PENNSYLVANIA PUBLIC UTLIITY COMMISSION
Harrisburg, PA 17105-3265
Public Meeting held May 22, 2014
Commissioners Present:
Robert F. Powelson, ChairmanJohn F. Coleman, Jr., Vice ChairmanJames H. CawleyPamela A. WitmerGladys M. Brown
Petition of Columbia Gas of Pennsylvania, Inc. for P-2012-2338282 Approval of its Long-Term Infrastructure Improvement Plan
Petition of Columbia Gas of Pennsylvania, Inc. for P-2012-2338282 Approval of a Distribution System Improvement Charge
OPINION AND ORDER
BY THE COMMISSION:
Before the Pennsylvania Public Utility Commission (Commission) for
consideration and disposition are the Exceptions of Columbia Gas of Pennsylvania, Inc.
(Columbia or the Company); the Office of Consumer Advocate (OCA); and The
Pennsylvania State University (Penn State) filed on March 26, 2014, to the
Recommended Decision (R.D.) of Administrative Law Judges (ALJs) Mark A. Hoyer
and Jeffrey A. Watson, issued on March 6, 2014, relative to the above-captioned
proceeding. Columbia and the OCA filed Replies to Exceptions on April 7, 2014. For
the reasons set forth herein, we shall deny the Exceptions filed by Columbia, the OCA,
and Penn State and adopt the Recommended Decision.
I. History of the Proceeding
On February 14, 2012, Governor Corbett signed into law Act 11 of
2012, (Act 11), which amended Chapters 3, 13 and 33 of the Public Utility Code
(Code). 66 Pa. C.S. § 101, et seq. Act 11, inter alia, provides jurisdictional water
and wastewater utilities, electric distribution companies, and natural gas
distribution companies or a city natural gas distribution operation with the ability
to implement a distribution system improvement charge (DSIC) to recover
reasonable and prudent costs incurred to repair, improve, or replace certain eligible
distribution property that is part of the utility’s distribution system. The eligible
property for the utilities is defined in 66 Pa. C.S. § 1351. Act 11 states that, as a
precondition to the implementation of a DSIC, a utility must file a long-term
infrastructure improvement plan (LTIIP) with the Commission. 66 Pa. C.S. §
1352. On August 2, 2012, the Commission entered its Order in Implementation of
Act 11 of 2012, Docket Number M-2012-2293611 (Final Implementation Order),
which established procedures and guidelines necessary to implement Act 11 and
included a Model Tariff for DSIC filings.
On December 7, 2012, Columbia filed its Petition for Approval of its
Long-Term Infrastructure Improvement Plan (LTIIP Petition), and on January 2,
2013, Columbia filed its Petition for Approval of a Distribution System
Improvement Charge (DSIC Petition) (collectively, Petitions), both filed at this
Docket. Columbia’s DSIC Petition included proposed Supplement No. 194 to
Tariff Gas – Pa. P.U.C. No. 9 (Supplement No. 194) to introduce the DSIC Rider
into the Company’s tariff with an effective date of March 3, 2013. The filing was
made pursuant to Section 1353 of the Code, 66 Pa. C.S. § 1353, and in accordance
with the Final Implementation Order.
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On December 27, 2012, Columbia Industrial Intervenors (CII) filed
Comments regarding Columbia’s LTIIP Petition. On January 22, 2013, CII filed a
Petition to Intervene and Answer regarding Columbia’s DSIC Petition.
The OCA filed Comments regarding Columbia’s LTIIP Plan on
January 4, 2013, but did not initially request hearings. Columbia filed Reply
Comments on January 22, 2013, in response to the OCA’s Comments.
On January 22, 2013, the OCA filed a Notice of Intervention, a
Formal Complaint and Public Statement, and an Answer to Columbia’s DSIC
Petition. In its Answer to the Columbia DSIC Petition, the OCA stated that the
Commission should deny Columbia’s Petition as filed, suspend the proposed
Supplement No. 194, and order a full hearing and investigation pursuant to the
OCA’s Complaint.
On January 22, 2013, the Office of Small Business Advocate
(OSBA) filed a Notice of Intervention and an Answer in relation to Columbia’s
DSIC Petition. The OSBA requested hearings and such relief as may be necessary
or appropriate. Also, on January 22, 2013, Penn State filed a Petition to Intervene
in Columbia’s DSIC Petition proceeding.
On January 30, 2013, G. Thomas Smeltzer filed a Formal
Complaint. Letters expressing opposition to the Columbia DSIC were received
from other individual customers.
By Order entered in these proceedings on March 14, 2013 (March
2013 Order), the Commission approved Columbia’s proposed LTIIP Plan and the
DSIC charge, consistent with the terms of the Order. The Commission approved
the DSIC charge subject to refund and recoupment, pending final resolution of the
issues raised in the Parties’ filings and identified in the March 2013 Order. The
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issues identified in the March 2013 Order included: the recovery of costs related
to customer-owned service lines; the impact of accumulated deferred income taxes
associated with DSIC investments; the calculation of the state income tax
component of the DSIC revenue requirement; and the return on equity.
On March 20, 2013, the Commission’s Bureau of Investigation and
Enforcement (I&E) filed a Notice of Appearance. Also on March 20, 2013,
Columbia filed Supplement No. 195 to Tariff Gas – Pa. P.U.C. No. 9 (Supplement
No. 195) in compliance with the March 2013 Order. Supplement No. 195 was
filed to become effective April 1, 2013, and established Columbia’s DSIC at 1.5%
of distribution revenues applicable to bills rendered on and after April 1, 2013.
On March 27, 2013, Columbia filed a revised calculation of the
DSIC to be effective April 1, 2013. This revision incorporated a modification to
the accumulated depreciation used to derive DSIC-eligible plant subject to return,
but did not change the DSIC, which remained at 1.5%. By Secretarial Letter
issued April 9, 2013, the Commission stated that suspension or further
investigation was no longer warranted and that Supplement No. 195 was effective
as of April 1, 2013.
An evidentiary hearing was held on September 19, 2013. The record
consists of a transcript of seventy-four pages and the various testimonies and
exhibits of the Parties.
Main Briefs were filed by Columbia and the OCA on October 24,
2013, and by Penn State on October 25, 2013. Columbia, the OCA, and Penn
State filed Reply Briefs on November 22, 2013. Of the issues identified by the
Commission in the March 2013 Order, only Accumulated Deferred Income Tax
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(ADIT), the calculation of state income taxes, and the OCA’s proposal to modify
the DSIC Tariff language regarding competitive customers remained at issue.1
On December 4, 2013, the ALJs issued a Second Interim Order
Closing the Record in this matter.
In the Recommended Decision, issued on March 6, 2014, the ALJs,
inter alia, approved the DSIC calculation proposed by Columbia and adopted the
OCA’s proposed language to be included in Columbia’s tariff addressing the
application of DSIC to customers with competitive alternatives. R.D. at 39, 64, 75,
78.
As previously noted, Columbia, the OCA, and Penn State filed
Exceptions on March 26, 2014. Also, on March 26, 2014, I&E and CII each filed
a letter indicating that they would not be filing Exceptions. Columbia and the
OCA filed Replies to Exceptions on April 7, 2014. Also, on April 7, 2014, I&E
and CII each filed a letter indicating that they would not be filing Replies to
Exceptions.
II. Background
In its DSIC Petition, Columbia indicated that it has
undertaken a significant distribution system infrastructure evaluation, repair, and
replacement program focused mainly on the portions of its system which were
constructed using cast iron and bare steel pipe. Columbia averred that the DSIC
will enable it to continue this process without the risk of uncertainty or delay.
DSIC Petition at 1. Columbia designated its DSIC-eligible property to include
piping, couplings, gas service lines, valves, excess flow valves, risers, meter bars,
1 See, Columbia’s M.B. at 3 n.1.
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meters, unreimbursed costs related to highway relocation projects, service lines,
and other related capitalized costs. Id. at 4.
Columbia also explained its DSIC calculation in its DSIC Petition
and attached tariff Supplement. Initially, Columbia proposed a DSIC of 1.90%,
which the Company averred was calculated consistent with the Model Tariff in the
Final Implementation Order. DSIC Petition at 4. As noted above, Columbia filed
Supplement No. 195 in compliance with the directives set forth by the
Commission in the March 2013 Order. Supplement No. 195 established a DSIC
of 1.50%. The formula Columbia used for calculation of the DSIC was as follows:
DSIC = (DSI * PTRR)+Dep+e PQR
Where:
DSI = Original cost of eligible distribution system improvement projects net of accrued depreciation.
PTRR = Pre-tax return rate applicable to DSIC-eligible property.Dep = Depreciation expense related to DSIC-eligible property.e = Amount calculated under the annual reconciliation feature or
Commission audit.PQR = Projected quarterly revenues for distribution service
(including all applicable clauses and riders) from existing customers plus revenue from any customers which will be acquired by the beginning of the applicable service period.
Supplement No. 195, First Revised Page No. 179.
In accordance with the Model Tariff and Section 1358 of the Code,
Columbia’s Supplement No. 195 also includes the following customer safeguards:
1. A 5.0% cap on the total amount of revenue that can be collected by Columbia as determined on an annualized basis;
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2. Annual reconciliations performed by Columbia;
3. Audits conducted by the Commission;
4. Customer notice of any changes in the DSIC;
5. A reset of the DSIC to zero as of the effective date of new base rates that include the DSIC-eligible plant; and
6. Provisions for the charge to be set at zero if, in any quarter, Columbia’s most recent earnings report shows that Columbia is earning a rate of return that exceeds the allowable rate of return used to calculate its fixed costs under the DSIC.
Supplement No. 195, First Revised Page No. 180.
As a customer safeguard, the Model Tariff states that the DSIC shall
be applied equally to all customer classes. Columbia added to its Supplement No.
195 a provision which provides the following: “The DSIC shall be applied
equally to all customer classes, except that the Company may reduce or eliminate
the Rider DSIC to any customer with competitive alternatives or potential
competitive alternatives and customers having negotiated contracts with the
Company, if it is reasonably necessary to do so.” Supplement No. 195, First
Revised Page No. 180.
III. Discussion
Based on the positions of the Parties in their Exceptions and Replies to
Exceptions, we will address the following four issues in this Opinion and Order: (1) the
statutory interpretation of Act 11; (2) whether ADIT should be included in the DSIC
calculation; (3) whether a state income tax gross-up should be included in the DSIC
calculation; and (4) the application of the DSIC to customers with competitive
alternatives.
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A. Legal Standards
1. General Legal Standards
As the petitioner or moving party, Columbia has the burden of proof
in this proceeding pursuant to Section 332(a) of the Code. 66 Pa. C.S. § 332(a).
To establish a sufficient case and satisfy the burden of proof, Columbia must
show, by a preponderance of the evidence, that the relief sought is proper under
the circumstances. Samuel J. Lansberry, Inc. v. Pa. PUC, 578 A.2d 600 (Pa.
Cmwlth. 1990), alloc. denied, 529 Pa. 654, 602 A.2d 863 (1992). That is,
Columbia’s evidence must be more convincing, by even the smallest amount, than
that presented by an opposing party. Se-Ling Hosiery, Inc. v. Margulies, 364 Pa.
45, 70 A.2d 854 (1950). Additionally, this Commission’s decision must be
supported by substantial evidence in the record. More is required than a mere
trace of evidence or a suspicion of the existence of a fact sought to be established.
Norfolk & Western Ry. Co. v. Pa. PUC, 489 Pa. 109, 413 A.2d 1037 (1980).
Upon the presentation by Columbia of evidence sufficient to initially
satisfy the burden of proof, the burden of going forward with the evidence to rebut
the evidence of Columbia shifts to the opposing party. If the evidence presented
by the opposing party is of co-equal value or “weight,” the burden of proof has not
been satisfied. Columbia now has to provide some additional evidence to rebut
that of the opposing party. Burleson v. Pa. PUC, 443 A.2d 1373 (Pa. Cmwlth.
1982), aff’d, 501 Pa. 433, 461 A.2d 1234 (1983). While the burden of going
forward with the evidence may shift back and forth during a proceeding, the
burden of proof never shifts. The burden of proof always remains on the party
seeking affirmative relief from the Commission. Milkie v. Pa. PUC, 768 A.2d
1217 (Pa. Cmwlth. 2001).
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The ALJs reached fifteen Conclusions of Law. R.D. at 75-78. The
Conclusions of Law are incorporated herein by reference and are adopted without
comment unless they are either expressly or by necessary implication rejected or
modified by this Opinion and Order.
