PI PUBLIC SERVICE COMMISSION OF WEST VIRGINIA %% CHARLESTON At a session of the PUBLIC SERVICE COMMISSION OF WEST VIRGINIA, at the Capitol in the City of Charleston on the 3Oth,aay,6f June, 1980. CASE NO. 80-150-E-GI VIRGINIA ELECTRIC AND POWER COMPANY, a corporation. Review of fuel costs of Virginia Electric and Power Company for the period from October 1, 1979 through March 31, 1980 for the purpose of establishing a fuel increment in rates to be effective July 1, 1980 through December 31, 1980. PROCEDURE By letter dated March 11, 1980, Virginia Electric and Power Compan: ("Vepco" or "Company") requested that this Commission establish a fuel review procedure for Vepco similar to procedures that have been established for other electric utilities under the jurisdiction of this commission. By an order entered on the 15th day of April, 1980, the Commission granted such request, required Vepco to file on or before May 15, 1980, its actual fuel costs for the period from October 1, 1979 through March 31, 1980, and set a hearing for June 23, 1980 to determine the appropriate fuel cost increment to be included in Vepco's rates for the period from July 1, 1980 through December 31, 1980. Proper notice was given and the hearing was held as scheduled. Appearances at the hearin were as follows: Michael A. Albert and Guy T. Tripp 111: on behalf of Vepco and William H. Roberts on behalf of Staff. At the conclusion of the hearing, the case was submitted for decision. EVIDENCE Vepco presented a description of the increase in prices of the major fuels it uses for generation between 1978, the test period in its last general rate case, and the test period in this case, the six month ending March 31, 1980. (DRH Exh. A) Such increases were summarized in six attachments to the testimony of Mr. David R. Hostetler, Manager, Fuel Resources of Vepco. Mr. C. L. Dozier, Jr., Manager of General Accounting Services of Vepco, through various calculations, appl.ied the PUBLIC 6E OF W C ~ ~ $ ~ s ' o N
per kwh cost of fuel experienced during the six-month review period for each method of generation to the generation mix which occurred during the 1978 calendar year test period used in Case No. 79-040-E-42T to arrive at a recommended fuel expense increment increase of,0.742 cents/ kwh. Mr. E. Paul Hilton, Director o:f Rate Design for Vepco, presented proposed First Revisions of Original Sheets Nos. 5, 6, 7, 8, LO, 10-A and 12 of Vepco's Tariff P.S.C. W.Va. No. 8, which reflect the fuel increment increase of 0.742 cents/kwh provided by Mr. Dozier, to show how the fuel cost increment would be included in the Company's rates during the six billing months of July through December, 1980. MI-. Hilt requested the Commission to apply the fuel increment to bills rendered during billing months which are not necessarily calendar months to avoid having to confuse Vepco's customers by proration of bills. (EPH Exh. A, EPH Attachments 1 through 8) Mr. Dozier, in computing his recommended fuel increment increase of 0.742 cents/kwh, calculated the cost factor per mwh for each type of fuel used in the generation of power during the test period ending March 31, 19801 and applied such costs of generation to the 1978 mix of production and came up with a revised total cost of fuel2 at going leve (review period costs per 1978 generation mix). He then allocated. such total cost of fuel to West Virginia ratepayers on the basis of a.49% demand factor and a.68% energy factor to obtain a total going-level West Virginia jurisdictional fuel cost in the amount of $5,615,351. The fuel increment or cost embedded in rates3 as the result of Vepco's most recent rate case (79-040-E-42T) was subtracted from Vepco's. proposed going level figure for fuel costs of the test period under review herein, to arrive at Mr. Dozier's present under-recovery of fuel costs. Mr. Dozier converted his calculated under-recovery of fuel cos into a cost per kwh for West Virginia,Test Year Sales, and adjusted SUC cost for taxes to arrive at his recommended fuel increment increase of 0.742 ~ents/kwh.~ (CLO Exh. A, Attachment A) In Attachment B to his 1 2 Nuclear - $5.531/mwhr; Steam - $30.374)mwhr; $850,315,811 Other - $75.27l/mwlnr. 4 5 $3,827,059 (15.238 mills/kwh) through July 31, 1979, at the meter. $1,788,292 $1'788f292 = $0.00712 X 1.0417 (tax factor) X 100 = $0.742/kwh. m PUBLIC OF 6E W m $? s ' o N CH m 2
