BEFORE THE
ARKANSAS PUBLIC SERVICE COMMISSION
IN THE MATTER OF THE MOTION OF THE )
GENERAL STAFF OF THE ARKANSAS )
PUBLIC SERVICE COMMISSION TO ) DOCKET NO. 98-339-U
ESTABLISH A DOCKET TO DETERMINE )
THE REASONABLENESS OF THE RATES OF )
SOUTHWESTERN ELECTRIC POWER COMPANY )
STIPULATION AND SETTLEMENT AGREEMENT
On December 3, 1998, the Arkansas Public Service Commission General Staff
("Staff") and Southwestern Electric Power Company ("SWEPCO" or "Company") filed
a Joint Request for Protective Order for Cost of Service Software, thereby
establishing this docket pursuant to an ongoing Staff review of the utility's
operations. On December 4, 1998, the Commission issued Order No. 1 granting the
Joint request to protect from public disclosure the software owned by Management
Applications Consulting, Inc. and used by SWEPCO in preparation of its cost of
service studies.
On April 29, 1999, Order No. 2 granted the Petition to Intervene filed by
Tyson Foods, Inc. ("Tyson") on April 16, 1999. On May 5, 1999, the Attorney
General's ("AG") office filed a notice of its intent to be an active party in
this docket.
On May 24, 1999, the Staff filed a Motion for a Show Cause Order. In its
motion, Staff requested:
a. That the rates of the Company be reduced in the amount of $7,808,960
to reflect the recovery of an Arkansas retail revenue requirement of
$175,814,167.
b. That the Company be required to prepare and file within sixty (60) days a
cost of service study based on the twelve-month period ending June 30,
1998.
c. That the Commission issue an order directing SWEPCO to show cause why its
present rates should not be reduced.
In support of its Motion and based upon its analysis of the Company's
financial performance for the twelve months ending June 30, 1998, Staff filed,
on May 24, 1999, the prepared testimonies and exhibits of its witnesses Xxxxxxxx
X. Xxxxx, Xxxx Xxxxxx, Xxxx Xxxxxxxxx, Xxxxx X. Xxxxx, X.X. Xxxxxxxx, X. Xxxx
Xxxxxx, and Xxxxx X. Xxxxx.
Commission Order No. 3, issued on June 4, 1999, directed SWEPCO to show
cause why its present rates should not be reduced by $7,808,960 and required
the Company to file, by July 23, 1999, a cost of service study, based on the
twelve-month period ending June 30, 1998, including appropriate testimony in
support thereof and rebuttal testimony to Staff's May 24, 1999 prepared
testimony. The Order provided that Staff shall file appropriate
rebuttal/surrebuttal testimony by August 12, 1999, and set the matter for a
hearing on August 24, 1999. Errata Order No. 4 amended Order No. 3, so as to
include the filing of responsive intervenor testimony by August 12, 1999. Order
No. 5 entered on July 20, 1999, changed the procedural schedule to July 30,
1999 for testimonies and exhibits in either support of the anticipated
Settlement Agreement or the respective positions of the parties; August 19,
1999 for rebuttal testimony; and August 30, 1999 for the public hearing.
After reviewing Staff's testimony and exhibits, the parties began
discussions in an effort to resolve their differences. During the course of
those discussions, SWEPCO provided the Staff with additional information for
review and consideration. After evaluating the additional information, three of
the parties, namely the AG, SWEPCO, and the Staff (collectively referred to as
the "Settling parties") were able to reach agreement. Accordingly, the Settling
Parties state that this Stipulation and Settlement Agreement ("Agreement" or
"Stipulation") is in the public interest and recommend it to the Commission as
follows:
1. GENERAL
In light of the recent passage of Act 1556 of 1999, coupled with the
Staff's investigation of SWEPCO's rates, the overall objective of this
Agreement is to establish reasonable rates and to lay the groundwork for
SWEPCO's transition to a competitive market. To meet this overall
objective, the Agreement reflects a reduction in SWEPCO's revenue
requirement, and the unbundling of the fuel revenue requirement from base
rates to provide an intermediate step toward preparing and educating
customers for the upcoming customer choice and unbundled tariffs. The cost
of service reflects equal class rates of return and removes subsidies at
the Customer Class level. Rates are designed to send appropriate pricing
signals while minimizing customer impacts through a phase-in plan. The
Settling Parties believe the following Agreement accomplishes these
objectives and, as a whole, is in the public interest.
