COWMONWEALTH OF PENNSYLVAi PENNSYLVANIA PUBLIC UTILITY COMMISSION P.O. BOX 3265, HARRISBURG, PA 17105-3265

ISSUED: October 9, 2001

MARK C MORROW ESQUIRE UGI UTILITIES INC - GAS DIVISION P O BOX 858 VALLEY FORGE PA 19482-0858

DOCUMENT FOLDER

IN REPLY PLEASE REFER TO OUR FILE

R-00016376 R-00016376C0001

Pennsylvania Public Utility Commission; Office of Consumer Advocate; Office of Small Business Advocate; Alcoa; Appleton Papers, Inc.; Armstrong World Industries; Bethlehem

Steel Corporation; Carpenter Technology Corporation; Mount Joy Wire Corporation; R. R. Donnelley & Sons, Co.; Stroehmann Bakeries, Inc.; v. UGI Utilities, Inc. - Gas Division

TO WHOM IT MAY CONCERN:

Enclosed is a copy of the Recommended Decision of Administrative Law Judge Ky Van Nguyen.

An original and nine (9) copies of signed exceptions to the decision, if any, MUST BE FILED WITH THE SECRETARY OF THE COMMISSION IN ROOM B-20, NORTH OFFICE BUILDING, NORTH STREET AND COMMONWEALTH AVENUE, HARRISBURG, PA OR MAILED TO P.O. BOX 3265, HARRISBURG, PA 17105-3265; a copy in the hands of the Office of Special Assistants, Room 210; and a copy in the hands of each party of record no later than October 26, 2001 by 4:30 P.M. 52 Pa. Code § 1.56(b) cannot be used to extend the prescribed period for the filing of exceptions or reply exceptions.

Replies to exceptions, if any, must be served on the Secretary of the Commission, in the manner described above, no later than October 31, 2001 by 4:30 P.M. as well as served upon the parties. A certificate of service shall be attached to the filed exceptions.

Exceptions and reply exceptions shall obey 52 Pa. Code 5.533 and 5.535, particularly the 40-page limit for exceptions and the 25-page limit for replies to exceptions. Exceptions should be clearly labeled as "EXCEPTIONS OF (name of party) - (protestant, complainant, staff, etc.)".

Any reference to specific sections of the Administrative Law Judge's Recommended Decision shall include the page number(s) of the cited section of the decision.

Parties are also requested, i f possible, to provide the Commission's Office of Special Assistants with a copy of exceptions/reply exceptions on a computer disk, 3 1/2" in size, in either Word Perfect (Version 5.0 or 5.1) or ASCII format.

Very truly yours,

James J. McNulty Secretary

Enclosure Certified Mail Receipt Requested law

See attached list for additional parties of record.

BEFORE THE PENNSYLVANIA PUBLIC UTILITY COMMISSION

Pennsylvania Public Utility Commission

Office of Consumer Advocate

Office of Small Business Advocate

Alcoa

Appleton Papers, Inc.

Armstrong World Industries

Bethlehem Steel Corporation

Carpenter Technology Corporation

Mount Joy Wire Corporation

R. R. Donnelley & Sons, Co. F Q L D E R

Stroehmann Bakeries, Inc.

v.

UGI Utilities, Inc. - Gas Division

R-00016376

R-000163 76C0001

Intervenors

DOCUMENT

7e

RECOMMENDED DECISION

Before KY VAN NGUYEN

Administrative Law Judge

I. HISTORY OF THE PROCEEDINGS

On May 1, 2001, under Section 1307(f) of the Public Utility Code, 66 Pa.

C.S. §1307(1), UGI Utilities, Inc. - Gas Division (UGI or Company) filed the Preliminary

Supporting Information required by 52 Pa. Code §53.64 for the Company's annual

Purchased Gas Cost (PGC) filing. On June 1, 2001, the Company filed its PGC tariff

together with supporting computations and the written testimony of witnesses. The tariff

addendum proposes a decrease of $ 1.10/Mcf in the current cost of purchased gas for

PGC(l) rates of $9.2134/Mcf1 and a decrease of $1.6017/Mcf for PGC(2) rates of

SS.SOie/Mcf,2 to become effective March 15 2001. In this filing, the Company is seeking

to recover $1,607,399 of interest on the undercollection of ($21,474,864).

On June 21, 2001, a telephonic prehearing conference was held in

Philadelphia. In-person hearings were scheduled for August 3, 7 and 8, 2001. The

Office of Trial Staff (OTS), the Office of Consumer Advocate (OCA), the Office of

Small Business Advocate (OSBA), a group of UGI's Industrial (UGII) Customers, and

Stroehmann Bakeries, Inc. (Stroehmann) participated in the prehearing conference. At

the prehearing conference, UGII's Petition to Intervene was granted and a ruling on

Stroehmann's Petition to Intervene was deferred to permit UGI to file an Answer. Also,

the Company identified UGI Exhibit 1, which consists of Book 1 and Appendix A and

Book 2 containing prefiled testimony and information about filing requirements

(Prehearing Conference N.T. 16, 17).

2

The PGC(l) rates consist of Rate R (Residential), Rate GL (Gas Light), and Rate N (Small Commercial & Industrial).

The PGC(2) rates consist of Rate BD (Business Development), Rate BD-L (Business Development - Large), Rate CIAC (Commercial and Industrial Air Conditioning), and the Total Space Conditioning (TSC) option of Rates R and N. See UGI Exhibit 1, Book 2, Prefiled Testimony, pp. 3-5.

By Order dated July 6, 2001, Stroehmann was permitted to intervene, as a

large volume customer, receiving transportation and related services from UGI.

On June 13, 2001, the OCA and Stroehmann filed written direct testimony.

On June 19, 2001, UGI filed a Motion to Strike the written testimony of Stroehmann's

witness William E. Bennis, which raises the legality of UGI's System Access Fee (SAF).

UGI argued that the SAF, originated in a base rate proceeding, should be raised in a base

rate proceeding and that a review of rate structure would involve the Commission in a

line item ratemaking which is generally prohibited.

On July 20, 2001, OTS filed a letter in support of UGFs Motion to Strike.

On July 30, 2001, OCA and Stroehmann filed answers to UGI's Motion to

Strike. Stroehmann argued that UGI's SAF is a cost of gas under the new definition of

Section 1307(h), that, as such, it should be reviewed in a 1307(f) proceeding, and that

prohibitions against line item ratemaking are not applicable in Section 1307(f)

proceedings. OCA supported the striking of Mr. Bennis' testimony.

By Order dated August 1, 2001, UGI's Motion to Strike was denied, the

reason being that if UGI's SAF proves to be illegal, UGI should not be allowed to collect

an illegal fee, be the fee established in a base rate case or a 1307(f) proceeding.

No public input hearings were scheduled because the public interest in the

proceedings was not substantial.

In anticipation of the parties' reaching a partial settlement, all the hearing

scheduled in Philadelphia and Harrisburg on August 3, 7 and 8, 2001 were cancelled. On

August 3, 2001, the parties agreed that the record in this matter can be established by the

stipulated admission of the following documents:

1. UGI Exhibit 1, which is described above.

2. The written direct and surrebuttal testimonies of William E. Bennis

submitted on behalf of Stroehmann.

3. The written rebuttal testimony of OTS witness Michael J. Gruber.

4. The written rebuttal testimony of UGI witness Paul J. Szylcman.

These documents, at the parties' request, will be admitted into the record.

On August 14, 2001, UGI submitted a Stipulation in Partial Settlement of

Section 1307(f) Rate Investigation, which is intended to be, subject to updates and the

resolution of the issues raised by Stroehmann, the Parties' Settlement of the case.

Attached to this Partial Settlement are:

Appendix A, which sets forth the proposed PGC(l) and PGC(2)

rates.

Appendices B, C, D and E, which are statements in support of the

Settlement submitted by UGI, OTS, OCA and OSBA, and

Appendix F, which is a letter from the UGI's Industrial Intervenors

(UGIII) indicating that they do not oppose this Stipulation.

II

UGI, Stroehmann, OCA and OTS filed their briefs as scheduled; others

reserved their rights to file theirs.

On September 14, 2001, UGI filed a Petition for Permission to File a

Supplemental Reply Brief. Attached to this Petition is UGI's Supplemental Reply Brief.

On September 17, 2001, Stroehmann filed an Answer opposing UGI's Petition.

II . TERMS OF THE SETTLEMENT

The relevant provisions of the Partial Settlement, as contained in the

Proposed Stipulation in Partial Settlement of Section 1307(f) Rate Investigation, may be

summarized as follows:

A. Effective December 1, 2001, UGFs PGC(l) rate and PGC(2) rate shall be

$6.7302/Mcf and $5.3088/Mcf, respectively. The calculations of these rates are set forth in

Appendix A.

B. In next year's PGC filing, UGI shall propose to add the following

reverse migration rider language to its tariff (which will have an effective date of

December 1,2002):

"Customers who have received transportation service from the Company for at least twelve consecutive months and who transfer to service under Rate R, GL, N, BD or CIAC shall not be charged the associated PGC Gas Cost Adjustment for a period of twelve months."

Also, in next year's PGC filing UGI shall address the issue of how it may apply the

migration and reverse migration riders for period of less than twelve months under

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appropriate circumstances, and in addressing this issue UGI may consider billing system

costs and capabilities.

C. For the twelve month PGC year commencing December 1, 2001 (the

"PGC 2001 Year"), any PGC quarterly filing shall recover actual experienced over/under

collections (actual monthly results compared to monthly projections from annual PGC

filing) on an annual basis, while projected over/under collections for the remaining

months of the PGC period (due to projected changes in gas costs) may be recovered on

either an annual basis or on a remaining life basis over the remaining portion of the PGC

2001 Year. Moreover, UGI shall indicate in any future annual PGC filing if it intends to

modify this methodology on a prospective basis.

D. UGI shall use a revised December 2000 undercollection beginning

balance of $19,201,408.

E. UGI shall, in its compliance filing in this case, equalize the

weighting factors applied each month to supplier refunds and over/under collections for

the purpose of determining interest amounts.

F. UGI's compliance filing in this case shall be updated to reflect actual

results and updated projections for gas costs, and UGI shall file a complete revised

Schedule C in support of its support of its compliance filing at the time this filing is

made.

G. For the PGC year beginning December 1, 2001 and ending

November 30, 2002, UGI will share off-system sales margins derived from PGC assets

on a before tax basis in the following manner:

fl

First $240,000 - credited to PGC

$240,001 - $320,000 - retained by UGI

above $320,000 - shared 75% (PGC) and 25% (UGI)

H. In computing its PGC rates in this proceeding, UGI shall use a

projected Interruptible Revenue Credit (IRC) amount of $8.6 million.

III. FINDINGS OF FACT-

I . Stroehmann is a firm transportation customer on UGI's system

receiving service under Rate LFD. It does not purchase natural gas from UGI, but rather

purchases it from natural gas suppliers who deliver the gas to UGI's system (Bennis'

Testimony, p. 2).

