ML18230A829
| ML18230A829 | |
| Person / Time | |
|---|---|
| Site: | Harris  |
| Issue date: | 03/23/1977 |
| From: | Anthony Williams State of NC, Utilities Commission |
| To: | Office of Nuclear Reactor Regulation, State of NC, Utilities Commission |
| References | |
| Download: ML18230A829 (10) | |
Text
DOCKET NO. E-2, SUB 297 BEFORE THE NORTH CAROLINA UTILITIES COMMISSION IN THE MATTER OF APPLICATION OF CAROl INA POWER AND LIGHT COMPANY FOR INCREASE IN ITS RATES AND CHARGES f4~/-<~>'"
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of Documeab HEGlj TORY DOCKH FILE TESTIMONY OF ANDREW W. WILLIAMS Chief, Electrical Section Division of Engineering Staff, North Carolina Utilities Commission MARCH 23, 1977
CAROLINA POWER AND LIGHT COMPANY DOCKET NO. E-2, SUB 297 1 g. Will you state your name and address for the record?
2 A. My name is Andrew W. Williams. My business addres" is One West 3 Morgan Street, Raleigh, North Carolina.
5 g. What is your position with the North Carolina Utilities Commission 6 Staff?
7 A. I am Chief of the Electric Section in the Engineering Division.
9 g. Will you briefly discuss your education and experience?
10 A. I received my B. S. Degree in Nuclear Engineering from North ll Carolina State University in May of 1971. I have been employed 12 by the North Carolina Utilities Commission's Engineering Division 13 since June 1, 1971. I have testified before the North Carolina 14 Utilities Commission on fuel prices and/or costs of generation 15 in Duke Power Company, Carolina Power and Light Company, Virginia 16 Electric and Power Company, and Nantahala Power and Light Company 17 rate proceedings and on automatic fuel adjustment clauses in num-18 erous Virg'nia Electric and Power Company, Duke Power Company and 19 Carolina Power and Light Company rate proceedings.
20 21 g. What is the purpose of your testimony in this proceeding?
22 A. The purpose of my testimony in this proceeding is (1) to report on 23 the Staff's investigation of CPEL's fuel procurement activities and 24 (2) to recommend a change in the base fuel cost level proposed by 25 the company to be incorporated into the basic rate design and the 26 recomnended fuel cost adjustment formula.
1 g. Will you briefly describe your investigation of the company's fuel procurement activities?
3 A. Yes. I examined each of the company's twenty-one long term coal contracts in detail, paying specific attention to the effective date, term, annual tonnage, base price, quality of -oal, premium-penalty adjustment provisions and price escalation clauses. In addition, I examined a sample of "spot" coal procurement activities proceeding from determination of spot coal requi rements through invitations to bid, recei pt of bids, evaluation, selection, or ders, 10 receipt of coal, sampling, testing, and payment. I also reviewed the company's two light oil contracts.
12 13 g. What were the results of your investigation?
14 A. While there are substantial variations in the effective dates, terms, 15 annual tonnages, base prices and quality of coal embodied in these 16 contracts, these items are generally within acceptable ranges. Each 17 contract contains penalty-premium adjustment provisions to adjust 18 price for varying heat content of the coal on a direct 4/MBTU delivered 19 price basis (variations include 100 Btu/lb and 50 Btu/lb tolerances
.20 before penalty or premium and double penalty below minimum quality 21 levels). The price escalation clauses generally allow price adjust-22 ment based on actual increases in costs, with allowable cost items 23 specified, or cost adjustments based on published price indicies.
24 The company has audit rights or can otherwise demand justification 25 satisfacto~y to itself before prices are adjusted based on cost 26 increases. Three of the contracts also include market-price adjust-27 ment provision in various forms.
1 CPKL's spot coal purchasing activity is a fairly straightforward 2 process of inviting bids, selecting the lowest prices offered for 3 coal of an acceptable quality for its various generating plants 4 (including freight cost determinations) and purchasing this coal.
