other Provisions46V.THE SETTLEMENT SATISFIED THE PUBLIC INTEREST48Office of Consumer Advocate’s Statement in Support49Revenue Requirement49Acquisition Credit50Revenue Allocation50Rate Design51Universal Service and Conservation52Energy Help Fund/Customer Assistance Program52LIURP Budget53Emergency Furnace and Line Repair Program54Identity Theft Program54DSIC-Related Provisions54Conclusion55Office of Small Business Advocate’s Statement in Support55Revenue Requirement552.Revenue Allocation and Rate Design563.Universal Service and Conservation584.DSIC-Related Provisions59Other Provisions59Conclusion59VI.PRESIDING OFFICER’S CONCLUSION60Revenue Requirement60Revenue Allocation and Rate Design61Universal Service and Conservation63DSIC-Related Provisions64Other Provisions65VII.CONCLUSIONS OF LAW66VIII.RECOMMENDED ORDER67HISTORY OF THE PROCEEDINGA.IntroductionOn April 30, 2013, Peoples TWP LLC (Peoples TWP or the Company) filed Original Tariff Gas – Pa. P.U.C. No. 8 (Tariff No. 8) containing proposed changes in rules and regulations, and proposed increased rates designed to produce an overall base rate increase of approximately $18.66 million based on pro forma data for a fully Projected Future Test Year ending January 31, 2015, which request, if granted, would allow Peoples TWP an opportunity to earn an overall rate of return of 7.97%, including an 11.25% return on common equity. Tariff No. 8 was filed to become effective on June 29, 2013. The Public Utility Commission (Commission) docketed this proceeding at R-2013-2355886. On May 21, 2013, the Office of Small Business Advocate (OSBA) filed a complaint against Peoples TWP at Docket No. C-2013-2364669. On May 21, 2013, the Office of Consumer Advocate (OCA) filed a complaint against Peoples TWP at Docket No. C-2013-2364471. In addition, the following eleven individual ratepayers filed formal complaints in the rate proceeding: Dawn B. Spielvogel at Docket No. C-2013-2364680; Charles Glendening at Docket No. C-2013-2369476; Neil Cooper at Docket No. C-2013-2369509; Megan Rummel at Docket No. C-2013-2370635; Susan Hilliard at Docket No. C-2013-2370725; Carol George at Docket No. C-2013-2370736; Kathleen Tack at Docket No. C-2013-2371780; Lawrence Sumansky at Docket No. C-2013-2371794; Amy and John Beiler at Docket No. C-2013-2371818; Gertrude Blair at Docket No. C-2013-2372633; and Tim Oesterling at Docket No. C-2013-2373589. On June 7, 2013, Peoples TWP filed proofs of publication in seven publications within the service area which notified all ratepayers about the requested rate increase. Peoples TWP included a copy of each publication. The publications noted that, if the requested increase was approved, the total bill for a residential customer using 84 Mcf would increase from $79.22 to $101.71 per month, or by 28.4%. The total bill for a commercial customer using 200 Mcf would increase from $208.53 to $219.77 per month, or by 5.4%. The total bill for an industrial customer using 3,893 Mcf would increase from $2,951.10 to $3,052.34 per month, or by 3.4%.On June 13, 2013, the Commission suspended the filing by operation of law, pursuant to 66 Pa.C.S.A. § 1308(d), for seven months, or until January 29, 2014, unless permitted by Commission Order to become effective at an earlier date. However, by agreement, the Joint Petitioners in the Settlement agreed the new base rate shall become effective on January 1, 2014. On June 21, 2013, the Administrative Law Judge held a prehearing conference, at which time the procedural schedule was established. On June 24, 2013, the presiding officer issued a Prehearing Order establishing various procedural matters and outlining the litigation schedule.On June 25, 2013, the Office of Administrative Law Judge scheduled evidentiary hearings to be conducted from September 18, 2013 through September 20, 2013 and provided a copy of the hearing notice to all parties. On July 8, 2013, the Office of Administrative Law Judge scheduled a public input hearing to be conducted on Tuesday, July 23, 2013 at 6:00 p.m. at the Butler County Government Center in Butler, Butler County, Pennsylvania. A copy of the Public Input Hearing Notice was provided to all parties. On September 18, 2013, the presiding officer conducted the evidentiary hearing in these proceedings. The presiding officer 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 statements and exhibits of the various witnesses, with signed affidavits from each witness, pursuant to an agreement between the parties that cross-examination would not be necessary. Attachment A attached to this Recommendation lists the written statements and exhibits admitted into the hearing record. Also on September 18, 2013, the presiding officer issued a Protective Order pursuant to a Petition for Protective Order filed by Peoples TWP on the same date. Attachment?B attached herein lists those statements and exhibits listed in Attachment A which are Confidential, Proprietary or Highly Confidential, and subject to the provisions of the Protective Order dated September 18, 2013.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 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 active parties reached a full and complete settlement of all issues in the above-captioned proceeding.On October 7, 2013, Peoples TWP filed the Joint Petition for Settlement (Settlement) with the Commission, which Settlement was signed by counsel for Peoples TWP, OCA, OSBA and BIE. The Joint Petition included Statements in Support from Peoples TWP, OCA, OSBA and BIE. In accordance with my instructions, Peoples TWP served a copy of the Joint Petition for Settlement on October 7, 2013 upon each of the eleven individual Complainants who were non-signatories to the Settlement. On October 10, 2013, the presiding officer issued a letter which gave each individual Complainant the option either to join in the Settlement or file objections to the Settlement. They were instructed that the presiding officer must receive either the signed “Joinder in Settlement”, with which they were provided, or their written objections within 13?days of the date of the letter providing the copy of the Settlement to each of them. As that letter was dated October 10, 2013, the signed Joinders or objections were to have been received by October 23, 2013. Gertrude Blair exercised her option to join in the Settlement. Dawn Spielvogel filed numerous comments to the Settlement, stating she believed “the Joint Petition for Settlement should be looked at and other provisions, rules and budgets be revisited to make sure there are no further unanswered questions or issues not resolved.” No other objections or comments were received and no other party exercised the option of joining in the Settlement Petition.The record consists of 156 transcript pages and the above-referenced statements, exhibits, and documents. The record closed on October 23, 2013. This matter is now ready for a Recommended Decision.B.Public Input HearingThe Commission received numerous informal protest letters and eleven?formal customer complaints in the base rate matter docketed at R-2013-2355886. Accordingly, the ALJ scheduled one public input hearing within the Company’s service territory in order to provide customers with an opportunity to comment and testify concerning this proceeding. The ALJ scheduled the public input hearing for the evening of July 23, 2013 in Butler, Butler County, Pennsylvania. The Company was directed to provide notice to the public through advertisements in newspapers of general circulation within the service area, which notice was provided. The public input hearing was attended by 115 people of whom twenty-eight (28)?people testified under oath.As noted above, the presiding officer conducted one public input hearing on July?23, 2013 from which one transcript was produced consisting of 99 pages. The substance of the testimonies received that day are summarized below:Marge Davis Harding testified as a customer of Peoples TWP and as a member of AARP, and opposes the increase. She stated the 28% proposed increase will have a severe impact on all consumers but especially those people who are on fixed incomes that have not had a corresponding increase in their resources. The amount proposed is beyond the ability of these consumers to pay and the utility has not justified the increase. The cost of infrastructure replacement, cited by the utility as the reason for the increase request, should be a normal cost of doing business for which Peoples TWP should have budgeted. Recent studies by AARP found assistance programs such as LIHEAP have been too low and the gap between the assistance received versus the amount owed on heating bills has been increasing. She urged the Commission to carefully consider the rate increase request, the impact it will have on citizens who are on fixed incomes, and to find a better way to balance the costs of service with the impact on consumers.Joseph Canel is a customer of Peoples TWP and opposes the increase. He questioned why Peoples did not factor in the costs of replacing the infrastructure when it bought TWP. This cost was and is a foreseeable cost of doing business. Betty M. Kraus is a customer of Peoples TWP and opposes the increase. She testified she is on a fixed income and on a budget plan with Peoples TWP and all of her utilities. She cited how her budget bill increased by $54 in one month, from $62 per month to $116 per month. When she called the utility to find out why and to complain, her budget billing was adjusted down to $84 per month. She agreed with the prior two witnesses that Peoples should have anticipated the cost of infrastructure replacement when it bought TWP and it should have kept that money in reserve instead of passing the cost off on consumers.Charles Snyder is a customer of Peoples TWP and opposes the increase. He questions why the utility needs a 28% increase. Mr. Snyder referred to the passage of legislation concerning DSIC charges and read the portion of the legislation which indicated the DSIC charge was to prevent the need for base rate increases. He questioned that, since the DSIC charge is supposed to pay for the infrastructure replacement, why is Peoples TWP coming to the Commission asking for 28% increase in the base rate in order to replace infrastructure. Willie Adams is a customer of Peoples TWP and opposes the increase. He testified he opposed the increase and agreed with the testimonies of the witnesses who came before him for the reasons which they all cite.Thomas Edwards is a customer of Peoples TWP and opposes the increase. He testified he recalled the utility just got a 10% increase in the base rate a few years earlier. He recalled the time before Peoples bought TWP when there wasn’t a distribution charge but now there are numerous charges on his bill. He testified the 28% increase is unfair because the estimate is that the entire bill (which includes the commodity charge) will increase by 28% which means the distribution and customer charges are increasing by more than 28%. He also complained that the Commission should require the utility to provide billing statements that are understandable. In addition, if natural gas is so cheap with all the fracking going on in the area, why does his gas bill keep rising. The whole situation is obscene and ridiculous. Mr. Edwards indicated Peoples should have known the condition and age of the pipes before it bought TWP. He indicated the owner of Peoples TWP is just a hedge fund out to make large profits for shareholders. He wonders if the Commission will know if the money is spent appropriately. Lastly he does not think it’s fair that residential customers pay so much more than commercial or industrial customers will.John P. Mall has been a customer of Peoples TWP or TWP for 54 years and opposes the increase. He testified TWP was a good company. He retired 23 years ago but his retirement income is exactly the same now as it was 23 years ago. The rate increase is too high and will hurt fixed income people, young families trying to make ends meet and families trying to send their kids to college. He agrees with the testimonies provided before him that no one can afford this increase since no one has seen a 28% increase in their income. He thinks the cost of gas should be the same regardless of whether the customer is a residential, commercial or industrial customer, and this difference between the classes is unfair. He does not understand why his gas bill keeps rising when the shale reserves are so large.John J. Baron testified he is a customer of Peoples TWP and opposes the increase. He lives in a poorly insulated apartment with an old furnace. He detailed the activities of his day in the winter when the weather is cold and what he must do to stay warm because he cannot afford to turn up the heat. He wears a coat in his apartment and often spends time in a drop-in center near his apartment. He disagrees with the increase because it will make it harder than it already is for him to stay warm this winter because he is on a limited income. He wants the Commission to investigate and find other solutions.Dawn Spielvogel is a customer of Peoples TWP and a Formal Complainant herein. She testified she opposes the increase and does not understand why the utility is making this proposal. She testified the lines are older than 70 years and it should not be a surprise to the company that the lines need to be replaced, however, it is unfair to expect the customers to pay for the costs of replacement. She said the utility should have put money aside to pay for these replacement costs. She questioned many elements of the rate request including the cost per square foot of new pipelines, the possibility of tap-in to the nearby transmission lines, if the increase will go to new infrastructure or replacing aging infrastructure, how much money will be available to the utility for replacement costs, how will the money be spent, and will customers get updates on the progress. Jeff Smith is a customer of Peoples TWP and opposes the increase. He testified he is the Executive Director on the Butler County Council of Governments, which sent a letter in June 2013 to the Commission opposing this rate request. Although acknowledging the infrastructure needs to be replaced, he stated the Butler County Council of Governments is acutely aware of the strain this increase would put on its residents. The percentage increases do not make sense and he does not understand why the utility says it will only replace 35 miles of pipeline per year. He asked the Commission to question the utility closely on its request.Duane Kyper is a customer of Peoples TWP and opposes the increase. He testified he works for an industrial gas service that handles its own pipeline maintenance and claims it as a Capital Expenditure which comes out of the profits. He testified the owner of Peoples TWP is Steel Rivers Infrastructure Partners which is an investment firm that is buying up domestic natural gas company and promises its investors will realize a 15% return on their investment. He does not understand why the Commission allows the utility to get away with this rate of return. He asserts the costs of infrastructure replacement should come out of the utility owner’s profits, not out of his pockets, and he is opposed to the increase.Michael Lazaroff is an attorney and customer of Peoples TWP, and he opposes the increase. He testified he understands the basic premise of utility law – that a utility gets a monopoly in exchange for receiving a reasonable rate of return – but he insists the business must budget for maintenance and repair costs. He testified the Commission embraced de-regulation previously and that action allows investment firms to buy up utilities with one goal which is increasing the Rate on Investment. He recalls his gas bill used to go down in the summer when usage was lower but now the bill goes up in the summer due to manipulation by the utility. He pointed to the utilities law in the state, saying it screams for consumer protection because now there are various fees with excessive rate increase requests that are not reasonable for the residential class. He pointed out a client who was a good customer of Peoples TWP who filed for bankruptcy. Despite not listing Peoples TWP as a creditor (because the client did not have a delinquent account with Peoples TWP), Peoples TWP sent her a notice and insisted she had to pay the utility $200 in order to continue to receive natural gas service when she was already a good customer.Kathy West is a customer of Peoples TWP and opposes the increase. She testified she agreed with many of those witnesses who testified before her and wonders why the utility needs so much profit. She provided details from her recent billing statements which increased greatly recently without any listed reason. She stated the utility must do its own budgeting to pay for the cost of infrastructure replacement and does not believe the customers should have to pay for the utility’s lack of insight or planning.James Farley is a customer of Peoples TWP and opposes the increase. He testified he recalls the last increase back in 2010 which was 10%. He said adding another 28% increase on top of that earlier increase results in exorbitant rates. He pointed out that inflation has not increased by that amount since then and stated it is only corporate greed that makes the utility seek a return on investment as high as 11%.Terry Seilhamer is a customer of Peoples TWP and opposes the increase. He testified he finds it outrageous that Peoples TWP wants the