BEFORE THEPENNSYLVANIA PUBLIC UTILITY COMMISSION

Application of Mountain Energy, LTD for approval : A-2013-2396198of 1) the abandonment by service by Mountain :Energy, LTD to 86 customers located in Greene :County, PA; 2) the sale and transfer of certain :jurisdictional assets by Mountain Energy, and 3) :the abandonment by Mountain Energy of all : natural gas services and natural gas distribution :services in this Commonwealth. :

Application of Mountain Energy, LTD for approval : A-2013-2397326of 1) the abandonment by service by Mountain :Energy, LTD to 86 customers located in Greene :County, PA; 2) the sale and transfer of certain :jurisdictional assets by Mountain Energy, and 3) :the abandonment by Mountain Energy of all : natural gas services and natural gas distribution :services in this Commonwealth. :

Application of Mountain Energy, LTD for approval : A-2013-2397328of 1) the abandonment by service by Mountain :Energy, LTD to 86 customers located in Greene :County, PA; 2) the sale and transfer of certain :jurisdictional assets by Mountain Energy, and 3) :the abandonment by Mountain Energy of all : natural gas services and natural gas distribution :services in this Commonwealth. :

Mountain Energy, LTD filed Supp. No. 6 to PA : R-2015-2496404PUC No. 1; Eff: 11/1/15, proposing the addition of :a gas cost rate. :

Application of Peoples Natural Gas and Mountain : A-2015-2507377Energy, LTD for approval of the transfer of :property used or useful from Mountain Energy to :Peoples and the transfer of patrons located in :Aleppo, Center, Freeport, Gray and Richhill :Townships, Greene County, PA, from Mountain to :Peoples. :

RECOMMENDED DECISION

BeforeMark A. Hoyer

Deputy Chief Administrative Law Judge

TABLE OF CONTENTS

I. HISTORY OF THE PROCEEDING...................................................................................1

II. TERMS OF THE SETTLEMENT....................................................................................12

A. Transfer to Peoples................................................................................................14

B. Conversion to Alternative Fuel..............................................................................15

C. Regulatory Compliance.........................................................................................16

D. Transfer of Pipelines and Facilities........................................................................17

E. Free Gas Users.......................................................................................................18

F. Condition of Pipelines at Closing..........................................................................19

G. Rights of Way........................................................................................................20

H. Gas Supply and Long Wall Mining.......................................................................20

I. Peoples’ Cost Recovery.........................................................................................21

J. Mountain Energy’s Rates.......................................................................................22

III. DISCUSSION....................................................................................................................22

A. Mountain Energy...................................................................................................23

B. Leatherwood..........................................................................................................27

C. Peoples...................................................................................................................29

D. I&E.........................................................................................................................32

E. OCA.......................................................................................................................34

F. Public Interest Analysis of Settlement, Applications, and PGC Rate Request..................................................................................................39

1. Legal Standards..........................................................................................39

2. The Settlement-Public Interest...................................................................40

3. Recommendation.......................................................................................48

IV. CONCLUSIONS OF LAW...............................................................................................48

V. RECOMMENDED ORDER..............................................................................................50

I. HISTORY OF THE PROCEEDING

On December 9, 2013, Mountain Energy, LTD filed an Application for Approval

of: (1) the abandonment of service by Mountain Energy to eighty-six residential customers

located in Greene County, Pennsylvania;1 (2) the sale and transfer of certain jurisdictional assets

by Mountain Energy; and (3) the abandonment by Mountain Energy of all natural gas services

and natural gas distribution services in this Commonwealth at dockets A-2013-2396198, A-

2013-2397326, and A-2013-2397328, respectively (Application). In the Application, Mountain

Energy provided that it needs to abandon service to its natural gas customers because it lacks the

ability to provide adequate, safe and reasonable service to its natural gas customers in the future.

Application at 2. Mountain Energy proposed to assist the customers who would be abandoned in

acquiring an alternative fuel source by providing them with a monetary contribution.

Application at 3. Notice of the Application was published in the Pennsylvania Bulletin on

January 4, 2014. 44 Pa.B. 148. The published Notice required that formal protests and petitions

to intervene be filed on or before February 3, 2014.

Additionally, in the Application, Mountain Energy stated that it had sold all of its

jurisdictional gas leases, wells and gathering systems to Leatherwood, Inc. in a series of

transactions in October 2006, May 2008, March 2009, and November 2009. Application at 14-

15. Mountain Energy further stated that it had not expressly sought or obtained Commission

approval for these transactions. Application at 15. Thus, Mountain Energy requested the

Commission approve Mountain Energy’s sale and transfer of the jurisdictional assets as of the

dates of the respective closings. Id. Mountain Energy maintained that if the Commission

approves the Application to Abandon Service and Application to Sell and Transfer Certain

Jurisdictional Assets, the Company will have no remaining customers or assets. Application at

16. As such, Mountain Energy sought to cease operating as a Pennsylvania Public Utility. Id.

1 Of these eighty-six customers, Mountain Energy stated in its Application that ten had already been converted to an alternative fuel source at the time Mountain Energy filed its application, albeit, without Commission approval.

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On January 15, 2014, the Office of Consumer Advocate (OCA) filed a protest.

On January 24, 2014, the Commission’s Bureau of Investigation and Enforcement (I&E) filed a

notice of intervention. Protests were also filed by the following parties:

Aleppo Township Macedonia Interdenominational Church TrusteesJames W. Amos Charles Martin, Jr.Victor Antill Sarah E. MartinWilliam F. Black Weston & Kenette MillerWilliam F. Black, Jr. Helen PalmerTeresa Cheek George L. PiersonPaul J. Clutter James PiersonDean M. Courtwright Donna PrevostFred C. Courtwright Diana RichardsonWilbur L. Courtwright Philip RichardsonDavid P. Jones Sharon RichterEvelyn Jordan Brian RossTeri Jordan Lanny B. RossHazel B. Koffler Terry J. RossRalph F. Koffler Z. Marcella RossPhyliss Lennon Danny SampsonRonald Lohr Craig UsherE. Scott Sotler Arnold WickhamJames E. Petit Leonard R. & Nevada Ilene Richezza

On April 10, 2014, a First Interim Order was issued joining Leatherwood as an

indispensable party in the Application proceeding. The First Interim Order also enjoined

Leatherwood from transferring, selling or taking any action with respect to the Purchased Assets

more fully described in the Application that would adversely impact the ability of Mountain

Energy to provide natural gas utility service to its customers pursuant to the Public Utility Code,

66 Pa.C.S. § 101, et seq., during the pendency of the Application proceeding and prior to full

compliance with any final order issued.

A prehearing conference was not scheduled for the Application proceeding

because Mountain Energy was exploring other options and expressed a desire not to move

forward with the Application proceeding. I was not privy to any discussions among Mountain

Energy, Leatherwood, I&E and the OCA. No parties expressed a desire to move forward with

the Application proceeding. Counsel for Mountain Energy and Leatherwood in the Application

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proceeding, Daniel J. Clearfield, Esquire, provided me with periodic status reports. On

October 20, 2014, Mr. Clearfield assured me that Mountain Energy was prepared to provide safe,

reliable and continuous gas service to its customers, consistent with its resources and obligations

under the Public Utility Code for the winter (2014-2015). Mr. Clearfield further represented that

both I&E and the OCA reviewed Mountain Energy’s plans for the winter and believed they

adequately addressed the upcoming winter (2014-2015).

On November 18, 2014, the Public Utility Commission (Commission) adopted

and entered an Emergency Order at Docket No. M-2014-2453735. The Emergency Order was

issued after the Commission was made aware of a loss of service and adequate pressure on parts

of Mountain Energy’s system. The Emergency Order chronicled the events and discussions that

followed later that same day and led to the issuance of the Emergency Order. The Emergency

Order ordered the following:

1. That Peoples Natural Gas Company, LLC shall immediately assume interim operational control of Mountain Energy, LTD at its initial cost and expense until further order of the Commission.

2. That Mountain Energy, LTD and Leatherwood, Inc. shall provide Peoples Natural Gas Company, LLC with all necessary access to facilities and records required for the safe and reliable operation of the Mountain Energy, LTD system.

3. Mountain Energy, Ltd., its officers, directors and principals, shall within three (3) days of this Emergency Order place in escrow with the Commission for the reimbursement of operational and natural gas costs incurred by Peoples Natural Gas Company, LLC the sum of Fifty Thousand Dollars ($50,000.00).

4. That any person affected by this Order may file comments thereto within five (5) days of this order.

5. That the Secretary’s Bureau serve this Emergency Order on all affected parties.

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On November 20, 2014, Bradley J. Bledsoe, Vice President of Mountain Energy,

filed a letter with the Commission.

On November 24, 2014, Peoples Natural Gas Company LLC (Peoples) filed

Comments of Peoples Natural Gas Company LLC (Comments) in response to the Emergency

Order. Peoples commented that the emergency situation that prompted the issuance of the

Emergency Order had been addressed. Peoples’ Comments, p. 3. Peoples questioned whether

there are other legal remedies, other than emergency relief, such as the appointment of Peoples

as a receiver of Mountain Energy, that may have been more effective in the emergency situation

and merit consideration. Peoples reported that it assumed interim emergency control of

Mountain Energy at its initial cost and expense in accord with the Emergency Order and that it

was prepared to continue in that role until further order of the Commission. Peoples requested

that the Commission consider the conditions under which termination of the Emergency Order

would be justified and whether those conditions had been met. Peoples also reserved the right to

request an expedited hearing to consider whether the Emergency Order should remain in effect

and whether the Commission’s emergency relief regulations provide an adequate legal basis to

support potentially long-term transfer of operational control from one natural gas utility

(Mountain Energy) to another natural gas utility (Peoples). Peoples’ Comments, p. 5.

On November 25, 2014, I&E also filed Comments in response to the Emergency

Order. I&E commented that while the cold weather experienced specifically on November 18,

2014 had passed, the real nature of the issues giving rise to the Emergency Order had not passed.

I&E further commented that if the Commission considered terminating the Emergency Order, it

should consider addressing the larger system and service reliability issues of Mountain Energy’s

system by, as Peoples suggested in its Comments, the appointment of Peoples as a receiver of

Mountain Energy. I&E requested that the Emergency Order remain in effect until the next

public meeting (December 4, 2014).

On December 4, 2014, the Commission adopted a Ratification Order that was

entered that same day. The Commission ratified its November 18, 2014 Emergency Order,

finding it necessary and proper for the service, accommodation and convenience of the public.

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In the Ratification Order, the Commission decided the Comments filed by Peoples on

November 24, 2014 were a request for an expedited hearing pursuant to 52 Pa.Code § 3.4. The

Commission assigned this matter to the Office of Administrative Law Judge and specifically to

me for further evidentiary hearings regarding the following: (1) a determination of Mountain

Energy’s financial and operational fitness; (2) clarification regarding Peoples’ interim

operational control while the Emergency Order remains in effect; (3) whether Peoples should be

appointed as a receiver of Mountain Energy; and (4) whether and how much Mountain Energy

should be required to place in escrow for the reimbursement of operational and natural gas costs

incurred by Peoples. Ratification Order, p. 5.

The Ratification Order ordered the following:

1. That this matter be assigned to the Office of Administrative Law Judge, and specifically ALJ Mark M. Hoyer [sic.], for expedited hearings pursuant to 52 Pa. Code § 3.4; that the ALJ determine which, if any, operations and activities Mountain Energy is fit and capable of performing and which, if any, should be performed by a receiver.

2. That Peoples Natural Gas Company, LLC shall continue to assume interim operational control of Mountain Energy, LTD at its initial cost and expense until the matter is resolved by the Office of Administrative Law Judge.

3. That Mountain Energy, LTD and Leatherwood, Inc. continue to provide Peoples Natural Gas Company, LLC with all necessary access to facilities and records required for the safe and reliable operation of Mountain Energy, LTD system.

On December 5, 2014, an informal telephone conference was held for the purpose

of discussing the procedure to be followed and to schedule a hearing. Bradley J. Bledsoe,

Vice President of Mountain Energy, participated in the conference. Daniel J. Clearfield, Esquire,

also participated in the conference. Attorney Clearfield was not going to participate in the

conference or enter an appearance in the emergency proceeding (Docket No. M-2014-2453735),

however, I informed him that I intended to issue an order listing Leatherwood as a party to the

emergency proceeding. Attorney Clearfield then decided to participate in the informal

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conference as counsel for Leatherwood. He did not represent Mountain Energy in the

emergency proceeding.

Adam D. Young, Esquire, participated in the informal conference on behalf of

I&E. William H. Roberts, II, Esquire, participated in the informal conference on behalf of

Peoples. Darryl A. Lawrence, Esquire and Kristine E. Robinson, Esquire, participated in the

conference on behalf of the OCA. I informed counsel that I planned to add the OCA as a party

to the emergency proceeding as well.

During the informal conference, I instructed the attorneys to formally enter their

respective appearances on behalf of their clients with the Commission’s Secretary’s Bureau. I

informed Mr. Bledsoe that, since he was not an attorney, he could not represent Mountain

Energy in the emergency proceeding and that Mountain Energy would require an attorney to

represent it at any hearing.

