ML19345G870
| ML19345G870 | |
| Person / Time | |
|---|---|
| Site: | Fermi  |
| Issue date: | 10/04/1979 |
| From: | Hollenshead R MICHIGAN, STATE OF |
| To: | |
| Shared Package | |
| ML19345G856 | List: |
| References | |
| U-6006, NUDOCS 8104220569 | |
| Download: ML19345G870 (373) | |
Text
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5 TATE OF MICHIGAN i
BEFORE THE MICHIGAN PU8Lic SERVICE COMMISSION 1
l in the matter of the application of )
t THE DETR0lT EDISCN COMPANY for autho- )
! rity to amend its rate schedules ) Case No. U-6006 governing the supply of electric )
energy and to amend other afste!!aneous )
rates. )
)
i O
PROPOSM FOR DEC1510N I
f Issued and Served: October 4,1979 810422056 %
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. . . . . . . _ . . . . . . . . . . . . ~ .
e e TABLE OF CONTENTS Page faction 1
- 1. Preface.....................................................
2 II. Parties to the Proceeding................................... 5 Ill. H ! s t o ry o f P roc e ed i n g s . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
9 IV. Test Period.................................................
11 V. Rate Base...................................................
13 Fermi I..................................................
14 Coal Contract investments................................
Connors Creek Turbine..................................... 15 15 Plant Held for Future Use................................
Nuclear Plants... ....................................... 17 N u c l e a r Fu e l . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 0 Port Huron Paper Plant Soller Conversion................. 20 Fossli Fuel X Plant....................................... 21 Work!ng Capital Allowance................................ 22 S umma r y . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 9 l VI. Ra t e o f R e t u rn . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 9 Capital 5tructure........................................ 31 l Debt.............................................. 33 Cost of P re f e r red and P re f e rence S t ock. . . . . . . . . . . . . . . . . . . . . . . . . . . 3 6 Comme n E qu i t y . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 6 S umna ry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 7 Vll. Ad j u s t ed N e t O p e r a t i n g i n c ome . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 8 Operating Revenue.............................. ......... 49 54 Fuel and Purchased Power Expense.........................
P roduc t ion Ma lntenance Expense. . . . . . . . . . . . . . . . . . . . . . . . . . . 58 other Opera tions and Maintenance Expense. . . . . . . . . . . . . . . . . 60 Gene ra l Adve rti s i ng Expens e . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 5 75 Edison Electrle Inst!tute 0ues...........................
Atomi c I ndu s t r l al Fo rum 0u es . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76 Management Efficiency Review.............................. 76 De p r e c l a t i o n . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77 Allowance for Funds Used During Construction............. 75 P ro Fo rma Ta x S a v i ng s . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 0 S umma ry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 1 Vill. Re v e n u e De f i c i ency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 2 82 Greenwood I..............................................
System Avaltability Incentive P1an........................ 89 90 Conclusion...............................................
- 12. Vege and Price Guidelines..?............................... 91 92 X. Miscellaneous Revenue Related Matters......................
System Avellability Plan Modification............... .... 93 De f e r r ed T a x e s . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 3 Fo reca s t i ng and Rese rve 5 tud ies . . . . . . . . . . . . . . . . . . . . . . . . . . 98 Re po r t o f Ra t e C a s e Ex p e n s e s . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 8
{
Section_
II.
M Xil. Co s t o f 5e rvics. . . . . .
Ra t e De s i g n . . . . . . . . .......... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98 Al loca t ion o f Ra te increase.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101 Re s I den t l e I Ra t e s . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 2 Availability of Domestic Service Rates......
......................... 104 Domestic Servic4 Rate 0-1.......... ........... 104 Auxi l la ry Power Provi s ion. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108 Domestle interruptible Air Conditioning ................... 110 Se of Time rvDay i ceservice Ra t Rate e 0- I . 3. . . . . . . . . . . . . . . . . . . . . . .
............ 111 0-1.2............ .............II2 Senior Citizens Domestic Service Rate Time of Day Farm and Space Heating Rate.........
D-13...
0-1.4.. 112 Experimen' al Domest!c Space.........lla t
Water Heating Rates 0-5 and Heating Rate 0-2 Dom Coeme r:l a l Ra t e s......... . . . . . . . . .......... . . . . .115 0-5.1. . . . . . . . . . . I Gene ra l Se rv ice Ra t e 0-3. . . .......... ...........................I!7 Unme t e red Genera l Se rv ice Ra ......... te D-3.1. 118. . . . . . . . . . . . . . . .
Large General Service Rate D-4 Experimental . .... 118 Time of Day Gene i nd u s t r i a l Ra t e s . . . . . . .................. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I 18 On-Peak, Off-Peak Energy Diff On-Pea k Demand Cha rges . . . . . . . erent i a.......lI9 l . . . . . . . . . . . . . . . . . 119 t i l l i ng De t e rm inan ts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 0 Emergency Lead Management Olsco .............
P r i ma ry Supp l y Ra t e D-6. . . . . . . . un t . . ..... .122 . . . . . . . . . . . . . . . 122 Large Primary Rate ....
0-6.1........... ..................... 323 Bu l k Powe r Supp ly Ra t e D-7. . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 4 Interruptible Supply Aate D-8... ................ 125 Miscellaneous Rates............... ...................... 125 Outdoor Protective Lignt ing Rate...................... 0-9. . . . . . ... . 126 Municipal Streetlighting Rates E-1 and E- .........
Tra f fi c S igna l Light s Ra t e E-2. . . . . . . . . . 3. . . . . . . . . . . . . 12 6 127 Primary and Secondary Pumping Rates ..............
E-4, E-4 1 and 128 E.5..................... .
1 Contract 4Iders............ ............................. 128 Electric Metal Melting - Standard Contr".ct .niJ .~ :r............................. 129 Stand-by Rider No. or Partial Service - Standard Contract
... l. 129 3.................................. ......... 129 -
Resale of Service - Standard Contract Rider129No Industrial Co generation - Standard Contract Rider. 4......
No.
All 5....................................
Electric No. School Buildings - Standard Contract
............. 130 Rider Cornercial 7...............................
Space Heating - Standard Contract ............ Rider132 No.
8.............................,... L.
................ 133 l
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.Page, SeetIon_
Indus t ri al S t e em Se rv i ce Ra tes . . . . . . . . . . . . . . . . . . . . . .
I nduand Fuel s tPurchased ri a l P owe r PAdjus Power l an tmen t s . .t .Cl. auses
. . . . .. .. .. ... .. .. .. .. ... .. .. .. 13f . . .- . . .
Ru l e s and Re gu l a t i on s . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Xfil.
Gene ra l P rov i s ions for Se rv i ce . . . . . . . . . . . . . . . . . . . . .
Appl i cation for Service - Rul e B-2.3. . . . . . . . . . .
Insulation Standards for Electric Heating - Rule 14L 3-2.12................................................
Cond i t i ons of 5e rv i c8-3e 1......................
. . . . . . . . . . . . . . .147 ...............
Character of Service - Rule Cont inuI ty o f Se rvi ce - Rul e B-3.2. . . . . . . . . . . . . .148 . . . . . . . 147 3-3 3...................... 148 Er. tension of Service - Rule Olstribution Systems - Rule B-3 4...................... 5........... 149 5-3 underground Service Connections - Ruse 8-3.6......................... 149 Temporary Service - Rule 7........... 149 Emergency Electrical Procedures - Rule B-3 B i ll i ng and P ayment fo r 5e rv i ce . . . . . . . . . . . . . . . . . . . . . . . . . . 150 Gene ral Depos i t Condi tions - Rule 3-4. I . . . . . . . . . . . . . . . . 150 ti ll ing f or Serv i ce - Rul e B-4.2. . . . . . . . . . . . . . . . . .151 . . . . . 150 Surcharges and credits - Rule B-4.9....................
U t i l i z a t i on o f 5e rv i ce. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Se rv ice Connect ions - Rul e B-5 1. . . . . . . . . . . . . . . . . . . . . .
Cus tome r 's ins ta l l a ti on - Rul e B-5 2. . . . . . . . . . . . . . . .
Comcany Equipment on Customer's Property - Rule B-5.3.................................................152 5-5.3........................
152 153 Access Lamp Supply to -Premises Rule - Rule 8-5.4...............................
I Conj unc t iona l Se rv i ce - Rul e B-5. 6. . . . . . . . . . . . . . . . . . . . . 153 XIV. Add i t i ona l N a t t e r s . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Ma l l ing Ra te Schedul es to Cus tomers . . . . . . . . . . . . . . . . . . . . . . 15; Cen t ra l A i r CondRules.....................
i t ioni ng . . . . . .15! 159 Charitable Contributions................................. 160 Calculation of Rate increases............................
XV.
P ro po s ed 0e c t s l en . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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$ TATE OF M I C'N l G A N REFORE THE MICHIGAN PUBl.lc SERVICE COMMIS$10N
- e in the matter of the appilcation of )
THE DETROIT EDISON COMPANY for autho- )
rity to amend Its rate schedules ) Case No. U-6006 governing the supply of electric )
energy and to acand other miscellaneous }
rates. )
)
PROPOSAL FOR CEclSION l.
O This Proposal for Cecisicn concerns an appilcation by The Detroit Edison Company l
(Applicant) to increase its rates by at least $166 million on an annuall:ed basis.
Affected by this proceeding are all of Applicant's electric rates and charges under the jurisdiction of this Commission, as well as certain of Appilcant's steam and water rates. In addition to affecting Applicant's electric, steam and water rates and charges, these proceedings also involve changes to the rules and regulations by which Applicant provides service to Its customers.
At the comencement of these proceedings, the rates In effect for Applicant's jurisdictional electric customers and for certain steam customers, were those approved 28, 1978, and sub-by the Commission in its Order in Case No. U-5502 Issued september sequent Orders in Case No. U-5502. The rates in effect for the remainder of Accli-l
' i cant's steam customers were approved by the Commission's Order in Case No. U-5315, 1 issued February 13, 1978. During the pendency of these proceedings, the Comission.
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l on May 1,1979, lasued its Crder granting a?, Interim rate locrease In an annallzed amount of $56,332,000 affecting Apolleant's jurisdictional electric customers only; l Appilcant's steem rates cont!nue to be those in effect as established by Case No. U-55c2 and u-5315, respectively.
As has been the situation with all of Applicant's recent general rate cases, the proceedings have been lengthy, the issues complex, and the parties participating, numerous.
The hearings in these proceedings cocunenced on January 18, 1979 and were completed on July 3, 1979 During the 58 days of hearings,165 exhibits were offerec in evidence and 40 witnesses testifled. Part!cipating in the proceedings were the The Applicant, the technical staff of the Coessission and 25 Intervening parties.
record of the proceedings is composed of a total of 55 volumes of transcript contain-8,439 p.ges. The undersigned Administrative Law Judge, Robert E. Hollenshead, presidec over all hearings in these proceedings. Stetton 81 of the Admir.lstrative Procedures l
Act was not waived, thus necessitating *:he issuance of this Proposal for Decision.
9 11.
PARTIES TO THZ PRO *EEDIN:
The parcles to this proceeding cons!sts of Appilcant, Staff, and verlous inter-venors which were authorized to participate under Rule 11 of the Coeweission's Rules The Intervenors represent a wide spectrum of Interest and of Prst-Ice and P ocedure.
incluce municipallt.las anc government agencies, public Interest, and business organi-zations and Individual business entitles.
Applicant, the Instigating party of these proceedings, is a corporetten organi:ec and ex! sting in and under the laws of the State of Michigan and New York, and has its principal officas at 2000 Second Avenue, Detroit, Michigan. Applicant is a public Page 2 U=6006 0
O utility principally engaged in the business of generating, transmitting, transforming, (Jistributing and selling electric energy, although approximately 23 of its revenues are derived from the stle of steam.
The service area of' Applicant is in southeastern Michigan and extends over approximately 7,600 square miles. Applicant's service area extends from near Monroe on the south to the thumb area of Michigan on the north, and includes the populous area of Metropolitan Detroit. At the present time, Applicant provides service to approximately I,735,000 electric castomers.
The municipalltles* intervening in the proceedings are the cities of Grosse Pointe Park and Oak Park, Michigan and the governmental agencies intervening are the General Services Administration of the Federal Government (G5A) and Michigan Attorney General Frank J. Kelley (Attorney General). The public Interest orgai.Izatien Inter-venors are the Public Interest Research Group in Michigan (PIRGIM), the Michigan Citizens Lobby (Citizens Lobby) and the Michigan Coalition on Utilities and Energy (MCUE).
The business organizations intervening in the proceedings are the Micnigan Energy Users Group (Energy Users), the Michigan Agricultural Conference (Agricultural Conference), United Condominium Owners of Michigan (Condominium owners), Apartnent Association of Michigan, Bullders Asscciatien of Southeastern Michigan, Michigan Association of Home Sullders, and the Michigan Business Utility Users Committee The Industrial and business entitles intervening in the proceedings (Susiness Users).
are: Crest Lakes Steel Division of National Steel Corporation (Great Lakes Steel) .
Dundee Cement Company (Dundee), General Motors Corporation (General Motors), Michigan Sugar Corporation (Michigan Sugar), 8ASF Wyandotte Corporation (SASF Vyandotte), P (Morton Sal t) , and Huroti, Paper Company (Port Huron Paper), Morton Salt Company Monsanto Company (Monsanto) .
O Page 3 l U-6CC6
Carteln of the Intervening parties acted in concert with each other as to certain matters, and in such case, will be referred to jolatly. BASP Wyandotte, Energy O
Users, General Motors, Great Lakes Steel, Monsanto, Morton Salt and Pennwalt acted in concert on cost of service and electrical rate design and in such case are jointly referred to as the Industrial Intervenors. $1milarly, Monsanto, Morton Salt and Great Lakes Steel acted in concert concerning steam rates In which case they are referred to as the Steam Intervenors. Also acting in concert are the Apartment Association, Builders Essociatlon of Southeastern Michigan and the Michigan Association of Home Builders, and as such, are jointly referred to as Apartment Association.
In addition to the Intervenors participating under Aule 11, Rensis L!kert Assoc-l lates, Inc., a consulting firm which performed work for Applicant was granted inter-i venor status for the limited purpose of filing an amicus curlas brief.
j Among the parties participating in the proceeding only Applicant, Staf f and the Attorney General addressed Applicant's overall revenue level. Applicant claimed that it actually had an annual revenue def!clency of approximately $221,000 but because of President Carter's wage-price guideline program, it was limiting its requested increase to approximately $166,000,000 on an annualized basis. Staf f clattnad that Applicant 's revenue deficiency was $139,527,000 on an annualized basis. The Attorney General, on the other hand, clat.,ed Applicant's revenues should be reduced by $30 million to $42 million on an annual basis prior to taking into consideration Interim relief In this docket of $56,332,000, and the $5,937,000 annually provided by the corrinission's June 5, 1979 System Availability incentive order, sased on Applicant's rates presently tne being charged, the Attorney General claimed Applicant's revenues are excessive by approximate amount of $33 all!!on to $105 million. in addition, the Attorney General also Indicated that it would be appropriate to reduce Applicant's rate by an additional
$87 million annually if the Coernission chooses to " flow-through" the benefits of accelerated depreciation.
Page 4 U-6006
O PIRGIM and the Citizens Lobby, althcogh they did not develop specific revenue figures, took certain positions having impact on Applicant's overall revenues in these proceedings. Pennwelt and Port Huron Paper, Applicant's two Industrial power plant customers, took positions as to their own revenue levels which positions affect Numerous parties to the proceeding addressed the overall level of Appilcant's revenues.
the Other Operattens and Maintenance indexing System, an Issue which also has an overall revenue effect.
Of the parties to the proceeding, only Applicant and Staff presented rate PIRGIM and the indus-design proposals applicable to all of Applicant's customers.
trial Intervenors, however, made rate proposals as to various classes of customers.
The Industrial power plant Intervenors, Pennwelt and Port Huron Paper, and the Steam Finally, Intervenors made specific recommendations for their own Individual rates.
1 O the Business Users, Apartment Association Condominium owners and the Michigan A
' tural Conference took positions on rate design matters affecting their Interests.
t lit.
l Hl$ TORY OF PROCEEDINGS Cn December 14, 1978, Applicant filed its application for rate relief in an annualized amount of approx!mately $166 alliton along with its proposed testimony and exhibits. Concurrent with its request for final rate relief, Appilcant also flied a Motion for Interim Partist and immediate Revenue Relief (Interim relief) in the approximate amount of $69 elliton on an annualized basis.
On December 28, 1978, the Commission issued its Notice of Hearing in the proceed-Ings'which required Applicant to, on or before January 8,1979, publish a Notice nf its electric service Hearing in dally newspapers of general circulation throughout O
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area In substantially the same style and manner as the Notice of Hearing published in O
Case No. U-5502, in addition, this Notice of Hearing required Applicant to, on or before January 8,1979, mall a copy of the Notice of Hearing to all cities, Incorporated villages, counties and townships within its service area, as well as to all Intervenors or participants who appeared in Case No. U-5502, and to the following Industrial steam customers: Allied Chemical Company, Anaconda, American Brass Co., Detroit Marine Terminals, Inc., McLouth Steel Corporation Revere Copper and Brass, Inc., and U.S. Forge.
The Notice of Hearing also established the following titres and places for certain pubtle hearings:
- 1. On January 18, 1979, in Lansing, an Initial hearing in the nature of a pre-hearing conference.
- 2. On February 13, 1979, In Detroit and in Farmington, special hearings for the purpose of taking statements and testimony of Interested persons.
3 On February 20, 1979, for the purpose of Introducing previously filed evidence into the record and for coceencing cross-examination of Applicant's wi tnesses.
In addition, the Notice of Hearing, Indicated that oral argument on Appilcant's Motion for Interim Relief w uld be held at an appropriate time during the proceedings.
The Initial hearings proceeded as scheduled. At, or shortly after the pre-hearing conference, all Intervening parties which had previously submitted written re:1-tions to intervene and which were in attendance at the pre-hearing conference were granted authorlty to Intervene under Rule 11 of the Connission's Rules of Practice and Procedure.
Cross-examination of Applicant's direct evidence connanced on February 20, 1979.
continued on February 21, 23, 26, 26 March 1, 2, 5, 6, 7, 8, 9. 12, 13, 14, 15. 16 Page 6 U-6006 O
19, 20, 21, 22, 23, 26, 27, 28, 29, 30, April 2, 3, and was completed on April 4 1973 On February 27, 1979, Citizens Lobby filed a Petition to Intervens under Rule t
11 and on March 5,1979, this Petition to Intervene was allowed.
l At the completion of cross-examination of Appilcant's direct case on April 4, 1979, the undersigned Administrative Law Judge announced, on the record, dates for filing and commencement of cross-examination of Staff's and Intervenors' cases and announced the date for filing of Staf f's Statutory Report on Applicant's Motion for Interim Rollef as well as the date for cross-examination of this report and oral argument on the Motion for Interim Relief. On April 5, 1979, the undersigned Adminis-trative Law Judge Issued a Notice of Hearing confirming the handling of the Motion for Interim Rellef. On April 18, 1979, Staf f's statutory report on Interim relief was filed as scheduled, and on April 26, 1979, hearing was held on the Motion for interim Relief.
The direct cases of Staft and intervenors were subsequently filed on or before May 2, 1979 Cross-examination of Staff and Intervenors' witnesses coernenced on May 7, 1979, continued on May 9, 10, 11, 14, 15, 16, 17, 18, 21, 22, 23, 24, 25, 29, c
30 and 31, 1979, and was completed on June 1, 1979 On May 15, 1979, Condominium Owners flied its Petition to Intervene in the proceedings under Rule 11 and this petition was granted on May 17, 1979 0! rect cases were presented by Staff, the Attorney General, PIRGIM, Citizens Lobby, the Industrial Intervenors, Apartment Association, Business Coculttee, Port Huron Paper, Great Lakes Steel, Morton Salt, Monsanto and Condominium Owners.
I At the completion of cross-examination of Staff and Intervenors' direct cases, filfng and cross-examination of rebuttal cases was scheduled. Rebuttal cases were filed on January 11, 1979, and cross-examination of rebuttal cases com.enced on O Page 7 11-6006 l
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June 18, 1973, continued on June 13, 20, 21, 22, and was conolated on June 25, 1975 $
The only parties presenting rebuttal cases were Applicant and the Attorney General.
At the completion of cross-examination of rebuttal cases, the Attorney General l requested perm!tsien to file surrebuttal evidence. After determining that the evidence sought to be presented by the Attorney General would be properly limited in scope and would strictly be to refute rebuttal evidence presented by Applicant, the undersigned Adt Intstrative 1,aw Judge authorized the presentation of surrebuttal evidence. In accordance with the previously announced schedule, the Attorney General filed his surrebuttal on July 5,1973, and cross-examination of this evidence coerwnced on and was completed on July S. 1979 Soth original and reply briefs were authorized in this proceeding. Original brief s were filed by Applicant, Staff, the Attorney General, PIRalM, Citizens Lod:y, industrial Intervenors, Steam Intervenors, Agricultural Conference, Business Users, Apartment Association, Pennwalt, Port Huron Paper and Grosse Pointe Park. Reply briefs were filed by Applicant, Staff, the Attorney General and the Apartment Associa-tion.
During the pendency of the proceedings, the Comission issued three orders in this docket. One of these orders concerned Applicant's Motion for interim Aelief and the other two orders concerned emergency appeals of rulings made by the Acministra-tive Law Judge.
On May 22, 1979, the Comission Issued its Order granting Applicant Interir ;
relief in the annualized amount of $56,532,000 whien increase -as to be effective tne date Applicant placed Its new electrical generating unit, Greenwood I, in c m ercial operation. This Interim Orcer further provided that the rate increase was to be j accomplished by use of a uniform 1.55 mill per K.,h surcharge imposee on the bills of all of Applicant's jurisdictional electrical sales. On July 5, 1979. Applicant placed Page 8 U-6006 0
O i g the lts Greenwood I generating unit in comercial operation and comenced charg authorized Irterla surcharge. l l The Cowrtission's first Order concerning an enwrgency appeal Involved an; '
tion for by PIRGIM of the undersigned Administrative Law Judge's denial of PIRG in les Order dated March 6, 1979, the Commission upheld the Adm en adjournment, tive Law Juc!ge's denial of an adjournment. l The second Order of the Coennission concerning emergency appeals In d in its by Citizens Lobby of two separate rulings of the Administrative Law Ju ge, first emergency appeal, Citizens Lobby sought a reversal of the Admini f the Applicant's Judge's ruling denying Citizens Lobby's Motion to Dismiss that part o d Maintenance i
case related to a proposed increase in the base of the Other Operatf ons an In its second emergency appeal, Citizens Lobby sought reversal o indexing system.
' discovery request for a the Administrative Law Judge's denial of Citizens Lobby s Rensis Likert and copy of an attitude survey of Applicant's employees, performed by '
In its Order dated May 1,1979, the Comission denied Citizens Lobt Associates. but first appeal concerning the Other Operations and Maintenance indexing sys f Rensis Likert granted Citizens Lobby's second appeal concerning the discovery o On May 10, 1979, Appilcant filed a Motion for Reconsideration employee attitude survey. Lobby's second emergency and Rehearing of the Conunission's Order granting Citizens denying Applicant's appeal and on July 31, 1979, the Comission issued its Order motion.
IV.
TEST PERIOC_
ility's present Test periods are utilized in rate cases to determine whether a ut Based upon the tes period revenue level is appropriate or needs to be modified.
Page 9 U-6006
adopted, the utility's rate base, revenues and expenses are analyzed to determine tne appropriate level of aarnings the utility is entitled to receive.
Previously Applicant's test periods in Applicant's general rate proceedings were based upon historic periods of tlein with adjustments made for known changes in rate base revenues and expenses. However, in Applicant's general rate proceeding, Case No. U-4807 (March 30, 1976), the Consissten determined that use of an adjusted historic test year was inadequate in an era of rapidly changing conditions. Conse-quently, In Case No. U-4807, the Coernission adopted a test year that was part his-torical and part projected. Subsequently, in Applicant's two ecst recent general rate proceedings, Case No. U-51C8 (May C7,1977) and Case No. U-5502 (october 23, 1975), the Cornission adopted entirely projected test years.
In the Instant proceedings Applicant, the Staff and the Attorney General, the parties to the proceeding addressing Applicant's overall revenue level, presented cases based on use of a projected 1979 calendar test period. Thus, although A ll-cant also presented evidence ut!11:Ing a historic 1977 calendar year, and Staf f O
presented evidence using a historic 1978 calendar year, a projected 1979 calencar year is the only test period for which the positions of Applicant, Staff and tne Attorney General can be effectively compared. Because of the aval, ability of this compa ri son , and because the Comission's conclusion in Case No. U-4807 that an adjusted historical test is inadequate in an era of rapidly changing cond!tions, is even ecre appropriate at the present time, a projected 1979 calendar test year shall be utilized for this proceeding.
Although no party to the proceedings took issue with the use of a proje:ted test year in these proceedings, PIRGIM, in its brief, claims that the Comission should order that, for future rate cases, a historic test year should be usec. In Page 10 l U-6006 i O
O support of this position PIRGIM refers to the testleony of the Attorney General's witness, Mr. Jatinder Kumar, who although he utillzed a projected test year In this proceeding, Indicated a preference for use of a historic test year.
PIRGIM claims that according to Mr. Kumar, there are many problems with the projected test year approach. According to PIRGIM, projected test years lead to lengthening of rate case proceedings since assumptions underlying the projections must be analyzed. Furthermore, PIRGIM claims that with projected test years, it is diffi-cult to estimate future savings, and that factors such as changed tax laws can invali-( date projected figures.
The Administrative Law Judge finds that it would be clearly inappropriate to I
determine for purposes of future rate cases, what type of test year should be utilized.
Whether histo.-Ic or projected test years should be utilized In Individual rate cases I should properly be determined in the context of the facts and circumstances existing at the time of such proceedings. To establish a straight Jacket for future rate proceedings requiring use of a historic test year, or for that matter a projected test year, wuld clearly be in error. There are advantages and disadvantages to l both the historic and projected test year approach, and whether the advantages of l one type of test year outweigh its disadvantages are dependent on the situation at i
l the time of such proceedings.
t I I l
I V.
RATE SASE Applicant, Staff and the Attorney General are the only parties in this proceed-Ing which offered total rate base presentations. However, PIRGIM, Pennwalt, anc Port Huron Paper, took positions as to certain rate base issues which will be addres-sed in this section.
Page 11 U-6006
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In developing their respective rate bases, Applicant, Staff and the Attorney O
General all determine their rate base, based upon an average 1979 calendar year.
There is a slight difference between Applicant and Staff's rate bases attributable solely to dif ferences between Applicant and Staff as to the cost allocation feethodology The Attorney General followed to be used for determining jurisdictional rate base.
Applicant's jurisdictional allocation methodology although the Attorney General's witness Mr. Kur.ar Indicated he has no position as to the jurisdictional allocation methodology which should be used.
Applicant's proposed rate base is 54,479,193,000 and Is set forth on Exnibit A-10.
page 3 Staff's proposed rate base is $4,360,74),000 and Is set forth on Exhibit 5-123, page 2, but modified in its erlef for an adjustment applicable to the Port Huron Paper on-site generating plant. The Attorney General's rate base is develecec on Exhibit 1-14), Schedule 5-1, and is in the accunt of 54,209,633,000 using the Attorney General's preferred approach of determining working capital by the " balance I-Ikl, sheet approach". The Attorney General also developed a rate base on Exhibit Schedule t-1, of 54,246,509,000 using a formulistic approach to determining working capital. The table below sets forth a coccarlson of the components of rate base as developed by Applicant, Staff and the Attorney General.
JURISDICTIONAL RATE SASE AVERAGE CALEMOAR YEAR 1979 (000's)
Aoolleant Staff Attornev Genera!
Utility Plant 4,038,811 4,024,761 4,010,566 Plant in Service 23,373 26,281 17,193 Held for Future Use 1,149,406 1,155,812 1.149.40E Construction Work in Progress 5,2ce,55- 5,177,*c5 Total Utility Plant 5,211,590 I
Page 12 U-6006 9
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I
~':.~.,,_*. .
O Applicant Staff Attornev General (986,155) (978.159) (978,075)
Depreciation Reserve 4,225,435 4,228,695 4.199.390 Met uti1Ity P1 ant 47,562 --- 3,996 Met Nuclear Plant 2C8,0;-c 144,386 8,996 f Working Capital (1,894) (12,33S) (2,669)
Other 4,479,193 4,360,743 4,209,683 Aate Base Fermi I The Attorney General proposes that Applicant's Fermi I generating plant be removed from plant.in-service, the ef fect of which wuld be te reduce rate base In a net a-cont of $14,705,0c0. The Attorney General claims this adjustment shculd be
~
tock its Fermi i plant out of service made since ef fective January 1,1979, Applicant and receved its operating crew and since Appilcant has no future plans to operate this plant during the test year, or In any futura years.
Although A;=licant did shut down its Fermi i plant and remved its c=erating crew on January 1,1979, the Administrative 1.aw Judge f!nds it w uld be Isa:propelate Centrary to the pcsttien taken oy to reecve this plant from rate base at this time.
intenes to the Attorney General, the evidence in this proceeding shows that A;plicant use Fermi i for generation in the future. As shown by Exhibit A-17, Senedule F-7.
1.
Acclicant has planned capacity factors of 12 in 1980,198L,1985 and 1987 for Fer-i Therefore, the Attorney General's preocsed adjustment to re-eve this star:t f rom pla .t in service should be denied. However, should Fermi I, contrary te A;;licant's :lans, not be utIIIzed in the fdure, it clearly wuld be accropriate to re-eve ese pia.at fre,* rate base in a subsequent proceeding.
Page 13 U-6CC6
l l
l Coal Contract investments Staff proposed an adjustment to rate base to excluda $10,829,000 of Investment in coal mining contracts which adjustment Is supported by the Attorney General anc PIRGIM. Staff claims this adjustment should be adopted because it believes fuel mining operations should be treated as nonjurlsdictional for ratemaking purposes.
Staff claims that fuel mining operations are speculative in nature and as such, the risk of these inventments should be borne by Applicant's shareholders and not its ratepayers. Furthermore, Staff claims that the tes:imony of Applicant's witness, Mr.
Ernest Grove, Indicating that Applicant had removed its coal mining joint venture from rate base in this proceeding, tends support to its proposed coal con:ract investment adjustment'.
Applicant opposes Staff's proposed coal contract Investment adjustment an:
presents two specific arguments in support of its opposition. First, Applica-: indi-cates that the Commission has for some period of time included its coal contrac:s in rate base. Specifically, Applicant Indicates that Its Consolidation Coal Contrac:
was included in rate base by the Coevsission in Case No. U-3910 (August II, 1972) and that its Eastern Association Coal Corporation investment was included in rate case in Case No. U-51c8. Second, Apolican: claims that its position to exclude its coa!
joint venture from rate base in this proceeding, does not provide jus:ification to eliminate its coal contracts from ra:e base. Applicant states that the company's position to exclude the coal joint venture was based upon the Comission's cetermina-tion in Case N- U-5502 to exclude Applicant's uranium joint venture free its revenue deficiency determination but to include its joint coa! venture. Applicant stated it felt that the treatment for the coal and uranium joint ventures should be consistan:
and for this reason, it has excluded Its coal joint venture from rate base. Acplicaat clafes,however, that its coal investment contracts are quite a different matter anc, therefore, they should continue to be included in fate base.
Based upon the evidence presented, the Administrative f.aw Judge fincs that Page 14 U-5006
O Fuel mining has signi-Staf f's proposed coal Investment adjustment should be adopted. l ficant risks concerning matters such as quantity and quality of product, and pr by Applicant's of extraction, raclamation and natural disasters which should not be borne ratepayers.
Furthermora, as pointed out by the Attorney General and PIRGIM, Ap Intended loans to Consolidation Coal Company and Eastern Associated Coal Corporatio However, Applicant has, In every to secure an adequate supply of coal for the period.
i f coal than called year of these contracts, received substantially lower quantit es o for by these contractsi Connors Creek Turbine _ for The Attorney General proposes that rate base be reduced by $5,865,000 i g plant. The replacement of a turbine rotor at Applicant's Connors Creek generat n h Connors Creek Attorney General claims that this adjustment should be made because t e l flaw for which Applicant turnine rotor replacement was occasioned by an interna Applicant's insur-should recover from either the manufacturer of the rotor, or from ance company.
This adjustment is supported by PIRGIM but is opposed by Applica olely From the record presented, it appears that this proposed adjustment ar d by PIRGIM wherein as a result of Applicant's response to a discovery request ru e h anufacture of tne Applicant Indicated it was considering legal action against t ehas mex ressed The mere fact that Applicant turbine rotor or against its own insurer.
f r of its Connors an intention to proceed with legal action against the manu acture in and of itself, proper basis for adopting tne Att:rrey Creek turbine rotor, is not, Judge finds the Therefore, the Administrative i.aw Geners!'s proposed adjustment. ld be rejected.
Attorney General's proposed Connors Creek turbine adjustment shou Plant Held for Future Use_ as three properties acquired by Applicant The Attorney General claims that frem Plant Held for Future use potential future generating sites should be removed These three properties involveo are Applicant's '.crtn power and thus from rate base.
Page 15
. omag
plant site, with an Investment cost of $1,l29,000, Applicant's site C, with an investment cost of $5,253,000, and Applicant's Rubicon plant site, with an investment cost of
$2.130,000. The net effect of these proposed adjustments would be to reduce rate base by $8,512,000.
The Attorney General claims these adjustments should he made since Applicant has no specific plans for the use of these sites. In support of his position, the Attorney General refers to Account 105 A of the Uniform System of Accounts, wnich requires a " definite plan" before the cost of electric plant can be included in rate base, and to Account 105 B of the Uniform System of Accounts which requires "a plan" for the future use of electric plant. In addition, the Attorney General claims that land which is not going to be used within a period of ten years should not be included In rate base and in support cites a Pennsylvania utility's comission case, Pennsv1vania Power comoany, 18 PUR 4, 544 (1977). The Attorney General claims these three sites will not be used within ten years, since the last of Applicant's presently planned plants are not scheduled for service until 1992. g Applicant recognizes the propriety of renoving the Worth plant investment from Plant Held For Future Use since it has recently catagorized this site as non-utility property. On the other hand, Applicant opposes the Attorney General's acjustments removing the site G and Rubicon sites from Plant Held For Future use.
it Since the Worth plant has recently been catagorized as non-utility property, is clearly appropriate that this site should be removed from Plant Held For Future use.
Therefore, the Administrative 1.aw Judge finds that the Attorney General's adjustf-ent Huever, the removing the Worth Power Plant site f rom rate base should be adopted.
l propriety of removing sites G and Rubicon from rate base is an entirely different matter.
,' First, it should be noted that Account 105A of the Uniform System of Accounts does not apply to land. Thus, it is clear that the Uniform System of Accounts iraceses no requirement for a definite plan for future use of Applicant's site G and Rubicon O
,a,e is U-6006
sites in order for them to be retained in rate base. Secondly, whereas the Pennsy-Ivania utility Commission may require a plan that land be actually used in ten years, there is no such requirement in Michigan. In the recent case of indiana & Michigan Electric Co., Case No. U-5608 (April to,1973), this Commission rejected the Attorney General and ladustrial Intervenors' proposed adjustments removing from rate base Land Held For Future Use for which there was no definite plan for its use. In the Indiana
& Michigan case, the Corrinission concluded that under the Uniform System of Accounts land may be included in Property Held For Future Use account if the utility has expressed an Intention to use the property in the future. The Consnission found such an Intent and determined the propertics were properly included in Land Held For Future Use. This same principle should be applied in this proceeding and, therefore, the Administrative Law Judge finds that the Attorney General's proposed adjustments removing Applicant's site G and Its Rubicon site from Plant Held For Future Use O should be rejected.
huclear Plants PIRGIM proposes that all amounts relating to Applicant's Termi 11 and Greenwoce 11 and lil nuclear plants be removed from the Construction Vork in Progress (CV)
component of rate base. in conjunction with this proposal, PIRGIM also requests the in rate base, to Commission to forbid any future inclusion of nuclear expenditur6 require Applicant to convert its significantly completed Termi il plant to a coal or gas-fired unit and to order an appropriate accounting treatment for expenditures to date on Applicant's Greenwood 11 and lli nuclear projects. Applicant opposes all cf these proposed adjustments and related proposals.
PIRGIM claims that its adjustments removing Applicant's nuclear generation facilities from CVIP as well as its other related proposals should be adopted because Applicant's nuclear generating facilities now under construction are uneconomic, unreliable and present grave health hazards. At the outset, it is to be notec, hc=-
ever, that PIRGIM presented no witnesses in support of its adjustments removing Fer?.i Page 17 U-60C6
i Il and Greenwood 11 ar"i Ill nuclear generating plants f rom CVIP other than through a whose very brief reference to the testimony of its witness, Dr. Steven Burnow, The only other evidence testimony concerned Applicant's future reserve requirements.
of record by which PIRGIM seeks to sueport its adjustments and proposals was the To a very testimony of Applicant's witnesses Dr. Vayne Gens and Mr. Arthur Falk.
substantial degree, PIRGIM supports its nuclear plant adjustments and proposals by reference to materials contained in its brief which are not part of this record nor which PIRGIM ever sought to have made part of the record.
This proceeding is a contested case under the Administrative Procedures Act and as such, is governed by Chapter 4 of the Act concerning procedures in contested cases. As a contested case, the decision or order of the Coenission Is to be basec evidence and on matters officially on findings of fact " based exclusively on the noticed" (Section 85 APA, MCLA i 2! .285) . Furthermore, the decision or order of the Coamission in this proceeding must be supported by competent, material and substantial evidence (Section 85, APA, MCLA 216.285). Therefore, the law Is very clear that PIRGIM's proposed adjustments and proposals must find substantiation in the record and not by materials strictly referred to in their brief.
As to PIRGIM's claims that nuclear power plants are uneconomic, the record does Indicate that the cost of construction of Applicant's nuclear generating plants have Hewever, the recore Increased significantly from their originally estimated amount. l also Indicates significant cost escalation of Applicart's fossil fuel generating l plants. Although PIRGIM seems to claim that the decoenissioning cost of nuclear plants will be extremely expensive, the only evidence of record which PIRGIM presents on this matter is that Applicant is presently estimating decommissioning costs of its nu. clear plants at 20% of the original cost. This evidence does not sustain PIRGIM's claim that nuclear plants are uneconomic.
Page 18 U-6006 h 1
6%
PIRGIM attempts to support its claim that Aoplicant's nuclear plants will be unreliable by reference to an article shown to Applicant's witness Falk during cross-examination which showed that for plants above 1,000 Mws, a capacity factor of only 55.042 had been achieved through 1978. This certainly does not serve to provide necessary support to PIRGIM's claim that Applicant's nuclear plants are unreliable.
PIRGIM also claims that there is great uncertainty as to the availability of uranium. However, the only evidence of record PIRGIM presents to support this claim is that Applicant has through its nuclear joint venture only located sufficient uranlure to fuel its Ferm! li plant for a one year period of time, and that one of Applicant's contracts for uranium for Fermi li has been renegotiated. Certainly this evidence does not provide appropriate support of PIRGIM's claim that there are serious problems as to availabill'ty of uranium.
O Finally, PIRGIM claims that nuclear power poses great health hazards.
However, the only evidence of record PIRGIM presents to support this claim is Dr. Jens' testimony that as of the present time, no permanent disposal location has been established for high level wastes. Certainly this evidence does not provide appropriate support to PIRGIM's health hazard claim.
Therefore, based on the evidence of record, the Administrative I.aw Judge finds PIRGIM has failed to support Its own contentions that Applicant's nuclear facilities now under construction are uneconomic, unreliable, and present grave health ha: arcs.
Thus, PIRGIM's proposed elimination of Applicant's nuclear generating f acilities f rct-rate base should be rejected. Since these adjustments are not supported by evidence to prohibit of record, there is likewise no basis for granting PIRGIM's request Applicant's nuclear plant frawn being locluded in rate base in the future, or for requiring the conversion of Applicant's Termi 11 plant to a coal or gas generating unit, or to order that special auditing treatment be given Applicant's Greerwood :"
and Ill units.
Page 19 U-6CC6
Nuclear Fual Applicant reflects $le7,562,000 for nuclear fuel in its rate base, wnereas Staff shows no nuclear fuel in rate base. The Attorney General originally reflected
$3,996,000 of nuclear fuel in rate base, but in its reply brief Indicated that nu-clear fuel should be entirely eliminated frors rate base. Staff and the Attorney General premise their removal of nuclear fuel from rate base because on January 23, 1379, Applicant entered a sale and lease-back agreement concerning the nuclear fuel for its Ferm! Il plant.
Based on the evidence presented. It Is readfly apparent that nuclear fuel should be removed from rate base since Applicant no longer has an ownership Interest la the nuclear fuel for its Fermi 11 generating plant. Althcugh Appilcant Indicated in its brief that It was not adjusting its case to eliminate nuclear fuel from rate base because it believed its filed case to be reasonably representative of test year conditions, Applicant Indicated it would not take issue with the removal of nuclear fuel from rate base.
O Port Huron Pacer Plant Boller Conversion Port Huron Paper proposes a reduction o rate base of $370,000 to reflect the cost of conversion to oil of one of the bollers sf the generating plant located at its facilities. Staf f originally included this conversion cost in its rate base, but in Its brief Staff Indicated It now supports Port Huron Paper's preoctwd adjustment. Applicant opposes this proposed oil conversion adjustment.
The evidence Indicates that Applicant expended approximately $370,000 so tnat tne number 4 boiler at the Port Huron Paper generating plant could utili:s either oil or gas. Although this beller conversion has been completed, Applicant has not obtaine:
a necessary permit to operate the boller on ot t from the Michigan Department of Page 20 U-6006 0
Natural Resources. Appilcant has decided not to obtain this permit at this time since in order to obtain this permit it would be necessary to extend the stacks of bollers 4 and 5 and of the peakers at an additional cost of approximately $5co,cco.
Applicant states it has now decided to postpone the project to raise these stacks because It is now assured of sufficient gas for at least the next five years.
Applicant claims that this cost of conversion of the number 4 boiler to oil should be included in rate base since in order to reduce risk to Port Huron Paper of perlodic scarcities of particular fuels, it Invested in equipment to give the boiler dual Firing capabilities. Applicant clalms that It is only because of changing regulations and availability of natural gas that it suspended completion of this conversion project.
Although Applicant's original Investment In converting the nuecer 4 boiler at the Port Huron power plant to a dual firing capability, and its subsequent decision to postpone raising the stacks so that oil may be used, may be reasonable and economic-ally justifiable, the determination as to whether the plant should be included in rate base is based on whether such plant is used and useful. Consumer P >er Cer.caa.v, Case No. U-4717 (March 8, 1976). Since apparently the nur.ber k boiler cannot ce fired by oil until the stacks are raised, the Investment expenditures for the con-version cannot at the present time be regarded as investment in used and useful plant. Therefore, Port Huron Paper's proposed adjustment reducing net plant by
$370,000, the cost of converting the nuncer 4 boiler to oil fire capability, shoulc be adopted.
Fossil Fuel X Plant The Attorney General proposes an adjustment reducing rate base by 5804.0C0 because Applicant has eliminated its " Fossil Fuel Plant X" from its construction plans. No party took issue with this proposed adjustment. The Acministrative t,a-O t Page 21
! ~U-6006 l
{
i
Working Caglial Allowance Both Applicant and $taff developed their respective Work!ng Capital Allowance of
$208.900,000 and $144,386,000, uttitzing a formullstic approach. This approach is l I
essentially based on use of 45 days of operations and maintenance expense as a i
Working Capital Allowance to which is added certain other average expenses less average accured taxes. On the other hand, the Attorney General developed a Working Capital Allowance of $3,996,000 uttilzing a balance sheet approach. The balance sheet approach essentially involves a determination of the excess of current assets over current liabilities to be used as the Working Capital Allowance. Although the Attorney General prefers adoption of a balance sheet approach to working capital, he alsodevelopesaWorkingCapitalAllowanceof$46,920,000 utilizing the formulistic approach to working capital. Since the Attorney General prefers a balance sheet approach to Working Capital Allowance, and Applicant and Staff advocate the use of a formullstic approach, the first determination concerning working capital is whether the balance sheet or formullstic approach should be adopted, in support of his balance sheet approach to working capital, the Attorney Gen-eral argues that this method should be used since it is.in accord with the accounting definition of working capital, is simple to use and produces results similar or identical to those produced by the more complex lag method of working capital ceter-mination. in further support of his position, the Attorney General claims that the that Federal Power Conunission (FPC) originally developed the formulistic method but the formulistic method is now in the process of being abandoned by its originator.
, Carolina Power and Lignt Co., 28 PUR 4th 500 (1979). Finally, the Attorney Ceneral argues that the formulistic approach to determine working capital may not be utilizec in absent specific findings of fact based on record evidence that such methocs result a' reasonable Working Capital Allowance. Rhode Island Consumers's Council v Smith, 99 PUR 3d 209, 221 (RI $ Ct 1973).
As was Indicated by the Attorney General, this Consnission, the FPC, and no its g
Page 22 w U-6006
O' predecessor the Federal Energy Regulatory Commission (FERC) have utilized the formulis-tic approach to working capital in electric cases. 14owever, the FERC is, as is shown in Carolina LIqht and Power, supra, In the process of re-evaluating its use of its present 45-day formullstic approach to working capital after which re-evaluation the FERC Indicates it may adopt a revised formullstic approach through rulamaking.
Pending receipt of the Staff report, FERC Indicates it is adcpting interia procedures for developing Working Capital Allo.ance. According to these Interim procedures, FERC will develcp a Working Capital Allowance using a lead lag study if a fully developed and reliable lead lag study is available on the record. Vhere no such study is available, the FERC Indicates It will continue to utilize the 45-day formu-listic approach. Thus, altnough the Carolina Light and Pm,er Co., suora, does signal a change in the FERC approach to working capital, this case does not provide support for not using the formulistic approach In this proceeding or provide sup;crt for the adoption of a balance sheet approach to wcrking capital. In the instant proceeding, there is no " fully developed and reliable lead lag study". Althougn the Attorney General claims that the balance sheet approach provides results similar or identical to a lead lag study, this claim is based entirely upon the unsubstantiatec and uncorroborated statement of the Attorney General's witness Mr. Kumar. Therefore, it is abundantly clear, that were the FERC's interim approach to working capital as set forth in CaroIIna Light and Power appIled to the Instant proceedings, working capital would be determined by the formullstic approach. Thus, Carolina tien: and Power _ does not support the Attorney General's balance sheet approach or even provice reason for rejection of the formulistic approach.
v Similarly, the Attorney General's cited case of Rhode Island Consumers Council Smitr. suora. does not provide support for rejection of the formulistic accreacn im In tne ,
this proceeding or adoption of the Attorney General's balance sheet approacn. 1 Rhode Island case, the Rhode Island Supreme Court determined that t?e Rhece ,
Page 23 U-6CC6 j
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l l
Island l'ublic Utilities Consulsslen's adoglon of a 45-day working capital approach h l
was unacceptable since it had been adopted solely because the Commission had a long- 1 standing approach of following this method and because the telephone utility hac presented evidence Indicating on the average that the utility did not receive payment for services until 64.65 days after rendition of service. Of particular importance to the Rhode Island Suoreme Court was the f act that the Commission had rejected the telephone utility lead lag study without identifying any contradictory or impeaching evidence. Finally, although the Rhode Island Supreme Court Indicated it had found the Rhode Island Commission's adoption of the 45-day formullstic approach unacceptable for the reasons previously Indicated, the court Indicated it was returning the matter to the Consnission for their determination of a Working Capital Allowance which would presumably still allow the Coninission to have followed the formulistic approach if it Indicated, based on the evidence of record, reasons for rejecting utilities' lead lag study approach to working capital. Finally, it is interesting to note that in the Rhode Island case the Rhode Island Conunission had approved a working capital allowance of $4,814,000 utilizing a formulistle approach, whereas the telephone utility had claimed that based on its lead lag study the Working Capital Allowance should have been $7,981,000.
As to the Attorney General's claim that the balance sheet approach should be adopted since It is easy to use, the same claim may be made for the formullstic approach.
However, whether one method or another is easy to use to determine workin; capital, does not provide justification as to which approach should be adopted.
l Finally, as to the Attorney General's claim that the balance sheet approach should be adopted because it is in accord with the accounting definition of working
)
cap' Ital, it is to be noted that if that were the proper criteria for Working Capital i
All > ance, it would certainly be expected that the balance sheet approach would have l
Page 24 u-6006 O, I
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.. -- _ . _ . _ . . . _ _ . -. . .__ .. --- l
i
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l received much greater acceptance than it has not only from this Connission, but from any other utility regulatory commissions.
Thus, based upon the record presented, the Administrative I.aw Judge finds the Attorney General's balance sheet Working Capital Allowance should not be adopted and that the formullstic approach should be utilized to determine the Working Capital Allowance in this proceeding.
Having thus determined that a formullstic approach to working capital should be adopted in this proceeding, it is necessary to determine whether Applicant's formulis-tic Working Capital Allowance of $208,090,000, Staff's formullstic Working Capital Allowance of 5144,386,000, or the Attorney General's formullstic Working Capital Allowance of $46,092.000 should be adopted. Although all three parties present Working Capital Allowances utilizing a formulistic approach, they reach censiderably different results based on the methodology used to determine their 45-day alic%ances, l
as well as on the elements Included within the Working Capital Allowances.
set forth on Exhibit A-10, Applicant's working capital allowance of $208,090,000 page 5, is determined by Individually forecasting each of the various working capital l clements. Applicant first determines a working capital component of 45 days of to which is added average casn anc operations and maintenance expense of SI20,170,000 average bank balances of $9,011,000, average materials and supt. lies of $67.956,000, From prepayments of $4,428,000 and average electric fuel inventory of $136,145,000.
this amount Applicant deducts average accrued taxes of $129,620,000.
Staff's approach to working capital involves using the same method utilized :y I
Following Staff's method, a 45-cay er the Comnission in Case Nos. U-5108 and U-5502.
1/5, operating expense cornponent attributable to fuel, operations and maintenance labor, operations and maintenance other, and production maintenance expense is first O
Page 25 U-6006
determined. This compoaant then in turn is divided by .8490, which is the ratio cf O
1/8 of these expenses to the Working Capital Allowance approved in Applicant's previous electric rate cases.
The Attorney General develops his formulistic Working Capital Allowance of
$46,092,000 on hhlbit 1-141, Schedule 8-3 The Attorney General's calculations sho-that he first began with 1979 jurisdictional operations and maintenance expense of
$1,023,536,000 and subtracts theref rom purchased power expense of $109,991.000 anc fuel expense of $562,500,000 to arrive at his adjusted operations and maintenance of
$351,409,000. The Attorney General then takes 1/8 of this amount and adds average materials and supplies of $68,038,000, average prepayments of $2,8L3,000, average electric fuel Inventory of $136,145,000, and arrives at a subtotal of $207.026,000.
As an offset to this subtotal, the Attorney General subtracts $140,704.000 for accrue:
taxes, 539,151,000 for accrued interest, and $24,975,000 for accrued dividends, anc arrives at his formulistic Working Capital Allowance of $46,092,000. g Based on the evidence presented, the Administrative Law Judge finds that the i
Staff's Working Capital Allowance, with a modification which will subsequently be discussed, is reasonable and should be adopted. Staff's Working Capital Allowance is determined In the same manner as approved by the Comission in Applicant's last two electric rate proceedings, Case Nos. U-5108 and U-5502. Furthermore, Staff's hnicit 5-124 showing the results of the Consnission's Order in Case No. U-5502 discloses enat Staff's approach has resulted in an adequate Working Capital Allowance. l The Attorney General's Vorking Capital Allowance should not be adopted since it includes three adjustments which are not appropriate for a proper determination of a Working Capital Allowance under the formulistic approach. These three adjus teents are the subtraction of fuel from operations and maintenance expense and the addition
~
of average Interest and average dividends as offsets to working capital, the net Page 26 U-6006
O ef fect of which loners the Attorney General's formulistic Working Capital Allowance by a total of $134,393,000. If these three adjustments are eliminated from consider-ation, as they should be under a proper approach to determining a formulistic capital allowance, the Attorney General's Working Capital Allowance would have amounted to
$180,485,000.
A particular comment is in order concerning the Attorney General's removal of fuel expense from his Working Capital Allowance. In support of this removal of fuel expense, the Attorney General again cites Carolina Power and 1.lght Co._, suera, however, in Carolina Power and 1.lght Co., the FERC stated that under its interim procedure for determining a Vorking Capital Allowance, the amount of expense due to the actual lag In paying for fuel rather than expense based on a 45-day period, would be utilized if available. The FERC also indicated that if the actual lag was not O known, it would continue to apply the 45-day convention.
Since in the instant pre-caeding the actual lag In payment of fuel expenses is not Indicated on the record, the the FERC Interim procedures would call for use of the 45-day convention and not elimination of all fuel expense from the Vorking Capital Allowance as recommencec by the Attorney General.
Applicant's approach of individually forecasting each element of the Working l
Capital Allowance, is not entirely an inappropriate method to develop a formulistic Working Capital Allowance, in fact, had a historic test year been utilized in this proceeding, a Working Capital Allowance would appropriately be based on these indiv j
cornponents . However, determination of an appropriate Working Capital Allowance uncer the formulistic approach is to some degree, a judgmental matter even when a historic l
l l
test year is used. When a projected test year is used, the determination of a Working "apital Allowance becomes even more judgmental since estirsates of expenses Since Staff's metnoc i
which are in themselves judgmental, are added to the picture.
Page 27 U-6006 l l
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g for determining a Working Capital Allowance has been shown to produce reasonable results and has been the method followed by the Commission in Applicant's recent rate proceedings using a projected test year, the Administrative Law Judge is not convie. cad that the Staff's method should be abandoned and Applicant's approach adopted.
Furthermore, based on the evidence of record, it appears that certain components of Applicant's Working Capital Allowance, for example, cash and bank balances, may be overstated.
Although Staff's approach to the Vorking Capital Allowance mppears to be the most reasonable approach presented on this record and is therefore adopted as appropriate The a modification should be made to Staff's Vorking Capital Allowance amount.
Staff's .8490 ratio used to determine its Vorking Capital Allowance was the same utilized by the Commission in Case No. U-5103. However, in case No. U-5103, the include an allowance for Commission recognized that Staff's working capital did not fuel inventory at Applicant's Superior Wisconsin cold dock, and accordingly increased the Working Capital Allowance by $20 million to account for this inventory. llll Its In the Instant proceedings, It was shown that Appilcant's fuel Inventory at Therefore, it Superior, Visconsin dock was now averaging approximately $14,900,000.
is appropriate that this amount be added to Staff's working capital amount of
$144,396.000. Therefore, the Administrative Law Judge finds that a Working Capital Allowance of $159,286,000 is reasonable and should be adopted in these proceedings.
Summary _
Judge fines tnat Eased upon the previous determinations, the Administrative Law the rate base to be adopted for these proceedings is:
Page 28 U-6006 0
Average 1979 Jurisdictional Rate sase Utility Plant $4,024,761,000 Plant in Service $4,024,761,000 Held for Future Use 26,281,000 Construction Work in Progress 1,155,812,000 Total Utility Plant $5,206,554,000 Depreciation Reserve (978,159.000)
Net Utility Plant $4,228,695,000 Working Capital 158,734,000 Other (12,338,000)
Rate Base Before Adjustments $4,375,091,000 Adjustments Worth Plant Site (1,093,000)
Port Huron Boller Conversion (307,000)
Fossil Fuel Plant "X" (804,000)
Total Adjustments $ (2,204,000)
Rate Base $4,372,887,000 VI.
RATE OF RETURN Extensive evidence as to the appropriate rate of return Applicant should be authorized to earn was presented on behalf of Applicant by Mr. Stanford L. Reese anc on behalf of the Staf f by Mr. George R. Stojic. Based on his testimony and Exhibit A-12, Mr. Reese recommends that Applicant receive an overall rate of return of 9.62%
and a return on comnen equity of 14.5%, whereas based on his testimony and Exhisit 5-120', Mr. Stojic recommends Applicant receive an overall rate of return of a range between 9 09 and 9.25: and a return on cocrnon equity of a range of 13.0 to 13.5%.
Page 29 L-6006
Determination as to the overall rate of return Applicant should be entitled to receive, is dependent upon a number of factors, namely the capital structure employed .
and the rates of return to be earned on cost of debt, preferred and preference stock and on common equity. Mr. Reese's and Mr. Stojte's positions as to these matters are sununarlzed as follows:
APPLICANT Percent of Amount Caoltal Cost Welchted Cost M (t) F G)
Long-Ter:n Debt $2,062,559 46.74 8.17 3.82 93,843 2.13 10.24 .22 Short-Term Debt 343,327 7.78 7 99 .62 Preferred Stock 147.787 3.35 10.67 36 Preference Stock Connon Stock Equity 1,327,609 30.08 14.50 4.36 2.54 9.62 .24 Deferred JOITC 112.010 17.037 38 0.00 0.00 Deferred ITC 308,871 7.00 0.00 0.00 Deferred Income Tax
$4.413,043 100.00% 9 62%
Total l
Page 30 U-6006 0
O' STAFF Percent of Capital Cost Weighted Cest Amount TT000) (t) F (t)
Long-Term Debt $1.999.506 47.16 4.05 3 80 74.455 1.76 7 84 .14 Short-Ters Debt 378.338 8.92 8.26 .74 Preferred Stock 143 C26 3 37 10.88 37 Preference Stock Common Stock I:quity 1.317,780 31.08 13 0-13 5 4.04-4.20 Deferred ITC 17.037)
) 7.70 0.c: 0.0c Ceferred income Tax 30* 553)
$4,239,700 10C.0Ct 9 09-9 25%
Total Although the Attorney General did not present exper; testimony on rate of return, his witness Mr. Kumar, advocated an overall rate of return of a range between 8.5kt to 9.09% and a return on comen equity of 12.5 to 131. Mr. Kumar's rate of return reccenendations were based entirely on Staff's capital structure and c=st rates but Mr. Kumar reduced Staff's return on comon equity by .5% which results In his lower overall rate of return.
Caoltal Structure Both Mr. Reese and Mr. Stojte developed a capital structure based on average st.~.;--
year 1979, although Mr. Reese also presented a projected 1979 year-end ca:ltat ture. For use in a proceeding where a projected test year is adopted, it is a=;re:riate that an average year capital structure be adopted. The capital structure of a utility can be disproportionate at any point In time depending upon the current level of the
~
varIcus components. in order to accurately assess the capital structure of a utilitv.
It should be viewed on a longer basis such as a yearly average, as tais tenes to Page 31 U-6CC6
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v---- w- ---- -, ,- - - -.
O eliminate cyclical distortion. Therefore, an average year 1979 capital structure is adopted in this Proposal for DecIslon. 1 As between Mr. Reese's and Mr. Stojic's respective average year capital structures. l there appear to be only two significant differences. First, Mr. Rasse assumes the sale of preferred stock in 1979, whereas Mr. Stojle assumes sale of preference stock.
Second, Mr. Reese included job development Investment tax credits (JDITC) In the As capital structure, whereas Mr. Stojic leaves JDITC out of the capital structure.
to these two differences, only the treatment of JDITC has a significant effect upon Applicant's overall revenue determination.
Appilcant claims that JDITC should be included in this capital structure since even Mr. StojIc admits It Is part of the capital generated by Applicant. Applicant states that JDlTC ls exactly the same as the deferred taxes and investment tax credit which Mr. Stojic Included in his capital structure and thus, there is no Justifiable reason for its exclusion from the capital structure. Finally, Applicant states that the Internal Revenue Service (IRS) has now issued final regulations on Investment tax credits for pubile utility property and that these regulations require the adoption of Applicant's JDITC position.
This Comlaston has, for some period of time, excluded JDITC from the capital structure In major rate proceedings. Justification for following this approach has been that Applicant receives a benefit from JDITC because JDITC credit amounts are entitled to earn at Applicant's overall rate of return even though JDITC, like liberalize depreciation, is obtained at no cost to Applicant.
The Comission has in the past allowed JDITC to earn at ApoIIcant's overall rate of return sInce this posture seems to have been mandated by Section 46(f) of the Internal Revenue Code of 1954 In fact, this treatment has now been confirmed by Sections 1.46-3 and 1.46-6 of the recently enacted IRS regulations referred to by Page 32 U-6006 h
1
O i 1
Applicant. This being the case, the only new issue presented in these proceedings is wnether these newly Issued regulations mandate that JOITC be included in Applicant's capital structure. After reviewing these regulations, this Administrative Law Judge finds no such mandate contained in these regulations. $ lace the Administrative Law Judge finds that these lit 5 regulations do not mandate that JDITC be included in the capital structure and since It appears that the Consission has fully addressed Applicant's other J0lTC arguments in past proceedings, the Administrative Law Judge finds that JOITC should continue to be excluded form the capital structure.
Cost of Cebe Both Mr. Reese and Mr. Stojlc separately determined cost rates for long and short-term debt for Applicant. Mr. Reese determined Applicant's 1979 cost of long-Mr. Stojic deter-term debt to be 8.17% and its short-term debt cost to be 10.24%.
mined Applicant's 1979 long-term debt cost to be 6.05: and its short-term debt cost to be 7.8k%.
As to the cost of long-term debt, there Is ef fectively very little dif ference since Mr. Reese's weighted cost of long-term debt is 3.82% and Mr. Stojic's weighted i
cost of long-term debt is 3.801.
Most of the determination of a proper cost for long-term debt is strictly a mathematical calculation since most of Applicant's long-term debt cost is a known historical cost. The only issue, therefore, relates to the cost of additional long-term debt yet to be issued. As to the cost of this yet to be issued debt, It is apparent that Mr. StojIc mede his determination based on more recent inforeation thar.
that utilized by Mr. Reese. As such, Mr. Stolle's calculation of long-terra debt
~
appears more reasonable and reliable and, therefore Mr. Stoffe's cost of long-ter-debt of 8.05: Is adopted.
Page 33 U-6005
O Unlike ths situation with long-term debt, determination of the cost of short-term debt is, because of its short duration, based entirely upon the forecasted cost of short-term debt during 1979 Two significant dKfferences account for the rather sizable short-term cost rate differences arrived at by Mr. Reese and Mr. Stojic. Mr.
Reese in his calculation of short-term debt cost assumes a 10% prime rate, whereas !
Mr. Stojle assumes a prime rate of between 8.5 anc 9.0t. Second, Mr. Asese includes fees paid for maintenance of short-term lines of credit In his calculation of the cost of short-term debt, whereas Mr. Stoj!c excludes these costs in his short-term debt cost calculation.
Turning first to what prime rate should be utilized for purposes of this case, it is noted that the last actual prime rate Indicated on this recore was 11 3/4% as of the first five months of 1979 Although a fail In the prime rate may occur as a result of recessionary conditions expected to occur in the latter quarter of 1979, the Administrative Iaw Judge finds that Mr. Reese's predicted prime rate of 10% is more reasonable than Mr. Stojte's 8.5 to 9.0t rate. With the very high rate of inflation presently existing in this country as readily appears in this record, a drop in the prime rate In the neighborhood of 3% appears highly unlikely. In fact, the Chase Econometrics Concensus Forecast for 1979, a forecast relled upon by Staff Witness Mr. Paul Carlson in his sales projection for 1979, predicts that the prime rate will only fall to 10.98%. Therefore, for purposes of calculating Applicant's short-term debt cost, a prime rate of 10% will be assumed.
The remaining Issue t'o be determined in calculating the appropriate rate for short-term debt involves whether or not fees for maintenance of Ilnes of credit should be included in computing short-tenc debt cost. In support of its argenent for including these fees in short-term *ebt etm utations, Appilcant argues that paying fees for the maintenance of s pr 4 ie ;1.ws of credit rather than maintaining Page 34 U-6006 h
O compensating balances saved Applicant and its customers $800,000 to $1,000,000 in 1578. staff, on the other hand, states that it has not endorsed the inclusion of fees for maintenance of short-term lines of credit since such fees are not applicable to most of Appilcant's short-term debt. Accordingly, Staff argues that Applicant's proposed inclusion of the cost of these fees results in a serious overstatement of short-term debt costs.
The Administrative Law Judge finds merit to Staff's claim that Appil: ant's approach of including fees for maintenance of short-term lines of credit significantly overstates short-term ' debt costs since such fees are not applicable to most of Appil-cant's short-term debt. Since Applicant has failed to properly Indicate the amount of its short-term debt which Is effec,ted by these fees, the Administrative Law Judge finds that the cost of these fees presented by Applicant should not be included in
() the determination of the calculation of Applicant's short-term debt costs.
! Having found that Mr. Reese's rather than Mr. Stojle's prime rate should be utIIIzed and having further found that the cost of maintenance fees should not be included in the calculation of short-term debt cost, the Administrative Law Judge finds a short-term debt cost of 8.95t. This calculation follows Mr. Stojic's calcula-tion set forth on Exhibit 5-120, page S, but using a prime rete cf 10%. This 8.95'I l
l rate for short-term debt is calculated as follows:
Percent of Dollar Short-Te rm Estimated Weighted Cost Description Amount Debt Cost Ra t e Rate Connercla! Paper $ 6,059,703 19 99 9.0 1.80 Notes Payable 4,730,769 15.61 91 1.42 Demand Notes 19.521,385 64.40 8.9 5.73
. Total $ 30,311,857 100.00 8.951 (k Page 35 U-6006 l
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O Preferred and Preference Stock l
Mr. Reese has reconsnended a return rate of 7.99% for Applicant's preferred stock and a return rate of 10.67% on Its preference stock. Mr. Stojlc reconenends a return rate of 8.26% on preferred stock and 10.88% on preference stock. Since most of Applicant's preferred and preference stock costs are embedded costs, Mr. Stojle's anc Mr. Reese's differences primarily relate to their projections as to the preferred and preference stock Applicant will issue in 1979 For purposes of determining Applicant's capital structure, thh Administrative Low Judge previously determined Mr. Stojle's projected sale of preferred, rather than preference Stock, to be more reasonable since it was based on more recent Information than that presented by Mr. Reese.
Therefore, based on this previous conclusion, the Administrative Law Judge finds that for purposes of this proceeding Applicant's preferred stock should be entitled to earn an 8.26% rate of:retturn and its preference stock should be entitled to earn a 10.88% rate of return.
Conwnon Eeulty As is frequently the situation in major rate proceedings, one of the most con-troverted issues in this case involves the determination of an appropriate rate of return to be earned on Applicant's common equity. The reason there seems to be sucn a dispute over the rate of return on coninon equity appears to be tefold. First, the rate of return to be earned on a utility's common equity normally has a significant Impact on a utility's revenue level. Second, although extensive studies are presented by witnesses in support of their common equity return recommendations, it is impos-sible to predict with any absolute degree of certainty the actual return on common equl'ty a utility will earn.
Page 36 U-6006 0
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1 O
in his development of a recommended return of 14.5% on connon equity, Mr.
i Reese performs five different analyses. These analyses involve (1) comparative 1
l es- ings of other utilities, (2) discounted cash flow (DCF), (3) comparative earnings of non-regulated enterprises, (4) a study of the relationship of overall return to embedded debt cost, and (5) a study of the relationship of realized returns to market prices and book values.
In his comparative earnings analysis of other utilities, Mr. Reese first compares Applicant's earnings with those of earnings of the 10 largest electric utilities In the United States based on 1977 revenues. Each of these 10 companies derived 90% or more of their revenues from electric service and each of these utilities' connon equity is sold publicly, in his comparative company analyses, Mr. Reese found that the average return en ecmnon equity for his comparable utilities was 12.5% for the period 1968 to 1971, but then declined to 10.6% in 1974, Increased to 12.1% in 1977, but agaln declined to 11.8% for the first 12 months ending June 30, 1978. In comparison, Mr. Reese found that Applicant's rate of return on average cotrrnon equity was 10.5% in 1968 and 186c but declined to 7.5% in 1974, increased to 7.9% in 1975, increased to 8.8 In 1976, and was 10.4% for 1977, but fell to 8.7% for the 12 months ending September 30, 1978.
l Although his studies showed Appilcant's reallzed common equity return to be less than the average shown by his comparable companles, Mr. Reese stated it would be a mistake to determine Appilcant's authorized connon equity return simply on the basis of similar companies. Mr Reese based this statement on the fact that realized returns on coeren equity of his comparable companies have generally been below their autho-rized levels and upon his conclusion that these realized returns have often been less than necessary for these companin to maintain their financial integrity.
O Page 37 U-6006 l
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O in addition to comparing returns on comon equity, Mr. Reese also compared the rate of return of average capitalization of his 10 companies with Applicant. For his 10 compantes, Mr. Reuse found that earnings on average capitalization showed an Increase from 7.69% in 1968 to 9.1% In 1972 and was 3 1% for the 12 months ending June 30, 1978. In comparison, Mr. Reese found Appilcant's average return on average !
capitalization was 6.9t in 1968, increased to 8.5% for 1977, but subsequently decilned to 8.2% for the 12 months ending September 30, 1978.
Mr. Reese also made comparisons between Applicant and his 10 companies as to the l
ratios of earnings on average common equity to embedded cost of debt and the ratio of i ,
earnings on average capitalization to embedded cost of debt. For his 10 companies, he found th.:' the ratio on average corruon equity to embedded cost of debt averaged 2.6 times for the period 1968 to 1970, then declined to 1.6 times during 1974, and remained at 1.6 times during 1975, 1976, 1977, and for the 12 months ending June 30, 1978. On the other hand, Mr. Reese found Applicant's ratto of earnings on average comon equity to embedded cost of debt was 2.3 times in 1968, declined to 1.0 times in 1974, rose to 1.4 times in 1977, but had declined to 1.1 times for the 12 months ending September 30, 1978. For his 10 companies, Mr. Reese found the average ratio of earnings on average capitalization to embedded cost of debt was 1.6 times for 1965 through 1970 but dropped to 1.2 times for the last four years. On the other hand.
Mr. Reese found Applicant's ratto of earnings on average capitalization to emcedded cost of debt for 1968 was 1.5 times but had declined to 1.1 times in 1977, and te 1.0 times for the 12 months ending September 30, 1978.
From these comparisons, Mr. Reese found that the erosion in relationships that occurred for his 10 company ave. ages were even greater for Applicant. Mr. Reese claimed that, in order for Applicant's rate of earnings on average capitalization to emeedded costs to be able to return to the level of 1.4 times, which he vleved as reasonacle.
Page 38 U-6006
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re a anJ using a cost of debt at December 31, 1978 of 8.10%, Applicant would re-rate of earnings of 11.3% on average capitalization. In addition, Mr. Reese claimed that, in order for Applicant's rate of earnings on average common equity to embedded cost of debt to return to the level of 2.1, which he considered reasonable, and based on a cost of debt of 8.10%. Applicant wuld require approximately a 17 0% rate of return on its common equity.
In his DCF approach, Mr. Reese noted that Applicant's stock during the last six months sold at an average price of $15.79 and peld a dividend of $1.52, thus resulting in an average yleid of 9.64%. Mr. Reese then noted that Applicant had not, over the In past seven years, earned the rate of earnings authorized by this Commission.
addition, Mr. Reese no,ted that Applicant has had to sell conenen stock at net proceeds below book value. Because of these factors, Mr. Reese c!almed that, in order to properly determine his growth rate for his DCF approach, it was necessary to adjust c
(
earnings to the amount authorized on average common equity and to measure sales of Applicant's coernon stock at boek value. After making these adjustments, Mr. Reese determined that, for the period 1972 to 1977, Applicant's growth rate In earnings per Mr. Reese then adjusted share, computed by the least squares method, was 4.64%.
Applicant's dividend payout ratio to 70%, which he deemed reasonable, and, based on this adjustment, determined Applicant's growth in dividends per share wuld be 4.63%
Mr. Reese then foune and that adjusted growth In year-end boek value would be 3 5%. i the average of his three growth rates to be 4.27%. Next, he appiled a 7.5% adjustmen:
Mr. Reese deemed this adjus:-
for selling and marketing pressure to his DCF approach.
ment reasonable since he claimed that actual selling and market pressure for Applicant's Based upon his six toernon stock issues sold since November of 1973 had been 8.01%.
assumed growth of 4.27%, his assumed yleid of 9.64% and utilizing his selling cost and pressure adjustment of 7 5%, Mr. Reese concluded that by use of his 00F for ula.
f I
an Investor mIght reasonably cxscr a return of 15 04% on Apolleant's coernon ecuity.
, Page...
3,9 c
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O in his comparative analysis of non-regulated companies, Mr. Reese determined, for the period 1968 to 1977, an average rate of earnings on average total capitalization for the 12 largest food companies and for the 5 1argest tobacco companies. In this analysis, Mr. Reese found that earnings on average total capitalization for his food compantes had averaged 12% over the last 10 years and were 13 4% in 1976 and 13 2% in 1977 Mr. Reese claimed that, had debt amounted to 50% of capitall:ation of these companies, earnings on their conwnon equity would have been approximately 20% in 1976 and 1977 In his comparison of his tobacco companies, Mr. Reese found that earnings on average total capitalization had averaged 11.4% over the past 10 years and were approximately 12.2% in 1976 and 12.4% In 1977 Had the debt of these companies been 50% of capitalization Mr. Reese claimed that earnings on. corren equity woute have been approximately 18 in 1976 and 1977 Finally, Mr. Reese compared the realized return on Appilcant's average common equity with average market to average book ratios. Through this com;arlson, Mr.
Reese concluded that, In order to have commanded a market price equal to 12C% of booi for tne value, a commoni equity reti.rn of 14.72 would have been reculred for Applicant last three years.
its Based upon the above discussed analyses, Applicant's bond rating of Baa, large construction program, the large amount of Allowance For Funds Used Ouring Construction (AFUDC), Mr. Reese concluded that Applicant's reasonable cost of ecuity wuld be approximately 14.5%.
I
! To determine his reconsnanded rate of return for Applicant's common eculty, Mr.
Stojic conducted two separate analyses, in his first analysis, he compared Applicant's l rates of return on comon equity and market-to-book ratios Elth those of comparative ele'ctric utilities, in his second approach, Mr. Stojic developed recomendations for Applicant's comon equity return ut!!! zing a DCF approach which he referred to as a
" stock valuation model".
Page 40 U-6006
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i in his study comparing Appilcant with other electric utilities, Mr. Stoilc first selected from Value 1.ine investment Survev, electric utilities with operating revenues In excess of $1 billion. From this group, Mr~ Stojic selected those compantes whlen had beta coefficients of between .60 and .80. By this selection process, Mr. Stojic found a total of 13 companies which he considered to be comparable to Applicant.
In his study of comparative electric utilities, Mr. Stojic first made comparisons between the average rate of return on convnen equity of his 13 comparable companies and Applicant. In this study, he found that return on average common equity for his 13 comparable coe.panies was 10.9% in 1978, and that the average cormon equity return for his comparable companies was 10.8% during the past five years. In comparison, Mr. Stoj!c found Applicant's 1978 cortnen equity return was 9.1% and that Applicant averaged 8.7% on comren equity for the last five years.
O Next. Mr. Stojic analyzed the market-to-book ratios of his comparable corpanies in order to determine the sufficiency of their earnings, in his examination of l
market-to-book ratios, Mr. Stojic determined that the average market-to-book ratio for the period of 1974 to 1977 was .81% for his comparable companies. Mr. Stojic also found that Applicant's market-to-book ratto was .67% for the period 1974 tnrough l
1977.
From his evaulation of earnings and market-to-book ratios, Mr. Stojic concludec that lit represented the proper common equity rate consistent with established stan-dards for determination of a proper rate of return In rate proceedings. Mr. Stoj i:
concluded, however, that, because of their continuous low market-to-book ratics, this
!!% mininum common equity return was less than required by Investors in his comparable companies and in Applicant.
Af ter stating that his comparative company approach Indicated that, a return on common equity of lit, was less than required by Investors, Mr. Stojic did not procee:
Page 41 l U-6006 l
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O further to determine what Applicant's return on ccanon equity should actually be utilizing a comparative company approach. Instead, Mr. Stojic presented criticisms against use of a comparative company approach for deternining a rate of return.
First, he stated that return reconnendations based on comparable companies should be evaluated with knowledge that the past performance may not be an accurate indication of current prformance. As a result, a period of poor performance may result in lo= l earnings and suggest a low return which was the opposite of what was needed. Mr. l J
Stojic also stated that studies of comparable companies are subject to the defect of circular reasoning. Finally, Mr. Stojic criticized the comparative company approach l 1
on the basis that the earned return on common equity may not constitute its actual cost.
l Af ter rejecting a comparative company approach to determine Applicant's coeren l I
equity return, Mr. Stojic Indicated that a utility's cost of equity should be measured by a DCF approach which he referred to as a stock valuation model. By this approacn, Mr. Stoj!c stated that Investors' yleid or expected return can be expressed as the stock's current dividend yield plus anticipated growth of the stock's dividend in the future which is frequently expressed as the formula:
k=h+G where, k = Investor required return D = anticipated annual dividend
. P = market price of the share G = expected growth rate in his DCF approach, Mr. Stojic determined the dividend yield by dividing antici-pated dividend by the sha e's price. He then determined his expected growth in earnings per share by multiplying the expected rate of return (which he calls r) by the portion of the return the utility expects to retain (which he calls b).
Page 42 U-6006 l
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In his study, Mr. Stojle took Applicant's average return on equity for the last three years of 9.4% and multiplied this by the average rate of retention for the last three years of 17.6% and thus determining a growth rate of 1.7%. Mr. Stojic then determined his stock price of $14.50 by taking the high and low market price of Applicant's stock for the first quarter of 1979 Dividing this average stock price by Appilcant's current dividend of $1.60, Mr. Stojic determined a dividend yield of lit. By adding his 1.7% growth rate to his dividend yiel'd of lit, Mr. Stojic deter-mined a required return of 12.7%. Next, Mr. StoJlc determined a 4% allowance for issuance expense based on an examination of Applicant's last three conwnon stock offerings. Adjusting his 12.7% required return by his 4% Issuance allowance, Mr.
Stojic arrived at a cost of equity for Applicant of 131%.
Mr. Stojle also used a second approach to obtain Appilcant's coccon equity rate using his DCF method. In this approach, Mr. Stojlc divided Applicant's dividend of 51.60 by Its payout ratio of .824 and arrived at a " normal" level of earnings of
$1.94. Then Mr. Stojic divided his 5194 by average book value of Applicant's stock of $18.81 and thus derived a return of 10 31. Multiplying this expected returr of 10.3% by the three year average payout ratio, a growth rate of I.8% results. Adding to his dividend yield of lit, his growth rate of 1.8%, Mr. Stojic determines a recuired return of 12.81. Finally, Mr. Stojic arrives at a common equity return of 13.2% Oy adding corrnon stock issuance expenses.
Mr. Stojic also used his DCF formula to determine the cost of equity for his 13 comparable companies. Using the same methods as used by Appilcant, Mr. Stojic arrived at a commen equity return of 13.5% for his comparable companies.
. Based upon his analysis showing a concentration of return rates of 13 0% tc 13.51 resulting f rom his s tock valuation model, Mr. Stojic arrived at his comen equity return recocinendation range of 13 to 13.5%.
Page 43 l U-6006 l
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O As previously Indicated, the Attorney General's witness Mr. Kumar, did not make any separate study to arrive at his cost of equity recommendation of 12.5% to 13t.
Instead, Mr. Kumar accepted Mr. Stojle's common equity return recomendation but reduced this downward by .5% based on a statement by President Carter's inflation advisor, Mr. Alfred E. Kahn made to the National Association of Regulatory Comissions, in which Mr. Kahn recommended that comissions approve a common equity rate of return
.5% below that which they would otherwise have determined.
At the outset, the Administrative Law Judge is of the opinion that the Attorney General's recomendation to reduce the Comnission's otherwise determined return on comen equity by .5% should be rejected. The Comission has a statutory duty under the laws of the State of Michigan to set rates that are just and reasonable. Determina-tion of a reasonable rate of return on corimon equity is part of that responsibility.
Therefore, If the Comission is to first determine a legally sufficient return on comon equity and then to reduce that by .51, it would seem to follow that the rate ;
of return thus determined would no longer be just and reasonable.
Speaking on the issue of the Comission's obligation under the Federal Voluntary Wage and Price Guidelines, the Comission. stated in the recent case of Indiana t, Michi-gen Electric Comeanv. Case No. U-5608, as follows:
"Although the Commission wishes to cooperate in a joint effort to reduce the overall rate of inflation, the Comelssion observes that there are practical limits on Its legal authority to Ilmit rate Increases. The l Michigan Legislature requires that rates by 'Just and l l reasonable', 1909 PA 106, Section 7, as amended, MCLA l l 460.357. In addition, the 14th Amendment of the United States Constitution requires '(r)ates which enable the company to operate successfully, to maintain its finan-clal integrity, to attract capital, and to c w ensate l Its Investors for the riske assumed...' Federal Power j Comission v Mooe Natural Gas Co., 320 US 591, 605 (19&i)." (Pages 75 and 76)
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O Since the Consab. ion has already determined that the Federal Wage and Price Guidelines cannot overule its statutory responsibility to assure that rates are just and reasonable, it is even more apparent that a statement made by Mr. Kahn cannot override this responsibility.
As betwe?.n the coasnon equity rate of return recorsnendation presented by Mr.
Reese and Mr. Stojic, it is read!!y apparent that Mr. StoJle's approach is much more objective. Mr. Stojic clearly appears to have made his conunon equity recaernendations based on what Investors realistically sculd expect to earn on Applicant's common equity. Mr. Reese, on the other hand, seems to have approached the comon equity Issue not on the basis of what Investors should reasonably expect to obtain from their investment in Applicant's cecinoa equity, but rather on the basis of what Mr.
Reese subjectively concludes is necessary to provide Applicant with much greater financial stability. Wile improving Applicant's financial health may certainly be an understandable coal of Mr. Reese, it cannot or should not be the overriding criteria for determining Applicant's common equity rate of return.
The objective nature of Mr. Stojic's approach is readily observec in his 00F approach. To develop his coesnon equity return recoev endation, Mr. Stojic used actua recent data as to connon equity earnings, payout ratios, dividends, dividend yields, stock market prices, issuance costs and book values. On the other hand, the subjec-tive nature of Mr. Reese's DCF approach is readily apparent by his use of several assumptions that are contra to the actual facts. Specifically, Mr. Reese assue4s that Applicant's stock sold at its market value, that Applicant had earned its autro-rized rate of return and that Applicant's payout ratto was 70%.
- The subjectivity and judgmental nature of Mr. Reese's cocinon equity recoe.mendat ce is also shown In his assumption that Appilcant's rates of earnings on average cacitaii-l 2ation to embedded cost sbculd be at a level of 1.4 times and that Acplicant's rate Page 45 ,
U-6006 i I
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O of earnings on average conunon equity to embedded cost of debt should be at a level of 2.: times. In e,ddition, the subjectivity and judgmental nature of Mr. Reese's comon equity reconwnendations are shown by his reference to what rate of return on ccarpon equity Applicant would have had to obtain for the last three years In order for its stock to have sold at 120% of book value.
Again, in his comparative analysis of non-regulated companies, the subjec-Ivity and judgmental nature of Mr. Reese's common equity reconsnendations are again apparent.
First, Mr. Reese never suf ficiently explained the comparability of his non-regulated companies. Second, after Mr. Reese shows what these non-regulated company earnings averages were, he judgmentally assumes 50% debt in their capitalizatica and then de-rives what he claims that their common equity return would the.n have been.
Only in his use of the comparativt earnings of the common equity of other electric utilities, does Mr. Reese appear to be somewnst more objective. However, after mening his compar! son of Applicant and other electric utilities, he disregards this approach on the basis that he views the earnings of his comparable companies were less than necessary to maintain their firancial Integrity. However, in fairness to Mr. Reese, it is to be noted that Mr. Stojic also claimed that the corparative earnings on common equity of other utilities should not be utilized to determine Apolicar. 's
[ return on cocinon equity.
l Having determined that Mr. Stoj ic's approach tc determine Applicant's co ren equity is clearly more objective than Mr. Reese's approach, the Administrative La=
Judge finds that Mr. Stojic's recocynended range of return on common equity l'. more reasonable than Mr.'Reese's. Having so found, however, this Administrative Law Judge has some difficulty with the common eculty rate of return range presented by Mr.
Stojic. This concern is based upon three particular factors. First, Mr. Stojic die not include any allowance for market pressure even thesgh the record reflects market Page 46 U-6006 .
l
.___.. ._.. '.....=...
o -
pressure to have In fact existed albeit to a lessor degree than is cited by Mr.
Reese. Second, a reduction of Appilcant's em equity return from the presently authorized 13.5% might well, In view of Applicant's present financial situation, actually result in an Increase rather than a decrease of Its overall cost of capital.
Applicant's first mortgage bonds are still rated Baa, and as such, Applicant is paying a premlum for its debt and other senior capital costs over that paid by ut!!I-ties having higher ratlngs. Reduction In the authorized rate of return would undoubtedly make it more difficult for Applicant's senior capital to return to the higher ratings they once coemanded and conceivably might result in a further reduction In their ratings. Furthermore, as is demonstrated by the record, Applicant's financial pic-ture Is not favorable when compared with other utilities. Thus, a reduction of Applicant's cormon equity rate of return at this time might well produce an adverse market re .tlon for Applicant's capital. Such action W uld likely jeopardize App 11-cant's construction program and its ability to provide quality service for its customers.
Finally, although Mr. Stojic's comon equity return range recomendation appears reasnnable as a general propos! tion, there is some question as to whether Mr. Stojic has sufficiently recognized Applicant's financial and business risk since his approach seeems to imply a higher coemon equity return for his comparabie utilities even though they are on the average financially healthier than AppIlcant.
For all of these reasons the Administrative Law Judge finds that Applicant's cormon equity rate of return should be maintained at 13 5%, which is the too of Mr.
Stojic's recommended range. :
I Surma rv
~ Sased upon the above findings, the Administrative Law Judge finds that Applica-:
should be entitled to receive a 9.27% rate of return on its rate base. This deter-mination is based upon the following capital structure:
Page 47 u-6006
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9 Tyne of Casital Percent of Total Cost Weighted Cos:
Long-Term Debt 47 16: 8.05: 3.2c:
1.76: 8.95 .16 Short-Term Debt Preferred Stock 8.92 8.26 .74 Preference Stock 3 37 10.88 37 Concen Equity 3I.08 13 50 4.20 Deferred Taxes & Investment Tax Credit 3 7.70 - 0 ,,
Total 100.0Ct gi l __
i VI1.
ADJUSTED NET OPERATING INCOME l
Evidence as to Applir. ant's adjusted net operating income was presented by A pli-cant, Staff, and the Attorney General. Applicant claims that the adjusted net opera-I ting income for projected year 1979 should be $323,467,000; Staff claims that the adjusted net operating income should be $329,782,000; and the Attorney General claims that the adjusted net operating income should be $382,IO7,000. Applicant and the l 1
On Attorney General'> adjusted net operating Income amounts are directly comparable.
the other hand, Staff and Applicant's adjusted net operating income are not dire:tly comparable since the Staff's presentation includes operation of App!! cant's new Greenwood I facility in its adjusted net operating income, whereas Applicant cames a separate adjustment to revenue of $23,784,000 to annuallze the effects of the Green-wood I operations. The following discussion concerns only contested adjusted net operating income adjustments. No discussion is presented concerning adjustments te net ooerating income which are not contested by the parties. l i
Page 48 U-6006
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l Coerating Revenues The parties deters =Ine projected 1979 operating revenues by first projecting 1979 )
sales by major rate classas. Then by applying appropriate rates in effect to these sales, they derive their projected 1979 revenues.