Exhibit A, Mr. Dozier computes a fuel increment of 1.16 cents/kwh by using the actual system fuel expenses, including the fuel component of purchases and interchanged power, and generation mix for the six-month period ended March 31, 1980, but did not support such calculation for use in this case. Staff, through the testimony of David T. Carden, recommends that the Commission adopt a fuel increment increase of 0.276 cents/kwh. (Staff Exh. No. 1, Exhibits A and B) The calculation of such recommend1 fuel increment was made from projected generation and fuel costs made b: Vepco and presented to the Virginia State Corporation Commission in its fuel review, Case No. PUE800067, by Company Witness Gary R. Keesecker. Such information was filed with the Virginia Commission on May 14, 1980 Mr. Carden took Vepco's projection of cost for each type of fuel used in the generation of power for the period July - December L9806 and applied such generation cost projections to Vepco's projected July - December 1980 mix of generation to arrive at a total weighted average cost of generation of 1.741 cents/kwh. Such figure represents a 0.253 cents/kwh increase over the level of fuel expense that exists in present rates. Mr. Carden converted the fuel expense increase to a function of 1978 system sales which included line loss considerations and after adjusting such increase for taxes arrived at his recommended fuel increment increase of 0.276 cents/kwh. (Staff Exh. No. 1, Exh. B) A summary of both Staff and Vepco's generation mix and cost of generation factors together with their resulting calculations are shown for purposes of a comparison as follows: 7 Generation Mix Nuclear Steam Other SJep'co % 36.21 62.76 -- '1.,o 3 100.00 Staff % 38.06 61.68.26 100.00 Cost of Generation _r S/MWH~ $/MWH9 Nuclear ---KT-n 5.27 Steam 30.374 24.54 Other 75.271 103.87 Weighted Average Fuel Cost (before Taxes and Line Losses) Total Company 21.893 17.41 West Virginia 22.358 13.41 c 6 7 8 9 Nuclear - $5.27/mwhr; Steam - $24.54/mwhr; Other - $103.87/mwhr Staff Exhibit No. 1, p. CLD Exhibit A, Attachment A H-C. J-I l - l u PUBLIC OF BE W ~? s ' O N CH E 3
_I_ c Calculation: -.'-- Fuel Cost in Present Rates Requested Fuel Cost Increase Tax Factor Recommended Fuel Increment DISCUSSION $ /MWH S/MWH,., Sales Level Sales Level 15.238 15.58 22.358 18.23 7.120 2.65 1.0417 1.0417 7.42 2.76 -. - As already noted, based on their respective methods of calculation the recommended fuel increments to be included in rates for the period July through December 1980 as presented by Staff and Vepco, involve a $4.66/mwh variance. Such variance results from the use by Staff and Vepco of different power generation fuel mixes, primarily in the steam category, and the use of different fuel costs of generation. Neither Staff nor Vepco recommend that the fuel mix that occurred during the six months ending March 31, 1980 should be used in this particular case. Several events caused such six-month period to be ill-suited for use as a basis upon which to base a future power generation fuel mix. Such events include the steam generator replacement outage at'surry Unit 2, the Nuclear Regulatory Commission's (NRC) required seismic reanalyse's and the NRC's reluctance to issue a license for North Anna 2 in 1979 which forced Vepco to rely to a greater extent on fossil generation during 1979, and the test period for' this case, than in previous years. The Three Mile Island accident and its aftermath 'was thus a big factor rendering the test period (six months ending March 31, 1980) generation mix inappropriate for use in projecting Vepco's fuel increment for the six months ending December 31, 1980. As a result of such accident, Vepco, in the test period, operated to a large extent with its Nuclear Base Load Units shut down, which loss of supply was made up by higher cost oil generation and purchased power. Vepco's use of the 1978 test year generation mix and the actual fuel cost of generation experienced during the six months ended March 3 1980 as opposed to Staff's use of Vepco's projected generation mix and cost of generation for the six-month period July through December 1980, are the primary reasons for the variance in the two recommended fuel increments. By using sales in their calculation of an appropriate fuel increment both Staff and Vepco have made adjustments for line losses. Staff and Vepco utilize similar percentages in their power generation fuel mix and are reasonably close on their cost of nuclear PUBLIC 6E OF W mgrs'on C 4 I_