Before addressing the Exceptions, we note that any issue or
Exception that we do not specifically delineate shall be deemed to have been duly
considered and denied without further discussion. The Commission is not
required to consider expressly or at length each contention or argument raised by
the parties. Consolidated Rail Corp. v. Pa. PUC, 625 A.2d 741 (Pa. Cmwlth.
1993); also see, generally, University of Pennsylvania v. Pa. PUC , 485 A.2d 1217
(Pa. Cmwlth. 1984).
2. Act 11 Legal Standards Applicable to this Proceeding
Section 1350 of the Code, 66 Pa. C.S. § 1350, establishes a DSIC
mechanism that allows certain utilities, including electric distribution companies;
natural gas distribution companies (NGDCs); city natural gas operations; and
water and wastewater companies, with distribution or collection systems to
recover the costs related to the repair, improvement, and replacement of eligible
property outside of a rate case.2 Section 1351 of the Code sets forth the definitions
for “eligible property” for each utility type, including NGDCs. 66 Pa. C.S. §
1351. Section 1353(a) of the Code allows a utility to petition the Commission for
approval of a DSIC “to provide for the timely recovery of the reasonable and
prudent costs incurred to repair, improve or replace eligible property in order to
2 The separate DSIC provisions in Section 1307(g) of the Code, which provided for a sliding scale of rates for water utilities, were repealed by Act 11.
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ensure and maintain adequate, efficient, safe, reliable and reasonable service.” 66
Pa. C.S. § 1353(a).
Section 1357 of the Code addresses, in detail, the elements of the
DSIC computation. The DSIC calculation is described as follows:
(d) Calculation.
(1) The distribution system improvement charge shall be expressed as a percentage carried to two decimal places and shall be applied in a manner consistent with section 1358 (relating to customer protections) to each customer under the utility's applicable rates and charges. The charge shall not be applied to amounts billed for public fire protection service by water utilities and the State tax adjustment surcharge.
(2) The distribution system improvement charge shall be calculated by dividing one-fourth of the annual fixed costs associated with all eligible property under the distribution system improvement charge by the projected revenue for the quarterly period during which the distribution system will be collected. The projected revenues shall not include revenues from public fire protection service earned by water utilities and the State tax adjustment surcharge.
(3) Supporting data for each quarterly update shall be filed with the commission and served upon the commission, the Office of Consumer Advocate and the Office of Small Business Advocate at least ten days prior to the effective date of the update.
66 Pa. C.S. § 1357(d).
Finally, Section 1358 of the Code provides various customer
protections. Section 1358(a)(1), 66 Pa. C.S. § 1358(a)(1), establishes a general
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rate cap. That Section provides that a DSIC may not exceed 5% of distribution
rates billed for natural gas utilities; however, upon petition, the Commission may
grant a waiver of the 5% limit if necessary to ensure and maintain adequate,
efficient, safe, reliable, and reasonable service. Under certain circumstances,
Section 1358(b) requires that a DSIC rate be reset to zero. After a reset, only fixed
costs of new eligible property not previously reflected in base rates may be
reflected in a quarterly DSIC update. The DSIC rate is reset to zero if new base
rates are established. 66 Pa. C.S. § 1358(b)(1). For investor-owned utilities, reset
is also required if, in any quarter, data filed with the Commission in the utility’s
most recent annual or quarterly earnings report show that the utility will earn a rate
of return that would exceed the allowable rate of return used to calculate its fixed
costs under the DSIC. 66 Pa. C.S. § 1358(b)(3).
Section 1358(c) of the Code, 66 Pa. C.S. § 1358(c), provides that, absent an
express limitation on existing ratemaking authority, the Commission retains its full and
existing ratemaking authority. Accordingly, the Commission has the full power and
authority under the Code to examine, investigate, and audit any and all aspects regarding
the data, operation, and implementation of the DSIC to the same extent that it would
review a non-DSIC rate matter. As such, Section 1301 of the Code, which requires that
“[e]very rate made, demanded, or received by any public utility … shall be just and
reasonable, and in conformity with regulations or orders of the commission,” applies to
the DSIC rate in this proceeding. Section 1358(e) requires that all DSICs shall be subject
to audits by the Commission and annual reconciliation based on a period consisting of the
twelve months ending December 31 of each year. 66 Pa. C.S. § 1358(e)(1)(i), (ii).
B. Statutory Interpretation of Act 11
1. Positions of the Parties
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Columbia did not include an adjustment to DSIC eligible plant for
ADIT in its DSIC filing. Columbia stated that the inclusion of ADIT in the DSIC
calculation was not supported by Act 11 or the evidence in this proceeding.
Columbia M.B. at 4. Columbia averred that the inclusion of ADIT contradicted
the plain language of Act 11 as well as the intent of the General Assembly. Id. at
4-5. Columbia also averred that the General Assembly intended that the DSIC
provisions in Act 11 follow the prior method for calculating water DSICs which
have been in effect for over sixteen years. Columbia contended that the legislative
history showed that the General Assembly rejected a proposal to amend the water
DSIC mechanism to include tax benefits in the DSIC calculation. Id. at 5.
The OCA averred that there is no requirement that the water DSIC
model be followed for electric, natural gas, and wastewater companies, otherwise,
the General Assembly could have simply amended Section 1307(g) to include
these other utilities. The OCA explained that there are several provisions in Act
11 where water utilities remain subject to different treatment. For example, the
OCA stated that the General Assembly provided a specific DSIC cap of 5% of
distribution rates for wastewater and electric distribution and natural gas
distribution companies in Section 1358(a)(1), whereas the cap for water companies
is set at 7.5% in Section 1358(a)(2). The OCA also pointed out that Act 11 states
that Commission rules and Orders relating to DSICs established prior to Act 11
remain in effect only for the water utilities, while also giving the Commission
authority to amend or revoke the Orders. OCA R.B. at 5-6 (citing 66 Pa. C.S. §
1358(a)(2)). According to the OCA, the language in Section 1358(a)(2)
demonstrates that the General Assembly did not intend for the Commission’s
existing DSIC rules and procedures for water companies to automatically apply to
NGDCs. OCA R.B. at 6.
2. ALJs’ Recommendation
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The ALJs found that, based on a review of the plain language of Act 11 and
its legislative history, while the General Assembly relied on the water DSIC mechanism
in enacting the Act 11 DSIC mechanism, the General Assembly intended to leave the
technical mechanics of the DSIC calculation to the Commission, including the task of
determining specific provisions, such as ADIT and the state tax gross-up. The ALJs
concluded that a specific intent to incorporate the tax modifications recommended by the
OCA could not be determined by a review of the plain meaning of the statute or the
legislative intent. R.D. at 22. The ALJs similarly concluded that, based on the record,
Columbia’s position that the General Assembly intended for the Commission to
automatically adopt the DSIC formula historically used by water utilities was not
included in the plain meaning of Act 11 or Act 11’s legislative history. Id. at 23. The
ALJs determined that the General Assembly authorized the Commission to determine the
method of calculating the DSIC provisions of Act 11 and that, accordingly, consideration
must be given to whether the OCA’s proposals concerning ADIT and the state income tax
gross-up would conform to the Commission’s intent and direction. Id. at 23-24.
3. Exceptions and Replies
While Columbia supports the ALJs’ conclusions and
recommendations related to the calculation of the DSIC, it has filed one Exception
in support of an alternative legal basis to reject the OCA’s proposed adjustments
to the DSIC calculation. Columbia Exc. at 1-2. Specifically, Columbia avers that
the Recommended Decision erred by concluding that the General Assembly did
not specifically adopt the Commission’s well-designed water utility DSIC
mechanism, including that mechanism’s treatment of ADIT and the state income
tax gross-up, in the calculation of the charge. Columbia asserts that it presented
clear evidence that the General Assembly intended to codify the calculation of the
DSIC developed by the Commission and applied to the water utilities. Id. at 2.
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Columbia states that, in order to codify the existing calculation of the water DSIC,
the General Assembly had to include the language of the water DSIC model tariff3
in the language of Act 11. Columbia believes that, based on a comparison of the
plain language of Act 11 and the Commission’s historic water DSIC, the General
Assembly did just that. Id. at 4.
Columbia states that its witness, Nancy Krajovic, identified that the
language regarding the calculation of the DSIC in the Commission’s historic water DSIC
and in Section 1357(b)(1) of the Code is almost identical. Id. (citing Columbia St. 1-R
at 2; Columbia Exh. NJDK-R1). Columbia also states that a comparison of the DSIC
charge mechanism under Sections 1357 and 1358 of the Code with the formula
established by the Commission for the water utility DSIC additionally shows that the
General Assembly specifically adopted the Commission’s previous water DSIC formula,
both with regard to the calculation of the charge and the addition of critical customer
protections, such as the earnings cap. Columbia avers that it is clear that the General
Assembly intended to codify the exact language the Commission has used in calculating
the water DSIC, otherwise, the General Assembly would merely have included all
utilities in the prior Section 1307(g) of the Code. Columbia Exc. at 5.
Columbia opines that the legislative history also supports that the General
Assembly sought to codify the Commission’s historic water DSIC because House Bill
1294, which eventually became Act 11, was amended to “memorialize in statute the
current PUC procedure and process used to evaluate water utility requests for DSIC.” Id.
(quoting Columbia Exh. NJDK-R3, 2012 Legisl. Journal - House at 155 (Feb. 7, 2012)).
Columbia states that the legislative history also clearly reflects that the General Assembly
considered modifications to the historic water DSIC language which would have
3 The water DSIC was first implemented by the Commission in 1997. When the Commission implemented the DSIC, it provided the water utilities with model tariff language. Columbia Exh. NJDK-R1.
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incorporated tax benefits and rejected those modifications. Columbia Exc. at 6 (citing
Columbia Exh. NJDK-R3, 2011 Legisl. Journal – House at 1909-1911 (Oct. 3, 2011)).
As such, Columbia concludes that the General Assembly did not intend to include in
Act 11 purported tax benefits, such as ADIT or the elimination of the state income tax
gross-up. Columbia Exc. at 6. Columbia avers that, while the Recommended Decision
correctly concludes that the OCA’s proposed adjustments concerning ADIT and the state
income tax gross-up are not necessary to produce just and reasonable rates, the
Recommended Decision also should have concluded that the General Assembly intended
to embrace the Commission’s historic water DSIC calculation. Columbia requests that
the Commission modify the Recommended Decision to conclude that the General
Assembly codified the Commission’s historic water DSIC calculation.
In its Replies to Exceptions, the OCA states that it is clear from the
plain language of the statute that the General Assembly did not mandate that the
model water tariff be applied to all utilities or prevent the Commission from
applying appropriate ratemaking standards consistent with Chapter 13 of the Code.
OCA R. Exc. at 3. The OCA avers that, instead, the General Assembly provided,
that for water utilities only, existing Orders and practices can stand, but the
Commission has the authority to amend or revoke any of its Orders and actions
related to a DSIC granted under Section 1307(g). Id. at 4 (citing 66 Pa. C.S. §
1358(a)(2)). The OCA points out that the General Assembly also specified that,
unless provided otherwise, the statutory provisions regarding the computation of
the DSIC and the customer protection provisions shall not be construed as limiting
the Commission’s existing ratemaking authority. OCA R. Exc. at 4 (citing R.D. at
22; 66 Pa. C.S. § 1358(c)). The OCA agrees with the ALJs’ conclusion that, while
the intent of the General Assembly was to adopt a mechanism similar to the DSIC
formula used by water utilities, the plain language of the statute does not require
the Commission to automatically adopt that formula. OCA R. Exc. at 4 (citing
R.D. at 22-23). Additionally, the OCA avers that the ALJs correctly determined
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that the legislative history does not support a conclusion that the General
Assembly intended the Commission to be limited to following the exact
procedures used in water DSIC proceedings, as the statute authorizes the
Commission to determine the method of calculating the DSIC provisions of Act
11. OCA R. Exc. at 5 (citing R.D. at 23-24).
In response to Columbia’s arguments regarding House Bill 1294, the OCA
contends that the statement relied upon by the Company was made in the context of
describing specific Senate amendments to the Bill and distinguishing those amendments
from the House version, as Representative Godshall explained that “[m]any of the Senate
amendments are not substantively different than the provisions of the House-passed bill,
where other Senate amendments memorialize in statute the current PUC procedure and
process used to evaluate water utility requests for a DSIC.” OCA R. Exc. at 6 (quoting
2012 Legisl. Journal – House at 155 (Feb. 7, 2012)). The OCA avers that this statement
does not indicate that all procedures for water utilities were to be included in the Bill or
that the Commission must follow the procedures used in water DSIC proceedings. The
OCA also disagrees with Columbia’s position that the General Assembly specifically
considered and rejected the OCA’s tax-related proposals. OCA R. Exc. at 6. The OCA
states that the House discussion related to an amendment proposed to limit DSIC
recovery to “net increases” in eligible property and did not discuss the issue of the
appropriate calculation of taxes related to the plant that is being recovered in the DSIC
rate that is at issue in this case. The OCA asserts that Columbia’s position ignores the
response of Representative Reichley, who stated that the details of the DSIC
implementation should be left to the expertise of the Commission. Id. (citing 2011
Legisl. Journal – House at 1909 (Oct. 3, 2011)).