Evidence as to Applicant's projected 1979 electric sales was presented by Appli-cant's witness Mr. Harry Williams, by Staff's witness Mr. Paul Carlson, and by the Attorney General's witness Mr. Kumar. Mr. Williams predicts 1979 sales of 37,295,000
, Mwh; Mr. Carlson predicts 1979 sales of 37,832,400 Nh; and Mr. Kumar predicts 1979 sales of 39.557,164 N h.
Mr. Williams Indicated that Applicant's sales were derived by regression tech-niques in which Applicant first divided sales into four main sectors of manufacturing, non-manufacturing, domestic and miscellaneous. Energy use in the manufacturing sector was separately forecasted for automotive, steel, chemicals, fabricatec metals and miscellaneous manufacturing subcategories. Energy use in the non-manufacturing sector was separately forecasted for construction, transportation, coernunications and public utilities, wholesale and resale trade, finance, insurance, real estate, service and government, miscellaneous, outdoor protective lighting and commercial water heating subcategories. After the manufacturing and non-manufacturing sector components were established sales were allocated to the various primary and commercial classifica-t i tions.
Applicant determined its 1979 domestic class forecast by separately forecasting annual average use per customer for base electric use, energy used in all electric homes and energy used for domestic water heat.
Included in Applicant's base electric use was electric energy used for household appliances, lighting, air concitioning anc space heating. To determine the miscellaneous classes of service, Acclicant disaggre-gated this area into the four major components of wholesale for resale, municipal purnping, streetIIghting and interdepartmental use.
o... I,a
Mr. Carlton develops his 1979 sales projections by use ni en analytical tech-nique referred to as multiple regression. To determine his residential class sales he separately forecasted average use per customer and the total number of customers.
Variables utilized by Mr. Carlson to determins his average use per residential cus-tomer included estimated air conditioning saturation, number of coolir] days, real Income, real price of electricity and the unemployment rate. To determine commercial sales, Mr. Carlson analyzed the total stock of electric devices and the degree which each stock was used. Factors Mr. Carlson determined to affect commercial sales included real Income, the real price of electricity and heating and cooling degree days. To determine his industrial class of sales, Mr. Carlson subdivided the industrial class into non-manufacturing, metals, automotive, chemicals and miscellaneous subgrou::s.
The first three of the subgroups were determitied using a regression analysis, the chemical subgroup was presumed to remain at 1978 levels and the miscellaneous was forecastec on the basis of its relationship to other members of the class, unlike Mr. Williams and Mr. Carlson, Mr. Kumar did not separately predict sales for each category but Instead determined his sales levels by means of adjustments to Applicant's profected sales levels. First, Mr. Kumar increased Applicant's ad-justed sales upward based on actual sales of the first three months of 1979 being higher than projected for those mor.ths. Second, Mr. Kumar increased Applicant's industrial class sales so as to remove the effect of an automobile strike anc a recession, both of which assumptions Applicant had included in its sales projections.
As between the sales forecast presented by Mr. Williams, Mr. Carlson and Mr.
Kumar, It appears that Mr. Carlson's forecast is the ecst reasonable. First, it appears that Applicant and the Attorney General both failed to properly take into con lderation the ef fect that conservation has had upon Applicant's dorwstic and As commercial sales, whereas Mr. Carlson has properly accounted for this phenomena.
Page 50 U-6006
O to Industrial sales, it appears that Mr. Williams' projections are too extensively On the other affected by effects of an automoblie workers strike and a recession.
hand, Mr. Kumar has developed an unreasonably high Industrial sales projection on the basis that any and all effects of a recession or an automoblie strike should be removed. In comparison to Mr. Williams' and Mr. Kumar's approaches, Mr. Carlson appears to have reasona ly reflected what Appilcant's Industrial sales snould be.
Unilke Mr. Williams, he does not unduly reduce Applicant's sales based on considerations of an automobile strike:or recession. On the other hand, unlike Mr. Kumar, Mr.
Carlson did consider that a recession wuld have somewh3t of a dampening effect on Applicant's projected 1979 Industrial sales.
Once 1979 sales levels are determined, it is then necessary to determine the resulting revenues thes'e sales will produce. Applicant, in its direct case, predicted 1979 electric revenues of $1,585.574,000; Staff predicted revenues of $1,654,482,000; and the Attorney General predicted revenues of $1,644,462.000.
During the rebuttal phase of these proceedings, Appilcant's witness Mr. Donald the total revenues forecasted by Okon, presented testimony and exhibits claiming that each of the parties had been overstated. This overstaterent had occurred, according to Mr. Okon, because the parties used billing determinant data obtained prior to the Commission's Order in Case No. U-5502 on september 28, 1978. Speelficalt . Mr. Okon claimed, that ';4 sed on billing determinant data obtained subsequent to the U-5502 Order, downwce adjustments should be made to revenues obtained from the industrial Based on Mr. Okon's rebuttat evidence.
classes and from Senior Citizens Rate D-1.3 Applicant claims that its projected 1979 industrial class revenues should be reduced by $21.8 mittion and Staff's projected 1979 industrial class revenues should be reduced by $19 million, and that both Applicant and Staff's projected 1979 senior citizen rate revenues should be reduced by $2.3 million.
Page 51 U-6006
O Applicant's proposed senior citizen revenue reduction adjustment is opposed by Staff and the Attorney General, and AppIIcant's proposed industrial class revenue adjustment is opposed by Staff, the Attorney General and the Industrial Intervenors.
In his rebuttal testimony, Mr. Okon cialmed that the Staff had utilized incer-rect billing determinants for both the industrial classes and the senior citizen rate. Although Mr. Okon acknowledged that Staff's billing determinants were compar-able to those Applicant had utIIIzed in originally determining revenues, Mr. Okon crl-ticized Staff's use of its billing determinants since Applicant had provided Staff with discovery material Indicating that billing determinants based on data subsequent to the U-5502 order would be appropriate.
As to senior citizen revenues, Mr. Okon stated this rate was designed to break even with domestic Rate 0-1 at approximately 550 Kwhs. As a result, Mr. Okon claimed that Staff should have adjusted its billing determinants to reflect only customers averaging less than 550 Kwhs per nonth. To remedy this problem, Mr. Oken pro posed using data accumulated under Rate 0-1.3 for the period Februa.y through May, 1979 According to Mr. Okon, this data showed billing determinants for o to 300, 301 to 500, and over blocks to be 86.40%, 11.95 and 1.65%, not the 73.102, 17.45: and 8.852, respectively used by the Staff. These new billing determinants, according to Mr. Okon, results In a revenue overstatement of $2.3 million.
As to the Industrial classes, Mr. Okon cialms that billing determinants based on hours use of demand data for the period October,1978 to April,1979 should be used.
Specifically. Mr. Okon claims this data shows hours use of demand to be 491 hours0.00568 days <br />0.136 hours <br />8.118386e-4 weeks <br />1.868255e-4 months <br /> for i
tr. 0-6 class, 578 hours0.00669 days <br />0.161 hours <br />9.556878e-4 weeks <br />2.19929e-4 months <br /> for 0-7. 495 hours0.00573 days <br />0.138 hours <br />8.184524e-4 weeks <br />1.883475e-4 months <br /> for E-4 and 637 for the Industrial power l plants. On the other hand, Mr. Okon states that Staff's billing demand hours show 458 hours0.0053 days <br />0.127 hours <br />7.572751e-4 weeks <br />1.74269e-4 months <br /> for 0-6. 531 hours0.00615 days <br />0.148 hours <br />8.779762e-4 weeks <br />2.020455e-4 months <br /> for D-7, 481 hours0.00557 days <br />0.134 hours <br />7.953042e-4 weeks <br />1.830205e-4 months <br /> for E-4 and 671 hours0.00777 days <br />0.186 hours <br />0.00111 weeks <br />2.553155e-4 months <br /> for the indus-trial power plants.
l Fage $2 U-6006
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lt is acknowledged that the Conssission's Order in Case No. U-5502 af fected Applicant's industrial class rates and obviously affected the senior citizens' rates since this rate class was just established in Case U-5502. As to the Industrial rates, two basic changes resulted from the Commission's U-5502 Order. First, the peak hours were reduced f ross 12 to 8 hours9.259259e-5 days <br />0.00222 hours <br />1.322751e-5 weeks <br />3.044e-6 months <br />, and second, for Aate 0-6, the demand interval was changed from a single 60 minute high demand to the average of the four weekly highest 30 minute demands.
After consideration of the evidence presented, the Administrative Law Judge finds that Applicant's proposed reverie adjustments concerning industrial revenues and senior citizens' revenues should not be adopted.
As to the senior citizens' proposed adjustment, it is noted that this is based on only four months data or 1/3 of the annual billing period and thus, may not be typical of annual patterns. Additionally, seasonal factors may be relevant in deter-mining proper billing determinants, and therefore, a full year should be considered. ,
1 A second major problem exists concerning Mr. Okon's senior citizens' adjustment, and i I
that is that Mr. Okon showed an average use of 267 bhs, whereas Staff shows an average use of 333 bhs per customer. As average use per customer increases, there is a corresponding increase in the number cf bhs which fall in the upper two blocks.
Mr. Okon, however, merely applied his data to Staff's total bh sales without taking into consideration the variance in average use per blil between his data and that of Staff's.
As to Mr. Okon's adjustment concerning the industrial rates, it is noted that Mr. Okon criticized Staff for utilizing Applicant's original billing determinants an:
app ylng them to Staff's different sales level. However, upon analysis it was showr that for the 0-6 class there are only 6 hours6.944444e-5 days <br />0.00167 hours <br />9.920635e-6 weeks <br />2.283e-6 months <br /> of use in the billing determinants tna:
O are possibly attributable to Staff's use of different sales levels, and even this
?sge 53 u-6006
dif ference could be at.**cted by other factors such as load management. As to the O-7 class. no portion of the hours of use bilitng determinants between Staff and Appli-cant is attributable to Staff's different sales level. Second, although Mr. Okon points to the reduction of peak hours from 12 to 8, he admitted that this change was taken into consideration in Appilcant's original lodustrial class revenue determina-tions. Third, Mr. Okon's justification for use of 491 hours0.00568 days <br />0.136 hours <br />8.118386e-4 weeks <br />1.868255e-4 months <br /> of billing determinations for the D-6 rate class was based on data obtained subsequent to the Comission's U-5502 Order. However, this data shows that for the period of January to April, 1979, the hours of use decreased from 526 In January to 469 hours0.00543 days <br />0.13 hours <br />7.75463e-4 weeks <br />1.784545e-4 months <br /> in April, a spread of 57 hours6.597222e-4 days <br />0.0158 hours <br />9.424603e-5 weeks <br />2.16885e-5 months <br /> of use. This downward trend conceivably may continue, and as a result, Mr.
Okon's le91 hours may be overstated. Therefore, based on the evidence presented, Mr.
Okon's data is Insufficient and Inconclusive to support Applicant's proposed industrial class revenue adjustment.
Fuel and Purchased Power Excense Applicant determined projected 1979 fuel and purchased power expense of $6c4,516,000 and Staff determined projected 1979 fuel and purchased power expense of $737,334,000.
The At torney General did not separately submit a proposed fuel and purchased power expense but Instead adopted Applicant's expense as its own. The Attorney General opposes adoption of Staff's proposed fuel and purchased power expense and has expressed several criticisms of Staf f's proposed expense.
First, the Attorney General claims that, because Staff's case shows $50 million more of fuel and purchased power expense, the 10% factor in the fuel and purchased power clause will provide Applicant with $5 million more in revenues than Applicant itself is requesting. Second, the Attorney General claims that Staff's fuel costs are based upon an unsigned memoranda containing alleged 1979 fuel and purchased power Page 54 U-6006 0
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costs artd capacity factors. Third, the Attorney General criticizes Staff's fuel and purchased power cost since they were not developed utilizing a dispatch or redispatch of Applicant's system. Fourth, the Attorney General criticizes Staff's capacity factors utilized in its fuel and purchased power calculations. Fifth, the Attorney General criticizes Staff's base fuel cost utilized in its fuel and purchased power i
expense calculations. As to this matter, the Attorney General criticizes Staff for using March, 1979 fuel costs for its fuel base in its calculation. The Attorney General claims that one month's fuel cost is not representative of a full year's fuel cost because fuel costs are cyclical and ter.d to be higher in the first part of the year. Sixth, the Attorney General claims that Staf f has twice included fuel handling expense in its case; first, Staff included fuel handiing expense in its fuel and purchased power expense and second, Staff included fuel handling expense in its operations and maintenance expense.
At the outset, it is to be noted that Staff's fuel and purchased power expense is greater than Applicant's due to two essential reasons. First, Staff assumed greater electric sales than did Applicant, and second, Staff's fuel and purchased power expenses are determined utilizing later and more expensive actual fuel and purchased power costs than used by Applicant. With this factor in mind, it is new and purchased appropriate to discuss the Attorney General's criticisms of Staff's fue) power expenses. Turning first to the Attorney General's criticism that Staff's fuel and purchased power costs are higher than Applicant's, the Administrative Law Judge finds this criticis'm to be entirely irrelevant to the determination of tne appropriate fuel and purchased power expense to be adopted since the relevant determination to be made is what are the fuel and purchased power expenses Applicant should experience in 1979 Similarly irrelevant is the Attorney General's criticism that staff utilize ar.
O unsigned memoranda from Applicant in the calculation of Its fuel and purchased Page 55 U-6006
l l
power cost, as well as its capacity factors. This criticism is specifically unjus-Oi !
i tifled for tre reasons. First, Staff's witness who developed Staff's fuel and pur-i chased power costs verified the reasonableness of this supplied cost Information with Staff auditors; and second, the Attorney General's own witness, Mr. Kumar, utIIIzed
. Appilcant's fuel and purchased power expense figures without performing any indepen-dent vert fication of their reliability.
As to the Attorney General's criticism of lack of a dispatch or redispatch study, although such a study might possibly have been helpful, it is to be noted that such a study is quite involved and time consuming. Since such an analysts involves many assumptions, It is questionable as to whether the effort required to perform such studies, would have been justified or would have provided any more conclusive results than the approach utilized by Staff witness Mr. 1.auchlin MacGregor.
A more serious criticism of the Attorney General was that Staff's fuel base of
$16.44 was unrepresentative of 1979 costs. However, the record shows that Amplicant's Feb rua ry , 1979 fuel cost turned out to actually be $17.36 per Mwn, its March, 1979 fuel costs were $15.47 per Mwh and its April, 1979 fuel costs were $15.65 per Mwh.
Although the Attorney General's witness, Mr. Kumar, claimed that fuel handling expenses had to be removed f rom these costs, the evidence presented showed Mr. Kur.ar to be in error as to this claim since these costs specifically did not include fuel handling costs. As to the Attorney General's claim that fuel costs are cyclical and tend to be higher in the first quarter of the year, it is noted that Exhibit 1-148 which was utillzed to substantiate this claim, contains 1978 data. During the first quarter of 1978. Applicant's fuel costs were higher than those later in the year as a result of decreased use of coal because of the coal strike existing at that tir e. In fact Staff's proposed 1979 fuel costs are less than the fuel cost shown for the first quarter of 1978. Thus, based upon the evidence presented, Staff witness Mr.
l MacGregor's fuel cost of $16.44 per Mwh does appear reasonable.
1 Page 56 h'
U-6006 l
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O Another criticism of the Attorney General concerns Staff's capacity factors.
Mr. MacGregor based his capacity factors on actual 1978 results adjusted to remove the effects of the coal strike by increasing the capacity factors for Applicant's coal-fired plants. The Administrative Law Judge finds this assumption reasonable and thus finds Mr. MacGregor's capacity factors to be reasonable.
Unlike the previously discussed criticisms of the Attorney General, the Attorney General's criticism that Staff has twice included fuel handling expense does appear to have merit. First, it is noted, that fuel handling expense was included in the Therefore, fuel other operations and maintenance base adopted in Case No. U-5502. .
handling expenses have been included in Staff's other operations and maintenance expenses in this case. Second, Staff witness, Mr. MacGregar included fuel handling Staff, however, has recognized this expense in his fuel and purchased power expense.
fuel handling expense problem and. In its reply brief, proposed to alleviate the problem by removing fuel handling expense from its other operations and maintenance expense.
Judge finds that Based upon the evidence presented, the Administrative Law Staff's fuel and purchased power expense should be adopted for use in this Proposal I for Decision. Staff's fuel and purchased power expense is based on Staff's higher As sales levels which were previously found appropriate for use in this proceeding.
has just been Indicated, Staff's capacity factors and its projected fuel cost base appear reasonable. Furthermore, the remaining fuel and purchasec power assumptions Finally, the used in Staff's fuel and purchased power costs appear reasonable.
problem of fuel handling expense appearing in both Stafi's fuel and purchased powe-expense and in its other operations and maintenance expense can be best handiec :v The Commission.
removing this expense from other operations and maintenance expense.
In its Case No. U-5502 order indicated that fuel and purchased power expense was not l Page 57 U-6006 1
l
to be part of the other operations and maintenance expense base. Therefore, since fuel handling expense is part of fuel and purchased power expense, it shoule be removed from other operations and maintenance expense.
production Maintenance Expense Applicant, Staff and the Attorney General presented testimony on production maintenance expense through witnesses Mr. James Maylen, Mr. James Padgett and Mr.
Kumar, respectively. Mr. Maylen reconvnends a production maintenance expense in the amount of $81,738,000; Mr. Padgett reconunends a production maintenance expense amount of $82,414,000 if Greenwood I is included, or $80,446,000 if Greenwood I 15 excluded;
- and Mr. Kumar retornrmnds production maintenance expense of $74,928,000. Since Mr.
Padgett and Mr. Maylen's production maintenance expenses are comparatively close, the controversy as to this issue, is essentially between Applicant and Staff on the one hand, and the Attorney General, on the other.
To arrive at his production maintenance expense, Mr. Kumar first started witn Applicant's proposed production maintenance expense and made two downward adjusteents.
First, Mr. Kumar lowered production maintenance expense by $2,810,000, on the basis that power system operatlons is the only production maintenance expense function tnat should be included in production maintenance expense amounts. According to Mr.
Kumar, the remaining production maintenance expense functions of manager of materials, treasurer, manager of engineering and construction and, accounting adjust:nents and redistributions should be excluded because these functions are included in the otner operations and maintenance base. In his second adjustment, Mr. Kumar reduces Accli-has cant's production maintenance expense by $4 million, on the basis that Applicant over-estimated its production maintenance expenses.
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C' Mr. haar premises his exclusion of four production maintenance expense functions l 1
on tim basis that in Case No. U-5502, Applicant's production maintenance expense Therefore, Mr. hmer witness only testified as to power system operations expenses.
1 concluded that the remaining production maintenance expense functions in Case No. U-5502, had been included in the other operations and maintenance expense base.
However, contrary to Mr. haar's claim, the record clearly shows that these remaining production maintenance expense functions were not included in the other operations and maintenance expense base in Case No. U-5502 and thus, Mr. Kumar's proposed
$2,810,000 :Justment is based upon an incorrect premise. Clearly, these remaining production maintenance functions are properly part of production maintenance and not part of other operations and maintenance. Therefore, the Administrative Law Judge finds.that the Attorney General's $2.810,000 adjustment should be rejected.
O in support of Mr. Kumar's second adjustment, the Attorney General states that Applicant overestimated actual production maintenance expense by $4 million in 1977, and by $5.363.000 in 1978. In addition, the Attorney General claims that his adjust-ment is justifled since 1978 maintenance expenses may have been abnormally hign i
because of a catch-up of maintenance that was deferred during the 1971 through 1971.
l Also, the Attorney General claims that the 1979 budget includes heavy period.
l Finally, the Attorney expenditures for feedwater equipment wnich should be normalized.
General claims that Appilcant had the second highest maintenance expense per unit of a 20 utility survey conducted by Mr. Kumar and that it is therefore reasonacle to expect Applicant to bring its expenditures more in line with that of other utilities.
The Administrative I.aw Judge finds that the Atto ney General's second adjustment I
should likewise be rejected. Both Mr. Maylen and Mr. Padgett presented clear and f
convincing evidence as to the actual production and maintenance expense to be expecte:
during 1979 In f act, for the first quarter of 1979, Applicant's production mainten-Page 59 U-6006 i
l
ance expense was $20,164,000, which is very close to its budgeted amount of $20,305,000.
At this time Applicant is in the process of converting its ceal-fired units to burn low sulfur coal. Industry experience has shown that this conversion occasions considerable maintenance sapense. A further reason that the Attorney General's adjustment should not be adopted is that Applicant's increased maintenance expenditures of recent years has resulted in increased reliability of its units, thus minimizing replacement power costs and future construction costs which clearly serves to benefit the ratepayers. Furthermore, there is no justification to decrease production main-tenance expenditures on the basis of normalization, since there is no indication that production maintenance costs can be expected to decrease in the future.
As between Applicant and Staff's production maintenance amounts, the AdministratIwc Law Judge finds Staff's amount to be more representative of expected 1979 procaction maintenance expenses e Therefore, Mr. Padgett's production maintenance expense amount including Greenwood snould be adopted.
O Other coerations and Maintenance Exoense in its final Order in Case No. U-5502, the Connission adopted an indexing system under which operations and maintenance expenses, excluding fuel expense, purchased {
l power expense and production maintenance expense would be Increased each year from ar. j I
estimated base in accordance with the increase in the National All Conredity Consumer i Price index (CPI) established at December hearings in each year. In that Orcer, the Connission established a jurisdictional electric other operations and maintenance ex-l pense base for 1978 of $249,090,000. Thus, according to the system so establisned, i
other operations and maintenance expenses would not be Individually determined in future rate cases but would be ratioed upward from the base established utilizing the ,
C P l'. Honever, the Comnission recognized that changes to its system might be sub-j sequently proposed and stated on this matter as follows:
Page 60 U-6006 O
O' "Although the Comunission cannot under the governing statutes absolutely preclude Applicant from requesting a rate increase, the Commission FINOS that if Appilcant requests a rate increase for increased 'other 0 s M' expenses beyond that which would occur automatically while the Indexing system is in effect, Applicant should have a substantial burden showing the neces-sity for such an increase. If Applicant enjoys the benefits of the indexing system, it is only equitable that it be required also to bear the burdens.
"However, the Commission FINDS that the indexing system established by this order should be subject to alteration on application of Applicant or suggestion of the Staff or Intervening parties. It would not be in the public Interest to freeze the systems so adjustments could not be made. The Connission is establishing a new program, in most new programs there are ' bugs' which must be eliminated to make the program work properly. In addition, the long-run future is uncertain. The Comnission simply must have the flexibility to deal directly with unanticipated serious problems.
However, where Apolicant recuests a change in the Indexing system, Applicant will have a heavy Durden O to demonstrate the necessity of the change." (Pages 129-130, Empnasis added)
In this preceeding, Applicant in its direct case, sought an increase in other operations and maintenance expenses beyond the approximately $272 million amount which would automatically occur under the other operations and maintenance syste":
established in Case No U-5502. Applicant in its direct case presentation originally sought, on a total company basis, other operations and maintenance expenses of
$322,491,000, which amount it subsequently modified to $309,619,000, or a jurisdictional amount of $305,284,000, by removal of fuel handling expenses of $12,872,0C0. Applicant's proposed other operations and maintenance amount of $322,491,000 is set fortn in Exhibit A-23 and was testified to by Applicant's witness Mr. Bernard. Tnis other operations and maintenance amount essentially constitutes the projected 1979 other opei'ations and maintenance expense Applicant arrived at through use of its computeri:e:
financial model. According to its proposal, presented in its direct case, Applican 's projected 1979 operations and maintenance expenses, as testified to by Mr. Bernard, would then serve as the new operations and maintenance base for use in the otner operations and maintenance indexing system.
Page 61
In his testinony, Mr. Bernard stated that the other operations and maintenance h base established in Case No. U-5502 was based on 1977 historical Information to which an inflation factor was used to arrive at projected other operations and maintenance expenses for 1978. Mr. Bernard claimed, however, that during 1977, Applicant was still suffering from a financial crisis that struck Applicant In late 1974, continued through 1975 and 1976 and from which Applicant had only partially recovered from In 1977. During this financial crisis, Mr. Bernard claimed that Applicant had imple- j mented an extreme austerity program In which many constraints were imposed includin3 suspension of its construction program, a hiring free:e, a special early retirement ,
}
j program for its employees, and sale and lease-back of Its vehicle fleet and unit trains. According to Mr. Bernard, this austerity program was lifted in February, 1977, at which time Increases in operation and maintenance personnel were allowed.
H:>eever, because Applicant's hiring process has been con 91stely shut down and because ,
J of the loss of people through attrition, Mr. Bernard claimed that additional time was necessary for Applicant to build up Its employee complement to what it deemed to be a h l
proper level. Mr. Bernard claimed that this proper level is set forth on Exnibit A-i In addition, Mr. Bernard claimed that exhibit sets forth an appropriate level l 23 l l
for its other operations and maintenance 1979 e.xpenses and would serve as an 40;ro-priate base to which to apply the other operations and maintenance Indexing system.
I In Staff's direct case presentation, Staff witness Mr. John Abramson recoc:4nded rejection of Applicant's direct case proposal but proposed a change in the other operations and maintenance system which would provide for a slight Increase in the other operations and maintenance base. Specifically, Mr. Abramson proposed converting to a unit the other operations and maintenance expenses determined in Case u . U-550:
To this unit cost, Mr.
cost of 7.06 mills per bh based on actual 1978 kh sales.
Abramson next added the CPI adjustment of .53 mills authorized by the Comission in its January, 1979 Order. Mr. Abramson then recommended this resulting 7.59 mill unit Page 62 h 3-5006
O-cost be appit i to the estimated 1979 jurisdictional metered sales volumes to este5tish 1979 other operations and maintenance expense levels exclusive of other operations and maintenance related to steam sales and special program changes such as the sentnly water reading proposal. Next, Mr. Abramson took Mr. Carlson's sales forecast of 35,950.2 million bh and multiplied this by his 7.59 mills per hh and derived To this
$272,862,000 for electr.ic other operations and maintenance expense for 1979 amount Mr. Abramson added Staf f witness Mr. Serquist's steam other operations and maintenance amount of $3,455,000 and $4,181,000 for Applicant's proposed nonthly meter reading program. Mr. Abramson's resulting total jurisdictional other operations and maintenance expense thus derived was $220,598,000.
Mr.Abramsonclal$edhisproposedmodificationtoconverttounitcostallowance using metered 1978 actual jurisdictional sales was appropriate because all parties projected sales for 1978 in Case No. U-5502 substantially missed actual 1978 sales.
Furthermore, Mr. Abramson Indicated that the Commission's Order in U-5502 assumed a sales level that was higher than 1978 sales and in fact, was even higher than Staf f's f
sales projections for 1979 Mr. Abramson Indicated another possible expense which could be added to the other operations and maintenance expense base was the additional operating expense of bringing Greenwood I generating unit on line. However, Mr. Abramson did not recemend this expense be added to the other operations and maintenance expense base since Applicant has over past years roughly demonstrated the ability to keep this catego'y of expenditures in line with the rate of inflation on a unit cost basis.
Mr. Abramson was particularly critical to what he regarded as Applicant's
" laundry list" approach of modifying the other operations and maintenance system.
However, Mr. Abramson did feel that tae additional expense involved in converting to that should monthly meter reading of Applicant's domestic customers was an adjustinent page 63 U-6006
be made to the other operations and maintenance base because of the merits of utilizing monthly meter reading for Applicant's domestic customers and because this lh was an increase expenditure outside the scope of the Commission's U-5502 Order.
In the rebuttal phase of the proceeding, Applicant presented, through its witness Mr. Earnest Grove, Jr., three alternative operations and maintenance recom-mandations in rebuttal to Mr. Abramson's proposed other operations and maintenance system modification.
In his first alternative proposal, Mr. Grove increased the U-5502 base of
$249,090,000 by $4,010,000 to recognize 1978 level of operations being higher than those for 1977, thus resulting in a total of $253,100,000. Mr. Grove then divided Then Mr.
this total by 1978 sales to derive a 1978 unit cost of 7 17 mills per Kwh.
Grove multiplied his $253,100,000 amount by 7.86, ths CPI utilized in the Commission's January, 1979 Order and divided this product to arrive at an inflationary amount of
.56 mills. Mr. Grove then added to his base unit cost of 7 17 mills his inflationary Multiplying unit cost of .56 altis and arrived at a total unit cost of 7.73 mills.
this cost by $taff's 1979 projected jurisdictional sales and adding monthly meter lh reading cost of $4,281,000, Mr. Grove derived a jurisdictional metered electric other Adding other operations and operations and maintenance expense of $282,176,000.
maintenance expense for steam and Industrial power plant customers resulted in a total jurisdictional other operations and maintenance expense of $285,529,00c under Applicant's proposed alternative one.
In his second and favored, alternative other operations and maintenance aporcach, Mr. Grove first took 1978 actual other operatiens and maintenance expense are sustracte the '6st of Applicant's deleted light bnib program, thus resulting in a 1976 other Olviding snis amount my operattuns and maintenance expense amount of $268.256,000.
at of 7.6 mills.
actual 1978 sales of 35,279,045 Mwh, Mr. Grove dertved a 1972 Using the 7.86% increase authorized by the Connission in Its January,1979 Order, Mr.
Multiplying his Grove determined a .60 mills per Kmh inflationary unit cost.
Page 64 U-6006
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resultant 8.2 mill unit cost by Staff's 1979 sales estimate of 35,950,20c Mwh, Mr.
Grove arrived at a 1979 other operations and maintenance expense of $294,792.000.
Adding monthly meter reading cost of $4,281,000, Mr. Grove determined an other operations and maintenance metered jurisdictional electric amount of $299,073,000.
By adding $5,269,000 for miscellaneous steam and industrial power plants, Mr. Grove determined a total jurisdictional other operations and maintenance expense of
$304,342,300.
In his third alternative operations and maintenance approach, Mr. Grove reviewed I
the items making up Applicant's original operations and maintenance amount as testified to by Mr. Bernard and then determined seven areas of cost increases from 1977 to 1979 Mr. Grove then computed the cost increases of each of his seven categories by using 1977 actual cost and indexing these by the 1978 inflation factor of 7% used in Case No. U-5502. Next. Mr. Grove applied the 1970 Inflation factor of 7.86 used in i
the January, 1979 Indexitg order to determine costs included at the present rates.
Mr. Grove then subtracted these costs from estimated 1979 other operations and maintenarce costs to determine additional costs to be included in the other oper.tions and maintenance expense. The resulting other operations and maintenance ju.-isdictional 1
I expense Mr. Grove thus derived was $300,153,000.
Mr. Grove stated that as to his three alternative other operations and maintenance l
proposals, he favored adoption of his second alternative since it uses actual 1978 Mr. Grove stated empenses to which growth monthly meter reading expenses were added.
that, although alternative one was not his suggested choice, it had the advantage over Staff's proposal of recognizing that 1978 costs were greater than 1977 Costs Mr. Grove admitted that because of the increased level of sales of 1978 over 1977 that his alternative three approach is similar to Mr. Bernard's original approach but it limits itself only to major areas of cost increases.
Numerous parties took various position, car. - dig hplicant and Staff's other l Page 65
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operations and maintenance proposals. The Attorney General, PIRGIM, Citizens Lobby, the industrial Intervenors, the Steam intervenors and the industrial Power Plant intervenors all recomended rejection of Applicant's various proposals to modify the other operations and malntenance system. The Attorney General expressed explicit and PIRGIM and Citizens Lobby expressed implicit opposition to Staff's proposed modifica-tions to the other operations and maintenance system and,the Industrial Intervenors expressed opposition, in part, to Staff's proposed other operations and maintenance system modifications.
The Attorney General objected to Applicant's other operations and maintenance proposals on the basis that Applicant is poor at projecting costs, that Applicant is an inefficient utility, and that Applicant's other operations and maintenance forecasts in its direct case was based upon an employee complement it would never reach. The Attorney General also objected to both Staff and Applicant's proposal to include monthly meter reading costs in the other operations and maintenance base. Finally, the Attorney General objected to both Applicant and Staff's position of including certain production maintenance expenses in the production maintenance expense category instead of placing these costs in the other operations and maintenance base.
In support of his claim, that Applicant's other operations and maintenance costs are overestimated, the Attorney General stated that in Case No. U-5502 Applicant had significantly overestimated 1977 and 1978 electric plant amounts and had underestimated 1977 and 1978 construction work in prosress amounts. In addition, the Attorney General stated that for the first three months of 1979, Applicant had overestimated its operations and maintenance expenses by approximately 56.153,000. The Attorney l
General also stated that in Case No. U-5502, Applicant overestimated production main enance expense and is continually overestimating projected peak demands for future years.
The Attorney General claims that contrary to Applicant and Staff's positions, other operations and maintenance expenses do not very with sales since they are fixed Page 66 U-6006
~ ~"
--.. -.-. _..L. .
O costs allocated on a demand or customer basis. The Attorney General further states that if other operations and maintenance expenses are regarded as variable with sales, then the $249 million other operations and maintenance base established in Case U-5502 should be reduced to $238.5 million, to reflect the percentage by which actual 1978 sales were less than the Conveission's projected sales.
The Attorney General expresses two reasons for rejecting the addition of monthly meter reading costs as an adjustment to the othsr operations and maintenance base.
First, the Attorney General claims that the benefits of such a program has not been
! shown to outweigh its costs. Second, the Attorney General claims that other operations and maintenance base should not be raised even if monthly meter reading is approved, since monthly meter reading is but one of many activities and programs carried on by Applicant which can be expanded, contracted or eliminated.
PIRGIM takes the position that the other operations and maintenance system i
O should be continued as presently established, since Applicant has not sustained its burden of proof to increase the other operations and maintenance base required by the U-5502 Order. PIRGIM, like the Attorney General, objects to adding monthly meter reading costs to the other operations and maintenance base and states that a reasonable alternative to monthly meter reading would be to have customers read their own meters every other month. Finally, PIRGIM claims that the other operations and maintenance base should be reduced by $250,000, the expense of an employee attitude survey ee-cause Applicait has failed to provide PIRGIM with this survey even af ter being ordere:
to by the Commission and tiecause Applicant has requested that this cost be withdrawn from the case.
Citizens Lobby takes an identical position to that of PIRGIM, namely that the other cperations and maintenance system base snould not be increased but rather should be decreased by $250,000 to exclude the costs of Applicant's employee attituce survey. Citizens Lobby claims Applicant's request for other operations and maintenar:e Page 67 u-60c6
i l
Increase should be dented, alther on the basis tha: A;mlicant's recues: for :nis Increase should be disalssed because of lack of Corcission Jurisdic Icn, or on :ne basis that Applicant has failed to maintain its burden of proef to obtain c:ner j
}
operations and maintenance base Increase. In supper: cf its recuested dismissal fer l lack of jurisdic:lon, Citt:eas Lobby claims that since neither Applicant's pleading nor the Conselssion's Motice, Indicated that Applicant was seeking a $&O million In su per:
change in the indexing system, Applicant's propcsals should be dis =issed.
of its post lon that Applicant's recuest for the other operations and maintenance base Increase should be denied Citi: ens Lobby claims that the Ccanissien's neavy burden standard requires the production of clear and convincing eviden:e, a bursen that Applicant has failed to meet.
In support of its proposal to to-er the other operations and maintenan:e :ase ey
$250,000, Citi: ens Letty clairs tha: this is baseg on A; licant's own recuest IJ re. eve toe $250,c00 from the case. This adjustment, according :o Citizens i.e: r, snould be cace by sun:rac:Ing f rom the other operations and maintenance case cf
$263,665,000 se: In the Coenission's U-55c2 order of January 29, 1975.
The incustrial Interveners claim that the c: hor operatices and main:enance syste-as established by Case No. U-5502, should be retaine: witnew: eaJoe modifica:ien.
The industrial latervenors Indicate that a sligh: adjustment := the sys:ee miga.: ce recuiree to reflect future levels of sales but this shoule permit for decreases as well as increases. Finally, the Industrial intervenors c Jec: to acJusting :ne operations and maintenance base for meter reading.
In support of their request that all of Applicant's other operations an: maintenan:t proposals be denied, the Industrial Intervenors poin: out that A:plican 's e: era: ices in :ne and maintenance expense projection for 1978, were less than those aces:e:
Cervuission's Crder and that Applicant sougnt no change in the operations aa: mainte"ance bass estaellshed in Case he. u-55c2 or in the other operations ane =aintenance indexing proceeding on Decew er 6, 1978. The Industrial Intervenors specifi: alls Page 68 U GCC6
l l
O criticize Applicant's direct case other operations and maintenance proposal on the basis that Applicant has Indicated no attempt to economize its other operations I
l and maintenance expenses. The Industrial Intervenors criticize Applicant's alternative one proposal on the basis that this approach represents a level of expenses supporting a higher sales level than actually occurred in 1978. The Industrial Intervenors criticize Applicant's alternative two proposal since It is premised on 1978 data which was not used in the determination of or purposes of developing a test year by any party to the case. In addition, the Industrial Intervenors state that 1978 was I
l anything but a normal year because of the coal strike and because Applicant's generating plants operated less than they did in the preceding year. Also, the Industrial intervenors claim that there is confusion on the record as to the correct amnunts for operations and maintenance expenses during 1978 and 1977 Finally, the Industrial Intervenors Indicate they are opposed to placing the cost of the monthly meter reading in the operations and maintenance base since this will benefit only Applicant's domestic customers, if a monthly meter reading program is approved, the Industrial Intervenors claim that the cost of such a program shguld be borne strictly by the domestic customer class.
Industrial Power Plant intervenor Pennwalt, claims that the other operations and maintenance Indexing system adopted in Case No. U-5502 should be retained without l modification for purposes of determining other operations and maintenance estimated 1979 expenses at the Pennwalt power plant. Pennwalt states that the other operations ,
i and maintenance level established in f:ase No. U-5502 for Pennwalt was $1,360,0C0 an !
I following the other operations and maintecance indexing system, this would be increased to $1,le66,900 in this proceeding. If Applicant's direct case other coerations are malintenance proposal were followed, Pennwalt claims that its other operations and maintenance level would be increased to $3,015.000, as testifled to by Applicant's witness Mr. Wilkins. Pennwalt claims that Applicant's direct case proposal should not be adopted since Applicant has not clearly demnstrated a change is approcriate.
Page 69 U-6006 l-----.- _
as required by the Consnission, and because the other operations and maintenance system Pennwalt claims Applicant's proposed alternative has only recently been implemented.
two proposal would result in Pennwalt's other operations and maintenance expense increasing to $2,253,000. Pennwalt claims that Applicant's alternative two proposal should not be adopted because It is based on a 1978 cost of service study which was not used in this proceeding. In addition, Pennwalt claims that Applicant's alternative two proposal includes $967,000 of administrative expenses which have not 7
been allocated but assigned and which were not derived by Applicant's supporting witness. Pennwalt states that Applicant's alternative one, other operations and maintenance proposal would result in an other operations and maintenance expense to Pennwalt of $1,le29,000 or less than under the present system which would increase Pennwalt requests that if the other operations and maintenance to $1,446,900.
Commission does not follow the operations and maintenance systes established in Case u-5502, it should adopt Applicant's alternative one approach.
Intervenor Port Huren Paper also objects to Applicant's Industrial Power Plant proposed modification of the other operations and maintenance systeri, and like The Steam Intervenors
(
Pennwalt, states that the present system should remain intact.
/
reconvend tnat the present other operations and maintenance systere continue to be followed in this proceeding and these customers based this position on their claim i that Applicant has not demonstrated need for proposed change nor sustained its heav buroen of proof required by the Commission in Case No. U-5502.
Since Citizens Lobby requests that Applicant's other operations and maintenance is proposed modification should be dismissed because of lack of jurisdiction, it During Applicant's direct case, Citizens appropriate to first address this issue.
Lobby moved to have Applicant's evidence as to its other operations and maintena system modification, dismissed but this motion was denied by the undersigne This request for strative Law Judge and this denial was upheld by the Commission, Page 70 U-6006
\ . . ... __
O' dismissal on the gounds of lack of jurisdiction is based on Citizens Lobby's claim of a denial of due process since neither Applicant's application, nor the Consnission's Notice specifically Indicated Applicant was seeking to increase its rates by virtue of a change in the other operations and maintenance Indexing system. The Admini-strative Law Judge, however, finds that Applicant's application and the Commission's Notice in this case are legally sufficient as to this matter. There is no statutory, rule, or common law requirement for Applicant's pleading or for the Coasnission's Notice to explicitly state that Applicant was seeking an increase recovery under the other operations and maintenance Indexing system and none snould be impiled.
l Turning to the merits presented, the Administrative Law Judge finds that Appli-cant's direct case other operations and maintenance proposal, as well as all three of In its alternative other operations and maintenance promsals, should be rejected.
none of its proposals has Applicant met the burdens of proof set forth by the Commission in its 5c tener Order in Case No. U-5502. However, even disregarding the Coersission's heavy and substantial burden standards, the Administrative Law Judge finds all of Applicant's proposed other operations and maintenance system modifications to be deficient and lacking in merit.
First, as to Applicant's direct case proposal, it is noted that this proposal is in direct opposition to the Coninission's expressed purpose of establishing a system which subjects Appilcant's management to pres'sures for economy which are analogous to l cost presures consisting in the private sector. Applicant's " laundry list" other operations and maintenance proposal presented in the direct case essentially would remcvs from the proceeding any pressure on Applicant to control its other operations and maintenance expenses. Si~nce Applicant has already benefited from the other Creer, operations and maintenance indexing system in the Consnission's January,1078 an additional recovery in accordance with Applicant's direct case would result in 1
Applicant reaping all of the benefits from the other operations and maintenance Indexing system without being made subject to the consecuences of this sytem. l i
Page 71 U-6006 i
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An additional significant reason justifying rejection of Applicant's direct case ,
other operations and maintenance proposal exists because Applicant's projected employee cost increase appear to be ceverstated. Applicant's direct case proposal is based on a 1975 employee complement level that appears literally impossible to be achieved, in addition It appears that within Applicant's other operations and maintenance employes expenses, are expenses that should be capitalized and not placed in operations and maintenance. Finally, although Applicant claims that one of the reasons it seeks to increase its employee level is to decrease use of contract labor, Applicant's contract labor expense shows a very significant increase.
Turning next to Applicant's alternative one proposal, it is noted that this approach incorporates'previously disallowed expenses for such Itees as charitable In contributions and Applicant's no longer existing ligntbulb exchange program.
actually addition, this approach involves using higher sales levels than Applicant experienced in 1978. ' Finally, Applicant's alternative one proposal, by relating 1973 a
cost with 1977 and 1978 changes in sales, amounts to an attempt to relate items w ich O
are not properly related.
As to Applicant's alternative two approach, it is noted that this is casec 09 1978 other operations and tsaintenance expenses. Although at first blusn sucn an approach seems to have an appearance of reasonableness, analysis of this proposal proposes several significant probleses. First, 1978 cannot be considered a normal year in view of the coal strike and the significant outages of Applicant's generating facilities.
Second, 1978 was not a test year addressed by any of the parties tc this proceeding. Third, there is confusion on the record as to what certain of Ap=ticaat's actual 1976 operations and maintenance expenses were.
As to Applicant's third alternative, this essentially appears to be merely a As sucn.
stodification of Applicant's already rejected proposal In its direct case.
Furthermore, It is subject to many of the deficiencies concerning that approach.
i most of the items contained in Applicant's alternative three approach concern ecsts Page 72 O
U4006
O' dich properly should be expected to be controlled under the CPI Indexing system.
In contrast to Applicant's proposed modifications, the Administrative Law Judge concludes that Staff's proposed modification to the other operations and maintenance system should be adopted. The other operations and maintenance system adopted in Case No. U-5502 utilized a projected 1978 sales volume. This projected sales volume, however, turned out to be slgnificantly overstated and, as a result, Applicant's recovery from the other operations and maintenance system will be less than expected p ..
or intended by the Comission. By converting the other operations and maintenance Indexing system to unit cost level based on actual metered 1978 jurisdictional sales, this problem should be overcome and the other operations and maintenance system should provide Applicant with the recovery intended by the Comission in Case No. U-5502.
The Administrative Law Judge also finds that Staff's proposed adjustment to the l
I other operations and maintenance system of $4,281,000 for monthly meter reading O should be adopted. Because of the monthly fluctuations that occur from the fuel and -
purchased power clause adjustments, and with the alternative types of domestic rates available, ths ah!Ilty of Applicant to appropriately estimate sales to its domestic customers has been significantly affected. Acading Applicant's domestic customers' meters on a monthly basis should assure accurate and proper billing of these custoners.
The Attorney General's proposal to calculate customer bills as if their consumption l were uni fo rm over a period of time, will not assure accurate billing. Likewise, PIRGIM's proposal that Applicant's domestic customers read their own meters is not an acceptable solution since additional, not less cost, is involved wnen customers read their own meters. Also, justifying adoption of a monthly meter reading progr.am is the fact Appilcant's consnercial and Industrial meters are presently read monthly and that of the 10 investor-owned electric utilities in Michigan, only Applicant and one
= l l
other utility do not read their residential customers' bills on a monthly basis.
c=ur te's O *aalic nt', dome ><ic c t= er, h ve rieht == e aect t8eir montsiv eiiis t reflect electric usage and they have a right to expect their billing cuality to be l
( Page 73 u-6c06 l
equal to Applicant's other customer classes and to be equal in quality to other electric utilities in the state.
Since It is appropriate to adopt monthly meter reading of Applicant's domestic customers, it is likewise appropriate for this cost to be included as an adjustment to the other operations and maintenance system base. This is a significant new program not contemplated by the Conrnission's other operations and maintenance system established in Case No. U-5502. Since this is appropriately an increased cost for which an adjustment should be made to the other operations and maintenance system It is likewise appropriate that this cost should be borne by all of Applicant's customers.
To follow the approach advocated by the industrial Intervenors would mean that at any time in the future, if any adjustments were to be made to the other operations and maintenance syst e , such adjustments e uld have to be constantly reviewed to determine as to wnich customers would benefit.
Since fuel handling expense was included in the other operations and maintenance base adopted in Case No. U-5502 and it was previously determined that fuel handling g
expense was properly part of fuel and purchased power expense, it is, therefore, necessary to remove fuel handling expense from the other operations and maintenarce base. As is indicated by the Staff's brief, $4,414,000 is in the current other operations and maintenance indexing base. Therefore, other operations and maintenance expense should be appropriately reduced to remove fuel handling expense of $4,414.000.
During Staff's presentation of its direct case, Mr. Abramson Indicated the accounts that should be excluded for the other operations and maintenance indexing system. These accounts were fuel and purchased power accounts 501, 518, 547 and 555 and production maintenance accounts 510, 511, 512. 513, 514. 528, 529, 530, 533, 532, 541. 542, 543, 544, 545, 551, 552, 553 and 554. The Administrative Law Judge agrees with",5taf fs position on this matter and finds that these production maintenance and fuel and purchased power accounts should be excluded from the other operations and maintenance base. Exclusion of these accounts from the other operations and maintenance Page 74 U-6006
O base should serve to avoid in the future proceedings, the confusion that existed in this proceeding concerning what is and is not properly part of the other operations and maintenance base.
The final matter to be considered concerns PIAGIM and Citizens Lobby's position that the other operations and maintenance base should be reduced by $250.000, the cost of Applicant's employee attitude survey. Although it is noted that, as a practical mattsr Applicant's other operations and maintenance costs have beer:
greater than the recovbry the other operations and maintenance system has provided to date, it is nonetheless noted that Applicant has voluntarily withdrawn the cost of the survey from the case. In order to make this withdrawal meaningful, it is there-fore appropriate to reduce the other operations and maintenance base by 5250.000, the cost of Applicant's employee attitude st -
General Advertising Excense The Attorney General claims that Applicant's not operating income should be increased by $267,000 by disallowing Applicant's general advertising expenses. The sole basis for this claimed disallowance is that these expenses are unnecessary to provide service to Applicant's customers. This unsubstantiated and conclusionary statement is insufficient basis to grant the proposed adjustment. Therefore, the Administrative Law Judge finds that the Attorney General's proposed advertising expense adjustthent be disallowed.
Edison Electric Institute Oues The Attorney General proposes an adjustment which m uld increase Acolicant's net operating income by $98,000 based on a 50% disallowance of Applicant's Edison Electric Institute does. In support of this adjustment the Attorney General claims that Edison Electric Institute refuses to provide a breakdown of how it spends its money f and that in recent years Edison Electric Ir:stitute has increased the numoer of its lobbyisu f rom 3 to 31.
Page 75 U-6006
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l
The Administrative Law Judge finds that the Attorney General's proposed Edison Electric Institute adjustment should be rejected. Clearly the number of lotbyists that the Edison Electric institute does not justify an adjustment Ir. cec:s!ng net operating income. As to the Attorney General's claim that the Edison Electric Institute has refused to provide information, the record Indicates that the Attorney General's witness Mr. Kumar, merely contacted Edison Electric Institute directly for
, his Information no attempt was made by the Attorney General or his witness to obtain l
l the requested information from Applicant or the Conveission, or to utili:e their aid in obtaining this Information. Certainly, this does not show due diligence in seeking out the desired Information, let alone provide reasoning for granting the Attorney General's Edison Electric' institute duas adjustment.
Atomic Industrial Forum Dues The Attorney General recor:rnends that dues of $37,000 to the Atomic industrial Forum be excluded as a proper expense, on the basis that the Atomic Industrial Foru-is primarily a lobbying organizaticn. This unsubstantiated claim is not a proper basis for adjusting Applicant's net operating income s Therefore, tne Act-inistrative t, aw Judge finds this adjustment should be rejected.
Manacement Efficiency Review Applicant has proposed an adjustment decreasing net operating income by $249,00*
for the cost of Management Efficiency Review performed by the Theodore Barry Comoanv.
The Attorney General opposes this adjustment on the basis that this is a non-reoccarring expenditure which was made in the past, that a future charge to ratepayers for this past expenditure would constitute retroactive ratemaking, and that there has been no showing on this record that the Managernent Ef ficiency Review provided any benefit to Applicant or its ratepayers.
This Management Efficiency Review was performed pursuant to the Commission's Order in The Detroit Edison Cocoany. Case No. C-43C7 (March 30, 1976). At page 55 of Page 76 U-6006 Q
i
O the Consnission's Order, the Commission directed that the reasonable cost for this study wuld be paid by Applicant and would be included as part of the cost of service.
Although Applicant requested in Case No. U-5502 that the cost of this study be In-cluded as a proper expense item, the Consnission at page 47 of that Order determined no adjustment would be made at the time of the Order because the cost of the study did not appear on the record. The cost of this study clearly appear in this record and this cost appears reasonable. Therefore, in accordance with the Conunission's Order in Case No. U-4807, the Administrative Law Judge finds that Applicant's proposed adjustnent of $249,000 for the Management Efficiency Review should be adopted.
Deoreciation Applicant's depreciation expense is Indicated to be $127,882,000; the Staff's depreciation amount is shown as $131,793,000; and the Attorney General's depreciation amount is shown to be $127,133,000. Although Applicant's depreciation expense is Indicated to be lower than the Staff's, it is to be noted that Staff's depreciation amount includes Fermt 111 amortization, Ice storm damage amortization and Greenwood I depreclation which Applicant reflects as separate items in Its presentation.
To develop its depreciation expense, Applicant utilized a composite depreciation rate of 3 22% and Staff used a composite rate of 3.17%. During the rebuttal phase of the proceeding, Applicant's witness Mr. Charles Loeher, claimed that Staff should have utilized a 3.21% composite rate rather than its 3.17 composite rate, and as a result, Staff's depreclation amount should have been $133,423,000. Mr. Loeher claims that a 3 21% composite depreciation rate was more appropriate because If the currently approved depreciation rates had been in effect for all of 1978, this would have produced a composite 3.20% rate and that the changing nature of plant-in-service as of year-end 1978, would have Increased this composite rate from 3.20% to 3.22L Page 77 U-6006
Applicant claims that Staff's use of a 1978 composite rate of 3.17% is actually based on 1977 year-end balances which Involve use of 1976 ratlos and thus a 3 21%
rate based on sore Information is more appropriate. Staff, on the other hand, claims that the difference between a composite rate of 3 17% and 3 21% is too small to be measured by any degree of accuracy. Staff further states that using 1978 actual results to estimated 1979 plant balances is In accordance with consistant polley.
The Administrative I.aw Judge finds Staff's position persuasive and, therefore, determines that the depreciation expense should be $131,793,000 as recomended by 5 t.2 f f .
Allowance for Funds Used During Construction Applicant shows on Exhibit A-II, page 3 that its Allowance For Funds Used During Construction (AFUDC) amount is $75,509,000 based on les previously prevailing B:
AFUDC rate. To adjust for the fact it Is now using an 8 1/2 AFUDC rate, Applicant made an adjustrrent reducing its revenue deficiency by $8,498,000, as shown on Exhibit A-22, page 2.
Staff rc~;ccts AFUCC of $70,151,000, which it developed by accepting Applicant's amount and adjusting It by Staff's different allocation factors. The Atte ney Cen-eral reflects an AFUDC amount of $103,447,000. To determine his AFUDC amount, the Attorney Ceneral's witness Mr. Kumar, first began with Applicant's AFUDC amount of
$75,509,000 anci then made two adjustments. First, Mr. Kumar increasej the AFUCC rate utilized from 8% to 9% to produce $9,439,000 of additional AFUCC. Second, Mr. Kumar applied his AFU0C rate to all of Applicant's Construction Work in Progress (CVIP),
which increases the AFUDC base from $943,863,000 to $1,149,406,000 thus producing
$18,499,000 of additional AFUDC.
Page 78 U-6006 0
O The Attorney General supports use of a 9% AFUDC rate on the basis that to accurately reflect Costs of Funds Used During Construction pursuant to the Federal Energy Regulatory Commission formula, Applicant should be using a rate of not less than St.
In addition, the Attorney General claims that a 9% AFUDC rate is presently being utilized by Michigan Consolidated Gas Company. The Attorney General Justifies his i second adjustment on the basis that Applicant's AFUDC approach results in ratepayers
- subsidizing a portion of Applicant's current construction. This occurs, according to the Attorney General, because Applicant is calculating AFUDC on only 82% of CVIP and, therefore. 18% of CVIP in rate base has no of fsetting AFUDC.
The Attorney General's AFU0C argument that current customers should not subsidize future construction has been raised and rejected In several previous proceedings.
Speaking specifically on this issue, the Commission stated In Appilcant's general rate proceedings, Case No. U-5108 as follows:
"For this proceeding, it is sufficient to observe that the basic premise of the Conenission's existing CWIP-AFUDC polley is that the ability of Appilcant to provide reliable service at the lowest reasonable cost now and in the Inunediate future depends In part on the vitality of Applicant as a going concern. Applicant's strength in turn depends upon its ability to maintain existing operations while simultaneously undertaking a large scale construction program to provide sufficient genera-ting facilities for the future. The present and the future are not discrete categories, but exist on a fundamentally Indivisible continulum. The payment made by the ratepayers because of the difference between the return on CWIP and the AFUDC offset has some attributes of a contribution in aid of construction, whatever the pecullarities in the method of determining the amount of the payment. The payment should enable Applicant to acquire more capital and a lower rate, and should reduce somewhat other demands on the ratepayer relative to the raising of capital. Furthermore, the Conunission
- believes that in the area of utility finance, as In the areas of the environment and conservation the present does have an obligation to the future. The contribution made by the preseFt CJstomers on account Page 79 O U-6006
of the CVIP-AFU0C differential is a limited contribution by the present ratepayers to secure thst they and those who follow them will have a reliable and adequate supply of electric energy at the lowest reasonable cost ,
in the future." (Page 41, emphasis added)
In Applicant's last general rate proceeding, Case No. U-5502, the Commission affirmed the above-stated policy and again rejected the Attorney General's AFUDC adjustments.
The Administrative Law Judge notes that the Commission has before it Case No. U-5218, the generic hearings covering treatment of AFUDC and CWIP. If the Comission in Case No. U-5218, prior to issuance of an Order in these proceedings, changes its AFUCC position enunciated in Case No. U-5108, it would be appropriate for such change to be implemented in this proceeding. In the meantime, the Administrative Law Judge finds it appropriate to continue to follow the Commission's position Indicated in Case No. U-Slob. Therefore, the Administrative Law Judge finds that the Attorney General's AFUDC amount should not be adopted.
As between Applicant and Staff's AFUDC amount, the Administrative Law Judge finds Staff's amount more appropriatt since it is based on Applicant's current AFU0C rate O of 8 1/2%. Therefore, Staff's proposed AFUCC adjustment is adopted for use In this Proposal for Decision.
Pro Forma Tax Savings The Pro Forma Tax Savings adjustment is based on the amount of a utility's rate base and the weighted cost of debt. Therefore, based on the previous determina-tions made as to the rate base and weighted cost of debt, the Administrative Law Judge finds the Pro Foime Tax Savings is $2,486,000. This adjustment is determined by means of the following calculations.
Page 80 U-6006 l
l Ol
O PRO FORMA TAX SAVINGS Jurisdictional Rate Base $4,373,691,000 Weighted Cost of Debt 3,962 Calculated Interest $ 173,198.000 Projected Actual Interest 167,794,000 Additional Interest $ 5,404,000 income Tax Effect (46%) $ 2,486,000 Suma ry in accordance with the previous determinations, the Administrative I.aw Judge finds Applicant's adjusted net operating income is $332,744,000 and is derived as foilows:
Projected 1979 Jurisdictional Adjusted Net Operating income
$1,654,112,000 O Revenues Expenses Fuel and Purchased l Power $737,334,000 Production Maintenance 79,274,000 Other 0 & M 280,598.000 Depreciation 131,793.000 General Taxes 99,462,000 income Taxes 67,873,000 Total Expenses $1,396,334,000 Net Operating income $ 257.778,000 Adjustments I
AFUDC $ 70.151,000 Pro Forms Tax Savings 2,486,000 Fuel Handling Expense 2,328,000 Employee Attitude Survey 132,000 Management Efficiency Study (131,000)
Total Adjustments $ 74,966,000 Adjusted Net Operating income $ 312,744,000 Page 81 U-6006
Vill.
REVENUE DEFICIENCY Tw adjustments to Applicant's revenue deficiency have been proposed by the Attorney General. The first is to remove the revenue requirements associated with Applicant's new Greenwood I generating facility, and the second is to reduce Applicant's 1
revenue deficiency by the amount of the rate Increase Applicant was granted in the Conselssion System Availability Order on June 5, 1979.
Greenwood i The Attorney General proposes that a reduction be made to Applicant's revenue deficiency by removing the revenue requirements associated with Appilcant's Greenwood I generating plant. The amount of this adjustment would, according to the Attorney General's witness Kumar, amount to $33,302,000, uttilzing a formullstic working capital, or $31,837,000, using a balance sheet working capital. The Attorney General bases his adjustment on two arguments; first, Greenwood I is not economic and there-fore never should have been constructed and; second, Greenwood l's capacity is not needed to serve Applicant's customers.
To support his claim of economic unjustifiability, the Attorney General states that the variable cost of Greenwood I production is $19 39 per Nh, which compares unfavorably with short-term power costs, which can be purchased from Ontario Hydro at an average cost of $25.50 per Wh. The ef fect of this difference, so claims the Attorney General, is to charge Applicant's ratepayers an additional annual cost of
$12.096,000. The Attorney General further states that when the fixed costs of Greenwoe I of $66,826,000 annually or $21.49 per Nh are considered, this results in a total annual cost of Greenwood I power being $78,922,000 greater than the cost of purchasec Page 82 U-6006 O
power. Finally, the Attorney General states that the Greenwood I plant was conceived as an oil generating plant in 1970 at a time when the difference between oil and coal i
l prices was considerably less than it is at present. Since that time oil prices have considerably increased so that the disparity between oil and coal prices far outweighs any capital cost savings of an oil-fired generating unit.
The Attorney General supports his claim that Greenwood I capacity is not needed because Applicant has removed from operations approximately 300 Mws of capacity at its Delray low pressure and Fermi i plant and has delayed and deferred completion of its Bella River coal-fired plants, in addition, the Attorney General claims that I
! because the Michigan Power Pool has a high load factor, it has no need for an inter-l
{ mediate unit such as Greenwood I.
The Administrative I.aw Judge finds that the Attorney General's proposed Green-wood I revenue deficiency adjustment should not be adopted. This conclusion is justified on several different grounds.
An optimum generation system requires a combination of base load, peaking and intermdiate or cycling units. Applicant's intermediate generation has been provided by old coal-fired units which are approaching retirement age and thus Greenwood I i is necessary to replace Applicant's aging intermediate capacity.
In addition, Applicant needs the additional capacity provided by the 800 Mws of its Greenwood i unit because without this capacity, the reserves of both Applicant and the Michigan Power Pool composed of Applicant and Consumers Power Company, would be insufficient. Staf f witness Mr. Kenneth Croy testified that the combined syster-s of Applicant and Consumers Power should have reserves under present conditions of at least 25%. However, as testified to by Applicant's witness, Mr. Williams, Applicant's reserves will drop to 17.3% in 1979 and to 12.8% in 1980 without Greenwood I.
Similarly, Mr. Croy testified that, without Greenwood I, the Michigan Power Pool Page 83 U-6006
reserves will be only 19.4% in 1979 and 15.3% in 1980, when the decision was made to O
restart Greenwood I construction in 1977, it was Applicant's only unit under con-f struction that could have been completed in time to meet Applicant's 1979 and 1980 !
reserve requirements.
Related to the capacity benefits Greenwood I will provide, is the fact that as an oil generating unit, it will have greater avaliability than either coat or nuclear powered units. This, occurs because oil units do not have the coal handling or environmental problems that exist with coal handling units and because oil units' availability are not affected by the very stringent safety requirements that tend to limit the availability of nuclear units.
Applicant's Greenwood I unit also has the advantage of providing Applicant with a needed diversity of fuel mix. Applicant's current capacity is 84% coal-fired, and thus Greer. wood I can help serve to alleviate the effects of a prolonged coal strike recently experienced by Applicant. To make certain that it has sufficient fuel for Greenwood I, Applicant has obtained a long-term contract for oil from Sun oli of Canada. Although It Is recognized as a general proposItlon, ol1 availability has becume a problem in this Country, it is to be noted that Greenwood I uses residual oil, a petroleum product which has few competing demands. However, If for reasons of national po. ,, price, or availability, it is determined that oil should not be burned at Greenwood I, this unit can be converted to burn gas at comparatively little cost of time or expense.
Another advantage provided by Greenwood I is that it will serve to reduce Applicant's reliance on purchased power. Heavy reliance on purchased power is risky for two particular reasons: First, it makes Applicant and its customers reliant on the ' transmission capabilities of other utilities generating and transmitting power; and second, it is doubtful whether purchased power can be provided in the quantitles Page 84 U-6006
O needed by Applicant in the 1980's. As a major support of his Greenwood I revenue adjustment, the Attorney General claimed that power could be obtained from ontario Hydro. Yet the record indicates that Ontario Hydro is significantly curtailing its production of new generating units. In addition, evidence of record raises serious questfor. as to the availability of significant quantitles of purchased power from Applicant's Aenerican sources. Finally, it is to be noted that the problem of risk of relying too heavily on purchased power has been recognized b, the Commission in its exclusion of long-term purchases from Applicant's purchased and interchange peer clause.
The major thrust of the Attorney General's argument for his Greenwood I revenue deficiency adjustment was that Greenwood I is uneconomic. The evidence of record however, rebuts this claim. As testified to by Mr. Williams, Greenwood I will operate at a lesser cost than any capacity energy purchase than Applicant can make in 1979 with the exception of Indianapolls Power and Light. Mr. Villiams also indicated that Greenwood I will have a lower operating cost than approximately 1,800 Ns of Applicant's own generation and will have a lower cost than approximately 3,900 Mws of generation of the Michigan Power Pool. In addition, Applicant's witness Mr. Falk testified that placing Greenwood i in commercial operatl.on will save $810,000 in fuel cost. Mr. Falk also testified that Greenwood l's April, 1979 fuel cost of $29.40 per Nh compares quite favorably with power purchased from Ontario Hydro in March,1979 at prices between $34 and $35 per Nh and power purchased from American Electric Power which was as high as $55 to $65 per Nh. Furthermore, the Attorney General based his claim that Greenwood I was uneconomic by using outdated 1978 costs of power from Ontarlo Hydro. No evidence was produced showing that such power can be purchased at these prices over the next three to four years.
Page 85 U-6006
(
A final point to be considered as to the economics of Greenwood I, is the Attorney General's inclusion of fixed costs in determining whether or not a plant should be operated on economic considerations. This comparison is Incorrect however, since only verlable costs should be considered in making such a determination.
In the section of his brief concerning Greenwood I, the Attorney General requests reversal of certain rulings made by the undersigned Administrative Law Judge on July
{ S.1979, and also requests that additional briefing time be permitted so that the partles may argue evidence contained in the record of Case No. U-5877. On July 9, 1979, the last day of hearings in this proceeding, the undersigned Administrative Law Judge refused to incorporate into evidence considerable portions of the records of Case Nos. U-5356, u-5640, u-5877 and u-5502. In addition, the Administrative Law Judge denied the Attorney General's request to recall all of Applicant's witnesses who presented testimony concerning Greenwood I, and denied his request to present add!-
tional evidence on Greenwood I. As the Attorney General Indicates, his request to Incorporate these materials relates to a transaction that took place on February 28, O 1979 Because of the importance of this matter to this oroceeding and the substantial effect that granting the Attorney General's request would have concerning the proceedings, it is appropriate to refer to the record concerning this matter. The transcript shows as follows:
"Mr. Anderson: Judge, I believe that completes my questions of Mr. Williams at this time, with two excep-tions of reservations."
"The second Is that during the noon recess we had an off-the-record conference with the law judge and Mr.
Pierce for the company and Mr. Gordon for the staff and an agreement was reached in principle that evidence previously adduced in the company's prior three securi-ties issuance cases, including the current pending case Page 86 U-6006 O
l l
O and the prior electric rate case, U-5502, relating to the subject of Mr. Williams' testimony, that is, the Greenwood plant and sales forecasts, could br. Incorporated by reference into this record after the parties had designated specificalfy what portions of those prior records they decided .o Incorporate, and I will make up such a list and submit it to the other principal parties for their review, and I assume that we will be able to reach an agreement on tha': that is satisfactory to the law judge.
" Judge Hollenshead: When would you be able to make up such a list, Mr. Anderson? I am just concerned that this matter not be lef t hanging.
"Mr. Anderson: I guess it would depend upon the urgency of 'the metter. I could do it within a day if it was important to do that witt:In that time.
"Mr. Pierce: Your Honor, the request is Mr. Anderson's and we don't have vny objection to it. The problem that we would have would be In responding to his request, if there are certain pages that he may want that we may like to have pages elsewhere in the transcript that deal with the issues that he would like to have covered, i
O so there may be a problem In the company having some time to look over the pages if they are very speelfic
' in nature to determine whether there are other pages that we would like to have in addition to those so that the topic is covered.
" Judge Hollenshead: 1 presume this thing could be accomplished not later than next Monday In any regard.
"Mr. Anderson: I would think so, Judge. In the pending securttles case of Detroit Edison, I believe we just agreed that any of the parties could refer to any portion of the record in the prior Securftles case in the prior rate case on brlef. It would seem to work out pretty well. Then no one could contend that evidence was being selectively included.
"I understood that, at least at this time, the desire of Mr. Pierce and also the law Judge is to make the incorporation more limited and more specific than that.
" Judge Hollenshead: I want to know what we are talking about, Mr. Anderson, not just a wide open inclusion in this record. These records get large enough as they are. Since it is my responsibility for the record, I ;
Page 87 U-6006 l
w uld like to know what we are dealing with here. ! O think If a stipulation can be reached on this metter, fine. I think It can be made part of this record, but I would like to know what that stipulation Is.
"Also, as soon as the parties know what that stipulation would be that they have agreed to, I wuld like it brought to my attention, because I w uld like to check into this myself. Just because the parties may agree to something doesn't necessarily mean it should be approved or included in the record." )
i
- ee*
"Mr. Gordon: I would object. The staff wuld wish to review any pages that they wish to incorporate in detall prlor to making any position, your Honor, before taking any position on this." (77 792-796)
Monday next was March 5, 1979. However, It was not until Thursday, July 5, 1979, that Mr. Anderson wrote a letter to the undersigned Administrative Law Judge identifying what specific evidence he wished to have incorporated in this record and It was not until Friday, July 6,1979 that Appilcant was apprised of what material the Attorney General seeked to have Incorporated in this record. On Monday, July 9, 1979, the undersigned Inquired on the record as to whether there was any objection to inclusion in the record of the Attorney General's requested material. Applicant responded that it did in fact object to inclusion in the record of this meterial.
Arter permitting arginnent on the matter, the undersigned Administrative Law Judge dented the Attorney General's request, as well as his subsequent mettons to recall Applicant's witnesses and to pressnt additional testimony.
Af ter due consideration of this matter, the Administrative Law Judge reaf firms his July S.1979 rulings, and dentes the Attorney General's request for additloaal briefing schedule to allow for argument of evidence cantained in Case No. U-5877.
The Attorney General's request for incorporation into the record of his material was extremely untimely. At no time did the Attorney General ask to have the March 5.
Fa U-be8b o6 h
- - - -v--.., - . - - - , . - - - - - - - - - - . , - , , - - , - - - - - - -
1 O
1979 deadline extended nor did the Attorney General present any justifiable reason for his inordinate delay.
System Availability incentive Plan The Attorney General requests that Applicant's revenue requirement in this proceeding be reduced by $5,937,000 which is the amount of the rate Increase granted by the Comission in its June 5,1979 Order in Case No. U-5502, concerning the System Avallability Plan. In the alternative, the Attorney General requests that the System Availability Plan be repealed, in support of his requested revenue adjustment, the Attorney General states that the June 5, 1979 rate increase was not based upon additional costs incurred or to be Incurred by App 1Icant. In support of his requested repeal of the System Availability Plan, the Attorney General claims that It is based on a single factor which is not one of the lawf I elements to be considered in determining just and reasonable rates.
In addition, the Attorney General argues that the ECAR method utilized by the plan is not the actual ECAR method of determining plant availability.
The Administrative Law Judge finds that the Attorney General's recuested System Availability Plan revenue adjustment should be denied. Following the Attorney General's proposed adjustment would render useItss this beneficial Comission-approved plan.
to Similarly, the Administrative Law Judge finds that the Attorney General's request abolish the plan should likewise be denied. The fact that the plan is not based on ,
a factor specifically referred to in a statute does not render the plan unlawful.
I Also, whether or not the System Availability Plan specifically follows the ECAR approach to plant availability does not provide proper reason to abolish this plan.
Conclusion O'
The Administrative Law Judge finds that Applicant will have a revenue deficiency in 1979 in the amount of $137,384,000 calculated as follows:
Projected 1979 Revenue Deficiency Rate Base $4,372,887,000 Rate of Asturn 3 27%
Requested Net Operating income 405.337,000 Adjusted Net Operating income 332,744,000 income Deficiency 72,553,000 Gross Revenue Conversion Factor 1.896 Aavenue Deficiency $ 137,636,000 O
l Page 90 U-6006 h
l l
O ix.
WAGE AND PRICE GUIDEl.INES Positions concerning the Federal Wege Price Guldelines and the effect they have on this proceeding were presented by Applicant, Staff and the Attorney General.
Based upon these voluntary guidelines, Applicant claims it limited its original application to request interim relief of $69 million and final relief of $166 million.
However, after the Council on Wage and Price Stability Issued its " Pay and Price Standard Implementation Guide", Applicant interprets this guide to permit an increase in price as much as $155 million during the program year ending September 30, 1979 and, assuming continuation of the guidelines, Applicant interprets this guide to permit an increase of price of something in excess of $155 million during the program year which would begin October 1,1979 Staff takes the position that the Wage Price Guidelines permit Applicant to receive, during the program year ending September 30, 1979, rate increases of a range between $50 million to $60 million. Because of this limitation, Staff recommends adoption of its proposed final increase not take place until after the start of a new program year on October 1, 1979 The Attorney General takes the position that no increase in rates is permissible under the Federal Wage Price Guidelines and that, as of January 29, 1979 when the Commission issued its other operations and maintenance adjustment Order, Applicant's rates were, on an annualized basis $25,736,000 in excess of the amounts permissible for the program year ending September 30, 1979 The Attorney General supports his Wage Price Guideline position on the restimony and exhibit presented by his witness Mr. Kumar. According to Mr. Kumar, under the gross margin standard of the federal guildelines which permits a 6.5% price increase.
Applicant could increase its rates by $42,219,432 during the program year October 1, Page 91 U-6006
I l
l 1978 to September 30, 1979 However, Mr. Kumar states that Applicant received a Ol'
$48,377,000 increase granted in the final order in case No. U-5502 and an increase of ,
$19.578,000 in the Commission's January 29, 1979 Order in Case No. U-5502. Thus, Mr.
Kumar states that Applicant has received a total rate increase of some $67,955,000 during the first program year which is $25,736,000 above the increase permissible under the Wage Price Guidelines.
The Administrative Law Judge finds Mr. Kumar's approacn to the Wa p Price Guide-line issue to be myop!c and not producing reasonable results. Mr. Kumar approached the price guidelines utilizing only the gross margin standard and only compared the increase from the third quarter of 1978 with the third quarter of 1979 Mr. Kumar ignored the fact that the federal guidelines permit use of the price de-escalation standard and permit use of a different comparative period. Although Mr. Kut.ar's approach is a permissible one under the Vage Price Guidelines, it is not a reasonable approach when applied to Applicant. Therefore, the Administrative Law Judge fines no present violation of the Wage Price Guidelines as claimed by the Attorney General.
Since a final decision in these proceedings will not be forthcoming until after October I,1979, it is a moot question as to whether Applicant or Staff's approach to the Wage Price Guidelines is appropriate. In any regard, the Administrative Law Judge finds that the rate Increase reconnended in this Proposal for Decision is not in violation of the Federal Vege Price Guidelines.
X.
MISCELLANE0US AEVENUE RELATED MATTER $
1 System Availability Plan Modification Proposed modifications to Applicant's System Availability Plan were presented by I
Page 92 I I
l O
Staff witness Mr. William Cello. These modifications, which are set forth in Exhibit 5-132, would " fine tune" the ranges of the System Availability Plan and would also l Incorporate use of a periodic factor of 7% in the plan's calculations. If both of l
his proposed modifications are adopted, Mr. Cello requests they apply to data beginning the first full calendar year subsequent to an order in this case. No party to the proceedings expressed objection to Mr. Cello's proposed System Availability Plan 1
modifications.
The Administrative Law Judge finds Mr. Cello's System Availability provisions i
reasonable and should be adopted. Fine tuning the ranges of equity return incentive will provide Applicant with greater incentive to increase availability of its units which will be to the benefit of Applicant's ratepayers, incorporation of a periodic or schedule maintenance factor in the incentive provision will encourage Applicant to i perform adequate levels of preventative maintenance which should increase availabil-ity of its generating system in the long run.
Deferred Taxes Citizens Lobby proposes the Conynission take certain revenue related actions concerning the treatment of deferred taxes which action will affect subsequent rate proceedings. First, Citizens Lobby requests that Applicant be required to provide a full report on the amount, effect and use of deferred taxes by the time it files its next general rate case. Second, Citizens Lobby requests the Comission deny Appli-cant the benefit of deferred tax cash flow unless Applicant can show that only a tax deferral and not a tax savings results from use of normalization accounting. Both Applicant and Staff are opposed to these proposals of Citizens Lobby. In addition, Staff Indicates that, if flow-through accounting is to be considered by the Commission, it should be considered in the context of a generic proceeding and not in a rate case because of the serious fiscal implications that flow-through accounting would have on all utilities.
p.n. oi
Citizens Lobby notes that the Comission has permitted Applicant to normalize h the benefits of accelerated depreclation rather than flowing through these benefits to the ratepayers. As a result of this normalization, Citizens Lobby claims that Applicant's deferred tax account was $276 million as of year-end 1977 and that this account has been growing at an average rate of $25 million per year since 1972.
Citizens Lobby's witness Professor Sidney Davidson claims that as long as Con-i gress permits accelerated depreciation and, as long as firms' investment policles or inflation cause current dollar increases In depreciable asset purchases, fines will never show reduction in their deferred tax accounts. According to Professor Davidson, the advantages to utilities from use of normalization is difficult to discern and that whether taxes are normalized or flowed-through is not an Indicator of financial stability or distress. Professor Davidson then goes on to state that he views normalization as being unfair to ratepayers since It constitutes an involuntary con-tribution to capital which causes present day ratepayers to pay more than their cost of service in order to provide service to future generations of ratepayers. I Citizens Lobby argues that Applicant's proposes rates are unlawful because they are based on use of normalized acounting. According to Citizens Lotby, just and reasonable rates must be based on cost of service. However, becausa Applicant's rates must be based on taxes that will never have to be pald since tasse taxes are normalized, Citizens Lobby claims Applicant's rates are not based on cost of service.
To remedy this problem, Citizens Lobby claims that deferred taxes and investment tax credit benefits should be flowed-through to Applicant's customers and not be nor-selized.
The Administrative Law Judge finds that Citizens Lobby's proposala concerning normalized and flow-through accounting should not be adopted. As to Citizens Lobby's request concerning reporting of normalization, it is noted that financial reports Page 34 U-6006 O
l O
already identify Applicant's use of normalized accounting for tax purposes. Further l reporting concerning use of normalization is thus unnecessary and unduly burdensome.
l l As to Citizens Lobby's proposal that flow-through rather than normalized accounting, i
be used for all except very limited circumstances, a very important problem exists.
The Internal Revenue Code provides that a utility which utilizes flow-through accoun-l ting will be denied the benefits of accelerated depreciation. These benefits of accelerated depreciation are beneficial to both Applicant and its ratepayers and their loss would certainly more than offset any gains Applicant's ratepayers would receive from a flow-through tax treatment. Furthermore, this Commission has thoroughly addressed the issue of use of normalized accounting and has, for some time, permitted deferred taxes and Investment tax credits to be normalized. See Case Nos. U-915 (deferred income taxes) and U-lll7 (invest:.ent tax credits). For the above-stated l
l reasons, the Administrative Law Judge finds that the Connission should not change its O position concerning use of tax normalization accounting.
Forecasting and Reserve Studies Citizens Lobby presented evidence critical to Applicant's long range energy forecasts through its witness Dr. John K. Stutz of Energy Systems Research Group, Inc. PIRGIM presented evidence critical of Applicant's approach to determining the reserves and reliability of Applicant's electric system through its witness Dr.
Steven 5. Bernow, also of Energy lystems Research Group, Inc. Although neither Dr.
Stutz nor Dr. Bernow presented evidence which has a direct impact upon determining the revenue requirements involved in this proceeding, since both of these witnesses presented testimony and exhibits which relate to matters of serious and considerable concern to the Conunission, to Applicant and its ratepayers, consideration of the matters addressed by Dr. Stutz and Dr. Bernow are appropriate for discussion in this Proposal for Decision. Because of the interconnected nature of long range forecasts O
Page 95 U-6006
and reserve and reliability requirements, it appears appropriate that these matters O
i he addressed together. '
Citizens Lobby has suggested certain methods that might be utilized to pursue ;
this matter of determining Applicant's long range energy requirements in order that the Comelssion could assure itself of the best forecasts possible. First, Citizens Lobby suggests that a number of forecasts could be submitted in a manner similar to that followed in New York in which all utilities in the New York Power Pool fund one consultant, each ut lity subraits its own forecast, the New York Department of Con-servation submits a forecast, the New Ycrk Puelic Service Commission submits a forecast and consultants from Cornell University Faculty submit a forecast. Alterna-tively, Citizens Lobby recomends that forecasts be submitted by consumers, tr..' State and by utilities. As its least preferred alternative approach, Citizens Lobby soggests that there be an independent forecast made by a consultant funded by utilities subject to agreement as to identity and " ground rules" by Staff and Intervenors.
These forecasts or forecast would, under Citizens Lobby's proposal, be presented '
in a generic proceeding and wculd be subject to critique by any party. Funcing for such proceedings should, according to Citizens Lobby, be provided through the rate-making process.
l Unlike Citizens Lobby, PIRCIM makes no specific proposal in this proceeding i
i concerning reserve and reliability criteria except that PIRGIM requests the Corrrnission "to take a stand now in opposition to the company's grossly inflated reserve criteria" The Administrative Law Judge sees merit in Citizens Lobby's proposal for use of a generic proceeding during which long range forecasts could be presented and cel-tiqued. The future energy needs of Applicant's customers, as well as those of other Michigan utilities, are of significant concern of this Comission. Because of the Page 96 U-6006
O 1 Insnenso cost of bringing new electric generating equipment or. line, it is important that thorough and carsful analysis be made as to the need for this new equipment.
Dr. Stutz presented credible evidence Indicating that Applicant's long range forecast methodology contains significant inadequacies, particularly in the domestic and non-manufacturing areas. It is also noted that. Applicant's long range forecasts of recent years have significantly overstated its customers' electrical require-ments. Because of these problems, it is appropriate that a forum be established allowing other parties to also present such forecasts.
In a generic proceeding concerning long range forecasts, all parties desiring to present forecasts should be given opportunity to do so. In addition, parties should, in the context of such hearings, be allowed to cross-examine and rebut presentations by other parties. This generic proceeding should not only indicate future electric energy requirements but it should also address how these requirements can appropel-ately be met by the utilities. In this context, the reserve and reliability require-ments of utilities should be considered. This generic proceeding, however, should not. result in any binding requirements being placed upon Applicant or other utilities or otherwise restrict utilities' abilities to plan and provide for their customers' requirements.
in order to assure that these proposed generic proceedings are handled in a thorough and responsible manner, the Staff should be directed within a six month period of time to present a specific proposal to the Comission concerning the establishment of such proceedings. In making such a proposal, the Staff should have the imput of utilities and consumer and business interests. This proposal should address such matters as the frequency of these proceedings and the manner by which such proceedings would be funded, as well as any other relevant considerations.
Page 97 O U-6006
Renort of Rate Case Exoenses Citizens Lobby claims that Applicant is not reporting to the Comission the true cost of its rate case proceedings. Specifically, Citizens Lobby states that MPSC Form 1 does not reflect the portion of Applicant's monthly role employee's salaries and benefits devoted to preparing for and participating in rate cases, nor does the MP5C Form I reflect the expenses of Applicant's Rate Department involved in rate cases. To remedy this, Citizens Lobby requests that the Consnission direct Applicant to account for and report the time of its salarled employees In rate cases and i
related matters.
The Administrative Law Judge finds this request to be reasonable and should be Implemented. The expenses of rate cases and related proceedings should be fully and properly reflected.
1 XI.
1 COST OF SERVICE l Cost of service evidence was presented by Applicant. Staff and the Industrial i
intervenors. In their cost of service studies, each of these parties use a different i
cost allocation method concerning treatment of fixed costs of production and trans-mission. Applicant proposed that such fixed costs be allocated on the basis of the
]
contribution of each class of customers to the 12 monthly system peak demands. Staff
} proposed that 75% of fixed production and transmission costs be allocated on the br.ais of the customer class contribution to the twelve monthly system peaks and that i
25% of such costs be allocated on the basis of energy. The industrial intervenors, proposed that all production and transmission costs be allocated on the basis of the cont'rlbution of each customer class to the annual peak demand.
I j
Page 98 U-6006 O
The Industrial Intervenors argue that the annual system peak demand method should be utilized for cost of service studies on the basis that summer peak demands are the most important demands imposed on Appilcant's system. This is the case, state the Industrial Intervenors, because sunmer peak demands dictate the amount of l
generation and capacity Applicant must Install and the dollars of investment in production plant Applicant must make. Finally, the industrial Intervenors support their position based on their claim that Applicant has sufficient maintenance room during the non-summer, months to accomplish all necessary maintenance and consequently, Applicant does not build plants to accommodate non-summer demands.
The Administrative I.aw Judge ILr.ot persuaded by the Industrial Intervenor's arguments and therefore finds that be annual system peak demand methodology should not be adopted for cost of service study purposes. The Comission in its rejection of the single peak demand method in Case No. U-5502 stated as follows:
f
"... Applicant's system is constructed to provide service p throughout the year. Thus, each monthly peak is critical V to the system, and the Industrial Intervenors premise, that the system is constructed for the single annual peak, is erroneous. In addition, allocating demand costs on the basis of a single annual peak may result in unfairness because of chance variations such as extreme weather conditions. The possibility of purely forituitous extreme variations are considerably reduced by utilizing a monthly averaging method." (Page 54)
The Administrative Law Judge agrees with this statement and finds it continues to be proper justlfication for rejecting the Industrial Intervenors' cost of service methodology.
Having determined that the single annual peak should be rejected, the issue to be determined is whether Applicant's unmodified 12 monthly coincident peak demand method or Staff's 75-25 modification should be adopted. staff supports its method on the basis of the testimony of its witness Mr. David Serquist, who claimed that the sizing of transmission lines and the sizing of generation facilities is related to energy.
O Page 99 U-6CC6
Staff's argument for les 75-25 methodology, as it applies to generating plants, O
relates to an assumed trade-of f between additional Investment being made in base load plants as compared to peaking plants based on fuel costs. However, with respect to the economic choice of whether a base load or peaking generating plant is built, it is necessary to look at both capital and energy costs in light of the expected capacity factor of such plant. Investment in base load plants are made not merely because of lower fuel costs but rather to achieve lower total costs.
Similarly, energy considerations are not the important determination for sizing transmission plant. Transmission plants are sized to meet the maximum demands imposed on them, not the amount of energy that flows over them over the course of a period of time.
The Administrative Law Judge therefore finds that investment in production and transmission plant is demand related and not energy related. Therefore, Staff's cost of service methodology of allocating production and transmission costs, 75% on demand g and 25% on energy, should not be adopted.
In addition to the above, there are other reasons for rejection of Staf f's 75-25 modification. Ironically, the Staff position serves to be most beneficial to the customer class having the lor st load factor. The commercial class with its high air conditioning load is benefitted by the Staff's met 5odology, whereas, on the other hand, the Staff methodology increases the assignment of demand related costs to the domestic, streetlighting, primary, bulk power and Industrial power plant classes.
l Also, the Staff methodology produces income instability by allocating fixed costs on the basis of energy consumption. Finally, the Staff methodology reduces the incentive provided by the valley hour provision in the industrial rates.
, Although the Administrative Law Judge realizes that, for some time, this Commission has followed Staff's 75-25 methodology, the Administrative Law Judge finds that the Page 100 u-6006 g
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O time has clearly arrived for abandonment of this method. While It can be advocated
! that the Staf f's methodology assures spreading of demand related costs so as not to l
unduly benefit any customer class, this result is also accomplished by App 1Icant's method. When costs of new generating equipment were declining or rising at a relatively less significant rate than today, assignment of transmission and generating costs partially on the basis of energy, did not distort cost causation analysis in the a manner it does today. Furthermore, it is noted that although various comissions follow Applicant's unmodified contribution to 12 monthly peak method, Michigan is the only comission using the 75-25 modification. If the 75-25 method were Indeed a proper cost of service methodology, it certainly would have been expected to have been adopted by other jurisdictions.
Therefore, the Administrative Law Judge finds that Applicant's cost of ssrvice method of allocating fixed costs on the basis of class contribution to 12 monthly peak demands should be adopted. For consistency with past Commission rate decisions, this Administrative Law Judge has not followed Applicant's methodology in separating jurisdict ional and non-jurisdictional operat ions althougn in future rate cases such a determinatInn would be appropriate.
Xil.