residential customers to swallow a 28% increase just so its investors can get an 11% return on the investment, especially since the industrial customers only to have to pay 3% more. He pointed out ratepayers haven’t seen a 28% increase in their income lately and no individual can get an 11% return on investment on a bank account. He provided details from his latest billing statements. He said replacement costs should have been a foreseeable expense and the timing of this request will result in the bills going up higher at the time of the year when natural gas usage goes up. He does not think this request is fair.Lawrence Sumansky is a customer of Peoples TWP and a Formal Complainant herein, and opposes the increase. He testified TWP used to treat its customers kindly and fairly until it was bought by Peoples. He pointed out there is no other supplier available which means the customers have no options but to use the utility. He stated the cost of replacing the infrastructure is a natural cost of doing business which cost is absorbed by all the other utilities he pays. He says the Commission should expect the natural gas utilities to do the same and still provide the product safely. He perceives the utility as threatening customers with unsafe natural gas service if they don’t go along with the base rate increase which he believes is excessive and contains too much disparity between the residential and commercial classes.Deborah A. Ward is a residential customer of Peoples TWP and opposes the increase. She testified she is a landlord who pays for the natural gas service used by her tenants. She detailed how her billing statements increased recently without any rationale or explanation. She states the holding company which owns the utility should have done better due diligence and priced out the cost of infrastructure replacement because it’s a normal cost of doing business. She claims she would have no complaint about paying towards the cost of the replacement but a 28% increase when the utility holds a monopoly is wrong. She pointed out she has no choice but to buy from Peoples TWP and she questions why the return on investment is so high. She agreed specifically with the testimony provided previously by witnesses Canel and Edwards.Robert K. Fox testified he is a customer of Peoples TWP and opposes the increase. He does not understand why Peoples TWP refers to their pipelines as unsafe and part of a condemned pipeline system when it’s not saying the same thing for that portion of its system in Kittanning and Ford City. He stated he understood why a smaller system (Herman Gas Company) recently got a 50% rate increase when the lines really were old and the company was barely surviving, but he does not see that Peoples TWP is in the same situation as Herman Gas Company.Margaret Weckerly testified she has been a customer of Peoples TWP for over ten?years and opposes the increase. She agrees with the testimony provided by the previous witnesses. She states she has 30 years of management experience and in her work she had to put money aside for maintenance costs. She believes Peoples TWP should have been required to offset these costs by putting money aside previously if they knew they were going to have to replace these pipelines. She testified that according to the latest U.S. Census, the population of Butler County is 184,970 people with 4,800 employers (from small businesses to industrial employers) but 6,600 unemployed job seekers and another 1,500 who are unemployed non-job seekers. She noted her daughter, who testified earlier, makes only $660 per month on SSI income and from that income she needs to pay for her expenses, including natural gas. She said there is a large system of non-profits in Butler County who try to provide assistance, such as LIHEAP, “BERRY” and church groups, but each year these programs run out of money to help with utility costs. She wants the Commission to be diligent, notice the numbers of people affected by the proposed increase, recognize the proposal is unfair and tighten the reins on Peoples TWP’s spending and profit.Pauline Peluso testified she is a customer of Peoples TWP and opposes the increase. She cannot believe the utility is asking for a 28% increase while there’s a glut of natural gas under the area. She stated the disparity between the rate to be charged to residential versus commercial customers is ludicrous. She also testified she tried looking at Peoples TWP’s filing documents but they are too confusing. She said inflation has not gone up that much and income levels have not gone up, and she questioned why it’s considered fair for the utility to get this much profit. She inquired whether the costs the utility pays will actually end up being what the utility says the costs will be. Ms. Peluso read a quote from the Pittsburgh Business Times concerning the owners of Peoples TWP which stated “invest $36 million in natural distribution system and it will maintain those costs through 2014 at least.”Ramona Arena Baker testified she is a customer of Peoples TWP and opposes the increase. She stated the requested increase is outrageous and unconscionable. She reported her budget billing went from $93 per month to $136 per month without the requested increase but she has not seen a salary or cost of living increase. She stated customers cannot afford this increase.Charles W. Tanner, Jr. testified he is a customer of Peoples TWP and opposes the increase. He agrees with the testimony provided by Ms. Harding earlier. He stated the utility should budget for these costs. He noted a previous witness who’s increase in the budget billing amount recently increased by 43% which is inappropriate where the population is largely elderly. He testified that as a business owner he can set his rates at any cost he wants but he may not get customers because of the effect of competition. He complained, however, that as a natural gas customer he has no choice. He noted there are choices with electricity suppliers though he didn’t think that choice has worked out well. He stated that the rates charged need to make sense and be fair but the only intent of the utility is to get as much money in profit as the utility can get. He asked the Commission to deny any increase now.Bud Cavaliero is a customer of Peoples TWP and opposes the increase. He testified Peoples TWP is playing games by asking for 28% when they are willing to accept less. He stated an increase of 3% would be substantial enough. Paul Kowalik is a customer of Peoples TWP and opposes the increase. He testified he agrees with the testimonies provided by the earlier witnesses. He stated he received an insert in his July billing statement concerning the DSIC approval by the Commission. He testified Peoples TWP shouldn’t get the increase requested because they already are getting what they need for infrastructure. He questioned if the 28% increase is approved and then the infrastructure is replaced would there be a drop in the rates.John S. Wasylyk has been a customer of Peoples TWP for approximately 37 years and opposes the increase. He testified he agrees with the testimony provided by the earlier witnesses and he strongly approves of their comments. He states there is a gas boom going on with no taxes being charged to the gas companies yet no one’s natural gas costs are going down. Linda Bicehouse is a customer of Peoples TWP and opposes the increase. She testified she agrees with what Mr. Jeff Smith said earlier. She stated she understands there’s a need for a slight increase but a 28% increase is excessive.Karen L. Kubit is a customer of Peoples TWP and opposes the request. She cited to Act 11 of the Public Utility Code from February 14, 2012 in which DSIC charges were enacted which allowed companies to provide for timely recovery of costs if the repairs are prudent. She stated a 28% increase in addition is redundant. She complained the billing statements don’t get lower even though there is a glut of natural gas in the area. She indicated that the utility should either depreciate the cost of the repairs over a period of years or expense the cost in the year completed but the Commission should not allow the utility to take both actions. Ms. Kubit testified she looked up information about Steel City Rivers Infrastructure which is a private investment firm getting a high rate of return on its investment while she only gets 0.25% on her bank account. All of these costs for utilities trickle down to consumers and it’s not just about the natural gas costs any more.Vernon Wise, Jr. testified he is a residential customer and a commercial customer of Peoples TWP as the publisher of the Butler Eagle. He has been a customer for more than 50 years. He states that investment firms are going after utilities to purchase because the state allows the firms to get a fair return on the investment, however, it requires the consumers to pay the utility’s “piper” instead of the utility paying it. He also stated that only 30% of TWP’s pipelines need to be replaced and on July 1, 2013, the commission approved a 9.1% increase to fix these lines. He stated he is disturbed to hear other witnesses who think the 28% has to do with replacing the pipelines because the rate base increase has little to do with infrastructure replacement. He believes utilities are entitled to a fair return and 10% seems to be the average rate of return given to utilities by the Commission.C.Description of the Company TC "C.Description of the Company" \f C \l "2" Peoples TWP is a limited liability company which provides natural gas transmission, distribution and supplier of last resort service as a “public utility” and “natural gas distribution company” (“NGDC”) as those terms are defined in Sections?102 and 2202 of the Public Utility Code, 66 Pa.C.S.A. §§ 102 and 2202. As such, Peoples TWP provides natural gas service to approximately 59,045 customers throughout portions of the counties of Allegheny, Armstrong, Beaver, Butler, Clarion, Clearfield, Indiana, Jefferson and Westmoreland in western Pennsylvania. D.Base Rate Request TC "D.Rate Increase" \f C \l "2" Peoples TWP’s revenue increase request, as filed, proposed revised tariff rules and regulations, and proposed increased rates designed to produce an overall base rate increase of approximately $18.66 million annually based on pro forma data for a Fully Projected Future Test Year ending January 31, 2015. II.SETTLEMENT TERMS AND CONDITIONS TC "II.TERMS AND CONDITIONS OF SETTLEMENT" \f C \l "1" The Joint Petitioners agreed to a settlement covering all issues in the proceeding. Joint Petitioners proposed rates designed to produce an additional $13.8 million in annual base rate operating revenues, exclusive of a $2 million annual Acquisition Credit approved by the Commission when approving the acquisition of Peoples TWP by LDC Holdings II LLC, at Docket No. A-2010-2210326. Upon the Commission’s approval of the settlement, Peoples TWP will receive an overall increase in existing base rate approximating 17% instead of the original request for a 23% increase. Upon the Commission’s approval of the settlement, a monthly bill for the typical residential customer using 84 Mcf of gas per year will increase $15.71, from $79.22 to $94.94, or by 20%, instead of the proposed 28.4% monthly increase of $22.49 as originally proposed in the initial filing. The overall increase, including the Acquisition Credit, is $11.8 million. The Joint Petitioners are in full agreement that the Settlement is in the best interests of Peoples TWP and its customers.The terms and conditions of the Settlement are set forth fully in Section III to the Settlement filed on October 7, 2013, incorporated herein by reference, beginning at numbered paragraph 18 through and including numbered paragraph 42.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 is in the public interest. The Joint Petitioners respectfully request that the Settlement Filing, including those tariff changes included in Original Tariff Gas – Pa. P.U.C. No. 8 and specifically identified in Appendix “B” attached hereto, be approved as specified below:Revenue Requirement 19. Base rates will be designed to produce an increase in annual operating revenues of $13.8 million, exclusive of the Acquisition Credit, based upon the pro forma level of operations for the twelve months ending January 31, 2015.20. The Company will implement the Acquisition Credit by providing base rate credits calculated to result in credits of $2 million per year, until $10 million in credits have been provided in accordance with the terms of the Acquisition Settlement.Rates will be designed on Residential volumes of 4,770,000 Mcf and SGS [Small Gas Service] volumes of 812,549 Mcf. All other rate design volumes will be the Company’s volumes. Commencing with the effective date of new rates resulting from this rate case, Peoples TWP will be permitted to defer the difference between the annual Post-retirement Benefits Other than Pensions (“PBOP”) expense calculated pursuant to FASB [Financial Accounting Standards Board] Accounting Standards Codification (“ASC”) 715 and the annual PBOP cost included in rates in the amount of $391,787 ($489,000 accrual at an expense rate of 80.12%). Only those amounts attributable to operation and maintenance would be deferred and recognized as a regulatory asset or liability. The difference will be recorded as a regulatory asset or liability and will be expensed or credited in future rate proceedings over an amortization period to be determined in the next base rate proceeding. In addition, base rates in this Settlement reflect the amortization of deferred PBOP expenses of $968,638 to be recovered over a two year period, producing an annual amortization amount of $484,319.The Company will continue to make deposits into PBOP trusts equal to the actuarially determined amounts. If annual amounts deposited into PBOP trusts, pursuant to the Settlement, exceed allowable income tax deduction limits, any income tax liability will be recorded as negative deferred income taxes, to be added to rate base in future proceedings.The Company’s request to establish a regulatory asset for the difference between the accrual amount of Post-employment Benefits (life insurance and worker’s compensation costs) included in injuries and damages expenses as governed by ASC 715 and the “pay-as-you-go” amount is approved. The Company will continue to recover these costs for ratemaking purposes on a pay-as-you-go basis.Revenue Allocation and Rate DesignThe Joint Petitioners’ agreements on revenue allocation and rate design, including allocation of the $2 million annual Acquisition Settlement credit and the GPC [Gas Purchase Charge] rate, are reflected in Appendix “A”. Revenue allocation and rate design reflect a compromise and do not endorse any particular cost of service study or methodology.The Merchant Function Charge (“MFC”) for Rate RS/RUS retail customers shall be 2.0%. The MFC for Rate SGS retail customers shall be 0.41%.The Company’s proposal to create revised rate classes is adopted.The Company’s proposals to establish revised Customer Choice and Gas Transportation Programs are approved, including the Company’s proposals for Priority One Pooling, Non-Priority One Pooling, Local Gas Aggregation Pooling and imbalance/pool-to-pool trading.The Company’s proposal to eliminate the administrative adder applicable to its Purchase of Receivables (“POR”) program is approved.Other tariff modifications, not otherwise addressed by this Settlement Proposal, are approved.The following monthly customer charges are adopted:$15.75 RS Customer Charge $35 SGS-I Customer Charge $65 SGS-II Customer Charge$75 MGS-I Customer Charge$175 MGS-II Customer ChargeLGS customer charges remain as originally proposedRate NGPV will go into effect as proposed by the Company in Peoples TWP Statement No. 13-R. NGPV customers will be assigned to the SGS or MGS [Manufactured Gas Service] class based upon the normalized annual usage of the customer. If service under the NGPV [Natural Gas Powered Vehicle] rate schedule becomes significant enough, the Company will give consideration to segregating the NGPV customers into their own class for cost allocation and rate design purposes. The impact of discounts, if any, will be addressed in future rate case proceedings based upon the facts and circumstances of the Cost of Service Study results and the rate design implications of such discounting. The Company will consider the public policy implications at that time.The Company’s proposed rates and revenue increase allocation to the LGS [Large Gas Service] class as set forth in its rebuttal testimony are accepted.C. Universal Service and ConservationThe Company’s Energy Help Fund will be revised as follows:The program will be renamed the Customer Assistance Program (“CAP”).b.The arrearage forgiveness credit will be revised to equal 1/36 of the CAP customer’s pre-program arrearage. The Company agrees to grant arrearage forgiveness as each full month equivalent bill payment is received.c.CAP customers who receive LIHEAP [Low Income Heating Energy Assistance Program] benefits or are on a fixed income (Social Security, Pension or Disability) will be required to recertify income every two years. All other CAP customers will be required to recertify income annually. The Company will contract with Dollar Energy Fund (“DEF”) to perform re-certifications, which are currently conducted in-house.d.Delinquent CAP customers will not be removed from CAP, but will remain in CAP, where they will be subject to active collection and termination.e.Late