south carolina - DMS

BEFORE

THE PUBLIC SERVICE COMMISSION OF

SOUTH CAROLINA

DOCKET NO. 2016-7-G

August 31, 2016

IN RE: Application of Piedmont Natural Gas Company, )Incorporated to Have the Terms ofthe Natural Gas ) SETTLEMENTRate Stabilization Act Apply to the Company's ) AGREEMENTRates and Charges for Gas Distribution Services )

This Settlement Agreement is made by and among the South Carolina Office ofRegulatory

Staff ("ORS") and Piedmont Natural Gas Company, Inc. ("PNG" or the "Company") (collectively

referred to as the "Parties" or sometimes individually as a "Party").

WHEREAS, by Public Service Commission ofSouth Carolina ("Commission") Order Nos.

2005-491 and 2005-567, dated September 28, 2005 and October 13, 2005, respectively, the

Commission established a baseline for PNG under the Natural Gas Rate Stabilization Act (the

"RSA") and approved certain accounting adjustments proposed by ORS and PNG;

WHEREAS, pursuant to S.C. Code Ann. tj 58-5-455 (Supp. 2014), PNG filed its Quarterly

Monitoring Report and Proposed Rate Changes with the Commission on Iune 15, 2016 for the

review period consisting of April 1, 2015 through March 31, 2016 ("Review Period");

WHEREAS, the Report of ORS's examination of PNG's Monitoring Report for the

Twelve-Month Period Ended March 31, 2016 pursuant to the RSA, was filed with the Commission

on August 31, 2016;

WHEREAS, the Parties to this Settlement Agreement are the only parties of record in the

above-captioned docket;

Page 1 of 5

WHEREAS, the Parties have engaged in discussions to determine if a settlement of this

proceeding would be in their best interest; and,

WHEREAS, following those discussions, the Parties have each determined that their

interests, and ORS has determined that the public interest, would be best served by settling the

above-captioned case under the terms and conditions set forth below:

1. PNG will implement rates for the twelve-month period beginning with the first

billing cycle of November 2016 calculated on the basis of a 10.2% Return on Equity ("ROE")

instead of the 12.6% ROE approved by Commission Orders No. 2002-761, 2005-491, and 2005-

567.

2. The Parties agree that the following are the only attachments to this Settlement

Agreement: Settlement Schedule I (Net Operating Income and Rate of Return); Settlement

Schedule 2 (Explanations of Accounting and Pro Forms Adjustments); Settlement Schedule 3

(Weighted Cost of Capital); and Settlement Schedule 4 (New Depreciafion Study).

3. The Parties agree that PNG will adopt the accounting adjustments of ORS as set

forth in Settlement Schedule 2 as attached to this Settlement Agreement, which include

adjustments based upon the Company's most recent depreciation study for the Company's

Carolinas and Corporate Assets as of October 31, 2014 (Settlement Schedule 4) and

implementation of the new depreciation rates and methodologies.

4. The Parties agree that, based upon the accounting adjustments proposed by ORS

and adopted by PNG, and the agreement ofPNG to implement rates based on a 10.2% ROE, South

Carolina ratepayers will realize an increase in current margin rates totaling $8,300,000. This

equates to a reduction of ($5,072,586) for South Carolina ratepayers when compared to rates

calculated at the authorized 12.6% ROE.

Page 2 of 5

5. The Parties agree to a decrease in demand cost of ($644,922), due to a demand cost

(over)-recovery.

6. The Parties agree to cooperate in good faith with one another in recommending to

the Commission that this Settlement Agreement be accepted and approved by the Commission as

a fair, reasonable, and full resolution of the above-captioned proceeding. The Parties agree to use

reasonable efforts to defend and support any Commission order issued approving this Settlement

Agreement and the terms and conditions contained herein.

7. The Parties agree that by signing this Settlement Agreement, it will not constrain,

inhibit or impair their arguments or positions in future proceedings. Should the Conunission

decline to approve this Settlement Agreement in its entirety, then any Party desiring to do so may

withdraw trom this Settlement Agreement without penalty.

8. This Settlement Agreement shall be interpreted according to South Carolina law.

9. Each Party acknowledges its consent and agreement to this Settlement Agreement

by authorizing its counsel to affix his or her signature to this document where indicated below.

Counsel's signature represents his or her representation that his or her client has authorized the

execution of the agreement. Facsimile signatures and email signatures shall be as effective as

original signatures to bind any Party. This document may be signed in counterparts, with the

various signature pages combined with the body of the document constituting an original and

provable copy of this Settlement Agreement.

[PARTY SIGNATURES TO FOLLOW ON SEPARATE PAGES]

Page 3 of5

Representing the South Carolina Office of Regulatory Staff

Columbia, South Carolina 29201Tel.: (803) 737-0889Fax: (803) 737-0895Email: [email protected]

Page 4 of 5

Representing Piedmont Natural Gas Company, Inc.

Moore dfe Van Allen, PLLC100 North Tryon Street, Ste. 4700Charlotte, North Carolina 28202Tel.: (704) 331-1079

(704) 33 1-2643Fax: (704) 339-5879

(704) 378-1963Email: jimj [email protected]

scotttyier mvalaw.corn

Page 5 of 5

Piedmont Natural Gas CompanySouth Caroline Operations

Nct Operating Income and Rate of ReturnFar the Test Year Ended March 31,2016

Docket No. 2016-7-G

Settlement Schedule I

PerRegulatory

Boolw

(21ORS

Accnuntingsnd Pro Forms

(3)

ORS

(4)Adjustmenlsfor Proposed

MarginIncrease

(5)Adiustments for

Demand CostUniler(Over)

(6)

Total AfterProposed

Rn(es

Sale and Transporwnon of Gas2 Other Operating Revenues

5 114,621 877 5

817,5487,284,012 (I ) $ 121,905,889 5

0 817,5488,300.000 ( I I) $

0(644,922) (17) $ 129,560,967

0 817,548

3 Total Operating Revenues 7,284,012 122,723,437 8,300,000

45

6

7

8

9

10

Cost of GasOperations and MaintwianceDepreciationGeneral TaxesState Income TaxesFederal Income TaxesAmonization of investment Tax Oedns

46,121,45531,554,38212,465,3137,423,767

555,3093,864,474

6,147,6391,232,787(914394)127,32595,983

453,3200

(2)(3)(4)(5)(6)(7)

52,269,09432,787,16911,551,0197,551,092

651,2924,317,794

0

27,9210

42,033411,503

2,736,490

(12)

(13)(14)(15)

(639,486)(2,170)

0(3,266)

00

0

(18)(19)

(20)

51,629,60832,812,92011,551,0197,589,8591,062,7957,054,2M

7,142,760 109,110,806 3,217,947

12

13

14

15

16

Interest on Customers'epositsAmortization of Debt Redemprion PrenuwnAllowance for Fends Used During ConstructionCustomer Growth

13,471,379(102,636)

0172,939102D82

141,252 13,612,6310 (102,636)0 (8) 00 172,939

1,074 (9) 103,456

5,082,053000

38,624 (16)

0000

0

18,694,684(102,636)

0

172,939142,080

17 Net 0 cretin Income for Return $ 13,644,064 $ 142,326 $ 13,786,390 $ 5,120,677 5 18,907,067

~Rat Base:18 Plant ia Service19 Accumulated Deprewation

$ 488,502,966 $ $ 488,502,966 $ 488,502,966

20 Nel Plant in ServiceAdd.

21 Construction Work in Propess22 Materials and Supplies23 Cash Working Capital

Deduct.24 Cusiomers'dvances25 Customers'eposits26 Accamulated Deferred Income Taxes27 Unclaimed Funds

278,297,204

27,144,7878,803,4723,548,451

0

3,013,66668,754,944

93,826

278,297,204

0 27,144,7870 8,803,472

154,098 (10) 3,702,549

03,013,666

68,754,94493,826

278,297,204

27,144,7878,803,4723,702,549

03,013,666

68,754,944

28 Total Rate Baser $ 245,931,478 5 154,098

29 Rate of Return 5.55'/e 5.60'y 7 68%

6.17'/ 6 27% 10.20%

Piedmont iNatural Gas CompanySouth Carolina Operations

Explanations of Accounting and Pro Forms AdjustmentsFor the Test Year Ended March 31, 2016

Docket No. 2016-7-G

Settlement Schedule 2

~Desert tionPer

PiedmontPerORS

0 cretin Revenues - Sale and Trans ortation of Gas

To increase revenues on a going-level basis.

Total 0 eratin Revenues - Sale and Trans ortation of Gas

$ 7,284,012 $ 7,284,012

$ 7,284,012 $ 7,284,012

Cost of Gas

To increase cost of gas on agoing-level basis.

Total Cost of Gas

$ 6,147,639 $ 6,147,639

$ 6,147,639 $ 6,147,639

0 erations and Maintenance Ex enses

a, To annualize the payroll expense as of March 31, 2016. $ 494,383 $ 494,383

b. To decrease expenses for the salary and payroll investment plan. The plan allows participantsto defer a portion of their base salary and the Company matches a portion of the paidcipant'scontribution.

c. To adjust pension expenses included in the filing.

d. To adjust uncollectible gas margin utilizing the applicable uncollectible rate of.33640'/o.

e. To decrease expenses for allocations to non-utility activities.

f. To adjust expenses tor the Long-Term Incentive Plan.

g. To decrease expenses for the Short-Term Incentive Plan.

h. To decrease expenses for the Mission Value Performance incentive Plan.

i. To increase expenses for group insurance.

j To increase expenses for piedmont Town Center lease.

k. To adjust expenses for Piedmont Town Center CAM expenses.

I. To increase expenses for SC's allocation factor adjustment.

m. To adjust expenses for the South Carolina assessment fee.

n. To decrease expenses for items that are nonallowable for ratemaking purposes.

o, To adjust expenses for GTL

p. To adjust for South Carolina Environmental expenses.

q. To decrease expenses for Robeson LNG project.

(20,887)

(290,561)

(25,923)

(35,946)

(20,887)

(290,561)

(25,923)

(35,946)

(151,984)

(18,033)

76,606

(151,984)

(18,033)

76,606

10,804 10,804

3,404,327

7,503

(428,372)

3,404,327

16,208

(501,133)

(28,670)

(312,334)

(28,670)

(312,334)

(1,280,772) (1,280,772)

Page I of 4

Piedmont Natural Gas CompanySouth Carolina Operations


Docket No. 2016-7-G


LineNo. ~Descri tion

PerPiedmont

PerORS

r. To decrease expenses for Retention Bonuses. OQ3. 98) ~(103,298

Total 0 erations and Maintenance Ex ense $ 1,296,843 $ 1,232,787

To decrease depreciation expense on a going-level basis using the most current depreciationstudy rates.

