Re: Pennsylvania Public Utility Commission v. Peoples TWP LLC Docket No. R

Transcription

1 DOST SCIIELL,. ATTOB NETS AT LAW 17 North Second Street 12th Floor Harrisburg, PA Main Main Fax Michael W. Hassell Direct Direct Fax File #: 2274/ May2, 2014 VIA ELECTRONIC FILING Rosemary Chiavetta, Secretary Pennsylvania Public Utility Commission Commonwealth Keystone Building 400 North Street, 2nd Floor North P.O. Box 3265 Harrisburg, PA Re: Pennsylvania Public Utility Commission v. Peoples TWP LLC Docket No. R Dear Secretary Chiavetta: Enclosed for filing is the Joint Settlement of All Issues of the Rate Investigation Pursuant to 66 Pa.C.S. 1307(f), in the above-referenced proceeding. Copies will be provided as indicated on the Certificate of Service. Respectfully submitted, Michael W. Hassell MWH/jl Enclosure t&ce4/4 cc: Honorable Jeffrey Watson Certificate of Service I v1 ALLENTOWN HARRISBURG LANCASTER PHILADELPHIA PITTSBURGH PRINCETON WASHINGTON, D.C. A PENNSYLVANIA PROFESSIONAL CORPORATION

2 CERTIFICATE OF SERVICE I hereby certify that a true and correct copy of the foregoing document has been served upon the following persons, in the manner indicated, in accordance with the requirements of 1.54 (relating to service by a participant). VIA & FIRST CLASS MAIL Sharon Webb, Esquire Office of Small Business Advocate 300 North Second Street, Suite 1102 Harrisburg, PA Allison Kaster, Esquire Bureau of Investigation & Enforcement Commonwealth Keystone Building 400 North Street, 2nd Floor West P0 Box 3265 Harrisburg, PA David Evrard, Esquire Office of Consumer Advocate 555 Walnut Street Forum Place, 5th Floor Harrisburg, PA Kevin J. McKeon, Esquire Christopher M. Arfaa, Esquire Whitney E. Snyder, Esquire Hawke McKeon & Sniscak LLP 100 North Tenth Street P.0. Box 1778 Harrisburg, PA Quentin Spitzer XTO Energy Inc. 810 Houston Street Fort Worth, TX Kevin J. Moody, Esquire General Counsel Pennsylvania Independent Oil & Gas Association 212 Locust Street, Suite 300 Harrisburg, PA Robert D. Knecht Consultant for OSBA Industrial Economics Incorporated 2067 Massachusetts Avenue Cambridge, MA Melissa Whitten Alvaro Pereira Consultants for OCA LaCapra Associates One Washington Mall, 9th Floor Boston, MA Dated: May2, 2014 Mic ael V Hassell

3 BEFORE THE PENNSYLVANIA PUBLIC UTILITY COMMISSION Pennsylvania Public Utility Commission Office of Consumer Advocate Office of Small Business Advocate Docket Nos. R C C Peoples TWP LLC JOINT SETTLEMENT OF ALL ISSUES OF THE RATE INVESTIGATION PURSUANT TO 66 Pa.C.S. 1307(1) TO ADMINISTRATIVE LAW JUDGE JEFFREY A. WATSON: The Bureau of Investigation and Enforcement ("I&E") of the Pennsylvania Public Utility Commission ("Commission"), the Office of Consumer Advocate ("OCA"), the Office of Small Business Advocate ("OSBA"), XTO Energy Inc. ("XTO Energy"), and Peoples TWP LLC ("Peoples TWP" or the "Company"), parties to the above-captioned proceeding (hereinafter, collectively referred to as the "Parties") 1, hereby join in this Joint Petition for Settlement of All Issues of the Rate Investigation Pursuant to 66 Pa.C.S (f) ("Settlement") and respectfully request: (1) that Administrative Law Judge Jeffrey A. Watson ("AU") approve this Settlement in its entirety to become effective for service furnished on and after August 1, 2014; and (2) that the ALJ and the Commission make the findings required by the Public Utility Code, as provided herein. Under the Settlement, as fully set forth and explained below, the Parties have resolved 1 Pennsylvania Independent Oil & Gas Association ("PIOGA"), an intervenor and the only other party in this proceeding, has indicated that it does not oppose the Settlement. PIOGA's letter of non-opposition is affixed as Attachment G to the Settlement. I v1

4 all of their issues relative to Peoples TWP's 2014 Purchased Gas Cost ("PGC") proceeding at Docket No. R In support of this Settlement, the Parties represent as follows: I. INTRODUCTION 1. Peoples TWP is a limited liability company formed under the laws of the Commonwealth of Pennsylvania for the purpose of providing natural gas transmission, distribution, and supplier of last resort services subject to the Commission's regulatory jurisdiction. Peoples TWP is an affiliate of Peoples Natural Gas Company LLC ("Peoples') 2. Peoples TWP is a "public utility" and a "natural gas distribution company" as those terms are defined in Code Sections 102 and 2202, 66 Pa.C.S. 102, Peoples TWP provides retail natural gas sales and transportation services to approximately 60,300 customers throughout its service territory, which includes all or portions of the following Pennsylvania counties: Allegheny, Armstrong, Beaver, Butler, Cambria, Clarion, Clearfield, Indiana, Jefferson, and Westmoreland. 4. Because Peoples TWP's annual operating revenues, derived from providing gas service to customers in Pennsylvania, exceed $40 million, Peoples TWP's recovery of purchased gas costs is governed by Section 1307(f) of the Public Utility Code, 66 Pa.C.S. 1307(f), and the Commission's regulations at 52 Pa. Code and On December 31, 2013, Peoples TWP submitted to the Commission, as required under 52 Pa. Code and 53.65, pre-filing data in support of a tariff supplement proposing changes in rates for recovery of purchased gas costs. The supporting data explained Peoples TWP's gas procurement practices and the basis for projections of the cost of purchased gas for the twelve-month period ending July 31, That pre-filing data reflected a projected decrease in the purchased gas rate applicable to residential retail service customers of v1 2

