ML19308A428
| ML19308A428 | |
| Person / Time | |
|---|---|
| Site: | South Texas, Comanche Peak  |
| Issue date: | 08/01/1979 |
| From: | Rogers O AFFILIATION NOT ASSIGNED |
| To: | |
| Shared Package | |
| ML19208C305 | List:
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| References | |
| E-8911, NUDOCS 7909260349 | |
| Download: ML19308A428 (16) | |
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CULF POWER COMPANY FPC DOCKET NO. E-8911 V
l 1Q PLEASE STATE YOUR NAME AND ADDRESS.
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a 3A My name is 0. Franklin Rogers. My business address is 1000 4 Crescent Avenue, N.E., Atlanta, Georgia 30309, 5
6Q BY Wi!OM ARE YOU EMPLOYED?
7 8A
' 9 I am a member of the firm of Southern Engineering Company of Georgia.
10 Q 11 PLEASE STATE YOU EDUCATIONAL BACKGROUND.
1 12 A
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13 I attended Emory University in Atlanta for two years and Georgia 14 Institute of Technology for two years, receiving the degree of 15 Bachelor of Industrial Engineering from Georgia Institute of Tech-nology in 1955.
16 I also attended Emory University Law School.
17 Q 18 PLEASE STATE YOU PROFESSIONAL EXPERIENCE.
19 A 20 Upon grlidtiation from Georgia Tech, I served three years as an officer in the United States Navy, af ter which I began working for Seuthern 1
4 21 Engineering Company in 1958 22 During that time I have headed the i 23 Retail and Wholesale Rate Departments in my Company, performed rate 24 studies for over seventy-five rural cicetric cooperative and municipal g 25 systems in thirteen states, participated in wholesale rate and con-26 tract negotiations with thirty-six privately owned investor utilities 27 in nineteen states, and prepared or participated in preparing numerous 28 cost of service studies of investor-owned utilities, rural electric cooperatives and municipal systems.
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' 30 Q 31 MR. ROCERS, WITl! RESPECT TO ELECTP,IC RATE CASE MATTERS, llAVE YOU EVER 32 GIVEN TESTIMONY COFD1ISSION? BEFORE TilIS CO>D1ISSION OR ANY STATE UrILITY 33 34 A Yes, I have.
35 l 36 Q WILL YOU YOU PLEASE IDENTIFY T110SE PROCEEDINGS AND TIIE COFDfISS
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37 WllICit IIAVE TESTIFIED.
38 39 A 40 I have testified as a rate expert before several State Commissions i 41 including North Carolina, South Carolina, Kentucky and Indiana. I 42 have previously test-ified before the Federal' Power Commission in the 43 following proceedings: Mississippi Power & Linht Company, FPC Docket 44 No. E-7577; Carolina Power & Light Company, FPC Docket No. E-7564;
- 45 Georgia Power Company, FPC Docket No. E-7548; Public Service Company 46 of Indiana, FPC Docket No. E-7645; Alabama Power Company, FPC Docket 47 No. E-7674; Culf Power Company, FPC Docket No. E-7686; Mississippi Pow ( r Company, 48 FPC Docket No. E-7625; Florida Power Corporation, FPC Docket No. E-7679; Duke Power Company, FPC Docket No. E-7720; Pennsyl-49 50 vania Electric Company, FPC Docket No. E-7718; Public Service Company of New llampshire, FPC Docket No. E-7742; Indiana and Michigan Electric
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Comp.Iny, F?C Docket No. E-7740; Virginia Electric and Power Company, 2 FPC Docket No. E-8026; Carolina Power & Light Company, FPC Docket 3 No. E-8881; Toledo Edison Company, FPC Docket No. E-7929; Consumers 4 Power Company, FPC Docket No. E-7803; Appalachian Power Company, 5 FPC Docket No. E-7775; Mississippi Power Company, FPC Docket No.
6 E-7625; Carolina Power and Light Company, FPC Docket No. E-8834; 7 Alabama Power Company, FPC Docket No. E-8851; and Potomac Electric 8 Power Company, FPC Docket No. E-8741 9
10 Q MR. ROGERS, WOULD YOU PLFASE LIST FOR US THOSE PRIVATELY OWNED ELECTRIC 11 COMPANIES WITil WHICH YOU HAVE PERSONALLY CONDUCTED NEGOTIATIONS ON 12 BEllALF OF WHOLESALE CUSIOMERS ILOLVING SUBSTANTIAL CIIANGES IN Tile 13 RATES OR CONTRACTS AND THOSE COMPANIES WITil WilICll YOU !! AVE PERSONALLY 14 BEEN INVOLVED IN CASES BEFORE Tile FEDERAL POWER C0dDfISSION.
15 16 A Yes. I might add that all of these cases occurred during the 1960's 17 to the present tLme, so this constitutes recent experience.
