ML19308A429
| ML19308A429 | |
| Person / Time | |
|---|---|
| Site: | South Texas, Comanche Peak  |
| Issue date: | 08/01/1979 |
| From: | Rogers O FLORIDA POWER CORP. |
| To: | |
| Shared Package | |
| ML19208C305 | List:
|
| References | |
| E-7679, NUDOCS 7909260350 | |
| Download: ML19308A429 (25) | |
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1 i? FLORIDA POWER CORPORATION O
- FPC DOCKET NO. E-7679 .
DIRECT TESTIMONY OF 0. FRANKLIN ROGERS
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i-a f: 4 1 Q PLEASE STATE YOUR NAME AFD ADDRESS.
a 2 A My.name is 0.' Franklin Rogers. My Address is 1000 Crescent Avenue, i
I 3 N. E., Atlanta, Georgia 30309.
i I^ 4 Q BY WHOM ARE YOU EMPLOYED?
I .5 A I as a member of the firm of Southern Engineering Company of Georgia.
6 Q PLEASE STATE YOUR EDUCATIONAL DACKGROUND.
7 A As an undergraduate, I attended Emory University in Atlanta for two i i 8 years, and Georgia Institute of Technology for two years, receiving a 9 degree of Bacheior of Industrial Engineering from Georgia Institute of l- 10 Technology in 1955. I also attended Emory University Law School.
~i 11 Q PLEASE STATE YOUR PROFESSIONAL EXPERIENCE.
.,W 12 A Upon graduation from Georgia Tech, I served three years as an officer 1, 13 in the United States Navy, after which I began working for Southern f 14 Engineering Company in 1958. I have, during that time, headed the i
15 Retail and Wholesale Rate Departments in my Company. I have performed 16 rate studies for over seventy-five rural electric cooperative and i
j, 17 municipal systems in thirteen states during this period of time. I i
18 have participated in wholesale rate and contract negotiations with 19 eighteen privately owned investor utilities in thirteen states. During ,
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20 this period of time, I have prepared or participated in preparing i .. '
21 numerous cost of service studies of investor-owned utilitics, rural i 22- electric cooperatives and municipal systems.
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, 23 Q IIAVE YOU TESTIFIED IN OTI!ER C0'O!ISSION PROCEEDINGS?
- j. 24 A Yes. I have testified as a rate expert befor'e several state Commissions V 25 including North Carolina, South Carolina, Kentucky and Indiana. I have 7 90,92603Sd
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- i 1 previously cestified before the Federal Power Commission in the V
I* 2 - f ollowing p roceed ings : Mississippi Power & Light Company, FPC Docket i
5 3 No. E-7577; Carolina Power & Light Company, FPC Docket No. E-7564;
, 4 Georgia Power Company, FPC Docket No. E-7548; Public Service Company of 5 Indiana, FPC Docket No. E-7645; Alabama Power Company, FPC Docket No.
- 6 E-7674; Gulf Power Company, FPC Docket No. E-7686; Mississippi Power 7 Company, FPC Docket No. E-7625.
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! 8Q WilAT UAS YOUR ASSIGN'!ENT IN Ti!IS PROCEEDING?
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9A My assignment was to determine whether in its cost of service study 10 Florida Power had utilized the proper operating expenses, whether any 11 adjustment's to' rate br,e were necessary, whether interest expense was j 12 properly determined in computing Federal income taxes, and whether the 4
i 13 terms and conditions in the proposed tariff, including fuel clause, y 14 are reasonable. .
15 Q Ul!AT DATA IIAVE YOU STUDIED IN ORDER TO PREPARE THIS TESTIMONY AND-16 REllsTED EX111 BITS?
17 A I have reviewed the filing made by Florida Power, and the testimony 18 and Exhibits submitted by its witnesses and certain additional infor-19 mation concerning its operations which it supplied at the request of 20 the FPC Staf f, !!unicipal Intervenors, and the Cooperativeu in this 21 proceed ing . In addition, I have reviewed -Florida Power's FPC Form 1 j 22 and Form 12 reports for the years 1960 through 1971 filed we a the .
li 23 Federal Power Commission.
{ 24 Q WILL YOU VERY BRIEFLY SUMMARIZE Tile RESULTS OF YOUR STUDIES?
25 A Yes, my studies show the following:
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'* , 1 (1) Florida Power has not deducted from its rate base all 4
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- 2 of its capital provided by accumulated deferred income taxes and 4
3 investment tax credit provisions, i
4 (2) The wage and salary pro forms adjustments made by Florida '
5 Power are offset by productivity increases to such an extent that such 6 wage and salary adjustments should be deleted.
j 7 (3) Florida improperly included in its rate base the Jackson a
8 Bluf f Ilydro Project which was retired by Commission order in December 9 of the test year. Mr. Bathen discusses the appropriateness of the j 10 deletf on of this project from the test year rate base in his direct c
8 . . .
- 11 testimony. The depreciation expense for this project for the test year i 12 should be accordingly deleted to indicate the removal of this liydro 13 Proj ec t .
i I ,(,j 14 (4) Florida Pouer failed to include Construction Work In i
! 15 Progress completed but not closed to Plant in Service in its rate base.
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r 16 Mr. Bathen discusses the necessity of the inclusion of these f acilities r
17 in the test year rate base. Accordingly, I have made appropriate adjust-ia
! 18 ments to include depreciation expense for these facilities for the test 4
1 i 19 year.
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! 20 (5) Florida Pouer has improperly al' located certain miscellaneous l_ 21 general expenses to wholesale customers.
