ML18230A815

Horne Exhibit No. 1 - Retail Operations Cost Allocation, Study Procedure

ML18230A815
Person / Time
Site:	Harris
Issue date:	11/24/1976
From:	Carolina Power & Light Co
To:	Office of Nuclear Reactor Regulation
References
Download: ML18230A815 (21)

Text

Horne Exhibit No.

1 Page 1 of 12 Carolina Power 6 Light Company

'Retail Operations Cost Allocation Stud Procedure The Company presently provides retail electric service under seventeen

.active individual rate schedules.

For purposes of cost allocation studies, these schedules are grouped into four major classes, based on an analysis of the characteristics of the customers and their service, as follows:

Class Rate Schedules Residential R-2, R-3, R-4 Small General Service G-l, CS-1, CS-2, IP-1 Large General Service G-2, G-3, GLF Lighting TS, AL-1, SL-l, SL-2, SL-3, SL-4, SFL-1 The study undertakes to consider all cost factors involved in providing electric service to the classes of customer analyzed and is complex because many parts of the electrical system are used jointly by all customers.

Allocations are necessary to assign to the classes of customers reasonable shares of the total cost of furnishing electric service.

The rate of return for each class is determined by deducting the operating expenses of that class from its operating revenues, to determine a net operating income which is then divided by the average net original cost rate base allocated to that

class, The allocation of the cost components to obtain these rate of return results for the retail classes requires several steps.

The first is to assign the cost items to functional groups based on the use of the facilities.

Horne Exhibit No.

1 Page 2 of 12 Each cost item is classified as demand-related, energy-related, or customer-related.

Finally, each cost component is allocated by the appropriate factor to the various customer classes.

COST COttPONENTS Demand Costs classified as demand-related are those which vary with the kilowatts of demands imposed on the various segments of the system.

These costs include the major portion of the investment and related expenses in production and transmission facilities and a portion of the distribution system.

~Ener

- Costs whioh vary with the number of kilowatt-hours generated are classified as energy-related.

These costs include the fuel expense, the energy portior. of tbe purchased power expense, and boiler and turbine generator maintenance expenses.

Customer - Costs which are primarily a function of the number of customers are classified as customer-related.

These costs are incurred to provide electric service to a customer locaticn and are not dependent cn the size of the load or number of kilowatt-hours delivered.

Customer-related costs include meter reading expense, customer accounting expense>

and a portion of distribution primary and secondary lines, meters, trans-

formers, and services.

ALJ,OCATIOB FACTORS Factors are developed to allocate the cost components to the customer classes.

In the development of the required allocation factors a principle of "equivalent level of service" is followed to insure that the customer

Horne Exhibit No. l Page 3 of l2 classes are allocated cost components for only those levels of the system involved in service to their respective customers.

For example, the level of service concept insures that an industrial customer who receives service at a primary distribution voltage is not allocated a portion of the secondary distribution system.

Demand The principal factors used in the allocation of the demand components of costs are based on the following:

Peak Responsibility (CP)

The peak responsibility demand allocation method is employed to allocate the production and transmission'ower supply costs.

The demands at the time of the system service area peak demand are developed for each of the classes.

The development of this data involves the use of system load data, individual customer meter readings, and data from the load survey.

Class Peaks Demand data are compiled and analyzed to determine the time of the peak demand for each of the classes.

These class peak demands are combined to produce factors for the allocation of distribution substations and distribution primary poles and conductors.

Factors for the allocation of these facilities to the rate schedules within each class are developed from the demands of the individual rate schedules at the time of the respective class peaks.

Horne Exhibit No.

1 Page 4 of 12 Noncoincident Maximum - The demand cost components of the distribution secondary

poles, conductor and services are allo-cated using factors developed from customer noncoincident maxi-mum demands.

The use of noncoincident maximum demands for allocation of the secondary system and services recognizes the fact that these facilities are normally designed to serve the maximum demands of individual customers.

Average of Class Peak and Noncoincident Maximum The demand cost component of the investment in distribution line transformers is.allocated by use of factors developed by

\\

averaging the class peak and customer noncoincident maximum demands.

~Ener The allocation or the energy cost components is based on bilowarr-hour sales data adjusted for losses to the power supply production level.

Customer Allocation factors for the customer cost components are developed from the average number of customers connected at the various levels of the system.

An analysis is made to determine the numbers of customers utilizing the facilities and incurring the expenses to be allocated by the factors.

