ML19308A419
| ML19308A419 | |
| Person / Time | |
|---|---|
| Site: | South Texas, Comanche Peak  |
| Issue date: | 05/20/1976 |
| From: | Rogers O AFFILIATION NOT ASSIGNED |
| To: | |
| Shared Package | |
| ML19208C305 | List:
|
| References | |
| ER76-415, NUDOCS 7909260309 | |
| Download: ML19308A419 (10) | |
Text
%
1 A'
y TESTIMONY OF 0. FRANKLIN ROGERS
,g ON BEllALF OF COOPERATIVE A!;D MUNICIPAL INTERVENORS y
VIRGINIA ELECTRIC AND POWER COMPANY, DOCKET NO. ER 76-415 1Q PLEASE STATE YOUR NAME AND ADDRESS.
2 3A My name is O. Franklin Rogers.
My business address is 1000 Crescent 4
- Avenue, U.E.,
Atlanta, Georgia 30309.
5 6Q BY W110M ARE YOU EMPLOYED?
7 8A 1 am a member of the firm of Southern Engineering Company of Georgia.
9 10 Q PLEASE STATE YOUR EDUCATIONAL BACEGROUND.
11 12 A I attended Emory University in Atlanta for two years and Georgia 13 Institute of Technology for two years, receiving a degree of Bachelor 14 of Industrial Engineering from Georgia Institute of Technology in 1955.
15 I also attended Emory University Law School.
16 17 Q PLEASE S'14TE YOUR PROFESSIONAL EXPERIENCE.
18 19 A Upon grad iation f rom Georgia Tech, I served three years as an of ficer 20 in the United States Navy, af ter which I began working for Southern 21 Engineering company in 1958.
I have, during that time, headed the 22 Retail and Wholesale Rate Departments in my Company.
I have performed 23 3j rate studies for over seventy-five rural electric cooperative and 24 municipal systems in thrirteen states during this period of time.
I 25 have participated in wholesale rate and centract negotiations with 26 thirty-six privately owned investor utili cies in nineteen states.
27 During this period of time, I have prepared or participated in pre-28 paring numerous cost of service studies of inver, tor-owned utilities, 29 rural electric cooperatives and municipal systems.
30 31 Q MR. ROGERS, WITil RESPECT TO ELECTRIC RATE CASE MATTERS, llAVE YOU EVER 32 GIVEN TESTIMONY BEFORE Tills COMMISSION OR ANY STATE UTILITY REGULATORY 31 COMMISSION?
34 35 A Yes, I have.
36 37 Q WILL YOU PLEASE IDENTIFY T110SE PROCEEDINGS AND Tile COMMISSIONS BEFORE 38 WillCil YOU HAVE TESTIFIED?
39 40 A 1 have testified as a rate expert before several State Commissions, 41 including North Carolina, South Carolina, Eentucky and Indiana.
I have 42 previously testified before the Federal Power Commission in the follow '
43 ing proceedings: Mississippi Power & Light Company, FPC Docket No.
44 E-7577; Carolina Power & Light company, FPC Docket No. E-7564; Georgia 45
_ Power Comparly,, FPC Docket No. E-7548; Public Service Company of Indiana, 46 FPC Docket No. E-7645; Alabama Power Companyt FPC Docket No. E-7674; 47 Gulf Power Company,, FPC Docket No. E-7686; Mississippi Power Company, 48 FPC Docket No. E-7625; Florida rower Corporation, FPC Docket No. E-7679; y
49 Duke Power Company, FPC Docket No. E-7720; Pennsylvania Electric Company,-
50 FPC Docket No. E-7718; Public Service Company of New llampshire, Docket 7 909260 3Of
.-. -- y 4
t l
b-1 No. E-7742; Indiana and Michigan Electric Company, FPC Docket No.
2 E-7740; Virginia Electric and Power Company, FPC Docket No. E-8026; 4
3 Carolina Power & Light Company, FPC Docket No. E-8881; Toledo Tdison 4
Company, FPC Docket No. E-7929; Consumers Power Comppoy, FPC l chet 5
No. E-7803; Appalachian Power Company, FPC Docket No. E-7775; Missiq-6 pippi Power Company, FPC Docket No. E-7625; Carolina Power and Light 7
Comp g, FPC Docket No. E-8884; Alabama Power Company, FPC Docket No.
