The URL can be used to link to this page

263516 WHITE - CITV CLERK � PINK - FINANCE GITY OF SAINT PAITL Council 263516 CANARY - DEPARTMENT BLUE - MAYOR File NO. o cil Resolution Presented By , \ Referred To Committee: Date Out of Committee By Date RESOLVED, That the Council of the City of Saint Paul, in the Matter of the Petition of Northern States Power Company (Minnesota) Electric Utility, City of Saint Paul, for an increase in its electric rates, filed October 12, 1973, hereby accepts for consideration by this Council as its determination in said matter, the Findings of Fact and Conclusions , of Law promulgated by the Hearing Examiner, Leonard E. Lindquist, a copy of which Findings and Conclusions is attached hereto as Exhibit "A", and incorporated herein; and be it FURTHER RESOLVED, That pursuant to said Findings of Fact and Conclusions of Law, the Franchise Ordinance No. 15475, approved November 1, 1973, be amended to prescribe that, subject to the public hearing to be afforded all interested parties and to the final adoption and approval of the amending ordinance, Northern States Power Company be entitled to an increase in revenues of 16.2/ above the 1973 test year revenues from electric service in the City of Saint Paul and the reasonable rates which would provide such revenue over and above that of the test year of 1973 for said compan� to commence taking effect, as the Ordinance so provides, as amended; and be it FURTHER RESOLVED, '1'hat the City Clerk is directed forthwith to transmit three copies of the aforesaid Findings of Fact and Conclusions of Law to Leonard J. Keyes, attorney for Northern States Power Company. - CO�CILMEN Requested by Department of: � Yeas � �r Nays � fiu�t� Konopatzki In Favor �. Meredith �_ Against By � Roedler Tedesco Mme.President-Butler— Hgflt; MAY 1 5 1974 Form Ap y City At rney Adopted by Council: Date Certified P Council Secretary � BY i By � Approve MaXor• Date Y Approved by Mayor for Submission to Council By By pus�.rst�Ea MAY 18 1974 � � � �f ,� � , . , r � -��y � � ; �.. . . .� � ' • { � .� . ' 4 � � •. P ' I ' , . , s{ .�,'��/�' �� { f �'� i , r i, j �� , � J-� 1 F� � , � - . ,. . .. , . . � � � � . .. . ., � . � , , i�� . �Yxi � _ � , i ,��+` � � i ' ,.., , � , ,; _ . , ' � , � ,� .. , . , . , . . . . . , . .. . . . � . ... � + ,r'i � . . . . . . . � . , � . �� . �� , , �. �f � i. . , .. . � � . ' . �/ � � .. � � ! / i � , . . �. , .. /� . . .. . � , . / : � ' . . � . . I .' ... . . i � . . � � , . . . . �� ' .. . , �1�� .,.� . .. � . � . .�... . .a . . . , . . . . . . . , _� , � ' . ��. . � �. - , " . . � � � . . � - . . . Y a� , I / , i, 4 � ��s, . , I ' -` � � ,.'' . i � ��.��, , � _ ' , i �. � ; � � ..•, .r: • � a; , ,1` � ,, ' i . , + �,• � , ' i . . . � � �� \ ... ..� . . .. .. , �- , � � � . ... ,� h P � 4 � . , . . � � ' � ; . � . . � . .� �3 1 . 1. , . , � ... � . ' . �. � . �Y �� 9� i 1.�� _ � 't � � � I , . � � \ � �; � . . � . . � . . . . F �i . . � 1 .� � . . . . . .. � � � . . - . . . . � , . � 1.! . . .. . . � �. � . � .. . i , . . . . .. . ,�� .• : � . . . � , ' ' � � ` .�� ... . � . . . . . . ! F� t b' . .. . .. . . . . !!�� I - (. � ' . ' � �� i% -�' . , . • ��'' ` '. � I � f Y � � �� ' �' l �# �. . � , . ' . - ��'��►� � . � � + ` ��a�=� �.. ` � � ��+ ��.� �b� . , r r � , . , . � . . � k �t+N� � . . � . � . . � � . . .. . .. � . .. ' . t', i \� },""A� . � . .. . . � �� . . . . . " . �. . 1 .. 1 .� � � � �� • ''�Y � fi Nx . . • . ' - . ' . : . \ ��, .� , i . .. ��y,� X � � � ' ' � � � �� .�� T^� '� � � � � 4 ��. %i�,g� �d �EIIOw��uEy�M �' �tt 'J�pt 'I�et �� +�` �lM �t S�. . � • ,. , � �awe� ��y'�� le�• � . . , � / . . '' � , . �. , .� . �..J .� .�I . '� . . y + ' ' � . . . �/ . . ,: I �M� ` �. ' ��` �'� �!. `' �t , � � � � i � � � � � � � � � ; � �� ' � � �� I i , , ' r , I i 1 � �'� t � �� . �� . .. _ I � � - . . � � � � � � " . . '; . . � . .. • � , ... �r k,5`f�j9�. .. . . ' . � . . . � � . � . . . , . . • , . 1 . . � . . . , .. . .•� . . . . - . . . . ��'1N� . . , . . . �, . , � . . � . . . . . . . . . . �. . . . . � . . � � � - ' �� . � � ,. � � � . . � � � . ��,., . . . . . . . . . � . — �.� . , . . ,. ' . . . . . . . . � . . . ' . . . � d�i iu . . . . . .. � . . " ' . .. ._ . . ' . '. . " . : �I..?� . �.�I� . . � � � . '.. . � . ' .. . . . r � . . � . . � � � � � � ` � .� • � � .. . L . . . ., . y , � 7'Fr . � / b , . �� .. _ . . 1� , . � , �� ... ` . ' , � � . �. .. . �� i , _ . . �. . , , � � � i -� ' , , • �� ' � i ,. ; . . . . � � . . . . . . a, .f ( �'r � . . ' � - � � . � � . ,. �. �. � . • . . . ' , � . . . � $�`�:� " d �i, 1, / . y 4 \ r� ��.�� I . • , ' ( ' `. � �� , . _, . / ` � , . � , �..,.. ,� �� '� € �� ,''�t � ' � �� , t f > �`� ,. �, � �,�� , ' �,,:� � � � � , �� , �� i � v R��.�� .,. - �� , , �k� � { k � � � � � I� � � � f� �. � _�� . � � . . � .. �' .. � . ' - , . . � �.!i . . . . . ' . .. � � .. . . . . � . . � '�� . � � . . � . .. . � � .. 't' . . . .. � � . _ , � i , . . . . � . � ' � W Rt ' . . . . ' � . . . - . ,n �.h� 5 IA the -�a�t�t.� ' $�AG'�t_ ) f � ��, - �'�a�r C.��yrt��c. P��,�;�ti � ) -�� .r�. c��:�.:��.�. .,� ��, ) �� - � � � ��P�� t :1��. c�ra�3c�ns � .; �.� � � � ��h►� �a�e �� )�� :�ac, �,�s c'�f��I��c�°`R�ai � ) �si��- �Ilql�&.;� � ) �� fi ; � . .,� .. � � . 1 � . . . . . ` . . .. . ,4f +� . � i, i � , . . . . '. � .i . .. . � � � � . � � � . . _ � `:d� r � �t�� ! ;,C . � � � :: , i x ,.. h+N . . , � 1 �:.. .. .. .. . .. � .. ... . . . 4, �. .. . .. . � . .. . ..w,.,. � ��Jr�� . . � , . � '�,� �` .. .. . � , � � ' .. . , � � I � . r; � � . . _ _ , .a., �`:; .��.L�� : . . . . . �.{�. . . . . . . . . . �� , . . - . _ . , � � . . , . . � �r.��: 4 �. .. . . . . . . .. . . ' �t. `� � - s,��:,,, �a� �' �� . _ � .� ' � �� . ' '� � 4t; . `� � � � � . � E �� ; ; _ , � � � i � � f�� i ' � ' : � � x� , .. . � . � �. .. ... . _ • . . , . . � + : � . . � � � . . ��. � � � .. � . . � � � � . �. . � � �r . � . .. .. . . . . . � � .; . � � � . . � � � .� �(� . . . . . . . : � . .. � . + s•, . _ . . . . . � . � . I . . ' . . . � . � � '�.,�� 1 . . . . . . i.. . �.. ��.F'� +�!�� 1 �Mh�i��i � � ��h��; { 3.�g ��c��r �� , �14� =� ,� ; ; j ,;,, : � � , � � � .: j: ; �t,ue�. �. wi�,1t�I� , t; j � � e3� .�Q � � 5 � � ,1 �� , .: , , + '��3 ��!�1�' ; '� �" ' � i � �,k �� j , , ;� �Y �� . . . . . � . � . � . , . � . � . � , :F ��. , � , 1L;d , i�� f � � � 't y ' , '� �� , f ti �: � .. . . ' � � . � �� . { . . , . . r .. . ,:;��.�: ,, - . . _ �.�_.��.,,:..,.,. . .��. r � . . � ._ .... ., .: . � ' ._ . . . ._. �.. . i�..:. . '...: . .�.:: . '. .... i _.:. . „ . ;�..: ... ��... .. ..... . . _t.,..�.J�,�s+� �;�r; � ' FII.ED � �� 3� ��f � . �� iv�F�6 �Fp..��R� ��NO✓� ' ��h�+��.r��. , APPEARANCES: Thomas J. Stearns, Public Utility Rate ' Expert, Assistant City Attorney, Office of the City Attorney, Saint Paul, ' Minnesota, appeared representing the ' City of Saint Paul. ' William M. Mahlum and John E. Brauch, 904 Commerce Building, Saint Paul, ' Minnesota, appeared representing the ' Greater St. Paul Fair Rates Committee. ' Leonard J. Keyes and Samu�l L. Hanson, of the firm of Briggs & Morgan, Attorneys 1 at Law, 220 First National Bank Building, ' Saint Paul, Minnesota, appeared represent- ing Northern States Power Company. ' . 1 ' ' _, ' • ' TABLE OF CONTENTS ' PART ONE ' Page Report of Hearing Examiner. . . . . . . . . . . . . 1 , Findings of Fact and Recommendations. . . . . . . . 2 Background. . . . . . . . . . . . . . . . . . . . . 8 ' Opinion . . . . . . . . . . . . . . . . . . . . . . 10 ' PART TWO ' SUMMARY OF TESTIMONY I. ' Northern States Power Company' s Case in Chief Northern States Power Comp:�ny' s Opening Statement . 1 , Statement of Mr. Connelly . . . . . . . . . . . . . 12 Statement of Mr. G2as s. . . . . . . . . . . . . . . 16 ' Statement of Mr. Cox . . . . . . . . . . . . . . . 28 ' Statement of Mr. Vixo . . . . . . . . . . . . . . . 60 Statement of Mr. Gillett. . . . . . . . . . . . . . 80 ' Statement of Dr. Herz . . . . . . . . . . . . . . . 94 Statement of Mr. Rosenwald. . . . . . . . . . . . . 139 ' II. , City' s Case in Chief ' Statement of Dr. Robertson . . . . . . . . . . . . 159 Statement of Mr. Rising . . . . . . . . . . . . . . 174 , Statement of Mr. Alexander. . . . . . . . . . . . . 199 Statement of Mr. Sherr. . . . . . . . . . . . . . . 225 ' ' i � . Page ' III. ' Cross-Examination of Northern States Power Company' s Witnesses ' Cross-Examination of Mr. Connelly by Mr. Stearns . . 234 Cross-Examination of Mr. Connelly by Mr. Mahlum. . . 239 , Redirect Examination of Mr. Connelly by Mr. Hanson . 242 Recross-Examination of Mr. Connelly by Mr. Stearns . 243 ' Cross-Examination of Mr. Glass by Mr. Stearns. . . . 244 Cross-Examination of Dr. Herz by Mr. Stearns . . . . 251 ' Cross-Examination of Dr. Herz by Mr. Brauch . . . . 263 , Redirect Examination of Dr. Herz by Mr. Hanson . . . 265 Recross-Examination of Dr. Herz by Mr. Stearns . . . 266 ' Cross-Examination of Mr. Gillett by Mr. Stearns. . . 267 , Cross-Examination of Mr. Cox by Mr. Stearns. . . . . 276 Cross-Examination of Mr. Cox by Mr. Brauch . . . . . 284 ' Redirect Examination of Mr. Cox by Mr. Hanson. . . . 286 Recross-Examination of Mr. Cox by Mr. Stearns. . . . 28� '- Cross-Examination of Mr. Glass by Mr. Stearns. . . . 289 Cross-Examination of Mr. Glass by Mr. Brauch . . . . 294 ' Redirect Examination of Mr. Glass by Mr. Hanson. . . 296 ' � Recross-Examination of Mr. Glass by Mr. Stearns. . . 298 Cross-Examination of Mr. Rosenwald by Mr. Stearns. . 299 ' Redirect Examination of� Mr. Rosenwald by Mr. Hanson. 309 Recross-Examination of Mr. Rosenwald by Mr. Stearns. 311 ' Cross-Examination of Mr. Vixo by Mr. Stearns . . . . 312 ' Cross-Examination of Mr. Vixo by Mr. Mahlum . . . . 323 Redirect-Examination of Mr. Vixo by Mr. Hanson . . . 328 ' _ , , ' Page Recross-Examination of Mr. Vixo by Mr. Stearns . . . . 330 ' IV. ' Cross-Examination of City' s Witnesses ' Cross-Examination of Dr. Robertson by Mr. Hanson . . . 331 Redirect Examination of Dr. Robertson by Mr. Stearns . 337 ' Cross-Examination of Mr. Rising by Mr. Hanson. . . . . 338 Redirect-Examination of Mr. Rising by Mr. Stearns. . . 350 ' Recross-Examination of Mr. Rising by Mr. Hanson. . . . 353 Cross-Examination of Mr. Rising by Mr. Mahlum. . . . . 355 � Cross-Examination of Mr. Alexander by Mr. Hanson . . . 356 ' Redirect-Examination of Mr. Alexander by Mr. Stearns . 373 Recross-Examination of Mr. Alexander by Mr. Hanson . . . 375 � ' Redirect Examination of Mr. Alexander by Mr. Stearns . 377 Recross-Examination of Mr. Alexander by Mr. Hanson . . 378 , Cross-Examination of Mr. Sherr by Mr. Hanson . . . . . 379 � Redirect Examination of Mr. Sherr by Mr. Stearns . . . 382 ' V. Northern States Power Com�any' s Rebuttal Testimony , 1 Direct Examination of Dr. Herz by Mr. Hanson . . . . . 383 ' Direct Examination of Mr. Cox by Mr. Hanson. . . . . . 389 Direct Examination o� Mr. Dienhart by Mr. Hanson . . . 390 ' Cross-Examination of Dr. Herz by Mr. Stearns . . . . . 397 Direct Examination of Mr. Dienhart by Mr. Hanson . . . 401 � Direct Examination of Mr. Vixo by Mr. Hanson . . . . . 407 � Direct Examination of Mr. Glass by Mr. Hanson. . . . . 423 � ! ' Page Direct Examination of Mr. Larson by Mr. Hanson . . . . 429 � Cross-Examination of Mr. Glass by Mr. Stearns . . . . 431 � Redirect Examination of Mr. Larson by Mr. Stearns. . . 435 Cross-Examination of Mr. Dienhart by Mr. Stearns . . . 437 ' Recross-Examination of Mr. Vixo by Mr. Stearns . . . . 443 � ' ' � � ; , � �� ' ' � � . ' _ , ' 1 ' REPORT OF HEARING EXAMINER The undersigned, Leonard E. Lindquist, having ' been appointed by the Mayor and Council of the City of St. Paul to conduct hearings with respect to a ' Petition for an increase in electricity rates by ' Northern States Power Company in the City of St. Paul reports as follows: ' That Northern States Power Company is entitled to an increase in revenues of $7,315, 000 above ' the 1973 test year revenues from its electricity � operations in the City of St. Paul. This recom- mended increase is based upon the determination ' of the Hearing Examiner that the appropriate overall rate of return on an original cost rate � base is 8. 1�. Additional revenues of $7,315 ,000 ' would amount to a 16. 2$ increase in revenues on the basis of the 1973 test year figures. This ' , figure compares with the 28� increase applied for by Northern States Power Company. , This report is based upon the Findings of Fact � and Conclusions of Law hereto attached. A summary of the evidence reviewed in preparing the Findings of Fact ' and Conclusions of Law is enclosed with this report. � ./ -, ' .2-e,-.__-,''�� Zf' d�L.�� Leonard E. Lin ist , May 10, 1974. � ' ' ' FINDINGS OF FACT AND CONCLUSIONS OF LAW On the basis of the record made in this hearing and the , supporting opinion attached hereto, the Hearing Examiner has reached the following: ' FINDINGS OF FP,CT ' 1. The appropriate test year in this proceeding is the 1973 test year, adjusted to year-end , figures with respect to net operating investment and certain aspects of revenues and expenses. � 2. The original cost less accumulated depreciation � method is the appropriate method of determining the rate base in this proceeding. , 3. The investment relating to the Prairie Island Unit No. 1 Plant should properly be included in the � test-year rate base. 4. Construction work in progress should be excluded � from the rate base in this situation. ' 5. It is appropriate to annualize depreciation on the basis of year-end plant investment in view of the ' use of a year-end rate base. 6. A reduction of $145, 000 in the test-year rate base ' to reflect the unamortized 3$ investment tax credit ' in the rate base elements is appropriate. 7. It is appropriate to offset working capital items in ' the rate base with average accrued tax liabilities. , - 2 - ' ' , 8. Property held for future use should be included ' in the rate base in this situation. , 9. It is appropriate to increase test year revenues by $131, 000 to reflect revenues received by N5P from ' wholesale sales to other utilities. 10. No deduction should be allowed from test year operating � expenses in connection with the $37, 000 fuel "penalty" associated with the Monticello Plant. ' 11. It is appropriate to recognize the number of customers , existing at year-end 1973 to match the use of a year- end rate base. This adjustment increases test year , revenues by approximately $125, 000. 12. With respect to donations, it is appropriate to deduct , a $14, 000 amount which was duplicated in NSP' s operating ' statement, and the $18, 000 amount relating to NSP' s final 1973 payment to the St. Paul United Fund ' Building Fund. 13. Wage increases scheduled to become effective during ' 1974 for non-union salaried employees should be recognized , as are wage increases for other employees, but only to the extent that such wage increases will actually ' be paid during 1974. 14. Tax savings resulting from deductions of interest relating , to construction work in progress should be recognized , in determining test year net operating income. ' , - 3 - ' ' 15. Proposed City adjustment No. 9, which normalizes ' fuel costs at the December 1973 level corresponding to the amount on which the fuel clause rider is ' based, should be adopted. 16. Proposed City adjustment No. 10, which adjusts ' expenses and revenues as if the December 31, 1973 ' incremental prices for fuel and purchase power had prevailed throughout 1973 should not be adopted. ' 17. The net operating investment of the utility used and useful in conducting its electricity operations , in St. Paul as of December 31, 1973, as calculated , on the basis of the acquisition cost depreciated method was $133, 903, 000. , 18. The net operating income for the test year 1973 earned by the utility in St. Paul from its electricity opera- , tions was $5,795,000. ' 19. The capital structure of the utility as of December 31, 1973 was as follows: ' Debt - 52.82� Preferred Stock - 14. 90� , Common Equity - 32. 28� 20. The overall rate of return to the utility in its St. ' Paul electricity operations during the 1973 test year , was 4. 33�. 21. An overaZl rate of return of 8. 1$ is fair and reasonable , in this situation. 22. On the basis of the December 31, 1973 capital structure, , an overall rate of return of 8. 1� would result in a r - 4 - ' � Alabama Power Company, L�irmingham, Alabama ' Ceritral Power and Lig}�t Compan Cor us Christi ' n Y, P , 'Iex�s ' Duquesne Light Co., Pittsburgh, Pa. I7uke Power Company, Charlotte, NC. ' Houston Lighting and Power Company, Iiouston, Texas Illinois Power Ccmpany, Decatur, Illinois � Montana-Dakota Utilities Company, Bismarck North Dakota � ' Montana Power Company, Butte, Montana Philadelphia Electric Company, Phil�delphia, Pa. � and others. Q-7 Have you previously testified on utility rates and valuation: ' A Yes. I have testified before regulatory bodies in Alabama , � � Illinois, P�Iaryland, Montara, New Jersey, North Carolina, Ohio, Pennsylvania and South Carolina. I have also testified before � the Circuit Court of Maryland and the District Court of Texas. Q-8 What did Northern States Power Company engage your firm to do? ' A We were retained to determine if published ?�andy-WY_�itman Indexes ' 1-iad been properl,y used to trenct the plant accounts of the Com- pany and to test the applicability of the published indexes to � Company experience. Q-9 What is an index and how is it used? � A An irldex is � number which relates the cost or value of an item ' at one peint in time to the cost or value of the same item at ar.other time. The cost at the present time can be determined by ' mult�plying the original cost by the ratio of the current index number to the index number at the original date. ' ' —81— ' � Q-10 What are some well known indexes? A The Bureau of Labor Statistics publishes a variety of indexes. ' The best known are the Wholesale Commodity and Cost of Living ' Indexes. The Dow Jones, New York Stock Excharig� and the American ' Stock Exchange indexes show the trend of stocks traded on the two exchanges. � The most widely known of the general construction cost ' indexes are the Engineering News Record Construction and Building Cost Indexes. The Interstate Commerce Commission has published � railroad and continues to publish pipe line construction cost indexes. , A number of consulting and construction firms publish ' their own construction cost indexes. An example of suc':� an index is the Handy-Whitman Index of Public Utilities Construction Costs � published by Whitman, Requardt and Associates. Q-11 What is the Handy-Whitman Index? , A The Handy-Whitman Index contains numbers which represent the ' trend of electric utility construction costs for the va.rious F.P.C. Plant Accounts and for specific items of construction such � as reinforced concrete� labor, pipe, etc. The index iU �repared by geographical divisions. Minnesota is in the North Central , Division. It has now been issuedcontinuously for 49 years. The ' Handy-Whitman Index is maintained to a.ssist in determining the � cost of reconstructing gas and electric plant new by trending , —82— ' ' ' original costs. Subscribers to the index, in addition to gas ' and electric utilities, include regulatory bodies, insurance � companies, tax agencies, other consulting engineers and appraisal services. ' Q-12 Will a trend factor produce an accurate estimate of construction at current cost levels? , A Yes, and in considerably less time than repricing requires. , Q-13 Will you demonstrate this accuracy with an example? A Yes. Exhibit _ (JBG-1), Schedule l, shows the cost of erectir.g a , hypothetical ton of tower steel in 1962 and two methods of esti- mating the cost of erecting the same tower steel in 1972. Column � 1 shows the various components of construction cost. Columns 2 � and 3 show the units of ineasure and quantity, respectively. Column �+ shows the unit price of construction in 1962 and Column ' S shows total cost. This estimate shows that this ton of tower steel erected in 1g62 cost $858. � The first method of estimating the cost of reconstructing , the tower steel in 1972 is by repricing all of the units at pre- vailing prices. Column 6 shows the 1972 prices and Column 7 ' shows the extension and total. This method of estimating pro- duces a reconstruction cost new of the 1962 work equ�l to �1,4�6 ' at prices prevailin� in 1972. � If an index is prepared for each component and each com- ponenti is given its proper weight, a composite index for the en- � tire item of construction can be prepared. Column 8 shows the weight each component bears to the total based on 1962 prices ' i _83_ , ' which are known. Columns 9 and 10 show the indexes for each component based upon 1962 equals 100. Column 11 shows the � weighted index in 1972 for each component. They are obtained � by multiplying the 1.g62 weight of each component by their re- spective 1972 indexes. The composite index for a ton o� toti;er ' steel erected in 1972 is tl,e sum of the weighted indexes and equals 17�+.�+ compared to 100 in 1g62. ' At the bottom o2 Exhibit _ (JBG-1), Schedule l, a comApu- � tation shows that if the cost in 1�62, or �858, is r�u�tiplied by the ratio of the indexes, it will produce a trended original cos�t of , �1,496 in 1972. This is the same estimate of cost that was reached by repricing the various units of construction. � When properly prepared, an index produces a trended ori- � ginal cost equal to the reconstruction cost new obtained by re- pricing the original units of construction. Once constructed, , the index can be used on various amounts of investment in variou� years. The result is a great saving in time and tedious compu- � tation with no loss in accuracy. ' Q-l�+ Your example assumes no change in construction technology or productivity. Don't methods and productivity change? � A Yes, and an index must be reviewed periodically to determine ii changes have occurred. When they do occur, the new components ' must be combined in a new index. This new index is then linked , ta the old by equating them �t the time of chan�e. Q-15 Is the Handy-Whitman Index prepared in this manner? ' A Yes. , _84_ i ' , Q-16 What is the source of your data? ! A The components and weights for each F.P.C. account are determined � by a study of the continuing property records of representative operating utilitites throughout the country. These studies are � conducted continuously and the weights and components are changed as required. ` Prices for building materials such as ready-mixed concrete, Zumber, aggregates, brick, etc., are taken from the tabulations ' published regularly in the Engineering News-Record. � Labor rates are obtained from contractors and builders associations, building trades locals, and local unions. ` Quotations on equipment costs are obtained twice a year from nationally recognized manufacturers. � Indexes of the Bureau of Labor Statistics (B.L.S.) are ' used for certain items of eqizipment and building materials. Q-17 How did you proceed with your assignment? ' A We first reviewed the trending to determine that the Company had selected the most appropriate index for each account. The indexes � used by the Company are in accordance with our recommendations. � Q-18 Please describe what checks you made against ComparLy experier�ce. A Labor represents a major component of construction costs. Exhi- � bit _ (JBG-l�, Schedules 2-5� contains a graphical comparison of local wage rates with Handy-Whitman North Central Divisior� wage , rates for four key trades. These graphs show good overall cor- � relation between Handy-Whitman Indexes and Company experience. The agreement between North Central Electric Labor and C�mpany � —85— ' ' , Electricians is particluarly close, with Handy-4�itm�n being slightly more conservative. _ ! The Company furnished us with the final cost report on � the A11en S. King Generating Plant, and, based on our anal;,�sis of these reports, we prepared indexes based on Company weights � and indexes for local labor rates. Material and equipment com- ponents were taken from Handy-Whitman files. These indexes ?ae.re ,, compared by trending the plant to June 30, .1973, by each set of , indexes. The results are summarized below: OC 1.96g TOC NSPC TOC H-W Account Name (�1,�J00,000)(�1,000,000)(�1,000,000) 311 Structures and Improvements 15.8 22.2 22.5 ,� 312 Boiler Plant Equipment 40.2 52.1 52.3 31�+ Turbo Generators 16.8 22.6 22.5 315 Accessory Electrical �quipment 6.4 —8.1 7.8 � 316 �Iisc. Power Plant Equipment 1.5 1.8 1.8 Total 8�.7 106.8 105.9 These computations demonstrate that t.�e exoerience o£ the ' Nortne.rn States Po-wer Co�npa,ny in power plant construction is v2ry ' close to the resul+.,s produced by trending with the published in- dexes. The difference of only about $100,000 in the trended costs � is within the tolerance of accuracy expected by using index n�nbers. The Compar�y also furnished us with labor and material � breakdowns for new construction in the St. Pau.l Division at spe- � cific dates for the major distribution accounts. The Handy- Whitmar. Indexes for the North Central Division were analyzed as , of the same dates, and the weights compared. These comparisons are tabulated below: � r -86- � � � Account 364 - Poles, Towers and Fixtures - Weights 1972 � NSPC HW T9L�+0 Ma,terial 27 0 3 0 � Labor and Equipment 73 h8 Account 365 - Overhead Conductors - Weights 19'�2 � NSPC HW T9L�+1 Material 2� 0 5� o � Labor and Equipment 80 SO � Account 368 - Line T �ansformers - Weights 1970' NSPC Hw TgL�-6 Ma,terial $c o'- c�p��- Labor and Equipment 11 10 � Account 369 - Services - Weights 1972 NSPC HW T9L�8 � Material 3 0 00 Labor and Equipment 68 5i� � Account 370 - Meters, Installed - Weights 1973 NSPC h�l T9L50 Material Qo 3��—' � Labor and Equipment 32 1( In every case the labor component experienced by tne Compan,y � is higher than that used to develop the published indexes. Since � labor is the most inf'lationary cost item� the lower percentage of labor in the published indexes will tend to produce a more con- 1 servative trended cost when they are used. Q-19 Were Exhibit _ (JBG-l�, Schedulesl-5, p.repared by you or under � your supervision? � A Yes, they were. Q-20 Have the indexes recormnended by you been properly applied to the capital accounts of the Company in order to determine the depx•e- � ciated trended cost of �,he Utility Plant in service at December 31, � 1972? � -87- � � A Yes, they have. Q-21 Is it your understanding that the rates of inflation determined � by the published indexes for the first six months of 1�73 were � used to project the depreciated trended cost at December 31, _1�73 and December 31, 197�+° � A Yes it is. Q-22 In your opinion is this an appropriate procedure? � A Yes it is. � �-23 What conclusion do you draw from your studies? A Labor represents more than half of the cost of constructing � electric plant. The labor correlation between the published in- dexes and Company experience is good. The Company experience � in constructing Generating Stations closely parallels the basis � of the published indexes. Company experience in distribution construction tends to have a higher labor component than does � the Handy-Whitman Index. Therefore, I believe that the use of the Handy-Whitman Index to trend electric properties of the � Northern States Power Comp�,ny, as shown on Exhibit _ (FPV-l�, � Schedule 2 and 3, will produce a conservative and reasonably accurate estimate of reproduction cost. � � � � , �-� � � Exhibit (�7BG-1) Sc�edule .l 1 � o 000 � � � � � �� K W � r�l a � t�A N ti � �i �� rl � v O O � .�.r W Of rl N O N O � ° v � � � � � � o ,.,, ,. .-1 `�� -1 rl rl �-i G�l N N v � N � ... � `� � OOCO000 � � .H .�1 rl rl .-� .� .1 .�1 ♦+ � � N .-. N OD Cp t� O � �D OO CO �y ov0 � !� 0� w GV N ta GV a� � c� 0000c� �-, o Z ., . . . . . . . . � � � W N � t� `�"' � N H d� M ��p M Q� � � E � u �"'� � �-1 �i d� N 'd� � x g �' � � w E,,, U � � t,�j � o° o °o �°c � m° c°c � O '"' ti �gic^o o� ousa; coaocd I '� 0 � r�-1 W ~ ' OD N N 11 � � � � � � , � � (� k O � � ^ ''�„� O � t�0 U � � r�-1 � GMO N N N �O � � G � °� v � � r U V W a � � o � oo � $ � o ..� r- ..r � c� � .� o» cri � r3 � r� �: � .� .� .� � � � � , � � • � v , oo � atnoo � � �r7 .1 ta d� � aa t!�! c+ r M � � N' ' � c.� � � �q � � � � w � � � � � � � � � � � � � � � � � ��- �xhibit (JBG-1) � • Schedule 2 � --- � �,� � � , �, � , . � , �. I � ,'`• F I �—+ --� ��' '�., ______}_ _ , � � �`, a � �. � - --`� a i- ` � � ' I � ' � a► � i � ; �__ � _ __ ' � ±- , , ', i a ', \. � I --C-— --+- o � c� . 1 � p � � -- t--__ --1— _ E~ a / ,}- _ � � W � � = i f ---- U V U - ,,�� - - - •-' �, _ -- -----� � � U -�-� � � � I p w� U ; za; oa ; 1 , � , z ' -- a--a , , r . � � ; , � , , zz � � � � � . - � � � -- � � � w �. I ' � � r i�-----..._ __ , J I ..-�--__ I I , ' � f 1 I^ � 1 (^ / � I � � , O ' � � � � I 1 • C� � � I � 1 � � .--r-'il- � � � � � I � � �-- -a±--�-- i � - � _ _ �� - �--- ,�t - - - ---- ---- -- — — - � � , ,� � � : � � � - - - - - - - _ �^ � ^i " _ ... r ,- _ �^ -=r .. ci --� .� r.. r. ^.. .-. .=, 1\1)i�:� � -90- � � Exhibit _ (JBG-1) Schedule 3 � � a - + � � Hw � �1 w � _--- - --- � o , _ � , � -rt- \ — ---�--w � � i i H � � ;— � �_�,.�O ( �� dl� i �- � � � � ; I i I ` � � - _� � I \ 1 � ;' '� ._ � ^ ' = , - - --- - - � _ - - _ _ --- ---__ ---t — � r ___ ___ ___ � _ ___ � � � _�_ �_ , _t_ � � , _ __� _ . ! ' ___ � __ � +_ � ' - _ ___ __ 1 f-- - - _ - _ � , � � � � �--__ t- =. , ; � � s ,�--- ---t— ; - -— _ � �. � ' I � 1 � � ' 1 � ,� v. ' o � I ,� ! i T � � C i , � � � � , � �' � "r � _ _ _.._' I � � � I � � _ __-.- . �, � � I � I I � ' I�A� __� -� � }I - _ i I � I � u ___._�__" __._ _ J � �1 �--� �--1 � � �I I i� rl �� ti rl �. � (� `r j � :�� 'ti � � f\1)I�:\ -91- , Exhibit (JBG-1) � Schedule 1� . � 1_ — _. � � - --� �— � � � � a � --— --- -- ---�---�-1— w � i � � `� � �� h---t- —� �-- --�-- p}-� � , � �� I -- � I \ � � � I --� i i , i i � -�� _ ; \ � I � _ I -- ---�- � ' � � � ! � -t- ---+- � - ---�------�- � _ -_.1__ _�� --� ---- ----- ,� � , i . ` f _ � � . _ _ _ _ _� - - -- - - --- - - � ; I �--- - --- --- -�-- -- �-- �-- - �--- - --I- — � a - — -- � � � � � ' � -_--� - � — � --- � - -- ' � I � � �-- _ - -- ---- - �-- � � , , - - -- - _ � i � � - - -r--t-- -- --- -- - — -- -� �--- -- I - '� � � fi � � � �� -- - - �--- - :- :- ' � --t-- � � _ � � � _ � � � f� , �' � o i ,� � ; o ,� � , . ,� i-- i+ :� % '� � I I -- 1 , ! I c- I ' � I �. � 1 � --- i - - � � 'v �t_ � � �, - - - -- i ,� i ' Y � % _ -_. "_. ._ _ .'"'_. _ _I.__ ---_ � � � � I r� � '� I , � C � Ci � C �� . .�� ... :l� �� .. �� "'r .• :�] �� r �1 �y �y �H �1 I\I)I�:1 � - 92- � � Fxhibit _ (JBG-1) Schedule 5 � � -- -- _-- -- � — - -- -- — --- --- -�--—�-- --- �� I -- ----- �_-t---1 �--t-- --�- -- - '� �- -- I , �_ � _ ; � i �1 , � � -- -1 -- ----- � - 1 \- � ! �, �, ' � i i \ I---- � _ - -I - ----;-- I W--r� -a----- } --- � 1 � � ' _ U % I � _ I I —T�.—�_�\ —�}..:a'� � - r- - �_ -�'-- \ I � I� _ a � �V- � � I I ; � ---�------� -- -�{ - ; _ � ..n�----_—_+_—�_ --� � i 1 � � ' . � - r � � ; i � __ � - _�- -- - ' ' � �___ _ -- -- -- i , \ ' i i ; } - : -- -__�_____ � __�____�_�_ S � ; � � � � -�- _t-_ - -�_ -- -� - ---. -- ; � �; � � , wj 1 i --- - - - � , __ _ i W -__ - -- --- - I --- — �= - - I i _._. _ � - \ - -- -- --i __. `-- � i - . � _ .--- --- --- - � - - - — -- ; : �---- - _�-_ � ' � � � � P� ' -- -- - ' E-� 1 � � � � . I i M : _�.__ ___ _ __ � � � �--__ _ ; �__ _ � � =: � � � � -,, �_ -�r- � �. � �� 1 f � �, -f �� ,� o � ,., o ,,, -• '-, � � � � � � rn � � � � -_T._"'- __ � � � I ' ; � 1 �- � � I . I � --_- a.�-___'-__.. .._ . � � 1--, � .'__ . . . ... . ..... . . .+-_.__ ___.. / ._ _" .__ _ __ in l ~ i � , � _ �� ' ^� .:� _ _. s �= �° , . �, r., � '-, �. ._. ,� ,� .-� �- . , I\I�l�:\ -93- � 1 . INTRODUCTION AND SUMMARY OF CONCLUSIONS � l . l Identification and Qualification � I am Henry Herz, a consulting economist in the � field of business management and regulation, and am a Vice President of the consulting firm of Foster Associates, Inc . , � 1101 Seventeentli Street, N. W. , Washington, D. C. 20036 . My home address is in Bethesda, Maryland. � I have had over forty years experience in public � utility operation, regulation, and management . I have had eight years of service witli a regulatory agency, a number of operating assignments with public utilities, aiid have � worked in public accountancy and economic investigations for five years . Since 1946, I have been a consultant in � the field of the economics of regulated enterprises. My consulting experience includes not only service to utility clients , but also to industrial and other customer interests . � I have had a major public service assignment as rate consul- � tant to the President ' s Commission on reorganization of tlie Post Office Department. This has been recently followed up by an assignment to study the behavior of postal costs under � changing scale of operation. I have followed closel the roblem of determina- � Y P tion of a fair rate of return for utility corporations ever , since my assignment as a utility commission' s staff inember to this problem in October, 1937 . � I have testified before three of the Federal regu- latory commissions , regulatory commissions in a dozen or � more states and in tlie Province of Alberta in Canada, and before city councils in St . Paul and in El Paso, Texas . � � � -94- � � My education has covered sorne work in engineer- � ing and accountancy as well as in economics . I hold Bachelor ' s, Master' s, and Doctor ' s Degrees in economics � from New York University. 1. 2 Engagement i I have been asked by Tlorthern States Power Com- � pany, hereinafter referred to for brevity as NSP, to pre- sent to this Honorable Council an opinion as to the fair � rate of return applicable to NSP' s investment in electric facilities serving St. Paul . ` In accordance with this engagement I have con- sidered available evidence as to return requirements from � conparable investment opportunities and have arrived at an opinion in the light of this information and the prin- � ciples which I believe should govern the fixing of a fair rate of return. I have, of course, drawn also on my general � background and experience . From this evidence and background, I have been able to reach a considered opinion as to the fair � rate of return which should apply to NSP' s operations in St. Paul . � I have attached to this statement an exhibit sec- tion setting forth the principal facts I have considered � in reaching this opinion. The exhibit materials have been prepared by me or by others subject to my direction and � supervision. References to pa�e numbers in this statement are to the appended exliibit material . � 1 . 3 Summary of Conclusions , It is r:iy opinion that if a fair value rate base be adopted, I would at this time recommend allowance of a 1 � -95- � � � rate of return of 8. 75 percent on that rate base. Alterna- tively, a rate of return of 9. 25 percent would be reasonable � on a net book investment rate base. . , This conclusion rests on consideration of a nur,i- ber of circumstances which should be taken into account at � this time in reaching a considered conclusion as to a fair rate of return: � 1) Inflation is still with us . At my last appear- , ance before this Council in 1971 , I predicted that this would be the case and that, to main- � tain an adequate flow of equity investment into a public utility corporation, a return allowed � would have to be sufficiently high to cover not only senior capital requirements, but to main- tain investment attraction for the equity in- � vestment without which no senior capital can be floated without jeopardy to the firm' s � financial integrity. � 2) There has been a continued further attrition of the investment desirability of public utility � stocks and bonds as against other investment media. This is an inherent result, first, of con- � tinued use by the regulatory commissions of rate bases measured in nominal dollars instead of amounts which reflect the investment values committed to ,� the business , and second, the long lags between the appearance of need for rate increases and � rate relief granted by regulatory agencies . , � i -96- � � � 3) In spite of the unsatisfactory investment � performance of utility equities , public de- mands for utility services continue to in- � crease, with added requirements for capital to meet stringent environmental and safety � requirements. There is no magic by which these improvements and expansion of service demanded by the public can be financed � without increasing revenues correspondingly. I4) In order to finance their share of these expanded requirements for public services � and for environmental safeguards, NSP ex- pects to have to attract outside capital � during 1973 and 1974 in an aggregate amount of nearly $330 million. � 5) Indicated capital costs , at year-end 1974 , giving one-half effect to the impact of � inflation on equity investment in a net investment rate base would be about 9. 35 � percent. Assuming use of a fair value rate base, year-end 1974 capital cost would � appear to be about 8. 7 percent. � 1. 4 Summary of Exhibit Materials In support of this opinion, I have attached to r this statement charts , tables , and appended explanatory comments . This exhibit section contains the basic mater- � ial upon which I have relied in reaching this opinion, and it has been prepared by me or by others acting under 1 my direction and supervision. It is organized in the fol- lowing parts : � I —97- � � Part A. I have set forth in the seven pages of this � section my conclusions as to costs of capital which I have used in reaching the results which I have just summarized as to cost of � capital and rate of return. ' Part B. In the ten pages ot this section, I have summarized some basic facts as to the eco- � nomic background of investment decisions , and have utilized this material in reaching � my final conclusions as to cost of capital and rate of return. � Part C. In the eleven pages of this section, I have summarized information about the company � and its investment status , as well as infor- mation as to recent market behavior of its com- � mon stock. Part D. In the ten pages in this section, I have � summarized information as to costs of senior capital, both bonds and preferred stocks , � other than for NSP itself, on which I have relied in allowing for costs of additional � senior capital to be obtained by year-end 1974. � Part E . In this section, I have set forth on fourteen � pages basic information as to costs of common stock capital for NSP, comparable utilities , and industrials , on which I have relied in � reac]-iing my conclusion as to costs of common stock capital and reasonable equity return. I � -98- � i 1 2 . BASIC CONCEPTS IN EARNINGS REGULATION , The following discussion is presented to afford , the members of this Nonorable Council an opportunity to review in brief form the fundamental ideas underlying regu- � lation of earnings of public service companies and the issues which arise relative to the allowance through the fair rate of return for the use of invested capital . It should also � be taken as a statement of the fundamental principles which I have accepted in reaching my opinion as to a fair rate of � return. � 2. 1 The Cost Standard of Regulation � Earnings regulation for public service companies such as NSP is conventionally controlled by what may be 1 called for convenience the cost standard of regulation. By this standard, a public utility company which has a territorial monopoly of some service deemed essential to � the public is entitled to recover the costs of making that service available to the public; but it is not entitled to � earnings beyond those which would be reasonably prospective were the service in question rendered under conditions of � free competition. As is generally accepted by authority, this standard is based on the concept that regulation is 1 a substitute for competition. Returns available for pub- lic service companies are therefore limited to those which would be achieved under efficient operations under conditions rof competition. There is no question that capital must be acquired in competition with all other media for investment � and therefore this standard applies with full force to the estimation of capital costs and the allowance of a fair rate 1 of return. i t -10� , � Some further information and explanation of � the facts set forth in Sectioiis B to E of the exhibit are given in Appendix I , beginning at page X-1 of the exhibit section. Also, because of the need for an ' explanation of the yield-growth approach to common stock capital cost, its derivation, and its relationship with � the once frequently-used earnings price ratio measure, I have covered these matters in Appendix II , beginning � at page Y-1 of the exhibit section. � � , ,. � � � � r � � 1 -99- � � , Under this cost standard of regulation, the � total revenue requirement of the utility in question is limited to the annual sum necessary for the following: � 1) operation and maintenance expenses � 2) taxes other than on income � � 3) an allowance for the consumption of capital - i.e. , depreciation and amortization ' 4) the annual allowance for income to investors, � which is measured by a rate of return applied to the rate base, � 5 income taxes related to the allowable return ) � � 6) any further taxes levied on the basis of reve- � nues . The sum of the foregoing items represents the � annual revenue requirement and is the main constraint on the utility' s ability to profit from its monopoly posi- � tion. If this constraint is fairly developed and applied, local customers ' interests are served because under condi- I tions of competition, in view of the economies of scale achievable by utilities , they could not obtain service at � a lower cost from smaller-scale local utilities. In order that the cost standard be applied fair- , ly for investors as well as for consumers , these costs have to allow for a return on capital invested which corresponds � closely with what investors reasonably expect in other 1 -101- � � � business enterprises of corresponding risks and uncertain- ties . This is nothing more or less than applying the same , opportunity cost standard expressed by the free competition idea to the supply of capital w}iich must necessarily be � raised under competitive circumstances. My concern in the remaindear of this statement is with the fourth item in � the foregoing tabulation of the elements of the revenue rec{uirement. It is r�lated to the question of what con- stitutes a fair retur�a, how it is to be measured, and an � opinion as to what presently constitutes a reasonable re- turn for NSP' s investors. � 2. 2 Return, Rate Base and Rate of Return � It is worthwhile to set forth at the outset some � definitions and basic concepts to which I will refer re- peatedly in what follows. , A fair return is an amount in dollars which repre- sents �easonable annuai compensation for the use of the prop- , erty represented by the rate base. � The rate base in turn is a measure of investment values recognized for thP purpose of developing an a11ow- � able return. In this case , there is an issue as to the �gpropriate measure of the rate base. It should be noted � that since the fair return is an amount in dollars , it fol- lows that that amount may differ as a percentage of the rate base , dep�nding on how the latter quantity is measured. , A fair rate of return is a percentage ratia whicli, � when applied to an appropriate rate base , will yield an amount equal to the fair return which investoxs should rea- � sonably be able to ant�cipate from the employment of the -102- , � � r � . ' property represented in that rate base. Again, since the fair rate of return is a ratio , while the fair return is an amount in dollars , it is accordingly important to , recognize that a rate of return cannot be defined without specification of the rate base to which it is to be applied. � In other words , I cannbt reach the same rate of return on a rate base measured in nominal book value dollars that I � would reach on a basis which recognizes the higher current dollar values of past investments. , The cost of capital is sometimes referred to as if it were identical with a fair rate of return; but an ` important distinction should be observed. Capital cost is the principal element of a finding of a fair rate of re- rturn. In the ordinary case , where customers ' requirements are growing and new capital must be acquired by the utility, � tlie cost of capital must be covered in full ; and mainten- ance of that coverage should be reasonably prospective under � tlie rates sought to be made effective. Other elements be- side cost of capital , in current terms , may appropriately be considered in fi;:ing a fair rate of return, particularly ' where� rising costs or other unfavorable trends intervene to make impossible recovery in the future �of those costs which , • are deemed reasonable in today' s rate proceeding. , In this context, investors ' return reQuirement signifies a rate of return on investment reasonably to be ' anticipated by investors from their commitments. It con- stitut�s the principal element of cost of capital. I will � indicate the methods of reaching conclusions as to investors ' return requirements in discussing the allowances I have made for long-term debt , preferred stock, and� common stock iri , reaching my conclusions as to a reasonable rate of return. ' � -103- � ' Cost of financing represents a further element of capital cost which is imposed on the company by reason , of payments necessary to secure capital from ultimate in- vestors. Such payments include underwriting discounts ' and commissions, expenses of offering of securities , taxes and other items related thereto, and legal and accounting services necessary in connection with security issuance . � All of these items are inescapable costs and should be allowed for in fixing a fair rate of return, since they r do not elsewhere appear in measuring the company' s reve- nue requirements . ' 2. 3 Justification for a Fair Value Rate Base � In this proceeding, NSP has submitted a fair value rate base , measured in terms of both net book investment and ' fair present value. At the time of my appearance before this Honorable Council in 1971 , I presented an opinion as to the � fairness of a rate base making allowance for values under then inflationary conditions in excess of the book costs , of the company' s property devoted to public service . My formal statement at that time of the justification for use of a fair value rate base is today in no need of any re- � vision. I accordingly accept here, and in full , what I said at that time . � In the present instance , T�SP has filed a fair ' value rate base. I agree with this decision. ' I believe that the use of the fair value rate base is muc}i more in accord with the test of competitive results � required under the cost standard of regulation than use of a book cost rate base. This is not to say that book cost should , , -104- � � � ' be ignored; but rather that the limitation of book cost as a rate base for determining a fair return by application to it of a rate of return should be clearly understood. � Moreover, the reasonableness of a return allowance on the net book investment is properly to be assessed in terms of ' what competitive enterprise may currently earn on market rather than book values. � The fundamental reason wh the book cost rate Y , base is unsatisfactory under current conditions is be- cause it treats every dollar committed to the enterprise, � regardless of the time at which it was committed, as equal in value to every other dollar. Accounting convention accepts the dollar as a unit of value, and in the present � context more particularly as a unit of value which does not change over time. During times when the international , gold standard was working fairly well , , this convention of the equality of all monetary units was not a serious source , of economic error. However, we have since 1933 had an almost continuous and accelerating rise in the price level , � with a corresponding fall in the value of the dollar. The accounting convention that all dollars are , alike did no serious harm when it was applied to a mercan- tile type of enterprise, which turns over its inventory Iyear by year with little carryover of property from one year to the next. However, when enterprises like the util- 1 ities , which have property whose lives span one or more major changes in the value of the dollar, the accounting con- � vention of the equality of all dollars becomes much less tenable. Finally, when public regulation follows this same convention, the result may well �e to confiscate ' real values to which investors , under the cost standard � -105- � � � of regulation, may reasonably be entitled. Use of a fair value rate base, which tries to bring dollar commitments ' into rough equality, is designed to cope with the inequity inherent in the accounting convention of the equality of ' all dollars. The fair value rate base in effect tells the stockholders in a utility, "you will be entitled to , earn a return in 1973 dollars on a rate base which mea- sures the value in 1973 dollars of what you have committed � to this enterprise". Fairness requires that the common stockholder � in a regulated utility should have the same opportunity to earn a reasonable return in current dollars as stock- , holders in competitive enterprises, or as a householder who hopes to retain some measure of the values built into ' his house when inflationary price rises have made its re- placement increasingly costly. In order to achieve this � result, the replacement value of the dollars invested by such stockholders , if not of the utility property itself, � should be given appropriate weight in determining the fair return. , Fairness to customers requires that whatever recognition be given to the statement of rate base and t return in the same-sized dollars need not go so far as to give equity stockholders increased returns based on I investment by bondholders. One of the criticisms of the old-fashioned reproduction cost rate base and of the use � of trended cost rate bases without adjustment is that common stockholders are given an increased return not only on the value of what they have committed, but also ' on values representing investment of funds derived from borrowings where contracts covering the repayment of , ,-106- t � � � ' these funds do not provide for coverage of the infla- tionary hazard. To avoid this type of unfairness , NSP is requesting that present value be given only one-third ' weight in the fair value rate base -- a policy with which I am in full agreement. ' 2 .4 Conditions for a Fair Return , The conditions which mus t be satisfied in order , to assure that a rate of return represents a reasonable result to both consumers and investors are well-known both in law and economics . They have been well-stated ' in the famous Bluefield Waterworks case decided by the Supreme Court (262 U.S . 