ML19308A422

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Testimony in Response to Tx Utils Generating Co & Houston Lighting & Power First Set of Interrogatories
ML19308A422
Person / Time
Site: South Texas, Comanche Peak  Luminant icon.png
Issue date: 08/01/1979
From: Rogers O
POTOMAC ELECTRIC POWER CO.
To:
Shared Package
ML19208C305 List:
References
E-8741, NUDOCS 7909260333
Download: ML19308A422 (7)
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j .., POTOMAC ELECTRIC POWER CO>iPANY FPC DOCKET NO. E-8741 I

l h DIRECT TESTIMONY OF 0. FRANRLIN ROGERS 1 Q PLEASE STATE YOUR NAME AND ADDRESS.

2 3 A. My name is 0. Franklin Rogers. My business addrens is 1000 Crescent j 4 Avenue, M.E., Atlanta, Georgia 30309.

l 5 6 Q BY WHOM ARE YOU EMPLOYED?

7 8 A I am a member of the firm of Southern Engineering Company of Georgia.

9 10 Q PLEASE STATE YOUR EDUCATIONAL EACKGROUND.

11 I

12 A I attended Emory University in Atlanta for two years and Georgia 13 Institute of Technology for two years, receiving a degree of Bachelor 14 of Industrial Engineering from Georgia Institute of Technology in 1955.

13 I also attended Emory University Law School.

16 17 Q PLEASE STATE YOUR PROFESSIONAL EXPERIENCE.

18 4

19 A Upon graduation from Georgia Tech, I cerved three years as an officer 20 in the United States Navy, after which I began working for Southern l 21 Engineering Company in 1958. I have, during that time, headed the 22 Retail and Ubolesale Rate Departments in my Company. I have performed 23 rate ntudies for over neventy-five rural electric cooperative and 24 municipal systems in thirteen states during this period of time. I 25 have participated in uholenale rate and contract negotiations uith l

d 26 thirty-six privately ouned inventor utilities in nineteen states.

27 During this period of time, I have prepared or participated in pre-28 paring numerous cont of service studies of investor-owned utilities, 29 rural cicetric cooperativen and municipal systems.

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31 Q MR. ROGERS, UITH RESPECT TO ELECTRIC RA"'E CASE MATTERS,11 AVE YOU EVER 32 GIVEN TESTIMONY BEFORE Tills COE11SS10N OR ANY STATE UTILITY REGULATORY i 33 CO
DlISSION?

34

35 A Yes, I have.

4 36 37 Q WILL YOU PLEASE IDENTIFY THOSE PROCEEDINGS AND Ti!E COMMISSIONS BEFORE 38 UHICil YOU HAVE TESTIFIED?

39 l 40 A I have tentified as a rate expert before several State Commissions

! 41 including North Carolina, South Carolina, Kentucky and Indiana. I have

42 previously testified before the Federal Power Commission in the follow -

43 Ing proceedings: Minninnippi Power & Light Company, FPC Docket No.

44 E-7577; Carolina Pouer & Light Company, FPC Docket No. E-7564; Georgia j 45 Power Compaq, FPC Docket No. E-7548; Public Service Company of Indiana,  !

46 FPC Docket No. E-7645; Alabama Power Company, FPC Docket No. E-7674;

, 47 Gulf Power Company _, FPC Docket No. E-7686; Missincippi Power Company, i

48 FPC Docket No. E-7625; Florida Power Corporation, FPC Docket No. E-7679;

49 Duke Power Company,, FPC Docket No. E-7720; Pennsylvania Electric Company, FPC Docket No. E-7718; Public Service Company of New Hampshire, Docket 50

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1 No. E-7742; Indiana and Michigan Electric Company _,, FPC Docket No. E-7740; 2 Virginia Electric and Power Company _, FPC Docket. No. E-8026;

3 Carolina Power & Light Company, FPC Docket No. E-8881; and Toledo 4 _ Edison Company,, FPC Docket No._ E-7929. I have alro submitted prepared 5 testimony in Consumers Power Company, FPC Docket No. E-7803; Appalachian i 6 Potier Compa_ny_, FPC Docket No. E-7775; Mississ12pi 1 Power Company, 7 FPC Docket No. E-7625; Carolina Power and Light Company, FPC Docket 8 No. E-8884; and Alabama Power Company, FPC Docket No. E-8851.