8 E-8851; Gulf Power Company, FPC Docket No. E-8911; Potomac Electric 9
. Power Company,, FPC Docket No. E-8741; Florida Power & Light Company, 10 FPC Docket No. E-8008; Delmarva Power & Light Company, FPC Docket 11 No. E-8947; and Mississippi Power Company, FPC Docket No.
12 E-9135.
13 14 Q MR. ROCERS, WOULD YOU PLEASE LIST FOR US T110SE PRIVATELY OWNED ELECTRIC 15 COMPANIES WITil WllICil YOU llAVE PERSONALLY CONDUCTED NEGOTIATIONS ON 16 BEllALF OF Wil0LESALE CUSTOMERS INVOLVING SUBSTANTI AL CllANGES IN Tile 17 RATES OR CONTRACTS AND TIIOSE COMPANIES WITil WillCil YOU llAVE PERSONALLY 18 BEEN INVOLVED IN CASES BEFORE Ti!E FEDERAL POWER COMMISSION.
19 l
20 A Yes.
I might ndd that all of these cases occurred during the 1960's 21 to the present time, so this constitutes recent experience.
22 23 Although I do not recall all of the docket numbers, I will indicate 24 the docket numbers of those cases filed since 1969. The companies are:
25
,,j 26 Florida Power Corporation (two occasions)(E-7679), Culf Power 27 Company (E-7686), Georgia Power Company (four occasions) (E-7548 28 and E-8170), Virginia Electric & Power Company (three occasions) 29 (E-7611 and E-8026), Carolina Power & Light Company (E-7564),
30 Delmarva Power and Light Company of Delaware (three occasions) a 31 (E-7560 and E-7769), Delmarva Power and Light Company of Virginia 32 (three occasions)(E-7560 and E-7769), Delmarva Power & Light 33 Company of Maryland (three occasions)(E-7560 and E-7769), West 34 Penn Power Company, Pennsylvania Electric Company (three occasions) 35 (E-7718), Metropolitan Edison Company (three occasions)(E-7630),
36 New Jersey Power and Light Company (two occasions), Jersey Central 37 Power and Light Company, Duke Power Company (four occasions) 38 (E-7557, E-7720 and E-7994), Public Service company of Indiana 39 (E-7645), Northern Indiana Public Service Company (E-7758),
1 40 Detroit Edison Company (E-7687), Central Illinois Public Service 41 Company, Illinois Power Company, Kentucky Utilities Company, New 42 York State Electric & Gas Corporation, Alabama Power Company (two 43 occasions)(E-7674), Oklahoma Gas and Electric Company, Public l
44 Service Company of Oklahoma, Public Service Company of New llamp-i 45 shire (F -/742), Central Illinois Light Company (E-7577), Niagara 46 Mohawk Power Corporation, Mississippi Power Company (E-7625), Central i
47 Vermant Public Service Corporation (two occasions)(E-7685 and 48 E-7/98), Florida Power & Light Company (E-8008),, Indiana and Mich-49 isan Electric Company (E-7740), Appalachian Power Company (E-7775),
50 2ennsylvania Power and Light Company, and Consumers Power Company (E-7803).
+)
l fv
/
l
~.
2
,o i
- g 1Q llAVE YOU TESTIFIED BEFORE OTi!ER CO.T!ISSIONS?
3A Yes.
I have testified before the Atomic Safety and Licensing 4
Board of the United States Atomic Energy Commission (now the 5
Nuclear Regulatory Commission) in Consumers Power Company (111d-6 land Plant, Units 1 and 2), NRC Docket Nos. 50-329A and 50-330A, 7
Additionally, I have testified before the Atomic Safety and 8
Licensing Roard in the matter of Alabama Power Company (Joseph 9
M. Farley Nuclear Plants Units 1 and 2), NRC Dockets Nos. 50-348A 10 and 50-364A.
11 12 Q STATE WilETilER YOU PREPARED AND FILED WITil TilIS COMMISSION A 13 STATEMENT IN Ti!E RULEMAKING DOCKET THAT RESULTED IN 'i.iE COMMISSION'S 14 ORDER NO. 517.
