ML18230A826

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in Matter of Application of Carolina Power & Light Company, for Authority to Adjust & Increase in Rates & Charges - Testimony of Eugene H. Curtis, Jr., Operations Engineer, Operations Analysis...
ML18230A826
Person / Time
Site: Harris  Duke Energy icon.png
Issue date: 03/23/1977
From: Curtis E
State of NC, Utilities Commission
To:
Office of Nuclear Reactor Regulation, State of NC, Utilities Commission
References
Download: ML18230A826 (9)


Text

g KGEIXEQ N828 NE N C uHUTIG COMM1SSlON DOCKET NO. E-2, SUB 297 BEFORE THE NORTH CAROLINA UTILITIES COMMISSION In the Matter of APPLICATION OF CAROLINA P01<ER E( LIGHT COMPANY FOR AUTHORITY TO AMUST AND INCREASE ITS RATES AND CHARGES 1

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TESTIMONY OF EUGENE H. CURTIS,'JR.

Operatio'ns Engineer Operations Analysis Section Division of Engineering Staff, North Carolina Utilities Commission March 23, l977

1 g. Will you state for the record, your name, occupation, and business 2 address?

3 A. My name is Eugene H. Curtis, Jr. I am employed by the North Carolina 4 Utilities Commission, One West Morgan Street, Raleigh, North Carolina.

5 My tit' is Operations Engineer.

7 g. Will you state briefly your education and experience?

8 A. I was awarded the Degree of Bachelor of Science in Civil Engineering 9 from North Carolina State University in 1973. I have recently begun 10 studies 'in statistics and economics on a part-time basis from this ll same University. I joined the Staff of the North Carolina Utilities 12 Coranission in March of 1976. My duties have concerned plant deprecia-13 tion, replacement cost analysis, and gas supply. Prior to joining 14 the Cormission Staff, I was employed by the Energy Division of the 15 State of North Carolina Department of Military and Veterans Affairs 16 where I was responsible for analysis of energy supply and demand.

18 g. What is the purpose of your testimony'?

19 A. In my testimony I will give comment upon the replacement cost appraisal 20 filed with Carolina Power & Light Company's application for rate 21 increase. I will also give comment. on the derivation of the fair 22 value rate base.

23 24/. What does the replacement cost represent?

25A. Replacement cost is the cost, in today's dollars, of replacing the 26 remaining usefulness of the existing utility plant system. The

existing plant has been installed in prior years at cost levels of usefulness generally lower than today's comparab'le dollars. In general, the existing plant would cost more to replace today than when originally placed in service.

6 g. How is the replacement cost determined?

7 A. The in-service cost, of an identical or similar plant in today' dollars must be found. If the cost of the identical or similar plant 9 cannot be found, then the trending of original cost dollars into 10 present dollars must be calculated.

12 g. Do the two methods of calculating replacement cost produce the same 13 answers?

14 A. If the cost indices used to bring original cost dollars through time 15 to today's dollars are properly reflective of changes in the produc-tivity of construction methods, labor efficiency, and equipment 17 efficiency as well as changes in those dollars themselves, and the original cost dollars are not themselves inflated, then the trended 19 original r.ost would be the same as the cost of constructing that 20 plant today.

21 Has the Company calculated a Trended Original Cost of plant-in-23 ser vice as of June 30, 1 976?

24 A. Yes. Mr.'reitling of Ebasco Services Incorporated has testified for the company concerning the Trended Original Cost, the Trended 26 Original Cost Less Depreciation, and in supplemental testimony

filed by Mr. Breitling, a Substitute Plant Method of analysis at June 30, 1976.

4 Q. Mr. Curtis, are you developing your own trends for calculating the 5 Trended Original Cost or reviewing the Company's methodology?

6 A. I will be reviewing and commenting on the appraisal of the Trended 7 Original Cost as calculated by Mr. Breitling in his prefiled original and supplemental testimony.

10 Q. Would you first like to comment on the Trended Original Cost as calculated by Mr. Breitling?

12 A. Yes. Mr. Breitling used a methodology which is commonly used in 13 the trending of original cost dollars through t-',me for the purpose tricc 14 of calculating a Trended Original Cost. The Handy Index developed 15 by Whitman, Requardt and Associates was used in trending the original 16 cost dollars to June 30, 1976. The Handy-Whitman Index of Public 17 Utility Construction Costs was applied to 99.5 percent of the elec-js property. The other 0.5 percent of electric property was trended 19 using an index developed by Marshall and Swift, and Engineering News 20 Record. As I stated before, the methodology of trending as calculated 21 by Mr. Breitling is an accepted method and I find no disagreement with 22 the values as calculated.

23 24 Q. What is the Trended Original Cost at June 30, 1976 for the 25 Company's electric plant-in-service as testified io by Mr.

26 Breitling?

27 A. $ 3,371,409,038.

1 g. Has there been a deduction from this Trended Original Cost to 2 allow for accrued depreciation?

3 A. Yes, there has.

5 g. And what method was utilized by Mr. Breitling to calculate the 6 accr ued depr eci ation?

