DR 98-169
Northern Utilities, Inc.
Petition for Step Increase for Bare Steel Replacement
Order Approving Stipulation Regarding Step Increase
O R D E R N O. 23,052
October 29, 1998
APPEARANCES: David A. Deans on behalf of Northern
Utilities, Inc.; and Michelle A. Caraway and Stephen P.
Frink for
the Staff of the New Hampshire Public Utilities Commission.
I. PROCEDURAL HISTORY
On July 21, 1992 in Docket DR 91-081, the New
Hampshire
Public Utilities Commission (Commission) approved by Order
No.
20,546 the Settlement Agreement proposed by the Commission
Staff
(Staff) and Northern Utilities, Inc. (Northern) for
Northern's
permanent rate case which had been filed on July 18, 1991.
The
Settlement Agreement included a provision for periodic step
adjustments for certain defined investments and
depreciations in
a program for replacement of bare steel. Northern is
replacing
its unprotected bare steel mains with either cathodically
protected mains or plastic mains (depending on the required
pipeline pressure). This replacement program was
implemented
throughout the natural gas industry in order to minimize
active
corrosion and gas leaks.
On September 18, 1998, pursuant to the Settlement
Agreement and Order No. 20,546, Northern filed a petition
for a
step adjustment to base rates (Petition), to be effective
with
the November 1, 1998 billing cycle. The Petition seeks an
adjustment to rates to recover the depreciation and return
on
certain investments related to its bare steel main
replacement
program.
This is Northern's sixth annual step adjustment
filing
pursuant to Order No. 20,546. The requested increase in
base
rate revenues was $169,036.
Northern, on September 28, 1998, prefiled
testimony of
its Manager of Revenue Requirements, David A. Deans.
By Order of Notice (September 22, 1998) the
Commission
set a deadline for intervention by October 14, 1998. There
were
no intervention requests. The Office of Consumer Advocate
is a
statutorily authorized intervenor, though it did not
participate
in the docket.
The Commission also scheduled a technical session
to
address the contents of the Petition and an audit performed
by
Staff and to explore the possibilities of settlement.
Northern
and Staff filed on October 16, 1998 a Stipulation on
Proposed
Step Adjustment (Stipulation). The Commission heard
evidence in
support of the Stipulation on October 20, 1998.
II. POSITIONS OF NORTHERN AND STAFF
Mr. Deans testified in support of the Stipulation,
which proposes a revenue increase of $120,683. The primary
reasons for the change from the originally proposed step
adjustment amount related to the updating of originally
forecasted activity for September 1998 with actual sales as
well
as adjustments agreed to during the Staff audit and the
subsequent technical session and settlement discussions.
Among
the adjustments was the removal of amounts related to
multiple
bare steel service replacements on non-bare steel mains.
Northern provided updated maps and exhibits describing
the status of the bare steel program. The exhibits detail
the
footage and cost of the bare steel already replaced and
remaining
to be replaced. Edward Wencis, Engineering Manager, stated
that
corrosion leaks on the system related to bare steel had
been
higher than expected over the past two years, but that
Northern
was monitoring the situation. He also stated that
replacement
targets for the next three years were slightly higher than
expected over the past two years.
III. COMPONENTS OF THE SETTLEMENT AGREEMENT
A. Main Replacement Investments and Rate of Return
Northern's total step adjustment revenue requirement
related to replacements is calculated on capital investments
of
$802,688 for the period October 1, 1997 through September
30,
1998. Incremental deferred income taxes related to these
plant
additions reduce the rate base amount subject to recovery in
this
step adjustment by $93,426, leaving a balance of $709,262.
Using
Northern's current capital structure and cost of debt
results in
a weighted cost of capital of 9.63% and a tax effected cost
rate
of 13.85%. Applying the tax effected cost rate (13.85%) to
the
balance available for recovery ($709,262) results in a
revenue
requirement of $98,233.
B. Annualized Depreciation Expense
The related annualized depreciation expense is
calculated using the capital investment mentioned above
($802,688) and the applicable depreciation rates approved as
part
of the Settlement Agreement on permanent rates. The
calculation
results in an increase in annual depreciation of $22,450.
IV. COMMISSION ANALYSIS
We have reviewed the Stipulation and testimony in
support thereof and find the stipulated revenue increase of
$120,683 to be reasonable. The investments required to
replace
Northern's bare steel mains have been prudently incurred and
are
used and useful in the provision of utility service. In
addition,
this represents the next step in a program to improve safety
and
limit leakage, which the Commission has supported since its
initiation in DR 91-081.
Based upon the foregoing, it is hereby
ORDERED, that the Stipulation between Northern and the
Staff for an increase to base rate revenues of $120,683 per
year,
to recover depreciation and return on investments related to
Northern's bare steel replacement program is APPROVED for
bills
rendered on or after November 1, 1998; and it is
FURTHER ORDERED, that Northern file properly annotated
tariff pages in compliance with this Order no later than 15
days
from the issuance date of this Order, as required by N.H.
Admin.
Rules, PUC 1601.05 (k).
By order of the Public Utilities Commission of New
Hampshire this twenty-ninth day of October, 1998.
Douglas L. Patch Susan S. Geiger Nancy Brockway
Chairman Commissioner Commissioner
Attested by:
Thomas B. Getz
Executive Director and Secretary