payment penalties will not be imposed on CAP customers.The annual LIURP [Low Income Usage Reduction Program] budget shall be $255,000, with LIURP costs recovered through Rider USP – Universal Service Program. Nothing contained herein limits the parties’ rights to propose or reject or address additional funding above this level in the current proceeding involving the proposed merger of Peoples and Equitable Gas Company, LLC at Docket No. A-2013-2353647 or in any other future proceeding. Up to 20% of the LIURP budget may be used to assist customers whose income is within 151%-200% of the Federal Poverty Level. Unspent portions of the LIURP budget shall be rolled over to be used in subsequent years. The annual USP reconciliation reflects actual LIURP spending, and the unspent portion of the budget is reflected in the subsequent year’s budget, which prevents double recovery of LIURP budget amounts.The Company’s proposal to establish an emergency furnace and line repair program is adopted. The program budget shall be $50,000, and the costs of the program will be recovered through Rider USP. Parties to this Settlement do not waive their right to challenge the continuation of the emergency furnace and line repair program in future proceedings.The Company agrees to refresh its “Identity Theft Program” consistent with applicable state and federal law, and agrees to provide a copy to interested parties within six?months after the conclusion of these proceedings.D. DSIC-Related ProvisionsThe DSIC [Distribution System Improvement Charge] for Peoples TWP shall be reset to 0.0% effective with the effective date of settlement rates in this proceeding.Peoples TWP will be eligible to include plant additions in its DSIC once eligible plant account balances exceed the level projected by Peoples TWP at January 31, 2015. The foregoing provision is included solely for purposes of calculating the DSIC, and is not determinative for future ratemaking purposes of the projected additions to be included in rate base in a fully projected future test year filing.E. Other ProvisionsThe Company agrees to establish more formal documentation of the need for discounts offered to customers in competitive situations, and the level of discounts offered to customers in competitive situations. The documentation will reflect information available to the Company regarding capital and operating costs for bypass (interstate and local alternatives) or alternative fuels and considered in determining whether to negotiate a discounted rate. Documentation will identify offers made in negotiations. Documentation will also identify risks and lost potential revenues if a customer decides to install and use alternative facilities to replace Peoples TWP service in whole or in part. On or before May 1, 2014, the Company will provide the Commission’s Bureau of Technical Utility Services (“TUS”), BIE, OCA and OSBA an update to Peoples TWP Exhibit No. AC-2, which will include actual capital expenditures, plant additions and retirements by month for the twelve months ending January 31, 2014. On or before May 1, 2015, the Company will update Exhibit No. AC-2 filed in this proceeding for the twelve months ending January 31, 2015. In the Company’s next base rate proceeding, the Company will prepare a comparison of its actual expenses and rate base additions for the twelve months ended January?31, 2015 to its projections in this case. The Joint Petitioners will endeavor on a best efforts basis to obtain approval in time for new rates to become effective by January 1, 2014.III.DISCUSSION TC "III.DISCUSSION – SETTLED ISSUES" \f C \l "1" A.Legal/Policy Standards for Settlement Approval TC "A.Legal/Policy Standards For Settlement Approval" \f C \l "2" 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 would otherwise 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. The benchmark for determining the acceptability of a settlement or partial settlement is whether the proposed terms and conditions are in the public interest. Warner v. GTE North, Inc., Docket No. C-00902815, Opinion and Order entered April 1, 1996; Pa. Pub. Util. Comm’n?v. CS Water and Sewer Associates, 74 Pa. PUC 767 (1991). For the following reasons, I find that the proposed Settlement embodied in the Settlement Petition is in the public interest and, recommend that it be approved without modification.B.Description and Terms of the Settlement The Settlement consists of the 15-page Joint Petition containing the terms and conditions of the Settlement. In addition, there are six (6) appendices attached to the Settlement. Appendix A to the Settlement sets out the Revenue Allocation. Appendix B to the Settlement is the Tariff changes included in Supplement No. 2 to Tariff Gas – Pa. P.U.C. No. 8 to be filed and to become effective in accordance with the Settlement. Appendices C through F to the Settlement are the statements in support of the Settlement filed by Peoples TWP, BIE, OCA and OSBA, respectively.C.Additional Settlement Provisions There are certain general, miscellaneous terms in the Settlement which should be mentioned. Paragraph No. 46 of the Settlement establishes the procedure by which any of the Parties may withdraw from the Settlement and proceed to litigate this case, if the Commission modifies the Settlement. In addition, paragraph nos. 49 through 52 of the Settlement provide the Settlement does not constitute an admission against or prejudice to any position which any of the parties 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 parties withdraw under Paragraph No.?46.On the basis of these and other provisions of the Settlement, the parties request: (a) approval of the Settlement, to become effective on January 1, 2014; (b) Peoples TWP be permitted to file a tariff or tariff supplement containing the rates and rules in Appendix “B” to the Settlement; (c) the closing and termination of the rate investigation at Docket R-2013-2355886; (d) the dismissal of the complaints of OSBA and OCA; and (e) the dismissal of all customer complaints associated with this proceeding.IV. DISCUSSION OF SETTLEMENTIt is the policy of the Commission to encourage parties to contested on-the-record proceedings to settle the dispute. See, 52 Pa.Code § 5.231. Settlements eliminate the time, effort, and expense of litigating a matter to its ultimate conclusion, which may include review of the Commission’s decision by the appellate courts of Pennsylvania. Such savings not only benefit the individual parties to the proceeding, but also the Commission and all ratepayers of the respondent utility.A.Settlement of the Rate CaseThe Settlement submitted in this case represents a complete and full settlement of all issues. Under the terms of the Settlement, the amount of the increase has been reduced to $13.8 million per year, or approximately 17%, over present rates. The rate design is based on Residential volumes totaling 4,770,000 Mcf and Small Gas Service volumes totaling 812,549 Mcf. In addition, the Settlement provides Peoples TWP will implement the Acquisition Credit contained in the Acquisition Settlement at Docket No. A-2010-2210326, by providing base rate credits of $2 million per year over the next five years to its customers. This credit will provide the residential class with approximately $1.7 million per year in credits over the next five years, which will lessen the effect of the rate increase on customers’ bills.On revenue allocation and rate design, residential customers will be assigned (or allocated) $12.1 million (out of the total $13.8 million) in base rate increases. The remaining $1.7 million in base rate increases are distributed among the other customer classes. Under the Settlement rates, a residential customer using 84 Mcf of gas per year will see the average total monthly bill increase by 20% from $79.22 to $94.94. In addition, monthly customer charge for the average residential customer will increase from $12.75 to $15.75, which represents an increase of approximately 23%. The SGS-I and SGS-II commercial customers will see the monthly customer charges increase to $35 and $65, respectively. The MGS-I and MGS-II customers will see the monthly customer charges increase to $75 and $175, respectively. The monthly customer charges for LGS customers will remain the same. Lastly, the Joint Petitioners agreed Peoples TWP’s Universal Service programs will change how often Customer Assistance Program (CAP) ratepayers must re-certify. Other changes should reduce the number of delinquent CAP customers removed from CAP or who must pay late payment penalties. Changes were made to the Emergency Furnace and Line Repair Program, the Identity Theft Program, the LIURP budget, competitive discount customers, and DSIC related provisions, in response to criticisms made at the public input hearing. B.Peoples TWP’s Statement in Support1. Revenue RequirementPeoples TWP notes the Settlement provides for base rates to be designed to produce an increase in base rate revenue of $13.8 million, exclusive of the $2 million annual credit (“Acquisition Credit”) to be provided pursuant to the terms of the 2011 settlement by which the former T.W. Phillips Gas and Oil Co. (now Peoples TWP) was acquired by a subsidiary of SteelRiver Infrastructure Fund North America LP (“Acquisition Settlement”) Settlement ? 19). This $13.8 million increase is approximately 74% of Peoples TWP’s original request of $18.66 million, which will enable the Company to continue to provide safe and reliable service to customers.Peoples TWP acknowledges the amount of the Settlement increase is greater than the increases agreed to in recent base rate increases for Peoples TWP but offers several reasons why this Settlement increase is greater. First, Peoples TWP uses the fully projected future test year authorized by Act 11 of 2012 (“Act 11”), which is the 12 month period beginning with the first month after the full statutory suspension period. 66 Pa.C.S.A. §?315. This rate case includes the revenue requirement associated with the capital invested prior to the rate effective date as well as the capital invested during the fully projected future test year ending January 31, 2015, whereas prior rate cases included only the capital invested prior to the rate effective date.Second, the Company requires additional revenues resulting from the significant increase in capital investments made to replace and improve its pipeline infrastructure. Peoples TWP’s pipeline infrastructure capital budget is driven by its Smart Modernization Plan, which is a comprehensive infrastructure replacement program targeting the replacement of bare steel pipes and associated services, and has a goal of completing that replacement within 20 years. This goal is fully consistent with the accelerated pipeline replacement programs encouraged by the Commission and General Assembly and embodied in the Company’s Long Term Infrastructure Investment Plan (“LTIIP”). Such improvements are clearly in the public interest.Peoples TWP invested $12.2 million in plant in calendar year 2012. Peoples TWP budgeted $17.0 million for replacement of mains, services and meters during calendar year 2013. Finally, the Company projects to spend an additional $9.94 million to replace mains, services and meters from January 1, 2014 through January 31, 2015.In addition, the Company is undertaking other activities associated with pipeline safety and compliance, which have increased operating and maintenance costs and contribute to the level of revenue increase, but which provide definitive public benefits. For example, Peoples TWP has added employee resources to undertake damage prevention and improve line location capabilities, including line mapping, use of damage prevention software, enhanced public awareness targeting education of excavators and emergency responders, and new programs to enhance corrosion monitoring. The Company notes the amount of the increase falls within the range of outcomes bounded by Peoples TWP’s proposed increase and the revenue requirements contained in the direct testimonies of BIE and OCA. While supporting their respective positions for litigation purposes, the Joint Petitioners recognize the Commission likely would accept some adjustments but not others.Peoples TWP points out that, under the Settlement, the revenue requirement is a “black box” amount where the parties did not specify adjustments that are allowed or disallowed, with a few select exceptions. “Black box” settlements facilitate agreements as parties are not required to agree on all or, in many cases, any specific ratemaking adjustments. A “black box” settlement may lead parties to agree on an overall revenue requirement, without, for example, agreeing to a specific return on equity or identifying specific revenues and/or expenses that are allowed or disallowed. Peoples TWP opines the revenue requirement is reasonable and will provide the Company with the additional revenues necessary to provide reliable services to customers. As such, the Settlement appropriately balances the need for the Company to have an opportunity to earn a reasonable rate of return with its customers’ need for reasonable rates.a. Acquisition CreditThis base rate proceeding is the first Peoples TWP filed since the Acquisition Settlement. Thus, in accordance with the provisions of Paragraph 27(a) and (d) quoted above, Peoples TWP proposed to provide a $2 million Acquisition Credit over a five-year period. No party opposed the flow-back of the credit over five years, and Peoples TWP contends such provision is reasonable and should be approved. b. Sales VolumesOne of the issues in this proceeding concerned the Company’s projection of sales volumes in the fully projected future test year. Settlement Paragraph #21 provides that rates will be designed on residential sales volumes of 4,770,000 Mcf, which figure represents an increase of 88,273 Mcf over the Company’s claimed volumes of 4,681,727 Mcf. The Settlement further provides for Rate SGS rates to be designed based upon volumes of 819,549 Mcf, which is in excess of the Company’s claimed volumes of 781,142 Mcf. These increases in volume for rate design purposes reduce the resulting rates per Mcf for recovery of the Settlement revenues and, Peoples TWP contends, this compromise is in customers’ interests and should be approved.c. Post-Retirement and Post-Employment BenefitsThe Company reflected as an expense an amount calculated pursuant to the accrual for Post-Retirement Benefits Other than Pensions (“PBOP”) under FASB ASC 715 (formerly FAS 106), beginning with the effective date of rates arising from the Company’s 2005 base rate proceeding at Docket No. R-00051178. The Company deposited into a dedicated trust the annual actuarially-determined amounts, and PBOPs are paid out of the trust. Pursuant to the prior settlement, the Company defers the difference (whether positive or negative) between the ratemaking allowance and the annual PBOP accruals, and the deferred balance is reflected as a debit or credit to PBOP expense in subsequent rate cases. Peoples TWP proposed to continue that process in this proceeding, no party opposed such approach and the Settlement reflects the Joint Petitioners’ agreement on this continued process under Paragraphs #22 and 23 in the Settlement. The procedure assures that customers pay only the actual cost of PBOPs, and assures that a trust is maintained for accrued amounts. This procedure is in accordance with the Commission’s Statement of Policy concerning Implementation of FAS 106, located at 52 Pa.Code §?69.351, is in the public interest and should be approved.Peoples TWP also requested it be permitted to establish a regulatory asset for the difference between the accrual amount of certain other post-employment benefits, specifically life insurance and workers compensation costs, included in injuries and damages expenses, and the “pay as you go” amount. The Company calculates this expense for ratemaking purposes on a “pay as you go” basis, rather than the ASC 715 accrual amount. The effect is a timing mismatch between ratemaking expense and the Company’s financial books of account. Under the Company’s proposal, which was unopposed by any party, the Company will continue to use the “pay as you go” method for calculating these expenses for ratemaking purposes, but will maintain a deferred account on its financial books to eliminate the timing mismatch.2. Revenue Allocation and Rate DesignThe Company proposed to simplify its tariff and associated rate classes by moving from ten classes to six classes. The proposed general service rate classes will consist of: Residential (RS); Residential Universal Service (RUS); Small General Service (SGS) (less than 1,000 Mcf/yr.); Medium General Service (MGS) (1,000 Mcf/Yr. to 24,999 Mcf/Yr.); Large General Service (LGS) (greater than 25,000 Mcf/Yr.); and Field Transportation Service (FTS). The Company currently has no Electric Power Generation Service (EPGS) or Cogeneration Gas Service (CGS) customers, and these rate schedules are being eliminated. The customers in the Special Large General Service (SLGS) class will be consolidated into the LGS class. No party opposed the rate class realignment. In the Settlement, the parties agreed the new class categories are defined reasonably, and reflect a vast improvement over the existing rate class nomenclature in the current tariff, and the proposal will be simpler and fairer because these will be fewer rate classes and customers will be grouped together based on usage.The changes to Peoples TWP’s Customer Choice and Natural Gas