ML19347D279

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Prepared Testimony of MG Lyons Re General Rate Increase Proceeding.Estimated Operational & Financial Attrition Info Encl
ML19347D279
Person / Time
Site: San Onofre  Southern California Edison icon.png
Issue date: 11/20/1980
From: Lyons M
CALIFORNIA, STATE OF
To:
Shared Package
ML13302A498 List:
References
NUDOCS 8103110724
Download: ML19347D279 (10)
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Ex.146

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hurY LYM.5 l h PREPARED TESTIMONY 0F M. G. LYONS Application No. 59351 l

Q.1 Please state your nasse and business address.

A.1 I am Martin C. Lyons, Research Manager of the Economics Section in the Ravenus Requirements Division of the California Public Utilities Commission. My business address is 350 McAllister Street, San Francisco, California. ,

Q.2 Bave you previously testified in this proceedingt l A.2 Yes, I have. I testified on forecasted revenues, sales and customers l

for 1981. ' My qualifications and original testimony in this proceed-ing have already been entered in the record.

, Q.3 What is the purpose of your testimony today?

A.3 h purpose of my testimony is to present a method which addresses the current uncertainty regarding 1981 test year sales and revenues.

Staff proposes to establish a conservative level of sales and associated revenues for the Edison Company in 1981, above which the recepayer would receive a refund if recorded revenues were to exceed this estimate. 'this proposal is made pursuant to the Commission's ordering of the r6 opening of Southern California l Edison Company's general rate case, Application No. 59351,"for the purpose of incorporating the latest information on electric 1

sales.

All revenues referred to in this testimony are base rate revenues, exclusive of ECA", revenues, and are CPUC jurisdictional.

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8108110 %

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For 1980, the utility's CPUC jurisdictional net sales are projected

. to remain at approximately their 1979 recorded level of 54 billion idih which translates to approximately $1.2 billion. Because of current economic uncertainties which impact each class of service, the staff has developed this proposal to protect the ratepayer and at the esse time give consideration to the uncertainty tegarding 1981 test year estimated revenues.

For the limited purposes of this proposal, the staff recommsends using utility forecasted 1981 not gdison sales of 53,815 million ledh and revenues of $1,206 million. After a review of the i

i utility's sales estimate, the staff accepts this level of sales and revenues as proper and reasonable for establishing a con-l servative base level for 1981, together with a refund provision that would operate if actual base level revenues exceed theee estimated base level revenues. This proposal is to serve as an alternative to a full and complete study to forecast 1981 sales, and permits the Commission sufficient time to render a decision within the time frame of the Regulatory Lag Plan. gy adoption of this proposal, the ratepayer would be protected from a possible underestimate of revenues through the suggested refund Provision. At the same time, the utility would have a reasonable opportunity to earn its adopted base rate revenues as long as its own estimate is reasonably correct. If 1981 revenues fall below this proposed level, the company would consequently sustain this loss.

This proposal would be in effect for 1981 subject to review for 1982, and is presented because of the current volatility of sales 2-MGL

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experienced by the utility. The review for 1982 of the suggested mechanism is discussed in Answer 5 of this exhibit. This recom-mondation is not proposed to establish any precedent. If this proposal is not adopted, the staff would reconsend adoption of a revenue estimate of $1,222 million based on level of sales for 1981 of 54,565 million Wh. Q ~ QumT~

Q.4 How would such a refund provision be implemented?

A.4 This plan would be implemented by establishing a balancing account to cosamence with the effective date of the new rates for 1981 approved by Commission decision. If revenues generated by electric sales exceeded the adopted estimate at the end of 1981, this account would contain a positive balance. This amount, with interest, would be refunded on the basis of total revenues from electric sales. The refund would not be related to the particular revenue balance for any specific class of service. If estimated revenues exceeded actual, this balancing account for 1981 would be closed out and the utility would not seek to recover the undercollection from the ratepayer. It is anticipated that the CPUC audit staff would review and report on the status and dis-position of the balancing account at the end of 1981.

Q.5 What does the staff propose for the 1982 attrition year regarding possible extension of this balancing concept?

A.5 It is proposed that reevaluation of this methodology be considered in hearings limited to determining sales and revenues for 1982. This plan would be reviewed at the time of consideration of attrition, when the plan may be abandoned or the base may be changed for the year 1982.

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If recorded revenues for 1981 differ from thosa cdsptsd in this l

proceeding by less than 1% negative or positive, then base leve f

revenues for 1982 would be equal to 1981 base level revenues plu l 1982 of the staff's estimated attrition allowance anticipated for

.- $104,331,000.

