ML19308A405
| ML19308A405 | |
| Person / Time | |
|---|---|
| Site: | South Texas, Comanche Peak  |
| Issue date: | 08/01/1979 |
| From: | Gross R GEORGIA POWER CO. |
| To: | |
| Shared Package | |
| ML19208C305 | List:
|
| References | |
| E-9091, NUDOCS 7909260170 | |
| Download: ML19308A405 (11) | |
Text
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C DO 1 T
. E- 091 PREPARED TESTIMONY OF ROBERT M. GROSS, JR.
I 1
Q PLFASE STATE YOUR NAME AND ADDRESS 2
3 A
My name is Robert M. Gross, Jr.
My business address is 1000 Crescent 4
Avenue, N.
E., Atlanta, Georgia 30309.
5 6
Q WHAT IS YOUR EDUCATIOl3L EACKGROUND?
7 8
A I graduated from Georgia Institute of Technology in 1965, receiving 9
the degree of Bachelor of Industrici Engineering. I also attended 10 Georgia State University and in 1971 received the degree of Paster 11 of Business Administration, majoring in finance.
l 12 13 Q
PLEASE STATE YOUR PROFESSIONAL EXPEPlENCE.
14 15 A
I have been employed by Southern Engineering Company of Georgia for 16 approximately eight years.
During this time I have been involved in 17 the preparation of cost of service studies of Class A and B investor-18 owned utilities, rural electric cooperatives and municipal electric 19 systems and have participated in s olesale and retail cicctric rate 20 consulting assign:nents in 23 states.
I am a registered pEofessional 21 engineer in the State of Geor'gia.
22 23 Q
HAVE YOU EVER TESTIFIED IN OTHER COMMISSION PROCEEDINGS?
24 25 A
Yes, I have testified as a rate expert and cost of service witness 26 before the State Commissions of Kentucky, Indiana, Michigan, Vermont 27 and Virginia.
I have also testified before the Federal Power Commis-28 sion in proceedings involving the Mississinoi Power.Comoanv, FPC Docket 29 No. E-7685; Annalachian Power comoanv, FPC Docket No. E-7775; Duke 30 Power Comonnv, FPC Docket No. E-7994; Gulf States Utilities Cocoany, 31 FPC Docket No. E-8121; Gulf Power Comnany, FPC Docket No. E-8911; 32 Annalachian Power Comonny, FPC Docket No. E-9101; Vircinia Electric 33
& Power Cocoanv, FPC Docket No. E-9147; Ari::ona Public Service Connany, 34 FPC Docket No. E-8624; and Public Service Comnanv of Indiana. Inc.,
35 FPC Dacket Nos. ER76-149 and E-9537.
36 37 Q
BY WHOM IS SOUIHERN ENGINEERING COMPANY RETAINED IN THIS PROCEEDING?
38 39 A
Southern Engineering Company is retained by Oglethorpe Electric 40 Membership Corporation (Cooperative Intervenors). Witnesses Solomon, 41 Springs, Livingstone, Evert and I will be oglethorpe Electric Member-42 ship Corporation's witnesses in this proceeding.
43 4
44 Q
WHAT WAS YOUR ASSIGN'ENT IN THIS PPDCEEDING?
45 46 A
My assignment was twofold: First I was to review the direct testimony, 47 exhibits and other availabic information of Georgia Power Company (GPC) 48 concerning the cost to serve GPC's wholesale Cooperative customers.
49 Specifically, I was to consider whether the methods employed by GPC 50 for Period II to develop the overall Company rate base were proper and in accord with Commission precedent and. sound ratemaking procedures.
x 51 7 909260/7C
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1 Secondly I was to make a detemination as to the justness and 2
reasonableness of CPC's proposed 1007. summer-based billing demand
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3 ratchet as contained in the pro' posed whoicsale rate WR-8R.
4 5
Q WHAT DATA HAVE YOU REVIEWED IN PREPARING YOUR TESTD;0NY AND REIATED I
6 ExHILITS?
/
7 S
A I have reviewed those portions of the Company's filing which relate 9
to its cost of service studies and subsequent rate design including 10 testimony and cxhibits of GPC's witnesses and other information which 11 GPC supplied in response to the FPC Staff's and the various Intervenors' 12 requests for data.