RATE DESIGN Extensive evidence was presented by Appilcant, Staff and numerous intervenors as to the appropriate design of Applicant's rates for its electric and industrial steam and water service. This evidence will be discussed in some detail in this sectIon and findings concerning appropriate rate design will be made. Specific Individual rates fer the various customer classes and subclasses, however, will not, except in limited Instances, be set forth in this Proposal for Decision.
Page 101 U-6006
l Allocation of Rate Increase Appilcant, Staff, the Industrial Intervenors, and the Business Users presented reconenendations as to how a rate increase in these proceedings should be spread among the major customer classes. AppIIcant proposes that the major rate classifications of domestic, conenercial and Industrial be Increased on an approximately equal basis.
Based on an overall rate Increase of 10 50%, Appilcant proposed a rate increase of 10.32% for the domestic class, a 10.752 Increase for the conenercial class, and a 10.562 Increase for the Industrial class. staff reconenends, based on an overall increase of 6.9% and using a hypothetical increase of $110 million, an increase of 6.2% for domestic customers, a 7.0% increase for commercial customers and a 7.5%
Increase for Industrial customers. The industrial Intervenors propose that the ste increase be allocated among the major customer classes on a cost of service basis.
Specifically, the industrial intervenors advocate that 47.9% of the rate increase be allocated to the domestic custcmer class, 21.4% to the commercial customer class, 21.6% to the primary customer class, and 5.0% to the bulk power customer class. The Business Users, although they presented no specific allocation among the classes, recommend that the rate Increase be allocated on a cost of service basis. As a lesser desired alternative, the Business Users reconenend that the Increase be allocated equally among the customer classes.
In support of its reconsnendation, which limits the domestic class increase to 90% of the total increase, Staff states that the index of return for the domestic class, has been between 75 and 80 for major -utilities. To substantiate this claim, Staff claims that the domestic class index of return was 75 in Consumers Power
,C,o., Case No. U-5331 and, that for year ending 1978, the Index of return for Applicant's domestic class was 73 Pace 102 U-6006 O
O Contrary to Staff's claim that historically the index of return of the domestic class has been approximately 75, the evidence shows that Applicant's domestic class index of return was 98 in Case No. U-4807, 94 in Case No. U-5108 and 91 in Case No.
U-5502. It therefore appears that Staff's historical justification argument for limiting the rate of increase of the domestic class is without proper justification.
It is also noted that Staff's substantial increase to the industrial class would not only raise their above average index of return significantly, but that Staff's pro-posed rate desI5 n, based on a hypothetical revenue deficiency of $110 millien, would result in a higher actual increase to the Industrial class than does Applicant's proposed rate design based on a $166 million revenue deficiency. Thus, the Admints-trative Law Judge finds Staff's proposed allocation of the rate increase should not be adopted since it is not justifled on a historical relationship basis, on a cost of service basis or Inder principles of equity.
On the other hand, he Administrative Law Judge finds the Industrial Intervenors' and the Business Users' proposal to allocate the rate increase among the various rate classes solely on the basis of cost of service, to likewise be Inappropriate. Cost of service, although an important criteria of rate design, should not be the sole basis for setting rates. Consideration should also appropriately be given to his-torical rate class relationship, value of service and principles of equity. The industrial Intervenors' proposal to assign about half of the rate Increase to the domestic class clearly does not show evidence of following these important considera '
tions. '
Therefore, the Administrative Law Judge finds that rate increase found appro-priate in the Proposal for Decision should be allocated among the major customer classifications on an approximately equal basis. This appears to be the most equi-table manner to spread the rate increase, would maintain historical relationship be-Page 103 U-6006
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l tween customer classes, would give due and proper regard to cost of service prin- G cIpals and would not result in any Inordinate increase to any customer classification.
In further support of allocating the rate increase in an approximately equal basis, the Administrative Law Judge notes that this was the approach followed by the Com-mission in Applicant's most recent rate case, Case No. U-5502.
Residential Rates Avallability of Domestic Service Rates Intervenors Apartment Association and United Condominiums C1' alm that Applicant's Domestic Service Rate D-1 should be made available for apartments, condominiums and cooperatives served under a master meter and for comon area usage of apartments, condominiums and cooperatives. Applicant and the Staff oppce,e these Intervenors' positions and claim Instead, that the Domestic Service Ra.e 0-1 should continue to be availabl'e only for single and double occupancy residen::e.
Apartment Association and United Condominiums claim that the present provision O which limits the availability of Applicant's D-1 rates to single and double occupancy residences constitutes a violation of the equal protection of the law. This premise was extensively discussed and rejected in the Comission's opinion and Order in Case No. U-5502. Essentially the only new matter that was presented in this proceeding involves the fact that Applicar.t previously had been provided electric service for multiple occupancy dwelling common use areas at domestic rates.
According to this evidence It appears that prior to 1975, Applicant had been providing electric service to cowien use areas of multiple family dwellings at i ts 0-1 rate. Af ter an " Investigation" by Applicant's Rate Department conducted during the latter part of 1974, Applicant In 1975, proceeded to add new multiple family dwelling Page 104 U-6006 0
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comon area electric usage at its D-3 General Service Rate rather than at its 0-1 rate. Applicant, however, continued to charge at the 0-1 rate for electric service provided to consnon area usage of existing multiple dwellings. Then, subsequent to 1
the Consnission's Order in Case No. U-5502, Applicant sent letters to those multiple !
l family dwelling customers who had continued to receive service under Rate 0-1 for cocinon usage areas and advised them, that due to a recent ruling of the Commission, they no longer could be charged at domestic rates for their coninon ares electric usagc but instead would be switched to general service rates.
Intervenor United Condominiums claims that Applicant's action in 1975 of pro-ceeding to charge multiple family dwelling consnon area electric usage at the general service rate was Improper because it was without the authority of the Consnission. In actuality, the converse Is true. Applicant's action prior to 1975 of charging for multipli family dwelling common area electric usage at domestic rates was in violation of the then existing availability provision of its Rate 0-1. Applicant therefore ,
should not have been charging for this common area electric usage at its domestic rate. When in 1975, Applicant proceeded to charge new multiple family dwelling conwnon ares electric usage at its general service rates, it only partially rectified the situation since It allowed existing multiple family dwelling convnon area electric usage to remain on domestic rates. The letters AppIlcant subsequently sent to those existing multiple family dwelling coernon area electric use customers stating that a recent ruling by the Consnission no longer allowed charging at domestic rates was therefore incorrect. The Consnission In Case No. U-5502 only affirmed the previous avalfability provision In the D-l tariff (albeit this provision was expanded to inc$c'e double occupancy, as well as single occupancy dwellings). Therefore, although Ar plicant's handling of this matter was inept and is not to be condoned, it does not Page 105 U-6006 1
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Justify placing multiple dwelling conenon area usage or master metered usage on domestic Ol rates.
The only other matter that bears discussion on the availability provision of Applicant's 0-1 domestic rates concerns the Apartment Association's contention that the Commission erred in its conclusion in Case No. U-5502 that the " natural distinguish-Ing characteristics" test contained in Alexander v City of Detroit. 392 Mich 30 (1974) is not now the law of the United States or of Michigan. Although there is no Indication that the Michigan Supreme Court has overruled the " naturally distinguishing characteristics" test of Alexander and, in fact, as the Apartment Association pointed out, the Supreme Court made favorable references to Alexander in Manistee Bank y McGowan, 394 Mich 655 (1975) and in McAvov v H. B. Sherman Co., 401 Mich 419 (1977),
the Administrative Law Judge concludes that Alexander's " naturally distinguishing characteristics" test is not the appropriate equal protection test to be applied in the instant proceeding. The Administrative Law Judge concludes that the applicable equal protection test to be used in this proceeding was set forth in the Michigan Court of Appeals in Oakland County v Detroit, 81 Mich App 308 (1978), in Oakland County v Detroit, the Court of Appeals states as follows:
- 1. The equal protection clause of the Fourteenth Amendment does not take from the State the power to classify in the adoption of police laws, but admits of the exercise of a wide scope of discretion in that regard, 2nd avoids what is done only when it is without any reasonable basis and therefora is purely arbitrary.
- 2. A classification having some reasonable basis does not offend against that clause merely because it is not made with mathematical nicety or because in practice it results in some inequality. 3 When the classification in such a law is called in question, if any state of facts reasonably can be conceived that would sustain it, the existence of that state of facts at the time the law was enacted must be assumed. 4 One who assalls the classificattor. f- such a law must carry )
Page 106 u-6006 O'
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O the burden of showing that i t does not rest upon any reasonable basis, but is essentially arbi trary." (Page 311-312, emphasis added)
The Commission's decision in Case No. U-5502 shows there was a reasonable basis for limiting the availability provision of the domestic service rate to single and double occupancy dwellirgs and the facts in the instant proceeding sustain the Commission's position. Apartment Association and United Condominiums have not carried their burden of showing that the Commission's classification does not rest upon a reasonable basis but is essentially arbitrary.
Also at point, interestingly enough, is McAvoy v H. B. Sherman Co., suora. In McAvoy, the Supreme Court quoted from the Manistee Bank & Trust Co. v McGowan, suora as follows:
"Other legislation, principally social and economic, is subjected to review under the traditional ecual protection test. The burden is on the person challen-
, O ging the classification to show that it is without reasonable Justification. It has been saic that '(a)
I statutory discrimination will not be set aside if any state of facts reasonably may be conceived to justify it'. A classification will stand unless it is shown to be ' essentially arbitrary'. Few statutes have been found so wanting in ' rationality' as to fall to satisfy the ' essentially arbitrary' test." (Page 453, emphasis added) in McAvoy, the Supreme Court found that the thrust of the legislation challenge:
was primarily social and economic and that therefore the burden was on the Appellant to show that the classification was arbitrary and did not bear a rational relationship to the object of the legislation, which burden the court found that that the Appellant had failed to meet. Similarly, in the instant proceedings, Apartment Association and United Condominiums have not met th.ir burden of proof of showing that she classification established in the availability provision of the D-l service rate was " essentially arbitrary."
( Page 107 U-6006
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O in conclusion, the Administrative Law Judge finds that the Consnission's findings in Case No. U-5502 limiting the applicability of the domestic service rate remain appropriate for the Instant case. Therefore, the Administrative Law Judge finds that the positions of Intervenors Apartment Association and United Condominiums should be rejected and no change should be made to the 0-1 service rate availability provision.
Onmestic Service Rate D-l Proposed rate ' designs for Applicant's Domestic Service Rate 0-1 were presented by AppIIcant, Staff and PIRGIM. The major difference between these partles' Rate O-1 proposals is that Applicant proposes to decrease the present inversion between the various rate blocks, Staff proposes to increase the inversion slightly and PIRGIM proposes to increase this inversion significantly. Based upon its revenue deficiency amount, Applicant's, proposed 0-1 rate provides for increasing the service charge to
$2.75 per month, and increasing the <nergy rates to 5. loc per b h for the first 500 bhs, 5.30c per bh for the next Sc0 bhs and 5.60c per bh in excess of 1,000 Kwhs.
O Based on its hypothetical $110 million revenue def!clency, Staff recommends that the l service charge be Increased to $2.80 per month and that the first 500 bh block be set at 4.9c per bh; that the second 500 Kwh block be set at 5.4c per Kwh; and that all Kwhs over 1,000 bhs be set at 6.0c per Kwh. Staff also presented two alternative j 0-1 rate proposals which It regarded less desirable than the previous proposal. In its first alternative proposal, Staff proposes establishing blocks of 0 to 300 Kwns, 301 to 750 Kwhs and 751 b hs which would be priced respectively at 4.6c, 5.19e one 6.19e per b h. In Its second alternative, Staf f proposes that the Conunission limit the overall rate increase for the 0 to 500 bh block to half the overall increase applied to the 0-1 rate class. In its sharply inverted 0-1 rate proposal, PIRGIM Page 108 U-6006 0
O recommends that the service charge be maintained at $2.65 per month and that the energy charge be set at 4.5c per hh for the first 500 Kwhs, 6.5c per hh for the next 500 bhs, and 8.5c per hh for the final block.
Applicant, the Agricultural Conference, and the Industrial Intervenors claim that cost of service principles justify flattening Appilcant's 0-1 rate. Staff claims that the inverted rate structure should be retained and inverted slightly more than is presently the case in order to encourage conservation and to benefit low income customers with low usage. PIRGIM claims that its sharply inverted rate struc-ture should be adopted for Rate D-1 because strong conservation is needed, and on the basis that rates should reflect the costs of new generation.
The Administrative Law Judge finds that Staff's original D-l rate design proposal should be adopted. First, Staff's service charge of $2.80 comes closer to covering the fixed costs of providing service to domestic customers although even Staff's service charge fails to cover these costs. As is shown on the record, domestic customers using more than 500 bhs, have actually been decreasing their electric usage so it appears that the Commission's intended energy conservation benefits are being realized from the inverted rate design. Flattening domestic rates, as proposed by Applicant and the industrial Intervenors, might well discourage this conservation.
On the other hand, Staff's slight lacrease in the 0-1 rate inversion should further assure this necessary conservation continues to take place. An additional advantage 1 I
of Staff's proposed rate design is that it will benefit low income, low use customers without unduly affecting low income, higher use customers. In comparison, PIRGIM's sharply Inverted rates would expose Applicant's higher use domestic customers to too ,
I great a change in their rates. Particularly affected under PIAGIM's proposal would be high usage, low income customers. A further reason for rejecting PIRGIM's rate Page 109 U-6006
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design proposal exists in that, although PIRGIM claims to justify its rate design on O
marginal cost principles, PIRGIM presented no evidence whatsoever to show that its 0-1 rate design was in fact based upon these principles.
Therufore, the Administrative Law Judge finds that the service charge for the 0-1 rate should be at $2.80 per month, the differentials between the energy blocks should be as proposed by Staff, and the cononodity charge for the 0-1 rate should be increased so as to assure the 0-1 rate is increased at the same percentage as the overall rate increase. In addition, the Administrative Law Judge further finds that the energy charge for the farm service provision of 3 ate 0-1 should continue to be the energy charge established for the middle block of Rate 0-1.
The final matter to be considered concerning Rate 0-1 involves the requirement of the Public Utility Regulatory Policies Act of 1978 (PURPA) (PL 95-617, 16 ust 2601, et sec.; 92 Stat 3117, sec 114 et sec.) for the Commission to consider adoption of lifeline rates within two years of the date of enactment of the Act. Section 114 of PURPA provides that lifellne rates have two basic criteria; they meet essential needs of residential customers, and they are below costs.
The Administrative Law Judge finds that not only can this proceeding properly constitute consideration of lifeline rates but that the first block of the 0-1 rate does constitute a lifeline rate. Based on the testimony of Staff witness, Dr. Masso Bhatia, it appears that approximately 500 Kwh of electricity per month meet the essential needs of Appilcant's residential customers. Furthermore, pursuant to testimony presented by Dr. Shatia, as well as by Applicant's witness, Mr. Okon, it appears that the price of the first block of the 0-1 rate is below cost.
Auxillary Power Provision Both Applicant and Staff propose changes to the Auxiliary Power Provision contained Page 110 U-6006 l
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O in Ra te 0-1. Applicant's proposed change is as follows:
"The customer having auxiliary power shall pay all direct costs of the metering, controlling and pro-tactive equipment necessitated by the presence of a source of power on his premises.
"The customer shall pay the charges set forth in the above rate. At the customer's option, the customer may elect to pay an additional monthly service charge of $5 i
per month, and for energy delivered to the company by the gustomer, the company shall pay for such energy at the rate of 1.6c per kilowatt hour delivered."
! Staff proposes to amend the Auxillary Power Provision by reducing the service charge from $6.50 to $5 and to set the sell-back energy charge at 2c per Kwh.
l PIRGIM supports the Staff position.
l The Administrative Law Judge finds that the Auxiliary Power Provision proposed by Applicant should,be adopted except that the sell-back energy charge should be set at 1.Sc per Kwh to maintain the present relationship between the auxiliary pay-back price and the fuel and purchased power basing points.
Danestic Interruptible Air Conditioning Service Rate D-1.1 Applicant proposed that the Domestic Interruptible Air Conditioning Service Rate D-l.1 be retained as an experimental rate, but that it be made available for the first 2,000 customers requesting such service rather than limiting it to 500 customers, as is presently the case. Staff recommends that this rate no longer be continued as experimental, but that it be made available to all domestic and commercial customers who have central air conditioning systems. Both Applicant and Staff propose that the service charge for this rate should be $1 per month and that the energy charge be set at 4.50c per Kwh.
The Administrative Law Judge finds that Staff's 0-1.1 rate propesal should be adopted. Rate 0-1.1 has been in existence as an experimental rate for some time. It l
Page 111 u-6006 i
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Is now appropriate that this rate which can reduce the lead on Applicant's system during times of emergency be made available to all customers wno would desire it.
Time of Day Service Rate D-1.2 l
Applicant proposes that experimental Domestic Time of Day Test Service Rate D-1.2 be continued and that it have a service charge of $2.75 per month, that the on-peak energy charge be 8.74 per bh, and that the of f peak energy charge be 2.9c per bh .
Staff recommends a service charge of $2.80 per month with an on peak energy charge of 8.15c per bh and an off peak energy charge of 3.15c per bh. ~
The only dispute between Applicant and Staff as to this rate, involves Staff's proposal to reduce the on-peak, of f peak differentials from the present 3 to I ratio to 2.6 to 1. The Administrative Law Judge finds that the 0-1.2 service charge should be set at $2.80 per month, as reconmended by Staf f, but that the 3 to I ratio between on and off peak energy charge should be maintained, as recommended by Applicant. The energy charges for this rate should be increased so as to insure that Rate 0-1.2 is increased at the overall rate of increase.
Senior Citizens Domestic Service Rate 0-1.3 Applicant recommended in its direct case that the service charge for the senior citizens' rate be increased to $2.75 per month and that the energy charge be set at 1
3.40c per bh for the first 300 bhs, 6.40c per bh for the next 200 bhs, and 9.40c per Kwh in excess over 500 bhs. staff recommends, based uoon its hypothetical revenue deficiency of $110 million, that the service charge be increased to $2.80 per month and that that energf charges be established at 3.35c per bh for the first 300 bhs, 6.35c per Kwh for the next 200 bhs, and 8.35c per bh for over 500 bhs.
Page'll2 l U-6006 t l
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O During the rebuttal stage of the proceedings, Applicant's witness, Mr. Okon, claimed that both Applicant's and Staff's proposed D-l.3 rates utilized billing determinant data that would not produce the revenues anticipated and, therefore, he recommended that the energy charges presented by both Applicant and Staf f be increased.
This billing determinant issue has already been considered and rejected in determining Applicant's revenues. Therefore, the Administrative Law Judge finds that Appilcant's proposal to base the energy charges for the senior citizens' rates on Applicant's billing determinants presented in the rebuttal phase of this proceeding should likewise be rejected. The Administrative Law Judge furtner finds that Staff's proposed service charge of $2.80 per month should be adopted and that the energy charge for the senior citizens' rate should maintain the same relationship with Rate 0-1 as was established in Case No. U-5502.
Time of Day Farm and Space Heatino Rate D-l.4 O Applicant reconsnends that Rate D-l.4, which is presently an optional rate, be made experimental and be . limited to 500 customers. The Staff and the Agricultural Conference oppose this recommendation.
In its direct case presentation, Applicant proposed rates composed of a service charge of $3.65 per month, an on-peak energy charge of 8.7c per bh and an of f peak
)
energy charge of 2.9c per bh. During rebuttal, Applicant changed its recommendation ,
and advocated a service charge of $4.25 per month and an on-peak energy charge of )
i 9.90c per hh, and an of f-peak energy charge of 3.30c per Kwh. Staff recommends that l the service charge for Rate C-l.4 be $4 per month, that the on-peak energy charge be 8.15c per h h, and that the off peak energy charge be 3.15e per bh.
Page 113 U-6006
O The Administrative Law Judge finds that Rate D-l.4 should not be made experimental as recommended by Appilcant, and that the service charge should be set at $4.25 to recognize the considerable metering costs involved with this rate. The Administrative Law Judge further finds that the 3 to I ratio of on-peak, off-peak energy charge should be continued to be maintained as reconsnanded by Applicant. Staff's proposed on peak, off-peak energy differential is not advisable since it would offer to a typical space heating Aate D-2 customer opportunity io lower his cost by switching to Rate D-1.4 without changing his usage pattern. This would produce additional costs to Applicant without providing Applicant with accompanying benefits, the net result being lost revenues. The Administrative Law Judge further finds that Rate 0-l.4 should be increased at the overall rate of increase.
Domestic Scace Heating Rate D-2 Applicant proposes to increase the service charge for Domestic Space Heating Rate D-2 to $2.75 and to increase the winter heating block, which starts at 600 Lhs, O to 4.Sc per Gh. Staff proposes to increase the service charge for this rate to
$2.80 per month and to increase the winter heat *ng block to 4.6c per bn. The remainder of both Applicant and Staf f's energy charges are In accord with their proposed recommendations for Domestic Service Rate 0-1. Applicant and Staff are in agreement that the availability of. this rate should be expanded to include fossil fuel, assisted electric heat pumps, and solar assisted electric heat. The only disputed matter concerning Aate D-2 involves whether the winter heating block shoulc be set at 4.5c per hh, as proposed by Applicant, or 4.6c, as propcsed by Staf f.
Setting the winter heating block at 4.6c per bh as reconsnanded by Staf f, would make the winter heating block more expensive than Staff's proposed 4.5c per bh for its interruptible air conditioning rate and higher than Staff's proposed rates for Page lik U-6006 g
O uncontrolled water heating. This is unsound ratemaking. The Administrative Law Judge therefore finds that, for Space Heating Rate D-2, the winter heating block should be 4.5c per bh, the service charge should be $2.80 per month and the re-maining energy charges should be set In conformance with the Domestic Service Rate D-
- 1. The Administrative Law Judge further finds that the availability of Rate D-2 should be expanded so as to encompass fossil fuel, assisted electric heat pumps, and solar assisted electric heat.
Experimental Domestic Space Heeting Rate D-2.1 Both AppIlcant and Staff agree that the availability of this experimental solar assisted elect-!c heating rate should be expanded to 500 customers. Applicant pro-poses that the service charge for this rate be maintained at $10, the de;nand charge be increased to $6 per b of on-peak demand, and that the energy charge be set at 2.70e per h h on-peak and 2.40c per h h off-peak. Staff proposes a service charge of
$10 per month, a demand charge of $5.50 per h of on-peak billing demand, and an energy charge of 2.95e per hh for on-peak, and an energy charge of 2.65c per hh ofF-peak.
The Administentive Law Judge finds that this experimental rate should be expanded to 500 customers, that the service charge be maintained at $10 per month, that the ,
l demand charge should be set at $5.50 per h of on-peak billing demand, that the on-peak, off-peak energy differential should be maintained at 3 mills and that the j energy charges established for Rate D-2.1 should be Increased at the overall rate of I
Increase. -
Water Heating Rates 0-5 es.d D-5.1 For the Water Heating Service Rate D-5, Applicant proposes to increase the
- age 115 U-6306
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l service charge from $1.50 to $1.55 per nonth on Option I-separate Meter-Controlled 9l l and Option ill-Separate Meter-Uncontrolled, to increase the energy charge for Option I and Option Il-Combined Meter-Controlled from 2.76e to 3.31c per Kwh and to increase the energy charge for Option lit from 3.95c to 4.70c per Kwh. Staff proposes to maintain the service charge at $1.50 per month and to increase the energy charges to l
3.45e per Kwh for Options I and li and to 4.50c per Kwh for Option lit.
For experimental solar assisted water heating service Rate D-5.1, Applicant proposes to sct the service and energy charges at the same rates as Option I of Rate D-5. Staff proposed to eliminate Rate D-5.1 as a separate rate, and to expand the availability of Rate D-5 to include solar assisted water heat. i l
Applicant and Staff are in disagreement over the rate of increase to be assigned Rate D-5 Staff recommends that Rate D-5 should be increased by approximately the overall percentage increase, whereas Applicant recommends it be increased at a lessor rate than the overall increase. Applicant and Staff are also in disagreement as to whether Rate 0-5.1 should be eliminated and combined with Rate 0-5 as proposed my O Staf f, or whether 0-5.1 should be continued as an experimental rate as proposed by Applicant.
Applicant claims that Staff's proposal calling for a much greater increase for the controlled water heating rate than for the uncontrolled water heating rate when coupled with Staff's proposal to apply the full overall increase to Rate D-5, will serve to drive customers off the controlled water heating rate, thus eliminating this l
provision as an effective management tool. Applicant objects to Staf f's elimination of experimental Rete D-5.1 because this elimination doss r;ot provide for continuation l of the collection of data from solar assisted water heating. ,
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The Administrative Law Judge finds that Rate D-5 should, on an overall basis, be increased at the overall rate because this rate is presently yielding less than half the overall rate of return. The Administrative Law Judge, however, sees merit to Applicant's position that the increase should not be substantially greater for controlled, as compared to uncontrolled water heating, and therefore finds that the percentage increase for controlled and uncontrolled water heating should be approxi-mately the same. The Administrative Law Judge further finds that the service charge for Options I and 11 should be increased to $1.55 per month.
The Administrative Law Judge sees no merit to Applicant's argument to retain Rate D-5.1 as an experimental rate, since the data being collected under this rate can :;e continued to be collected under Rate D-5 Therefore, the Administrative Law Judge finds that e=perimental solar assisted water heating Rate D-5.I should be dis-continued; that Rate D-5 should be made available to customers with solar assisted hot water heaters; and that Applicant should continue to collect the data it was pre-O vlously collecting under Rate D-5.1.
t Conrnercial Ra te>
General Service Rate D-3 Applicant proposes that, for General Service Rate D-3, the service charge be set at $5.65 per month anc the energy charge be set at 5.91c per Kwh. Staf f reconcends the service charge be set at $5.45 per month and the energy charge be set at 5.84 l
l per Kwh. The Administrative Law Judge finds that the service charge for Rate D-3 should be set at $5.55 per month and that the energy charge for this rate should be set so that this rate receives an increase equal to the overall rate of increase.
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U-6006 i
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O Unmetered General Service Rate 0-3.1 Applicant proposes that Unmetered General Service Rate 0-3.1 be increased to 2.lc per month per watt of total connected load. Staff proposes increasing this rate to 2.15e per mocch per watt of total connected load. Both Applicant and Staff agree to change the availability of this rate to make it available at the option of Applicant.
The Administrative Law Judge finds that the D-3.1 rate should be set at 2.lc per month per watt of total connected load in order to continue to tie this rate to the Traffic and Signal Light Rate E-2.
Experimental Time of Day General Service Rate 0-3.2 Applicant proposes for Rate D-3.2 to increase the monthly service charge from $7 to $7.50 and~co increase the on-peak energy charge to 8.8e per Gh and the off peak energy charge to 3.0c per b h. Staff proposes to leave the service charge at $7 and to increase the energy charge to 8.25c per Kwh on-peak and to 3.25e per Kwh of f-peak. h Both Applicant and Staff agree to a minimal contract term modification to conform this rate with contract term paragraphs of other rates.
The Administrative Law Judge finds that for Rate D-3 2 the service charge snowld be increased to $7.50, that the preposed contract term modificatica should be adop-ted, that the on-peak, off-peak differential should be maintained at approximately a 3 to I ratio, and that the energy charge should be increased to the degree necessary for this rate to be increased at the overall rate of increase.
l Large General Service Rate 0-4 Applicant proposes that the service charge for Rate D-4 be increased from $8 to
$9, that the demand charge be maintained at $6.50 per s and that the energy charge be set at 4.18c per Kwh for the first 200 Kwhs per Kw of billing demand and at 3.67e per Kwh for the excess bhs. Staff p-: poses increasing the service charge for Rate D-k to $8.75, maintaining the demand charge at $6.50 per b and setting the energy g Page 118 U-6006
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lO charge at 4.14c per Kwh for the first 200 Kwhs per Kw of billing demand and 3.64c per Kwh for the excess. Both Applicant and Staff agree to a proposed clarification of the billing demand language in this rate.
Applicant claims that its proposed change to Rate 0-4 will make this rate more advantageous for a customer to switch from General Service Rate 0-3 to D-4, since the breakeven point has been reduced from 352 hours0.00407 days <br />0.0978 hours <br />5.820106e-4 weeks <br />1.33936e-4 months <br /> use of demand to 340 hours0.00394 days <br />0.0944 hours <br />5.621693e-4 weeks <br />1.2937e-4 months <br /> use.
Applicant claims that Staff's proposed rate design will not accomplish this result.
The Administrative Law Judge finds that for Rate D-4 the service charge should l be set at $8.75 per month, the demand charge should be continued at $6.50 per month and the energy charges should be set so as to make the breakeven point between Rate D-3 and Rate 0-4 to be at approximately 340 hours0.00394 days <br />0.0944 hours <br />5.621693e-4 weeks <br />1.2937e-4 months <br /> use of demand. Rate D-4 should be increased at approximately the overall rate of increase.
Industrial Rates l
On-Peak, Off-Peak Energy Differential Staff proposes for the industrial rates that the present 3 mill differential between on-peak and off peak energy charges be increased to 7 mills. This proposal is objected to by Appilcant, the Industrial Intervenors and the Business Users.
Staff claims that its 7 mill differential proposal is justified oy a study which, according to Staff witness Dr. Bhatia, shows as much as a 9 mill per Kwh I difference in energy costs between a typical day-time and night-time load. Staff's study, which was adeltted into evidence as Exhibit A-129, was based on a 71-day period in 1977 However, contra to Dr. Bhatia's assertions that there was as much as a 9 mill difference in energy costs between typical day-time and night-t'.- Ioads, the 9 mill differ'ential represents the extreme differences in energy costs m stved in this study. As to the difference between energy costs based average on-peak Page 119 U-6006
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demands and average off peak demands, Exhibit A-129 showed a 2.58 mill per b h Ol 1 differential.
In determining the proper differential between on-peak and off-peak energy charges, the difference between average on peak and off-peak energy costs should be utilized, not the extremes between on peak and off-peak energy costs. The difference between average on-peak and off-peak energy costs justify retention of the present 3 mill differential. Therefore, the Administrative 1.aw Judge finds that Staff's pro-posal to expand the. Industrial rates on-peak, off peak energy differential to 7 mills should be rejected and the present 3 mill differential should be retained.
On-Peak Demand Charees Staf f reconnends there be no increase to the industrial rates on peak demand charges but instead, places most of its proposed Industrial rate increase on energy charges. This recommendation is opposed by Applicant and the industrial intervenors.
Staf f argues that its reconnendation to not apply any of the Industrial class increase on the on-peak demand charge is justified on the basis that the present on-peak demand charges adequately cover capacity cost. To support Staff's position, Dr.
Bhacia testifled that the present D-6 rate on-peak demand charge is $5.80 per 4 but that the capacity cost for Applicant's new Greenwood I generating unit is less than
$5.70 per h even including transmission costs.
However, the evidence shows that Dr. Bhatia, in his capacity cost analysis for Greenwood I, utilized a total cost for Greenwood I that was less than what the Greenwood l's actual total cost was. In addition, Dr. 8hatia used in his capacity cost calculation a fixed charge rate of 152, whereas the appropriate fixed charge rate based on other Staff evidence Indicated a fixed charge rate of 15.77%. Further-more, the record shows that Dr. 8hatla, in developing his capacity cost for Greenwooc 1, utilized only 75% of the production Investment in Greenwood I pursuant to staff's Page 120 U-6006
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l 75/25% allocation approach for generation equipment. By allocating demand charges on l
l 100% of Greenwood I production investment and by using Dr. Bhatia's 15% fixed charge ,
rate and Dr. Bhatla's Greenwod I plant costs, the record shows that the capacity cost of Greenwood I would be $7.08.
Therefore, based upon the evidence presented, the Administrative Law Judge finds that Staf f's approach of not increasing Industrial on-peak demand charges should not be atiopted. Applying the cost of service methodology adopted in this Proposal for l Decision, and based upon the above conclusions, the capacity costs for Greenwood l l
are greater than $7.08, rather than less than $5.70, as claimed by Dr. Bhatta.
Therefore, based upon appropriate capacity costs of Greenwood I, an increase in Industrial rates on-peak demand charges is justifled.
Another reason for increasing the on peak demand charge in Industrial rates rather than to increase energy charges as proposed by Staff, is to insure revenue stability, if fixed costs applicable to Industrial customers are recovered through energy charges rather than through demand charges and an economic slowdown occurs with res;' ting less electric energy consumption by Industrial customers, Applicant's revenues will decrease significantly, if, on the other hand, fixed costs are re-l covered through derr.and charges, Industrial customers decreased use of electricity in 1
an economic slowdown, will not have nearly as significant an effect on Applicant's l l
revenues. '
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Therefore, based upon the above discussions, the Administrative Law Judge finds 1 that recovery of additional revenues from industrial customers should be based on proper cost of service principles, which principles justify increasing the on peak demand charges for Industrial rates, rather than increasing energy charges significantly.
Billing Determinants Applicant claims that, based upon new billing determinants presented by its witness Mr. Okon, in the rebuttal proceedings in this case, both Applicant and Staff's industrial rates will recover less revenues than anticipated. Applicant claims that j use of Staff's billing determinants will result In between $19 million and $20 million less revenue from the Industrial classes. Accordingly, Applicant claims that the Industrial rates determined in this case should be derived utillzing the hours use of demand presented by its witness Mr. Okon.
This issue was fully considered in the section of the Preposal for Decision which determined Applicant's 1979 revenues. Therefore, the Administrative Law Judge i
finds Applicant's request to set Industrial rates util! zing Mr. Okon's hours use of j demand presented in the rebuttal phase of this proceeding should be rejected.
j Emergency Load Management Discount ,
Applicant proposes to add the phrase "as applied in Rule B-3 7" to clarlfy the i l
E:cergency Load Mar.agement Olscount provision of the Industrial rates. Staff concurs j 1
with this reconsnendation. The Administrative Law Judge finds this proposal reasonable and should be adopted since it appropriately ties the Emergency Lead Management Dis-count provision to the emergency electrical provisions developed in Case No. U-4218, which are set forth in Rule 8-3.7 Page 122 U-6006 O
O Staff proposes to increase the Emergency Load Management Discount to 254 per Kw from the current 204 per b. Appilcant opposes this proposed increase. The Adminis-trative Law Judge finds Staff's proposal increase to be reasonable and should be adopted.
Primary Sucoly Rate D-6 Pruposals as to the appropriate charges to be established for Primary Supply Rate 0-6 were presented b'y' Applicant Staff and the Industrial intervenors. Appilcant proposes that, for Ra'te D-6, the service charge should be maintained at $175 per month, the on-peak demand charge should be Increased to $6.40 per Kw, the maximum demand charges should be increased to $2.25, $1.20, and 90c per Kw for primary, subtransmission and transmission voltages, respectively, and the on-peak and off peak energy charges should be increased to 2.30c and 2.10c per Kwh, respectively. Staff proposes that, for Rate D-6, the service charges should be maintained at $175 per month, the on-peak demand charge should be maintained at $5.80 per Kw, the maximum demand charges should be increased to $1.75, $1.10 and 60c per Kw for primary, sub-t ransmission and transmission voltages, respectively, and the on-peak and of f-peak energy charges should be Increased to 2 9c and 2.2C per Kwh, respectively. The Industrial Intervenors propose that, for Rate D-6, the service charge should be maintained at $175 per month, the on peak demand charge should be increased to $6.27 per Kw, the maximum demand charges should be Increased to $2.21, $1.18 and 89c per Kw for primary, subtransmission and transmission voltages, respectively, and the on-peak and off peak energy charges should be increased to 2.27c and 1.97c per Kwh, respectiveh .
. Based upon the previous determinations contained in this Proposal for Decision, the Administrative Law Judge finds that the D-6 rate should be increased at the Page 123 U-6006
O overall rate of increase, the service charge should be maintained at $175 per month, and the on-peak, off-peak energy charges should be 2.4c and 2.lc per bh, respec-tively. The Administrative Law Judge further finds that the on-peak demand charge and the maximum demand charges for primary, subtransmission and transmission voltages should be Increased in accordance with Appilcant's 1979 cost of service study.
Large Primary Rate D-6.1 Proposals as to the appropriate charges to be established for Large Primary Rate D-6.1 were presented by Applicant, Staff and the Industrial Intervenors. Applicant proposes that, for Rate 0-6.1, the service charge should be maintained at $2,500 per month, the on-peak billing demand charge should be Increased to $6.4S per b , the maximum demand charges should be Increased to 90c and 60c for the subtransmission and transmission voltage levels, and the energy charges should be increased to 2.25c and 2.05c per bh on-peak and off peak, respectively. Staff proposes, that for Rate 0-6.1,$
the service charge should be maintained at $2,500 per month, the on-peak demand charge should be maintained at $5.55 per h , the maximum demand charges should be increased to 90c and 60c for subtransmission and transmission level service, respec-tively, and the on-peak and off-peak energy charges should be Increased to 2.85c and 2.15c per bh, respectively. The Industrial Intervenors propose, that for Rate D-6.1. the service charge should be decreased to $2,000 per month, the on-peak demand charge should be increased to $6.27 per b, that there be a maximum demand charge of 75c per b Irrespectively of voltage level, and the on-peak, of f peak energy charges should be 2.22c and 1.92c per hh, respectively.
Based on the previous determinations contained in this Proposal for Decision, the Administrative Law Judge finds that the D-6.1 rate should be increased at the overall increase, the service charge should be maintained at $2,500 per month, the Page 124 U-6006
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on-peak, off-peak energy charges should be 2 3c and 2.0c per bh, respec . *vely. l and the on-peak demand charge and the maximum demand charges on this rate should be l determined in accordance with Applicant's 1979 cost of service.
Bulk Power Sueoly Rate D-7 l Applicant proposes for Bulk Power Supply Rate D-7, that the service charge be t
l maintained at $2.500 per month, that the faellity charge be maintained at $7.20 per b per year, that the on-peak demand charge be increased to $6.55 per b, and that the energy charge be Increased to 2.20c and 2.00c per bh for on-peak and of f-peak service, respectively. Staff proposes for Rate D-7 that the service charge be main-tained at $2,500 per month, that the facility charge be Increased to $9 per b per year, that the on-peak demand charge be maintained at $5.55 per b , and that the energy charges be increased to 2.8c and 2.lc per bh for on-peak and off-peak charges, respectively. The industrial Intervenors propose for Rate D-7 that the monthly service charge be maintained at $2,500, that the facility charge be increased to
$7.25 per b per year, and that the energy charges be increased to 2.17c and 1.87c per bh for the on-peak and of f-peak usage, respectIvely.
Based on the previous determinations contained in this Proposal for Decision, the Administrative Law Judge finds that the D-7 rate should be increased at the overall Increase, that the service charge should be maintained at $2,500 per month, and that the on-peak, off-peak energy charges should be 2.25c and 1.95c per b h.
l respectively. The facility charge and the on-peak demand charge should be determined i In accordance with Appilcant's 1979 cost of service study.
Inte'rruptible Supply Rate D-8 The only change proposed by Applicant to Rate D-8 is to increase the energy Page 125 O. U-6006
O i charge to 2.25e and 2.05c per hh for on-peak, off peak service, respee.tively, and to increase the facility's charge from 20c te 60c per b. Staff proposes to increase the facility's charge to 60c and to increase the energy charge to 2.85c and 2.15e per bh for on-peak, off peak charges, respectively.
Based on the previous determinants contained in this Proposal for Decision, the Administrative Law Judge finds that the facility's charge should be increased to 60c and that the energy charge should be Increased to 2.3c and 2.0c per bh for on-peak and off-peak service, respectively.
Staff proposes for Rate 0-8 that the 10% limitation be Increased to 252 In special situations be added to the product protection provision of the rate. Acpli-cant opposes this proposed change. Since Staff has not presented evidence In support of this change or explained what special situations might give rise to this increase, the Administrative Law Judge finds that this proposed change should not be adopted.
Applicant proposes that the hours of interruption per day limitation be removed from 0-8. Staff proposes to retain this provlsion. The Administrative Law Judge finds that it is appiopriate to retain the hours of Interruption per day provision.
Miscellaneous Rates Outdoor Protective Lighting Rate D-9 Applicant and Staff propose differing increases to Outdoor Protective Lignting Rate D-9 Applicant and Staff are In agreement that high pressure sodium lights should be Introduced for the first time for Rate D-9 The Administrative Law Judge finds this rate should be increased at the overall rate of Increase, that high pressure sodlum light rates should be included, and that rates established should maintain parity with Municipal Streetlighting Rates E-I and E-3 i
Page 126 l U-6006 l
O Municipal Streetlighting Rates E-l and E-3 Applicant proposes that the streetlighting class be increased at a percentage equal to the average rate increase for all customer classes. Staff recommends a rate Increase of 6% for this class, as compared to an average Increase for all customer classes of 6.9%. The industrial Intervenors advocate a percentage increase for streetlighting rates which is slightly less than the average increase. Crosse Pointe Park takes the position that the increase for the streetlighting class should be no greater than the average overall increase. The Administrative Law Judge finds that Municipal Streetlighting Rates E-1 and E-3 should bc Increased at approximately the same overall increase for all customer classes.
Applicant's individual increases for Rates E-l and E-3 by type and size of lamp are based upon a cost of service study presented by its witness Mr. Okon. Pursuant to this study, Mr. Okon recommends that the increase for mercury vapor lights be at O the approximate average level for the streetlighting class, that the Increase for sodium lights be below the average Increase and that the Increase for incandescent lights be at a graater rate than the overall Increase. Staff's proposal, like Appli-cant's, request a higher percentage Increase for incandescent lamps but Staf f differs from Applicant In that It calls for a decrease in charges for high pressure sodlum service. The Administrative Law Judge finds Staff's approach to Individual charges for streetlighting to be more appropriate and should be adopted. Accordingly, the Administrative Law Judge finds that Individual streetilghting charges adopted should follow Staff's approach but be based on the rate of Increase previously determined in this Proposal for Decision to be appropriate.
Staff propons a new Energy-Only Municipal Streetlighting Rate E-1.1. Applicant opposes this-proposed new rate. The Administrative Law Judge finds that Staff's proposed new Rate E-1 is appropriate and should be adopted.
O Page 127 U-6006
O Traf fic Slgnal Lights Rate E-2 Arplicant proposes to increase the E-2 rate to 2.lc per month per watt of connec-ted load ai.d Staff proposes increasing this rate to 2.0c per month per watt of connected load. The Administrative Law Judge finds that Rate E-2 should be Increased to 2.0c per watt per month of connec:ed load.
Primary and Secondary Pumoing Rates E-4. E-4.1 and E-5 For Primary Pumping Rate E-4, Applicant proposes to increase the demand charge to $7.55 per Kw per month and to increase the on peak and off-peak er.ergy charges to 2.3C ad 2. loc per month per hh, respectively. For Rate E-4, Staff proposes to increase the demand charge to $6.50 per 4 per month and to increase tae energy charge to 2.9c to 2.2c per bh for on-peak and of f peak usage, respectively.
The Administrative Law Judge finds that this rate should be Increased at the over '1 rate of increase and that the energy charge on peak and off peak should be 2.4c and 2.lc per bh, respectively. The remaining increase for this rate should be placed upon the demand charge.
For Secondary Pumping Rate E-5, Applicant proposes to Increase the energy charge to 4.75c per hh and Staff proposes to increase the energy charge to 4.65c par Kwn.
The Administrative Law Judge finds that the energy charge for Rate E-6 should be Increased to 4.70c per bh.
Staff proposes establishment of a new Controlled irrigation and Municipal 'ue-ping Service Rate E-4.1, which service would be subject to interruption by means of redlo control devices. Applicant opposes this proposed rate and recormwnds more research be given to this proposal before its adoption.
Page 120 U-6006 O
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O The Administrative Law Judge finds Staff's proposed Rate E-4.1 reasonable and in the public Interest. This rate will serve to provide further opportunity to limit growth of peak demand. The service charge for this rate should be set at $150 per month, as reconsnended by Staff, and the energy charges should be established at 3.85c per Kwh.
Contract Riders Electrical Metal Melting - Standard Contract Rider No. 1 Applicant proposes for Standard Contract Alder No. I to increase the energy charge to 4.5c per Kwh and to increase the minimum charge to $1.10 per Kw of furnace contract capacity. Staff agrees with Applicant's proposed mlnlmum charge increase but reconwnends increasing the energy charge to 4.6c per Kwh. The Administrative Law Judge finds Appilcant's proposed modification of Standara Contract Rider No. I to be O appropriate and should be adopted.
Stand-by or Partial Service - Standard Contract Rider No. 3 Both Applicant and Staff propose to add a provision to exclude maximum demands from rntcheted calculations in cases where the customer's generation is inoperative. 1 I
The Administrative Law Judge finds this proposed modification to Standard Contract Rider No. 3 to be appropriate and should be adopted. .
i Resale of Service - Standard Contract Rider No. 4 l
Applicant and Staff propose to exclude from the 15% discount provlslon of this rider, fuel and purchased power, operations and maintenance index and system avail-ability incentive provision adjustments. The Administrative Law Judge finds this proposal to be reasonable and should be adopted.
Page 129 U-6006
O Industrial Co-generation - Standard Contract Rider No. 5 Staff proposes adoption of a new tariff provision, Standard Contract Alder No. 5.
for Industrial Co-generation. Under Staff's proposal, sales of ele;sricity by customers to Applicant, would be at rates established by special contract and would allow such customers to reasonably recover their fixed and out-of-pocket costs provided such rates would not exceed Appl; cant's incremental cost of alternate generation.
Sales by Applicant to customers under Standard Contract Alder No. 5 would be at Applicant's applicable filed rates. PIAGlM supports adoption of Standard Contract Rider No. 5. Applicant opposes adoption of this proposed tarif f provision.
Co-generation of electricity is certainly a concept to be fostered and encourgaged.
In many Industrial processes, steam Is generated by customers for their cwn use and in such situations, it may be possible and feasible to generate electricity as a by-product. It also may be reasonable for certain amounts of electricity to be sold to ll Applicant. The Commission should do its part to encourage co-generation where it is reasonably feasible and is in accord with promoting conservation. To provide suen encouragement, an appropriate co-generation tarlff provision should be adopted.
The Administrative Law Judge therefore views the issue concerning proposed Standard Contract Alder No. 5, not as to whether a co-generation tariff should be adopted, but, since there is no other proposed co-generation tariff proposed on the record, whether Staff's proposed Standard Contract Alder No. 5 should be adoptec.
After thorough and thoughtful consideration of this matter, the Administrative Law Judge finds that Staff's proposed Contract Alder No. 5 contains deficiencies which might well serve to hinder rather than foster, the development of co generation.
Because of these deficiencies, the Administrative Law Judge finds that Staff's pro-posed co generation tariff provision should not be adopted.
Page 130 U-6006 l
O First, it is noted that Applicant presently has Standard Contract Rider No. 3, which provides for stand-by service for customers who generate all or part of their own electricity. It is appropriate that any co-generation tariff provision for Applicant should be specifically tied to Standard Contract Rider No. 3 which is not the case with Staff's proposed Contract Rider No. 5 Second, under Staf f's proposal, it appears that Applicant would have to provide i
stand-by capacity without compensation for the capacity involved. Without providing for compensation for capacity, It would appear that other Industrial customers whose rates include capacity charges will be subsidizing the stand-by service for co-generation facilities. A properly designed co-generation tariff position should eliminate this problem. Third, The customer planned maintenance provision in Staff's proposed Contract Ridef No. 5 will be difficult to implement because maintenance of co-generation facilities would have to coincide with production shutdowns for vacation
() periods and would be difficult to coordinate and plan in the detail required by this prnposed contract rider. A solution therefore should be sought to this problem.
Fourth, the proposed contract capacity provision of Contract Rider No. 5 provides no incentive for the customer to set realistic minimum or maximum sell-back levels and would not allow Applicant to consider the co-generation facility as part of Applicant's generation mix. This problaa should be eliminated in a proper co generation tariff provision.
Although the Administrative Law Judge finds that Staff's co-generation tariff should not be adopted in this proceeding, the Administrative Law Judge finds that Applicant should be ordered to provide a study concerning co generation as well as to provide a proposal as to how it deems this matter should be handled. Such a study should be prepared by Applicant and submitted to the Commission within 180 davs after Page 131 l u-6006 '
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O the Consnission's Order in this proceeding. This study should fully identify any customers who are presently generating their own electricity or who are likely to do so within the reasonably foreseeable future. Furthermore, this study should Indicate which of Applicarit's present tariff provisions and/or rules would be affected by a co-generation tariff and which of Applicant's present tariffs or rules should be modified if a co-generation tariff is adopted. In addition, this study should Indicate what cons!derations Applicant deemed proper to be made In the development of an appropriate co-generation tariff. Finally, at its option, Applicant should be entitled
~
to submit within thls study, what It believes to be an appropriate co generation tariff. Thereafter, after an appropriate evidentiary hearing either as part of this case or in a subsequent proceeding, an appropriate co-generating tariff should be adopted.
All 1lectric School Bulldings - Standard Contract Rider No. 7 Applicant proposes to change Standard Contract Alder No. 7 so as to increase the servir.e charge to $85 per month and to increase the energy cherges to 5.2cc per un for all hh except for the winter heating season, which ena.3as are to be increased to k.50c per Kwh. Staff proposes to increase the energy charges to 5 2c per K=h
(
t except during the winter heating season which charge is to be increased to k.6c per i
Kwh. j i
The Administrative Law Judge finds that Standard Contract Rider No. 7 shculd be I l
l Increased by the overall percentage increase. The Administrative Law Judge further finds that the service charge should be increased to $80 per month and that the energy charges should be appropriately increased on a cost of service basis.
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Conenercial Space Heating - Standard Contract Alder No. 8 j Applicant proposes to increase the energy charge for this rate to 5.62c per Kwh except for the winter heating block which is increased to 4.52c per bh. The Staff proposes to increase the energy charge to 5.4c per h h except for the winter heating block which is to be Increased to 4.58c per Kwh. The Administrative Law Judge finds that the energy chargo for Standard Contract Rider No. 8 should be Increased in the manner proposed by Appilcant but it should be adjusted to reflect the revenue deficiency I
adopted in this Proposal for Decision.
Industrial Steam Service Rates Applicant provides process steam to the Steam Intervenors, Monsanto, Great Lakes Steel, and Morton Salt, as well as to Allied Chemical ' Corporation and also provides Industrial water service to Monsanto Company. Because this steam and water service O is provided from electric generating plants, the steam and water rates for these customers are determined in electric rate proceedings.
In addition to determining the steam and water rates for the above-named com-
)
panies, Applicant proposes that the rates of five Industrial customers, which receive 1
steam from its Delray generating plant through its Jefferson Street line have their '
rates determined in these proceedings. Previously the rates of these Jefferson Street customers were determined in Applicant's steam rate proceedings. Staff sup-ports Applicant's proposal to include these Jefferson Street customers in this pro-cnding.
The Administrative Law Judge finds that the rates for Applicant's five Indus-tr1al' steam rate customers served through its Jefferson Street line should be deter-mined in these proceedings. Although none of these customers Intervened in these l Page 133 I O
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O proceedings, all of these customers received separate notice of Applicant's intent to determine their rates In this proceeding. Furthermore, as testified by Applicant's witness Mr. Okon, these customers are presently being served from Applicant's Delray electric generating unit rather than from Applicant's main central heat system.
Since these customers are served from an electric department power plant, most of their operations and maintenance expense, as well as the Investment to serve these customers, is recorded on Applicant's Electric Department books. Therefore, it is appropriate that the rates of these Jefferson Street steam customers be determined in electric rate proceedings.
Proposals as to the appropriate steam rates to be established in these proceedings were submitted by Applicant, Staff, Monsanto, Morton Salt and Great Lakes Steel. All
)
of these steam rate proposals were based on Individual cost of service studies per-formed by these parties. Subsequent to submission of their various rate proposals, Applicant, Staff and the Steam intervewrs reached agreement as to the appropriate cost of service to be used in this proceeding, as wellas to the appropriate methodology i
for determining steam and water rates. This agreenent, which was received in evi-t de.ce as Exhibit Al5-138, leaves in dispute between the parties, only rate of return.
other operations and maintenance considerations, and the fuel adjustment clause to be adopted. However, as to other operations and maintenance considerations, Applicant, 1
Staff and the Steam Intervenors agree that the basis set for these customers in Case l
No. u-5502 should be adjusted for volumetric fluctuations In domineralizer expenses.
It has previously been determined that Staff's operations and maintenance expense as well as Staff's modification to the other operations and maintenance expense CPI i
Indexing system, should be adopted in this case. In addition, the overall rate of return has previously been determined. Therefore, other than as to determinations Page 134 U-6006 l
O concerning the fuel adjustment clause which will be addressed in a subsequent sec-tion, the sole matter to be considered in this section is the proposed agreement, AIS-138.
Based on the evidence presented, the Administrative Law Judge finds the proposed agreement between Applicant, Staff and the Steam intervenors as set forth in Exhibit ABS-138, to be reasonable and in the public Interest and thus should be adcpted.
Therefore, the Administrative Law Judge finds that the steam rates to be established in this proceeding shall be as set forth In Exhl'ait AIS-138, as affected by the other operations and metritenance expense determinations and the rate of retu'n previously determined in this Proposal for Decision. The appropriate fuel clause to be utilized for steam service will be covered in a subsequent section concerning the fuel adjust-ment clause. 8 Industrial Power Plants Two major issues concerning the industrial Power Plant Intervenors Pennwalt and Port Huron Paper, have already been discussed and determined. The first of these Issues concerns the other operations and maintenance expense and the other operations and maintenance CPI Indexing system. The second involves rate base adjustments which have been made for both Pennwalt and Port Huron Paper. As a result, the only issue remaining in contention which involves both Industrial Power Plant intervenors, concerns Applicant's proposal to separately charge Pennwalt and Port Huron Paycr for electricity generated on the sites of these Industilal Power Plant Intervenors.
At the present time, Applicant's costs for electricity generated at the Pennwalt and' Port Huron power plant sites, as well as the cost of compressed a b produced at the Pennwalt site, are recovered through Pennwalt and Port Huron Paper's steam rates.
Page 135 O. U-6006 l
O Applicant's proposal calls for establishing separate commodity charges for elec-tricity generated at the Pennwalt and Port Huron Paper power plant sites. Similarly.
Applicant proposes to impose a commodity tiarge for compressed air provided at the Pennwalt power plant site. Staff and the Industrial Power Plant Intervenors oppose these proposed separate comodity charges and recorsnend that these on-site electric and compressed air costs continue to be recovered through the steam rates.
The Administrative Law Judge finds that Applicant's proposals to establish sepa-rate comodity charges for electricity generated at the Pennwalt and Port Huron Paper sites, as well as a separate comodity charge for compressed air produced at the Pennwalt site, are reasonable and should be adopted. Applicant has additional fuel costs when electricity Is generated and compressed air is produced at these indus-trial power plant sites. These additional costs should be properly recovered through separate comodity charges on an Individual cost of service basis. Having so found, the only issues remaining in controversy concerning Industrial power plant rates O
Involve only Intervenor Pennwalt. These controverted issues involve the production maintenance expense, depreciation expense, and working capital amplicable to Pennwalt.
Pennwalt claims that the appropriate production maintenance expense applicable to Pennwalt is $1,242,000, whereas Apolicant claims this expense should be $1,k40,000.
l Pennwalt argues that $1,242,000 is the appropriate production maintenance expense be-cause this is the amount of Pennwalt's contribution to power systems operations pre-sented by Applicant's witness Mr. Maylan. According to Pennwalt the remaining producti maintenance functions applicable to Fennwalt were included In the other operations and maintenance base established in Case No. U-5502 and therefore are appros.-lately Included in other operations and maintenance expense.
Page 136 I U-6006 l
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O Pennwalt states, however, that if the Consulssion concludes that the remaining components of production maintenance expense should be included in production main-tenance expense, the appropriate expense should be $1,286,000. Pennwalt derives this amount by determining that Applicant's total production maintenance expense constitutes approximately 3.44% of Mr. Maylan's estimate for total power systems operations expense. Staff. originally supported Applicant's $1,449,000 amount for Pennwalt's production maintenance expense but now supports Pennwalt's alternative amount of
$1.286,000.
It has previously been determined in this Proposal for Decision that production maintenance expense properly should include all components of production and mainten-ance expense, not just power systems operations. Therefore, the Adm!ntstrative Law Judge finds that Pennwalt's claimed production maintenance expense of $1,242,000 is Incorrect since it only includes a power systems operation component.
As to Pennwalt's alternative amount of $1,286,000 It is noted that the cost of service to be used in determining Pennwalt's rates was presented by Applicant's witness, Mr. Jesse Wilkins, not Mr. Maylan, so therefore, the appropriate production maintenance expense level for Pennwalt was that presented by Mr. Wilkins, not by Mr.
Maylan. Pennwalt's ratioing up of Mr. Maylen's flgere to include the missing production maintenance components does not produce the appropriatt production maintenance expenses for Pennwalt. Therefore, the Administrative Law Judge finds that the appro-priate production maintenance expense applicable to Pennwalt is $1,449,000.
Pennwalt claims that the reduction of Pennwalt's rate base for disallowed InvestmeM in the flu gas conditioning system results In depreciation expense apolicable to Pennwalt being reduced by $14,000. Thus Pennwalt claims that the appropriate deprecia-tion expense should be $563,000, rather than $577,000.
Page 137 U-6006
O The Administrative Law Judge finds Pennwalt's proposed depreciation expense adjustment should not be adopted. The record in this proceeding does not support Pennwalt's proposed $14,000 depreciation adjustment. Furthermore, it Is noted that while the Comission's Orders In Case Nos. U-5502 and u-5218 disallowed a portion of
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the rate base associated with the flu gas conditioning system at Pennwalt, no dis-l allowance sas made for any portion of depreciation expense.
! The final Issue addressed by Pennwalt concerns its claim that the working capital I allowance applicable to Pennwalt should be reduced. Since the working capital allowanco determined in this proceeding is based on Staff's, and not Applicant's allowance, no adjustment is appropriate concerning the w rking capital allowance applicable to Pennwalt.
Based upon the evidence produced, the Administrative Law Judge finds Staff's Exhibit 5-131 reflects the cost of serving Pennwalt and Exhibit 5-132 reflects tne cost of serving Port Huron Paper. Utilizing a 9.27% rr.te of return previously deemed
. appropriate, and Exhibit 5-131, it therefore follows that Pennwalt's revenue deficiency I
is $698.500. Similarly, utilizing a 9 27% rate of return in conjunction with Exhibit 5-132, adjusted to reflect removal of $370,000 representing the oil conversion Invest-ment previously disallowed, it follows that Port Huron Paper's revenue deficiency is
$193.f00. Therefore, the Administrative Law Judge finds that Pennwalt and Port Huron 6
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Paper's rates should be appropriately increased on a cost of service basis to make up for these revenue deficiencies.
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' Fuel and Purchased Power Adjustment Clauses 1
1 - Both Applicant and Staff propose modifications concerning the fuel and purchasec power clauses applicable to electric sales. Applicant's proposed revisions primarily f
Page 138 U-6006
O concerns use of estimates for fuel and purchased power expenses and sales to determine the appropriate fuel and purchased power cost adjustments. Staff's proposed modifica-tions involves the 10% penalty provision and the lag correction provision. Staff and ,
PIRGIM oppose Applicant's proposed modifications to the fuel and purchased power clauses. Applicant supports, whereas PIRGIM opposes, Staff's proposal to eliminate the 10% penalty provision during times of emergency. Applicant Indicates that be-cause of lack of guidelines, it cannot respond to Staff's proposed lag adjustment modification.
Under Applicant's propcsed revision of the fuel and purchased power clauses set forth in Exhibit A-13, Schedule E-91 Revised Sheet No. B-410, the fuel and purchased power adjustments weald be determined by a formula which estimates fuel and purchased costs and forecasted sales during the months the adjustment factor would be applied.
This fuel and purchased power adjustment factor sculd subsequently be corrected three months later, based on the variance bstween the forecasted components and the actual book figures.
While claiming that its proposed fuel and purchased power clause would track expenses better than the present clause, Applicar.t Indicates that annual reconcilla-tions would still be appropriate since variations .between fuel and purchased power costs and fuel and purchased power revenues could still occur. According to Appil-cant's proposal, these variations between fuel and purchased power costs and fue! and purchased power revenues would be set aside in a " bank" to be recorded on Applicant's books and then be used to offset following reconciliation period variances. This
" bank" would be allowed to grow to a cell ng of $2 million either positive or negative.
In the event that the bank exceeded a $2 million positive level, the Conunission would order refunds of the balance over $2 million. If a regative balance of over $2 million Page 139 U-6006
O occurred, the Comission would order collection to restore the bank to a credit balance no greater than $2 million.
To handle the transition from the present fuel and purchased power clause to its proposed clause, Applicant proposes that the lag correction factor be allowed to run its course for the three months after adoption of its proposed fuel and purchased power clause. Af ter the lag factor runs its course, Applicant proposes implementation of its revised fuel and purchased power clause.
Staff's proposed modification concerning the 10% penalty provision in the fuel and purchased p$wer clause calls for suspension of this provision when daring a period of emergency, Applicant has resorted to non-economic dispatch pursuant to Comission authorizatic .1. Staff's proposed revision of the lag adjustment procedure would apply in periods af abnormal circumstances when generation costs are temporarily high. Under this procedure, the Comission would first make a determination that abnormal circumstances exist and then Applicant would compute fuel and purchased 9 power adjustment factors using normal costs for the period. The difference between the normal factor and toc regularly computed factor would then be added to the regularly computed factor.
The Administrative Law Judge finds that Applicant's fuel and purchased power clcuse proposals should not be adopted. Applicant's proposed fuel anc purchased power clause would leave the fuel estimating method entirely up to Applicant. Also, Applicant's proposal would result In duplicate efforts by Staff and other parties since Applicant's estimates would have to be verlfled each month and then three l
months later would have to be verified again when actual data is furnished to correct !
i estimates. In addition, Applicant's proposed fuel and purchased power clause has not been shown on this record to be superior to the fuel and purchased power clause Page 140 U-6006
O now in existence. Finally, Applicant's " bank" proposal with its $2 million ceiling, could result In what amountc to customers providing up to a $2 million Interest-free loan to Applicant.
Turning now to Staff's proposed mod!f f catlons of the fuel and purchased power
' clauses, the Administrative Law Judge finds that these proposals likewise should be rejected. Although there appears to be some mealt to Staff's proposed modifications, the Administrative Law Judge finds Staff's proposed modifications should not be adopted because they lack proper standards Indicating when they should be applied.
Specifically, as to Staff's propused suspension of the 10% penalty provision, this modification falls to present any standards as to at what point It would be appropriate for the Correnission to authorize Applicant to resort to non-economic dispatch. Sim- I l llarly, as to the proposed lag correction modification provision, the proposed modification falls to present any standarcs indicating what will constitute abnormal O circumstances when generation costs are temporarily high or what constitutes normal costs. Establishment of appropriate standards for these determinations tmaid serve M -liminate in advance difficulties and problems that would undoubtedly occur in application of these proposed modifications. In the absence of such standards, this Administrative Law Judge finds that adoption of Staff's proposed fuel and parchased ,
power clause modifications Is not warranted.
Staff, in its original brlef, takes the position that the demurrage charges ;
should be excluded from the fuel adjustment charge. In support of this proposed exclusion, Staff argues that the objective of the fuel cost adjustment clause is to ,
l allow only primary fuel expenses, and not small auxillary items, to be passed through ,
the clause. In addition, Staff states that demurrage charges should be excluded based upon the difficulty In determining the cause of such cost and whether or not Page 141 U-6006
O Applicant had controlled these costs. Appilcant oppcses Staff's proposal to exclude demurrage costs from the fuel adjustment clause.
The Administrative Law Judge finds that Staff's proposal to eliminate demurrage charges should not be adopted since costs recovered from the fuel adjustment char 3e should be based on Rule 3-4.6 and the Uniform System of Accounts. Rule B-4.6 provides that the fuel cost adjustment is based upon the average delivered cost of fuel.
Account 151, Fuel Stock, of the Uniform System of Accounts is an inventory account which includes " demurrage and other transportation charges." nihen fuel is burned, the expense from Ac.co ne 153 is charged to Account 501. Fuel. Since demurrage costs are originally included in Account 151 and then are appropriately passed through to Account Sol when the fuel is burned, and since Rule E-4.6 applies to the average cost of fuel burned, the Administrative Law Judge finds that demurrage charges should not he excluded from the fuel adjustment charge.
Applicant and Staff both recomend that the annual reconelllation proceedings concerning the fuel and purchased power clause should be held on an annual, rather than on a saml-annual basis, as is prasently the case. The Administrative Law Judge finds this recomendation to be rear.onable and should be adopted.
Staf f proposes and PIRGIM supports a recormendation that St. annual Interest be 1
I paid on refunds resulting from overrecovery by the fuel and purchased power adjust-ment clauses. The Administrative Law Judge finds this proposal to be reasonable and should be adopted.
Applicant proposes to raise the cost base for fuel to 13.75 mills per Kah and to raise the cost base for purchased power to 2.85 mills per K=h. Staff proposes that the, basing point for fuel should be raised to 14.96 mills and the basing point for purchased power should be raised to 2.99 mills.
Page 142 U-6006 i
O The Administrative Law Judge previously found that Staff's projected 1979 fuel and purchased power expenses were appropriate and should be adopted. This fuel and purchased power expense was the ba=Is by which Staff's fuel and purchased power easing points were established. Therefore, the Administrative Law Judge finds that Staff's fuel and purchased power basing points are more appropriate than are Applicant's The Administrative Law Judge, however, notes that Staff's fuel cost include scrubber oil expense incurred at Applicant's St. Clair Unit No. 6 power plant. In the Comission's six-month reconcillation Order dated June 27, 1979, in Case No. U-5108, the Comission determined the scrubber oil should not be passed through the fuel cost adjustment clause. Therefore, the Administrative Law Judge likewise finds that this scrubber oil should be excluded in determining the fuel basing point. Staff's fuel expense included approximately $1,150,000 of scrubber fuel oII. By dividing Staff's 40,392,285 Mwh of system requirements by $1,150,000, the Administrative Law Judge finds that Staff's fuel basing points should be reduced by .028 mills per bh.
Based upon the above findings, the Administrative Law Judge finds that the fuel cost basing point should be 14.93 mills per bh and the purchased power basing point should be 2.99 mills per Kwh.
. Applicant proposed that the fuel adjustment charge for steam sales involved in this proceeding be based on estimated costs. The Administrative Law Judge finds that I'
this proposal should be rejected for the same reasons expressed for rejecting Applicant's proposed fuel and purchased power clause applicable to electric sales. Therefore, the Administrative Law Judge finds there should be no changes to the steam fuel adjustment charges other than to appropriately change their basing points on a cost of' service basis.
Page 143 U-6006 O
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O Xill.
RULES AND REGULATIONS Ceneral Provisions for Service Acolication for Servicee - Rule B-2.3 Seth Applicant and Staf f propose to rewrite Rule 5-2 3 Under the new rule all general service an'd Industrial service customers wuld be required to sign a contract I
when making application for service. The new rule also indicates that service can normally be re-established to premises recently suppiled, within one full business day from the application, however, If new construction Is necessary, additional time wl: Je required prior to providing service. The new rule also Indicates that a customer desiring , service may be required to present identification at an office of Applicant lf there' are any questionable circumstances surrounding the appIIcation.
As between Applicant and Staff's proposed revision of Rule B-2 3, the Administra-
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---~~ O tive Law Jud finds Staff's! revised rule to be preferable and therefore should be s
adopted.
Reconnection and Turn-On Charges - Rule 8-2.8 Both Applicant and Staff propose to increase reconnection and turn-on charges.
Applicant proposes to increase the charge for restoring a customer that has been cut at the meter for breach of the rules from $6 to $20 and from $20 to $45 If the service has been cut at the pole. Applicant also proposes a charge of $6 If It is necessary to send a collector to the premises to collect for a bill and electric service is r.Jt discontinued. For restoration of service that has been cut at the pole, Applicant proposes a charge of $45 during normal wrking hours and $ao for reconnection other than normal working hours. Staff's proposal is similar to Appli-Page 144 U-6006
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cant's except that Staff proposes a $25 charge for restoring service cut at a pole and a charge of $40 If such reconnection is requested, other than during normal working hours.
rm The Administrative Law Judg f/sproposedRuleB-2.8preferableand should be adopted.
insulation Standards for Electric Heering - Rule B-2.12 Both Applicant and Staff propose that a new Ruis B-2.12 be established concerning Insulation standards for electric heating. Previously these standards were part of Rule 8-2.11, Home lasulation Plan. The Administrative Law Judge finds that a separate Rule B-2.12 entitled insulatlan Standards for Electric Heating is appropriate and should be adopted.
Applicant and Staff's proposed Rule B-2.12 differ In that Appilcant's proposed
, rule makes the standards suggested, whereas Staff makes the standards mandatory.
Staff's proposed rule differs from Applicant's also, in that Staff's proposed rule would apply to any electric heating customer which seeks to take advantage of any space heating rate, whereas Applicant's proposed rule refers only to heat utilized in residential homes. PIRGIM supports Staff's proposed Rule B-2.12 and opposes Appilcant's proposed rule.
Af ter cor. sideration of the evidence presented on this matter, the Administrative Law Judge finds that the standards set forth In Rule 8-2.12 should be made mandatory and not merely suggested. The Commission in U-5502 determined that mandatory stan-dards for electric heat in homes should be established. Applicant's proposal to make such standards suggested is a step backward, in the effort to promote energy conserva-tion, Applicant's proposed rule should not be adopted.
Page 145 U-6006
O The Administrative Law Judge finds that Staff's standards in Rule B-2.12 are appropriate for residential electric heat; however, the Administrative Law Judge notes there are serious difficultles In applying such standards to comercial buildings and mobile homes. Based on the evidence presented, it appears that these insulation standards sut forth In Rule 8-2.12 can reasonably be appIIed to residential homes since residential homes have cavity wells and open joints which can be filled with Insulation. On the other hand, conenercial buildings are of ten built out of brick and block and thus Insulation of ten cannot be added to commercial buildings in the same manner as it can be added to resential homes. Furthermore, retrofitting of Insulation of comercial buildings in accordance with Rule B-2.12 standards might cause significar.t adverse effects on existing cooling systems.
Another problem with application of Rule B-2.12 standards to consnercial buildings, is that architects and engineers use "U" Standaros not "R" standards in determining building insulation. Wereas R standards reflect the Insulating value of a single component in the building, U standards reflect the overall Insulating value of a !
total building section. These U valuc 1.tardards have in fact been adopted in the Michigan Energy Code, 1977 AACS, R 4C8.31001 et seg. and are in effect for new bull-ding construction In Michigan.
Because of the above-stated problems, the Administrative Law Judge finds that Rule 8-2.12 should be limited in application to residential homes. Although insula- !
tion standards to other than residential hocnes are advisable, Staff's proposed l
standards appears to be impractical,and unwnrkable for other than residential homes.
Therefore, specific Insulation standards for consnercial buildings should not be adopted in this proceeding. I i
l l l Page 146 l j U-6006 0
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O Conditions of Service Character of Service - Rule B-3.1 Both Applicant and Staff propose to reword the' language in Rule B-31 to conform with present day practice where Y connected service is a standard rather than Delta connected service. Staff's proposed language differs from Applicant's in that Staff's proposed language does not contain a statement "In certain city districts, alternating current is supplied from a Y connected secondary network at 208 Y/120 volts." i The Administrative Law Judge finds that Applicant's proposed revision of Rule B-3.1 should be adopted to avoid any inference"that 208 Y/120 voit service may be availabic anywhere.
I Continuity of Service - Rule B-3.2 O Staff proposes to change Rule B-3.2 as follows:
"The company agrees to furnish continuous and adequate service subject to Interruption by agreement, or upon advance notice. Service might be Interrupted due to accidents or other causes not under the reasonable control of the company. Certain services are subject to limited hours and controls, as shown in the Schedule of Ra tes."
Applicant opposes this proposed change.
The Administrative Law Judge finds that the above proposed change should not be adopted. Under the present wording of this provision, Interruption by accident or other causes not under the reasonable control of the company constitute a speelfic limitation to the company's agreement to furnish continuous and adequate service to its customers. Under the Staff's proposed wording, only interruptions by agreement or upon advance notice are specific limitations on the company's agreement to furnish
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continuous and adequate service. Adoption of Staff's proposed language would thus seem to unnecessarily expose Applicant to damage claims resulting from service Inter-ruptions beyond the control of Applicant.
Staff also proposas to further revise Rule B-3 2 as follows:
"The company will not be liable for damages caused by an Interruption of service, voltage or frequency variations, single-phase applied to three-phase lines, reversal or l phase rotation, or carrier-current frequencies opposed i by the company for system operations or equipment control. Therefore, the customer should Install suitable '
protective equipm(nt if such occurrence might damage his apparatus. The company is not exempt from IIability 1 for damages resulting from its failure to exercise reasonable care and skill in furnishing service."
The Administrative Law Judge finds that Staff's proposal will alter the meaning of the present provision which makes Applicant liable only for Its negligent Interrup-tion or alteration of the service of its customers. This proposed change might well Improperly expose Applicant to liability for damages not under its control or responsi-bility. Therefore. the Administrative Law Judge finds that the above proposed change should not be adopted.
Extension of Service - Rule 5-3 3 Applicant proposes two changes to Rule 5-3.3(1)(d). The first is a writing of the description of those systems for which the Commission's Order in Case No, U-3001
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mandates undergrounding. The second change includes exceptions to mandatory under-grounding. Staff's proposed language is substantially the same as Applicant's. The Administrative Law Judge finds Staff's proposed revision appropriate and should be adopted.
Distribution Systems - Rule B-3.4 Applicant and Staff propose two identical changes to this rule. The first Page 148 U-6006
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proposed change rewords Rule 8-3.4(1) by changing the last paragraph in this section concerning winter charges from "an additional amount of $1 per foot shall be added to trenching charges" to "an additional amount of $1 per trench foot shall be added to charges." The second recomended change rewords Rule B-3.4(2) so as to provide for measurement along the route of the trench to a point directly beneath the meter. The Administrative Law Judge finds Applicant and Staff's proposed changes to Rule 8-3 4 to be appropriate and should be adopted.
Underground Service Connections - Rule 8-3 5 Applicant and Staff are in agreement 1 renumbering this provision for clarification purposes. The Administrative Law Judge finds this renumbering appropriate and should be adopted.
I Temocrary Service - Rule 8-3.6_
O Applicant and Staff propose an additional paragraph to be added at the end of this rule to establish a charge applicable to a customer when an unauthorized service tap of Applicant's lines Is made. The Administrative Law Judge finds this proposed change appears op,sropriate and should he made.
Staff recomends an additional :hange to Rule B-3 6 to provide for a penalty
, ,, of $100 to be levied for each unauthorized connection. Applicant objects to inclusion
/" of this penalty provision. The Administrative Law Judge finds that Staff's penalty provlslon should not be adopted since there is a legal question whether it can be enforced.
j Emergen:y Electrical Procedures - Rule B-3.7 r.
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Applicant recomends that the interim or final Emergency Electrical Procedures Page 149 U-6006
O which may be adopted in Case No. U-4128 be included in Applicant's rules and be Identified as Rule B-3.7, Emergency Electrical Procedures. Staff took no position on this request.
The Adrainistrative Law Judge finds that if Interim or final Emergency Electrical Procedures are approved in Case No. U-4128 prior to the Correnission's final Order in this proceeding, these procedures should be set forth in a new Rule 8-3.7 Billing and Payment for Service General Deposit Conditions - Rule 8-4.1 Applicant and Staff propose to add a new sentence to the end of the paracraph in Rule 8-4.l(5)(J) to provide for escheating deposits to the State of Michigan af ter Applicant has been unable to locate the customers for seven years. The Acministrative Law Judge finds this proposed change to be appropriate and should be adopted.
Billing For Service Rule 8-4.2 Applicant and Staff propose revision of Rule 8-4.2 so as to provide for monthly meter reading of domestic customers. Since this Administrative Law Judge has already determined that monthly meter reading is appropriate, the Administrative Law Judge finds that Rule 8-4.2 should be revised to Indicate meters will be read monthly.
Staff proposed a change to Rule 8-4.2 which proposal addresses the fact that billing months for residential service range from 28 to 35 days, with the average being 30.2 days. Under Staff's proposed change to Rule B-4.2 Applicant would revise Its domestic billing program so that bills would be pro-rated to equal the number of days in the calendar month. Applicant opposes this proposed change and has recoerrnended an aIternate proposal of its own.
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Under Applicant's alternative proposal, the blocking on the domestic service rate would be changed from 500 bh to 450 hh for a normal 30 day month or 15 bh per ;
day. Under Appilcant's proposal, the number of units at the first block would be determined by multiplying the number of days in the billing per!od by 15 Kwh. An additional 15 bh per day would be priced at the second step and anything over 30 bh i
l per day would be priced at the third step. Applicant also proposes that this same methodology be applied to the senior citizen and space heating blocks.
The Administrative Law Judge finds that neither Staff nor Applicant's proposed alternative should be adopted. Since monthly meter reading for domestic customers is determined appropriate in this Proposal for Decision, the problems that Staff's and App!! cant's proposals address should hopefully be remedied. An expressed reason for adopting monthly meter reading is to avoid estimated bills. However, adoption of Staff's proposal would result nn estimating most bills. Applicant's proposal, O on the other hand, raises a problem by reducing the number of bhs in the various domestic rate blocks, which would result in many domestic customers paying higher bills.
Surcharges and Credits - Rule B-4.9 Applicant claims that, since the other operations and maintenance surcharge contained in the present Rule 8-4.9 is proposed to be rolled into the base rates in this proceeding, there is no need to retain this provision and, therefore it should be deleted. Staff, on the other hand, retains the other Operations and maintenance surcharge but Indicates the surcharge is O mills per hh.
The Administrative Law Judge finds that it Is appropriate that Rule 5-4.9 should be eliminated until such time as a new other operations and maintenance surcharge is approved by the Comission. When the Commission issues a new other operations and Page 151 U-6006
O maintenance surcharge order Appilcant should then file a revised tariff sheet with an appropriately wrded Rule 8-4.9 Utilization of Service Service Connections - Rule B-5.1 Applicant and Staff propose to add a sentence to make provision for a cont;!bu-tion-in-aid-of-construction if a customer wishes a service point other than specified by Applicant. The Administrative Law Judge finds this proposed modification apprcpriate and should be adopted.
Customer's Installation - Rule B-5.2 Applicant and Staff propose a new paragraph be added to prohibit the use of Applicant's distribution system for carrying foreign electric currents, or for carrier current transmission, for broadcasting without prior permission of Applicant.
The Administrative Law Judge finds this proposed modification to be appropriate and should be adopted. This addition is necessary due to the increasing potential for control modes for interrupting load and remote meter reading.
Company Eculpment on Customer's Property - Rule B-5 3 Applicant and Staf f propose the addition of a provision to Rule B-5.3(1) to pro-vide for relocation of company facilities at the customer's expense if the customer requests the relocation. Applicant and Staff also propose addition of a provision l
l for charging a customer for repair, restoration, inspection and Investigation expenses in cases where a customer willingly or negligently allows the meter seals to be broken, or allows work to be done on company metering equipment by unauthorized persons. The Administrative Law Judge finds these proposed additions to Rule B-5.3(1) to be appropriate and steutd be adopted.
Page 152 U-6006
O Applicant and Staff propose that the word " residential" In the first sentence of Rule 8-5.3(2) be changed to " secondary" to more generally describe Applicant's practice. Also, Applicant and Staff propose changing the second paragraph from
" meters located Indoors" to " meters and related equipment located indoors". Finally, Applicant and Staff add a sentence to the end of the second paragraph to comply with regulatlens promulgated pursuant to 1974 PA 154 Occupational Safety and Health Act (MCLA 408.1001, et seq.). which requires that areas requiring the use of ladders to ,
reach company coulpment be large enough to accommodate their safe use. The Administra-tive Law Judge finds all of these proposed changes to Rule 8-5 3(2) to be appropriate and should be adopted.
Access to Premises - Rule 8-5.4 Applicant and Staff propose to add a second paragraph to require the provision of a key to Applicant in cases where meters are kept in locked meter rooms in comer-clal buildings or apartments. The Administrative Law Judge finds this proposed change to be appropriate and should be adopted.
Lamp Supply - Rule 8-5.5 Applicant and Staf f propose to delete the Lamp Supply rules from Appilcant's Schedule of Rates Governing the Sale of Electric Service. The Administrative Law Judge finds this proposed deletion appropriate and should be adopted since Applicant has, pursuant to a Federal antitrust suit, eliminated its lamp exchange program.
Conjunctional Service - Rule 8-5.6 Applicant and Staff propose a new rule to prohlblt the selling or sharing of electricity or transmitting service off the premises by a customer without written Page 153 U-6006
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authorization of Applicant. The Administrative Law Judge finds this proposed new rule to be appropriate and should be adopted.
XIV.
ADDITIONAL MATTERS Malling Rate Schedules to Customers -
Staff proposes that Applicant mall to all of its customers the rate schedules applicable to them at least once a year or within 60 days of a major rate order.
Applicant opposes this recommendation.
l Staff claims that the principal reason for this reconnendation is to signal customers of changes in rate designs and rate levels on wnich they can appropriately base their consumption levels. Staf f also states that this recommendation is supported by 1975 PA 317 (MCLA 429.355), which provides for the ccemission to require utilities llh l periodically to inform customers of their rates.
In Its oppcsition to this proposal, Applicant claims that it already is com. plying with the above-cited statute through its customer Information program. Applicant states, however, that to mall copies of the tariff sheets and its rules and regulations to each of its customers on an annual basis would be prohibitively expensive.
The Administrative Law Judge finds some merit to Applicant's claim that sending out tariff sheets and rules and regulations to each of its over 1.5 million customers on a yearly basis would indeed be quite expensive. The Administrative Law Judge, however, notes that MCLA 429.355 does provide for Informing customers of their rates and Staff's proposal would certainly be in keeping with this provision.
However, rather than having Applicant mail to customers all of its tariff sheets ,
and rules and regulations, It appears to the Administrative Law Judge it would be Page 154 U-6006 llll
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much more approplate to send a letter or brochure to each customer briefly synopsizing the rates for that customer's class, l.a. (domestic rates to domestic customers). In addition, this letter or brochure should make brief reference to provisions such as the fuel and purchased power clause, the other operations and maintenance surcharge and the system availability provision and other of Applicant's rules and regulations as might be appropriate. This letter and brochure should also advise customers that further Information concerning Applicant's tariffs and rules and regulations could be obtained directly from Applicant. Most importantly, this letter or brochure l
should set forth the Information contained within it in clear and understandable language.
If letters or brochures are sent to Applicant's customers, this should prove to be less expensive than mailing Applicant's electric rate book. Also, these letters or brochurea should provide customers with necessary Information to under-stand Applicant's rates so they can base their consumption accordingly.
In order to insure that such letters or brochures contain appropriate information and are as understandable as possible, the Administrative Law Judge finds that l
App!Icant should submit proposals for such letters and/or brochures to the Staff I within 90 days of issuance of an order in this case. Accompanying such letters and/or brochures should be Applicant's estimate of the cost involved with providing customers with this Information. Thereafter, either based upon agreemsnt between ,
1 Applicant and Staff or following an evidentiary hearing If necessary, these letters and/or brochures should be sent to all of Applicant's customers.
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Central Air Conditioning l l
Proposals affecting residential and commercial central air conditioning were presented by Staff and PIRGIM. Staff proposes as a condition of service, thit all Page 155 U-6006 i
O new domestic and commercial cantral air conditioning customers, as well as all domestic and consnercial customers adding central air conditioning, le required to provide wiring so that such air conditioning systems will have the capability of being remotely controlled. In addition, Staff proposes that all central al conditioning customers be of fered an annual discount of $12 If they sign a contract to allow curtallment of electricity for central air conditioning during an emergency. PIRGIM reconsnends that all central air conditioning be placed on Interruptible service except for persons who have a health need for cooling or where customers purchase an exemption. Appil-cant opposes Staff's proposed air conditioning recommendations, and although Applicant did not expressly Indicate its opposition to PIRGIM's ale conditioning recorrrnendations, based upon its objections to Staf f's proposals, it would appear that Applicant also opposes PIRGIM's central air conditioning reconynendations.
1 The Administrat_Ive Law Judge notes that PIRGIM's central air conditioning proposals are not supported by evidence of record in this proceeding. Section 85 of the Admin-1strative Procedures Act (MCLA 24.285) provides that for contestec. cases under the Administrative Procedures Act:
"A decision or order shall not be made except upon consideration of the record as a whole or such portion thereof as may be cited by any party to the proceeding and is supported by and in accordance with the conpetent, material and substantial evidence."
Since the Administrative Law Judge finds no evidence placed on this record supporting this PIRGIM's central air conditioning proposal, or even fully indicating what proposal is, the Administrative Law Judge finds that PIRGIM's central air conditioning proposal should not be adopted.
.The Administrative Law Judge finds that Staff's proposal that new or retrofitted central air conditioning be separately wired so as to have the capability of being Page 156 U-6006 9
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remotely controlled, is appropriate to be adopted for Applicant's domestic customers. !
This requirement will provide a significant step in establishing a major load control device and will also provide incentive for customers to select Domestic Air Condi-tioning Service Rate D-1.1. However, because of significant technical problems concerning application of interruptible air conditioning in the commercial area, the Administrative Law Jtdge finds that Staff's proposal should not be appilcable to conuncrclat customers. In order that information can be fully disseminated to air conditinning manufacturers and Installers of air conditioners and in order to properly allow such manufacturers and installers as well as Applicant's customers to adjust to this provision, the Administrative Law Judge finds that this wiring requirement should not be made effective until one year after the Comission issues its order in this proceeding.
With respect to Staff's proposal to provide a $12 per year discount for customers who agree to curtallment In the event of an emergency, it Is noted that this proposal is based on Staff's proposed industrial load management discount and the probabilities of occurrance of an emergency which w uld result in Interruption of air conditioning s e rv i c e. However, as pointed out by Applicant's witness Mr. Okon, in the past few years most of these emergencies have occurred In the winter. Therefore, the cost basis for Staff's proposed discount is based predominantly on a period of time when In addition, emergency curtallments would have no affect on central air conditioning.
as Indicated by Mr. Okon, the $12 discount feature for emergency Interruptions exceeds the savings presently experienced by Applicant's interruptible Air Conditioning Rate D-1.1. Finally, as is pointed out by Applicant's witness Mr. Mueller, the cost of Implementing such a program is expensive since the cost for separate metered enclosure and main breakers for each residential central air conditioner would be between $150 to $200.
O Page 157 U-6006 i
O E Therefore, based on the above analysis, the Administrative Law Judge finds that Staff's proposed $12 a year discount for customers willing to be subject to emergency Interruption should not be adopted. This proposed discount is not justified on a cost analysis basis and furthermore, this discount would act as a disincentive for Applicant's central air conditioning customers to select Interruptible Air Conditioning Rate D-l.1, which can provide much more beneficial and positive results than Staff's proposed $12 discount.
Jefferson Steam Line Rates and Rules In order to account for Jef ferson Steam Line customers' rates being determined in thl. nreceeding and to account for these customers being transferred from Applicant's Steam Department' to its Electric Capartmerit, Staff recormnends that present Rules 1 through 23 of App 1 tcant's Steam Rate $ook, MPSC No. 3, Original Sheets No. SA-1 through SA-15 be incorporated in Applicant's Electric Rate Book, NPSC No. 8. Applicant opposes Staf f's recorrinendation and recocynends Instead adoption of its proposed Indus-9 trial high pressure steam rate (Jefferson Line) Original Sheets No. 5-1, 5-la, 5-15 5-Ic and 5-Id.