Total De reciation Ex ense

$ 1,175,491 $ (914,294)

$ 1,175,491 $ (914,294)

General Taxes

a. To increase payrofl tax expense. 90,437 90,437

b, To increase franchise tax (rate of.3'/v) and gross receipts tax (rate of.206421'/v) for the

adjustment made to increase revenues on a going-level basis. 36,530 36,888

Total General Taxes $ 126,967 $ 127,325

State Income Taxes

To adjust state income taxes (rate of 5'/v) to reflect the impact on income for accounting and

pro forms adjustments.

Total State Income Taxes

$ (11,700) $ 95,983

$ (11,700) $ 95,983

Federal Income Taxes

To adjust federal income taxes (rate of 35'/v) to reflect the imPact on income for aocountingand pro forms adjustments.

Total Federal Income Taxes

$ (262,774) $ 453,320

$ (262,774) $ 453,320

Amortization of Debt Redem tion Premium

To adjust net operating income For amortization of debt redemption premium.

Total Amortization of Debt Redem tion Premium

0 $

0 $

Customer Growth

To adjust net operating income to reflect an anticipated increase in customer growth (rate of.76'/v) for the adjustments to operating revenues and expenses.

Total Customer Growth

$ (9,032) $

$ (9,032) $

1,074

1,074

Page 2 of 4



Docket No. 2016-7-G


~Desert tionPer

PiedmontPerORS

C

To increase cash working capital for the pro forms adjustments to operation and maintenanceexpenses (rate of 12.5%). $

Total Cash Workin Cs ital

162 105 $

162,105 $

154,098

154,098

0 eratin Revenues - Sale and Trans ortation of Gas

To increase revenues from the sale and transportation of gas for the proposed marginincrease. ORS has recalculated this ad)ustment utilizing all ORS adjustments to operatingrevenues $ 15,555,221 $ 8,300,000

Total 0 eratin Revenues — Sale and Trans ortation of Gas $ 15,555,221 $ 8,300,000

0 erations and Maintenance Ex enses

To adjust the provision for uncollectible accounts (.33640%) for the proposed marginincrease. $

Total 0 crations snd Maintenance Ex enses

52,328 $

52,328 $

27,921

27,921

General Taxes

To adjust franchise taxes (rate of .3%) and gross receipts tax (rate of .206421%) for theproposed margin increase. $ 78,011 $ 42,033

Total General Taxes $ 78,011 $ 42,033

State Income Taxes

To adjust state income taxes (rate of 5%) lo reflect the impact on income from the proposedmargin increase.

Total State Income Taxes

$ 771,224 $ 411,503

$ 771,224 $ 411,503

Federal Income Taxes

To adjust federal income taxes (rate of 35%) to reflect the impact on income from theproposed margin increase.

Total Federal Income Taxes

$ 5,128,773 $ 2,736,490

$ 5,128,773 $ 2,736,490

Customer Growth

To adjust net operating income to retlect an anticipated increase in customer growth (rate of.76%) for the proposed margin increase. $ 72.389 $ 38,624

Total Customer Growth $ 72,389 $ 38,624

Page 3 of 4


Explanations of Accounting and Pro Forms AdjustmentsFor the Test Year Ended March 31,2016

Docket No. 2016-7-G


Line16(o. ~Descri tion

PerPiedmont

PerORS

17 0 eratin Revenues - Sale and Trans ortation of Gas

To decrease the revenue requirement for the sale and transportation of gas associated withdemand cost over-recovery. $ (644,889) $ (644,922)

Total 0 eratin Revenues - Sale and Trans ortation of Gas $ («.6 )$ ~(6 .6»

18 Cost of Gas

To decrease cost of gas for the demand cost over-recovery using a demand cost allocation

factor of 14.92'/w based upon the most recent design day study.

Total Cost of Gas

$ (639,486) $ (639,486)

$ (639,486) $ (639,486)

19 0 erations and Maintenance Ex enses

To decrease the provision for uncollectible accounts (rate of .33640'/) following the

adjustment for demand cost over-recovery.

Total 0 erations and Maintenance Ex enses

$ (2,169) $ (2,170)

$ (2,169) $ (2,170)

20 General Taxes

To decrease the franchise taxes (rate of .3'/e) and gross receipts tax (rate of .206421'/()) for theadjustment to revenue for demand cost over-recovery. $

Total General Taxes

(6, ) ) $ ~66)(3,234) $ (3,266)

Page 4 of 4

Piedmont Natural Gas CompanySouth Carolina OperationsbVetghted Cost of Capital

For thc Test Year Ended March 31, 2016Docket No. 2016-7-G

Scttlcmcnt Schedule 3

I sssthgtm

I.oas-Tenn ticks

Cmcmon Equity

Total

CapitalStructure

1,438,155,141

1,621,749,414

Ratio

47 00%

53.0/r/

RateBase

115,587,795

130,343,683

245,931,478

4 85%

6 17%

7.28% 5,606.008

3 vvr 8 018 056

5 55'/ 13 644,064

R ulatorr Per BooksIncome

Embedded Overed ForCost/Return Cost/Return Return

RateBase

115,660,22I

130,425,355

246,085,576

ORS As Ad'usted

4 85'/ 2.28%

6.2T/ 3 32/

5 60%

Embedded OveranCost/Return Cost/Return

IncomeFor

ReturnRateBase

5,609.521 115,660,221

8 176,869 130 425 355

13,786,390 246,085,576

After Pro sml Rates

FmbeddedCost/Return

OverallCast/Return

IncomeFor

Return

768/ 18907067

4 SS% 2 28/ 5 609 521

10.20%

SETTLEMENT SCHEDULE 4

PIEDMONT NATURAL GAS COMPANY

The Carolinas

And CorporateDEPRECIATION RATE STUDY

AT OCTOBER 31, 2014

I4ChN$+4%)II4lQ~IE.

http:ltwww.utllltyalliahce.cern


PIEDMONT NATURAL GAS COMPANYDEPRECIATION RATE STUDY

EXECUTIVE SUMMARY

Piedmont Natural Gas Company("Piedmont", "PNG" or "Company" ) engaged

Alliance Consulting Group to conduct a depreciation study of its North and South

Carolina ("The Carolinas") and Corporate depreciable assets as of October 31,

2014.

This study recommends a change to depreciation rates, which would

otherwise result in a decrease of $8.9 million in annual depreciation expense

compared to the annual depreciation expense currently being recorded as of

October 31, 2014. Overall, the primary driver to the change is in Transmission and

Distribution functions. Two of the largest accounts, Account 367 Transmission

Mains and Account 376 Distribution Mains, have an increase in life and an increase

in net salvage (less negative) factors. Combined, these accounts are driving the

decrease in the annual depreciation expense accrual. In addition, depreciation

expense is impacted by the reserve position.

This study reflects Piedmont's continued investment into CNG assets by

segregating into a separate, Account 394.1. This will allow Piedmont to track the

investment and mortality characteristics of these assets. Piedmont has grown its

CNG investment in the public sector. Currently they are building two to three

stations a year with 11 owned and maintained.

The continuation of Vintaged Group Amortization (general plant amortization)

for certain General Plant accounts is also recommended. This process provides for

the efficient and timely recording of retirements for the General Plant function, is

expected to continue and is reflected in this study.

Appendix A provides the comparison between existing and proposed annual

depreciation expense accruals by account and function. Appendix B provides the

depreciation rate calculations. Appendix C provides a comparison between the

existing and study recommended depreciation parameters. Appendix D provides

the net salvage analysis.


PIEDMONT NATURAL GAS COMPANY

NATURAL GAS OPERATIONS

DEPRECIATION RATE STUDY

AT OCTOBER 31, 2014

Table of Contents

PURPOSESTUDY RESULTS.RECOMMENDATIONS ..

GENERAL DISCUSSION.Definition .

Basis of Depreciation Estimates .

Survivor Curves .

Actuarial Analysis.Judgment.Average Life Group Depreciation ..

Theoretical Depreciation Reserve.DETAILED DISCUSSION

Depreciation Study Process .

Depreciation Rate Calculation .

Remaining Life Calculation.Life Analysis ..

Salvage Analysis..Appendix A — Comparison of Depreciation Rates.Appendix B — Computation of Depreciation Accrual Rate ...Appendix C — Comparison of Mortality Characteristics........Appendix D — Net Salvage .

.1234

.4

.45

.7

.89

.10

.11

.11

.14

.1415

.50

.63....66....69

.72


PURPOSE

The purpose of this study is to develop depreciation rates for the depreciable

property for The Carolinas and Corporate as recorded on PNG's books at October

31, 2014. The account based depreciation rates were designed to recover the total

remaining undepreciated investment, adjusted for net salvage, over the remaining

life of PNG's property on a straight-line basis. Non-depreciable property and

property which is amortized such as intangibles were excluded from this study.

Piedmont is an energy service company primarily engaged in the distribution of

natural gas to more than 1 million residential and business customers in North

Carolina, South Carolina and Tennessee. Piedmont serves over 800 thousand

customers in The Carolinas and has been in operation for more than 50 years.

Piedmont owns and operates a complex system of high and intermediate

pressure transmission, liquefied natural gas storage, and intermediate and low

pressure distribution networks located across the service area. There are a number

of receipt points or city gates, throughout the system where gas is delivered by the

transmission system. Once gas is metered through these city gates, the pressure is

reduced through regulators in order to meet system requirements as determined by

pressure and volume needs.


STUDY RESULTS

Overall depreciation rates for all PNG depreciable property are shown in

Appendix A. These rates translate into an annual depreciation expense accrual of

$99.7 million based on PNG's depreciable investment at October 31, 2014. The

annual depreciation expense calculated by using the approved functional rates is

$108.6 million. Appendix A presents a comparison of approved rates versus

proposed rates by account. Appendix B demonstrates the development of the

annual depreciation rates and accruals. Appendix C presents a summary of

mortality and net salvage estimates by account. Appendix D presents the net

salvage analysis by account.