4. Disposition
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Based on our review of the record in this proceeding and the positions of
the Parties, we concur with the ALJs’ conclusion that, “based upon the record in this
matter, Columbia’s assertion that the General Assembly intended for the Commission to
automatically adopt the DSIC formula used by water utilities [wa]s not mandated by the
plain meaning of Act 11 or the Act’s legislative history.” R.D. at 22-23. In interpreting a
statute, the best indication of legislative intent is the plain language of the statute.
Commonwealth v. Fithian, 599 Pa. 180, 961 A.2d 66, 74 (2008). The Statutory
Construction Act provides that, “[w]hen the words of a statute are clear and free from all
ambiguity, the letter of it is not to be disregarded under the pretext of pursuing its spirit.”
1 Pa. C.S. § 1921(b). When the words of a statute are not explicit, a ruling body may
consider, among other things, the contemporaneous legislative history. 1 Pa. C.S.
§ 1921(c)(7). Legislative history may include previous drafts of bills, as well as
statements made by legislators during the statute’s enactment. Commonwealth v. Wilson,
529 Pa. 268, 275-276, 602 A.2d 1290, 1294-1295 (1992). While statements made by
legislators during the statute’s enactment may be properly considered as part of the
contemporaneous legislative history, such statements are not dispositive of legislative
intent. Commonwealth v. Alcoa Properties, Inc., 440 Pa. 42, 46 n.1, 269 A.2d 748,
750 n.1 (1970).
In this case, the plain language of the statute does not require the
Commission to automatically adopt the DSIC formula used by water utilities. Rather, it
is clear from the plain language of the statute that the General Assembly intended to
authorize the Commission to retain its full ratemaking authority and to establish the
technical mechanics of the DSIC calculation. For example, Section 1358(c) of the Code,
relating to construction of the statute, expressly provides as follows:
Except as otherwise expressly provided under this subchapter, nothing under this subchapter shall be construed as limiting the existing ratemaking authority of the commission, including the authority to permit recovery of operating
16
expenses through an automatic adjustment clause, or as indicating that the existing authority of the commission over rate structure or design is limited.
As such, the Commission has the power and authority under the Code to examine,
investigate, and audit all aspects of the data, operation, and implementation of the DSIC
to the same extent it would have in reviewing a non-DSIC rate issue. See, Final
Implementation Order at 44. Additionally, Section 1358(d) of the Code states that the
Commission shall establish the specific procedures to be followed for approval of a
DSIC.
While Columbia has presented evidence that language from the
water DSIC model tariff was included in Act 11, there is no evidence that the
General Assembly intended that the Commission be required to automatically
adopt all aspects of the DSIC formula used by water utilities. Such a conclusion
would be contrary to the plain language of the statute, which provides the
Commission with authority and discretion in determining the method of
calculating the DSIC provisions of Act 11. Rather, the evidence indicates that the
General Assembly intended to adopt a mechanism similar to the DSIC formula
used by water utilities, while leaving the technicalities of the DSIC to the expertise
of the Commission.
For instance, when discussing Senate amendments to the Bill and
comparing them to the House version of the Bill, Representative Godshall stated
that “[m]any of the Senate amendments are not substantively different than the
provisions of the House-passed bill, where other Senate amendments memorialize
in statute the current PUC procedure and process used to evaluate water utility
requests for a DSIC.” Columbia Exh. NJDK-R3, 2012 Legisl. Journal - House at
155. While this statement can be read as indicating that some of the Senate
amendments incorporated the Commission’s current procedure for evaluating
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water utility DSIC requests, it cannot be interpreted as a specific and express
adoption of the Commission’s water utility DSIC mechanism, including that
mechanism’s treatment of ADIT and the state income tax gross-up in the
calculation of the charge. Additionally, we agree with the OCA that there is no
indication that the General Assembly specifically considered and rejected the
OCA’s tax-related proposals. Rather, the House discussion related to an
amendment proposed to limit DSIC recovery to “net increases” in capital and did
not address the appropriate calculation of taxes related to the plant that is being
recovered in the DSIC rate that is relevant in this case. As such, we cannot
conclude, based on the evidence in this proceeding, that that the General Assembly
intended that the Commission automatically adopt the DSIC formula historically
used by water utilities. For these reasons, we shall deny Columbia’s Exception on
this issue.
18
C. Inclusion of ADIT Adjustment
1. Positions of the Parties
The OCA proposed that Columbia’s DSIC calculation be revised to
recognize the balance of ADIT associated with DSIC-eligible plant in order to ensure that
Columbia does not earn a return on dollars that its shareholders did not invest. OCA
M.B. at 13. The OCA explained that ADIT arises because, under the United States
Internal Revenue Code, Columbia is allowed to take tax deductions for accelerated and
bonus depreciation that significantly reduce the income on which it must pay income
taxes. However, the OCA also explained that income taxes for ratemaking purposes are
calculated using book depreciation instead of tax depreciation as a deduction, resulting in
a difference between taxes actually paid and taxes used for ratemaking purposes. This
difference generates deferred income taxes, and ADIT is the cumulative balance of the
deferred taxes generated over time. The OCA further explained that ADIT represents a
source of zero-cost capital because the Company has paid less in taxes to the federal
government than it has collected in rates. The OCA pointed out that, under standard
ratemaking practice, the balance of ADIT is recognized as a source of zero-cost capital,
as it is in Pennsylvania and most other states, or included in capital structure with a zero
cost. Id. at 15; OCA St. 1 at 5.
19
The OCA contended that ADIT must be recognized in calculating the rate
base to which the DSIC pre-tax return rate will apply, consistent with standard
ratemaking practice. According to the OCA, if the balance of ADIT is not recognized,
Columbia will be allowed to earn a return on DSIC plant by incorrectly assuming that all
of that plant was paid for with investor-supplied capital, when, in fact, it was partially
paid for with zero-cost capital in the form of deferred taxes. OCA M.B. at 18; OCA St. 1
at 6. The OCA argued that recognizing ADIT is consistent with Section 1353 of the
Code, which provides for the recovery of costs “incurred” by the utility. OCA M.B.
at 19, 28 (citing 66 Pa. C.S. §§ 1353, 1357(a)(3)).4 In addition, the OCA argued that,
through the provisions of Act 11, the General Assembly gave the Commission authority
to include an ADIT adjustment in the DSIC calculation. OCA M.B. at 28-29 (citing
66 Pa. C.S. §§ 1357(c), 1358(a)(2), 1358(c)).
Columbia objected to the OCA’s proposal to include an adjustment for
ADIT in its DSIC rate base calculation. Columbia asserted that the General Assembly
intended to adopt the DSIC formula previously used by water utilities, which did not
include a deduction for ADIT. Columbia M.B. at 8-10. Moreover, Columbia argued that
the Commission, in its Final Implementation Order, declined to include an adjustment for
ADIT because: (1) the DSIC mechanism was intended to be straightforward and easy to
calculate; (2) the water DSIC historically did not include ADIT; and (3) ADIT is already
accounted for as part of the earnings cap under Section 1358(b)(3) of the Code. Id. at 14.
4 The OCA noted that Columbia is currently in a “loss carryforward position,” meaning that it has unutilized federal net operating losses, largely due to the new Internal Revenue Service repair allowance rules and bonus depreciation. As a result, the OCA explained, Columbia will not be able to take the tax deductions attributable to the DSIC plant until a future date, when it once again has taxable income. However, it is the OCA’s position that ADIT must still be recognized in the DSIC formula in order to ensure that, when Columbia does have taxable income and realizes a cash benefit from the ADIT funds, the DSIC rate base will be reduced so that ratepayers will not be required to pay a return on those taxpayer-supplied funds. OCA M.B. at 19.
20
Columbia contended that the purpose of a surcharge mechanism is to
establish a simple adjustment mechanism that does not require examination of every
component that would be considered in a full base rate case proceeding. Id. at 14-15.
According to Columbia, the inclusion of an ADIT adjustment would add unneeded
complexity to the DSIC calculation for a number of reasons. Id. at 15. First, Columbia
asserted that its current tax loss carryforward position can recur in the future at any time,
thereby complicating the determination of ADIT. Id. at 16. In addition, Columbia
argued that, due to the seasonal nature of the gas utility business and the differing
deductions available, the Company’s actual tax status cannot be known until after the end
of the tax year. However, according to Columbia, since the DSIC is calculated quarterly,
any determination of ADIT would involve estimates that would require subsequent true-
ups, which would be inconsistent with the straightforward calculation intended for the
DSIC. Id. at 16-17. Columbia further contended that the determination of any ADIT
deductions is complicated by the fact that the ADIT balance may decline when book
depreciation deductions exceed tax deductions (known as the “turnaround point”), which
can offset any new ADIT balances created from new DSIC-eligible plant. Id. at 17.
21
Finally, Columbia argued that the impact of ADIT is already factored into
the DSIC through the calculation of the earnings cap, as the Commission stated in its
Final Implementation Order. Id. Columbia noted that, under the earnings cap provision
of Act 11, its DSIC will be reset to zero if the data included in the most recent annual or
quarterly earnings report filed with the Commission shows that Columbia would earn a
rate of return that would exceed the allowable rate of return used to calculate its fixed
costs under the DSIC as described in the pre-tax return section. Columbia averred that its
calculation of rate base for earnings report purposes includes the current book amount of
ADIT. Therefore, Columbia stated that, in order for it to get the benefit of a DSIC, it
must be in an under-earning position after taking into consideration the tax matters the
OCA is concerned about. Columbia concluded that, since earnings are reviewed
quarterly, the earnings cap adequately addresses the concern associated with ADIT for
plant additions under the DSIC, without the complication of reviewing these issues in
each quarterly DSIC filing. Id. at 17-18.
2. ALJs’ Recommendation
In their Recommended Decision, the ALJs concluded that no persuasive
evidence had been presented in this proceeding to justify the inclusion of ADIT in the
DSIC calculation. R.D. at 39, 40, 42, 44, 49. The ALJs found that the arguments
advanced by Columbia were consistent with the position taken by the Commission in the
Final Implementation Order, in which the Commission declined to adopt the OCA’s
proposal to include an ADIT adjustment in the DSIC calculation. Id. at 39-40 (citing
Final Implementation Order at 39).
22
The ALJs agreed with Columbia that the ADIT adjustment is not easy to
calculate, and that its inclusion in the DSIC could invite litigation over the Company’s
past, present, and future tax status, something the Commission attempted to avoid when
enacting its Final Implementation Order. R.D. at 40. The ALJs found that any
determination of ADIT would involve estimates that would require subsequent true-ups,
which would be inconsistent with the straightforward calculation intended for the DSIC.
Id. at 41. The ALJs noted that, in the Final Implementation Order, the Commission
explained that ADIT and a number of other ratemaking elements associated with DSIC-
eligible property are accounted for in the normal base rate case process, and found that
the DSIC is intended to be a straightforward mechanism that is easy to calculate and audit
and does not require a full rate case analysis. The ALJs further noted the Commission’s
finding that an ADIT adjustment would be inconsistent with that goal and would likely
invite litigation over its calculation. Id. (citing Final Implementation Order at 39). The
ALJs also noted the Commission’s observation that the water DSIC, which had been used
successfully for over fifteen years, did not include an ADIT adjustment. R.D. at 44.
In addition, the ALJs noted the Commission’s finding that consumers
would remain protected against over-earnings by the earnings cap under Section 1358(b)
(3) of the Code, which “captures the revenue impact of all other adjustments and insures
that the DSIC does not result in unreasonable rates.” Id. at 45 (quoting Final
Implementation Order at 39). The ALJs agreed with Columbia that the impact of ADIT
is already accounted for in the DSIC through the calculation of the earnings cap, which
takes into consideration the various factors that would be identified in a Section 1308(d)
proceeding. R.D. at 42-44.
23
The ALJs noted the OCA’s position that, without the ADIT adjustment, the
DSIC rate would not be just and reasonable, and that the earnings cap provisions are not
relevant in that regard. However, the ALJs stated that, “in Pennsylvania, a rate is defined
as more than just the individual components of the mechanism, but rather the entire
mechanism and all rules and regulations associated with it.” Id. at 45. Thus, the ALJs
asserted that the entirety of the rate is to be considered when determining whether or not
the rate is just and reasonable, and not simply the individual components of the rate. Id.
