ML19322C498
| ML19322C498 | |
| Person / Time | |
|---|---|
| Site: | Diablo Canyon, Crane  |
| Issue date: | 06/06/1979 |
| From: | Gallavan W PACIFIC GAS & ELECTRIC CO. |
| To: | |
| References | |
| TASK-TF, TASK-TMR NUDOCS 8001170826 | |
| Download: ML19322C498 (32) | |
Text
_ _ _ _
Applicction No.
Exhibit No. -
Date O
Witness..
i PACIFIC GAS AND ELECTRIC COMPANY i
ELECTRIC DEPARTMENT PREPARED TESTIMONY AND SUPPORTING DATA O
l l
1 WILLIAM M. GALLAVAN i
i I
l i
4 ae m 8001 no gy 7
gV 1
PREPARED TESTIMONY OF 2
WILLIAM M. GALLAVAN h
3 I
4 5
6 7
Q.
Please state your name and business address.
8 A.
My name is William M. Gallavan.
My business address 9
is 77 Beale Street, San Francisco, California 94106.
10 Q.
What is your position with PGandE?
11 A.
I am Vice President - Retes and Valuation.
12 Q.
What is your background?
(~'\\
13 A.
After serving in the United States Air Force, I O
14 received an A.B.
degree in Accounting from the 15 University of California.
From 1949 to 1954, I was 16 employed by Coast Counties Gas and Electric Company in 17 the Accounting Department, and, after the merger with-18 Pacific Gas and Electric Company in July 1954, I was 19 transferred to the Comptroller's Department as an 4
20 accountant.
During the next decade, I was a senior 21 rate engineer and a senior commercial analyst.
I 22 became Manager of the Rate Department in July 1968 and 23 was appointed Vice President Rates and Valuation on 24 March 1, 1975.
-25 Q.
Mr. Gallavan, will you please explain what PGandE
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26 is requesting in this proceeding?
a
1 A.
We are requesting two things in this proceeding.
2 First, the establishment of a Diablo Canyon adjustment 3
procedure to adjust PGandE's base rates upwards to 4
compensate for the cost of ownership and operation of 5
Diablo Canyon Nuclear Units 1 and 2.
These are an 6
extremely large increment of rate base that otherwise 7
would not be recognized for rate making purposes until 8
a 1982 test year general rate case.
It is estimated 9
that Unit No. I will result in an increase in PGandE's 10 electric rate base of approximately 21 percent and 11 that addition of Unit No. 2 will increase the rate 12 base by approximately 16 percent.
13 To assure equitable treatment both for our 14 customers and for PGandE, we request that a balancing 15 account be established under section 792.5 of the 16 Public Utilities Code in order to reflect the balance, 17 whether positive or negative, between the actual costs 18 that develop and revenues from the Diablo Canyon 19 adjustment rate.
20
- Secondly, in the accompanying Energy Cost
/
21 Adjustment Clause (ECAC) application, we are proposing rate decrease to reflect the estimated reduction in 22 a
23 the Company's fuel costs after operation of the Diablo 24 Canyon units when the lower cost nuclear fuel replaces 25 higher cost fossil fueled electric generation.
The 26 Commission has properly included the mechanism for J
O' 1
reflecting nuclear fuel costs in the ECAC and this 2
reduction eventually will be passed on to PGandE's 3
customers.
In this proceeding, we are requesting the 4
Commission to authorize PGandE to make this reduction 4
5 in ECAC rates when Diablo becomes commercially 6
operative rather than waiting until the reduced fuel 7
costs are reflected in historical data as normally 8
occure under the ECAC procedure.
The rate change is 9
to be concurrent with the proposed base rate increase.
10 Q.
Describe the balancing account proposed by PGandE 11 and the entries to be made to this account.
12 A.
The balancing account and the entries to be made p
13 to the account are described in appendix 1.
b 14 Q.
What in the cost of the two units?
15 A.
The estimated cost of Unit No. 1 is approximately 16
$907 million of which approximately $309 million is 17 AFUDC and the estimated cost to complete Unit No. 2 is 18
$736 million with an AFUDC cost of $241 million.
19 These costs together with certain other 20 adjustments--the cost of nuclear fuel in the reactor 21 and the adjustment for investment tax credit--result 22 in the rate base figures shown in the Results of 23 Operations, appendix 2 of this exhibit, amounting to 24 approximately S910,000,000 for Unit 1 and $723,000,000 25 for Unit 2.
The annualized revenue requirements for
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26 Units 1 and 2, which are also shown in the Results of 1
Operations and which I will dtscuss in more detail, 2
are S167,438,000 and $131,622,000, tespectively.
3 It is estimated that the cost for nuclear fuel for 4
these units based on current dollars will be slightly 5
greater than 6 mills per kwbr as compared to 6
approximately 33 mills per kwhr for fossil fuel at 7
current prices of about $21.50 per batrel foi firm 8
supplies of this magnitude.
This is a sizable 9
reduction in the Company's energy costs.
For exauple, 10 the net reduction with Unit No. 1 operating at 65%
11 capacity factor would be about S169 milIton per year 12 with oil at $21.50 per barrel.
13 Q.
What will be the net e f fect of these two rate 14 adjustments on PGandE's current customers?
15 A.
The overall effect on current customers will be 16 nil.
While there will be some small di f ference 17 between the costs considered in the rate base offset 18 and the corresponding reduction in fuel costs, we 19 propose, in the interest of rate stabilization, to 20 make the ECAC reduction identical with the Diablo 21 Canyon adjustment.
22 Q.
How much do you expect this di f ference to be?
