ML20003F006
| ML20003F006 | |
| Person / Time | |
|---|---|
| Site: | Comanche Peak  |
| Issue date: | 09/30/1980 |
| From: | Patterson W DALLAS POWER & LIGHT CO. |
| To: | |
| Shared Package | |
| ML19240B984 | List:
|
| References | |
| 3006, NUDOCS 8104170661 | |
| Download: ML20003F006 (16) | |
Text
e O
DIRECT TESTIMO:n OF W. E. PATTERS 0:1 FOR DALLAS PO'n'ER & LIGHT COMPA!N SEPTE!BER 1980 l
116] O 4170hhl4
PATTERSON PAGE 1
1 2
DIRECT TESTI!!0NY OF W. E. PATTERSON 3
4 Q.
PLEASE STATE YOUR NAME AND BUSINESS ADDRESS.
5 A.
My name is Wayne E. Patterson. My business address is 1506 Commerce Street, 6
Dallas, Texas 75201.
7 Q.
BY WHOM ARE YOU EMPLOYED AND IN WHAT CAPACITY?
8 A.
I am employed by Dallas Power & Light Company and hold the positions of 9
Assistant Treasurer and Manager of the General Accounting Division.
10 Q.
WOULD YOU PLEASE OUTLINE YOUR EDUCATIONAL BACKGROUND AND PROFESSIONAL 11 QUALIFICATIONS.
12 A.
I graduated from Southern Methodist University in 1969 with a Bachelor of 13 Business Administration degree in accounting.
I have been employed by 14 Dallas Power & Light Company since March 1957 and have worked in various 15 areas of the Corporate Accounting Department prior to becoming Manager of 16 the General Accounting Division in 1978.
I was elected Assistant Treasurer 17 of the Company in 1980.
I am a Certified Public Accountant in the State 18 of Texas and hold a membership in the Texas Society of Certified Public 19 Accountants.
I am presently a member of the General Accounting Committee 20 of the Edison Electric Institute, the principal national association of 21 the investor-owned electric utility industry.
I have testified previously 22 in rate proceedings before the Public Utility Commission of Texas.
23 Q.
WHAT IS THE PURPOSE OF YOUR TESTIMONY IN THIS PROCEEDING?
24 A.
The purpose of my testimony is to discuss financial and accounting data, 25 derived from the books and records of the Company, contained in the Rate 26 Filing Package and which was prepared under my supervision and subsequently 27 examined by Deloitte Haskins & Sells, independent Certified Public 28 Accountants.
I will discuss the rate base, cost of service and related
PATTERSON PAGE 2
1 adj ustments. All page number references in my testimony relate to Schedule A 2
of the Rate Filing Package unless indicated otherwise.
3 Q.
DOES THE COMPANY'S RATE FILING PACKAGE CONTAIN ANNUAL FINANCIAL STATEMENTS 4
THAT HAVE BEEN EXAMINED AND REPORTED ON BY AN INDEPENDENT CERTIFIED PUBLIC 5
ACCOUNTANT AND A REPORT ON THE TEST YEAR REVIEW COMPLETED IN ACCORDANCE 6
WITH THE GUIDELINES CONTAINED IN THE COMMISSION'S PRESCRIBED RATE FILING 7
PACKAGE 7 8
A.
Yes, these documents are contained in Volume III of the rate filing package.
9 Q.
MR. PATTERSON, ARE THE ADJUSTMENTS WHICH THE COMPANY HAS MADE AS SHOWN IN 10 SCHEDULE A NECESSARY TO RECOGNIZE KNOWN AND MEASURABLE CHANGES TO THE TEST 11 YEAR?
12 A.
Yes, they are.
13 Q.
ARE THESE ADJUSTMENIS SIMILAR TO OR THE SAME AS THOSE ALLOWED BY THE 14 COMPANY'S REGULATORY AUTHORITIES IN OTHER RECENT RATE PROCEEDINGS?
15 A.
Yes.
16 Q.
WILL YOU PLEASE REFER TO SCHEDULE A AND EXPLAIN IT?