The ALJs found that, in assessing whether the DSIC is just and reasonable, the DSIC rate
and the limiting provisions of the customer protections, including the rate cap, must be
considered together. Id. at 49.
In support of the conclusion that the total effect of the rate must be
considered in determining whether the DSIC is just and reasonable, the ALJs cited to
Duquesne Light Co. v. Barasch, 488 U.S. 299 (1989) (Duquesne), in which the Supreme
Court of the United States found that the disallowance of a single element is not the
appropriate standard for determining whether rates are just and reasonable, and that there
is no single theory of valuation that produces just and reasonable rates. Id. at 45-46
(citing Duquesne at 314, 316). Consistent with Duquesne, the ALJs concluded that there
is no single way to arrive at just and reasonable rates, and that the determination of
whether rates are just and reasonable should involve consideration of the total effect of
the rates. R.D. at 46. In addition, the ALJs stated that Pennsylvania courts have reached
similar determinations, asserting that, in Popowsky v. PUC, 683 A.2d 958 (Pa. Cmwlth.
1996) (Equitable), the Commonwealth Court concluded that the Commission could
determine whether a non-general rate increase was just and reasonable based upon
findings concerning the utility’s rate of return and offsetting savings, without the need for
a full rate calculation that would be associated with a base rate proceeding under Section
1308(d). Id. at 46-47.
24
The ALJs also noted the OCA’s reliance on the practice of utilities in other
states to support its argument to include an ADIT adjustment in the DSIC. The ALJs
determined that, even if a review of the practices of other states was appropriate in
interpreting the Pennsylvania statute in this proceeding, the mechanisms in other states
vary significantly from the Pennsylvania DSIC, and would provide no relevant guidance
in judging the reasonableness of the proposed ADIT adjustment. Id. at 47.
The ALJs also found that directing Columbia to include an ADIT
adjustment to the DSIC would add requirements to the Act 11 statute that were not
included by the General Assembly, or intended by the Commission. Id. at 48. The ALJs
agreed with Columbia that, because the DSIC surcharge mechanism is an exception to the
traditional base rate procedures, correct statutory interpretation requires that the
adjudicating body look at what has expressly been provided in the statute. Id. (citing
1 Pa. C.S. § 1921(b)). According to the ALJs, the plain language of the statute does not
provide for the OCA’s proposed ADIT adjustment, and a review of the legislative history
does not support such an adjustment. In support of this conclusion, the ALJs stated that
the General Assembly rejected an amendment that would have included tax benefits in
the calculation of the DSIC, such as ADIT and accelerated tax depreciation adjustments.
Id. at 48. With regard to the OCA’s argument that the General Assembly gave the
Commission authority to adjust the methodology for calculating the DSIC, the ALJs
found that the OCA offered no basis under the rules of statutory interpretation to alter the
General Assembly’s authorized exception to base rate procedures as set forth in Act 11.
Id. at 49.
25
The ALJs concluded that there is no evidence in the record that supports the
position that including an ADIT adjustment in the DSIC calculation was intended by the
General Assembly or the Commission, or that such an adjustment is necessary to ensure
that the proposed rate is just and reasonable. Id. at 49. Accordingly, the ALJs
recommended that the OCA’s proposal to include the ADIT adjustment be rejected. Id.
at 48.
3. Exceptions and Replies
In its first Exception, the OCA asserts that Act 11 specifies that the DSIC
shall recover only costs incurred by the utility, and therefore, Columbia must change its
tariff so that its DSIC reflects ADIT as an offset to the DSIC rate base. According to the
OCA, this ADIT offset is necessary so that ratepayers do not pay a return on funds that
were not supplied by investors. OCA Exc. at 3-4. Therefore, the OCA disagrees with the
ALJs’ recommendation that its proposal be rejected, and takes issue with a number of the
ALJs’ findings and conclusions, as follows.
a. Evidence for Inclusion of ADIT
First, the OCA disputes the ALJs’ finding that no persuasive evidence was
presented to justify the inclusion of ADIT in the DSIC calculation. The OCA asserts that
the record contains compelling evidence in support of its position. Specifically, the OCA
states that, for the first time since the passage of Act 11, the DSIC-related ADIT has been
quantified at $7.9 million for Columbia’s plant investment in one quarter, which means
that nearly one third of Columbia’s DSIC investment in that quarter would be offset by
ADIT if the Company was not in a loss carryforward position.5 OCA Exc. at 4.
5 The OCA states that Columbia expects to have utilized its federal net operating losses sometime in 2014. OCA Exc. at 4.
26
The OCA also contends that the evidence shows that the amount of DSIC-
related ADIT will likely increase because Columbia plans to increase its pace of
replacement during the 2013 to 2017 period, as compared to prior periods. While
Columbia suggested that DSIC-related ADIT would be offset by declining ADIT on plant
already reflected in base rates, the OCA argues that such an offset will occur only if
Columbia does not continue to repair, replace, or improve plant. The OCA states that, if
Columbia does not repair, replace, or improve plant, it will not be eligible to recover any
costs through the DSIC. OCA Exc. at 4. Moreover, the OCA argues that the effect of
overstating the DSIC by not recognizing ADIT will be amplified because the Act 11
DSIC will be applied to natural gas, electric, and wastewater bills as well as to water
bills. In addition, the OCA asserts that some customers will pay a DSIC on multiple
utility bills. Id. at 5.
In addition, the OCA argues that Columbia’s own witness, Nancy Krajovic,
proposed to include ADIT in the DSIC calculation of Columbia’s sister utility in
Maryland. According to the OCA, Ms. Krajovic testified that the rate base to be used for
the infrastructure surcharge in Maryland should be calculated in the same manner as rate
base would be calculated in a base rate proceeding. Id. (citing OCA Cross Exam. Exh. 1
at 12). The OCA concludes that this evidence supports its position that recognition of
ADIT is necessary to correctly calculate surcharge rate base, and that ADIT can be
readily calculated for surcharge purposes. OCA Exc. at 5.
In response, Columbia asserts that the OCA’s contention that the
Company’s DSIC calculation must be modified to include an adjustment for ADIT fails
to acknowledge that the General Assembly has the authority to establish just and
reasonable rates that are calculated differently from the Section 1308(d) base rate
mechanism and has exercised that authority in establishing the DSIC mechanism.
Columbia R. Exc. at 2. Columbia also argues that the Commonwealth Court has held that
the General Assembly can authorize a surcharge mechanism that deviates from the
27
calculation of base rates under Section 1308(d) of the Code. Id. at 2-3 (citing Popowsky
v. Pa. PUC, 13 A.3d 583, 591 (Pa. Cmwlth. 2011); Popowsky v. Pa. PUC, 869 A.2d
1157, 1160 (Pa. Cmwlth. 2005); Pennsylvania Industrial Energy Coalition v. Pa. PUC,
653 A.2d 1336, 1349 (Pa. Cmwlth. 1995)). In addition, Columbia argues that the Court
has rejected the argument that a non-1308(d) proceeding requires the same evidence and
analysis as a 1308(d) base rate proceeding. Columbia R. Exc. at 3 (citing Equitable).
Columbia contends that, in codifying the Act 11 DSIC, the General Assembly has
authorized a surcharge mechanism that incorporates procedures to establish just and
reasonable rates in the absence of a full Section 1308(d) analysis, comparable to the
historic water DSIC mechanism, which has generated just and reasonable rates for
sixteen years. Columbia R. Exc. at 4.
b. Complexity of ADIT Calculation
Second, the OCA contends that calculating ADIT is not that complex and is
part of the surcharge calculation in other states. The OCA disagrees with the ALJs’
conclusion that including an ADIT adjustment in the DSIC calculation is too complex for
a surcharge mechanism and should only be calculated in the context of a full base rate
proceeding. OCA Exc. at 6 (citing R.D. at 39-42). In response to Columbia’s position
that the ADIT is too complex because it is impacted by the Company’s tax position,
which will not be known until after the end of the tax year, the OCA avers that Section
1358(d) and (e) of the Code requires that the DSIC be reconcilable, allowing for true-ups
of all estimates used in the calculation. OCA Exc. at 6. The OCA also disagrees with the
ALJs’ finding that the use of estimates is inconsistent with the straightforward calculation
intended by Act 11. Id. (citing R.D. at 41). The OCA asserts that the DSIC is not a
simple surcharge, but, rather, is a capital surcharge that provides for recovery of pre-tax
profit under Sections 1350 through 1360 of the Code, 66 Pa. C.S. §§ 1350-1360. The
OCA states that the ADIT adjustment prevents the DSIC rate from recovering profit for
shareholders on plant additions that they did not fund. OCA Exc. at 7. The OCA also
28
states that, if the Company’s estimates regarding the adjustment are different from the
actual ADIT adjustment at the end of the tax year, Act 11 allows for reconciliation, which
is the same process used for Columbia’s estimate of revenues in the DSIC formula. Id.
(citing 66 Pa. C.S. §§ 1357(d) and 1358(d)(2)).
Additionally, the OCA asserts that accounting for ADIT does not transform
the DSIC review process into a full rate case analysis. OCA Exc. at 7. The OCA states
that the major aspect of taxes associated with DSIC property, state and federal income
taxes, is already included in the DSIC under Section 1357(b) of the Code, and the
deduction of ADIT does not add to the calculation, but acts to correctly value the DSIC
rate base on which the utility earns a return. Id. (citing OCA St. 1 at 4-5, 6). The OCA
avers that deducting ADIT will not impact the timeliness of Columbia’s recovery,
because the surcharge can still become effective in as few as ten days. OCA Exc. at 7
(citing 66 Pa. C.S. § 1357(d)(3)).
The OCA further argues that mechanisms in other states which the OCA
relied on in support of its position provide relevant guidance in determining the
reasonableness of the ADIT adjustment, because these mechanisms are designed to
provide timely recovery of distribution infrastructure improvement costs between rate
cases, and they all include ADIT as an offset. The OCA believes that the fact that
utilities in eleven states include ADIT in an infrastructure surcharge calculation is also
relevant to the reasonableness of mandating that Columbia make the adjustment in this
case. OCA Exc. at 8.
Columbia replies that the OCA’s position in this case confirms the
complicated nature of the ADIT adjustment. Columbia states that the OCA has
acknowledged that an ADIT adjustment is not appropriate under the circumstances in this
case, because, in recent years, Columbia has generated tax deductions that exceed its
income, resulting in tax losses. As such, Columbia avers that it has not been able to
29
benefit from all accelerated depreciation deductions and has substantial tax loss
carryforwards. Consequently, Columbia cannot take tax deductions or receive the benefit
of ADIT on new plant additions until its tax loss carryforwards have been used.
Columbia R. Exc. at 18. Contrary to the OCA’s contention that the tax loss carryforward
situation is temporary, the Company asserts that the tax loss carryforward is ongoing and
can recur, depending on the Company’s earnings and the available federal tax deductions.
Additionally, Columbia explains that ADIT is a dynamic element that is constantly
changing based on available tax deductions, the mix of plant in service, and the
Company’s current tax position, and that these changes cannot be accurately captured in
the straightforward formula used to calculate the DSIC. Id. at 19.
In response to the OCA’s position that problems providing accurate
projections of incremental ADIT can be overcome through the annual reconciliation
process, Columbia disagrees on the basis that the reconciliation in the statute is intended
to be simple and not to include any significant changes in the charge to customers based
on changes in the Company’s tax position. Id. Columbia states that the OCA fails to
acknowledge that ADIT changes are part of the earnings cap calculation and are, thus,
included in the determination of the total effect of the DSIC rate. Id. at 19-20. Columbia
believes that the earning cap strikes the correct balance, as it captures the potential
complexity of ADIT and other costs without turning the DSIC formula into a miniature
rate case. Id. at 20.
Furthermore, Columbia asserts that the treatment of ADIT in other states is
irrelevant to a determination regarding the interpretation of a Pennsylvania statute.
