Keystone Connection in Pennsylvania Utility News Powelson served as the President of the Chester County Robert F. Powelson Wayne E. Gardner New Commissioners Continued on Page 6. 2

A newsletter published by the Pennsylvania Public Utility Commission regarding utilitynews in the telecommunications, energy, transportation and water markets. Summer 2008

ON THE INSIDE

Connection Utility Newsin Pennsylvania

Keystone

2-6

7-10

11-14

15-17

18-19

20-21

22-23

24-26

Electric

Water & Wastewater

Telecommunications

Natural Gas

Transportation

Federal News

Consumer News

Commission News

Connectingin Pennsylvania

Welcome to the 10th issue ofKeystone Connection, apublication of the PennsylvaniaPublic Utility Commission (PUC)that gives a “snapshot” view ofthe utility markets under thejurisdiction of the Commission:electric, natural gas, transporta-tion, telecommunications, waterand the major issues that affecteach industry.

The publication contains cover-age of all utilities, including newson consumer issues and generalinformation on PUC happenings.

The PUC balances the needsof consumers and utilities toensure safe and reliable utilityservice at reasonable rates; pro-tect the public interest; educateconsumers to make independentand informed utility choices;further economic development;and foster new technologies andcompetitive markets in anenvironmentally sound manner.

PUC WelcomesCommissioners Powelson, Gardner

The PUC recently welcomed two new Commissioners: Robert F. Powelsonand Wayne E. Gardner, who were nominated on June 19 by Gov. Edward G.Rendell and unanimously confirmed by the Senate on June 30. Commissioner Powelson replaces former Commissioner Terrance J.Fitzpatrick, who resigned. Powelson’s term expires on April 1, 2009.Commissioner Gardner replaces former Chairman Wendell F. Holland, whoseterm expired. Gardner’s term expires on April 1, 2013. “The Public Utility Commission’s decisions affect every Pennsylvaniaresident – from protecting consumers from skyrocketing rates and insistinginstead on the lowest possible prices for utility service, increasing energyconservation, and regulating utilities to shift energy production to renewablesources,” Gov. Rendell said. “I am confident that Wayne Gardner and RobertPowelson will serve the best interests of Pennsylvania consumers in their newroles on the PUC.” During his Senate confirmation hearing, Commissioner Gardner said he willbe “an independent thinker. I will focus on price competitiveness, security ofsupply, and customer service for the consumers and utilities of theCommonwealth, as well as utility reliability, strong consumer protections andother policies as developed by the legislature.” Commissioner Powelson’s nomination was supported by Senate MajorityLeader Dominic Pileggi (R-9), who said, “The PUC deals with some of the mostimportant issues facing Pennsylvania today, including electric rate mitigationand increasing our use of alternative energy. Rob’s ability to find solutions tooften complex problems will serve him well in this role.” Commissioner Powelson served as the President of the Chester County

Robert F. Powelson Wayne E. Gardner

New Commissioners Continued on Page 6.

Keystone Connection2

Keystone Connection - Electric

General Assembly’s SpecialSession on Energy Policy

www.puc.state.pa.us

Prior to breaking for summer recess, the General Assemblyacted on several Special Session (SS) on Energy Policy bills.SS House Bill (HB) 1 was enacted into law and signed by theGovernor on July 9, 2008. It is Act 1 of the Special Session. SSSenate Bill (SB) 22 was enacted and signed by the Governor onJuly 10, 2008. It is Act 2 of Special Session. Legislationaddressing rate mitigation, procurement, and energy efficiency/demand side response is expected to be addressed in the fall. SS HB 1 provides support for research and development ofalternative energy technologies, assistance to consumers tocover up to 25 percent of the cost to install energy-savingequipment and boosts funding of the Low-Income Home EnergyAssistance Program (LIHEAP) by $40 million. The Alternative Energy Investment Act includes:• $165 million for loans to businesses and loans or grants to counties, municipalities and school districts for clean energy projects, as well as loans and grants to businesses that support alternative energy production through the Commonwealth Financing Authority;• $100 million to provide loans, grants and rebates of up to 35 percent of the purchase and installation costs of solar and solar photovoltaic panels;• $92.5 million for consumer grants, loans, rebates and reim- bursements of up to 25 percent of the purchase and installation price for consumer energy conservation projects;• $80 million for loans and grants for alternative energy production projects related to solar energy;• $50 million for tax credits to increase alternative energy production;• $40 million for research and development of alternative energy technologies through the Ben Franklin Technology Development Authority;• $40 million to boost funding of the Low-Income Home Energy Assistance Program (LIHEAP);• $25 million for loans and grants for geothermal and wind energy projects;• $25 million for loans and grants for high-performance buildings;• $25 million for pollution control technology grants for small coal-fired power plants;• $5 million in loans through the PA Housing Finance Agency for energy efficiency projects; and• $2.5 million for data center consolidation projects.

SS SB22 amends the Alternative Fuels and Incentive Fundproviding for biomass-based diesel production incentives. Thelaw will require an education and outreach program to car deal-ers and consumers to educate them on the availability of hybridvehicle rebates. It also expands the rebates to plug in hybridsor other alternative fuel vehicles. Likewise, it establishes athree-year matching grant program to install nitrogen tire infla-tion systems which have proven to save on fuel consumption.

PUC Responds toHouse Resolution 506

In June, the PUC delivered a report to thePennsylvania legislature responding to HouseResolution 506, which was passed on Jan. 16,2008. HR 506 urged the PUC (and also theDepartment of Environmental Protection) toidentify and evaluate measures taken in otherstates to manage the expiration of electricityrate caps in a way that minimizes theincidence and impact of rate shock onconsumers.

The PUC’s response discusses thebackground and current status of electriccompetition and notes factors that affectelectric prices, as well as the increases inother prices over the past 12 years. The reportalso:• Highlights the benefits of competition and

the challenges that are presented by atransition to competitive markets withoutrate caps;

• Addresses the activities in other states inthe areas of consumer education, demandside response and energy efficiency, rateincreases and price mitigation efforts;

• Describes the PUC’s activities in preparingfor the transition to competitive markets,including the price mitigation order, defaultservice rulemaking, consumer educationand participation in federal proceedings;and

• Indicates whether statutory amendmentsare needed to pursue any additionalmitigation efforts.

In transmitting the response, the PUC notedthat individual Commissioners may choose tosupplement it with their own views as to addi-tional measures that should be taken. ThePUC further offered to provide any otherinformation that the legislature may need. Thereport can be found on the PUC’s Web siteunder Publications and Reports.

Keystone Connection 3


Alternative Energy Update

www.puc.state.pa.us

The PUC’s implementation of the Alternative EnergyPortfolio Standards Act (AEPS Act) continues to progressas the Act evolves and more electric companies maketheir first attempts at compliance. The most significantdevelopment over the past year was the enactment ofamendments to the AEPS Act in July 2007, that changedboth the requirements for and availability of alternativeenergy.

Specifically, Act 35 of 2007 expanded the requirementfor solar derived energy, increasing the amount requiredevery year from now through 2020, when 0.5 percent of allelectricity delivered to retail customers must be fromsolar photovoltaic systems. The amendment alsoincreased the maximum size of alternative energy gen-erators that can be interconnected with the distributionsystem, as well as changing the amount and timing ofwhen customer generators receive compensation forexcess generation.

This amendment necessitated changes to the PUC’sexisting and proposed regulations. Specifically, changesto the existing net metering regulations were adopted atthe PUC’s public meeting of May 22, 2008. Changes tothe existing interconnection and the proposed AEPSimplementation regulations will follow later this year.

Last year was the first year that a small number ofelectric distribution companies (EDCs) and electricgeneration suppliers (EGSs) had to comply with theAEPS Act’s requirements, as their rate caps ended. ThePUC’s Bureau of Conservation, Economics and EnergyPlanning (CEEP) has confirmed that all of these EDCsand EGSs met their requirements. CEEP will continue totrack AEPS Act compliance as more rate caps expireover the next few years.

The PUC also has addressed several issues that havearisen as EDCs and EGSs take actions now to meetcompliance requirements as rate caps expire. Notably,the Commission reviewed multiple EDC efforts topurchase and bank alternative energy credits (AECs). Inaddition, the PUC and the AEPS program administratorcontinue in their efforts to facilitate compliance byexpanding the availability of information regarding AECbrokers and aggregators, and certified alternative energygenerators.

Furthermore, the PUC and the program administratorhave dealt with issues raised by owners of alternativeenergy systems regarding the reasonable price for AECsand their eligibility to participate. As this new regulatoryrequirement continues to evolve and mature, the PUC willcontinue to address multiple anticipated, as well as,unanticipated issues in a way that will facilitate thisimportant component of the Commonwealth’s overallenergy policy.

AEPS 2007 Report ReleasedOn May 29, 2008, the Commission released the 2007

Annual Report on the Alternative Energy PortfolioStandards (AEPS) Act of 2004. The report wasprepared by the PUC Bureau of Conservation,Economics and Energy Planning in cooperation withthe Pennsylvania Department of EnvironmentalProtection.

The AEPS Act requires electric distributioncompanies (EDCs) and electric generation suppliers(EGSs) to provide an increasing amount of support forrenewable energy through the purchase of renewableenergy credits. For the initial AEPS compliance periodof Feb. 28 through May 31, 2007, Penn Power and UGIElectric, as well as five EGSs operating in the PennPower service territory, purchased the required amountof alternative energy credits to comply with the AEPSAct. Collectively, the companies purchased 26 solarphotovoltaic credits at an average price of $229.62,21,784 Tier I credits at an average price of $3.90 and61,037 Tier II credits at an average price of $1.37. Themajor source of renewable energy in Tier I is windpower, and the major source in Tier II is waste coal.Alternative energy generators can earn credits bygenerating one megawatt of energy from qualifiedrenewable resources and registering their credits in thePJM-GATS credit registry.

The 2007 AEPS report also provides information onfuture compliance obligations, estimated costs ofrenewable resources, the Pennsylvania AEPSmarketplace, as well as the certified generators andcertificates created. The report is available on the PUCWeb site at www.puc.state.pa.us under electricity/alternative energy.

FeedbackWe welcome any feedback

on the Pennsylvania PUC’squarterly newsletter, KeystoneConnection.

Staff from the Office ofAdministrative Law Judge,Bureau of Audits, Bureau ofConservation, Economics and

Energy Planning, Bureau of Consumer Services,Office of Communications, Bureau of Transportationand Safety, Office of Special Assistants, Bureau ofFixed Utility Services and the Law Bureau allcontribute and write articles for this publication.

For media inquiries or to share ideas, feel free tocontact Cyndi Page of the Communications Office at(717) 787-5722.



On June 12, the Energy Association of Pennsyl-vania, the Electric Power Generation Association,PJM Interconnection and Pennsylvania One CallSystem Inc. advised the PUC that they are expectingnormal demands for electricity during the summermonths while maintaining enough power foremergencies. The presenters discussed forecasted load andcapacity; inspection practices; environmentalconsiderations; plant additions and retirements; andthe effect of electric line contacts on electricreliability. PJM, based in Pennsylvania, is the electricity gridoperator for 13 states and the District of Columbia.PJM predicts that customers will drive the net peakdemand this summer to 137,950 megawatts,compared to the all-time peak of 144,644 megawattson Aug. 2, 2006. PJM expects to have a total reservemargin, the extra power on hand to meet unantici-pated demand of 23.8 percent. The Energy Association of Pennsylvania (EAP)member companies serve over 8 million electric andnatural gas customers in the Commonwealth. EAPprovided updates on how Pennsylvania electricdistribution companies are working to improvereliability by using existing operations more efficientlyand by continuing efforts to enhance overall loadmanagement through the Smart Grid.