17 A.
Schedule A is a summary of the Company's overall cost of service showing 18 results of operations during the test year, which is the twelve months ended 19 June 30, 1980.
Schedule A, page 1, is a summary showing the test year actual 20 data adjusted for various known and measurable changes, and further adjusted 21 to show, on a pro forma basis, the effect of the proposed new rates on 22 operation and maintenance expenses, taxes, return on invested capital, and 23 operating revenues. Column (b) represents the actual results of operations 24 for the test year.
25 Columns (c), (d), and (e) present certain cost level and accounting 26 adjustments made for known and measurable changes in operating conditions 27 and the cost of service components as adjusted. Columns (f), (g), and (h) 28 include the changes to reflect the proposed new rates.
Each of the adjust-
PATTERSON PAGE 3
I ments appearing in columns (d) and (g) are referenced to a subsequent page 2
in Schedule A which provides the calculation of the particular adjustment.
3 Q.
IN REFERENCE ID PAGE 1 0F SCHEDULE A, WOULD YOU EXPLAIN THE ADJUSTMENTS 4
MADE TO FUEL EXPENSE?
5 A.
The first adjustment to fuel expense, as shown on page 2, is to eliminate 6
the effect of an amount accrued on the Company's books resulting from a l
difference in contract interpretation with the Company's primary gas 7
1.
8 supplier. Although this disputed amount was charged te fuel expense, 9
it was neither paid by the Conpany nor included in fuel expense recovered 10 through the fuel adjustment clause.
In connection with the renegotiation l'
11 of the Company's fuel contract with its primary supplier in January 1980, 12 l
the dispute was resolved in the Company's favor and the Company began 13 amortizing the existing balance.
In June 1980 the remaining balance 14 was completely written off. Therefore, in order to avoid understating 15 test year fuel expense, an adjustment has been made to reflect a 16 representative level of fuel expense for the test year.
17 On page 3, unallowable dues of associated companies that were included 18 in fuel expense during the test year have been eliminated.
19 The next adjustment to fuel expense is to reflect increased unit costs, i
20 l as calculated on page 4.
The purpose of this adjustment is to annualize 21 fuel costs to the levels in effect during the month of June 1980.
This 22 adjustment was calculated For both gas and lignite by applying the adjusted 23 C08t per mBtu of fuel consumed for the month of June 1980 to the total mBtu 24 consumed in the test year, excluding fuel consumed to generate power sold to 25 other electric utilities, to obtain an adjusted fuel expense for gas and 26 lignite.
From these amounts, the actual expense of fuel consumed for the 27 test year was deducted, excluding that used for the generation of power 28 sold to other electric utilities, to obtain the amount of adjustment to gas
=
PATTERSON PAGE 4
l 1
and lignite.
Since no fuel oil was consumed by gas / oil units during the 2
month of June 1980, the average cost of fuel oil in inventory at June 30, 3
1980 was applied to the total mBtu of oil consumed in the test year. Other i
4 oil costs incurred during the test year were then added to arrive at an 5
adjusted fuel oil expense for the test year.
This amount was reduced by the i
6 actual fuel oil expenses for the test year in order to arrive at the total 7
adjustment to fuel oil expense.
8 The next adjustment is to reflect the change in net generation resulting 9
l from an increase in kWh sales.
This increase is due to (1) the annualiza-10 tion of kWh usage to the test year-end customer level; (2) an adjustment for 11 weather normalization; and (3) an adjustment for a billing cycle change for 12 certain large industrial customers. The change in generation, provided to 13 me by Mr. Baker, was converted to an equivalency in mBtu and multiplied by 14 the adjusted fuel cost per mBtu for gas / oil plants in June 1980. The l
15 calculation of this adjustment is shown on page 5.
16 Q.
WOULD YOU PLEASE EXPLAIN THE ADJUSTMENTS TO OTHER OPERATION AND MAINTENANCE 17 EXPENSES?
18 A.
The first adjustment to other operation and maintenance expenses is to l
19 l
adjust payroll charges, as shown on page 6.
