BEFORE THEPENNSYLVANIA PUBLIC UTILITY COMMISSION
Pennsylvania Public Utility Commission:R-2014-2428742
Office of Small Business Advocate:C-2014-2443461
Office of Consumer Advocate:C-2014-2441636
Ernest G. Bradmon:C-2014-2443459
James A. Schoenecker:C-2014-2444152
Mary Ellen McConnell:C-2014-2445595
Gino Joseph Manetta:C-2014-2445592
AK Steel :C-2014-2442667
West Penn Power Industrial Intervenors:C-2014-2442317
Pennsylvania State University:C-2014-2445681
West Penn Power Company:
Petition of West Penn Power Company:M-2013-2341991
For Approval of Smart Meter Deployment Plan:
Dennis J. Buckley
Katrina L. Dunderdale
Administrative Law Judges
TABLE OF CONTENTS
1.HISTORY OF THE PROCEEDING1
B.Public Input Hearings7
C.Description of the Company21
II.TERMS AND CONDITIONS OF SETTLEMENT23
A.Terms of the Settlement23
B.Legal/Policy Standards for Settlement Approval24
C.Other Provisions of Partial Settlement32
III.DISCUSSION OF PARTIAL SETTLEMENT35
A.Partial Settlement of the Rate Case35
B.West Penns Statement in Support35
C.OCAs Statement in Support52
1.Revenue Allocation (Settlement 11 B(1); Exh. 3)53
2.Residential Rate Design (Settlement 11(B)(1); Exh. 4)54
3.Storm Damage Reserve Account (Settlement 11(A)(5))54
4.Universal Service And Customer Assistance Programs (Settlement 11(C)55
5.TARIFF (Settlement Exh. 1)56
6.Customer Service and Reliability (Settlement 11(D))56
D.OSBAs Statement in Support58
1.Small C&I Rates58
2.Cost of Service and Cost Allocation59
E.BIEs Statement in Support60
1.Rate Increase (Joint Petition 11.A.1)60
2.Overall Rate of Return and Return on Equity61
3.Roll Smart Meter Costs into Distribution Rates (Joint Petition 11.A.2)62
4.Amortization of Legacy Meters (Joint Petition 11.A.364
5.Amortization of Deferred Storm Damage Expense (Joint Petition 11.A.465
6.Storm Reserve Account (Joint Petition 11.A.5)65
7.Fully Projected Future Test Year Reporting Requirements (Joint Petition 11.A.6)66
8.DSIC and Smart Meter ROE (Joint Petition 11.A.767
9.Revenue Allocation and Rate Design (Joint Petition 11.B.)68
10.The Settlement Satisfies the Public Interest69
F.West Penn Power Industrial Intervenors Statement in Support70
G.Pennsylvania State Universitys Statement in Support72
H.CAUSE-PAs Statement in Support73
I.EDFs Statement in Support75
J.Walmarts Statement in Support75
K.AK Steels Statement in Support77
L.ALJs Recommendation Concerning Base Rate Increase Request77
M.ALJs Recommendation Concerning Smart Meter Charge80
IV.DISCUSSION LITIGATED ISSUE82
A.Burden of Proof82
B.Proposed LED Street Lighting Service Offering84
C.West Penns Position85
1.Fixture Selection, Cost, Sizes and Useful Life87
3.The Companys Cost of Service Study90
4.Per Fixture Distribution Rate91
E.ALJs Recommendation Concerning LED Street Lighting Service Offering97
V.CONCLUSIONS OF LAW98
1.HISTORY OF THE PROCEEDING
West Penn Power Company (West Penn or Company) is an electric distribution company providing electric distribution service subject to the jurisdiction of the Pennsylvania Public Utility Commission (Commission) in parts of western Pennsylvania.
On August 4, 2014, West Penn filed Tariff Electric-Pa. P.U.C. No. 38 (Tariff No. 38) and Tariff Electric-Pa. P.U.C. No. 40 (Tariff No. 40) to become effective May 3, 2015 and requested an increase to the base rates charged to ratepayers. Tariff No. 38 pertained exclusively to service portions of Pennsylvania State Universitys University Park Campus, and Tariff No. 40 pertained to service in the entirety of West Penns service area including other Pennsylvania State University campuses and approximately 100 accounts at University Park not subject to Tariff No. 38.