5 $0.0402/Mcf, based upon the November 1, 2013 purchased gas rates in effect as of the time of the pre-filing, as well as changes in the purchased gas rates for other customer classifications. 6. On January 23, 2014, I&E filed a Notice of Appearance. On January 27, 2014, the OSBA filed a Notice of Appearance. On January 29, 2014, the OCA filed a Notice of Appearance. The OCA also filed a Formal Complaint at Docket No. C on January 29, On February 13, 2014, the OSBA filed its Formal Complaint at Docket No. C XTO Energy filed a Notice of Appearance and Petition to Intervene on February 4, On January 31, 2014, Peoples TWP filed with the Commission a proposed supplement to Tariff Gas - Pa. P.U.C. No. 8. Concurrent with the filing of the Proposed Supplement, Peoples TWP filed the remainder of its direct case, consisting of prepared statements covering Peoples TWP' s gas procurement policy and the computation of purchased gas rates contained in the Proposed Supplement. 8. A prehearing conference was held on February 12, Prehearing conference memoranda were submitted by I&E, OCA, OSBA, XTO Energy and Peoples TWP. At the prehearing conference, the Parties established a schedule under which they would be able to complete litigation of the proceeding and allow the Commission to decide any contested issues within the statutory six-month notice period. 9. On February 25, 2014, PIOGA filed a Petition to Intervene. 10. Formal discovery requests have been propounded by the Parties and Peoples TWP has provided responses. The Parties also exchanged information through informal discovery v1 3

6 11. On March 5, 2014, Peoples TWP submitted supplemental direct testimony. On March 5, 2014, I&E, OCA, and OSBA each submitted direct testimony. 2 On March 25, 2014, Peoples TWP submitted second supplemental direct testimony. On March 26, 2014, Peoples TWP submitted rebuttal testimony. 12. On March 31, 2014, the ALJ issued an Interim Order granting PIOGA's Petition to Intervene. 13. In accordance with the Commission's Rules of Practice and Procedure (52 Pa. Code 5.231), the Parties engage in numerous settlement discussions in an effort to achieve a full settlement. 14. On April 1, 2014, the Parties reached an agreement in principle to settle all of the issues in this proceeding, and requested that the procedural schedule be suspended. 15. On April 8, 2014, the ALJ issued an Interim Order suspending, in part, the litigation schedule in this proceeding. 16. An evidentiary hearing was held on April 10, 2014, for the purpose of moving the Parties' respective testimony and exhibits into the record. 17. The Parties have agreed to the submission of this Settlement to provide information to support the necessary statutory findings required under Section 1307(f) and 1318 of the Public Utility Code, and are in full agreement that the Settlement is in the best interest of Peoples TWP's customers and Peoples TWP. 18. The agreement among the Parties' is set forth in Sections II through V of the Settlement, below. II. PROPOSED SETTLEMENT 19. The Parties propose to resolve all issues as set forth in Paragraphs 20 through PIOGA served direct testimony on March 5, 2014 but subsequently withdrew the testimony on March 13, I v1 4

7 20. Peoples TWP agrees to further evaluate design day requirements, specifically incorporating data from Winter in the statistical analysis, and evaluating the appropriateness of the following factors: Use of matched (calendar or gas day) sendout and weather data or other appropriate adjustments; Continued use of a quadratic HDD term; Use of a trend variable; Use of a weekday variable (or variables); Examination of the possible causes (and solutions) for autocorrelation; and Restricting statistical analysis to use of winter-only or high HDD days. The Company will provide an update on its evaluation as part of the 2015 PGC filing. 21. The Extra Demand factors applicable for the 2014 PGC Application Period will be as set forth in Attachment A. These factors are based upon extra demand allocation factors derived from design day and average day usage of customer classifications, adjusted for new and lost large volume customers. Parties' acceptance of this methodology is limited to this proceeding, and may not be used to constrain any Party's rights to offer alternative proposals for development of extra demand factors in future base rate or Section 1307(f) proceedings. 22. The Company shall be permitted to continue to recover shortfalls from customers with discounted retainage rates through higher PGC charges on sales customers and increased retainage rates on regular rate transportation customers in the PGC year. Effective July 1, 2014, the tariffed retainage rate for Small Volume transportation customers (Rate Schedules RS-T, SGS-T and MGS-T) shall be 5.0%, and the tariffed retainage rate for Large Volume transportation customers (Rate Schedules LGS-T and FTS) shall be 3.4%. The I v1 5

8 Company agrees that it will use its best efforts to avoid entering into any new customer agreements, or to extending any existing, customer agreerçlents, with retainage rates that are discounted below 2.4 percent for LGS customers and 4.2 percent for non-lgs customers. The Company agrees to provide a justification for any new or extended agreements entered into during calendar year 2014 with retainage rates discounted below those levels, in its next Section 1307(f) filing. 23. The Company's proposal for repricing and ultimate release of certain low flow vintage gas contracts is approved. 24. The Company's proposal to adopt an off-system sales sharing mechanism, in addition to its current capacity release sharing mechanism, is approved. Under the mechanism, 75% of net proceeds will be provided to customers and 25% of net proceeds will be retained by the Company. 25. The Company will be permitted to continue to credit toward recovery of PGC demand costs the actual amounts charged to transportation customers under discounted and fulltariff load balancing rates for the PGC year. The Company further agrees that it will use its best efforts to avoid entering into any new customer agreements, or extending any existing customer agreements, with discounted load balancing rates. The Company agrees to provide a justification for any new or extended agreements with discounted load balancing rates entered into during calendar year 2014 in its next Section 1307(f) filing. 26. The Company's proposal for repricing gas purchased under its standard local purchase contracts, as described in the Supplemental Direct Testimony of Company witness Wachter, is approved v1 6