23 A.
If we assume a price for nuclear fuel of 6.2 mills 24 per kwh, a cost of fuel oil of $21.50 a barrel, 25 operation at 65% capacity factor and costs as 26 developed in the Results of Operations exhibit, we I
find that the resulting impact on ECAC as shown in 2
appendix 4 would be 2.752 mills per kwh and the Diablo 3
Canyon adjustment offset would be 2.743 mills per kwh.
4 (Appen. 5 of this exhibit.)
If we assume 70 percent 5
capacity factor operation, the adjustment to the ECAC 6
would average 2.97 mills per kwh, but the adjustment 7
to reflect the Diablo Canyon results would remain at 8
2.743 mills per kwh.
9 Q.
Isn't it true that there may also be a difference 10 between the expenses incurred in owning and operating 11 the plant and the amount collected under the Diablo 12 Canyon adjustment?
13 A.
It is almost certain that there will be a 14 di f ference.
We expect to place this difference in the 15 balancing account and to adjust rates up or down to 16 eliminate it.
17 Q.
Why is PGandE asking for this particular rate 18 making treatment?
i 19 A.
In Application No. 55509, PGandE requested an l-20 allowance for construction work in progress (CWIP) in 21 rate base.
i 22 The Commission did not include CWIP in rate base.
l 23 It stated, however, in Decision No. 86281 at page 49, 24 "We recognize that timely inclusion in rate base of 25 signi ficant additions to' plant is a subject that is b.
26 not well suited to current rate making procedures.
J 5-
1 Accordingly, we propose to consider the addtLion of 2
Diablo Canyon in conjunction with an ECAC proceeding 3
at the proper time."
Because of the Commission's 4
desire to handle Diablo Canyon in a separate pro-6 5
ceeding, and because of the need for rate relief that 6
will arise th the completion of the Diablo units, we 7
have filed this application.
The costs of owning and 8
operating the Diablo untts were not included in out 9
1978 or 1980 test year general rate cases.
10 When Diablo becomes oper ative, our customers will 11 benefit through the operation of ECAC and its 12 balancing account from the significant decrease in 13 fuel costs that will occur.
IL is only equitable that O
14 our customers pay the costs of owning and operating 15 the facility that creates the bene fi t.
As the 16 Commission recognized in Decision No. 86281, it is 17 necessary to consider both sides of the equation 18 together if both the ratepayer and the Company are to 19 be treated fairly.
20 Q.
When do you propose to place this procedure into 21 e f fect?
22 A.
We request that the adjustment procedure and 23 balancing account be authorized at the earliest 24 Possible time to be e f fective on the date of 25 commercial operation.
This will allow PGandE to 26 accrue costs in the balancing account in the event s
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1 that commercial operation occurs be fore a rate 2
adjustment can be made.
The Company will file advice 3
letters to implement the changes in rates under the 4
Diablo Canyon adjustment balancing account and the 5
ECAC and will make such rate changes offsetting and 6
concurrent.
Under the existing ECAC balancing 7
- account, the reductions in fuel costs will 8
automatically start being recorded when the Diablo 9
units become operative and high cost fossil fuel 10 generation is displaced.
It is important that there 11 be a comparable balancing account to accrue the costs 12 of owning and operating Diablo when it becomes q
13 operative and stops accruing AFUDC.
14 Q.
Will you please explain the significance of the 15 term " commercial operating date"?
16 A.
Yes.
All new generating units produce some amount 17 of electric energy during testing and adjustment prior 18 to the beginning of commercial operation.
For 19 instance, in hydroelectric units this generation may-20 take place while reservoirs are being filled and in 21 thermal plants while preliminary tests are being run.
22 Diablo Canyon will be no different.
After tests are 23 satisfactorily completed, the units will be declared 24 ready for commercial operation.
25 At that time,-the unit or units will pass from the bi 26 Construction Work ~in Progress (CWIP) accounts into the G
- I
1 plant accounts and into the rate base.
We wiii begin 2
to accrue depreciation on the units and we ul;l discontinue the accrual of AFUDC.
3 4
It is important to recognize that at. the preuerit 5
time AFUDC for the two uni t.s is adding approximately 6
$10 million per month to the total cost of the plant 7
and eventually to the rate base which muut. be 8
Jecovered from PGandE's customers.
9 Q.
How do you propose to account for generatton and 10 power production that. would occur before the 11 c'ommercial operating date?
12 A.
There are at least two ways that this can be 13 handled.
First, since this power is produced during 14 Lest periods without a specific value t.o capacity 15 requirements, its value is the value of replaced 16 fossil fuel.
The di f ference in the cost of nuclear 17 fuel and replaced fossil fuel in total amount is 18 sometimes credited to the plant investment for the 19 station resulting in a slight reduction in plant cost 20 and resulting rate base.
Another way that it may be 21 handled is to include nuclear fuel costs in the ECAC 22 which results in a reduction in fuel costs and rates 23 to current customers.
It is estimated that each unit 24 will produce about 660,000,000 kwh during testing; 25 this would have a net replacement fuel value of about 26
$18,000,000 per unit with nuclear fuel costs of
,i-1 6 mills per kwh and fossil fuel costs of $21.50 per 2
bbl.
This is the amount that would flow through to 3
current customers.
4 Q.
Has the number of dollars included in the total 5
cost for AFUDC increased over initial estimates?
6 A.
Yes For example, it has increaced from the 7
original estimate of approximately $17.5 million in 8
1966 for Unit No. 1 to approximately $309 million in 9
1980 for that unit.
A number of factors are 10 responsible for this increase.
First, there is the 11 extremely long construction period which is in excess 12 of 10 years.
Secondly, regulatory requirements have 13 led to changes in design which have resulted in 14 increases in construction costs in general and, third, 15 there has been an increase in the AFUDC rate itself.
16 When the original plant estimates were prepared for 17 Unit No.
1, the AFUDC rate was approximately 18 5 percent.
