ML19308A425

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Testimony in Response to Tx Utils Generating Co & Houston Lighting & Power First Set of Interrogatories
ML19308A425
Person / Time
Site: South Texas, Comanche Peak  Luminant icon.png
Issue date: 09/29/1975
From: Rogers O
VIRGINIA POWER (VIRGINIA ELECTRIC & POWER CO.)
To:
Shared Package
ML19208C305 List:
References
E-9147, NUDOCS 7909260346
Download: ML19308A425 (8)
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VIRGINIA ELECTRIC AND POWER COMPANY FPC DOCKET NO. E-9147 V -

1Q 2 PLEASE STATE YOUR NAME AND ADDRESS.

3A My name is 0. Franklin Rogers.

4 Avenue, N.E., Atlanta, Georgia 30309.My business address is 1000 Crescent 5

6Q BY W110H ARE YOU EMPLOYED?

7 8A 9 I am a member of the firm of Southern Engineering Company of Georgia .

10 Q 11 PLEASE STATE YOUR EDUCATIONAL BACKCROUND.

1 12 A .

13 I attended Emory University in Atlanta for two years and Georgia 14 Institute of Technology for two years, receiving a degree of Bachelor 15 of Industrial Engineering from Georgia Institute of Technology in 1955 16 I also attended Emory Unversity Law School. .

17 Q l 18 PLEASE STATE JOUR PROFESSIONAL EXPERIENCE.

19 A 20 Upon graduation from Georgia Tech, I served three years as an of ficer 21 in the United States Navy, af ter which I began working for Southern Engineering Company in 1958.

22 I have, during that time, headed the 23 Retail and Wholesale Rate Departments in my Company. I have performed

('j 24 rate studies for over seventy-five rural electric cooperative and 25 municipal systems in thirteen states during this period of time. I 26 have participated in wholesale rate and contract negotiations with 27 thirty-six privately owned investor utilities in nineteen states .

28 During this period of time, I have prepared or participated in pre-29 paring numerous cost of service studies of investor-owned utilities, 30 rural electric cooperatives and municipal systems.

31 Q l 32 MR. ROCERS, WITil RESPECT TO ELECTRIC RATE CASE MATTERS, lfAVE YOU j 33 CIVEN TESTIMONY BEFORE TilIS COMMISSION OR ANY STATE COMMISSION?

34 35 A Yes, I have.

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37 Q 38 WILLYOU WilICll YOU PLEASE 11 EWE TESTIFIED?IDENTIFY Til0SE PROCEEDINGS AND Tile COM 39 40 A ~

41 I have testified as a rate expert before several State Commissions 42 including North Carolina, South Carolina, Kentucky and Indiana. I have 43 Previously testified before the Federal Power Commission in the follow-44 ing proceedings: Mississippi Power & Light Company, FPC Docket No.

45 E-7577; Carolina Power & Light Company, FPC Docket No. E-7564; Georgia

_ Power Company, i

46 FPC Docket No. E-7548; Public Service Company o f India,na, FPC Docket No. E-7645; Alabama Power Company, FPC Docket No. E-7674; _

47 48 Culf Power No.

FPC Docket Company, FPC tocket No. E-7686; Hississippi Power Company, '

49 E-7625; Duke Power Company, FPCFlorida Docket Power No. Corporation, FPC Docket No. E-7679;

\~) 50 FPC Docket No. E-7720; Pennsylvani.' Electric Company,

! E-7718; Public Service Company of New IIai. 7 shire,-~ Docket l 7 go9260131(G,4

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l- No.

2 E-7742; Indiana ar.d Michinan Electric Company, FPC Docket No'.

3 E-7740; Virninia Electdic and Power Company, FPC Docket No. E-8026; 4 Carolinn Power & Light Company, FPC Docket No. E-8881; _ Toledo Edison

_ Company, ~

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No. E-7803; Appalachiar. Power Comoany,FPC FPC Docket Docket FPC Docket No. E-7775; Missis-No. E-7 sippi Power Company, 7 _ Company, FPC Docket No. E-7625; Carolina Power and Linht 8 E-8851; Gulf Power Company,FPC Docket No. E-8884; FPC Docket Alabama No. _ Pow 9 Power Company, FPC Docket No. E-8911; Potomac Electric 10 11 FPC Docket No. E-8008; _Delmarva Power & Linht Compan FPC Docket 12 No. E-8947; and have submitted prepared testimony in Mississippi

_ Power Company, FPC Docket No. E-9135.

