ML19308A413

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Testimony in Response to Tx Utils Generating Co & Houston Lighting & Power First Set of Interrogatories
ML19308A413
Person / Time
Site: South Texas, Comanche Peak  Luminant icon.png
Issue date: 08/01/1979
From: Gross R
GEORGIA POWER CO.
To:
Shared Package
ML19208C305 List:
References
ER76-587, NUDOCS 7909260233
Download: ML19308A413 (7)
v • d • e


Text

c a GEORGIA POWER COMPANY FPC DOCKET NO ER76-587 PREPARED TESTD10NY OF ROBERT M. CROSS, JR.

IQ PLEASE STATE YOUR NAME AND ADDRESS.

! 2

3A My name is Robert M. Gross, Jr. My business address is 1000 Crescent 4 Avenue, N. E. , Atlanta, Georgia 30309, 5

6Q WilAT IS YOUR EDUCATIONAL 3ACKGROUND?

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

  • 10 Georgia State University and in 1971 received the degree of Master l' of Business Administration, majoring in finance.

1?

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 utilities, rural electric 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 l! AVE YOU EVER TESTIFIED IN OTilER C0miISSION PROCEEDINGS?

24 25 A Yes, I have testified as a rate expert and cost of service witness f 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 Ut,ilities Company, FPC Docket No. E-8121; Gulf Power Company, FPC 32 Docket No. E-8911; Appalachian Power Comnany, FPC Docket No. E-9101; L 33 Virginia Electric & Power Company, FPC Docket No. E-9147; Arizona 34 Public Service Company, FPC Docket No. E-8624; Public Service 35 Company of Indiana, Inc. , FPC Docket Nos. ER76-149 and E-9537; and 36 Georgia Power Company, FPC Docket No. E-9091, and FPC Docket Nos.

37 E-9521 and E-9522, 38 L 39 Q BY WlIOM IS SOUTHERN ENGINEERING COMPANY RETAINED IN THIS PROCEEDING?

40 41 A Southern Engineering Company is retained by Oglethorpe. Electric

'42 Membership Corporation (OEMC). Witnesses Springs, Ewert, Solomon, 43 11111 and I will be Oglethorpe E1cetric Membership Corporation's 44 witnesses in this proceeding.

45 46 Q WOULD YOU PLEASE SUmfARIZE THE TESTIMONY THAT WILL BE GIVEN BY OEMC'S 47 WITNESSES IN THIS PROCEEDING.

48 49 A Yes. Dr. Ewert provides testimony on the capital cost of Georgia 50 Power Company (CPC). Mr. Springs' testimony is primarily concerned s

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( 1 with the expense classification of Georgia Power Company's Southern 2 Company Pool transactions for the test period and the impact such I 3 classifications have on the partisi requirements rates. Mr. 11111 4 provides testimony concerning the Company's filed Partial Require-5 ments Tariff Provision pertaining to Cuttomer Contract Capacity.

6 Mr. Solomon is responsible for the allocction of expenses and invest-7 ments to the categories of partial requireaent service.

8 i 9Q WHAT WAS YOUR ASSIGNMENT IN TIIIS PROCEEDING?

10 11 A My assignment was to determine whether the method employed by GPC for 12 Period II to develop the allocated cost of service with respect to 13 OEMC uas proper. Secondly, I was to determine if the Company's pro-14 cedures used to establish partial requirements rates by category were

i. 15 just and reasonable.

16 17 Q WilAT DATA IIAVE YOU REVIEWED IN PREPARING YOUR TESTIMONY AND RELATED 18 EXilIBITS?

19 20 A I have reviewed those portions of the Company's filing which relate L

21 to its cost of service studies and subsequent partial requirements 22 rate design, including the testimony and exhibits of GPC's witnesses 23 and other information which GPC supplied in response to FPC Staff and 24 various Intervenor request for data.

25 26 Q WOULD YOU PLEASE SUIDIARIZE OEMC'S POSITION WITII REGARD TO TIIE PARTIAL

\ (. 27 REQUIREMENTS RATES AND BILLING TECHNIQUES FILED BY Tile COMPANY IN THIS 28 PROCEEDING. -

29 30 A The testimony that OEMC files in this proceeding is directed toward 31 errors and inconsistencies found in GPC's initial filing. Generally

'2 OEMC has found that Georgia Power Company has significantly overstated 33 the cost of providing service to OEMC as a partial requirements cus-34 tomer. This overstatement in costs has produced a revenue requirement 35 resulting in partial requirements rates which are cicarly excessive.

36 In addition as pointed out in the testimony of Mr. Springs and Mr.

37 11111, the Company's proposed tariff language pertaining to Contract 38 Capacity places an unreasonable burden on OEMC and is cicarly inconsistent i with the allocated cost of service.

