FILED MISS.PUBLICSERVICE COMMISSION MAR PUBLIC SERVICE COMMISSION BEFORE THE MISSISSIPPI

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1 FILED BEFORE THE MISSISSIPPI MAR PUBLIC SERVICE COMMISSION MISS.PUBLICSERVICE IN RE: WILLMUT GAS AND OIL COMPANY D/B/A WILLMUT GAS COMPANY'S NOTICE OF INTENT TO CHANGE RATES BY ELIMINATING ONE OF THREE METHODOLOGIES USED TO CALCULATE ALLOWED RETURN IN RIDER RSA COMMISSION DOCKET NO.: '14-UN- n 58 ID #: GC RP 9 DESIGNATION: Petitioner Designates This Filing As A Routine Filing Under RP 9 PROPOSED EFFECTIVE DATE: 30 days from the date of filing NOTICE OF INTENT TO CHANGE RATES COMES NOW Willmut Gas and Oil Company d/b/a Willmut Gas Company, through its president, hereinafter referred to as "Willmut," and, pursuant to Miss. Code Ann (2009), and RP of the Public Utilities Rules of Practice and Procedure, gives notice of its intent to change rates by eliminating one of the three methodologies used to calculate allowed return in Willmut's Rate Stabilization Adjustment Rider RSA ("Rider RSA"). In support, Willmut would show the following: 1. Willmut is a public utility as defined in Miss. Code Ann (d) (2013), and is engaged in the business of providing natural gas service to and for the public for compensation in Forrest, Jones, Lamar, Simpson, Rankin and Covington Counties, Mississippi, having its principal place of business at 315 South Main Street, Hattiesburg, Mississippi. Willmut's mailing address is Post Office Box 1649, Hattiesburg, Mississippi

2 2. Willmut is a holder of a Certificate of Public Convenience and Necessity authorizing its operations in a specified area of the above-listed counties, and is rendering service in accordance with its Service Rules and Regulations and in accordance with a schedule of rates and charges, including the Rider RSA, which are a part of its tariffs that have been previously approved by order of this Commission ("Commission"). 3. Rider RSA presently averages the results from three methodologies in calculating Willmut's allowed return for a given year: (i) the Discounted Cash Flow Model ("DCF"), (ii) the Capital Asset Pricing Model ("CAPM"), and (iii) Regression Analysis. Willmut proposes to change rates by eliminating the CAPM from such a calculation. Since the CAPM generally underestimates the cost of equity for natural gas utilities comparable to Willmut, its use in the current Rider RSA does not lead to an accurate measure of Willmut's allowed return. In fact, the two other major natural gas utilities operating in Mississippi, Atmos Energy and CenterPoint Energy, no longer include CAPM with the DCF and Regression Analysis in calculating their allowed return under their respective annual rate adjustment rider. 4. The precise description of the modifications proposed are reflected on the existing Rate Stabilization Adjustment Rider RSA attached as Exhibit "A". Proposed deletions from the existing Rider RSA are struck through. Additions are underlined. The proposed changes are necessary and in the public interest. 5. This filing does not involve a substantial revenue adjustment and may become effective thirty days from service upon the Executive Secretary of the Commission and the Executive Director of the Mississippi Public Utilities Staff ("Staff"). WHEREFORE, Willmut gives notice that the proposed modifications incorporated in the attached as Exhibit "A" shall go into effect thirty days from the date of service upon the

3 Executive Secretary of the Commission and the Executive Director of the Staff, unless a shorter time is fixed by the Commission. RESPECTFULLY SUBMITTED, this the day of March, WILLMUT GAS AND OIL COMPANY d/b/a WL TG OMPANY By: Karl icken, ent OF COUNSEL: James L. Halford, Esq. Brunini, Grantham, Grower & Hewes, PLLC The Pinnacle Building, Suite E. Capitol St. Jackson, MS Telephone: (601) Facsimile: (601)

4 STATE OF MISSISSIPPI COUNTY OF FORREST Personally appeared before me, the undersigned authority in and for the jurisdiction aforesaid, Karl Ficken, who, after being by me first duly sworn, deposes and says that he is the President of Willmut Gas and Oil Company d/b/a Willmut Gas Company, that he has filed the above and foregoing for and on behalf of Willmut Gas and Oil Company d/b/a Willmut Gas Company, that he is fully authorized to do so, and that the statements contained in this Notice of Intent to Change Rates are true and correct to the best of his knowledge, information and belief. Karl SWORN TO AND SUBSCRIBED BEFORE ME, this the day of March, My Commission Expires: NOTARY PUBLÌC

