ML19308A399
| ML19308A399 | |
| Person / Time | |
|---|---|
| Site: | Byron, South Texas, Comanche Peak  |
| Issue date: | 02/28/1978 |
| From: | Solomon J TEX-LA ELECTRIC COOPERATIVE OF TEXAS, INC. (FORMERLY |
| To: | |
| Shared Package | |
| ML19208C305 | List:
|
| References | |
| 1517, NUDOCS 7909260120 | |
| Download: ML19308A399 (10) | |
Text
DOCKET HO. 1517
[sscogey N 7 8 7
TEXAS PO'4ER & LIG11T COMPANY TESTIMONY AND EXHIBITS OF J. B. SOLOMON ON BEHALF OF TEX-LA ELECTRIC COOPERATIVE, INC.
1 Q PLEASE STATE YOUR NAME AND ADDRESS.
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2 A My name is J. B. Solomon, By business address is 1000 Crescent 3
Avenue, N.E., Atlanta, Georgia 30309.
4 Q PLEASE OUTLINE YOUR FORMAL EDUCATION.
5 A I received the degree of Master of Business Administration from 6
Georgia State University in 1973. My area of concentration was 7
Finance.
I also received the degree of Bachelor of Science in 8
Industrial Management from the Georgia Institute of Technolc.gy in 9
1972.
10 Q PLEASE STATE YOUR PROFESSIONAL EXPERIENCE.
11 A As a Cooperative student at Georgia Tech, I gained approximately 12 two years work experience as an assistant engineer in an industrial 13 production setting. Af ter my graduation from Georgta Tech in 1972, 14 I worked approximately one and one-half years as a program manager
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15 for a management consulting firm and for another one and one-half 16 years as a project analyst for a resort development firm.
I was 17 employed by Southern Engineering Company of Georgia, my present 18 employer, in January 1975.
Since that time, I have had assignments 19 in both the retail and wholesale rate departments of my Company, 20 primarily in the area of electric utility rates.
In the retail 21 area I have participated in the preparation of rate increase filings 22 for both G & T and distribution rural electric membership cooperatives 23 as well as the determination of revenue requirements and the proper 24 rate design for unregulated tural electric membership cooperatives.
25 My primary activities, however, have been in the wholesale area '
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where I have conducted analyses of wholesale rate filings of private C
2 utilities operating in eight different states.
I have' also partici-3 pated in the preparation of testimony and exhibits for several of these 4
rate filings. Additionally, I have participated in the preparation of 5
retail and wholesale allocated cost of service studies and power cost 6
projections.
7Q IIAVE YOU EVER TESTIFIED IN OIIIER COSDIISSION PROCEEDINGS?
l 8 A Yes, I have testified before the Public Service Commission of Kentucky.
9 I have also testified before the Federal Energy Regulatory Co= mission 10 in proceedings involving the Public Service Company of Indiana, Georgia 11 Power Company and Carolina Power & Light Company.
12 Q BY WIIOM IS SOUIIIERN ENGINEERING COMPANY OF GEORGIA RETAINED IN TIIIS 13 PROCEEDING?
14 A Southern Engineering is retained by Tex-La Electric Cooperative, Inc.
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15 Witnesses Gross, Strozier, Livingstone, Stolnitz, Ewert and I will be 16 Tex-La's witnesses in this proceeding.
17 Q WilAT WAS TIIE ASSIGNMENT OF SOUTHERN ENGINEERING COMPANY IN THIS PRO-
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18 CEEDING?
19 A We were asked to review the filing of the Texas Power and Light Campany, l
20 identify those areas where the Company's presentation departed from 21 sound ratemaking procedures, good common sense judgment and this 22 Commission's rules and regulations, and prepare and present testimony i
23 showing TP&L's true revenue requirement based upon adjustments to the l
24 Company's filing to correct the deviations from these standards.
25 Q WIIAT DO YOU SEE AS THE ROLE OF SOUTilERN ENGINEERING COMPANY IN TIIIS 26 PROCEEDING 7 t i
1 A As we all know, utilities have been subjected to regulation by public
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2 bodies due to the monopolistic characteristics of their operations.