2. In 2000, Stroehmann paid over $57,000 to UGI in SAF payments.

As of July 2001, it paid $22,715 to UGI in SAF payments (Bennis' Testimony, p. 3).

3. The SAF is listed in the UGI tariff as a charge which is paid if

applicable. Other charges are also listed, such as the Customer Charge, the Capacity

Charge if applicable, the Delivery Charge and any Excess Take Charges (Szykman's

Rebuttal Testimony, p. 4).

4. The SAF is the difference between the UGI assigned or otherwise

assignable pipeline capacity charge and the UGI's weighted average cost of demand. It is

calculated by subtracting the cost of assigned or otherwise assignable capacity from the

Weighted Average Cost of Demand (WACOD), and is paid in addition to capacity charge

billing (Bennis' Testimony, pp. 4, 5; Szykman's Rebuttal Testimony, pp. 3-5).

5. The SAF is a method by which UGI equalizes the upstream pipeline

demand charges to the UGI Weighted Average Cost of Demand (WACOD) for its Rate

LDF and Rate DS customers. WACOD is determined by totaling all charges for

upstream pipeline demand and divided by the amount of throughput associated with that

demand (Gruber's Rebuttal Testimony, p. 2).

6. Each month, Stroehmann pays charges or fees associated with

delivery service, no notice service, excess requirement option service, pooling service,

and balancing service (Bennis' Surrebuttal Testimony, p. 4).

7 UGI has fully and vigorously represented the interest of its

ratepayers in proceedings before the Federal Energy Regulation Commission (FERC)

(Filing Requirements - UGI Exhibit No. 1, Book 1, Section 3).

8. UGI has taken all prudent steps necessary to negotiate favorable gas

supply contracts and to relieve the Company from terms in existing contracts with its gas

suppliers which are or may be adverse to the interest of its ratepayers (Filing

Requirements - UGI Exhibit No. 1, Book 1, Section 1).

9. UGI has taken all prudent steps necessary to obtain lower cost gas

supplies on both short-term and long-term bases from sources within and outside the

Commonwealth, including the use of gas transportation arrangements with interstate

pipelines (Filing Requirements - UGI Exhibit No. l,Book 1, Attachments l-A-1, 1-B-l,

l-B-2, l-C-l,and 2-A-l).

10. UGI has not withheld from the market or caused to be withheld from

the market any gas supplies which should have been utilized as part of a prudent least

ft

cost fuel procurement policy (Filing Requirements - UGI Exhibit No. 1, Book 1, Section

2-A).

11. UGI has fully and vigorously attempted to obtain less costly gas

supplies on both short-term and long-term bases from nonaffiliated interests (Filing

Requirements - UGI Exhibit No. 1, Book 1, Sections 1, 3 and 5).

12. UGI gas purchases from an entity that is or might be considered an

affiliated interest are consistent with a prudent least cost procurement policy (Filing

Requirements - UGI Exhibit No. l,Book 1, Section 13).

13. UGI or any entity that is or might be considered an affiliated interest

has not withheld from the market gas supplies which should have been utilized as part of

a prudent least cost procurement policy (Filing Requirements - UGI Exhibit No. 1, Book

1, Section 13).

IV. DISCUSSION

A. Tardy Brief and Burden of Proof

When a party fails to file a brief on time, a court's ability to sanction non­

compliance is limited to suppressing the tardy brief or barring that party from argument.

Department of Transportation, Bureau of Driver Licensing v. Vogat, 112 Pa.

Commonwealth Ct. 515, 535 A.2d 750 (1988).

Because UGI did not file its Supplemental Reply Brief according to the

schedule, I will not consider its arguments.

Also in its Main Brief, UGI argued that the burden of proof is on

Stroehmann as the challenger of an existing rate.

Section 315 of the Code, 66 Pa. C.S. §315, in part, provides:

(a) Reasonableness of rates. - In any proceeding upon the motion of the commission, involving any proposed or existing rate of any public utility, or in any proceedings upon complaint involving any proposed increase in rates, the burden of proof to show that the rate involved is just and reasonable shall be upon the public utility . . .

According to Subsection (a) of Section 315 above, the utility has the burden

of proof to show that the existing rate is just and reasonable whether the challenger is an

intervenor or a complainant.

B. Legality of UGFs System Access Fee (SAF)

1. UGI's position

In its Main Brief, UGI made some inappropriate remarks that the rationale

for permitting Stroehmann to intervene and to file testimony on the SAF issue is correct,

but only in the abstract. These remarks should be.

UGI argued that the SAF is a Section 1308 rate established as part of a

Commission-approved settlement of UGI's 1995 base rate proceeding, and that, as such,

the rate should not be reviewed in a 1307 PGC proceeding. In that argument, UGI stated

that the SAF plays a dual role in providing credits to both the PGC and UGI's revenue

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requirement, that if the SAF does not recover gas costs, then the SAF cannot be

considered in a Section 1307(f) proceeding. It concluded that because the SAF does not

and cannot recover gas costs from Stroehmann, in view of the fact that Stroehmann

purchases no gas, and receives no capacity assignment, from UGI, it is inappropriate for

Stroehmann to challenge the SAF in a Section 1307(f) proceeding.

Second, UGI argued that Stroehmann seeks to eliminate the SAF which is

one component of Rate LDF (Large Firm Delivery) without any examination of other

elements of this rate or the overall reasonableness of UGI's rates and rate structure, and

that a review of UGI's SAF would constitute an unlawful line item ratemaking.

Third, the SAF does not violate the Natural Gas Choice and Competition

Act (the Gas Choice Act), the Act of June 22, 1999, P.L. 122, No. 21, 66 Pa. C.S.

§§2201-2212, because Section 2203(14) of this Act specifically authorizes a natural gas

distribution company (NGDC), such as UGI, to continue to provide natural gas services

to their customers under all existing tariff rate scheduled and riders, and policies or

programs, that nothing in Section 2204 would prohibit UGI from charging a SAF to

customers, such as Stroehmann. It is unreasonable to require UGI to design, as here, an

individual rate for Stroehmann that has chosen not to use any UGI capacity. Stroehmann

pays for LDF rate in exchange for UGFs gas distribution service.

Fourth, it argued that if it were determined erroneously that the SAF is

unlawful or unreasonable, Stroehmann's request for a refund must be rejected. The SAF

is a Commission-approved rate and may only be changed prospectively. Cheltenham &

Abington Sewerage Co. v. Pa. PUC, 344 Pa. 366, 25 A.2d 334 (1942). (UGI's Main

Brief, pp. 8-21).

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In its Reply Brief, UGI rejected that the SAF is discriminatory under

Section 1304 of the Code. It argued that Stroehmann's argument was never developed on

the record, and that to show unlawful rate discrimination, a customer must show both an

unreasonable burden on one rate class and an unreasonable preference to another rate

class. Pennsylvania Retailers' Associations v. Pa. PUC, 440 A.2d 1267 (Pa.

Commonwealth Ct. 1982). Stroehmann has made no such showing in this proceeding

(UGI's Reply Brief, pp. 7, 8).

2. Stroehmann's position

Stroehmann argued that UGI's SAF is a mechanism used by UGI to

allocate and recover demand costs equally among its customers by ensuring that all

customers pay the weighted average cost of demand to UGI. Under the Gas Choice Act,

UGI can recoup such costs when it actually assigns capacity at the contractual rate.

Therefore, UGI's SAF, which sought to recover these costs at a level in excess of the

contracted-for rate, 66 Pa. C.S. §2204(d)(l), must be eliminated, considering the fact that

UGI incurs absolutely no upstream demand costs on behalf of Stroehmann.

UGI is not the supplier of last resort for Stroehmann under Section

2207(a)(1) of the Gas Choice Act. This section requires a natural gas distribution

company to serve as a supplier of last resort for "residential, small commercial, small

industrial, and essential human needs customers." However, Stroehmann, as an LFD

customer, is neither a small commercial nor a small industrial customer. In UGI's

restructuring proceeding, the Commission approved UGI's proposed definition of

obligation of a supplier of last resort to extend service to customers who consume 4,000

Mcf per year or less. Stroehmann does not fall within this definition either. Stroehmann

already pays UGI a separate fee in exchange for Excess Requirement Option service.

The SAF would constitute Stroehmann's double payment for service it receives.

12

In addition to being an illegal gas cost recovery mechanism under

the Gas Choice Act, the SAF, as it applies to only two of several transportation delivery

customer classes, results in unreasonably discriminatory rates in violation of Section

1304 of the Code. UGI only charges the SAF to two classes: rate class LFD and DS

(Delivery Service).

Finally, it argued that the SAF is a wholly inequitable and anti-competitive

fee. An examination of other related tariff charges reveals that Stroehmann, in fact,

receives absolutely no service or anything of value in exchange for its SAF payments.

Ultimately, using the SAF to require customers to pay the weighted average cost of

demand ~ even though they do not purchase any capacity - greatly reduces any benefit of

a competitive market (Stroehmann's Main Brief, pp. 5-16).

In its Reply Brief, Stroehmann emphasized that the language of Section

2204(d)(]) of the Gas Choice Act identifies only one method by which UGI may assign

or transfer responsibility for upstream pipeline capacity costs by assigning those contracts

to its suppliers or customers, and that UGI and OTS failed to identify a single benefit

which Stroehmann receives in return for paying UGI the SAF each month (Stroehmann's

Reply Brief, pp. 4-10).

3. OCA's position

In Pa. PUC v. UGI Utilities, Inc. - Gas Division, Docket No. R-00943064

(Pa. PUC November 30, 1994), having realized that the allocation of low cost capacity to

transportation customers and higher cost capacity to PGC (1) customers violated the least

cost gas procurement requirements of the Code, OCA proposed a "weighted average

cost" proposal for allocating interstate pipeline capacity among all customers. But, the

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Commission rejected OCA's proposal at that time and held that this issue should be

examined in a base rate proceeding. As a result of that ruling, the parties took up the

issue the next year in UGI's 1995 base rate case. And the SAF then became a key

component of a compromise for the allocation of interstate pipeline capacity costs.

Further, in UGI's most recent restructuring proceeding, no parties, which

included transportation customers and marketers, opposed the SAF. Therefore,

eliminating the SAF in this proceeding would upset the balance struck by the parties in

the settlement of UGI's last base rate proceeding (OCA's Main Brief, pp. 3-6).

In its Reply Brief, OCA argued that Section 2204(d) only pertains to

customers who take an assignment of capacity for a natural gas distribution company

(NGDC), that Stroehmann, by its own admission, does not take an assignment from UGI,

and that, therefore, Stroehmann's reliance on this Section is misplaced. OCA also

concurred with OTS that the elimination of the SAF for all LFD and DS customers would

result in LFD and DS customers not paying their fair share of demand costs and in those

costs being shifted to PGC customers (OCA's Reply Brief, pp. 1-4).

4. OTS position

UGI's SAF is a tariff charge which equalizes demand costs of the entire

system with the UGI Weighted Average Cost of Gas demand for Rate LFD, such as

Stroehmann, and Delivery Service customers so that no customer is disadvantaged by

another customer not paying its appropriate share.