In computing its. Federal income tax, the interest expense 4
22 (6)
!* 23 of Florida Power during the test year 1970 was not adjusted to reflect ,Florida ,
24 Power's known capital structure changes through 1971 and 1972 which .
! 25 resulted from the $50,000,000 bond issue of October, 1971, the $50,000,000 l,
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1 bond issue of June, 1972, and the $30,000,000 preferred stock issue 2 of June, 1972.
3 (7) Florida Power has improperly allocated the rate base 4 4 deduct. ion for contributions in aid of construction among the classes 5 of customers.
6 (S) Florida Power's proposed tariff, including the fuel adjust-7 ment clause, should be changed in several important respects which I a
8 vill discuss later in my testimony.
9Q 1 SIIOU YOU A DOCIDIENT MAPIED FOR IDENTIFICATION AS EXIIIBIT (OFR-10).
10 UILL YOU EXPLAIN TilIS EX111 BIT?
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11 A Yes. For convenience, I have had prepared under my supervision this 12 Exhibit showing excerpts of some of the information furnished by Florida 13 Power in response to certain data request items from the Cooperatives,
, W 14 Municipal Intervenors , and thci Staf f. Included in this Exhibit is only 15 that information furnished by Florida Power which is referred to by 16 ne in ny testimony or Exhibits. The table of contents summarizes 17 the information contained in this Exhibit.
18 Q I Sil0'J YOU AN EXillBIT 11ARKED FOR IDENTIFICATION AS EX11IBIT (OFR-1).
19 WAS TIIIS EX11IBIT PREPARED UNDER YOUR SUPERVISION?
20 A Yes.
21 Q PLEASE EXPLAIN TilIS EXIIIBIT.
22 A This Exhibit is entitled " Capital Provided to' Florida Power Corporation
\ a 23 by Accumulated Def erred Income Taxes and Investment Tax Credits". Al-24 though Florida Power did deduct $31,292,000 from its rate base for its 25 accumulated provision for liberalized depreciation, it did not make a
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1 a similar ' deduction for accumulated provision for accelerated amorti-h 2 zation, Witness Bathen in his testimony discussed in detail the 3 proper, and most importantly positive, treatment of accelerated amorti-
!, t nation as a deduction from rate base.
5 I strongly agree with uitness Eathen that the accumulated provision,for 6 accelerated aw rtization, in Account 281, should be deducted from the rate 7 base. I an mindful of the fact that the Federal Power Con:nission in the 2
l 3 Panhandle Case, 40 FPC 98, decided that this would be more properly treated l
, 9 by inserting this amount in the capital structure and assuming a zero cost 10 to a company for this capital. Under most circumstances ue can assume that 0
j 11 these would tend to have the same effect -- that is, deduction from the 12 rate base and therefore allowing no return on this amount as opposed to
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13 including it in capital structure assuming a ::cro cost. It is most impor-ji, Q 14 tant, however, to note that in the Panhandle Case I am informed that
! 15 virtually all of the business was jurisdictional to the Federal Power Com-16 mission and more importantly that there was no wide distinction, if any, l 17 between the allocation of various functional groups. That is to say, the 18 various classes of customers did not have allocated to them wide variations f, 19 in production investment, for exampic, as opposed to the distribution 20 investment, j- 21 It can be seen that !n the cost. of service studies of both Florida l 22 Power and Ifr. Daniel that between 1~27. and 13%'of p'roduction and transmission f' 23 plant is allocated to the wholesale customers while less than 1% of distri-
- 24 bution plant is allocated to the wholesale customers. The amount in 25 Account 281 was for Emergency Facilities which re' quired a certificate
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1 indicating the need for such facilities based on national defense. The i 2 great perponderance of these facilities for electric companies uns for 3 generation with virtually all of the remainder for transmission facilities --
4 approximately 907,for generation and 107. for transmission in the case of 5 riorida Power.
i 6 It can now be seen that utilizing this amount in the capital struc-7 ture, even at a zero cost, would mean that the benefits are spread 4
8 equally throughout the investment or capitalization of Florida Power 9 uhile in truth these reserves are based upon production and transmission 10 facilities of which between 127. and 137. are allocated to the wholesale 4; - ,
11 customers with less than 17. of the distribution plant being allocated to 12 the wholesale customers. It now becomes cle2r that when there is such 13 . divergence of allocation between jurisdictional and non-jurisdictional I
Q 14 business between the classes of consumers, or more importantly, between i 15 cc.y classes of consumers, this can be properly distributed to the i
16 various classes only through a functional allocation since virtually
- 17 all of this investment is based upon the generation or production fune-i" 18 tien of Florida Power.
1 i 19 Reserves for investment tax credits have not been provided by tha 20 stockholder, but have instead been provided by the customers. The
!_ 21 proper underlying principle that should be folloued is that utility 22 capital ubich has not been provided by the stockholder should be deducted-23 from rate base. Therefore, the 13-month average ($8,728,000) provision 1
. ~.s 24 for accumulated deferred investment tax credits should be deducted from l 25 Florida Power's rate base since it is a reserve of this nature. Counsel
} ,; 26 advises there is no statutory bar to such deduction.
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9 1 Q 'I SHO'.i YOU A DCCUMENT MARRED FOR IDENTIFICATION AS EXIIIBIT _(OFR-2).
IQ 2 UAS TIIIS DOCUMENT PREPARED l'NDER YOUR SUPEi1 VISION?
