2018-10-11 Reply Brief of Duquesne Light Company · before the pennsylvania public utility...

BEFORE THE PENNSYLVANIA PUBLIC UTILITY COMMISSION

PETITION OF PEOPLES NATURAL : GAS COMPANY LLC FOR APPROVAL : Docket No. M-2017-2640306 OF ITS ENERGY EFFICIENCY AND : CONSERVATION PLAN :

REPLY BRIEF OF DUQUESNE LIGHT COMPANY

Before Administrative Law Judge Dennis J. Buckley

Michael Zimmerman (Pa. ID No. 323715) Duquesne Light Company 411 Seventh Avenue Pittsburgh, PA 15219 412.393.1514 (bus) 412.393.6268 (bus) 412.393.5897 (fax)[email protected]

Linda R. Evers (Pa. ID No. 81428) Donald R. Wagner (Pa. ID No. 80280 Stevens & Lee 111 North Sixth Street Reading, PA 19601 610.478.2265 (bus) 610.478.2216 (bus) 610.988.0855 (fax) [email protected]@stevenslee.com

Michael A. Gruin (Pa. ID No. 78625) Stevens & Lee 17 North 2nd Street Sixteen Floor Harrisburg, PA 17101 717.255.7365 (bus) 610.988.0852 (fax) [email protected]

Anthony C. DeCusatis (Pa. ID No. 25700) Catherine G. Vasudevan (Pa. ID No. 210254) Morgan, Lewis & Bockius LLP 1701 Market Street Philadelphia, PA 19103-2921 215.963.5034 (bus) 215.963.5001 (fax) [email protected]@morganlewis.com

Counsel for Duquesne Light Company

Dated: October 11, 2018

TABLE OF CONTENTS

Page

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I. INTRODUCTION AND OVERVIEW ............................................................................. 1

II. ARGUMENT ..................................................................................................................... 5

A. Contrary To Peoples’ Contention, Peoples – Not Duquesne Light – Has Introduced “Issues Of Statewide Significance” By Asking The ALJ And The Commission To Set New Precedent In This Case .......................... 5

B. Peoples Tries To Have It Both Ways By Claiming To Follow The Parts Of Act 129 And The Commission’s 2009 Secretarial Letter It Likes While Walking Away From The Parts That Undercut Its Position .................................................................................................................. 8

C. Peoples’ Contention That A “Stand-Alone” CHP Program May Be “Properly Included” In A Voluntary EE&C Plan Is Contrary To Clear Commission Directives And Ignores The Requirements Of Section 1307(a) .................................................................................................... 10

D. Peoples’ Claim That Its Proposed CHP Program Adheres To The Requirements Set Forth In The 2009 Secretarial Letter Are Demonstrably Incorrect ....................................................................................... 17

1. Peoples Has Not Justified The Unprecedented Size Of Its Proposed CHP Program ........................................................................... 17

2. Contrary To Peoples’ Contentions, Its EE&C Plan Does Not Offer A “Variety Of Programs” For Its Largest Gas-Consuming Customers ............................................................................. 22

3. Peoples’ Proposed CHP Program Is Not Cost-Effective ......................... 24

4. Peoples’ CHP Proposal Does Not Include A Reasonable Cost Recovery Mechanism ...................................................................... 30

5. The Evaluation, Measurement And Verification Provisions Of Peoples’ CHP Program Are Not Reasonable...................................... 31

E. Peoples Denied Customers And Other Interested Parties Fundamental Due Process By Insisting That Notice Should Be Provided Only After Its CHP Program And New Section 1307(a) Rate Have Been Approved ................................................................................... 33

F. Peoples’ Claim That Its CHP Program Advances The “Intentions” Of The CHP Policy Statement Seriously Misapprehends And Misstates The Terms Of The Policy Statement ................................................... 41

III. CONCLUSION ................................................................................................................ 44

APPENDIX A – Duquesne Light Company’s Proposed Findings of Fact and Conclusions of Law

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TABLE OF AUTHORITIES

Page(s) CASES

Barasch v. Pa. P.U.C., 546 A.2d 1296 (1987) ...................................................................................................... passim

In re Sale by Lawrence Cty. Tax Claim Bureau, 413 A.2d 1162 (Pa. Cmwlth. 1980). ........................................................................................35

Pa. Coal Mining Ass’n v. Pa. Ins. Dept., 370 A.2d 685 (Pa. 1977) ......................................................................................................4, 40

Pittsburgh v. Pa. P.U.C., 90 A.2d 850 (Pa. Super. 1952) .................................................................................................11

COMMISSION CASES

Pa. P.U.C. v. UGI Penn Nat’l Gas, Inc., Docket No. R-2016-2580030 (Aug. 31, 2017) ........................................................7, 11, 14, 40

Pa. P.U.C. v. UGI Utils., Inc. – Gas Div., Docket No. R-2015-2518438 (Oct. 14, 2016) ................................................................. passim

Petition of Philadelphia Gas Works for Approval of Demand-Side Mgmt. Plan for FY 2016, Docket No. P-2014-2459362 (Tentative Order entered Aug. 4, 2016) ........................... passim

Petition of West Penn Power Company Re Milesburg Energy, Inc., Docket No. P-870216, 1987 Pa. PUC LEXIS 153 (Pa. P.U.C. Sept. 22, 1987) ......................40

STATUTES & REGULATIONS

2 Pa.C.S. § 504 ...........................................................................................................................4, 40

52 Pa. Code § 5.41 ...............................................................................................................9, 38, 39

52 Pa. Code § 5.72(a) .....................................................................................................................34

52 Pa. Code § 53.45(b) ..................................................................................................................37

52 Pa. Code § 53.51(d) ..................................................................................................................37

52 Pa. Code § 69.3201(d) ..............................................................................................................42

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52 Pa. Code § 69.3202 ...................................................................................................................43

66 Pa.C.S. § 1307(a) .............................................................................................................. passim

66 Pa.C.S. § 2806.1 ..........................................................................................................................7

OTHER AUTHORITIES

Environmental Protection Agency and Combined Heat and Power Partnership’s Catalog of CHP Technologies (2015)......................................................................................25

Final Policy Statement on Combined Heat and Power, Docket No. M-2015-2518883 (May 23, 2018) ................................................................ passim

Joint Statement of Chairman Gladys M. Brown and Commissioner David W. Sweet (Sept. 1, 2016) ................................................................................................6

Proposed Policy Statement on Combined Heat and Power, Docket No. M-2016-2530484 (Mar. 9, 2016)..........................................................................39

U.S. Energy Information Administration, Distributed Generation and Combined Heat & Power System Characteristics 7and Cost in the Buildings Sector..............................25

Voluntary Energy Efficiency and Conservation Program, Docket No. M-2009-2142851(Secretarial Letter issued Dec. 23, 2009) ...................3, 8, 17, 38

I. INTRODUCTION AND OVERVIEW

Duquesne Light Company (“Duquesne Light,” “DLC” or the “Company”) files this

Reply Brief in response to the Main Brief of Peoples Natural Gas Company LLC (“Peoples”)

regarding the Petition of Peoples Natural Gas Company LLC for Approval of Its Energy

Efficiency and Conservation Plan (“Petition”). The Petition requests the Pennsylvania Public

Utility Commission (“PUC” or the “Commission”) to approve a voluntary energy efficiency and

conservation plan (“EE&C Plan”) that would authorize Peoples to spend – and recover from its

customers – up to $42.5 million, of which up to $17.5 million (41%) would fund subsidies to

natural gas-fueled combined heat and power (“CHP”) projects in Peoples’ service territory.

Duquesne Light has not taken issue with the four programs in the EE&C Plan that are

actually designed to promote energy efficiency and conservation (“EE&C”) by helping Peoples’

customers reduce their gas usage. Duquesne Light has focused on Peoples’ proposed CHP

program, which is not an EE&C measure for a natural gas distribution company (“NGDC”);1

would increase Peoples’ gas sales by more than 3.3 times as much as the true EE&C measures in

its plan would reduce gas usage over the life of those measures;2 and, therefore, would result in

Peoples’ proposal overall (i.e., both true EE&C measures and Peoples’ proposed CHP program)

producing a substantial increase in its gas sales.

1 Pa. P.U.C. v. UGI Utils., Inc. – Gas Div., Docket No. R-2015-2518438 (Oct. 14, 2016), slip op. at 28-29 (“UGI Utilities”) (“CHP programs are more akin to market development programs” for NGDCs.); Petition of Philadelphia Gas Works for Approval of Demand-Side Mgmt. Plan for FY 2016, Docket No. P-2014-2459362 (Tentative Order entered Aug. 4, 2016), slip. op. at 75-76 (“Petition of PGW”) (Rejecting Philadelphia Gas Works’ (“PGW”) proposed Efficient Fuel-Switching Program because it would increase gas usage, not reduce it, and, therefore, did not meet the definition of a demand side management plan.).

2 OCA Statement No. 1-SUPP-SR, p. 4, lines 13-20.

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As explained in DLC’s Initial Brief filed on October 1, 2018, Peoples has failed to carry

the burden of proof imposed by the Pennsylvania Public Utility Code3 to demonstrate that it

would be just, reasonable, lawful, and in the public interest to implement a new Section 1307(a)

automatic adjustment clause4 without due process notice5 and outside of a base rate case6 in

order to increase the rates of Peoples’ gas distribution customers to fund a proposed CHP

program that is unprecedented in size and scope;7 disregards controlling authority;8 is neither

prudent nor cost-effective;9 and contains significant structural flaws.10 Accordingly, the deeply

flawed CHP program Peoples proposes, together with the new rate adjustment clause and rate

increases it seeks to fund that program, are contrary to the public interest and should not be

approved in this case – a position echoed by the Office of Consumer Advocate (“OCA”) and its

witness, Geoffrey Crandall.11

To a substantial extent, the arguments advanced in Peoples’ Main Brief in support of its

proposed CHP program have been addressed and refuted in the Company’s Initial Brief.

Consequently, this Reply Brief addresses the principal errors and misstatements in Peoples’

Main Brief. In that regard, it should be noted that Peoples’ Main Brief does not even discuss

major deficiencies in its proposal. Leading the list of such deficiencies, there is no basis on the

3 DLC Initial Brief, pp. 15-19 (Setting forth the burden imposed on Peoples in this case by the Public Utility Code and Commission and Pennsylvania appellate court precedent.).

4 Id. at pp. 19-20,

5 Id. at pp. 22-28.

6 Id. at pp. 19-22.

7 Id. at pp. 4, 12 and 55.

8 Id. at pp. 4-6, 17-28 and 30-41.

9 Id. at pp. 30-48.

10 Id. at pp. 47-54.

11 See OCA Main Brief, pp. 16-32 and OCA Statement No. 1-SUPP-SR, p. 13 (“[F]or purposes of designing an effective strategy to implement an energy efficiency and conservation plan, I believe Peoples’ proposed CHP program is unacceptable and should not be authorized.”).

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current record for the Administrative Law Judge (“ALJ”) or the Commission to find that Peoples

has satisfied the condition precedent to establishing a new Section 1307(a) automatic adjustment

clause, namely, that its proposal will not produce more than a “just and reasonable return” on its

“rate base.”12 In fact, the evidence shows the contrary. If Peoples’ CHP proposal were

implemented, Peoples’ revenues would be substantially augmented by the additional gas sales

Peoples forecasts will occur from the deployment of additional CHP projects receiving

ratepayer-funded subsidies.13 These issues are unmentioned in Peoples’ Main Brief except for

Peoples’ reiterating its opposition to recognizing the income-enhancing effect of a load-growth

program that it expects CHP-eligible customers to pay for.14

Similarly, Peoples does not address a major deficiency in its CHP cost-benefit analysis.

Peoples’ Main Brief ignores the extensive record evidence15 demonstrating that the cost-

effectiveness of its proposed CHP program cannot be established on the basis of the non-

standard, unsuitable and unreliable data source Peoples used in the new cost analysis it

interjected at the eleventh hour in its second rebuttal case.16

Additionally, Peoples takes internally inconsistent positions on one of the most critical

issues in this case. On the one hand, Peoples purports to rely upon the Total Resource Cost

(“TRC”) test imposed by Act 129 of 2008 (“Act 129”) and applied to “voluntary” EE&C plans

by the Commission’s 2009 Secretarial Letter17 to try to convince the ALJ and the Commission

12 66 Pa.C.S. § 1307(a). See DLC Initial Brief, pp. 19-22.

13 See DLC Stipulated Exhibit No. 1 (Resume of Peoples’ Vice President for Business Development noting that “CHP initiatives” are forecasted to add “$30 MM in annual revenues.”).

14 Peoples Main Brief, p. 35.

15 DLC Statement No. 2-SR, pp. 4-14; OCA Statement No. 1-SUPP-SR, pp. 5-8.

16 See DLC Initial Brief, pp. 36-41; OCA Main Brief, pp. 23-26.

17 Voluntary Energy Efficiency and Conservation Program, Docket No. M-2009-2142851 (Secretarial Letter issued Dec. 23, 2009).

