STATE OF ILLINOIS ILLINOIS COMMERCE COMMISSION North Shore Gas Company : : Proposed general increase in gas rates. : 14-0224 (tariffs filed February 26, 2014) : : The Peoples Gas Light and Coke Company : : Proposed general increase in gas rates. : 14-0225 (Tariffs filed February 26, 2014) : (Consol.) ORDER January 21, 2015 14-0224/14-0225 (Consol.) Contents I. INTRODUCTION/PROCEDURAL HISTORY ................................................................................................... 1 II. TEST YEAR (UNCONTESTED) ..................................................................................................................... 5 III. REVENUE REQUIREMENT ......................................................................................................................... 5 A. NORTH SHORE ........................................................................................................................................................ 5 B. PEOPLES GAS ........................................................................................................................................................ 10 C. PROPOSED REORGANIZATION ................................................................................................................................... 11 IV. RATE BASE .............................................................................................................................................. 21 A. OVERVIEW/SUMMARY/TOTALS ................................................................................................................................ 21 1. North Shore ............................................................................................................................................ 21 2. Peoples Gas ............................................................................................................................................ 21 B. POTENTIALLY UNCONTESTED ISSUES (ALL SUBJECTS RELATE TO NS AND PGL UNLESS OTHERWISE NOTED) ............................ 21 1. Gross Utility Plant ................................................................................................................................... 21 2. Accumulated Provisions for Depreciation and Amortization (including new depreciation rates and including derivative impacts other than in Section IV.C.1.a) .................................................................. 25 3. Cash Working Capital (other than Section IV.C.2) .................................................................................. 26 4. Materials and Supplies, Net of Accounts Payable .................................................................................. 26 5. Gas in Storage ........................................................................................................................................ 26 6. Budget Plan Balances ............................................................................................................................. 27 7. Accumulated Deferred Income Taxes ..................................................................................................... 27 8. Customer Deposits ................................................................................................................................. 28 9. Customer Advances for Construction ..................................................................................................... 28 10. Reserve for Injuries and Damages .......................................................................................................... 28 C. POTENTIALLY CONTESTED ISSUES (ALL SUBJECTS RELATE TO NS AND PGL UNLESS OTHERWISE NOTED) ................................. 29 1. Plant ....................................................................................................................................................... 29 2. Cash Working Capital ............................................................................................................................. 36 3. Retirement Benefits, Net ........................................................................................................................ 40 V. OPERATING EXPENSES ............................................................................................................................ 49 A. OVERVIEW/SUMMARY/TOTALS ................................................................................................................................ 49 B. POTENTIALLY UNCONTESTED ISSUES (ALL SUBJECTS RELATE TO NS AND PGL UNLESS OTHERWISE NOTED) ............................ 49 1. Other Revenues ...................................................................................................................................... 49 2. Resolved Items ....................................................................................................................................... 50 3. Other Production (PGL) .......................................................................................................................... 52 4. Storage (PGL) ......................................................................................................................................... 52 ii 14-0224/14-0225 (Consol.) 5. Transmission .......................................................................................................................................... 52 6. Distribution ............................................................................................................................................. 52 7. Customer Accounts – Uncollectibles ....................................................................................................... 52 8. Customer Accounts – Other than Uncollectibles .................................................................................... 52 9. Customer Services and Information ....................................................................................................... 53 10. Administrative & General (other than items in Section V.C.3) ............................................................... 53 11. Depreciation Expense (including derivative impacts other than in Section IV.C.1.a) ............................. 53 12. Amortization Expense (including derivative impacts) ............................................................................ 53 13. Rate Case Expense (other than amortization period in Section V.C.4) ................................................... 53 14. Taxes Other Than Income Taxes (including derivative impacts) ............................................................ 55 15. Income Taxes (including derivative impacts) ......................................................................................... 55 16. Reclassification of Costs to Plant in Service (PGL) .................................................................................. 55 17. Gross Revenue Conversion Factor .......................................................................................................... 55 18. Other ...................................................................................................................................................... 55 C. POTENTIALLY CONTESTED ISSUES (ALL SUBJECTS RELATE TO NS AND PGL UNLESS OTHERWISE NOTED) ................................. 56 1. Test Year Employee Levels ...................................................................................................................... 56 2. Medical Benefits ..................................................................................................................................... 64 3. Other Administrative & General ............................................................................................................. 68 4. Amortization Period for Rate Case Expenses ......................................................................................... 99 5. Peer Group Analyses ............................................................................................................................ 100 VI. RATE OF RETURN .................................................................................................................................. 106 A. OVERVIEW ...................................................................................................................................................... 106 B. CAPITAL STRUCTURE ............................................................................................................................................. 107 C. COST OF SHORT-TERM DEBT .................................................................................................................................. 108 D. COST OF LONG-TERM DEBT ................................................................................................................................... 111 E. COST OF COMMON EQUITY ................................................................................................................................... 112 F. WEIGHTED AVERAGE COST OF CAPITAL .................................................................................................................... 136 VII. OPERATIONS ......................................................................................................................................... 136 A. AMRP MAIN RANKING INDEX AND AG-PROPOSED LEAK METRIC(S) ............................................................................. 136 B. PIPELINE SAFETY-RELATED