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jk_.. If recorded revenues for 1981 exceed or are less than th 1 adopted in this proceeding by more than 1%, then new base le  ;

' revenues for 1982 would be established in hearings that reflect the actual 1981 recorded information.

In any event, revenues above base level revenues plus interest ff's would be refunded to ratepayers subject to audit by the sta financial auditors.

S e above scenarios protect ratepayers through the propos

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procedures, yet provide the company with a reasonable op to earn its rate of return. d t step rates 5*-t do you recommend if the commission does not a op Q.6 for attrition or provide hearings in determ*ning 1982 sales a revenues?

w A.6 I rer-d that this refund procedure be adopted for 1981 a l the sales and revenues reflect the adopted 1981 base level p us '

981 attrition allowance originally estimated by staff between 1 This equates to $1,205,579,000 plus and 1982 in Exhibit No. 54.

h is does attrition allowance of $104,331,000 or $1,309,910,000.

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y: 1 not include additional revenues adopted by this decision. 4 Mac4 348 i

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ke.would How W your proposal be implemented as part of the 19 Q.7

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l tion allowance proposed by the staff?

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A.7 he staff has recomunended in Exhibit No. 54 a step rate attrition allowance of $66.156,000 consisting of $60,159,000 in operational attrition stM $5,997,000 in financial attrition. 2 1s does not include any additional financial attrition which the staff's financial witness may recoesmond in these hearings.

H is attrition allowance estimate includes an offset referred to '

above, due to higher estimated 1982 revenues, of $38,175,000.

Under my current proposal, the total attrition allowance or additional rate increase, would be $104,331,000 but the revenue base level for the balancing account would increase to $1,309,910,000.

His amount does not include additional revenues adopted by this decision.

Q.8 What would you recomend if there is no continuation of the pro-posed method into 19827 A.8 I recommend that the staff's earlier recoesmended attrition

& & hun 4 W allowance of $66,156,000 be granted in a step rate for 1982. + [/Nh e# 8' ,

yperroVA Q.9 What are the appropriate rates to use to calculate revenues for 1981 to establish a revenue base?

A.9 Base rates effective January 1,1979, were used to derive the revenues of $1,205,579,000.

Se rates which should be used to establish the 1981 base level

  • l -f%t v.Wa s j revenue will be put into effect by this decision.

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l Q.10 Does this conclude your testimony 7 j A.10 Tes.

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Souttern Cahtorrue Edison E S*O-Application No. 59351 Exhibit No. 152 (Late Filed)

Witness: R. L. Larson Date: 11/25/80 SOUTHERN CALIFORNI A EDISON COMPANY ESTIMATED OPERATIONAL AND FINANCIAL ATTRITION (REVISION TO EXHlBIT N05. 54 AND 54-A)

1. CALCULATION LF ESTIMATED OPERATIONAL ATTRITION
2. CALCULATION OF ESTIMATED FINANCIAL t.TTRITION Before the PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA Rosemead, California November 1980

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o INTRODUCTION This Exhibit No. 152 has been prepared at the request of Administrative Law Judge James F. Haley to demonstrate the methodology followed in the preparation of Table A of Exhibit No. 54, and the revision of Table A in Exhibit No. 54-A.

Where more current data is avaliable in the record than was used in Exhibit Nos. 54 and 54-A, the original estimates have been revised as shown in this Exhibit. A footnote has been shown for each estimate and calculation so the source of the data can be located and the use of the data in the calculations understood. The table shown below sumarizes the attached three pages and demonstrates the results with and without a one-way balancing account (" Balancing Account"):

With Without Balancing Balancing Account Account Operational Attrition - Revenues 0 $(16,818)

- Other 123,376 123,376 Financial Attrition 15,547 15,547 Total Attrition $138,923 $122,105 l

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11/25/80 .

SOUTNERN CALIFORMIA EDISON COMPANY CALCULATION OF ESTIMATED OPERATIONAL ATTRITION (Dollars in Thousands)

Net Gross  : CPUC t

t Item t Revenue  : Revenue Jurisdiction t (1) (2) (3)

Revenues $ (16,818)

$1,545,763 M x 1.7% 2/ x o.64 M - -

Operation and Maintenance Expense

$ 30.030 28,871 b#

Labor ($261,128 x 11.5%) E# -

Non-labor ($355,315 0 x 11.5%) 8_/ - 40,861 39,284 b/

. Payroll Tax 2,138 2,038 b#

';' ($16,490 - $14,352) U -

Ad Valorem Taxes 4,847 4,620 b/

($58,246 - $53,399) E/ -

$ 1,400 E 2,889 2,743 b Investment Tax Credit 808,000 - $4,529,000) E/ x 11.13t El 31,053 53,261 $/ _50,841 El Net Total - $ 111,579 Productivity 9 21 - (5,021) $ #

Total - $ 106,558 i

NOTE: Footnotes Attached 11-25-80 l . _ _ .

i SOUTHERM CALIFORDIA ED150se COMPAM7 s

FOOTNOTES TO CALCliLATION OF ESTIMATED OPERATIONAL ATTRITION

~1/ Exhibit No. 143, Pege 2. Revenues = $1,205,579 plus assumed rate Increase of $340,184 (Exhibit ho. 2, Page 19-4, Line 28, Coluain 15)

= $1,545,763.