There are three components 20 of this adjustment:
(1) to annualize payroll charges on the basis of the 1
21 number of employees and payroll rates in effect at June 30, 1980, (2) to l
22 reflect a conservative estimate of a general salary adjustment for 23 non-exempt employees which will become effective in November 1980, as 24 shown on line 2, and (3) to recognize one-half of the payroll increases 25 which will be given to exempt employees at various times during 1981.
l l
26 Q.
REFERRING AGAIN TO PAGE 6, WOULD YOU EXPLAIN THE LAST COMPONENT OF THE l
27 PAYROLL ADJUSTMENT?
l l
28 A.
Before explaining the adjustment, let me comment on the Company's basic
PATTERSON PAGE 3
I salary and wage administration program.
Some 633 employees of the Company 2
are covered by a collective bargaining agreement with the International 3
Brotherhood of Electrical Workers. A new contract is executed annually in 4
November and provides for an increase in wages for all employees covered by 5
the agreement. According to the Company's normal practice, other non-exempt 6
employees will also receive the increase effective in November 1980.
7 Increases for both employee groups will take effect prior to implementation 8
of the new rates. The Company has a salary plan for exempt employees 9
which takes into account the percent increase given to non-exempt employees 10 in the establishment of guidelines for use in granting salary increases to i
I 11 exempt employees during the following year. As a result of the change in 12 I
salary guidelines for exempt employees, we can state with certainty that 13 our exempt payroll will increase by at least $691,142 during 1981.
Since 14 these increases occur throughout the year, this component cf the payroll 15 adjustment reflects 50% of this amount. This recognizes the approximate 16 salary level for this class of employees which will be in effect during 17 the time the new rates are effective. Also, I would like to point out that 18 none of these adjustments include payroll expense increases that will 19 occur due to added experience and promotion of present employees.
20 Q.
ARE THERE ANY ADJUSTMENTS TO OPERATION AND MAINTENANCE EXPENSES BASED 21 ON THE INCREASE IN PAYROLL 7 22 A.
Yes. An adjustment was made for increased payroll related expenses 23 consisting of group life and accidental death and dismemberment insurance, 24 thrift plan costs, and worker's compensation insurance, based upon the 25 payroll adjustment.
These items are directly related to payroll and will 26 increase as total payroll increases. The computation of this adjustment 27 is shown on page 7.
28 Q.
WOULD YOU EXPLAIN THE ADJUSTMENTS TO OPERATION AND MAINTENANCE EXPENSES FOR
PATTERSON PAGE A
1 THE LIGNITE PLANTS?
2 A.
Operation and maintenance expenses were adjusted to reflect the Company's 3
proportionate share of the test year-end payroll levels for employees and 4
to recognize on a conservative basis a general wage adjustment which will 5
become effective in November 1980 for the employees at Big Brown, Monticello, 6
and Martin Lake generating plants, as shown on pages 9-11.
/ [ Q.
WOULD YOU PLEASE EXPLAIN THE REMAINING ADJUSTMENTS TO OPERATION AND
!\\
8 1
'4AINTENANCE EXPENSES?
9 A.
An adjustment was made to retirement plan costs to reflect current accruals 10 to cover both current and past service liability as shown on page 8.
11 An adjustment to operation and maintenance expenses for postage related to I
customer billing for the level of customers at test year-end and an increase 12 13 in postal rates as announced by the United States Postal Service is detailed 14 on page 12.
15 l
An adjustment to property insurance expense has been made on page 13 to 16 annualize the current monthly accrual to the level approved in Docket 2572.
17 Unco 11ectible accounts expense, street rental fees, and the state regu-18 latory consission fee have been increased to reflect increases in operating 19 revenues as shown on page 27.
Computation of the adjustment to these 20 expenses is shown on page 14.
21 Operation and maintenance expenses have been adjusted for the research 22 subscription to the Electric Power Research Institute to give effect to 23 the increased level of expenses being recorded in 1980. The calculation 24 of this adjustment is sican on page 15.
25 Q.
WOULD YOU PLEASE EXPLAIN THE ADJUSTMENT FOR RATE CASE EXPENSES ON PAGE lo?
26 A.
The Company is estimating that $210,000 will be spent on this rate filing.
