1 Commonwealth of Pennsylvania House of Representatives Consumer Affairs Committee State Capitol G-50, Irvis Office Building

COMMONWEALTH OF PENNSYLVANIA HOUSE OF REPRESENTATIVES

CONSUMER AFFAIRS COMMITTEE

STATE CAPITOL G-50, IRVIS OFFICE BUILDING

TUESDAY, OCTOBER 25, 2011 9:03 A.M.

HEARING ON HB 60 (HARPER)

BEFORE: HONORABLE ROBERT GODSHALL, MAJORITY CHAIRMAN HONORABLE JOSEPH PRESTON, MINORITY CHAIRMAN HONORABLE BRYAN BARBIN HONORABLE FRANK BURNS HONORABLE SHERYL DELOZIER HONORABLE EUGENE DePASQUALE HONORABLE GENE DiGIROLAMO HONORABLE FRANK FARRY HONORABLE JULIE HARHART HONORABLE KATE HARPER HONORABLE WARREN KAMPF HONORABLE ROBERT MATZIE HONORABLE BRANDON NEUMAN HONORABLE CHERELLE PARKER HONORABLE JOHN PAYNE HONORABLE SCOTT PERRY HONORABLE MARCY TOEPEL

INDEX

TESTIFIERS

WITNESS PAGE

REPRESENTATIVE ROBERT GODSHALL 4 CHAIRMAN

REPRESENTATIVE KATE HARPER 5 PRIME SPONSOR

LOUISE KNIGHT, ESQUIRE 13 DIRECTOR NAWC – PENNSYLVANIA CHAPTER

CERTIFICATE 29

WRITTEN TESTIMONY SUBMITTED:

ROBERT F. POWELSON, CHAIRMAN PENNSYLVANIA PUBLIC UTILITY COMMISSION

CHAIRMAN GODSHALL: Good morning. The hour of nine o’clock having arrived, I call the meeting to order. The meeting is being recorded for the information of all those in attendance. The hearing is being videotaped by the Broadcasting Office of the House Bipartisan

Management Committee. It’s a hearing on HB 60, which amends Title 66, to create an exception to the billing of stand-by charges for fire com – for fire protection systems to volunteer fire companies, rescue squads, and ambulance service. I’d like to get started with having the

Members introduce themselves, starting over here with Representative Burns on my left.

REPRESENTATIVE BURNS: Representative Frank Burns, from Cambria and Somerset

Counties.

CHAIRMAN GODSHALL: Bob Godshall, Montgomery County.

CHAIRMAN PRESTON: Joe Preston, Allegheny County.

REPRESENTATIVE DiGIROLAMO: Gene DiGirolamo, Bucks.

REPRESENTATIVE MATZIE: Rob Matzie, Beaver and Allegheny County.

REPRESENTATIVE PAYNE: John Payne, southeastern Dauphin County.

REPRESENTATIVE KAMPF: Warren Kampf, Chester and Montgomery Counties.

REPRESENTATIVE TOEPEL: Marcy Toepel, Montgomery County.

CHAIRMAN GODSHALL: I know we will have a number of other Members that are going to be coming in, but there’s a lot of meetings going on this morning, and in fact, we were just lucky to get this room. There will be an opportunity for questions following each presentation, and I ask that Members please hold their questions until that time. We have two more members that are joining us, which we will wait till they get seated. Gentlemen, please introduce yourselves.

REPRESENTATIVE PERRY: Representative Perry, York and Cumberland Counties.

REPRESENTATIVE NEUMAN: Representative Neuman, Washington County

CHAIRMAN GODSHALL: Okay, with that, we have Representative Harper, who is the prime sponsor of House Bill 60. [She] will open today’s meeting with comments and a description of the bill and her concerns, you know, with this legislation.

REPRESENTATIVE HARPER: Thank you very much, and good morning, Chairman

Preston, Chairman Godshall, members of the committee, especially the Montgomery County delegation, which is out in force. Appreciate that. I know this is a busy morning in Harrisburg.

I don’t want to read this, but I do want to hit the highlights, and the highlights are how I came to introduce House Bill 60.

This bill, like many bills that we deal with, was suggested by a constituent, in this case the Fire Chief of the Harmonville Fire Company in Montgomery County. This is what he told me. In 1992, Harmonville built a new building at 2100 Butler Pike. The building codes at that time did not require fire sprinkler, but we opted to have it installed throughout the building. Our thought was that it was a great tool to fight fires, so how could we ask businesses to install them if we did not put the system in our own building?

The problem came after it was installed, and the building opened. Aqua invoiced us for the sprinkler line to the building. The charge is approximately $200 per month, even though no water is used. If water is used, of course, it is metered and invoiced on a monthly bill. It is a substantial amount of money for us to spend for something that is not used. Our request to you is there something that can be done with the water company to wave the costs associated with fire sprinklers in a firehouse?

So I did contact Aqua to see if, you know, maybe they could do a corporate donation or something like that, but they were worried that if they gave one customer, albeit a fire company,

4 a break, everybody else would want a break. So the suggestion was that if we exempt volunteer fire companies from the – and ambulances from these stand-by sprinkler charges, it would then become something they could put in their rate structure for everybody. It would become a part of their price for water for everyone. But, I mean, from the, from the macro point of view, there aren’t that many fire companies with sprinklers, and the 2,400 dollars, which is a big burden for the Harmonville Fire Company, would actually be pennies if spread among Aqua’s rate base. So essentially, if the bill’s approved, Aqua would be permitted to add a few cents to the cost charge to the entire rate base to pay these costs, and the volunteer firefighters could spend hours and hours of less time raising money for something that’s not being used.

