Senior Corporate Counsel Telephone: 304.534.7409

Fax: 330.315.9939

August 23,201 8

s. Ingrid Ferrell Executive Secretary Public Service om mission o f

S

Dear Ms. Ferrell:

Attached for filing is the original and twelve copies of a Joint Stipulation and Agreement for onongahela Power Company, The Potomac Edison Company, Staff, CAD, and Settlement among

WVEUG.

Sincerely,

Senior Corporate Counsel

GAJ : dml

A ~ a c ~ e n t s

cc: Certificate of Service

LIC S E ~ V I ~ ~ eo N

In the Matter of the Effects on Utilities of the 201 7 Tax Cuts and Jobs Act

AG T

Pursuant to W. Va. Code 5 24-1-9(f) and Procedural Rule 13(d), Monongahela Power

The Potomac Edison Company (“Com~anies’~), the Staff of the Public Service

Commission of est Virginia (“W’), the C o n s ~ e r Advocate Division of the e o ~ i s s i o n

(“CAD”), and the West Virginia Energy Users Group (“ EUG,”’ and collectively, the

arties”) join in this Joint Stipulation and Agreement for Settlement (“Joint Stimlation”). In

ulation, the Parties propose a comprehensive settlement of the above-referenced

proceeding as it relates to the Corn anies. The Parties recommend that the Commission approve

the Joint Stipulation without modi~cation.

1 . On December 22, 2017, President Donald Trump signed into law the 2017 Tax

Cuts and Jobs Act (“Tax Act”). ong other things, the Tax Act reduced the federal corporate

income tax rate to 21% from 35% (“Tax Rate Reduction”).

2. On ~ ~ ~ r y 3, 201 , the Commission initiated this proceed~ng to investigate

impact of the Tax Act on the revenue requirements of certain utilities. As a part of that 0

I

ArcelorMittal USA LLC; Argos-US; The Chemours Company; Eagle Manufacturing; Linde LLG; ~ a r a t h o n Petroleum Company, LP; Noveiis Corporation; Quad/Graphics, Inc.; Resolute Forest Products (Fibrek); U.S. Silica Company; Weyerhaeuser Company NR, and Zoetis, LLC.

WVEUG members served by the Companies include: Advanced Graphite

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ission mandated the utilities to track the tax savings result~ng from the Tax Act on a

month~y basis b e g i ~ n g with the effective date of January 1 , 2018. The Order also required the

utilities, on or before May 30,201 8, to pre-file testimony explaining the impact the Tax Act has

on their federal income tax expense, as described in that Order.

3. In an Order entered on January 26,2018, t e Commission stated that regulatory

liability recognition on the financial statements ofthe utilities of any cost of service savings would

serve to protect the interests of ratepayers until any federal tax benefits can appropriately be

reflected in rates.

4. On March 8, 201 8, the Commission denied requests by

bifurcation of the proceeding and accelerated schedule, and established a schedule for interested

parties to file testimony.

5 . On May 30, 2018, several utilities filed direct testimony. The Companies filed

the direct testimony of Raymond E. Valdes.

6. On June 22, 2018, the Commission entered an Order scheduling a h e ~ i n g to

commence on July 24, 2018, and continuing on July 25 and July 26, 2018, if necessary. Page 2

of the June 22,201 8 Order also directed utilities to address four questions in the presentation of

their testimony at the hearing.

7 . On July 2, 2018, CA filed the direct testimony of Ralph 6. Smith,

filed the direct testimony of Stephen J. Baron, and other parties filed direct testimony. Also on

July 2,2018, Staff filed an Initial and Final Joint Memorandum.

8. On July 12, 201 8 the Commission entered an Order granting intervenor status to

CAD and MVEUG, among others, and addressing several other procedural matters.

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9. On July 13: 2018, several parties filed rebuttal testimony. The Companies filed

the rebuttal testimony of ayrnond E. Valdes.

10.

1 I .

12.

Staff, CAD, and WVEUG undertook formal and informal discovery.

A hearing was held on July 24 and 25, 201 8 in Charleston.

