Niagara Mohawk Power Corporation d/b/a National Grid

Transcription

1 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

2 Testimony of Electric Rate Design Panel

3 Before the Public Service Commission NIAGARA MOHAWK POWER CORPORATION d/b/a NATIONAL GRID Direct Testimony of The Electric Rate Design Panel 1

4 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 Discounts for Residential Low Income Customers Revenue Forecast for Empire Zone Rider Customers Revenue Forecast for Customers with Special Contracts Revenue Forecast for Customers Receiving High Load Factor Power Revenue Forecast for Customers Receiving Expansion and Replacement Power Revenue Forecast for Customers Receiving Standby Service under SC 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

5 Testimony of the Electric Rate Design Panel G. Elimination of Historic Demand...67 H. Changes to Miscellaneous Charges Charge for Re-Establishment or Disconnection of Service 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 X. smission Revenue Adjustment Mechanism XI. Revenue Decoupling Mechanism XII. Marginal Cost of Service Study XIII. Conclusion

6 Testimony of the Electric Rate Design Panel I. Introduction and Qualifications Q. Please introduce the members of the Electric Rate Design Panel. A. The Electric Rate Design Panel ( Panel ) consists of Howard S. Gorman, Pamela B. Dise, and Kellie I. Smith. The Panel is testifying on behalf of Niagara Mohawk Power Corporation d/b/a National Grid ( Niagara Mohawk or Company ) Q. By whom are each of you employed and in what capacity? A. (Mr. Gorman) I am the President of HSG Group, Inc. My business address is 45 Hill Park Avenue, Great Neck, NY A. (Ms. Dise) My title is Manager of Electric Pricing - New York for National Grid USA Service Company, Inc. ( National Grid Service Company ) A. (Ms. Smith) My title is Lead Analyst Electric Pricing - New York for National Grid Service Company Q. Please briefly describe the Panel members educational backgrounds, professional experience, and prior testimony before the New York Page 1 of 117 4

7 Testimony of the Electric Rate Design Panel Public Service Commission ( Commission ) or any other regulatory agency. A. The Panel members educational backgrounds, professional experience, and prior testimony before the Commission and other regulatory agencies are set out in Exhibit (E-RDP-12). 6 7 II. Purpose of Testimony and Summary of Exhibits Q. What is the purpose of the Panel s testimony? A. The purpose of the Panel s testimony is to present the following: 1. The Company s actual revenue for the twelve months ended December 31, 2011 ( Historic Test Year or Test Year ) and the forecast of total electric operating revenues, gross revenue taxes, electric commodity revenues, and electric delivery revenues for the forecast twelve months ending March 31, 2014 (the Rate Year ) and, the twelve months ending March 31, 2015 and 2016 (the Data Years ); 2. The results of the Company s embedded class cost of service study ( ECOSS ) and marginal cost of service study ( MCOSS ) for the Rate Year; 3. Proposed revenue requirement changes for each of the Company s service classifications for smission and Distribution ( T&D ) services; Page 2 of 117 5

8 Testimony of the Electric Rate Design Panel The Company s proposed rate design for each service classification under the Company s tariff s for electric service, P.S.C. No. 220 (the Electric Tariff ) and P.S.C. No. 214 (the Lighting Tariff ); 5. The proposed unbundled rates for competitive services in accordance with the Commission s November 9, 2001 Order in Case 00-M-0504 (the November 9 Order ), Proceeding on Motion of the Commission Regarding Provider of Last Resort Responsibilities, the Role of Utilities in Competitive Energy Markets, and Fostering the Development of Retail Competitive Opportunities (the Unbundling Cost Study Case ); 6. A summary of the Company s offering and pricing of various economic development programs, including its Empire Zone Rider ( EZR ) discount for qualifying EZR load certified after February 1, 2011 and New York Power Authority ( NYPA ) power program; and 7. The Company s proposal to offer Time of Use Electricity Supply pricing for residential customers Q. Is the Panel sponsoring any exhibits? A. Yes. The Panel is sponsoring the following exhibits, which were prepared by or under the supervision of one or more members of the Panel: Exhibit (E-RDP-1) is the ECOSS. Page 3 of 117 6

9 Testimony of the Electric Rate Design Panel III. Exhibit (E-RDP-2) presents the development of external allocators used in the ECOSS. Exhibit (E-RDP-3) presents the values for external and internal allocators used in the ECOSS. Exhibit (E-RDP-4) provides the actual base delivery revenues and usage, by service class, for the Test Year and the annual forecast for the Rate Year and for each of the Data Years. Exhibit (E-RDP-5) shows the Company s proposed revenue allocation. Exhibit (E-RDP-6) shows the Company s Electric Tariff rate design for all rate classes. Exhibit (E-RDP-7) presents the direct assignment of costs for the competitive functions and the calculation of the Merchant Function Charge ( MFC ) and changes to miscellaneous charges. Exhibit (E-RDP-8) presents the Lighting Tariff rate design for all lighting rate classes. Exhibit (E-RDP-9) sets forth the Company s proposed updates to its smission Revenue Adjustment mechanism. Exhibit (E-RDP-10) is the MCOSS. Exhibit (E-RDP-11) is the marginal cost rate design. Exhibit (E-RDP-12) contains the resumes of the members of the Panel. Exhibit (E-RDP-13) contains supporting workpapers for various exhibits. Summary of Embedded Cost of Service Study Purpose and Process 38 Q. Please describe what an ECOSS is and why it is presented. Page 4 of 117 7

