ML19308A416

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

ML19308A416
Person / Time
Site:	South Texas, Comanche Peak
Issue date:	08/01/1979
From:	Gross R GEORGIA 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
E-9521, NUDOCS 7909260275
Download: ML19308A416 (13)

Text

MM20GOiMancWm2Crg FPC DOCKET NOS. E-9521 & E-9522 PREPARED TESTIMONY OF ROBERT M. GROSS, JR.

N 1Q PLEASE STATE YOUR NAME AND ADDRESS.

2 3A My name is Robert M. Cross, Jr. My business address is 1000 Crescent 4 Avenue, N. E., Atlanta, Georgia 30309.

5 6Q UllAT IS YOUR EDUCATIONAL BACKGROUND?

7 8A I graduated from Georgia Institute of Technology in 1965, receiving 9 the degree of Bachelor o.f Industrial Engineering. I also attended 10 Georgia State University and in 1971 received the degree of Master 11 of Business Administration, majoring in finance.

12 13 Q PLEASE STATE YOUR PROFESSIONAL EXPERIENCE.

14 15 A I have been employed by Southern Engineering Company of Georgia for 16 approximately nine years. During this time I have been involved in 17 the preparation of cost of service studies of Class A and B investor-18 owned utilitics, rural cicetric cooperatives and municipal electric 19 systems and have participated in wholesale and retail electric rate 20 consulting assignments in 23 states. I am a registered professional 21 engineer in the State of Georgia.

22 23 Q llAVE YOU EVER TESTIFIED IN OTIIER C0'B11SSION PROCEEDINGS?

24 25A Yes, I have testified as a rate expert and cost of service witness 26 before the State Commissions of Kentucky, Indiana, Michigan, Vermont 27 and Virginia. I have also testified before the Federal Power 28 Commission in proceedings involving the Mississippi Power Company, 29 FPC Docket No. E-7685; Appalachian Power Company, FPC Docket No.

30 E-7775; Duke Power Company, FPC Docket No. E-7994; Gulf States 31 Utilities comoany, FPC Docket No. E-8121; Gulf Power Company, FPC 32 Docket No. E-8911; ,A_gpalachian Power Company, FPC Docket No. E-9101; 33 Virginia E1cetric & Power Comoany, FPC Docket No. E-9147; Arizona 34 Public Service Comoany, FPC Docket No. E-8624; Public Service 35 Comoany of Indiana, Inc. , FPC Docket Nos. ER76-149 and E-9537; and 36 Georgin Power comoany, FPC Docket No. E-9091.

37 38Q BY W110M IS SO'JTIIEICI ENGINEERING COMPANY RETAINED IN TilIS PROCEEDING?

39 40A Southern Engineering Company is retained by Oglethorpe Electric 41 Membership Corporation (Cooperative Intervenor). Witnesses Rogers, 42 Solomon, Springs, Livingstone, Ewcrt and I will be Ogictborpe Elcetric 43 Membership Corporation's witnesses in this proceeding.

44 45Q WOULD YOU PLEASE SU>DIARIZE THE TESTIPONY TilAT WILL BE GIVEN BY Ti!E 46 COOPERATIVE INTERVENOR'S WITNESSES IN TilIS PROCEEDING?

47 48A Yes, Dr. Ewcrt provides testimony on the capital cost of the Georgia 49 Power Company. Dr. Livingstone testifica.on certain income tax )

50 issues contained in the cost of service. Mr. Rogers' testimony covers 1

7 9092602h

7 . .

events and subsequent transactions between Oglethorpe and the 1

2 Georgia Power Company during the test year which further evidences 3 the improper inclusion of certain income tax expense amounts in 4 the Company's cost of service study. Mr. Solomon is responsible 5 for the allocation of the expenses and investments to the categories 6 of partial requirements service. And finally, Mr. Springs' testimony 7 is concerned with the proper application of the partial requirements y 8 rates to the wholesale customers' partial requirements loads placed 9 on the Georgia Power Company's system.

10 llQ WHAT WAS YOUR ASSIG'IMENT IN TIIIS PROCEEDING?

12 13A My assignment was to determine whether the method employed by

,, 14 GPC for Period II to develop the overall Company rate base were 0 15 proper and in accordance with Commission precedent and sound 16 ratemaking procedures. Secondly, I was to determine if the Company's

, 17 procedures used to establish the unreserved partial requirements 18 rates by category were just and reasonable.