In this study, CNG assets have been segregated to track the investment of

these assets and its mortality characteristics. CNG investment is in the public sector

and expects to expand to the private sector in the near future. Currently Piedmont

owns and maintains 11 stations across its jurisdictions.

Consistent with the prior study, this depreciation study reflects depreciation

expense for Vintaged Group Amortization in Accounts 391 through 398, excluding

391.1, 391.3, 391.4, 392.00-392.04, 394.1, and 396. This process provides for the

amortization of general plant over the same life as recommended in this study (with

a separate amortization to allocate deficit or excess reserve). At the end of the

amortized life, property will be retired from the books.

While the study made adjustments, upward and downward, to the average

service life for most accounts, it is the combined change in average service life and

cost of removal when compared to the existing that is driving largest portion of the

decrease. Two of the largest accounts, Account 367 Transmission Mains and

Account 376 Distribution Mains, increased life by 10 years and show a decrease in

negative net salvage factors (less negative), which are the primary drivers of the

decrease in the annual depreciation expense accrual.


RECONIMENDATIONS

In addition to the results described above and in the remainder of this report,

we have the following recommendations in regard to book depreciation for

Piedmont Natural Gas as it pertains to The Carolinas and Corporate assets.

1. We recommend adoption of the annual depreciation rates shown on

Appendix A for each property group.

2. Due to the reserve position and the continued accrual of depreciation

for certain accounts, our study reflects the reallocation of the book

reserve between accounts within each function and entity (North

Carolina, South Carolina, and Corporate). These reallocated book

reserves should be adopted by PNG and reflected in PNG's

accounting system. We recommend PNG cease depreciation accruals

when an account becomes fully accrued and resume when new

additions are recorded to the account.

3. Due to changes in the mix and charactedistics of assets and net

salvage experience over time, we recommend an update to the

depreciation study be made at least every five years.

We have recognized and recommend the continued use of Vintage

Amortization Accounting for certain accounts of the General Plant

function.


Definition

GENERAL DISCUSSION

The term "depreciation" as used in this study is considered in the accounting

sense, that is, a system of accounting that distributes the cost of assets, less net

salvage (if any), over the estimated useful life of the assets in a systematic and

rational manner. It is a process of allocation, not valuation. This expense is

systematically allocated to accounting periods over the life of the properties. The

amount allocated to any one accounting period does not necessarily represent the

loss or decrease in value that will occur during that particular period. The Company

accrues depreciation on the basis of the original cost of all depreciable property

included in each functional property group. On retirement the full cost of

depreciable property, less the net salvage value, is charged to the depreciation

reserve.

Basis of De reciation Estimates

The straight-line, broad (average) life group, remaining-life depreciation

system was employed to calculate annual and accrued depreciation in this study. In

this system, the annual depreciation expense for each group is computed by dividing

the original cost of the asset less allocated depreciation reserve less estimated net

salvage by its respective average life group remaining life. The resulting annual

accrual amounts of all depreciable property within a function were accumulated, and

the total was divided by the original cost of all functional depreciable property to

determine the depreciation rate. The calculated remaining lives and annual

depreciation accrual rates were based on attained ages of plant in service and the

estimated service life and salvage characteristics of each depreciable group. The

computations of the annual functional depreciation rates are shown in Appendix A

and remaining life calculations are shown in Appendix B.

Actuarial analysis was used with each account within a function where

sufficient data was available, and judgment was used to some degree on all

accounts.


Survivor Curves

To fully understand depreciation projections in a regulated utility setting, there

must be a basic understanding of survivor curves. Individual property units within a

group do not normally have identical lives or investment amounts. The average life

of a group can be determined by first constructing a survivor curve which is plotted

as a percentage of the units surviving at each age. A survivor curve represents the

percentage of property remaining in service at various age intervals. The iowa

Curves are the result of an extensive investigation of life characteristics of physical

property made at iowa State College Engineering Experiment Station in the first half

of the prior century. Through common usage, revalidation and regulatory

acceptance, these curves have become a descriptive standard for the life

characteristics of industrial property. An example of an iowa Curve is shown below.

There are four families in the iowa Curves that are distinguished by the relation

of the age at the retirement mode (largest annual retirement frequency) and the


average life. For distributions with the mode age greater than the average life, an"R" designation (i.e., Right modal) is used. The family of

"R" moded curves is shown

below.

Similarly, an "S" designation (i.e., Symmetric modal) is used for the family

whose mode age is symmetric about the average life. An "L" designation (i.e., Left

modal) is used for the family whose mode age is less than the average life. A

special case of left modal dispersion is the "0" or origin modal curve family. Within

each curve family, numerical designations are used to describe the relative

magnitude of the retirement frequencies at the mode. A "6" indicates that the

retirements are not greatly dispersed from the mode (i.e., high mode frequency)

while a "1" indicates a large dispersion about the mode (i.e., low mode frequency).

For example, a curve with an average life of 30 years and an "L3" dispersion is a

moderately dispersed, left modal curve that can be designated as a 30 L3 Curve.


An SQ, or square, survivor curve occurs where no dispersion is present (i.e., units of

common age retire simultaneously).

Most property groups can be closely fitted to one iowa Curve with a unique

average service life. The blending of judgment concerning current conditions and

future trends along with the matching of historical data permits the depreciation

analyst to make an informed selection of an account's average life and retirement

dispersion pattern.

Actuarial Anal sis

Actuarial analysis (retirement rate method) was used in evaluating historical

asset retirement experience where vintage data were available and sufficient

retirement activity was present. In actuarial analysis, interval exposures (total

property subject to retirement at the beginning of the age interval, regardless of

vintage) and age interval retirements are calculated. The complement of the ratio of

interval retirements to interval exposures establishes a survivor ratio. The survivor

ratio is the fraction of property surviving to the end of the selected age interval, given

that it has survived to the beginning of that age interval. Survivor ratios for all of the

available age intervals were chained by successive multiplications to establish a

series of survivor factors, collectively known as an observed life table. The

observed life table shows the experienced mortality characteristic of the account and

may be compared to standard mortality curves such as the iowa Curves. Where

data was available, accounts were analyzed using this method. Placement bands

were used to illustrate the composite history over a specific era, and experience

bands were used to focus on retirement history for all vintages during a set period.

The results from these analyses for those accounts which had data sufficient to be

analyzed using this method are shown in the Life Analysis section of this report.


~Jdd e t

Any depreciation study requires informed judgment by the analyst conducting

the study. A knowledge of the property being studied, company policies and

procedures, general trends in technology and industry practice, and a sound basis of

understanding depreciation theory are needed to apply this informed judgment.

Judgment was used in areas such as survivor curve modeling and selection,

depreciation method selection, simulated plant record method analysis, and

actuadial analysis.

Judgment is not defined as being used in cases where there are specific,

significant pieces of information that influence the choice of a life or curve. Those

cases would simply be a reflection of specific facts into the analysis. Where there

are multiple factors, activities, actions, property characteristics, statistical

inconsistencies, implications of applying certain curves, property mix in accounts or

a multitude of other considerations that impact the analysis (potentially in various

directions), judgment is used to take all of these factors and synthesize them into a

general direction or understanding of the characteristics of the property. Individually,

no one factor in these cases may have a substantial impact on the analysis, but

overall, may shed light on the utilization and characteristics of assets. Judgment

may also be defined as deduction, inference, wisdom, common sense, or the ability

to make sensible decisions. There is no single correct result from statistical

analysis; hence, there is no answer absent judgment. At the very least for example,

any analysis requires choosing which bands to place more emphasis.

The establishment of appropriate average service lives and retirement

dispersions for the Production, Storage, Transmission, Distribution and General

accounts requires judgment to incorporate the understanding of the operation of the

system with the available accounting information analyzed using the Retirement

Rate actuarial methods. The appropriateness of lives and curves depends not only

on statistical analyses, but also on how well future retirement patterns will match

past retirements.


Current applications and trends in use of the equipment also need to be

factored into life and survivor curve choices in order for appropriate mortality

characteristics to be chosen.

Avera eLifeGrou De reciationPNG's existing rates use the average life group ("ALG") depreciation

procedure. Consistent with the currently approved depreciation rates, this study

continues to use the average life group (ALG) depreciation procedure to group the

assets within each account. After an average service life and dispersion were

selected for each account, those parameters were used to estimate what portion of

the surviving investment of each vintage was expected to retire. The depreciation of

the group continues until all investment in the vintage group is retired. ALG groups

are defined by their respective account dispersion, life, and salvage estimates. A

straight-line rate for each ALG group is calculated by computing a composite

remaining life for each group across all vintages within the group, dividing the

remaining investment to be recovered by the remaining life to find the annual

depreciation expense and dividing the annual depreciation expense by the surviving

investment. The resultant rate for each ALG group is designed to recover all

retirements less net salvage when the last unit retires. The ALG procedure recovers

net book cost over the life of each account by averaging many components.


Theoretical De reciation Reserve

The book depreciation reserve was derived from Company records where the

provision for depreciation is applied at an account level. As a point of comparison, a

theoretical depreciation reserve model was computed for each account and the

existing functional book reserve was allocated based on the computed theoretical

depreciation reserve to each account within that function. This study used a reserve

model that relied on a prospective concept relating future retirement and accrual

patterns for property, given current life and salvage estimates. The theoretical

reserve of a group is developed from the estimated remaining life, total life of the

property group, and estimated net salvage. The theoretical reserve represents the

portion of the group cost that would have been accrued if current forecasts were

used throughout the life of the group for future depreciation accruals. The

computation involves multiplying the vintage balances within the group by the

theoretical reserve ratio for each vintage. The average life group method requires

an estimate of dispersion and service life to establish how much of each vintage is

expected to be retired in each year until all property within the group is retired.

Estimated average service lives and dispersion determine the amount within

each average life group. The straight-line remaining-life theoretical reserve ratio at

any given age (RR) is calculated as:

RR = 1- (Average Remaining Life)*pl- Net SaivageRatio(Average Service Life)

10


De reciation Stud Process

DETAILED DISCUSSION

This depreciation study encompassed four distinct phases. The first phase

involved data collection and field interviews. The second phase was where the

initial data analysis occurred. The third phase was where the information and

analysis was evaluated. Once the first three stages were complete, the fourth

phase began. This phase involved the calculation of deprecation rates and the

documenting the corresponding recommendations.