generation. However, Staff's cost of other generation (combustion turbine) is greater than Vepco's. The major difference between Staff and Vepco lies in Staff's cost of fossil fuel which is only 80% of Vepco's because of the dramatically different mixes utilized between oil and coal. The Company's use of $30.374/mwh for the cost of fossil generation for the six months ended March 31, 1980 reflects a mix of 54% oil and 46% coal, whereas Staff's use of $24.54/mwh or the same cost category for the six months ended December 31, 1980, reflects a mix of 24% oil and 76% coal. We believe that Vepco's proposed fuel increment increase of 0.742 cents/kwh is excessive in that it is not based upon its own most recent projection of the generation mix and cost of generation that it will experience during the 'six-month period ending December 31, 1980. We are of the opinion that Staff's recommended fuel increment increase of 0.276 cents/kwh based upon Vepco's own projections as to generation mix and cost of generation for the six months beginning July 1980 is reasonable and the figure that best represents fuel costs that will be incurred during such period. COMMENT Since this is Vepco's first fuel review proceeding and because of the events that rendered the proposed test period generation mix inappropriate for use in this case we will address the issues of the appropriate generation mix and the proper method of forecasting fuel costs in the future on a case by case basis. We have priced Vepcd's fuel expense at a seasonable level to be included in its cost of servic There was never a "dollar for dollar" recovery for fuel expense in past rate cases, and we do not intend that our fuel review proceedings insur such a precise recovery. We will not calculate precise over or under recoveries, as does the Virginia Commission, but, as the Commission did in this case, will consider the evidence presented to us in each case in setting a reasonable fuel increment that will not result in substantial hardship to the customers or the company. We will review, on a semi-annual basis, the Company's fuel costs. Vepco, as required in our order of April 15, 1980, is to file on or before November 15, 1980, its actual fuel costs for the period from Apvil 1, 1980 through September 30, 1980. A public hearing will be he1 5
c in December to determine the fuel increment to be included in Vepco's rates for the January through June 1981 billing months. Also included in Vepco's next fuel review will be an evaluation by Staff of the cost of fuel sold by Laurel. Run Mining Company, a subsidiary company, to Vepco's Mt. Storm plant. FINDINGS OF FACT Based upon the evidence and record in this case, we make the following findings of fact: 1. Vepco's projected generation mix and cost of generation as contained in Staff Exh. No. 1, pp. 2 and 3, and Staff Exh. A, are reasonable and are adopted for the purpose of this case. 2. Vepco's proposed usage of its billing months instead of calendar months effective for the period July through December 1980 and thereafter is reasonable. 3. A fuel increment increase of 0.276 cents/kwh is reasonable for the billing months July through December 1980. CONCLUSIONS OF LAW Weighing all of the evidence, we find that the following conclusioi provide a proper basis for the determination of a reasonable fuel increment in the rates of the Virginia Electric and Power Company, a corporation, pursuant to the requirements of 524-2-3, West Virginia Code, 1931: 1. Vepco's use of its billing months cycle for the period July through December 1980 and thereafter is reasonable and will be allowed unless changed by the Commission. 2. A reasonable fuel increment is 0.276 cents/kwh for the billing months July through December 1980. AND IT IS SO ORDERED. & + + CHA t & w R M$ AL N OMMISSION 6