19 20 Q WHAT DATA HAVE YOU REVIEWED IN PREPARING YOUR TESTIMONY AND RELATED 21 E:GIIBITS?

22 23 A I have reviewed those portions of the Company's filing which relate i

24 to its cost of service studies and subsequent partial requirements 25 rate design including the testimony and exhibits of GPC's witnesses i 26 and other information which GPC supplied in response to the FPC Staff and the various Intervenors' requests for data.

27 '

28 29Q WOULD YOU PLEASE SLMIARIZE TlIE COOPERATIVE INTERVENOR'S POSITION 30 UITil REGARD TO THE PARTIAL REQUIRDENTS RATES AND BILLING TECICTIQUES 31 FILED BY TIIE COMPA'iY IN THIS PROCEEDING?

32 33A As covered in Mr. Grady Baker's testimony, the basic philosophy and 34 logic surrounding the evolution of the partial requirements rates for 35 wholecale service is, in the broad sense, the result of negotiations i 36 between the Georgia Power Company and Cooperative Intervenor. Although 37 the general philosophy and rationale of a partial requirements rate il 38 were established by mutual agreement between parties, the details 39 of the rate pricing and subsequent billing application to wholesale 40 loads were independently prepared by the Georgia Power Ccmpany. The 41 testimony that the Cooperative Intervenor files in this proceeding 42 is directed toward errors and inconsistencies found in both GPC's

' 43 determination of the unreserved capacity charges contained in the

! 44 filed Partial requirements rates and in the procedure by which GPC 45 applies such rates to the capacity billing determinants of the 46 wholesale customer purchasing partial requirements service.

47 48 Q GENERALLY, WHAT ERRORS AND INCONSISTENCIES UAVE BEEN FOU'1D IN THE 49 PARTIAL REQUIREMENTS RATE FILING OF THE ' GEORGIA POWER COMPANY CONTAINED 50 IN THIS,DOCRET?

i

I 1A In order to discuss the problem areas detected in this case, I 2 believe it would be helpful to review the two most important 3 exhibits that the Company has filed in this proceeding. First 4 of all, Statement "W', PR-1 update 1, as revised December 16, 5 1975 to exclude CWIP, summarizes the derivation of the unreserved 6 partial requirements rates applicabic to base, intermediate, 7 peaking and reserve capacity category purchases. This exhibit 8 is based upon a 1975 Period II test year containing nine months 9 of actual cost data and three months of estimated cost data.

10 11 The second item of major importance in this filing is GPC Exhibit 1 12 (HGB-5), Pages 1 through 22 which shows the methodology 13 used by the Georgia Power Company to apply the unrcserved partial 14 requirements capacity rates to derive the partial requirements 15 (PR-1) bill to Oglethorpe Electric Membership Corporation (OEMC).

16 For the contract year beginning July 1975, the Company's billing 17 procedure resulted in an annual capacity charge to OEMC of 18 $45,074,244. This capacity charge incorporates the recovery 19 of all of the Georgia Power Company's purported applicabic 20 revenue requirement except the recovery of fuel expense. Fuci 21 costs are recovered under the partial requirements rate billing

22 procedure from month to month based upon actual average fuel 23 costs incurred by the Georgia Power Company.

24 25 Uc have focused attention on these tuo exhibits filed by GPC l 26 because our primary objections to the Georgia Power Company's 27 filing are the result of (1) Statement "M" calculations which 28 produce both an overstatement of GPC's expenses and investments 29 incurred during the test year, and encompass an illogical method l 30 of calculating unreserved partial requirement capacity charges 31 by category and (2) the PR-1 billing procedure which incorrectly l 32 is based upon the wholesale customer's coincident peak demand 33 rather than the demand the customer places on the Georgia Power 34 Company at the time of the Annual Georgia Territorial Peak Demand.

35 36 Q WOULD YOU BRIEFLY SUMMARIZE TIIE CONCLUSIONS WHICH YOU AND THE OTHER 37 WITNESSES FOR THE COOPERATIVE INTERVENOR UAVE REACHED AS A RESULT 38 0F STUDYING GPC'S COST OF PROVIDING PARTIAL REQUIREMENTS SERVICE 39 AS DOCUMENTED IN STATEMENT "M" AND SUPPORTING EXHIBITS.

40 41 A The cost of service studies presented by the Company in this 42 proceeding significantly overstate the cost of providing service 43 to wholesale customers who qualify for partial requirement service.