OTS argued that Stroehmann viewed the SAF as an attempt by UGI to

allocate capacity costs to Stroehmann when it does not receive any assignment of, or use

any, capacity by UGI, either directly or through a supplier. Stroehmann believes that this

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capacity cost allocation through the SAF is not permitted under the Gas Choice Act. 66

Pa. C.S. §2204(d)(l). But this Section of the Gas Choice Act only addresses those

circumstances in which UGI does assign capacity costs to its customers. It does not

address the Stroehmann situation where a large transportation customer contracts with a

party other than UGI for capacity. Nothing in Section 2204(d)(1) would preclude the

application of UGFs SAF to Stroehmann. Later, in UGFs restructuring filing, which

postdated the passage of the Gas Choice Act, no party objected to the retention of the

SAF. See UGI's Restructuring Filing, at Docket No. R-00994786 (Pa. PUC June 29,

2000).

Further, rate design issues, such as the SAF, are properly addressed in the

context of a base rate proceeding, rather than a 1307(f) proceeding. Pa. PUC v. UGI

Corporation, 68 Pa. PUC 204, 206 (1988).

Finally, Stroehmann has failed to provide any concrete evidence indicating

that the SAF has acted to defeat competition. Rather, the SAF, which has been in effect

for six years, should properly be viewed as a cost of doing business and has in no way

been shown to have impeded Stroehmann's ability to search out and purchase other

sources of gas supply (OTS' Main Brief, pp. 6-13).

In its Reply Brief, OTS argued that Stroehmann's opposition to the Partial

Settlement should be disregarded because it has no standing to object to it, that the record

does not support Stroehmann's claim of unreasonable rate discrimination under Section

1304 of the Code, and that the request for the elimination of the SAF is overbroad (OTS'

Reply Brief, pp. 6-14).

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5. UGII's position

UGII did not file a Main Brief, but chose to file a Reply Brief. They argued

that they agreed with many of the arguments raised by Stroehmann about the absence of a

factual or policy basis for the SAF, but that several of the UGII members in this

proceeding were signatories to the 1995 settlement in Pa. PUC v. UGI Utilities, Inc. -

Gas Division. Docket No. R-00953297, and that they should honor their settlement

commitment. It also argued that the existence of the 1995 settlement in and of itself does

not constitute a bar to Stroehmann's challenge in this proceeding and that UGI is not the

Supplier of Last Resort because it does not have obligation to act for customers using

over 4,000 Mcf a year (UGII's Reply Brief, pp. 1-4).

Recommended position

Section 1307(h) of the Code, 66 Pa. C.S. §1307(h), in pertinent part,

provides as follows:

(h) Definition. - As used in this section, the terms "natural gas costs" and "gas costs" include the direct costs paid by a natural gas distribution company for the purchase and the delivery of natural gas to its system in order to supply its customers. Such costs may include . . . all charges, fees, taxes and rates paid in connection with such purchases, pipeline gathering, storage and transportation . . . "Natural gas" and "gas" include natural gas, liquefied natural gas, synthetic natural gas and any natural gas substitutes.

The SAF is a fee that is paid in connection with pipeline gathering storage

and transportation. As such, it falls squarely within the definition of Section 1307(h) as a

cost of gas. Unlike take-or-pay costs and customer assistance program expenses, which

16

it •

were adjudicated non-gas costs, UGI Utilities v. Pa. PUC, 673 A.2d 43 (Pa.

Commonwealth Ct. 1996), the SAF is a cost relating to the acquisition of gas. The fact

that Stroehmann purchases no gas, and receives no capacity assignment, from UGI, is not

relevant to the determination of whether the SAF is a gas cost within the ambit of a

1307(f) proceeding.

UGFs line-item-ratemaking argument is based on the proposition that the

SAF is a base-rate revenue reflected in a Section 1308 base rate proceeding, rather than a

purchased gas cost, which may be reviewed in a Section 1307(f) proceeding. But I have

determined that the SAF is a purchased gas cost and, therefore, the prohibitions against

line item and retroactive ratemaking are inapplicable here. UGI Utilities v. Pa. PUC,

supra.

UGI cited Cheltenham & Abington S. Co. v. Pa. PUC, 344 Pa. 366, 25

A.2d 334 (1942) for the proposition that the SAF is a Commission-approved rate, that it

may only be charged prospectively, and that, as such, retroactive refunds of the SAF are

not permitted. This proposition is all the more reason for reviewing the SAF in this

proceeding. I f the SAF is found to be illegal, why is UGI allowed to collect that fee

when no retroactive refunds are permitted? The legality or lawfulness of a fee is

paramount and overrides all concerns.

Section 2204 of the Gas Choice Act, in pertinent part, provides as follows:

(d) Release, assignment or transfer of capacity. -

(1) A natural gas distribution company holding contracts for firm storage or transportation capacity,... on the effective date of this chapter,... may at its option release, assign or otherwise transfer such capacity or Pennsylvania supply, in whole or part, associated with those contracts on a

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nondiscriminatory basis to licensed natural gas suppliers or large commercial or industrial customers on its system.

(3) Such release, assignment or transfer shall be at the applicable contract rate, for such capacity or Pennsylvania supply and shall be subject to applicable contractual arrangements and tariffs. The amount so released, assigned or transferred shall be sufficient to serve the level of the customers' requirements for which the natural gas distribution company has procured such capacity determined in accordance with the natural gas distribution company's tariff or procedures approved in its restructuring proceedings.

Subsection (d)(1) of this Section gives a natural gas distribution company

(NGDC) an option to release, assign or transfer its firm storage or transportation capacity;

but Subsection (d)(3) requires the cost of release, assignment or transfer of such capacity

to be determined by applicable contractual arrangements and tariffs. While the right to

release, assign or transfer is discretionary with an NGDC, the cost of release, assignment

or transfer of capacity must be based on contractual arrangements and tariffs. The

language of this capacity cost is mandatory.

I f UGI's SAF is intended to be the capacity cost, the SAF would be

inconsistent with this mandate and in violation of these subsections. A careful reading of

UGI's tariff indicates that the SAF is only one of the many charges required to be paid by

UGI's customers. Appearing on the monthly rate table, alongside the disputed SAF, are

the Customer Charge, the Capacity Charge if applicable, the Delivery Charge and any

Excess Take Charges. The SAF is separate and distinct from the capacity cost.

Here, neither Stroehmann nor Stroehmann's marketers, receive any

assignment of UGI upstream capacity. But the fact that Stroehmann is a firm

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transportation customer on UGI's system to have natural gas delivered from UGI's city

gate to Stroehmann's burner tip,3 justifies the imposition of UGI's SAF on Stroehmann.

Nothing in the Gas Choice Act prohibits this imposition.

As indicated by OTS, UGI's SAF's purpose is to equalize demand costs of

the entire system with the UGI Weighted Average Cost of Gas demand, so that no

customer is disadvantaged by another customer not paying that customer's appropriate

share. OCA, in its Main Brief, mentioned a brief history of the relationship between the

SAF and the Weighted Average Cost. The weighted average cost proposal stemmed

from OCA's challenge of UGI's allocation of low cost interstate pipeline capacity to

transportation customers. Pa. PUC v. UGI Utilities, Inc. - Gas Division, DocketNo. R-

00943064 (Pa. PUC November 30, 1994). The Commission rejected OCA's proposal at

that time and the issue was examined in UGI's 1995 base rate case. And the allocation of

interstate pipeline costs among customers was specifically addressed through the

implementation of the SAF, which results in a weighted average cost allocation for

interstate pipeline capacity costs. The resolution seems reasonable and in the public

interest.

3 It is appropriate to provide an overview of the components of the gas industry. Traditionally, producers extracted the gas and sold it at the wellhead to a pipeline company. Pipelines then transported the gas where it was produced to areas of demand. And local gas distribution companies (LDCs) accepted the gas at the City gate and distributed it through its local mains to residential and industrial users. In many respects, local distribution companies have been the most stable of these components. In Order No. 636 (1992) the Federal Energy Regulatory Commission (FERC) took steps in restructuring the natural gas industry, moving to open-access transportation. It is now functionally separated into production, transportation, and distribution. Industrial and large commercial customers, such as Stroehmann, can purchase gas directly from producers or independent brokers or marketers (marketers generally act as agents for end users and arrange for supply or transportation or both for them) and arrange for the LDC to transport their gas from the city gate to their burner tip. Re Gas Transportation Tariffs, 169 PUR4lh212(Pa. PUC May 13, 1996).

19

9 i

It is noted that in Re Gas Transportation Tariffs. 169 PUR 4 t h 212 (Pa. PUC

May 13, 1996), the Commission reiterated one of several ftmdamental principles that

retail customers should not bear demand-related costs which are properly allocable to

transportation customers.

UGI's SAF is an existing Commission-approved rate and, as such, UGI is

authorized to continue charging that rate under 66 Pa. C.S. §2203(14).

C. Partial Settlement

In part, Section 1318 of the Public Utility Code, 66 Pa. C.S. §1318,

provides as follows:

§1318. Determination of just and reasonable natural gas rates

(a) General rule. - In establishing just and reasonable rates for those natural gas distribution utilities with gross intrastate operating revenues in excess of $40,000,000 under section 1307(f)... No rates for a natural gas distribution utility shall be deemed just and reasonable unless the commission finds that the utility is pursuing a least cost fuel procurement policy, consistent with the utility's obligation to provide safe, adequate and reliable service to its customers. In making such a determination, the commission shall be required to make specific findings which shall include, but need not be limited to, findings that:

(1) The utility has fully and vigorously represented the interest of its ratepayers in proceedings before the Federal Energy Regulatory Commission.

(2) The utility has taken all prudent steps necessary to negotiate favorable gas supply contracts and to relieve the utility from terms in existing contracts with its gas suppliers

20

which are or may be adverse to the interests of the utility's ratepayers.

(3) The utility has taken all prudent steps necessary to obtain lower gas supplies on both short-term and long-term bases both within and outside the Commonwealth, including the use of gas transportation arrangements with pipelines and other distribution companies.

(4) The utility has not withheld from the market or caused to be withheld from the market any gas supplies which should have been utilized as part of a least cost fuel procurement policy.

It is uncontradicted that the Findings of Fact Nos. 7-13 indicate that UGI

has pursued a least cost procurement policy which has served to minimize its customers'

costs without sacrificing its ability to provide safe, adequate and reliable service. Such a

policy, of necessity, requires it to pursue the lowest practical level of gas prices consistent

with adequate supply, availability, reliability and flexibility, and thereby construct a

supply line of product that will not only insure security for UGI's core markets, but also

do so at lowest gas cost.

About the issues raised in this case, I find that the parties' resolution of

them is also in the public interest.

The parties have agreed that the Company agreed to propose in next year's

PGC filing certain tariff language to implement a reverse migration rider. This tariff

revision is needed to insure that former transportation customers, who have not

contributed to over/undercollections of purchased gas costs in the preceding 12-month

period, do not share in the purchased gas cost adjustment related to that period. It also

agreed to address the issue of how it will apply the migration and reverse migration riders

21

for periods less than 12 months. In doing this, it may consider billing system costs and

capabilities (OTS Statement in Support, pp. 2, 3).