13 14 Q
WOULD YOU DESCRIBE THE CIRCU'iSTANCES SURROUNDING THE COMPANY'S 15 PROPOSED TARIFF AS IT APPLIES TO THE COOPERATIVE INTERVENORS?
16 17 A
Yes, the proposed tariff, for full requirement service, became effective 18 on sales to Cooperative Intervenors on April 1, 1975 and remained in 19 cffect through June 30, 1975. On July 1, 1975 rates for partial 20 requirements service as contained in Docket Nos. E-9521 and E-9522 4
I 21 became effcetive and superseded the rate contained in the instant j
22 case.
23 24 For the Cooperative Intervenors, this proceeding is limited to the.
25 establishment of full requirement rates for the three month locked-in 26 Period April 1, 1975 through June 30, 1975.
27 28 Q
UAS THE Sil3RT-TEPJi LOCIID-IN PERIOD llAD AN D9ACT ON TIE CONDUCT OF 29 THE CODPERATIVE INTERVD;0RS' COST OF SERVICE STUDIES IN THIS PROCEEDIN0?
30 i
31 A
For the most part, no.
We have based our cost of service studies on 32 the Company's actual average cost and investments experienced for the i
33 calendar year 1975 (Period II). Although the proposed tariff was 34 cffective for serv' ices rendered to the Cooperative Intervenors only 35 for the second quarter of 1975, uc concur with the Company that rates l
36 in both this docket as voll as Docket Nos. E-9521 and E-9522 should be based on average cost experienced during the calendar year 1975.
i 37 only in the detemination of the cost of capital do we believe that the 38 three month locked-in period has specific measurabic impact on this j
39 rat Proceeding. As testified to by Dr. Ewcrt, the measurement of 40 the e st f apital f r th instant case is related specifically to 41 capital costs of GPC during the three month locked-in period. Similarly, g
Dr. Ewcrt's cost of capital determination for Incket Nos. E-9521 and E-9522 (to be filed August'27, 1976) will be based on the Company's 4*
capital :ost also for a locked-in period coinciding with the effective 45 term of the tariffs contained in that proceeding (July 1,1975 through 46 July 31, 1976).
47 48 49 Q
WOULD DU BRIEFLY SUSARIZE THE CONCLUSIONS WHICH YOU AND THE OTHER 50 WITNESS?.S FOR THE COOPERATIVE INTERVENORS HAVE REACHED AS A PISULT OF r
51 STUDYING GPC'S COST OF SERVING ITS WHOLESALE CUSTOMERS.
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1 A
The cost of service studies presented by the Company in this pro-2 ceeding significantly overstate the cost of serving GPC's wholesale i
3 Cooperative customers. The following major errors have been made by 4
GPC in its Period II cost of service study, necessitating adjustments:
li 5
6 1.
G?C's use of the average of the beginning and end of year j
h 7
electric plant in service account balances to determine the plant i
8 investment icvel for the test year does not accurately reficct the 9
overall average investment in GPC's plant-in-service for the test l
10
- period, i.e., the twelve months ending December 1975. The most 11 accurate method is the use of the thirteen month average of plant 12 in service balances, j
13 14 2.
GPC improperly included in its rate base amounts for co= pen-l 15 sating bank requirements as a component of its cash working capital.
16 3.
As testified to by Mr. Solomon, GPC's method of accounting 17 f r r venues derived from the application of the Company's fuel cost 18 adjust = cat provision does not properly match revenues with fuel expense 79 incurred during the test period (Period II).
20 21,-
4.
GPC has allocated SSS,005 of saics expense to wholesale customers.
Such customers are not scehing any form of sales pro-
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motion from GPC and such expense is related only to retail sales.
Such sales expense, therefore, should be deleted from the cost of r
,5 service to wholesale customers.
26 27
'5.
As testified to by Mr. solomon GPC does not properly allocate the administrative and general (A&G) expenses for Period II, since
'3
{9 it specifically assigns without explanation only a select few A&G 0
cxpense items while it allocates to all customers the maiority of 31 A&h expense items.