The Administrative Law Judge finds that Applicant's proposed Jefferson Steam Line Tariff sheets are more appropriate and should be adopted," however, the rates on Applicant's proposed tariff sheets should be modified In accordance with the previous findings In this Proposal for Decision. Staff's oroposal would Incorporate provisions applicable to Applicant's Detroit central steam heating district which are not appilcable to the Jefferson Line Industrial steam customers. On the other hand, Applicant's proposed tarif f sheets Incorporate only those present rules which are'appilcable to the Jefferson Line steam customers.
Page 158 1 U-6006 I i
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O Charitable Contributions Staff advocates that contributions to the United Progress Fund and Metropolitan Fund be disallowed. This proposal was presented by Staff witness, Mr. William Peloquin, who presented Staff's case concerning average 1978 rate base and adjusted net operating income. Mr. Peloquin acknowledged, that in the past rate cases, the Commission had allowed contributions to the United Foundation for Urban Progress Fund and the Metropolitari Fund. However, Mr. Peloquin stated that these contributions had been allowed in the wake of the 1967 Detroit riots. Since the special condition that gave rise to these allowances has long since passed, Mr. Palocuin claims that the contributions to the United Foundation Progress Fund and Metropolitan Fund should be disallowed.
It is noted, however, that Staff's projected revenue deficiency was presented by Staf f witn?.ss Mr. Charles Geyer, not by Mr. Peloquin. Mr. Geyer, unlike Mr. Peloquin, O made no reference to these charitable contribution disallowances presumedly because such expense would have been included as part of the other operations and maintenance Indexing system. Therefore, although Staff requests in :ts brief that these contri-butions be disallowed, there is no financial impact of such a disallowance contained in the Staff case.
The Administrative Law Judge notes that the Commission has, in the past, allowed for ratemaking purposes expenditures to the United Foundation Progress Fund and to the Metropolitan Fund, although as a general rule, the Commission has not allowed charitable contributions. Because of the Commission's past practice concerning these particular expenditures and because there is no financial affect Indicated in Staff's case of disallowing these expenditures, the Administrative Law Judge finds that Staff's proposed disallowance of the contributions to the Metropolitan Fund and the United Foundation Progress Fund should be rejected.
O Page 159 U-6006 l
O Calculation of Rate Increases The traditional method of calculating the effect of rate Increases rolls in fuel and purchased power costs. in other words, new rates are compared to those which were in effect the previous month, Incorporating the prior month's fuel and purchased power levels.
Business Users' witness, Mr. Thomas Hancock, recommends that the Commission expand its method of calculating rate changes so that base rate to base rate changes are compared, in support of this recomendation, Business Users argue that the present method of rolling in fuel and purchased power costs are disceptive to a broad spectrum of Applicant's customers.
Although the Administrative Law Judge notes that comparison of base rates to base rates can Indeed be meaningful, the important consideration for utility customers is the change that occurs imediately af ter a rate Increase takes place. The tradi-tional method of rolling in fuel and purchased power costs measures this change. The l
comparison that Business Users requests is really the amount of change that takes place over an historic period of time i.e. from rate case to rate case. Customers can obviously make the calculation that Business Users are requesting by comparing the new base rates with the base rates of a previous case. However, for the Comission to calculate rate Increases in the manner suggested by Business Users could lead to confusion concerning rate increases. Therefore, the Administrative Law Judge finds this proposal should not be adopted.
XIV.
PROPOSED DECISION All contentions of the parties not specifically determined herein are hereby Page 160 t.8 '006 g
6 .
O rejected, the Administrative Law Judge having given fully consideration to all evidence of record and arguments in arriving at the findings and conclusions set forth in this Proposal for Decision.
The Administrative Law Judge reconsnands that the application of The Detroit Edison Company be approved as modified by this Proposal for Decision and that an Order be entered in accordance with the findings, recommendatic.is and conclusions herein contained.
MICHIGAN PUBLIC SERVICE COMMISSION Robert E. Hollenshead N October 4, 1979 Administrative Law Judge Lansing, Michigan O ISSUED AND SERVED: Octobe r 4, 1979 Page 161 U-6006 rf O
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TABLE OF CONTENTS FINAL ORDER CASE NO. U-6006 Page I.
PREFA CE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1. .
II.
PARTIES TO THE PROCZEDINGS ............................ 2 III.
HISTORY OF PROCEEDINGS ................................ 5 IV.
TEST PERIOD ...........................................
i 10 V.
RATE BASE ............................................. 11 Ferni I ............................................. 13 Coal Con tract Inves tmen ts . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 Connors Creek Turbine ............................... 16 Plant Held for Future Use ........................... 17
^
Nuclear Plants ...................................... 18 Nuclear Fuel ........................................ 19 Port Huron Paper Plant Boiler Conversion ............ 20 Fossil Puel Plant "I" ...............................
21 Working Capi tal Allowan ce . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 Flue cas Conditioning System ........................ 27 Sumnary ............................................. 28 VI.
RATE OF RETURN ........................................ 29 Capital Structure ................................... 30 Cost of Debt ........................................ 33 Preferred and Preference stock Cost ................. 35 Comunon Equity ....................................... 36 t
Ssmanary ............................................. Y 39
Table of Contents (Cont'd.)
Page VII.
ADJUSTED NET OPERATING INCOME .......................... 39 Operating Revenue .................................... 39 Puel and Purchased Power Expense ..................... 42
- iroduction Naintenance Expense ....................... 47 Oth er Opera tions and Maintenanc e Expense . . . . . . . . . . . . . 49 General Advertising Expense .......................... 57 Edison Electric Institute Dues ....................... 57 Atomic Industrial Forum Dues ......................... 58 Management Efficiency Review ......................... 58 Depreciation ......................................... 59 Allowance for Funds Used During Cons t ru c tion (AFUDC) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60 Pro Forma Tax Savings ................................ 62 Surma ry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62 VIII.
REVENUE DEFICIENCY ..................................... 63 Greenwood I ....................................... .. 63 Conclusion ........................................... 70 IX.
COST OF SERVICE ........................................ 70 i X.
MISCELIANEOUS AND OTHER REVENUE RELATED MATTERS ........ 71 System Availability Plan Modification ................ 71 Deferred Taxes ....................................... 72 Industrial Power Plants .............................. 75 IMustrial Power Plant Revenue Deficienc and Rate Design ........................y.............. 76 Industrial Steam and Water Ra tes . . . . . . . . . . . . . . . . . . .k . 77 Senior Citizen Este T.evenues ......................... 79 Forecasting and Reserve Studies ...................... 80 Report of Es te Cas e Expenses . . . . . . . . . . . . . . . . . . . .'. . . . . 82 asques t to Emmand . . . . . . . . . . . . " " " " " " " " " " " " 83
Tablo cf Contents (Cont'd.)
Page
.O XI.
WAGE AND PRICE GUIDELINES ............................. 44 III. RATE DESIGN, RULES AND REGULATIONS .................... 84 Availability of Domestic Service Rates .............. 86 Doeses tic Service Ra te D- 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . 86 Auxiliary Power Provision ........................... 89 Domestic Interruptible Air Conditioning Service Rate D-1.1 .................................. 90 Time-of-Day Rate D-1.2 .............................. 91 Senior Citizens Dcuestic Service Rate D-1.3 ......... 91 Time-of-Day Parm and Space Heating Rate D-1.4 ....... 92 Domes tic Space Hea ting Rate D-2 . . . . . . . . . . . . . . . . . . . . . 93 hperimental Domestic Space Heating Rate D-2.1 ...... 94 Water Hasting Rates D-5 and D-5.1 ................... 94 General Service Rate D-3 ............................
O Unmetered General Service Rate D-3.1 ................
96 96 l
Experimental Time-of-Da General Service Rate D-3.2 .................y .............................. 97 3
Large General Service Rate D-4 ...................... 97 Industrial On-Peak /Off-Peak Energy .................. 98 On-Pea k Demand Cha rg e s . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100
{
Billing Determinants ................................ 101 Bnergency Load Management Discount .................. 101 Primary supply Bate D-6 ............................. 102 grgePrimaryRateD-6.1............................ 102
~
Bulk Power supply Bate D-7 ........................ y 102 Interruptible T te D-8 .............................. 103 4
Outdoor Protective Lighting Rate D-9 ................ 104 kunicipal Street Lighting Rates I-1 and E-3 ......... 104
_ - _ . . . . . - . - - - - - - . - - - - - - - - - - - ~ ~ - ~ - - - ~ ~ ~ ~ ~ ' ' " ' ~ ~ ~ ~ ' ~ ' ~ ~ ~ ~ ^ ^ ^ ~ ^ ^ ~ ' ^
i T;blo of Contents (Cont'd.)
Page Traffic Signal Lights Este E-2 ...................... 105 ,
Primary Pumping Rates E-4 and E-4.1 ................. 106 Secondary Pumping Rate E-5 .......................... 106 Electrical Metal Melting - Rider No. 1 .............. 107 Stand-by and Partial Service - Rider No. 3 .......... 107 Resale of Service - Rider No. 4 ..................... 107 Industrial Cogeneration - Rider No. 5 ............... 108 All Electric School Building - Rider No. 7 .......... 110 Connercial Space Hea ting - Rider No. 8 . . . . . . . . . . . . . . 110 Puel and Purchased Power Adjustment Clauses ......... 111 l Applica tion for Servic e . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 119 Reconnection and Turn-On Charges .................... 119 Insulation Standards for Electric Heating ........... 120 Osaracter of Service ................................ 122 Continuity of Service ............................... 122 Extension of Service ..........................:...... 123 !
Distribution System ................................. 124 i
Underground Servic e Connec tions . . . . . . . . . . . . . . . . . . . . . 124 1
Temporary Service ................................... 12-Dnergency Electrical Procedures - Rule B-3.7 ........ 125 l
General Deposit Conditions .......................... 125 Billing for Service Rule 3-4.2 ...................... 125 1 V
Estimated Bills for Residential Service ....... ..... 127 Surcharges and Credits - Rule 3-4,9 .............. 1 128 Service Connection - Rule B-5.1 ..................... 128
(
O Customer's Installation - Rule B-5.2 ................ 129
, Tablo cf Contents (Cont'd.)
Page Company Equipment on Customer's Pro Rul e B-5. 3 . . . . . . . . . . . . . . . . . . . . . . . .per ty -
................. 129 Access to Premises - Rule B-5.4 .................... 130 I, amp Supply - Rule B-5.5 ........................... 130 i Conjunctional Service - Rule B-5.6 ................. 130 Mailing Rate Schedules to customers ................ 130 Central Air-Conditioning ........................... 132 XIII. CONCLUSION ........................................... 134 Miscellaneous and Sumary Findings . . . . . . . . . . . . . . . . . 134 Order .............................................. 136 i
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5 TATE OF MICHIGAN BEFORE THE MICHIGAN PUBLIC SERVICE COMMIS$10N l In the matter of the application of )
THE DETROIT EDISON COMPANY for )
authority to amend its rate schedules ) Case No. U-6006 governing the supply of electric )
energy and to amend other miscellaneous )
ratas. )
)
At a session of the Michigan Public Service Commission held at its offices in the City of Lansing, Michigan, on the 14th day of March, 1980.
PRESENT: Hon. Daniel J. Demlow, Chairperson Hon. Eric J. Schneidewind, Comissioner OPINION AND ORDER PREFA.2E This order concerns an application by The Detroit Edison Company (Applicant) to increase its rates by at least $166 million on an annualized basis. Affected by this proceeding are all of Applicant's electric rates and charges under the jurisdiction of this Commission, as well as certain of Applicant's steam and water rates. In addition to affecting Applicant's electric, steam and water rates and charges, these proceedings also involve changes to the rules and regu-lations by which Applicant provides service to its customers.
At the consnencement of these proceedings, the rates in ef fect for Appli-cant's jurisdictional electric customers and for certain steam customers were those approved by the Commission in its Opinion and Order in Case No. U-5502 O
,, +. - - - . - . , - - - _ - . n
4 d:;t::d 5:ptember 28, 1978 and subsequent crd:rs' in Caso No. U-5502. The retcs ;. i in effect for the remainder of Applicant's steam customers were approved by the i
l Consnission's Order in Case No. U-5315 dated February 13, 1978. During the pen-
\
dancy of these proceedings, the Conunission, on May 1,1979, Issued its order 6 granting an interim rate increase in an annualized amount of $56,932,000 affect- ,
ing Applicant's jurisdictional electric customers only; Applicant's steam rates i continue to be those in effect as established by Case No. U-5502 and U-5315, I
respectively.
As has been the situation with all of Applicant's recent general rate cases, the proceedings have been lengthy, the issues complex and the parties narticipat-Ing numerous. The hearings in these proceedings commnced on January 18, 1979 and were completed on July 9, 1979 During the 58 days of hearings, 165 sxhibits i were offered into evidence and 40 witnesses testified. Participating in the proceedings were Applicant, the technical Staff of the Commission (Staff) and 25 Intervening parties. The record of the proceedings is composed of a total of 59 volumes of transcripts containing 8,439 pages. section 81 of the Adtninistrr-tive Procedures Act was not walved.
91 I
11.
PARTIES TO THE PROCEEDING The parties to this proceeding consist of Applicant, the Staf f, and various Intervenors which were authorized to participate under Rule 11 of the Comissio 's Rules of Practice and Procedure. The intervenors present a wide spectrum of it.-
terest and include municipalities and government agencies, public interest, set business organizations and Individual business entitles.
Applicant, the instigating party of these proceedings, is a corporation o -
genized and existing In and under the laws of the States of Michigan and New York, Page 2 U-6006
cnd h:s its principal offices at 2000 Second Avenue
, Detroit, Michigan. AppII-cant is a public utility principally engaged i n the business of generating, transmitting, transforming, distributing approximately 2% of its revenues are derived fand selling electric rom the sale of steam, The service area of Appilcant is in south i approximately 7,600 square miles. eastern Michigan and extends over Monroe in the south to the Thumb Area of MiAppilcant's serv r the populace areas of metropolitanroit. Det chigan to the north, and includes vides service to approximately1,735 000 el At the present time, Applicant pro-ectric customers. The municipalities intervening in the proededings are the Citi Michigan and the governmental agencies es ofi Grosse Pointe Park and Oak Park, ministration of the Federal Government (GSA)ntervening are the and Michigan Attorney General Frank J. Kelley (Attorney General).
are the Public interest Aesearch Group in Michigan (P s RGIM), the Michiga. Citi-zens Lobby (Citizens Lobby) and the Michigan C (MCUE).
The business organizations Intervening ioalition on Utilities a Michigan Energy Users Group (Energy Us n the proceeding are the (Agricultural Conference), United Condomi iers), the Michigan Ag n um Owners of Michigan (Condominium Owners), Apartment Association of Michi -
Michigan, Michigan Association u of Homeb ildgan, Builders Association Users Committee (Business Users) .
ers, and the Michigan Business UtIIIty vsning in the proceedings are: The industrial and business entitles Inter -
Corporation (Great Lakes Steel), Dundee C mGreat eel Lakes Ste Corporation (General Motors), Michigan Sue ent Company (Dundee), General gar Company (Michigan Sugar), 8ASF Wycndotte CorporItlon (SASF Wyandott )
Huron Paper Company (Port Huron Paper)e , Pennwalt Corporation (P Monstnto Company (Monsanto). , Morton Salt Company (Norton Salt) and Detroit Safe Energy Coalition and RensiPetitions y the to intervene we s Likert Associates, Inc.
3 006
Certain of the Intervening parties acted in concert with each other as to h
certain matters and, in such case, will be referred to jointly. 8ASF Wyandotte, Energy Users, General Motors, Great Lakes Steel, Monsanto, Morton Salt and Pennwalt acted in concert on cost of service and electrical rate design and in such case are jointly referred to as the Industrial Intervenors. Similarly, Monsanto, Norton Salt and Great Lakes Steel acted in concert concerning steam rates in which case they are referred to as the Steam Intervenors. Also actirg in concert are the Apartment Association of Michigan, Builders Association of Southeastern Michigan, and the Michigan Association of Homebuilders and, as such, ars jointly referred to as the Apartment Association.
Among the parties participating in the proceeding only Applicant, the Staff and the Attorney General addressed Applicant's overall revenue level. Applicant claimed that it actually had an annual revenue deficiency of approximatel f $221 million but, because of President Carter's wage-price guideline program. It was limiting its requested increase to approximately $166 million on an annualized e basis. The Staff claimed that Appilcant's revenue deficiency was $139.527,000 en an annualized basis. The Attorney General, on the other hand, claimed Applicant's revenue should be reduced by $30 million to $42 million on an annual basis prior to taking into cor;Ideration interim relief in the amount of $56,932,000, and tne 55,937,000 annually provided by the Commission's June 5, 1979 System Availability Incentive Order. Based on Applicant's rates presently being charged, the Attorney General claimed that Applicant's revenues are excessive by the approximste amount of $93 million to $105 million. In addition, the Attorney General also indicated that it would be appropriate to reduce Applicant's rates by an additional $87 million annually if the Commission chooses to " flow-through" the benefits of ac-celerated depreciation. PIRGIM and the Citizens Lobby, although they did not develop specific revenue figures, took certain positions having impact on App 13-cant's overall revenues in these proceedings. Pennwalt and Port Huron Paper, Page 4 U-6006
I Applicant's two industrial power plant customers, took positions as to their own revenue levels which positions affect the overall level of Applicant's rev-enues. Numerous parties to the proceeding addressed the Other Operations and Maintenance Indexing System, an issue which also has an overall revenue effect.
Of the parties to the proceeding, only Appilcant and the Staff presented rate design proposals applicable to all of Applicant's customers. PIRGIM and the Industrial intervenors, however, made rate proposals as to various classes of customers. The Industrial power plant intervenors, Pennwalt and Port Huron Paper, and the Steam Intervenors made specific recomendations for their own in-dividual rates. Finally, the Business Users, Apartment Association, Condominium Owners and the Agricultural Conference took positions on rate design matters affecting their interests.
Ill.
HISTORY OF PROCEEDINGS O
On December 14, 1978, Applicant filed its application for rate relief in an annualized amount of approximately $166 million along with its proposed testimony and exhibits. Concurrent with its request for final rate relief, Applicant also filed a Motion for Interim Partial and imediate Revenue Relief (Motion for in-terim Relief) In the approximate amount of $69 mililon on an annualized basis.
On December 28, 1978, the Commission issued its Notice of Hearing in the proceedings which required Applicant, on or before January 8,1979, to publish 1
a Notice of Hearing in daily newspapers of general circulation throughout its electric service area and in substantially the same style and manner as the no-tice of hearing' published in Case No. U-5502. In addition, the Notice of Hearing required Applicant to, on or before January 8, 1979, mall a copy of the Notice of Hearing to all cities, incorporated villages, counties and townships within Page 5 U-6006
Its electric service area, as well as to all intervenors or participants who appeared in Case No. U-5502, and to the following industrial steam customers:
Allied Chemical Company, Anaconda American Brass Co., Detroit Marine Terminals, Inc., McLouth Steel Corporation, Revere Copper and Brass, Inc., and U.S. Forge.
The Notice of Hearing also established the following times and places for certain public hearings:
(1) On January 18, 1979, in Lansing, an Initial hearing in the nature of a prehearing conference.
(2) On February 13, 1979, in Detroit and in Farmington, special hearings for the purpcss of taking statements and testimony of interested persons.
(3) On February 20, 1979, for the purpose of introducing pre-viously filed evidence into the record and for comencing cross-examination of Applicant's witnesses.
In addition, the Notice of Hearing, Indicated that oral argument on Appil-cant's Motion for Interim Relief would be heard at an appropriate time during the proceeding.
The initial hearings proceeded as scheduled. At, or shortly after the pre-hearing conference, all Intervening parties which had previously submitted written Petitions to Intervene and which were in attendance at the prehearing conference were granted authority to intervene under Rule 11 of the Commission's Rules of Practice and Procedure.
Cross-examination of Applicant's direct evidence comenced on February 20 1979, continued on February 21, 23, 26, 28, March 1. 2, 5, 6, 7, 8, 9, 12, 13, 14, 15,16,19, 20, 21, 22, 23, 26, 27, 28, 29, 30, April 2, 3 and was completed on
{ April 4, 1979 On February 26, 1979, Citizens Lobby filed a Petition to intervene under Rule il and on March 5,1979 the Petition to intervene was allowed.
At the conclusion of cross-examination of Applicant's direct case on April 4, 1979, the Administrative Law Judge (ALJ) announced, on the record, dates for i
filing and commencement of cross-examination of the Staf f's and intervenors' cases i,
i Page 6 O
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[
cnd cnnounced tha d:ta fer filing of tha Steff's statutory report on Applicent's Motion for interim Relief as well as the dates for cross-examination of that report and oral argument on the Motion for Interim Relief. On April 5, 1979, the ALJ issued a Notice of Hearing confirming the handling of the Motion for in-terim Relief. On April 18, 1979, the Staff's statutory report on interim Relief was filed as scheduled and, on April 26, 1979, a hearing was held on the Motion for Interim Relief.
The direct cases of the Staff and Intervenors were subsequently filed on or before May 3, 1979 Cross-examination of the Staff's and Intervenors' witnesses consnenced on May 7,1979, continued on May 9, 10, 11, 14, 15, 16, 17, 18, 21, 22, 23, 24, 25, 29, 30 and 31, 1979 and was concluded on June 1, 1979 On May 15, 1979, Condominium Owners flied its Petition to Intervene in the proceedings under Rule 11 and the Petition was granted on May 17, 1979 Direct cases were presented by the Staff, the Attorney General, PIRGIM, Citizens Lobby, the Industrial Inter-venors, Apartment Association, Busine t Users, Port Huron Paper, Great Lakes Steel, Morton Salt. Monsanto and Condominium Owners.
i At the completion of cross-examination, the Staff and Intervenors' direct cases, filin .ss-examination of rebuttal cases was scheduled. Rebuttal cases were filed on June 11, 1979 and cross-examination of rebuttal cases com-menced on June 18, 1979, continued on June 19. 20, 21, 22 and was completed on June 25, 1979 The only parties presenting rebuttal cases were Applicant and the Attorney General. At the completion of cross-examination of rebuttal cases, the Attorney General requested permission to file surrebuttal evidence. After determining that the evidence sought to be presented by the Attorney Generel would be properPP limited in scope and would strictly be to refute rebuttal evi-dence presented by Applicant, the ALJ authorized the presentation of surrebuttal evidence. The surrebuttal was filed on July 5,1979 and cross-examination of that evidence consnenced on and was completed on July 9,1979 Page 7 U-6006 l
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Both originel and reply briefs wars authorized by the ALJ in these proceed-Ings. Original briefs were' flied by Applicant, the Staff, the Attorney General, PIRGIM, Citizens Lobby, the Industrial intervenors, Steam intervenors, Agricul-tural Conference, Business Users, Apartment Association, Pennwalt, Pcrt Huron Paper and Condominium owners. Reply briefe were filed by Applicant, the Staff, the Attorney General, Industrial Intervenors, Pennwalt, Apartrnent Association and )
1 Grosse Pointe Park. '
The ALJ issued a Proposal for Decision (PFD) on October 4,1979 and excep-tions were te be filed by October 24, 1979 Exceptions were filed by the Attorney General, Citizens Lobby, PIRGIM, the Staff, United Condominium Owners, the Apart-ment Association of Michigan and the Pennwalt Corporation.
During the pendency of the proceedings, the Comission issusd three orders in this case. One of those orders concerned Applicant's Motion for Interim Re-lief ano two other orders concerned Emergency Appeals of procedural rulings made t
by the ALJ.
On May 22, 1979, the Commission issued its order granting Applicant Interim Relief in the annualized amount of $56,932,000 whi.:n ir. crease was to be effective the date Applicant placed its new electric generating unit Gro ovood No. 1 Into comercial operation. The Interim Order further provided that the rate increase was to be accomplished by use of a uniform I.59 mills per Kwh surcharge imposed on the bills of all of Applicant's jurisdictional electric sales.
The Attorney General takes exception to the assertion made by the ALJ In the PFD when he stated that on July 5,1979 Applicant placed its Greenwood No. I )
generating unit in commercial operation and consnenced charging the authorized in-terim surcharge (Pages 8 and 9), claiming there was no evidence on the record that the plant was placed in service. Pursuant to the provisions of MRE 201 (Judicial Notice of Ad Judicative Facts) Subsection 8:
A judicially notle-ed fact must be one not subject to reasonable dispute in that it is either (I) generally known within the U-6006
regulatsrlal jurisdiction cf the trict court er (2) c:p:blo of accurate and ready determination by resort to sources whose accuracy cannot reasonably be questioned.
The indisputable fact is that the Greenwood No. I generating unit was placed into commercial operation, the Commission will take Judicial notice of the same pursuant to the aforementioned court rule. In addition, it should be noted here that the Commission received a letter from Mr. Ernest L. Grove, Jr., of The Detroit Edison Company, Informing it that Greenwood I had gone on line on July 5, 1979 The letter was dated July 5,1979 and was received by the Comission and docketed as part of the file in this case on July 5,1979 The Commission's first order concerning an Emergency Appeal involved an Appeal by PIRGIM of the ALJ's denial of PIRGIM's motion for an adjournment. In its order dated March 6,1979, the Comission upheld the ALJ's denial of an ad-Journment.
The second order of the Comission concerning Emergency Appeals involved appeals by Citizens Lobby of two separate rulings of the ALJ. In its first Emergency Appeal, Citizens Lobby sought a reversal of the ALJ's ruling denying Citizens Lobby's Motion to Dismiss that part of Appilcant's case related to a proposed increase in the base of the Other Operation and Maintenance indexing System. In its second Emergency Appeal, Citizens Lobby sought reversal of the ALJ's denial of Citizens Lobby's discovery request for a copy of an attitude survey of Applicant's employees performed by Rensis Likert Associates, Inc. In its order dated May I, 1979, the Commission denied Citizens Lobby's first appeal concerning the Other Operations and Maintenance indexing System, but granted Citizens Lobby's second appeal concerning the discovery of Rensis Likert employee attitude survey y on May 10, 1979, Applicant filed a Motion for Reconsideration and Rebearing of the Comission's order granting Citizens Lobby's second emergency l
appeal and on July 31, 1979 the Comission issued its order denying App 1Icant's I motion.
O PaDe 9 U-6006
IV.
TEST PERIOD g
Test periods are utilized in rate cases to determine whether a utility's present revenue level is appropriate or needs to be modified. Based upon the test period adopted, the utility's rate base, revenues and expenses are analyzed to determine the appropriate level of earnings the utility is entitled to receive.
Previously, Applicant's test periods in Applicant's general rate proceedings i
were based upon historic periods of time with adjustments made for known changes in rate base revenues and expenses. Heucver, in Applicant's general rate pro-l caeding, Case No. U-4807 (March 30,1976), the Comission determined that use of l
an adjusted historic test year was inadequate in an era of rapidly changing con-ditions. Conssquently, in Case No. U-4807, the Comission adopted a tes? year that was part historical and part projected. Subsequently, in Applicant's two most recent general rate proceedings, Case No. U-5108 (Mey 27,1977) and Case No.
U-5502 (October 23, 1978), the Commission adopted entirely projected test years.
g in the instant proceedings, Applicant, the Staff and the Attorney General, the parties to the proceeding addressing Applicant's overall revenue level, pre-sented cases based on the use of a projected 1979 calendar test period. Thus, although Applicant also presented evidence utilizing a historic 1977 calendar year and the Staff presented evidence using a historic 1976 calendar year, a pre-jected IS79 calendar year is the only test period for which the positions of Ap-plicant, the Staff and the Attorney General can be effectively compared. Because o:' the availability of this comparison and because the Commission's conclusion in Case !!o. U-4807 that an adjusted historical test is inadequate in an era of rapidly changing conditions is even more appropriate at the present time, a pro-jected 1979 calendar test year shall be utilized for this proceeding.
Although no party to the proceedings took issue with the use of a projected test year in these proceeding, PIRGIM, in its brief, claims that the Commission Page 10 O U-6006
should crd3r th3t, fer futura r0to casts, o hist:ric test y;cr should be us:d.
In support of its position, PIRGIM refers to the testimony of the Attorney Gen-eral's witness, Mr. Jatinder Kumar, who, although he utilized a projected test year in this proceeding, indicated a preference for use of a historic test year.
PIRGIM claims that according to Mr. Kumar, there are many problems with the projected test year approach. According to PIRGIM, projected test years lead to lengthening of rate case proceedings since assumptions underlying the projections must be analyzed. Furthermore, PIRGIM claims that with projected test years It is difficult to estimate future savings and that factors such as changed tax laws can invalidate projected figures.
The Commission finds that the use of a projected test year is appropriate.
Based upon its experience with other rate cases where a projected test year was used (U-5108 and U-5502), the conunission finds no significant increase in the length of the proceedings as a direct result of using a projected test year.
Regarding factors such as changed tax laws, the Conunission has provided in this order, as well as the two previcusly mentioned orders, that appropriate adjust-ments be made to reflect any such changes.
V.
RATE BASE l Applicant, the Staff and the Attorney General are the only parties in this proceeding which offered total rate base presentations. However, PIRGIM, Penn-walt and Port Huron Paper took positions as to certain rate base issues which ,
I will be addressed in this section.
6-In developing their respretive rate bases Applicant, the Staff and the Attorney General all determine their rate base, based upon an average 1979 cal- !
endar year. There is a slight difference between Applicant's and the Staff's O e e >>
U-6006 l 1
l
rate bases attributable solely to differences between Applicant and the Staff as to the cost allocation methodology to be used for determining Jurisdictional rate base. The Attorney General followed Applicant's jurisdictional allocation methodology although the Attorney Ger.eral's witness Kumar Indicated he had no position as to the jurisdictional allocation methodology which should be used.
l Applicant's proposed rate base is $4,470.193,000 and is set forth on Exhibit i
A-10, page 3 The Staff's proposed rate base is $4,360,743,000 and is set forth on Exhibit 5-123, page 2, but was modified in its brief for an adjustment appl!-
cable to the Port Huron Paper on-site generating plant. The Attorney General's rate base is developed on Exhibit 1-141 Schedule 8-1, and is in the amount of
$4,209,683,000 using the Attorney General's preferred approach of dotermining working capital by the " balance sheet approach." The Attorney General also de-veloped a rate base on Exhibit 1-141, Schedule B-1, of $4,246,809,000 using a formulistic approach to determining working capital. The table below sets forth a comparison of the components of rate base as developed by Applicant, the Staff and the Attorney General.
JURISDICTIONAL RATE BASE AVERAGE CAI.ENDAR YFAR 1979 Applicant Staff Attorney General Utility Plant P! ant in Service $4,038,811,000 $4,024,661,000 54,010,866,000 Held for Future Use 23,373,000 26,281,000 17,193,000 Construction Work in Progress 1,149,406,000 1,155,812,000 1,149,406,000 Total Utility Plant $5,211,590,000 $5,206.754,000 $5,177,465,000 Depreciaeion Reserve (986,155,000) (978,159,000) (978,075,000)
Net Utility Plant 54,225,435,000 $4,225,595,000 54,199,390,000 Net Nuclear Plant 47,562,000 3,996,000 Working Capital 208,090,000 144,386,000 8,966,000 Other (1,894,000) (12,338,000) (2,669,000)
Rats Base $4,479,193,000 $4,360,643,000 $4,209,683,000 Page 12 U-6006 h
Fermi 1 The Attorney General takes exception to the ALJ's racomendation that the O !
Fermi i generating plant not be removed from plant-in' arvice. The Attorney !
General claims that this adjustment should be made since effective Ja.._,ry 1, 1979 Applicant took its Fermi I plant out of service and removed its operating crew and since Applicant has no future plans to operate this plant during the test year or in any future years.
The Citizens Lobby took exception to the ALJ's recommendation that the Fermi I plant be included in the rate base on the grounds that the facts failed to support the ALJ's finding and that under reasonable legal standards the plant is neither used 7or useful.
Applicant agrees with the ALJ's inclusion of Fermi I as part of the rate base. However, it takes the position that in the event the peaking operation at Fermi i is not utilized the appropriate treatment would be to consider that plant as prematurely retired and write off that plant to the accumulated provision for l
O depreciation.
The ALJ found that although Applicant did shut down its Fermi i plant and removed its operating crew on January 1, 1979 it would be inappropriate to remove the plant from the rate base at this time. Further, the ALJ found that the evi-dence in the instant proceeding showed that Applicant intends to use Fermi i for generation in the future. In fact, as shown by Exhibit A-17, Schedule F-7, Ap-pIIcant has planned capacity factors of 1% in 1980, 1984, 1985 and 1987 for Fermi l.
The Comission agrees with the positloa taken by the ALJ. However, although there does not year on the record sufficient evidence to justify removal of Fermi I at this time, the Commission is concerned about the low level of capacity through 1987. Citizens Lobby indicates, correctly the Commission thinks, that there is no definitive standard in the State of Michigan for determining when a l Page 13 U-6006 i
plant is ustd cnd u'4ful. Citizens Lobby suggests the adoption of the FERC stan-dard of 60% plant capacity. Citizens Lobby offers as an alternative the two part Indiana test which would: (1) Require that the utility plant be actually devoted to providing utility service; and (2) that the plant's utilization be reasonably necessary to the provision of utility service.
Unfortunately, there is no statutory or common law standard in Michigan for when a plant is considered "used and useful." The Commission bellavas that catc9-words and catchy phrases can be misleading if common sense is not used when apply-ing them to the facts of a case like this. The rationale behind the "used anJ useful" standard is to avoid allowing a utility to earn a return on property wnic5 is not being utilized toward the ultimate goal of providing service to utility customers. Toward that and Applicant has chosen to place the Fermi i plant on so-called " economy reserve." What this really means is that Applicant has de-cided not to retire the plaat but, rather hold it in an emergency standby os-ture.
The Intervenors which have filed exceptions thereto choose to deal with tne numbers here, instead of the reasoning. They contend that such a move is not economical at all. The Commission disagrees. Tne costs associated with .ain-taining Fermi l on " economy reserve" are not as high as the benefits whicr. miy*.*
accrue should an emergency of a continuing nature arise. In addition, the Co -
mission believes that this is a reasor.able hedge against construction schedules and forecasting errors and finds that the Fermi I generating plant should not be removed from plant-in-service.
Coal Contract investments The Staff proposed an adjustment to rate base to exclude $10.829,000 of in-vestment in coal mining operations, which adjustment is supported by the Attornev General and PIRGIM. The Staff claims the adjustment should be adopted because Page 14 U-6006 ll) ,
i
It balleves fuel cining op r:tions should be treated as nonjurisdictional for ratsomaking purposes. The Staff claims that fael mining operations are specula-tive in nature and, as such, the risk of those Investments should be borne by Applicant's shareholders and not its ratepayers. Furthermore, the Staff claims that the testimony of Applicant's witness, Mr. Ernest Grove, Indicating that Ap-plicant had removed its coal mining joint venture from rate base in this pro-caeding, lends suppset to its proposed coal contract Investment adjustment.
Applicant takes exception to the Staff's proposed coal contract Investment adjustment and presents two specific arguments in support to its opposition.
First, Applicant Indicites that the Commission has for some period of time in-cluded its coal contracts in rate base. Specifically, Apollcant Indicates that its Consolidation Coal Company contract was included in rate base by the Conunis-sion in Case No. U-39,10 (August 18,1972) and that its Eastern Associated Coal Corporation Investment was included in rate base Ir. Case No. U-5108. esand, A;)plicant claims that its position to exclude its coal joint venture from rate base in this proceeding does not provide Justification to eliminate its coal con-tracts from rate base. Applicant states that its position to exclude the coal joint venture was based upon the Commission's determination in Case No. U-5502 to exclude Applicant's uranium joint venture from its revenue deficiency determina-tion but to include its joint coal venture. Applicant stated it felt that the treatment for the coal and uranium joint ventures should be consistent and, for that reason, it has excluded its coal joint venture from rate base. Applicant claims, however, that its coal investment contracts are quite a different matter and, therefore, they should continue to be included in rate base.
The ALJ re nded the adoption of the Staff's proposed coal investment af-Justment for the reason that fuel mining has significant risks concerning matters such as quantity and quality of product, and problems of extraction, reclamation and natural disasters which should not be borne by Applicant's ratepayers, in Page 15 U-6006
l addition, as pointed out by the Attorney General and PIRGIM in their briefs, Ap-plicant's loans to Consolidation Coal Company and Eastern Associated Coal Cor- '
poration were Intended to secure an adequate supply of coal for the period.
However, Applicant has in every year of those contracts received substantially lower quantitles of coal than called for by the contracts.
Sased upon the evidence presented, and for the reasons stated by the ALJ, the Comission finds that the Staff's proposed coal investment adjustment should be adopted.
Connors Creek Turbine in its brief the Attorney General proposed that the rate base be reduced by
$5,865,000 for replacement of a turbine rotor at Applicant's Connors Creek gen-erating plant. The Attorney General claims that the adjustment should be mace because the Connors Creek turbine rotor replacement was occasioned by an internal flaw for which Applicant should recover from either the manufacturer of the rotor or f rom Applicant's insurance company. The adjustment is supported by PIRGIM but is opposed by Applicant. The ALJ recomended rejection of the adjustment which arose as a result of Applicant's response to a discovery request made by PIRGb' wherein Applicant Indicated it was considering legal action against the manufac-turer of the turbine retor or against Itr own insurer.
Both PIRGiH and the Attorney General take exception to the ALJ's recocen-dation and cite in support of their argument the Comission's decision in Case No. U-4717 (March 8,1976). On page 7 of the Attorney General's exceptions, footnote 2, he states that the Commission had previously excluded approximately
$5 million from the rate base regarding the cost of the Marysville plant, on the grounds that that arr. aunt was being protested by Consumers against its sup- l l
plier. Consequently, he argues, that because Applicant here may be contem-plating legal action, the Commission should properly exclude any sums AppIIcant might recover from the rate base. The Comission encoureges Applicant to pursue Page 16 U-6006
ea whatever legal options it may have. In the meantime, the Commission prefers to wait and see Just how Applicant will in fact proceed, if at all, against either the company which sold Applicant the Connors Creek turbine rotor or against its insurer, if, in fact, Applicant settles that matter in a prudent manner, the proper adjustments should be the subject of any subsequent rate case which may be filed, or a reopening of the instant proceeding, as may be appropriate.
Plant Held For Future Use The Attorney General claims that three properties acquired by Applicant as potential future generating sites should be removed from Plant Held for Future Use and thus from rate base. The three properties involved are Applicant's Worth power plant site, with an investment cost of $1,I29,000; Applicant's Site G, with an investment cost of $5,253,000; and Appilcant's Rubicon plant site, with an in-vestment cost of $2,130,000. There appears to be no dispute regarding Applicant's Worth power plant site inasmuch as it has indicated that it is a nonutility item O in the f t re.
The Attorney General takes exception to the ALJ's finding which rejects the Attorney General's proposed adjustment removing Appilcant's Site G and its Rubicon site from Plant Held for Future Use. The Attorney General cites the Uniform Sys-tem of Accounts and, more particularly, Account 105-B and alleges that there is no plan with respect to the two Sites in question. He further points out that the Worth site and Site G have been included in Account 105-8 since 1970 or 1971 and that there have been no plans utilized to develop either these sites or the Rubicon site.
It would appear that the Attorney General is correct in his statement that T
the past practice has been to include Site G and the Rubicon site in the rate base. Further, filings by Applicant with the Commission would Indicate an ex-pected use date for Site G of 1995 and the Rubicoti site of 1989 Although the I Comission agrees with the Attorney General that "a plan" is that which is Page 17 t!-6006
rcquired, the Comissicn disagrees with the Attorney General that it is necessary to show that either of these sites either adjoin any other generating plant site or be shown to be prime ges:erating plant sites. The Attorney General argues that there has been no expression of Intent by Applicant to use any of these sites in the future.
To the contrary, the Comission finds that the previously cited use date Is sufficient to meet the criteria set out in Account 105-8 of the Uniform System of Accounts.
Consequently, the Comission adopts the position of the ALJ and rejects the Attorney General's proposed adjustments.
i Nuclear Plants The Attorney Gen:ral and PIRGIM take exception to the ALJ's rejection of PIRGIM's proposal to eliminate the Investment in Greenwood il and til nuclear plants from the rate base.
The Attorney General bases his position on the fact that Applicant has advised the Commission in previous security cases that it is no longer engaged in the construction of those plants; that It is no longer spending construction money on those plants; and that it is unable to justify its request to the Commission in Case No. U-5877 for authority to issue securi-h ties to raise capital to finance the construction of the plants. The Attorne.
- General contends that the proposed adjustment would result in the reduction cf the rate base by approximately $70 million.
The basis for PIRGIM's exceptions are threefold:
(1) Applicant is build Ng nuclear power plants for which there will likely be a shortfall in uranium fuel and enrichment capacity in the near future; (2) there is no solution to the hig.-
level waste disposal problem; and (3) nuclear plants are uneconomic Inasmuch as many of the costs are yet unknown.
The ALJ rejected PIRGIM's proposed adjustment for the reason that PIRGlM prasented no witnesses in support of its adjustments other than through a very brief reference to the testimony of its witness, Dr. Steven Bernow, whose testi-
- I mony was primarily concerned with Applicant's future reserve requirements. The Page 18 U-6006 l
ALJ ois3 found that tha only cther cvid:nco of rcc;rd by which PIRGIM sought t3 i support its adjustments and proposal was the testimony of Applicant's witnesses, Dr. Wayne H. Jens and Mr. Arthur K. Falk.
The ALJ concluded by citing Section 85 of the Administrative Procedures Act (APA) which requires that findings of fact be " based exclusively on the evidence and on the matters officially noticed." in addition, the ALJ referred to the requirement in Section 85 of the APA which requires that the Comission make its decisions based upon competent, material and substantial evidence. Finally, the ALJ found that the aforementioned provisions of the APA have not been complied with.
The filing of an exception does not create competent, material and substan-tial evidence. The Comission agrees with the finding of the ALJ and rejects this proposed adjustment.
Nuclear Fuel Applicant reflects $47,562,000 for nuclear fuel in its rate base, whereas O the Staff shows no nuclear fuel in rate base. The Attorney General originally reflected $3,996,000 of nuclear fuel in rate base, but in its reply brief Indi-cated that nuclear fuel should be entirely eliminated from rate base. The Staff and the Attorney General premise their removal of nuclear fuel from the rate base on the fact that on January 23, 1979 Applicant entered a sale and lease-back agreement concerning the nuclear fuel for its Fermi 11 plant.
I Based on the evidence presented, the Commission finds that nuclear fuel should be removed from rate base since Appilcant no longer has an ownership in-terest in the nuclear fuel for its Fermi 11 generating plant. Although Appli-
? >
1 cant Indicated in its brief that it was not adjusting its case to eliminate nuclear fuel from rate base because it believed its filed case to be reasonably representative of test year conditions, Appilcant Indicated it would not take issue with the removal of nuclear fuel from rate base.
O Page 19 U-6006 l
l l
Port Huron Paper Plant Boller Conversion in its brief, Port Huron Paper proposed a reduction to rate base in the g
amount of $370,000 to reflect the cost of conversion to oil of the boilers of the generating plant located at its facilities. The Staff originally included this conversion cost in its rate base but, in its brief, the Staff Indicated _.
that it now supports Port Huron Paper's proposed adjustment. Applicant opposea this proposed oil conversion adjustment. The ALJ proposed that the adjustment be made.
l The evidence Indicates that Applicant expended approximately $370,000 so that the nisnber 4 boiler at the Port Huron Paper generating plant could utilize either oil or gas. Although the boiler conversion has been completed, Applicant has not obtained a necessary permit to operate the boiler from the Michigan l
Department of Natural Resources. AppIIcant has decided not to obtain the permit at this time, since in order to obtain the permit it would be necessary to extend i
the stacks of boilers 4 and 5 and of the peakers at un additional cost of approx-Imately $500,000. Applicant states that it has now decided to postpone the pro-Ject to raise the stacks because it is now assured of sufficient gas for at least the next five years.
Applicant excepts to the recommendation of the ALJ for the reason that it believes that it is being penalized for its prudence in not expending $500,000 on the stacks which are not necessary for providing Port Huron Paper its needed steam supplies for at least the next five years. Applicant argues that if it nad gone ahead and spent the $500,000 to raise the stacks and secured an operating permit, both the $370,000 investment being questioned here and the additional
$500,000 to raise the stacks would have properly been included in the rate base, even though Applicant continued to burn gas for the next five years.
In addition, Appilcant believes that the ALJ makes a double elimination of the $370,000 item in question.,
Page 20 u-6006
Appliccnt notes that on pago 3 cf the Staff bricf. the final Staff position, inclusive of a $370,000 adjustment under consideration, shows a net utility plant of $4,228,695,000. Further, Appilcant points out that Appilcant notes that the PF0 starts with the aforementioned Staff amount for net utility plant as re-flected on page 29 of the PFD, and then makes an adjustment in the amount of
$307,000 for " Port Huron boiler conversion" (See PFD, page 29).
It should be further noted at the outset that the Information which appears in the " Staff" column on page 3 of the Staff brief was taken from Exhibit 5-123 However, the plant in service amount reflected on 5-123 is $4,025,031,000. A proper adjustment in the amount of $370,000 would ylsid a plant in service amount of $4,024,661,000. Therefore, it should be noted that there is a $100,000 error on page 3 of the Staff brief for plant in service.
It would also appear that the information which appears on page 29 of the PFD relating to the " Port Huron boiler conversion" is a typooraphical error.
Further, given that the adjustment in the amount of $370,000 has already been made, and is reflected in the plant in service figure, the Commission finds that the " Port Huron boiler conversion" adjustment in any amount would be improper.
Fossil Fuel Plant "X" In his brief the Attorney General proposes an adjustment reducing rate base by $804,000 for the reason that Applicant has eliminated its Fossil Fuel Plant "X" from its construction plans. The ALJ, in the PFD, found that the adjustment was reasonable and should be adopted. Applicant has taken exception to this finding by the ALJ and challenges it on two grounds.
First, Applicant takes exception to the ALJ's finding that no party took issuewiththlIproposed$804,000 adjustment. Appilcant points out that both Applicant and the Staff included the $804,000 in the rate base. It should be pointed out here that the Attorney General proposed the adjustment for the reason that Applicant's Fossil Fuel Plant "X" had been deferred and, therefore, argue Page 21 U-6006
that the amounts should be deducted from the Preliminary Surveys and investiga-tions item. h it would appear that the tocchstone hsre is whether or not that portion of the preliminary survey and investigation item which deals with Fossil Fuel Plant "X" is used or useful. Applicant has not addressed this issue in its Exceptlons ,
nor is the Consnission convinced that expenses which are incurred at the initial stages of planning, especially where Applicant has not sought to justify them, are properly included in the rate base. Consequently, the Consnission finds that the proposed adjustment by the Attorney General is reasonable and should be adopted.
The second point raised by App 11 cant is that the $804,000, if it should be removed from the rate base does not reflect a jurisdictionalized amount. Using the 0 963 Jurisdictional factor, which is consistent with the Attorney General's claim that $775,000 should be eliminated from the rate base for this item (see Exhibit 1-141, Schedule 82-1), the Conunission finds that the proper amount to be removed from the rate base for this item should be $774,000. e Working Capital Allowance The Attorney General takes exception to the ALJ's inclusion of $159.286.000 of working capital in the rate base. The Attorney General contends that the proper range for the determination of the working capital allowance is approri-mately $9 million to $46 million. There are basically two issues which arise under the Attorney General's exceptions. They are: (1) Whether the balance sheet method or the formulistic method is proper in determining working capital allowance, and (2) whether the ALJ, in adopting the Staff's proposed formullstic approach, followed the proper methodology in reaching a proposed working capital allowance figura.
First the Consnission will address the issue of whether the balance sheet method or the formullstic method is proper in determining working capital g
Page 22 U-6006
I ollowanco. Tho Att rn y G:nsral crgues th0t this Commission, tha FPC, and now
- Its successor, the Federal Energy Regulatory Comission (FERC) have utilized the formulistic approach to working capital in electric cases. However, the FERC is, as is shown in Carolina Power and Light Company, 28 PUR 4th 500 (1979), in the process of reevaluating its use of its present 45-day formu11s:Ic approach to working capital after which reevaluation the FERC Indicates that it may adopt a revised formullstic approach through rulemaking. Pending the receipt of its I
staff's report, FERC has indicated that it is adopting Interim procedures for developing working capital all wance. According to these Interim procedures, FERC will develop a working capital allowance using a lead lag study if a fully
! developed and reliable lead lag study is available on the record. Where no such study is available, FERC has Indicated that it will continue to utilize the 45-day l formullstic approach. Thus, although the Carolina Power and Light Company, supra, does signal a change in the FERC approach to working capital, this case does not provide support for not using the formullstic approach in this proceeding, or provide support for the adoption of the balance sheet approach to working capital.
In the instant proceeding, there is no " fully developed and reliable lead lag study" on the record. The ALJ found that It was abundantly clear that were the 4
FERC's interim approach to working capital, as set forth in Carolina Power and l Light, applied to the Instant proceedings, W rking capital would be determined by the formullstic approach. Thus, the ALJ concluded that Carolina Power and Light does not support the Attorney General's balance sheet approach or even pro-vide reason for rejection of the formulistic approach. Also, while the Commis-sion is Interested in how the FERC treats such issues, the Commission is in no way bound by su treatment.
l In addition, the Attorney General cites the case of Rhode Island Consumers l
l Council vs Smith, 99 PUR 3rd 209, 221 (R1 S Ct 1973) In support of his position that the formalistic approach should be rejected in this case. The ALJ found Page 23 U-6006
that the aforementioned case does not provide support for rejection of the for-mullstic approach In this proceeding or the adoption of the Attorney General's balance sheet approach.
h It would appear that in the Rhode Island case, the Rhode Island Supreme Court determined that the Rhode Island Public Utilities Consn!ssion's adoption of a 45-day working capital approach was unacceptable since it had been adopted solely because the Consnission had a long-standing approach of following this method and because the telephone utility had presented evidence indicating on the average that the utility did not receive payment for services until 64.65 days after rendition of service. Of particular Importance to the Rhode Island Supreme Court was the fact that the Consnission had rejected the telephone ut!!Ity lead lag study without identifying any contradictory or Impeaching evidence. Al-though, the Court Indicated that it was returning the matter to the ConrMssion for their determination of a working capital allowance which would presumably still allow the Consnission to have followed the formullstic approach if it indi-cated, based on the evidence of record, reasons for rejecting the utility's !=$d lag study approach to working capital. O The Attorney General has also asserted that the balance sheet appro.sen should be adopted because It is easy to use. As the ALJ pointed out, the same claim may be made for the formulistic approach. However, whether one method or the other is easy to use in determining working capital does nnt provide justi-fication as to which approach should be adopted. Therefore, the Commission finds i
that the ALJ's rejection of the Attorney General's proposed balance sheet approacr.
Is reasonable and adopts the ALJ's position regarding same.
l Finally, addressing the Attorney General's exception regarding the proper {
method for the computation of working capital allowance using the formulistic approach, it should be noted here that there are two determinations which must
{
be made. First, is whether the fuel expenses should be deducted from the >per-attons and maintenance expense before applying the 1/8 factor. Secondly. Is Page 2k U-6006 l
whether accrued interest and accrued dividends should be deducted to arrive at a working capital allowance.
Regarding the first issue raised above, the Attorney General asserts that the filing forms and instructions as set forth in Case No. U-4771, Schedule B-3, require that both purchased power and fuel be subtracted from the operations and maintenance expenses before applying the 1/8 factor, b essence, the Attorney General is asserting that the Staff, and the ALJ by adopting the Staff's position, has failed to comply with the aforementioned Schedule B-3 Charles Geyer, who testified on behalf of the Staff, explained that because the Staff has utilized a future (projected) test year, rather than a historic test year, there is no reason to subtract fuel expenses. He Indicates that if the fuel expenses were deducted, the formula for a future test year would not be valid.
In support of the Attorney General's contention that the removal of fuel expense prior to applying the 1/8 factor is proper, he again cites Carolina Power O and Light Company, supra. However, in Carolina Power and Light Company, the FERC 1 stated that under its interim procedure for determining a working capital allow-l ance, the amount of expense due to the actal lag in paying for fuel, rather than i I
expense based upon a 45-day period, would be utilized if available. The FERC also Indicated that if the actual lag was not known, it would continut to apply the 45-day convention. Since in the instant proceeding the actual lag in pay-ment of fuel expenses is not Indicated on the record, the FERC Interim procedures would call for use of the 45-day approach and not the elimination of all fuel expense from the working capital allowance as proposed by the Attorney General.
Inaddition,Ipshouldbenotedthat if fuel expenses were subtracted, as sug-gested by the Attorney General, there would be no accounting or allowance made for fuel cost.
As to whether accrued Interest and accrued dividends should be deducted to Page 25 u-6006
crriva at a pr per working capitol allowance, the Attorney General contends that both items should be subtracted from the subtotal of 0 & M expenses. The Staf f's position is that these items are part of Applicant's capital structure and are ei accounted for in determining the rate of return; The Commission finds that the Attorney General's proposed adjustments should be rejected here. Dividends are not an 0 & M expense but, rather, a cost of l
capital (equity) expense. Likewise, Interest paid on either long- or short-term debt belong in the capital structure and not in the rate base.
Also, the Staff takes exception to the ALJ's finding in the PFD wherein hc added $14,900,000 to the working capital allowance for fuel Inventory from Appli- ,
i cant's Superior, Wisconsin Coal Dock. The Staf f contends that to add this amoiset to Applicant's working capital allowance would in essence be allowing this figure twice as this amount was taken into consideration in the Staff's proposed allow-ance. However, a review of the Staff's Exhibit 5-124 does not clearly indicate that this is so. In addition, there does not appear anything on the record whlen would justify the Staff's assertion in this regard.
The ALJ noted that although the Staf f's approach to working capital allow-ance appears to be the most seasonable approach on the recoro, a modification for the Superior, Wisconsin Coal Dock was appropriate. The Staff's .8490 ratio used to determine its working captial allowance was the same utilized by the Commission in Case No. U-5108. In that case, the Commission recognized that the Staf f's working capital did not include an allowance for fuel inventory at the Superior, Wisconsin Coal Dock arid, accordingly, increased the working capital allowance by
$20 million to account for the inventory.
From the evidence adduced on the record in the Instant proceedings, it was shown that Applicant's fuel Inventory at its Superior, Wisconsin Coal Dock was now averaging approximately $14,900,000. When the appropriate jurisidictional
! rate of 96.3% is applied this amount is reduced to $14.348,000. when added to Fage 26 U-6006 I
tha working ccpital amount rcconenended by the Staff cf $144,386,000, the t2tal working capital allowance reconenended by the ALJ was $158,734,000.
Applicant takes exception to the aforementioned amount to the extent that the ALJ did not adopt its full forecasting approach for the reason that certain components, such as cash and bank balances, appear to be overstated. Applicant's full formullstic working capital approach is determined by Individually fore-casting each of the various working capital elements.
As set out in Exhibit A-10, page 5, the amount is shown to be $208,090,000. Appilcant argues that assuming.
arguendo, that the questioned components were in fact overstated, once they are deducted out the result is a working capital allowance of $199 million.
i However, the Staff approach, and that ultimately recomended by the ALJ, in-volves using the same inethodology utilized by the Comission in Case t.. U-5108
! and U-5502.
Applicant's arguments for abandoning the previously utilized methods are not convincing and, therefore, the Commission finds that the approach previ-ously used in the aforhntioned cases is reasonable and shall be used here.
Based upon the Staff's method of determining working capital, given the operations and raintenance expenses, discussed infra, and adding to it the fuel inventory at Superior, Wisconsin coal dock, the Commission finds that the appro-priate working capital allowance should be $156,519,000.
Flue Gas Conditioning System Intervenor Pennwalt Corporation points out in its exceptions that the ALJ Inadvertently omitted a $225,000 disallowance from Applicant's on-site rate k e e.
This represents the dirallowed portion of Applicant's investment in the flue gas conditioning system at the Pennwalt power plant. It would appear from page 11 c f the @D that the ALJ intended to address this issue but neglected to do so.
In two previous rate cases, Case No. U-5218 and U-5502, the Commission in-dicated that Applicant would not he allowed to earn a return on the flue gas Page 27 U-6006
t 4
conditioning system at the Pennwalt power plant "until such time as Applicant has shown the whole expenditure to be reasonable."
In the instant case, upon cross-examination by Mr. Gordon and Mr. Fink, Ap-plicant's witness, Mr. Wilkins Indicated that he failed to exclude the aforemen-tioned costs from the Applicant's rate base because he felt that it was a neces-sary part of the operation and that the costs should be assigned to the Pennwalt Co rpora t ion. However, such a statement falls short of the kind of proof that this Connission needs to Justify the reasonableness of this investment. Conse-quently, the Comnission finds that the $225,000 amount, which represents the net disallowance for 1979 aer depreciation has been decueted (Tr. 5853-5854) shoule be removed from Applicant's rate base.
Sun a ry Based upon the previous determinations, the Commission finds that the rate base to be adopted for these proceedings is:
Average 1979 Jurisdictional Rate Base Utility Plant Plant in Service 54,025,031,000 Held for Future Use 26,281,000 Construction Work in Progress 1,155,812,00C_
Total Utility Plant 55,207,124,000 Depreciation Reserve (978,955,000)
Net Utility Plant $4,228,169,000 Working Capital 156,519,000 Other (12,338,000)
! Rate Base Before Adjustments $4,372,350,000 Adjustments i Worth Plant Site $(1,093.000) l Port Huron Soiler i
l Consersion (370,000)
Fossil Fuel Plant "X" (774,000)
Total Adjustments $ (2,237,000)
Rate Base 54,370.113,000 Page 28 U-6006 g
VI.
RATE OF RETURN Extensive evidence as to the appropriate rate of return Applicant should be authorized to earn was presented on behalf of Appilcant by Mr. L. Sanford Reis l 1
and on behalf of the Staff by Mr. George R. Stojic. Based on his testimony and Exhibit A-12, Mr. Reis recommends that Applicant receive an overall rate of return of 9 62% and a return on consnon equity of 14.5% whereas, based on his testimony and Exhibit 5-120, Mr. Stojic recommends that Applicant receive an overall rate of return of a range between 9 09% and 9 25% and a return on common equity of a range of 13.0% to 13.5%.
Determination as to the overall rate of return Applicant should be entitled to receive is dependent upon a number of factors; namely, the capital structure employed and the rates of return to be earned on cost of debt, preferred and preference stock and on comon equity. Mr. Reis' and Mr. Stojic's positions as to these matters are summarized as follows:
APPLICANT Percent of Amount Capital Cost Weighted Cost Long-Term Debt $2,062,559,000 46.74% 8.17% 3.82%
Short-Term Debt 93,343,000 2.13 10.24 .22 Preferred Stock 343,327,000 7.78 7.99 .62 Preference Stock 147,787,000 3 35 10.67 36 Common Stock Equity 1,327,609,000 30.08 14.50 4.36 l Deferred JDITC 112,010,000 2.54 9 62 .24 ,
Deferred ITC 17.037,000 38 0.00 0.00 t Deferred income l
! Tax 308,871,000 7.00 0.00 0.00 Total $4,413,043,000 100.00% 9 62%
V Page 29 U-6006 O
t
STAFF Percent of Amount Capital Cost Weighted Cost Long-Term Debt $1.999,506,000 47.16% 8.05% 3.80%
short-Term Debt 74,455,000 1.76 7.84 .14 Preferred $tock 378,338,000 8.92 8.26 74 Preference Stock 143,026,000 3 37 10.88 Connon Stock 37 Equity 1.317,780,000 31.08 Deferred ITC 13.0-13 5 4.04-4.20 17,037,000)
Deferred income ) 7 70 0.00 Tax 0.00 309,558,000)
Total 54,239,700,000 100.00%
9.09-9.25%
Although the Attorney General did not present expert testimony on rate of return, his witness Kumar advocated an overall rate of return of a range between 8.94% to 9 09% and a return on common equity of 12.5% to 13%. Mr. Kumar's rate of return reconnendations were based entirely on the Staff's capital structure and cost rates but Mr. Kumar reduced the Staff's return on comrion equity by .5'4 which results in his lower overall rate of return, g
Caoltal Structure Both Mr. Reis and Mr. Stojic developed a capital structure based on average year 1979, although Mr. Reis also presented a projected 1979 year-end capital structure. For use in a proceeding where a projected test year is adopted, it is appropriate that an average year capital structure be adopted. The capital structure of a utility can be disproportionate at any point in time depending I upon the current level of the various components. In order to accurately assess i
the capital structure of a utility, it should be viewed on a longer basis, such j l
as a yearly average, as this tends to eliminate cyclical distortion , There fore , l t
the Commission agrees with the reccanendation of the ALJ and finds that an average l year 1979 capital structure is appropriate in this proceeding and hereby adopts that reconnendation. Appilcant raises three objections to the capital structure.
Page 30 U-6006
, all of which gs to the ALJ's rccommendation r:gsrding tha issus of the job deval-opment investment tax credit (JDITC). Applicant's first exception is to the pro-posed findings on pages 32 and 33 of tha PFD to the effect that the JOITC should be excluded from Applicant's capital structure. Secondly, Applicant excepts to the proposed capital structure found to be reasonable and appropriate on page 48 of the PFD insofar as that capital structure does not include JDITC as a compo-nont. Thirdly, Applicant excepts to the pro forma tax savings calculation on pages 80 and 81 of the PFD and asserts that the pro forma tax savings calculation improperly weights the cost of debt at 3 96%.
Even the Staff's witness, Mr. Stojic, admits that JDITC is part of the cap-Ital generated by Applicant. Applicant argues that JDITC is exactly the same as the deferred taxes and Investment tax credit whIch Mr. Stojic Included in his capital structure and, thus, there is no justifiable reason for its exclusion from the capital structure, in addition. Applicant states that the Internal Revenue Service (IRS) has now issued final regulations on investment tax credit for public utility property and that those regulations require the adoption of Applicant's position.
This Consnission has, for some period of time, excluded JDITC from the cap-j Ital structure in major rate proceedings. Justification for following that l approach has been that Applicant receives a benefit from JDITC because JDITC l
credit amounts are entitled to earn at Applicant's overall rate of return even though JDITC, like liberalized depreciation, is obtained at no cost to Appilcant.
The Commission has in the past allowed JDITC to earn at Applicant's overall rate of return since this posture seems to have been ngndated by Section 46(f) of the Internd Revenue Code of 1954. In fact, that treatment has now been con-firmed by Sections 1.46-3 and 1.46-6 of the recently enacted IRS regulations.
In the PFD, the ALJ found that the only new issue presented in these pro-ceedings Is whether the newly issued IRS regulations mandated that JDITC be O Page 31 U-6006
included In Applicant's capital structure. The ALJ found no such mandate con-talned in the regulations and rejected Applicant's request that JOITC be included as part of Applicant's capital structure.
h Section 46(f) of the Internal Revenue Code provides that the benefits of the investment tax credit will be shared between the ratepayer and the utility rather than given entirely to either. It also requires that where the JOITC is flowed through to the cost of service ratably over the life of the asset giving rice to tnet credit, the related deferred JDITC cannot be used to reduce the rate base directly or Indirectly. In Michigan, JDITC has been allowed to earn an "overall" "dte of return. Mat ematICally, thIs has been aCCompiished by excluding JDITC f rem the capital structure In arriving at the rate of return.
It has been argued by Applicant that this approach gives too much weight to cebt cost, thereby treating the debt component of the JDITC return as though it is tax deductible whe,n, in fact, it is not. The result, Applicant argues, is to
- lance Michigan utilities, as well as their ratepayers, in the position of losing che JDITC altogether because, if the IRS reviews these and other utility rate G
-roceedings and dM Armine that the Interest component of JDITC is tax deductible.
Inat might be construed as an " Indirect" disallowance.
In Case No. U-5555 (issued November 6,1979), the Commission departed fror' rne traditional pro forma tax savings approach and adopted the position urged Sete by Applicant. Given the rccently adopted IRS regulations, there appears to be a risk in continuing to treat the Interest component of the overall return allowed for JDITC as though it were tax deductible.. The risk includes the possi-bility that, upon review, the IRS could very well go back to each major utility's rate cases since the Introdution of JDITC and charge them back. In the worst possible situation, the net result would be tnat Michigan utilities and rate-payers would be adversely affected.
Page 32 u-6006 h
Considering the risks of continuing the former practice, the Commission O finds that AppIIcant's proposal is prudent and in the pub 11c Interest.
Cost of Debt Both Applicant and the Staff determined cost rates for long- and short-term debt. Long-term debt cost, however, is not an issue in the Instant case as Ap-plicant has not excepted to the ALJ's adoption of the Staff's long-term debt cost rate of 8.05%. The Commission, therefore, finds the Staff's long-term debt cost of 8.05% as proper in this case.
Applicant does except to the use of a 10% prime rate In the calculation of the cost of short-term debt for the year 1979 AppIIcant feels that given the economic climate that existed at year-end 1979, a 10% prime rate would not be reasonable. It argues that since the ALJ used Mr. Stojic's year-end figure for long-term debt rather than Mr. Reis' average figure, then It is just and reason-able to use a year-end short-term debt cost. Consistent with this belief, Ap-plicant expected that the prime rate at the end of 1979 would be 14.5% and urges the Commission to apply that prime rate for the purpose of determining the cost of short-term debt. In the alternative, Applicant suggests that the average prime rate for 1979 of 12.4%, could reasonably be used in calculating the cost of short-term debt in the instant case.
The Staff Initially employed a prime rate figure of 8.75%, which was less than the existing prime rate when the Staff filed Its case. The use of 8.75% was predicated on the expectation of an Impending economic recession and resultant decline in Interest rates. The Staff, however, subsequently showed no inclination ip
() Page 33 U-6006 l
l
to except to the ALJ's use of a 10% prime rate.
The positions of the partles and the relatively large number of short-term debt figures discussed in the record is indicative of the volatility of short-term debt costs.
Because of its duration, short-term debt can fluctuate widely in a matter of months. i Sudden changes in the Fsderal Reserve's monetary pol-icy, changes in expectations of inflation and other changing economic conditions can cause the prime rate to either rise or fall by whole percentage points in the time a rate case is being processed. The current economic climate exempilfles this volatility.
In selecting a short-term debt figure, the Commission must not only be aware of the recent historical level of the prime rate but also of its volatility in the face of economic uncertainty.
Considering the uncertainty surrounding today's economic climate and the tendency of the prime rate to change rapidly, the Commission finds that It must use some ciscretion in selecting an appropriate short-term debt cost rate rather than relying on any particular historical figure. After reviewing the positions of the parties, the history of short-term debt cost rates, and the current ec:e-nomic uncertainty, the Commission finds the ALJ's use of a 10% prime rate is reasonable in this case and, therefore, adopts a 10% prime rate as the basis for the cost of Applicant's short-term debt cost rate.
Applicant also excepted to the ALJ's exclusion of fees for maintenance of lines of credit from the short-term debt cost computation. It argues with the ALJ's finding that such fees sIgnificantly overstate Applicant's short-term debt costs because they are not applicable to most of Applicant's short-term debt.
In its Exceptions, Applicant urges that the payment of fees for the mainte-nance of short-term credit lines is not only necessary but results in a savinge:
ranging from $800,000 to $1 million in 1978. The savings, according '.o Appil-cant, resulted from use of fees for credit lines instead of the use of compen-sating balances.
In its Exceptions, AppIIcant urges the Convrilssion to calculate g
! Page 34 U-6006 l
l
l the fees cs fallows:
"The total weighted cost of short term debt, without taking the O fees into consideration should be multiplied by $74.455.000 (the average amount of short term debt determined by Mr. StoJIc to be outstanding In the year 1979.) The product is the absolute cost of short term debt without consideration of the fees. To this product is added the absolute amount of the fees to obtain l the total absolute cost of short term debt. The percentage cost is then obtained by dividing the total absolute cost by the amount outstanding of $74,455.000." (Page 18, AppIIcant's l Exceptions)
Applicant further notes that Staff witness Stojic agreed that the fees should be recognized in the computation of working capital or as an expense (43 Tr. 5994-5995).
The ALJ disallowed these fees for the reason that Applicant failed to prop-erly indicate the amount of its short-term debt which is affected by these fees.
l Applicant noted in its Exceptions that the aggregate amount of short-term debt affected by such fees appeared in Mr. Reis' Exhibit A-12. It appears that the
[
ALJ may have overlooked that testimony. However, the Commission notes that if such fees are included in short-term debt cost rate computation, the resultant cost rate would be sensitive to the rate of utilization of short-term debt. Spe-cifically, given an Interest rate used to compute short-term debt cost, the short-term debt cost rate may or may not be close to the applicable Interest rate de-pending on how Intensively that short-term debt is utilized. The result may be widely fluctuating short-term debt cost rate that bears little resemblance to the economic cost of short-term debt capital at any point in tie.e.
The Commission, af ter reviewing the position of the parties and the nature of short-term debt, adopts the ALJ's finding that fees for maintenance of lines j of credit should not be included in the short-term debt cost rate computation.
F The Consnission' further finds that a cost rate of 8.95% for Applicant's short-term debt is fair and reasonable i., th!s case.
P.eferred J and Preference Stock Cost Both Applicant and the Staff determined cost rates for preferred and preference Page 35 U-6006
stock. Neither of those cost rates were an issue In the Instant case as App 11-cant has not excepted to the ALJ's adoption of the Staff's cost rates for those g
items. The Comission, therefore, also finds the Staff's preferred and prefer-ence stock cost rates, of 8.26% and 10.88%, respectively, as proper in this case.
Comon Equity Testimony and exhibits regarding a fair rate of return on comon equity were presented by Applicant and the Staff. Applicant's witness Reis utilized five different analyses to determine a fair rate of return on common equity cnd con-cluded that a return of 14.5% was reasonable for Applicant. Staff witness Stojic employed two techniques in order to determine a fair rate of return on Applicant's comon equity and concluded a range of return from 13% to 13.5% was fair and reasonable in this case. The Attorney General's accounting witness, Mr. Kumar, in making a revenue recomendation for the Attorney General, accepted Mr. Stojic's comon equity return recommendation but then reduced it downward by .5% to be censistent with a statement made by President Carter's inflation advisor, Mr. Alf red Kahn, to the National Association of Regulatory Commissions. In his statement, Mr. Kahn recommended that the regulatory commissions approve a comi.y.
equity rcturn rate .5% below that which they would have otherwise determined.
Af ter a detailed analysis of the approaches used and cost rates recomended t by Applicant and the Staff, th ALJ found the Staff's range, running from 13% to 13.5%, to be more objective and reasonable. After so finding, the ALJ adopted the higher end of the Staff's range,13.5%, because he believed the Staff did ne;
- fully take market pressure into consideration and he felt there was a need to dn so. Additionally, the ALJ adopted the higher end of the Sta'f's range because he believed a reduction in its authorized rate of return may actually raise AppII-cant's capital costs and impact adversely on the acceptability of Applicant's securities.
Page 36 U-6006
The Attorney General excepts to the ALJ's adoption of the high end of the Staf f's recommended rate of return range. The Attorney General argues that the data presented by Mr. Reis indicated that the average market pressure for Appll-cant's six most recent !ssues of coninon stock was less than 1%. The Attorney General further takes issue with the ALJ's alleged speculation that a reduct!on in the 13.5% rate of return might result in an increase in the overall cost of capital and that Applicant's bond rating might be reduced. The Attorney Gane* '
argues that there is no evidence to support the ALJ's speculation concerning the possible decline in AppIIcant's bond ratings, but that there is evidence of a reduction in Applicant's constructien program due to declining load forecasts and the suspension of the Greenwood nuclear project.
In its Exceptions to the PFD, the Staff argues that the ALJ erred in taking into consideration market pressure and business risk in selecting the high end of Mr. Stojic's recommended range. The Staff contended that Mr. StoJIc's analysis had already taken into consideration market pressure in that no market pressure was evident, and that further consideration need not be given to it. The Staff's position was based in part on its observ& tion that the price of Applicant's stock has historically increased af ter the sale of common stock.
Applicant takes exception to the ALJ's finding that a 13.5% return on conrnon equity is fair and reasonable. Applicant proposes at least a 14.5% return on common equity. In its Exceptions, AppIIcant argues that it should be given an opportunity to earn its cost of equity and that a rate of return of 13.5% does not permit such an opportunity. It cites several cases which stand for the proposition that in the setting of rates the Conrnission must set rates which are b-Just and reasonable. Further, Appilcant states that it is not sufficient to allow rates to cover only those costs that were incurred in the past. Applicant contends that rates must also cover costs (including the cost of equity capital)
- being incurred in the present and immediate future.
l l
l Page 37 U-6006
Applicent furth:r crgues th t ths ALJ was Inc:rrcct in stating thSt Mr. Stojic's testimony was more objective than that of Mr. Reis. Indeed, Appil-cant not only maintalris Mr. Stojic's testimony is subjective, but is replete with O inconsistencies as well.
In determining a reasonable rate of return, the Commission should consider Applicant's cost of equity capital. A review of the testimony of Applicant and the Staff Indicates that both parties used the discounted cash flow (DCF) meth-odology in order to estimate Applicant's common equity cost. As noted by the ALJ, the Staff's DCF study was performed on Applicant and a group of comparable co'r.-
panies and was based on historical data. The Staff's use of the DCF resulted in a rate of return recomendation on comon equity running from 13% to 13.5%. Ap-plicant's DCF study, by comparison, was performed on Applicant only and was based on mere hypothetical data. Appilcant's use o' the DCF methodology resulted, there-fore, in a contention that I4.5% would be a fair rate of return for its common equity. After reviewing the methodologies and the positions of the g,arties, the Comission agrees with the ALJ and finds that the Staff's recomended return rate h
is more objective and reasonable in this case.
Within the reconsnended 13% to 13 5% range, the Consnission must exercise discretion in selecting a final rate of return figure to grant to App!Icant's coninon equi ty. It is Interesting to note that the Staff did not recommend any particular point or area within its reconsnended range and only excepted to tt e ALJ's selection of the top of the Staff's range because the ALJ indicated the Staff failed to take into consideration market pressure and business risk. A reading of Mr. Stojic's testimony, in fact, Indicates that he feels any point within the range of 13% to 13.5% is fair and reasonable.
1 After reviewing the positions of the parties, the state of the economy and l l
the uncertainties with respect to economic trends, the Commission is not per-suaded that Applicant's rate of return on conunon equity should be reduced from its current 13.5% level. The Comission therefore finds the ALJ's recommendation Page 38 l U-6006 1
l to be fair and reasonable in this e,ase and adopts 13.5% for Applicant's rate of O <=r i== - a itv-Sununa ry Based upon the above findings, the Commission finds that Applicant should be entitled to receive a 9.25% rate of return on its rate base. This
- termina-tion is based upon the following capital structure:
Type of Dollar Percent of Cost Weighted Capital Arnount Total Capital Rate Cost Long-Term Debt $1,999,506,000 45.97% 8.05% 3.70%
Short-Term Debt 74,455,000 1.71 8 95 .15 Preferred Stock 378,338,000 8.70 8.26 72 Preference Stock 143,026,000 3.29 10.88 36 Common Equity 1,317,700,000 30.30 13 50 4.09 Deferred Irc ' 17,037,000 39 Deferred JDITC 109,495,000 2.52 9.25 .23 Deferred income Tax 309,558,000 7.12 - 0 _,
Total Capital $4,349,195,000 100.00% 9.25%
l vii.
ADJUSTED NET OPERATING INCOME inasmuch as there are a myriad of exceptions taken to the ALJ's reconenenda-l l tion regarding adjusted net operating income, the Comnission will address each excepted-to component separately.
P Operating Revenue j The Attorney General takes exception to the ALJ's recommendation claiming that he erred in accepting the Staff's position regarding operating revenue and proposes that two adjustments be made.
Page 39 U-6006
First, the Attorney General proposes that the sales levels should be adjusted by 2,263,163,500 shs to reflect Appilcant's underestimation of its 1979 sales by 9 approximately 5%. based upon budget versus actual figures for the first three tronths of the year. The Attorney General's witness Kumar proposes that the ad-justment be made, the net effect of which would be an additional 553,062,008 in revenues. After subtracting associated fuel and purchased power costs, this would result in net additional revenues of $12,868,224 (Exhibit 1-141, Schedule l
l C-1-3, Lines 1-10, as amended at 49 Tr. 6957-6958; 40 Tr. 6979-6980).
The Attorney General further recommends an upward adjustment in net rev-enues of $5,826,000 to eliminate the downward sales forecast anticipated by Ap-plicant due to a possible automoblie strike and recessionary changes (Exhibit l-14), Schedule C-1-3, Line 11 as anended at 49 Tr. 6957-6958). The record in-dicates that Applicant projected a decline in sales in 1979 varsus 1978 to the primary metals industry of 225,000,000 Mwh, and a further projected decline in sales to the chemical industry of 32,000,000 bh. The projected decline in sales g for these two industries are associated with the projected decline in sales to the automobile industry, in addition, the Attorney General argued that, even if a strike never mate-rialized, projected declines should be disallowed because Applicant's proposed figures were based on a temporary condition. In any event, the Attorney General argues that the projected decline in sales to the aforementioned industries should be disallowed and accounted for and operating revenue should be increased accordingly.
These proposed adjustments were rejected by the ALJ in the PFD for the reason that it appeared to him that Applicant and the Attorney General both failed to properly take into consideration the effect that conservation has had upon Appil-cant's domestic and commercial sales. The ALJ felt that Mr. Carlson, the Staff's witness, properly accounted for this phenomenon. As to the Industrial sales in Page 40 U-6006
l l -
\ .
question, it appeared to the ALJ that the projections of Mr. Williams, Applicant's witness, were too extensively affected by the possible effects of an automobile workers strike and a recession. The ALJ felt that Mr. Kumar, on the other hand, had developed an unreasonably high sales projection on the basis that any and all effects of a recession or an autcxbile strike should be removed. However, the ALJ felt that, unlike Mr. Kumar, Mr. Carlson did consider a recession would have scmewhat of a dampening effect on Applicant's projected 1979 Industrial sales.
It would appear to the Commission that Appilcant's projected figures were based upon events which never fully manifested themselves. The Attorney General, on the other hand, has taken the position that given the fact that the automobile strike never occurred all of Applicant's projected decline in sales should be revised and adjusted upward. The Commission agrees with the position taken by the ALJ inasmuch as it appears that Mr. Carlson has taken a more realistic ap-proach to the issue by taking into account the dampening effect of a recession on Applicant's 1979 projected industrial sales and coming up with a figure that I
is the more reasonable of the two. Therefore, the Conrnission adopts the recom-mendation of the ALJ regarding predicted 1979 electric Kwh sales.
Applicant also takes exception to the ALJ's finding that the Staff's pro-posed billing determinants were proper. During the rebuttal phase of the pro-ceedings, Applicant's witness, Mr. Donald Okon, presented testimony and exhibits which supported his contentions that the total revenues forecasted by each of the aforementioned parties had been overstated. He further contended that the over-statement was as a result of the parties using billing determinant data obtained prior to the Comission's order I.1 Case No. U-5502 dated September 28, 1978. His claim was tha7 Applicant's projected 1979 Industrial class revenues should be reduced by $21.8 million and the Staff's projected 1979 Industrial class revenues should be reduced by $19 million.
lt would appear from the record that the Staff based its billing determinants O
Page 41 U-6006
on 458 hours0.0053 days <br />0.127 hours <br />7.572751e-4 weeks <br />1.74269e-4 months <br /> use of demand. Applicant contends that more recent data provided to the Staff by Applicant showing 491 hours0.00568 days <br />0.136 hours <br />8.118386e-4 weeks <br />1.868255e-4 months <br /> use of demand to be more appropriate and was not used by the Staff, resulting in a difference of 33 hours3.819444e-4 days <br />0.00917 hours <br />5.456349e-5 weeks <br />1.25565e-5 months <br />. Further, Applicant contends that the demand determined by the Staff was In error because it did not take into account changes made in the order in Case No. U-5502 wMeh reduced the on-peak hours from 12 to 8 hours9.259259e-5 days <br />0.00222 hours <br />1.322751e-5 weeks <br />3.044e-6 months <br />. However, it would appear from the record that Mr. Okon, in his initial testimony, Indicated that for his develop-ment of billing determinants for 1977 on Exhibit A-5, Schedule E-3, he took the change in on peak hours resulting from the Commission's order in Case No. U-5502 into account in the cases of rate schedules D-6 and D-7. Looking at that exhibit it would appear that adjustments were made to the 1977 data to reflect such changes in the kh on peak and off-peak billing demands.
In the PFD, the ALJ indicated that the data shows that for the period of Januca; to April 1979 the hours of use decrease from 526 in January to 469 hours0.00543 days <br />0.13 hours <br />7.75463e-4 weeks <br />1.784545e-4 months <br /> in April, a spread of 57 hours6.597222e-4 days <br />0.0158 hours <br />9.424603e-5 weeks <br />2.16885e-5 months <br /> of use. The ALJ concluded that since the trend could conceivably continue Mr. Okon's 491 hours0.00568 days <br />0.136 hours <br />8.118386e-4 weeks <br />1.868255e-4 months <br /> may be overstated.
, in addition, there appear to be conflictiM statements by Mr. Okon which t leaves a great deal of uncertainty regarding the reliability of the data which he has presented (Tr. 7978-7984; 8047-8052). The Consnission therefore finds that the dita presented by Applicant is insufficiant and inconclusive to suppor:
Applicant's proposed industrial class revenue adjustment and hereby adopts the reconsnendation of the ALJ.
Fuel and Purchased Power Expense The Attorney General takes exception with the ALJ's reconrnendation regarding fuel and purchased costs of 17 92 mills per hh of net system requirements, i..
l lieu of Applicant's estimate of 16.6 mills per bh. The Attorney General claims that this results in a $54,529,000 additional fuel and purchased power expense 1
which, in turn, requires Applicant's ratepayers to pay $5,452,000 more in rates g
Page 42 U-6006
than under Applicant's estimated fuel and purchased power costs, due to the operation of the 10% incentive factor in the fuel and purchased power clauses.
Further, the Attorney General asserts that the Staff's function is to scrutinize costs for overstatment and to eliminate or reduce those costs which are not properly supported. The Attorney General contends that it is not the Staff's function to scrutinize costs to determine which costs may arguably be increased.
Second, the Attorney General takes exception to the ALJ's acceptance of Staff witness MacGregor's predicted fuel pricing which was allegedly made exclusively i
upon a one page anonymous handwritten sheet furnished to him by Appilcant. Third, the Attorn.cy General criticizes the fact that a redispatch study was not performed by the Staff, but such a study formed the basis of Applicant's figures. Fourth, the Attorney General criticizes the Staff's capacity factors utilized in its fuel and purchased power expense calculations. And finally, the Attorney General criticizes the Staff's base fuel cost in its fuel cost and purchased power calcu-lations.
It would appear from the evidence introduced on the record that the differ-ence in the cost figures between Applicant and the Staff comes as a result of the Staff having used more recent data (February 1979) than dic Applicant. At the time a utill:y files an application for a rate increase, its calculations are based upon data which is currently available to It at the time of filing. How-ever, by the time witnesses testify, as here, the data upon which they base their recrancadations is of ten several months later than that relied upon by the utility company.
The Conunission is unaware of any statutory requirement which defines the l Staff's funct n as being Ilmited to scrutiny of Applicant's application for the sole purpose of making reconenendations to eliminate or reduce proposed costs which are not properly supported. Certainly, that is one function which the Staff traditionally serves in these hearings. However, as a full fledged party Page 43 U-6006 l
to this case the Staff is bound, as are all parties, to present evidence which it believes to be competent and material. To that end, the Staff is not bound h
to In every Instance, present evidence only where its proposed figures are less f than Applicant's or any other parties to the proceedings. i j
The Attorney General also raises the issue of a so-called " anonymous,"me- l page handwritten sheet which contained Information furnished by Applicant. On
{
the record, Mr. MacGregor Indicated the conditions under which he received the information and if the Attorney General had any objection as to the relevance of that Information.it should have been raised at that time. He cannot be heard to comolain of the admission of evidence long after the record has been closed.
The Attorney General also complains about the fact that the Commission Staff performed no redispatch study. The Attorney General points out that the figures proffered by Applicant were based on its own study. Such a study was conducted using figures which yere several months outdated by Applicant's own admission.
The Staff used more ' current figures. Consequently, the Connission sees no reason to disregard the figures proffered by the Staff witness. e The Attorney General also excepted to the ALJ's adoption of the Staff's capacity factor utilized in its fuel and purchased power expense calculations.
He contends that since the system is economically dispatched it is necessary to redispatch the generating system for the test year, utilizing planned maintenance schedules for such year, together with random outage factors. He criticizes th-Staff for not doing this. Instead, he contends, the Staff merely made an adjust-l ment in the Monroe 1978 capacity factor to attempt to reflect, in a rough way, the impact of the coal strike upon the plant's production. Howevcr. the Attornev General takes issue with the Staff assumptions. His position is that Mr. MacGregor assumed that the Greenwood 1 plant, with fuel cost of $28.91 per Mwh, would dis-place 1.038,256 Nhs of purchased power. By way of example he points out that Mr. hacGregor increased Applicant's total fuel and purchased power costs by Page 44 U-6006
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displacing short-term Ontarlo-Hydro power purchases priced at $27.51 per Nh by Greenwood generation at $28.91 per Nh. In addition, the Attorney General as-serts that Mr. MacGregor used Greenwood to displace even lower cost Indiana &
Michigan Electric Company short-term purchases at $26.17 per Ah. I He asserts '
that to do so is error.
It would appear from a review of the record and testimony of Mr. MacGregor that the Attorney General has misinterpreted the assumptions made by Mr. MacGregor. ;
First of all, the record would Indicate that Mr. MacGregor assumed that once I Greenwood I went on line that it would displace approximately 50% of the fuel and purchased power costs in exce:;s of the $28.91 per Nh of the Greenwood generating facility. In addition, it would appear that Mr. MacGregor was further assuming that the remaining 50% produced by the Greenwood plant would go to displace the power produced by Applicant's other generating facilities including Fermi 1 and Deiray. sequently, the Commission finds that the Attorney General's excep-tions are ithout merit and adopts the ALJ's recommendation relating to this issue.
Also, the Attorney General takes exceptions to the ALJ's adoption of the Staff's reconrnended base fuel costs in its fuel cost and purchased power calcu-lations. He criticizes the ALJ's adoption of the Staff's recommendation of 17.95 mills per bh to the extent that it constitutes 25.4% increase over the same cost and basing points in the most recent case, U-5502, wherein basing points are 12.40 mills for fuel and I.91 mills for purchased power, or a total of 14.31 mills per bh were established. His contention here is that such a huge increase in the basing points would, in essence, subvert the basic purpose of the 10% incentive factor in the fuel and purchased power clauses by turning that incentive factor j into a vehiclIfor Applicant to earn substantial profits on the fuel and purchased power adjustment. However, the evidence adduced on the record would indicate that the Staff's recommendation regarding its basing point is high as a result of the cost of fuel having increased significantly since the issuance of the Commission's O
Page 45 U-6006
order in Case No. U-5502. Therefore, the Consnission finds that the basing point l
reconsnendation adopted by the ALJ In his PFD is reasonable and the Attorney Gen-eral's exceptions thereto should be denied.
Finally, the Attorney General excepts to the ALJ's inclusion of $11,313,000 of fuel handling expense in the cost of fuel in determining Applicant's revgnue deficiency. His contention is that this category of expense had already been included by the Comission in the Other Operations and Maintenan:e (Other 0 & M)
Expense base. Further, he asserts that the Staff had double counted by adding this item to fuel and purchased power expense, while falling to remove the same item from Other 0 & M Expense base (54 Tr. 7853, 7768-7769, 7852-7853).