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!. 3A Yes. r 4
l' 4 Q PLEASE 1% PLAIN THIS E'UlIBIT. ,
5 A Page 1 of this Exhibit is entitled " Adjustment to Delete Pro Forma 6 Wage and Salary Adjustments f rom Florida Power Corporation's Cost of 7 Service Study". The adjustments listed on Page 1, Column (c) of this l IJ r 8 Exhibit represent the wage and salary increases that Florida Power added to
- . 9 its 1970 per books cost of service study. The first adjustment, ;
10 $1,093,000, annualizes the wages and salaries in effect as of December l' 11 31, 1970 and which for the most part first became effective in December i
12 of the test year. The next ite'm shown, $160,000, increases the over-13 head cost for injuries and damages and pension and benefits related to k3/ 14 the unge and salary increase.' Similarly, the third adjustment of 1
15 $103,000 represents the increase in taxes other than income taxes re-16 lated to the wage and salary adjustments listed above (Florida Power - Exhibit i
17 No. (FP-104) Statement L), and the increase in FICA rate from 4.8%
j 18 to 5.2%. Part of this adjustment is properly included: the $51,000
{, 19 portion of 'this adjustment that reficcts the increase in the Federal
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20 Social Security tax rate from 4.8% to 5.2%. With the exception of the
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vage j 21 $51,000 associated with the FICA tax rate increase, all of 22 and salary adjustments made by Florida Power'and listed above should i"
i 23 be deleted from its cost of service study. As shown below, such de-
.c 24 letion is necessary to reficct properly the improved employee produc--
25 tivity.
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,a 1 Page 2 of the Exhibit ectitled " Florida Power Corporation Analysis V.,
d .2 of Salaries and Wages 1960-1971" shows that the long-term trend of wage 3 and salary costs per kilowatt-hour sold by Florida Power is downward. Sales O of electricity in kilowatt-hours has increased at the average com-5 pountbd annual rate of 11.79% f rom 1960 through 1971; the wage and 1.
' 6 salary expenses have increased only 7.75% per year. Accordingly, the
! 7 cost in mills per kilowatt-hour for wages and salaries has decreased 8 from 3.12 mills per kilowatt-hour in 1960 to 2.08 mills per kilowatt-j _, 9 - hour in 1971. Since the uage and salary productivity of Florida Power
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10 has overcome its uage and salary increases, no pro forma adjustment 3
11 to reflec't annualization of the test year wage increase is justified.
12 (See Union Electric Cog aAv_, Opinion No. 609, Docket No. E-7525
.h 13 (January 24, 1972)).
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hud 14 The above analysis shous lower cost of salaries and wages per 15 kilowatt-hour sold and c1carly indicates that the adjustments pro-j 16 posed by Florida Power to increase its test year salaries and wages 17 are not properly measurable without productivity offsets. Thus, this a
18 is a situation where the adjustment Florida Power is seeking to make e 19 is not supported by a productivity study. More than that, it is a
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20 situation where the known facts show how highly probable it is that t
. 21 productivity improvements will offset any future wage and salary in-
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j 22 creases. For these reasons, in addition to established FPC precedents, a
{' 23 Florida Power's wage and salary adjustment should not be allowed in i
24 its cost of service study.
,a 25 Q 1 SitOW YOU AN EXil1 BIT MAPXED FOR IDENTIFICATION AS TXIIIDIT (OFR-3).
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-s 1 WAS Tills DOCUMENT PREPARED UNDER YOUR SUPERVISION?
MN 2 A Yes.
3 Q PLEASE EXPLAIN TllIS EXHIBIT.
j i 4 A In this Exhibit I make the necessary adjustments to Florida Power's assign-Table
! 5 ment of operation and maintenance expense to allocation categories.
is 6 7 of my Exhibit is identical in format with Florida Power's Tabic 7, i
7 Exhibit No. (FP-201). I made only two basic changes in Florida J
8 Power's Table 7, although changes in virtually all the othat figures 4 , 9 appearing in the table flow from those basic changes. One basic 10 change is the deletion of the $1,253,000 uage and salary adjustment !
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1 11 which Florida Power had made to its cctual experience in the test year i
- 12 as shown on its books to reficct wage and salary increases becoming l 13 effective for the most part in December of the test year. The neces-l
, (3) 14 sity for this adjustment is explained in connection with the discussion 15 of Exhibit (OFR-2) above.
16 The other basic change was a reduction of $1,152,000 in. Florida f 17 Power's Other Production Expenses in order to normalize the maintenance 18 expense on the Crystal River No. 1 Unit during the test year. This
, 19 $1,152,000 amount was furnished to me by uitness Porter and is developed 20 in Exhibit (Porter-2). Witness Porter explains the necessity for 21 this adjustment in his testimony.
f 22 Page 2 of my Exhibit (OFR-3) is identical in format with Table
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! 23 9 of Florida Power's Exhibit No. (FP-201) . The changes in this l
24 Exhibit flow from the deletion of Florida Power's adjustment for wage 25 and salary increases discussed above.
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Q I SIION YOU A DOCUMENT MARKED FOR IDENTIFICATION AS EXilIBIT (OFR-4).-
2 WAS TIIIS DOCUMENT PREPARED UNDER YOUR SUPERVISION?'
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3 A ye3, i*
l ,, 4 Q WILL YOU PLEASE EXPIAIN TilIS EXilIBIT?
I 5 A Page 1, Column (d), Line 1 of this Exhibit shows an adjustment of f' 6 $39,000 which should be made to delete the test year per books depre-i 7 ciation expense for the Jackson Bluf f flydro Project to reflect'the i4 8 retirement of these facilities. Witness Bathen, in his direct testi-l 9 mony, discusses the appropriateness of removal of the Jackson Bluff 10 Project f rom the rate base. The retirement of this project is a knc9n 11 change,n'amelythereductionininvestmentofproductionplantfacili-i 12 ties in the future.