And I believe this is one case where the cost sharing is probably warranted. I know I don’t have to tell the Members of this committee, as I look at you, how hard it is these days for volunteer first responders. In addition to whatever their real job is, they are spending countless hours at the firehouse already in mandatory training and in fundraising for their normal activities.

The customers of the water company are their customers, too. I know the Members of this

House understand that if volunteer fire companies don’t survive, the cost to our local government will be substantial and enduring. And I doubt that any of my constituents would mind a few pennies extra per year to relieve their volunteer firefighters of the burden of raising 2,400 dollars or more each year for the sprinkler system. What is the profit on a day’s worth of hoagie sales?

I mean, that, that’s how they’re raising money, folks, you know. How many hoagies do you think the volunteer fire company has to, to sell in order to pay the monthly bill of 200 dollars for the stand-by charges? Truthfully, this probably won’t affect that many firefighters or fire companies because there aren’t that many firehouses that have sprinklers in them.

It would mean a great deal to my volunteer firefighters to be relieved of the need to raise money for this and would likely be unnoticeable to majority of Aqua’s customers or shareholders, all of whom benefit mightily when they call 911 and the volunteer firefighters respond. Thank you. I will take questions when you are ready, Mr. Chairman.

CHAIRMAN GODSHALL: Thank you. Are there any questions from any of the

Members? Chairman Preston?

CHAIRMAN PRESTON: Help clarify. I fully support the issue about the firefighters.

Explain to me about the non-rescue squads and the ambulance services.

REPRESENTATIVE HARPER: Well, in my area those are all vol – those are volunteer organizations, 501(c)(3)’s as well. The ambulances in most places have had to go to have paid people because they just can’t staff it round the clock. They get so many calls, but they are basically non-profit organizations. So I – this was spurred by volunteer fire company. In many communities, the ambulance is an adjunct to the fire company or works right along with it. I should also explain, Chairman Preston – I should have done this in my testimony. Residential sprinkler stand-by charges are already exempt. My bill does not change that. It just changed the language a little bit to make it work better.

CHAIRMAN PRESTON: And the only reason why I say that because in Allegheny

County I got 130 municipalities. I have one of the volunteer fire departments that I have covers several cities and – or, or boroughs or townships, but yet, in a sense, sometimes, they, they’ll rent, you know, from the ambulance services. They’re renting in a for-profit building, and there’s a charge there, and I was wondering how that works because in some of the sprinkler systems, I understand, there’s also a chemical that’s also involved. I was just wondering how,

6 how that would cover them, especially when you have a for-profit. Some, some of the not-for- profits are owned by for-profit corporations. I was just wondering about that.

REPRESENTATIVE HARPER: I believe my bill says “volunteer.”

CHAIRMAN PRESTON: I don’t have – yeah, I don’t have a copy of the bill. That’s all.

REPRESENTATIVE HARPER: It says “volunteer fire companies, non-profit rescue squads and ambulance services.” I meant….

CHAIRMAN PRESTON: It would not apply for ambulance services that are for-profit?

REPRESENTATIVE HARPER: I intended it to be not-for-profit. If the language needs to be cleared up, you know, I would certainly support an amendment to do that. Because I thought it was fair for not-for-profits to have the costs shared. So if, if you don’t think that’s clear enough, I, I’d entertain, you know, an amendment that would fix that.

CHAIRMAN PRESTON: And, and what if they’re not in a standalone facility, per say, and they’re paying rent and that at the same time? Eight-story building and they just have to be paying rent there where they’re located.

REPRESENTATIVE HARPER: Well, if they have a sprinkler system and if the building owner is paying a stand-by charge, they would continue to have to pay that.

CHAIRMAN PRESTON: Okay.

REPRESENTATIVE HARPER: Okay, because we’re talking about the fire companies themselves that own buildings that are paying, the actual payer of the stand-by charge.

CHAIRMAN PRESTON: Okay. Thank you.

CHAIRMAN GODSHALL: I think what you’re saying is that if the fire company or the ambulance service, first responders, whatever, own the building, because you can have – in many cases you have, outside, maybe, of – with the exception in our area, you have the fire companies

7 in somebody’s, say, a for-profit building. They’re there on a rental basis. And are we talking about basically if you’re renting your own building – I mean if you own your own building?

REPRESENTATIVE HARPER: We are basically talking about that, although, I have to be honest with you, none of my fire companies or ambulances are in a for-profit building, so I wasn’t thinking of that particularly when we drafted it.

CHAIRMAN PRESTON: That’s what you had.

REPRESENTATIVE HARPER: So I guess what we’re saying is that if you think that the language could be clearer, I’m okay with that. I’m not trying to benefit for-profit landlords at the expense of the rate base. I’m actually saying this is a cost that should be shared.

CHAIRMAN PRESTON: And the other thing. In our area, I don’t know how it works also in some suburban areas, you have ambulance services that are, you know, primarily – it’s not emergency. A lot of it is just transporting patients and delivering people sometimes from place to place. That’s, that’s another issue.

