ML18230A835

Filing Direct Testimony for Mr. Larry E. Smith & Additional Testimony for Mr. Paul S. Bradshaw & Mr. James M. Davis, Jr., Which Supplements Previously Filed Testimony to Company'S Experience ...

ML18230A835
Person / Time
Site:	Harris
Issue date:	03/28/1977
From:	Graham W Carolina Power & Light Co
To:	Office of Nuclear Reactor Regulation, State of NC, Utilities Commission
References
Download: ML18230A835 (34)

Text

Carolina Potnror 8 Ught Company P. O. BOx 1551 ~ Raleigh, N. C. 27eg2 WILLIAME. GRAHAM. JR.

Senior Vice President 0 $ 03 and General Counsel y ~~ ~oOl< March 28, 1977 ee4"' <i5.

Qa~e& 598%6 gg North Carolina Utilities Commission P. 0. Box 991 Raleigh, North Carolina 27602 Re: Docket No. E-2, Sub 297

Dear Members of the Commission:

T. am delivering herewith for filing the original and necessary copies of direct testimony for Mr. Larry E. Smith and additional testimony for Mr. Paul S. Bradshaw and Mr. James M.

Davis, Jr. This testimony supplements the previously filed testimony with respect to the Company's experience since the end of the June 30, 1976 test year'.

Yours very truly, I MEG:mc Enclosures

DIRECT TESTIMONY OF LARRY E. SMITH FOR CAROLINA POWER & LIGHT COMPANY 1 Q. Please state your name and business address.

2 A. Larry E. Smith, 336 Fayetteville Street; Raleigh, North Carolina.

3 g. What is your occupation7 4 A. I am Manager - Fuel for Carolina Power & Light Company.

5 g. Would you please state your educational background and experiencef 6 A. I received my B. S. Degree in nuclear engineering from North Carolina State University and completed post-graduate studies in nuclear engineering at the University of South Carolina and at Catholic University in Washington, D. C. I am a registered professional nuclear 10 engineer in the State of California.

For four years I was employed by the Carolinas-Virginia Nuclear 12 Power Associates as a nuclear engineer. While with the Associates, I 13 worked on nuclear reactors at North Carolina State University in Raleigh, North Carolina, and at the National Reactor Testing Station in Idaho 15 and at the Carolinas-Virginia Tube Reactor at Parr, South Carolina. In 16 1964, I )oined the National Bureau of Standards as Deputy Chief Nuclear 17 Engineer. In 1965 I was promoted to Chief Nuclear Engineer for the 18 Bureau of Standards'esearch reactor facility.

19 I have held various operators'nd senior operators'icenses 20 for operating nuclear reactors.

21 I joined CP&L in February 1968 as Reactor Licensing & Nuclear 22 Fuel Management Engineer responsible for the licensing of our nuclear

facilities and the contracting for our nuclear fuel supplies. I was later appointed Director of Technical Services and served in this position for about one and one-half years. In this capacity, I continued my responsibilities of licensing and nuclear fuel management. Since March of 1971, I have been Manager Fuel. In this position, I am responsible for the management of fossil as well as nuclear fuel.

My duties include the supervision of the fuel department in the procurement of all fuel for CP&L's plants, including coal, oil, natural gas and nuclear.

10 Q. Mr. Smith, please explain how nuclear fuel is utilized.

A. Nuclear fuel is developed from slightly enriched uranium and fabricated 12 into assemblies. The assemblies are placed in the reactor and have 13 a useful life of three to four years. As energy is extracted from 14 each assembly during the operation of the reactor, the energy producing 15 atoms required to produce the nuclear reaction are expended until 16 the assembly can no longer efficiently sustain the nuclear reaction.

'7 The assembly is then removed and replaced with a fresh assembly.

18 The assembly that is removed from the .reactor still contains about 40 percent of the energy equivalent of the atoms which were present 20 when it was first placed into the reactor. These atoms, if separated 21 out from the waste and reconditioned, may be recycled as material 22 for subsequent fabrication into nuclear fuel assemblies. There are 23 two types of fuel which are obtained from this recycling, uranium

,24 and plutonium. Uranium is an acceptable and approved fuel. The use 25 of plutonium in commercial facilities has not yet been approved by 26 the Nuclear Regulatory Commission.

Q. Please describe the various identifiable costs relating to nuclear fuel assemblies.

A. There are four major costs in preparing uranium for use in a nuclear 4 reactor. They are generally called the front end costs and are:

1. The purchase cost of uranium.

2. Conversion of uranium from a solid to a gaseous state.

3. Enriching the gaseous uranium in the concentration of energy producing of the solid fabrication atoms'econversion gas to a and 10 into a fuel assembly.

In addition to these costs there are carrying charges for the uranium 12 throughout the process, transportation, design and analysis costs. At 13 our current contract price these costs equal approximately 80 percent 14 of the nuclear fuel cost.

15 Q. What other factors are involved in calculating your current nuclear 16 fuel expenses?

17 A. Reprocessing, removal and disposal of waste products and costs of storage.

18 The value of the fuel to be obtained from the reprocessing of the fuel 19 after its recovery is credited against these costs. We refer to this 20 as "salvage value." This credit is determined by subtracting the cost 21 associated with reprocessing from the value of the reprocessed fuel.

22 The reprocessing, removal and disposal costs are approximately 32%

23 of the fuel cost and the value of the reprocessed fuel is equal to 24 a credit of about 12% of the fuel cost.