39 40 41 Q WOULD YOU BRIEFLY SUMMARIZE Tile CONCLUSIONS WHICll YOU AND Tile OTHER 42 WITNESSES FOR OEMC IIAVE REACllED AS A RESULT' OF STUDYING GPC'S COST 43 0F PROVIDING PARTIAL REQUIREMENT SERVICE AS SIIOWN IN STATEMENT "M" 44 AND SUPPORTING EXIIIBITS.

45 46 A The cost of service studies presented by the Company in this pro-47 ceeding significantly overstate the cost of providing partial require-48 ments service to OEMC. The follnwing major errors have been made by 49 GPC in its Period II cost of service study necessitating adjustments:

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1 L

1 1. As testified to by Fx. Solomon, GPC included in its rate 2 base excessive amounts for cash working capital.

3 4 2. As testified to by Mr. Solomon, GPC does not properly 5 allocate the administrative and general expenses to 6 functional categories.

7 8 3. As also testified to by Mr. Solomon, GPC improperly I 9 allocated certain sales expense and related investment 10 to ODIC.

11 12 4. As testified to by Mr. Springs, GPC has incorrectly 13 classified certain test year purchased power expenses 14 (Account 555) associated with GPC's transactions with the 15 Southern Company Pool.

16 17 5. Finally, I have found that GPC has not correctly allocated 18 to OEMC the investment and expenses reinted to production 19 plant and stepup substation facilities for the test year.

20 21 Q I IIAND YOU OEMC EXIIIBIT NO. (RMG-1) PAGES 1 TIIROUGli 4fAND ASK IF 22 TilIS EX11TDIT WAS PREPARED UNDER YOUR SUPERVISION?

23 24 A Yes.

25 (k 26 Q WOULD YOU PLEASE EXPLAIN Tile PURPOSE OF PAGE 10F TilIS EX111 BIT?

27 28 A Page 1 shows the changes to the Company's filed Statement "M" page 1 29 for Period II occasioned by the OEMC adjustments previously 30 referenced. As shown on line 2, income earned by the Company on partial 31 requirement sales to OEMC during Period II results in a 9.11% rate of I

32 return under the present partial requirements rate "PR-1" and a 12.58%

33 rate of return under the proposed partial requirements rate "PR-2".

l 34 35 Q WHAT IS Tile PURPOSE OF TIIE REMAINING THREE PAGES OF OEMC EXIIIBIT NO.

36 (RMG-1)?

37 38 A The remaining three pages of this exhibit show the methods b 39 that I h' ave used to allocate CPC's rate base ~ investment 40 and expenses, excluding fuel costs, related to partial requirement 41 service.

42

, 43 Q WOULD YOU PLEASE EXPLAIN Tile MET 110DS USED TO ALIDCATE TilESE COSTS AS 44 S110NN ON PAGES 2 TilROUGli 4 0F OEMC EXIIIBIT NO. (RMG-1).

45 46 A Yes. Page .4, line 1 of this Exhibit shows GPC's net rate base invest-i i 47 ment in production and stepup substation facilities separated into 48 base, intermediate, peaking and reserve categories. Likewise, capacity 49 related operating expenses associated with production and stepup sub-50 station facilities are shown on line 8 separated into these same categories.

t

t s

Al 1 This separation was provided by IL. Solomon as shown in OE!!C Exhibit No.

(- 2 (JBS-1) pages 2 and 6 4 3 ,

4 I have analyzed these rate base investments and operating expenses 5 by category to determine the amounts from each category that are 6 assignable to other categories for reserve purposes. This reserve 7 assignment follows the partial requirements billing procedure used 1

8 by the Georgia Power Company to establish reserve cost by category

? 9 in compliance with the Partial Requirements Service Tariff Original 10 Sheet No. 7 " Determination Of The Capacity Reserves" as filed in ~

11 Docket E-9521. The result of the calculations contained on page 4

{ 12 show that of the total net rate base investment in production and i

13 stepup substation facilities of $1,582,728,420, $931,956,741 is 14 related to a base load function, $426,554,319 is related to an inter-A 15 mediate load function and $224,317,360 is necessary to meet peaking 16 requirements.

17

, 18 Likewise, of the total system, capacity related operating .

. 19 expenses associated with production and stepup substation facilities

! 20 of $152,153,707, $88,747,827 is required to service base loads, ,

N 21 $45,245,096 is required for inter =ediate loads, and $18,161,584 is '

22 associated with the peaking load category.

I 23 24 Q WHAT IS THE PURPOSE OF PAGE 3 OF THIS EMIIBIT?

