Niagara Mohawk Power Corporation PROCEEDING ON MOTION OF · Niagara Mohawk Power Corporation d/b/a...

Niagara Mohawk Power Corporation d/b/a National Grid PROCEEDING ON MOTION OF THE COMMISSION AS TO THE RATES, CHARGES, RULES AND REGULATIONS OF NIAGARA MOHAWK POWER CORPORATION FOR ELECTRIC AND GAS SERVICE

Testimony and Exhibits of:

Electric Rate Design Panel Exhibit __ (E-RDP-1)

Book 20

April 2012

Submitted to: New York State Public Service Commission Case 12-E-____ Case 12-G-____

Submitted by: Niagara Mohawk Power Corporation

Testim

ony of Electric R

ate Design Panel

Before the Public Service Commission

NIAGARA MOHAWK POWER CORPORATION d/b/a NATIONAL GRID

Direct Testimony

of

The Electric Rate Design Panel

1

Testimony of the Electric Rate Design Panel

Table of Contents

I. Introduction and Qualifications ...................................................................1

II. Purpose of Testimony and Summary of Exhibits ........................................2

III. Summary of Embedded Cost of Service Study Purpose and Process..........4

IV. Overview of ECOSS Exhibits....................................................................19

V. Development of the Electric Operating Revenue Forecast........................28

A. Overview of Operating Revenue Forecast.....................................28

B. Revenue Forecasts for Customers Taking Service at Other than Standard Tariff Rates .............................................................31

1. Discounts for Residential Low Income Customers ...........31

2. Revenue Forecast for Empire Zone Rider Customers ..........................................................................31

3. Revenue Forecast for Customers with Special Contracts ............................................................................32

4. Revenue Forecast for Customers Receiving High Load Factor Power.............................................................33

5. Revenue Forecast for Customers Receiving Expansion and Replacement Power...................................34

6. Revenue Forecast for Customers Receiving Standby Service under SC-7 ............................................................39

7. Forecast of Commodity Revenues .....................................40

C. Other Components of Revenue Forecast .......................................41

VI. Development of Rate Class Revenue Allocations .....................................43

VII. Electric Tariff Rate Design ........................................................................48

A. Overview of Purpose of Rate Design and Guiding Principles........................................................................................48

B. Rate Design Exhibits......................................................................49

C. Veterans Organization Optional Time-Of-Use Rates ....................59

D. Time Differentiated Delivery Rates...............................................60

E. Commodity Rates...........................................................................61

F. Standby Service Rates....................................................................62

2


G. Elimination of Historic Demand....................................................67

H. Changes to Miscellaneous Charges ...............................................68

1. Charge for Re-Establishment or Disconnection of Service................................................................................68

2. Incremental Customer Charge ...........................................72

VIII. Competitive Cost Functional Unbundling and Rate Design......................73

A. Merchant Function Charge ............................................................74

B. Billing Backout Credit ...................................................................81

C. Paperless Billing Credit .................................................................84

D. Competitive Metering Function Rates ...........................................85

IX. Lighting Tariff Rate Design.......................................................................85

A. Discussion of Development of Proposed Facility Prices, Lighting Service Charge, and Outage Credit Allowance...............87

B. Proposed Changes to SC-2 Lighting Service Provisions...............91

C. Proposed LED Rate Design .........................................................100

X. Transmission Revenue Adjustment Mechanism......................................104

XI. Revenue Decoupling Mechanism ............................................................105

XII. Marginal Cost of Service Study...............................................................107

XIII. Conclusion ...............................................................................................117

3


Page 1 of 117

I. Introduction and Qualifications 1

Q. Please introduce the members of the Electric Rate Design Panel. 2

A. The Electric Rate Design Panel (“Panel”) consists of Howard S. Gorman, 3

Pamela B. Dise, and Kellie I. Smith. The Panel is testifying on behalf of 4

Niagara Mohawk Power Corporation d/b/a National Grid (“Niagara 5

Mohawk” or “Company”). 6

7

Q. By whom are each of you employed and in what capacity? 8

A. (Mr. Gorman) I am the President of HSG Group, Inc. My business 9

address is 45 Hill Park Avenue, Great Neck, NY 11021. 10

11

A. (Ms. Dise) My title is Manager of Electric Pricing - New York for 12

National Grid USA Service Company, Inc. (“National Grid Service 13

Company”). 14

15

A. (Ms. Smith) My title is Lead Analyst Electric Pricing - New York for 16

National Grid Service Company. 17

18

Q. Please briefly describe the Panel members’ educational backgrounds, 19

professional experience, and prior testimony before the New York 20

4


Page 2 of 117

Public Service Commission (“Commission”) or any other regulatory 1

agency. 2

A. The Panel members’ educational backgrounds, professional experience, 3

and prior testimony before the Commission and other regulatory agencies 4

are set out in Exhibit ___ (E-RDP-12). 5

6

II. Purpose of Testimony and Summary of Exhibits 7

Q. What is the purpose of the Panel’s testimony? 8

A. The purpose of the Panel’s testimony is to present the following: 9

1. The Company’s actual revenue for the twelve months ended December 10

31, 2011 (“Historic Test Year” or “Test Year”) and the forecast of 11

total electric operating revenues, gross revenue taxes, electric 12

commodity revenues, and electric delivery revenues for the forecast 13

twelve months ending March 31, 2014 (the “Rate Year”) and, the 14

twelve months ending March 31, 2015 and 2016 (the “Data Years”); 15

2. The results of the Company’s embedded class cost of service study 16

(“ECOSS”) and marginal cost of service study (“MCOSS”) for the 17

Rate Year; 18

3. Proposed revenue requirement changes for each of the Company’s 19

service classifications for Transmission and Distribution (“T&D”) 20

services; 21

5


Page 3 of 117

4. The Company’s proposed rate design for each service classification 1

under the Company’s tariff’s for electric service, P.S.C. No. 220 (the 2

“Electric Tariff”) and P.S.C. No. 214 (the “Lighting Tariff”); 3

5. The proposed unbundled rates for competitive services in accordance 4

with the Commission’s November 9, 2001 Order in Case 00-M-0504 5

(the “November 9 Order”), Proceeding on Motion of the Commission 6

Regarding Provider of Last Resort Responsibilities, the Role of 7

Utilities in Competitive Energy Markets, and Fostering the 8

Development of Retail Competitive Opportunities (the “Unbundling 9

Cost Study Case”); 10

6. A summary of the Company’s offering and pricing of various 11

economic development programs, including its Empire Zone Rider 12

(“EZR”) discount for qualifying EZR load certified after February 1, 13

2011 and New York Power Authority (“NYPA”) power program; and 14

7. The Company’s proposal to offer Time of Use Electricity Supply 15

pricing for residential customers. 16

17

Q. Is the Panel sponsoring any exhibits? 18

A. Yes. The Panel is sponsoring the following exhibits, which were prepared 19

by or under the supervision of one or more members of the Panel: 20

• Exhibit ___ (E-RDP-1) is the ECOSS. 21

6


Page 4 of 117

• Exhibit ___ (E-RDP-2) presents the development of external 1 allocators used in the ECOSS. 2

3 • Exhibit ___ (E-RDP-3) presents the values for external and 4

internal allocators used in the ECOSS. 5 6

• Exhibit ___ (E-RDP-4) provides the actual base delivery revenues 7 and usage, by service class, for the Test Year and the annual 8 forecast for the Rate Year and for each of the Data Years. 9

10 • Exhibit ___ (E-RDP-5) shows the Company’s proposed revenue 11

allocation. 12 13

• Exhibit ___ (E-RDP-6) shows the Company’s Electric Tariff rate 14 design for all rate classes. 15

16 • Exhibit ___ (E-RDP-7) presents the direct assignment of costs for 17

the competitive functions and the calculation of the Merchant 18 Function Charge (“MFC”) and changes to miscellaneous charges. 19

20 • Exhibit ___ (E-RDP-8) presents the Lighting Tariff rate design for 21

all lighting rate classes. 22 23

• Exhibit ___ (E-RDP-9) sets forth the Company’s proposed updates 24 to its Transmission Revenue Adjustment mechanism. 25

26 • Exhibit ___ (E-RDP-10) is the MCOSS. 27

28 • Exhibit ___ (E-RDP-11) is the marginal cost rate design. 29

30 • Exhibit ___ (E-RDP-12) contains the resumes of the members of 31

the Panel. 32 33

• Exhibit ___ (E-RDP-13) contains supporting workpapers for 34 various exhibits. 35