44 The following major errors have been made by GPC in its Period 45 II cost of service study, necessitating adjustments:

46 47 1. GPC's use of the average of the beginning and end of 48 year electric plant in service account balances to determine 49 the plant investment level for the test year does not accurately 50 reficct the overall average investment 'in GPC's plant in service T

l  %

1

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, ( 1 for the test period i.e. , the twelve months ending December 1975.

2 The most accurate method is the use of the thirteen month average 3 of plant in service balances.

4 5 2. GPC improperly included in its rate base amounts for 6 compensating bank requirements as a component of its cash working 7 capital.

8 .

, 9 3. As testified to by Mr. Solomon, GPC does not properly l 10 allocate the administrative and general expenses and general 11 plant investment for Period II as between functional category.

, 12 This results in an excessive amount of A & G cxpense and general 13 plant investment assigned to customers purchasing power under 14 partial requirements rates.

j 15 j 16 4. As testified to by Dr. Livingstone, GPC has inflated 17 its rate base by using improperly calculated rates for capitalizing 18 Allowance For Funds Used During Construction.

19 20 5. As testified to by Dr. Livingstone and Fx. Rogers, GPC has l 21 significantly overstated the Federal and State income tax expense j 22 charged to cicctric operations in Statenent J by including taxes 23 incurred on the one time sale for certain facilitics to Oglethorpe 24 Electric Membership Corporation' during the test year.

i 25 26 6. As testified to by Dr. Livingstone, GPC has improperly

( 27 normali:51 the effects of certain tax timing differences associated 28 with cost items covered by Order No. '530 without complying with 29 the requirements of Order No. 530-B as issued September 3,1976.

30

, 31 7. As testified to by Dr. Livingstone, GPC has improperly 1 32 computed the deduction from income taxes for interest expense j

33 associated with both long term debt and notes payable for Period 34 II.

. 35 I

36 Mr. Solomon has prepared an exhibit Cooperative Intervenor 37 Exhibit No. (JBS-1), which shows the combined effects of the above 33 adjustments on the Company's filed Statement "M".

39 40 Q MR. GROSS, HAS THE GEORGIA POWER COMPANY FILED TWO CASES BEFOP2 41 THE.FELERAL POWER COMMISSION USING 1975 AS A TEST YEAR.

! 42 43 A Yes. Docket No. E-9091 covering full requirements service to the 44 Cooperative Intervenors, filed on November 30, 1974, and effective 45 for the Period April 1,1975 through June 30, 1975, utilizes

( 46 calendar year 1975 as a test period. In addition, the instant I 47 ccsc which is applicable to partial requirements service to the 48 Cooperative Intervenor was filed June .30,1975 and effective 49 for the period July 1, 1975 through July 31, 1976. It also uses 50 1975 data as the basis for the test period.

(

(' 1 IIcarings are to be held in both cases during the month of November 2 1976.

3 4Q NOTWITIISTANDING TIIE OBVIOUS DIFFERENCE BEIWEEN FULL REQUIPIMENTS 5 AND PARTIAL REQUIREMENTS RATE SCHEDULES, IS YOUR TESTIMONY CONCERNING 6 TIIE COMPANY'S RATE BASE FOR PERIOD II THE SAME WITH RESPECT TO BOTH 7 DOCKET E-9091 AND THE INSTANT CASE?

- 8 9A Yes, with respect to all issues except the issue of the treatment 10 of Hatch Unit No. 1 as it is reficcted in the rate base.

11

12 Q YOU IIAVE STATED THAT THE COM?ANY'S USE OF MINDIUM BANK BALANCES 13 AS A COMPONENT TO RATE BASE IS IN ERROR. PLEASE Ei'PIAIN.

14 15 A There are serveral reasons why there is disagreement with the Company's 16 inclusion of minimum bank balances as a component to rate base. Dr.

17 Ewert and I both will give reasons uhy minimum bank balances should 18 not be included in GPC's rate base.

j 19 20 Company's witnesses state that the normal cash working capital 21 allowance of 45 days of annual operation and maintenance expense 22 less purchased power is not sufficient to provide enough cash to 23 fulfill compensating bank balance requirements. I have carefully 24 reviewed the testimony and exhibits of the Company's witnesses and 25 I find no studies prepared by the Company showing that the standard

26 45 days cash working capital allowance is deficient. I believe that 27 if additional cash working capital amounts, over. and above the 28 standard 45 days allowance, are to be included in the rate base, then 1

i 29 GPC must show a detailed analysis of its total cash working capital

30 needs based on all cash receipts and cash disburse =ents.