2/ Exhibit No. 140, Pege 8.

1/ Factor to relate ch*ase53,815la **les to chance 1 kWhrs in reveaues.

$1,205,579.4 Exhibit No. 144 Exhibit no. 2 Pege 19-4, Line 1 Column 13 56,835 1 kWhrs $1,248,668 Line 7, Column 13 Gronath Rate 5.61% 3.573 Ratio of growth in Revenues to growth in kWhrs = 3 571/5.613 = 0.64

~4/ Exhibit No. 10-A, Page 6, a) Labor Base v 9 5% = $256,450 b) Labor Base 9 13 53 = $265,805 Labor Base f 11 51 = (a + b)/2 = $261,128 1/ Censumer Price Index Most current Los Angeles /Long Seech figure:

September 1980 = 249.6 = 11.53 (Exhibit No. 10-8)

October 19C0 - 252.6 = 12.5%

6) CPUC Jurisdictional Allocation based on Exhibit ho. 54-A.

1/ Exhibit No. 85, Page 4, Column I, Line 27 $1,086,456 Less: Line 13 195,609 Line 25 204,506 Line 26 74,576 Laber e 9.53 256,450

$ 355,315 S/ The escalation rate used to adjust Non-labor expense is the same as that used for Labor expense. Historically, escalation f or hon-Labor expense has been greater than Labor expense as is Indicated in Exhibit No. 54-A.

1/ Exhibit No. 54-A (See also Exhibit No. 2 Page 14-2, Lines 3-5, Column 5 and 8).

jt/ Exhibit No. 54-A (See also Exhibit No. 2, Page 14-2, Line 1, Colens 5 and 8).

E / Exhibit No. 54-A.

12/ Exhibit No. 54-A (see also Exhibit No. 2, Page 17-2, Line 23, Columns

- 5 and 8).

jl/ Exhibit No.139, Table 24A, Line 19 Column 7.

3/ To reflect tax deductability of Iccreased Interest component of returns Long-tere Debt x trTG = 4.993 x 1.1140 = 4.563 Pref erred Stock x NTG = 1.84% x 2.9634 = 2.151 Common Equity x IrTG = 6.901 x 2.9634 = 12.383 11.138 19 093

($4,8e8,000 - $4,529,800) x 15.eSt = $53,261 ji/ CPUC Jurisdictional Allecation = CPUC Rate Base (Exhibit No. 2, Page 13-4, Line 25, Column 15) /5ystem Rate Base a Gross Revenue (Column 2)

= $4,539,542/$4,808,000 x $53,261

= $58,841 16/ Productivity = Labor a 21 x CPL 1C Jurisdictional Allocation

= ($261,128 x 22) x ($28,871)/(( N ,030) (see labor in Colurns 2 and 3.)

l = $5,921 11-25-Se . _ _ - _ _ - _ _ _ _ _ _ _ _ _ _ _ _ _ _ - _ _ _ - - _ _ _ - _ _ -

SOUTHERN CALIFORNIA EDISON COMPANY CALCULATION OF ESTIMATED FINANCIAL ATTRITION (Dollars in Thousands)

Attrition in Cost of Money (DEBT) 0.23% 1/

CPUC Jurisdictional Rate Base $4,589,542 Net Revenues 10,556 Gross Revenues 11,759 2/

Attrition in Cost of Money (PREFERRED) 0.04% 1/

CPUC Jurisdictional Rate Base $4,589,542 Net Revenues 1,836 Gross Revenues 3,788 4/

COMBINED ATTRITION 3 COST OF_ MONEY 0.27% 5/

TOTAL FINANCIAL ATTRITION $ 15.547 1/ Exhibit No.139, Table 24A, Column 7, Line 11 - Line 6.

2/ Exhibit No. 54, Page 15-BMD, Net-to-Gross = 1.1140.

1/ Exhibit No.139, Table 24A, Column 7, Line 13 - Line 7.

l 4/ Exhibit No. 54, Net-to-Gross = 2.0634.

1/ See Christle, Tr. 52/ 4944, Line 18.

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