Transportation Services arose as a result of the Acquisition Settlement. Pursuant to Paragraphs 60 and 61 of the Acquisition Settlement, Peoples TWP committed to undertake a collaborative with interested parties to develop a strategy to promote retail natural gas supply competition, and to develop rules and practices consistent with its affiliate Peoples Natural Gas Company LLC’s (“Peoples”) Choice program rules. The resulting collaborative process, which included the participation of 15 marketers and OCA, provided important feedback into the design of revised Choice and transportation policies, and resulted in a proposal that was modeled after the very successful Peoples’ program. Associated with the improvements to Peoples TWP’s Choice program, the Company proposed to enhance its currently-dormant Purchase of Receivables (“POR”) program by eliminating the administrative adder of 0.81% contained in the current POR tariff rules. No party opposed the revised Choice and transportation rules, and the Settlement provides for adoption of the rules. These revised rules provide a substantial public benefit, as marketers on Peoples’ system will be encouraged to extend their offerings to customers on Peoples TWP’s system.a. Customer Class Revenue AllocationPeoples TWP points out the parties were able to agree upon an allocation of the revenue increase among the customer classes. Often, revenue allocation can be among the most contentious issues in a case. In this case, the various parties proposed revenue requirement allocations that were based on the results of different cost of service studies. Despite the fact that the Joint Petitioners were not able to agree on a specific class “cost of service” methodology in the Settlement, they were able to agree to a revenue allocation that is within the range of the various allocations proposed by the Joint Petitioners in this proceeding. Peoples TWP believes the Settlement revenue allocation meets the “cost of service” standards adopted by the Commission and the courts. The chart below shows the revenue allocations proposed by Peoples TWP, OCA and OSBA in their direct cases, the percentage increase to each class and the percentage increase under the Settlement, based upon an acceptance of the LGS class discounting presented by the Company.Peoples TWPOCAOSBASettlementAMOUNT%AMOUNT%AMOUNT%AMOUNT%RS$16,58588.9%$15,05580.7%$17,408 94.9%$12,16288.1%SGS1,5828.4%1,5828.4%614 3.3%6074.4%MGS___0.0%1,5308.2%128 0.7%5534.0%LGS4982.7%4982.7%1991.1%4793.5%$18,665100%$18,665100%$18,349 100%$13,800(Peoples TWP St. 13-R, p. 6). Peoples TWP notes the Joint Petitioners agreed to a revenue allocation that is a compromise of their respective litigation positions. The RS class allocation percentage is slightly less than the Company’s proposal, and falls between the positions of OCA and OSBA. In addition, consistent with BIE’s position, the large majority of the scale-back from $18.6?million to $13.8 million is provided to the residential class. Similarly, the SGS class allocation percentage under the Settlement lies between the allocation percentages proposed by the Company, OCA, and OSBA. The MGS class allocation percentage under the Settlement is between the Company’s original proposal for no increase to the MGS class and OCA’s proposal that the class receive approximately 8% of the proposed increase. Finally, the Settlement provides for no scale-back to the LGS class from the Company’s proposal. Peoples TWP points out the difference in revenues relates principally to the Company’s loss of a competitively situated LGS customer during the pendency of the proceeding and opines that it is reasonable that no scale-back be applied to the LGS class. As explained by the Company, the LGS class contains highly competitive customers with interstate supply and local gas alternatives, which limit the Company’s ability to obtain any greater increase in revenues from the class. However, it is appropriate to obtain the most revenue possible from the class, and as such no scale-back for the LGS class is proposed in the Settlement.Because of the disagreement over cost allocation studies and the “black box” nature of the Settlement, it is not possible to precisely calculate the extent to which the Settlement moves rates closer to cost of service for all Joint Petitioners. However, given the relative revenue allocations of the parties and the resulting allocation compromise, Peoples TWP believes the Settlement achieves progress in aligning rates toward cost of service, within the constraints of the interstate bypass alternatives available to the LGS class.b. Rate Design – Customer ChargesPeoples TWP states the Settlement reflects a compromise of various parties’ rate design proposals for customer charges, and provides for an increase in the residential customer charge from $12.75 per month to $15.75 per month. In the proceeding, the parties set forth different calculations of customer costs based upon their respective preferred cost of service calculations and other considerations such as gradualism and the effect upon low use and low income customers. Peoples TWP proposed a residential customer charge of $20.00 per month, based upon calculated residential customer costs of $24.59 per month. BIE proposed a residential customer charge of $16.60 per month based upon its calculation of residential customer costs of $16.59 per month. OCA proposed a residential customer charge of $15.50 per month, based upon calculated customer costs of $19.00 per month. As a result, Peoples TWP insists the agreed-upon increase to the residential customer charge is a reasonable compromise of the parties’ various positions, and is less than any of the customer cost calculations presented. The resulting percentage increase to the residential charge also is less than the percentage increase to the residential delivery rate, which will result in a lower than average percentage increase to low use residential customers compared to the residential class as a whole.Similarly, Peoples TWP points out that the customer charges contained in the Settlement for SGS and MGS customers also reflect a compromise of the parties’ various positions. The customer charge of $35 per month for SGS-I customers (customers with annual usage under 500 Mcf) under the Settlement is below the Company’s as-filed proposal of $40 per month and equal to OSBA’s revised customer charge for those customers. The customer charge for SGS-II customers (annual usage 500 Mcf and above but below 1,000 Mcf) pursuant to the Settlement is $65 per month. This agreed-upon charge is below the Company’s proposal of $70 per month, but above the amount of $55 per month set forth in OSBA’s surrebuttal testimony. In addition, the MGS-1 customer charge is $75 per month, and the MGS-II customer charge is $175 per month, under the Settlement. These agreed-upon charges are below the Company’s proposals of $80 per month and $200 per month, respectively, and above OSBA’s proposals of $70 per month and $150 per month, respectively.Finally, consistent with the revenue allocation agreement to not scale-back the LGS class increase, the Company’s proposed customer charges for the LGS class under the Settlement remain as filed. Peoples TWP contends the various customer charges reflect a compromise of parties’ proposals, are reasonable and are in the public interest. c. Merchant Function Charge (MFC) and Gas Procurement Charge (GPC)The Commission’s regulations at 52 Pa.Code §?62.223 direct Natural Gas Distribution Companies (NGDC) to unbundle uncollectibles associated with natural gas costs from base rates and recover such costs through a MFC. The regulations also provide for unbundling of natural gas procurement costs from base rates and recovery of such costs through a GPC. Peoples TWP points out that the Settlement complies with these requirements. Under the Settlement, the MFC for residential retail customers is 2%, and the MFC for SGS retail customers is 0.41%. These uncollectible accounts percentages claimed by the Company were not opposed by any party. In addition, the Settlement provides for a GPC of $0.14 per Mcf applicable to all sales service customers. The GPC rate is a compromise of the respective parties’ positions in the case and includes the various cost components required under the Commission’s regulations, with recognition that the Settlement provides for a lesser increase than the Company’s original request.d. Acquisition Credit AllocationUnder the Settlement, the Joint Petitioners agreed to the allocation of the Acquisition Credit among customer classes as follows:CreditResidential$1,727,876SGS176,952MGS95,172LGS??????????????????0$2,000,000The Acquisition Credit is applied to customer charges and delivery rates, as shown in Appendix “A” to the Settlement. The resulting rate credits are as follows:Customer Charge CreditDelivery Rate CreditResidential($0.6944)($0.2731)SGS($0.8243)($0.1745)MGS($2.1273)($0.1117)The LGS class will receive no share of the Acquisition Credit, as this class is primarily comprised of flex rate customers who are not entitled to receipt of the Acquisition Credit.Peoples TWP points out the allocation of the Acquisition Credit is consistent with the provisions of Paragraph 27(c) of the Acquisition Settlement, and should be accepted.e. Rate NGPVIn its filing, Peoples TWP proposed the addition of new Rate NGPV – Natural Gas Powered Vehicles, which rate is to apply to the use of natural gas (retail or transportation service) as a motor vehicle fuel by an operator of a public fueling station, and the rate schedule is modeled after a similar rate offered by Peoples TWP’s affiliate, Peoples. The Company proposed the rate to prepare for the potential that new public natural gas fueling stations would seek to be constructed in the Company’s service territory as a result of the prevalence of Marcellus gas in western Pennsylvania. The rate would allow for a negotiated customer charge and either a fixed commodity charge or a methodology to determine the commodity charge. The negotiated rate provisions will enable the Company to offer a rate that would justify the upfront costs of conversion from gasoline to natural gas. No customers currently qualify for service under the proposed schedule.OCA’s litigation position was that any discounting of revenues would have to be retained within the NGPV class, and there would have to be a separate accounting of costs for the class. However, as the Company explained in rebuttal, at least initially and for some years into the future, the discounting needed to “jump start” this promising new service would likely result in NGPV class revenues below costs. Peoples TWP argued OCA’s conditions would have made the rate uneconomic for the Company to offer.As a result, the Company proposed a compromise that would place NGPV customers into the Rate SGS or MGS class, as applicable based upon volumetric usage of the individual customer. If service under the rate schedule ultimately expands to a significant level, the Company will consider segregating NGPV customers into a separate class for cost allocation and rate design purposes. In future rate cases, the impact of any discounting will be addressed. At that time, the Company and parties can present arguments regarding the treatment of discounting based upon an analysis of the results of cost of service studies and rate design impacts. At that time, the parties may choose to present public policy arguments supporting the appropriate recovery of discounting, such as societal benefits from encouraging natural gas as a vehicle fuel. The Settlement adopts this compromise.Peoples TWP contends this compromise is reasonable and in the public interest because it allows the Company to offer a NGPV rate now to encourage construction of new natural gas fueling stations. Peoples TWP recognizes that issues concerning revenue allocation and rate design should await future proceedings, when facts and circumstances involving service to actual customers would be known, and because, at least initially, service under the schedule is anticipated to be very limited, which would not justify the creation of a separate customer class for cost of service purposes.f. Rate FTSThe Company notes the Settlement rates relative to Rate FTS have increased slightly from the Company’s filed amount of $0.4701/Mcf to $0.4771/Mcf. Rate FTS allows producers to deliver gas into the Company’s transmission system for redelivery to another local distribution company or interstate pipeline. Service under Rate FTS is interruptible. To develop the interruptible rate, the Company divides transmission mains cost by total throughput. Because the Settlement provides for a change in total system throughput, the rate for service was revised.g. Other Tariff ChangesPeoples TWP points out a variety of other changes were made to the Company’s tariff, to correct terminology and to be consistent with the major tariff restructuring resulting from creation of new rate classes and new Choice and transportation rates. The list of changes is set forth in Peoples TWP Ex. APW-10, and the revised tariff is set forth as Appendix “B” to the Settlement. No party challenged these other tariff changes, and they are adopted by the Settlement.3. Universal Service and Conservationa. Customer Assistance ProgramThe Company proposed a variety of changes to its existing customer assistance program, which proposals were developed following a best practices review of Peoples TWP’s and Peoples’ customer assistance programs. OCA generally endorsed the program changes, but proposed certain modifications and clarifications. The Settlement sets forth the Joint Petitioners’ agreement as to changes to Peoples TWP’s customer assistance program.Under the Settlement, Peoples TWP will rename its existing Energy Help Fund (“EHF”) to the Customer Assistance Program (“CAP”). The Settlement adopts, and clarifies, the Company’s proposal to forgive pre-program arrearages over a 36 month period. Arrearage forgiveness is applied when CAP customers make their full monthly CAP payment. OCA requested clarification regarding the manner in which Peoples TWP applies arrearage forgiveness credits to CAP customers, to ensure that CAP customers receive arrearage forgiveness when full monthly payments are made, even if a payment is received late. The Company explained in rebuttal a CAP customer will receive the full amount of their arrearage forgiveness benefits when a CAP customer brings their CAP payment plan up-to-date. The Settlement adopts Peoples TWP’s proposal to revise its arrearage forgiveness credit so that CAP customer arrearage forgiveness credits will be set to equal 1/36 of each CAP customer’s pre-program arrearage. The Company will grant arrearage forgiveness for each full month equivalent bill payment received by the customer once the account is current. In addition, the Settlement adopts OCA’s proposal that delinquent CAP customers will not be removed from CAP, but will remain in CAP, where they will be subject to active collection and termination. Finally, under the Settlement, CAP customers will not be subject to late payment penalties.Peoples TWP further points out the Settlement adopts its proposed modifications to the current CAP re-certification requirement that customers recertify their incomes every three years. Re-certification is a process in which the Company reviews a customer’s income information to determine if the customer remains eligible for CAP and if the customer’s current percentage of income payment amount is still appropriate. Under the Settlement, CAP customers who receive Low Income Home Energy Assistance Program benefits or are on a fixed income, including social security, pension or disability, will now be required to recertify their income every two years, while all other CAP customers will be required to recertify their income annually. Further, Peoples TWP will contract with Dollar Energy Fund (“DEF”) to perform re-certifications, which currently are conducted in-house. DEF currently supports this process for Peoples and will enable the single Peoples TWP employee that currently performs Peoples TWP’s re-certifications to assume responsibility over the Company’s new Emergency Furnace and Line Repair Program that will be implemented upon approval of the Settlement. The DEF re-certification costs are external administrative costs of CAP, and as such will be recovered through the Company’s Rider USP. These provisions will improve the operation of the Company’s CAP and are in the public interest.b. Low-Income Usage Reduction Program (“LIURP”)Peoples TWP notes the Joint Petitioners agreed to an increase in annual LIURP funding from $230,000 to $255,000, with costs recovered through the Company’s Rider Universal Service Program (“Rider USP”) and the Settlement also reflects an adoption of the Company’s proposal that up to 20% of the Company’s LIURP budget may be used to assist customers whose income is within 150%-200% of the Federal Poverty Level. This provision prioritizes CAP customer participation in the Company’s LIURP but also recognizes the importance of the benefits to be realized by low-income customers who are not CAP customers.c. Emergency Furnace and Line Repair ProgramIn this proceeding, Peoples TWP proposed to implement an Emergency Furnace and Line Repair program to assist low-income customers that experience an unexpected service line or furnace failure. Peoples TWP notes the Settlement adopts the Company’s proposal to implement this important program.d. Residential Customer Personally Identifiable Information (“PII”)In this proceeding, OCA recommended the Company “refresh” its Identity Theft Program. Through the Settlement, the parties agreed the Company will “refresh” its Identify Theft Program consistent with applicable state and federal law, and will provide a copy to interested parties within six months after the conclusion of these proceedings. The Company contends its vendors understand and take appropriate steps to maintain privacy of customer PII, but Peoples TWP agreed through the Settlement to seek to amend agreements with existing vendors who have access to customer PII and to require those vendors to provide reasonable privacy protections for customer PII. To the extent such vendors will not accommodate the Company’s request to amend the existing agreements, the Company would evaluate contracting with new vendors upon the termination of the existing third-party agreement. In addition, the Company stated it intends to refresh its Identify Theft Prevention (Red Flags) Program in the fall of 2013. In doing so, the Company will conduct a comprehensive review of its existing Identify Theft Prevention Program, revise the Program as needed, and refresh training for those employees who routinely communicate with customers as well as those that have access to customer PII.4. DSIC-Related Provisionsa. Zeroing Out of DSICPeoples TWP points out that Section 1358(b)(1) of the Public Utility Code, 66 Pa.C.S.A. §?1358(b)(1), provides the DSIC must be reset at zero as of the effective date of new base rates that provide for prospective recovery of the annual costs previously recovered under the DSIC. Accordingly, Peoples TWP’s DSIC will be reset to 0% as of the effective date of new base rates in this proceeding. This reset ensures there is no duplication of recovery of plant addition costs in both the DSIC and base rates. Specifically, the DSIC will recover costs of actual qualifying plant additions installed prior to the effective date of base rates in this proceeding. The Company’s rate base claim in this proceeding includes projected plant additions installed through January 31, 2015. Thus, the Company’s rate base claim encompasses plant additions that are, or will be, reflected in the DSIC prior to the date the DSIC is reset to 0%. Recovery of the annual costs (return and depreciation) associated with such plant additions effectively will be moved from the DSIC into base rates, thereby ensuring there is no double recovery of costs.b. Reinstitution of DSICPeoples TWP notes, under Section 1358(b)(2) of the Public Utility Code, 66 Pa.C.S.A.