Columbia believes that the jurisdictions the OCA relies on have mechanisms that are
different from the Pennsylvania mechanism in critical ways and that, consequently, they
provide no guidance in determining the reasonableness of the ADIT adjustment. Id.
at 16, 17. For instance, Columbia avers that, under the Maryland and Massachusetts
mechanisms, the utilities are not limited by an earnings cap. Id. at 17 (citing Columbia
30
St. 1-RJ at 3). Columbia states that it is also inappropriate under the general rules of
statutory interpretation to analyze the actions of other states in interpreting a
Pennsylvania statute. Columbia R. Exc. at 17-18.
c. Possibility of Litigation
Third, the OCA contends that the evidence does not support a conclusion
that an ADIT adjustment will initiate litigation over the utility’s past, present, and future
income tax status. The OCA states that identifying the Company’s tax status is the same
for DSIC purposes as it is for ratemaking generally, and, if a question surfaces,
Columbia’s taxable income is provided in its annual tax return. The OCA avers that it is
possible there will be litigation over some aspect of the Company’s DSIC formula, and
the potential for litigation is not a basis to ignore a necessary alteration in the DSIC,
particularly since the Commission may allow the Company to recover its proposed DSIC
rate while the matter is being litigated, consistent with Section 1357(d)(3) of the Code,
66 Pa. C.S. § 1357(d)(3). OCA Exc. at 9.
Columbia did not address this argument in its Replies to Exceptions.
d. Just and Reasonable Rates and the Earnings Cap
Fourth, the OCA disagrees with the ALJs’ determination that the entirety of
the DSIC rate must be considered in establishing whether the rate is just and reasonable,
and that the earnings cap ensures the justness and reasonableness of the overall DSIC
rate. The OCA contends that the ALJs’ reliance on Duquesne in this regard was in error.
According to the OCA, the constitutional standard for judicial review set forth in
Duquesne is not the relevant standard for determining the justness and reasonableness of
Columbia’s DSIC calculation under the Code, because Duquesne involved a
constitutional takings claim by the utility. The OCA argues that in Duquesne, the Court
31
addressed the question of whether the impact of disallowing recovery of capital costs
incurred by the utility represented confiscation of utility property for purposes of the
Fifth and Fourteenth Amendments. The OCA contends that, in contrast, the issue in the
instant proceeding involves costs that were never even incurred by the utility, and is,
therefore, a matter of the interpretation of the Code, and whether a specific rate
authorized by statute is just and reasonable if it allows recovery of costs that are not
incurred. OCA Exc. at 10-12.
With regard to the ALJs’ determination that not all ratemaking elements
associated with a base rate proceeding need be considered in the calculation of the DSIC,
the OCA contends that the incremental DSIC income taxes for DSIC-eligible plant are
already a part of the DSIC calculation. Thus, the OCA argues that it is not proposing to
broaden the scope of the DSIC to include other categories of costs, but is simply
proposing that the tax elements that are already included in the DSIC be calculated
correctly by reflecting the ADIT adjustment. Id. at 12-13.
The OCA further argues that, if the justness and reasonableness of rates
depend only on the overall rate of return produced by the rates, without consideration of
the individual rate elements, then every adjustment made in rate proceedings would be
meaningless, and no ratemaking decision would be reviewable. Id. at 10, 13. The OCA
asserts that there is an entire body of Commission Orders and judicial opinions
construing Section 1301 of the Code with regard to a variety of ratemaking adjustments.
The OCA contends that, if all of these decisions are ignored, the judgment of the
Commission regarding the ratemaking provisions of the Code would be effectively
conclusive upon the reviewing court. Id. at 13. The OCA further argues that, without the
standards that have been developed by the Commission and the Pennsylvania appellate
courts under the Code, the litigation of base rate cases would involve no consideration of
specific ratemaking factors and only the end result would be relevant to the ruling.
According to the OCA, this would be inconsistent with the requirement of Section 703(e)
32
of the Code that the Commission’s determinations be supported by specific findings. Id.
at 13-14.
33
The OCA also contends that the plain language of Act 11 limits DSIC
recovery to costs “incurred,” and that the earnings cap alone cannot ensure that the DSIC
rates will recover only the actual costs incurred by Columbia, even if the earnings cap
calculation reflects changes in ADIT, as the ALJs stated. According to the OCA, the
question of whether or not a utility is over-earning may depend on factors that are
unrelated to the DSIC. The OCA argues that, if a utility is under-earning due to an
increase in non-DSIC related costs, the earnings cap will not prevent the utility from
overstating the DSIC surcharge revenue requirement and improperly charging ratepayers
a return on funds that were not supplied by investors. The OCA concludes that the only
way to ensure that the DSIC surcharge does not include a return on zero-cost capital is to
directly adjust the DSIC rate base calculation to reflect ADIT. Id. at 14.
In response, Columbia challenges the OCA’s position that the DSIC
mechanism must include an ADIT adjustment in order for the surcharge to be just and
reasonable. Columbia asserts that, in establishing the DSIC surcharge, the General
Assembly sought to create a mechanism that would allow utilities to recover certain
defined costs for the repair and replacement of aging distribution system infrastructure
outside of a base rate proceeding. As such, Columbia argues, the General Assembly
created a mechanism that is simple to calculate, but which affords customer protections
that will ensure just and reasonable rates. According to Columbia, this DSIC mechanism,
as set forth in Section 1357 of the Code, does not include recognition of ADIT, as the
OCA claims. Columbia R. Exc. at 5-7.
34
Furthermore, Columbia asserts that legislative history confirms that the
General Assembly intended to codify the exact mechanism used in the historic water
DSIC, which did not include the OCA’s proposed ADIT adjustment. Id. at 7. In
addition, Columbia contends that the statutory language and legislative history do not
support an argument that the Commission has discretion to add the OCA’s adjustment,
and that even if the Commission does have such discretion, the OCA conceded that its
proposed adjustment is not required. Id. at 7-8.
Columbia also challenges the OCA’s contention that the ALJs’ reliance on
the Supreme Court’s decision in Duquesne was misplaced because that case was a
takings case under the Fifth and Fourteenth Amendments. Columbia states that the OCA
overlooks the import of the Court’s conclusion, which was that a rate cannot be declared
unjust or unreasonable by looking in isolation at one or two base rate components that are
not directly included in the calculation. Rather, Columbia argues, the Court
acknowledged that the true test of just and reasonable rates is whether the end result of
the rates is just and reasonable. Id. at 10-11.
35
With regard to the OCA’s contention that the failure to consider individual
adjustments would render rate proceedings meaningless, Columbia asserts that this
argument ignores the distinction between the Section 1308(d) base rate mechanism and a
surcharge mechanism. According to Columbia, surcharge mechanisms are not subject to
the full range of adjustments considered in a general rate case proceeding, but are subject
only to the adjustments specified in the statute creating them, which is within the purview
of the General Assembly. Thus, Columbia argues, the analysis of what may be included
in the DSIC mechanism will have no impact on the Commission’s or the Court’s
consideration of 1308(d) proceedings. Id. at 11. Columbia opines that the OCA’s
position in this regard is “inconsistent and unfairly selective,” because the OCA does not
seek to include those 1308(d) adjustments that would be beneficial to the utility in the
DSIC calculation. Columbia also disagrees with the OCA’s contention that its proposed
ADIT adjustment relates to components that are already a part of the DSIC mechanism.
Columbia argues that the OCA’s proposal represents an addition to the DSIC mechanism
that is not included in the statutory language, and that the General Assembly rejected a
proposal to include an adjustment for tax benefits. Id. at 12.
36
Finally, Columbia states that the OCA’s assertion that the ALJ erred in
relying on the earnings cap as protection against unjust or unreasonable rates should be
rejected. Id. at 12. Columbia contends that the earnings cap not only ensures that the
resulting rates are just and reasonable, but it also takes into account the very same tax
effects that the OCA raises in this proceeding. Specifically, Columbia explains that the
earnings cap relies on the Company’s quarterly earnings reports, which contain a
calculation of rate base that includes the current book amount of ADIT as well as
deductions allowed for Pennsylvania Corporate Net Income Tax. Columbia explains
that, if a utility obtains significant ADIT or state tax benefits, those will be reflected in
the quarterly earnings report and will increase the Company’s achieved rate of return.
Thus, Columbia argues that, in order for it to get the benefit of a DSIC, it must be in an
under-earning position after taking into consideration the very tax matters the OCA is
concerned about. Id. at 13. Columbia also disputes the OCA’s argument that the
earnings cap is not an adequate protection against unjust or unreasonable DSIC rates
because the quarterly earnings report includes non-DSIC related adjustments. Columbia
contends that the quarterly earnings report captures both upward and downward impacts
of a wide variety of individual adjustments that would be considered in a base rate
proceeding, and thus, provides a complete analysis of the Company’s overall rate of
return, in contrast to the OCA’s proposed selective incremental adjustments. Id. at 14.
e. Plain Language of the Statute
37
Fifth, the OCA disagrees with the ALJs’ conclusion that the plain language
of the statute and its legislative history do not provide for the OCA’s proposed
adjustments and the ALJs’ reasoning that the statute does not expressly state that ADIT
or actual state income tax expense must be included in the calculation. OCA Exc. at 15
(citing R.D. at 49). The OCA avers that the purpose of Act 11 is to allow recovery of
certain costs incurred between rate cases, but the General Assembly did not intend for the
DSIC calculation to recover costs that Columbia will not incur. OCA Exc. at 15 (citing
66 Pa. C.S. §§ 1351, 1353). The OCA argues that the plain language of the Act, which
allows recovery only for costs incurred by the utility, cannot be accomplished if the DSIC
recovers a return on dollars that were not invested by shareholders and state taxes that
were not paid by the Company. OCA Exc. at 15.
In its Replies to Exceptions, Columbia argues that the OCA relies on the
“costs incurred” language in Act 11 to circumvent the fact that its proposals are not
contained in the plain language of Section 1357 of the Code and are not supported by
Act 11’s legislative history. Columbia states that the OCA’s argument that its proposal
adjusts for costs not incurred by Columbia is inaccurate. Columbia also states that the
OCA incorrectly contends that the resulting incremental ADIT benefits associated with
DSIC plant, plant originally funded through shareholder capital, will be flowed back into
more DSIC eligible plant. Columbia R. Exc. at 8. Columbia avers that it can use the
incremental ADIT in various ways, such as to finance future investment in non-DSIC
plant. Id. (citing Tr. at 68). Columbia asserts that there is no evidence in this case to
demonstrate that the Company has used non-shareholder capital to fund DSIC eligible
projects. Columbia R. Exc. at 9.
4. Disposition
38
After consideration of the evidence and the arguments set forth on this
issue, we will decline to adopt the OCA’s proposal to include an adjustment for ADIT in
Columbia’s DSIC calculation. Initially, we emphasize that we do not agree with the
OCA’s assertion that the plain language of Act 11 requires that the calculation of the
DSIC include recognition of ADIT. Rather, as discussed above, we agree with the ALJs
that the General Assembly intended to leave the technical mechanics of the DSIC
calculation to the Commission. R.D. at 22. Accordingly, we find no reason to conclude
that Act 11 would require Columbia to include recognition of ADIT in the calculation of
its DSIC.
Moreover, we have previously addressed this issue in our Final
Implementation Order, in which we declined to adopt the OCA’s proposal to
include an adjustment for ADIT in the DSIC calculation. As we indicated in our
Final Implementation Order, we believe that the DSIC is intended to be a
straightforward mechanism that is easy to calculate and audit, and does not require
a full rate case analysis. We concluded that the inclusion of an ADIT adjustment
would be inconsistent with that goal and would likely lead to litigation over the
DSIC calculation. Final Implementation Order at 39. Thus, we agree with
Columbia that, through the enactment of Act 11, the General Assembly intended
to establish a surcharge mechanism to produce just and reasonable rates without
the need for the type of comprehensive and detailed analysis required in a base
rate proceeding under Section 1308(d) of the Code. Columbia R. Exc. at 2-4.
39
While the OCA does not believe its proposed ADIT adjustment would add
significant complexity to the DSIC calculation, we disagree. As Columbia states, ADIT
is a dynamic element that is constantly changing based on available tax deductions, the
mix of plant in service, and the Company’s current tax position, and such changes cannot
be accurately captured in the straightforward formula used to calculate the DSIC. See,
Columbia Exc. at 19. Thus, although we agree with the OCA that federal income taxes
are an element of the DSIC formula, we believe that the inclusion of an ADIT adjustment
would involve a level of analysis and complexity that goes beyond the scope of what is
required by Act 11 with regard to the calculation of the DSIC. Similarly, we believe that
using the annual reconciliation process to overcome the difficulties involved in providing
accurate projections of incremental ADIT, as the OCA suggests, would also add
unneeded complexity to the implementation of the DSIC.