18 19 Although I db not recall all of the docket numbers, I will indicate 20 the docket numbers of those cases filed since 1969. The companies are:
21 22 Florida Power Corporation (two occasions)(E-7679), Culf Power 23 Company (E-7686), Georgia Power Company (four occasions)(E-7548 24 and E-8170), Virginia Electric & Power Company (three occasions) y,j 25 (E-7611 and E-8026), Carolina Power & Light Company (E-7564),
26 Delmarva Power and Light Company of Delaware (three occasions) 27 (E-7560 and E-7769), Delmarva Power and Light Company of Virginia 28 (three occasions)(E-7560 and E-7769), Delmarva Power & Light 29 Company of Fbryland (three occasions)(E-7560 and E-7769), Uest 30 Penn Power Company, Pennsylvania Electric Company (three occasions) 31 (E-7718), Metropolitan Edison Company (three occasions)(E-7630),
32 New Jersey Power and Light Company (two occasions), Jersey Central 33 Power and Light Company, Duke Power Company (four occasions) 34 (E-7557, E-7720 and E-7994), Public Service Company of Indiana 35 (E-7645), Northern Indi~ana Public Service Company (E-7758),
36 Detroit Edison Company (E-7687), Central Illinois Public Service 37 Company, Illinois Power Company, Kentucky Utilities Company, New 38 York State Electric & Gas Corporation, Alabama Power Company (two 39 '
occasions)(E-7674), Oklahoma Cas and Elcetric Company, Public i 40 Service Company of Oklahoma, Public Service Company of New llamp-41 shire (E-7742), Central Illinois Light Company (E-7577), Niagara 42 Mohawk Power Corporation, Mississippi Power Company (E-7625, Central 43 Vermont Public Service Corporation (two occasions)(E-7685 and 44 E-7798), Florida Power & Ligit Corgany (E-8008), Indiana and tuchigan 45 Electric Company (E-7740), Appalachian Power Company (E-7775),
46 Pennsylvania Power and Light Company, and consumers Power Company 47 (E-7803).
48 49 Most of the negotiations and rate cases involved, among other issues, 50 rate schedules which contained fuel adjustment clauses. Many V
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1 negotiations resulted in substantial changes in, or the deletion 2 of, the fuel adjustment clauses.
3 4Q IIAVE YOU TESTIFIED BEFORE OT11ER CO)! MISSIONS?
5 6A Yes. I have testified before the Atomic Safety and Licensing Board 7 of the snited States Atomic Energy Commission (now the Nuclear 8 Regulatory Commission) l'n Consumers Power Company (Midland Plant, 9 Units 1 and 2), NRC Docket Nos. 50-329A and 50-33QA. Additionally, 10 I have testified before the Atomic Safety and Licensing Board in 11 the matter of Alabama Power Company (Joseph M. Farley Nucicar Plants, 12 Units 1 and 2), NRC Dockets Nos. 50-348A and 50-364A.
13 14 Q MR. ROGERS, WILL YOU PLEASE DESCRIBE IN GREATER DETAIL YOUR EXPERIENCE 15 CONCERNING FUEL ADJUSTMENT CLAUSES.
16 17 A I have designed many fuel adjustment clauses and I have analyzed and 18 negotiated fpel adjustment clauses on behalf of our clients with their 19 wholesale power suppliers.
20 21 In many, if not mosq of the rate cases and negotiations noted above, 22 a fuel clause was at issue. Additionally, I have testified in the 23 following proceedings which involved only fuel adjustment clauses:
24 b./ 25 The North Carolina Utilities Commission, Docket No. E-7, Sub.114, 26 the result of which Duke Power Company's proposed fuel adjust-27 ment clause for retail epstomers was disallowed by that Commission; 28 29 The Federal Power Commission in FPC Docket No. E-7720, Duke Power 30 Company; and 31 32 The Federal Power Commission in the rulenaking proceeding con-33 cerning fuel adjustment clauses in whoicsale rate schedules, 34 Docket No. R-479, in which I represented the American Public 35 Power Association, the National Rural Electric Cooperative 36 Association, many ctatewide cooperative organizations, and 37 statewide municipal organizations.
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39 Q BY WIIOM IS YOUR FIRM RETAINED IN TIIIS PROCEEDING?
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41 A By the Cooperative Intervenors.
42 43 Q WilAT WAS YOUR FIP11'S ASSICIE!EITr IN TIIIS PROCEEDING? ,
44 45 A hy firm was to review the filing for increased rates to wholesale 46 customers made by Gulf Power Company (Gulf) in this proceeding, its 47 direct testimony and exhibits for Period I and 11 and any other in-48 formation we could obtain relating to Gulf's system operations and i 49 sales to its customers. We were to determine if the projected cost 50 of service filed by Gulf accurately reficcts properly projected costs g_j
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1 of serving the wholesale customers. Specifically, we were to 2
3 determine "A" through4 ether the in{ormation and methods shown in Statements "O" are proper according to Federal Power Connission 4 precedent and sound rate making procedures.
5 6 In instanc. s where Gulf's cost of service appeared to be in error 7 we were to perfonn studies and make the necessary adjustments to 8 show the appropriate cost of serving the wholesale customer. In 9 addition, we were to study the proposed electric tariff as filed 10 by Gulf in order to consider the justness and reasonableness of the 11 provisions thereof.
12 13 Q HOW DID YOU DIVIDE YOUR FIl01'S ASSIGNMENTS AMONG YOUR DIFFERENT 14 WITNESSES?
15 16 A Mr. Janjai Chayavadhanangkur and Mr. Robert M. Gross, Jr., both of 17 our firm, are also testifying in this proceeding. Mr. Chayavadhanangkur 18 is testifying concerning the proper 115 kV high-voltage level discounts 19 which should be incorporated in the rate as part of the tariff. Ile 20 is also testifying on matters involving demand allocation factors--
21 specifically the allocation of the transmission facilities.
