ML19309F884

Testimony Re Util Permanent Rate Request.Miscellaneous Financial Info Attached

ML19309F884
Person / Time
Site:	Seabrook
Issue date:	04/30/1980
From:	Osullivan J BANGOR HYDRO-ELECTRIC CO.
To:
Shared Package
ML19309F878	List: ML19309F877 ML19309F880 ML19309F881 ML19309F882 ML19309F884 ML19309F885 ML19309F887 ML19309F889 ML19309F890
References
NUDOCS 8005010541
Download: ML19309F884 (42)

Text

r s 8005010 ATTACHMENT TO ITEM 2 (g)

PERMANENT RATE REQUEST 1

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Y I Q. State your name and address.

2 A. John P. O'Sullivan. My business address is 33 State 3 Street, Bangor, Maine, the principal office of Bangor 4 Hydro-Electric Company.

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6 Q. What is your occupation?

7 A. I am a Vice President and Treasurer of Bangor Hydro-Electric Company. I have held these positions since-8 g joining the Company in January 1979.

10 Q. Outline your educational and professional background A. I graduated from Cheverus High School in Portland, 12 13 Maine in 1960. In 1964 I received a B. A. in Economics 14 from Holy Cross College in Worcester, Massachusetts. In 15 1966 I received a M.B.A. from the Amos Tuck School at 16 Dartmouth College.

17 In July of 1966 I joined the audit staff of Peat, l

18 Marwick, Mitchell & Co. (PMM) in Boston, Massachusetts.

l 19 I became a Certified Public Accountant in 1969. I am 20 n w registered to practice as a CPA in Maine and Massachusetts, i 21 In 1970 I was promoted to the management audit group of 1

22 PMM with overall responsibility for several major 23 clients. In 1973 I transferred to Peat, Marwick, Mitchell 24 & Company's tav department in Portland, Maine and 25 w rked as a tax. supervisor until 1975.

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I In 1975 I became Maine's Commissioner of Finance 2 and Administration under Governor James Longley. As 3 such, I was the State's Chief Financial Officer and 4 responsible for the following bureaus and fitnctions:

5 Acc unts and controls, Budget, Taxation, Purchases, -

6 central Computer Service, Public Improvements and 7 Alcholic Beverages.

8 Shortly after joining Bangor Hydro-Electric Company I attended the three week Stone and Webster 9

Utility Management Course. My professional associations 10 include membership in the American Institute of Certified Public Accountants and the Maine Society of Public 12 13 Accountants.

14 15 Q. What specifically do your duties at the Company encompass?

16 A. I am the chief financial officer of the Company with 17 responsibility for financial planning, treasury, 18 accounting and data processing. Since joining the Company I have worked closely on financial matters with 19 Mr. Haskell, the Chairman of the Board of the Company, 20 21 and Mr. Greenquist, the President of the Company.

22 I determine the financial needs of the Company and 23 participate in the arrangements for Company financing 24 both short-term and long-term. My controller functions in lude seeing that proper accounting and accounting 25 1 A

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2 assets, liabilities, income and expenditures.

3 4 Q. What is the purpose of your testimony in this proceeding?

5 A. My testimony will cover the CompaIny's rate base and

• 6 test year operating income.

7 8 Q. Have you prepared exhibits in connection with your 9 testimony?

10 A. Yes, and I have marked them Exhibits O-1 to 0-3-10.

11 These exhibits were prepared by me or under my supervision.

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13 Q. Turning to Exhibit 0-1, could you explain this exhibit?

14 A. Yes. Exhibit 0-1, entitled Increased Revenue Requirement, 15 sets forth the rate base I've computed to which I've 16 applied the rate of return' calculated by Mr. Tennican 17 of Temple, Barker & Sloane, Inc. (TBS), to arrive at l

18 the return required. The test year return is subtracted, 19 to arrive at the return deficiency to which income 20 taxes are added to arrive at the revenue increase 21 requirement of $5,507,267. Beardsley E:chibit 2 shows 22 that the increase attributable to non-jurisdictional 23 sales is $134,451, which results in a Maine juris-a4 dictional revenue increase requirement of $5,372,816.

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I Q. Please describe your rate base computation?

2 A. The rate base computation of $70,386,217 is shown in 3 Exhibit 0-2. Exhibit 0-2-1 sets forth the 12 month 4 average balancos taken from the Company's accounting

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5 records of the following rate base components - Gross c 6 Electric Plant, Depreciation Reserve, Investments in 7 Maine Yankee and Maine Electric Power and Materials and 8 Supplies as well as Deferred Federal Income Taxes and g Customer Deposits. Because of the nature of the other 10 components of rate base, an average balance was not 11 appropriate. Therefore, separate camputations have 12 been made for Materials and supplies, the Working 13 Capital allowance, investment in the cancelled NEPCO 14 nuclear units, capital requirements of PURPA, and the 15 Company's investment in deferred fuel.

16 17 Q. Would you define working capital?

18 A. The working capital allowance is the contribution of 19 capital in excess of that used to finance net utility 20 plant, which investors must supply in order to operate 21 the utility business. This capital is necessary to 22 cover the time period, or " lag", from the time the 23 Company incurs cost of providing service to the time 24 that service is paid for by its customers. .

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i 1 0. How was the Working Capital Allowance computed?