We also do not agree with the OCA that failure to include the ADIT
adjustment in the DSIC calculation will result in a DSIC rate that is unjust or
unreasonable. As we stated in our Final Implementation Order, consumers will remain
protected against over-earnings by the earnings cap provision under Section 1358(b)(3)
of the Code. Final Implementation Order at 39. As Columbia points out, its quarterly
earnings reports, which are used to determine the Company’s achieved rate of return for
earnings cap purposes, capture both upward and downward impacts of a wide variety of
individual adjustments that would be considered in a base rate proceeding, including the
current book amount of ADIT. Columbia R. Exc. at 13-14. Thus, we do not agree with
the OCA that the earnings cap will fail to protect customers from being charged DSIC
rates that are unjust or unreasonable. Additionally, we agree with the ALJs’ reliance on
the Duquesne case for the conclusion that the total effect of the rate should be considered
in determining whether the DSIC is just and reasonable. See, R.D. at 45-46. While the
main issue in that case was whether a Pennsylvania law amounted to a taking of a public
utility’s property in violation of the Fifth Amendment, that case also included a
discussion of ratemaking principles and the applicable law for determining just and
40
reasonable rates. The United States Supreme Court, in Duquesne, addresses and relies
upon the landmark case of FPC v. Hope Natural Gas Co., 320 U.S. 591 (1944), for its
statement that there is not any single formula that must be used in determining just and
reasonable rates. Duquesne, 488 U.S. at 315, 316. As Columbia indicates, the Court
acknowledged that the test for determining whether rates are just and reasonable involves
an analysis of whether the end result of the rates is just and reasonable.
Accordingly, we find that the inclusion of an ADIT adjustment as proposed
by the OCA is not required by Act 11, would add unneeded complexity to the DSIC
calculation, and is unnecessary to ensure that the DSIC rates will be just and reasonable.
As we stated in our Final Implementation Order, the historic water DSIC, which was
used successfully for many years, did not include an adjustment for ADIT. Final
Implementation Order at 39. Accordingly, we will deny the OCA’s Exception on this
issue.
41
D. State Income Tax Gross-Up
1. Positions of the Parties
The OCA contended that Columbia’s DSIC calculation must be revised to
exclude the gross-up for state income taxes in the DSIC calculation. The OCA explained
that Columbia developed its pre-tax rate of return for DSIC purposes by grossing up the
equity component of its overall return to account for both state and federal income taxes
at the full statutory rate. However, according to the OCA, Columbia will pay no state
income taxes on DSIC revenues because the tax deductions for the repairs allowance and
accelerated depreciation far exceed the state taxable income that will be generated by the
DSIC. The OCA argued that, as a matter of law, state income tax deductions must be
reflected in rates on a current basis, consistent with the “actual taxes paid” doctrine. The
OCA asserted that Columbia correctly flows through state income tax benefits in base
rates and must also calculate the state income tax revenue requirement relating to DSIC
plant additions in the same manner. Accordingly, the OCA proposed that the gross-up
for state income taxes be eliminated and that the amount of state income tax included in
the DSIC revenue requirement be reduced to zero. According to the OCA, this
adjustment will reduce Columbia’s total quarterly DSIC revenue requirement from
$788,880 to $737,368 and will reduce the DSIC surcharge from 1.50 percent to 1.40
percent. OCA M.B. at 31-33, 38.
42
Columbia opposed the OCA’s proposal to eliminate the gross-up for state
income taxes in the DSIC calculation. Similar to its position regarding the ADIT
adjustment, Columbia contended that it was the intent of the General Assembly to
embrace the procedure and process used for the water DSIC, which included the same
state tax gross-up that Columbia used in the calculation of its DSIC. Columbia M.B.
at 20-21. Columbia also asserted that the Commission’s Final Implementation Order did
not adjust the state tax gross-up in its discussion of taxes. Columbia argued that the
Commission intended the DSIC to be a straightforward mechanism that is easy to
calculate, and that including a full and accurate calculation of state taxes would require
the Company to provide a full ratemaking calculation, which could potentially require
recalculating the Company’s other tax liabilities and deductions. Id. at 21.
Columbia also asserted that the OCA’s proposed elimination of the state tax
gross-up would incorporate inaccurate tax adjustments into the DSIC. Columbia
explained that the specific tax deductions reflected in its base rates, such as the repairs
allowance and bonus depreciation, are one-time deductions related to test year plant
additions that are no longer available to the Company after the year in which they are
taken. In addition, Columbia stated that, under accelerated depreciation procedures, the
amount of depreciation deduction on each tax vintage declines over time, and these
reductions are offset by increases in deductions for current plant additions. Thus,
Columbia argued that treating one-time tax deductions and accelerated depreciation
deductions in base rates as if they continue into the future, while claiming that deductions
associated with new plant in the DSIC should be viewed as incremental, as the OCA
claimed, would result in a double-counting of depreciation and repairs deductions.
According to Columbia, the only way to correct the unfairness of this result would be to
undertake a full state tax calculation as part of each DSIC, which, Columbia asserted,
would be directly contrary to the General Assembly’s and the Commission’s intent that
the DSIC be calculated in a simple, straightforward manner. Id. at 21-22.
43
Columbia also averred that tax depreciation deductions allowed for
Pennsylvania income tax purposes are reflected in the Company’s earnings reports.
Thus, Columbia argued that, if it is over-earning its authorized return as a result of tax
depreciation deductions or other benefits, it will not be permitted to charge the DSIC. Id.
at 22-23.
2. ALJs’ Recommendation
The ALJs found that Columbia correctly included a state income tax gross-
up in its DSIC calculation. R.D. at 64. The ALJs noted that both Columbia and the OCA
agreed that all water utilities have included a gross-up for state income tax using the full
statutory tax rate as part of the calculation of their DSIC rates. The ALJs also noted that,
in its Final Implementation Order, the Commission neither specifically permitted nor
prohibited a full state tax gross-up in the DSIC calculation. The fact that the Commission
did not prohibit the state income tax gross-up, when viewed against the backdrop of the
historical water DSIC calculation, led the ALJs to conclude that the Commission
intended DSIC calculations computed pursuant to Act 11 to include a gross-up for state
income tax. The ALJs also agreed with Columbia that the Commission intended the
DSIC to be a straightforward mechanism that is easy to calculate, and that including a full
and accurate calculation of state taxes would require Columbia to provide a full
ratemaking calculation, which could potentially require recalculating the Company’s
other tax liabilities and deductions. Id. at 62-63.
44
The ALJs also found, as they did with regard to their discussion of ADIT,
that there is no single way to arrive at just and reasonable rates, and that any
determination regarding whether rates are just and reasonable must consider the total
effect of the rates, and not just individual components such as the state income tax gross-
up. Id. at 63-64 (citing Duquesne, 488 U.S. at 314, 316). The ALJs stated that the total
effect of rates is reflected in the earnings cap formula, which “considers the actual total
deductions as part of a package that reflects the total level of earnings for Columbia that
are just and reasonable.” R.D. at 64.
3. Exceptions and Replies
In its second Exception, the OCA asserts that the ALJs erred by not
requiring Columbia to reflect its actual state income taxes in the DSIC calculation. OCA
Exc. at 17. The OCA argues that Pennsylvania law requires that state income tax
deductions be reflected in rates on a current basis, consistent with the “actual taxes paid”
doctrine. The OCA contends that the Pennsylvania Supreme Court rendered the seminal
decision regarding the flow-through of income tax benefits in Barasch v. Pa. PUC, 507
Pa. 496, 521, 491 A.2d 94, 107 (1985), where it determined that the Commission could
only find rates just and reasonable if those rates are based on actual taxes paid. Id. at 17.
The OCA also contends that the Court affirmed this position weeks later in the context of
consolidated taxes, finding that, where an expense is not actually incurred, it is improper
to include it in the rates charged to ratepayers. Id. at 17-18 (citing Barasch v. Pa. PUC,
507 Pa. 561, 493 A.2d 653 (1985)).
The OCA also argues that the Commission has recognized that flow-
through of the benefits associated with utilizing accelerated depreciation in the
calculation of state income taxes is “mandated.” OCA Exc. at 18 (citing Pa. PUC v.
Metropolitan Edison Co., 60 Pa. P.U.C. 349, 398 (1985)). In addition, the OCA notes the
Commission’s statement that:
45
Barasch, [507 Pa. 561, 493 A.2d 653] stands for the proposition that the Commission does not have the authority to permit the inclusion of hypothetical expenses not incurred, and more specifically, establishes the “actual taxes paid” doctrine, prohibiting a utility from collecting “phantom taxes.”
OCA Exc. at 18 (citing Pa. PUC v. Jackson Sewer Corp., Docket No. R-00005997
(Order entered September 28, 2001), at 34).
The OCA asserts that the ALJs did not address the “actual taxes paid”
doctrine or the requirement in Act 11 that limits DSIC recovery to costs “incurred” by the
46
utility. Rather, the OCA states that the ALJs relied on arguments set forth by Columbia,
which the OCA contends are flawed.6
a. Treatment of State Income Tax Deductions
First, the OCA takes issue with the ALJs’ finding that including a full and
accurate calculation of state taxes would require Columbia to provide a full ratemaking
calculation, which could potentially require recalculating the Company’s other tax
liabilities and deductions. OCA Exc. at 19. The OCA contends that this finding ignores
the fact that, as a practical matter, current tax deductions generated from the repairs
allowance and accelerated tax depreciation on DSIC-eligible plant are far in excess of the
taxable income produced by the DSIC. Specifically, the OCA asserts that the tax
deductions associated with the plant included in Columbia’s first quarterly filing are
approximately $13 to $14 million, while the related state taxable income is about
$500,000. The OCA contends that, if Columbia continues to increase its pace of
replacement compared to historic replacement levels, the tax deductions associated with
that replacement will increase. Id. at 20.
6 Before addressing the substantive arguments in its Exceptions, the OCA stated that it wished to correct what it viewed as an apparent misunderstanding in the Recommended Decision regarding the OCA’s income tax recommendation. The OCA explained that it is not proposing that the calculation of pre-tax return should always eliminate all state income taxes from the gross-up in the DSIC calculation. Rather, the OCA stated that the state income tax rate used to calculate the DSIC revenue requirement should reflect the state income tax expense actually paid. Thus, it is the OCA’s position that, for the DSIC that took effect on April 1, 2013, the gross-up for state income taxes should be zero percent because Columbia’s state income tax benefits exceed the state taxable income that will be generated by the DSIC, and Columbia will pay no state income taxes on DSIC revenues. OCA Exc. at 20.
47
The OCA also argues that Columbia overstated the complexity of
identifying the tax deductions associated with incremental DSIC investment. The OCA
disputes Columbia’s assertion that reflecting the state income tax benefits associated with
DSIC plant in the DSIC rates results in double-counting of the repairs and depreciation
deductions since these are already recognized in base rates. The OCA avers that
Columbia provided no support for the assumption that the repairs deduction included in
base rates fully accounts for the repairs deduction associated with new DSIC-eligible
plant additions, and that additional repairs allowance benefits will not occur. According
to the OCA, this argument ignores the fact that the repairs deduction is associated with
the replacement of all plant, not just DSIC-eligible plant. The OCA also contends that
there is no double-counting with regard to accelerated depreciation deductions associated
with DSIC plant because these deductions are fully incremental to the deductions
associated with the plant reflected in base rates. The OCA argues that, if Columbia does
not repair, replace or improve plant, it will not be eligible to recover costs through the
DSIC. However, the OCA contends, if Columbia does continue to repair, replace or
improve plant, accelerated depreciation deductions will not decline. Id. at 21.
The OCA concludes that it is not necessary to undertake a full state tax
calculation as part of each DSIC as Columbia and the ALJs asserted. The OCA states
that, to the extent that Columbia is not able to identify its tax position for a given quarter,
it can true-up its DSIC calculations to reflect state income tax benefits at the same time it
prepares its annual reconciliation for each calendar year. Id.
48
In its Replies to the OCA’s Exceptions, Columbia disputes the OCA’s
contention that state income tax depreciation deductions associated with DSIC property
are fully incremental. Columbia maintains that the OCA’s proposal ignores offsetting
reductions produced by state tax deductions reflected in base rates, which results in a
double-counting of deductions. According to Columbia, test year state income tax
deductions are incorporated into base rates on a representative basis for the future. Thus,
Columbia argues, an incremental state tax depreciation calculation that focuses
exclusively on deductions resulting from new plant, while ignoring the amount of
deductions already reflected in rates, results in double-counting, because Columbia would
provide customers with two deductions for the single tax benefit received by the
Company in any given year. Columbia R. Exc. at 21.