10 Testimony of the Electric Rate Design Panel A. The purpose of an ECOSS is to apportion fairly a utility s total revenue requirement, including plant and other investments, operating expenses, depreciation, and taxes among the rate classes served by the utility. The ECOSS produces a revenue amount for each rate class equal to the revenue that needs to be collected from that class to produce the system average rate of return on rate base. This information provides valuable guidance in revenue allocation, and in the development of rates, to recover the utility s overall revenue requirement from all rate classes Q. How is an ECOSS prepared? A. Each element of the utility s total revenue requirement is analyzed and assigned to or allocated among the rate classes. A three-step process is traditionally used to analyze each element of the revenue requirement. The first step is functionalization of each element. For the Company s electric operations, these functions are smission, Primary Distribution, Secondary Distribution, Billing, Regulatory, and Competitive. The second step is to classify each functionalized cost element as Demand, Energy, or Customer. The final step, class allocation, is the allocation of each functionalized, classified cost element among the rate classes. Each of these steps is described in greater detail below. 21 Page 5 of 117 8

11 Testimony of the Electric Rate Design Panel Q. What is the purpose of the functionalization step of an ECOSS? A. In the functionalization step, costs are separated by the utility s basic service functions. For purposes of the Company s ECOSS, these functions have been identified as either regulated or competitive as follows: Regulated Functions smission Bulk transmission system, designed to move power from generation sources to the primary distribution system, operating at voltages of 22 kv and up. Primary Distribution - Designed to move power from the transmission system to the secondary distribution system and to customers premises; includes substations as well as conductors operating at voltages of 2.2 kv up to 15 kv and related assets. Secondary Distribution - Designed to move power from the primary distribution system to customers premises; includes service drops. Billing - Includes meters and other assets and activities related to connecting customers to the system and distributing electricity to them, as well as billing and collecting for the services provided. Page 6 of 117 9

12 Testimony of the Electric Rate Design Panel Regulatory - Regulatory items in the revenue requirement (i.e., deferred assets and costs such as nuclear fuel disposal liability and the unbilled revenue asset). Competitive Functions Competitive Supply Competitive Collections Competitive Billing Competitive Meter Data Competitive Meter Services Competitive Meter Ownership Q. What is the purpose of the classification step of an ECOSS? A. In the classification step, the previously functionalized accounts are classified as Demand, Commodity, or Customer, according to the system design or operating characteristics that cause them to be incurred. Customer-related costs are incurred to attach a customer to the distribution system, to meter the customer s usage, and to maintain both customerrelated distribution assets and the customer's account. Customer-related costs are primarily a function of the number of customers served, and they continue to be incurred whether or not a particular customer uses any electricity, and typically do not vary with usage or load profile. They Page 7 of

13 Testimony of the Electric Rate Design Panel include capital costs associated with the customer portion of the primary and secondary distribution system, services and meters, operating costs associated with those assets, as well as costs of performing customer service, field service, billing, and accounting Commodity-related costs vary with the electricity sold to or delivered to customers Demand- or capacity-related costs are associated with plant that is designed, constructed, and operated to meet system peak demand or non- coincident class peak demand Q. What is the purpose of the class allocation step of the ECOSS? A. In the class allocation step, the functionalized, classified costs are allocated among the rate classes based on causal relationships. These relationships are determined by analyzing the Company s system design and operations, its accounting records, and its system and customer load data. Based on those analyses, each asset and cost is either directly assigned to a rate class or an appropriate cost allocator is chosen. 20 Page 8 of

14 Testimony of the Electric Rate Design Panel Q. Please summarize the ECOSS methodology used. A. In preparing the ECOSS, the Company used the same methodology as in Case 10-E-0050, Proceeding on Motion of the Commission as to the Rates, Charges, Rules and Regulations of Niagara Mohawk Power Corporation for Electric Service ( 2010 Electric Rate Case ) Q. Please explain how assets and costs were assigned or allocated among the functions. A. In general, functionalization follows costs as recorded in the FERC Uniform System of Accounts. However, some accounts are functionalized to more than one function. For example, Overhead Conductors and Devices (Account 365) and Underground Conductors and Devices (Account 367) were functionalized to both Primary Distribution and Secondary Distribution, based on a special study. In this study, circuit miles of assets were separated by voltage level, corresponding to Primary and Secondary voltages, and costs were allocated based on the voltage level splits. The study is presented in Exhibit (E-RDP-2), Schedule 21. Poles, Towers and Fixtures (Account 364) were functionalized based on a similar study using overhead conductor linear miles, also presented in Exhibit (E-RDP-2), Schedule 21. Underground Conduits (Account 366) were functionalized based on information included in the study Page 9 of