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that its CHP program conforms to those preexisting standards.18 On the other hand, when

adhering to the Act 129 TRC test would show that Peoples’ proposed CHP program is not cost-

effective, Peoples departed from Act 129 standards by, for example, using measure lives for

CHP projects that are substantially longer than Act 129’s TRC test permits and totally

inconsistent with the high capacity factors for CHP generators that Mr. Love imputed to try to

bolster the benefit-cost ratio of Peoples’ CHP program.19 Peoples cannot have it both ways.

Peoples also makes the startling averment that its customers are not entitled to notice of

tariff riders creating a new Section 1307(a) adjustment clause until that clause is

“implemented.”20 In Peoples’ estimation, customers need not be given notice that their gas bills

are going up due to a Peoples-initiated rate filing until the proposed increase has already been

approved in a proceeding in which those customers were not given a fair and reasonable

opportunity to participate. Peoples’ hyper-technical parsing of the Commission’s regulations21 to

argue that there is no specific directive that customers should receive notice before their rates are

increased cannot overcome fundamental and directly-applicable principles of due process22 and a

clear statutory mandate.23 Repeating a familiar pattern in this case, Peoples responded to this

criticism by trying to silence its critic. Thus, instead of attempting to remedy a clear legal defect

(and obvious breach of fundamental fairness) by making a bona fide effort to furnish customers

18 See Peoples Main Brief, pp. 21-22 (Claiming that it “designed its plan” to follow the provisions of Act 129.).

19 See Peoples Main Brief, p. 30 (Quoting Mr. Love that he used the TRC test in both his original and revised CHP cost analysis but made an “exception” for “measure lifetimes” in his revised plan.). See also DLC Initial Brief, pp. 41-44.

20 Peoples Main Brief, pp. 40-41.

21 See Peoples Main Brief, pp. 39-40

22 Pa. Coal Mining Ass’n v. Pa. Ins. Dept., 370 A.2d 685, 692 (Pa. 1977) (“Notice is the most basic requirement of due process [citations omitted].”). Accord Barasch v. Pa. P.U.C., 546 A.2d 1296, 1308 (1987) (“Milesburg”).

23 2 Pa.C.S. § 504 (Reasonable notice and opportunity for hearing necessary for an adjudication to be valid.).

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the information they deserve before a rate increase is approved, Peoples argues that Duquesne

Light should not be accorded “standing” to point out what everyone already knows and Peoples

has admitted24 – customers were not furnished notice when the Petition was filed or at any

subsequent time, nor was notice even published in the Pennsylvania Bulletin. Furthermore,

Peoples’ “standing” argument is wrong. In Milesburg, the Commonwealth Court held that a

participant has standing to raise the issue of improper notice to preserve the validity of the

adjudication to which it is a party.25

II. ARGUMENT

A. Contrary To Peoples’ Contention, Peoples – Not Duquesne Light – Has Introduced “Issues Of Statewide Significance” By Asking The ALJ And The Commission To Set New Precedent In This Case

Early in its Main Brief,26 Peoples repeats the Commission’s caveat from its Opinion and

Order on interlocutory review that it was declining to answer certain questions posed by

Duquesne Light because they would “tend to address issues of state-wide significance” and,

therefore, “may not be appropriate” for this proceeding.27 Later in its Main Brief, Peoples tries

to leverage this statement to foreclose Duquesne Light’s expression of legitimate concerns about

the effects Peoples’ proposal will have on Duquesne Light and on its electric distribution

customers.28

Contrary to Peoples’ contentions, it is Peoples – not Duquesne Light – that has interjected

issues of “state-wide significance” by proposing a CHP program that is so far outside the

24 See Tr. at 197, lines 4-5.

25 Milesburg, supra, at 1302 n.7.

26 Peoples Main Brief, p. 3, n.3.

27 Opinion and Order on Interlocutory Review, pp. 22-23.

28 See Peoples Main Brief, pp. 27 and 44 (Claiming Duquesne Light is only pursuing alleged “competitive interests.”).

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parameters of existing authority that it could not be approved without the ALJ and the

Commission setting new precedent that, of necessity, would apply state-wide. The most

significant departures from existing authority, which are discussed in detail in DLC’s Initial

Brief, pertain to:

Size. Peoples’ proposed CHP program, with a budget cap of $17.5 million, is an order of

magnitude larger than any NGDC CHP program ever approved (or even proposed). Moreover,

the increases in gas usage that Peoples’ load-building CHP component would produce would

overwhelm the reductions in gas usage that the true EE&C measures could achieve – i.e., while

styled as an EE&C plan, the proposal produces a substantial overall increase in gas usage.29

A “Stand-Alone” CHP Proposal. The Commission has made it clear that NGDC CHP

programs are “load-building” initiatives and, as such, they should be considered in a base rate

proceeding where the enhancement of the NGDC’s net income from ratepayer-subsidized CHP

projects can properly be considered in light of all of the factors affecting the justness and

reasonableness of the NGDC’s existing and proposed rates.30 Moreover, a base rate case is the

procedural vehicle that enables the Commission to determine whether an NGDC has met the

fundamental condition precedent for implementing a new Section 1307(a) rate to recover the

customer-funded subsidies of its load-building, revenue-enhancing CHP program.31

Use Of A New, Non-Standard And Unsuitable Data Source. Peoples’ new CHP cost

analysis departs from the undisputed industry-standard data source for CHP project

29 OCA Statement No. 1-SUPP-SR, p. 4, lines 13-19 (“Peoples’ revised CHP program would increase Peoples’ gas sales by over 3.3 times as much as the rest of its proposed EE&C plan would reduce gas sales over the life of the measures.”) (Emphasis in original.).

30 UGI Utils., supra, pp. 28-29; Joint Statement of Chairman Gladys M. Brown and Commissioner David W. Sweet (Sept. 1, 2016).

31 DLC Initial Brief, pp. 5 and 21-22.

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characterization, which is also the data source Peoples’ own witness used and supported for the

CHP cost analyses he performed for PGW, UGI Utilities – Gas Division (“UGI Utilities”), UGI

Penn Natural Gas, Inc. (“UGI PNG”)32 and for Peoples itself in its originally-filed CHP cost

study.33 There is no valid reason to substitute a new, non-standard data source for the

acknowledged industry standard. Indeed, all of the parties accepted Mr. Love’s original data

source as accurate and proper for use in designing a CHP program (unlike the data Mr. Love

substituted, which are not intended for that purpose).34 Additionally, the new, unapproved and

previously unexamined data source is seriously defective in ways that erroneously inflate the

benefits of CHP units and understate their costs.35

Departing From A Principal Term Of The Act 129 TRC Test. In its Petition and in

its originally-filed CHP program, Peoples agreed to adhere to the evaluation, measurement and

verification standards of the Act 129 TRC test. It is undisputed that the Act 129 TRC test

provides for a 15-year “measure life” to assess the cost and benefit streams of proposed EE&C

measures.36 Peoples adhered to that standard in its originally-filed CHP program and associated

cost-benefit study.37 However, in the new CHP program filed in its second rebuttal case on

August 6, 2018, Peoples abruptly and unilaterally38 imputed substantially longer lives (20 years

for most projects) in an effort to pump up the benefit-cost ratio of a CHP program that could not

32 Pa. P.U.C. v. UGI Penn Nat’l Gas, Inc., Docket No. R-2016-2580030 (Aug. 31, 2017).

33 DLC Statement No. 2-SR, pp. 4-5 and 7-9. See DLC Initial Brief, pp. 36-38.

34 Id.

35 DLC Statement No. 2-SR, pp. 9-14. See DLC Initial Brief, pp. 39-41.

36 66 Pa.C.S. § 2806.1. See DLC Statement No. 2-SR, p. 16 (Explaining that “Act 129 defines the ‘Total Resource Cost Test’ ” as “a standard that is met” based on an “effective life” not to exceed 15 years.). See also OCA Main Brief, pp. 27-28.

37 Peoples Statement No. 2-R2, p. 13, lines 7-10.

38 No party questioned Peoples’ use of 15 year lives in its original study.

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pass the TRC test if the numerous errors identified by DLC witness Crooks were corrected. In so

doing, Peoples went far outside the parameters of the TRC test it represented, in its verified

Petition and again in its original CHP program, it would use in this case.39

There is no doubt that Peoples is asking the ALJ and the Commission to overturn existing

authority and set entirely new precedent in this case. And, it would be entirely the wrong

precedent for all of the legal, prudential and evidentiary reasons discussed herein and in the

Company’s Initial Brief. It is equally clear that if Peoples’ request were given any credence, the

ALJ and the Commission would be deciding issues of “state-wide significance” – something the

Commission stated was not the purpose of this proceeding.

B. Peoples Tries To Have It Both Ways By Claiming To Follow The Parts Of Act 129 And The Commission’s 2009 Secretarial Letter It Likes While Walking Away From The Parts That Undercut Its Position

Peoples initiated this case by filing the Petition, in which it represented it would apply the

TRC test that is articulated in Act 129 and was made applicable to voluntary EE&C plans by the

Commission’s 2009 Secretarial Letter.40 Peoples was clearly trying to assure the Commission

that its EE&C Plan, even with its added CHP program, did not depart from familiar standards

that the Commission had applied in earlier cases. In addition, Peoples leaned on the provisions

of Act 129 and the 2009 Secretarial Letter to advance its position on various issues that arose in

this case, including its untenable position that a rate increase can lawfully be implemented

without prior customer notice. To that end, Peoples now claims that customer notice is not

required because the Secretarial Letter instructs that a voluntary EE&C plan may be filed as a

39 This departure from the TRC test also introduced a glaring inconsistency with other inputs to Mr. Love’s CHP cost study. Tr. 301, lines 10-21; DLC Initial Brief, pp. 42-44.

40 Petition ¶¶ 11-12 and n.8.

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“petition,” and the Commission’s regulation41 on the filing of “petitions” contains no specific

directive for customer notice.42 While Peoples is wrong on the law (as will be discussed

hereafter), this argument illustrates Peoples’ willingness to demand strict adherence to Act 129

and the Secretarial Letter when it suits its purpose to do so.

At the same time, Peoples allows itself unfettered discretion to walk away from the parts

of Act 129 and the Secretarial Letter that are not to its liking and, in fact, undercut its position in

this case. This occurs in several instances, but is most conspicuous in Peoples’ claim that

because it filed a “voluntary” plan, it is not bound by the parts of the Act 129 TRC test that, if

observed, would make it impossible to demonstrate that its CHP program is cost-effective.

Consequently, even though Mr. Love used 15-year measure lives in his original CHP cost

analysis, in his second rebuttal testimony he conceded he was imputing much longer lives, even

though doing so is an “exception” to the Act 129 TRC test. (It is also inconsistent with the high

capacity factors he continued to employ for CHP generators.)

Peoples’ schizophrenic relationship with the Act 129 TRC test and the terms of the 2009

Secretarial Letter underscores the approach Peoples used throughout its second rebuttal case.

Peoples has cherry-picked the parts of acknowledged standards that will achieve its

predetermined outcome while treating the parts that undercut its position as if they did not exist.

To cite one additional and very significant example, Peoples walked away from the industry-

standard data source for CHP unit characterizations and substituted new, unsuitable and clearly

erroneous data. This wholesale data swap occurred after Peoples realized that adhering to the

41 52 Pa. Code § 5.41.


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industry standard data source and following the Act 129 TRC test (as it previously promised to

do) would show that its CHP program was not cost-effective.

C. Peoples’ Contention That A “Stand-Alone” CHP Program May Be “Properly Included” In A Voluntary EE&C Plan Is Contrary To Clear Commission Directives And Ignores The Requirements Of Section 1307(a)

Peoples tries to defend its decision to propose a “stand-alone” CHP program by claiming

there is “no statute, regulation or Commission Order holding that a CHP program can only be

considered in . . . a [base rate] proceeding.”43 Peoples’ assertion is wrong for several reasons.

Peoples once again attempts to sweep under the rug the central characteristic of NGDC-

sponsored CHP programs that the Commission has repeatedly stated separates them from true

EE&C and demand side management plans, namely, that NGDC CHP programs “result in higher

natural gas usage” and “are more akin to market development projects.”44 The necessary

consequence of increased gas usage is increased sales, increased revenue and increased net

income for the NGDC sponsoring a CHP program.

In the only case where a “stand-alone” fuel-switching program was proposed by a

jurisdictional gas distribution system, the Commission rejected the proposal while noting that it

might consider such a proposal in “other Commission filings.”45 Since the only subsequent

NGDC-sponsored CHP programs were proposed and approved in base rate proceedings, the

Commission’s track record on this issue demonstrates that the “other Commission filings” it had

in mind were, in fact, base rate proceedings. Any doubt that this is what the Commission had in

mind was put to rest by the Joint Statement of Chairman Brown and Commissioner Sweet in


44 UGI Utils., supra, at 28-29; Petition of PGW, supra, at 75-76 (“PGW’s proposal would instead result in an increase in the demand for natural gas in the Company’s service territory.”).

