050016alJ083005 .wpd

PUBLIC SERVICE COMMISSION OF WEST VIRGINIA

CHARLESTON

Entered: Auqust 30, 2005

CASE NO. 05-0016-G-42T

BLUEFIELD GAS COMPANY, a public utility, Mercer County, Rule 42T application to increase gas rates and charges.

RECOMMENDED DECISION

On January 5, 2005, Bluefield Gas Company (Company) tendered for filing revised tariff sheets reflecting increased rates and charges of approximately 5.4% annually, or approximately $518,000 in additional revenue, for furnishing natural gas service to approximately 4,160 customers in Mercer County, to become effective on February 4, 2005. As required by West Virsinia Code §24-2-3a, at least thirty (30) days prior to filing its application to increase rates, the Company filed with the Commission a notice of its intent to file a general rate case. (See, Notice of Intent, filed December 1, 2004).

The Company has filed Tariff Form No. 6 indicating, among other things, that, on January 5, 2005, Tariff Form No. 8 ("Public Notice of Change in Rates with Proposed Effective Date" ) was delivered to newspapers published and of general circulation in each of the counties in which the utility provides service, for publication therein once a week for two successive weeks. The Company indicated that affidavits of publication will be furnished to the Commission upon completion of the same. Additionally, the Company indicated that on January 5, 2005, it separately mailed Tariff Form No. 8 as a bill insert to each of its non- resale customers. A significant number of protests has been filed in this case.

On January 14, 2005, Blaine A. Braithwaite of the South Bluefield Neighborhood Association (Association) filed a formal protest and petition to intervene. Mr. Braithewaite represented that the Association would have counsel at the hearing in this matter.

By Commission Order dated January 25, 2005, the Commission suspended the revised tariff sheets and the use of the proposed rates until 12:Ol a.m., November 2, 2005, to enable the Commission to examine and investigate the supporting data filed with said revisedtariff sheets and to provide time for Commission Staff to make reports concerning the matters involved in this case. The Commission also referred the case to the Division of Administrative Law Judges for a decision to be rendered

Public Service Commission of West Virginia Charleston

by September 2, 2005; set June 1 4 , 2005, as the deadline for Staff's audit report; and directed that petitions to intervene shall be considered and ruled upon by the Division of Administrative Law Judges.

On February 2, 2005, the Company submitted a letter stating that the certificate of publication from the Bluefield Daily Teleqraph was illegible and a duplicate original would be submitted upon its receipt.

By Procedural Order dated May 10, 2005, the following procedural schedule in this matter was established:

1. The Company shall file its prepared direct testimony no later than May 27, 2005;

2. Staff shall file the Commission Staff Audit Report and its prepared direct testimony and all Intervenors shall file their prepared direct testimony no later than June 14, 2005;

3 . All parties may file prepared rebuttal testimony by June 21, 2005;

4. The Company shall publish a copy of the Notice of Hearings, attached hereto as Appendix A, once a week for two ( 2 ) consecutive weeks in a newspaper duly qualified by the Secretary of State, published and generally circulated in Mercer County. The first such publication shall be made no sooner than thirty (30) days prior to the June 30, 2005 hearings, and the second such publication shall be made no later than ten (10) days prior to the hearings. The Company shall file publication affidavits at the first hearing indicating compliance with this notice requirement;

5. On June 30, 2005, two ( 2 ) hearings will be convened in this matter at the Bluefield City Hall, Municipal Board Room, 200 Rogers Street, Bluefield. The first hearing will begin at 1:30 p.m. EST and the second hearing will begin at 7 : O O p.m. EST;

6. Transcripts of the hearings in this matter shall be filed by July 14, 2005; and

7. Initial briefs, if any, may be filed by August 3, 2005, and reply briefs, if any, may be filed by August 13, 2005.

The Association's Petition to Intervene was granted. The Association was required to be represented by counsel at the hearings. The Association's counsel was required to file a notice of appearance no later than June 14, 2005.

On May 27, 2005, the Company filed the Direct Testimonies of Dale P. Moore, John B. Williamson, 111, and J. David Anderson. i

On June 14, 2005, Commission Staff filed the Prefiled Direct Testimony of Robert Stier.