22 23 Mr. Gross has taken the cost of service study presented by Gulf and 24 recalculated it to reflect, from the exhibits and testimony sponsored W/ 25 by Mr. Gross, by myself and by other witnesses in this proceeding, 26 the necessary adjustments to the overall cost of service. In making 27 these adjustments, Mr. Gross has allocated the appropriate portion cf 28 such adjusted overall cost of service to the whoicsale customers.
29 30 Q WilAT WAS YOUR PERSONAL ASSIGNMENE IN TilIS PROCEEDING?
31 32 A My assignment was to review and analyze the tariff provisions proposed 33 by Gulf in this proceeding to determine whether such provisions are 34 proper, just, and reasonabic. As a result of such review and analysis, 35 I have prepared testimony pointing out the defects in the Gulf tariff 36 provisions concerning Fuel Cost Adjustment, concerning Environmental 37 Protection Cost Adjustment, and concerning Termination.
38 39 Q WHAT IATA 11 AVE YOU STUDIED AND Wi!AT STUDIES 11 AVE YOU CONDUCTED IN ORDER 40 TO PREPARE TilIS TESTIMONY AND REIATED EX11IBITS?
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42 A I have reviewed the direct testimony and Period I and II exhibits in 43 Gulf's filing and certain additional information concerning historic 44 and projected operations provided in response to data request made 45 by the FPC Staff and the Cooperative Intervenors in this proceeding.
46 In addition, I have reviewed Gulf FPC Form No. I reports for several 47 recent years, including 1973 and 1974. I have also reviewed the 48 changes proposed by Gulf in certain provisions of the filed tariff, 49 including changes in the rate schedule and general terms and condi-g 50 tions as shown on Exhibit ._(EIA-1), Pages 1 through 9.
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1Q WILL YOU BRIEFLY StRO!ARIKE THE RESULTS OF YOUR FINDINGS.
2 3 A Yes, my studies show the following:
4 5 1. Gulf's proposed Fuel Cost Adjustment Provision does not 6 conform to the requirements o'f.the Commission's Order 7 No. 517, and in'this regard is deficient because of the 8 Company's (a) failure to include nuclear fuel in the fuel 9 cost determination, (b) failure to include fuel costs 10 associated with purchased power, and (c) use of average 11 system losses to adjust sales at the whoicsale icycl.
12 13 2. Gulf's method of accounting for fuel expense and revenue 14 as derived from application of the fuel cost adjustment 15 does not properly reflect the FPC requirements for a 16 matching of revenues and expenses incurred during the 17 test period (Period II), upon which revenue requirements 18 ,are,being determined and rates being established.
19 20 3. Gulf's proposed environmental protection cost adjustment 21 is in direct violation of current FPC practices. In fact, 22 Order No. 517 of Docket No. R-479 rejects the inclusion 23 of environmental cost as a component of an escalatory 24 provision. Gulf's proposed provision on the subject is
\n/ 25 totally unsound and unreasonabic.
j 26 27 4. Gulf's proposed termination *frovision places unreasonabic 28 burdens on the wholesale cur.tomers by holding them liable 29 for certain costs which are not reasonably assignabic to the 30 wholesale customers. Moreover, applying the provision in 31 instances where facilities were constructed and in operation 32 well before the new tariff was filed, would have unfair as retroactive impact on, and implications for the wholesale 34 customers.
35 36 Q PLEASE DESCRIBE GULF'S PROPOSED FUEL COST ADJUSTMENT CLAUSE.
37 38 A The company has proposed the following fuel cost adjustment, (Gulf 39 Exhibit __(ELA-1) Schedule 18, Page 1 of 9);
40 41 "Each monthly bill for service shall be subject to an adjustment 42 based upon the cost of fossil fuel (from Account 151) burned in 43 the generating plants of the Company, The dollar cost of fuel 44 burned during the second month preceding the billing month 45 divided by the total kilowattbours generated during the sam 46 period, will determine the grocs cost per kilowatthour generated.
{ 47 The new fuel cost per kilowatthour generated shall be the gross 48 fuel cost adjusted for losses by multiplying the gross cost by I
49 the ratio that the total energy supply to the system for the 12 j 50 months ending with the second month preceeding the billing month i
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1 bears to the total energy delivery to all customers during 2 the same iariod. Ilills for the second succeeding month will 3 be increased by any excess over, or decreased by any reduction 4 below a net fuel eqst of generation of 10.307 mills per kilo-5 watthour. Any increase or reduced amount of bill shall be 6 further adjusted for the then applicable Florida State Gross 7 Receipts Tax."
8 9 In effect the Corrpany takes the per kilowatthour change in fossil 10 generated fuel cost for the second preceding month, factors in 11 average systen losses apparently for the current twelve-month period, 12 and factors in the State Gross Receipts Tax rate. The result of thie 13 calculation is used as the fuel adjustment factor applicable to kilo-14 watthour sales in the current month.