15 Testimony of the Electric Rate Design Panel performed for Underground Conductors and Devices. Other assets were functionalized by direct assignment based on the definition of the functions (e.g., Stations were assigned to Primary, Services were assigned to Secondary) or were allocated based on an appropriate allocator (e.g., General Plant was allocated based on the labor content of the accounts) Costs were directly assigned to a function whenever possible. For example, smission Plant and smission Operation and Maintenance ( O&M ) costs were directly assigned to the smission function. Costs related directly to particular assets, such as Maintenance of Overhead Lines (Account 593), were allocated in proportion to the assets Q. Were any accounts re-functionalized? A. Yes. In accordance with the Commission s November 9 Order, certain accounts were assigned to a Competitive function, instead of the Regulated function that would otherwise have applied, based on a special study. The amount of each account related to Collections activity was identified in a special study, and re-functionalized between the Billing (non-competitive) and Competitive Supply functions based on revenues. The amounts of each account related to the other Competitive functions Page 10 of

16 Testimony of the Electric Rate Design Panel and the function to which they should be re-functionalized were also identified in the special study. In implementing this re-functionalization, minor amounts (under $10,000) were omitted because they were unlikely to affect the results and would have required substantial additional effort The accounts that the Commission identified in its order in the Unbundling Cost Study Case as requiring re-functionalization were: Supervision for Customer Records and Collection (Account 901); Meter Reading Expenses (Account 902); Customer Records and Collection Expense (Account 903); Miscellaneous Customer Accounts Expense (Account 905); Supervision for Customer Assistance (Account 907); Customer Assistance Expense (Account 908); Customer Service - Miscellaneous Expense (Account 910); A&G - Salaries (Account 920); A&G - Office Supplies (Account 921); A&G Outside Services (Account 923); Injuries and Damages (Account 925); and A&G - Research & Development (Account ) Q. How were assets and costs classified as Demand, Commodity, and Customer in the ECOSS? A. Most assets and costs fit into one of the three classifications, but some were split between Demand and Customer based on special studies or the Page 11 of

17 Testimony of the Electric Rate Design Panel classification of related assets or other related costs. All assets and costs in the smission function were classified as Demand-related, and all assets and costs in the Billing function were classified as Customerrelated. The costs for Poles, Towers and Fixtures, Overhead Conductors and Devices, Underground Conduits, and Underground Conductors and Devices, which are in the Primary Distribution and Secondary Distribution functions, were classified to both Demand and Customer The Demand/Customer split for these assets was based on a special study, presented in Exhibit (E-RDP-2), Schedule 4, which computes the labor portion of total capital cost for those assets for the years Labor costs are largely independent of conductor capacity and, therefore, are unrelated to Demand. Because they vary with circuit miles, Labor costs are related to the number of customers attached to the system. The special study showed that approximately 61 percent of total capital for these assets constitute labor costs For the primary distribution system, the Customer component was set at 50 percent, which is the same as the Customer component of Primary Distribution in the 2010 Electric Rate Case. This is lower than the results of the special study because a portion of the primary system does not Page 12 of

18 Testimony of the Electric Rate Design Panel attach customers to the system and is not related to the Customer component. This portion of the primary system serves as the backbone of the overall distribution system, transmitting electricity from substations; then it branches to serve customers at a localized level, either through the primary system or through further branches to the secondary system. To recognize that a portion of the primary system does not attach customers, the portion classified as Customer-related was set at 50 percent, which is lower than the Labor component (i.e., the Customer-related portion) of capital cost developed in the special study. The remaining 50 percent was classified as Demand-related For the secondary distribution system, the Labor portion of the capital cost (i.e., approximately 61 percent of the cost) was classified as Customer- related and the balance was Demand-related In developing the Demand allocators for allocation of costs among the rate classes, no adjustment was made for peak load carrying capacity of the Customer-related portion of assets because the Customer-related portion included no costs for conductors or other materials, and therefore had no load carrying capacity. 21 Page 13 of

19 Testimony of the Electric Rate Design Panel sformers were classified as Demand-related because they are sized to meet local demand. Allocation of transformers is discussed below. Services and Meters were classified to Customer because the Company s investment is based primarily on the number of customers Primary Distribution and Secondary Distribution costs that are related to particular assets were classified in proportion to those assets. Other costs, such as Operation Supervision and Engineering (Account 580), were classified based on the labor content of expense accounts because the costs consist primarily of labor All items in the Competitive functions were classified as Customerrelated; however, the allocation of Competitive function costs among the rate classes could be made on the basis of kwh deliveries, peak demand or any other basis, and not necessarily on a customer count basis Q. How were smission and Distribution assets and expenses allocated among the rate classes? A. smission assets and expenses were allocated based on the relative contribution of each class to the Company s annual system peak for the smission system, or 1CP. Assets and expenses functionally classified Page 14 of