45 Petition of PGW, supra, at 75-76.

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UGI Utilities which articulated the underlying rationale, namely, an NGDC-sponsored load-

building program should not be approved outside of a base rate case in which the revenue and

income enhancement effects of customer-funded CHP subsidies can be taken into account in

setting just and reasonable rates. That rationale also comports with fundamental fairness.46

Customers should not be asked to pay subsidies to incent the development of an NGDC’s load-

building CHP program in a proceeding where they are denied the opportunity to show that the

NGDC’s existing rates should be adjusted to properly account for the revenue and net income

enhancements the NGDC will enjoy at their expense.

Peoples’ claim that “no statute, regulation or Commission Order” requires that a CHP

program be considered only in a base rate case also ignores a central component of Peoples’

proposal, namely, the implementation of a new Section 1307(a) automatic adjustment clause to

recover, on a dollar-for-dollar basis, the CHP subsidies it will provide to CHP projects in its

service territory. A Section 1307(a) rate adjustment mechanism cannot be implemented unless

the proponent demonstrates that the new rate will produce not more than a “just and reasonable

return” on its “rate base.” Where, as in this case, the new Section 1307(a) rate adjustment is an

integral part of, and will fund, the provision of subsidies that build an NGDC’s load, increase its

revenues and augment its net income, the evidence necessary to satisfy the requirements of

Section 1307(a) cannot reasonably be adduced outside of a base rate case. Indeed, that

inescapable legal requirement is totally congruent with the Commission’s decisions in Petition of

PGW, UGI Utilities and UGI PNG and the rationale articulated by Chairman Brown and

Commissioner Sweet in their Joint Statement. Moreover, Peoples has not presented any

46 Pittsburgh v. Pa. P.U.C., 90 A.2d 850, 852 (Pa. Super. 1952) (“[A]dministrative action cannot violate the fundamental principle of fairness any more than it can impinge on any constitutional right.”).

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evidence – let alone “substantial” evidence – that could provide a valid basis for satisfying the

condition precedent imposed by Section 1307(a).

Peoples appears to argue that the Commission did not mean what it previously said (and

did) and, instead, left the door open for approval of a “stand-alone” NGDC-sponsored CHP

program outside of a base rate case depending upon “the facts and circumstances of the

particular case.”47 Presumably, Peoples wants the ALJ and the Commission to believe that there

are “facts and circumstances” to distinguish its proposal in ways that justify approving a “stand-

alone” CHP program in this case. That is certainly not correct. To the contrary, the “facts and

circumstances” of this case reinforce the reasons why the Commission concluded a CHP

program should not even be considered outside of a base rate proceeding.

At the outset, Peoples’ EE&C Plan and accompanying CHP program would produce a

substantial overall increase in gas sales – a factor that, while certainly distinguishing Peoples’

proposal, compounds the unfairness to gas customers if Peoples’ “stand-alone” program were

approved in this case. And, the amounts at stake here are dramatically larger because Peoples

has proposed a CHP budget of $17.5 million – which is between 12 and 16 times greater than

any NGDC-sponsored CHP program approved thus far. Additionally, Peoples proposed a new

Section 1307(a) automatic adjustment clause to recover its CHP subsidy payments from

customers on a fully reconcilable, dollar-for-dollar basis (thus assuring it collects from customers

every dollar it expends), while vigorously opposing any suggestion that, at a minimum, the costs

customers would be asked to bear could be offset by the additional revenues that ratepayer-

funded CHP subsidies would produce.


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Peoples also claims that this case is distinguishable because “parties had a full

opportunity to develop the record pertaining to all aspects of the CHP program in the context of a

comprehensive EE&CP.”48 Peoples suggests that a proceeding focused on an EE&C plan and

accompanying CHP program provides a superior “opportunity” to develop the record because a

base rate case conjoins an NGDC’s EE&C/CHP proposal with revenue requirement and rate

structure issues. Peoples’ argument falls apart for several reasons.

First, PGW made a “stand-alone” fuel-switching proposal as part of its EE&C plan – the

same kind of alleged “full opportunity to develop the record” Peoples’ claims has been provided

in this case. Yet, the Commission rejected PGW’s plan specifically because it was made on a

“stand-alone” basis.

Second, a “stand-alone” proposal does not offer a “full opportunity” to examine the

impact on an NGDC’s existing base rates of the revenue-enhancing effect of ratepayer-funded

CHP subsidies. Peoples is far less willing to provide the “full opportunity” that is necessary –

and due process requires – to address that issue.

Third, a “full opportunity” to develop the record has certainly not been provided in this

case, where reasonable notice was not furnished to customers, notice was not published in the

Pennsylvania Bulletin, and interested stakeholders (such as electric distribution companies

(“EDCs”) in Peoples’ service territory) were not served with its Petition.

Fourth, while claiming there was a “full opportunity” to develop the record in this case,

Peoples never mentions its repeated demands for an “expedited” process and its resistance to

reasonable requests for adequate time to address Peoples’ proposal. In that regard, Peoples

presented a new CHP program and an entirely new CHP cost-benefit analysis as part of its


14

second rebuttal case on August 6, 2018 (in a case that was filed in December 2017), despite the

fact Duquesne Light gave Peoples its critique of Peoples’ CHP program as early as April 5,

2018.49 Thus, because of Peoples’ machinations, Duquesne Light and other parties had only one

month to review Peoples’ entirely new CHP program and cost analysis before serving their

surrebuttal. While witnesses for Duquesne Light and the OCA were able to identify numerous

fatal defects in Peoples’ proposal even within that timeframe, Peoples’ insistence on getting a

final order by the end of the year produced a schedule that is less than optimal given Peoples’

presentation of a new CHP program and cost analysis in its second rebuttal case. If Peoples were

truly interested in developing the record fully, it would have welcomed the opportunity to assure

that its customers and stakeholders received adequate notice and that the procedural schedule

allowed more time for meaningful participation by all interested parties.

Peoples further contends that the desire to “encourage” CHP deployment expressed in the

Commission’s Final Policy Statement on Combined Heat and Power50 is enough to invalidate the

Commission’s earlier – and much more specific – pronouncements in Petition of PGW, UGI

Utilities and UGI PNG and, therefore, “stand-alone” NGDC-sponsored CHP proposals are now

permissible. There is nothing in the CHP Policy Statement to suggest the Commission was

walking back the decisions it made on this important issue in prior adjudications. Furthermore,

it would not even be proper for the Commission to do so in a policy statement because, as

Peoples acknowledges, a policy statement does not have the force of law.51 Peoples’ argument is

49 See DLC Initial Brief, pp. 34-35 (Explaining Peoples’ unjustified delay in acknowledging admitted errors in its original CHP proposal.).

50 Final Policy Statement on Combined Heat and Power, Docket No. M-2015-2518883 (May 23, 2018), p. 11 (“CHP Policy Statement”).

51 Peoples’ Proposed Conclusions of Law No. 14. See also DLC Initial Brief, pp. 6-7 (Explaining that policy statements do not have the force and effect of law.).

15

another example of its unwarranted reliance on the CHP Policy Statement to try to excuse major

defects in its own case. Throughout this proceeding, Peoples repeatedly mischaracterized the

CHP Policy Statement by, among other misstatements, attributing to it averments that are not

even there – as it did in this instance.

Finally, Peoples tries to distinguish its CHP program based on bald assertions that there is

a special “need” and “unmet demand” for CHP in the Pittsburgh area.52 It is not clear why this

amorphous claim, even if true, would support offering ratepayer-funded subsidies to large

businesses and institutions to do something that, if Peoples is correct, is in their interest to do

anyway. Peoples offers the existence of abundant, low-cost Marcellus shale gas to assert that

there are many opportunities for CHP deployment in Western Pennsylvania. Yet, if readily-

available supplies of cheap natural gas now make CHP a wise and economic choice for many

customers in Western Pennsylvania, then large, sophisticated, and financially-savvy businesses

and institutions like those listed in Peoples’ Main Brief would already be pursuing those

opportunities vigorously – not postponing their realization of the dramatic cost-savings Peoples

ascribes to CHP while they await the Commission’s approval of Peoples’ CHP subsidy program.

Moreover, of the businesses and institutions Peoples listed in its Main Brief – businesses and

institutions it claims reflect an “unmet demand” only its CHP subsidy program can satisfy – not

one intervened in this case. Consequently, we are left to take Peoples’ word that there is an

“unmet demand” only it can satisfy. There is not a shred of record evidence to support Peoples’

claim, which is constructed on non-record facts Peoples tried improperly to introduce for the first

time in its Main Brief.


16

Additionally, there is no evidence that Peoples studied the real gas efficiency and gas

conservation “needs” of its large gas-consuming customers and tried to find measures that would

produce actual, sustainable reductions in gas usage. As DLC witness Crooks explained, sound

energy efficiency programs start by focusing on customers’ needs and operating characteristics

and how they use fuel. Appropriate measures are tailored to the customer’s needs and

characteristics, rather than starting with a utility-preferred technology – like CHP – and trying to

have the customer adapt to the technology.53 As Mr. Crooks also explained, this approach is “a

more effective and economic means of implementing energy efficiency programs” than focusing

on only a single measure like CHP.54 In fact, the approach Mr. Crooks endorsed is exactly how

Duquesne Light has designed its own EE&C plan, which offers a broad menu of different

technologies that can be tailored to the needs of different market segments and different

customers, as DLC witness Defide explained.55 In contrast, for large gas-using customers,

Peoples is offering only one specific measure – CHP – which increases gas usage.

Peoples also suggests that the “need” for its CHP subsidy program is exhibited by Mr.

Defide’s testimony that Duquesne Light helped analyze the economics of thirteen potential CHP

projects that have been put on hold by customers who have not, to date, applied for incentives

under Duquesne Light’s EE&C plan.56 That argument makes no sense. The customers involved

decided that the CHP projects they were considering would not be feasible notwithstanding the

availability of CHP incentives under Duquesne Light’s EE&C plan. More importantly, this

53 Tr. at 281, lines 1-19.

54 Id. at lines 3-5.

55 Tr. at 261, lines 5-13. Duquesne Light’s offerings to large customers include lighting upgrades, manufacturing process improvements and more efficient motors and pumps. These measures produce real and sustainable reductions in electricity usage and demand, as contrasted with CHP, which does not reduce electric usage or demand; it only substitutes a different source of generation to meet the same level of electric usage and demand.


17

evidence shows that customers are already taking advantage of utility resources currently

available to promote CHP deployment. This evidence indicates that any “need” that might exist

(for which Peoples presented no evidence, in any event) is already capable of being met by

existing resources. In short, none of Peoples’ “unmet demand” arguments withstand scrutiny.

D. Peoples’ Claim That Its Proposed CHP Program Adheres To The Requirements Set Forth In The 2009 Secretarial Letter Are Demonstrably Incorrect

Peoples tries to support its unprecedented CHP program by contending that its EE&C

Plan, including its proposed CHP program, satisfies all six of the “necessary components of any

prudent and cost-effective EE&CP” the Commission established in its 2009 Secretarial Letter.57

That averment is not correct. Except for the benign assertion that the “term” (five years) is

consistent with plans previously approved by the Commission, Peoples’ proposed CHP program

fails to conform to every one of the remaining five requirements articulated in the Secretarial

Letter.

1. Peoples Has Not Justified The Unprecedented Size Of Its Proposed CHP Program

The size of Peoples’ proposed CHP program is unprecedented (and unreasonable) in two

important respects. First, the proposed budget of $17.5 million exceeds by a wide margin any

NGDC CHP program previously approved by the Commission. Indeed, it is 16 times larger than

the $1.1 million budget approved for UGI Utilities and 12 times larger than the $1.4 million

approved for UGI PNG. While Peoples asserts that its proposed CHP program is only five times

larger than UGI Utilities’ approved program,58 that multiple is based on UGI Utilities’ proposed



18

budget ($3.7 million), which, as even Peoples now acknowledges,59 was pared back to $1.1

million.60 Peoples’ reliance on PECO Energy Company’s Phase III EE&C plan, which Peoples

contends includes a CHP program with a budget of $25 million over five years,61 is also

misplaced. Peoples ignores the fact that PECO Energy’s CHP program was part of its Act 129-

mandated electric EE&C plan (not an NGDC load-building CHP program), and PECO Energy’s

CHP program represented only 6% of its total EE&C plan’s budget62 – not 41%, as in Peoples’

EE&C Plan.

Second, Peoples’ proposed CHP program is unreasonable in size because the increases in

gas usage it would create (34,610,567 MMBtu) will overwhelm (by a factor of more than 3.3)

the much smaller reductions in gas usage (10,414,548 MMBtu) true EE&C measures in its

EE&C Plan will produce.63

Peoples also misstated Mr. Defide’s testimony in asserting that he believed the size of

Peoples’ CHP program should be reduced because “the program will not be cost-effective.”64

While it is true (as explained in DLC’s Initial Brief and hereafter), that Peoples’ CHP program is

not cost-effective, Mr. Defide made two different and so-far unrefuted points. First, Mr. Defide

pointed out that all prior approved NGDC-sponsored CHP programs were sized as “pilot” type

59 Peoples Main Brief, p. 26 (“The largest of these was UGI Utilities’ proposed plan, which had a proposed budget of $3.6 million. As approved by the Commission, that proposal has a budget of $1.1 million. UGI Utilities.”).