25 Q. What is the effect on the cost of fuel if reprocessing is not allowedf

A. The cost is substantially greater because rather than recovering the 2 remaining fuel and using it in the future, the Company will have to pay the expense of its disposal. Since the uranium and plutonium cannot be recovered, and used, there is no value to partially offset the cost of perpetually storing or otherwise disposing of used fuel assemblies. The cost of storing the fuel for 10 years for cooling purposes as proposed by the Nuclear Regulatory Commission, shipping it to a federal waste depository and paying perpetual storage cost, will be about 8(/MBtu more than the costs of reprocessing and recovery 10 of the unused fuel. The revised cost for fuel currently installed would be 28.48'/MBtu for the Robinson No. 2 unit, 41.56'/MBtu for 12 Brunswick No. 1 and 47.324/MBtu for Brunswick No. 2.

13 Q Why has CPGL not been charging these costs as a part of its nuclear 14 fuel cost5 A. Because until recently it was the Company's understanding that reprocessing 16 would be timely permitted by regulatory agencies and the courts.

17 We have a contract for reprocessing and have proceeded upon the basis 18 that the contract would be fulfilled and that the use of plutonium 19 would be allowed. So long as the Company had a viable contract and 20 reasonable expectations that reprocessing would be available, it was 21 considered reasonable not to charge the full cost of nuclear fuel 22 to present users. Under our present fuel charges, costs are being 23 calculated upon the basis that reprocessing would be available at 24 least by 1980 and that extracted fuel could then immediately be. used

as a fuel supply. However, the licensing of reprocessing facilities has not progressed on a timely basis and we now know that we will not be able to have any fuel reprocessed in accordance with our reprocessing 4 contract. In fact, reprocessing and the use of plutonium may never 5 be approved.

6 Q. Would you elaborate on the above statements 7 A. Yes. The progress of the Generic Hearings on the use of mixed oxide fuels, the political climate and the certainty of lengthy court challenges in the event the use of plutonium or reprocessing is allowed by regulatory 10 agencies, make it extremely imprudent to assume that any uranium, or plutonium will be recovered and reused. In October 1976 President 12 Ford made a major policy statement to the effect that the United States 13 should defer commercialization of chemical reprocessing of nuclear 14 fuel. He ordered the Energy Research and Development Administration 15 to change its policies which up until then assumed that there would 16 be reprocessing. President Carter has expressed similar views. There 17 have been expressions of considerable concern from many members of

\

18 Congress regarding what they consider to be dangers that plutonium could be diverted by terrorists or criminal elements. Moreover, there 20 is strong opposition by influential consumer and conservation groups 21 to the use of plutonium and nuclear fuel reprocessing.

22 The Gesmo (Generic environmental statement on mixed oxide fuel) 23 hearings being conducted by the Nuclear Regulatory Commission with 24 respect to the environmental fitness of mixed oxide fuels will continue 25 indefinitely and may indeed be resolved unfavorably. Even if a favorable

decision is rendered, it will be subject to long judicial review.

It is simply no longer reasonable to assume that any reprocessed uranium or plutonium will ever be available. We know with relative certainty that no reprocessed nuclear fuel will be available for use during the present decade nor before the mid-1980's under the most favorable circumstances that could be assumed. The Gesmo proceeding must be completed and must, at the threshhold, permit reprocessed plutonium. The appellate review process and any necessary rehearings will have to be completed. Then, the physical side of reprocessing will have to be examined and the 10 reprocessing plant capacity approved and licensed for use. The Allied General Nuclear Services Company, with whom CP&L has a reprocessing 12 contract, is expected to "mothball" its plant because it cannot be 13 operated in the near future. Additionally, there are presently no 14 permanent storage disposal facilities, for nuclear waste. The Energy 15 Research and Development Administration now estimates that the earliest 16 that a disposal waste facility could be available would be 1985.

17 Q. What is CP&L's position about continuing to provide a credit for uranium 18 and plutonium in its nuclear fuel charges2 19 A. It is our position that this should no longer be done. If the use 20 of mixed oxide fuel is not allowed, the Company will substantially 21 under-recover its actual nuclear fuel costs under its present method 22 of calculating its nuclear fuel costs. Spent nuclear fuel is simply 23 not an asset at the present time. It is a substantial liability.

24 Should regulatory and legal decisions in the future result in it becoming 25 an asset, the effect would be lower future nuclear fuel prices, as

the remaining uranium and plutonium in the spent fuel could be put to use. The consumer would get the benefit of any favorable regulatory I

and legal action. In the meantime, it is no more prudent to credit remotely possible future values of spent fuel to present nuclear costs than it would be to credit the cost of coal on the theory that a valuable 6 use for the waste ashes which the coal produces may some day be available.

7 Q. How would you propose that CP&L recover the total present cost 8 of nuclear fuels A. I would recommend that the cost of reprocessing be deleted from 10 the fuel expense, that credits for the value of recovered uranium and plutonium materials no longer be included, and that the cost 12 of permanent disposal of the radioactive materials be included

'13 in their place. This will result in the total nuclear fuel 14 costs including disposal of waste products being reflected on a 15 current, basis. The net, result of these recommended changes 16 would be to increase the average nuclear fuel expense in 17 the test period in this proceeding by 7.975 per MBtu. I have 18 provided Mr. Davis with the cost figures necessary to reflect this change in the test year results.

Docket No. E-2, Sub 297 CAROLINA POWER & LIGHT COMPANY ADDITIONAL TESTIMONY OF PAUL S. BRADSHAW 1 Q. What is the purpose of this additional testimony?

2 A. This testimony presents revised adjustments to the test period in this proceeding of twelve months ended June 30, 1976. These revised adjustments are necessary to restate the test period to include events that have occurred since the time of the original filing. I shall present revised adjustments which reflect the actual cost of the Brunswick No. 1 nuclear generating unit which was placed into commercial service on March 18, 1977. I have also recomputed the 9 depreciation expense, property tax and deferred income taxes related 10 to the updated cost of the Brunswick unit. In addition, I will present revised adjustments to reflect wage increases placed into 12 effect through December 31', 1976, for new employees added after the 13 end of the test period and for promotional increases and organizational 14 changes which occurred after the pre-filing of the original testimony.