To avoid the additional expense that u7ill result from litigating this case, and in an

attempt to achieve certainty in the outcome, the Parties have endeavored to address or eliminate

all issues in this case as they relate to the Companies to reach a recommended comprehensive

resolution.

13. Prospective Rate ~ e d ~ c t i o ~ . The Parties agree and recommend that the Co anies wit1 reduce

rates on a prospective basis by $25,569,2 12 (“Prospective Rate Reduction”) in annual revenues

(calculated on the basis shown in on Power/PE Exhibit REV-1 to the Direct Testimony of

Raymond Valdes filed on May 30, 2018) to account for the reduction in current income tax

expense resulting from the Tax Rate Reduction. The rate reduction will be implemente

effective September 1, 2018, by reducing the Companies’ current ENEC rates such that the

amount to be returned to customers will be $8,523,070.68 during Sep te~be r 1, 2018 through

December 3 I , 201 8 representing the reduction for current taxes. The allocation will be on a

50% energy basis, 50% demand basis using energy an demand allocation factors as presente

in the 2016 ENEC case for the forecast year of 2017. The current tax rate reduction shall

continue as an annual reduction of $25,569,212 in ENEC rates, allocated on a 50% energy basis

and 50% demand basis using forecasted energy and demand allocation factors, until rolled into

base rates per the process described in Paragraph 14 below.

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14. Interim Period. The Parties agree and recommend that the Co

the Parties to defer to the Companies’ next general base rate case (“Next Base Rate Case”) the

issue of whether or not the Companies should be required to credit to customers t

adjustment in rates all or a portion of the reduced amount of income tax expense the Company

will have experienced between January I , 201 8 and August 3 1,201 8 resulting from the Tax Rate

Reduction (“Interim Period Amount”). Each Party may take whatever position it wishes to take

on this issue in the Next ase Rate Case. For purposes of this case and the Next

the Interim Period Amount is based on eight-twelfths of the annual reduction

paragraph 13, or $17,046,141.36. If a Next Base Rate Case is not filed by the C

August 3 1 , 2020, then the Companies will initiate a separate proceeding not later than

31, 2020 (“Stand-Alone Case”), to address this Interim Period Amount. The

Reduction described in Paragraph 13 above shall also be addressed and rolled into base rates in

15. Net Excess Ac~umulated Deferred Income Taxes (”ADITs”). The

that the Companies shall defer as a regulatory liability/asset any amortization of net excess ADITs

for the period beginning January 1,201 8, and recommend that the Commission permit the Parties

to defer to the Next Base Rate Case the amount and classification of the excess ADITs resulting

from the Tax Act, including any return of these amounts to customers or the Compa~es . If the

Next Base Rate Case is not filed by August 3 1, 2020, the excess ADITs and the Interim Period

Amounts will be addressed in the S ~ d - A l o n e Case to be filed by the Companies. In either

situation, each Party may take whatever position it wishes to t e on these issues.

N o t w i t h s t ~ d ~ n ~ the date of ecember 3 1,2020 to file any Stand Alone Case, the parties agree

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that if the Compa es file for an increase in ENEC or ve~etation m ~ a ~ e n i e n t in 201 9, not

precludes the parties from r e c o ~ e n d i n g an earlier disposition and nothing requires an earlier

disposition of the net excess ADITS andor Interim Period Amount in that 20 19 proceeding.

16. The Parties support is Joint Stipulation and represent that each of its provisions

acceptably resolves all issues raised in this case with respect to the Companies. Based on the

record, the Parties recommend that the Commission accept this Joint Stipulation in complete

resolution of this case with respect to the Company.

17. This Joint Stipulation results from a review of all evidence and filings in this case,

the Parties' analyses of the existing and foreseeable financial condition of the Companies, the

existing statutory and regulatory framework, and extensive, good faith negotiation. The Joint

Stipulation embodies substantial compromises and modifications by the Parties of their respective

positions, and is proposed to expedite and simplify the resolution of this case in the context of an

overall settlement with respect to the Companies.