REPRESENTATIVE HARPER: Right. The word “non-profit” modifies “rescue squad” and was meant to modify “ambulance services” as well, non-profit rescue squads and ambulance services. If you feel that needs to be strengthened, we could certainly add “non-profit” again, you know.

CHAIRMAN PRESTON: Quick question, I guess, even though I, I grew up in the country. What’s the difference between a rescue squad and a paramedic crew?

REPRESENTATIVE HARPER: In my area, there are fire companies that operate what are called a “QRS vehicle” [quick response vehicle], and that is a smaller, not a fire engine, a smaller vehicle that carries EMT’s [emergency medical technicians]. So they’re different from the ambulance, but the fire company itself has this “QRS vehicle” that they operate with EMT’s

8 in it, too. You know, if they get a call somebody’s having a heart attack, they don’t send a fire engine anymore. They send an emergency response rescue squad.

CHAIRMAN PRESTON: Because out in the southwest in a lot of the counties, I don’t know, some of the guys from Washington County, all of ours – paramedics are separate entities, and some of them are even separate departments. I was just wondering.

REPRESENTATIVE HARPER: Right, and I didn’t, didn’t want….

CHAIRMAN PRESTON: But they’re municipal, so that’s, that’s a different situation.

REPRESENTATIVE HARPER: Right.

CHAIRMAN GODSHALL: One of Bucks Counties finest, Gene DiGirolamo.

REPRESENTATIVE DiGIROLAMO: Thank you, Mr. Chairman. Kate, is your bill specific just to Aqua, or does it take in all the other water systems around the state? Or is this a problem just unique with Aqua?

REPRESENTATIVE HARPER: I don’t know if it’s a problem elsewhere, because I don’t think there are that many firehouses that were built at a time when sprinklers were available. And remember, sprinklers are actually easier to do when you have a large public water system than if you’re on a well system. So it’s not specific to Aqua. It amends that section of the law which currently exempts residential structures from stand-by charges.

REPRESENTATIVE DiGIROLAMO: The residential structures are exempt from this charge?

REPRESENTATIVE HARPER: Correct.

REPRESENTATIVE DiGIROLAMO: Any charge if they have a sprinkler system?

What’s the rationale behind charging 200 dollars a month? Is this like a separate line that runs into the, the firehouse?

REPRESENTATIVE HARPER: My understanding it is a capacity charge so that Aqua is prepared to have the water at an appropriate pressure when the sprinklers go on. I did ask how the rates were calculated and have not yet received that information.

REPRESENTATIVE DiGIROLAMO: Just a final question. Other than legislation, is this something that could also be accomplished by Aqua going into the PUC [Public Utility

Commission] and asking for a small rate charge to be able to, to do this?

REPRESENTATIVE HARPER: Well, my understanding from talking to representatives of Aqua was that if we exempt it from the rates, they get to put it into their rate base.

CHAIRMAN GODSHALL: Excuse me. I think that question we should – to the next presenter from the water company would probably be able to handle that to a better degree.

REPRESENTATIVE HARPER: Right, and it was certainly my intention to put it on

Aqua shareholders. It was my intention to allow them to share it among their rate base.

REPRESENTATIVE DiGIROLAMO: Actually, very supportive of what you’re trying to do. I’m not sure if any of my fire companies are in the same boat, but possibly, they are, also.

I have not heard from them, but I’m very supportive of what you’re trying to do.

REPRESENTATIVE HARPER: Thank you.

CHAIRMAN GODSHALL: Representative Toepel.

REPRESENTATIVE TOEPEL: Thank you, Chairman. Representative Harper, thank you for this bill. Just a quick clarification, you did say all residential properties are exempt, so that I’m led to believe that all commercial industrial properties do pay a standby charge for a sprinkler system?

REPRESENTATIVE HARPER: If they have a sprinkler system.

REPRESENTATIVE TOEPEL: Okay, thank you.

REPRESENTATIVE HARPER: And actually, I think under the building code you’ll, you’ll see a lot more sprinkler systems.

CHAIRMAN GODSHALL: Representative Curry.

REPRESENTATIVE CURRY: Thanks, Mr. Chairman. Thanks, Kate. Just a question here I have with some familiarity of, of the systems out there. Was the fire company unaware that that additional charge would be incurred by – it’s either installed a, a different – a separate line, or it’s what’s called a “combination meter” that, that meters fire and domestic, which is substantial cost to the water company, and there are other requirements for that metering based on its size and, and what it does. Were they unaware of that when they installed it?

REPRESENTATIVE HARPER: Yes, they were unaware that there would be an oncur – an ongoing charge. They actually made a conscious decision to spend the money on the sprinkler system but were unaware that there would be an annual fee, broken down monthly in their case, that they would have to pay.

REPRESENTATIVE CURRY: Okay, I mean, all businesses that I know of pay that. I mean, that’s just – that’s part of the deal for that additional burden that the water company has, and there’s additional regulations that come with that, so I’m not – I’m, I’m a little – let me ask you this questions, as well. Is – this is a volunteer fire company?

REPRESENTATIVE HARPER: Yep.

REPRESENTATIVE CURRY: So it’s not staffed twenty-four hours a day?