9 27. Effective January 1, 2015, the Company will permanently release from dedication to Peoples TWP all local gas under current gas purchase agreements with XTO that contain a dedication provision. Such release will be done in lieu of the ongoing monthly or annual releases from dedication to Peoples TWP that were historically done in order to make gas supplies available for Peoples TWP '5 transportation customers. The Company shall enter into a new gas purchase agreement to be effective January 1, 2015, that will provide the Company with the unilateral option to purchase gas from XTO as follows: A) Peoples TWP shall have the option but not the obligation to purchase from XTO each month a fixed daily quantity of gas at the Inside FERC, Dominion Transmission, Inc. Appalachia Index first of the month price, such option to be exercised on the day before the start of bidweek as defined by Platts. The fixed quantity available for purchase shall be up to the total daily quantity of gas that is produced by XTO into Peoples TWP's system but not purchased by a licensed natural gas supplier ("NGS") on the Peoples TWP system; and B) Peoples TWP shall have the option but not the obligation to purchase during any calendar month a variable daily quantity of gas at the Gas Daily Midpoint Appalachia Dominion, South Point Index daily price, such option to be exercised on or before 8:00 a.m. eastern time of the day preceding the gas delivery day. The variable quantity available for purchase shall be up to the total daily quantity of gas that is produced by XTO into Peoples TWP's system but not purchased by a NGS on the Peoples TWP system and less any quantities purchased under A), above v1 7

10 Peoples TWP and XTO would enter into a seven year agreement with these terms along with an agreement to negotiate in good faith at the end of the term an extension along similar terms and conditions. III. PROPOSED FINDINGS OF FACT 28. Peoples TWP uses the new Peoples Service Company ("PSC") to monitor the rate and related tariff filings of the interstate pipelines serving Peoples TWP, as well as other important generic Federal Energy Regulatory Commission ("FERC") proceedings. 3 PSC monitors the proceedings before FERC on behalf of affiliates Peoples and Peoples TWP, and undertakes legal action as necessary to protect the interests of the ratepayers of these companies. (Peoples TWP Exhibit No. 1, Filing Response Requirement ("FRR") No. 4, pp. 15.) 29. Through PSC, Peoples TWP monitors Dominion Transmission Inc. ("Dominion"), Columbia Gas Transmission Corporation ("Columbia Transmission") and Equitrans, L.P., because the outcome of the FERC proceedings of these interstate pipelines may directly affect the services that Peoples TWP provides to its customers. PSC also has monitored proceedings of Tennessee Gas Pipeline Company ("TGP") and Texas Eastern Transmission Corporation ("TETCO") for Peoples TWP. However, as of November 1, 2013, all Peoples TWP capacity agreements with these two pipelines have expired. (Peoples TWP Exhibit No. 1, FRR No. 4, p. 16; Peoples TWP Exhibit No. 1, Filing Response Exhibit ("FRE") No. 10.) From time to time Peoples TWP has intervened in, monitored the progress of and occasionally submitted written comments in FERC proceedings where it has determined that such participation could be accomplished in a cost-effective manner. Going forward, PSC representatives will consider joint interventions and/or comments on behalf of Peoples TWP and Peoples in proceedings which are PSC's service offerings and pricing were established pursuant to Commission approved affiliated interest agreements. (Peoples TWP Statement No. 1, p. 1.) I v1 8

11 cost-effective and where it has joint interests. (Peoples TWP Exhibit No. 1, FRR No. 4, pp ) 30. During 2013, Peoples TWP made purchases from an affiliate, PA Gas Marketing LLC ("PAGM"). Purchases from PAGM were made pursuant to Peoples TWP's standard form Non-Dedication gas purchase agreement used to cover gas purchases from unaffihiated Pennsylvania producers. As a result, the purchase price paid to PAGM and the other terms and conditions of the Company's gas purchases from PAGM are identical to the purchase price and terms and conditions under which Peoples TWP purchased gas from non-affiliated local Pennsylvania producers. (Peoples TWP Exhibit No. 1, FRR No. 16, pp ) Effective November 14, 2013, PAGM transferred its book of business to an unaffiliated entity and no longer sells supply to Peoples TWP, as a result of the Commission-approved transaction that resulted in Peoples merger with Equitable Gas Company. Joint Application of Peoples Natural Gas Company LLC, Peoples TWP LLC, and Equitable Gas Company, LLC for All of the Authority and the Necessary CertfIcates of Public Convenience (1) to Transfer All of the Issued and Outstanding Limited Liability Company Membership Interest of Equitable Gas Company, LLC to PNG Companies LLC (2) to Merge Equitable Gas Company, LLC with Peoples Natural Gas Company LLC, (3) to Transfer Certain Storage and Transmission Assets of Peoples Natural Gas Company LLC to Affiliates of EQT Corporation, (4) to Transfer Certain Assets between Equitable Gas Company, LLC and Affiliates of EQT Corporation, (5) for Approval of Certain Ownersh4 Changes Associated with the Transaction, (6) for Approval of Certain Associated Gas Capacity and Supply Agreements, and (7) for Approval of Certain Changes in the Tariff of Peoples Natural Gas Company LLC, Docket Nos. A , A , and A (November 14, 2013.) v1 9