20 Testimony of the Electric Rate Design Panel to Primary Demand were allocated based on the class non-coincident peaks ( NCPs ) at the primary voltage level. Assets and expenses functionally classified to Secondary Demand were allocated based either on the class NCPs at the secondary voltage level, on special studies (e.g., transformers), or on internal allocators that were selected based on the nature of the asset or expense (e.g., labor, plant, or other expenses). The NCP s were developed based on the average of the actual load factors for the three years ended November 2011, September 2010, and August 2009, applied to the normalized kwh sales levels for the Rate Year, as presented in Exhibit (E-RDP-2), Schedules 20 and 21. This method provides a representative picture of demands likely to be experienced in the Rate Year because it averages out the effect of historical weather by including three years in the sample and applying the resulting load factors to weather-normalized kwh sales. The three years included are the years for which data are readily available, and include the three most recent summers Assets and expenses functionally classified to Primary Customer and Secondary Customer were either directly assigned (e.g., to the Lighting class), allocated based on special studies (e.g., transformers were allocated based on a special study presented at Exhibit (E-RDP-2), Schedules 9- Page 15 of

21 Testimony of the Electric Rate Design Panel ; services were allocated based on a special study presented at Exhibit (E-RDP-2), Schedule 12; meters were allocated based on a special study presented at Exhibit (E-RDP-2), Schedules 13-14), or allocated using internal allocators selected based on the nature of the asset or cost Assets and expenses functionally classified to Billing Customer were allocated based on special studies (e.g., Accounts 903, 908, and 910 were allocated based on special studies presented at Exhibit (E-RDP-2), Schedules 16, 17, and 18, respectively) or using internal allocators selected based on the nature of the asset or expense Assets and expenses functionally classified to Customer or to any of the Competitive functions were allocated based on the special studies identified above or using internal allocators selected based on the nature of the asset or expense Income tax expense was allocated in proportion to pre-tax income. Revenue at current rates was computed in Exhibit (RDP-2), Schedules 7-8, based on normalized values for numbers of bills and customers (Exhibit (E-RDP-2), Schedule 5) and billed delivery volumes kwh and kw (Exhibit (E-RDP-2), Schedule 6). Page 16 of

22 Testimony of the Electric Rate Design Panel Q. Did you reconcile the T&D revenue requirement that was allocated in the ECOSS to the Company s total revenue requirement for its electric operations? A. Yes. The table set forth below shows the reconciliation. 5 ($ millions) Total smission -Distribution Other Net revenue at present rates $2,431 $1,420 $1,011 Net income at present rates Net revenue at proposed rates Net income at proposed rates 2,561 1,548 1, The category labeled Other comprises Commodity revenue ($723 million), System Benefits Charge/Renewable Portfolio Surcharge revenue ($175 million), Public Service Law ( PSL ) Section 18-a Assessment revenue ($84 million), and Revenue Taxes ($29 million) Q. What rate classes are included in the Company s ECOSS? A. The following rate classes are included in the ECOSS: Residential (SC-1) Residential Time of Use (SC-1C) eral Non - Demand (SC-2ND) Page 17 of

23 Testimony of the Electric Rate Design Panel eral - Demand (SC-2D) Large General - Secondary (SC-3 Secondary) Large General - Primary (SC-3 Primary) Large General Subtransmission/smission (SC-3 Subtransmission/smission) Large General Time of Use Secondary/Primary (SC-3A Secondary/Primary) Large General Time of Use - Subtransmission (SC-3A Subtransmission) Large General Time of Use - smission (SC-3A smission) Lighting (Lighting Tariff classes SC-1, SC-2, SC-3, SC-4, and SC- 6 combined for purposes of the ECOSS) The existing voltage delivery levels ( VDLs ) for existing SC-3A Secondary and SC-3A Primary were combined for purposes of the ECOSS and rate design because existing SC-3A Secondary is a very small class, with twenty customers and kwh sales representing less than 16 percent of the combined class. These two VDLs currently have the same delivery rates and, by combining them, they will continue to have the same delivery rates. In addition, NYPA Replacement Power and Expansion Power customers taking service under different VDLs of SC-3 and SC-3A Page 18 of

24 Testimony of the Electric Rate Design Panel are included in the billing determinants, revenue, and allocators for their respective classes. These customers represent $16.1 million in revenue. In the 2010 Electric Rate Case, the billing determinants, revenue, and allocators were excluded for these classes, and the revenue was included as Other Revenue Q. What revenues were not included in the ECOSS? A. The following revenues were not addressed in the ECOSS because they are recovered under fully reconciling tariff provisions: Commodity revenue, Legacy sition Charges ( LTC ), NYPA Hydropower Benefit ( NYPA Hydro ) revenue, Electricity Supply Reconciliation Mechanism ( ESRM ) revenue, System Benefits Charge ( SBC ) revenue, Renewable Portfolio Surcharge ( RPS ) revenue, Revenue Decoupling Mechanism ( RDM ) revenue, gross revenue tax revenue, various deferral recovery revenues identified in the testimony and exhibits of the Revenue Requirements Panel, and PSL Section 18-a assessment revenue IV. Overview of ECOSS Exhibits Q. Please describe Exhibit (E-RDP-1), Schedule 1, Index. A. Exhibit (E-RDP-1), Schedule 1, is an index for Exhibit (E-RDP- 1) and Exhibit (E-RDP-3). Page 19 of