5 CERTIFICATE OF SERVICE I, James L. Halford, counsel for Willmut Gas & Oil Company d/b/a Willmut Gas Company, ("Willmut") in its Notice of Intent to Change Rates filed with the Mississippi Public Service Commission, do hereby certify that in compliance with Miss. Code Ann (6) and RP of the Public Utility Rules of Practice and Procedure: 1. An original and twelve copies of the foregoing Notice of Intent have been hand delivered for filing to: Brian U. Ray, Executive Secretary Mississippi 2nd Floor, Woolfolk State Office Bldg. Jackson, Mississippi A copy of the foregoing Notice of Intent has been hand delivered to Virden Jones, Executive Director, Mississippi Public Utilities Staff, 3rd Floor, Woolfolk State Office Building, Jackson, Mississippi SO CERTIFIED this the / day of March, JA ES L. HALFORD / rney for Willmut Gas & Oil Company, d/b/a Willmut Gas Company

6 WILLMUTGAS &OIL COMPANY (Name of UtilityOrganization or Other ServingAgency) Mississippi P S. C. SCHEDULE NUMBER Systemwide REVlSED NO DATE ISSUED SUPERSEDES SCHEDULE NO TYPE UTILITYSERVICE Natural GaS SCHEDULE CONSlŠTS OF SHEETS CLASSOF SERVICE (Residential, Commercial, industrial, Ruraf) (Electric, Gas, Telephone, Water, Sewer) DATE ISSUED (This space for statement of availability, character of service, rate, minimum charge, terms of payment, special conditions, and minimum contract period pertinent to the application of this particular rate schedule) RATE STABILIZATION ADJUSTMENT RIDER RSA APPLICABILITY This rider is applicable to natural gas service provided by Willmut Gas & Oil Company ("WGO" or "Company") under any rate schedule or rider incorporating Rider RSA by reference. Rider RSA was authorized to become effective with all bills rendered on and after February 1, The Rate Stabilization Adjustment will be calculated annually based on Willmut's books and records for the most recent twelve-month period ending June 30 with revised rate schedules made effective October 1 of the same year. APPLICATION OF RATE STABILIZATION ADJUSTMENT CLAUSE FACTORS AND CALCULATION PROCEDURE (1) For each twelve-month period ended June 30, a determination shall be made pursuant to this rider as to whether the Company's revenue should be increased, decreased or left unchanged. If it is determined that the revenue should be increased or decreased, the applicable natural gas rates as determined above will be adjusted in the manner set forth in this rider. Revised rates will be applicable to bills rendered on and after October 1 and the RSA will remain in effect until changed under the provisions set forth in this rider or by order of the Mississippi (hereinafter "MPSC"). CONTINUED ON SHEET 2 ISSUED BY Karl H Ficken President Hattiesburg, MS (Name) (Title) (Address) EXHIBIT

7 WILLMUTGAS &OIL COMPANY (NameofUtilityOrganizationorOtherServingAgency) CONTINUATION OF SCHEDULE Systemwide Sheet i of 9 SHEETS (2) (a) If, for the twelve month period ended June 30, the Company's return on equity (ROE) adjusted for the known and measurable changes described in Appendix II, is greater than 100 basis points below the AR as calculated below, the base rates under the rate schedules subject to this Rider RSA shall be increased for 75 percent of the amount necessary, in total, to restore the ROE to a level equal to the AR. (b) If, for the twelve month period ended June 30, the Company's ROE, adjusted for the certain known and measurable changes described in Appendix II, is greater than 100 basis points over the AR as calculated below, the base rates under the rate schedules subject to this Rider RSA shall be decreased by 50 percent of the amount necessary, in total, to restore earnings to a level equal to the AR. (3) Should a change in revenues be required under the terms of this Rider RSA, then the Rate Stabilization Adjustment (hereinafter "RSA") shall be developed using the formula in the Rate Stabilization Adjustment Clause Formula set forth below. The adjustment shall be calculated directly from actual costs recorded in the books and records of the Company, adjusted for the known and measurable changes described in Appendix II. (4) The RSA will be added to the therm rates as listed in the rate schedules to which this rider is applicable. The Company will file revised rate schedules subject to this rider with the MPSC each time the rates are adjusted pursuant to this Rider RSA, and those revised rate schedules subject to this rider shall then become the filed rates of the Company. CALCULATIONS OF ALLOWED RETURN To calculate AR each year, the results from the following shall be averaged: two methodologies I. Discounted Cash Flow (DCF) II. HI--Regression Analysis cownnued ON SHEET _3