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13 Column (d), Line 2 shows the adjustment to depreciation expense
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y 14 for the test year that should be made to reficct the inclusion of
_ 15 Construction Work in Progress for construction completed and in service j- 16 but not closed to Plant in Service. Uitness Bathen discusses the i
j 17 necessity of including these facilities in Florida Pouer's rate base. This
'a 18 $117,000 adjustment reflects the appropriate increase in production, trans-
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,s 19 mission and distribution depreciation expense of $62,000, $38,000 and a'
20 $17,000 respectively for the test year 1970 for these facilities. These 3
21 annual depreciation expense charges are the sum of the monthly expense 22 charges derived by multiplying the monthly balances of Electric Plant 23 Construction completed but not closed to Plant in Service, by. functional i
j 24 plant classification (Exhibit (OPR-10),Page 6 ) times the respective .
- e (Exhibit 25 revised monthly depreciation rates (OFR-10),Page 8 ) used i
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a in Florida Power's filing, g 1 i 2 Page 2 of my Exhibit (OFR-4) is identical in format with I, 3 Florida Power's Table 8 of Exhibit No. (FP-201). The changes
'+ _ 4 in my Table 8 flow from the adjustments to depreciation expense
'. 5 shown on Page 1 of my Exhibit.
6 (OFR-5).
Q I S110W YOU A DOClDIENT MARKED FOR IDENTIFICATION AS EXillBIT 7 WAS IT PREPARED UNDER YOUR SUPERVISION?
i O A Yes.
' 9 Q PLEASE EXPLAIN TilIS EX111 BIT.
j 10 A This Exhibit is entitled " Adjustment of Florida Power Corporation's Cost 11 of Service Study to Delete Specific Items of Miscellaneous General 12 Expenses From Operations and Maintenance Expense Allocated to Wholesale t,
13 Customers". Column (d) on Page 1 of this Exhibit shows an adjustment lV i
14 of $379,000 to delete certain specific miscellaneous general expenses 15 from the total operating expenses to be allocated to wholesale customers.
16 These miscellaneous general expenses include national and local institu-17 tional advertising expenses, certain ducs and contributions and the j 18 expense of the EEI display for Disney World. Each deleted expense item
!-, 19 has been properly noted on Pages 2 through 4 of this Exhibit. I have j 20 removed these specific expense items from the miscellaneous and general
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i 21 expenses to be allocated to wholesale customers. Unlike service to ,
l 22 retail customers, Florida Power is, in this proceeding, establishing 23 rates to other power suppliers -- the wholesale jurisdictional customers.
j 24 These customers incur similar expenses which in the -judgment of their 25 management is proper. In addition to the of ten cited argument that V -
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.e expenses of this nature should be borne by the stockholders, it is
{ 1 improper under any circumstance to assign these expenses to wholesale 2
3 customers.
4 Q I SIl0'J YOU A DOCCMENT MARKED FOR IDENTIFICATION AS EXIIIBIT 5 (OFR-6). WAS IT PREPARED UNDER YOUR SUPERVISION?
6 A Yes.
7 Q PLrASE EXPLAIN TIIIS EXilIBIT.
8 A This Exhibit is entitled " Adjusted Interest Expense for Income Tax 9 Deductions of Florida Power Corporation". Florida Power 10 has included the per books interest expense for the cost of long debt 11 in its cost of service study for the test year 1970. Florida Power 12 did not nake a pro forma adjustuent to reflect bond issues sold in 13 October, 1971 and June,1972; nor did Florida Power nake any adjustment to k 14 reflect the preferred stock issue sold in June, 1972. The result of 15 r.y adjustment is to increase th< aterest expense from $17,119,222 16 shown (Enhibit No. (FP-201), Table 12) to $21,614,000. The f 17 fact that Mr. Seligson included these band issues and preferred stoch 18 issue, in his rate of return determination, confirms the fact that this 19 interest expense adjustment should be made. I understand that in 20 recent cases such as the Union Electric Company, Docket No. E-7525, 21 January 24, 1972, the Federal Power Commission has utilized known post 22 test period debt changes uhich have occurred in capital structures.
23 Q I S!!OW YGd AN EN!!ICIT MARKED FOR IDENTIFICATION AS F.XilIBIT (OFR-7).
24 WAS TIIIS DOCID!ENT PREPARED UNDER YOUR SUPERVISION?
L 23 A Yes.
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-e 1 Q PLEASE EXPIAIS Tills EX11IBIT.
2 A Column (d) , Page 1 of this Exhibit shows the adjustment that should 3 be made to Florida Power's Federal income taxes to reficct all adjust-ji 4 ments made by Invervenors to Florida Pcwer's operating expenses and 3 the computation of interest expense. _ Page 2 of this Exhibit shows l .,
6 the computation of this income tax adjustment. The adjustment decreases
! 7 the income taxes by $1,306,000.
8 Q I S110W YOU A DOCUMENT' MARRED FOR IDENTIFICATION AS EX111 BIT __(OFR- 8) .
, 9 UAS IT PREPARED UNDER YOUR SUPERVISION?
10 A Yes.
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11 Q PLEASE EXPLAIN TilIS EX11IDIT.