25 Testimony of the Electric Rate Design Panel Q. Please describe the information on Exhibit (E-RDP-1), Schedule 2, Summary of Results. A. The Summary of Results shows the earned return on rate base at current rates for the rate classes served by the Company (Line 11) and the relative rates of return (Line 12). The relative rate of return for a rate class is the ratio of the return on rate base for that class to the system average rate of return on rate base. A relative return greater than 1 means the class s return exceeds the system average. The Summary of Results also shows the change in base distribution revenue required for each class to produce the rate of return on rate base requested by the Company in this proceeding, 7.38 percent (Line 27), and the percentage change this represents (Line 28) Q. Please describe the information on Exhibit (E-RDP-1), Schedule 3, Total Distribution Revenue Requirement Class Allocation. A. Schedule 3 presents the total distribution revenue requirement class allocation, which shows how each element of the revenue requirement was allocated among the rate classes. It is a summary of the class allocations presented on Schedules Page 20 of

26 Testimony of the Electric Rate Design Panel Q. Please describe the information on Exhibit (E-RDP-1), Schedule 4, Functionalization. A. Schedule 4, Functionalization, shows how each element of the revenue requirement has been allocated among the functions identified above. The schedule lists each account and its FERC account number, the account balance (in dollars) included in the revenue requirement, the allocator used to assign costs to that account, and the result of the allocation (i.e., the dollars allocated to each function) The schedule includes each element of the revenue requirement Rate Base (Lines 1-58), Operating Expenses (Lines ), Depreciation Expense (Lines ), and Taxes and Other (Lines ). Total expenses are shown on Line 170. Distribution revenues at present rates are shown on Lines , and the resulting net operating income at current rates is shown on Line 183. A summary of net operating income at current rates and the return on rate base is presented on Lines , and return on rate base at present rates is shown on Line 204. The revenue requirement necessary to produce the required return on rate base is then computed and shown on Lines Page 21 of

27 Testimony of the Electric Rate Design Panel Q. Please describe the information on Exhibit (E-RDP-1), Schedule 5, Classification. A. Schedule 5, Classification, shows how each element of the Primary Distribution and Secondary Distribution functions has been classified to Demand or Customer. Classification schedules are not needed for the other functions because they are classified either 100 percent to Demand (smission) or 100 percent to Customer (Billing, Regulatory, and all Competitive functions, as described below). The lines on Schedule 5 are the same as on Schedule 4, Functionalization Q. Please describe the information on Exhibit (E-RDP-1), Schedules 6-18, Class Allocations. A. Schedules 6-18, Class Allocations, show how each element of the functionalized, classified costs has been allocated among the rate classes. A schedule is included for each functional classification (i.e., smission Demand, Primary Distribution Demand, Primary Distribution Customer, Secondary Distribution Demand, Secondary Distribution Customer, Billing Customer, Regulatory, and each of the Competitive functions). 20 Page 22 of

28 Testimony of the Electric Rate Design Panel The totals for Primary Demand, Primary Customer, Secondary Demand, and Secondary Customer are carried forward from Exhibit (E-RDP-1), Schedule 5, Classification. The totals for the other functional classifications are carried forward from Exhibit (E-RDP-1) Schedule 4, Functionalization. The lines on Schedules 6-18 are the same as on Schedule Q. Please describe the information on Exhibit (E-RDP-1), Schedule 19, Allocators Assigned. A. Schedule 19 shows the allocator assigned to each element of the revenue requirement at each level Functionalization, Classification (for the Secondary function), and Class Allocation. The lines on this schedule are the same as on Schedule 4 (Functionalization), Schedule 5 (Classification), and Schedules 6-18 (Class Allocation) Q. Please describe the information on Exhibit (E-RDP-1), Schedule 20, Functionalized and Unitized Revenue Requirements, and Exhibit (E-RDP-1), Schedules 21, Unitized Revenue Requirements - Competitive Metering. A. Schedule 20 presents functional revenue requirements, a summary of revenue requirements by functional classification, carried forward from Page 23 of

29 Testimony of the Electric Rate Design Panel Line 221 on Schedules It also presents unitized revenue requirements, showing the results of the ECOSS on a unitized basis. The units for each functional classification are shown on the schedule. This information can be useful in developing rates and as a check on the reasonableness of the results because the Demand-related unitized costs for each functional classification are expected to be reasonably close across the rate classes. Schedule 21, Unitized Revenue Requirements - Competitive Metering, summarizes the unitized information on Schedule 20 for the three Competitive Metering functions Q. Please describe the information on Exhibit (E-RDP-2), Development of Allocators. A. Exhibit (E-RDP-2) develops the allocator values for the external allocators used in the ECOSS. Each schedule presents the development of one of the external allocators used in the ECOSS. The allocators are discussed later in this testimony Q. Please describe the information on Exhibit (E-RDP-3), Allocator Values. A. Exhibit (E-RDP-3), Allocator Values, presents the external and internal allocators used in the ECOSS. The external allocator values are Page 24 of