60 UGI Utils., p. 29 (stating that “the CHP program is targeted to [Rate Schedule] LFD customers) and p. 9 (providing that “Rate Schedule LFD customers shall be responsible for no more than $1.1 million in EE&C costs over the five-year EE&C Plan.”) Therefore, the CHP program and the cost-responsibility of Rate Schedule LFD customers were coextensive at $1.1 million.

61 Peoples Main Brief, p. 26 n.9.

62 Petition of PECO Energy Company for Approval of Its Act 129 Phase III Energy Efficiency and Conservation Program, Docket No. M-2015-2515691 (PECO Exhibit 1 – PECO Program Years 2016-2020 Act 129 - Phase III Energy Efficiency And Conservation Plan, p. 72).

63 OCA Statement No. 1-SUPP-SR, p. 4.

64 Peoples Main Brief, p.27.

19

programs; Peoples’ is radically bigger and, as previously noted, increases gas usage substantially

more than proposed EE&C measures would reduce gas use.65 Second, the size of Peoples’

proposed CHP budget is not supported by (indeed, it far exceeds) the estimate of potential

projects Peoples itself produced.66 While troubling in itself, this disparity should raise

reasonable concerns about Peoples’ claims that it will rigorously apply its evaluation,

measurement and verification standards to proposed CHP units. Concerns about the size of

Peoples’ proposed CHP program are only heightened by the limited scope of independent

evaluation Peoples would permit, as explained below.

Peoples claims that, even though its proposed CHP program is much larger than any

previously approved, its unprecedented size is not problematic because Peoples proposes two

safeguards of cost-effectiveness – independent evaluation and the adoption of an “economic

test.” At the outset, it should be noted that Peoples resisted both “safeguards” throughout most

of this case. It grudgingly conceded to the use of an independent evaluator only in its second

rebuttal testimony served on August 6, 2018,67 and offered an “economic test” only in the second

rejoinder testimony of Ms. Petrichevich served on September 11, 2018.68 At the same time, it

continues to oppose recommendations from Duquesne Light and the OSBA to implement a

Commission-monitored and supervised stakeholder coordination process to review and assure

adequate evaluation, measurement and verification.69 Moreover, Peoples’ limited concessions

do not safeguard customers’ interests as rigorously as Peoples represents.

65 DLC Statement No. 1-SR, pp. 13-14.

66 Id. at 15-16.


68 Peoples Exhibit No. 20 ¶ 4.

69 DLC Statement No. 1-SR, p. 18. See DLC Initial Brief, p. 53.

20

Although Mr. Love provided assurances that CHP projects proposed for subsidization

would be evaluated by a third-party evaluator,70 Peoples thought better of Mr. Love’s offer and

dialed it back in Ms. Petrichevich’s second rejoinder testimony, where Peoples imposed a

threshold of $500,000 for incentive payments that had to be crossed before a CHP project would

be reviewed by the independent evaluator. With such a high threshold, many projects would fly

under the radar and never be reviewed by the independent evaluator.71 This is a particularly

troubling issue where, as here, an NGDC’s CHP program has been structured so that all of the

incentives align to foster a finding that CHP projects would be cost effective.72 This is a serious

structural defect in Peoples’ proposal.

Peoples’ contention that an “economic test” will assure the cost-effectiveness of

subsidized CHP projects is also incorrect. As the OSBA – a strong proponent of the economic

test – explained, the economic test evaluates something different from the TRC test.73 The TRC

test determines the “overall economic impact of a particular CHP project.”74 The economic test,

on the other hand, tests “whether the new CHP [gas] load will ultimately require subsidies from

other ratepayers.”75 The economic test is supplementary to the TRC test. As the OSBA

explained, passing the economic test, while important for determining if a CHP project will make

a positive contribution to the fixed costs of furnishing gas distribution service in the long run,

does not provide any additional or independent assurance that a CHP project will be cost-


71 See DLC Initial Brief, pp. 51-53.

72 Id. If an NGDC is able to use customers’ money to subsidize CHP projects and has structured its program (as Peoples has) to avoid sharing the benefit of increased revenue with customers between base rate cases, it has only an upside from the deployment of gas-fired CHP, whether or not a CHP project is cost-effective.

73 OSBA Main Brief, p. 7.

74 Id.

75 Id.

21

effective under the evaluation, measurement and verification standards used to establish its

benefit-cost ratio. Peoples repeatedly conflates the two tests and wrongly suggests that passing

the economic test would assure the cost-effectiveness (i.e., a benefit-cost ratio greater than 1.0)

of a CHP project or program. It would not.

Finally, in a parting shot, Peoples’ once again questions Duquesne Light’s motives,

claiming that the legitimate issues raised by Duquesne Light should be ignored because

Duquesne Light is pursuing its “economic” and “competitive” interests.76 At the outset, the ALJ

correctly held that this case is not about “motives;” it is about hearing and considering the views

of the parties on important issues of public policy.77 Additionally, Peoples leaves out the fact

that issues DLC has raised were also raised by the OCA and, in part, by the OSBA – parties that

cannot be accused of pursuing only private “economic” or “competitive” interests. Peoples also

ignores two other important considerations.

In any PUC proceeding, the public interest is advanced by giving a fair hearing to parties

who are participating precisely because they have an economic interest at stake – every customer

affected by Peoples’ proposal to increase rates under a Section 1307(a) adjustment clause has a

private economic interest at stake in the outcome of this case. If parties are to be silenced

because their economic interests could be affected by regulatory action, the pool of potential

litigants would be very small. Peoples’ position is a thinly veiled iteration of the position – long

rejected by the Commission – that because statutory parties represent the interests of consumers

and the public interest, they should be a complete substitute for the intervention of individual

complainants and intervenors. Additionally, while Duquesne Light has an interest in this case in


77 Tr. at 236, lines 13-15.

22

its capacity as a customer of Peoples, it must consider the fact that costs it bears because of

paying Peoples’ rates affect its own customers. Peoples’ rate increases will ultimately be

reflected in DLC’s electric distribution rates.

The adverse effects of Peoples’ CHP program on both Duquesne Light and its EDC

customers are not negated by Peoples’ conclusory statements that all customers would realize a

benefit from customer-funded CHP subsidies because increased gas sales will allow the fixed

costs of its gas distribution system to be recovered over a larger “base.”78 Peoples did not

consider the impact that the CHP-induced diminution in electric sales would have on an EDC’s

customers – who will have to bear the same level of electric distribution fixed costs over a

smaller “base.”79 There is no evidence to support Peoples’ claims that its proposal would

produce reductions in customers’ overall energy bills either for CHP participants or non-

participants. In fact, Peoples’ witness Love was forced to admit he did not do any calculation of

gas or electric bill impacts to even try to substantiate that claim.80

2. Contrary To Peoples’ Contentions, Its EE&C Plan Does Not Offer A “Variety Of Programs” For Its Largest Gas-Consuming Customers

Revisionist history. That is the only apt description of Peoples’ discussion of this

important component that, as Peoples conceded, even voluntary EE&C plans should contain.81

Peoples’ claim that it has created programs to “target” its largest gas consuming customers82

simply does not withstand scrutiny. In response to criticism that CHP was the only measure

being offered to its largest gas consuming customers, Peoples – at the last minute – paid lip

78 DLC Cross-Ex. Exhibit No. 2; Tr. at 220.

79 DLC Statement No. 2-SR, pp. 3-4 and 10-11.

80 Tr. at 220, line 15 through 221, line 7. See DLC Initial Brief, pp. 28-29.

81 People Main Brief, pp. 28-29.

82 See, e.g., Peoples Main Brief, p. 7

23

service to offering true EE&C measure to those customers while, in reality, it offered nothing

new in its EE&C Plan to address that deficiency. Peoples did not “target” its largest customers

for any program that would actually reduce their gas usage. Peoples’ claims to the contrary in its

Main Brief do not match with the terms of the true EE&C measures that are actually described in

its EE&C Plan.

The EE&C Plan filed with Peoples’ Petition contained one measure for its largest gas

consuming customers – a CHP program that would increase gas usage. Duquesne Light pointed

out this serious defect in its direct testimony. Peoples proposed no new EE&C measures to

address this deficiency. In fact, it was not until Ms. Petrichevich submitted her second rejoinder

testimony83 that Peoples actually proposed to tweak its EE&C Plan and, even then, only by the

addition of a sentence that Rate LGS customers “may participate” (with the qualifier “where

applicable”) in the Commercial Equipment Program (CEP) and Commercial and Multifamily

New Building Program (CNHP). However, as the descriptions of those programs make clear,84

they were not designed with the needs, energy usage patterns, or operating characteristics of the

largest gas consuming customers in mind. To the contrary, those programs were designed before

Peoples, on the eve of evidentiary hearings, half-heartedly acquiesced to modify its EE&C Plan

to permit LGS customers to “participate.” People made no modifications to the programs’

design criteria or the kinds of measures available under those programs in order to fit them to the

needs of LGS customers. Rather, it took programs previously designed (and intended) for a

different market segment (with different energy needs and smaller gas usage) and purported to

allow large customers to participate “where applicable.” Peoples offered no specifics – none –

83 Peoples Exhibit No. 20 ¶ 2.

84 See Peoples Main Brief, pp. 6-7.

24

about the kinds of measures that it would bring to the “targeted” LGS customers or the outreach

it would use to inform LGS customers of actual gas-saving measures.85

Because the programs Peoples, at the last minute, permitted LGS customers to access

were never designed with LGS customers in mind, it is difficult to discern if any LGS customers

could use or benefit from those measures. Moreover, Peoples clearly does not foresee

meaningful participation because it did not provide a budget estimate for any large-customer

participation in any conservation program; did not include any large-customer conservation

programs in its calculations of cost and benefits; and did not provide any cost-estimate for a plan

to make large customers aware of any true conservation measures – only outreach for CHP is

discussed.86 Thus, there is no estimate of the costs of any non-CHP measures that could be used

to assess their reasonableness and cost-effectiveness for large customers – another aspect of

Peoples’ EE&C Plan that belies its claim of having EE&C measures that “target” large

customers.

In short, Peoples is trying to re-write history in its Main Brief. The record evidence,

however, shows that Peoples’ proposed EE& Plan does not satisfy the Commission-imposed

requirement that even a voluntary EE&C Plan offer a variety of true energy efficiency and

conservation measures to customers.

3. Peoples’ Proposed CHP Program Is Not Cost-Effective

Peoples’ discussion of cost-effectiveness is remarkable for what it leaves out. Even

though Peoples completely remade both its CHP program and its CHP cost-benefit analysis in its


86 Id.

25

August 6, 2018 second rebuttal case, Peoples does not even mention two significant changes that

it interjected in its new presentation.

First, Peoples did a complete data swap. In his original CHP cost analysis, Mr. Love

used project characterizations from the 2015 Environmental Protection Agency and Combined

Heat and Power Partnership’s Catalog of CHP Technologies (“EPA CHP Catalog”). As

explained in the Company’s Initial Brief, the EPA CHP Catalog is the industry standard for CHP

characterization data used for CHP project and program design. All other parties accepted and

supported the use of the EPA CHP Catalog. Nonetheless, Mr. Love discarded it and substituted

data from the U.S. Energy Information Administration, Distributed Generation and Combined

Heat & Power System Characteristics and Cost in the Buildings Sector (“EIA Data”), which are

not suitable for – indeed, were not designed or intended for – CHP project or program design, are

not suitable for that purpose, contain numerous omissions and errors and, in critical areas, are

based on a sample size of only one CHP unit.87 The numerous defect and deficiencies in the EIA

Data were identified by Mr. Crooks and OCA witness Crandall88 and are summarized in DLC’s

Initial Brief. Peoples’ Main Brief does not address this important issue.

Second, Mr. Love also made a major CHP unit swap – essentially replacing the CHP

proxy units in his original CHP program and cost analysis with entirely new proxy units by

adding five and deleting one from the list he analyzed in his original study.89 While Mr. Love

claimed that these wholesale changes were made to “more closely align with the potential CHP

projects identified by Peoples,”90 that excuse fell apart on cross-examination when Mr. Love had


88 OCA Statement No. 1-SUPP-SR, pp. 5-8.

89 Peoples Statement No. 2-R2, p. 14.

90 Id.

26

to concede that he had Peoples’ list of potential projects even before he prepared his direct

testimony.91 Once again, this major change was not even acknowledged in Peoples’ Main Brief.

As the record evidence supports, the major changes Peoples made in its data source and

CHP proxy units served only one purpose – to cherry-pick data and proxy units to try to reach a

predetermined outcome. Peoples abandoned the industry-standard data source and drastically

reconfigured its CHP proxy units to try to demonstrate the cost-effectiveness of its CHP

program. However, even those efforts failed because Mr. Love’s new CHP cost analysis is even

more flawed than his first, and correcting just the major errors in that study produces a benefit-

cost ratio below 1.0 – decidedly not a cost-effective program.

