ML19308A414

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Testimony in Response to Tx Utils Generating Co & Houston Lighting & Power First Set of Interrogatories
ML19308A414
Person / Time
Site: South Texas, Comanche Peak  Luminant icon.png
Issue date: 08/01/1979
From: Gross R
VIRGINIA POWER (VIRGINIA ELECTRIC & POWER CO.)
To:
Shared Package
ML19208C305 List:
References
E-9147, NUDOCS 7909260241
Download: ML19308A414 (10)
v • d • e


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s VIRGINIA ELECTRIC AND POWER COMPANY FPC DOCKET NO. E-9147 1Q PLEASE STATE YOUR NAME AND ADDRESS.

2 3A My name is Robert M. Gross, Jr. My business address is 1000 4 Crescent Avenue, N.E. , Atlanta, Georgia 30309, 5

6Q MIAT IS YOUR EDUCATIONAL BACKGROUND 7 7

8A 9

I graduated from Georgia Institute of Technology in 1965, receiving the degree of Bachelor of Industrial Engineering. I also attended 10 Georgia State University and in 1971 received the degree of Master 11 of Business Administration, majoring in finance.

, 12 13 Q PLEASE STATE YOUR PROFESSIONAL EXPERIENCE.

14 15 A I have been employed by Southern Engineering Company of Ccorgia for 16 approximately cight years. During this time I have been involved 17 in the preparation of cost of service st tdies of investor-owned 18 19 utilitics, rural electric cooperatives and municipal systems and 20 have participated in wholesale rate and retail electric consulting assignments in 23 states. I am a registered professional engineer 21 in the State of Georgia.

22 23 Q 24 llAVE YOU EVER TESTIFIED IN OTllER COMMISSION PROCEEDINGS?

< 25 A Yes, I have testified as a rate expert and cost of service witness

( 26 27 before the State Commissions of Kentucky, Indiana, Michigan, Vermont and Virginia.

28 I have also testified before the Federal Power Commis-29 sion in proceedings involving the Mississippi Power Company, FPC 30 Docket No. E-7625; Central Vermont Public Service Corporation, FPC 31 Docket No. E-7685; Appalachian Power Company, FPC Docket No. E-7775; Duke Power Connany, FPC Docket No. E-7994; Gulf States Utilitics 32 Company, FPC Docket No. E-8121; and Gulf Power Company, FPC Docket 33 E-8911 and Appalachian Power Company, FPC Docket No. E-9101.

34 35 Q 36 BY WHOM IS SOUrllERN ENGINEEPING COMPANY RETAINED IN THIS PROCEEDING 7 t

37 A By the Cooperative Intervenors.

38 39 Q WHAT WAS YOUR ASSIGNMENT IN THIS PPOCEEDING7 40 41 A My assignment was threefold: First I was to review VEPCO's direct 42 testimony, exhibits and other availabic information concerning the 43 cost to serve VEPCO's wholesale cooperative customers. Specifically 44 I was to consider whether the methods employed by VEPCO for Period II 45 to develop the overall company cost of service and the allocation of 46 cost of service are proper according to Commission precedents and 47 sound ratemaking procedures. In addition, based on the adjustments 48 to VEPCO's cost of service which are found necessary by cooperative 49 witnesses, I was to prepare an overall cost of service study which

  • 50 accurately reficcts the rates of return that are actually being carned

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7 90 928 0'? 'h'['

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1 'by VEPC0 under its present wholesale cicctric tariff and that 2 will actually be earned by VEPCO under its proposed whoicsale 3 electric tariff applicable to cooperative customern. Finally, l 4 using the cost of service as adjusted by the cooperative's wit-5 nesses and the overall cost of capital recommended by witness ,

l 6 Wilson but subject to the adjustment factor calculated by O.

i, 7 Franklin Rogers, I was to compute the amounts of whoicsale rate 8 increase which are deemed just and reasonabic and accordingly 9 are recommended to be granted to VEPCO by this Commission.