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32 33 6.
As testified to by Fx. Solomon, GPC has irgroperly allo-34 cated deductions in its determination of the federal and state income 35 taxes charged to each class of service.
36 37 7.
As testified to by Dr. Livingstone, GPC has inflated its 3S rate base by using improperly calculated rates for capitalizing 39 Allowance For Funds Used During Construction.
40 l
41 6.
As testified to by Dr. Livingstone, GPC has significantly_
i 42 overstated the federal and state income tax cxpense charged in the 43 cost of service by including taxes incurred on the one tLme sale of 44 certain facilities to Oglethorpc Elcetric Membership Corporation 45 during the test year.
46 47 9.
As testified to by Mr. Springs, GPC has assigned a dis-48 proportionately large amount of transmission plant and associated 49 expenses to its whoicsale Cooperative customers. Moreover, some 50 transmission facilities were specifically assigned by GPC to whoicsale
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1 customers on a basis that differs from that on which assignments 2
were made to the retail class of customers, even though such trans-3 mission facilitics used to serve retail customers perform a function 4
similar to transmission facilitics used to serve wholesale customers.
5 This inequitabic assignment of transmission facilitics has been 6
adjusted ',y : r. Solcmon by using the " rolled-in" method of transmission P ant n'. location.
l 7
8 9
Mr Solomon has prepared an exhibit (Cooperative Intervenors' Exhibit 10
'M.
(JES-3)? which shows the combined effects of the cost of 11 service adjustmeats listed above.
12 13 Q
W3ULD YOU PLEA 2E EXPIAIN Wirf YOU USED TiiE AVEPAGE OF Ti1E 13 MONTHLY 14 BAIANCES INSTIAD OF T"dE AVEPAGE OF TIIE BEGIt".EG AND ENL OF YEAR 15 1RIANCES IN DdTEPJ1INING TIIE TOTAL RATE BASE FOR GPC FOR PERIOD II.
16 17 A
In determining its rate basc GPC has used the average of the beginning 18 and end-of-year balances for cicetric plant in service during the test 19 year.
In some cases this method may be adequate for rateraking purposes.
20 Generally, however, it is recognized that the proper synchronization 21 of revenues, expenses and cicctric plant in service can be accomplished 22 only by untching the monthly plant in service balances with the billing 23 periods, which are the periods of mercring for snics to wholesale 24 customers. Eilling is done on a monthly basis. Therefore, a monthly 25 average is the most accurate method for synchronization of the crpenses
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during the months, the energy produced during the months, and the 26 27 revenues co11ceted during the renths'.
The average of the thirtcon '
33 cicctric plant in service end of month account balances accomplishes 39 monthly averaging since the beginning balance and the ending balance oi 30 ach month during the test period is weighted equally in the computation.
31 M re ver the thir cen month average method avoids the necessity of determining how to properly weight large, irregular additions to plant 29 3
which are placed in service during the test period. The 13-month jc average method, therefore is more accurate for matching revenues and cxpen es with the facilitics in service during the year.
35 36 37 The relative superiority for ratemaking purt oses of the 13-month 3S average meth d is dem nstrated by its use in calculating GPC's rate base. Applying that method to the actual data availabic from GPC 39 40 n its m nthly not plant balances for Period 17 produces the following 41 overaSc nct P ant amounts: ($1,000) l 42 43 Production Transmission Distribution General i4 955,555 451,867 708,892 55,134 45 46 These figures compare with the Company's beginning and end'of year 47 average not plant balances as follows: ($1,000) 48 49 Production Transmission Distribution General 50 1,100,944 467,897 732,257 57,425 l.
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My calculations show that the Company's method overstates all functional 2
net plant in service balances particularly net production plant.
The i
3 S145,389,000 difference between GPC's figure for net production plant 4
and my figure is due primarily to the commercial in-service dates of tha 5
Hatch No. 1 unit and the Bowen No. 4 un.t.