15 16 A Yes, I did. My statement was filed on behalf of the American Public 17 Power Association, National Rural Electric Cooperative Association, 18 North Carolina Electric Membership Corporation, Old Dominion Electric 19 Cooperative and numerous statewide organizations whose constituent 20 members are the electric cooperatives and municipal systems in 21 those states.
22 23 Q BASED UPON Tile STATEMENT YOU FILED IN TilAT DOCKET AND UPON Ti!E 24 RESULTING COMMISSION ORDER NO. 517, STATE WilETilER Tl!ERE IS A 25 SUBSTANTIVE RELATIONSHIP BETWEEN YOUR STATEMENT AND THAT ORDER AND 26 Tile QUESTION WilICil IS PRESENTED IN TilIS PROCEEDING -- TilAT IS, s) 27 WilETilER VEPCO SilOULD BE PERMITTED TO COLLECT A SURCHARGE OVER A 28 PERIOD OF NOT LESS TilAN 24 MONTilS FOR Tile PURPOSE OF ALLEGEDLY RE-29 COUPING A S0-CALLED PAST FUEL COST WilICil VEPCO CLAIMS IT IS ENTITLED 30 TO D0.
31 j
32 A Yes, I supported the fuel clause proposed in that docket which was 33 adopted by the Commission in Order No. 517.
As a matter of fact, 34 prior to noticing the proposed rulemaking change which led to Order 35 No. 517, I had for many years advocated, before many forums, in-36 cluding this Commission, and on several occasions,that, where 37 situations indicated justification for a fuel clause, there should be 38 adopted a fuel clause of the type prescribed by the Commission in Order 39 No. 517.
During the consideration by this Commission leading up to 40 order No. 517, I advocated one additional major change in the pre-41 scribed fuel clause -- that is, allowing a company to collect some-42 thing less than the full amount of the increased cost of fuel, i.e.
43 80%, so as to provide direct economic incentive for a company to 44 bargain for the most advantageous price of fuel. The Commission 45 in adopting the fuel clause criteria in Order No. 517 declined to 46 adopt that particular suggestion but acknowledged the suggestion and 47 added that in an ascending cost of fuel situation ".
.the lag 48 in collections for f uel expense inherert in a typical fuel cost 49 adjustment clause provides sone incentive for companf*es to bargain 50 for favorable prices during periods of rising fuel costs."
J I
l
- - ~}
=.
~.
O h
1Q ON WilOSE BEllALF ARE YOUR PRESENTING YOUR TESTIMONY IN TilIS PROCEEDING?
2 1
3A I am jointly sponsored by both the municipal and cooperative intervenors
}
4 from Virginia and North Carolina.
5 i
6Q PLFASE DESCRIBE YOUR ASSIGNMENT.
j 7
8A My assignment was to review the materials submitted by VEPCO in this j
9 docket in support of the proposed temporary surcharge riders A and i
10 determine whether such surcharge is proper, just and reasonable and 11 supported by those materials.
12 13 Q MR. ROGERS, llAVE YOU COMPLETED YOUR REVIEW OF THOSE MATERIALS?
14 I
15 A Yes.
16 i
17 Q WilAT CONCLUSION HAVE YOU DRAWN AS A RESULT OF YOUR REyIEW?
18 19 A The fuel surcharge proposed by VEPCO is improper and highly unjust and 20 unreasonable.
21 22 Q PLEASE CIVE Tile REASONS FOR YOUR CONCLUSIONS.
23 l
24 A There are three major reasons why VEPCO's request for the surcharge should 25 be denied.
These reasons are as follows:
.,1 26 27 1.
VEPCO is requesting that it be given revenues in 28 addition to those collected under rates approved 29 by this Commission, which, if granted, would con-30 stitute retroactive ratemaking.
31 32 2.
In its essence, the request for temporary surcharge 33 revenues is due simply-to the Company's past ac-34 counting and income reporting,and warrants no positive 35 action by the Federal Power Commission.
36 l
37 3.
VEPCO has in the past, and will in the future con-38 tinue to be, compensated through its rates for the 39 net amount of the lag between payment for operating 40 and maintenance expenses and the receipt of revenue i
41 covering those expenses.
l 42 43 44 Q Pl. EASE EXPLAIN Tile ESSENTIALS OF Wily VEPCO IS REQUESTING A TEMPORARY 45 SURCllARGE TO BE APPLIED TO ITS Wil0SESALE CUSTOMERS.