12 31. On September 28, 2012, Peoples TWP and Peoples filed an agreement at Docket No. G requesting Commission approval of an agreement for the exchange of gas. The agreement provides for an exchange of equivalent volumes between Peoples and Peoples TWP where the receipt of gas from the other party would provide more efficient operation of the recipient's system and will improve service reliability for both companies. (Peoples TWP Exhibit No. 1, FRR No. 16, pp ) Peoples TWP has provided details concerning exchanges each month through November 2013, and volumes have been reasonably in balance through the period. (Peoples TWP Exhibit No. APW-l.) 32. Peoples TWP has used 76 heating degree days ("HDDs") for calculating its design Peak Day system requirements. This level of degree days has occurred twice in the last 30 years in western Pennsylvania. (Peoples TWP Statement No. 1, pp ) 33. During the first quarter of 2014, temperatures in the Company's service area were 13% colder than normal. (Peoples TWP Statement No. 2-R, p. 2.) 34. On January 7, 2014, 67 HDDs were experienced in the Pittsburgh area. The Company flowed an estimated 148 MMCF on that day. (Peoples TWP Statement No. 2, p. 14.) Heat sensitive load on that day was approximately 5% below the Company's design day forecast, on a day that was 12% warmer than design day temperatures. (Peoples TWP Statement No. l-r, p.3.) 35. Peoples TWP has a policy of purchasing substantial supplies of natural gas from local Pennsylvania gas producers for base load supply requirements. (Peoples TWP Exhibit No. l,frrno. 1,p.3.) 36. In order to provide safe and reliable gas service during the Peak Demand Period (i.e., the winter months of November through March) and for the Peak Day to weather-sensitive v1 10

13 customers, Peoples TWP has acquired interstate firm storage and transportation capacity. (Peoples TWP Statement No. 2, p. 5.) 37. Interstate gas storage and transportation services and the availability of costcompetitive interstate gas supplies are used by Peoples TWP to complement the base load Pennsylvania gas supplies and satisfy Peoples TWP's Design Peak Day and Peak Demand Period system supply requirements. (Peoples TWP Exhibit No. 1, FRR No. 1, pp. 3-4.) 38. Interstate pipeline firm storage capacity represents a vast majority of Peoples TWP' s interstate pipeline demand or reservation charges and nearly all of Peoples TWP ' s total Peak Day interstate pipeline capacity charges. This service is specifically designed to provide gas supply during the Peak Demand Period when there are extra demands placed on the system. In addition to the critical winter season peaking role, firm storage capacity also provides daily system balancing capacity. Moreover, adequate storage capacity expands opportunities to purchase historically lower cost gas supplies available during the months of April through October to fill storage, thereby providing a reasonably priced inventory of gas to draw upon during periods of peak demand. (Peoples TWP Exhibit No. 1, FRR No. 6, pp ) 39. Year-round firm transportation service, together with the firm gas supply agreements, gives Peoples TWP a reliable source of gas supply that is critical during peak demand periods. During non-peak demand periods, this year-round firm transportation capacity can be used to deliver gas for injection into interstate pipeline storage facilities. (Peoples TWP Exhibit No. 1, FRRNo. 6, p. 34.) 40. Peoples TWP has arrangements with interstate pipelines to provide the necessary firm storage and firm transportation service which, when combined with firm interstate gas supply arrangements and its Pennsylvania-based system gas supply, will be sufficient to meet its v1 11

14 general system supply requirements, particularly those attributable to the peak demand of its weather-sensitive load. (Peoples TWP Exhibit No. 3, FRR No. 6, p. 35.) (a) (b) (c) Peoples TWP replaced its previously held Firm Storage agreement with TGP with a firm delivered supply agreement with Hess Corporation ("Hess"). The Hess agreement is a two year agreement, which provides Peoples TWP with 7,000 Dthld of firm deliverability at the Pittsburgh TGP Pittsburgh terminal city-gate. The agreement with Hess provides Peoples TWP with firm delivered supply without the monthly pipeline demand cost of a pipeline contract for firm capacity and without a mandatory take provision. (Peoples TWP Statement No. 2, pp ) Peoples TWP extended its Firm Transportation agreement with TCO on their system. As a result of the system design day study, Peoples TWP determined that its system requires capacity to meet the utility system requirements on the northeast side of the City of Butler. (Peoples TWP StatementNo. 2,p. 18.) On December 10, 2013, as set forth in the Joint Application Proceeding at Docket Nos. A and A , and approved by the Commission on November 14, 2013, Peoples TWP entered into Firm Storage and a transportation agreement with Equitrans. These agreements have replaced or will replace some of Peoples TWP's firm storage and related transportation capacity agreements provided by TCO and Dominion. The capacity under those Equitrans contracts will ramp-up to coincide with the expiration of various TCO and Dominion agreements. The rates for both the storage and firm transportation service are negotiated rates that are less than the Equitrans recourse rates for the services, and less than the current cost for this same capacity under the existing TCO and Dominion agreements. (Peoples TWP Statement No. 2, pp ) 41. Peoples TWP continues to purchase a substantial amount of its gas supply from Pennsylvania and Appalachian producers. (Peoples TWP Exhibit No. 1, FRR No. 6, p. 36.) (a) (b) Peoples TWP currently purchases gas under two forms of vintage contracts - fixed price and percent of market contracts. The fixed price contracts are long-standing agreements, which include a fixed price by which all gas would be purchased under the contract for the life of the well. The market contracts were former fixed-price vintage contracts. (Peoples TWP Exhibit No. 1,FRRNo. l,p. 10.) Historically, Peoples TWP has purchased local gas supply under a standard form local field price contract that was designed to relate to the price paid for local gas to the cost of gas on interstate pipelines. Due to the development of liquid commodity markets, and the development of new I v1 12