GPC's beginning and end of 6
year average method of calculating plant in service attributes both units to be in commercial operation for six months during the test year, i.e.,
7 July through December 1975.
In fact, the Hatch unit was not commercial-8 ized until December 31, 1975. The buren un.it was placed in commercial 9
. peration on November 14, 1975. When GPC computes it rate base using the 10 beginning and end of year plant in service balances, it seeks a r.eturn on
.f both of these units as if they were in service for six months of the test year rather than the actual in-service periods of one day for Hatch No.
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1 and approximately 6 weeks for Bowen No. 4.
1 15 It should be pointed out that although most units generally are of scme 16 value prior to commercial o eration, because of the availability of test c
17 run energy, the Company has fully recognized that value by increasing is Account 557 for the value of the kilowatt hours produced in the pre-19 operational testing of these units.
20 21 Additionally, prior to final commercial operation, the Company' con-22 tinues to capitalize its Allowance For Funds Used During Construction 23 (AFUDC) so that the final capitalized value of the plant in service 24 reflects AFUDC incurred during the entire period of pre-operational 25 testing. Over the life of the facility, Georgia Power Company will recover 26 these costs through depreciation charges and return on rate base. Therefore, 27 to allow the Company to calculate its rate base on a beginning and end 23 of year production plant investment balance results in this case in 4
a doubic return to the Company. GPC would earn a full return on tha oc l
36 weighted value of both Hatch and Bowen investments included in the rate base representing the pre-operational period of June through
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$9 December for Hatch, and June through October for Bowen.
GPC would l
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also capitalize AFUDC on these investments for the same periods.
34 i
35 The average of the 13-month plant balances climinates its overlap I
36 and provides for a proper relationship between plant in service for 37 the rate of return purposes and AFUDC taken on ore-commercial invest-SS ments.
l 39 40 FPC precedent dictates the use of the 13-m> nth average plant balance 41 method.
For exampic, the Commission requix ed use of the 13-month 42 average in Mississipoi Fuel Corporation, 11 FPC 288 (1952), Idaho 43 Power Company, 46 GPC 384.(420) 1971 and most recently in Connecticut 44 Light & Power, 1976 FPC Docket No. E-7743, Opinion No. 761.
45.
46 Clearly, both logic and precedent, as veli as good ratemaking pro-47 cedures require the use of the 13-month average net electric plant 43 in service in GPC's cost of, service for its plant balances.,
49 50 Q
HAVE YOU PREPARED AN EXHIBIT WHICH SHOWS THE DEVELOPMENT OF THE
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13->DIGH ACCOUNT EAIANCES UHICH WERE EMPLOYED IN C00PElaTIVE f
2 IIGERVENORS' COST OF SERVICE STUDY?
3 4
A Yes, Cooperative Intervenors' Exhibit No.
(RMG-1) contains the 5
development of the monthly account balances which I used for gross 6
plant in service, accumulated reserve for depreciation, plant held 7
for future use, and nucicar fuel.
8 9
10 Q
- MR. GROSS, TIE STAFF IN ITS DEVEIDPSINT OF THE COMPANY'S PATE BASE, 11 TRI1TED PIAIG HATCH AS IF IT WERE IN C01DIERCIAL SERVICE EFFECTIVE i
12 JULY 1,1975 RATHER THAN THE ACTUAL CO>DERCIAL InTE OF DECEMBER 31, 13 1975. WOULD YOU PLEASE COMMENT ON T11E STAFF'S TREATFIIC7 14 15 A
The Staff is proposing to reverse the Company's accounting treatment 16 for the Hatch Unit No. 1 by transferring the monthly balances for the 17 CWIP investment in Hatch, as charged to Account 107, to plant in l
18 service for this six month period (July through December 1975).
19 Additionally, the Staff increases depreciation expense over the actual 20 booked amounts for 1975 based upon the six month plant in service 21 balance for Hatch.
22 23 I belicyc the Staff has erred in its treatment of the Hatch unit on 24 several bases.
First, the Company comercialized Fatch on December 25 31, 1975 for particular reasons.
Because of warranty requirements f
26 and other contractual provisions between Georgia Power Company and 27 various venders associated with the Hatch equipment, it was not 2S feasibic from Georgic Power's view to commercialize Hatch until 29 after a significant test period.