2 A. The Working Capital Allowance was computed by means of 3 a lead-lag method as shown on E.:hibit 0-2-2. The lead -

4 lag method involves c study of the net time lag between 5 the date when the customer receives' service from the .

6 Company and the date when the customer pays for such 7

service, reduced by any offsetting leads between the 8 date that employees and suppliers render service to the 9 Company and the date that the Company is required to 10 pay for such service. The lead-lag study was based 11 upon specific analyses of the experience of the Company.

12 13 0 Please explain how the 54.59 day revenue lag shown in 14 Exhibit O-2-2 was determined?

15 16 A. The objective was to determine the lag from the date of 17 rendering the service to the customer to the date that 18 the payment for that service was received by the Company.

19 For this purpose, it was assumed that service was 20 rendered ratably during the period between meter 21 readings so that the midpoint of the meter reading l

22 period could be used as the date that service was 23 rendered during the period.

l 24 The lag of 54.59 days was determined by analyzing

! 35 the payments of bills rendered to every cuctomer during l

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I June and July of 1979. The information contained in 2 our customer accounting system allowed us to analyze 3 the average span (weighted by billings) between meter 4 . readings. This average interval was 48.52 days. Assuming 5 ratable electrical use the average point of service is .

6 one-half 48.52 days or 24.26 days. To this lag was 7 added the average time (again weighted by billings) 8 between the meter reading and the payment of the bill.

9 The weighted average of this payment lag was 30.33 days 10 thus yielding a total lag between point of service and 11 point of payment of 54.59 days.

I 12 Q. How were the leads for the components of operating 13 expenses calculated?

74 A. Our bjective in analyzing expenses was to determine 15 16 the lead days from the point of the rendering of service 17 to the Company by its vendors and employees to the date that the Company paid for these services. Tb lead 18 days so determined are shown in Exhibit 0-2-2. Each 19 20 major operating expense component was analyzed over a 21 representative time period to determine the weighted 22 average span of time between the date the service was 23 rendered to the Company and the date the Company paid 24 f r that service. For example, the payment pattern of 25 purchased power (capacity and transmission) component m_.

I was reviewed for a period of eleven months to determine 2 a weighted average number of days lead from the midpoint 3 of the period during which the Company received tne 4

power to the date that the Company paid each invoice.

5 This lead was determined to be 38'.87 days. This lead -

was then subtracted from the revenue lag of 54.59 days 6

7 to arrive at a net lag (lead) days of 15.72. This 8 factor was then multiplied by the daily amount of the 9 adjusted test year purchased power expense of $7,772,938 10 to yield a working capital requirement for purchased p wer f $334,757. This process was followed for all 11 12 operating expenses as adjusted in the test year.

13 14 Q. Mr. O'Sullivan, on Exhibit 0-2-2, there is a column 15 entitled "Other Working Capital Items". Could you 16 explain this column.

17 A. Yes. Lines 8 and 9 of Exhibit 0-2-2 are the Company's 18 estimated fuel expenditures for 1980. Estimated 19 expenditures are used because 1979 expenditures are not 20 representative of expected fuel costs due primarily to 21 substantial increases in cost of oil. Otherwise the 22 same techniques as described above in regard to revenue 23 lag days and lead days were utilized to arrive at the 24 cash requirement. The sales tax is treated separately 25 as it is not en operating expense. The $806,000 is the

I amount of sales tax collected through billing to 2 customers and ultimately paid to the State in 1979.

3 The Company must pay the sales tax to the State prior to the time the taxes are collected from the customers.

4 5 Line 10 sets forth the computation of that lag. -

6 The total working capital requirement is $2,956,958.

7 8 Q. Mr. O'Sullivan, would you describe the separate compu-9 tation of the New England Power Company's nuclear units, line 7 of Exhibit 0-2?

10 11 A. Yes. The Company entered into a joint ownership 12 agreement with New England Power Company for the 13 construction of a 2300 megawatt nuclear generating 14 facility to be located in Charlestown, Rhode Island and scheduled for completion in 1984 and 1986. The extent 15 16 of the Company's participation was 4.35%, or 100 17 megawatts. As a result of the inability to obtain the site, after several delays and lengthy litigations the 18 19 lead owners finally determined, in December of 1979, 20 that the project was being cancelled. At that time, the 21 Company discontinued the accrual of Allowance for l

22 Funds Used During Construction (AFUDC) on this investment (S2,015,307). The detail of this computation is shown 23 n Exhibit 0-2-3.

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25 In January 1980 the Company paid a cancellation l

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I charge of $27,692. Further it expects its share of 2 the salvage from a uranium contract to be $174,000 ,

3 resulting in a pre-tax write-off of $1,868,999. This 4 write-off excluding the AFUDC yields a tax benefik 5 f $751,294. ,AFUDC is not tax d5ductible as the -

related interest expense has been previously deducted.

6 The amount of $894,164 included in rate base represents 7

the average of the net investment after the tax benefit over the period of time which we have assumed the proposed rates to be in effect.

10 11 Q. Mr. O'Sullivan, please explain the separate computation 12 of deferred fuel for the March to June, 1979, Maine 13 Yankee shutdown shown on line 9 of Exhibit 0-2.