46 i
47 A In this and many other requests for fuel-related surcharges before this 48 Commission, there has been much rhetoric espousing the.need for and 49 extolling the virtues of such additional revenue collections; however, 50 boiled down to its essence, this request, as many others, is based upon d
. ~ ~ ~ ~ ~ ~ ~
i
/
1 two primary factors.
The first is that the Company clains to have not 2
collected and to have lost forever fuel adjustment revenues roughly 3
equivalent to fuel expenses above that included in their fuel adjustment 4
base for a three-month period.
Quite obviously this claim is false 5
since the Company in fact has collected fuel adjustment 6
revenues from its wholesale customers each and every month since January ll 7
, 1973, when this Commission last allowed the application of a fuel adjustment H
clause by VEPCO.
The other reason given by the Company is that 9
of fuel expenses will also be cut as a result of the change in the base recovery 10 fuel cost included in the proposed fuel adjustment clause.
This second 11 reason is also c1carly erroneous since, in its December 31, 1975 filing, 12 the Company went to great length to show that, over the 12-month period 13 ending December 31, 1975, both its current (old fuel base) and proposed 14 (new fuel base) fuel clause would produce the same level of revenues.
15 In the final analysis, it is apparent that it is not a loss of revenue 16 which has pronpted this request, but rather it is the result of past 17 bookkeeping and reporting practices.
18 19 Q MR. ROGERS, PLEASE EXPLAIN WHY Tile IMPOSITION OF Tile PROPOSED SURCHARGE 20 WOULD CONSTITUTE RETROACTlVE RATEMAKING AND Wily IT IS IMPROPER IN TilIS 21 INSTANCE.
22 23 A First of all the term retro c1carly applies because the Company is asking 24 for revenues appertaining to a period of time which it clearly and frequently 25 shows to be prior to the effective date of its proposed new rate.
26 Secondly we are unquestionably involved in a ratemaking procedure.
%u) 27 28 As I pointed out earlier, the Company has collected fuel adjustment 29 for each and every month since the institution of its last revenues fuel adjustment 30 clause.
That clause as designed by the Company and approved by this 31 Commission never anticipated collecting in any one month actual fuel 32 cost precisely as incurred.
Instead each month's recovery was predi-33 cated upon the application of the average fuel cost of a prior period, 34 as defined in the fuel adjustment clause, applied to the kilowatt-hour 35 sales in the billing month.
This method of collection of revenues 36 related to fuel expenses has long borne the approval of the Federal 37 Power Commission, and in fact was anticipated by the Commission in 38 Order No. 517 on Page 4 in the very same paragraph quoted by the Company's 39 witness Robert W. Egner on Page 8, Line 24 of his testimony, where he 40 quotes all but the_last sentence (which I underline below) of the,Laar' 41 paragraph.
The paragraph in total is as follows:
42 43 "Other comments suggest that utilities be permitted 44 45 to recover only a portion of increased fuel costs in 46 order to provide an incentive to bargain for lower cost fuel.
It should be noted that to the extent 47 that only a portion of changes in fuel costs are per-48 mitted to be reflected in rates, the portion of tlac 49 fuel clause (namely to pass on to customers the 50 n)
' 5-
~ ~ - -
E s
I increaseu or decreases in the fuel costs actually incurred 2
sj by the utility) is to that extent defeated.
When fuel costs 3
are rising, the utility is disadvantaged by not being able 4
to collect the full amount of the increase; when fuel costs 5
are falling the customers are disadvantaged because the full 6
amount of the reductions are not passed along, but are 7
partly retained by the utility.
In addition, the lag in 8
collections for fuel expenses inherent in a typical fuel 9
cost adjustment clause provides some incentive for com-10 panies to bargain for favorable prices during periods of 11 rising costs."
12 13 Thus the Commission has never intended nor does its expression in 14 Order No. 517 Imply that it currently intends for a fuel cost adjust-15 ment clause to collect fuel expenses actually incurred on a month by 16 month basis, but rather that,.through periods of rising and falling 17 fuel costs, fuel revenues will track fuel costs.
Also, as pointed 18 out by John P. liaropulos, witness for the Commission Staff, in his 19 testimony filed in the instant docket at page 4, line 8 --
20 4
21
" Unde'r the previous rate schedules, the Company was g f4 entitled to bill its customers for the rates included
,g/p ? g6 22 pf0 23 in the rate schedules, as properly computed, and kt p
gg(.