PUC HoldsSummer Reliability Meeting

Electric Power Outlookfor Pennsylvania 2007-2012

www.puc.state.pa.us

The Bureau of Conservation, Economics and EnergyPlanning (CEEP) is preparing this year’s annual report on thestatus of Pennsylvania’s electric distribution companies’(EDCs) future plans to meet the demands of electricconsumers for the next five years.

Between 2006 and 2007, electricity consumption increasedapproximately 2.8 percent. The current aggregate five-yearprojection of growth in energy demand is 1.4 percent. Thisincludes a residential growth rate of 1.5 percent, acommercial rate of 1.6 percent and an industrial rate of 1.1percent.

Peak load is expected to increase from 29,001 megawattsin 2007 to 31,228 megawatts in 2012 at an average annualgrowth rate of 1.5 percent.

The final report is to be submitted to the Governor and theGeneral Assembly by Sept. 1, 2008. The report will also beavailable on the PUC Web site under “Publications andReports.”

Historic & Forecast Aggregate Peak Load

22000

23000

24000

25000

26000

27000

28000

29000

30000

31000

32000

1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012

Meg

awat

ts

Penn Power POLR IIA competitive bidding process was conducted by an

independent group on behalf of Penn Power’s residential andcommercial customers. The Commission verified that thenew prices accurately reflect the results of the competitivebidding process and checked Penn Power’s calculations toensure the new retail electricity prices accurately reflectedthe electricity costs resulting from the competitive biddingprocess. The prices are not set by the PUC, but rather areset by the wholesale market, over which the PUC exercisesno jurisdiction.

Penn Power POLR II Continued on Page 5.

Keystone Connection


www.puc.state.pa.us

TrAIL Co Update

The Pennsylvania PUC is participating with otherstates (New York, New Jersey, Virginia, California andArizona) in challenging recent orders issued by theUnited States Department of Energy (DOE) establishingtwo National Interest Electric Transmission Corridors(NIETCs) issued pursuant to provisions of the EnergyPolicy Act of 2005. The Commission’s appeal was filedon March 14, 2008, in the United States Court of Appealsfor the Second Circuit. The basis of the appeal is thatthe DOE’s action was arbitrary, capricious and notsupported by substantial evidence. Additionally, theappeal alleged that the corridor designation wasoverbroad and failed to take into account state interests.The Commission asks the Court to remand the matterand require DOE to re-examine the process for corridordesignation and to require DOE to design the corridors ina manner consistent with the requirements of the EnergyPolicy Act of 2005.

Because of the numerous appeals filed in variousregions in the United States, all appeals have beenconsolidated in the Ninth Circuit Court of Appeals in SanFrancisco. The parties are currently engaged inestablishing timelines for designation of the record andfor the filing of briefs. Briefs will be filed later this yearand the matter will be argued in late 2008 or early 2009.

PUC ChallengesDOE TransmissionCorridor Designation

Penn Power POLR II

On April 13, 2007, the Trans-Allegheny InterstateLine Company (TrAILCo) filed an application seekingPUC approval to locate, construct and operate aproposed Trans-Allegheny Interstate transmissionline project to be located in portions of Washingtonand Greene Counties. Specifically, the Pennsyl-vania portions of the TrAILCo project include a new500/138 kV substation in Washington County, a new500 kV substation in Greene County, a new 500 kVtransmission line extending from WashingtonCounty south into West Virginia, and three new 138kV double circuit transmission lines in WashingtonCounty. Over 300 protests and interventions werefiled on behalf of various parties, including HouseMajority Leader H. William DeWeese, and theGreene County and Washington County Commis-sioners. In addition, the PUC’s Office of Trial Staffand the Office of Consumer Advocate have inter-vened and actively participated in this proceeding.

Twelve public input hearings were held inWashington and Greene Counties in autumn 2007,and site visits to the affected properties were madesubsequent to the public input sessions. Ultimately,technical evidentiary hearings were held before twoadministrative law judges in Pittsburgh during theweeks of March 24 and March 31, 2008. Briefs andreply briefs were submitted by the parties and arecommended decision is pending.

New PPL Transmission LineAs part of PPL Electric Utilities’ preliminary siting

activities for its Susquehanna-Roseland 500 kVelectric transmission project, on Feb. 14, 2008,PPL filed with the PUC an application for approvalof the siting and reconstruction of the proposedCoopersburg No. 1 and No. 2 138/69 kV Tap inUpper Saucon Township, Lehigh County, andSpringfield and Richland Townships, Bucks County.

On April 24, 2008, the PUC recieved PPL’spetition to build a shelter for its control equipmentat the substation that PPL proposes to construct inSpringfield Township, Bucks County. On the sameday, PPL also filed seven eminent domain applica-tions. By order issued June 9, PPL’s siting appli-cation, its petition and the seven eminent domainapplications were consolidated into one proceedingat Docket No. A-2008-2022941.

Public input hearings were held during the weekof July 14. Parties have suggested alternate sitesto be toured the week of Aug. 11. Evidentiaryhearings are scheduled to be held before an admin-istrative law judge on Nov. 5-7 and 10, inPhiladelphia.

5

The prices below compare the current average total bill to anaverage total bill using the new tariff prices effective June 1,2008. The monthly bill for an average residential customerusing 750 kWh a month will increase from $111.62 to $114.21(2 percent). The monthly bill for an average residential heatingcustomer using 2,000 kWh a month will decrease from $186.26to $167.97 (10 percent).

The monthly bill for an average small commercial customeron rate schedule GS using 2,000 kWh (10 kW demand) willincrease from $224.04 a month to $230.12 (2.72 percent). Themonthly bill for an average medium commercial customer onrate schedule GM using 57,000 kWh (200 kva demand) willincrease from $5,610.70 a month to $5,826.21 (3.84 percent).

Continued from Page 4.

Keystone Connection

0

54

87 83

98

7361

48 43 41 43 4254

87 83

98

7361

48 43 41 43 42 44

0

20

40

60

80

100

120

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

EGSs - Start of Year EGSs - End of Year/Current

6

Electric Supplier Licensing Activity from Jan. 1, 2008, to June 30, 2008.

Number of Licensed EGSs

1 license canceled

0 applications pending

44 Active Licenses

Keystone Connection - Electric News

www.puc.state.pa.us

New CommissionersInspection and MaintenanceRulemaking

On May 22, 2008, the PUC approved and enteredthe final rulemaking order at Docket No. L-00040167,revising Chapter 57, Title 52, of the PennsylvaniaCode. The rulemaking adds a regulation, Section57.198, establishing inspection, maintenance,replacement and repair (I&M) standards for electricdistribution companies (EDCs).

The Commission voted 4-0 to require EDCs to makebiennial filings explaining their plans for the inspection,maintenance, replacement and repair of their facilitiesthat are designed to meet their reliability performancebenchmarks and standards. The rulemakingestablishes standards for a variety of activities suchas vegetation management, pole inspections,distribution overhead line inspections, distributiontransformer inspections, and substation inspections.These standards are based on current industrypractices and comments submitted during therulemaking proceeding.

EDCs will be separated into two compliance groups.The first group will file the initial plans on or beforeOct. 1, 2009, to be implemented on Jan. 1, 2011, andto remain in effect for two years. The second groupwill file plans on or before Oct. 1, 2010, to beimplemented Jan. 1, 2012, and to remain in effect fortwo years.

On May 22, 2008, the Commission also adopted amotion, which requires the Law Bureau to prepare anadvanced notice of proposed rulemaking (ANOPR)order asking for comments from the parties on thestandards that are currently used by EDCs to inspect,maintain and repair neutral connections, as well ascomments on whether the Commission shouldpromulgate standards to govern the inspection,maintenance and repair of neutral connections. At thepublic meeting of July 17, the Commission approvedthe ANOPR initiating a Chapter 57 rulemakingproceeding on neutral connection standards.

3 licenses approved

Chamber of Business & Industry, a 1,600-member businessorganization that he joined in 1994. During his service asChairman, the Accrediting Board of the U.S. Chamber ofCommerce awarded the Chester County Chamber a ThreeStar Accreditation standard of excellence. CommissionerPowelson holds a Bachelor of Administration degree from St.Joseph’s University and a Master of GovernmentalAdministration degree from the University of Pennsylvaniawith a concentration in public finance. Since January 2006, Commissioner Gardner has partneredin developing wind power projects in South Africa. From April2002 to December 2005, Commissioner Gardner served asvice president and general manager of Franklin Fuel CellsInc., where he oversaw its formation, development and day-to-day operations. Previously, Commissioner Gardner served inseveral operational and managerial capacities over a 20-plus-year career at PECO Energy Company, includinginvestments, strategy, new business development, fieldservice and power plant operations. Upon formally retiringfrom Exelon Corporation in 2002, Commissioner Gardnerjoined EnerTech Capital Partners as a venture partner, wherehe led and/or supported investment transactions in the energyand telecom technology sectors, and worked as anoperational consultant to EnerTech companies on an interimbasis. Commissioner Gardner holds a Bachelor of Science degreein Business Administration from Drexel University inPhiladelphia. He also has earned certificates from studies atThe Wharton School of the University of Pennsylvania, CornellUniversity, and the American Management Association inChicago. To date, Commissioner Powelson has chosen the followingstaff: Bobbie Malinak, Rik Hull, Mike Blodgett and CarolKozloff. Commissioner Gardner has selected the followingstaff, to date: Teri Mathias, Kim Barrow and Tom Maher.

Continued from Page 1.

Keystone Connection

Keystone Connection - Water/Wastewater

www.puc.state.pa.us

Water and Wastewater Company Applications ApprovedApplications Approved

March 16, 2008, through June 5, 2008

PAWC Chloraminated Water Case Interim Decision

7

Utility Name Action Territory Approval

Date

Aqua Pennsylvania Inc. Additional Territory Dallas Township, Luzerne County 3/27/08

The York Water Company Additional Territory York Township, York County 5/1/08

Pennsylvania-American Water Company

Additional Territory Hanover Township, Washington County 5/1/08


Additional Territory Valley Township, Chester County 5/1/08

Beaver Lake Sewer Company Abandonment Penn Township, Lycoming County 5/1/08

Aqua Pennsylvania Inc. Additional Territory Dallas Township, Luzerne County 5/22/08

Aqua Pennsylvania Inc. Additional Territory Pocopson Township, Chester County 5/22/08


Additional Territory Highland Township, Chester County 6/5/08

Pinebrook II (Water & Wastewater) Abandonment West Brunswick Township, Schuylkill County 6/5/08

Several complaints were filed against PennsylvaniaAmerican Water Company (PAWC) in response toPAWC’s announcement that it intended to convert theWest Shore Regional Water Treatment Plant and theSilver Spring Water Treatment Plant from chlorinatedwater to chloraminated water. A recommendeddecision granting PAWC’s preliminary objections anddismissing the complaints for lack of jurisdiction wasissued on Oct. 5, 2007. At the public meeting of March13, 2008, the Commission granted the complainants’exceptions and reversed the administrative law judge’s(ALJ) initial decision.

The matter was remanded to an ALJ for expeditedhearing on the issues of water service quality. On May16, 2008, the complainants filed a petition forinterlocutory review of a material question for resolutionby the Commission.

At the public meeting of July 17, the Commissionconsidered whether the ALJ erroneously prohibited the

introduction of evidence regarding the public healthdeterminations made by the Department of EnvironmentalProtection (DEP) in permitting PAWC to use chloramine.The Commission determined that the ALJ’s rejection ofinformation regarding the public health determinationsmade by DEP was appropriate because determinations ofthe effect of water quality on public health are mattersunder the jurisdiction of DEP and not this Commission.

Relevant non-public health evidence within the PUC’sjurisdiction, however, will be accepted, even if previouslysubmitted to DEP. Such evidence includes whether rea-sonable notice had been given to customers by PAWC;whether the company’s choice of treatment alternatives, itscost and implementation was prudent and appropriate; andwhether the water provided at the tap is suitable for allhousehold uses and constitutes the provision of safe,adequate, efficient and reasonable service and facilitiesunder 66 Pa. C.S. Section 1501.