31 I

32 This Commission has consistently limited the cash working determination 33 to the 45 days allowance. Any attempts to expand or reduce the 45 34 days allowance through specific treatment of any one item, has been met 35 with the requirement to show all cash 1 cads and lags (with the 36 exception of FIT accruals, prior to Sierra Pacific Power Comoany_,

37 Opinion No. 730). Particularly, the Coranission has rejected the 38 specific addition of compensating bank balances in some cases l 39 because of the availability of counterbalancing amounts of cash 40 generated through certain accruals. Along this line, GPC has not 41 made a showing that cost free funds generated from tax or other 42 accruals were not continually available during the test year for 43 bank deposit and thus acted to satisfy requirements for compensating 44 bank balances as such exists.

45 46 Q ARE CPC'S MONTIILY TAX ACCRUALS OF A SUFFICIENT AMOUNT TO COUNTERACT 47 Tile APPROXIMATE $11,000,000 STATED MINDIUM BANK BALECE REQUIREMENT?

48 49 A From the informadion that GPC has provided, I find that tax accrual 50 balances for the 13-month period December 1974 through December 1975 w.- - - , , . - - - , ,-- . -. ,

J

( 1 (Period II) averaged $32,842,337 as I have shown on Cooperative 2 Intervenor Exhibit No. (RMG-1). These balances are the result 3 of GPC's booking tax expense on a current basis but with the actual 4 payment to the taxing entity usually not due until some later date.

5 Since rates are based on current tax expense, a cash Icading situation 6 develops as cash in-flow from revenues are received well prior to 7 the actual cash disbursement to the taxing entity.

- 8 9 It is obvious from this data that GPC has a substantial amount of 10 interest free capital availabic which could and most probably is 11 totally deposited in bank accounts and indeed acts to fulfill any 12 compensating bank balance requirement.

13 4 14 Q DOES GEORGIA POWER COMPANY'S FEDERAL INCOME TAX CREDIT TO CASH f 15 WORKING CAPITAL OFFSET THE TAX ACCRUAL BAL\NCE SliOWN IN COOPERATIVE 16 INTERVENOR EXHNIT NO. (RMG-1)?

17 18 A No, if booked accruals relating to federal income taxes are eliminated 19 from the total tax accrual balance as shown by the' Georgia Power 20 Company for the test year, then the average tax accrual balance of 21 $32,842,337 is reduced to $27,932,320, or by approximately $5,000,000.

22 Even climinating tax accruals relating to federal income tax from 23 the average tax accrual balance does not change the fact that tax 24 accrual balances are at least twice as much as the Company's stated 25 minimum bank balance requirement. In addition, for cost of service 26 purposes, Mr. Solomon has eliminated the federal income tax offset 27 to unrking capital because of the Commission's Order in opinion No.

l 28 730.

2 29 30 Q WOULD YOU EXPL\IN HOW YOU ARE DEVIATING IN YOUR TREATMENT OF PLINT

! 31 HATCH YOR RATEMAKING PUR?OSES IN THIS CASE VERSUS YOUR TREATMENT IN i

32 DOCKET NO. E-9091.

33 34 A In Docket No. E-9091 I testified that Hatch U' nit No. 1 should be 35 included in the rate base only in an amount equal to one-thirteenth 36 of its total capitalized investment. The unit was commercialized on 37 December 31, 1975 and thus under the traditional thirteen month 38 average method of computing rate base would be weighted into the rate base on the basis of one month's operation during the 1975 test l 39 40 year.

41 42 In the instant case, however, I have applied Hatch No.1 in the 43 rate base on the basis of six months of assumed comecreial operation 44 from July through December 1975. As a result of this adjustment, 45 I have also had to reduce the book original cost investments in

46 Hatch Unit No. I and Nucicar Fuel by the amount of AFUDC specifi-

47 cally capitalized on such investments during the period July through

! 48 December 1975. In addition, I have reduced Account 557 by $4,577,479 49 and simultaneously have increased production depreciation expense l 50 by$3,{94,301.