During this test period Georgia 30 Power company charged to Account 557 the " costs" of Hatch test run 31 energy.
Included in the test run costs charged to Account 557 were 32 nuclear fuel burn-up expenses, Hatch operation snd^ maintenance a3 expenses, and some additional $4,577,479 which the Company terms "the difference between the budgeted cost of energy, assu:ning that 34 the Plant Hatch Unit No. I were in commercial operation and the 35 actual cost of energy," (Cooperative Intervenors Exhibit No.
(PEG-2)',
36 Page 4).
The Company justifies charging these additional " costs" to 37 Account 557 on the basis that such amounts are "cquivalent to the
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}8 same amount which would have been expensed if depreciation had been g
ccmputed on Plant Hatch No. 1 using a unit of production method of i
g depreciation," Page 3 Cooperative Intervenors' Exhibit No.
(It!G-2).
Of It is apparent that dien the Staff increases test year depreciation O '-
expense for six months of commercial operations for the Hatch Unit 43 No. 1, it duplicates what'are essentially depreciation charges 44 previously booked in Account 557 by the GPC in the test year.
45 46 Secondly, when the Staff transfers the Hatch Unit No. 1 Account 107 balances 47 for July through December to plant in service, it removes applicabic 48 AFUDC omounts charged to the average balance.
Unfortunately Staff's 49 AFUDC adjustment is only for ratemaking purposes involved in this 50 particular case. Georgia Pouar Company presently has on file in Docket l l
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Nos. E-9521 and ER76-587, subsequent rate filings applicabic to Coop-2 erative Intervenors dich supersede the instant docket. The Staff's 3
plant in service adjustment for Hatch Unit No. 1 affects forthco=ing 4
rate cases pending before this Cor:raission since the Staff has not S
Permanently reduced the actiial book plant in service for the AFUDO l
6 capitali::ed on Hatch for the period June through Dece=ber 1975. If 7
these amounts are allowed to remain in electric plant in service, then 8
the Company in forthcoming rate cases will earn a full return on AFUDC taken during what the Staff has deter =ined to be a fully commercial 9
10 period for this investment. Obviously this is an incorrect procedure and will ultimately result in a double return to the Georgia Power 11 12 C mpany f r this component of the Hatch investment.
13 14 Unless the Staff is willing to make a substantial change to the 15 permanent book records of the Georgia Power Company, then its adjust-16 ment to recognice an earlier Hatch in-service date is incorrect.
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18 Q
FR. GROSS, IF THESE PERMA.NENT ACCOUNIING CHANGES'WEP2 1RDE D3 YOU 19 EELIEE THAT IT WOULD BE PROPER FOR PATEMAKING PURPOSES TO TI1E
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20 WEIGHT THE HATCH NO. 1 UNIT FOR AN IF-SERVICE DATE OF JULY 1, 19757 21 i
22 A
No, I believe it is very important to recognice that va are dealing 23 not with prospective ratemaking in this proceeding but with a locked-24 in ratemaking proceeding. As I have emphasiced previously, with respect
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25 to Cooperative customers, the instant case applies for the period i
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26 April 1975 thrcugh June 30, 1975; only a three month period. The I
27 Georgia P wer Company has on file.in Docket No. E-9521 a successor
- g rate applicabic to the Cooperative Interrenors which also covers a 39 locked-in period, i.e.,
July 1, 1975 thrt ush July 31, 1976. For service rendered effective August 1,19'i5 the Company presently has 30 n file in Docket No. ER76-SS7, the third in a succession of rate 31 increases which is based on calendar year 1976 operations. If the 32 instant case was for the purpose of setting a rate that would be in 33 me subsequent to the test year, den I e
f r s m s un an 3[,
could understand the Staff's adjustment in this proceeding. However,
[6 in this docket, we are dealing only with the second quarter of 1975 (Period II) with a maximum requirement of setting rates based upon 37 average 1975 costs.
