Workshop I

Typical Distribution System Configurations

Sub-Transmission 115/69/41.6 kV
Lines

Distribution
Dedicated
feeder
Substation <24 kV
C&I Primary
Customer – Served (24,14.4,13.8,12.5,4.16 kV)
from dedicated
trunkline equivalent
Trunkline (3 phase Primary)

Tap Line (1, 2 or 3 phase)

Line
Transformer
Service
Secondary
line

C&I Primary
customer
Services
(<600v)

C&I
Residential Secondary
Customer customer

Customer-related component (service)

Local Distribution Facilities

Higher voltage distribution components

V-1
 Workshop I

Distribution Elements
And Planning Criteria

System Element Planning Criteria

Distribution Substation Non-coincident Substation

Peak Load

Trunkline Feeder

Local Primary Line Localized Maximum Expected

Load
Distribution Transformer

Secondary Line

Service Drop Customer-Specific Maximum

Expected Load
Meter

Caution: Take into account connection charge policy so that

marginal costs used to set tariffs do not double-count costs already
collected up front.

V-2
 Workshop I

Distribution Costs -
How Much Detail?

ƒ Overhead / underground

ƒ Urban / suburban / rural

ƒ Radial / network

ƒ Soil type

ƒ Other

V-3
 Workshop I

Alternative Approaches to Distribution

Marginal Investment

Approach Customer Facilities Demand

Residual
Minimum incremental
Minimum
NA investment
System/Residual System
divided by
incremental load

Zero-intercept Zero-intercept NA Slope

Incremental
Typical cost/kVa investment in
Distribution Typical meter for secondary trunkline primary
Facilities and service drop and some and substations
primary divided by
incremental load
Slope of time-
Typical meter
Regression NA series regression
and service drop
line
Outlay for new +
replacement
New Customer equipment + NA NA
customer-related
expenses

V-4
 Workshop I

Distribution Facilities Cost Approach

V-5
 Workshop I

Rationale for Local Facilities Charge

ƒ Meter and service are clearly customer-related.

ƒ Secondary, transformer and primary facilities are

generally sized according to expected maximum
load (design demand).

ƒ The split between customer-related and demand-

related costs in other methods is
arbitrary.

ƒ The distribution facilities’ marginal costs do not

vary with actual near term demands.

ƒ A fixed monthly facilities charge per kW of

design demand for each customer subgroup is an
appropriate price signal.

V-6
 Workshop I

Typical Process for Estimating Local Facilities

Costs

1. Identify facilities designed to handle maximum

expected kW demands over their useful life (the
“local facilities”) vs. equipment sized to meet
near-term loads.
2. Identify typical feeders for a range of customer
densities and customer mixes on the system.
3. Identify typical design demand categories for
residential customers.
4. Redesign the feeder assuming the residential
customers on it have all the same design
demand, and compute the total investment in
local facilities. (Repeat using the other standard
residential design demands.)
5. For each feeder and design demand scenario,
compute investment per kW of design demand.
6. Weight as appropriate for rate design or other
purposes.

V-7
 Workshop I

Sample Calculation Of Distribution Facilities

Costs

Sample Circuits

Weighted
Urban Suburban Rural Average
Circuit Cost per kVa assuming all
residential customers are:

(1) 5 kVa $120 $170 $180

(2) 13 kVa $100 $150 $170

(3) Percent residential customers on

circuits like sample circuit: 50% 20% 30%

Weighted average cost per kVa for

residential customers:
(4) 5 kVa^1 $148
(5) 13 kVa^2 $131

Percent residential customers on sample

circuits with design loads of:
(6) 5 kVa 50% 80% 20%
(7) 13 kVa 50% 20% 80%

(8) Weighted average cost per kVa^3 $110 $166 $172

(9) Percent of commercial/industrial customers

on circuits like sample circuit: 50% 30% 20%

(10) Weighted average cost per kVa of

commercial/industrial customers^4 $139

^1 Sum of (1) x (3).

^2 Sum of (2) x (3).
^3 [(1) x (6)] + [(2) x (7)].
^4 Sum of (8) x (9).

Source: Hypothetical data

V-8
 Workshop I

MARGINAL DISTRIBUTION FACILITIES COST STUDY DESCRIPTION

SAMPLE CIRCUIT A2-1206

Estimated Load:
Single Phase Commercial 86.2 kW
Three Phase Commercial 662.8 kW
Three Phase Industrial 5,576.1 kW
Single Phase Industrial 7,774.9 kW
Total 14,100.0 kW

Existing Transformer Capacity from Maps:

Single Phase Customers (combined) 20,880 kVa
Three Phase Banks 12,448 kVa

Existing Feeder Data (Data in Summary Sheets):

Three Phase Line 19.47 Miles
One Phase Line 23.21 Miles

Feeder Cost Analysis (excl. substation, services):

Primary Facilities $1,205,522
Secondary facilities 584,778
Total $1,790,300

Cost of Feeder per kW:

Primary Facilities $85.50 /kW
Secondary Facilities 41.47
Total $126.97 /kW

V-9
 Workshop I

Excerpt from: The Time-differentiated Marginal Costs of Hypothetical Power Company’s

Electric Service, NERA, October 10, 1995

V. MARGINAL DISTRIBUTION COSTS

A. Marginal Distribution Investment

Conceptually, most costing practitioners agree that the design of the distribution system is determined by

two major factors: (1) the number and location of customers and (2) their demands. Marginal cost studies have

traditionally attempted to identify a portion of distribution costs as customer-related and the remaining portion as

demand-related. This has led to semantics arguments about the definition of the customer-related and demand-

related components. In fact, for most distribution systems, there is no economic reason for separating the two

components. Distribution systems (up to the feeder coming from the distribution substation) are typically

designed using engineering design standards which take into consideration the number of customers and the

expected maximum loads of those customers. An area with all-electric homes has different design standards from

an area where the homes are not big electricity users. Distribution facilities for commercial and industrial

customers are generally designed on a case-by-case basis, given the expected peak load of the customer. In short,

the distribution system is designed based on the design load of the customers to be served, not specifically on the

number of customers or their actual loads at any given moment.