During the Phase I data collection process, historical data was compiled from

continuing property records and general ledger systems. Data was validated for

accuracy by extracting and comparing to multiple financial system sources. Audit of

this data was validated against historical data from prior periods, historical general

ledger sources, and field personnel discussions. This data was reviewed

extensively to put in the proper format for a depreciation study. Further discussion

on data review and adjustment is found in the Salvage Considerations Section of

this study. Also as part of the Phase I data collection process, numerous

discussions were conducted with engineers and field operations personnel to obtain

information that would assist in formulating life and salvage recommendations in this

study. One of the most important elements of performing a proper depreciation

study is to understand how the Company utilizes assets and the environment of

those assets. Interviews with engineering and operations personnel are important

ways to allow the analyst to obtain information that is beneficial when evaluating the

output from the life and net salvage programs in relation to the Company's actual

asset utilization and environment. Information that was gleaned in these

discussions is found both in the Detailed Discussion of this study in the life analysis

and salvage analysis sections and also in workpapers.

11


Phase 2 is where the actuarial analysis is performed. Phase 2 and 3 overlap

to a significant degree. The detailed property records information is used in phase 2

to develop observed life tables for life analysis. These tables are visually compared

to industry standard tables to determine historical life characteristics. It is possible

that the analyst would cycle back to this phase based on the evaluation process

performed in phase 3. Net salvage analysis consists of compiling historical salvage

and removal data by functional group to determine values and trends in gross

salvage and removal cost. This information was then carried forward into phase 3

for the evaluation process.

Phase 3 is the evaluation process which synthesizes analysis, interviews, and

operational characteristics into a final selection of asset lives and net salvage

parameters. The historical analysis from phase 2 is further enhanced by the

incorporation of recent or future changes in the characteristics or operations of

assets that were revealed in phase 1. Phases 2 and 3 allow the depreciation

analyst to validate the asset characteristics as seen in the accounting transactions

with actual Company operational experience.

Finally, Phase 4 involved the calculation of accrual rates, making

recommendations and documenting the conclusions in a final report. The

calculation of accrual rates is found in Appendix B. Recommendations for the

various accounts are contained within the Detailed Discussion of this report. The

depreciation study flow diagram shown as Figure 1" documents the steps used in

conducting this study. De reciation S stems, page 289 documents the same basic

processes in performing a depreciation study which are: Statistical analysis,

evaluation of statistical analysis, discussions with management, forecast

assumptions, wdite logic supporting forecasts and estimation, and write final report.

'Introduction to Depreciation for Public Utilities 8 Other Industries, AGA EEI 2013'epreciation Systems, by W. C. Fitch and F.K.Wolf, lowe State Press, 1994, page 289.

12


Book Depreciation Study Flow Diagram

Data Collection Analysis'valuation Calculation

scufcc tccasuacu oktcccucuc fcc

tauu Odacc culnde tcdaurica AOA

Eat.?011.

'Auucaa auuuatcda accus du~uudfcuauf aeluuatud cfufal fcau eau~'~tac~,uOuuuccmu mf~Ia cadapuaaw 0 ducuudu ca uuhc'u)

Figure 1

PNG DEPRECIA TION S TUDY PROCESS


De reciation Rate Calculation

Annual depreciation expense amounts for the depreciable accounts of PNG

were calculated by the straight line method, average life group procedure, and

remaining-life technique. With this approach, remaining lives were calculated

according to standard ALG group expectancy techniques, using the iowa Survivor

Curves noted in the calculation. For each plant account, the difference between the

surviving investment, adjusted for estimated net salvage, and the allocated book

depreciation reserve, was divided by the average remaining life to yield the annual

depreciation expense.

Remainin Life Calculation

The establishment of appropriate average service lives and retirement

dispersions for each account within a functional group was based on engineering

judgment that incorporated available accounting information analyzed using the

Retirement Rate actuarial methods. After establishment of appropriate average

service lives and retirement dispersion, remaining life was computed for each

account. Theoretical depreciation reserve with zero net salvage was calculated

using theoretical reserve ratios as defined in the theoretical reserve portion of the

General Discussion section. The difference between plant balance and theoretical

reserve was then spread over the ALG depreciation accruals. Remaining life

computations are found for each account in work papers.

14


~Lif A t sos

The retirement rate actuarial analysis method was applied to all accounts for

PNG. For each account, an actuarial retirement rate analysis was made with

placement and experience bands of varying width. The historical observed life table

was plotted and compared with various iowa Survivor Curves to obtain the most

appropriate match. A selected curve for each account is shown in the Life Analysis

Section of this report. The observed life tables for all analyzed placement and

expedience bands are provided in workpapers.

For each account the overall band (i.e. placement from earliest vintage year

which varied for each account through 2014) is used as a starting point. Then, after

looking at the overall experience band, different experience bands were plotted and

analyzed: in increments of ten or five years, for instance 2000-2014, 1995-2014,

1975-2014, etc. Repeated matching usually pointed to a focus on one dispersion

family and small range of service lives. Then using the same average life, various

dispersion curves were plotted. Frequently, visual matching would confirm one

specific dispersion pattern (i.e. L, S. or R) as an obviously better match than others.

The next step would be to determine the most appropriate life using that dispersion

pattern. The goal of visual matching was to minimize the differential between the

observed life table and iowa curve in top and mid range of the plots. These results

are used in conjunction with all other factors that may influence asset lives.

15


ACCOUNT SPECIFIC LIFE ANALYSIS RESULTS

LNG Stora e Plant

Account 361.00 Structures and Improvements (50 R4)

This account consists primarily of buildings. There is approximately $29.3

million in this account. The approved life for this account is 38 years with the S5

dispersion. Since the last study $24.1 million of net investment has been added to

this account and a major upgrade at the LNG facilities as a whole. The additional

investment and limited actuarial analysis on this account supports a longer life and

flatter dispersion pattern across most of th'e bands analyzed. Based on the limited

indications from the actuarial analysis, recent activity, type of assets, and judgment,

this study recommends moving to the 50 R4 dispersion pattern. The proposed

curve and observed life table for this account are shown below.

16


Account 362.00 Gas Holders (55 R5)

This account consists of gas holders. There is approximately $ 10.7 million in

this account. The approved life for this account is 38 years with the S5 dispersion.

The major upgrades at the LNG facilities support a longer life for the LNG plants.

The limited actuarial analysis on this account indicates a longer life dispersion

pattern across most of the bands analyzed. Based on the limited indications from

the actuarial analysis, recent activity, type of assets, and judgment, this study

recommends moving to the 55 R5 dispersion pattern. The proposed curve and

observed life table for this account are shown below.

17


Account 363.00 Purification Equipment (40 R4)

This account consists of miscellaneous purification equipment. There is

approximately $14.8 million in this account. The approved life for this account is 38

years with the S5 dispersion. Since the last study $12.4 million of net investment

has been added to this account and a major upgrade at the LNG facilities as a

whole. Discussions with Company Subject Matter Experts ("SME") indicated they

expect a life around 30 years, with exception of the molecular sieve (10 years). The

average age of retirements is 31 years. The additional investment activity and the

analysis support a slightly longer life. Based on the indications from the actuarial

analysis, recent activity, type of assets, and judgment, this study recommends

moving to the 40 R4 dispersion pattern. The proposed curve and observed life table

for this account are shown below.

18


Account 363.10 Liquefaction Equipment (50 R4)

This account consists of miscellaneous liquefaction equipment. There is


years with the S5 dispersion. Since the last study $5.1 million of net investment has

been added to this account and a major upgrade at the LNG facilities as a whole.

Discussions with Company SME indicated the tanks are original and would expect

them to last 60-70 years. The Company hopes to replace the liquefaction system

within the next 5 years. Retirements have only been recorded in 2014, so no

analysis was performed. Based on the recent activity, type of assets, discussions

with Company personnel, and judgment, this study recommends moving to the 50

R4 dispersion pattern. The proposed curve and observed life table for this account

are shown below.

19


Account 363.20 Vaporizing Equipment (21 S6)

This account consists of miscellaneous vaporizing equipment. There is


years with the S5 dispersion. Since the last study $27.8 million of net investment

has been added to this account and a major upgrade at the LNG facilities as a

whole. Discussions with Company SME indicated they upgraded the vaporization

system for each of the 3 plants and it was the largest project for this area in recent

years. Heat exchangers were original, and they are no longer made, so direct fired

equipment was changed to indirect fired. The Company retired and removed all

assets related to the process and replacing with new technology. The average age

of retirements had been about 34 years. However, the new assets have new

technology with different life expectations than in the past. Company SME expects

a 20 year life. Based on recent activity, type of assets, Company expectations, and

judgment, this study recommends moving to the 21 S6 dispersion pattern. The

proposed curve and observed life table for this account are shown below.

20


Account 363.30 Compressor Equipment (40 R4)

This account consists of miscellaneous compressor equipment. There is

approximately $5 million in this account. The approved life for this account is 38

years with the S5 dispersion. Discussions with Company SME indicated the boil off

and refrigerant compressors could be rebuilt as long as parts are available or until

catastrophic failure occurs. Expectations are around 40 years, which is definitely

upper end of the life range and possibly a little long. The average age of surviving

assets is approximately 20 years, while the average age of retirements is around 19

years. Only two recent retirements are recorded, with the most recent being in

2014. The limited actuarial analysis on this account indicates a life close to the

existing as well as Company's longest life expectation. Based on, recent activity,

type of assets, Company input, and judgment, as well as the very limited indications

from the actuarial analysis, this study recommends moving to the 40 R4 dispersion

pattern. The proposed curve and observed life table for this account are shown

below.

21


Account 363.40 Measuring & Regulating Equipment (30 R4)

This account consists of miscellaneous measuring and regulating equipment.

