ML19308A412

Rebuttal Testimony in Response to Tx Utils Generating Co & Houston Lighting & Power First Set of Interrogatories

ML19308A412
Person / Time
Site:	South Texas, Comanche Peak
Issue date:	05/31/1979
From:	Gross R VIRGINIA POWER (VIRGINIA ELECTRIC & POWER CO.)
To:
Shared Package
ML19208C305	List: ML19208C304 ML19208C306 ML19208C308 ML19208C310 ML19208C312 ML19208C314 ML19208C315 ML19208C322 ML19308A389 ML19308A390 ML19308A391 ML19308A392 ML19308A393 ML19308A398 ML19308A399 ML19308A400 ML19308A401 ML19308A402 ML19308A403 ML19308A404 ML19308A405 ML19308A406 ML19308A407 ML19308A409 ML19308A410 ML19308A412 ML19308A413 ML19308A414 ML19308A415 ML19308A416 ML19308A417 ML19308A418 ML19308A419 ML19308A420 ML19308A421 ML19308A422 ML19308A423 ML19308A424 ML19308A425 ML19308A426 ML19308A427 ML19308A428 ML19308A429
References
ER78-522, NUDOCS 7909260222
Download: ML19308A412 (8)

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( 9 UtlITED STATES FEDERAL ENERGY REGULATORY CCMMISSIO!!

DOCKET tt0. ER78-522 VIRGIrlIA ELECTRIC AND POWER COMPAtlY

' REBUTTAL TESTIM 0:1Y CF

( RCBERT M. GROSS, JR.

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VIRGINIA ELECTRIC At!D POWER COMPANY 8

• FERC DOCKET NO. ER78-522 REBUTTAL TESTIMONY OF ROBERT M. GROSS, JR.

1Q PLEASE STATE YOUR NAME AND ADDRESS.

2 3A My name is Robert M, Gross, Jr. My bu-iness address is 1000 Crescent 4 Avenue, fl.E. , Atlanta , Georgia 30309, 5

6 7Q WPAT IS YOUR EDUCATIONAL BACKGROUND?

8 9A I graduated from Georgia Institute of Technology in 1965, receiving 10 the degree of Bachelor of Industrial Engineering, I also attended the 11 Georgia State University and in 1971 received the degree of Master of 12 Business Administration, majoring in finance, 13 14 Q PLEASE STATE YOUR PROFESSIONAL EXPERIENCE, 15 16 A I have been empicyed by Southern Engineering Conpany of Georgia for 17 approximately eleven years, During this time I have been involved in 18 the preparation of cost of service studies of Class A~ and B investor-19 cwned utilities, rural electric cooperatives and municipal electric 20 systems and have par ticipated in wholesale and retail electric rate 21 consulting assignments in 23 states. I am a registered professional 22 engineer in the State of Georgia, 23 24 Q HAVE YOU EVER TESTIFIED IN OTHER CCMMISSION PRCCEEDINGS? ,

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(, 26 A Yes, I have testified as a rate expert and cost of service witness before 27 the State Ccmmissions of Kentucky, Indiana, Michigan, Vermont, Texas 23 and Virginia. I have also testified before the Federal Power Commission 29 in proceedings involving Mississippi Power Ccmoany, FPC Docket tio. E-7685; 30 Appalachian Pcwer Companv, FPC Cocket No E-7775; Duke Power Company, F?C Cocket flo. E-7994; Gulf States Utilities Company, FPC Docket No. E-8911; 31 32 Accalachian Power Ccmpany, FPC Cocket No. E-9T01; Virginia Electric Company, -

33 TVC Cocket No. E-3147; Arizona Public Service Company, FPC Occket No. E-8624; 34 Public Service Comoany of Indiana, Inc. FPC Cocket Nos. ER76-149 and E-9537; 35 Carolina Power & Licnt Company, FPC Docket No. ER75-495; Georgia Pcwer

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36' Comoany, FPC Cocket Nos. E-9TJ1, E-9521, E-9522, ER76-587 and ER78-16ii; 37 Southe7n California Edison Company _, FPC Co.cket No ER 76-205; Carolina Power 38 & Lignt Comoany, FERC Docket flo. ER77-485, Kansas Gas & Electric Company, 39 FERC Occket No. ER77-578 and Louisiana Pcwer L Light Company, FERC Docket 40 No. ER77-533.