9 10 The privately owned electric companies with which I have personally 11 negotiated on behalf of wholesale customers and participated in cases 12 before the Federal Power Commisolon since 1960 are as follows:

13 (Although I do not recall all of the docket numbers, I indicate the i 14 docket numbers of those cases filed since 1969.)

15 16 Florida Power Corporation (two occasions) (E-7679), Culf Power Company 17 (E-7686), Georgia Power Company (four occasions) (E-7548 and E-8170),

18 Virginia Elcetric & Power Company (three occasions) (E-7611 and E-8026),

19 Carolinti Powhr & Light Company (E-7564), Delmarva Power and Light Company 20 of Deleware (t.hree occasions) (E-7560 and E-7769), Del.marva Power and 21 Light Company of Virginia (three occasions) (E-7560 and E-7769), Uc1marva 22 Power & Light Company of Maryland (three occasions) (E-7560 and E-7769),

23 Uest Pean Power Company, Pennsylvania Electric Company (three occasions) 24 (E-7718), !!ctropolitan Edison Company (three occasions) (E-7630), New V 25 Jersey Pouer & Light Company, (two occasions), Jersey Central Power and 26 Light Company, Buckeye Power, Inc. , Duke Pouer Company (four occasions),

27 (E-7557, E-7720 and E-7994), Public Service Company of Indiana (E-7645),

28 Northern Indiana Public Service Company (E-7758), Detroit Edison i 29 Company (E-7687), Central Illinois Public Service Company, Illinois 30 Pouer Company, Eentucky Utilities Company, Neu York State Electric &

31 Gas Corporat. ion, Alabama Power company (two occasions) (E-7674),

32 Oklahoma Can and Electric Company, Public Service Company of Oklahoma, 33 Public Service Company of New Hampshire (E-7742), Central 1111nois 34 Light Company (E-7577), Niagra Mohauk Power Corporation, Mississippi 35 Power. Company (E-7625), Central Vermont Public Service Corporation 36 (two occasions) (E-7685 and E-7798), Florida Power & Light Company 37 (E-8008), Indiana and Michigan Elcetric Company (E-7740), Appalachian 38 Pcwcr Company (E-7775), Pennsylvania Power and Light Company, and 39 Consumers Power Company (E-7803) .

40 41 Most of the negotiat. ions and rate cases involved rate schedules which 42 contained fuel adjustment clauses. Many negotiations resulted in j 43 substantial changes in, or deletion of, the fuel adjustment clauses.-

l 44 45 Q ltAVE YOU_ TESTIFIED BEFORE OTilER COMMISSIONS?

46 47 A Yes. I have testified before the Atomic Safety and Licensing Board 48 of the United States Nuclear Regulatory Commission in Consumers Power 49 Company (Hidland Plant, Units 1 and 2), tac Docket Nos. 50-329A and 50 50-330A. Additionally, I have submitted t.cstimony before the Atomic y

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U 1 Safety and Licensing Board in the matter of Alabama Power Company f Joseph.M. Faricy Nuclear Plants, Units 1 and 2, AEC Docket Nos. 50-348A j 2 3 and 50-364A.

4 5

i 6 Q MR ROGERS UlLL YOU PLEASE DESCRIBE IN GREATER DETAIL YOUR EXPERIENCE l 7 CONCERNING FUEL ADJUSTMENT CLAUSES?-

8 9 A I have derigned many fuel adjustment clauses and I have analyzed and 10 negotiated fuel adjustnent clauses on behalf of our clients with their 11 'whalesale pouer suppliers.

j 12 of the rate cases and negotiations noted above, In many, if not most, a fuel clausa uas at issue. Additionally, I have testifiedclauses. in the 13 14 15 following proceedings ubich involved only fuel adjustment 16 17 The North Carolina Utilitics Commission, Docket No.

