BEFORE THE PUBLIC SERVICE COMMISSION OF WISCONSIN Application of Wisconsin Public Service Corporation for ) Authority to Adjust Electric and Natural Gas Rates ) 0-UR- Direct Testimony of Rick J. Moras for Wisconsin Public Service Corporation April 1, 0 1 Q. Please state your name, business address and position. A. My name is Rick J. Moras. My business address is Integrys Energy Group, Inc. ( Integrys ), 00 North Adams Street, P.O. Box 01, Green Bay, WI 0-001. I am the Director of Operations Accounting for Wisconsin Public Service Corporation ( WPSC ). I am testifying on behalf of WPSC in support of its application in this proceeding for authority to adjust its electric and natural gas rates. 1 Q. Please describe your educational, professional, and utility background. A. I graduated from Michigan Technological University in 1 with a Bachelor of Science degree in Accounting. My professional designations are Certified Public Accountant and Certified Internal Auditor. I have been employed by WPSC since 10, and have held various positions in the Accounting and Finance organization over that time. In my current position, I am responsible for operational finance and accounting for WPSC. I have previously testified before the Commission on issues related to Wisconsin Fuel and Light Company merger synergy savings, and various revenue requirement issues in WPSC s rate cases. 1 1 Direct-WPSC-Moras-1
Q. What is the purpose of your pre-filed direct testimony? A. The purpose of my direct testimony is to explain why the Commission should not adjust WPSC s construction forecast in a manner that reflects the recent recession. Second, I am requesting accelerated recovery of net plant through increased depreciation expense for WPSC s ownership share of Edgewater Unit which is operated by Wisconsin Power and Light Company ( WPL ). Q. Are you sponsoring any exhibits with your pre-filed direct testimony? A. Yes, I am. I am sponsoring Exhibit Ex.-WPSC-Moras-1, Page 1, which is a chart that graphically compares WPSC s actual construction expenditures against forecasted construction expenditures. I am also sponsoring Exhibit Ex.-WPSC-Moras-1, Pages - which are Data Submittal Requirements, and regarding Payroll, Conservation and Advertising, respectively. 1 1 1 1 0 1 Construction Forecast Q. Please describe the Commission Staff construction forecast adjustment from WPSC s more recent rate case in docket 0-UR-. A. In the audit phase of docket 0-UR-, Commission staff compared WPSC s estimated and actual general construction expenditures for the years 00-0 and concluded that WPSC spent less than was forecasted over the entire period. Staff then applied the five- year average under-expenditure to the WPSC 0 test year general construction forecast, including the 0 bridge period. See Exhibit Ex.- WPSC-Moras-1, Page 1. Direct-WPSC-Moras-
Q. Did WPSC agree to this adjustment? A. Yes, we did. In an effort to minimize the issues before the Commission, WPSC agreed to this adjustment. Q. Did WPSC agree with Staff s methodology? A. No, we did not. The 00, 0, and 0 test year construction expenditures were forecasted in the summers of 00, 00, and 0, respectively. This period began just before the recession, and ended just as the economic recovery began. With the economic recovery beginning, WPSC began to experience an increase in total general construction expenditures in 0. WPSC s forecasts in 00, 0 and 0 did not anticipate the magnitude or length of the recession, and as a result WPSC forecasted test year expenditures higher than the economy could support for those years. 1 1 1 1 Q. How have WPSC s actual general construction expenditures in 0 and 0 compared to WPSC s test year forecasts for those years? A. WPSC s 0 actual expenditures were higher than the 0 test year expenditures. The 0 expenditures were significantly higher than the 0 test year as adjusted in accordance with Commission Staff s methodology. 0 1 Q. Should WPSC s forecasted test year general construction expenditures be adjusted based on recessionary periods? A. No, they should not. The economy is out of WPSC s control. WPSC should not be expected to forecast recessions or recoveries. WPSC s methodology, which includes averaging the previous three years of actuals inflated, may produce higher forecasted expenditures during prolonged recessions, but it will also produce lower forecasted expenditures during times of recovery. Direct-WPSC-Moras-
Edgewater Q. What is WPSC s intention related to the Retirement of Edgewater Unit? A. WPSC was informed on April, 0 of WPL s intent to retire Edgewater Unit effective June 0, 01. WPSC owns approximately 1.% of Edgewater Unit. Q. How is WPSC proposing to recover the net book value of Edgewater Unit? A. WPSC assumes common assets related to the Edgewater site will be sold to WPL at net book value at the time Unit ceases operations. WPSC is proposing to depreciate its share of the remaining assets, which is estimated to have a net book value of $,00,000 at December 1, 0, over a 0 month period ending June 0, 01. 1 1 1 1 0 Q. What is the change in the depreciation expense as a result of accelerating the recovery of net plant through June 0, 01? A. The existing monthly depreciation expense of approximately $,000 would increase by $,000 for a total monthly projected depreciation expense of $,000. WPSC requests recovery of these costs at this level commencing on January 1, 01. Due to the recent notification by WPL, this level of cost recovery is not yet included in the WPSC s revenue requirement for the 01 test year. 1 Q. Why should depreciation expense be increased through June 01? A. Increased depreciation will match costs to the customers who are benefitting from these assets. Q. Is WPSC proposing a change in how depreciation accruals for cost of removal are handled? Direct-WPSC-Moras-
A. No, we are not. WPSC is proposing to leave depreciation accruals for cost of removal at the current rates, unless and until WPL proposes any changes to those rates as a result of their analysis. Q. Will the collections for removal costs be too low if the rate is not increased? A. Not necessarily. It is unknown what facilities may be removed at this time. Any variance between actual costs and the depreciation reserve for removal costs would be addressed when more definitive plans are known. Q. Is there an alternative treatment instead of accelerating recovery of net plant through depreciation? A. Yes, there is. Instead of accelerating the recovery through depreciation expense, the Commission could approve a deferral of the undepreciated net book value at the time of retirement. However, that approach would transfer costs to customers beyond 01 who would not be receiving any benefit from this retired plant. 1 1 1 Q. Does this complete your pre-filed direct testimony? A. Yes, it does. Direct-WPSC-Moras-