Because these marginal distribution costs are incurred based on the design load of the customer, and do

not vary with the customer’s actual peak load from month to month, it makes sense to recover these marginal

distribution costs in a fixed monthly charge imposed on the customer’s design load (or actual peak in the past

twelve months as a possible proxy). Likewise, since these costs are not saved if a customer chooses to invest in a

demand-side management device or a more efficient appliance, it is important to keep these costs out of the

usage-sensitive components of marginal or avoided cost estimates. To avoid confusion, we refer to these costs as

marginal distribution facilities costs, since the costs are both customer- and (design) demand-related.

V-10
 Workshop I

To estimate the cost of distribution facilities installed for customers of various types, we asked HPC to

study two sample circuits that represent the range of types of distribution design and customer mix on the HPC

system. We first asked HPC to identify the standard planning assumptions that are used for their typical sized

customers (for HPC small, medium and large residential customers). Next, distribution planners provided us with

two variants for each of two sample circuits, one as-built and the other assuming all residential customers on the

circuit are of the smallest size. The as-built first circuit, Arbor Lane, was all medium customers, while the second

circuit, Barrington Ridge, was a mix of small, medium and large customers. The planners then determined the

installed cost of the secondary and primary facilities in the original and redesigned circuits, and divided these costs

by the total design load on the facilities. We used the cost for the Arbor Lane all small customer circuit design to

get a unit cost for small customers and the Arbor Lane all medium customer circuit design to get a unit cost for

medium customers. We then used these small and medium unit costs, the number of small, medium and large

customers on the “as-built” Barrington Ridge circuit and the total cost of the “as-built” Barrington Ridge circuit to

calculate a unit cost for large customers. The final step was to weight the unit costs for the sample circuits to

estimate costs for industrial and commercial distribution customers. The results of these calculations are presented

in Schedule 6.

The marginal distribution facilities costs cover all distribution components between the meter and the

distribution substation. At HPC, substations are added or expanded based upon changes in actual loads, not based

on design loads. Therefore, the marginal distribution substation costs are most appropriately expressed in terms of

kilowatts of load growth and time-differentiated to indicate in which periods load growth is most likely to trigger

capacity additions.

To estimate marginal distribution substation costs we divided 1995-1999 substation investment

(excluding replacements and expressed in 1995 dollars) by expected growth in the sum of noncoincident

substation peaks for the same period. This calculation is shown in Schedule 7.

We estimated marginal meter costs by having HPC supply the cost of a typical meter for each customer

category. This is the last component of the distribution marginal cost and these costs are shown on Schedule 8.

V-11
 Workshop I

Hypothetical Power Company

Marginal Distribution Facilities Investment
Total Secondary and Primary Cost per kVa

Sample Weighted
Customer Type Circuit Average
----------- (1995 Dollars) -----------
(1) (2)
Re side ntial

0.5 kVa Customer

(1) Primary $846
(2) Secondary 655
(3) Total $1,501

2.0 kVa Customer

(4) Primary $290
(5) Secondary 181
(6) Total $471

14.0 kVa Customer

(7) Primary $243
(8) Secondary 37
(9) Total $280

Co mme rcial and Industrial

(2.0 kVa and 14.0 kVa Custo me rs)

(10) Primary $220

(11) Secondary 135
(12) Total $355

Source: NERA worksheet HPC "Derivation of Distribution

Facilities Investment, Residential Customers."
(Range Name: DFAC INV RES).

V-12
 Workshop I

HYPOTHETICAL POWER COMPANY

DERIVATION OF DISTRIBUTION FACILITIES INVESTMENT
RESIDENTIAL CUSTOMERS - SECONDARY
(1995 Dollars)

SAMPLE CIRCUITS (Representative of Service Area)

Arbor Lane
Barrington Ridge

SECONDARY (services, secondary lines and transformers)

Circuits
Arbor Lane Barrington Ridge
As Built 0.5kW size 0.5kW size As Built
(1) Number of Customers 0.5 kVa 90.00 400.00 215.00
(2) 2.0 kVa 90.00 90.00
(3) 14.0 kVa 95.00

Total Cost
(4) 0.5 kVa customers 50,512.00 235,741.00 $126,711
(5) 2.0 kVa customers 48,864.00 $48,864
(6) 14.0 kVa customers $64,165

per kVa cost (diversified)

(7) 0.5 KVa customer $1,122 $1,179 $1,179

(8) 2.0 KVa customer $271 $271

(9) 14.0 kVa customers $48

per kVa cost (at customers meter)

(10) 0.5 KVa customer $624 $655 $655

(11) 2.0 KVa customer $181 $181

(12) 14.0 kVa customers $37

V-13
 Workshop I

HYPOTHETICAL POWER COMPANY

DERIVATION OF DISTRIBUTION FACILITIES INVESTMENT
RESIDENTIAL CUSTOMERS - PRIMARY
(1995 Dollars)

SAMPLE CIRCUITS (Representative of Service Area)

Arbor Lane
Barrington Ridge

PRIMARY
Circuits
Arbor Lane Barrington Ridge
As Built 0.5kW size 0.5kW size As Built
(13) Number of Customers 0.5 kVa 90.00 400.00 215.00
(14) 2.0 kVa 90.00 90.00
(15) 14.0 kVa 95.00

Total Cost
(16) 0.5 KVa customers 61,745 304,650 163,749
(17) 2.0 KVa customer 78,305 78,305
(18) 14.0 KVa customer 420,100

per kVa cost (Diversified):

(19) 0.5 KVa customer $1,372 $1,523 $1,523

(20) 2.0 KVa customer $435 $435

(21) 14.0 KVa customer $316

per kVa cost (at customers meter):

(22) 0.5 KVa customer $762 $846 $846

(23) 2.0 KVa customer $290 $290

(24) 14.0 KVa customer $243

V-14
 Workshop I

Hypothetical Power Company

Derivation of Distribution Facilities Investment
Residential Customers
(1995 Dollars)

Total Secondary and Primary Cost per kVa (at Customer's meters) ^4

(25) 0.5 kVa customer (10) + (22) $1,386 $1,501 $1,501

(26) 2.0 kVa customer (11) + (23) $471 $471

(27) 14.0 kVa customer (12) + (24) $280

Weighted Average Distribution Facilities Cost per kVa ^4

Percent Weighted
Residential Average
Customers Cost/kVa

(28) 0.5 kVa customer 0.24

(29) 2.0 kVa customer 0.74

(30) 14.0 kVa customer 0.02

Secondary plus Primary

(31) all three customer types $711
(32) medium and large $465

Primary
(33) medium and large $289

^1 Based on HPC File MINDISTR.WK4.