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On June 24, 2005, the Company and Commission Staff filed a Joint Stipulation and Agreement for Settlement (Joint Stipulation) signed by the Company and Commission Staff.

On June 3 0 , 2005, the two (2) hearings convened as scheduled with the Company represented by its attorney, Christopher L. Callas, Esquire; Commission Staff represented by its attorney, John Auville, Esquire; and the South Bluefield Neighborhood Association represented by its attorney, David C. Smith, Esquire, at the evidentiary hearing only. The Company submitted into evidence six (6) exhibits: (1) Company 1, a certificate of publication; (2) Company 2, a certificate of publication; ( 3 ) Company 3, the Tariff Filing of January 5, 2005; (4) Company DPM-1, the pre-filed direct testimony of Dale P. Moore; (5) Company JBW-1, the pre-filed direct testimony of John B. Williamson; and (6) Company JDA-1, the pre- filed direct testimony of J. David Anderson. The Company and Staff submitted into evidence one (1) exhibit, Company/Staff 1, the Joint Stipulation and Agreement for Settlement. Commission Staff submitted into evidence one (1) exhibit, Staff 1, the pre-filed direct testimony of Robert Stier. The South Bluefield Neighborhood Association did not submit any documents into evidence.

On July 14, 2005, two (2) accurate transcripts consisting of seventy (70) pages of testimony from the afternoon evidentiary hearing on June 3 0 , 2005, and fifty-five (55) pages of testimony from the evening public comment hearing on- June 3 0 , 2005-, were filed with the Commission.

On August 3 , 2005, the Company, in lieu of an initial brief, filed a letter.

On August 3 , 2005, Commission Staff, in lieu of an initial brief, filed a letter.

On August 4, 2005, Mr. Smith filed a Notice of Appearance and the Initial Briefing Paper Submitted by the South Bluefield Neighborhood Association (SBNA).

On August 15, 2005, Commission Staff filed a Reply Brief. No other reply briefs were filed.

EVIDENCE

A. Evidentiary Hearins.

The Company first called John B. Williamson as its witness. Mr. Williamson is the Company's president and chief executive officer. On direct examination, Mr. Williamson adopted his direct testimony, Company JBW-1. (Tr. 16). The Company originally applied for a 5.43% rate increase, or an increase of approximately $518,000. However, as a result of the Staff's audit and negotiations and discussions over the course of the Staff's investigation, the Company agreed to a $ 3 3 0 , 0 0 0 increase in revenues which is reflected in the Joint Stipulation, Staff/Company Exhibit 1. (Tr. 17). Although the Intervenor was present during the settlement discussions, the Intervenor chose not to be signatory to the agreement. (Tr. 18). The agreed-upon rate base is $4,791,000. The

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proposed increase in revenues of $330,612 results in an overall increase of 3.45%. (Tr. 19). The settlement agreement is fair, reasonable and in the public interest. (Tr. 20). The Company supports the settlement. (Tr. 20).

On cross-examination by Mr. Smith, Mr. Williamson testified that the stipulation provides for an 8.5% return on equity. The cost to respond to the utility's system break was approximately $270,000. A surcharge remains in place to recover the costs associated with the system break. (Tr. 22-23). Capital investments, as part of the Company's ongoing process to replace aging pipe, are reflected in the Company's rate base, however. (Tr. 23). Mr. Williamson opined that, in the aggregate, the Company's Virginia rates and its West Virginia rates are relatively the same. (Tr. 24). The weather normalization adjustment is not part of the West Virginia rates. (Tr. 25).

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On questioning by the Administrative Law Judge, Mr. Williamson testified that the average residential customer, using 119 Mcf of gas per year, currently pays $120.08, on average, per month. (Tr. 26). The stipulation would result in an increase of approximately $3.77 per month, or an average monthly bill of $123.85. (Tr. 26-27).

The Company next called Dale Moore as its witness. Ms. Moore is employed by the Company as vice president and corporate secretary. (Tr. 29). Ms. Moore adopted her pre-filed testimony, Company DPM-1. (Tr. 30).