In the PFD, the ALJ proposes to resolve the problem of fuel handling expense, which appears in bot 5 the Staff's fuel and purchased power expense and its Other 0 & M Expense. However, if the Conunission adopted the ALJ's view. It would, in essence, be authorizing a double recovery on Other 0 & M for at least that period until Appilcant gets its 1981 annual Other 0 & M adjustment based on the National All Convnodity Consumer Price index (CPI).
Although there may be merit in handling the fuel handling expense outside of the Other 0 & M Expense, the Consnission looks to Applicant and the otner par-ties to propose a solution in a future case to avoid the double recovery issue and resolve the issue ralsed by the ALJ. The Conunission finds that the rerr. oval of the fuel handling expense, as proposed by the ALJ, from Other 0 & M Expense is not appropriate at this time. Further, the Conunission agrees with the Attor-ney General and finds that the ALJ erred in including $11,313,126 of fuel han-dling expense in the cost of fuel in determining Applicant's revenue deficiency.
In the PFD, the ALJ adopted the Staff's reconsnendation and excluded from the rate base the $10,829,000 which represented the combined balance of loans to Consolidation Coal Company and Eastern Associated Coal Corporation. Applicant pleads in the alternative that if the Consnission does follow that recommendation Page 46 O U-6006
an additional expense item must be allowed. To reflect the coal Investment ad-Justments to rate base and recognize the associated bearing of benefits and risks, the Comission finds with Appilcant that the benefit corresponding to the Consolidation Coal loan is 27c per ton (52 Tr. 7408-7409), and thus the fuel ex-pense should include an additional $532,000 to acknowledge this fact.
Production Maintenance Expense The Attorney General alleges that the ALJ erred in adopting a production 1
maintenence expense of $80,446,000 (excluding Greenwood 1) in lieu of production maintenance of'S74,928,000 (sxcluding Greenwood 1) as proposed by its witness Kumar. In this regard there appears to be two basic issues: (1) Should the bud-geted amount of $2,810,000 for four categories of " production maintenance expense" not included under the category of " production maintenance expense" In the Com-mission's order in Case No. U-5502 be allowed in this case 7 and, (2) should Ap-plicant's estimated " power system operations" production mainta 'cc expense in the amount of $78,928,000 for 1979 be reduced by $4 million, or should the Staff's slightly lower production maintenance expense recomendation be reduced by ap-proximately $3 million?
It is the Attorney General's contention that the total amount of $2.810,000, which represents the total amount of four additional categories of " production maintenance expense," should not be allowed under the category of production j maintenance expense inasmuch as the Commission's order in Case No. U-5502 did t
not include these four additional categories under the category of " production maintenance expense." It would appear from the record (52 Tr. 7426; 57 Tr. 8334-8335) this contention has been effectively refuted. Mr. Grove testified that in Case No. U-5502 the " production maintenance expense" amount submitted by Appli-cant's witness, Mr. Whiddon, did not include all items properly included in that category under the Commission's Uniform System of Accounts. It would appear that O Page 47 U-6006
in Case No. U-5502 Applicant included only the principal production maintenance expenses in power system operation and not these four other categories. However, that would not prevent Applicant from presenting full production maintenance ex-penses in this case so long as it was done in conformity with the Uniform System of Accounts. Consequently, the Consnission finds that the $2,810,000 for tie four categories in question are properly includable as production maintenance expense and will therefore be allowed. With respect to the second issue, the ALJ in the PFD found " clear and convincing evidence" as to the actual production and main-tenance expense to be expected during 1979 He noted that Applicant is in the process of converting its coal fired units to burn low sulphur coal and histori-l cally such a conversion usually occasions considerable maintenance expense. Fur-ther, the ALJ Indicated that Appilcant's increased maintenance expenditures in the recent years have resulted in an increased reliability of its units which, ultimately, inure to the benefit of the ratepayers because replacement pcmer costs and future construccion costs are thereby minimized.
The Attorney General argues that Applicant traditionally overestimates its power system operation maintenance expense. However, there is substantial evi-dence on the record which Indicates that Appilcant's production maintenance expense was $20,164,000, for the first quarter of 1979, which is only $141,000 under its present budget. This amount seems very reasonable to the Conunissloc and for the aforementioned reasons the Conunission finds that the proposed reduc-tion by the Attorney General of $3 million to $4 million would be inappropriate.
Pennwalt takes exception to the ALJ's finding that the appropriate produc-tion maintenance expense applicable to it is $1,449,000. Pennwalt argues that
$1,242,000 is the appropriate production maintenande expense because this is the amount of Pennwalt's contribution to power systems operations presented by Appilcant's witness Mr. Maylen. Pennwalt argues that the remaining production maintenance functions applicable to it were included in the Other 0 & M expense Page 48 U-6006
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beso cstchlish d in C3s3 No. U-5502 cnd, therefore, are appropriately included in the Other 0 & M.
O The Corrrnission has already found that the ALJ properly concluded that pro-1 duction maintenance expenses must include all components of production mainten-ance expenses, not just power systems operation. Therefore, the Commission finds that Pennwalt's claimed production maintenance expense of $1,242,000 is incorrect since it only includes a power systems operation component.
In the alternative, Pennwalt suggests that the total amount of production maintenance allocable to the Peanwalt power plant should not be er.sre than
$1,286,000 if the other four components of production maintenance expense were not included in the Other 0 & M base.
The Staff originally supported Applicant's $1,449,000 amount for Pennwalt's production maintenance expense but now supports Pennwalt's alternative amount of l
$1,286,000, because it is more reflective of the expenses associated with Penn-walt's industrial power plant.
O The AL; feued that the testimoev ef ^PPiicant's witness. Mr. Jesse wriuins.
not Mr. Maylen, is controlling concerning the cost of service to be used in t
determining Pennwalt's rates.
The Commission adopts the findings of the ALJ that Mr. Maylen's figures are not correct and do not produce the appropriate production maintenance expenses for Pennwalt, and that the appropriate production maintenance expenses applicable
{ to Pennwalt is $1,449,000, as presented by Mr. Wilkins.
Other Operations and Maintenance Expense Applicant, the Attorney General, Citizens Lobby and PIRGIM have als filed V
exceptions to various portions of the ALJ's findings relating to Other o t, M l expense.
In its final order in Case No. U-5502, the Commission adopted an indexing O Pae. as U-6006
system under which 0 & M expenses, excluding fuel expense, purchased power ex-pense and production maintenance expense would be increased each year from an estimated base in accordance with the increase in the CPI, estabilshed at Decem-ber hearings in each year. In that order, the Commission established a jurisdic-tional electric Other 0 & M expense base for 1978 of $249,090,000. Thus , 'al~co rd-Ing to the system so established, Other 0 & M expenses would not be individually determined in future rate cases but would be ratioed upward from the base established utilizing the cpl. However, the Commission recogni:ed that changes to its system might be subsequently proposed and stated on this matter as follows:
"Although the Commission cannot under the governing statutes absolutely preclude Applicant from requesting a rate increase, the Consnission FINDS that if Applicant requests a rate increase for increased 'Other 0 & M' expenses beyond that which would occur automatically while the indexing system is in effect, Applicant should have a substantial burden of showing the necessity or such an increase. If Applicant enjoys the benefits of the indexing system, it is only equitable that it be required also to bear the burdens.
However, the Commission FINDS that the indexing system established by this order should be subject to alteration on application of Appitcant or suggestion of the Staff or intervening parties. It would nct be in the public interest to freeze the systems so adjustments could not be made. Tne Commission is establishing a new progra,a. In most new programs there are ' bugs' which must be eliminated to make the program work properly, in addition, the long-run futura is uncertain. The Cournission simply must have the flexibility to deal directly with unanticipated serious problems.
However, where Applicant requests a change in the indexing system, Applicant will have a heavy burden to demonstrate the necess!ty of the change." (Pages 129-130, Emphasis addedJ in this proceeding, Applicant, in its direct case, sought an increase in Other 0 & M expenses beyond the approximately $272 olllion amount which would automatically accrue under the Other 0 & M system established in Case No. U-55C2.
Applicant in its direct case presentation originally sought, on a total company basis, Other 0 & M expenses of $322,491,000, which amount it subsequently modi-fled to $309,619,000, or a jurisdictional amount of $305,284,000, by removal of fuel hand!!ng expenses of $12,872,000.
g Page 50 U-6006
l Applicant takes exception with the ALJ's recommendation that the Other 0 & M expense base be increased from $249,090,000 to $280,598,000, basically adopting the Staff's recommendation. However, Applicant believes that the Other 0 & M expense base should not be limited to the two upward adjustments recommended by the Staff. Applicant s position is that the 1978 base of $249,090,000 should be 8
factored up to reflect the fact that 1978 sales were 101.61% of 1977 sales.
Applicant's position is that, in order to be consistent with the Staff's ap-proach, an additional upward adjustment is necessary and would result in an Other 0 & M base for metered electric jurisdictional sales of $277,895,000. When steam Other 0 & M expense plus monthly meter read is added in, and fuel handling expense and the employee attitude survey is deducted, the result is $280,865,000. Ap-plicant contends that this results in an increase of $915.000 when the unit cost is multiplied by the 1979 estimated sales. The unit cost approach is the approach recommended by Staff witness Abramson and adopted by the ALJ in the PFD.
In addition, Applicant urges that the Other 0 & M expense base be increased O in accordance with its proposals. In the PFD, the ALJ blanketly rejected Appli-cant's three alternative proposals because: (1) Aoplicant has had the benefits from the Commission's January 1979 order authorizing monthly recovery of the projected 1979 increase in Other 0 & M expense calculated from the percentage increase in CPI and the 1976 Conunission established base; (2) Applicant's man-agement should be subject to " pressures for economy;" (3) Applicant's projected employee cost increases are overstated; (4) Applicant's contract labor expense is significantly increasing; and (5) Appilcant has not met the burden of proof imposed upon it.
With reTpect to reason (1) given above, Appilcant states that because the 1978 other 0 & M expense base of $249,090,000 (without steam) was calculated from the depressed 10 months of 1977 data, it will continually be deprived of the necessary expense recovery because the base continues to be unrealistically low.
Page 51 U-6006 l
As to the second reason stated above Applicant argues that it should be entitled to a fair opportunity to achievs reasonable or proper earnings. Applicant sub-mits that artificially creating pressure on management by serieusly understating the level of expenses is not a fair anc' equitable regulating practice. In its
~
exceptiontoreason(3)statedabove,Appilcantbelievesthatthecontent5nthat its projected employee expenses are overstated is completely obviated as a valid argument if the 1978 actual data is adopted. in response to reason (4) set out above, Applicant relles on the testimony of its witness Mr. Maylen and Mr. Bernard who testified that the contract labor expense will increase because of the constraint on employee hiring. And, finally, with respect to reason (5) set above, A;,plicant argues that the AL?s finding that AppIIcant has not met the necessary burden of proof is conclusionary.
Addressing Applicant's proposal to make further adjustments to those recom-mended by the Staff and adopted by the ALJ in this PFD, the Commission finds that said adjustments are improper inasmuch as the Commission is rejecting the ALJ's and the Staf f's recommendation as more fully discussed, Infra, herein.
Finally, addressing Applicant's second set of objections regarding the ALJ's findings which, in effect, rejected all three alternative proposals put forth by Applicant, the Commission has reviewed the record and finds that the ALJ acted reasonably in rejecting Applicant's alternative proposals. Applicant was a party to the proceedings in Case No. U-5502 and, as such, was on notice as to what the projections were. The purpose of Initiating the procedure whereby AppIIcant could, on a yearly basis, petition for an increase in its Other 0 & M expenses have been previously set out herein. It was management's choice to exceed the projections which were not objected to when made and now Applicant will have to live with the decision % . operate within the projected figures. Therefore, the Connission adopts the reconnendation of the ALJ to reject Applicant's Other 0 & M expense proposals.
Page 52 h U-6006'
Th2 Attarney Gznsral cxc pts to tha ALJ's adoption cf tha Othsr 0 & M expense base of $280,598,000 before the removal of $4,414,000 of fuel handling expense in lieu of what he concludes to be the proner base of $272,075,000. That figure is reached based on the following calculations:
Jurisdictional Other 0 & M Base (1978) $249,090,000 Miscellaneous Steam Customer Other 0 & M Base (1978) 3,016,000 7.86% increase in Jurisdictional Electric Base (1979) 19.578,000 7.86% increase in Miscellaneous Steam Base (1979) 237,000 Jefferson Steam Line Other 0 & M Expense (1979), Exhibit A-160, Schedule 1, Line 3 154,000 1979 Other 0 & M Expense Base Per U-5502 Methodology $272,075,000 Before fully addressing the Attorney General's argument here it is necessary to digress momentarily and discuss the Staff's recommendation which was ultimately adopted by the ALJ. In the Staff's direct case presentation, Staff witness Abramson recomended the rejection of Appilcant's direct case proposal but pro-posed a change in the Other 0 & M system which would provide for a slight increase in the Other 0 & M base. Specifically, Mr. Abramson proposed converting the Other O & M expenses determined in Case No. U-5502 to a unit cost of 7.06 mills per bh based on actual 1978 bh sales. To that unit cost, Mr. Abramson next added the CPI adjustment of .53 mill authorized by the Comission in its January 1979 order.
Mr. Abramson then recomended the resulting 7.59 mills unit cost be applied to the estimated 1979 jurisdictional metered sales volume to establish 1979 Other 0 & M axpense levels exclusive of Other 0 & M expenses related to steam sales and special program changes such as the monthly meter reading proposal. Next, Mr. Abramson took Mr. Car 19Bn's sales forecasts of 35,950.2 million bh and multiplied this by his 7.59 mills per bh and arrived at $272,862,000 for electric Other 0 & M ex-pense for 1979 To that amount, Mr. Abramson added Staff witness Berquist's steam Other 0 & M amount of $3,455,000 and $4,281,000 for Applicant's proposed monthly Page 53 U-6006
motor recding program. Mr. Abrams:n's resulting tstel jurisdictienal Other 0 & M expense of $280,598.000 was ultimately adopted by the ALJ In his PFD.
The Commission finds that the Staff's proposal, while creative, places too O much weight on the assumption that all costs embodied in the Other 0 & M category are variable in nature. Appilcant's witness Grove and the Attorney General's i
witness Kumar contend that these costs were fixed in nature; that is, not variable ;
with energy output. Therefore, the Comission rejects the ALJ's proposed modi fi-cations to the Other 0 & M system at this time. The Commission believes that fur-ther study should be made of the fixed or variable nature of these costs before making such a revision to the indexing system. Finally, the Commission finds that the ALJ crred in recommending adoption of the Staff's modification of the Other 0 & M system. However, for reasons to be discussed, infra, the Comission does not find that the proper base, as recommended by the Attorney General, should be
$272,075,000.
Citizens Lobby has three basic exceptions to the ALJ's findings regarding Other 0 & M expenses. It excepts to the ALJ's failure: (1) To reject Appl l-cant's Other 0 & M expense case on the grounds that the Commission lacks Jurls-diction over the request because Applicant failed to comply with the governing statute and that Applicant failed to sustain its heavy burden in proving its case for the requer 6; (2) to clarify the Commission's " heavy burden of proof" 0 & M test; and (3) to exclude the monthly meter reading program from Other 0 & M expense. PIRO*M Joins "it izens Lobby in excepting to the ALJ's inclusion of the monthly meter reading expense in the Other 0 & M base.
I First addressing Citizens Lobby's contention that the Commission lacks l
Jurisdiction over Applicant's Other 0 & M expense base increase request because Applicant failed to comply with the governing statutes, the Comission has re-viewed the statute as well as the filings herein. It is Citizens Lobby's con-tantion that because Applicant did not put the parties on notice in its initial filing that it would be requesting an increase in its Other 0 & M base, the Page 54 .
g U-6006
rGsult is a violction of the due process clause of the Michigan and Federal con-stitutions, in this regard, it is to be noted that due process has been afforded O once Applicant has complied with the notice requirements pursuant to the Commis-sion's Rules and the Administrative Procedures Act. After a review of Applicant's filing, the Commission finds that the notice herein is legally sufficient because all of the parties were on notice as to Applicant's request for a rate increase and the amount thereof. To the extent that particulars are omitted or not speci-fled therein, opposing parties have the discovery mechanism available to them.
Consequently, the Commission must reject Citizens Lobby's argument and finds that it does in fact have jurisdiction over Applicant's request for an increase in its Other 0 & M expents base.
Citizens Lobby also excepts to the ALJ's failure to provide clarification of i the. Commission's " heavy burden of proof" 0 & M test. Citizens Lobby argues that Michigan law requires " clear and convincing" evidence in order to meet a burden of proof which is more than a preponderance, yet less than "beyond a reasonable doubt." In support of this position Citizens Lobby cites Rehn vs Booth, 299 Mich 313 (1941) and Hornbeck vs Mid-West Realty Inc., 287 Mich 230 (1938). The Com-mission agrees that the parties are entitled to more specificity regarding what it was requiring when it set out its " heavy burden of proof" test in Case No.
U-5502. However, the Commission chooses to avoid tricky catch phrasts such as "clea and convincing" which, in many Instances, does not provide the clarity desired here. The requirement for meeting the " heavy burden of proof" test is basically twofold. On the one hand, it is required that Applicant adduce evidence l on the record which is substantially more persuasive thin that normally required to prove othes-aspects of its case. On the other hand, Applicant may urge changes in the Other 0 & M indexing base which are based on policy matters which are with-In the discretion of the Commission to decI#e. All of the previously ennumerated rejections of Applicant, the Staff and the ALJ's recommendation regarding changes O Page 55 1 U-M0 '
in the Oth2r 0 & M bsso up to this point hiva bxn mada es a rcsult of tha ~ fail-ure of the aforementioned to produce the substantial kinds of evidence to warrant the changes request.ed.
Both Citizens Lobby and PIRGIM take exception to the ALJ's recommendation of including $4,281,000 for Applicant's proposed monthly meter reading program.
PIRGIM argues that such a program is not justified according- to the evidenIe adduced on the record. Alternatively, PIRGIM argues, even if it is justified, because of Applicant's inability to accurately estimate sales as a result of the purchased power clause, the solution would be to eliminate the fuel adjustment clause altogether. Citizens Lobby argues, similarly, that neither Applicant nor i
the Staff have performed any studies to support the inclusion of a monthly meter ;
reading program in the Other 0 & M base. Further, Citizens Lobby argues that the shareholders should bear the full cost of the program. While the evidence adduced on the record may not justify a monthly meter reading program pursuant to the first part of the "Meavy burden of proof ' test, the Commission finds that as a rr.:tterofsoundpubkicpolicysuchaprogramiswarrantedhere. Electric ut!!ity rates are rising significantly because of increased costs and the ratepayers arc constantly complaining about estimated bills. Consequently, the Commission'be-lleves that Applicant's residential customers are entitled to the same measure ci accuracy as is currently afforded to Applicant's industrial customers as well as the majority of other ratepayers in the State. Indeed, at the public hearings held in Detroit and Farmington Hills in February of 1979, prior to the formal hearings in this proceeding, the Corrrnission heard these complaints repeatedly.
For all of the reasons ennumerated above, the Commission finds that the monthly meter reading program, which was not taken into account at the time Apolicant's Other 0 & M base was set, should be included as part of Appilcant's Oth(- 0&M expenses. Further, the Commission finds that Other 0 & M expense base of
$276,356,000 ($272,075,000 plus $4,281,000) is reasonable and appropriate here.
Page 56
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l In addition, the Comission finds that 120 days after the entry of this order is a reasonable time to allow Applicant to initiate su-h a program.
General Advertising Expense The Attorney General takes exception with the ALJ's refusal to reduce the Other 0 & M expense base by $267,000 to remove advertising expenses which he claims to be improper. The ALJ found in the PFD that the Attorney General's proposal should be disallowed for the reason that the Attorney General's asser-tion in this regard is unsubstantiated and conclusionary. It is to be noted that I
the Attorney General, in his Exceptions and in his brief by way of incorporation, merely makes the statement that the expenses were improper based solely on his l 1
assertion to that effect. He does not with any specificity Indicate the basis for his conclusion. Therefore, the Commission finds that the proposal of the Attorney General to exclude $267,000 of advertising expenses from Appilcant's Other 0 & M expense base to be unwcrranted. Further, the Comission finds that, based upon the evidence submitted in this case, such an expense is reasonable.
Edison Electric Institute Dues l
The Attorney General takes exception to the ALJ's finding which rejected the l l
Attorney General's proposal to reduce the Edison Electric Institute dues by 50%.
In support of that proposal, the Attorney General claims that the Edison Electric Institute refuses to provide a breakdown of how it spends its money and that in recent years Edison Electric Institute has increased the number of its lobbyists from 3 to 31.
In the PFD, the ALJ points out that the number of lobbyists does not justify increasingnei'operatingincome. Further, it would appear from the record that the Attorney General's witness, Kumar attentpted direct contact with the Edison Electric Institute for the purpose of securing that Information. It is signifi-cant to note that there was no discovery request made by the Attorney General of Page 57 U-6006
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Applicant in th9t regard. Consequently, the Comission finds that the Attorney General's proposed adjustment must be rejected.
Atomic industrial Forum Ques The Attorney General takes exception to the ALJ's rejection of his proposal to reduce net operating income by $37,000 which represents the amount of dbes that Appilcant pays to the Atomic Industrial Forum for the reason that such organ-Ization is primarily a lobbying organization. There is no evidence adduced on the re.:ord to substantiate that claim. In any event, even if there were, the Attorrie; General has not shown that the ratepayers do not benefit from the ef forts of such an organization. Consequently, the Commission finds that this proposed adjustment by the Attorney General should also be rejected.
Management Efficiency Review Applicant takes exception with the ALJ's findings which recomends a $249,000 allowance for a management efficiency review study performed by the Theocore Barry Company. Applicant claims that the ALJ divided that amount by the 1.836 tax fac-ter to arrive at the net operating income adjustment of $131,000 shown on page 81
_ of the PFD. Applicant further Indicates that the gross cost of the study was
$500,000 which reflects a net jurisdictional after tax amount of $249,000. Tne Staff's position is in accord with the PFD but the Staff indicates that the amount should be amortized over a period of time to ensure that the adjustment i s, not recovered twice should it be over one year before Applicant flies another ra'.e Case.
In addition, the Attorney General takes exception with the ALJ's finding ir this regard and incorporates its reasons therefor in its brief (pages 39 through l
41). He argues that this is a nonrecurring expenditure which is also out of pe-riod. The management efficiency review was performed pursuant to the Commission's order in Case No. U-4807 (March 30,1976). However, to grant Applicant its Page 58 U-6006
- rc'qu ,st hera would be tentamount to rotrccctiva rotemaking and the Commiss!cn finds that the inclusion of the management efficiency review study adjustment l to its net operating income would be Improper.
Depreciation t
Applicant takes exception to the ALJ's adoption of a $131,793,000 deprecia,-
I
(
tion expense proposed by the Staff (Exhibit S-123). Applicant's position is that the depreciation expense should be increased by $1,630,000 to $133,423,000.
Applicant's depreciation expense is indicated to be $127,882,000; the Staff's depreciation amount is shown as $131,793,000; and the Attorney General's depre-clation amount is shown to be $127,133,000. Although Applicant's depreciation expense is indicated to be lower than the Staff's, it is to be noted that the l Staff's depreciation amount includes Fermi lil amortization, ice storm damage l
amortization and Greenwood I deprecletion which Applicant reflects as separate items in its presentation.
To develop its depreciation expense, Applicant utilized a composite depre-
! clation rate of 3.22% and the Staf f used a composite rate of 3 17%. During the rebuttal phase of the proceeding, Applicant's witness Locher claimed that the Staff should have utilized a 3 21% composite rate rather than its 317% composite rate and, as a result, the, Staf f's depreciation amount should have been $133,423,000.
Mr. Locher claims that a 3 21% composite depreciation rate was more appropriate i because, if the currently approved depreciation had been in effect for all of 1978 it would have produced a composite 3 20% rate, and that the changing nature of plant-in-service as of year-end 1978 would have Increased the composite rate from 3.20% to 3.22%.
Further p plicant indicated that it is undisputed that the Staff's compos-l ite depreciation rate of 3.17% was bs sed upon old, and now amended, depreciation rates for various accounts. Applicant urges, conservatively, that the appropri- '
ate rate for test year 1979 is 3 21%. In its brief, the Staff argued that the O aae ss U-6006
differenca betwe:n the prepos d d:prcciaticn rates is too smsll to be measured by ~
any degree of accuracy. The ALJ agreed with the Staff's position and found that using 1978 actual results to estimate 1979 plant balances was in accord with con- I sistent policy.
The Commission finds that Applicant's figures, based on the testimony of its witness, Mr. Loeher, are more sound because they are based on data which is more current. Therefore, the Commission finds that the ALJ's recommendation should be rejected and determines that depreciation expense in the amount of $133,385,000, as proposed by Applicant, is reasonable and should be adopted, and the deprecia-tion reserve will be adjusted to 5978,955.000.
i Allowance for Funds Used During Construction (AFUDC)
The Attorney General takes exception with the ALJ's adoption of the Staff's recommendation regarding the AFUDC income in the amount of $70,151,000 as coposed to the greater amount proposed by Applicant and the Attorney General. In Exhibit '
A-ll, page 3, Applicant shows that its AFUDC amount is $75,509,000 based on its previously prevailing 8% AFUDC rate. To adjust for the fact that it is now using an 8 1/2% AFUDC rate, Applicant made an adjustment reducing its revenue deficien:-
by $8,498,000 as shown on Exhibit A-22, page 2.
The Staff, howeve , reflects an AFUDC amount of $70,151.000 which is devel-oped by accepting Applicant's amount and adjusting it by the Staff's different allocation factors. The Attorney General, through its witness Kumar, adopted Applicant's AFUDC amount of 575,509,000 and then nude two adjustments. Those adjustments are the subject of the Attorney General's exceptions herein.
First, the Attorney General indicates that the currer.t amount of AFUDC income is $103,447,000 (calculated in the manner set forth on page 78 of the PFD). He asserts that the proper rate should be not less than 92, which is a figure less than Applicant's authorized rate of return; less than that calculated pursuant to FERC Order No. 561 which shows that the proper rate is 9.87% (Exhibit 1-27); and Page 60 U-6006
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l th2 same rate currently being ussd by Michigan Consolidated Gas Company.
Second, the Attorney General asserts that the proper AFUDC rate should be applie'd to all of the Construction Work in Progress (CWIP) Instead of caly 82%
i as proposed by Applicant and subsequently adopted by the ALJ In his PFD. The Attorney General argues that by allowing Applicant to exclude 18% of its construc-tion from the recording of interest during construction, the Commission would be permitting Applicant to include 18% of its CWlP in the rate case, without off-setting interest during construction. The net effect would be to compel today's atepayer to pay for future plant to the tune of approximately $20 million.
The ALJ's justification for the use of the 81/2% AFUDC rate proposed by Appilcant, as well as the exclusion of 18% of its CWIP, is set forth in the PFD at pages 79 and 80. Quoting from Case No. U-5108 he states the following:
"For this proceeding, it is sufficient to observe that the basic premise of the Commission's existing CWIP-AFUDC policy is that the ability of Applicant to provide reliable service at the lowest reasonable cost now and in the immediate future depends in part on the vitality of Applicant as a O going concern. Applicant's strength in turn depends upon its ability to maintain existing operations while simultaneously undertaking a large-scale construction program to provide sufficient generating facilities for the future. The present and the future are not discrete categories, but exist on a fundamentally indivisible continuum. The payment made by the ratepayers because of the difference between the return on CWIP and the AFUDC offset has some attributes of a contri-bution in aid of construction, whatever the peculiarities in the method of determining the amount of the payment. The pay-ment should enable Applicant to acquire more capital at a lower rate, and should reduce somewhat other demands on the ratepayer I
relative to the raising of capital. Furthermore, the Commission believes that in the area of utility finance, as in the areas of the environment and conservation, the present does have an
' obligation to the future. The contribution made by the present customers on account of the CWIP-AFUDC differential is a limited contribution by the present ratepayers to ensure that they and those who follow them will have a reliable and adequate supply ofTlectric energy at the lowest reasonable cost in the future."
(Page 41, Emphasis added)
In Applicant's last general rate case, U-5502, the Conunission affirmed the po1 Icy set forth in Case No. U-5108.
The Commission agrees with the ALJ's position that it presently has before O Page 61 U-6006
It Case No. U-5281, the generic hearing covering the treatment of AFUDC and CWIP.
If the Commission in Case No. U-5281, prior to the issuance of an order in these proceedings, changes its AFUDC position ennunciated in Case No. U-5108, it would then be appropriate for such changes to be implemented in this proceeding. How-ever, the Commission is not persuaded by the Attorney General's rationale'and finds that the ws!ght of the evidence, as well as prior Commission policy, sup-ports the recommendation of the ALJ in this regard, and the Commission finds this to be reasonable and appropriate.
Pro Forma Tax Savings Applicant takes exception to the ALJ's pro forma tax savings in the amount of $2,486,000. Applicant argues that the jurisdictional rate base at page 89 of the PFD is not consistent with the jurisdictional rate base at page 29 of the PFD.
However, the Commission has made moot these adjustments in its treatment of JOITC discussed in the Rate of Return section, supra. The pro forma tax savings adjustment is based on the amount of a atility's rate base and the weighted cost of debt. Therefore, based on the previous determination made as to the rate base and the cost of debt, the Commission finds the pro forma tax savings is $209.000.
The adjustment is determined by means of the following calculations:
Rate Base $4,370,113,000 Weighted Cost of Debt 3.85%
imputed interest $ 168,249,000 Projected Book Interest $ 167,794,000 1
Additional Interest S 455,000 Tax Effect at 46% $ 209,000 Summary in accordance with the previous determinations, the Comission finds that Applicant's adjusted net operating income is $334,234,000 and is derived as Page 62 O U-6006 e
fallows:
Revenues $1,653,395,000 Expenses:
Fuel & Purchased Power $726.533,0C0 Production Maintenance 79,274,000 other 0 & M 276,356,000 Depreciation 133,355,000 General Taxes 99,462.000 Income Taxes 74,643,000 Total Expenses 1,389,653,000 i Net Operating Income 263,742,000 Adjust ents:
AFU0C $ 70.151,000 Pro For:.a Tax Savings 209.000 E:cployee Attituce Survey 132,000 Total Adjustnents 70,492,C00 Adjusted Met Operating incoee 5 331,234,000 Vill.
REVEvJE DEFICIENCY Greenwood I l
The Attorney General takes exce:tica to the A.' J's reconrendation wnich in-cluded the Greenwoce 1 oil-fired plant in the cost of service and rate base, and in refusing to take notice of and consider the record rade in prior cases ccm-cerning the propriety of suen plant. The arcunt of this adjustment would.
according to the Attorney General's aitness Kumar, is $33,302,0% , utilizing a
- formulistic werking capital, or 531.S37,000, using a balance sheet werking capi-tal. The Attorney General bases his proposed adjustment on tw grown.ds
- First, Greenwood I is not economic and therefore never should have been constru: tee and, second, Greenwood I's capacity is not needed to serve Applicant's customers.
V To support his claim of econostic unjustifiability, the Attorney General i
states that the variable cost of Greenwood I production is $29 39 per Pwn, dich Page 63
. U-6006 i
i
,,,. r- - - - . . . , , , . . , - - - - , , - - , , - - - - . - - . , - - - - - - - - - - - - - . - .
compares unfavorably with short-term power costs, which can be purchased from Ontario Hydro at an average cost of $25 50 per Hwh. The effect of the differ- $ l ence, so claims ti.e Attorney General, is to charge AppIIcant's ratepayers an l
additional annual cost of $12,096,000. The Attorney General further states that when the fixed costs of Greenwood I of $66,826,000 annually, or $21.49 per Nh, are considered, this results in a total annual cost of Greenwood 1 power being
$78,922,000 greater than the cost of purchased power. Finally, the Attorney General states that the Greenwood I plant was conceived as an oil generating plant in 1970 at a time when the difference between oil and coal prices was con-siderably less than It is at present. Since that time oil prices have consider-ably increased so that the disparity between oil and coal prices far outweighs any capital cost savings of an all-fired generating unit.
The Attorney General supports his claim that Greenwood I capacity is not needed because Applicant has removed from operations approximately 300 Ns of capacity at its Delray low pressure and Fermi i plant and has delayed and deferrec completion of its Belle River coal-fired plants. In addition, the Attorney Gen- e
~
eral claims that because the Michigan Power Pool has a high load factor, it has no need for an intermediate unit such as Greenwood 1.
The Commission finds that the Attortsey General's proposed Greenwood I revenue deficiency adjustment should not be adopted. That conclusion is justified en several different grounds.
An optimum generation system requires a combination of base load, peaking and intermediate or cycling units. Applicant's intermediate generation has beer, provided by old coal-fired units which are approaching retirement age and thus Greenwood 1 is necessary to replace AppIIcant's aging intermediate capacity.
In addition, Applicant needs the additional capacity provided by the 800 Ns of its Greenwood 1 unit because without that capacity the reserves of both Appli-cant and the Michigan Power Pool, composed of Applicant and Consumers Power Company, Page 64 I U-6006 l
l l
, would ba insufficicnt. Stoff witnsss Kennsth Cray testificd thSt th3 combin2d systems of Appilcant and Consumers Power Company should have reserves under pres-() ent conditions of at least 25%. However, as testified to by Applicant's witness Williams, Applicant's reserves will drop to 17 3% in 1979 and to 12.8% in 1980 without Greenwood 1. Similarly, Mr. Croy testified that, without Greenwood I, the Michigan Power Pool reserves will be only 19.4% in 1979 and 15.3% in 1980.
When the decision was made to restart Greenwood I construction in 1977, it was Applicant's only unit under construction that could have been completed in time to meet Applicant's 1979 and 1980 reserve requirements.
Related to the capacity benefits Greenwood I will provide is the fact that, as an oil generating unit, it will have greater availability the either coal or nuclear powered units. That occurs because oil units do not have the coal han-dling or environmental problems that exist with coal-fired units and because oil units' availability are not affected by the very stringent safety require-ments that tend to Ilmit the availability of nuclear units.
() Applicant's Greenwood I unit also has the advantage of providing Appilcant with a needed diversity of fuel mix. Applicant's current capacity is 84% coal-fired, and thus Greenwood 1 can help serve to alleviate the effects of a prolonged coal strike recently experienced by Applicant. To make certain that it has suf-ficient fuel for Greenwcod 1, Applicant has obtained a long-term contract for oil from Sun Oil of Canada. Although it is recognized as a general proposition that oil availability has become a problem in on,> Country, it is to be noted that l
Greenwood 1 uses residual oil, a petroleum product which has few competing demands.
i Nowever, if for reasons of national policy, price or availability, it is deter-mined that oBF should not be burned at Greenwood I, that unit can be converted to burn gas at comparatively little cost of time or expense.
Another advantage provided by Greenwood 1 is that it will serve to reduce Applicant's reliance on purchased power. Heavy reliance on purchased power is l
l Ox- Page 65 l
U-6006 ;
1 i
l l
risky for two particular reasons: First, it makes Applicant and its customers rellant on the transmission capabilities of other utIIIttes generating and trans- h mitting power and, second, it is doubtful whether purchased power can be provided in the quantitiet needed by Applicant in the 1980's. As a major support of his Greenwood 1 "evenue adjustment, the Attorney General claimed that power could be obtained from Ontario Hydro. Yet the record Indicates that Ontario Hydro is significantly curtailing its production of new generating units. In addition, evidence of record raises serious question as to the availability of significant quantitles of purchased power from Applicant's American sources. Finally, it is to be noted that the problem of risk in relying too heavily on purchased power has been recognized by the Comission In its exclusion of long-term purchases from Applicant's purchased and interchange power clause.
The major thrust of the Attorney General's argument for his Greenwood I rev-enue deficiency adjustment was that Greenwood 1 is uneconomic. The evidence of record however, rebuts this claim. As testified to by Mr. Williams, Greenwood 1 will operate at a lesser cost than any capacity energy purchase that Applicant O can make in 1979 with the exception of Indianapolis Power and Light. Mr. Williar s also indicated that Greenwood I will have a lower operating cost than approxi-mately 1,800 Ns of Applicant's own generation and will have a lower cost than approximately 3,900 Ns of generation of the Michigan Power Pool, in addition.
I although Applicant's witness Falk testified that placing Greenwood 1 in commer-cial operation will save $810,000 in fuel costs, and the Attorney General as-sorts that this is a minor savings which does not Justify the expenditure on the i
Greenwood I plant, the Comission does not see fuel savings as the dominant issue here. Mr. Falk also testified that Greenwood l's April 1979 fuel cost of $29.40 per Nh compares quite favorably with power purchased from Ontario Hydro in March 1979 at prices between $34 a-d $35 per Nh and power purchased from American Electric Power which was as high as $55 to $65 per N h. Furthermore, the Attorney Page 66 U-6006
l l
General based his claim that Greenwood I was uneconomic by using outdated 1978
() costs of power from Ontarlo Hydro. No evidence was produced showing that such power can be purchased at these prices over the next three to four years.
A final point to be considered as to the economics of Greenwood 1 is the Attorney General's inclusion of fixed costs in determining whether or not a plant should be operated on economic considerations. That comparison is incorrect, however, since only variable costs should be considered in making such a deter-mination.
In the section of his brief concerning Greenwood 1, the Attorney General requests reversal of certain rulings made by the .g'.J on July 9,1979 and also requests that additional briefing time be permittsd so that the parties may argue l 7 l evidence contained in the record of Case No. U-5877. On July 9, 1979, the last day of hearings in this proceeding, the ALJ refused to incorporate into evidence considerable portions of the records of Cases Nos. U-5356, U-5640, U-5877 and U-5502. In addition, the ALJ denied the Attorney General's request to recall all of Applicant's witnesses who presented testinony concerning Greenwood I and denied his request to present additional evidence on Greenwood 1. As the Attor-ney General indicates, his request to incorporate those materials relates to a 1
transaction that took place on February 28, 1979 Because of the importance of this matter to this proceeding and the substantial effect that granting the Attorney General's request would have concerning the proceedings, it is appro-priate to refer to the record concerning this matter. The transcript shows as follows:
W Page 67 U-6006 O
"Mr. Anderson: Judge, I believe that completes my questions of '
Mr. Williams at this time, with two exceptions or reservations.
e e e l The second is that during the noon recess we had an off-the- !
record conference with the law Judge and Mr. Pierce for the '
company and Mr. Gordon for the staff and an agreement was reached in principle that evidence previously adduced in the company's prior three securities issuance cases, including the current pending case and the prior electric rate case, U-5502, relating to the subject of Mr. Williams' testimony, that is, the Greenwood plant and sales forecasts, could be incorporated by reference into this record af ter the parties had designated specifically what portions of those prior records they decided to incorporate, and I will make up such a list and submit it to the otner principal parties for their review, and I assume that we will be able to reach an agreement on that that is satisfactory to the law Judge.
Judge Hollenshead: When would you be able to make up such a list, Mr. Anderson? I am just concerned that this matter not be left hanging.
Mr. Anderson: I guess it would depend upon the urgency of the matter 4 I could do it within a day if it was important to do that within that time.
Mr. Pierce: your Honor, the request is Mr. Anderson's and we don't have any objection to it. The problem that we would have would be in responding to his request, if there are certain pages that he may want that we may like to have pages elsewhere in the transcript that deal with the issues that he would like to have covered, so there may be a problem in the company having some time to look over the pages if they are very specific in nature to determine whether there are other pages that we would like to have in addition to those so that the topic is covered.
Judge Hollenshead: I presume this thing could be accomplished not later than next Monday in any regard.
Mr. Anderson: I would think so, Judge. In the pending securities case of Detroit Edison, I believe we Just agreed that any of the parties could refer to any portion of the record in the prior securities case in the prior rate case on brief. It would seem to work out pretty well. Then no one could contend that evidence was being selectively included.
I understood that, at least at this time, the desire of Mr. Pierce and also the law Judge is to make the incorporation more limited and more specific than that.
Page 68 U-6006 Ol I
i l
1 l
1 l
" Judge Hollenshead: I want to know what we are talking about, Mr. Anderson, not just a wide open inclusion in this record.
These records get large enough as they are. Since it is my O responsibility for the record, I would like to know what we are dealing with here. I think if a stipulation can be reached on this matter, fine. I think it can be made part of
[ this record, but I would like to know what that stipulation is.
Also, as soon as the parties know what that stipulation would be that they have agreed to, I would Ilke it brought to my I attention, because I would like to check into this myself. Just because the parties may agree to something doesn't necessarily mean it should be approved or included in the record.
Mr. Gordon: I would object. The staff would wish to review any pages that they wish to incorporate in detail prior to any position, your Honor, before taking any position on this."
(7 Tr. 792-796)
Monday next was March 5, 1979 However, it was not until Thursday, July 5, 1979, that Mr. Anderson wrote a letter to the ALJ Identifying what specific evi-
, de ce he wished to have incorporated in this record and it was not until Friday, l
l y 6,1979, that Applicant was apprised of what material the Attorney General
() s ught to have incorporated in this record. On Monday, July 9, 1979, the ALJ rnquired on the record as to whether there was any objection to inclusion in the l
record of the Attorney General's requested material. Applicant responded that it did in fact object to inclusion in the record of the material. Af ter permi t-ting argument on the matter, the ALJ denied the Attorney General's request, as well as his subsequent motions to recall Appilcant's witnesses and to present additional testimony.
Af ter due consideration of this matter, the Commission affirms the ALJ in his July 9,1979 rulings, and denies the Attorney General's request for additional briefing sch_edule to allow for argument of evidence contained in Case No. U-5877.
w The Attorney General's request for incorporation into the record of his material was extremely untimely. At no time did the Attorney General ask to have the March 5,1979 deadline extended nor did the Attorney General present any justi-() fiable reason for his inordinate delay.
Page 69 U-6006
Conclusion The Commission finds that Applicant will have a 1979 revenue deficiency in the amount of $132,722,000, calculated as follows:
Projected 1979 Revenue Deficiency Rate Base $4,370,113,000 Rate of Return 9.25%
Required Net Operating income $ 404.235,000 Adjusted Net Operating income 5 334,234,000 income DefIclency $ 70,001.000 Gross Revenue Conversion Factor. l.896 Revenue Deficiency $ 132,722,000 IX.
COST OF SERVICE l
The Staff takes exception to the ALJ's failure to adopt the Staff's proposed cost of service methodology of allocating 75% of fixed production and transmission costs on the basis of the customer class contribution to the 12 monthly system peaks, and allocation of 25% of costs on the basis of energy.
The ALJ found that this methodology should be rejected. The ALJ found that
{
( energy considerations are not the important determination for type and sizing transmission and transmission plants. Production and transmission plants, he contends are sized to meet the maximum demands imposed on them, not the amount of energy that flows through them over the course of a period of time. He further found that investment in production and transmission plants is demand related and not energy related. As a further reason for the rejection of the Staff's 75-25 modification plan, the ALJ stated that he believed the Staff's position i
served to be most beneficial to the customer class having the lowest load facter.
The commercial class with its high air conditioning load is benefited by the l Page 70 i U-6006 l
'Steff's methodology, ha Essarts, whereas, on th2 othar hrnd
. , tha Staff's meth:d-ology increases the assignment of demand related cost to the domestic street-lighting, primary, bulk power and industrial power plant classes. Also, the ALJ felt that the Staff's methodology produces income instability by allocating fixed costs on the basis of energy consumption. Finally, the ALJ contends that the Staff's methodology reduces the incentive provided by the valley hour pro-vision in the industrial rates.
As indicated by the ALJ in his PFD, the Comission has followed the Staff's 75-25 methodology for some time. The rationale has been, and continues to be, that energy considerations cannot be ignored in the determination for type and i
sizing of production and transmission plant. The Commission is not persuaded that it should retreat from this longstanding assumption (set forth in more de-tall in U-5502, p. 53), and therefore finds that the Staff's allocation method is reasonable and appropriate.
X.
MISCELLANEOUS AND OTHER REVENUE RELATED MATTERS System Availability Plan Modification The Attorney General excepts to the ALJ's finding which adopted revisions in the system availability incentive plan. It is the Attorney General's conten-tion that the plan should be abolished or, alternatively, the existing plan be retained. This plan is described very well in the PFD.
Proposed modifications to Applicant's system availability plan were pre-sented by Staff witness William Cello. Those modifications, which are set forth in Exhibit S-NJ2, would " fine tune" the ranges of the plan and would also incor-porate the use of a periodic factor of 7% in the plan's calculations. If both of his proposed modifications are adopted, Mr. Cello requested that they apply to data beginning the first full calendar year subsequent to an order in this l Page 71 U-6006 '
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case. ,
The Attorney General bases his exception on the proposition that the adop-tion of the ALJ's reconsnendation would: (1) Increase the bonus to Applicant for achieving prescribed levels of availability by up to 60% (from .25 percentage points to .40 percentage points), without any Justification shown for such action; and (2) remove the incentive for Applicant to complete its' planned maintenance with (* Mh as a result of the elimination of planned outages from chargeable down time. That, the Attorney General argues, would Introduce unnecessary com-plexity, and lapose additional severe auditing burdens upon the Staff.
The Consnission, after having reviewed the arguments of the Attorney General and the rationale of the ALJ, finds that the Attorney General's request to abolish the plan proffered by the Staff and recommended by the ALJ should be denied. The plan proposed by the Staff is reasonable and is consistent with Commission policy in this regard.
Deferred Taxes
! Citizens Lobby takes exception to the ALJ's findings and recommendations re-garding deferred taxes. First, Citizens Lobby requests that the Commission deny Applicant the benefit of deferred tax cash flow unless Applicant can show that only a tax deferral and not a tax savings results from the use of normalization accounting. Second, Citizens Lobby argues that the ALJ erred by falling to find normalized accounting unlawful. Third, Citizens Lobby argues that the ALJ should have found that the internal Revenue Code permits the Commission to flow through
~
the benefits from tax savings. Fourth, Citizens Lobby argues that the AL) should have found that public policy considerations require flow through of tax savings.
Finally, Citizens Lobby argues that the ALJ should have recommended that the Com-mission: (1) Require a full company report on the use of deferred tax money and (2) reduce future rate reIIef according to Applicant's tax savings, or (3) in the Page 72 O
Ottornative, schedule generic proceedings.
Regarding the first issue raised above, Citizens Lobby notes that the Com-
' O mission has permitted Applicant to normalize the benefits of accelerated depre-clation rather than flowing through the benefits to the ratepayer. As a result of that normalization, Citizens Lobby claims that Applicant's deferred tax account was $276 million as of year end 1977 and that the account has been growing at an average rate of $25 million per year since 1972.
Citizens Lobby's witness Professor Sidney Davidson claims that as long as Congress permits accelerated depreciation an6 as long as firms' investment poIIcy or inflation cause current dollar increases in iepreciable asset purchases, firms' will never show reduction in their deferred tax accounts. According to Professor Davidson, the advantages to utilities from use of normalization is difficult to discern and whether taxes are normalized or flowed through is not an indicator of financial stability or distress. Professor Davidson then goes on to state that he views normalization as being unfair to ratepayers since It constitutes an involuntary contribution to capital which causes present day ratepayers to pay more than their cost of service in order to provide service to future generations of ratepayers.
Regarding the second issue raised above, Citizens Lobby argues that Appli-cant's proposed rates are unlawful because they are based on use of normalized accounting. According to Citizens Lobby, just and reasonable rates must be based on cost of service. However, because Applicant's rates must be based on taxes that will never have to be paid since those taxes are normalized, Citizens Lobby claims Appilcant's rates are not based on cost of service. To remedy this prob-i lem, Citizerf>1.obby claims that deferred taxes and investment tax credit benefits should be flo<ed through to Appilcant's customers and not be normalized.
Regarding the third issue raised above, Citizens Lobby contends that the Congressional amendment to the internal Revenue Code mandating normalization is O Page 73 U-6006
ambiguous in its application to state utility comissions. It argues that Section g
167 of the Code speaks only to public utilities and the accounting method which they use in their tax returns and " regulated books of account." Further, Citizens l l
Lobby argues that the Section in question falls to mention the methods which l states use to incorporate depreciation benefits within the ratemaking process.
Citizens Lobby urges an approach which would e' '.er avoid or, alternatively, l
attack the legality of Section 167 of the internal Revenue Coi. First, it argues, the Comission could narrowly read Section 167 by construing it as ap-plying to utility companies and not state commissions, or, using the California approach, adjust the rate of return downward to reflect the improvement in Appli-cant's financial position which normalizatic- tax savings creates. Second, it argues, a frontal attack may be launched on constitutional grounds under either i a states' rights theory pursuant to the Tenth Amendment sanction against Federal I
regulation of intrastate commerce, or on a due process theory pursuant to the l
Fifth and Fourteenth Amendments.
l Relating to the fourth issue raised above, Citizens Lobby argues that a major Justification for compelling ratepayer Investment through deferred taxes is that such an investment is necessary and/or desirable for a utility's finae tal health. However, Citizens Lobby argues that such an investment is not necessary.
Further, Citizens Lobby argues that such an investment is undesirable for at least five reasons. First, it submits that normalization encourages overbuilding.
Second, it argues that the regulatory comission loses its authority over a j utility's growth plans. Third, it argues that normalization creates an artifi-elal incentive to incur excessive debt. Fourth, it argues that capitalization with deferred taxes distorts a utility company's financial position. Finally, Citizens Lobby indicates that there is a problem of intergenerational equity to the extent that today's ratepayers are, for all practical purposes, paying rates for future generetions.
h Page 74 U-6006
, Tha Commissicn finds that Citiz:ns L:bby's pr pos31s concerning normalized flow through accounting should not be adopted. The Internal Revenue Code pro-vides that a utility which utillzes flow through accounting will be denied the benefit of accelerated depreciation. The benefits of accelerated depreciation are beneficial to both Applicant and its ratepayers and their loss would certainly more than offset any gains Applicant's ratepayers would receive from a flow through tax treatment. Furthermore, this Commission has thoroughly addressed the issue of the use of normalized accounting and has, for some time, permitted deferred taxes and investment tax credits to be normalized. The Conynission is not persuaded that it should change that longstanding approach and believes that under current IRS regulations the benefits obtained under the present system would be lost, to the detriment of both the ratepayers and Applicant. In addition, the Commission finds that it must also reject Citizens Lobby's request regarding company reporting concerning the use of normalization or, in the alternative, provide for generic proceedings on this issue. The Commission finds that requiring such reporting would be unnecessary and unduly burdensome and a generic proceeding on this issue would not be appropriate until such time as there 1. some Indication from the IRS that it is either changing its policy or giving state utility commissions dis-cretion regarding the flowing through of tax savings. For the above stated rea-sons, the Commission finds that it should not change its position enneerning the use of normalized accounting.
Industrial Power Plants Pennwalt takes exception to the ALJ's finding that the additional fuel cost should be properly recovered through separate commodity charges on an Individual
+-
i basis. The basis for Pennwalt's objection is that the fuel cost is currently being recovered by Applicant through the existing fuel adjustment clause, as testified to by Applicant's witness Wilkins (Tr. 3756-3757).
Page 75 U-6006
Tha Staff also trk:s cxc:ption to tha finding of th2 ALJ. Tha Steff con-tends that Applicant does not incur additional fuel costs when electricity is ,
generated or compressed air is produced aad, therefore, no separate comodity charges on an Individual cost of service basis should be implemented. Further,
- he Staff urges that the r. omission adopt the Staff's original position in toto.
The ALJ found that Applicant has additional fuel cos;5 when electricity is gene.ated and conpressed air is produced at the Industrial power plant sites, and that those additional costs should be recovered through separate comodity charges.
The Commission finds that the Staff's position is the better approach. The Comission is not convinced that Applicant incurs additional fuel costs when electricity is generated or compressed air is produced. In addition, the Comis-sion finds, af ter a review of the record, that the present system is more accurate, simplified and easier to admir ister. The system proposed by Applicant would be a step backwarcs, inasmuch at the Comission adopted the present methodology as proposed by the Staff in Case No. U-5502 because of the complexity experienced with the approach advanced by Applicant.
Industrial Power Plant Revenue Deficiency and Rate Desian Three major issues concerning industrial power plants, Pennwalt and Port Huron, have been discussed earlier. The first of these concerns certain rate base adjustments for oil conversion equipment at the Port Huron Paper power plant and the flue gas conditioning system at the Pennwalt power plant. The second is the determination of Other 0 & M expense and the third is the appropriate level of production and maintenance expense for the Pennwalt power plant. Those areas were discussed in the ALJ's PF0 and, as a result, revenue deficiencies for Port Huron and Pennwalt were proposed. Applicant takes exception to the A'.J's proposed rev-enue deficiency calculations. The Comission finds merit in Applicant's excep-tion to this parHeular revenue deficiency calculation, and determines the revenue deficiency for Port Huron and Pennwalt as calculated in the tables below:
Page 76 U-6006 g
e Port Huron
[} Rate Base $ 6,255,500 Less Oil Conversion 370,000 Adjusted Ratt Base S 5,885,500 Rate of Return 9.25%
Required income S 544,400 Net Operating income 440,800 income Deficiency S 103,600 Revenue Conversion Factor 1.896 Revenue Deficiency S 196,400 Pennwalt Rate Base $10,103,800 Rate of Return 9.25%
Required Income S 934,600 Net Operating income 568,200 income Deficiency $ 366,400 Revenue Conversion Factor 1.896 Revenue Deficiency S 694,700 The Commission finds that the industrial power plant rates, attached hereto as Exhibit C and incorporated herc*n by reference, are correct and, for the reasons stated above, should be adov'ed.
Industrial Steam and Water Rates The Staff takes exception to the ALJ's finding that Applicant's proposed steam rate line tariff sheets were appropriate without incorporating in those tariff sheets provisions for testing meters, meter reports and meter accuracy.
The basis for the Staff's objection is that in order to ensure equal treatment O Page 77 U-6006
of all customers of Applicant, and ensure meter accuracy for Jef fersen Street line customers, the Commission should Incorporate Rule 23, being Tariff Sheets 8A-ll through 15, in the M.P.S.C. No. 3 Steam Tariff book.
The ALJ has found that Applicant's proposed I.idustrial high pressure steam rate (Jefferson line) Original Sheets Nos. 5-1, S-la, S-lb, S-Ic and S-Id are appropriate with certain modifications in accordance with previous findings in the PFD.
The Commission finds that the ALJ has reached a fair and just result. If the Commission were to adopt the Staff's proposal, it would incorporate orovi-sions applicable to Applicant's Detroit central steam heating district which ars not applicable to the Jefferson line industrial steam customers. Applicant's proposed tariff sheets, however, only incorporate those present rules which are applicable to the Jefferson line steam customers.
Applicant provides processed steam to Great Lakes Steel, Allied Chemical Corporation, Morton Salt, and Monsanto, and also provides industrial water service to Monsanto. Those industrial service rates are determined within t s procedural framework of these proceedings. The precise industrial rates are de-veloped on the basis of separate cost of service studies. The steam and water services are delivered to these various customers from particular plants of Ap-plicant and, as a result, the component costs of delivering the service fro each plant can be determined.
In addition to determining the steam and water rates for the above named companies, Applicant proposes that the rates of five industrial customers whicS receive steam from its Delray Generating Plant through its Jefferson Street line have their rates determined in these proceedings. Previously, the rates of those Jefferson Street customers were determined in Applicant's steam rate proceedings.
The Staff supports Applicant's proposal to include those Jefferson Street cus-tomers in this proceedin s .
Page 78 U-6006 l
l 1 .-. -- -- _ . - . .-
Great Lakes Steel, Morton Salt and Monsanto intervened in these proceedings.
Applicant, the Staff, and the steam and water intervenors reached an agreement during these proceedings as to the cost of service for steam, which agreemer.t is embodied in Exhibit AIS-138. Exhibit AIS-138 leaves in dispute between the par-ties only rate-of-return, Other 0 & M considerations and the fuel adjustment clause to be adopted. One point of the Other 0 & M considerations on which Ap-plicant, the Staff a,d the Steam Intervenors agree is that the bases set for these customers in Case No. U-5502 should be adjusted for volumetric fluctua-tions in demineralize:r expenses. The other areas of 0 & M expense considera-tions, rate of return and the fuel adjustment clause are discussed elsewhere in this order.
The ALJ, in his PFD, found the agreement between Applicant, the Staff and the Steam Intervenors as reasonable and in the public interest and recommended l its adoptiori. The Commit.; ion concurs with that recommendation.
The rates and charges related to the miscellaneous steam and water bus
- ness are attached hereto as Exhibit B and are incorporated herein by reference.
Senior Citizen Rate Revenues Applicant, in its rebuttal testimony, stated that the Staff's and Appli-cant's Senior Citizen Rate revenues should be reduced by $2 3 million. The ALJ rejected Applicant's position on the grounds that Applicant had based its l
position on only four months of data and, therefore, it was not typical of an annual pattern. The ALJ also found that Applicant's position did not make adjustment for the differences in the average use figures computed by the Staf f and Applicant.
The Commission agrees with the ALJ that Applicant's position is based on incomplete data and, therefore, should be rejected.
l O Page 79 U-6006
Forecastino and Reserve Studies l
Appilcant, the Staff, Citizens Lobby and PIRGIM have all flied exceptions to the ALJ's findings regarding forecasting and reserve studies as well as the i
ALJ's recommendation concerning whether a ge.neric proceeding should be held re-lating to long-range forecast.
First, the Staff excepts to the ALJ's recomendation that a generic proceed-ing be held concerning long-range forecast. It is the Staff's position that sech a proceeding is unnecessary and, if not binding, would serve absolutely no pur-pose at all.
Applicant takes exception to the ALJ's recomendat. ,n that the Staff be di-rected, within a six-month period, to present a specific proposal to the Commis-sion concerning the establishment of generic proceedings relating to long-range forecast and reserve and reliability requirements. While welcoming an opportunity to explain its methodology in a generic proceeding, Applicant's exceptions relate to possible problems which could arise if such a proceeding were held. First, i Applicant cautioned that enormous problems could arise if, as a result of this proceeding, the Comission decided to limit Applicant's generation capacity. It points out that the net result could be that southea stern Michigan could be left without appropriate energy resources to sustain economic growth.
Second, Applicant points out that the only thing that can be said for certair about a forecast 15 years into the future is that it will be wrong. Applicant points out that Dr. Stutz, in his direct testimony, stated that Applicant's as-sumption of the advent of the electric vehicle by 1993 was " extremely dubious."
Applicant points out that four months later, General Motors announced a break- ;
through in battery technology and that it expects to htve 100,000 electric vehicles in use by 1985 Third, Applicant asserts that even assuming the end-use forecasting methodol-ogy proposed by Citizens Lobby witness Dr. Stutz, it is necessary that such a Page 80 O
U-6006 l
. methodology hava cn ellowance fer unknown fccters inccrporetsd Ints it. Appli-cant submits that its own methodology has such a factor built in.
Fourth, Appilcant disagrees with the ALJ's finding that Dr. Stutz had cred-Ible evidence Indicating that Applicant's long-range methodology contains signi-ficant inadequacies. Appilcant argues that because different methodologies provide different insights into results doesn't necessarily mean that the differ-ent methodologies provide better results.
Fifth, Applicant cites the Wisconsin Commission's recognition of the fact that no single forecasting methodology
- significantly superior to others. Ap-plicant's contention here is that whatever forecasting method is presented they all have their strengths and weaknesses.
And finally, Applicant argues that each utility system has its own peculiar-Ities in terms of (1) abilities and accuracles of forecasts, (2) reserve require-ments and (3) reliability requirements. Applicant argues that a generic proceeding is impractfcal to the extent that It is premised on the assumption that all utility systems may be treated in a similar matter.
Citizens Lobby takes exception to the ALJ's finding regarding forecasting and generating reserves and objects to the fact that the ALJ: (1) Neglected to emphasize detailed and unrebutted nature of Dr. Stutz' testimony, (2) failed to recognize that the generic proceedings must be binding to be effective, (3) falls in his proposal to ensure effective proceedings because it falls to reconsnend funding for intervenor and Staff forecast and (4) falls to recognize the direct l bearing that Dr. Stutz' testimony has on the Instant case.
1 PIRGIM also takes exception to the ALJ's findings relat ng to forecasting i
I and generathg reserves and requests that the Consnission order reserves of no more than 15% for Applicant. PIRGIM argues that Applicant performed no cost benefit analysis of any level of reserves and requests that the Commission order a comprehensive review of Applicant's methodology and criteria in order to Page 81 U-6006 l
ascertain what further reductions and reserve levels may be possible. In addi-tion, PIRGIM Joins Citizens Lobby in requesting that the Commission order generic O,;
i hearings which are binding.
After having reviewed the various arguments and the detailed testimony on the record relating to the issue of forecasting and generation reserves, the Comis-sion finds that, although there may be some merit to Citizen Lobby's and PIRGIM's '
proposal for use of a generic proceeding during which long-range forecasts could be presented and critiqued, the Comission believes that such a hearing would be a duplication of the information which is presently presented at a yearly securi-ties case. Therefore, the Comission finds that a generic hearing would be inap-propriate. The Comission is indeed concerned with the future needs of Applicant's customers, as well as those of other Michigan utilities. Although Dr. Stutz, in his testimony on the record, presents constructive criticism to Applicant's long-range forecast methodology, this Conunission agrees with the findings of the Wisconsin Comission to the extent that it found that none of the forecasting '
methods presented in the instant case appear to be absolutely reliable. Each is fraught with its own strengths and weaknesses and until more reliable forecast methods are available, the Comission is not persuaded that a binding generic hearing is the solution to the problem here.
Report of Rate Case Excenses Applicant, Citizens Lobby and PIRGIM take exception to the ALJ's finding re-
, , garding the reporting of rate case expenditures, l
i Applicant takes total exception to the ALJ's finding that it should be re-quired to submit a detailed report regarding the portion of its monthly payroll employees' salaries and benefits devoted to preparing for and participating in rate cases, as well as Applicant's rate department involved in such cases. Ao-i plicant argues that a large portion of rate case expenditures presently expended Page 82 O;
u-6oo6 j l
cre for tha benefit of intervenors. It urges that the allocation of salaries to rate case litigation will not help measure efficiency, but that the additional O reporting requirement will create added costs.
Although Citizens Lobby and PIRGIM agree with the ALJ's finding that App 1!-
cant should report such expenditures in more detail, they believe that the ALJ did not go far enough.
Citizens Lobby argues that the Commission should direct Applicant to keep for its salaried employees, for time expended on rate cases, the same kind of daily time records that attorneys or consultants keep for their work. At the end of a reporting period, Applicant would total each relevant employee's time per case or cases and multiply those figures by the " cost" of the employee to Appil-cant (the salary plus fringe benefits figure). PIRGIM urges that the cost for all employees who participate in preparing rate cases, whether they are monthly, or in Applicant's rate department or elsewhere in the company, should be set out in the report on the cost of rate cases and related proceedings.
The Commission agrees with the ALJ that a reporting mechanism is reasonable and should be implemented and a report therefor should be included for the twelve months preceding the filing date in Appilcant's next rate case. Further the Com-mission finds that the kind of detailed reporting requested by Citizens Lobby and PIRGIM is too burdensome.
Request to Remand The Attorney General takes exception to the ALJ's failure to recommend spe-cific rates for all classes of customers in light of the revenue deficiency found by him. The Attorney General's position is that the PFD should be remanded to v-the ALJ to propose rates which are consistent with his revenue deficiency recom-mendation or, alternatively, that the Commission issue a tentative order herein, setting forth its calculation of the revenues to be produced by the order issued Page 83 0-6006
herein. In addition, pursuant to a timely request by a party, the Attorney Gen-eral proposes that said order be subject to a hearing. h The Commission finds that the Attorney General's request is not proper. Not only would granting such a request unduly burden the ratemaking process but, in-asmuch as the ALJ could not know in advance what the revenue deficiency found by the Conwilssion would be, he was not in a position to rr.ake a recommendation re-garding specific rates.
XI.
WAGE AND PRICE GUIDELINES The Attorney General takes exception to the ALJ's finding that the proposed rate increase is in conformity with the Federal wage and price guidelines. The Attorney General argues that during the first program year (October 1,1978 through September 30, 1979) Applicant has received a total rate increase in ex-cess of that allowed in the amount of approximately $25.7 million. h Also, the Attorney General argues that the ALJ, while not accepting the
. approach used by its witness Kumar and criticizing it as unreasonable, failed te indicate what a reasonable approach should be.
It should be noted that the Federal wage and price guidelines are not manda-tory, in addition, after a review of the record and given the date upon which this order is being issued, the Commission finds that the question as to whether Applicant's, the Staff's or the Attorney General's approach to wage guidelines is appropriate, is a moot question.
Xil.
RATE DESIGN, RULES AND REGULATIONS Applicant, the Staff and numerous intervenors presented testimony and Page 84 O
ovid:nca on ollocation of reta incrassa and rate structures.
Allocation of revenue increase among various rate classes is one of the basic issues raised by various parties. Applicant proposes that an approximately equal percentage increase be spread across all rate classes.
The Staff proposed that the domestic class increase should be somewhat less, i.e., about 90% of the overall percentage l~ncrease, that the commercial class in-crease be about the system average, while the Industrial class increase should be somewhat above average. The industrial intervenors, on the other hand, oppose both Applicant's and the Staff's methods and recommended a strict cost of service basis for revenue increase allocation. Under the Industrial intervenors' method, assuming 10.51% overall increase, the domestic class rates should be raised by 15.0%, commercial class rates by the system average and the industrial class rates be increased by 6.28%. Business Users, although they gave no specific numbers, recommended that the rate increase be based on cost of service. As a less desired alternate they re:ommended an across the board equal percentage increase.
() in support of its recommendation that the domestic class receive only 00%
of the system average percentage increase, the Staff stated that historically the domestic rates have been designed to yield less than 100 Index of return. Based on the evidence developed, the Commission believes that this claim by the Staff is valid, although the domestic index of return historically has been somewhat higher than the Staff claims. Exhibit 5-127 shows that the current index of re-turn is 80. Under the Staff's proposal, the increase would still leave the index at around 81.
The Commission agrees with the ALJ that the cost of service, though an im-portant crpteria, cannot be the sole basis for rate design. Consideration should also be given to historic relationships, value of service, conservation and other factors.
I I The Commission therefore rejects the Industrial intervenors' arguments for O Page 85 i
1 U-6006
a disproportionately higher increase to the domestic class.
The Comission further finds that all the rate considerations are reflected in the Staff's proposal and, therefore, the rate increase to major rate classes should be spread in approximately the same manner as proposed by the Staff. In addition, the rate increases discussed hereinafter are reflective of this finding.
Increases to certain subclasses may vary to maintain proper rate relationships.
Residential Rates
! Availability of Domestic Service Rates intervenors Apartment Association and Condominium Owners claim in their ex-ceptions that Applicant's Domestic Service Rate D-1 should be made available for apartments, condominiums and cooperatives served under a master meter and for common area usage. The Intervenors claim the present provision limiting D-1 rate to single and double occupancy is a violation of equal protection of law. The Comission agrees with the ALJ that the issue was extensively discussed and re-Jected by the Comission in Case No. U-5502.
Only one minor new issue was raised in this case by the Intervenors involv-Ing the fact that Applicant had previously provided service at the D-1 rate to comon use areas of certain multiple family dwellings.
The Comission concurs with the conclusions of the ALJ, who discussed this issue in detail, tnat this was a result of simply a billing error on the part of Applicant which has since been correctad.
In conclusion, the Commission adopts the findings of the ALJ and rejects the position of the Intervenors Apartment Association and United Condominums for a change in availability of Rate D-1.
Domestic Service Rate D-1 Proposed domestic rate design was presented by Applicant, the Staff and PIRGIM. The principal difference between those parties w s that Applicant 1
i Page 86 u-6006 l
proposed to return to flat rates by reducing the current inversion. The Staff proposes to maintain the Inverted rate with a slight increase in Inversien.
{
PIRGIM, on the other hand, would increase the inversion significantly.
Based upon its revenue deficiency, Appilcant recommended a service charge of $2 75 and energy rates of 5.10c for the first 500 bh, 5 30c for the next 500 l bh and 5.6c for excess bhs. The Staff proposed an increase in the service charge to $2.80 and a three block energy charge: 4.9c per bh for 0-500 bh; 5.4c per bh for 501-1000, and 6.0c per hh for excess over 1,000 bhs per month.
Two alternatives were also proposed by the Staff which it regarded as less desirable. Under the first alternative three different blocks will be created:
0-300 bh, 301-750 bh and excess over 750 bh. Corresponding energy rates for the three blocks would be 4.6c; 5.19e and 6.19e per hh, respectively, i
As its second alternative, the Staff proposed that the Commission may limit the future increases to domestic class for 0-500 bh usage at half the overall increase.
In its sharply inverted D-1 rate proposal, PIRGIM recommends that the ser-vice charge be maintaired at $2.65 and that the energy charge be set at 4.5e per bh for the first 500 bh, 6.5c per bh for the next 500 bh, and 8.5e per bh for the final block.
Applicant, the Agricultural Conference and the industrial Intervenors claim that the cost of service principles justify a flat domestic rate.
The ALJ adopted the Staff's original rate design proposal, and Applicant and PIRGIM excepted.
The Staff a lso raised the issue of Ilfeline rates as appropriate for consid-eration by %e (onunission. Under the Public Utility Regulatory Policies Act (PURPA) of U78 (PL-95-617,16USC 2601, et seq. ; 92 State 3117. Sec. 114 et seq.)
the Commission must consider adoption cf appropriate lifeline rates. The Commis-sion believes that the issue of domestic rate D-1 is closely related to the O Page 87 U-6006
lifeline rate issue and therefore must be considered together in this case.
PURPA criteria for lifeline rates require that rates for essential needs priced below costs be considered. Staff witness Dr. Bhatta testified that the first block of the present inverted rate meets the essential use and is priced below cost. The ALJ therefore found that the Staff's original proposal on the D-1 rate meets the requirements of a lifeline rate.
Evidence presented by the 'Jtaff suggested that the minimum use for a typ!-
cal family in Applicant's survice area is around 410 bh per month, it is recognized that this use will vary depending on family size, income levels and availability of alternate fuels. The Commission believes that while the present blocking wi'.h 0-500 bh in the first block would cover the essential use of a great majority of customers, there may be greater opportunity for conservation if this block is reduced to 400 bh.
The alternate Staff proposal with 0-300 bh in the first block may be too small to cover the essential needs, particularly for large families and scne rur-! areas. e The Cormission therefere finds that the domestic rate D-1 should be rede-signed with the following ' clocks: 0-400 On; 401-800 bh and excess over 600 4h, with 6 mills and 7 mills inversion between the blocks. The prices for each block should be set consistent with the revenue requirement.
The Conunission rejects the positions of Applicant and the Industrial I n te r-venors on the grounds that it would be detrimental to the long-term interest of Applicant and its customers. Strong conservation methods are needed nere than ever before.
The Comission agrees with the ALJ that electric uscge has declined as a result of Inverted rates. Returning to 'lat domestic rates would simply dis-courage this effort.
The Comission also finds that with adoption of the different blocks the Page 88 U-6006
i l
domestic rate is a reasonable and workable form of lifeline rate, with strong conservation incentives. As has been developed on this record, low income families tend to have lower electric usage. Therefore, those famIIIes will benefit from the revised domestic rates.
Finally, the Commission rejects PIRGIM's position for sharply inverted rates on the grounds that it could pose extreme hardships on certain moderate or low income families who may have high consumption rr,tes. The Comission finds, however, that a service charge of $2.65 as propcsed by PIRGIM is quite reasonable and should not be increased. A high service charge tends to benefit large users and reduce incentives for conservation. 1 The Commission accepts the ALJ's determination that the energy charge for l l farm service should be set at the middle block of the D-1 rate.
Auxiliary Power Provision Both Applicant and the Staff propose changes to the Auxiliary Power Provi-sion contained in the D-1 rate. Applicant proposes a service charge of $5.00 in addition to the regular D-1 service charge. Applicant also propcses to increase the sell-back energy charge from 1.4c per hh to 1.6c per bh. The Staff pro-posed a 55.00 service charge with sell-back energy priced at 2e per 4h. PIRGIM supports the Staff's position.
The ALJ accepted Applicant's proposal to increase the service charge but recommended that the sell-back energy charge be set at 1.8c per bh to maintain the present relationship between the auxiliary pay-back price and the fuel and purchased power basing points.
The Staff e.~
excepted, arguing that the ALJ failed to set forth any reason for rejecting the Staff's proposal to increase the incentives for auxillary power.
The Staff argues that this provision is still a part of research and experimen-tation and incentives to participate are still necessa-',
Therefore, the Consnission finds that the Staff's pt :,osal is reasonable Page 89 U-6006 l
l
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and should be adopted. The Commission agrees with the Staff's position that the Auxiliary Power Provision is still in an experimental stage and the rate O must appear advantageous to the customer to encourage participation.
Domestic Interruptible Air Conditioning Service Rate 0-1.1 -
Applicant proposed that the Domestic Interruptible Air Conditioning Service Rate D-1.1 be retained as an experimental rate, but that it be made available for the first 2,000 customers requesting such service rather than ilmiting it to 500 customers, as is presently the case. The staff recomended that the rate no longer be continued as experimental, but that it be made available to all domestic and conwnercial customers who have central air conditioning systems.
Both AppIIcant and the Staff proposed that the service charge for the rate should be $1 per month and that the energy charge be set at 4.50c per Kwh.
The ALJ recommended adoption of the Staff's D-1.1 proposal citing that the D-l.1 rate has been an experimental rate for some time and it would now be appro-priate to make the rate available to all customers who desire it.
Applicant excepted to the ALJ's recommendation. It argued that the exper-imental rate has not been available sufficiently long to provide reliable cata witn resy 't to the effectiveness of the rate design and remote control ecuip-ment.
Applicant argued that an increased sample would increase the reliability of obtained data and increase the reliability of assessing the costs and benefits associated with full Implementation of an interruptible air conditioning rate.
It would also provide a better idea of the customers interest in such a rate and problems associated with full Implementation. Appilcant also arguad against making the rate avaliable to comercial customers.
The Consnission believes that Appilcant has had suf ficient time and data to study the 0-1.1 axperimental rate. The expansion of the rate can provide an important management tool in reduclng the load on Applicant's system during Page 90 O U-6006
times cf emerg:ncy. Tha Commission finds that the Staff's recomendation is appropriate and should be adopted.
Time-of-Day Rate D-1.2 Applicant proposes that experimental Domestic Time-of-Day Test Service Rate D-1.2 be continued and that it have a service charge of $2 75 per month, that the on-peak energy charge be 8.7c per bh, and that the off-peak energy charge be 2 9c per bh. The Staff recomended a service charge of $2.80 per month with an on peak energy charge of 8.15c per bh and an off peak charge of 3.15c per bh.
The ALJ recommended to the Comission that the service charge be set at
$1.80 per month, as proposed by the Staff, but that a 3 to I ratio between on-peak and off peak energy charges should be maintained, as recomended by App 11-cant, with those energy charges increased at the overall rate of increase.
The Staff excepted, asserting that maintaining a 3 to I ratio is not ade-quate reason for rejecting the Staff's position. The Staff argued that the ratio is impossible to maintain since the operation of the fuel and purchased power clauses, based on flat mills per bh, will potentially act to change this ratio.
The Comission finds that there is no reason to maintain a strict 3 to 1 ratio between on peak and off-peak energy rates and adopts the Staff's position in toto. The service charge for this rate is retained at $2.65 Senior Citizens Domestic Service Rate D-1.3 Applicant recommended in its direct case that the service charge for the senior citizens' rate be increased to $2.75 per month and that the energy charge be set at 3.40c per bh for the first 300 bhs, 6.40c per bh for the next 200 Nwhs, and 8r35c per bh for over 500 Kwhs.
/
During the rebuttal stage of the proceeding, Appilcant's witness Okon claimed that both Applicant's and the Staff's proposed D-1.3 rates utilized billing determinant data that would not produce the revenues anticipated and, O Page 91 U-6006
therefore, he recommended that the energy charges presented by both Applicant and the Staff be increased.
h The ALJ rejected Applicant's proposal to base the energy charges for the senior citizens' rates on Applicant's billing determinants and adopted the Staff's proposed service charge of $2.80 per month, with the energy charge---
maintaining the same relationship with the 0-1 rate as was established in Case No. U-5502.
The Comission agrees with the ALJ In principle but finds that the service charge for the senior citizen's rate should be the same as the D-1 rate. The i
present blockings should be maintained and the energy charges should De designed so as to maintain the current relationship with the new D-1 rate.
Time-of-Dsy Farm and Space Heating Rate D-1.4 Applicant recoernended that Rate D-l.4, which is presently an optional rate, be made experimental and be limited to 500 customers. The Staff and the Agricul-tural Conference opposed that reconsnendation.
h in its direct case presentation, Applicant proposed rates composed of a service charge of $3.65 per month, an on-peak energy charge of 8.7c per bh and an off peak energy charge of 2 9c per bh. During rebuttal, Applicant changed its recommendation and advocated a service charge of $4.25 per month, an on peak energy charge of 9 90c per A h and an off peak energy charge of 3.30c per Gh.
The Staf f escommended that the service charge for Pate 0-1.4 be $4.00 per month.
the on-peak energy charge be 8.15c per hh and the off-peak energy charge be 3.15e per wh.
The ALJ found that Rate D-1.4 should not be made experimental and that the service charge should be set at $4.25 per month. The ALJ further found that the 3 to I ratio of on peak, off peak energy charges should be continued as recom-mended by Applicant.
The Staff excepted for the reasons given under Rate D-1.2.
g Page 92 U-6006
. Th2 Commission finds that Rata 0-1.4 should not be experimental as it would be a step backwards. The Commission further finds that a service charge of $4.00 O per month is adequate for this rate and that energy charges need not be maintained strictly at a 3 to I ratio. The Corrnission finds that the on-peak energy charge should be 8.15c per kh and the off-peak energy charge should be 3.15e per 4h.
Domestic Space Heating Rate D-2 Applicant proposed to increase the service charge for Domestic Space Heat-Ing Rate D-2 to $2 75 and to increase the winter heating block, which starts at 600 bhs, to 4.6c per bh. The Staff proposed to increase the service charge for the rate to $2.80 per month and to increase the winter heating block to 4.6c per Gh. The remainder of both Applicant's and the Staf f's energy charges are in accord with their proposed recomndations for Domestic Service Rate D-l.
Applicant and the Staff are in agreement that the availability of the rate should be expanded to include fossil fuel-assisted electric heat pumps and solar assist-ed electric heat. The only disputed matter concerning Rate D-2 Involves whether the winter heating block should be set at 4.5e per sh as proposed by Applicant, or 4.6c as proposed by the Staff.
- Tne ALJ found that 4.5c per Mh as reco m nded by Appilcant is reasonable for the winter heating block on the basis that it is unsound ratemaking to price the block higher than the interruptible air conditioning rate and higher than uncontrolled water heating. The ALJ found that a service charge of $2.80 per month is appropriate and that the remaining energy charges should be set in conformance with the Domestic Service Rate D-1. The ALJ further found that the availabilig of Rate D-2 should be expanded so as to encompass fossil fuel-assisted electric heat pumps and solar assisted electric heat.
The Staff excepted, asserting that there is nothing unsound about setting i
charges for firm service somewhat above those set for Interruptible service.
\
Page 03 U-6006 l
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The Commission finds that the service charge for Rate 0-2 should be $2.65 per month, the energy charge for the winter heating block should be 4.62c per 4h h
and the remaining energy charges should be set in conformance with the Domestic Service Rate D-1. The Comission also finds that the availability of Rate 0-2 should be expanded so as to encompass fossil fuel-assisted electric heat r_ytps, and electric heat, assisted with renewable heat source.
Experimental Domestic Space Heating Rate D-2.1 l Both Applicant and the Staff agreed that the availability of this experi-mental rate should be expanded from the present 100 customers to 500 customers.
Applicant proposes retaining the service charge at $10 per month, increasing the demand charge to $6.00 per hh of on-peak demand and setting the on-peak energy charge at 2.70c per hh and the off peak energy charge at 2.40c per hh.
The Staff proposed a $10.00 per month service charge, a demand charge of $5.50 per 4h of on-peak billing demand and energy charges of 2.95c per 4h and 2.65e per hh for on peak and off peak Lh, respectively, h
The A!.J found that availability of this rate should be expanded to 500 cus-tomers, that the service charge should be $10.00 per month, that the demand charge should be $5 50 per m of on-peak billing demand, that the on-peak, of f peak energy differential should be maintained at 3 mills and that the energy charges should be increased at the overall rate of increase.
The Commission finds that the Staff's proposal is appropriate and should be adopted. Due to the experimental nature of the rate, the Comission has chosen not to allocate an increase to this rate at this time. The increase in energy charges is mostly due to fuel and purchased power costs and various surcharges being rolled into the rates.
Water Heating Rates D-5 and D-5.1 For the Water Heating Service Rate D-5. Applicant propmed to increase the Page 94 U-6006 -
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service charge from $1.50 to $1.55 per month on Option 1 -- Separate Meter --
Controlled and Option lli -- Separate Meter -- Uncontrolled and to increase the O energy charges from 2.76c to 3 31c per bh for Option I and Option II -- Combined Meter -- Controlled, and from 3 95c to 4.7c per bh for Option Ill. The Staff proposed no increase to the service charge but to increase the energy charge to 3.45c per hh for Options I and il and 4.50c per bh for Option Ill. Applicant reconsnended a less than average overall increase; the Staff proposed an overall average increase.
For experimental sclar assisted water heating service Rate D-5.1, Applicant proposed the same increases proposed for Option I of Rate D-5 The Staff pro-posed to eliminate Rate 9-5.1 as a separate rate and to expand availability of Rate D-5 to include solar assisted water heating.
Appilcant claims that the Staff's proposal could drive customers off the controlled water heating rate since they propose a greater increase for con-trolled than uncontrolled water heating service, thereby eliminating the provision as an effective management tool. Applicant objects to the Staff's elimination of Rate D-5.1 because this elimination does not provide for continuation of the collection of data from solar assisted water heating.
l The ALJ found that Rate D-5 should receive the overall average increase, with the percentage increase for controlled and uncontrolled approximately the 1
same, rather than greater for controlled as proposed by the Staff. The ALJ l further found that the service charge for Options I and 111 should be increased to $1.55 l
The Staff excepted and argued that no evidence had been produced that $1.50 does not a%quately cover the cost of metering water heater service. They also argued that the ALJ erred in the percentage increase reconynended, contending that the rate is presently yielding less than the average system rate of return.
The Commission finds that the Staff's proposals for Rate D-5 are reasonable O Page 95 U-6006 i
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and should be adopted, with appropriate modification to the energy charges to recognize the increase authorized by this order.
For Rate D-51, the Comission agrees with the ALJ and finds that the rate should be eliminated as a separate rate; that Rate 0-5 should be made available to customers with solar assisted hot water heaters; and that Applicant should continue to collect the data It was previously collecting under Rate D-5.1.
Comercial Rates General Service Rate D-3 For Rate D-3, Applicant proposed increasing the service charge to 55.65 per month and increasing the energy charge to 5 91c per uh. The staff recomended that the service charge be set at $5.45 per month and that the energy charge be set at 5.84c per bh. The ALJ found that the service charge for the rate should be 55.55 per mnth and that the energy charge should be set so that the rate receives an increase equal to the overall rate of increase.
The Comission finds that increasing the service charge to 55 55 per enth is both adequate and reasonable, with the energy charge set at 5.*0c per ch to recognize the increase authorized in this order.
Unmetered General Service Rate D-3.1 Applicant proposed that Unmetered General Service Rate D-3.1 be Increased te l
2.le per month per watt of total connected load. The Staff proposed increasing the rate to 2.15e per month per watt of total connected load. Both Applicant and the Staff agreed to change the availability of this rate to make it available at the option of Appijcant.
The ALJ found that the D-3.1 rate should be set at 2.le per month per watt of total connected load in order to continue to tie the rate to the Traffic and Signal Light Rate E-2.
The Staff excepted, maintaining that the increase recomended by the AL) is O
w U-6006 l
. only a 5% increase over the current rate of 2c per watt per month of total con-nected load, and that their recommendation of 2.15c per month per watt is closer O to the equal overall increase proposed by the ALJ.
The Commission finds that the Staff's proposal is reasonable and should be adopted and that the availability of the rate should be at the option of App 11-cant.
Experimental Time-of-Day General Service Rate D-3.2 For Rate D-3 2, Appilcant proposes to increase the monthly service charge to 57 50 and to increase the on-peak and off-peak energy charges to 8.8c per Kwh and 3 0c per Kwh, respectively. The Staff proposed to leave the servicc charge at
$7.00 and to increase the energy charge to 8.25c per Kwh and 3.25c per Kwh for on-peak and off-peak usage, respectively. Both Applicant and the Staff agree to a minimal contract term modification to conform this rate with contract term paragraphs of other rates.
The ALJ found that the proposed modification should be adopted, the service
( ])
charge for the rate should be increased to $7.50, the on-peak, off-peak differen-tial should be maintained at approximately a 3 to I ratio and the energy charge should be increased to the degree necessary to apportion an overall rate of increase to the rate.
The Commission finds that the proposed contract term modification should be adopted, a $7.00 service charge is adequate and should be maintained and the energy charges should follow the Staff's design, adjusted to conform to the increase authorized by the Commission. ,
i Large GendtEl Service Rate D-4 Applicant propssed increaring the service charge for Rate D-4 from $8.00 per month to $9 00 per month, maintaining the demand charge at $6.50 per Kw and setting the energy charges at 4.18c per Kwh for the first 200 Kwh per Kw of O Page 97 U-6006 l
billing demand and at 3.67c per hh for the excess Nh. The Staff proposed increasing the service charge for Rate D-4 to $8.75 per month, maintaining the
$6.50 per h demand cha' o and setting the energy charges at 4.14e per hh for the first 200 bh per b of :,Illing demand and 3.64c per Eh for the excess.
Both Appilcant and '
Staff agreed to a proposed clarification of the bPtttng demand language in the rate.
Applicant claims that its proposed change to Rate D-4 will make the rate more advantageous for a customer to switch from General Service Rate D-3 to D-4, since the breakeven point has been reduced from 352 hours0.00407 days <br />0.0978 hours <br />5.820106e-4 weeks <br />1.33936e-4 months <br /> use of demand to 340 hours0.00394 days <br />0.0944 hours <br />5.621693e-4 weeks <br />1.2937e-4 months <br /> use. Applicant claims that the Staff's proposed rate design will not accomplish that result.
The ALJ found that the service charge should be set at $8.75 per month, the demand charge should be maintained at $6.50 per N and the energy charges should be set so as to make the breakeven points between Rates D-3 and 0-4 approximately 340 hours0.00394 days <br />0.0944 hours <br />5.621693e-4 weeks <br />1.2937e-4 months <br /> use of demand. He reconsnended that Rate D-4 be in-creased at approximately the overall rate of increase.
i
) The Commission finds that the Staff's proposal is reasonable and should be adopted, with the energy charges increased to conform to the rate increase authorized by this order. This sets the breakeven point between Rate D-3 and Rate D-4 at approximately 344 hours0.00398 days <br />0.0956 hours <br />5.687831e-4 weeks <br />1.30892e-4 months <br /> use of demand. The Consnission also finds that the proposed clarification of this billing demand language in Rate D-4, as agreed to by the Staff and Applicant, is reasonable and should be adopted.
_ Industrial Rates On-Peak /Off-Peak Enercy l
Applicant proposed no major changes in the design of industrial rates.
Applicant testified that using average cost studies only one mill differential between on peak /off peak energy charges was cost justifiable. There fore, Page 98 O l U-6006 I
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Applictnt preposed that tha currcnt 3 mill cn2rgy differenca be raduc2d to 2 mills and eventually to I mill.