On December 5, 2014, after the informal conference, I issued a Prehearing Order

which, among other things, listed the parties to the emergency proceeding as follows: Mountain

Energy, Leatherwood, Peoples, I&E and the OCA. The Prehearing Order also provided that a

hearing to address the issues set forth by the Commission in the Ratification Order would be held

on December 12, 2014. The Prehearing Order required the parties to file briefs by December 23,

2014. A Hearing Notice was also issued on December 5, 2014.

On December 9, 2014, Leatherwood filed a Petition for Reconsideration of

Paragraph 2 of the Prehearing Order. Leatherwood objected to its inclusion as a party in the

emergency proceeding because it did not request party status and it was not an indispensable

party to the emergency matter. No objections to the Petition for Reconsideration were filed.

Leatherwood remained a party.

On December 11, 2014, a second informal prehearing conference was held in the

emergency proceeding wherein the parties’ representatives advised me that the parties had

entered into a Joint Stipulation addressing the Emergency Order and the issues set forth in the

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Ratification Order. I informed the representatives that the parties could participate in the hearing

scheduled for December 12, 2014 either in-person or telephonically. The parties filed an

executed Joint Stipulation with the Secretary’s Bureau on December 11, 2014.

On December 12, 2014, a hearing was held on the emergency proceeding. The

represented parties presented a Joint Stipulation for consideration that the parties believed

addressed the issues raised by the Commission in the Ratification Order and provided a

procedure for the operation of Mountain Energy. The Joint Stipulation required Mountain

Energy to post a $30,000 deposit with Peoples within five (5) days of the execution of the Joint

Stipulation. Joint Stipulation, p. 2. I requested that Peoples file a receipt for this $30,000

payment with the Secretary’s Bureau and I informed the parties that the receipt would be marked

Peoples Exhibit No. 1. I asked if any party objected to the admission of the receipt and no party

objected. Transcript of Hearing on December 12, 2014 at Docket No. M-2014-2453735,

pp. 19-20.

The parties filed Statements in Support of the Joint Stipulation on December 23,

2014.

On January 5, 2015, I issued a Recommended Decision at Docket No. M-2014-

2453735 recommending approval of the Joint Stipulation subject to three reporting requirements.

The Commission approved the Joint Stipulation in an Order entered on February 12, 2015.

On February 13, 2015, Mountain Energy, the OCA, I&E, Peoples, and

Leatherwood reached an Agreement in Principle, in which they determined that a majority of

Mountain Energy’s remaining customers could be economically transferred to Peoples.

Mountain Energy, the OCA, I&E, Peoples, and Leatherwood advised me that they held in-person

meetings with the Mountain Energy customers on May 18-19, 2015 in the service territory area

to discuss how Peoples would proceed and which customers could be served by Peoples.

Mountain Energy, the OCA, I&E, Peoples, and Leatherwood also advised me that they answered

questions and discussed how the procedure would work moving forward. I was not involved in

any capacity in the aforementioned meetings or discussions.

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On August 3, 2015, Mountain Energy made a filing at Docket No. R-2015-

2496404 for the temporary addition of a Gas Cost Rate (GCR) to its tariff 2 until Peoples took

over the system, as contemplated by the Agreement in Principle. No complaints were filed by

customers at Docket No. R-2015-2496404.

On October 1, 2015, Peoples filed an Application to acquire certain jurisdictional

facilities owned by Mountain Energy and Leatherwood and to transfer seventy-seven Mountain

Energy utility customers to Peoples to effectuate the Agreement in Principle (Peoples’

Application).3 The application was assigned Docket No. A-2015-2507377. In the Peoples’

Application, Peoples provided that the facilities being acquired by Peoples have no book value

and are being acquired at no cost. Peoples’ Application at 4. Peoples, however, anticipated the

need to invest approximately $3 million to $6 million during the first year of operation for 1.5

miles of new pipeline extensions and two to five miles of pipeline replacement and to invest

additional capital for replacements over the following four years. Id. at 4-5. In the Peoples’

Application, Peoples further provided that in order to remove disincentives to making needed

capital improvements, Mountain Energy, the OCA, I&E, Peoples, and Leatherwood agreed to a

deferral mechanism that would provide Peoples the opportunity to include the annual revenue

requirement associated with investment costs for recovery in a future rate case. Id. at 5. In

addition to capital costs, Peoples also anticipated incurring approximately $150,000 per year in

operation and maintenance expense related to these facilities. Id. Peoples further provided that

Mountain Energy, the OCA, I&E, Peoples, and Leatherwood agreed to reimbursement to Peoples

by Mountain Energy for a portion of Peoples’ projected Operation and Maintenance (O&M)

costs ($1,500 for each customer transferred to Peoples) and a cost recovery procedure for

Peoples that provided for the filing of a 1308(b) non-general rate case for on-going recovery of

O&M costs, 66 Pa.C.S. § 1308(b). Id.

2 Tariff Supplement No. 6 to Gas-Pa. P.U.C. No. 1.

3 Peoples’ Application and the Joint Petition for Settlement provide that 77 customers will be transferred if the application is approved however the number of customers to be transferred from Mountain Energy to Peoples pursuant to the Joint Petition for Settlement is actually 76. Tr. of Public Input Hearing, p. 37; Peoples St. No. 1, p. 6; Peoples St. No. 2, p. 4; Mountain Energy St. No. 1, p. 9.

8

Notice of Peoples’ Application was published in the Observer-Reporter

newspaper in Greene County, Pennsylvania on October 27, 2015. Pursuant to the published

notice, protests to the application and petitions to intervene were to be filed on or before

November 9, 2015. No protests or petitions to intervene were filed at Docket No. A-2015-

2507377. An Affidavit of Publication was filed with the Commission’s Secretary’s Bureau on

November 9, 2015.

On October 9, 2015, Mountain Energy filed an Amended Application to (1)

reflect the proposed transfer of the majority of Mountain Energy’s customers to Peoples which,

if approved, would decrease the number of customers that would have to be converted to another

fuel source; (2) increase the monetary contribution made by Mountain Energy to assist customers

who will not be transferred to Peoples in converting to another fuel source; and (3) update the

total number of customers being served by Mountain Energy. In the Amended Application,

Mountain Energy requested that the Peoples’ Application be consolidated with Mountain

Energy’s Amended Application.

On October 22, 2015, the Commission entered an Order at Docket No. R-2015-

2496404. The Commission found Mountain Energy’s tariff filing to add a GCR rider

inextricably tied to the resolution of Mountain Energy’s abandonment proceedings. The

Commission authorized Mountain Energy to establish a GCR rider in accordance with its

proposed tariff but refrained from establishing a rate. The GCR rider tariff supplement was

suspended by operation of law until May 1, 2016, unless permitted by Commission Order to

become effective at an earlier date. The matter was assigned to the Office of Administrative

Law Judge for hearings culminating in the issuance of a Recommended Decision.

On December 17, 2015, a Notice was issued at all of the above-captioned dockets

scheduling a prehearing conference for January 5, 2016 in Pittsburgh. On December 21, 2015, I

issued a Prehearing Conference Order in the above-captioned dockets, scheduling a prehearing

conference for January 5, 2016 and advising the parties the issue of consolidation would be

addressed at the conference.

9

Prehearing Memoranda were filed by Mountain Energy, Leatherwood, I&E, the

OCA and Peoples.

The Prehearing Conference was held as scheduled. None of the individuals who

filed timely protests appeared or were represented at the conference. Mountain Energy,

Leatherwood, I&E, the OCA and Peoples were represented at the conference.

The above-captioned dockets were consolidated at the prehearing conference for

hearing and disposition. The represented parties advised me that they had entered into a

settlement of all of the docketed proceedings. Mountain Energy agreed to further suspend its

tariff filing to add a GCR rider at Docket No. R-2015-2496404 until July 1, 2016, and file a tariff

supplement with the Commission’s Secretary’s Bureau. On January 26, 2016, a Prehearing

Order was issued. The following procedural schedule, agreed to by the represented parties at the

prehearing conference, was ordered:

Date EventFebruary 1, 2016 Settlement Agreement to be filed and served by Mountain Energy

March 7-10, 2016 One evening Public Input Hearing to be scheduled in Greene County, Pennsylvania

March 16, 2016 Service of written direct testimony and service of separate statements in support of settlement

March 28, 2016 at10:00 a.m.

Evidentiary Hearing in Pittsburgh

April 5, 2016 Service and filing of comments/objections to settlement by party protestants

April 11, 2016 Service and filing of reply comments

June 30, 2016 Last Public Meeting before suspension date of July 1, 2016

The unusual procedure proposed by the parties at the prehearing conference was

adopted so that all of the protestants and customers would receive a copy of the proposed

settlement in advance of any scheduled public input hearing. Given the complex nature of this

consolidated proceeding and the fact that none of the individual protestants or customers had

10

legal counsel representing them, the undersigned believed that a public input hearing would

enable customers and protestants to testify regarding the proposed applications, the rate filing

and the proposed settlement without having to obtain representation, submit written testimony

and participate in the technical evidentiary hearing, unless they desired to do so.

On February 3, 2016, counsel for Peoples, William H. Roberts II, Esquire, filed a

Joint Petition for Settlement (Settlement) executed by Mountain Energy, Peoples, Leatherwood,

I&E and the OCA.

On February 10, 2016, a Public Input Hearing Notice was issued scheduling one

public input hearing for March 9, 2016 at 7:00 p.m. in Waynesburg, Pennsylvania. On

February 12, 2016, a second interim order was issued setting forth some procedures to be

followed for the scheduled public input hearing.

The public input hearing was held as scheduled. The hearing was well attended.

Peoples and Mountain Energy brought personnel to answer customers’ questions. Fourteen

witnesses testified under oath. The transcript was expedited so that the parties would have

access to the testimony prior to the due date for service of written direct testimony and exhibits.

The parties to the Settlement had access to the public input testimony prior to the preparation and

service of their Statements in Support as well.

Pursuant to the procedural schedule, Statements in Support of the Settlement were

to be served on the parties on or before March 16, 2016. Also, on or before March 16, 2016, the

parties intending to introduce evidence at the hearing scheduled on March 28, 2016 were

required to serve written direct testimony and exhibits.4 Only Peoples and Mountain Energy

served written direct testimony in this proceeding.

The evidentiary hearing was held as scheduled on Monday, March 28, 2016, in

Pittsburgh. Mountain Energy, Leatherwood, Peoples, I&E and the OCA were represented at the

hearing. Prior to the hearing, the parties in attendance agreed to waive cross-examination of 4 At the prehearing conference the parties participating in the conference indicated they did not wish to have written rebuttal or surrebuttal testimony in this proceeding.

11

Mountain Energy’s proposed witness and Peoples’ two proposed witnesses. No other protestants

appeared for the scheduled hearing. The parties stipulated to the admission of the pre-served

written direct testimony and the statements were admitted as marked.

No comments or reply comment were filed pursuant to the procedural schedule.

On April 19, 2016, Mountain Energy filed Supplement No. 8 to Gas-Pa. P.U.C.

No. 1 voluntarily agreeing to postpone the effective date of the gas cost rate (GCR) tariff it

requested at Docket No. R-2015-2496404 until July 1, 2016.

On April 22, 2016, I issued an order closing the hearing record.

II. TERMS OF THE SETTLEMENT

The Joint Petition for Settlement consists of 21 pages and Attachments A-K. The

Joint Petitioners request that the Commission: (1) approve the various applications of Mountain

Energy to (a) authorize the abandonment of service to all of Mountain Energy’s remaining

customers in Greene County, Pennsylvania on the terms set forth in the Settlement; (b) approve

the transfer of certain jurisdictional assets by Mountain Energy to Leatherwood, on a nunc pro

tunc basis, as a result of sales that closed in October 2006, May 2008, March 2009 and

November 2009; and (c) approve the abandonment by Mountain Energy of all natural gas service

and natural gas distribution service in this Commonwealth; (2) approve the transfer of property

used or useful from Mountain Energy to Peoples and the transfer of 76 patrons located in

Aleppo, Center, Freeport, Gray and Richhill Townships, Greene County, Pennsylvania, from

Mountain Energy to Peoples, as described in the application of Peoples; (3) approve the tariff

filing by Mountain Energy to implement a gas cost recovery rate; and (4) make all associated

findings required by Section 1102, 1103, 1301, 1307 of the Public Utility Code, 66 Pa.C.S.

§§ 1102, 1103, 1301, 1307. (Settlement p. 2).

According to the Joint Petitioners, the Settlement was achieved after an extensive

investigation of the issues raised in Mountain Energy’s and Peoples’ filings, including extensive

12

discussions, informal discovery, and meetings. Acceptance of the Settlement, the Joint

Petitioners assert, avoids the necessity and costs of further administrative and potential appellate

proceedings. (Settlement p. 17).

The Settlement provides for the abandonment of service by Mountain Energy to

some natural gas customers conditioned on payment by Mountain Energy to each of those

customers sufficient to cover the cost of conversion to propane; the abandonment of service to

some other natural gas customers conditioned on the transfer of those customers’ natural gas

service to Peoples; recovery of natural gas costs incurred by Mountain Energy up to the time of

transfer of customers to Peoples; and recovery by Peoples of costs incurred in servicing the

customers acquired from Mountain Energy, all subject to conditions which the Joint Petitioners

contend make such approvals just and reasonable and in the public interest. (Settlement p. 17.)