41 42Q BY '4HCM ARE YOU RETAINED IN THIS PRCCEEDING?

43 44 A The Cooperative intervenors.

45 46Q WOULD YOU PLEASE EXPLAIN MlY THE COOPERATIVE INTERVENORS HAVE AN INTEREST 47 IN THIS PRCCEEDING SINCE IT SCLELY INVOLVES THE VEPCO MUNICIPAL AND PRIVATE 48 UTILITY WHOLESALE CLASS RATE LEVEL.

49 50A Although the Cooperasive intervenors' settlecent with VEPC0 in this case

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I has now been approved by the Commission, there is continued interest in 2 the testimony filed in this proceeding since, if the case is ultimately

• 3 decided by the Conmission, the decision would have a precedental impact 4 on certain issues v.hich could affect all wholesale customers in future 5 VEPC0 proceedings. This concern has led to a review of the FERC Staff 6 and intervenor testimony filed to date. As a result, the testimony of 7 Electricities of North Carolina witness F.R. Saffer has been duly noted 8 and the Cooperativa intervenors want to take this opportunity to present 9 testimony in rebuttal.

10 11 Q PLEASE IDENTIFY AND EXPLAIN THE AREA 0F MR. SAFFER'S TESTIMONY YOU BE-12 LIEVE NEEDS TO BE REBUTTED ON BEHALF 0F THE COOPERATIVE INTERVENORS.

13 14 A Page 36 of Mr. Saffer's testimony apparently results in a recommendation 15 to combine the Cooperative and Municipal-Private Utility classifications 16 into one wholesale rate classification. I say "apparently" because 17 Mr. Saffer's testimony is unclear as to specifically stating that he 18 indeed makes this recommendation. By inference, however, his testimony 19 I believe can reasonably be interpreted as being in favor of such a 20 consolidation for rate making purposes.

21 22 Q WHAT ARE MR. SAFFER'S REASONS FOR HIS " APPARENT" RECOMMENDATION THAT THESE 23 PRESENTLY TWO SEPARATE RATE CLASSIFICATIONS BE COMBINED INTO ONE?

24 25 A Again, the testimony is not totally clear in this area; however, Mr. Saffer

( 26 indicates that VEPC0's long standing rate differential between Ccoperative 27 and Municipal class should be eliminated because of the adherence of VEPC0 28 to the Commission's procedent of using the rolled-in basis of allocating 29 transmission investment and expenses. Apparently Mr. Saffer believes that 30 the rolled-in transmission allocation method is wrong and thus causes his 31 clients to pay " discriminatory" rates. Furthermore, the sole' remedy suggest-32 ed by Mr, Saffer for such discrimination is a single wholesale rate applica-33 ble to botn Municipal and Cooperative wholesale customers, 34 35 Q 00 YOU AGREE WITH MR. SAFFER CONCERMING HIS RATE PROPOSAL IN THIS AREA?

36' 37 A No. Mr. Saffer's testimony on this issue is wrong cn two bases. First, 38 Mr. Saffer's comments concerning the inappropriateness of the rolled-in 39 method of transmission allocation are merely comments and do not begin to 40 provide the first morsel of what would have to be a " mouthful" of evidence 41 showing wny the Commission's long standing precedent contarning transmission 42 allocation on a rolled-in basis should be reversed in this case. The 43 Commission has held in case af ter case that an electric transmission system 44 which operatas as an integrated network, as VEPC0's does, and which is 45 designed and constructed to achieve maximum efficiency and reliability at 46

• minimum cost on a systemwide basis, establishes a factual predicate necessi-47 tating One adoption of a rolled-in cost approach as the consistent and 48 equitable method of costing electric transmission service, Detroit Edison 49 Company _in Cpinion No. 748, 54FPC--(1975), mimeo at page 9. Mr. Saffer 50 does not provide evidence showing that VEPCO's transmission system is not k

1 operated on an integrated transmission basis nor that the transmission 2 system was designed for something other than maximum officiency and re-3 liability at minimum cost, 4

5Q WHAT IS THE SECOND BASIS FOR YOUR DISAGREEMENT WITH MR, SAFFER'S TESTIMONY?