REPRESENTATIVE HARPER: They answer calls twenty-four hours a day.

REPRESENTATIVE CURRY: I know they answer….

REPRESENTATIVE HARPER: But they get dispatched by the county.

REPRESENTATIVE CURRY: But the question is, is someone in the fire house twenty- four hours a day?

REPRESENTATIVE HARPER: Apparently not.

REPRESENTATIVE CURRY: Okay. All right, I appreciate it.

REPRESENTATIVE HARPER: They get dispatched by the county to their pagers.

REPRESENTATIVE CURRY: All right, thank you.

CHAIRMAN GODSHALL: Thank you. And at this time, we’ve been joined by

Representative Delozier and Representative Parker. So – and we will continue the hearing with

Louise Knight, Director of the North NAWC, which isn’t spelled out here, but Chief Operating

Officer, Superior Water Company.

DIRECTOR KNIGHT: Thank you, Chairman.

CHAIRMAN GODSHALL: And I guess NAWC is National Association of Water

Companies.

DIRECTOR KNIGHT: You’re correct. That’s the national.

CHAIRMAN GODSHALL: I figured that out.

DIRECTOR KNIGHT: I’m testifying on behalf of the Pennsylvania Chapter of the

National Organization.

CHAIRMAN GODSHALL: And we’re also….

DIRECTOR KNIGHT: I am the Chief Operating Officer of the smallest large water company in the Commonwealth, Superior Water Company. We have about 3,300 connections.

As I said, at the end of the testimony, one of the problems this presents for my particular company…. A little closer? I’m sorry, and first of all, I want to say, good morning, Chairman

Preston. Good morning, Chairman Godshall and members of the committee. Since we sort of

12 launched right into this… I only have, basically, residential customers, so when we’re talking about eliminating a charge from one group of customers, I don’t have commercial and industrial customers of any significant number to shift cost to, essentially. But that’s just my particular circumstances.

You, you do have our testimony. I understand it was distributed ahead of time, and again, I won’t, I won’t presume to have to read it to you. I think a couple of highlights are that we do have a little bit of a terminology issue here about stand-by charges. I actually – my company had a rate case. When I was practicing law, I represented this company, and first of all, we do have some decision by the Public Utility Commission that says, as Representative Perry was talking about, if you have investment that is specifically associated with fire protection, that’s not considered a stand – the charge that you charge for those dedicated, what I would call

“dedicated facilities,” is not considered to be a stand-by charge. It’s a charge that reflects, based on a cost of service study, reflects the direct and indirect costs that are associated with that particular service.

In the case of fire service, we’re talking about when you plan facilities, the Department of

Environmental Protection makes you build larger storage tanks so that you can have enough water to fight a fire. So investment of that nature is what’s being recaptured through these charges. I’m not, myself, specifically familiar with the case that Representatives Harper had with, you know, that involved Aqua, but we’re just talking generally about what principles of rate making would apply.

So I just wanted to clarify that at the outset that the Commission has made a distinction between – a stand-by charge, in my view, would be if the company makes no additional investment, but there’s a charge made be – just merely because of the use the water’s being put

13 too. Well, that would be a true stand-by charge. No additional investment but a charge just because of the ultimate end use of the product. In the case of, you know, in the case of charges that are levied based on cost of service study hasn’t been considered a stand-by charge.

CHAIRMAN GODSHALL: Now, you’re saying another line isn’t – it’s not an, an extra line.

DIRECTOR KNIGHT: There may be an extra line, indeed. There may be an extra line.

There may be a large – when I look at the 200 dollar per month charge that Aqua was talking about, again, I don’t know specifically. I’m speculating to some extent, but it’s an educated guess. I assume that that’s probably a two or four inch meter, which is a fairly, fairly large meter. The ability, if that meter is needed, if that service is used, you’re calling for a large volume of service under high pressures. That meant that there was additional investment put into that, so the investment can be anywhere from a large meter that’s put in, because meters cost a lot of money, a separate line, and it may go all the way back to the storage tank and the pumps – you know, the size of the pumps that have to be installed. So it could be everywhere from the source to the end use. Did I just confuse you, or did I elaborate at all?

CHAIRMAN GODSHALL: For those, those extras that are in there, like a water tank, which I know is needed, and in some cases for sprinklers in homes and so forth, that’s put in not at the company’s expense but at the, say, at the fire companies expense. I mean, it’s, it’s not your expense, is it?

DIRECTOR KNIGHT: Typically, storage tanks would be built with investor-owned funds.

CHAIRMAN GODSHALL: Yeah, but say, and the line’s going into the storage tanks and the meter and so forth? That’s all – isn’t that all the customer’s, say, expense?

DIRECTOR KNIGHT: No, actually, cus – the meters are all paid for by the water company. That’s, that’s a policy of Public Utility Commission. We’re responsible for purchasing meters. So in that case there might be part of the service line which would be paid for by the customer, but most of the investment associated with fire protection charges are paid for by the utility. Otherwise, they couldn’t recover them in rates. They’re automatically excluded if they’re not funded by the, by the utility. It wouldn’t be in rate base, is what I’m saying.

CHAIRMAN GODSHALL: But would the 200 dollars charged to that fire company in

Representative Harper’s district, would that be a charge that is, so they – that Aqua, say, put on, or would it be a PUC-approved charge?