36

III. Summary of Embedded Cost of Service Study Purpose and Process 37

Q. Please describe what an ECOSS is and why it is presented. 38

7


Page 5 of 117

A. The purpose of an ECOSS is to apportion fairly a utility’s total revenue 1

requirement, including plant and other investments, operating expenses, 2

depreciation, and taxes among the rate classes served by the utility. The 3

ECOSS produces a revenue amount for each rate class equal to the 4

revenue that needs to be collected from that class to produce the system 5

average rate of return on rate base. This information provides valuable 6

guidance in revenue allocation, and in the development of rates, to recover 7

the utility’s overall revenue requirement from all rate classes. 8

9

Q. How is an ECOSS prepared? 10

A. Each element of the utility’s total revenue requirement is analyzed and 11

assigned to or allocated among the rate classes. A three-step process is 12

traditionally used to analyze each element of the revenue requirement. 13

The first step is functionalization of each element. For the Company’s 14

electric operations, these functions are Transmission, Primary 15

Distribution, Secondary Distribution, Billing, Regulatory, and 16

Competitive. The second step is to classify each functionalized cost 17

element as Demand, Energy, or Customer. The final step, class allocation, 18

is the allocation of each functionalized, classified cost element among the 19

rate classes. Each of these steps is described in greater detail below. 20

21

8


Page 6 of 117

Q. What is the purpose of the functionalization step of an ECOSS? 1

A. In the functionalization step, costs are separated by the utility’s basic 2

service functions. For purposes of the Company’s ECOSS, these 3

functions have been identified as either regulated or competitive as 4

follows: 5

Regulated Functions 6

• Transmission – Bulk transmission system, designed to move power 7

from generation sources to the primary distribution system, 8

operating at voltages of 22 kV and up. 9

• Primary Distribution - Designed to move power from the 10

transmission system to the secondary distribution system and to 11

customers’ premises; includes substations as well as conductors 12

operating at voltages of 2.2 kV up to 15 kV and related assets. 13

• Secondary Distribution - Designed to move power from the 14

primary distribution system to customers’ premises; includes 15

service drops. 16

• Billing - Includes meters and other assets and activities related to 17

connecting customers to the system and distributing electricity to 18

them, as well as billing and collecting for the services provided. 19

9


Page 7 of 117

• Regulatory - Regulatory items in the revenue requirement (i.e., 1

deferred assets and costs such as nuclear fuel disposal liability and 2

the unbilled revenue asset). 3

Competitive Functions 4

• Competitive Supply 5

• Competitive Collections 6

• Competitive Billing 7

• Competitive Meter Data 8

• Competitive Meter Services 9

• Competitive Meter Ownership 10

11

Q. What is the purpose of the classification step of an ECOSS? 12

A. In the classification step, the previously functionalized accounts are 13

classified as Demand, Commodity, or Customer, according to the system 14

design or operating characteristics that cause them to be incurred. 15

Customer-related costs are incurred to attach a customer to the distribution 16

system, to meter the customer’s usage, and to maintain both customer-17

related distribution assets and the customer's account. Customer-related 18

costs are primarily a function of the number of customers served, and they 19

continue to be incurred whether or not a particular customer uses any 20

electricity, and typically do not vary with usage or load profile. They 21

10


Page 8 of 117

include capital costs associated with the customer portion of the primary 1

and secondary distribution system, services and meters, operating costs 2

associated with those assets, as well as costs of performing customer 3

service, field service, billing, and accounting. 4

5

Commodity-related costs vary with the electricity sold to or delivered to 6

customers. 7

8

Demand- or capacity-related costs are associated with plant that is 9

designed, constructed, and operated to meet system peak demand or non-10

coincident class peak demand. 11

12

Q. What is the purpose of the class allocation step of the ECOSS? 13

A. In the class allocation step, the functionalized, classified costs are 14

allocated among the rate classes based on causal relationships. These 15

relationships are determined by analyzing the Company’s system design 16

and operations, its accounting records, and its system and customer load 17

data. Based on those analyses, each asset and cost is either directly 18

assigned to a rate class or an appropriate cost allocator is chosen. 19

20

11


Page 9 of 117

Q. Please summarize the ECOSS methodology used. 1

A. In preparing the ECOSS, the Company used the same methodology as in 2

Case 10-E-0050, Proceeding on Motion of the Commission as to the 3

Rates, Charges, Rules and Regulations of Niagara Mohawk Power 4

Corporation for Electric Service (“2010 Electric Rate Case”). 5

6

Q. Please explain how assets and costs were assigned or allocated among 7

the functions. 8

A. In general, functionalization follows costs as recorded in the FERC 9

Uniform System of Accounts. However, some accounts are functionalized 10

to more than one function. For example, Overhead Conductors and 11

Devices (Account 365) and Underground Conductors and Devices 12

(Account 367) were functionalized to both Primary Distribution and 13

Secondary Distribution, based on a special study. In this study, circuit 14

miles of assets were separated by voltage level, corresponding to Primary 15

and Secondary voltages, and costs were allocated based on the voltage 16

level splits. The study is presented in Exhibit ___ (E-RDP-2), Schedule 17

21. Poles, Towers and Fixtures (Account 364) were functionalized based 18

on a similar study using overhead conductor linear miles, also presented in 19

Exhibit ___ (E-RDP-2), Schedule 21. Underground Conduits (Account 20

366) were functionalized based on information included in the study 21

12


Page 10 of 117

performed for Underground Conductors and Devices. Other assets were 1

functionalized by direct assignment based on the definition of the 2

functions (e.g., Stations were assigned to Primary, Services were assigned 3

to Secondary) or were allocated based on an appropriate allocator (e.g., 4

General Plant was allocated based on the labor content of the accounts). 5

6

Costs were directly assigned to a function whenever possible. For 7

example, Transmission Plant and Transmission Operation and 8

Maintenance (“O&M”) costs were directly assigned to the Transmission 9

function. Costs related directly to particular assets, such as Maintenance 10

of Overhead Lines (Account 593), were allocated in proportion to the 11

assets. 12

13

Q. Were any accounts re-functionalized? 14

A. Yes. In accordance with the Commission’s November 9 Order, certain 15

accounts were assigned to a Competitive function, instead of the 16

Regulated function that would otherwise have applied, based on a special 17

study. The amount of each account related to Collections activity was 18

identified in a special study, and re-functionalized between the Billing 19

(non-competitive) and Competitive Supply functions based on revenues. 20

The amounts of each account related to the other Competitive functions 21

13


Page 11 of 117

and the function to which they should be re-functionalized were also 1

identified in the special study. In implementing this re-functionalization, 2

minor amounts (under $10,000) were omitted because they were unlikely 3

to affect the results and would have required substantial additional effort. 4

5

The accounts that the Commission identified in its order in the 6

