BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF COLORADO

Transcription

1 BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF COLORADO IN THE MATTER OF THE APPLICATION ) OF SOURCEGAS DISTRIBUTION LLC FOR ) AN ORDER AUTHORIZING IT TO PUT ) Docket No. 12A- G INTO EFFECT A SYSTEM SAFETY AND ) INTEGRITY RIDER. ) IN THE MATTER OF THE APPLICATION ) OF ROCKY MOUNTAIN NATURAL GAS LLC ) FOR AN ORDER AUTHORIZING IT TO PUT ) Docket No. 12A- G INTO EFFECT A SYSTEM SAFETY AND ) INTEGRITY RIDER. ) VERIFIED JOINT APPLICATION Pursuant to Section of the Colorado Revised Statutes, Rule 1303 of the Public Utilities Commission of the State of Colorado ( Commission ) Rules of Practice and Procedure, 4 Code of Colorado Regulations ( C.C.R. ) 723-1, and Rule 4002 of the Commission s Rules Regulating Gas Utilities and Pipeline Operators, 4 C.C.R , SourceGas Distribution LLC and Rocky Mountain Natural Gas LLC (respectively, SourceGas Distribution and Rocky Mountain ; each, an Applicant ; and collectively, the Applicants ), hereby respectfully request that the Commission issue an order approving their respective System Safety and Integrity Rider ( SSIR ) set forth in the Tariff Sheets submitted with this Joint Application, including the rates set forth therein to be effective January 1, In support hereof, the Applicants respectfully state as follows: Information Required by Rule 4002(b) 1. SourceGas Distribution s full name and Colorado address is SourceGas Distribution LLC, th Street, Suite 300, Golden, Colorado Rocky Mountain s full name and Colorado address is Rocky Mountain Natural Gas LLC, th Street, Suite 300, Golden, Colorado See Rule 4002(b)(I).

2 2. SourceGas Distribution is providing service in Colorado under the name: SourceGas Distribution LLC. Rocky Mountain is providing service in Colorado under the name: Rocky Mountain Natural Gas LLC. See Rule 4002(b)(II). 3. The names, addresses, telephone and facsimile numbers, and addresses of SourceGas Distribution s and Rocky Mountain s representatives upon whom all notices, pleadings, correspondence, and other documents regarding this Joint Application should be served are listed below. See Rule 4002(b)(III). Mr. Lewis M. Binswanger Vice President Regulatory Affairs SourceGas LLC th Street, Suite 300 Golden, CO Telephone: (303) Facsimile: (303) Lewis.Binswanger@sourcegas.com and Mr. Eric W. Nelsen, #40800 Deputy General Counsel Regulatory Law SourceGas LLC th Street, Suite 300 Golden, CO Telephone: (303) Facsimile: (303) Eric.Nelsen@sourcegas.com 4. SourceGas Distribution and Rocky Mountain have read, and agree to abide by, the provisions of subparagraphs (b) (IV) through (VI) of Rule 4002(b). See Rule 4002(b)(VII). 5. SourceGas Distribution, a Delaware limited liability company with its principal place of business at Golden, Colorado, is a public utility under the provisions of the laws of the state of Colorado and an affiliate of Rocky Mountain. SourceGas Distribution and its affiliate SourceGas Arkansas Inc., both of which are wholly-owned subsidiaries of SourceGas LLC, serve a total of approximately 410,000 customers in Colorado, Arkansas, Nebraska and Wyoming. SourceGas Distribution performs natural 2

3 gas retail sales services and distribution transportation services to approximately 87,000 residential, commercial, industrial and agricultural customers in two Base Rate Areas in Colorado. SourceGas Distribution procures natural gas to serve its retail markets via third-party suppliers. The natural gas supply for local distribution service in Colorado comes primarily from supply basins located in the Rocky Mountain and Mid-Continent gas supply areas. SourceGas Distribution has the following operations that are divided into the following two Base Rate Areas in Colorado: Base Rate Area 1 (sometimes referenced in this Joint Application as BRA1 ). SourceGas Distribution serves over thirty towns in the Western Slope area of Colorado, with retail distribution of natural gas serving towns from Avon west to Collbran and south from Collbran to Telluride. Base Rate Area 1 also includes the following towns located on the Front Range: Frederick, Erie, Mead, Firestone, Dacono, and Wellington. Base Rate Area 1 has about 65,000 customers. Base Rate Area 2 (sometimes referenced in this Joint Application as BRA2 ). SourceGas Distribution provides local distribution service in northeastern Colorado, and to customers in and around the towns of La Junta, Pagosa Springs, and Bayfield. Base Rate Area 2 has about 22,000 customers. See Rule 4002(b)(VIII). 6. Rocky Mountain, a Colorado limited liability company with its principal place of business at Golden, Colorado, is a public utility under the provisions of the laws of the State of Colorado and an affiliate of SourceGas Distribution. Rocky Mountain is a wholly-owned subsidiary of SourceGas LLC, and is an intrastate natural gas pipeline that provides transportation and sales for resale services along the Western Slope area of Colorado. Its pipeline system consists of approximately 561 miles of pipe that extends from Eagle to San Miguel and Ouray Counties, Colorado. Rocky Mountain s only salefor-resale customer is SourceGas Distribution LLC. Rocky Mountain also operates the Wolf Creek Storage Field as part of its system. See Rule 4002(b)(VIII). 3