18 J:-7, ,Sub.114, the result of which was that Duke Power 19 Company's proposed fuel adjustment clause for retail 20 customers was disallowed by that Co:mnission; 21 22 The federal Power Commission in FPC Docket No. E-7720, 23 Duke Pouer company; and 24

(,/ 25 The Federal Pouer Connission in the rulemaking pro-26 cceding concerning fuel adjustment clauses in uhole-27 sale rate schedules, Docket No. R-479, in which I

> 28 represented the American Public Power Association, 29 the National Rural Electric Cooperative Association, j

30 many stateuide cooperative organizations, and statewide 3

j 31 municipal organizations, as well as regional and indi-l 32 vidual organi:>ations.

l 33

! 34 Q EY wit 0M IS YOUR TESTIMONY SPONSORED IU TilIS PROCEEDING?

35 (SMECO) .

i 36 A My testimony is sponsored by Southern Maryland Electric Cooperative 37 38 Q WILL YOU OUTLINE BRIEFLY YOUR ASSIGNMENT ON BEllALF OF THE INTERVENO

, -39 IN THIS PROCEEDING?

l 40 41 A My assign = cut was to determine whether Pepco's proposed fuel clause l

t 42 for service to SMECO in this proceeding is reasonable and to examine 43 the effect of Pepco's present fuel claase on Pepco's 1974 financial 44 situation.

45 46 I was advised by SMECO's counsel that under the Sierra rule, the fuel 47 clause contained in the SMECO-Pepco contract as ucll as the other 48 provisions of that contract cannot be changed until the contract has 49 been terminated, but that SMECO desired to inform the Commission of the serious defici eies in Pepco's proposed fuel cictse.

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b 1 Q MR. RO'Tns, PLEASE DESCRIBE Tile COMPANY'S PROPOSED FUEL CIAULE.

2 3 A The Company has submitted the following proposal.3 4

5 Adjustment for Charges in the_ Cost of Fuel:

6 7 The monthly energy charge vill be increased or decreased 8 .00103 cent per kilowatt-hour for each one-tenth cent increase 9 or decrease above or below 110.0 cents per million BTU in the 10 average cost of fuel used as credited to Account 151, Fuel 11 Stock. This adjustment will be. based upon the change.in cost 12 of. fuel during the month preceding the hilling month. At the 13 end of each five year period subsequent to the effective date 14 of this Agreement, or uhen significant changes in the system

1. 5 heat rate occur, said factor of .00103 cent will be revised 16 to reflect the Seller's then current system heat rate.

17 18 This ft.cl clause calculates the adjustment per kilowatt-hour from the 19 average cost of fuel used, as credit to FPC Account 151, during the ,

20 month preceding the billing month. Its base cost is determined from 21 fuel cost charges to Account 151 dt. ring the 12-months ended November, 22 1974. (Walters Direct - P. 25, Lines 20-32). The amount of the 23 adjustment is calculated as the cents per BTU change in fuel cost 24 from a base cost of 0.00011 cents, rultiplied by the 1974 system 25 average heat rate (Pouer 13A) adjusted for transmist. ion losses.

26 27 Q DOES Tile CO:!PANY'S PROPOSED CLAUSE CONFORM UITl! Tile CO:GIISSION'S ORDER 2

28 no. 517 CONCERNING FUEL ADJUS'111ENT CLAUSES IN W110LESALE RATE SCilEDULES?

29 I

30 A It does not. The Company's proposal is deficient in the following i 31 respects:

i 32 33 (1) The use of a " fixed-efficiency" type of fuel clause.

34 35 (2) The use of FPC Account 151 in the fuel cost determination i 36 limits fuel costs used to fossil fuel costs.  ;

l 37 38 (3) The implied use of the Company's fossil fuel cost as the 39 determinant for fuel costs associated with purchased power.

40 41 Q. PLEASE EXPLAIN WHY A " FIXED EFFICIENCY" '.YPE OF FUEL CLAUSE IS DEFICIENT.