679 , 1923) , which conditions 1 may be paraphrased as follows : , 1) the investor should be able to obtain a return from his investment such as � might alternatively be obtained from other investments of comparable risk and uncertainty; � 2) the company should have sufficient Iincome to enable it to attract additional capital, when needed, without demanding , subsidy by present investors through dilution or subordination of their � interests without compensation, in favor of the new investment ; � 3) the company' s financial integrity ' should not be impaired by reason of ' inadequate income . � � -107- . ' � It is sometimes argued that these standards may ' be applied separately, so that the satisfaction of any one of them will guarantee satisfaction of the others . , It is true that these standards are interrelated ; but they should not be applied separately. They are all , necessary conditions in the sense that a fair return does not exist for a growing enterprise unless they , are all satisfied. None of them, however, is a suffi- cent condition in the sense that a fair return can be � assured by any one of them. Nor should these standards be applied rigidly. As the Supreme Court pointed out in the Bluefield case at page 693 of 262 U.S. , , "A rate of return may be reasonable � at one time and become too high or too low by changes affecting oppor- tunities for investment, the money , market , and business conditions gen- erally. " � The great changes which have occurred during the past few years in investment costs , the money markets , and � general econnmic conditions preclude one from using return levels of earlier times as fair and reasonable today. � ' � i � _�og_ 1 1 , ' - , 3. ECONOMIC CLIMATE OF INVESTMENT � An essential first step in the preparation of an opinion as to what constitutes a fair rate of return � on property subject to earnings regulation is to gain an appreciation of the conditions affecting current invest- � ment, not only for the utilities so regulated, but for all enterprises who compete with utilities for the supply of available investment capital . This is necessary be- � cause the economic climate surrounding investment decisions changes through time ; and as we have seen, what constitutes � a fair return at one time may not be fair at another time. The economic climate today within which investment is car- � ried on in 1973 and the prospective climate of 1974 are substantially different from the rather sunny optimism ' of the early 1960 's ; and they are even different from the climate which I described in my statement to this Council in 1971 . Economic climates differ with respect jto the general pattern of economic life, with respect to _ the security markets and consequently, with respect to � levels of return requirements , and as to the investment status accorded to th� stocks and bonds of utility com- , panies comparable with NSP. � 3. 1 National Economic Policy and Its Consequences ' One of the significant differences in this cli- mate of investment decision from that which has prevailed for many years in the past is that political and economic ' opinion is beginning to question the growth policy which has dominated national economic policy since tlie passage , � � -109- � � of the Full Employment Act of 1946 . In 1971 , the con- tinuance of this policy was not seriously to be questioned. , In 1973, and undoubtedly for some time into the future, weight must be accorded to a growing sentiment that full , employment cannot be attained simply through continued growth in the economy. Previous policy has been based on � the premise that full employment cannot be developed with- out continued economic expansion -- an idea which goes back � to the late Lord Keynes . In the last two or three years we have been confronted with the apparent breakdown of the sys- � tem, in that unemployme�t stubbornly remains high in spite of continued expansion and that recent attempts to control inflation have obviously failed. I predicted in 1971 that i price controls would fail and I reiterate that prediction now. � The growth policy followed up to now in effect ' reduces employment by the device of creating excessive purchasing power, more inflation. This stimulates the � output of goods and services ; and because there is a ten- dency for the output to fail to expand at a rate as high as the rate at which new purchasing power is created or � employed, we have inflationary price rises . It should be noted that inflation of the purchasing power is the cause � -- the rise in prices is a symptom or a result and not a cause. For this reason, simply tinkering with prices � will not stop inflation. Inflation is the manufacture of purchasing power at rates in excess of amounts needed to , purchase the nation' s output of goods and services . The resulting price rises really represent the attempt of the free market economy to balance the supply of purchasing , power with the supply of goods and services . It follows that the only successful inflationary controls must be , aimed at either one of two objectives : first, the curtailment -110- � i � � , of excessive purchasing power, and s�condly, an increase in the real output -- not the money output -- of goods � and services available for purchase. The controls pre- sently adopted in Phase IV will attain neither of these objectives. � I have set forth in Part B of my exhibit mater- � ials a number of tabulations and charts which indicate this economic background and provide a basis for judgment ' as to the seriousness with which background trends must be taken in arriving at a rate of return applicable to ' regulated investments generally. We shall then turn to a consideration of the company, its investment standing, and evidence of capital cost which relate to it. � It may be instructive to review briefly the exhibit ' material relating to the growth policy and to the past in- flationary price rises . S The chart on a e B-1 p g of my exhiblt material ' shows the relationship between output of goods and services , . referred to as Gross National Product (GNP) , and the unem- � ployment rate. The theory has been that the unemployment rate should fall to or below the 4 percent level which has hitherto been accepted as a measure of irreducible unemploy- � ment whenever the actual GNP closely approximates the out- put capacity of the system. The chart shows that there is , still a gap between actual and potential GNP, and that there- fore under the theory, unemployment cannot be expected to fall � to as low as 4 percent. However, what is now being questioned is whether one can expect the output of. the economy, mea- ' suxed in terms of constant or real dollars, to continue to expand at a rate of 4 percent per year or more . � � -111- ' , The lower field of the chart indicates that ' there is a considerable measure of trutli in the Keynesian assertions as to the relationship of the gap between , actual and potential GNP and the relative unemployment. The heavy line refers to the right scale of the lower field and reflects the unemployment rate. The set of � vertical bars giv.e quarterly data as to the percent of potential GNP in excess of actual . This is just another � way of showing the gap which is represented by the shaded area in the upper field of this chart . Figures supporting ' the chart are set forth on pages B-2 to B-4 , inclusive . Present agitation in favor of a more limited , growth objective, or even a zero growth objective, would if successful , undoubtedly impose some control on infla- , tion, but at the price of a sharp rise in unemployment . It is certain that such a result would tend to depress ' investment incentives , and the stock market could be ex- pected to reflect fears that corporate enterprise would � again be made to bear the brunt of repressive policy. I do not believe that such a change in atmosphere will, ' however, become effective before year-end 1974 . There is accordingly no reason to believe that ! the atmosphere of inflation can be essentially changed be- fore 1975 . The President has attempted to impress on Con- , gress the need for restraint in budgeting unnecessary ex- penditures ; but he seems to have had little effect on Con- ' gressional opinion. Overspending of Federal revenues is a serious impulse toward continued inflation and the concomi- ' tant rise in prices . , -112- � , � � , The chart on exhibit page B-5 makes it possible to compare directly the inflationary price rises with the ' rate at which the GNP has fallen short of its potential . While the GNP gap has a direct relationship with unemploy- ment, the price rises are not related closely to the gap ' between actual and potential GNP. Other factors, as I have indicated, account for the persistence of inflation � and the difficulty of dealing with it in terms of price limitations. ' 3. 2 Inflation and the Security Markets ' The accelerating rate of inflation is shown in the year to year increases set forth in the lower portions ' of the three following tables , each of which sets forth the index numbers shown on tlie chart on page B-5. At pre- , sent writing, rates of increase in the consumer prices index seem to be in excess of anything shown on page B-6 -- ' perhaps as high as 8 percent. That rate of increase was already reached in the second quarter of 1973 by the con- , struction index, which measures more accurately inflation- ary impact on incremental investment by NSP and other � utilities . As I testified in my 1971 statement to this , Council, I anticipated that we could expect a renewed rise in interest rates ; and this has occurred. Although , the peak of the current rise in interest rates now seems to be past, I do not believe that long-term interest ' rates can be expected to continue to decline much below the level of September-October 1973 as l,ong as present inflationary tendencies persist. There are two basic ele- ' ments affecting long-term interest rates . The first is , -113- � i i the supply and demand for long-term debt capital, which , is worked out in the bids and offers in the new securi- ties market. As shown on exhibit page B-9, the basic supply of private savings , from which most long-term ' debt financing must be drawn, has been essentially static in proportion to the GNP. The demand for such f funds, however, is accelerated by the attempts of many individuals and corporations to complete additional in- , crements to productive capacity and to finance them in advance of need, since higher prices can be expected ' even within a year or two . In consequence, we would expect the rate of financing to increase more rapidly , than the GNP. The second influence on the interest rate levels ' is the level of inflation. Obviously, if an investor ex- pects the dollar to lose 6 percent or more of its value ' every year, the interest rate must be substantially higher to make investment in a dollar-based security attractive. ' This situation is particularly serious for individual in- vestors who must pay income taxes on interest in nominal dollars before they receive any real returns , On this ' basis , it is easy to see that interest rates on invest- ment debt issues are bound to reflect inflationary ex- ' pectations . There would be no bond market at all today if it were not for those institutional investors who are ' either free of income tax or who may see their real burden in dollar liabilities to policy holders or depositors dimin- ' ish in step with the real values of their investment income. When we turn to the common stock markets, it is ' common knowledge that these have been depressed beyond anything hitherto experienced during a period of relative , ' -114- � � ' ' prosperity. As shown on the charts on pages E-1 and E-2 , and in the following supporting tables , the average prices of public utility stocks , expressed as a multiple of annual ' earnings , remain= near the lowest level since the Great Depression. Industrial stoGk price-earnings multiples , have also fallen, particularly for the non-growth cate- gory. But price-earnings multiples for industrial stocks , , on the average, remain at levels substantially higher than the utilities . This adverse market performance has made ' it much harder for utilities to obtain additional equity capital through the securities markets without having to dilute seriously the interests of previously committed ' cornmon stock equity capital . There are many electric utilities , once considered acceptable widows ' and orphans ' , investments , whose equities are now selling below their book value. , 3. 3 Investment Decisions under Present Conditions � Since the great burden of attempts to control in- flationary price rises by price control has definitely , fallen on business corporations , and threatens to continue in this posture, the incentive to make equity investments , in business corporations in general has been seriously eroded. We are in what has been called a "two-tier" mar- ' ket in which a few relatively high-performance stocks re- main in strong demand, while the rest of the market , in- � cluding most utilities , is relatively neglected by pro- fessional investors. ' What this two-tier market means is that profes- sional investors are seeking to place their commitments in � those companies which have a past record of growth in earnings � -115- � i i very substantially higher than the rate of inflation. This � has the effect of driving up the ratios of market prices to current earnings to very high levels for such stocks as IBhi and Xerox, while leaving the bulk of the issues in the mar- ' ket to sell at relatively low multiples of their current earnings . The also-rans include practically all of the pub- ' lic utilities . The poor stock market performance of recent years , with the separation of the market between a few great ' favorites and many neglected issues , has the effect of keep- ing out the small investor. It was such investors that were , the backbone of the market for utility common shares. Until they return, finding additional equity capital will be in- creasingly difficult for regulated companies. The small in- ' vestor will not return until he is satisfied that he at least has an opportunity comparable with what he could do ' with his favorite industrials to make himself whole as against inflation. There is today no incentive for common ' stock equity investment if it does not provide at least a modicum of inflation protection. Why should anyone prefer ' an equity return on book dollars at 12 or 13 percent when he can get a much safer return on bonds at around 9 percent? ' 3. 4 Economic Growth and NSP Capital Requirements ' Although in the national arena the commitment to a policy to encourage growth in order to reduce unem- , ployment may now seriously be questioned, it is unlikely that such a policy can be suddenly abandoned. It has been ' too long in effect, and there are political pressures to- ward its continuation from many quarters . There is no clearcut public opinion which ties inflation to the growth ' policy. We would accordingly expect that the consequences of this policy, which include increased service requirements ' from public utilities , will continue to be felt for a long tirne. ' -116- � ' � � Movements toward curtailing our energy expendi- ture are also under way; but it is probable that they will not seriously affect near-future demands for energy in the � form of electricity. In this connection, it may be noted that while energy expenditure per standard dollar of the ' Gross National Product declined slowly over a long period ending in 1966, .it has subsequently shown a tendency to ' reverse direction and to rise. It is probable that at- tempts to restrain energy consumption will do no more , than to arrest this renewed rising trend and that levels established in 1966 can be expected to prevail . There- fore, as long as the GNP continues to grow in real terms, � we can expect a corresponding rise in electricity con- sumption. ' NSP has been influenced by these same trends . � Both electric and gas sales have increased more rapidly than measures of income production in Minnesota and in � the Twin Cities area. Moreover, these income measures have outpaced the corresponding average rates of increase in the price level . I have set forth on page B-10 of the ' attached exhibit some comparisons of rates of growth over a twelve-year periad and a five-year period, both ending � in 1972 . � Accordingly, we may expect that growth in con- sumers ' requirements from NSP will continue to increase ' at rates in excess of growth in the available purchasing power and in the Gross National Product. Because of the long lead time necessary for the construction of new gen- � erating and other facilities , NSP must now plan to meet those expanded requirements. It does not have the choice ' available to unregulated businesses not to expand and to , -117- � ' � accept a smaller share of the market. It is this need to meet customers ' growing requirements, as well as to meet ' stringent pollution control requirements at both state and national levels that account for the very large in- , creases in capital requirements of NSP with respect to which testimony of others has here been offered. ' , � ' ' � � ' � � � � ' ' -118- � ' � 4 . SENIOR CAPITAL COSTS ' As has been set forth in the testimony of � other witnesses , the bulk of the outside capital re- quirements of NSP during 1973 and 1974 is expected to � be obtained from sale of long-term debt. According to information furnished to me by the Company, new perma- nent debt will be marketed in the form of $130 million � of mortgage bonds , and $85 million of industrial reve- nue bonds guaranteed by the Company. Thus , permanent ' debt instruments will account for a total of $215 mil- lion out of $329 million permanent financing. NSP will ' during 1974 have to redeem $50 million of outstanding debt. Accordingly, the proportion of equity capital in � the total capitalization will increase , as indicated on Exhibit page C-1. � 4 . 1 The Capital Structure ' The first question in reviewing past and prob- able future capital costs is as to the reasonableness of ' the Company' s capital structure. One must ask whether the relationship of debt and equity capital is one which ' does not of itself unduly impose unnecessary financial risks , and which achieves reasonable economy in the costs � of obtaining and keeping the needed invested capital. The reasonableness of the capital structure can best be ap- praised in terms of the position of debt issues relative ' to the company' s income and assets. These coverages of debt requirements by assets and income are also fundamental � factors in appraising the quality of the Company' s securi- ties and hence the costs of obtaining senior capital . � ' -119- � . ' � As shown in Column 1 on Exhibit page C-1 , long- term debt accounted for about 53 percent of the Company' s , total permanent capital ; and long-term debt together with temporary borrowings accounted for about $779 million out � of a total capitalization of $1 ,420 million or about 55 percent of the total. This is a somewhat high ratio of � � capital debt , but the Company' s mortgage bonds , which ac- count for about 49 percent of the total permanent capital , retain their Aa rating. Mr. Cox has detailed the decline � in the income coverage of debt requirements and the serious- ness of this trer.d for the long-run financial health of NSP. ' The effect of the redemption of some old debt in , 1974 and the issuance of substantial blocks of common stock capital in both 1973 and 1974 will diminish somewhat the � ratio of long-term debt to total permanent capital and in- crease the ratio of common stock equity. h'ith respect to preferred stock, which iii 1972 accounted for 15 percent of � total permanent capital -- a relatively high proportion -- no new preferred stock issues are currently planned for the ' two years covered by my analysis . In consequence, at year-end 1974 , it is anticipated that the proportions of , long-term debt , preferred stock, and common stock equity will be as indicated in Column 6 of Exhibit page C-l. ' In my judgment the capital structure of NSP has � been a reasonable one ; and in my judgment the move toward increasing the proportion of common stock equity and total capital is a move toward a sounder and more conservative ' capital structure which should improve the quality of the senior securities as well as the common stock itself. I � believe, therefore, the capital structure as it will stand at the end of 1974 , according to present plan , is a sound � , -120- � � t � one to use for the purpose of fixing a fair rate of return for NSP. � In reaching this conclusion, I have disre- garded the amount and cost of short-term debt. Bank ' borrowings and commercial paper must be refinanced cur- rently, and this refinancing can be accomplished by use � either of renewed borrowings , issuance of long-term debt, or of equity securities . Accordingly, the proportion- � ality of securities in the capital structure which is of importance is that of the permanent long-term issues . The Company' s financial plans indicate that there will , be little change from year-end 1972 to year-end 1974 in outstanding short-term debt. � 4 . 2 Present and Prospective Costs of Long-Term Debt � I have set forth in detail on Exhibit a es A- 5 . P g , and A-6 computations of overall cost of long-term debt at each of the year-ends 1972 to 1974 . Figures for 1972 are of course actual . Figures for 1973 are believed to be � actual ; and the 1974 figures reflect additional long-term debt expected by the Company to be offered, and the anti- � cipated costs of such offering. Item 1 . 5 of the tabula- tion on page A-5 indicates that at year-end 1972 the Com- � pany' s mortgage debt cost an average of 5.691 percent. After taking into account anticipated additional mort- � gage series , $50 million of 7 . 5 percent bonds in Feb- ruary 1973 , already issued, and $50 million additional on which tlie estimated cost is 8. 25 percent, cost of mortgage , debt at year-end 1973 will be 5. 833 percent and it is esti- mated that at year-end 1974 it will have reached 6. 035 per- � cent. � -121- � � � Item 2. 5 on Exhibit page A-6 indicates that the � cost of the Wisconsin company' s long-term debt has in- creased sharply during 1973 as the result of the recent offering of 7. 75 percent mort�age bonds and, while still , slightly less than the anticipated level for the Minnesota company' s bonds , will approach 6 percent at year-end 1974 . 1 Item 4 . 3 indicates the disappearance in 1974 of the $45 million of debentures of the Minnesota company. Under � Item 5 , are set forth details as to the municipal indus- trial revenue bonds guaranteed by NSP and hence an obli- � gation of NSP which for rate of return purposes we have included in our capital cost analysis. Costs for the first $36 million of these bonds have been established during this , year. The cost for the proposed February 1974 issue of $40 million and a further $9 million later in the year are esti- � mated at 1 . 9 percentage point lower than the cost of the � 1974 mortgage bonds or at 6. 35 percent. On this basis , � the total cost of long-term debt capital has increased or will increase from 5 . 837 percent at year-end 1972 to 6. 003 , percent at year-end 1973, and to an estimated level of 6.020 percent at year-end 1974. I have carried these cost figures over into my analysis of total capital cost as set � forth on page A-1 of my exhibit. � 4. 3 Cost of Preferred Stock There has been no chan e in the cost of referred � g P stock actually issued by the Company since the 1971 study; � and since no new preferred stock is expected to be offered, costs for this purpose remain at the level estimated in my 1971 statement, as shown on Exhibit page A-7 , at 5. 829 per- [ cent. � -122- � � ' � 4 .4 Coverage of Senior Capital Requirements i Mr. Cox has detailed in his testimony his concern � with the diminishing income coverage of requirements of outstanding long-term debt and preferred stock issues , � and has set forth the facts in his exhibit material . I have shown in Item 7 on Exhibit page A-2 the coverages , � after taxes , which would result from allowance of a rate of return of 9. 25 percent on the net investment rate base. T�ie anticipated 2 . 93 times coverage which would result � from such an allowed rate of return (or its equivalent on a present fair value rate base) would be in line with � those which formerly prevailed for Aa bonds , per Exhibit page D-S , and would reduce the probability of derating � of NSP mortgage debt to which �Ir. Cox has referred. � It is important to consumers, as well as to in- vestors in NSP' s senior securities , that the excellent rating of Aa be retained. Derating would damage the in- � terests of present holders , make more difficult and more costly the acquisitions of new capital of all types, and � would eventually raise the cost of capital for which allow- ance would have to be made in later cases . Maintenance of � , access to the capital markets is a most important condition for continuation of safe and adequate service by NSP in , St . Paul and elsewhere within its service area. , , � 1 -123- i , � 5 . COST OF COMMON STOCK EQUITY CAPITAL i As may be seen by reference to the summary table of capital costs on Exhibit pages A-1 and A-2 , the � cost of common stock equity capital is the most important element of the total cost of capital. It is at the same � time the most difficult element to measure. For this rea- son, it is necessary to describe in some detail the prin- � ciples governing estimation of equity capital cost, the available data, and the support for my conclusions. More- over, because the choic� of rate base has a direct influ- i ence on this estimation process , the end result of my analysis , data, and final judgments are set forth on � pages A-3 and A-4 of my exhibit as alternatives dependent on the type (but not level) of the rate base. Data sup- � porting the opinion are assembled in Part E of the at- tached exhibit. � 5. 1 Measuring Common Stock Capital Costs � There is really no unequivocal way to estimate investors ' return requirements , and hence capital costs , � for any common stock equity investment. What is neces- sary and possible is to assemble available facts about , the company in question and other generally comparable investment opportunities , and to use these facts to for- , mulate constraining conditions on an ultimate result which is necessarily a matter of judgment. � However, that ultimate judgment, when properly limited by the facts , is not so uncertain, or subject to ' controversy as has sometimes been asserted. I believe accordingly, that the judgments I have here set forth � -124- � � � � as to cost of common stock equity are not attended by , a wide range of uncertainty. Anyone using the same or , equally acceptable facts and giving effect to the con- siderations which I will set forth in detail below should reach similar conclusions. � There are actually only two types of tests � which have generally been used by financial analysts to reach considered estimates of investors ' return require- � ments. The first class of tests , and in my opinion the most important, are those which look to the investment markets for evidence of what returns investors desire � from equities . Only in these markets do we find some observable consensus as to what a given prospective , equity return is worth. The second class of tests seeks to establish a reasonable estimate of return requirements 1 by considering what rates of earnings have actually been available on book values of comparable equities. I shall � refer to , and use , both of these general types of tests. It should be noted that the market-based tests ' are useful for estimating what new investors require , since these must buy in the market. Book values of � stocks are meaningless to such buyers. They are con- cexned only with the prospective income stream and with � such stock values as they are likely to obtain when they wish to dispose of their holdings. Consideration � of investor requirements derived from market evidence therefore affords evidence of what is currently needed, � but does not immediately afford a test of fair treatment to investment already committed. On the other hand, the "comparable earnings" test which looks at past earnings � 1 . _12s_ � � � rates on book values of common stock equities may afford some basis for estimating returns measured against a book , value rate base which should be allowed for in order to deal fairly with past-committed capital , but subject to � cautions as to comparability and as to the availability of high returns on the more successful companies which � afford a real test of investment desirability. 5. 2 Cost by Reference to Market Performance � The estimation of the return requirement from � common stock market data is peculiarly difficult , because it unavoidably involves efforts to interpret available data � in such a manner as to reveal a measure -- the market capi- talization rate -- which is never directly expressed. We � seek a capitalization rate because it is necessary to find a relationship desired by investors between annual returns and the amount of investment committed. When we look to � the market, we can measure the return requirements only against price quotations ; and the returns sought are future � ones . Except by happenstance, investors cannot buy common stocks at book values ; and for new investors past results � are of importance only as an indication of what may happen in the future. We must therefore seek to relate the known � factors in a market appraisal -- the past earnings and mar- ket performance of the stock, and the market price at which substantial trading takes place. Because the stock markets � are very volatile, we must draw our market-based evidence from a considerable range of experience and from such evi- � dence reach a judgment as to what investors appear current- ly to be desiring by way of a return. This inherently com- � plex problem has been for me since 1937 a subject of serious study. The method which I use , which is based on data as � � -126- � � � 1 to growth in earnings and dividend yields (the "yield- growth" method for short) is the one which I believe to be the most flexible and useful under most stock � market conditions . � I do not attempt in this statement to set fortll in detail the rati.onale of the approach which I have used. � Instead, I have submitted a fairly complete description of the yield-growth method and its derivation in Appendix � II to my exhibit. , By averaging the results of the method over over- lapping five-year periods , I have been able to derive some indication of the history of investors ' return requirements � beginning with 1959. As shown on Exhibit page A-3, I have used four such five-year periods and have developed results � for a test group of 18 selected electric utility common stocks generally comparable with NSP, for a large background � group of utilities (now 60) as published by Standard � Poor' s Corporation, and for NSP alone. , Before attempting to interpret these results , I call attention first to the chart on Exhibit page E-1 . � This chart shows in its upper field the trends in average market prices of NSP and of the test group of 18 electric � utilities , printed in color against a background of corres- ponding trends in broad market price averages for utilities � and industrials . In the lower field of this chart I have set forth the same trends , but with prices expressed as � multiples of the currently indicated annual earnings rate. Data set forth in these charts are on a quarterly basis and are summarized in following tables . The basis for ithe selection of the 18 company group is detailed in the notes in Appendix I to page E-5. r � _��_ ! 1 The first conclusion from this chart on Exhibit page E-1 is that there has been a substantial deteriora- � tion in investors ' evaluations of public utility stocks � as against industrials . Data for the two broad groups show that in recent years the price performance of the industrial group has been substantially better than the � utility group, and that on the average industrial stocks are selling at higher multiples of earnings than utilities , � although the reverse tendency prevailed during the earli- er part of my period of review. Under an inflationary � regime, we should not be surprised at this result since industrials are freer to adjust prices and operating , practices to inflationary conditions than are the util- ities ; and accordingly they may for most investors con- stitute an inherently better inflation shelter. What is � of more significance is that since 1966 industrial stocks have consistently sold at higher multiples of earnings � than utilities , in spite of the much greater stability of utility earnings . My interpretation of this impor- � tant reversal of investor preferences is that investors now find the hazards of competition to be not as serious as the risk of too little and too late regulatory ap- � provals of the rate increases necessary to attract capi- tal and to preserve the investment quality and return � level of the capital already committed. � A second conclusion to be noted from the chart is that the market price and price-earnings multiples from � tlie selected group of 18 comparable electric utilities have closely followed the trends for the broader group. � Most recently, they appear to have sold at a slightly lower P/E multiple which probably reflects investor dis- favor for companies serving substantially in big-city 1 markets. r _128_ ' i 1 � A third conclusion which may be drawn from this chart is that NSP appears to have sold at lower multiples of earnings than the 18 company group rather consistently rsince 1967. In the very last quarter for which I have in- formation, NSP stock has sold at almost exactly the same � level as the group of 18 . This may, of course, be a temporary condition. The conclusion from these facts is � that NSP is not quite as good an investment vehicle as is the average of the 18-company group. � In appraising the significance of the performance of NSP common stock as against other utilities , it is im- � portant to note the adverse trend in market price for NSP stock which began in 1964 , well in advance of the decline � in the test stock groups , as shown in the upper field of the chart on the page E-1 . Since the P/E ratio has held � up fairly well through 1967, the poor price performance must reflect a lag in earnings growth behind that of other � utilities , and may thus explain why the stock sells at a lower P/E basis than the group as a whole. � Turning now back to Item 1 of Exhibit page A-3, the foregoing observations have affected my conclusions � as to the significance of the results of application of the yield-growth test to available market data. In Item � 5 on page A-4 I have detailed the constraints drawn from these data on my final judgment as to required return. I It should be noted that the results for the 1968-1972 period are lower both for the 18 company group and the Standard F� Poor' s group than for the previous periods. tThis result again is not unexpected and represents the inability of a straightforward yield-growth measure to 1 give weight to requested increased revenues in a large � -129= � � � number of pending rate cases . This situation has been , particularly severe for the large-city companies . At the end of 1972 , 13 out of the 18 companies had such pending rate relief requests . The same situation un- � doubtedly was true of the comprehensive group of 60 companies used by Standard F, Poor' s . Accordingly, in my � judgment the figures from this test for the 1968-1972 period should be disregarded. I have accordingly used � the figures for the 1966-1970 period as a constraint on my judgment, recognizing that even during this period � revenues were not adequate and that investors had rea- son to expect better results during much of that time. The yield-growth method therefore gives a result some- , what below a fair conclusion for the 18 companies , and is probably below a conclusion which would be reasonable � for NSP by a somewhat greater margin. 5. 3 Cost b Reference to Return Re- � Y quirements from Senior Capital � As the second measure of current return require- ments from common stocks comparable with NSP, I have re- � ferred to the historical relationship between bond yields of a quality comparable to NSP' s mortgage issues and the � indications of investor return requirements obtained by use of the yield-growth method, which I have just discussed. � Figures are shown under Item 2 on page A-3 of the exhibit. First, note that the five-year averages of interest rates on bonds comparable with NSP have been steadily upward , throughout the period. This fact supports my conclusion that the yield-growth results understate a rise in common � stock return requirements , since investors have had a generally rising return available from a safer investment. � � -130- � , ' I have accordingly reached the conclusion that the excesses , of return indicated by the yield-growth method over bond yields for the two earlier five-year periods should serve ' as a basis of judgment as to a normal margin. I have ac- cordingly as a matter of judgment taken a figure of 5 . 5 � percent, as shown in Item 2 . 3, as a r:largin above bond yields which ought to be provided for the common stock- Iholder. � 5 .4 Cost by Reference to Earnings on Other Common Stock Equities � In Item 4 on pages A-3 and A-4 I have summarized information as to earnings rates on book costs on equities � of NSP a:�d a test group of 20 industri.al companies whose common stock appears to have an investment attractiveness generally comparable with utilities such as NSP. The comparison is , shown for the same four five-year periods as were used for the other tests . A more complete year-by-year comparison , of earnings rates on book equities of NSP is shown in the chart on page E-11 and the succeeding pages . On the chart � I have indicated the experience with respect to earnings rates on book values for the 18 electric utilities and for , the large background group of 425 industrial companies compiled by S � P Corporation. The corresponding line for NSP is shown in green and the dotted line indicates , the data for the 20 industrials used in this test. The identity and the method of selection is detailed in Appen- ' dix notes to page E-6 of the exhibit. It is important to note that this so-called "comparable earnings" test � does not really indicate a market capitalization rate or other evidence of investors ' return requirements . In � fact , an earnings rate on book value can tell us only i _�3�_ 1 ' � what has actually been earned in the past and this may ' reflect regulatory inaction as well as action. There is consequently an inherent circularity in using the earnings rates on book values for other utility groups and for this , reason I have not carried them to the summary on page A-4 of my exhibit. On the other hand, in the case of indus- � trial equities ,_ they provide a test related to book values of returns achievable under competitive conditions and � thus afford a further and independent measure of investor return requirements. Therefore, the earnings rates on � book values of the 20 stocks are in my judgment another constraint on the final conclusion as to earnings require- ments . � In interpreting these results, it is also im- � portant to note the impact during the last five-year period of attempts to control inflation through direct � price control , which of course has a substantial impact on common stock earnings of industrial companies . Ac- , cordingly, I do not consider the average earnings shown for the period ending 1972 as significant for my analy- sis . As shown in Item 5 . 3 , I have accordingly taken � the figure for the 20 stocks for the years 1966-1970, at 13. 3 percent as a reasonably adequate further con- ' straint on judgment, subject, however, to the recogni- tion that not the average, but only the better-than- ' average investment stocks measure return requirements. Accordingly, the fair return on a book value rate base must be considerably higher than 13. 3 percent. , � � � -132- � , 1 , 5. 5 Allowance for Market Pressure and Cost of Financing In Item 3 on Exhibit page A-3 , I have indicated ras a matter of judgment that 7 percent of the indicated return requirements of investors should be added when ' dealing with market-based estimates . This conclusion reflects the fact. that data derived from market appraisals � of trading of common stocks in relatively small blocks do not adequately reflect the gap between what the investor , is willing to commit and the money which eventually be- comes available to a utility through the sale of a common stock. It is rather difficult to measure this requirement. tHowever, in our office we have reviewed a large number of common stock offerings to determine the total of the mar- , ket pressure caused by the sale of large blocks and the other costs of £inancing. The 7 percent figure is a low- ' side judgment applicable under current circumstances . , 5 . 6 Conclusions as to Cost of Common Stock Capital 1 As shown in Item 5 of the schedule on page A-4 , after adding the 7 percent allowance for market pressure and cost of financing we reach a range of figures from ' 12 percent to 14 percent. The yield-growth results (Item 5 . 1) fall on the low side of this range and the bond yield Irelationship gives us figures toward the high side. For purposes of estimating investors ' current return require- , ments , particularly if emphasis is to be laid on the rate base in terms of present fair value, a lower level judg- � ment is acceptable. If returns are to be applied to a book cost rate base, then they must be at higher levels and further subject to an allowance to the investor for , the impact of past inflation on past commitments . In , � -133- ' � either case, no inflationary allowance is necessary for the future , since the new investor may then freely make , a choice. In line with these considerations m final , , Y conclusions are detailed in Item 6 on page A-4 . As shown ' in Item 6.1 , I believe a reasonable allowance for cost of common stock capital on a current requirements basis would be 12.7 percent if the fair value rate base is � used, and 13. 3 percent if the book cost rate base is used. As in Item 6 . 2 , if I adjust the latter figure � to give half weight to past inflation on the common stock holders of NSP, according to tabulations of results � of applying the Consumer Frices Index to annual increments to book equity, I obtain a range of from 15 to 16 percent ' on common stock equity. In my judgment, if the net book investment rate base is used, I would find a necessary ' equity rate of return within a range from 15 to 16 per- cent in accordance with Item 6. 22 . In my summary table on pages A-1 and A-2 of tlie Exhibit , I have allowed 12 . 7 ' percent on the common stock equity in the rate base when a fair value rate base is used, and 15 . 5 percent on common � stock equity capital when a net book investment is used. � ' , � � , -134- ' ' A-1 ' Northern States Power Companv � ESTIMATED COST OF CAPITAL EMPLOYED AT YEAR-ENDS 1972, 1973 AND 1974, ASSUMING ORIGINAL COST RATE BASE AND LOWEST REASONABLE EQUITY COST ' ' N M � Capital '; Exhibit Employed Cost Rate Annual Cost , w Reference (Thousands) Percent (Thousands) Computations Assuming Fair � Value Rate Base 1. At Year-End 1973 �.1 Long-term debt (Item �.4) $ 830,506 6.003 $ 49,859.4 , �-.2 Preferred stock (Item 4.5� 204,948b� 5.829 11,945.5 1.3 Cocmnon stock equity 640,946- 12.7 81,400.1 1.4 Total on fair value base ' at 1.08800 times Item 2.7 $1,676,400 /8�542/ $143,205.0 �. At Year-End 1974 • 2. 1 Long-term debt (Item 5.4) $ 878,223 6.020 $ 52,866.0 , a.2 Preferred stock (Item 5.5) 204,948b� 5.829 11,945.5 2.3 Common stock equity 74g�029- 12.7 94,999.7 2.4 Total on fair value base - 1 at 1.09264 times Item 3.7 $1,831,200 /8.727/ $159,811.2 Cornputations Assuming Net ' Investment Rate Base 3. At Year-End 1972 3.1 Mortgage bonds ' 3.11 Minnesota Company A-5 $ 617,679 5.691 $ 35,149.4 3.12� Wisconsin Company A-6 52,869 4.761 2,517.1 3.13 Combined $ 670 548 3.2 Debentures A-6 44,865 9.128 $ 34,095.2 � 3.3 Industrial revenue bonds A-6 none -- none 3.4 Total long-term debt $ 715 413 5.837 , $ 41,761.7 3.5 Preferred stock A-7 204,948 5.829 11,945.5 , 3.6 Common stock equity C-1, A-4 435,947 15.5a� 67,571.8 3.7 Total capital $1,356,308 /8.942/ $121,279.0 , 4. At Year-End 1973 4.1 Mortgage bonds 4.11� Minnesota Company A-5 $ 667 236 5.833 , $ 38,922.2 , 4.12 Wiscongin Company A-6 81,954 5.876 4,815.5 4.13 Cambined $ 749,190 $ 43,737.7 4.2 Debentures A-6 44,966 9.107 4,095.2 4.3 Industrial revenue bonds A-6 36,350 5.575 2,026.5 , 4.4 Total long-term debt $ 830,506 6.003 $ 49,859.4 4.5 Preferred stock A-7 204,948 5.829 11,945.5 4.6 Common stock equity C-1, A-4 505,393 15.5a� 78,335.9 , 4.7 Total capital $1,540,847 /9.095/ $140,140.8 -135- A-2 ' , Northern States Power Companv � ESTIMATED COST OF CAPITAL EMPLOYED AT YEAR-ENDS 1972, 1973 AND 1974, ASSUMING ORIGINAL COST RATE ' BASE AND LOWEST REASONABLE EQUITY COST � ,c� O� � � Capital ' w Exhibit Employed Cost Rate Annual Cost Reference ('I'housands) Percent (Thousands) Computations Assuming Net � Investment Rate Base 5. At Year-End 1974 � 5.1 Mortgage bonds 5.11 Minnesota Company A-5 $ 711,840 6.035 $ 42,956.7 5.12 Wisconsin Company A-6 81,033 5.888 4,771.3 5.13 Combined $ 792,873 $ 47,728.0 ' 5.� Debentures A-6 none na�Q 5.3 Industrial revenue bonds A-6 _ 851350 6.020 5=13g�p 5.4 Total long-term debt $ 878,223 6.020 $ 52,866,0 ' 5.5 Preferred stock A-7 204,948 5.829 11,945.5 5.6 Common stock equity C-1, A-4 592,741 15.�� 91,874.9 5.7 Total capital $1,675,912 9.349f $156,686.4 � 6. Conclusion as to Fair Rate of Return � 6.1 On fair value rate base g�75��, 6.2 On net investrnent rate base 9.25 7. Estimated After-Tax Coverages - , at 8.75% Rate of Return on Year-End Year-End Fair Value Rate Base 1973 1974 7.1 Total return $146,700 $160,200 � 7.2 Times long-term debt requirem�nts 2.94 3.03 7.3 Times debt and preferred requirements 2�31 2�4� � � a/ Average of two rates of Page A-4, Item 6, giving effect to part of , inflationary impact on eonanon stock equity. b/ Balancing figure - equity in rate base. ' -136- ' � A-3 � Northern Statea Power Companv ESTIMATED CURRENT COST OF CONII�fON STOCK CAPITAL ' Reference Detail Conclusions � 1. Average Level of Current Return Requirements Indicated by Yield and Earnines-Growth Trends - 1.1 For a test group of 18 selected � •-+ electric utility common stocka E-9 o°� 1.11 Years 1959-1963 9.98% � 1,12 Years 1963-1967 11.22 � 1.13 Years 1966-1970. 11.20 , 1.14 Yeara 1968-1972 10.31 1.2 For utilities generally (Standard & Poor's publi� utilities) E-10 � 1.21 Years 1959-1963 9.26% 1.22 Years 1963-1967 11.09 1.23 Years 1966-1970 11.54 1.24 Years 1968-1972 10.54 � 1.3 For NSP alone E_8 1.31 Years 1959-1963 9�� 1.32 Years 1963-1967 9.93 , 1.33 Years 1966-1970 10.35 1.34 Years 1968-1972 11.00 2. Level of Return Requirement on Common , Stock Equity Measured by Past Relation- shiu With Bond Yields D-3 2.1 Moody's average yields on outstanding public utility bonds rated Aa ' 2.11 Years 1959-1963 4.46% 2.12 Years 1963-1967 4�� 2.13 Years 1966-1970 6.63 2.14 Years 1968-1972 7.56 ' 2.2 Excess of return requirements indicated by Item 1.1 over bond yields (Item 2.1) 2.21 Years 1959-1963 5.52% ' 2.22 Years 1963-1967 6.38 2.23 Years 1966-1970 4.57 2.24 Years 1968-1972 2.�5 � 2.3 Judgment as to normal excess of coa�on stock requirements ovez yields on Aa- rated bonds 5.5% , 3. Judgment as to Added Allowance for Market Pressure and Financing Cost When Using T/ of Market-Based Measures of Return Require- Indicated ments Requirements , 4. Earnings Rates on Book Values of Utility Co�►on Stock Equities 4.1 For NSP alone �_8 , 4.11 Years 1959-1963 13.5 4.12 Years 1963-1967 13.8 4.13 Years 1966-1970 13.2 4.14 Years 1968-1972 13.2 ' I -137- 1 A-4 � Northern States Power Comvanv � ESTIMATED CURRENT COST OF CO1�Il�40N STOCK CAPITAL � Reference Tieisil Conclusions 4.2 For 20 industrial stocka selected � for general comparability with utilities E-13 4.21 Years 1959-1963 13.2 "' 4.22 Years 1963-1967 14.3 ' 0 °` 4.23 Years 1966-1970 13.3 � '� 4.24 Years 1968-1972 12.6 i w 5. Constraints on Final Judgment Market � SuQ�ested bv Items 1-4, Above Datu� Pressure (Item 3) 5.1 Yield-grawth results , 5.11 Low-side (Item 1.13) 11.2% 0.8% 12.07 5.12 High-side (Item 1.23) 11.5 0.8 12.3 5.2 Relationship with bond yields 5.21 Low-side (Items 2.13, 2.3) 12.1 0.8 12.9 , 5.22 High-side (Items 2.14, 2.3) 13.1 0.9 14.0 5.3 Earnings rates on book values (It� 4.23) 13.3 -- 13.3 ' 6. Judgments as to Current Costs of Coamon Stock Capital, Reflecting Constraints of Item 5 ' 6.1 Reasonable allowance for current cost of co�on atock capital 6.11 If fair value base is used 12.7 6.12 If book cost rate base is used 13.3 � 6.2 Reasonable allowance for return on book co�on stock equity if book cost rate base is used 6.21 Giving half-weight to past experience � over 1946-1972 period (Item 6.12 x 1.202) C-10 16.0 6.22 Giving half-wei.ght to past experience ' over 1959-1972 period (Itzm 6.12 x 1.134) C-11 15.0 ' ' ' , -138- , ' , � -, � or�hern Stat,�.a Pow..r Campany (Minne�c�ta) � Ele�tric Utilit;y - City of St. Paul Statement of k. W. Rosenwald, Supervisor of Rate Design ' � My name is Richard W. Rosenwald. I am Supervisor of Rate Design in the Rate Researc�h Department of Northern States Power Company. � I hold a BacYielai of Arts degree in Physics from Mankato State College. i Upon graduation I worked for the Army Corps of Engineers as a � construction inspector, the National Bureau of Standards as a physicist, and t.he Minnesota Highway Department as a civil ' engineer. ' Since November 1953 I have been employed by Northern States ' Power Company. My 20 years with the Company have been spent in the Rate Department, the Rate Administration Department, ' and the Rate R�search Department working on utility rate matters and de�ignirig rate structures. On July 1 , 1972 , I was promoted ' to my present position as Supervisor of Rate Design. ' My pr�sent responsibilities with NSP include the supervision of the Company's research, glanning, and development of new ' rate concepts as well as the design of rate structures. My 1 testimc�ny cnncerns the design of the proposed rates. � CLASSES OF BUSINESS As ef October 1973 , NSP served 817,900 electric retail customers , �f which 106 ,2Q0 are in the City of St Paul . Rates are designed � -139- � ' to recognize the characteristics of use by these customers. � Since t� a certain degree each customer is unique, it is � impossible to design a different rate for each. As a result, electric customers are grouped by classes to recognize their � general use characteristics and other similarities . The generally accepted major retail classes of business determined by these i usage patterns are residential; commercial; industrial; street lighting; and other sales . The comparison of the characteristics � of a street lighting customer to a commercial customer depicts � the extreme difference in usage patterns to be found among customers . Normally, a commercial customer uses electricity , throughaut the day and contributes to the system peak which usually occurs in the early afternoon on a hot summer day. A , street lighting customer, on the other hand, uses energy during , nighttime only and therefore does not contribute to the Company system peak. , BASI� COST COMPONENTS OF PROVIDING SERVICE ' The basic co�ts for providing electric s�rvice can be divided , into three c.omponents. They are customer-related costs , demand- reZated costs and energy-related costs. � The customer costs, which exist regardless of demand or energy , usage, include such items as the cost of the service wires to the building, the cost of reading the meter, and the cost of , preparing the bill. These costs are essentially the same for each customer of a given class. ' -140- � ' ' 1 Demand costs are tYa�se associated with the investment in fac.-�li.ties such as po�aer plants and transmission and distributi.�n � lir�es . An investment in thes�� acilities is related to a � custome.� �s peak: derc!an;� f�r el.e�trici.ty. As a result, the u�ility mu.