§?1358(b)(2), DSIC-eligible plant additions not included in base rates may be reflected in the DSIC calculation. Therefore, for future DSIC purposes, it is necessary to establish relevant plant balances for the Company out of this proceeding. Peoples TWP contends for that reason the Settlement provides Peoples TWP will be eligible to include plant additions in the DSIC once eligible account balances exceed the levels projected by Peoples TWP at January?31, 2015 following the effective date of rates in this proceeding. The Joint Petitioners agree this provision is included solely for purposes of calculating the DSIC, and is not determinative for future ratemaking purposes of the projected additions to be included in rate base in a fully-projected future test year filing.5. Other Provisionsa. Competitive Discount CustomersPeoples TWP acknowledges both OSBA and OCA criticized the Company’s failure to have, respectively, an “economic analysis” and “quantitative evidence” justifying the discounted rates negotiated with customers who have the ability to bypass Peoples TWP’s system to satisfy their energy requirements. Peoples TWP points out that despite these criticisms, OSBA and OCA acknowledged it is reasonable for a utility to analyze the expected costs of any alternative energy source that provides a customer a bypass opportunity that the customer then uses to negotiate a discounted rate from the utility. Peoples TWP contends the Company must properly balance the competing demands of rate maximization against revenue retention once a customer establishes a possibility of bypassing the Company’s system. The Company performed analyses to support the non-NGDC bypass opportunities of customers currently receiving discounted rates and its analysis of each individual customer identifies the available alternative energy source, the estimated cost of accessing the alternative energy source, and other information relevant to assessing competitive risk. Peoples TWP historically performed such analyses on an ongoing informal basis as it negotiated each customer’s contract. In the Settlement, however, the Joint Petitioners agreed the Company will establish a more formal documentation of the need for, and level of, discounts offered to customers in competitive situations, which documentation will reflect information made available to the Company during negotiations with customers regarding capital and operating costs for bypass or alternative fuels and considered in determining whether to negotiate a discounted rates. In addition, the Company’s documentation will reflect the iterative process of negotiating with customers by identifying offers made in negotiations, risks and lost potential revenues if a customer decides to install and use alternative facilities in whole or in part. Peoples TWP asserts this Settlement represents a compromise of the Parties’ positions and should be approved as it is in the public interest.b. Reporting ProvisionsAs noted above, this proceeding is the first case filed by Peoples TWP using the fully projected future test year provisions of Act 11. BIE contended Peoples TWP should be required to provide reports on its futures expenditures, to allow the Commission to compare projected to actual investments. As a result, on or before May 1, 2014, Peoples TWP will provide the Commission’s Bureau of Technical Utility Services (“TUS”), BIE, OCA and OSBA with an update to Peoples TWP Exhibit AC-2, which will include actual capital expenditures, plant additions, and retirements by month for the twelve months ending January 31, 2014. Further, on or before May 1, 2015, Peoples TWP will update Exhibit AC-2 filed in this proceeding for the twelve months ending January 31, 2015. Also, as part of the Company’s next base rate proceeding, the Company will prepare a comparison of its actual expenses and rate base additions for the twelve months ended January 31, 2015 to its projections in this case. However, it is recognized by the Joint Petitioners that this Settlement is a “black box” settlement that is a compromise of Joint Petitioners’ positions on various issues.c. Early Effective Date of RatesThe Joint Petitioners agreed to endeavor to obtain approval in time for new rates to become effective by January 1, 2014 (Settlement ??42). This early effective date was an important consideration for Peoples TWP in agreeing to the amount of the revenue increase. Such provision is consistent with provisions of the Acquisition Settlement that Peoples TWP would not increase its base rates prior to January 1, 2014.6. Response to Issues Raised in Public Input HearingDuring the July 23, 2013 public input hearing, individual customers raised concerns regarding the Company’s proposed increase in base rates and other operational issues. As explained below, these concerns have been addressed by either the Settlement, the Company in its rebuttal testimony or both.Customers commented the Company should not have both a DSIC and a base rate increase for infrastructure replacement. Peoples TWP contends there is no duplication of recovery of these charges. Peoples TWP also points out the Settlement confirms the DSIC will be reset to 0% effective with the effective date of rates and that the Company will not be eligible to include plant additions in the DSIC until the plant account balances exceed the level projected by Peoples TWP at January 31, 2015. Some customers questioned whether there will be a process in place to assure the rate increase is spent on plant investment. Peoples TWP notes Act 11 requires the Company file quarterly and annual reports identifying plant investment. Further, under the Settlement, Peoples TWP will provide updates to Commission staff and the Joint Petitioners of its projections in this case relative to capital expenditures, plant additions, and retirements. Customers also raised concerns regarding the Company’s budget payment amounts and the impact of the proposed rate increase on low-income customers. Peoples TWP explained in rebuttal testimony the Company initiated a required automated quarterly budget review process in its current billing system just prior to the public input hearing. Following the public input hearing, the Company investigated the concerns raised by its customers by manually reviewing the budget bills for customers and identified a system error in the automated update of budget bills. The Company adjusted customer payment amounts for future bills and noted it would convert to a new and proven billing system in January 2014. This billing system is currently used by Peoples, and will not employ the automated quarterly process again using the old system. The Settlement also addresses the impact of the Company’s rate increase on low-income customers. Specifically, as detailed in Section II.B.3, the Settlement provides for a lower customer charge for residential customers than that charge proposed by the Company in its filing plus the Settlement increases funding to the Company’s LIURP, which will provide additional weatherization assistance to the Company’s low-income customers. Peoples TWP asserts the Joint Petitioners thoroughly investigated the base rate filing and, as modified by the Settlement, determined that it is just and reasonable and in the public interest.C. Bureau of Investigation and Enforcement’s Statement in SupportBIE submits the Settlement balances the interests of the Company and its customers in a fair and equitable manner and presents a resolution for the Commission’s adoption that best serves the public interest. As a black box settlement, the Settlement does not reflect agreement upon individual issues unless specifically addressed. Rather, with the exception of matters specifically identified by Joint Petitioners for resolution, the parties have agreed to an overall increase to base rates that each party accepts as a fair and equitable resolution of all of its discrete issues and satisfaction of its interests. Black box settlements benefit ratepayers because they allow for the resolution of a contested proceeding at a level of increase that is below, often substantially, that level requested by the regulated entity. Moreover, they do so in a manner that avoids the further expenditure of significant time and resources required from all parties, including the Commission, by further litigation. Finally, a settlement allows parties to mitigate the risks of litigation by providing each signatory party a compromised resolution that is acceptable in exchange for the certainty that accompanies a settled resolution of the case. While resolution of all individual issues is not identified, from a holistic perspective, each party has agreed that the Settlement satisfies and benefits its respective interests.The use of black box settlements is not uncommon in Commission practice. Indeed, the Commission has enthusiastically endorsed the use of black box settlements, as noted in a statement by then Commissioner, now Chairman Powelson, approving such a settlement:I … will continue to support settlements, including those of a black box nature, enthusiastically. Determination of a company’s revenue requirement is a calculation that involves many complex and interrelated adjustments affecting revenue, expenses, rate base and the company’s cost of capital. To reach agreement on each component of a rate increase is an undertaking that in many cases would be difficult, time-consuming, expensive and perhaps impossible. Black box settlements are an integral component of the process of delivering timely and cost-effective regulation.Moreover, the Commission has recognized a settlement “reflects a compromise of the positions held by the parties of interest, which, arguably fosters and promotes the public interest.” The Settlement in this proceeding promotes the public interest because a review of the testimony submitted by all parties demonstrates the Joint Petition reflects a compromise of the litigated positions held by those parties and presents results that are within the range of potential litigated outcomes. BIE individually, and Joint Petitioners collectively, considered, discussed, and/or negotiated in this Settlement the merits of all issues of importance. Further line-by-line identification and ultimate resolution of each and every revenue-related issue raised in the proceeding beyond those addressed in the Settlement is not necessary to find that the Settlement is in the public interest nor could such a result be achieved as part of a settlement.Public utility regulation allows for the recovery of prudently-incurred expenses and allows the regulated entity the opportunity to earn a reasonable return on the value of assets used and useful in public service. The revenue increase agreed to by the parties in this proceeding respects this principle. Ratepayers will continue to receive safe and reliable service at just and reasonable rates while allowing the Company sufficient additional revenues to meet its operating and capital expenses and providing the opportunity to earn a reasonable return on its investment. Furthermore, as addressed in greater detail below, the Settlement rates and terms significantly moderate the increases initially proposed by the Company and, BIE believes, properly balance the interests of all parties. Accordingly, for all these reasons as well as the specific reasons articulated below, and in order to achieve the full scope of benefits addressed in the Settlement, BIE submits that the proposed Settlement is in the public interest and requests that it be recommended for approval by the ALJ and approved by the Commission without modification. BIE addresses below the specific terms and conditions of the Settlement in the same order in which they are presented in the Joint Petition. D.Settlement Terms and Conditions1.Revenue RequirementPeoples TWP initially proposed a total increase in base rates of $18,664,690, or an overall increase of 22.8% based upon a historic test year (HTY) ended December 31, 2012, a future test year (FTY) ending December 31, 2013, and a fully projected future test year (FPFTY) ending January 31, 2015. The Company’s proposed rates were designed based upon a projected pro forma level of throughput for the twelve months ended January 1, 2015, of 4,708,814 Mcf for residential customers and 786,650 Mcf for small general service customers.BIE analyzed the ratemaking claims contained in the Company’s filing including, but not limited to, operating and maintenance expenses, rate base, projected revenues, proposed rate structure, and the cost of common equity and debt. In its direct case, BIE recommended a revenue increase of $9,108,000, including the proposal to design rates based upon BIE’s proposed pro forma levels of throughput of 4,880,700 Mcf for residential customers and 773,800 for small general service customers for the FPFTY based on BIE’s adjustment to the Company’s weather normalization adjustment, and projected pro forma levels of throughput of 5,065,000 Mcf for residential customers and 834,840 Mcf for small general service customers based on both BIE’s weather normalization and declining consumption adjustments.In the Settlement, Joint Petitioners agree to allow the Company the opportunity to recover an increase to annual intrastate operating revenues of $13.8 million in lieu of the $18.6?million originally requested. In addition, rates are designed based upon a pro forma throughput level of 4,770,000 Mcf for residential customers and 812,549 Mcf for small general service customers for the twelve months ended January?31, 2015. BIE supports the levels of revenue and throughput compromised upon in the Settlement. The increase in operating revenues of $13,800,000 is substantially less than the increase originally proposed. Further, the Settlement revenues will be recovered through rates designed over levels of throughput for the residential and small general service customers that are higher than those originally proposed by the Company, contributing to a lower overall rate for each of those classes. Finally, the Settlement also implements a $2 million Acquisition Credit arising from the Commission order approving the indirect acquisition of Peoples TWP by Steel River Infrastructure Fund of North America, further reducing the impact of the rate increase on customers. As demonstrated in the Settlement, using the cost of gas in effect at the time the case was filed and customers were provided notice, the monthly bill of a typical residential customer using 84 Mcf/month will increase by $15.71 as a result of this Settlement, from $79.22 to $94.94, or an increase of 20% in lieu of the $22.49 increase, from $79.22 to $101.71, or 28.4% increase originally proposed by the Company.The overall revenue requirement agreed to in the Settlement is within the levels advanced on the evidentiary record and reflects a full compromise of all revenue-related issues raised by Joint Petitioners. As a black box settlement, unless specifically addressed, the Settlement