8 + WILLMUT GAS &OIL COMPANY (Name of UtilityOrganization or Other Serving Agency) CONTINUATION OF SCHEDULE Systemwide Sheet 3 of 9 SHEETS I. Discounted Cash Flow The following annual version of the DCF model shall be used. D1 k = Po g Where: D1 = The dividend for the next period as calculated. (Current dividend as reported in Value Line times one plus "g"). Po Stock price for the gas utility. The stock price used in the formula shall be the average of = the weekly closing stock prices as presented in Barron's for the most current three months available. g Growth rate for the gas utility. The growth rate data shall be obtained from Value Line = Investment Survey and from Standard & Poor's Earnings Guide. The sample gas utilities shall be derived from the companies contained in the Natural Gas (Distribution) Industry group in the Value Line Investment Survey. The sample gas companies shall be those with annual operating revenues not less than one-half nor more than approximately twice those of the Company. In the event that the aforementioned selection criteria results in fewer than ten sample companies, such groups shall be represented by the ten companies in the Value Line list having the lowest annual revenues. Provided, however, that no company shall be selected if the required information concerning the company is not available or if the dividend growth rate is zero or a negative number. The DCF model described above shall be replicated twice, once with each of the different growth rate estimates for "g" as listed below. The truncated mean of each replication shall be used, derived by discarding the highest and lowest results of each replication of the DCF calculation. The first growth rate shall be the five-year historical dividend growth rate as reported in the Value Line Investment Survey. The second growth rate shall be the five-year estimated earnings growth rate as reported in Standard and Poor's Earnings Guide. The results of the two truncated growth rates shall be averaged. A ten basis point adjustment for flotation costs shall be added to the average truncated cost rate and that sum shall represent the DCF cost rate for purposes of this analysis. CONTINUED ON SHEET 4

9 WILLMUT GAS &OIL COMPANY (Narne of UtilityOrganization or Other Serving Agency) CONTINUATION OF SCHEDULE Systemwide Sheet i of 9 SHEETS IH. Regression Analysis The regression analysis shall be the result of solving the following straight-line regression equation: Y= a+b(x) The dependent variable (Y) represents the average return on common equity allowed in all gas rate cases by state regulatory commissions as reported by Regulatory Research Associates for a given calendar year. The independent variable (X) represents Moody's average annual A-rated public utility bond seasoned yields for the year corresponding to the allowed return on equity. The model shall utilize data for the period from 1982 to date. From that point in time a rolling 15 years of data shall be utilized. The regression analysis shall be solved for the calculated allowed return on equity (Yc) using the estimated parameters "A" and "B" from the equation and using the monthly Moody's A-rated utility bond yields for the most recent calendar quarter. Summary The AR shall represent the midpoint of the allowed return on common equity of from 100 basis CONTINUED ON SHEET 5

10 ROE) WILLMUTGAS &OIL COMPANY (Nameof UtilityOrganizationorOtherServingAgency) CONTINUATION OF SCHEDULE Systemwide Sheet i of 9 SHEETS points below such cost rate at the low end to a cost rate 100 basis points above such a rate at the high end (the "Allowed Return Range"). RATE STABILIZATION ADJUSTMENT CLAUSE FORMULA (1) The RSA formula will be used to calculate an adjustment per therm for rate schedules subject to this rider to be applied whenever the Company's calculated ROE for the twelve- month period ended June 30 is outside the Allowed Return Range. The RSA shall be applied so as to adjust the rate schedules to which the RSA is applicable. (2) (a) Step 1 Calculate the total adjustment necessary to bring the Company's calculated ROE to a level that equals the AR as follows: Rate Stabilization Adjustment = (AR - x (CE) - (1 T) where, for the twelve month period ended June 30, AR Company's allowed return on equity as calculated = using the average of the three-two methodologies described above. ROE = Return on Equity CE = Common equity T = Combined Federal and State Income Tax Rate (b) Step 2 Calculate the RSA per therm. FILING PROCEDURES On or before September 1, during the term of this rider, the Company will file its AR calculation, as well as any RSA calculation, revised rate schedules, or calculations that may be warranted under this rider. The Public Utilities Staff may request clarification and additional data and the Company will CONTINUED ON SHEET _6