Certainly costs subsequent to 1975 should not 38 be considered in a proceeding dealing with rates that will be in 39 effecc only during three months during the second quarter of the 40 test year. Therefore in the case of the Cooperative Intervenors, 41 I strongly believe that the Staff has improperly reficcted the Hatch 42 investment in the rate-base for rate =aking purposes. The rates filed 43 by GPC during the spring 1976 in FPC Docket No. ER76-587 will recover 44 the full annualized costs of Hatch Unit No. 1 concurrent with its i
45 commercial operations.
46 47 Q
MR. GROSS, DO YOU AGREE PITH CPC'S DEVEIhPMENT OF ITS WORRING CAPITAL 48 REQUIREMENTS?
49 50 A
No.
GPC overstated its cash working capital requirements and therefore
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its rate base by the inclusion of $11,052,567 for minimum bank 2
balances.
3 l
4 Q
WHY DO YOU DIS!sGPIE WITH THE COMPANY'S TPIATMENT OF MINIMUM BANK l
5 BALANCES?
6 7
A There are several reasons why there is disagreement with the Company's 8
inclusion of minimum bank balances as a component to rate base.
Dr.
9 Evert and I both will give reasons why minimum bank balances should 10 not be included in GPC's ratt base.
l 11 12 Company's witnesses state that the normal cash working capital l
13 allowance of 45 days of annual operation and maintenance expense 14 less purchased power is not sufficient to provide enough cash to 15 fulfill compensating bank balance requirements.
I hc c : carefully
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16 reviewed the testiFony and exhib,its of the Company's witnesses and I i
17 find no studies prepared by the Company showing that the standard 45 i
18 days cash working capital allowance is deficient.
I believe that if 19 additional cash working capital amounts, over and above the standard t
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20 45 days allowance, are to be included in the rate base, then GPC must i
21 show a detailed analysis of its total cash working capital needs based 22 on all cash receipts and cash disbursements.
23 l
24 This Commission has consistendy limited the cash working determination i
25 to the 45 days allowance. Any c.ttempts to expand or reduce the 45 days 26 allowance through specific treatment of any one item, has been met with i
27 the requirement to show all cash. leads and lags (with the ' exception of 23 FIT accruals, prior to Sierra Pacific Power Comnany, Opinion No. 730).
2o Particularly, the Commission has rejected the specific addition of 30 compensating bank bclances in some cases because of the availability l
31 of counterbalancing cmounts of cash generated thrrush certain accruals.
i 32 Along this line, GPC has not made a showing that cost free funds 33 generated from tax or other accruals were not continually available 34 during the test year for bank deposit and thus acted to satisfy requirements for compensating bank balances as such exists.
35 36
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37 Q
API GPC'S FDNTHLY TAX ACCMRLS OF A SUFFICIENT AFDUNT TO COUNTERACT
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38 THE APPROXD! ATE $11,000,000 STATED MINIMEi EANK B!JANCE PIQUIPI!ENT?
i 39 i
40 A
From the information that GPC has provided, I find that tax accrual 41 balances for the 13-month period December 1974 through December 1975 42 (Period II) averaged $32,642,337 as I have shown on Cooperative 43 Intervenors' Exhibit No.
(RMG-3). These balances are the result of 44 GPC's booking tax expense on a current basis but with the actual 45 payment to the taxing entity usually not due until some later date.
46 Since rates are based on current tax expense, a cash icading situation 47 develops as cash in-flow from revenues are received well prior to the 43 actual cash disbursement to the taxing entity.
49 50 It is obvious from this data that GPC has a substantial amount of
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51 interest free capital available which could and most probably is l
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1 totally deposited in bank accounts and indeed acts to fulfill any 2
compensating bank balance requirement.
3 4
Q DDES GIDRGIA POWER COMP.u'Y' S FEDE?AL INCO>E TAX CREDIT TO CASH WOICING CA? ITAL OFTSET THE TAX ACCRUAL LAIANCE SHOWN IN CO3?EPATIE INTERVENORS' S
6 NO.
(RMG-3)?
7 8
A No, if booked accruals relating to federal income taxes are eliminated from the total tax accrual balance as shown by the Georgia Power 9
Company for the test year, then the averare tax accrual balance of 10 11
$32,842,337 is reduced to $27,932,320, or by approximately $5,000,000.