4 7. In the event the Commission deems a hearing necessary, SourceGas Distribution and Rocky Mountain request that it be held in one of the Commission's hearing rooms in Denver, Colorado. See Rule 4002(b)(X). 8. SourceGas Distribution and Rocky Mountain have read, and agree to abide by, the provisions of subparagraphs (b) (XI) (A) through (C) of Rule 4002(b). See Rule 4002(b)(XI)(D). 9. Attached is an affidavit signed by the Vice President - Regulatory Affairs of SourceGas LLC, who is authorized to act on behalf of SourceGas Distribution and Rocky Mountain, affirming that the contents of this Joint Application and the supporting documents are true, accurate and correct. See Rule 4002(b)(XII). Information Required by Rule 4002(c) 10. The corporate information for SourceGas Distribution and Rocky Mountain required in Rule 1310 (a) (I) thru (V) is on file with the Commission in Docket No. 06M-525EG and is incorporated and made a part of this Joint Application by reference. SourceGas Distribution and Rocky Mountain state that the information on file in that docket is correct as of the date of this Joint Application. See Rule 4002(c). Purpose of Joint Application 11. The purpose of this Joint Application is to: (a) Implement, effective January 1, 2013, the System Safety and Integrity Rider for SourceGas Distribution set forth on SourceGas Distribution s proposed Colo. PUC No. 7 Tariff, Original Sheet Nos. 21 and 22 (see Exhibit LMB-17); (b) Adjust, effective January 1, 2013, SourceGas Distribution s nongas charges for Sales Service and Distribution Transportation Service through the General Rate Schedule Adjustment ( GRSA ) 4

5 applicable to Base Rate Area 1 and Base Rate Area 2 to reflect the System Safety and Integrity Rider charges derived in the Prefiled Direct Testimony and Exhibits supporting this Joint Application, as set forth on SourceGas Distribution s proposed Colo. PUC No. 7 Tariff, Fourth Revised Sheet No. 2, Sixteenth Revised Sheet No. 7, Fourteenth Revised Sheet No. 7A, Fourteenth Revised Sheet No. 7B, Fifteenth Revised Sheet No. 7C, Fourteenth Revised Sheet No. 7D, Fourteenth Revised Sheet No. 7E, Fourteenth Revised Sheet No. 7F, Fourteenth Revised Sheet No. 7G, Fourteenth Revised Sheet No. 7H, Fourteenth Revised Sheet No. 7I, Seventh Revised Sheet No. 7J, Ninth Revised Sheet No. 7K and Second Revised Sheet No. 8A (see Exhibit LMB-17); (c) Implement, effective January 1, 2013, the System Safety and Integrity Rider for Rocky Mountain set forth in Rocky Mountain s proposed Colo. PUC No. 3 Tariff, Original Sheet Nos. 10A and 10B (see Exhibit LMB-18); and (d) Adjust, effective January 1, 2013, Rocky Mountain s Demand Charge applicable to its General Resale Service (Rate Schedule GRS) and the Reservation Charge applicable to its Firm Transportation Service (Rate Schedule FTS-1) to reflect the System Safety and Integrity Rider charge derived in Prefiled Direct Testimony and Exhibits supporting this Joint Application, as set forth on Rocky Mountain s proposed Colo. PUC No. 3 Tariff, First Revised Sheet No. 1, Seventh Revised Sheet No. 8, Seventh 5

6 Revised Sheet No. 8A and First Revised Sheet No. 10 (see Exhibit LMB-18). Prefiled Direct Testimony and Exhibits Supporting this Joint Application 12. This Joint Application being filed with the Commission is accompanied by the Joint Applicants following supporting Prefiled Direct Testimony and Exhibits: (a) Prefiled Direct Testimony and Exhibits of Mr. Lewis M. Binswanger, Vice President Regulatory Affairs for SourceGas LLC. The purpose of Mr. Binswanger s Prefiled Direct Testimony is to justify the SSIR being proposed by each of the Applicants by describing the federal regulatory environment that shapes the need for the proposed SSIRs, the mechanics of the Applicants proposed SSIRs and the derivation of the proposed SSIR rates based upon the projected capital costs and operating expenses quantified by the Applicants witness Mr. Landon G. Haack. In addition, Mr. Binswanger is sponsoring the following 21 exhibits, listed and described in Mr. Binswanger s Prefiled Direct Testimony, which Mr. Binswanger prepared or compiled or caused to be prepared or compiled under his supervision: Exhibit LMB-1 National Association of Regulatory Utility Commissioners ( NARUC ) Statement, NARUC Welcomes LaHood s Call to Action on Pipeline Safety, Dated February 14, 2011 Exhibit LMB-2 Letters by U.S. Department of Transportation ( DOT ) Secretary Ray LaHood and Pipeline and Hazardous Materials Safety Administration ( PHMSA ) Administrator Cynthia Quarterman to Governors, Commissioners, State Regulators and Industry Leaders, Dated March 28, 31, 31 and 18, 2011, Respectively Exhibit LMB-3 DOT News Release of Call to Action, Dated April 4,

7 Exhibit LMB-4 DOT Call to Action, Released April 4, 2011, Revised November 1, 2011 Exhibit LMB-5 Colorado Gas Pipeline Infrastructure Update, Presented by Stephan Pott, Chief of Commission s Gas Pipeline Safety Section, Commissioners Information Meeting Held on May 18, 2011 Exhibit LMB-6 White Paper, Prepared by Stephan Pott, Chief of Commission s Gas Pipeline Safety Section, Dated May 18, 2011 Exhibit LMB-7 Copy of Proceedings from National Pipeline Safety Forum, Held April 18, 2011 Exhibit LMB-8 Testimony of PHMSA Administrator Cynthia Quarterman before House of Representatives Subcommittee on Energy and Power of the Committee on Energy and Commerce, Dated June 16, 2011 Exhibit LMB-9 Letter from PHMSA Administrator Cynthia Quarterman to NARUC Chairman of the Board and President Tony Clark and Chair of NARUC Pipeline Safety Task Force Collette Honorable, Dated December 19, 2011 Exhibit LMB-10 Letter from NARUC to PHMSA Administrator Cynthia Quarterman, Dated April 12, 2012 Exhibit LMB-11 American Gas Association ( AGA ) Natural Gas Rate Round-Up, Infrastructure Cost Recovery Update, Dated June 2012 Exhibit LMB-12 American Gas Foundation ( AGF ) Report Prepared by Yardley Associates, titled Gas Distribution Infrastructure: Pipeline Replacement and Upgrades Cost Recovery Issues and Approaches, Dated July 2012 Exhibit LMB-13 Official Summary of Pipeline Safety Act, Written by the Congressional Research Service (Undated) Exhibit LMB-14 Pipeline Safety Rulemaking Update, Dated June 26, 2012, Prepared for Meeting of PHMSA s Technical Advisory Committees, Held July 11-12, 2012 Exhibit LMB-15 Pipeline Standards and Rulemaking Division: Regulatory Initiatives (Undated), Prepared for Meeting of PHMSA s Technical Advisory Committees, Held July 11-12, 2012 Exhibit LMB-16 PHMSA s Strategic Plan ( ), Released September 2012 Exhibit LMB-17 SourceGas Distribution s Tariff of Proposed System Safety and Integrity Rider Exhibit LMB-18 Rocky Mountain s Tariff of Proposed System Safety and Integrity Rider 7