- 12. A This Exhibit is Florida Power's response to the Cooperative's data request
.2 13 for a detailed sumnary of the source by consumer classification of the j, V 14 contributions in aid of construction (Account 271) shoun as a deduction 15 from rate bcse (Exhibit No. (FP-201), Table 4, Line 1, Column (b)).
- 16 This data response indicates that none of the $4,680,970 in contributions 17 shown as a balance in Account 271 as of December 31, 1970, was made by 18 either cooperative or municipal wholesale customers. Thus Florida Power
, 19 has erred in assigning some $27,000 of rate base deduction for contri-
- 20 bution in aid of construction to the wholesale customers.
j 21 Q WilAT RECOMMENDATIONS DO YOU MAKE AS TO Tile PROPER ALLOCATION OF CCNTRI-4 22 liUTIONS IN AID OF CONSTRUCTION TO CUSTOMER CiASSES?
- 4 23 A All contributions in aid of construction (13-month average) should be -
i l, 24 allocated specifically to the retail customer class. I have indicated
) 25 to Mr. Daniel that this is the proper method of allocation-to be in-
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- 26 cluded in his average cost of service study.
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1 Q I SilCf.1 YOU A DOCUMENT MAlEED FOR IDENTIFICATIO:1 AS EX111 BIT 2 ENTITLED "INTERVENORS' PROPOSED TARIFF" CONSISTING OF SEVENTEEN PAGES.
.(OFR-9) 3 UAS TilIS EX11IP.IT PREPARED BY YOU OR UNDER YOUR SUPERVISION?
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- l. 4 A Yes, except for two provisions whi.ch were prepared by Mr. Pathen, who is 5 testifying in this proceeding, and vere incorporated into the tariff at his j
l 6 request. These two provisions are the " General Information" provision
) 7 appearing on pages 1 through 4 and the wheeling rate, Rate Schedule U-1, j .,
[ 8 cppearing on page 8.
., 9 Q WILL YOU PLEASF. EXPLAIN EX111 BIT (OFR-9).
10 A The Exhibit constitutes a tariff including the Rate Schedules, General
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m 11 Terms and Condi.tions, Service Agreement, and Supplements, identifying 12 delivery points, which are proper in my opinion, to be applicable to 13 the wholesale customers in this proceeding. It should be noted that
, (./ 14 the format of the tariff is identical with the format filed by Florida a
4- 15 Power in this proceeding in Original Sheet Mos 1 through 18. For i
f 16 convenient cross- re ference , I have retained the Original Sheet numbers 1
17 employed by Florida Power in its filing.
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18 Q PLEASE EXPLAIN Tile CllANGES YOli llAVE !!ADE IN TllE " RESALE SERVICE RATE 19 SCllEDULE" P.ECINNING ON PAGE 5 0F EXillBIT (OFR-9).
20 A for simplicity of reference, I have desigtuted the Rate Schedule as i
' 21 "RS-1". I have also made the Rate Schedule, as well as the entire 22 tari ff, applicable to "other electric systems" in addition t.o "muni-i 23 cipalitics" and " rural electric cooperativec". I assume that Florida 24 Pouer, .in the business of selling electric power and energy, vould i
4 25 appropriately of fer service under this rate to other cicetric systems I
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e s-j 1 under the Rate Schedules and Terms and Conditions as provided.
2 In paragraph I. " Availability" on page 5,1 provided that service 3 is available at points as may be eotablished on Florida Power's inter-1, 1 4 connected system and have deleted the language referencing new delivery l
5 points which stated ". . . as mutually agreed upon, uhere there are facil-i .,
6 ities of adequate capacity". I have provided, and vill discuss later in 7 my testimony, definitive provisions for new delivery points and I have 8 provided that Florida Power is obligated to furnish and a customer is
, 9 chligated to receive all of the power requirements of the customer at 10 each delivery point in excess of those requirements availabic to.the 3 - .
I 11 customer from a " partial requirements" source. These provisions climinate 12 the necessity for words such as " mutually agreed upon" and " facilities
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13 of adequate capacity" which might be interpreted to mean that Florida
- , (3/ 14 Power could arbitrarily refuse to furnish the pouer requirements of a
< 15 wholesale custoacr unless Florida Power " agreed",
i 16 In paragraph II. " Applicability" on page 5 of Exhibit (OFR-9) I have 17 deleted the phrase from Florida Power's language limiting the applica-18 bility of service received hereunder by the whoicsale customers ". . . to
, 19 ultimate consumers served from their respective distribution systems."
20 This language is restrictive and vould arbitrarily deny the wholesale 21 customers the right to make sales for resale.
22 I have changed the word " phase" to " voltage" in the second sentence a
i 23 in the phrase ". . . provided electric service of the voltage desired.by t, 24 the Customer is available. . . " which I believe to.be a correction of a
{ 25 typographical ~ error in Florida Power's tariff. In the next to last sen-i lJ -26 tence in'the "Apylicability" provision I have added the phrase ". . . at l %.)
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I system load factor, including service. .. " to provide for partial require-2 ments at system load factor regardless of source rather than limiting the 4 3 section to purchases froa Southeastern Power Administration.
, 4 Q UllY DID YOU 1:0T FILL IN ALL OF Tile CllARGES IN PARAGRAPil III, "MONT11LY RATE",
j 5 ON PAGE 6?
d 6 A It was not part of my assignment to construct rates that should be applied 7 to the wholesale customers. As testified to by Mr. David A. Springs in 8 this proceeding, we do not question the differences in the rates applicable 9 to the various voltage levels as contained in Florida Pouer's rates. On 10 the contrary, !!r. Springs finds that the differences are justified and J - .