13 14 Q 15 MR, ROGERS, WOULD YOU PLEASE LIST FOR US Til0SE PRIVATELY 16 COMPANIES WITil WHICll YOU llAVE PERSONALLY COND 17 BEHALF OF WHOLESALE CUSTOMERS INVOLVING SUBS 18 19 PATES OR CONTRACTS AND T110SE COMPANIES WIT BEEN INVOLVED. IN CASES BEFORE THE FEDERAL POWER CO .

20 A Yes.

21 22 to the present time, so this constitutes recent experienc .

23 24 Although I do not recall all of the docket numbers, I will indicate (e/ 25 the docket numbers of those cases filed since The 1969. companies are:

26 27 Florida Power Corporation (two occasions)(E-7679), Gulf Power 28 Company (E-7686), Georgia Power Company (four occasions)(E-7548 29 and E-8170), Virginia Electric & Power Company (three occasions) 30 (E-7611 and E-8026), Carolina Power & Light Company (E-7564),

31 Delmarva Power and Light Company of Delaw 32

. 33 (three occasions)(E-7560 and E-7769), Delmarva Power & Light 34 Company of Maryland (three occasions)(E-7560 and E-7769), West "'

35 Penn Power Company, Pennsylvania Electric Company (three occas 36 (E-7718), Metropolitan Edison company (three occasions)(E-7630),

New Jersey Power and Light Company (two occasions), Jersey Central 37 38 Power and Light Company, Duke Power Company (four occasions) 39 (E-7557, E-7720 and S-7994), Public Service Company of Indiana

  • 40 (E-7645), Northern Indiana Public Service Company (E-7758),

41 Detroit Edison Company (E-76B7), Contral Illinois Public Service 42 Company, Illinois Power Company, Kentucky Utilities Company, New 43 York State Elcetric & Cas Corporation, Alabama Power Company (two 44 c:casions)(E-7674), Oklahoma Cas and Electric Company, Public 45 Service Company of Oklahoma, Public Servico Company of New Ham 46 shiro (E-7742), Central Illinois Light Company (E-7577), Niagara -

47 48 Vermont Public Service Corporation (two occasion 49 E-7798), Florida Power & Light Company (E-8008), Indiana and Mich-(,) '

50 igan Electric Company (E-7740), Appalachian Power Company (E-77 Pennsylvania Power and Light Company, and Consumers Power Co (E-7803),

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\m) 1 Q 11 AVE YOU TESTIFIED BEFORE OTIIER COMMISSIONS?

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3 A 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 (Mid-6 land Plant, Units 1 and 2), NRC Docket Nos. 50-329A and 50-330A.

i 7 Additionally, I have testified before the Atomic Safety and 8 Licensing Board 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.

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12 Q BY W110M IS YOUR FIRM RETAINED IN TilIS PROCEEDING?

13 14 A By the Cooperative Intervenors.

15 16 Q WilAT WAS YOUR ASSIGNMENT IN TIIIS PROCEEDING?

17 , m 18 A My primary assignment in this proceeding was to determine the 19 application to this case of certain ratemaking concepts applied 20 by VEPCO in the 1950 Old Dominion case. As covered in the testi-21 mony of Mr. T. F. Treadway, VEPCO proposed a 7.5 mill per kilo-22 vatt-hour rate to the Old Dominion cooperatives in 1950 which 23 VEPCO admitted produced less than a fully allowable rate of return.

