ML19308A403
| ML19308A403 | |
| Person / Time | |
|---|---|
| Site: | South Texas, Comanche Peak  |
| Issue date: | 06/30/1976 |
| From: | Solomon J PSI ENERGY, INC. A/K/A PUBLIC SERVICE CO. OF INDIANA |
| To: | |
| Shared Package | |
| ML19208C305 | List:
|
| References | |
| E76-149, NUDOCS 7909260154 | |
| Download: ML19308A403 (4) | |
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PUBLIC SERVICE COMPANY OF INDIANA FPC DOCKET NO. ER76-149 DIRECT TESTIMONY AND EXHIBITS OF J.B. SOLOFDN b
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1 Q PLEASE STATE YOUR NAME AND ADDRESS.
2 3 A My name is J. B. Solomon. My business address is 1000 Crescent Avenue, 4
Atlanta, Georgia 30309.
5 6 Q PLEASE OUTLINE YOUR FORMAL EDUCATION.
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g A I received the degree of Master of Business.Aministration from Georgia 9
State University in 1973. My area of concentratf*op was Finance.
I,also 10 received the degree of Bachelor of Science in Industrial Mansgement 11 from the Georgia Institute of Technology in 1972.
12 13 Q PLEASE STATE YOUR PROFESSIONAL EXPERIENCE.
14 15 A As a Cooperative student at Georgia Tech, I gained approximately two years 16 work experience as an assistant engineer in an industrial production 17 setting. After my graduation from Georgia Tech in 1972, I worked approx-
' 18 imately 1-1/2 years as a program manager for a management consulting 19 firm and for another 1-1/2 years as a project analyst for a resort devel-20 opment firm.
I was employed by Southern Engineering Company of Georgia, 21 my present employer, in January, 1975.
Since that time, I have had 22 assignments in both the retail and wholesale rate departments of my 23 c mpany, primarily in the area of electric utility races.
In the retail 24 area I have participated in the preparation of rate increase filings for 25 b th G & T and distribution rural electric membership cooperatives as
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'6 well as the determination of revenue requirements and proper rate design
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f r unregulated rural electric membership cooperatives. My primary 27 activities, however, have been in the wholesale area where I have. parti-23 Cipated in the analysis of approximately one dozen Federal Power 29 Comission filings of private utilities operating in eight different 30 states.
I also participated in the preparation of testimony and 31 exhibits for several of these rate filings. Additionally, I ~have partici-39 pated in the preparation of retail and wholesale allocated cost of service 33 studies, and power cost projections.
34 35 Q WHAT WAS YOUR ASSIGNMENT IN THIS PROCEEDING?
36 37 A My assignment in this proceeding was to analyze the fuel expenses and 38 fuel related revenues as filed by PSCI to determine whether those expenses 39 and revenues are proper, just, and reasonable for purposes of establishing 40 rates.
41 42 Q WHAT DATA HAVE YOU STUDIED IN ORDER TO COMPLETE THIS ASSIGNMENT?
43 44 A I have reviewed the testimony and exhibits included in PSCI's filing 45 particularly those pertaining to Statement 0, the Company's rate tariffs 46 and contracts, and certain additional information supplied in response to C1 data requests concerning the Company's accounting treatment of these 4c revenues and expenses.
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50 Q WHAT CONCLUSIONS HAVE YOU REACHED AS A RESULT OF THIS REVIEW?
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1 A.
PSCI's treatment of fuel expense and revenues derived from the appli-2 cation of the proposed fuel adjustment clause does not properly reflect 3
the required matching of revenues and expenses incurred during the test 4
period (Period II) upon which revenue requirements are being determined 5
and rates being established.
6 7 Q.
PLEASE EXPIAIN THE OPERATION OF PSCI'S PROPOSED FUEL ADJUSTENT CLAUSE.
8 9 A.
The Company's proposed fuel cost adjustment clause stipulates that the 10 unit cost of fuel in the imediately preceding month shall be applied 11 in the current month. This means, for example, that the a=ount of 12 fuel adjustment billed for the month of January would be based on the 13 unit cost of fuci in December.
C 14 15 Q.
HOW HAS THE APPLICATION OF THIS FUEL CLAUSE RESULTED IN A MISMATCH OF 16 FUEL EXPENSES AND REIATED REVENUES USED IN THE COMPANY'S PERIOD II TEST 17 PERIOD?
18 19 A.
While the Company has included the cost of fuel for each ronth during the 20 period July 1975 through June 1976, the application of the proposed fuel 21 adjustment clause has resulted in the recording of fuel adjustment revenues 22 based upon the cost of fuel in each of the months during rhe period June 23 1975 through May 1976.
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25 Q.
PLEASE EXPLAIN WHY THE DEIERMINATION OF PSCI'S REVENUE REQUIREMENT SHOULD 26 BE BASED UFON THE MATCHING OF FUEL EXPENSES AND FUEL RELATED REVENUES.