6 The two oil contracts are straightforward allowing CP8L to pur-7 chase specified quantities of No. 2 oil at a set discount below 8 posted prices.
10 In summary, CPSL's fuel procurement activities appear reasonable ll and within the informal guidelines adopted by the staff with the 12 exception of the market price adjustment provisions in three of 13 the long term coal contracts. These contracts should be closely 14 monitored by the company and the Commission to determine perform-15 ance relative to the other long term contracts.
16 17 g. Why are you recommending a change in the base fuel cost level pro-18 posed by the company to be incorporated into the basic rate design lg and the recommended fuel cost adjustment formula?
20A. In its Application and supporting testimony and exhibits in this 21 docket-.the company included numerous adjustments to reflect the 22 Brunswick No. 1 nuclear unit, the related investment, expenses, and 23 operations at normal levels into the test year. The company-elected, however, to make no adjustment to the base fuel cost level, incor-porated in the basic rates and adjustment formula, to reflect the lower average fuel cost resulting from the normal operation of the
Brunswick No. 1 unit. The company chose to show the results of the lower average fuel cost resulting from the opera.ion of the Brunswick No. 1 unit as an adjustment to revenue assuming this savings in fuel 4 cost would be credited to its customers through the normal operation of monthly rate cases based solely on the cost of fuel pursuant to G. S.62-134(e) and Rule Rl-36.
The staff is of the opinion that the fuel cost as determined in the normaliz d test year annualized to year end levels should be incor-10 porated into the basic rate design and the recommended fuel cost adjustment formula, effectively "zeroing" the operation of G. S. 62-12 134(e) proceedings for the adjusted test year (rather than setting the base at an artificially high level in anticipation of credi ts to 14 customers pursuant to G. S.62-134(e) proceedings).
15 16 g. What adJustments from actual +est year data have you made in com-puting your recommended base fuel cost level?
1B A. Numerous adjustments to components of the actual fuel costs were adopted from the power estimate performed by CPKL to reflect normal operation of Brunswick 1 (and a full year. of operation for Brunswick 2) in the test year. These adjustments are shown in column 2 of Exhibit No. AWW-l. In addition an adjustment was made to reflect the KWH annualization to December 31, 1976 (Exhibit No. AWW-2 and column 4 24 of AWW-1). An adjustment was also made to reduce the level of oper-ation of Brunswick No. 1 from the 75.5X load fac+or utilized by the company to a 65K load factor which the staff feels is more reflective
1 of normal sustained operations (Exhibit No. AWW-3 and column 5 of' AWW-1).
4g. What is the base fuel cost level recommended by the Staff' 5A. As shown in column 6 of Exhibit No. AWW-l, the base fuel cost level 6 recommended by the staff is $ 0.00689/KWH. Adoption of this base 7 fuel cost level would require a reduction in the price of each KWH 8 block in DPHIL's proposed rate design by .171</KWH including the gross 9 receipts tax effect. This reduction would reduce the gross revenue 10 produced by the proposed basic rates by $ 27,326,759, as shown in ll Exhibit No. AWW-4, and "zero" the effects of any fuel cost adjust-12 ments pursuant to G.S.62-134(e) for the test year.
13 14 I should point out that this base fuel cost level is based on normal 15 operations of the nuclear units and failure of the nuclear units to 16 perform at this level (particularly Brunswick 1 in its first year of 17 operation) will result in positive fuel cost adjustments pursuant to 18 G.S.62-134(e).
19 20(. Does this conclude your testimony?
21A. Yes, it does.
22 23 24 25 26
AWW-1 COMPUTATION OF BASE FUEL COST-AVERAGE FUEL EXPENSE FOR NORMALIZED TFST YEAR, ANNUALIZED TO 12-31-76 LEVELS 1 2 3 6 (000) (000) (000) (000)
Book CPKL Adj. Adjusted Staff Adj. Staff Adj. Totals Cost for Book for KWH for Bruns.