15 sources in the Appalachian production basin, Peoples TWP has changed the price paid under its standard form contract. On March 1, 2014, Peoples TWP began to use Inside F.E.R.C.'s Gas Market Report, "Price of Spot Gas Delivered to Pipelines," for deliveries of Appalachian production into Dominion's dry transmission system for first of the month. (Peoples TWP Statement No. 2-S, p. 4.) 42. Peoples TWP purchases gas from over 100 local Pennsylvania producers at over 2,100 receipt points pursuant to several forms of gas purchase agreements. (Peoples TWP ExhibitNo. 1,FRRNo. 6,p. 36.) 43. Peoples TWP only discounts retainage if certain competitive circumstances exist. If one of the competitive circumstances exists, then a test, as defined in the tariff, is performed to ensure that the customers provide a net benefit to the system. Peoples TWP provided information on the total volumes and weighted average discount retention rate relative to the volumes and retention of undiscounted customers and contemplated the impacts of such discounts on the derivation of retainage rates. (Peoples TWP Statement No. 1, pp ) 44. The development of natural gas drilling into the deep Marcellus Shale formation in western Pennsylvania and the unique characteristics of the gas produced from such wells has created new circumstances which affect Peoples TWP '5 operations. Accordingly, Peoples TWP developed a Marcellus Shale policy to address these issues and the related operating constraints of Peoples TWP' s small diameter, low pressure pipeline system which affect its ability to purchase significant volumes of Marcellus Shale gas. Such policy was approved in the context of PGC at Docket No. R (Peoples TWP Exhibit No. 1, FRR No. 1, p. 11.) 45. The Company has successfully implemented the Marcellus Shale policy approved in PGC During the Historical Period, the Company accepted gas production, totaling over 4 Bcf, from 16 deep wells drilled into the Marcellus strata adjacent (within one-mile) to the Company's large volume pipeline system. (Peoples TWP Exhibit No. 1, FRR No. 1, p. 11.) I v1 13

16 46. Gas supplies in the Company's service area continue to be abundant, and there is no longer an advantage to locking in large quantities of potential supplies under long term dedication provisions. (Peoples TWP Statement No. 2-SS, p. 5.) IV. STANDARDS AND FILINGS A. Historical Reconciliation Period and Standards 47. With respect to Peoples TWP's gas purchases and gas purchasing practices during the twelve-month historical reconciliation period ended November 30, 2013, it is requested that the ALJ and the Commission find that Peoples TWP has met the standards of Section 1318 of the Public Utility Code, 66 Pa.C.S. 1318, as required by Section 1307(f)(5) of the Public Utility Code, 66 Pa.C.S. 1307(f)(5), as to all actual purchased gas costs in the historical period. It is requested that the Commission find that, during the twelve months ended November 30, 2013: a. Peoples TWP met the requirements of Section 1318(a) of the Public Utility Code by pursuing a least-cost fuel procurement policy, consistent with its obligation to provide safe, adequate and reliable service to its customers; and b. All gas purchases by Peoples TWP from entities that are considered an affiliated interest have met the requirements of Section 1318(b) of the Public Utility Code relating to purchases from and services provided by entities that are considered affiliates. B. Interim and Projected Period Findings 48. During the eight-month interim period beginning on December 1, 2013, and the projected twelve-month period beginning August 1, 2014, when rates contained in this "The reconciliation period for Peoples TWP in this proceeding is the twelve-month period ended November 30, 2013, in accordance with the Commission's regulations at 52 Pa. Code 53.64(i)(1)

17 Settlement will be in effect, it is requested that the Commission find, based upon information presently available and based upon evidence of record in this proceeding concerning Peoples TWP's projected purchases and purchasing policies, that the rates to be adopted by the Commission result from Peoples TWP's compliance with the provisions of Section 1318 of the Public Utility Code, including Sections 1318(a)(1), 1318(a)(2), 1318(a)(3), 1318(a)(4), 1318(b)(1), 1318(b)(2) and 1318(b)(3). 66 Pa.C.S. 1318(a)(1), 1318(a)(2), 1318(a)(3), 1318(a)(4), 1318(b)(1), 1318(b)(2) and 1318(b)(3). 49. The Parties agree, based upon evidence of record in this proceeding concerning Peoples TWP's projected gas purchases and gas purchasing policies, that Peoples TWP's projected gas purchases and projected gas purchasing policies may comply with the standards of Section 1318 of the Public Utility Code. Nevertheless, it is expressly understood and agreed that this Section of the Settlement, Section IV.B, is made solely for the purpose of setting prospective rates that shall be subject to the standards of Section 1318 of the Public Utility Code, 66 Pa.C.S. 1318, and to further review in an appropriate future proceeding. Section IV.B of the Settlement is not intended in any way to limit or prevent I&E, OCA or OSBA from reviewing, after such projected gas purchases actually have been made and gas purchasing practices actually have been implemented, whether Peoples TWP's gas purchases and gas purchasing practices complied with Section If, in an appropriate future proceeding, gas purchases and gas purchasing practices from December 1, 2013, through July 31, 2015, were challenged, the Commission's findings based upon Section IV of the Settlement shall not bar the examination of such purchases and practices, including, but not limited to, disallowance of, or reductions to, such costs during the eight-month interim period commencing December 1, 2013, and the twelve-month application period commencing August 1, 2014, and ending on July 31,

18 V. CONDITIONS OF SETTLEMENT 50. The Parties acknowledge and agree that this Settlement shall have the same force and effect as if the Parties had fully litigated this proceeding with regard to the historic period ended November 30, This Settlement is conditioned upon the Commission's approval of terms and conditions contained herein without modification. If the Commission modifies or fails to approve this Settlement, any Party may elect to withdraw from this Settlement and may proceed with litigation; and in such event, this Settlement shall be void and of no effect. Such election to withdraw must be made in writing, filed with the Secretary of the Commission and served upon all Parties within five (5) business days after the entry of an order modifying the Settlement. 52. If the Commission does not approve the Settlement and the proceedings continue to hearings on the issues that are the subject of this Settlement, the Parties reserve their respective rights to present additional testimony and to conduct full cross-examination, briefing and argument on these subjects. 53. The Commission's approval of this Settlement shall not be construed to represent approval of any Party's position on any issue, except to the extent required to effectuate the terms and agreements of this Settlement in this and future proceedings involving Peoples TWP. It is understood and agreed among the Parties that this Settlement is the result of compromises, and does not necessarily represent the position(s) that would be advanced by any Party if this proceeding were fully litigated. 54. This Settlement is being presented only in the context of this Section 1307(f) proceeding in an effort to resolve outstanding issues in a manner which is fair and reasonable. The Settlement is the product of compromise. With the exception of matters identified in Section IV.A. above, with respect to the twelve-month period ended November 30, 2013, and v1 16