14 A. Yes. This amount,' $242,295, is shown in more detail on 15 Exhibit O-2-4. As the Commission is aware, the normal 16 operation of the Company's fuel clause was altered with 17 respect to the replacement energy costs incurred during 18 that shutdown, and currently the collection period runs 19 through the end of 1980. This extended collection 20 period will require the Company to incur carrying costs 21 for the unamortized balance. T .e amount included in rate 22 base has been included net of the tax benefit and is 23 the average investment in such deferred fuel in 1980 24 and 1981, the period of time we expect the proposed 25 rates to be in effect.

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1 0 '4r . O'Sullivan, would you describe the separate computation 2 of unrecovered fuel from pre"1980 fuel clause shown on 3 line 10 of Exhibit 0-2?

4 A. .As the Commission again is aware, the new fuel clause

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5 regulations were promulgated for the Company effective '

6 . January 1, 1980 in a proceeding bearing docket U.

7 #3386. As a part of that proceeding, "the reasonable g unrecovered fuel costs" outstanding at the implementation of the new clauro were permitted to be amortized over a 36 month period. Exhibit O-2-5 sets forth the computation of the average uncollected balance of the subject fuel costs during the period we expect the proposed rates 12 to be in effect.

13 14 15 Q. Please explain the adjustment to Materials an'd Supplies 16 shown on line 5 of Exhibit O-2.

17 A. This adjustment is only for the fuel component of 18 materials and supplies as shown in Exhibit 0-2-6. Fuel 19 inventory is valued on an average cost basis, which is 20 below year-end replacement cost. The difference between 21 the average cost and the replacement cost is $970,397, 22 which I have included as an adjustment to the Materials 23 an'd Supplies component of r-te base.

24 Normally, average price and replacement cost are 25 reasonably coniparable. However, the cost of oil to the l

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I Company has risen to such an extent that it cannot be 2 treated like other inventory items. The year-end price 3 ,

per barrel for #6 oil rose 97% during 1979, from $11.88 4 to $23.40 (exclusive of transportation and taxes) . We 5 exp.ect further increases during 198'O and beyond. In -

6 addition, the Company's fuel inventory turns over more 7 than two times per year. Consequently, it is not appropriate 8 to rely on a test year average value for fuel inventory, 9 and in fact the adjusted value will probably be an 10 understatement by the time the proposed rates are in 11 effect.

12 13 Q. Please explain the adjustment for capital requirements 14 of the Public Utilities Regulatory Policies Act of 1978 15 (PURPA) , line 8 of Exhibit 0-2.

16 A. This adjustment is made to account for the Company's 17 estimated initial investment in equipment necessary to y3 carry out its requirements under PURPA. Briefly, 19 Section 133 of PURPA requires collection of accounting 20 cost, marginal cost and load data, which mandates an 21 investment in the appropriate equipment and facilities.

22 The Company has applied for an exemption from the 1980 23 filing requirements and has sought a modified program 24 f r compliance. However, the Company must embark on a 25 substantial load study program to meet the terms of the

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I exemption. If the exemption is not approved, the 2 capital requirements will be significantly greater.

3 Exhibit 0-2-7 itemizes the Company's estimated capital 4 expenditures required by PURPA, assuming the exemption 5 is approved. <

6 7 Q. Mr. O'Sullivan, have you determined the test year net 8 operating income for the Company?

9 A. Yes. The Company's test year 1979 net operating income 10 is set forth in Exhibit O-3. The exhibit shows operating' 11 income and expenses as reflected in the Company's accounts 12 and shows certain adjustments to these figures to 13 arrive at adjusted test year operating income and 14 expenses. Exhibit 0-3-1 briefly itemizes and describes 15 the adjustments shown in Exl.ibit 0-3.

16 17 Q. Is there further testimony to be addressed to those 18 adjustments, other than the summaries in Exhibit 0-3-l?

19 A. Yes. The adjustments are made to normalize nonrecurring 20 1979 transactions and to reflect known and measurable 21 changes.

22 Adjustment #1 eliminates 1979 fuel revenue and 23 1979 fuel expense from the test year.

24 Adjustment #2 eliminates the one time nonrecurring 25 effect of recording'the cumulative effect of unbilled l

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I revenue and the bad debt expense that was booked in 2 conjunction with this item.

3 Adjustment #3 increases wages to account for wage 4

adjustments effective January 1, 1980. The overall 5

wage increase, amounts to 7.49% and is within President - <

Carter's voluntary wage guidelines, which in the case 6

of Bangor Hydro would have allowed an overall increase 7

8 f 7.75%. The Company's contract with Local No. 1837 9

f the International Brotherhood of Electrical Workers 10 terminates on December 31, 1980.

11 Adjustment #4 reflects increased cost to the 12 Company from the change in the law governing the employer's share of the F.I.C.A. tax effective January 1, 1980.

13 In 1980 the law imposes a tax of 6.13% on the first 14

$25,900 of wages. In 1979, the law imposed a- tax of 15 16 6.13% on the first $22,900 of wages.

17 Adjustment #5 adjusts 1979 purchased power expense 18 to reflect a change in the contract with Boston Edison 19 Company. On November 1, 1979 the contract was reduced from 60 to 30 megawatts of purchased power. Consequently, 20 21 the 1979 expense contains 10 months of purchased power 22 expense at a level of 60 megawatts which is 30 megawatts 23 in excess of that which will occur for the first 10 m nths of 1980. Thus, the cost of 30 megawatts of 24 25 electricity purchased from Boston Edison Company for a t _ m

I 10 month period is eliminated from 1979 expense.