30 Testimony of the Electric Rate Design Panel from Exhibit (E-RDP-2), Development of External Values. The internal allocator values were computed using a combination of external allocators, other internal allocators, or information developed in the ECOSS. Schedule 1 presents Functionalization allocators, Schedule 2 presents Classification allocators, and Schedule 3 presents Class Allocation allocators Q. How did you determine the appropriate allocators for functionalizing, classifying, and allocating the elements of the revenue requirement? A. Selection of the appropriate allocators for functionalizing, classifying, and allocating each component of the revenue requirement was based on careful consideration of cost causality, as well as prior Company methodology, Commission precedent, and utility practice as stated in the Electric Utility Cost Allocation Manual (January 1992), National Association of Regulatory Utility Commissioners ( NARUC Manual ). Cost causality means the cause and effect relationships between customer requirements, load profiles, and usage characteristics, on the one hand, and the costs incurred to serve those requirements, on the other hand. 19 Page 25 of

31 Testimony of the Electric Rate Design Panel Q. Did you prepare a schedule that presents the allocators used to functionalize, classify, and class-allocate the components of the revenue requirement? A. Yes, Exhibit (E-RDP-1), Schedule 19 identifies the allocators used to functionalize, classify, and class-allocate each component of the revenue requirement Q. Did you prepare a schedule that summarizes the results of the ECOSS? A. Yes, the results are shown with rate base and expense account details on Exhibit (E-RDP-1), Schedule 3, Total Distribution Revenue Requirement Class Allocation, and are summarized on Exhibit (E- RDP-1), Schedule 2, Summary of Results, each of which is discussed above. In addition, Exhibit (E-RDP-1), Schedule 20, Functional Revenue Requirements, presents a summary of revenue requirements by functional classification and also presents the results of the ECOSS on a unitized basis Q. Did you prepare a schedule that develops the revenue requirement for each rate class? Page 26 of

32 Testimony of the Electric Rate Design Panel A. Yes, the revenue requirement for each rate class is computed on Exhibit (E-RDP-1), Schedule 2, in the same manner as the total revenue requirement on Exhibit (E-RDP-1), Schedule 3. The revenue requirement for a class is the amount that produces a return on rate base equal to the Company s weighted average cost of capital, after reflecting the amounts allocated to the class for operating expenses, other expenses, other revenue, and income tax expense. The rate class revenue requirements are shown on Exhibit (E-RDP-1), Schedule 2, Line 13, and are the same as Exhibit (E-RDP-3), Schedule 3, Line Q. Did you prepare a schedule that determines the Rate Year revenue deficiency or excess for each rate class? A. Yes, the Rate Year revenue deficiency or excess based on current rates for each class is computed on Exhibit (E-RDP-1), Schedule 2. It is computed by comparing the rate class revenues needed to achieve the weighted average cost of capital (Line 13) to forecast revenue at current rates in the Rate Year (Line 4). The deficiency or excess for each class is shown on Line Page 27 of

33 Testimony of the Electric Rate Design Panel V. Development of the Electric Operating Revenue Forecast A. Overview of Operating Revenue Forecast Q. Where is the Electric Operating revenue forecast presented? A. The components of Electric Operating revenues are shown on Exhibit (E-RDP-4), Schedules 2-4 for the Rate Year and the Data Years. Electric Operating revenues include Base Delivery revenue, Commodity revenue, Gross Revenue Tax revenue, and Miscellaneous revenue. The Base Delivery revenue consists of Distribution revenue, smission revenue, revenue from surcharges (PSL 18-a Assessment, LTC, NYPA Hydro, SBC, and RPS), and discounts provided to SC-12 customers, Economic Development programs, Low Income credits, and/or standby service contracts. Commodity revenue includes electric supply costs, LTC and new hedges (both of which are discussed later in this testimony), and NYPA Hydro and NYPA Power commodity costs. Miscellaneous revenues include, but are not limited to, wholesale transmission revenue, late payment charges, aggregation fees, pole attachment revenue, rents from electric properties, revenue from ESCos participating in the Purchase of Receivables ( POR ) program associated with credit and collection costs, and deferral recoveries. 20 Page 28 of