I 11 reasonable. In addition, I do not quarrel with the form of the rate nug-i 12
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gested by Florida Power - that is, having energy charges applicable to 1 13 the first 250 13111 per 131, the ncy.t 21013111 per 131 and a charge applicabic g 14 to all usage in excess of 46013:11 per la!.
- 15 I find the charge- of $.0040 per 13T11 for all usage in cr. cess of 460 16 13J11 per 131 reasonable as well as the minimum monthly charges proposed by l 17 Florida Power and I have accordingly 1 cit thenc prices in the Monthly Rate.
18 Since I find the structure of the rates proper, the proper rates should 19 be determined by reducing each of the energy charges I have Icf t blanh 20 by an equal amount, which such amount is quite casily calculated upon 21 determination of the proper rate icycl.
- 22 Q PLEASE CONTINUE BY EXPLAINING Tile ADJUSTMENTS YOU MADE IN Tile " FUEL i
a j 23 AD.111STMEl:T" PROVISION ON PACE 6 0F EX11IBIT (OFR-9).
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,a 24 A I have included the cost of nuclear fuel in the calculation of the fuel l 25 adjustment. I am mindful of the fact that the Federal Power Cocuission A
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I does not normally incorporate the cost of nuclear fu.cl into a fuel ad-2 justment provision but rather adopts a method whereby the charge or 3
'_ credit independently determined is factored down in the event nucicar
.4 4 generation is present. In this case, however, Florida Power appears to 5 be headed toward large amounts of nuclear generation and to ignore the d
6 cost of nuclear fuel in such a situation renders a fuel adjustment clause 7 rather meaning 1 css. A second change is in the ratio to be multiplied by
.4 8 the charge or credit determined by the average cost of fuel. It was 9 necessary to add nucicar generation to the numerator in keeping with the 10 change indicated above. Additionally, purchased power and net interchange j 11 in was added to the denominator to prevent charges being passed on to i
12 the uholesale customer for an increase in Florida Power's cost of fuc1 a
13 when, in fact, the energy might be derived fro:a sources other than y 14 Florida Power generation.
. 15 In my opinion automatic adjustment clauses should be placed into a 16 rate schedule only in situations in which compelling reasons demand their I
17 insertion. It should be noted that a fuel adjusunent clause has not 18 heretofore been applicable to the municipal customers and, in my opinion, 4
,e 19 Florida Power has not indicated that fluctuations in the cost of fuel are 20 an accurate barometer of the need for revenue, which is to say that I I
j 21 find no compelling reason to indicate the need for a fuel clause. It 22 would seem that a very compelling justification would be required especi-23 ally in vicu of the constraints presently placed on prices under the Econ-24 omic Stabilization Act of 1970.
]
25 It is also important to note that the use of such an escalator clause V :. _ - _ _ _ . _ _ _ _ _ _ _ _
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1 removes direct incentive for a company to obtain a lower cost of fuel.
j 2 Part of the significance of this can be seen upon examination of the util-3 ization of the various fuels by the electric pouer industry. Thu clectric a 4 utilities, for exampic, consume over half of all coal utilized in this i
! 5 country and therefore vield a tremendous influence in this market. It is 6 realized that Florida Power has littic or no plans to utilize coal in 7 the future but the figures applicabic to other fuels are equ11y impressive.
Of the residual fuel oil utL11:cd in the State of Florida in 1969 some 1
S
, 9 80.8% vas for electric pouer generation. The 1970 figure uns 79%. In 10 Florida during 1969 and 1970, 59% to 607, of the gas consumed was utilized J , ,
I 11 for the generation of electricity. For coal s taking the States of Georgia 12 and Florida together, 94% to 95% of all coal consumed during 1969 and 1970 J
a 13 was for the generation of c1cetricity. These figures alone indicate the-
, Q 14 serious thought that should be 1;iven to an escalator clause which would 15 allow Florida Power to recover all of its increased costs associated-vith j
16 fuel. In the event it is determined that compelling reasons are suf ficiently 17 present to justify a fuel adjustment clause, serious thought should bc 4 s
! 18 given, in my opinion, to allouing Florida Power to recover something less
, 19 than 100% o.f any increase so that direct incentive would be Icf t for i
20 riorida Power to keep the cost of fuel at the lowest possible icyc1 in a 21 market in uhich Florida Power, together with other electric utilities, l 22 wield such influence via purchases of the prc'ponderance of total fuel a
23 consumed.
24 In Paragraph IV "Denands to be Ilsed for Billinn" on Page 7, I have
'25 changed subparagraph (1) in two respects. 1hc first change is to provide
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i 1 that adjustr.cnts vill be rnade in the demands in the event of switching
,V
] 2 of load to preclude the duplication of demand for billing purposes. This 4 3 is simply to prevent a customer from being charged more than once for the I# 4 sam'c demand. 'Ihis is standard practice in the industry and practico 5 uhich riorida Pouer follows, in my opinion, at the present time. In i 6 order to make this cicar ar1 avoid misundcratanding, it should always be 7 covered in a rate schedule. A second change in the same subparagraph jJ
! 8 references " partial requirements" from any other supplier rather than
, 9 limiting it to Southeastern Power Administration as discussed previously.
l 10 The last change in the Rate Schedule in Paragraph VI " General Terns _
.2 - .
, 11 and Conditions _" on page 7, deletes the phrase "providing for amendments 12 in the tariff from time to time" which I will discuss later in say testi~-
l 13 mony.