O ree i d tri > i t rv or d =esi u r, aaerted 4 aiic t- '8-Staff, on the other hand, proposed further strengthening of the time-of-day provisions. The Staff testified that, based on its fuel cost study using a 71-day sample data for the year 1977, the cost differential of as much as 9 mills existed. It therefore proposed that the current 3 mill energy dif-ference in the industrial rates be increased to 7 mills per Kwh.
The ALJ rejected the Staff's position and recommended that the present 3 mill differential be maintained. The Staff excepted.
The principal argument by Applicant, intervenors and the ALJ is that in determining the time-related differentials average costs, not the marginal energy costs, are appropriate. The Staff, on the other hand, based its recom-mendation on the use of marginai ?.nergy differentials.
The Staff argued that the purpose of time differentiated rates is to re-flect the costs incurred by a utility in serving customers at different periods.
Thus, during periods of high loads typically occurring during the day time, a utility must resort to oil generation, pumped storage and purchased power.
Therefore, the relevant costs to be reflected in rates are the costs of those sources.
The Commission agrees with the Staff's position that appropriate pricing signals arc provided by using costs of incremental sources of power. The Com-mission therefore rejects the position of AppIIcant, Industrial Intervenors, Business Users and the ALJ and adopts a 7 mill energy differential as recom-mended by tese Staf f. The energy charges as reconenended by the Staff should be adjusted to the revenue increase for the class.
The Commission believes that with a 7 mill differential industrial rates in Michigan meet the full requirement of Industrial time-of-day rates and would I O aa.e >>
U-6006 l
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achieve the purpose of encouraging efficient use of capacity and premium fuels.
On-Peak Demand Charges Consistent with its energy price proposal, the Staff recomended na In-crease in the on peak demand charges. The Staff's position was based on the analysis of the incremental cost of generation and transmission capacity.-
>Using Greenwood 1 estimated costs, the Staff calculated that capacity-related costs are less than $5 70 per b. The current on-peak charge for D-6 customers is $5.80 per m. Therefore, the Staff recommended that no change was justified in the on peak demand charge. The Staff did recomend that I maximum demand charge which reflects voltage differences by various customers should be increased based on the cost of service.
Applicant, industrial Intervenors and Business Users objected to the Staff's position on on-peak demand charges. Their objection was based on the argument that the Staff had underestimated the unit cost of Greenwood 1 by using 75i of production cost, and used a 15% fixed charge rate Instead of 15.77%.
g The ALJ rejected the Staff's position on the basis of objections raised by Applicant and Industrial Intervenors. The ALJ also argued that increasing on peak demand charges would provide a greater revenue stability to Applicant during economic slowdowns. The ALJ therefore recomended that industrial on-peak demand charges should be increased.
The Staff excepted to the ALJ's recommendation.
The Staff argued in its exceptions that the ALJ rejected the Staff's pos!-
tion because of its use of a 75/25 allocation method which the ALJ had rejected.
Further the Staff argued that revenue stability argument is not e tirely correct.
Indeed under the Staff's proposal, in times of economic slowdowns Applicant's revenues will be protected due to the fact that wher, a customer reduces his production from say three shif ts to one shif t, he pays a higher on peak energy Page 100 g U-6006 W
reto. Tharofora, tha high;r on-pe :k energy charge has the same effect on reve-nue stability as the higher on-peak demand charge.
The Commission has previously rejected the ALJ's recomendation on 75/25 allocation methods. Therefore, the use of 75% of generation investment for capacity costs calculation by the Staff is consistent. Further, the Comission finds that demand charges are affected by the energy charges in order to maintain the same total revenue reqttirement from the Industrial class. The Commission has already found that energy charges as proposed by the Staff are appropriate. i Therefore, the Commission finds that the current on-peak demand charges for Industrial rates should not be increased. The maximum demand charges and energy charges should, however, be adjusted to achieve the total revenues for the class.
The Commission also finds that the impact on Applicant's revenues during economic slowdowns would be somewhat protected due to higher on-peak energy cha rges.
Billing Determinants Both Applicant and the Staff utilized the same hours-of-use data in develop-Ing the industrial billing determinants. Applicant, however, claimed in its rebut-tal testimony of Mr. Okon that the Staff had used a lower number for hours of use anc thereby overestimated the industrial revenues by approximately $19 million.
Mr. Okon claims that the Staff has not recognized the changes in industrial rate design adopted by the Comission in Case No. U-5502. This same issue has already been addressed by the Commission in the determination of present revenues. The industrial Intervenors opposed the position of Applicant. The ALJ rejected Ap-plicant's claim. Applicant excepted for reasons already discussed in determining the revenu E. The Commission adopts the recommendation of the ALJ.
Emergency Load Management Discount Applicant proposed to add a clarifying phrase in its present load management O Page 101 U-6006 l
discount provision. The Staf f concurs with the modification. The Staff also recomended that the current $.20 per Kw discount be raised to $.25 per Kw to g adjust for the rate increase.
Applicant opposed the change in discount. The ALJ adopted the clarifying language "as applied in Rule 83 7." The ALJ also adopted the $.25 per Kw discount.
Applicant did not excepc. The Comission finds that the clarifying phrase linking load management discount to the recently adopted emergency rules is appropriate and should be adopted. Also, the Commission adopts the ALJ's recommendation increasing the discount to $.25 per Kw.
Primary Supply Rate D-6, Large Primary Ra te D-6.1, Bulk Power Supply Rate 0-7 The principal issues concerning !ndustrial rate design are the total class revenues, the on-peak /off-peak energy differential and the relationship between demand and energy revenues.
All these issues have been previously discussed and ruled upon in this order. All parties agree to the D-6 service charge of 5175 per month which is hereby adopted by the Commission. The only remainir.g issue now is the level of various energy / demand charges for industrial rate schedules.
Applicant, industrial Intervenors and the Staff proposed the specific rate levels. The ALJ recommended specific rate levels. The Commission believes that specific rate levels of various parties cannot be discussed as they are based on a different total revenue increase. For example, the Staff rate levels reflect
$110 million hypothetical increase, while the ALJ has recommended a $137 million In revenue increase.
The Commission finds that the rates to D-6, D-6.1 and D-7 should be designed using the service, energy and demand charges and their relationships as previously discussed and found appropriate by the Comission. The rates for 0-6.1 and D-7 Page 102 U-6006 4
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should ba d2 sign:d so es to roficct tha prcper relationships as recommended by the Staff. Service charges for D-6.1 and D-7 should be maintained at $2.500 per O month.
[
interruptible Rate D-8 Both the Staff and Applicant proposed to increase the energy charge to the level of Rate D-6.1, and to increase the facilities charge to 60c per b. The 1
ALJ adopted the proposal based on his determination of energy charges for Rate D- 6.
The Commission finds, based on previous discussion that energy charge be set at the level of D-6.1 and the facilities charge be raised to 60c per b.
The Staff proposed that the current 10% limitation on product protection provision be increased to 25% in order to give greater incentive to potential customers. Applicant opposed that change. The ALJ rejected the Staff's post-tion on the grounds that it lacked evidence. The Staff ex:epted.
The Commission finds that the Staff's position is reasonable in light of O the fact that currently no customer has accepted the D-8 rate.
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Therefore a slight liberalization of terms n'ight attract some customers. It should be remembered that a higher percentage of firm load under the provision does not adversely affect Appilcant since the customer must pay the firm rate for that part of service.
On the other hand the customer might find greater operating flexibility with higher product protection load provision. The Consnission adopts a 25% product protection provision. The Consnission notes that a simi-lar provision was adopted in Case No. U-5608 for Indiana & Michigan Electric Company whig is since serving a customer on interruptible rate.
Finally, Appilcant proposed that the hours of interruption per-day limita-tion should be removed from Rate D-8. The Staff opposed the change. The ALJ rejected the proposal. Applicant did not except.
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l The Comission finds that the ALJ was correct in not removing the limita-tlon.
The Comission finds that limitation on hours of interruption is a princi-pal incentive for a potential customer to consider ncn-firm f.ervice. The cus-tomer must be assured that service will not be curtailed indefinitely.
The Commission rejects Applicant's position.
Miscellaneous Rates Outdoor Protective ghting Rate D-9 i
Applicant and the Staff propose differing increases to Outdoor Protective Lighting Rate D-9 %pplicant and the Staff are in agreement that high pressure sodium lights should be introduced for Rate D-9 The ALJ found that the rate should be increased at the overall rate of increase, high pressure sodium light rates should be included and the rates established should maintain parity with Municipal Streetlighting Rates E-l and E-3 The Comission finds that high pressure sodium lights should be includec in Rate 0-9 The Comission further finds that the Staff's allocation of the rate increase within the rate class is appropriate and should be adopted, with proper changes to reflect the authorized rate increase.
l Municipal Streetlighting Rates E-1 and 2-3 Applicant proposed that the streetlighting class be increased at a per-cantage equal to the average rate increase for all customer classes. The Staff recomended a rate increase of 6% for the class, as compared to an average in-crease for all customer classes of 6.9%. The industrial Intervenors advocated a percentage increase for streetilghting rates which is slightly less than the l average increase. Grosse Pointe Park takes the position that the increase for 1
the streetlighting class should be no greater than the average overall increase.
Q Page 104 U-6006
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, Tha ALJ fcund that Municipal Strastlighting Ratas E-l cnd E-3 should b2 Incrsesed at approximately the same overall increase for all customer classes.
Appilcant's individual increases for Rates E-1 and E-; by type and size of lamp are based upon a cost of service study presented by its witness Okon. Pur-suant to this study, Mr. Okon recommended that the increase for mercury vapor lights be at the approximate average level for the streetlighting class, the Increase for sodium lights be below the average Increase and the increase for incandescent lights be at a greater rate than the overall increase. The S ta f f, l
l like Applicant, proposed a higher percentage increase for incandescent lamps but the Staff differs from Appilcant in that it calls for a decrease in charges for high pressure sodium service. The ALJ found the Staff's approach to Indivi-
, dual charges for streetlighting to be more appropriate and recommended their adoption. Accordingly, the ALJ found that Individual streetlighting charges adopted should follow the Staff's approach but be based on an overall rate of increase.
c O The cemmissien fieds t8at t8 staff's apareac8. increasine t8e rate hv less than average and the Staff's allocation of that increase within the class, should be adopted.
The Staff proposed a new Energy-Only Municipal Streetlighting Rate E-1.1.
Applicant opposed the proposed new rate. The Commission agrees with the ALJ and finds that the Staff's proposed new rate E-1.1 is reasonable and should be adopted. Such a rate is cost Justified and could encourage energy conservation.
Traffic Signal Lights Rate E-2 Applicant proposed increasing the E-2 rate to 2.ic per month per watt of connected d and the Staff proposes increasing the rate to 2.0c per month per watt of connect load. The ALJ agreed with the Staff. The Commission finds that Rate E-2 should be increased to 2.02c per month per watt of connected load to l
Page 105
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recognize the authorized rate increase.
Primary and Secondary Pumping Rates E-4 E-4.1 and E-5 For Primary Pumping Rate E-4, Applicant proposed to increase the demand charge to $7.55 per b per month and increase the on-peak and off peak vrergy charges to 2 30c and 2.10e per month per bh, respectively. The Staff proposed to increase the demand charge to $6.50 per b per month and to increase the energy charge to 2 9c and 2.2c per hh for on-peak and off peak usage, respec-tively.
The ALJ found that the overall rate of increase should be given to the rate, with energy charges set at 2.4c per bh for on-peak and 2.lc per bh for off-peak and the remaining increase for the rate being placed on the demand charge.
The Commission finds that the Staff's proposal is most appropriate and should be adopted, with changes made to reflect the authorized rate Increase.
The Comission has already discussed the reasons for higher on-peak /off peak energy charges.
The Staff proposed establishment of a new Controlled irrigation and Munici-pal Pumping Service Rate E-4.1, which establishes service which would be subject to interruption by means of adio control devices. Applicant opposed the pro-posed rate and recommended more research be done on the proposal before its adop-tion.
The Comission agrees with the ALJ and finds that the Staff's proposed Controlled Irrigation and Municipal Pumping Service Rate E-4.1 is reasonable and should be adopted. The rate will serve to provide further opportunity to l limit growth of peak demand which would benefit all customers. The service charge for this rate should be set at $150 per month, as proposed by the Staff, and the energy charge should be set at 3.8c per bh. The service option would g i
Page 106 U-6006
be available 90 days after the date of this order.
For Secondary Pumpira Rate E-5, Appilcant proposed to increase the energy charge to 4.75c per bh and the Staff proposed to increase the energy charge to 4.65c per bh. The ALJ found that the energy charge for Rate E-5 should be 4.7c per bh. The Commission finds that 4.7c per bh is an apprcpriate energy charge for the rate.
Contract Riders Electrical Metal Melting - Standard Contract Rider No. 1 Applicant proposes for Standard Contract Rider No.1 to increase the energy charge to 4.5c per bh and to increase the minimum charge to $1.10 per b of furnace contract capacity. The Staff agrees with Applicant's proposed minimum charge increase but recocinends leereasing the energy charge to 4.6c per Ah.
The ALJ found Applicant's proposed modification of Standard Contract Rider No. I to be appropriate and reconsnended its adoption. The Commission finds that Applicant's proposed minimum charge increase is reasonable and should be adopted and the energy charge should be 4.67c per hh.
Stand-by and Partial Service - Standard Contract Rider No. 3 ,
Both Applicant and the Staff propose to add a provision to exclude maxi-mum derands f rom ratcheted calculations in cases where the customer's genera-tion is inoperative. The Commission agrees with the ALJ and finds that this proposed modification to Standard Contract Rider No. 3 is appropriate and should be adopted.
Resale of_ Service - Standard Contract Rider No. 4 Applicant and the Staff propose to exclude fuel and purchased power, Other 0 & M Indexing and system availability incentive provision adjustments from the 15% discount provision of this rider. The ALJ found the proposal to O Page 107 U-6006 f 1
be reasonable and recomnended its adoption.
The Consnission sees no merit to excluding fuel and purchased power, Other g 0 s H Indexing and system availability incentive provision adjustments from that portion of the bill receiving the 15% discount and rejects the proposal. ,
I Those surcharges are an Intregal portion of the rates adopted herein. The== !
proposed change is therefore denied.
Industrial Cogeneration - Standard Contract Rider No. 5 The Staff proposed implementation of a new tariff provision appilcable to industrial cogeneration. Under the proposal, Applicant sI11 be required to buy electricity from a cogeneration facility. Price for such power will be estab-Ilshed by special contract and would allow the cogenerator to reasonably recover his fixed and out-of pocket costs, provided such rates do not exceed Applicant's incremental cost of alternate generation. Sales for standby service to the customer will be at the applicable flied rates.
The basic purpose of the Staff's proposal is to signal potential cogenera- g tors that tariff provisions exist which would reasonably compensate a cogenera-tor for his electric output. The Staff does not propose to define the exact terms and prices but only general guidelinas, such that maximum flexibility can be achieved between Applicant and a potential cogenerator. The guidelines suggested by the Staff generally follow the recently enacted PURPA Section 210 requiring purchase of electricity by the utility from a cogenerator.
l PIRGIM supported the Staff's proposal. Appilcant opposed adoption of a l
cogeneration tariff until further studies have been done on potential of cogen-eration in Michigan.
While the ALJ recognized that cogeneration is an efficient source of power which should be encouraged, he did not adopt the Staff's reconsnended tarif'.
According to the ALJ, the only proposal on record is from the Staff. He found Page 108 U-6006
that the Staff's proposal contains deficiencies which might well serve to hinder rather than foster the development of cogeneration. The ALJ also felt that the Staff's proposal would subsidize the standby service to cogeneration facilities.
The ALJ, howeve , recomended that Applicant should be ordered to provide a study concerning cogeneration and how various cogeneration issues should be handled. That study would be completed within 180 days of the Commission's order. The study would include identification of present and potential cogen-eration; recommendations on a cogeneration tariff and impact on existing tariffs of a proposed cogeneration tariff. The Staff excepted to the ALJ's recommenda-IIon.
The Commission believes that implementation of a cogeneration tariff is an important step towards energy management. It provides positive indication to present and potential customers that cogeneration of electricity can be profitably produced in Michigan. In the long run it would somewhat relieve pressure on electric utilities to expand capacity. The Commission is well O aware that a cogeneration tariff at this stage cannot be perfect. The Staff itself has recognized that its proposal can be improved upon with more experi-ence. The Commission does not see however, what possible harm can be caused by implementation of the Staff's proposal. All it provides at this point is a framework for a negotiated contract between Applicant and cogeneration customers.
The Commission also finds that the framework is very much in line with the Federal guidelines now being considered by FERC pursuant to PURPA.
The Commission, therefore, adopts the Staff's proposal with full under-standing that future improvements will be forthcoming.
As f & the study to be performed by Applicant as suggested by the ALJ, the Comission orders that such a study indicating present and future potential of cogeneration in Applicant's service area should be conducted within 180 days of the date of this order. The Study should provide details of cogeneration O Page 109 U-6006
options, size and type of fuel sources, capacity and fuel saving estimates on Applicant's system and reconenendations on future options regarding cogeneration tariffs.
All Electric School Buildings - Standard Contract Rider No. 7 Applicant proposes to change Standard Contract Rider No. 7 so as to increase the service charge to 585 per month and to increase the energy charges to 5.29e per b n for all bh except for the winter heating season which charges are to be increased to 4.50c per bh. The Staff proposes no change in the present $75 oer mcoth service charge and to increase the energy charges to 5.2e per sh excett du-Ing the winter heating season which charges are to be increased te 4.6e per Gh.
The ALJ re:ornended increasing Standard Contract Ricer No. 7 by the overal!
percentage increase, increasing the service charge to $80 per month and the.
energy charge appropriately.
Tne Commission finds that maintaining a service charge of $75 per ment, as proposed by the Staff is reasonable and should be adopted. The structure of tN energy charges as proposed by the Staff should also be adcpted, with tne ratee, ajusted to reflect the authorized rate increasa.
Concercial Scace Heating - Standard Contract Rider No. 8 Applicant proposes to increase the energy charge for this rate to 5.62:
per bh, except for the winter heating block which is to be increased to 4.52e per hh. The Staff proposes to increase the energy charge to 5.4e per sh, except for the winter heating block which is to be increased to 4.58c per bh.
The ALJ recommended Applicant's manner of increasing the energy charges with amounts adjusted to reflect the adopted revenue deficiency.
The Commission finds that the Staff's pro)osal is appropriate and should be adopted, with appropriate changes in the energy charges to reflect the Page 110 O
cuthoriz:d rato inerces2.
Fuel and Purchased Power Adjustment Clauses O Both Applicant and the Staff propose modifications concerning the fuel and purchased power clauses applicable to electric sales. Applicant's proposed revi-sions primarily concern use of estimates for fuel and purchased power expenses and sales to determine the appropriate fuel and purchased powcr cost adjustments.
The Staff's proposed modifications involve the 10% penalty provision and the lag correction provision. The Staff and PIRGIM oppose Applicant's proposed modifi-cations to the fuel and purchase power clauses. Applicant supports, whereas PIRGIM and the Attorney General oppose, the Staff's proposal to eliminate the 10% penalty provision during times of emergency. Applicant Indicates that because of a lack of guidelines, it cannot respond to the Staff's proposed lag adjustment modification.
Under Applicant's proposed revision of the fuel and purchased power clauses set forth in Exhibit A-13, Schedule E-91, Revised Sheet No. B-410, the fuel and purchased power adjustments would be determined by a formula which estimates fuel and purchased power costs and forecasted sales during the months the adjust-ment factor would be applied. The fuel and purchased power adjustment factor would subsequently be corrected three months later, based on the variance between the forecasted components and the actual book figures.
While claiming that its proposed fuel and purchased power clause would track expenses better than the present clause, Applicant indicates that an annual reconciliation would still be appropriate since variations between fuel and pur-chased power cost revenues would be set aside in a b ank" to be recorded on ApplicantIbooksandthenbeusedtooffsetfollowingreconciliationperiod variances, The " bank" would be allowed to grow to a ceiling of $2 mI!1 ion either positive or negative. In the event that the bank exceeded a $2 million positive level, the Correnission would order refunds of the balance over $2 million.
Page ll!
1 If a negative balance of over $2 million occurred, the Commission would order collection to restore the bank to a credit balance no greater than $2 million.
g To handle the transition from the presecc fuel and purchi. sed power clause to its proposed clause, Applicant proposes that the lag correction facter be i
allowed to run its course for the three months after adoption of its preposee '
fuel and purchase power clause. After the lag factor runs its course. Appli-l cant proposes Implementation of its revised fuel and purchased power clauser.
l The ALJ rejected Applicant's fuel and purchased power clause propossis.
The ALJ reasoned, along the lines of the Staff, that Applicant's proposed M i and purchasec power clause would leave the fuel estimating method entirely up to Aeplicant. Also, Applicant's proposal would result in dup 1icage effcrts ..
tne Staff and other parties since Applicant's estimates would have to be ver*-
lied each montn and then three months later wculd have to be verified acsia wher actual data is furnished to correct estimates, in addition. the ALJ believed that Apolicant's proposed fuel and purchased power clause had not teen sn>n t- t5e record to be sucerior to the fuel and purcnase power claase now : r, exiscence. Finally, Applicant's " bank" proposal, with its 52 millice. ce*?.et ce:e rssult in what amounts to customers providing up to a $2 mI! lion interes -
' ee !can to i.pplicant.
The Comrilssien agrees with the Staff and ALJ and finds that App:icart' f uel and purchased power clause proposals should be rejected.
The Staff's proposed modificatier. concerning the 107 penalty prov3sien in tne fuel and purchased power clause calls for suspension of tnat provision wher.,
during a period of emergency, Applicant has resorted to noneconomic dispatch pursucat to Connission authorization. The Staff's proposed revision of the lag aojustment procedure would apply in periods of abnormal circumstances w er.
generation costs are temporarily high. Under the procedure, the Commission would first make a determination that abnormal circumstances exist and then Page 112 U-6006
I
. Applicent would computo fuct cnd purchtssd power adjustment fccters using nor- l l
mal costs for the period. The difference between the normal factor and the regularly computed factor would then be added to the regularly computed factor.
The ALJ found that the Staff's proposals should likewise be rejected. The ALJ asserted that the Staff's proposed modifications lack proper standards indicating when they should be applied. The suspension of the 10% penalty provision proposal falls to present any standards as to at what point it would be appropriate for the Conrnission to authorize Applicant to resort to noneco-nomic dispatch. Similarly, the lag correction modification proposal falls to present any standards indicating what will constitute abnormal circumstances when generation costs are temporarily high or what constitutes normal costs.
The ALJ maintained that establishment of app opriate standards for these deter-minations would serve to eliminate, in advance, difficulties and problems which could occur in application of the proposed modifications and, in the absence of such standards, the Staff's proposed fuel and purchase power clause modifications are not warranted.
The Staff excepted. It argued that the currently existing emergency elec-trical procedures (Rule B-3.7) for Applicant could ser"e as standards upon which the Commission would base its authorization for waiving the 10% penalty provi-sion. The Staff reasoned that with that rule utilized as a proper standard, the ALJ's concern is no longer present.
The Commission finds that the Staff's position is fair and reasonable and should be adopted. The purpose of a 10% penalty clause is to provide economic incentives to the utility in serving the needs of its customers at the lowest rates. Such incentive is necessary and effective in normal times.
For 19mtance when negotiating long-term coal contracts, a 90% clause provides
(
a sound economic incentive. During emergencies, however, the dominant concern of this Comission is to serve the public needs. Costs, though important, Page 113 U-6006 i
i i
take a second place. When the Comission finds that an emergency exists and i orders steps to be taken by Applicant resulting in higher power costs It seems unfair to disallow additional costs of meeting the emergencies.
The Comission also finds that the Staff's proposed revision of the lag-adjustment procedure is reasonable and should be adopted. The Commission believes it is in the public interest to smooth out the Ivvels of the fuel and parchased power cost adjustments during periods of abnormal circumstances. l The Staff In its original brief, takes the position that demurrage charges should be excluded from the fuel adjustment chsrge. In support of the proposed I
exclusion, the Staff argues that the objective of the fuel cost adjustment i clause it to allow only primary fuel expenses, and not small auxiliary items, to be passed tnrough the clause. In addition, the Staff states that demurrage charges should be excluded based upon the difficulty in determining the cause of such st and whether or not Applicant could have controlled those costs.
Applicant opposes the Staff's prnposal to exclude demurrage costs from the fuel adjustment clause.
The ALJ found that the Staff's proposal to eliminate demurrage charges should not be adopted since costs recovered from the fuel adjustment charge should be based on Rule B-4.6 and the Uniform System of Accounts. According to the ALJ. Rule B-4.6 provides that the fuel cost adjustment is based upon the average delivered cost of fuel. Account 151, Fuel Stock, of the Uniform System of Accounts is an inventory account which includes " demurrage and other transportation charges." When fuel is burned, the expense from Account ISI is charged to Account 501, Fuel. Since demurrage costs are originally included in Account 151 and then are appropriately passed through to Account 501 when the fuel is burned, and since Rule B-4.6 applies to the average cost of fuel burned, the ALJ found that demurrage charges should not be excluded from the fuel adjustmer.t charge.
Page 114 U-6006
Tha Stcff execpted. It contcnds thct the primary c:nsiderction es to whether or not an expense is to be included in fuel and put...ased power clauses is not the account in which it is booked. The Staff believes that demurrage costs should be excluded, not with regard to the account in which they are located, but based upon the difficulty in determinirg the cause of such costs and whether or not Applicant could have controlled those costs.
The Consnission finds that demurrage charges should be excluded from the fuel adjustment clause. In its final order in Case No. U-5502, the Commission clarified the costs which are includable in the fuel and purchased and net interchanged power clauses. At that time, the Commission found tr.at the follow-inq costs should be included in fuel and purchased and net Interchange power-clause calculations':
A. Fuel - (1) Invoice price of fuel 1 css any cash or other discounts.
(2) Freight and switching charges, including the e operations and maintenance expenses of the Midwest Energy Resources Company terminal at Superior, Wisconsin.
(3) Escise Taxes.
(k) Lease or rental costs of transportation eaulp-ment used to transport fuel from the point of acquisition to the unloading point. Any other costs are not includable.
B. Purchased Power - Basically, the costs includable in the cal-culation of the purchased and net interchange power factor l
are those costs booked in account 555.
C. Net System Requirements - Net system requirement equals net i generation plus net purchased and interchanged power, where net generation equals gross generation (output at generator terminals) minus station use. And net purchased and inter-changed power includes schedule power and inadvertent power. ,
This is equivalent to saying that net purchases and Inter- )
p changes are to include the net metered p er. l Account 501, Fuel Stock, of the Uniform System of Accounts, includes freight, switching, demurrage and other transportation charges as the book cost of fuel on hand. in clarifying the costs to be included in the fuel adjustment calculation, 1
Page 115 O U-6006
the Comission in its final order in Case No. U-5502 specified under item A. (2) l freight and switching charges, including the 0 & M expenses of the Midwest Energy l l
Resources Company terminal at Superior, Wisconsin. The Commission did not specify demurrage charges to be included and does not believe that they fall within W scope of freight charges. It was the Comission's Intention at that time and at the present time to exclude demurrage from the calculation of the fuel adjust-cent. Demurrage is a penalty for delay in unloading coal cars and, while the costs associated with such delays may or may not be under the control of Appli-cant, they are not appropriate for inclusion in the fuel cost adjustment clause.
Applicant and the Staff both recommended that fuel and purchased power reconcJilation proceedings be held on an annual rather than semiannual basis, as is presently the case. The ALJ found the recomendation to be reasonable and recomended its adoption.
The Attorney General excepted. The Attorney General claims that a chance f rom semiannual to annual reconcillatfor.s of feel and purchased power costs 9 with fuel and purcnased power recoveries would mean that ratepayers would experi-ence a further six-month delay in receiving refunds to which they may be entitled.
According to the Attorney General such delay would mean that additional ratcoayers would receive no refunds at all due to death or removal from the service territory.
The Comission recogni .s that improvements need to be made to the fuel and purchased power adjustment clauses, yet it is impossible to design a clause that assures that everyone gets exactly the refund to which he or she is entitled.
The fuel and purchased power adjustment clauses are Intended to allow the matching of fuel and purchased power costs and revenues over time, subject to incentive provisions for the ultimate protection of the customers. The seasonal variation in Applicant's sales, which can resJ1t in a substantial mismatching of costs and revenues under the present semiannual reconciliation system, is not within the direct contros of ?.pplicant. The possible mismatching of costs and Page 116 I
revenues may go far beyond what the Commission has determined as a reasonable incentive for the protection of the customers.
The Commission finds that an annual reconciliation period covering the 12 months, January through December, should be established. The reconcillation hearing should be held in May so that actual lag correction sales will be avail-able.
The Staff proposed and PIRGIM supports a recommendation that 9% annual Interest be paid on refunds resulting from overrecovery by the fuel and pur-chased power adjustment clauses. The ALJ found that proposal to be reasonable and recommended its adoption.
Applicant excepted. Applicant argues that they are already being penalized with a clause that allows only a 90% pass-on of costs and a reconciliation pro-cess that orders a refund of overrecoveries but noncollection of underrecoveries.
It claims that 9% interest on refunds is simply one more penalty. Applicant maintains that if the Commission is to be fair to both Appilcant and the consumer
() it should at least authorize collection of underrecoveries as well as refund of overrecoveries, and then treat both the same in terms of whether Interest is collected or not collected.
The question concerning collection of underrecoveries has been dealt with by the Commission in the past and is not an issue in this case. The issue here is whether or not the Commission should order overrecoveries returned to the ratepayers at 9% annual interest. When the reconcillation of fuel and purchased J power costs is on an annual basis, the possibility exists that Applicant may have the use of the customers' money for a considerable period of time. In view of this possibility, the Commission finds that under the new system of w
annual reconcillation, any overrecovered amount should be returned to the ratepayers at 9% annual interest. This is not a penalty against Applicant, but a protection for the customer. Ir. calculating the amount of Interest to O Page 117 U-6006
be returned to the customers, it should be assumed tha; the amount of overrecov- g cry was received ratably throughout the 12-month period in question. Interest at the annual rate of 9% should be applied on one-half of the total overrecovery amount for the 12-month perloo, and Interest at the annual rate of 9t should A applied on the total accrual for the period after the 12-month reconciliation period and before the billing month in which the refund is made.
Applicant proposes to raise the cost base for fuel to 13.75 mills per Nh and to raise the cost base for purchased power to 2.85 mills per 45. The Staff proposes that the basing point for fuel should be raised to 14.96 mills per 4h and the basing point for purchased power should be raised to 2.99 mills per Fah.
The ALJ found that the Staff's fuel and purchased power basing points are more appropriate than are Applicant's.. The ALJ then noted that the Staff's fuel expense included scrubber oil expense incurred at Applicant's St. Clair Unit No.
6 power plant. In the Comission's six-month reconelliation order dated June 27, 1979 in Case No. U-5108, the Comission determined that scrubber oil should not g be passed through 'ne fuel cost adjustment clause. The ALJ therefore, founc that scrubber oil expense should be exrtuded in determining the fuel basing point. The Staff's fuel expense included approximately $1,150,000 of scrubber fuel oII. Af ter adjusting for exclusion of scrubber oII, the ALJ found that the fuel cost basing point should be 14.93 mills per bh and the purchased power basing point should be 2 99 mills per hh.
The Comission agrees with the ALJ's findings but adds an adjustment of
$532,000 to fuel expense used in calculating the fuel cost basing point. This is to be consistent with the Commission's addition of 5532,000 to fuel expense to reflect the benefit corresponding to the Consolidation Coal load. (See Fuct and Purchased Power Expense.) By dividing $532,000 by the Staff's 40,392.385 Nh of system requirements, the Comission finds that the ALJ's fuel basing point should be increased by .o1 mill per Gh. Therefore, the Commission Page 118 U-6006
finds that th2 fuel cast adjustment cicuss bass factsr should be 14.94 mills per b h and the purchased and net interchanged power cost adjustment clause base factor should be 2.99 mills per bh.
Applicant and the Staff should work out a procedure for the transition to the new fuel and purchased power base points, as well as for the transitter. to the new reconcillation period.
Rules and Reculations General Provisions for Service Application for Service Both Applicant and the Staff propose to rewrite Rule B-2.3 Their proposals are substantially the same with slightly different wording. Under the new rule, all general service and Industrial service customers would be required to sign a contract when making application for service. The new rule also Indicated that service to premises recently supplied can normally be reestablished within one full business day from the application. However, if new construction is necessary, additional time will be required prior to providing service. The new rule also indicates that a customer desiring service may be required to present identification at an office of Applicant if there are any questionable circumstances surrounding the application.
The Commission agrees with the ALJ and finds that the Staff's proposed changes are preferable and should be adopted.
Reconnection and Turn-On Charces Both Applicant and the Staff propose to increase reconnection and turn-on charges in Rule B-2.8. Applicant proposes to increase the charge for restoring a cu b r that has been cut at the meter for breach of the rules from $6 to $20 and from $20 to $45 if the service has been cut at the pole. Applicant also proposes a charge of $6 If it is necessary to send a collector to the premises Pa s 119 O u-6oo6
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1 to collect for a bill and electric service is not discontinued. For restoration of service that has been cut at the pole, Applicant proposes a charge of $45 1
during normal working hours and $90 for reconnection during other than norrral l
working hours. The Staff's proposal is similar to Applicant's except that the Staff proposes a $25 charge for restoring service cut at a pole and a charge of $40 if such reconnection Is requested during other than normal working hours.
The Commission agrees with the As.J and finds that the Staff's proposal Is reasonable and should be adopted. However, the Commission finds that these increased reconnection and turn-on charges should not go into effect until June 1, 1980.
The Comission is aware of the disconnection problems experienced by low income families for nonpayment of utility bills. These special situations have been dealt with by the Comission in the past and emergency provisions h.sve been established to assist in these circumstances, insulation Standards for Electric Heatino Applicant and the Staff propose that a new Rule B-2.12 be established i
concerning Insulation standards for electric heating. Previously these stand- '
ards were part of Rule B-2.ll, Home insulation Finance Plan.
Applicant's and the Staff's proposed Rule B-2.12 differ in that Applicant's proposed rule makes the standards only guidelines, whereas the Staff makes the standards mandatory. The Staff's proposed rule differs from Applicant's also In that the Staff's proposed rule would apply to any electric heating customer who seeks to take advantage of any space heating rate, whereas Applicant's pro-l posed rule refers only to heat utilized in residential homes. PIRGIM supports the Staff's proposed Rule B-2.12 and opposes AppIlcant's proposed rulc.
The ALJ found that a separate Rule B-2.12 entitled insulation Standards for Electric Heating Is appropriate and should be adopted. The ALJ further found that the standards set forth in Rule B-2.12 should continue to be mandatory.
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l He esssrtad that Appilctnt's prsposel ta mak3 such stcnd,rds sugg3stad rathar than mandatory is a step backward in the effort to promote energy conservation.
In deciding to whom Rule B-2.12 would apply, the ALJ found thet application should be limited to residential homes. He maintained that although insulation standards to other than residential homes is advisable, there are serious diffi-culties in applying the Staff's proposed standards. According to the ALJ, com-mercial buildings are often built of brick and block and, thus, insulation often a..mno t bc .ulded to cixmiercial hulidings in the same manner as It can be added to residential homes. Furthermore, retrofitting of Insulation of commercial build-Ings in accordance with Rule B-2.12 standards might cause significant adverse ef fects on existing cooling systems. Another problem with application of Rule B-2.12 standards to conunercial buildings is that architects and engineers use "U" standards not "R" standards in determining building insulation. Whereas "R" s t .inda rd s reflect the insulating value of a single component in the building, "U" standards reflect the overall Insulating value of a total building section.
The "U" value standards have in fact been adopted in the Michigan Energy Code.
1977 AACS, R 408.31001 et seq., and are in effect for new building construction in Michigan.
Appilcant excepted to the ALJ's finding that the Insulation standards of Rule B-2.12 be continued mandatory and expressed that they have previously appealed such a finding in the Commission's final order in Case No. U-5502.
PIRGIM excepted to the ALJ's finding that the Staf f's proposed insuiation standards should not apply to conriercial buildings. PIRGIM argues tnat the need for conservation is just as great for consnercial buildings. According to PIRGIM, the imssible adverse effect of the proposal on cooling systems would be to e
decrease their efficiency somewhat and that was only the Judgment of Appilcant's witness; it had not been proven. Balanced against a possible loss of efficiency of air conditioning equipment should be the great energy savings that could be Page 121
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_. . -_ -_ --. - _ .~ --
made through enormous reductions in heat loss during the long winter months.
O The Comission finds that a separate Rule B-2.12 entitled insulation Standards for Electric Heating is reasonable and should be adopted. The Com-mission also finds that the standards as set forth in Rule B-2.12 should be N datory, as previously decided in Case No. U-5502. The final issue is whether these standards should apply to only residential of to other classes of cus-tomers. The Commission believes that not only residential but cc m rcial customers must be encouraged to adequately insulate. It would be unfair and wasteful to allow commercial customers to benefit from the space heating rate without proper Insulation. The possible difficulties in applying these stan-dards to commercial buildings are not deemed as serious as the consequences of not applyin'g them. Therefore, the Commission finds that Rule B-2.12 should apply to both residential homes and co m rcial buildings.
Conditions of Service Character of Servic.e, Applicant and the Staff proposed to reword the language In Rule B-3.1 to conform with present-day practice where Y-connected service is a standard rather than a Delta-connected service. Applicant's language differs from the Staff's in that it clarlfles that 208Y/120 volt service may not be available in all city districts.
The Commission agrees with the ALJ and finds that Applicant's wording is more appropriate and should se adopted.
Continuity of Service The Staff proposed to reword Rule B-3.2 as follows:
Pece 122 O
U 5006
"The company agrees to furnish continuous and adequate service subject to Interruption by agreement, or upon advance notice. Service might be Interrupted due to Os accidents or other causes not under the reasonable control of the company. Certain services are subject to limited hours and controls, as shown in the Schedule of Rates."
Appilcant opposed the proposed change.
The ALJ rejected the proposed modification to Rule B-3.2, reasoning that the Staff's proposed language appears to unnecessarily expose Applicant to damage claims resulting from service Interruptions beyond the control of Appli-cant.
The Commission agrees with the ALJ and rejects the Staf f's proposal.
The Staff also proposed to further revise Rule B-3.2 as follows:
"The company will not be IIable for damages caused by an interruption of service, voltage or frequency variations, single phase applied to three-phase lines, reversal or phase rotation, or carrier-current frequencies opposed by the company for system operations or equipment control. Therefore, the customer should install suitable protective equipment if such occurrence might damage his apparatus. The company is not exempt from liability s for damages resulting from its failure to exercise reasonable care and skill in furnishing service."
The ALJ also rejected that proposed modification to Rule B-3.2. He con-tended that the modification alters the meaning of the present provision and might well improperly expose Applicant to liability for damages not under its control or responsibility.
The Commission agrees with the ALJ and rejects the Staff's proposal.
Extension of Service Applicant proposed two changes to Rule B-3.3(1)(d). The first is a writing of the description of those systems for which the Commission's order in Case No.
U-3001 mandates undergrounding. The second change includes exceptions to man-datory undergrounding. The Staff's proposed language is substantially the same as Applicant's.
() Page 123 U-6006 i
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The Commission agrees with the ALJ and finds that the Staff's proposed revision is appropriate and should be adopted.
Distribution Systems s
Applicant and the Staff proposed two identical changes to Rule B-3.4 The first proposed change rewords Rule B-3.4(1) by changing the last paragraph in that section concerning winter charges from "an additional amount of $1 per foot i shall be added to tr*:nching charges "to" an additional amount of $1 per trench foot shall be added to charges." The second recorrrnended change rewords Rule B-3.4(2) so as to provide for measurement along the route of the trench to a point directly beneath the meter. The Commission tsrees with the ALJ and finds that the proposed changes are reasonable and should be adopted.
Undereround Service Connections Applicant and the Staff are in agreement to renumbering Rule B-3.5 for clarification purposes. The Commission agrees with the ALJ and finds that the renumbering is appropriate and should be adopted.
Temocrary Service Applicant and the Staff proposed an additional paragraph to be added at the end of the rule to establish a charge applicable to a customer when an unauthorized service tap of Applicant's lines is made. The Commission agrees with the ALJ and finds the proposed change is appropriate and should be made.
The Staff recommended an additional change to Rule B-3.6 to provide for a penalty of $100 to be levied for each unauthorized connection. Applicant objected to inclusion of that penalty provision. The ALJ found that the Staff's penalty provision should not be adopted since there is a legal question as to whether it can be enforced. The Commission rejects the Staff's proposal.
Page 124 U-6006 h
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- Emergency Electrical Preceduras - Rule B t {
Applicant recommends that the interim er final Emergency Electrical Proce-O dures which may be adopted in Case No. U-4128 be included in Applicant's rules and be identified as Rule B-3 7, Emergency Electrical Procec'ures. The Staff took no position on that request.
The ALJ found that if Emergency Electrical Procedures are approved in Case No. U-4128 prior to a final Commission order in tais proceeding, they should be set forth in a new Rule B-3 7 The Correnission agrees with the ALJ and finds that the Emergency Electrical Procedures as adopted by the Commission in its order in Case No. U-4128 on December 11, 1979 shall be incorporated as the new Rule B-3.7 l l
1 Billing and Payment for Service 1 General Deposit Conditions Applicant and the Staff propose to add a new sentence to the end of the l paragraph in Rule B-4.1(5)(J) to provide for escheating deposits to the State of Michigan af ter Appilcant has been unable to locate the customers for seven years. The Commission agrees with the ALJ and finds that the proposed change is reasonable and should be adopted.
Billing for Service Rule 4.2 Applicant proposed that Rule 4.2 should be revised so as to provide for monthly meter reading of domestic service. The Staff supported Applicant. The ALJ recorrnended that the revision be adopted. The Commission has already dis-cussed the need for monthly meter reading. The proposed revision to Rule 4.2 is therefore adopted.
w.
The Staff also proposed that Rule 4.2 be modified in order to correct the bills for number of days in the billing period. Currently the billing period for residential service ranges from 28 to 35 days. The Staff pointed out that Page 125 O U-6006
with the implementation of Inverted rates, and especially the Senior Citizen O
Rate, the customers could be adversely affected by the number of billing days, l
since an increase in billing days could move their bills into higher blocks with considerably higher prices. The Staff feels that this defeats the intent of the Senior Citizen Rate or the inverted rate. According to the Staff, some complaints have been received from customers on that issue.
The Staff recommended that bills should be prorated for the number of days in the calendar month corresponding with the billing month. Applicant opposed the Staff's revision but, in recognizing the problem, it proposed an alternate of its own.
Under Applicant's alternate proposal, the blockinq for domestic wrvice would be restated in terms of daily rather than monthly consumption. Thus, D-1 rate blocking would be 0-15 Kwh; 16-30 Kwh and excess block. Those blocks would then be multiplied by the number of days in the billing period to apply the appropriate prices. Similar blockings would be defined for all other domestic rates. The ALJ recommended that neither the Staff's proposal nor Applicant's alternate be adopted. According to the ALJ, adoption of a monthly meter read-Ing program as recommended earlier would remedy the problem raised by the Staf f.
Further, the ALJ found that the Staff's proposal would result in estimating most bills, while Applicant's method w uld tend to lower the first block and result in higher bills to many customers. The Staff excepted to the ALJ's decision.
The Consnission recognizes the issue raised by the Staff. The expressed purpose of Inverted rates and the Senior Citizen Rate is to promote conserva-tion by charging higher prices for large monthly users. Such monthly use, however, should not be measured by an increase in billing periods. The problem l can be particularly serious for senior citizens where the first block is only 300 Kwh and Inversion is sharper than the regular domestic rate.
The Comission concurs with the ALJ that adoption of a penthly meter reading Page 126 U-6006
program, as herein dona by the Comissien, would grsetly rsducs tha ssvarity of the billing problem. However, the Commission strongly believes that the customers should be billed as accurately as is practicable in acccr' dance with the price schedules.
The Comission finds that there may be difficulties in adopting either the Staff's billing revision or Applicant's alternate as pointed out by the ALJ.
The Commission feels that the following procedure would be a reasonable solu-tion to the issue. It meets the objectives of the Staff's proposal. The billing for Domestic Service Rate D-1, the Senior Citizen Rate D-1.3 and the summer billing of Rate D-2 would be computed as follows:
- 1. Determine the average daily consumption by dividing the total, metered bh by the number of billing days in the month'.
- 2. Multiply the average daily consumption by 30 or 31 depending on calendar days in the billing month.
3 Compute the charges using bh in (2) and applying the apprdpriate rate (s), excluding service charge.
- 4. Compute the average energy charge by dividing (3) by (2).
5 Multiply the average energy charge by the total bh in the billing period. Add service charges plus fuel clause and other surcharges, if any, using the billing period bhs.
The above billing procedure should be implemented in the third billing month following the date of this order.
Estimated Bills for Residential Service The Staff also proposed that the first bill based on an actual meter read-ing following estimated bill (s) shall be adjusted such that each monthly bill l including adjustments for fuel and purchased power is based on the same average l
mont g , consumption during the period between meter readings.
The ALJ did not address this issue in the PFD. The Commission finds that l the proposal is fair to both the customer and Appilcant and should be adopted.
However, the procedure should be implemented in conjunction with the new monthly Page 127 U-6006
meter reading program authorized in this orcer. I I
l Surcharges and Credits - Rule B-4.9 i
Applicant proposes to eliminate the provision for the other 0 & M Index contained in the present Rule E-4.9 since It has been proposed to roll that surcharge into the base rates in this proceeding. The Staff has retained the provision for other 0 & M surcharge but indicates that the surcharge is O mill per b h. ,
The ALJ reconnended eliminating the provision until such time as a new other 0 & M surcharge is approved by the Commission.
On January 30, 1980, a new surcharge of .88 mill per hh for other 0 & M expense was approved by this Connission to be applied to the monthly bills of metered jurisdirtional electric customers. That amount does not include the 53 mill per bh for the previous surcharge which has been rolled into the rates. Therefore, the Connission finds that this provision will be retained and read as follows:
Other Operations and Maintenance Expense Surcharge - A surcharge of .88 mills per bh shall be applied to the monthly bills of metered jurisdictional electric cus-tomers. This surcharge shall be in effect through the billing month of January 1981.
Transition from the current aathorized surcharge and that adopted above should be worked out by Applicant and the Staff.
Utilization of Service Service Connection - Rule B-5.1 Applicant and the Staff proposed to add a sentence to make provision for a contribution-in-ald-of-constructica if a customer wishes a service point other than speelfled by Applicant. The Commission agrees with the ALJ and finds that the proposed modification is appropriate and should be adopted.
Page 128 O U-6006
- Customer's installotion - Rule 8-5 2 Applicant and the Staff proposed to add a paragraph to Rule B-5.2 pro-hihiting the use of Applicant's distribution system for carrying foreign elec-tric currents or for carrier current transmission or broadcasting without prior permission of Applicant. The Comission agrees with the ALJ and finds that the addition is reasonable and should be adopted.
Company Equipment on Customer's Property - Rule 5.3 Applicant and the Staff proposed the addition of a provision to Rule B-5.3(1) ;
i to provide for relocation of company fac!11 ties at the customer's expense if the 4
relocation was requested by the customer. Applicant and the Staff also proposed to add a provision for charging a customer for repair, restoration, inspection and investigation expenses in cases where a customer willingly or negligently allows the meter seals to be broken, or allows work to be done on company meter-Ing equipment by unauthorized persons. The Comission agrees with the ALJ and finds that the proposed additions to Rule B-5.3(1) are appropriate and should be adopted.
Applicant and the Staff proposed that the word " residential" In the first sentence of Rule B-5.3(2) be changed to " secondary" to rere generally describe Applicant's practice. Also, Applicant and the Staff proposed changing the second paragraph fron " meters located Indoors" to " meters and related equip-ment located indoors." Finally, Applicant and the Staff proposed to add a sentence to the end of the second paragraph to comply with regulations promul-408.1001, gated pursuant to 1974 PA 154, Occupational Safety and Health Act, MCLA et seq., which requires that areas requiring the use of f W r s to reach company equipapac be large enough to acconunodate their safe use. Tne Commission agrees with the ALJ and finds that the proposed changes are reasonable arsi should be adopted.
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_ - _ _ , . _ _ - . . . _ . _ _ - . . _ _ , . _ . . _ _ _ - , . - . ~ . . _ _ _ _ _ _ _ . - _ . _ _ _ _ . _ _ _ _ ._ -__ __. ___ _
Access to Premises - kule B-5.4 Applicant and the Staff proposed to add a second paragraph to require the provision of a key to Applicant in cases where meters are kept In locked meter rooms In commercial buildings or apartments. Fallure to do so may result in ~ s termination of service af ter due notice. The Commission agrees with the ALJ and finds that the proposed addition is appropriate and should be adopted.
Lamo Supolv - Rule B-5.5 Applicant and the Staff proposed to delete the Lamp Supply rules from Applicant's Schedule of Rates Governing the Sale of Electric Service. The Commission agrees with the ALJ and finds that the proposed deletion is appro-priate and should be adopted since Applicant has, pursuant to a Federal anti-trust suit, eliminated its lamp exchange program.
Conlunctiona Serv ce - Rule B-5.6 Applicant and the St4ff proposed a new rule to prohibit the selling or O
sharing of electri-ity or transmitting service off the premises by a custer,er without written authorization by Applicant. Violation may result in discontin-uation of service. The Cormission agrees with the ALJ and finds that the new rule is reasonable and should be adopted.
l Additional Matters i
Malling Rate Schedules to Customers The Staff proposed that Applicant mall to all of its customers a copy of the rate schedule appilcable to them at least once a year or within 60 days of a major rate order. Applicant opposed this recornendation.
l The Staff argued that customers should be aware of changes in rate design l and rate levels on which they can appropriately base their consumption levels.
l The Staff also stated that the recommendation is supported by 1975 PA 317, MCLA 429.355, which provides for the Cornission to require utilities to Page 130 U-6006
parfodically Inform customers of th2ir rctas.
Applicant claims that it is already in compliance with the above-cited statute through its customer information program and, furthermore, the expense of mailing copies of tariff sheets and rules and regulations to each of its customers would be prohibitive.
The ALJ agreed that the Staff's proposal could generate a great expense for Applicant but noted that it is in keeping with the provision of MCLA 429.355 providing for informing customers of their rates.
The ALJ decided on an alternative method of applying the Staff's proposal.
It would be less expensive yet provide customers with the necessary information to understand Applicant's rates. The ALJ's recommendation is for Applicant to l
send a letter or brochure to each customer briefly synopsizing the rate for that customer's class; i.e., domestic rates to domestic customers. In addition, the letter or brochure should make brief reference to provisions such as the fuel and purchased power clause, the other 0 & M surcharge, the system avail-ability provision and any other of Applicant's rules and regulations that O might be appropriate. The letter or brochure should also advise customers that further Information concerning Applicant's tarlff's and rules and regula-tions could be obtained directly from Applicant. Most importantly, the letter or brochure should set forth the Information contained within it in clear and
~
understandable language.
l The ALJ recommended that Applicant submit its proposed letter and/or l
l l brochure to the Staff within 90 days of issuance of this order to ensure that they contain appropriate information and are as understandable as possible.
At the same time, Applicant should submit an estimate of the cost of providing cust'intrs with that information. Thereafter, either based upon agreement between Applicant and the Staff or following an evidentiary hearing, if nec-I essary, the letter and/or brochure should be sent to all of Applicant's Page 131 U-6006 l
1
customers. No exceptions were filed.
The Consnission believes that the Staff's proposal is in the pubile Inter-est but agrees that it should be modified. Customers should be made aware periodically, and especially af ter a rate case, what their rate is and how It is designed in order to plan their consumption. The Commission finds that the ALJ's proposal is a reasonable one and adopts it. The Commission finds that within 90 days of issuance of this order a sample letter and/or brochure should be submitted to the Staff for approval and, subsequently, be sent to all of Appilcant's customers. The Commission is not persuaded that the costs of such a program would be high enough to be prohibitive.
Centra' Air Conditioning The Staf f proposed that as a condition of service that all new dwiestic and cormercial central air conditioning customers, as well as domestic and cormercial customers adding air conditioning, be required to provide wiring ,
such that air conditioning systems will have the capability of being remote controlled. The Staff also proposed that all central air conditioning users be offered a discount of $12 per year if they sign a contract to allow cur-tallment of service for air conditioning during an emergency.
PIRGIM recomended that all central air conditioning be placed on inter-ruptible service except for persons who have health needs or where customers purchase such an exemption. Applicant opposed the Staff's recommendation and by inference also opposed PIRGIM's proposal.
The ALJ found that no evidence was placed on the record in support of PIRGIM's position, as required under Section 85 of the Administrative Proce-dures Act, MCLA 24.285 The ALJ therefore rejected PIRGIM's proposal. PIRGIM excepted on the basis that sufficient evidence had been developed in the generic hearings in Case No. U-5845 on the subject. That case is now before the Commission.
Page 132 l U-6006
- The Commission belicycs that th2 proposc1 by PIR0lM has significent imp:ct on the service for air conditioning in the Detroit area. Before implementing O such a proposal a more thorough study of pros and cons must be made in the evidentiary proceedings. The generic load management proceedings are now before the Commission. It is hoped that soon the Commission will act on the recommendations in Case No. U-5845 It would be premature to adopt PIRGIM's proposal until final action on Case No. U-5845 and a subsequent evidentiary procedure to implement the findings in Case No. U-5845 The Commission there-fore rejects PIRGIM's proposal.
The ALJ adopted the Staff's proposal to wire new and retrofit central air conditioning systems, but only for the domestic class. The comercial class proposal was rejected on the grounds of technical problems with comrer-cial interruptions. The ALJ recommended that wiring requirements for the domestic class be implemented within one year of this order tc allow time for adjustment to installers.
() Applicant excepted to the ALJ's recommendation for domestic class wiring requirement. The Staff, on the other hand, excepted to rejection by the ALJ of the commercial air conditioning requirement.
The Commissicn finds that the Staff's proposal is a sound and positive step towards long-term load management. One of the principal Impediments to remote control of air conditioning is the inability to separate the load from other loads in existing buildings. Presently Applicant is conducting experi-ments with controlled air conditioning service with some degree of success.
If eventually this technique is found to be effective, then separation of air conditioning circuits would be an important condition. The Commission w.
therefore adopts the Staf f's proposal. As for the commercial class, the Cowaission is not persuaded that remote controls are technically infeasible in the future. Therefore, the Staff's proposal on commercial is reasonable Page 133 O U-6006
I and should be adopted.
The Coemission agrees with the ALJ that some time period be allowed to inform the public and air conditioning manufacturers, installers, etc. There-fore, the wiring requirement would be ef fective for installation on or af ter January 1, 1981.
Xill.
CONCLU510N Miscellaneous and Sumary Findines The Commission FINDS that:
- a. Jurisdiction is pursuant to 1909 PA 106, as amended, MCLA !*60.551 et sec.;
1909 PA 300, as amended. MCLA 462.2 et sec.; 1919 PA k19, as amended MCLA !.60 51 et seq.; 1939 PA 3 as amended, MCLA 460.1 et seq.; 1969 PA 306, as amended, MCLA 24.201 et seq.; and the Commission's Rules of Practice and Procedure, 195* Ad-ministrative Code, 1968 Annual Sucplement, R 460.11 et sec.
- b. The statutory recuirements of Section 81 of 1969 PA 306, as amendec.
have been complied with since an Administrative Law Judge's Proposal for Decision was issued on October 4, ;979 and the parties have been given reasonable occor-
! tunity to submit exceptions thereto.
1
- c. The statutory recuirements of Section B5 of 1969 PA 306, as amended.
have been compiled with since the Conunission has ruled upon all proposed findings j
submitted by the parties which would control this Opinion and Order.
- d. A 1979 projected test year period for the purpose of establishing rates In this proceeding is reasonable and appropriate.
(
- a. A rate base for Applicant's jurisdictional electric, miscellaneous stea>
- nd Industrial power plant operations of $4,370,113,000 for the purpose of es-tablishing rates in this proceeding is just and reasonable.
I
- f. An overall rate of return of 9.25%, including a rate of return of 13.50 g
Page 134 U-6006
a -
on AppIIcsnt's common equity, is just cnd rarsonibio for tha purposo of sstz. -
lishing rates in this proceeding.
- g. The jurisdictional adjusted net operating income for the test year for the purpose of establishing rates in this proceeding is $334,234,000.
- h. Applicant is experiencing an annual revenue deficiency for its electric and miscellaneous steam operations of $132,722,000, or an increase of $75.790,000 above the level established by the Commission in its order of May 22, 1979 An increase in Applicant's electric and miscellaneous steam revenues in that amount is reasonable and in accordance with other findings and conclusions contained in this Opinion and Order.
I. The system availability incentive provlsion established in Case No.
U-5108 should be retained, as modified in this Opinion and Order. Data required to be filed under the system availability incentive provision should be filed by Applicant in accordance with the availability incentive clause filing require '
ments attached hereto as Exhibit D.
J. The industrial power plant customers of Appilcant should be included in this and future general rate case applications filed by Applicant. Appilcant is experiencing an annual revenue deficiency for services to such customers of
$891,100 and a corresponding increase in Applicant's revenues is reasonable.
- k. The indexing system relative to Applicant:s "Other Operations and Maintenance" expense as adopted by this Comission in Case No. U-5502 is reason-able and should be reaffirmed.
- 1. AppIIcant's fuel cost adjustment and purchased and net Interchange power clauses as established in Cases Nos. U-5502 and U-5108 and as developed in the Commission's monthly purchased and net interchange power and reconciliation decisions should be retained, except that reconcillation procedures should be held in May for the 12-month period January through December of each year, and reconciliation overrecoveries should be refunded with 9% annual Interest as more Page 135 O U-6006
fully stated, supra. Further, Appilcant and the Staf f should work out a p,ro-cedo s for the transition to the new reconcillation procedure.
- m. The electric rate schedules attached hereto as Exhibit A will increase Appilcant's annual electric operating revenues as authorized by this Opinion 1rmt Order, will result in just and reasonable rates and charges for the sale of elec-tric energy and should be made effective for service rendered on and after
& ch 15, 1980.
- n. The miscellaneous steam and water rates attached hereto as Exhibit B will increase Applicant's miscellaneous steam and water revenues as authorized by this Opinion and Order, will result in just and reasonable rates and charges for the sale of miscellaneous steam and water and should be made effective for service rendered on and af ter March 15, 1980.
- o. The industrial power plant rates attached hereto as Exhibit C will in-crease Appilcant's annual industrial power plant revenues as authorized by this Opinion and Order, will result in just and reasonable rates and charges for comodities and ser vices sold to tne industrial power plants and should be r.ade effective for sales made on and after March 15, 1980.
- p. 120 days from the issuance of this Opinion and Order is a reasonable 1
time for Applicant to Institute its monthly meter read program.
- q. Those matters recomended by the ALJ which were not excepted to and net addressed directly in this order are reasonable and should be adopted.
- r. All contentions and proposed findings not herein specifically determined should be rejected, the Comission having given full consideration to all evi-dance cf record and arguments made in arriving at the findings and conclusions set forth in this opinion and Order.
l l
Order THEREFORE, IT IS ORDERED that:
A. The Detroit Edison Company is hereby authorized to revise its rates for h
.. nr
. 01cetric cnd afscalicneous stcam s2rvice so cs to provid2 an incrocsa in annual electric and miscellaneous steam revenues in the amount of $132,722,000 over and above the electric and miscellaneous steam rates approved by the Comission in its Opinion and Order in Case No. U-5502 and $75,790,000 over and above the level established by the Coernission in its order of May 22, 1979 B. The bond submitted by The Detroit Edison Company pursuant to the Corrsis-ston's order of May 22, 1979 is cancelled.
C. The Detroit Edison Company is hereby authorized to revise its rates for its industrial power plant customers so as to provide an increase in annual rev-enues in the ancunt of $891,100.
D. The rate schedules of The Detroit Edison Company attached hereto as Exhibits A, B and C are hereby approved for service rendered 'on and after March 15,1980.
E. In conformance with the Corrsission's Order No. D-3096, Filing Proce-duros, The Detroit Edison Company shall, within 30 days of the date of this Opinion and Order, file with the Commission rate schedules substantially the same as those attached hereto as Exhibits A, B and C.
F. The indexing system relative to Applicant's "Other Operations and Main-tenance" expense as adopted by this Cocynission in Case No. U-5502 is reasonable and is reaffirmed, as modified herein.
G. Applicant's fuel cost adjustment and purchased and net interchange power clauses as established in Cases Nos. U-5502 and U-5108 and as developed in the Conrsission's monthly purchased and net interchange power and reconciliation de-cisions shall be retained, except that reconciliation procedures shall be held in May fhe 12-month period January through December of each year, and rec-onelliation overrecoveries shall be refunded with 9% annual interest as more fully stated, supra. Further, Applicant and the Staff shall work out a procedure for the transition to the new reconciliation procedure.
O Page 137 w,&, U-6006
H. The system availability incentive provision established in Case No.
U-5108 shall be retained, as modified in this Opinion and Order. Data required to be filed under the system availability incentive provision shall be flied by Applicant in accordance with the availability incentive clause filing re9' ire-ments attached hereto as Exhibit D.
l.
In the event the United States or Michigan income or property taxes are reduced during the period this order is In effect, the record in this case may, ;
in the discretion and on further order of the Commission, be reopened for the purpose of adjusting rates to recognize The Detroit Edison Company's reduced tax expense.
J.
The Detroit Edison Company shall institute its monthly meter read pro-gram within 120 days af ter the issuance of this Opinion and Order.
K. The industrial power plant customers of Applicant shall be included in this and future general rate case applications filed by Applicant.
L. Those matters recocrnended by the ALJ which were not excepted to and not O addressed directly in this order are reasonable and are adopted.
M. All contentions and proposed findings of the parties not herein specif-Ically determined are hereby rejected, the Commission having given full considera-tion to all evidence of record and arguments made in arriving at the findings aac conclusions set forth in this opinion and Order, The Commission specifically reserves jurisdiction of the matters herein contained and the authority to issue such further order or orders as the facts Page 138 U-6006
)
I
EXHIBIT H
-ATTACHMENT FOR ITEM NO. 7 RATE DEVELOPMENTS Granted Electric Gas Steam Test year utilized ~ 4/30/80
~
Annual amount of revenue increase requested-test year basis $1,459,352 Date petition filed 6/27/80 Annual amount of revenue increase allowed-
- test year basis 1,452,000 Percent increase in revenues allowed 9%
Date of final order 9/30/80 Effective date 10/1/80 Rate base finding (000's) ~N/A Construction work in progress included in Rate base (000's) N/A Rate of return on rate base authorized N/A Rate of return on comon equity authorized N/A TIER Authorized by Comission 2 Revenue Effect (000's)
Amount received in year granted
() Amount received in subsequent year (If not available, annualize amounts receivedinyeargranted)
$980,827 Pending Requests Test year utilized Amount (000's)
Percent increase Date petititon filed Date by which decision must be issued N/A Rate of return on rate base requested Rate of return on common equity requested Amount of rate base requested Amount of construction work in progress requested for inclusion in rate base
< .. ._ __ _.....l_-. _ - - - - - - _ - - . . - - - - - - - --r -- - - - -
]
m 3
- STATE 0 F' M I C H I G A N-BEFORE THE MICHIGAit PUBLIC SERVICE C0iHISSION
- In the matter of the Application ) '
i of WOLVERINE ELECTRIC COOPERATIVE,)
Case No. U INC. for authorization to increase Wolverine's wholesale rate to its member cooperatives. ')
APPLICATION 1
Wolverine Electric Cooperative, Inc., hereinafter referred to as
" Wolverine", represents unto the Commission as follows:
- 1. That Wolverine is a non-profit corporation duly authorized l to do business in the State of Michigan, and is presently engaged as a rural electric utility in the business of generating, purchasing, transmitting and selling electric energy at cost to its four member distribution cooperatives, Tri-County Electric Cooperative Inc., of h Portland, Michigan, 0 & A Electric Cooperative, Inc., of Newaygo, Michig'an, Oceana Electric Cooperative, Inc., of Hart, Michigan, and Western Michigan Electric Cooperative, Inc., of Scottville, Michigan.
- 2. That Wolverine's wholesale rate to its Member Cooperatives is regulated by and is under the jurisdiction of the Comission and that Wolverine's presently effective wholesale rate as approved by the ;
Comission in its Order in Case No. U-5423 dated August 1,1977 is ~on file with the Commission.
- 3. That Wolverine is experiencing increasing costs of operation; that revenues from its present wholesale rate to Member Cooperatives
~
are not adequate to cover costs of operation; that Wolverine is and has been operating at a significant loss; and that Wolverine has had to borrow from the National Rural Utilities Cooperative Finance Corporation (CFC)inordertomeetcurrentoperating' expenses.
i
- 4. That, if Wolverine's wholesale rate to Member Cooperatives is not increased, Wolverine will continue to operate at a loss and will j u be unable to meet expenses and will be unable to repay its short term borrowings from CFC.
l
j t
- 5. That, in support of the proposed modification to Wolverine's wholesale rate, the following Exhibits are attached hereto and made part
( ) of this Application:
EXHIBITS A-1 Balance Sheet & Statement of Operations, REA Form 12A, TYE April 30, 1980.
. A-2 fiormalized Statement of Operations, I TYE April 30, 1980 A-3 Existing Wholesale Rate to Member Systems.
A-4 Revenue Analysis - Existing and Proposed Wholesale Rate A-5 Proposed Wholesale Rate to Member Systems.
WHEREFORE, Wolverine prays that this Honorable Commission:
- 1. Fix a date for a hearing to enable Applicant to present its evident.e in support of this Application; and,
- 2. Find and determine that Wolverine's charges to Member Cooperatives are unreasonably low and inadequate and should be increased to protect Wolverine's financial integrity and
- p. to assure that Member Cooperatives will be provided with
'\ '
adequate and dependable wholesale electric service; and,
- 3. Grant such other and further relief and authorization as ,
the Commission may deem' desirable or necessary.
Respectfully submitted, WOLVERIt1E ELECTRIC COOPERATIVE, ItiC.
By: __
/>
~
John fl. Keen Mabger t
t r%
N
Prepared Direct Testimony of JOHN N.. KEEN Before the Michigan Public Service Conmission Case No. U Q. Please state your name and address.-
A. -My name is John N. Keen and I reside at 421 Clark Street, Big Rapids, Michigan.
Q., Where are you employed, how long, and in what capacity are you employed.
A. Wolverine Electric Cooperative in Big Rapids, Michigan. I have been employed by the Cooperative since 1949. I was assistant manager of the Cooperative -
for 4 years and I have been manager of the Cooperative for the last 27 years.
Q. Are you familiar with the financial status and the accounting system of the applicant?
A. Yes. -
Q. What is the legal status of the applicant?
A. A non-profit Michigan Corporation engaged in the generation and transmission of electric energy Q. How many. members do you serve?
O A. We have 4 members. The members' names are Western Michigan Electric Cooper-C/. ative, Oceana Electric Cooperative, 0 & A Electric Cooperative, and Tri-County Electric Cooperative.
Q. In addition to the foregoing members, do you serve any other organization or organizations?
A. Wolverine was created by its four members for the sole purpose of supplying their total generation and transmission needs. . Consequently, in a strict sense. Wolverine serves no other organizations. However, Wolverine is a member of the Municipals and Cooperatives Pool (MCP) and interchanges, buys and sells various kinds of capacity and energy with the other Pool members.
The purpose of MCP,. and Wolverine's participation in that Pool, is to achieve economies resulting from coordination of construction and operation of transmission.and generating facilities of the several utilities involved.
Q. When did Wolverine Electric Corperative become subject to the jurisdiction of the Michigan Public Service Commission?
A. December 22, 1965.
Q. Are your present rates on file with the' Commission?
A. Yes L/
-c-Q. Do you generata or purchase your power supply or both?
I 5
A. Both.
-Q. From whom do you purchase?
A. We purchase wholesale power and energy from the Detroit Edison Company and-Consumers Power Company, and also interchange power and energy with Northern Michigan Electric Cooperative, City of Traverse City, City of Grand Haven,
- i. the City of Hart, the City of Zeeland, the City of Lowell and the City of '
- Lansing.
i Q. Have you increased your electric rates since coming under the jurisdictica of the Commission? If so, when?
I A. Yes. Several times. The last increase was a little less than 4% and occurrcd -
i approximately three years ago in accordance with the Comission's Order in ~
Case No. U-5423.
i Q. Are you experiencing increased demands for electric service and electric energy in your service area?
A. Yes.
Q. Has this resulted.in increased revenues?
A. Yes, but not in proportion to increasing costs. t Q. Have you also experienced increased costs of operation?
A. Yes. .
Q. What factors are primarily responsible for these increased costs of operation?
l A. Increased costs of fuel, labor, material, equipment, taxes and purchased power. _
Q. Have you been able to recoup some of these costs?
A. To some extent, yes. The fuel, purchased power and net interchanged power cost clause is permitting us to recover variations in those costs, except that the time lag in that recovery of cost results in somewhat of a cash flow problem for us. Other cost changes such as labor costs, taxes, interest, etc., are not being recovered. We have had to borrow from CFC, in short term notes, r meet increased costs and to meet our cash requirements.
To date, we ha 9 borrowed about $2,800,000 from CFC which must be repayed with. interest in the near future. Without a rate increase, we will not be able to generate sufficient cash for that purpose.
Q. What should your revenues be with respect to costs?
l l
l e
l
4 A. Our banker, REA, requihes via our mortgage contract that we achieve a T.I.E.R. level of at least 1.1. This means that, on the average over the
~ '
years, we should have margins epal to not less than 10 percent of our O
b interest payments on our long term debt. In the past, we have been granted rate increases, based on historical year rate cases intended to achieve TIER levels of the order of 1.3 or more. However, in spite of their intentions, those increases have always failed to produce the desired effect and Wolv-erine has steadily continued to operate at a loss. The latter is attested to by the fact that we are currently in debt to CFC for almost $2,800,000 in short term borrowing to cover operating expenses. We believe that Wolv-
'erine should have rates designed to produce a TIER level of the order of 2.00, if Wolverine is to meet its operating expenses on a current basis and also be in a position to repay the shorc term borrowings from CFC. A TIER of the order of 2.00 would mean that Wolverine, on the historical year basis used in our application, should achieve a margin of the order of $700,000 (approximately 4.1 percent of total revenues). That order of-margin, if achieved, should pe'rmit Wolverine to retire its short term CFC debt over a three to five year period.
Q. What changes are you proposing in your_present rate schedule to achieve the revenue increase you need?
A. We propose to increase the rate charges so as to produce an overall in-crease in revenue of approximately $1,460,000, or about 9.3 percent, on the basis of actual test year sales to our member systems.
Q. What are the specific changes you are proposing in the rate?
O k'
A. We propose increasing the substation charge from $1,170 per month per station to $1,300; the dcmand charge from $4.23 per kW per month to $4.70; the energy charge from 2.31C per kWh to 3.249c per kWh; and, lastly, to increase the Fuel, Purchased Power and Net interchanged Power Cost Adjust-ment base from 2.2459c per kWh to 3.0429c per kWh.
Q. What will that increase do to your TIER ratio?
A. On the test year basis, it should give us a margin of approximately $700,000, which should give us a TIER of 2.00.
Q.
You mentioned earlier that you owed CFC about 2.8 million dollars in short term notes. How do yot' propose to repay that amount?
A. We propose, if the Conmission authorizes the increase we are now requesting, and if the increase produces the desired effect, that the CFC notes be re-paid over a three to five year period.
Q. Have.you prepared exhibits and data to document your need for a rate increase?
A. Yes, we have. ,
Q. I now refer you to Exhibits A-1 through A-5 attached to your application and ask you to identify them.
O
. 4-A. E.shibit A-1 shows our balance sheet and statement of operations for the test Q,s year ending April 30, 1980. Exhibit A-2 is our normalized Statement of Opera tions. A-3 is our present rate schedule and A-5 is our proposed schedule. Exhibit A-4 shows oc* proposed increase and its effect upon our member systems.
Q. What effect will your rate incr"ase and change have upon your member distri-bution cooperatives and their retail rate schedules?
A. It will mean an increase in their wholesale power cost of approximately 9.3 percent, which, in turn, will mean an increase to their members. The distribution cooperatives will not have to change their basic retail rates or their present billing procedures and techniques, since the increase would flow through to the ultimate members via adjustment clauses in the distribution cooperatives' retail rates.
Q. Who prepared the exhibits you have described?
A. The exhibits were prepared by Daverman Associates, Inc., our engineering con-sultant, working in cooperation with Mr. Norman Newby, Assistant to the Manager.
Q. You are therefore requesting authority through this application to make effective the proposed rate schedule as set forth in Exhibit A-5 which is attached to the application.
I$
V A. Yes.
i
ads,!!ichigan NORMALIZED STATEMENT OF OPERATIONS TEST YEAR ENDED APRIL 30, 1980
( ADJUSTMENT ADJUSTED 8ALANCE
' s) ACTUAL INCREASE ADJUSTED WITH PROPOSED AS RECORDED (DECREASE) BALANCE REVENUE INCREASE Electric Energy Revenue $15,731.403 $15,731.403 $17.190,755*
Other Operatin9 Revenue 13,506 13,506 13,506 Total Operating Revenue: $15,744,909 $15,744,909 $17,204,261
- Operating Expense -
Production (excl. fuel) $ 816.177 $ 816,177, $ 816,177 Production Fuel 6,138,904 6,138,904 Other Power Supply 5,540,692 6,138,904}4 5,540,692 5,540,692 Transmission 194,232 194,23d' 194,232 Distribution 54,974 54.974 54,974 Admin. and gen'l. 658,499 $ 32,65_5f 691,154 691,154 Total Operating Expenses: $13,403,478 $ 32,655 $13,436,133 $13,436,133 Maintenance Expense -
Production $ 187,679 $ 250,004 j$ 437,683 $ 437,683 Transmission 85,342 3,274 ' 88,616 88,616 Distribution 19,476 -- 19,476 19,476 General Plant 3,740 -- 3,740 3,740 Total Maintenance Expense $ 296,237 S 253,278 $ 549,515 $ 549,515 Annualization - 0 & M Payroll --
$ 54,642# $ 54,642 $ 54,642 Annualization - 0 & M Gasoline -- 1,609r 1,609 1,609 Depreciation & Amortization $ 844,006 $ 58,523'$ 902,529 $ 902,529 Taxes 528,124 49,367 / 577.491 577,491 Interest - Long Term Dept 7,940,136 1,567,223 ' 9,507,359 9,507,359 Interest - Charged to Constr. (7,307,625) (1,532,364)' (8,839,989) (8,839,989)
Other Interest 401,323 2,569 s 403,892 403,892 Total Cost of Electric Service $16,105,679 $ 487,502 $16,593,181 $16,593,181 Operating Margin $ (360,770) $ (487,502) $ (848,272) $ (611,080)
Interest Income $ 36,110 $ 36,110 $ 36,110 Other Non-Oper. Income (Net) 218,145 $ (217,327) 818 818 Other Capital Credits & Part. Div. 91,682 (71,454)/ 20,228 20,228 Net Patronage Capital or Margin: $ (14,833) $ (776,283)/$ (791,116) $ 668,236 T.I.E.R. 0.98 '
(0.19) 2.00 (Negative) f (includes proposed revenue increase of $1,459,352 O
Exhibit A-2 Sheet 1 of 5
~
averine Electric Cooperative
- Jig Rapids, Michigan I
hs COS_T ADJUSTHENTS - STATEMENT _0F OPERATIONS (TYE April 30,1980)
- 1. Administrative and General
- a. Workman's Comp. -
Normalized $ 60,943 Actual 50,635 .
i Total Adjustment 10,308 .
Increase chargeable to expense - 94.91% $ 9,783 #
- b. Dispatch Billing -
Normalized credit to A/C 561 $(104,446)
(100,774)_
1 Actual credit to A/C 561 Adjustment (Decreese) $ (3,672) d
- c. Miss Dig Billing -
Normalized credit to A/C 920 $ (2,998)
Actual credit to A/C 920 (2,707)
Adjustment (Decrease) ,$ .(291) #
U d. Insurance (A/C 924 & 925) -
$ 150,560 Normalized insurance 162,583 Actual insurance Adjustment (Decrease) ,$ (12,023) d
- e. Insurance (A/C 926) -
$ 22,988 Normalized insurance 17,810 Actual insurance '
>$ 5,178 #
Adjustment - Increase
- f. Rate Case Expense
$ 5,000 Estimated - 2,500 4 Annualized Adjustment - Two Year Spread '$
- g. CPCo Anti-Trust Settlement (A/C 923)
- 31,180 #
Current years' expense - Increase 32,655 #
Total Administration and General Increase:
- 2. Production Maintenance (See last sheet of this Exhibit)
Normalized maintenance $ 447,720 197,716 Actual Maintenance
$ 250,004 #
Adjustment - Increase Exhibit A-2 Sheet 2 of 5 l
- 3. Transmission Maintenance -
Normalized Contract Spraying $ 36,016 Actual Contract Spraying 32,742 Adjustment - Increase <$ 3,274 #
- 4. 0 & M Payroll -
Normalized Payroll $1,150,658 Actual Payroll 1,092,146 Total Adjustment .$ 58,512 Increase Chargeable to Expense - 93.386% ,$ 54,642 #
- 5. Gasoline Expense -
Normalized Expense $- 12,334 Actual Expense 10,725 Adjustment - Increase <$ 1,609 #
- 6. Depreciation Expense - .
Normalized Depreciation $ 902,529 Actual Depreciation 844,006 Adjustment - Increase a$ F3,523 #
- 7. Taxes -
- a. Payroll -
Normalized Taxes $ 78,096 Actual Taxes 74,462 Total Adjustment $ 3,634 Not Chargeable to Expense (218)
NET Adjustment - Increase *$ 3,416 #
- b. Property Net Taxable Plant 4/30/80 $31,979,743 28,912,271 12/31/78 Net Increase $ 3,067,472 Ave 1979 Tax Rate 14.98 Mills 45,951 #
Tax Adjustment - Increase <$
$ 49,367 #
Total Tax Increase Exhibit A-2 Sheet 3 of 5
, , 8. Interest on Long Term Debt
- a. F.F.B. -
O Normalized Actual S 8,903,060 7,356,469 Adjustment - Increase .$1,546,591 #
- b. REA -
f4rmalized $ 604,299 Actual 583,667 Adjustment - Increase ,$ 20,632 M Total Interest Increase $ 1,567,223 -
- 9. Interest Charged to Construction (FFB)
Normalized $(8,839,989)
Actual (7,307,625)
Adjustment - Increase . $(1,532,364) #
- 10. Other Interest Expense -(CFC Short Term)
Ave. Daily Balance $ 2,785,461 Current Int. Rate 14.5%
tiormalized Interest 403,892 Q Actual Interest 401,323 2,569 2 Adjustment - Increase ,$
- 11. tion-Operating Income CPCo Anti-trust Settlement -
Rec'd from attorneys $ 269,935 Over payment (21,428)
Actual Payment $ 248,507 Credit to A/C 903 (31,180)
Adjustment - Decrease '$ (217,327) 4
- 12. . Capital Credits (C.F.C.)
flormalized Amount $ 20,228 Actual Amount 91,682 Adjustment - Decrease ,$ (71,454) #
TOTAL - All adjustments $ 487,502 O
Exhibit A-2 Sheet 4 of 5
Wolverine Electric Cooperative'
.. Big Rapids, Michigan PRODUCTION MAINTENANCE. COSTS .
Actual Costs:
~
Burnips Scottville Hersey Portland Vestaburg Totals 1975 161.732 15,380 92,809 10,786 29,839 310,546 1976 122,136 29,442 73,977 7,972 45,145 278,672 1977 106,234 26,138 90,293 12,305 96,781 331,751 1978 208,095 48,578 364,506 30,762 101,642 753,583 1979 24,326 23,028 78,191 14,214 57,957_ 197.716 Totals: 622,523 142,566 ti99,776 76,039 331.364 1,872,268 .
Normalization of Costs:
Actual Price Levelizer Levelized Year Costs Indexes
- Factors ** Cost 1975 310,546 171.5 1.378 427,932 1976 278,672 182.4 1.296 361,159 1977 331,751 195.1 1.211 401,750.
1978 753,583 209.4 1.128 850,042 1979 197,716 236.3 1.000 197,716 Totals: 1,872,268 2,238,599 Averages: 374,454 447,720
'* Industrial Comodities Price Indexes. Bureau of Labor Stat.,
U.S. Dep't Lab.
- To convert to 1979 price levels.
O V
Exhibit A-2 Sheet 5 of 5 ,
v.S.C. No. 1 Third Revised Sheet. No.1.00 ilolverino niectric Cooperative Cancelling Second Revised Sheet No. .l.00
.. nig Rapida, Michigan SCilEDULC "A" Wholesale Service to Member Distribution Cooperatives AVAILABILITY Available to all electric cooperative associations which are or which may become member's of the Wolverine Electric Cooperative. Electric power and epergy furnished hereunder shall be separately metered and billed for each delivery point.
MONTH 11 RATE Service Charge Each Substation $1,170 per substation Demand Charge -
'All kW at each delivery point at $4.23 per kW Energy Charge .
All kWh at each delivery point at 2.31c per kWh
- Fuel, Purchased Power and Net Interchanged Power Cost Adjustment Clausa
- In accordance with Hearing procedures adopted by the Michigan Public. Service l N Commission, there shall be an adjustment per kWh sold under this schedule consisting of an increase or decrease of 0.0001C per kWh for each full 0.00010 increase or decrease in the cost of fuel and purchased power and net inter-changed power incurred in two preceding months above or below a base cost of 2.24590 per kWh. The cost per kWh of fuel and purchased power and net inter-changed power for the two preceding months shall equal the, actual total cost incurred in those two months for fuel and purchased power and net interchanged power divided by the total kWh sales under this schedule during those same two months. In accordance with Hearing procedures adopted by the Michigan Public Service Commission, the adjustment shall apply to the two billing months fol- .
lowing the calendar month in which the adjustment is ordered.
MAXIMUM DEMAND The maximum demand at each delivery point shall be determined by suitable instruments and shall be the highest average rate at which energy is used during any 15-minute '
period of the billing month for which such determination is made.
[
~.
N J
Issued: August 1, 1977 Uffective for service rendered
"# # "# ^"9" by: John N. Keen, Manager '
- b Issued under authority of Michigan Public Service Commission Order dated August 1, 1977 in Case No. U-5423 Exhibit A-3
{}{
h ShcnB 1 ef 1 TL
. .rine Electric Cooperative g Rapids, Michi9;n REVENUE ANALYSIS - EXISTING AND PROPOSED RATE (TYE April 30, 1980)
Billing Data: Existing Rate Proposed Rate
- 1. RATES (Monthly)
Substation Charge $ 1,170 $ 1,300 Demand - per kW $ 4.23 $ 4.70 Energy - per kWh 2.31 & 3.249(
F, PP & NI Base - per kWh 2.2459c 3.04294 Express feeders Negotiated Negotiated
- 2.
SUMMARY
47 Substa.* $ 659,635 $ '732.927 842,969 kW c ,, 3 3,565,759 3,961,954 383,826,800 kWh 8,866,399 ~
12,470,533 F PP & NI 2,614,269 k' --
Express Feeders 7,574 7,574 Sub-total: $15,713,636 $17,172,988 (9.29% Increase)
O 'e eii wheeii=9: $ 17.787 $ 17 878 Totals: $15,731,423 $17,190,775
- One Station (Weare on Oceana System) in servic.e less than 12 months (actual 11.7903 months).
- 3. Tri-County 17 Substations $ 238,680 $ 265,200 lis Substations ** 15,158 16,842 321,487 kW c 2. / 1,359,890 1,510,989 145,639,900 kWh 3,364,282 4,731,840 F, PP & NI 996,181 --
Express Feeders -- --
Totals: $ 5,974,191 $ 6,524,871
- Three stations shared With 0 & A. (9.22% Increase) 39 Exhibit A-4 Sheet 1 of 2
. . 0&A 14 Substations $ 196,560 $ 218,400
<~ lli Substations *** 26,962 29,958
( 298,579 kW 4xy 1,262,989 1,403,321 138,043,900 kWh 3,188,814 4,485,046 F PP & NI 943,600 --
Express Feeders 7,574 7,574 Totals: $ 5,626,499 $ 6,144,299 -
(9.20% Increase)#
- Three stations shared with Trf-County.
- 5. Oceana 6 Substations $ 84,240 $ 93,600 1 Substation 13,795 15.327 121,884 kW ca.i 515,569 572,855 55,969,200 KWh 1,292,889 ,1,818,439 .
F,'PP & NI 375,658 --
Express feeders -- --
~
Totals: $ 2,282,131 $ 2,500,221 (9.56% Increase)+
- 6. West. Mich.
6 Substations $ 84,240 $ 93,600 101,019 kW 599 427,310 474,789 u 44,173,800 kWh 1,020,515 1,435,207 F PP & NI 298,729 --
Express Feeders -- --
Totals: $ 1,830,794 $ 2,003,596 f
(9.44% Increase)4 i
'f.
t Exhibit A-4 Sheet 2 of 2 a
, ..u
, flichig.sta c.n.ee l l uig third Itevined St.ect Ho. ,5.$t$
StilEDULE "A" t!bolenate Service to Member Distribution Cooperatives AVAILABILITY Availableoftothe members allWolverine electric cooperative associations which are or which may Electric Cooperative. ecome b hereunder shall be separately metered and billed for each delivery pointElectric .
MONTHLY RATE
_ Service Charge Each Substation $1,300 per substation
_ Demand Charge All kW at each delivery point at $4.70 per kW Energy Charge All kWh at each delivery point at 3.249c.per kWh Fuel, Purchased Power and Not Interchanged Power Cost Adjustment In accordance with Hearing procedures adopted by the Michigan Public Servic Commission, e consisting of an increase or decrease 0.00010 ofthere shall be an adjustment per kWh ,
1 increase or decrease in the cost of fuel and purchased power and net interpor kW s -
changed 3.04290 perpower kWh. incurred in two preceding months above or below a base cost of ,
The cost per kWh of fuel and purchased power and not inter- ,
fj
. changed power for the two preceding monthn shall equal the actual total cost incurred in those two. months for fuel and purchased power and net interchan i power divided by the total kWh salen under this schedule during those same two months. J Service Commission,In accordance with Hearing procedures adopted by the Michigan 1Pu in calculating the adjustment.the adjustment shall apply to the two imonths kWh used O
MAXIMUM DEMAND i
The maximum demand at each delivery point shall be determined by suitables inruments t i and shall be the highest average rate at which energy is used during any 15-minute .]i period of the billing .nonth for which such determination is made.
')
.I. '
I y
'ti Incued:
by: John N. Keen, Manager Effective for service rendered on and after
- Innued under authority of Michigan Public Service Conuniunion Order dated 15 in Cane No. U-Exhibit A-5 Sheet 1 of 1 m
()
STNTE 0F MICHIGAN BEFORE THE MICHIGAN PUBLIC SERVICE COMMISSION In the matter of the application )
of WOLVERINE ELECTRIC COOPERATIVE for authority to increase Case No. U-6532 WOLVERINE'S wholesale rate to its member cooperatives'.
O DIRECT TESTIMONY OF-
, JAMES R. PADGETT, P.E.
e O
() September 11, 1980 1
PART I
- QUALIFICATIONS i Q. Please state your name and address.