1 During the test year Georgia Power Company charged to Account 557 2 certain "certs" of Hatch test run energy. Included in the test 3 run costs c'arged to Account 557 were nuclear fuel burn-up expenses, 4 Hatch operation and maintenance expenses, and some additional 5 $4,577,479 which the Company terms "dif ference between the budgeted 6 cost of energy, assuming that Plant Hatch Unit No. I were in com-7 mercial operation and the actual cost of energy;" Cooperative 8 Intervenor Exhibit No. (RMG-2), Page 4. The Company justifics 9 charging these additional " costs" to Account 557 on the basis that 10 such amounts are " equivalent to the same amount which would have 11 been expensed if depreciation had been computed on Plant Hatch 12 Unit No. 1 using a unit of production method of depreciation,"

13 Page 3, Cooperative Intervenor Exhibit No. .(RMG-2). Since 14 I am including IIatch No.1 in the rate base based upon six months 15 of Operation, it would not be proper to allcw the $4.577,479 in 16 Account 557 when I have increased actual depreciation expense for 17 July 1, 1975 co==ercial date for Plant Hatch.

18 19 Q IIAVE YOU PREPARED AN EXHIBIT inIICH SHONS THE DEVELOP >ENT OF RATE 20 BASE inlICH UAS EMPLOYED IN COOPERATIVE INTERVENORS' COST OF SERVICE 21 STUDY?

22 23 A Yes, Cooperative Intervenor Exhibit No. (RMG-3) contains tho' 24 development of the monthly account balances which I used for ' Gross 25 Plant in Service, Accumulated Reserve for Depreciation, Plant Held 26 for Future Use and Nuclear Fuel to compute the average balances 27 for the thirteen month period. I have used actual 1975 monthly 28 account balances provided by the Georgia Power Company but adjusted 29 to add the llatch Unit No. 1 plant and Nuclear Fuel investments for 30 the months of July through November 1975 as if Hatch No. I had 31 been in commercial operation during this period.

32 33 Q WOULD YOU PLEASE EXPLAIN WHY YOU USED TIE AVERAG5 OF THE THIRTEE'i 34 MONTil BALANCES, AS ADJUSTED, INSTEAD OF THE AVERAGE OF TIIE BEGINNING 35 AND END OF YEAR BAIANCES IN DETERMINING TIE TOTAL RATE EASE FOR 36 CPC FOR PERIOD II.

37 38 A In determining its rate base GPC has used the beginning and end 39 of year balances for electric plant in service during the test year.

40 In some cases this method may be adequate for ratemaking purposes.

41 Generally, however, it is recognized that the proper synchronization 42 of revenues, expenses, and electric plant in service can be accom-43 plished only by matching the monthly plant in service balances with 44 the billing periods, which are the periods of metering for sales to 45 wholesale customers. Billing is done on a monthly basis. Therefore, 46 a monthly average is the most accurate method for synchronization 47 of the expenses during the months, the energy produced during the months, 48 and the revenues co11ceted during the months. The average of the thirteen 49 cicetric plant in service end of month account balances accomplishes 50 monthly averaging since the beginning balance and the ending balance 1

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( 1 of each month during the test period is ucighted equally in the compu-

, 2 tation. Morcover, the thirteen month average method avoids the 3 necessity of determinng how to properly weight large, irregular 4 additions to plant which are placed in service during the test period.

i 5 The thirteen month average method, there fore, is the more accurate 6 for matching revenues and expenses with the facilitics in service j 7 during the year.

8

9 The relative superiority for ratemaking purposes of the thirteen 10 month average method is demonstrated by its use in calculating 11 GPC's rate base. Applying that method to data availabic from 12 GPC on its actual monthly net plant balances for Period II, adjusted 13 for the Hatch Unit No. 1 assumed commercial date of July 1,1975, t

14 produces the following average not plant amounts: ($1,000) 15 16 Production Transmission Step-Up Substations 17 18 $1,053,464 $26,067 19 4 20 These figures comparc with the Company's beginning and end of year 21 average not plant balances as follows: ($1,000) 22 Production Transmission Step-Up Substations 23 24 25 $1,100,944 $26,975 26 l

27 My calculations show tl.at the Company's method overstates net plant 28 in service balances, particularly net' production plant. The 29 $47,480,000 difference betueen GPC's figure for net production plant 30 and my figure is due primarily to the commercial'in-service date 31 of the Bowen No. 4 unit. GPC's beginning and end of' year average 32 method of calculating plant in service attributes Bowen No. 4 in

! 33 commercial operation for six months during the test year i.e. , July through December 1975.