This rate has increased, due in part to 19 inflation, to the present rate of 8 percent.
Of 20 course, application of the current AFUDC rate to the 21 large expenditure to date is resulting in a continual 22 increase in cost.
23 Q.
In the application for a certificate of public 24 convenience and necessity for Unit 1 filed with this 25 Commission, PGandE indicated that the unit would be 26 required to meet the load in 19.72 and that Unit No. 2
1 would be required at a
somewhat later date.
2 Obviously, the plant was not completed on those dates, 3
but PGandE was able to meet its load.
Will you please 4
explain this apparent incongruity.
5 A.
There are several reasons.
First, load did not 6
develop as expected.
Implicit in any statement of 7
need for new generation are forecasts of future loads 8
and forecasts of resources that will be available to 9
meet those loads.
The longer the period between the 10 forecasted need for new generation and the date of 11 commercial operation, the more conditions change.
A 12 forecast of tomorrow's loads and resources is a more 13 accurate forecast than the furecast of next month's or 14 the next decade's loads and resources.
With the 15 extremely long time span involved in the certification 16 and licensing process, the design process, and the 17 construction process for today's major units, there is 18 greater opportunity for changes which could not have 19 been anticipated when the original forecast was made.
20 With the advantage of hindsight, it is obvious that 21 forecasts made in 1967-68 did not reflect the energy 22 crisis that would occur and the conservation efforts 23 that would be required and encouraged during this 24 period or drought conditions that would evolve in the 25 latter part of this period.
The forecast in the 26 1967-68 period estimated an increase in load of about
-O O
1 7 percent annually.
Recorded increases have been 2
considerably less than this amount.
In fact, there 3
was a decline in peak demand in 1977 below recorded 4
demand in 1976.
Hence, we met the load in part by the 4
5 fact that the load did not develop as expected.
6 During the early stages of construction of the 7
Diablo Units, the Company operated with a net margin 8
or an excess of resources over demand at the time of
-9 the annual peak, in the 20 percent range.
By 1972 the 10 margin had dropped to about 14%, and by 1976 the 11 margin had been reduced even further.
In the peak 12
- periods, PGandE has had to make purchases of 13 short-term capacity in oider to maintain margin.
D 14 Hence, we have in some measure met the load by seeing _
15 margins reduced much below what is generally 16 considered good operating procedure.
The Federal 17 Energy Regulatory Commission regards a 20% margin as 18 reasonable for systems that are predominantly thermal 19 and a somewhat lesser percentage as reasonable for
=
20 systems that combine hydroelectric generation with 21 thermal.
22 we have also been able to make purchases of 23 capacity and energy in some cases when maintenance may 24 be safely postponed and to time major maintenance 25 projects so they do not coincide with periods of peak
{v.,
26 demand.
And, last, during the past year and perhaps __
1 during this year, we hive been blessed wit.h large 2
amounts of hydroelectricity at PGandE-owned hydro-3 electric plants.
4 Q.
Will you please explain how the Results of 5
Operations tables were prepared?
6 A.
The Results of Operations tables, appendix 2, have 7
as their basis the 1978 test year results of 8
operations tabulation that appears in Decision No.
9 89316 (Application No.
57284), which is the most 10 recent adopted for FGandE by the Commission.
This 11 tabulation shows, for the Electric Department, at 12 rates authorized in that decision, the operating 13 revenues, operating expenses (except fuel), rate base 14 and rate of return for CPUC jurisdictional sales.
15 The operating and ownership expenses and the rate 16 base have been estimated for each of the two Diablo 17 Canyon units, for the first 12 months of commercial 18 operation and these amounts combined with the amounts 19 from Decision No. 89316.
The sum of these estimated 20 expenses, including income taxes and return, comprise 21 the revenue requirement which is shown as operating 22 revenue for the individual Diablo units.
This is the 23 amount which when divided by the appropriate sales 24 estimate produces the Diablo Canyon adjustment amount.
25
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26
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' \\' l Column ( A) of the Results of Operations tabulation 1
2 sets forth the total rate base, expenses and revenue 3
requirement associated with Diablo Canyon Unit No. 1 4
and column (B) contains similar material for Unit
+
5 No. 2.
Column (C) is taken from Decision No. 89316, 6
Table II-A, and shows rate base, expenses and revenue 7
requirements applying to CPUC Jurisdictional Sales for 8
the test year 1978.
Column (D) is the allocation of 9
the cost items for Unit No. 1 to CPUC Jurisdictional J
10 Sales and column (E) is similar material for Unit 11 No. 2.
Expenses and rate base have been allocated at 12 93 percent of the total.
The use of the 93 percent (g
13 figure is supported by the tabulation attached as 14 appendix 3.
The CPUC jurisdictional costs are 15 combined in column (F).
16 Columns (G), (H), and (J) show the offsetting 17 effect of the pro;osed ECAC filing which will be equal 18 to the rate base adjustment.
The principle of rate 19 stabilization is demonstrated by the fact that in 20 spite of increases in rate base and expenses the 21 operating revenue (revenue requirement) in column (J) 22 after.the Diablo Canyon additions is the same as the 23 requirement shown in column (C) before the additions.
24 These tables develop this material for initial 25 commercial-operating dates for-Unit No. 1 of
[
26 December 1, 1979, and February 1, 1980.
In adaition,
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1 we have included similar material based on the 2
estimates used in Application No. 58545 for the 1980 3
test year (pp. 3 and 4 of appen. 2), and have also 4
included this table as an exhibit in the ECAC filing.
5 Q.
Why were the results of operations from the 1978 6
test year used?
7 A.
It was not necessary to use any test year results 8
of operation--the computations for the individual 9
units stand alone and are developed alone.