15 I shall also present adjustments to reflect the increased cost of 16 additional security requirements at each of our nuclear generating 17 units and changes in the cost of nuclear fuel.

18 Q. Where have you shown the revised adjustments related to the in service 19 date of the Brunswick nuclear generating unit?

20 A. The revised adjustments are shown on my revised Bradshaw Exhibit No. 5.

21 The actual cost transferred to plant in service is the 9323,471,998.

22 The original adjustment contained in my pre-filed testimony related 23 to the estimated cost of the unit at $ 331,384,000. As I have previously

stated, the additional items have been recalculated based on the actual cost transferred to plant as of the commercial in service date of March 18, 1977.

Q, Why have you revised the wage and salary adjustment contained in your pre-filed testimony?

6 A. In the pre-filed testimony, we included an adjustment to reflect wage increases based on the number of employees and the organizational structure that existed at June 30, 1976. Since that time, we have added additional employees and have placed into effect a reorgani-10 zation during the month of December, 1976. The revised adjustment reflects the Company's actual salary level at the end of 1976, and 12 reflects the addition of new employees and promotional increases 13 and organizational changes which occurred during December, 1976. This 14 revision results in a total wage and salary adjustment of $ 9,655,906.

15 The original adjustment included in my previously filed testimony 16 based on the number of employees at June 30, 1976 was $ 5,772,647.

17 Q. Mhy have you included an adjustment to reflect increased cost of security at the nuclear generating plants'9 A. The regulatory agencies responsible'for security guidelines at nuclear 20 generating plants have issued a new rule, NCR Rule 10 CFR 73.55, 21 which requires additional guards, watchmen, and other increased 22 expenses to provide additional security at each of our nuclear 23 generating plants. CP&L will finalize an agreement with a security contractor before the end of March, 1977 to provide 49 additional 25 security personnel, calculated at current prices to cost a minimum of $ 543,691 annually. This does not include, any of the capital expenditures associated with NRC Rule 10 CFR 73.55, which are estimated at over a million dollars.

Q. Mr. Bradshaw, are you familiar with the testimony of Mr. Larry Smith in this proceeding concerning changes in the cost of nuclear fuels 6 A. Yes, I am. I support the recommendation of Mr. Smith that we revise our nuclear fuel expense to reflect the total cost of the nuclear fuel, including permanent disposal of radioactive materials. This will require that we stop reflecting the cost of reprocessing and 10 credit for recovered products in the cost of nuclear fuel and include in their place the cost of permanent disposal of the removed fuel 12 assemblies.

13 Q. Does the Company have on hand spent nuclear fuel assemblies which have been removed from its nuclear reactors?

15 A. Yes, we have. We have five batches of nuclear fuel assemblies which 16 have been removed from our reactors. We have assigned a value to 17 these batches as a credit to the cost of service and have been 18 holding the material in anticipation of recovery of the fuel products 19 and use as a supply of nuclear fuel material. It is clear from the 20 testimony of Mr. Smith that reprocessing of spent nuclear fuel and 21 recovery of uranium and plutonium will not occur as provided in the 22 present cost of nuclear fuel.

23 Q. What will be the effect on the spent nuclear fuel, presently on hand7 24 A. Under the condition of no reprocessing, the spent nuclear fuel would 25 become a liability rather than an asset. The liability would occur

-3"

on a current basis and would be twofold. First, it would be 2 necessary to write off the previously determined value, and secondly, 3 the cost of the disposal of the nuclear fuel assemblies would be 4 incurred. These would be current costs determined in the accounting 5 period during which the condition changed from reprocessing to one 6 of permanent storage and disposal of the fuel assemblies. These 7 items become a liability in the first quarter of 1977.

8 Q. What would be the effect in the test year of the change in the value 9 of the spent nuclear fuel?

10 A. Two ad)ustments would be required to reflect the change in the value of. the spent nuclear fuel assemblies. First, it is necessary to 12 remove from the rate base the value which we heretofore placed on 13 the uranium and plutonium material contained in the spent nuclear 14 fuel assemblies. We have included a value of $ 5,038,150 as an asset and included this amount in our rate base determination. It would be 16 necessary to eliminate that value from the rate base since the 17 material will be disposed of rather than reprocessed. Secondly, it 18 is necessary to reflect the additional costs of writing off this 19 value and the cost of disposal of the radioactive materials. The 20 Company would propose, rather than to assign the costs totally in 21 the test year, that an amortization be provided over a reasonable time 22 period. A five-year amortization period would be proposed for the 23 value of the spent fuel assemblies and a ten-year period for the 24 disposal cost. The proposed accounting treatment would be to include 25 these ad)ustments as operating expenses in the test year and not as a

portion of the fuel expense. This would result in test year adjustments to reflect the amortization amounts, The test year adjustment for the .amortization of the spent nuclear fuel assemblies would be $ 1,007,630 per year and for the disposal cost of those assemblies the amortization would be $ 1,318,980 per year.

These amounts are shown on revised Bradshaw Exhibit No. 5, and I provided these adjustments to Mr. Davis for inclusion in the test period cost of service.