27 28 A.
The concept of matching test period revenues against test period cost of 29 service to determine the additional revenue requirement is a basic precept 30 of the rateraking process.
Since this Company is proposing a fuel adjust-31 ment clause d ich will allow it to recover its expenditures for fuel, the 32 tent period (Period II) should reflect a icvel of revenues equal to these 33 fuel expenditures.
34 35 Q.
IS IT NOT TRUE, HOWEVER, THAT THE OPERATION OF THE PROPOSED FUEL ADJUSTMENT 36 CLAUSE RESULTS IN A ONE MONTH LAG IN COLLECTION OF FUEL EXPENSES ABOVE THE
'l 37 BASE COST OF FUEL?
38 39 A.
Yes, it is, and as pointed out by Witness Robert M. Gross, Jr. there are 40 many other leading and lagging expense / revenue situations. To compensate Al the Company for the net amount of these leading / lagging situations, Mr.
42 Gross has included in his cost of service study the Federal Power Comis-43 sion's standard 45-day working capital allowance.
44 In additi n to this, rates are normally made to continue in effect for more 45 than a one year period so that over a period of rising and falling unit fuel 46 e ses this lag will be washed out.
This happens because just as the Company 47 collects less than its total fuel expenses in months when unit fuel costs 48 are escalating, it collects an amount greater than fuel expenditures during 49 k
50 m uths when unit fuel costs are declining.
1 Q.
HAVE YOU PREPARED AN EXHIBIT W11ICII SHOWS THE PROPER MATCHING OF FUEL 2
EyPENSES AND PIIATED REVENUES?
3 Yes, In ervenor Exhibit No.
(JBS-1).
4 A.
e 5
6 Q.
PLFASE EXPIAIN THIS EXHIBIT.
7 8 A.
This Exhibit is comprised of five pages. The adjustment required to 9
obtain the proper fuel expense / revenue matching for each of the wholesale 10 customer groupq is shown on a separate page.
Using Page 1 which is for the Cooperative customer group as an example, the last column (h) shows 11 for each month and the total for ?criod II, the additional revenues which 12 sh uld be included in the cost of service to properly, match fuel expenses 13
.md fuel reinted revenues. This adjustment is calculated by subtracting 14 fuet revenues actually used in the Company's Period II Cost of Service 15 Study (c lumn e) fr m the fuel revenues which properly match fuel expenses 16 (column 3).
The monthly fuel revenues shown in column e are based upon 77 the unit cost of fuel in the immediately preceeding month. The monthly 7g fuel revenues shown in column g are based upon the unit cost of fuel in 19 thus producing a proper matching of revenues and teamn m nt 20 The kilowatt hour purchases and unit fuel costs used in this expenses.
2 exhibit were taken from the material filed by the C,ompany in this docket.
2.
The remaining pages of this Exhibi' display similar calculations for each
.3 of the rc=aining whoicsale customer "roups. "
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25 26 This exhibit shows the effect of this adjustment is merely to shift the 27 collection of a full twelve months of fuct adjustment revenues back one 28 month in time. This can be illustrated by looking at the fuel adjustment 29 factors in columns d and f.
To obtain fuel revenues which properly match 30, fuci expenses (colu=n g), the factor shown on line 1, column d is dropped, 31 the remaining eleven factors in column d are moved back one month (see 32 column f), and the actual unit cost of fuel in June,1976 is used on line 33 12, column f.
Thus only twelve months of fuel revenues are included in the 34 adjusted cost of service -- no more and no less.
35 36 Q.
WHAT REVENUE ADJUSTMENTS RESULT FROM THESE CALCUIATIONS?
37 38 A.
The Period II test year revenues for the wholesale customers should be 39 increased as' follows:
40 41 Cooperatives
$262,057.84 42 Municipais
$139,493.10 43 City of Frankfort
$ 21,094.36 -
44 Cities of Peru, Washington, 45 Iogansport & Crawfordsville
$ 59,300.22 46 Hoosier S 95,220.60 47 48 Q.
HAVE YOU REVIEWED THE TESTIMONY AND EXHIBITS OF THE FEDER.E POWER 49 C01 MISSION STAFF?
50 51 A.
Yes..
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l Q.
DID TIIE FPC STAFF MAKE A SIMILAR ADJUSTFENT 10 THE PERIOD II TEST YEAR 2
REVDIUES TO ACHIEVE A MATCIIING OF FUEL EXPENSES AND RELATED REVENUES?
3 4A.
Yes.
5 6Q.
DID YOU EMPIDY TIIE SAME METHODOIDGY USED BY TIIE STAFF IN CALCULATING YOUR REVENUE ADJUSTFENTS?
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8 9 A.
Yes.
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