RATE BASE The average net original cost rate base used in the determination of the rate of return consisted of the following components, which are allocated among the classes as indicated:

Horne Exhibit No.

1 Page 5 of 12 Electric Plant in Service Production Plant The production plant in service is allocated between classes of service by K!4 demand allocation factors developed from system load data, adjusted to the production level.

The alloca-tion factors are derived from each class demand at the time of the system service area peak demand.

Transmission Plant It is necessary to separate the power sup-ply transmission plant into two levels for allocation Since the step-up transformers at the generating plants perform a production function, these facilities are allocated by using the production IGl demand allocation factors.

The remaining transmission lines and sub-stations which are interconnected to form a power network and are operated as a closed, integrated.system are assigned to power supply transmission for allocation to the customer classes by transmission level KN demand allocation factors.

Distribution Plant The distribution plant in service is classi-fied into demand-related and customer-related cost components and allocated by the appropriate allocation factors.

Since distribution substations.are designed and installed based on the load to be served, they are classified as a demand cost.

Street lights., area lights, and underground lines are classified as customer costs.

The separation of'he overhead lines, line transformers-,

meters, and services into demand and customer costs reauires a ~o.tailed analysis of the manner in which the facilities are used to provide electric service.

This separation into demand and customer costs recognizes

Horne Exhibit No.

1 Page 6 of 12 that poles, conductors, line transformers, and meters are required'o serve customers regardless of their load and establishes the customer component as the theoretical minimum costs that would be required.

The normal plant accounting records do not provide sufficient information on which to functionalize and classify this distribution investment into demand and customer components.

The separation of the overhead distribution system into primary and secondary voltage levels, and then into demand and customer components, was obtainable from a random sample of distribution lines.

By statistical methods, a sampling plan was developed to select geographic service areas and inventory the distribution facilities within the sample areas.

Vernon Graphics, Inc.,

a utility mapping consultant firm, was engaged to assist in the selection of the sample service areas and to conduct the field inventory.

A system map was produced which employed the North Carolina State Plane Coordinate System.

These reference coordinates were extended to include the South Carolina service area.

Twelve system locations were selected at random by use of the map coordinates.

After selection of the sample service areas, personnel from Vernon Graphics conducted an inventory of the distribution facilities located within the selected map locations.

The results of this inventory were tabulated on field data sheets and drawn on aerial photographs of the service areas.

The inventory produced detailed information on approximately 1% of the poles and circuit miles of the overhead distribution system, including 8,000 pole locations.

Horne Exhibit,No, 1

Page. 7.of, 2

The distribution pole and conductor plant accounts were separated into primary and secondary voltage levels based on the analysis of the sample data.

The demand and customer cost components were determined by use of the minimum system method.

The ove'rhead line investment related to the minimum system was developed using the following components:

Poles Conductor Line Transformers Service Meter 30-foot distribution pole Primary, secondary, and neutral wire f!4 ACSR Secondary cable

!/4 AL Triplex Groundwire as installed 3 KVA transformers 75 feet N AL Triplex Standard KK meter This functional analysis of the distribution plant represents a

reasonable separation of the distribution plant into demand and customer cost components for allocation to the retail classes.

Consideration was given to the use of other methods, including the zero intercept method.

Except for line transformers, insufficient plant accounting data were available to apply the zero intercept methodology.

For comparison, a zero intercept cost was observed between the methods.

The zero intercept method produced a transformer cost of

$126.90, while the 3KVA minimum size transformer showed an average cost of

$135.75.

This difference was not considered consequential and the minimum system figure was used to be consistent with the method used for poles, conductors,

services, and meters.

l

Horne Exhibit No.

1 Page 9 of 12 Cash Working Capital Allowance An allowance for cash working capital is included for operation and maintenance

'xpenses excluding purchased power.

The allowance for each class is determined as a portion of the expense allocated to that class.

Minimum compensatory bank balances are allocated on the basis of total plant in service.

REVENUES 0 eratin Revenue Revenues derived from the sale of electricity are assigned directly to the classes.

Other operating revenues are either assigned directly or are allocated on the basis of functional plant.

Contract Sales Revenues Revenues from the contract sale of available capacity to other operating utilities are reclassified as a credit to production ezpenses.

This treatment of the revenues reflects the nature of these sales as cost reduction items and spreads the benefits among the customer classes in proportion to their utilization of the production facilities.

The revenues from the sales from generating units are also credited against total production ezpenses.