They were 10 combined with an authorized test year without changing 11 the overall rate of return to show the effect of the 12 Diablo units on PGandE's results of operations as most 13 recently adopted by the commission and to show that 14 the adjustments do not increase PGandE's rate of 15 return but only offset the costs related to the Diablo 16 units.
17 To emphasize this point we included as part of the 18 Results of Operations tabulation a similar table 19 showing PGandE's estimated test year 1980 results of 20 operations from general rate Application No. 58545 at 21 present rates.
22 Q.
What do you mean when you refer to the cost of 23 ownership and operation of the Diablo Canyon units?
.24 A.
If you will re fer to appendix 2, you will 25 understand what I mean.
26
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1 Consider Unit No.
1.
We estimate that the 2
investment in Unit No.
1, for example, will be 3
approximately $907 million, and the effect on rate 4
base will be about $910 million.
PGandE must pay 5
interest on the bonds and a return on the stock sold 6
to raise this money.
As with any other investment by
.7 a utility this cost must be recovered from the 8
customers.
This is the principal cost of ownership.
9 The other costs are set forth in the Results of 10 Operations.
11 Q.
Please continue with your discussion of the 12 Results of Operations.
/N 13 A.
After the total cost of each of the items had been
(
)
14 developed, the expenses and rate base were allocated 15 to CPUC-jurisdictional sales on approximately the same 16 basis as in Application No. 58545.
17 In developing the revenue requirements which 18 appear in the Results of Operations tables as 19 operating revenue for each of the two units, we have 20 used a rate of return of 9.5 percent for the 21 California jurisdictional sales, which is the rate of
'22 return most recently found. reasonable by the J
-23 Commission for PGandE.
-24 The rate base. for each of the units has been 25 developed applying Commission authorized methods using m) 26 weighted average plant reduced by the depreciation L-f
1 reserve and the accumulated deferred investment tax 2
credit.
This is in accordance with regular accounting 3
practice.
Expenses have been estimated using 4
Commission authorized methods and all costs have been 5
estimated on an annual basis beginning with the date 6
of commercial operation.
7 Q.
What would be the company's position i f, while 8
this procedure were in effect, PGandE should be 9
granted an increase in its rate of return?
10 A.
Under the proposed tariff, the return and income 11 tax component would increase in amount and at the time 12 of the next revision the Diablo Canyon adjustment rate 13 would increase.
Such changes can be readily handled 14 in the balancing account procedure.
15 Q.
How have you accounted for nuclear fuel expense?
16 A.
The nuclear fuel for the first core for each of 17 the two units has been delivered to the site and is lE presently accounted for as a part of CWIP.
Hence, its 19 cost is being increased periodically by AFUDC and at 20 the date of commercial operation the accumulated 21 amount will be included in the proper rate base 22 account.
The expensing of nuclear fuel cost under 23 present regulations is made up of two components:
24 first, write-off of the cost of the acquisition and 25 fabrication of the fuel, and, second, the estimated 26 disposal of the material af ter it has been used f(.
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the production of electric energy that is similar in 1
2 accounting and rate making treatment to the combined 3
expensing of depreciation and cost of removal for 4
other rate base items where disposal costs are high 5
and salvage low.
6 We estimate that the first core for Unit 1 for 7
these two categories of expense will total $110 8
million and that the first core will produce 9
approximately 17.7 billion kwhrs.
This produces an 10 average unit cost for fuel based on acquisition cost 11 plus disposal cost of 6.2 mills per kwhr.
12 The estimated monthly production at 65 percent
,r 13 capacity factor is 531,804,000 kwh and when multiplied
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14 by this 6.2 mill figure produces a monthly fuel 15 expense of $3,298,279.
This monthly cost has been 16 deducted from the rate base amount for the cost of 17 acquisition of the fuel and the resulting monthly 18 balances averaged to produce the proper weighted rate 19 base figure.
The result of this is to collect from 20 the customer the cost of acquiring the fuel and the 21 estimated cost of disposal while at the same time i
22 reducing the rate base upon which the Company will 23 earn by crediting the amount of disposal costs 24 collected.
l L25 Q.
How have you estimated disposal costs in this f) 26 filing?
l V --
1 A.
At the present time, the United States government 2
has assumed responsibility for spent fuel disposal but 3
the site and the procedure to be used have not yet 4
been determined.
The estimated cost of disposal used 5
in this study includes the cost of storing the spent 6
fuel at the site for a period of approximately five 7
years, shipment to its ultimatm storage facility and a 8
one-time payment to the United States for permanent 9
disposal.
Disposal costs are estimated to amount to 10 approximately 40 percent of the total coat of fuel.
11 Q.
There has been discussion of decommissioning costs 12 in other cases involving reactors.
Will you please 13 explain how these costs have been treated in this 14 application.
15 A.
PGandE has authorized Nuclear Utilities Service 16 Corp. (NUS), a recognized authority in the field, to 17 prepare a site specific study of the estimated cost of 18 decommissioning the Diablo Canyon units.
This study 19 is underway but had not been completed at the time 20 this filing was made.
21 NUS advised PGandE by letter dated February 5, 22 1979, that their preliminary work indicates a site 23 specific study for Diablo Unit 1 will result in an b
estimated decommissioning cost, based on 1979 dollars, 3
in the upper part of the range between $70 and $100 26 million.
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1 While these - amounts are.large when viewed as a
~2 separate item, they are relatively small when viewed 3
in. the. perspective of a component of the customers 4
rate.
Said another way, the decommissioning costs
'S amount to.05 cents per kwh in the total rate.
6 In this filing, we have treated decommissioning 7
costs ini the conventional' net salvage manner and have 8
arrived at an estimated cost in 1979 dollars of 9
slightly more than $105 million for Unit 1 and 10 slightly less than $88 million for Unit 2.