^2 Cost per 14.0 kVa customer is the residual after subtracting Arbor Lane 2.0 kVa
and Barrington Ridge 0.5 kVa totals for the respective customer numbers.
^3 Provided by HPC, ratio of Maximum demand at the meter to diversified
demand is 1.8 for small, 1.5 for medium and 1.3 for large customers.
^4 Based on HPC File CUSTOMR1.WK4.

Source: HPC Table, "New Installed Cost of Distribution Facilities below the
Substation for Residential Areas."

V-15
 WorkshopSchedule
I 7

HYPOTHETICAL POWER COMPANY

DERIVATION OF MARGINAL
DISTRIBUTION SUBSTATION INVESTMENT

(1) Investment in Load-Related Additions to

Distribution Substation Plant, 1995-1999
(Thousands of 1995 Dollars) $12,360

(2) Additions to Distribution Substation

Non-coincident Peak Load, 1995-1999
(Megawatts) 300.0

(3) Marginal Investment in Load-Related

Distribution Substation Facilities per
Non-Coincident Kilowatt
(1995 Dollars) (1) / (2) $41.00

V-16
 Workshop I

HYPOTHETICAL POWER COMPANY

TOTAL PEAK DISTRIBUTION LOADS

Total Peak
Year Distribution Loads
--------(kW)--------
1990 1,717,974
1991 1,817,959
1992 NA
1993 1,676,158
1994 1,694,740
1995 1,736,483
1996 1,800,264
1997 1,863,833
1998 1,928,884
1999 1,994,784

Note: Sum of non-coincident peak loads on Distribution substations.

V-17
 Workshop I

Excerpt from: The Time-differentiated Marginal Costs of Hypothetical Power Company’s

Electric Service, NERA, October 10, 1995

V. MARGINAL DISTRIBUTION COSTS

B. Distribution Operation and Maintenance Expenses

Each type of distribution facility requires O&M. Because detailed O&M budgets are not available, we

used HPC’s average level of distribution O&M expenses in the recent past as a guide for estimating marginal

O&M costs. Meter and substation O&M costs, along with their associated overheads, were analyzed separately.

O&M costs for the remaining distribution facilities were separated into primary and secondary components. Each

type of O&M expense was unitized and converted to 1995 dollars. Substation O&M is presented on Schedule 9,

p. 1, distribution facilities O&M on Schedule 9, p. 2, and meter O&M on Schedule 9, pp. 3-4.

V-18
Range Name: SCHED9P3 Workshop I

Hypothetical Power Company

Meter O&M Expense per Weighted Customer
1989-1993

Total Meter Meter

Meter Weighted Expense Weighted Expense
Operation Average Average Per Labor and Per
Maintenance Number of Number of Weighted Materials Weighted
Year Expenses ^1 Customers Customers Customer Cost Index Customer
(Thousand (Dollars) (1995=1.0000) (1995 Dollars)
Dollars)
(2) x 1.18 ^2 [(1) x 1000]/(3) (4)/(5)
(1) (2) (3) (4) (5) (6)
(1) 1989 $4,282 374,830 442,299 $9.68 0.7859 $12.32
(2) 1990 3,982 379,642 447,978 8.89 0.8283 10.73
(3) 1991 3,961 383,455 452,477 8.75 0.8593 10.19
(4) 1992 4,340 387,643 457,419 9.49 0.8870 10.70
(5) 1993 4,474 392,452 463,093 9.66 0.9201 10.50

(6) Estimated Annual Weighted Meter O&M Expense for the Planning Period (1995 Dollars) ^3 $10.53

^1 Total meter expenses are meter operation and maintenance expenses (Accounts 586 and 597) and
overheads allocated to meters. Operation overheads (Accounts 580 and 588) and maintenance
overheads (Accounts 590 and 598) were allocated to meters expense based on the relative
importance of these expenses to total distribution O&M (excluding overhead).
^2 Based on data supplied by HPC.
^3 Average of 1990-1993.

Source: ^2 NERA worksheet HPC "Development Of Electric M eter Weighting

Factors," Col. (5). (Range Name: M ETERWGT)

Col. (1): NERA worksheet HPC "Calculation of M eter O&M Expense, 1989-1993."
line (19). (Range Name: M ETERO&M )
Col. (2): NERA worksheet HPC "Average Number of Customers,
1989 - 1993." (Range Name: AVGCUST)
Col. (5): NERA worksheet HPC "Computation of Weighted Labor and
M aterial Cost Indexes, 1989-1995," Col. (8). (Range Name: LAB&M AT)

V-19
 Workshop I

HYPOTHETICAL POWER COMPANY

METER O&M EXPENSE
BY CUSTOMER CLASS

Annual
Weighting Meter Expense
Rate Class Factor Per Customer
(1995 Dollars)
(1) x $10.53
(1) (2)
(1) 811 Base 1.00 $10.53