Revised Bradshaw Exhibit No. 5 CAROLINA POWER & LIGHT COMPANY

SUMMARY

OF ADJUSTMENTS For the Twelve Months =Ended June 30, 1976 S stem Total

l. Adjust for cost of Management Audit ordered by the North Carolina Utilities Commission $ 300,000

2. Adjust for amortization of Craven County plant site 78,407

3. To charge-off expenses of Madison County plant site 187,816 Adjust for normalization of hydro generation 899,394

5. Adjust wages and fringe benefits to normal year 1/ 9,186,521 Related taxes 1/ 469,385

6. Adjust for postage increase 147,449

7. Adjust for nuclear property insurance 1,419,151

8. Adjust for Research and Development expense 1,979,102

9. Adjust depreciation expense to Plant in Service at June 30, 1976 6,186,000 Related deferred income taxes 9,442,000 Related current income taxes (8,918,000)

10. Adjust depreciation expense for Plant Placed in Service from June 30, 1976 through March 31, 1977 2,142,000

11. Adjust for F.I.C.A. tax increase 66,394

12. Adjust property tax to Plant in Service at June 30, 1976 3,675,301 Plant transferred 6-30-76 through 3-31-77 616,000

13. Adjust rate base for plant transfers June 30, 1976 through March 31, 1977 71, 210, 000

14. Adjust rate base for nuclear fuel posting error 211,565

15. Adjust working capital for additional Accounts Receivable required 2,419,000

16. Adjust to eliminate Fuel Deferral Revenues (11,759,652)

Expenses (12,234,997)

, Revised Bradshaw Exhibit No. 5 CAROLINA POWER & LIGHT COMPANY

SUMMARY

OF ADJUSTMENTS For the Twelve Months Ended June 30, 1976 S stem Total

17. Adjust rate base for Brunswick No. 1 transferred to Plant in Service 1/ $ 323,471,998

18. Adjust depreciation expense for Brunswick No. 1 1/ 13,593,000 Related deferred income taxes 1/ 9,784,000 Related current income taxes 1/ (14,983,000)

19. Adjust property tax for Brunswick No. 1 1/ 1,141,000

20. Adjust for amortization of nuclear fuel salvage 2/ 1,007,630

21. Adjust for amortization of nuclear fuel storage 2/ 1,318,980

22. Adjust for security costs at nuclear generating plants 2/ 543,691 1/ Revised adjustments 2/ Additional adjustments

ADDITIONAL TESTIMONY OF JAMES M. DAVIS, JR.

FOR CAROLINA POWER & LIGHT COMPANY 1 Q. What is the purpose of this additional testimony?

2 A. This testimony is intended to supplement the portion of my pre-filed testimony relating to the operating results measured on a test period basis for both the present rates of the Company and. those requested in this proceeding. I shall present revised exhibits related to the June 30, 1976 historical test period which contain additional adjust-ments to revise the test period figures for changed conditions which have occurred since the preparation of the original exhibits.

Revised Davis Exhibit No. 1 shows the operating results at the 10 present rates. This exhibit differs from the original filed Exhibit No. 1 in the following areas:

12 1. The revised test year adjustments presented in the additional 14 testimony of Mr. Paul Bradshaw have been included in the test year 15 operating results. These adjustments include increases in the pay-16 roll expense and operating expenses to provide additional security 17 provisions at our nuclear generating plants.

18 2. The adjustments related to the addition of the Brunswick No. 1

'I 19 nuclear generating unit have been restated based on the cost of the unit 20 as of its commercial service date. The adjustment to plant in service 21 to add Brunswick No. 1 was included in the original exhibit at an esti-22 mated cost of $ 331,384,000. The unit was subsequently placed into

service on March 18, 1977, and the amount transferred to plant at that time was $ 323,471,998. This actual cost has been used in the, preparation of the revised exhibits and the related depreciation and tax expenses have been adjusted to reflect the actual cost.

5 3. The test year operating results have been adjusted to include the change in the value and disposal costs of the spent nuclear fuel assemblies which have been removed from our nuclear reactors. The required test year adjustments are described in the additional testimony of Mr. Paul Bradshaw and include removal of 10 the spent nuclear fuel from the rate base, amortizations of the spent nuclear fuel assemblies and the cost of permanent storage of 12 the radioactive uranium and plutonium materials.

13 4. The test year operating results have been adjusted to include 14 the change in nuclear 'fuel costs described in the testimony of Mr. Larry 15 E. Smith. This change would result in an increase in the test year 16 nuclear fuel expense of $ 11,461,624. The net effect of the revised 17 fuel cost is a reduction in th'e revenue credit that would have been provided by the fuel adjustment charge during the test period. The 19 original adjustment resulting from increased nuclear generation for 20 North Carolina Retail was $ 34,518,582. The revised revenue reduction 21 based on the increased nuclear 'fuel cost would be $ 26,618,913.

22 Revised Davis Exhibit No. 4 shows the effect of the rates request-

.23 ed in this proceeding. The figures in this exhibit include the effects 24 of the revisions and updating adjustments listed above. In each of the 25 revised exhibits, Davis No. 1 and Davis No. 4, it has been necessary to

ad)ust the tax computations to show the effect of the revenue, expense, and rate base ad)ustments. The test year computations and allocations were made exactly on the same basis as, the original pre-filed exhibits.

'5 Q. Concerning the change in the .cost of nuclear fuel, are you familiar 6 with the testimony of Mr. Larry Smith in this proceeding?

7 A. Yes, I am. I support the recommendation of Mr. Smith that we revise our nuclear fuel expense to reflect the total cost of the nuclear fuel, including permanent disposal of the radioactive materials. It 10 is clear from the testimony of Mr. Smith that reprocessing of uranium and plutonium materials contained in the spent nuclear fuel assemblies 12 will not occur as provided in the present cost of nuclear fuel.

13 Since reprocessing will not occur, it is necessary to stop reflecting the cost of reprocessing and the credits for recovered products in 15 the cost of nuclear fuel and to include in its place the cost of 16 permanent disposal of the removed fuel assemblies.

17 I have included an adjustment to reflect an increase in the test 18 period nuclear fuel expense based on the difference in the expense 19 levels between the costs including reprocessing and the revised costs 20 which eliminate reprocessing and substitute disposal costs. This 21 change would result in a system-wide increase of $ 11,461,624 for the 22 test period nuclear fuel expense, or approxima'tely 5 percent of the 23 total test period costs.