The Company also agreed to amortize over/undercollections on an annual

basis instead of compressing them into the remaining months of the PGC period. This

methodology will minimize price volatility created by such compression and eliminate

any cost shifting from heating to non-heating customers (OCA Statement in Support, p.

4).

The Company agreed to use a revised December 2000 undercollection

balance from $24,881,899, as shown in Schedule C, p. 4, of its filing to $19,201,408, an

error of about $5.68 million. This adjustment benefits PGC customers in that their

undercollection is reduced by $5.68 million. It also agreed to equalize the weighing

factors applied each month to supplier refunds and over/undercollections for the purpose

of determining interest amounts, which equalization also benefits PGC customers (OTS

Statement in Support, p. 3).

For the PGC period beginning December 1, 2001, UGI will share off-

system sales margins (sales to end-users outside the service territory) derived from PGC

assets on a before tax basis. It would credit the first $240,000 o f f system sales margins

through its PGC mechanism, retain them when the margins are between $240,001 and

$320,000, and share them when margins are above $320,000 on a 75% (PGC)/25% (UGI)

basis. This sharing mechanism should result in a larger credit to the PGC from off-

system sales margins and provide the company with sufficient incentive to increase the

level of margins derived from off-system sales (OCA Statement in Support, pp. 4, 5).

This incentive program is both reasonable and consistent with least cost planning.

22

Finally, the Company has agreed to increase the projected IRC credit from

$7.1 million in its filing to $8.6 million.

It is noted that the Commission's approval of a voluntary automatic rate

adjustment mechanism might be revoked at any time following notice and hearing, if the

Commission determined that the rates produced by the adjustment mechanism were

unjust or unreasonable. Natural Fuel Gas Distribution Corp. v. Pennsylvania Public

Utility Commission. 81 Pa. Commonwealth Ct. 148, 473 A.2d 1109(1984).

V. CONCLUSIONS QF LAW

1. UGI is pursuing a least cost fuel procurement policy, consistent with

its obligation to provide safe, adequate and reliable service to its customers.

VI. ORDER

THEREFORE,

IT IS RECOMMENDED:

1. That the Petition to File a Supplemental Reply Brief by UGI

Utilities, Inc. - Gas Division is denied because it is not timely filed.

2. That the System Access Fee of UGI Utilities, Inc. - Gas Division

has not violated the National Gas Choice and Competition Act. 66 Pa. C.S. §§2201-

2212.

23

3. That the Stipulation in Settlement of Section 1307(f) Rate

Investigation be and is hereby approved.

4. That the Commission authorize UGI Utilities, Inc. - Gas Division to

file a tariff or tariff supplement as set forth in Appendix A to the Stipulation in Settlement

of Section 1307(f) Rate Investigation, with a decreased PGC1 rate of $6.7302/Mcf and a

decreased PGC2 rate of $5.3082/Mcf for service rendered on and after December 1}

2001.

5. That, in next year's PGC filing, UGI Utilities, Inc. - Gas Division

shall add to its tariff the following reverse migration rider language, which become

effective on December 1, 2002:

"Customers who have received transportation service from the Company for at least twelve consecutive months and who transfer to service under Rate R, GL, N, BD or CIAC shall not be charged the associated PGC Gas Cost Adjustment for a period of twelve months."

6. That, in next year's PGC filing, UGI Utilities, Inc. - Gas Division

shall address the issue of how it may apply the migration and reverse migration rides for

periods of less than 12 months.

7. That, for the 12-month PGC year commencing on December 1,

2001, UGI Utilities, Inc. - Gas Division shall amortize over/undercollections over a 12-

month period.

24

8. That UGI Utilities, Inc. - Gas Division shall use a revised December

2000 undercollection beginning balance of $19,201,408.

9. That UGI Utilities, Inc. - Gas Division shall use a revised December

2000 undercollection beginning balance of $19,201,408.

10. That UGI Utilities, Inc. - Gas Division shall, in its compliance

filing, equalize the weighting factors applied each month to supplier refunds and

over/undercollections for the purpose of determining interest amounts.

11. That for the PGC year beginning on December 1, 2001 and ending

on November 30, 2002, UGI Utilities , Inc. - Gas Division shall share off-system sales

margins derived from PGC assets and before-tax basis in the following manner:

First $240,000 $240,001 -$320,000 above $320,000

credited to PGC retained by UGI shared 75% (PGC) and 25% (UGI)

11. That UGI Utilities, Inc. - Gas Division shall use a projected

interruptible revenue credit amount of $8.6 million to compute its PGC rates.

12. That the Commission terminate and mark closed the records at

Docket Nos. R-00016376 and R-00016376C0001.

Date

KY VAN NGUYEN [ / Administrative Law Judge

25

BEFORE THE PENNSYLVANIA PUBLIC UTILITY COMMISSION

PENNSYLVANIA PUBLIC UTILITY COMMISSION

UGI UTILITIES, INC. GAS DIVISION

DocketNo. R-00016376

STIPULATION IN PARTIAL SETTLEMENT OF SECTION 1307(f) RATE INVESTIGATION

TO THE HONORABLE KY VAN NGUYEN, ADMINISTRATIVE LAW JUDGE:

I. INTRODUCTION

UGI Utilities, Inc. - Gas Division ("UGI"), the Office of Trial Staff ("OTS"), the Office

of Consumer Advocate ("OCA"), and the Office of Small Business Advocate ("OSBA"), parties

in the above-captioned proceeding (hereinafter collectively referred to as the "Parties"), hereby

join in this Stipulation In Partial Settlement Of Section 1307(f) Rate Investigation

("Stipulation"), and hereby request that the Administrative Law Judge (the "ALJ") and the

Pennsylvania Public Utility Commission ("Commission"): (1) approve this Stipulation; (2)

authorize UGI to file a tariff supplement for service rendered on or after December 1, 2001, that

implements, subject to updates and tariff modifications traditionally performed on December 1,

the rates set forth in Appendix A hereto, adjusted to the extent necessary to reflect the resolution

of the issue raised by Stroehmann Bakeries, Inc. ("Stroehmann"); and (3) make all associated

findings required by Sections 1307(f) and 1318 of the Public Utility Code, 66 Pa. C.S. 1307(f)

1

and 1318. As fully set forth and explained below, this Stipulation resolves all issues among the

Parties in this proceeding.

UGI has two PGC rates. The PGC(l) class is comprised primarily of the residential and

small commercial customers of UGI. The PGC(2) customer class is comprised primarily of firm

high load factor contractual commercial and industrial customers.

The rates set forth in Appendix A hereto provide for a decrease of $ 2.4832/mcf from the

PGC(l) Rates of UGI currently in effect, thereby reducing UGI's PGC(l) rate from $ 9.2134/mcf

to $ 6.7302/mcf. Appendix A also provides for a S 2.9934/mcf average decrease in UGI's

PGC(2) rate1, thereby decreasing UGI's PGC (2) rate from $ 8.3016/mcf to $ 5.3082/mcf. These

calculations incorporate data for experienced over/under collections and supplier refunds through

March 31, 2001, and projected under collections through November 30, 2001.

Attached as Appendices B, C, D and E hereto are statements in support of the Stipulation

submitted by UGI, OTS, OCA and OSBA. Attached as Appendix F hereto is a letter from the

UGI Industrial Intervenors ("UGIII") indicating that they do not oppose this Stipulation.

II. BACKGROUND

In support of this Stipulation, the Parties state as follows:

1. UGI, being a natural gas distribution company with gross intrastate annual

operating revenues in excess of $40 million, is authorized by the provisions of Section 1307(f) of

the Public Utility Code, and the Commission's gas cost recovery regulations at 52 Pa. Code

An average increase is stated because Rate BD PGC(2) will include a demand charge of $ 15.34/DCR and a commodity charge of $ 4.6133/mcf for the recovery of purchased gas costs. The stated average rate reflects the effective volumetric rate based upon PGC(2) usage. See Schedule B, p 2.

53.61 - 53.68, to make armual purchase gas cost ("PGC") filings proposing gas rate

modifications to reflect increases or decreases in its natural gas costs.

2. On May 1, 2001, UGI provided the Commission with the profiling information

required by 52 Pa. Code 53.64(c) and 53.65.

3. On June 1, 2001, in accordance with the schedule for Section 1307(f) filings

established by the Commission, UGI submitted its 2001 PGC filing to the Commission, with

proposed modifications to UGI's Gas Tariff Pa. P.U.C. No. 5, to become effective December 1,

2001. This filing proposed a $l.l'0/mcf decrease in the Company's PGC(l) rate of $9.2134/mcf

and a decrease of $1.6017/mcf in its PGC(2) rate of $8.3016/mcf.

4. UGI also filed the direct written testimony of its supporting witnesses with its

PGC filing.

5. On May 11, 2001, the OCA filed a formal complaint. On May 16, 2001, UGI

filed an answer to the OCA's formal complaint.

6. On May 22, 2001, a notice of appearance was filed by counsel for the OTS.

7. On May 30, 2001, the OSBA filed a notice of intervention in UGI's PGC

proceeding.

8. On June 11, 2001, the UGIII filed a Petition to Intervene that was not opposed by

any party.

9. On June 20, 2001 Stroehmann filed a petition to intervene.

10. On June 21, 2001, a prehearing conference was conducted. At this prehearing

conference, the Petition to Intervene of UGIII was granted, but a ruling on the petition to

intervene of Stroehmann was deferred to permit UGI to file an answer to it.

0 •

11. In a Prehearing Order dated June 22, 2001, a procedural schedule was established

that required the opposing parties to file their direct testimony on July 13, 2001, the submission

of written rebuttal testimony on July 27, 2001 and the submission of written surrebuttal

testimony by August 1, 2001. Hearings were scheduled for August 3, 7 and 8, 2001.

12. On June 29, 2001 UGI filed its answer to the petition to intervene of Stroehmann.

13. In an Order Granting Petition For Leave To Intervene dated July 6, 2001,

Stroehmann was permitted to intervene.

14. On July 13, 2001, written direct testimony was submitted by the OCA and

Stroehmann. OTS provided notice that they would not be filing written direct testimony since

they had reached a tentative settlement with UGI.

15. On July 19, 2001, UGI filed a motion to strike the written direct testimony of

Stroehmann witness William E. Bennis.

16. On July 20, 2001, OTS filed a letter in support of UGI's motion to strike.

17. On July 25, 2001, UGI submitted a letter to the presiding Administrative Law

Judge indicating that a tentative settlement had been reached between all parties to the

proceeding other than Stroehmann.

18. On July 27, 2001, UGI and OTS submitted written rebuttal testimony to the

written direct testimony of Stroehmann witness Bennis.

19. On July 30, 2001, OCA and Stroehmann filed answers to UGI's motion to strike

the testimony of Stroehmann witness Bennis. OCA's answer supported the striking of Mr.

Bennis' testimony.

