St. No. 1 at 21-26, OCA St. No. 1S at 10-14; OTS St. No. 2 at 20-27; OTS St. No. 2-SR at 8-12. In rebuttal, the City proposed that rates sufficient to begin payments into an established OPEB Trust Fund be approved, contingent on trust fund establishment requirements similar to those in Pa. P.U.C. v. PGW, Docket No. R2009-2139884. City St. No. 2R at 1-4. The City offered further clarification of its position in rejoinder testimony, which provided the terms for the Partial Settlement on this issue, entered into between the City and the OCA and unopposed by the OTS. City St. No. 2-OR. These provisions are as follows: OPEB: Other than Pension Employee Benefits The OPEB issue is settled as follows: The City receives an annual amount for outside-City customers of $810,618, provided that it agrees to: a. No later than April 1, 2011, the City of Lancaster will begin the process to establish an OPEB Trust Fund; and b. Provide to the Commission and the active parties to this proceeding, a complete copy of the Irrevocable Agreement in a subsequent submission filed with the Commission to inform them that the Trust Agreement has been finalized. The Irrevocable Trust shall be established prior to the effective date for the portion of the rate increase specifically required to fund the OPEB Trust Fund; and c. Begin monthly OPEB deposits into the Irrevocable Trust in the first full month following Commission approval of this Settlement or the filing of the Trust Agreement, whichever is later. Understanding that during the transition year of 2011, the entire Annual Required Contribution will
The only Party opposing this proposed Partial Settlement of the OPEB issue was Mr. Poulin who, as stated above, apparently proposed a one-year waiting period prior to reflection of the ARC amount in rates. March 6 letter. 2. ALJ Recommendation The ALJ concluded that the proposed resolution of the OPEB in the Partial Settlement, which would disallow rate recognition of the additional ARC amount until an irrevocable trust fund is established and certain conditions are met, is in the public interest and should be recommended to be approved. According to the ALJ, the Partial Settlement does not immediately provide for a rate increase sufficient to fund the ARC amount, but instead, places the burden on the City to first establish the Irrevocable Trust and provide proof to the Commission and the active Parties that the Trust Agreement has been finalized. The ALJ states that this satisfies Mr. Poulin’s concern who, as an active party, would be provided a copy of that Irrevocable Trust Agreement when it is filed with the Commission. R.D. at 28-29. In addition, according to the ALJ, the Partial Settlement sets funding and reporting requirements and Mr. Poulin, as an active party to this case, would be provided copies of the quarterly reports and yearly summary of deposits for the initial five year period. If, in any year, the required contribution is not made, the active Parties would have the right, under the Partial Settlement, to take action before the Commission to enforce the provisions of the Partial Settlement and request penalties. As a result, the ALJ found the above protections in the Partial Settlement to be sufficient to safeguard ratepayers and assure that the appropriate trust fund is established and that required contributions are made and utilized for their intended purpose. R.D. at 29.
Total 100.00 100.00 100.00 100.00 (1) City St. No. 6 at 10, Sch. 1 (2) OCA St. No. 3 at 13 (3) OTS St. No. 1 at 7; OTS Ex. No. 1, Sch. 1 (4) Kellogg St. No. 1 at 2 As noted above, the City proposed a 50.00% debt/50.00% equity hypothetical capital structure for use in this proceeding (pro forma at December 31, 2010). City St. No. 6, Sch. 1. The other Parties proposed the use of the City’s actual capital structure as of December 31, 2009, of 83.8% debt/16.20% equity, with Kellogg’s slightly different actual capital structure likely due to rounding. OTS St. No. 1 at 12; OCA St. No. 3 at 13; Kellogg St. No. 1 at 6. Since Mr. Poulin apparently accepted the OCA cost of capital recommendations, he also by implication accepted the OCA recommended actual capital structure, from which these cost rates are derived. March 6 letter; OCA St. No. 3, Ex. JRW-1. The City proposed the use of a hypothetical capital structure due to the City’s atypical actual capital structure of 83.8% debt/16.20% equity as of 12/31/2009. The City asserted that its recommended 50.00% debt/ 50.00% equity hypothetical represented current water industry practice and was in line with Standard & Poor’s (S&P’s) implied ratios based upon published financial benchmarks. Lancaster contended that use of an industry standard eliminated the large cost rate adjustments resulting from differences in financial risk between the comparison group and the City. The City further noted that the Commission had used these more conventional ratios in past cases involving water utility systems. City St. No. 6 at 10-11. The City compared its hypothetical capital structure recommendation to the composite capital structure of its comparison group, infra: the Water Group Followed by