Brunswick Annualiza- 1 to 655 tion CF Fossil 195,306.6 (67,417.7) 127,888.9 $ 17,818,840 $ 7,998,152 153,705.9 Nuclear 19,461.9 22,474.0 41,935.9 (2,311,302) 39,624.6 Purchased 9.012.9 (7,366.1) 1,646.8 1,646.8 Power Sub Total 223,781.4 (52,309.8) 171,471. 6 194,977.3 Less Inter- 7,883.6 (896.2) 6,987.4 6,987.4 system Sales Less Nuclear 1,989.7 1,993.5 3,983.2 3,983.2 Rental Total 213,908.1 (53,407.1) 160,501 .0 184,006.7 KWH 25,155,485.3 25,155,485.3 1,565,847,000 26,721,332.3 Sales Rate/KWH .00850 .00638 0. 689 g/KWH Sales
AWW-2 Adjustment to Reflect Staff KWH Annualization to 12-31-76 Level I. Increase in KWH above test year levels 1,565,847,000 KWH
- a. Retail
- 1. Actual year ending 6-30-76 15,980,561 MWH
- 2. Annualized to 12-31-76 level 16,944,506 MWH
- 3. Increase (I.a.2. minus I.a.l.) 963,945 MWH
- b. Other
- 1. Actual year ending 6-30-76 9,174,925 MWH
- 2. Annualized to 12-31-76 level 9,776,827 MWH
- 3. Increase (I.b. 2 minus I.b.l) 601,902 MWH
- c. Total
- l. Actual year ending 6-30-76 25,155,485 MWH
- 2. Annualized to 12-31-76 level 26,721,333 MWH
- 3. Increase (I.c.2) minus I.c.l) 1,565,847 MWH II. Increase in KWH sales to generation level 1 1 (Line I x 1 - Losses or Line I x 1 - 0 0 5 1,674,703,000 KWH III. Increase in fossil fuel expense $ 17,818,840 (a) Assumes all additional KWH produced by fossil units (b) Assume" fossil fuel expense of 10.64 Mills/KWH (Item 10, section 5)
- c. 1,674,703,000 KWH x 10.64 mills/KWH . mills/$
= $ 17,818,840
AMM-3 Adjustment to Reflect Brunswick No.
Operations at a 65K Capacity Factor for the Test Year I. KWH generation by Brunswick 1 5,426,480,000 KWH (Utilized by CPSL, 75.5f capacity factor)
II.
III.
KWH generation by Brunswick (0"1,000 Reduction in KW KWH x 8760 year 1 9 65K capacity factor
"" x .65 = 4,674,774 generated by Brunswick No. 1 NWW) 4,674,774,000 751,706,000 KMH KWH IV. Decrease in nu lear fuel expense (751,706,000 KWH x 0.0030747 $ /KWH) $ 2,311,302 V. Increase in fossil fuel expense 7,998,152 (Assumes decrease in nuclear generation replaced by fossil generation) 751,706,000 KWH x 10.64 mills/KWH -:
1000 mills/$ = $ 7,998,152 VI. Net difference in fuel expense $ 5,686,850 (line V - <ine IV)
AWW-4 REDUCTION OF PROPOSED RATES TO REFLECT CHANGE IN BASE FUEL COST RECOMMENDED BY STAFF
- l. Staff Recommended Base Fuel Cost S0.00689/KWH
- 2. Base Fuel Cost Proposed by CPEL $ 0.00850/KWH
- 3. Diference $ 0.00161/KWH
- 4. Difference + Gross receipts tax factor $ 0.00171/KWH (line 3 x 1.06383)
- 5. Revenue Effect of Reduction of Each KWH Block of Proposed Rate Schedules by
$ 0.00171/KWH - (15,980,561,000 KWH x
$ .00171/KWH) $ 27,326,759