The inclusion of this additional test period fuel .expense can be reflected in either the fuel adjustment charge, as we have proposed, or through the base rates, should the Commission decide to alter the base fuel component contained in our requested rates. The net effect of including the increased expense in the fuel adjustment charge would be to reduce the revenue credit in the test year for increased nuclear generation. The higher fuel expense would have been reflected in the test year fuel adjustment charges in the twelve months ending June 30, 1976. There would not have been any effect on I

10 the net operating income for return.

11 Q. You have stated that the increase in nuclear fuel expense could be 12 reflected in the base rates rather than the fuel adjustment charge.

13 Would the Company be agreeable to this adjustments 14 A. Yes, we would. The increase in nuclear fuel cost that we are request-ing is a disposal cost similar to the disposal expense of fossil fuel 16 ash or other products of combustion. Those expenses from our fossil 17 units are included in our base rates rather than the approved fuel 18 charge. En the case of nuclear fuel, I believe it would be preferable 19 to include this cost component in the fuel adjustment charge, but we 20 would not object to it being included in the base rate charge.

21 I would point out that if the Commission were to decide to include 22 this cost component in the base rate, similar to the treatment now 23 provided to the nuclear lease rental payments, the net result would be 24 to increase the test period fuel expense and reduce the net operating 25 income and rate of return. An adjustment to the filed rates would then

be necessary to recover the revenues and produce the requested rate of return. The total revenues related to this expense adjustment would be the same whether it is included in the fuel adjustment charge or the base rate.

Q. Mhat difference in result is shown in the revised test period exhibits you have presented?

7 A. The revised exhibits for the historical test period show slightly lower indicated rates of return both at the present rates and at the rates proposed in this proceeding. The updated and revised adjustments 10 to the test period reduced the rate of return on fair value rate base from 8.439 percent to 8.426 percent and on fair value common equity 12 from 10.0 percent to 9.967 percent. The total apparent rate of return on book common equity in the test year is reduced from 14.252 percent 14 to 14,225 percent.

15 This indicates that if the rates requested in this proceeding had 16 been in effect throughout the twelve months ending June 30, 1976, we 17 would have earned an apparent .'return on book common equity of 18 14.225 percent. This is only an indicated rate of return and it will not be possible for the Company to realize this level of return on 20 book equity because the requested rates were not in effect during the 21 test period.

22 Q. Does this complete your testimony at thi's time?

23 A. Yes, it does.

Revised E)d)ibit H Carolina Pod>er & Light Cos)psny Operating Experience Test Tear Ended June 30, 1976 S stcn Total A rtioned to N. C. Retail Line Total Total With Total Total Mlth No. Per Books ~ed 9 1 ~48 7 9 Fer Books Ad ustr)ants ~ed eee 2 (2) (3) (4) (5) (6) (7) eratin 'Revec)ues 20 Cross Operating Revenue 645,386,939 Contract Sales Credit ~9045 232)

Net Operating Revenue 636,341,707 33,902,898 670,244,605 437,875,086 6,402,004 444,277,090 5 Revenue AdJustr)ent to Tear-End Plant 9 872 302 9 872 302 9 072 302 9 072 302 6 AdJustcd Nct Operating Revenue 636,341,707 43,775 '00 680,116,907 437,875,086 16,274,306 454,149,392 7 Ooeratin Exoenses

8. Operation & Haintenance Expenses 3220689>920 9 Contract Sales Credit ~9045 232)

10. bet 0 & M Expenses 313,644,688 (13,424,267) 300,220,421 207 ~ 7S 8 > 5 68 (7 ~ 159 0048) 200>S990520 0 & M Expense AdJustnent to Tear-End Plant 4,619,816 4,619,816 4,619,816 4,619,816

12. Fuel Deferral le 032 001 612 234 997) 2 597 004 ~ 12 234 997 C)2 234 997) 130 AdJusted Operation & Yaintensnec Exrrnsc 328,476,689 (21,039,448) 307>437,241 219,993,S65 (14,774,229) 205,219,336 140 Depreciation 55,782,236 21,921,000 77,703,236 379189>919 13 >994>458 51,184,377 Taxes Other Than Intone 49,163,147 8,180>215 57,343,362 36,381,093 4,9S0,322 41>3310415

16. Intone Taxes - State $ ,252,661 (831,473) 4,421,188 3,692,183 (1,576,596) 2,115,587 17 Inco=e Taxes - Federal 37,153,014 (6>522 0883) 30,630,131 30,581>553 (12,056,4$ 1) 18,525>102

18. Investment Tax Credit 22,244,1SS 22>244,18$ 14,743,93S 14,743,93$ v, c 19 Provision for Deferred Ineow Taxes 7,476,286 25,'098,800 32,57$ ,086 4,008,308 18,291,603 22,299,911 8 o 0

20. Interest on Custoner Deposits 185 686 185 686 145 941 145 973 21 Total Operating Expenses 505 > 733 >904 26,806,211 532,540,115 346,736,497 8,829 '07 355 ~ 565,604 ~ ~+

F 220 Ooeratin Intone For Return 130 ~ 6070803 16>968>989 147 ~ 576 ~ 792 91,138,589 7>4458199 98,583,788 2

n

Revised Davis Exhibit No. 1 Page 2 of 9 Revised Exhibit H (Continued)

Summary of Adjustments June 30, 1976 Test Year Apportioned To System North Carolina Total Retail 0 erations (2) (3)

Revenue Ad ustments Adjust for probable future revenues for plant in service at June 30, 1976 9,872,302 9,872,302 Adjust for annual effect of retail rate increases 55,561,782 43,314,974 Adjust for weather normalization 1,610,764 1,610,764 Adjust for initial and final bill proration (167, 251) (145, 169)