On Dec. 10, 2006, approximately 1,000 Pennsylvania American WaterCompany (PAWC) customers in the Pittsburgh area and two nearbyschools experienced extended water outages. These outages continuedfor several days. Similar extended outages had occurred in November2006, when 2,000 PAWC customers in portions of Lackawanna Countylost their water service.

As a result of these events, the PUC, at the public meeting of Dec. 31,2006, adopted a motion that called for an investigation of these outagesto examine the utility’s compliance with the Public Utility Code and thePUC’s regulations regarding safe and reliable water service in theCommonwealth.

The PUC’s Law Bureau, in conjunction with the Bureau of Fixed UtilityServices and the Bureau of Audits, prepared a report relating to thePittsburgh outages that was submitted to the Commission in April 2007.On June 21, 2007, the report, which contained 15 directives for PAWC toimplement, was released to the public for comment. On July 26, 2007,the Commission’s final order regarding the Pittsburgh outages wasentered.

As part of the investigation, Commission staff are continuing to collectdata for a second joint staff report relating to the aforementionedextended outages in Lackawanna County and other portions of PAWC’sservice territory. After the investigation is complete, the Commissionexpects to issue a public report regarding the staff’s findings andrecommendations.

As to the PAWC management audit, Schumaker & Company is in theprocess of reviewing PAWC’s comments on its draft and is preparing aconsolidated final report. It is projected that Schumaker & Company’sfinal report and PAWC’s Implementation Plan should be ready for publicrelease at the second public meeting in August.

www.puc.state.pa.us

Aqua Pennsylvania’s Rate Case

Update on thePAWC Outages Investigation

The City of Bethlehem filed proposedchanges to its water rates affectingcustomers outside its municipalboundaries. The City proposed a rateincrease of $827,455, or a 12.5 percentincrease. The Commission instituted aninvestigation into the justness andreasonableness of the proposed rates.The City reached a settlement agreementwith all but one of the parties. Thesettlement provided for an increase of$240,000, with a 3.6 percent increase inrates for each customer class exceptPublic Fire, which would not receive anyincrease. Additionally, the City agreed towait until at least June 29, 2009, beforefiling its next base rate case.

On April 7, 2008, the Commissionissued the recommended decision of anadministrative law judge (ALJ), whichrecommended approval of the non-unanimous joint petition for settlement,without modification. The Lower SauconAuthority filed exceptions to the ALJ’srecommendation to adopt an across theboard revenue increase and cited Lloyd v.Pa. PUC to support its claim for cost-based rates.

At the public meeting of May 22, 2008,the Commission approved the settlement.The Commission denied the Authority’sexceptions and allowed the across theboard increase, finding that the City wasunder no obligation to submit a cost ofservice study, which would be necessaryto develop cost-based rates.

The Commission also directed the Cityto incorporate into its tariff the privatelycontracted legacy rate between the Cityand the Authority regarding waterdeliveries. Lastly, the City was directed toinstall meters, which would measuredeliveries to the Authority, prior to its nextbase rate case.

On Nov. 21, 2007, Aqua Pennsylvania Inc. filed proposed changes inrates, rules and regulations calculated to produce $41.7 million (13.6percent) in additional annual revenues. The Commission suspendedthe filing until Aug. 21, 2008, so that an investigation could be held todetermine whether the proposed changes in rates, rules andregulations are lawful, just and reasonable.

The case was assigned to the Office of Administrative Law Judge.The statutory advocates, several entities and a number of individualsfiled complaints against Aqua’s filing. On June 16, 2008, the twoadministrative law judges (ALJs) assigned to the case issued arecommended decision. The ALJs recommended an increase ofapproximately $40.2 million.

The parties had until July 3 and July 10, 2008, to file exceptions andreply exceptions, respectively.

At the public meeting of July 17, the Commission conducted abinding poll on the issues related to Aqua’s proposed rate increase forwater service. At this time, the increase granted by the Commissionis estimated to be approximately $34.4 million. This change in rates isexpected to take effect in August 2008.

PUC ApprovesSettlement for theCity of Bethlehem’sBase Rate Case

Keystone Connection


Water and Wastewater Rate IncreasesRate Increase Request Summary

March 16, 2008, through June 5, 2008

www.puc.state.pa.us

The York Water CompanyRate Increase Request

9

Utility Name Amount($) Requested

Amount($) Granted

% of Increase Action

Action Date

Warwick Water Works Inc. 22,227 Investigation 3/27/08 Warwick Drainage Company Inc. 21,858 Investigation 3/27/08 Blue Knob Water Company 114,374 Investigation 3/27/08 Keystone Utilities Group Inc. 48,816 29,181 25.3% Settlement 5/1/08 City of Bethlehem 827,455 240,000 3.6% Settlement 5/22/08

In May 2008, the York Water Company filed for a$7.1 million overall rate increase. According to thecompany, the increase is required to providesufficient revenues to recover the cost of providingwater service to its customers, to allow it todischarge properly its public duties by continuing tofurnish an adequate, safe and reliable level ofservice, to maintain its facilities properly and toafford the opportunity to more nearly approach a fairand reasonable rate of return on the original costmeasure of value of its property used and useful inrendering water service.

On June 24, 2008, the Commission voted 4-0 toopen an investigation and assigned the request to anadministrative law judge for public input hearings,evidentiary hearings and a recommended decision.The Commission will make a final decision by Feb.15, 2009.

Under the company’s proposal, the annual bill foran average gravity system residential consumerusing 63,204 gallons of water would increase in therange of 18.9 percent. An average repumpedresidential consumer using 54,276 gallons of waterwould see an increase of 19.6 percent. The ratechange would affect all of York’s 60,458 customers.

At the public meeting of Jan. 24, 2008, the Commissiondirected staff to conduct a non-prosecutory investigation intoClarendon Water Company. This action was in the context offormal complaint by a Clarendon Water customer allegingpoor water service. Clarendon provides service toapproximately 300 customers in Warren County.

On Feb. 13, PUC staff traveled to Clarendon to view theClarendon water system, interview customers, and consultwith officials from the Department of Environmental Protection(DEP). As part of their investigation, staff attended the publicinput hearings there regarding Clarendon’s then pendingsection 1308 general rate increase investigation at DocketNo. R-00072491. Staff also traveled to Meadville to meet withregional DEP officials regarding DEP’s ongoing work withClarendon Water.

After the investigation is complete, the Commissionexpects to issue a public report regarding the staff’s findingsand recommendations.

Update on Clarendon Water



Small Water CompanyTask Force

www.puc.state.pa.us

In 1988, the Commission formed an internalworking group to address the many challengesconfronting the small water systems inPennsylvania that are regulated by the PUC.Known originally as the Problem WaterCompany Task Force, now the Small WaterCompany Task Force, this group meets on abimonthly basis to discuss pertinent watermatters and to exchange timely information thatrelates to the plethora of issues facing thesesmall water systems.

Initially, the Task Force only consisted of PUCstaff and Commissioners’ water assistants.However, in 1993, the Commission realized thatbroader communication was necessary toaddress the rapidly changing water industry.Now, Task Force membership includes repre-sentatives from the Department of EnvironmentalProtection (DEP), the Pennsylvania Infrastruc-ture Investment Authority (PENNVEST), theCommission’s Office of Trial Staff and the Officeof Consumer Advocate.

Consistent with its efforts to formalize theinteragency commitments of the PUC and DEPand to harmonize policies and programs thatwould strengthen the ability of both agencies tocomprehensively address the multifacetedissues facing the small water systems, theCommission, through the joint effort of the TaskForce, entered into a memorandum ofunderstanding (MOU) with DER (now DEP) inNovember 1993. This MOU signified a formalcommitment on behalf of the two agencies tomore closely coordinate regulatory efforts toimprove water system viability.

At the same time the PUC adopted the MOU,the Commission approved a policy statement onsmall water system viability that discouragesthe creation of new nonviable small systemsand encourages the restructuring of existingnonviable small systems. See 52 Pa. Code §§69.701 and 69.711.

In April 1997, the Commission entered into aMOU with PENNVEST, another important stateagency that assists in fostering acquisitionsbetween small water systems, viable publicutilities, municipalities and municipalauthorities.

Currently, the Commission and DEP arereexamining the parameters of the 1993 MOUbetween the respective agencies to determine ifmodifications are appropriate.

Emergency PreparednessAudits of Small Water Utilities

The Commission has begun to conduct EmergencyPreparedness Audits (EPAs) of the smaller jurisdictional waterutilities that are not subject to routine periodic managementand operations audits and management efficiencyinvestigations during which similar reviews are conducted ofthe state’s larger water, gas and electric utilities.

The objective of the EPAs is to ensure that the small waterutilities have emergency response plans that are up to dateand in compliance with all applicable laws and regulations,including the annual self-certification process required by PUCregulations at 52 Pa. Code §§ 101.1 101.7. The EPAs includea review of the utilities’ physical security, cyber security,emergency response, and business continuity plans and, asapplicable, result in recommendations for improvements.

Representatives of the Department of EnvironmentalProtection and the Commission’s Bureau of Fixed UtilityServices (including the Commission’s EmergencyManagement Coordinator) are invited to participate with theAudit Bureau staff in the on-site portion of the EPA.

The EPA on-site visits are normally completed in one to twodays depending on the size of the utility and the number offacilities to be visited.

Decision on Total EnvironmentalSolutions’ Rate Case

Total Environmental Solutions Inc. (TESI), Treasure LakeWater and Wastewater Division, filed proposed changes to itswater and wastewater rates. TESI proposed an annual rateincrease of $272,121 or 45.66 percent for its water division.TESI also proposed an annual rate increase of $286,615 or29.5 percent for its wastewater division. The Commissioninstituted an investigation into the justness andreasonableness of the proposed rates. On May 23, 2008, anadministrative law judge (ALJ) issued a recommendeddecision, which recommended approval of a tariff designed toproduce a decrease in annual revenues of $3,584 or 0.6percent for the Treasure Lake Water Division and an increaseof $72,793 or 7.5 percent in annual revenues for the TreasureLake Wastewater Division. Exceptions were filed by TESI andthe Office of Consumer Advocate. At the public meeting of July17, 2008, the Commission, by binding poll, modified the ALJ’srecommended decision. The binding poll, resulted in anincrease in annual revenues of $8,128 or 1.4 percent to TESIWater Division and an increase in annual revenues of $73,318or 7.5 percent to TESI Wastewater Division.

Keystone Connection

Keystone Connection - Telecommunications

www.puc.state.pa.us

Settlement Approved inVerizon’s 2006 PCO Appeal

By an order entered May 27, 2008, at Docket No.R-00051228, the PUC approved a joint settlement agree-ment between Verizon Pennsylvania Inc., Verizon NorthInc. (Verizon) and the Office of Small Business Advocate(OSBA). Approval of this settlement led to the withdrawalof the current appellate case before the PennsylvaniaCommonwealth Court at Docket No. 988 CD 2007.

This proceeding originated with the Verizon’s 2006 pricechange opportunity (PCO) filings wherein the twocompanies proposed increases to various rates inaccordance with their price-cap formulas, which allow forinflation-based annual rate increases to noncompetitiveservices. The OSBA filed formal complaints against thefilings alleging various errors and inconsistencies in theassumptions used by the companies in calculating theannual revenue increases. The matters proceeded tohearings, and the PUC subsequently resolved all of thecontested issues in the OSBA complaints with theexception of two outstanding issues pertaining to theremoval of “attribution revenue” from the PCO calculationsand the calculation of access line counts.