(,) 24 During the Old Dominion hearings before the Virginia Corporations 25 Commission, VEPCO committed itself to this less than full rate of 26 return philosophy on its sales to Old Dominion cooperatives to the 27 extent that the VEPC0 brief stated:

28 29 "What the cooperatives can rely upon goes further. They 30 have in this case the positive commitment by VEPCO's respon-31 sibic officials to the principles of differential in favor 32 33 of cooperatives, and to a scale of differential corresponding l to the present contract offers now available on the 7.5 mill 34 level. Whatever the future framework of costs, the coopera-35 36 tives have the commitment to that favorabic basis which neces-

' sarily assures them a continuing cheaper rate than can be 37 provided by~ 0ld Dominion." (Cooperative Intervenors ' Witness 38 T. Foley Treadway testimony, Page 16, Lines 8 - 18) 39 40 My specific assignment in this case was to mea'sure quantitatirely 41 the degree to which the then proposed 7.5 mill rate produced less 42 than a full rate of return. The relationship so measured would then 43 be applied to our present day case in determining the rate under 44 which the cooperatives are to purchase power from VEPCO in the future.

45 46 47 The secondary aspect of my testimony is to comment on the appropri-ateness of the Company's filed Excess Facilities Service " Schedule 48 RC-F".

50 Q MR. ROGERS, WOULD YOU PLEASE DISCUSS TIIAT PART OF YOUR ASSIGNMENT CON-51 CERNING RATEMAKING PRINCIPLES ESTABLISilED IN Tile 1950 OLD-DDMINION CASE.

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1A Yes. As covered in Mr. Treadwa'y's testimony, during the 1950 Old 2 Dominion case brought before thn Virginia Corporations Commission, 3 Mr. D. C. Barnes, then Chairman of the Board of VEPCO, testified 4 for VEPCO. He presented evidence showing that VEPCO's then pro-5 posed 7.5 mill per kilowatt-hour rate to the Old Dominion Coopera-6 tives was reasonably compensatory, to the extent that the rate 7 would not result in a loss to VEPCO. The witness measured the 8 degree to which the 7.5 mill rate would be compensatory by calcu-9 lating VEPCO's cost to provide the service to the Old Dominion 10 Cooperatives.

11 12 Mr. Barnes' calculations were based upon the then embedded unit 13 cost of VEPCO's existing production and transmission facilities, 14 insofar as such costs applied to cooperative service. As shown 15 on Cooperative Intervenors' Exhibit (Treadway-5), Mr. Barnes calcu-16 lated that the 7.5 mill rate, when offset by the costs of existing 17 production,and transmission facilities, would produce a return to 18 VEPCO in a range, depending upon diversity, of 3.5% to 5.73%. This 19 range in the rate of return would be available to compensate VEPCO 20 for its then current costs of embedded debt and preferred stock; 21 and also to provide some contribution to a return on common equity, 22 including applicable Federal and State Income Taxes.

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\cd 24 The obvious ramification of this pricing policy was that VEPCO was 25 actively seeking to establish a rate to the Old Dominion Coopera-26 tives which produced less than the full rate of return that VEPCO 27 could otherwise justify. My arsignment in this case was to deter-28 mine the degree to which the thin proposed 7.5 mill rate would .

29 have produced less than a full rate of return to VEPCO.

30 31 Q I HAND YOU COOPERATIVE INTERVENORS' EXHIBIT (OFR-1), AliD ASK 32 IF IT WAS PREPARED UNDER YOUR SUPERVISION.

33 34 A Yes.

35 36 Q PLEASE EXPIAIN THIS EXHIBIT.

37 38 A This Exhibit compares the overall system rate of return earned by 39 VEPCO in 1950 with Mr. Barnos' calculated rate of return then asti-40 mated to be produced by tho 7.." mill rato.

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, 42 On Pago 1, I calculated the overall system roturn (including a l 43 component for Fodoral Incomo Tax recovery) actually carned by VEPCO 44 for the 12 months onding April 30, 1950. This 12-month period coin-45 cidos with VEPCO's effor to the Old Dominion Cooperatives of the 46 7.5 mill rato. Tho financial information supporting this data was 47 placed on record in the Old Dominion caso as Barnos Exhibit No.166, 48 and is also included in this proceeding as Pages 2 through 5 of i (,) 49 Cooperative Intervenors' Exhibit (OFR-1).