10 11 Secondly, I was to make a determination as to the justneus and 12 reasonableness of the Company's proposed 90% summer-based billing

( 13 demand ratchet as contained in the proposed cooperative whole-sale rate "RC".

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15 16 The third and last aspect of my assignment was to comparc VEPCO's 17 proposed cooperative whoicsale rate with the r~ctail commercial 18 and industrial rates of the Company applicabic in Virginia and j 19 North Carolina. Furthermord I was to determine whether the 20 cooperative customers can purchase their power requirements from

, 21 VEPCO under its proposed cooperative wholesale rate schedule and i

22 sell such power to a new large power or industrial customer at 23 a rate equivalent to VEPCO's current rate schedules applicable 24 to such service. In fact I was to determine if the cooperative f 25

\ whoicsale customers can, with the above conditions, offer an 26 industrial rate competitive with VEPCO's retail rates applicabic 27 to large power or industrial service and maintain a sound finan-28 cial posture.

29 l 30 Q UlIAT DATA IIAVE YOU REVIEWED IN PREPARING YOUR TESTIMONY AND RELATED 31 EXIIIBITS7 32 33 A I have reviewed those portions of the Company's filing which

!. 34 relate to its cost of service studies and subsequent rate design

, 35 including testimony and exhibits of VEPCO's witnesses and other l 36 information, such as VEPCO's 1973 and 1974 Form No. 1, which

'( 37 VEPCO supplied in response to the FPC Staff's and the Cooperative 38 Intervenors' request for data.

39 40 Q WITil RECARD IV Ti!E FIRST PART OF YOUR ASSIGNMENT DEALING WITII COST 41 0F SERVICE ISSUES, WILL YOU BRIEFLY SUMMARIZE TIE CONCLUSIONS WilICII 42 YOU AND Tile OTIER WITNESSES FOR TIE COOPERATIVE INTERVENORS 11 AVE

, 43 REACilED AS A RESULT OF STUDYING VEPCO'S COST OF SERVING ITS COOP-44 EllATIVE WIIOLESALE CUSTO>ERS.

45 I 46 A The cost of service studies presented by VEPC0 in this proceeding 47 significantly overstate the cost of serving VEPCO's cooperative 48 whoicsale customers. The following major errors have been made 49 by VEPCO in its Period II cost of service study necessitating 50 adjustments by the Cooperative Intervenors: '

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f 1 1. VEPCO has improperly inflated its expenses for Period II 2 for the amortization of expenses related to the abandon-3 ment of the Marbic Valley hydro electric project and 4 cxpenses resulting from Hurricane Agnes.

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, 6 2. VEPCO has not deducted from rate base the average balnaces 7 during the test year for Account 282, liberalized depre-8 clation, as is required by Commission precedent.

9 10 3. As testified to by Dr. Livingstone, VEPCO has inflated 11 its rate base by using capitalization rates for Allowance 12 For Funds Used During Construction (AFUDC) that would 13 result in an excessive rate of return on the equity com-14 ponent of this allowance. In addition the Company's capi-15 talization rate overstates the actual net cost of debt 16 source funds available for construction purposes.

17 18 4. As testified to by Dr. Livingstone, VEPCO has improperly 19 computed the deduction from income taxes for interest 20 expense associated with both long term debt and notes 21 payable for Period II, 22 23 5. As testified to by Dr. Livingstone, the Company's deferred

, 24 tax treatment of Virginia gross receipts tax is incorrect.

s 25 The proper accounting for ratemaking purposes of this tax 26 item is a flow-through of the tax reduction to the customer.

27 28 6. As also testified to by Dr. Livingstone, the Company has 29 improperly increased income taxes charged to the cost of 30 service during Period II for nonexistent income taxes that 31 would have been payable in the absence of the Company's 32 actual tax deduction taken for interest paid for funds used 33 -

during construction. Obviously the Company's method of 34 cxcluding the beneficia,1 tax impact of interest expense 35 amounts with regard to the Period II cost of service is in 36 error.