27 By the time the proposed rate increase goes into effect, the Company will 28 have an unamortized balance of previous rate case expenses of $75,525.
PATTERSON PAGE 7
1 The adjustment on page 16 is necessary in order to include in the test 2
year all unamortized rate case expenses relating to the previous rate cases 3
and the estimated expenses to be incurred in the current rate case.
4 Q.
PLEASE EXPLAIN THE ADJUSTMENT FOR THE RESIDENTIAL CONSERVATION SERVICES 5
PROGRAM.
6 A.
This adjustment is to include in operation and maintenance expenses for the 1
7 test year, as adjusted, the cost to the Company of implementing the Resi-8 dential Conservation Services Program which is required to be in effect 9
beginning in January 1981 under the National Energy Conservation Policies l
10 Act.
Under this program, the Company is required to provide to residential 11 customers upon request (a) energy audits, (b) recommendations for needed 12 energy savings measures, (c) recommendations of qualified contractors for 13 such measures, (d) assistance in arranging any needed financing, and (e) 14 monthly billings for any such financing on the customers' monthly electric 15 bills.
Based upo'n an anticipated response rate of 2.4%, fourteen 16 employees, of which three were on the payroll at June 30, will be required 17 to work directly on the program. Considering the pay and expenses for 18 these added employees and other additional costs, such as postage and 19 printing, we estimate the incremental annual cost of the program will be 20 at least $451,600.
This adjustment is detailed on page 17.
21 Q.
PLEASE EXPLAIN THE ADJUSTMENT FOR UNALLOWABLE EXPENSES.
22 A.
The adjustment detailed on page 18 was made to comply with Substantive 23 Rule 052.02.03.032(a)(6)(B) of the Public Utility Commission of Texas.
24 Line 2 as detailed in Schedule I-4.4 and line 4 reflect the amount of 25 club dues eliminated from cost of service, and line 3 covers expenditures 26 charged to operating expenses for legislative advocacy which is detailed 27 in Schedule I-4.3.
The total adjustment of operation and maintenance 28 expenses for these unallowable expenses is a reduction of $35,307.
PATTERSON PAGE 8
1 Q.
MR. PATTERSON, WOULD YOU PLEASE EXPLAIN THE ADJUSTMENT FOR OTHER OPERATION 2
AND MAINTENANCE EXPENSES?
3 A.
Th.e purpose of this adjustment is to include in the cost of service a 4
provision for all other types of operation and maintenance expenses not 5
adjusted individually. These expenses include such a large variety of goods 6
and services that individual adjustments are not feasible.
We know from 7 l past experience that such costs are increasing and that the amount 8
recorded in the test year is not representative of the level of such 9
costs at the end of the test year. These expenses have been adjusted 10 to test year-end levels based on the number of customers served at the 11 end of the test year.
12 Q.
HOW WAS THE ADJUSTMENT CALCULATED?
13 A.
A study was performed in which other operation and maintenance expenses 14 were related to the average number of customers served to establish the 15 historical trend for such costs since December 1977. The resulting 16 l regression analysis produced an extremely high level of correlation 17 represented by an R factor of 99.6%.
Based upon this analysis, 99.6%
18 of the changes in other operation and maintenance expenses can be explained 19 by the change in number of customers.
The adjustment was calculated on 20 the basis of this historical trend and the number of cuetomers at June 30, 21 1980. The difference between the actual test year amount and the amount 22 adjusted to test year-end number of customers resulted in an adjustment 23 of $1,286,560, as shown on page 19, 24 Q.
DOES THIS ADJUSTMENT PROVIDE FOR ANY NEW EXPENSES OR CUSTOMER GROWTH THAT 25 MAY OCCUR AFTER JUNE 30, 19807 26 A.
No, the purpose of the adjustment is to include other operation and main-l 27 tenance expenses in the adjusted test year at the June 30, 1980 level.
No l
l 28 provision has been included for increases which have occurred since the end l
PATTERSON PAGE 9
1 of the test year, or for further increases that will undoubtedly occur by 2
the time new rates will be effective. Consequently, even after making this 3
adjustment the expenses incurred by the Company during the time the new rates 4
are in effect will exceed those expenses on which the new rates are based.