The Joint Petitioners agree that the Settlement as a whole, including the

provisions concerning abandonments, the conversion terms, the transfer of service, and the cost

recovery mechanisms is in the public interest because this process will maintain natural gas

service to as many customers as reasonably possible and is necessary or proper for the service,

accommodation, convenience, or safety of the public. 66 Pa.C.S. § 1102(a)(2). (Settlement

pp. 17-18).

The Joint Petitioners request approval of this Settlement, including all terms and

conditions thereof, without modification. (Settlement p. 20).

The terms of the Settlement are set forth in 11 subsections on pages 6-17 of the

Settlement.

A. Transfer to Peoples

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The Joint Petitioners agree that the transfer of Mountain Energy’s Pennsylvania

customers to Peoples is in the public interest and is necessary or proper for the service,

accommodation, convenience, or safety of the public. 66 Pa.C.S. § 1102(a)(2). (Settlement

p. 7). The Settlement provides that Peoples will serve 76 of Mountain Energy’s Pennsylvania

customers as identified on Attachment “A” to the Settlement.5 Mountain Energy’s Application

(as amended) reflects the removal of those 76 customers from the list of customers who

Mountain Energy proposes to abandon. Ten of these customers to be served by Peoples

(designated on Attachment A) were previously approved for abandonment by the Commission.

As part of its Amended Application, Mountain Energy has requested that the terms of any prior

Commission Order for said customers be modified (since Peoples has agreed to provide service

to them and they do not need to be abandoned by Mountain Energy6). (Settlement p. 6).

Mountain Energy is required by the Settlement to provide Peoples at closing of

the transfers of pipelines and facilities (discussed in the Settlement on pages 10-12) the amount

of $1,500 for each of the Mountain Energy customers that Peoples has agreed to provide service

(estimated payment $114,000 (i.e., 76 x $1,500)) as an upfront payment to cover a portion of the

first year of operations and maintenance (O&M) costs.7 The Settlement further provides that

Peoples will use said payment to contribute to its first year O&M costs for the Mountain Energy

system. The $30,000 deposit provided to Peoples by Mountain Energy pursuant to the Joint

Stipulation in P.U.C. Docket No. M-2014-2453735 will continue to be applied to Mountain

Energy’s payment obligation under this Settlement paragraph. (Settlement pp. 6-7).

B. Conversion to Alternative Fuel

5 See footnote no. 4. The actual number of customers proposed to be transferred to Peoples is 76.

6 Mountain Energy’s Amended Application, at ¶ 11.1, Confidential Attachment 2, Proposed Ordering Paragraph at 3(d.2).

7 See footnote no. 4.

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Pursuant to the Settlement, Peoples will not provide service to 18 of Mountain

Energy’s Pennsylvania customers. Mountain Energy’s Amended Application seeks Commission

approval to abandon service to any customer not taken over by Peoples (and for which

Commission approval has not already been secured). The customers for which abandonment

authority is being sought by Mountain Energy are listed on Attachment “B” to the Settlement.

Mountain Energy commits not to abandon any of these customers sooner than the end of the

2015/2016 winter heating season (ending on March 31, 2016). Mountain Energy also commits

not to abandon any of these customers before the Commission’s approval of the terms of

abandonment. Mountain Energy agrees to abandon service to these 18 customers prior to the

closing of the transfer of facilities to Peoples. (Settlement p. 7).

The Joint Petitioners agree that each of the Mountain Energy Pennsylvania

customers to be abandoned and converted to an alternate fuel by Mountain Energy shall either be

provided the Propane Option or the Equivalent Payment Option (Conversion Terms).

a.Propane Option: Mountain Energy will install, at its own expense, (a) one 500-gallon propane tank or two 100-gallon propane tanks, (b) all necessary piping and connections to the customer’s existing lines, (c) adjustments and fixtures for the customer’s current appliances enabling them to use propane, or providing new appliances that are usable with propane, if unable to adjust, and (d) fill the propane tank one time.

b. Equivalent Payment Option: Mountain Energy will provide to the customer a payment representing its reasonable good faith projection of the cost to Mountain Energy of the Propane Option. That payment shall not exceed $7,000 per customer.

(Settlement p. 8).

Four (4) of the eighteen (18) Pennsylvania customers (designated on Attachment

B to the Settlement) to be abandoned were previously approved for abandonment by the

Commission.8 Mountain Energy is asking for clarification of prior Commission orders so that,

Mountain Energy is responsible for either the Propane Option or the Equivalent Payment Option

8 Mountain Energy’s Amended Application, at ¶¶ 28-30, Proposed Ordering Paragraph 3(d.1).

15

for any customer for whom Mountain Energy did not commence the conversion process but for

whom conversion was approved in prior Commission orders. (Settlement p. 8).

C. Regulatory Compliance

The Settlement provides that Mountain Energy and Leatherwood retain full

responsibility for their respective pre-closing compliance obligations; Peoples has no

responsibility for any such obligations either now or in the future. Mountain Energy has

completed a leakage survey of customer-owned service lines and Mountain Energy-owned lines

that are to be transferred to Peoples, the results of which have been (or are in the process of

being) provided to Peoples. In 2014, Leatherwood completed a leakage survey of Leatherwood-

owned lines that are to be transferred to Peoples, the results of which have been provided to

Peoples. Mountain Energy completed an inventory of all uncovered customer-owned plastic

pipe service lines, the results of which have been (or are in the process of being) provided to

Peoples. Prior to closing of the transfers of pipelines and facilities, Peoples agrees to provide a

remediation plan to I&E’s Gas Safety Division for all uncovered customer-owned plastic pipe

service lines. (Settlement pp. 8-9).

According to the Settlement, Peoples will perform initial sniff testing at key

supply locations within one month of closing. Representative locations will be added to the

normal sniff survey schedule. Mountain Energy retains full responsibility for any odorization

deficiency prior to closing. (Settlement p. 9).

Post-closing, the Settlement requires Peoples to install one additional interconnect

and configure the existing three interconnections for permanent winter operation. For its part,

I&E understands and acknowledges that Peoples is acquiring segments of aging pipeline system.

(Settlement p. 9).

D. Transfer of Pipelines and Facilities

16

In its current configuration, the existing Mountain Energy/Leatherwood system

consists of approximately 55 miles of pipeline. That system is connected to 72 wells9 which

provide natural gas that is used by Mountain Energy to serve Mountain Energy’s customers

(utility customers) and are also used to provide natural gas to certain free gas users (Free Gas

Users). (Settlement p. 10).

As stated in the Applications, Peoples agrees to take over a portion of the pipeline

segments of the existing Mountain Energy/Leatherwood system (approximately 22 miles) and

will add new pipe (approximately 5 miles) so that Peoples, in its discretion, can serve as many of

the utility customers as reasonably possible with fewest miles of pipe. Mountain Energy agrees

to transfer to Peoples the portion of pipelines and distribution-related facilities owned by

Mountain Energy to be taken over by Peoples for that above-stated purpose. Both the Mountain

Energy Amended Application10 and the Peoples Application seek Commission approval to

transfer those pipelines and facilities from Mountain Energy to Peoples. (Settlement p. 10).

Leatherwood agrees to transfer to Peoples the portion of the pipelines and

gathering-related facilities owned by Leatherwood and needed by Peoples for that above-stated

purpose as set forth in Attachment “C” to the Settlement. Leatherwood agrees to install (at its

cost) 33 gas supply meters within 60 days of the entry of a final PUC order approving Peoples’

acquisition of the pipelines. The meters will be installed at points mutually agreed to by Peoples

and Leatherwood and that facilitate Peoples’ acquisition of only the approximately 22 miles of

the Mountain Energy/Leatherwood system identified by Peoples. Peoples will not acquire or

operate any pipeline facilities upstream of the gas meters installed by Leatherwood. (Settlement

pp. 10-11).

Peoples has requested Commission approval for said acquisitions in its

Application. A map of the facilities and pipelines to be transferred to Peoples is included as

Attachment “C” to the Settlement. The terms and conditions of those transfers are included in

9 With the exception of four wells in Greene County, Pennsylvania that continue to be owned by Mountain Energy, all of Mountain Energy’s production and gathering assets were sold to Leatherwood in four transactions that closed, respectively, in October 2006, May 2008, March 2009 and November 2009.

10 Mountain Energy’s Amended Application, at pp. 4-5, 7-8, ¶ 35, Proposed Ordering Paragraphs (4) and (5).

17

that certain agreement headed “Transfer of Portions of the Mt. Energy/Leatherwood Natural Gas

System in Greene County to Peoples Natural Gas Company LLC (Transaction), Principal Terms

and Conditions”, which is included as Attachment “D” to the Settlement. The Joint Petitioners

agree that closing on the transfer of pipelines and facilities will take place at a mutually agreed

upon place, date and time. (Settlement p. 11).

With regard to title/ownership of all pipelines and facilities now or previously in

the Mountain Energy system: the Joint Petitioners support or do not oppose a nunc pro tunc

finding by the Commission that the transfer of assets by Mountain Energy to Leatherwood as a

result of the sales that closed in October 2006, May 2008, March 2009 and November 2009, are

in the public interest and are necessary or proper for the service, accommodation, convenience,

or safety of the public. 66 Pa.C.S. § 1102(a)(3). The Joint Petitioners agree the transfer by

Leatherwood to Peoples and the acquisition by Peoples of some of those assets transferred to

Leatherwood by Mountain Energy are in the public interest and are necessary or proper for the

service, accommodation, convenience, or safety of the public. 66 Pa.C.S. § 1102(a)(3). The

Joint Petitioners further agree that the transfer of certain pipelines and facilities from Mountain

Energy and the related acquisition by Peoples are in the public interest and are necessary or

proper for the service, accommodation, convenience, or safety of the public. 66 Pa.C.S.

§ 1102(a)(3). (Settlement pp. 11-12).

E. Free Gas Users

Joint Petitioners agree there are 63 Free Gas Users connected to the portions of

the Mountain Energy system to be transferred to Peoples. Leatherwood, after resolving any

contractual issues (if any) with each Free Gas User, may either (i) convert each Leatherwood

Free Gas User served from the Mountain Energy system to a normal utility customer of Peoples,

(ii) remove each Leatherwood Free Gas User served from the pipeline segments of the Mountain

Energy system being transferred to Peoples, or (iii) reach another mutually agreeable resolution.

Peoples is willing to provide utility service to all former free gas customers should those

customers choose to become utility customers. The Settlement provides that such conversion or

removal of Free Gas Users shall be effective prior to closing of Peoples’ acquisition of the

18

Mountain Energy and Leatherwood assets, unless otherwise agreed by Peoples and Leatherwood.

(Settlement p. 12).

F. Condition of Pipelines at Closing

The current owner of a pipeline to be transferred to Peoples, irrespective of

whether it is Mountain Energy or Leatherwood, is obligated to repair any known grade 1 or

known grade 2 leaks on lines being transferred, prior to transfer to Peoples, on the terms to be

agreed upon between Peoples, Leatherwood and Mountain Energy after all leak surveys are

completed. Leatherwood or Mountain Energy, respectively, and Peoples shall review each leak

and attempt to address treatment in a manner that considers the severity of the leak and the

potential harm to the public. Absent an agreement to treat the leak differently, the Settlement

provides that the leak shall be addressed by the owner of the pipeline to be transferred to Peoples

in accordance with PHMSA (Pipeline and Hazardous Materials Safety Administration)

requirements. (Settlement pp. 12-13).

Mountain Energy completed a leakage survey of Mountain Energy-owned service

lines and Mountain Energy-owned lines that are to be transferred to Peoples, the results of which

have been provided to Peoples. In 2014, Leatherwood completed a leakage survey of

Leatherwood-owned lines that are to be transferred to Peoples. (Settlement p. 13).

Mountain Energy, Leatherwood and Peoples agree to review each leak identified

on lines to be transferred to Peoples to determine the classification of that leak and how the leak

will be addressed. As of the date of the Settlement, no grade 1 leaks have been identified. As of

the date of the Settlement, Mountain Energy is not aware of any known grade 2 leaks on lines

owned by Mountain Energy. Leatherwood agrees to repair (or has already repaired) grade 2

leaks identified by the leak survey referenced in paragraph 29a. of the Settlement on lines owned

by Leatherwood to be transferred to Peoples. Leatherwood agrees to continue to operate and

maintain the lines to be transferred to Peoples until the facilities are transferred to Peoples.

(Settlement p. 13).

19

G. Rights of Way

Prior to closing, Peoples agrees to acquire or attempt to acquire any necessary

rights of way from third parties in order to operate the Mountain Energy and Leatherwood

pipelines and facilities to be transferred to Peoples. Joint Petitioners agree that the costs incurred

by Peoples for securing any necessary right-of-ways will be recoverable through the recovery

mechanism set forth below in paragraph 36 of the Settlement. Mountain Energy and

Leatherwood agree to assist Peoples’ land agents in acquiring necessary rights of way.

Assistance from Leatherwood will consist of providing information to Peoples and assisting

Peoples’ efforts in identifying all properties, and parties related thereto, where pipelines to be

transferred are located. (Settlement pp. 13-14).