,g 14 Q INDICATE 'IllE Cllld:GES YOU MADE IN Tile "GENEPAI. TERMS AND CONDITIOI S" 15 BEGIENIEG ON PAGE 9 0F EXHIBIT (OFR-9) /d:D EXPIAIU YOUR REASONS 16 TIIEREF02.
l 17 A In "ARTICT.E 1. 0%TCATIONS OF COMPA!:Y AUD CUSTOMER", in the first sen-2 18 tence I included a reference to Rate Schedule U-l as prepared by Mr. Bathen.
- , 19 I deleted the second sentence of this Article proposed by Florida Power 1
20 which read " Acceptance of such service by the customer binds the customer 21 to all provisions of this tariff, including those regarding payment, as ;
j 22 they may be in effect from time to time." A1'though perhaps unintended, j 23 If strictly interpreted under certain circumstances, this is the most l
), 24 unreasonabic provision I have ever seen in a tariff. The implication is l 25 that a customer, by Florida Power's unilateral filing of this tariff, is l l
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l 1 bound to Flerida Power for a minimum term extending to December 31, 1976, i V
,~ 2 if that custoact is unabic to find an alternative source of supply uithin l
3 the very short time before the tariff becomes applicabic. Under the p
!, 4 strictest interpretation, this could mean that a customer, for example, 1
5 ubich had been planning and investing for yearc to go to an alternative j
6 source, vould nonetheless be bound to Florida Power threuch 1976 in the l 7 cycnt the customer could not avail itself of the alternative source in
- 4 8 the short time availabic prior to the tariff going into effect. Addition- .
l 9 ally, this provision obligates the wholesnic custoaters to Florida Power 10 for approxinately five years, regardless of better niternative sources
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' 11 uhich night be availabic during that term, in a tariff which carefully !
12 reserves Florida Pouer's right to seek changes at any time. It is dif-
. 13 ficul t , if not impossibic, to conceive of a more dictatorial provision
,s g 14 in a tariff.
15 A change was made in the last sentence of ARTICLE 1. to make it cicar i
- 16 that the " obligations" under consideration by the Federal Power Conntission
- 17 discussed in the Article are limited to this proceeding rather than also i
i 18 including future proceedings.
19 A change uas made in " ARTICLE 2. TERMIIIATION OF SERVICE" on Page 9,
, o l 20 by inserting the phrase ". . . at any point of delivery. . .
" to provide
. 21 for the. termination of service at a specified delivery point without the I
22 necessity of termination of all service being rendered by Floria Power l' 23 'which might include service to multipic delivery points.
i l 24 'iha provision " ARTICLE 3. CilA!!CES IN TARIFF" appearing on Original A
25 Shcot !!o. 9 of Florida Power's tariff was climinated. This section provided i
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, _ . - . . - .~. .-_s ~ , . ,.m . __ . _ . - . _ __ m__, ._. __ y _ , 7 , , ,
4 1 for untiateral changes in the tariff by Florida Power at any time and J
2 vill be discussed later in my testimony regarding the term provisions.
3 In "ARTICLC 5. ACCESS FOR COMpAL'Y EMPLOYI:I;S" appearing on Page 11, i 4 the word " sole" van deleted which uas used by Florida Power to modify its 5 "negligenec". *lhis change was made on advice of counsel.
6 In "ARTICT.E 6. USE OF SERVICE" on Page 11, changes were made simply 7 to make it bilateral no that it would apply to Florida Power as well as J
8 the uholesale customers. There ucre no changes of substance in this pro-
, 9 vision.
10 In "ARTICT.E 7. PAYlTMT OF BTT,T.S" on Page 11, a phrase was added at 11 the end, on advice of counsel, which would prevent discontinuance of scr-12 vice bylrlorida Power for breach of the contract by a customer to the ex-13 tent that a bona fide dispute exists.
- ) 14 "ARTICI E 8. COhTINtiTTY' OF SERVICE" on Page 12, was changed to insert
- 15 the phrase at the beginning which reads "The Company shall exercise duc 16 care and diligence to supply electric service hereunder; provided,. .
17 however, . . ." and upon advice of counsel to delete tie words "uillful 18 default or gross" modifying " negligence" on the part of Florida Power.
19 In addition a phrase uas added in the curtailment language at the end of 20 this Article to provide that curtailment of service to the wholesale cus-21 tomers would be no more interruptive than applied to the service of Florida 22 Pouer's retail service in like circumstances! This latter change main-23 tains the recognition of the possibic needs for Florida Power to curtail 24 but simply provides that identical standards vill be used in curtailing 25 service to the uholesale customers as that applied to service to Florida 1
3
.B 1 Power's retail customers.
2 On advice of counsel, "/dtTICLE 9. 1. TAP.T LTTY", was changed.
3 Q DOES TilAT CO:tPILTE Ti!E Cl!A';CES IN TitC CENERAL TElmS A!:D CONDITIONS?
, 4 A yes.
5 Q EXPIAIN TE CHANCES YOU IMDF. IN Tile " SERVICE AGREEMENT".
6 A Substant t al changes were made in Paragraph 1. "Mcope of Service Ar*rcement_"
7 appearing on Page 13 of Exhibit (OFR-9), from that filed by Florida J
S Power beginning on Original Sheet No. 15. riorida Power provided only
, 9 that the attached Rate Schedule and General Toms and Conditions vould 10 apply, both subject to change, and that the delivery points vould be J - ,.