19 Section II, above, with respect to the twelve-month period beginning August 1, 2014, this Settlement is presented without prejudice to any position which any of the Parties may have advanced and without prejudice to the position any of the Parties may advance in the future on the merits of the issues in future proceedings. This Settlement does not preclude the Parties from taking other positions in proceedings under Section 1307(f) concerning the recovery of purchased gas costs by other natural gas distribution companies. 55. Upon acceptance of this Settlement, the Commission will terminate its inquiry and investigation at Docket No. R Peoples TWP, I&E, OCA, OSBA and XTO have prepared and attached to this Settlement, as Attachments "B" through "F," respectively, Statements in Support setting forth the bases upon which they believe the Settlement is fair, just and reasonable and is, therefore, in the public interest. WHEREFORE, the Parties, by their respective counsel, respectfully request that Administrative Law Judge Jeffrey A. Watson and the Pennsylvania Public Utility Commission: (a) (b) Approve this Settlement including all terms and conditions thereof Make the findings required by the Public Utility Code as provided herein; (c) Mark the complaints of OCA and OSBA at Docket Nos. C and C closed; and (d) Enter a Final Order directing Peoples TWP LLC to reflect rates in the final tariffs effective for service to be rendered on or after August 1, 2104, consistent with this Settlement, subject to revision in accordance with the Commission's quarterly adjustment mechanism v1 17

20 .1 () 1(c4 c ichael W. Hassel, Esquir M Andrew S. Tubbs, Esquire Post & Schell, P.C. 17 North Second Street 12th Floor Harrisburg, PA Respectfully submitted, 1,~ Oj q Date:. 5 /1 For Peoples TWP LLC David Evrard, Esquire Office of Consumer Advocate 555 Walnut Street Forum Place, 5th Floor Harrisburg, PA For Office of Consumer Advocate otw-~5 Y OkAL Allison Curtin Kaster, Esquire Bureau of Investigation and Enforcement Commonwealth Keystone Building 400 North Street, 2' Floor West P0 Box 3265 Harrisburg, PA For Bureau of Investigation and Enforcement &a ' Sharon Webb, Esquire Office of Small Business Advocate Commerce Building 300 North Second Street, Suite 1102 Harrisburg, PA For Office of Small Business Advocate Date: Date: Date: c/i/iq 5(If2Oi v1 18

21 lz -1 I e I ~ ~ Date: Kevin J. MeKeon, Esquire Christopher M. Arfaa, Esquire Whitney E. Snyder, Esquire Hawke, MeKeon & Sniscak, LLP 100 North Tenth Street Harrisburg, PA For XTO Energy Inc v1 19

22 Attachment "A"

23 Peoples TWP LLC Extra Demand Factor Allocation (Retail) PGC-14 Original PTWP Exhibit No. 6 Page 3 of 4 PGC-2014 Extra Demand Factor Calculation PGC..14 PGC-14 Extra Extra Design Projected Avg Demand Demand Allocation Peak Daily Sales Factor Per Day Percent Residential , % Small General Service 9,672 2, , % Medium General Service 11, , % Large General Service & ,12 gan Total 95,196 18,542 76, %

24 Peoples TWP LLC PGC-1 4 Extra Demand Factor Allocation (Total) Original PTWP Exhibit No. 6 Page 4 of 4 I PGC-2014 Extra Demand Factor Calculaticn PGC.14 PGC-14 Extra Extra Design Projected Avg Demand Demand Allocation Peak Daily Sales Factor Per Day Percent Residential Small General Service Medium General Service Large General Service Total 70,574 12, , % , , % 17,193 3, , % , , % 156,340 55, , %

25 Attachment "B"

26 BEFORE THE PENNSYLVANIA PUBLIC UTILITY COMMISSION Pennsylvania Public Utility Commission Office of Consumer Advocate Office of Small Business Advocate Docket Nos. R C C V. Peoples TWP LLC STATEMENT OF PEOPLES TWP LLC IN SUPPORT OF THE JOINT SETTLEMENT OF ALL ISSUES OF THE RATE INVESTIGATION PURSUANT TO 66 Pa.C.S. 1307(1) TO ADMINISTRATIVE LAW JUDGE JEFFREY A. WATSON: I. INTRODUCTION Peoples TWP LLC ("Peoples TWP" or the "Company") hereby files this Statement in Support of the Joint Settlement of All Issues of the Rate Investigation Pursuant to 66 Pa.C.S. 1307(f) ("Settlement") entered into by Peoples TWP, the Bureau of Investigation and Enforcement ("I&E"), the Office of Consumer Advocate ("OCA"), the Office of Small Business Advocate ("OSBA") and XTO Energy, Inc. ("XTO Energy") (hereinafter, collectively referred to as the "Parties") in the above-captioned purchased gas cost proceeding.' Peoples TWP respectfully requests that Administrative Law Judge Jeffrey Watson recommend approval of, and the Commission approve, the Settlement, including the terms and conditions thereof, without modification. Pennsylvania Independent Oil & Gas Association ("PIOGA"), an intervenor and the only other party in this proceeding, has indicated that it does not oppose the Settlement v1