34 Testimony of the Electric Rate Design Panel Q. What are the total Electric Operating revenues for the Historic Test Year, the Rate Year, and the Data Years as shown in Exhibit (E- RDP-4) Schedules 1-4? A. The Company s total Electric Operating revenues for the Historic Test Year amounted to $3,103,827,904. The forecast revenues for the Rate Year (ending March 2014) and the Data Years (ending March 2015 and 2016) are $2,430,290,589, $2,419,160,230, and $2,431,178,946, respectively. The forecast revenues were calculated using the Company s 2012 rates, approved by the Commission in the 2010 Electric Rate Case, and applying them to the forecast billing determinants derived from the sales forecast provided by Witness Gredder that is summarized on Exhibit (JFG-13) The forecast revenues do not reflect the rate changes proposed in this case. Billing determinants by voltage delivery level were developed by applying historic percentages to current sales levels to obtain the forecast sales. The voltage delivery levels for parent service classifications SC-3 and SC- 3A include Secondary, Primary, Subtransmission, and smission. (A parent service classification is the general service classification under which a customer would otherwise receive service at standard tariff rates based on the customer s status as residential or farm (SC-1), small general Page 29 of

35 Testimony of the Electric Rate Design Panel (SC-2), large general (SC-3), or large general time of use (SC-3A) and before consideration of other special attributes of the customer identified in the tariff.) The level of kw used to calculate forecast revenues for demand customer service classifications was based on applying an historic load factor ratio to the forecast kwh. (The historic load factor ratio is based on the twelve months ending September 30, 2011, and is equal to historical demand divided by historical kwh.) A separate load factor is calculated for the VDLs within each demand service classification. The forecast kw for each service class was calculated by multiplying the historic load factor ratio by the forecast kwh. Similarly, RkVA was forecast based on an historic ratio for each VDL. The RkVA ratio was defined as historical RkVA divided by historical kw. Schedules 2-4 of Exhibit (E-RDP-4) summarize the Base Delivery revenue, Commodity revenue, and Gross Revenue Tax revenue by service classification. Those schedules also summarize the energy sales (kwh) and billing demands (kw) used as billing determinants for rate design purposes Q. How did the Company forecast revenue for customers taking service at non-standard rates? Page 30 of

36 Testimony of the Electric Rate Design Panel A. There are a number of non-standard rates that must be considered in forecasting revenues for the Rate Year. The more significant of those components of the revenue forecast are discussed below B. Revenue Forecasts for Customers Taking Service at Other than Standard Tariff Rates 1. Discounts for Residential Low Income Customers Q. How did you address the forecast discounts for Residential Low Income customers? A. The Company forecast the customer charge revenues for Residential Low Income customers at full standard tariff rates. The forecast of the discount for eligible electric heating customers ($15 each) and for eligible nonelectric heating customers ($5 each) totaling $10,873,752 are shown separately as a discount in the Other Retail Revenues section in Exhibit (E-RDP-4), Schedule Revenue Forecast for Empire Zone Rider Customers Q. How were the forecast revenues for Empire Zone Rider ( EZR ) customers calculated on Exhibit (RDP-4), Schedules 2-4? A. EZR customers receive discounted service for their qualifying load. The Company forecasts revenue generated from EZR customers who received Page 31 of

37 Testimony of the Electric Rate Design Panel their certification from the State of New York prior to February 1, 2011 at their otherwise applicable standard tariff rates and includes that revenue with the parent service classification revenues. The discount associated with these customers qualifying load totaling $13,231,508 is shown separately in the Other Retail Revenues section of Exhibit (E-RDP-4), Schedules Revenue Forecast for Customers with Special Contracts Q. How were the forecast revenues for Service Classification No. 12 calculated on Exhibit (RDP-4), Schedules 2-4? A. Under SC-12, which pertains to special contract customers, qualifying customers receive discounted service for all or part of their load. The Company forecasts revenue from SC-12 customers at their otherwise applicable standard tariff rates and includes that revenue with the parent service classification revenues. The discounts associated with these customers are shown separately in the Other Retail Revenues section in Exhibit (E-RDP-4), Schedules 2-4, and total negative $1,125, Q. Are there any significant changes to the number of customers receiving service under Service Classifications No. 11 and No. 12? Page 32 of

38 Testimony of the Electric Rate Design Panel A. Yes. SC-11 applies to customers who still receive service under individually negotiated contracts that were entered prior to October 10, 1997, while SC-12 applies to special contracts entered in accordance with the Commission s guidelines established in Cases 94-E-0098 and 94-E A number of customers contracts under SC-11 and SC-12 expired at the end of These customers either qualified for a new contract under SC-12 or reverted back to their applicable parent service classification and are currently billed under standard tariff rates. There are no longer any customers being served under SC-11, and the Company is proposing to eliminate this Service Classification from its tariff. Currently, there are thirty-one customers with contracts who receive service under SC-12, two of which expire on June 30, The revenues for the customers with expired contracts under SC-11 and SC-12 were forecast using the applicable parent service classification tariff rates and were included in the parent service classification revenues Revenue Forecast for Customers Receiving High Load Factor Power Q. How were the forecast of High Load Factor ( HLF ) customer discounts calculated on Exhibit (RDP-4), Schedules 2-4? Page 33 of