�� i.r.vesu ir.. thes� facilities to maintain an avail - ' ability o.f sei-vi�e i:egardless of when the service might be demanded. � Energy costs measure the variable costs such as fuel and operating ' and maintenanc;:e �xpenses required to produce each kilowatt-hour � of electricity consum?d. BLOCK RATES � Because of t.he i.mpracticality of inetering demand for relatively tsm��.11 usage.s , resi.dential and small commercial rates are usually based on.ly an the. quantity of energy consumed. Therefore , the ' demand and castomer components , which are unrelated to the quantity , of energy �ansun�ed, must be recovered in the kilowatt-hour blc��xs. Becau.se of this , residential and small commercial � rates are usua�..ly gxaduated on a step basis so that each succeeding x:�.latik is at a lower rate than the preceding one . The initial , bZocka cov�r the customer ccsts and the succeeding blocks are ' �.e�ic�ned �:.c_� cov�:r d�mand cost� ��r the customer even though the rate :��ruct�zr.e far residential and small commercial customers � daes r�c�t s�eca_f�� that. siach charges are included. After customer costs and demand co�t:s are recovered in the schedule , the rate ' reduces tc; a r_onstaz-�± unit charge based on energy cos�.s. In � -141- i 1 other words the more a customer uses, the lower his average � rate , �ecause the customer costs and demand costs are spread oveY a �ar.ger number of ki�owatt-hours . i This is similar. to the concept used by many other businesses ' such as car rental agencies �rtiere the fixed costs of insurance , depreciati�n and taxes are recovered in a fixed charge and � the operating and maintenance expenses are recovered in a charge , based on mileage . It is evident that for an automobile rental that the average cost per mi.le decreases the more the car is � driven for the same reason that average costs per kilowatt-hour for electricity` decline the more that energy is consumed. � Large commercial and industrial rates are usually based on � metered quantitie5 of demand as well as energy. Although the demand charge is set out se�aarately, unit charges for both � deman�. and energy are designed to recover customer costs in , the initial steps. The type af block rates now in use at NSP and other electric ' utilities r�flects the cost concept described above. � NSP T�OAU GROWTH ' Mr Glass relates in his testimany that NSP 's maximum demand occurs dur.ing tiie sum.mer. This summer peaking characteristic ' began in 196� . Befare that thP annual peak demand of the NSP ' system �cc�.zrred in the winter. In 1972 the summer peak of 3574 MW exceeded the winter peak by 500 MW. Load forecasts � _142_ � � i indicate a continued divergence between Company' s summer peak iand winter peak which is projected to exceed 1100 MW by 1980. , Mr Glass indicates that power supply facilities must be added to meet the summer peak demand plus appropriate reserve � requirements . � ECONOMIC CONDITIONS DURING THE 1960'S , During the early and mid-1960 ' s costs for providing electric service at NSP declined because the economies of scale coupled � with new technologies more than offset the effects of inflation. As a result, new growth could be supplied at lower than average ' costs at the same time reducing costs for existing customers . This condition resulted in promotional pricing. ' The cost of providing facilities for new growth for customers � is referred to by economists as long-run incremental costs. ' In my discussion I will use the term incremental costs for brevity. PRESENT ECONOMIC CONDITIONS ' Toward the end of the 1960 's the economies of scale and new ' technologies could no longer keep pace with inflationary effects ' coupled with the added costs of pollution control. As a result NSP made small general rate increases in 1968 and again in ' 1971 . Only minor changes were made to the rate structure at these times because of the relatively small change in re�enues. � We are now experiencing incremental costs which greatly exceed � average costs. Superimposed on this major change in cost i -143- � � relation�hip is the fact that many other issues occurring � acros:a th.e nata_ar� have beco?nc v�t�i issues o� rate design. Includ�d zrr ��his �ist a.r� sl��,:h itcros a� canserv�tiun, the ' envir.onment, capacity shortaq�s , shaiplX higher f�uel costs � ' a.nt�zxsi�,�e r,an�_tal investment_ ar.� ac.:ce� �xatc:� growth ot system peaks . Eac�z of t.hese items affects ra�emaking. The conclusion , is that ratemaking ot the fut?�r.e must be more heavily cost related. Certainty other fac�t�rs previously significant in r rat�making such as value of service � consideration of rate ' hist�ry, stability of revenue , competitive consideration, and customer and regulatory acce�tar.ice will continue to be important. , Eaah o£ th�se ratemaking principles must still be considered. However, the fact remains that it has become necessary to employ ' demand costs in a greater degree as a starting point in rate � progra.ms . Because of the unusually high demand related costs , the cost c�f se.rv.ice during the peak period must be weighed , more heavily. RATE CONCEPTS ' In light of fihe foregoing, a pricing structure based on a � seasora�l rat� c�ncept will be introduced for the basic metered ' rat�s . Under the seasonal rate concept, the proposed rates wi i i b� k�:i.ghGi_ :�,uring the summ�:r months of June through September, � wher� the LK;�zn�ar�y 's system peak occurs , than during the other eiy:it moi�ti:� ��f the yeaz . Thus , anyone using electricity during � tt7� s�J�texn peak period will pay a higher energy charge than � -144- � � , he would during the off-peak seasonal period. In other words , ' consumers will pay rates more in keeping with the costs of ' providing service. A seasonal rate schedule permits consumers to control growth by their purchase of additional electric ' service at its reasonably true cost. It removes false growth incentive since the higher peak-season rates will discourage ' wasteful electricity use . ' To the extent that customers increase off-peak usage , a rate design with realistic seasonal differences will improve the ' Company 's load factor which, in turn, will lower average costs. ' SPECIFIC SEASONAL RATE DATA � Following is an explana�ion of the rate application for proposed rates having a seasonal rate concept. Sample rates are listed ' herein for demonstration purposes . , RESIDENTIAL NSP presently has two rate schedules available to residential customers. They are a Residential Service � schedule available to regular residential customers and an ' Al1 Electric Residential Service schedule available to residential customers with an electric water heater or total ' electric space heating. The All Electric Residential Service sche�lule is a promotional rate to the extent that both the � water heater qualifier and space heating qualifier allow a ' customer to obtain a year-round lower rate than a regular residential customer. ' � -145- � ' Under the proposed rate program, the present promotional All � Electric Residential Service schedule will be increased and closed. ' Existing and new regular residential customers as well as new ' a11-electric residential customers will be served under the new Residential Service seasonal rate . Present All Electric � Residential custamers who benefit under the new seasonal ' Residential Service rate will be transferred accordingly. The sample rate schedules which follow are for demonstration , purposes only. Note that the winter and summer rates are th� ' sam� for the first 400 kwh of monthly consumption. This represents thP base use for a residential customer. As the monthly use � increases the differential between winter and summer rates ' increases . SAMPLE RATES I Residential Service � Winter Summer First lOQ kwh @ 6 .8� 6 .� Next 300 " @ 4 . 3 4 . 3 , Next 400 " @ 3.2 3. 8 Excess " @ 2 .0 3. 8 Minimum Charge $2 .15 ' R11 Electric Residential Service (Closed) � Winter Summer First 100 kwh @ 6 . 8�` � ' Next 300 " @ 3.9 3. 9 lvext 400 " @ 2 . 7 3.5 Next 1200 " @ 2. 6 3 .5 ' Excess " @ 2 .5 3. 5 Minimum Charg� $2 .15 � -14 6- S � , COMMERCIAL NSP presently has two rate schedules available to small commercial customers , a General 5ervice schedule availab��: ' to any customer and an All Electric General Service schedule � available to any customer who has approved electric space hF�ai.ing , The A11 Electric General Service schedule is a promotional rate � to the e:�tent that a customer obtains a year-round lower rate than a regular general service customer, � Under the rate program, the newly proposed General Service � schedule wil� include a change in rate form from the present energy block meter rate to a combination of demand block meter � r_ate and energy block meter rate. The seasonal rate concegt ' will apply to the demand as well as the energy portion. A new proposed All Electric General Service schedule will be � iden�ical to the proposed General Service seasonal rate except � tha.t a lower end �tep will apply to al.l monthly use in excess of 2000 kwh during the eight winter months . We intend to � combine the new proposed General Service and All Electric General Ser°vice rate schedules into a single rate at the time � of our next r�-�te program. , Becaus:� the new seasonal d�mand-energy rates for General Service � �nc� All Electric General Service produce some unusually large i.ndividual custamer increases , and because of the shortness � of time tlzese customers woul.d have to adjust to such increases , the �r�sent rate schedules will be closed and increased to a ` level which would represent the maximum increase any existing � -147- � � customer will experience. , The sample rate schedules which follow are for demonstration ' purposes only. SAMPLE RATES � General Service � Winter Sum�ner Demand Charge: � First 10 kw @ $0.00 $0. 00 Excess " @ .80 1.05 � Energy Charge: First 200 kwh @ 7. 6� 7.6� � Next 300 " @ 6 .6 6.6 Next 500 " @ 5. 3 5 .3 Next 1000 1° @ 4. 0 4.5 ' Excess " @ 3. 3 4 .5 Minimum Charge $2.15 ,� A11 Electric General Service Winter Summer , Demand Charge : First 10 kw @ $0.00 $0.00 � Excess " @ .80 1.05 Energy Charge : � First 200 kwh @ 7.6C 7.6G Next 300 " @ 6 .6 6.6 � Next 500 " @ 5.3 5 .3 Next 100Q " @ 4.0 4 .5 Excess " @ 2 .2 4 .5 � Minimum Charge $2.15 INDUSTRIAL NSP pr�sently has two basic rate schedules available � to large commercial and industrial customers, a Large General � -14 - � 8 � � Service schedule available to any customer and a Large All Electric General Service schedule available to any �ustomer � who has approved electric space heating. The Large Al1 Electric � General Service schedule is a promotional rate to the extent that a customer obtains a year-round lower rate than a regular � large general service customer. � Under the �roposed rate program, the present promotional Large Al1 Electric General Service schedule will be increased and � closed. � Existing and new large general service customers as well as new large all electric general service customers will be served � under the new Large General Service seasonal rate. � The seasonal concept of this rate includes a pricing differential between sum�mer and winter rates for demands . Also, the new � rate includes an 80� seasonal demand ratchet based on the peak � demand during the four summer months . The sample rate schedule svhich follows is for demonstration � purposes only. SAMPLE RATE � Larqe General Service � Secondary Service Demand: Winter Summer First 100 kva or less $410 .00 $� h7ext 100 kva @ 3.80 4 . 10 � Next 800 " @ 3. 75 4. 05 Excess " @ 3 .70 4 . 00 Energy: First 20 OUO kwh @ 2 .2C Next 80 000 " @ 1. 8 � Next 900 000 " @ 1. 4 Next 9 000 000 " @ 1.1 F�xcess " @ 1. 0 � -149- � ��p Exhibit �" (RWR-1) Northern States Power Company (Minnesota) � Electric Utility - City of St. Paul PROPOSED F[JEL CLAUSE � FUEL CLAUSE RIDER � There shall be added to or deducted from the net monthly bill .013� per kilowatt- hour for the first whole one-half cent increase above or decrease below 50.5C per million Btu and for each whole cent change thereafter in the cost of fuel � used during the second month preceding the billing month by tlie electric generating stations of Northern States Power Company's system. Before application to customer's kilowatt-hours, the fuel adjustment shall be � multiplied by the ratio the second preceding month's output less nticlear and hydro generation bears to the total output for that month. The cost of fuel shall include the costs recorded in Accounts 501 and 547 - Fuel. � � � � � � � � � � � , � . � -150- � /�1'Sp Exhibit �/ � (RWR-1) , Northern States Power Company (Minnesota) Electric Utility - City of St. Paul REVENUES UNDER PRESENT AND PROPOSED RATES � Year 1974 � Calculated Revenues for 1974 � Present Proposed Increase Rates Rates Amount Percent Residential Residential Service $13 483 569 $17 161 470 $ 3 677 901 27.3 � All Electric Residential Service 477 645 648 000 170 355 35.7 Multiple Dwelling Service 571 815 753 947 182 132 31.9 General Water Heating Service 1 037 1 318 281 27. 1 � Controlled Water Heating (Closed) 16 078 21 747 5 669 35.3 Automatic Protective Lighting 116 887 140 806 23 919 20.5 Subtotal 14 667 031 18 727 288 4 060 257 27.7 � Commercial and Industrial General Service 7 733 713 9 669 025 1 935 312 25.0 All Electric General Service 71 508 88 531 17 023 23.8 � Large General Service 18 749 902 24 442 971 5 693 069 30.4 Large All Electric General Service 403 211 571 378 168 167 41.7 General Power Service (Closed) 3 144 3 958 814 25.9 � Commercial Lighting Service (Closed) 2 252 3 310 1 058 47.0 Large Commercial Service 25 716 32 270 6 554 25.5 Firm and Interruptible Large � General Service 2 212 729 2 685 675 472 946 21.4 General Power Service (Closed) (Direct Current) 15 662 23 023 7 361 47,0 General Water Heating Service 2 176 2 751 575 26.4 � Controlled Water Heating (Closed) 1 190 1 530 340 28.6 Automatic Protective Lighting 84 770 103 463 18 693 22. 1 Subtotal 29 305 973 37 627 885 8 321 912 28.4 � Public Street and Highway Lighting Traffic Signals 60 582 78 366 17 784 29.4 � Street Lighting 372 040 463 080 91 040 24.5 Subtotal 432 622 541 446 108 824 25. 2 Other Sales to Public Authorities � Water Pumping 45 105 61 452 16 347 36.2 Municipal General Service 724 185 939 567 215 382 29.7 Subtotal 769 290 1 001 019 231 729 30.1 � Total $45 174 916 $57 897 638 $12 722 722 28.2 � � � ' . -151- � NSP Exhibit �(1) ' Henry Herz Northern States Power Company , EFFECT OF METHOD OF MEASUREMENT OF HISTORICAL COST � OF COMMON STOCK CAPITAL ON ESTIMATES FOR COSTS OF COI�tON STOCK ISSUES � As Measured Earnings by City's Rates on � Witness Indicated by Book Value � (Earnings- Results of of Stock for � Offering Price Yield Growth Five-Year � � Ratio Ratio Method Method Period ¢ � (1) (2) (3) 1. Data for Stock Offerings � Issue of ?�iarch 1956 1/20 7.305� 11.47°G 12.82% � Issue of August 1959 1/15 6.705 10.83 13.14 Issue of August 1965 1/20 5.895 10.48 13.41 � Issue of February 1960 1/15 8.596 11.38 13.29 Issue of November 1970 1/10 11.253 12.39 12.62 Issue of August 1972 1/10 11.890 13.19 13.49 � Issue of October 1973 1/10 10.771 12.14 11.38 2. Averages for Seven Issues " � 2.1 Simple Average 8.916 11.70 12.88 � 2.2 Weighted Averagea-� I 9.755 11.99 12.73 � a/ Weighted by number of shares offered. Sources: Col. (1), per Robertson Exhibit 4. � Col. (2), Annual figures for year of offering from Herz exhibit, page E-8 with added 1973 figure on same basis, multiplied by Issuance Ratios per Robertson Exhibit 4. � Col. (3) , Annual figures for year of offering from Herz exhibit, page C-8. Data for 1956 from 1971 Herz exhibit; data for 1973 preliminary pending receipt of final report for that � year. � � -152- � . . . � NSP Exhibit 10 (2) (Revised) Henry Herz � Northern States Power Company � COST OF CAPITAL AT DECEMBER 31, 1973 (Revision of Robertson, Exhibit 1) � Percent of Cost of Weighted � Capitalization Capital Cost Rate �1� �2� (3) c� Historical Cost � � � . � Debt 52.82% 5.97% 3.16% � � w Preferred Stock 14.90 5,83 p�g� a/ Common Stock 32.2$ 11.99 3,87 � Total 100.00% 7.90% � Current Cost � Debt 54.16% 8.39% 4.54% � Pr.eferred Stock 13.28 8.00 1.06 , a/ . � Common Stock 32,56 12.14 3.95 Total 100,00% 9.55% � Common stock, using 1972 a� Yield-growth figure 32.56 13.19 4.29 � Alternative Total 100.0070 9.89% � Average of Historical Revised Figures and Current Cost: ITr. Robertson's Using 1973 Using 1972 � Original Y-G Cost Y-G Cost Historical cost 6.917, 7.90% 7.90% Current cost 9.11 9.55 9.89 � Average 8.01% 8.72% 8.90% � a/ As recomputed on yield-growth basis, using data of Herz Exhibit page E-8, with additional 1973 figure supplied, as now available. � See accompanying Exhibit 9 . � � —153— . NSP Exhibit // (3) ' � Henry Herz , � Northern States Power Comnany ESTIMATED COST OF CAPITAL AT YEAR-END �1973 � Percent � of Total Cost of Weighted � � Capital Capital Cost Rate (1) (�) (3) � Historical Cost � � Debt 52.82X 5.97X 3.15X � � � Preferred stock 14.90 5.83 0.87 Common stock equity 32.28 13.�� 4.29 � Total 100.00X 8.31% � Current Cost Debt 54.16X 8.39X 4.54X � Preferred stock 13.28 8.�� 1.12 � Common stock equity 32.56 13.38� 4.33 Total 100.00 9.99X � Average of historical ' �, and Current Cost 9.15X � � a/ Current cost estimate, Herz Exhibit , p. A-4, Item 6.12. � b/ Rounded estimate at same level as for debt. — � . . � � -154- � M r Y N �OWUVP G rVMNONO V wM�YN�+ 10� h�>w4 ' s q g r ��s � � Xo ' � X o tiw„ro�m o >��eHqY o oov�nA:X =�;5�3 r � � � 9PY�� ;.:�M1 � ""�Ra_ �yd9�: �Q � « � wN �� o .��g�� 8:aa�= �o, � n d ` w �^ « � � R�x,�; � � �--s� : : : ' r� ,.�� . ' R �, , .,�MP M M e8 : n ^oo�"` 7�� .. �e ! w '$'s•�°% A g v �.c'�5 Y�i•°� +� Y ��"„g : � :>''g �,��9 . . 6..� t ��i it �s�r w��'S � . _ >� • x = . r� 3 . ..., 6 � � N� � � ^A M � � ' �In ~�� S V Za O � Iry��' N� O� O �1a1 C1� !�}{{ �O P Ip PP{�M CsPP� II �W�J ''J nyO� ' �Y Ii M � � VOOCXw� IOPe �rt�r�w � IupwPV O�^y: rSOhA � . •� N>w vp. . r � � M� r y v S � � & I gi ° ("oXg.tl°..°.o I°� I'�".. °M °° °8" � ^ �a: a ��°�� `� ' �� I � I• � �v�o I I w Y�~o�Y > •^ l . � �.� �� wn� yr � w Io ra u u� i� w. v v o o�v�i e � � �w � M .�oro I°m �"�er..�r.. Im �e""n' ( V o ° oaic�+ �w�couo .+o�+ :�.°." ' ` . . . . . . . . . M L K \ � ' � � v � I P IP I P b �i�w�+OR ��lnK� � N 1 I • w 6 n� � . N Wr� � • � I M � � � �� tl � �vv v v ~�>n~ Q � m� F � C � m � � � ..tl �e � „ � Io .,. � ' _. ` �� >� . ��. IH1 � � I k � I I ` �� . .._ . YNN : �o wv� �w . r � M 9.�a 6 - � � � I � � � I I I I w ^ s c :�oo � � �� M �OS~6n � � � � I � I I I I w ^:�^�n I � � . w :Mn ^$:o . � av ��ge v I� I � � I ° IP I a � I wgY ,e �R A a Q� < � ■K i{ , ��C �A ; w . � I � N I M Iv �'POOU�u I I p '• � . AH�P !^�n0o w .� • 1 F' 1 1 P• 6 • N 1 � O , � I M I I l4 I ~ I I p •.7 r . _ y'�n�'.W � p°:3° a i � w q n�.°. P P u u�w P ."i 4 � Nr q : . � i+ O C Y v N V � I- A P C Y ff i�n • ° � w "oRu.`�nu u e�000u li� MRoH�.°+ �'"�y � '^v.. y o w s ' Iu I V � I P I I �p I �+r P r+ O�f yo n 1 Pr _ s qrC ia .� ' tl C O g^www� � YA �O^ ��r O O � rn � D � i� � >A w�1� I� O{` rR^��: � U P I.� I�v�mM ff{'n . -� � ° S �c&f�a .,. �P�coN� h+ MM..�B �g "v ° � � � ^ • � . . � . . .. .. _.. _..: .... . —155— � .. C+1 C3. f�D � [�TI C"� �r� I�D C�7 �-+O H t7 'C � '�f A o. 9 n d .� f) G� C7 H '�i cn c-� �u n t� ty � ro ry 7 W �-3 �D H N �t 0� G d n O G Q (p r• M �t tai O r O N w �S r{ f� O '1 n rt O �n fD n N rn p �f � � [�'+rf H 9 � �n o> O ti � � C� � D tn C� O .� C O rt � ��1 M � r. O � � � r�+� � ('] 6rti � o�i w � tGi � orti .t � � N w 9 C A � ��u � 7 9 fD � Ct � O �S r o� y r rr pr w rt hi r G x �-�' v' r• n C3. w Y H R. N .r 't N C ;tl G cn w O n �u G m w C v+° H C � �+ 7 w x 7r C) rt rt H rt m O �7 rt r n y O .-3 H n n 2.' ,"c1 rt o� w G� (D w f� w r� q w CL r� w p r+ O z w m c� �o m d a � v ao 0 0 �y o 0 o r ro c� •-� n m � o.oo r• � C � D tTJ � ro � � r. r• ro M fD �1. R d V1 y b � r'f H rt Vi z m c� n� m �-. � E n �w o z� �� C �i tn N r rr r• �+ O � C ro t*1 (� G 'c7 N D rr f] �t "�1 'd r [+f � O cn �' - �o r. x K t, ar c r m �n E y b rro na � a n a ., ynm 3 fi �' d .n fD w H w G Z m 3 �• �i � t■i W Y--' c n. a . ro H � � �"j -� hi n z d � r• � z •d fD y� o � y m N 3 n �' y O ai r�n v � fD C� 00 N o� 'd 14 � .h f� rt�<i g f0 fd V1 • 'a �� Cl rt N 'L7 � rt N f�i G � n N ft � N ".9 - O �" N m O N R D O n m v N b n rf fD Y• Vi � fS M � "� N N O G3. C 7 i-' � V 00 W �+ r r W ln N �O �-' L % O �O 0� 1--� N N �O ►' O� W � V � OD V W N r-� Q� V � fr�D Y M W O� ln 1 �-+ W r O l� �O �O �O �I O OD W �O O� � 00 W r+ V r-+ � C N F-� O O N O� � lJ� t-` V T V V N � �' L� lJ� 0� V O N �O z W n N �� V� 00 OD ln l/� W 1� O� l� N N l!� W O W 00 � lJ� O� 1� lT1 � n ro �� i r y � � 9 � 9 �. � �+D n. � r �,.. y � '«7 CS m N rt rt rt V W N �O V lJ� .7 � fD �' fD � v ry 'O y y K " � � a � a �n a w m �. � � � � ' m b m � h-� F-� !-� � N fA • R � ` V W . � }� O C H N fD O O O O � h'• � d v � � F.. ry . ,r. N F+• ',n � . .�1 ta ro � � �-{ N i/� fD � rt W N .0 VJ • H (D � � � � � �' �.ai. � . � � � "�7 C/ N N G � t rt rt r* � � �C w n x r� m � W W A r n � �� y � t[n a ~ 9 C� � � m .+, a �• e� O �..- � N k n ao Y � vM � � _ �+. �n r r+ N � tD (3. V OD W r-+ h-� r� W V� N �O V� t..•• V �+ N !V �O O OD l+! � O� �O V W N 1-� O� V r't G � V+ ld r W r W�t� �O N�O V O �O tn n) O� W 0� W r �l r �-C n �1 O O O O N O� Go�-' � �O V V V O� �-+ � V tn W Oo V O N .O fD fD } � tnP0o0Dln lnW P �OAFrNOO W W W OD � lnO� � Ci f]. -156- " � iNorthern States Power Company (Minnesota) NSP Exhibit Electric Utility - City of St Paul Page 3 of 4 � COMPUTATION OF INCOME TAXES (Revised) 1973 Test Year (Dollars in Thousands) i 1, City of St Paul Operating Revenue as Adjusted $ 48 363 � 2. Deduct: City of St Paul Expenses, as Adjusted, 3. before Income Taxes and Depreciation: � 4. Operation and Maintenance Expenses 24 553 5. Real Estate and Personal Property Taxes 5 763 6. Gross Earnings Tax 3 511 � 7. Payroll and Franchise Taxes 449 8. Add: Nuclear Fuel Expense g52 9. City of St Paul Operating Income before Income 10. Taxes and Depreciation 14 939 � 11. Deduct: Other Expenses: 12. Income Tax Depreciation as Utilized in � 13. Income Tax Computation 12 583 14. Interest Cost 5 261 15. Other Costs Deducted for Income Tax 16. Purposes and Capitalized per Books 1 258 � 17. Taxable Income (4 163) � 18. Federal and State Income Taxes at 54.24%, before Credits 0 19. Less Credits: � 20. Investment Credit 152 21. Pre�erred Dividend Credit 15 22. Federal and State Income Taxes p r � � � � � � -157- � Northern States Power Company (Minnesota) NSP Exhibit � Electric Utility - City of St Paul Page 4 of 4 COST OF SERVICE INCLUDING 8 1/2% RATE OF RETURN (Revised) � ON NET OPERATING INVESTMENT 1973 Test Year (Dollars in Thousands) � Amount of Return Needed � 1. Net operating investment $177 606 2. Return @ 8 1/2% 15 097 Federal and State Income Taxes Required � 3. Return from Line 2 15 097 4. Deduct: Allowance for Funds During Construction (AFDC) 2 705 5. Return: T.ine 2 less AFDC, Line 4 12 392 � 6. Add: Nuclear Fuel Expense gS2 7. Provision for Book Depreciation and Amortization 6 074 8. Provision for Deferred Income Taxes 3 104 � 9. Deduct: Interest Cost 5 261 10. Other Capitalized Items 1 258 11. Income Tax Depreciation 12 583 � 12. Investment Tax Credit (Flow Through) 152 13. Preferred Dividend Credit 15 14. Income Tax Base 3 153 15. Preliminary Tax at 1.185�1� 3 736 � 16. Deduct: Investment Tax Credit 152 17. Preferred Dividend Credit 15 � 18. Final Federal and State Income Taxes 3 569 � Gross Earnings Payment Required 19. Return from Line 5 12 392 � 20. Deduct: Other Operating Revenues 4 485 21. Add: Income Taxes from Line 18 3 569 22. Operating Expenses-Excluding Gross Earnings & Inc Taxes 39 943 � 23. Base for Gross Earnings Payment 51 419 24. Gross Earnings Payment at .087�2� 4 473 Cost of Service � 25. Operating Expenses excluding Income Taxes and Gross � 26. Earnings Payments from Line 22 39 943 27. Gross Earnings Payment from Line 24 4 473 � 28. Income Taxes from Line 18 3 569 29. Return from Line 2 15 097 30. Total Cost of Service 63 082 � (1) t = ,5424 - (1 - .5424) = 1.185 � 1-t �2� g = .08 - (1 - .08) _ .087 � -158- � � � � � � � � � � II . � CITY'S CASE IN CFiIEF � � � � � � i � � � � � TESTIMONY OF ROSS M. ROBERTSON � � Q. What is your name? A. Ross M. Robertson 1 Q. Will you state your professional qualifications? A. Yes. I am presently Professor of Business Economics and Public Policy, � Graduate School of Business, Indiana Universit Bloomin Y� gton, Indiana. � I am also Director of Business History Studies at Indiana University. I teach in the field of business economics and public policy, •aith considerable � emphasis on problems of commission regulation, and I lecture extensively on financial sub�ects. In 1962, in 1964, in I968, and again in 1970 I was � invited to lecture at the London School of Economics and durin � g the current � semester I am.Visiting Professor of Finance at the University of Texas at Austin. � I received my A. B. degree from the University of Kansas in 1937. From 1937 to 1940 I taught at the University of Kansas and did graduate , work at Harvard University and the Universit of Minneso a Y C . During World � War II I was an officer in the Supply Cor�s, United States Naval Reserve. From 1946 to 1948 I was Instructor in Economics at the University of � Kansas, where I received my Ph.D. From 1948 to 1953 I was Assistant Professor of Finance and then Assoicate Prefessor of Finance and Associate � Professor of Economics at the Universit of Tennessee Y . From 1953 to 1957 � I was Financial Economist for the Federal Reserve Bank of St. Louis, where I was especially responsible for analysis of the money and capital markets. � Since 1957 I have been on the faculty of Indiana University. � -159- , � I am the author of professional articles and essays in the fielJs of � finance, economics, and economic history, my work having appeared in sucl� publications as the Ame_ rican Economic Review, the Jou_ rnal of Political � Economy, Econometrica, the Monthly Revie�v of the Federal Reserve Bank of � St. Louis, and Business Hor_ izons. I am the author of a standard te.�stbook in Amerfcan economic history, History of the American Economy, and under � a grant from the National Association of Manufacturers I prepared the scripts for a 10-film television series entitled The American Business ' __ System, which was produced by National Educational Television. I was � commissioned by the Comptroller of the Currency, U. S. Treasury Department, to do a history of that Office entitled The Comptroller and Bank Supervision. # I have been a contributor to national periodicals and have prepared mono- graphs for the Commission on Money and Credit and the National Bureau of � Economic Research. My professional affiliations include membership in the � American Economic'Association, the Royal Economic Society, the Economic History Association, Phi Beta Kappa, and Beta Gamma Sigma. In 1965 I won t the Loeb Award for the best article on a business or financial subject published in an American newspaper that year. " I am a trustee of the Business History Foundation, and a trustee and � president-elect of the Business History Conference. I have served on the editorial boards of The Business Historv Review and Business Horizons. � Q. Have you testified previously in proceedings of this sort? A. Yes. I have testified in rate hearings in the jurisdictions of Indiana � , Kansas, South Dakota, Nebraska, Michigan, West Virginia, North Dakota, � North Carolina, and New York and before the Federal Power Co�nission and the Federal Communications Co�nission. I have also testified in a hearing i conducted by the Board of Governors oi the Federal Reserve System, and � -160- � � � I have been invited to testify before the Banking and Currency Committee of the U. S. House of Representatives and the Joint Economic Comcnittee of � the U. S. Senate and House of Representativea. IQ. Professor Robertson, have you been consulted by Elmer Fox and Company to recommend a range for a fair rate of return for Northern States Power Company? � A. Yes. � Q. For what purpose? � A. I have been asked to give my opinion regarding the proper method of deter- mining the cost of capital to Northern States Power Company and to give � my further opinion about the cost of capital and a fair rate of return to this company on its properties subject to the jurisdiction of Saint Paul. � Q. Will you indicate the scope of your testimony? � A. I will testify, as I have testified previously, that the cost of capital to public utilities in general, and to the Northern States Power Company � in particular, provides the least ambiguous basis for establishing a rate of return applicable to a net-investment rate base. In my opinion the cost � of capital to a company is best computed on the basis of the market prices � af a company's securities and not on the basis of book value of its equity shares, Moreover, I do not feel that it is possible to estimate � the cost of equity capital to a company on the basis of comparison with £irms in other industries or even on the basis of comparison with other � public utilities. In my opinion, we get the best estimate of the cost of ' capital to a cnmpany--and so can make better inferences regarding an allowable rate of return--by examining this particular company's experience ' in the financial markets. Q. Can you briefly state your philosophy of utility rate making? � � -161- � A. I will simply restate what I have said in previous hearings. I am cnnccrncd r to see that all interested parties be treated equitably. Users, incluJtn�; both households and business firms, should be assured the � lowest possible rates consistent with technological advances and improvement in businese � practices and financial markets. At the same time those who invest their money in public utilities should be assured a rate of return sufficient � to keep capital flowing into such businesses. This does not mean, of course that a � , public utility common shareholder should receive or expect to receive a rate of return identical with that of, say, an investor in a � retail grocery business or a petroleum-refining firm. The chief influence making for difference in return to the equity investors in various businesscs , is the risk variable. It is clear that public utilities are less risky ventures than most other businesses. The are mor � y e often than not granted a monopoly of the services rendered to a particular geographical area and j thus are less subject to the risks faced by firms in industries characterized by varying degrees of competition. In addition, the demand for the service, � ordinarily a prime necessity, tends to be more stable through the business cycle than that of manufacturin firms or tr � g ading finns. I am as interested as anyone in seeing to it that those who venture their money in public � utilities generally and in the Northern States Power Company in particular receive a reasonable and fair rate of return. I for one certainly wish to � keep investors in mind when testifying in a rate hearing. � Q. Have you made a study of the cost of capital to the Northern States Power Company? � A. Yes. I have examined the standard published sources providing financial information about the Company and have supervised the calculations contained � in my Exhibits 1 through 11. � � , _ -162- � , Q. How do you define the term "cost of capital"? A. The cost of capital is what a company that issues securfties must pay for � the use of capital. It is ordinarily expressed as an annual rate--thut 1 is, the ratio of the annual amount paid for the use of capital to the amount of capital obtained by the issuer. � Q. What is the nature of these payments for the use of capital? A. In the case of bond issues the payments are called interest; in the case � of preferred and common stock issues they are called dividends. � Q. How do you calculate the amount of capital obtained by an issuer from the sale of an issue of securities? ' A. The amount of capital obtained is the net proceeds from the sale of a � security issue after payment of underwriting expenses and any other direct expenses of sale�. � Q. Will you give an example of how you calculate the cost of capital? A. Yes. Suppose that a company sells sn issue of $100 par value, 5 percent � preferred stock. Suppose further that the price to the public is $102 1 per shar� and that the unde�ariting and other expenses amount to, say, $5 per share. The amount of the annual dividend is $5. Thus, the cost ' of capital obtained from the sale of preferred stock is $5 divided by $97, or, in our example, 5.15 percent per annum. � Q. Will you outli�ne the method you have used to compute the cost of capital � to the Northern States Power Company? A. Yes. My method is sunm�arized in my Fxhibit 1. As you can see from � Exhibi� 1, I have computed the cost of capital to the Northern States Pawer Company on both a historic and a current basis. The calculation ' of historic or imbedded cost of debt is shown as Exhibit 2, which � gives a figure of 5.97 percent. The calculation of the historic cost 1 -163- � of preferred stock is shown as Exhibit 3, which gives an avera e of � 8 5.83 percent. My calculation of the historic cost of equity, based on � ten stock offerings of the period 1949-1973, is shown in Exhibit 4 with supporting data in Exhibit 5. To arrive at the historic cost-of- � capital figure, weights were assigned the debt, preferred stock, and common equity� components as shawn in E.�chibit 6. � In reckoning the current cost of capital to the Northern States � Power Company I computed the cost of the most recent debt offering of the company, dated January 14, 1974. This figure is 8.39 percent, as � shawn in Exhibit 7. I took as a close approximation of the cost of a � n�w preferred issue to the Northern States Power Company the cost of a � preferred issue to an Aa-rated company in December, 1973. As shown in � Exhibit 8, the figure was 7.76 percent, but changes in the capital markets since that time suggest that the figure today might well be 8 percent. , The current cost of common stock�was computed as indicated in Exhibit 9 with supporting data in Exhibit 10. To arrive at the curren � t cost-of- capital figure, weights were assigned the debt, preferred stock and common= � stock components as shown in Exhibit 11. In Exhibit 1 the cost of capital is taken as a simple average of historic and curreat costs. ' Q. Will you now explain in some detail your estimation of the historic and current cost of equity capital to the Northern States Power � Company? A. Yes. To reckon the historic cost of equity capital to the Northern States , Power Company I examined the offerings of common stock made fn the pe:iod 1949-1973. Pertinent data concerning these issues are shown in � Exhibit 4 with supporting data shown in Exhibit 5. Q. How did you arrive at the historic cost of e uit ? , q Y A. Let us take a recent offering, that of August, 1972, as an example. I have t -164- � ' � computed that the dividend rate of $1.768 a share in effect at that tim e � produced a market yield of 7.074 percent on the average market price of the common stock of $24.99, this figure being the average market yield � of the common stock during the mon.th preceding the offering. Q. Does this figure represent the cost of eommon capital to the company as � of that date? A. No. Ttao adjustments must be made. In the first place, it is necessary � to take into account a margin of earnings applicable to the common stock � over and above the amount required for dividend payments. This margin must be sufficient to provide a steady increase in the equity capital of � the firm in the foxm of retained earnings that are a art of the tota P 1 � return to investors. It is for this reason that the earnings-price ratio is the basic figure used in determining the cost of equity capital to the � company. In addition some allawance must be made for the cost of selling a new stock issue. In the case of the August, 1972, offering the earnings- � price ratio of 11.123 percent was rnultiplied by 1.069 to obtain a cost � of equity capital at that time of 11.89 p�rcent. The "issuance ratio" of 1.069 was obtained by comgaring the dividend cust on the proceeds of � 7.565 percent ($1.768 dividend rate divided by the proceeds of $23.37 per share} to the aforementioned market yield of 7.d74 percent. Using the � same meth�d, I have reckoned the cost of equity ca ital at the time o P f the � other offerings to be as indicated in Exhibit 4. The average of the ten costs of equity capital is 8.96 percent. This figure I consider to be a ' measur� of the historic cost of equity capital to the company. Q. Now, Professor Robe�rtson, how did you arrive at the current cost of � �qu�ity capital to the company? � A. As shown in Exhibit 10, I v�rifi.ed the closing market prices of the common 1 -165- , stock of the company for the four weeks preceding October 11, 1973� the � cut-off date for these calculations. During this period the average of � the closing prices of the common stock was $26.58 per share. On the basis of an annual dividend rate of $1.84 per share for the year 1973, the � average market yield of the stock during the four-week period under review was 6.91 percent. The same two adjustments were made to compute the � current cost of equity as were made in reckoning the historic cost of e uit . Takin into account the company's payout ratio, we have an � q y g earnings-price ratio of approximately 9.819 percent. Multiplying this figure � by the issuance ratio, we obtain a current cost of equity capital of 10.77 percent. � Q. What then do you estimate the cost of capital to the Northern States Power Com an to be as of the end of 1973? � P Y A. As indicated in my Exhibit 1, an average of the historic and current costs � of capital, on a before-tax basis, is 8.01 percent, reckoned as of December 31, 1973. � , Q. Professor Robertson, is it your opinion that the precise cost-of-capital ' ures as ou have con uted them, can be used by this Hearing Examiner for � fig , y P the purpose of setting a rate of return on the average net investment � rate base? A. In general, the courts have held that regulatory commissions may fix such � rates and charges as will enable a public utility to earn gross revenues , sufficient to provide, under prudent and skillful management, (1) coverage of all operating costs and (2) a return to capital adequate to attract � funds necessary for the required expansion of the business. I do not feel that a cost-of-capital figure computed by me or anyone , else can be directly applied, without further consideration, to the rate � -166- � ' � base. There must always be room for judgement in these matters. It is my opinion, however, that a carefully computed cost-of-capital figure � provides a datum, or basis of inference, that is essentiaZ to rate of return deliberations. � Q. What is your opinion about the rate base to whic h a rate of return figure 1 should be applied? A. In general, there are three methods of reckoning the rate base presently � employed in the several rate-making jurisdictions in this country--"original � cost," "fair value," and "reproduction cost." The method that is least ambiguous is the "original cost" or "net investment" rate base. In my opinion, � use of a net-investment rate base requires rate-making authorities to state the true rate of return that they are allo�wing. A£ter all, total dollar � return must ultimately be the product of rate base times rate of return. In � jurisdictions that "fair value" the rate base, a lower rate of return can be allawed, masking the fact to users that substantial increases in rates have � been allowed. Q. From the foregoing reasoning about the cost of capital to the Northern States � Power Company, what do you conclude about an allowable rate of return Co the � companq? A. I conclude that the minimum allawable rate of return to the Company should be � 8 percent and that a fair rate of return Zies in a range of 8.00 to 8.5 percent on net-investment rate base. A rate of return in this range should provide , the Company with substantially increased net revenue, sufficient I should , jud�e to enable the Company to cover all operating costs and to attract funds necessary for rhe expansion of the business. � , -167- � Exn�t,�c i � � COST OF CAPITAL � (SUMMARY) DECEMBER 31, 1973 � HISTORIC � Percent Cost Weighted Cost of of of Capital per $100 � Capitalization Capital of Capital Debt 52•$2� 5.97x 3.157 Preferred � Stock , 14.90� 5.83Y .87X Common � � Stock 32.28% 8.96% 2.89�G 100.00X 6.91X � CURRENT � Percent Cost Weighted Cost of � of of Capital per $100 Capitalization Capital of Capital Debt 54.16% 8.39�6 4.54� � Preferred � Stock 13.28� 8.00% 1.06X Common Stock 32.56% 10.77� 3.Sly � 100.00�6 9.11X , AVERAGE , Historic 6.91X Current 9.11y � Average 8.Olx � -168- � , Exhibit 4, pa�e 1 , � , HISTORIC COST OF C01�4fON STOCK � Offering Date 12-6-49 6-23-52 5-4-54 3-20-56 8-11-5'� rPrice-Average Market $10.6118 $11.3026 $14.8063 $17.7697 $23.1975 Offering 10.25 10.50 14.00 16.75 22.�� Proceeds 10.1256 10.402 13.94 16.70 21.931 Per Share-Dividends $ .70 $ .70 $ .80 $ .90 $ 1.075 Earnings 1.04 1.02 .99 1.22 1.47 , Dividend Cost 6.913x 6.730% 5.739% 5.389X 4.902X ' Market Yield 6.596% 6.193% 5.4037: 5.�65X 4.634;. Issuance Ratio 1.048 1.0$7 1.062 1.064 1.05g , Earnings-Price Ratio 9.800% 9.024� 6.686X 6.866� 6.337" Cost of Equity � (Earnings-Price Ratio Times Issuance Ratio) 10.270% 9.809� 7.101x 7.305x 6.705% � _ � , � Source: Proceeds--Furnished by Northern States Power Company. Offering Price--Moody's Public Utility Manual, I973, pg. 1096, 1097. , Eaznings Per Share--Testimony cf Henry Herz to Public Service Commission of North Dakota, p. c-8, for years 1955-1972. Moody's 1 Public Utility Manual, 1973, p. 1088, for years 1949-1954. Dividends Per Share--Moody's Public Utility Manual, 1973, p. 1096. � -169- � Exhibit 4. pa�e 2, � ' , HISTORIC COST OF COI�ff`fON STOCK � � Offering Date 8-17-65 2-11-69 11-10-70 8-15-72 10-30-73 Price-Average Market $35.6447 $29.4539 $22.6710 $24.9938 $26.5813 ' Offering 33.00 27.00 21.50 23.50 24.50 Proceeds 32.908 26.881 21.325 23.3712 24.2291 � Per Share-Dividends $ 1.44 $ 1.60 $ 1.675 $ 1.768 $ 1.836 Earnings 1.94 2.31 2.40 2.78 2.61 Dividend Cost 4.376X 5.952X � 7.855X 7.SF51: 7.578X � Market Yield 4.040% 5.432X 7.388� 7.074X 6.907�G ' Issuance Ratio 1.083 1.096 1.063 1.069 1.097 Earnings-Price Ratio 5.443Z � 7.843x 10.586y 11.123X 9.819x � Cost of Equity (Earnings-Price Ratio. , Times Issuance Ratio) 5.895X 8.596� 11.253% 11.890Y 10.771X AVERAGE HISTORIC COST OF EQUITY � 1949 10.270% � 1952 9.809Z 1954 7.1O1X 195b 7.305X � 1959 6.705� 1965 5.895� 1969 8.5969 1970 I1.253% � 1972 11.890Y 1973 10.771x AVERAGE 8.960� � � i _1,�_ � ' Exhibir. 6 , ■ , , HISTORIC CAPITAL STRUCTURE � (000's) � Preferred Total Coamton � Debt Stock Equitv 1973 $ 836,334 $ 205,000 1972 $ 502,765 , 719,537 205,509 435,947 1971 670,112 205,509 372,645 1970 570,721 170,485 357,234 1969 526,981 145,470 307,528 ' 1968 472,426 125,376 267,994 1967 427,958 105,340 259,358 1.966 368,600 105,340 250,405 � 1965 324,20b 105,340 241,491 1964 324,674 105,340 208,662 Total $5,241,549 $1,478,709 $3,204,029 , Average $ 524,155 $ 147 871 , $ 320,403 , Percent of • Capitalization 52.82X �14.90$ 32.287 , � � 3ource: 1973 data furnished by Northern States Power Company. , � I _��_ 1 Exhibit 9 ' CURItE:dT COST OF COMMON STOCK � Offering Rights offering, one ' share for each ten owned by shareholders , of record October 11, 1973 Average Market Pricel $26.5813 , Offering Price $24.50 Proceeds to Company $24.2291 , Per Share-Dividend�2 $ 1.836 Earnings $ 2.61 � Dividend Cost 7,57gg; Market Yield 6.907x , Issuance Ratio 1.097z Earnings-Price Ratio 9.819°6 , Cost of Equity � (Earnings-Price Ratio Times Issuance Ratio) 10.771X � , 1 Four weeks prior to October 11, 1973 2 Annual rate, 1973 , Source: Data furnished by Northern States Power Company. , � , � � -172- � , Exhibit 11 i 1 1 1 1 � CURRENT CAPITAL STRUCTURE DECEMBER 31, 1973 � (000's) ' Percent of Amount Capitalization Debt $ 836,334 54.16X ' Preferred Stock 205,000 13.28X , Total Co�on Equity 502,765 32.26X , $1,544,099� . 100.00� � � Source: Northern States Power Company. � , 1 � i � -173- ' TESTIMONY � Line � No. 1 Q. Will you state your name, please? 2 A. Norman G. Rising. � 3 Q. Where is your home, Mr. Rising? � 4 A. My business address is 900 Vickers KSB&T Building, Wichita, Kansas. 5 Q. What is your occupation and with whom are you associated? � 6 A. I am a certified public accountant and a partner in the firm of � 7 Elmer Fox & Company, a national firm of independent public accountants. 8 My present duties are management review and supervision of all utility 9 rate studies conducted by the firm. , 10 Q. What is your educational background and professional experience? , 11 A. I am a graduate of Emporia Kansas State College f rom which I graduated 12 with a Bachelor of Science Degree in Business Administration and a major � 13 in accounting. I have been in public accounting for eight years and 14 have served the firm in various capacities, starting as a staff 15 accountant upon graduation from college, advancing to managership and , 16 was admitted to partnership in 1972. I am a member of the American 17 Institute of Certified Public Accountants, Kansas Society of Certified � 18 Public Accountants, National Association of Accountants and the Kansas 19 Telephone Association. My experience in public accounting includes , 20 audits leading to opinions on financial statements for various 21 industries, special purpose examinations under contracts with the � 22 Department of Health, Education and Welfare, public utility rate 23 application examinations, design and installation of accounting systems, � 24 preparation and review of income tax returns and other matters in the 25 area of accounting. 26 Q. Mr. Rising, could you be more specific as to your prior experience on ' 27 utility rate studies? � 28 A. Yes. Over the last several years I have participated in quite a number _1,4_ � i , i � iLine No. � 1 of utility rate studies of gas, electric, telephone and motor 2 carrier companies. My involvement has been as field supervisor, , 3 consulting associate or as the princ3pal witness on the following 4 engagements: � 5 Kansas Docket No. 99,304-U, a request by Kansas City 6 Power & Light Company for consent to put into effect � 7 certain changes i.n its electric service rates; 8 Kansas Docket No. 99,342-U, a request by United Telephone � 9 Company of Kansas, Inc. for new intrastate telephone rates; 10 Kansas Docket No. 99,486-U, a request by Kansas Gas and � 11 Electric Companl� for consent to put into effect changes 12 in its electric service rates; ' 13 Kansas Docket No. 97,187-U, a request by Feoples Natural �-4 Gas Division of Northern Natural Gas Company for approval , 15 to make certain changes in its charges for natural gas 16 service; � 17 Kansas Docket No. 97,329-it, a request by Middlewest Motor 18 Freight Bureau to increase Kansas intrastate freight rates; '19 Kansas Docket No. 96,761-U, a request by The Gas Service 2d Company to make certain changes in its charges for natural �� gas service; 22 Ka.nsas Docket No. 95,765-U, a request by Kansas-Nebraska �23 Natural Gas Company, Inc. for approval to increase its 24 charges for natural gas service; . �25 Kansas Docket No. 94,180-U, a request by Kansas City Power & 26 Light Company for consent to put into effect certain changes ,27 � in its electric service rates; i i � -175- � Line � No. 1 Kansas Docket No. 93,367-U, a request by Southwestern � 2 Bell Telephone Company for new intrastate telephone rates; 3 Kansas Docket No. 92,821-U, a request by Kansas Telephone , 4 Company for a change in its telephone service rates; S Kansas Docket No. 90,839-U, a request by Kansas-Nebraska ' 6 Natural Gas Company, Inc. for an increase in gas service 7 rates; 8 Kansas Docket No. 90 649-U a re uest b Peo les Natural � > > Q Y P 9 Gas Division of Northern Natural Gas Company for an increase � 10 in gas service rates; and 11 Kansas Docket No. 90,290-U, a request by Western Power � 12 Division of Central Telephone & Utilities Co r poration for 13 an increase in electric service rates. , 14 Q. Mr. Rising, what has been requested of you by the City of Saint Paul 15 relating to this engagement? , 16 A. We have been requested to analyze, review and investigate whether 17 Northern States Power Company is charging, or are proposing to charge, � 18 fair and reasonable electric rates in the City of Saint Paul. 19 Q. In connection.with that request, have you and members of your staff � 20 made an investigation into the filed testimony and exhibits of Northern 21 States Power Company for appruval to put into effect increases in its , 22 electric service rates for the City of Saint Paul? 23 A. Yes, we have. � 24 Q. Did this investigation include a review of the books, records and 25 accounting procedures of the Company? � 26 A. Yes, it did. 27 Q. What are the issues and purposes of your specific testimony in this , � 28 portion of Elmer Fox & Company's presentation? i 1 -176- ' ' ' Line No. ' 1 A. It is my purpose to testify on policy and overall coordination of 2 our firm's work on this engagement. I will eover such issues as ' 3 selection of the test period, type of rate base to be used, method 4 of valuing rate base, classes of property to be included in rate ' S base, criteria of revenue and expense ad,justments required to properly 6 match the rate base, and the amount of minimum and maximum additional 7 revenues required to achieve the rates of return as set out by ' 8 Dr. Robertson in his recommended fair rate of return. ' 9 Q. In addition to yourself, what other witnesses does Elmer Fox & 10 Company plan to present? ' 11 A. Mr. Klaren K. Alexander will testify on the test period revenues and 12 expenses and resultfng net utility operating income and the various 13 allocation factors and methods employed. Mr. Alan L. Sherr will ' 14 testify on rate design and filed tariffs and Dr. Ross M. Robertson will 15 testify as to a range for a fair rate of return. , 16 Q. Mr. Rising, what are you recommending for the test period to be used 17 in this particular study? ' 18 A. In the process of rate regulation, in order to properly test the , 19 earnings of a company, it is necessary to study the plant in service 20 and the operating revenues and expenses for some particular test period. 21 Rates are made for the future but the necessity for change in rates ' 22 can only be accurately determined by examining historical past opera- 23 tions. The test period should, of course, be a recent one and a full ' 24 operating year is usually recognized as being the most adaptable for 25 rate case purposes. A selected test period is then usually adjusted ' 26 to eliminate unusual, abnormal and nonrecurring revenues and expenses 27 and to annualize or normalize for known and determinable charges � 28 occurring within a reasonable time from the test period. It is axiomatic 29 that rates should be based upon actual results to the fullest and most 30 recent information possible, and therefore, in order to avoid 1 ' -177- i � Line ' No. 1 speculation, supposition and conjectures in the determination of ' 2 rates for the future, we have selected the latest available actual 3 figures. We have used the calendar year 1973 for the test period. ' 4 Q. Mr. Rising, what is the type of rate base that you are proposing? S A. In general, we are proposing to use an end of period rate base. I � 6 say in general because upon investigation of the books and records, we 7 found it necessary to make certain adjustments to properly reflect ' 8 that rate base. 9 Q. What was the reason for using an end of period rate base rather than ! 10 an average? 11 A. Historical over the years average rate bases have been used by many , 12 3urisdictions. With the advent of inflation and very heavy and rapidly 13 expanding service requirements by many utility companies, an average � 14 rate base fails to recognize much plant additions during the year. 15 For some utilities that may have an annual construction budget of from � 16 ten to twenty percent of existing plant per year, a substantial portion 17 of the plant in service is omitted from the rate base. Also, the use ' 18 of an end of period rate base gives a company an edge on attrition. 