2. REVENUE REQUIREMENT
SWEPCO's Arkansas Retail Revenue Requirement is agreed to be:
Base Rate Revenue Requirement $ 98,508,372
Fuel Cost Recovery (1) 65,038,305
------------
Total Rate Schedule Revenue Requirement $163,546,677
Other Revenues 14,826,608
------------
Total Arkansas Retail Revenue Requirement $178,373,285
The agreed upon Arkansas Retail Revenue Requirement results in an Arkansas
Retail Revenue Excess of $5,355,609. SWEPCO's Arkansas Retail Revenue
Requirement and corresponding Revenue Excess are supported by the
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(1) SWEPCO's Fuel Cost is to be collected through Staff's proposed Energy Cost
Recovery Rider ("Rider ECR"), Attachemnt VIII to the Agreement.
cost-of-service study (Settlement COS") presented as Attachment I of the
Stipulation. Attachment II of the Stipulation present the Company's
"Non-fuel" Arkansas Retail Revenue Requirement ("Settlement Non-fuel
COS"). All Arkansas retail fuel costs, an equal amounts of revenues, and
the test year level of margins received from affiliated and non-affiliated
off-system sales transactions were removed from the Settlement COS to
arrive at the Settlement Non-fuel COS.
While the agreed upon revenue requirement reflects a negotiated
settlement of all issues, the Settling Parties agree that the Arkansas
Retail Revenue Requirement was arrived at by adjusting Staff's Revenue
Requirement presented in its Prepared Exhibit FDE-1 to reflect the
following:
a. Arkansas jurisdictional Other Operating Revenues were increased to
reflect the stipulated change in miscellaneous service fees and
charges, as identified in Attachment III. The miscellaneous service
fees and charges will be moved toward the cost incurred by the
Company to provide the service.
b. Rate Base was adjusted to correct an error in Staff's case. Staff
had adjusted plant-in-service for plant retirements and net removal
costs to occur during the pro forma year, but did not make the
corresponding adjustment to accumulated depreciation.
c. Property Tax Expense was increased to reflect the aforementioned
change to rate base.
d. The amount of O & M Expense disallowed as a result of Staff's review
of expense vouchers was revised. The Company provided additional
information to support the inclusion of certain expenses disallowed
in Staff's filing.
e. Based upon additional information provided by the Company, Staff's
initial adjustment to Distribution O & M Expense was increased based
on actual maintenance projects underway in the pro forma year.
f. Bad Debt Expense was revised to be specific to the Arkansas
jurisdiction, instead of the Total Company basis reflected in
Staff's filing, resulting in a change to the revenue conversion
factor.
g. The depreciation expense contained in the Settlement COS is based on
the depreciation parameters and rates in Attachment IV. These
depreciation rates reflect the recommended rates and parameters
contained in the Prepared Testimony of X. Xxxx Xxxxxx filed on May
24, 1999, refined to incorporate (1) separate retirement dates for
each unit of production plant, rather than the plant by location
retirement dates, and (2) actual interim retirement ratios (IRR) for
Coal and Lignite Production Accounts 312 and 314, rather than Gas
and Oil IRRs. Each of these revisions reflects a more specific basis
for rate determination than reflected in Staff's filing.
h. The overall rate of return used in the settlement cost of service is
6.82%. This rate is based on the capital structure and cost rates
reflected in Staff witness Xxxx Xxxxxxxxx'x Exhibit MW-17 filed on
May 24, 1999, revised to reflect the upper end of Staff's
recommended range on equity of 10.25%-10.75%.
i. Income Tax Expense was adjusted to reflect the aforementioned
changes.