3 In the absence of substantial competition, it becomes the responsibility 4
of this Commission to act as a surrogate for competition in establishing 5
the prices to be charged for electric service.
In representing an 6
Intervenor in this proceeding, the role of Southern Engineering is to 7
Provide this Co= mission with additional information which will better 8
enabic it to carry out its responsibility to the people of Texas.
9 Q WHAT IS TIIE' PURPOSE OF YOUR TESTH10NY IN THIS PROCEEDING.
10 A The purpose of my testimony in this proceeding is three-fold. First, 11 I will present TP&L's overall cost of service based upon the adjust-12 ments recc= mended by Tex-La's witnesses.
Secondly, I will discuss the 13 propriety of the company's attempt to adjust test year revenues down-(
14 ward by $11,805,886 based upon some unarticulated concept of a " normal" 15 weather year.
Lastly, I will address the inappropriateness of in-16 cluding the Big Brown casua'lty loss in the cost of service.
i 17 Q WOULD YOU PLEASE SUlDIARIZE THE TESTDIONY THAT WILL BE GIVEN BY Tile
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18 OTHER COOPERATIVE INTERVENOR WITNESSE3 IN THIS PROCEEDD!G.
19 A Mr. Gross is providing testimony on rate design, the cost of service 20 adjustments for Martin Lake Unit No. 2 and Monticello Unit No. 3 and l
21 on attrition.
Mr. Strozier is tectifying on the Company's proposed 22 change in depreciation rate for gas and oil fired plants and on the 1
23 Company's excessive reserve position. The :.estimony of Dr. Livingstone l
24 concerns the appropriateness of excluding construction work in progress 25 from rate base, the unreasonableness of the proposed change in k' __
I depreciation rate, the co=pany's attrition adjustment, the unreasonableness 2
of allowing an equity return on the unamortized investment tax credit, 3
the pricing of intercompany transactions and adjustments to the Company's 4
income tax calculations.
Dr. Stolnitz testifies on the appropriate rate 5
of return for TP&L, the Company's price resistance and weather adjustment 6
analysis.
Dr. Ewert provides testLmony on the appropriate rate of return, l
7 the reasonableness of allowing an equity return on unamortized investment 8
tax credit and the effects of attrition on rate of return.
9 Q WOULD YOU BRIEFLY SUMMARIZE TIIE CONCLUSIONS WHICH YOU AND THE DIllER 10 WITNESSES FOR TEX-LA IIAVE REACHED AS A RESULT OF STUDYING TP&L'S COST f
11 0F SERVICE, t
12 A The adjusted cost of service filed by the Company in this proceeding i
13 significantly overstates the cost of providing service to its custo-l 14 mers.
In fact, the Company has returned for a rate increase much 15 sooner than one is required. As will be shown by the Tex-La witnesses, 16 the Commission should require a reduction in rates rather than an in-The following major errors were made by TP&L in'its adjusted 17 crease.
18 cost of service, necessitating adjustments:
19 1.
Construction work in progress should not be included in the 20 rate base on which the Company is allowed a current return.
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21 2.
The Company's proposed attrition adjustment shculd not be 22 a llowed.
l 23 3.
As testified by Dr. Ewert, TP&L has over estimated the return l
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1 on con: mon equity necessary to allow it to maintain its
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2 financial integrity and to attract capital.
3 4.
The Company's weather adjustat.nt should be disallowed.
4 5.
If the Company's weather adjustment is allowed, variable 5
expenses other than fuel chould be reduced commensurate 6
with the reduction in kilowatt hour sales.
7 6.
The advances to affiliates should be removed from TP&L's 8
rate base.
9 7.
The unamortized investment tax credit should not be given l
10 a return in excess of Texas Power and Light's comp.osite 11 cost of capital.
12 8.
As shown by Witnesses Strozier and Livingstone, the Company's 13 proposed change in gas / oil plant depreciation rate should be 14
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disallowed and the lignite plant rate reduced.
15 9.
TP&L's price resistance adjustment should be disallowed.
16 10.
The intercompany payments included in the test period should 17 be adjusted to reficct straight line depreciation rather than 18 accelerated depreciation in pricing.
19 11.