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- 38 7. As testified to by Mr. Martin, the demand allocation factors 39 utilizing the Company's annual peak one hour demand do not 40 ace'urately re.Cicct the actual demand imposed on VEPCO's 41 facilities by each class of customer. The use of the average 42 of the 12-monhtly coincident peak demands does more accu-43 rately reficct use by cach customer class of VEPCO's faci-44 litics.

45 46 8. As testified to by Mr. Martin, VEPCO has assigned a dis-47 proportionately large amount of transmission plant and 48 associated expenses to its whoicsale customers. tbreover 49 some transmission facilitics were specifically assigned by 50 VEPCO to whoicsale customers on a basis that differs from s

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1 that on which assignments were made to the retail class 2 of customers even though there are transmission facili-

! 3 ties used to serve retail customers that are functionally 4 similar to transmission facilities used to serve whole-5 sale customers. I have adjusted for these inequitics

( 6 by using the rolled-in method of transmission plant allo-7 cation as suggested by Mr. Martin.

8 9Q 11 AVE YOU PREPARED COST OF SERVICE STUDIES WilICll Sil0W TIIE EFFECT 10 0F Tile COOPERATIVE INTERVENORS' ADJUSDENT TO Tile RATES OF RETURN 11 TilAT VEPCO EARNED UNDER TIE PRESENT UlI0LESALE TARIFF AND UOULD r 12 EARN UNDER TIE PROPOSED COOPERATIVE WlIOLESALE TARIFF 7 13 14 A Yes.

15 16 Q I IIAND YOU COOPERATIVE INTERVENORS' EX11IBIT (RMG-1) AND ASK YOU 17 TO IDENTIFY IT.

18 19 A This Exhibit is entitled " Cost of Service Study, Virginia Electric and 20 Power Company -- Year Ending 12/31/75 (Period II) An Adjusted".

21 22 Q WOULD YOU PLEASE EXPL\IN TilIS EXIIIBIT.

23 24 A Yes. This Exhibit shows the resulting allocated cost of service 25 by class which is produced by adjusting the Company's Period II 26 cost of service for the errors made by the Company. The rates of 77 return that VEPCO cams under its present tariff for cooperative 28 whoicsale customers is shown to increase from 4.68 percent to 6.93.

3 I 29 Likewise the rates of return that VEPCO would carn from its coopera-30 tive whoicsale customers under its proposed wholesale cooperative '

31 rate schedule is shown to increase from 10.10 percent as shown in 32 VEPCO's study to13.63 percent as shown on Cooperative Intervenors' 33 Exhibit (RMG-1), Page 2.

34 35 Q WilAT AMOUNTS OF COOPERATIVE RATE INCREASE DO TIE COOPERATIVE INTER-36 VENORS RECOMMEND AS JUST AND REASONABLE?

37 38 A Using the proper rate of return (overall cost of capital) of 8.52*4 39 as testified to by intervenors' witness Wilson, but adjusted by 40 the 71.87. factor reco: mended by witness 0. F. Ro3ers, the amount 41 of whoicsale cooperative rate increase that would be paid to VEPCO 42 by the cooperative is reduced from the requ'ested $12,575,000 to negative 43 $1,649,748. This amount as reduced is just and reasonabic and

. 44 provides VEPCO with a fair return on its cooperative whoicsale 45 portion of its business.

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47 Q PLEASE EKPIAIN Wily YOU HAVE DEDUCTED TllE AVERAGE BALANCES FOR ACCOUNT 48 282 DURING Tile TEST YEAR FROM TIE RATE BASE.

49 50 A It has been standard Commission precedent to deduct from the rate base l

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t 1 the average balances for the test year held in Account 282, 2 liberalized depreciation. On Statement "A", Period II, VEPCO 3 shows that its outstanding def erred tax balance for liberal-4 ized depreciation on December 31,1974 is $3,248,000 and shows 5 a figure of $12,494,000 for December 31, 1975. The average 6 of these beginning and end of year balances is $7,871,000. I 7 have adjusted this amount by a factor of 99.447. to recognize I 8 the very small amount of Account 282 relating to gas 7 utility 9 plant investment. The resulting balance of $7,826,922 is 10 assigned functionally based upon gross plant and then allocated 11 by classification based upon the functional plant al' locators 12 shown on Schedule II, Sheets 1 and 2 of Cooperative Intervenors' l 13 Exhibit (RMG-1).