These 11 figures will be revised upon completion of the NUS 12 study and the differences will be adjusted for in the p
13 balancing account.
5'"
14 Q.
How often do you propose to make balancing adjust-15 ments?
'16 A.
We propose to make the first adjustment one year 17 after Unit No. I begins commercial operation and to 18 make annual adjustments until the units are included 19 in a general case.
20 Q.
Then your first adjustment might include a part of 21 a year for Unit No. 2?
22 A.
Yes.
23 Q.
Are you asking that this adjustment be made a 24 permanent part of PGandE's tariff?
l
'25
.A.
No, we are not.
We are asking that it remain in (m}
26 effect until the Diablo Canyon units are included in a v - -
1 general rate proceeding.
It is possible that. this 2
could be the case for the 1982 test year.
However, as 3
the estimated beginning of commercial operation moves 4
farther along, it seems likely that we will not have 9
5 one year's experience at the time that case must be 6
prepared.
Should this prove to be true, we would 7
recommend further use of the procedure.
We would 8
expect at that time to demonstrate alternate means of 9
incorporating the balancing account into base rates.
10 Q.
Please explain the procedure to be followed if the 11 dates of commercial operation are different from the 12 dates used in this filing.
13 A.
For illustrative purposes we have prepared this 14 filing using as an example the date December 1,
- 1979, 15 for the commercial operating date of Unit No. 1 and 16 Unit No. 2 fol3owing eight months later on August 1, 17 1980.
To indicate the effect of time on costs we han 18 also prepared the same data assuming a commercial 19 operating date for Unit No. 1 of February 1, 1980, and 20 for Unit No. 2 of October 1, 1980.
We are asking for 21 a procedure that includes a balancing account that 22 would permit adjustment of rates to correct for any 23 under-collections or over-collections under the Diablo 24 Canyon adjustment and the ECAC.
The estimated costs 25 used in the application are just that--estimated 26 costs.
The final adjustment will be based on recorded h
iL')
1 figures, hence undue emphasis should not be placed on 2
estimating ~ the time of beginning.
If Diablo Canyon 3
Unit No. 1 is commercially operative before 4'
December 1, 1979, the adjustment rate estimated at 2.7 5
mills per kwh could be reduced to reflect the lower 6
rate base just as the rate could be increased if Unit 7
No. 1 is not commercially operative until after 8
December, 1979.
However in the final analysis, the 9
ac tu a '. revenue produced at the rates based on such 10 estimates will be compared with the actual expenses 11 incurred and any adjustments required will be made as 12 set forth in the proposed tariff.
This is the same es 13 procedure as followed in the ECAC tariff and we 14 believe that the proposed adjustment procedure for the 15 initial operating years of Diablo Canyon Units 1 and 2 16 is the most fair to the ratepayer and PGandE.
17 Q.
If the Commission should reject the adjustment 18 procedure and balancing account approach, what is your 19 proposal?
20
.A.
Under those circumstances, PGandE proposes that 21 the Commission in this proceeding authorize PGandE to 22 file the increased electric rates shown in this 23 exhibit to be effective when Diablo Units 1 and 2, 24 respectively, become commercially operative to offset 25 the increaseri costs related to operation of Diablo and fi 26 its inclusion in rate base, and to file decreased ECAC L.,/ -,
1 rates to become effective at the same time to reflect 2
the estimated reduction in fuel costs.
3 4
5 6
7 8
9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 l
25 O
26
! i
v Appendix 1 PRELIMINARY STATEMENT (Continued)
PART D Diablo Canyon Adjustment Clause (DCAC)
No. 1 -
Purpose:
The purpose of this DCAC provision is to reflect in rates pursuant to Section 792.5 of the Public Utilities Code any accumulated difference between the actual costs of owning and oper-ating Diablo Canyon Power Plant and revenues resulting from the rates authorized by the California Public Utilities Commission (CPUC) for that purpose. Associated fuel costs will be reflected in the Energy Cost Adjustment Clause of this tariff. It is intended that this DCAC provision be temporary until base rates become effective which fully include the cost of owning and operating Diablo Canyon Power Plant and until any accumulated difference is amortized.
No. 2 - Applicability:
This DCAC provision applies to all rate schedules and contracts for electric service subject to the jurisdiction of the CPUC, except (a) for sales for which payment is made in fuel O
and (b) for' sales to the California Department of Water Resources under present contracts. The
(,,/
DCAC provision does not apply to usage under Schedules Nos. D-40 and A-41.
No. 3 - DCAC Rate Revision:
The Utility shall file with the CPUC a new or revised DCAC Rate hereunder to become effective twelve months after this provision first becomes effective, and subsequently at twelve month intervals. When base rates become effective which fully include the costs of owning and operating Diablo Canyon Power Plant, entries under 5(b) of the Diablo Canyon Adjustment Account shall be pro-rated to the date such rates become effective and shall be discontinued with respect to subsequent periods and a filing of the DCAC Rate to amortize the balance in the Account shall be made.
No. 4 - DCAC Rates:
The amount hereunder to be added to or subtracted from each bill for electric service shall be the product of the total kilowatt hours for which the bill is rendered multiplied by the DCAC Rate. The DCAC Rate, to become effective for service on and after the date of each DCAC Rate Revision and continuing thereafter until the next succeeding DCAC Rate becomes effective, shall be the algebraic sum of a DCAC Offset Rate and a DCAC Balancing Rate, except that the initial DCAC Rate shall consist only of the DCAC Offset Rate. The DCAC Balancing Rate shall be a positive or negative amount per kilowatt hour of sales necessary to amortize the accumulated balance in ths Diablo Canyon Adjustment Account. The DCAC Balancing Rate shall be determined by dividing (1) the balance in the Diablo Canyon Adjustment Account at the end of the latest available month at the time of the computation being made under the provisions hereof, by (2) the kilowatt hours estimated to be sold during the 12 month period beginning with the date of the next succeeding DCAC Rate Revision. The DCAC Offset Rate is per kilowatt hour.