27 The Parties have reviewed Peoples TWP' s purchased gas costs and purchasing practices and have concluded that both are consistent with the standards set forth in the Public Utility Code. Several issues were raised by the Parties to the proceeding. The Settlement, if approved, will resolve all of the issues raised by the Parties in this proceeding, including whether Peoples TWP' s historic natural gas costs were, and projected natural gas costs will be, incurred under a least cost fuel procurement policy. The Settlement is in the best interests of Peoples TWP and its customers, and is otherwise in the public interest. It should accordingly be approved. As an initial matter, the fact that the Settlement is unopposed is, in and of itself, strong evidence that the Settlement is reasonable and in the public interest. Moreover, the Settlement was achieved only after, a comprehensive investigation of Peoples TWP ' s natural gas procurement policies and operations. In addition to informal discovery, Peoples TWP responded to numerous formal discovery requests (many of which had multiple subparts). The Parties served testimony and accompanying exhibits supporting their respective positions, which testimony and exhibits were subsequently admitted into the record. The Parties participated in numerous settlement discussions and formal negotiations, which ultimately led to the Settlement. The Parties in this proceeding, as well as their experts and counsel, have considerable experience in purchased gas cost proceedings. Their knowledge, experience, and ability to evaluate the strengths and weaknesses of their litigation positions provided a strong base upon which to build a consensus on the settled issues. The Settlement reflects a carefully balanced compromise of the interests of the Parties. For these reasons and the reasons set forth below, the Settlement is just and reasonable and Peoples TWP's (f) Filing, as modified by the Settlement, should be approved v1 2

28 H. COMMISSION POLICY FAVORS SETTLEMENT Commission policy promotes settlements. See 52 Pa. Code Settlements lessen the time and expense that the parties must expend litigating a case and, at the same time, conserve precious administrative resources. The Commission has indicated that settlement results are often preferable to those achieved at the conclusion of a fully-litigated proceeding. See 52 Pa. Code In order to accept a settlement, the Commission must first determine that the proposed terms and conditions are in the public interest. Pa. Pub. Util. Comm 'n v. York Water Co., Docket No. R (Order entered Oct. 4, 2004); Pa. Pub. Util. Comm 'n v. C.S. Water and Sewer Assocs., 74 Pa. P.U.C. 767 (1991). For the reasons set forth below, the Settlement terms are in the public interest, and the Settlement should be approved without modification. III. THE SETTLEMENT IS IN THE PUBLIC INTEREST A. DESIGN DAY Natural gas distribution companies ("NGDCs") must arrange for sufficient upstream deliverability capacity, from a combination of local supply sources, transportation capacity, and storage deliverability capacity, to meet the extreme peak demands of its customers. Pursuant to the settlement of the Company's 2013 PGC proceeding at Docket No. R , Peoples TWP agreed to perform a comprehensive evaluation of its design day peak requirement. (Peoples TWP Statement No. 1, p. 10.) Following Commission approval of the settlement, Peoples TWP reviewed and evaluated its Peak Day methodology, collected and analyzed additional data, and prepared a related preliminary report. The Company provided the data, analyses and report to the parties in the last PGC case on October 31, 2013, and subsequently held a conference with the parties to review and discuss the information. (Id.) Based upon the v1 3

29 data collected and the analyses undertaken, Peoples TWP refined its methodology for projecting weather sensitive peak day requirements. (Peoples TWP Filing Requirement No, 13.) Specifically, the Company made two modifications to its design day methodology. First, Peoples TWP revised its regression model for heat sensitive load to now be based on available daily sendout data, 2 rather than customer monthly billing data as had been used in the past. (Peoples TWP Statement No. 1, p. 11.) Daily sendout data is the total daily amount of gas entering the system to serve customer's usage requirements. This modification allows the model to better capture the 'cause and effect' relationship between weather and daily requirements that will be used to determine supply needs under design conditions. Second, the Company now includes a wind speed variable along with Heating Degree Day variables to determine heatsensitive usage. (Id.) This added variable captures changes in usage associated with changes in wind speed, thereby improving the Company's projection of customer usage under design day conditions. Peoples TWP continues to use 76 heating degree days for calculating its Design Peak Day system requirements. (Peoples TWP Statement No. 1, p. 12.) As noted by Peoples TWP witness Petrichevich, seventy-six heating degree days have occurred twice in the last 31 years in western Pennsylvania, yielding a probability of occurrence of about 7%. (Id.) Although the parties were generally supportive of the Company's revised design day methodology, the OCA and OSBA noted certain concerns with Peoples TWP's design day forecast. Specifically, OCA witness Pereria stated that the Company's new forecast methodology was generally reasonable, but suggested that the Company's forecast model might overestimate the heating load design day requirements. (OCA Statement No. 2, pp. 2-3.) Therefore, Mr. Pereira identified alternative formulations that, if adopted, would lower the 2 A portion of the locally produced supplies delivered to the Company's system are measured oniy on a monthly basis, and the Company estimated daily deliveries of this portion. (Peoples TWP Statement No. 1, p. 11) v1 4

30 Company's design day requirement. (OCA Statement No. 2, pp. 5-8.) Further, Dr. Pereira and OCA witness Whitten recommend that Peoples TWP complete additional review and analysis of the Company's design day, including an examination of the level of reserve margin for capacity above projected design day requirements. (OCA Statement No. 2, p. 9, OCA Statement No. 1, p. 13.) OSBA witness Knecht noted that the Company's revised design day methodology, "represents a much more accurate picture of customer loads" and accepted the Company's use of 76 heating degree days in developing its design day requirements. (OSBA Statement No. 1, p. 4.) However, Mr. Knecht also identified several concerns with the Company's design day model that he believed might overstate design day requirements. (OSBA Statement No. 1, pp. 4-5.) In its rebuttal testimony, Peoples TWP responded to the concerns raised by the OCA and OSBA witnesses. Peoples TWP witness Petrichevich presented evidence that the other parties' arguments in favor of reducing the Company's estimated design day sendout were without merit. Specifically, Ms. Petrichevich presented evidence regarding customer usage during the recent winter, and the "polar vortex" weather event, which supported the Company's design day projections. Through March 2014, Peoples TWP had experienced a 13% colder than normal winter. (Peoples TWP Statement No. l-r, p. 2.) This very cold weather has provided real world data regarding customer usage in near peak day temperatures, which has not been experienced in a number of years. Further, Peoples TWP witnesses Petrichevich and Wachter presented evidence relative to usage on January 7, 2014, when the Company experienced 67 heating degree days in the Pittsburgh area. (Peoples TWP Statement No. l-r, pp. 2-3; Peoples TWP Statement No. 2-R, p. 2-3.) As demonstrated in Peoples TWP Exhibit LWP-5, and further supported by Peoples TWP Witness Wachter in his rebuttal, the Company flowed an estimated 147,794 Mcf v1 5