3. COST OF SERVICE
The purpose of the Customer Class Cost of Service Study is to
distribute the Total Company Revenue Requirement to the Customer Classes
and to the underlying Rate Schedules in order to determine their separate
revenue requirements. Rates of return were equalized at the Customer
Class level in order to send appropriate price signals and rate schedule
revenue requirements were adjusted to minimize customer impact.
While the agreed upon Customer Class Cost of Service Study reflects
a negotiated settlement of all customer class cost of service issues, the
Settling Parties agree that the Customer Class Cost of Service Study
(Attachment V) was arrived at by adjusting Staff's Customer Class Cost of
Service Study presented in its Prepared Exhibit FDE-1 to reflect the
following:
a. In view of some particular costs included in customer information
and customer service accounts 907 through 916, and as part of the
overall settlement of this docket, accounts 907 through 916 were
allocated 50% on the basis of number of customers and 50% on the
number of kilowatt hours.
b. Rate Schedules were adjusted so that no Rate Schedule within the
Customer Classes receiving a reduction would receive a rate
increase. Rate schedules within a Rate Class receiving a decrease,
that under attachment V show an increase, will receive no increase.
The remaining rate Schedules within each Customer Class were
adjusted to reflect the same average reduction or increase as the
Customer Class.2 See Attachment VI.
c. The Basic Residential Service Rate will be maintained and the three
separate electric end-use rate schedules will be consolidated into
one rate for Residential Electric End-Use because of the similarity
of their usage characteristics.
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2 To the extent that a rate schedule is differentiated between voltage levels,
the average reduction would be applied at the total rate schedule level.
4. PHASE-IN OF EQUAL RATES OF RETURN
The Settling Parties agree that the rates of return by class should
be equalized and that equal rates of return will be phased in as necessary
over a two-year period. The increases to the Lighting Class will be phased
in with half of the increase becoming effective with the compliance
tariffs and the remainder of the increase becoming effective in one year.
The increases to the Lighting Class will be made concurrently with the
decreases to the Commercial/Small Industrial, Large Industrial, and
Municipal classes; the Residential Class decrease will all occur in the
first year. See Attachment VI. The concurrent adjustments allow for the
recovery of the stipulated Total Arkansas Retail Revenue Requirement in
each year, therefore, there will be no need to accrue carrying charges.
5. RATE DESIGN
In order to reduce administration of tariffs and better reflect current
usage, the Company will implement tariff changes that simplify, consolidate,
and/or eliminate customer classes. The rate design agreed to by the Settling
Parties is as follows:
a. Residential Class
There will be two residential rate schedules - Basic Residential Service
and Residential Electric End-Use. Both residential rate schedules will
include a seasonal differential and the End-Use rate will include a
declining block structure. The customer charge will reflect the current
charge of $6.88. The Rider to Residential Service for Controlled Service
to Water Heaters will be closed to new customers.
b. Low-Load Factor-Time of Use and Large Lighting and Power-Time of Use
The Load-Load Factor - Time of Use rate schedule will be eliminated and
its single customer will be moved to the Lighting and Power - Time of
Use rate schedule. The Large Lighting and Power - Time of Use rate
schedule will also be eliminated. There are no customers taking service
under this rate schedule and thus there will be no revenue or cost impact
of the elimination of this schedule. Consistent with the provisions
of the tariff, the Experimental Economic Development Rider will be
closed, however existing contracts will be honored through the date of
Retail Open Access.
c. Lighting Classes
For all lighting classes, in order to provide consistent pricing and to
simplify the lighting tariffs, several seldom-used lighting options will
no longer be available. The Private Lighting and Area Lighting rate
schedules will be closed to new customers and a new dusk to xxxx lighting
service will be introduced.
d. Other Tariffs and Service Regulations
Certain miscellaneous fees and charges in the Charges Related to Customer
Activity rate schedule will be changed to more closely reflect the current
costs of providing those services as shown in Attachment III. The Charges
for Special or Additional Facilities schedule will be modified and a new
rate based on current costs will be charged for new customer contracts.