42 43 A First, the Commission's Order No. 517 requires that "the fuel clause be 44 of a form that provides for periodic adjustments per kWh of sales equal 45 to the dif ference between the fuel cost per kWh of sales in the base 46 period and in the current period'.'. A fuel clause of this type will 47 truly track variations 'in the cost of fuel, recovering additional ex-48 penditures when fuel costs per kilowatt-hour generated increase and 49 passing on savirgs when fuel cost per. kilowatt-hour generated decrease.

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  • U 1 The Company has based its adjustnent on the change in the price per 2 MBTU of fuel. Its method does not consider changes in thermal efficiency.

l 3 For example, consider a company with a heat rate of 10,000 BTU during l 4 the base period with a base cost of fuel of 110.0 cents /MBTU. Obviously, l 5 the cost per kilowatt-hour generat3d is 1.lc per kilowatt-hour. Now,

! 6 assume that the heat rate drops to 9,000 BTU and the cost of fuel 7 increases to 122.2 cents /11 BTU. The price per kilowatt-hour generated 8 does not change but the Company would collect an additional 0.12566 cents per kilouatt-hour through its fuel clause. The " Fixed Efficiency" l 9 10 method would produce an overcharge of approximately 11%. Conversely,

! 11 if the thermal efficiency decreases, the Company would recover an 12 amount less than that which it has actually expended. ,

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! 14 Q ARE THERE ADDITIONAL DEFICIENCIES IN Tile COMPANY'S PROPOSED ADJUSTMENT

! 15 CALCULATION?

4 16 l

17 A Yes, sir. The Company has used FPC Account 151 to collect charges for 18 its fuel cost adjustment calculation. Only fossil fuel costs are 19 included in ,this account. Again, this does not conform with FPC 1

20 Order No. 517 uhich defines fuel costs as both fossil and nuclear 21 fuel costs. Uhile I am aware that the Company does not, at present, 22 have nuclear generating facilitics,.it does have such facilities 23 scheduled.

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24 23 Q ARE THERE ADDITIONAL DEFICIENCIES IN Tile COMPANY'S PROPOSED FUEL ADJUSTMENT CALCULATION?

l Q 26 l 27 28 A Yes, sir. The Company has made no provision for differentiating 29 betueen fuel costs for energy generated in its own plants and energy l 30 purchased. This lack of a provision for purchased power implies 31 that Company fuel costs will be the determinant for fuel costs 32 assignable to purchased power. Again, this is not in accordance 33 with the commission's Order No. 517, 34 35 Q MR. ROSERS, RWE YOU FORMED AN OPINION CONCERNING TIIE FORM OF AN 36 ACCEPTABLE FUEL ADJUSTMENT CLAUSE TO BE USED AT SUCll TIME AS Tile 37 CONTICT MAY BE LEGALLY AMENDED?

38 i 39 , A Yes, sir. An acceptable clause would be of the " variable efficiency" 40 type; it would include provision for inclusion of the costs of fossil

{ 41 and r.aclear fuel; and would recognize inter-system sales and purchases 42 of cuergy. This clause vould calculate the' adjustment factor to be 3

j 43 the dif ference in fuel cost per kilouatt-hour of sales in the base 44 period and current period. Sales and fuel costs includable would 45 be'as defined in the Commission's order No. 517.

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1 Q MR. ROGERS, WILL YOU PLEASE CO:0!ENT ON PEPCO'S FUEL COST AND COST 2 RECOVERY FROM ITS SALES TO SMECO TIIROUGl[ ITS FUEL ADJUSTMENT CLAUSE?

3 4 A The fuel clause contained in the Pepco-SMECO present contract is a fixed 5 efficiency type of fuel clause with a base cost of 30.4c per million 6 UTU and an adjustuent factor of 0.0010c per kilouatt-hour for each 7 one tenth cent increase or decrease above or below the base cost.

8 Fuel cost is based on FPC account 501. The adjustment is to be based 9 upon the average cost of fuel during the second month preceding the 10 billing month.