Unbundling Cost Study Case as requiring re-functionalization were: 7

Supervision for Customer Records and Collection (Account 901); Meter 8

Reading Expenses (Account 902); Customer Records and Collection 9

Expense (Account 903); Miscellaneous Customer Accounts Expense 10

(Account 905); Supervision for Customer Assistance (Account 907); 11

Customer Assistance Expense (Account 908); Customer Service - 12

Miscellaneous Expense (Account 910); A&G - Salaries (Account 920); 13

A&G - Office Supplies (Account 921); A&G – Outside Services (Account 14

923); Injuries and Damages (Account 925); and A&G - Research & 15

Development (Account 930.210). 16

17

Q. How were assets and costs classified as Demand, Commodity, and 18

Customer in the ECOSS? 19

A. Most assets and costs fit into one of the three classifications, but some 20

were split between Demand and Customer based on special studies or the 21

14


Page 12 of 117

classification of related assets or other related costs. All assets and costs 1

in the Transmission function were classified as Demand-related, and all 2

assets and costs in the Billing function were classified as Customer-3

related. The costs for Poles, Towers and Fixtures, Overhead Conductors 4

and Devices, Underground Conduits, and Underground Conductors and 5

Devices, which are in the Primary Distribution and Secondary Distribution 6

functions, were classified to both Demand and Customer. 7

8

The Demand/Customer split for these assets was based on a special study, 9

presented in Exhibit ___ (E-RDP-2), Schedule 4, which computes the 10

labor portion of total capital cost for those assets for the years 2008-2011. 11

Labor costs are largely independent of conductor capacity and, therefore, 12

are unrelated to Demand. Because they vary with circuit miles, Labor 13

costs are related to the number of customers attached to the system. The 14

special study showed that approximately 61 percent of total capital for 15

these assets constitute labor costs. 16

17

For the primary distribution system, the Customer component was set at 18

50 percent, which is the same as the Customer component of Primary 19

Distribution in the 2010 Electric Rate Case. This is lower than the results 20

of the special study because a portion of the primary system does not 21

15


Page 13 of 117

attach customers to the system and is not related to the Customer 1

component. This portion of the primary system serves as the backbone of 2

the overall distribution system, transmitting electricity from substations; 3

then it branches to serve customers at a localized level, either through the 4

primary system or through further branches to the secondary system. To 5

recognize that a portion of the primary system does not attach customers, 6

the portion classified as Customer-related was set at 50 percent, which is 7

lower than the Labor component (i.e., the Customer-related portion) of 8

capital cost developed in the special study. The remaining 50 percent was 9

classified as Demand-related. 10

11

For the secondary distribution system, the Labor portion of the capital cost 12

(i.e., approximately 61 percent of the cost) was classified as Customer-13

related and the balance was Demand-related. 14

15

In developing the Demand allocators for allocation of costs among the rate 16

classes, no adjustment was made for peak load carrying capacity of the 17

Customer-related portion of assets because the Customer-related portion 18

included no costs for conductors or other materials, and therefore had no 19

load carrying capacity. 20

21

16


Page 14 of 117

Transformers were classified as Demand-related because they are sized to 1

meet local demand. Allocation of transformers is discussed below. 2

Services and Meters were classified to Customer because the Company’s 3

investment is based primarily on the number of customers. 4

5

Primary Distribution and Secondary Distribution costs that are related to 6

particular assets were classified in proportion to those assets. Other costs, 7

such as Operation Supervision and Engineering (Account 580), were 8

classified based on the labor content of expense accounts because the costs 9

consist primarily of labor. 10

11

All items in the Competitive functions were classified as Customer-12

related; however, the allocation of Competitive function costs among the 13

rate classes could be made on the basis of kWh deliveries, peak demand or 14

any other basis, and not necessarily on a customer count basis. 15

16

Q. How were Transmission and Distribution assets and expenses 17

allocated among the rate classes? 18

A. Transmission assets and expenses were allocated based on the relative 19

contribution of each class to the Company’s annual system peak for the 20

Transmission system, or 1CP. Assets and expenses functionally classified 21

17


Page 15 of 117

to Primary Demand were allocated based on the class non-coincident 1

peaks (“NCPs”) at the primary voltage level. Assets and expenses 2

functionally classified to Secondary Demand were allocated based either 3

on the class NCPs at the secondary voltage level, on special studies (e.g., 4

transformers), or on internal allocators that were selected based on the 5

nature of the asset or expense (e.g., labor, plant, or other expenses). The 6

NCP’s were developed based on the average of the actual load factors for 7

the three years ended November 2011, September 2010, and August 2009, 8

applied to the normalized kWh sales levels for the Rate Year, as presented 9

in Exhibit ___ (E-RDP-2), Schedules 20 and 21. This method provides a 10

representative picture of demands likely to be experienced in the Rate 11

Year because it averages out the effect of historical weather by including 12

three years in the sample and applying the resulting load factors to 13

weather-normalized kWh sales. The three years included are the years for 14

which data are readily available, and include the three most recent 15

summers. 16

17

Assets and expenses functionally classified to Primary Customer and 18

Secondary Customer were either directly assigned (e.g., to the Lighting 19

class), allocated based on special studies (e.g., transformers were allocated 20

based on a special study presented at Exhibit ___ (E-RDP-2), Schedules 9-21

18


Page 16 of 117

11; services were allocated based on a special study presented at Exhibit 1

___ (E-RDP-2), Schedule 12; meters were allocated based on a special 2

study presented at Exhibit ___ (E-RDP-2), Schedules 13-14), or allocated 3

using internal allocators selected based on the nature of the asset or cost. 4

5

Assets and expenses functionally classified to Billing Customer were 6

allocated based on special studies (e.g., Accounts 903, 908, and 910 were 7

allocated based on special studies presented at Exhibit ___ (E-RDP-2), 8

Schedules 16, 17, and 18, respectively) or using internal allocators 9

selected based on the nature of the asset or expense. 10

11

Assets and expenses functionally classified to Customer or to any of the 12

Competitive functions were allocated based on the special studies 13

identified above or using internal allocators selected based on the nature of 14

the asset or expense. 15

16

Income tax expense was allocated in proportion to pre-tax income. 17

Revenue at current rates was computed in Exhibit ___ (RDP-2), Schedules 18

7-8, based on normalized values for numbers of bills and customers 19

(Exhibit ___ (E-RDP-2), Schedule 5) and billed delivery volumes kWh 20

and kW (Exhibit ___ (E-RDP-2), Schedule 6). 21

19


Page 17 of 117

Q. Did you reconcile the T&D revenue requirement that was allocated in 1

the ECOSS to the Company’s total revenue requirement for its 2

electric operations? 3

A. Yes. The table set forth below shows the reconciliation. 4

5

($ millions) Total Transmission-Distribution Other

Net revenue at present rates $2,431 $1,420 $1,011 Net income at present rates 216 216 - Net revenue at proposed rates 2,561 1,548 1,013