25

.l f 26 A Page 3 shows the method used to allocate to OEMC production related x 27 rate base and expenses. Rate base investment and capacity related 28 Operating expenses associated with production and stepup substation 29 facilitics are allocated by category, based on category capacity

30 allocation factors applicable to OEMC taken from page 2. I have 31 used the same overall loads to develop these allocation factors as 32 used by the Georgia Power company in their cost allocations contained 33 in Statement "M". *

! 34 l 35 Production energy related expenses (non-fuel) are allocated to OEMC 36 on the basis of OEtIC's megawatt hour purchases projected for the test 37 year as a percent of total system megawatt sales at the B-1 level.

38 A 39 Q WOULD YOU PLEASE SUl@IARIZE OEMC'S ADJUSTMENTS TO GEORCIA POWER l

40 COMPANY'S FILED STATEMENT "M" FOR PERIOD II.

41 42 A After incorporating the adjustments to system expenses and investments 43 as covered in the testimony of Mr. Springs and Mr. Solomon, I have

! 44 prepared a cost allocation for partial requirements service to OEMC 45 reficcting specifically the amounts of base, intermediate, peaking

! 46 and reserve purchases by OEMC during the test year using loads 47 estimated by the Georgia Power Company. This method di ffers from

48 the cost allocation method used by the Coorgia Power Company. The i 49 Company allocated all production capacity related costs lump sun; 50 whereas I separated such production costs by category and then l

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- -n - - - - , - . . -,, -. ,. . , . . , , - , ,- ,

P' 1 011ocated the cost associated with each category separately.

2 3

4Q WIIY IS IT NECESSARY TO ALLOCliTE PRODUCTIO:! NID STEPUP SUBSTATIGI 5 COST SEPARATELY BY CATECDRY?

6 7A The Georgia Power Company's proposed partial requirements rates 8 reflect category pricing. In c der to properly measure the adequacy 9 of revenues produced by these partial requirements rates as applied 10 to OEMC loads, a more precise method of production and stepup substa-11 tion cost allocation must be used to determine the allocated cost of 12 service. I believe that this more detailed cost allocation procedure 13 cesults in a more accurate measure of the Georgia Power Company's cost 14 of providing partial requirements service to OEMC.

15 16 Q I 11N4D YOU OEMC E}3!IBIT NO. (RMG-2) PAGES 1 AND 2 AND ASK IF TIIIS 17 E}3IIBIT WAS PREPARED UNDER YOUR SUPERVISION?

18 19 A Yes.

20 21 Q WOULD YOU PLEASE DESCRIBE BOTH PAGES OF THIS EXHIBIT?

22 23 A Yes. This exhibit reflects the changes that I believe are necessary 24 to the Company's filed statement "P". The purpose of statement "P" 25 is to show the development the rate pricing, in this case partial 26 requirements rate pricing.

( 27 28 Page 1 of OEMC Exhibit No. (RMG-2) shous the determination of the 29 partini requirement capacity charges by category. I have made certain 30 adjustments to the company's filed statement "P" to reficct the following:

31 32 1. The change in the peak hour capability by category as shown on 33 OEMC Exhibit No. (RAG-3) page 1.

34 35 2. The revised net rate base investment in production and stepup 36 substation facilities as shown on OEMC Exhibit No. (JBS- 1) .

37 38 3. The revised capacity related operating expenses as shown on 39 OEMC Exhibit No. (JES- 1) .

40 41 4. The change from the Company's requested rate of return of 42 11.01% to Dr. Everts' recommended rate of return of 9.29%.

43 44 Q WOULD YOU PLEASE E}7 LAIN' TIIE PURPOSE OF PACE 2 0F OEMC E}311 BIT NO.

45 (RMG-2)?

46 47 A Yes, Mr. Solomon on OEMC Exhibit No. (JBS-1) separated production 48 related expenses of the Company in to capacity related expenses, energy 49 related expenses (non-fuel) and fuel expense. The Company's proposed 50 PR-2 capacity charges contain capacity costs as well as non-fuci energy s

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I rel,ated costs. Since there is a significant amount of operating expense 2 that is a function of kilowatt hour output rather than peak hour demand, 3 I believe that these costs can be recovered in more equitable fashion 4 from partial requirements customers housed in an energy charge rather 5 than in the capacity charge. For that reason I am proposing that the 6 partial requirements pricing reficct not only capacity charges but also 7 a flat charge per kilowatt hour to recover non-fuel energy related 8 expenses. As shown on page 2, a charge of 0.46 mills per kilowatt hour 9 on bach kilowatt hour of partial requirements sales is required to 10 achieve this pricing concept.