15 16 Q MR ROGERS, AS A RESULT OF YOUR STUDIES, IIAVE YOU MADE A DETERMINATION 17 AS TO Tl!E ABILITY OF TIIE COMPANY'S PROPOSED FOSSIL FUEL ADJUSDEIR 18 CLAUSE TO REPRESENT ONLY TIIE VARIATION IN CURRENT FUEL COST IGDM Tile 19 BASE FOEL CdST?
20 21 A I have. The fossil fuel adjustment clause proposed by the Company 22 is what I call an " Efficiency Type" clause because it adjusts for 23 changes in fuel costs per kilowatthour from the base period. I agree 24 with the use of this method of determination because it takes into y 25 account changes in system heat rate and, thereby, passes on to the 26 customer the effects of changes in generating efficiency. There are, 27 however, several defects in the proposed fuel cost adjustment. These 28 defects are:
29 30 1. The failure to include nuclear fuel in the fuel cost 31 determination; 32 33 2. The failure to include fuel costs associated with pur-34 chased power; and 35 36 3. The use of average system losses to adjust sales at the 37 wholesale icycl.
38 39 Q PLEASE EXPIAIN WIIY NUCLEAR FUEL COSTS, AND Tile FUEL COSTS ASSOCIATED 40 WITit PURCl!ASED POWER, SIIOULD BE INCLUDED IN Tile FUEL ADJUSTME!E FACTOR
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42 43 A Culf does not presently have any nuclear generation plant either on 44 line or under construction. However, during the next year, Georgia 45 Power Company's Hatch No.1 Nuc1 car Unit and Alabama Power Company's 46 Faricy Nuclear Unit are scheduled to begin commercial operation. At 47 that time Gulf will probably purchase nucicar-generated power frota 48 its sister affiliates at fuel costs that are likely to be lower than 49 its own fossil fuel costs.
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%nl 1 This potential lower fuel cost availability through purchases is 2 particularly important to the wholesale customers since it would 3 lower the overall fuel costs chargeabic to them by Gulf under the 4 Company's fuel adjustmenp clause. Gulf, however, has failed to 5 include fuct cost associpted with purchases in its fuel cost 6 determination.
7 8 Rather the Company has assigned only its own fossil fuel costs 9 per kilowatthour as the fuel cost per kilowatthour attributable 10 to energy purchases. This method of assignmet.t will result in reli-11 able operation of the fuel. clause only in the unlikely event that the 12 Company's fossil fuel cost per kilowatthour is equal to the fuel 13 cost per k:.lowatthour assignable to purchased power. This defect 14 together w:.th the Company's failure to incorporate nuclear fuel 15 costs in the fuct adjustment determination, may very well have a 16 detrimental effect on the wholesale rate payers of Gulf in the 17 future. This follows because Gulf's internally generated fuel cost 18 per kilowatthour may be significantly higher than the fuel cost 19 associahed 01th purchased power.
20 21 This result can be illustrated with this simple example. Let us 22 assume that Company "A", with only fossil fuel generation, generates 23 half its total sales in Company plants with a fossil fuel cost of 24 8 mills per kilowatthour. Let us further assume that Company "A" (ed 25 purchases the other half of its total sales from Company "B", whose 26 fuel cost is 6 mills per kilowatthour. Obviously, the composite 27 cost of fuel for Company "A" is 7 mills per kilowatthour. Thus, 28 any recovery of increased expenses based solely on the Company's 29 fuel cost of 8 mills per kilowatthour would not produce an accurate.
30 and a reliable result. In these circumstances, whenever purchased 31 power cost per kilowatthour increases while Company fuel cost per 32 kilowatthour decreases, an undercharge would result. Inversely, 33 when purchased power fuel costs are less than Company generation 34 fuel cost per kilowatthour, the company would recover more than the 35 actual increased cost to which it is installed.
36 37 As pointed out by the FPC Staff (Testimony of R. Tindall, Page 9, 38 Lines 22-25), in 1974 Gulf was a net seller of power through inter-39 change. Purchases that Gulf made in 1974 were netted out by a higher 40 level of sales to interconnected companics. The situation is subject 41 to change, however, and as of the three months ending March 1975, 42 Gulf has become a net purchaser of power by incurring 256,760,902 43 kilowatthours of net purchases for the year to date. This amount 44 represents 24.3% of Gulf's total energy output for that period.
45 (See Gulf Power Company Operating Report, March 1975, Schedule 3.)
46 The bulk of the net purchased power is Economy Energy purchased at 47 an average total cost of 11.815 mills per kilowatthour, This is 48 lower than Gulf's internally generated fuel cost of 12.337 mills per 49 kilowatthour by approximately one-half mill per kilowatthour.
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Nm) 1 For these reasons, both nuclear fuel costs and the fuel costs 2
associated with purchased power should be included in the Company's 3 fuel adjustment factor determination.
4 5Q DOES YOUR ANALYSIS DISCLOSE ANY OTHER DEFECTS IN CULF'S FUEL 6 C LAUSE?
7 8A Yes. Gulf has made no provision in its fuel cost adjustment clause
- 9 for recognizing the difference in losses associated with service to 10 the various classes of customers. The failure to make such a pro-11 vision results in charges to the wholesa,1c customer which should be 12 borne by the retail customer. When Gulf elects to use total sales 13 as its "per kilowatthour" cost determinant, all losses are included 14 in the cost determination. This is clearly demonstrated in Statement 15 "0", Line 8 and 9, where the delivered efficiency ratio (12-month 16 average) shows an average system loss of 9.361%. This loss is the 17 average annual loss for the total system, including transmissis a and 18 distribution losses.