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V 1A Yes. As covered in Mr. Treadwa'y's testimony, during the 1950 Old 2 Dominion case brought before the Virginia Corporations Commission, 3 Mr. D. C. Barnes, then Chairman of the Board of VEPCO, testified 4 for VEPCO. He presented evidence showing that VEPCO's then pro-5 posed 7.5 mill per kilowatt-hour rate to the Old Dominion Coopera-6 tives was reasonably compensatory, to the extent that the rate 7 would not result in a loss to VEPCO. The witness measured the 8 degree to which the 7.5 mill rate would be compensatory by calcu-9 lating VEPCO's cost to provide the service to the Old Dominion 10 Cooperatives.

11 12 Mr. Barnes' calculations were based upon the then embedded unit 13 cost of VEPCO's existing production and transmission facilities, 14 insofar as such costs applied to cooperative service. As shown 15 on Cooperative Intervenors' Exhibit (Treadway-5), Mr. Barnes calcu-16 lated that the 7.5 mill rate, when offset by the costs of existing 17 production,and. transmission facilities, would produce a return to 18 VEPC0 in a ran8e, depending upon diversity, of 3.5% to 5.73%. This 19 range in the rate of return would be available to compensate VEPCO 20 for its then current costs of embedded debt and preferred stock; 21 and also to provide some contribution to a return on common equity, 22 including applicable Federal and State Income Taxes.

23 kad 24 The obvious ramification of this pricing policy was that VEPCO was 25 actively seeking to establish a rate to the Old Dominion Coopera-26 tives which produced less than the full rate of return that VEPCO 27 could otherwise justify. My assignment in this case was to deter-28 mine the degree to which the then proposed 7.5 mill rate would -

29 have produced icss than a full rate of return to VEPCO.

30 31 Q I HAND YOU COOPEPATIVE INTERVENORS' EXHIBIT (OFR-1), AND ASK 32 IF IT k'AS PREPARED UNDER YOUR SUPERVISION.

33 34 A Yes.

35 36 Q PLEASE EXPIAIN THIS EXHIBIT.

37 38 A This Exhibit comparos the overall system rato of return earned by 39 VEPCO in 1950 with Mr. Barnes' calculated rato of roturn then esti-40 mated to be produced by the 7.5 mill rato. '

41 42 On Pago 1, I calculated the overall system return (including a 43 componont for Federal Incomo Tax recovery) actually'carned by VEPCO 44 for the 12 months onding April 30, 1950. This 12-month period coin-45 cidos with VEPCO's offor to tho Old Dominion Cooperativos of the 46 7.5 mill rato. The financial information supporting this data was 47 placed on record in tho Old Dominion case as Barnes Exhibit No.166, i 48 and is also included in this proceeding as Pages 2 through 5 of l (,) 49 Cooperativo Intervonors' Exhibit (OFR-1).

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1 Using a conventional measure of the rate of return, I show that 2 the overall system rate of return, including FIT component, was 3 7.987, for the 12-month period ending April 30, 1950. Mr. Barnes 4 showed that VEPCO vould have earned a return ranging from 3.5%

5 to 5.73% on its sales to Old Dominion Cooperatives if the 7.5 i

6 mill rate were applicable over a comparabic period. My compari.-

7 son shows that VEPCO was then proposing a rate to the cooperatives 8 that would have produced a rate of return range amounting to from 9 43.9% to at most 71.8% of the then current overall system rate of i

10 return being earned by VEPCO on its total business. It is my 11 opinion, based upon the testimony of Mr. Treadway, that VEPCO 12 should not now be permitted to increase its rate to cooperative 13 customers above a maximum level of 71.8% of the return which is 14 otherwise allowabic.