Adjust for 'annual effect of resale rate increase 29,845,271

• Adjust fuel clause revenue to reflect addition of Brunswick (41,188,016) (26,618,913)

Adjust to eliminate fuel deferral (11 759 652) (11 759 652)

Total Revenue Adjustments 435775,200 16,'274,306

• Indicates revised item

Revised Davis Exhibit No. 1 Page 3 of 9 Revised Exhibit H (Continued)

Summary of Adjustments June 30, 1976 Test Year Apportioned to System North Carolina Total Retail 0 erations (2) (3) 0&M Ex ense Ad ustments Adjust for probable future expenses for plant in service at June 30, 1976 4,619,816 4,619,816

• Adjust fuel expense to annualize addition of Brunswick (32,585,876) (20,857,245)

Adjust other 0&M expenses to reflect addition of Brunswick 6,353,592 4,124,194 Adjust for test fuel Brunswick 2,155,823 1,399,371 Adjust purchased power expense to reflect addition of Brunswick (7,366,106) (4,694,263)

Adjust for NCUC audit 300,000 300,000 Adjust for amortization of Craven County Plant Site 78%407 48,296 Adjust for amortization of Madison Coutny Plant Site 187,816 115;689 Adjust for normalization of hydro generation 899,394 575,675

• Adjust for wages and fringe benefits at March, 1977 9,186,521 6,731,191

, Adjust for postage increase 147,449 122,120

+Indicates revised item

Revised Davis Exhibit No.

page 4 of 9 Revised Exhibit H (Continued)

Summary of Adjustments June 30, 1976 Test Year Apportioned to Sys tern North Carolina Total Retail 0 erations (2) (3) 0&M Ex 'ense Ad ustments (Continued)

Adjust to eliminate fuel deferral (12,234,997) (12,234,997)

Adjust for nuclear property insurance 1$ 419,151 874,156

~Adjust for additional security at production plants 543,691 334,898

~Adjust for amortization of spent nuclear fuel 1,007,630 644, 954

~~Adjust for spent nuclear fuel disposal cost 1,318$ 980 844$ 240 Adjust for research and development expense 1,979,102 1, 327,517 Adjust for additional connect and disconnect charges 337,507 337,507 Adjust for weather normalization 612,652 612,652 Total 0&M Expense Adjustments (21, 039, 448) (14,774,229)

De reciation Ex ense hd'ustments Adjust for plant in service at June 30, 1976 6,186,000 4, 151,595

• Adjust to include Brunswick ftl in plant in service 13,593,000 8,376,949 Adjust to include other plant additions through March, 1977 2 142 000 1,465 914 Total De reciation Ex ense Adjustments 21$ 921,000 13,994,458

• Indicates revised item

<:*Indicates additional item

Revised Davis Exhibit No. 1 page 5 of 9 Revised Exhibit H (Continued)

Summary of Adjustments June 30, 1976 Test Year Apportioned to System North Carolina Total Retail 0 erations (2) (3)

General Tax Ad ustments Adjust for gross receipts tax on retail revenue adjustments 3,315,847 3,279,172 Adjust to annualize 1976 resale rates 1,726,521

+Adjust for Brunswick fuel clause (2,124,654) (1,597,135)

Adjust for elimination of fuel deferral (705,579) (705,579)

L Adjust property tax to plant in service at June 30, 1976 3,675,301 2,465,269

~Adjust property tax to reflect addition of Brunswick 1,141,000 702,824 Adjust for property tax on other plant 6167000 413, 192 Adjust for increases in FXCA taxes 66,394 487649

+Adjust for-payroll taxes on wage incre'ase adjustment 489 585 343 930 Total General Tax Ad'ustments 8,180,2l5 4,950,322

• Indicates revised item

Revised Davis Exhibit No. 1 Page 6 of 9 I

Revised Exhibit H (Continued)

Summary of Adjustments June 30, 1976, Test Year Apportioned To System North Carolina Total Retail 0 erations (2) (3)

State Income Tax Ad ustments

>Adjust for tax effect of revenue and expense adjustments 2, 535,447 743,838 Adjust for interest expense on plant at June 30, 1976 68, 364 45,856

+Adjust interest to capital structure at June 30, 1976 ( 661, 684) (661, 684)

Adjust tax on year-end depreciation and normalization (1,015,000) (621,359)

Wdjust for tax depreciation Brunswick I/1 1 758 600 (1, 083 247)

Total State Income Tax Ad'ustments ( 8311 473) (1,576,596)

Federal Income Tax Ad ustments

+Adjust for tax effect of revenue

. and expense adjustments 19, 066, 551 5,593, 663 Adjust for interest expense on plant at June 30, 1976 514,101 344, 841

&djust interest to capital

.structure at June 30, 1976 (4,975,863) (4,975,863)

Adjust tax on year-end depreciation and normalization (7,903,000) (4,873,073)

+Adjust for tax depreciation Brunswick Ill 1 6 01 Total Federal Income Tax (6,522,883) (12,056,451)

• Indicates revised item

Revised Davis Exhibit No. 1 Page 7 of 9 Revised Exhibit H (Continued)

Summary of Adjustments June 30, 1976, Test Year Apportioned To System North Carolina Total Retail 0 erations (2) (3)

Provision for Deferred Income Taxes Ad'ustments Adjust to eliminate fuel deferral 5, 872, 800 5,872,800 Adjust for income tax normalization 9,442,000 6,392,139 Adjust for Brunswick income tax 664 9,784,000 6 026 normalization Total P rovision for Deferred Income 25,098,800 18, 291, 603 j