19 Q. What do you mean by the term attrition? ' , 20 A, Attrition is the erosion of the rate of return because of higher and 21 higher cost of property to continue to provide the same service to , 22 customers. A typical example could be an illustration of a generating 23 plant. A 500 Megawatt generating plant costs more today than it did ' 24 ten years ago, yet the customer is to receive the same benefits regard- 25 less of the cost per Megawatt. The use of an end of period rate base 26 is one means of giving a company an edge on attrition. ' 27 Q. Mr. Rising, what method have you employed for determining the value of ' 28 rate base? � 29 A. I have used original cost less accumulated depreciation. ' . , -178- � , , Line No. ' 1 Q. Are you aware that NSP used fair value and if so, what weighting 2 factor for ariginal cost did they use? ' .3 A. I am aware that NSP has proposed to use a method that they term as 4 fair value. In making a comparison of their presentation of fair ' S value in this case and in the last electric proceeding before the 6 City of Saint Paul, I noted that the present method of fair value 7 being employed is not consistent with the prior method. In the , 8 previous proceeding, NSP proposed to use a 50-50 weighting factor 9 between original cost and trended original cost and in this proceeding ' 10 NSP is proposing to use a 66 2/3 - 33 1/3 weighting factor between 11 original cost and trended original cost. � 12 Q. What is your opinion on the employment of a fair value rate base. � 13 A. In my opinion, the sole objective of this proceeding is to determine 14 what amount of money NSP should be permitted to charge the ratepayers 15 of the City of Saint Paul for electric service. The amount charged , 16 should be sufficient to compensate NSP for the services performed and 17 to yield a fair return to their investors for the capital they have ' 18 supplied for the furnishing of these services. That return must be 19 fair both to NSP's investors and to its customers. The amount of ' 20 compensation to which NSP is entitled .to is an appropriate overa2l 21 dollar amount. Traditiona,ly, the dollar return to a utility is , 22 determined by the application of a factor (rate of return) to a 23 property value referred to as a rate base. ' 24 The specific method of determining any rate base should contain a 25 minimum of imponderables. We contend that original cost less deprecia- ' 26 tion rate base is the most appropriate rate base upon which fair and 27 reasonable rates should be fixed. This is based upon the fact that � 28 original cost less depreciation can be taken directly from the boolcs 29 and records and is the type of information made available to the 30 investing public and is understood by all persons dealing with the ' ' � � -179- , Line ' No. 1 industry, including both management and regulatory agencies alike. , 2 Judgments and speculation factors are not involved and the amounts 3 are precise. 4 Q. Wou1d you now discuss the criteria that has been employed in properly ' 5 matching the revenues and expenses with the rate base that has been 6 utilized? , 7 A. Yes. In the selection of any test year for the income statement, 8 that is, revenues minus expenses, a close scrutinizing examination , 9 must be made to determine that it approximates as near as possible a 10 normal and typical recurring period of operations. As we know, it is ' 11 almost impossible to find a twelve month period that is completely 12 free of defects. Those defects would apply to any historical test � 13 year or to any future pro�ected test period. 14 For example, regardless of the particular ability of a utility to , 15 crystal ball the future, a future pro�ected test year must still be 16 adjusted for unusual and nonrecurring items. For example, a utility ' 17 may plan to incur certain expenses for sucH things as repair and 18 maintenance of past major storm damages, costs of perfecting the ' 19 operations of an immature nuclear power plant, training of employees 20 on new operational or maintenance programs, costs �of new ma3or 21 advertising programs, costs to reestablish the value of pension plans , 22 due to severe market declines, or perhaps cost to conduct_ proxy 23 fights concerning unusual issues, The real test of a particular period ' 24 is that it is normal and recurring to the extent known and determinable. 25 Out of an imperative interest in fairness to the utility campany and to ' 26 ratepayers alike, historically many regulatory authorities have 27 utilized a historical test year adjusted for known and determinable ' 28 changes. Our posture relating to the 1973 test year of operations for 29 NSP Saint Paul was to adjust revenues and expenses for known and � 30 determinable changes that are suspectible to reasonably accurate means 31 of calculation. � ' -180- � � � Line No. ' 1 Q. Do you plan at this time to cover the adjustments to the statement 2 of operations proposed by Elmer Fox & Company? ' 3 A. No. Mr. Alexander will testify on our work relating to comparison 4 of test year operations with historical operations and sponsor the � 5 exhibits relating to test year adjustments of operations. 6 Q. Mr. Rising, I hand you what has been identified as Exhibit No. ' 7 and ask if these are the schedules resulting from your investigation? 8 A. Yes, they are. ' 9 Q. Would you describe the general arrangement and ma.nner in which these 10 schedules have been presented? ' 11 A. Yes. As can be seen from the titles of the various schedules as 12 shown on the index page, these. schedules generally relate to rate base, ! 13 elements within the rate base and the additional revenue required by 14 the Company. � 15 Q. Would you now turn to schedule NGR-1 and tell us the purpose of this 16 schedule? ' 17 A. Yes. During the course of my review and in preparation for this 18 engagement, it is apparent from the franchise agreement that there are ' 19 no specific rules and regulations relating to definite financial data 20 and information to be presented by NSP. An implied requirement for any � 21 rate request is that sufficient supporting data for all relevant facts 22 be supplied by the ut�lity, For a commission or council to properly � 23 review and take action on a rate filing, that data should be provided 24 at the original date of filing so that it may be properly reviewed 1 25 and evaluated. Many of the schedules that I will be presenting are to 26 fill in the gaps for information not filed by NSP. The purpose of � 27 . schedule NGR-1 is to present for the record the assets, liabilities 28 and other credits of NSP to be used in making some determination as 29 to the magnitude and comparative size of the operation of Saint Paul ' 30 with unconsolidated NSP as a whole. , ' -181- � Line � No. 1 Q. And of course it was not your intent to express an opinion on this ' 2 balance sheet? 3 A. No sir. It should be understood that our �presentation of this � 4 balance sheet was not intended to support an opinion on it and, of 5 course, no disclosures have been made. The amounts were strictly � 6 taken from the books and records of the Company. 7 Q. Mr. Rising, is there a consolidated financial statement for 1973 ' 8 for NSP available? 9 A. My understanding is that within a very few days the Northern States ' 10 Power Company (consolidated report) 1973 Annual Report to Shareholders 11 will be released. It is my recommendation that that report be made , I2 a part of this record. 13 Q. Would you now move on and describe schedules NGR-2 and NGR-3? � 14 A. Yes. Let me take them in reverse order for explanation because 15 schedule NGR-3 actually supports schedule NGR-2 in part. Schedule ATGR-3 � 16 is a presentation of electric plant and common plant with the related 17 accumulated provision for depreciation and amortization. The schedule ' 18 gives the breakdown of electric plant by function, such as production, 19 transmission, distribution and general. '. 20 Q. What do you mean by the term common plant? 21 A. Common plant is the term that is applied to property that is common ' 22 to and used and useful by the several utility operations of NSP. NSP 23 is in the gas, telephone and heating business as well the business of � 24 providing electrical energy. An example of common plant would be the 25 general office building of NSP located at 414 Nicollet Mall in the ' 26 City of Minneapolis. That building is used as an administrative head- 27 . quarters and therefore it would have to be considered used and useful � 28 by all four utility operations. ' ' -182- , � � Line No. ' 1 Q. Please continue with your discussion of schedule NGR-3. 2 A. The schedule is broken down into two parts, one part relates to , 3 electric plant and one part relates to common plant. Columns A, B, C 4 and D represent total campany electric plant for plant in service, � 5 plant held for future use, construction work-in-progress and total 6 electric plant respectively. Column E is the amount of electric 7 plant allocated to the City of Saint Paul. ' 8 Q. What are the allocation methods and formulas used in assi nin lant g g P ' 9 to the City of Saint Paul? . 10 A. Mr. Alexander has conducted the studies on the various allocation ' 11 factors that have been employed. I would prefer that all questions 12 relating to allocation be directed to him. At this time perhaps it 13 should be pointed out that as a general rule for most functions, Saint , 14 Paul represents approximately 11% to 13% of total company electric 15 operations. ' 16 Q. Please continue. � 17 A. Columns F, G, H and I represent total company common plant for plant 18 in service, plant held for future use, construction work-in-progress � 19 and total common plant respectively. Column J is the amount of common 20 plant allocated to the City of Saint Paul. Column K is the amount of 21 electric plant and common plant combined that has been allocated to ` 22 Saint Paul, The individual amounts in Column K have been combined in 23 different subtotals and those combined amounts, as well as the total � 24 of $182,307,000, have been carried forward to column J of schedule NGR-2. 25 Q. Would you proceed now to schedule NGR-2 and explain that schedule? � � 26 A. Yes. Schedule NGR-2 is a computation of the net investment assignment 27 . ratios of nonutility property, heating, telephone and gas plant, , 28 electric plant, common plant and electric and common plant assigned to 29 the City of Saint Paul compared to total company net investment. The 30 purpose of this schedule is to determine the percentage relationship ' ` -183- , Line � No. 1 of the net investment of each column as compared to total company. , 2 Q. You use the term net investment at the top of this schedule. Is that 3 term synonymous with the term rate base? ' 4 A. No sir. The intent of the term net investment is to encompass all � 5 assets on the balance sheet other than current assets and deferred 6 debits, and fhen reducing those assets by any accumulated income tax 7 savings attributable to those assets. The term rate base as I have ' 8 and will use it will refer to property used and useful in rendering 9 electric service to customers and which property is eligible for NSP ' 10 to earn a rate of return on, 11 Q. Please continue with schedule NGR-2. � 12 A. In general, we will be able to tie most of the numbers in Column A 13 back to the December 31, 1973 balance sheet, which was my schedule NGR-1. , 14 We might note from this net investment schedule that total electric 15 plant represents 87.43% of total company net investment. ' 16 Q. Mr, Rising, isn't your next schedule NGR-4 your presentation 17 of the elements of the Saint Paul electric rate base? � 18 A. Yes, sir. 19 Q. Would you proceed to discuss that schedule? � 20 A. Yes sir. First, perhaps I should e�cplain that my intent in desiging , 21 this schedule was to show step by step the flow of transactions and 22 changes from the fair value statement as of December 31, 1973 as � 23 presented by Frank P. Vixo to the final original cost rate base as 24 adjusted by me, As you may recall, that schedule of Mr. Vixo's was , 25 FPV-2, schedule 3. If we look at Column A of my schedule NGR-4, the 26 . amounts are directly traceable to Mr. Vi.xo's FPV-2, schedule 3, 27 Q. What is Column B? ' 28 A. Column B is the amount of increment included in Mr. Vixo's schedule � 29 which represents trended value over and above original cost. Column B ' -184- � , r Line No. , 1 is to eliminate that increment. 2 Q. Please proceed with your explanation of this schedule. , 3 A. Column C is the result of Column A less Column B resulting in an 4 estimated book original cost rate base at December 31, 1973. � 5 Column D represents the adjustments required to bring Column C 6 into agreement with Column E. Column E represents the rate base ' 7 numbers which were derived from the December 31, 1973 book balances 8 rather than eleven months of actual numbers and one month estimated , 9 as testified to by Mr. Vixo. The remaining columns F through K show 10 adjustments needed to come to an original cost rate base as recommended 11 for a rate of return in Column L. This final adjusted rate base has � 12 been coordinated with Mr. Alexander's statement of operating income � 13 and any revision of this recommended rate base requires a careful 14 consideration of any matching cause and effect on operating income. I 15 Q. Would you now discuss your recommended ad�ustments as set out in 16 columns F, G, H, I, J and K? � 17 A. Yes. Perhaps it would better serve the record if we would proceed to 18 schedule NGR-5 where I have set out each recommended ad�ustment in � 19 detail. Adjustment No. 1 on schedule NGR-5 is to�remove Prairie Island 20 Unit �1 and any other related effects from Prairie Island Unit #1 from 21 the December 31, 1973 rate base. In addition to the production unit ` 22 and transmission equipment, I also had to eliminate a compatable portion 23 of accumulated provision for depreciation and accelerated deferred � 24 income taxes. 25 Q. Why did you consider 3t necessary to remove Prairie Island? � 26 A. Any time there is a ma�or production plant placed into service near 27 the end of a test year, it is an element that automatically must be i28 given considerable attention. NSP had been predicting for some time 29 that Prairie Island Unit ��1 would be available for service. Finally � � . ' -185 ' Line No. � 1 on December 16, 1973 NSP made the bookkeeping change to consider 2 the plant in service. , 3 Q. What do you mean by bookkeeping change? � 4 A. First let me say that you don't construct a $250 million production 5 plant and sutomatically place it into service. Plants of this � 6 magnitude take a considerable time to build and sometimes a 7 considerable period for testing and acceptance. The Federal Power 8 Commission requires that all costs and expenses during the testing ' 9 period be capitalized as a part of plant. In addition the Federal 10 Power Commission requires that any energy produced from the plant ' 11 during the testing period be credited as a reduction of plant cost. 12 If you will turn to schedule NGR-7 perhaps I can explain this better. � 13 Prairie Island Unit �1 was actually producing electricity during the 14 first half of December, 1973 and NSP considered it in the testing � 15 stage. The unit produced power computed on a daily basis from a low 16 of 0.5� of capacity to a high of 29.2� of capacity. All during this � 17 testing period, the power produced was considered as a reduction of 18 plant cost. The change in bookkeeping methods that occurred was that 19 on December .l6, 1973 NSP changed the classification of Prairie Island � 20 Unit �1 from a unit under construction to a unit in service and began 21 to flow all revenues and expenses of the unit into operating income , 22 rather than into plant cost. 23 Q. Perhaps at this time you could continue and explain the full purpose � 24 of schedule NGR-7? 25 A. The intent of schedule NGR-7 is to provide for the record information � 26 about the production of Prairie Island Unit �1. The information was 27 ' obtained from NSP's System Operations Department and has been updated , 28 through February 28, 1974. The percentages have been computed on a 29 daily basis. The schedule is generally self explanatory but let me � 30 point out a couple of pertinent facts. The unit was only on line one � � -186- , ' , Line No. � 1 and a partial days for the portion of December after NSP considered 2 it completed construction and plant in service. The highest 3 percentage of daily capacity achieved during the testing period was I 4 29.2%. The percentage of capacity achieved on December 16, 1973 5 was only 43.6y. The net production from Prairie Island Unit ��1 for , 6 the portion of December after NSP considered the plant in service 7 was a negati�e 506,000 KWH. In other words, the plant consumed more � 8 KWH during the last sixteen days of December, when it was considered 9 in service, than it produced. The plant produced no electricity during � 10 the month of January, 1974, although it did consume 6,639,000 KWfi. For 11 the month of February, 1974, the plant produced only 29.1% of capacity � 12 and on a daily basis the high was only 43.8% of capacity. 13 Q. Do you have other information about NSP's estimate of production from � 14 Prairie Island in the near future? 15 A. Yes. According to a letter from Mr. G. G. C. Olson, Manager of Power 1 16 Supply Coordination written to Mr. D. F. McElroy, President of NSP, 17 dated as late as February 19, 1974, Mr. Olson set out his opinion on � 18 the future pro�ected time table f or Prairie Island to achieve full 19 capacity. That letter set out a schedule showing that prior to the 20 December 17, 1973 shut down, caused by a turbine blade problem, NSP , 21 expected Prairie Island to be in full capacity by March 1, 1974. The 22 � letter further indicates that after the turbine blade problem, the � 23 effects of this outage will continue through September 30, 1974. The 24 schedule in the letter sets out that NSP does not expect Prairie � 25 Island to be up to 75% of capacity until June 16, 1974 and not to be 26 up to 100% of capacity until October 1, 1974. , 27 Q. Mr. Rising, what would be the effect on NSP if you did not eliminate 28 Prairie Island from the rate base? , 29 A. The effect would be to give NSP a double return on their Prairie Island 30 investment. As we can see from schedule NGR-7, Prairie Island did not i T ' _18,_ _ , Line � No. 1 contribute any net KWH to production during December, 1973 but in � 2 fact consumed 506,000 KWH more from the system than it contributed 3 to the system. To grant NSP revenue from present ratepayers to ' 4 cover a rate of return on Prairie Island without the benefit of 5 power production, and then for NSP to be allowed to collect revenues 6 from ratepayers for power production from Prairie Island in a future ' 7 period when the unit is actually producing power would result in a 8 double rate of return ta NSP. In summary, Prairie Island does not � 9 belong in the 1973 test year without the benefit of a full year's 10 production in revenues. , 11 Q. What means of compensation is NSP entitled to if Prairie Island is not 12 left in the rate base? � 13 A. NSP would be entitled to the same treatment in regard to Prairie Island 14 as any other construction work in progress. That is, during the � 15 construction and testing period, NSP would be entitled to capitalize 16 an allowance for funds during construction. j 17 Q. If Prairie Island is not included in your 1973 rate base, will NSP 18 be denied a return on the unit when it actually does go into full � 19 production? 20 A. No, When the unit gets into a reasonably high level of operation it , 21 will create its own return and profits. In discussion with NSP personnel, 22 the break even point for Prairie Island is approximately 70% of capacity. � 23 Furthermore, in discussion with NSP personnel, the unit at 80-90% 24 capacity should have a KT•?H mill cost of something less than 15 mills. � 25 The average revenue per KWH for 1973 for total NSP was approximately 26 twenty mills. The net conclusion is that Prairie Island will provide , 27 its own profit as soon as it gets to approximately 70% of capacity and 28 therefore should not be included in the 1973 test year. 29 Q. Would you now proceed to Adjustment No. 2 on schedule NGR-5? , 30 A. Yes. Adjustment No. 2 is to eliminate construction work in progress � � -188- , ! � Line No. ' 1 from the plant in service rate base. The same argument applies to 2 construction work in progress as applies to Prairie Island. To � 3 allow NSP a return on property that is not yet in service and not 4 yet producing revenues and then to allow NSP to keep revenues in 5 the future when the construction work in progress becomes productive ' 6 is to allow NSP a double rate of return on that investment. 7 Q. And what means of compensation is NSP entitled to during the � 8 construction period? � 9 A. The same as I mentioned awhile ago. During the construction period 10 the Company is allowed to capitalize an allowance for funds used 11 during construction, thereby stepping up the basis of the property ' 12 when it actually goes into service. The Company will receive a return 13 on the stepped up basis over the useful life of the property to � 14 compensate for the construction period and more properly will charge 15 customers who use and receive the benefits of a particular unit of , 16 construction. 17 Q. What does Adjustment No. 3 purport to be? � 18 A. Adjustment No. 3 is an adjustment that must be made to properly match 19 the rate base and the income statement. As I have stated earlier, our � 20 rate base and income statement have been adjusted to an end of period 21 level at December 31, 1973. Because of plant additions throughout I22 the year 1973, Mr. Alexander was required to increase depreciation 23 expense as of the end of year level. For proper matching of the , 24 income statement and rate base it is appropriate that the accumulated 25 provision for depreciation be increased in a like amount. � 26 Q. Please continue with your discussion of rate base adjustments. 27 A. Adjustment No. 4 is to reflect the unamortized 3% imTestment tax � 28 credit in the rate base elements. The 3% investment tax credit 29 represents ta.x savings just the same as tax savings on accelerated � 30 depreciation and should be included in the rate base computation. � ' -189- 1 Line � No. 1 Adjustment No. 5 is to include NSP prepayments in the working capital , 2 elements. Prepayments should be considered in the same manner as fuel 3 on hand and materials and supplies. . � 4 Q. What is the basis for Adjustment No. 6? 5 A. Adjustment No. 6 is to eliminate working capital elements from the � 6 rate base because more than adequate working capital has been provided 7 by acerued tax liabilities. If we can proceed to schedule NGR-6, I , 8 will try to explain in detail how I have arrived at my computation. 9 Q. Before explaining the detail of your computation, could you explain � 10 the theory behind an allocvance for cash working capital required? 11 A. Yes sir. Cash working capital is generally referred to as the amount ' 12 of cash required to keep operating and maintenance expenses paid 13 currently until revenues can be collected to replenish the cash supply. � 14 The exact amount of cash working capitaZ required in a particular 15 utility's business is dependent upon the lag in time between such � 16 expenditures and the time the revenues are collected. To determine 17 the amount of cash working capital necessary would require a study over � 18 a period of time and at best would be quite cumbersome because of the 19 general practice of utilities for pooling of such funds as operating 20 £un.ds, construction funds and short and long term borrowings. An � 21 acceptable alternative to a specific study method, and a much used 22 method, is to use forty-five days of operation and maintenance expenses I 23 as the cash working capital required with proper offsets for average 24 accrued taxes that are not paid within a thirty to forty-five day cycle. , ZS Q. Did NSP use this method? 26 A. NSP has used half of the method. They used the forty-five days of � 27 operating and maintenance expenses to compute the amount of cash working 28 capital required but failed to recognize the proper offset for average � 29 accrued tax liabilities available to them. � � -190- ' , � Line No. , 1 Q. Why do you consider only the accrued tax liabilities rather than 2 accounts payable and all other liabilities? ' 3 A. Accounts payable and most other liabilities do provide some source 4 of free funds to NSP for a limited period of time. An argument is � 5 made from time to time that these funds, because of the limited 6 periods for use, are not available for investment in fuel, materials 7 and supplies; and prepayments and therefore should not be offset ' 8 against working capital requirements. Even though accounts payable 9 and the other liability accounts do provide some free use of funds to , 10 NSP, I would not propose that they be considered by numerical computa- 11 tion in this case. Concerning accrued real estate taxes, accrued � 12 personal property taxes and accrued gross earnings tax, I do believe 13 that we should consider them in the category of providing long-term , 14 free use of customer funds, I believe that accrued real estate 15 taxes and accrued personal property taxes are paid only twice a year 16 and the accrued gross earnings tax is paid only quarterly, ther.eby , 17 providing a relatively permanent source of free working capital. 1g Q. You used the term of free use of customer funds. What do you mean? , 19 A. Simpl that a utilit a Y y sks that customers pay them currently for the � 20 cost of rendering service, yet the utility is allowed to keep these 21 funds for quite a period of time for their own working capital needs. 1 22 Q. Are these average accrued tax funds available for investment by NSP 23 in working capital items such as fuel, materials, supplies and pre- ' 24 payments? 25 Yes. These funds are available to invest in whatever NSP so chooses. ' 26 Qo What would be the effect on customer rates if the accrued taxes were 27 not offset against other working capital elements? � 28 A. The effect would be to charge customers a rate of return on funds that 29 they themselves had provided rather than the stockholders, ' , , -191- , Line � No. 1 Q. Would you now proceed with schedule NGR-6 and explain your computation , 2 of the amounts? 3 A. Yes. Line 2 is the amount of operating and maintenance e�ense for � 4 the test year 1973 as adjusted by Mr. Alexander on his schedule KKA-l. S From this balance I have removed the amount of purchased power � 6 included in production expenses which I might add is consistent with 7 NSP's method of computation. On line 6 I have computed forty-five 8 days or 12.5% of expenses requiring cash working capital. From the ' 9 12.5% figure of $2,879,000 I have then deducted the average accrued 10 taxes for 1973 that I previously described. ' I1 Q. Let me interrupt. Why did you use the average accrued taxes rather 12 than year end balances? ! 13 A. The accrued tax accounts tend to grow somewhat large at periods shortly ' I4 before semi-annual payments and i felt that using the average balances 15 would be more equitable to the company. 16 Q, Please continue c�ith schedule NGR-6. , 17 A. The total deductions for average accrued taxes amounted to $7,242,000 � 18 which was $4,363,000 greater than the forty-five days of cash working 19 capital required. Thus in applying the $4,363,OOG balance to f uel on 20 hand, materials and supplies, and prepayments, NSP would still have � 21 available $806 ,0 OUof excess cash working capital meaning that NSP 22 should have a zero inclusion in the rate base for working capital � 23 elements. 24 Q. Does this complete your adjustments to the rate base? ' 25 A. Yes, it does. In referring again to schedule NGR-4, Column L, we can ' 26 see that the final original cost rate base as adjusted would be 27 $103,192,000. 28 Q. Mr. Risinb, what does schedule NGR-8 represent? � � 29 A. Schedule NGR-8 is a computation showing the conversion of the fair � 30 value rate of return recommended by Dr. Henry Herz to a rate of return � -192- , ' . ' Line No. ' 1 on original cost co�on equity. Dr. Henry Herz has recommended a 2 rate of retum of 8.75% if a fair value rate base is used and a ' 3 rate of return of 9.25Y if an original co�t rate base is used. My 4 schedule NGR-8 is an illustration of the result if you apply the , 5 8.75� and the 9.257 to Mr. Vixo's net investment statements for 1973 6 and 1974. Let me describe in detail what the 1973 camputations 7 reflect and perhaps the 1974 figures may be accepted in the same ! 8 manner without a detail explanation. 9 Q. That would be acceptable. ' 10 A. Line l, Column C, is the original cost rate base for 1 fr 973 om Mr. � 11 Vixo's schedule FPV-2, schedule 3. Added to that amount is $15,820,000 12 for the fair valne increment included by Mr. Vixo in his arrival at a 13 fair value net operating investment of $194,438,000. To these two ' 14 rate bases I have applied the 9.25% and 8.75% rate of return to 15 determine the net income required. The 9.25� on original cost yields ' 16 $16,522,000 while the 8.75� on fair value yields $17,013,000. The next 17 step was to determine what the rate of return would be on the original � 18 cost rate base if the net incame required was derived by the fair 19 value rate base. In other words, the 8.75% net income required on fair , 20 value rate base would be $17,013,000 and $17,013,000 would yield 9.52% 21 return on original cost rate base when divided by $178,618,000. The last ' 22 step then was to determine how much the 9.527 return on original cost 23 rate base would yield on original cost co�on equity. To complete the 24 mathematical formula I have utilized the actual capital structure � 25 ratios and the imbedded debt cost and preferred dividend cost. 26 Q. What would be the return on original cost common equity? , 27 A. The return would be 16.95% on original cost common e uit q y• � 28 Q. • Would you now proceed to schedule NGR-9 and explain that schedule? 29 A. Yes. Schedule NGR-9 is a mathematiaal computation to determine the ' 30 minimum and maximum revenue increase required. The starting point of , ' -193- , Line , No. 1 such a computation begins with the original cost rate base as , 2 adjusted. That amount is $103,192,000. Dr. Robertson has recommended 3 a fair rate of return in the range of 8.0% to 8.5%. Using those two , 4 factors, the net income required is in a range of $8,255,000 to 5 $8,771,000. ' 6 Q. What is the amount of net income as computed by Mr. Alexander f or 7 the normalized 1973 test year? � 8 A. $8,082,000. 9 Q. What is the amount of revenue increase required for the electric ' 10 utility of Northern States Power Company for the jurisdiction of the 11 City of Saint Paul for a reco�ended fair rate of return on original ' 12 cost rate base? 13 A. The miniminn should be no less than $378,000 and the maximum should be ' 14 no more than $1,505,OOQ. 15 Q. Mr. Rising, does this conclude your testimony? ' 16 A. Yes, it does, � ' ,. , � ' � � �, -194- � ' "'� Y1�D� e. O O� O� O O O�rl u1 � .-,O�rn�n a>.7 n Nl �n .i�n r-. r� r1� O r-!' tY' u O�cuC. <'1 o c� o o�� Y ol rn..o�r�o, �� .l �n r,.. �n.l rn � � 1� U Vl V1 1 O rl.-� 1� [�l u0 Vl�•1 f.�U O N fl� f•1 .�ob iG � � "'. 7 �I w1�O O N v1 Vl �Vl�O t"1 O O� �r�l�i J n.-+t�l.-. .t t1 .i r� 1� ri� � �� ►1 fV�-Wa Yl N lV �D v M n y �fl N �1�-1.-1 �D r-i f. c:; � � f.� v n � �I y4 �.I� ' N ' 00 H N O ' � � � p g q H ~ � W � � � W b .-1 d O U q U � u , q G � b N R o q u 6 u q D, W � u u o o, y p � �0 V -.a i! 'q N ul ._1 W C! A . ~ N N �tl q'O l� M � N 7 % W ►1 �y x � � � H N W .-, u u u u u U ' a A N 'q N �"� O O .-'�i'O .-1 u 1+ W u c1 W N C N N .7t a! u p g � W W �Y N � C H V O .0 a�, M a u v t7 m � u ro � m o � °v m o �.�i ° m d d � u eo � �v d v u G c� v N N 'O � C �W W .O �/ O N N W � u N'Cf M W G N N W H � 1 +� U W a� w� O u p N a! u �.� F u Q.'d0 G q N N � E H M W .,.� C.% Y N G 6 �tl N� 1�i 7 �0 H �-Mi.-�i T N�D � u N .� O U 41 Y Y Op Op O l! M A W $ U 0 U R7 'b'd�y �p .p M L Y O d O Cl C O u N al N O A �tl W C N W w N m . y 0 �� F M � H O H T N H M tb N �n M X N 1� N I.i �-�i O.�i�.�i ..�i,�� 6 � u.+ "'� a'C.ai� u aqi w u u�-roi u u '° V V � 7 1 m N N U Y m � la H M H'C H �W O � H � .-�i .-~i � � � B N N A ro m C W O �tl a� N m >.dC tH. q u t H � .-� C) JA U.d'O,C L ��aa c�ia wa13� � oc, aa, ua�.+ u u ❑ uu u y �y Uz6�nwor,ao Q�do a � u � � d H � � v . ' � I � M �' OI .-1 N P/�1 Vl b 1� OD O�O.d N O1 d V1�O 1�c0 O�O.-I N N1 �Y V1�O 1�t0 O� O .-i N . ^ � '�z "�"d"'/ c'� r'� �'d�'d�..IrINNNN N NNIV N N o') Pf ('1 P4 � O� .+ �1 N .i ..1 °a (�-� .+ �� ' � F N O H 1 Y � ' � � � q , � � . 7 P/O.7 P.�^i T V1 N a0 O O c0 �O �O v1�o O� �j .+N a� N O O�O�M .-1 O�1� p 00 N r-1 .�OD N W 1�N OD O 00 ti OD 00 � � .[C-1 u l�'1 aD oD w O 05 7 N a0 .� O�N1 J O CO 00 vl '-I a0 O�.r p� • a v ` yl r-1 O�W O�O Cl f� N M �D �T N � N O�'-1 V1 � P'1 1'1 N T Q �' �� v N � ^ n � r+ � w 4\ � N rl C� . . ' ' ' O O Y O ,' � g -' p � ' � M M � � O q M � d O N t��'f � 'O s+ y � N uun � u � t0 N �6 o u.-~i v�s° '� a o 'O • .�i �O � p � ' . m � 1 � O Q b � d � W u �ro o O .0 �"' q u �0 A u m � ra 'e+7 O 4+ w m i u O�i aou u O u A � � G A n i � oyi.�i d o ° � ° r' C b Y 0! •• y � o � a d..a�i m a �o� u u�u u , � 7� 3a M a R vl M H'�U v�i ,C .0 7 6 N CHi.�i N G.'O W ~ 7 M 41 y � � p..1 1J q O O �tl O Y 7 N N V .. 6 A 'O • � Y y rd'+ '.y M W C .N .. M W W O r� M Y.'C! .+ 01 u u h •� • n O u G e0 u H q � . Cro O � ? Y M T� u O 4 N M O � � H �M N O � � v F �w z v u+� a F m v .+ m E.. u a.. m o N N.-+ vv... a.a u w o....� �6 m ..� u..+ ro w � w u u�i 4 U d e� Q 7 1�+ Y ~ •��1 7 O H O7l.0 N M C! W O Y �p M Y m.0 uyl U y p p,� M W Q U p'Nu W O 1W.� H u q.: .-1 M W C9 O .-7:4 r 2 N la U N 6 3% p,O wA W:�O H 1 � O � a�I .+N P1.! �1�D h aD O�O.-�N Pl .t�/1�0 1�aD rn O.-1 N P1 .T V1�D h co o� O ""�"'�"'� "'� ^'�"�"'��-'��'+fV N N 1V N N N N N tV 1"1 � -195- ' N b u O � �� 1 7 O�1"1 r1 OD b�D 1��'1 ul v1 rll � o e m�.o 00 .o.x o i n...�n r �� . � a ua Nw nn�n m � mo� �� o� �I � 'LI � tiwa �ou n 7 n �or� m ai ^.I i . u py M � in v w j � . 'O d f i N q N ��il l7 W f�!p y , u . N ' CD .f J ao � N t+1 N Y O N pl N � T v I �� I 1I �i ~I � • G Y M .�O , W Y O O . V O» y N N� ^ I �1 I 1( ^ �� p2 � O.0 H M ' y . . O�1"1 n'1 N�O O� �O nl t") N O��"1�O .Y S 1 ��+a O .1� Y�-1 f1 1�1 Y� P O t"1 �O�t GO O V u ro al n n �� ~ � �c � O N y , Y ab V Y M N Y�1 O 1'1 P 00 I�N1 1 N.-�O� CI . u m ..� a..�ao +n � M r rn o Y tl N Y Of�/1.� N PI N b W N a0 .7 w w y Y'O �t~1'1 V1N d �N� f� J , O < N N ' v N � � N ED N V1 O� �O O N .� � . � �al w �� m I �� I 'I � ~� �� % o - � � , � a N O.� o�o� n aD d N 1 N Y Pvl V1 On �O 1 NaOP O . Up. � 1� N H Y 1�CD= N 1"1 Vl t"1 N.-1 OD . 3 � � O Q W a ��N N N � ��D O � � M N � e q H F '� � ' y¢ � uy , � Wp Ll .G � EO Q q .��1 N O� N O 1 O�l t^�1 O � pG rzi F c�y��a �o o� � ^ I o� I I �':�n� ^� � � z � �H �a � ~ � � 4 y . p� � N M 1 CD N � � �I W ' p �o ~ �'+ I I N�� ( I X' R � � 11 N O.+ t'1 O O� O aD N V1 Ut 1� �P v1 N m O �O t'f O O� ' • M O�Vl Vl O� N O� �Yl�O O� .r O�1� O W N N J�/1 � � - � O C t�W n �1 Pf O� 0� t�l N .+ O t'1 J N CD r+ 00 VI OD N , ` b p �p . . w . . . . . CJII Y W r+I� .+ �D O� � N N O �O nl f� N P1 �O �1�f� O� �1 h f . H�Cy U �1 N �D 1�1 nf � v N � 1� 1� 1� O� �� ..\, , i Fi y rl � rti .-1 • C , O a w • Y Y ! M � dp O � q ' . � M u a M a B � w~y a O b M W q O Y a O H . '� N .a Y 00 C YE m M Y Y O Y 1h 4 7 N � O L C1 C�W C K W F M q t/ .G f1 �A m.+ O P1 u .a�t O�.1 . y N �r1 Y b O yvtin r L 1 4 M � 7 tl�O�A 'O't7 9 T7 , � � Y � Y..1�/f Y Y F H Y Y W M U V 1 O Y u � ap M y �p {� Y O Q� 7� M O M O W M N N 4 7 N Y W M � � W N Zf W M O V i�t C V `� O Y � u V O Y p u C 0.6 W W�'1.a W Y M W F F .�M N 3 O V C W O C W v W .. A m�p.�+ q q .a+ �W C �0 F u q.Ci .-pi T h N v�1.�i � u �9 Y u.-� .+u d p. •• �1 O u a1 O fi u u u S.� O'V O � ' F W p W U O 0��.d O N.y N�� y'O H W y a M K K � ~ F t b 0i•Ci t 7 F �u w ..a M� � N F � ff M� p ~ � T V ! Y C +1 a h u u� Y Y M �M 0.Y U 6 n u u.+.+ O u y C F F �0 M q u y 0� 0� 7 �0 u � G �N W W U • .� M O� W K 0.al y N C k'O > •• u u C Y V ' N N W O e Y�+ W O G m U O V Y � .�P7 LC H c� •a a c� '[f u u F:a H w t V t �+ M o u '..S z z o � z a • F OI .�N�'1�?V1 �O n aC O� O�"�.�Hi.�i .1i .�-� .�i.�n..�n r ��N e'1 Q V1 �O 1�m a O .-1 N 1'f , M LG ' N N N N N N N N fJ N N rl 1'1 i�1 1'1 n7 i -196_ � � nb !, W N u J�o�n,t f'1 rvl o) r` Cl�n�`�fN T �n , � N C O�NC�nt`lhG) � �u)�� J C' �i � �i �U IQ 7 "1 1�'-1('l Cl 'V Qi N t�l 4)O I�t]� O� f" � .r o fn ro ��o.:a �:ri o, n i ri .0 � • ro,•� a a tV v1 �l .. .+ ., cl oo� �'! u.-� O N � H A u a1 in� N u �°,� N' . 'O M J oo N 3 J od . y �u � �� I �I � � ' a o •.+ .a .. m .. v� O � N�/1 a0 �/'1 O� O� N H� v��o� � u� u� , W M.-+ vl O O O N N 00 Op L � C C al O w u.°i v , � �F U M O t"1 I P'1I I �I �I 6 03 N �n v � � �w � y � I �I I �I �i l0 N .� O aw ' .�i u °n° °r�° u�`i vai .r � � � � � �� z "' 0 i � � ° . �.. � 7 �1�O v1�Y c"1 O� .�1 C1 Vl N N N 'O ttl O�N O I�M U 1 d .-+a0 N 1� � O� U 6 � ��W .�I 1��--1 M(`l�O t�l M aD O 1� O� W fL M �0 Q N I��O r-1 N 1� Vl 1��7 cl v1 �+ W P4 O H O�N V1 M N .-1 r1 M � .-� N N ' � O M cn b V1 W N U 7+ O 1� �-�1 h 1�1 c0.i O O N V1�1 N oD O. ' PS O O� .-I O��?Vl O�Vl t7 1 1� 1��N O� 1 O �O N Tw r-1 O r-1 �y'.-1�/1 Y1 OJ.-1 I� O+�?N Vl N O N N � �� Ca N �O O N N N.-1 d . N a0 O O N ' . a > @+ .. w o �,-�c�c� rn .. m M...�. rn o� O U f"1 O H I�N J N 1� .+ r1 N H ��' a w v❑ dr '' N H b u y � q . 'L � ti ' OG O A F a H � m O O . � H v u u C v� r� rl � ,+ u.+ v � .a � � o e H� V u u�'NO m rn '� � .. Y.� � ` W N O M N N . � Y W � 3 y y U � (yr c 't7 O a � .0 t�a m a�D a�0 � ��!�I1 i . � N 0 a N ~ I ~� I I "N aw ' W ��Y N� 1 1 1 � I�N NO� � O � L J �1��/1 Vl 1� O��N ul N � ' . � C b C~ �OONN .-� NC000 N � M+1 � nNd� �t .�i�.-1~ N � • • � � � ~ ' ' g � � �, a u u N N W , , n o o u o a a w o a �M �1 � N / .. 7.�E .>a C .~+ � W O O � u � 0 3 N o � O O W O t1 u o O .ui C.�.a 'O.i al i0 C.�� M O m u .+L u.,� O v. u al +a m � d u A u .� a � u u.+n.+ u a a H N u� o ~ N �C�p.+i a .-�i ' a v a u a, r. � � � v v c u ai � w a oam � � c vv oroyc: u .. s+ H.+ w.+ o u w u•.+ a w W W Ft]UR.V V < P.HQ V U 7. Y q O .-1 N t�1�?1!1�D h 00 O�O�"�N f'1 1 V1 � . a T .+.ti.r.-� .-� .-+ —197— � � 1 r1 Y •'q O m v1 J aD a tV.-a.}J O� � v1 �!1 v1 0� ' � 1/N W V 1'1 40 o n m 1 a0 �O.-+�O n n m V� .� o O 1 1 1 1 I o ., w �-1 �.pl M Y N N iA=t'1 t0 �"1 rn o n o�l ol .v ao �nl rn .�I EO N � V�O.-�N t�l Q1 I�1 i'1 h� v • � "11 � �rN1 U ul �O N v1 �t .-1 .1 17 C•II d p O'� p t/+ � I u � � N �� q Yy m m a�n �n y9 00 d Y ( ( � L W M •�p,o7� � ( 1) tH'100•0 � U . � T.�}i o N P o �/x � �v C! Ul 6 V u y , p Y 0 8 ' O W �d vai u� �t .T y p o �~ p u� v� I 1I I 'I I ,I � I ol � i ,O N q !y N O O �0 � u Y vT. tll I ,I I ,I � I � I 'I '�A � " y..°� , °o � .a .+ u u v ' y q q N M I I V11�O�N I �I I I I I N +I Y C 1 �N t�l � 1 1 � p� ,�w u q � ol • ti O W O M n+ O , N U O.Z �+ ah° v a � . O +1 1 �D 1'1 M1 N U H Y N �O �O ' I ,I I 'I � �o�000zo � � I I • w .. o � °' " � y W V < �0 g .„ � 6 Y M.'�.-1 b 1�'1 � v V�1 O O 1 , � OC M ' �v o � I �� I I 'y Wppy c� a �� a�.°� v I � , y � e .1 w.+ . U V t�1 r h1 �N y � w � � tly r N W 01 O V J b V1.t 0p P1 O n/V1 N N.T �O t�1 N V1 �'1 QO a0 �/1 .y < l^1 O �0 Y W O �N O 1�00 V1 �T N a0 N n f� �O ry 1(1 I O V N O 1�DI O NW W la • W 7.Fi w v p �n -ol ao .o m e1 m U n o� rn v O vl m dl.+ .n .r.. • (6y [y�1 .,N9g �a u 0o D t��O.�N P1 1� OD 1��Y(�1 �O v W N r1 N 1f1 ' (-� H q q �.' M b Y y �N vl Nl� N� � i-1 ( f�1� ( � •1 ♦ m �' u y o V F W �{� � g � � � �[1i g �: d py' O �1 Y O- W rl�T.�aD r� .-1 OD 1�V1 1 Hf 1�f 0D CD Vf O1 �-1 N d t� � Y Y M �0 ED O e"1 O P �+f �D �f0 d d cl O � v � N O� C'1 �i � N O �O�Q O � ��..�vv� y1l I vnll nfI I .+ .+.+ ( e+fl • � .� Y q M � w .a U a0 N W �'1 N�O N 1� N N �O O�O N.� N V1 O N O 1��O d ' N C L q N N N Nf a0 O� N f� 1�'1 O�N�t N f� OO 1 O �/1 O� 1�'1 V1 E 00 O A Z O�O a ol I�' .r a0iI .-�aD O O�o �o V o� v� aD N o� N . . V 0 p U + 4 ��O.y t�f N � NI f��7�'1.� I �D� . � OD N N Y1 N M V Y aNN �'U '+ � � M ' P1 M � f ...� , i g m d u �,N.^a^�%, m o^a^•s.. ao Y'[1 N G O MUD N.1 1 �1 �1�NOd Of I �I I �I , • C. W U �O�O.-�v v I Y1 �O�1 N v N 1� � M M M~ �v�'1 `D O.+v O �L y v l"f N � N W M M tlf v W O 3 .�i a �o o n-+o a o o s�n�n�+ �o �n o v� o n.o .� a ' ' r1 N Vl .-i ul.-�.-�.+ N �+1 �'1 f`O�.+a0 O. 1� f0 1 O �/1 O rti 1 t�11 v1l � b O T. �D N r1 m Y1 r1J �TJ 00 N N N GOI C1� v P Vll CO N O� r-'� NI �' � y u ~�� l Nl ��O N�-1 � v CD N N V11 wy M a� I I S ag b , - ii p ~.�a a w E'��u .a tli� �a p � C M w�F a .+ . �+ x M 'O ti�.�i W Y>v4 Y C W M i1 q Q u a� a C 1 ! 7 O O e o • �1 V'p Q��/ Y M O ' Y 3 Y Y U O N .. O L'O W'O H d qc� •• R1 O M p C C ✓�0 C m u �m u d U N 9 H E3 •V O • ' � .-1 O O O •+� O O v N Y d �+ C b o1 • • ' �i {�M M M A V H 7 N C 7 � �tl Y�M M tl O M q V A Y O !Y Y N Y Y..�.O.-� Y O.O O /� E V U Y�+ 6.0� C p M m� Y N � M Y a�.1 • F �+'�•+ u� O M N Y M Q Y H .�1 y H 7 0.7 � M O V Y� U O X H '.� V C a0 (3 V V u�+a al p N 0 0 u al V C d g v u u C [i b d d O+1 T r . M y T {� 4 O O u'O O N N C O q 7 C O V++ b w w V CO M �! M H TJ q u y [: tl N y M N.� W O 'V O U F 91 F�+ Y O..0 � Y OM N � Fr� ki F 0. M W H Ll U U N d U < � f) N Y U V pp � Y W HQ V V V e•W Fv � N��qP.0 u � H O � F � W ��I �N 1�1 J✓1�O f��O O� 'O�� N N N N N N N N tV N 1'1�'1�'1"1 l�'1 l"1 1a � - i —198— � TESTIMONY ' Line No. , 1 Q. Will you state your name, please? ' 2 A. Klaren K. Alexander. � 3 Q. What is your occupation and with whom are you associated? , 4 A. I am a certified public accountant and a manager with the firm of 5 Elmer Fox & Company, a national firm of independent public accountants. � 6 Q. Will you please describe your present responsibilities with your firm? 7 A. Yes. My primary responsibility with Elmer Fox & Company is the , $ coordinator of the Management Advisory Services Department of the 9 Minneapolis office. Additional responsibilities entail supervision � 10 of audits and review of corporate and personal tax matters. 11 Q. What is your educational background and professional experience? i12 A. I graduated from Mankato State College in 1965 with a Bachelor of Arts 13 degree with majors in accounting and economics. Since graduation, I ' 14 have completed additional courses in mathematics, data processing and 15 systems design. I have been in public accounting for nine years , 16 beginning as a staff accountant prior to graduation from college and 17 advancing to partnership in 1969 with the f irm of Reese, Abdo, � 18 Gazzola & Company. In addition to practicing public accounting, I 19 served as a part-time instructor at St. Olaf College during the years ' 20 1969, 1970 and 1971. The courses I taught were Intermediate Accounting 21 and Managerial Accounting. In January 1972 I became associated with 22 Elmer Fox & Company in their Management Advisory Services Department; , 23 was appointed as the coordinator of that department in June 1973 and 24 have continued in that position to the present time. My experiences , 25 in public accounting include audits leading to opinions on financial 26 statements, preparation of corporate and personal income tax returns ' 27 and in recent years, heavy concentration in mana.gement advisory 28 services engagements. � � � -199- � Line , No. 1 Q. Will you please describe the type of engagements you have had , 2 responsibility for as coordinator of the Management Advisory Services 3 Department? ' 4 A. Yes. My consulting experience includes designing computer based 5 management information systems for clients in various industries, ' 6 systems analysis for various types of campanies involving accounting 7 systems, cost accounting systems and asset control systems. In � 8 addition, I have conducted engagements relating to financial analysis 9 of various companies and have designed and written various computer 10 programs for clients. ' 11 Q. Would you please state your professional associations? ' 12 A. I am a member of the American Institute of Certified Public Accountants, 13 the Minnesota Society of Certified Public Accountants and the National � 14 Association of Accountants. With the Minnesota Society of Certified 15 . I have served as Education Committee Chairman and I am currently a 16 member of the Education Committee and Manageffient Advisory Services � 17 Committee. I am also an officer of the Minnesota Soc•iety of Certif ied 18 Public Accountants Education Foundation. , 19 Q. Will you describe your responsibility relating to this engagement? 20 A. Yes. My responsibilities have been three-fold. First, I have been � 21 responsible for organization and supervision of staff consultants in 22 the overall investigation of the books, records and accounting pro- , 23 cedures of Northern States Power Company in connection with their 24 petition for an increase in electric utility rates in the City of � 25 Saint Paul. Second, I had direct responsibility for analysis of the 26 various allocation factors and methods employed to determine the plant ' 27 assigned to the City of Saint Paul and the portion of revenues and 28 expenses attributable to the City of Saint Paul. Third, I had direct ' 29 responsibility for development of the operating income statement for • 30 the City of Saint Paul based on a 1973 test year. � � _2�0- � � � Line No. � 1 Q. Were you responsible for overall coordination of your firm's work 2 on this engagement? ' 3 A. No, Mr. Norman G. Rising provided overall direction and organization 4 of our firm's work on the engagement. My work was done under the � 5 direct supervision of Mr. Rising and within the criteria established 6 by Mr. Rising for development of the operating income statement for 7 the City of Saint Paul. ' 8 Q. Will you generally describe the overall conduct of your examination? , 9 A. Yes. To properly expedite an engagement of this scope it is 10 imperative to become knowledgeable about the company in a short period 11 of time. The f irst requirement was to become knowledgeable about the ' 12 organization of the Company. We needed to become familiar with people 13 who had responsibility for various functions within the Company. To i14 achieve this ob�ective we conducted reviews with the managers of 15 various departments. In addition, we made a general review of the ' 16 accounting records and documents maintained by the Company and their 17 methods of developing those records and documents. Part of that t18 investigation required obtaining inf ormation as to the basic source 19 of certain facts and figures to properly judge the quality of those ' 20 facts and figures to be used later in rate making decisions. 21 Q. Would you describe your work relating to testing and comparisons made ' 22 f or the test year operations with historical operations? 23 A. Yes. As Mr. Rising has stated in his testimony, a review must be ' 24 made to determine that the test year selected represents as near as 25 possible a normal and typically recurring period of operations. To ' 26 deteYmine the propriety of 1973 as a test year we compared the financial 27 data for Northern States Power Company with three prior years, 1970, 28 - 1971 and 1972. By analytic review of the four years, we attempted to � 29 identify all unusual and nonrecurring revenues and expenses that were 30 included in the 1973 test year. Once those unusual and nonrecurring � � � -201- . , Line ' No. 1 revenues and expenses had been identif ied, we then proceeded to � 2 develop adjustments to the 1973 test year, which I will discuss 3 later in my testimony. ' 4 Q. What methods were employed by NSP to allocate the plant investment 5 accounts to the City of Saint Paul? , 6 A. NSP utilized several methods for allocation depending upon the type 7 of property imrolved, that is, production, transmission, distribution, , 8 general or common. The general approach was to first segregate that 9 portion of plant investment that would be directly assignable to the ' 10 City of Saint Paul. Plant items that would be directly assignable to 11 the City of Saint Paul included certain elements of the distribution 12 plant-in-service. These elements are distribution substations , 13 and related distribution equipment, fixtures and conductors that are 14 physically located in the City of Saint Paul and are utilized only � 15 to service the City of Saint Paul. 16 Q. Are all plant items located in Saint Paul directly assigned to Saint ' 17 Paul? 18 A. No. Certain plant items located in the City of Saint Paul are part of ' 19 the total production and transmission system of Northern States Power 20 and cannot be directly assigned to Saint Paul. An example of this ' 21 would be the High Bridge generating plant. The High Bridge plant is 22 located within the boundaries of Saint Paul but is not devoted solely ' 23 to praviding power to Saint Paul. The energy generated by the High 24 Bridge plant is distributed throughout the system as part of a power , 25 production pool. 26 Q. Then how are the respective plant investments of production and ' 27 transmission systems allocated to the City of Saint Paul? 28 A. Production and transmission investment of the Company is actually a � 29 power supply element. A relationship can be drawn between the total 30 annual peak demand placed on the system and the portion of that � 31 demand that was caused by the City of Saint Paul. It is this � _2�2_ i ' , Line No. ' 1 relationship, annual peak demand ratio, on which the investment 2 in production and transmission plant was allocated to the City of ' 3 Saint Paula � 4 Q. What was the percent of the production and transmission plant that ' S ha.s been allocated to the City of Saint Paul? 6 A. For production plant the percent was 13.02°6 and for transmission ' 7 plant the percent was 12.52%. 8 Q. If these percentages are based upon the same relationship, why do � 9 they differ? 10 A. There are certain power loads carried through the NSP transmission ' 11 system that are not generated or used by NSP. This is called wheeled 12 energy and to arrive at a proper percent for the City of Saint Paul ' 13 in relationship to the total system, the transmission percent has to 14 take the wheeled energy into account. Af ter consideration of wheeled ' 15 energy, the transmission factor turns out to be lower than the 16 production f actor. ' 17 Q. What other im�estments in plant need to be allocated to the City of 18 Saint Paul? ' 19 A. Other plant investments that have not been discussed are general � 20 plant and common plant. ' 21 Q. What is the difference between general plant and common plant? 22 A. General plant includes those plant items that are used exclusively ' 23 by the electric utility where common plant includes those plant iteqms 24 that are used by the several utility operations of NSP. ' 25 Q. How are these plant items allocated to the City of Saint Paul? 26 A. . General and common plant investments generally relate to the number ' 27 of customers served. General plant was allocated from the Saint Paul 28 Division on the relationship of the City of Saint Paul electric ' 29 customers to total Saint Paul Division electric customers. Allocation ' , -203- , Line ' No. 1 of common plant was based on the relationship of the City of Saint ' 2 Paul customers compared to Saint Paul Division customers for all 3 utility operations. ' 4 Q. Would you describe the methods used to derive the City of Saint Paul 5 operating revenues? ' 6 A. Yes. For the most part, operating revenues are metered and recorded 7 directly to the City of Saint Paul. Certain other operating revenues, ' 8 however, are recorded on a Company-wide basis and therefore do 9 require allocation to arrive at the portion attributable to the City � 10 of Saint Paul. 11 Q. What revenues require allocation? i 12 A. Other operating revenues requiring allocation to the City of Saint 13 Paul include revenues received from NSP (Wisconsin) for energy and ' 14 transmission services provided by NSP (Minnesota) and revenues received 15 from nonassociated utilities for energy for resale. ' 16 Q. Will you describe the methods used to determine the City of Saint Paul 17 operating expenses? ' 18 A. Yes. NSP does not maintain accounting records to record operating 19 expenses direetly assignable to the City of Saint Paul, therefore, t 20 the expenses need to be analyzed to determine the portion attributable 21 to the City of Saint Paul. Certain expenses can be identified as ' 22 directly assignable to the City of Saint Paul. 23 Q. What expenses can be identif ied as directly assignable to the City of , 24 Saint Paul? 25 A. Directly assignable e.�cpenses would include the gross earnings franchise ' 26 fee paid to the City of Saint Paul which is based upon sales within 27 Saint Paul. ' 28 Q, How were other expenses� determined for the City of Saint Paul? 29 A. The other expenses were analyzed to determine the functional � 30 characteristic of such expenses. Once the particular function of an ' -204- ' ' ' Line No. ' 1 expense was determined, the allocation bases could be properly 2 considered for propriety. Examples of the more cammonly used ' . 