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

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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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