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- 20 The average losses for the total system are always greater than losses 21 ' associated with the wholesale sales-for-resale standing alone. This 22 is because total system losses include losses in distribution facili-23 ties which are used to serve retail customers but which are not used 24 in serving wholesale customers. Gulf's Statement "M" Energy A11oca-(,j 25 tion Factor is based on average whoicsale losses of 6.26 (Statement "M",
26 Page 4 of 22, Period II). Using Gulf-supplied figures, one can con-27 clude that 1.0934 kilowatthours are necessary at the generation icyc1 28 to deliver one kilowatthour at the distribution level while only 29 1.0626 kilowatthours must by generated to deliver one kilowatthour 30 at the transmission level. This comparison shows that approximately 31 four percent more kilowatthours ue required at the generation icyc1 32 to deliver energy to a customer at the retail (distribution) Icvel 33 than are required to deliver a like amount of energy at the wholesale 34 sales-for-resale level.
35 36 In short, the use of the average system losses in Gulf's fuel clause 37 results in a double charge for wholesale customers. Wholesale custo-38 mers must (1) account for distribution losses within their own systens
39 and then (2) pay Culf for the total system distribution losses that 40 are imputed to the wholesale customer in Gulf's present fuct adjust-41 ment clause. ,
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! 43 To account properly for losses at the wholesale level, the Company i
44 fuel adjustment formula should be multipiled by the following ratio:
45 l 46 one minus average system losses expressed as a decimal fraction j 47 one minus losses at the transmission level expressed as a decimal fraction 48 49 Q PLEASE EXPIAIN THE FUEL COST ADJUSTMENT CLAUSE CONTAINED IN THE C00PERA-50 TIVES' EXHIBIT (OFR-1).
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V i 1A The fuel clause contained in the Cooperatives' Exhibit (OFR-1) 2 fully conferms to the requirements of Commission Order No. 517 3 concerning fuel adjustment clauses in wholesale rate schedules.
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5 I have defined the adjustment factor as the difference between 6 the fuel ccst per kilowatthour of sales in the base period, dif-7 ferences multiplied by an appropriate factor to reflect trans-8 mission losses only. These fuel costs are defined to include 9 fossil and nucicar fuel consumed for the purpose of supplying 10 energy to the utility's whoicsale customere. Recognition of inter-11 system energy purchases and exchanges is provided by the exclusion 12 of fuel costs incurred because of inter-system energy sales and by 13 the inclusion of the fuel cost of energy purchases from other gystems.
14 Salas are defined to include all kilowatthours sold excluding inter-15 system sales.
16 17 Q MR. ROGERS, WilAT DEFECT IIAVE YOU FOUND IN GULF'S FUEL COST RECOVERY 18 FROM ITS SALES TO COOPEIMTIVES TilROUGil TIIE FUEL ADJUSTMEh'f CLAUSE.
19 20 A As I have previously mentioned, the Gulf Wholesale Fuel Cost Adjust-21 ment Provision is based upon the average cost of fuel during the 22 second month preceeding the hilling month. Because of the lag between 23 the cost of fuel purchase during the second mo-th precceding the bil-24 ling month and the billing month itself, Gulf experiences a revenue
(,) 25 deferral during months in which fuel costs increase. During Periods 26 I and II Gulf has experienced an increase in its cost of fuct and 27 therefore over this period of time has realized a deferral in fuel-28 related revenue through operation of this fuel clause on sales to its 29 cooperative customers.
30 31 Q IIAVE YOU PREPARED AN EXIIIBIT WilICl! SIIOWS AN ESTIMATE OF Tile DEFERRAL 32 IN REVENUE?
33 34 A Yes, I have prepared Exhibit (OFR-2) which shows the deficit in 35 revenues that Culf receives through the operation of its fuel clause 36 on sales to cooperatives in Period II. This Exhibit was prepared to 37 demonstrate the effects on fuel revenue of Gulf's failure to properly 38 match revenues and expenses incurred during the test period (Period II),
l 39 under the application of the Fuel Cost Adjustment Clause to its coopera-40 tive customers.
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42 Column a of Page 1 of Exhibit (OFR-2) shows the kilowatthours of 43 Purchases during Period II by cooperative customers, Colurm b shows 44 the Fuel Cost Adjustment Clause charge as applied by Gulf and Colu=n c 45 shows the resulting dollars derived therefrom as booked revenue.
46 Colurm d shows the Fuel Cost Adjustment Clause charge utilizing the 47 actual curcent month fuel expense per kilowatthour, and Column e 48 shows the resulting dollars from such application and recovery. Column 49 f shows the difference between Gulf's lagging fuel cost recovery and 50 a current cost recovery--the difference between Column a and Coluem d--
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1 resulting :.n increased fuct revenues for Period II of $122,154, 2 as shown ou Line of Exhibit (OFR-2), which shouM be credited 3 to the cooperatives.