(O
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i
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No. 5 - Diablo Canyon Adjustment Account:
Commencing on the date that Diablo Canyon Power Plant becomes commercially operative or
-the date that DCAC Rates first become effective, whichever is sooner, the Utility shall maintain a Diablo Canyon Adjustment Account as a subaccount in CPUC Accounts Nos.174 and 242. Entries shall be made to this account at the end of each month as follows:
(a) A credit entry equal to, if positive (debit entry, if negative), the amount of revenue billed during the month under the DCAC Rate (not including the adjustment for franchise and uncollectible accounts expense).
(b) A debit entry equal to, if positive (credit entry, if negative):
(1) All operation, maintenance, and insurance, injuries, and damages expenses (CPUC Accounts Nos. 517 through 532, 560 through 567, 924, and 925) at Diablo Canyon Power Plant (PGandE Locations Nos. 40 and 140) excluding fuel expenses debited to the Energy Cost Adjustment Account, plus (2) Depreciation expense and return on investment on the average of the beginning and end of month balance of nuclear production, transmission, and general plant (CPUC Accounts Nos. 320 through 325, 350 through 359, and 389 through 399) at Diablo Canyon Power Plant (PGandE Locations Nos. 40 and 140) at one-twelfth the annual depreciation rates approved by the CPUC for those accounts and at one-twelfth of the annual rate of return on investment last adopted for the Utility's electric department by the CPUC, respectively, plus such return on the average of beginning and end of month net investment in nuclear fuel (net balance in CPUC Accounts Nos.
(~)%
prepaid nuclear fuel, minus such return on the average of beginning and end of 120.2 through 120.5) at Diablo Canyon Power Plant (PGandE Location No. 40) and
('~
month accumulated depreciation and deferred investment tax credit directly attributable to Diablo Canyon Power Plant nuclear production, transmission, and general plant and nuclear fuel, plus (3) Taxes chargeable to CPUC Account No. 408.1, Taxes other than income taxes, utility operating income, on or related to plant set forth in item 5(b)(2) above in the month in which such taxes are actually paid, minus (4) Any direct rents or other revenue received, other than from sale of electricity, associated with ownership or operation of Diablo Canyon Power Plant or its fuel, other than amounts credited to CPUC Account No. 120.5, plus (5) Federal, state, and local taxes based on income associated with items 5 (b)(1),
(b)(2), (b)(3) and (b)(4) above, calculated at marginal tax rates currently in effect, including all available statutory adjustments and flowthrough of differ-ences between tax and book depreciation and fuel expenses, with interest cost at 3.55% of net investment, and with five-year average investment tax credit.
(c) A debit entry equal to 7/12 percent of the average balance in this account and the balance in this account after entries 5(a) and 5(b) above, if average balance is debit (credit entry if average balance is credit).
(d) It is intended that this account reflect only the balances to be amortized by rates for Diablo Canyon Adjustment Account, items 5(b)(1) purpose of determining entries to the, sales to which the DCAC Rate applies. For the determinants of item 5(b)(5) above in any month shall be pro-rated to applicable jurisdictional sales by multiplying the respective amounts by 0.93.
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v Appendix 2 PACIFIC GAS AND ELECTRIC COMPAsv Sheet 1 of 4 -
Results of Operations - 1978 Test Year - Decision 89316 Adjusted To Reflect Coasnercial Operatin9 Date Unit fm.1 December 1.1979 And Unit No. 2 - Au9ust 1. 1980 (000's Omitted)
Total Electric CPUC Jurisdictional Sales Diablo Diablo Diablo Diablo Proposed ECAC Adjustment Canyon Canyon Dec. No. 89316 Canyon Canyon Base Diablo Diablo Line Unit No. 1 Unit No. 2 at Authorized Unit ha. I Unit No. 2 Rates Canyon Canyon Line No.
Addition Addition Rates (a)
Addition No.
~
-Addition Adjusted Unit No. 1 Unit No. 2 Ad.fusted ~
(A)
(B)
(C)
(D)
(E)
(f)
(G)
(H)
(I) 1 Operatin9 Revenues 167.438 131,622 2.000.011 155,758 122.438 2.276.207 (155.758) (122.438) 2.000.011 1
Operating Expenses Production Expenses -
2 ECAC 831.951 831.951 (154,178)
(121,196) 556,577 2
Production Expenses -
3 Non ECAC 4,621 4,843 90,128 4,298 4,504 98,930 98.930 3
4 Transatssion Espenses 13,318 13.318 13.318 4
5 Olstribution Espenses 109.423 109.423 109.423 5
Customer Account 6-Expense 44.553 44,553 44,553 6
7 Unco 11ectibles
$51 434 4.367 551 434 5.352 (551)
(4 34) 4.367 7
Customer Services and Informational Espenses 8
Base Program 6,479 6.479 6.479 8
9 Supplemental Conservation 6,655 6.655 6.655 9
10
. Total.