Specifically, West Penn requested the Commission approve an increase to its annual distribution revenue totaling $115.5 million (or 8.4%) of total electric operating revenue. The Companys proposed increase consisted of the sum of: (1) an increase in distribution base rate operating revenues of $78.619 million, including the roll-in to base rates of the smart meter revenue requirement; (2) proposed increases in charges under the Companys Default Service Support and Hourly Pricing Default Service Riders totaling $7.351 million; and (3) a proposed increase of $29.565 million associated with establishment of a Universal Service Charge Rider.
Also on August 4, 2014, three related FirstEnergy Companies (the Companies) filed tariff supplements requesting increases to the base rates charged to ratepayers by the electric distribution companies. The three companies and the amount of the requested increase to its annual distribution revenue are:
1. Pennsylvania Electric Company $119.8 million or 8.6% of total electric operating revenues;
2. Pennsylvania Power Company $28.5 million or 8.7% of total electric operating revenues; and
3. Metropolitan Edison Company $151.9 million or 11.5% of total electric operating revenues.
By Order entered October 2, 2014, the Pennsylvania Public Utility Commission suspended the filings by operation of law until May 3, 2015, and instituted an investigation to determine the lawfulness, justness and reasonableness of the proposed rates, rules, and regulations.
In addition to the four filings, FirstEnergy filed on behalf of all four utilities separate pro-forma tariff supplements on August 1, 2014 to implement the Smart Meter Technologies Charge (SMT-C) Rider pursuant to the Smart Meter Deployment Dockets for the Companies. These filings, referred to as M Docket proceedings, were made in compliance with a prior Commission Order where the Commission directed the electric distribution companies to file by August 1st of each year the SMT-C Rider Rates for the Residential, Commercial and Industrial Customer Classes for service rendered on or after January 1st and continuing through December 31st of each year.
On September 30, 2014, Administrative Law Judge Dennis J. Buckley (ALJ Buckley) issued the First Prehearing Order which scheduled the Initial Prehearing Conference for October 8, 2014, and which directed the parties to submit prehearing memoranda on or before October 6, 2014.
On October 2, 2014, the Commission suspended West Penns Tariff No. 38 and Tariff No. 40 by operation of law until May 3, 2015 and directed the Office of Administrative Law Judge to hold appropriate evidentiary proceedings and to render a Recommended Decision in each proceeding.
Notices of Appearance were filed on behalf of the Bureau of Investigation and Enforcement (BIE), the Office of Small Business Advocate (OSBA), the Office of Consumer Advocate (OCA) and the West Penn Power Industrial Intervenors (WPPII). Formal complaints were filed by OSBA, OCA, WPPII, AK Steel Corporation (AK Steel) and Pennsylvania State University (PSU), in addition to formal complaints filed by four individual residential customers: Ernest G. Bradmon; James A. Schoenecker; Mary Ellen McConnell; and Gino Joseph Manetta. Petitions to Intervene were filed by: the Utility Workers Union of America Local 102 (UWOA); Pennsylvania Rural Electric and the Allegheny Electric Cooperative (PREA/AEC); Noble Americas Energy Solutions LLC (Noble Americas); Environmental Defense Fund (EDF); Citizens for Pennsylvanias Future (PennFuture); Coalition for Affordable Utility Services and Energy Efficiency in Pennsylvania (CAUSE-PA); and Wal-Mart Stores East, LP and Sams East, Inc. (Walmart).
The Administrative Law Judges conducted a prehearing conference with the active parties on October 8, 2014 and established a litigation schedule. As a result, twelve public input hearings were scheduled around the state in seven different locations in order to obtain the input from customers and ratepayers about the proposed increases. The Office of Administrative Law Judge conducted those public input hearings on six different dates in November 2014 in: Warren, New Castle, Erie, Washington, Uniontown, Reading and East Stroudsburg.
At the prehearing conference, the parties discussed a Motion to Compel filed by OCA against the Company because the Company refused to comply with reasonable discovery requests. After discussion at the prehearing conference, the Company agreed to voluntarily extend the suspension period from May 3, 2015 to May19, 2015 in order to provide all parties to conduct discovery. The parties agreed, however, the Company would be permitted to recoup through a surcharge any revenues lost at the approved rates for the period from the statutorily prescribed end of suspension (i.e., May 3, 2015) through May 19, 2015, which is the new suspension date.
On October 22, 2014, the presiding officers issued the Second Prehearing Order commemorating the discussions at the initial prehearing conference. In that order, the parties were advised the evidentiary hearings would commence on Tuesday, January