(2) 811 Spaceheating 1.00 10.53

(3) 821 Primary 7.91 83.29

(4) 821 Secondary 1.69 17.80

(5) 822 Secondary 1.37 14.43

(6) 823 Primary 20.53 216.18

(7) 823 Secondary 9.35 98.46

(8) 824 Transmission 145.92 1,536.54

(9) 824 Primary 24.22 255.04

(10) 824 Secondary 14.29 150.47

(11) 825 Primary 30.69 323.17

(12) 825 Secondary 20.16 212.28

(13) 826 Transmission 188.97 1,989.85

(14) 826 Primary 37.02 389.82

(15) 826 Secondary 20.16 212.28

(16) 832 Transmission 361.06 3,801.96

(17) 833 Transmission 361.06 3,801.96

(18) 834 Primary 37.02 389.82

(19) 835 Transmission 361.06 3,801.96

(20) 836 Transmission 361.06 3,801.96

(21) 841 Primary 25.80 271.67

(22) 841 Secondary 3.83 40.33

V-20
Rang e Name: M ETERWGT Workshop I

Hypothe tical Powe r Company

De ve lopme nt of Ele ctric Me te r We ighting Factors

Weighted Meter O&M

Installed Number of Number of Weighting
Customer Class Meter Cost Weight Customers Customers Factor
-(1992 Dollars)-
(1) / 123.67 (2) x (3) (4) / (3)
(1) (2) (3) (4) (5)
(1) 811 Base $123.67 1.00 327,237 327,237
(2) 811 Spaceheating $123.67 1.00 17,619 17,619
(3) 821 Primary $978.70 7.91 22 174
(4) 821 Secondary $209.43 1.69 38,258 64,656
(5) 822 Secondary $169.69 1.37 274 375
(6) 823 Primary $2,539.21 20.53 21 431
(7) 823 Secondary $1,156.11 9.35 3,093 28,920
(8) 824 Transmission $18,045.73 145.92 17 2,481
(9) 824 Primary $2,995.65 24.22 119 2,882
(10) 824 Secondary $1,767.07 14.29 346 4,944
(11) 825 Primary $3,795.91 30.69 8 246
(12) 825 Secondary $2,492.64 20.16 4 81
(13) 826 Transmission $23,369.75 188.97 2 378
(14) 826 Primary $4,577.87 37.02 4 148
(15) 826 Secondary $2,492.64 20.16 69 1,391
(16) 832 Transmission $44,652.00 361.06 5 1,805
(17) 833 Transmission $44,652.00 361.06 7 2,527
(18) 834 Primary $4,577.87 37.02 1 37
(19) 835 Transmission $44,652.00 361.06 1 361
(20) 836 Transmission $44,652.00 361.06 1 361
(21) 841 Primary $3,190.87 25.80 4 103
(22) 841 Secondary $473.17 3.83 545 2,087

387,657 459,245 1.18

Source: Col. (1): HPC worksheet "Development of Allocation Factor for Distribution
Meters (CO6)-- 12 months ended 12-31-92."
Col. (2): Col. (1) divided by Col. (1) for 811-Base, i.e., Col. (1) divided by 123.67 .
Col. (3): HPC worksheet "Development od Allocation Factor for Distribution
Meters (CO6)-- 12 months ended 12-31-92." Also FERC Form 1, 1992,
Page 310 for classes 832, 833, 835 and 836.

V-21
 Workshop I

HYPOTHETICAL POWER COMPANY

CALCULATION OF METER O&M EXPENSE
1989-1993

1989 1990 1991 1992 1993

----------------- --------------(Thousand Dollars) ---------------------
(1) (2) (3) (4) (5)
OPERATIONS

(1) Total Distribution Operation Expenses $11,598 $11,840 $12,583 $12,356 $12,064

(2) Operation Supervision and Engineering 2,413 2,305 2,158 2,440 2,652
(3) Miscellaneous Distribution Expenses 2,735 2,593 3,211 2,804 2,852
(4) Total Operation Overheads 5,148 4,898 5,369 5,244 5,504

(5) Total Distribution Operation Expenses Less

Total Operation Overheads (1)-(4) 6,450 6,942 7,214 7,112 6,560

(6) Total Operation Overheads as a % of Total Dist. Operation Expenses Less

Total Operation Overheads (4)/(5) 79.81% 70.56% 74.42% 73.73% 83.90%

(7) Facilities Expenses ^1 $2,150 $2,147 $2,074 $2,296 $2,236

(8) Operation Overheads Allocated to Facilities

(6)x(7) 1,716 1,515 1,544 1,693 1,876
(9) Facilities Expenses Plus Operation Overheads
Allocated to Facilities Expenses (7)+(8) 3,866 3,662 3,618 3,989 4,112

MAINTENANCE
(10) Total Distribution Maintenance Expenses 12,704 12,806 12,382 12,559 11,813

(11) Maintenance Supervision and Engineering 1,397 1,274 1,132 1,092 1,154
(12) Maintenance of Miscell. Distribution Expenses 883 948 837 915 911
(13) Total M aintenance Overheads 2,280 2,222 1,969 2,007 2,065

(14) Total Distribution Maintenance Expenses Less

Total Maintenance Overheads (10)-(13) 10,424 10,584 10,413 10,552 9,748

(15) Maintenance Overheads as a % of Total Dist. M aintenance Expenses Less

Total Maintenance Overheads (13)/(14) 21.87% 20.99% 18.91% 19.02% 21.18%

(16) Maintenance of Facilities ^2 $341 $265 $289 $295 $299

(17) Maintenance Overheads Allocated to Facilities

Expenses (15)x(16) 75 56 55 56 63

(18) Maintenance of Facilities Plus Maintenance Overheads

Allocated to Facilities (16)+(17) 416 321 344 351 362

OPERATIONS AND MAINTENANCE

(19) Total Facilities Expenses and Associated Overheads

(9)+(18) $4,282 $3,982 $3,961 $4,340 $4,474

V-22
 Workshop I
Rang e Name: AVGCUST

Hypothe tical Powe r Company

Av e rag e N umbe r o f Custo me rs
1989-1993

Rate / Subgroup
Description 1989 ^1 1990 ^1 1991 ^1 1992 1993
(1) 811 Base 333,359.00 337,480.00 340,988.00 327,237.00 349,136.00
(2) 811 Spaceheating 17,619
(3) 821 Primary 37,081.00 37,666.00 37,950.00 22.00 38,789.00
(4) 821 Secondary 38,258
(5) 822 Secondary 312.00 296.00 287.00 274.00 247.00
(6) 823 Primary 3,020.00 3,108.00 3,641.00 21.00 3,155.00
(7) 823 Secondary 3,093
(8) 824 Transmission 453.00 483.00 495.00 17.00 484.00
(9) 824 Primary 119
(10) 824 Secondary 346
(11) 825 Primary 10.00 10.00 11.00 8.00 13.00
(12) 825 Secondary 4
(13) 826 Transmission 60.00 66.00 71.00 2.00 76.00
(14) 826 Primary 4
(15) 826 Secondary 69
(16) 832 Transmission
(17) 833 Transmission
(18) 834 Primary 0.00 1.00 1.00 1.00 1.00
(19) 835 Transmission
(20) 836 Transmission
(21) 841 Primary 535.00 532.00 11.00 4.00 551.00
(22) 841 Secondary 545
(23) Total 374,830.00 379,642.00 383,455.00 387,643.00 392,452.00

^1 For the FERC Form 1 entries: (1) sums rate schedules 811, 812 and 813; (3) sums 820
and 821(commercial and industrial (6) sums 823 commercial, industrial and OPA; (8)
sums 824 commercial and industrial, 824.1 and 824.2; (13) sums 826 commercial and 826
industrial; (17) sums 841 commercial and OPA.