Taxes Ad us tment Total 0 eratin Ex ense Ad'ustments 26,806,211 8, 829, 107 Income for Return Effect of Revenue and Expense Adjust-ments 6 89 7 445 199 Plant in Service Ad ustments Adjust to include Brunswick f/1 in plant in service 323,4719998 199,366,542 Adjust to include 0ther Plant additions through March, 1977 71 210 000 48 464 135 Total Plant in Service Ad ustments 394,681,998 247,830,677

• Indicates revised item

Revised Davis Exhibit No, l page 8 of 9 Revised Exhibit H (Continued)

Summary of Adjustments June 30, 1976 Test Year Apportioned to System North Carolina Total Retail erations (2) (3)

Accumulated De reciation Ad ustments Adjust for p'lant in service at June 30, 1976 (6,186,000) (4, 151, 595)

Adjust to reflect addition of Brunswick !/1 (13,593,000) (8,376,949)

Adjust for plant additions through March, 1977 (2 142 000) (1 465 913)

Total Accumulated De reciation Ad ustments (21,921,000) (13,994,457)

Nuclear Fuel Ad ustments Adjust to correct posting error 211,565 135,416

~Adjust spent nuclear fuel (5,038,150) (3,224,769)

Adjust nulcear fuel Brunswick 20 841 000 13 339 701 Total Nuclear Fuel Ad ustments 16,014,415 10,250,348 Workin Ca ital Ad ustments

• Adjust cash allowance related to 0&M expense adjustments (12709, 167) (1,259,996)

Adjust cash working capital for accounts receivable 274197000 2,419,000 Adjust cash working capital for Brunswick tax accrual 871,000 536,511 Adjust material and supplies to eliminate fuel stock deferral (1,273,209) (1,273,209)

+Indicates revised item

+*Indicates additional item

Revised Davis Exhibit No. 1 Page 9 of 9 Revised Exhibit H (Continued)

Summary of Adjustments June 30, 1976 Test Year Apportioned to System North Carolina Total Retail 0 erations (2) (3)

-Adjust material and supplies fuel stock (4 279 386) (2 739 107)

Total Working Capital Adjustments (3,971,762) (2316,801 )

Total Rate Base Ad ustments 384,803,651 241 769 767

Revised Davis Exhibit No. 4 Page 1 of 5 Revised Exhibit I Carolina Power & Light Company Effect of Proposed Increase North Carolina Retail Operations June 30, 1976 Line Present Proposed Requested No. Rates Increase Rates (2) (3) (4) 0 eratin Revenues 2~ Net Operating Revenues 454,149,392 69,238,676 523,388,068 3~ 0 eratin Revenue Deductions 4, Net Operation & Maintenance 205,219,336 205,219,336 5 ~ Depreciation 51,184,377 51,184,377

6. Taxes Other Than Income 41,331,415 4,154,321 45,485,736 7 ~ Income Taxes State 2,115,587 3,905,061 6,020,648

8. Income Taxes Federal 18,525,102 29,366,061 47,891,163

9. Investment Tax Credit Net 14,743,935 14,743,935

10. Deferred Income Taxes - Net 22,299,911 22,299,911

11. Interest on Customer Deposits 145 941 145 941

12. Total Revenue Deductions 355,565,604 '7,425,443 392,991,047

13. Net Operating Income for Return 98,583,788 31,813,233 130,397,021

14. Ori inal Cost Net Investment

15. Electric Plant in Service 1 ~ 490 ~ 66 1 ~ 836 1,490,661,836

16. Net Nuclear Fuel 23,427,311 23,427,311

17. Less: Accumulated Depreciation 238,467,644 238 467'644

18. Net Electric Plant 1,275,621,503 1,275,621,503

19. Allowance for Workin Ca ital

20. Materials and Supplies 50, 393,435 50, 393,435

21. Cash Allowanc. 36,876,839 36,876,839

22. Less: Accrued Taxes 13%330>701 13,330,701 Customer Deposits 3 130 992 3 130 992

23. Total Working Capital Allowance 70,808,581 70,808,581

24. Total Original Cost Net Investment 1,346,430,084 1,346,430,084 25 ~ Fair Value Rate Base 1,547,529,943 1,547,529,943

26. Return on Fair Value Rate Base 6.370 8.426

Revised Davis Exhibit No. 4 Page 2 of 5 Revised Exhibit I (Continued)

Carolina Power & Light Company North Carolina Retail Operations June 30, 1976 Embedded Cost Net Line Fair Value Ratio or Return on Operating No. Rate Base / Common E uit Income (2) (3) (4) (5) x CAPITALIZATION PRESENT RATES FAIR VALUE RATE BASE

2. Long-Term Debt 624,635,845 40.364 7. 720 48,221,887

3. Preferred Stock 189,887,035 12.270 8. 013 15,215,648 4, Common Equity (including 1971 job development credits) 671,811,816 43.412 5.232 35,146,253 5 ~ Deferred Income Taxes 61 195 247 3.954 0.000

6. Total Capitalization 1,547,529,943 100.000 6.370 98,583,788 7 ~ CAPITALIZATION RE UESTED RATES FAIR VALUE RATE BASE

8. Long-Term Debt 624,635,845 40.364 7.720 48,221,887

9. Preferred Stock 189,887,035 12.270 8. 013 15>215,648

10. Common Equity

. (including 1971 job development credits) 671,811,816 43.412 9.967 6609597486 Deferred Income Taxes 61,195,247 3.9S4 0.000

12. Total Capitalization 1>547,529,943 100.000 8.426 130$ 397,021

Revised Exhibit I (Continued)

CAROLINA PO'PER 4 LIGHT COHPANY Total Return on Book ~n North Carolina Retail Operations Test Year Ended June 30, 1976 Equity Total N. C. Retail Present Rates Net Overall N. C Retail Pro sed Rstei'verall Net Line Ccats any Original Cost Rate Operating Rate Original Cost Rate Operating Rave No. ~09 99 Caoitalixatjon Ratio Net Investaent Earned Ineon9c Earned Nct lnvcstnent 8 9 8 Ine one Rceuircd (2) (3) (4) (5) (6) (7) (8) (9) (10) (Il)

$ $ I $ $ $

l. Inag-ter>s Debt. 1>105,361,294 46.392 624 ~ 63$ ~ 845 7 ~ 720 48> 2210887 3>S82 624,635,845 7.120 48,221,887 3 $ 82 2 Preferred Stock 336,018,400 14,103 189 ~ 8870035 8.013 15,215,648 1.130 189 ~ 881 ~ 035 8.013 15,21$ ,648 1 130 8>

3.