14 8 15 Q WOULD YOU PLEASE EXPIAIN UllY YOU ELIMINATED FROM hllE PERIOD II i 16 COST OF SERVICE Tl!E AMORTIZED EXPENSES REIATED TO Tile ABANDON-

,l 17 1ENT OF TIIE MARBLE VALLEY IIYDRO ELECTRIC PROJEC'T AND llURRICANE 18 AGNES' DAMAGES. -

, 19 i 20 A Both of these adjustments are recognized by the Company in State-21 ment "H" Page 3 of 3, Period II, as pro foma adjustments to 22 the actual projected expenses of the Company for the test year 23 ending December 31, 1975. For ratemaking purposes these pro

24 foma adjustments are not proper since the amortization period 25 for both the Yarbic Valley hydro electric abandonment und the l 26 damages caused by Iturricane Agnes are soon to conclu~de
. The i 27 amortization of the expenses resulting from the abandonment in ij: 28 February 1971 of the Marble Valley hydro electric project termi-29 nates in 1975. The amortization of the expenses associated with 30 the damages caused by Iturricane, Agnes in 1972 temina' tes in 1976.

31 Since the tem of the proposed wholesale rate will. in any event 32 run well into 1976 and probably 1977, particularly in view of j' 33 the Company's excess reserve situation, I believe that normal

. 34 ratemaking practices should preclude the additions of these 35 amortized expensest in the test year. A 36 '

37 In addition, pro foma adjusteents such as these are ostside the 38 scope of the Section 35.13(b)(iii) as defined in the. Commission's 39 Order No. 487 with regard to Statement "M". One o.f the purposes 40 of that order was to climinate the need for the use of pro forrpa.

41 adjustments to the actual expenses and investments of the test' 42 period. I see no significant reason for the Commission's Regu-43 1ations to be manipulated in this case through the .use of ad hoc 44 adjustments made in Statement "N".

  • 45 46 Q MR. GROSS, TIIE SECOND ASPECT OF YOUR STATED ASSIGNMENT IN THIS 47 CASE CONCERNS file REASONABLENESS OF TIIE COMPANY'S PROPOSED 90%

48 BILLING DEMAND RATCIIET APPLICABLE TO TIIE COOPERATIVE CUSTOBEPS.

49 llAVE YOU MADE A STUDY TO DETER >IINE IF TIIE 907. BILLING RATCIIET IS 50 JUSTIFIED?

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i 1A Yes, sir. My studies show that given the long-run necessity of i 2 including a summer-based billing demand ratchet in the Cooperative 3 wholesale rate, the ratchet should not exceed an amount of 78%.

4 Although I have some doubt as to the necessity of including any 4

5 ratchet in the rate to cooperative customers, I have accepted the

! 6 testimony of VEPCO's witnesses that the Company will be faced in i

7 the future with a " continuation and widening of the st=ner peak I 8 demand over other monthly demands" (witness Carpenter's direct 9 testimony, Page 6). Based on such a trend, I would agree that a 10 summer-based billing. demand ratchet would represent a reasonably l 11 consistent approach toward establishing a long-run pricing pattern

,, 12 applicabic to developing cost trends.

!{ 13 14 I should point out however, that using the Staff and Cooperative

15 Intervenors' demand allocation method based upon the average of j; 16 the 12-monthly coincident peak demands produces a definite in-

)i 17 consistency between the manner in which costs are allocated (average 18 of 12-monthly coincident demands) and the manner in uhich revenues

! 19 are generated (skewed heavily for loads experienced during the

! 20 summer peak season). Without VEPCO's strong inclination toward a 21 widening summer peak differential, I would hesitate to recommend a 22 stmuner based billing demand ratchet since such a device could sti-23 mulate winter load growth to the point where VEPCO may revert back 24 to its earlier load patterns of experiencing its annual peak during

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\ 25 the winter heating system.