Source: 1992: HPC table entitled "Development of Allocation Factor for Distribution
Meters (CO6) Twelve Months Ended 12-31-92."
1989-1991, 1993: FERC Form 1, Page 304a-c.

V-23
 Workshop I

Rang e Name: SUBSTOM S9 P1

Hypothetical Power Company

Distribution Substation O&M Expenses per Kilowatt
of Substation Noncoincident Peak Demand

Substation Substation
Expenses Per Expenses Per
Total kW of Weighted kW of
Distribution Substation Substation Labor and Substation
Substation Noncoincident Noncoincident Materials Noncoincident
Year Expenses ^1 Peak Loads Peak Loads Cost Index Peak Loads
(Thousand (MW) (Dollars) (1995=1.0000) (1995 Dollars)
(Dollars)
(1) / (2) (3) / (4)
(1) (2) (3) (4) (5)

(1) 1989 $3,382 NA NA 0.7859 NA

(2) 1990 3,158 1,718.0 1.84 0.8283 2.22

(3) 1991 3,468 1,818.0 1.91 0.8593 2.22

(4) 1992 3,400 NA NA 0.8870 NA

(5) 1993 3,236 1,676.2 1.93 0.9201 2.10

(6) Estimated Annual Distribution Substation O&M Expenses for the Planning Period ^2 $2.18

^1 Distribution substation expenses are total substation O&M expenses

(Accounts 582 and 592) and overheads allocated to substation O&M
expenses. Operation overheads (Accounts 580 and 588) and maintenance
overheads (Accounts 590 and 598) were allocated to substations based on
the relative importance of these expenses in total operation and
maintenance (excluding overhead), respectively.
^2 Average of 1990, 1991 and 1993.

Source: Col. (1): NERA worksheet HPC "Calculation of Distribution Substation O&M
Expense, 1989-1993," line (19). (Range name: SUBO&M)
Col. (2): HPC table "Total Peak Distribution Loads." (File: PEAKLOAD.WK4,
dated 1/17/95)
Col. (4): NERA worksheet HPC "Computation of Weighted Labor and Material
Cost Indexes, 1989 - 1995," column (8). (Range name: LAB&MAT)

V-24
 Workshop I

Hypothetical Power Company

Calculation of Distribution Substation O&M Expense (1989-1993)
1989 1990 1991 1992 1993
------------ ----- ------------ -- (Thousand Dollar ------------ ----- ------------
(1) (2) (3) (4) (5)

OPERATIONS

(1) Total Distribution Operations Expenses $11,598 $11,840 $12,583 $12,356 $12,064

Operation Overheads
(2) Operation Supervision and Engineering 2,413 2,305 2,158 2,440 2,652
(3) Miscellaneous Distribution Expenses 2,735 2,593 3,211 2,804 2,852
(4) Total Operation Overheads 5,148 4,898 5,369 5,244 5,504

(5) Total Distribution Operations Expenses Less

Total Operation Overheads (1)-(4) 6,450 6,942 7,214 7,112 6,560

(6) Total Operation Overheads as a Percent of

Total Distribution Operation Expenses Less
Total Operation Overheads (4)/(5) 79.81% 70.56% 74.42% 73.73% 83.90%

(7) Station Expenses $1,056 $953 $1,233 $1,173 $1,151

(8) Operation Overheads Allocated to Station Ex 843 672 918 865 966

(9) Station Expenses Plus Operation Overheads

Allocated to Station Expenses (7)+(8) 1,899 1,625 2,151 2,038 2,117

MAINTENANCE

(10) Total Distribution Maintenance Expenses 12,704 12,806 12,382 12,559 11,813

Maintenance Overheads
(11) Maintenance Supervision and Engineeri 1,397 1,274 1,132 1,092 1,154
(12) Maintenance of Miscellaneous Distribut 883 948 837 915 911
(13) Total Maintenance Overheads 2,280 2,222 1,969 2,007 2,065

(14) Total Distribution Maintenance Expenses Less

Total Maintenance Overheads (10)-(13) 10,424 10,584 10,413 10,552 9,748

(15) Total Maintenance Overheads as a Percent of

Total Distribution Maintenance Expenses Less
Total Maintenance Overheads (13)/(14) 21.87% 20.99% 18.91% 19.02% 21.18%

(16) Maintenance of Station ^1 $1,217 $1,267 $1,108 $1,144 $924

(17) Maintenance Overheads Allocated to Station 266 266 210 218 196

(18) Maintenance of Station Plus Maintenance Overheads

Allocated to Station Expenses (16)+(17) 1,483 1,533 1,318 1,362 1,120

OPERATIONS AND MAINTENANCE

(19) Total Station Expenses and Associated Overh 3,382 3,158 3,468 3,399 3,236
V-25
 Workshop I

HYPOTHETICAL POWER COMPANY

DISTRIBUTION FACILITIES O&M EXPENSES PER KVA OF DESIGN DEMAND

Weighted O&M Expense O&M Expense

Distribution Total Peak O&M Expense Labor and Per kW of Per kW of
Facilities O&M Distribution Per kVa of Materials Design Demand Design Demand
Year Expenses Loads Design Demand Cost Index Secondary Primary
('000 dollars) kW ---- (Dollars) ---- (1995=1) (1995 Dollars) (1995 Dollars)
(1) / (2) / 1.57 0.5 x (3) / (4) 0.5 x (3) / (4)

(1) (2) (3) (4) (5) (6)