34 In fact the Bowen Unit was not placed in 35 commercial operation until November 14, 1975. When GPC computes 36 its rate base using the beginning and end of year plant in-service 37 balances, it sccks a return on its investment in Bowen No. 4 as if A 38 it were in service for six months of the test year rather than the 39 actual in-service period of approximately six weeks.

40 .

l 41 It should be pointed out that although most units generally are of

42 some value prior to commercial operation, because of the availability 43 of test run energy, the Company has adequately recognized that 44 value by increasing Account 557 for cost of the kilowatt hours 45 produced in the pre-operational testing of the Bowen No. 4 unit.

46 Additionally, prior to final operation, the Company continues to 47 capitaline its Allowance For Funds Used During Construction (AFUDC) 48 so that the final capitalized value of the plant in service reficces 49 AFUDC incurred during the entire period of pre-operational testing.

50 Over the life of the facility, Georgia Power Company will recover

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O 1 these costs through depreciation charges and return on rate base.

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2 Therefore to allow the Company to calculate its rate base on a 3 beginning and end of year production plant investment balances I 4 results in this case in a double return to the Company. GPC would 5 carn a full return on the weighted value of the Bowen investment i 6 included in the rate base representing the pre-operational period 7 of July through November 14. GPC would also capitalize AFUDC on 8 this investment for the same period.

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9 10 The average of the thirteen month plant balances clininates this 11 overlap and provides for a proper relationship between plant in 12 service for the rate of return purposes and AFUDC taken on pre-4 13 commercial investments.

14 1 15 FPC precedent dictates the use of the thirteen month plant balance 16 method. For example, the Commission required use of the thirteen 17 month average in Mississinoi Fuel Corporation, 11 FPC 288 (1952),

18 Idaho Power Cocoany, 46 GPC 384 (420) 1971 and most recently in 19 Connecticut Licht & Power, 1976 FPC Docket No. E-7743, opinion i 20 No. 761.

21 22 Q MR. GROSS WHY DID YOU MAKE AN ADJUST >ENT TO RECOGNIZE AN ASSU1ED 23 MID YEAR C0!OERCIAL DATE FOR THE HATCH UNIT NO.1 AND NOT MAKE A

, 24 COMPARABLE ADJUST >ENT FOR THE E0 WEN UNIT No. 4?

25

< 26 A As I have stated, in Docket No. E-9091 I used the actual in-service s

27 dates for both Bowen Unit No. 4 and Hatch No. 1 in calculating 28 the Company's rate base under the thirteen month average method.

29 That proceeding relhted to the establishment of a full requirements 30 rate (WR-8) applicable to Cooperative Intervenors for the short 31 locked-in period of April 1,1975 through June 30, 1975. Because of 32 the short time interval for which full requirecents were to apply to the 33 Cooperative Intervenors, i.e., early in the test year, and because 34 the Company's accounting surrounding the Hatch Unit No. I was 35 totally geared to a commercial date of December 31, 1975, I concluded, 36 based upon the preponderance of evidence, that the full requirements 37 rate to the Cooperative Intervenors should be based on the actual 38 in-service date of the Hatch Unit No. 1.

39 40 In the instant case, however, a new consideration enters into the 41 cvaluation of a p oper treatment of the Hatch investment in this rate 42 proceeding. Eccause the Cooperative Intervenor receives full capacity 43 credit for his percentage ownership in the Hatch Unit (76.4 mega-

44 watts) in the calculation of the partial requirements bill, it would 45 stand to reason that a commercial date effective with the partial

, 46 requirements service to the Cooperative Intervenor would be required -

47 in establishing the rate under which those same customers buy power 48 from the Georgia Power Company. In this case, therefore, I have con-49 cluded that since the Cooperative Intervenor receives full credit 50 for his ownership in the Hatch Nuc1 car Unit, correspondingly the J

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l Georgia Power Company's partial requirements rates should reflect

( 2 appropriate Hatch Unit costs.

3 4 With regard to the Bowen No. 4, because there is no joint ownership 5 in this unit, there is no credit accruing to the partial requirements customer and therefore, there is no sense of equity consideration

> 6 7 for ratemaking treatment of the Bowen Unit other than its precise 7 8 commercial date.

' 9 10 Q MR. GROSS, THE STAFF, IN ITS DEVELO?>!ENT OF THE COMPANY'S RATE BASE 11 IN THIS PROCEED 1hG, TREATED THE EOWEN UNIT No. 4 AS IF IT WERE IN 12 COSDIERCIAL SERVICE EFFECTIVE JULY 1,1975 RATHER THAN THE ACTUAL 13 C0}DIERCIAL DATE OF UOVEMBER 14, 1975. WOULD YOU PLEASE CO3DIENT

( 14 ON THE STAFF'S TREATMEliT?