Columbia supports its argument by referring to the testimony of its witness,
Panpilas W. Fischer, in which Ms. Fischer explained that over $55 million in repairs
allowance deductions reflected in the Company’s most recent base rate proceeding are
not available after the rate case test year, and, therefore, state taxes will be higher than the
amount reflected in base rates following the loss of that deduction. Similarly,
Ms. Fischer testified that accelerated depreciation deductions on existing plant would
decline over the years after its installation, and if the Company added no new plant, its
state tax depreciation deduction would be lower than the amount assumed in calculating
state tax expense for base rates. Id. at 22 (citing Columbia St. 2-R at 6-7, 8-9).
Accordingly, Columbia argues that, under the OCA’s proposal, customers would receive
the benefit of deductions already reflected in base rates, plus deductions reflected in the
DSIC for all new plant placed into service, even though the deductions reflected in base
rates would be reduced or eliminated after the test year tax filing. Columbia R. Exc.
at 22-23. Columbia contends that the OCA did not dispute this evidence before the ALJs,
nor did it provide evidence explaining how double-counting tax benefits could be
consistent with the “actual taxes paid” doctrine. Id. at 23.
49
Columbia also disputes the OCA’s argument that there will be no double-
counting if Columbia continues to replace its infrastructure at an accelerated pace.
Columbia asserts that it can continue its current accelerated pace of main replacements,
and each year receive a single year’s state tax benefit equal to the $55 million benefit
built into base rates. However, Columbia argues that, under the OCA’s proposal, the
Company would receive no state tax gross-up in the DSIC because the new deduction
received each year would be claimed as an offset. Thus, Columbia asserts that the
OCA’s argument is “grossly flawed.” Id.
Columbia concludes that the only way to determine its actual taxes paid for
state income tax purposes would be to conduct a full rate case analysis, which, according
to Columbia, is contrary to the intent of the General Assembly in adopting a simple
surcharge mechanism. Columbia contends that conducting such an analysis would
subject the DSIC to litigation involving disputes over the proper calculation of state tax
liability, which is contrary to the Commission’s intent as indicated in the Final
Implementation Order. Id. at 24.
b. Just and Reasonable Rates and the Earnings Cap
The OCA next disputes the ALJs’ finding that a determination of whether
rates are just and reasonable depends only on the total effect of the rates, and not on the
individual components of the rate. Similar to its argument with regard to ADIT, the OCA
contends that, under this theory, individual ratemaking adjustments would have no
meaning, and no ratemaking decision would be reviewable. Moreover, the OCA asserts
that the “actual taxes paid” doctrine demonstrates that this argument is legally incorrect.
Id. at 19.
50
The OCA also disagrees with the ALJs’ conclusion that the earnings cap
reflects the total effect of rates, and specifically, that it reflects the actual amount of taxes
paid, which makes it unnecessary to reflect actual taxes paid in the DSIC formula. The
OCA asserts that the earnings cap can only prevent a utility from charging a DSIC when
its reported quarterly earnings exceed a certain rate of return. According to the OCA, the
earnings cap is not a substitute for adjusting the gross-up for state income taxes, because
it does not prevent a utility from overstating the surcharge revenue requirement and
improperly charging ratepayers for state income taxes that the utility will not pay. Id.
at 22.
The OCA concludes that, while the Commission expressed the intent that
the DSIC be a straightforward and simple mechanism, that intent can only be exercised in
matters over which the Commission has discretion. The OCA argues that the
Commission has no discretion to ignore the requirement to flow through state income tax
benefits in the DSIC rate because the flow-through of such benefits is a requirement of
just and reasonable rates under Pennsylvania law. The OCA asserts that its proposed
correction to the gross-up for state income taxes ensures that ratepayers are charged only
for state income taxes actually paid, consistent with the language of Act 11 and Section
1301 of the Code, as it has been interpreted by the courts and the Commission. Id. at 23.
In response, Columbia states that the OCA has overlooked the importance
of the earnings cap in accounting for the impact of state income tax benefits on the
Company’s rate of return. Columbia argues that, unlike the OCA’s proposal, which
double-counts the Company’s available tax deductions, the earnings cap formula
considers the actual total deductions as part of a package that reflects the total level of
earnings for Columbia. Thus, Columbia concludes that the OCA’s proposal is
unnecessary in order to ensure that the actual state income tax deductions are considered
in determining whether the DSIC rates are just and reasonable. Columbia R. Exc. at 24.
51
4. Disposition
Based on our consideration of the record and the positions of the Parties on
this issue, we decline to adopt the OCA’s proposal to eliminate the state tax gross-up
included in Columbia’s DSIC calculation. While we agree that Columbia’s rates should
reflect the state taxes that the Company actually pays, we are not convinced that
eliminating the state tax gross-up included in the DSIC calculation would properly
achieve that result. As Columbia points out, its base rates currently reflect deductions for
the repairs allowance and accelerated depreciation that may no longer apply, because
such deductions have been reduced or eliminated after the test year considered in the
Company’s last base rate proceeding. Therefore, to reflect these same types of
deductions in relation to DSIC eligible plant in the DSIC calculation may result in overall
rates that are further out of alignment with Columbia’s actual tax position. As Columbia
argues and the ALJs concluded, the only way to determine Columbia’s actual taxes paid
for state income tax purposes would be to conduct a full rate case analysis, which could
subject the DSIC calculation to litigation regarding the proper determination of the
Company’s state tax liability. Columbia R. Exc. at 24; R.D. at 63. However, as we
stated with regard to the ADIT issue, we believe that the DSIC is intended to be a
straightforward mechanism that is easy to calculate and audit and does not require a full
rate case analysis.
In addition, as we stated in our discussion of ADIT, Columbia’s customers
will remain protected by the earnings cap provision of Act 11. The Company’s quarterly
earnings reports, which are used to determine its achieved rate of return for earnings cap
purposes, reflect a wide variety of individual adjustments that would be considered in a
base rate proceeding, including Columbia’s state income tax deductions. Accordingly,
we believe that the earnings cap will ensure that customers will not be charged DSIC
rates that are unjust or unreasonable. For the foregoing reasons, we shall deny the OCA’s
second Exception.
52
E. Application of the DSIC to Customers with Competitive Alternatives
1. Positions of the Parties
As previously indicated, Columbia included the following provision
in its Supplement No. 195: “The DSIC shall be applied equally to all customer
classes, except that the Company may reduce or eliminate the Rider DSIC to any
customer with competitive alternatives or potential competitive alternatives and
customers having negotiated contracts with the Company, if it is reasonably
necessary to do so.” Supplement No. 195, First Revised Page No. 180. In its
Main Brief, Columbia asserted that its proposed tariff language was reasonably
tailored to ensure its ability to exclude competitive customers from the DSIC
without being overly broad and was also consistent with the Commission’s Final
Implementation Order.
Columbia then indicated that, based on the evidence in this
proceeding and in order to provide the best resolution of the Parties’ positions, it
was proposing the following tariff provision:
The DSIC shall be applied equally to all customer classes, except that the Company shall not apply the Rider DSIC to any customer with competitive alternatives, or potential competitive alternatives, who is taking service at flexed or discounted rates and to customers having negotiated contracts with the Company.
Id. at 26 (Penn State’s proposal is underlined, and the italicized language is similar, but
not identical, to the additional tariff language proposed by the OCA; see OCA M.B.
at 43; OCA R.B. at 31). Columbia averred that this newly proposed language would
allow Columbia to address all customers with the ability to exercise competitive
53
alternatives, whether or not they had been constructed yet, and would clearly exclude
those identified customers from being charged the DSIC. Columbia M.B. at 26.
Columbia also noted its agreement with Penn State’s proposed language on the basis that
it would achieve the same purposes as Columbia’s proposal. Columbia R.B. at 27.
The OCA proposed that the tariff provision should state as follows:
The DSIC shall be applied equally to all customer classes, except that the Company may reduce or eliminate the Rider DSIC to any customer with competitive alternatives who are paying flexed or discounted rates and customers having negotiated contracts with the Company, if it is reasonably necessary to do so.
OCA M.B. at 43 (italics represent OCA’s proposed language).
In support of its proposed tariff language, Penn State averred that
Columbia accepted in its Main Brief and testimony the following language, which
contains clarifications proposed by Penn State in its testimony:
The DSIC shall be applied equally to all customer classes, except that the Company shall not apply the Rider DSIC to any customer with competitive alternatives, or potential competitive alternatives, who is taking service at flexed or discounted rates and to customers having negotiated contracts with the Company.
Penn State M.B. at 8; Penn State St. 3 at 4; Columbia M.B. at 26.
While Penn State supported adoption of the above provision, it
stated that, if the Commission declined to adopt the “or potential competitive
alternatives” phrase, then the following language should be adopted, as it
contained clarifications that removed ambiguity regarding the meaning of
“competitive alternative:”
54
The DSIC shall be applied equally to all customer classes, except that the Company shall not apply the Rider DSIC to any customer with competitive alternatives, who is taking service at flexed or discounted rates and to customers having negotiated contracts with the Company. A competitive alternative shall not mean that a customer has to have installed the alternative or executed a contract for the alternative; rather, there only has to be a demonstration that the customer’s alternative is economic or otherwise justified by the customer’s operational needs.
Penn State St. 3 at 5; Penn State R.B. at 2.
Columbia argued that the OCA’s proposal to delete “potential
competitive alternatives” should be rejected, because to delete “potential
competitive alternatives” from the proposal and group those customers into the
larger category of customers with competitive alternatives only makes the
language of the DSIC less clear. Columbia R.B. at 27-28. Columbia stated that it
should not try to charge competitive customers the DSIC, since it is already
charging the maximum negotiated amount competitive customers are willing to
pay. If the Company imposes the DSIC, Columbia contends the end result will be
a reduction in flexed revenues that are recoverable. According to Columbia, even
if it could get its competitive customers to agree to pay the DSIC, the OCA’s
proposal merely allocates a predetermined total amount between categories, i.e.,
dollars paid to DSIC from dollars previously paid to base rate revenues, and does
not result in any additional dollars being paid by competitive customers.
Columbia R.B. at 28.
The OCA averred that it was pursuing the same intent as Columbia in its
proposed language, as both Parties agreed that, in a situation where a viable competitive
alternative exists, even if not yet constructed, the Company should have the ability to
reduce or eliminate the DSIC for that customer, if necessary. OCA M.B. at 41. The
55
OCA asserted that Columbia’s language “or potential competitive alternatives” does not
accurately reflect Columbia’s intentions regarding these competitive customers, because
“or potential alternatives” may be read too broadly to suggest that a viable competitive
alternative is not necessary for waiver of the DSIC. The OCA stated that its suggested
language was carefully tailored to reflect Columbia’s intent and should be adopted. OCA
R.B. at 31-32.
With regard to Penn State’s proposed tariff language that Columbia
“shall not” apply the DSIC, the OCA argued that this language too severely limits
the application of the DSIC. The OCA submitted that Penn State’s proposed
language should be rejected because it removes all discretion from the Company
in the application of the DSIC to customers with competitive alternatives, or
potential competitive alternatives, which is contrary to the Final Implementation
Order. The OCA maintained that Penn State’s proposal would simply eliminate
the DSIC for customers with competitive alternatives, and Columbia would not
have the option of merely reducing the DSIC for these customers as permitted in
the Final Implementation Order. The OCA’s position has been that, if Columbia
can recover some of its distribution system improvement costs without losing a
competitive customer to bypass, it should retain the ability to do so, in order to
avoid an additional subsidy from other customers paying full tariffed rates. OCA
R.B. at 32-33; OCA St. 1-R at 2.
Penn State asserted that the OCA’s proposed language should be
rejected, because: (1) it was vague and uncertain, while Columbia’s proposed
language was clear and unambiguous; (2) the OCA’s contentions were
unsupported by the Commission’s Final Implementation Order; and (3) the
OCA’s arguments failed to acknowledge the contractual reality of competitive
customers. Penn State R.B. at 2.
56
2. ALJs’ Recommendation
The ALJs agreed with the OCA’s position on the language to be
included in Columbia’s tariff, as they determined that the OCA’s proposed
language gives the Company flexibility and discretion. The ALJs stated that they
also agreed with the testimony of the OCA’s witness, Thomas S. Catlin, which
was as follows:
To the extent that Columbia can recover some of its distribution system improvement costs without losing the customer to bypass, they should retain the ability to do so. To do otherwise will result in an additional subsidy from other customers paying full tariffed rates.
R.D. at 75 (quoting OCA St. 1-R at 2). The ALJs reasoned that Columbia can use its
discretion in determining whether to apply the DSIC to customers with competitive
alternatives. The ALJs concluded that, “[i]n a situation where a viable competitive
alternative exists, even if not yet constructed, the Company should have the ability to
reduce or eliminate the DSIC for that customer, if necessary.” R.D. at 75. The ALJs
were not convinced by Penn State’s argument that discretionary language would result in
uncertainty and loss of customers, because Columbia has a vested interest in retaining
and gaining customers with competitive alternatives and can eliminate the DSIC for such
customers, if necessary, to keep these customers. Id.