The Company next called J. David Anderson as its witness. Mr. Anderson is employed as the Company's assistant secretary and assistant treasurer. (Tr. 36). Mr. Anderson adopted his pre-filed direct testimony, Company JDA-1. (Tr. 37).

On cross-examination by Mr. Smith, Mr. Anderson testified that he used a uniform system of accounts for public utilities to develop h i s financial data. (Tr. 40). Expenses are traced through a work order system set up for various maintenance and capital expenditures. The work order system breaks down the work by state. (Tr. 41).

This concluded the Company's case.

On cross-examination by Mr. Smith, Ms. Moore agreed that she performs rate analyst services for the Company. (Tr. 32). Ms. Moore was unfamiliar with the rates of return that have recently been awarded to other West Virginia gas companies. (Tr. 33). M s . Moore does not know whether the Company is the most, or the least, expensive gas company in West Virginia. She also has not done a comparison of returns on equity with other energy companies. (Tr. 33).

On redirect, Ms. Moore agreed that it would not be fair to compare a return on equity established for the Company with one established for another utility three (3) years ago. Ms. Moore also agreed that the embedded return on equity in the instant case reflected the Company's best judgment of the capital markets and what would be allowed in West Virginia. (Tr. 35).

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The Commission Staff called Robert C. Stier who is employed by the Commission as a Utilities Manager. (Tr. 42-43). Mr. Stier supervised the Company's audit. Mr. Stier adopted his pre-filed direct testimony which was marked as Staff 1. (Tr. 43). Mr. Stier agreed that the written settlement document reflected the settlement agreement between the Company and the Commission Staff. The increase agreed to in the settlement is the same amount of increase recommended by Staff. The changes made in Company/Staff 1 were changes recommended by Mr. Stier. (Tr. 45).

On cross-examination by Mr. Smith, Mr. Stier testified that he had looked at the Company's books, actual invoices and allocations. (Tr. 46). Although Commission Staff did not compare the Company's rates with the rates of other West Virginia gas utilities, Mr. Stier stated that the Company's rates were somewhere just above the middle. The highest rates are in the $15.00 range. (Tr. 47).

On questioning by the Administrative Law Judge, Mr. Stier agreed that the rate impact resulting from the agreement is an approximate monthly increase of $3.77. (Tr. 47). Base rates, which include state, but not city, B&O taxes, would increase approximately $0.30 per Mcf. (Tr. 47-48).

On redirect, Mr. Stier testified audit , rate comparisons are not done differ. (Tr. 48,-49).

On recross, Mr. Smith inquired w

that, in the normal course of an because utilities' circumstances

y customers have to move because of natural gas costs. Mr. Stier discussed the deregulation of natural gas in the 1970s and the fact that approximately eighty percent (80%) of gas rates are based on gas costs. (Tr. 49-50).

On redirect, Mr. Stier testified that the Commission's only regulatory authority over the cost of natural gas is whether the Company is diligent in acquiring the lowest-cost gas available at the time. (Tr. 50-51). The production of gas is not regulated. Gathering and pipeline costs are regulated at the FERC. (Tr. 51).

Commission Staff concluded its testimony.

The Intervenor, the South Bluefield Neighborhood Association, called Blaine A. Braithwaite as its witness. Mr. Braithwaite is the executive director of the Association. (Tr. 54). Mr. Braithwaite testified that the Intervenor still questioned the Company's use of allocation instead of assignment of actual costs incurred by the Company in West Virginia. (Tr. 55). Although the Association does not oppose the agreement, the Association wants to see a comparison of the actual costs incurred in each jurisdiction with the allocation of costs. This is the Association's sole issue. (Tr. 56).

On cross-examination by Mr. Callas, Mr. Braithwaite admitted that the Association had not submitted data requests, but had assumed Staff had inquired into the Association's issue as part of the Staff's audit. (Tr. 57). Mr. Braithwaite stated that he felt a duty to the membership

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of the Association to bring the allocation issue to the Commission and the Company and to ask for clarification. (Tr. 58).

On cross-examination by Mr. Auville, Mr. Braithwaite stated he was an information technology specialist, not a CPA or accountant. (Tr. 58).

The Intervenor had no further witnesses.