Attribution revenue pertains to access charge revenuesbased on the assumption that Verizon pays itself fornoncompetitive switched access service in order toensure that it prices its own competitive toll services atrates that it included access charges, so as to putVerizon on the same footing with competitors that pay foraccess to provide similar competitive services. ThePUC’s orders in this proceeding directed the companiesto remove the attribution revenues from its 2006 PCOcalculation because the new Chapter 30, which wasenacted in 2004, specifically prohibits it. Under thesettlement, the Verizon companies will be allowed toinclude attribution revenue for the 2006 PCO, but leave theprevious PUC orders in place disallowing attribution for the2007 and future PCOs.

With regard to the access line count issue, the PUChad ordered the Verizon companies to recalculate the rateincreases using historical customer line counts as of June30, 2005, rather than allowing Verizon to use an estimat-ed count. Under the settlement, if historical line countsare used, the companies will be allowed to make a true-up adjustment in the following year in accordance with thespecific terms of the settlement.

The settlement provides for an agreed metho-dologybetween the companies and OSBA for estimatingnoncompetitive business revenues for the 2008 and futurePCOs. This issue is currently being contested by theOSBA in the Verizon companies’ 2008 PCO investigation.

11

PUC Creates Working Groupto Focus on the Future ofExtended Area Service

The Commission’s extended area service (EAS)regulations govern the circumstances under whichthe Commission mandates an extension in a wirelinecarrier’s local calling area, the area in which aconsumer can place a call without incurring a tollcharge. These regulations have not been revised inseveral years despite large changes in technologyand the market for telecommunications service inPennsylvania.

At the public meeting on May 22, 2008, theCommission closed the final rulemaking to revise theCommission’s EAS regulations at 52 Pa.Code §§63.71-63.77. The PUC concluded that additionalinput from interested parties was appro-priate beforethe Commission decided on any future direction forEAS regulations. The PUC took that action in light ofthe changes in technology and the amount of timethat had elapsed since starting the rulemaking.

The Commission created an EAS Working Groupunder direction of the Law Bureau, in conjunction withthe Bureau of Fixed Utility Services, to makerecommendations on what, if any, future EAS policyis appropriate. The Commission’s EAS WorkingGroup had its first meeting on Tuesday, June 24,2008. The next meeting is scheduled for August.The Commission intends to complete considerationof the future direction of EAS within 120 days fromthe first meeting of the EAS Working Group.

Additional information on the EAS Working Groupcan be found on the Commission’s website at http://www.puc.state.pa.us/telecom/telecom_index.aspx.The EAS Working Group is docketed at M-2008-2043928. The Commission’s contact for the EASWorking Group is Joe Witmer, Assistant Counsel,Law Bureau, (717) 787-3663



Price Stability Mechanism

www.puc.state.pa.us

The Price Stability Mechanism (PSM) is a formulawhich may be included in an incumbent local exchangecarrier’s (ILEC) Commission-approved alternative form ofregulation Chapter 30 plan. It permits rates for noncom-petitive services to be adjusted upward or downwardbased on the annual change in the United StatesCommerce Department’s Gross Domestic Product –Price Index (GDP-PI) inflation factor. Currently 23 ILECsoperate using a PSM. Each year, these ILECs file anannual Price Stability Index (PSI) report based on thischange in GDP-PI, less an inflation offset. The PSI is anindex that tracks these GDP-PI changes cumulatively,adjusted for any exogenous events, indicating themaximum amount an ILEC may raise its rates.

When the change in the GDP-PI is positive, the ILEChas the option of taking the full amount of the increaseavailable to it; taking part of the allowed increase and“banking” the remainder for future use; or banking theincrease in its entirety. Most of the ILEC Chapter 30plans state that the ILEC must implement any bankedincreases within four years or forfeit them.

Since January 2008, the Commission has approvedannual PSI filings for 20 of the 23 ILECs operating with aPSM. Six of these ILECs implemented part of theincreases available to them, while forfeiting the remainderdue to a settlement agreement. Three implemented partof their allowed increase while banking the remainder forfuture application, one has the implementation of its rateincrease delayed due to settlement agreements, and 10ILECs banked their allowed revenue increases in theirentirety. To date in 2008, these companies implementedapproximately $4.107 million in increases while bankingapproximately $5.877 million for future use.

PUC Proposes toStreamline the Review ofTransfers of Control

In late 2007, the Commission initiated a formalrulemaking proceeding to streamline the PUC’sprocess for reviewing and approving transfers of controland affiliate filings for telecommunications carriers.The Commission’s action addressed a petition thatLevel 3 Communications Inc. filed with the PUC. Level3 asked the Commission to streamline Pennsylvania’smerger review and approval process.

The Commission published the proposed rulemakingon Feb. 9, 2008, in the Pennsylvania Bulletin. Severalinterested parties filed comments and replies. TheCommission is currently reviewing those filings,including comments filed by the IndependentRegulatory Review Commission (IRRC).

The proposed regulations would revise the standardsthat currently govern review of transfers of control forall classes of PUC-regulated public utilities under 66Pa.C.S. §§ 1102 and 1103. Currently, theCommission’s full review process takes about six tonine months to complete depending on the complexityof the proposed transaction.

The proposed regulations would shorten the processfor reviewing telecommunications transactions. Theproposed regulations create two categories forstreamlined review. These are “general” or “pro forma”with different reviewing times based on the complexityof the transaction. General transactions would bereviewed within 60 days and pro forma transactionswould be reviewed in 30 days. Under the regulationsas proposed, the Commission retains the discretion toremove any transaction from these streamlinedprocedures. This would subject the transaction to thelonger six-to-nine-month review process that currentlygoverns similar transactions.

Additional information on the proposed regulationscan be found at Docket No. L 00070188. The PUCcontact for this rulemaking is Joe Witmer, AssistantCounsel, Law Bureau, (717) 787-3663.

Audit of Verizon PA’sNetwork ModernizationPlan

The Liberty Consulting Group is conducting a reviewand evaluation of Verizon Pennsylvania Inc.’s NetworkModernization Plan (NMP) implementation progress asreported in its biennial NMP update of June 30, 2007,representing its progress as of Dec. 31, 2006. Libertyconcluded its field work in early February and is finalizingits report which is expected to be released in August2008. Liberty’s field work included visits to selected testlocations to verify the accuracy of Verizon’s records ofdeployed broadband equipment; their location next toschools, health care facilities and business parks;lengths of circuit loops; and testing for broadband speedaccuracy.

Keystone Connection


Rural Access ChargeInvestigation Reopened

www.puc.state.pa.us

The PUC has acted to reopen the previously stayedinvestigation involving the rural carriers’ intrastateaccess charges, intraLATA toll rates and the Penn-sylvania Universal Service Fund (PaUSF) for thelimited purpose of determining whether there is aneed to increase the existing $18 benchmark/cap forresidential one-party (R-1) service established underthe Pennsylvania Universal Service Fund (see orderentered April 24, 2008, at Docket No. I-00040105).The limited investigation will also determine whetherto increase the PaUSF and whether to adapt a“needs based” test (and applicable criteria) for ruralcarrier support funding from the PaUSF.

The Commission reopened the limited investigationin light of the fact that increases to rural carriers’ R-1service rates, resulting from annual Chapter 30 pricecap filings, have started to exceed the established R-1 benchmark/cap of the PaUSF. Carriers are current-ly only permitted to collect the revenues lost due toreductions in intrastate access charges andintraLATA toll rates on a revenue-neutral basis whileraising local rates up to the $18 R-1 benchmark/cap.However, if the annual Chapter 30 price cap filingsresult in average R-1 rates that pierce the $18benchmark/cap, rural carriers must recover thedifference between the higher average R-1 rate andthe benchmark/cap from their local exchangecustomers and not the PaUSF. The investigation willalso determine whether it would be appropriate torecover the difference between the higher R-1 ratesand the $18 benchmark/cap from the PaUSF.

Last year, the PUC stayed this investigation eitherfor a period of 12 months or the issuance of a Feder-al Communications Commission (FCC) ruling in theUnified Intercarrier Compensation proceeding (CCDocket No. 01-92), whichever occurred earlier. Part-ies were directed to submit status reports to the PUCeither 30 days prior to the expiration of the stay or 30days after an FCC decision on the federal UnifiedIntercarrier Compensation proceeding.

To date, the FCC has not made a decision on itsintercarrier compensation proceeding. As such,based on the comments and status reports receivedfrom the parties, the PUC acted to stay all otheraspects of the investigation for another 12 months, orupon the issuance of a FCC ruling in the UnifiedIntercarrier Compensation proceeding, whicheveroccurs earlier.

13

Chapter 63 PetitionIn October 2002, the Office of Consumer Advocate

(OCA) petitioned for a rulemaking to revise Chapter 63 ofthe Public Utility Code. In 2004, in light of the GeneralAssembly’s Legislative, Budget and Finance Committee(LB&FC) report on local service provider (LSP) reportingrequirements and the new Chapter 30, the Commissionpostponed action on the OCA petition. In 2006 the PUCsolicited updated comments and reply comments on theOCA petition. On April 2, 2008, OCA petitioned for leaveto withdraw the petition, asserting that OCA and Verizonhad reached a settlement that resolved OCA’s concernsraised in the 2002 petition. Neither party sought PUCapproval of the settlement. No objections to thesettlement were filed.

Under the terms of the settlement, Verizon will provideOCA with quarterly data, which Verizon termedproprietary, and will meet with OCA quarterly for threeyears, regarding: (1) trouble reports; (2) missed repairappointments; (3) restoration times; (4) major outages;and (5) primary service order installations. OCA hasagreed not to use this information in litigation but mayinitiate and participate in other service qualityproceedings and may seek this information throughdiscovery for litigation purposes. Verizon may terminatethe agreement as to any subject that becomes litigated.Verizon agreed to install some additional networkinterface devices (NIDs) and to look into large weekendoutages more quickly.

The PUC granted the petition to withdraw withoutprejudice. Any entity or the Commission itself is free toconsider in a new proceeding whether the telephoneservice quality regulations should be updated. Pursuantto 66 Pa. C.S. §§ 504 – 506, the PUC can requestaccess to the information that Verizon provides to OCAunder the settlement.

On May 22, 2008, the Pennsylvania Department ofTransportation (PennDOT) issued a request for proposalsto design, build, implement, operate, host and maintain astatewide traveler information service called “511Pennsylvania.” It will allow travelers to easily obtainaccurate, up-to-the-minute information on traffic, roadwayconditions, regional weather, transit options, tourisminformation and more via the Web site and telephone.The Federal Communications Commission designated511 as the universal dialing code for use by governmententities in providing transportation and travel-relatedinformation. It is scheduled to be operational by June 1,2009.

The 411 on 511



www.puc.state.pa.us

Act 183 of 2004, commonly known as the NewChapter 30, established the Broadband Outreachand Aggregation Fund (BOAF) and the EducationTechnology Fund (E-Fund). Annually, theCommission is responsible for assessing VerizonPA, Verizon North, Windstream and Embarq(Pennsylvania’s four largest incumbent localexchange carriers (ILECs)) for contribution tothese funds. The BOAF is a grant programadministered by the Pennsylvania Department ofCommunity and Economic Development (DCED)designed to help communities aggregate demandfor broadband service and create outreachprograms for the use of broadband services bypublic entities. In the event that any of these fourILECs file rate increases, the PUC will assess 10percent of the ILEC’s first-year revenue increasefor contribution to the BOAF fund. In June 2008,the Commission approved a BOAF fund size of$1.009 million for Fiscal Year 2008-09.

The E-Fund is a grant program with an annualfund size of $10 million administered by thePennsylvania Department of Education. The E-Fund was established to assist schools with thepurchasing of services, hardware, technicalassistance, and distance education.Assessments are based on three parts:• 10 percent of the projected revenue increase

from any rate increase by each of the fourILECs;

• $7 million prorated between Verizon Northand Verizon PA based upon their access linecounts; and

• The difference between $10 million and partsone and two, payable by Verizon North andVerizon PA.