There is approximately $275 thousand in this account. The approved life for this

account is 38 years with the S5 dispersion. First retirements recorded in 2014 and

have an average age of 34 years. Discussions with Company SME indicated assets

have lives ranging from 10 years for electronic transmitters, 20 years for control

valves and 30 years for the stations. As shown below, the life analysis was not

useful in definitely selecting a life for this account. Based on the limited retirement

data, recent activity, type of assets, Company input, and judgment, this study

recommends moving to the 30 R4 dispersion pattern. The proposed curve and


22


Account 363.50 Other Equipment (33 R4)

This account consists of other equipment. There is approximately $ 12.3

million in this account. The approved life for this account is 35 years with the S5

dispersion. Since the last study $8.6 million of net investment has been added to

this account and a major upgrade at the LNG facilities as a whole. The average ageof retirements is around 22 years. The fuller bands indicate a life around 30-35

years, but the more recent bands have a much shorter life indication. Based on the

limited indications from the actuarial analysis, recent activity, type of assets, and

judgment, this study recommends moving to the 33 R4 dispersion pattern. The


23


Transmission Plant

Account 365.12 Land Rights (75 R4)

This account includes of land rights used in connection with transmission

operations and assets. There is approximately $91.4 million in this account. The

approved life for this account is 70 years with the R4 dispersion. There have been

no retirements recorded and few expected. These land rights are generally used in

conjunction with the installation of mains so a reasonable expectation is the life

would equal or exceed the life of mains. As shown below, the life analysis was not

useful in definitely selecting a life for this account. Based on the life of Account 367,

Mains, this study recommends increasing the existing life of 70 years to 75 years

and retaining the R4 dispersion. The proposed curve and observed life table for this

account are shown below.

24


Account 367.00 Transmission Mains (70 R4)

This account includes mains of all sizes, fittings, miscellaneous piping, and

cathodic protection equipment. There are both coated steel and plastic mains.

There is approximately $1.2 billion in this account. The approved life for this

account is a 60 R4. Discussions with Company SME indicated there are more than

2,900 miles of transmission mains and would expect the life to be in the range of 60-

70 years. Updated Rules from PHMSA are pending and the impact to PNG's

system is still uncertain. The Company has a Transmission Integrity Management

Program ("TIMP") in place and has been addressing issues as they are identified.

Recent program work replaced 120 miles of 3 inch pipe. The average age of

survivors is young (6.48 years) for this type of asset but is driven by the recent net

investment, which increased by $841.9 million since the last study in 2009. Based

on the increase in investment, the limited analysis, type of assets, and Company

plans and expectations, this study proposes increasing the life to 70 years with the

R4 curve. The proposed curve and observed life table for this account are shown

below.

25


Account 367.10 Transmission Cathodic Protection

The existing balance of approximately $55.8 million has been transferred to

Account 36700 Mains. New functionality within the Company's property accounting

system allows for these assets to be tracked without segregation.

Account 368.00 Compressor Station Equipment (35 R4)

This account includes cost of transmission compressor station equipment

such as boiler plant, compressed air equipment, electric power system equipment,

fire-fighting equipment and gas lines and equipment. The account balance is

approximately $164 million. The approved life is a 35 R4. Net investment in assets

since the 2009 study is approximately $105.6 million. Discussions with Company

SME indicated the compressors are engine based, run more frequently than LNG

and are heavy in electronics. The life analysis reflects the retirement and

replacement of several stations and one at a younger age than expected for the

remaining assets. Based on the analysis, recent investment, and future

expectations, this study proposes retaining the existing 35 R4 dispersion. The


26


Account 369.00 M&R Station Equipment (46 R4)

This account includes measuring equipment, gauges, piping and valves

associated with the transmission system. There is approximately $66.4 million in this

account. The approved life for this account is a 45 R2. The majority of the account

has been added since 2000 so the account has a young average age of survivors of

10.51 years. Average age of retirements indicates about 9.07 years, which is also

young based on average service life expectations. Discussions with Company SME

indicated most stations have SCADA equipment. Furthermore it was indicated that

all the components, except the pipe, valve and fittings, will be replaced by 45 years.

The account is young in age, there have been limited retirements recorded, limiting

the value of curve fitting. Based on discussions with Company SME, type of assets

and judgment, this study recommends retention of the 45 years with a change to the

steeper R4 curve. The proposed curve and observed life table for this account are

shown below.


Distribution Plant

The Distribution system of PNG has been experiencing infrastructure

replacements but work has been substantially completed. The company will

continue to address system needs and regulatory compliance as required in the

future.

Account 374.20 Land Rights - Distribution (75 R4)

This account includes the cost of land rights used in connection with

distribution operations. There is approximately $7.7 million in this account. The

approved life for this account is 65 R4. Similar to other accounts, there has been

significant investment of $3.6 million since the 2009 study. There have been no

retirements recorded and few expected in the near future. Since there are no

retirements, no life analysis was performed. Consistent with the prior studies, the

life of land rights is linked to the assets that are installed, which is primarily mains.

The expectation is that the life will be at least that of mains, but generally will

exceed. Based on the increase in life in Account 376, Mains, this study

recommends increasing the life by 10 years but retain the R4 dispersion pattern.

No graph is provided.

28


Account 375.00 Structures and Improvements (50 R4)

This account includes buildings. There is approximately $1.4 million in this

account. The approved life for this account is 45 years with the R3 dispersion. No

retirements have occurred in recent years. The limited life analysis was

inconclusive. Current average age of investment is 27 years. The few retirements

that have occurred in the past had an average age of 26.49 years. No retirements

have been recorded since 1987. Based on the type of assets in the account, the

average age and judgment, this study proposes moving to a 50 R4 dispersion. The


29


Account 376.00 Distribution Mains — All (65 R4)

This account consists of all sizes of distribution mains as well as

miscellaneous fitting, equipment, miscellaneous piping, and cathodic protection.

The system has both coated steel and plastic mains. There is approximately $1

billion of investment in this account. The approved curve for this account is the 55

R4. There has been significant investment ($157.2 million net) in this account since

the 2009 study. The Company has been replacing older pipe and has formalized an

inspection program. It is in the second year of a five year program to replace Adyl-A

pipe but the majority (80%) is medium density plastic in the Carolinas. Average age

of investment is about 18 years. The limited life analysis indicates the life is

increasing. Based on the direction seen in the limited analysis, discussions with

Company SME, type of assets, and judgment this study recommends moving the life

to 65 years while retaining the R4 dispersion pattern. The proposed curve and


30


Account 378.00 Measuring & Regulating Station Equipment-Gen (47 R2)

This account consists primarily of buildings, meter sets, filter/strainers,

miscellaneous equipment, regulators, relief valves, station fittings and equipment.

There is approximately $27.8 million of investment in this account. The approved

curve for this account is the 42 L2. There has been $13.9 million in investment

since the 2009 study and no retirements recorded. The indications in the analysis

suggest a longer life. These indications are consistent across the bands analyzed

and range from 45-50 years. Based on Company discussions various components

are replaced at shorter intervals than current life indications. Tap stations are

replaced a few at a time. Based on the life analysis, information from Company

SME, and type of assets, this study recommends increasing the life to 47 years and

changing to the R2 dispersion pattern. The proposed curve and observed life table

for this account are shown below.

31

SETTLEMENTSCHEDULE4

Account 379.00 Measuring 8 Regulating Station Equip. - City Gate (50 R2.5)

This account consists primarily of buildings, electronic correctors, meter sets,

station fittings and equipment. There is approximately $39.4 million of investment in

this account. There has been over $11.6 million in net investment added since the

2009 study. The approved curve is the 47 R2. Average age of retirements is about

23 years and average age of survivors is 11 years. The life analysis indications are

consistent across the bands analyzed. Majority of the fits are 47-50 years.

Discussions with Company SME indicated Account 378 and 379 are similar and

would expect city gate assets to have a life at least as long or maybe slightly longer

life than district regulator stations. Based on the analysis, type of assets and

expectations we recommend increasing the life slightly to 50 years and changing to

the R2.5 curve. The proposed curve and observed life table for this account are

shown below.

32


Account 380.00 Services (60 R2.5)

This account consists of steel and plastic services. There is approximately

$675 million of investment in this account. The approved curve for this account is

the 55 R3. Discussions with Company SME indicated most services are plastic and

when replacing a steel main with plastic, they would replace the steel service with

plastic at the same time. Company has a program to remove services from

abandon facilities. The limited actuarial analysis on this account supports a longer

life and flatter dispersion pattern across most of the bands analyzed. Based on the

limited indications from the actuarial analysis, recent activity, type of assets,

Company input, and judgment, this study recommends moving to the 60 R2.5

dispersion pattern. The proposed curve and observed life table for this account are

shown below.

33


Account 381.00 Meters (28 R2.5)

This account includes the cost of meters. There is approximately $97.8

million of investment in this account. The approved life is 30 years with the R2

dispersion. PNG had identified meters retired in 2009 that should have been retired

in prior years and an adjustment was made to correct the transaction year.

Currently, if a meter comes into the shop and is 20 years old or older, it will be

retired. ERT's are installed by the vendor before meter is placed into service. If the

meter is being replaced, the ERT will also be replaced. The current average age of

the investment is 18 years. The average age of retirements is 24.67. The life

analysis indications in the full bands show a longer life. The mid and recent bands

indicate a shorter life, which is more indicative of the policy, process, and

expectations of the newer meters. Based on life analysis results and discussion with

Company SME, this study recommends moving the life of this account to 28 years

and moving to the R2.5 dispersion pattern. The proposed curve and observed life

table for this account are shown below.

34


Account 381.10 Meter Accessories (28 R2.5)

This account includes meter accessories. There is approximately $4.8 million

of investment in this account. The approved life is 30 years with the R2 dispersion.

Full bands indicate a life around 30 years, while the more recent bands have better

fits around 10 years. Based on discussions with Company SME they implemented a

process in 2010 that will retire the assets in this account at the time a meter

(Account 381.00) is retired. This study recommends moving the life to be consistent

with 381, which is a 28 R2.5. The proposed curve and observed life table for this


35


Account 381.20 Meter Accessories ERTS (15 R4)

This account includes the cost of automatic meter reading equipment. There

is approximately $47.9 million of investment in this account. The approved life is 15

years with the R4 dispersion. Technologically, this equipment is very different than

the older designs. Discussion with Company SME indicated ERTS were a pilot

program in 1998 with an official program started in 2005. The Company has already

started to replace some ERTS from the 1998-2000 timeframe. Current information

suggests ERTS could achieve a life as long as or perhaps slightly longer than the

original expected 15 years. ERTS are installed on meters by the vendor. If a meter

is being replaced, the Company will replace ERT at same time, but will not replace a

meter if ERT is replaced. However, the limited life analysis in the study would

suggest a life around 15 years. Based on information from manufacturers,

discussions with Company SME, the limited life analysis, and knowledge of this type

of equipment, this study recommends retention of the 15 R4 dispersion curve at this

time. The proposed curve and observed life table for this account are shown below.