18. The Parties recommend that the Commission adopt this Joint Stipulation as being

in the public interest, without adopting or recommending the adoption of any of the compromise

positions set forth herein as ratemaking principles applicable to future regulatory proceedings,

except as may otherwise be provided herein. Each component of the Joint stipulation (including

this paragraph) is integral to and inseparable from the others, and no Party advocates the

Commission's resolution of any issue proposed in this Joint Stipulation other than in the context

of its support for the Joint Stipulation as a whole.

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19. tipulation is subject to the Co ission’s acceptance and appsoval

without mod i~~a t ion , It will be ineffective until and unless approved by the C o ~ i s s i o n in all

of its material terms and without modification. If the Commission does not grant that approval

without modification, then the Parties reserve their rights to fully advocate their positions,

unlimited by the terms of the Joint Stipulation.

[signature page follows]

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e s ~ ~ t ~ l l y recommend and re

make appropriate ~ n d i n g s of fact and conclusiQ~s of law a roving the Joint

Stipulation in its entirety.

Dated and effective this day of August, 20 1 8 .

M O N O ~ G A ~ E ~ A POWER THE POTOMAC EDISON C

JACKSON KELLY PLLC 1600 Laidley Tower Post Office Box 553 Charleston, West Virginia 25322 (304) 340- 1000

Gary A. Jack, Esq. (WJ Bar ID 1855) Senior Corporate Counsel Monongahela PowedPotomac Edison 5001 NASA Boulevard Fairmont, West Virginia 26554

THE STAFF OF THE PUBLIC SERVICE COMMISSION OF WEST VIKGINIA

[% Auville, Esq. Public Service Gommissio 201 Brooks Street, P 0 Box 812 Charles ton, WV 2 5 3 2 3

7

CONSUMER ADVOCATE D

Heather Osborn, Esq, Consumer Advocate Division 700 Union Building 723 Kanawha Boulevard, East Charleston, WV 25301

WEST VIRGINIA ENERGY USERS CROUP A

BaEy A. Naum, Esq. Spilman Thomas & Battle, PLLX 1 100 Bent Creek Boulevard, Suite I01 Mechanicsburg, PA 17050

Susan J. Riggs, Esq. Jason C. Pizatella, Esq. Spilman Thomas & Battle, PLLC 300 Kanawha Boulevard, East P. 0. Box 273 Charleston, WV 2532 1-0273

8

2014 Base Rate Filing Cat ego ry Line Number Adj for Settlement

Total Operating Revenues

Income Taxes Total Operating Expenses

Net

Gain from Disposition of Allowances Accretion Expense Interest on Customer Deposits

Net Opera~~ng Income

Weighted Interest Rate Base Interest

Net Income

Income Taxes Earnings before Income Taxes Effective Tax Rate

Federal Income Tax Rate Decrease State Income Tax Rate Weighted Tax Rate Decrease New Effective Tax Rate

New income Taxes

$ 1,508,029,295

$ 1,093,072,191 110,055,403

170,290 (921,597)

70,549,662 46,124,927

$ 1,319,050,876

$ 188,978,419

505,249 352,894 26,636

2.759% $ 2,475,509,066

68,299,295

$ 120,804,843

$ 46,124,9 27 166,929,770

27.63%

- 14.00% 6.50%

-13.09% 14.54%

$ 24,273,820 Decrease in lncome Tax Expense [26]=[3 8]-[25] $ 2l,85 1,107

IDecreased Revenue Requirement [271=[261/(1 -1241) $ 25,569,212 1 Tax Effect of Interest Sync. I281 5

et Equity Income [29]=[17]+(28] 120,804,843 Common Equity Ratio I301 46.477% Common Equity [31]=(1 S]x[30] 1,150,541,771 Return on Equity D21=1~91/[311 10.50%

Annual Revenue Decrease $ (25,569,212.00) Month ly Revenue Decrease $ (2,130,767.67) Sep-Dec 2018 Decrease $ (8,523,070.68)

Energy 50% $ (4,261,535.34) Demand 50% $ (4,261,535.34)

A & R B & G C & E CSH D E2 PH K& PP AGS LIGHTING

Energy Allocator*

0.36403 0.04856 0.16658 0.00247 0.06903 0.34526 0.00008 0.00399

$ (1,551,335.34) $ (206,934.54) $ (709,898.77) $ (10,541.41) $ (294,171.24) $ (1,471,335.40) $ (320.77) $ (16,997.87)

