against over earnings by the earnings cap under Section 1358(b)(3) which “captures the revenue impact of all other adjustments and insure that the DSIC does not result in unreasonable rates.” The OCA asserts that following the intent of the General Assembly and the Commission’s historic water DSIC practice, by not including ADIT, the Company would recover costs that it has not “incurred.” Columbia argues when the Company invests in DSIC eligible property, it uses shareholder capital to make the necessary investments. Whether it subsequently receives incremental deferred tax benefits is not known until after a return is filed. The Commission recognized in its Final Implementation Order, that the impact of ADIT is already factored into the DSIC through the calculation of the earnings cap, which prohibits Columbia from exceeding its allowable rate of return. The Company’s DSIC will be reset to zero if the data included in the most recent Annual or Quarterly Earnings report filed with the Commission shows that Columbia would earn a rate of return that would exceed the allowable rate of return used to calculate its fixed costs under the DSIC as described in the return section. According to Columbia, as shown in Exhibit NJDK-R2, the Company’s calculation of rate base for earnings report purposes includes the current book amount of ADIT. Thus, in order for Columbia to get the benefit of a DSIC, it must be in an under-earning position after taking into consideration the very tax matters that the OCA is concerned about. Columbia St. No. 1-RJ, p. 3. Since earnings are reviewed quarterly, the earnings cap adequately addresses the concern associated with ADIT for plant additions under the DSIC, without the complication of reviewing these issues in each quarterly DSIC filing. The OCA has argued that changed circumstances exist which make the inclusion of ADIT, outside of the earnings cap, appropriate at this time. However, while changes have occurred in tax benefits since the initial water DSIC, those changes occurred prior to the enactment of Act 11, and accordingly were known to the General Assembly before it adopted Act 11. Columbia witness Fischer explained that the total ADIT balance reflected in a base rate proceeding changes yearly, and ADIT on new plant can be offset by declining ADIT on
OCA M.B. at 43. (Italics represent OCA’s proposed language); OCA R.B., pp. 31-32. 1. Columbia’s Position As stated above, in its Main Brief, Columbia proposed that the final language on competitive customers in the Company’s tariff should provide as follows: The DSIC shall be applied equally to all customer classes, except that the Company shall not apply the Rider DSIC to any customer with competitive alternatives, or potential competitive alternatives, who is taking service at flexed or discounted rates and to customers having negotiated contracts with the Company. Columbia M.B., p. 26. Columbia asserts that this proposal would incorporate additional language that the parties have agreed upon, would allow Columbia to address all customers with the ability to exercise competitive alternatives, whether they had been constructed yet, and would clearly exclude those identified customers from being charged the DSIC. Thus, Columbia argues that this language would provide the best solution. Penn State proposed alternative language on page 3 of its Main Brief. According to Columbia the language in Penn State’s Main Brief achieves the same purposes as Columbia’s proposal, and Columbia does not object to Penn State’s proposed language. Columbia St. No. 1-RJ, pp. 4-5; Columbia R.B., p. 27. Columbia asserts that to delete “potential competitive alternatives” from the proposal and group those customers into the larger category of customers with competitive alternatives only serves to make the language of the DSIC less clear. Columbia argues that the OCA’s proposal to delete “potential competitive alternatives” should be rejected. Columbia R.B., pp. 27-28. Columbia believes it should not try to charge competitive customers the DSIC. Columbia notes that its proposal for the DSIC is identical to the treatment of competitive customers in other riders, which the Commission has found to be reasonable. Columbia St. No. 1-R, p. 7. Columbia contends it is already charging the maximum negotiated amount