Net income at proposed rates 292 292 -

6

The category labeled Other comprises Commodity revenue ($723 million), 7

System Benefits Charge/Renewable Portfolio Surcharge revenue ($175 8

million), Public Service Law (“PSL”) Section 18-a Assessment revenue 9

($84 million), and Revenue Taxes ($29 million). 10

11

Q. What rate classes are included in the Company’s ECOSS? 12

A. The following rate classes are included in the ECOSS: 13

• Residential (SC-1) 14

• Residential Time of Use (SC-1C) 15

• Small General – Non - Demand (SC-2ND) 16

20


Page 18 of 117

• Small General - Demand (SC-2D) 1

• Large General - Secondary (SC-3 Secondary) 2

• Large General - Primary (SC-3 Primary) 3

• Large General – Subtransmission/Transmission (SC-3 4

Subtransmission/Transmission) 5

• Large General Time of Use – Secondary/Primary (SC-3A 6

Secondary/Primary) 7

• Large General Time of Use - Subtransmission (SC-3A 8

Subtransmission) 9

• Large General Time of Use - Transmission (SC-3A Transmission) 10

• Lighting (Lighting Tariff classes SC-1, SC-2, SC-3, SC-4, and SC-11

6 combined for purposes of the ECOSS) 12

13

The existing voltage delivery levels (“VDLs”) for existing SC-3A 14

Secondary and SC-3A Primary were combined for purposes of the ECOSS 15

and rate design because existing SC-3A Secondary is a very small class, 16

with twenty customers and kWh sales representing less than 16 percent of 17

the combined class. These two VDLs currently have the same delivery 18

rates and, by combining them, they will continue to have the same 19

delivery rates. In addition, NYPA Replacement Power and Expansion 20

Power customers taking service under different VDLs of SC-3 and SC-3A 21

21


Page 19 of 117

are included in the billing determinants, revenue, and allocators for their 1

respective classes. These customers represent $16.1 million in revenue. 2

In the 2010 Electric Rate Case, the billing determinants, revenue, and 3

allocators were excluded for these classes, and the revenue was included 4

as Other Revenue. 5

6

Q. What revenues were not included in the ECOSS? 7

A. The following revenues were not addressed in the ECOSS because they 8

are recovered under fully reconciling tariff provisions: Commodity 9

revenue, Legacy Transition Charges (“LTC”), NYPA Hydropower Benefit 10

(“NYPA Hydro”) revenue, Electricity Supply Reconciliation Mechanism 11

(“ESRM”) revenue, System Benefits Charge (“SBC”) revenue, Renewable 12

Portfolio Surcharge (“RPS”) revenue, Revenue Decoupling Mechanism 13

(“RDM”) revenue, gross revenue tax revenue, various deferral recovery 14

revenues identified in the testimony and exhibits of the Revenue 15

Requirements Panel, and PSL Section 18-a assessment revenue. 16

17

IV. Overview of ECOSS Exhibits 18

Q. Please describe Exhibit ___ (E-RDP-1), Schedule 1, Index. 19

A. Exhibit ___ (E-RDP-1), Schedule 1, is an index for Exhibit ___ (E-RDP-20

1) and Exhibit ___ (E-RDP-3). 21

22


Page 20 of 117

Q. Please describe the information on Exhibit ___ (E-RDP-1), Schedule 1

2, Summary of Results. 2

A. The Summary of Results shows the earned return on rate base at current 3

rates for the rate classes served by the Company (Line 11) and the relative 4

rates of return (Line 12). The relative rate of return for a rate class is the 5

ratio of the return on rate base for that class to the system average rate of 6

return on rate base. A relative return greater than 1 means the class’s 7

return exceeds the system average. The Summary of Results also shows 8

the change in base distribution revenue required for each class to produce 9

the rate of return on rate base requested by the Company in this 10

proceeding, 7.38 percent (Line 27), and the percentage change this 11

represents (Line 28). 12

13


3, Total Distribution Revenue Requirement Class Allocation. 15

A. Schedule 3 presents the total distribution revenue requirement class 16

allocation, which shows how each element of the revenue requirement was 17

allocated among the rate classes. It is a summary of the class allocations 18

presented on Schedules 6-18. 19

20

23


Page 21 of 117


4, Functionalization. 2

A. Schedule 4, Functionalization, shows how each element of the revenue 3

requirement has been allocated among the functions identified above. The 4

schedule lists each account and its FERC account number, the account 5

balance (in dollars) included in the revenue requirement, the allocator used 6

to assign costs to that account, and the result of the allocation (i.e., the 7

dollars allocated to each function). 8

9

The schedule includes each element of the revenue requirement—Rate 10

Base (Lines 1-58), Operating Expenses (Lines 60-141), Depreciation 11

Expense (Lines 143-153), and Taxes and Other (Lines 155-168). Total 12

expenses are shown on Line 170. Distribution revenues at present rates 13

are shown on Lines 172-180, and the resulting net operating income at 14

current rates is shown on Line 183. A summary of net operating income 15

at current rates and the return on rate base is presented on Lines 185-201, 16

and return on rate base at present rates is shown on Line 204. The revenue 17

requirement necessary to produce the required return on rate base is then 18

computed and shown on Lines 206-224. 19

20

24


Page 22 of 117


5, Classification. 2

A. Schedule 5, Classification, shows how each element of the Primary 3

Distribution and Secondary Distribution functions has been classified to 4

Demand or Customer. Classification schedules are not needed for the 5

other functions because they are classified either 100 percent to Demand 6

(Transmission) or 100 percent to Customer (Billing, Regulatory, and all 7

Competitive functions, as described below). The lines on Schedule 5 are 8

the same as on Schedule 4, Functionalization. 9

10

Q. Please describe the information on Exhibit ___ (E-RDP-1), Schedules 11

6-18, Class Allocations. 12

A. Schedules 6-18, Class Allocations, show how each element of the 13

functionalized, classified costs has been allocated among the rate classes. 14

A schedule is included for each functional classification (i.e., 15

Transmission Demand, Primary Distribution Demand, Primary 16

Distribution Customer, Secondary Distribution Demand, Secondary 17

Distribution Customer, Billing Customer, Regulatory, and each of the 18

Competitive functions). 19

20

25


Page 23 of 117

The totals for Primary Demand, Primary Customer, Secondary Demand, 1

and Secondary Customer are carried forward from Exhibit ___ (E-RDP-1), 2

Schedule 5, Classification. The totals for the other functional 3

classifications are carried forward from Exhibit ___ (E-RDP-1) Schedule 4

4, Functionalization. The lines on Schedules 6-18 are the same as on 5

Schedule 4. 6

7


19, Allocators Assigned. 9

A. Schedule 19 shows the allocator assigned to each element of the revenue 10

requirement at each level—Functionalization, Classification (for the 11

Secondary function), and Class Allocation. The lines on this schedule are 12

the same as on Schedule 4 (Functionalization), Schedule 5 13

(Classification), and Schedules 6-18 (Class Allocation). 14

15


20, Functionalized and Unitized Revenue Requirements, and Exhibit 17

___ (E-RDP-1), Schedules 21, Unitized Revenue Requirements - 18

Competitive Metering. 19

A. Schedule 20 presents functional revenue requirements, a summary of 20

revenue requirements by functional classification, carried forward from 21

26


Page 24 of 117

Line 221 on Schedules 6-18. It also presents unitized revenue 1

requirements, showing the results of the ECOSS on a unitized basis. The 2

units for each functional classification are shown on the schedule. This 3

information can be useful in developing rates and as a check on the 4

reasonableness of the results because the Demand-related unitized costs 5

for each functional classification are expected to be reasonably close 6

across the rate classes. Schedule 21, Unitized Revenue Requirements - 7

Competitive Metering, summarizes the unitized information on Schedule 8

20 for the three Competitive Metering functions. 9

10

Q. Please describe the information on Exhibit ___ (E-RDP-2), 11

Development of Allocators. 12

A. Exhibit ___ (E-RDP-2) develops the allocator values for the external 13

allocators used in the ECOSS. Each schedule presents the development of 14

one of the external allocators used in the ECOSS. The allocators are 15

discussed later in this testimony. 16

17

Q. Please describe the information on Exhibit ___ (E-RDP-3), Allocator 18

Values. 19

A. Exhibit ___ (E-RDP-3), Allocator Values, presents the external and 20

internal allocators used in the ECOSS. The external allocator values are 21

27


Page 25 of 117

from Exhibit ___ (E-RDP-2), Development of External Values. The 1

internal allocator values were computed using a combination of external 2

allocators, other internal allocators, or information developed in the 3

ECOSS. Schedule 1 presents Functionalization allocators, Schedule 2 4

presents Classification allocators, and Schedule 3 presents Class 5

Allocation allocators. 6

7

Q. How did you determine the appropriate allocators for functionalizing, 8

classifying, and allocating the elements of the revenue requirement? 9

A. Selection of the appropriate allocators for functionalizing, classifying, and 10

allocating each component of the revenue requirement was based on 11

careful consideration of cost causality, as well as prior Company 12

methodology, Commission precedent, and utility practice as stated in the 13

Electric Utility Cost Allocation Manual (January 1992), National 14

Association of Regulatory Utility Commissioners (“NARUC Manual”). 15

Cost causality means the cause and effect relationships between customer 16

requirements, load profiles, and usage characteristics, on the one hand, and 17

the costs incurred to serve those requirements, on the other hand. 18

19

28


Page 26 of 117