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5 Obviously, the revenue deficit amount projected for 1975 is an 6 abnormal occurence caused by a simple failure to recognize revsnues 7 on a current basis. Failure to match revenues and expenses correctly 8 by disregarding such deficits and excesses for rate-making purposes 9 constitutes an unjustified deviation fron actual accounting methods 10 utilized for cost of service purposes.
11 12 It in acknowledged that Gulf sustains a lag in the collection of 13 revenues under the fuel cost adjustment via the application of a 14 charge based on cost experienced in a second precceding month. How-15 ever, this does not change the fact that these revenues will be col-16 lected by Gulf and that they should properly be paired with Period II 17 fuel expenses. Therefore, these fuel revenues should also be included 18 in the total Period II fuel revenues.
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19 20 Accordingly, it is my firm recommendation that an adjustment be made 21 to the entry for sales to cooperative customers in Gulf's cost of 22 service by increasing revenues to the cooperative customers in the 23 amount of $122,154 to normalize the test year (Period II).
24 g' 25 Q PLEASE DESCRIBE CULF'S ENVIRONMENTAL PROTECTION COST ADJUSW ENT.
26 27 A Gulf proposes the following (Culf Exhibit (ELA-1), Schedule 10, j 28 Page 3 of 9):
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30 "The energy charge per kilowatthour shall be increase $0.00001 j 31 (1/100 of a mill) for each $0.00001 (1/100 of a mill) per kilo-32 watthour of costs associated with the expenditures for non-33 revenue producing environmental protection facilities made after 34 December 31, 1975.
35 36 Such costs shall be detennined as the total cost of environmental 37 protection during the month prior to the current month including 38 expenditures for actual operation and maintenance expense (including 39 labor and related fringe benefits), depreciation, taxes, loss of 40 output and the total cost of capital at current enbedded costs of 41 long-tena debt and preferred stock and at common equity cost last
. 42 approved by the Federal Power Commission, divided by total kilo-I 43 watthour generation. Such increase in the energy charge shall 44 be adjusted for taxes which are based upon gross receipts.
45 46 The actual adjustment applicabic shall be determined in accordance 47 with the formula which appears on Original Sheet No.11A of this 48 tariff."
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V LQ MR. '. 0CERS, RWE YOU FORyD A CONCLUSION AS TO SUCll A PROVISION 2 IN LtGilT OF TIIE COMPANY'S EXPRESSED REASONS 10R INCORPORATING 3 TIIIS l'ROVIS10N?
4 5A Yes, I have. Culf Witness Edward Addison states (Testimony, Page 17) 6 that the company has proposed this escalatory provision solely to 7 (1) vividly indicate to the customer his cost for environmental pro-8 tection, and (2) to help achieve base rate stability and thereby to
- 9 postpone or reduce the need for future wholesale rate filings. It 10 is nonsensical for Gulf to justify the inclusion of such a provision.
11 Furthermore, recouping environmental costs through an escalaroty pro-12 vision framework has been rejected by the Federal Power Commission 13 in Order 517. The Commission there states that such costs are ade-14 quately covered through the use of the future-test year concept--a 15 concept which Culf is actually utilizing in this docket. This speci-16 fic clause has also been denied by the Florida Public Service Commis-17 sion in Order No. 6650, concerning Gulf Power Company's Retail Rate 18 Filing (Docke,t No. E-74437-EU).
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20 Gulf Witness Addison also states that the Environmental Protection 21 Adjustment will operate similar to the existing fuel cost adjustment,
, 22 by permitting recovery of costs associated with non-revenue producing 23 environmental protection facilities such as cooling towers, precipt-24 tators or sulfur dioxide scrubbers (Testimony, Page 17). But this
(,/ 25 comparison between fuel cost and the cost of environmental protection 26 facilities is not valid. Gulf Power Company's fuel costs amount to 27 over one-half of the total cost of service. Furthermore, monthly fuel 28 cost variations have been very volatile, with fuct cost fluctuations 29 having a significant impact on Gulf's carnings. This works to the 30 detriment of the rate payer or the utility depending upon the direction 31 of movement, since the fuel adjustment clause tracks both fuel cost 32 increases as well as fuel cost decreases.
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34 By contrast, cost range of environmental protection facilities certainly 35 is known for a considerable period in advance. Morcover, the probabi-36 lity of the costs of environmental protection facilities changing 37 dramatically from one monthly period to the next is extremely remote 38 if not non-existent. Environmental protection facilities must first 39 he planned and engineered, and then constructed; they require consid-40 crable lead times to plan and construct. Therefore, Gulf is well aware 41 of the costs of such facilities long before ' ach costs are incurred 42 and, such costs can be factored into future test year projections much 43 as Culf is doing in this docket.
44 45 In summary, as a rate making device the proposed environmental cost 46 adjustment provision, even if mechanically sound, which it is not, and 47 cven if capable of precisely recovering the incremental cost associated 48 with environmental protection facilities, which it is not, is an un-49 reasonabic tool because:
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O 1 1. It tracks only one category of costs, in only one direction, 2 thereby circumventing the Commission from fulfilling its 3 regulatory responsibilities; 4
5 2. It is contrary to the current Commission practice of using 6 the forward-looking test year, since the costs to be tracked 7 are known well beforehand and are not subject to volatile 8 monthly change; and 9
10 3. It is certainly unreasonable to justify such an escalatory 11 devise on the ostensibic basis that it is necessary to 12 " vividly" demonstrate what Gulf considers to be the high 13 cost of pollution abatement facilities.