8 Exhibit LMB-19 Derivation of Proposed System Safety and Integrity Rider Rates SourceGas Distribution Exhibit LMB-20 Derivation of Proposed System Safety and Integrity Rider Rate Rocky Mountain Exhibit LMB-21 Bill Impact Analyses (b) Prefiled Direct Testimony and Exhibits of Mr. Landon G. Haack, Senior Manager Pipeline Integrity for SourceGas LLC. The purpose of Mr. Haack s Prefiled Direct Testimony is to justify the SSIR being proposed by each of the Applicants by providing an overview of SourceGas s transmission and distribution systems, describing the initiatives and projects that are to be covered under the Applicants proposed SSIRs and quantifying SourceGas Distribution s and Rocky Mountain s projected capital costs and operating expenses for for those initiatives and projects. In addition, Mr. Haack is sponsoring the following five (5) exhibits, listed and described in Mr. Haack s Prefiled Direct Testimony, which Mr. Haack prepared or compiled or caused to be prepared or compiled under his supervision: Exhibit LGH-1 Rocky Mountain s DOT Annual Report for Calendar Year 2011 Exhibit LGH-2 SourceGas Distribution s DOT Annual Report for Calendar Year 2011 (Transmission) Exhibit LGH-3 SourceGas Distribution s DOT Annual Report for Calendar Year 2011 (Distribution) Exhibit LGH-4 SourceGas LLC s Initiatives and Projects Covered by the System Safety and Integrity Rider in Colorado Exhibit LGH-5 Electronic Communication from the Colorado Commission s Chief Gas Pipeline Safety, Sent October 11,

9 Purpose of the Applicants Proposed System Safety and Integrity Riders 13. Section III of Mr. Binswanger s Prefiled Direct Testimony, supported by his Exhibits LMB-1 through LMB-16, describes in detail the federal regulatory environment that shapes the need for the Applicants proposed SSIRs. 14. In addition to being subject to the pipeline system safety and integrity regulations of the Commission (4 C.C.R ), Colorado jurisdictional gas utilities also are subject to PHMSA s pipeline system safety and integrity regulations as they are operators under Part 192 of PHMSA s regulations. 15. Following closely in time to a deadly gasoline pipeline rupture, explosion and fire near Bellingham, Washington, in June 1999, a natural gas transmission pipeline rupture, explosion and fire in August 2000 near Carlsbad, New Mexico, killed 12 members of a family camping in the area. The investigation following the Carlsbad accident demonstrated that more had to be done than traditional methods of ensuring pipeline system safety and integrity. 16. The Bellingham and Carlsbad accidents triggered a wave of federal legislative and regulatory activity. Congress passed and the President signed into law the Pipeline Safety Improvement Act of 2002 (the PSIA of 2002 ). As required by the PSIA of 2002, in December 2003, PHMSA published the Gas Transmission Integrity Management Rule (49 CFR Part 192, Subpart O), commonly referred to as the TIMP Rule. The TIMP Rule, which changed the traditional ways of ensuring pipeline system safety and integrity, specifies how pipeline operators must identify, prioritize, assess, evaluate, repair and validate the safety and integrity of gas transmission pipelines that could, in the event of a leak or failure, affect High Consequence Areas ( HCAs ) within the United States. The TIMP Rule also requires operators to apply to their pipelines in non-hcas what they learn about their pipelines in HCAs. Pursuant to the TIMP Rule, SourceGas implemented and continues to employ a written pipeline system safety and 9

10 integrity management program ( TIMP ). In December 2006, Congress passed and the President signed into law the Pipeline Inspection, Protection, Enforcement and Safety Act (the PIPES Act ). The PIPES Act reauthorized pipeline system safety and integrity programs, and strengthens PHMSA s regulatory and enforcement authority. The PIPES Act mandates that PHMSA prescribe minimum standards for pipeline system safety and integrity management programs for distribution pipelines to ensure fitness for service. The law provides for PHMSA to require operators of distribution pipelines to continually identify and assess risks on their distribution lines, to remediate conditions that present a potential threat to pipeline system safety and integrity, and to monitor program effectiveness. As mandated by the PIPES Act, in December 2009, PHMSA published the Integrity Management Program for Gas Distribution Pipelines Rule (49 CFR Part 192, Subpart P), commonly referred to as the DIMP Rule. The DIMP Rule requires each operator to develop, write and implement a distribution pipeline system safety and integrity management program. Pursuant to the DIMP Rule, SourceGas implemented its written distribution pipeline system safety and integrity management program as of August 2, 2011 ( DIMP ). 17. The tragic and high profile events involving natural gas pipelines in San Bruno, California (September 2010), Wayne, Michigan (December 2010), Philadelphia, Pennsylvania (January 2011), Allentown, Pennsylvania (February 2011), and Hanoverton, Ohio (February 2011), among other incidents, have triggered another wave of legislative and regulatory activity impacting natural gas utilities. Three days after the incident in Hanoverton, Ohio, on February 14, 2011, DOT Secretary Ray LaHood made an appearance at the NARUC 2011 Winter Meeting. He announced at that meeting that the DOT was convening a series of meetings with state regulators, gas pipeline inspectors and other interested parties to improve the safety and integrity of the nation s gas pipeline systems. On April 4, 2011, Secretary LaHood announced a Call to Action 10

