ML19308A415

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

ML19308A415
Person / Time
Site:	South Texas, Comanche Peak
Issue date:	08/01/1979
From:	Gross R ARIZONA PUBLIC SERVICE CO. (FORMERLY ARIZONA NUCLEAR
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-8624, NUDOCS 7909260254
Download: ML19308A415 (7)

Text

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. ARIZONA PUBLIC SERVICE COMPANY

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FPC DOCKET No. E-8624 PREPARED TESTIMONY OF ROBERT M. GROSS, JR.

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1Q PLEASE STATE YOUR NAME AND ADDRESS.

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

5 6 Q. WilAT IS YOUR EDUCATIONAL BACRGROUND?

7 8 A. I graduated from Georgia Institute of Technology in 1965, receiving the degree of Bachelor of Industrial Engineering. I also attended 9

10 Georgia State University cnd 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 eight years. During this time I have been involved 17 in the preparation of cost of service studies'of investor-owned 18 utilitics, rural electric cooperatives and municipal systems and 19 have participated in wholesale rate and retail electric consulting 20 assignments in 23 states. I am a registered professional engineer 21 in the Statc. of Georgia.

22 23 Q. 11 AVE YOU EVER TESTIFIED IN OTl!ER COMMISSION PROCEEDIGGS?

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\ 25 A. Yes, I have testified as a rate expert and cost of service witness 26 before the State Commissions of Rentucky, Indiana, Michigan, Vermont 27 and Virginia. I have also testified before the Federal Power Commis-28 sion in proceedings involving the Mississippi Power Company, FPC 29 Docket No. E-7625; Central Vermont Public Service Corporation, FPC 30 Docket No. E-7685; Appalachian Power Company, FPC, Docket No. E-7775; 31 Duke Power Company, FPC Docket No. E-7994; Gulf States Utilitics 32 Company, FPC Docket No. E-8121; and Gulf Power Company, FPC Docket No.

33 E-8911; and Appalachian Power Company, FPC Docket No. E-9101.

34 35 Q. BY WIl0M IS SOUTlIERN ENGINEERING COMPANY RETAINED IN TilIS PROCEEDING?

36 37 A. By Arizona Electric Power Cooperative, Inc. (AEPCO) and Papago Tribal 38 Utility Authority (PTU).

39 40 Q. WlIAT WAS YOUR PERSONAL ASSIGNMENT IN Tills PROCEEDING?

41 42 A. I was to determine whether Arizona Public Service Company's (APSC) 43 proposed corre.cted revised fuel adjustment clause for service to 44 AEPCO and PTU is proper. I was also to determine the reasonableness 45 of APSC's allowance for working capital as a component of rate base.

46 I was also to determine whether certain revenue and expense items 47 are proper, just and reasoncule as developed by APSC. I was to 48 furnish my determinations to Witness Chayavadhanangkur. ,

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T9092602 Es ts J

, 1 Q. WILL YOU PLEASE SU:0!ARIZE THE RESULTS OF YOUR STUDIES.

' 2 3 A. .Yes, my studies show the following:

4 pg 5 (1) ASPC's proposed corrected revised fuel adjustment clause, 6 when applied along with the contract demand, energy, local e 7 facilities and transmissior. charges to AEPCO's and PTU's 8 monthly demand and energy usage in the test period, re-9 sults in excessive revenues charged these customers.

10 11 (2) APSC's proposed corrected revised fuel adjustment clause 12 is deficient in the following ways:

'( 13 14 (a) The failure to include nucicar fuel in the fuel cost 15 determination; and 16 17 (b) The use of average resale losses to adjust sales at 18 the transmission resale level.

19 20 (3) APSC's proposed corrected revised fuel adjustment clause 21 applicabic to AEPCO and PTU should be altered in order to 22 separately adjust for change in the cost of fuel used in 23 base load units and for changes in the cost of fuel used 24 in intermediate and peak load units, as determined by

/ 25 Witness Chayavadhanangkur.

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26 27 (4) APSC improperly included in its rate base provisions for 28 compensating cash balance requirements as a component of 29 its working capital requirements.

30 31 (5) APSC improperly increased its operating expenses by:

32 33 (a) Normalizing wage increases and the corresponding in-34 crence in FICA payroll taxes; and 35 36 (b) Normalizing increases in property taxes.

L 37 38 Q. MR. CROSS, PLEASE DESCRIDE APSC'S PROPOSED CORRECTED REVISED FUEL 39 ADJUSTMENT CIAUSE.