Mr. Auville recalled Mr. Stier to clarify the issue presented by the Intervenor. Mr. Stier testified that costs are either directly assigned between the two (2) jurisdictions or costs are allocated. Allocation comes into play when direct assignment is not feasible. (Tr. 60-61). Multi-jurisdictional utilities in West Virginia use both direct assignment of costs and allocation of costs. (Tr. 61). In the instant case, Staff looked at the allocation methodologies, which are the same ones which have been used for the last two (2) years. (Tr. 61-62). All of the accounts have different allocations or direct assignments. (Tr. 62). There is often more than one accepted way of making allocations. (Tr. 62). Staff reviewed the Company's allocation methodologies where a direct cost assignment for West Virginia was not available. (Tr. 6 3 ) . The Commission Staff approves of the Company's allocation methodologies by account. (Tr. 63). Staff was able to perform a reliable audit. (Tr. 64).

No members of the public were present at the 1:30 p.m. evidentiary hearing held on June 30, 2005.

~ B. Public Comment Hearinq.

A public comment hearing took place at 7:OO p.m. on June 30, 2005, and several members of the public made comment. Jeanne C. Skeen reported that the Company took five (5) years to repair a gas leak in front of her house. (Tr. 17). She was concerned because she babysat children at her home. Ms. Skeen thought the Company should consider low income people and keep costs as low as possible. (Tr. 17-18).

Alma Littlejohn expressed concern that her gas bill remained high even after gas usage was reduced. (Tr. 19).

Mary Frances Brammer testified that the citizens of Mercer County should be considered along with safety and rates. Citizens cannot afford to retire in Bluefield. (Tr. 21). Citizens will move from Bluefield if the rates keep increasing. (Tr. 22).

Frances Wayland testified that she is sometimes cold when she tries to reduce her gas bill. (Tr. 23).

Ted Curtis spoke about the rising costs that persons on fixed incomes face elsewhere. Rate increases, even when kept as low as possible, present a big expense when other costs rise too. (Tr. 25-26).

James Sims spoke about the gas bill at his father's former residence which had substantially increased despite a budget payment plan. (Tr. 27-28).

Public Service Commissim 6 d West Virginia

Charleston

Cy Gadd testified that, despite conservation efforts, his gas bill had more than doubled since he retired six (6) or seven (7) years ago. He believes the cost of gas is too high for people who live in the area. (Tr. 2 9 ) .

Pat McReynolds stated that she had received a credit after her meter had been misread. She believes gas bills are astronomical; therefore, she sets her thermostat at 60 degrees in the winter. She has had a gas leak in her front yard for at least six (6) years, but the Company will not fix it because the leak has not been classified as a top priority. She does not believe the leak presents a safe condition. Ms. McReynolds believes that customers pay dearly to maintain even a 60-degree temperature. Customers face payments to all utilities and have no more to give out. (Tr. 2 9 - 3 1 ) .

Nancy Campbell stated that she is Ms. McReynolds' neighbor. Ms. Campbell has had a gas leak in front of her house for approximately fifteen ( 15) years; however, the gas leak in front of Ms. Campbell's neighbor's house is worse. The Company claims the leaks are not significant enough for repair. Ten (10) persons at the hearing indicated there were gas leaks in front of or near their homes. (Tr. 3 2 ) . Ms. Campbell cited safety and cost reasons for making leak repairs. She wondered if those customers who remain in Bluefield bear the brunt of the costs. Her budget payment increased from $59 a month to $ 1 4 2 a month. She sets the thermostat at 55 degrees at night and 60 degrees during the day. (Tr. 3 3 ) . Ms. Campbell inquired whether the minimum number of units charged had increased from two (2) to four ( 4 ) . (Tr. 3 1 - 3 4 ) .

Juanita Gray discussed rate increases the Company's customers have had since April 2 0 0 4 . Ms. Gray stated that these increases are a concern for the people of Bluefield who use gas to heat their homes. She believes it should be a concern of businesses located in the city. Additionally, she believes it is a financial hardship for churches which heat with gas. People close rooms and some cover windows with plastic to reduce gas bills. She thinks the Company should keep its customers instead of driving the customers away. (Tr. 3 4 - 3 5 ) .