11 12 Q I IIRiD YOU OEtfC EXIIIBIT NO. (RMG-3) CONSISTING OF SIX PAGES AND 13 ASK IF TIIIS EXIIIDIT WAS PREPARED UNDER YOUR SUPERVISION 7 14 15 A Yes. This exhibit calculates OEMC's monthly capacity payments for 16 partial requirements services for the test year using the OEMC proposed 17 unreserved category capacity charges from revised Statement "P".

18 19 Q llAVE YOU USED Tile SAME GENERAL PROCEDURE TIIAT Tile CEORGIA POWER COMPANY 20 USED TO DETERMINE OEMC CAPACITY CIIARCES FOR Tile TEST YEAR UNDER TIIE 21 PARTIAL REQUIREMENTS RATE CONCEPT.

22 23 A Yes, I have used generally the same procedure, but with certain minor 24 adjustments required to be consistant with previous testimony.

25 26 Q WOULD YOU PLEASE EXPLAIN EACll PAGE OF OEMC EXilIBIT NO. (RMG-3) s 27 EMPIIASIZING TIIOSE AREAS OF Tile PROCEDURE k"dERE ADJUSTMENTS WERE MADE.

28 ,

29 A Page 1 shows the Integrated System Resource Classification List for 30 partial requirements billing purposes. The stacking of Georgin Power 31 Company's units by category is precisely the same unit stacking filed by 32 the Company in this proceeding. The following adjustments, however 33 have been made to reficct a more accurate representation of Georgia 34 Power Company's actual capability to service its territorial load 35 throughout the year.

36 37 1. Plant Wansicy's capability is reduced to 435,000 kilowatts 38 of rated capability to properly weight the capability of this 39 unit with the six months of operations reficcted in the test 40 year cost of service.

41 42 2. Georgia Power Company kW transactions relating to Southern Company 43 Pool Surplus Capacity Peak Period Sales and Peak llour Purchases are 44 appropriately substracted from or added to the stacking in 45 accordance with Mr. Springs testimony.

46 47 These adjustments result in a revised total territorial capability of 48 11,174,055 kilowatts.

49 50 On page 2 of this exhibit, the reserves of the Georgia Power Company s

v (x 1 for Period II are shown to be 18.257.

2 3 Pages 3 and 4 of this exhibit carry forward the 18. 257. system reserve 4 amount in cal.ulating the reserved partial requirement capacity charges 5 necessary to recover the partial requirement test year revenue require-6 ment attributable to OEMC.

7 8 Finally, pages 5 and 6 show OEMC's conthly capacity charge for the f 9 test year based upon the revised reserved partial requirement capacity 10 charges. With the exception of the OEMC revised rate charges all calcu-11 lations are identical to those used by the Georgia Power Company in its 12 Initial Filing.

13 14 For the test year, capacity charges to OEMC based upon the OEMC revised f 15 partial requirements capacity rates are $46,660,806.

16 17 Q I IIAND YOU OEMC EXIIIBIT NO. (Pl.'G-4) AND ASK IF TIIIS EXIIIBIT WAS 18 PREPARED UNDER YOUR SUPERVISION.

19 20 A Yes.

C 21 22 Q WOULD YOU PLEASE EXPLAIN TIIIS EXIIIBIT?

23 24 A This exhibit st=nt.rized test year revenues produced by OEMC's proposed 25 partial requirements rates, excluding fuel cost recovery.. As shown 26 these revenues produce a rate of return of 9.297. for Partial Require-( 27 ments Service to OEMC for the test year.

28 29 Q YOU IbWE INDICATED TIIAT OEMC REVENUbS AND ALLOCATED COSTS ON TIIIS 30 EXIIIBIT ARE NET OF FUEL COST. WOULD YOU PLEASE EXPLAIN UHY FUEL COSTS '

31 REIMION TO OEMC ARE NOT INCLUDED?

32 33 A The Company in its filing estimated that OEMC would be charged with 34 $63,930,103 of Fuel Cost during the test year. Since the Company used 35 this amount in both OEMC revenues and allocated expenses, the result 36 was a wash on return.

37 38 Mr. Springs advocated a change in the manner by which 'OEMC is charged t 39 monthly for Company incurred fuel expense. The $63,930,103 previously 40 estimated by the Company will therefore change. Since data is not 41 available in adequate detail to estimate for the test year the change 42 in fuel cost assignment to OEMC under Mr. Springs' proposed procedure, i 43 I have assumed, as did the Company, that specifically assigned fuel l 44 cost will be equally reflected in test year revenues and allocated

, 45 costs, thus producing a wash on return.

46

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47Q DOES TIIAT CONCLUDE YOUR TESTIMuist7

48 49A Yes.

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