Service and Main Line Extensions and System Improvements

Service and Main Line Extensions and System Improvements

A. Net Investment Test and Contributions in Aid of Construction Calculation
In areas in which the Company is authorized to operate, mains will be extended pursuant to these Terms and Conditions, and the MPUC Rules and Regulations. Gas service will be provided under the rate schedules set forth in Section VI hereafter, and system improvements will be undertaken for Customers connected and converted load subject to the following Net Investment Test.

Estimated Annual Transportation Revenues is defined as the estimated annual transportation revenue to be derived by the Utility from the investment net of gas costs. The Estimated Annual Transportation Revenues must be greater than or equal to 22% of the cost to the Company of the main extension and service(s) (the Company Cost ). The Company will provide customers (the initial customer(s) ) requesting an extension or improvement an allowance for such work not to exceed five times the Estimated Annual Transportation Revenues . The customers requesting the extension or system improvement will be required to pay the Company any amount by which the Company cost exceeds the Estimated Annual Transportation Revenues multiplied by three (the Excess Cost ). The allowance provided by the Company for main and service line extensions will be applied to service line extensions first, with any remaining portion being used for the main extension.

In addition to the Excess Cost, the initial customer(s) will be required to pay the Company the net present value of the federal and state income tax less the benefit of tax depreciation on the Excess Cost, using the Company s marginal income tax rates. The sum of the Excess Cost and the income taxes net present value comprise the Contribution in Aid of Construction ( CIAC ), which is derived by multiplying the Excess Cost by 1.378.  Payment of the CIAC will be apportioned among the initial customers according to their relative cost and usage. Payment will be required in advance or in accordance with installment program provisions in effect at the time that the installment contract is signed. The installment program provisions will be on file with the MPUC.

B. Subsequent Customer Contributions and Refunds
If the connection of a subsequent customer(s) results in additional cost exceeding the Net Investment Test for such customer(s), then such customer(s) will be required to pay the Company for such additional cost and income tax net present value effects. If the cost of connecting a subsequent customer(s) does not exceed the Net Investment Test for such customer(s), no payment is required from such additional customer(s).

If during the period of five years immediately following the date of construction completion, additional customers (the subsequent customer ) request connection to a main extension or system improvement for which a CIAC was paid, the CIAC will be recalculated. Such recalculation will result in a refund of some or all of the CIAC to the initial customer(s) if such subsequent customer(s) produces net revenue in excess of costs under the Net Investment Test. A refund will be made in accordance with paragraph C below. No refunds will be made after the fifth year following the date of construction completion.

C. Refund of Original Contributions
In the event that any portion of the original Excess Cost is subject to a refund as described in paragraph B, above, the amount of such refund shall be the difference between the recalculated and the original Excess Cost, as adjusted to reflect income tax net present value effects per the following table.

Year of Percent of Net Present Value
Refund Tax Adder to be Refunded
1 100%
2 83%
3 74%
4 66%
5 60%

The percentages stated are to be applied only to the applicable income tax net present value that was charged on the portion of the Excess Cost being refunded.

For example, if the Excess Cost was $1,000 and the full amount is to be refunded in the third year after it was received, the amount of tax which was collected on that amount should first be determined by multiplying $1,000 by 0.378 = $378 tax. Therefore, multiply $378 (tax only) times 0.74 (applicable percentage) = $280 (amount of tax to be refunded) plus $1,000 = $1,280 (total amount of refund).