H. Gas Supply and Long Wall Mining

Leatherwood agrees to enter into a gas purchase agreement with Peoples. The

points of sale will be the gas meters installed by Leatherwood as provided in paragraph 25(c) of

the Settlement. Peoples agrees to purchase gas from Leatherwood at Peoples’ standard local gas

purchase price in effect at the time of the gas purchase. According to the Joint Petitioners, the

current standard local gas purchase price is equal to the Inside FERC DTI Appalachian first of

the month market index. (Settlement p. 14).

Except as set forth in paragraph 34.d. of the Settlement, Leatherwood agrees not

to eliminate any well/gas source used to supply gas to Peoples under the gas purchase agreement

without prior agreement of Peoples, which will not be unreasonably withheld, conditioned or

delayed. The Joint Petitioners agree that Leatherwood may eliminate any well/gas source used

to supply gas to Peoples under the gas purchase agreement without prior agreement of Peoples

where plugging of the well/gas source is necessary due to: (i) a valid directive from a long-wall

mining company; (ii) inability to operate due to a safety or emergency issue applicable to a

specific well; or (iii) an order of an environmental agency. (Settlement p. 14).

20

In such case, prior to plugging a well, Leatherwood is required by the Settlement

to cooperate and work in good faith with Peoples to: (i) provide Peoples with as much prior

notice of the well plugging as reasonably possible, including notifying Peoples within thirty (30)

days of receiving notice from a long-wall mining company of its intention to exercise its mining

rights; (ii) identify alternative natural gas sources for Peoples’ use in serving Mountain Energy’s

customers (if any); and (iii) make reasonable efforts to schedule the required plugging of the

well to accommodate Peoples’ schedule to replace the gas supply. (Settlement p. 15).

Leatherwood agrees to provide a summary of the Mining and Oil and Gas Rights

Cooperation Agreement executed between Consolidation Coal Company, Reserve Coal

Properties Company, Consol Pennsylvania Coal Company LLC, Conrhein Coal Company, and

Leatherwood, Inc. and Foundation Coal Resources Corporation and Pennsylvania Land Holdings

Corporation, subject to Peoples agreement to provide confidential treatment to said Summary.

Joint Petitioners agree that the costs incurred by Peoples for maintaining the integrity of its

system or for adding facilities to maintain gas supplies as a result of long wall mining operations

of third parties are recoverable through the recovery mechanism set forth in the Settlement.

(Settlement p. 14).

I. Peoples’ Cost Recovery

Joint Petitioners support the following cost recovery procedure for Peoples related

to this acquisition. Peoples will make a filing for (1) a 1308(b) non-general rate case for the

recovery of O&M (Operation and Maintenance) costs not reimbursed to Peoples and (2) the

deferral and future recovery of the annual revenue requirement associated with investment costs

incurred by Peoples until Peoples’ next general rate case. The Joint Petitioners reserve the right

to challenge the reasonableness of the costs included in any such filing but acknowledge and

agree to give due consideration to the extraordinary circumstances surrounding Peoples’

expected incurrence of these costs and further agree to support Peoples’ recovery of reasonably

incurred costs. (Settlement pp. 15-16).

21

Peoples also agrees to include the Mountain Energy system in its ongoing

approved UFG (unaccounted for gas) mitigation plan. (Settlement p. 16).

J. Mountain Energy’s Rates

Mountain Energy’s last base rate increase was in 2005.11 In December 2013,

Mountain Energy began to purchase gas from Peoples under Peoples’ Commercial SGS Tariff.

Under the circumstances, the Joint Petitioners agree that a GCR Tariff Supplement to Mountain

Energy’s Gas – Pa. P.U.C. No. 1 approving and authorizing the addition of $4.672 per MCF to

Mountain Energy’s base costs is just and reasonable. Under the circumstances, the Joint

Petitioners also agree that Mountain Energy’s other rates, which have not changed since 2005,

are just and reasonable for purposes of the rates to be charged to Mountain Energy’s customers

until they are converted to Peoples’ customers. (Following closing, those customers that take

service from Peoples will pay applicable Peoples’ rates.). (Settlement p. 16).

III. DISCUSSION

Mountain Energy, Leatherwood, Peoples, I&E and the OCA entered into a

Settlement that was filed and served on the protestants in this proceeding. Following the filing

and service of the Settlement, a public input hearing was held, then the Statements in Support of

the Settlement, which are Attachments to the Settlement, were filed and served. Written

testimony was served by Mountain Energy and Peoples pursuant to the litigation schedule set

forth in the Prehearing Order. Following all of that, a hearing on this consolidated matter was

held on March 28, 2016. Protestants were then afforded an opportunity to file written comments

addressing the Settlement.

Each of the Joint Petitioners filed Statements in Support of the Settlement. Those

Statements in Support will be set forth below, followed by a separate discussion section

addressing the Settlement.

11 According to the Settlement, the operating ratio methodology was used to determine the appropriate rates to be charged by the Mountain Energy in its last rate case (R-00050784).  The flat per Mcf fee was set to include (but was not limited to) costs for gas production (royalties, rents and maintenance) and gas purchases.

22

A. Mountain Energy

Mountain Energy submits that the Settlement is in the public interest and is

necessary or proper for the service, accommodation, convenience, or safety of the public.

According to Mountain Energy, the Settlement provides the terms for an orderly

exit by Mountain Energy from its status as a public utility.12 Mountain Energy wants to cease

operating as a Pennsylvania public utility. This process of abandonment began in 2007, and has

continued to the present. According to Mountain Energy, the Settlement provides reasonable

terms for the resolution of all of the issues in these consolidated cases. Simply put, if the

requests for relief are granted, Mountain Energy points out it will have neither utility customers

nor the assets required to provide service to the public, and will have no reason to continue to

hold a certificate of public convenience to provide natural gas supply and natural gas distribution

service in the Commonwealth. (Mountain Energy St. in Support pp. 1-2).

Mountain Energy claims the Settlement will have minimal impact on the vast

majority (80%) of Mountain Energy’s utility customers.13 If the requests for approval by Peoples

and the other requests by Mountain Energy are approved by the Commission, the majority of

Mountain Energy’s utility customers will become utility customers of Peoples.14 So, Mountain

Energy contends that the Settlement preserves natural gas service to 80% of the customers that

Mountain Energy had originally proposed to abandon. Moreover, Mountain Energy agreed to

make a reasonable contribution towards Peoples’ costs to serve the customers being transferred

to Peoples. Consistent with the Settlement, Mountain Energy agrees to provide Peoples, at

closing, the amount of $1,500 for each of the Mountain Energy customers that Peoples has

agreed to provide service (estimated payment $114,000 (e.g., 76* $1,500)) as an upfront

12 Mountain Energy’s Amended Application at ¶¶ 39-44.

13 Settlement at ¶¶ 10-12.

14 Ten of the customers to be transferred to Peoples were previously approved for abandonment by the Commission. As part of its Amended Application, Mountain Energy has requested that the terms of any prior Commission Order for said customers be modified (since Peoples has agreed to provide service to them and they do not need to be abandoned by Mountain Energy. See Mountain Energy’s Amended Application, at ¶ 11.1, Confidential Attachment 2, Proposed Ordering Paragraph at 3(d.2).

23

payment to cover a portion of the first year of O&M costs. Peoples will use said payment to

contribute to its first year O&M costs for the Mountain Energy system. (Mountain Energy St. in

Support p. 2).

Mountain Energy contends that the Settlement has reasonable conversion terms

for the customers who cannot be feasibly transferred to Peoples.15 Only 18 of Mountain

Energy’s utility customers cannot be feasibly transferred to Peoples.16 Mountain Energy

contends that the proposed conversion terms are reasonable and provide that these customers17

either (a) be converted to propane (the “Propane Option”) or (b) receiving a monetary payment

(the “Equivalent Payment Option”). The Equivalent Payment is made in lieu of, and is based on

the cost of performing, the Propane Option, but shall not exceed $7,000 per customer.

According to Mountain Energy, such terms provide substantially more compensation to each

customer than Mountain Energy’s original proposal. That original proposal, which, according to

Mountain Energy, was based on Commission precedent, would have paid each Mountain Energy

utility customer the greater of (a) three times the total of the customer’s last twelve months of

actual bills, or (b) 1.5 times an average of the last two twelve-month periods. Under that

formula, the payments would have averaged about $1,500 per customer, rather than the up to

$7,000 agreed to in the Settlement. (Mountain Energy St. in Support pp. 2-3).

Mountain Energy asserts that the Settlement will provide clear title/ownership of

all pipelines and facilities now or previously in the Mountain Energy system.18 The customers

who will become Peoples’ customers will be served from 22 miles of the 55 miles of the current

15 Settlement at ¶¶ 13-15; Mountain Energy’s Amended Application at ¶¶ 1 to 27.

16 Mountain Energy has requested, the nunc pro tunc approval of certain conversions completed without the Commission’s prior approval. Prior to December 2013, Mountain Energy worked (albeit without the Commission’s prior approval) to convert, or assist the conversion of, the 10 customers because these customers: (a) were impacted by the pressure problems on the system; or (b) demanded immediate action by Mountain Energy to convert, or pay them, as quickly as possible. See Mountain Energy’s Amended Application at ¶ 11.1.

17 Four of the 18 customers who cannot be feasibly transferred to Peoples were previously approved for abandonment by the Commission. Mountain Energy requested modification of prior Commission orders so that, Mountain Energy is responsible for either the Propane Option or the Equivalent Payment Option for these four customers. See Mountain Energy’s Amended Application, at ¶¶ 28-30, Proposed Ordering Paragraph 3(d.1). This will ensure that all customers that Mountain Energy did not actually convert will be treated in the same manner.18 Settlement at ¶¶ 23-26, 28. See also footnote 21, infra.

24

system. Those 22 miles and the related facilities will be transferred to Peoples19 so that Peoples

can provide service to them. These transfers do not contemplate Peoples taking over Mountain

Energy’s territory or obligations. There is no merger or acquisition between the two companies.

Peoples is already certificated to serve the areas where the 76 customers are located,20 and

Peoples is acquiring 22 of miles of the system so that Peoples can be their natural gas utility.

(Mountain Energy St. in Support p. 3).

Under the Settlement, the remaining 33 miles will be owned and operated by

Leatherwood, as part of its production and gathering activities.21 Leatherwood agrees to enter

into a gas purchase agreement with Peoples.22 In addition, Leatherwood has agreed to cooperate

and work in good faith with Peoples regarding when the plugging of a Leatherwood well/gas

source connected to the pipelines and distribution facilities being transferred to Peoples is

necessary due to: (1) a valid directive from a long-wall mining company; (2) inability to operate

due to a safety or emergency issue applicable to a specific well; or (3) an order of an

environmental agency.23 Mountain Energy contends that such efforts when combined with the

post-closing services provided by Peoples will help ensure that the customers being transferred

from Mountain Energy to Peoples will receive adequate, safe and reasonable service from

Peoples. (Mountain Energy St. in Support pp. 3-4).

According to Mountain Energy, the Settlement is fair and reasonable for Free Gas

Users.24 Only 21 of the Free Gas Users are near or connected to the portion of the system being

transferred to Peoples. The Settlement provides, in all cases, that Free Gas Users can either (a)

19 See Mountain Energy’s Amended Application, at pp. 4-5, 7-8, ¶ 35, Proposed Ordering Paragraphs (4) and (5).

20 See Exhibits D and E to Peoples’ Application.

21 See Mountain Energy’s Amended Application at ¶¶ 32-38.

22 Settlement at ¶¶ 33-34.

23 Settlement at ¶¶ 33-34.24 Settlement at ¶ 27. Mountain Energy asserts that Free Gas Users are not under the jurisdiction of the Commission for rates or service, but the Settlement does make reference to how they will be treated under their leases that were executed and which gave them free gas.

25

continue to receive “free” gas under the terms of their leases or easements25 or (b) become a

“paying” utility customer of Peoples. None of these Free Gas Users are entitled to receive “free”

gas from Peoples. So, the Settlement provides that Free Gas Users who are directly connected to

the system being transferred (as opposed to being directly connected to the well or a production

line) will be disconnected from the system. Mountain Energy contends this is reasonable and

will prevent these Free Gas Users from receiving gas that is paid for by Peoples’ and/or Peoples’

other customers. (Mountain Energy St. in Support p. 4).

Mountain Energy asserts that the Settlement will enable Mountain Energy to

recover some, but not all, of its expenses, in purchasing gas for the 2015-2016 winter heating

season. 26 Mountain Energy claims it recovers gas costs of $1.20 from the flat fee. But,

according to Mountain Energy, it costs more than $1.20 to purchase gas from Peoples. Mountain

Energy contends that a gas cost rate (GCR) would help ensure that Mountain Energy can fully

recover its costs in purchasing gas from Peoples. If we assume that the proposed GCR of $4.672

per Mcf is implemented on July 1, 2016, then Mountain Energy will not be able to fully recover

its costs in purchasing gas during the 2015-2016 winter heating season before the closing or

October 31, 2016 (whichever is earlier). The GCR will take effect during a time when customers

are not heating their homes, and usage will be significantly less than the during the winter

heating season. In its GCR data, Mountain Energy projects to sell about 370 Mcfs between July

1 and October 31, 2016. So, Mountain Energy estimates that the GCR would generate about

$1,728.64 (370 * $4.672) in additional revenues towards gas costs. According to Mountain

Energy, that amount will not be sufficient to permit Mountain Energy to fully recover its actual

costs of purchasing gas from Peoples for the 2015-2016 winter heating season. (Mountain

Energy St. in Support p. 5).