11 by which the DOT launched a national pipeline safety initiative to repair and replace aging pipelines to prevent potentially catastrophic incidents. On January 3, 2012, the President signed into law the Pipeline Safety, Regulatory Certainty, and Job Creation Act of 2011 (the Pipeline Safety Act ). As described in Mr. Binswanger s Prefiled Direct Testimony and in his accompanying Exhibits LMB-13, LMB-14 and LMB-15, the Pipeline Safety Act requires many rulemaking proceedings in the foreseeable future. 18. In letters to Governors dated March 28, 2011, Secretary LaHood urged each Governor s staff to encourage companies and the State utility commission to accelerate pipeline repair, rehabilitation, and replacement programs for systems whose integrity cannot be positively confirmed. (See Exhibit LMB-2). On June 16, 2011, before the House of Representatives Subcommittee on Energy and Power of the Committee on Energy and Commerce, PHMSA Administrator Cynthia Quarterman testified that PHMSA is specifically calling on State Public Utility Commissions to establish cost recovery mechanisms that effectively address infrastructure replacement costs. (See Exhibit LMB-8, p. 1 of 5). 19. PHMSA Administrator Quarterman called on state public utility commissioners to establish cost recovery mechanisms that effectively address infrastructure replacement costs through her letter, dated December 19, 2011, to NARUC Chairman of the Board and President Tony Clark of North Dakota and Ms. Collette Honorable, Chair of NARUC s Pipeline Safety Task Force. In that letter, the Administrator expresses PHMSA s appreciat[ion of] the NARUC s continued diligence in promoting rate mechanisms that will encourage and will enable pipeline operators to take reasonable measures to repair, rehabilitate or replace high-risk gas pipeline infrastructure. (See Exhibit LMB-9). The letter states that [m]any State public utility commissions have encouraged the timely repair, rehabilitation, and replacement of highrisk gas pipeline infrastructure through special rate mechanisms. (Id.). In support of 11

12 this statement, the Administrator attached to her letter a white paper on state pipeline infrastructure replacement programs in the hope that you will share it with your members as a resource for encouraging more States to adopt alternative or more flexible rate mechanisms that will facilitate the replacement or repair of high-risk pipelines. The white paper concludes (Exhibit LMB-9, p. 21 of 34) that [n]early 30 State public utility commissions have established pipeline infrastructure replacement programs as part of the ratemaking process. These programs play a vital role in protecting the public by ensuring the prompt rehabilitation, repair, or replacement of high-risk gas distribution infrastructure. A copy of the white paper is included as part of Exhibit LMB By letter dated April 12, 2012, NARUC responded to PHMSA Administrator Quarterman s letter. A copy of NARUC s letter is provided as Exhibit LMB- 10. NARUC comments in the letter that its members and our colleagues at State legislatures are leading the way in the adoption of innovative rate mechanisms that encourage timely pipeline system replacement. Along that line, NARUC also says the following in the letter: The pipeline owners know their needs and requirements better than any of us, and we would note that they can come to us at anytime to propose replacement and safety improvements to their systems. They do not need our permission to file a fair proposal for accelerated cost recovery for new pipeline infrastructure. The regulatory paradigm puts the onus on the industry to demonstrate the needs of their systems in an open and fact-based process before a commission with the requisite stakeholders or interveners participating. If the utility can demonstrate its proposal is fair, balanced, and advances the goal of pipeline safety in such a process, it will receive an appropriate rate structure. (Emphasis added). 21. Many state utility commissions have granted such accelerated cost recovery mechanisms. Mr. Binswanger s Prefiled Direct Testimony discusses a June 2012 AGA report and a July 2012 AGF report describing those mechanisms. The two reports are provided as Exhibits LMB-11 and LMB-12, respectively. 12

13 22. Colorado is one of the states that now allow gas utilities to recover the costs incurred between rate cases associated with replacing aging infrastructure. The Commission has approved mechanisms for a division of Colorado Natural Gas, Inc. ( CNG ) and for another jurisdictional gas utility, Public Service Company of Colorado ( Public Service ). By Decision No. C , mailed on April 15, 2011 in Docket No. 10A-916G, the Commission approved an Amended Stipulation and Settlement Agreement by which the parties agreed that CNG should be allowed to implement a Capital Expenditure Rider in its then-newly acquired Eastern Colorado Utility Co. ( ECU ) division. CNG s Capital Expenditure Rider became effective on April 30, 2011, and is recovering the costs associated with the necessary capital expenditures for the natural gas system as a result of CNG s acquisition of ECU. By Decision No. R , mailed on July 8, 2011 in Docket No. 10AL-963G, the Commission approved provisions of a Settlement Agreement by which the parties agreed that Public Service should be allowed to implement a Pipeline System Integrity Adjustment ( PSIA ) mechanism. Public Service s PSIA tariff became effective on September 9, 2011, and is recovering costs that are incremental, either positive or negative, to those capital costs and operation and maintenance ( O&M ) expenses associated with Public Service s programs addressing the TIMP Rule and the DIMP Rule, its Cellulose Acetate Butyrate Replacement Program, its Accelerated Main Services Replacement Program and two specific Public Service pipeline projects. 23. The Applicants designed their SSIR Tariffs using the Public Service PSIA tariff as the template, and the provisions of the Applicants SSIR Tariffs track very closely with the provisions of Public Service s PSIA tariff. See Exhibits LMB-17 and LMB In Decision No. R , the Hearing Commissioner concluded that the one party opposing the PSIA had not fully discussed the role that governmental states and regulations can have on the rate structures for cost recovery. (Paragraph 54). 13