36


Account 382.00 Meter Installations (28 R2.5)

This account includes the cost of installation of meters. There is

approximately $32.5 million of investment in this account. The approved life is 30

years with the R2 dispersion. Discussions with Company SME indicated they have

implemented a process in 2010 that will retire a meter installation at the same time a

meter (Account 381) is retired. The life analysis indicates a much lower life. Due to

the new process, this study recommends maintaining the link with the meter account

and moving to the 28 R2.5. The proposed curve and observed life table for this


37


Account 383.00 House Regulators (28 R2.5)

This account includes the cost of house regulators. There is approximately

$ 14.1 million of investment in this account. The approved life is 30 R2. Based on

discussions with Company SME they have implemented a process in 2010 that will

retire a house regulator at the same time a meter (Account 381) is retired. The life

analysis indications are longer and flatter dispersion pattern on fuller bands and the

more recent bands show lower life with the same flatter dispersion. Based on the

analysis, discussions with Company SME, the type of assets, and the new process

and policy in place, this study recommends linking the life to the meter account and

moving to the 28 R2.5. The proposed curve and observed life table for this account

are shown below.

38


Account 384.00 House Regulator Installations (28 R2.5)

This account includes the cost of installing house regulating equipment. The

current balance is approximately $26 thousand. The approved life is a 30 R2.

Investment is new, coming from vintages 2001 and greater, with limited retirement

data no life analysis was performed. Based on discussions with Company SME they

have implemented a process in 2010 that will retire a house regulator installation at

the same time a meter (Account 381) is retired. Based on the discussions with

Company SME, the type of assets, and the new process and policy in place, this

study recommends maintaining the link to the life of the meter account and moving

to the 28 R2.5. No graph is provided.

39


Account 385.00 Industrial Measuring 8 Regulator Station Equipment (50 R4)

This account includes electronic corrector, fences, filter/strainer, meter

installation, meter sets, regulators, relief valves, electronic pressure recorders,

valves, station fillings and equipment. The current balance is $44 million. The

approved life is 45 R2. The limited life indications are too long for the type of assets.

This study recommends a slight change to 50 R4. The proposed curve and


40


Account 386.00 Other Property at Customer Premises (40 R3)

This account includes the cost of other property on customer premises. The

current balance is $743 thousand. The approved life is 40 years with the R3

dispersion. The average age of retirements is 30 years and survivors are about 38

years. Only a few retirements have been recorded in the past. The limited life

analysis indicates a life much longer than would be expected for type of assets.

Based on type of assets and judgment, this study recommends retention of the

existing life and curve, 40 R3. A graph reflective of the proposed study

recommendation and the observed life table is shown below.

41


Account 387.00 Other Equipment (38 86)

This account includes the cost of equipment used in conjunction with

providing distribution service. The current balance is about $44 thousand. The

approved life is a 35 R3. The average age of retirements is 39 years and average

age of survivors is about 12 years. The limited life analysis suggests a longer life

than the existing 35 years. However, based on the indications in the limited

analysis, type of equipment, and judgment, we are limiting the life increase with a

recommendation of a 38 S6. The proposed curve and observed life table for this


42


General Plant - De reciated

Account 390.00 Structures & Improvements (41 R3)

This account includes AC heating, buildings, elevator, crane, hoist system,

structures & improvements, plumbing system, roof, security system, roads and

parking areas. Currently, there is about $66.5 million in this account. The approved

life for this account is 41 R3 based on the Company's prior study. The analysis

indicates a shorter life due to more recent retirements recorded, but based on the

analysis and type of surviving assets this study proposes retaining the existing 41

R3 at this time. The proposed curve and observed life table for this account are

shown below.

43


Account 391.10 Computer Hardware & Software Equipment (18 S2.5)

This account consists of computer hardware and software used for various

general company operations. There is approximately $16.5 million in this account.

The approved curve for this account is 17 S6. The current study analysis and

discussions with Company SME indicated that assets are being kept longer than

originally anticipated. Company intends to inventory and segregate assets in the

future, but for now the average age of investment is approaching 10 years and the

average of retirements is 14 years. Without specific plans and time frame for the

segregation, this study recommends increasing the life to 18 years with the S2.5

curve to reflect the current full band indications. The proposed curve and observed

life table for this account are shown below.

44


Account 391.30 Customer Information Systems (25 R5)

This account consists of software associated with the customer information

system. The approved curve for this account is the 20 R5. There is approximately

$ 17.1 million in this account. The system has been held longer than anticipated and

is currently being evaluated for replacement. However, no replacement is

anticipated in the near term so we moved the life to 25 years but retained the R5

curve based on information provided by the Company. No analysis was performed

so no graph is provided.

Account 391.40 Client Server Applications (10 R5)

This account consists of client server applications and related assets used in

performing various general company operations. There is approximately

$ 115.1million in this account. The approved curve for this account is the 10 R5.

The investment in this account has increased $58.6 million since the 2009 study.

The analysis supports retention of the existing 10 R5. The proposed curve and


45


Account 392.00 Transportation — 3 Year Meter Reading Trucks (3 SQ)

This account consists of a meter reading service trucks used in performing

various general company operations. There is approximately $4.9 million in this

account. The Company has decided to segregate its transportation equipment into

five distinct life classes for this study. Based on discussions with Company fleet

personnel, they expect these assets to have about a three year life. The accounts

are new and the Company uses item depreciation so no group analysis was

performed.

Account 392.01 Transportation — 5 Year Rural (5 SQ)

This account consists of primarily light duty trucks used in performing various

general company operations. There is approximately $8.9 million in this account.

The Company has decided to segregate its transportation equipment into five

distinct life classes for this study. Based on discussions with Company fleet

personnel, they expect these assets to have about a five year life. The accounts are

new and the Company uses item depreciation so no group analysis was performed.

Account 392.02 Transportation -7 Year Urban (7 SQ)

This account consists of a few autos, vans, and trucks used in general

company operations. There is approximately $18.6 million in this account. The

Company has decided to segregate its transportation equipment into five distinct life

classes for this study. Based on discussions with Company fleet personnel, they

expect these assets to have about a seven year life. The accounts are new and the

Company uses item depreciation so no group analysis was performed.

Account 392.03 Heavy Duty Trucks (10 SQ)

This account consists of heavy duty trucks used in performing various general

company operations. There is approximately $ 10.1 million in this account. The

Company has decided to segregate its transportation equipment into five distinct life

classes for this study. Based on discussions with Company fleet personnel, they

46


expect these assets to have about a 10 year life. The accounts are new and the

Company uses item depreciation so no group analysis was performed.

Account 392.04 Trailers and Other (10 SQ)

The Company has decided to segregate its transportation equipment into five

distinct life classes for this study. This account contains trailers and other

miscellaneous equipment with longer life expectations. The current balance is $787

thousand. Based on discussions with Company fleet personnel, they expect these

assets to have about a 10 year life. The accounts are new and the Company uses

item depreciation so no group analysis was performed.

Account 392.10 Transportation Equipment — Leased Buyout (3 SQ)

This account consists of various leased vehicles that were bought by the

Company and are used in performing various general company operations. The

existing is 3 SQ. These assets will be retired and sold in the near term and were

excluded from the study. If necessary, the Company should continue to use the

existing 3 SQ.

Account 394.10 CNG Equipment (25 R3)

This account consists of station structures and improvements, storage

cylinders, compressors, dryers, priority panels, and dispensers used in public CNG

refueling stations. There is approximately $12.7 million in this account. These

assets have been segregated from various other accounts and combined into one

account to better track the investment in CNG as well as its individual life

characteristics. Discussions with Company SME indicated there are 11 owned and

maintained stations, and around 2-3 new stations a year are being added.

Company SME provided life estimations for the primary asset (storage cylinders,

compressors, panels and dispensers). Based on the composite investment and life

expectations, this study recommends a 25 R3. No graph is shown.

47


Account 396.00 Power Operated Equipment (19 L1.5)

This account consists of backhoe loader, 12 volt pump, rock drill, paving

breakers and other power operated equipment that cannot be licensed on roadways.

The approved curve for this account is the 23 L1. There is approximately $ 12.3

million in this account. Based on type of assets and analysis indications, this study

recommends decreasing the ASL to 19 years and using the L1.5 dispersion pattern.

The proposed curve and observed life table for this account are shown below.

48


General P)ant Amortized

The following accounts reflect accounts that follow vintage group amortization

accounting.

Account 391.00 Office Furniture & Equipment (20 SQ)

This account consists of tables, safes, office equipment, floor covering,

miscellaneous equipment, filing, storage cabinets, drafting room equipment, cubical

workstation, bookcases, and shelves. There is approximately $14.2 million in

equipment in this account. The approved life for this account is a 20 SQ and is

retained. No graph is shown.

Account 391.20 PC Equipment (5 SQ)

This account consists of personal computer equipment. There is

approximately $13.0 million in equipment in this account. The approved life for this

account is a 5 SQ and is retained. No graph is shown.

Account 393.00 Stores Equipment (20 SQ)

This account contains shelves and bins used for general utility service. There

is approximately $9 thousand in this account. The approved curve for this account

is the 20 SQ and is retained. No graph is shown.

Account 394.00 Tools, Shop & Garage Equipment (20 SQ)

This account consists of vacuum excavation machine, tapping machines,

electro fusion unit, pipe horn & pipe horn valve locators, mustang squeezer; roots

transfer prover, air tools, various pipe squeezers, and other miscellaneous tools and

equipment used in shop and garages. There is approximately $15.6 million in this

account. The approved curve for this account is the 20 SQ and is retained. No

graph is shown.

49


Account 395.00 Laboratory Equipment (20 SQ)

This account consists of laboratory equipment. There is approximately $ 1.5

million in this account. The approved curve for this account is the 20 SQ and is

retained. No graph is shown.

Account 397.00 Communication Equipment (18 SQ)

This account consists of miscellaneous communication equipment used in

general utility service. There is $35.3 million in this account. The existing mortality

characteristic is an 18 SQ and is retained. No graph is shown.

Account 398.00 Miscellaneous Equipment (20 SQ)

This account consists of miscellaneous equipment used in general utility

service. There is approximately $2.8 million in this account. The existing mortality

characteristic is a 20 SQ and is retained in this study. No graph is shown.