DIRECTOR KNIGHT: Well, it would certainly be a charge that’s approved during a rate case by the Public Utility Commission. Again, based on the cost of service study, which is the way – you know, there’s really two parts of a rate case. The first is to figure out how much revenue is to be, to be recovered by the company, and the second is how do you split up the pie?

And that’s what a cost of service study does. It basically says we’ve allocated costs to the different cost causers. So I assume that charge went through the routine rate case procedure.

The consumer advocate, I’m sure, was involved, probably the small business advocate. So, you know, there is fairly thorough vetting in rate cases.

CHAIRMAN GODSHALL: I’m quite familiar with that. Okay, continue. I, I just wanted to try to clarify, in my own mind, what you were saying.

DIRECTOR KNIGHT: Well, other, other than that, I think my testimony fairly well speaks for itself. There, you know, there certainly is the – always the concern if you are shifting rates from one group to another that, you know, there’s other worthwhile, there’s other

15 worthwhile entities that would like to share in being, you know, exonerated from some charges.

So it, it basically gets down to the general issue of who are you going to – you know, who’s going to pay the costs, and how are the costs going to be allocated?

I will say one thing. I, I – in the case that’s cited in my testimony, we did have a homeowners association who did make the claim that this service was never used. And I will say, from my perspective, having sprinkler service, it’s, it’s always there. It’s not being used that minute, but it’s like insurance. If you don’t use insurance, you don’t get to not pay for it after the fact and say, “Well, you know, I really never needed it.” The fact is it’s always there 24/7. The utility has to be prepared to provide that service the minute that it’s needed, and the fact that it isn’t used at a particular time doesn’t mean it doesn’t have great value. Those are my comments.

CHAIRMAN GODSHALL: Thank you. I would like to say we were joined by

Representative Farry, Representative Barbin, and Representative Harhart, and I have some questions that we’re going to have for you, starting with Chairman Preston.

CHAIRMAN PRESTON: Thank you. All I know is that, you know, versus the flatlanders out there in the southeast, you know, in the southwest, a lot of our fire, fire delivery systems and the volunteer and the, the paid have relocated because of the four minute rule. And versus because of the hills, a lot of our engine systems were set up on hills because they came out with horse, horse-drawn wagon. It was faster if they could go downhill. And since then, a lot of them have been relocated. And then we also have, unfortunately, these building codes that as new things are built with the systems. My question is this. Does it – and I can’t remember the case that we had that was dealing with for profit, several years ago, Mr. Chairman, up in Erie where people were trying to work out something. Is there any requirement, because I know that it’s meter-driven. It’s not about the splice button, meter-driven. Is there any requirement that

16 they have to test those things and flush them out, like the firefighters do with all the fire hydrants to keep their lines clean? Can you tell me do they have to or not?

DIRECTOR KNIGHT: Well, there actually are check valves and back flow prevention devices for commercial – for other than residentials, those valves do have to be checked and certified every year.

REPRESENTATIVE HARPER: Right, I can say that the Plymouth, the Harmonville

Fire Company is checked once a year by a local businessman who does it at a discounted rate.

CHAIRMAN PRESTON: So they don’t have to be flushed out every five years or anything?

REPRESENTATIVE HARPER: They’re tested. I’m not exactly sure how the test works.

CHAIRMAN PRESTON: See what I’m talking about? I don’t know.

DIRECTOR KNIGHT: You don’t have to – if you have a separate, if you have a separate fire protection line, there’s no possibility of cross contamination, so you don’t have to flush it.

CHAIRMAN PRESTON: Okay, that’s – that was my question. Thank you very much.

CHAIRMAN GODSHALL: Thank you. Representative Matzie.

REPRESENTATIVE MATZIE: Thank you, Mr. Chairman. I guess this is more a comment, maybe, than a question, and maybe staff would have to answer this question. Are there any other, to your knowledge, especially since you came from the legal background, any, any other utilities or other services similar to – I’ll just use an example, gas, that discount for a volunteer or a waiver of a cost, per se?

DIRECTOR KNIGHT: I don’t, I don’t have my copy of the Pennsylvania Code with me, but my recollection is that probably twenty to thirty years ago, a bill was passed that allowed volunteer fire companies and maybe another small group to be charged residential rates for electricity.

UNKNOWN VOICE: Senior centers.

DIRECTOR KNIGHT: Yeah, senior centers, so I, I do believe that’s in the, in the public utility bill.

REPRESENTATIVE MATZIE: Okay, I just wanted some clarification. It just popped up as you were talking, and as we gather information and you’re educating me on all this, as well, it just popped up. Figured I would throw the question out there and see if anyone had the answer. Thank you.

CHAIRMAN GODSHALL: I guess on that I would like to say the only people that were around here at that time were Chairman Preston and myself. So – and I don’t think I recall it, and I’m not sure he does, yeah. Representative Payne.

REPRESENTATIVE PAYNE: Thank you, Mr. Chairman. Just for clarification, we started out on the rate charge and then somehow 200 dollars got battered about. Is that a flat rate, I mean, between you or Kate, is this fire company paying 200 dollars a month? Is that the standard that’s set by the water company or by the PUC, or how’s that – what is the number?