does not and could not reflect agreement upon individual issues. The remaining paragraphs of the Revenue Requirement section of the Settlement are specific only as to Post-Retirement Benefits Other than Pensions (PBOPs) as necessary and appropriate for recording, ratemaking, and accounting purposes. BIE asserts the Settlement should be adopted as in the public interest as a full compromise of all revenue-related issues raised by Joint Petitioners.2.Revenue Allocation and Rate Design Revenue allocation and rate design under the Settlement are set forth in Appendix?A. The distribution of revenue among the customer classes was a matter of interest to all parties in the proceeding and was the subject of settlement discussions. All parties agreed to the proposed increase among the classes and BIE maintains the Settlement allocation is just, reasonable, and non-discriminatory. BIE asserts the allocation is in the public interest and should be approved.BIE points out the Company proposed substantial revisions to the design of its rate classes in its filing, which revisions are accepted in paragraph 27 of the Settlement. BIE thoroughly reviewed the Company’s proposed redesign of its classes and agrees with its adoption. BIE notes that in paragraph 30 of the Settlement the Joint Petitioners agreed to the following customer charges:$15.75 RS customer charge $35 SGS-I customer charge $65 SGS-II customer charge$75 MGS-I customer charge$175 MGS-II customer chargeLGS customer charges remain as originally proposedThe Company originally proposed to increase the present RS $12.75 per month residential customer charge to $20.00 per month, an increase of $7.25 per month or 56.9%. BIE recommended the present $12.75 per month residential customer charge be increased by no more than $4.95 to $17.70 per month, or an increase of 38.8% in its direct case, and revised that recommendation to $16.60 in its surrebuttal testimony, based upon BIE’s customer cost analysis. Under the Settlement, the RS customer charge will increase by $3.00, to $15.75, or an increase of 23.5%, a substantial reduction from the Company’s proposals of record. The Company’s proposed new SGS class contained customers from both the first and second tiers of the current GSS class (the tiers being distinctions between customers within the same class grouping customers based on usage). The Company proposed a $40.00 per month customer charge for Tier I customers and a $70.00 per month charge for customers under Tier?II. BIE recommended an $18.00 per month customer charge for Tier I customers and a $45.00 per month charge for Tier II customers in its direct case, which BIE revised in surrebuttal testimony to $19.00 and $34.00, respectively. These recommendations were based upon BIE’s customer cost analysis and its evaluation of the weighted average of Tiers I and II customer charges for the SGS class as a whole. BIE conducted a similar analysis for the new MGS class, which includes medium-sized commercial and industrial customers served under Peoples TWP’s current rate schedules GSS, GSS-T, GSL, GSL-T, and WS. The Company proposed an $80.00 per month customer charge for Tier I customers and a $200.00 per month charge for customers under Tier?II. Under the Settlement, SGS-I and SGS-II customer charges are increased to $35 and $65, respectively, and MGS-I and MGS-II customer charges are increased to $75 and $175, respectively. All SGS and MGS customer charges under the Settlement are below the Company’s original proposals and within the range of potential outcomes based upon proposals of record. The LGS customer charge remains as filed. BIE submits the proposed customer charges and rate design under the Settlement as agreed to by all Joint Petitioners are in the public interest and should be approved.3.Universal Service and Conservation The Settlement provides clarity on discrete issues relevant to the Company’s Energy Help Fund, now renamed Customer Assistance Program, and Low Income Usage Reduction Program (LIURP) programs. BIE supports the clarity provided to those programs while reserving more substantive comment generally on the CAP and LIURP for subsequent proceedings. Accordingly, BIE recommends the Settlement is in the public interest and should be approved.4.DSIC-Related Provisions The Settlement provides clarity on the interaction of this base rate increase to Peoples TWP’s Distribution System Improvement Charge (DSIC). BIE supports the clarity provided to the DSIC, and recommends the Settlement is in the public interest and should be approved. 5.Other Provisions In paragraph 40 of the Settlement, the Company agreed to establish more formal documentation of the need for, and level of, discounts offered to competitive customers. Peoples TWP agreed to provide interim reports on the progress of projected-to-actual investment given the forecasts involved in the Company’s use of a Fully Projected Future Test Year. Specifically, Peoples TWP agreed to provide to BIE, OCA, and OSBA, as well as to the Commission’s Bureau of Technical Utility Services (TUS), updates to Peoples TWP’s Exhibit No.?AC-2, on or before May 1, 2014, for the 12 months ending January 31, 2014, and on or before May 1, 2015, for the 12 months ending January 31, 2015. In addition, the Company agreed to provide a comparison of its actual expenses and rate base additions for the 12 months ended January 31, 2015, to the projections in this case as a part of its next base rate case.With respect to competitive discounts, all parties expressed concerns in one fashion or another over the discounts employed by Peoples TWP. BIE is satisfied that as a part of the overall Settlement and particularly with respect to the agreement regarding documentation, the Company has taken those concerns seriously and will ensure a strenuous and transparent review of competitive circumstances prospectively before flexing rates in order to retain competitive load. BIE is also satisfied with the Company’s agreement to the provision of interim reporting with respect to projected versus actual investment. In its filing, Peoples TWP used a FPFTY as allowed under Act 11 of 2012. The FPFTY marked a dramatic change from the standard ratemaking process and is still new and novel in its use among utilities. Although previously allowing for use of a Future Test Year, Section 315 of the Public Utility Code traditionally required that utility investment be used and useful in the provision of service before the investment was reflected in rates. As amended under Act?11, however, Section 315 of the Public Utility Code now allows a utility to project investment, and correspondingly to include it in the utility’s claimed revenue requirement, through the twelve-month period beginning with the first month that the new rates will be placed in effect. In light of that extended time period beyond which utilities are now permitted to project rate base investment, BIE recommended a reporting requirement intended to allow interested Commission Bureaus (BIE and TUS) the ability to timely review and verify the accuracy of the estimates Peoples TWP used in its FPFTY. By allowing a utility to include within its calculated revenue claim projections of rate base additions, the FPFTY essentially allows a utility to require ratepayers in effect to pay a return on a utility’s projected investment in future facilities that are not only not in place and providing service at the time the new rates take effect, but also that are not subject to any guarantee of being completed and placed into service. As addressed by BIE witness Jeremy Hubert, the additional level of revenue deficiency claimed by Peoples TWP that was associated solely with the Company’s inclusion of the FPFTY was $3,050,149. While the FPFTY clearly authorizes the use of such projections, because this statutory provision is new and generally untested, BIE sought to have Peoples TWP provide interim reports through the duration of the FPFTY in order to be able to timely review and verify the status of the Company’s rate base projections. BIE requested the updates be provided in the same format as the Company’s Exhibit No. AC-2, which included actual capital expenditures, plant additions, and retirements by month in order to provide interim comparisons of the Company’s actual investment to its base rate projections used in setting rates using the FPFTY.BIE fully supports the Settlement because this condition fully achieves BIE’s goals of timely receiving data sufficient to allow for the evaluation and confirmation of the accuracy of Peoples TWP’s FPFTY projections in advance of its next base rate case filing. BIE submits the proposed provisions under the Settlement – regarding competitive discounts and FPFTY interim reporting – are in the public interest and should be approved. V.THE SETTLEMENT SATISFIED THE PUBLIC INTERESTBIE asserts it joined this Settlement after an exhaustive investigation of the Company’s filing, extensive formal and informal discovery, and the submission and review of multiple pieces of direct, rebuttal, surrebuttal, and rejoinder testimony by all Joint Petitioners. All issues raised in testimony have been satisfactorily resolved through discovery and discussions with the Company, or are incorporated or considered in the resolution proposed in the Settlement. BIE contends the very nature of a settlement requires compromise on the part of all parties and this Settlement exemplifies the benefits to be derived from a negotiated approach to resolving what initially may appear to be irreconcilable differences. BIE states the Joint Petitioners have carefully discussed and negotiated all issues and further delineation of issues beyond those presented in the Settlement is not necessary. BIE believes the settled outcome is well within the range of proposals offered by the various parties to the proceeding and maintains a proper balance of the interests of all parties. BIE is satisfied no further action is necessary, and considers its investigation of this rate filing complete.Further, based upon its analysis of the filing, BIE avers acceptance of this Settlement is in the public interest. Resolution of this case by settlement rather than litigation avoids the substantial time and effort involved in continuing to formally pursue all issues in this proceeding at the risk of accumulating excessive expense and regulatory uncertainty. BIE further submits the acceptance of this Settlement negates the need for evidentiary hearings, which would compel the extensive devotion of time and expense for the preparation, presentation, and cross-examination of multiple witnesses, the preparation of Main and Reply Briefs, the preparation of Exceptions and Replies, and the potential of filed appeals, all yielding substantial savings for all parties, including the Commission, and ultimately all customers. Moreover, the Settlement provides regulatory certainty with respect to the disposition of issues and final resolution of this case which all parties agree benefits their discrete and specific interests. BIE asserts it is charged with representing the public interest in Commission proceedings related to rates, rate-related services, and applications affecting the public interest. In negotiated settlements, it is incumbent upon BIE to identify how amicable resolution of any such proceeding benefits the public interest and to ensure that the public interest is served. Based upon BIE’s analysis of the Company’s base rate filing, acceptance of this proposed Settlement is in the public interest and BIE recommends that the Administrative Law Judge and the Commission approve the Settlement in its entiretyA. Office of Consumer Advocate’s Statement in SupportRevenue Requirement The proposed Settlement provides for an overall distribution base rate increase of $13.8 million, about $4.8 million less than the rate increase amount originally requested by Peoples TWP of $18.6 million. This rate increase reflects an increase in overall revenues of approximately 17% as compared to the Company’s original request of a 23% increase in overall revenues. OCA’s recommended revenue increase in this proceeding was $13.2 million. Based on OCA’s analysis of the Company’s filings, testimony by all parties, and discovery responses received, OCA asserts the rate increase under the proposed Settlement represents a result that would be within the range of likely outcomes in the event of full litigation of the case. The increase is appropriate and, when accompanied by other important conditions contained in the Settlement, yields a result that is just and reasonable.Acquisition Credit The Settlement provides for the Company to implement the Acquisition Credit contained in the Acquisition Settlement at Docket No. A-2010-2210326, by providing base rate credits of $2 million per year to customers over the next five years, until $10 million in credits have been provided in accordance with the terms of the Acquisition Settlement. The Acquisition Credit will provide the residential class with approximately $1.7 million per year in credits. The residential customers will benefit from this credit through reduced bills over the next five years, which will lessen the effect of the rate increase for residential customers. 3.Revenue Allocation In its filing, Peoples TWP proposed to allocate $16.5 million of its proposed $18.6 million revenue increase to residential customers. OCA reviewed the Company’s revenue allocation proposal and the Company’s cost of service studies and contended the Company’s revenue allocation placed too large a share of the increase on residential customers. OCA argued that, when the appropriate cost of service study was used as a guide and appropriate ratemaking principles were applied, residential customers should receive a smaller increase than proposed by the Company. OCA noted OSBA proposed several modifications to the Company cost of service studies and wanted the Company to assign a greater percentage of the revenue increase to residential customers than as Peoples TWP originally proposed, based on OSBA’s preferred cost of service study. OCA points out that the Settlement specified: “Revenue allocation and rate design reflect a compromise and do not endorse any particular cost of service study or methodology.” OCA notes the agreed-upon allocation of the rate increase is included in the Proof of Revenues attached to the Settlement as Appendix A, and under the Settlement, residential customers will be assigned an increase of $12.1 million in base rates, as compared to the $16.5 million originally filed by the Company. Furthermore, under the Settlement, the average total monthly bill for a Peoples TWP residential customer using 84 McF of gas per year will rise from $79.22 to $94.94 or by 20%, in lieu of the 28% increase as originally proposed by Peoples TWP. Based on OCA’s review of the cost of service studies presented in this proceeding and the varying revenue allocation proposals presented by other parties, OCA views the Settlement to be within the range of reasonable outcomes that would result from the full litigation of this case. OCA submits the revenue allocation is reasonable and should be approved.Rate DesignOCA points out Peoples TWP’s monthly residential customer charge will increase from $12.75 to $15.75 under the Settlement, rather than increase to $20.00, as originally proposed by the Company, and the commodity charges will increase in order to recover the necessary revenue increase from the Residential class. OCA asserted in direct testimony the Company’s calculated customer cost of $34.51 was overstated, and the proper calculation resulted in a customer cost of $19.00. OCA argued, however, an increase to $19.00 was not reasonable or consistent with the principle of gradualism, and recommended a customer charge of $15.50. Since Peoples TWP’s revenue requirement claim reflects an increase of 22.8 percent for the average customer, OCA reasoned that by applying that same percentage increase to the current Residential customer charge of $12.75 would increase that charge to approximately $15.50. In order to promote gradualism, OCA recommended Peoples TWP’s Residential customer charge be increased to $15.50 and this charge would make significant progress toward a cost-based rate.OCA acknowledges BIE proposed a customer charge of $17.70 but OCA submits the agreed-upon customer charge of $15.75 is reasonable given OCA’s customer cost calculation. The customer charge increase to $15.75 is substantial and reflects significant movement toward customer costs while recognizing the need for gradualism and the avoidance of rate shock. Additionally, by not unduly increasing the customer charge and reflecting costs in the commodity charge, customers have increased incentive to conserve, a benefit that is not realized through fixed customer charges. OCA submits the residential rate design established through the Settlement is reasonable and consistent with sound ratemaking principles. These rate design changes result in a customer charge that is substantially below the charge originally proposed, and the charges are within the range of the likely outcomes in the event of full litigation of the case. B.Universal Service and ConservationEnergy Help Fund/Customer Assistance Program The proposed Settlement provides for several changes to the Energy Help Fund, including renaming this program “Customer Assistance Program” (CAP). Under the proposed Settlement the arrearage forgiveness credit will be revised to equal 1/36 of the CAP customer’s pre-program arrearage, and the