14 15 Q MR. ROGERS, IN ADDITION TO Tile REASONS SET FORTil ABOVE, FOR REJECTING 16 Tile ENVIRONMENTAL COST PROVISION, IIAVE YOU ALSO, IN CONNECTION WITll 17 YOUR STUDY INVESTIGATED TllE CAPABILITY OF TIIE COMPANY'S PROPOSED 18 ENVIRONMENTAL COST PROVISION 10 RECOVER ACCURATELY INCREASED COST 19 ASSOCIATED WIrli SUCl! FACILITIES?
20 21 A I have.
22 23 Q WILL YOU PLEASE GIVE US TIIE RESULTS OF YOUR INVESTICATION.
24 25 A The deficiencies of this provision are numerous. Without making k" 26 a comprehensive list of all the defects, I can state that those defects, 27 which are blatantly obvious on preliminary investigation are as follows:
28 29 1. The clause essentially seeks to recover demand related 30 fixel costs through an energy cosc adjustment per kilowatt-
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31 hour. Demand related fixed cost : icd to an energy adjust-32 ment factor obviously provides unequal treatment between 33 low load factor and high load factor customers. The pro-34 vision could therefore be held discriminatory since it can 35 tot produce a charge properly reficcting the cost responsi-36 1111ty for all types of consumer loads.
37 38 2. 1hc " loss of output" cost calculation as shown on Exhibit 39 (ELA-1) Schedule 10, Page 9 of 9, Item 5, would calculate in 40 t loosely defined manner the additional costs associated with 41 c decrease in plant capacity and generating efficiency as 42 rpplied to Rate Schedule RE-1 for whoicsair service. The 43 l ogi.: of this adjustment escapes me. If the capability and 44 :vailability of Company owned generation capacity and energy 45 ( ccreased because of the addition of EPA facilitics, then .
46 such decrease must be replaced either by purchases from 47 neighboring utilities or by the addition of new generating 48 capacity. But such cost would not have any relation to Culf's 49 formula derived to estimate loss of output costs. In fact,
( 50 tlye loss of output cost calculation could produce an overcharge,
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g:.ven that such additional production costs are recoverable 2 in t.he base rata through normal filing practices.
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4 3. Item 6 of the Company's formula on Schedule 10, Page 9 of 9, 5 attempts to establish the cost of capital incurred in finan-6 eing environmenpal protection facilities. The overall cost 7 of capital component applied to total expenditures to date 8 for environmental protection facilit'ies would obviously pro-9 duce an overcharge for such capital costs. There is no pro-10 vision to deduct the accumulative reserve for depreciation 11 that will exist subsequent to the facilities being placed 12 in service. Gulf would, in effect, be receiving a much higher 13 return on equity capital than that shown in the formula.
14 15 4. In the same regard, the provision contains no component for 16 recognition of Federal and State Income Taxes. Nor does it 17 represent the actual net cost of long-term debt and pre-18
' ferred stock availabic because of the full or partial deducti-19 bifity of such costs from Federal and State Income Tax lia-20 bilities.
21 22 5. The provision is unclear as to the term " expenditures to 23 date". This loosely-defined term could be interpreted to 24 mean expenditures for such facilities well before the fac-(,j 25 111 ties become commercial and cleared to plant-in-service.
26 This is clearly in violation of present FPC practices, where-27 by construction work in progress is prohibited as a rate base 28 addition.
29 30 6. As is the case with the Company's proposed fuel cost adjust-31 ment provision, the Company attempts to use average system 32 losses to adjust sales at the wholesale level. I have pre-33 viously shown that this results in an overcharge to the whole-34 s.tle customer.
35 36 These obvious defects demonstrate that this provision vill not recover 37 on a dollac per dollar basis Gulf's incremental cost associated with 38 environmental protection facilities installed subsequent to December 39 1975. Indled, the provision would probably result in an overcharge 40 to the cus:omer, particularly af ter the facilities had been in service 41 for a period of time. It is hard to conclude that Gulf is advocating 42 such a pro /ision, for any reason other than as a public relations ploy.
43 44 Q MR. ROGERS, IIAVE YOU FORMED A CONCLUSION AS '1D TIIE REASONABLENESS OF 45 Tile COMPAN('S PROPOSED TElelINATION PROVISION AS sit 0WN ON EX11IBIT 46 (EIA-1), SCllEDULE 10, PAGE 7 0F 9?
i 47 48 A Yes.
49 50 Q WILL YOU PLEASE STATE YOUR CONCLUSIONS.
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Y l A Gulf's pr(sent terms and conditions of wholesale service establish 2 potential termination charges applicable to the. wholesale customer 3 whenever such customer terminates service at an existing point of 4 delivery. Through its revised filing, Gulf now s'ecks to increase 5 significantly the exposure of the wholesale customer to such charges 6 by creating a new set of circumstances which trigger the charge 7 formula and also by significantly expanding the definition of faci-8 lity investments for which the wholesale customer is to be held 9 ultimately responsible. This expansion, particularly in two areas, 10 constitutes an unreasonable burden on the wholesale customer.
