Company Owned Services Program Positions of the Parties UGI claimed $454,418 for expenses relating to the project cost and implementation of a Company-Owned Service (COS) Transition Program. The plan pertains to COS facilities including service entrance cables, meter sockets, panel boxes, main breakers and 240-volt breakers which are located inside the homes of customers. Pursuant to its duty to provide reasonable and safe service to its customers, UGI has identified 5,000 of its service facilities located in the homes of customers that are not adequately maintained due to the difficulty in accessing the facilities. Under the plan, UGI will inspect and repair or replace the facilities located in those 5,000 customers homes, and then transition ownership and maintenance responsibility of the facilities from UGI to the homeowner. UGI St. 3 at 16. UGI expects that the COS Transition Program will result in the inspection and transfer of responsibility for approximately 500 services a year for the next 10 years. UGI M.B. at 50-51. In order to implement the COS Transition Program, UGI explained that it will send notices to affected customers, conduct inspections and, if necessary, repair or replace the COS equipment so that it passes inspection by an approved electrical inspector certified by the Pennsylvania Department of Labor and Industry. Once the inspection is completed, UGI’s former COS equipment will be deemed customer-owned equipment consistent with the terms of UGI’s tariff. UGI M.B. at 50-51. UGI submitted that it will not profit from the COS Transition Program because the proposal would only permit the Company to recover the actual program expenditures rather than permitting it to capitalize any allowed expenses. Additionally,
evaluation. Additionally, both I&E and the OCA submitted that the Commission has indicated a preference for using the DCF method to establish reasonable common equity costs. As a result of its DCF analysis, I&E recommended a cost of common equity of 8.62%. I&E M.B. at 71. The OCA recommended an 8.50% return on common equity primarily based on the DCF model, including a full range of indicators of dividend yields and growth rates intended to reflect what investors actually use and consider. The OCA submitted that current market conditions support this return because the cost of capital in today’s market remains low. OCA M.B. at 54, 64. b. Recommended Decision The ALJs restated their recommendation that, consistent with Commission precedent, they would utilize the DCF method to set UGI’s rate of return on common equity and that they would utilize the CAPM as a comparison. The ALJs also restated that under the DCF method, their recommended dividend yield of 3.95% and growth rate of 5.85% produces a result of 9.80%. According to the ALJs, this appears reasonable as compared to their recommended forecasted CAPM of 9.83% and historic CAPM of 10.18% percent. Therefore, using the DCF result of 9.80% and the additional 0.20% management effectiveness adjustment that they recommended should be granted, the ALJs recommended a rate of return on common equity of 10.00% for UGI. The ALJs declined to add any further upward adjustments requested by the Company, finding this return to be reasonable. The ALJs pointed out that the average equity return for electric utilities was 9.75% in the first quarter of 2018, as compared to the average authorized equity return of 9.74% for all of 2017. R.D. at 89.
Percent Total Revenue Change 9.08% 13.30% 19.35% -3.31% 0.00% 0.00% Proposed Rate of Return 8.24% 6.13% 6.12% 17.30% 14.50% 18.91% Proposed Relative Rate of Return 100% 75% 74% 210% 176% 230% Current Rate of Return 3.75% -0.54% -0.59% 23.23% 16.20% 21.02% Current Relative Rate of Return 100% -14% -16% 619% 431% 560% UGI Exhibit D-Cost of Service Study (REBUTTAL) at 6-7; UGI M.B. at 148. Additionally, UGI explained that its final proposed revenue requirement increase of $7.705 million, inclusive of all adjustments resulting from the Company’s Rejoinder Testimony, should be allocated according to the same principles and in the same manner set forth in the above table. UGI M.B. at 148, n.30. I&E asserted that rather than merely focusing on the overall rate increase, gradualism and rate shock must be considered for individual components of a customer’s bill, and the customer charge in particular. Therefore, I&E requested that the Commission apply the concept of gradualism when making a final allocation in this proceeding. I&E M.B. at 76-77. The OCA presented an alternative revenue allocation proposal based on its own ACOSS and argued that it should be adopted in lieu of the one proposed by UGI. The OCA submitted that is proposed revenue allocation is appropriate because it reflects