20. In an order dated August 1, 2001, UGI's motion to strike was denied.

21. Throughout this proceeding all parties, including Stroehmann, explored the

possibility of settlement in accordance with the Commission's Rules of Practice at 52 Pa. Code

5.231. As a result of such settlement discussions, the Parties have reached agreement on the

stipulated terms set forth in Sections III, IV and V, below.

I I I . GENERAL PROVISIONS OF SETTLEMENT

22. The Parties agree that, subject to updates and the resolution of the issues raised by

Stroehmann, the rates for recovery of purchased gas costs of UGI should be revised, effective

December 1, 2001, to reflect the rates set forth in Appendix A hereto. Specifically, the PGC(l)

rate shall be $ 6.7302/mcf. The average PGC(2) rate shall be $ 5.3082/mcf.

23. The Parties have also agreed to the following:

a. Reverse Migration Rider - In next year's PGC filing UGI shall propose to

add the following reverse migration rider language to its tariff (which will have an

effective date of December 1, 2002):

"Customers who have received transportation service from the Company

for at least twelve consecutive months and who transfer to service under

Rate R, GL, N, BD or CIA C shall not be charged the associated PGC Gas

Cost Adjustment for a period of twelve months. "

b. Application of Migration or Reverse Migration Riders to periods of less

than Twelve Months - In next year's PGC filing UGI shall address the issue of how it

may apply the migration and reverse migration riders for periods of less than twelve

months under appropriate circumstances, and in addressing this issue UGI may consider

billing system costs and capabilities.

c. Quarterly Filings - For the twelve month PGC year commencing

December 1, 2001 (the "PGC 2001 Year"), any PGC quarterly filing shall recover actual

experienced over/under collections (actual monthly results compared to monthly

projections from annual PGC filing) on an annual basis, while projected over/under

collections for the remaining months of the PGC period (due to projected changes in gas

costs) may be recovered on either an annual basis or on a remaining life basis over the

remaining portion of the PGC 2001 Year. Moreover, UGI shall indicate in any future

annual PGC filing if it intends to modify this methodology on a prospective basis.

d. " Adjustment of Prior Undercollection Balance - UGI shall use a revised

December 2000 undercollection beginning balance of $ 19,201,408.

e. Supplier Refunds - UGI shall, in its compliance filing in this case,

equalize the weighting factors applied each month to supplier refunds and over/under

collections for the purpose of detennining interest amounts.

f. Update of Compliance Filing - UGI's compliance filing in this case shall

be updated to reflect actual results and updated projections for gas costs, and UGI shall

file a complete revised Schedule C in support of its compliance filing at the time this

filing is made.

g. Sharing of Off System Sales Margins derived from PGC Assets - For the

PGC year beginning December 1, 2001 and ending November 30, 2002, UGI will share

off-system sales margins derived from PGC assets on a before tax basis in the following

manner:

First $240,000 - credited to PGC

$240,001 - $320,000 - retained by UGI

above $320,000 - shared 75%(PGC) and 25%(UGI)

h. IRC Credit Projection - In computing its PGC rates in this proceeding,

UGI shall use a projected IRC credit amount of $8.6 million.

m 24. With the revisions and agreements set forth above, all parties have agreed to settle

this proceeding in its entirety.

IV. STANDARDS AND FINDINGS

This proceeding is a consolidation of two reviews that the Commission is required to

undertake pursuant to Sections 1307 and 1318 of the Public Utility Code. Under Section

1307(f), the Commission, after hearing, must determine what portion of gas costs UGI may

recover for a previous 12-month period under the standards set forth in Section 1318. In

addition, because UGI has filed a tariff proposing a new rate effecting a change in its natural gas

costs, the Commission must determine whether the specific findings of Section 1318 can be

made. This is a requirement which must precede Commission approval of the Company's

proposed rates. The historic period reviewed in the proceeding is the twelve-month

reconciliation period ending March 31, 2001. The new tariff rate is intended to become effective

December 1,2001.

ft

A. Historic Reconciliation Period Standards

With respect to UGFs gas purchases and gas purchasing practices during the twelve­

month historic reconciliation period ending March 31, 2001, all Parties agree and request the

Commission to find that UGI has met the standards set forth in Section 1318 of the Public Utility

Code, as required by Section 1307(f)(5) of the Public Utility Code, as to all historic period

purchased gas costs. All parties request that the Commission find, pursuant to Section 1307(f)(5)

of the Public Utility Code, and based upon the evidence presented by the parties in this case, that,

during the twelve-month period ended Month 31, 2001, UGI met the requirements of Section

1318 of the Public Utility Code by pursuing a least-cost fuel procurement policy, consistent with

its obligation to provide safe, adequate and reliable service to its customers.

B. Projected Period Findings

With respect to the twelve-month period beginning December 1, 2001, which is the

period of time during which the proposed rates contained in this Stipulation would be in effect,

all Parties agree and request the Commission to find that UGI has satisfied each of the standards

for a least cost procurement policy set forth in Section 1318 of the Public Utility Code, including

the standards set forth in Sections 1318(a)(1), 1318(a)(2), 1318(a)(3), 1318(a)(4), 1318(bXl),

1318(b)(2) and 1318(b)(3), based upon the evidence of record in this proceeding concerning

UGI's purchasing policies. Nevertheless, it is expressly understood and agreed that such

findings, relating to the rates to become effective December 1, 2001, are made solely for the

purpose of setting prospective rates, and shall be subject to further review in an appropriate

future proceeding. This Section of the Stipulation, Section IV.B., is not intended to limit or

prevent any party from challenging projected gas purchases that actually have been made and

future gas purchasing practices that have been implemented; or from reviewing whether these gas

purchases and gas purchasing practices have, in fact, complied with the standards of Section

1318.

If, in an appropriate future proceeding, gas purchases and gas purchasing practices

relating to the period December 1, 2001 through November 30, 2002 are challenged, the

Commission's findings made pursuant to Section IV.B. of this Stipulation shall pose no bar to

the examination of such purchases and practices including, but not limited to, disallowance of, or

reductions to, such costs during the one-year period commencing December 1, 2001.

The parties also agree that future examination of the gas costs relating to the period April

1, 2000, through November 30, 2001, to determine whether UGI's experienced and projected gas

purchases and gas purchasing practices complied with the standards set forth in Section 1318 of

the Public Utility Code, 66 Pa. C.S. 1318, shall be permitted, and that the Commission's

adoption of the findings under Section IV.B. of this Stipulation shall not be construed to limit or

prevent any disallowance or reduction of such costs.

V. CONDITIONS OF STIPULATION

1. This Stipulation is conditioned upon the Commission's approval of the terms and

conditions contained herein without modification, addition or deletion, except as may be required

to reflect the resolution of the Stroehmann system access fee issue. I f the Commission fails to

approve, by December 1, 2001, the rates contained in Appendix A, as modified to reflect updates

and tariff modifications traditionally performed on December 1, and except as modified to reflect

the resolution of the Stroehmann system access fee issue, effective for service rendered on and

after December 1, 2001, then any of the Parties may elect to withdraw from this Stipulation and

may proceed with litigation. This Stipulation is proposed by the Parties to settle certain issues in

the instant proceeding and is made without any admission against, or prejudice to, any position

which any Party may adopt during any subsequent litigation of this proceeding.

2. It is understood and agreed among the Parties that this Stipulation is the result of

compromises by all Parties, and does not necessarily represent the position(s) that would be

advanced by any party in the event this proceeding were to be litigated fully.

1. The Stipulation is being presented only in the context of this Section 1307(f)

proceeding in an effort to resolve certain outstanding issues in a manner which is fair and

reasonable. The Stipulation reflects compromises on all sides, and is presented without prejudice

to any position any of the parties may have advanced and without prejudice to the positions any

of the parties may advance in the future on the merits of the issues.

2. Except as provided in section V . l . hereof, all parties agree to fully support the

terms and conditions of the Stipulation during further litigation in this proceeding.

3. This Stipulation may be executed in counterparts.

WHEREFORE, the Parties, by their respective counsel, respectfully request as follows:

4. That Administrative Law Judge Ky Van Nguyen and the Commission approve

this Stipulation, including all terms and conditions thereof:

5. That the Commission, after resolution of the Stroehmann system access fee issue,

enter a final order consistent with this Stipulation which: (a) finds that there is sufficient evidence

in the record for this Commission to make the findings referenced in Sections IV.A. and IV.B. of

this Stipulation; and (b) sets forth the findings referenced in Section IV.A. and IV.B. of this

Stipulation.

10

this Stipulation; and (b) sets forth the findings referenced in Section IV.A. and IV.B. of this

Stipulation.

6. That the Commission enter a final order, consistent with this Stipulation, (a)

approving the proposed rates contained in Appendix A hereto, as modified to reflect updates and

tariff modifications traditionally performed on December 1 and the resolution of the Stroehmann

system access fee issue, and (b) directing UGI Utilities, Inc. - Gas Division to file a final tariff

implementing such rates for gas service rendered by UGI on and after December 1, 2001.

7. That the Commission, after the resolution of the Stroehmann system access fee

issue, terminate and mark closed its inquiry and investigation at Docket No. R-00016376, and

the formal complaint proceeding of the Office of Consumer Advocate.

Respectfully submitted.

Stephen J. iCeene, Esquire Office of Consumer Advocate 555 Walnut Street Forum Place, 5* Floor Harrisburg, PA 17120

Angela T.jJones, Esqui Office ofSmall BusinessXdvocate 1102 Commerce Building 300 North Second Street Harrisburg, PA 17101

Kandace F. Melillo, Prosecutor Office of Trial Staff Pennsylvania Public Utility Commission P.O. Box 3265 Harrisburg, PA K7105

Mark C. Morrow UGI Corporation P.O. Box 858 Valley Forge, PA 19482

Counsel for UGI Utilities, Inc. - Gas Division

Dated: August 13,2001

11

CERTIFICATE OF SERVICE

I hereby certify that I have this day sen'ed true and correct copies of the document on the person, listed below in the manner indicated, in accordance with the requirements of § 1.54 (relating to service by a participant).

VIA HAND DELIVERY

Charles Hoffman, Esquire Kandace F. Melillo, Esquire Office of Trial Staff PA Public Utility Commission Commonwealth Keystone Building 400 North Street, 2nd Floor West Harrisburg, PA 17105-3265

Alan C. Kohler, Esquire Mark S. Stewart, Esquire Wolf, Block, Schorr and Solis-Cohen 212 Locust Street, Suite 300 Harrisburg, PA 17101

Angela T. Jones, Esquire Office of Small Business Advocate Suite 1102, Commerce Building 300 North Second Street Harrisburg, PA 17101

Pamela C. Polacek, Esquire McNees, Wallace & Nurick 100 Pine Street P.O. Box 1166 Harrisburg, PA 17108-1166

Stephen J. Keene, Esquire Zachary M. Rubinich, Esquire Office of Consumer Advocates 555 Walnut Street 5th Floor Forum Place Hamsburg, PA 17101-1923

VIA FIRST CLASS MAIL

The Honorable Ky Van Nguyen Administrative Law Judge Pennsylvania Public Utility Commission 1302 Philadelphia State Office Building 1400 West Spring Garden Street Philadelphia, PA 19130

Brian Kalcic Excel Consulting 225 S. Meramec Avenue Suite 720-T St. Louis, MO 63105

Date: August 14, 2001

Jerome D. Mierzwa Consultant Exeter Associates Inc. 12510 Prosperity Drive, Suite 350 Silver Spring, MD 20904

Richard A. Baudino J. Kennedy and Associates, Inc. 570 Colonial Park Drive, Suite 305 Roswell, GA 30075

Michael W. Hassell

l-HA/95550.1

APPENDIX A

0 •

UGI UTILITIES., — GAS DIVISION COMPUTATION OF THE PURCHASED GAS COST RATE (PGC 1 ) APPLICABLE TO RATES : R;GL; & N.