2 l Adjustment #6 reflects the amortization over five l

3 years of the net investment in the New England Power 4 Company nuclear units, which project was terminated in 5 December of 1979. ,

6 Adjustment #7 represents an increase in the level 7 of trimming operations that must occur in 1980. The 8 Company has determined the amount of trimming must be 9 increased in order to reduce outages during inclement 10 weather and improve. customer service, and avoid or minimize emergency trimming costs.

11 12 Adjustment #8 expenses those costs incurred in 1.- preparation of this rate case - primarily those attributable 14 to Gilbert Associates in the preparation of the cost of 15 service study and Temple, B rker & Sloane, Inc. in 16 preparing cost of money testimony. The adjusting er.try 17 is to reflect the amortization of these costs over a 18 two year period. As previously indicated, the rates 19 requested under this filing are projected to be adequate 20 through 1981.

Adjustment #9 adds to the test year those expenses 21 22 the Company estimates will be necessary to comply with

, 23 Federal legislation under PURPA and the National Energy 1

24 Conservation Policy Act ("NECPA").

25 The requirements of PURPA are outlined in the l

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I testimony above in connection with an adjustment to 2 rate base for capital expenditures. The PURPA obligations 3 will also cause increased operating expenses, which are estimated in Exhibit 0-3-7. In addition, NECPA will 4

5 cause increased operating expens6s in connection with . e such activities as home energy audits and insulation 6

programs.

7 Adjustment #10 increases the test year pension 8

expense in aCCordance with a recommendation from the Company's actuari.es, The Wyatt Company. The actuary's -

10 11 projection is that 1980 contribution to the pension 12 plan will be $445,000. I have reduced the adjustment 13 by 7%, the percentage capitalized in 1979.

Adjustment #11 increases bad debt expense to 14 15 recognize the increased write-offs which will' occur 16 from the higher level of accounts receivable which will 17 exist in 1980. This adjustment was arrived at by taking the ratio of bad debts to revenue for 1979 and 18 19 applying that to the Company's forecasted 1980 revenue.

Adjustment #12 adjusts depreciation expense to 20 reflect a full year's depreciation on 1979 asset additions.

21 22 The depreciation expense in 1979 reflects only one-half year depre iation on the assets added in that year.

23 24 Adjustment #13 increases the test year purchased 25 power costs to consider the anticipated billing of 0 .

l I decommissioning costs by Maine Yankee Atomic Power 2 Company. The company has been advised by Maine Yankee 3 Atomic Power Company that billing for such costs would 4 . commence in 1980.

5 Adjustment #14 records the computed income tax .-

6 .exper.se for the test year.

7 8 Q. Describe the Company's income tax situation in the test 9 year.

10 A. The Company will report a taxable loss for 1979 of 11 $6,894,505. This taxable loss primarily results from 12 differences in the periods in which three significant 13 transactions will be recognized for tax purposes as 14 opposed to accounting purposes.

15 Deferred Fuel Expense in the amount of 55,484,688 16 will be deducted on the Company's 1979 tax return. It 17 will be reflected as an expense.on the books when these 18 am unts are billed in 1980 through 1982.

The cumulative effect of unbilled revenue was 19 20 recognized as income for accounting purposes in 1979.

It will not be recognized as taxable income on the 1979 21 tax return.

22 23 The loss of the investment in the NEPCO nuclear 24 units will be deducted for tax purposes in 1979. For 25 book purposes, the Company is requesting an amortization l

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2 In each of these instances 1979 taxable income 3 was reduced in relation to book income. However, these 4 " timing differences" will turn around and increase S taxable income in specifically d' efined accounting

• 6 . periods. These are one time nonrecurring timing differences 7 between book and taxable income and as such are not 8

considered in adjusted test year tax calculation.

9 Q. Describe your tax calculation for the test year.

11 A. That calculation shown in Exhibit 0-3-10 starts with 12 pre-tax adjusted operating income, deducts the actual 13 1979 permanent differences between book and tax income, 14 deducts the 1979 timing differences between book and tax income upon which the Commission has previously not 15 all w d def2rred taxes to be computed and computes 6

Federal income taxes on the remainder. The excess of 7

18 tax depreciation over book depreciation is subtracted from Federal taxable income to arrive at the income 79 20 upon which the State income taxes are computed. The 21 Federal and State income taxes are then computed, and 32 the amortization of investment tax credit is taken into 23 account, to arrive at a pro forma income tax expense of 24 $2,477 for the test year. Comparing that to the income 25 tax expense per books for 1979 results in a downward 1

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I adjustment of $1,754,350, as on line 31, Exhibit 0-3.

2 3 Q. Explain why an income tax expense is justified if no 4 current income taxes were paid in the test year.

5 A- There were no income taxes. payable in 1979 because of ,

n nrecurring timing differences. The net operating-6 7 loss (NOL) not used in 1979 and not carried back for tax refunds Will be Carried forward against taxable income in 1980. Our projections reflect taxable g

10 income in 1981 (without a rate increase) in excess-of

• the NOL carried forward from 1979 and 1980. Therefore, 11 12 we project an income tax liability in 1981, during the 13 time these increased rates are expected to be in effect. At 14 that time, the only impact of the above described

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15 timing differences will be to increase taxes payable 16 (as the " turn around" process occurs) . This effect of 17 the timing differences, however, has not been added to 18 the tax as calculated for the adjusted test year. If an 19 adjustment to the test year tax expense as a result of 20 the NOL carry forward were to be considered, it would 21 also be necessary to adjust for the " turn around" 22 effect of these timing differences which would increase taxable income. Accordingly, the income tax expense 23 calculated as a cost of service on the adjusted test 24 25 year represents the income tax expense expected under.