(1) 1989 $14,002 NA NA 0.7859 NA NA

(2) 1990 14,816 $1,717,974 $5.51 0.8283 $3.32 $3.32

(3) 1991 14,557 $1,817,959 5.11 0.8593 2.97 2.97

(4) 1992 14,687 NA NA 0.8870 NA NA

(5) 1993 13,794 $1,676,158 5.25 0.9201 2.85 2.85

(6) Estimated Annual Distribution Facilities O&M Expenses for the Planning Period
(1995 Dollars / kVa) [Average of 1990, 1991 and 1993] $3.05 $3.05

(7) Loss Adjustment Factors to Adjust Expenses Per kVa as Measured at the Substation to Expenses
per kVa as Measured at the Customer Level 1.0158 1.0059

(8) Loss Adjusted Estimated Annual Distribution Facilities O&M Expenses for the Planning Period
Line (6) / Line (7) $3.00 $3.03

(9) Estimated Distribution Facilities O&M for a Secondary Customer:

Col. (5) in Line (8) + Col. (6) in Line (8) $6.03

1 Distribution facilities expenses are total distribution O&M expenses excluding rents (Account 589), meter
expenses (Accounts 586 and 597), street lighting expenses (Accounts 585 and 596), substation expenses (Accounts
582 and 592), expense s re lated to subtransmission, and overheads allocated to meters and street lighting, substation
and subtransmission expenses. Opera tion overheads (Accounts 580 and 588) and maintenance overheads
(Accounts 590 and 598) were allocated to facilities expenses based on the relative importance of these expenses in
total operation and maintenance expenses (excluding overhea ds).
2 HPC provided ratio of Maximum demand at the meter to diversified demand: 1.8 for small, 1.5 for
medium and 1.3 for large customers. Weighted using proportion of customers from HPC file CUSTOMR1.WK4.

V-26
 Workshop I

HYPOTHETICAL POWER COMPANY

CALCULATION OF DISTRIBUTION FACILITIES O&M EXPENSE
1989-1993

1989 1990 1991 1992 1993

---------------------- (Thousand Dollars) ------------------------
(1) (2) (3) (4) (5)

OPERATIONS

(1) Total Distribution Operation Expenses $11,598 $11,840 $12,583 $12,356 $12,064

Operation Overheads:
(2) Operation Supervision and Engineering 2,413 2,305 2,158 2,440 2,652
(3) Miscellaneous Distribution Expenses 2,735 2,593 3,211 2,804 2,852
(4) Total Operation Overheads 5,148 4,898 5,369 5,244 5,504

(5) Total Distribution Operation Expenses Less

Total Operation Overheads (1)-(4) 6,450 6,942 7,214 7,112 6,560

(6) Total Operation Overheads as a Percent of

Total Distribution Opera tion O&M Expenses Less
Total Operation Overheads (4)/(5) 79.81% 70.56% 74.42% 73.73% 83.90%
(7) Facilities Expenses ^1 $2,053 $2,589 $2,477 $2,467 $2,130

(8) Operation Overheads Allocated to Facilities Expenses

(6)x(7) 1,639 1,827 1,844 1,819 1,787

(9) Facilities Expenses Plus Operation Overheads

Allocated to Facilities Expenses (7)+(8) 3,692 4,416 4,321 4,286 3,917

MAINTENANCE

(10) Total Distribution Maintenance Expenses 12,704 12,806 12,382 12,559 11,813

Maintenance Overheads:
(11) Maintenance Supervision and Engineering 1,397 1,274 1,132 1,092 1,154
(12) Maintenance of Miscellaneous Distribution Expe 883 948 837 915 911
(13) Total Maintenance Overheads 2,280 2,222 1,969 2,007 2,065

(14) Total Distribution Maintenance Expenses Less

Total Mainte nance Overheads (10)-(13) 10,424 10,584 10,413 10,552 9,748

(15) Total Maintenance Overheads as a Percent of

Total Distribution Maintenance Expenses Less
Total Mainte nance Overheads (13)/(14) 21.87% 20.99% 18.91% 19.02% 21.18%

(16) Maintenance of Facilities ^2 $8,460 $8,596 $8,609 $8,739 $8,150

(17) Maintenance Overheads Allocated to Facilities

Expenses (15)x(16) 1,850 1,805 1,628 1,662 1,726

(18) Maintenance of Facilities Plus Maintenance Overheads

Allocated to Facilities Expenses (16)+(17) 10,310 10,401 10,237 10,401 9,876

OPERATIONS AND MAINTENANCE

(19) Total Facilities Expenses and Associated Overheads

(9)+(18) 14,002 14,816 14,557 14,687 13,794

V-27
 Workshop I

Minimum System Approach

V-28
 Workshop I

Minimum System/Residual Approach To

Marginal Distribution Costs

Minimum New
Cost Per x Customers
Customer

Customer-
Related
Non
Remove
Growth-
Related
Distribution
Budget
Budget
Residual
Demand-
Related
.
.
Budgeted
Load
Growth
=

Demand-
Related
Cost/kW

V-29
 Workshop I

Development of the Per Customer Cost of a

Minimum Distribution System

I. Select “Areas” to Examine

A. Identify Types of Expansion Prevalent in Service Territory

B. Choose Subdivisions “Typical” of Each Type of Expansion as

Select “Areas”

II. Redesign Distribution System for Select “Areas

A. Standards for New Design

B. Enumerate Ways in Which Redesigned System is Likely to

Differ from Current System

C. Apply Redesigned System Standards to Distribution Layouts

for Select “Areas”

III. Estimate Per Customer Cost of Minimum Distribution System

A. Determine Total Costs of Minimum System for Each “Area”

B. Divide Total Costs for Each “Area” by the Number of Customers

Served in the Area

C. Determine System-Wide Weighted-Average Cost Per Customer

V-30
 Workshop I

ROCHESTER GAS AND ELECTRIC CORPORATION

DERIVATION OF INCREMENTAL INVESTMENT IN
DEMAND-RELATED SECONDARY
DISTRIBUTION FACILITIES

1982-1985

(1) Load- and Customer-Related Additions to Secondary

Distribution Plant 1 (Thousand 1982 Dollars) $11,904

(2) Minimum System Customer Cost for Secondary Facilities 1

(1982 Dollars) $694

(3) Secondary Customers Added 9,222

(4) Incremental Customer-Related Secondary Plant Additions

(Thousand 1982 Dollars) [(2) x (3)] / 1000 $6,400

(5) Incremental Demand-Related Secondary Plant Additions

(Thousand 1982 Dollars) (1) – (4) $5,504

(6) Incremental Peak Demand for Customers Served from

Secondary Level (Megawatts) 28

(7) Incremental Investment in Secondary Distribution Facilities

per Kilowatt (1982 Dollars) (5) / (6) $196.57

1 Excludes meter investment.

Source: Lines (1), (3) and (6): Based on data supplied by RG&E.
Line (2): Schedule 5, col. (3), line (2).