EFFECTIVE DECEMBER 1,2001 COMPUTATION YEAR ENDING NOVEMBER 30 ,2002.

SCHEDULE A. ( SETTLEMENT PROJECTION )

Cl - PROJECTED COST ($) $231,908,983

S1 - PROJECTED SALES (mcf):

C1/S1 - PROJ. COST PER MCF

IRC - INTER. REVENUE CREDIT

NGSC - NATL GAS SUPPLY CHARGE

E1 -EXPERIENCED COST ($)

E1/S1 - EXPERIENCED COST PER MCF (OR GAS COST ADJUSTMENT)

34,792,029

$6.66558

($0.27211)

$6.3935

$11,714,032

$0.3367

PGC (1) =( GCA + NGSC) . PGC(1)=( GCA + NGSC ) i

PGC(1) (DECREASE)

RESIDENTIAL HTG % DECREASE

12.1.01 - (PROPOSED) CURRENT

$6.7302 $9.2134

($2.4832)

-18.6%

UGI UTILITIES., - GAS DIVISION

COMPUTATION OF THE PURCHASED GAS COST RATE (PGC 2 ) APPLICABLE TO.RATES : BD & CIAC

EFFECTIVE DECEMBER 1,2001 COMPUTATION YEAR ENDING NOVEMBER 30 ,2002.

C2 - PROJECTED COST ($) $1,400,344

S2 - PROJECTED SALES (mcf): 254,557

C2/S2 - PROJ. COST PER MCF $5.5011

IRC - INTER. REVENUE CREDIT ($0.27211)

NGSC - NATL GAS SUPPLY CHARGE $5.2290

E2 -EXPERIENCED COST ($) - $20,159

E2/S2 - EXPERIENCED COST PER MCF $0.0792 (OR GAS COST ADJUSTMENT)

PGC (2) =( GCA + NGSC ) @ 12.1.01 - (PROPOSED ) $5.3082 PGC (2) =( GCA + NGSC ) @ CURRENT $8.3016

PGC (2) DECREASE ($2.9934)

SCHEDULE B ( SETTLEMENT PROJECTION )

APPENDIX B

BEFORE THE PENNSYLVANIA PUBLIC UTILITY COMMISSION

PENNSYLVANIA PUBLIC UTILITY COMMISSION

v.

UGI UTILITIES, INC. - GAS DIVISION Docket No. R-00016376

STATEMENT OF UGI UTILITIES, INC. - GAS DIVISION IN SUPPORT OF THE

STIPULATION IN PARTIAL SETTLEMENT OF SECTION 1307(f) RATE INVESTIGATION

UGI Utilities, Inc. - Gas Division ("UGI") hereby submits its Statement in Support of the

Stipulation in Partial Settlement of Section 1307(f) Rate Investigation ("Stipulation"). UGI

believes that the Stipulation is in the best interest of UGI and its ratepayers, and is therefore in

the public interest.

BACKGROUND

UGI, being a natural gas distribution company with gross intrastate annual operating

revenues in excess of $40 million, is authorized by the provisions of Section 1307(f) of the

Public Utility Code, 66 Pa. Code 1307(f), and the Commission's Gas Cost Recovery Regulations

at 52 Pa. Code §§53.61 - 53.68, to make annual purchase gas cost ("PGC") filings proposing gas

rate modifications to reflect increases or decreases in its natural gas costs. On June 1, 2001, UGI

submitted its 2001 PGC filing to the Commission. This filing proposed a $1.10 decrease to

UGI's PGC(l) rate of $9.2134/Mcf, and a decrease of $0.1.6017/Mcf to UGI's PGC(2) rate of

$8.3016/Mcf.

On or about May 11, 2001, UGI received a formal complaint from the Office of

Consumer Advocate ("OCA"), which UGI answered on May 16, 2001.

On May 22, 2001, counsel for the Office of Trial Staff ("OTS") filed a notice of

appearance.

On May 30, 2001, the Office of Small Business Advocate filed a notice of intervention.

On June 11, 2001, the UGI Industrial Intervenors ("UGIII") filed a petition to intervene

that was granted on June 21, 2001.

On June 20, 2001 Stroehmann Bakeries, Inc. ("Stroehmann") filed a petition to intervene

that UGI answered on June 29, 2001. Stroehmann's petition was granted on July 6, 2001.

Following extensive discovery and the conduct of settlement negotiations, all the parties

in this proceeding other than Stroehmann ("Parties") reached agreement on all issues.

TERMS OF SETTLEMENT

The Parties have agreed that subject to the resolution of the Stroehmann system access

fee issue, updates and any other annual tariff modifications traditionally performed as of

December 1, the rates for recovery of the purchase gas costs of UGI should be revised, effective

December 1, 2001, to reflect the rates set forth in Appendix A of the Stipulation. Specifically,

the PGC(l) rate shall be set at $6.7302/Mcf, and the average PGC(2) rate shall be set at

$5.3082/Mcf.

The Parties have also agreed to the following terms:

a. Reverse Migration Rider - In next year's PGC filing UGI shall

propose to add the following reverse migration rider language to its tariff (which will

have an effective date of December 1, 2002):

"Customers who have received transportation service from the Company

for at least twelve consecutive months and who transfer to service under

Rate R, GL, N, BD or CIAC shall not be charged the associated PGC Gas

Cost Adjustment for a period of twelve months. "

b. Application of Migration or Reverse Migration Riders to periods of less

than Twelve Months - In next year's PGC filing UGI shall address the issue of how it

may apply the migration and reverse migration riders for periods of less than twelve

months under appropriate circumstances, and in addressing this issue UGI may

consider billing system costs and capabilities.

c. Quarterly Filings - For the twelve month PGC year commencing

December 1, 2001 (the "PGC 2001 Year"), any PGC quarterly filing shall recover

actual experienced over/under collections on an annual basis, while projected

over/under collections may be recovered on either an annual basis or on a remaining

life basis over the remaining portion of the PGC 2001 Year. Moreover, UGI shall

indicate in any future annual PGC filing i f it intends to modify this methodology on a

prospective basis.

d. Adjustment of Prior Undercollection Balance - UGI shall use a revised

beginning balance of $ 19,201,408.

e. Supplier Refunds - UGI shall, in its compliance filing in this case,

equalize the weighting factors applied each month to supplier refunds and over/under

collections for the purpose of determining interest amounts.

f. Update of Compliance Filing - UGI's compliance filing in this case shall

3

be updated to reflect actual results and updated projections for gas costs, and UGI

shall file a complete revised Schedule C in support of its compliance filing at the time

this filing is made.

g. Sharing of Off System Sales Margins derived from PGC Assets - For the

PGC year beginning December 1, 2001 and ending November 30, 2002, UGI will

share off-system sales margins derived from PGC assets on a before tax basis in the

following manner:

First $240,000

$240,001 - $320,000 -

above $320,000

credited to PGC

retained by UGI

shared 75%(PGC) and 25%(UGI)

h. IRC Credit Projection - In computing its PGC rates in this proceeding,

UGI shall use a projected IRC credit amount of $8.6 million.

Each of these agreements resolves a dispute fairly and without the cost, expense and

uncertainty associated with litigation. UGI accordingly supports the Stipulation fully, and urges

the presiding Administrative Law Judge and the Commission to approve the Stipulation without

modification.

Respectfully submitted,

Dated: August 13, 2001

Mark C. Morrow

Counsel for UGI Utilities, Inc. Gas Division

APPENDIX C

€> APPENDIX C

BEFORE THE PENNSYLVANIA PUBLIC UTILITY COMMISSION

PENNSYLVANIA PUBLIC UTILITY COMMISSION

v.

UGI UTILITIES, INC.—Gas Division (1307(f)) proceeding)

Docket No. R-00016376

STATEMENT IN SUPPORT OF THE

OFFICE OF TRIAL STAFF

TO ADMINISTRATIVE LAW JUDGE KY VAN NGUYEN:

The Office of Trial Staff (OTS) of the Pennsylvania Public Utility

Conunission ("Commission") respectfully requests that the terms and conditions of

the foregoing Stipulation In Partial Settlement Of Section 1307(f) Rate

Investigation ("Stipulation") be approved by Administrative Law Judge Ky Van

Nguyen and the Commission. This request is based upon OTS' conclusion that the

proposed Stipulation is in the public interest, as stated therein and as supported by

consideration of the following factors:

1. On June 1, 2001, UGI Utilities, Inc.-Gas Division ("UGI" or "the

Company") submitted its 2001 Purchased Gas Cost (PGC) filing to the

Pennsylvania Public Utility Conunission (Commission), with proposed

modifications to UGFs Gas Tariff Pa. P.U.C. No. 5, to become effective

December 1, 2001.

2. A Prehearing Conference was held regarding UGI's filing on

June 21, 2001, with Administrative Law Judge Ky Van Nguyen (ALJ Nguyen)

presiding. At this Prehearing Conference, a procedural schedule was established.

3. The parties explored the possibility of settlement, in accordance with

the Commission's Rules of Practice at 52 Pa. Code §5.231. After extensive

discussions, and after completion of discovery, all parties, with the exception of

Stroehmann Bakeries, Inc. (Stroehmann), reached the foregoing Stipulation with

respect to their issues. The system access fee issue raised by Stroehmann is the

only issue remaining for litigation.