11 L2 Q MR. ROGERS, PLEASE DISCUSS IN DETAIL THESE TWO FEATURES OF GULF'S 13 PROPOSED LEGUAGE WHICH YOU CONSIDER TO BE UNREASONABLE.
14 15 A Gulf, first of all, is now proposing to hold the wholesale customer 16 liable for the cost of certain Company facilities whenever the 17 wholesale customer desires to reduce the contract capacity at an 18 existing de, livery point. Previously, Gulf has had the right to 19 apply a termination charge to a wholesale customer only in cases of 20 wholesale customer delivery point termination. Gulf is now proposing 21 to apply the same charge formula whenever the wholesale customer desires 22 a lower contract capacity at an existing delivery point. Conceivably, 23 any normal load switching between delivery points would trigger the 24 penalty mechanism in the provision and require the wholesale customer
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(,) 25 to make payment to Gulf for facilities considered by Gulf to have been 26 idled--i.e., not used and useful in--as a result of the reduction in 27 contract capacity demand.
28 29 As pointed out by Ultness Parish, the normal upgrading of wholesale 30 service and coordination between wholesale supplier and wholesale custo-31 mer results from time to time, in the transfer of whoicsale load be-32 tween points of delivery. Under its proposed termination clause, in 33 the event of such a transfer of load Gulf would be able in a variety 34 of circumstances to, impose arbitrarily an unreasonable charge on a 35 wholesale customer. For example, it may be advantageous to Gulf to 36 allow such facilities to become idle by retiring them prematurely 37 and either install new delivery points or upgrade service at existing 38 delivery points as part of its responsibility to provide reliabic 39 service. Similarly, the idled facility may be inactive only for a 40 short period of time until Gulf transfers other loads to the facility 41 or incorporates such facility into productive operation at some later 42 date. It is difficult to conceive of a situation in which a reduction 43 in contract demand could produce idle facilities, since some propor .
44 tion of the previous load would remain of the facility, thus contin-45 uing productive utilization. Furthermore, the application of this 46 feature of the provision could be subject to considerabic dispute 47 over just what constitutes idled facilities.
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49 Q MR. ROGERS, DO YOU HAVE OTilER OBJECTIONS TO CULF'S TERMINATION PROVISION?
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Y 1A Yes. Additianally, Gulf is also greatly expanding the definition of 2 its facilities in a manner that would excessively inflate the charge 3 to the wholesale customer in cases where the termination provision is 4 evoked. If the wholesale customer terminates service at a particular 5 delivery point or decreases the contract capacity at a particular 6 delivery point, then the Company would have the right, under its pro-7 Poaed language, to charge the wholesale customer the undepreciated 8 book cost of any facility Gulf considers to have been rendered idle.
9 In contrast, the present terms and conditions expose the wholesale 10 customer only to the costs associated with facilities installed with-11 in five years of the date of termination.
12 13 The expansion of the wholesale customer? s liability in this regard is 14 particularly unreasonable. The proposed language allows Gulf to apply 15 the provision retroactively to facilities employed for up to thirty-16 three years of service. It is completely erroneous to assume that 17 investeents made by Gulf Power Company so many years ago should now 18 be the sole responsibility of the wholesale customer. These invest-19 ments made bi Gulf could have been originally in contemplation of 20 retail and wholesale loads that have since become outdated. To burden 21 the wholesale customer with the cost of such investments simply because 22 a pole, transformer, or line is deemed to have been idled (or partially 23 idled)as a result of certain circumstances fails to recognize the fact 24 that these facilities may have been placed into service initially for
(,) 25 other reasons.
26 27 It is obviously unreasonable for Gulf to seek to hold the wholesale 28 customer responsible for the Company's dated investment in facilities 29 that were originally designed and constructed to provide service 30 to loads other than wholesale. The present terms and conditions on 31 file allow Gulf to recover the cost of investment installed during 32 the preceding five years. This certainly provides Culf with sub- (
33 stantial protection against potential loss occurring through whole-34 sale service termination, since it produces a termination charge consis-35 tant with the five year contract commitment.
36 37 Q MR. ROGERS, DO YOU IIAVE AN EX11IBIT TilAT SIIOWS YOUR PROPOSED CIIANGES IN 38 TllE COMPANY'S FILED TERMINATION PROVISION 9A?
39 40 A Yes. The Cooperative Intervenors Exhibit (OFR-3) contains my re-41 visions of the Company's provision 9A on termination.
42 43 Q PLEASE EXPIAIN TilIS EX11IBIT. .
44 45 A The Cooperative Intervenors' Exhibit (OFR-3) revises the company's 46 Proposed language on termination by (1) eliminating the basis for 47 charges resulting from delivery point contract demand reduction, and ~
48 (2) changing the definition of Gulf's facilities that are potentially 49 chargeabic to the wholesale customer in case of ' delivery point termination.
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1 The language establishirig charges to the wholesale customer in cases 2 of reductian in contract demand is deleted entirely because it can 3 be arbitrarily applied in situations where necessary load transfers 4 between delivery points are made in the course of normal utility 5
coordination between Gulf and its wholesale customer.
6 7 Likewise, Gulf's definition of the cost which' may be chargeabic to 8 the wholesale customer as a result of termination is changed back 9 to the present language which covers facilities installed during 10 the preceding five years--rather than during the unreasonable thirty-11 three year period now proposed by Gulf.
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