39 Testimony of the Electric Rate Design Panel A. The Company is currently working with a number of parties to obtain a phase-in agreement for its HLF customers, similar to that discussed below for Expansion Power and Replacement Power customers. The HLF customers currently pay a discounted delivery rate of $2.08 per kw. The Company forecast of the HLF discounts totaling $130,679, which are included in Exhibit (E-RDP-4), Schedules 2-4, were based on the currently proposed phase-in schedule to standard Electric Tariff delivery rates. If additional information is available when the Company submits its corrections and updates in this case, it will be incorporated in the Company s filing at that time Revenue Forecast for Customers Receiving Expansion and Replacement Power Q. Please describe the Company s purchase and delivery of Expansion Power and Replacement Power supplied by NYPA. A. Since the early 1960s, the Company has purchased 445 MW of Replacement Power ( RP ) and up to 250 MW of Expansion Power ( EP ) from NYPA for resale to eligible industrial and commercial customers in western New York. For many years, customers with Existing Allocations (as defined in SC-4 of the Electric Tariff) of EP and RP paid discounted delivery rates of $1.52/kW. In 2011, the Page 34 of

40 Testimony of the Electric Rate Design Panel Commission and FERC approved the Agreement Regarding Treatment of Allocations of New York Power Authority Expansion Power and Replacement Power Beginning January 1, 2012 and Thereafter ( Phase-In Agreement ). The Commission approved the Phase-In Agreement in a December 15, 2011 Order issued in Case 11-E-0535 (the NYPA Order ). The Phase-In Agreement provides for a transition to full standard tariff delivery rates over a four (or in some cases six) year period for customers with Existing Allocations of EP and RP, beginning January 1, Customers with New or Additional Allocations (as defined in SC-4 of the Electric Tariff) of EP and RP already pay full standard tariff delivery rates on their allocations Q. What other changes were included in the Phase-In Agreement that must be reflected in the Company s forecast delivery revenues for EP and RP customers? A. The Phase-In Agreement approved in the NYPA Order simplifies billing for customers with EP and RP allocations by changing the billing methodology beginning July 1, Specifically, the Commission s order: eliminated the eleven-month maximum used in the Load Factor Sharing billing methodology applicable to EP and RP billing; Page 35 of

41 Testimony of the Electric Rate Design Panel based EP and RP transmission and distribution billing on customers metered demand instead of their contract demand; changed the loss factors for Existing Allocations of EP and RP to standard tariff loss factors, with the goal of achieving parity among all customers; provided that total load, including all EP and RP demand, will be used in determining each customer s parent service classification during the phase-in period to full standard tariff delivery rates and continuing for as long as the customer pays full standard tariff delivery rates; and amended the tariff to provide for the direct sale of NYPA commodity by NYPA to EP and RP customers after June 30, 2013, for which NYPA will bill customers directly and be responsible for associated NYISO charges Q. How did the Company forecast revenues for EP and RP? A. The Company forecast revenues for EP and RP customers by applying the current approved standard delivery rates to the forecast billing demand units for these customers. The billing demand units were calculated by applying an historic load factor ratio to the sales forecast provided by Witness Gredder and applying full standard rates. The Company then Page 36 of

42 Testimony of the Electric Rate Design Panel reduced the EP and RP revenue forecast to reflect the phase-in to standard delivery rates. The discount (which is equal to the difference between the revenue at the standard tariff rates and at the phased-in rates) associated with these customers billings totaling $2,576,036 is shown separately on Exhibit (E-RDP-4), Schedules 2-4 on line 30, Expansion & Replacement Power Discounts Because of the difficulty of calculating and forecasting the impacts on the customers supplemental load as a result of moving EP and RP allocations to standard Electric Tariff loss factors and the elimination of the eleven month maximum, this revenue difference has not been forecast and will be captured in the Company s RDM reconciliation. Consistent with the Phase-In Agreement, in developing the revenue forecast for NYPA Power customers, the Company utilized metered demand rather than contract demand in development of the historic load factor ratio, used customers total load to determine their applicable parent service classification, and calculated discounts utilizing customers applicable phase-in schedule to full standard delivery rates. 19 Page 37 of

43 Testimony of the Electric Rate Design Panel Q. How did the Company forecast revenues for supplemental load served under Service Classification No. 4 as shown on Exhibit (E-RDP- 4), Schedules 2-4? A. In accordance with the NYPA Order, effective July 1, 2013, supplemental load for SC-4 customers will be provided by the Company and billed at either SC-3 or SC-3A rates depending upon the size of the customer s total load. The Company forecasts revenue generated from SC-4 customers supplemental load at their otherwise applicable standard tariff rates and includes that revenue with the parent service classification revenues Q. In the Phase-In Agreement, the Company agreed to review its current practice of using historic demand for customers with EP and RP allocations from NYPA. Please explain what historic demand is for NYPA Hydro customers and how the Company has addressed the issue in forecasting revenues in this filing. A. Historic demand for NYPA Hydro customers is equal to the NYPA customer's average non-nypa demand during the twelve months immediately preceding the customer s award of a hydropower allocation by NYPA. A NYPA customer is billed for its historic demand and associated energy consumption at rates associated with their non-nypa load before any power consumed by the customer is billed at the Page 38 of