When a capital asset is retired, physically removed from service and finally

disposed of, terminal retirement is said to have occurred. The residual value of a

terminal retirement is called gross salvage. Net salvage is the difference between

the gross salvage (what the asset was sold for) and the removal cost (cost to

remove and dispose of the asset). Salvage and removal cost percentages are

calculated by dividing the current cost of salvage or removal by the original installed

cost of the asset. Some plant assets can experience significant negative removal

cost percentages due to the timing of the original addition versus the retirement. For

example, a Distribution asset in FERC Account 376, Mains, with a current installed

cost of $500 (2014) would have had an installed cost of $20.18 in 1949. A removal

cost of $50 for the asset calculated (incorrectly) on current installed cost would only

have a negative10 percent removal cost ($50/$500). However, a correct removal

s Using the Handy-Whitman Bulletin No. 182, G-2, line 44, $20.18 = $500 x 30/743.50


cost calculation would show a negative 248 percent removal cost for that asset

($50/$20.18). Inflation from the time of installation of the asset until the time of its

removal must be taken into account in the calculation of the removal cost

percentage because the depreciation rate, which includes the removal cost

percentage, will be applied to the ~ori inal installed cost of assets.

The net salvage analysis uses the history of the individual accounts to

estimate the future net salvage that PNG can expect in its operations. As a

result, the analysis not only looks at the historical experience of PNG, but also

takes into account recent and expected changes in operations that could

reasonably lead to different future expectations than were experienced in the

past. Recent experience is more heavily weighted in making net salvage

recommendations than older experience.

Salvage Characteristics

For each account, data for retirements, gross salvage, and cost of removal is

derived from 1989-2009. Moving averages, which remove timing differences

between retirement and salvage and removal cost, were analyzed over pedods

varying from one to 10 years.

ACCOUNT SPECIFIC NET SALVAGE RESULTS

LNG Stora e Plant

Account 361.00 Structures and Improvements (-10% NS)

This account consists of structures, gates, fences, paving, security and plant

control systems related to LNG storage plant. The authorized net salvage for this

account is zero percent. There have been limited retirements but when they occur,

cost of removal exceeds salvage. Most recent retirement, salvage and cost of

removal indicated negative 98.66 percent. Expectations suggest cost of removal will

continue to exceed any salvage but not to that level. Based on the analysis and

judgment, this study recommends moving to a negative 10 percent net salvage.

51


Account 362.00 Gas Holders (-10% NS)

This account consists of gas holders for LNG storage. The authorized net

salvage for this account is negative 10 percent. Recent activity indicates a negative

19.62 percent. Future expectations are that cost of removal is expected to exceed

any salvage at time of final removal. This study recommends retention of the

approved negative 10 percent net salvage at this time.

Account 363.00 Purification Equipment (-5% NS)

This account consists of purification equipment in the LNG storage function.

The authorized net salvage for this account is negative 5 percent. Recent activity

indicates cost of removal will exceed any salvage in the future. This study

recommends retention of the approved negative 5 percent net salvage.

Account 363.10 Liquefaction Equipment (-5% NS)

This account consists of liquefaction equipment in the LNG storage function.




Account 363.20 Vaporizing Equipment (-5% NS)

This account consists of vaporizing equipment for the LNG storage function.




Account 363.30 Compressor Equipment (-5% NS)

This account consists of compressor equipment related to LNG storage. The

authorized net salvage for this account is zero percent. Recent activity indicates

cost of removal will exceed any salvage in the future. This study recommends

moving to negative 5 percent net salvage.

52


Account 363.40 Measuring and Regulating Equipment (-5% NS)

This account consists of measuring and regulating equipment in the LNG

storage function. The authorized net salvage for this account is negative 5 percent.

Recent activity indicates cost of removal will exceed any salvage in the future. This

study recommends retention of the existing negative 5 percent net salvage.

Account 363.50 Other Equipment (0% NS)

This account includes any salvage and removal cost related to other

equipment for LNG storage plant. The authorized net salvage for this account is

zero percent. Recent activity indicates cost of removal exceeded salvage.

However, this is not expected to reoccur in the future. This study recommends

retention of the approved zero percent net salvage at this time.

Transmission Plant

Account 365.12 Land Rights (0% NS)

This account includes any salvage and removal cost related to easements,

legal fees and recording costs of land rights used in connection with transmission

operations. Generally, little or no removal cost is incurred and no salvage is

received at the retirement of land rights. Therefore, this study recommends

retaining the approved zero percent net salvage factor for this account.

Account 367.00 Mains (-7% NS)

This account consists of any salvage and removal cost related to mains of all

sizes, rectifiers and ground beds used for cathodic protection, valves and leak

clamps associated with pipe. The authorized net salvage is negative 10 percent.

Current analysis indications are varied in recent years. Based on discussions with

Company SME, this study recommends moving toward less negative net salvage.

The most recent five year moving averages is around negative 7 percent. For now,

this study recommends a negative 7 percent net salvage.

53


Account 367.10 Cathodic Protection (0% NS)

This account has been transferred to Account 367.00 Mains.

Account 368.00 Compressor Station (0% NS)

This account consists of any salvage and removal cost related to compressor

stations. The authorized net salvage is zero percent. Recent activity suggests there

is both salvage and cost of removal being recorded at retirement. However, salvage

has exceeded cost of removal in several years, but is not expected to continue at

the same levels. The overall indication is positive 3.5 percent. The most recent

year and two year moving average is less than negative one percent. As a result of

the analysis and expectations, this study recommends retention of the zero percent

net salvage at this time.

Account 369.00 M&R Equipment (-5% NS)

This account consists of any salvage and removal cost related to M&R

Equipment related to transmission. The authorized net salvage is negative 5

percent. The analysis has erratic indications over the past 15 years, swinging both

positive and negative. Based on the indications in the five year band and

discussions with Company, cost of removal is expected to exceed any salvage. This

study recommends retaining the existing negative 5 percent net salvage for this

account.

Distribution PlantAccount 374.20 Land Rights (0% NS)

This account includes any salvage and removal cost related to land rights

used in connection with distribution operations. Generally, little or no removal cost is

incurred and no salvage is received at the retirement of land rights. Therefore, this

study recommends retaining the approved zero percent net salvage factor for this

account.

54


Account 375.00 Structures and Improvements (0% NS)

This account consists of any salvage and removal cost related to structures

and associated assets on the distribution system. The authorized net salvage is

zero percent. Some salvage and cost of removal may be realized at time of

retirement. Expectations are that cost of removal will exceed salvage in the future

and will be reevaluated at the time of the next study. This study recommends

retention of the zero percent net salvage at this time.

Account 376.00 Mains (-25% NS)

This account consists of any salvage and removal cost related to steel and

plastic mains. The authorized net salvage is negative 30 percent. Current analysis

indicates less negative net salvage, some of which could be attributed to timing

differences. The most recent overall indications in the analysis are negative 30

percent. The most recent three year moving average is around negative 25 percent.

Based on the more recent trend in the analysis, but giving consideration to the

effect of timing differences, this study recommendation is to move toward recent

experience with a negative 25 percent for net salvage at this time.

Account 376.10 Cathodic Protection (0% NS)

This account has been transferred to Account 376.00 Mains.

Account 378.00 Measuring & Regulating Station Equipment (-5% NS)

This account includes any salvage and removal cost related pdmarily to

valves, regulators and heaters. The authorized net salvage is negative 10 percent.

Current analysis has some very large negative net salvage indications. However,

some are due to timing differences in recording costs. The last recorded retirement

was in 2009. Some cost of removal has been recorded in subsequent years, which

indicate timing difference. The most recent overall moving average is approximately

negative 5 percent net salvage, which is the study recommendation at this time.

55


Account 379.00 City Gate Equipment (-5% NS)

This account includes any salvage and removal cost related to valves,

regulators and heaters used in regulating gas at city gate entry points to the

distribution system. The approved net salvage is negative 5 percent. The current

analysis indicated much higher negative net salvage in the past, with more recent

experience less negative. Most recent overall indication is negative seven percent

and the six to eight year moving averages are around negative 5 percent. Based on

recent six to eight year experience bands, the existing negative 5 percent is retained

in this study.

Account 380.00 Services (-70% NS)

This account includes any salvage and removal cost related to service lines

on the distribution system. Service lines are the pipes and accessories leading from

the main to the customers'remises. The authorized net salvage rate for this

account is negative 70 percent. Current analysis indicates more negative net

salvage across most of the moving averages. However, some of the indications are

mixed for more negative (-88.6%) and less negative (-64.09%) depending on the

time period being analyzed. Based on the mid to fuller indications and the existing,

this study recommends retention of negative 70 percent net salvage for this account

at this time.

Account 381.00 Meters (0% NS)

This account includes any salvage and removal cost related to meters used in

measuring gas to residential customers. The authorized net salvage rate is zero

percent. Some salvage and cost of removal has been recorded over the four years,

but nets to zero. There is no basis to change, so zero percent net salvage is

retained.

56


Account 381.10 Meter Accessories (0% NS)

This account includes any salvage and removal cost related to meter

accessories used in measuring gas to customers. No salvage or cost of removal

has been recorded. The existing net salvage is zero percent and is retained.

Account 381.20 Meter Accessories - ERTs (0% NS)


accessories used in measuring gas to customers. The existing net salvage is zero

percent. In the past five years some salvage and cost of removal has been

recorded. Overall, cost of removal has exceeded salvage. Overall indication is

negative 1.57 percent. This study recommends retention of the existing zero

percent net salvage at this time.

Account 382.00 Meter Installations (0'/o NS)


installations used in measuring gas to customers. The authorized net salvage rate

is zero percent. There is no experience or expectation that salvage or cost of

removal will be recorded for this account, so zero percent net salvage is

recommended in this study.

Account 383.00 House Regulators (0'/o NS)

This account includes any salvage and removal cost related to house

regulators. The authorized net salvage percent is zero percent. Due to no historical

experience of salvage or cost of removal being recorded, zero percent net salvage is

retained in this study.

Account 384.00 House Regulator Installations (0% NS)

This account includes any salvage and removal cost related to house

regulator installations. The authorized net salvage percent is zero percent. There is

no experience or expectation that salvage or cost of removal will be recorded for this

57


account, so zero percent net salvage is retained in this study.