5 Q.
WOULD YOU EXPLAIN THE ADJUSTMENT TO DEPRECIATION EXPENSE?
6 A.
Depreciation expense, as recorded at June 30, 1980, has been adjusted to 7
reflect annual depreciation on depreciable plant in service at the end 8
of the test year and to recognize new functional group depreciation rates 9
which were supplied to me by Mr. Tanner as follows:
10 Gas /0il Plant
- 3.61%
11 Lignite Plant
- 3.55%
12 Transmission Plant - 2.83%
13 Distribution Plant - 3.38%
14 General Plant
- 5.97%
15 The resulting composite rate of 3.48%, based on depreciable property 16 in service at June 30, 1980, is less than the approved rate in our prev!ous 17 rate case. The adjustment shown on page 20 is the difference between 18 annual depreciation requirements assuming use of the new rates and depre-19 ciable property at June 30, 1980, as detailed in Schedule I-5, page 1, 20 and the actual depreciation expense recorded during the test year ended 21 June 30, 1980.
22 Q.
PLEASE EXPLAIN THE FEDERAL INCOME TAX ADJUSIMENT.
23 A.
Federal income taxes for the adjusted test year were computed on a basis 24 consistent with the method used in computing income taxes for the year 1979.
25 The computation recognizes all the applicable adjustments to revenues and 26 operating expenses. The tax computation has also been adjusted for income 27 taxes applicable to items excluded from cost of service suca as below-the-28 line items of income and expenses.
Pages 21 and 29 provide the amount of
PAITERSON PAGE in 1
the adjustments and page 32 details the tax computations.
2 Q.
SEVERAL ADJUSTMEN'iS WERE MADE TO TAXES OTHER THAN INCOME TAXES. WOULD YOO 3
EXPLAIN THESE ADJUSTMENTS?
4 A.
FICA taxes have been adjusted to reflect known changes which will be in 5
effect before the Company's new rates are billed. These adjustments are 6
(1) the increase in payroll, as detailed on page 6; (2) the increase in i
7 [
the FICA tax rate from 6.13% to 6.65% effective January 1,1981; and (3) 8 the change in the wage base on which FICA taxes are paid from $25,900 to 9
$29,700 effective January 1, 1981. Details of this calculation are 10 provided on page.22.
11 Property taxes or ad valorem taxes were adjusted, as shown on page 23, to 12 reflect taxes based on Plant in Service at June 30, 1980.
Local and state 13 gross receipts taxes, which are revenue related, have been adjusted as 14 shown on page 24 to reflect changes in revenue.
The state franchise tax 15 adjustment has been computed, as shown on page 25, using the capital of 16 the Company at the end of the test year.
17 Q.
WHY HAVE YOU INCLUDED INTEREST EXPENSE ON CUSTOMER DEPOSITS IN THE COST OF 18 SERVICE?
19 A.
Since the rate base is being reduced by the amount of customer deposits, it 20 is appropriate to include the interest expense on such deposits in the cost 21 of service. The adjustment on page 26 reflects the interest expense on 22 active customer deposits at the end of the test year.
23 Q.
HOW DID YOU ARRIVE AT OPERATING REVENUES FOR THE ADJUSTED TEST YEAR?
24 A.
This amount, as shown on page 27, was supplied to me by Mr. Baker.
25 Q.
WOULD YOU EXPLAIN THE PURPOSE OF THE ADJUSTMENTS DETAILED ON PAGES 28 26 THROUGH 31 0F SCHEDULE A?
27 A.
This group of adjustments relates to the additional revenues, expenses, 28 and return on invested capital the Company expects to receive under the
PATTERSON PAG E _.11.__
1 proposed rates.
2 Q.
HOW DID YOU DETERMINE THE AMOUNT OF RETURN SHOWN ON LINE 29, COLUMN (h), OF 3
SCREDULE A, PAGE l?
4 A.
The return was calculated as shown on page 31 of Schedule A.
