Mrs. Metts. Volume 1 Tab 9

Transcription

1 Mrs. Metts Volume 1 Tab

2 COMMONWEALTH OF VIRGINIA STATE CORPORATION COMMISSION Application of: KENTUCKY UTILITIES COMPANY ) D/B/A OLD DOMINION POWER COMPANY ) ) For an Adjustment of Electric Base Rates ) CASE NO. PUR DIRECT TESTIMONY OF HEATHER D. METTS DIRECTOR, ACCOUNTING AND REGULATORY REPORTING KENTUCKY UTILITIES COMPANY D/B/A OLD DOMINION POWER COMPANY Filed: September, 01

3 TABLE OF CONTENTS INTRODUCTION... 1 SCHEDULES... 1 SCHEDULES SPONSORED IN SUPPORT OF APPLICATION...

4 INTRODUCTION Q. Please state your name, position, and business address. A. My name is Heather D. Metts. I am Director, Accounting and Regulatory Reporting for LG&E and KU Services Company, which provides service to Kentucky Utilities Company ( KU ). KU is doing business as Old Dominion Power Company ( KU- ODP or the Company ) in the Commonwealth of Virginia. My business address is 0 West Main Street, Louisville, Kentucky. Q. Please describe your educational and professional background. A. I have been a Certified Public Accountant since 1. I have been employed by LG&E and KU Services Company since 00 where I have served in a variety of positions. In my current role as Director, Accounting and Regulatory Reporting, I am responsible for all aspects of the Company s regulatory accounting and reporting. A complete statement of my work experience and education is contained in Appendix A attached to my testimony. Q. What is the purpose of your testimony? A. The purpose of my testimony is to support certain Schedules and accounting adjustments to the test year. SCHEDULES Q. Are you supporting the information required by Commission regulation in Sections 0 and 0 of Chapter 01 in Title 0 of the Virginia Administrative Code for a rate application? A. Yes. I am sponsoring the following Schedules for the corresponding Filing Requirements:

5 Public Financial Reports Schedule Comparative Financial Statements Schedule Schedule of Regulatory Assets Schedule 1 Detail of Regulatory Accounting Adjustments Schedule 1 ET- ET- ET- To Remove Nonconforming Advertising Expense To Adjust Plant for the Effects of ARO Assets To Adjust Accumulated Depreciation Reserve for the Effects of ARO Assets Detail of Ratemaking Adjustments Schedule AG- AG-1 AG-1 AG-1 EP- AD-1 To Remove Out-of-Period O&M Expenses To Remove Nonconforming Advertising Expense To Normalize Storm Damage Expense To Normalize Uncollectible Expense To Adjust Plant for the Effects of ARO Assets To Adjust Accumulated Depreciation Reserve for the Effects of ARO Assets Workpapers for Earnings Test and Ratemaking Adjustments (see details in Schedule 1 and ) Schedule Revenue and Expense Variance Analysis Schedule 0 Advertising Expense Schedule 1 Storm Damage Schedule Miscellaneous Expenses Schedule Affiliate Services Transactions Schedule

6 Changes in Accounting Procedures Schedule Out-of-Period Book Entries Schedule Q. In addition to being the witness for the adjustments listed above under Schedules 1 and, are you also KU s witness for the workpapers supporting the adjustments? A. Yes, I am also the supporting witness for the workpapers in Schedule corresponding to the adjustments listed above under Schedules 1 and. SCHEDULES SPONSORED IN SUPPORT OF APPLICATION Q. Please explain the Public Financial Reports as shown in Schedule. A. Schedule contains the following public financial reports: The PPL Corporation Form -K for 01. PPL Corporation files an integrated Form -K, including all its U.S. Securities and Exchange Commission ( SEC ) registrants. Accordingly, this Form -K includes KU s Form -K for 01. The PPL Corporation 01 Annual Report, which is the most recent annual report issued. In addition to the reports KU-ODP is providing in Schedule, a complete set of the SEC reports filed by PPL Corporation, PPL Electric Utilities Corporation, LG&E and KU Energy LLC, Louisville Gas and Electric Company, and Kentucky Utilities Company is available at PPL Corporation s website ( under the Investors tab. By a Motion to Deviate from Rule, dated August 1, 01, KU-ODP requested that it be able to file one paper copy and twelve electronic copies of the documents