6 7A The impact of the rolled-in transmission allccation method is not the 8 primary reason which causes the differences between the Cooperative and 9 Municipal-Private Utility rate levels. As Mr, Saffer has correctly noted 10 in his testimony, "the municipal wholesale customers will more closely 11 follow VEPCO's monthly system load patterns than VEPC0's projection of the 12 monthly peak load patterns of the Cooperative wholesale customers", He, 13 however, fails to provide an indication of the impact on rate level that 14 this difference in class diversity creates.

15 16 The Cooperative class has historically contributed less proportionate 17 load to VEPCO's conthly peak demand than the Municipal class. This, in 18 my opinion, is thb prime reason for the significant difference in cost 19 levels between service to the Cooperative class and service to the Municipal 20 and Private Utility class, which gives rise to the difference in the rate 21 level between the two classes. The Cooperatives reach their peak demands 22 at times different than when VEPC0 establishes its peak demands. The 23 Municipal and Private Utility class, however, is more of an on-peak class 24 than the Cooperatives and therefore they, as a class, provide less diversity.

25 This difference in class diversity can be seen on Exhibit (RMG-1),

( 26 27 Q WOULD YOU PLEASE EXPLAIN THIS EXHIBIT .

28 29 A This exhibit is developed from Period II data contained in VEPC0's filed 30 Case in Chief. The same load data are also used in the direct cases filed 31 by both Staff and ElectriCities of North Carolina cost-of-service witnesses.

32 Line 1 of this exhibit shows the class load imposed on VEPCO which has been 33 used for production and' transmission cost allocation purposes, Line 2 shows 34 the total class billing units divided by twelve produced by VE?C0's proposed 35 tariff, Line 3 shows the relationship between the demand used for cost 3 6~

allocation purposes and the demand used for billing purposes, It can be 37 seen that when the load for cost allocation purposes is divided by the class 38 billing units, the Cooperative's ratio results in 78,5", whereas the Municipal 39 ra tio is 85.7.". These ratios mean that for each kilowatt of billing demand 40 the Cooperatives contribute ,785 kilowatts of load on VEPCO's system peak 41 demands whereas the Municipals contribute ,857 kl.lowatts, This ratio es-42 tablishes that it takes a lower charge per billing kilowatt to recover the 43 Cooperatives' allocated cost responsibility than tne Municipals' allocated 44 cost responsibility, I submit that this difference in class diversity is 45 the predominant reason that the rate levels are presently and have tradition-46 ally been different between Cooperative and Municipal classes, 47 48 Q ARE THE LOAD DATA USED IN EXHIBIT (?.MG-1) IN CONTROVERSY IN THIS PRO-49 CEEDING?

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( 1A No, not to my knowledge. The class load data as filed by VE?C0 for Period II 2 have been used by all parties in this proceeding and I believe are not at 3 issue.

4 5Q WCULD YCU PLEASE EXPLAIN WHY YOU BELIEVE THAT THE PRECO.'1INATE REASON FOR 6 THE DIFFERENCE IN COST LEVEL BETWEEN VEPCO SERVICE TO CCOPERATIVE AND 7 MUNICIPAL-PRIVATE UTILITY CLASSES IS RELATED TO THE DIFFERENT DIVERSITY 8 0F THE CLASSES.

9 10 A Yes. First of all, if the wholesale classes are ccmbined for rate making 11 purposes, then the impact on the Cooperative class would be to increase 12 the filed Cooperative rate increase by approximately $1,000,000 and to 13 decrease the filed Municipal rate increase by approximately $1,000,000.