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27 Q MR. CROSS, PLEASE DISCUSS YOUR STUDIES SUPPORTING EUR OPINION THAT i 28 TIIE SUMMER BASED BILLING DEMAND RATCHET SIIOULD NOT EXCEED A VALUE

! 29 OF 787.,

30 j 31 A First of all, let me emphasize that although there are many reasons

, 32 to include a billing demand ratchet in a rate structure, usually 33 the most prevalent reason and the one that VEPCO is utilizing in i

34 this case, is to match as close as possible the flow of demand 35 charge related revenues with the causation of fixed costs on VEPCO's 36 system. VEPCO's witness maintains that the principal causation of

37 fixed cost on the Company's system is growth in VEPCO's annual peak l' 38 summer demand. The ratchet is therefore designed to reficct back 39 on the maximum demand of the wholesale customer established in the 40 montlis of June through September when VEPC0 is likely to establish

! 41 its annual peak demand. The ratchet therefore serves as a pricing 42 device to measure the relative contribution of each delivery point l

43 to VEPCO's annual peak demand and to insure that should the customer 44 require capacity in the summer peak season, then the customer will 45 be held accountabic for such capacity on a billing basis for the

, 46 remainder of the year.

{" 47 l 48 I have studied the likelihood of cooperative delivery point demands

! 49 reaching a maximum summer period value at a time coincident with i 50 the Company's annual system peak demand. My studies show that the i

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( 1 incidence of demand coincidence during the system peak for the

! 2 3 total wholesale cooperative class (all delivery points) is approxi-4 mately 78%. This percentage is measured by dividing the cooperative 5

load coincident with the system annual peak by the stra of each 6

cooperative delivery point non-coincident demands which occurred K

7 during the months of June through September (summer months governing 8

ratchet application). The purpose of this analysis is to dcLennine 9

the degree of stm=ler seasonal diversity that is experienced by the 10 cooperative class with respect to the Company's annual peak demand.

11 The ratchet should obviously reficct nonnal load diversity otherwisc the class could be unduely penalized if the ratchet was set at a 12 1cyc1 not consistant with normal diversity.

( 13 14 Q I S110W YOU A DOCUMENT MAEKED COOPERATIVE IITfERVENORS' EXIIIBIT 15 16 (PJ:C-2) AND ASK YOU TO IDENTIFY IT.

17 A This Exhibit is entitled " Determination of Maximum Measured Integrated 18

19 Cooperative Delivery Point Demand For 111111ng Period June Through September 1974".

i 20 21 Q WAS Tl!IS EX11IBIT PREPARED UNDER YOUR SUPERVISION?

a 22 23 A Yes.

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25 Q PLEASE DISCUSS Tills EXilIBIT.

26 27 A i 28 I have summed for all delivery t oints the maximum 30 minute integrated 29 demand established in the period of June through September,1974. I show 30 that the st:mation of such 30 minute demands is equal to 448,270 kW.

31 When this figure is divided into the cooperative class demand coinci-32 dent with the Company's system annual peak demand as shown on Coopera-33 tive Intervenors' Exhibit _. (EPM-1) page 5, of 350,787 kW, I calculated 34 the incidence of peak demand coincidence of the Cooperative class for

] 35 the summer period of June through September 1974 to bc 78.25%.

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37 I believe that the ratchet should recognize the historical peak 38 season diversity experienced by the wholesale class with respect to 39 the Company's annual peak demand. For this reason the billing demand 40 ratchet should be limited to no more than a value of 78%.

41 Q IF THE BILLING DDfAND WAS REDUCED TO 78%, WHAT IMPACT WOULD IT IIAVE i 42 ON Ti!E Da!AND CilARGE IN Tile WI!OLESALE COOPERATIVE 1%TE?

