Area Development Programs and Zones

How the surcharges are calculated

When the total cost of an extension of service to a new or additional service area is in excess of $5,000, the Company may, at its sole discretion, determine the economic feasibility of the project using a Public Service Commission of Wisconsin (PSCW) staff-approved Cash Flow Analysis Model.

The model utilizes a number of standardized assumptions and the financial information and margin rates from the Company's most recent rate case. The Company will survey the new service area and make a projection of customer estimates by rate class for up to seven years using a maximum 80% saturation of existing potential customers to be served from the project. Customers with estimated usage under 5,000 therms per year will be projected based on the Company's average usage by rate class. Customers with usage over 5,000 therms per year will be forecasted on an individual basis.

The first year construction costs will include the Company's estimate of capital costs for both materials and construction. Projected overheads, including engineering, construction supervision and inspection, easement and special construction costs, will be included in the estimated construction costs to the extent that the costs would be included as part of the work order for the project.

The model requires the following criteria be met:

1. After-tax cash flow must be positive following the eighth year of the project.
2. Net present value must be positive for the depreciated life of the project.
3. Internal rate of return must equal or exceed the Company's after-tax weighted cost of capital.

If the results of the economic analysis determines the internal rate of return is less than the desired after-tax weighted cost of capital, then the Company may either refuse to make the extension or require the customers to be served to make contributions of sufficient amount to provide an internal rate of return equal to the after-tax weighted cost of capital. The required contribution can be paid either before construction is started or collected through monthly bill surcharges or a combination of both from customers served by the project. The surcharge recovery period will be a maximum of seven years and will begin immediately following the completion of the initial phase of construction.

Given that the economics of an Area Development Program (ADP) can be highly dependent on the participation of larger-use customers, the Company may, at its sole discretion, require these essential customers to sign an ADP agreement and/or pay their contribution up front as a precondition to initiating construction. The effective ADP surcharge will be added to the monthly bills of all customers who participate in the program and do not pay an up-front contribution.

The effective monthly ADP surcharge will be applied to each customer beginning on the date the meter serving the customer is installed. The ADP surcharge is transferrable to homeowners and businesses or their successors, assigns and estates and is not subject to refund.

The ADP surcharge will discontinue when the required contribution for the ADP approaches zero or the predetermined recovery period has been completed, whichever comes first. The effective surcharge will be terminated with each customer's ensuing scheduled billing cycle.

Any gas main additions whether located inside or immediately outside the prescribed ADP area or defined zone will be treated as a separate extension and will be subject to the Company's existing extension rules. New customer additions whether inside the ADP area or immediately outside the prescribed ADP area or defined zone shall be subject to the effective ADP surcharge.

A tariff will be filed with the PSCW with each new ADP. The tariff (G‑49A) will specify each ADP by zone and will include a description of the boundaries, the effective surcharge, the effective start date and the anticipated date of termination.

ADP gas services and meter sets will be extended in accordance with the Company's regular gas extension rules and regulations. All other rules and regulations that govern the Company's natural gas service remain in effect in the ADP area.