7 contained in Schedule. The Commission granted KU-ODP s motion in its Order dated August, 01; therefore, KU-ODP is submitting one paper and twelve electronic copies of Schedule with its application. Q. Are any financial reports provided in Schedule, Comparative Financial Statements? A. No. All of the comparative financial statements are provided as part of Schedule, Public Financial Reports. Q. Please explain the schedule of regulatory assets provided in Schedule 1. A. Schedule 1 individually lists KU-ODP s regulatory assets, along with the associated deferred income tax and allocation basis. Q. Please describe Adjustments ET- and AG-1. A. These adjustments eliminate all advertising expenses from the test year that do not conform to the statutory definition of advertising expenses allowable under Virginia Code -.(A), which states: Any rate... shall be considered just and reasonable only if... (la) the investor-owned public electric utility has demonstrated that no part of such rates, tolls, charges or schedules includes costs for advertisement, except for advertisements either required by law or rule or regulation, or for advertisements which solely promote the public interest, conservation or more efficient use of energy.... On a Virginia jurisdictional basis, this ratemaking adjustment decreases operation and maintenance expenses to remove all nonconforming advertising expenses incurred during the test year, as well as the conforming expenses included in Account No. 0, Informational and Institutional Advertising Expenses, for advertising that occurred outside of Virginia.

8 KU-ODP has determined Virginia jurisdictional advertising expenses using a slightly different calculation than in previous rate cases. Historically, KU-ODP has determined advertising expenses by a proportional assignment of KU s advertising expense. In this application, KU-ODP is directly assigning KU-ODP advertising expenses to KU-ODP instead of relying on a proportional allocation. The amount for ET- is included in the Operation & Maintenance Expense entry of the Regulatory Accounting Adjustments column of Schedule, KU s Rate of Return Statement Earnings Test Adjusted to a Regulatory Accounting Basis. The amount for AG-1 is included in the Operation & Maintenance Expense entry of the Ratemaking Adjustments column of Schedule 1, KU s Rate of Return Statement Reflecting Ratemaking Adjustments. Q. Please explain Adjustment AG-. A. This adjustment removes out-of-period operation and maintenance expenses from the test year. Q. Please explain Adjustment AG-1. A. This adjustment normalizes the amount of storm damage in accordance with Staff s recommendation in Case No. PUE by using a five-year per-books average to lessen the impact of yearly fluctuations. KU-ODP used the same approach in Case Nos. PUE , PUE , , and PUE without Staff objection. In this case, KU-ODP proposes a normalized level of storm damage based on the per-books average from 01 through 01. AG-1 is included in the Operation

9 & Maintenance Expense entry in the Ratemaking Adjustments column of Schedule 1. Q. Please explain Adjustment AG-1. A. This adjustment normalizes uncollectible expense. To account for yearly fluctuations, KU-ODP calculated the -year weighted average net write-off rate and multiplied it by the jurisdictional adjusted revenues to develop the normalized uncollectible expense amount. The normalized amount is compared to the test year jurisdictional uncollectible expense to determine the proposed adjustment in AG-1. Q. Please explain Adjustments ET-, ET-, and EP-, and AD-1. A. Each of these adjustments is necessary to adjust the effects of FASB Accounting Standards Codification Topic Asset Retirement and Environmental Obligations (formerly known as SFAS No. 1), asset retirement obligation ( ARO ) accounting, from the cost of service. ARO accounting guidance was implemented in 00 to recognize liabilities for the expected cost of retiring tangible long-lived assets for which a legal obligation exists. Under Generally Accepted Accounting Principles ( GAAP ), these AROs are recognized at fair value and are capitalized as part of the cost of the related long-lived assets. KU-ODP has performed the calculations in this adjustment consistent with the Staff s position in KU-ODP s recent base rate cases, PUE and PUE Mr. Garrett explains in his testimony the recovery of ARO costs associated with the coal combustion residuals ( CCR ) surface impoundment closures.