Q. Did you prepare a schedule that presents the allocators used to 1

functionalize, classify, and class-allocate the components of the 2

revenue requirement? 3

A. Yes, Exhibit ___ (E-RDP-1), Schedule 19 identifies the allocators used to 4

functionalize, classify, and class-allocate each component of the revenue 5

requirement. 6

7

Q. Did you prepare a schedule that summarizes the results of the 8

ECOSS? 9

A. Yes, the results are shown with rate base and expense account details on 10

Exhibit ___ (E-RDP-1), Schedule 3, Total Distribution Revenue 11

Requirement Class Allocation, and are summarized on Exhibit ___ (E-12

RDP-1), Schedule 2, Summary of Results, each of which is discussed 13

above. In addition, Exhibit ___ (E-RDP-1), Schedule 20, Functional 14

Revenue Requirements, presents a summary of revenue requirements by 15

functional classification and also presents the results of the ECOSS on a 16

unitized basis. 17

18

Q. Did you prepare a schedule that develops the revenue requirement for 19

each rate class? 20

29


Page 27 of 117

A. Yes, the revenue requirement for each rate class is computed on Exhibit 1

___ (E-RDP-1), Schedule 2, in the same manner as the total revenue 2

requirement on Exhibit ___ (E-RDP-1), Schedule 3. The revenue 3

requirement for a class is the amount that produces a return on rate base 4

equal to the Company’s weighted average cost of capital, after reflecting 5

the amounts allocated to the class for operating expenses, other expenses, 6

other revenue, and income tax expense. The rate class revenue 7

requirements are shown on Exhibit ___ (E-RDP-1), Schedule 2, Line 13, 8

and are the same as Exhibit ___ (E-RDP-3), Schedule 3, Line 221. 9

10

Q. Did you prepare a schedule that determines the Rate Year revenue 11

deficiency or excess for each rate class? 12

A. Yes, the Rate Year revenue deficiency or excess based on current rates for 13

each class is computed on Exhibit ___ (E-RDP-1), Schedule 2. It is 14

computed by comparing the rate class revenues needed to achieve the 15

weighted average cost of capital (Line 13) to forecast revenue at current 16

rates in the Rate Year (Line 4). The deficiency or excess for each class is 17

shown on Line 27. 18

19

30


Page 28 of 117

V. Development of the Electric Operating Revenue Forecast 1

A. Overview of Operating Revenue Forecast 2

Q. Where is the Electric Operating revenue forecast presented? 3

A. The components of Electric Operating revenues are shown on Exhibit ___ 4

(E-RDP-4), Schedules 2-4 for the Rate Year and the Data Years. Electric 5

Operating revenues include Base Delivery revenue, Commodity revenue, 6

Gross Revenue Tax revenue, and Miscellaneous revenue. The Base 7

Delivery revenue consists of Distribution revenue, Transmission revenue, 8

revenue from surcharges (PSL §18-a Assessment, LTC, NYPA Hydro, 9

SBC, and RPS), and discounts provided to SC-12 customers, Economic 10

Development programs, Low Income credits, and/or standby service 11

contracts. Commodity revenue includes electric supply costs, LTC and 12

new hedges (both of which are discussed later in this testimony), and 13

NYPA Hydro and NYPA Power commodity costs. Miscellaneous 14

revenues include, but are not limited to, wholesale transmission revenue, 15

late payment charges, aggregation fees, pole attachment revenue, rents 16

from electric properties, revenue from ESCos participating in the Purchase 17

of Receivables (“POR”) program associated with credit and collection 18

costs, and deferral recoveries. 19

20

31


Page 29 of 117

Q. What are the total Electric Operating revenues for the Historic Test 1

Year, the Rate Year, and the Data Years as shown in Exhibit ___ (E-2

RDP-4) Schedules 1-4? 3

A. The Company’s total Electric Operating revenues for the Historic Test 4

Year amounted to $3,103,827,904. The forecast revenues for the Rate 5

Year (ending March 2014) and the Data Years (ending March 2015 and 6

2016) are $2,430,290,589, $2,419,160,230, and $2,431,178,946, 7

respectively. The forecast revenues were calculated using the Company’s 8

2012 rates, approved by the Commission in the 2010 Electric Rate Case, 9

and applying them to the forecast billing determinants derived from the 10

sales forecast provided by Witness Gredder that is summarized on Exhibit 11

___ (JFG-13). 12

13

The forecast revenues do not reflect the rate changes proposed in this case. 14

Billing determinants by voltage delivery level were developed by applying 15

historic percentages to current sales levels to obtain the forecast sales. 16

The voltage delivery levels for parent service classifications SC-3 and SC-17

3A include Secondary, Primary, Subtransmission, and Transmission. (A 18

parent service classification is the general service classification under 19

which a customer would otherwise receive service at standard tariff rates 20

based on the customer’s status as residential or farm (SC-1), small general 21

32


Page 30 of 117

(SC-2), large general (SC-3), or large general time of use (SC-3A) and 1

before consideration of other special attributes of the customer identified 2

in the tariff.) The level of kW used to calculate forecast revenues for 3

demand customer service classifications was based on applying an historic 4

load factor ratio to the forecast kWh. (The historic load factor ratio is 5

based on the twelve months ending September 30, 2011, and is equal to 6

historical demand divided by historical kWh.) A separate load factor is 7

calculated for the VDLs within each demand service classification. The 8

forecast kW for each service class was calculated by multiplying the 9

historic load factor ratio by the forecast kWh. Similarly, RkVA was 10

forecast based on an historic ratio for each VDL. The RkVA ratio was 11

defined as historical RkVA divided by historical kW. Schedules 2-4 of 12

Exhibit ___ (E-RDP-4) summarize the Base Delivery revenue, 13

Commodity revenue, and Gross Revenue Tax revenue by service 14

classification. Those schedules also summarize the energy sales (kWh) 15

and billing demands (kW) used as billing determinants for rate design 16

purposes. 17

18

Q. How did the Company forecast revenue for customers taking service 19

at non-standard rates? 20

33


Page 31 of 117

A. There are a number of non-standard rates that must be considered in 1

forecasting revenues for the Rate Year. The more significant of those 2

components of the revenue forecast are discussed below. 3

4

B. Revenue Forecasts for Customers Taking Service at Other 5

than Standard Tariff Rates 6

1. Discounts for Residential Low Income Customers 7

Q. How did you address the forecast discounts for Residential Low 8

Income customers? 9

A. The Company forecast the customer charge revenues for Residential Low 10

Income customers at full standard tariff rates. The forecast of the discount 11

for eligible electric heating customers ($15 each) and for eligible non-12

electric heating customers ($5 each) totaling $10,873,752 are shown 13

separately as a discount in the Other Retail Revenues section in Exhibit 14

___ (E-RDP-4), Schedule 2. 15

16

2. Revenue Forecast for Empire Zone Rider Customers 17

Q. How were the forecast revenues for Empire Zone Rider (“EZR”) 18

customers calculated on Exhibit ___ (RDP-4), Schedules 2-4? 19

A. EZR customers receive discounted service for their qualifying load. The 20

Company forecasts revenue generated from EZR customers who received 21

34


Page 32 of 117

their certification from the State of New York prior to February 1, 2011 at 1

their otherwise applicable standard tariff rates and includes that revenue 2

with the parent service classification revenues. The discount associated 3

with these customers’ qualifying load totaling $13,231,508 is shown 4

separately in the Other Retail Revenues section of Exhibit ___ (E-RDP-4), 5

Schedules 2-4. 6

7

3. Revenue Forecast for Customers with Special Contracts 8

Q. How were the forecast revenues for Service Classification No. 12 9

calculated on Exhibit ___ (RDP-4), Schedules 2-4? 10

A. Under SC-12, which pertains to special contract customers, qualifying 11

customers receive discounted service for all or part of their load. The 12

Company forecasts revenue from SC-12 customers at their otherwise 13

applicable standard tariff rates and includes that revenue with the parent 14

service classification revenues. The discounts associated with these 15

customers are shown separately in the Other Retail Revenues section in 16

Exhibit ___ (E-RDP-4), Schedules 2-4, and total negative $1,125,875. 17

18

Q. Are there any significant changes to the number of customers 19

receiving service under Service Classifications No. 11 and No. 12? 20

35


Page 33 of 117

A. Yes. SC-11 applies to customers who still receive service under 1

individually negotiated contracts that were entered prior to October 10, 2

1997, while SC-12 applies to special contracts entered in accordance with 3

the Commission’s guidelines established in Cases 94-E-0098 and 94-E-4

0099. A number of customers’ contracts under SC-11 and SC-12 expired 5

at the end of 2011. These customers either qualified for a new contract 6

under SC-12 or reverted back to their applicable parent service 7

classification and are currently billed under standard tariff rates. There are 8

no longer any customers being served under SC-11, and the Company is 9

proposing to eliminate this Service Classification from its tariff. 10

Currently, there are thirty-one customers with contracts who receive 11

service under SC-12, two of which expire on June 30, 2012. The revenues 12

for the customers with expired contracts under SC-11 and SC-12 were 13

forecast using the applicable parent service classification tariff rates and 14

were included in the parent service classification revenues. 15

16

4. Revenue Forecast for Customers Receiving High Load 17

Factor Power 18

Q. How were the forecast of High Load Factor (“HLF”) customer 19