15 16 A Staff Witness Murdock states that "because (Boven) Unit No. 4 was 1

17 used in determining which units to include in the category of base 18 load generation in the Campany's filing, I have included Bowen No.

4 in service for six months in my study." It is interesting that 19

, 20 in Docket No. E-9091 the Staff time weighted Bowen No. 4 in the rate base for 47 days based upon the actual commercial date rather 21 22 than the six months that were used by Staff in the instant case.

23 24 The Staff's reasons for including Eowen Unit No. 4 in the rate 25 base for six months in this case hinge apparently on the manner

( 26 by which GPC has compiled the stacking of its units in the 27 Integrated System Resource Classification. I believe I have a 28 solution to Staff's problem but witho'ut the obviously improper 29 rate base treatment of simply assuming that Bowen Unit No. 4 was

30 commercial on July 1, 1975.

31 32 Q WOULD YOU PLEASE DISCUSS YOUR APPROACH TO THIS PROBLEM?

33 34 A on Statement "M" of the Company's filing, the Company's revenue

35 requirement by category is developed for base, intenaediate,

< 36 Peaking and reserve partial requirement service. These amounts 37 are then divided by the Company's peak hour capability in kilo-t 38 watts by category to determine the average cost of delivering an 39 unreserved kilowatt of base, intermediate, peaking or reserve 40 service to a partial requirements customer. The Company develops 41 its peak hour capability on Exhibit (HG3-3), Page 1 of 1.

42 It shows the total capability of the Georgia Power Company during 43 the contract year June 1975 through May 1976 to be 11,241,587 44 kilowatts. When the company subdivides its peak hour capability 45 into amounts relating to base, intermediate, peaking and reserve 46 categories, I think it is important to note that the Company includes 47 883,000 kilowatts attributabic to Bowen Unit No. 4. It includes such 48 amounts as part of its base unit capability. The Staff rationalizes 49 that since Bowen Unit No. 4 is included in the resource stacking list l

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( 1 and contributes to the Company's generating capability, it should

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2 also be treated in the cost of service as if it were in commercial 3 operation for six months of the test period rather than the 47 days 4 of actual commercial operation.

5 6 From a ratemaking standpoint, I believe that the Company's inclusion 7 of the total capability of the Bowen Unit in the resource stacking 8 list (Integrated System Resource Classification) is wrong for two 9 reasons. First of all, this unit was not commercial during the 10 critical summer peak season in 1975. The unit was of no value in 11 meeting summer peak loads. Secondly, all 22 pages of Exhibit 12 (HGB-3) which documents the procedure used to calculate the PR-1 l 13 bill are predicated upon reserves of the Georgia Power Company at 14 the time of the Annual Georgia Territorial Peak Demand (1600 hours0.0185 days <br />0.444 hours <br />0.00265 weeks <br />6.088e-4 months <br /> i 15 August 25, 1975). Since Bowen Unit No. 4 was not commercial during i 16 this period, including Bowen in the peak hour capability stack i 17 significantly overstates the actual reserves of the Georgia Power 18 Company during the system peak. Thus the partial requirement capacity 19 charges to OEMC contain a comparabic overstatement of reserve costs.

20 21 From a ratemaking standpoint, I believe that the most accurate method

, 22 6f determining the category capability availabic to the Georgia

23 Power Company during the test year is to average the capability by unit in 24 the same manner that the investment in generating resources is 25 averaged. For instance, the Commission has recognized that the g

26 thirteen month average plant in service balance method is the most 27 accurate measure of average investment committed during the test year.

! 28 Similarly, I believe that the resource capability of the Georgia i

29 Power Company during the test year can best be measured, for rate-30 making purposes, by averaging the generating capability on a 31 thirteen month basis. This would directly correlate generating

32 capability with generating investment. Each generating resource 33 of the Georgia power Company would thus be reficcted equally in 34 both rate base treatment and resource capability treatment. This 35 would provide a much more accurate method in arriving at the category 36 unreserved unit price than the present method. For exampic, during 37 1975 the Georgia Power company added two units to its resource

. 38 capability,. For costing purposes, the Georgia Power Company has i

39 approximately one-half of the fixed cost of Hatch and Bowen in

40 its overall revenue requirement; however, it computes a unit price

41 on the basis of not one-half of the capability, but all of the 42 capability of these units. This by,itself would tend to reduce 43 the unit price that the Company computes for partial requirements

44 unreserved category service. However, I should point out that while

! 45 the category unit price may be diluted in this manner, the computed I 46 reserves of the Georgia Power Company for partial requirements billing

47 purposes are arbitrarily too high.