40 41 A. APSC proposes to adjust the base monthly energy charge by the following:

42

, 43 CORRECTED REVISED FUEL CLAUSE 44 45 Plus r minus 0.0001 cents per kWh billed during the billing month 46 for each 0.0G01 cents per kWh by uhich the fuel cost per kWh for 47 that month exceeds or is less than the base fuel cost of 0.1822 cents 48 per kWh multiplied by the ratio of fossil fuel generation kWh to 49 deliverad kWh of the billing month, as termined by the formula:

, 50 s

t J

9 1 100 Fm - .1822 Cn1

= Adjustment in cents per kWh 2 Gm Dm 3

4 Where:

5 6 Fm = Expense to Company during the billing month of fossil fuel 7 (excluding fuel consumed for Company's specific deliveries

• 8 for which fuel costs can be determined) consumed in electric 9 generating plants owned by Company and/or supplying energy 10 to Company. (Fm to be expressed la Dollars.)

11 12 The fuel expense included in Fm shall. include no items other 13 than those allowable in Account 151 of the Federal Power 14 Commission's Uniform System of Accounts for Public Utilitics 15 and Licensees. ,

16 17 Cm = Met fossil fueled generation input to Company's system from 18 . units uhose fuel costs are included in Fm. (Gm to be ex-19 pressed in kilowatt hours.) Intent of this definition is 20 to match Gm kWh with Fm dollars.

21 22 Da = Total kUh input to Company's system for unaccounted for 23 lossce, Company use and delivered kWh, exclusive of those 24 specific delivered kWh* for uhich fuel costs were excluded 25 in Fm and Gm, all multiplied by 1 minus resale loss factor.

( 26 The resale loss fact,or is to be expressed in decimal form 27 and will be estimated when not available in the normal 28 course of business.

29 30

• Specific deliveries arc intended to include _all kWh (and 31 associated fuel expenses) out of Company's system for all 32 Interchange (including economy, deviation from schedule and 33 banked energy) plus deliveries for which the rate is tied to 34 fuel costs of specific plants or units.

35 36 Billing under this clause will preliminarily be based on the 37 billing months' sales multiplied by the adjustment factor 38 determined from a preceding month (not greater than three 39 nonths preceding the billing month). The billing thus 40 determined will be corrected to the adjustment factor de-41 termined from the billing month. Such correction vill be 42 made not later than three months after the preliminary billing.

, 43 44 This fuel clause calculates the adjustment per kWh from the c/kWh cost 45 of fossil fuel generation in the current month less the base fuel cost 46 of 0.1822c/kWh multiplied by a factor to adjust for the generation mix 47 and for resale losses. The base cost of fuel of 0.1822c/kWh is the 48 unit cost of fossil fuel generation for calendar year 1969 less the 49 then existing fuel adjustment level. Fuel expenses include the fossil 50 fuel expenses credited to Account 151.

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} 1 Q. MR. GROSS, IIAVE YOU FOR:7.D AN OPINION AS TO Tile CORRECTNESS OF APSC'S 2 PROPOSED CORRECTED REVISED FUEL ADJUSTMENT CLAUSE TO REPRESENT ONLY 3 TilF VARIATION IN CURRENT FUEL COST FROM BASE FUEL COST?

4 5 A. Yes. I will answer this question only in terms of the operation of 6 this fuel adjustment clause as a formula. The corrected revised

( 7 fuel adjustment clause proposed by APSC is an " efficiency type" ,

8 clause sluce it adjusts for changes in fuel cost per kilowatt.-hour 9 from the base period. I agree with the use of this method of deter-10 mination because it takes into account changes in system heat rate, 11 thereby passing on to the customer the effects of changes in generating 12 efficiency. I therefore have no objection to this portion of the basic

{ 13 formula as would be used in determining the fuel adjustment factor for 14 the typical resale customer purchasing all of its power requirements 15 from APSC. I do, however, disagree with APSC's application of this 16 formula, specifically in relation to their definitions of the variables 17 Fm, Gm and Dm.

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19 In defining Fm, the current monthly fuel expenses, APSC has used 20 only fossil fuel costs, those allowed in Account 151, in collecting 21 charges for its fuel cost adjustment calculation. This does not con-22 form with FPC Order No. 517 which defines fuel cost as both fossil and 23 nuclear fuel cost. 1 an aware that APSC does not at present have 24 nuclear generating facilitics; it does however, have such facilitics '

25 scheduled, and presently purchases power from utilities that do have

( 26 nuclear generating facilities, ny including nuclear fuel expenses in

.i 27 the fuel cost determination, tlie definition of Gm, which is the current

, 28 monthly generation, should also be altered to include nuclear genera-29 tion.