3 allocation bases were customer ratios, peak demand ratios and KWH 4 ratios. ' S Q. Mr. Alexander, I hand you what has been identified as Exhibit No. 6 and ask if these are the schedules resulting from your investigation? ' 7 A. Yes, they are. ' 8 Q. Would you describe the purpose of your schedules and the general 9 arrangement and manner in which these schedules have been presented? ' 10 A. Yes. As can be seen from the index, these schedules generally pertain 11 to the operating revenues and operating expenses of NSP. The ' 12 particular sequence is to present a statement of operations for the 13 City of Saint Paul as adjusted by NSP and as adjusted by us. Included 14 in the sequence are schedules setting out the support for each of my ' 15 ad�ustments. ' 16 Q. Would you now turn to Schedule KKA-1 and tell us the purpose of this 17 schedule? ' 18 A. Yes. Schedule KKA-1 is a statement of electric utility incame under 19 present filed rates for the test year ended December 31, 1973. The , 20 lines have generally been stated on a comparable basis with the 21 testimony filed by Mr. Vixo identified as Exhibit SA, Schedule 1. 22 Column A of Schedule KKA-1 is an operating income statement of NSP � 23 (Minnesota) electric operations and is included for the record to 24 enable comparisons to be made from NSP to the operations attributable ' 25 to the City of Saint Paul. It should be understood that our presenta- 26 tion of this statement of operating income was not intended to be ' 27 supported by an opinion on it, The amounts were strictly taken from 28 the books and records of the Campany. ' 29 Q. Please continue with your discussion of Schedule KKA-1. 30 A. Column B compares directly with the 1973 year as presented by Mr. Vixo ' 31 in Exhibit 5A, Schedule 1. We used these figures as the base from -205- 1 ' Line ' No. 1 which we made our ad�ustments. Column C is the total of the ' 2 ad�ustments we made to the Citq of Saint Paul operations within 3 criteria established by Mr. Rising excluding the adjustment to � 4 reflect the impact of the proposed fuel clause rider as it relates ' 5 to nuclear and hydro generation. Column D is the adjusted City of 6 Saint Paul operations of NSP as ad�usted to eliminate unusual, , 7 abnormal and. nonrecurring revenues and expenses to annualize or 8 normalize for known and determinable changes occurring within a ' 9 reasonable time fram the test period. 10 Q. What is Column E? , 11 A. Column E is an adjustment to reflect the impact on 1973, as adjusted, 12 for the proposed fuel clause rider as it realtes to nuclear and hydro , 13 generation. Column F is the City of Saint Paul operations as ad�usted 14 and reflects operating income of $8,082,000 that should be considered � 15 as available for computation of a rate of return. By dividing the 16 $8,082,000 available for return by the original cost rate base as � 17 ad,�usted by Mr. Rising in the amount of $103,192,000, the result is 18 a rate of return of 7.839� on original cost rate base. ' 19 Q. Will you describe Schedule KKA-2? 20 A. Yes. Schedule KKA-2 is simply a schedule summarizing the ad3ustments ' 21 that we are proposing to be made to test year operations. The 22 summarized totals found on page 2 of Schedule KKA-2 are carried forward ' 23 to Column C of Schedule KKA-1. 24 Q. Will you now explain the adjustments starting with adjustment number 1 ' 25 on Schedule KKA-3? 26 A. As you recall, the 1973 data presented by Mr. Vixo in Exhibit 5A, ' 27 Schedule 1, was based on eleven months actual data with one month 28 projected. Our field work was conducted using twelve-month actual data. ' 29 To bring Mr. Vixo's filed data to a comparable base, we needed to 30 adjust his data to twelve-month actual data. , .' -206- � , . , Line No. ' 1 Q. Did you use the same methods and allocation factors the Company used 2 in developing this adjustment? ' 3 A. Yes. We used the same methods and the same allocation factors used 4 by the Company to develop this adjustment. In addition, the Company ' S has made certain adjustments to their 1973 year as presented. To 6 maintain a comparable base we included recognition of the same , 7 ad�ustments the Company recognized in their filing. Any exception 8 we took to their methods, allocation factors or adjustments is ' 9 recognized in subsequent entries. 10 Q. Would you then move on and discuss ad�ustment number 2 on Schedule KKA-4? ' 11 A. Yes. The allocation factors used by the Company to develop the City 12 of Saint Paul's portion of distribution expenses, customer accounts � 13 expense, sales expense and administrative and general expenses as 14 presented in their 1973 year were based on actual relationships for , 15 1968 through 1972 trended forward to year-end 1973. It is our position 16 that actual relationships existing at December 31, 1973 are more , 17 appropriate to determine the proper portion of these expenses 18 attributable to the City of Saint Paul operations. ' 19 Q. Did you consider alternative methods of allocating these expenses to 20 the City of Saint Paul? , 21 A. Yes. We reviewed the functional relationships established by the 22 Company and did consider alternative methods, however, we accepted and , 23 applied the same bases used by the Company. 24 Q. Will you now discuss adjustment number 3 on Schedule KKA-5. � 25 A. Yes. The Company excluded revenues and expenses pertaining to 26 certain sales f or resale, principally to nonassociated utilities, ' 27 . from their data presented for 1973. Adjustment number 3 recognizes 28 the necessary changes to include the revenue and expense portion of ' 29 these sales for resale attributable to the City of Saint Paul. 30 Computation of the energy allocation f actor by the Company had allocated ' 1 -207- ' Line ' No. 1 production expenses to these sales for resale thereby excluding ' 2 these expenses f rom the City of Saint Paul. It was, therefore, 3 necessary to recalculate the energy allocation factor to include the ' 4 costs of the additional revenues recognized in the City of Saint Paul. 5 Q. Would you define nonassociated utilities and what are some examples? , 6 A. Nonassociated utilities are utilities engaged in providing electricity 7 but do not have a common ownership relationship with NSP. Some ' 8 exa.�p}�es would be Interstate Power Company, Minnesota Power and Light 9 Co. and Otter Tail Power Co. , 10 Q. Will you define what you mean by the energy allocation factor? 11 A. Yes. Energy related expenses vary in total with the quantity of , 12 kilowatt-hours produced. An example of the expenses that are considered 13 energy expenses includes the cost of fuel and fuel handling and a part , 14 of production plant operaeion and maintenance expenses. The develop- 15 ment of the energy allocation f actor f or the City of Saint Paul is ' 16 accomplished by comparing the annual kilowatt-hours used within the 17 City of Saint Paul to the annual kilowatt-hour sales for the total , 18 system. By using the ratio of the City of Saint Paul kilowatt-hour 19 sales to total system kilowatt-hour sales less kilowatt-hour sales 20 classified as sales for resale, would automatically allocate the proper ' 21 amount of the energy e�enses into the City of Saint Paul. � 22 Q. Then how do we allocate the revenues into the City of Saint Paul? 23 A. Revenue received from these sales f ar resale is recognized as either ' 24 a demand charge or an energy charge. By applying the demand allocation 25 f actor to the demand portion of the revenues we arrive at the Saint ' 26 Paul portion of the demand revenues. By applying the energy allocation 27 factor to the energy portion of the revenues we arrive at the amount ' 28 attributable to the City of Saint Paul. Then by combining the two 29 calculations we arrive at the total revenues to allocate to the City. ' .' -208- � t ' Line No. � � 1 Q. What other considerations are necessary when you revise the energy 2 allocation factor for the City? ' 3 A. Any revenue or expense that has a functional relationship to energy 4 must be adjusted on the revised allocation factor. , 5 Q. Were there any other adjustments necessary? 6 A. Yes. Revenue recognized under the coordinating agreement between NSP , 7 (Minnesota) and NSP (Wfsconsin) are allocated to Saint Paul on the ' 8 energy factor and accordingly I have made this part of adjustment 9 number 3. , 10 Q. Why should revenue from sales for resale and the related expenses be 11 recognized in the City of Saint Paul? ' 12 A. Perhaps I can clarify this somewhat by describing how the Company 13 treated demand costs and energy costs in their 1973 data for the City , 14 of Saint Paul and then relate this treatment to sales for resale. 15 Q. Would you proceed with that discussion? � 16 A. In the Company's original energy allocation factor, a portion of the 17 energy expenses were assigned to sales f or resale, however, in the ' 18 Company's demand allocation factor the Company did not make an alloca- 19 tion to sales f or resale. The impact of this is that other utilities , 20 to which these sales are made would only share in the energy costs but 21 would not share in any of the demand related costs and also would not 22 share in any of the plant investment associated with the production of ' 23 the energy sold to these other utilities. The net effect of this 24 treatment is that the City of Saint Paul is not receiving benefit of , 25 the revenue of sales for resale yet is contributing to the demand 26 related expenses. ' . ' 1 1 -209- � Line ' No. 1 Q. Would you discuss your ad�ustment number 4 on Schedule KKA-6? , 2 A. Yes. This entry is necessary to be consistent with the entry made 3 by Mr. Rising eliminating construction work-in-progress from the ' 4 rate base. Accordingly, adjustment number 4 is to remove the 5 allowance for funds during construction as being funds available ' 6 for return. 7 Q. Would you discuss adjustment number 5 also on Schedule KKA-6? , 8 A. Yes. Mr. Rising eliminated Prairie Island Unit 4�1 as an element of 9 the rate base. To be consistent with this entry, adjustment number 5 , 10 is to eliminate expenses of operating Prairie Island 461 that were 11 charged to operations during December, 1973. ' 12 Q. Wou1d you move on and explain your adjustment number 6 on Schedule 13 KKA-7? ' 14 A. Adjustment number 6 is an ad�ustment to normalize production expenses 15 relating to the Monticello Nuclear Power plant. Nuclear fuel for , 16 Monticello is being leased from the General Electric Company. Because 17 of unusual outages experienced early in 1973, the Company was only � 18 able to achieve a 67y operating capacity and, as set out in the G. E. 19 agreement, was required to pay a penalty in the amount of $266,345. 20 Accordingly, we have eliminated the penalty expense from our 1973 , 21 test year. 22 Q. Will you discuss ad�ustment number 7 also on Schedule KKA-7? ' 23 A. Yes. This entry is to normalize for annual shareholder meeting ' 24 expenses. During 1973, unusually high expenses were incurred due to 25 a proxy dispute concerning certain issues. Our normalization was ' 26 based on expenses incurred for 1970, 1971 and 1972. All expenses 27 incurred in 1973 in excess of the three year average were eliminated. 28 Q. Would you move on now and discuss adjustment number 8 on Schedule KKA-8? . , 29 A. Yes. This entry is necessary to normalize rate case expenses attributable , 30 to the City of Saint Paul and to amortize costs of the current rate case. ' . -210- � ' � Line No. ' 1 The Company estimates the cost of this rate case to be $85,000 and 2 this total cost has been amortized over a two-year period. , 3 Accordingly, we have recognized SOY of these costs in the 1973 test 4 year. ' S Q. Will you naw move on and explain your adjustments numbered 9 and 10 6 on Schedule KKA-9? � 7 A. Ad�ustments numbered 9 and 10 are to normalize fuel costs and 8 associated fuel clause rider ad�ustment revenues at the December 1973 ' 9 level. This normalization has been approached in two steps. The 10 first step is recognized by ad3ustment number 9 and the second step ' 11 is recognized by ad�ustment number 10. 12 Q. Would you explain the first step under adjustment number 9? , 13 A. Yes. This adjustment normalizes fuel cost and fuel clause ad3ustment , 14 revenue at the December 1973 level available to the Company under 15 the terms of its fuel clause rider currently in effect. Details of 16 the computation are set out on page 2 of Schedule KKA-9. i17 Q. Would you then move on to adjustment number 10 on page 1 of 18 Schedule KKA-9? ' 19 A. Yes. - , 20 Q. What step is being recognized in this adjustment? 21 A. Adjustment number 10 recognizes the fuel costs and purchased power ' 22 costs at the December 31, 1973 level for all fuel camponents. 23 Accordingly, if additional fuel costs are to be recognized, additional � 24 revenues must be recognized to provide for the amount that will be 25 recovered through the fuel clause rider. Details of the computation , 26 are set out on page 3 of Schedule KKA-9. . 27 Q. What about the adjustment to�the gross earnings fee on both adjustments . ' 28 numbered 9 and 10? 29 A. The amount to be added per kilowatt-hour sale for each 1� the cost ' 30 per million BTU changes in Saint Paul is .013F. The .013� includes ' -211- , Line � No. 1 the 8% gross earnings fee required to be collected under the , 2 franchise agreement with the City of Saint Paul. If we make an 3 ad�ustment to revenue based on the .013C per KWH, we also need to ' 4 ad3ust the gross earnings fee by 8% of the revenue change. 5 Q. Would you move on now and discuss adjustment number 11 on Schedule , 6 KKA-10? 7 A. Yes. This entry is to annualize revenues for the City of Saint Paul ' 8 to recognize the net customer increase during the test year. 9 Additional production expenses also need to be recognized to reflect , 10 costs that would have been incurred to provide the additional kilowatt- 11 hour sales. � 12 Q. Will you move on and discuss adjustment number 12 on Schedule KKA-11? 13 A. Yes. This adjustment eliminates certain donations included by the ' 14 Company as additional administrative and general expenses. The Company 15 added $79,000 of donations to the a�located portion of administrative ' 16 and general e�cpenses. However, donations to electrical associations 17 had already been classified by accounting into the administrative and � 18 general expenses and previously allocated to Saint Paul. Accordingly, 19 we are eliminating $14,000 of these expenses that had been charged to � 20 the City of Saint Paul twice. 21 Q. Does this entry consider any additional donations? , 22 A. Yes. We are also eliminating from the 1973 test year charitable 23 donations that are not contributed on a recurring basis. ' 24 Q. Have any charitable donations been included in the City of Saint Paul 25 operations as adjusted? � 26 A. Yes. We have allowed $47,000 which represents a portion of their 27 annual pledge to the Saint Paul United Fund. , , ' -212- ' ' ' Line No. , 1 Q. Would you move on and explain ad�ustments 13 and 14 presented on 2 Schedule KKA-12? ' �3 A. Yes. Mr. Rising has previously established the criteria for using 4 an end-of-period rate base. These adjustments relate to the , 5 annualization of depreciation and real estate and personal property 6 taxes based on the end-of-period rate base. Depreciation on assets , 7 placed in service during the year was computed as if the assets were 8 in service only a half-year. Adjustment number 13 annualizes , 9 depreciation to reflect a full year of depreciation. Real estate 10 and personal property taxes have been computed based on estimated , 11 assessment valuations on the end-of-period plant in service, 12 Ad3ustment number 14 annualizes this increase in real estate and ' 13 personal property taxes. 14 Q. Will you then move on and describe ad�ustments numbered 15 and 16 � 15 on Schedule KKA-13? 16 A. Yes. These entries give recognition to known and determinable changes ' 17 in labor costs and related increases in payroll costs. Ad�ustment 18 number 15 gives recognition to the ratification of a new labor agree- � 19 ment effective for the Company on January 1, 1974 and also to annualize 20 compensation of nonunion salaried employees at their December 31, 1973 � 21 level. Adjustment number 16 recognizes the associated, payroll costs 22 applicable to increased salaries and wages as well as recognizing 23 statutory changes in payroll tax rates. Details of the computations , 24 are set out on Schedule KKA-13, pages 2 and 3. � 25 Q. Will you then move on and discuss ad3ustment number 17 presented on 26 Schedule KKA-14? ' 27 A. Yes. This entry is to recognize a statutory change in postage 28 increases effective in Ma.rch of 1974. These additional costs have 29 been annualized for the 1973 test year. � , . ' -213- ' Line ' No. 1 Q. Your adjustment number 18 relates to the income tax computation ' 2 for the City of Saint Paul, is that right? 3 A. Yes, it does. ' 4 Q. Will you describe the method used to campute the tax? ' 5 A. Yes. The starting point is to recognize the operating revenues and 6 operating expenses that are the same for both book and tax purposes. ' 7 These operating revenues and expenses included in my computation 8 are the same as reported on Schedule KKA-1, Column D. The next , 9 portion of the computation considers expenses that are treated 10 differently for tax purposes than for book purposes. 11 Q. Will you describe those items? ' 12 A. Yes. The first item, line 13, is income tax depreciation, excluding ' 13 accelerated depreciation f or which the Campany has provided deferred 14 taxes. The next item, line 14, is interest cost. For book purposes � 15 interest is capitalized on construction-in-progress and is depreciated 16 over the life of the property. For tax purposes, all interest is 17 deducted in the year incurred. ' 18 Q. Did your method of determining the interest cost differ from that of 19 the Company's �method? , 20 A. Only with respect to the total interest cost. The Company used 1973 � 21 interest expense while we used the annualized amount of interest based 22 on end-of-period outstanding debt. ' 23 Q. What was the composite tax rate that you have used? 24 A. The composite tax rate we used was 54.24% and that rate is in agree- ' 25 ment with that used by the Company. 26 Q. Would you explain the credits you have taken? , 27 A. Yes. The amount of investment tax credit, $108,000, is the amount ' 28 of annualized amortization of the December 31, 1973 deferred balance. , 29 The preferred dividend credit is a special credit allowed the Company 30 by the Income Tax Code. ' -214- , � ' Line No, � 1 Q. What is the normalized income tax then? , 2 A. The normalized Federal and State income taxes relating to the City 3 of Saint Paul operations as adjusted is $1,835,000. � 4 Q. Does this computation differ from that of the Company? 5 A. Yes. The Company only recognized the tax effect of the deferred � 6 accelerated depreciation and did not include in the 1973 data any 7 consideration for an amount currently payable. � 8 Q. Is that method proper? 9 A. The method of recognizing the deferred portion without regard to an � 10 amount currently payable is not proper, 11 Q. Does your method consider both the deferred element and the element � 12 currently payable? 13 A. Yes, it does, , 14 Qo Would you discuss the purpose of your final ad�ustment number 19 on 15 Schedule KKA-16? ' 16 Aa Yes. Ad3ustment number 19 relates to a proposed change in computing ' 17 the amount per kilowatt-hour sale to be added when the fossil fuel 18 costs increase 1� per million BTU. The fuel clause rider as proposed 19 by the Company includes a provision that "the fuel adjustment shall � 20 be multiplied by the ratio the second preceding month's output less 21 nuclear and hydro generation bears to the total output for that month." ' 22 Because the fuel cost f or nuclear and hydro production does not 23 fluctuate to any great extent over a short period of time, it is ' 24 important to apply the fuel clause adjustment only to generation 25 related to the fuels causing the increased cost, ' 26 Q. Do you concur with the nuclear and hydro provision of the fuel clause 27 rider? , 28 A. Yes. This is a necessary change, Although the fuel clause rider 29 currently in effect is being applied in strict accordance with the , 30 agreement it is an erroneous application of the intent of the agreemento ' -215- � Line ' No. 1 Q. Aow did you apply the proposed fuel clause rider adjustment to the i 2 test year 19732 3 A. We applied the proposed nuclear and hydro generation ratio that ' 4 would have existed during 1973 to the fuel clause rider as previously 5 ad�usted. Details of the computation are set out on page 2 of ' 6 Schedule KKA�16. 7 Q. What are the other considerations of this entry? � 8 A. It is also necessary to consider the associated reduction in gross � 9 earnings fees and, because we had previously computed Federal and 10 State income taxes, we need to reduce the amount of the income tax 11 provision. � 12 Q. Does this conclude your testimony, Mr. Alexander? � 13 A. Yes, it does. ' ' , � , ' . ' , ' -216- , � ~ � � �mr � � YI y p u v� 7 �O?N N .+ t•1 N O=!�O�✓1 t�l t'1 N�O�N.Y N f� O tl O N O ld I�ry O�� N �/1 1� ✓1 1�Ul�D n O� .� CI OJ�"f 1 W O� � w a.a u.�i o u o n a i. o �n ui ..�n�n�n n .� .,.o v r�co :t o � c� v, � m Y Y 1��p 1� N O� � V1 '+ .y N N t0 V1 M 1"��7 t+1 c0 GO '�y N-A N • M1N �N �Q v1 N N J `� V IN O M�O W � .L7 u N� � • Y b u °v m i u �a a� �m.��o n n v� ci ao a Q M O �0 4D t0�� O� 1 I a0 I � v v I �O .7 t I �Y n1 n��+ o u d .N..w. .a .+ w u w .+ .. .+ wera.+ � , .ai w w a d a' . � N p w u . y � LLI y O Y e+O�V1 a0 O� .-, O N O J O�ul�'1 t�l N�O O��n.Y O� .d O 0�r1 o V1 O.O�v1 O V1 �n U1 1��n�D n o� �-a N 1�J t'1 ao 1� c0 1 i� Q A u y y �+�n.1 n er v� n .r�n�n o� n .� .-.n s m m�{I .+ �n �I �) , V �t 0.tl �M �? � �N/1 N N N� N Yl f�l .-+�t I �� 0 0 ( O D�I N O �! h� • � N •MI N O<� Y O O q fL i. C. W O pL O�"1 t�1.1 O a0 a0 �Y f�a1 h�o ao v1 O N�n�il�/ O c0 v1 �I �W M N r� f CO T f� f� 01 Cp v r-I �O O�1 N V1 N O 1� O � � t� Y."i u b..�+ o�� c� n o o ..� .+M wv.+ a� ..+ n a V q N � vi � .. �o s � oi N N a �oaaw �a � � � 'QYN O� . fi � . � p�tl , . � p.�i �tl v�i.� 01 �Y U f��O N�Y O� P1 N m M�J�-1 r1 00 N�7�Y O.-� O� P1 V1 1� N •v1 M {7 t�1 aD O�.+ N N OD 1��O�O 00 vl.-i 3 N 1+1 N rn�D I� O O � .-� Ci M Y P? J �Y N 1 1� O� f� �O O u1�7 a0.-i a0 m O�7�Y�0 1� N 7 1� , � p� O p G M V .7 1� N Pf �C 1� N N Hl v1�'1 N.7 O �O N , W � O • tl '+N 3 �T .+ N d � � � T �x � M i. U m p.v vi a� � a V '� M . ' � Q Li � � SG �p W Q il C . �O N O�-1 O. N1 N V1 N ul O�Vl I� �"1 '-1�O N.-1� t� V1 O Y O G M O O�u1 aD O N P1 �O h�O N t�1 1�d N .�+�t t�.Y O� a0 1� N - � 'pO tl M L� .1 a0 h O O� t0 1� a0�7 1�t�1�7 N .r o0 O�t+1 O�a0 O �O r+ • N U tt < �u q o n ui�o o� m w n.t�o 00.-i o e� r'i vi e�i O ao �n e+i ao e ip� Y 11 {'1 I� ad J b 1'1 N N O� PI N PI O� 1� N ' N O �1 e tail W W �.� �'1 N1 n1 .-� N . .._ � � � � � � O . . . i � � m 1 U � . � � . � . o . . i � - : � . � Y � 4 � ' � � � � ' . . ! � " � p p Yx N � 00 Y a v � . a . ., ., a - t7 ~ e H � . � �e0 L 7 q 6 H � F Rt .d O Y � '�7 P� W q a u itl y� M � N � W W Y �tl Y 7 NF � u y q p p .� � mM � n � u eo u w a ++ d ,+ a u B u .. bq u � •. � a v1 r� M W N .• 00 u q o A u 7. N �F.+ u 'Cl ? tl d I�i �q N � h C V N W M a M� P. .-di M W� .� u 0. � .�ad W tl H N � a o m o u � � o arouva o w° w . p bp u u° .. w .. °" n w u r. u a, d[� ' . ' Y W W W Y q N C p u .�i W C m M Y� �0 b U .-�i q � `�.-1 N O M • Y L1 O O V a1 L N 00 W N k a1 U F A N Y SI.� {+ Y O M O X q'.�M W q1 O p O O p q W y M.a �0 u.+ H N H d O �n u H H N••+'t7'c7 w (ti .� 3 .-� u u M m W 0. v+ m ? M u u [ 00 C u a� O 00 u.�A N c0 W {� NC N q 00 .-bi MN N i7 w I� u p u 6.+ G +� '� ro o q .+ > H Rf d+� N N M 7 N I+ O m C q N.+.+M .� Y H p er Y N JJ'lY C Y ✓ N M W .�a N fll Y d a O • N G A.0 x y O q v� m.+ R � O H M e0 .-� H N O aJ U 1� H H M � W'O ��^'� 1n Sa W � N •. �tl W 01 04 cJ�O O 4p�.W H L]U cn d 'a O >.'O O w V u u ' C�7 p a�awa ro o a 8' ¢ H a u � O� .-�N P1 d M �O 1� ao O�O.�N�'1 J�/1 �O 1�oD a O.+ N H1 1 �/1 �D . �z .-�.�+.��.�+.-�� .ti er.+�-1 c!N N N N N N � � . . �� . � N N , , � N 4 w o� N p�.D-+�D N 1 t�l t1 ul �n. .7- �Y �� N U I�O. .� O� 1 O� 1'1 t'1 O� 1 �D 1 �C �e� ~ O l�i l N c0 .a .-+I �t I .1 i i) .p I u� � � '�. U U N rii � v m ,p v n' I �a u y a v (A N Vi � � N u � I 1 1 I 1� �I N I CII N 1 I �I , . M'd • N CI � '/. N U N I 1 1 I 1( N N I N N 1 I �I ' Ci W H'U u w � �D pN N • � � � G� � I i �I il M I M I r�i M il �I w w v , N Vl N N ��^pI W �7 V N � I 1 1 I 1 I .^-1 I � � � 0�0 a�0 1( �I � � C W � H'O a � N N W '� d a N v� H Q z N H I 1 1� II ( ' I ,I 1 N NI � �, �b �, � . o � � ... � � vv a � c� m a� � o�OO m u�ni v'�i v�i r"�i � H (� • W W n 1� �o �D �o .� � H A N .'� U u � .-1 .r � I .�a I .-i� I � � vdi u .��a .p+v V' . . , 3C O A L1�. - . � � M �0 O CI W ' 6 O � p O H H I I I •�� I � � I � H W 'c1 GO � N ai � � � O"•d o d �7 �t � � � � tHn H � m z C N ar tn N 7 .�'G • 'L H L H ' a 2 w � t4 � u d v Q �i OI N ^ � 7.. � d b N �/1.7 v1 �D N �O O�oD.t.�Y O aD oJ N t� u d o °: H �`° � .. .�I I �..v,�vc�l o I ol o il �I ' ' o o z..�iv `n .. � � w i � . N u o � � �. w u .� . { �' p � O N ' . , - ' . . ,V,. y L O � d N u 00 W � L � R m u u H .ai ' � ��r�l dl W �.��pi �. � w 7 �00 M 7 t�7 ' 6 H � �' � � . � O N L W N'O N 'C > v a m a a d .� �,u a�i N m ro t�. m ro � axi 7 .�i 3 a � a�+ w w q a x ~ o 0o y H.0 u 7 q C O .-a W N..� C 'cl � . u eo u ,� 4 •,+ w ,+ W u G u ,� q u m M�.1 H 41 U 00 Y C O �C +, 7 W ' - 7 F.�+ u > N ol O W u•.+ N W H ' 'O A U C� 1+ T7 H vi u� C V N p'O y C� H a� •• vi C m N •.�.+ w N H N � +� G W .-+ C m u ro a ol X.� M W o O d ro d o0 o d p o aroue� a o w w F F V Y r-1 M .� C O 7 .-� T) L �J N'O f' 01 N ' . �.+ � W m u W u 0. O O V N u ro CD W N H u U r n W N.+ N N O H o X {:+d++ ttl N o � O O G N N � H+� W u.+ F v F W o in u H H u.+�O�o w H •.� J .� - ' u.,-1 u1 �tl CL �.1 �n 7 H L u G C G O •.1 td F U m O tA u H p p� N N f+ N 0 G o0 .� N � W H V C u E•�+ G •.+ +� N O G .-� > ' M'q Cl�r/ H H +� 7 N M O N � N 01.�r-1�r1 M �C W !�H ti W il U'O C t� � 41� 01 .-i N N �I �tl N 11.0 .0 W O N N in.-� E cn O N�.a W .+ H W U u u M 1� H r� 7 tJ'O .� vl N 71 � H •• �d a�y�P:U�O O W M F p V�n d W o ' �d O ol 'U u . O O P�G UM wM O d H ' u C ol .��v M s�n �o n ao m o.+�i�f�n �a n m m o.-+ c� � � �n +-i N.a.�.-�� r-� .y .y.-�.+C-!CI N N N N a -218- � ' N N N !� � u c �va r a, �m a M�-i r, ,n o, .T�ri,,, .n I;1 LL �ri�n:'��, �o n i1 O �-+ N n(i.+ <�.a ..,� u) o, h. r� o��+!r�.� U.� �-��ri c�� i. U ��.I ro (� m u m�� o •• : ..r� �n.-� r. �N ti �I U U V1 1 1 •-, al O ^Y,v o y� .7 .n J \I d v ��) c� c� ��II ' � .. � a H 7 u• i v ro v ro v M N � u N ' � � V ��I H :G f. C1 N I ' 'I 'I I , � I c0 c0 'I `�+li ' N R7 ' N G1 � xG �, " ( � �I �I .. I .� I "I " �I �I ' •�b d � �D N Vi U ti C U � I 1 1� 1( NI N N I u�l v� 1 I � ' H'd W CJ w �/+ t'. N N� I 1 1( 1) O�r1 pJp�M�pl N I �I N �I �I , o u u `� M'i1 N z 0 H ' 6 �1 N N . W f'1 ~ Ol N I 1 1 I I I I 1 � I �) �-1 1 I �) o m W z° a m `? .+ H'C) � . a N � a n � z� e�i m m a O N p N M � N � R.✓ � u .-� L1 � H 7+ I 1 1 I 1 I I , �I �I � 'I � o a c� z a w "' •J ' a � b W .a v c� o k1 U C w C O � C N N vl H F H �0 .a W W I ( I cv N I � N I �I V1 IO N O! C! 1 1 1 t�l l�l M t�l 1 • u z u H " z.�i v �. ' � . � �i � N � 7. � N .-1 N N pW� � H � . O U H Vr�v�I o�0 1 I �I �O I �D �.+ I o0l rn i I o�l ' �� ° w° F.�i v , � ' N 6 'T'+ G W N N��I N ,I N� O ( 1� N I �� 'I � � H'O � d O � } q u � . , � a u d a � w .°a e u u o q w ro u W 01 N 00 W � L� C ' � m u u H .� U TI N y M � O 01 N 00�.�1 y F� t0 il W N 'O ' .� O W 0! � W 'n'cf W 'q > v a w a a a+ r. 7,a�i m s�+ ro N H m � � w y W N � H m i+ W u u G C ' � .� ;s ro c� eo v p x o 00 � i. N.0 U � � p O .� vJ Ul•.1 p 'O � Y 00 U rl G •.1 v M � L U .d m.,.•a t, c� u oo u c � ro 7 w �x u 7 N N o N u•.� N w H . 'U ,n u N 1-i 'c/ H m {: V H C'O y W H N •• N � N H •.�•.+ N u 7+ H a1 'A � W .� P. �1 N W L1 W X.0 H O. O O w w d co o a, q o a ro u w a o w w a �o o p u, � a ucuv w ' R F u u .-� .+ .-� ' G O 7 '+ 'C 7 U'V .-+ N t0 W 1tl ti N W C G U .� �y G �l N J� N O U � Y�-+ N N L p U p, O O U u u N CD W tA N U U C .D W W'+ 1+ ai O l+ O X C•.a H N N O � O O p N tE � 4�.�-� N N F Q N W O a 7 N u F L•'a'O'c7 W F �.+ ,� .-� DO G u N O Vl u�1� N v� N i�i N N C CD .��+ �7 q N N u � u N:++ � •� ai �y O C � � M V 41 M {� �a •.i 7 f+ (J N � I/, U1��.-1 v1 M ' U y [ •-� W C1 L TJ l: L LI�.1 .. W (+.o.f: .0 N O fJ tn fi � � O N•.1 N '+ N J U 7 u u l� 1+ t...+ 7 J v �--� tn 4 J > 1+ N a+ctic�n.o o mat+ nc��n�t ro o �,•v o w v u O O w�'C�IL l�M O 6 H w r o .a�v��n �o n ao mo.-,��T�n .� r�mrn�.. N n y v� ' a % ti N �"i� .� .'a .+ti�-+N C! (Y N N C� . —7_19— � �� v , � � N ,�.� Pq N .-�i N � � ' La �O N a a� � � . U `n O��D r--/ �O M V1 �M �'o� M f'1 � tn �d t� rn r-1 ('1 O� 1�Oi rl U �`"1 ' N N 00 �7 �O .-� 1� N �' H . • U N � � � H ' � ' ' N ' z 0 H � W a O M ' n � � � a � r � z H M . �6 H S-i �-. � �, � � , w a � u{�: o u �-+ 3 A A a � � o x , r-+ u w o a �n v � +� L N •�y . � H tA 3-i N� . W � W b0 . .. m i�i 'L7 .. V] H �d N Cl N C+ .-1 1� N 4-1 N� 7-+ U :J � 1�.1 tJ) ,.0 �q � p U � 1 � � y, o ,� o +� H N u o co �N � w u �c w m r > u � � y v O .0 GJ A C� v� }� N � � � � .+ U [: rn N U f.•.a a� .--� a� •� m a� a� u n.•u � q � � w � �N Q � � � N v d ' W a� .-� el q oD a) ,� a� o � F+ M �r{ � � ttl .0 �t�-' Sa u o k°. o^. iu pooa u ,� uv o q H � j'.1 �'d ^ O 1� U � O � N O � i-1 1\ � � tn W � N N q � ro a.+ � w v >� • � � c�i H � N � w �e�) ^� .� v, c0 + . Ca • O .0 � O � P. CO G .0� � �` . rn a.� a� ��d .-a y N �� r� � � N .0 CJ 00'U.0 • C m � eJ H ci �U K O M CJ U W {'-. 11 U O �rl N 00 tn .O t0 C . , '-/� t� .,� W •ri O cn l u ..1 ctl .0 0 � t� 1� N 'C3 U� .0 i� O .0 • 'U � 1� 00•.d U � N 1� 00�.�/ 1-� U �+1 � S+ �� R � •,�1 H N � O i-+ G •rl }+ t+ 1� :7.C�1 O m .-� o � •�+ a • e� .� o �n � rn o v s� � .� w �n o y E: .c v a� ;: •��o a.+ .-+ >,u a. D, N H N al .-� �,t� y l+ i � vi iU N � }+ � N � N N �J 7 C 'U +-� a� a 7 •.� 3 ctl a.i S+ G 7 •.+ 3 cU cl G :7 af N ;:� w ,c . o q o • c� • s, � a ro o r. m 2y u cn u a� a� u v � v ai cn u Y. .r. u 7,cy'� Q tn •.� •rl N N 41 a; �n •,� •.� N r+ op n1 N 4 � .0 .-� �n l+ .-+ m 1+ 7 � r+ v J u� .� i�.- G 'O � v� CNi 7 u '� .% .-� 'c1 .o m � .1 O Cl U . m .� p a a, X G u cu m �.�i C p. ai v o w F+ C .- a w cv a ro a� y ,-� v, C v � �n ro u s. �, y ai�� v o a u > �o •� o - � C JJ 1� C1 41 M •rl G p i� 1.1 'U � � 4 '[J C1 4 cr 7 r-1 � C�/ N a �0 � 41 rn N �.-1 N a: al Y, v1 'U el i+ C� '�r+ U fn CO O N r1 1.1 jJ , v ({� �--I S+ Q1 C1 C'. CJ 'C7 r--1 b 'ty N �C r�-1 S+ Q7 O1 G Sa C/ •r� .-+ (� S+ •r1 N u .-+ •.� N •.d •�-1 'L7 H�,� �'J t� .-i ..a P. U c'J cJ N ar •,i v� cd t' G •.�1 S+ i+ 3a c0 u .,� �n N C c: •�� c: s+ � � ' b0 G U �n O N .-� U M C U fn O 3a i� ?� Gl O f-1 e - G N 1� U •,i td R� N A C'1 N G C1 3+ u �.i �tl u� C�. 1� •r+ .J ' . .rl '.y Ul v-1 N L/ 4J f- v1 (; fn .,C •.�'O N �.� 4+ U N 7 7.u U C u •.� F •-� ar u 3. ;7 N � +� �.,� ( ,-+ c� u ••,r� •,� a �y y F .n .� � v, o ca u cu ro �n ['• .n �. 7 N v r v •d v ^ S+ N U :7 a� •cy u1 C � N � r f.' N O � t� �O vi cU c� rJ 't7 .0 p a Ul P4 U P�� O O O U C-1 U O N tL U p+ O O O .-+ .c: N t��} p. t+ N O C�, l+ ?a O O R. C� H O R. U F N (. OI .� N M�t «1 �O (� CO (T U .� N M�t �fl � f� �0 O� O .-a c�l <"1•�7��C .� F: r-1 .-� r-1 rl r-� .�.-1 r-1 rl ri N C 1 (`J N G`1�N a -22�- � ' �� u u `U' t' v� a�i .�. .�. o � �N "� rl d 3) c� � c u . .a y Q ? '�'� y d� ~ ' u m d ° o .`OO � c u .'^. °` .n � a tn C. � N co 7 m I n) � �n y� u� u rn �n .� vi A o .� � �I O > n m O ei 1 J p� ii� H� M N � o v z �+ b t? N � � � N q .T t�l N 4 �) �O +�i q} v� � � v�l A .-�i fJ'1I a� "� n � >�n � M I u°I s .�il � d o�v or�v u v � .�4 N O y O � � 4 u , E A o u ~ m a �n y � o � � c/ p1�U C O� N I� O� d c0 �+1 rl .Y Ol �0 Y � O� �1 �O 1 �Y � 1 N r1 O� �..� G N U N 1� M cl 'u �T J N d [) �O �1 N N `� .�3 d � O O� N 'u " Y. 7 T1 �i N N N ttl i"� , � NI • r� {� M ro N rn o v� u u m N�.�J G� ul 1'1 ti b ' .�+ T � V1 �tI� � 0Q N NI N.1 7 rn N a 'I d Q � �I d v d n 6 6 d �o �r o ' � .a 2 m o u w n i� n �n aD n n ao � �u c v r+ co N .+ �n �n n � d a u � rn .. o .+ �JI s �+ �`+ en V Y � d � � h � M �I a ' m u A O a� 1 a ' • O � � ^ N � N�p C N x O I� � O �/1 �C O� CI � �.1 C� Cl O� .w O � .a O O .1 .-� M O � O� � O�'O d�/1 � ^ ~ "!I � � � ' .-1 .ti V N O . N N °z � � �-1 � E A o u m t`�'1 o d vVi N �'41 0 H C� N u q a0 w O n .+ ao �'f � p u �p u E 4D O � � �{ J O �'1 �'1 � � � (i] Cl N U U 1 N N tn �I �1 �?I 1 � y N d 1� .t N T � q up � � , 6 P ?L N� J � ~ •a a a � � w a(L a c e��s n � ro .�. v°i s o`�. � d a � t�1�.1 C\ f� �7' 1� N .� M .� �OI �/1 c�l G � H N M q t�u 41 a0 O� tD M d O �+f �/1 N O w �v u.o � .�T d J � � ' � H T y 6 ~� N . � z u a � r�+ y ,c ,n � .. u u o o� .K-i .+ � u o 1 0� n vi �o rn o s r� z � � 6�� o .o M �n .+ .oI a rn � �o ` .e x a+ �n �o � � .e a o � .�+ ao `� �a u u ro u� .+ w n u a v m �n � , U 4 a U cD t�f N �D 44j �` N � � �� ?'O N I� •-1 N r� .E 0 � n m �.� V 4 �O � � n C u;3 rn m n v�i � � .�-� el 1 u�i �p ~u U` W �'1 � d M S d � V1 ' v1 D 00 �O O+ .O 1� 'l7 'U h y ti �y N 41 a M O � ~ � � � W b L U N O� �D N � O � 00 f� r-1 ra � 1 d G a0 O .+ �/l �D O �`1 �7 � N N U F, .+ �"1 t'1 I� �1 J O d � �` a a � , i �' �y m u u O 1 �'1 1� � S 1 � � il 7 I7 rn 1 ul � � R G ti� ?'O CO d � � O` 4�) N b q N a w w 0 0 ' , 6 u u ' m q q n U U � M H N d �00 M h. D u Y .'�i o .a �.°'+ °u y M � .+ T u p d C� '�+ ti °g� �y .-�i.~+ .�i m � .-�i .-�i u '�00 u o u ++.� "y'~ u v�i u u O 7 L .�+ N p.� � 00 E N C 7 � ' .a 'O A � 7 al ? C .� O .o .o e u a v n [-. > t..+ H c A d + .+ b W �a C 0. 7 fA W D7 u N N 4+ H � vl U Y '+ A fY U N �tl N' N ' ' N �.1 V � G C C W 'd 01 d N u 1� N W L � u U M I� �L N Ll 41 P. u � 10 7 .+ 6I .+O� .-+ F o 0 7 N F u u VI N u W O d Ny� �"� Q U N N M � M .�-i u �.mi n y H C P 4 t3 � '+ N F+ N u U W U U O U W N i� N C1 H N M N H V M l� N S. p M U O N U a� w V WA � N % d I! N u H N C Y. u W � G � � tl 1� .0 W a U a M u � N M .+ m ~ ' u y y b u .. u� u o o N ro u .-� � O Ny m �n w v u u 8 a1 a y�' a V W U u d i V H H � u M 7 r-1 N t�1 d V1 W f�00 O�O r�1 H r�-1 N N .-1 r^-1 a ' -221- � O�M 4 V t� � N .-1 O J � L: .-� I tJ Vl N .+ y (� � m O U: (. �+;w m .+ ��I N �: rn c� �o o .i . o ri r; r G � �/1 .7 O ai� 1� �'�1 t'1 00 C c+l O+ N1 f0 ✓1 .f H G:� .f� O� t`l �? �1 .-� C, ' r1 N M 7 Cl �D .-1 p' w t1 .y� �� V �Q T) H.�-i N f\ . .-�a O .i . ar w d • .• ,G N vT u . m , N N v1 0� O O O .-+ c�1 O .t �n O+ ' O N ✓1 0] .-� . J' O O O O� O N N �n .t N U � �-e Vl .�a O O� f� O� OU N Cl h �+1 M � L N . . . � . . �'-� � k �/1 � C� O C� O �-+ O �O o O O �D o0 W U 1.1 V� �D �-1 O Y` r-� OD �(1 O� 4J 1� N �O Ill ' tll N �1 O 1� N I� f"1 Cl O N ul ✓� � v .+ . C �A 7 �7 Nl N �O t+l �/1 t� m ul �O CI N � �7 �/1 N � � f"1 V� M .� � , ' ' O l7 , � n O� . .� O � z � • , M � 4 W U tq � a � °' u � � ' a "' a v d . w °a c :� �o 6 � u w m F vl i� Q ro , N O api , n +7i � H T � q� w z ++ � ' - o m v \ o a ~ o. .. r� m , . ` ! . z � u � q H •.. � +'�+ o u a w , �. .� 6 'C H U O 1i p. V L � U w W f+1 q 7 �.ai � T L 'O M y � -� a m �a --� � - a, v o, ' b m m � rn � .a • N ti � 7 � H S7 A O H O w a � . � P. y d w 7 W F G ..-\ � V !! U l� M M �. � q� W W Ll O ��.�i O v1 N , d N N U 1fl �O U . . M 7 W a0 N � • • � M O O • A �U C n o n � � � O u u u m ~ C m .�-1 a .�r G F u a U U C� �(-� � O .0 u . p m O +� � E N .0 .0 ' . fFA iA W u � N W .0 w � y rn � u L1 .-. .+ o u u u �n 7 u o 0 C q C al ,G N M m 'O 'O M a� N 0 0 0 � .-� >. u o y o a a v y .a •.� .,a w ro ro y u a u m a d d .+ �-+ '+ +� 3 m w w .+ .. .+ .+ .-� 41 H ,C G H 'O M O O w b �] ,O .+ •.� .� .0 • u o0 V O w C u o G m W � E Q f1 11 � C VI rl M M 3 Itl 3 C C ttl L Y . O 7 .0 .+ u O Z1 O O C +� y 7 ' N H H F +1 V A N G .+ [a +1 +1 O .+ A .a C W 41 N U Y G 'O 7 1� 3l 01 31 t� U M W O •.1 H O 0. a a w W ++ C W 7 'O u m y q u y N H u 7 u H H � H .0 U N W O M W W �n O 1+ O O M W +-+ N u u N u 3 .� �p o E a o u w m o u w a a o .+ �+ u m m N N w c u u o a u 3 -+ m u 3 a � w m �o ' u o 0 0 >. .+ ro v m c� .c .+ o ro .c o .� � �d y � y V U V A � r+ N N u u .-� W a � u .-+ N G U' N .+ u W u N ' .r '.-1 C m W M t0 Y .+ O a! F. N 7 O 1+ N 7 7 7 N O (.' �n � � E H w 7 � w tl H 7 7 w 17 w W 7 H C w W b W W �.1 U r-+ u +1 N (O C d W W 0. W 0! W M U N U � y C U C V m N N m N w N H N M w w m w v w u v .+ ro ro v .-� ro m ro ro .+ m v u N Vl U N Tl N �.1 N X C H QI 1: C .�1 W .0 0! C) M N p. {.' 7 �-+ �-+ W 7 +a N W N N '+ U N in .� U .-� .�+ �n N M � M TI Cl N � ul � p ,C ul U N N U N U U N Ol N W m �n N .+ a! e� O 7 u .-� ,.a O 7 '+ O 7 7 7 7 O H N �-+ '� u� N V ,OC � R: U P. O a7! N7 �+. '"� � yN W 'I. W 'L % W U L' W7 � P4 W W H �3 W' W W W M H C� N C OI .+ N c'1 �Y �/1 �D 1� OD T O .+ N Pi � � v+ n a0 O� O .-� N t'1 3 �n .O +�'!. - � � � �-+ .y .-1 .� .ti N N N N N N C! , a -222 ' �O N � � N �v+ ro .+rn.a .o �n cn . � � � N N a00o � � u�i '+ u �vr .-�i o��p A � ro va . � ' u N y N � � M U t? C H , 1 . I � o M � ' O �'f � ^ o� @ � W .�-i ' � � c+► ,f�� H • U k� d .��+ WWP4 O U .pa � A i] � � 't! W V 61 O W O � m d H � q . ' F m H W N � v y � , � � � � � � �, � � � � oa. a�i u: u OH1.�' . z �q � ao � , � . � ' . .0 H u m W st . O � t7 O a�o y d N � � O [� � e�0 W 7 ��rl - � � . H W H u G u , 6� � t+'� ��W O w o d w 6 .-� vd N O O Cl � � v � � ro - .-� H�C O �.�1 H � 3 O� N W a� M ' � .�1 7 G i� N cl r _ . - � W �� z : °� � wvH�' a G �oo.�i a T � v q w � � � O W H� N� � � ' . . � -.N{ 3 m '�' � a H o H u i 'ct l+ .0 Gl a.+ N td q'q J� N Q', 1� DO U E td CJ O Cl W �0 . N M � O W W 1�+•.1 I+� RI � .. v'°a a ° u u uv a °V �n �.�+ � a X '� u � w v u w� d af at d d u d cd >•-+ � v o u u w v H�-+ c�� . D � � W N GO !n � L O� N � 'L7 � O1 W.-� N G! {'.. N O.-+ u W ID ' N +� W 1-1 r1 M 'O .0 L .0 U� W J.l M Vf W F' J.� ''[7 N 11 �� 00 q U vl W N W 00 't) � R N H cJ W T W u �'q W�t7 M'C7 Gl M N W � .-� u m vl ya }.� N u •.+ E ,-+ m a a ro � � o .e q1 N F: .o .� � 1+ � a.-+ •�-, s. u w u 3+ N O 7 L �n W N W 'U al N,C �/f ' Wp.w' U W O O '[7 H qf W H +�� . O � k. N ' p OI .-/N c�l�t v1 �O 1� �CO O�O�-+N l�'1 . a � .-��.�.-� _223- �O N ir� O c0 J f� rn v� .+ rl rl n ri c�l�' h' N'J , �� Cl Ol �O !� !� U1 t'1 ��! .? M (n V� n�i u�� t � t�.� 1 W � y N .� CJ tJ .-i 1� O �O hl (T cG <'1 f I �['I o N p ro a yl y Q� fq I� �7 O N ul .l u0 f� � C� C) f� � C�I .. �a � o > H � rn � ri .� 3 M •a m <� �� f�I � � � ti o�0 F' H� .+ .+ '+ .+ .a .+ ; 1 y ro � � va � � u ' tq Cl N �O N t�1 a0 ✓1 .-1 V1 .+ C'� I� Ir t'1 � ul y N �'t O. �D oJ W �O c�l cG �"1 N 1� � ' O1 p N N N O G .� .Y N ul .-1 1� ✓� K a �0.1 �l � M N .� N .-1 e-1 .-1 .-1 .-1 vl`f • m N CG GI �/�' v�l . . .c�+.0 'd N � O U .-� 00 .� N OO OJ Q� <`l N t� � a0 O?I � N U [; O� t'1 4� t'1 h N �t O �7 �/1 N 1� c� ' N GI cJ cT v1 �n h'1 �D .t .� J 1� tV O m CI v u.-� u F � t•.a ro u u oo m vi �o o� � � .-+ � � � �+ .-a N N N �O O V1 �G O �J .Y t`l M N Q� �'1 C.� O 7'1: A � O� �D �7 Cl M O I� i� O� .-1 i-A N f� . ' � a� N N N N N N r+ � �"� N N N � N� N N � G 7 u, m rn � �n n �n .+ �c rn O �n � ml +/ G N � t� .o �c .+ �n .t n .-� �o �I .c� y u.0 > M .� .-+ .-, .y �-+ .-i .� .-� .-+ �t t�.)•.1 K. U V} H'+ 'O u � tn U �3 ul 11 C h N �/1 O� 1� ul tV I� �'1 n'1 OJ I� � •.1.0 O1 O1 �7 N N W � � .-1 N O .�a .-i O� E M c0 � O� GD I� O O� O� 1� p•.1 cJ V u H 7.� VI Ol Vi .� H n ul 1� N N �O � �D cl �O �W •n� N .-+ o+ rn O � O O� N O O t'1 � O 'O ?,3.'p N fV N .-� N N N .ti N N N N U W �Y. W ltl , � U � r1 vd .-� N 41 .� O ✓t .Y �'f Vl N � N .-1 Op N �� N N 7 N W �O �t Vl d O .-� N VI <'1 3 t'1 � � M ..1 G N N Vl O� 1� OD O� t�l 1� f'1 .-� v� �D � .-+ u > 1, rn .� O ao m Pl .i c�1 rn n m O v. � O� t+1 iJ '�O �,d � t� O O+ th O O �O O� rn U:I W� �� , � rn G +�+ .+ a �O N 00 GO O �/1 O �1 �7 � N N � � .-i a n o a+ � �+ �+ a �o � o o � �c � ao 1"1 N u C M I� O O t�1 O� oo vl W oD �/1 ✓1 , r�-1 N N H W.-� lA � N O th �t d w rn �+1 O N a0 .7 �O il rl N U U ('1 .-� I� �D �O vl �Y �D N � O+ 1� �O Q � �,•J U N y N �O f�l � u'1 O �"� N .y �Y �O 00 �t . � p y 41'S'p? O I� O f� M O n O o0 �D N rn �") U E 3 a'O M .-� N .� N Ol Nl �7 M N N N 6 C O� m �tl ..� .-� .� .+ .� .-� .+ � .-� .-� .-� .+ a a � � w a F ' � F+.a c� w ar o o s n o n n M N y n .-+ �yl . a m �o rn o � rn �n O uo c� rn rn � � . co `" m w a�i o�i � � a ... c� �c o 00 o m � oo a �� O y1 > f+ �o t�l .-� rn N .� O �'1 �G e0 co co .-i � � [�+ A 41 U P1 N t�1 N .� M �''1 .-1 N N o0� z ++ m P4 i � � , O � M H d 1� t O C � W � '"� [[--�1 C) 'O O u .--� N 1� �/1 l�1 O .t t� �i P1 V1 .+ l - � j.' M N u � I� �'1 .+ O d O N �/1 W m U .+ Vv Y tll Ol 01 t7 �1 00 r1 �--� V1 f� t� CO �O T C��.1-� t+ a� u u c�i o� oo s rn ao r� .o co m vi m U O W N C1 N i� N N �/1 r-1 .-1 CO O �7 � f� N � '. W � 7 m t�l O ao �D N �'1 n 1� uo �o �o � .G :1'C t� m 1� .t N1 v1 t�1 d �O .1 v1 O P4 m a d � m � m M � s s c� M a • o v�u �.., vv, w u � u v a o u u u u u cr � �. M M x N d 7 W �o r1 �t J a0 t+l �/1 .t m Cl .-� O . Gl L�--1 H H 7 W'O 1� �O c0 aD O O N I� I� Vl a0 1� ,+ aw w Hw..M o 0 0 0 0 0 0 0 0 0 0 o g o a m v � u N • • • • • • • • • • • • e ; d � a� � � ..�.^ " j � N N � ax.cv ��~ a�i,-� m f.. u u u u u u u U U u u U �n l.' N O W 7 N �o H a0 a0 �t rn n a0 t�1 O� .-� N U �+ H W P. 7 W'O m u1 N N O O c0 M M ✓1 <'1 �7 +� Tt(1 C M w U N � N N N t1 C1 N N t�: N N N 4) . . . . . . • . . . . • �O 6 � a �F n . h L N , � D.N'O m • a�o �O u.�a.0 Cl 7 N p.� O� al :-� N P'1 P1 OD �/1 a0 �7 O u1 �D N U N.-1 • u ro r+ a u v �n vi .. m � .+ ao c� �o rn rn n a w�+ . M H v O .� . . . . . . . . . . . . N O'O M� M Vl O t�/ N n O� .a �O d N t�) f� C X W a u � a; n oo n n m a a n n ro n n � � o W u �L K, N 't1 � � � y x N N H Ny c0 N U U U U 4 V u V U U V U H C'.� ��•f/ y H r-� L tJ N N N N N N N N N N N M C JJ .�1'C7 � U M u! r-� .-a .� .-1 .-1 .ti .d .�a .d .ti '-1 �-1 � W � m 1+ a q � a+ � M r� n n c� cn M � c� n m c� � � o T Q� � � �� • • . • . • • • • • • • � � O ' e N w ~ � � N� �q C 7 � F1 F� al'c1 � b, � A N W W W .+ M .0 Pl N 7 .G •� m W A E 8 y ~ V , N 1� y N u .a N D. 7 u O N C� W N L G O� G .f� H H T G �+ C� Q. u � u O 'V G �~ �%7 w � 6 � �i �-�i d tn O x C C9 w Y �� .+ N C1 J V1 �D 1� 4D O� O �-� N f'1 1 v'1�b a .. .. .. .. .. .�., ' -224- . , ' , TESTIMONY � Line No. � 1 Q. Please state your name and professional background. 2 A. My name is Alan L. Sherr. I am a partner in the f irm of Elmer Fox & ' 3 Campany. I am a graduate of the University of Minnesota and hold a 4 Bachelor of Business Administration degree with a major in Accounting. , 5 I have been a Certified Public Accountant since 1961, and have practiced 6 public accounting either on my own account or as a partnership since 1957. , 7 I am a member of the American Institute of Certified Public Accountants, 8 the Minnesota Society of Certified Public Accountants, the American 9 Accounting Association and the Finance Management Association. I have , 10 been qualified as an expert witness in United States District Court and 11 Hennepin County District Court. I have testified also in Anoka County � 12 District Court, United States Bankruptcy Hearing, Minnesota Banking 13 Cammission Hearings and Minnesota Security Cammission Hearings. ' 14 Q. How did you proceed in your examination regarding the area of rate design? 15 A. During the course of our examination at Northern States Power Company I , 16 did considerable research in the area of rate design. In quoting Haskell P. 17 Wald, Chief, Office of Econamics, Federal Power Commission, "rate design ' 18 in the past has been left to the discretion of utility company management." 19 � In a few occasions when rate structure has been litigated, "the rates were � 20 set to conform to intuitively appealing and legally acceptable standards 21 of fairness in distributing the total cost of service among the utility � 22 customers. Only in rare instances has detailed considerations been given 23 to the role of utility rates in influencing consumer demand and thereby , 24 determining whether scarce resources will be used economically or waste- 25 fully." Generally utility pricing structures do not charge customers for 26 the actual cost of providing service at peak periods. � 27 Q. What did you find in your reading and how does this campare with what NSP ' 28 is proposing in their new rate design? 29 A. Northern States Pawer Company is attempting to institute a partial fornt ' 30 of peak-load pricing by proposing seasonal rates to certain classes of ' -225- ' , Line t No. 1 customers. Their particular method in reality is not peak-load pricing. , 2 In order to have true peak-load pricing there must be dual metering. 3 Dual metering is where each customer has two meters and the energy is ' 4 recorded on the regular meter until the system reaches a certain peak and 5 then the energy is recorded on the peak meter. The peak meter charges ' 6 would enable the company to receive greater revenue for energy used during 7 these peak periods. ' 8 The first complete application of peak-load pricing was instituted by the 9 French in 1956. The French theory was that new peak demands give rise to 10 a need for additional capacity. Customers that create these peaks should ' 11 bear a charge equal to the cost of providing and operating an additional 12 unit of capacity. Rate structure also includes price elastic demand charges� 13 The theory is that this should serve to increase off peak consumption and 14 reduce peak consumption. � 15 Authors have belittled the "elasticity of demand" theory. It is their 16 feeling that inverting residential rates of electricity offers virtually i 17 no chance of reducing peak demand in the near future, Generally the 18 proportion of the consumer budget is far too low for electricity to make ' 19 it responsive to rate change. Although, if the "elasticity of demand" 20 theory were to work and electric utilities were to institute day-night , 21 rates, this theory would require a larger proportion of the labor force 22 to work night shifts. Tt.�o of the disadvantages of increasing night work , 23 schedules are the general dislike by the labor force for night work as 24 opposed to day work and the usual requirement of employers that they pay � 25 a premium for night shift employees. 26 At least one author claims that the real purpose of the French system was � 27 to postpone plant construction, although, in NSP's case this doesn't 28 appear to be the purpose. � , -226- , � ' Line ' No. 1 Q. What does NSP propose in their new rate structure? / 2 A. The company proposes to charge seasonal or su�aer rates to certain 3 rate classifications for the billing months of June, July, August and ' 4 September. This billing period really constitutes billings f or energy 5 and de�nand used from approximately May 15 through September 15. For � 6 the City of Saint Paul the billing month of June, as compared to all 7 other months during 1973, ranked sixth in total sales of KWHs, ninth in , 8 residential KWHs, sixth in small co�nercial and industrial KWHs, fourth 9 in large industrial and c�mercial KWHs, ninth in municipal general 10 service KWHs, twelfth for North Star Steel KWHs and eleventh in KWHs for ' 11 all other customers. Also, the month of June, 1973 ranked eleventh in 12 1973 for NSP (Minnesota Company) as a whole. I fail to see how the � 13 charging of summer rates to include the June billings even remotely 14 resembles peak-load pricing. ' 15 Q. What other changes has NSP made in its filed tariffs? 16 A. NSP is proposing to make three changes to their present fuel clause rider. ' 17 Those changes are: (1) to increase the base price of fuel from 31� to 50.5C 18 per million BTU which will more closely resemble the current fuel costs; ' 19 (2) to accelerate the fuel cost computation from a prior twelve month 20 rolling average to a one month period which is to be the second month , 21 preceding the billing month; and (3) to exclude the application of the 22 fuel clause to any nuclear or hydro sales. Under the present fuel clause, ' 23 the fuel clause rider was applied to all sales made by the company. The 24 cost of fuel for the fuel clause rider will include account 501, which is � 25 fossil fuel costs for steam generation, and account 547, which is fossil 26 fuel for all other generations. The latter includes primarily peaking 27 plant fuel. The present fuel clause contains both account 501 and 547, ' 28 but the company did not activate account 547 in the computation until 29 January, 1974. The company expects to obtain approximately 2% more revenue ' 30 by activating account 547. � � -227- � 1 Line No. , 1 Q. Does this new fuel clause rider have any effect on the proposed rates? 2 A. Yes, the new proposed rates are structured to include the proposed / 3 change in the fuel clause base and method of application. If the cost 4 of fuel is excluded, the true percentage increase between the present ' 5 filed rates and the proposed filed rates results in percentage increases 6 which are generally less than those shown on Mr. Rosenwald's E�ibit. ' 7 This fact is demonstrated on my sche�lule ALS-l. 8 Q. Would you describe in detail what schedule ALS-1 purports to be? , 9 A. The schedule ALS-1 is a comparison of proposed increases in revenues. 10 I have nnt included all of the various rates. Schedule ALS-2 demonstrates , 11 that substantially all of the revenues and sales in KWH fall within four 12 rate classifications for the City of Saint Paul. Column A on schedule � 13 ALS-1 lists the actual revenues received from the various rate classifica- 14 tiotts in 1973o Column B shows what the actual revenues in 1973 would , 15 have been for the various rate classifications if a level 50.5� fuel cost 16 had been in effect for all of 1973. Column C shows 1973 actual sales of 17 KWH and demand charges at the proposed rates assuming a level SO.SC fuel t 18 cost for the entire year. The calculations in Column C were derived by 19 the use of NSP's computer, computer programs and frequency curves. ' 20 The purpose of the calculations in Column C was to determine what the 21 proposed increase in rates for electrical service would be without regard ' 22 to the variable of fuel. The company's present fuel clause allows them 23 to recover this variable fuel cost under the present rate structure. � 24 Column D is the increase resulting from the proposed rates by subtracting 25 Column B from Column C. This increase assumes also a level fuel cost ' 26 for the entire year. Column E is the percentage increase resulting from 27 the proposed rates. This was derived by dividing Column D by Column B. � � , -228- � � ' Line No. � 1 Q. What were the results of this analysis? ' 2 A. The results of this analysis show varying percentages of proposed 3 increase for all of the various rate classes. I will confine all 4 discussion to only those rate classes that will produce in excess of , 5 $500,000 of revenue under the proposed rates. The total increase 6 proposed for ail classes calculated is $10,316,427 or a 23.32% increase. ' 7 The rate classes to be discussed are as f ollows: 8 1) AM110 - Residential-multiple dwelling. This class has a ' 9 proposed revenue increase of 31.08%. There has not been 10 a seasonal rate proposed for this class. This class may , 11 transfer to general service. 12 2) AR110 - Residential. This is the rate that cavers the ' 13 vast ma�ority of the residential customers. This class 14 has a proposed revenue increase of 24.08%. ' 15 3) DC-114 - general service for small commercial and industrial 16 customers. This class has a proposed revenue increase of ' 17 22.08%. 1.8 4) GC114 - general service. This class has a proposed revenue ' 19 increase of 18.69'6. . 20 5) GK134 - Firm and interruptible service. This class has , 21 only one customer, North Star Steel Company. The Cornpany 22 may interrupt electrical service for the furnaces of ' 23 North Star Steel Company at any time. As a matter of 24 course, NSP has always given the customer adequate notice � 25 before any interruption. During 1973, the customer was 26 interrupted less than thirty hours. The rates for firm ' 27 service are exactly the same as the large general service 28 class (GK135). This customer has a proposed total � 29 revenue increase of 9.52%, but the proposed increase 30 for the interruptible service portion is only 5.94%. 31 This was camputed as follows: , i _229- � Line � No. 1 159,804,000 - KWH Interruptible in 1973 � �807 � 2 197,992,800 - KWH sold in 1973 3 Let x � proportion of increase applicable to ' 4 interruptible service only 5 .807x + (.