B. Leatherwood

Leatherwood claims it is a producer of oil and natural gas, and not a public utility.

At all times relevant hereto, Leatherwood claims it has been and is only acting as a producer of 25 Free Gas Users are entitled to receive free gas for as long as the well on their property is active. They are not entitled to receive free gas from a dead or non-productive well.

26 Settlement, at ¶¶ 37-39; Docket No. A-2015-2507377.

26

natural gas, and has not engaged nor is it engaging in the provision of natural gas supply or

natural gas distribution service directly to the public for compensation. According to

Leatherwood, its interest in this proceeding stems from its position as the counterparty27 with

Mountain Energy, a Commission-regulated public utility, in transactions in which Mountain

Energy conveyed to Leatherwood certain gas production gathering system assets starting in

2006. (Leatherwood St. in Support p. 1).

Leatherwood submits that the Settlement is in the public interest for three reasons.

First, the Settlement will provide clear title/ownership of all pipelines and facilities now or

previously in the Mountain Energy system. As noted, as part of the transfer of customers to

Peoples, certain pipelines and distribution facilities will also be transferred to Peoples.28 Such

transfers will require clear title/ownership of all pipelines and facilities now or previously in the

Mountain Energy system. For this to be accomplished, Leatherwood contends it is necessary for

the Commission to approve, on a nunc pro tunc basis, the transfer of the jurisdictional gas leases,

gas wells, and gathering systems that were sold to Leatherwood29 in four transactions that closed,

respectively, in October 2006, May 2008, March 2009 and November 2009.30 In addition to

pipelines and distribution facilities, Leatherwood has agreed to assist People’s land agents in

acquiring necessary rights of way.31 (Leatherwood St. in Support p. 2).

Second, Leatherwood voluntarily agreed to take steps to separate its production

and gathering activities from the pipelines and distribution facilities being transferred to Peoples.

Peoples has concluded that it can reasonably acquire approximately 22 of the 55 miles of

27 Leatherwood argues that its interests are not essential to the merits of the relief requested, and that the Commission can grant the relief requested by Mountain Energy without the presence of Leatherwood in this proceeding. See, e.g., Columbia Gas Transmission Corp. v. Diamond Fuel Co., 346 A.2d 788 (Pa. 1975) (absence of an indispensable party deprives the tribunal of jurisdiction); Application for approval of abandonment of service by Equitable Gas Company to twenty-three (23) field gathering line customers in Washington County, Pennsylvania, A-2009-2089152, Opinion and Order entered August 1, 2011 (approval of customer abandonment without participation of Equitrans, LP – which owned the pipelines through which Equitable served the affected customers).

28 Settlement at ¶¶ 6-7, 23-26, 28.

29 Leatherwood is a subsidiary of Consol Energy, Inc. (“Consol”), and is not an affiliate of Mountain Energy.

30 See, e.g., Mountain Energy’s Amended Application at ¶¶ 32-38.

31 Settlement at ¶¶ 29, 31-32.

27

pipeline and distribution facilities now or previously in the Mountain Energy system.32

Leatherwood agreed that it would (1) install 33 gas supply meters which will facilitate Peoples’

acquisition of the 22 miles of pipeline and facilities as identified by Peoples for transfer to

Peoples;33 and (2) work to ensure that any Free-Gas Users34 on the pipelines and distribution

facilities being transferred to Peoples will either become a normal utility customer of Peoples or

removed from the pipeline segments being transferred to Peoples.35 According to Leatherwood,

if a Free Gas User does not become a Peoples’ customer he or she will continue to be treated in

accordance with their “Free Gas” agreement. (Leatherwood St. in Support pp. 2-3).

Third, Leatherwood confirmed that it will make reasonable efforts, consistent

with its existing practices, to operate and maintain its facilities to continue the service that it

currently provides. Peoples has concluded that it can reasonably offer natural gas service to the

majority of Mountain Energy’s Pennsylvania customers.36 Leatherwood has provided natural gas

(on a wholesale basis) to Mountain Energy.37 Leatherwood agrees to enter into a gas purchase

agreement with Peoples.38 In addition, Leatherwood has agreed to cooperate and work in good

faith with Peoples regarding when the plugging of a Leatherwood well/gas source connected to

the pipelines and distribution facilities being transferred to Peoples is necessary due to: (1) a

valid directive from a long-wall mining company; (2) inability to operate due to a safety or

emergency issue applicable to a specific well; or (3) an order of an environmental agency.39

Leatherwood concludes that such efforts when combined with the post-closing services provided

32 See, e.g., Peoples’ Application at ¶¶ 4-5.

33 Settlement at ¶ 4.

34 Free Gas Users have a gas well on their property and a lease or easement establishes an entitlement to “free” gas service. The Commission does have jurisdiction of the provision of “free” gas service pursuant to a lease or easement. See, e.g., Robert Wells v. Columbia Gas of Pennsylvania, Inc., C-2012-2287557, Final Order (Act 294) entered June 15, 2012 adopting the Initial Decision dated April 23, 2012 (Commission lacks subject matter jurisdiction to decide a purely private contractual dispute related to threatened termination of his free gas service, which was provided under a lease agreement).

35 Settlement at ¶ 27.

36 See, e.g., Peoples’ Application at ¶¶ 4-5. 37 See Mountain Energy’s Amended Application at ¶¶ 14, 18.

38 Settlement at ¶¶ 33-34.

39 Settlement at ¶¶ 33-34.

28

by Peoples will help ensure that the customers being transferred from Mountain Energy to

Peoples will receive adequate, safe and reasonable service from Peoples. (Leatherwood St. in

Support p. 3).

C. Peoples

According to Peoples, the following components of the Settlement make it in the

public interest. First and foremost, it preserves natural gas service to 80% of the customers that

Mountain Energy has proposed to abandon. With respect to each of the other 20% of Mountain

Energy’s customers (18 customers) who will not be served by Peoples, the Settlement provides

for Mountain Energy to either pay the cost of converting each to propane service or to pay the

customer Mountain Energy’s reasonable good faith projection of the cost to Mountain Energy of

converting the customer to propane, not to exceed $7,000 per customer. It also requires

Mountain Energy to contribute to offset the cost of converting its customers to Peoples’ service.

It also provides a reasonable procedure for Peoples to recover the capital and O&M costs it will

incur over and above the costs supported by (a) the projected revenues from the newly converted

customers and (b) the amount contributed by Mountain Energy. (Peoples St. in Support pp. 5-6).

The Mountain Energy applications originally proposed that all Mountain Energy’s

customers be converted to an alternative fuel. Peoples points out that this is often the only viable

course of action in an abandonment case, but without question, it is an inconvenience for the

customers and usually saddles the abandoned customers with new, additional costs. The

Settlement provides a different solution for most of the Mountain Energy customers, one that

usually is not available in abandonment cases: continued natural gas service provided by another

natural gas distribution company. Peoples is willing to take ownership of approximately 22

miles of the Mountain Energy/Leatherwood pipeline system, construct new distribution facilities,

and provide service to 80% of the Mountain Energy customers being abandoned who want

Peoples’ service, subject to the conditions contained in the Settlement. Those conditions include

requirements that Mountain Energy makes a substantial contribution to offset Peoples’ operation

costs and further that Peoples has the opportunity to recover the costs related to the acquisition

that are incurred before Peoples’ next base rate case. (Peoples St. in Support p. 6).

29

According to Peoples, longstanding Commission policy is that the utility

applicant proposing to abandon natural gas service should contribute to the customers’ costs of

converting to an alternative fuel.40 In this case, given the age and poor condition of the Mountain

Energy system, it was immediately obvious, that Peoples’ bills for its service to the customers

acquired from Mountain Energy would not fully compensate Peoples for the costs it would occur

in operating and renewing the acquired Mountain Energy natural gas pipelines. It, therefore,

appeared reasonable that Mountain Energy should contribute the money it would have spent on

customer conversions to the costs that Peoples would incur but would not be able to recover

through revenues received from the new customers.41 According to Peoples, the Mountain

Energy contribution of $1,500 per customer to be served by Peoples is within the range of what

the Commission has required other natural gas utilities to pay as conversion costs.42 While

Peoples would certainly prefer that Mountain Energy pay more toward Peoples’ expected costs,

Peoples believes the amount that Mountain Energy is paying is reasonably related to what it

would pay customers as conversion costs if all customers were to be abandoned, and, thus, is a

reasonable payment amount. (Peoples St. in Support pp. 6-7).

Peoples points out that the 22 miles of the Mountain Energy system that Peoples

will acquire is old and in disrepair. Peoples anticipates an immediate need for approximately

$2.1 million of capital improvements and thereafter to roll the facilities into Peoples’

Distribution Integrity Management Program (DIMP) and make further improvements to the

system as called for under normal DIMP prioritization. Peoples is in the midst of a base rate

case stay out period and cannot implement new rates until January 1, 2018. In addition, its

ability to recover these costs via its Distribution System Improvement Charge (“DSIC”) is

40 See, Application of Equitable Gas Company, Docket No. A-2008-2027716 (discussion at pages 15-18 of Initial Decision issued January 13, 2009, regarding allocation of conversion costs; final without further Commission action pursuant to Final Order entered March 9, 2009).

41 Indeed, in one abandonment case where the customers to be abandoned would be served by another nearby natural gas distribution company, the Commission approved a resolution of the case where the abandoning utility paid the entire cost of connecting the customers to the new utility service provider. Application of UGI Central Penn Gas, Inc., Docket No. A-2012-2315535 (Order entered December 20, 2012). Such a result is impractical in the current case, and the amount of Mountain Energy’s contribution is a negotiated amount determined in large part by what Mountain Energy has shown that it is able to pay for customer conversions. 42 Equitable Gas Company, supra, at pp. 15-18.

30

expected to be constrained due to the revenue cap contained in the DSIC statute (66 Pa.C.S.

§ 1358). (Peoples St. in Support p. 7).

In order to encourage Peoples’ acquisition of facilities and customers, the

Settlement parties discussed methods to overcome this cost recovery hurdle and eventually

agreed on the use of a ratemaking tool that would preserve for Peoples the opportunity to recover

its unreimbursed construction costs. The parties propose in the Settlement that Peoples will (1)

file a 1308(b) non-general rate case for the recovery of O&M costs not reimbursed to Peoples by

the Mountain Energy lump-sum payment and (2) defer for future recovery the annual revenue

requirement associated with investment costs incurred by Peoples until Peoples’ next general rate

case. With respect to the deferral procedure, Peoples will calculate the annual revenue

requirement related to its capital costs incurred in the acquisition and operation of the Mountain

Energy/Leatherwood facilities and customers, net of the Mountain Energy contribution and the

amount of investment supported by the former Mountain Energy customers’ revenues, and then

defer that part of the annual revenue requirement until Peoples’ next rate case. (Peoples St. in

Support pp. 7-8).

These ratemaking procedures reflect the recognition that Peoples would be dis-

incentivized to expend funds to continue service to any Mountain Energy’s customers if there is

no reasonable expectation of recovering the investment-related and on-going O&M costs

required to provide reasonable service. Peoples contends that the Settlement cost recovery

procedures would remove that disincentive. (Peoples St. in Support p. 8).

The Settlement is not seeking approval in this proceeding for actual recovery of

any of those costs but is merely seeking authorization for Peoples to utilize the 1308(b) non-

general rate case procedure for the recovery of O&M costs and to defer the recovery of the

capital expenditure revenue requirements until Peoples’ next base rate case. Peoples asserts that

approval of the Settlement will authorize Peoples to record the annual revenue requirement

associated with investment costs incurred by Peoples until Peoples’ next general rate, while

reserving to others the right to challenge the reasonableness of the deferred costs included in any

such filing. Peoples believes this procedure acknowledges and gives due consideration to the

31

extraordinary circumstances surrounding Peoples’ expected incurrence of these costs, which include

but are not limited to the voluntary expansion of service to alleviate a potentially inadequate and

possibly dangerous service situation. (Peoples St. in Support pp. 8-9).

D. I&E

The Commission has a policy of promoting settlements in contested proceedings.

52 Pa.Code § 5.231(a). According to I&E, the Commission will serve the public interest by

adopting and granting the parties’ Settlement in this matter, as the terms of the Settlement will

serve to enhance public safety as well as to preserve natural gas service for the vast majority of

Mountain Energy’s customers. I&E asserts that the transfer of Mountain Energy’s facilities to

Peoples, thereby allowing Peoples to adequately serve 76 of Mountain Energy’s approximately

94 remaining customers, is the best possible outcome for all interested parties, and will promote

public safety through system integrity improvements while eliminating gas supply issues. (I&E

St. in Support p. 2).

Moreover, according to I&E, this Settlement is the result of a successful

negotiation among Mountain Energy, Leatherwood, Peoples, I&E and the OCA. I&E claims that

the Settlement will save the parties the time, expense, and uncertainties they would have incurred

in further litigating this matter before the Commission. Since all of the parties have agreed to the

terms of the Settlement, I&E contends that adopting it will eliminate the possibility of any

potentially costly appeals from a Commission Order. I&E is of the opinion that the Settlement is

the most cost effective and efficient solution for all interested parties, and resolves all of the

parties’ outstanding issues. (I&E St. in Support pp. 2-3).