14 In this case, we have pipeline safety inspection and repair directives mandated by the federal government. Additionally, the recent high profile pipeline accidents have focused public attention on the need to improve safety and inspection protocols on an industry wide basis. No party argued Public Service should not invest in maintaining the integrity of the transmission and distribution system. The Settling Parties argue the PSIA represents a fair balance that does not penalize the Company for making needed safety investments, brings transparency to those improvements, and protects ratepayers by not setting a baseline for improvements, that will stay in rate[ ]base. (Id., Emphasis added). Decision No. R also articulates at paragraph 55: [T]he Hearing Commissioner s concern [is that] the industry is experiencing a phase change in the area of pipeline safety. Federal directives and public concern for safety are moving the industry from a detect and repair orientation to a more preventative stance. It may take a few years for this fundamental change of direction to settle into a more predictable routine. (Emphasis added). 25. The Applicants agree with the Hearing Commissioner that federal directives and public concern have led to a fundamental change of direction in the way the natural gas industry is regulated, but it is not clear if or when that fundamental change of direction will settle into a more predictable routine. Based upon the scope of present legislative mandates and regulatory initiatives, and other signals from regulators, the current flurry of regulatory activity appears to be just the tip of the iceberg. It may take several years before the natural gas industry can extrapolate if and when this fundamental change of direction may settle into a more predictable routine. Even then, all bets would be off if, regrettably, another tragic event were to befall the industry. 26. Mr. Binswanger s Prefiled Direct Testimony describes the abovereferenced legislative mandates and regulatory initiatives, and provides Exhibits LMB- 13, LMB-14, LMB-15 and LMB-16 in support of his testimony. Description of the Applicants Proposed System Safety and Integrity Riders 27. Each Applicant s proposed System Safety and Integrity Rider is designed to collect Eligible System Safety and Integrity Costs. 14

15 28. The term Eligible System Safety and Integrity Costs is defined to mean (1) a return, at a percentage equal to the Applicant s projected weighted average cost of capital grossed up for taxes, on the projected increase in the retail jurisdictional portion of the month ending net plant in-service balances associated with the System Safety and Integrity Projects ( Projects ) for the following 12-month period in which the SSIR rates will be in effect, exclusive of all plant in-service included in the determination of the revenue requirements approved in the Applicant s last general rate case; (2) the plantrelated ownership costs associated with such incremental plant investment, including depreciation, accumulated deferred income taxes ( ADIT ), and all taxes including income taxes and property taxes; and (3) the projected O&M expenses related to the Projects for the following 12-month period in which the SSIR rates will be in effect. 29. The term System Safety and Integrity Projects is defined to mean one of the following four types of Projects: 1. Projects in accordance with the TIMP Rule, including projects in accordance with SourceGas s TIMP and projects in accordance with State enforcement of the TIMP Rule and SourceGas s TIMP; 2. Projects in accordance with the DIMP Rule, including projects in accordance with SourceGas s DIMP and projects in accordance with State enforcement of the DIMP Rule and SourceGas s DIMP; 3. Projects in accordance with PHMSA s final rules and regulations that become effective on or after the filing date of this Joint Application; and 4. Facility relocation projects with a per-project total cost of $20,000 or more, exclusive of all costs that have been, are being, or will be reimbursed otherwise, required due to construction or improvement of a highway, road, street, public way or other public work by or on 15

16 behalf of the United States, the State of Colorado, a political subdivision of the State of Colorado or another entity having the power of eminent domain. 30. Facility relocation projects promote pipeline system safety and integrity. From time to time, the State of Colorado or a municipality in which SourceGas provides service, for example, will undertake projects, such as change of grade, new construction, installation or repair of sewers, storm sewers, drainages, waterlines, power lines, communication systems, right-of-ways or other public works. Some of these projects require SourceGas to change the position of its natural gas mains, service connections or other aspects of its natural gas system. In such cases, relocation of SourceGas s system away from the affected public works enables the State or municipality to continue to provide, or enhance or expand, public services, and SourceGas to continue to provide natural gas services, in a manner that does not jeopardize the health, safety or welfare of residents and businesses. Simply to reduce significantly the sheer number of nonreimbursable facility relocation projects eligible for recovery as a Project, the Applicants decided to place a $20,000 per non-reimbursable project minimum requirement on eligibility under the System Safety and Integrity Riders. 31. Mr. Haack describes in his Prefiled Direct Testimony the Projects that the Applicants have identified for Exhibit LGH-4 provides background information and further detail on the identified Projects. As shown in Exhibit LGH-4, Attachment 1, Page 1 of 4, the Applicants have identified the following projected capital costs and operating expenses for Projects covered under the Applicants proposed System Safety and Integrity Riders: 16

17 SourceGas Projected Capital Costs TIMP TOTAL CAPITAL (RMNG) $ 1,435,836 $ 1,337,445 $ 7,300,000 DIMP TOTAL CAPITAL (SGD) $ 2,161,964 $ 1,038,211 $ 520,000 SGD BRA1 $ 882,068 $ 672,111 $ 230,000 SGD BRA2 $ 1,279,896 $ 366,100 $ 290,000 HWY RELO TOTAL CAPITAL (SGD BRA1) $ 350,000 $ 950,000 $ TOTAL $ 3,947,800 $ 3,325,656 $ 7,820,000 TOTAL RMNG $ 1,435,836 $ 1,337,445 $ 7,300,000 TOTAL SGD BRA1 $ 1,232,068 $ 1,622,111 $ 230,000 TOTAL SGD BRA2 $ 1,279,896 $ 366,100 $ 290,000 SourceGas Projected Operations and Maintenance (O&M) Expenditures TIMP TOTAL O&M (RMNG) $ 1,356,281 $ 1,234,000 $ 1,260,750 DIMP TOTAL O&M (SGD) $ 95,455 $ 85,000 $ 95,000 SGD BRA1 $ 40,012 $ 42,500 $ 47,500 SGD BRA2 $ 55,443 $ 42,500 $ 47,500 TOTAL $ 1,451,736 $ 1,319,000 $ 1,355,750 TOTAL RMNG $ 1,356,281 $ 1,234,000 $ 1,260,750 TOTAL SGD BRA1 $ 40,012 $ 42,500 $ 47,500 TOTAL SGD BRA2 $ 55,443 $ 42,500 $ 47, The dollar amounts for 2014 and 2015 shown above and itemized in Attachment 1 of Exhibit LGH-4 are based upon best available information at this time. The scale and scope of identified Projects do change over time, and new Projects may be added to the coverage of the proposed System Safety and Integrity Riders over time. If the Commission approves the Applicants proposed SSIRs, SourceGas will make annual SSIR filing on November 1, and will calculate at that time the projected capital costs and operating expenses for inclusion in the SSIRs for the following calendar year. Thus, for example, SourceGas s proposed November 1, 2013 filing could calculate projected capital costs and operating expenses less than, the same as or more than the $3,325,656 and $1,319,000, respectively, identified above and itemized in Attachment 1 of Exhibit LGH-4. 17