discounts calculated on Exhibit ___ (RDP-4), Schedules 2-4? 20

36


Page 34 of 117

A. The Company is currently working with a number of parties to obtain a 1

phase-in agreement for its HLF customers, similar to that discussed below 2

for Expansion Power and Replacement Power customers. The HLF 3

customers currently pay a discounted delivery rate of $2.08 per kW. The 4

Company forecast of the HLF discounts totaling $130,679, which are 5

included in Exhibit ___ (E-RDP-4), Schedules 2-4, were based on the 6

currently proposed phase-in schedule to standard Electric Tariff delivery 7

rates. If additional information is available when the Company submits its 8

corrections and updates in this case, it will be incorporated in the 9

Company’s filing at that time. 10

11

5. Revenue Forecast for Customers Receiving Expansion 12

and Replacement Power 13

Q. Please describe the Company’s purchase and delivery of Expansion 14

Power and Replacement Power supplied by NYPA. 15

A. Since the early 1960s, the Company has purchased 445 MW of 16

Replacement Power (“RP”) and up to 250 MW of Expansion Power 17

(“EP”) from NYPA for resale to eligible industrial and commercial 18

customers in western New York. For many years, customers with 19

“Existing Allocations” (as defined in SC-4 of the Electric Tariff) of EP 20

and RP paid discounted delivery rates of $1.52/kW. In 2011, the 21

37


Page 35 of 117

Commission and FERC approved the Agreement Regarding Treatment of 1

Allocations of New York Power Authority Expansion Power and 2

Replacement Power Beginning January 1, 2012 and Thereafter (“Phase-In 3

Agreement”). The Commission approved the Phase-In Agreement in a 4

December 15, 2011 Order issued in Case 11-E-0535 (the “NYPA Order”). 5

The Phase-In Agreement provides for a transition to full standard tariff 6

delivery rates over a four (or in some cases six) year period for customers 7

with Existing Allocations of EP and RP, beginning January 1, 2012. 8

Customers with “New” or “Additional” Allocations (as defined in SC-4 of 9

the Electric Tariff) of EP and RP already pay full standard tariff delivery 10

rates on their allocations. 11

12

Q. What other changes were included in the Phase-In Agreement that 13

must be reflected in the Company’s forecast delivery revenues for EP 14

and RP customers? 15

A. The Phase-In Agreement approved in the NYPA Order simplifies billing 16

for customers with EP and RP allocations by changing the billing 17

methodology beginning July 1, 2013. Specifically, the Commission’s 18

order: 19

• eliminated the eleven-month maximum used in the Load Factor 20

Sharing billing methodology applicable to EP and RP billing; 21

38


Page 36 of 117

• based EP and RP transmission and distribution billing on 1

customers’ metered demand instead of their contract demand; 2

• changed the loss factors for Existing Allocations of EP and RP 3

to standard tariff loss factors, with the goal of achieving parity 4

among all customers; 5

• provided that total load, including all EP and RP demand, will 6

be used in determining each customer’s parent service 7

classification during the phase-in period to full standard tariff 8

delivery rates and continuing for as long as the customer pays 9

full standard tariff delivery rates; and 10

• amended the tariff to provide for the direct sale of NYPA 11

commodity by NYPA to EP and RP customers after June 30, 12

2013, for which NYPA will bill customers directly and be 13

responsible for associated NYISO charges. 14

15

Q. How did the Company forecast revenues for EP and RP? 16

A. The Company forecast revenues for EP and RP customers by applying the 17

current approved standard delivery rates to the forecast billing demand 18

units for these customers. The billing demand units were calculated by 19

applying an historic load factor ratio to the sales forecast provided by 20

Witness Gredder and applying full standard rates. The Company then 21

39


Page 37 of 117

reduced the EP and RP revenue forecast to reflect the phase-in to standard 1

delivery rates. The discount (which is equal to the difference between the 2

revenue at the standard tariff rates and at the phased-in rates) associated 3

with these customers’ billings totaling $2,576,036 is shown separately on 4

Exhibit ___ (E-RDP-4), Schedules 2-4 on line 30, Expansion & 5

Replacement Power Discounts. 6

7

Because of the difficulty of calculating and forecasting the impacts on the 8

customers’ supplemental load as a result of moving EP and RP allocations 9

to standard Electric Tariff loss factors and the elimination of the eleven 10

month maximum, this revenue difference has not been forecast and will be 11

captured in the Company’s RDM reconciliation. Consistent with the 12

Phase-In Agreement, in developing the revenue forecast for NYPA Power 13

customers, the Company utilized metered demand rather than contract 14

demand in development of the historic load factor ratio, used customers’ 15

total load to determine their applicable parent service classification, and 16

calculated discounts utilizing customers’ applicable phase-in schedule to 17

full standard delivery rates. 18

19

40


Page 38 of 117

Q. How did the Company forecast revenues for supplemental load served 1

under Service Classification No. 4 as shown on Exhibit ___ (E-RDP-2

4), Schedules 2-4? 3

A. In accordance with the NYPA Order, effective July 1, 2013, supplemental 4

load for SC-4 customers will be provided by the Company and billed at 5

either SC-3 or SC-3A rates depending upon the size of the customer’s total 6

load. The Company forecasts revenue generated from SC-4 customers’ 7

supplemental load at their otherwise applicable standard tariff rates and 8

includes that revenue with the parent service classification revenues. 9

10

Q. In the Phase-In Agreement, the Company agreed to review its current 11

practice of using historic demand for customers with EP and RP 12

allocations from NYPA. Please explain what historic demand is for 13

NYPA Hydro customers and how the Company has addressed the 14

issue in forecasting revenues in this filing. 15

A. Historic demand for NYPA Hydro customers is equal to the NYPA 16

customer's average non-NYPA demand during the twelve months 17

immediately preceding the customer’s award of a hydropower allocation 18

by NYPA. A NYPA customer is billed for its historic demand and 19

associated energy consumption at rates associated with their non-NYPA 20

load before any power consumed by the customer is billed at the 21

41


Page 39 of 117

applicable rates for the customer’s NYPA load. As discussed in Section 1

VII.G., the Company is proposing to eliminate the use of historic demand 2

for customers once they are being billed for all of their EP and RP 3

allocations at full standard Electric Tariff delivery rates. 4

5

Q. How did the Company handle the proposed elimination of historic 6

demand for customers with EP and RP allocations in its forecast 7

revenues? 8

A. As shown in Exhibit ___ (E-RDP-4), Schedules 2-4, to reflect the 9

proposed elimination of the use of historic demand, the Company reduced 10

the forecast demand billing determinants for customers with exclusively 11

new EP or RP allocations by their historic demand before calculating their 12

historic load factor ratios. 13

14

6. Revenue Forecast for Customers Receiving Standby 15

Service under SC-7 16

Q. How were the forecast revenues for Service Classification No. 7 17

calculated? 18

A. Under SC-7, the Company provides Standby Service to customers with 19

on-site generation facilities. Exhibit ___ (E-RDP-4), Schedule 2-4, 20

reflects the Company’s forecast of revenue generated from SC-7 21

42


Page 40 of 117

customers at their otherwise applicable standard tariff rates and includes 1

that revenue with their parent service classification revenue. 2

3

Q. How were discounts associated with Special Provision F customers 4

addressed in the revenue forecast? 5

A. Under Special Provision F, certain wholesale generators who have a 6

parent service classification of SC-3 or SC-3A and are served at the 7

subtransmission or transmission voltage level pay a reduced customer 8

charge. The forecast of discounts associated with Special Provision F 9

customers totaling $120,671 was based on Historic Test Year discounts 10

and is shown separately in the ‘Other Retail Revenues’ section in Exhibit 11

___ (RDP-4), Schedules 2-4. 12

13

7. Forecast of Commodity Revenues 14

Q. How did the Company forecast commodity revenues? 15

A. Exhibit ___ (E-RDP-4), Schedules 2-4, sets forth the Company’s 16

commodity revenue forecast, which is based on the February 27, 2012 17

NYMEX strip forward prices. There are a number of components to 18

commodity revenues. First, commodity revenues include electricity 19

supply costs, which were calculated using forecasted monthly load zone 20

weighted average commodity rates multiplied by the forecast kWh 21

43


Page 41 of 117

commodity sales for each service class. Second, commodity revenues 1

include the net market value associated with legacy purchase power 2

contracts entered before June 1, 2001, referred to as the Legacy Transition 3

Charge, or LTC. Third, commodity revenues include the net market value 4

associated with purchase power contracts or financial hedges entered after 5

June 1, 2001, referred to as the New Hedge Adjustment (“NHA”). Fourth, 6

commodity revenues include the net market value associated with NYPA 7

Rural and Domestic power and the benefit of the monthly Residential 8

Consumer Discount Program payment. The monthly net market value of 9

these contracts, or over/under Market Variable Costs, is defined as the 10

contract costs less the projected market value of the generation, as 11

determined by the New York State Independent System Operator 12

(”NYISO”) zonal forward prices. Finally, commodity revenues include 13