The language for Underground Electric Distribution Service Agreement
(Attachment VII) will be amended to simplify and clarify the tariff.
6. ENERGY COST RECOVERY RIDER
The Company's energy cost will be recovered through the Energy Cost
Recovery Rider, ("Rider ECR"), Attachment VIII of the Agreement. The initial
Energy Cost Rate will be determined using data for the twelve-month period ended
December 31, 1998. The Energy Cost Rate will also reflect the estimated
over/under recovery balance associated with SWEPCO's current energy adjustment
rider. The initial redetermination filing, as required under Rider ECR, will
reflect a true-up adjustment for the estimated over/under recovery balance
associated with SWEPCO's current energy adjustment rider. Since the Company's
energy cost will be recovered through Rider ECR, the Company's Rate Schedule No.
27, the Fuel Adjustment Rider, will be eliminated.
Treatment of Non-Affiliated Sales Margins:
In consideration of incorporating a fixed minimum level of off-system
sales margins in the energy cost recovery rider, and in recognition of the
differences in off-system sales margins pre and post merger and the treatment
afforded off-system sales revenues as the result of the American Electric Power
("AEP") merger in other jurisdictions, incremental margins from sales will be
shared between customers and shareholders as described in a. and b. and as shown
in the tables below. Off-system sales margins are defined as margins from sales
transactions to non-affiliated utilities made under the Central & South West
("CSW") Joint Operating Agreement pre-merger, and under the AEP System
Integration Agreement post-merger. The customers' share of off-system sales
margins will be reflected in the calculation of the Energy Cost Recovery Rider.
a. Pre-merger, the minimum or base off-system sales margin to be included in
the Energy Cost Recovery Rider and credited to customers on an annual
basis is $583,539. For any off-system sales margins allocated to SWEPCO's
Arkansas retail jurisdiction between $583,539 and $758,600, 100% of such
margins shall be credited to retail customers. For any off-system sales
margins allocated to SWEPCO's Arkansas retail jurisdiction between
$758,600 and $1,167,078, 85% of such margins shall be credited to retail
customers and 15% of such margins shall be retained by shareholders.
For any off-system sales margins allocated to SWEPCO's Arkansas retail
jurisdiction above $1,167,078, 50% of such margins shall be credited to
customers and 50% of such margins shall be retained by the shareholders.
PRE-MERGER
Threshold Level Threshold Level
Base Off-System for 15% Sharing for 50% Sharing
Sales Margin in by Shareholders by Shareholders
Company the Test Year in Off-System Sales Off-System Sales
------- --------------- ---------------- ----------------
SWEPCO $583,539 $758,600 $1,167,078
b. Post-merger, the minimum or base off-system sales margin to be include
in the Energy Cost Recovery Rider and credited to customers on an annual
basis is $758,600. Any proration would be consistent with the effective
date of the merger. For any off-system sales margins allocated to SWEPCO's
Arkansas retail jurisdiction between $758,600 and $1,167,078, 85% of
such margins shall be credited to retail customers and 15% of such margins
shall be retained by shareholders. For any off-system sales margins
allocated in SWEPCO's Arkansas retail jurisdiction above $1,167,078, 50%
of such margins shall be credited to customers and 50% of such margins
shall be retained by the shareholders.
POST-MERGER
Threshold Level Threshold Level
for 15% Sharing for 50% Sharing
Base Off-System by Shareholders by Shareholders
Company Sales Margin in Off-System Sales Off-System Sales
------- ------------ ----------- ----------------
SWEPCO $758,600 $758,600 $1,167,078
Treatment of Affiliated Sales Margins
Margins allocated to SWEPCO's Arkansas retail jurisdiction resulting from
energy sales transactions with affiliated electric operating companies will be
reflected in the calculation of the Energy Cost Recovery Rider.
Margins allocated to SWEPCO's Arkansas retail jurisdiction resulting from
capacity sales will be reflected in the calculation of Energy Cost Recovery
Rider.