11 listed on nxhibit C. No provision was made indicating Florida Power's 12 obligation to supply pouer except for the lini.ted amounts listed on J
13 Exhibit C, which would not assure the wholesale customers of a firm power
, id 14 supply even at existing delivery points. Florida Pouer saade no provision 15 in this section for new delivery points uhich may be required by the whole-16 sale customers. I have provided that Florida Power is obligated to supply 17 and the customer is obligated to receive all of the power requirements in 18 cxcess of that amount of partial requirements, if any, that raay be avail-19 able from some other source. In addition, I have provided that new delivery 20 points niay be obtained by the wholesale customers from Florida Power's 21 system operating at 69 KV or higher or from locations on Florida Power's 22 system operating at less than 69 KV if adequa'te capacity is available to a
23 meet the customer's estimated load for the first five years. It should 24 be noted that this makes it incumbent upon the wholesale customers to build 25 to the system of Florida Power operating at 69 KV or higher in the event V ..a _ _ .
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d g 1 adequate capacity is not availabic at a lesser voltage on Florida Pover's 2 system. In the event adequate capacity is availabic at a lesser voltage, 3 it is still incumbent upon t.he wholesale customers to build to such point
> 4 on the system of Florida Pover. This is a departure from the existirs 5 arrangement in which Florida Power has historically extended its facilities 6 in nost instances t o supply power to the uholesale customers. This will 7 roost certainly bring abeut a shi.f t in the cost incurred by Florida Pouer 4
8 in the future in providing neu delivery points for the wholesale customers
, 9 versus that cost assumed by the wholesale customers. The assumption of 10 this responsibility by the uholesale customers eliminates the need for 7 .
11 some arbitrary ceiling on Florida Power's obligation to supply power and 12 provides a neans through whic'1 neu delivery points can be obt.ainad con-1 13 sidering the interest of both parties. Again it should be emphasized that 1
, V 14 Plorida Power has historically extended service to t.hc wholesale customcrs.
15 It is also important to note that the cooperative customers have had no 16 arbitrary ceiling placed on Florida Power's obligation to provide service.
17 In Paragraph 2 " Term of Service" on Page 14, of Exhibit (OFR-9),
18 I provided that the Service Agreement shall remain in offect at any 19 delivery point until terminated by either party, by giving at least two 20 years' uritten notice of termination. This is opposed to Florida Power's 21 provision on Original Sheet 1;o. 16 which provides for two years ' notice 22 but uith a minimun tem through December 31,'1976. This change was made 23 consistent uith the chaines I have made in other portions of the tariff 24 climinating Florida Power's unilateral right to file for changes in the 25 Rates, Terms and Conditions at any time. It is difficult to conceive of no
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l" 1 an " agreement" which does not, in fact, constitute agreement by both W
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2 parties. Florida Power should not seek to obligate the uholesale cus-i
! 3 tomers until December 31, 1976 without a corresponding obligation by Flor-j3 4 ida Power to maintain rates, terms and conditions fixed over a similar j
5 period.
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6 Q MR. ROCERS, UllY DID YOU SE1ICT 'n10 YEAllS AS Tile PERIOD REQUIRED FOR
) 7 NOTICE OF TEPJ1UL1 TION?
lJ i 8 A It is apparent fron Florida Pover's filing that the Company strongly 9 fccis i t can not establish firm rates for the five year term.- 1his is i
i 10 cvidenced by the nany references to Florida Power's right to unilaterally J , - .
11 file for an increase. This, of cours'), recans some lesser period would 12 be considered appropriate by Florida Power. On the other hand, it is i 1 13 important to the uholesale customers that they have assurance over sone i
l,y 14 reasonabic period of time, during which they can rely on the rates, terms
. 15 and conditions. The uholesale custom rs must also design systems, make {
l 16 long range plans and design rates in serving their retail customers.
17 Florida Power provided a termination provision, after the initial term, a
i 18 with two years' notico. For these reasons, I conclude that two years
- 19 is a reasonabic term during uhich the parties could rely on the provisions t .o l
i
- 20 of the rate and tariff as filed and uhich would not extend to a long range j 21 arrangennut which would work a hardship on eith er of the parties in the I
22 cvent the need for changes is indicated at some future date. The most i' 23 important consideration is that it is unthinkabic that the whoicsale l 24 customers should be bound for any period of time beyond which Florida ia l
25 Power is unwilling to establish firm rates, terms and conditions upon l
i
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-,-------,,-=----,,--------,----e , --. ar -, ,,me - , - - - - , - - - , , - - - - - - ~ - , ----
e s
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g 1 whkchthewholesalecustomerscanrely.
2 Q DOES THAT CO:!PLETE YOUR CHA!;GES Ill Tile SERVICE AGREE!!EliT?
3 A Yes, except for ninor changes in Exhibits C and D which are supplements to r
d 4/ /
the service agreement, one for each delivery point, shown on Pages 16
/
5 and 17 of Exhibit Da these supplements, 1 deleted reference (OFR-9).
6 to '*nininami contract demands" for reasons aircady explained. I also 7 re ference in Iten 7 " partial requirements" regardless of source rather than 1initing it to partial requirements from the Southeastern Power 9 Administration for reasons already explaincd. It might be noted that 10 Exhibit D is in additica to the tariff filed by Florida Pouer which in-11 cludes only Exhibit C. Exhibit D visualizes situations in which agreement 12 might be reached between a uholesale customer and Plorida Power and in 13 that agreer. ant the parties are abic to agree upon a delivery point which
'g./ 14 vill be established at some future date. In this event, I believe it
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15 important to provide for the possibility of such a situation and this 16 is ny reason for including an Exhibit D.
17 18 1 ')
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22 23
, 24 25 8.,)
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