11 WILLMUT GAS &OIL COMPANY (NameofUtilityOrganizationorOtherServingAgency) CONTINUATION OF SCHEDULE Systemwide Sheet 6 of 9 SHEETS provide the same. Unless disputed by the Public Utilities Staff, any revised rate schedules filed will become effective with billing on and after October 1. If the Public Utilities Staff disputes the calculation of the AR, RSA, or any component thereof, the Public Utilities Staff shall notify the Company on or before September 20. The Company and the Public Utilities Staff shall work in good faith to resolve all disputes and answer all questions. If the Company and the Public Utilities Staff agree that any calculations should be revised, the Company shall file with the MPSC the resulting adjusted rate calculations, or revised rate schedules that would be effective with billing on and after October 1. If the Company and the Public Utilities Staff are unable to resolve all issues regarding the said calculations or plan, or any component thereof, then the undisputed portion of said calculations shall become effective with billing on and after October 1. The Company and the Public Utilities Staff shall jointly submit the disputed portions to the MPSC. The MPSC shall resolve any remaining disagreements between the Company and the Public Utilities Staff regarding the said calculations or plan on or before December 1 of the same year. Any adjustment of the calculations or plan resulting from the resolution of the remaining disputed issues subsequent to the October 1 effective date will be made as a compensating adjustment to the RSA or refund credits at the time of the resolution. EVALUATION PERIOD ADJUSTMENTS Costs not allowable for ratemaking purposes shall be removed by adjustment to the current evaluation period cost data. HEARINGS No hearing is required except as provided by applicable statute or commission order. MAJOR MODIFICATIONS AND FORCE MAJEURE PROVISIONS It is recognized that Company must from time to time construct or acquire major plant, make major modifications to existing plant, or comply with environmental laws and regulations. The addition or modification of such plant may significantly increase the Company's revenue requirements and require a significant rate adjustment. This tariff is not designed to handle any rate increase occasioned by such major addition or modification of plant. Should the Company construct, have constructed, or purchase in place major modifications to existing plants, the Company may file for rate or other relief outside this tariff, but in accordance with the law of the governing such filings, and the request shall be handled by the Commission in its regular manner. If any cause beyond the reasonable control of the Company, such as natural disaster, damage or loss of capacity, orders or acts of civil or military authority, the happening of any event or events which CONTINUED ON SHEET _7

12 WILLMUT GAS& OIL COMPANY (Name of UtilityOrganization or Other Serving Agency) CONTINUATION OF SCHEDULE Systemwide sheeti of 9 SHEETS cause increased cost to the Company, or other causes whether similar or not, results in a deficiency in revenues which is not readily capable of being redressed in a timely manner under this tariff, the Company may file for rate or other relief outside this tariff, but in strict accord with the law of the State of Mississippi governing such filings and the said request shall be handled by the Commission in its regular manner. RATE DESIGN Experimental, developmental, and alternative rate schedules are appropriate tools for the Company to use to meet the requirements of the changing business environment and the increasing competition being experienced by the Company and throughout the natural gas industry. Therefore, nothing in this tariff shall be interpreted as preventing the Company from revising, adopting, or implementing rate schedules as may be appropriate and as provided by law. Any such schedules shall be filed with the Commission in accordance with the procedures then in effect during the term of this tariff. CONTINUED ON SHEET1

13 8 WILLMUT GAS &OIL COMPANY (NameofUtilityOrganizationorOtherServingAgency) CONTINUATIONOFSCHEDULE Systemwide Sheet 8 of 9_ SHEETS Line N_o. Rate Base 1. Plant in Service 2. Gas Plant Held for Future Use 3. Construction Work in Progress* 4 Less: Accumulated Depreciation 5. Net Plant Plus: 6. Working Capital (12.5 % of Operating Expenses) 7. Materials and Supplies 8. Prepayments Less: 9. Deferred Income Tax (Adjusted for PGA Variances) 10. Customer Advances for Construction 11. Unamortized Investment Tax Credit 12. Customer Deposits 13. Insurance Reserves 14. Rate Base * Construction Work in Progress shall include those projects with an estimated construction period of less than one year. APPENDIX I CONTINUED ON SHEET _9

14 WILLMUTGAS &OIL COMPANY (Name of UtilityOrganization or Other Serving Agency) CONTINUATION OF SCHEDULE Systemwide Sheet 9 of 9 SHEETS Line Calculation of ROE 1. Revenues (adjusted for known changes) See Note 1. Less: 2. Cost of Purchased Gas (See Note 1) 3. Operating and Maintenance Expense 4. Interest on Customer Deposits 5. Depreciation 6. Taxes Other Than Income 7. Interest Cost 8. FIT and SIT 9. Net Income (Equity) 10. Common Equity 11. Return on Equity (ROE) Interest Cost 12. Rate Base 13. Debt Capitalization Ratio 14. Debt Rate 15. Interest Cost Common Equity 16. Rate Base 17. Equity Capitalization Ratio 18. Common Equity Note 1: The following known and measurable changes shall be used to adjust revenues, purchased gas costs and revenue related taxes: 1. Revenues will be adjusted by Company normalizing weather sensitive volumes to the five year historical average. Weather sensitive volumes are defined as all PGA gas and specific Market Based Rate customers. 2. Adjust cost of gas purchased for changes in sales volumes due to temperature normalization computed in the same manner as in this Docket 98-UN Adjustments attributable to industrial or large commercial customer loads which are known to be lost or added as of the Annual Filing Date. 4. Adjustments that will accrue as a result of prior rate changes or prior RSA adjustments. APPENDIX II