The overall 5
weighted cost of invested capital, as shown on Schedule H, page 2, times 6
the original cost rate base results in a return of $113,067,031.
I hQ.
IN CALCULATING THE RETURN, WAS PROVISION MADE FOR A CASH DIFFERENIIAL BETWEEN 7
1' I
8 THE COMPANY'S AFDC RATE AND THE REQUESTED OVERALL RATE OF RETURN?
9 A.
No.
The Company is requesting that all CWIP be included in rate base, with 10 one exception which I will discuss later.
If all CWIP is included in rate i
11 l
base, there is no need for a cash differential; however, if a portion of 12 CWIP is excluded from rate base, a casa differential should be allowed in 13 order for the Company to recover its cost of capital.
14 Q.
WOULD YOU PLEASE EXPLAIN SCHEDULE B7 15 A.
Schedule B, page 1, is a summary of the components making up the Company's 16 adjusted value rate base and the requested rate of return on that rate base.
17 Mr. Karney will discuss the weightings given to current cost and original 18 cost in calculating the Company's adjusted value rate base and the factors 19 considered in determining the weightings.
20 Q.
WERE ANY ADJUSTMENTS MlJE TO THE ORIGINAL COST OF PLANT IN SERVICE?
21 A.
No.
22 Q.
DID YOU MAKE ANY ADJUSTMENTS TO CONSTRUCTION WORK IN PROGRES57 23 A.
Yes. An adjustment has been made to CWIP as shown on Schedule B, page 3, 24 to exclude an amount payable to Ohio Edison Company resulting from the sale 25 of a turbine generator and associated parts previously purchased for Martin 26 Lake No. 4.
All of the equipment purchased by Ohio Edison will be replaced 27 in kind, at the Company's original cost, prior to completion of construction 28 of Martin Lake Unit No. 4.
PATTERSON PAG E._12--
l Q.
DO YOU CONSIDER THE INCLUSION OF CWIP IN THE RATE BASE AS NECESSARY TO THE 2
FINANCIAL INTEGRITY OF THE COMPANY?
3 A.
Yes, I certainly do.
The inclusion of 100% CWIP in the rate base will 4
impiove the Company's cash flow, interest coverages, ability to attract 5
needed capital, and quality of earnings.
6
,Q.
PLEASE REFER TO SCHEDULE B, PAGE 1, LINE 13.
DID YOU INCLUDE 100% OF PLANT tl 7
HELD FOR FUTURE USE IN THE RATE BASE?
8 A.
No.
As shown on Schedule B, page 4, plant held for future use excludes 9
the lignite reserves in Grimes and Walker Counties. The Company at the l
10 present time has no definite plans for these properties; therefore, they are 1I I
being deducted from rate base.
The remaining property included in this 12 account represents the Company's actual cost. As in the past, we must 13 plan now for facilities to serve the needs of our customers.
These invest-14 ments were made in the best interest of our customers and result in a 15 direct economic benefit and it is therefore reasonable that they should 16 be included in the rate base.
17 Q.
WHY WAS NUCLEAR FUEL IN PROCESS, LINE 14, INCLUDED IN THE RATE BASE?
18 A.
The amount in nuclear fuel in process represents the Company's payment for 19 nuclear fuel materials which are in the process of refinement, enrichment, 20 and fabrication into nuclear fuel assemblies and components for the 21 Comanche Peak power plant. These payments must be made in advance of l
22 the actual delivery of the fuel assemblies, the first of which will be 23 required for loading into the nuclear reactor before Unit No. 1 goes 24 into service in 1982.
Because these expenditures are necessary to assure 25 that fuel is available at the time the first unit goes into service, it 26 is proper that the full amount of nuclear fuel in process be included in 27 rate base.
28 Q.
REFERRING TO SCHEDULE B, PAGE 1, LINE 17, WOULD YOU EXPLAIN THE INCLUSION
PATTERSON PAGE 13 1
0F WORKING CAPITA' IN THE RATE BASE?