In its Main Brief, Peoples tries to support the cost-effectiveness of its new CHP program

by arguing that program: (1) passes the TRC test;92 (2) has the added safeguard of an “economic

test;”93 and (3) provides for independent evaluation.94 Those contentions are not correct.

Peoples’ new CHP program cannot pass the Act 129 TRC test that Peoples, in its

Petition, promised to use and Mr. Love actually employed in his original CHP cost analysis. In

fact, even Mr. Love recognized that Peoples’ new program cannot pass the Act 129 TRC test,

which is why he created a self-styled “exception” to allow himself to impute longer measure

lives than Act 129 permits. Not only is this a major departure from the Act 129 TRC test – and a

breach of Peoples’ promise to adhere to that test – it introduced a major inconsistency that

undermines the validity of Mr. Love’s analysis. Specifically, Mr. Love paired longer measure

lives with the same very high capacity factors for CHP units he assumed when he was still using

91 Tr. 218, lines 5-14.


93 Id. at 30-31.

94 Id. at 31.

27

15-year measure lives. As Mr. Crooks explained, those high capacity factors cannot be sustained

over useful lives longer than 15 years without building into the CHP projects redundancies that

will increase their installed cost and their operating and maintenance expenses.95 In short, Mr.

Love changed one input (longer lives) to try to raise the benefit-cost ratio of the program, while

ignoring the inescapable impact of that change on other inputs (either lower capacity factors or

higher costs) that would reduce the benefit-cost ratio. This is yet another example of cherry-

picking data to reach a pre-determined outcome, which should not be tolerated.

The addition of an “economic test” does nothing to assure that the CHP program will

pass the Act 129 TRC test. As explained previously, the economic test measures something

different from initial cost-effectiveness. Therefore, Peoples’ contention that the economic test

provides a purported assurance that its CHP program will be cost-effective has no merit.

While independent evaluation is important and should be a part of Peoples’ CHP

program, Peoples subverts the role an independent evaluator could play by imposing a threshold

that would preclude the independent evaluator from reviewing any project that receives an

incentive payment of $500,000 or less.96 This excessive threshold – where no threshold should

exist at all – would allow many CHP projects to evade critical review. Given the severe

limitations Peoples wants to impose on the independent evaluator, this term of its program does

not offer any reasonable assurance of meaningful review of the cost-effectiveness of many

(perhaps most, or even all) of the CHP projects Peoples will fund with ratepayer money.

95 Tr. 301, lines 10-21. See DLC Initial Brief, pp. 41-43.

96 See Peoples Main Brief, p. 31.

28

While Mr. Crooks made a number of cogent and largely unrebutted criticisms of Mr.

Love’s CHP analysis,97 Peoples chose to address only three of them in its Main Brief.98 Peoples’

responses do not detract in any way from Mr. Crooks’ critique.

Avoided Electric Transmission And Distribution (“T&C”) Costs. Mr. Love

erroneously treated the T&D charges a CHP-owning customer does not pay to its EDC as a

permanently “avoided” cost. Those costs are not eliminated; they remain with the EDC and,

when its base rates are reestablished, are passed on to other electric customers. By erroneously

treating these costs as if they had been eliminated when, in fact, they are only shifted to other

EDC customers (and borne by the EDC in the meantime), Mr. Love understated the costs of the

CHP program.99

Even though Mr. Love’s approach does not comport with actual cost incurrence and the

realities of how T&D service is furnished, Peoples claims that Mr. Love’s approach is justified

because he allegedly recognized the “costs that Duquesne avoids by not having to build lines,

substations, and other equipment due to lower load on its system.”100 However, the installation

of CHP by a customer that remains connected to Duquesne Light’s distribution system and relies

on the T&D system to meet its total load when its CHP unit is not running does not result in

DLC (or any other EDC) avoiding any distribution costs. Duquesne Light still has to keep the

same distribution assets in place to meet the CHP-owning customer’s load when its generator is

out of service – a peak demand that, when placed on the distribution system during the

customer’s generator outages, is no different from the peak demand the customer imposed before

97 DLC Statement No. 2-SR. See DLC Initial Brief, pp. 36-47.




29

installing CHP. It is precisely for this reason that the Commission questioned the claims of

“avoided” T&D costs from CHP deployment.101

Delivered Cost Of Gas. The cost of gas to operate a CHP unit includes not only the cost

of the gas commodity, but the cost of getting that gas to the customer’s meter. As its name

implies, the delivered cost of gas should, therefore, include the charges imposed by an NGDC to

deliver gas to a CHP project.102 Mr. Love computed the cost of gas for CHP projects to include

only the cost of the gas commodity; he neglected to include distribution charges, and, therefore,

substantially understated the cost to operate CHP units.103 Peoples has no coherent response to

this factually and logically sound criticism of Mr. Love’s analysis and, in fact, never addressed

the key point, namely, there is no rational basis for ignoring distribution charges because a CHP

unit cannot operate unless gas is actually delivered to the customer’s meter.104 When questioned,

Mr. Love had to admit this is the case.105 Peoples cannot overcome its own witness’ admission.

Notably, this one error in Mr. Love’s study understates the cost of Peoples’ CHP program by

approximately $44 million.106

Use Of Measure Lives Exceeding 15 Years. The errors in Mr. Love’s use of measure

lives longer than 15 years were explained previously and in DLC’s Initial Brief.107 Mr. Love’s

claims that lives longer than 15 years are “reasonable” misses the very significant point that lives

101 CHP Policy Statement, p. 18 (“We note that avoided costs may be difficult to quantify, that we currently lack information to confirm the impacts of CHP on the electric system, and that it may take years to realize the benefits of any future avoided costs.”)


103 Id.

104 See Peoples Main Brief, p. 32.

105 Tr. at 221, lines 8-17.

106 DLC Statement No. 2-SR, p. 24, Table 9.


30

as long as he used cannot be paired with the high capacity factors he imputed for CHP units. If

the longer lives are assumed, then either the capacity factors have to be reduced (which

diminishes the benefit-cost ratio) or the additional cost for the redundancies in CHP units needed

to achieve those higher capacity factors over longer lives must be recognized (which also reduces

the benefit-cost ratio). Mr. Love assumed the benefit of longer lives and ignored the negative

implications of his assumption on other part of his analysis. That is certainly not “reasonable.”

For all the reasons discussed above and in DLC’s Initial Brief, Peoples’ proposed CHP

program is not cost-effective.

4. Peoples’ CHP Proposal Does Not Include A Reasonable Cost Recovery Mechanism

There is nothing “reasonable” about Peoples’ attempt to implement a Section 1307(a)

automatic adjustment clause to increase customers’ rates without prior notice, outside of a base

rate case, and without providing any evidence – let alone substantial evidence – that it has

satisfied the fundamental requirement of showing that, if implemented, the new rate will not

produce more than a “just and reasonable return” on Peoples’ “rate base.”108 These flaws in

Peoples’ proposal have been addressed previously in this Reply Brief109 and in DLC’s Initial

Brief,110 and those discussions are incorporated herein by reference.

In this area, Peoples once again attempts to wrap itself in Act 129, notwithstanding

numerous prior efforts to evade reasonable analogies to Act 129 that are not to its liking.

Peoples claims that it is adhering to the Commission’s “policy” for EDC’s Act 129 EE&C plans

that “the revenue impact of billing unit changes related to EE&C programs is reflected in rates

108 See 66 Pa.C.S. § 1307(a).

109 See Sections I and II.C., supra.

110 DLC Initial Brief, pp. 15-28.

31

only through a future base rate proceeding.”111 Peoples ignores a critical difference. For EDCs,

the “billing unit changes” represent a reduction in sales and revenues – not an increase, as is the

case here. Furthermore, the Commission has already spoken to this issue by requiring load-

building NGDC CHP programs to be proposed only in base rate cases, where the “billing unit

changes” (i.e., increased sales levels) can be properly recognized in setting just and reasonable

base rates. It is fundamentally unfair for Peoples to charge customers for CHP subsidies that

promote increased gas sales and produce increased revenues while, at the same time, claiming it

is entitled to pocket the substantial income-enhancing effect customer-funded subsidies produce

between base rate cases. And, Peoples has not indicated when it may file its next base rate case.

5. The Evaluation, Measurement And Verification Provisions Of Peoples’ CHP Program Are Not Reasonable

Peoples’ discussion of the evaluation, measurement and verification provisions of its

CHP program112 reprise various averments it made elsewhere in its Main Brief and suffer from

all of the significant flaws that were identified previously in this Reply Brief113 and in DLC’s

Initial Brief.114 In summary:

Peoples Proposes To Hamstring The Independent Evaluator. Peoples boasts that it is

providing for reviews of the cost-effectiveness of CHP projects by an independent evaluator,

while severely limiting what the independent evaluator can consider by imposing an

unacceptably high threshold for review of only those projects receiving incentives of more than

$500,000. Far too many projects would fly under the radar and evade independent examination.

Peoples is more interested in creating the appearance of independent evaluation than it is in


112 Id., pp. 36-37.

113 See Sections II.C. and II.D.1., supra.

114 DLC Initial Brief, pp. 50-54.

32

putting in place a process of meaningful independent evaluation. This deficiency is aggravated

by the fact that Peoples’ entire CHP program is structured to create an “upside only” risk/reward

ratio for Peoples, such that all of the incentives are aligned to foster a finding that CHP projects

are cost-effective and should be promoted.115

The Economic Test Does Not Provide Any Additional Assurance Of Cost-

Effectiveness. As previously explained, Peoples misstates the different purposes of the

“economic test” promoted by the OSBA and the TRC test. The economic test is used to

determine if non-CHP owning customers’ will be subsidizing the on-going cost to deliver gas to

CHP projects distribution. The TRC test is applied to determine a CHP project’s initial cost-

effectiveness (i.e., whether the streams of future benefits and costs will produce a benefit-cost

ratio greater than 1.0). The two tests are complementary, but they are not a substitute for each

other, nor is the economic test a check on the TRC test, as Peoples erroneously claims.

Peoples Opposes Reasonable Enforcement Measures. Peoples’ CHP program lacks a

meaningful enforcement mechanism. While penalties for non-compliance would be one means

of enforcement, other measures could be used, such as non-recovery from customers of incentive

payments if Peoples does not comply with the terms of its plan.116 Even aside from the issue of

penalties or non-recovery of incentive costs, Peoples has opposed other reasonable means of

assessing its performance and assuring compliance with its commitments. Thus, Peoples has

resisted recommendations – from both the OSBA and Duquesne Light – to implement a

stakeholder coordination process to review and assure adequate evaluation, measurement and

115 See DLC Initial Brief, p. 52.

116 DLC Statement No 1-SR, p. 18.

33

verification.117 That is not an unreasonable request, and there is no good reason for Peoples to

oppose it.

Peoples’ proposed CHP program should not be approved with the serious evaluation,

measurement and verification deficiencies it now contains.

E. Peoples Denied Customers And Other Interested Parties Fundamental Due Process By Insisting That Notice Should Be Provided Only After Its CHP Program And New Section 1307(a) Rate Have Been Approved

Peoples concedes that it did not provide its customers notice of the filing of the Petition,

which, as previously explained, includes a request for approval of tariff riders to create and

implement a new Section 1307(a) rate.118 Peoples also concedes that notice of the filing of its

Petition was not published in the Pennsylvania Bulletin.119 Although the Commission declined

to address the deficiencies in Peoples’ notice in its Opinion and Order on interlocutory review, it

stated that notice was an issue to be considered in the further proceedings in this case.120 The

Commission did not waive customer notice requirements or condone Peoples’ attempt to proceed

without providing notice that accords with the requirements imposed by Pennsylvania appellate

authority and constitutional principles of due process.121

In its Main Brief, Peoples tries to defend its failure to furnish notice to customers and

other interested parties by contending that they are not entitled to notice until after the

Commission has approved its proposed CHP program and associated Section 1307(a) rate.122

Incredibly, Peoples’ entire discussion of this important issue never addresses what due process

117 Id.

118 Tr. at 196-197.

119 Tr. at 197.

120 Opinion and Order Granting Interlocutory Review, p. 7; Tr. at 123, line 18 through 124, line 7.


122 Peoples Main Brief, pp. 40-41. See Tr. at 197, lines 4-5.

34

requires (indeed, the words “due process” do not even appear in the section of Peoples’ Main

Brief discussing “notice”123). Peoples’ fundamental premise is that the absence of a specific

directive in the Commission’s regulations requiring notice can override constitutional principles

of due process (and fundamental fairness).124 Clearly, that is not correct.