Test year taxes should be reduced by the current ysar's 20 amortized portion of the investment tax credit generated by 21 Martin Lake Unit No. 2 and Monticello Unit No. 3 during the 22 test year.
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- 12. The entire amount of the Company's adjustment for accumulated 24 depreciation and deferred income tax should be deducte? from 25 rate base as adjusted by Mr. Gross.
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1 13.
The adjustments to rate base and expenses for Martin Lake 2
Unit No. 2 and Monticello Unit No. 3 should be reduced to 3
allow only the incremental change in embedded cost per mega-4 watt to be reficcted.
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- 14. The high voltage discount in the REA rate should be increased I'
6 as testified by Mr. Gross, i
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7 I have prepared an exhibit, Exhibit No.
(JBS-1), which shows the i
8 combined effect of the cost of service adjustments listed above, s
9 Q
WilAT IS THE BASIS FOR YOUR CONCLUSION TIIAT Ti1E COMPANY'S WEATilER i
10 ADJUSTMENT SIIOULD BE REJECTED?
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11 A
The Company has presented testimony by which it attempts to quantify 12 the amounts of energy which will be consumed under varying weather l
13 conditions. While there can be little dispute that energy consumption 14 varies in response to varying tempert.tures, we have discovered serious 15 defects in the Company's attempt to quantify the response of its custo-l 16 mers to changes in weather conditions.
Dr. Stolnitz will discuss these 17 difficulties.
Even if we had a proper determination of the amount of 18 energy which consumers will consume under varying temperatures, the i
19 quantification of a weather adjustment must further rest upon some 20 identification or prediction of weather conditions which will exist 21 during the likely effective period of the rates. The Company presents 22 no evidence on this point and, indeed, while its adjustment assumes
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23 what the weather will be, it provides no witness who either purports l
t 24 to support or to be qualified to support such a determination.
25 The Company hangs an $11,805,886 adjustment on the bare assertion l
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I that "if the Company had experienced nomal weather for the test 2
year, we estimate that 666,648,127 (later changed by the Company 3
in data responses to 704,983,139) fewer kilowatt hours would have 4
been sold by the Company (Jackson p. 25, lines 21-23)."
5 This is the sum total of the Company's testimony concerning 6
"nomal" weather upon which the adjustment is based. The Company 7
totally fails to address the critical issues of fact and of policy 8
upon which its adjustment must rest.
Is there such a thing as a 9
normal year of weather in the sense that there is a greater likeli-10 hood that a defined set of temperature conditions will exist in 11 any given year or is the most that can be said that oirer a long period 12 of time certain averages exist? We don't know, and the Company has 13 provided no basis 'for deciding. As an illustration of this issue, 14 we can say that an average of the ages of the Commissioners may 15 give us some concept of the "nomal" age of a Co:=atesioner. Yet it 16 provides us with little assurance of the likelihood that a Commissioner 17 will be any particular age and no substantial likelihood that any 18 particular Commissioner will be the average age.
Certainly, such 19 a " normal age" providea insufficient likelihood upon which 20 to base the payment of almost twelve million dollars.
21 Absent more infomation it would appear equally valid (or invalid) 22 to assume that weather phenomenon cycle over a period of years such that 23 the weather next year is more likely or at 1 cast as likely to mirror the 24 weather this year than to mirror a ten v;ar average or some other 25 definition of "nomal" weather.
Certainly the weather provides a
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1 fertile field for human speculation. The Company has not gone 2
beyond such speculation in arriving at its weather adjustment.
3 Q
llAVE YOU IDENTIFIED ADDITIONAL DIFFICULTIES WITIl THE COMPANY'S 4
WEATIIER ADJUSTMENT?
5 A
Yes, as shown in the Company's response to Tex-La Data Request 6
No.1
, Item No. J-1,no separate adjusbnent was made to the kW 7
deman d s.
Thus, to the extent that a change in weather has a 8
greater effect on kWh consumption than on kW demands the Company's 9
revenue reduction would be too high for those customer groups 10 served on rates with demand charges.
In addition TP&L neglected 11 to consider the increased usage per customer as an offset to the 12 alleged decline in usage due to weather even though TP&L witness 13 Swiger in Exhibit (SSS-13) shows a definite increase in usage per
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14 customer. For all of these reasons, it is my opinion that the 15 weather adjustment proposed by the Company is useless as a rate-16 making tool.