Robert Mustard informed the Company about a leak on Hardy Street. Mr. Mustard discussed an increase on a gas bill where he was paying just for the meter. Mr. Mustard also discussed seven (7) new high-efficiency gas furnaces installed at his church. Even with these new furnaces, the gas bill increased. Mr. Mustard stated that he did not know how people would have paid their gas bills if it had been a very cold winter. (Tr. 3 6 - 3 7 ) .

Ollie Law stated that his gas bill was more during a three or four month period than it used to be for one year. The heat was turned down to 60 degrees, doors of unused rooms were kept closed, electric blankets were used and the winter was mild. Mr. Law also questioned the customer charge and the surcharge to pay for the gas line break. Mr. Law discussed other utility costs increasing and the city B&O tax increasing when rates go up. Mr. Law also questioned why a lot of capped gas wells in West Virginia are not being utilized. (Tr. 3 9 - 4 0 ) .

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Bonnie Sowder questioned why customers have to pay more when winters are going to be milder. (Tr. 41-42).

Joe Austin stated that perhaps electric heat pumps should have been installed at the church instead of gas furnaces. (Tr. 42-43).

Danny Presley testified that he spent around $25,000 weatherizing his older home in Bluefield, but the gas bills kept going up. He had the Company install a new meter and his gas usage dropped. He was also concerned that two (2) gas bills he received were for the same amount, but one was for a time period four to five days longer. The bills did not indicate they were estimated. (Tr. 44).

Lou Freeman also testified that he had received two (2) gas bills like Mr. Presley had. Mr. Freeman has turned off pilot lights and uses electric baseboard heat and electric blankets. He is sorry that he installed a gas furnace. (Tr. 45).

Delores French spoke of her concern for younger people who cannot afford to pay the gas bills. (Tr. 46-48).

Ms. Skeen added that her gas bill was as high during a three ( 3 ) week period she was gone, as when she was home. She turns the heat down to 55 degrees at night and leaves it at 60 degrees during the day. (Tr. 49).

Mr. Braithwaite testified that Bluefield is in a state of economic distress. One in five households is at or below the poverty level. He believes that now is not the time for additional gas increases. (Tr. 53).

DISCUSSION

The Association was not a party to the Joint Stipulation and Agreement for Settlement entered into by the Company and Commission Staff. The Association, however, indicated in its Initial Brief that, while it did not oppose the Joint Stipulation and Settlement Agreement, the Association wants approval of the Joint Stipulation to be conditioned on the Company's full compliance with PSC General Order 185.24. The Association presented no evidence at hearing that the Company is not in compliance with PSC General Order 185.24. Therefore, the undersigned Administrative Law Judge will not grant the Association's specific request. However, there was much evidence presented at hearing that the Company's customers struggle to pay their respective gas bills and make efforts to reduce gas usage. Therefore, the Company is strongly encouraged to facilitate access to special reduced rates for those customers who are eligible under West Virqinia Code S24-2A-1. The Association should also make efforts to ensure that community members are aware of and apply for the special reduced rates for which they may be eligible.

Many customers at the public comment hearing raised the issue of natural aas leaks located in their front yards or near their homes. Allegedl;, the Company deemed the leaks to be of insufficient significance to be repaired. The undersigned Administrative Law Judge

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believes that it would be in the best interests of the Company and its customers for the Company to investigate the gas leak complaints which were raised at the hearing.

After conducting a full review and audit of the Company's books and records, and making various adjustments to rate base, uncollectible accounts and payroll, Staff concluded that the Company's cost of service is $9,92 1,242, including gas costs. The Company's current rates generate only $9,590,387 annually, leaving a deficit of $330,854, which Staff recommended as the increase in the Company's rates in this case.

The Joint Stipulation reflects the $330,612.55 rate increase recommended by Commission Staff. There is no evidence in the record which would require that approval of the Joint Stipulation be denied. Therefore, the Joint Stipulation's $330,612 increase in additional revenue will be approved.