18 33. The Applicants are proposing to make their annual SSIR filing on November 1 st for the following reasons. Both the Applicants are required by Section 4602(b) of the Commission s Rules Regulating Gas Utilities and Pipeline Operators to file their Gas Cost Adjustment ( GCA ) applications and their Gas Purchase Reports ( GPRs ) in October with an effective date of November 1 st. Rather than making their annual SSIR filing at the same time as their GCA applications and GPRs, which would further stretch the resources of the Applicants and the Commission, the Applicants are proposing to make their annual SSIR filing after the Applicants and the Commission have completed their work on those GCA applications and the GPRs. Although Public Service makes its annual PSIA filing on October 1 st, Public Service files its GCA application and GPR in September with an effective date of October 1 st, as required by Section 4602(a). 34. The projected capital costs and operating expenses for 2013 identified above produce the following amounts of projected Eligible System Safety and Integrity Costs: SourceGas Distribution Base Rate Area 1: $170,977 SourceGas Distribution Base Rate Area 2: $191,493 Rocky Mountain: $1,520,666 The dollar amounts for SourceGas Distribution s Base Rate Areas 1 and 2 are derived on Exhibit LMB-19, page 2, and Exhibit LMB-19, page 13, respectively, and both are shown on Exhibit LMB-19, page 1. The dollar amount for Rocky Mountain is derived on Exhibit LMB-20, page 2, and shown on Exhibit LMB-20, page The Applicants propose to reconcile the projected Eligible System Safety and Integrity Costs with actual Eligible System Safety and Integrity Costs through the SSIR True-Up Amount. The SSIR True-Up Amount is equal to the difference, positive or negative, between the Applicant s Eligible System Safety and Integrity Costs as 18

19 projected for the 12-month period for the year prior to the annual SSIR filing and the actual Eligible System Safety and Integrity Costs incurred by the Applicant for that 12- month period. Because actual Eligible System Safety and Integrity Costs for that 12- month period will not be known until after the Applicant makes the next annual SSIR filing, the reconciliation will be reflected in the SSIR rates included in the subsequent annual SSIR filing. For example, because the Applicants are proposing to project Eligible System Safety and Integrity Costs on a calendar year basis and make their annual SSIR filing on November 1, the Applicants projected 2013 Eligible System Safety and Integrity Costs included in this Joint Application will be reconciled to actual Eligible System Safety and Integrity Costs through the SSIR True-Up Amount reflected in the annual SSIR filing made on November 1, 2014 to become effective on January 1, The Applicants propose to reconcile the projected revenues generated through the recovery of Eligible System Safety and Integrity Costs with the actual revenues generated through the recovery of Eligible System Safety and Integrity Costs through the Deferred SSIR Balance. The Deferred SSIR Balance is equal to the balance, positive or negative, of the Applicant s SSIR revenues at the end of the 12- month period for the year prior to the annual SSIR filing less the Eligible System Safety and Integrity Costs as projected by the Applicant for that 12-month period. Because actual SSIR revenues for that 12-month period will not be known until after the Applicant makes the next annual SSIR filing, the reconciliation will be reflected in the SSIR rates included in the subsequent annual SSIR filing. For example, because the Applicants are proposing to project Eligible System Safety and Integrity Costs on a calendar year basis and make their annual SSIR filing on November 1, the Applicants projected 2013 Eligible System Safety and Integrity Costs included in this Joint Application will be reconciled to actual SSIR revenues through the Deferred SSIR Balance reflected in the annual SSIR filing made on November 1, 2014 to become effective on January 1,

20 37. Each proposed revision in the SSIR rates will be accomplished by the Applicants filing an advice letter on November 1 st to take effect on the following January 1 st. The Applicants will include in their annual SSIR filing all pertinent information and supporting data related to Eligible System Safety and Integrity Costs; for example, Project description and scope, Project costs and in-service date. In addition, the Applicants would be willing to meet with Staff and other interested intervenors each year after the annual SSIR filing to explain the Applicants plans for the upcoming year and answer questions about the SSIR filing. 38. The Applicants propose to submit a report each year by April 1 st detailing the Project costs incurred during the previous year. This report will explain how the Project costs were managed and any deviations between budgeted and actual costs. To the extent interested parties wish to challenge any of the activities or their respective costs, they can request that the Commission convene a hearing within ninety (90) days of the date the Applicants file their report. The Applicants will file their first such report on April 1, The System Safety and Integrity Riders proposed by the Applicants do have a specified duration. The Applicants SSIR rates will be subject to annual changes for a period of five years from the first effective date. The Applicants are proposing a five-year term because, as stated in Mr. Binswanger s Prefiled Direct Testimony, it is not clear if or when the fundamental change of direction in the way the natural gas industry is regulated will settle into a more predictable routine. After the five-year term, the Applicants SSIR riders will expire unless one or both of the SSIR riders are reinstated upon Commission consideration of an application filed by one or both of the Applicants by not later than six months prior to the expiration date. 40. Upon the effective date of an Applicant s next general base rate proceeding, the Applicant will simultaneously adjust the SSIR rates to remove all costs 20

21 that have been included in base rates. Upon the Applicant resetting the System Safety and Integrity Rider charges to zero upon that effective date, the Applicant still may make a filing by not later than November 1 st for the following calendar year assuming that the Applicant has identified projected Eligible System Safety and Integrity Costs for that following calendar year. Description of SourceGas Distribution s Proposed System Safety and Integrity Rider 41. SourceGas Distribution respectfully requests a decision of the Commission authorizing SourceGas Distribution to implement, effective January 1, 2013, the System Safety and Integrity Rider described in the Prefiled Direct Testimony of Lewis M. Binswanger and set forth on the Tariff sheets in Mr. Binswanger s Exhibit LMB- 17. As part of that decision, SourceGas Distribution respectfully requests that the Commission authorize the SSIR rates, effective January 1, 2013, discussed in Mr. Binswanger s Prefiled Direct Testimony, derived in Mr. Binswanger s Exhibit LMB-19 and set forth on the Tariff sheets in Mr. Binswanger s Exhibit LMB-17. As shown in Exhibits LMB-17 and LMB-19, SourceGas Distribution is proposing separate SSIR rates for its Base Rate Area 1 and for its Base Rate Area 2. SourceGas Distribution s proposal to implement separate SSIR rates for its BRA1 and BRA2 is consistent with the manner in which it recovers distribution costs through its Tariff. 42. SourceGas Distribution s System Safety and Integrity Rider is equal to its Eligible System Safety and Integrity Costs, plus or minus its SSIR True-Up Amount, plus or minus its Deferred SSIR Balance, as a percentage of its non-gas base rate revenues from its last general rate case (Docket No. 10AL-455G) for BRA1 or BRA2, as applicable. See Exhibit LMB-17, Original Sheet Nos. 21 and 22 (proposed). This is shown in equation form as follows: 21