V-31
 Workshop I

ROCHESTER GAS AND ELECTRIC CORPORATION

DERIVATION OF INCREMENTAL INVESTMENT IN
DEMAND-RELATED PRIMARY
DISTRIBUTION FACILITIES

1982-1985

(1) Load- and Customer-Related Additions to Primary

Distribution Plant 1 (Thousand 1982 Dollars) $32,463

(2) Minimum System Customer Cost for Primary Facilities 1

(1982 Dollars) $319

(3) Distribution Customers Added 9,226

(4) Incremental Customer-Related Primary Plant Additions

(Thousand 1982 Dollars) [(2) x (3)] / 1000 $2,943

(5) Incremental Demand-Related Primary Plant Additions

(Thousand 1982 Dollars) (1) – (4) $29,520

(6) Incremental Peak Demand for Customers Served from

Primary Level (Megawatts) 43

(7) Incremental Investment in Primary Distribution Facilities

per Kilowatt (1982 Dollars) (5) / (6) $686.51

1 Excludes meter investment.

Source: Lines (1), (3) and (6): Based on data supplied by RG&E.
Line (2): Schedule 5, col. (3), line (2).

V-32
 Workshop I

Rochester Gas & Electric Corporation

Distribution Expenses per Customer and per Kilowatt of Peak Distribution Demand

Demand- Weighted Demand-

Customer- Related Average Customer- Related
Total Related Weather- Expense Labor & Related Expense
Distribution Customer- Average Expenses Demand- Normalized per kW of Material Expense per kW of
O&M Related Number of per Related Peak Dist. Peak Dist. Cost per Peak Dist.
1 2 3
Year Expenses Expenses Customers Customer Expenses Demand Demand Index Customer Demand
(Thousand
(Thousand Dollars) (Dollars) Dollars) (MW) (Dollars) (1982=1) (1982 Dollars)
(1) x 60% (2)/(3) (1) x 40% (4)/(8) (7)/(8)
(1) (2) (3) (4) (5) (6) (7) (8) (9) (10)

1977 $10,981 $6,589 287,133 22.95 $4,392 846 $5.19 0.68 $33.74 $7.64
1978 11,269 6,761 288,715 23.42 4,508 839 5.37 0.72 32.53 7.46
1979 11,857 7,114 290,096 24.52 4,743 854 5.55 0.79 31.04 7.03
1980 12,328 7,397 293,877 25.17 4,931 858 5.75 0.85 29.61 6.76
1981 13,195 7,917 296,843 26.67 5,278 881 5.99 0.93 28.68 6.44
1982 14,804 8,882 298,694 29.74 5,922 890 6.65 1.00 29.74 6.65

4
Estimated Annual Distribution O&M Expenses for the Planning Period (1982 Dollars) $29.34 $6.62

5
Estimated Annual Primary Distribution O&M Expenses for the Planning Period (1982 Dollars) $9.24 $5.58

5
Estimated Annual Secondary Distribution O&M Expenses for the Planning Period (1982 Dollars) $20.10 $1.59

1 Distribution expenses are total distribution O&M expenses excluding rents (Account 589), meter expenses (Accounts 586 and 597), street
lighting expenses (account 585 and 596) and overheads allocated to meter and street lighting expenses. Operation overheads (Account 580
and 588) and maintenance overheads (Accounts 590 and 598) were allocated to street lighting and meters based on the relative importance
of these expenses in total operation and maintenance expenses (excluding overhead), respectively.

2 Average number of customers excluding street lighting customers, transmission customers, sales for resale customers and including inactive
meters on customer premises.
3 The labor and materials cost indexes were weighted by the labor and materials expenses components, respectively, of total distribution O&M
expenses. RG&E labor costs and the Handy_Whitman total distribution index were used for labor and materials cost indexes, respectively.

4 Average of 1980-1982.
5 The demand-related O&M expenses of $6.62 were allocated to primary and secondary components based on their corresponding investment
and demands. The customer-related O&M expenses of $29.34 were allocated to primary and secondary components based on their
corresponding investments and average number of customers.

V-33
 Workshop I

Problems with Minimum System Approach

ƒ Definition of minimum system is

arbitrary and bears no relationship to
reality.

ƒ Costs that do not vary with usage are

included in the “demand-related” cost.

ƒ O&M split between customer-and

demand-related is arbitrary.

V-34
 Workshop I

Zero Intercept Approach

V-35
 Workshop I

Zero Intercept Approach To

Distribution Marginal Costs

•
•
$ = ost
o pe tedc
sl l a
- re
and
• dem
•

customer-related
cost {
transformer capacity

NEGATIVE Y-INTERCEPT

st
p e = ted co
sl o a
rel
and-
dem

negative
customer-related transformer capacity (kVa)
cost

V-36
 Workshop I

Problems with Zero Intercept Approach

ƒ Relationship between capacity and cost

may not be linear.

ƒ There is no such thing as a zero capacity

transformer.

ƒ Approach can give ridiculous results

(negative customer cost).

V-37
 Workshop I

Regression Approach

V-38
 Workshop I

Regression Approach to
Marginal Distribution Costs

Cumulative
investment
in distribution = f (cumulative distribution load growth)
plant

slope is marginal cost at this load level

Cumulative
Investment
$

Peak distribution demand (MW)

Problems:
ƒ Difficult to get good estimates of distribution load
going back many years.

ƒ Relies on history to get many data points.