DIRECTOR KNIGHT: Well, each company, of course, has its own tariffs and its own rates. That – and that’s why I say I couldn’t speak directly for Aqua.

REPRESENTATIVE PAYNE: Are there limits on that rate? I mean, can they charge anything?

DIRECTOR KNIGHT: It has to – it’s approved in the context of a rate case.

REPRESENTATIVE PAYNE: Okay, so it goes before the PUC?

DIRECTOR KNIGHT: Right.

REPRESENTATIVE PAYNE: All right.

DIRECTOR KNIGHT: Right.

REPRESENTATIVE PAYNE: And is that set on any meter, or is that vary on…?

DIRECTOR KNIGHT: It varies on the size of the meter.

REPRESENTATIVE PAYNE: Size of the meter, the size of the building.

DIRECTOR KNIGHT: Right.

REPRESENTATIVE PAYNE: I mean, obviously, a seven-story chocolate facility, of which I worked, may pay a different price than a one-story volunteer fire company building.

DIRECTOR KNIGHT: Absolutely. It varies with, again, it varies with meter size. We have meters up to eight inches.

REPRESENTATIVE PAYNE: Okay, I – again, I kind of thought that, but we were starting to get hung up on this, like, flat rate, and I didn’t think that was true. The other question would be, of course, at some point in time the utility does recover the cost of that meter, whether that’s five years or ten years or three years. What happens to that rate?

DIRECTOR KNIGHT: Well, of course, once that meter is fully depreciated, rates aren’t set on one particular meter. Of course, there’re classes, there’re classes. And as a class of – as a particular item might have reached the end of its useful life, the utility doesn’t get a return. Then it, then it becomes either obsolete, and it’s taken out of service, or there’s simply no return on that because it’s been fully depreciated and fully paid back.

REPRESENTATIVE PAYNE: In the case of the fire company that we’re specifically talking about, once they pay that 200 dollars a month for five years, or they pay that meter off, though, the charge still continues?

DIRECTOR KNIGHT: Because, because rates are….

REPRESENTATIVE PAYNE: Till it becomes – you can say the word. It’s hard to say

“profit.” It becomes a profit for the utility. That’s all right.

DIRECTOR KNIGHT: No, no it’s, it’s – I think you are miscasting the question, if I may beg to differ with you, because the rate isn’t based on you get a rate for your meter and somebody else gets a rate for their meter. It’s done in broad classifications, so your meter might depreciate, but somebody else that they’ve added new meters. And the useful life is sort of based on how long the asset’s going to last. They might have to take that meter out and replace that meter.

REPRESENTATIVE PAYNE: No, I understand that. I’m, I’m just trying to clarify for the volunteer department that at some point they probably have paid their meter, but the costs have to go for the, the whole rate base, and I understand that. And then sometimes I, I would hope the utility does make a profit. I’m not against that. I’m just saying I think we’re going back to Representative Harper’s issue on how do we segment out that volunteer department and still make sure the other rate payers are paying their rate and, and the utility still has the ability to, to supply those services?

Mr. Chairman, just on a closing note, almost every sprinkler system that I know of, at some point, should be checked. I don’t know that there’s any state statute that says you have to check it every five years or ten years. There are some NFPA [National Fire Protection

Association] standards for both industry and quick response systems, which homes have, that

20 recommend how you check the systems, and in my particular house, and I live in a fully- sprinklered home, there is, in simple terms, a faucet at the end of the line at the lowest point that you can open the faucet, drain the line, do any maintenance, do testing, verify that your system works so those aren’t laws, but they are recommendations. Thank you, Mr. Chairman.

CHAIRMAN GODSHALL: I have – I know there’s – Representative, Representative

Neuman, first, and then I have a couple of questions.

REPRESENTATIVE NEUMAN: Thank you, Mr. Chairman. Thank you for your testimony today. Just say you can make eye contact. My question is do you know – you know, the fire department in Representative Harper’s district pays 200 dollars a month. I’m not good at math. That’s 2,400 dollars a year. Is – do you know the actual cost that the water company incurs if there’s no fire that year? If that sprinkler system is not enacted, do they incur any extra costs?

DIRECTOR KNIGHT: The 200 dollars, as Representative Harper said in her testimony, because there’s a meter there, if, if the water is used, there’s a charge for the water use. So what this really points to is the cha – the 200 dollars per month is a charge that’s paying for the fixed investment.

REPRESENTATIVE NEUMAN: For the service?

DIRECTOR KNIGHT: For the fact that that investment has to be there whether, you know, whether there’s water actually being used out of the storage tank for that purpose. It’s investment that’s standing there ready, a demand charge it, so to speak.

REPRESENTATIVE NEUMAN: But is there – do you – can you quantify what a – the water would – costs they incur a year? If they’re paying 20 – 2,400 dollars a year, does the water company incur 2,400 dollars a year in costs, or do they incur more? Do they incur less? I’m just

21 curious as to, you know, if, if there is no fire, and the fire department’s paying 200 dollars a year, is there an extra cost involved for the water company?

DIRECTOR KNIGHT: Again, I don’t work for Aqua. I mean, I don’t – I’m not familiar with their cost structure, but the, the question really relates to when the company does the rate case, there’s a cost of service study that looks at all the costs that are being incurred and who caused those costs, so some is allocated to fire protection because there are clear requirements for fire protection. So they’re supposed to match-up is what I’m trying to say. Under a cost of service study, the commission goes through the rate making process. The costs are supposed to match up with the actual costs.