22 SSIR = ((A ± B ± C) / D) Where: A = Eligible System Safety and Integrity Costs B = SSIR True-Up Amount C = Deferred SSIR Balance D = SourceGas Distribution s non-gas base rate revenues from in its last general rate case (Docket No. 10AL- 455G) for BRA1 or BRA2, as applicable 43. Exhibit LMB-19, consisting of 24 pages, shows the derivation of SourceGas Distribution s SSIR rates for Base Rate Areas 1 and 2. Page 1 of Exhibit LMB-19 summarizes the development of SourceGas Distribution s SSIR rates for 2013 and shows, for illustrative purposes only, the operation of the hypothetical SSIR True-Up Amount and the hypothetical Deferred SSIR Balance in 2015 based upon data. Pages 2-12 and of Exhibit LMB-19 show the data for BRA1 and BRA2, respectively, that are used to develop SourceGas Distribution s SSIR rates shown on page 1. Pages 2 and 13 of Exhibit LMB-19 show the projected Eligible System Safety and Integrity Costs for calendar year 2013 for BRA1 and BRA2, respectively. Pages 3-12 and pages of Exhibit LMB-19 are provided to show, for illustrative purposes only, the operation of the hypothetical SSIR True-Up Amount and the hypothetical Deferred SSIR Balance in 2015 based upon data for BRA1 and BRA2, respectively. Page 24 of Exhibit LMB-19 contains the underlying data and assumptions used to generate the data on pages 2-12 and As stated above, the $170,977 of projected 2013 Eligible System Safety and Integrity Costs for SourceGas Distribution s Base Rate Area 1 and the $191,493 of projected 2013 Eligible System Safety and Integrity Costs for SourceGas Distribution s Base Rate Area 2 are derived on Exhibit 22

23 LMB-19, page 2, and Exhibit LMB-19, page 13, respectively, and both are shown on Exhibit LMB-19, page SourceGas Distribution is proposing the following manner to recover its Eligible System Safety and Integrity Costs through its System Safety and Integrity Rider. SourceGas Distribution has effective in its Colo. PUC No. 7 Tariff a GRSA that applies equally to Residential, Small Commercial, Large Commercial, and Irrigation, Crop Drying and Seasonal Service customers taking Sales Service (Rate Schedules R, SC, LC and ICD, respectively) and Distribution Transportation Service (Rate Schedules RTS, SCTS, LCTS and ATS, respectively). The GRSA is a percentage, calculated separately for BRA1 and BRA2, that is applied to the charges for Sales Service and Distribution Transportation Service except for charges determined by the GCA. 45. SourceGas Distribution is proposing to apply the System Safety and Integrity Rider to its non-gas charges for Sales Service and Distribution Transportation Service through the GRSA percentages applicable to BRA1 and BRA2. Currently, the Total GRSA percentages for BRA1 (8.65%) and BRA2 (1.0%) both consist of the following two elements: Revenue Requirement Increase approved in Docket No. 10AL- 455G (8.56% for BRA1 and 0.91% for BRA2), and Rate Case Expense for the 12 Months beginning December 2011 (0.09% for BRA1 and 0.09% for BRA2). See Colo. PUC No. 7, First Revised Sheet No. 8A. SourceGas Distribution is proposing to add the System Safety and Integrity Rider as the third element of the GRSA, effective January 1, Exhibit LMB-19, page 1, shows that the System Safety and Integrity Rider percentages for BRA1 and BRA2 are 0.54% and 2.39%, respectively. See also Exhibit LMB-17, Colo. PUC No. 7, Second Revised Sheet No. 8A (proposed). These percentages are derived by dividing the Eligible System Safety and Integrity Costs for each Base Rate Area by the non-gas base rate revenues for that Base Rate Area from 23

24 SourceGas Distribution s most recent general base rate proceeding (i.e., $170,977 $31,866,417 and $191,493 $8,006,958). Effective January 1, 2013, therefore, the Total GRSA percentages for BRA1 and BRA2 would increase to 9.19% and 3.39%, respectively. See Exhibit LMB-17, Colo. PUC No. 7, Second Revised Sheet No. 8A (proposed). The application of these two percentages is shown in Exhibit LMB-17, Colo. PUC No. 7, Sheet Nos. 7-7K. 47. As shown on Exhibit LMB-19, page 1, the System Safety and Integrity Rider percentages of 0.54% for BRA1 and 2.39% for BRA2 are applied to SourceGas Distribution s fixed and volumetric base rates through the GRSA, and produce the following SSIR charges to become effective January 1, 2013: Base Rate Area 1 SSIR Base Rate Area 1 Effective January 1, 2013 Base Rate Area 2 SSIR Base Rate Area 2 Effective January 1, 2013 Rates Fixed Volumetric Fixed Volumetric Fixed Volumetric Fixed Volumetric Residential (R) $ $ $ 0.06 $ $ $ $ 0.24 $ Small Commercial (SC) $ $ $ 0.12 $ $ $ $ 0.48 $ Large Commercial (LC) $ $ $ 0.54 $ $ $ $ 2.39 $ Agricultural (ICD/ATS) $ $ $ 0.97 $ $ $ $ 0.96 $ SourceGas Distribution is requesting that these charges go into effect on January 1, 2013, and remain in effect until the next annual effective date (January 1, 2014) or the approved effective date of SourceGas Distribution s next general base rate proceeding, whichever comes first. 48. Exhibit LMB-21 is a two-page document showing bill impacts of the SSIR rates to become effective January 1, Exhibit LMB-21 applies to both BRA1 and BRA2. Page 1 of Exhibit LMB-21 shows the dollar and percentage impact of the SSIR rates on each bill component by customer class for each of SourceGas Distribution s five GCA Areas. Page 2 of Exhibit LMB-21 shows the dollar and percentage impact of the SSIR rates on an average annual bill, an average monthly bill and an average January bill by customer class for each of SourceGas Distribution s five GCA Areas. 24