10 The following adjustments can be found in the entries stated in Regulatory Accounting Adjustments column of Schedule 1, KU s Rate Base Statement Earnings Test Adjusted to a Regulatory Accounting Basis: ET- in Utility Plant in Service and ET- in Accumulated Provision for Depreciation and Amortization. The following adjustments can be found in the entries stated in Ratemaking Adjustments column of Schedule, KU s Rate Base Statement Reflecting Ratemaking Adjustments: EP- in Utility Plant in Service and AD-1 in Accumulated Provision for Depreciation and Amortization. Q. Please explain Schedule 0, Revenue and Expense Variance Analysis. A. Schedule 0 provides all revenue and expense accounts by month for the test period. The schedule provides a detailed explanation of all jurisdictional revenue and system expense increases or decreases of more than % during the test period compared to the previous 1-month period. Q. Please explain the Advertising Expense as shown in Schedule 1. A. This schedule details advertising expense by the specific account from the Uniform System of Account and is grouped according to the following categories: public interest, conservation, efficiency, and other. Q. Please explain Schedule, Storm Damage. A. Schedule identifies major storm damage expense by month, FERC account, and internal or third-party cost for the test year and the previous three years. Q. Please explain the Miscellaneous Expenses as shown in Schedule. A. Schedule, Miscellaneous Expenses, provides details of each charitable and educational donation charged to account.1, each payment to associated industry

11 organizations, and all other miscellaneous general expenses charged to account 0 (not including the general advertising expenses charged to account 0.1, which are included in Schedule 1). Q. Please explain Schedule concerning Affiliate Services Transactions. A. In accordance with 0 VAC -01-0, this schedule provides a summary of affiliate transactions by type of service by month during the test period. Schedules A and B contain costs of services provided by KU to other affiliates. Schedules C and D contain costs of services provided to KU by other affiliates. A narrative description of each affiliated service received or provided during the test period is provided in Schedule E. The amounts shown in Schedule are consistent with KU-ODP s Annual Report of Affiliate Transactions ( ARAT ). Q. Please explain the Changes in Accounting Procedures as shown in Schedule. A. Schedule, Changes in Accounting Procedures, indicates several changes in accounting procedures in the last two years which do not impact ratemaking and two write-downs associated with the retirement of Green River Units and. Q. Please explain the Out-of-Period Book Entries as shown in Schedule. A. Schedule, Out-of-Period Book Entries, is a list of journal entries that were recorded in the test year, that include out-of-period items. This schedule includes the journal entry number, the dollar amount of the out-of-period item, the FERC Uniform System of Account specific account number, and an explanation. Q. Does this conclude your testimony? A. Yes.

12 VERIFICATION COMMONWEALTHOFKENTUCKY ) ) SS: COUNTY OF JEFFERSON ) The undersigned, Heather D. Metts, being duly sworn, deposes and says that she is Director - Regulatory Accounting and Reporting for LG&E and KU Services Company, and that she has personal knowledge of the matters set forth in the foregoing testimony, and that the answers contained therein are true and correct to the best of her information, knowledge and belief. Heather D. Metts Subscribed and sworn to b ' re me, a Notary Public in and before said County and State, this,jf/i-day of 01. (SEAL) My Conunission Expires: JUDY SCHOOLER Notary Public, State at Large, KY My commission expires July, 01 Notary!D # 1

13 APPENDIX A Heather D. Metts Director, Accounting and Regulatory Reporting LG&E and KU Services Company 0 West Main Street Louisville, Kentucky 00 (0) -1 Previous Positions: LG&E and KU Services Company Manager of Corporate Finance 01 - Jan 01 Manager of Financial Planning 0-01 Corporate Accounting Manager 00-0 Senior Accounting Analyst Financial Controller 1-00, Scheu & Kniss Cotton & Allen, PSC Supervising Accountant 1-1 Senior Accountant 1-1 Staff Accountant 1-1 Education: University of Louisville, Bachelor of Science, Business Administration Accounting, 1 Certified Public Accountant, Kentucky, 1 Professional Memberships: American Institute of Certified Public Accountants Kentucky Society of Certified Public Accountants Civic Activities: Board Member, CASA of the River Region