Company agrees to grant arrearage forgiveness as full month equivalent bill payments are received. The change in how arrearage forgiveness credits will be applied is beneficial to both CAP customers and the Company. OCA averred this change should allow CAP customers to “[…] retire the arrearages incurred while their bills were unaffordable so that CAP Participants can concentrate on paying only their current, affordable CAP bill”, and “[…] encourage CAP customers to continue making their utility bill payment each month and to allow them to see a “reward” for doing so.” (See OCA St. 4 at 13).Under the proposed Settlement, CAP customers who receive LIHEAP benefits or are on a fixed income (Social Security, Pension or Disability) will now be required to recertify income every two years, as opposed to every three years, and all other CAP customers will be required to recertify income annually. Peoples TWP’s CAP is a percentage of income program, thus a change in income can have a significant impact, both up and down, in a CAP bill. Recertifying income annually, or biannually in the limited situations agreed to in the proposed Settlement, will enable the Company to issue more accurate bills in terms of affordability. Accurate bills are important to both CAP customers and non-CAP customers. For CAP customers, affordable bills enable the CAP customers to pay their bills and maintain service. Residential non-CAP customers have an interest in CAP bills being accurate because the CAP shortfall – the amount of a CAP customer’s bill that is discounted – is paid for by residential non-CAP customers. The proposed Settlement also provides that the Company will contract with Dollar Energy Fund to perform re-certifications, which are currently done by Peoples TWP. The proposed Settlement also provides that delinquent CAP customers will not be removed from CAP, but instead will remain on CAP where they will be subject to active collection and termination. CAP customers will also not be assessed late payment penalties. These provisions are aimed towards keeping CAP customers in the program and keeping their bills affordable, which benefits the Company and ratepayers as it encourages CAP customers to continue to pay their bills.LIURP Budget OCA points out the Settlement requires the Company to increase annual funding for LIURP from $240,000 to $255,000 and the Rider USP will continue to be the mechanism under which funding is recovered. Further, any unspent amounts in the account will carry over to be used in subsequent years. Finally, up to 20% of the LIURP budget may be used to assist customers whose income is within 151%-200% of the Federal Poverty Level. OCA submits these provisions are in the interest of the ratepayers. OCA asserted that if the Company only maintained its current budget of $240,000, the Company would not be able to meet the need for the service, as the current budget only allows the Company to weatherize fewer than 30 homes each year, and approximately 1,900 low-income customers meet the usage criteria of this program. OCA recommended the Company increase its LIURP budget so the Company could offer this service to an increased number of low-income customers. By allowing the Company to devote up to 20% of LIURP funding to be used for customers with income between 151% and 200% of Poverty Level, OCA notes this provision ensures this program remains available to additional customers who are reasonably likely to not be able to afford home weatherization measures on their own.Emergency Furnace and Line Repair Program Peoples TWP proposed its Emergency Furnace and Line Repair Program be adopted with a budget of $50,000 recovered through Rider USP-Universal Service Program. OCA notes the Joint Petitioners agreed and contends the benefits of such a program cannot be questioned, as broken furnaces present public health and safety problems. When a natural gas furnace is broken many low-income customers turn to portable electric space heaters, which present both safety problems and affordability problems with their electric bills. Allowing a small fund to assist low-income customers to repair their natural gas furnace is a step in reducing the use of portable electric space heaters as a primary heating source.Identity Theft ProgramOCA identified several concerns related to the Company’s handling of customer’s personally identifiable information. OCA points out the Company agrees to refresh its Identity Theft Program consistent with applicable state and federal law, and agrees to provide a copy to interested parties within six months after the conclusion of these proceedings, as a result of this Settlement. OCA asserts it is in the public interest for Peoples TWP to maintain a current Identity Theft Program, as this provision is one measure to minimize risk of and protect customers from identity theft.DSIC-Related ProvisionsOCA notes the Settlement provides that Peoples TWP’s DSIC shall be reset to 0.0% effective with the effective date of Settlement rates in this proceeding. OCA believes this provision in the Settlement is in compliance with Section 1358(b) of the Public Utility Code, 66?Pa.C.S.A. § 1358 (b).ConclusionOCA asserts the Joint Petitioners held numerous settlement discussions, pursuant to the Commission’s policy of encouraging settlements that are in the public interest. These discussions resulted in this proposed, comprehensive Settlement. OCA contends the terms and conditions of the Settlement are in the interest of Peoples TWP’s customers and in the public interest. OCA points out the Settlement terms and conditions satisfactorily address issues it raised and, taken as a whole, is a reasonable compromise in consideration of likely litigation outcomes before the Commission. Therefore, OCA submits the Settlement is in the interest of the Company’s customers and in the public interest. OCA supports the Commission approving the Settlement without modification.OCA acknowledges the Settlement does not reach all the recommendations proposed by OCA, but asserts the Settlement is a product of compromise. The Commission encourages settlement and to do so the Commission must recognize the balance of compromises struck by settling parties. OCA does not address all issues addressed by the Settlement in its Statement in Support but states it does not oppose terms and conditions not expressly addressed herein. OCA urges the Commission to weigh the Settlement as a whole. OCA submits the terms and conditions of the proposed settlement of this rate investigation represent a fair and reasonable resolution of the issues and claims arising in this proceeding. For the reasons stated in this Statement of Support, OCA submits the Settlement should be approved without modification.D.Office of Small Business Advocate’s Statement in Support Revenue Requirement OSBA took no active position regarding revenue requirement in this proceeding, but based on its review of the positions of the parties regarding revenue requirement, OSBA supports the proposed increase of $13.8 million as a reasonable compromise among the various positions.2.Revenue Allocation and Rate Design OSBA took an active position in this proceeding with respect to cost allocation, revenue allocation, and various rate design issues. OSBA acknowledges various experts advanced substantially different philosophies regarding cost allocation, and the Settlement represents a compromise that does not rely on any one particular cost allocation method. Nevertheless, OSBA observes the Company twice modified its cost allocation study to improve its accuracy, as a result of discovery and in response to certain technical recommendations. OSBA expressed hope these changes will be retained by the Company in future base rates proceedings.Regarding revenue allocation issues, OSBA avers the primary issue was whether the Company’s proposal to assign minimal increases to its “competitive” LGS customers was justified by the evidence. With respect to “gas-on-gas” competitive customers, the parties generally agreed to defer the issue to the concurrent generic proceeding on that topic at Docket Nos. P-2011-2277868 and I-2012-2320323. However, with respect to the issue of bypass and alternative fuel customers, both OCA and OSBA initially concluded in direct testimony the Company’s filing did not present sufficient information to justify setting rates to these customers well below allocated cost, regardless of which cost allocation methodology was adopted.OSBA acknowledged the Company generally produced sufficient information during the course of the proceeding which enabled OSBA to reasonably conclude some discounts to large industrial customers were justified based on the information provided, for the purposes of this proceeding only. Thus, OSBA states the Settlement generally reflects the Company’s position with respect to revenue allocation to the LGS class but the Company recognizes it must improve its efforts to justify setting rates below allocated costs. Through the Settlement, the Company agreed to substantially improve its analysis and record-keeping regarding any competitive discounts in Section E. As to the other interclass revenue allocation issues, OSBA submits the Settlement is reasonably consistent with OSBA’s surrebuttal proposal, and well within the range of revenue allocation proposals on the table. For convenience, OSBA prepared the table below showing OSBA’s estimate of the implications of each of the various revenue allocation proposals in this case at the $13.8 million Settlement rate increase. As shown, the Settlement values lie well within the range (particularly when the options assigning large increases to the LGS class are excluded), and that small business customers taking service under rates SGS and MGS are being treated fairly. Regarding rate design, OSBA also took issue with the proposed allocation of the annual $2 million acquisition revenue credit. The Company proposed to allocate the $2 million credit in proportion to the revenue increase approved in this proceeding, whereas OSBA proposed to follow the specific language of the Settlement in the acquisition proceeding which specified that the credit be allocated on revenue. (The parties agreed that competitive customers were to be ineligible for the acquisition revenue credit, consistent with the settlement of the acquisition proceeding.) The Settlement adopts a compromise position between these two views, such that the acquisition revenue credit is allocated half based on the increase and half based on revenues. OSBA believes this provision represents a reasonable compromise on this issue.OSBA took issue with the Company’s calculation of the gas procurement charge (“GPC”), primarily because the Company failed to include a provision for storage gas working capital in contravention of established Commission policy. The Company proposed a GPC of 11.47 cents per Mcf. In rebuttal testimony, OCA agreed the GPC should include a provision for working capital, and proposed a GPC of 14.41 cents per Mcf. In surrebuttal, OCA advocated a GPC of 15.25 cents per Mcf. The Settlement adopts a GPC of 14.0 cents per Mcf, which OSBA deems is a reasonable scale-back of OCA’s and OSBA’s positions to reflect the reduction in the overall revenue requirement, as well as being a reasonable compromise among the parties.Finally, OSBA expressed concern regarding the Company’s proposed monthly customer charges for the SGS and MGS classes. As shown in the table below, the Settlement represents a reasonable compromise between the Company’s position and OSBA’s position. 3. Universal Service and Conservation OSBA did not take an active position regarding universal service issues in this proceeding because universal service programs benefit only the residential rate classes. The costs of those programs are properly borne by those classes.4.DSIC-Related Provisions OSBA did not take an active position regarding DSIC issues in this proceeding. In OSBA’s view, the Settlement is consistent with both the enabling legislation and Commission policy in that the DSIC percentage is set to zero with the implementation of the distribution rates arising out of this proceeding, and will remain at zero until the Company makes distribution plant investments that are not reflected in those rates. As stated in the Settlement, the DSIC will remain at zero until the Company’s investment in eligible distribution plant exceeds that forecasted for the end of the fully projected future test year.5.Other Provisions OSBA strongly supports the Company’s commitment to substantially improve its recordkeeping and analysis related to the competitive alternatives available to flex rate customers and the magnitude of the rate discount necessary to retain those customers. This provision is an integral part of the Settlement, and is necessary for OSBA to accept the Company’s proposal to assign minimal increases to LGS customers in this proceeding.OSBA does not oppose the other provisions listed in this section of the Settlement, and did not take an active position regarding these provisions in this proceeding. 6.ConclusionOSBA notes it is an agency of the Commonwealth of Pennsylvania authorized by the Small Business Advocate Act (Act 181 of 1988, 73 P.S. §§ 399.41 – 399.50) to represent the interests of small business consumers as a party in proceedings before the Commission, and it concluded the Settlement is in the best interests of the Company’s small business customers. OSBA contends that, because its issues of principal concern were resolved, signing this Settlement enables OSBA to conserve its resources and avoid the uncertainties inherent in fully litigating those issues. Therefore, OSBA respectfully requests the Commission approve the Settlement without modification.VI.PRESIDING OFFICER’S CONCLUSIONRevenue RequirementThe parties agreed to an increase that, though approximately $5 million less than originally proposed by Peoples TWP, exceeds the amount seen in Peoples TWP’s recent base rate increases. However, the agreed-upon increase is within the range of possible results (if fully litigated) in that $13.8 million is less than the Company’s proposed increase and more than what BIE and OCA sought. This amount is reasonable and will provide Peoples TWP with the revenue stream needed to provide for major improvement projects recently initiated by the Company. It balances the need for Peoples TWP to earn a reasonable rate of return, in addition to receiving the funds to pay for these legitimate improvements, against the ratepayers’ need for reasonable rates that do not spike too high or too quickly. One reason for this increase is because the Company started using a fully projected future test year (FPFTY), as authorized by Act 11 of 2012. Another reason is the high improvement costs already spent, or projected to be spent within thirteen months of when these rates herein become effective. The FPFTY includes not only the revenue requirement associated with capital investments made prior to the rate’s effective date but also includes the capital investments during the FPFTY, which in this proceeding is January 31, 2015. Peoples TWP spent $12.2 million in plant improvements in 2012; has budgeted to spend $17.0 million in 2013 to replace mains, service and meters; and projects spending $9.9 million from January 2014 through January 2015 on similar improvement costs. In addition, the Company needs additional revenues due to a large increase in capital investments as part of the Company’s Smart Modernization Plan in which the Company’s bare steel pipes are to be replaced within the next 20 years. The Acquisition Credit reduces the revenue requirement by $10 million over the next five?years. The Acquisition Credit arose from the proceeding in which Peoples purchased TWP. In addition, the sales volumes included in this Settlement are more than the sales volumes estimated by Peoples TWP but less than the levels estimated by BIE. The increases in volume agreed-upon by the Joint Petitioners is in the customers’ interests as it reduces the amount charged to the ratepayers and should be approved as reasonable to the extent the estimated volumes reduce the rate charged per Mcf and the customer charges assessed. Revenue Allocation and Rate DesignThrough this base rate proceeding, the parties propose to alter the current rate class structure which will result in the Company using only six volumetric-based rate classes, instead of the ten current non-volumetric rate classes. These new rate class categories are defined reasonably and should result in simpler, fairer and more easily used rate classes because the rate classes are grouped together based on usage. Some changes originated from the acquisition of TWP by Peoples and are meant to promote retail natural gas supply competition. A substantial public benefit should result from the increased competition. The Settlement includes an agreement on how the Company will allocate the increased revenue among the six customer classes. Although unable to agree on the specific cost of service study to use, the parties agreed to an allocation that falls within the various proposals. The Residential class enjoys the largest majority of the scaleback in increased revenue. The allocation amongst the classes is reasonably done and achieves progress in aligning rates toward the cost of providing natural gas service to that particular class. As such, it is in the public interest. The parties negotiated at length concerning which rate design is most appropriate for customer charges. The design of customer