OPERATING EXPENSES Production Expense incurred in the production of electric energy is classified as demand-related or energy-related.

The energy-related expenses include the fuel expenses, energy portion of purchased

power, fuel deferral ezpenses, and boiler, reactor, and turbine generator main-tenance ezpenses.

The fuel deferral ezpenses are assigned by specific analysis.

The other energy-related and the demand-related production expenses are then allocated by power supply production allocation factors.

Horne Exhibit No.

1 Page 10 of 12 Transmission Expenses incurred in the operation and maintenance of the transmission plant are separated into substation and line functions and are then allocated on the basis of the related func-tional plant.

Distribution Expenses incurred in the operation and maintenance of the distribution plant are assigned to the same functional groups as the plant in service.

Street light expense is assigned directly to the lighting class.

Heter expense and customer installations expense are assigned on the basis of special studies of the incidence of the expenses involved.

The expenses related to substation, distribution lines, and line transformers are allocated on the same demand-customer basis as the respective plant items.

Miscellaneous distribution ezpenses and rents are allocated on the basis of distribution plant.

Customer Accounts Expenses incurred in customer accounting are allocated on the basis of specific analysis.

The meter reading expense is allocated based on an analysis of the difficulty of the meter reading.

Customer records expense is allocated on the average number of customers.

Sales Expense Expenses incurred in connection with customer service and sales activities are assigned to the customer classes on the basis of an analysis performed by the Customer Services Group.

Administrative and General - A & G expenses are analyzed and assigned for allocation on the basis of either payroll labor ezpenses, jurisdictional regulatory ezpenses, or functional plant items.

A & G salaries are allocated by labor factors; regulatory ezpenses are

Horne Exhibit No.

1 Page ll of 12 assigned to wholesale and retail jurisdictions and then allocated to rate classes by rate schedule revenues; outside services and property insurance are assigned on the basis of an analysis of the expenses; and the other items are allocated on related plant accounts.

De reciation Expense The depreciation expense is functionally assigned and allocated based on the respective functional plant in service.

General Taxes - Taxes other than income taxes are functionalized into revenue

tazes, labor taxes, property taxes and KHH-related taxes.

The functional taz items are then allocated on the basis of taxable

revenues, labor factors, plant in service and WH sales.

Income Tazes State The additional tax deductions including interest and tax depreciation are allocated to the customer classes and then deducted from operating income to determine an income before taxes for each class.

The state income taxes are allocated to the classes on the basis of the income before tazes.

Federal State income taxes are deducted to determine federal taxable income for each class.

Federal income taxes are then calculated for each class by application of the tax rate, plus current and prior year adjustments.

Horne E&ibit No.

1 Page 12 of 12 Deferred Tazes The current provision for deferred taxes is functionalized into production, transmission, distribution and general and is allocated on the basis of the respective plant accounts.

The deferred taxes due to fuel deferral accounting= are assigned by specific analysis.

Investment Tax Credit - The net of the provision and amortization of the investment tax credit is functionalized and allocated on the-basis of the functional plant accounts.

E ense Ad ustments Expense adjustments are allocated on the same basis as the base ezpense item to which the adjustment applies.

NET OPERATVilG INCOME The net operating income for determination of rate of return is derived for each rate class by deducting the allocated operating expenses from the class revenues.

RATE OF RETURN The rate of return is determined by dividing the net operating income for each class by the allocated total rate base.

For purposes of retail class cost allocation studies, an average original cost rate base is used in the determination of rate of return.

The average original cost rate base includes electric plant in service, accumulated provision for depreciation, nuclear fuel inventory, and working capital.

Horne Exhibit: No.

2 Page 1 of 4 CAROLINA POWER & LIGHT COMPANY Retail Operations Cost Allocation Study June 30, 1976 (1)

Operating Revenues Contract Sales Net Operating Revenues Per Books (2) 645,386,940

~*

636,341,708 S stem Operation Ad 'us tments (3) 90,758,736 90,758,736 Ad usted (4) 736,145,676 727,100,444 Opex'ating Expenses Operation

& Maintenance Contract Sales Net Opexation

&. Maintenance Depreciation Expense Taxes Othex Than Income State Income Taxes Federal Income Taxes Deferred Taxes Investment Tav Credit 337,521,920 328 ~476 ~ 688 55,782,236 49,163,147 5,252,661 37,153,014 75476,286 22 244 185 23,509,303 23,509,303 16,140,000 6,463,203 1,702,394 12,802,001 12,697,000 361,031,223 351,985,991 71,922,236 55,626,350 6,955,055 49,955,015 20,173,286 22 244 185 Total Operating Expenses Operating income 505,548,217 73,313,901 130,793,491