According to I&E, the primary component of the Settlement that promotes the

public interest is that it allows nearly all (approximately 80%) of Mountain Energy’s existing

customers to retain natural gas service, as opposed to being abandoned. The remaining

customers will be abandoned and converted to an alternative fuel source at Mountain Energy’s

sole cost and expense. Alternatively, Mountain Energy will pay the customer a reasonable good

faith projection of the cost of converting the customer to propane, not to exceed $7,000 per

32

customer. The original application filed by Mountain Energy proposed to abandon all of its

remaining customers with a proposal for conversion far less than that proposed in the Settlement.

I&E asserts that the Settlement retains natural gas service (on a much improved system) for a

vast majority of these customers, while covering the cost of converting the remaining customers

to an alternative fuel source, or in the alternative, providing substantial compensation to the

remaining customers for converting to an alternative fuel source. (I&E St. in Support p. 3).

The Settlement also requires Mountain Energy to contribute to offset the cost of

converting its customers to Peoples’ service, while providing a reasonable procedure for Peoples

to recover the capital and O&M costs it will incur over and above the costs supported by (a) the

projected revenues from the newly converted customers and (b) the amount contributed by

Mountain Energy. (I&E St. in Support p. 3).

According to I&E, in most abandonment cases, the customer is left with no other

option but to be converted to an alternative fuel source, and sometimes at a compensation

amount far less than that proposed in the Settlement. I&E points out that, through the Settlement

however, Peoples is willing to take ownership of approximately 22 miles of the Mountain

Energy/Leatherwood pipeline system, construct new distribution facilities, and provide service to

80% of the Mountain Energy customers being abandoned who want Peoples’ service. Under the

terms of the Settlement, Mountain Energy will make a substantial contribution to offset Peoples’

operation costs ($1500 per customer) and further provides that Peoples has the opportunity to

recover the costs related to the acquisition that are incurred before Peoples’ next base rate case.

(I&E St. in Support p. 4).

I&E believes that the Settlement also resolves the primary concern of the

Commission’s Gas Safety Division, namely, the continued safe and reliable service of natural

gas to Mountain Energy’s customers, or in the alternative, conversion to an alternative fuel

source upon reasonable terms. Over the past few years, the Gas Safety Division has had ongoing

concerns with the integrity of the Mountain Energy pipeline system as well as the adequacy of

reliable service in the future due to diminishing gas production from the wells servicing the

Mountain Energy system, and the freezing of lines in extremely cold temperatures. According to

33

I&E, the Settlement addresses all these concerns, providing the best possible outcome for all

concerned parties (and the customers) given Mountain Energy’s financial constraints. Under the

Settlement, Peoples will begin serving 76 customers through 22 miles of pipeline, much of which

will be updated and improved over time. The remaining parts of the Mountain Energy system

will be abandoned in compliance with the Code of Federal Regulations and, after the completion

of such abandonment, will be inspected by Commission gas safety inspectors. (I&E St. in

Support pp. 4-5).

E. OCA

The OCA submits that the terms and conditions of the proposed Settlement of this

abandonment proceeding, taken as a whole, represent a fair and reasonable resolution of the

many issues presented by this complex matter. Therefore, the OCA submits that the Settlement

should be approved by the Commission without modification as being in the public interest.

(OCA St. in Support p. 10).

The OCA concludes that the provision of natural gas service by Peoples, as

agreed to in the Settlement, is in the public interest and in the interest of Mountain Energy’s

customers, and should be approved without modification by the Commission. (OCA St. in

Support p. 6).

Mountain Energy, in its Application for Abandonment, proposed to abandon

service to its customers and pay an amount per customer toward the cost of converting those

customers to an alternative fuel source. Through extensive negotiations between the Active

Parties, and based on Peoples’ operational assessments, Peoples agreed in the Settlement to

provide service to 76 of Mountain Energy’s Pennsylvania customers. Settlement ¶ 11;

Attachment A (Confidential Version).43 Further, Mountain Energy will provide Peoples the

43 Ten of these Pennsylvania customers to be served by Peoples (designated on Attachment A) were previously approved for abandonment by the PUC. As part of its Amended Application, Mountain Energy has requested that the terms of any prior Commission Order for said customers be modified (since Peoples has agreed to provide service to them and they do not need to be abandoned by Mountain Energy. Settlement ¶ 11(a); see also Mountain Energy’s Amended Application, at ¶ 11.1, Confidential Attachment 2, Proposed Ordering Paragraph at 3(d.2).

34

amount of $114,000 ($1,500 for each of the 76 customers to be taken over by Peoples) as an

upfront payment to cover a portion of the first year of O&M expenses Peoples will incur taking

over the system. Settlement ¶ 12. Additionally, the $30,000 deposit provided to Peoples by

Mountain Energy pursuant to the Joint Stipulation in Docket No. M-2014-2453735 will continue

to be applied to Mountain Energy’s payment obligation for gas costs under this paragraph.

Settlement ¶ 12(b). (OCA St. in Support p. 5).

The Settlement includes terms that provide for 76 of Mountain Energy’s

customers that would have otherwise been abandoned to be served by Peoples, a certificated

natural gas distribution company, through Mountain Energy’s existing pipelines and associated

equipment, as well as a new plant that Peoples will install and operate. (OCA St. in Support

p. 5).

According to the OCA, these settlement terms are in the interests of Mountain

Energy’s customers because it will allow them to remain on natural gas service rather than

incurring potentially higher energy costs and avoiding the potential costs of new

appliances/heating systems that may have been necessary for conversion to an alternative fuel

source. Further, the OCA asserts that the Settlement will provide stability and certainty for those

76 Mountain Energy customers by becoming part of the Peoples’ system. Additionally, the OCA

submits that the Commission’s policy is to maintain and expand natural gas service to citizens of

the Commonwealth, and this Settlement furthers that policy objective. (OCA St. in Support

pp. 5-6).

The OCA also points out that the Settlement is in the public interest because the

new Peoples’ pipelines may provide the ability for future customers to connect to the system and

receive natural gas service. (OCA St. in Support p. 6).

The Settlement provides that Peoples will not provide service to 18 of Mountain

Energy’s Pennsylvania customers. Settlement ¶ 14; Attachment B (Confidential Version).

However, Mountain Energy commits not to abandon any of these customers prior to the end of

the 2015/2016 winter heating season ending on March 31, 2016, and in any event, no sooner than

35

the PUC’s approval of the terms of abandonment. Settlement ¶ 14(c),(d). (OCA St. in Support

p. 6).

The Settlement further provides details for the conversion or payment options

available to those 18 customers proposed to be abandoned by Mountain Energy, termed the

“Propane Option” and the “Equivalent Payment Option.” Settlement ¶ 15.

Propane Option: Mountain Energy will install, at its own expense, (a) one 500-gallon propane tank or two 100-gallon propane tanks, (b) all necessary piping and connections to the customer’s existing lines, (c) adjustments and fixtures for the customer’s current appliances enabling them to use propane, or providing new appliances that are usable with propane, if unable to adjust, and (d) fill the propane tank one time. Settlement ¶ 15(a).

Equivalent Payment Option: Mountain Energy will provide to the customer a payment representing its reasonable good faith projection of the cost to Mountain Energy of the Propane Option. That payment shall not exceed $7,000 per customer. Settlement ¶ 15(b).Additionally, 4 of the 18 customers to be abandoned were previously approved

for abandonment by the Commission.44 Mountain Energy is seeking clarification of prior

Commission orders so that Mountain Energy is responsible for either the Propane Option or the

Equivalent Payment Option for any customer for whom Mountain Energy did not commence the

conversion process. Settlement ¶ 16. (OCA St. in Support pp. 6-7).

In the past, the Commission has used numerous methods for determining the

appropriate conversion and payment options to those customers whose natural gas service is

being abandoned. According to the OCA, many of those results are driven by the unique, fact-

specific situations in the particular proceeding at issue. In this case, the OCA submits that the

Conversion Terms in the Settlement represent options that are reasonably consistent with other

abandonments approved by the Commission. (OCA St. in Support p. 7).

The Settlement provides that Mountain Energy and Leatherwood will retain full

responsibility for their pre-closing obligations and that Peoples will have no such 44 Mountain Energy’s Amended Application, at ¶¶ 28-30, Proposed Ordering Paragraph 3(d.1).

36

responsibilities. Settlement ¶ 17. Further, Mountain Energy completed a leakage survey and an

inventory of all uncovered customer-owned plastic lines, the results of which were provided to

Peoples. Settlement ¶¶ 18-19. With regard to uncovered customer lines, Peoples agrees to

provide a remediation plan to I&E’s Gas Safety Division. Settlement ¶ 19. The Settlement also

provides that Peoples will install one additional interconnect and will configure the existing three

interconnections for permanent winter operation. Settlement ¶ 22. (OCA St. in Support pp. 7-8).

The OCA submits that the regulatory compliance terms in the Settlement are in

the interests of Mountain Energy’s customers and in the public interest because they ensure that

all leaks and above-ground customer lines are accounted for and proper remediation procedures

will be used to bring those lines into compliance with all applicable statutory and regulatory

mandates. (OCA St. in Support p. 8).

The Settlement provides that Peoples will take over a portion of the pipeline

segments of the existing Mountain Energy/Leatherwood system (approximately 22 miles) and

will add new pipe (approximately 5 miles) so that Peoples, in its discretion, can serve as many of

the utility customers as reasonably possible with the fewest miles of new pipe. Settlement ¶ 25.

Leatherwood, at its cost, agrees to install 33 gas supply meters within 60 days of the entry of a

final Commission order approving Peoples’ acquisition of the pipelines. Settlement ¶ 26. The

meters will be installed at points mutually agreed to by Peoples and Leatherwood and that

facilitate Peoples’ acquisition of only the approximately 22 miles of the Mountain

Energy/Leatherwood system identified by Peoples. Id. Peoples will not acquire or operate any

pipeline facilities upstream of the gas meters installed by Leatherwood. Id. (OCA St. in Support

p. 8).

The Joint Petitioners, including the OCA, agree in the Settlement that the transfer

by Leatherwood to Peoples and the acquisition by Peoples of some of those assets transferred to

Leatherwood by Mountain Energy are in the public interest and are necessary or proper for the

service, accommodation, convenience, or safety of the public. 66 Pa.C.S. § 1102(a)(3). The

Joint Petitioners also agree that the transfer of certain pipelines and facilities from Mountain

Energy and the related acquisition by Peoples are in the public interest and are necessary or

37

proper for the service, accommodation, convenience, or safety of the public. 66 Pa.C.S.

§ 1102(a)(3). (OCA St. in Support pp. 8-9).

The Settlement provides that the Joint Petitioners support a cost recovery

procedure for Peoples providing for (1) the filing of a 1308(b) non-general rate case45 for the

recovery of O&M costs not reimbursed to Peoples and (2) the deferral and future recovery of the

annual revenue requirement associated with investment costs incurred by Peoples until Peoples’

next general rate case. Settlement ¶ 36. Additionally, the Settlement provides that the Joint

Petitioners reserve the right to challenge the reasonableness of the costs included in any such

filing, but acknowledge and give due consideration to the extraordinary circumstances

surrounding Peoples’ expected incurrence of these costs and support Peoples’ recovery of

reasonably incurred costs consistent with the terms of the Settlement. Id. (OCA St. in Support

p. 9).

The OCA submits that the Settlement terms addressing Peoples’ cost recovery are

reasonable because they recognize the unique nature of this specific situation, whereby all of

Mountain Energy’s customers would likely have been abandoned if not for Peoples’

intervention. The OCA points out that the Settlement reinforces the Commission’s policy of

maintaining and expanding natural gas service to as many citizens of the Commonwealth as is

consistent with the public interest.46 Further, the Settlement provisions preserve the OCA and

I&E’s right to challenge the reasonableness of the costs incurred if those costs are perceived to

be unreasonable. Therefore, the OCA submits that these Settlement terms addressing Peoples’

costs are reasonable, and when accompanied by other important provisions contained in the

Settlement, yield a result that is in the public interest and the Mountain Energy customers’

interests, and should be approved.

F. Public Interest Analysis of Settlement, Applications, and PGC Rate Request

1. Legal Standards

45 66 Pa.C.S. § 1308(b).

46 For those customers who will be abandoned, the OCA submits that the Conversion Terms are reasonably consistent with a number of the Commission’s prior determinations in abandonment proceedings.

38

The burden of proof in this consolidated proceeding is upon the applicants,

Mountain Energy and Peoples. 66 Pa.C.S. § 332(a). As the parties bearing the burden of proof,

Mountain Energy and Peoples must prove by a preponderance of the evidence that the

Commission’s issuance of certificates of public convenience approving the applications and

ordering the requested PGC Rate, as modified by the Joint Petition for Settlement, are in the

public interest.

Before a public utility may abandon service to the public, the utility must first

apply for, and obtain, a certificate of public convenience. 66 Pa.C.S. § 1102(a)(2). Section

1103(a) of the Code, 66 Pa.C.S. § 1103(a), defines the general standard by which the

Commission determines whether to grant a certificate of public convenience:

A certificate of public convenience shall be granted by order of the commission, only if the commission shall find or determine that the granting of such certificate is necessary or proper for the service, accommodation, convenience, or safety of the public. The commission, in granting such certificate, may impose such conditions as it may deem to be just and reasonable.