48 49 I propose that these problems can be remedied by weighting the 50 resource capability of each unit based upon an average of that

4 O

• 1 unit's generating capability during the test year. This will

( 2 provide a much core accurate measure for ratemaking purposes of

( 3 both the unreserved unit category cost and the capability (reserves) of the 4 Georgia Power company during the test year.

5 6Q DO YOU EWE AN EXHIBIT WHICll SHOWS HOW TIIE INTEGRATED SYSTD1 RESOURCE 7 CLASSIFICATION STACRING LIST SHOULD BE CllANGED BASED UPON YOUR PRO-8 POSAL?

9 10 A Yes, Cooperative Intervenor Exhibit No. (RMG-4) shows a stackin's 11 of the Georgia Power Company's units for 1975 weighted for their 12 average monthly capability. For instance, rather than include the 13 full capability of both Hatch Unit No.1 and Bowen Unit No. 4 in 14 the resource classification stacking, I have included a weighting 15 of six-thirteenths of 11atch No. I and two-thirteenths of Bowen No.

16 4. I have not deviated from the capability amounts used by the 17 Georgia Power Company for other units. .

18 19 Because I have reduced the capability of Hatch Unit No. 1 and Bowen 20 Unit No. 4 down to a fraction of their full capability, I have re-21 classified the McDonough Unit from the intermediate to the base 22 category. I believe the Georgia Power Company in its original 23 filing also included the McDonough Unit as a base unit.

24 25 The revised capabilitics used in my resource stacking result in t 26 category capabilities that are more equal to the required capacity 27 levels resulting from the Company's annual load duration curve, .

! 28 i.e., the Company's load duration curve produced capacity require-29 ments of 3,684,964 kilowatts-base, 2,641,888 kilowatts-intermediate 30 and 2,222,948 kilowatts-peaking. In addition, the total capability 31 of the Georgia Power Company which I show to be 10,124,187 kilowatts 32 is closer to the actual peak hour capability of the Georgia Power 33 Company during the Annual Georgia Territorial Peak Demand than the 34 capability used by the Georgia Power Company of 11,241,587 kilowatts.

35 36 Q DO YOU EWE AN EXIIIBIT WHICH S110WS THE APPLICATION OF THE REVISED 37 CAPABILITY LEVELS BY CATEGORY IN Tile DETERMINATION OF THE UNRESERVED 38 PARTIAL REQUIREMENTS UNIT CAPACITY CHARGES?

39 40 A Yes, Exhibit No. (RMG-5) shows the revised resource capability 41 levcis by category applied to the category revenue requirements as taken 42 from the Cooperative Intervenor Exhibit No. (JBS-1). The revised monthly 43 unreserved partial requirements rates by category are shown -to be 44 $2.74 per kilowatt-base, $2.49 per kilowatt-intermediate, $2.10 per 45 kilowatt peaking, $1.50 per kilowatt-reserve.

46 47 Q IIOW ARE THESE REVISED UNRESERVED PARTIAL REQUIREMENTS CATEGORY RATES 48 APPLIED TO TIIE PARTIAL REQUIREMENTS BILLING PROCEDURE IN LIGHT OF 49 YOUR REVISED OVERALL SYSTD1 PEAK HOUR CAPABILITY?

50 .

, i

( 1A E:dtibit No. -(IO1G-6), Page 4 shows the resulting chango 2 in the partial requirements capacity charge to ODIC for the period 3 July 1975 through May 1976 incorporating both the revised unreserved 4 rates contained in Cooperative Intervenor Exhibit No. (IC4G-5) and 5 the revised Georgia Power Company capability of 10,124,187- kilowatts.

6 Thece changes coupled with Mr. Springs' reco==endation concerning 7 application of partial requirements rates to solesale loads coincident 8 with the Annual Georgia Territorial Peak Demand produce an annual 9 capacity charge for the test year of $37,295,664.

10 11 Q DOES Tl!AT CONCLUDE YOUR TESTD:ONY?

12 13 A Yes.

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