30 31 In defining Da as the total kWh input to Company's system, ASPC 32 has made an adjustmc.it to correct for resale losses. This adjustment 33 is designed to properly apportion losses between retail and resale 34 customers. On the same basis, the resale losses should be properly 35 apportioned among the different 1cycls of resale customers, namely 36 transmission, subtransmission, distribution and other. The trans-37 mission resale customers, for which APSC experiences lower losses 38 than the subtransmission and distribution resale customers, should

. 39 not have to pay for losses incurred to deliver energy at the sub-40 transmission and distribution resale levels. Therefore, when 41 applying this corrected revised fuel adjustment clause to trans-42 mission resale customers, Da or the total kUh input to Company's

, 43 system should only be adjusted for losses at the transmission Icvel.

44 The proper level of losses recognizing deliverics to the transmission 45 resale customer is shown on Exhibit (HPil-12) , Statement M, Page 33 46 to be 4.3782%. This is compared with an overall wholesale class loss

! 47 factor of 5.8552%. Since AEpCO and PTU take service respectively at

! 48 115 kV and 230 kV, the smaller loss factor accurately reficcts l 49 operating conditions and does not burden these high voltage wholesale

! 50 customers with the cost of higher losses associated with distribution

' ( facilitics.

1 ASPC's proposed corrected revised fuel adjustment clause, with 2 my above mentioned changes included, vill conform with FPC Order No.

3 517 and be an acceptable fuel adjustment clause for the typical re-4 sale customer; such customer being one thit purchases all its power 5 requirements from the company.

6 7 Q. MR. GROSS, HAVE YOU FOPSED AN OPINION CONCERMING THE FOR'l OF AN 8 ACCEPTABLE FUEL ADJUSTMENT CLAUSE FOR AEPCO AND PTU?

9 10 A. Yes. An acceptabic fuel clause for AEPCO and PTU is shown in Exhibit 11 (RMG-1). This fuel adjustment clause makes two changes to APSC's 12 proposed corrected revised fuel adjustment clause.

13 14 Firstly, this clause differentiates between customers using 15 primarily base load facilities and customers whose load is responsibic 16 for the peak load. Thus, this fuel adjustment clause calculates an 17 adjustment f actor treighted toward changes in the cost of fuel consumed 18 in base load units. Its seen in Exhibit (RMG-1), the formula used 19 to calculate the adjustrent factor has two components; one to calcu-20 late the change in the cost of fuel consumed in base load units and 21 one to calculate the change in the cost of fuel consumed in all other 22 units. The adjustnent factor in weighted toward changes in the cost 23 of fuel consumed in base load unitr by the factor R uhich is the ratio 24 of the actual kilouatt--hours generated in the base load units to the norral kilowatt-hours generated in the same units. Secondly, this 25 26 fuel adjustment clause assigns,to AEPCO and PTU only the actual loss 27 incurred in serving them.

28 29 Thi.s fuel clause vill properly adjust for the changes in those 30 fuel expenses associated uith the energy purchased by AEPCO and PTU, 31 base load enci gy, rather than the change in total fuel expense.

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33 Q. MR. GROSS, DO YOU AGREE ULTH APSC'S DEVELOPMENT OF 1TS UORKING CAPITAL 34 REQUIREMEMfS?

35 36 A. No. APSC overstated its working capital requirements and therefore 37 its rate base by the inclusion of $12,260,000 in average bank balances 38 as a component of its cash needs. This Commission has historically 39 and consistantly disallowed such balances. See the follouing Cou-40 mission cruers: Michipan-Wisconsin Pipeline Company,13 FPC 326 at 41 365 (1954), Panhandle Eastern Pipeline company vs. FPC, 235 FPC 2D606, 611 (1956), _ Knoxville Utilities Board, et al. Vs. East Tennessee 42 43 Natural Gas Company,, 35 FPC 534, 553, 554, (1966), Union Electric 44 [ompany, 47 FPC 144, (1972). In explaining Statement F, the schedule of wrhing capital, Mr. Forsberg in his direct testimony of fers no 45 46 justification or explanation for the inclusion of average cash l lance 47 requirements. Therefore, based on Cont.nission precedents and since 43 APSC does not justify their inclusion, average cash balances must '

49 be deleted from APSC's rate base for cost of service determination q 50 purposes.