25 Description of Rocky Mountain s Proposed System Safety and Integrity Rider 49. Rocky Mountain respectfully requests a decision of the Commission authorizing Rocky Mountain to implement, effective January 1, 2013, the System Safety and Integrity Rider described in the Prefiled Direct Testimony of Lewis M. Binswanger and set forth on the Tariff sheets in Mr. Binswanger s Exhibit LMB-18. As part of that decision, Rocky Mountain respectfully requests that the Commission authorize the SSIR rate, effective January 1, 2013, discussed in Mr. Binswanger s Prefiled Direct Testimony, derived in Mr. Binswanger s Exhibit LMB-20 and set forth on the Tariff sheets in Mr. Binswanger s Exhibit LMB-18. As shown in Exhibits LMB-18 and LMB-20, Rocky Mountain is proposing one SSIR rate for both its General Resale Service (Rate Schedule GRS) and it Firm Transportation Service (Rate Schedule FTS-1). 50. Rocky Mountain s System Safety and Integrity Rider is equal to its Eligible System Safety and Integrity Costs, plus or minus its SSIR True-Up Amount, plus or minus its Deferred SSIR Balance, divided by the total Contract Demand under its Rate Schedule GRS-1 plus the total on-system Maximum Daily Transportation Quantity ( MDTQ ) under its Rate Schedule FTS-1. See Exhibit LMB-18, Original Sheet Nos. 10A and 10B (proposed). This is shown in equation form as follows: SSIR = ((A ± B ± C) / D) Where: A = Eligible System Safety and Integrity Costs B = SSIR True-Up Amount C = Deferred SSIR Balance D = Total Contract Demand under Rocky Mountain s Rate Schedule GRS-1 plus total on-system MDTQ under its Rate Schedule FTS-1 25

26 51. Exhibit LMB-20, consisting of 13 pages, shows the derivation of Rocky Mountain s SSIR rate. Page 1 of Exhibit LMB-20 summarizes the development of Rocky Mountain s SSIR rate for 2013 and shows, for illustrative purposes only, the operation of the hypothetical SSIR True-Up Amount and the hypothetical Deferred SSIR Balance in 2015 based upon data. Pages 2-12 of Exhibit LMB-20 show the data that are used to develop Rocky Mountain s SSIR rate shown on page 1. Page 13 of Exhibit LMB-20 contains the underlying data and assumptions used to generate the data on pages As stated above, the $1,520,666 of projected 2013 Eligible System Safety and Integrity Costs for Rocky Mountain is derived on Exhibit LMB-20, page 2, and shown on Exhibit LMB-20, page Rocky Mountain is proposing the following manner to recover its Eligible System Safety and Integrity Costs through its System Safety and Integrity Rider. Rocky Mountain has effective in its Colo. PUC No. 3 Tariff, among other rates, a Demand Charge applicable to its General Resale Service (Rate Schedule GRS) and a Reservation Charge applicable to its Firm Transportation Service (Rate Schedule FTS- 1). Rocky Mountain is proposing to apply the System Safety and Integrity Rider as an adjustment to the Demand Charge applicable to its General Resale Service (Rate Schedule GRS) and as an adjustment to the Reservation Charge applicable to its Firm Transportation Service (Rate Schedule FTS-1), effective January 1, The projected Eligible System Safety and Integrity Costs of $1,520,666 divided by the 111,797 Mcf of total Contract Demand and total on-system MDTQ under Rocky Mountain s Rate Schedules GRS-1 and FTS-1, respectively, equals $ per Mcf. Rocky Mountain is requesting that this rate of $ per Mcf go into effect on January 1, 2013, and remain in effect until the next annual effective date (January 1, 2014) or the approved effective date of Rocky Mountain s next general base rate proceeding, whichever comes first. The $ per Mcf rate appears on Rocky 26

27 Mountain s Statements of Rates for Rate Schedules GRS and FTS-1. See Exhibit LMB- 18, Colo. PUC No. 3, Seventh Revised Sheet No. 8 (proposed), Seventh Revised Sheet No. 8A (proposed) and First Revised Sheet No. 10 (proposed). Page 1 of Exhibit LMB- 20 shows the $ per Mcf rate added to the current GRS-1 Demand Charge of $ per Mcf for a total charge of $ per Mcf, and added to the current FTS-1 Reservation Charge of $ per Mcf for a total charge of $ per Mcf. Customer Notice 54. Within seven days after the filing of this Joint Application, SourceGas Distribution will arrange for notice of the proposed rate increases and tariff changes to be published in the legal notice section in The Denver Post, a newspaper of general circulation. SourceGas Distribution has requested that the notice be published at the earliest possible date. A copy of the notice to be published is attached as Appendix 1 to this Joint Application. 55. Within seven days after the filing of this Joint Application, Rocky Mountain will arrange for notice of the proposed rate increases and tariff changes to be delivered via hand delivery to Rocky Mountain s only Rate Schedule GRS-1 customer, SourceGas Distribution LLC, and via U.S. mail to each customer taking service under Rate Schedule FTS-1. A copy of the notice to be delivered is attached as Appendix 2 of this Joint Application. Conclusion Relief Requested WHEREFORE, the Applicants respectfully request that the Commission issue an Order authorizing: 56. SourceGas Distribution to implement, effective January 1, 2013, the System Safety and Integrity Rider set forth on SourceGas Distribution s proposed Colo. PUC No. 7 Tariff, Original Sheet Nos. 21 and 22. (See Exhibit LMB-17). 27