The touchstone for the Commission’s approval of a public utility’s voluntary

relinquishment of its franchise right is in the public interest. Pennsylvania Railroad Company v.

Pa. Pub. Utility Comm’n, 146 A.2d 352, 356 (Pa. Superior Ct. 1959), vacated on other grounds,

396 Pa. 34, 152 A.2d 422 (1959).

Every rate made, demanded or received by a public utility shall be just and

reasonable and in conformity with regulations or orders of the Commission. 66 Pa.C.S. § 1301.

No public utility shall, as to rates, make or grant any unreasonable preference of advantage to a

person…or subject any person…to any unreasonable preference or disadvantage. 66 Pa.C.S.

§ 1304. In this proceeding, Mountain Energy has the burden of proving the PGC Rate it has

requested and which is included in the Settlement is just and reasonable and not unreasonably

discriminatory.

2. The Settlement-Public Interest

39

During the extreme cold experienced in Mountain Energy’s service territory in

January and February of 2014, Mountain Energy had difficulty maintaining system pressure

required to serve its customers. Peoples installed three interconnections between Mountain

Energy’s system and Peoples to supplement the gas supplies available to Mountain Energy and

help maintain system pressure. (Peoples St. No. 1, p. 3).

On November 18, 2014, the Commission issued an Emergency Order regarding

operation of Mountain Energy’s system (Docket No. M-2014-2453735). The Order stated that

the Commission was made aware of a loss of service and adequate pressure on parts of the

Mountain Energy’s system. Staff from the Commission’s Gas Safety Section of I&E and the

Reliability and Emergency Preparedness Section of the Bureau of Technical Utility Services

(TUS) attempted contact with Mountain Energy, but were unsuccessful. Peoples was

subsequently contacted by I&E Gas Safety personnel and asked to provide system support, and

immediate work was commenced at the interconnection between the Mountain Energy’s system

and Peoples’ system to increase system pressure. (Peoples St. No. 1, pp. 3-4).

Referring to difficulty reaching Mountain Energy’s operational personnel and to

multiple service pressure issues and service outages during the 2013-2014 winter due to

inadequate gas supplies and poor system maintenance, the Commission ordered Peoples to take

immediate operational control of the Mountain Energy’s system in order to ensure customers

received safe and adequate gas service. Operational control included continued support through

the interconnections as well as direct response to customer calls for gas service related needs.

Peoples provided, and continues to provide, 24/7 personal contact via toll free telephone number

for customers with service emergencies or interruptions as well as gas supplies to support the

Mountain Energy’s system. (Peoples St. No. 1, p. 4).

The reality presented by this consolidated proceeding is that Mountain Energy

will lose its current gas supply sources and lacks the financial wherewithal to acquire new

sources of gas and to renew its system so to distribute gas in an economic, safe and reliable

manner. So, without the Settlement, it would be likely that Mountain Energy would abandon

40

service to all of its Pennsylvania utility customers. (Peoples St. No. 2, p. 11.). The current state

of Mountain Energy is simply untenable.

The Commission encourages parties in contested on-the-record proceedings to

settle cases. See 52 Pa.Code § 5.231. Settlements eliminate the time, effort and expense of

litigating a matter to its ultimate conclusion, which may entail review of the Commission’s

decision by the appellate courts of Pennsylvania. Such savings benefit not only the individual

parties, but also the Commission and all ratepayers of a utility, who otherwise may have to bear

the financial burden such litigation necessarily entails.

By definition, a “settlement” reflects a compromise of the positions that the

parties of interest have held, which arguably fosters and promotes the public interest. When

active parties in a proceeding reach a settlement, the principal issue for Commission

consideration is whether the agreement reached suits the public interest.47

With the exception of the proposed PGC Rate provisions, the Settlement proposed

by the Joint Petitioners here makes the best of a bad situation; but it is not perfect, nor can it be

made so. Mountain Energy abandoned/converted 10 customers without first obtaining

Commission approval. Mountain Energy also sold off rate based assets to Leatherwood in four

separate transactions, again without first requesting Commission approval. In the Settlement, the

Joint Petitioners agree and request that the Commission grant nunc pro tunc approval. 48

Quite frankly, if Mountain Energy was not in the poor shape that it is in currently,

I would not be inclined to recommend granting the requested nunc pro tunc approvals.

However, to recommend withholding such approvals at this stage would be unwise and could

potentially harm Mountain Energy’s customers.

The 10 customers who were abandoned by Mountain Energy without prior

approval and converted to alternative fuel sources or paid compensation have settled 47 Pa. Pub. Util. Comm’n v. CS Water and Sewer Associates, 74 Pa. PUC 767, 771 (1991).

48 Since none of the parties raised the issue of civil penalties, in order to avoid any due process issues, civil penalties are not considered as part of this decision.

41

expectations. (Mountain Energy St. 1, pp. 14-15). They have already been paid or converted. It

is not in the public interest to reverse the conversions, given the state of Mountain Energy’s

distribution system.

With respect to the four sales transactions between Mountain Energy and

Leatherwood, withholding nunc pro tunc approval at this time would not be in the public

interest. It would most certainly cause the Settlement to fall apart. The practical reality of the

Settlement falling apart is that 76 Mountain Energy customers would not become customers of

Peoples in the near future, if ever, and 96 customers would enter next Winter (2016-2017) facing

gas supply issues, as well as service and safety issues, which have been met and addressed

admirably by Peoples for far too long now.

Mountain Energy sold gas leases, gas wells, and gathering systems to

Leatherwood in four transactions that closed, respectively, in October 2006, May 2008, March

2009 and November 2009. (Mountain Energy St. 1, p. 15). Mountain Energy retained

ownership and control of the meters, and the lines between the gathering systems and meters.

Mountain Energy also retained its office, office equipment, and business records. (Mountain

Energy St. 1, pp. 15-16). Mountain Energy’s Vice President, Bradley J. Bledsoe, was correct

when he testified regarding the consequences of denying nunc pro tunc approval for the four

sales to Leatherwood:

It is my understanding that if the nunc pro tunc approval is denied, the parties must unwind the transactions. This means that Leatherwood must transfer the assets back to Mountain Energy, and Mountain Energy must refund the purchase price to Leatherwood. This could take a long time, and could generate litigation. Until the transactions are completely unwound (and any resulting litigation resolved), Mountain Energy would still be the certificated natural gas utility and would need to continue to provide natural gas supply and natural gas distribution service. Peoples would not be able to take over the distribution system or customers, as neither Mountain nor Leatherwood would have clear title. Such a result is not consistent with the public interest.

(Mountain Energy St. 1, pp. 16-17). I agree with Mr. Bledsoe’s testimony that such a result is

not in the public interest because of the current state of Mountain Energy, the utility, and its

42

distribution system, and also because of the unique opportunity for customers resulting from

concurrent approval of Peoples’ application in this case. I therefore recommend nunc pro tunc

approval of the 10 abandonment/conversions and the four sales transactions between Mountain

Energy and Leatherwood.

The Settlement preserves natural gas service to 80% of the customers that

Mountain Energy has proposed to abandon (76 customers). With respect to each of the other

20% of Mountain Energy’s customers (18 customers) who will not be served by Peoples, the

Settlement provides for Mountain Energy to either pay the cost of converting each to propane

service or to pay the customer Mountain Energy’s reasonable good faith projection of the cost to

Mountain Energy of converting the customer to propane, not to exceed $7,000 per customer.

The Settlement terms addressing the customer transfers to Peoples and the

abandonment/conversion provisions for the remaining 18 customers are in the interests of

Mountain Energy’s customers because these terms will allow the majority of the customers to

remain on natural gas service. The Settlement will provide stability and certainty for those 76

Mountain Energy’s customers by becoming part of the Peoples’ system. Additionally, these

Settlement provisions are consistent with the Commission’s policy objective to maintain and

expand natural gas service to citizens of the Commonwealth.

The customers who will become Peoples’ customers will be served from 22 miles

of the 55 miles of the current system. Those 22 miles and the related facilities will be transferred

to Peoples49 pursuant to the Settlement so that Peoples can provide service to them. These

transfers do not contemplate Peoples taking over Mountain Energy’s territory or obligations.

There is no merger or acquisition between the two companies. Peoples is already certificated to

serve the areas where the 76 customers are located,50 and Peoples is acquiring the 22 miles of the

system so that Peoples can be their natural gas utility. (Mountain Energy St. in Support p. 3).

I also recommend approval of Peoples’ Application at Docket No. A-2015-

2507377. Peoples is a Pennsylvania limited liability company formed for the purpose of 49 See Mountain Energy’s Amended Application, at pp. 4-5, 7-8, ¶ 35, Proposed Ordering Paragraphs (4) and (5).

50 See Exhibits D and E to Peoples’ Application.

43

providing natural gas transmission, distribution, and supplier of last resort services subject to the

Commission’s jurisdiction. Peoples provides natural gas service to its Peoples’ Division

customers throughout its service territory which includes all or portions of the following

Pennsylvania counties: Allegheny, Armstrong, Beaver, Blair, Butler, Cambria, Clarion, Fayette,

Greene, Indiana, Lawrence, Mercer, Somerset, Venango, Washington, and Westmoreland.

Peoples provides service to its Equitable Division’s customers throughout all or portions of the

following Pennsylvania counties: Allegheny, Armstrong, Beaver, Butler, Clarion, Greene,

Indiana, Jefferson, Washington, and Westmoreland. (Peoples St. No. 2, p. 3).

Within these service territories, Peoples currently serves customers in Aleppo,

Center, Freeport, Gray, and Richhill Townships, Greene County, which is where the customers

are located that Peoples proposes to acquire from Mountain Energy. As stated above, when

service issues arose on the Mountain Energy’s system during the very cold winter of 2013-2014,

various Commission Staff members contacted Peoples’ representatives and requested that

Peoples provide operational assistance to Mountain Energy through the installation of one or

more interconnections where Peoples could deliver additional gas to Mountain Energy. Peoples

did so and over time became informed of Mountain Energy’s proposal to abandon natural gas

service to all of its Pennsylvania customers. Recognizing the Commonwealth’s interest in

extending gas service to rural areas, Peoples began to consider acquiring the Mountain Energy’s

system as an alternative to Mountain Energy’s abandonment of all service. (Peoples St. No. 2,

p. 4).

Peoples met with interested parties, reviewed maps of Mountain Energy’s system,

and did on-site inspections of facilities. Peoples’ witness Paul Becker describes the basics of the

reviews and analyses in his direct testimony. Ultimately, Peoples’ management concluded that

Peoples could preserve natural gas service to 76 of the Mountain Energy’s customers by taking

over approximately 22 miles of Mountain Energy’s pipeline. This would significantly reduce the

number of customers whose gas service would be abandoned and limit service abandonment to

those who are located far from points of interconnection or far from a main line that Peoples

would acquire. (Peoples St. No. 2, p. 4).

44

I also find that the Settlement provisions addressing Peoples’ recovery of costs

incurred in servicing the customers are in the public interest and recommend approval of these

Settlement provisions. The Settlement provides that the Joint Petitioners support a cost recovery

procedure for Peoples providing for (1) the filing of a 1308(b) non-general rate case51 for the

recovery of O&M costs not reimbursed to Peoples and (2) the deferral and future recovery of the

annual revenue requirement associated with investment costs incurred by Peoples until Peoples’

next general rate case. Settlement ¶ 36. Additionally, the Settlement provides that the Joint

Petitioners reserve the right to challenge the reasonableness of the costs included in any such

filing, but acknowledge and give due consideration to the extraordinary circumstances

surrounding Peoples’ expected incurrence of these costs and support Peoples’ recovery of

reasonably incurred costs consistent with the terms of the Settlement. Id. (OCA St. in Support

p. 9).

The Settlement terms addressing Peoples’ cost recovery are reasonable because

they recognize the unique nature of this specific situation, whereby all of Mountain Energy’s

customers would likely have been abandoned if not for Peoples’ intervention. The Settlement

reinforces the Commission’s policy of maintaining and expanding natural gas service to as many

citizens of the Commonwealth as is consistent with the public interest.52 Further, the Settlement

provisions preserve the OCA and I&E’s right to challenge the reasonableness of the costs

incurred if those costs are perceived to be unreasonable. I conclude that these Settlement terms

addressing Peoples’ costs are reasonable, and when accompanied by other important provisions

contained in the Settlement, yield a result that is in the public interest and the Mountain Energy’s

customers’ interests, and recommend approval.

In August 2015, Mountain Energy filed Tariff Supplement No. 6 to Gas – Pa.

PUC No. 1 (Supplement No. 6), to become effective November 1, 2015, to establish a gas cost

recovery rate of $4.672 per Mcf.53 The amount of $4.672 was calculated pursuant to the

51 66 Pa.C.S. § 1308(b).

52 For those customers who will be abandoned, the OCA submits that the Conversion Terms are reasonably consistent with a number of the Commission’s prior determinations in abandonment proceedings.

53 Mountain Energy filed Supplement No. 8 to Gas-PUC No.1 agreeing to extend the suspension date until July 1, 2016.

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worksheet submitted by Mountain Energy. As proposed, the GCR rate would be in addition to

the flat rate of $6.00 per Mcf. The filing was assigned Docket No. R-2015-2496404.