REPRESENTATIVE NEUMAN: Okay, I mean, that makes sense. So at the end of the year, I mean, give or take….

DIRECTOR KNIGHT: Give or take, but it’s not precise.

REPRESENTATIVE NEUMAN: It’s not a perfect system.

DIRECTOR KNIGHT: Right.

REPRESENTATIVE NEUMAN: And I don’t think you can have a perfect system with this, but give or take the water company, the PUC estimated the water company will incur roughly 2,400 dollars a year in costs, and that’s what they are trying to recoup.

DIRECTOR KNIGHT: Right.

REPRESENTATIVE NEUMAN: Okay. Thank you.

CHAIRMAN GODSHALL: Representative Barbin

REPRESENTATIVE BARBIN: Thank you, Mr. Chairman. Thank you for your testimony this morning. I’d like to follow up on something. I was reading the, the language of

House Bill 60, and I just want to make sure that you have no – that the industry has no objection

22 to the first part of the change in language. It has the word “owners” included. There’s a prohibition on stand-by charges. The first change in the statute is it inserts the word “owners.”

Do you have any objection to that phase or that – the fact that it says you’re adding the word

“owners” to the term of “residential structures”? Or is this just about volunteer fire companies?

DIRECTOR KNIGHT: Do you want to explain that, or shall I?

REPRESENTATIVE HARPER: Go ahead. You’re a lawyer. That’s right. I’m a lawyer, too.

DIRECTOR KNIGHT: Okay, actually, it’s, it’s not a change. The word “owners” was in there but in a different place. It was, it was deleted from the introductory sentence and moved to subsection “I.”

REPRESENTATIVE BARBIN: All right. So this is really just about the change that would affect volunteer fire companies and would reduce costs as it relates to water service for volunteer fire companies. Is, is that fair that that’s what this change in law is going to do as far as you’re concerned?

DIRECTOR KNIGHT: Well, volunteer fire companies, non-profit rescue squads, and ambulance services, that is.

REPRESENTATIVE BARBIN: First responders. It’s going to change first responders’ costs. Given the fact that Mr. Matzie has indicated that there are other similar discounts or benefits to other classes of customers for electric discount purposes, then from my prospective, what is the reason that any of us should be against this, since the volunteer fire companies or the first responders are providing 6 billion dollars of tax benefit to the Commonwealth? So from my perspective, this change, while it might affect your rate base to some very small amount, seems more – you know, a very reasonable thing to do when, when we’re trying to make sure that

23 volunteer fire companies remain viable since they’re providing the Commonwealth with a 6 billion dollar benefit. To me, this is less of a charge on the utilities than it would be on the electric companies who have discounted rates for senior centers. Do you have a response as to why this cost is significant enough for any of us to vote against it?

DIRECTOR KNIGHT: I, I assume that’s part of your deliberation, sir.

REPRESENTATIVE BARBIN: Okay. Well, and I guess, I guess I would say, then, that the utility industry has a duty just like all the rest of the taxpayers, and if this will help the volunteer fire companies a little bit, we should be doing it, so I’ll be voting in favor of the amendment. Thank you, Mr. Chairman.

CHAIRMAN GODSHALL: Thank you. I have, you know, a question pertaining to, again, a multi-use building. Say there’s – I have a first respondering, you know, facilities in my area that have large facilities besides, say, the ambulance wing. They have facilities, offices, and all kinds of service areas and so forth that are well beyond the, the ambulance bay itself. And I think that is also the case with a lot of our fire companies with the huge banquet halls, you know, and, and so forth. This, this covers the whole building, no matter how immense or limited it is?

DIRECTOR KNIGHT: Typically, you would only have one fire service. It wouldn’t be segregated into individual meters, so if a fire company were, you know, renting the space, presumably this charge would be rolled into their rent. I mean, I can’t visualize all the first possible permutations and combinations, but there’s probably one customer of record for this service, and that customer would probably be the building owner. How that owner, then, you know – it gets pretty indirect if you want to say the owner can’t charge rent that includes this for the fire company. That, that probably would be a little, a little difficult to legislate about.

CHAIRMAN GODSHALL: I, I have a – I think Representative Harper knows where I have it, you know, and one of my municipalities, it’s – they’re extremely large. They are extremely involved with all kinds of things: screening, screening different kinds of screens, medical screenings, and this kind of stuff with all kinds of options, and I’m sure if it is, you know, sprinkle – if there’re sprinklers involved, it’s in the whole building rather than just in the fire end of it.

DIRECTOR KNIGHT: But don’t they own it, Representative? Don’t they own the building?

CHAIRMAN GODSHALL: They own the building, at this point.

DIRECTOR KNIGHT: Right.

CHAIRMAN GODSHALL: But that shouldn’t – if we’re giving volunteer fire companies or vol – ambulance services a credit, are we giving it for everything they own?

REPRESENTATIVE HARPER: Well, I think the bill says if they’re the payer of the water bill and they’re a volunteer fire company, yes, they would get the credit.

CHAIRMAN GODSHALL: Or a volunteer ambulance service?

REPRESENTATIVE HARPER: Right.

CHAIRMAN GODSHALL: So, no matter how extensive.