A. My name is James R. Padgett. My business address is 6545 Mercantile Way, P.O. Box 30221, Lansing, Michigan 48909.
Q. What is your current position with the Michigan Public Service Commission?
A. I am a Public Utilities Engineer in the Office of Electric Operations.
Q. 'What is your educational background?
A. In June, 1973, I received a Bachelor of Science Degre,e in Chemical Engineering from Michigan State University. In 1977, I attended a course entitled Fossil Fired Large Power Steam Generation at the Center for l Professional Advancement in New Brunswick, New Jersey. 'In 1978, I completed a course on Power Plant Performance sponsored by Power Technologies, j Incorporated, in Schenectady, New York. In 1977, I participated in a Workshop on Availability Engineering and Productivity Im'provement in Chicago, Illinois, sponsored jointly by the Federal Department of Energy i and the Electric Power Research Institute. I also participated on a l
l committee sponsored by the United States Department of Energy and the National Regulatory Institute in Columbus, Ohio, which was composed of staff members from selected state regulatory agencies that had enacted power plant availability prograns. The committee released a paper on regulatory actions to improve power plant productivity last year.
Q. Would you briefly outline your work experience?
.O 1
l L._----.- _ . . u. _ _ _ _ - - - - - - - . . - - - , - - - - - - - - - - - - - . - - - .
.. i
( )- A. After graduation, I was employed by Consumers Power Company in the Cherical Division of their Research and Testing Laboratory. During my I
employment there, I was responsible for certain projects involving air and water chemistry related problems in the Company's electrical generating plants. I joined the Staff of the Michigan Public Service Commission in December,1974, as a Public Utilities Engineer and have held positions in the State Energy Office, Business Services. Division, and Office of Electric Operations. My current responsibilities in the Office of Electric Operations
, include the area of electric generation. In the past four years, I have conducted numerous on-site inspections of the power pl. ants located within this State.
l i
Q. Are you a registered professional engineer in the State of Michigan?
() A. Yes, I am.
Q. Have you testified previously before this Commission?
A. Yes.
s I
i i .
!O
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(3
\m,/ PART II CASE NO. U-6532 Q. What are your responsibilities in this case?
A. -I am responsible for the Staff adjustment to production maintenance expense and Staff's rate design.
Q. What is the Applicant. proposing for production maintenance expense?
A. Over the last five calendar years, Applicant has experienced a wide variation in production maintenance expense. This variation has ranged in magnitude from the $753,583 expensed in 1978 to the $197,716 expensed in 1979. For the period 1975 through 1977 production maintenance expenditures ranged between $278,672 and $331,751. Because of these
(_) large swings it is very difficult for Applicant to accurately predict production maintenance expenses for a given test year. As a result, Applicant took the present worth of the last five years of production maintenance expense using the 1979 Industrial Commodities Price Index as a base and then averaged these amounts to determine a normalized level of production maintenance expense. The adjustment proposed by Applicant in the case was then computed by subtracting actual 1979 expenditures from the normalized level.
I I
l . Q. Are variations of this nature unusual?
A. No. The Wolverine generating system is comprised of small internal combustion or combustion turbine units at five locations. Maintenance expenditures for units of these types are very-sensitive to the age of
() the units and hours of operation.
~
In addition, given the relatively small
D a O size of the sustem. ens maaer reedem eeta9e Perticeier>> on the-combustion turbine units can result in large unanticipated expenditures.
Therefore, it is not unusual for expenditures to vary significantly from year' to year.
Q. In your opinion is the adjusted balance of $437,683 proposed by the Applicant excessive in view of the fact they expensed only $197,716 in 19797 A. No. Over the same five year period the Wolverine system has, generated 1,057,359 mwbrs of electricity or an average of 211,472 mwhrs per year.
Dividing the average generation into the nonnalized e'xpenditures proposed by Applicant, results in a normalized maintenance cost of 2.07 mills / kwhr for each kwhr of electricity produced by the Wolverine system. This amount-O is less than the 2.15 mills / kwhr and 3.03 mills /kwbr expensed by Detroit Edison and Consumers Power Company for total production maintenance in 1979. .
Production maintenance costs for combustion turbines and internal combustion
, units at Detroit Edison and Consumers Power were, as to be expected, even higher than total system production maintenance costs in 1979. Detroit Edison, which has both combustion turbines and internal combustion units incurred production maintenance costs of 6.59 mills /kwh in 1979. Consumers Power which has only combustion turbines incurred maintenance costs of 7.95 mills /kwh in 1979. These comparisons illustrate that the adjustment requested by the Applicant is not unreasonable.
O I'%/') Q. What is your formal recommendation for this adjustment?
A. Staff agrees that the adjusted balance of $437,683 for production maintenance expense is reasonable and has adopted it for use in its direct case.
Q. .What do you recommend for rate design in this case?
A. As shown in Mr. Geyer's Exhibit S- , Staff's revenue requir. ment is $34,503 less than that requested by the Company. This difference is solely attributable to other interest expense.
I have reviewed the rate design proposed by Applicant and found it reasonable and I am adopting it essentially in its entirety for the Staff case. The sole exception is that I am reducing the demand charge by $.04/kw to compensate for the difference in other interest expense
(,
k/
supported by Mr. Geyer. Exhibit S- , summarizes the Staff's proposed rate design.
Q. Does this complete your testimony?
A. Yes, it does.
\
v
_ . , _ . . .__ . ~ _ . . . . _ _ _ _
,s,.s'....G. s.s . ., a vu. Ln s..va..ua . ,s g;u. ,,em
. t olverine 1: lect ric Coop.-rat ive Cancelling Third 1:evir.ed Sheat. I:o. 1. ria
, 's.ig P.sp i cht , !!ichigan Exhibit S- ,JRP-1 p.
5 sci!ClKU.5: "A" t!holesale nervic,* t o !! umber nistribution Coopgerativen AVAILAnILITY .
Available to all cicctric cooperative associations which are or uhich may become raembers of the llolverine Electric Cooperative. Electric power and energy furninhed hereunder shall be separately metered and billed for each delivery point.
MONTilLY RATE Service Charge _
Each Substation $1,300 per substation Demand Charge _ .
All kW at each delivery point at $4.66 per kW Energy Charge All kith at each delivery point at 3.249c.per kUh Fuel, Purchased Power and det Interchitnged Per.ecr Cost Adjustrient p In accordance wit.h Hearing procedures adopted by the !!1chigan Public Service Concission, there shall be an adjustment per kWh sold under this schedule consisting of an increase or decrease of 0.00010 por khh for each full 0.0001C .
increase or decrease in the cost of fuct and purchased power and not inter- l changed power incurred in tuo preceding rysnths almve or below a base cost of 3.04290 per kWh. The cost per ktfa of fuct and purchat.cd power and net inter-changed power for the two preceding months chall equal the actual t.otal cost. f
. incurred in those t.wo. r.onths for fuel and purchased power 'and not interchanged power divided by the total LWh sales under this schedulo during those same two months. In accordance with llearing procedures adopted by the 111chigan Public Service Co:rmission, the adjustment shall apply to the two Jmonths kuh used in calculating t.he. adjustnent.
MAXIMU 1 D12tAND .
The maximum detaand at each delivery point shall be determined by suitable instrunents and shall be the highest average rate at which energy is used during any 15-minute period of the billing month for which such determination is made.
O V......__.._ _ . . , _ _ . . . _ _ _ _ - _ . _ - - - . - - - - - - - - - - . -
1ssur d: Uffect.ive for service rende.vd liy : John H. Keen. 1:anager Innued under aut.bority of !!ichigan Public Service Co.a.ainnion Order dated in Case No. U- i
I
!O J
l 5 TATE OF MICHIGAN BEFORE THE MICHIGAN PUBLIC SERVICE COMISSION
}
I 1
1 In the matter of the Application )
i of WOLVERINE ELECTRIC COOPERATIVE, ) Case No. U-6532 INC. for authorization to increase )
Wolverine's wholesale rate to its )
1 member cooperatives. )
)
i 6
- O
)
i 1
i Direct Testimony and Exhibits
} of
, Charles W. Geyer I l
- l l
l i
O 3 .
5 i
~ -- - ~~~~ ' ~ ~ ~ " ~ ~ ~ ~ '
O Direct Testimony of Charles W. Geyer Q. Please state your name and business address.
A. My name is Charles W. Geyer. My business address is 6545 Mercantile Building Lansing, Michigan.
Q. By whom are you employed and what is your position?
A. I am employed by the Michigan Public Service Commission as Supervisor of the Audit Section of the Electric Division.
Q. Please state your educational background and your professional experience.
A. I graduated with a Bachelors Degree in Accounting from Michigan State University in 1955. I was employed by the Michigan beoart-ment of Revenue from 1955 to 1959 as an auditor. Ir 1960, I was employed by the Michigan Department of Mental Health as an accountant. In September 1960, I was employed by the Michigan Public Service Commission as an auditor.
Q. Have you previously testified before this Comission?
A. Yes. I have testified before this Comission on telephone, gas and electric regulatory matters. -
O
= ;
Q. Have you made an examination of the books and records of Wolverine Electric Cooperative. Inc.?
A. ~Yes, to the extent I thought necessary.
Q. Did you prepare exhibits to be submitted before this Consission in this proceeding?
A. Yes.
Q. Is this a copy of your exhibits?
A. Yes. .
Q. Were these exhibits prepared by you or under your direct supervision?
A. Yes.
O Q. Would you describe the items on the exhibits?
A. Yes I will. The first item is rate of return on net plant' which is determined by dividing net operating income by average net plant. The second item is TIER ratio which is determined by adding interest payments and margins together and this total is then divided by the amount of interest payments. The REA requires that this figure be between 1.0 and 1.5. the company is asking for increase in their rates to make this figure 2.0. The third item is plant-revenue ratio wnich is determined by dividing total plant by total operating revenue, less cost of power. The fourth item, debt service coverage ratio is computed b.) adding together patronage capital or margins, interest expense and depreciation; this total is then divided by the sum of all
. O
_,- _ .= ,
O payments of principal and interest required towards long-term debt.
The REA requires that the debt service coverage ratio be at least 1.25, using the proposed rates the' company has a ratio of 1.5.
Q. What is the amount of increase in revenue the company is asking for in the rate case?
A. The company is asking for a revenue increase in the amount of $1,459,352 which would make the figure for total operating revenue $17,204_,261.
Q. What is the amount of increase in revenue that the Staff is recommending in the rate case?
A. The Staff is recommending an increase in revenue of $1,424,849 which would make the figure for total operating revenue $17,169,758.
Q. Did you audit the company's adjustments for the proposed rate increase?
A. Yes I did.
Q. Do you have any adjustments to the company's case?
A. Yes, I do and it is as follows:
Interest on short term debt company used an interest rate of 14.25%
on a principal of $2,785,461 to arrive at an interest total of
$403,892. Interest on short term debt Staff used an interest rate j of 12t on a principal of $3,085,461 to arrive at an interest total of 1
$370,255. The amount of the Staff adjdstment is $33,637.
Q. Does this complete your direct testimony?
A. Yes.
- s. .
-. ...e, -
e- .-= -- e-.
,.7 ~*--we- . - -e-
O i
f
! WOLVERINE ELEt ~r.IC COOPERATIVE, INC.
Ratio Calculations
- 1. Net Operating Income 1,277,584
- 2. (From Pro Fonna Operating Statement) l l
- 3. Net Plant in Service 4 May 1, 1979 87,901,692
- 5. April 30,1980 115,866,565
( 6. Average 101,884,128 1
- 7. Return on Average Net Plant
- 8. Line 1 + 6 1.25%
l
- 9. TIER Ratio l 10. Patronage Capital and Margins 667,370
- 11. (From Pro Forma Operating Statement)
- 12. Interest Expense 667,370
- 13. Total 1,334,740 14 TIER Ratio Line 13 + 12 2.0 l
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= __
. = .- - - . . .
= = = - _ . .
\
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O l
l WOLVERINE ELECTRIC COOPERATIVE INC.
Ratio Calculations
! 1. Plant-Revenue Ratio l
l 2. Total Plant .
- 3. April 30, 1980 127,873,305 1
- 4. Operating Revenue 17,169,758 l
- 5. (Fran Pro Forma Operating Statement) -
- 6. Less: Cost of Power Generated 11,679,596 l
() 7. Net Operating Revenue 5,490.162
- 8. Ratio Line 3 + 7 23.29 i 9. Debt Service Coverage Ratio l
- 10. Patronage Capital or Margins 667,370
- 11. Interest Expense 667,370
- 12. Depreciation 902,529
- 13. Total 2,237,269
- 14. Required Principal and 1,493,011
~
- 15. Interest Payments
- 16. Ratio Line 13 + 15 1.5 I
- O l
WOLVERINE ELECTRIC COOPERATIVE, INC.
Pro Forza Operating Statement C meany Staff
- 1. Electric Energy Revenue 17,190,755 17,156,252
- 2. Other Operating Revenue 13,506 13,506
- 3. Total Operating Revenue 17,204,251 17,169,758 4 Operating Expense:
- 5. Production (Excl. Fuel) 816,177 '
816.177
- 6. Production Fuel 6,133,904 6,138,904
- 7. Other Power Supply 5,540,692 5,540,692
- 8. Transaission 194,232 194,232
- 9. Distribution 54,974 54,974
- 10. Aamin. and General 691,154 691,154
- 11. Total Operating Expenses 13,435,133 13.435,133
- 12. Maintenance Expense
- 13. Production 437,683 437,683 s 14 Transmission 88,616 88,616
- 15. Of stribution 19,476 19.476
- 16. General Plant 3.740 3,740 17 Total Maintenance Expense 549,515 549,5i5
- 18. Annualization - 0 & M Payroll 54,642 54,642
- 19. Annuali:ation - 0 & M Fuel 1,609 1,509
- 20. Depreciation and Amortization 902,529 902,529
- 21. Taxes 577,491 577,491
- 22. Interest - Long Tem Cent 9,507,359 9,507,359
- 23. Interest - Charged to Const. (8.839,989) (8.839,989)
- 24. Other Interest 403,892 370,255
- 25. Total Cost of Electric Service 15,593,161 16.559.544
- 26. Operating Margin 611,080 610,214
- 27. Interest ;;;come 36,110 26,110
- 28. Other Nc.t-Operating Income (Net) 818 818
- 29. Other Capital Credit & Pat. Div. 20,228 20,228
- 30. Net Pat. Capital or Margin . 665,236 667,370 r
i O
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/v^'n 5 TATE OF MICHIGAN BEFORE THE MICHIGAN PUBLIC SERVICE COMMISSION A A *A
- In the matter of the application of )
WOLVERINE ELECTRIC COOPERATIVE, INC., ) '
j for authority to increase its whole- ) Case No. U-6532 b, sale rate to its member cooperatives. )
)
a 1
_D t'
l:*
.; At a session o.f the Michigan Public Service Commission held at'lts offices -
- . 4 in the City of Lansing, Michigan, on the 30th day of September, 1980.
PRESENT: Hon. Daniel J. Deml ow, Chairperson Hon. Eric J. Schneidewind, Commissioner Hon. Edwyna G. Anderson, Commissioner f
O OPINION AND ORDER I.
HISTORY OF PROCEEDINGS l .
On June 27, 1980, Wolverine Electric Cooperative, Inc. , (Applicant) filed an application for authority to increase its rates and charges for the sale of wholesale electric energy and power to its four member cooperatives.
Pursuant to due notice, a public hearing was held in Lansing, Michigan on September 11, 1980, where Applicant presented the testimony of one witness and offered four exhibits. The Commission Staf f (Staf f) cross-examined Applicant's l
witness and presented the testimony of two witnesses and offered two exhibits.
No other parties participated in the hearing.
() At the conclusion of the hearing, all parties waived compilance with the provisions of Section 81 of the Administrative Procedures Act of 1969, as amended. MCLA 24.281.
l
e 11*
p DESCRIPT,10N OF APPLICANT Applicant is a Michigan corporation with principal offices located in Big Rapids, Michigan and is engaged in the business of producing and transmitting wholesale energy to its members, O t, A Electric Cooperative, Oceana Electric Cooperative, Tri-County Electric Cooperative and Western Michigan Electric Cooperative.
Ill.
TEST PERIOD in this, as in other rate proceedings, it is necessary to select a test period and adjust the operating results of such test period for known changes in revenues and expenses so that the adjusted operating results of the test period will be representative of the future, and thereby afford a reasonable basis upon which to predicate sates which will be effective during a future period, in this proceeding, Applicant submitted testimor.y and exhibits cover-Ing the . year ending April 30, 1980, with illustration of known cost increases cournencing subsequent to that date.
There having been no evidence covering any otner period and no objection having been .aade to the year test period ending April 30, 1980, as adjusted, the Conunission adopts it as the appropriate test period.
IV.
STATEMENT OF FACTS .
The basic rates now being charged by Applicant are as authorized by the Conuni u i on in its order dated August 1, 1977 in Case No. U-5423 Also, by order P. ige ?
U-6$ $/ .
t
. F in L.ase No. U 'a l '20 .es .wcnded by its ur.l.r ilated August I, 1977 (U-5423). Ap-plic.uit was authorized to incorporate ints; its rate schedule to its ccreer cooperatives a fuel, Purchased Power and Net interchanged Power Cost Adjustment Clause.
Applicant also proposed reflecting as an expense the amortization of a re-paynent of a short-term note to the National Rural Utilities Cooperative Finance Corporation.
Citing increased wages and labor costs, increased material and equipment costs, increased property taxes, increased fuel costs, increased costs of pur-chased power and increased interest expense, Appilcant sought authority to es-tablish rates which would produce adJitional revenues of approximately
$1,460,000 annually.
The Staff concurred with the fact that Applicant was in need of increased s
i revenues but differed in the amoe.nt. The Staff recummended an annual revenue increase of $1,424,849 The Commission FINDS that:
- a. Jurisdiction in this natter is pursuant to 1909 PA 106, as emended, MCLA 460.551 et seq.; 1919 PA 419, as amended, MCLA 460.51 et seq.; 1939 PA 3.
as amended, MCLA 460.1 et seq.; 1969 PA 306, as amended, MCLA 24.201 et seq.;
i
! and the Commission's Rules of Practice and Procedure, 1954 Administrative Code, 1968 Annual Supplement, P. 460.11 et seq.
- b. Applicant's present rates and charges are insufficient to provide it with an adequate and reasonable rate of return upon the fair value of its prop-erty used and useful in rendering electric se'rvice to its member cooperatives.
- c. Additional annual revenues in the .ynount of $1.424,849 must be provided to enabl. Applicant to realize a rate of return which is a fair and reasonable return for Applicant in thi. case. and to enable Applicant to meet the minimum
~
f i rwu c i are t rips i rennen t '. u l' its lendinq agencies.
P.s q. - e U - 9, L
- d. The proposed rates and ch.er9es attached hereto as Exhibit A are just and reasonable and will provide additional annual revenues in the amount of
$1,425,654 and the proposed change in energy charge and the base cost of its adjustment clause is just and reasonable and approval of the proposed rates, charges and changes is in the public interest.
L THEREFORE, IT IS ORDERED that:
A. Volverine Electric Cooperative, Inc. , is hereby authorized to place I
into effect, for service rendered on and af ter October 1, 1980, the attached rates and charges designed to produce an increase in its annual revenues of
, 51,425,654. .
B. In accordance with the provisions of Commission Order No. D-3096,
! Filing Procedures, Volverine Electric Cooperative, Inc., shall prepare and sub-
[ ) mit to the Commission for filing, within 30 days of the effective date of this order, a rate schedule substantially the same as that attached hereto as Exhi-6 bit A.
The Commission specifically reserves jurisdiction of the matters herein i contained and the authority to issue such further order or orders as the facts and circumstances nay require.
1 j i 4
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U-C *A ?
i Any party desiring to appeal this order must perfect an appeal within 30 days after issuance and notice of the order.
MICHIGAN PUBLIC SERVICE COMMISSION
/s/ Daniel J. Demlow 4
Chairperson (SEAL)
! /s/ Eric J. Schneidewind j commissioner By the Commission and pursuant to Commissioner Edwyna G. Anderson con-i ts action of September 30, 1980. curs in part and dissents in part:
I dissent as to the continued autho-
! rization of the Fuel, Purchased Powe
/s/ Thomas R. Lonergan and Net interchanged Power Cost Ad-Its Secretary justment Clause. My dissenting opinion in this matter is being flied with Applicant's concurrent Fuel,
() Purchased Power and Net interchanged Power Cost Adjustment order issued 4 this date.
I concur in the findings as to rev-enue deficiency and. other aspects of this order.
/s/ Edwyna G. Anderson Commissioner e
i t
k Page 5 U-f631 mp
-._ - , ~ . _ _ - . _ . , , , _ . , . . _ , - _ _ . . _ _ - . . . . , _ _ . . _ ~ . _ . _ . . _ _ , , . _ _ _ . . _ . _ . _ _ . - . . . . , . . - . . , _ . . . . . - - . . . . - . ..m._
- FOurtlf. Revised Sheet 1:o.1.00 f t . I' . ". . C . !Jo. I Castcolling Third . rteviced Sh et tro.1.00 Uolvet ine Flect ric Cong>ci at iv$-
liig Itaisi ris , flichigan n EXHIBIT A U SCitCDULE A" Wholesale Service to I-tember Distribution Cooperatives AVAILABILITY Available to all electric cooperative associations which are or which may become members of the Wolverine Electric Cooperative. Electric power and energy furnished hereunder shall be separately metered and billed for each delivery point. .
HONTHLY RATE Service Charge _
Each substation $1,300 per substation ,
Demand Charge All kW at each delivery point at $4.66 per kW Energy Charge All kWh at each delivery point at 3.249t.per kWh Fuel, Purchased Power and Net Interchanged Power Cost Adjustment In accordance with Hearing procedures adopted by the Michigan Public Service
(/) there shall be an adjustment per kWh sold under this schedule Commission, consist 3..g of an increase or decrease of 0.0001C per kWh for each full 0.00014 increase or decrease in the cost of fuel and purchased power and net inter-changed power incurred in two prece'.ing months above or below a base cost of 3.0429C per kWh. The cost per kWh of fuel and purchased power and net inter-changed power for the two preceding months shgli equal the actual total cost incurred in those two. months for fuel and purchased power and net interchanged power divided by the total kWh sales under this schedule during those same two months. In accordance with Hearing procedures adopted by the Michigan Public Service Commission, the adjustment shall apply to the two months kWh used in calculating the adjustment.
MAXIl1Ull DEMANC The maximum demand at each delivery point shall be determined by suitable instruments and shall be the highest average rate at which energy is used during any 15-minute period of the billing month for which such determination is made.
O ff ctive for ser vice rendered I *.s ond - '- 7 ..v (^..-> on and af ter,4-4S v 4 /No Ity: Johti 11 . Ke e ri, flasia r jer lusued under aut.h arity of t!ichigan hd>} ic Service Com. nim: ion
- *
- in Car.a l;o. U- a f.1 L Orda r dat s.d p}d y%
NORTHERN MICHIGAN ELECTRIC COOPERATIVE, INC.
ATTACHMENT FOR ITEM NO. 7 RATE DEVELOPMENTS Grrnted Steam Test Year utilized 7/1/78 - 6/30/79 Annual amount of revenue increase requested-t:st year basis (000's) 1,006 Date petition filed 10/2/79 Annual amount of revenue increase allowed-test year basis (000's) 723 Parcent increase in revenues allowed 4%
D:te of final order 12/20/79 Effective date 12/26/79
-Rate base finding (000's) 723 Construction work in progress included in Rate base (000's) ! Rate of return on rate base authorized N /A Rate of return on common equity authorized N /A Ravenue Effect (000's)
Amount received in year granted 83 At aunt received in subsequent year 1,002 Tif not availabie, annualize amounts received in year granted)
Panding Requests Test year utilized 10/1/79 - 9/30/80 Amount (000's) 1,198 Percent increase 6%
D:te petitian filed 12/26/80 Dste by which decision must be issued N /A l Rate of return on rate base requested N/A Rate of return on common equity requested N/A Amount of rate base requested N/A Amount of construction work in progress requested for inclusion in rate base I
5
- NORTHERN MICHIGAN ELECTRIC COOPERATIVE, INC. #
ATTACHMENT FOR ITEM NO. 8 FINANCIAL STATISTICS 12 months' ended December 31, 1978, 1979 & 1980 (dollars in millions)
Ecrnings available to common equity 1977 1978 1979 1980 Avsrage common equity Rate of return on average common equity N /A N /A N /A N/A Times total interest earned before FIT:
Gross income (both including and excluding l AFDC) + current and deferred FIT + total l interest charges + amortization of debt l discount and expense N/A N /A N /A N/A l
Times long-term interest earned before FIT -
Gross income (both including and excluding l AFDC) + current and deferred FIT - long-t:rm interest charges + amortization of drbt discount and expense N/A N /A N /A N /A Bond ratings (end of period) l Standard and Poor's Moody's N /A N /A N /A N /A Times interest and preferred dividends earned after FIT :
Gross income (both including and excluding AFDC) - total interest charges + amortization of debt discount and expense + preferred dividends. N /A ' N /A N /A N /A l
AFUDC l Net income after preferred dividends
% N/A N/A N /A N /A l
l Market price of common Book value of common M:rket-book ratio (end of period)* N /A N /A N /A N /A Ecrnings avail, for common less AFDC+
d:preciation and amortization, deferred j taxes, and invest. tax credit adjust.-
daferred . N /A N /A N /A N /A Common dividends Ratio N/A N /A N /A N /A Short-term debt 11.4 2.7 Bank loans 58.4 2.2 Commercial paper Capitalization (Amount & Percent)
Long-tenn, debt 100% each year 25.0 105.8 141.4 172.5
- Preferred Stock N/A N /A N /A N/A Common equity N /A N /A N /A N /A
- lf subsidiary company, use parent's data.
l
ATTACHMENT FOR ITEM NO. 8 FINANCIAL STATISTICS 12 month's ended (dollars in millions)
Earnings available to comon equity N/A Average consnon equity N/A Rate of return on average comon equity Times total interest earned before FIT:
Gross income (both including and excluding N/A AFDC) + current and deferred FIT + total interest charges + amortization of debt discount and expense Times long-tem interest earned before FIT: '
Gros' income (both including and excluding AFDC) + current and deferred FIT 4 long- N/A tem interest chages + amortization of debt discount and expense -
Bond ratings (end of period)
Standard and Poor's N/A Moody's Times interest and preferred dividends earned after FIT:
Gross income (both including and excluding AFDC) + total interest charges + anortization of debt discount and expense + preferred N/A dividends -
AFUDC N et income after preferred dividends
% N/A Market pric of comon Book value of comon N/A Market-book ratio (end of period)*
Earnings avail. for comon less AFDC +
depreciation and amortization, deferred taxes, and invest. tax credit adjust. - N/A deferred.
Comon dividends Ratio .
Short-term debt Bank loans Conenercial paper CFC 8,309.
Capitalization (Amount & Percent)
Long-term debt 135,568. 1.01%
foIaba'fgNkkquity (1,529.) (.01)%
- If subsidiary company, use parent's data.
.._y,_. . _ _ _ _- _ _ _ _ _ . . _ _ . _ - . - -
q
ATTACH"Ct;T F: lit'* 10. ~R FiliA'iC1,*/. STA!!571CS i
. 12 nonths' er.ded The Detroit Edison Company 12/31/79 12/31/78 (dollars in r11110ni)
$ 132.6 $ 108.8 ,
[arnings available to comon equity $1,337.3 $1,187.6 l Average co :non equity 9.917. 9.167.
Rate of return on average co=on equity Times total interest earned before FIT:
Gross income (both including and excluding 2.28 2.41 AFDC) + current and deferred FIT 4 total (Including interest charges + amortization of debt AFDC) 1.97 discount and expense (Excluding AFDC) 1.84 Times long-tenn interest earned before FIT:
Gross income (both including and excluding (Including 2.47 2.50 AFDC)4 current and deferred FIT + long. AFDC) term interest charges + amortization of 2.04 debt discount and expense (Excluding AFDC) 1.99 Bond ratings (end of period) BBB BBB Standard and Poor's Baa Baa ,
Moody's Times interest and preferred dividends earned after FIT:
Gross income (both including and excluding (Including 1.59 1.59 AFDC) i total interest charges + amortization AFDC) of debt discount and expense + preferred 1.23 (Excluding AFDC) 1.23 dividends.
$ 81.5 $ 65.9 AFUDC $ 108.8 Ket income after preferred dividends $ 132.6 61.5% 60.6%
i 12-3/8 13-1/2 l d'.arlet price of co Inon 18.63 18.81 Book value of common .7 .7 Market-book ratio (end of period)*
Earnings avail. for comon less AFDC +
depreciation and amortization, deferred taxes, and invest tax credit adjust.-
deferred. $ 231.8 $ 211.2 i
$ 112.6 $ v5.3 Comon dividends N 2.1 2.2 Ratio
$ 144.2 $ 52.5 Short-term debt S 75.5 $ 22.0 Bank loans S 20.3 $ 10.9 1 Comercial paper $ 48.4 $ 19.6 Other Short-Term Debt
$3,980,7 100,o7, 33,591 g 100,o7, Capitalfration (Amount & Percent) $1,843.0 51. 37<
$2,069 3 52.07.
! Long-term debt $ 510.7 12.87. $ 494.7 13. 87<
Preferred stock ~
$1,400.5 35.27. $1,254.1 34.9%
Co non equity l
- If subsidiary company, use parent's data.
L
ATTActt: nit F: I!!i;3. A FIfiA; !*J. LiAiIST1C5
~ 12 nonths' ended The Detroit Edison Cocoany 2/28/81 12/31/50 (dollars in rillic I)-
Earnings available to comon equity S 163.9 $ 137.5
$1,490.2 51,464.9 Averagt co : on equity 9.397.
Rate of return on average co=on e:;uity 11.07.
Tices total interest earned before FIT:
Gross income (both including and excluding AFDC) + current and deferred FIT + total (Including 2.12 1.99 interest charges + amortization of debt AFDC) discount and expense (Excluding AFDC) 1.65 1.53 j Tices long-tem interest earned before FIT:
l Gross income (both including and excluding MDC) 4 current and deferred FIT + long- (Including 2.32 2.17 term interest charges + amortization of AFDC) debt discount and expense (Excluding AFDC) 1.81 1.67 Bond ratings (end of period)
BBB BBB Standard and Poor's Baa Baa -
Moody's Times interest and preferred dividends earned after FIT:
Gross income (both including and excluding (Including AFDC) i total interest charges + amortization AFDC) 1.55 1.45 l of debt discount and expense + preferred 1.11 (Excluding AFDC) 1.16 dividends.
MUDC $ 115.4 $ 105.5 Ket income af ter preferred dividends s 163.9 5 137.5 70.4% 76.7%
11-3/8 10-7/s l W.arket price of co=on - 17.97 18.00 Book value of comon .6 .6 l Marlet-book ratio (end of period)* 1 Earnings avail. for comon less AFDC +
depreciation and amortization, deferred taxes, and invest. tax credit adjust.-
deferred. $ 235.8 $ 211.3 Co non dividends S 131.9 5 128.0
- 1.8 1.7 1
Ratio S 132.3 S 67.1 l Short-term debt 33.0 S a3,o S
Bank loans i
4 42.6 s -
Ccencrcial paper 32.7 $ 21.1 Other Short-Term Debt $
Capitalization (Amount & Percent) S4,522.1 100.07.54,565.6 100.c ,
$2,394.6 52.97.52,450.5 33.6 . j Long ; era debt 5 586.6 13.07.S 591.3 13. 0,.
l Preferred stock -
$1,540.9 34.17.$ 1,526. 8 33.4 .
Ccn.on equity
- If subsidiary company, use parent's data.
w
~ '
on s 40-Moses Wolverine Electric Cooperative. Inc.
OPERATING REPORT - Fir 4ANCIAL * """*" E 5'6 "" ' "
Michimm 46. Nevavco u.s oc rsa N e ue N f or A GRitU L T uR E,R E A. W AsNING ton.o.C.20250 uoNTM ENonNG p ' it p
' REA USE ONLY sNs f RUCTION S - L.6mic esru! ed [0ur ceaes af 44:s report. For Jetmied men csums. aen JtEA ff=Iterne 108-2.
v ihasir .-re .re e un se s o s ..f N Y 4 0 nem n 8 2.n. 12 6. 12 t . Ild.12e,12L was 12e: liecember report also nacindes MEA Form 12h.)
SEcTION A. BALANCESMEET A5 SETS AND OTHER DE8171 LI ABILITIES AND OTHER CREDITS
.. tot At uTeuTv PL AwT 'N sEavicE .
. 31,277,505.85 as. uf weERsNips... . ._ . .
' 2. coNsv auc T eon eoRn N pro 0REss . . "
114,707 477.71 27. P ATRoNAGE C A PIT AL 3.Tofat u f s t i f f p e a N T ! ?
- 21.. '
.150.479.911.5R AsslGNED ANo Assign AetE.. .
- 4. accuu.paovisioN eot oEPRECI ATIod a wtT.12. 265.640. 82 6. RETiREo TNis YE AR.. .
~
s.NEYufsufy
- L a N T r i . 41. . . . - - . .119.214.792.76 c. R ETIR Eo PRaoR Y E ARs.. . . . -
~
- 7. NvEs T. N assoc.caG p ATRoNacE c apir a t 71A gis.99 2e. oPERAT8NG WARGiNs - prior YE ARs.. (821,545.40) 4 mvsv. jN ASSOC. ORG.-OTHER. GEN. FUNDS ' 747 667 00 23. oPER AT eNG 'u A RGiNs - OuRR E NT YE A R.. (769,375.90) 8.1 W VEST. . ASSOC. OR G. . OTHE R . NON Gf. - 30. NoNopER A TING uA RGiNs.. .. .. . % . .. 61,515.55 l $.OTwERiNvEsfuENTs. . . .- . ..- 714 1I6 R1 3L oTHER MARGINS & EQueTIES.. .. . . . . . _
- io.spEciAtruNos .. . . . . . - 32. Torat unaGiNs a Eouif Esteo.27J 4r- s i n. .. (1.529.005.75)
. . T oT a t e r .,E ,oRoar R T v s iN er.", rw in 3 v g o_p, at tong-TERu oEeT - RE A.. . . .. 21.780,293.08
> 2. c asN . c E N E R at r uNe s . . 15, 3rn As n. coNGgENu oteT - oTNER.. .... - .....113.788.000.00_
! i s. c as- . construction r uNos . trust E E .. .
991 f. 7 7 74~
3s. tot A L LoNG-T E R W oE e7 (U+ N).. ... 135.568.293.08 is. satciac oEposif s . . _
- . NoT Es P A v A stE., ..... B.309.429.76 I is. T E upoRa R v w.Est uE NTs . . . _ 3L Accounts en v AstE.. ... .._ 1 230.290.91 e
is. N a T Es R E c tiv n e t E . N E T . . . . n u. T a xEs AccRuEo.. . .. 551.583.90
, u_ _ . n_ n_ n--_n_
.T. a Cc ou his rec Eivas tE . Nt r . . .
.,,,_ g g . r3,1g is. INT EREsT AccRuto.. . . . . .. . 52.387.77 i e. , u t t s t oc . .. . . . . . . -117.OA 43 oraER CURRENT a AccRuEo LiasitiTiEs.. . 364.524.87 is. wa T E Ria ts a suppuE s . of aEa . . a .. >;O69.41.
as. ToTat CURRENT a AccRuEo use.no #w 4a> 12.508.217.21 2 3. eR c p a v uE N Ts . . . . 184.077.17 42. o E F E R REo cR E oiTs.. . ... . . . . . . . . . . 203.093.60 2i oTaER CURRENT a ACCRUED assets " a 5.171.17 43 opEaaTiNG RESERVES.. . . . . .
JL T o r a c c u.en E N T 4 A c C a ut o A ss E t se t/'4'*. Ji/ 4.719.742.44 44. AccumuLATEo oEFERHEo INcoNE T Axes .
- 21. UNuoR T. oE S T ossC.a E A T R a oRD. PR C A. toss - 's. Tot AL LiastelTIEs e oTHER cREof fs 2a. CT ME R CE F E RRE o oE Be T3 . 2 . 06 Q , Q R 3 .17 ,,,, ,_ ' fl
- U ' 41 'N Hl.. . ..y "I C n R Q g ,1/.
T= fora' a m T s e nt r o orgsvu t t t.? * . Mr }46.750.qQq,]4 SECTION B. ST ATEMENT OF OPER ATIONS YE AR TO - DATE Taes Last VEaR TMis Y E a R evoGET uo:TM
- 1. E LEC T R.C E NER G Y R EV E NU E s . . 15.140.466.77 18.041.065.11 17.114.754.00 1_742.771 44 j z. #NcOME F rom LE AsEo PROPERT Y - N ET . - -
t oTNER opER ATiNu pEvEwE a *NCC E . Il 504.17 11.506 17 11.500.00 1.175.51
- 4. TO T a L opER, R E V E Nu Es a P A T RoN 4 GE C A P. f t #4ru I/. '$_151 079.A9 h8.054.571.45 17.I52_754.00F1_791.1$7_45 s, o*E- A Tion E x pE Ns E-PRoouc T ion-E n c t. r u c t..
809.171_3A 926.506.67 864.000.00 155.425.95 j s. ceERa Tich e x PENSE - pRoouc Tion - r uc t.. .
1 903.092.27 6.138.127.67 6.249.985.00 761.599.84
- a. OPE R ATioH E M PE NsE - OTHER PCwER sVPPL Y . ~ q 161 110_77 7 967 700_O6 6 177 7Al_00 61R IOQ IN T. oPER ATICN E X PE NsE - T R A NsMisslON . . 17 (317 6 719 n71 A1 199 /. p n bff4 9o,oN)_[S 8, CpER A TION E x pE NsE - oisT R$9ufioN . . 47 501.45 44 129.64 19 BOO 00 5.324 SI
~
- s. OPER4 Tion E XPENsE - CONSUMER ACCOUNTS . . - - ~
' 9.1 opCR A YioN E X PE NsE - Cons. SERV a INf GRu . - - -
l i
l w. OPER4 Tich E x pE NsE - Sa u Es . - -
1 l
- n. ouERaTicN E m ptNsE - atm st a4TivE a c.E Ne Rat . g,,s qOn_o, I so9.97a_11 64R.OOn nO 7# 959 - '4 iL To? At opcRa tion Em pE NsE i . % ill . 39 797.41s 13 is s71_sOo_Q6 '14_111.7% 00 11 47 765 07 si, uimTEhaNtE E x pE Nst - Ancouc Tion . 3Q7_717_sn ,17 111_AO 1 m AOO_00 I' 7A ost AL
- 14. M alN T E N a NC E E x pE %hE - T R A N sWs GN , qq 9Q6_14 106 [1]_QQ lib;700 Ob' b,770.bO
- 15. M a m T E sce E A PE NsE - 06 T WU TeoN . JD QK6_%Q 17_&Q7.9% 76_000.00 7.670.55 is. unmrtNaNc E x pE sE - cEsc Rat peaNT . 1 it, _no l 1 969_s0 1 AOO nO 's 17 i t T OT a L w a W T E N a NC E t A M NsE ( I f % U./ . qqq Lj1_11 f 17L 175 01 llS 100 00 11 blS M 99, DE pRf CiaisoN & auoRTel4 T K N E mpENSE 994 r, q q 71 l qqq 707 DA R71 ne'n 00 A1 A4% fA
. it Ta us 502.'609.80 I 6M;411.86 505:800.00 117:292.35
, a mTEaEsT oN taNc-r ew oERT 7,278,150.58 9,941,798.43 9,820,008.00 ,2,705,395.44
- n.i m r E N t sr c ea.we o t o cc%T huc t i:N-cRooir. .e6.665.456.43 ei9,896,012.03, t 9,108,000.00d2,856,902.73 i
! p.2 oT"t a mTEne st earnse .- - -
328.735.03 1,10T,122.03} 375,504.00~ 317,046.16
! 2 v. m ee o. o.,c r ions , -
- n. T o r ac co.,T os E ttc Tsic se R.<c c iz r rrs. zit. .b.4%,Ja.u s p y 3. o r,7 . g 5 il7.i!8.958 n0 1 2.078.300 L l
. m om a T mc ua noiNs e s . 2;t. . r 3 u u r, m 70 u s_9n)I 11 70A On (7.84.952.80) n m Tc NEsf mv.oue . . 30.343.80 l 36I000.00 2.651.19 a
'* L . . u,s.u . a ,
- 6 OTHEa NL%.cpps.at,., i.e t c u t, . N t T ]{8,Q03,7$ 221,76 i - f 81.}2 j - ] --
27.c.e taar.a.. a rwa ;ui<.; c an,va t sto:v s . _
n.i u -iu c.&, rat cnec,r.. a ., o s a r . u-< ;, u u s . rn g82.00 30 9'.9.99 I - I -
I I -
c1 r i. a o a c e.. a u < i r t
.r J 's . % E f f .14 C N a r.4 CptfA, G ee u n w 's . . *
/ re s. irii f '8
- 'u ! (7p1 O f ri )qk
(, G 7 0 f. OnI /90S 47n '_ Q ',
w t us r a e +. .t ha. .! m e r t s ** , i.arl
,gi.
[h h b. _
3I Ihbf I IE4 ( h f 98 's I N ( g L N 's { 0-{ j 4gJ g (y ,
n . r o t a t c o e a r , u . .. o u i . .. i t 4 ~ ; t .. + n . s o t o . 39.97 4L21 L7_n7 Sh 11 A .' isT at cost ce r e t t t +m u r. . . m9... scso
'$' 0; is s u m a e.t o .:3. e u < st e t +. 4 . A 1? nt
- r e r, * 's i o s orr % roya n ,
- Let r ,* o w, r e < - n % s e r, u r, n e t w .!s a ,: hi tIa- l:A si s u s s <ere n actor'Lanc e m a h th e accoo ns e a n.1 r
i =, se I t t. o r t h e e ..r. *t
- cts t'.* 10 *.s o r t e. e s s e r* 'o t *
- L * < L .> f =o r k m s ledge a**d Lelr
- f.
~ts'e ry i w. ~ . n .. . . virt, o, res.'.n putga~, ,scecay oarc sc runt or r,t e wat Macta L. ca ri _ N
\
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Wolverine Electric Cooperative, Inc.
. OPERATING REPORT - FINANCI AL f "c"*o- t a oe s>G ~. r 'o = Michigan 46, N:wr.ygO
+
oce. . r<., . ...c... u t.nt. ..s,.. cro o t m o ! wo~ r a u.o,~d.a ienaa r tr. tnaang 9 30 n eo a rcu CTsOk 5 - %e .a ..n. e I od f n.v ..n..r ve ras s tes re i sa Jer soled sut*mrrs. ms. see 9tl l !ssilesso ion-2 R E A US E ONt.Y
.Hes.I, . . . . e . .. . . . o . .e h t i I ..r.o . 12 . IJt., 11. IJ. I.*.,121. sn4 !!s. lie. em b.
- rep re ut..o .eelede s try 4 Fa.one 12h i r
sECrlON A. B.LANCEsHEET A55ETS AND OTHER OEstTS LI.SILif tEl AND OTH E R CR E Dl15
- i. Ymt ursur v PL.wT = scav CE . . 31.023,714.22 3 ,, E u , E a s ,,, ,, , 400.00
- 2. C o.s, au. v o .oa. m = oca E ss . Ub,54y.531.zu a t P. r ao .or C, .u.c -
- 3. v o r . u r a.v , *t . , ,1 ee.. . -. 127,873,305.42 .. . ss,cao . o .ss,c . .o .
- e. .CCou.a.40,is.oN r o t oE Pa ECI.tloH & A.Ofr. 12,006,739.99 i, . .a E o r o.s v C . a . . .
- s. = E r u r eu r v et.= r < # 4, . .. . I35,066,565.43 . m, t m g o paio v t.as.. . . . .. ..
6, a,o .o r .s e r v k N o P t a r Y . E 1.. ., .- .
N E T p.r aoh.G E C a psr.L.. .
~
- r. .=,e sv.m assoc.oac.... r ao .c a C .en t 703,866.00 2.. OPE 1, o u.acms - .oa vE.ns.. (821,545.40:
- a. NVEST. ON A5 SOC. ORG.-OTHER. GEN. FUNDS 691,435.00 2,. o,E a.rmo u.aoms _ C un a E u r r E a.. .. (205,596.18.
8.3 INVEST. . ASSOC. OaG. . OTHE R . NON G.F.
M. no opf.a.r e mo u. seGens.. . . ._
..~ 11,860.90
.. o r E n m . E s t W E = r s .. .. .. . . . . . . . .
206,108.I5 3 , or Ca u.ao, s . Eounits.. . .
i o. saE C s . L a u n o s .... . .._
- u. ror.u u.noius . Eouir.esua .m a,. m.. (1,014,880.68'
...vor. tora aPaoarat .. cT.,,,,s,.io, 1,60I,409.15 n. tosc-1 eau oCa7 - ne... . . . . . . .. 2I.580,136.32
. 2. C .s- . c e n a . o , u c s .. .. 59,440.78 u. Lo o-TE au oE., - oT E a... . . . 95,692,000.00, it C s . Co srauC r.o= ru=os . raustE E . 152,619.23 n. Tof.L t o c-r t,.= oE e r t o in.. I17.272.136.32
... satci.o et posas . . .. . . . - ..
Iu.. ores .vasta.. . . . . - . . . . . . . 1.950.000J Q motsruturs.
- n. r E w.o . .. ... n. .CCouN e s P Y A BL E .. . . . . . . . ..-.. 3.342.l_72.05
- a. o r E s a c e t i v . u t t - ~ e , , .. .. . -
- u. v. a t s .CC auc o... _ .. 160.544.62
- o. .CC ov,o s a n c e.v .e t E - ~ e r . . 1,473.378.38 a. m rE af sr .CCave o.. . . . . ... . .. 155.512.00
. .. r u n s t oc . . .. .. . . 360,569.89 .o. ornEa CuaaE r a .CCavEo u.siur.Es.. 236,082.03_
i,. u.r E n..us . su peu E s . o r n a .- . 1,514,161.06_ ...ror.LCuanE,a ..CCauro u...f,.a. m 5,844,310.70 2a.PnEp.,uf.as. . . 124,836.99 2. ot r E n a t o C n o,rs.. . . . . . . . .
171,418.36 mi o r,.En Cuaat =r .CCauEo ssErs . . I,723.79 .t cPE .r.~o EsE av E s.. .. .
- 22. T O r .o t u N k E f . .C C M u t o .ss e r s. , . ,s. 21, 3,6S6,730.12 ... , CC ,,q u, , c o o , , g,, g o ,,Co,e 7,, g 3 , -
2 A uhuo?a r.ot er oisC.a t a T a.Ono. Paop.Los .s. rof L Ls.esurit s e ormE H CaEolts e.. orn a oE n t aat o oC ae rs .. .. .. . 1,118,280.00 , <u 8 5 + n a . ne.. . - . . . .
122,272,984.X n vn,.t .sst es ,n , . oc c es,t o . .< ... 122.272,984.70 ..
S E C TIOh a ST A T EasENT OF OPER ATIONS Y E.R - TO - 0.TE 1,, ,5 irEu L sT YE.a I rMis vE.a SucGET Wo=TM
- t. ELECTRaC EMEaGY aiVENuC$ . .. . . . I $ _7 3 I _ kO'4_15
- 2. twCout F Rou L E.sE o Pat.PE R T Y .s E T . I -
L orMEa oPEa.TmG REVEhuf a mCouE . I ] '( Sn4 17i
- 4. I '3 r AL oPER. a t v r. u ts a P r aoN.G E C A P. Il afare 1,. t15,744.909.47
- s. oPCn. Tion E A PENsf - PaoouC1 son - F ut L . i 6.I38.'903.75 I
- 6. o7ERAr eoM E.PE Ns t - orMER POm Ea syPPL Y . l CLO f Q ') 7C.
- v. oeEnArno E m etusE - ra. suissio .
{ '~194_'?11_9) I I S. oPEaArto e E X PENSE = cesTReBurso . i S4.974.23 '
S. oPEn.Tioh E X PENsg - ConsuuEa .CCoumis . I ~
... oPEa r foh E K Pt hse - Cohs. sea v 6 m* owu . I -
iO. ope a r een E m PE ksE - s.LEs . .I - 1 it. oPC se.r.oM E PE N sE - .out hist a.T.v E & GE N t a.L ..f '
6$8,k98.k7 /
- u. ro r.t 0 E a r.o t PE se o a,. ns .
- 13.403.477.61l I s'
- n. .mr E ~. c E E q se - paoouC r.c~ . 187.678.70 8 i i..u.mrEn. Ct E.PE g - ra.=so.,sio,. <
85.341.38I !
is. u.. r E =. c . e . ye ~sE - o.s r a.uo r io .
19.476.14 I
- a. u.m r e .~C e E. t ~ st - ut t ~ a t ec.ur ! 3,740.17
- n.vor.u .,~re . ct t .nt st u , a s u. , i 296.736.59 I so.cEeaEC..iio=. '
uasTu.,20~e..e a ! 844.006.41 I
- n. T m t s . .r i 528.124.48 i
l
- a. mrEwEst o to o-venu otor i 9.149.783.92 a s. : m v E i st C n.wu Eo to C o~s, wuc ,io~-c ar ao ,.
7_107.624_68i i . . .'l'
! [2o.2 OTestM INTEREST EXPtNSF l -
- n. o r-t ot ouc t.o s i (T.~008. 32 5 . 3 3 F _
- 22. v o r m t c oa.1 on i t e c r aic sE ww .c t , > , i. ,4.. f o. J : 16,105,679.00t I n ort .vm c. u . ,.u . s u - :u , .. . ; i (36c,769.53F J
, 2.. ih r t a t s t .=wu t 8 i
.11 10 . kl I .
M A k Lue ANu t uuw o uNDS USLO DukeNG Cowsi . .. . .
- 23. OT H E N NON-OPin A f t% sNLOut -NLr. I 218e 144.39
27.4 OT H E fe L A Ps T A L r.ht DaT*, A NU #A I, i.tvHsE hos . .., 9 .6.82.00_.
- 25. E A ikAQMDeN A b f IIL us .$
2 9. N E T P A 1 H GN A G E ( A Pi t A L O N M 4 H u n te .ts .' s # 4 e. .*H '. ( flit 32
- 76)
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- 31. T O T A L Ol*L H A T ION A NO M AIN I e N A Nt.t ; e se t e3 s<, ; g , , ,
I
- 32. T OT A L C OS F 0 F L L t t; F Hat $t tew se e e o ** & me .,6, r , . _ _
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- l she r n asem . sos.1 t h.et t h e rep.oro er t or e s s%* .t re ,o , r. . g o. e *.o s s . .r .s . , n a. le J. o ., .I t.elr e t.
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- W.ilverine Plectric Coopemrive, Inc.
I OPERATING REPOR1 - FINANCIAL ._*"'"o*
- a oe
- N A r io N Mich Min W.7 H u yp.o u.s De Pass f ui N t t** 4 (, N isesi 1 ' A N D .6. t A 9 4'. M % f GN.f t t . O. W '
- '#8 3 H I N OWO O(Mi*Illk)f*I' } i9 7'I CH S TRUC TlOk 5 . %I.m t .mg anal .end ls nu . :es . ..e th o , retu H l.
t t).nso r t, .to r.s.f r i tu t o u , r e. .u ., ,rr R$ l l tall, gen $UN.] fiEA Ubf. ONLY op,,.e . ..n . r .r , ,.s pg l g. .. t .*.e.
I .*t . Ih I .%i. l .** . I .* t. a.. .t I :w. Isrs **e h.
- ret. .or ut... en. le..le, N V E 1,orne 12k e sECTION A BALANCE 5HEET A55E T5 AND OTHER DEBIT 5 ~
LIAsfLITIES AND OTHER CREDIT 5
- 1. TCT AL UTiUTY PL ANT IN SERvfCE .. 3y 07 9, } .> a .11r 2fL MEMuERsNtPs.. *
- 2. Co.as T RUC T son eor et iN PROGR E ss . . (g 1 Y) p (7 5 31
- 3. 7 0 f A L u T 4 L I T Y PL ANT di 27. P A T RoN AGE C A P41 A L
.'t..
..12 ,3 }) , f,2t ) , h 4
- 4. ACCou.P tovisioN ro t oE PRECi A T1oet a agin. na Ass GNcD AND Assign ABLE . -
11,774,94N.95 6 RE TIREO T Nis V L AR.. -
- s. NE I u flLiT V PL A N I d I " IJ . 310 5611 !r'/ I _ 9 'J s H f T IRE D prior Y t' A Rs.. -
- 6. NON.u f s L s T , pro #*f St T y . N E T .. -
el NE T PA T RON A G E C A Pti A L., -
i
- r. iN v cs f . N A s'.oc .ono..P A r RoN A u c A Pe r A t 703,866.00 691,435.00
,. o,E n A T,No uA,c,Ns . gn,oa y e, ng , , .~(1,022,328.88)
' a. sNvEST. tN ASSOC. ORG..OTHE H. GENf uNDS re. oPER A TING MARGINS - CuRRE NT VE AR.. ( 144,346.24) 8.l lNVEST. . ASSOC. ORG. . OTHE R . NON C.F. -
i 20. NoNoPER A TING M A RGINs.. . . 345,129.72
,,o,,,,gy,g,,,,,g, , , , 178,945.47 ii. oTNcR uA RGiNs a Eous tie s-io. SPECiAL ruNos . . . .. . .. -
i,. tot AL of e N PMoPrR Tv a N vest . <. ra m its/ 1,5% ,2% . W
- n. tot A L M A sGms a routTicsur .n.t ab., es,.. ( 821,145.40),
ii. LoNo.T ERu o Es t - RE A.. , . 21,343,717.07
- 32. C asN . or NE R a t s uNes . . . . 780,934.R7 ii. C AsN . CnNsTRuC TeoN r unos . T Rus r E E....
178,532.80 34.LoNG-TERMoEeT - QTHER... .
90,270_,000.00 i4. SPEC AL oE PoseTs . .. -
as. T or a t LoNG-T E Ru nE e T t s #, ss>.. .111,613,717.07 if8 Hof Es PA Y A DLE., ...... 2,168,064.57 is.TEuPoRAR, NvEsruENis... -
- 37. ACCOUNTS pavAeLe.. .. . . . 3,576,182.47 is. NOTE s REC Eiv ant E . NE T . . . . . -
se. T Axes ACCRueo.. . . .. . 432,765.01 if. AcCouN r s Re ctiv ARLr . NE T .
1,540,R78.79 is. interest ACCRUE D.. . . . . . . . 49,976.66 is. r uE t s r on . . . 377,029.99 i,. u A T E Ri A Ls a suePuts - oTHE R . 40. otNcR CuRNc NT a ACCRuto uAsiutiEs.. . 305,285.91
... . . 1,182,883.42 4 tot AL CURRENT a ACCRuEo Line.(to e4,. m; 6,532,274.62 2o. PRE P A vue N T s .. . . . . 43,742.11 42. oEreRREo CREo:Ts... . . . . . . . . . 159,204.22 i Pi. o THER CuRaENT a ACCRUED AssE Ts . b,1b4.23 '
4 3. OPE R A Tint REsE RVE s.. . . ..
~
- 22. tot AL C uM AE N T a ACC Ru00 AssE Tsti?'Ar. .ss 4,109,166.21
- 44. ACCuuut A TEo otr ERREo iNCouc T A xEs . . -
2 3. uNMoR r. DE S T Disc.a E 4 Y R A oR O. PROP. LOSS -
- 45. TOT A L LiAstLITIEs a oTHER CREoiTs
- 24. oT NE R ocr E nRr o oE se rs .. .. 1,236,066.24 t u
- M + 81 tem # #1.. .. ... . . . ..J17,484,050,51 n v n v u Am ts a n v r n ore,Ts< t t ia . 4 ..,,ll7,48 4,0 50. 51 _
SECTION 8. STATEMENT OF OPERATIONS YEAR - TO - DATE 7 g,g L AsT YE AR TNis YE AR auOdET koNTH
- l. ELECTRIC ENERG Y REV E NuEs , .. . . .
14,287,970.07 15,140,466.79 15,869,027.00 1.392,737 31__
- 2. INCouE rRoM LEASED PROPERTY = NET . ... ~ ~ ~ ~
q 3. oTHER oPER ATiNG HEvcNuE a iNCouE . . . 13,516.32 13,506.12 13,500.00 1,125.51 1 8. tot AL oPER. REVENUES a PATRON AGE C AP. f f thre #1. 14,301,486.39 li,153,o?7.89 15,882,527.00 1,393,862.82
- s. oeER A tion E xPess E-PRoouC Tion-c xCL. Fu rt.. 647,802.27 809,173.36 666,780.00 76,647.00-t L t oPER A Tion E x PE NsE - PRoouc Tion - rue L., 3,217,806.75 5 ,533,092.27 3,722,600.00 610,620.57
- 5. oPER Avion EXPENSE - oTHER eowER SUPPLY . 6, % 4,256.75 5,161,110.27 7,624,727.00 T. OPE R ATioN E x PENSE - T R ANswissioN .,
484,766.89 178,002.99 175,637.56 169,200.00
- s. cPcR A Tion c x PE Nst - oisTRieuTioN .
18.487.00 4
. 25,854.85 47.501.45 26.400.00 9, cPER Af TON E xPENsE - CONSUMER ACCouN Ts . - - -
10.104.08 -l' 9.1 OPERA T eon E X PEN 5E - Cons. SERV. a iN F oRM . -
1
- 10. OPE H A TeoN E st PE N5E - s A L Es . -
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- 11. OPE 5t ATioN E x PE NsE - ADMINesT R A TiVE a GE NF R AL . 53q,101,4p 625,900.22 i2. tot A L ope n A Tion E x PENSE rs ram 10. 556.800.00 65.119.48 l "11,5h? g25,09 '12,722,41'.13 12,766.507.00 1. 265d 4 5 . 0 9 '
O. M A m T E N A N E xPE NsE - PHoDuCTsoN . / M , $ 8 2. 7.7 197,7}7.50 480.000.00
- 14. M AIN T E N A NC E iN PE Ns E - T R A NsMes5loH .
- 8.078.16 _
7},193.Go 83.596.14 7 A .0I10.00 6.096.74 W M AWTEN ANCE E 2 PENSE - OtsT RIOu rtoq .
31,715.43 20.956.58 34 J00.00
t ie. OE PnECi A Tion a AwoR Ti2 A T roN E X PE Nsr .
it Taxes.
776. PAO.us 826.453.71 792.000.00 15.143.02__l 70.R79.43
! ao. mT ENEst oN tong-T E eu oEnf. 442.273.52 502,609.A0 504.000.00 63.527.02 562,236.82 7,27A 150.5R 565.000.00_, 1.999.726.16 he.1 mTE ntsT c N ARGco To CoNstuCTION. CRE os T . .
h.727.906,09tb.6b5.4Sb.43I I b .200.000. 00' I 1.93b .UNb = 13I l20.2 OTHE R INTEREST EXPENSE . - -
u, quo,400.91 329,735.03 6,500,000.00 3u,204.50
!:s. oiNt H or ou:Teoqs . . . . .
- 2. T o T A L Cost or e L E C T RiC sE HVICE f l2
- 17 th 21/.. 14 ,4 / t .iW . 41 15,2 R,319.131 15,529,307.00 1,502,775.OR n o Pt.N A T wo ua Rcms is - 2 i.. . ( 1/1,m .9yp ( luu,aub.2u) 353,220.00 (108,912.26:
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- 24. O T H E M NON-OPMa f *eG #Nc out - Ne t , 144.00 4 21R,003.75 14R.00 (20,751.87;
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n.: ov NEn ca pitat cNEoirs aNo eat, oiviotNos . f 67 5 ,697. 00 - 91,682.00 -
- n. t < r anoao Na o it t us . , _
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,o WOLVERINE ELECTRIC COOPERATIVE, INC.
302 South Warren BIG RAPIDS, MICHIGAN EXHIBIT J,K,L,M Page 1 (1)B 45.90 mille. 12 months ending January 31, 1981 Page 2.3 Wolverine Electric is a Corporation with REA as its banker thus has no filiegs with.SEC
- 6. AFUDC is included in Wolve'.ines original cost rate base.
Wolverine being a Cooperative does not presently have any deferred taxes on investment tax credit.
Wolverine does have a fuel, purchase power and Net interchange adjustment clause which is increased or decreased by the Codmission as its bi=onthly hearings.
Rate Cases are handled on a historical teat year basis.
- 7. See Attached # 7
- 8. See attached i 8 P:ge 4- (1) Yes, the ownership and percentage settlement are both the same 8.78 %.
(2) Both the Michigan Public Service Co= mission and the Rural Electrification Administration has authority in the setting of rates of Wolverine Electric. Any general rate increase required due to Fermi II coming on line will be handled through general rate increases in order to achieve proper required TIER.
(3) See information attached for item 7 above.
- 04) N/A except pass on of cost through rate schedules as allowed by Michigan P S C and REA on general rate increases.
(5) See attached # 5
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; WOINERINE. ELECTRIC COOPERATIVE, INCORPORATED , * 'Y.
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~ t Report on Examination of Financial Statements for the years ended December 31, 19.79 and 1978 s
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COOPERS & LY B R A N D CERTir EO PUsuc ACCOUNTANTS A MEMSER frimme OdP e.o. 0= ier COO *spe & LvanAmo DNTEmesATIONA4J SOUTH BEND. $NDIANA 4S484 m.i au ..O.,
407 ST. JOSEPH VALLEY WAMM SuiLOlsee 481 W,FRANMUN STRECT E' KHART, INDIANA 4 8564 Wel864 7441 R O. mon SOS
- NILES MICHIGAN 49 20
- c. . . 2. .T.O February 29, 1980 Board of Directors Wolverine Electric Cooperative, Incorporated .
Big Rapids, Michigan 49307 Gentlemen:
Enclosed is a copy of the report covering our examination of the financial statements of' the Wolverine .
Electric Cooperative, ' Incorporated as of December 31, 1979 As reported in our auditor's opinion dated February 1,1980, we performed our examination in accordance with generally accepted auditing standards. Our examination included the auditing procedures required by REA Bulletin 185-1: 465-1, Audit of REA Borzowers' Accounting Records.
The following comments supplement the information included in the financial statements and notes:
We have examined t'he financial statements of Wolverine Electric Cooperative, Incorporated for the year ended December 31, 1979, and have issued our report thereon dated February 1, 1980. As a part of our examination, we reviewed and tested the Cooperative's system of internal accounting control to the extent we considered necessary to evaluate the system as required by generally accepted auditing standards. Under these standards, the purpose of such evaluation is to establish a basis for reliance thereon in determining the nature, timing, and extent of other auditing pIncedures that are necessary for expressing an opinion on the financial statements.
. Board 'of Dirdctora -
Wolverine Electric Cooperative,.
Incorporated February 29, 1980 The objective of internal accounting control is to provide reasonable, but not absolute, assurance as to the ~
safeguarding of assets against loss from unauthorized UEe or disposition, and the reliability of financial records for preparing financial statements and maintaining accountability for assets. The concept of reasonable assurance recognizes that the cost of a system of internal accounting control should not exceed the benefits derived and also recognizes that the evaluation of these factors necessarily requires estimates and-judgments by management'.
There are inherent limitations that should be recognized in considering the potential effectiveness of any system of internal accounting control. In the performance of most control procedures, errors can result from misunderstanding of instructions, mistakes of judgment, carelessness, or other personal factors. Control procedures whose effectiveness depends upon segregation of duties can be circumvented by collusion.
Similarly, control procedures can be circumvented intentionally by management with respect either to the execution.and recording of transactions or with respect to the estimates and judgments -
required in the preparation of financial statements. Further, projection of any evaluation of internal accounting control to future periods is subject to the risk that the procedures may become inadequate because of changes in conditions and that the degree of compliance with the procedures may deteriorate.
Our study and evaluation of the Cooper'ative's system of internal accounting control for the year ended December 31, 1979, which was made for the purpose set forth in the first paragraph, would not necessarily disclose all weaknesses in the system. However, such study and evaluation disclosed the following conditions:
Continuing Property Records The Cooperative's continuing property records are not maintained in accordance with Bulletin 181-2. The Cooperative is currently maintaining detailed records of current additions and retirements by unit and cost as required, but it has not had time to update its records for prior years' activity. We .
noted the Cooperative has begun to recreate continuing property records reflecting all the currently held assets in areas of office furniture and equipment and vehicles.
awh-eminae., , my e6 m-e
Board 'of 'Direc tors Wolverine Electric Cooperative, Incorporated February 29, 1980 We recommend that the Cooperative continue to maintain detailed records of current additions and retirements, and attempt to recreate continuing property records which comply with REA Bulletin 181-2 by researching the history of the assets held by them. These records should be by unit and cost and maintained on a current basis.
The following comments are required by the Rural"
- Electrification Administration Bulletin 185-1 Part IV (VII)(4):
Internal Control Based on our review of the system of internal control,i limited to the scope and comments previously .noted in this report, the Cooperative has a generally effective system of internal control.
Accounting Records The procedures used in accounting for material, transportation, labor, and overhead costs provided a fair distribution of these costs to construction, retirement, maintenance, and other expenses.
Materials Control A physical inventory was taken by the Cooperative as of September 30, 1979 The physical inventory resulted in a net difference of $5,014.71 between the physical and book inventories of materials. The physical was less than book inventory. The inventory adjustment was spread to various plant accounts.
Compliance with Ioan Documents There has been full compliance with the provisions of the loan contract and mortgage to REA relating to the retirement of capital credits dur'ing the audit period.
. Board of Directors Wolverine Electric Cooperative, Incorporated 11 - February 29, 1980 Reports-to REA The financial statements as of December 31,'1979, included in copies of REA Ebrm 12a, on file at 'the Cooperative's office, were compared with the Cooperative's books and found to be in agreement in all material respects.
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Service Contracts I
At the present time the Cooperative has no service contracts in force. The Cooperative does have power pooling agreements with various municipalities, small industries, and Northern Michigan Electric Cooperative whereby the Cooperative may buy or sell power as needed. All payments are being made in accordance with the agreements.
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Deposits All cash deposits and investments in savings and loan associations are in institutions whose accounts are ' insured by
- the Federal Government.
Insurance Certifications ,
Bond and insu!ance certifications (REA Form 55) i furnished REA during the audit period accurately reflected information in th'e policies and bonds maintained by the Cooperative. .
Income Tax Status More than 85 percent of the income is collected from the Cooperative's members. Exemption from federal income taxes I
has been obtained and Internal Revenue Form 990 is being filed i
for 1979 We examined the 1978 Form 990 which was filed in 1979 s
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Bocrd of Directors Wolverints Electric Cooperative, Incorporated February 29, 1980 We wish to thank you and your staff for your complete cooperation during the course of our examination. _
If we can be of further assistance, please call on -
us. We look forward to serving you in the future.
Very truly urs, V-J'a k I .
Enclosure e
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Pages
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Auditor's Report -1 i
,- Financial Statements:
Balance Sheets 2
' Statements of Revenue and Expense 3
- Statements of Patronage Capital '
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! (Deficit) and Other Equities 8
, Statements of Changes in Financial Position 5
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Notes'-to Financial Statements 6-10 t
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- COOPERS & LYB R AN D CE. Tim O Pusuc ACCOUNTANTS L
. . . . . .. o r Coo .. w.. o ont.. Tio au Board of Directors Wolverine Electric Cooperative, Incorporated
}- Big Rapids, Michigan
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We have' examined the balance sheets of Wolverine Electric . Cooperative, Incorporated as of Dccember 31, 1979 and 1978, and the related statements of revenue and expense, patronage capital (deficit) and other equities, and changes
!' in financial position for the years then ended. Our examinations were made in accordance with generally accepted auditing standards and, accordingly, included
', such tests of the accounting records and such other auditing procedures as we considered necessary in the circumstances.
F In our opinion, the financial statenents referred to above present fairly the financial position of Wolverine Electric Cooperative, Incorporated at December 31, 1979 and
.- 1978, and the results of its c,erations and changes in its i financial position for the years then ended, in accordance with generally accepted accounting principles applied on a
- _ consistent-basis.
Li 4 Mk Niles, Michigan l February 1, 1980 k
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1979 1978
[ EQUITIES, LIABILITIES AND DEFERRED CREDITS r~ Equities:
Membership s $. boo 400 Patronage . capital (deficit) (1,256,478) $(1,203,813)
- other equities 434,932 181,484 i
(821,146) (1,021,929)
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Long-term debt:
REA mortgage notes (Note D) 21,343,717 21,013,028 Federal _ Financing Bank notes (Note E) 90,270,000 64,737,000 111,613,717 85,750,o28 Current liabilities:
! Note payable, CFC, 15-1/4% and
- 15-1/2% in 1979 and 11-3/4% 2',653,572 in 1978, unsecured 2,168,o65 Accounts payable 3,576,183 2,990,204 Taxes and wages payable 462,307 410,547 Accrued vacation and sick leave 275,744 250,655 T' Accrued interest 49,977 46,191 6,532,276- 6,351,169 Deferred credits 159,204 127,624 l_
Total equities, liabilities
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, and deferred credits $117,484,051 $91,206,892 T~ .
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w STATEMENTS OF REVENUE AIG EXPENSE -
for the years ended December 31,1979 and 1978
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1979 7 Percent of Amount Revenue Operating revenues $15,153,973 100.0 Operating expenses: _.
Other power generatL3n:
Operation 6,712,266 44.3 Maintenance 197,718 13 __
Other power supply: .
Purchased power 5,161,110 -
34.1 Transmission expense:
Operation .175,638 1.2 ,
Maintenance 83,596 .6 Distribution expense:
Operation 47,501 3 -,
Maintenance 20,957 .1 ~
. Administrative and general:
Operation 625,900 4.1 Maintenance 3,141 -
. Depreciation and amortization (Note C) 826,454 55 Taxes 610 33 -
Interest on long-term debt 502,694 612, 4.0 Other interest charges 328,735 2.2 Total operating expenses and interest 15,298,320 101.0 Operating margins (deficit) (144,347) (1.0)
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Non-operating margins:
Interest revenues 36,121 .2 --
Settlement of litigation (Note H) 217,327 1.4 .
Non-operating margins 253,448 1.6 .,
Capital credits, CFC 91,682 .7 Net margins '
$ 200,783 13 -',
7 The accompanying notes are a part of the financial statements.
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F 1978 i Percent of Increase Amount Revenue (Decrease)
$14,301,487 100.0 $ 852,486 I
3,865,609 27.0 657 753,583 53 2,846,865)
(555,
, 6,954,257 48.6 (1,793,147) 178,003 1.2 (2,365) 71,194 5 12,402
_. 25,855 .2 21,646 33,715 .2 (12,758)
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564 4.1 562,819 7, .1 63,678)
(4,336 776,880 5.4 49,574 442,274 3.o 60,336 237 39 50 457 562,496 212, 1.5 116,,239 14,446,486 101.0 851,834 (144,999)
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- (1.0) 652
- 25,148 .2 10,973 217,327
_ 25,148 .2 228,300 475,697 33 (384,015) 355,846 $ (155,063)
$ 25 l
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STATEMENTS OF PATRONAGE CAPITAL (DEFICIT) AND OTHER EQUITIES for the years ended December 31, 1979 and 1978 PATRONAGE CAPITAL (DEFICIT)~
3 1979 1978 c, ,.
l' Balance (deficit), beginning of year $(1,203,813) $(1,534,511)
. ~. . Operating margins (deficit) (144,347) (144,999) r Capital credits, CFC 91,682 475,697
$(1,256,478) $(1,203,813)
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Balance (deficit), end of year Summary of patronage capital deficit: ,
Operating deficit $(2,464,112) $(2,319,765)
Operating margins 503,768 503,768 Patronage capital credits 703,866 612,184
$(1.256,478) $(1,203,813)
Patronage capital (deficit)
OTHER EQUITIES i~
1979 1978 Balance, beginning of year $ 181,484 $ 156,336
.' Non-operating margins _
253,448 25,148.
Balance, end of year $ 434,932 $ 181,484 l
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for tha yacrs cndcd D ccmbar 31, 1779 and 1978 Source and Application of Working Capital 7-I 1979 1978 Funds were provided by:
F~ From operations:
1 Net margins $ 200,783 $ 355,846 Add (deduct), Items not
- requiring working capital:
Depreciation and amortization (Note C) 835,753 784,648 Deferred compensation 31,580 35,405
, Increase in CFC patronage capitalered'ts (91,682) (475,697)
Tbtal from operations 976,434 700,202 Advances from Federal Financing Bank 25,533,000 64,737,000 13,051,388
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Advances from CFC -
Advances from REA 1,172,000 1,128,000 Collections 'on note receivable -
157 Decrease in restricted funds 1,000 -
Tbtal source 27,682,434 79,616,747 Funds were used for:
Payment of CFC notes - 668,866 Extension and replacement of plant 26,730,860 57,440,111 20,
- Principal payments on long-term debt when due 820,804 811,299 Increase in other investments 35,304 55,775 Decrease in deferred interest 20,507 20,507 Purchase of CFC capital term 98,923
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certificates and other investments 95,913 Total use 27,706,398 79,092,471 Net increase (decrease) in working capital (23,964) 524,276 Working capital (deficit), beginning of year (1,163,080) (1,687,356)
Working capital (deficit), end of year $(1,187,044) $(1,163,080)
Changes in Composition of Working Capital 1979 1978 Increase (Decrease)
Current assets:
Cash, general $ (456,541) $ 639,945 Cash, REA construction fund 2 ,801 Accounts receivable (4h3,311133,945) 251,454 (%(3,892,960 Materials and supplies Prepayments 52,864 (41,933 Increase in currant assets 157,143 100,961 Current liabilities: -
Note payable, CFC (485,507) 73,572 Accounts payable 585,979 h42,912
.- Taxes and wages payable 51,760 9,308 Accrued vacation and sick leave 25,089 22,540 Accrued interest 3,786 (965,025)
Other curiant liabilities -
(6,622)
Increase (decrease) in current liaMH ties 181,107 (423,315)
Increase (decrease) in working capital $ (23,964) $ 524,276 The acco=panying notes are a part of thm fiaancial statements .
o v-NOTES TO FINANCIAL STATEMENTS for the years ended December 31, 1979 and 1978 r
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F Wote A: ACCOUNTING POLICIES.
The following is a summary of the accounting policies
- adopted'by the Cooperative which have. a significant effect on the financial statements. The policies -
' conform to generally accepted accounting principles and have been consistently applied.
. Depreciation and Amortization of Utility Plant -
Provision for depreciation and amortization r is computed using the straight-line method.-
Inventory Valuation - Materials and supplies
- are stated at average unit cost, which is not in excess of market.
Construction Period Interest - The cost of construction work in progress includes the actual cost of funds borrowed to finance the construction of the Fermi #2 Nuc1 car Power Plant. The Cooperative incurred total interest costs of t7,606,885 and $5,502,638, of which
$6,665,456 and $4,727,'905 was capitalized during
- the years ended December 31, 1979 and 1978, j respectively.
Federal Income Taxes - The Cooperative is exempt from federal income taxes under Section 501(c)
(12) of the Internal Revenue Code. Therefore, no provision for federal income tax has been made.
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NOTES TO FINANCIAL STATEMENTS, Continued
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for the years ended December 31,1979 and 1978 i
j~ Note B: UTILITY PLANT. ,
The electric plant in service consists of the following:
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.j 1979 1978
. Intangible plant $ 18,455 $ 18,455
!I Production plant 12 435,611 12,471,321
' 8~ Transmission plant 14,887,985
, 13,002,802 j Distribution plant 222,746 3,136,740
- [- General plant 3,477,666 301,408 Ii
$31,042,463 428,930,726 l7 Note C: DEPRECIATION AND AE RTIZATION.
Depreciation and amortization were charged as . follows:
~ 1979 ~ 1978 I .
if Charged to operations as an expense $826,454 $776,880
! Charged to clearing accounts 9,299 7,76_8 4 i~ Total depreciation j! .and amortization $835,753 $784,63 l
y-Note D: IDNG-TERM DEBT - REA MORTGAGE NOTES.
ll Ic. Iong-term debt consists of 35-year Rural Electrification
!! Administration notes bearing interest at 2% and 5% per
!' annum. The notes are payable in equal installments plus current interest to the year 2013 The current repayment l[
requirements approximate an $840,000 payment on principal and deferred interest and $600 l
Advance payments of $11,596 are,000 available for current to meetinterest. these
> j- requirements. Utility plant in the amount of $30,54.6,342
!l 1s pledged as collateral on* the long-term debt.
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IioTES TO FEIANCIAL STATE'GITS, Continued
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for the years ended Dece=ber 31, 1979 and 1978 Note E: IDNG-TERM DEBT - FEDERAL FEIANCING BANK UOTE.
- The Federal Financing Bank note is guaranteed by the Rural
{ Electrification Administration and bears interest at a rate to be determined by the bank at the date of each advance. The rate of interest will be redetermined by the bank at each change of maturity date.
At the time of each advance, the Cooperative =ust designate r an initial maturity date for that advance of not less than L two nor nore than seven years. Extensions of the initial maturity date are available, however, not to be less than
- two years in length. The total naturity period, including i extensions of any advance, cannot exceed a maxi =um of seven years. The Cooperative may convert these obligations to
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34-year =aturities at any time af ter the end of the calendar to seven years year afterinthewhich the advance advance. wasmaxi After the cade and
=um se'up/en year =aturity, the advances =ust be repaid or converted to 34-year obligatio ns .
Advances as of December 31, 1979 consist of the following:
Maturity Date Interest Rate Ancunt
. ~ ~ 5/14/80 8.005% $ 601,000 9/15/80 8.53h5 58,736,000 10/10/80 e.7695 1,559,000 11/13/80 9 522% 1,305,000 7 12/11/80 9 571% 1,020,000
- 12/29/80 10.029% 1,516,000 1/10/81 9 971% 1,350,000 2/13/81 9 75 % 283,000 3/12/31 9.84 c39,000 h/02/81 9 77 1, hop, coo
__ 4/10/81 9 863% 2,15o,000 5/10/81 9 9515 1,359,000 o/11/81 9 317% 2,570,000 6/29/81 9 023% 1,56o,000 7/10/81 1,450,000 9 111%
8/10/81 9 3'6% 2,254,000 9/10/81 10.166% 2,222,000 10/05/81 10 380% 1,761,000 10/10/81 11. laos 616,000 11/13/81 11.781% 1,989,000 12/10/81 11.227% 1,070,000 12/31/81 11 3155 1,935 ,000 Total $90,270,000 e
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- NOTES To FINANCIAL STATEMENTS, Continued for the years ended December 31,1979 and 1978 l.
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[ Note F:. INVESTMENTS IN ASSOCIATED-ORGANIZATIONS.
The investments in associated organizations consist of the i_ r following:
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1979 1978 National Rural Utilities Cooperative Financing Corporation:
P Capital term I
certificates (CFC) $ 688,567 ' $ 590,644 i Patronage capital credits 703,866 ' 612,184 other investments 2,8 68 1,8 68
$1,395,301 $1,204,696 l The Cooperative has subscribed to Cooperative Financing Corporation (CFC) capital term certificates for which a
- payment of $111,030 is due in 1980. Subscriptions to CFC capital term certificates are required to obtain long-term
- financing from CFC in the future. Cost of certificates approximate market value.
i Note G: CONTRACTUAL OBLIGATION.
l on February 8,1977 the Cooperative entered into an agreement ,
4 with the Detroit Edison Company to participate in 10% cf I
r the conctruction costs and operations of Enrico Fermi
..j Nuclear Unit No. 2. The Cooperative's share of the construction costs to date are approximately $89,700,000.
- The Cooperative's share of the remaining costs to complete construction are estimated at $60,300,000 by Cooperative management. The unit is tentatively scheduled to be operational in 1984.
f The Cooperative has a binding agreement with Detroit Edison Company in which Detroit Edison is obligated to purchase
- the excess energy generated related to the Cooperative's
[ portion of Fermi No . 2. The Cooperative feels these revenues will be sufficient to offset the effect of the additional interest and depreciation costs recognized.
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' ' NOTES TO FINANCIAL STATEMENTS, Concluded for the years ended December 31, 1979 and 1978 4
I Note H: SETTLEMENT OF LITIGATION.
The Cooperative received its share of a suit taken to
- the. Justice Department and the Nuclear Regulatory Commission, and settled out of court with Consumers 5
Power Company in relation to the Cooperative's desire !
- I to purchase a portion of the Midland Nuclear Power Plants No . 's 1 and 2. The total revenue recognit
- ed 4 . during the year ended December 31, 1979, was determined
- as follows: -
p Cooperative's share of settlement $248,507 I
Less, Legal and ' engineering costs incurred relating to r_. the case during the year ended December 31, 1979 31,180 lE Net revenue from settlement $217,327 i
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EXHIBIT J,K,L,
, REQUEST FOR FINANCIAL INFORMATION Pcge 1
- 1. A.
To be telecopied to Detroit Edison by Southern Engineering Company.
- 1. B. December 31, 1980, 40.72 mills overall.
Pcge 2
- 5. Does not apply to Northern. ,
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- 6. Northern Michigan Electric Cooperative, Inc. rates do not include allowance for funds used during construction. Northern presently is exempt from Federal income Tax under section 501(c) (12), de-ferred income taxes and investment tax credits do not apply.
. Pcge 2
- 6. continued-Northern's present fuel purchased and net interchanged power adjustment factor is as follows. Per attached, MPSC Case U-6296.
In accordance with Hearing procedures adopted by the Michigan Public Service Commission, there shall be an adjustment per KWH sold under this schedule consisting of an increase or decrease of
.01 mill per KWH for each full .01 mill increase or decrease in the cost of fuel and purchased power and net interchanged power incurred in two preceding months above or below a base cost of 30.00 mill per KWH. The cost per KWH of fuel and purchased power and net interchanged power for the two preceding months shall equal total cost incurred in those two months for fuel and purchased power and net interchanged power divided by the total KWH sales under this schedule during those same two months.
In accordance with Hearing procedures adopted by the Michigan Public Service Commission the adjustment shall apply to the two months KWH used in calculating the adjustment.
Northern's rates are based on Test Year data.
Page 3
- 7. See attached information item 7 top of sheet.
- 8. See attached information item 8 top of sheet Financial.
Page 4
- 1. Yes.
< 2. Northern Michigan Electric Cooperative, Inc. is under the juris-8 diction of the Michigan Public Service Commission for rate setting authority. Any future rate requirements to insure the satisfaction of financial obligations in relation to operations and eventual shut-
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down of the Fermi 11 facility would have to be approved by the Michigan Public Service Commission.
- 3. On October 2,1979 Northern Michigan Electric Cooperative filed with the Michigan Public Service Commission a wholesale rate increase request totaling $1,066,000 (MPSC Case U-6296). On December 20, 1979, the Michigan Public Service Commission granted a rate increase l I I
' Prge 4 continued i
- 3. continued-in the amount of $723,000, this rate became effective on December 26, 1979. For calendar year ending December 31, 1980, this rate increase produced a negative operating margin of ($115,095.15). (See attached after audit statement of operations for year ended December 31, 1980.)
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j On December 26, 1980, Northern filed with the Michigan Public Service l
Commission (Case U-6720), a wholesale rate increase request totaling l
$1,198,000. A Hearing was held on March 12, 1981. The MPSC is scheduled to act on Northern's .~equest for rate relief on March 31, 1981.
- 4. Northern's present wholesale contracts with its three (3) member dist-l ribution cooperatives provides for the total supply of electric power and energy to its three (3) member cooperative through November 14, 2025.
(See attached copies of amended wholesale power contracts dated Sept-ember 16,1976 with Cherryland Rural Electric Cooperative Association, Grawn, Michigan. Presque Isle Electric Cooperative, Onaway, Michigan and Top O' Michigan Rural Electric Company, Boyne City, Michigan).
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l 5. See attached copies of the following operating statements.
January 1979, 1980, 1981 February 1979, 1980, 1981 December 31, 1979, 1980 BY: s l Clyie L. JofInson, General Manager l
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U. 5. DEPARTMENT DF AGRICULTURE '
RURAL ELECTRIFICATION ADMINISTRATION MQan M Grand mmse REA BORROWER DE51GNATION THE WITHIN Ama@ent de+ed September 16, ICJ76, to a wholesale Itr.'er Contract Dated May 26,191 6 with the Northem Michigan Electric Cooperative.
SUBMITTED BY THE ABOVE DESIGNATED BORROWER PUR$UANT TO THE TERMS OF THE LOAH CDHTRACT,15 HEREBY APPROVED SOLELY FOR THE PURPOSES OF SUCH CONTRACT.
O j- j DATED MOV 2 5 76 r!.TI: /.. HAMIL Atir.ir.irtrator a
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AN EXCDtPI FROM THE MINUTES OF THE MEETING OF THE BOARD OF DIRECTORS OF CHERR E G'D. -
RURG E11CTRIC COOPERATIVE ASSOCIATION FEID AT TRAVERSE CITY, MICHIGAN SEPIDITER 20, 1976.
T The chairman reviewed the Wholesale Power Contract dated as of May 26, 1949, as amended as of March 23, 1960 and March 15, 1965, between Northern Michigan Electric Cooperative, Inc., as " Seller" and Cherryland Rural Electric Cooperative Association as " Consumer" and stated that it was necessary to amend said contract to extend ,
the term thereof and to make changes in the delivery points.
A form of such Anendment, a copy of which is attached to the minutes was presented and explained and on motion duly made, seconded and unanimously carried the following reso}ution was adopted.
RESOLVED, that the president is authorized on behalf of the co-operative to execute and deliver under its corporate seal, which the secretary is directed to affix and attest, as many counterparts as may be deemed advisable of the said Amendment to the said Wholesale Power Contract. ,
CERTIFIED T0-BE A TRUE COPY I
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' Harald E. Beldo, Secretary -
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EXERPT FROM MINUTES OF REGULA R l
MEETING OF THE BOARD OF DIRECTORS
OF NORTH E RN MIC HIG A N,EL ECTRIC I C OO P E RA TIV E , INCORPORATED,
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HELD '
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The Chairman reviewed the Wholesale Power Contract 7
dated as of May 26,1949, as amended as of November 20, 1959, l
M a rc h 23,19 6 0 and February 17,1965, between Northern Michigan l Electric Coope rative, Inc.,
as " Selle r" and Cherryland Rural Electric Cooperative Association as " Consumer" and stated that
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it was necessar y to amend said Contract to extend the term thereof and to make changes in the deiivery points.
A form of such Amendment, a copy of which is attached to the minutes was presented and explained and on motion duly made, ceconded and unanimously carried, the following resolution was adopted:
RESOLVED, that the President is authorized on behalf of the Cooperative to execute and deliver under its corporate seal, which as many counterparts
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~ the Secretary is directed to affix and attest, os may be deemed advisable of the said Amendment to the said Wholesale 'Powe r C ont ract. .
CERTIFIED TO BE A TRUE COPY:
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S ec reta ry
[S E A I.]
AMENDMENT OF WHOLESA LE POWER CONTRA CT e A G R E E M E NT, m a d e a s o f f.j-/s Iw /f 4/6 , between Northern y Michigan Elect ric Cooperative, Incorporated ( hereinafter called the' "Soller" ) and Cherryland Rural Electric Cooperative Association
( hereinaf ter called the " Consumer ") both corporations organized cnd existing under the laws of Michigan. .