FINDINGS OF FACT

1. On January 5, 2005, Bluefield Gas Company filed revised tariff sheets reflecting increased rates and charges of approximately 5.4% annually, or approximately $518,000 in additional revenue, for furnishing natural gas utility service to approximately 4,160 customers in Mercer County, to become effective on February 4, 2005. (See, filing dated January 5, 2005).

2. At hearing on June 30, 2005, the Company submitted two affidavits of publication which indicated that: (a) the Public Notice of Change in Rates with Proposed Effective Dates was published on January 6 and 13, 2005, in the Bluefield Daily Teleqraph, a newspaper duly qualified by the Secretary of State, published and generally circulated in Mercer County; and (b) the Notice of Hearing was published on June 9 and 16, 2005, in the Bluefield Dailv Teleqraph. (See, Company Exhibits 1 and 2).

3. Two ( 2 ) hearings were held on June 30, 2005. A number of the Company's customers attended the evening hearing to protest the rate increase and to make other complaints, primarily complaints concerning natural gas leaks which remained unrepaired. (See, Hearing Transcripts filed July 14, 2005).

4. The Company's present base rates do not recover its cost of providing service. (See, Rule 42 Exhibit filed January 5, 2005; Staff Report filed June 14, 2005).

5. Upon review, Staff recommended that the Company's annual revenue be increased by $330,612. (See, Staff Report filed June 14, 2005; Staff 1).

6. The Company and Commission Staff entered into a Joint Stipulation and Agreement for Settlement in which the parties agreed that the Company's annual revenue should increase by $330,612, effective for bills for service rendered on and after November 2, 2005. The Joint Stipulation further provided that, after Commission approval, the Company

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would design base rates to produce $330,612 in additional revenue, which rates will be effective on bills rendered on and after December 2, 2005. (See, Company/Staff 1).

CONCLUSION OF LAW

It is appropriate to approve the Joint Stipulation and Agreement for Settlement and to authorize Bluefield Gas Company to charge the increased rates under the terms of the agreement for all service rendered on and after November 2 , 2005, because the Joint Stipulation and the revenue and rate increases included in the agreement are just and reasonable, and the stipulated rate increase is sufficient, but not more than sufficient, to allow the Company to recover its reasonable operation and maintenance expenses, debt service and taxes and will provide the opportunity to generate a reasonable return on the Company's rate base.

IT IS, THEREFORE, ORDERED that the Joint Stipulation and Agreement for Settlement filed by Bluef ield Gas Company and Commission Staff be approved, and that Bluefield Gas Company be authorized to collect the increased rates under the terms of the Joint Stipulation and Agreement for Settlement for all service rendered on and after November 2, 2005.

IT IS FURTHER ORDERED that, within thirty (30) days of the date on which this decision becomes final, Bluefield Gas Company file with the Commission's Tariff Office an original and five ( 5 ) copies of a revised tariff reflecting the rates and charges approved herein.

IT IS FURTHER ORDERED that, within sixty (60) days of the date on which this decision becomes final, Bluefield Gas Company file a report with the Commission regarding the status of the complaints of natural gas leaks which its customers made at the June 30, 2005 public comment hearing.

IT IS FURTHER ORDERED that this matter be removed from the Commission's docket of open cases.

The Executive Secretary is hereby ordered to serve a copy of this order upon the Commission by hand delivery, and upon all parties of record by United States Certified Mail, return receipt requested.

Leave is hereby granted to the parties to file written exceptions supported by a brief with the Executive Secretary of the Commission within fifteen (15) days of the date this order is mailed. If exceptions are filed, the parties filing exceptions shall certify to the Executive Secretary that all parties of record have been served said exceptions.

If no exceptions are so filed this order shall become the order of - the Commission, without further action or order, five ( 5 ) days following the expiration of the aforesaid fifteen (15) day time period, unless it is ordered stayed or postponed by the Commission.

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Any party may request waiver of the right to file exceptions to an Administrative Law Judge's order by filing an appropriate petition in writing with the Secretary. No such waiver will be effective until approved by order of the Commission, nor shall any such waiver operate to make any Administrative Law Judge's Order or Decision the order of the Commission sooner than five (5) days after approval of such waiver by the Commission.

Administrative Law Judge

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Public Service Commission of West Virginia

Charleston