�193)(.2447) � .0952 ' 6 .807x + .04723 � .0952 7 ,807x = .0952 - .04723 � 8 .807x a .04797 9 X � .04797 , 10 .807 11 x = .0594 ' 12 6) GL135 - Large all electric general service. This 13 rate class includes large co�ercial and industrial , 14 customers who have an approved space heating installa- 15 tion. This class is now closed. It does not have a , 16 seasonal rate proposed but the proposed revenue increase 17 is 34.11%. � 18 7) GK135 - Large general service - This customer class 19 includes the large commercial and industrial custamer 20 who purchases electricity on a large volume basis. ' �1 This class has a proposed revenue increase of 24.47y. 22 ' Q. What did you determine from these computations about the proposed 23 additional revenues? , 24 A. On Mr. Rosenwald's exhibit that outlines the various rate increases in 25 terms of dollars and percentages, the proposed rate would be an increase � 26 of revenue in projected 1974 of $12,722.722. Yet schedule ALS-1 shows 27 that the proposed rate increases as calculated on 1973 sales would ' 28 yield $13,054,478 additional revenue. Thus, the rate schedule proposed 29 by NSP would give them more revenue in 1974 than the company claims. 30 This does not take into consideration the fact that this total does not � 31 include 100% of the rate classes and there is approximately a 5a19% , -230- , ' , Line No. ' 1 pro�ected increase in KWH sales of 1974 over 1973 built into the 1974 2 projections. This difference in revenue will even increase further ' 3 since the projections were made based upon 1972 frequency curves and 4 does not further accentuate the shift from winter to summer peaks. , 5 Q. Did NSP supply you with cost of service studies that would justify the 6 various proposed rate increases? ' 7 A. No, it is the contention of all parties that rate design should reflect 8 the cost of service for the individual class of customers. NSP contends , 9 that it has never made a specific study for the City of Saint Paul. 10 In fact, the most recent study for the entire NSP (Minnesota Company) ' 11 was based upon 1971 year figures. We further requested a specif ic 12 cost of service study for North Star Steel Company but NSP contends it ' 13 has never conducted such a study. 14 Q. Did you make any calculations or studies of your own to determine the , 15 cost of service and prof itability of sales to North Star Steel Company 16 under their interruptible service rate? ' 17 A. Yes, my schedule ALS-3 shows certain costs stated in mills of five of 18 the base load plants. Included in those costs are production expenses, , 19 depreciation, property taxes, payroll taxes, pension costs and an element 20 of cost for an assumed rate of return of 8.25% based on net book cost of , 21 each plant. The cost per KWH stated in mills was determined by taking 22 the total expenses for each plant and dividing by the net generation of ' 23 KWH for each plant. The production costs and net generation of KWH for 24 each plant was provided by the company and represent the twelve months ' 25 of operation for the year ended December 31, 1973, The other expenses 26 utilized in this schedule have come from the books and records of NSP. 27 The revenue as stated in mills is the revenue for interruptible service ' 28 from North Star Steel Company for both energy and demand charges divided 29 by the total KWH so1d. The revenue mill figure is further reduced by � ' 30 8� which is the f ranchise fee payable to the City of Saint Paul. , ' --231- , ' Line No. , 1 It is my contention that NSP should not sell power to any customer 2 for less than its costs, including rate of return, from its most , 3 expensive base load plant. It should be considered further that all 4 expenses of operations relating to services to customers have not been ' 5 included in this schedule. It should be further pointed out that the 6 production costs alone for all of the peaking plants exceed the revenues 7 charged for interruptible service. The bottom part of schedule ALS-3 , 8 illustrates that even the proposed rate does not recover the total costs 9 of production from the most expensive base load plant. It should be ' 10 pointed out also that these costs do not include any costs relating to 11 transmission, distribution, customer accounting and administrative and , 12 general expense. 13 Q. What conclusions have you reached from your examination, studies, and , 14 calculations? 15 A. They are as follows: ' 16 Seasonal Rates 17 I have no argument with the theory of peak load pricing, but I don't � 18 think the Company is really accomplishing this by their proposed seasonal 19 rates. From their KWH sales by month it would seem� more logical if the ' 20 "premium" rates should be charged for the billing months of either January, 21 July, August and September or only July, August and September. This � 22 would be more indicative of NSP's months of highest sales of KWH. We do 23 believe, though, that any seasonal rate differentiation should be ' 24 supported by a reasonable cost of service study that justifies the 25 magnitude of the differentiation. No study has been provided in this 26 proceeding. , 27 Proposed Revenue Increase ' 28 My schedule ALS-1 indicates that the proposed rates will produce in 29 excess of $13 million based upon 1973 KWH sales. The projected 1974 KWH 30 sales are 5.19% greater than 1973 actual KWH sales and the $12.7 million , 31 proposed revenue increases are based upon the 1974 projected KWH saleso . ' -232- � 1 ' Line No. ' 1 It could be concluded from this that the proposed rates will actually 2 produce more than the addiCional $12.7 million NSP contends they will ' 3 produce. 4 Fairness of the Proposed Rates b Class ' S The schedule ALS-1 indicates that the various classes of customers are 6 not being treated substantially equal based upon historical patterns. ' 7 The Company has not prepared an up-to-date cost of service study to 8 3ustify this departure. ' 9 North Star Steel Company and Interruptible Service 10 Schedule ALS-3 concludes that not only has North Star Steel Company's ' 11 interruptible service not been remotely profitable to the Company but 12 also has actually been subsidized by not only the balance of the Saint ' 13 Paul customers but also by the entire system customers. There can be 14 no 3ustification for the revenue of any rate class to be less than the ' 15 cost of production and other direct expenses of the highest cost base 16 load plant. ' 17. Q. Mr. Sherr, does this conclude your testimony? 18 A. Yes, it does. 1 . ' � ' ' _ , 1 , ' -233- , ' '� I � ' 1 ' ' ' III. , CROSS EXAMINATION ' OF NORTHERN STATES POWER COMPANY' S � WITNESSES ' ' ' - . ' . 1 , , ' ' • , i ' , Cros Ex m' s a ination of Mr. Connelly , by Mr. Stearns ' Mr. Connelly testified that he had worked in St. Paul , from 1941 until 1946, except for a brief period when he was in the Service, and again from 1950 to 1956, and finally ' from June 1, 1970 to the present time. He stated that he had worked as a sales engineer until February of 1965. At ' that time, he went into the Property Tax Department where ' he was manager until June 1, 1970. (Tr. 252-253) Referring to City' s Exhibit 6, which is a map of the ' City of St. Paul and the St. Paul Division, Mr. Connelly stated that in January of 1974 the St. Paul Division boundaries ' were extended from Maplewood on the south side of Highway 12 ' out to the St. Croix River. At the same time, the St. Paul Division took over some property from the Keystone Division, ' including an area in Dakota County extending from Lakeville on the west at Highway 35 and then over to include Hastings ' and some property in Washington County not previously included. ' (Tr. 253-254) Mr. Connelly stated that he was not familiar with , the output of the generating plants. (Tr. 256) ' Mr. Connelly testified that the electric demand ' for the St. Paul Division is approximately 680 kva, and ' St. Paul is approximately 60-65 percent of that total. With a total system demand of 3,878,000 kva, the St. Paul ' demand is approximately 7 or 8 percent. (Tr. 256-257) � -234- � ' Mr. Connelly explained that a kva "is a unit of measurement for demand or capability and a kilowatt hour ' is a unit of ineasurement of use or consumption. " He further indicated that the two are related except for ' power factor correction. (Tr. 258) � In reference to the City' s Exhibit #5, census report, Mr. Connelly indicated that St. Paul had been experiencing � a decrease in population over the past 14 years. (Tr. 258- 259) � Reading from the census report, Mr. Connelly testified � that communities on the periphery of St. Paul had experienced large population growths. (Tr. 259-260) ' Mr. Connelly stated that he had previously testified to a rate of increase of 8.5 percent in �Cilowatt hour ' sales during the period of 1962 to 1972. This was an � average increase over that period of time. He did not know, however, what the percentage of increase was from 1969 � on. (Tr. 261) Mr. Stearns then read into the record figures for � electric consumption for the years 1969, 1970, 1971, 1972 ' and 1973. Mr. Connelly disagreed with the figures for 1969 and 1973. (Tr. 261-262) ' Mr. Connelly testified that he did not have the information readily available which would indicate whether ' or not demand requirements in St. Paul were increasing � at the rate of 8 percent per year. (Tr. 262-263) The witness indicated that in making his testimony i -235- � � � in regard to the highest electric demand ever experienced on the NSP system, the City of St. Paul had been included , but the increase actually included the four state system. (Tr. 264-265) , Further, the amount of energy being purchased from other � electric suppliers was induced by the system as a whole and was not as high as the purchase of 657, 000 kilowatts which had � been made in 1971. (Tr. 265) After comparing the kilowatt hours generated by � the Highbridge Plant in 1973 and the yearly consumption � of power in the City of St. Paul for 1973, Mr. Connelly stated that, if the figures were correct, the generation of � power at the Highbridge Plant was more than the consumption in the City of St. Paul. (Tr. 266-267) ' Mr. Connelly indicated that during the last two years � 11. 1 million dollars had been spent on the Highbridge Plant to construct the stack, precipitators and coal unloading ! facilities. Construction was started in 1971-72 and finished in 1973. (Tr. 267) ' Mr. Connelly stated that he had testified in 1971 ' that $9. 5 million would be spent that year on the Highbridge Plant. He stated, however, that he had intended to give ' the impression that the project was going to be started in that year. (Tr. 268) ' He pointed out that the construction schedule allowed � more than one year for the completion of the facilities. He did not know, however, what the construction schedule was. � � -236- � 1 ' Neither did he know the exact time during 1973 when the ' project was completed. (Tr. 269) Mr. Connelly stated that he was not aware of any ' major plans for new construction at either the Highbridge Plant or the Island Plant. (Tr. 270) ' Mr. Stearns referred to City' s Exhibit 7, a chart, in asking the witness about the Prairie Island Plant. The ' witness stated that the first generator of that plant was ' supposed to come on line in November of 1972 . (Tr. 271) Due to regulatory lag and construction problems, however, 1 the plant was not completed as scheduled, although Mr. Connelly had testified in 1971 that the plant would be available for ' the entire year of 1973. (Tr. 271-272) � Mr. Connelly stated that he felt that if the new plant had come on line for 1973, it would probably have helped to , cut the purchase of outside kilowatt hourage during the year and especially for the August 27th peak. He did not know ' haw much the cuts would be. (Tr. 273) , Mr. Connelly stated that there had been a series of delays in getting the plant on the line, but that ultimately ' the plant was supposed to come on the line in December of 1973 . (Tr. 274-275) He stated that the plant did come on the line ' in December, but it also went off the line in December. (Tr. 275- � 276) He did not recall whether there had been a recent state- ment that the first unit of the plant was coming on the line ' during the beinning of 1974. (Tr. 276) Mr. Connelly stated that he had no information regarding ' when the Monticello Plant was first scheduled to come on line. ' Neither did he know when it went on line nor how many shutdowns -237- ' , occurred during 1973. (Tr. 276-277) Mr. Connelly stated that although the population in ' St. Paul is down, consumption by the remaining customers has ' been increasing. This increase has created a demand for new facilities. (Tr. 280) ' Following a short recess, Mr. Connelly was able to confirm the consumption in St. Paul in kilowatt hours during ' the years 1969 through 1973. In 1969, 1,603, 598,000 ' kilowatt hours were consumed. In 1970, 1,752,997,835 kilowatt hours; in 1971, 1,843,527,036 kilowatt hours; in 1972, ' 1,976,933,953 kilowatt hours; and in 1973, 2,064, 503,902 kilowatt hours were consumed. (Tr. 281-282) ' ' ' , � ' ' � ' ' -238- ' ' ' Cross examination of Mr. Connelly ' by Mr. Mahlum ' Mr. Connelly stated that his testimony had been intended to serve as a background, describing the position ' of St. Paul in relation to the whole Company. (Tr. 283) Mr. Connelly indicated that he would provide information 1 re ardin the ercenta e of kilowatt hours eold to St. Paul g g P g ' compared to the total hour sales of the company, NSP' s electric expenses in St. Paul compared to the total expenses of the ' company, the number of ��.omers in St. Paul within each of ' the rate classifications, a copy of the North Star Steel Company contract with NSP, as well as the times and hours , when service to North Star Steel Company was interrupted. In regard to North Star Steel Company, Mr. Connelly testified ' that it was the only interruptible customer in the St. Paul ' Division. Although he did not know the total number of hours the company had its service interrupted, Mr. Connelly � did know service to the company had been interrupted during 1973 approximately 25 times. (Tr. 284-286) , Mr. Connelly indicated that the construction costs of $146 per kilowatt hour for the Allen King Plant and $265 ' per kilowatt hour for the Sherburne County Plant was a fair ' comparison of construction costs. He indicated that the two plants are comparable in size and type. (Tr. 287} � Mr. Connelly indicated that the summer peak period has ' -?_39- � ' , been a factor since 1965. (Tr. 288) Although NSP had been planning for these peak periods ' through construction of new facilities, the proposed rate schedule signifies the first time that the company has ' done anything to compensate for the increased cost due to , the air conditioning load. (Tr. 288-289) Mr. Connelly indicated that he thought it might be true � that peak demand in the summer occurs from approximately 11 A.M. to 4 P.M. He was not sure that a plan could ' be developed which would encourage large commercial and ' industrial users to adjust their working hours to take advantage of available, but unused generating capacity. , (Tr. 289) He did indicate that the wise use of energy program has asked large customers to use energy wisely by ' staggering, for example, loading facilities and lighting. ' (Tr. 289) He objected to a program encouraging large commercial and industrial users to take advantage of the times during ' which NSP has excess capacity available within its own system because he felt that the demands of customers might not � coincide with the surplus amounts of power that would be ' available. (Tr. 290) For example, he did not know whether it would be possible to ask people to work from 12 midnight ' to 8 A.M. (Tr. 291) Mr. Connelly testified that the average residential ' customer' s use on a 12-month basis was 389 kilowratt hours � per month. (Tr. 291) Mr. Connelly testified that he received a straight s�lary, � -24�- � 1 ' but he also had an expense account and was compensated ' for car mileage. He indicated that NSP had paid the initial cost of joining the Athletic Club, as well as paying ' entrance fees and dues for his membership in the Minnesota Club. (Tr. 293-294) Mr. Connelly indicated he uses , these clubs for employee meetings, staff ineetings, and so forth. (Tr. 294) � In res onse to uestions in r P q egard to meetings with � elected representatives of the St. Paul City Council, Mr. Connelly responded that he did meet With these representa- , tives for purposesof discussing such matters as the operation � of the St. Paul coal transfer facility. He indicated that these representatives had the substantive information which , he needed in regard to operating problems. He did not feel these meetings were of a lobbying nature. (Tr. 294) He ' further stated that it was part of his job to develop a ' public relations climate beneficial both to NSP and the community. As a result, he occasionally contributes to Iindividuals who campaign for election to the St. Paul City Council. (Tr. 295) , Mr. Connelly stated that he had no knowledge of NSP offering a job to Rosalie Butler, a member of the City � Council. He indicated that he had never had any discussions � with her about coming to work for Northern States Power Company. (Tr. 295) He indicated that h� would be very � surprised to hear that Rosalie Butler had stated at a public meeting that she had been offered a job by Northern States ' Power Company. (Tr. 297-298) , -241- ' Redirect Examination of Mr. Connelly ' by Mr. Hanson , In response to questioning by Mr. Hanson, Mr. Connelly ' stated that it would not be possible to serve St. Paul customers solely through use of the Highbridge Plant and , not the interconnected system. (Tr. 298) He felt the plant was not capable of carrying the peak load for St. Paul, � and that service would not be reliable. (Tr. 299) Further, the cost of serving consumers in St. Paul out of Highbridge � would be higher because the plant is old and one of NSP' s ' less efficient plants. (Tr. 299) Mr. Connelly listed several building projects scheduled � for next year which would be contributing to the anticipated load growth. These projects included both apartment and , office complexes. (Tr. 299-300) , Mr. Connelly indicated that NSP had plans for additional capital investment within the City of St. Paul. These plans � were for a $19 million coal terminal facility which would serve the Allen S. King Plant, the Black Dog Plant, the � Highbridge Plant, and several other plants. (Tr. 300-301) � � , � r -24?_- � ' ' ' Recross-Examination of Mr. Connelly by Mr. Stearns ' Mr. Connelly stated that the NSP system does not 1 cover the peak load. Energy must be purchased. (Tr. 302) Within the system, there are peaking plants, some of which � are diesel plants and otherswhich are hydropZe�nts. The Inver Grove plant is an example of a peaking plant. Since ' the NSP system is an interconnected one, such a peaking plant , would be available to St. Paul as well as to the rest of the system. (Tr. 302-303) � Mr. Conne�ly stated that he could think of no losses of customers, other than the properties which had been lost 1 through the Housing and Redevelopment area. (Tr. 303) , He stated that he had not meant to create the impression that people for the new apartment projects which he had listed / were all coming from outside the city. (Tr. 303) He also indicated that buildings would be removed to make way for the ' new construction in the 12-block area in downtown St. Paul. ' (Tr. 304) Mr. Connelly stated that the Allen S. King Plant, which 1 he had listed as being served by a new coal terminal facility, is located at Stillwater. (Tr. 304) � , � -243- ' ' , Cross-Examination of Edward C. Glass t by Mr. Stearns ' Mr. Glass indicated that had the Prairie Island Plant been on the line, there would have been a reduction in the � purchase of kil.owatt hours of about 400 megawatts (400,000 , kilowatts) . (Tr. 306) Mr. Glass indicated that NSP had contracted for the ' purchase of about 540 megawatts. This 540 would have been reduced by the 400 megawatts produced by the Prairie Island ' Plant. (Tr. 307) � Mr. Glass pointed out that the Prairie Island Plant had been scheduled to go on line in the summer of ' 72. � He did not know when that schedule was postponed to November of 1972. (Tr. 309) He indicated that, although , he was in charge of planning, it would not necessarily b r s ons 'b' 1' t to kee track of the curr nt � e his e p i i i y p e status of each project and when it would be going on , the line. (Tr. 311) He stated that it would be a concern of his that a new plant would come on the , line, because it was his responsibility to see to it � that there was sufficient capability to cover the load. (Tr. 312) � He stated that the plants change continuously, and it would therefore be very difficult for him to pinpoint what � � -244- ' , , his knowledge was at a particular time in regard to the iopening of a plant. (Tr. 312) Mr. Glass stated that contracts for the purchase of ' outside power are generally made 48 months in advance. (Tr. 313) � In response to questions rega�ding whether or not there would be a cancellation of a contract if the need for power was ' less than what the contract had specified, Mr. Glass answered that the purchase contract was just like any other contract. ' (Tr. 313-314) , Mr. Glass again indicated that the first unit of the Prairie Island plant had been scheduled to meet the projected � 1973 peak demand. Had it been on the line in 1973, it would have cut the purchase of kilowatts by about 400, 000 kvw. (Tr. 315) , Mr. Glass then stated that instead of purdzasing523,000 � kilowatts to meet the August 27th peak demand, 123 , 000 kilowatts could have been purchased if the plant had been on the line. � (Tr. 315) Mr. Glass testified that the delays in getting the Prairie , Island Plant on the line were caused by a combination of Icircumstances. At first, there was a problem with licensing delays. Then, in order to meet different water regulations, ' various parts of the plant had to be redesigned. (Tr. 316) He indicated that someone else would have to be consulted � for specific information in regard to redesigning of the plant. ' (Tr. 317) Mr. Glass indicated that the Prairie Island Plant was next ' -245- , , ' scheduled to come on the line in October of 1973. It did not come on at that time, but did come on the line on , December 4, 1973. (Tr. 318-319) The new plant stayed on in service until December 17 , , operating at about 40 percent of capacity. (Tr. 319) He � pointed out that this percentage is normal during the process of bringing a plant up to full capacity. (Tr. 319) He , indicated that the plant was supposed to operate at full load when the full-term hundred percent operating license had been , obtained, originally scheduled for some time in February of , 1974. (Tr. 320) The witness explained that the plant was taken off the , line on December 17th because the bearing vibrations had increased to an abnormal level. (Tr. 320) The plant was , not returned to service until February 6, 1974. (Tr. 320) � During the interim, it was found that some of the blading of the turbine had failed. The decision was made to remove . � a corresponding portion of the second unit and install that part of the turbine into the first unit. Mr. Glass believed , that this constituted the only required repairs. (Tr. 321) � Mr. Glass indicated that before the repair could be completed, the manufacturer had to check the blading and determine what , had caused it to vibrate. During this period of time, tests were also made that were part of eventually bringing the unit � to 100 percent capacity. (Tr. 322) � Mr. Glass stated that when the plant came back on the line on February 6, it did not have 100 percent operation , because the p1aMt still has a 90 percent operating license. -246- i ' , (Tr. 322) Since then, however, it has been running ' at about 50 percent. (Tr. 322) He indicated that the ' plant was running about 50 percent partially because of the test program. (Tr. 323) He did not know, however, � how long the test period would last. (Tr. 324) He indicated that his knowledge was minimal because once the , unit is placed in service, it is no longer a responsibility of the planning department. Instead, responsibility switches � to those interested in the operating aspects of the plant. ' (Tr. 324) In regard to the Monticello Plant, Mr. Glass stated , that it had been shut down from March 3 of 1973 until May 19 , 1973, for maintenance and refueling. (Tr. 325) He indicated 1 that this length of ti.me was somewhat longer than usual. , (Tr. 325) He indicated that in 1974, the Monticello Plant is scheduled to be out for approximately 10 or 12 weeks. 1 (Tr. 325) In regard to the 1973 Monticello Plant shutdown, Mr. � Glass indicated that a typical maintenance shutdown usually � requires about 5 or 6 weeks. However, when equipment is new and the maintenance personnel are not familiar with it, � the shutdown may have to be extended past the usual period � of time. In addition, plant modifications were also going � on at that time. (Tr. 329) He did not know, however, what � modifications were required. (Tr. 330) He indicated that it was his understanding that the plant would be modified � again in 1974. (Tr. 330) He understood the modification had -247- � , something to do with valves_ (Tr. 331) ' Mr. Glass testified that following the March to , May shutdown of 1973, the Monticello Plant was also shut down for 16 hours from May 25 to May 26, 1974. , That shutdown was for control rod sequence change. Mr. Glass indicated that the shutdown was not anticipated at � that specific time. (Tr. 331) Mr. Glass clarified that the term "shutdown" m a � e ns that a plant is not operating, that it is not electrically ' producing eriergy. (Tr. 332) He indicated that the next shutdown at the Monticello Plant was for ten hours from , May 26 to May 27, 1973. (Tr. 332) This shutdown was caused ' by a °turbine lockout trip" , something which is not normally scheduled. (Tr. 332) � The next shutdown occurred on June 16, due to a trip- out from a turbine control valve fast closure. (Tr. 333) ' This shutdown was not scheduled either, according to Mr. Glass. (Tr. 334) The next shutdown occurred on the same , day and continued until June 20th. Mr. Glass explained that � the reason for the shutdown was to repair the turbine governor gear. (Tr. 334) � Mr. Glass testified that on July 31, the unit was shut down until August 10 in order for the AEC to test control rods � and inspect the snubbers. (Tr. 334) (Mr. Glass explained � that a snubber is a hydraulic shock absorber in the plant' s main steam line. ) Mr. Glass indicated that he thoughtthere � had been advance warning of the plant shutdown. (Tr. 335) Mr. Glass indicated that following this inspection, he thought ' -248- � � ' some repairs had been made on the plant. (Tr. 336) � Mr. Glass stated that the next shutdown occurred from September 28 to OCtober 6, in order to modify relief valves, � to change safety valve set points and for control rods sequence change. (Tr. 336) It was his belief that these changes ' were required and the shutdown had been planned. (Tr. 337) The next shutdown, according to Mr. Glass, occurred , on November 6 and was an inadvertent tri durin testin . P g g , (Tr. 337) He explained that a trip occurs when the unit is taken off the line automatically by relays. In this � case it took nine hours to get the unit back on the line. (Tr. 337) ' Mr. Glass stated that the final shutdown occurring � in 1973 took place from November 14 to November 18. The reason for this shutdown was to rebuild the snubbers and ' make off-gas system tie�ins. (Tr. 337) He indicated that he felt rebuilding the snubbers meant that they were , modified with a slightly different design. (Tr. 338) � In response to questions, Mr. Glass indicated that every unit goes through a period which is called an immature ' period, which ranges from three to five years, before the unit settles down for the last thirty years of operation. , (Tr. 338) He stated that it is a recognized fact that equip- Iment operates better after a period of time than it does at the beginning. That is, the probability of break-downs � is higher during the first three or four years than later on. (Tr. 340) He indicated that if there is a 10 percent � � -249- , forced outage on a fossil plant, the first year there , would be approximately 1. 8 times that forced outage; the � second year, 1. 5; the next year, 1. 3; and then down to 1. 0, the mature rate. (Tr. 339) Mr. Class indicated that � he felt the Monticello Plant would probably reach maturity in 1974 or 1975. (Tr. 340) ' ' , � , � ' ' � , , � � , -250- � ' , Cross-Examination of Dr. Henry Herz , by Mr. Stearns Dr. Herz indicated that he has done rate design work ' for the municipality of Jamestown, New York, which operates its own utility. (Tr. 342-343) ' In 1956 or 1957, Dr. Herz testified on behalf of ' the City of E1 Paso, Texas against Mountain States Telephone Company, Since then, he has not done any testifying in ' regard to rate of return for either public service commissions or a municipality. (Tr. 343) ' He has, however, done quite a bit of testifying on the ' side of the utilities. (Tr. 343) He stated that he has testified regarding rate of return ' based on both fair value and book value rate bases. (Tr. 343) He stated that he was familiar with the concept of ��end ' result" , as referred to in the majority opinion in the Hope ' National Gas Case. (Tr. 344) Although he agreed that the end result provides a test of reasonableness, he stated that he � actually agreed more with Justice Frankfurter and Justice Jackson ' s dissent rather than with the majority opinion. ' (Tr. 344) He stated that it was his opinion that the Hope case , does not bind the state courts, although he felt that it does bind the Federal Power Commission. (Tr. 345) ' Responding to a headnote for the case that reads, "The result reached, not the method employed, is controlling ' -251- , � ! in determining whether it is a just and reasonable rate" � , Dr. Herz stated that he agreed, with the proviso that there ' exists some method of determining rFasonableness other than the method that was used in getting there . (Tr. 346) , He felt that the result must be tested by some logical means before it has any meaning. (Tr. 346) ' Dr. Herz stated that in arriving at the end result, , it is necessary to balance the interests of the investor and the interests of the consumer. (Tr. 346) , Dr. Herz indicated that out of the revenues, a company must take care of its bonded indebtedness, preferred stocks, , common stock dividends, and retained earnings. (Tr. 347) ' Dr. Herz testified that the two types of tests, the market value test and the book values test, are ways of , "testing a conclusion as to the reasonableness of earnings on common stocks; or, more broadly, the value of common stock ' earnings. " (Tr. 349) Dr. Herz indicated that in using the , first type of test, one looks at the investment market for what investors desire in returns from their equities . (Tr. 3�0) � In the second type of test, reasonable return requirements are established by looking at comparable earnings. (Tr. 3�0) , By comparable earnings, Dr. Herz indicated that he meant ' earnings on book values of companies of equal risk and un- certainty. (Tr. 3�0) This was the rule coming out of the , Bluefield case. (Tr . 3�0) Dr. Herz indicated that in explaining the two types of , � -252- � � � tests, he did not refer to fair value rate base. He indicated that these tests were used to estimate what � the common stock requirement is. A rate of return, however, � "has to be tested in terms of what it produces as a dollar amount of return; and if the rate base differs, then con- � sequ�ntly the rate of return must differ. " (Tr. 350-251) Dr. Herz �estified that the book value of NSP' s stocks ' has been rising due to reinvestment of retained earnings � plus the sale of additional common stock at figures above book value. (Tr. 352) He stated that the return on common , equity is generally stated as a return on original invest- ment dollars plus undistributed retained earnings. (Tr. 352) ' Dr. Herz defined fair value rate base as "a term of art used ' to describe a rate base which attempts in some way to adjust the accounting figures to reflect a current appraisal or � other test of market value in today' s dollars. " (Tr. 352) He indicated that there is usually a reasonable ratio of � Handy-Whitman to original cost; under ordinary circumstances, � this would be the ratio of the common stock equity to total capital. (Tr. 353) , Dr. Herz testified that in the 1971 hearing, the ratio used was 50/50. He indicated that at that time he , felt such a ratio was not outside the limits of a fair value. (Tr. 354) Dr. Herz indicated that a rate base should be ' one which •reflects a value indicating the kind of base on ' which allowance of a current cost of capital would produce a fair result; that is to say, the current cost of equity , eapital and, of course, whatever the underlying capital costs were. " (Tr. 354) � -253- i � Dr. Herz stated that in some states where he had testified, the rate bases were set up by state law or � regulation. (Tr. 3s4-355) He gave the example of North � Carolina, where there is no real recognition of current fair value, and Ohio, where by statute, the rate base is � premised on reproduction cost. (Tr. 3�5) Dr. Herz stated that for the present hearing, NSP has uti- ' lized a rate base with a ratio of 1/3 current value and 2/3 � book value. (Tr. 3�6) He further stated that the rate base had been given to him by Mr. Vixo. He had not ' computed it himself; neither had he made a request to NSP that the rate base be of a particular type. (Tr. 3�6) � Dr. Herz indicated that different rates of return , will be used for different rate bases. (Tr. 3�7) He indicated that the return should be reasonable relative to � the rate base sought. Thus, a rate base premised on original cost will have one rate of return while a rate ' base premised on fair value will have another rate of � return. (Tr. 358) Dr. Herz stated that if a 50/50 rate base or a 33 1/3- , 66 2/3 rate base were used, and both percentages were measured against book, the 50 percent ratio would yield a higher return ' in dollars to the stockholders . (Tr. 359) Dr. Herz i i 1 -?_54- ! � ' agreed that the rate of return on the two rate bases could ' be adjusted in order to give the same end result to the stockholders. (Tr. 360) The two types of tests mentioned ' earlier, however, have nothing to do with the choice of rate base, according to Dr. Herz . (Tr. 360) iDr. Herz testified that one rate case should not ' be taken in isolation from the whole trend of regulations. If the regulation is established on a fair return base, ' then over time the result should be tested to see whether they turn out in the same way with either type of regulation. i (Tr. 361) He st�ted that fair values should be weighted ' by the equity in the rate base, but weighting it by the equity in the book value is not necessarily too low as long as the ' investors know they are going to be treated fairly. (Tr. 361) �n response to questions regarding use of an original � cost rate base, the witness stated that he would recommend � a 15 1/2 percent rate of return. Whether or not this would be lower in the end result than if a 50/50 rate base were ' used, would depend on the circumstances, he stated. (Tr. 362) Dr. Herz referred to pages A-1 and A-2 of his exhibit when ' assuming that the rates were to be set on the basis of � book value. These pages showed that, using this base, common stock equity returns varied in amount, but for each � year they totaled 15. 5 percent on book value of the common equity. (Tr. 362-363) The next question, according to � Dr. Herz, is what weight should be given to these results in reaching the final conclusion. He indicated that he had used ' � -255- � the figure of 9.25 percent. (Tr. 363) , Dr. Herz indicated that he believed a return of ' 15. 5 percent on common stock equ#ty would provide an inducement to buy it. (�r. 363) When using the fair , value basis, however, Dr. Herz indicated that he had cut under the current market requirement on the theory that � "the investor would give some positive value to some regulatory ' system to which he would be entitled to a return on fair value as against book value. . . . " (Tr. 36�) 1 Dr. Herz stated that the 15.5 percent he had spoken of earlier included dividends and retained earnings. He � indicated that he had not �alculated how much would be ' available in dollars. (Tr. 365) He pointed out that the only dollar value that the stockholder considers is the dividends , per share and total earnings. (Tr. 365) He agreed that total earnings would come whether the rate base were premised � on origisal cost or fair value. (Tr. 366) However, Dr. Herz indicated that a stockholder would � not only look at the earnings for one year, but would also � look at trend and decide whether or not such a trend wauld continue. This would depend on his appraisal of the regulatory ' climate. (Tr. 366) Dr. Herz stated that a smart investor ' would not ignore these factors. Otherwise, he might get a good return in one year only to find out the next year � that the Commission had ordered a cut in rate. (Tr. 366) Dr. Herz stated that he has concluded that a fair value � approach ou�ht to be used in the ]�ong run from the point of ' _256- � ' � view of the customer of the company. (Tr. 367) In the ' short run, fair value base might mean higher tates, but , in the long run, it would mean a lower cost of capital. (Tr. 367) This would benefit the customer by maintaining ' the flow of capital on better terms. (Tr. 368) Further, Dr. Herz stated that since we are an inflationary ' era, common stock investors should be told that they can � expect fair treatment if the inflation continues. (Tr. 368) Referring to previous testimony, Dr. Herz stated ' that it would not be fair to customers to apply a present- day dollar measure to the whole rate base, thus allowing ' the equity investors the opportunity to gain increased ' returns as against the fixed returns that are contractually committed on behalf of the bond holders. (Tr. 369) He ' did not feel that stockholders would have received a higher return than they should have had in 1971 had the 50/50 rate � base been used. (Tr. 370) This was so because Dr. Herz � had specifically exempted preferred stock. (Tr. 370) Referring to the capital structure of the company ' in 1971, Dr. Herz agreed that the extent of common equity at that time was 32. 66 percent. (Tr. 370) This percentage ' was on book value. (Tr. 371) However, in Dr. Herz ' s testimony from 1971, common stock equity using the fair value rate ' base on the 50/50 basis was 48.79 percent. (Tr. 371) ' Dr. Herz stated " . . . If this council decides that your fair ' value rate base is the basis, that is equivalent ' -257- ' t of saying that common stock is a bigger equity in this rate base. Common stock is a beneficiary ' of that. " (Tr. 371) ' Dr. Herz testified that the rate of return reflects the cost of capital when that cost is computed on a basis ' consistent with the rate base used. (Tr. 372) ' Dr. Herz stated that he imputed a return on common equity based on what the market says is an attractive return. ' This forms the basis for earnings payments to stockholders as well as a basis for growth which will be handed down to ' stockholders in the future in the form of profits on the ' sale of stocks, higher dividends, or both. (Tr. 373-374) Dr. Herz stated that in 1971 common stock comprised , 32. 66 percent of NSP ' s capitalization. In 1974, NSP ' s capitalization included 35. 37 percent common stock. ' (Tr. 378-380) ' Dr. Herz stated that a 50/50 rate base and a 33 1/3- 66 2/3 rate base are both within a reasonable range of rate � bases. (Tr. 381) Dr. Herz elaborated on a previous statement by pointing ' out that a rate base does not entitle anyone to a certain ' rate of return. He explained that a rate base only promises an opportunity. (Tr. 382) � , ' -258- , , ' Dr. Herz testified that he had used a 1974 rate base � to which he applied his rate of return. (Tr. 384) Thus, all stockholders were treated alike regardless of when they � made their investments. (Tr. 384) He indicated that there would be no adjustment for the dividends recei��ed by an ' investor who invested in 1949 when the stock issue came out, � although there would be a change in the book equity during the period 1949 to the present. (Tr. 384) Dr. Herz stated that � he had compared book equities after translating them into 1973 dollars. (Tr. 385) � Dr. Herz testified that a stockholder must purchase stock ' with current dollars. He stated that when a stockholder considers the promised return of the stock, he estimates not � only what can be obtained by selling the stock at a profit to someone else, but also keeping the stock and getting a return � on it. (Tr. 385-386) Dr. Herz stated that NSP had provided ' him with a 1973 rate base. For that year, common stock equity was stated as the balancing figure using the fair value rate ' base at 1 .088 times the book value rate base, a figure given to Dr. Herz by NSP. (Tr. 386) He pointed out that he was not � concerned about the exact quantY�y of the rate base, but rather � the quality of the rate base. (Tr. 387) He indicated that Mr. Vixo had provided the witness with the ratio of the fair � value rate base to the original cost rate base. (Tr. 387) He pointed out that these ratios were 1 .088 for 1973 and , 1.09264 for 1974. (Tr. 387) � ' -2a9- , Dr. Herz pointed out that Mr. Vixo' s rate base was only , for that part of the company allocable to St. Paul. Total � capital for 1973 was $1,540,847,000, expanded to allow for the same proportion used by Mr. Vixo in his rate base. (Tr. 388) � Dr. Herz stated that he did not know if Mr. Vixo had given him the monetary amount of the rate base. (Tr. 388) � He again indicated that he was interested in only the ratios. � (Tr. 389) Dr. Herz stated that he had had no indication from NSP � that they were interested in a 20 or 28 per cent increase in electric revenues. (Tr. 389-390) He indicated that he had no ' need to know about a revenue increase, since revenue increases ' depend on many other factors besides a fair rate of return. (Tr. 390-391) � In response to a question regarding the giving of 1/2 effect to the impact of inflation on equity investment, Dr. Herz referred � to page 84 of NSP Exhibit #7. Item 6. 2 on that page refers to reasonable allowance for book common stock equity. He explained ' that he had drawn these figures from information on pages C-10 , and C-11 of the Exhibit. (Tr. 391) He stated that when common stock equity from 1946 to 1972 was restated in 1972 dollars, � common stock equity amounted to 140. 3 percent of the book value dollars. (Tr. 391) He then stated that he had multiplied 13. 3 ' (current costs of common stock capital, using book cost rate � base) by 1. 202, which is 1 plus half of the 40. 3 percent increase. This results in the 16 percent figure. He explained that this ' -2 60- � ' ' ' figure would be the equivalent of the 13. 3 percent, if , the latter figure were weighted by half of the increase in ' the number of dollars when stated on a 1972 basis . He indicated that he had used this same method in computing the 15 percent ' figure shown in Item 6. 22. The 15'� percent figure was the average of .the 16 and 15 percent figures. Dr. Herz pointed ! out that he was talking about common stock equity separately. ' (Tr. 392) Again referring to page C-10 of NSP Exhibit #7, Dr. Herz ' stated that he had used the Consumer Price Index. (Tr. 393) He pointed out, however, that his office had adjusted these ' figures so as to use the 1957-1959 index as 100 percent. ' (Tr. 393) Dr. Herz pointed out that the Consumer Index would show the value of the dollar in the present period as related , to the past. However, it would not measure the in�restor ' s market. He stated that if the investor ' s market were to be , measured, it was his feeling that it would be more reasonable to use the GNP Index rather than the Consumer Price Index. � (Tr. 394-39�) � Dr. Herz testified that he had not computed a rate of return for the City of St. Paul alone. (Tr. 39�) He stated ' that if a company owned the utility in St. Paul alone, it would have to pay more for capital than NSP does. (Tr. 396) He ' indicated that he needed no computation to make this analysis . ' He pointed out that big city companies are not attractive to investors at this point, and have not been attractive for , several years. (Tr. 396) , -261- , He stated that his observation that a diversified , company is more attractive to investors than a non-diversified , company was one which he had gotten from long years o f watching the market. (Tr. 397) ' Dr. Herz indicated that although he had stated in his testimony in 1971 , that he predicted direct price controls , would fail, under cross-examination that year he had also said � that there would be a change if the president were able to make price control "stick" . (Tr. 397-398) He pointed out , that he did not quantify the change; he simply said there would be a change fom what would happen under uncontrolled prices. , (Tr. 398) Dr. Herz stated that under price control policies, "by controlling some rices other rices ick u the inflationar , P P P P Y impetus. If you let prices rise freely, then the reallocation ' of goods follows according to those price increases. " (Tr. 399) Dr. Herz acknowledged that construction costs are one measure , of the price level. (Tr. 400) Dr. Herz testified that he would not disagree with usin ' g an original cost rate base i� NSP received the dollars they � are asking for, and assuming that the dollars are '�'air and reasonable:' (Tr. 400) , Dr. Herz stated that he had not rechecked to see what � would result from multiplying his rate base times the rate of return. Thus, he had not figured out the increment to the ' common stockholder in dollars. (Tr. 401) , ' -262- ' , , Cross-Examination of Dr. Henry Herz ' By Mr. Brauch , Dr. Herz stated that he had computed a rate of return for NSP as a whole. He indicated that he had no idea what ' rate of return had been used in computing the increases that � have been put into effect in the various other divisions within NSP. (Tr. 401) He pointed out that if a higher rate , of return were used in Minneapolis, this would have no effect on his recommendations. He indicated this was so because he � was trying to find a fair rate of return from the point of view , of investors and consumers. He based that analysis in part on the way the market reacts and in part on what other companies , attain. (Tr. 402) He pointed out that a smart investor would not be influenced ' by a rate of return in Minneapolis which is double the rate of ' return which Dr. Herz himself had recommended. (Tr. 402) He further testified that any variation in the rate of return is ' irrelevant to the amount of money that NSP needs to generate in order to continue to attract investors and to provide good , service. (Tr. 403) , Dr. Herz agreed that there are economists who are predicting either a slowdown or an outright recession. In doing so, he Ireferred ta a Wall Street Journal article in which an economist had predicted an economic slowdown in 1975. (Tr. 404) Dr. ' Herz did not, however, predict a depression similar to that of , 1933, since the credit of the country is no longer so completely ' -263- 1 tied u in the stock market. Tr 4 , P ( . OS) Dr. Herz agreed that the low prices on the market today , already anticipate the possibility of a recession. (Tr. 405) However, he did not feel that this would have a beneficial effect ' on NSP. (Tr. 405) This was so because: (1) NSP must raise a substantial block of common stock this year. If the market ' is depressed, then NSP must sell a considerably greater number � of shares in order to raise the $64 million they are anticipating. (2) In seeking a rate increase, NSP is not seeking a guarantee. ' Rather, it is seeking an opportunity to earn what it believes it can earn. ". . .What happens in the stock market will depend � on the investors' appraisal as to whether NSP in reality has � that kind of an opportunity or not. " (Tr. 405-406) Dr. Herz testified that he foresaw a slowdown in electrical ' usage, to be followed by increased demands for electricity. (Tr. 406) This, however, would not have a beneficial effect ' on the financial position of NSP nnless it is allowed an adequate rate of return. (Tr. 407) ' , ' , ' , , -264- , ' � Redirect examination of Dr. Henry Herz by Mr. Hanson ' Dr. Herz stated that if NSP were a single big city company, ' the cost of capital would be higher than if it retained its position in the interconnected system. (Tr. 407) , ' � ' ' 1 1 1 1 1 1 1 1 1 � _�65_ ' Recross Examination of Dr. Henry Herz , By Mr. Stearns , Dr. Herz indicated that NSP' s cost of capital is related to the construction program that is carried on all over the statF . ' (Tr. 408) Both bonds and stock issues provide money for , construction, he stated. He testified that the cost of capital which he is starting with is the cost today for senior capital and, � �or common stock equity, the cost as reflected in the market appraisals. (Tr. 409) � ' , � � ' ' ' , ' , -266- , � � , Cross-examination of John B. Gillett by Mr. Stearns ' Mr. Gillett affirmed that as an associate, he is manager , of Rates and Valuation for Whitman, Requardt and Associates. (Tr. 410) He indicated that his duties include supervision ' of employees who are involved in studies in rate design for utilities, depreciation studies, and the computation and , production and the publishing of the Handy-Whitman Index, as well , as reproduction cost studies for utilities. (Tr. 410-411) He indicated that the home office is in Baltimore, Maryland and ' that there are no other locations. (Tr. 411) He indicated that data for the indices used in connection with the central division , are collected in Baltimore by telephone and correspondence. (Tr. � 412) Mr. Gillett indicated that his firm designs rate structures , for utilities. As a part of rate design, his firm also finds it necessary to allocate costs among classes of customers. This ' type of activity is called an allocation study. (Tr. 412) He , pointed out that these studies have nothing to do with the indexes. (Tr. 413) � The witness pointed out that his firm had not designed any rate structures or done any allocation studies for NSP. ' (Tr. 413) Neither had his firm performed any depreciation studies � for NSP. (Tr. 413) He explained that a depreciation study could be used to determine accrual rate for a utility, it could be , an observed depreciation study, or it could be a study to deter- mine the adequacy of reserve or to determine the actuarial Fer , cent condition of the plant. (Tr. 413) He pointed out that an � -267- � observed depreciation study is used almost exclusively for ' rate regulations and has nothing to do with the Handy-Whitman , Index. (Tr. 413) In regard to adequacy of reserve studies, the witness ' pointed out that utilities accumulate depreciation reserve through depreciation expense. From time to time, a utility needs to 1 know whether it is over-accruing or under-accruing, and whether ' its reserve is adequate or not. This type of study does not involve the index. (Tr. 414) � Mr. Gillett explained that reproduction cost studies are done to determine the cost of reproducing a plant of a , utility. These can be done either with trended cost studies � or repricing studies. In using trended cost studies, his firm often uses the Handy-Whitman Indexes which are often tailored ' to the company' s experience. (Tr. 414) Mr. Gillett testified that in making a reproduction cost t study, the cost of a particular unit is transformed into present day dollars. (Tr. 414-415) He again stated that this could ' be done either by using the Handy-Whitman Index or by using � actual experience. (Tr. 415) In regard to the Handy-Whitman Index, Mr. Gillett stated � that NSP is in the North Central division. Since this division � embraces such a wide geographical area, Mr. Gillett stated that an index should be tested some way against company � experience and not be used indiscriminately. (Tr. 415-416) He indicated that because it costs more to build power plants ' in metropolitan Chicago than it does in rural Minnesota, the ' -268- � ' , trended cost would be higher in Chicago than in Minnesota ' because the original construction costs were higher. (Tr. 416) Mr. Gillett indicated that the same index would be applied , to original costs in both Illinois and Minnesota. (Tr. 416) He indicated that the labor components of the indexes are an � average of a number of different major metropolitan areas in ' the North Central division. (Tr. 417) Since the indexes are generally designed to be applied to the original cost of the � utility, and since all utilities are subjected to the same FPC cost accounting and all utilities have to put the same � types of plants in the same accounts, the mechanical application , of the indexes does not differ from one location to the other. (Tr. 417-418) , The witness indicated that other items of construction such as construction materials, brick, sand and lumber are , averaged out for each division as are labor costs. (Tr. 420- , 421) Major items of equipment, however, such as turbo generators and transformers, are sold by only a few manufacturers, and ' thus the same price components can be used for major pieces of equipment in the indexes for all divisions. (Tr. 420) , In summary, Mr. Gillett indicated that labor indexes ' change from one division to the other, materials indexes also change, but the equipment indexes, which are practically universal � throughout the country, are the same in all divisions. (Tr. 421) In response to questioning in regard to turbo generators, , Mr. Gillett stated that account 314 is the proper FPC account ' for turbo generators. (Tr. 421) He indicated that these turbo � -269- ' generators are produced by GE and Westinghouse. The witness ' stated that in computing the turbo generator account, it is ' not necessary to know the price of the generators. Rather, �n average of the percentage increases is figured and then r applied in the computation of this particular index. (Tr. 422) Mr. Gillett stated that his firm had not figured a replace- , ment cost for turbo generators. Instead, the index reflects � the trended cost of the generators, accessory equipment and labor involved paid by NSP. (Tr. 423) Mr. Gillett stated that it � was not necessary to know the price of the generators because the indexes simply show the trend factor used in computing the � cost at today' s prices rather than the original cost. (Tr. 423) ' Mr. Gillett explained the use of the generator index in the following way: ' " . . . One of the companies does not quote a price to us. They simply say that the increase in the ' cost of turbo generators of the size purchased by major utilities over a six-month eriod was so much ' P percent. . . The other one gives us a quotation on , a specified type and size of turbo generator from which we compute an increase. We average the ' increases. . . and that is what we use as a basis , for this index. " (Tr. 424) Mr. Gillett stated that it is impossible to use the � prices bid by utilities for a construction index because bids ' for such items as turbo generators are never made on quite the same specifications. (Tr. 424-425) What the firm asks , for is a quotation on the same specification year after year. -270- � � ' Thus, if a company paid so much for a turbo generator five , years ago, there would be a certain increase in the price from then until now. (Tr. 425) ' Mr. Gillett testified that there are about 300 subscribers for the gas and electric index prepared by his firm. These ' include most of the major gas and electric utilities, many 1 of the regulatory bodies, insurance companies, consulting engineers, and some law and financial houses. (Tr. 426) � Mr. Gillett indicated that the Wholesale Price Index, the Consumer Price Index, and the deflator in regard to the ' Gross National Product are all indices of dollar depreciation. , (Tr. 426-427) However, he stated that he had no opinion on these indices, since his firm does not use these indices. (Tr. ' 427) Mr. Gillett stated that he had no opinion on which index , would be the best index to apply to an investor. Mr. Gillett pointed out that the services which his firm had been hired Ito perform for the Houston Lighting and Power Com an were much P Y , more extensive than the service which he performed for NSP. (Tr. 429) He indicated that for the Texas company, his firm ' had been asked to supply reserve depreciation studies, reproduc- ' tion cost studies, and a study of accrual rates. (Tr. 429- 430) Mr. Gillett indicated that the utilities in Texas are ' regulated by the local municipality, as they are in Minnesota. He stated that the observed depreciation studies and the trended � costs studies were in connection with a proposed rate increase. (Tr. 431) The accrual study was made to determine if they should , ' -271- ' change their method of computing depreciation expense. ' (Tr. 431) ' The witness indicated that on occasions, his firm does get involved in the computation of the rate base. He stated , that the Handy-Whitman Index provides the particular reproduction cost of the company' s plant by using price trends. (Tr. 431- ' 432) , Mr. Gillett stated that in dealing with local plants, occasionally he might encounter a generator that is perhaps ! 