7. COMPLIANCE COST OF SERVICE
As soon as practicable, but no later than thirty (30) days after
Commission approval of the Agreement, SWEPCO will file compliance tariffs
designed to recover the Arkansas Retail Revenue Requirement detailed in Section
2 of the Agreement. The new base rates in the compliance filing will be
developed using the billing determinants, as set forth in Attachment IX of the
Agreement.
8. ACT OF 1556 OF 1999 PROVISIONS
Contingent upon adoption or approval of this Agreement in whole, without
modification or amendment by the Arkansas Public Service Commission, SWEPCO will
not seek to recover stranded costs as defined in ss.23-19-102(36) related to
electric generation pursuant to ss.00-00-000 of Act 1556 of 1999.
Nothing in this Settlement will preclude SWEPCO from seeking to recover
transition costs in accordance with ss.00-00-000 of Act 1556 of 1999.
The cost of service study supporting the settlement revenue requirement
shall be used as the basis for unbundling SWEPCO's rates pursuant to
ss.23-19-205(a) of Act 1556 of 1999.
9. RIGHTS OF PARTIES
This Agreement is expressly contingent upon its approval by the Commission
without modification. The various provisions of the Agreement are interdependent
and unseverable. The Settling Parties will cooperate fully in seeking acceptance
and approval by the Commission of the Agreement and will support its approval in
all respects without modification in any further proceedings which may be
ordered by the Commission.
In the event the Commission does not accept, adopt, and approve this
Agreement in its entirety and without modification, the Settling Parties agree
that this Agreement shall be void and of no effect. However, in that event, the
Settling Parties agree (a) no party shall be bound by any of the provisions or
agreements herein contained; (b) all parties shall be deemed to have reserved
all their respective rights and remedies in this proceeding; and (c) no party
shall introduce this Agreement or any writings, discussions, negotiations, or
other communications of any type related to this Agreement in any proceeding.
WHEREFORE, premises considered, it is requested that the Commission review
and approve this Stipulation and Settlement Agreement entered this 30th day of
July, 1999.
Respectively submitted,
GENERAL STAFF OF THE ARKANSAS
PUBLIC SERVICE COMMISSION
By: /s/ Xxxxx D'Auteuil
Xxxxx D'Auteuil
General Staff Attorney
0000 Xxxxxx Xxxxxx
P.O. Box 400
Little Rock, Arkansas 72203
(000) 000-0000
SOUTHWESTERN ELECTRIC POWER COMPANY
By: /s/ Xxxxx X. Xxxxxxxx
Xxxxx X. Xxxxxxxx
Xxxxxxxx, Xxxxxxxx, Xxxxxx, XxXxxxx & Xxxxxxxx
000 Xxxxx Xxxxxx Xxxxxx
Xxxxxx, XX 00000-4525
(000) 000-0000
ATTORNEY GENERAL OF
THE STATE OF ARKANSAS
By: /s/ M. Xxxxx XxXxxxxx
X. Xxxxx XxXxxxxx
Xx. Xxxx. Attorney General
000 Xxxxxx Xxxxxx, Xxxxx 000
Xxxxxx Xxxx, XX 00000
(000) 000-0000
CERTIFICATE OF SERVICE
I certify that a copy of the foregoing pleading has been delivered to the
following parties of record by hand-delivery, facsimile, or first-class mail,
postage prepaid, this 30th day of July, 1999.
X. Xxxxx XxXxxxxx
Xx. Xxxx. Attorney General
000 Xxxxxx Xxxxxx, Xxxxx 000
Xxxxxx Xxxx, XX 00000
Xxxxxxx X. Xxxx III
Xxxxxxx Xxxxxx
XXXX LAW FIRM
000 Xxxx Xxxxxx Xxxxxx
Xxxxxx Xxxx, XX 00000-0000
Xxxxx Xxxxxxxx
XXXXXXXX, XXXXXXXX, XXXXXX,
XXXXXXX & XXXXXXXX, P.A.
000 Xxxxx Xxxxxx Xxxxxx
Xxxxxx, XX 00000
/s/ Xxxxx X. D'Auteuil
Xxxxx X. D'Auteuil