17 Q ARE TIIERE EXPENSES INCLUDED IN Tile TEST YEAR WIIICII SITOULD BE PIDUCED 18 IF Tile ADJUSTMENT FOR WEATilER IS ALLOWED?
19 A Yes, TP&L crroneously omitted the reduction of variable O&M expenses s
20 other than fuel and purchase power relating to the reduction in 21 kilowatt hour sales it found desirable.
22 Q llAVE YOU CALCULATED TIIE ADDITIONAL AMOUNT OF VARIABLE EXPENSE WIIICH I
23 S110ULD BE ELIMINATED IF Tile COMPANY'S WEAT11ER ADJUSTMENT IS ALLOWED?
24 A Yes, on Volume IV, Schedule 0,Section V, page 9.9 column 9, TP&L 25 shows energy related expenses other than fuel and purchased power in
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1 the amount of $18,253,686. As indicated by the Company, these are 2
variable expenses directly related to the production of kilowatt 3
hours.
If fewer kilowatt hours are generated and sold, these 4
expenses will decline in proportion to the reduction of kilowatt 5
hours sold.
I calculated the amount of the reduction to be 6
$603,466 by dividing the energy related expenses of $18,253,686 7
by the unadjusted sales of 21,322,778,929 kilowatt hours and multi-plied the resulting 0.856 mills per kilowatt hour by the Company's 8
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proposed reduction in kilowatt hour cales of 704,983,139 kilowatt l
10 hours1.157407e-4 days <br />0.00278 hours <br />1.653439e-5 weeks <br />3.805e-6 months <br />.
l 11 Q
ARE YOLI FAMILIAR WITil THE EXPENSE ADJIETMENT MADE BY THE CO'4PANY l
l 12 FOR ITS BIG BR07N CASUALTY LOSS?
I 13 A
Yes, TP&L has increased its test year operation and maintenance
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expenses by $333,333 to reflect one-half of the Company's portion 15 of the cost of the casualty loss at. Big Brown Unit No. 2.
16 Q
IS THIS AN APPROPRIATE ADDITION TO THE TEST YEAR OPERATING EXPENSES?
17 A
No, as recognized by the Commission in its final order in the recent 18 TESCO case, Docket No. 527, this expense item should not be allowed 19 due to its non-recurring nature and the possibility of redress 20 against the manufacturer.
21 Q
PLEASE EXPLAIN THE RESULTS OF YOUR ADJUSTED OVERALL COST OF SERVICE 22 SHOWN ON EX1tIBIT NO.
(JBS-1).
23 A
This exhibit is composed of four pages eqd reficcts all the adjust-24 ments proposed by the Tex-La witness s.
EaCh adjustment has been 25 footnoted to indicate the witne.n im "goible for that adjustment.
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1 Page 1, column e, of this exhibit shows that properly adjusted,
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2 the Company would have earned 10.147. return on original cost rate 3
base.
Column g shows Tex-La's reco= ended total company revenue 4
requirement for the test year to be S640,008,771.
This results in 5
a revenue reduction of $16,897,188 below the present rates.
6 Q
IIOW DID YOU DEVELOP THE 9.5217. RATE OF RETURN YOU USED IN EX111 BIT i
7 NO.
(JBS-1)?
I 8
A As shown on page 4 of that exhibit, I used the average of the returns 9
on equity recommended by Tex-La Witnesses Stolnitz and Ewert witn 10 the capital structure and other capital costs shown on Exhibit No.
11 (DCE-1), page 18.
12 0
IIAVE YOU APPLIED TIIE ORIGINAL COST / CURRENT COST WEIGHTING RECOMMENDED 13 BY DR. LIVINGSTONE TO PRODUCE TIIE ADJUSTED VALUE RATE BASE?
14 A Yes, the resulting rate base is shown on Exhibit No.
(JBS-2) to be 15
$1,692,459,122.
16 Q DOES THIS CONCLUDE YOUR DIRECT TESTIMONY AT THIS TIME?
17 A Yes, it does.
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