Demand Allocator*

0.43475 0.05291 0.17780 0.00285 0.05785 0.27248 0.00028 0.00108

1.00005 $ (4,261,535.34) 1.00000

231,103,616

1,784,141,969

I Current Jan-hue 2018 ENEC Rates $/kW-kVA

A & R $ 0.04 112 B & G $ 0.04146 C & E $ 0.03698 $ 1.46 CSH $ 0.04086 D & P H $ 0.03483 $ 2.90 K&PP $ 0.03542 $ 1.405 hGS $ 0.02448 $ 0.178 LIGHTING $ 0.04120

*per Case No. 16-1121-E-ENEC

$ (1,852,720.66) $ (225,465.54) $ (757,716.64) $ (12,136.50) $ (246,533.69) $ (1,161,167.98) $ (1,188.36) $ (4,605.97) $ (4,261,535.34)

Sep-Dec 2018 ENEC C h a n g e Energy Demand $ / k w h $/kW-kVA $/kwh

$ (0.00090) $ (0.00090) $ (5.00089) $ $ (0.00087) $ (0.00086) $ $ (0.00082) $ $ (0.00079) $ $ (0.00086)

$ (0.00107) $ (0.00098)

(0.31)

(0.34) (0.319) (0.030)

$ (0.00100)

$ (0.00023)

LIC SERVICE CO OF WEST V I R ~ ~ I A

~ ~ A ~ , ~ S T O ~

atter of the Effects on Utilities of the 201 7 Tax Cuts and Jobs Act

CERTIFlCATE OF SERVICE

1 certify service of Joint Stipulation and Agreement for Settlement on August

by Cnited States First Class Mail, postage prepaid, as addressed:

John R. Auville, Esq. Public Service Commission of WV PO Box 812 Charleston, WV 25323 Counsel for C ~ m m i ~ ~ . ~ i o n Stusf

Susan J. Riggs, Esq. Jason C. Pizatella, Esq. Thomas & Battle, PLLC Spilman Center 300 Kanawha Boulevard, East Charleston, WV 25301 Counsel for WYEUG

Todd M. Swanson, Esq. Steptoe & Johnson,

Tower, Eighth Floor

Charleston, WV 25301 Counsel for Hope Gus, Inc., d/b/a Dominion

niu, & Peoples Gas W

Charleston, W 25336 Counsel for the Kanawha County Commis~ion

Jackie L. Roberts, Esq. Torn White, Esq. Consumer Advocate Division 700 Union Building 723 Kanawha Boulevard, East Charleston, WV 25301 Counsel for Consumer Advocate Division

Derrick Price Williamson, Esq. Barry A. Naum, Esq. Spilman Thomas & Battle, PLLC 1 100 Bent Creek BIvd. Suite 101 Mechanicsburg, PA 17050 Counsel for W E U G

William C. Forth, Esq. Robinson & McElwee, PLLG 700 Virginia Street East Suite 400 Charleston, WV 25301 Counsel for Appalachian Power Company & Wheeling Power Company

Mandi Kay Carter, Esq. 501 Virginia Street, East Charleston, Wlr 253 0 1 Counsel for City of Charleston

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Hanna Law Office 3508 Noyes Avenue

Counsel for Lusk ~ ~ ~ p o . ~ ~ l Seivice, Inc. & Allied Waste Services ~ ~ ~ o r t ~ America, LLC, d/b/a Republic Services of West Virginia

Elizabeth S ~ ~ n d z i ~ l o ~ , Esq. insmore & Shohl, LL

707 Virginia Street East Suite 1300 Charleston, WV 25301 Counsel for Waste ~ u n u g e ~ e n ~ of West Virginia, Inc.

David €3. Hanna, Esq. Hanna & Hanna, PO Box 3967 Charleston, WV 25301 Counsel for Beckley ~ ~ u t e r Company

Marc J. Slotnick, Esq.

PO Box 3710 Charleston, WV 25337 Counsel for ~ u n a w ~ u County ~ ~ m m i ~ ~ s i ~ n

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