ƒ Has technology or reliability standard changed?

ƒ Treats all distribution as demand-related.

V-39
 Workshop I

New Customer Only Method

V-40
 Workshop I

“New Customer Only” Approach (NCO)

For Customer-Related Distribution Costs and
Expenses
(1) Estimate per-customer investment
– not annualized – for new customers)
$100
(meter, service, transformer)
(2) Multiply by number of customers/yr in class expected to be
added x 5,000

Subtotal $500,000

(4) Add estimated average annual investment needed for

replacements for the class
[1/40 x 100,000 customer x $100] 250,000

(5) Add per-customer expenses times number of customers in class

(meter + service O&M, meter-reading, customer accounts,
customer service)
[$20 x 105,000] 2,100,000

(6) “Marginal” customer-related revenue for the class

Total $2,850,000

Note: Demand-related distribution cost is developed using discounted budget

approach

V-41
 Workshop I

Q: What is the marginal customer-related cost under

the NCO method?

A: Method does not produce it. Estimates are used

for class revenue allocation, and possibly for tariff
design (by dividing NCO total by number of
customers in class)

V-42
 Workshop I

Problems with NCO Approach – it produces:

ƒ a mixture of investment costs and annual expenses

(cash outlay)

ƒ a value that is very sensitive to rate of growth of

customers in class (see next slide)

ƒ (if customer charge = average NCO cost)

ƒ subsidy of new customers by old

ƒ inefficient price signal to new customers

ƒ inefficient price signal to existing customers

V-43
 Workshop I

Example of NCO Instability

with 5000 with 500

new customers new customers

(1) Outlay per new customer $100 $100

(2) Expected new customers x 5,000 x 500

(3) Subtotal 500,000 50,000

(4) Existing customers 100,000 100,000

(5) Outlay for replacements [1/40 x (4) x $100] 250,000 250,000
Total customers [(4) + (2)]
(6) 105,000 100,500

(7) Customer expenses [(6)x$20] 2,100,000 2,010,000

(8) Total [(3)+(5)+(7)] $2,850,000 $2,310,000

(9) Total per customer [(8)/(6)] $27.14 $22.99

(10) “NERA” marginal cost $30

[($100 x 10% ECC) + $20]

V-44
 Workshop I

Distribution Cost
Time-Differentiation

V-45
 Workshop I

Alternatives For
Time-Differentiating Distribution Substation
And Feeder Costs

ƒ Weighted average of probabilities of substation

peaks (adjusting for interruptible loads, and
carrying capability)

ƒ “Grey Book” method to assign annual costs to

months, then probability of system peak to
assign monthly costs to hours

V-46
 Workshop I

Illustration of Demand-Related
Distribution Capacity Assignment
Factors Calculated From Substation Loadings
S h a re of
M o n th ly A nnual Sum
M on th 1 S u b -S ta tion P eak C a p a city 2 D ifferen ce R ecip ro ca l o f R ecip ro ca l
(4 ) - (3 ) 1 /(5) (6 )/0 .1 8
(1 ) (2) (3 ) (4 ) (5) (6) (7 )

1 A 80 90 10
B 80 80 0
C 60 70 10
20 1 /2 0 = 0.0 5 28%

2 A 90 90 0
B 70 80 10
C 70 70 0
10 1 /1 0 = 0.1 0 56%

3 A 80 90 10
B 70 80 10
C 50 70 20
40 1 /4 0 = 0.0 2 13%

4 A 70 90 20
B 60 80 20
C 40 70 30
70 1 /7 0 = 0.0 1 8%

T o tal 0 .1 8 10 0 %

1
A fo u r-m o n th y ear is assu m ed fo r th is ex am p le.
2
S o m etim es ap p ro x im ated b y an n u al p eak .

V-47
 Workshop I

Marginal Streetlighting Costs

V-48
 Workshop I

Characteristics of Lighting Services

ƒ Municipal Lighting (street lights and traffic signals)

versus Private Area Lighting
ƒ Ownership and the provision of maintenance:
¾ The utility may own and maintain the lights.
¾ The customer may own and maintain the lights.
¾ The utility may provide maintenance for
customer-owned lights.
ƒ Time Pattern of Loads:
¾ Dusk to Dawn
¾ Dusk to Midnight
¾ 24 Hour (Includes Traffic Signals)

V-49
 Workshop I

Components of Marginal Cost of Service

for Lighting Customers

ƒ Lamp replacement expense (per lamp or connection)

ƒ Service line (per lamp or connection)
ƒ Cost of lighting fixtures and related equipment such as
brackets (per lamp or connection)
ƒ Distribution Facilities (per kW of design demand) – for
equipment designed with SL loads in mind
ƒ Substations, transmission, and generation costs follow
the same approach applicable to other customer classes
¾ Converted to a fixed monthly charge based on
wattage of lamp and hours of use.
ƒ Customer-related (per customer)
¾ Lighting is normally not metered (so no meter-
related marginal cost)
¾ Customer accounts and service expenses

V-50
 Workshop I

Distribution Facilities for Streetlighting

ƒ It is important to distinguish between dedicated SL assets and

common local distribution facilities.

ƒ Two examples of dedicated SL facilities:

¾ the full cost of the utility’s poles, in areas served by

underground (UG) facilities.

¾ the difference in cost between the poles supporting

SL loads and those without SL, in areas served by
overhead (OH) facilities.

V-51
 Workshop I

MARGINAL COSTS FOR STREETLIGHTING

Street Lighting Lamp Replacement Expense

The annual relamping expense is estimated as:
ƒ the installed cost of a lamp
ƒ materials
ƒ installers loaded labor rate
ƒ Divided by the expected life of the
replacement lamp.
This cost is the O&M component on the sheets
summarizing annual costs per fixture.

100 Watt Mercury

Vapor Fixture

(1) Cost of Lamp $8.18

(2) Hours of Labor to Change Lamp 0.5

(3) Labor Rate (per hour) $105.57

(4) Cost of Labor (2) x (3) $52.79
(5) Total Cost (1) + (4) $60.97
(6) Expected Life of Lamp (years) 4

(7) Annual Cost of Lamp Replacement (5)/(6) $15.24

V-52