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2 Q. Does this conclude your testimony?

3 4 A. Yes it does.

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EXHIBIT O-1 BANGOR HYDRO-ELECTRIC COMPANY INCREASED REVENUE REQUIREMENT L

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E 1 Rate Base (Exhibit 0-2) $70,386,217 2 Rate of Return (Tennican Exhibit 15) .1146 3 Return Required S 8,066,260 4 Test Year Return as Adjusted (Exhibit 0-3) $ 5,298,308 5 Deficiency $ 2,767,952 6 Income Taxes S 2,739,315 7 Revenue Requirement S 5,507,267 8 Applicable to Sales for Resale $ 134,451 9 Applicable to Retail Sales S 5,372,816

Exhibit 0-2 .

BANCOR HYDRO-ELECTRIC COMPANY RATE BASE COMPUTATION L

I 12 Month N Average Separate Ji 12/31/79 Computations Adjustment Rate Base 1 Electric Plant - Exhibit 0-2-1 $ 90,504,721 - - $90,504,721 2 Depreciation Reserve - Exhibit 0-2-1 (31,546,664) - - (31,546,664) 3 Investment in Maine Yankee - Exhibit 0-2-1 4,747,938 - -

4,747,938 4 Investment in Maine Electric - Exhibit 0-2-1 187,531 - -

187,531 5 Materials and Supplies - Exhibit 0-2-1 + 0-2-6 2,654,300 - $ 970,397 3,624,697 6 Working Capital - Exhibit 0-2-2 -

$2,956,958 -

2,956,958 7 New England Power Co. Nuclear Units - Exhibit 0-2-3 -

894,164 -

894,164 8 Capital Requirements of PURPA- Exhibit 0-2-7 - -

305,000 305,000 9 Deferred Fuel 3/79 to 6/79 Maine Yankee Shutdown - Exhibit 0-2-4 -

242,295 -

242,295 10.Unrecovered Fuel from Pre 1980 Fuel Clause - Exhibit 0-2 1,351,681 -

1,351,681 11 Deferred Federal Income Taxes-Depreciation - Exhibit 0-2-1 (2,800,587) - -

(2,800,587) 12 Customer Deposits - Exhibit 0-2-1 (81,517) - -

(81,517) 13 S 63.665.722 $ 5.44 5.098 $1.2Z3 ,397 110,386,2J],

EXillBli 0-2-1 BANGOR llYDRO-ELECTRIC CtHPANY COMPUTATION OF TWE!.VE MONTH AVERACE BAI.ANCES FOR RATE BASE PURPOSES L

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• Investment In Haterials Deferred Federal N Electric Depreciation Haine Haine Electric and Income Tames - Customer E Plant Rese rve Yankee Power Company Supplies Depreciation De posit s 1 January 1979 $ 87,827,924 $ 30,288,188 $ 4,717,772 $ 190,002 $ 2,409,511 $ 2,544,540 $ 80,441 2 February 87,911,022 30,520,757 4,756,772 192.002 2,093,177 2,588,393 80,834 3 March 88,121,011 30,800,243 4,795,772 194.002 2,357,928 2,632,247 79,714 4 April 88,868,550 31,039,895 4,717,522 190,362 2,242,183 2,676,100 83,G95 5 May 89,256,108 31,256,808 4,756,522 192.362 2,066,801 2,719,953 85,695 6 June 89,511,600 31.491,572 4,795,522 194,362 2,840,555 2,763,806 87,159 7 July 89,805,824 31,724,475 4,717,272 190.722 2,734,229 2,807,659 87,587 8 August 90,264,949 31,966,056 4,756,271 181,623 2,868.341 2,851,511 87,369 9 September 90,661,731 32,188,803 4,795,271 183,6?3 2,897,835 2,895,365 81,532 10 October 94,122,097 32,315,283 4,722.271 180,205 3,101,065 2,939,218 75,836 11 November 94,688,124 32,508,712 4,761,271 182,205 3,112,213 2,983,071 75,085 12 December 1979 95,017,710 32,459,170 4,683,021 178,898 3,127,762 3,205,175 73,859 13 1.' Honth Total 1,086,056,650 378,559,962 56,975,259 2,250,368 31,851,600 33,607,038 978,206 14 12 Honth Average 90,504,721 31,546,664 4,747,938 187,531 2,654,300 2,800,587 81,517

EXHIBIT O-2-2 BANGOR HYDRO-ELECTRIC COMPANY CALCULATION OF WORKING CAPITAL LEAD / LAG METHOD L

I last Year o Other W'rking Revenue Net N as Capital Daily Lag Lead (Lead) Lag Cash E Adjusted Items Amount Days Days Days Required 1 Purchased Power $ 7,772,938 $ -