REPRESENTATIVE HARPER: But, oddly enough, the Harmonville does not have a social hall. I have other fire companies that do.

CHAIRMAN GODSHALL: Most of them….

REPRESENTATIVE HARPER: They just have, they just have – they got offices in garages, bas – a garage, big garage.

CHAIRMAN GODSHALL: Now, I’m – I was looking at my ambulance, you know, service down in, in the Lansdale/ Hatfield area, which is a – which is immense. They do a lot of good service, a lot of good work, but it’s an immense facility, and, you know, that’s, that’s what

– when we’re saying we’re doing for them, for the ambulance service, or we’re also doing it for all the ancillary stuff that goes with the ambulance service that’s in – you know, that’s takes place in that building.

REPRESENTATIVE HARPER: Right. But I just want to point something out. I am not against them putting it into their rate base so that all of us would pay a couple of pennies more, and the fire company would pay, you know, a couple thousand less. They, they get – if, if we forbid them from putting it into the direct charge to the fire company, I assume they’d roll it into the rate base, so it’s not like they’re losing the money.

CHAIRMAN GODSHALL: Okay. Representative Delozier.

REPRESENTATIVE DELOZIER: Thank you, Mr. Chairman. Louise – excuse me. I have a frog in my voice. I just wanted to clarify one thing. When we’re talking about, and it was brought up about a couple different types of customer base that was being segregated out. At this point, that you’re aware of, like senior centers and that type of thing, are you aware of how many special classes of citizens or groupings of customers are there out there that have been given, possibly, an exception or exemption of some sort in the past?

DIRECTOR KNIGHT: Well, we re – we refer to the change in rate classification for fire companies. They used to be charged as commercial accounts and senior citizens, so now they are, you know, and have been for a number of years, charged as residential customers, so that’s a reclassification into what used to be considered a residential customers would have lower rates. I mean, that was the thinking at the time, I assume. Now, with all the changes to the electric

26 industry, I’m not sure that’s absolutely still true. There’s also, you know, the meter subsidy.

There’s a section of public utility code that says that three-quarters of the cost of municipal fire protection is already shifted. It can’t be charged to the municipality. It goes to the general, into the general revenue requirement for all customers. So, currently, I have to shift those costs into my customer charge to residentials.

REPRESENTATIVE DELOZIER: Okay.

DIRECTOR KNIGHT: So, you know, if somebody’s picking up, residential are picking up, but those are the two that I can think of that is specifically mandated in the code.

REPRESENTATIVE DELOZIER: Okay, so we have certain allocations and certain differentiations on, on seniors and the fire companies and…?

DIRECTOR KNIGHT: And municipal.

REPRESENTATIVE DELOZIER: And munici – okay. And municipal governments.

And the thought process is a fact of, and I think when we were talking about, “Yes, do we want to help fire companies?” By all means, that’s a, a given. But my concern is as we get more and more possible clar – separate types of classes, of types of customers, it was brought up by another Member about the fact that we have – there’s a lot of very good organizations out there doing very good things for our communities, fire companies certainly being at the top of the list.

As volunteers and, and having to fundraise in order to stay in business and protect us, so the assistance needs to be there. It’s just my question is to find out exactly how many differentiations are we making in the types of class of customers, and this would be one more that we’d need to add, so it’s just something to take into consideration. Thank you very much.

DIRECTOR KNIGHT: You’re welcome.

REPRESENTATIVE GODSHALL: I’d like to, to close. I was asked if I would cover this letter, and it is from the PUC in the hearing.

Thank you for the opportunity to comment on House Bill 60. Please accept these comments on behalf of the Public Utility Commission. Current public utility law under Section

1326 of Title 66 prohibits public utilities from opposing a stand-by charge on owners of residential structures equipped with automatic fire protection systems. As a result, utilities recover these costs associated with accommodating both the fire protection systems by spreading them across the entire customer base. House Bill 60 amends 1326 by extending the exemption from stand-by charges to volunteer fire companies, non-profit rescue squads, and ambulance service. This – thus under House Bill 60, if one of these organizations chooses to install an automatic fire protection system, they would be exempt from paying the utility for the cost of the upgrades to the meters and pipes necessary to accompidate – accommodate that system.

Similar to the treatment of costs associated with residential automatic fire protection systems, utilities would recover these costs from their entire customer base. While the commission understands the importance of reducing costs for the organizations included in

House Bill 60, we also know the importance of keeping rates as low as possible for all utility customers. Given these conflicting positions, the Commission takes a neutral position on HB 60.

The Commission appreciates the opportunity to express their opinion.

That – if there – I’d like to recognize Representative DePasquale also joined us at this hearing, and are – if there’re no other questions, at this time, I would – before I cancel – before I close the hearing, I’d like to remind – as a reminder, we have a meeting at 9:30 on Tu –

Thursday in B-31, Main Capitol. The meeting is in the regards to natural gas costs and

28 competition, and so that will be on Thursday, and I would, at this point, adjourn the meeting.

Thank you very much for attending.

Meeting is adjourned.

(Whereupon, the meeting adjourned at 9:50 AM.)

The above is a full and accurate transcript of proceedings produced by the Chief Clerk’s

Office of the House of Representatives.

______

Denise A. Johnson, Chief Clerk’s Office