15 16 Q MR. ROGERS, YOU DERIVE TIIE 71.8% FACTOR BY RELATING Tile COOPERATIVE 4

17 RATE 0" RETURN 10 TIIE TIIEN EXISTING SYSTEM RATE OF RETURN. WOULD 1

18 NOT Tile PliESENT DAY APPLICATION OF SUCll A PERCENTAGE TO TIIE ALLOW-

19 ABLE RSTURN BE SOMEWilAT INCONSISTENT?

20 21 A No. The system rate of return calculated for the 12-month period 22 ending April 30, 1950, first of all is an accurate measure of the 23 Company's then existing level of profitability. In other words

(,j 24 I have used a standard but conservative measure of the Company's 25 system rate of return. The measure is furthermore consistent with 1 26 methods employed in this case; i.e., average rate base, working 27 capital computation, etc.

28 29 Secondly, I believe that the test period used, 12-months ending 30 April 30, 1950, is indicative of the overall icvel of profitability 31 VEPCO was experiencing during the time that the Old Dominion case 32 was being litigated. Also, I believe that if the Company were 33 experiencing an extraordinarily profitable year in 1950 with an 34 overly high overa 1 rate of return, then the Virginia Corporations 35 Commission would tave ordered a rate reduction. I know of no such 36 order. In fact the rate of return of 6.025% (af ter income is re-37 duced by income taxes) is indicative of the industry returns then 38 held to be relatively standard.

39 40 Q MR. ROGERS, IF SUCl! A RATEMAKING APPROACl! UERE. APPLIED TO VEPCO'S 41 FILED RATE CASE, WHAT WOULD BE Tile RESULT?

42 43 A Municipal Witness Wilson has established that the Company's cost 44 of capital is 8.52% in the absence of the Old Dominion case com-45 mitment. Application. of the Old Dominion concept would reduce 46 the allowabic rate of return on cooperative sales to 6.12% (8.52% x 47 71.8% = 6.12%). Mr. Gross shows in Cooperative Intervenors' Exhibit 48 (RMG-1) that the cooperative class revenue requirement consis-49 tent with a 6.12% rate of return is $40,265,250. This icyc1 of

(=) 50 revenue would produce a $1,649,748 decrease un' der the icvel of 51 revenues produced by the present cooperative rate.

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%e) 1Q MR. ROGERS, PLEASE F 'USS TilAT PART OF YOUR ASSIGNMENT CONCERNING '

2 TIIE EXCESS FACILITI 'l 5ERVICE "SCllEDULE RC-F".

3 4A As pointed out by Company Witness R. S. Gay, Cooperative Intervenors 5 and the Company ve settled all issues concerning the Company's 6 filed Excess (_11 ties Service " Schedule RC-F" except rate levels.

7 The rate is identified in Provision III of the Schedule as contained 8 in Company Exhibit No. (RSG-6), Page 1. The rate is stated in 9 terms of percentage values to be applied to the Company's invest-10 ment in both applicabic distribution and transmission plants that 11 are detcomined to be in addition to normal service facilities.

12 These monthly percentage values represent the Company's current 13 average carrying cost for production and transmission facili. ties 14 and include components recognizing rate of return, sinking fund de-15 Preciation, Federal income taxes, property tax, insurance, and opera-16 tion and maintenance expense.

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18 The percentage amounts filed by the Company of 1.79% (24.48% annually) 19 for distribution investment and 1.6% (19.2% annually) for transmission 20 investment are excessive to the extent that the rate of return com-21 ponent of 10.10% as established by VEPC0 is in excess of the allow-22 abic return. Adjusting the rate of return component to the allowable 23 return would also have a diminishing offect on the component recog-(ed 24 nizing Federal income tax.

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UNITED STATES FEDERAL POWER C0FD!ISSION DOCKET NO. E-9147 VIRGINIA ELECTRIC & POWER COMPANY STATE OF GEORCIA )

) SS:

COUNTY OF FULTON )

I certify that the attached testimony and exhibits in this docket were prepared by me or under my supervision and that the i

answers contained in such testimony and exhibits are true and correct to the best of my knowledge and belief.

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O. Franklin Rogers Subscribed and sworn to before me this 29th day of September,1975 V OCd2 -

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Notary Public

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TEyCommissionexpiresJune.5,1976

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