13,134 13.134 13,134 10 Load Management 11 Rate Research 6,716 6,716 6,716 11 Administrative and 12 General Expense 1,863 1.507 100,945 1,733 1.402 104,080 104.080 12 13 Franchise Requirements 1,106 869 12.636 1,029 800 14.473 (1,029)
(808) 12.636 13 14 Wege Adjustments 2,153 2,153 2.153 14 15 Sub-Total 8.140 7,653 1,229,324 7,611 1,148 1,244,083 (155,758) (122.438) 965,887 15 r
16 Depreciation Expense 35.705 29.211 162,270 33.206 27.166 222.642 222,642 16 17 Tames Other Than Income 6.234 4.899 116,603 5.844 4.556 127.003 127,003 17
-]
State Corporation 18 Franchise Tax 8.240 6,308 24.541 7,663 5.866 38,070 38.070 18 g]
19 Federal Income Tax 22,664 14,895 87.588 21,078 13,852 122.518 122.518 19 9J Total Operating 20 Expenses 81.034 62,966 1.620,326 75,402 58,588 1.754,316 (155.758)
(122,438) 1.476.120 20 g,
Net Operating -
t~
21 Revenues - Adjusted 86.404 68,656 379,685 80,356 63.850 523,891 523.891 21 22 Rate Base 909.517 722.695 3,996,682 845,850 672,106 5,514,638 5.514.638 22
{2g 23 Rate of Return 9.5%
9.5%
9.5%
9.5%
9.5%
9.51 9.5%
23 (a) FCAC Revenues and ECAC Production Expenses and associated franchise and unco 11ectibles at rate of May 15, 1979 are included.
M b
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AppendixY)
Sheet 2 of 4 PACIFIC GA5 AND ELECTRIC COMPANY Results of Operations - 1978 Test Year - Decision 89316 Adjusted To Reflect Comercial Operating Date Unit No.1 February 1,1980 And Unit No. 2 October 1, 1980 (000'sOmitted)
Total Electric CPUC Jurisdictional Sales Diablo Diablo Diablo Diablo Proposed ECAC Adjustment Canyon Canyon Dec. No. 89316 Canyon Canyon Base Diablo Diablo Line Unit ho. 1 Unit No. 2 at Authorized Unit No. 1 Unit No. 2 Rates Canyon Canyon Line No.
~
Addition Addition Rates (a)
Addition Addition Adjusted Unit No. 1 Unit No. 2 Adj usted ~
No.
(A)
(5)
(C)
(E)
(E)
(F)
(G)
(H)
(I) l Operating Revenues 171.331 135.341 2.000,011 159,378 125,898 2,285,287 (159,378) (125.898) 2.000.011 2
Operating Expenses Production Expenses -
2 ECAC 831,951 831,951 (157.760) (124,621) 549,570 2
Production Expenses -
3 Non ECAC 4.675 4.899 90.128 4,348 4.556 99,032 99.032 3
4 Transmission Expenses 13,318 13.318 13,318 4
5 Distribution Empenses 109,423 109,423 109.423 5
Customer Account 6
Expense 44,553 44,553 44,553 6
7 Unco 11ectibles 565 447 4,367 565 447 5,379 (565)
(447) 4,367 7
Customer Services and Informational Empenses 8
Base Program 6,479 6,479 6,479 8
9 Supplemental Conservation 6,655 6,655 6.655 9
10 T.;tal 13,134 13,134 13,134 10 Load Management 11 Rate Research 6,716 6,716 6,716 11 Aeministrative and 12 General Expense 1,889 1.529 100,945 1,757 1,422 104.124 104.124 12 13 Franchise Requirements 1,132 893 12,636 1,053 830 14,519 (1.053)
(830) 12.636 13 14 nda9e Adjustments 2.153 2.153 2,153 14 15 Sub-Total 8,261 7,768 1,229,324 7,723 7.255 1.244,302 (159,378)
(125,898) 959,026 15 16 Depreciation Expense 36,545 29.681 162,270 33,987 27.603 223,860 223,860 16
<fy 17 Taxes Other Than income 6,531 5,116 116,603 6,074 4,758 127,435 127,435 17
@E@
State Corporation 18,
Franchise Tan 8,494 6.616 24,541 7.899 6,153 38,593 38,593 18 19 Federal Income Tax 23,752 16.328 87.588 22,089 15,185 124.862 124,862 19 V
Total Operating 20 Expenses 83,583 65,509 1,620.326 77,772 60,954 1,759,052 (159,378) (125,898) 1.473.776 20 FS cr-Net Operating
$)
21 0-Revenues - Adjusted 87,748 69,832 379,ESS 81.606 64,944 526,235 526,235 21 C~-
22 Rate Base 923,663 735,077 3,996,682 859,007 683,622 5.539,311 5,539,3r.
22 23 Rate of Return 9.5%
9.55 9.5%
925%
9.5%
9.5%
9.5%
23 c;~ 0 (a) ECAC Revenues and ECAC Production Expenses and associated franchise and uncollectibles at rate of May 15, 1979 are included.
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L V
Appendix V Sheet 4 of 4 PACIFIC GAS AT4D ELECTRIC COMPAM Results of Operaticos - 1980 Test Year - Application 58545 Adjusted To Reflect Comercial Operating Date Unit ha. I february 1,1980 And Unit No. 2 - August 1. 1980 (000's Omitted)
Total Electric CPUC Jurisdictional Sales Diablo Diablo Diablo Diablo Proposed (CAC Adjustan t Canyon Canyon At Canyon Canyon Diablo Diablo Line Unit No. I Unit tio. 2 Proposed Ease Unit No. I Unit No. 2 Canyon Canyon tine
~
Addition Addition Rates ~
Addition Addition Total Unit No. I Unit No. 2 Adjusted No.
No.