Mountain Energy projects to sell about 370 Mcfs between July 1, 2016 and

October 31, 2016. So, the GCR would generate about $1,728.64 (370 * $4.672) in additional

revenues towards gas costs. That amount will not be sufficient to permit Mountain Energy to

fully recover its actual costs of purchasing gas from Peoples for the 2015-2016 winter heating

season. (Mountain Energy St. 1, p. 21).

By order entered October 22, 2015, the Commission approved the form of the

GCR rider. But, at that time, the Commission refrained from establishing a GCR rate. Instead, it

authorized a GCR rate of zero.

Mountain Energy wants to collect another $4.672 PGC Rate from the customers

to be transferred to Peoples in addition to the $7 customer charge and the $6 flat rate. According

to Mr. Bledsoe’s testimony, the $6.0 rate being charged to customers currently includes $1.20 for

gas costs. (Mountain Energy St. 1, p. 17). Mountain Energy wants to collect this additional

$4.672 because it pays more per Mcf to purchase gas from Peoples than the $1.20 in its current

flat rate of $6.0.

I find that the Settlement provision wherein the Joint Petitioners agreed to a PGC

Rate of $4.672/Mcf for Mountain Energy to collect only from customers who will be transferred

to Peoples is not in the public interest or in the interests of Mountain Energy’s customers.

Mountain Energy has not proved it is entitled to this PGC Rate. 66 Pa.C.S. § 332(a).

Using the example provided on page 20 of the testimony of Bradley J. Bledsoe,

the current Peoples tariff shows a total PGC Rate (without a customer charge) of $5.3280/Mcf.

Mr. Bledsoe claims this demonstrates a per Mcf deficit of $4.128 (5.3280-1.20) on each Mcf

purchase of gas from Peoples by Mountain Energy. (Mountain Energy St. 1, p. 20). When you

realize that the customers that would have to pay the $4.672 are already paying $1.20 for PGC in

their rates, they would actually be paying $5.872/Mcf ($4.672 + $1.20) which is more than the

Peoples’ PGC rate used in Mr. Bledsoe’s example. Keeping in mind that the Peoples’ tariff

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amount used in the example was $5.3280/Mcf, Mountain Energy would profit $0.544 per Mcf if

the Settlement PGC Rate is approved ($5.872 - $5.3280).

Mountain Energy only intends to collect the requested PGC Rate from customers

being transferred to Peoples. Customers proposed to be transferred to Peoples cannot be

required to subsidize the gas costs of the 18 customers to be abandoned by Mountain Energy

even if the amount is small and the time period short. Every rate made, demanded or received by

a public utility shall be just and reasonable and in conformity with regulations or orders of the

Commission. 66 Pa.C.S. § 1301. No public utility shall, as to rates, make or grant any

unreasonable preference of advantage to a person…or subject any person…to any unreasonable

preference or disadvantage. 66 Pa.C.S. § 1304.

Hazel B. Koffler, a Mountain Energy customer, and other witnesses who adopted

her testimony at the public input hearing held on March 9, 2016, requested that the PGC Rate the

Joint Petitioners agreed to in the Settlement not be approved. (Tr. of Public Input Hearing pp.

41-42.) I concur and recommend that this rate remain $0. For years, Mountain Energy was

collecting a $6 flat rate which included $1.20 for PGC while it received free gas from

Leatherwood.

If any PGC Rate is approved by the Commission for the customers to be

transferred to Peoples, the requested rate must, at the very least, be reduced by $1.20.

3. Recommendation

After due consideration of each party’s position and reviewing the applications as

modified by the Settlement, I approve the Joint Petition for Settlement, with the exception of the

PGC rate provisions. I recommend that the PGC Rate remain zero.

IV. CONCLUSIONS OF LAW

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1. The Commission has jurisdiction over the subject matter and the parties to

this proceeding. 66 Pa.C.S. §§ 501, et seq.

2. The party seeking affirmative relief bears the burden of proof. See, 66

Pa.C.S.A. §§ 332(a) & 1102(a)(2), 1103(a), 1301, 1307(f).

3. Peoples Natural Gas Company LLC satisfied its burden of proving that the

transfer of 76 customers from Mountain Energy, LTD to Peoples Natural Gas Company LLC is

necessary or proper for the service, accommodation, convenience and safety of the public. See,

66 Pa.C.S. § 1103(a).

4. Mountain Energy, LTD satisfied its burden of proving that nunc pro tunc

approval of the asset transfers from Mountain Energy, LTD to Leatherwood, Inc. is necessary or

proper for the service, accommodation, convenience and safety of the public. See, 66 Pa.C.S.

§ 1103(a).

5. Mountain Energy, LTD satisfied its burden of proving that nunc pro tunc

approval of the conversion/abandonment of the 10 customers as set forth in the Amended

Application is necessary or proper for the service, accommodation, convenience and safety of the

public. See, 66 Pa.C.S. §§ 1102(a), 1103(a).

6. Mountain Energy, LTD satisfied its burden of proving that approval of the

Conversion Terms and abandonment of Mountain Energy, LTD’s remaining 18 customers is

necessary or proper for the service, accommodation, convenience and safety of the public. See,

66 Pa.C.S. §§ 1102(a), 1103(a).

7. Mountain Energy, LTD satisfied its burden of proving that the

relinquishment and abandonment of Mountain Energy, LTD’s right to provide natural gas supply

and natural gas distribution service in the Commonwealth is in the public interest, and is

necessary or proper for the service, accommodation, convenience and safety of the public. See,

66 Pa.C.S. §§ 1102(a), 1103(a).

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8. Peoples Natural Gas Company LLC and Mountain Energy, LTD satisfied

the burden of proving that the transfers, by Mountain Energy, LTD and/or Leatherwood, Inc. to

Peoples Natural Gas Company LLC, of pipelines and related distribution facilities used or useful

in providing service to the 76 customers being transferred to Peoples Natural Gas Company LLC

is necessary or proper for the service, accommodation, convenience and safety of the public.

See, 66 Pa.C.S. § 1103(a).

9. Mountain Energy, LTD failed to satisfy its burden of proving that a GCR

Tariff Supplement to Mountain Energy, LTD’s – Pa. P.U.C. No. 1 adding $4.672 per Mcf to

Mountain Energy’s base costs is just and reasonable. See, 66 Pa.C.S. § 1301, 1307(f).

10. The Joint Petition for Settlement is in the public interest with the

exception of the provisions pertaining to the gas cost rate requested at Docket No. R-2015-

2496404 adding $4.672 per Mcf to Mountain Energy’s base costs.

V. ORDER

THEREFORE,

IT IS RECOMMENDED:

1. That the Joint Petition for Settlement filed by and among Mountain

Energy, LTD, Leatherwood, Inc., Peoples Natural Gas Company LLC, the Pennsylvania Public

Utility Commission’s Bureau of Investigation and Enforcement, and the Office of Consumer

Advocate at Docket No. A-2013-2396198, Docket No. A-2013-2397326, Docket No. A-2013-

2397328, Docket No. R-2015-2496404 and Docket No. A-2015-2507377 be modified to include

the purchase gas cost rate of zero instead of the agreed to rate of $4.672 and with said

modification, that the Joint Petition for Settlement be approved and adopted.

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2. That Mountain Energy, LTD’s Amended Application for approval of the

abandonment of service by Mountain Energy, LTD to its remaining customers located in Greene

County, Pennsylvania, at Docket No. A-2013-2396198, is hereby approved, subject to the terms

and conditions in the Joint Petition for Settlement.

3. That Mountain Energy, LTD be issued a certificate of public convenience

evidencing the Commission’s approval for the abandonment of all its remaining customers in

Greene County, Pennsylvania, subject to the following conditions:

a. That Mountain Energy, LTD is directed to perform the work or to provide

compensation to the 18 customers listed on Amended Confidential

Attachment 1 in Mountain Energy’s Amended Application as soon as

reasonably possible, in order to assist those customers in their transition to

an alternative energy source before the start of the 2016-2017 winter

heating season.

b. That the work performed or the amounts to be paid by Mountain Energy,

LTD to the customers listed on Confidential Attachment 2 to the

Applications filed Mountain Energy, LTD are deemed to be reasonable

compensation for the abandonment of gas service to the customers listed

that Attachment.

c. That the terms for conversion in a prior Commission Order for any

customers of Mountain Energy, LTD listed on Amended Confidential

Attachment 1 in Mountain Energy, LTD’s Amended Application who

were previously approved for conversion and who were not converted by

Mountain Energy, LTD are hereby modified to be consistent with the

terms for conversion set forth in the Joint Petition for Settlement.

d. That the terms for conversion in a prior Commission Order for any

customers of Mountain Energy, LTD who were previously approved for

conversion, who were not converted by Mountain Energy LTD, and who

are now being transferred to Peoples Natural Gas Company LLC are moot.

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e. That within 30 days of the consummation of the final customer

abandonment approved in these Ordering Paragraphs, Mountain Energy,

LTD shall notify the Commission of such consummation.

4. That Mountain Energy, LTD’s Amended Application for approval of the

sale and transfer of certain jurisdictional assets by Mountain Energy, LTD, at Docket No.

A-2013-2397326, is hereby approved, subject to the terms and conditions in the Joint Petition for

Settlement.

5. That Mountain Energy, LTD be issued a certificate of public convenience

evidencing the Commission’s nunc pro tunc approval of the acquisition by Leatherwood, Inc. of

the assets of Mountain Energy, LTD, situated in Greene County, Pennsylvania as described in

Mountain Energy, LTD’s Amended Application and as of the dates of the respective closings set

forth in said Amended Application.

6. That Mountain Energy, LTD’s Amended Application for approval of the

abandonment by Mountain Energy, LTD of all natural gas services and natural gas distribution

services in this Commonwealth, at Docket No. A-2013-2397328, is hereby approved, subject to

the terms and conditions in the Joint Petition for Settlement.

7. That the Application of Peoples Natural Gas Company LLC for Approval

of the Acquisition from Mountain Energy, LTD of Property Used or Useful in the Public Service

and the Transfer of Patrons Located in Aleppo, Center, Freeport, Gray and Richhill Townships,

Greene County, Pennsylvania, at Docket No. A-2015-2507377, is hereby approved, subject to

the terms and conditions in the Joint Petition for Settlement.

8. That Peoples Natural Gas Company LLC be issued a certificate of public

convenience for the transfer of 76 of the customers of Mountain Energy, LTD and the transfer of

related distribution assets and facilities to Peoples Natural Gas Company LLC from Mountain

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Energy, LTD and/or Leatherwood, Inc., effective upon notice to the Commission of the closing

of the transaction described in the Joint Petition for Settlement.

9. That Peoples Natural Gas Company LLC shall notify the Commission

within 30 days of the closing of the said transactions described in the Joint Petition for

Settlement.

10. That, upon notice to the Commission of the closing of the transactions

described in the Joint Petition for Settlement, a Certificate of Public Convenience be issued

evidencing Commission approval for Peoples Natural Gas Company LLC to begin to offer,

render, furnish and supply natural gas service to the public in in Aleppo, Center, Freeport, Gray

and Richhill Townships, Greene County, Pennsylvania.

11. That, upon notice to the Commission of the closing of the transactions

described in the Joint Petition for Settlement, Peoples Natural Gas Company LLC shall file a

tariff supplement to become effective on not less than one day’s notice of the final Commission

order approving the Joint Petition for Settlement, containing changes in rates to provide for the

recovery of its operating costs related to the acquired facilities and customers, consistent with the

terms and conditions of the Joint Petition for Settlement.

12. That, upon notice to the Commission of the closing of the transactions

described in the Joint Petition for Settlement, Mountain Energy, LTD be issued a certificate of

public convenience evidencing Commission nunc pro tunc approval of the acquisition by

Leatherwood, Inc. of the assets of Mountain Energy, LTD, situated in Greene County, as

described in Mountain Energy’s Amended Application and as of the dates of the respective

closings set forth in said Amended Application.

13. That nothing herein shall be construed as to exempt Peoples Natural Gas

Company LLC, from obtaining all necessary permits, licenses, and approvals from other federal,

state, and local government agencies having jurisdiction.

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14. That Mountain Energy, LTD, Leatherwood, Inc., Peoples Natural Gas

Company LLC, the Pennsylvania Public Utility Commission’s Bureau of Investigation and

Enforcement, and the Office of Consumer Advocate shall comply with the terms and conditions

of the Joint Petition for Settlement submitted in this proceeding as though each term and

condition stated therein had been subject of an individual ordering paragraph.

15. That a copy of this Order shall be served to Mountain Energy, LTD,

Leatherwood, Inc., the Commission’s Gas Safety Division, the statutory advocates, and each

customer identified on Mountain Energy, LTD’s Amended Application Confidential Attachment

1 and Confidential Attachment 2, filed by Mountain Energy, LTD.

16. That any protest in any of these consolidated proceedings that is not

satisfied or withdrawn pursuant to the terms of the Joint Petition for Settlement is hereby denied.

17. That following the receipt of the notice required by Ordering Paragraph

No. 9 and the Peoples’ Tariff Supplement described in Ordering Paragraph No. 11, the

proceedings at Docket Nos. A-2013-2396198, A-2013-2397326, A-2013-2397328, R-2015-

2496404, and A-2015-2507377 be marked closed.

Date: May 2, 2016 /s/ Mark A. HoyerDeputy Chief Administrative Law Judge

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