revenue received by the Company on behalf of NYPA for power 14

originating from NYPA. 15

16

C. Other Components of Revenue Forecast 17

Q. How were the remaining components of the revenue forecast—18

specifically, the MFC, 18-a assessment, and SBC/RPS surcharge 19

revenues—developed? 20

44


Page 42 of 117

A. These additional revenue components are separate surcharges that are 1

applicable to specific service classes as described in the Electric Tariff. 2

Exhibit ___ (E-RDP-4) reflects the forecast of these components based on 3

the current surcharge rates and applied to the sales forecast for each 4

service class. The MFC surcharge, which is designed to recover the costs 5

associated with electricity supply-related procurement, credit and 6

collections, uncollectible expense, and working capital related to electric 7

supply was forecast based on applying the applicable percentage for 8

uncollectible expense and working capital to the forecast commodity 9

revenue and the applicable per kWh rate for supply procurement and 10

credit and collections as prescribed in Rule 42 of the Electric Tariff to the 11

forecast full service kWh sales and sales by ESCOs under the Purchase of 12

Receivables program. The revenue from the 18-a assessment, or the 13

Incremental State Assessment Surcharge, was based on the current 14

effective surcharge, which was assumed to be in effect through June 30, 15

2014. The revenues from the SBC and RPS surcharges were developed 16

based on a projection of the Company’s energy efficiency program 17

expenses in the Rate Year and Data Years. 18

19

Q. How was Other Electric Revenue forecast? 20

45


Page 43 of 117

A. Forecasts for each item of Other Electric Revenue are provided on Exhibit 1

___ (E-RDP-4), Schedule 5, and the Workpapers supporting Schedule 5. 2

The forecasting method used is shown on the schedule. 3

4

VI. Development of Rate Class Revenue Allocations 5

Q. What is the purpose of revenue allocation? 6

A. The purpose of revenue allocation is to allocate the overall revenue 7

requirement among the various rate classes. Revenue allocation should 8

reflect the results of the ECOSS as closely as possible, while mitigating 9

extreme rate impacts on any individual rate class and on individual 10

customer subgroups. 11

12

Q. Did the Company prepare a schedule that presents the revenue 13

allocation process? 14

A. Yes, Exhibit ___ (E-RDP-5), Schedule 1 presents the results of the 15

revenue allocation process. 16

17

Q. What precedent did the Company use as guidance in the revenue 18

allocation process? 19

A. In allocating revenues to the various service classes, the Company used as 20

guidance the revenue allocation approach presented in the Joint Proposal 21

46


Page 44 of 117

dated February 24, 2012 in Case 11-E-0408, Proceeding on Motion of the 1

Commission as to the Rates, Charges, Rules and Regulations of Orange 2

and Rockland Utilities, Inc. for Electric Service (“O&R 2012 JP”), which 3

followed the approach adopted by the Commission in Orange and 4

Rockland Utilities’ most recent electric base rate proceeding, Case 10-E-5

0362. 6

7

Q. Please describe the revenue allocation proposed by the Company. 8

A. The proposed revenue allocation is shown on Line 22 of Exhibit ___ (E-9

RDP-5), Schedule 1. The proposed increases are shown on Line 24, the 10

increases as a percentage of T&D revenue at present rates are on Line 25, 11

and the relative increases are shown on Line 26 (an average increase 12

equals 1.00). For purposes of revenue allocation, MFC revenue is 13

included in T&D revenue and not in Other revenue. The proposed 14

revenue allocation process has three steps. 15

16

The first step is to realign revenue at present rates so that each rate class 17

moves one-third of the way toward eliminating its surplus or deficiency 18

compared to the system average return. For example, the SC-1 19

Residential class produces a return of 4.63 percent at present rates, which 20

is .85 times the system average return (Lines 1-4). In this first step, SC-1 21

47


Page 45 of 117

Residential revenue is realigned to produce a return of 4.91 percent, which 1

is .90 times the system average, or one-third of the way to the system 2

average from the starting point for this class. 3

4

Q. Why is the Company proposing to move each rate class one-third of 5

the way toward eliminating its surplus or deficiency compared to the 6

system average return? 7

A. As shown on Exhibit ___ (E-RDP-5), Schedule 1, Line 6, the Company is 8

proposing to move each rate class one-third of the way toward eliminating 9

its surplus or deficiency in an effort to balance gradualism with the goal of 10

aligning rates with the cost of service. The computation of the realigned 11

revenue for each rate class is shown on Lines 9-13. 12

13

Q. What is the second step of the revenue allocation process? 14

A. The second step of the process is to allocate the increase in revenue across 15

all the rate classes, in proportion to the realigned revenue, as shown on 16

Exhibit ___ (E-RDP-5), Schedule 1, Line 18. By allocating the increase 17

based on realigned revenue, instead of present rate revenue, the proposed 18

revenue allocation minimizes the potential for compounding existing 19

surpluses and deficiencies. 20

21

48


Page 46 of 117

Q. What is the third and final step of the revenue allocation process? 1

A. The third step is to mitigate any extreme rate impacts by adjusting class 2

revenues so that no class has an increase greater than 1.5 times the system 3

average, and to ensure that no class is further from unity (based on relative 4

rate of return) at proposed revenue than at present rate revenue. As shown 5

on Exhibit ___ (E-RDP-5), Schedule 1, Line 26, no class has an increase 6

at proposed revenue greater than 1.5 times the system average increase, 7

and therefore no revenues need to be reallocated to mitigate any extreme 8

rate impacts (Lines 19-20). However, it was necessary to re-allocate 9

proposed revenue to ensure that no class was further from unity at the 10

proposed revenue than they would be at present rates. Line 39 shows that 11

before this re-allocation, SC-3A Subtransmission would be further from 12

unity under the proposed revenue. The revenue from this class was 13

increased (Line 21) so its progress towards unity equals the progress made 14

by SC-3 Transmission (the class with the least progress towards unity). 15

The additional revenue generated was used to reduce the revenue for the 16

class with the highest rate of return, Outdoor Lighting. 17

18

Q. Did the Company compute the rates of return resulting from the 19

proposed revenue allocation? 20

49


Page 47 of 117

A. Yes, the net income and rates of return produced by rate class are 1

computed on Exhibit ___ (E-RDP-5), Schedule 1, Lines 28-36. The 2

relative rates of return at proposed revenue are shown on Line 37 and 3

progress toward unity is shown on Line 38. 4

5

Q. Does the proposed revenue allocation satisfy the basic principles 6

previously identified? 7

A. Yes, as shown on Exhibit ___ (E-RDP-5), Schedule 1, Line 38, each rate 8

class makes progress towards unity. In addition, no class receives an 9

increase of more than 1.5 times the system average (Line 26). Line 36 10

shows that most of the rates of return at the proposed revenue fall into a 11

narrow range, from 6.53 percent to 8.27 percent (relative rates of return of 12

0.88x-1.12x), for classes representing approximately 87.5 percent of 13

proposed revenue (all classes except SC-1C, SC-2-ND, SC-3A 14

Transmission, and Outdoor Lighting). In addition, the lowest return is 15

5.66 percent return (relative rate of return of 0.77x, with an increase 1.44x 16

the average increase) and the highest is 10.76 percent (relative rate of 17

return of 1.46x), which is a reasonable result. 18

19

50


Page 48 of 117

VII. Electric Tariff Rate Design 1

Q. How is the Panel’s testimony on rate design organized? 2

A. First, the Panel will discuss the purpose of rate design and the guiding 3

principles applied in designing rates. Next, the Panel will summarize its 4

exhibits relating to rate design and, in particular, how the proposed rates 5

for the Rate Year were developed for each rate class. Finally, the Panel 6

will discuss the Company’s proposals regarding time differentiated 7

delivery rates, commodity rates, and certain miscellaneous charges. 8

9

A. Overview of Purpose of Rate Design and Guiding Principles 10

Q. What is the purpose of rate design? 11

A. The purpose of rate design is to determine the rates that will produce the 12

target revenues for each rate class as determined in the revenue allocation 13

process. Rates are designed to recover the proposed T&D revenues. 14

15

Q. What were the Company’s guiding principles for designing rates in 16

this case? 17

A. The Company’s guiding principles for designing the rates proposed in this 18

case were: 19

• To produce T&D revenue for each rate class as determined in the 20

revenue allocation process. 21

51


Page 49 of 117

• To produce total bills for customers and revenues for the Company 1

that are reasonably stable and predictable while reflecting the nature of 2

the costs they are designed to recover, e.g., recovering Customer-3

related costs in the monthly customer charge. 4

• To mitigate extreme rate impacts on customer subgroups. 5

6

B. Rate Design Exhibits 7

Q. Please summarize the Panel’s exhibits concerning rate design. 8

A. Exhibit ___ (E-RDP-6) consists of 11 schedules. 9

• Schedule 1 presents the current and proposed T&D and MFC revenues 10

for the Rate Year by service class. 11

• Schedule 2 shows the results of the rate design for the Rate Year. This 12

schedule shows Rate Year billing determinants, Rate Year revenue at 13

present rates, and Rate Year revenue at proposed rates. Also shown on 14