43 44 A The demand charge would have to be increased by an appropriate amount 45 to recover the revenue generated by application of the 90% ratchet 46 in excess of application of a 78% ratchet. I have limited my testi-47 uony to only the proper Icvel of the ratchet and I have not made a

48 49 study, as yet, of the resulting demand charge variation caused by i

the lowering of the ratchet to 787.. *

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1Q MR. CROSS, YOUR LAST ASSIGNMENT IN TilIS CASE CONCERNS Ti!E REIATION-2 SilIP BETWEEN THE PROPOSED Wil0LESALE PATE AND VEPCO'S RATES APPLI-3 CABLE TO INDUSTRIAL 55RVICE IN VIRGINIA AND NORTl! CAROLINA. WOULD t 4 YOU PLEASE DISCUSS Th1S REIATIONSHIP AS IT NOW EXISTS IN VIRGINIA

! 5 AND NORTil CAROLINA.

, 6 7A Yes, sir. My studies show that cooperatives who are required to 8 purchase suppicmental power from VEPCO under the proposed whole-9 sale rate schedule will pay mere for such power than retail com-10 mercini or industrial customers of VEPCO with comparable service 11 characteristics,

. 12 13 Q llAVE YOU COMPARED THE PROPOSED Wil0LESALE PATE WITil VEPCO'S RETAIL 14 PATES APPLICABLE IN NORTil CAROLINA AND VIRGINIA?

15 16 A Yes I have.

17 18 Q I IIAND YOU A DOClMENT MARKED FOR IDENTIFICATION AS COOPEPATIVE 19 INTERVENORS' EX11IBIT (RMG-3). WAS TilIS DOCUMENT PREPARED UNDER 20 YOUR SUPERVISION?

21 22 A Yes.

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24 Q VILL YOU PLEASE EXPLAIN TIIIS EXIIIBIT7 25 26 A Yes. Cooperative Intervenors' pd11 bit (RMG-3), consists of two 27 pages which thow billing comparisons between the proposed whoicsale 28 and present retail rates of VEPCO based on typical monthly load 29 patterns of large industrial customers or wholesale points of delivery.

30 The billing comparisons have been based on service at voltages of 31 delivery less than 69 kV.

32 33 The comparison illustrates the difference in rate pricing as between 34 wholesale and retail service. For instance, a large industrial 35 customer with an average monthly demand of 20 megawatts and load 36 factor of 68.57. (500 hours0.00579 days <br />0.139 hours <br />8.267196e-4 weeks <br />1.9025e-4 months <br /> use of demand) would receive service for 37 $217,256.56 in Virginia and $212,940.75 in North Carolina. On the 38 other hand, a delivery point of a cooperative customer of VEPCO with 39 a supplemental load of equal size would pay $222,897.75. The pro-40 posed whoicsale rate is therefor 3 approximately 2.67, higher than the j 41 comparabic retail rate in Virginia and 4.77. higher than the comparabic

42 retail rate in North Carolina.
, 43 44 Page 1 of Cooperative Intervenors' Exhibit (RMG-3) focuses on the 45 North Carolina retail rate while Page 2 of this Exhibit compares the 1 - 46 retail rate applicabic in Virginia. The comparison shows that VEPCO's 47 proposed wholesale rate applicabic to cooperatives is uniformly higher 48 for industrial size loads between 5 and 20 megawatts than the appli-49 cabic retail rates.

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1Q MR. GROSS, IN YOUR OPINION, GIVEN Ti!E LEVEL OF TIIE PRO 10 SED 2

Wi10LESALE RATE, CAN COOPERATIVES EFFECTIVELY COMPETE WITl! VEPC0 3

4 ON A COMPARATIVE RATE BASIS FOR INDUSTRL1L LOADS IN TliE 5 TO 20 MEGAWATT RANGE?

5 6 A No, sir. The comparisons show that for a cooperative to effec-7 tively compete for such industrial loads given the proposed 8 uholesale rate, it vould be forced to resell such power to an 9 industrial load at a rate that would produce less revenue than 10 the cost of such pouer to the cooperative. Tha relationship 11 therefore between VEPCO's applicabic retail rates and the rate 12 under tihich it proposes to sell power to the cooperative customers 13 makes it economically unrealistic for the cooperative to offer 14 an industrial rate competitive with the industrial rate of VEPCO 15 in either North Carolina or Virginia.