In June 2008, the Commission approved E-Fund assessments for the coming fiscal year of$9.74 million on Verizon North and Verizon PA;$175,000 on Windstream; and $85,000 onEmbarq.

E-Fund Grant Program New Federal Rules HonorDo-Not-Call Lists Indefinitely

On June 17, 2008, the Federal Communications Commis-sion (FCC) issued rules that now require telemarketers tohonor consumer registrations on the National Do-Not-CallRegistry indefinitely. Under the older rules, consumers mustregister their telephone number on the national Do-Not-Callregistry every five years if they wanted to stop getting callsfrom telemarketers.

The FCC took this action under the federal Do-Not-CallImprovement Act of 2007. This 2007 federal law prohibits theremoval of numbers from the national Do-Not-Call Registryunless the consumer cancels the registration or the numberhas been disconnected and reassigned or is otherwise invalid.The Federal Trade Commission (FTC), which maintains theDo-Not-Call registry, already committed to keeping numbers inthe federal Registry indefinitely.

This rule minimizes the inconvenience of requiring consum-ers to re-register their phone numbers every five years. Thisindefinite extension continues protecting consumer privacy.

To further make it easier for consumers, the FCCencourages telephone companies to convey information ondisconnected and reassigned numbers to the FTC. The FCCalso said it will work with the FTC to improve administration ofthe Do-Not-Call registry.

Similar legislation in Pennsylvania is under consideration inSenate Bill 1116, was referred to the Appropriations AffairsCommittee on June 24, 2008.

TRS Surcharge ChangesThe Commission has completed the 18th annual recalculation of

the Pennsylvania Telephone Relay Service (TRS) surcharge as itapplies to residence and business wireline access lines forJuly 1, 2008, through June 30, 2009. The monthly residential andbusiness monthly wireline access line surcharge are each set at$0.08. The residential rate remains the same as the current rate,and the business rate will decrease by $0.01. The PUC orderdirects all local exchange carriers to file revised tariff supple-ments to become effective July 1, 2008, on at least one day’snotice, which reflect the sucharge in accordance with the newrates.

The annual recalculation is in accordance with theCommission’s May 29, 1990, order at Docket No. M-00900239,which established TRS and a surcharge funding mechanism.Act 34 of 1995, 35 P.S. §§ 6701.1 – 6701.4, established theTelephone Device Distribution Program (TDDP) to be funded bythe TRS surcharge, and codified TRS and use of the TRSsurcharge funding mechanism. The Print Media Access SystemProgram (PMASP) is also funded in part by the TRS surchargeaccording to Act 174 of 2004, 35 P.S. §6701.3a.

Keystone Connection

Keystone Connection - Natural Gas

Energy Price Forecast for July 2008

www.puc.state.pa.us

The Energy Information Agency’s (EIA’s) July 2008Short Term Energy Forecast reports that global supplyuncertainties, combined with significant demand growthin China, the Middle East and Latin America are ex-pected to continue to pressure oil markets. West TexasIntermediate crude oil (WTI) is the benchmark crude oilin the United States. WTI oil prices, which averaged$72 per barrel in 2007, are projected to average $127per barrel in 2008 and $133 per barrel in 2009. Regular-grade gasoline is expected to average $3.84per gallon in 2008, more than $1 per gallon above the2007 average price. The United States average regular-grade gasoline price, about $4.10 per gallon on June

30, is projected to remain over $4 per gallon until the fourthquarter of 2009. Retail diesel fuel prices, which averaged$2.88 in 2007, are projected to average $4.35 per gallon in2008 and $4.48 per gallon in 2009. EIA shows that Henry Hub (Louisiana) wholesale naturalgas prices averaged $7.17 per thousand cubic feet (Mcf) in2007 and are expected to average $11.86 per Mcf in 2008and $11.62 per Mcf in 2009. Home heating oil will continue to follow the price of crudeand is expected to average $4.04 a gallon for 2008 and$4.42 for 2009. Additional forecast details can be found at http://www.eia.doe.gov/oiaf/forecasting.html .

Wholesale Fuel Prices by Heat ContentData from EIA’s Weekly Gas Report and Weekly Petroleum Status Report

(Unweighted Average)

15

$0.00

$5.00

$10.00

$15.00

$20.00

$25.00

$30.00

1/1/2005

3/1/2005

5/1/2005

7/1/2005

9/1/2005

11/1/2005

1/1/2006

3/1/2006

5/1/2006

7/1/2006

9/1/2006

11/1/2006

1/1/2007

3/1/2007

5/1/2007

7/1/2007

9/1/2007

11/1/2007

1/1/2008

3/1/2008

5/1/2008

$/m

mbt

u

Natural Gas Henry Hub Spot Price Crude Oil W. Texas intermediate Spot price

No. 2 Fuel Oil NY Spot Price Propane Mont Belvieu, Texas

Natural gas

Keystone Connection

0

36

81 8478 78

82 83 84 84

36

81 8478 78

82 83 84 84 83

010

2030

4050

6070

8090

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

NGSs - Start of Year NGSs - End of Year/Current

16


Natural GasSupplier Licensing

Activity from Jan. 1, 2008, toJune 30, 2008.

83 Active Licenses

0 licenses approved

1 license canceled

0 applications pending

Number of LicensedNatural Gas Suppliers

In mid-May, PUC staff distributed a SEARCH(Stakeholders Exploring Avenues for RemovingCompetition Hurdles) working group report,following a stakeholder process that exploredways to promote the development ofcompetition in the natural gas supply market inPennsylvania. The report identifies severalmeasures that could be taken, summarizes thepositions of the participants, sets forth therequisites for implementation, describes thepotential effect on competition, and outlines thedisadvantages and costs.

Topics addressed by the report include:• Price to Compare;• Consumer Education;• Purchase of Receivables;• Creditworthiness/Security;• Municipal Aggregation;• Marketer Referral Programs;• Sustained PUC Leadership in Competitive

Markets; and• Future Evaluation of Effective Competition.

Under the Natural Gas Competition Act(Chapter 22 of the Public Utility Code), theCommission was required to convene thestakeholders for this purpose upon concludingthat effective competition for natural gas supplydoes not exist in the Commonwealth.

The PUC expects to take action later thissummer on staff recommendations arising fromthe stakeholder process. This action is likelyto be in the form of a tentative order orproposed policy statement seeking commentsfrom interested parties.

SEARCH UPDATEIn addition to the annual purchased gas costs (PGC) proceedings

that were described in the last issue of the Keystone Connectionseveral natural gas distribution companies (NGDC) applied forincreases to their base rates. Natural gas customer’s bills consistof the purchased gas portion as well as a charge to deliver the gas.Customers of Columbia Gas, PECO Gas and Equitable may facehigher distribution rates as a result of the filings recently made bythese companies. In addition, NRG Energy Center Harrisburg LLCfiled for an increase to base rates.

Columbia Gas was the first to file, on Jan. 28, 2008, when itsought to increase its base rates by $58.9 million or 10.3 percentover existing rates. Columbia serves approximately 370,556residential, 37,914 commercial and 327 industrial customers and isbased in Canonsburg.

On March 31, 2008, PECO Energy Company and NRG EnergyCenter filed tariff supplements seeking increases to base rates of$98.3 million and $1.8 million, respectively. PECO servesapproximately 439,924 residential and 41,314 commercial andindustrial customers, and its request represents an 11.2 percentincrease while NRG provides steam heat to approximately 232customers in the City of Harrisburg. It is seeking a 42.34 percentincrease over existing rates.

Finally, on June 30, 2008, Equitable Gas filed for an increase of$51.9 million over existing rates. This represents an increase of 10percent. Equitable serves approximately 238,366 residential,17,312 commercial and 155 Industrial customers.

All of these rate increase requests are under review by theCommission and are expected to be resolved at various times in thefall and winter.

Natural Gas Base Rate Increase

www.puc.state.pa.us

Keystone Connection


National Fuel Gas Distribution’s MEIOn June 24, 2008, the PUC released a Management Efficiency

Investigation (MEI) that examined National Fuel Gas DistributionCorporation, Pennsylvania Division’s (NFGDC-PA) progress inimplementing seven recommendations from a February 2005 FocusedManagement and Operations Audit and a review of the company’semergency preparedness. The Audit staff found that NFGDC-PA haseffectively implemented two of the seven recommendations reviewedand has taken some action on the other five recommendations fromthe 2005 audit.

The MEI, which was conducted by the PUC’s Bureau of Audits,resulted in eight follow-up recommendations for improvements. Inresponse to the MEI report, NFGDC-PA submitted an implementationplan that indicated the company accepted seven of the follow-uprecommendations and partially accepted the other. The Commissiondirected NFGDC-PA to proceed with its plan to implement the MEIreport’s eight follow-up recommendations.

Some of the changes made by NFGDC-PA since the 2005 auditinclude:

• Updating its Operations & Maintenance Manual to includeprocedures associated with federal regulations relating to theinstallation of telemetering or recording pressure gauges; and

• Resuming submission of annual diversity reports to the PUC.

The eight follow-up recommendations contained in the MEI include:

• Documenting justification for each instance of supervisory spansof control that vary from the normal range and periodically reviewmanagement positions and adjusting as appropriate;

• Implementing actions to further improve its damage preventionprogram to decrease the number of service outages and improvepublic safety;

• Implementing a defined strategic programming process within thecorporate strategic plan that includes long-term strategic goals,action plans and tactics;

• Continuing efforts to reduce the under-representation of womenand minorities within the company’s workforce;

• Continuing vendor updates and community outreach programs,with particular focus on finding methods to identify persons withdisabilities-owned enterprises and continuing the positive trendsin minority- and women-owned vendor utilization; and

• Merging data recovery and system restoration guidelines into theBusiness Continuity Plan.

www.puc.state.pa.us 17

Equitable RestructuringAfter more than a year of negotiations

among the parties of record, a motion offeredat the public meeting held on May 22, 2008,resulted in approval of the application ofEquitable Resources Inc., for approval of thereorganization into a holding companystructure with the Equitable Gas Companydivision becoming a separate legal entity.

Equitable filed the initial application on Jan.8, 2007, and various protests andinterventions were received from the Office ofConsumer Advocate (OCA), the Office ofSmall Business Advocate (OSBA), the PUC’sOffice of Trial Staff (OTS) and the IndependentOil and Gas Association (IOGA).

On Jan. 8, 2008, Equitable filed a supple-ment to application setting forth agreed uponconditions for approval of the reorganizationexecuted by Equitable, OTS, OCA andOSBA. On Jan. 28, IOGA filed a response tothe supplement to application seekingadditional conditions for approval or, in thealternative, assignment to an administrativelaw judge. Equitable filed a reply, on Feb. 8,in opposition to the response of IOGA on thebasis that the Commission should recognizethe public benefit of the reorganization andapprove the application subject to the agreedupon conditions in the supplement toapplication.

After a few more months of no resolution,Equitable filed a motion for acceptance ofadditional terms and conditions, if necessary,and approval of reorganization withouthearing, or, in the alternative, motion forexpedited hearing pursuant to 52 Pa. Code §5.103(a). Equitable requested that theCommission itself act on its motion pursuantto 52 Pa. Code § 5.103(d).

A motion was adopted at the publicmeeting of May 22, to approve the applicationcontingent upon acceptance by Equitable ofthe additional conditions, as stated in themotion, that were proposed by IOGA.

A final order adopting the application, asamended by the supplement to theapplication, and contingent upon acceptanceby Equitable of the additional conditionsproposed by IOGA, as limited by the motion,was adopted on May 22, 2008.