50 percent depreciated and rather old. (Tr. 432) He indicated that a properly prepared index should reflect changes in technology� This means that his firm must constantly review the cost completion � reports of utilities, to determine the type of generators that they are using. In addition, the firm watches the various ! publications of the electric industry in order to determine if the specifications for the types of a particular unit are � changing. (Tr. 433) Thus, when the firm asks GE and Westinghouse for a bid, for exam le on turbo enerators th f ' , P , g , e irm can specify a type of generator that is consistent with the type , being used in the utility today. (Tr. 433) Mr. Gillett indicated that when a significant change , in design occurs, his firm must change the basis upon which , it requests information. (Tr. 433) Essentially, a new index must be started. (Tr. 434) However, the new index is linked , to the old one by equating them at the time the technology changed. (Tr. 434) In explaining this equation, Mr. Gillett � used the example of conductors. He pointed out that since the ' ' 50s the utilities have switched from using copper to aluminum. -272- , ' , Had his firm continued to base their index on copper, the � index now would be much higher than the one presently in use because the price of copper has increased greatly. (Tr. 434) ' For example, had the index for copper been 150, at the time they switched to aluminum, the index for aluminum would have ' been put at 150. From then on the price of conductors in � the index would go up in accordance with the price of aluminum conductors. (Tr. 435) The purpose of such an equation is to � make sure that the trend represents the current rise of cost and not the rise of cost that would have been had the company tcontinued to use old and obsolete material and equipment. � (Tr. 435) In summary, Mr. Gillett pointed out that if -conductors were rep.ric�t� at the price of copper, a much higher price 1 would result than if conductors were trended by the price of their replacement. (Tr. 436) � Mr. Gillett testified that it would also be necessary � to take into consideration the different characteristics of copper as opposed to aluminum. (Tr. 436) If, for example, � a change was being made from copper to aluminum conductors, and it was found that the labor weighting was 45 percent for copper � and 50 percent for aluminum, it would be necessary to make a � weighting dzange so that the weights of labor and material would be reflected in the change of technology. (Tr. 436) � Mr. Gillett p�inted out that obsolescence is a factor of depreciation and not a factor of original cost. (Tr. 437) Not ' much attention is being paid to whether or not the generator, for example, is a better product than it was 20 or 30 years ' ago. (Tr. 438) If it is a better product, then the old unit � -273- ' is usually depreciated more. (Tr. 438) Thus, the index � does not make an adjustment for changes in quality because � they are either recognized in the original price, which is higher or lower, or they are recognized in the depreciation , rate or the retirement policy of the company. (Tr. 438- 439) , In stating that his firm had been hired to review the ' trending to determine that NSP had selected the most appropriate index for each account, Mr. Gillett stated that there is , usually no choice between indices in each account if his firm publishes an index for that account. (Tr. 440) However, there ' are some minor accounts for which his company does not publish � an index, and for those accounts, a decision must be made. (Tr. 440) He indicated that NSP had some minor accounts for � which he had to make a decision as to the proper index. (Tr. 440) In order to make a recommendation, Mr. Gillett stated � that he and his company first looked at the FPC System of Accounts to determine what was in it. The then asked the utilit if � Y Y in fact the FPC system was descriptive of the items in that ' account. If so, then an index was chosen based upon the components that FPC had in it. (Tr. 441) He pointed out that his firm � does not always necessarily recommend a Handy-Whitman Index � for these minor accounts. (Tr. 441) As an example of an account for which Handy-Whitman does � not publish an index, Mr. Gillett pointed to account #342 which is an account for costs on the fuel holding equipment. (Tr. 443) , Since Mr. Gillett' s firm does n�t publish an index for account ' #342, but does publish an account for gas holders, it recommends -274- � � ' that the latter index be used for account #342 . (Tr. 443) ' Mr. Gillett stated that his example regarding the replace- ment of copper conductors with aluminum conductors was , illustrative of how the index covers obsolescence. (Tr. 444) Referring to the Alan S. King generating plant, Mr. iGillett stated that there was a small difference between the � index based on actual experience and the Handy-Whitman Index. (Tr. 444) He explained that in this study, his firm had made � some indexes based on the substitution of Minneapolis-St. Paul labor rates and Minneapolis-St. Paul material costs and their , weights. Using the company' s experience, a trended cost computa- ' tion showed the result to be $106. 8 million. The reproduction cost based on the use of the Handy-Whitman Index was $106. 9 � million. (Tr. 445) This difference of $100, 000, less than one tenth of one percent, Mr. Gillett felt to be insignificant ! because the Handy-Whitman Indexes are generally good to within � about one percent. (Tr. 445) Thus, the witness stated that the Handy-Whitman gives � an accurate representation of the present worth of a particular unit within one percentage point. (Tr. 445) � In response to a question by the Examiner, Mr. Gillett ' stated that his company was having some problem in trending the reactors used in nuclear plants. (Tr. 446-447) This is , so because the state of the art in reactors simply has not settled down to the point where it is possible to say that ! 75 percent of new reactors will be of a specific type. Thus, � his firm has not been able to develop an index for reactors. � -�75- � ' Cross-examination of James 0. Cox by Mr. Stearns ' Mr. Cox stated that prior to his appointment as treasurer ' of NSP in 1971, he was manager of Budget Control and Forecasting. (Tr. 451-452) As manager of that department, Mr. Cox had � respons3bility for coordinating the development of the operating � budget for the entire company as well as possibilities for long-term financial forecasting and short and long-term cash ' planning and administration. (Tr. 452) In regard to the construction budget, he indicated that he had responsibility ' for the results but did not attain direct responsibility for ' the construction budget until he was appointed treasurer. (Tr. 452) � Mr. Cox stated that department heads throughout the company submit budgets to the manager. (Tr. 452) These budgets � are submitted at different periods of time. For example, the � sales budgets are usually submitted during the first part of October. The expense budget is usually submitted toward the , end of October. (Tr. 453) Mr. Cox indicated that he usually got copies of the budgets � at the same time as other departments got their copies. (Tr. 454) ' A review of these budgets is conducted by appropriate officers in the company, including those officers that have responsibility � for operating their geographic division. (Tr. 454-455) Mr. Cox pointed out that budget estimates may be revised ! from time to time although it is somewhat more unusual to revise � -276- � ' ' the entire budget. He indicated that it was normal to have ' an estimate from a department changed a couple of times. (Tr. 455) In the final analysis, he stated that it is the senior officers � who make any necessary cuts in the budget. Mr. Cox stated that the budget covers the 12 months of ' the fiscal year, i.e. a calendar year. (Tr. 455-456) � Usually there are no changes in the budget made after the year commences. (Tr. 456) Mr. Cox testified that changes could ' be made either by forecasting changes related to the budget and then planning on that basis, or the budget could be revised. ' He indicated that NSP has in the past used both methods. (Tr. ' 456) He also indicated that in the year 1973, NSP had made a change in the budget sometime within the first six months of ' the year. (Tr. 456-457) Mr. Cox testified that NSP makes a long-range forecast ' every year for the next ten years based on the best information , available at the time. (Tr. 458) These forecasts are made each year, starting in January and completed by July. (Tr. 458) � Each year as the company begins to build a budget for the next year, the long-range forecast for the upcoming year is also ' updated. (Tr. 459) ' Mr. Cox indicated that the forecast as well as the budget involves sales and expenses. (Tr. 460) Thus, in the 1973 ' forecast, it was assumed that the Prairie Island unit Number One would be in service for December of that year. (Tr. 460) � Mr. Cox stated that he did not recall the level of operation ' in the budgets for 1973 or 1974. (Tr. 461) However, he pointed out that the percentage of availability for any major ' -277- ' unit for the total year never reaches that level. (Tr. 461) , While a plant may operate at 100 percent part of the time, , on the average for the year it operates at some lesser percentage. (Tr. 461) It was Mr. Cox' s recollection that the Prairie ' Island Plant was scheduled to operate at fairly high level of availability during 1974 . (Tr. 462) He indicated that ' the operation of the Prairie Island Plant would be significant ' to NSP plans and sales. (Tr. 462) Mr. Cox stated that the Prairie Island Unit Number Two, ' the Sherburne County Fossil Plant, Henderson Fossil Plant, and the Tyrone Nuclear Plant were included in the ten-year ' plan. (Tr. 462) Mr. Cox indicated that the Prairie Island , Number Two plant was expected to come on the line in the fall of 1974. (Tr. 463) He did not, however, recall the capacity ' planned for this unit. He indicated that the capacity of the plant would not make a difference in sales to customers, ' but would make a difference in the amount of purchases. (Tr. 464) ' Mr. Cox testified that as treasurer, his responsibilities in regard to the construction projects are primarily those of ' general coordination. (Tr. 464) He indicated that his depart- ment is concerned with financing the construction and also with ' the scheduling of the construction. (Tr. 465) ' In regard to the Prairie Island Plant, Mr. Cox agreed that it was scheduled to go on the line in the summer of 1972 . , (Tr. 465) However, he did not know when it was next scheduled to go on line. (Tr. 466) He indicated that he thought the , plant' s highest level of operation had been approximately 40 or ' 50 percent. (Tr. 466) Since the opening of the plant was � -278- ' � delayed from May until November, 1972 , Mr. Cox assumed that ' there were construction expenditures during that period. (Tr. 467) Mr. Cox stated that the construction budget for 1974 went ' before the Board in November and was approved. Since that time, he did not recall any changes which had been considered by the � Board. (Tr. 467) � Mr. Cox testified that in 1973 the annual earnings per share dropped below the projected estimate of $2 . 86 per share. � (Tr. 468) He stated that the actual repnrted earnings per share were $2. 61, $. 25 below the budget. (Tr. 468) He indicated ' that the earnings probably dropped below the budget because of � the cumulative effects of inflation, high interest rates, higher than anticipated production costs, lower than estimated � consumption of electricity, and lower gas revenues. (Tr. 468- 469) � Mr. Cox indicated that the higher expenses were probably � also related to longer than scheduled outages at the Monticello and King generating plants. (Tr. 469) He thought that the � Monticello Plant had been shut down from approximately March of 1973 until May 19th of 1973, but he did not remember how � many shutdowns there had been in June. (Tr. 469-470) He � painted out that in planning for shutdowns, the engineers take into account what has happened at other NSP plants over the ' past years as well as what has happened at similar plants across the country. They then figure the probabilities and include � these probabilities in their estimates. (Tr. 470) He testified � that the outages for maintenance work had been planned, but they were longer than had been estimated. (Tr. 470) He did not � -279- , recall how much longer than anticipated these outages had � been. (Tr. 471) ' Mr. Cox indicated that he thought there had been a small overlap in the scheduled shutdown for the King Plant and the ' Monticello Plant. (Tr. 471) He indicated, however, that he could not answer questions regarding the number of scheduled � shutdowns each year. (Tr. 471) � Mr. Cox testified that during the December Board of Directors Meeting, earnings per share were reviewed. (Tr. 472) � He thought that it may have been discussed that the earnings were below estimate because of lower kilowatt hour sales, ' reduced gas sales, and increased production expenses. (Tr. 472) Mr. Cox ointed out that kilowatt hour sales had decreased � P throughout the system, and especially had decreased during � November and December of 1973. (Tr. 472) Mr. Cox agreed that over the last ten years, electricity � sales had increased at an annual average rate of 8 . 8 percent. � (Tr. 472) Mr. Cox stated that he did not have knowledge regarding the rate of growth of consumption during the past five years. � (Tr. 473-474) Consumption for the City of St. Paul for 1962 through 1972 increased at an average annual rate of 8. 5 percent. � (Tr. 474) However, according to Mr. Cox, the growth rate for � St. Paul for 1969 to 1973 was 6. 5 percent. (Tr. 474) For the entire system, the average annual growth rate was 6. 6 percent. ' (Tr. 474) Mr. Cox indicated that he had testified that the growth � rate for the system over the next ten years would be 7.7 percent. � (Tr. 475) However, he estimated that the company will perhaps -280- � ' 1 grow at a faster rate because of growth in population and , GNP, as well as a shift from scarcer fuels to electricity. ' (Tr. 475) Mr. Cox indicated that the system will be expanded Iduring the next ten years through generating plants, but that the geographic boundaries of the system will remain the Isame. (Tr. 475) , Mr. Cox stated that he had used Moody' s Public Utility Manual for 1973 to illustrate that NSP had a relatively ' small portion of common equity when compared to the average common equity held by other utilities which have a AA classifica- � tion. (Tr. 475-476) He also indicated that the percentage of debt and preferred stock held by NSP is relatively high � compared to the levels indicated by Moody' s. (Tr. 476) The � witness compared listings for percentages of eguity held by various utilities as listed in City' s Exhibit No. 8 and as , listed in Mr. Cox' s prepared testimony, Schedule 6. He found that several differences between his figures and the figures in � City Exhibit No. 8 existed. (Tr. 478-480) These included � Iowa, Southwestern Utilities Company, Iowa Southern Utility, Montana Power & Light, Kansas City Power & Light, and Southwestern � Electric Power. (Tr. 478-479) Mr. Cox could not explain the differences and stated that he would have to check where � he had gotten the figures before he could explain the inconsis- � tencies. (Tr. 480-481) Mr. Cox testified that the 1972 year-end breakdown for � capital structure included 55 percent debt including short-term � -281- ' borrowing, 14.4 percent preferred stock and 30. 6 percent common � equity. (Tr. 483) For year-end 1973, the capitalization included , 55.7 percent debt, including short-term borrowings, 12. 8 percent preferred stock, and 31. 5 percent common stock and ' retained earnings. (Tr. 484) He indicated that the company had a capital structure estimated for 1974 to the degree that � the estimated amount of financing was available. However, � he indicated that the amount of retained earnings would depend upon rate levels and other factors. (Tr. 484) Mr. Cox explained , that common equity includes retained earnings, as well as common stock. (Tr. 484) He indicated that the more internal � generation of funds one has, the less outside financing is � required. (Tr. 484�485) Mr. Cox testified that NSP expected to generate internally � approximately 60 percent of its funds through 1977. (Tr. 485) He indicated that during 1973, the company had generated perhaps � 40 percent. (Tr. 485) He explained that the two major elements which must be financed are construction expenditures and refinancinc� This financing can be done either through internal funds or � externally through the sale of securities. (Tr. 485) Mr. Cox testified that in addition to retained earnings, � book depreciation, tax depreciation, amortization, investment � tax credit adjustments and net income are also sources of internally generated funds. (Tr. 486) He indicated that net incom� is used for payment of either dividends or retained earnings; depreciation is used in connection with the internal generation i of funds for construction. (Tr. 486-487) Mr. Cox testified that he did not know of any construction � -282- � , r plans for either the Highbridge Plant or the Highland Plant , in 1974. He did not recall when the precipitators and stacks � were scheduled to be completed; neither did he know the date of compc�etion of the coal facilities at the Highbridge Plant. I (Tr. 487) 1 1 1 r i � � i 1 1 1 1 � � -283- ' Cross-examination of Mr. James O. Cox r by Mr. Brauch , Mr. Cox stated that there were three sections in the supplemental testimony which he filed in January of 1974 . � The first section related to a change in the estimate for � retail kilowatt hour sales in 1974. The second section included some commentary related to the January, 1974, bond , issue. And in the third section he had revised the financial effects estimated for 1973 (if there were no rate increase) � to reflect changes in estimates of kilowatt hour sales and ' expenses. (Tr. 488) Mr. Cox stated that one of the major reasons for a revision � of his testimony had been the November messages which President Nixon had given on energy conservation and the energy crisis. � At that time, the federal power commission had laid plans to � try to reduce the amount of electric consumption and it was obvious to officials at NSP that consumption of electricity, � particularly in December, was down substantially. Thus, it seemed necessary that the estimates of consumption in 19'E4 � be lowered. (Tr. 489) � Mr. Cox testified that NSP retail kilowatt hour sales for December were 6. 1 percent below estimates of NSP. Retail � kilowatt hour sales for December were also 3. 7 percent below December of the prior year. (Tr. 490) � Mr. Cox stated that he Sn?as not aware in advance of the � Federal Power Commission Order No. 496 requiring the electric utilities to reduce usage. (Tr. 490) He stated that he � did not know whether or not another such order might be received -284- � � , in 1974. (Tr. 491) He indicated that Mr. Glass would be Imore aware of any decisions made by the Federal Power Commission in regard to curtailed electrical consumption. (Tr. 491) � Mr. Cox explained that the difference in cost per kilowatt , hour for fossil units as opposed to nuclear units was partially due to the fact that a nuclear plant is considered a base load � plant which would run efficiently 24 hours a day at very high capacity. However, a fossil plant would be built and designed � so that it could switch from high to low capacity very quickly. � (Tr. 491-492) However, he also noted that the cost which had been coded for the Sherburne Plants and the Prairie Island � Plants were costs per kilowatt of capability. (Tr. 491) This would be the cost for building the plant and not operating � it. He pointed out that fuel costs for a nuclear plant are much cheaper per kilowatt hour than burning coal. (Tr. 491- � 492) � � � � � ' � , -285- � � Redirect Examination of Mr. James 0. Cox by Mr. Hanson t Mr. Cox testifiPd that Schedule 6 of his exhibit re orted , P 1972 year-end equity percentages. (Tr. 493) HowevAr, the , City' s sheet .from Moody' s, City Exhibit 8, listed the average outstanding during the year. He indi�ated that the difference , between year-end figures and average figures could account for � the difference in figures between his exhibit and City Exhibit 8. (Tr. 493) � Mr. Cox testified that in Schedule 6, short-term borrowings had been excluded in the computation of percentage of equity, r (Tr. 493) Later, after checking City Exhibit 8 with his � Schedule 6, Mr. Cox reported that that Exhibit 8 was taken from a separate page in Moody' s Manual and, unlike the figures shown � by Mr. Cox' s Schedule 6, included deferred income taxes as a part of common equity. , Mr. Cox testified that in addition to scheduled outages � for power plants, there were also forced outages. These are not scheduled, but the probability of certain forced outages � occurring during the year is taken into account in the plant. (Tr. 494) He explained that a forced outage would be unexpected , in comparison to an outage scheduled for, as an example, the � repair of a turbine. (Tr. 494) Forced outages are unplanned, and are caused by the operation itself. (Tr. 494) � � -286- � � , Mr. Cox testified that forced and scheduled outages are , taken into consideration in budgeting and forecasting. Projections � of forced outages are based on past experiences. (Tr. 494- 495) He indicated this was true for both new and mature plants . 1 (Tr. 495) In response to a question regarding the classification of tnew plants, Mr. Cox explained that when a generating plant is deemed ready for operation, the Superintendent of Power � Production writes a letter to that effect to interested parties Lin the company, including the controller. Then, the plant is placed in service from an accounting standpoint. (Tr. 495) , This classification of being "in service�� has no relationship 1 to whether the plant is licensed to operate at 50, or 90, or 100 percent. (Tr. 496) He stated that the general rules , governing classification are part of the Uniform System of Accounts as specified by the Federal Power Commission. (Tr. 496) � � � � � � , , -287- � Recross-examination of Mr. James O. Cox , by Mr. Stearns � Mr. Cox reiterated that in the late summer, NSP changed � its estimates of growth from 8 to 6 percent. After President Nixon had given his speech, the estimates were revised to � between 3 and .4 percent. (Tr. 497) In comparing electric consumption in December of 1973 and � December of 1972, Mr. Cox stated that the December of 1972 was � perhaps very cold. (Tr. 497 498) Mr. Cox stated that although the NSP budget and forecast ' had taken into account forced outages, these outages were longer than had been expected. (Tr. 498) In response to a question t from Mr. Brauch regardin g the estimate for percent increase in kilowatt hour sales for 1974 , Mr. Cox testified that the estimated , percentage increase was approximately 3. 9 percent. He indicated, � however, that consumption could be lower than that. (Tr. 498) Mr. Cox stated that footnote number one in City Exhibit 8 � (average outstanding during the year) did not refer to any of the schedules for comparative data. (Tr. 499-500) However, in � response to a question from Mr. Hanson, Mr. Cox stated that the , footnote number one also appeared in the column under "Value of Preferred Stock and Value of Common Stock" in the same schedule. � (Tr. 500) � � � -288- , � Cross-examination of Mr. Edward C. Glass ' by Mr. Stearns ' Mr. Glass stated that as Director of Planning, he does , have a responsbility in regard to the power pool. (Tr. 501) He indicated that the various utility companies joined together ' in this pool are joined through operating arrangements in the form of contracts. (Tr. 501) He indicated that the purpose � of this pool is to promote the efficiency, minimize the cost of operation, and maximize the reliability of the operation. � (Tr. 501) � Mr. Glass indicated that in NSP ' s planning and operation, sales are arranged in advance. (Tr. 502) Arrangements for � the sale of electricity could be made as much as 48 months in advance. (Tr. 503) � Mr. Glass explained that the advantages of the power pool � included minimizing the capacity which each main system would have to install on its own, minimizing surpluses, and reducing ` the amount of reserve capacity necessary because of the ability to depend upon each other in emergencies. (Tr. 503) He indicated � that having several companies together in a pool was better than , having one or two. (Tr. 503) Mr. Glass indicated that NSP is part of an integrated coast- , to-coast system. (Tr. 504) This system, however, is not for the transmission of electricity in emergencies or for planning � the location of generating plants. (Tr. 504) Rather, Mr. Glass � pointed out that as pools had formed in various areas, these pools then became interconnected with each other on their peri- � phery. As these interconnections grew, the network eventually ' -289- � extended across the country. It was not, however, started � with the thought that utilities would be able to buy and sell � power from coast to coast. (Tr. 504) The witness indicated that most of the sales of power are , within the pool. A very small percentage of the purchase and sale of power would be with utilities adjacent to the pool. (Tr. 5�; In response to questions in regard to the MAPP pool, Mr. � Glass replied that individual companies in the area build ties with other utilities and have interconnection agreements with � each other. Although MAPP does not o�tn any of these facilities, the MAPP organization �ncourages the coordinated undertaking � of studies and accummulation of data. (Tr. 505-507) Electrically, � the pools are tied together so that the MAPP pool is tied to the Wisconsin-Upper Michigan Pool as well as to the Illinois- � Missouri Pool. (Tr. 507) He pointed out that in order for a utility to join in the MAPP agreement, it must have more than � one tie with another MAPP handler and it must also have a dispatchin office and 24-hour communications. Tr. 507- � 9 ( 508) U�ilities which are not large enough to belong to this ' pool are given an associated membership status. (Tr. 508) The intention is that these utilities (primarily municipal utilities) ' will operate through the utility to which they are connected. Thus, municipal� which are associated with Northern States Power , would participate in the MAPP Pool through the interconnections � with Northern States Power. (Tr. 508) Mr. Glass indicated that he had a familiarity with Trans- � mission Study 190, propounded by the Department of Interior. , (Tr. 508) He indicated that it was a study of interconnections -29�_ , , ' across the country, which provided for extra high voltage , ties from the west coast. (Tr. 509) He further stated that the study alluded to plant sharing. (Tr. 509) He explained , that the essence of the plan was to generate surplus power � through diversity, and then to transmit this power from the west coast to Chicago to reduce generating requirements. (Tr. 509) ' Mr. Glass indicated that NSP had participated in this type of a study. (Tr. 509) � Mr. Glass stated that the MAPP agreement is presently being � tested bef�re the Federal Power Commission. (Tr. 509) Mr. Glass indicated that from March of 1963 up to and including ' the present time, NSP has been participating in the Mid-Continent Area Reliability Coordination Agreement. (Tr. 510) He stated , that under the present MAPP agreement, there are 21 participants. , (Tr. 511) Although he did not recall the exact number, Mr, Glass did indicate that there was "quite a list" of municipals � and cooperatives who are opposing the MAPP agreement before the Federal Power Commission. (Tr. 511) Mr. Stearns indicated , that he thought there were perhaps 79 in the initial filing who 1 opposed the MAPP agreement. (Tr. 512) In regard to the MAPP agreement itself, Mr. Glass stated , that for voting in the management committee, there is a compromise formula which takes into consideration both size and existence , of a utility. (Tr. 512) He indicated that NSP has the most , votes, but he did not know whether the exact number was 40. (�.'r. 513) � Mr. Glass indicated that one of the purposes of the Management Committee is to hear appeals from the pool administrative committee. � -291- � (Tr. 513) He indicated that one of the functions of the , Pool Administrative Committee is to review long-range plans � for (1) size and type of generating units, (2) location of such facilities, (3) the time when such facilities should be placed , in operation, (4) the entity which installed such facilities, (5) the purchase and sales between participants. (Tr. 514) ' He ac�nowledged that any member of the Pool Administrative , Committee could appeal a decision to the Management Committee. (Tr. 515) However, he stated that the "Administrative Committee � and even the Management Committee, does not dictate to a system that is going to put in a plant at a certain time and certain � place. " He indicated that long-range plans which are developed � by the Planning Committee, go through the Administrative Committee and are then used by the Management Committee as a basis for the , utility to install a system. However, Mr. Glass stated that the details of these plans are not mandatory on the members. (Tr. 515- , 516) He did state that the acceptance of the plan depends on � a vote of the Management Committee. (Tr. 516) Mr. Glass indicated that there was nothing in the MAPP � agreement in regard to sharing facilities, although he felt that that was the intention of the participants. (Tr. 516) , Mr. Glass stated that members of the Basin Electric Group ' (from Minnesota, Iowa, North Dakota, Nebraska, Montana, South Dakota, Kansas, Colorado and Wyoming) as well as the City of � St. Paul had filed against the MAPP Agreement. (Tr. 517) Mr. Glass indicated that taking advantage of the construc- ' tion conducted by another utility was one of the considerations � -292- , � , involved in a plan for MAPP. (Tr. 518) He indicated that � there was a tie-in with the Missouri Basin Group. He stated , that the idea of sharing their sources of electricity had beer. discussed, although that was not why the ties had been ' made. (Tr. 518) Mr. Glass recalled a meeting in Minneapolis in April of ' 1967 at which time a proposed 345 kilomode transmission line � from Stanton, North Dakota to Minneapolis, Minnesota was discussed. (Tr. 518) He indicated that he was in opposition � to that line, although he could not recall the exact reason for his opposition. (Tr. 519) � In viewing City' s Exhibit 9, Mr. Glass indicated that a , transmission line shown as extending from Stanton, North Dakota to Chicago was not the same line which had been referred , to in earlier questioning. (Tr. 520) Mr. Glass agreed with the statement that an increase in � consumption of electricity is due to air conditioners, but a decrease in consumption may be due to wise energy use. (Tr. 521) � 1 , � ' � -293- � , Cross-examination of Mr. Edward C. Glass ' by Mr. Brauch � In responding to a question in regard to his preparation ' of two charts, one labeled "Historical Load Growth Forecast" and the other labeled "Normative" , Mr. Glass stated that ' historically, predictions for load growth had been made on the basis of data for the preceding five or ten years. (Tr. 522) , However, about a year ago, NSP began to make an effort to � promote a reduced and more efficient use of energy. (Tr. 522) At the same time, NSP recognized that air conditioning was not � saturating as fast as had originally been thought. (Tr. 522) Thus, NSP concluded that it could still maintain a two percent ' reduction in growth, which would be due either to less air , conditioning or a wise use of energy. (Tr. 522-523) � Mr. Glass pointed out that at the same time, however, , NSP recognized that historically the growth of electric energy has doubled the growth of the real Gross National Product. It � was felt that the downturn which was being predicted might not , occur. It was felt that if generation was installed on an absolute basis and only to meet the normative forecast, then � by 1980, the company might have a 600 megawatt shortage. (Tr. 523) Thus, the company decided to stay with this strategy of ' developing an initial schedule of installation which would � match the historical load growth forecast. This schedule would be maintained until the unit was to go on the line. At that ' point, a decision would be made as to whether the unit should be deferred for one year. That decision would be based upon , a last-minute assessment of how fast the load was growing. -294- � , � (Tr. 523-524) Mr. Glass indicated that although it is hard to indicate � in a precise manner how much movement there will be away from gas and oil to electric, it would be possible to make � an estimate. He indicated that by 1978 , there would be a � shortfall in natural gas which would represent about 7 , 000 megawatts of generation. (Tr. 525) Further, assuming that , there would be no more oil coming into the state than was coming in 1972, by 1978 the shortfall in oil would be equivalent 1 to 14, 000 megawatts. (Tr. 525) This would be a total of ' 21, 000 megawatts of generation that would be required. (Tr. 525) He stated that NSP is not "making any attempt to identify � what portion of that is going to reflect itself in electric energy, what part would be reflected on, say, more efficient 1 equipment and one part just not satisfied. " (Tr. 525) However, � he did feel that these shortfalls would be a substantial influence on electric growth. (Tr. 525-526) � , � , � � , , I -295- ' Redirect examination of Mr. Edward C. Glass � by Mr. Hanson � In response to a question by Mr. Hanson, the witness ' stated that Study 190 was unrelated to the line from Stanton to Minneapolis which was the subject of a hearing in April of � 1967. (Tr. 526) Mr. Glass indicated that the 1967 proposal involved the use of NSP lines to transmit power through the , Twin Cities to another location. This was opposed by NSP. � (Tr. 526 527) By contrast, Mr. Glass stated that Study 190 was a project of the Department of Interior aimed at making use ' of the diversity of demand that exists across the country. (Tr. 527) He indicated that the study was discredited for ' several reasons: (1) the diversity did not exist to the extent necessary; (2) transmission lines were not sufficient � to reliably transmit the power; (3) revenue requirements � associated with capital investment were very low. (Tr. 527- 528) 1 Mr. Glass indicated that there was no relationship between Study 190 and the MAPP organization. (Tr. 528) � Mr. Glass indicated that the Highbridge Plant could not � serve the City of St. Paul because it has a total capacity of under 400 megawatts. The City of St. Paul load in 1972 was t approximately 425 megawatts. (Tr. 529) Thus, there would be no provision for reserve. Mr. Glass pointed out that if , a unit were out at the Highbridge Plant, a large part of the ' service in St. Paul would also be out. (Tr. 529) Mr. Glass stated that when a plant is off the line (i.e. , not in operation) , it is not taken off the book. (Tr. 530) � -296- ! 1 In regard to the startup period for the Prairie Island � Plant, Mr. Glass testified that a new plant is not expected , to operate as well the first year or couple of years as it will eventually. (Tr. 530) He further pointed out that forced � outage rates which are over and above scheduled outages vary from ten to twenty percent on units, and could be higher than � this for the "first couple of years, even the first three , years. " (Tr. 531) � , � � � i 1 i 1 � 1 -297- � � Recross-examination of Edward C. Glass , by Mr. Stearns ' Mr. Glass explained that the present MAPP organization , is tighter in that communications are better, coordination is better, and plans are being produced on a regional basis � so that the cost of generation can be optimized as much as possible. (Tr. 531) , Mr. Glass stated that the Highbridge Plant does not , produce more power than is consumed by the City of St. Paul during the year. (Tr. 532) Mr. Glass indicated that the four � units at the Highbridge Plant are being operated "around the clock" . This enables the plant to produce energy ahead. (Tr. 532- , 533) However, in any given day there might be shortages. (Tr. 533)� Mr. Glass explained that, although the company might have a substantial surplus of power on a system, if it can buy energy � at a cheaper rate outside of the system, then it will buy that energy. (Tr. 533) Mr. Glass indicated that he had thought ' Mr. Cox had said that NSP had purchased more energy that it � had intended. (Tr. 534) He made no response to a question relating the purchase of energy to the decrease in earnings per , share. (Tr. 534) , , i 1 -298- � ' � Cross-examination of Mr. Richard W. Rosenwald by Mr. Stearns � Mr. Rosenwald stated that he has been supervisor of � Rate Design and the Rate Research Department of NSP since July 1, 1972. (Tr. 537) Prior to that, he had been a ' rate analyst, a job which involved designing rates, rate ' studies, cost studies. (Tr. 538) He indicated that NSP served 830,590 average customers , in 1972. He explained that that figure did not include the sixteen non�enerating wholesale customers and fourteen or ififteen generating customers. (Tr. 538) Mr. Rosenwald stated that rates are summarized as � Residential, Commercial, Industrial Street Li htin and other. ► g g 1 (Tr. 538-539) In each one of these categories, there would be three components - customer-related costs, demand-related ' costs, and energy-related costs. The witness indicated that ' in designing the present rates, NSP felt that the most important component to recover was the demand-related costs. (Tr. 539) � He indicated that the rate design being proposed was set up in order to cover these demand-related costs. (Tr. 539) � The witness stated that a study had been made of the � minimum bill about two or three years ago. He indicated that the charge for the minimum bill would have been substantially � higher than the $2. 15 presently charged. (Tr. 539) He pointed out that these studies had been made for the entire � NSP Company and would include cities in the rural areas. (Tr. 540) Mr. Rosenwald indicated that he felt the proposed rates , � -299- ' for St. Paul incorporated a basic change in the rate , structure. (Tr. 541) The witness testified that seasonal � rates have been proposed for the basic meter rates, which include the residential service, the new closed all-electric � residential service, the general service, the all-electric general service and the large general service, which includes � the firm and interruptible large general service rate. (Tr. 542) � Mr. Rosenwald stated that no seasonal rates have been proposed for multiple dwelling service, automatic protective lighting � service, large all-electric general service, large commercial service, commercial lighting service, and general power service. i (Tr. 542-543) � The witness indicated that many of the schedules where there are no seasonal rates are closed. (Tr. 543) The witness � indicated that "closed" means that on a certain date a schedule will be closed and no more customers can be served under that ' schedule. (Tr. 544) He indicated that some of the rate schedules , had been closed under a previous rate program, and that as of this date no new customers would be included in those rate � schedules. He indicated that customers under a closed schedule will continue to be served until a schedule is cancelled. (Tr. 544, In response to a question regarding multiple dwelling � service, the witness stated that this service is available to only three-plexes or larger units. He indicated that at � some future date, NSP is planning to eliminate the multiple dwelling and move these customers to the commercial or the , general service schedule. (Tr. 545) He indicated that these ' -300- � ' ' customers could not be moved to general service in a single ' rate program because of the large rate differential presently in effect. (Tr. 545) The witness pointed out that no co�t ' study had prompted him to treat the multiple dwelling services differently from the residential rates; rather, it was the � magnitude of the kilowatt hours. (Tr. 545-546) � Mr. Rosenwald indicated that in regard to the multiple dwelling service, NSP is deviating from its goal of making ' rates more heavily cost-related. (Tr. 546-547) He pointed out that in the City of St. Paul in 1972 , there were about i16 million kilowatt hours sold ta multiple dwelling customers � as opposed to 434 million kilowatt hours sold to regular residential customers. (Tr. 547) � Mr. Rosenwald listed the following reasons for not intro- ducing a seasonal rate for the large all-electric general ' service schedule: (1) The minimal number of customers presently ' being served under that rate schedule. (2) The schedule is being closed. (3) The substantial difference between the ' level of that rate and the large General Service to which these customers will eventually be transferred. (Tr. 547) The witness ' pointed out that in order to cut the difference between the ' large Al1-Electric and the large General Service rate, he had to increase each and every step of the rate by a specific ' percentage. (Tr. 548-549) He indicated that there had been no cost study which had indicated a general percentage increase ' in rates. (Tr. 548) � Mr. Rosenwald stated that there had been no cost study -301- � � , related to the different treatment for large commercial service. He pointed out, however, that this type of schedule i serves only three customers in the City of St. Paul. (Tr. 549) ' In addition, Mr. Rosenwald stated that there had been no cost study related to general power service. (Tr. 549) He � pointed out that this schedule had been closed prior to the present rate program, and that the number of customers i served under this schedule is only 32. (Tr. 549-550) , The witness indicated that NSP had conducted some cost studies in regard to heat sensitive load. (Tr. 550) Mr. � Rosenwald indicated that this Air Conditioning Study was related to the changes made in summer and winter rates only ! to the extent that the study set outside parameters for , rates. (Tr. 551-552) He pointed out that the rates do not go nearly far enough to reflect the results of the cost , study. (Tr. 552) He indicated that he thought the incremental cost for air conditioning proposed by the study was about $.06. ' The end step in the proposed residential rate for St. Paul ' is 2.88� (or $.0288) for the summer rate, well below the $.06 rate. (Tr. 552) ' Mr. Rosenwald stated that June, July, August and September were selected as the summer season. (Tr. 552) He pointed out ' that because NSP uses cycle billing, those customers who , are billed early in June would be paying primarily for May usage. Those billed later would be paying primarily for usage ' ' _3�2_ i ' � in June. (Tr. 553) ' Mr. Rosenwald indicated that he has nothing to do with revenue requirements although he does coordinate rates with ' the amount of revenue indicated as being desirable. (Tr. 553) Mr. Rosenwald indicated that he felt that raising the ' rate schedules would help to eliminate the wasteful use of ' electricity. (Tr. 554) He stated that he had no study which indicates that there is a wasteful use of electricity in St. � Paul. (Tr. 554) Mr. Rosenwald stated that for the most part, the use of electricity is inelastic and that use becomes � elastic only when there is an alternative source. (Tr. 554) , Mr. Rosenwald equated "false growth incentive" with frivolous use of electricity. (Tr. 555) He indieated that � he thought a higher summer rate would make customers more aware of their use of electricity. (Tr. 555) He pointed ' out that although he thought there was still frivolous use ' of electricity in St. Paul, this use had been decreased during the last year due to the publicity surrounding the energy � crisis. (Tr. 555-556) He indicated that he thought Mr. Cox' s statement that usage of electricity had gone down in the ' months of November and December is correct but he did not hear ' him say that. (Tr. 556) Although he stated he did not know the exact figures, he did understand that energy had ' dropped more than demand. (Tr. 556-557) Mr. Rosenwald stated that it was NSP' s hope that seasonal , rates would deter growth. (Tr. 557) He also indicated that � ' -303- ' � NSP expected to increase its revenue under the new summer rates. (Tr. 557) He indicated, however, that the primary � goal of the new rates is to make them demand-related. (Tr. 557- 558) He ointed out that NSP has been experiencing its sharpest ' P increases in costs in the demand-related costs. (Tr. 558) ' Mr. Rosenwald indicated that he did not feel that the higher rates would deter the use of electricity on the hottest ' day of the summer, when air conditioners are certainly going to be on. (Tr. 559-560) He did feel, however, that customers ' with seasonal rates would perhaps raise their thermostats and � not run the air conditioners for as many hours as they did previously. (Tr. 560) He indicated that he had no study ' reflecting these sentiments. (Tr. 560) Mr. Rosenwald indicated that he had looked into the � matter of using the day and night dual meters for industrial ' or commercial establishments. He indicated that although he felt dual metering was the coming thing, he felt that at � this time meter technology was not far enough along. (Tr. 560) The witness indicated that a dual meter would have a clock which � could be set for specific hours of the day or night so that ' energy used for a certain period could be measured. (Tr. 562) He indicated that with such a system, it might be possible to , have night shifts in industry so as to level off the consumption of energy. (Tr. 562) Mr. Rosenwald stated that the rate ' would be related to on-peak and off-peak periods, and would ' - i -304- ' , , include an inducement for off-peak use. (Tr. 563) , Mr. Rosenwald pointed out that dual metering, like � controlled water heating service, is not an easy answer. He pointed out that with the water heating service, there are ' timeclocks. When no energy flows for a specified time and then it is suddenly back on, everybody draws on it and thus ' creates a false peak. (Tr. 563) � Mr. Rosenwald indicated that there are many problems associated with the dual meter, although he has never tested ' this type of inetering. (Tr. 563-564) Mr. Rosenwald stated that the base figure of 400 kilowatt � hoursrefers to homes and apartments which are separately metered. (Tr. 564) He indicated that this figure of 400 kilowatt hours ' is the average use for a residential customer for such months 1 as April and October when there is a negligible amount of air conditioning and heat sensitive load. (Tr. 565) tMr. Rosenwald stated that he had estimated the revenue for 1974 at apgroximately $45,174,916. The revenue as , estimated by Mr. Vixo was $46,052, 000. (Tr. 565-566) In ' explaining the discrepancy between the two figures of $877, 000, Mr. Rosenwald stated that he thought the difference related ' to such items as water pumping stations outside the City of St. Paul but billed to the City and thus excluded by Mr. Rosenwald, ' as well as lighting on the Interstates which go through the 1 City of St. Paul. These also would have been excluded by Mr. Rosenwald. (Tr. 566-567) � Mr. Rosenwald pointed out an error in Exhibit #8-C. He stated that under the title Other Sales to Public Authorities, ' -305- ' ' Water Pumping, the present revenue rate was understated by about $2, 000. (Tr. 568-569) He indicated that this would ' make a change in the percentages listed on the right-hand � side of the page, changing the figu�e for water pumping from 36. 