$21,295 54.59 38.87 15.72 $ 334,757 2 0 & M Labor 4,864,854 -

13,328 54.59 8.7 45.89 611,621 3 0 & M Non-Labor 3,791,979 -

10,388 54.59 40.56 14.03 145,744 4 State & Municipal Property Taxes 1,464,876 -

4,013 54.59 2.7 51.89 208,235 5 Employment Taxes 361,874 -

991 54.59 23.74 30.85 30,572 6 Federal and State Income Taxes 1,672,883 -

4,460 54.59 85.4 (30.81) (137,412) 7 PURPA Expenses 257,380 -

705 54.59 8.5 46.09 32,493 8 Fuel - BHE Generation -

3,019,500 8,273 54.59 15.4 39.19 324,219 9 - Purchased Power -

30,530,500 83,645 54.59 38.87 15.92 1,314,899 10 Sales Taxes -

806,000 2,208 54.59 13.00 41.59 91,830 11 Working Capital Requircd jf,956.95R

EXHIBIT O-2-3 i BANGOR HYDRO-ELECTRIC COMPANY COMPUTATION OF AMOUNT OF CANCELLED NEPCO UNITS INCLUDED IN RATE BASE AND AMORTIZATION ADJUSTMENT TO TEST YEAR L

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1 Investment at December 31, 1979 $2,015,307 2 Uranium - Salvage 4,000,000 x .0435 (174,000) 3 Cancellation Charge from Westinghouse paid in January 1980 27,692 4 Net $1,868,999 5 Tax Effect:

6 AFUDC accrued through December 1979 (359,769) 7 Deductible for tax purposes $1,509,230 8 Tax Effect: State $105,646 9 Federal 645,648 $ (751.294) i 4

10 Rate Base Portion 11 At 1/1/80 (1,868,999 - 751,294) $1,117,705 12 At 12/31/81 670,623 13 Average S 894,164 ADJUSTMENT # 6 Annual Amortizatioa over 5 years - $1,117,705 + 5 =$ 223,541 l l

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EXHIBIT 0-2-4 BANGOR HYDRO-ELECTRIC COMPANY COMPUTATION OF AMOUNTS OF DEFERRED FUEL DUE TO MARCH TO JUNE, 1979 MAINE YANKEE SHUTDOWN L

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E 1 Fuel deferred at 12/31/79 resulting from March 15 to June 5, 1979 Maine Yankee shutdown $1,447,407 2 Balance at 12/31/80 3 Balance at 12/31/81-last date under which rates to be increased u. der this filing are forecast to be adequate 4 $1,447,407 5 Average Balance of Uncollected Fuel ,

during this period ( + 3) $ 482,469 6 Tax Impact 240,174 7 Net - Rate Base Amount S 242,295 i

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EXHIBIT O-2-5 BANGOR HYDRO-ELECTRIC COMPANY DEFERRED FUEL DUE TO OPERATION OF PRE-1980 FUEL CLAUSE L

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E 1 Deferred fuel from pre-1980 fuel clause to be collected over a 3 year period commencing 1/1/80 2 Balance 12/31/79 $4,037,281 3 12/31/80 $2,691,520 4 12/31/81 $1,345,626 5 Average Balance of Deferred Fuel during 1980-1981 period $2,691,520 6 Tax Impact 1,339,839 7 Net - Rate Base Amount $1.351.681 4

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EXHIBIT O-2-6 BANGOR HYDRO-ELECTRIC COMPANY ADJUSTMENT TO MATERIALS & SUPPLIES L

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E 1 Materials & Supplies 12 month average $2,654,300 2 Materials & Supplies 12 month average except for fuel - valued at 12 month average _ quantities times year end replacement costs 3,624,697 3 Adjustment S 970,397 I

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4 EXHIBIT O-2-7 BANGOR HYDRO-ELECTRIC COMPANY PURPA LOAD STUDY - FIRST PHASE ESTIMATED RATE BASE COSTS (1980)

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1 Capital Items Costs 2 Translator Package $121,000 3 Meter Related Items:

4 Equipment: - $99,108 5 Related: -

23,704 122,812 6 Other Capitalized Items 61,188 7 Total $305,000 1

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EIBIBIT 0-3 BANCOR HYDRO-ELECTRIC CCNPANT OPERATING INCOME FOR TEST TEAR ENDED DECEMBER 31, 1979 L .

I Per Books Adiusements Test Year N at as E 12/31/79 Dr. Cr. Adiust ed 1 Operating Income:

2 Base Revenue $27,340,857 1) $ 176,937 $27,163,920 3 Fuel Charge Revenue 24,407,471 1) 24,407,471 -

4 Cumulative Effect of Cabilled Revenue 2,086,953 2) 2,086,953 -

5 $53,835,281 $26,671,361 527,163,920 6 Operating Expenses:

7 Fuel for Generacian $23,365,489 $ -

1) $23,365,489 $ -

8 Purch4 sed Power 9.689,425 200,000 2,116,487

13) 5) 7,772,938 9 Steam Operatica 549,147 3) 25,613 574,760 10 Hydro Electric Operation 501,075 3) 32,931 534,006 11 Internal Cambustion Operation 65,233 3) 3,659 68.892 12 Transmission Operation 471,347 3) 18,295 489,642 13 Distribution Operation 896,056 3) 43,908 939,964 14 Customer Accounting & Collection 896,303 3) 51,226 947,529 15 10) 32,550 General & Administrative 2,798,255 8) 54.115 2,986,279