5. The benefits of this Stipulation include the following:

a. UGI has agreed to revise its rates, subject to updates and the

resolution of the Stroehmann issue, to reflect a PGC(l) rate of $6.7302/mcf, in lieu

of the proposed PGC(l) rate of $8.1134/mcf, and a PGC(2) rate of $5.3082/mcf, in

lieu of the proposed PGC(2) rate of $6.6999/mcf. These rates reflect a decrease of

$2.4832/mcf from the PGC(l) rates currently in effect, and an average decrease of

$2.9934/mcf in UGI's PGC(2) rate.

b. In next year's PGC filing, UGI has agreed to propose certain

agreed-to tariff language to implement a reverse migration rider, effective

€» December 1, 2002. This tariff provision is needed to ensure that former

transportation customers, that have not contributed to over/undercollections of

purchased gas costs in the preceding twelve-month period, do not share in the

purchased gas cost adjustment related to that period.

c. Also, in next year's PGC filing, UGI has agreed to address

the issue of how to apply the migration and reverse migration riders for periods of

less than twelve months, and, in so doing, it may consider billing system costs and

capabilities.

d. UGI has agreed to adjust its prior undercollection balance

(December 2000 beginning balance) from $24,881,899, as shown in Schedule C,

page 4, of its filing, to $19,201,408, to correct for a $5.68 million error. This

inures to the benefit of PGC customers, in that their undercollection balance is

reduced by $5.68 million. UGI has also agreed to equalize the weighting factors

applied each month to supplier refunds and over/undercollections for the purpose

of determining interest amounts, which also benefits PGC customers.

e. In its quarterly filings, UGI has agreed to recover the actual

experienced over/undercollections on an annual basis, consistent with the

methodology used by other local distribution companies in Pennsylvania.

f. UGI will file an updated compliance filing to reflect actual

results and updated gas cost projections, and will file a complete revised Schedule

C with its compliance filing, to aid the parties in detennining compliance with the

Commission's Final Order.

g. UGI has agreed to credit PGC customers with the first

$240,000 in off-system sales margin derived from PGC assets on a before tax

basis, with UGI benefiting from sales above the $240,000 threshold. This reflects

an increase from the PGC 2000 settlement, which credited only the first $180,000

to PGC customers, with UGI benefiting in sales above the $180,000 threshold.

6. Acceptance of this Stipulation will avoid the time and expense of

litigating those issues resolved herein among the parties. This could include cross-

examination of witnesses, and the filing of main briefs, reply briefs, exceptions,

reply exceptions and appeals on the subject matter of this Stipulation.

7. Furthermore, as demonstrated herein, this Stipulation resolves issues

in a manner that is consistent with the public interest. The parties acknowledge

that this Stipulation shall not prejudice future positions on any issue, except as set

forth herein.

WHEREFORE, for all the foregoing reasons, the Office of Trial

Staff respectfully requests that Administrative Law Judge Ky Van Nguyen and the

Commission approve the foregoing Stipulation In Partial Settlement Of Section

1307(f) Rate Investigation.

Respectfully submitted.

Kandace F. Melillo Prosecutor

Charles F. Hoffrnan Chief Prosecutor Office of Trial Staff

Pennsylvania Public Utility Commission P.O. Box 3265 Hamsburg, PA 17105-3265

Dated: August 13, 2001

APPENDIX D

BEFORE THE PENNSYLVANIA PUBLIC UTILITY COMMISSION

PENNSYLVANIA PUBLIC UTILITY COMMISSION

v.

UGI UTILITIES, INC. - GAS DIVISION

Docket No. R-00016376

OFFICE OF CONSUMER ADVOCATE'S STATEMENT IN SUPPORT OF

STIPULATION IN PARTIAL SETTLEMENT OF SECTION 1307(f) RATE INVESTIGATION

I. BACKGROUND

On May 1, 2001, pursuant to Sections 53.64 and 53.65 of the Commission's

Rules and Regulations, 52 Pa. Code §§ 53.64 and 53.65, UGI Utilities, Inc. - Gas Division

("UGI" or "Company") submitted the required prefiling information in support of its annual

reconciliation of purchased gas cost ("PGC") rates to the Pennsylvania Public Utility

Commission ("Commission"). On June 1, 2001, UGI made its definitive 2001 PGC filing with

proposed modifications to UGI's Gas Tariff Pa. P.U.C. No. 5, in accordance with the schedule

for 1307(f) filings established by the Commission. The Company filed its PGC tariff together

with supporting computations. The proposed PGC tariff would become effective on December

1, 2001. The Company's filing was assigned to the Office of Administrative Law Judge, and

was further assigned to Administrative Law Judge Ky Van Nguyen for investigation and

-1-

€> scheduling of hearings to determine whether UGI's gas costs comply with the standards set

forth in the Public Utility Code. On May 11, 2001, the Office of Consumer Advocate filed a

Formal Complaint with the Commission against the Company's proposed PGC rate. The

OCA filed its Formal Complaint in order to evaluate whether the Company's proposed

purchased gas cost rates and charges are consistent with a least cost fuel procurement policy

and do not result in rates and charges that are excessive, discriminatory or otherwise contrary

to Commission regulation or policy. UGI filed its Answer to the OCA's Formal Complaint on

May 16,2001.

A prehearing conference was held telephonically before ALJ Nguyen on June

21, 2001. During the prehearing conference, a procedural schedule for this proceeding was

established.

In accordance with the statutory mandate set forth in Sections 1307(f) and

1317 and 1318 of the Public Utility Code, 66 Pa. C.S. §§ 1307(f), 1317, 1318, the OCA has

reviewed the Company's purchasing policies and practices for natural gas supply for the 12-

month historic reconciliation period ending March 31, 2001. Specifically, the OCA's analysis

included an evaluation of the following issues:

(1) Reasonableness and prudence of historic period purchase gas costs and assessment of compliance with Commission Orders in previous 1307(f) cases;

(2) Reasonableness and accuracy of estimating gas costs during the interim and prospective periods covered by the Company's filing;

(3) Reasonableness and prudence of the Company's gas supply mix, including purchases of local gas supplies;

-2-

(4) Reasonableness and prudence of the Company's mix of demand entitlements, storage, and local production, to include an assessment of the reasonableness of the Company's estimate of design day requirements;

(5) Reasonableness and prudence of contracts with pipelines and suppliers in light of the changing regulatory framework;

(6) Assessment of the value of all reported refunds and attendant interest that the Company has received from suppliers;

(7) Reasonableness of the Company's allocation of purchased gas costs between customer classes and assessments of any other subsidies or unreasonable discrimination between customer classes;

(8) Reasonableness and prudence of the Company's use of capacity release, off-system sales, and interruptible sales and crediting of such revenues to PGC ratepayers;

(9) Reasonableness and prudence of the Company's standby sales, unbundled storage service, and balancing service provided to transportation customers;

(10) Reasonableness and prudence of the Company's inclusion of 25,000 dth per day of firm transportation capacity on Texas Eastern to allow UGI to meet the uniform hourly flow requirement set forth in the Texas Eastern tariff.

(11) Reasonableness and prudence of the Company's new and renewed capacity contracts.

Pursuant to the established procedural schedule, the OCA submitted the

prepared direct testimony of Jerome D. Mierzwa on July 13, 2001, addressing issues that the

OCA identified as areas of concem.

The parties to this proceeding subsequently entered into settlement negotiations,

which resulted in a Stipulation in Partial Settlement of Section 1307(f) Rate Investigation

("Partial Settlement") that resolves all contested issues in this case among the Company, the

Commission's Office of Trial Staff ("OTS"), the Office of Small Business Advocate ("OSBA"),

-3-

it

UGI Industrial Intervenors ("UGin") and the OCA. The Partial Settlement addresses the areas

of concem that the OCA presented in its testimony, and the OCA submits that the resolution of

those issues is in the public interest.

II. TERMS AND CONDITIONS OF THE PARTIAL SETTLEMENT

The Partial Settlement provides for a reduction in the PGC(l) rate from its

current level of $9.2134/Mcf to $6.7302/Mcf. This is a reduction of S2.4832/Mcf from the

current level. The PGC(2) rate will be reduced from its current level of $8.3016/Mcf to

$5.3082/Mcf. This is a reduction of $2.9934 from the current level. In addition, the Partial

Settlement provides that the Company will update its natural gas cost recovery levels at the time

of its compliance filing in this proceeding to reflect the most recent available actual results and

updated projections for gas costs. By updating its rates to include current data in its

compliance filing, recent decreases in wholesale gas prices will be reflected in rates.

The Company also agreed to address in next year's PGC filing the issue of how

it will apply the migration riders and reverse migration riders for periods of less than twelve

months.

The Company also agreed to amortize any over- or under-collections

experienced over a twelve month period instead of compressing them into the remaining months

of the PGC period. This will minimize price volatility created by such compression and

eliminate any shifting of these costs from heating customers to non-heating customers.

For the PGC period beginning December 1, 2001, UGI will share off-system

-4-

sales margins derived from PGC assets on a before tax basis in the following manner:

First $240,000 credited to PGC

$240,0014320,000 retained by UGI

above $320,000 shared 75% (PGC) and 25% (UGI)

This sharing mechanism should result in a larger credit to the PGC from off-system sales

margins and provide the Company with sufficient incentive to increase the level of margins

derived from off-system sales.

Finally, the Company has agreed to increase the projected IRC credit from

$7.1 million in its filing to $8.6 million.

-5-

III. CONCLUSION

For the foregoing reasons, the OCA submits that the terms and conditions of the

settlement agreement are in the public interest and the interest of UGFs ratepayers and should

be approved.

Respectfully submitted,

Office of Consumer Advocate 555 Walnut Street 5 lh Floor, Forum Place Harrisburg, PA 17101-1923 (717) 783-5048

Dated: August 14, 2001

*64895

Stephen J. Keene Senior Assistant Consumer Advocate

Counsel for: Irwin A. Popowsky Consumer Advocate

-6-

APPENDIX E

APPENDIX E

OFFICE OF SMALL BUSINESS ADVOCATE STATEMENT OF SUPPORT REGARDING

MEDIATED STIPULATION IN

Pennsylvania Public Utility Commission v.

UGI Utilities, Inc. - Gas Division (1307(f) Rate Investigation)

Docket No. R-00016376

The Office of Small Business Advocate ("OSBA"), one of the signatories to the Joint

Stipulation of Partial Settlement ("Joint Petition"), submits this statement of support regarding the

Joint Petition and requests its approval by the presiding Administrative Law Judge ("ALJ"), Ky Van

Nguyen, and the Commission.

Introduction

In compliance with the gas recovery regulations at 52 Pa. Code §§ 53.64(c) and 53.65, UGI

Utilities, Inc. - Gas Division ("UGI" or "Company") prefiled with the Commission on May 1, 2001

infonnation concerning proposed gas rate modifications to reflect decreases in its natural gas costs.

On June 1, 2001 UGI submitted its 2001 purchase gas cost filing to the commission with

modifications to its Gas Tariff Pa. P.U.C. No. 5 to become effective by December 1, 2001. The

filing proposed a $ 1.10/mcf decrease in the Company's PGC(l) rate and a $ 1.6017/mcf decrease in

its PGC(2) rate.

On May 11, 2001 the Office of Consumer Advocate ("OCA"), filed its Formal Complaint.

On May 16, 2001, UGI filed an answer to the OCA's Formal Complaint. On May 22, 2001, the

Office of Trial Staff ("OTS"), filed its Notice of Appearance in this proceeding. On May 30,2001,

the OSBA filed its Notice of Intervention in this proceeding. On June 11, 2001 the UGI Industrial

APPENDIX E

Intervenors ("UGIH"), filed a Petition to Intervene which was unopposed and subsequently granted.

On June 20,2001, Stroehmann Bakeries, Inc. ("Stroehmann") filed a Petition to Intervene which was

granted by Order dated July 6, 2001. On June 21, 2001, a Prehearing Conference was conducted by

ALJ Ky Van Nguyen which established the following procedural schedule: (1) the filing of direct

testimony by intervenors on July 13, 2001; (2) submission of written rebuttal testimony by July 27,

2001; and (3) submission of outlined surrebuttal testimony by August 1, 2001. Hearings were

scheduled for August 3, 7, and 8, 2001.