~a Stock 632,45S,781

$0 Retained Earnings ill>6300129

6. Deferred Invcstacat Tax Credit (1971 Rev Aet) 90 890 099 7> Total Coeeoa Equity 832,975,941 34.960 470,711,9S7 7.467 35,146,253 2,610 .470,711,957 14,225 66,959,486 4.973 Interest Free Capital:

Deferred Taxes 108,282,642 4 545 61,19$ ,247 0.000 0 000 61 ~ 1950247 0 000 0.000 10v Total Capitalixatioa 2>382>638>277 100 000 I>346>430>084 98>583>788 7 322 1,346,430,084 130,397,021 9.68S v

~ 4 n>

8999 C 4 ~

M4 4

o w >S 8>9 9C 4

Revised Exhibit I (Continued)

ChROLINh POVER & LICNT OONPANY S steSa Total h rtioned to 'N. C. Retail Line Table No, 2 Total V t th Total Vfth No Ori foal Cost Fet Investnent Total ~dd t 9 ~dd t t Total hd ustnents ~46 ~ t (2) (3) (4) (5) (6) (7)

Electric Plant fn Service 1,85'2,851,887 394>681,998 202470533<<885 1,242,831,159 24708300677 1,490>661,836 20 hcc~lated Provision for Depreciatton (3260046>89$ ) (21,9210000) (3470967,895) (224 0473 0187) (13 0994 0457) (238,461,644)

3. Fet Electric Plant in Service I > 5 2 6 0 8 04 > 9 9 2 312, 160,998 1,899,$ 6S,990 1,018,357,972 233,836,220 1 ~ 2520 19C ~ 192 4 Net Aclear Fuel 20,586,749 16>0140415 36<<601>164 13,176,963 10,2$ 0,348 23,C27,311

5. Working Capital:

6 Yaterfal and Supplies 86,295,131 ($ 05520595) 80>742<<S36 54,40S,751 (4,012,316) 50,393,435 7 Cash Vorkfng Capital hllouance 29 C87 093 I S80 053 31 067 926 18 719 631 I 695 515 20 CIS 146

8. Total Net Investr3ent 1>663>173>965 384>803>651 2>047>917>616 1> 104 <<660>317 241>7690767 1034604300084 Table No. 3 Re lace cut Cos" Net Invesroent 9 Electric Pfant in 3,371,409,038 394,681,998 307660091>036 2,272,682,280 247,830,671 2,520,512,951 Service'ccunulated

10. Provf sion for Deprecfatfon (96S>9820934) (1S ~ 735>000) (981,717,934) (655,116,325) (9,842;863) (665 0 019 0188)

Net Elcctrtc Plant in Service 2,405>426,104 378,946,998 2,784,373,102 1,617,505,955 237,987,814 1,855>493>769 12 Ner. Nuclear Fuel 20,586,749 16,014,415 36,601,164 13,1760963 10,250,348 2304270311

13. Vorkfng Capital:

~ v s>

14. Naterials and Supplies 50,393,435 o n 86,295,131 (5,552,59S) 80,742,536 54,405,751 (4 0 012 > 316) 570 C 0 v Cash Vorktng Capital hllovance 29 487 093 I 580 833 31 067 926 18 719 631 I 695 515 20 415 146 S 0

6>

n

~ 94 t>

Total Net Investnent D 16, 2>54107950077 390,989,651 2,932,784,128 l>703>808>300 2450921 ~ 361 1 >949 >729 <<661 869 e 9

o' 9

n 0

is ~

Re3>feed E3d>fbft I (Contfnued)

CAROLIHA PO'&R 6 LICHT CatfPAHY 8 stem Total A ortfoned to H. C Retail Line Ho.

Table Ho. 1 Fair Value Rate Base Total ~ ~46 t t 6~t Total Hfth

~~336 Total ~dd tdt t Total Mith

~44 t t-(2) (3) (4) (S) (6) (7)

$ $ $ 8 $

Electric Plant in Ser3>fce 2,359,037,604 394,681,998 2 ~ 753 > 7 19 ~ 602 10586,1140866 247>830>677 1,833,945,543 20 Accun>lated Pro35fsfon for Deprecfatfon (539>358>908) (19>8S9 F 000) (559,217,908) (368>0400899) (120610>593) (380,651>492)

3. Het Electric Plant fn Ser3>ice l<<819>678 '96 374,822,998 2,194<<S01>694 1 <<218>0730967 235<<220>084 1 <<453>2940051 4 Hct Ãuclear &el 20,S86,749 16,014,415 36,601,164 13,176,963 10,250,348 23,427,311 5<<Horhfng Capital:

6. Haterfals and Supplfes 86,295,131 (5,552,595) ~ 80,742,536 54,405,7S1 (4,012,316) 50,393,435 Cash vorhfng Capital AIIo3>ance 29 487 093 I 580 053 3! 067 926 18 719 631 I 695 313 20 415 146

'S S>

D 73 O<< C

8. Total Rate Base l>9560047>669 386>86S>651 2>342,913,320 l>30403760312 243>1530631 1<<S47>529>943 0 ><<

O 0

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D 830 g I

373 I

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