3. Exceptions and Replies
In its Exception, Penn State avers that the Commission should reject the
ALJs’ adoption of the OCA’s proposed tariff language addressing the application of the
DSIC to customers with competitive alternatives. Penn State Exc. at 2. Penn State states
that the language “may reduce or eliminate” and “if it is reasonably necessary to do so”
creates confusion and uncertainty for competitive customers regarding whether the DSIC
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will be applied to them. Penn State asserts that the Commission should, instead, adopt
Columbia’s proposed DSIC tariff language, which contains clarifications proposed by
Penn State and accepted by Columbia and clearly and unambiguously states that the
DSIC charge will not apply to customers that have negotiated rates due to competitive or
potential competitive alternatives. Id. at 3.
First, Penn State argues that the OCA’s tariff language is ambiguous and
confusing because it does not accurately reflect how Columbia will treat DSIC for flex
customers. Penn State avers that Columbia has clearly indicated that it will not apply
DSIC to flex customers, but the ALJs’ recommended use of the OCA’s tariff provision
negates Columbia’s decision. Id. at 4. Penn State believes that the ALJs and the OCA
improperly strip the Company of its decision and, for purposes of this tariff provision,
incorrectly communicate to customers or potential customers that the DSIC can apply to
flex service when the Company has stated, in its sworn testimony, that it will not. Penn
State asserts that the OCA’s proposed language creates uncertainty because customers or
potential customers will have no real notice regarding whether the DSIC will be applied
to them since it is unclear what “reasonably necessary” means and whether they qualify
under that subjective standard. Id. at 5.
Additionally, Penn State contends that the “potential competitive
alternatives” language referenced in the Company’s and Penn State’s proposals should be
retained in the tariff language as it better reflects the circumstances and reality of
negotiated rate agreements. Id. at 6. Penn State explains that knowing whether charges
such as the DSIC will apply is important to a customer’s determination on whether to
stay with a company, such as Columbia. Penn State also explains that it is in Columbia’s
interest to retain a customer or attract new business from a customer by having a clear
tariff provision stating that DSIC will not apply to flex rates given the potential
competitive alternative. Penn State indicates that, once a customer spends the time and
effort for the potentially competitive alternative to be identified, the customer should not
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have to go to the next step and take the potentially liability-inducing actions of signing
contracts with competitors or building bypass facilities. Penn State notes that such
contracts or facilities that are initiated with the purpose of making flex rates not subject to
DSIC would then have to be respectively unwound or not used to allow Columbia to
retain the customer. Id. at 7.
Second, Penn State argues that Columbia’s testimony that it will not apply
the DSIC to flex, discount, or competitive customers is consistent with the Commission’s
Final Implementation Order and Commission policy. Penn State states that negotiated
rate customers who have paid for their own infrastructure will not receive a benefit from
the DSIC improvements, and Columbia has recognized this principle in its intent not to
apply the DSIC to competitive customers, so that rates are based on cost-causation. Id.
at 8. Penn State notes that, as its witness, James L. Christ, explained “[c]ompetitive
customers have already been through a negotiation with the utility to determine the rates
and terms necessary to reach an agreement… it would not be appropriate for the utility to
attempt to add additional costs of a DSIC and burden the customer, violating the
agreement.” Id. at 9 (quoting Penn State St. 1 at 4). Penn State also cites to the
Commission’s reasoning in the Final Implementation Order that applying the DSIC to
competitive customers would be counter-productive over time because it would cause
competitive customers to leave the utility, and the loss of these customers would be
detrimental to the other customer classes as there would be no support for infrastructure
costs. Id. at 9-10 (citing Final Implementation Order at 46).
Third, Penn State argues that the ALJs’ adopted language ignores the
reality of Columbia’s contractual relationship with competitive customers. Penn State
avers that the ALJs’ reasoning, which implies that the language “may reduce or
eliminate” would allow Columbia the flexibility and discretion to unilaterally modify its
competitive customer contracts, ignores the fact that Columbia is already recovering the
amount necessary to retain these competitive customers. Id. at 10. Penn State explains
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that Columbia currently excludes from the DSIC calculation the consideration of
revenues from customers with negotiated contracts. As such, Penn State asserts, there is
no reason that Columbia should or could apply the DSIC to competitive customers due to
the contractual relationship between the parties. Id. at 11 (citing Columbia St. 1-R at 7).
Penn State reasons that companies which have entered into contracts with energy
suppliers expect those agreements to be honored, have made decisions and budgets based
on the contracts, and do not anticipate that these contracts will be subject to additional
surcharges or modifications in the future. Id. at 10. Penn State believes that the “shall
not” language unambiguously signals to these customers, like Penn State, that Columbia
will honor its contracts. Id. at 11.
In response, the OCA states that the ALJs correctly recommended the
adoption of the OCA’s proposed tariff language for Columbia’s customers with
negotiated or flexed rates and competitive alternatives, because the language gives the
Company flexibility and discretion regarding the application of the DSIC to these
customers. OCA R. Exc. at 8. In support of its proposed language, the OCA refers to the
Commission’s Final Implementation Order, which the OCA avers provides that a utility
should have flexibility in determining whether to apply the DSIC to customers with
competitive alternatives or negotiated contracts. Id. (citing Final Implementation Order
at 46). The OCA also avers that its proposed language is not ambiguous or confusing,
but merely permits flexibility in determining whether to apply the DSIC to customers
with competitive alternatives or negotiated contracts, consistent with the Final
Implementation Order. The OCA contends that Penn State’s concerns regarding
Columbia unilaterally altering its current contracts to include the DSIC are unfounded,
because Columbia has not indicated in this case that it intends to do so. OCA R. Exc.
at 9.
The OCA additionally avers that Penn State’s position, that the tariff
should reflect Columbia’s statements that it will not apply the DSIC to customers
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with flexed or negotiated rates and competitive alternatives, is without merit. The
OCA contends that Columbia proposed in its tariff supplement to exercise its
discretion to reduce or eliminate the DSIC, if necessary, to retain a customer with
competitive or potential competitive alternatives. Id. The OCA states that it was
Penn State witness, Mr. Christ, that proposed such discretion be eliminated from
the tariff provision. OCA R. Exc. at 9 (citing Penn State St. 1 at 5). The OCA
also states that Columbia did not file Exceptions on this issue. OCA R. Exc. at 9.
Furthermore, the OCA responds to Penn State’s argument that the ALJs
should have recommended adoption of Penn State’s proposal to include “potential
competitive alternatives,” because the OCA’s proposal would require companies to sign
contracts with competitive alternatives to Columbia or to build bypass facilities. The
OCA asserts that Penn State’s argument is unsupported, because both Columbia and the
OCA explained that, in a situation where a viable competitive alternative exists, even if
not yet constructed, the Company should have the ability to reduce or eliminate the DSIC
for that customer. Id. at 10 (citing OCA M.B. at 41; Columbia M.B. at 24). The OCA is
also concerned that the use of the word “potential” may be read too broadly to suggest
that a viable competitive alternative is not necessary for the waiver of the DSIC. OCA R.
Exc. at 10.
4. Disposition
We agree with the ALJs’ decision to adopt the OCA’s proposed
language in this proceeding. In our Final Implementation Order, we stated that
“utilities should have the flexibility to not apply the DSIC surcharge to customers
with competitive alternatives and customers having negotiated contracts from the
utility.” Final Implementation Order at 46 (emphasis in original). We also
acknowledged the reality of a public utility’s contractual relationship with
competitive customers in stating that, “[w]here the customer negotiated rates based
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on competitive alternatives, it would be contrary to the contract terms and
counterproductive in the long term to add costs that may induce the customer to
leave the system and provide no support for infrastructure costs.” We then
indicated that, accordingly, the DSIC “need not be applied” to competitive
customers. Final Implementation Order at 46. As such, our Order provided
public utilities, like Columbia, with the discretion to not apply the DSIC to
competitive customers. We find that the OCA’s proposed language reflects our
conclusion on this issue in the Final Implementation Order, as Columbia “may
reduce or eliminate” the DSIC to competitive customers and customers with
negotiated contracts. We note that Columbia has not filed Exceptions on this
issue, and, with the exception of Columbia’s proposed language relating to
“potential competitive alternatives,” the adopted language is nearly identical to
Columbia’s originally proposed tariff language.
We believe that the adopted language strikes a reasonable balance
between the interests of residential customers, public utilities, and competitive
customers. As the OCA points out, if Columbia can recover some of its
distribution system improvement costs without losing a competitive customer to
bypass, it should retain the ability to do so in an effort to avoid an additional
subsidy from other customers paying full tariffed rates. See, OCA St. 1-R at 2.
Likewise, Columbia will have the ability to reduce or eliminate a DSIC in order to
retain or gain a competitive customer. There is no indication that Columbia
intends to, or would benefit from, altering its existing contracts with competitive
customers.
Moreover, we agree with the OCA that the inclusion of “potential
competitive alternatives” may be read too broadly. We also find that the use of
these terms is unnecessary to further explain or expand upon the meaning of
customers with “competitive alternatives” or to convey that the Company should
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have the ability to reduce or eliminate the DSIC for a customer in a situation
where a viable competitive alternative exists, even if not yet constructed. This is
particularly true because the adopted language contains the phrase “any customer
with competitive alternatives who are paying flexed or discounted rates and
customers having negotiated contracts with the Company.” Columbia’s current
Commission-approved tariff contains provisions governing negotiated contract
service and flexible rate provisions and the requirements a customer must meet in
order to qualify for a lower rate. For example, in order to receive a flexible
distribution charge, a customer must submit a sworn affidavit stating, among other
things, that the customer has alternate fuel capability in place and operable or
would otherwise construct facilities to obtain gas service from an alternate source.
Supplement No. 181 to Tariff Gas – Pa. P.U.C. No. 9, Second Revised Page No.
69. Columbia’s tariff provisions currently address and provide any clarification
necessary for explaining the meaning of customers with “competitive
alternatives,” and we do not see any valid reason, in this proceeding, to go beyond
what is included in the tariff. For all of these reasons, we shall deny Penn State’s
Exception.
IV. Conclusion
Based on our review of the record in this proceeding, including the
ALJs’ Recommended Decision and the Exceptions and Replies to Exceptions, we
shall deny the Exceptions filed by Columbia, the OCA, and Penn State and adopt
the ALJs’ Recommended Decision. We find that Columbia has met its burden of
proof for our approval of its DSIC calculation under Act 11. We conclude that
Columbia is not required to include an ADIT adjustment in its DSIC calculation
and that Columbia is permitted to include the state income tax gross-up in its
DSIC calculation. We also find reasonable the tariff language proposed by the
OCA regarding the application of the DSIC to customers with competitive
alternatives, as set forth in this Opinion and Order; THEREFORE,
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IT IS ORDERED:
1. That the Exceptions filed by Columbia Gas of Pennsylvania,
Inc. on March 26, 2014, are denied.
2. That the Exceptions filed by the Office of Consumer Advocate
on March 26, 2014, are denied.
3. That the Exceptions filed by The Pennsylvania State
University on March 26, 2014, are denied.
4. That the Recommended Decision of Administrative Law Judges Mark
A. Hoyer and Jeffrey A. Watson, issued on March 6, 2014, is adopted, consistent with this
Opinion and Order.
5. That the distribution system improvement charge calculation proposed
by Columbia Gas of Pennsylvania, Inc. is hereby approved, effective April 1, 2013,
consistent with this Opinion and Order.
6. That the distribution system improvement charge application
provided by Columbia Gas of Pennsylvania, Inc. to its customer classes, as set forth
in Supplement No. 195 to Tariff Gas – Pa. P.U.C. No. 9, shall provide as follows:
The DSIC shall be applied equally to all customer classes, except that the Company may reduce or eliminate the Rider DSIC to any customer with competitive alternatives who are paying flexed or discounted rates and customers having negotiated contracts with the Company, if it is reasonably necessary to do so.
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7. That Columbia Gas of Pennsylvania, Inc. shall file a tariff
supplement, consistent with this Opinion and Order, on ten days’ notice to be effective
April 1, 2013.
8. That, upon acceptance and approval by the Commission of the
tariff supplement and supporting data filed by Columbia Gas of Pennsylvania, Inc.,
as being consistent with this Opinion and Order, this proceeding shall be marked
closed.
BY THE COMMISSION,
Rosemary Chiavetta
Secretary
(SEAL)
ORDER ADOPTED: May 22, 2014
ORDER ENTERED: May 22, 2014
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