Even climinating tax accruals relating to federal income tax from the 12 average tax accrual balance does not change the fact that tax accrual 13 balances are at least twice as much as the Company's stated minimum 14 15 bank balance requirement.
In addition, for cost of service purposes,
?'r. S 1 m n has eliminated the federal income tax offset to working 16 capital because of the Cor::ission's Order in opinion No. 730.
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18 19 Q
E. GROSS, THE SECOND ASPECT OF YOUR STATED ASSIGN >ENT IN THIS CASE 20 CONCERNS TliE RFASONA3LE'*ESS OF TiiI COMPANY' S PROPOSED 1007. SU1MER-EASED BILLING DD:AND RATCEET APPLICA3LE 10 THE COOPE?ATIVE MIOLESALE 21 22 CUSTO}ERS. HAVE YOU MADE A STUDY TO DETERMINE IF ItiE 100% SUMMER-23 LASED BILLING PATCHET IS JUSTIFIED?
24
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25 A
Yes.
My studies shev that given the long run necessity of including 26 a sim:ner-based billi.g de-and rat:Mt in the Cooperative Intervenors' wholesale rate for f211 requirement service, the ratchet should bc 27 2S 755.
I generally agree with the testimony of Georgia Power Compar;'s 29 witnesses that the Company will be faced in the future with a con-tinuation and possibic widening of the su=aer peak demand over tha 30 31 other monthly demands. Eased on such a trend I would agree that a stm ner-based billing demand ratchet would represent a reasonab1" i
32 consistent approach toward establishing a long-run pricing, pattern 33 applicabic to developing cost trends.
34 35 36 Q
MR. GROSS Pl?ASE DISCUSS YOUR STUDY SUPPORTING YOUR 0? INION THAT THE SDNER-EASED BILLING DD' ND RATCEET SHOULD BE 75% RATHER THAN 1007..
A 37 38 39 A
GPC's witness Hensicy states that the annual sum:act peak is the i
40 criterion which controls the amount of capacity the Company must 41 install. Fixed costs relating to this installed capacity are recovered 42 through the level of the de.and charges contained in the rate structure.
These demand charges coupled with the method of determining the 43 customer's " Billing Demand" are designed to recover as equitably as 44 p ssible from the whoicsale customers the allocated amount of the 45 fixed cost associated with the Company's installed capacity. The 46 billing demand ratchet is designed to reflect back on the maxinum 47 30 minute integrated demand of the wholesale customer established 48 49 during the months of June through September when GPC is likely to establish its annual peak demand. The ratchet serves as a pricing 50 '
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1 device to measure the relative contribution of each delivery point
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2 to GPC's annual peak demand and to assure that should the customer 3
recuire capacity at the time of the sumer peak, then the customer 4
will be held accountabic for such capacity on the billing basis for 5
the remainder of the year.
6 e
7 GPC's uitness Mr. W. R. Hensicy has selected a 1007. ratchet to i
8 measure the relative contribution of a customer's load to GPC's i
9 annual system peak.
I believe that a 1007. ratchet is too high and 10 would place an unreasonabic burden on the customer without cost 11 justification.
12 13 I believe that the 1cvel of the ratchet applicabic to a particular 14 wholesale customer classification should be related to the amount 15 of peak season diversity experienced by GPC in serving that whoicsale 16 customer classification.
I have studied the likelihood of a Cooperative 17 delivery point demand reaching its maximum sumer season value at a time coinciden t with the Company's annual system peak demand. My studies ig shou that the incidence of demand coincidence during the system peak 19 for the total wholesale Cooperative class (all 350 delivery points) 20 is approximately 757..
This percentage is measured by dividing the 21 Cooperative load coincident with the system annual peak (both I hour
.py
{3 peak and peak week) by the sum of all Cooperative delivery point peak thirty minute demands (NCP) occurring from June through September 94 (sumer m nths g verning ratchet application). The purpose of,this y~5 analysis is to determine the degree of summer seasonal diversity of l
the Cooperative class with respect to the time of the Company's annual 2,
peak demand. The ratchet should obviously reflect normal load diversity; otherwise, an individual cooperative customer could be unduly q
penali::ed if the ratchet was set at a level not consistent with normal delivery.