31 on January 7, (Peoples TWP Exhibit LWP-5; Peoples TWP Statement No. 2-R, pp. 2-3.) This total throughput on the Peoples TWP system, on a day that was warmer than design conditions, was only 16 MMcf below projected design day requirements (147 MMcf vs 164 MMcf). (Peoples TWP Statement No. 1-R, p. 3.) Further, the Company's heat sensitive load on January 7, 2014, including company use and unaccounted for gas, was 102 MMcf, which was only 5 MMcf or 5% below projected design day heat sensitive requirements of 107 MMcf. This data supported the reasonableness of the Company's design day projections, considering that January 7th was 9 heating degree days or 12 % warmer than the Company's peak design day. (Id.) 3 The Company concluded that it would be appropriate to further examine its design day requirements and supply in light of the information provided by this recent experience. The Settlement reflects the agreement among the parties that the Company should further review its design day forecast. (Settlement 20.) The review will incorporate data from this past winter, and consider the appropriateness of additional factors that may further refine the Company's design day projections. Peoples TWP will provide an update on its evaluation as part of the Company's 2015 PGC proceeding. (Settlement 20.) The Settlement reflects an appropriate recognition that the experience this winter and on January 7, 2014 in particular will provide Peoples TWP with beneficial information in evaluating its forecast of design day requirements and future capacity needs. The Settlement further reflects agreement that the Company will evaluate whether other factors, proposed by OCA and OSBA witnesses in this proceeding, will improved the quality of the Company's future forecasts. The provision is reasonable and should be approved. The Company also provided information to show that its on-system storage fields were not able to provide as much gas under peak conditions as the Company's design day study assumed. (Peoples TWP Statement No. 2-R, p. 4.) I v1 6

32 B. EXTRA DEMAND FACTORS The Company uses the Extra Demand Cost of Service Methodology to allocate demand costs it incurs to serve customer classes. The methodology uses the ratio of Peak Day requirements to average day requirements to allocate demand charges. Historically, Peoples TWP has calculated Extra Demand based upon a three year average of experienced Peak Day requirements to Average Day Requirements. In the Company's PGC-2013 proceeding, OSBA witness Knecht proposed to modify this procedure based upon use of Design Peak Day rather than experienced average peak day. In this proceeding, the Company modified the procedure to use Design Peak Day and Projected Average Day Requirements by class. As explained by Peoples TWP witness Folks, interstate capacity requirements, and resulting costs, are needed to meet design day requirements. Therefore, the use of Design Peak Day projections is appropriate. (Peoples TWP Statement No. 3, p. 12.) No party challenged this change, and OSBA witness Knecht stated his agreement with the Company's change to use design day demand for cost allocation. (OSBA Statement No. l,p. 6.) Attachment A to the Settlement provides for the Extra Demand factors applicable for the 2014 PGC Application Period. These factors are based upon extra demand allocation factors derived from design day and average day usage of customer classifications, adjusted for new and lost large volume customers. The Settlement also recognizes that the Parties' acceptance of this methodology is limited to this proceeding, and may not be used to constrain any Party's rights to offer alternative proposals for development of extra demand factors in future base rate or Section 1307(f) proceedings. (Settlement 21.) C. BALANCING SERVICE FEES Although no party challenged Peoples TWP's use of the Extra Demand Cost of Service Methodology for allocating demand costs among customer classifications, OSBA witness v1 7

33 Knecht did identify two concerns regarding Peoples TWP's methodology for allocating and recovering demand-related costs. Specifically, Mr. Knecht questioned whether the Company requires natural gas suppliers to provide balancing services for their customers and whether Peoples TWP credits toward recovery of PGC costs, the amounts charged to transportation customers under discounted and full balancing rates. (OSBA Statement No. 1, pp. 8-9.) In rebuttal, Peoples TWP witness Petrichevich explained that the Company has historically calculated the balancing charges for transportation customers based upon an allocation of firm storage ("FS") costs using the Extra Demand Cost of Service Methodology. (Peoples TWP Statement No. l-r, pp ) Further, she explained that this approach, which allocates PS costs based upon total throughput, is designed to recognize that storage capacity is used to provide balancing services and has been considered in various base rate and PGC cases over the years. (Id.) In addition, Peoples TWP witness Petrichevich explained that the Company does credit the amounts charged to transportation customers under discounted balancing rates to the recovery of purchased gas cost ("PGC") demand costs. To the extent the Company discounts load balancing charges as permitted by its tariff, any resulting shortfall remains within the same class. Therefore, no balancing cost recovery is shifted to other classes. The Company further explained that by discounting balancing fees, along with other charges, to customers with competitive alternatives, the Company is able retain customers on its system. If these customers were lost, the Company's FS costs would be reallocated using the Extra Demand Cost of Service Methodology, likely resulting in increased FS charges to all customer classes. (Id.) The Settlement provides that Peoples TWP is permitted to continue to credit toward recovery of PGC demand costs the actual amounts charged to transportation customers under I v1 8