, 17,444,835 578,862,118 148,238,326 Average Rate Base Electric Plant in Service Accumulated Prov. for Depxeciation Net Plant in Service Net Nuclear Fuel Materials

& Supplies Prepaid Items-Cash Working Capital Total Rate Base 1,632,513,094 1,331,640,654 20,242,898 86,686,334 2",170,004 50 128 407 604,172,464 a6 a4o ooo 588,032,464 21,052,565 (4,279,386) 6 278 426 2,236,685,558 317 012 440 1,919,673,118 41,295,463 82,406,948 2, 170,004 56 406 833 1,490,868,297 611,084,069 2,101,952,366 Rate of Retuxn 8 773 7 ~ 052

CAROLIIIh POlIER 6 LIQLT COHPAMT Recall Oparacloas Cost Lllocatioa Study duaa 30> 1976 Sus>sary of Rsvaaua

~ OpefaCloB Erpcncas

~ aad RcCe Base Ad]uses>sacs Raucous Daprac>

Taxes Other 6

~T TT I

Scare Iacono

~T yadsral Deferred Incono Incone Pleat

~T

~T

~T~!

Sacer(ale Cash Daprac>

Mac)ear aad MorklnR

~>n ~l tu>TTI~

~>TT 1

Ad)use for annual

~ fleet of recall race lncrcsscs Ad)ust for a>u>ual effccC of resale race lacrcssc Ad)ust for fuel to base of fuel charge Ad)use fuel charge revenue Co reflect addlclon of Sruasulck Adjust fuel expense to annualize

~ddltloa of Srunsulck Ad)use other 0 6 lt Erpcnscs co rcilcct sddlcton of Scunsufck Ad)use for test fuel - Brunsulck Ad)ust purchased poucr crpcnsa Co ref lccc addlcfoa of Srunsulck Ad)ust for 'Iansteeont audit 5S,561 ~ 7S2 29,84$,271 SB>631>459 55 ~S93>6N

($3,279,776)

(44,047,$ 00) 6,3S3,S92 2 'SS,823 (7'66,106) 300,000 2>635>639 3>175 ~ $69 23 ~ SSO>276 1>726 ~ 522 1 ~ 687>125 12 ~ 687>180 3,037,83$

(2,7$4,790) (3,031,499) '(22,796,874) 2>6412>S50 19>BN>23'2 (38 1 >'216)

(2 ~ 866> 740)

(129 ~349)

(972,708) 441>966 3>323 ~ S87 (18,000)

(13$ >360) 6,949,203 (5,$ 0$,937) 1 794 ~ 199 269,478 37,500 Ad)ust foc anortlsacfoa of cravca County Pleat Slcc 78,/107 (4,704>)

(3$,377) 9,801 Ad)use for as>orfsacfon of Hadtsoa County Plaac Slcc ld)usc for nonsallcstton of hydro Ecncraclon Ad)usc uaSss and fringe bcoef les at ?Iarch 3l, 1977 Ad)uec for nuclear propcrcy insurance Ad)usC for Postslc lacrcssa Ad)usc for rcscarch snd dsvelopucnc aspen> a 187,816 899,394 5,471>044 1,419,151 147,449 1>979>102 (11 '69)

(84,N3)

($3>964)

(405,806)

(328'63)

(2>468>S35)

(SS,149)

(640,321)

(8>847)

(66,529)

(118>746)

(892,971) 23,477 112,424 683,880 177 ~ 394 lS,431

~ g

~>

247>388

- <<K

>1 y

.CAROL1MA POIIER & LIQIT COMPAMP Retail Operacloas Cost Allocsctoa Study - June 30> 1976 Sus>aery of Revenue Operattag Rxpcnses

~ and Rate Base AdJuatwcats

~SS Revenue Deprsc.

~S Taxes Other Than Incoue State lacuna aves Pedes'al Deferred Incona Iacosse Materially Cash Pleat Deprcc.