Keystone Connection - Transportation News

www.puc.state.pa.us

Generic TransportationAssessment Investigation

By order entered on Feb. 14, 2008, the Commission initiated aGeneric Investigation Regarding Transportation Assessments and helda technical conference, which was attended by Commissioners andinterested parties, on March 19, 2008. Subsequently, evidentiaryhearings were held before a PUC administrative law judge. Thisproceeding was in response to concerns expressed by the railroadindustry and motor carriers of passengers over significant increases intheir annual assessments for the Fiscal Year (FY) 2007-08 ascompared to the prior fiscal year.

While the total assessment to the transportation industry, includingrailroad, passenger and property carriers, did not differ significantlyfrom recent prior fiscal years, the FY 2007-08 assessmentssignificantly shifted among these utility groups so that property carrierassessments declined while railroad and passenger carrierassessments increased. These allocations were based on a study ofhow PUC employees spend time engaging in regulatory activitiesassociated with each transportation group. Recognizing the difficultythat the affected carriers were facing in paying the significantincreases, the PUC had afforded them more time to pay theirassessments and had given them the option of paying in three equalinstallments.

At the public meeting of June 5, 2008, the Commission adopted anorder approving the methodology used by the Fiscal Office to assessthe three transportation groups. However, the Commission alsorecognized that the general reasonableness of an assessment underSection 510(f) of the Public Utility Code should be measured, to someextent, based on the level of assessments in prior years. Since therailroads and passenger carriers have become accustomed to lowerlevels of assessments over the past five years, the Commission foundthat some additional mitigation was appropriate. Therefore, theCommission opted to forego collection of the third installment, andordered that credits for the third payment would be given to railroadsand passenger carriers who had paid their assessments in full.

On June 20, 2008, the Union Railroad Company and the McKeesportConnecting Railroad Company, and Norfolk Southern Railroad filedpetitions for reconsideration, asking the PUC to reconsider portions ofthe order adopted June 5, 2008. On June 24, 2008, the PUC grantedone petition pending review of and consideration on the merits, so asto preserve the Commission’s jurisdiction over the case. The PUC willaddress the merits of the petition at a meeting later this summer.

Inspections EmphasizeRailroad Worker Safety

During the spring and summer months,there is an increase in construction work onthe highways. The railroad industry operatessimilarly during this time, as “Maintenance ofWay” gangs are busy changing rail, replacingties, and surfacing track to create a smoothand safe roadbed for the trains hauling freightand passengers. Maintenance of Way work-ers operate machinery and use hand tools toaccomplish their work. Just as highwayworkers must be very aware of their surround-ings to maintain a safe work environment, therailroad gangs also need to take steps toestablish a safe work environment since theywork by adjacent tracks with moving trains,while working with very noisy machinery.

Many occupational hazards exist forrailroad roadway workers, so the FederalRailroad Administration (FRA) partnered withlabor unions and the railroad industry tocreate regulations to make the railroad andthe worker responsible for safe workingpractices. Even though there have beensignificant reductions in roadway workerfatalities over the years, accidental deathsstill occur. Most recent incidents could havebeen avoided if good safety practices hadbeen utilized, and if workers were vigilantabout their surroundings. The message thePUC rail safety inspectors attempt to instill inall railroad roadway workers is awareness ofpotential surrounding dangers, and the needto maintain a high level of concentration.

The FRA issued Roadway Worker Life Tipsfollowing an increase in fatalities in 2003.These 14 Life Tips were presented to railroadroadway workers to remind them of thedangers. The PUC continues to conduct LifeTip presentations, along with RoadwayWorker Protection enforcement during everytrack inspection. The FRA recently initiated acountry-wide, four-week “Power Project” toget the Life Tips in the hands and minds ofthe roadway workers. The PUC’s Rail SafetyDivision efforts have led to nearly completecompliance by Maintenance of Way offices inposting Life Tips conspicuously to helpremind employees of their responsibilities.This level of compliance is evidence that thePUC rail safety inspectors have delivered avaluable safety message to the workers.

Keystone Connection

Keystone Connection - Transportaion News


Motor Coach SafetyAlthough bus transportation remains a very safe means

of travel, over the past two years the bus passengerindustry and safety regulators have received criticism dueto some high-profile, but tragic motor coach accidents.The Public Utility Commission’s Motor Carrier Divisionhas been carrying out a structured motor coach safetyprogram since the early 1990s, including driver/vehicleinspections at main office terminals and trip destinationpoints, safety fitness reviews, and safety audit investiga-tions. The Motor Carrier Division is also a participant inthe Federal Motor Carrier Safety Assistance Program(MCSAP), and partners with the Pennsylvania StatePolice, Federal Motor Carrier Safety Administration(FMCSA) and several local police agencies to increasesafety compliance and enforcement of bus transportationin Pennsylvania.

The PUC has issued approximately 300 certificates tocarriers operating motor coaches. The Motor CarrierDivision’s enforcement staff visits at least 25 percent ofthese carriers each year to conduct vehicle inspections ofbuses that are readily available to provide transportationservice. Carriers are cited for out-of-service violations,and return visits are made to verify that serious defectshave been corrected. Inspections of motor coachvehicles and their drivers are also carried out at tripdestinations, such as amusement parks, the Farm Show,and other venues holding special events attracting a highvolume of buses. The Motor Carrier Division’senforcement officers utilize ramps to raise busessufficiently to gain access for examination of theundercarriage components. Drivers and vehicles areplaced out of service if serious violations and/or vehicledefects are found. Drivers and carriers may be issuedtraffic citations for the violations. In addition, enforcementofficers assist in the post-crash investigation of busesinvolved in fatal accidents. Upon notification from thePennsylvania Emergency Management Agency (PEMA),the appropriate PUC district office coordinates with thepolice agency conducting the crash investigation, andresponds to conduct a post-accident inspection of thevehicle. This inspection is a North American Standardinspection of the bus to identify all equipment violations,which may require using specialized equipment toreestablish an air system that powers the foundationbrake system on the bus.

Over the past year, as part of the Motor CarrierDivision’s MCSAP participation, the enforcement staffbegan conducting Federal Compliance Reviews (CR) ofPennsylvania bus companies. The CR is a thoroughaudit of the carrier’s safety records and safetymanagement systems to identify violations. A safetyrating based on the findings is one result of the CR, andthe carrier may be subject to civil prosecution by either or

both the FMCSA and PUC. In November 2007, the firstNortheast Passenger Carrier Strike Force was held. Thisjoint effort involving law enforcement and safety regulatorsfrom 13 states and the District of Columbia resulted inover 1,200 bus inspections, 101 out-of-service vehicledefects discovered, and 50 out-of-service driver violationsidentified. As a result of the success of the Strike Force,additional similar efforts are being planned.

Gas Safety Officials Meetfor Annual Meeting

The National Association of Pipeline SafetyRepresentatives (NAPSR) met from June 5 to 9 inNewport, Rhode Island. Paul Metro attended for thePUC. This meeting is a gathering of 14 Northeast statesand the United States Department of Transportation,Pipeline and Hazardous Material Safety Administration(PHMSA). PHMSA requires each state to send arepresentative to the meeting as part of the federal grantguidelines.

The meeting consisted of four days of roundtable-typediscussions, with the focus on gas safety issues that thestate jurisdictions are currently facing. This year’smeeting highlighted the proposed Distribution IntegrityManagement Program (DIMP), for which a rulemakingshould soon be released by PHMSA. DIMP will requiregas utilities to meet certain metrics associated withDamage Prevention, Operator Qualification, Corrosion,and Pipeline Replacement. Other issues raised duringthe meeting included damage prevention, state programaudits, propane distribution, gathering lines, and thedangers of inside meter sets.

Several hours of the meeting were set aside to discussthe dangers of inside meter sets. A couple ofNortheastern states still permit the installation of insidemeter sets with inside regulators. However, mostNortheast states do not permit the inside meter sets dueto the extreme dangers caused by the service line beingpulled and the meter snapping off the inside wall andallowing medium and high pressure gas into the building.

Another issue discussed at length was the increaseduse of propane distribution systems, as well as theinspection of these systems. Many states, includingPennsylvania, have experienced an increase in propanesystems. Propane has different characteristics fromnatural gas and creates particular personal safetyconcerns for gas safety inspectors.


Keystone Connection - Federal News

FCC Highlights

www.puc.state.pa.us

FERC HIghlights Continued on Page 21.

The Federal CommunicationsCommission (FCC) recentlyissued several importantdecisions that impactPennsylvania.

In the Matter of High-Cost Universal Service,Federal-State Joint Board on Universal Service,CC Docket No. 96-45, WC 05-337.

On May 1, 2008, the FCC released an opinion andorder at Docket No. 96-45 limiting the amount of federaluniversal service fund (FUSF) support that competitiveeligible telecommunications carriers (CETCs) couldreceive from the FUSF. The FCC limited support in eachstate to the support that CETCs were eligible to receiveas of March 2008. The FCC allowed two very limitedexceptions: (1) where a CETC can demonstrate from coststudies that their costs meet the threshold support levelof an incumbent carrier (ILEC); or (2) services provided totribal lands or Alaska native regions.

The PUC already filed comments with the FCC on theFUSF, and urged the FCC to take decisive action to limitthe explosive growth in the FUSF. The PUC is concernedbecause Pennsylvania is a net contributor to the FUSF.Pennsylvania pays $124 million more into the FUSF thanPennsylvania receives from the FUSF.

The overwhelming increase in FUSF support aroseprimarily because wireless carriers get FUSF supportbased on the costs of the incumbent local phonecompanies, primarily rural companies in Pennsylvania.Most carriers, particularly Verizon, pay more than theyreceive in Pennsylvania, and those costs are ultimatelypaid for by Pennsylvania consumers.

Petition of NEP Cellcorp Inc. for Designation as anEligible Telecommunications Carrier in theCommonwealth of Pennsylvania, CC Docket No. 96-45, DA 07-360.

On May 1, 2008, the FCC issued an opinion and ordergranting the request of NEP Cellcorp Inc. (NEP) fordesignation as an eligible telecommunications carrier(ETC). This order permits NEP to obtain federal fundingso that it can provide wireless service in parts ofPennsylvania where such service is currently notavailable. As reported in the Winter/Spring 2008 editionof this newsletter, the PUC had opposed this designationbecause other carriers were already receiving support insome of the areas served by NEP. The PUC further notedthat increasing federal universal service fund costs forwireless service results in an increase in costs toPennsylvania consumers. In granting NEP’s request, theFCC referenced prior PUC secretarial letters that declinedto address ETC designations in Pennsylvania for wirelesscarriers.

NEP is the wireless affiliate of Northeast Telephone, arural telephone company in Pennsylvania. NEP boughtspectrum from another company to provide wirelessservice in territories where it was not available.

Petition of TracFone Wireless Inc. for Designation asan Eligible Telecommunications Carrier in theCommonwealth of Pennsylvania, CC Docket No. 96-45, DA 08-57.

On April 11, 2008, the FCC issued an opinion and ordergranting the request of TracFone Wireless Inc. fordesignation as an ETC. TracFone had sought thisdesignation solely to provide Lifeline service to qualifyingcustomers in Pennsylvania, saying it would offer free, notreduced, wireless service to these customers. The PUChad opposed TracFone’s petition, citing concerns aboutthe increasing federal universal service fund costs toPennsylvania carriers and consumers.

FERC HighlightsThe Federal Energy Regulatory Commission (FERC)

recently issued several important decisions that impactPennsylvania.

PJM Declines to Schedule Dialogue on RPM Issuesat PJM Annual Meeting

On April 22, 2008, in the aftermath of FERC’s rejectionof PJM’s call to boost RPM prices in future auctions(PJM Interconnection L.L.C., FERC Docket ER08-516),an ad hoc coalition of wholesale and retail electricitybuyers, consumer advocates and state commissions,including the Pennsylvania PUC, asked the PJM Board ofManagers and PJM management to schedule an opendialogue discussion at its annual meeting inWilliamsburg, Virginia.