7 A. Mr. Breitling used the Iowa survivor curve method of depreciating 8 the trended original cost dollars. The Iowa survivor curves, average g service lives, and net salvage were recommended by this Commission lO and utilized in the Company's last rate case before this Commission.

11 This Iowa curve method was applied on a straight-line group method.

12 The accounts were treated as groups of properties and not single 13 units. Thus, the Condition Percents were applied to the Trended 14 Original Cost dollars giving the Trended Original Cost Less Deprecia-15 tion values.

16 17 (}. What is the Trended Original Cost Less Depreciation for Carolina 18'ower and Light Company at June 30, 1976 as calculated by Mr.

19 Breitling?

2O A. $ 2,405,426,104.

21 22 g. Do you accept this figure as valid for the Company's Trended 23 Original Cost Less Depreciation at June 30th, 1976?

24 A. Yes. The methodology of using the Iowa Survivor Curve is most 25 precise if the average service lives, type curves,=and net sal-26 vage values are correct. I would agree that this calculation is

correct and will use this value as adjusted to reflect the Net Replacement Cost in arriving at a Fair Value Rate Base.

4 g. Has the company provided any additional testimony as to other 5 methodologies of assessing the "fair value" of plant-in-service?

I 6 A. Yes. Mr. Breitling filed additional testimony recognizing that the 7 "fair value" of a utility's generating plant, transmission line and 8 distribution lines cannot exceed the present cost of constructing a 9 substitute system of modern design with equivalent generating power.

10 11 g. And would you summarize the Substitution Plant Method?

12 A. Yes. The Substitution Plant Method was employed to calculate the 13 replacement cost of the Company's Production Plant at June 30, 1976.

14 The cost by the Substitution Plant Method exceeded the trended original 15 cost as calculated by Mr. Breitling. Also, the net trended original 16 cost is less than the economic value as calculated in Mr. Breitling's 17 Substitute Plant Method.

18 19 g. Will you be utilizing the values as calculated by Mr. Breitling 20 in his Substitution Plant Method for calculation of Fair Value?

21 A. No. I will be relying on the calculations from Mr. Breitling's 22 Trended Original Cost study in my Fair Value ana1ysis at June 30, 23 1976 as adjusted to reflect the addition of the Brunswick ¹1 plant 24 and any other adjustments as shown in Rule Rl-17, Item (b)(4), page 25 1 of 2 of the Company's filing.

26

1 g. And what values of Net Original Cost and Net Trended Original 2 Cost will you be using to arrive at a Fair Value of plant-in-3 service and property-in-service at the end of the test year?

4 A. The Net Original Cos. used is taken from Staff Witness Hoover's 5 Exhibit 1, Schedule,2, page 1 of 2. A value of $ 1,245,522,000 has 6 been used for Net Original Cost. This value is for North Carolina 7 operations only. The Net Trended Original Cost value came from Rule 8 Rl-17, Item (b)(4) page 1 of 2. A value of $ 1,896,656,940 has been 9 used for the Net Trended Original Cost in North Carolina at June 30, 1976.

10 ll 9. Hr. Curtis, how do you propose to weight the Net Original Cost 12 . and the Net Trended Original Cost in the calculation of a Fair 13 Value of property-in-service at June 30, 1976?

14 A I propose to weight the Replacement Cost less Depreciation by an amount equal to that portion of the company's common equity such that the equity stockholders are protected against the impairment of their capital investment against inflation and weight the Original Cost less Depreciation by an amount equal to 100% minus the percent 19 of common equity.

20 21 g. What weighting have you given the Replacement Cost less Depreciation?

22 A. A weighting of 36% since that represents the equity portion of the 23 total capital structure for Carolina Power and Light Company..

24 25(. And have Yo'u.weighted the Original Cost less Depreciation by the remaining. 64K.

27 A. Yes. I have.

g. What Fair Value of plant-in-service does this weighting produce?

2 A. As shown on Curtis Exhibit Ã, the Fair Value of Carolina Power and Light Company's plant-in-service as of June 30, 1976 is 4 $ 1,476,330,578.

. 6 g. And what'is the Fair Value of Carolina Power and Light Company's 7 property-in-service as of June 30, 1976?

8 A. The Fair Value of the, property-in-service for Caro'.ina Power and 9 Light Company in North Carolina is arrived at by adding an allowance 10 for working capital of $ 59,754,000 (from Staff Witness Hoover's Exhibit 1, Schedule 2, page 1 of 2} to the Fair Value of plant-in-service of $ 1,476,330,578. The Fair Value of property-in-service is $ 1,536,084,578 as shown on Curtis Exhibit 81.

14 15 g. Does this conclude your testimony'?

16 A. Yes. It does.

19 20 21 22 23 24 25 26

CURTIS EXHIBIT pl CAROLINA POWER AND LIGHT COMPANY E-2, SUB 297 NORTH CAROLINA FAIR VALUE RATE BASE

1) Net Original Cost = $ 1,245,522,000 x .64 = $ 797,134,080
2) Net Trended Original Cost - $ 1,886,656,940 x .36 = 679,196,498
3) Working Capital = $ 59,754,000 x 1.00 = 59,754,000 FAIR VALUE RATE BASE 1,536,084,578