Muclcar aod Morktag

>S~ ~ ~S

~>S

~SS l

Ad)ust for addtctonel coaoccc and disconnect charges AJJusc co include Brune>sick Pt ln plane ln service Ad)use co iaclude other pl>ac

~ddtttons through March, 1977 AdJu>c property tax to rellect addtcton of brunsulck AJJusc for increases ta PlCA cases 337 ~ S07 13 '98>000 2,142,000 834,000 66,394 (20,2$ 0)

(152,283)

(1 ~ 816 ~ '260) (13 ~ 658>27$ )

(128,$ 20)

(966,471)

(50,040)

(376 ~ 301)

(3,984)

(29,9$ 7)

(13>998>000)

(2 ~142,000) 42 F 188 Ad)ust for payroll Caxes oa usga lacrosse adJuscncac Ad)ust for propercy tsx oa other plant additions AdJusc for taco>se tsx notuattsattoa on Bruusvtck Plant.

AdJust to include Brun>utck Pt ia plant in scrvtcc AJJusc to include Btunsutck 62 tn average plant ta service ASJusc to tnctudc ocher plant additions throuth March 31, 1977 Ad)usc to correct posting error AdJu>t nuclear fuel -brunsulck AdJu>c nstertat and supplies-fucl stock to aoruel level 301,603 (18,096)

(136,084) 616 ~ 000 (36>960)

(177>939) 12,697>000 331,384,000 201,578,464 71>'210>000 111>565 20,b41,000 (4'79,386)

Ad)use ca>h nocking capital for additional accounts recctvshle 90,758,736

~ 23,S09,303 16 140,000 1>419>000 1

o p

6>463 >203 1 >701 >39'4 12 >801 >001 12 >697>000 604 >172 >464 (16>140>000) 21 >052 >56$

(4 >279>386) 6>178 >4'26 I

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~

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4

'M '& & '& W & 55 & & W SR ff/24/Tb RI PAGE 3>>

1 CAROLINA POL5ER L l.lGHT COHPANY RETAIL OPERATIONS COST ALLOCATlON STUDY JUN~0 2 f976 SYSTEH LLASIS 46 CP FOR PURER SUPPL.Y l.OG NULLBER Rf05 8

'4

.J

'5 2

NEl OPfflATZNG REYENLJ h.Voa SUttt5ARY 8Y RfTAIL CLASS COttS TOTAL QEH~

5&HL RETAil.

RESIDENTIAL SEHV SERV LIGHTING 52372103~280569&2 2RIBZ202 22279159 I ~

1lRILT920 OPERATING EXPEWSES TJt 1 NET OPE HAT IUN

'A HA INTENANCE ONOO DEPRECIATION DPEOO TAXES OTHER.TIIAH-IHCOH~IQQ STATE IhCOt5f TAXES SJTvO FEDERAL JNCUZEE TAXES FITOO RttOY I OR QEP&HIIEQ ZAXE~EZLQ IttVESTttfNT TAX CREDIT ITCOO TAL OPERATING EXPENSES EXPoo 287027461 '10226552

~

32956076 '39294724

~

45S0109

~

S7734490

~

25090016 '308394 '4176994 '159085

'&75'782

18348896~23!2 30~

9658661m 415223.

56187618 16933518

809081, 30147372 101592

~

4224 19388 10469847

~

6488575 '4557387 '26129

'9252ZII 5121323~2L?831 49468~97 63262 f7974974 '934075 '288595 '351191 '01112

'712P2877, 181890060,

57799761, 223O27192.

8485864>

OPERATING INCUtZE RETOO 120992226

~

465669098 170ST444

~

5476670TH 2601 165 ~

AVERAGE RATE UASE TP2 ELECTRIC..PLAttT-IH..SERYACE PIIQ (ACCUtt PROV FUR DfPRECIATION)

DPROO NET PLANT IN SERVICE NPpp NET-.NUCLEAR-FUEL UCO t5ATERJAL attD SUPPLIES NC30 PREPAID ITEt5S f5C 75 CAStt wORK JNG CAJZI gA

'Cgo 806778309,~96562152~29814335~40055483 uouu?334 2&lt369T37.

124350093, 3u395749.

96803912.

0819983.

1S42408S72 672112060 195418590 643250571 31627352e 2441208~0852714~29tt19!1~39863~99059 68483653

~

255 1 5393 ~

7526007

~

34 1 57203 ~

1 285050

~

1830133

~

700873

~

219618

~

889837

~

19805 ~

ttifif2JLSJf M? zk

~khMf9 9

TOTAL-RATE-8AS 800 RATE-OF-RETURN ADJ TR.TOO C-C3' C'1 2!

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