24 neither more or less.
When the customer has paid his 4
g pf q
gf g 25 bill for that month, Virginia Electric 6 Power Company j
,ff 26 has received all payment due for that month, and nowhere i
gF 27 in the rate schedules is there a statement or implication 0
\\b 28 that an additional amount is due."
29 30 The right of the Company to change its rates is not being disputed 31 by the intervenors, llowever, its right to collect additional 32 revenues on top of those produced by approved rates we fervently 33 VEPCO's request can be likened to that of a company which, contest.
34 after experiencing earnings which produce a lesser rate of return 35 than that previously approved by the Federal Power Commission, re-36 turns to seek additional revenues to produce that return.
Certainly 37 the approval of a rate of return based upon a future test year does 38 not guarantee that the Company will actually achieve that rate of 39 return, nor is it conceivable that the Federal Power Commission is 40 in the business of guaranteeing such rate of return over any period 41 of time.
Furthermore, I suspect that any attempt made by the whole-42 sale customers of Virginia Electric & Power Company to compute the 43 amount of savings that would have been produced since January 11, 1973, 44 through the application of an Order 517 type fuct clause as opposed to that 45 in effect since that time,and to seek refunds in that amount 46 through F;3eral Power Commission proceedings would be vigorously
)
47 opposed by the Company and promptly dismissed by the Commission.
48 llowever, 1 by no means imply by the foregoing statement that VEPCO 49 has failed or will fail to recover all revenues necessary to meet its 50 total costs.
s./ _. _ _ _. _
m-M
/
1 Before leaving this point, it should be emphasized that, although g
2 the Company's filing implies the billing of fuel expenses on a 3
current basis and thus the climination of a " lag", the proposed 4
clause actually produces a lag of two months.
The proposed billing 3
for the current month's klih usage, at the average cost in the second 6
preceding month with a correction in the second succeeding month, is 7
equivalent to billing an amount in the current month which is equal B
to average fuel cout in the second preceding month multiplied by the 9
kilowatt hour usage in the second preceding month.
In other words, 10 the actual fuel costs of the current month are not collected until 11 two monthu hence.
Also, the material in the Company filing does 12 not make it clear to what extent the continual two month lag produced 13 by the proposed clause would be deferred and in turn expensed, thus 14 offsetting previous deferrals.
15 16 17 Q UPON LIHAT FACTS DO YOU BASE YOUR CONTENTION THAT VEPCO'S REASONS FOR 18 THE PROPOSED SURCHARGE ARE STRICTbY ACCOUNTING IN NATURE?
19 20 A The facts as fi' led by the Company in this proceeding.
21 22 Q PLEASE EXPLAIN.
23 24 A Attachment F of the Company's December 31, 1975 filing is a summary 25 of a computerized comparison (also filed as backup material)of the
/C 26 settlement rates, which contained a fossil fuel clause with a base of ad 27 4.22 mills per kilowatt hour, with the rates filed in this docket, 28 which are the settlement rates appropriately revised with an FPC-type 29 fuel clause with a base of 12.9 mills per kilowatt hour.
The Company's 30 comparison of these rates shows that a 0.000% variance in revenue 31 collections is produced for 1975, which means that a change in the i
32 fuel clause base has no impact whatsoever on the amount of revenues to 33 be collected by the Company during this test period.
Thus, this 34 "unrecovered" fuel expense is (1) a " paper amount which VEPCO claims 35 it has not collected, (2) it is due strictly to accounting methodology, 36 (3) it is an amount which relates to a period prior to the proposed 37 change in rates, and (4) as I will further explain, it represents an 38 amount for which_Qge Company has been compensated through its current and @ posed settlementTaTg The matter of VEPCO's accounting 39 40 procedure Fs5iEELTiiit compicx; therefore, before I get into that 41 discussion I would like to plainly restate that the surcharge dollars 42 subject to this controversy are paper dollars relating to a prior 43 period, resulting solely from accounting procedures of the Company, and 44 they represent strictly an accounting problem for the Company which 45 cannot be remedied by the Federal Power Commission in setting rates for 46 the present and the future!