31 32 Q
I SHOW YOU A DOCUMENT MARKED COOPERATIVE INTERVENORS' EXHIBIT NO.
33 (PNG-4) AND ASK YOU TO IDENTIFY IT.
i 34 35 A
This Exhibit is entitled " Cooperative Intervenors' System Summary for 36 Periad June Through September, 1975 Metered Non-Coincident Peak Demand j
37 Su:r. nation by Delivery Points".
38 i
39 Q
' AS THIS EXHIBIT PREPARED UNDER YOUR SUPERVISION?
40 41 A
Yes.
42 43 Q
PLEASE DISCUSS THIS EXHIBIT.
r 44 45 A
I have summed for all delivery points (which accounts for entries shown 46 under more than one month for all but one Cooperative) each peak 30 ninute 47 integrated demand established during the period of June through September I
48 1975.
I show that the summation of such 30 minute demands are equal to 49 1,363,632 kilowatts. When this figure is divided into the wholesale 50 Cooperative class demand coincident with the Company's annual system
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1 peak demand 'as shown on Page 2, I calculate the incidence of peak 1
2 demand coincidence for the cooperative class for the summer period j
3 of June through September 1975 to be 75%.
4 5
Q WHY DO YOU BELIEVE THAT A WHOLESALE CUSTOMER COULD BE UNTAIPl.Y EURDENED 6
BY ESTALLISHING A PATCHET AT A LEVEL THAT WAS HIGHER THAN THE LEVEL OF 7
PATCHET PRODUCED BY A STUDY OF THE SUMMER SEASON DIVERSITY?
I 8
9 A
Page 1 of Cooperative Intervenors' Exhibit No.
(RMG-4) shows tha t 10
- a significant neber of Cooperative delivery points reached a peak 11 demand during certain su=cr conths other than during the month 12 when the Georgia Power Company reached its annual ' peak demand.
i 13 Our studies thow that many Cooperative delivery points, 14 particularly those in south Georgia, establish peak demands 15 no=r.11y during the early su=cr months when fare operations are at a 16 maxim =.
In other words these delivery point demands are a function 17 of crop drying and irrigation require =ents and are not significantly 13 related to air conditioning recuireacnts as suggested by Mr. Hensley 19 on Page 9 of his testimony where he states that wholesale loads have essentially the same characteristics as loads of the Company.
The i
'O Company's load characteristic of course is heavily air conditioning 21 related screas a sizable portion of the wholesale Cooperative load 4
9.,
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is related to farming operations. The natural diversity of the whole-i
[
sale Cooperative class se=mer peak loads should be recognized in the i
ratch e t. If this recognition is not established in the ratchet, then I
~5 ertain wh lesale cust mers wh traditionally peak during the su=mer
~.6 at times not coincident with the. Georgia Power Company would be treated
,y for billing purposes as if their peak demands were coincident with the
,y Georgia Power Company's annual system peak. This would unfairly penalize many wholesale Cooperative customers. Additionally the rate
~
30 containing a 100% sunner-based ratchet would not be completely con-31 sistent with the Company's method of allocating demand related costs 32 since the Company has used loads established on the Company's system 33 coincident with the GPC 5 day peak week (the week when the 3*
Georgia Power Comnany's system esta*clishes its annual pdak) rather 35 than Class NCPs established during the su:ncr season.
36 37 Q
IF THE BILLING DEMAND PATCHET WAS REDUCED TO 75%, WHAT IMPACI WOULD IT J.
38 HAVE ON THE DEMAND CHARGE IN THE WHOLESALE COOPERATIVE RATE?
39 40 A
Given a fixed level of revenues to be generated by the demnd charge, 41 if the 1007. ratchet was reduced to 75% then the demand charge price 42 would have to be increased by an appropriate amount to recover the addi.
43 tional revenue generated by application of the higher ratchet.
I have lim-44 ited ny testimony to only the revel of the ratchet and I have net made a 45 study, as yet, of the resulting demand charge increase caused by,
46 a lowering of a ratchet to 75%.
47 48 Q
DOES THAT C0FPLETE YOUR TESTIMONY?
49 50 A
Yes.
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