Account 385.00 Industrial Meter & Regulator Equipment (-5% NS)

This account includes the salvage and removal costs related to measuring

and regulating equipment used in industrial stations. The authorized net salvage

percent is negative 5 percent. Current analysis indicates the trend toward more

negative net salvage has continued. The most recent overall moving average is

negative 17.79 percent, which is the lowest moving average overall. Despite the

indications toward more negative net salvage, the expectation is all measuring and

regulating activities would be similar. This study recommends retention of the

existing negative 5 percent with additional evaluation of this account as well as

comparison to Accounts 378 and 379.

Account 386.00 Installations on Customer Premises (0% NS)

This account includes the salvage and removal costs related to assets owned

and maintained by PNG on customer premises. The currently authorized net

salvage percent is zero percent. Based on the fact there has been no recent

experience this study recommends retention of zero percent net salvage for this

account.

Account 387.00 Other Equipment (0% NS)

This account includes the salvage and removal costs related to

miscellaneous distribution equipment used in distribution operations. Consistent

with experience, Company expectations are that no salvage or cost of removal will

be recorded at time of retirement so this study recommends retention of a zero

percent net salvage rate at this time.

General Plant

Account 390.00 Structures and Improvements (-5% NS)

This account includes any salvage and removal cost related to structures and

58


improvements used for general utility operations. The authorized net salvage rate

for this account is negative 5 percent. Based on experience some salvage is

possible but cost of removal will exceed. Current analysis suggests positive net

salvage is occurring as a result of the sale of buildings, which is not likely to reoccur.

In the future salvage is not likely to exceed cost of removal. This study recommends

retention of the existing negative 5 percent net salvage this time.

Account 391.10 Computer Hardware/Software (0% NS)

This account indudes any salvage and removal cost related to computer

hardware and software used for general utility operations. No salvage or cost of

removal is expected for this account. This study recommends retention of the

existing zero percent net salvage rate for this account at this time.

Account 391.30 Customer Information System (0% NS)

This account consists of customer information system. No salvage or cost of

removal is expected for these assets. The approved net salvage is zero percent

and is retained in this study.

Account 391.40 Client Server Applications (0% NS)

This account consists of client server applications. No salvage or cost of

removal is expected for these assets. The approved net salvage is zero percent

and is retained.

Account 392.00 Transportation — 3 Year Meter Reading Trucks (20% NS)

This account consists of salvage and removal costs associated with light duty

trucks used for meter reading. The approved net salvage is 10 percent. Based

upon discussions with Company SME and recent experience, this study

recommends increasing from 10 percent to 20 percent net salvage at this time. The

Company uses item depreciation for all its vehicles and will calculate and record any

gains or losses at disposition to income.

59


Account 392.01 Transportation — 5 Year Rural 1 ton or less (20% NS)

This account consists of salvage and removal costs associated with autos

and light trucks. The approved net salvage is 10 percent. Based upon discussions

with Company personnel and recent experience, this study recommends increasing

from 10 percent to 20 percent net salvage at this time. The Company uses item

depreciation for all its vehicles and will calculate and record any gains or losses at

disposition to income.

Account 392.02 Transportation — 7 Year Urban 1 ton or less (20% NS)

This account consists of salvage and removal costs associated with light duty

trucks, autos, passenger vans, and SUVs used in urban areas. The approved net

salvage is 10 percent. Based upon discussions with Company personnel and recent

experience, this study recommends increasing from 10 percent to 20 percent net

salvage at this time. The Company uses item depreciation for all its vehicles and

will calculate and record any gains or losses at disposition to income.

Account 392.03 Transportation — Heavy Duty Trucks (20% NS)

This account consists of salvage and removal costs associated with trailers

and other transportation equipment. The approved net salvage is 10 percent.

Based upon discussions with Company personnel and recent experience, this study




Account 392.04 Transportation -Trailers & Other (20% NS)

This account consists of salvage and removal costs associated with trailers

and other transportation equipment. The approved net salvage is 10 percent.

Based upon discussions with Company personnel and recent experience, this study


60




Account 392.10 Transportation Equipment - Leased Buyout (75%)

This account consists of various leased vehicles that were bought by the

Company and are used in performing various general company operations. The

existing net salvage is 75 percent. These assets will be retired and sold in the near

term and were excluded from the study. If necessary, the Company should continue

to use the existing

Account 394.10 CNG Equipment (-2%)

This account consists of station structures and improvements, storage

cylinders, compressors, dryers, priority panels, and dispensers used public CNG

refueling stations. Based on discussions with Company SME it was indicated there

will be some cost of removal at end of life. It is expected that cost of removal will

exceed any salvage. Based on discussions with Company SME and judgment, this

study recommends a negative 2 percent net salvage.

Account 396.00 Power Operated Equipment (18% NS)

This account includes any salvage and removal cost related to backhoes,

forklifts, trenchers, and other power operated equipment that cannot be licensed on

roadways. The authorized net salvage rate for this account is 20 percent. Based on

the consistent indications across the moving averages, it supports decreasing the

net salvage to 18 percent.

61


General Plant Amortized

Account 391.00 Office Furniture and Equipment (0% NS)No salvage or cost of removal is expected. The approved zero net salvage is

retained.

Account 391.20 PC Equipment (0% NS)

No salvage or cost of removal is expected. The approved zero net salvage is

retained.

Account 393.00 Stores Equipment (0% NS)


retained.

Account 394.00 Tools, Shop & Garage Equipment (0% NS)


retained.

Account 395.00 Laboratory Equipment (0% NS)


retained.

Account 397.00 Communication Equipment (0% NS)


retained.

Account 398.00 Miscellaneous Equipment (0% NS)


retained.

62


APPENDIXA

Comparison of Depreciation Rates


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APPENDIX B

Computation of Depreciation Accrual Rate

66


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APPENDIXC

Comparison of Mortality Characteristics

69

SETTLEMENT SCHEDULE 4 Appendix C

PIEDMONT NATURAL GASTHE CAROLINAS AND CORPORATE

COMPARISON OF MORTALITY CHARACTERISTICSDEPRECIATION STUDY AS OF OCTOBER 31, 2014

NumberAccount

Descri ionBalance

at 10/31/2014EXISTING

Life Curve NSRECOMMENDED

Life Curve NSYrs

3610036200363003631036320363303634036350

36512367003680036900

STORAGE PLANTStructures & ImprovementsGas HoldersPuri6cstion EquipmentLiquefaction EquipmentVaporizing EquipmentCompressor EquipmentM&R EquipmentOther Equipment

Total Storage Plant

TRANSMISSION PLANTLand RightsMainsCompressor Station EquipmentMB R Station Equipment

Total Transmission Plant

$ 29,291,552.6010,708,927.9914,754,729.198,606,503.12

36,109,984.874,991,768.26

274,611.1612,285,723.90117,023,801.09

91,446,985.851,231,556,990.88

164,022,026.3666 360 631.27

1,553,386,634.36

38 6538 6538 5538 6536 5538 S538 S535 S5

70 R460 R435 R445 R2

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75 R470 R435 R445 R4

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374203750037600378003790038000381003811038120382003830038400385003860038700

DISTRIBUTION PLANTLand RightsStructures & ImprovementsMainsM&R Station EquipmentM&R City Gate EquipmentServicesMetersMeter AccessoriesMeter Accessories, ERTsMeter InstallationsHouse RegulatorsHouse Regulator InstallationsIndustrial MB R Station EquipmentProperty on Customer PremisesOther Equipment

Total Distribution Plant

7,713,343.511,378,186.88

1,027,877,117.4027,750,358.5939,383,174.27

675,41 5,655.5597,829,852.1 4

4,844,073.8247,872,605.7932,539,068. 6114,075,239.11

25,837.7944,031,696.56

743,304.2743,671.55

5 ~ 5. 55.5

65 R445 R355 R442 t247 R255 R330 R230 R215 R430 R230 R230 R245 R240 R335 R3

P%0'/5

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75 R450 R465 R447 R250 R2.560 R2.528 R2.528 R2.515 R428 R2.528 R2.528 R2.550 R440 R338 66

P%P%

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P%P%0%P%P%P%

0%0%

GENERAL PLANT DEPRECIATED390003911039130391403941039600

Structures & ImprovementsComputer Hardware/SohwareCustomer Information SystemClient Server ApplicationsCNG Station EquipmentPower Operated Equipment

Total General Depreciated Plant

66,525,024.0216,535,512.1017,138,316.56

115,052,695.1012,744,557.6012 339,737.09

240,335,842.47

41 R317 6620 R510 R5

23 L1

-5%0%0%P%

20%

41 R318 62.525 R510 R525 R319 L1.5

-5%0%0%P%

-2%185/

SETTLEMENT SCHEDULE 4 Appendix C

PIEDMONT NATURAL GASTHE CAROLINAS AND CORPORATE

COMPARISON OF MORTALITY CHARACTERISTICSDEPRECIATION STUDY AS OF OCTOBER 31, 2014

NumberAccount

Descri tionBalance

at 10I31l2014EXISTING

Life Curve NSRECOMMENDED

Life Curve NSYrs

GENERAL PLANT AMORTIZED39100 Office Furniture & Equipment39120 PC Equipment39300 Stores Equipment39400 Tools, Shop & Garage Equipment39500 Laboratory Equipment39700 Communications Equipment39800 Miscellaneous Equipment

Total General Amortized Plant

14,194,262.3313,038,594.47

9,255.1215,558,340.23

1,474,302.9535,284,908.052,808,404.1 8

82,368,067.33

20 SQ5 SQ

20 SQ20 SQ20 SQ18 SQ20 SQ

0%P%0%0%0%P%0%

20 SQ5 SQ

20 SQ20 SQ20 SQ18 SQ20 SQ

P%P%0%0%0%0%P%

T Op i & ~ 1 ~,I, .0

TRANSPORTATION EQUIPMENT39200 3 Year-Meter Reading Trucks39201 5 Year-Rural 1 ton or less39202 7 Year-Urban 1 ton or less39203 10 Year-Heavy Duty39204 10 Year- Trailers 8 Other

Total Transportation

4,911,664.508,878,562.08

18,555,155.0510,091,067.37

786,789.0443,223,238.04

5 L2.55 L25

10 l2.510 L2.515 L2.5

10'/10o/1P'/1P'/1P'/

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20%20%20%20%20%

Total Depreciated & Amortized in Study 6 4 057 860 769.13


APPENDIX D

Net Salvage

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