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f k 1Q MR. GROSS, AS S110HN ON EXIIIBIT _ _(PJD-2), ENTITLED " ARIZONA -

[ 2 PUBLIC SERVICE COMPANY -- DELETION OF CERTAIN OPEPdTION AND 3 MAINTENANCE EXPENSE NOR'IALIZATION ADJUSTMENTS MADE BY APSC --

4 4 YEAR ENDED JU'IE 30, 1974", APSC UAS INCREASED ITS OPERATING 5 EXI'ENSES TO NDPJIALIZE FOR WACE AND SAIARY ISCREASES, AND IN-I 6 CREASES IN PAYROLL TAXES AND PROPERTY TAXES. DO YOU AGREE L 7 WITl! THESE ADJUSTMENTS?

8 9A No. APSC increased its operating expenses by $1,019,000 to 10 normalize vage increases in the test period and by $56,000 to j 11 correspondingly normalize increases in FICA payroll taxes asso-12 ciated uith the wage increases. As also shown, APSC increases

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9 13 operating expenses by $1,840,000 to normalize increases in pro-f 14 pcrty taxes due to the increase in assessed value, uhich ucre

! 15 effective beginning in 1974. These normalization adjustments I 16 should not be alloucd.

! 17 18 Q HR. CROSS, Wily SIIOULD Tile NOPl!ALIZATION OF WAGE AND SAIARY 9 19 INCREASES AND PAYROLL TAX INCREASES NOT BE ALIRTED?

20 i 21 A The adjustment to normalize uage and salary increases and the l 22 related adjustment for increased FICA payroll taxes should be j 23 deleted from APSC's cost of service because the long-tera trend

! 24 of wage and salary costs per kilouatt-hour sold by APSC has i' / 25 remained reintively constant cuen though wages and salaries have 26 been increasing. Exhibit (RMG-3), entitled " Arizona Public 27 Service Company -- Analysis of salaries and Wages -- 1965 - 1974",

28 shous on Line 24 the total operation and maintenance expense 1 29 associated with vages and salaries, expressed in mills per kilo-i 30 watt-hour , has only experienced an average annual increase of -

31 0.64% for the ten-year period. Tne uage and salary costs per 32 kilovatt-hour sold was 2.2410 mills in 1965 compared to 2.3669 33 mills in 1974, uith both increasing and decreasing costs per 34 kilouatt-hour experienced during the ten-year period. Therefore, 4 35 APSC has experienced over the last ten years relatively constant

! 36 wage and salary costs per hilouatt-hour sold. Furthermore, Coltm:n j 37 (1), Line 1 of this Exhibit shous the energy sold by APSC has 38 increased at an annual compound rate of 8.98Z. The rate of in-1 39 creases in energy sold exceeded the rate of increases in unge 40 and salary. In my opinion the revenues co11ceted from energy l 41 sold vill more than offset the wage and salary increases, j 42 therefore APSC's uage and salary and FICA payroll tax adjust-

! 43 ments should not be.alloued.

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, 44 45 Q MR. CROSS, WlIY S110ULD TIIE NORMALIZATION OF PROPERTY TAX INCREASES 46 NOT BE ALLOWED? .

47 48 A As shown in Exhibit (RMG-4), the uholesale power supply contracts of AEPCO and PTU, the base monthly local facilitics charge and the

49 50 base monthly demand charge to AEPCO and PTU are subject to adjustments.

k. 1 These adjustments are intended, among other things, to reflect 2 the ef fect on APSC's cost of service of changes in applicabic 3 state and federal income tax rates and property tax rates and/or 4 assessment ratios. In other vords, the rates charged to and the 5

revenues received from these customers are automatically in-6 creased to adjust for increases in sue.h items. narring a onc

, 7 raonth laf; in applying these adjustments, which has a rai.nimal s effect, the revenues and expenses of AEPCO and PTU are automa-9 tically matched via these adjustments. There fore , in determining 10 the cost to serve AEPCO and PIU for ratemaking purposes, the same 11 criterion ci matching revenues with expenses should be relied 12 upon to dicallou the normalizing adjust::. cut for property tax 13 increases inade by APSC. Thus, APSC should not be allowed to 14 normalize these expenses unicas, and to the extent that, they 13 exceed the increased revenues it vill realize during a normalized I f, test period for such items under the automatic adjustment clauses in its rholesale pouer supply contracts Therefore, I have excluded 17 18 the additional expense APSC creates by normali:iation of property

, 19 tax increases.

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