(E)
(F)
(G)
(H)
(1)
~
(A)
(B)
(C)
(D)
+
1 Operating Revenues 171.331 135.341 1.426.631 159.378 125.892 1.711.901 (159.378) (125.892) 1.426.631 1
Operating Expenses Production Espenses -
2 ECAC (157.760) (124.615) (282.375) 2 Production Expenses -
3 Mon ECAC 4.675 4.899 124.566 4.348 4.556 133.470 133.470 3
4 Transmission Expenses 16.873 16.873 16.873 4
5 Distribution Expenses 131.912 131.912 131.912 5
Customer Account 6
Expense 51.752 51.752 51.752 6
7 Unco 11ectibles 565 447 2.244 565 447 3.256 (565)
(447) 2.244 7
Customer Services and 8
Information Expenses 24.810 24.810 24.810 8
9 Load Management 29.518 29.518 29.513 9
Administrative and 10 General Expense 1.889 1.529 126.050 1.757 1.422 129.229 129.229 10 11 Franchise Requirements 1.132 893 9.072 1.053 830 10.955 (1.053)
(830) 9.072 11 12 Wa9e Adjustments 5.049 5.049 5.049 12 1
13 Sub-Total 8.261 7.768 521.846 7.723 7.255 536.824
'(1.618)
(1.277) 533.929 13 14 Depreciation 36.545 29.681 192.219 33.987 27.603 253.809 253.809 14 15 Taxes Other Than Income 6.531 5.116 80.773 1.074 4.758 91.605 91.605 15 State Corporation 16 Franchise Tax 8.494 6.616 34.590
'.899 6.153 48.642 48.642 16 17 Federal Income Tax 23.752 16.328 119.190 22.089 15.185 156.464 156.464 17 Total Operating 18 Expenses 83.583 65.509 948.618 77.772 60.954 1.087.344 (159.378) (125.892) 802.074 18 19 Net Operating Revenues 87.748 69.832 478.013 81.606 64.938 624.557 624.557 19 20 Rate Base 923.663 735.077 4.463.239 859.007 683.622 6.005.868 6.005.868 20
- s 21 Rate of Return 9.5 9.5 10.71 10.4 10.4 21 b=
c=
w7 c2=o M="
U=
Appendix 3 PACIFIC GAS AND ELECTRIC COMPANY O
Diablo Canyon Adjustment
(/
Computation of Allocation Factors CPUC - FERC established in Application 98545 Thermal Production FERC Total Cost Demand 6.94%
Item Demand and Energy Energy 4.47%
CPUC 5M
$M
$M Maintenance and Operation Including Rents, Excluding Fuel 55,731 3,338 5.99 52,303 94.01 Administrative and General Expense 18,244 1,099 6.02 17,145 93.98 Payroll Taxes 2,907 171 5.88 2,736 94.16 Property Taxes 12,792 888 6.94 11,904 93.06 Depreciation 38,048 2,641 6.94 35,407 93.06 Rate Base 1,188,553 82,043 6.90 1,106,510 93.10 4
Because of the large capital expenditure for Diable Canyon it has been decided to make the jurisdictional allociation follow the capital related expenses such as property, taxes and depreciation. The factor 93% of CPUC jurisdiction has been used.
e
o o
o Appendix 4 Diablo Canyon Adjustment Estimate of Fuel Saving Unit No. l'Consnercial Operating Date December 1,1979 Unit No. 2 Commercial Operating Date August 1, 1980 Annual Annual Annual Generation Fuel Differential Fuel System Fuel Saving Capacity 65% C.F.
Oil-Nuclear Saving Sales Mills per KW MKwh Mills per Kwh MKwh Kwh of Sales With 011 at $17.00 per bb1 (26.6 mills per kwh) and Nuclear at 6.2 mills per kwh Unit No. I 1,084,000 6,172,296 20.4 125,915,000 61,458,000 2.049 Unit No. 2 1,106.000 6,297,564 20.4 128,470,000 63,195,000 2.033 With 011 at $21.50 per bbl (33.6 mills per kwh) and Nuclear at 6.2 mills per kwh Unit No. I 1,084,000 6,172,296 27.4 169,121,000 61,458,000 2.752 Unit No. 2 1,106,000 6,297,564 27.4 172,553,000 63,195,000 2.730
^
Appendix 5 t
PACIFIC GAS AND ELECTRIC COMPANY l
DIABLO CANYON ADJUSTMENT COMPUTATION OF 0FFSET ADJUSTMENT Unit No. 1-Commercial Operating Date-December 1, 1979 Unit No. 2-Comercial Operathg Date-August 1,1980 Unit No. 1 Tal System CPUC Jurisdictional 2
1.
Sales - M Kwh 61,458 58,887 2.
Sales adjusted for 2
DWR, etc. M Kwh 56,780 3.
Revenue Requirement-167,438 155,758
$M Adjustment (Line 2.743 3 + Line 2) Mills per Kwh Unit No. 2 Total System CPUC Jurisdictional 1.
Sales - M Kwh 63,195 60,291 1
2.
Sales adjusted for DWR etc. M Kwh 58,236 3.
Revenue Requirement-131,622 122,433
$M Adjustment (Line 2.102 3 + Line 2) Mills per Kwh Sales Adjusted for Department of Water Resources, DS, DE and DT.
ba
Appendix 6 PACIFIC GAS AND ELECTRIC COMPANY DIABLO CANYON ADJUSTMENT COMPUTATION OF 0FFSET ADJUSTMENT Unit No.1-Connercial Operating Date-February 1,1980 Unit No. 2-Connercial Operating Date-October 1,1980 4
Unit No. 1 Total System CPUC Jurisdictional 2
1.
Sales - M Kwh 61,959 59,212 2.
Sales adjusted for DWR, etc. M Kwh 57,120 3.
Revenue Requirement-171,331 159,378
$M Adjustment (Line 2.790 3 + Line 2) Mills t
per Kwh L)
Unit No. 2 Total System CPUC Jurisdictional 1.
Sales - M Kwh 63,694 60,720 2.
Sales adjusted for DWR etc. M Kwh 58,635 3.
Revenue Requirement-135,341 125,898
$M Adjustment (Line 2.147 3 + Line 2) Mills per Kwh Sales Adjusted for Department of Water Resources, DS, DE and DT.
O
.