charges is connected to the cost of service study used and, since the parties never agreed to a specific cost of service study to use herein, this rate design generated much discussion. The increased customer charge specified in the Settlement is a reasonable compromise of those competing ideas and is less than any customer cost calculation presented. In addition, the percentage increase to the Residential customer charge is less than the percentage increase to the Residential delivery rate. As a result, a low-use Residential customer will realize a lower than average percentage increase when compared to the residential class as a whole. The customer charges across the various rate classes are reasonable, more closely aligned to the cost of providing the service and in the public interest.The Settlement provides for unbundling uncollectibles associated with natural gas costs from base rate and to recover those costs through a Merchant Function Charge, which proposal from Peoples TWP was not contested by any party. In addition, the Settlement seeks to unbundle procurement costs from base rates with recovery of these costs through a Gas Procurement Charge at a rate that is a compromise of the Joint Petitioners’ positions. Furthermore, the Settlement allocates the Acquisition Credit among the various customer classes, with a bulk of the credit being enjoyed by the Residential class. This credit is in the public interest as it reduces the rate paid by the classes because the reduction is applied to the customer charge and delivery rate for each class. Peoples TWP wanted to add a new rate class, known as Rate NGPV (Natural Gas Powered Vehicles) in preparation for new public natural gas fueling stations to be constructed in the service territory due to the prevalence of Marcellus gas. Although there are no customers currently qualified to receive gas service under this proposal, the negotiated rate provisions in this rate class would permit Peoples TWP to offer a rate that justifies the upfront costs of conversion from gasoline to natural gas. OCA opposed the Company’s proposal and the Joint Petitioners compromised by allowing Peoples TWP to place NGPV customers into the SGS or MGS class (depending on volumetric usage) and would segregate the NGPV customers out in future rate cases, for purposes of rate allocation and rate design purposes, if service under this rate schedule expands to a significant level. This provision is reasonable and in the public interest because it allows Peoples TWP to offer the NGPV rate and thereby encourage construction of new natural gas fueling stations. This provision also benefits the public interest by delaying implementation of a new rate – with its concomitant effect to revenue allocation and rate design – until a later date when the use of the rate by future customers will be a known fact, not a presumed fact. Universal Service and ConservationThe Settlement makes numerous and varied changes to its Universal Service and Conservation programs. The most extensive of the changes are made to the Energy Help Fund, which will be renamed Customer Assistance Program or CAP. Under the Settlement, Peoples TWP will make multiple changes including forgiving pre-program arrearages over a 36 month period, which forgiveness will be applied when a CAP customer makes a full monthly CAP payment which brings the CAP payment plan up-to-date, even if the payment is received late. In addition, delinquent CAP customers will not be removed from CAP and will remain subject to active collection and termination, and those customers will not be subject to late payment penalties. Numerous changes were also made to the recertification requirement. These changes are in the public interest as they improve the Company’s operation of CAP and make it easier for CAP customers to become current on their CAP payment plan if they happen to fall behind in some of those payments. These changes also mean a CAP customer will not fall into a bigger financial hole due to late payment penalties.The Settlement calls for increased funding to the Low Income Usage Reduction Program (LIURP) with up to 20% of the LIURP budget being used to help customers with incomes that fall within 150% to 200% of the Federal Poverty Level. This provision is in the public interest as it will aid CAP customers and low-income customers who currently are not CAP customers. The Settlement provides for various other changes including the implementation of the Emergency Furnace and Line Repair Program for low-income customers, and improvements to refresh Residential customers’ Personally Identifiable Information (PII) in its Identity Theft Program. These provisions are in the public interest because they benefit low-income customers who experience expensive repair bills, and protect PII through the Company’s processes as well as through the Company’s vendors’ processes. DSIC-Related ProvisionsA majority of the witnesses who testified at the public input hearing questioned whether Peoples TWP was “double-dipping” by requesting increased revenue due to infrastructure replacement within its facilities system when (1) DSIC charges already appear in customers’ monthly bills, and (2) Peoples TWP initiated a separate proceeding (at Docket No. P2013-2344595) soon after filing for this base rate increase in which Peoples TWP requests additional sums for infrastructure replacement costs. The end result is the DSIC charge will remain on customers’ monthly billing statements and will never appear to “zero out”. Peoples TWP’s Statement in Support admirably explains why this increased revenue requirement, requested almost simultaneously with Peoples TWP’s DSIC petition, does not double dip. The witnesses were not in error to question the legitimacy of asking for an increased revenue requirement for infrastructure replacement costs while also requesting more money (in the form of an increased DSIC charge on the monthly statements) for infrastructure replacement costs. The Company clarifies the regulatory and legislative structure while proving that the two requests (first in the base rate proceeding and then in the DSIC proceeding) are, in fact, consistent with the structure established by the Legislature and do not constitute double-dipping. In short, the Company requests through this base rate proceeding that the costs of replacing one set of facilities should be folded into the base rate. When the Commission approves the base rate proceeding, the Commission will “reset” the DSIC charge to “zero”. Then in the DSIC proceeding, the Company will request the Commission reinstitute the DSIC charge into the monthly bills because of the cost of replacing another, different section of facilities. Due to the proximity in time between the two proceedings, it appears there is double-dipping but, in fact, the DSIC charge to be absorbed into the base rate was intended to cover the costs of replacing a different set of facilities than the facilities that Peoples TWP will replace with the revenue generated by the new DSIC charge, which presumably will be awarded to some extent in the proceeding at Docket No. P-2013-2344595.The law does not proscribe when a DSIC proceeding may be filed in relation to the filing of a base rate proceeding. The law also does require a utility to include all proposed improvements in either the base rate or the DSIC proceeding. Additionally, by agreeing to provide the statutory parties and TUS with documentation that verifies the sums received for improvements are appropriately applied and result in the improvements proposed (See Settlement Paragraph 41), Peoples TWP gives the Commission and statutory parties the opportunity to “double check” and verify that ratepayers’ monies are used only to make the improvements proposed. The public interest will benefit when aging infrastructure costs are paid for by the various rate classes to the extent each rate class generates the need for that replacement. Replacing aging infrastructure ensures a more safe and reliable distribution of natural gas to the Company’s ratepayers and to all individuals and businesses located near one of the Company’s pipelines. Other ProvisionsLastly, the Settlement deals with various other provisions, such as the discounted rate provided to customers who can bypass the Company’s system in order to satisfy the customers’ energy needs. Through the Settlement, Peoples TWP agrees to provide more formal documentation of the need for discounts and the level of discounts offered to customers in a competitive situation. This documentation will permit the other Joint Petitioners to see how the Company balances the competing demands of rate maximization against revenue retention. This provision is a compromise of the positions of the various Joint Petitioners and, as such, is in the public interest. Furthermore, the Settlement requires the Company to report on its future expenditures and allow the Commission to compare projected investments to actual investments. This reporting will be provided to the Commission’s Bureau of Technical Utility Services, BIE, OCA and OSBA on or before May 1, 2014, and to file a further report on or before May 1, 2015. Lastly, the Company agreed to provide a comparison of actual expenses and rate base additions when it files its next base rate proceeding. This provision is in the public interest as it will provide factual assurance to the Commission, to the Joint Petitioners and, indirectly, to the Company’s ratepayers that the costs paid for through the base rate increase herein are appropriately and reasonably applied to cover improvements costs. The Joint Petitioners request the Commission move up the effective date of the new base rates from January 29, 2014 to January 1, 2014, if possible. This provision was the result of compromise by the parties and is consistent with the Acquisition Settlement in which Peoples TWP agreed not to increase base rates prior to January 1, 2014. For all the foregoing reasons, I recommend the Commission approve the Settlement as just and reasonable, and in the public interest.VII.CONCLUSIONS OF LAW TC "VI.CONCLUSIONS OF LAW" \f C \l "1" 1.The Commission has jurisdiction over the parties and subject matter in this proceeding. 66 Pa.C.S.A. §§ 501, 1301, 1308(d).2.The benchmark for determining the acceptability of a settlement is whether the proposed terms and conditions are in the public interest. Warner v. GTE North, Inc., Docket No. C-00902815, Opinion and Order entered April 1, 1996; Pa. Pub. Util. Comm’n v. CS Water and Sewer Associates, 74 Pa. PUC 767 (1991).3.The Joint Petition For Settlement is just and reasonable and in the public interest.4.The proposed base rate revenue increase of $13.8 million, as shown in the Proof of Revenue at Appendix A to the Joint Petition For Settlement, is just and reasonable, as required by 66 Pa.C.S.A. § 1301, and has been fully supported by the parties to the Joint Petition For Settlement.5.The revenue allocations to the various customer classes, provided in the Joint Petition For Settlement, produce just and reasonable rates, as required by 66 Pa.C.S.A. §?1301.6.The tariff changes proposed in the Joint Petition For Settlement are just and reasonable, as required by 66 Pa.C.S.A. § 1301. VIII.ORDER TC "VII.ORDER" \f C \l "1" THEREFORE,IT IS RECOMMENDED:1.That Peoples TWP LLC shall not place into effect the rates, rules, and regulations contained in the Original Tariff. 2.That the Joint Petition For Settlement submitted at Docket No. R-2013-2355886, including all terms and conditions as clarified, is hereby approved.3.That Peoples TWP LLC is hereby authorized to file the tariff supplement contained in Appendix “B” to the Joint Petition For Settlement to become effective on one day’s notice after entry of the Commission’s order approving the Settlement for service rendered on and after January 1, 2014, designed to produce $13.8 million in additional annual base rate operating revenue.4.That Peoples TWP LLC 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 Settlement.5.That the Formal Complaints filed against the base rate proceeding by the Office of Consumer Advocate and the Office of Small Business Advocate at C-2013-2364471 and C-2013-2364669, respectively, are dismissed, consistent with the Joint Petition For Settlement.6.That the Formal Complaints of the following eleven individual ratepayers are dismissed:Dawn B. Spielvogel at Docket No. C-2013-2364680;Charles Glendening at Docket No. C-2013-2369476; Neil Cooper at Docket No. C-2013-2369509; Megan Rummel at Docket No. C-2013-2370635; Susan Hilliard at Docket No. C-2013-2370725; Carol George at Docket No. C-2013-2370736; Kathleen Tack at Docket No. C-2013-2371780; Lawrence Sumansky at Docket No. C-2013-2371794; Amy and John Beiler at Docket No. C-2013-2371818; Gertrude Blair at Docket No. C-2013-2372633; and Tim Oesterling at Docket No. C-2013-2373589That on or before May 1, 2014, Peoples TWP LLC will provide the Commission’s Bureau of Technical Utility Services, Bureau of Investigation and Enforcement, Office of Consumer Advocate and Office of Small Business Advocate an update to Peoples TWP Exhibit No. AC-2, which will include actual capital expenditures, plant additions and retirements by month for the twelve months ending January 31, 2014. That on or before May 1, 2015, Peoples TWP LLC will update Exhibit No.?AC2 filed in this proceeding for the twelve months ending January 31, 2015.9.That after acceptance and approval by the Commission of the tariff revisions filed by Peoples TWP LLC, the investigation at Docket No. R2013-2355886 shall be terminated and the docket shall be marked closed.Date: October 30, 2013/s/Katrina L. DunderdaleAdministrative Law JudgeAttachment APa. Pub. Util. Comm’n v. Peoples TWP LLCDocket No. R-2013-2355886, et alDOCUMENTS TO BE ENTERED INTO EVIDENCE1.2013 Base Rate Filing - Tariff Gas – PA PUC No. 8, as follows:Volume I – 53.52 and 53.53 I.A.1 through 53.53 I.C.2Volume II – 53.53 II.A.1 through 53.53 II.C.1Volume III A – 53.53 III.A.1 through 53.53 III.A.45Volume III B – 53.53 III.A.46 through 53.53 III.E.39Volume IV – 53.53 IV.B.1 through 53.53 IV.B.5 and 53.53 IV.B.7 through 53.53 IV.B.14Volume V – 53.53 IV.B.6 (Present and Proposed Tariffs)Volume VI – RR.1 to RR.23Volume VII – RR.24 to RR.55Volume VIII – COS.1 to COS.21Volume IX – ROR.1 to ROR.23Volume X – Pertinent Schedules (Summary)Volume XI – Testimony/Exhibits Part 1Volume XII – Testimony/Exhibits Part 2Volume XIII – Confidential Documents2.Testimony – Robert M. HovanecA.Direct Testimony - Statement 1 and Appendix A3.Testimony – Paul W. BeckerA.Direct Testimony – Statement 2 and Appendix A4.Testimony – Gregory A. SciulloA.Direct Testimony – Statement 3 and Appendix A5.Testimony – Jon H. SkoogA.Direct Testimony – Statement 4 and Appendix A-Exhibit JHS-16.Testimony – Sadie John KroeckA.Direct Testimony – Statement 5 and Appendix A-Exhibit SJK-1-Exhibit SJK-2B.Rebuttal Testimony – Statement 5-R-Attachment SJK-37.Testimony – Paul R. MoulA.Direct Testimony – Statement 6 and Appendix A-Exhibit PRM-1B.Rebuttal Testimony – Statement 6R-Exhibit PRM-2-Exhibit PRM-38.Testimony – Anthony CaldroA.Direct Testimony – Statement 7 and Appendix A-Exhibit AC-1-Exhibit AC-2-Exhibit AC-3B.Rebuttal Testimony – Statement 7-R-Exhibit AC-49.Testimony – John J. SpanosA.Direct Testimony – Statement 8 and Appendix A-Exhibit JJS-1-Exhibit JJS-2-Exhibit JJS-310.Testimony – James I. WarrenA.Direct Testimony – Statement 9 and Appendix A11.Testimony – Dawn M. FolksA.Direct Testimony – Statement 10 and Appendix A-Exhibit DMF-1-Exhibit DMF-2-Exhibit DMF-3-Exhibit DMF-4-Exhibit DMF-5-Exhibit DMF-6B.Rebuttal Testimony – Statement 10-R-Exhibit DMF-7-Exhibit DMF-8-Exhibit DMF-9-Exhibit DMF-10-Exhibit DMF-11-Exhibit DMF-12-Exhibit DMF-13-Exhibit DMF-1-REVISED-Exhibit DMF-2-REVISED-Exhibit DMF-14-Exhibit DMF-1-REVISED (8-29-13)-Exhibit DMF-2-REVISED (8-29-13)12.Testimony – Lynda W. PetrichevichA.Direct Testimony – Statement 11 and Appendix A-Exhibit LWP-1-Exhibit LWP-2B.Rebuttal Testimony – Statement 11-R-Exhibit LWP-3-Exhibit LWP-4-Exhibit LWP-5-Exhibit LWP-6-Exhibit LWP-713.Testimony – Russell A. FeingoldA.Direct Testimony – Statement 12-Exhibit RAF-1-Exhibit RAF-2B.Rebuttal Testimony – Statement 12-R-Exhibit RAF-3-Exhibit RAF-4-Exhibit RAF-5-Exhibit RAF-6-Exhibit RAF-7-Exhibit RAF-8-Exhibit RAF-9-Exhibit RAF-10-Exhibit RAF-11-Exhibit RAF-12-Exhibit RAF-13-Exhibit RAF-14C.Surrebuttal Testimony – Statement 12-SR14.Testimony – Andrew P. WachterA.Direct Testimony – Statement 13-Exhibit APW-1-Exhibit APW-2-Exhibit APW-3-Exhibit APW-4-Exhibit APW-5-Exhibit APW-6-Exhibit APW-7-Exhibit APW-8-Exhibit APW-9-Exhibit APW-10-Exhibit APW-11B.Rebuttal Testimony – Statement 13-R-Exhibit APW-12-Exhibit APW-13-Exhibit APW-14-Exhibit APW-15-Exhibit APW-16-Exhibit APW-1715.Testimony – Jeffrey S. NehrA.Rebuttal Testimony – Statement 14-R-Exhibit JSN-1 (HIGHLY CONFIDENTIAL)Attachment BPa. Pub. Util. Comm’n v. Peoples TWP LLCDocket No. R-2013-2355886, et alCONFIDENTIAL DOCUMENTS ENTERED INTO EVIDENCE2013 Base Rate Filing - Tariff Gas - PA PUC No. 8Volume XIII – Confidential DocumentsDirectOSBA Statement No. 1OSBA Exhibit IEc-2OSBA-I-23 – ConfidentialOSBA-I-24 – ConfidentialOSBA-I-25 – ConfidentialOSBA-II-8 – ConfidentialI&E RS-008 – ConfidentialOSBA Exhibit IEc-3I&E Statement No. 4 – I&E Exhibit No. 3 Proprietary (Exhibit only)RebuttalJeffrey S. Nehr - Statement 14-R – Exhibit JSN-1 (Highly Confidential) (Exhibit only)SurrebuttalOSBA Statement No. 3OSBA Exhibit IEc-S1 – Highly Confidential ................
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