The requested dialogue would have included issuessuch as how PJM management reached its decision tomake the cost of new entry (CONE) increase filing, howthat decision was executed, why clear tariff requirementswere overlooked or ignored, why stakeholder consultationwas left to the last minute, and why PJM told FERC thatthe filing was necessitated by a capacity emergency thatit was later unable to substantiate.

PJM’s CEO Terry Boston responded on April 25,declining to schedule such a dialogue session anddirecting coalition members to address their concernsthrough “available processes and forums.”

Motion for Clarification of FERC/Edison MissionEnergy Settlement

On May 19, 2008, FERC approved a proposedsettlement between the FERC enforcement staff and

Keystone Connection

Keystone Connection - Federal News


FERC HighlightsContinued from Page 20.

Edison Mission Energy Inc. (EME), a major generationsupplier in the Mid-Atlantic Region, calling for EME to pay $7million in civil penalties and other costs as a penalty formisleading FERC’s Office of Enforcement during theinvestigation of EME bidding practices in PJM wholesaleelectricity markets. The FERC order did not make any findingor further order with respect to the underlying investigation –the penalty was levied solely in response to EME’s actions inmisleading and misdirecting investigatory staff.

An ad hoc coalition of wholesale and retail electricitybuyers, consumer advocates and state commissions,including the PUC, filed a motion to intervene and requestedclarification from FERC whether the bidding strategy, ascontained in the FERC consent order, was intended toextinguish any rights under the Federal Power Act ofcustomers to seek recovery of any damages caused byEME’s “high offer strategy.” EME filed a lengthy answer onJuly 3 seeking to have the intervention and request forclarification dismissed; the matter is still pending.

Complaint Filed with FERC Requesting RPM RefundsOn June 2, 2008, four state commissions (Maryland, New

Jersey, Pennsylvania and Delaware), along with the UnitedStates Department of Defense, a number of consumer advo-cates, electric co-ops, utilities, and large customers filed aFERC complaint, supported by an affidavit by a nationallyknown expert in wholesale markets, against PJM’s interimRPM auctions. The complaint alleged that PJM was notcompetitive and produced unjust and unreasonably highcapacity prices. Refunds were requested amounting to $12billion over the first three interim auction period years. PJMwas granted an extension of time in which to answer thecomplaint until July 11, 2008.

Fourth Circuit Amicus Brief in Connecticut PUC v. FERCOn July 2, 2008, the National Association of Regulatory

Utility Commissions, the Organization of MISO States Inc.,and the state regulatory commissions of California,Kentucky, Michigan, Minnesota, New Jersey, New York,North Carolina, Pennsylvania and South Carolina filed anamicus brief supporting the Connecticut Department of PublicUtility Control in its challenge to FERC’s assertion ofjurisdiction over state generation resource adequacy.(Connecticut Department of Public Utility Control v. FERC,Nos. 07-1375, etc. United States Court of Appeals, District ofColumbia Circuit). The brief argues that FERC has gonebeyond its expressly stated Federal Power Act boundariesand that resource adequacy has historically been andcontinues to be a matter solely within state jurisdiction. Thematter remains pending and is likely to be decided in early2009.

Serbian Delegation Visits

From March 31-April 2, a delegation from theEnergy Agency of the Republic of Serbia visited thePUC as a part of a partnership sponsored by theUnited States Agency for International Developmentand the National Association of Regulatory UtilityCommissioners. The delegation, which wascomprised of legal and technical experts, met withseveral members of the PUC staff over the course ofthree days. During this activity, the group discusseda myriad of issues, including cross-border trademechanisms, security of supply, marketdevelopment and monitoring, generation adequacy,transmission system reliability, supplier of lastresort and universal service.

On May 19 and May 20, two interns from Serbiaworked side-by-side with members of the PUC staff.Throughout the week, the interns heardpresentations on a variety of topics, including energyrestructuring, reliability, ratemaking, mediation, costallocation, revenue adjustments and rate of return.

These activities provided learning opportunities forboth agencies. In addition, after hours, the Serbiandelegation and interns enjoyed a variety of CentralPennsylvania attractions.

The Serbian interns learned about the PUC byshadowing members of the Bureau of Fixed UtilityServices (FUS). From left: Bob Wilson, FUSBureau Director; Nebojsa Despotovic, intern; DaleKirkwood, Manager of the Finance/Tariff IndustryGroup; Aca Vuckovic, intern; Dan Searfoorce,Coordinator of the Emergency/Security IndustryGroup; and Sager Patel, Analyst from the Finance/Tariff Industry Group.

Keystone Connection www.puc.state.pa.us

Keystone Connection - Consumer News

22

Annual Service ReportsChapter 64 of the Public Utility Code requires that, within 90 days

after the end of each calendar year, all local exchange carriers (LECs)must file a report of residential account information with theCommission. The reports include the average number of residentialaccounts, average monthly bill amounts, suspensions/terminations,revenues and write-off information.

Based on the reports filed in 2007, the number of residentialaccounts for the nine largest LECs decreased by 6.9 percent from2006. A breakdown shows the major incumbent local exchangecarriers posted a decline of 4.9 percent, while the major competitivelocal exchange carriers recorded a much larger drop of 27.2 percentsince 2006.

Each year, Bureau of Consumer Services (BCS) reports thetermination data filed by the nine largest LECs in the Commission’sUtility Consumer Activities Report and Evaluation (UCARE). This yearterminations fell from 194,508 in 2006 to 130,980 in 2007, a decreaseof approximately 33 percent.

BCS carefully monitors and analyzes these reports to detect trendsin the telecommunications industry concerning residential customers.BCS also makes sure that each LEC submits its report and takesenforcement action against any company that fails to submit itsannual report. This year, most companies filed their reports timely.BCS began enforcement action against the few companies that didnot file timely. All companies have now filed their 2007 reports.

Lifeline Service in PennsylvaniaIn 2007, over 236,700 telephone customers in Pennsylvania received

Lifeline Service. In addition, more than 42,800 telephone customersparticipated in Link-Up America last year. For the first time, statisticsfor each local exchange carrier (LEC) offering Lifeline Service and Link-Up America will be available on the PUC’s Web site atwww.puc.state.pa.us under “Publications and Reports.” TheCommission traditionally publishes this information for the largestLECs in its annual Utility Consumer Activities Report and Evaluation(UCARE). This year, the Commission will make the data available forall LECs that offered these programs to their eligible customers in2007.

Link-Up America (Link-Up) and Lifeline Service (Lifeline) are universalservice programs designed to ensure that low-income consumers haveaccess to telephone service. The programs provide discounts orcredits for service installation and basic telephone services. LECssubmit a yearly report to the PA Public Utility Commission about theparticipation in these programs during the previous calendar year.Verizon PA also reports information about its Universal TelephoneAssistance Program (UTAP).

More information about telephone universal service programs isavailable in the Commission’s 2006 UCARE on the Commission’s Website under “Publications and Reports.”

PUC Reviews ProposedEDC ConsumerEducation Plans

Pursuant to the Commission’s May 17,2007, order, each electric distributioncompany (EDC) under the PUC’sjurisdiction has filed a proposed consumer-education plan that is tailored to theirservice territory. These plans were all filedby the deadline of Dec. 31, 2007.

The Commission has been in theprocess of reviewing each plan, hastentatively approved all nine of thesubmitted plans and has finally approvedfour plans. On May 1, 2008 , theCommission tentatively approved (enteredMay 6) plans for Allegheny Power,Citizens’ Electric Company, PPL ElectricUtilities, and Wellsboro Electric Company.The public comment period for these plansexpired on June 6. Comments were filedfor each plan by the Consumer AdvisoryCouncil (CAC), Office of ConsumerAdvocate (OCA), Office of Small BusinessAdvocate (OSBA), and the PennsylvaniaUtility Law Project (PULP). Additionally,the PPL Industrial Customer Alliance(PPLICA) filed comments on PPL’s planand PPL filed reply comments. TheCommission issued final orders on July 17,2008, (entered July 18, 2008) approvingthese four plans, as modified by the order.

On May 22, 2008, the Commissiontentatively approved PECO EnergyCompany’s education plan. The commentperiod ended on June 22. Comments werefiled by the CAC, the OCA, the OSBA,PULP, and joint comments were filed bythe Reinvestment Fund and AffordableComfort Inc., Citizens for Pennsylvania’sFuture, the Clean Air Council, the EnergyCoordinating Agency of Philadelphia,Maureen Mulligan CommunicationsConsulting, PennEnvironment, and WarrenEnergy Engineering. PECO filed replycomments.

On June 5, 2008, the Commissiontentatively approved plans for DuquesneLight, the FirstEnergy Companies (Met-Ed,Penelec and Penn Power), and UGIUtilities Inc. The comment period for theFirstEnergy Companies and UGI ended

EDC Plans Continued on Page 26.

Keystone Connection

Keystone Connection - Consumer News

Energy Universal Service

23

On Sept. 4, 2007, the PUC initiated tworulemakings to revise its regulations relating touniversal energy service, specifically related toCustomer Assistance Programs (CAPs). CAPsmake electric and natural gas utility service moreaffordable for low-income customers.

One rulemaking order proposed revisions toSections 54.74 and 62.4 (relating to universal serviceand energy conservation reporting). These sectionswere revised and expanded to create a unifiedproceeding that would allow the PUC to approve adistribution company’s CAP design and funding level,to determine the level of recoverable costs, and toestablish a cost recovery mechanism. The proposedregulations also require that a company submit itsuniversal service plan as a tariff filing and that thetariff include rules governing CAP participation,including rules for applying for Low-Income HomeEnergy Assistance Program (LIHEAP) grants tocustomer accounts. Proposed Rulemaking onUniversal Service and Energy ConservationReporting Requirements and Customer AssistancePrograms, Docket No. L-00070186.

The second order from Sept. 4, revised the CAPPolicy Statement at 52 Pa. Code § 69.261 - § 69.267.Changes proposed to the CAP Policy Statementinclude (1) the addition of a statement that CAP fundingdecisions should consider the interests of all residentialcustomers and funding decisions made regarding othersimilar companies; (2) the elimination of enrollmentceilings; (3) the recognition of the companies’ right tofull cost recovery; (4) the establishment of a surcharge,subject to annual reconciliation or prospective quarterlyadjustment, for cost recovery; (5) the revision of CAPcost control features; and (6) the ability of a companyto propose for PUC approval rules related to thecoordination of energy assistance benefits and theapplication of those benefits to a CAP customer’saccount. Proposed Policy Statement on CustomerAssistance Programs, Docket No. M-00072036.

The order revising the CAP Policy Statementrequires a less involved regulatory review processprior to publication, and was published in thePennsylvania Bulletin on Nov. 10, 2007. Commentswere due 60 days later, or on Jan. 9, 2008. Twelvecomments were filed in response. The orderproposing to revise Sections 54.74 and 62.4 waspublished on Feb. 9, 2008. Comments were duewithin 60 days of publication in the PennsylvaniaBulletin. On April 7, 2008, the PUC extended thedeadline for comments to April 18, 2008. Sixteencomments were submitted in response, and may beaccessed on the PUC Web site.

Consumer Decision HighlightsMaureen Christian v. Duquesne LightCompany, Docket No. F-02126762

On May 5, 2008, the Commission entered an orderclarifying that reconnection of service “is governed by Section1407, and nothing in Chapter 14 indicates that CustomerAssistance Program (CAP) customers are excluded from thisrule.” The order further clarified that 66 Pa.C.S. §1407supersedes 52 Pa. Code §56.35 whenever a formerresidential customer who owes an outstanding balance to autility requests reconnection of service at the same or anotherlocation within the utility’s service territory.