16 17 Q MR. GROSS, ARE TIIERE OTIIER FACTORS TIIAT MAY IIAVE A BEARING ON Tile 18 COOPERATIVE'S ABILITY TO COMPETE WITil VEPCO FOR INDUSTRIAL LOADS 19 IN Tile 5 'IV 20 MEGAWATT RANGE?

20 21 A Yes, sir.

Theoretically, factors such as load diversity, alternative 22 sources of power, and service at transmission voltages could in-23 fluence the retail rates of the cooperative. From a practical 24 st idpoint, however, with the type of loads under analysis, such 25 factors have a negligible effect on the cooperative's ability to 26 offer a competitive rate.

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28 29 Based upon expected 1975 peak delivery point loads, there are presently 30 only 14 delivery points out of the 181 cooperative delivery points that 31 exceed a peak load of 5 megavatts. Only 6 of these delivery points exceed 10 megawatts presently. For most cooperative customers of 32 VEPCO, adding a large industrial load to their system would automati-33 34 cally require adding a new delivery point from VEPCO because the capa-35 city at existing points of delivery is not adequate to serve large load increases. Unless the cooperative engaged in considerable 36 37 transmission investment, a neu industrial load in the 5 to 20 megawatt range would be served out of a new delivery point obtained from VEPCO.

38 39 Since metering and billing is by delivery point, there would be little, if any, diversity gained by the cooperative in serving such a load.

40 In other words, the quantities of power and energy governing the whole-41 sale transaction would be virtually the same quantities governing the 42 retail transaction. In my opinion, diversity would not be of 43 sufficient significance to enter the pricing considerations of the 44 cooperative.

45 46 With regard to alternative power sources, the only additional 47 power source now availabic in Virginia and North Carolina, for 48 VEPCO-served cooperatives is Southeastern Power Administration 49 hydro power and energy. The availability of SEPA power and energy 50 is fixed and will not expand in the future unless additional hydro s

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1 resources are developed by the Corps of Engineers. The present 2 allotments of SEPA power and energy, for the cooperatives who 3 have allotments, amount to less than 10% of their total load.

4 The relative low-cost benefits of such power have been fully 5 absorbed by each cooperative over the years. It would be imprac-6 tical from a ratemaking standpoint to include the relative low-

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7 cost benefits of hydro-electric power in a rate to a new industrial 8 load since the source of all of the power to serve that load would 9 he from VEPCO's resources under its applicabic wholesale. rate.

10 11 The billing amounts shown on Cooperative Intervenors' Exhibit 12 (RMG-3) were calculated based upon delivery voltages of less than 13 69 kV. The proposed wholesale rate provides a high voltage dis-14 count for delivery voltages at 69 kV and higher. In some cir-15 cumstances the cooperative may have the opportunity of taking 16 service from VEPCO at voltages which qualify for the high voltage 17 discount. Under such condition it would then be incumbent on 18 the cooperative to make the necessary investment in transmission 19 and distribution facilities in order to provide service to the 20 ultimate customer. In most cases the cost to the cooperative of 21 making the necessary investment in transmission and distribution 22 facilities in order to provide service to an industrial load 23 would fully offset the advantage provided in taking service 24 from VEPCO at a rate reflecting a transmission discount.

25 26 In summary then, it is my opinion that neither diversity, nor 27 alternative sources of lower cost power, nor the availability 28 of high voltage discounts will have anything other than a neg-29 ligible impact on the ability of a VEPCO served cooperative 30 customer to be competitive with VEPCO's industrial retail rates 31 under present conditions.

32 33 Q DOES TilAT CONCLUDE YOUR TESTIMONY?

34 35 A Yes, it does.

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