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Utilities using new charge to boost infrastructure work in midstate

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Starting in April, midstate customers of Columbia Gas of Pennsylvania Inc. began paying a few extra cents on their bills.

Customers of PPL Electric Utilities Corp. can expect to do the same later this year.

Columbia and PPL are implementing a surcharge known as a distribution system improvement charge, or DSIC (pronounced "disc"). The revenue will help them significantly accelerate replacement of outdated infrastructure, company spokesmen and the state Public Utility Commission said.

Pennsylvania has allowed DSICs for water utilities since 1997. Last February, Gov. Corbett signed Act 11, permitting DSICs for sewer, electric and natural-gas utilities starting this year.

Advocates of Act 11 said too much of Pennsylvania's infrastructure, like the nation's, is outdated and overburdened, and DSICs enable utilities to shorten their infrastructure replacement cycles dramatically, they said.

That's what happened with Pennsylvania's regulated water companies, PUC spokeswoman Jennifer Kocher said. They cut their replacement timetables by decades, she said.

"We've seen it work," she said.

To implement a DSIC, a utility first submits a long-term infrastructure improvement plan to the PUC. Once that is approved, the company submits its DSIC proposal. The PUC began accepting applications in January.

The charges are reviewed and adjusted every three months, based on the utility's previous three months of eligible expenditures.

The PUC approved Columbia Gas' proposed DSIC in January, and the company added it to its bills effective April 1, spokesman Russ Bedell said.

"We are the first natural-gas utility in Pennsylvania to utilize the DSIC," he said.

The charge is 1.5 percent, he said, about 50 cents a month for the average residential customer. Business users will see the same percentage increase on their bills.

PPL expected to implement its DSIC in May, but it has been postponed, spokesman Michael Wood said.

The PUC approved PPL's infrastructure improvement plan in January. The company filed its DSIC application shortly thereafter, Wood said. However, the PUC is still reviewing it, so customers won't see a change until July 1 at the earliest, he said.

PPL initially estimated the DSIC would raise the average customer's bill by 7 cents, but that is subject to change, Wood said.

To file for a DSIC, a utility must have filed for a base rate increase within the past five years, Kocher said. The most recent "base rate cases" for electric utility Metropolitan Edison Co. and gas utility UGI Utilities Inc. are older, making them ineligible, she said.

Columbia's DSIC is based on its $23 million of infrastructure spending in December, January and February, Bedell said. That budget will swell as construction season gets underway; Columbia plans a total of $140 million in infrastructure replacement this year, Bedell said.

Local projects include pipe replacement on Company Street and West Jackson Street in York, costing $300,000 and $1.2 million, respectively, Bedell said. Columbia's service area includes York and Adams counties.

PPL expects to spend $135 million on infrastructure improvements that would fall within Act 11's eligibility requirements, Wood said.

PPL has about 435,000 customers in the midstate. Among projects in this area, he listed a $3 million substation project in Derry Township in Dauphin County and a $1 million project in Ephrata Township in Lancaster County, as well as new transmission lines in the Derry Township and Carlisle areas.

PPL is spending $10 million to replace 63 circuit breakers and 10 power transformers at midstate substations, he said.

"It's all detailed in the long-term infrastructure improvement plan that the PUC approved," he said.

Columbia's DSIC will be short-lived. The company filed for a base rate increase last September, and the new rates are projected to take effect July 1, Bedell said. When they do, that resets the DSIC to zero, Kocher said.

Columbia has not decided if it will seek to reinstate a DSIC in the future, Bedell said.

PPL expects its DSIC to grow gradually, reaching 5 percent of revenue in two to three years, Wood said.

That's the maximum, Kocher said. To seek additional rate growth, utilities have to file for a base rate increase, she said.

That, like the three-month DSIC rate reviews, are among the consumer protections built into Act 11, she said.

DSICs do not offer dollar-for-dollar cost recovery, Kocher stressed. Rather, they return to utilities a percentage of their infrastructure spending over time, giving them some additional cash flow. They still have to issue bonds to fund the work, but the additional funding can make for better debt terms.

A big part of the benefit is that utilities can start getting the additional revenue within a month or so of the eligible spending, she said. Previously, they had no way to adjust rates except through the full rate-increase process, which takes a year or more, she said.

As long as utilities are making eligible expenditures, they are assured of getting their DSICs approved, Kocher said.

"It's a funding mechanism that's guaranteed, without the delay of a rate (application)," she said.

Wood called DSICs "a tremendous boost" and "pivotal" for PPL.

"For years, people have talked about infrastructure," he said. "This allows us to move forward at a pace that is appropriate to benefit our customers."

Write to the Editorial Department at editorial@cpbj.com

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