In this case, an applicant requested service at a newlocation. The applicant had been on the utility’s CAP programat her prior address and had requested discontinuance at theprior address. She had not defaulted on her CAP programpayments, but two weeks elapsed after the due date of herfinal bill before she applied at the new residence. Duquesne’spolicy is to require payment in full of a past due final bill fromapplicants for new service as a condition for furnishing service(52 Pa. Code §56.35). In its May 5 order, the Commissionnoted that the company should have considered 52 Pa. Code§56.16(b) and transferred the unpaid balance to thecomplainant’s new account without requesting either full orpartial payment for reinstatement of service. With acceptanceback into the CAP program, the PUC ordered application of§1407(c)(2)(iii), which supersedes 52 Pa. Code §56.35, sothe applicant would pay 1/24th of the outstanding balance fromthe old address each month plus her current bills as due.

UCARE Quarterly ReportsIn response to utility company requests for current

numbers on consumer complaints and payment arrange-ment requests, the Bureau of Consumer Services (BCS)prepares a quarterly update to the annual Utility Con-sumer Activities Report and Evaluation (UCARE). Theupdate is published on the PUC’s Web site and providesa streamlined version of data about customer serviceperformance for jurisdictional utilities in the electric, gas,water, and telephone industries that appear in thetraditional UCARE. The latest edition presents data forthe first quarter of 2008.

BCS will publish the information on the PUC’s Web siteevery three months in a rolling year-to-date format. Theupdates provide an overall snapshot of BCS activityincluding the volume of consumer complaints, paymentarrangement requests (PARs) and inquiries. Industryspecific tables show the volume of activity for the majorutilities within the electric, gas, water, and telephoneindustries. The PUC will continue to produce a hard copyof the annual UCARE report as a means of satisfyingstatutory reporting requirements.


Keystone Connection - Commission News

www.puc.state.pa.us

Allegheny Power Retail ElectricDefault Service Program

On Oct. 25, 2007, Allegheny Power filed a petition (Docket No.P-00072342) for approval of its Retail Electric Default Service Programand Competitive Procurement Plan (DSSP) to establish the termsunder which West Penn would supply provider of last resort (POLR)service beginning Jan. 1, 2011. The supply procured under the DSSPmust also satisfy Allegheny Power’s obligations under the AlternativeEnergy Portfolio Standards Act of 2004. The initial program term wasdesigned to last approximately 41 months.

By initial decision issued on May 23, 2008, the administrative lawjudge (ALJ) rejected Allegheny Power’s full-requirements contractapproach to the DSSP and adopted the alternative “full-requirementsbased” procurement plan offered by the Retail Energy SupplyAssociation (RESA). Exceptions to the initial decision were filed byAllegheny Power, the Office of Consumer Advocate (OCA), the PUC’sOffice of Trial Staff (OTS), the Office of Small Business Advocate(OSBA), RESA, Dominion Retail Inc., and Constellation New EnergyInc./Constellation Energy Commodities Group Inc.

Reply exceptions were filed by: Allegheny Power, the OCA, theOTS, the OSBA, Reliant, Dominion, RESA, Constellation, ExelonCorporation, Pennsylvania State University, and West Penn PowerCompany Industrial Intervenors.

The most pressing issue raised in the exceptions is whichprocurement method Allegheny Power may utilize to obtain POLRsupply:(1) Full-requirements contracts;(2) A full-requirements based plan; or(3) A managed portfolio.

The Commission conducted a binding poll on the issues raised onexception at the July 17, 2008, public meeting and determined that amodified version of the full-requirements contract approach is in thepublic interest. To mitigate the impact of price spikes, the planprovides for the purchase of power using 12-, 17- and 29-monthcontracts and spot-market purchases. The plan also includes a rateincrease mitigation option that would allow customers to deferportions of a large rate increase for up to three years. The plancovers default service from Jan. 1, 2011, through May 31, 2013.

On May 22, 2008, the PUC celebratedEmployee Appreciation Day. An EmployeeRecognition Ceremony showcased thededication, professionalism and commitmentthat exists throughout the PUC.

Employees were also recognized for theiryears of service to the state and the PUC.Elaine Deichmiller (left) of the Secretary’sBureau, and David Fischer of Rail Safety, werehonored for their 35 years of service to theCommonwealth.

PUC Holds EmployeeAppreciation Day

Truck Inspections

The PUC’s Motor Carrier EnforcementOfficers held a truck inspection along Route 81in Grantville on June 24, 2008. The PUC’sSafety Committee was invited to observe theEnforcement Officers on the job.

John Bumstead, of the Harrisburg Office, in-spects a tanker truck to see if it is incompliance.

Keystone Connectionwww.puc.state.pa.us 25


PUC Budget ApprovedInfoMAP UpdateE-Filing Coming Soon

After about six months of operating with a new case anddocument management system – InfoMAP (InformationManagement and Access Project), the PUC implementedPhase 2 in early July, adding several new workflows, andmaking various change requests. Staff continues to gainfamiliarity with the new system as the PUC transitions towardan electronic environment that is more automated and lessreliant on paper copies.

Access by external users to information maintained by thePUC has improved significantly over the past several months,with most filings being scanned and published to the Website. Unisys technicians are now focused on developing asystem to allow for electronic filing.

On May 22, the PUC approved final regulations establishingthe rules of the road for parties using the e-filing system. Thefinal regulations, which are scheduled for consideration by theIndependent Regulatory Review Commission on Aug. 7,include the following provisions:• E-filing will be optional;• Qualified documents will be accepted;• No confidential information will be accepted via e-filing;• To file electronically, a user will need to register, create

an ID and a password;• E-filers will receive a confirmation of receipt, along with an

e-confirmation number and link to the document;• Filings must be made in PDF format;• No paper copies need to be filed when the document is

less than 250 pages/5 megabytes;• Only one copy (instead of three) of larger documents

need to be filed; and• Parties accepting e-service will receive notice of the filing

with a link to and brief description of the document.

The PUC plans to implement e-filing in phases through pilotprojects later this year. Anyone interested in participating inthe pilots should send an e-mail to [email protected] e-filing capability is expected by early 2009.

On July 9, 2008, Governor Rendell signed Act 37.Aof 2008 (Senate Bill 1348 or House Bill 2461),approving the PUC’s budget for the fiscal yearstarting on July 1, 2008. This approval provided thePUC with $52,162,000 in state funds and authorizesexpenditures of anticipated federal funds in theamount of $2,564,000. The state funds represent anincrease in operating costs over the prior fiscal yearof $679,000, or about 1.3 percent, to fundcontractually required salary and benefit increasesand cover the costs associated with the relocation ofthe Philadelphia State Office building.

The PUC’s budget is supported by assessmentson utilities on the basis of time spent regulating eachindustry and the operating revenues of eachcompany.

Bench-Bar ConferenceOn May 9, 2008, the Pennsylvania Bar Institute

held its biennial Public Utility Bench-Bar Conferenceat the Crowne Plaza hotel in downtown Harrisburgwith a mix of presentations from lawyers representingboth the public and private sectors. The morningsession of this year’s conference included practicetips from the Office of Administrative Law Judge, anupdate on InfoMAP and a discussion of the impact ofthe 2006 Lobbying Disclosure Act on lawyers’practices before the Commission. The afternoonsession focused on energy issues, with panelsproviding legislative and legal perspectives onpending legislation being considered during theSpecial Session on Energy, and debating whether thecurrent wholesale market is broken.

Take Your Child to Work

On Thursday, April 22, the PUC participated in Take YourChildren to Work Day. The PUC had over 35 children attend theevent. The children were able to shadow the PUC employee thatthey came with, created energy conservation posters, and witnesseda demonstration of a truck inspection. The highlight for mostattendees was the demonstration by the Capitol Police of the drugsniffing dog (right). At the end of the demonstration, everyone wasallowed to pet the dog.

Keystone Connection


National Conference onRegulatory Attorneys

PUC Call Center

www.puc.state.pa.us26

Every year the Commission receives tens ofthousands of calls from utility consumers. Most arecalling to file a complaint against a utility or torequest payment terms to avoid termination ofservice. Others want information, or wish to expressan opinion about a utility-related issue. These callsare handled by the Commission’s Harrisburg andPhiladelphia Call Centers which operate out of theBureau of Consumer Services (BCS). Mitchell Miller,Director of the BCS, summarizes the importance ofthe call centers this way: “To the tens of thousandsof utility consumers that call each year, the 36 callcenter interviewers that handle these contacts areliterally the voice of the Commission. By providingresponsive, efficient, and accountable management ofconsumer contacts, these call center employeesplay a vital role in promoting the Commission’s imageand fulfilling its mission.”

The Commission is mandated by law to receive,investigate, resolve and report annually on utilitycustomer complaints. The Commission decided in2005 to have all call center activities handled byCommission staff instead of through outsourcedcontracts. The Harrisburg Call Center wasestablished in fall 2005, and the Philadelphia Centerwas in operation by winter 2005. The staffs of 18interviewers, in each center, receive ongoingcomprehensive training on proper communicationskills and securing the information necessary toprocess a wide variety of complaints, inquiries, andopinions. Their performance is constantly measuredto ensure timely and proper handling of calls, as wellas accurate data entry.

Overall, the Call Centers have consistentlyperformed better than the goals set for the toll-freelines. For example with respect to data accuracy,the call centers scored 96 percent for the mostcurrent scoring period. Further, the interviewerscorrectly handled complaints based on the informa-tion provided by callers 97.7 percent of the time.These hard-working employees deserve to be com-mended for doing work that has proven to be a benefitto the Commission and the consumers we serve.

The 31st Annual National Conference of RegulatoryAttorneys met in Charleston, South Carolina from June 8through 11. This year’s conference was organized by CherylWalker Davis along with several members of her staff:Kathryn Sophy, Karen Goss and Susan Meehan.Approximately 80 individuals from the United States andCosta Rica were in attendance, including a goodrepresentation from the Pennsylvania PUC. An interestingand broad range of topics was presented from Regulation’sContribution toward Promoting the Public Welfare toDeregulation and Competition in Telecommunications: Arethey Synonymous and What is the Role of the States? Thisyear, special emphasis was given to the water industry; withtwo different panels discussing cross border jurisdiction,water quality, diminished supply and sustainable resources.

End of Fiscal Year StatisticsOver $267 million – that is the amount of utility-requested

revenue increases analyzed by the Office of Trial Staff (OTS)during the period July 1, 2007, to June 30, 2008. This figureencompasses fixed utilities – water/wastewater, electricityand gas. On Page 16, more information can be foundregarding Natural Gas Distribution Companies (NGDCs)requested increases.

Additionally, there are 10 major NGDCs who make annualfilings, commonly referred to as 1307(f) proceedings. Theincrease over the prior year rates for this fiscal year is over$500 million. OTS has submitted over 90 sets of testimonyaddressing general and non-general rate increases, as wellas 1307(f) proceedings.

EDC Consumer Education PlansContinued from Page 22.

July 6 and comments were filed by the CAC, the OCA, theOSBA, and PULP. Both companies have filed replycomments. Duquesne’s comment period was extended toJuly 21 to allow the company to provide additional informationto the Commission and parties. Comments have been filed bythe CAC, the OCA, the OSBA, and PULP.

On July 17, 2008, the Commission tentatively approved(entered July 18) Pike County Light & Power’s educationplan. Pike’s comment period is scheduled to end on Aug. 17.

All filed comments are public and can be found using thedocument search on the Commission’s Web site bysearching the docket number of each case.

The Commission will review each of the comments and willaddress them appropriately in forthcoming final orders. Russell Mayett of the Philadelphia Call Center.

Documents

Keystone Connection in Pennsylvania Utility News Powelson served as the President of the Chester County Robert F. Powelson Wayne E. Gardner New Commissioners Continued on Page 6. 2