3) 101,359 16 Steam Maintenance 412,617 3) 3,659 17 Hydro Electric Maintenance 416.276 265,552 3) 10,977 276,529 18 Internal Combustion Maintenance 32,176 3) 1,098 33,274 19 Transmission Maintenance 7) 20,000 117.537 3) 7,318 144,355 20 Distribution Maintenance 7) 20,000 1,160,492 3) 64,335 1,244,827 21 $41,220,704 s 691,043 $25,481.976 $16,429,771 22 Depreciation $ 2,814,541 90,118

12) $ $ -

$ 2.904,659 23 Cncollectible Revenues 10,000 177,921 11) 40,310 2) 10,000 218,231 24 Interest on consnmers' deposits 2,903 2,903 25 State and Municipal Taxes 1,464,376 1,464,376 26 Employment Taxes 357,349 4) 4,525 361,874 27 Amortization of NEPCO Project 6) 223,541 223,541 28 PURPA Expenses 9) 257,280 257,280 29 operating Expenses $46,048,294 $ 1,306,817 $25,491,976 $21,863,135 30 Net Operating Income Pre Iacome Taxes S 7,786,987 $27,978,178 $25,491,376 $ 5,300,785 31 Income Taxes 1,756,827 14) 1,754,350 2,477 32 Net Operating Income $ 6.010.160 927.979.179 127.246.326 9 5.298.108 e

EXHIBIT 0-3-1 Sheet 1 of 3 BANGOR HYDRO-ELECTRIC COMPANY ADJUSTMENTS TO TEST YEAR OPERATING INCOME L

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E DEBIT CREDIT (1) 1 Base Revenue Fuel $176,937 2 Fuel Charge Revenue $24,407,471 3 Fuel Expense $23,365,489 4 To eliminate test year fuel revenue and expense.

(2) 5 Cumulative Effect of Unbilled Revenue $2,086,953 6 Bad Debt Expense on Unbilled Revenue $10,000 7 To eliminate tha cumulative effect of unbilled revenue recorded on the Company's books in March 1979. This is a one time nonrecurring item.

(3) 8 Wages- (As Distributed) $364,378 9 To reflect the known wage increases effective January 1, 1980. The overall increase of 7.49% is part of a two year contract with the IBEW and is within President Carter's voluntary wage guidelines. See Exhibit 0-3-2 (4) 10 Employment Taxes $4,525 11 To record known increases in social security tax resulting from statutory increase in taxable wages from $22,900 in 1979 to $25,900 in 1980. See Exhibit 0-3-3.

(5) 12 Purchased Power $2,116,487 13 To adjust for a known change in the purchased power contract with Boston Edison Company. See Exhibit.O-3-4.

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EXHIBIT 0-3-1 I Sheet 2 of 3 N

E (6) 14 Amortization of New England Power Nuclear Units $223,541 15 The Company owns 4.35% of the New England Power Nuclear plant project which has been cancelled. This entry commences the amortization of this investment over a 5 year period. See Exhibit 0-2-3.

(7) 16 Trimming Expense $40,000 17 This adjustment reflects the additional expense that must be incurred by the Company to increase its tree trimming program to an acceptable level. See Exhibit 0-3-5.

(8) 18 General-Administrative $54,115 19 To expense charges incurred it. preparation of rate case. Amortized over the two year period vhich it is expected this rate increase will be sufficient.

See Exhibit 0-3-6.

(9) 20 PURPA Expenses-1980 $257,280 21 To adjust for the operating expenses expected to be incurred to comply with PURPA requirements. See Exhibit 0-3-7.

(10) 22 Pension Trust Fund Expense $32,550 23 To adjust for known and measurable change in pension cost for 1980 per direction from Wyatt Co. (the Company's actuaries).

1979 Expense -$410,000 1980 Expense - 445,000

$ 35,000 (2,450) (less 1979 Capitalization Ratio 7%)

$ 32,550 Net

L EXHIBIT 0-3-1 I Sheet 3 of 3 N

E DEBIT CREDIT (11) 24 Bad Debt Expense $40,310 25 To adjust bad debt expense to recognize increased non-collections that will result from increased level of revenues. See Exhibit 0-3-8.

(12) 26 Depreciation Expense $90,118 27 To adjust depreciatica expense to reflect a full year expense for net 1979 additions which only were depreciated using the one-half year convention. See Exhibit 0-3-9.

(13) 28 Purchased Power $200,000 29 To adjust for 1980 charges from Maine Yankee Atomic Power plant relative to the Company's portion of decommissioning costs.

(14) 32 Income Taxes $1,754,350 33 To normalize book tax expense based on adjusted test year operations. See Exhibit 0-3-10.

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EXHIBIT 0-3-2 BANGOR HYDRO-ELECTRIC COMPANY WP.GE ADJUSTMENT DUE TO NEW UNION WAGE CONTRACT ADJUSTMENT #3 L

I Actual Wages Charged N to Operations & Maintenance 7.49%

E Account in 1979 Increase l

1 Operations 2 Steam $ 341,963 $ 25,613 l 3 Hydro 439,666 32,931  :

4 Internal Combustion 48,851 3,659 5 Transmission 244,259 18,295 6 Distribution 586,221 43,908 7 Customer Accounting 683,925 51,226 8 General & Administrative 1,353,258 101,359 9 Maintenance:

10 Steam 48,851 3,659 11 Hydro 146,555 10,977 12 Internal Combustion 14,659 1,098 13 Transmission 97,704 7,318 14 Distribution 858,942 64,335 15 $4,864,854 $364,378 l l

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EXHIBIT O-3-3 BANGOR HYDRO-ELECTRIC COMPANY ADJUSTMENT TO 1979 PAYROLL TAXES AS A RESULT OF WAGE INCREASE AND CHANGES TO TAX LAW L

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E ADJUSTMENT #4 1 Statutory Changes:

2 1980 FICA Taxes on first $25,900 of wages, an increase from the first

$22,900 on which the 1979 FICA Tax was calculated.