14 In Icoking at the impact of the transmission allocation issue, it appears 15 that, if the rolled-in transmission allocation basis was dropped in favor 16 of a specific and common allocation assignment, the Municipals, based on 17 Mr. Saffer's nine year old data would experience a d' rop in transmission 18 planc assignment of less than $i.5 million. The revenue impact of this 19 shift in transmission assignable to the Municipal class would be approxi-20 mately $300,000. The rolled-in transmission method, therefore, is respon-21 sible for less than 1/3 of the $1,000,0C0 reduction in Municipal rate in-22 crease resulting from wholesale class consolidation. Mr. Saffer is in-23 correct to assume that the elimination of the rolled-in transnission method 24 would produce sound class cost justification for the consolidation of the 25 wholesale classes.

( 26 27 Q HOW APPROPRIATE IS MR. SAFFER'S 1971 COST INFORMATION WITH RESPECT TO THE 28 INSTANT PROCEEDING?

29 30 A I have been unable, first of all, to verify these data. Assuming that they 31 do represent the value of facilities in 1971, I would think that by 1979 32 normal depreciation on these properties would have reduced the revenue im-33 pact between the two transmission cost allocation methods to a fraction of 34 their 1971 value. As the facilities are depreciated at approximately 3% a 35 year, the impact of the difference between the transmission allocation 36' methods becomes less.

37 38 Q WOULD YOU PLEASE SUMMARIZE YOUR OPINION OF MR. SAFFER'S TESTIMONY CONCERNING 39 A CONSOLIDATED WHOLESALE RATE.

40 41 A I believe that the wholesale rates applicable to VEPCO's wholesale customers 42 should be established based upon the cost of providing service to the class.

43 If the classes can be saown to have essentially the same unit cost of providing 44 service, then the classes should be consolidated for rate purposes. If, 45 however, the Cooperative and Municipal-Private Utility classes have different 46 cost of service characteristics, as is clearly revealed in tnis case, then 47 I believe that separate rates should be established based upon the distinct 48 costs of each group, and that if one rate is designed to ccver both groups 49 in this case, then the result is clearly indefensible ra:e discriminaticn.

50 The potential impact on the Cooperative class of a consolidated unclesale s

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1 rate amounts to an additional $1,000,000 of rate increase, I believe that 2 this magnitude of rate discrimination can be rightfully characterized as 3 undue.

4 5Q DOES THIS CONCLUDE YOUR TESTDICilY? '

6 7A Yes.

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( UtlITED STATES FEDERAL ErlERGY REGULATORY CC".:4ISSION DOCKET T10. ER78-522 -

VIRGIrlIA ELECTRIC Ai!D POWER CO*4PAMY STATE OF GEORGIA)

) SS:

COUt!TY OF FULTON)

I certify that the attached testimony and exhibits in this docket were prepared by me or under my supervision and that the answers containea in such testimony and exhibits are true and correct to the best of my knowledge and belief. ,

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[~ Robert fl. Gross, 'Jr.

Subscribed and sworn to before me this .b day of [60) ,1979

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?!ctary Pub?;e. Geor;li State at 1.arr'e 6, f.ty Cornrms-im Drnrer. Juv 9. '9M

FERC Docket flo. ER78-52; Cooperative Intervenors' Exhibit No. (RMG-1)

VIRGINIA ELECTRIC AtD PC41ER COMPANY At!ALYSIS OF WiiCLESALE CUSTOMER DIVERSITY BY CLASS 12 M0 llHS E::DIriG JUNE 1979 Coopera tive . f4unicipal and t.i ne flo. Item Cjass Private Utility Class g-- g-

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1. 12 month average CP load 530,429 kW 334,122 kW

2. 12 month average NCP billing units Ll_, 675,380 kW 389,777 kW

3. Ratio (line 1 .;_2) 78.5", 85. 7".,

f;o tes : Source of data:

Line 1 - FERC Staff Cost of Service Exhibit or Electricities of florth Carolina Line 2 - Revised Exhibit No. (RSG-6) pages 1 at:d 2 l Line 23

/_1-AnnualkWbillingunitsy12 months.