2 A.
Schedules G, G-1, and G-3 provide details for the computation of an 3
allowance for working capital. The allowance for materials and supplies is 4
the average of the monthly ending balances during the 13 months ended 5
June 30, 1980. The allowance for fuel oil reflects the average fuel oil 6
inventory for the same period. The allowance for prepayments is the average f
of the monthly ending balances of prepaid sales and use tax, other prepaid 7
8 taxes, prepaid insurance, and miscellanecus prepayments during the 13 months 9
ended June 30, 1980.
Schedule G-1 shows these balances.
10 Schedule G-3 is a calculation of the cash working capital allowance based 11 upon operation and maintenance expenses, excluding fuel.
The Substantive 12 Rules permit an allowance of up to 1/8 of operation and maintenance expenses, 13 excluding amounts included in the allowance for inventories and prepayments.
14 The use of the 1/8 allowance is an accepted method to use in calculating 15 cash working capital, produces reasonable results, complies with the 16 Commission's Substantive Rules, and avoids the expense of a lead-lag study.
l The amounts of materials and supplies issues and prepayments charged to 17 18 operation and maintenance expense during the test year have been calculated 19 on page 1, lines 8 through 20, of Schedule G-3.
These amounts were deducted 20 from total operation and maintenance expenses excluding fuel, as adjusted, 21 to arrive at cash operation and maintenance expenses of $104,244,325.
The 22 application of 1/8 to that number produces a cash working capital allowance 23 of $13,030,541.
24 Q.
IN THE PREPARATION OF SCHEDULE B, DID YOU USE A TEST YEAR-END RATE BASE?
25 A.
Yes.
26 Q.
WOULD YOU EXPLAIN WHY A TEST YEAR-END RATE BASE IS APPROPRIATE?
27 A.
The rates which will be set pursuant to these proceedings can only be 28 applied to future periods; therefore, it is essentici that the most current
PATTERSON PAGE 14 1
data be used to offset the effects of inflation and an increasing rate base, 2
as well as to provide the most representative test year using historic 3
cost data. The Company has experienced a substantial growth in facilities 4
in the past; such growth is continuing now and is expected to continue 5
into the future. This growth is primarily the result of the Company's 6
l construction of generating units which use lignite and nuclear fuel in il 7 y order to decrease its dependency on gas and oil.
It costs more per kW of l'
8 installed capacity to build lignite and nuclear-fueled generating units 9
than it does to build gas / oil-fueled generating units, as explained by 10 Mr. Tanner. Also, the effects of high rates of inflation in past years 11 continue to be reflected in today's construction costs and will continue l
12 l
to be a factor as long as new plant is added at a cost in excess of the 13 embedded cost of existing plant. The use of a test year-end rate base is 14 more appropriate than an average rate base because it shortens the lag time 15 between the test year data and the time of implementation of the new -ates 16 by using data that is one-half year more current. Therefore, a test year-17 end rate base is more representative of future conditions for which the 18 rates must be designed. At best, the new rates being sought by the Company 19 cannot be billed until early 1981, which is some seven months from the end 20 i of the test year, and as such, even with a test year-end rate base, the 21 actual rate base will be higher when t! e new rates become effective.
22 Q.
DOES THIS CONCLUDE YOUR TESTIMONY?
23 A.
- Yes, v
24 25 26 27 28
THE STATE OF TEXAS I COUNTY OF DALLAS I
BEFORE the undersigned authority on this day personally appeared W. E. PATTERSON, who, having been placed under oath by me, did repose as follows:
"My name is W. E. Patterson.
I am of legal age and a resident of the State of Texas. The foregoing testimony offered by me on behalf of Dallas Power & Light Company, is true and correct, and the opinions stated therein are, to the best of my knowledge and belief, accurate, true, and correct."
W. E. PATTERSON SUBSCRIBED AND SWORN TO BEFORE ME by the said W. E. Patterson this 17 day of5 ki,.Aa, A. D.1980.
q
^bu m 4%w Itoselyn Hudhens d
Notary Public in and for the State of Texas l
My commission expires 2/15/81 I
I
DIRECT TESTIMONY OF CHARLES E. OLSON FOR DALLAS POWER & LIGHT COMPANY SEPTEMBER,1980
-