Peoples begins its discussion of this important topic by trying to convince the ALJ and

the Commission that they can ignore an inconvenient truth because Duquesne Light allegedly

lacks “standing” to point out what Peoples has already conceded – it is asking the Commission to

approve a rate increase, but will provide notice to customers only after the Commission’s

approval has been obtained. The adverse impact on Peoples’ unnoticed customers will not be

diminished, nor will the invalidity of an order the Commission enters be remedied, even if

Peoples’ standing argument were accepted. However, Peoples’ argument should not be accepted

because it not correct. In Milesburg – a leading decision on notice requirements in PUC

proceedings – the Commonwealth Court rejected an argument like the one Peoples is offering.

In Milesburg, the Court addressed standing to appeal – a more rigorous legal test than

standing to raise issues at the administrative agency level.125 Even applying that higher standard,

the Court held that a party with notice that participated fully in the proceeding below could raise

the issue of inadequate notice to utility customers because litigants that expend considerable time

and resources to obtain a definitive conclusion have an interest in assuring the validity of the

order the Commission enters at the end of a proceeding.126


124 See Peoples Main Brief, pp. 39-40.

125 See 52 Pa. Code § 5.72(a).

126 Milesburg, supra, at 1302 n.7 (“However, West Penn, in its efforts to protect the commission’s favorable order from future collateral attack, clearly does have standing to raise the issue of proper notice to customers.”).

35

The property tax case Peoples relies upon127 is clearly distinguishable – indeed, it is not at

all apposite. In Lawrence County Tax Claim Bureau, the Commonwealth Court held that prior

owners, who had no interest in the property that was the subject of a tax sale, did not have

standing to try to invalidate the sale. The Court rejected the prior owners’ contention that they

had a legally cognizable interest in assuring that the then-current owner (Borough of Ellwood

City) had “notice” of the underlying tax delinquency that triggered the tax sale. However, that

tax delinquency accrued in its entirety after the prior owners had consummated the transfer to the

Borough, and the Borough was solely responsible for paying the tax. As the Court explained, the

prior owners believed (erroneously, as the Court held) that the Borough could have an action

against them because they knew the Borough had not paid taxes it owed to the County. The

prior owners were concerned the Borough might assert they breached an undefined duty to bring

the tax liability to its attention. The Court, applying blackletter law, concluded the prior owners

could not be liable to the Borough.128 In short, the appellants had no interest of any kind that

was affected by the tax sale they sought to invalidate. That is certainly not the case here, as the

Court’s holding in Milesburg attests.

Peoples also tries to bootstrap the “notice” it provided in 2013 when it filed its Joint

Application for approval of its merger with Equitable Gas Company LLC (“Equitable”).129

According to Peoples, the daisy-chain of this attenuated argument is that: (1) nearly five years

ago, the Joint Applicants provided “notice” of the filing of the Joint Application (although

127 In re Sale by Lawrence Cty. Tax Claim Bureau, 413 A.2d 1162 (Pa. Cmwlth. 1980). Peoples Main Brief, p. 38 n.13.

128 Id. at 1164 (“Since appellants [prior owners] received the agreed purchase price in full and were not liable for the delinquent real estate taxes which precipitated the tax sale they were not aggrieved by that sale and lack standing to challenge its validity.).


36

Peoples admits that the notice consisted only of publication in the Pennsylvania Bulletin and

certain area newspapers130); (2) during the course of the merger proceeding, an intervenor

prevailed on the Joint Applicants to accept a settlement term creating a “stakeholder” process to

develop a natural gas “demand side management” plan; (3) the merger proceeding was

concluded by a settlement that the Commission approved; (4) Peoples implemented the

“stakeholder” process outlined in the settlement (although it is not clear how Peoples determined

who was a “stakeholder” since, for example, none of the EDCs in its service territory were

included in that process); (5) Peoples filed its proposed EE&C Plan within the 48-month window

the settlement imposed; and (6) because Peoples served its proposed EE&C Plan on the parties to

the merger proceeding and participants in the “stakeholder” process, it fulfilled its obligation

under the settlement and no further notice to customers is required. Peoples’ argument does not

provide a legally valid basis to absolve it from furnishing adequate customer notice when it filed

its Petition initiating this case.

Peoples Cannot Bootstrap The Notice Provided When The Joint Application For

Merger Approval Was Filed To Do Double Duty As Notice Of Filing Of Its Petition

Initiating This Case. This argument is wrong on several levels. First, the merger proceeding

was not a rate case. The “notice” furnished over five years ago in that case (publication in the

Pennsylvania Bulletin and local newspapers), while perhaps appropriate for that proceeding,

does not satisfy the notice requirements that apply when customers face a possible rate increase.

As Milesburg provides, bills inserts are the minimal requirement when rate increases are

proposed. Second, notice of the filing of the Joint Application could not have alerted customers

130 Replies of Peoples Natural Gas Company LLC to Exceptions of Other Parties filed in this case on May 29, 2018, p. 9 n.6.

37

that a term of a subsequent settlement would entail the filing of a CHP program and a new

Section 1307(a) rate to recover the costs of that program. Third, even if customers could have

known that the settlement included a term providing for Peoples’ filing of a demand side

management plan, they could not have known that Peoples would use the occasion of that filing

to append a CHP load-building program and try to recover the costs of its CHP program from

customers. As the Commission has clearly held, CHP employed by an NGDC is neither demand

side management nor EE&C.

Service Is Not The Same As Customer Notice. The fact that the merger settlement

stated who should be served with Peoples’ EE&C Plan does not determine what the customer

notice requirements should be for a filing that includes a rate increase request. Service is not the

same as customer notice.131 The Commission’s regulation on filing of rate increases provides

that a utility’s tariff and supporting data should be served on the statutory parties.132 However,

that requirement does not obviate the need for adequate customer notice.133 On an even more

fundamental level, parties cannot, by agreeing to the terms of a settlement, do an end-run around

the directly applicable notice requirements imposed by constitutional due process principles,

applicable statutes, and Pennsylvania appellate court authority.

Peoples’ Argument Fails Even On Its Own Terms, Because Peoples Did Not Serve

Its EE&C Plan On All “Stakeholders.” Although Peoples contends that the service

131 Peoples conflates “service” with customer “notice” in arguing that it would be “unreasonable and absurd” to believe that customers may be entitled to “notice” of the filing of a “petition” under 52 Pa. Code § 5.41 (Peoples Main Brief, p. 39). However, there is nothing “unreasonable or absurd” about the requirement independently imposed by constitutional principles of due process that entitles customers to adequate notice of a proposed increase in their utility rates. In fact, that is exactly the holding in Milesburg, where the Commonwealth Court required the provision of bill insert notice of a “petition” because the relief requested in that “petition” would affect the utility customers’ rates, as explained hereafter in this Reply Brief.

132 52 Pa. Code § 53.51(d).

133 52 Pa. Code § 53.45(b).

38

requirements of the merger settlement obviated the need for further notice to customers, it fails to

acknowledge the observable deficiencies in satisfying even those service requirements. It has

now been established that EDCs that furnish service in Peoples’ service area have an interest that

confers standing to participate in this case134 and, therefore, certainly meet the definition of a

“stakeholder.” They were not served with Peoples’ EE&C Plan.

Peoples also insists135 that because the 2009 Secretarial Letter authorizes EE&C plans to

be filed as a “petition,” all it had to do was satisfy the requirements of Section 5.41 of the

Commission’s regulations.136 However, Peoples did not even satisfy the service requirements of

that section, which provides in relevant part as follows:

(b) Service. A copy of the petition shall be served on all persons directly affected and on other parties whom petitioner believes will be affected by the petition. Copies of the petition shall be served upon the Office of Trial Staff, the Office of Consumer Advocate and the Office of Small Business Advocate. Service shall be evidenced with a certificate of service filed with the petition.

EDCs furnishing electric service in Peoples’ service area are directly affected by Peoples’

EE&C Plan and CHP program because it impacts their costs and their electric sales, directly

implicates interconnection issues (including safety and operability concerns affecting their

distribution systems), and an express provision in Peoples’ own EE&C Plan (p. 17) identifies a

role for EDCs in coordinating and implementing that plan. Anyone in Peoples’ position

reasonably had to know that such EDCs would be affected. However, Peoples did not serve any

of the EDCs in its service area. Duquesne Light only learned of this proceeding through other

134 Opinion and Order Granting Interlocutory Review, supra.


136 52 Pa. Code § 5.41.

39

means. In short, Peoples did not even comply with the service requirements of Section 5.41(b)

despite its contention that those are the only “notice” requirements it has to satisfy.

Peoples’ failure to comply even with Section 5.41(b) had a substantive adverse effect on

this case. To cite one important example, Peoples claims that its CHP program fills a “gap in

existing programs” because Duquesne Light is “the only electric distribution company in

Peoples’ service territory that offers incentives for CHP.”137 Peoples does not offer any record

evidence for that statement (there is none, because Peoples never addressed this topic on the

record). Moreover, documents filed with the Commission indicate that the EE&C plans of the

FirstEnergy companies (some of which furnish service in Peoples’ service area) do, in fact,

provide for CHP incentives.138 If Peoples’ EE&C Plan had been served upon all “stakeholders”

(including obvious recipients like the EDCs in its service area), this factual question could have

been addressed and answered on the record. Proper service would have provided an opportunity

for potential (but un-noticed) participants to address the claims (albeit made for the first time in

its Main Brief) that CHP incentive programs of other EDCs either do not exist (which appears

erroneous) or are inadequate to satisfy the “demand” for CHP deployment in Western

Pennsylvania (an unsubstantiated claim).

Peoples’ argument that Milesburg notice is not required when a “petition” is filed under

Section 5.41 fails for several reasons. As the Commonwealth Court has held, adequate notice is

a constitutional due process requirement that applies regardless of the purely formal and stylistic

characteristics of a filing (e.g., the caption “petition” on a pleading). Therefore, neither the


138 Proposed Policy Statement on Combined Heat and Power, Docket No. M-2016-2530484 (Mar. 9, 2016), p. 6 n.4 (Noting that PECO Energy’s EE&C plan includes CHP as a specific incentive program and “[e]ach of the remaining EDCs included CHP in their custom incentive programs.”). It appears that the same applies to Phase III plans. SeeWest Penn Power Company, Phase III Energy Efficiency and Conservation Plan, Docket No. M-2015-2514772 (Nov. 23, 2015) http://www.puc.pa.gov/pcdocs/1397223.pdf (pp. 59 and 73) (Offering CHP as a custom measure.).

40

Commission nor any other administrative agency can, by adopting regulations limiting the notice

that filers must provide, override the dictates of constitutional due process, appellate authority139

and applicable statutory requirements.140 Milesburg itself affirmed and applied this axiom,

because the Court in Milesburg directed bill insert notice to the utility’s customers even though

that case originated by the utility filing a “petition.”141

Peoples also contends that there are cases – which it does not cite or otherwise identify –

where a “utility filed a petition solely seeking approval of a voluntary EE&CP” (i.e., not in

conjunction with “a rate increase or other filing”), and Peoples allegedly “found no indication”

that the filing company voluntarily or by PUC directive gave individual customer notice of the

filing or published notice in the Pennsylvania Bulletin.142 At the outset, because Peoples did not

identify the cases it was referring to, this averment should not be given any weight.

Additionally, the qualifiers that Peoples attached to its statement leave out all the cases that are

relevant to this issue.

For voluntary EE&C plans filed by NGDCs, there are three examples. Petition of PGW

joined a voluntary EE&C plan with another filing by PGW (universal service) and, therefore,

that case does not meet Peoples’ “solely seeking approval” qualifier. In any event, in that case,

PGW’s proposed fuel switching plan was rejected by the Commission, which also clearly

signaled that such proposals should be made in base rate cases, where individual customer notice

is definitely provided. In UGI Utilities and UGI PNG, the companies filed voluntary EE&C

139 Pa. Coal Mining Ass’n v. Pa. Ins. Dept., supra; Milesburg, supra.

140 See 2 Pa.C.S. § 504.

141 The Commission proceeding that produced the Order appealed in Milesburg is Petition of West Penn Power Company Re Milesburg Energy, Inc., Docket No. P-870216, 1987 Pa. PUC LEXIS 153 (Pa. P.U.C. Sept. 22, 1987) (The text of that order also makes it clear that West Penn filed a “petition.”)


41

plans in conjunction with base rate increases (thus also eliminated by the “solely” qualifier).

Significantly, in UGI Utilities, the Joint Statement of the Chairman and Commissioner Sweet

reiterated that base rate proceedings are the proper venue for NGDC-proposed CHP programs.

Peoples has not furnished adequate customer notice of its CHP program and the proposed

implementation of a new Section 1307(a) automatic adjustment clause that would increase

customers’ rates to recover the costs of that program.

F. Peoples’ Claim That Its CHP Program Advances The “Intentions” Of The CHP Policy Statement Seriously Misapprehends And Misstates The Terms Of The Policy Statement

Peoples concludes its Main Brief with a series of variations on the theme that its CHP

program should be approved because it is allegedly “consistent” with the CHP Policy Statement

and advances the Commission’s “intentions” expressed therein.143 In so doing, Peoples tries to

use the CHP Policy Statement to excuse the significant defects in its CHP program, including its

failure to furnish adequate customer notice; failure to satisfy the condition precedent for recovery

of the costs of its program through a Section 1307(a) automatic adjustment clause; and failure to

propose a CHP program that conforms to existing authority, is cost-effective, and provides for

appropriate independent evaluation, measurement and verification.