3 The tax rate of 6.13% remains constant between 1079 and 1980.

j 4 Number of employees in excess of $25,900 at 1980 wage rates 20 5 Increase in taxable wages for each of these employees S 3,000 6 $60,000 7 Wages in excess of $22,900 for those employees earning less than $25,900 at 1980 rates 13,833 8 Wages taxable in 1980 that were not taxable in 1979 $73,833 9 Tax Rate .0613 10 Increased FICA Taxes in 1980 $ 4.525 l

EXHIBIT O-3-4 BANGOR HYDRO-ELECTRIC COMPANY CALCULATION OF KNOWN CAPACITY CHANGES AT MYSTIC #7

'L~ ADJUSTMENT #5 I

N E MONTH CAPACITY TRANSMISSION TOTAL 1 1/79 376,180 45,394 2 2/79 376,180 45,394 3 3/79 376,180 45,394 4 4/79 376,180 47.85G 5 5/79 376,180 47,856 6 6/79 376,180 47,856 7 7/79 376,180 47,856 8 8/79 376,180 47,856 9 9/79 376,180 47,856 10 10/79 376,180 47,856 11 10 months ended 10/79 3,761,800 471,174 4,232,974 12 One-Half Thereof =

Known Changes to Capacity Charges (Reduction of 60 megawatts to 30 megawatts at November 1, 1979) S2.116.487

b EXHIBIT O-3-5 BANGOR HYDRO-ELECTRIC COMPANY ADJUSTMENT FOR REQUIRED TRIMMING EXPENSES L

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E_ ADJUSTMENT #7 1 Trimming required in 1980 $350,000 2 Trimming in 1979-Actual 310,000 3 Adjustment S 40,000 2

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EXHIBIT O-3-6 DANGOR HYDRO-ELECTRIC COMPANY.

AMORTIZATION OF RATE CASE COSTS L

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E ADJUSTMENT #8 1 Paid through 12/31/79 $ 33,063 2 Estimate to Complete:

3 Gilbert Associates (Cost of Service & Lead Lag W ork) 40,167 4 Temple Barker & Sloane (Cost of Money Testimony) 35,000 5 S108.230 6 To amortize over 1980-1981 Per Year S 54.115 l

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EXHIBIT 0-3-7 BANGOR HYDRO-ELECTRIC COMPANY PURPA & NECPA - FIRST PHASE ESTINATED ANNUAL EXPENSES - (1981)

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1 Expense Items Costs 2 PURPA 3 Labor: $48,600 4 Other: 22,680 $ 71,280 5 NECPA

! 6 Labor: $102,000 7 Other: (Net) 84,000 M86,000 8 Total $257,280 l

9 EXHIBif O-3-8 BANGOR HYDRO-ELECTRIC COMPANY BAD DEBT EXPENSE ADJUSTMENT L ADJUSTMENT #11 I

N Actual Budget E 1979 1980 Adjustment 1 Revenue 51,748,325 63,476,000 2 Bad Debt Expense 177,920 218,230 $ 40,310 3 Ratio .003438 .003438

EXHIBIT O-3-9 BANGOR HYDRO-ELECTRIC COMPANY DEPRECIATION ADJUSTMENT FOR 1979 ADDITIONS L

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E ADJUSTMENT #12 1 1979 Plant Additions (Net of Retirements) 2 One Half Year Depreciation Recorded on Books for 1979 $ 90,118 3 One Half Year per Adjustment #12 90,118 4 1980 Depreciation on 1979 Assets $180.236 i

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EXHIBIT O-3-10 BANGOR HYDRO-ELECTRIC COMPANY INCOME TAX CALCULATION ON TEST YEAR EARNINGS L

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E ADJUSTMENT #14 1 Test Year Operating Income as adjusted - Before Income Taxes $ 5,300,785 2 Interest Expense-Long-Term Debt $2,768,103 3 Short-Term Debt 1,608,090 (4,376,193) 4 1979:

5 Permanent differences between book and taxable income - (385,287) 6 Timing differences between book and taxable income where deferred taxes are not calculated (233,120) 7 Excess of book depreciation over tax depreciation for pre-1970 assets previously flowed through 14,015 8 Federal Taxable Income $ 320,200 9 1979:

10 Excess of tax depreciation over book depreciation for post-1969 assets flowed through for state taxes (1,531,497) 11 State Taxable Income $(1,211.297) 12 State Tax at 5% (1,250) 13 at 6.93% (82,210) 14 Federal Tax - 1st 100,000 26,750 15 - Remainder 139,683 16 Plus amortization of Investment Tax Credit (80,496) 17 Pro Forma Income Tax test year S 2,477 18 Income Taxes per books S 1,756,827 l 19 Adjustment 1_l,754,350 l

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