WHEREAS, the Seller is presently supplying the C onsumer with electric power and energy pursuant to an Agreement dated as of May 26,1949 and amended as of March 23, 19 60 a nd F eb rua ry 17,
! 1965 ( he reinafte r called the Wholesale Power C ont ract); and l
WHEREAS, the parties to the . Wholesale Power Contract desire to , extend the term thereof .and to make changes in the points of delivery specified therein;~
l NOW,THEREFORE, in consideration of the mutual undertakings
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herein contained, the parties hereto agree as follows:
- 1. Paragraph 10 of the Wholesale Power Contract is amended by deleting the figures "2010" in the second sentence of .
said paragraph, and by substituting therefor the figures "2025", so that said sentence shall read:
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" The date of termination shall be stated in the notice, but such date shall not be prior to Novembe~r 14,2025".
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- 2. Paragraph 2 of the Wholesale Power Contract is amended
. by adding Bates, Brethren, Lake Ann, P ot t e r, S u tt o n s B,ay and Timberlee, as points of delivery. The three phase voltage to be delivered shall be amended to 12,470 or 24,900.
W 3. In all other respects the Wholesale Power Contract shall remain in full force and effect.
- 4. This Amendment shall not be binding on the pa rties hereto until approved by the Administrator of the Rural Electrifi- -
- cation A dministration.
IN WITNESS WH EREOF, the parties hereto have caus ed this Agree -
ment to be duly executed as of the day and year first above mentioned.
NORTH ERN MIC HIG A N ELECTRIC COO PE R A TIV E , I N C OR P OR A T E D d
By_j mu,
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President Attest:
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Se c reta ry s
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[S E A L]
CH ERRYL AND RU RA L EL EdTRIC C OO P E R A TIV E ASSOCI ATI ON
\D % g) .l k By__hT_'_LL_._,_ x '~ .-f_!__ ___
r ps id[nt Attest:
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Secretary
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'U. 5. DEPARTMENT OF AGRICULTURE
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RURAL ELECTRIFICATION ADMINISTRATION .
I Michigan 33 Charlevoix REA BORROWER DESIGNATION f
l Amendment dated September 16, icf/6 to a THE WITHIH WholesLle Power Contract dated May 26, 1949 with the Northem Michigan Electric Cooperative.
SUBMITTED BY THE ABOVE DESIGNATED BORROWER PUR$UANT TO THE TERMS OF THE LOAN CONTRACT,15 HEREBY APPROVED SOLELY FOR THE PURPOSES OF SUCH CONTRACT.
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w .:: -.. n u n l DATED Ad inistrater NOV 2 I 1976
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. N AN EXCERPT FROM THE MINUTES OF THE MEETING OF THE BOARD OF SIRECTORS OF TOP 0' MICHIGAN RURAL ELECTRIC COMPANY HELD AT BOYNE CITY. MICBIGAN ON SEPTEMBER 28. 1976 The General Manager reviewed the Wholesale Power Contract dated as of May 26 1949. as amended as of November 20. 1959. March 23.
1960 and Februar" 17. 1966 (hereinafter called the Wholesale Inc..
Power Contract) between Northern Michigan Electric Cooperative.
as " Seller" and Top O' Michigan Rural Electric Company as " Consumer" and stated that in orcer to euabid Northern to enter into a new loan acreement with the Rural Electrification Administration ( RE A) to finance new generatinc f acilities, it was necessary to amend said contract to extend the term thereof and to make changes in the delivery points. On motion dulv made seconded and unanimous 1v adopted the following resolution was adopted:
THEREFORE. BE IT RESOLVED. THAT, the' president is authorized on behalf of the company to execute and deliver under its corporate seal abich the secretary is directed to af fix and attest, as many to counterparts as may be deemed advisable of the said Amendment the said Wholesale Power Contract and a form of such Amendment is attached and bereby made part of these minutes.
I, Arthur Biebl, Secretary of Top O'
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Michigan Rural Electric Comnany do bereby certify that the above is a true and correct
- excerpt from the minutes of the meeting of
- the Board of Directors of the Top O' Michigar Rural Electric Company, held on the 28th i ,
day of September, 1976, at which meeting a quorum was present.
Arthur Biebl, Secretary-Treasurer 4
EXERPT FROM MINUTES OF REGULAR MEETING OF THE BOA RD OF DIRECTORS OF NORTHERN MICHIGAN ELECTRIC COOP E RA TIV E, INf 0RPORA TED, HELD fepfembe/ /{ NJ$
The Chairman reviewed the Wholesale Power Contract dated as of May 26, 1949, as amended as of November 20, 1959, March 23, 1960 and February 17, 1965, between Northern Michigan Electric C oope rativ e , Inc. , as " Seller" and Top O' Michigan Rural Electric Company as " Consumer " and stated that it was necessary to a' mend said Contract to extend the. term thereof and to make changes in the delive ry points.
A form of such Amendment, a copy of which is attached to .
the minutes was presented and explained and on motion duly made, seconded and unanimously carried, the following resolution was adopted:
RESOLVED, that the President is authorized on behalf of the Cooperative to execute and deliver under ts corporate seal, which tho Secretary is directed to affix and attest, as many counterparts as may be deemed advisable of the said Amendment to the said Whole sale Powe r C ontract.
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' CERTIFIED TO BE A TRUE COPY:
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- AMENDMENT OF WHOLESALE POWER CONTRACT AGREEMENT, made as of fyd / /f ##[ between Northern Michigan Electric Cooperative, incorporated ( hereinaf ter called the
" Seller " and Top O' Michigan Rural Electric Company ( hereinafter colled the " Consumer" ) both corporations organized and existing under the laws of Michigan.
WHERE AS, the Seller is presently supplying the Consumer with electric power and energy pursuant to an A greement dated as of May 26, 1949 and amended as of November 20, 1959, Ma rch 23,1960 and February 12,1965, ( bereinafter called the V7holesale Power Contract);
and WHEREAS, the parties to the Wholesale Power Contract desire to extend the term thereof and to make changes in the points of delivery specified therein; NOW, TH ER E FOR E , in consideration of the mutual undertakings borein contained, the parties hereto agree as follows:
Paragraph 10 of the Wholesale Power Contract is i
1.
amended by deleting the figu res " 2010" in the s econd
(
s entenc e of said parag raph, and by substituting' th erefor the figures "2025",s o that said s entence shall read:
" The date of termination shall be stated in the notice, but such date shall not be prior to November 14,2025".
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- 2. Paragroph 2 of tho Wholosolo Powor Contract is amondod by adding Central Lake, Gaylord #2, Johannesburg and Mancelona as points of delivery. The three phase voltage to be delivered shall be amended to 12,470 or 24,900.
- 3. In all other respects the Wholesale Power Contract shall remain in full force and effect.
- 4. This Amen d. ment shall not be binding on the parties hereto until approved by the Administrator of the Rural Electrification Administration.
IN WITNESS WH EREOF the parties hereto have caused this Agreement to be duly executed as of the day and year first above mentioned.
NORTH ERN MICHIG A N ELECTRIC C OOPE RA TIV E, INCORPORATED BY_ _ __ _
President Attest:
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TOP O'MICHIGA N RURAL ELECTRIC C
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I President Attest:
S ec reta ry
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RURAL ELECTRIFICATION ADMlHISTRATION . ..":
Michigan 28 Presque Isle .
RE A BORROWER DE51GHATION 1
Amendment dated September 16, 1976, to a THE WITHlH Wholesale Power Contract dated May 26, 1949 with the Northern Michigan Electric Cooperative.
SUBMITTED BY THE ABOVE DESIGNATED BORROWER PURSUANT TO THE TERMS OF THE LOAH CONTRACT,15 HEREBY APPROVED SOLELY FOR THE PURPOSES OF SUCH Cot! TRACT.
DATED UA. w n Admiristrator h0V 20 O
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l AN EXCERPT FROM THE MINIRES OF THE MEETING OF THE BOARD OF DIRECTORS OF PRESQUE ISLE ELECTRIC COOPERATIVE HELD AT ONAWAY, MICHIGAN ON SEPTEMBER 28,1976 Tne chairman reviewed the Wholesale Power Contract dated as of May 26, 1949, as amended as of March 23, 1960 and February 17, 1955, between North-ern Michigan Electric Cooperative, Inc., as " Seller" and Presque Isle Elect-ric Cooperative as " Consumer" and stated that it was necessary to amend said contract to extend the term thereof and to rake changes in delivery poi nts .
A fonn of such Amendment, a copy of which is attached to the minutes was presented and explained and on motion duly made, seconded and unanimously carried the following resolution was adopted.
RESOLVED, that the president is authorized on behalf of the cooperative to execute and deliver under its corporate seal, which the secretary is directed to affix and attest, as many counterparts as may be deemed advisable of the said Amendment to the.said Wholesale Power Contract.
CERTIFIED TO BE A TRUE COPY ad/
/ Secretary (SEAL)
i . . . .
- EXERPT FROM MINUTES OF REGULAR MEETING OF THE BOARD OF DIRECTORS OF NORTHERN MICHIGAN ELECTRIC C OO P E RA TIV E , INCORPORATED, HELD f(pkmba M, NId The Chairman reviewed the Wholesale Power Contract dated as of May 26, 1949, as amended as of November 20,1959, M a rch '2 3,196 0 and February 17,1965, between Northern Michigan Elect ric C ooperative, Inc., as " Selle r" and Presque Isle Electric C o ope rativ e , as " Consumer" and stated that it was necessary to amend said Contract to extend the term thereof and to make changes in the delivery points.
A form of such Amendment, a copy of which is attached to the minutes wa s presented and explained and on motion duly made, seconded and unanimously carried, the following resolution was cd op.2d :
RESOLVED, that the President is authorized on behalf of the Cooperative to execute and deliver under its c orporate seal, which the Secretary is directed to affix and attest, as many counte rpa rts e.s may be deemed advisable of the said Amendment to the said Wh ole s ale Powe r C ont ract.
CERTIFIED TO BE A TRUE COPY:
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A hi E N D hi E N T OF WHOLES ALE POWER CONTRACT AGREEMENT, made as oily /,,,.j,, /(, /9)( , b et w e e n No rt h e rn Michigan Elect ric C oope rative , locorporated ( hereinaf ter called the ,
" Selle r" and Presqu e Isle Electric Cooperative ( hereinafter called )
the " Consumer " ) both corporations organized and existing under the i laws of Michigan.
l WHEREAS, the Selle r is presently supplying the Consumer with el ect ric powe r and energy pursuant to an Agreement dated as of 19 60 and Feb rua ry 17,1965, M ay 26,19 4 9 and amended as of March 23,
( he reinaf ter called the Wholesale Power C ontract ); and WH ER EAS, the parties to the Wholesale Power Contract desire to extend the term th ereof and to make changes in the points of delivery specified therein; NOW, THEREFORE, in consideration of the mutual undertakings he rein contained, the parties hereto agree as follows:
, 1. Paragraph 10 of the Wholesale Power Contract is amended j
be deleting the figures " 2010" in the second sentence of said paragraph and by substituting therefor the figu res "2025",
so that said s entence shall read:
"The date of termination shall be stated in the notice, but such date shall not be prior to November 14,2025."
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l 2. Paragraph 2 of the Wholesale Power Contract is amended by adding Airport, Black Lake, Grand Lake and Mullet Lake as point s of delive ry. The three phase voltage to be delivered s h all b_e a m end ed t o 12,47 0 o r 2 4,9 0 0.
- 3. In all other respects the Wholesale Power Contract shall remain in full force and effect.
- 4. This Amendement shall not be binding on the parties hereto until approved by the Administrator of the Ru ral Electri-fication A dministration.
IN WITNESS WHEREOF the parties hereto have caused this Agree ,
me nt to be duly executed as of the day and year first above mentioned.
NORTHERN MICHIGAN ELECTRIC COOP E RA TIV E, INCORPORATED By_j _
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President Attest: ,_
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Se c ret a ry
[S EA L]
PRESQUE ISLE ELECTRIC COOPE RA TIV E By____ ____ _ _ __ @ _________
P re s id e nt Attest:
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"% fg er (.%# . 6, r d on.: moder #4s e re Ea' Ente sE848 * *er"* er e s caarlered and teled es re,=ered a 7 ( u 911 er ec, 7" AFTER AUDIT
- compoaatt Naur ggon ata inm Arpene-ed
<>ilu 3.. .o-nosu Northern Michig:n Electric Cooperctiva, Inc.
OPERATING REPORT - FINANCIAL """o" a o "'6 N " o
- Michigrn 47, Cheboyg n u.s orpaarurNr or acaicuttuar.ar a.aasamotoN.o c sosso "o"'"'No*G December 31 " 79 INSTCtJCTIOkl - %snur engine! .end four enture et unie repner i no deraaled en erruerwn.e. e r* R F .4 It<.!!*re n Imi-2 Rt A U$t ONL.Y IUnor4lv **pner .nn u es nf N S A I nm e 8 2n. 12h. lle. Ild. I?*.12f. and 12a. iborrek*r repart olen enrined* e H e .9 I n,e, 916.8 sE CTION A. SALANCE5HEET A55ETS AND OTHER OE 8175 LIABILITIES AND OTHER CRECITS
- i. TcT At uTsutv pi. AwT IN stavlCe . . . 30,905,852.98 ,.. u t u, e a s ,,, ps . , 600.00
- 2. coNst auction aoax m paocatss . . ,119,040,299.57 st. paranwaot capit a t
- i. to t a t u r e t e r v at
- N T < l > 21.. .. . 149,946,152.55 2,006,603.78
. assicNro aNo assioNantc
- 4. acc uu.paovisioN roi os parciatio.i a =wr. 10,357,830.31 6. at viat o v ms vt a a.. -
5.NevvtiurvataNr" si. 139,588,322,24 e. at tiaro emoa vt ans.
- s. NoN.uviu t paopt at v - Ne t.. . 6,857.39 d Ne r ca t aoNaot c a pit a t.. 2,006,603.78
- t. mvt st.iN assoc.ono..pa r aoN aca c a pir a t -
- 1. opeaatiNo unaams _ pmoa ,ta as.. (5'44,904.04)
- s. INVtST. lN A550C. ORG..OTHt R. GEN. FUNDS 1.630.400.00 2,. opt an t mc un aoms - c uant NT vr a a.. (180,320.54) s.: iNvr$7. . A$ SOC. ORG. . OTHt R . NON C.F. no. NoNoot na tiNo ua RGiNs.. 972,734.62 s.ovara mvtsturNes. . . . .
it. orwea uaaoms e r ouirie s . (5,898.45) to. specia t r uNos . ... . . . . . . .
- 32. vorat ua.= oms a toustirstm.nd es - r o. . 2,248,815.37 _
i . ,o, a t o r t a aaoar a v v . m vest.", e4 Ioi 1.637.257.39 n tows-tcau or er - at... 26,715,231.66 is. c as . c.t Nr a a t r uNes . 116.810.61 n. tono-t e au oter - or we a.. .114,715,486.75_
i s. c asa . coNstauc t son r uNos . taust a c .. 156.222.21 is. 7of a t tono-r r au or a r i n. en.. 141,430,718,41 n.speciat otrosits. -
w Notts cav ante. 2,700,0.00.00 is. r e upoan a, mv t st uc N es . -
- n. accounts pa va att. 1, 813_d7_2. 06
... No r r s a r c riv a a t r . t v . -
- n. v a n t s accauco.. 490, f122. 61__
it. ac c ouNn as ce ev ant e . Nt ' . 1,986,022.07 n.mer ,sraccauto.. 69,610.1 f4 is. r u r o s t oc ., . . 3,737,764.65 so. ov ar a cuaar w r a acc aut o un eiu tics.. 166,613.98 i,. ua t e m a ts e su pput s - o v ar a . 1,414,665.87 et tot at cunar NT e acc aut o une.f re r4, sol 5,240,325.79 so.pacnavurNrs. 185,649.15 er. oc rtaar o car oits.. -
ri.orwracuaaENT 4 accauto asst es . . 4 3. Opt a a ring arst av e s.. -
. T o r a t C uaaf N r 4 aC C aut o asst e s'l2.'4". 2n 7,597,134.56 44. accuuutaito otrtanto mcout vants .
ri. uNuoa r.oc B, oisc. e t a v a n osso, paop.com es. rota t tianitiTir s 4 overa catoits a . or we a or re.aar o oc no n . 97,145.38 _ *"*"'4*="A. 148,919,859.57 is. vneat asse ,s a n r.- a orvirs n,li n ks ." 148,919,859.57 5ECTION 8. ST ATEuENT OF OPERATIONS Y E AR - TO - D ATE 3,,g Last Yran Twisvraa puoGET uONvN
- i. EttcT aic r NrnGY aEvtNuts . 16.891.603.38 19.177. 5 ti ts . 76 17.R53,315 1, R 34,67ta _ 21
- 2. income raou LEasro PRootRTY - Nc7 - - - -
- 3. orHen opena ring atVE Nut & NCout . - - - -
- 4. tot at opta.aEVF Nuts & Pat aoNaGt Ca p. II r4ru fi. 16.891.609.38 19.177. 5 f14. 76 17.R53.315 1_ R 3ta _ 67 f1 71
- s. opt a a vion e x pt Ns t-paoouc tion-e xct. rut t.. 700,752.96 850.572.39 861.317 78.64t1.79 s.i ontan rioN t x at Nsc - paoouc rioN - r ut t.. 4,928,184.52 3. 8 f40. f468. 30 6_070.129 f453,769_11
- 6. opt aa rioN e x er Nst - OTHe a Poa t a suppt v .
7.737.499.73 10.556_R99_%7 7_011 177 862.069.56
- v. opr a a rioN c a pt Nst - T aa NsuissioN . 186,131.74 230.069.37 198.595 20.69R_75
- e. optna tion c = ptNst - oistmeurios . 57,869.62 75.513.f44 58_361 s,553.90 S. opr aa tion r m at Nst - coNsuuta accouNes . 9.289.3!4 11.79R_92 9.5RO 7 0 %2.2.3 .
,.i opt aa fioN c x ot NsE - Cons. st av. & NF Onu , - - - -
- 10. ope aa tion r u ptNst - sat ts . - - - -
ii. opr a a rion E m pt NsE - aDumisT a* TIVE & Gt Nr Ra t .
536.577.79
)
6 ran . R 10. 4 f1 960_920 t16 on t , n r1 is,torat er na vion c x pr Nsc < s r4.= In .
t r4.156. 305. 70 '
16,206,132.43 If4,770,074 1, 469. 77 ti. 88 n wamtr Ny t E x pr Nst - paoouc tion . 485,542.24 560,762.78 428,985 42,_Q 7 8. 75
- u. unmre NaNcc r x etNst - TaaNsuissioN . 124,770.06 50,990.72 74,810 9.175.95_
is. wamt rNamc r c x ptNsr - oistmau rioN . 49,297.42 38,600.82 39, f469 3,141,10 te. uniN e t NANCE E x Pt NsE - Gr Nt aa L PLa N T 41,974.73 27,395.22 27,480 884.87
- u. Yav at unmrENaNcr e x prNst lia r4 lu . 701,58'4.45 677, 9149. S f4 570, 76 f4 55,280.67 is. orparcia tion a muoariz a tion c x at=st . 850,928.01 899,238.26 908,236 77.766.6f4
- n. Y a n a s - 499,936.54 564,036.32 555,516 52,26tt,y2_
- o. mTrarsi oN tono-itau oter . 6,822,288.20 9,235,453.43 754.817 . 930.092.53 se.i mir atst c u a noto t o coNsv auc tion-c areir . 6.112.279.58 > i 8. f450. 3r42. 81) i - ' ' 860.102.10I 2o.2 OTHt R INTERrST t XPE NSE
~~
- v. oraea etouc rioNs . 97,991.25 27573'18.13 151,258 30,755.r48
- 22. t ov a t cost or t Le C T RIC st RVICE (11
- I? f 4ru lli.. 17.016,754.57 19,357,865.30! 17,710,665 1,755,832.82 si. opta a t mo un aoms n - 2n.. _ (125,145.19) (180,320,54)1 142,650 78,8f41. 39 j s
_ 17 '" rt c 't 77 hm 71 1 (-- -
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as. Lo3 ANct Fo# f UNDs USED DU%iNG CoNST. ..
- 13. otwea wow-oat n&ti%o i=cous - we t . .. (1,436.73) (1,997.90) -
(179.08) st. CE NE G ATioM i TJIP 4N5%e%5 ion C ApiT AL CRE Oit$ .
37.i otura cas***: AL CKEDif $ AND PAT. oiVioE NOs . 584,605.00 104,805.00 - -
re. txtnaonoimaa v strus . .. . . . . .. ... ..
.. cer rainowact c a pit a t on u.4=oi=so .Ar m.. 476.002.82 (50.083.23) i t:7 . 6'in I nn ?q) in7 ui u.s n . * << ,rn...t . . , 6, n..ra, ,>
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3o. totetnic tweriov arvcNut een 4 6 soto . . . . . . . . . . . 37.81 35.85 40.23 si. Tot AL oDERa TiOH aNO u AINTEN ANCE Pt M 494 SOLO .. ... . . . . .. .. 33.29 30.80 33.44
. votat cost or rLrctaic senvice era sen soto . . .. . 38.17 35.56 38.51
- n. punewasro poeF R Cos? PER Ash . 3l.Il 28,68 33,30 s e 4ere by certst, 84af e4+ e'irrie, e9 # Ae s repar,. emelu.fea 4 fan,
. , , ,, , , . . .a , ,. . . . . r. . r. ,,, . . . . . . . ... . . . . , . .r N F 4 f or, 12 .I..r.._,s........,.
- s. ...,,, . . . ... .,J ere og e,ccordance u s,t4 the aceoves, and other 4
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North;rn Michirn Elcetric Corpy Inco
. N OPERATING REPORT - FINANCI AL aaao t a ot S'o=a tion MichigaWT77CheFoygan u s ot ea se t ur w t or CnicuL T une.,nE A, . A sHehG roN.O.C 2o2so uoNTHENDING
! d8DU87f is 7h
' INST CUC TiONS - $.bms, orQi.el ned shore avvies of skse revers.. For det.sted instmences, see REA B llesia 100-2. (Slonibl1 *rPort consists of REA forms 13* 12b.12e 114.12e 121. and 11g. Des ember repare else inel. des ItEA foam 12h.)
{ SE CTION A. B AL Ap.C E 5H E E T ASSE T5 AN D OTHE R DE BITS LI A BILITIE5 AND OTHER CREDITS
- i. 737t.L urioit y *L ANT in se nwice . p
- 2. co%si muc tio.e nomm ise RoGRE ss
- h
,,,,,,,,gg,,g,, , bkN i 27. P A T hon.GE C A Pir A t
- n. v ot at u vite r y et. , n + n.. .
1 W O6W286.90- ,, Ass,o,,0 A ,o Ass,c, A e t c., 2,006,603.78
.. Ac cuu.a.ovisio ,o . o. en t ce A no. . ocr.
9.856,084.05- 5. .o r..c D v ois v c A n.. .
- s. :tt oriur etnur n ..ei.
TOBJ206#20T 85~ e ut vine D en,os v c A ns.. . . .
- s. ~o .uviu r v eacet a v v . =r 1.. .. 6 818~.~08- d. , o , , A , ,o , A o , c A ,i r A t .. . . . . . h d30.6
- 7. invc s v. . assoc.oac..ea aou a ct c Aair Ao ,.. o,o o A1,,o u n.osos - enion vc A as.. .. (544,_904.0'42
- e. swa s t uc = r s in a ssoc.c c..o, st a.. . 1,414,236.00 1,. opta Aviwo unacius - cunacar vc Aa.. ..
7 M ll.68_
- s. ov aa n i=ve ss ut u t s . ..
so. see ce2t r ui os - ..
. .. no. aoaortantiac u Aacias.. .. .
842,4354 ii. ornea uano s a roust ees.. [5.1 8982 45j
- n. iot At ov-a a naoerniv uvut.lo Ar. loj 1,421,054.08L 22. Tot At uancias a touivie sen.2u sw sli.... 2 J743 050.08 is. c As- . ca taat , u=es . . 37.481.22_ n. tons-t c au ot er - ac A.. . .. 25,745,980.49
- n. c Asw . co=s r auctiou r unos . vausi r e. 175.234.77 n. tonc-it a u cr er - ov ar a.. . .. 8J,2Q 4%.D.
i.. spe ci At on eose r s . ..
- n. Tot A t t ows-vin u oc e r nieu>.. . ._i_%45M, 67.24 is. s e upoa an, 6=viss ur = rs . . 36. =or t s e.A v a st c.. . . 1,800,000.00 is. =or t s ne ceiva nte - ac t .
- 37. accouars eAvaste . . .. . 907,820 36 is. accov= v s as ceiv a s t e . =t r . .._. 1 J87,6hl.59_ n. T a n cs accaur D.. . 477,155 16 ie. e or o s t oc a . 752,046.18_
is. = A s a nea ts a supeuts . ov at a .
2d2.646/a91_ n. intratsr accauca./
1,345,666.14_ .o. ornEn cunutWr a Accaueo uneiuties.. .
1263 9_29 64 73.P:t AvutNis. . 254,162.45 4i. r oT A L cuaa c e.1 a acc aur o ua s.06.A~ .o) 4,0T3,951.54 7 . oTectn Cumme=T a ACCRUED assEis . .
.2. oc F o R Rt O C R E DITs.. . ..
2 2. T o t A t C umm E = f 6 aC C R uf D a ss t T sf l.* f A*. 21) 6.026.951.14_ u.optaATi'oaescaves.. .--
2 8. uNuoOT.ot e r oisC. 6 E A T R aoRD. PRoe.LoS ... aCCuuuL A T ED oEF ERRED NCouE T A MEs .
- 74. oT ME R ot F g unE D oE eif s .
239 260 79 as. T oT A L LIA esLiT iEs & oT HE R C REDITs n v or n a ss,,s . or-, . o r se rsn. n.svi.u, 35 893h5C86- n2.as+4few w.. .115,893,468.86 S E c TION B. ST A T Eu EN T OF OPE R A TIONS YE AR - TO - DATE g g,g L Ast VE AR THis VE AR suDGET uoNrH
- i. rtec r aic c taav acvc~ucs . 1,666,089. 1,755,193 43 1;ngig Ie753~393 4T
- 2. ikcout F Rou LE AsED PRoPcRTv - NcT .
- 3. oTMCO optM A TING REVc NuE 4 iNCouE .
- c. T or A t OPE R. R E V E Nu e s & P A T RoN a G E C A P. O ib J). 1,666,089 1,755,393 43 1,742,156. 1,755,393.43I
- s. opr a A v io c r et .,s c -eaooucriou-c =ct. r un.. 56,556. W 4W J4 67.835. 69.451.34_
u oe[C n Tio E X PE D.se a PNoouC rios. - F uEL.. 449 /dO. 42F036.42 576.882. 429.036 42_
- s. occaArto= c aecast - ornea po.En suaaty . 706,739.
- v. ope = A rio= c u ec =se - r a wsuission .
694 J96. 8f0.973.24 860.973.24j 13,326.
- 18.569.41 14.514. 18.569.41l
- s. opc n A rio= c = er =st - oistaisu rion . 4 182. 7.024.73 4,514. 7.024.73I
- s. onecariou e mer=se - co suuta accovurs . 504. 683.11 540. . 583 11 '
S.i of.E An fion E m eE NsE - Cons. sE RV. & .N F oRu . """"
- o. Det RA rioN c E Pc NsE - sa t t s .
- i. oet uviou e aernst - . oui ist aavivc . cc e aAt . 57,203 53,974.39 47,320. 53,974.39 is. io n.{t ope na rio= r x et use (5 is,. n> . 1,275,977. 1.619.712.64 1,418,344. 1.439.712.64
- 3. uAio c uanc e e mer ast - encouc tio . 11,998. 25,348.87 12 .
25.348.82_
- e. uain'v e na nc e e x ec ust - v a a nsuiss.ow . 2,723 1 om m 2,9 . 1,907.'10
- s. uAi v e nance e mpt use - Disvaisurion . 2,1j9. f.i 2,479.
- c. u Aini e w a nc e r x po.sE - cc c na t et a u r .
2.294A 2.1jgA1_
. 244. 6,883.78 2,790. 6,883 78
- 1. v ot At uniwit = = =ct r x eo.se nj sw e6> . 17,259. 36n279.16 21.168. 36,279 16._
.. or e rci iio . woariz A riou e xec ust . 66,436. 72,3h.79 72.171. 72,367 79_
. 1A=cs. . . 42,625. 48,849.81 46_,213 48,849 81J e inte erst ou touc-1 eau oter. L92.780. 669,216.13 60,342. 669,21 F13
- c. av e ctsr cwaasco vo cousrauctiow-cacoit . .c 434J09 60.1 221.80ji
- i. ornem orouc tions .
il i( 6052 721.80
. .. 8,018. 19,476~D2 17,399. 19,476.02
- 2. T et At cost or e t tc T aic st HviCE n2 917 ihr. 2ff.. . I a kb8_d8b. 1,680,179.75 1,635,919. 1,680,179.75 L opt C A ri=G ua RGINs [4 - 22).. _____1 b <01. 75J 13,68 106.27? _ _ 76.211 AR
~
=E. .. . .. . .
S. A L L O. ACC E F o] F UZDS USED OU2f MG CCN$7.
- e. on En N:a-ceE ATs:G a co=E - etT . . . . .
(84. ) (62.201 -
(62 20
7.8 o T N t 2 C A P.T A L cnEDITS A ND PA T. OlViOE N DS . .... ~
..EarnAcaoiNAarart s... ... .... . . . . . . . . . . . ~
.. NE r ea r noN AGr c Acir A L on u Angi stn .an. ss.. 197.L19. 7),1>1 45. 106,25/. 75.151.L8 in E u uiLtsia.n ,o ,.....: .. 6,6., , ,1
- s. E L a c T cec E N(RGY AEVE NUE PER 4 4 Solo . . . . . . . . . . . . . . . . . . . . . . . . . )k.52 35.69 34.52 e, vo AL opan Avion ANo u AiNTENANCE PER 4 4 SOLO . .. . . . . . . . . . . . . . . 29.03 33 29.01
o go., a cos e es a a.* .
. . . . . . . . 33 04 33358 1 31,ot
.. ,uc4 A 30.33 27.16 30 33 '
. . . . . . . , . . . . . , , . . . . . . . . . . . . . . . . . . . . ...... . ~ ,
,,.. ...... .... .... ... ...o..... . . . . . . . . , . . . . . . . . . . . .,,, ,.,..,,... .. ..... ... .. . . ........ ... .. ....... .
5 oATE
-n d.; _ _
s.G N TUNE 4
.s TLE oF I'ERS . PHL yp HING NLPORT alphy DATE
? m SIGN A f bRE OF GENE R AL u AN AGER ng A rox. 12. aEv 8-77
. t
- 3 es [.* A e r f.sds m.y t e g oo d o u t us dr o the s g o r g***n sde s s iha s reporg .e nmpleurd und f led es seword ti L*SL sus es seq )**
usos - aca 1- a be md C "" "*" "*"E
- E " o E 5'G "* " " Michi .an_47, Cheboyy,an E
u s ote.atue n, or .caicuttuat.at a.wasMmcrow.o c 202s0 "o"I" L"osac February a 79 INST CUCTION S - 5.t, min engi..! n.d skree evoies of ais repen. For det. sled snssmessons, see REA Bsilene 108-2. (neonskly repare tonesses of REA Fems
!!a. Ub. D2e. Ud.12e. Uf. .nd las; December seporn .lso incl. des REA Fem 12k.)
sEcTion A. SALANCESHEET As5E TS AN D OTH E R DE SIT 5 LI A BILITIE S AND O THE R CR EDITS
- i. revu oesu,y eoan, i seavicc . .
26 607 9.76 ,. . ,u a s ,u ,.s . . . 600.00
- 2. c onsi cuc tio= -oam .= enocae ss . . ~V3',1741, 5'12- ,,, pa i o,a o,. c a ,,v a t
- i. r ot a u riur v et a= t n + n.. . 11~977d2,73 G F a ss,c c o o ass,c=* et c., 2,00_6,603.78
.. sc cuo.p ova.o= , o. ot eac cia nc.. . wr.7 7391 911.69 5. ac t mc o v ms vc a a.. .
s.ec: ureury et a = r n - ei . TI , 827 19~ ,. act,ato ea,oa vcans..
- r. ave s r.m .ssoc.oac..ea r ao,.a ct c a eir at n. occ aa r c uancms - paion vca as.. .. 544904.04) 1
.. w r s t o t ,s . .ssoc. c ac.. o r m e a.. 1,414,236.00_ 2,.one.aar. a.. c. s-cuanc rvcan.. .
67J27_.J6_
..ovnen mvest cwrs. .. 30. w< ,.oec a a r mo == a cms.. . . 842,372.91 iO. satcist r unos .. ..
ii. or ta unacms a touities . . . ,_898._45
- n. v or at or ns a paoerar v mast.to am tot 1,421,035.88_ n. vorat u.acms a t ouivitsae.274 a= Jn.. 2, __,301_.7
. 2. c a s., . c a , a . c , u ~ e s . .
5d12.03~ n. t o~c-1e = = oc e1 - ac .. .. 545 ii. c as . co=s t auc t son ,u os . ia us u t.. 138,327 T;0
~
- u. touo- u == ot er - or ne a.. .._25,47,s843.49M
.. De i.. s Ec et ot ros.,s . n. torat touc-n a oc e, os+m. . T 0 393,330.24 is. v t-con a a, t si-c rs . . 36. or ts ea ra etc.. . 2,025,p00,~00 is. =ou s ne c e iv a n t e . c , . -
- n. accouars envastr.. 8 5.6
- n. acc ou~ r s a c tiv.et t . ac t .
is. r uc t s r oc . .
1,640_.807.90; 2t047d84.98
- n. T a n ts accauco..
a.micacitaccauto.- . .
- g g,g-i is. ua n a at s e sueeur s . or-e a . .. 1. E9,506,3L .o. ornea cusac.at a accauto u eiuries.. 126,'462.35_
O. ene e n v M e M r s . 441.099.77 .i.1 ora o cuaac at a accaueo uas.n6 a- e> 4,292,314.55 7i. of ME A C ua a[ NT . aCCRuto assL rs . 2. oL F e aaE o C Re olTs., .
- 22. v o t al C u a r N T .C C aut o asse T sf i a,. 2,3 5,623,13f65~ .i. one na rin'c stsc av es.. .
ii. u Moa t. ot e r oisC. . c a f :n. cad. ea ce.c o35 ... accuuutAv to oca cnaco NCouc T a mes .
2.. o t ne a ot e t NE D Ot ee rs .. 2 h b. .s. voTat LiasiLiTics 4 oTMcR CREoITs
,,s v o ,ai .s u vs . n ,-rs o e a s n ,,. m . m ~1T77351.946.5r n2 . is . 4s am m.. 117,351,946.55 S E C TION B. ST A T Eu tN T O F OP E R a TIONS YE AR - TO - DATE y gis Meu WoNTH
~
Lasi vc AR T Mis v e.R suoGrT
- i. c t e c ic;ic c =c acy acvo nuts . 3.017.728.61 3,312,302.42 3,236,662. l',356,908.99 1
- 2. INCoMc raoW tLasco eaoPearv - Nt T ,
- i. or M e*Q osac R = TING a c V E Nu c . INCou c .
- c. vormt ceca.arvenues a cavaon.co cap.o am 31. 3,017,728.61 i 3,312,302.42 3,236,662. 1.556.908.99 s oec a i .o c m ec s c-paoouc tio~-c c t. r u c t.. 109,515.95 135,349.95 130,983 6518_98.01 s.i opina rio= t aec ast - eaoouciio - r uct..
851.919 14 826 233 63 1,079,740. 397,197.21
- s. orcne t.o= cu ec ust - orwt a goa t a sueet v . 1,434,4d6.20 1.670.913.95 1,296,508. dO9J 40.71_
- v. one nareo= c u ec use - r a usuissio . 257563 55 38.340.15 28.931. 19,770.74
- e. oue aavion c = er sc - ois raieuvio . 8 503.63 14 / OL.56 9_,~182. 7,382.83
- 9. oet ii ,AT eoM E x Pc Nsc - consume R aCCOuN Ts . 2,655~34 d77.12 2,8TO. 697 DT 9.i ope:QA v ion t R Pr sE - Cons. s'.av.
- IN r oaM . .
i0. ort L ATion e x Pc Nsc - sal Fs . l ln. o c aa vio c.er se - acm st wa rive . ct.n aat . 98,570.75 98.685.36 91,000. 44,710.97
, i2. tor to oe na vio c = ac sc (5 ar. nl .
2.s1?.2n.56 l 2.785.307.72 2.639.204, 1,345,595.08
- n. u u a ~c c c m er se - euoouc r.o . 53,557.52 46,530.61 39J 52. 21,181' 72-ie. -u~ u . c c r ec ,.sc - 1 a.~suission .
6*28217'0 2,884.56 7,325. 977.46 is. unm u . c c c u ec ~st - o.st aisu vio . 4 487.94 458.76 4,849. 1,319.35 in. ucm r c = c c e x ec ast - cc c a a t et a ur . 4,7X6 31 3,8E8.40 8, 5,580. 1,984.62
- n. torce uamunauct e =re sc na am ist . . 69,574.47 61,742.33 57 506. 251 463.17 is. ot ene cini.o . .uoarn a tio= c m et ust . 136.382.06 144,730 1 95 145,T>e4. 72,JX3.16 c.vaars. 82,401.11 97,008.58 92,586. 48,158.77_
- n. m r e c;c st o= tono-u au ocer . 954,011.34 1.28L.197.11 119,978. 615,181.18 20.i en u ne st c a sacc o to co=sr auc tiou-c a on . .
843,031,11 > < l'.163. 405186W ir 557,684.06:
- n. ornen oc ouc vio s . 15,703.26 34,993.837 32,113. 15,517.81
- n. iorat cost or eocc:asc scavice. n2,17 am 2n.. 2,947,28).69 _J ,21 , 4.86 3,087,071. 1.564.595.11 mmrvvecevvevnm ___ _ - - . - _ - 70J ' ? 92 ' 6 -. .56 149.591 (7.6R6.12i
4 . __ ._____. ._ --
--m-__;u_-
se. i::v ecest i ccut . . . . .. .. . . . .. 1,179,6_0_ i as. AtLo'3A" E F o~2 F U:'Os usE D Dun 6%G CoNsT.
C4 . ..
- 2. orato cow-cPa narino =cout - et7 . . ..... (169 14) (124.401 (62.20)
2 7.8 o T H t C3 C a psi A L C RE Dif s A No PA T. oaV40E NDs ... . ..
- 13. t a i n Acaoi= A n y e r c us . . . . . . . . . . . . . . .
so. tr eA no= Act c Aper At on uAnciusm sA= 2ss.. 71.653.38 67,403.16 149.591. (7.7tB.12
., e u uittsine a to,..e ei e.e 6, a ,.we,i
- o. e t i c cic e = a a o y a t v c a u c es a a e n sot o ........... ..... ... .. .. .. 35,29 35.43 36e21 si vorit oPon A rion Ano = Aiurc=Ance er a ama soto . .. . . . ...... 30.33 29e>Z 31.88
- 31. v o, A t c os t o f t o e c r aic st avice es a a =* sot o . ....... . . .. . ... 3!u.37 33.79 36.38
- 43. Pultc H A$E D poet a cost PF R Ae4 . 3r). A9 27.92 30.66 '
E e here by seresly she one ensroes so shes report. enesedses Mi A f orm 12h (sl anp) ese en eteerdance wesh she eteeenes and enker records '
e el she opense end shes she repers refleens she eseems el she syssen se she bens of eer hoewledge end balsel.
?*
9
- -D g -
_ oAll slGN A JM & Til L OF PE NboM PHL PA NI HLPORT DAic stGN A T U E or GE NE R AL M AN AGER , h' R E A F 05t u ile REV 9-77 t. g ' N.' [a 'c. ~ * '
9 e
4 8
1% o s%st funds n.ay be pasd ont endre shin petsgram s.nles s this report is evn.p eted and filed Gs reesired t? USC 901 et see.)"
usO A - RE A p,,, App,,,g g toReoR AT E N AuE OMB No. 40-R0566 Northern Michigan Electric Cooperative, Inc.
OPER ATING REPORT - FIN ANCI AL "E" '5"'"
Michigan 47. Chehoygan u.s. D E Pa ft r uE N T oF A G RIC uL T uR E.H E a. W A sHING r oN.D.C.202s0 uoNr H E NDiNG gg gpy 19 8Q lNsT CUCTIONS - Submis original and three copies of this reporL For drieiled insstortions, s ee REA Bulletin 108-2. (Monskly repers consisus of REA Forms 12a.11b 12e,124.12e,12f. and 12g; Desember reporn also includes REA Form 12h.)
sE C TION A. B AL ANCE sH E ET A55ET5 AND OTHER DE BITS LI A BILITIES AND OTH ER CREDITS
- i. 7 Tat uviterv et ANT iN service . .
30 905 852.98 26. ut uo t RsHips.. ..
600.00
- 2. COMsicuC T eon woRx IN eNoGRE ss . 32 ~1 YN. 2b 21. e A T HoNaGE C ape r AL
- 3. voret uriuT v ataNT tl 4 21.. . - 152,217,594.26 a. ,ssic N E o .No Assic Na st E.. 2.006.603.78
- 4. aC Cuu.eaovisioN F oi oEeRECia fio.i a saur. 1 6. R E.T IRE o T His v E a R..
- s. NET oriury e t . N r t i . 41 .
14 (0'/797392.48 438,201.78 c. Re viRe o eRioR vE aRs.. -
- s. NoN.u riu T v eNo eE R r v . N E T.. 6,839.19 d. NE r pa T RoN ace Ca piTat.. . 2,00G,603.78
- 7. iNv[si.iN assoc. orc..ea r RoN act C Aeir at -
2a. oeE R TiNo ua RoiNs - PRioa vE A Rs.. (730.133.57)_
- e. iNvt sr uE N r s iN Assoc.CRo..of w[R., 1,630,400.00 2,. ore Ra vino u= RoiNs - CuaHE NT vraR.. .
27_0 1 928.91 e.orwta NvEsfuENrs. .
- so. NoNoeER A vino ua RoiNs.. . 9721 658.02_
- 10. se E Cis t F U N Os . .. -
- 31. OT H E R M A RGINs & E ousTIEs.. . .. (5,8981 45)_
n.101 At or -( R eRoerR r y a iNvuT.ro shra 301 1.637,239.19__ m2. tot A L ua.4ciNs a LouiTiEsi26 27d ssru 311.. 2,514,758.69
- 12. C a s H . G E N E R a t F u N Cs . 27,783.54 33. tono-i E Ru oteT - RE A.. . 2GJ15,23LfL._
i s. C as H . ConsT RuCTioN F uNos . T Rust L E .. 130.702.66 24. t oNo-T E Ru OE S T - oT H E R.. ..115,978,486.75 it. sPECiaL DL Post T s . -
3s. T oT A L LoNG-T E R u DE S T (336341.. .
~ ..14 #k fi33d18. 4l 3s.tcupoaARviNvEstuENrs. . - 36. NoT E s ea v aistE.. . ..__2,A00.000J0_
is. Nor E s CEC Eiv a s tE . NE T . -
- n. ACCouN Ts pa va st E.. . . 1,500,283.40
- n. aCC ouMr s a E C Eiv a nt E - NE T . 2,234,404.47 n. T A x E s ACC R uE c.. .. 53GJ9 LOD- -
- n. F uE t sioC n . 3,3 LS5fl.88 M. IN T E R E sT ACC rue D.. . _1dd2,2dQdh,.
- 19. uA r [Eials a su PeLiEs . or HE R . _
1, QQ , 22(( 40. OT HE R C u RR E N r & A CC rue D LI A BILITIE s.. .
136.409.15_
]o. est e a vuE N T s . . 243,999.02_ 41. T oT A L CU RR E NT 4 A CC R uE D u A S.(36 ahm 40),_fiJ,1$, Q ] 3, 7]i,,,,_
ii. oT HEQ CuRRE NT & ACCRUED assets . .
- 42. DE r E R fee D C R E DITs.. . . 2.00 _
- 22. T o r a t C UN'H E N T & aC C R uE D A ss E T sf lJ 8hru 21/ 7.305,174.12_ 43. oeE Ra vino RESERVES.. ..
23.uNuo:Ir. DE B T OlsC. 4 E x T R a oRD. eR o P.L oss =
St. or HE R DE F E RRE D OL BITS . 1021 487.071 es. ToTat unsiuTies ; oTHER CREo Ts 9s vovai assr vs e ov F oreissn e uuu4, 150,824,292.86 IJ2+ 35+dishn.448.. .150,824,292.86 SE CTION B. sT A T Eu EN T OF OP E R A TION S vE AR - TO - DATE THis La%T vE AR THis vE AR BuOGET uoNTH
- i. ELECiniC ENERoy REVENUES . 1,75'5,393.43 2,094,784.90 2,216,125 2,094,784.90
- 2. iNGouE F Rou LE AsED eRoPERTv - NET .
- 3. or HE D OPE R A TING REVE NuE 4 iNCouE .
- 4. TOT AL oeE R. R EVE Nu[s & Pa r RoN AGE C A e. (f shru 31. 1,755,393.43 2,094,784.90 2,216,125 2,094,784.90 t OPE na r ion E x eE Ns E-eRoouC Tion-E xCt. ru E t.. 69,451.34 78,456.33 76,955 78,456.33 u oeE aarioN Ex eE NsE - eRoouCTioN - ruEL.. 4 29,0J6. 42 484.382.39 553.463 484.382.39
- 6. operation E x pE NsE - oTHE R pow ER su eety . 860,973.24 919,198.54 1,062,943 919,198.54
- 1. oeE RF. Tion E x pE NsE - r R*NsuissioN . 18,569.41 18.191.81 21.240 18.191.81
- e. oeE R ATioN E xeENsE - OlsTRIBuTioN . 7.024.73 6.325.92 8.440 6.325.92
- s. o.i nation E E x eENsE - CoNsuuER ACCOUNTS . 680.11 1. M . y m 1. M . M
_ _ i 9.1 OPE R ATioN E x PE NsE - Cons. sE RV. & N F oRu . " -
is. ochnatioN E x PENSE - sat rs . - - - -
l
60,2RM.80
} ' 4 3t. . % 9
- n. usiN T E N aNCE E xpE NsE - pHoouC rioN . : 'd 7 19,668.64 43,495 19,668.64 i 4. = AiN T E N a NC E E x eE NsE - T R A NsuissioN . g ; 1.523.31 2.100 1,523Jll i s. ed a N r E a NC E E A PE NsE - DisT R.BuiloN . 139 A 1 882,07 2,355 8821 07 is. uniNT r s aNC E E x eE NsE - GE NE RaL et A NT . bb.7b G 3* 6 2,570 623. 2K U. T ot AL ualN T E N A NCE E x PE NsE (13 shru 16) . 36,279.16 22.597.28 50,520 223 597 J8_
is, oEenECiarioN a auoRr:2 arioN E x eENsE . . 367 79 77.890.35 81.340 77,890.35
...iaxEs. 72*8 48 8 Y1 54,105.69 53,370 54, T0519' 2c. iN r E REST oN toNc-TERu oEsT . . . 669,216.13 941,431.5;. 68,725 941,431.55 2e.1 INT LCEsT CH A RGED t o CoNsT RuctioN-C REDiT , .I 605,721.80 > < 8711 4_42.53 ;: - ia 871,442.53 2i. orHon otouC rioNs . . 19,476.02 31,188.52 l 36,306 31,188.52
- 22. , oral Cost oF E L EC r RIC sE RviC E (12 , J 7 ihru 2 8).. 1 GRO.179.75 U.,823,855.99 l 2.073.907 1,823.855.99
T m'E n A TIN G w A %,.s :<3 . v-. . 75.213.68 ' 270.928 91 142.218 270.uzs. w
- 3. sN T E EsfirCouE. . . . . .
f 3. AliC"J ANC E F O3 F UND$ U$[D DUEING CONST. - - - -
f 6. o T N EQ NON-OPEC A T 8*sG st'CouE - NE T . @ . 0) (76.60) - M 6m
~ ~
IF. G E NE GA T SON & T R A NS$sl55tLN C A PIT A L C R E O4 T$ ... - -
17.9 OT H E Q C A PIT A L C R E DIT S A ND P A T. OlVf DE ND5 .. . - - - -
le. E:t T C AOIDIN A M Y S T E us . . .
rs. NET PATaoN AGr C Ap T AL on u A nGiNstn s An, ni.. 75,101.46 270,852.31 142,218 270,852.31 T E ta ulLL5/4 4 (Opasonal ese by 6orrowerl p r. ELE C T sic E NEaG v nEvE NuE pen a.4 soto . . .. . 45 74 42.80 42.74 it. tot AL ope n A Tion AND u41NTEN ANCE PER Am4 SOLD . . . 32.45 35.42 32.45
- u. Totat Cost oF ELECTsiC sEnveCE pe N 4 4 soto . M*d UN #*N is. punCN Ast D po.E n Cost eEn own . 3 4. 7 34.44 34.07 s e, Asseby eerselv shes une enerses en shes report. noelodsne N L A f orm 12h ist ann o are an eteornance es < she oceoenus and other records >
elQs syssee end skes she revers refleets she asesos of the s panen so she bens of our knemledge end bes.
$"O )
l[ 0 .[ts / r reg &A-DAid SIGeA T uME 41 ILE op pt PR E f 4 5elNG H L PoR T DATE SIGN A T ME OF G E NE R AL [AN AGE R n,A ,c<u n, . . . . ,, _ -.,
4 4
% f **ter fads n.n le pa,4 a.ur undze ihn , povgram unles s thu s orport is cu.mpleted und feled as orpored fi U5C 901 er seq.)"
-' /.
usDA - REo M CoHeoHAT E N AuE I6"n*
ou no.e,os,g
<o-nos66 13orthern Michigan Electric Cooperative, Inc.
OPERATING REPORT - FIN ANCI AL Waoa t R oEsiGNa tion Michrgf8f47,Thulfoys?M us.OLeaRTMENroF
- G RIC u L T uM E.R E A. w a sHING i oN.O C .20250 uoNT H E NotNG pdm 3G 29 i9 8Q INST CUC TlCH$ - $aLmis vriganal esod Ehree copies of this repots. Fur de oiled in structions, s ee REA Bullessa 108-2. (Munshir report eensissa af MEA Forms 124126.12c 12d.12e. 22f. und 12s; Det embe! *ePort also inclssdes REA Form 12h.)
SE C TION A. BALANCESHEET AssE T$ AND OTHER DE BIT 5 LI ABILITIES AND OTHER CREDITS
- i. T,T e.t u TiuT T et Ast m se RvlCe . 30,907,347.85 ,.. , E , s t o., N , es . , MAM
- 2. CoNsT ouc tion acRn .N pHOGREss . .H 9M 9.15 27. pa r RoNaGE ca pira t {
- 3. r o t a t u v itiv v et a N r (i + 7/.. 313 dft1 ,047.00 a. A sstG Nt o a No A ssiG N A B L E..
- 4. ACC uu.PaovisioN F o 4 0L pHE Cia flo.4 & %sn.10,5320 875. 60
_ 6. at Tiar o T sis vEa R.. -
- s. Ne1 oratiry at*NT o . 41 143,3401 171.;10 c. RE Tiaro eRioR v E A Rs..
- 6. NoN-urit.TT PNo et N r v . N E T.. . 6,820.99 d. NE T e* T RoN AG E ca e T a t..
g ggg- -
- 7. N V E s f.iN a ssoC.o NG..e A r hon aGt C a Pa r A L -- 28. o PE R A TING Ma HGiNs - prior v E A Rs.. ..
(725 ] 24.58) l
.. Nv s sT ut r s .h assoc. cRG..or st R- . . 1, [L30,400.00 2s. oeE Raving unaGiss - cuRRE NT vE a R.. .
634.031J 1_
- t. o f H E fi (N v L s f uE N r s . -
- 30. NoNoPE R A T ING Ma RGiNs.. . 972,58_1m4_2_
iO. sec cia t F uNos . .. -
- u. oTsER M RciNs a e ouiries.. (5,8 9_8. 45)_
ii. i o r a t ov at R eaoer H r v . iNasT.r6 ear so> _1.037J20J9.__ n. T or a' u= Ns
- t oui'it st26 27d 'i= 33 . _._ M8. 3 dD4. 08L -
i 2. C & s M 6 t N L R at F uNCs . . ,14 . 3 3. t oNG- T E H u Ot eT - R E A.. ..J 6 x490,518.3_6__
- o. c asa . coNsT Ruc tion r uhos . i nusT e r.... 68.849.47 34. L oNG-T o sa oE sT - or sc R.. .._116_,631,486.75_
is. see ciat oc posits . -
- 35. r oT A t t oNG-r L R u DE e r DJ +341.. . .143,122,005.11_
..iau oRaRviNvEsTm N1s. -
- 26. ~or E s e.v a eu.. . . . ..._2J00A0_0,00_
is. No r e s R e c riv a s o r . NE T . - n. accounts pava stE.. 1,1311 853,23 is. acC ou i s Re c eiv a s t E - NE r . -
3e. T a x e s *CcRuro.. . . M,p.89 i
it. F uE o s i oCm . 059 3b4*l4 39. iN T E REST aCC NuEO., . 1,755,234 E -
it. Ma t t Mia L5 e sueeLits . orME R . 4,273,337.94 0. oTwtR cuwRc'NT a accRuco timeitiv ers.. 1.35,337.44_
l
- 20. 8'R t e & v u E N T s . __ 261,509.94 4i. T oT A L CURRE N T 4 ACCRuEO Lta s.06 thru dos 5,817,6.49.63 2i. or HE R CuRRE Nr s aCCRut 0 AssE T s . .
4 2. D r. F E R R E,0 C R E DI Ts.. . 4.00
- 22. T o t al C uR R t N r 4 aCC RUE D A$st r 5s tf f kth 2i> 6,706; 206.55 43. opERat NG se serves..
2 3. UN Mo:'!T . DE S T Disc. & E a T R a oRo. eR o e.L oS -
44 aCC uMut A T LD oLF tRHLD INCoinE T A xEs .
- 24. or Mt R ot r LHRE D DE sirs . 139J53,8_8 45. T or a t t ea sitifie s a or ac R c ReoiTs is ,ovat ass,ts.ov ,u o Bivsrs,o n . m 151,823, 2 2.82 or + 3 5 + 41 A r= 4 41.. 151,823,252.82 5E C TlON B. ST A T EM EN T OF OP E R A TION $
Y E AR - TO - D A TE T His LAsf vE AR T His vE AR BUDGET MoNTN
=
- i. E te c T Ric E c RGv REVENUES . 3J112J102. 42 h076,196.45 4.256.319 1.981.411.55
- 2. NCoul F HoM teased PRopERiv - NET .
- 3. oT Ht N oeE RATING RE VE NuE & INCOME .
- c. T or a t ope R. Re v t NuEs a pa t RoN Gr c a e, o ar,. jf. 3,312,302.42 1,076,196.45 4,256,319 1,981,411.55 i
- s. opt n 4 T hon E R er NS E = eRoouC T ion-E M C t. F u E L.. . _135,MD.95 126,420m19 150.080 4_7.063.86 s i cet H
- Tion t m er Nsr - PRoouc Tion - r uE t.. 826, 233.63 1 921,345_,_86 1.056,449 4362 963.47
- e. onc na rio e x ecNsc - oTutR po.tu sueet y . 1,670,513J5 1.72EJ0Aa_74 2.024 27.4.1 809.406 a &
- 7. oeE R A Tion E R PE NsE - TH ANsuissioN . 38,340.15 31,922.56 43,800 13,730.7o
- e. opt Ra Tion E x eE NsE - ois r Risu rios. .
14.40 M 6 11.ML_02 17.27_0 5.0S L10_
- s. oer aa rio E x prNsE - coNsuutR accouN Ts . 1,377.12 2,388.30 1,515 1,146.96
..i one Ra Tion t mer Nsr - cons. st Rv. e iNF oRu . - - - ~
I iO. opt sta T ioh E x e( Nsr - Sa t E s . ~ '~
l
- n. cet dafioN r mec NsE - acumsv aa rivt a cr NERat . 99.6R5.36 113,592.64 109,865 53,303.84{ 1 i2. Tota.oneHavioN E x et NsE (s car. iis - 2,785,307.72 0,935,661.31 3,403,720 i1,367,576.18 )
. i. uaiNie Na C L e m er Nsr - esoouc tion . 46,530.61 36,965.83 62,565 173 297.19 i i4. uniN r t Na Nct : = ac Nst - TRaNsuissioN . 2,884.56 2,896.06 3,180 1,372.75 l is. uniN v E Na Nc E E m erNsE - oisv aisuf ion . 3MM 1.66 M g 3J 05 7.8 3,5 2__J ie. uaiNi r Na cE c a pr Nsr - ot Nt Ra t et a N T R'868.40 3.600.22 4.755 3.076.96 l i 7. Y o f & t u aiN 1 e N A 8.C E L R et N sE (13 sArm 16; . 74,305 61J42,33 43.,_121 70 222 530. 4 2J is. oc e*u cia r ion a awoRTiz a Tion E x et NsE . 34a'MO D_5 151 664a35 163,200 79,774.00 !
i..Taus. 97agh58 106 016 35 106 050 51 910.66 I a Ni t at sr oN tong-T o RM DEET . . 1,284,397.31 1,828,41fC56 13D05 8Bld987%
20.i iN T E R Es t C M a RGt O T o CoNsiMuc Tion-CHE Dif .
L 163dQL86 i l_,g a,062.24 * *' 8 n,6M. 71 s:
- n. ov at R ot ouc tioNs . u_otin_99 61_ 4 '< o _ 51 l 66.R57 30. 249 94 J
- n. v ot at cost oF E ti c T Ric sc Rvice is2 + 4 7 str. 2ii.. 3.244.774.86 U.441,264.54 1 3,948,837 1,617,408 4" n n.y ..cuu,w.n - r - - ~ I m4 na' n1
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=
4 e a .. a a u ,
- 24. IN T E HE S T INCOME . . .
- =
- 29. allow ANCE F on F UhDS USED ou' 8NG con 17 " " "
- 23. ov at a noN-ope nA vi .G .NCoMe - c 3 .
(124.40) (153 20) -
(76. 60) '
2 7. o L N E H A f ton O T QA NS%1$5 bon C A P0 f A L C H E DIT S ., . - **
2 7.1 o T H L Q C A P6 T A L C M EoIT S A ND PA T. olviDE ,.D5 . - - " "
- 23. E A 1 M AoRDIN A R Y li L MS .. , ,
2s. Nt i eA v noN AGE C A PIT A L oR M A RGIN5/M s%m 28).. 67,403.16 634,778.71 307,482 363,326.40 ITEM MILLS /4w4 (Opseoaal use 67 6antomer)
- 30. E L E C f K6C E ME NGY MEVE NUC PE R AW4 SOLD . .. .. 43,22 43.22 43.75 mi. 5 or AL ope na r ion a ND unent c un, scc er a a.4 Soto .. . . . . .. . . . 31.61 35.32 30,69
>2. ior AL Cost or r LeC r aiC scaviCo con a 4 soto . . .. . 36.49 40.10 35.71 3 3. Pu Hf6H a S E D Pow E R C OS T FE H %wn . 39.64 34.74 31.16 E e heress eerselv shes sne enstees ss shss repors enclodsng ML A form 22h (ej ony) are en accordaner mesh she aceo.nsa and asher retards af sk.s s yssem and skes she revers refleens she asesus of she a pa sem na she bens of our anomledge and beleef. f.
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'%o for%rr Imnds map be pasj out under the m p,ogram unles s ths s orport e s s o npletrJ und faird as requered li ( \t. VUI et seq.)' qqq gl3 usoA - Rt A l orm Approa rd CORPOAAT E NAME infil .k 4U-kosh6 l
' North rn Michiq n Electric Cooperativa, Inc. 1 OPERATING REPORT - FINANCI AL aoaaoaE" oEsloa^ "
W&km U. CNMmm
~
u s. oE Pa R T ME N T OF A GRICu L T u R E.R E A. w ash 6NG T oN.o.C.2o2 so MONTH ENolNG der 31
80 INSTCUCTION S .%bmnt oneinal and four cutnes of thn report. l'or Jetailed un struerwns. see IWA n.Iletm los-2 REA USE ONS.Y
(%fhis report c on se nts nf N F 4 I nrm s 12a. 12b. Ih. I2d.12r.12f. and ils; br< ember erPart also includes RFA Fo mi 12h.I SECTION A. BALANCESHEET l ASSE TS AND OTHER DEBIT 5 LI ABILITIE5 AND OTHER CREDITS
- i. 7:va ureur Y PL ANT IN seav Ce . 33,320,123.98 2 , toot nsN,ps , MLM
- 2. coNsr Ruc riON RoRn iN PROGRESS . 155,750,019.55 n.PATRoNAGEcAPirAt
- i. to r a t v riur v Pt aN r s i n.. 189,070,143.53 a. A ss,G N E o A No AssiG N A uu..
- 4. Ac cum.PaOvisiON r O = oE Pa Eci A Tion a w"- 11,448,351.99 -
- b. RE riRe.o vses vE A R..
( s.NoturiufvPLaNT o - o. 177,621,791.54 o REriREo prior vE ARs.. -
- 4. NON.u TiLiv v PRO PE Ri v . N E T.. 6,623.07 J NE r p A T RoN AGE c A Pit A t.. 2,006,603.78 F. sN V E s r.iN assoc.ORG..P A r RoN a G t c a ps f A L -
28 oPsi.R A ring M A RGINs - PRIOR Y E A Rs.. _
- 8. lNVEST. 4N ASSOC. ORG..OTHE R. GEN. FUNDS
- 29. OPE R A TING u A RGINs - C UR R E.N T YE A R.. (115,095.15) s.1 WVEST. . ASSOC. ORG. OTHE R . NON G.F. l.775,846.00 so. NoNoPE R A 1iNG u A RGiNs.. M2,281. 82 9.OTHERINvEsTMENis. . P. OrHER MARGINS a EQuiTIEh.. ~
io, sPECi A L F U Nos . .. -
- 32. T OT A t M A F4 GINS a EQuiT iE s1.% . 27d thru f i t. . 2,174,390.45 ~
- n. i O T A t O r .a w PR o P r a r y a iN *sT .< <. t **= me 1.782.469.07 n tong-v onM oEst - RE A.. 27,395,937.11 s2. c Asn uE NE R at a uNes . 110.927.92 34. tong-r o au ot uT - or wE R.. .145,078 486.75 _
- n. c a s- . cONsr Ruc Tion r uNos . r Rust E E.. 741,888.73 is. r oTa- tong-rE nM oE ar r t o m.. .172,474,423.86 i4. sPtcia t oE POsir s . -
- i. notes PA V A8u. 11,399,018.33 is. T E MPOR a R v in v E s t uu.t s .. -
n accounts P Av A stE.. 1,831,412.90 is. NOi c s ac c E iv a s t E . NE T . -
is. Ta xEs accRueo.. 520,370.36 it. Au ouNi s Rt c e iv ast t - NL T . 1.966.998.06 14. iN T E wE st acc rue o.. 60,435.18 is F ur t siou 4.640.355.63 40. or HE R cuRRL a t e Acc HuEo u A siu ties.. 155,533.38 is. M A T E Ri A os a su PPuts O r we.N . 1.456.995.66 4i. t or A t c uRRE N r a Acc RuEo ti Aed to ,ar. sto 13,966,770.15 2o.PRtPavMrNYs. 113.175.75 42. oE r err E o cREoirs.. -
li. O r ME R CURRE NT a aCCRuEo AssE T s . -
4 3. OPE R A T ING RE sE R v E s.. .
- 22. T O f At C URRt N T & AC CRut o a%t T s* J M" 2's 9.030.341.75 44. AccouutA T Eo otrERREo income T A AEs . -
es. Tot At LI ABitiTIE s a OTHE R CRiolvs
- 24. oT e a oE r t Rue o or s Ts . 180.982.10 , J* 8 5
- 8 ' ' 6 'a .. '
it v o v ai a ssi r s , ni r u nr eit s, . r i n n .s . 189.615.584.46 5E CTION B. ST A T EM EN T OF OPE R A TIONS 527,247.2 YE AR - TO - DATE _ 7gg LAsT vF AR IHis v E A R BuoGET MONTH
- i. E LEcTRic ENERGv REv c NuEs . 19.177.544.76 21.468.595.89 21.551,161 2.115.952.16
- 2. 4NcOMt r ROM LE AsEo PROPERT Y - NE T . - - - -
- 3. OT HER OPER A TING REVENUE a iNCCuE . - - - -
- 4. T oT A L OPE R. RE v E Nu Es a P A T RON a G o c A P. t l <4r. o. 19,177.544.76 21.468.595.89 21,551.61 2.115.952.16
- s. oet w a r ion E x eE Ns E-PRoouc t ion-E xct. r u c t.. 850,572.39 910.706.87 931,445 133,946.47 s.i ceE R A vion e x pe Nsf - PRoouc Tion - r ut t.. 3,840,468.30 5,768,372.31 6,074,369 566,409.52
- a. OPE R ATioN t =PENst - oTar R PoRER suPPt v . 10.556.899.57 10.026.172.05 9.614.573 1.128.646.24
- i. OPE R A rioN e n Pt NsE - r R A NsMissioN . 230,069.37 226,970.22 261.195 24.555.86
- e. oeE R A TION r s eE NsE - cONsuut R aCcOuN Ts . 11.798.92 11.736.90 12.850 1.161.17 9.iOPERAllON E X Pc NsE - C ONs. sE RV. &INPoRM . - - - -
- ~ ~ ~
H. QPE R A TION E = PE NsE - ADMINisr R.Tiv E S bt NE R At . 640.810.44 798.775.44 722.440 140.546.25 ,
ii. (O T A L OPE R A T ION t.E PE Ns E f 5flJ -
t%rh 16.206.132.43 17.822.892.07 17.700.662 2.002.987.64 '
i s. AAiNT E N ANC E E X PE NsE - PROouC TION . 560.762.78 481.350.02 431.075 44.515.50 8 i4. M AiNT E N a Nc E E = PE NsE - T Ra mMissiaN . 50.990.72 125.439.59 95.870 12.959.38 is MaiNrE N ANc e E m eE NsE - oisT Rieu riO" - 38.600.82 28.698.93 31.195 7.355.38
- 16. M AiN T E N a NC E E X PE Nst - GE NE R a t Pt a N T . 27.395.22 19.847.99 24.080 1.554.02 i t. f or a t M AIN T t Na uc E , wE NsE t li ,8,o iN .
677.949.54 655.336.53 582.220 66.384.28 i3. oE PRt Cia TION & a MOR Ti2 A TION E M PE nae . R99.73R 26 1 035.561.11 1.017.0R0 103.233.94 is. r A x e s . 564.036.32 603.398.93 617. MQ._._ 40.692.88 l
2o. iN T E u t s r ON TONG-r t RM oEBT. 9.235.453.43 13 6321796.61 8641b50 569.788.50
.]
2c. N T E RE st c n A RGE o 7 O cowsT Ruc rioN-c RE oi Y 814501342. 81 > il2'. 481. 390. 59; i -
i1,384,386.42 8 20.2 OTsER mTEREST ExPEN5E - 225,398.13 315,096.38 315,030 58,015.75 2i. OrHE R oE out TioNs . - '~ ~ ~
- n. ror At cost Or E LEcrR c service riz , i7 tar. 21/.. 19,357,865.30 21,583,691.04 21,096.382 2,456,716.57
.m rion un cu riic nnr ici orn un run m ni
. .~. . . .
==.iNTEREstiNCOME. 27,430.21 23,649.97 - -
- 26. ALLO 2ANCE FOR FUNOS USEO OURING CONST.
- 26. OTHER NON= OPE 7tATiNG INCOME - NL T . (1,997.90) (2,752.74) -
(169.86) 2 7. GE NE R A TION 4 T RA N$Mi$$ ION C APIT A L C RE o T5 . ,
27.i OTHER CAPi T AL CREoif s ANo PAT. oivioENos . 104,805.00 19,773.00 - -
s - - - -
,28. E N T R AORDIN A R Y iT EMS . .
- 29. NE T P A T RON A GE C A PIT A L OR M A RGiN5/2) shrt 287.. ISO 083.73l f7U U)U_9)) 050 779 lI300 SIU 77I eTEM MILLS /hwh (( Apssonal use 63 6orKher)
- 30. ELEC T RiC E NE RGY REVENUE PER huh $0LD . . 37.81 40.72 l 41.34
40.47
- 13. PURC H ASE D POW E R C OST PE R hoh . 31.11 34.55 l 34.04 1
'se herehr eerssly shas sne eastses so shss revers. seeludang HF i Form 22h (sf any) are en accordance wssh she neeoonss and other records of she system and shes she report reflects the snasus of she sussen so she 6ess of our hauntedge and behet.
= S l* ${ ._ f" 1 &>. }
DATE SIGN A TYJ R'E. 4 T IT d OF Ph RSON Ph thA RsNG [L POR T DATE $Edh A T U R E. (Fb E N E R A L M A N A G E R RE A r oRM 12. aEv 11.n _ _ _ _ _ .
k 5
i e
'h t, foreher funds ms, I,e ymd oss onder thu s po vgram useles s this report a s wn.pf, sed und f; led as separd (7 l)5C 901 et sey)**
usD4 - HEA Furm Appsus ed COR PORAT E Nt.ME
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UMH No. Cl-kOSb6
- Northern Michigan Electric Cooperative' Inc' aOHNOaEa OEs GN A T,0N OPERATING REPORT. - FIN ANCI AL uich.igan 47, Chebovqan u.s. OL Pa H T ML NT OF A GHIC u LT uR E,H E A. W A sHiNGT ON.D.C.20250 MONr H ENDiNG Jan n 31 81 lH 5T[UC TIONS - Submas original and three copies of this orporn. For detanled unstructwns. see REA Bulletin 108-2. (Monskly repurs consists of REA Forms 223 126.12e.12d. s2e,121. and 12c; fles ember report also enstudes REA Form 12h.)
j 5ECTION A. BALANCESHEET A55ET5 AND OTHER DE BIT 5 LI ABILITIES AND O THER CREDITS
- i. 7:te.L uriLevv PL Ast iN service . 33,321,513.26 ,s. ,, ,,, a s s, Ps..
MAN
- 2. cOMs r cuc TION =O== iN PROGRESS . . TW 37FT B7. 85 27. Pa rHON Gt c APerat Ps.TOratvreury Pt a N r is + n.. 191,692,701.11 _ a. AssiGNE D A No Ass GN A BtE_
~
- 4. ac c uM.PaovisiON r Oi OE PRecia viO.i a aer. 11,553,722.51 6. He T iR E o T sis v E R..
s NtT uviusv Pt Nrie-4;. .1 W UB,978.60
- c. Ho i iH e o eMiOH v t a Rs..
s.NoN.uriusv PHOPtnTv.NtT.. 6,602.88 d. No t en T HONaGE c A pet A L.. . --' 7 006 T0_1 78-
.. r i iN v E s t.iN assoc.OHG..Pa T HON a Gt C A Plv = L "
2 . OPEHaT mG MAHGms - PHiOR YE A Rs.. (105,802.20)
- e. iNve st uE Nis iN assoc.cRG..Or sE R.. 1,759,366.00 as. OeE R A TING margins - cuRRENr vE A R., 5,571.21 9.OTMtRiNVEsfMENYs.
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- 30. NONOPER A T ING MA RGiNs.. 282,088.63 lo. SPECi4 L F uM Os . .. -
- 31. O T H E R M A RG Ns & E QuiTIEs..
ii. Y O r A L O T M E H PROPr H r v & lN W5't.f 6 thre M) I,765,968.88 32. T Or A L MaHGms & E QuinEst20
- 27d th 381.. 2,189,061.42 i 2. c a ss . <, t N e n a t e u N es . 57,560.90 n. LONG-i t R u oE u r - H E a.. 27,395J37.11 ii. c ass . cONsr RuctiON r usos . rRusT E E.. . 154,594.24 34. LONG-T e R M DE BT - OT M E R., . 145 m 8_9_3,4._86.75
- 14. s PL Cla L DE posit s . -
Is. T OT A L LONG-T E R M DEliiT (33e 34/.. . E1 MMU. $6 is, t e MPOHa R v m vE sT uE Nis . -
- 36. NOT E s P A Y a HL E.. 11,192J 98_.06 it. NO T E s M D C r iV a B L E . N E Y . -
- 37. ACCOu N rs P A Y A BL E., 1,188 25.11 ir. acc OuN r s Re c ov *B L E - No r . 2,226,508.89 so. T A x ts AccRuEO.. . . . . . 568 900.24 i s. r u t t s v Oc a . 4,081,770.17 n. iN T EH zsT accrue o.. '
1,718,559.78 i . Ma r e nials a sueeut s . Or sE R . 1,457,726.35 ao. OrnE R cuMRE NT a Acc rue o Lim eitiTiEs.. 143,493.43 2o. eHe Pa v-E N rs . 206,877.02 4i. TOTat cuMRENT a accRuEo tiAB.136 rhr 40/ 14,811,876.62 Ji. OT HL R CuMRE NT 4 ACCRUED AssE rs . ~
- 42. OE r E R RE D C R E DiTs..
- 22. T O r tiL CuMRE N T & aCC Hu[O a sse ist i.4r 2is 8,185,0 37. 57 .i. OpeR ArmG HEsERvEs.. .
2 3. uN MON T 0E B T Disc. 4 E A T H a OND. PHOP.L O*.5 44. ACCuMuL ATED DEF ERRED INCOME T A KEs .
- 24. OT ME N DE F E RNL O DE BITS . 200,376.85 es. T OTa t Li= BiuTiEs a OTwE R c REoiTs j g gg gj, g n v o r mi asse n a nt or a os oirsn e r.." z i.m190,2 90, 361. 90 m2 + 35 + 4I sb 44L SECTION F.. ST A T EM EN T OF OP E R ATION5 Y E AR - TO - D ATE THis L AsT YE AR T His YE AR BUDGET MONTN
- l. ELocTRic E NERGv REvE NuEs . 2,094,784.90 2,356,129.82 2,191,303 2,356,129.82
' ~ ~ ~
- 2. INCOML F HOM L E asEO PHOPENT v - NE T .
~ - ~ -
- 3. Or Ht R OPER A T ING REVENUE & INCOME .
4 T OT A L OPE H. R E V E Nu E s & P A T RON aG E C A P. (J thru 3). 2,094,784.90 2,356,129.82 2,191,303 2,356,129.82
- s. OPL Ma r ION [ A PE Ns E -PROOuC TION-E X C L. F u E L.. 78,456.63 7?,381.70 90,302 72,381.70 s.i Oet H A TION E x PE NsE - PROouc TION - r uE L.. 484,382.39 6'q,568.02 782,280 631,568.02
- v. OPE R A TION E x et NsE - T R*HsMissiON . 18,191.81 21, 38:f. 64 19,120 21,383.64
- e. OPE R A nON E x eE NsE - oisT HiBu nON . 6,325.92 6,973.50 7,850 6,973.50
- 9. OPE R A nON E m PE NsE - CONSUMER aC CouM Ts . 1,241.34 162.61 1.330 162.61 9.9 OPE A TION E X PE NsE - CONS. sE HV, & 4H F ORM . - ~ ~ -
f
- - - - 8 io. OPc Hh riON E x PENSE - sat Es .
ti. OPE r9 TION E X PE NsE - OMINisT Ha riv E & GE NE H AL . 60,288.80 77.671.26 72.200 77,671.26[.
i2.1OT At OPE Ra TION E x PE NsE ts so.111. 1,568,085.13 1,891,601.06 1,883,332 1,891,601.06' i s. Main r E Na Nc E E x PE Ns0 - eROouC rioN . 19,668.64 28,997.96 21,530 28,997.96 is. uamY E nance E xPENst - T R ANsMuON . 1,523.31 1,198.38 1,840 1,198_.__38 is. uA NT E N aNc E E x Pt NsE - oisr Hieu ri N . 882.07 3,848.77 805 3,848.77 is. M AiNit N a Nc t E x PE NsE - GE NE R a t PL A NT . 523.26 1,039.82 560 1,039.82 i ?. T O r A L M aiN T E N a NC E E X PE NsE (13 f J ru sol . 22,597.28 35,084.93 24,735 35,084.93 so. oEPHe cianON a aMORnz anon E xet NsE . 77,890.35 102,091.46 103,042 102,091.46
, **. taxes- 54,105.69 55,939.72 57,548 55m839.7_2__
l 22 INT t HEST ON LONG-T L HM or BT . 941,431.55 1,588,177.88 160,302 1,588,177.88 2e.i mTEnEsT cuaRGEo O cONstsuct ON-cnEOiT. i 871,442.53 ial,385,275.50 1I iI,385,275.59_.1
- 28. O r sE R ce ouc TiONs . 31,188.52 62,939.06 49.690 62.939.06 2 2. T O r A t c Os t O r E l e c T Ric st Rvic e in + 17 shr. 211.. 1,823,855.99 2.350J 58.61 2,278.649 2.350.558.61
__.,.,m un nw ni e c ri 91 rn7 i ri ta 4 471 71
_.-,,m-- .. , , . . , .y 2 3. sN T E R E ST INCO%E , . .
2%. ALLOW ANC E F OR FUNOS USED DURING CONST. - - - -
2+. OT NEn NON-OPE uTiNO iNCout - NE T . . (76.60) (193.19) (100) (193.19)
~ ~ ~ ~
~ ~ ~ ~
27.1 OT HE:3 C A PIT A L CREDITS AND PAT. OlvlOE NOS . .
- - ~ -
T3. E E T R AORDlN A R Y IT E MS - . .
- n. NE T PA T RON A C E C A PIT A L OR M A RGINV23 s%r. 2ss., 270,852.31 5.378.02 (87.446) 5.378.02 eTEM MILL 5/&wk (Optional mse by 6urmwer)
O. EL EC T Hic E NE RGY REVENUE PER Ash SOLD . ,, . 41.32 41.62 41.32
. 31. TO T AL OPE H A T ION A ND M AIN T E N A NC E PE N 4 m 4 SOLD . 33.79 36.24 33.79
. n s. euaCN AsE D Pow E R Cost PE R aan - 38.50 35.87 38.50 E e Wusby eerssly shes one enstses en shes report. snelodsog Mt. A f orm 12h tel any) are en accordance wash she eteomass and osher records af sh ' s yssen and #4a she repers reffeess #4e saas s of s4e s y ssem so the 6ess of our Anow ledge and 6elsef.
3-bh 7 )- 4e , /((/ I~ -
DATE $1GNNUME & T LE OF Pt RSON bEPAHdd REPORT DATE SIMTURE OF NERAL MANAGER atA roRu u. Hrv 9-77 , _ _ _ . _ . _ _ _
p o
6 e
e t
w .
m
'%a juriker funds may be paed va 8 under as s pr. gra**e unle s s ths s reporn is compleerd and,leled a s restenred ( 7 UM. vol et se.o.i'*
usoA -ftcA f e.am Appraired coAPoMrs Naue g
' """^^*'-*** North:rn Michig:n Electric Cooperativa, Inc.
aoapo=ea oesio=ar ow OPERATING REPORT - FIN ANCI AL Michioan 47. Chebovaan u.s ot par rue ur or nGRiCuLruHe.Rea.W AsHtNGroN.D.C.202:0 woNT H eNoiNG g y g' it' gj iM171UCTIOh 5 - 5=aa.es ensiaal and four copie: of #4s e report. i or detailed in.srections. see RI.14 H.fles = 108-1. REA USE ONL.Y (Mais repo t sr enseses nf Nf; A f orms I2a.12b.12c.12d. Ile.12f. and 12s. Des taber rep >rt also innledes N L A Fonn 12h.)
SECTION A. SALAMCESHEET ASSE TS AMD OTHER DE SIT 5 LI ABILITIES AND OTHER CREDITS
- i. nin ureutv eLAwf = unveCe . 33,348,554.08 26. ucusens es.. , . . .
600.00
- 2. coxstauction soax is enocaess . 160.754.285.12 27. parnow cc capirac
. vo tat u reur v et == r il is.. 194,102,839.20 -
- m. assionco awo assionante..
- a. accu s.eaovision con cerneciation amur. 11,657,002.94 -
- 6. aeriaco rsis vann.. .
s 2i . .. . _182,445,836.26 s. atriaco paion veans.. -
!s. wa r uteur v eta = v i
. =o=-ureu r v paoec a r v ae r.. 6.582.69 < we r par aosace capitat.. 2,006,603.78 v.18.v e s t.in assoc.oRG. pa r RoN aGt C a pit L -
- 28. oPiMa ring u=RGiNs - eRioR ve ARs.. -
- s. Nve.sr. sN As%OC. ORG.-OTHE R. G 4.F UN DS . 1.759 366.00 as. openariNo unaciws - cunatur vean.. 90,819.96 S.1 INVEST. . assoc. ORG. . OTHe R . NON G f'. -
- 30. NoNoer Ra ring u RGINs.. 166,903.59
- 9. or Ht e inve s t ue N r s . . . .
St. orHeH margins a eQuiries.. -
iO. paciatrumos . .. . -
- 32. rot a t un,.oins a couiriesur .m ar- m. . 2,264,927.33~
- n. r ot a t o r ne = ==opr a r y s i= vut.o. e4 = toi 1,765,948.69 n tono-r e su oeer - nea.. 27,146,456.98 i,. c as, . cc e a at r unes . . 71,151.69 24. tono-ra su og er - ornen.. .146,994,486.75__
i i. c as- . cons r auc tion r unus . r a us u.e.. . 141,279.71 is. rot a t to u-r e au os e r t e s. m.. .174,140,943.73 i..specent occos. rs . -
sr.. wo r t s pa v n ete .. 11,292,798.06 is. v e u oaan, =vesrue rs . -
- n. accouars ea va ste.. .
873,401.23 is. note s acceivasta ae r . -
se. Ta m as accnuco.. .
98,989.26 it. acc ou~r s ac c e iv an t e - at t . 1,945,390.41 n. eurt aesi accauto.. .
3,005,364.41 is. r uc t s t oc . 3,565,725.46 eo. orsen cunae wt a accnuco uneiuries.. 143,281.07
... ma r e mia ts a sweeut s . o r ne a . 1,483,484.97 4i. vorat cuane ut a accauco uas. leo ar. ms 15,413,834.03 2a. enc e a vue u t s . 194,944.00 42. oc r enneo catoirs.. -
Ji. o rMe a Cuaa Nr 4 aCCRuro asseis . el, opcRailNG Me$ eaves.. "
- 22. t o r at c unae n t 4 aC C Rut o asst T s 8 04'- asi 7,401,976.24 44. aCcuuuL A r co otr eRReo INCous r Ames .
~
2 3. UNuon t.ot e r oisc. a e E T R aoRo. pHoe.t os -
es. rotal uneiLiries 4 orHe R CReoirs 2.. or t a ot e taar o oc eirs . 205,943.90 _ ' " * ' 5 * " d ' 2 si.. . .191.819.705.09 at tovat a su n o o r
- w or eii s6. '..v 2 2 8 191,819,705.09 SECTaoM B. STATEMENT OF OPERailOH5 YE AR - TO - DATE Tm LAst vraH THis Ye aR suoGer MONTH
- i. etacraic t=enov nevenues . 4,076,196.45 4,423,723.72 4,190,078 2,067,593.90
- 2. iNCout r Rou Leasco eRoPeRiv - Ne r . ~ ~ ~ ~
~
! 3. orHt M ope Ra ting He Ve Nuc a iNCout ~ ~ ~
l
- a. r ot at opea. ne ve nu e s a ea r aonaut c ae. < s ar. i,. 4,076,196.45 4,423,723.72 4,190,078 2,067,593.90
- s. oro. no~ e a re as t -.>noouci son-e = c t.
- u t u. 126,420.19 145,836.87 149,109 73,455.17 s i one aa r som e neense - esoouc rion - e utt.. 921,345.86 1,199,530.20 1,400,940 567,962.18
.. one na tio= c nee se - or se a po.t a sueet v . 1,728,604.74 1,899,530.11 1,762,000 818,069.78
- v. oce na rio= e n es =se - r aa wsuission . 31,922.56 39,311.09 34.880 17.927.45
- e. ope na rio= e x ec =st - ois t nieu r ion . 11,387.02 14.352.34 12.760 7.378.84
- e. oerna tion e met ase - consuuen accouars . 2.388.30 1.743.89 2.555 1.581.28 9.i ope R a tion e E Pe Nse - cons. se HV. e iNioHu . - - ~ ~
40 PtHa rioN e E Pense - sales . ~ - ~ ~
- u. onca riou expense - aouinist wa rivt a c.t at ant -
113.592.64 147.297.17 136,890 69,625J91 i2);orat one nation execuse is ar. s ii . 2,935,661.31 3,447,601.67 3,499,134 1,556,000t61
- n. uni =r e nance e m pt use - encouc tion . '"
36,965.83 47,336.87 36,630 18,338.91 i is. unint e nance e apense - raansunsio~ . 2,896.06 5,726.94 3,480 4,528.56 i is. mai=1a ance e m es =se - oistnieu rio . 1,665.59 7,666.84 1,545 3,818.07 is. unin ta manc e e x ec =se - ce =t aa t puaur. 3,600.22 2,359.69 3,850 1,319.87 I
it. rov at uai=renance e npensa tis a . mi . 45,127.70 63,090.34 45,505 28,005.41 is, oc entcia tion a auoarer ation e metase . 157,664.35 204,688.20 206,804 102,596.74 so. rames . 106,016.35 111,571.55 114,526 55,631.83 2o. invenest ou cono-vtau oeer . 1,828,418.56 3,037,463.83 313,770 ,1,449,285.95 as.i i=r enest cHanoco to consrauction-cac oir 11.693.062.24 ,i2.648.196.09 I iL262,920.59 8 j 22.2 ornen iNTcResT EXPENSE --
61,438.51 116,684.26 85,360 53,745.20 '
li. orHen ot Ductions . -
~ ~ ~
- 22. v ot at cost or e t e c t aic scavic e s li # 7 ar. ni.. 3,441,264.54 4,332o203.76 d 265 0 099 I_,_982 m 34_5,15
9 a 3. ovanafixo maccin u - 2n.. . . . . . 634,931.91 90,819.96 (75,021) 85,248.75 as, inf asesT encome . ..
~ ~ ~ ~
at. ALLosance Po2 FuttDS USED DumeNG CONST.
as. oTaen o Pac 4Te .o incore - at T . (153.20) (283.38) (320) (90.19)
- '" ~ ~
- 27. GeRenailoN a TRaNSMIS$aON CAPIT AL CREDITS .
~ ~ ~ ~
2 7.1 of ee R Ca PIT aL C REDtT5 aped pa T. DeveOe NDS ,
- ~ ~ -
- 24. e n T R AORDIN A R Y ST EMS . . . . .
as. e.a7 painowaos capital on uanoinstn .4,a,2s,.. 634.778.71 9c.536.58 f75.3411 I 85.15R 56 IT E M MILLS /.W A l(Apes 4#4el a. 67 &sarM>as er) as, totcf nic encaoY newswuz een aan sotD . . 41.56 42.37 41.82 St. total OPERATION aND walesTepeAbeCE pan 4th SOLD . . . . . . . . . , . . 32.98 35.84 32.04
. Total cost or eLecf aic stav Ce sta a=4 sold . . . . . . .. 40.70 43.12 40.10 si, eucC anse D po.e n Cost ee n a== . 37.70 36,19 36.70, y h.,....,......,.........I.e...........,....,....................,...i.
h.r.br .erssly shas ss. .nsee.. en she. a.pors. ss.imdse, N r.A Form 12h tal an,y) er. so ae.or,an.. anath sk. e..oens. se, ash.r t..or,.
A 3- % -!/ / ,[ h , k f/2 sionMTune a TWLe or piaso.Tenfianan(ne'pon?
2 - 2. 7 b' $/,/ ! ir. - a DaTe DaTe siskavuat o#Eceeenat unwacta 4
IB l
1 1
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