this schedule is the revenue associated with the MFC that was 15

reclassified from T&D to Commodity. 16

• Schedule 3 shows the development of the SC-7 rates. 17

• Schedules 4 presents a comparison of approved 2012 electric delivery 18

rates versus the proposed rates for the Rate Year. 19

• Schedule 5 presents summary bill impacts for typical customer bills 20

for the Rate Year 21

52


Page 50 of 117

• Schedule 6 presents typical bill impacts for the Rate Year. 1

• Schedule 7 presents summary bill impacts for typical customer bills 2

for the Rate Year reflecting the reduction of the deferral surcharge. 3

• Schedule 8 presents typical bill impacts for the Rate Year reflecting 4

the reduction of the deferral surcharge. 5

• Schedule 9 shows customer bill impacts for SC-3 and SC-3A 6

customers for the Rate Year. 7

• Schedule 10 shows a summary of revenue changes by rate class and a 8

summary of unit revenue changes by rate class for the Rate Year by 9

service class. 10

• Schedules 11 presents the billing determinants for the Rate Year and 11

each Data Year by service class. 12

13

Q. How were the rates proposed for the Rate Year for rate class SC-1 14

developed? 15

A. Rate development for SC-1 is presented in Exhibit ___ (E-RDP-6), 16

Schedule 2, Page 1 of 16. Consistent with the results of the MCOSS, the 17

monthly customer charge of $16.21 was increased to $17.00 for Standard 18

customers. Revenue associated with the MFC at the rate of $0.00191 was 19

removed from the T&D revenue. The kWh-based charge was increased 20

from $0.04206 to $0.04857 to account for the increase in T&D revenue 21

53


Page 51 of 117

requirement. When applied to the Rate Year forecast billing units, these 1

changes are designed to produce the T&D target revenue of $837,306,665 2

presented for SC-1 on Exhibit ___ (E-RDP-6), Schedule 1, Column I, Line 3

1 of 20. 4

5

Q. How were the proposed Rate Year rates for SC-1C developed? 6

A. Rate development for SC-1C is presented in Exhibit ___ (E-RDP-6), 7

Schedule 2, Page 2 of 16. The monthly customer charge of $30.00 was 8

not changed. Revenue associated with the MFC at the rate of $0.00191 9

was removed from the T&D revenue. The kWh-based charge was 10

increased from $0.02859 to $0.03001 to account for the increase in T&D 11

revenue requirement. When applied to the Rate Year forecast billing 12

units, these changes are designed to produce the T&D target revenue of 13

$13,130,197 presented for SC-1C on Exhibit ___ (E-RDP-6), Schedule 1, 14

Column I, Line 2 of 20. 15

16

Q. How were the proposed Rate Year rates for SC-2ND developed? 17

A. Rate development for SC-2ND is presented in Exhibit ___ (E-RDP-6), 18



was removed from the T&D revenue. The kWh-based charge was 21

54


Page 52 of 117




$62,512,050 presented for SC-2ND on Exhibit ___ (E-RDP-6), Schedule 4

1, Column I, Line 3 of 20. 5

6

Q. How were the proposed Rate Year rates for SC-2ND, Veterans 7

Organization Optional Time-Of-Use, developed? 8

A. Rate development for SC-2ND, Veterans Organization, is presented in 9

Exhibit ___ (E-RDP-6), Schedule 2, Page 11 of 16. The monthly 10

customer charge of $10.95 was not changed. The billing determinants for 11

the customers currently receiving pricing under the SC-2ND Veterans 12

Organization service classification was priced at the proposed SC-2ND 13

rates to determine this service classification’s T&D revenue target. 14

Revenue to be realized by the $10.95 customer charge was subtracted 15

from the revenue target. The remaining amount was divided by the kWh 16

billing determinants of this service classification. The kWh-based charge 17

was changed to a time differentiated rate with a flat rate of $0.06397 to be 18

consistent with the approved rate design for SC-2D Veterans Organization 19

pricing. 20

21

55


Page 53 of 117

Q. How were the proposed Rate Year rates for SC-2D developed? 1

A. Rate development for SC-2D is presented in Exhibit ___ (E-RDP-6), 2



was removed from the T&D revenue. The kW-based charge was 5




$180,804,428 presented for SC-2D on Exhibit ___ (E-RDP-6), Schedule 9

1, Page 4 of 4, Column I, Line 4 of 20. 10

11

Q. How were the proposed Rate Year rates for SC-2D, Veterans 12

Organization Optional Time-Of-Use developed? 13

A. The monthly customer charge of $11.08 was not changed. The billing 14

determinants for the one customer currently receiving pricing under the 15

SC-2D Veterans Organization service classification were priced at the 16

proposed SC-2D rates to determine this service classification’s T&D 17

revenue target. Revenue to be realized by the $11.08 customer charge was 18

subtracted from the revenue target. The remaining amount was prorated 19

between the revenue received from the demand charge and the revenue 20

received from the volumetric charge. These amounts were divided by the 21

56


Page 54 of 117

kW and kWh billing determinants of this service classification. The kW-1

based charge was changed from $5.06 to $5.57. The kWh-based charge 2

was changed from $0.02021 to $0.02226. 3

4

Q. How were the proposed Rate Year rates for SC-3 developed? 5

A. SC-3 consists of three VDLs—Secondary (SC-3 Secondary), Primary 6

(SC-3 Primary), and Transmission (SC-3 Subtransmission/Transmission), 7

each of which has a separate rate. Rate development is presented for each 8

VDL in Exhibit ___ (E-RDP-6), Schedule 2, Pages 5, 6, and 7, 9

respectively, and is described below in more detail. 10

11

Q. Please summarize how the proposed Rate Year rates were developed 12

for SC-3 Secondary. 13

A. Rate development for SC-3 Secondary is presented in Exhibit ___ (E-14

RDP-6), Schedule 2, Page 5 of 16. The monthly customer charge of 15

$260.15 and $303.61 for Special Provision L customers was not changed. 16

Revenue associated with the MFC at the rate of $0.00046 was removed 17

from the T&D revenue. Present T&D rates include a kW-demand rate of 18

$9.16 per kW-month. The proposed new rate, $10.05, is computed such 19

that total SC-3 Secondary T&D revenue equals the T&D target revenue. 20

When applied to the Rate Year forecast billing units, these changes are 21

57


Page 55 of 117

designed to produce the T&D target revenue of $125,321,696 presented 1

for SC-3 Secondary on Exhibit ___ (E-RDP-6), Schedule 1, Column I, 2

Line 5. 3

4

Q. How were the proposed Rate Year rates for SC-3 Primary developed? 5

A. Rate development for SC-3 Primary is presented in Exhibit ___ (E-RDP-6

6), Schedule 2, Page 6. The monthly customer charge of $436.70 and 7

$480.16 for Special Provision L customers was not changed. Revenue 8

associated with the MFC at the rate of $0.00046 was removed from the 9

T&D revenue. Present T&D rates include a kW-demand rate of $7.44 per 10

kW-month. The proposed new rate, $8.08, is computed so that total SC-3 11

Primary T&D revenue equals the T&D target revenue. When applied to 12

the Rate Year forecast billing units, these changes are designed to produce 13

the T&D target revenue of $42,134,894 presented for SC-3 Primary on 14

Exhibit ___ (E-RDP-6), Schedule 1, Column I, Line 6. 15

16

Q. How were the proposed Rate Year rates for SC-3 Transmission 17

developed? 18

A. Rate development for SC-3 Transmission is presented in Exhibit ___ (E-19

RDP-6), Schedule 2, Page 7. The monthly customer charge of $565.23 20

and $608.69 for Special Provision L customers was not changed. Revenue 21

58


Page 56 of 117

associated with the MFC at the rate of $0.00046 was removed from the 1

T&D revenue. Present T&D rates include a kW-demand rate of $2.44 per 2

kW-month. The proposed new rate, $2.82, is computed so that total SC-3 3

Transmission T&D revenue equals the T&D target revenue. When 4

applied to the Rate Year forecast billing units, these changes are designed 5

to produce the T&D target revenue of $6,209,162 presented for SC-3 6

Transmission on Exhibit ___ (E-RDP-6), Schedule 1, Column I, Line 7 of 7

20. 8

9

Q. How were the Rate Year rates for SC-3A developed? 10

A. As with SC-3, SC-3A consists of three separate VDLs—11

Secondary/Primary (SC-3A Secondary/Primary), Subtransmission (SC-3A 12

Subtransmission), and Transmission (SC-3A Transmission), each of which 13

has separate rates. Rate development for each VDL in SC-3 is presented 14

in Exhibit ___ (E-RDP-6), Schedule 2, Pages 8 through 10 and is 15

summarized below. 16

17

Q. How were the proposed Rate Year rates for SC-3A 18

Secondary/Primary developed? 19

A. Rate development for SC-3A Primary is presented in Exhibit ___ (E-RDP-20

6), Schedule 2, Page 8. The monthly customer charge of $902.00 was not 21

59


Page 57 of 117

changed. Present SC-3A Primary T&D rates include a kW-demand rate of 1


that total SC-3A Secondary/Primary T&D revenue equals the T&D target 3

revenue. Revenue associated with the MFC at the rate of $0.00046 was 4

removed from the T&D revenue. When applied to the Rate Year forecast 5

billing units, these changes are designed to produce the T&D target 6

revenue of $26,915,943 presented for SC-3A Primary on Exhibit ___ (E-7

RDP-6), Schedule 1, Column I, Line 9. 8

9

Q. How were the proposed Rate Year rates for SC-3A Subtransmission 10

developed? 11

A. Rate development for SC-3A Subtransmission is presented in Exhibit ___ 12

(E-RDP-6), Schedule 2, Page 9 of 16. The monthly customer charge of 13

$1,400.00 was not changed. 14

15

Present SC-3A Subtransmission T&D rates include a kW-demand rate of 16


that total SC-3A Subtransmission T&D revenue equals the T&D revenue 18

allocation. Revenue associated with the MFC at the rate of $0.00046 was 19

removed from the T&D revenue. When applied to the Rate Year forecast 20

billing units, these changes produce the T&D target revenue of 21

60

Date post:	25-Mar-2020
Category:	Documents
Upload:	others
View:	0 times
Download:	0 times

Niagara Mohawk Power Corporation PROCEEDING ON MOTION OF · Niagara Mohawk Power Corporation d/b/a...

Documents