The Commission’s “intention” to “encourage” CHP expressed in the CHP Policy

Statement did not provide a blank check to NGDCs to use their customers’ money to subsidize a

load-growth program while, at the same time, denying those customers any recognition of the

revenue and net income enhancements that the NGDC would enjoy between base rate cases at its

customers’ expense. Notably, there is nothing in the CHP Policy Statement that mentions – let

alone claims to promote (as Peoples erroneously ascribes to it) – NGDC programs to subsidize


42

CHP deployment. To the contrary, the Commission expressly indicated that it did not favor

utilities paying for equipment to serve CHP projects that would impose costs on other customers

(“We see no reason why this cost should be partially or wholly socialized through the rate base

when and if associated grid interconnection equipment is installed solely for the benefit of the

system [CHP] generator.”)144

Peoples also claims145 that NGDC-sponsored CHP subsidy programs are incorporated in

the CHP Policy Statement’s general provision that:

EDCs and NGDCs are encouraged to support the development of CHP by evaluating and implementing new strategies, programs and other initiatives to promote the deployment of CHP and to reduce barriers to deployment within their service territories.146

However, as is evident, the language Peoples cited does not mention NGDC programs to

subsidize CHP and certainly does not endorse CHP proposals like the one Peoples is proposing

in this case.

Even more important, the quotation that Peoples relies upon can only be properly

understood in light of the language that Peoples inexplicably elected to leave out. Immediately

following the language Peoples quoted, the Commission gave specific examples of the

“strategies, programs and other initiatives” it has in mind, which focus on helping to find funding

for CHP deployment that does not require customer-funded subsidies:

For example, this could include the identification of CHP-applicable Federal and State incentives and funding programs and a method to make this information available to would-be project

144 CHP Policy Statement, p. 8.


146 52 Pa. Code § 69.3201(d).

43

developers in a manner similar to the requirements in 66 Pa.C.S § 2806.1(j).147

Similarly, although the CHP Policy Statement creates extensive reporting requirements

for EDCs and NGDCs,148 none of those requirements ask EDCs or NGDCs to report whether

they made any incentive/subsidy payments to CHP developers. The reporting requirements

encompass things utilities can undertake to promote CHP without paying direct subsidies, such

as streamlining interconnection procedures, standardizing technical requirements, developing

appropriate back-up rates for electric service and “separate rates” for gas delivery service for

CHP projects. Peoples’ claim that the CHP Policy Statement endorses the kind of large-scale

CHP subsidy program Peoples has proposed is not supported by the actual language of the CHP

Policy Statement.

Peoples also implies that the CHP Policy Statement is a complete and final statement of

the Commission’s “guidance” on how it intends, following issuance of the policy statement, to

assess NGDC proposals for CHP subsidy programs.149 That contention is also false. On any

number of issues that are directly relevant to NGDC-proposed CHP subsidy programs, the

Commission has already made specific holdings and issued clear pronouncements about the

criteria those programs must satisfy in order to be approved. The Commission’s directives were

made in adjudications, which establish binding precedent. There is nothing in the CHP Policy

Statement that suggests the Commission intended the Policy Statement to overrule the decisions

it made in those earlier proceedings. To the contrary, the CHP Policy Statement, in its only

substantive aspect, establishes information-gathering protocols to inform the Commission’s

147 Id. (Emphasis added.).

148 See 52 Pa. Code § 69.3202.


44

judgment in making future policy decisions. Moreover, as a matter of law, a policy statement

cannot overturn prior precedent.150 The Commission certainly knows the limited legal effect of

policy statements, and made a deliberate decision to proceed by policy statement and not by

regulation or adjudication. Yet, Peoples is trying – contrary to well-established law and contrary

to the actual content of the CHP Policy Statement – to convince the ALJ and the Commission

that they should afford the CHP Policy Statement the same force and effect as a regulation or a

final order issued in a adjudication. Peoples is clearly wrong.

Peoples’ repeated attempts to read into the CHP Policy Statement “intentions” and

“guidance” that plainly do not appear there shines a spotlight on the numerous fatal defects in

Peoples’ CHP proposal. Peoples’ arguments amount to nothing more than a plea that the

Commission ignore the many defects in its CHP proposal on the pretext of pursuing a high-level

“intention” to “encourage” CHP. Not only is Peoples’ plea contrary to what the CHP Policy

Statement actually says, Peoples is asking the ALJ and the Commission to approve its CHP

program and associated rate increase even though they contravene the law and are not supported

by substantial record evidence – indeed, the record evidence clearly shows that Peoples’ CHP

proposal should be rejected.

III. CONCLUSION

Peoples has not met its burden of proof to increase its rates to recover the costs of its

proposed CHP program, which is unprecedented in size, improperly presented on a “stand-alone”

basis, neither prudent nor cost-effective, and plagued with serious structural flaws and

unanswered questions. Therefore, Peoples’ CHP program, including its proposed Section

150 See DLC Initial Brief, pp. 6-7 (Discussing Commission and Pennsylvania appellate authority holding that a policy statement is not, nor can it create, binding precedent.)

1307(a) adjustment clause, which is an integral part of that program is not in the public interest,

and should not be approved in this case.

Respectfully submitted,

Michael Zimmerman (Pa. ID No. 323715)Duquesne Light Company411 Seventh AvenuePittsburgh, PA 15219412.393.1514 (bus)412.393.6268 (bus)412.393.5897 (fax)[email protected]

Linda R. Evers (Pa. ID No. 81428)Donald R. Wagner (Pa. ID No. 80280Stevens & Lee111 North Sixth StreetReading, PA 19601610.478.2265 (bus)610.478.2216 (bus)610.988.0855 (fax)[email protected]@stevenslee.com

Anthony C. DeCusatis (Pa. ID No. 25700)Catherine G. Vasudevan (Pa. ID No. 210254)Morgan, Lewis & Bockius LLP1701 Market StreetPhiladelphia, PA 19103-2921215.963.5034 (bus)215.963.5001 (fax)[email protected]. [email protected]

Michael A. Gruin (Pa. ID No. 78625)Stevens & Lee17 North 2nd StreetSixteen FloorHarrisburg, PA 17101717.255.7365 (bus)610.988.0852 (fax)[email protected]

Counsel jor Duquesne Light Company

Dated: October 11, 2018

DB1/ 100035642.2

45

APPENDIX A

1

DUQUESNE LIGHT COMPANY

PROPOSED FINDINGS OF FACT

Peoples’ Original Energy Efficiency and Conservation Plan Background

1. Peoples Natural Gas Company LLC (“Peoples”) filed a Petition seeking approval of its

voluntary Energy Efficiency and Conservation Plan (“Plan”) on December 27, 2017. Peoples

Petition.

2. Peoples’ original Plan included four programs that would use ratepayer funds to reduce

gas usage (“Energy Efficiency Programs”), and one Combined Heat and Power (“CHP”)

Program (“CHP Program”) that would increase gas usage and sales by subsidizing natural gas-

fueled CHP projects in Peoples’ service territory. Peoples Exhibit 1.

3. Peoples’ original Plan filed on December 27, 2017 estimated a total budget of $38.44

million, to be recovered from customers on a dollar for dollar basis over five years. Peoples

Petition and Peoples Exhibit 2.

4. All of the Electric Distribution Companies that furnish electric service in Peoples’ service

territory offer CHP as a custom measure as part of their respective Act 129 energy efficiency and

conservation plans. Proposed Policy Statement on Combined Heat and Power, Docket No. M-

2016-2530484 (Mar. 9, 2016), p. 6 n.4. See West Penn Power Company, Phase III Energy

Efficiency and Conservation Plan, Docket No. M-2015-2514772 (Nov. 25, 2015), pp. 59 and 73,

and the Phase III Energy Efficiency and Conservation Plans of Pennsylvania Electric Company

(Docket No. M-2015-2514768) and Pennsylvania Power Company (Docket No. M-2015-

2514769).

2

Lack of Customer Notice and Publication

5. Peoples did not publish notice of the filing of its EE&C Plan in any newspaper or the

Pennsylvania Bulletin. Tr. p. 196, line 18 through 197, line 8.

6. Peoples did not provide its customers with notice of the filing of its EE&C Plan. Tr. p.

196, line 18 through 197, line 8.

7. Peoples did not serve a copy of its Petition on any Electric Distribution Company in its

service territory. See Peoples’ Petition, Certificate of Service.

Errors in Peoples’ Cost Benefit Analysis for its Original Plan

8. People’s cost benefit analysis for the CHP Program in its original Plan contained multiple

errors, which were summarized at length in Duquesne Light Company’s Direct Testimony. See

Duquesne Statement No. 2, pp. 7-8, 12-14, 16.

9. Correction of the errors in Peoples’ analysis would have resulted in the original CHP

Program failing the Total Resource Cost (“TRC”) test. After adjusting for the errors and flaws in

Peoples’ analysis, the cost-benefit ratio of Peoples’ CHP Program fell to 0.91, which fails the

TRC test. Duquesne Statement No. 2, p. 15, line 11 through p. 16, line 5, and Table 6.

Peoples’ Revised EE&C Plan

10. Peoples’ witness Theodore Love acknowledged most of the major errors in Peoples’

original Plan that were identified by Duquesne witness Thomas Crooks. Peoples Statement 2-

R2, p. 19, lines 17-20; p. 21, lines 1-5, 10-11, 16-18.

11. On August 6, 2018, Peoples submitted a Revised EE&C Plan as an Exhibit to the Second

Rebuttal Testimony of Theodore Love. Peoples Statement No. 2-R2, and Peoples Exhibit 12.

3

12. Peoples’ Revised Plan proposes a total budget of up to $42.5 million. Peoples Exhibit 12.

13. Under Peoples’ Revised Plan, approximately $25 million of the costs would be used for

the four Energy Efficiency Programs. Peoples Exhibit 12.

14. Under Peoples’ Revised Plan, up to $17.5 million would be used to fund a CHP Program

that would increase gas sales and usage by subsidizing natural gas-fueled CHP projects in

Peoples’ service territory. Peoples Exhibit 12.

15. Peoples proposes to recover the costs of its Revised Plan, including the CHP Program,

from customers on a dollar for dollar basis through a new automatic adjustment clause under

Section 1307(a) of the Public Utility Code (“EE&C Surcharge”). Peoples Exhibit 12.

16. The costs of Peoples’ CHP Program, recovered through the EE&C Surcharge, would

increase the average large customer’s monthly gas bill by $696.90 per month during the first year

of the CHP Program, and more than $900 per month by the end of the Program. Duquesne Light

Cross Examination Exhibit 2.

17. Peoples has not calculated the impacts of the CHP Program on customers’ overall energy

bills (including electric bills and gas bills). Tr. 220-221.

18. Peoples’ CHP Program is a load building venture. OCA Statement No. 1-Supp-SR,

Supplemental Surrebuttal Testimony of Geoffrey Crandall, at p. 3, lines 15-17.

19. Each new CHP project subsidized under the CHP Program would result in extra revenue

to Peoples above the level reflected in rates until its next base rate case. Duquesne Statement

No. 1, at p. 5, line 1, and p. 8, lines 4-13.

20. Peoples considers CHP to be a business development initiative and driver of increased

revenue and sales. Duquesne Stipulated Exhibit 1 (referencing Peoples’ $30 million CHP

initiative).

4

21. Peoples’ CHP Program would increase Peoples’ gas sales by over 3.3 times as much as

the rest of its proposed EE&C Plan would reduce gas sales. OCA Statement 1-SUPP-SR, p. 4,

lines 13-19.

22. Peoples’ CHP Program will increase gas usage by 34,610,567 MMBtus over the life of

the Program. Peoples Exhibit 12, at p. 49.

23. Peoples has not provided estimates of the increased revenues that it would realize as a

result of the CHP Program.

24. Prior to the filing of Peoples’ Plan, three natural gas distribution companies (“NGDCs”)

had proposed ratepayer subsidized CHP Programs, specifically, UGI Utilities, Inc., UGI Penn

Natural Gas, Inc., and Philadelphia Gas Works (“PGW”).

25. The two UGI CHP Programs were submitted as part of a base rate case. Duquesne

Statement No. 1, pages 12-13. See also Pa. P.U.C. v. UGI Penn Natural Gas, Inc., Docket No.

R-2016-2580030 (Aug. 31, 2017) and Pa. P.U.C. v. UGI Utilities, Inc. – Gas Division, Docket

No. R-2015-2518438 (Oct. 14, 2016).

26. The Commission approved a negotiated settlement in UGI Utilities’ base rate case, which

included a CHP Program with a total budget of $1.1 million. Duquesne Statement No. 1, p. 12.

Lines 15-17, Duquesne Statement No, 1-SR at p. 14. See also. Pa. P.U.C. v. UGI Utilities, Inc. –

Gas Division, Docket No. R-2015-2518438 (Order entered Oct. 14, 2016).