11 12 Because of the lag between the cost of fuel during the second month 13 preceding the billing ranth and the billing month itself, Pepco 14 experiences a deferral of revenue during months in which fuel costs 15 increase. According to Pepco's prelininary prospectus dated March 11, 16 1975, the average fuel cost for the Company for 1974 was an incredibly 17 high 142 cents per million BTU. This compares uith 1973's average is cost of 60.2c per million DTU. Because of this dramatic increase in 19 fuel expense, Pepco realized an extraordinary deferral in revenue 20 through the operation of its fucl clause in its sales to SMECO.

21 22 Q. 11 AVE YOU PREPARED AN EXIIIBIT WHICII SHOUS AN ESTIMATE OF THE DEFERRAL 23 IN REVENUE?

24 25 A Yes, I hltve prepared Exhibit (OFR-1) uhich shous the deficit or

,N 26 excess revenues that Pepco receives through the operation of its fuel 27 clause in sales to SMECO calculated by comparing the average fuel 28 cost for sales to SMECO in excess of the base cost of 30.4c per 29 million BTU wi th the revenue that Pepco actually received from SMECO 30 through the operation of its fuel clause.

31 32 Q UAS THIS EXHIDIT PREPARED UNDER YOUR SUPERVISION?

33 34 A Yes.

35 36 Q PLEASE EXPLAIN TIIIS EXHIBIT.

37 38 A The deficit or excess in revenue that Pepco receives from SMECO 39 through the operation of its fuel clause is determined by calculating 40 the fuel cost above the base cost associated with sales to SMECO and 41 comparing that cost with the fuel clause revenues that SMECO actually 42 receives.

43 44 On Line 9 of the Exhibit it can be seen in Column (b) in 1971 Pepco-45 received a slight excess of revenues through its fuel clause over 46 expenses of fuel in its sales to SMECO. This slight amount was only 47 $1,610. In 1972 repco did not receive $52,816 until the follouing 48 year due to the operation of its fuel clause in its sales to SMECO.

49 This amount, houcver, is relatively small compared with total revenues 50 from SMECO in 1972 of $6,797,000. Indeed it is less than one percent (1%).

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Then, in 1973 fuel costs increased dramatically from an average of Q 1 1972 of 53.6c per million BTU to an average in 1973 of 60.2c per 2

3 million BTU. As a result of this fuel cost increase and a reduction 4 in system efficiency fron 1972 to 1973, Pepco lost $250,061 through 5 th p ration of its fuel clause. Then, in 1974 the incredible 6

increase from an average of 60.2c per million BTU in 1973 to an 7

av rage of 142c per million DTU in 1974 resulted in a deferral of 8

$1,463,256 until the next year. Clearly both 1973 and 1974 9

represent extraordinary deferrals due to the fuel clause that Pepco 10 has .in effect for its sales to SMECO.

11 12 Q DO YOU llAVE ANY RECO:0!ENDAT10NS CONCERNING THE OPERATION OF THE 13 ITEL CUtUSE?

14 15 A The present fuel clause has many of the deficiencies of the preposed 16 fuel clause and it would he desirable to eliminate those deficiencies.

17 In my opinion, houever, the fuel clause is part of the contract and 18 cannot be changed any more than any other part of the contract can 19 be changed.

20 21 There should, however, be an adjustment to the cost of service for 22 both 3973 and 1974 to normalize these extraordinary deferrals. With the 23 cost of fuel rising from 1973 to 1974 at approximately 135%, it is 24 inconceivabic to ne that a deferral of the magnitude of- $1,463,256 could 25 he considered representative. The operation of the fuel clause in 26 1971 and 1972 indicates that Pepco neither receives substantially V 27 more nor substantially less revenues through its fuel clause than 23 .t ordinarily has to pay for the fuel associated with sales to SMECO.

29 It is therefore, my firn reconmendation that an adjustment to the 30 cost of service of Pepco's sales to SMECO be made by increasing 31 revenues to SMECO in the amount of $1,463,256 to normalize the test 32 year.

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