Written direct testimony was filed by the OCA and Stroehmann on July 13, 2001. On July

19, 2001, UGI filed a Motion to Strike the direct testimony of the Stroehmann witness, William E.

Bennis. OTS filed a letter supporting the UGI Motion to Strike on July 20, 2001. On July 25, 2001,

UGI submitted a letter to ALJ Nguyen indicating a tentative partial settlement had been reached with

all parties excluding Stroehmann. UGI and OTS submitted written rebuttal testimony on July 27,

2001. On July 30,2001 the OCA and Stroehmann filed answers to UGFs Motion to Strike the direct

testimony of Stroehmann's witness with OCA supporting the Motion to Strike.

The Stipulation and the Public Interest

The OSBA is a party to the Stipulation that tlie Company, OCA and OTS have also agreed

to endorse. The Stipulation embodied in the Joint Petition is in the public interest for the following

reasons, among others:

1. The Company has agreed to decrease its rates. The PGC(1) rate for UGI Customers

is projected to decrease by $2.4832 /mcf to $6.7302/mcf . This PGC(l) rate is

applicable to small business customers and is significantly less than proposed initially

0

APPENDIX E

in the UGI filing. The OSBA believes that this significant decrease in rates is

appropriate and beneficial to small commercial customers.

2. The Company has also agreed to update it compliance filing to reflect the actual

results and an updated projection for gas costs. As prices have been declining, this

more up-to-date compliance filing will provide the most relevant decrease to pass on

to the consumer. The OSBA finds this proposal appropriate and beneficial to the

small business customer.

3. Commencing with the December 1,2001 quarterly filing, UGI has agreed to recover

any experienced over/under collection on an annual basis, while any projected

over/under collection may be recovered on either an annual basis or on a remaining

life basis over the remaining portion of the PGC 2001 Year.1 The OSBA finds this

methodology appropriate since it should result in less distortion of the seasonal

differences in gas prices.

4. UGI has agreed to accept the recommendation of OTS concerning the Reverse

Migration Rider language as well as the application of the Migration or Reverse

Migration Rider over a period of less than twelve months. These recommendations

are more easily explained to customer, eliminate confusion and provide more

equitable treatment to those who choose to switch from sales service to transportation

service. The consideration of switching within a twelve month period should prove

to deter any gaming of the system. The OSBA is hopeful, barring billing system

i The PGC 2001 Year is Ihe twelve month penod beginning December I , 2001.

3

•

APPENDIX E

difficulties, that the under twelve month concept of switching language can be

implemented. The OSBA believes that these considerations are appropriate and

beneficial to small commercial customers.

5. The resolution of this stipulation enables OSBA to conserve its resources and avoid

the uncertainties inherent in adversarial litigation. Additionally, the resolution of

these issues on such favorable terms are particularly beneficial to UGI's small

business customers.

Conclusion

For the reasons stated herein, and the reasons stated in the Stipulation itself, the Office of

Small Business Advocate believes that the adoption of the Stipulation is in the public interest, and

specifically in the interest of the small business customers of the UGI Utilities, Inc., - Gas Division.

The OSBA requests that the ALJ Ky Van Nguyen recommend and the Commission adopt the Partial

Settlement as the resolution of the issues raised in this matter.

Respectfully submitted,

A n g ^ T . Jones Assistant Small Busin&Ss Advocate

Dated: August j ^ ? , 2000 /3.

APPENDIX F

0 • f

M C N E E S W A L L A C E & N U R I C K L L C ATTORNEYS AT LAW

IOO PINE STREET P. O. BOX n e e

HARRISBURG. PA i 7 i o e - i i e 6 TELEPHONEI7!7! 2 3 2 - 8 0 0 0

FAX 17171237-5300

h t tp : / /www.mwn.com

ICAREN S. MILLER ORNER

DIRECT DIAL; (717) 237-5359

E-MAIL ADDRESS: K0RNER@MWN.COM

August 14, 2001

The Honorable Ky Van Nguyen VTA FACSIMILE Administrative Law Judge AND FIRST CLASS MAIL Pennsylvania Public Utility Commission 1302 Philadelphia State Office Building 1400 West Spring Garden Street Philadelphia, PA 19130

Re: PA Public Utility Commission v. UGI Utilities, Inc. - Gas Division; Docket No. R-00016376

Dear Judge Nguyen:

The UGI Industrial Intervenors ("UGUI"), an intervenor in the above-referenced proceeding, submits this letter to indicate its non-opposition to the proposed Stipulation in Partial Settlement. UGIH intervened in this proceeding for the purpose of ensuring that the interests of large commercial and industrial customers receiving transportation service from UGI Utilities, Inc., would not be adversely impacted by the resolution of the proceeding. The Stipulation in Partial Settlement does not address issues that directly impact UGUI member transportation interests. Consequently, UGIH does not oppose, adoption of the Stipulation in Partial Settlement without modification.

Please feel free to contact us with any questions regarding this letter.

Very truly yours,

McNEES WALLACE & NURICK LLC

Karen S. Miller Omer

Counsel to the UGI Industrial Intervenors

KSMO c: James J. McNulty, Secretary (via first class mail)

Parties of Record

• COLUMBUS. OH • HAZLETON. PA • WASHINGTON. D.C. •

CERTIFICATE OF SERVICE

I hereby certify that I am this day serving a true copy of the foregoing document upon the

participants listed below in accordance with the requirements of Section 1.54 (relating to service

by a participant):

VIA FIRST-CLASS MAIL

David B. MacGregor, Esquire Morgan, Lewis & Bockius 1701 Market Street Philadelphia, PA 19103-2921

Stephen J. Keene, Esquire Office of Consumer Advocate 555 Walnut Street Forum Place - 5* Floor Harrisburg, PA 17101-1923

Angela T. Jones, Esqujre Office of Small Business Advocate Commerce Building - Suite 1102 302 North Second Street Harrisburg, PA 17101

Mark C. Morrow, Esquire UGI Utilities, Inc. - Gas Division PO Box 858 Valley Forge, PA 19482-0858

Jerome D. Mierzwa Exeter Associates, Inc. Suite 350 12510 Prosperity Drive Silver Spring, MD 20904

Mr. Richard A. Baudino J. Kennedy and Associates, Inc. 570 Colonial Park Drive, Suite 305 Roswell, GA 30075

Kandace Melillo, Esquire Office of Trial Staff Commonwealth Keystone Building 400 North Street, 2 n d Floor Harrisburg, PA 17120

Alan Kohler, Esquire Mark Stewart, Esquire Wolf, Block, Schorr and Solis-Cohen, LLP 212 Locust Street Suite 300 Harrisburg, PA 17101

Mr. Brian Kalcic Excel Consulting Suite 720-T, 225 S. Meramec Avenue St. Louis, MO 63105

Vicki Ebner, Vice President Marketing & Gas Supply UGI Utilities, Inc. - Gas Division 100 Kachel Blvd., Suite 400 P.O. Box 12677 Reading, PA 19612-2677

Karen S. Miller Omer

Dated this 14th day of August, 2001, at Harrisburg, Pennsylvania.

ALAN C KOHLER ESQUIRE WOLF BLOCK SCHORR & SOLIS-COHEN 212 LOCUST STREET SUITE 300 HARRISBURGPA 17101

MARK C MORROW ESQUIRE UGI UTILITIES INC - GAS DIVISION PO BOX 858 VALLEY FORGE PA 19482-0858

DAVID B MACGREGOR ESQUIRE UGI UTILITIES INC - GAS DIVISION MORGAN LEWIS & BOCKIUS 1701 MARKET STREET PHILADELPHIA PA 19103-2921

STEPHEN J KEENE ESQUIRE OFFICE OF CONSUMER ADVOCATE 5TH FLOOR FORUM PLACE 555 WALNUT STREET HARRISBURGPA 17101-1923

KANDACE F MELILLO ESQUIRE PENNSYLVANIA PUBLIC UTILITY COMMISSION OFFICE OF TRIAL STAFF PO BOX 3265 HARRISBURGPA 17105-3265

ANGELA T JONES ESQUIRE OFFICE OF SMALL BUSINESS ADVOCATE SUITE 1102 COMMERCE BUILDING 300 NORTH SECOND STREET HARRISBURGPA 17101

BRIAN KALCIC EXCEL CONSULTING SUITE 720-T 225 SOUTH MERAMEC AVENUE ST LOUIS MO 63105

DERRICK P WILLIAMSON ESQUIRE PAMELA C POLACEK ESQUIRE KAREN S MILLER-ORNER ESQUIRE MCNEES WALLACE & NURICK LLC 100 PINE STREET PO BOX 1166 HARRISBURGPA 17108-1166

R-00016376 Pennsylvania^fcblic U t i l i t y Commission v^^JGI U t i l i t i e s , Inc D i v i s i o n (1307F)

- Gas

VICKJ 0 ESNER VICE PRESIDENT -MARKETING & GAS SUPPLY UGI UTiLSJES INC - GAS DIVISION 100 KACJHEl>80ULEVARD SUITE 400 PO BOX 12677 READIWG PA 19612-2677

MARK C MORROW ESQUIRE UGI UTILITIES INC - GAS DIVISION PO BOX 858 VALLEY FORGE PA 19482-0858

DAVID B MACGREGOR ESQUIRE UGI UTILITIES INC - GAS DIVISION MORGAN LEWIS & BOCKIUS 1701 MARKET STREET PHILADELPHIA PA 19103-2921

STEPHEN J KEENE ESQUIRE OFFICE OF CONSUMER ADVOCATE 5TH FLOOR FORUM PLACE 555 WALNUT STREET HARRISBURGPA 17101-1923

KANDACE F MELILLO ESQUIRE PENNSYLVANIA PUBLIC UTILITY COMMISSION OFFICE OF TRIAL STAFF PO BOX 3265 HARRISBURGPA 17105-3265

ANGELA T JONES ESQUIRE OFFICE OF SMALL BUSINESS ADVOCATE SUITE 1102 COMMERCE BUILDING 300 NORTH-SECOND STREET HARRISBURGPA 17101

BRIAN KALCIC EXCEL CONSULTING SUITE 720-T 225 SOUTH MERAMEC AVENUE ST LOUIS MO 63105

DERRICK P WILLIAMSON ESQUIRE PAMELA C POLACEK ESQUIRE KAREN S MILLER-ORNER ESQUIRE MCNEES WALLACE & NURICK LLC 100 PINE STREET PO BOX1166 HARRISBURGPA 17108-1166

PAMEU POLACEK ESQUIRE MCNEES /ALLACE & NURICK LLC 100 PINE S^EET PO BOX4166 HARRISBURGPA 17108-1166

ALAN C KOHLER ESQUIRE WOLF BLOCK SCHORR & SOLIS-COHEN 212 LOCUST STREET SUITE 300 HARRISBURGPA 17101 .

44

PuJ-u - f ^ ^ - y / / / /