27. The Commission approved a negotiated settlement in UGI PNG’s base rate case, which

included a CHP Program with a total budget of $1.4 million. Duquesne Statement No. 2-SR at p.

14. See also Pa. P.U.C. v. UGI Penn Natural Gas, Inc., Docket No. R-2016-2580030 (Order

Entered Aug. 31, 2017).

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28. The PGW CHP Program was rejected by the Commission. Duquesne Statement No. 1,

page 12, lines 10-11. See also Petition of Philadelphia Gas Works for Approval of Demand-Side

Management Plan for FY 2016, Docket No. P-2014-2459362 (Tentative Order entered Aug. 4,

2016).

29. Peoples CHP program is more than 12 times larger than the two NGDC CHP Programs

approved by the Commission to date. Duquesne Statement No. 1-SR, at pp. 12-16.

30. Peoples’ revised CHP Program is also not cost effective.

31. After Duquesne’s witness Thomas Crooks pointed out the numerous flaws and errors in

Peoples’ cost-benefit analysis, Peoples submitted a Revised Plan, with an entirely new cost-

benefit analysis for the CHP Program. Peoples Exhibit 12.

32. Peoples’ original CHP Program was analyzed for cost-effectiveness using a 15–year

measure life and data from the 2015 Environmental Protection Agency and Combined Heat and

Power Partnership’s Catalog of CHP Technologies (“EPA CHP Catalog”). Peoples Exhibit 1.

33. No party disputed the use of 15-year measure lives for measuring the cost-effectiveness

of Peoples CHP Program. Duquesne Statement No. 2-SR, at p. 15, lines 17-19.

34. Peoples’ Revised Plan discarded the 15-year maximum measure life for the CHP

Program, and instead uses measure lives of 17 and 20 years. Peoples Exhibit 2 and Duquesne

Statement 2-SR, at p. 15, lines 9-11.

35. Extending the assumed project lifetimes beyond 15 years has the effect of artificially

inflating the apparent cost-effectiveness of Peoples’ CHP Program by $37,349,916 on a present

value basis. Duquesne Statement No. 2-SR, at p. 15, lines 9-11, and p. 17, lines 13-14.

36. The CHP capacity factors relied upon by Peoples in its Revised Plan cannot be sustained

over useful lives longer than 15 years without building into the CHP projects redundancies that

6

will increase their installed cost and their operating and maintenance expenses. Tr. 301, lines 10-

21.

37. Peoples’ Revised Plan discarded the EPA CHP Catalog and instead relied on data from

an entirely new data source for its CHP cost-benefit analysis, namely, the U.S. Energy

Information Administration, Distributed Generation and Combined Heat and Power System

Characteristics and Cost in the Buildings Sector (“EIA Data”). Peoples Exhibit 12, Duquesne

Light Statement No. 2-SR, at pp. 4-5.

38. No party disputed the use of the EPA CHP Catalog as the source of unit data for purposes

of calculating the cost-benefit ratio of Peoples CHP Program, or suggested that any other source

would be superior to the EPA CHP Catalog for that purpose. Duquesne Light Statement No. 2-

SR, at p. 5, lines 11-12.

39. The EPA CHP Catalog is the work of a CHP Industry collaborative and is generally

regarded as the industry standard for CHP cost studies. Duquesne Statement 2-SR, p. 4, lines 20-

25.

40. The United States Department of Energy Uniform Methods Project expressly relies on

the EPA CHP Catalog data, not the EIA Data. Duquesne Light Statement No. 2-SR, at p. 9, lines

8-12.

41. The EPA CHP Catalog was the data source for the UGI Utilities and UGI PNG CHP

proposals. Duquesne Light Statement 2-SR, at p. 7, lines 9-11.

42. The EIA Data upon which Peoples relies in its Revised Plan is materially inferior to the

EPA CHP Catalog, it is not intended for use in a CHP project-feasibility analysis, it contains

significant internal inconsistencies and obvious omissions, and it is based on sample sizes too

7

small to be reliable. Duquesne Light Statement No. 2-SR, p. 7, lines 15-18, and p. 8, line 21

through p. 14, line 15.

43. The EIA Data uses incorrect efficiency values for two of the five CHP units in Peoples’

Plan, which comprise nearly 67% of Peoples’ forecasted CHP capacity, which has the effect of

overstating their efficiency and cost-effectiveness. Duquesne Light Statement 2-SR, at p. 9, line

21, through page 10, line 22.

44. The EIA data improperly excludes several cost components from construction and

operational and maintenance expenses of running CHP units, which has the effect of overstating

the units’ cost-effectiveness. Duquesne Light Statement 2-SR, at p. 11, line 9 through page 12,

line 11.

45. The Revised CHP Program’s omissions of capital and O&M costs understates Peoples’

CHP Program costs by at least $43 million on a present value basis. Duquesne Light Statement

2-SR, at p. 13, line 11, through page 14, line 15.

46. In his cost-benefit analysis of the Revised CHP Program Mr. Love erroneously treated

avoided electric transmission and distribution (“T&D”) costs, causing him to overstate the

benefits of the CHP Program by approximately $9.7 million on a present value basis. Duquesne

Light Statement No. 2-SR, at p. 17, line 19, through 20, line 20.

47. In his cost-benefit analysis of the Revised CHP Program, Mr. Love erroneously

understated fuel cost costs by approximately $44 million. Duquesne Light Statement No. 2-SR,

at p. 24, lines 2-8.

48. Peoples improperly applied the U.S. Department of Energy Uniform Methods Protocol

(UMP) in conducting its cost benefit analysis of the Revised CHP Program. Duquesne Light

Statement No. 2-SR, at p. 24, line 13 through page 28, line 9.

8

49. In his cost-benefit analysis of the Revised CHP Program Mr. Love erroneously failed to

account for parasitic load, causing him to overstate benefits by approximately $5.3 million.

Duquesne Light Statement No. 2-SR, at p. 27, line 18 through page 28, line 9.

50. Once the errors in Peoples’ Revised CHP Cost Analysis are corrected, the present value

costs of Peoples’ CHP Program exceed its benefits by $40.4 million, resulting in a TRC ratio of

0.81, which fails the TRC test. Duquesne Light Statement No. 2-SR, at p. 29, lines 4-9.

51. Peoples’ Revised Plan only includes one measure for LGS customers – the CHP

Program. Duquesne Light Statement No. 1-SR, at p. 6, line 1 through p. 8, line 10.

52. Under Peoples’ Revised Plan, all LGS customers not on negotiated or competitive rates

would be subject to the EE&C Surcharge on their bills, but less than 10% would have the

opportunity to participate in the Plan’s programs. Duquesne Light Statement No. 1-SR, at p. 8,

lines 3-10.

9

PROPOSED CONCLUSIONS OF LAW

1. Peoples bears the burden of proving that all elements of its proposal are just, reasonable

and lawful and, as an essential part of its burden, it must prove that the CHP program it is asking

customers to fund is prudent and cost-effective. Pa. P.U.C. v. Aqua Pennsylvania, Inc., Docket

No. R-00038805, et al., 2004 Pa. PUC LEXIS 39 at *8-9 (Aug. 5, 2004); Metropolitan Edison

Co. v. Pa. P.U.C., 437 A.2d 76, 81 (Pa. Cmwlth. 1981).

2. A utility proposing a rate increase must meet its burden of proof as to each element of its

case, and it must do so by a preponderance of substantial evidence. Samuel J. Lansberry, Inc. v.

Pa. P.U.C., 578 A.2d 600 (Pa. Cmwlth. 1990), alloc. denied, 602 A.2d 863 (1992).

3. Peoples has not satisfied its burden of proof to establish that its proposed CHP Program is

cost-effective.

4. Peoples has not satisfied its burden of proof to establish that its proposed CHP Program is

prudent.

5. Peoples has not satisfied its burden of proof to establish that the rate increase requested in

connection with the proposed CHP Program is reasonable.

6. Peoples has not satisfied its burden of proof to establish that the CHP Program is in the

public interest.

7. In comparison to the two other NGDC CHP programs approved by the Commission, the

size of Peoples’ CHP Program is not reasonable. Duquesne Statement No. 1-SR, at pp. 12-16.

8. The evaluation, measurement and verification components of Peoples’ Revised Plan are

insufficient. Duquesne Light Statement No. 1, at p. 8, line 21 – p. 9, line 20, and Duquesne

Light Statement No. 1-SR, at pp. 17-18.

10

9. Gas utility-sponsored CHP programs are qualitatively different from EE&C plans

because they “result in higher natural gas usage” and, therefore, are “more akin to market

development projects.” Pa. P.U.C. v. UGI Utilities, Inc. – Gas Division, Docket No. R-2015-

2518438 (Oct. 14, 2016), slip op. at 28-29 (“UGI Utilities”).

10. Because CHP subsidies increase the use of natural gas, the Commission has refused to

regard them as either EE&C measures or “demand side management” plans for natural gas

distribution companies (“NGDCs”). Pa. P.U.C. v. UGI Utilities, Inc. – Gas Division, Docket

No. R-2015-2518438 (Oct. 14, 2016), slip op. at 28-29 (“UGI Utilities”); Petition of

Philadelphia Gas Works for Approval of Demand-Side Management Plan for FY 2016, Docket

No. P-2014-2459362 (Tentative Order entered Aug. 4, 2016), slip. op. at 75-76.

11. Only in a base rate case will all affected parties have an opportunity to evaluate any

projected increased throughput generated by NGDC CHP Programs. Pa. P.U.C. v. UGI Utilities,

Inc. – Gas Division, Docket No. R-2015-2518438 (Oct. 14, 2016), Joint Statement of Chairman

Gladys M. Brown and Commissioner David W. Sweet (Sept. 1. 2016)

12. Notice and opportunity to be heard is required in order for an adjudication before a

Commonwealth agency to be valid. 2 Pa.C.S. § 504.

13. Notice to interested and potentially-affected parties is the first and most essential

condition for a valid adjudication to occur, and notice must be “reasonably calculated to inform

interested parties of the pending action.” Pa. Coal Mining Ass’n v. Pa. Ins. Dept., 370 A.2d 685,

692, 693 (Pa. 1977).

14. Utility requests for general rate increases in excess of $1,000,000 require the requesting

utility to furnish customer notice in the form mandated by either separate postcard notices or bill

inserts, news releases and posting of notices in the utility’s offices. 52 Pa. Code § 53.45.

11

15. Peoples’ Revised Plan proposes to increase the rates of all customer classes in the total

amount of $42.5 million via an automatic adjustment clause under Section 1307(a) of the Public

Utility Code, which proves that the implementation of the automatic adjustment clause will

provide no more than a “just and reasonable return on the rate base of such utility.” 66 Pa.C.S.

§1307(a).

16. Customer notice and opportunity to be heard is mandatory in rate requests made under

Section 1307. Barasch v. Pa. P.U.C., 546 A.2d 1296, 1308 (1987).

17. Peoples failed to provide customers with notice and opportunity to be heard in connection

with the instant rate increase filing.

18. The requirements for Act 129-compliant EE&C plans also apply to voluntary EE&C

plans. Voluntary Energy Efficiency and Conservation Program, Docket No. M-2009-2142851

(Secretarial Letter issued Dec. 23, 2009).

19. The maximum measure life authorized by the Total Resource Cost test under Act 129 is

15 years. Implementation of Act 129 of 2008- Total Resource Cost Test 2011 Revisions, Docket

No. M-2009-2108601 (Order entered July 28, 2011).

20. “Statements of policy do not have the force and effect of law equivalent to that of a

statute, an adjudication, or a duly promulgated regulation.” Petition of Commc’n Workers of

America Concerning the Applicability of 66 Pa.C.S. § 1102 to a Parent-Company Transaction,

Docket No. P-2009-213609, 2010 WL 637095 (Pa. P.U.C.) (Jan. 29, 2010), *6 n.2. (citing Pa.

Human Relations Comm’n v. Norristown Area Sch. Dist., 342 A.2d 464, 467 (Pa. Cmwlth.

1975)).

21. The Statement of Purpose and Scope of the Combined Heat and Power – Statement of

Policy (“CHP Policy Statement”), 52 Pa. Code §69.3201, et seq. states that “EDCs and NGDCs

12

are encouraged to support the development of CHP by evaluating and implementing new

strategies, programs and other initiatives to promote the deployment of CHP and to reduce

barriers to deployment within their service territories. For example, this could include the

identification of CHP-applicable Federal and State incentives and funding programs and a

method to make this information available to would-be project developers in a manner similar to

the requirements in 66 Pa.C.S § 2806.1(j).”

22. The CHP Policy Statement does not mandate or endorse ratepayer subsidized CHP

Programs.

23. The CHP Policy Statement does not alter the Commission’s binding precedent regarding

adequate customer notice for rate increases, the criteria for recovery of the costs through Section

1307(a) automatic adjustment clauses, cost-effectiveness requirements, or adequacy of

independent evaluation, measurement and verification.

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2018-10-11 Reply Brief of Duquesne Light Company · before the pennsylvania public utility...

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