47 48 Since we are presented with this accounting problem by,As discussed b the Company, 1 49 would like to make a couple of poit.ts in that regard.
y 50 Staff witness llaropulos, there is no wording in the old fuel clause J
meem6 8
4
- _ _ _.. 1
. -... ~ - - -
g I
which would guarantee any adjustment at any time in the future to 2
eliminate the inevitable variance between fuel expenses and fuel 3
revenues arising f rom the use of a surrogate average cost of fuel as 4
applied in that clause.
5 6
- Now, it is certainly true that the Company's accounting methodology 7
has produced, or will have produced, a balance in a deferred fuel 8
expense account which, when written off to operating expenses, will 9
have an adverse impact upon the income statement as reported to stock-10 holders.
However, this amount does not represent any change in revenue 11 collections nor does it represent an amount which is properly remedied 12 through future rates.
It is the result of reporting to stockholders 13 through the income statement paper benefits over the period the fossil 14 fuel clause and this deferred accounting procedure have been in effect, 15 and thus is now properly taken back on paper, if in fact that is 16 what will happen.
No matter what accounting procedures are followed 17 in the future, there is no justification for granting a retroactive rate 18 increase because of such procedures. There is certainly no retroactive 19 rate change made when a Company suddenly chooses to employ a different 20 depreciation method or when other accounting changes are made.
21 22 Q IN WHAT WAY HAS VEPCO ALREADY BEEN COMPENSATED FOR THE LAG 1T EXPERIENCES 23 IN PAYING FOR C00DS AND SERVICES IT USES AND THE COLLECTION OF REVENUES 24 TO COVER THOSE EXPENSES?
25 26 A Cash working capital equal to 12.5% (45 days) of total operation and l
27 maintenance expenses less purchased power is included in the establish-28 ment of the rate Icvels.
This allowance has traditionally be'EEployed S(;
29 by this Commission to provide capital to cover the cumulative effect of 30 all Icad/ lag transactions (See opinion No. 609, Union Electric Company, 31 Docket No. E-7525, issued January 24, 1972).
Without a complete lead /
32 lag study of all payments and receipts of revenue related to such pay-33 ments of such expenses, it is impossible to determine whether more or 34 less than 45 cash working capital should be allowed. The Company suffers 35 a lag in the collection of all its revenue from the wholesale customers.
36 It is not limited to fuel clause charges.
Does the Company suffer a 37 full 45 days' lag? How much is this offset by the lag it enjoys in the 38 payment of expenses? These would be the appropriate questions in a rate However, in this filing the Company is attempting to single out 39 case.
40 one item of operation and maintenance expense and collect additional l
41 revenues for its so-called lag in collections to cover the associated 1
42 expense without producing any lead / lag study to support the total 43 amount of working capital needed.
44 45 46 47 48 i
49 50 J
!u
,e
- s
%l UNITED STATES FEDERAL P0'JER CO.T!ISSION i
3, DOCKET I:0. ER76-415 VIRGINIA ELECTRIC AND PO*JER COMPA!!Y STATE OF !;0RTil CAROLI!!A )
)
COUNTY OF k'AKE
)
i i
I hereby certify that the attached testimony in this docket was prepared by me and,that,the answers contained in such testimony are true and correct to the best of my knowledge and belief.
4
! =_,
d O. FRANKLIll ROGERS 7
~
Subscribed and sworn to before me this 20th day of May, 1976.
M
_b A_b_
!!OTARY PUliLIC oii'ssen,Q,,..!!:... p.,
- f.y,o
. s_=
_E&*l t4 O T ^ R y \\ 'N \\
i g*, P U B L 1 C,i_g i i
W).
\\, ><e..nin.. 4 /
y o
,,,,,,,,,,o Ny Cctnmission Expires Septe ntu :9,1g33 J
m -
.-e*
===+en y
- --+4
.d.
N Docket No. ER 76-415 s-CERTIFICATE OF SERVICE I hereby certify that I have this day served the foregoing testimony upon all parties of record in this proceeding in accordance with the requirements of 51.17 of the Rules of Practice and Procedure.
Dated at Raleigh, North Carolina this 21st day of May,1976.
f
/*
s
/Y /-
t J
/
William T. Crisp g
Counsel for Cooperative Intervenors p
l
{
1 i
l f
l l
s
_.