2 percent to 30 percent. (Tr. 569) ' Mr. Rosenwald stated that he had not formalized the fuel clause adjustm�nt to find out what portion of the proposed , increased rates were for electrical service. (Tr. 569) Neither � did he determine what percentage of the proposed rate increase would apply to increased fuel costs and what percentage to � increased electrical service. (Tr. 570) Mr. Rosenwald indicated that on March 19, 1974 , a rate ' increase will go into effect for the balance of the Minnesota ' company, excluding the North Dakota Divisions. (Tr. 570) He stated that the rates proposed for St. Paul are higher than those ' for the remainder of the system. (Tr. 571) He indicated that the St. Paul rates are higher than the Minneapolis rates, for r no other reason than St. Paul rates have an 8 percent franchise fee buried in them. (Tr. 571) ' After studying City' s Exhibit #10, the proposed rates ' for the city of Minneapolis, the witness indicated that wherever a comparable rate exists, and rate comparisons can be made, , Minneapolis rates are lower than those proposed for St. Paul. (Tr. 574) , Comparing the two rates, the witness indicated that the � first 100 kilowatt hours in St. Paul cost 5.87 cents while the same number of kilowatt hours in Minneapolis for both winter and � -306- , i ' summer, cost 5.10 cents per kilowatt hour. (Tr. 574) The , witness indicated that this difference amounts to . 77 cents. (Tr. 575) The witness indicated that if the two figures were ' to be compared, the 5. 1 cents in Minneapolis should be divided by . 92 and then the resulting answer could be compared to ' the 5. 87 cent figure for St. Paul. (Tr. 575-576) After com- ' pleting the computation, the witness stated that the rate for Minneapolis, with an 8 percent franchise fee buried in ' the rate, would be 5. 543 cents as opposed to 5. 87 cents in St. Paul, also with an 8 percent franchise fee. (Tr. 576) , Mr. Rosenwald indicated that he had not based the different rat�for St. Paul and Minneapolis on a cost of service study, ' but rather on revenue requirements given to him. (Tr. 577) � He indicated that although he did not know how the revenue requirements for St. Paul and Minneapolis differed on a per icapita basis, he did know that the revenue figures for Minneapolis , and St Paul were different. (Tr. 578) Mr. Rosenwald indicated that after he had been given the � revenue requirements for St. Paul, he then designed the rate schedule accordingly. (Tr. 579) He pointed out that ' NSP has several rate zones throughout its system. He referred to these as zone double A, zone A and zone B. Both Minneapolis � and St. Paul are zoned double A. (Tr. 580) The witness indicated ' that the present rates in St. Paul are lower than the present rates in the City of Minneapolis. (Tr. 580) In responding ' to a question asking whether the rate design was based upon ' -307- ' i revenue requirements or cost of service, Mr. Rosenwald indicated , that that would depend upon what is meant by cost of service. ' (Tr. 580-581) He indicated that this information was part of Mr. Vixo' s responsibility. (Tr. 581) ' Mr. Rosenwald stated that the rate increase request for St. Paul was 28 percent. (Tr. 582) The rate increase requested , for the remainder of the system was 15 percent, however. (Tr. 582) � He indicated that a partial justification for this difference would be that St. Paul presently has lower rates than other ' double A communities. Thus, when a lower figure is used as the base, the percentage figure becomes inflated. (Tr. 582) , This would not, however, be enough to make up the 13 percent , difference. (Tr. 582) � i 1 f 1 1 1 1 -308- , , ' ' Redirect examination of Mr. Richard W. Rosenwald by Mr. Hanson ' Mr. Rosenwald indicated that St. Paul' s rates have been 1 approximately 4 percent below the rates for other municipalities in the NSP system. (Tr. 583) Thus, a 19 percent increase in ' St. Paul would be equivalent to what is going into effect through- ' out the system. (Tr. 583-584) The witness indicated that with regard to Minneapolis and , other municipalities, there has been no regulatory lag in relation to rate increase programs. (Tr. 584) � Mr. Rosenwald indicated that deterring energy use is a side ' effect of the proposal for a seasonal rate. (Tr. 584) He indicated that the primary reason for the proposed rates should , be to follow demand-related costs. (Tr. 584) He indicated that if it were assumed that seasonal rates had no effect on , energy usage, NSP would still propose a seasonal rate. , Mr. Rosenwald stated that the long-range program for the multiple dwelling rate class was to put that under the general , service rate, which is a seasonal rate. (Tr. 585) He indicated that NSP "will be increasing the multiple dwelling rate schedule , a higher percentage than the general service, and once the two � rates come close enough together, we will close the multiple dwelling rate and eventually cancel it and force these customers 1 to the general service rate. (Tr. 585) He indicated that this could not be done in a single step as part of the present rate � proposal because the individual customers would experience too � high an increase. (Tr. 585-586) Mr. Rosenwald indicated that the seasonal rate concept � -309- ' , has been used throughout the entire NSP Minnesota company. He indicated that there would undoubtedly be administrative ' problems should a seasonal rate be used in other parts of , the system, but natin St. Paul. (Tr. 586) ' ' � � , ' , , ' , , , � � -310- � ' ' Recross-examination of Mr. Richard W. Rosenwald by Mr. Stearns ' Mr. Rosenwald indicated that he realized that the St. Paul , rates would be backdated to March 11. Minneapolis rates would go into effect on March 19. (Tr. 586-587) In response to a � question by Mr. Hanson, the witness stated that the present � rates in the 1VSP system went into effect in June of 1971; however, the St. Paul rates went into effect in January of 1972. (Tr. 587) / Mr. Rosenwald indicated that prior to this time, NSP has put its new rates in at any time the company desired. He ` thought that there might have been a hearing in one or two ' cities which have the right to regulate electric rates. (Tr. 588) However, he indicated that he was not involved in the 1972 St. � Paul rate case, and thus did not know if there had been any consideration given to backdating the revenue requirements. , (Tr. 588) ' , , ' � � ' -311- � � Cross�-examination of Mr. Frank P. Vixo � by Mr. Stearns , Mr. Vixo stated that he is presently the manager of the Rate Administration Department for Northern States Power , Company, and has held that position since July l, 1972 . (Tr. 595) He indicated that prior to this, he had been a � rate analyst. (Tr. 595) � The witness stated that he had prepared the data relating to the test year 1974 and compiled the data for the , 11 months actual and one month projected for the year 1973 . (Tr. 595-596) He pointed out that although these computations � had been made in late December of 1973, a prior filing �i�d been , made in October, which contained operating expenses calculated for eight months actual and projected for four months. (Tr. 596) / He stated that in making this October filing, the information on the first eight months was not totally available until ` about the end of September. (Tr. 596-97) Mr. Vixo •stated that the expenses as of the first filin � 9 were allocated to the City of St. Paul from either the state- , wide NSP system or from the division. (Tr. 597) The witness affirmed that his statement had been later � refiled with updated data . (Tr. 597) He recalled that it had , been filed on the llth of January. (Tr. 597) He indicated that he could not exactly pinpoint when he had all the information ' for the 11 months actual. (Tr. 597-598) He did recall that there had been a press release concerning a 28 percent increase � in St. Paul which he thought might have been dated December 29 , � -312- � ' ' 1973. (Tr. 598) At the time of the press release, Mr. Vixo ' indicated that the data for the 11 months actual may not have been finalized as to conclusions; however, data would have been at ' least available to support the request for a 28 percent increase in rates. (Tr. 598-99) , Mr. Vixo indicated that the October and January filings , differed in that the latter one was based on updated information. (Tr. 599-600) In either case, he indicated that the month of � December was based on forecast data. (Tr. 601) The witness explained that at the end of each month, tkie budget department updates , and recognizes any new changes which are expected to be significant ' enough to require recognition for the rest of the year. In this way, that department is better able to control its opera- ' tions and have a more current reporting of the budget. (Tr. 601) In regard to the December 29th press �e3:ease, Mr. Vixo , indicated that his preliminary work in preparation for the supple- mental filing was probably one of the considerations at the , time of preparing the release. (Tr. 602) He stated he recalled ' that there had been a change in the rate increase from 20 to 28 percent. (Tr. 602) He indicated that these changes were , probably due to higher fuel costs, reduced electricity consump- tion and rising property taxes. (Tr. 602) , Mr. Vixo indicated, however, that these changes in 1 costs and in consumption had not occurred only after September of 1973. (Tr. 602) He pointed out that when the filing had ' originally been made in October, there were serious indications of downward trends in revenues and upward trends in production 1 � -313- � . , costs. When it was discovered that these trends were continuing, NSP made its revised filing, requesting an additional revenue , requirement. (Tr. 603) , Mr. Vixo reiterated that these increased costs are partly a result of substituting estimates based on budgets for estimates ' based on long-range forecasts. (Tr. 604) He further pointed out that the costs which had been indicated in the October filing , were based on long haul indicated trends. However, when the filing was made in January, the company had indications that , the trends were going up more rapidl_y than had been anticipated , in the long-term forecasts, and thus an updating of the costs was necessary. (Tr. 605) ' After further questioning, Mr. Vixo stated that his previous comments had been related to the year 1974 , because � the news release had been based on NSP' s test year, which was ' 1974. (Tr. 608) Thus, he agreed that both of the filings were based upon eight months actual and that the second filing, ' in addition to that, three more months actual. (Tr. 608) Therefore, changes in production, fuel cost, reduced electricity ' consumption and rising property taxes came in the period from ' September 1, 1973 to December 31, 1973 . (Tr. 608) In conclusion, Mr. Vixo stated that the basis for projecting the last four , months of 1973 , would be the saMe "jumping off place" as for the year 1974 . (Tr. 609) ' The witness was referred to the October, 1973 filing ' and the January, 1974 filing. When comparing these two filings, Mr. Vixo noted that costs for production, transmission, distri- , bution, customer accounts and sales had all decreased from October -314- � ' , to January. (Tr. 610-612) The only area which went up ' during this time period was administrative and general costs. (Tr. 612-613) Mr. Vixo stated that these costs are not connected , with fuel costs or rising property taxes; he could not explain what had caused the increase. (Tr. 613) ' Mr. Vixo stated that the administrative and general ' expenses include administrative and general salaries , office supplies and expenses, administrative expenses , transferred � credit, outside services employed, property insurance, injuries and damages, employees' pensions and benefits , franchise require- � ments, regulatory commission expenses and miscellaneous expenses. 1 (Tr. 614) Mr. Vixo indicated that he could only speculate as to which one of these categories had caused the increase of , $65, 000 from October to January. (Tr. 614) Among the possibilities were regulatory commission expenses, since NSP 's activities in ' rate making had generated a considerably heavier charge at the , end of the year. (Tr. 615) In relation to these expenses, would be such things as legal fees and other outside services. , (Tr. 615-616) Another possibility would be a change in pension fund cost, according to Mr. Vixo. (Tr. 616) Although the , witness indicated uncertainty as to the exact cause of the ' increase, he did feel that the change was probably a result of something that was not anticipated in September. (Tr. 616) � Mr. Vixo stated he had no particular concern about the expenses for 1973 . He indicated that he was sure they were , correct and properly accounted for. (Tr. 617) He indicated � that no normalization had taken place for these 1973 figures. (Tr. 617) � -315- i The next area of increase was a $440, 000 increase in � the area of real estate and personal property taxes. (Tr. 618) , Mr. Vixo stated that these taxes were not for a three-month period, but rather were an addition to the annual tax expenses , experienced by the company. (Tr. 618) He termed this discovery of an additional increment of $400, 000 in taxes "a disappointment" . ' (Tr. 619) , Mr. Vixo explained that 1973 data had been placed in the record as a "jumping off place" to look at 1974 for comparative ! purposes, and not estimating purposes. (Tr. 619) He pointed out that the actual data for 11 months in 1973 was not used ' as a basis for projecting 1974 . (Tr. 620) Instead, he indicated � that the data from 1973 is used to measure the reasonableness of the 1974 figures. (Tr. 621) � The witness agreed that while production expenses for 1973 had gone down between the October filing and the January � filing, the projections for 1974 in the October and January ' filings had gone up. (Tr. 621-622) The witness indicated that the figures for transmission, distribution, and customers , had also followed the same pattern, i.e. figures for 1973 went down between the October and January filings, while projections , for 1974 went up during the same time span. (Tr. 622-623) , In looking at the revenue figures for the October and January filings, the witness stated that between October and January, ' revenues had dropped off by $377 , 000. (Tr. 623) He pointed out that these figures were book amounts, that is, recorded revenues. ' (Tr. 623) The witness pointed out that this inability to accurately estimate revenues and expenses was one of the reasons ' -316- � ' � why the company had requested the right to refile. (Tr. 624) � Next, looking at operating income for the year 1974 , the witness agreed that in October, computations had put that � income at $7 ,310, 000. However, in the January filing, this figure was put at $4, 233 , 000, a difference of $3 , 000 ,000. (Tr. , 624) ' � In regard to federal and state income taxes deferred, the witness stated that estimates for 1974 taxes had increased � after the October computation. (Tr. 625) Mr. Vixo explained this difference by pointing out that deferred taxes are a ' function of income tax computations, and are independent of ' net. He explained that the difference between the straight line book depreciation and straight line tax depreciation is m��.tiplied � by the composite income tax rate. This provides generally the amount of deferred income taxes. (Tr. 625) , " . . .Now what obviously took place b�tween the October and January filing is some classification of property � eligible for liberalized de reciation, or for the P ' special tax provided for pollution control facilities in excess of the plant assumed that would be classified , between the October filing and the January filing. " ' (Tr. 625) Mr. Vixo stated that in the 1974 budget, Prairie Island , Plant No. 2 has been included in operations for two months and ' has been included in the rate base as of the end of the year. (Tr. 627) Its inclusion in the rate base would affect the , average rate base for the entire year. (Tr. 627) The witness indicated that Prairie Island Plant No. 1 is operational and has � -317- ' � been included in the budget for twelve months. (Tr. 627) Mr. Vixo agreed that every plant, including the Prairie Island ' Plant, has an influence on both operating expenses and rate � base. (Tr. 628) Mr. Vixo stated that he had used the year 1973 as a � year-end rate base, although he had not used it as a test year because he had made no normalization adjustments. (Tr. 629) , He indicated that one of the reasons for using that year as � a year end rate base was because the 1971 rate hearing had used a year-end rate base. (Tr. 629) However, he indicated that , the decision not to use 1973 as a test year had nothing to do with his decision to use a year-end rate base. (Tr. 629) He , further indicated that there was no use in making a test year out of 1973 if no rates were going to be made for 1973. (Tr. 630) � Mr. Vixo agreed with Mr. Cox`s testimony that "the genera- , tion of internal funds is expected to improve to around 60 per- cent of construction expenditures during the period ending in , 1977 as compared to 48 percent during the past five years. " (Tr. 631-632) Mr. Vixo indicated that one of those internal ' sources would be depreciation. (Tr. 632) � Referring to prior testimony, Mr. Vixo indicated that funds which are normally in construction work in progress include ' an allowable interest rate capitalized to be depreciated at the time the plant goes into service. (Tr. 633) He indicated ' that it was NSP ' s suggestion in the present rate hearinq that ' all of the construction work in progress be put in the rate base. (Tr. 634) He stated that this would include all of the ' accounted-for amounts in the construction work in progress accounts. -318- � ! i (Tr. 634) This would include the allowable interest to ' be recovered. (Tr. 634) , Mr. Vixo estimated that for I974 , the allowable interest would be approximately $2 ,899 , 000, although he indicated he had � not determined the amount of actual interest during construction which mi,ght be . included in the construction work in progress . � (Tr. 634) He indicated that the rate at which interest is � capitalized during construction each month is 8 percent. (Tr. 634) Mr. Vixo indicated that the allowance for funds during ' construction is characterized as additional income. (Tr. 635) He pointed out that this allowance would be the cost of interest ' plus a reasonable allowance for any other funds used during construction. (Tr. 635) He indicated that these funds are � not internally generated funds but are rather the funds of � the company dedicated to construction, and thus would be a total pool of funds. (Tr. 635) This pool, however, would not iinclude depreciation. (Tr. 635) The witness pointed out that the rate of return is used , to compute a reasonable amount for the use of internally generated � funds. (Tr. 636-637) He indicated that the company had decided that an 8 percent rate for capitalizing interest during construc- ' tion was reasonable. He further stated that if this rate were tied to current costs, it would be 8 1/2 percent. (Tr. 637) ' He indicated that this rate is set within the parameters of � a reasonable basis that will normally recover approximate costs, as well as the "problem of the impact on the quality of earnings � of having heavy or excess earnings coming from the allowance for funds during construction. " (Tr. 637) � -319- � Mr. Vixo indicated that he had computed the allowance � for funds during construction for 1973 in the following manner: , First, he took an average of the construction in progress for the years 1972 , 1974 , 1975 and 1976. (The figures for the 1 years 1974 through 1976 were estimates related to NSP ' s total construction financing program. ) Mr. Vixo indicated that he � thought the actual allowance for funds used during construction � in 1973 was $28,120, 000. This figure, if it were allocated to St. Paul on the basis of 12.67 percent, would yield a figure � of $3, 563 , 000. Instead of using this actual figure for 1973 , however, Mr. Vixo used the figure of $2 ,�05, 000 as the normalized , allowance for funds during construction. (Tr. 638-641) ' Referring to the U niform S ystem of A ccounts , Mr. Vixo stated that account #426. 1 donations will be considered below the lin� of operating income. (Tr. 644-645) For 1973 , this account totalled $79 , 000. (Tr. 645) ! Going back to the 1971 rate hearing, Mr. Vixo stated he could not recall whether he had used both 1970 and 1972 as � test years. (Tr. 645-646) Mr. Vixo stated that, as of this time, � he had not computed a 1973 year-end test year. (Tr. 647) With 1974, however, he had computedan average year rate base. (Tr. 648) ` Mr. Vixo stated that he had sent Dr. Herz a copy of his ' exhibits. (Tr. 648) Sometime prior to the final prepara- tion of his exhibits, he had supplied Dr. Herz with the ratios , of the original cost rate base to the fair value rate base. (Tr. 648-649) � Mr. Vixo indicated this ratio could be applied to the original cost rate base in order to compute the dollar amount � -320- � i i � of the fair value rate base. (Tr. 650) He further pointed out that this ratio was between an average yearesrigirial cost rate base ! and an average year fair value rate base, based on 1974 data. (Tr. 650) ' Although Mr. Vixo was not aware of the exact percentages ' for year-end common stock equity, he did believe that figures indicating that this percentage was rising were correct. (Tr. 651- � 653) Mr. Vixo indicated that he had participated in the ' decision to change the rate base from 50 percent trended original � cost and 50 percent original cost to 33 1/3 trended original cost (based on Handy-Whitman Indices) and 66 2/3 original cost. ' (Tr. 653) He indicated that one of the reasons he felt this change was an appropriate one was because of the common ! stock equity. (Tr. 653) ' Mr. Vixo indicated that the presently proposed rate base, with its ]./3 trended original cost, is an approximation � of the cost of common equity. He stated that he felt this percent should relate to the future trend of common equity ! so that a reasonable approximation can be made of the "weight � necessary to trend an original cost in the determination of the cost of service. " (Tr. 654-655) � Mr. Vixo indicated that there is no way of ineasuring the revenue needed without the use of a rate base. (Tr. 655) ' By way of further explanation, Mr. Vixo pointed out that a � revenue requirement starts with the rate base times the rate of return, which includes provision for all costs. (Tr. 655) � -321- � i P�:oving on to a discussion of the fuel adjustment clause, Mr. Vixo indicated that the cost of fossil fuel in 1973 ' was 43. 99 cents per million BTUs and the cost of nuclear fuel , � consisting of active and inactive uranium, is 16 . 5 cents per million BTUs. (Tr. b56-657) Although Mr. Vixo stated that he � was not particularly familiar with the fuel costs , he did feel that adjustments for fuel were made in 1973 by adding . 013 ' cents to each kilowatt hour for each cent increase. This was � done regardless of whether the electricity was generated by fossil fuel plants or nuclear plants. (Tr. 657-658) Mr. Vixo ' indicated that this could have meant that there was an over- charge as far as nuclear plants were concerned, as long as there ! was no adjustment in the number of units against which the rate was applied. (Tr. 658) He indicated that he did not know , whether such an adjustment had been made. (Tr. 659) � Mr. Vixo stated that he would have to check the figures for an energy allocation factor to St. Paul as well as the ' percentage growth between 1973 and 1974 in St. Paul. (Tr. 659- 660) He did state, however, that both he and Mr. Cox had used � a figure of between 3 and 4 percent for the 1974 growth rate ' for the NSP system. (Tr. 661) � i 1 1 -322- � ' � Cross-examination of Mr. Frank P. Vixo by Mr. Mahlum ' Referring to the section entitled "Operatinq Revenues" ' in Schedule 1 of his exhibit, Mr. Vixo stated that revenues from the city of St. Paul totalled approximately $46 , 000 , 000 ' for 1974. (Tr. 662) He explained that the other operating ' revenues were credits for some energy that had been sold outside of the NSP system. (Tr. 662) Mr. Vixo explained the method ' used to allocate to St. Paul its share of these credits. (Tr. 663) He pointed out that the coordinating agreement covers both the , Minnesota company and the Wisconsin company. He stated that ' there is a contract which determines the ratios by which the jointly used production and transmission facilities and output � are to be allocated, " . . . taking into account the demand shall be used ' to recognize the fixed charges and capacity and ' costs; that energy will be used as a basis for allocating the energy-related costs, and that . . . ' all transmission costs should be regarded as fixed costs and allocated to a fixed or demand � basis. " (Tr. 663) ' He testified that the formula which is used is the same for revenue as it is for demand, the net effect of the ' formula being to convert expenses to revenues and credit. (Tr. 664- 665) ' Mr. Vixo stated that the factor used in allocating production ' -323- ' � expenses as well as transmission expenses is peak demand. ' (Tr. 665) He pointed out that the allocation of customer ' accounts is primarily a matter of sharing in the accounting of customer accounts on the books and records. (Tr. 666) Mr. ' Vixo testified that for 1974 , he had taken the relationships over the years of these accounts and then used that "to spread ' the budgeted figures down to the City of St. Paul. " (Tr. 666- ' 667) In regard to real estate and personal property taxes, � the witness testified that taxes on production facilities would be allocated from the production system, while transmission taxes ' would be allocated from the transmission system. These taxes ' would then be allocated to the City of St. Paul on the basis of the allocation factor of 13 percent. (Tr. 667-668) � Referring to the section marked "Administrative and General" in his Schedule l, Mr. Vixo explained that this section includes ' a combination of two percentages for "labor" and "other" . (Tr. 668� 669) Mr. Vixo explained that 2.11 percent of the labor was allocated to St. Paul, while 2 . 36 percent of the other component ' was allocated to St. Paul. (Tr. 669) He explained that the 2. 11 percent figure was obtained by multiplying 85. 6 percent (the � allocation of the total labor for the Minnesota portion of the ' company apportioned to electric production) times 17 . 68 percent (the portion of all NSP expenses allocated to administrative and ' general) times 13. 97 percent (the allocation factor for St. Paul) . (Tr. 669-670) , The witness testified that although contributions to charities � -324- ' � � do not normally appear in the administrative and general ' section, he apparently had included it in that category in his exhibit. (Tr. 670-671) In regard to these charitable ' donations, the witness explained that two major items which ' were in the St. Paul division had been established as donations to be allocated to St. Paul. (Tr. 671) These two items were � the St. Paul United Fund, and a $14 , 000 contribution to Edison Electric Institute, National Association of Electric Companies, ' Northcentral Electric Association, and Northcentral Electric ' League. (Tr. 6�1-672) Mr. Vixo stated that this last contribu- tion probably should not have beenincluded. (Tr. 672) � Mr. Vixo testified that ordinarily, the cost of shareholders ' meetings and communications with shareholders would be included ' in overall operating expenses. (Tr. 672) Referring to a proxy � battle between Northern States Power Company and an organization known as CAPUR, Mr. Vixo stated that he had totalled the extra- , ordinary expenses, amounting to $223 ,554 , and compared those expenses to the estimate for 1974 under the appropriate account � as indicated by the Uniform System of Accounts. (Tr. 672-673) � This budgeted amount was subtracted from the extraordinary expenses, leaving a total of $190,524. (Tr. 673) Following standard , procedure, this amount would be allocated to the electric utility at 85. 9 percent and then allocated to the City of St. Paul at � a rate of 13. 705 percent. (Tr. 674) Mr. Vixo explained that � this percentage was the administrative and general normal pro- portional factor for other expenses in 1973 . (Tr. 674) However, ' Mr. Vixo explained that the portion which would have been allocated ' -325- � � to St. Paul of the expenses incurred in this proxy battle, were actually excluded from allocation by the chairman of the board. ' (Tr. 675) In response toa question from Mr. Mahlum regarding the , possibility of comparing revenues for the City of St. Paul and , revenues from the NSP system in Minnesota and then allocating expenses on the basis of the number of kilowatt hours used, Mr. � Vixo declared that such a system would not "work justice. " He indicated that NSP' s purpose in "making a cost of service study ' is to assess costs to the people who are getting the benefit , of the service. " (Tr. 676) As part of his questioning, Mr. Mahlum indicated that he thought it was possible that, since � NSP is in control of the va=ious formulas which it uses in allocating expenses to St. Paul, that St. Paul � might be paying a higher percentage of expenses than it � should in comparison to the amount of electricity being used by the city. (Tr. 678) , Responding to a question regarding NSP's proposal to set up a $6 million credit to customers outside the city of St. Paul, � the witness explained that he thought such a fund would have � to be set up on some basis which would recognize billing under two different rates or provide for a differential. Using , supplementary accounting, sales would be double priced until a summation of all of the differences in those pricings over a �i period of time equaled $6 million. (Tr. 679-680) , The witness maintained that NSP had never admitted that , -326- ' , � it had overcharged customers outside of St. Paul by $6 million. � (Tr. 681) In response to questions , Mr. Vixo stated that he knew , nothing about excess revenues which might have been extracted from other areas outside of St. Paul. (Tr. 683) � Mr. Vixo testified that he could not provide a figure 1 for the total revenue needs system-wide for 1973. (Tr. 684) He stated he could not do so because he felt it was historically ' speculative. (Tr. 684-685) The witness pointed out that revenue needs are the sum � total of all of the costs of service. In order to estimate � these revenues needs, it would be necessary to arrive at a total complete cost of service for the entire system. (Tr. 686) He 1 stated he had never done this because he has never had rate making responsibility for the total system. (Tr. 686) � Mr. Vixo pointed out that the greater amount of common � stock which will be issued by NSP would show up indirectly in the manner in which Dr. Herz had arrived at the rate of return. � He stated that there would be a higher rate of return if the 35 percent weight of common equity were recognized. Further, , there would be an additional income tax coverage, offset by La reduction in the amount of interest which would be deductible for computing income taxes. (Tr. 686-687) ' � � � -327- ' � Redirect examination of Mr. Frank P. Vixo by Mr. Hanson ' Referring to revenues which �e had projected for 1973 , in his October and January filings, Mr. Vixo stated that his October projection had been higher than the one he had � made in January. He indicated that this was the result of a � decline in the growth of sales during that period of time. (Tr. 687-688) He further stated that there is a direct relation- , ship between a decline in the growth of sales and a reduction in production costs. (Tr. 688) � Next, Mr. Vixo accounted for the increase in production � expense which he had projected for 1974. He indicated that between October and January, his estimates for fuel and power , costs, labor, and other expenses had increased. This, in addition to a reduction in costs due to a reduction of sales, , amounted to a total increase in production costs of $1,702 , 000. (Tr. 688-689) � Mr. Vixo also accounted for increases in his 1974 projections ' in the areas of transmission expenses, distribution expenses, and customer accounts. (Tr. 689-690) , Mr. Vixo stated that under the present fuel clause, � which includes a 12 month moving average provision, the possibility of overcharge is not great. (Tr. 690) He indicated that this ' was so because the principal increase in fuel costs is in fossil fuels. Since the next major plant will be a fossil fuel plant, i any savings in nuclear fuel will not begin to affect this increase , -328- � ' � in costs for some time. (Tr. 691) He suggested that the � proposed amendment to the fuel clause would eliminate this ' lag and would also treat separately nuclear and fossil fuel. (Tr. 691) , � ' � � � � , , ' � 1 � i -329- ' , � Recross-examination of Mr. Frank P. Vixo by Mr. Stearns � Under recross-examination by Mr. Stearns, Mr. Vixo � indicated that he has recently learned that there will be a change in NSP pension costs from 1973. This change would � bring about a reduction of cost in excess of a million dollars. � He indicated that this reduction would bring about an increase in the net revenue for 1973. (Tr. 693) , � 1 ! 1 1 1 1 � t � -330- , ' r � � � � � � � � � � . � ��. . � ' CROSS EXAMINATION OF ' • CITY OF ST. PAUL' S WITNFSSES ' � 1 ' ' 1 1 ' 1 ' . � � Cross-Examination of Dr. Ross M. Robertson by Mr. Hanson , Dr. Robertson stated that he had used the cost of ' capital approach in order to determine the rate of return. He indicated that he had looked at both the historical cost � of capital to NSP as well as the current cost of capital to � NSP and had then averaged the two on a 50-50 basis . (Tr. 817) He testified that he had computed his rate of return recom- , mendation solely on a basis of original cost. (Tr. 818) Dr. Robertson testified that a fair rate of return is � vital to a utility in order that it attract the necessary � capital for future expansion. (Tr. 818-819) Dr. Robertson defined attrition as the erosion of the 1 dollar return, resulting from inflationary pressures . He indicated that a utility would be affected by inflation not ' only as it related to construction costs , but to operating 1 expenses as well . (Tr. 820) Dr. Robertson stated that it is possible that a utility , would suffer attrition because of regulatory lag. (Tr. 821) He agreed that one way of dealing with regulatory lag might ' be through the use of projections . (Tr. 821) � The witness stated that he had heard of the term "regula- tory risk" , but he felt that it was not an apt phrase, since � any utility such as NSP realizes that upon going into business, it will be subject to regulatory authority. (Tr. 824) He did � not agree that regulatory risk should be taken into account when , calculating a rate of return. (Tr. 824) However, he did state that the current energy crisis as well as the risk inherent � -331- ' in the company' s capitalization structure are factors to be considered in determining a rate of return. (Tr. 824-826) � Dr. Robertson agreed that NSP needed a rate increase in ' order to avert the possibility of derating of its bonds. (Tr. 826) He agreed that he had used the word "substantial" in referring to , a rate increase. (Tr. 827) When questioned about the rate of return which he had re- � commended in the 1971 Indiana rate hearings in which he had parti- � cipated, Dr. Robertson first stated that he did not recall having recommended a 15/ return to common equity, but did later acknowledge, the accuracy of the transcript disclosing such testimony. (Tr. 828- 832) r Dr. Robertson agreed that he used only one test, the earnings� price ratio test, in arriving at his rate of return recommendation. He indicated that giving half weight to the historical cost of ' capital favored the utility customers, while giving half weight to the current cost of capital was more favorable to the stockholder. � (Tr. 833) He further stated that his recommendations were based , solely on market data and did not take into account any � book value based data . (Tr. 833-834) Dr. Robertson did not agree that his ' figure for the cost of senior equity did not represent the actual cost of debt to the company at the present time, e ven though he had , arrived at this cost by averaging the current cost and the � historical cost. (Tr. 8�4-839) The witness agreed that if his method of computing the � debt were to be changed, then his overall method would have to be changed. (Tr. 841) He stated that if the 5.9% figure � -332- � � � ' were used as the cost of debt capital, then his overall rate � of return would be lower. He indicated that this would prob- , ably not be fair to NSP. (Tr. 842-843) He indicated that there are methods available for adjusting the costs of debt and 1 common equity if the method used for computing the one differed from the method used for computing the other. (Tr. 843) , The witness stated that it was his contention that the � best way to ascertain the cost of capital to a company is to see what it actually cost them when they "went to market for it" . � (Tr. 844) He indicated that the 10.77% figure which he had arrived at as the current cost of common stock did not represent � what the investor required, but rather what it cost the company Ito raise the issue. (Tr. 845-846) The key figure for the investor to look at would be the earnings price ratio, which � would be what the investor would expect to receive as a return on his investment. (Tr. 847) , Although Dr. Robertson agreed that he had averaged down , the earningsprice ratio of 1973 by giving equal weight to the historical earnings price ratio, he did not agree that an � investor who invested in 1973 would not in the future receive the return indicated by the earnings price ratio in 1973. (Tr. 848-849) , The witness acknowledged that he had not recommended a return � to common equity consisting solely of what NSP had to pay in 1973 to raise capital. Instead, he had averaged the 1973 cost , with the historical cost, thus arriving at an overall recommend- ation on return to common equity which was less than the cost of ' -333- � � common equity in 1973. (Tr. 851) � He explained that an investor could still receive the same return as the current cost of common equity calculation � because the return depends entirely on the market performance of , the company' s stock and the decisions of its top executives and board of directors as to what the dividend rate will be. , (Tr. 852) He further stated that the earnings per share are not affected by the arithmetic of computing the cost of cap- � ital unless the earnings of the firm are reduced. (Tr. 854) � He stated that it would be impossible to know what the company' s future earnings price ratio would be, although it would definitely� depend upon the company' s earnings as well as the operations of the company as a whole and rate base items. (Tr. 854-855) ' Dr. Robertson indicated that he felt the next stock issue , of NSP would probably cost at least as much as the 10. 77� figure which he had calculated for 1973, although he did not know � whether the recommendations which he had made would provide for that cost of equity if NSP were to go into the market immed- t iately. (Tr. 855-856) ' The witness explained that he had made no comparison between NSP and other public utilities because he felt that to � do so would be to make rates on the basis of "some kind of an average of wn�t' gublic utilities . . . earn, " thus making �h�e ' rate making process "a kind of average of jurisdictional � views regarding rate of return. " He indicated that the same reasoning held true for his decision not to compare NSP with � industrials . He felt that such a comparison would "miss the whole point. " (Tr. 856-857) ' -334- � � Dr. Robertson indicated that one of the goals of hi:s . , recommendation for a rate of return, would be to make NSP 's � common stock generally attractive to investors . In doing so, � one of the factors which must be considered is w hat other ' companies have to pay for capital . However, the witness stated that he had made no comparison between the cost of ' NSP ' s common stock to the cost of stock for other utility ' companies. (Tr. 859-860) Dr. Robertson stated that he had based his figure for � the cost of common stock equity on market data. He had intended ther� to apply that figure to an original cost rate ' base. He acknowledged that he had made no attempt to convert � the market figure for his rate of return into a book figure in order to apply it to a book value rate base. (Tr. 860-861) � He did not agree that the application of rate of return derived � from market data to an original cost rate base would automat- ically reduce the earnings of the company or force the market , price of the stock to decline. (Tr. 861-864) He denied that it would be desirable for regulation to force the market , price of the common stock of a utility to book value and stated � that `.he had not intended to do so with his method. (Tr. 865) Rather, because the figure which he recommended as a rate of , return was higher than what the company is now allowed to earn, there would be an increase in earnings rather than a decrease. � (Tr. 865-866) , Dr. Robertson stated that he had not actually computed the amount in dollars which NSP would receive as a resuli: of , the rate of return that he recommended. (Tr. 866) However, at -335- � � the 8 1/2$ figure which he had recommended as a rate of return, , he and accountants had determined that there would be an increase in revenues of $1,505,000. He indicated that this would be � a substantial increase. (Tr. 868) The witness stated that he had made no calculations in , regard to the effect which his recommended rate of return would , have on the coverage of NSP ' s senior debt c�st. (Tr. 869) He indicated that he felt coverage was an important consideration, in the rate of return, but he felt it was an accounting problem. (Tr. 870) He further s�ated that he had not made any calculation� in regard to whether or not the rate of return which he had ' recommended would allow NSP to maintain the level of coverage for 1974 required by the terms of its debentures . (Tr. 871) ' The witness agreed that historically there has been a � differential between the return on common equity and the return , on bonds, due to the greater risk factor involved in investment � in common equity. He agreed that if Dr. Herz ' s differential of 5. 5$ were applied to the recent cost of debt for NSP (8 . 39$) , ' the result would be a common equity return of about 13$ to 14�. (Tr. 871-873) , Dr. Robertson indicated that although he thought a company' s' coverage ratio as well as its capitalization structure were importas factors, he stated that he had not really studied or calculated , these factors for himself. (Tr. 874-875) , Finally, the witness stated that he felt there was no reason why tr.e rate of return should be less at the present ' tiine than it was in 1971, and in fact, should probably be higher. (Tr. 875A) , -336- � , ' Redirect Examination of Dr. Robertson by Mr. Stearns � Dr. Robertson indicated that at an 8$ rate of return, ' there would be implicit 12.T2$� return to book equity, and at 8.5% there would be implicit a 13.82% return to book equity. ' {Tr. 879) � ' , , , � , � ' ' , � ' -337- � ' Cross-Examination of Norman G. Rising ' by Mr. Hanson Mr. Rising agreed that he had made several adjustments , to the rate base proposed by NSP . First of all, he had used , a 1973 test year as opposed to the 1974 test year used by NSP, reducing the rate base by $12, 000, 000. Secondly, ' he proposed an original cost rate base, while NSP had proposed a fair value rate base, thus decreasing the rate base by about , $15 , 000, 000 to $16 , 000, 000. Thirdly, the witness had eliminated ' Prairie Island from the rate base , for another reduction of $31. 8 million. Fourth, he also eliminated construction work in � progress , amounting to about $37. 6 million. Finally, working capital elements had been eliminated by Mr. Rising, further ' reducing the rate base by $5. 3 million. (Tr. 881-882) These adjustments thus reduced NSP ' s fair value rate base of $208, 000, � 000 to $103, 000, 000. (Tr. 883} � Mr. Risinq indicated that all of his prior experience in rate hearings had been in the state of Kansas , working for the ' Kansas commission. (Tr. 883-884) The witness testified that his definition of attrition � (the erosion of the rate of return due to constantly increasing , the costs of plant rendering the same type of service) did not include the inflationary effect on the operating expenses of the � company. (Tr. 884-885) He did agree, however, that the infiation of operating expenses, as well as investments required , to meet new pollutian standards , and regulatory lag, would cause � an erosion of earnings . (Tr. 885--886) , -338- � , ' Mr. Rising indicated that the use of a projected test year is a new though limited approach to dealing with the problem � of attrition. (Tr. 886) However, he did not aaree that the ' use of projections would deal more directly with the problem of attrition than would a historical year. (Tr. 888) Rather, , Mr. Rising indicated that he had dealt with the problem of attrition by .one, using an end of period rate base, and two, , adjusting the historical test year for known and determinable � changes. (Tr. 888) The witness did not agree that the use of an end of period 1 rate base would not offset attrition if the revenues or expenses of that year were adjusted to assume that the end of period ` rate base was present all year. Even if such adjustments were made to revenue and expenses, the witness indicated that there ' would still be an offset to attrition in the fact that 100$ of � all plants placed into service would be recognized in the rate base. (Tr. 890) He did not feel that making such adjustments , would reduce the revenue requirements; on the contrary, annualizing to the end of period would, in 75� of the cases , � increase the expense in excess of the amount that �evenues ' would be increased. (Tr. 891) The witness did not indicate whether or not his adjustments ! to the year end rate base had increased expenses . He indicated that it was his objective to increase expenses for those changes � which he knew and recognized. (Tr. 892) Finally, Mr. Rising ' stated that he was not familiar with any jurisdictions which, when using an end of year rate base, intentionally do not make , adjustments to revenues and expenses in order to offset against attrition. (Tr. 892) � -339- ' Mr. Rising did not agree that the primary intention , of a fair value rate base would be to recognize attrition. (Tr. 893) Mr. Rising said that he was aware that the decision i in the previous rate hearings in 5t. Paul had been to use ' an end of year rate base and to make no adjustments to reflect what revenves or expenses would have been had new items been in the , rate base for the full year. (Tr. 895) He indicated that he felt it was not proper to include plant additions occurring , early in 1974 in a rate base. He indicated that his theory � of making adjustments for known and determinable changes applied only to items on the operating statement of expenses � and revenues . (Tr. 895-896) It was his contention that any known and determinable changes which were not offset by pro- , ductivity gains or additional revenues should be included as , a part of the test year, as long as they match the end of period rate base. (Tr. 898) � The witness stated that construction work in progress should not be included in plant in service (i .e. used and useful toward , the rendering of service) or eligible for a rate of return until � "t hat particular plant has actually been placed in service and given the opportunity to earn revenue for the company. " (Tr. 898- , 900) The witness agreed that, according to the Federal Power Commission' s Charter of Accounts, the criteria for transferring , a plant from construction work in progress to plants in service_ � is that the plant be operational or ready for service. (Tr. 900 901) He indicated, however, that the terms "operational" and , "ready for service" were the subject of much debate. (Tr. 901) , -340- � , ' According to the FPC Charter of Accounts , explained Mr. Rising, the procedure for treating property which is in the ' construction work in progress account is to capitalize all overhead expenses . (Tr. 901) When a plant is transferred � into the plant in service account, then all expenses relating � to it are flowed through to the income statements . (Tr. 902- 903) . � The witness characterized AFDC as an accounting process which allows the company to be compensated for a loss of earn- � ings on a particular project during a construction period, and � allowing the company a greater return over the useful life of the property. (Tr. 904) He indicated that when the plant is � still co�sidered as construction work in progress , AFDC is treated so that the expense items are added to the cost of , construction so that they will be in the rate base and thus � bring about a greater rate of return. During this time the expenses are classified as revenues, for bookkeeping purposes. � (Tr. 905) � Mr. Rising stated that when a plant is reclassified as � plant in service, items in AFDC are no longer added to the ' cost of the plant. Thus, they would no longer be recorded as revenues. (Tr. 9�5-906) , The witness stated that he didn ' t think that FPC rules required anything other than a plant be operational and ready � for service before being transferred into the plant in service � account. (Tr. 906) He stated that he was only generally aware of the testing phases which apply to both nuclear and steam iplants. (Tr. 906-907) He agreed that it had been his testimony that the FPC requires that all costs and expenses during the � -341- � testing period be capitalized as part of plant. (Tr. 907) , In response to a question regarding the characterization of these rules, however, Mr. Rising indicated that he was , not sure whether the rules regarding the treatment of costs � during testing periods were mandatory or permissive. (Tr. 908- 909) � Mr. Rising indicated that it was his opinion that the FPC encouraged the transfer of the plant out of testing ! and into plant in service as quickly as possible, but he � didn' t believe there was any requirement forcing a company to do so. (Tr. 910) � Mr. Rising indicated that reclassification of a plant from construction work in progress to plant in service was � a matter of judqment regarding the physical condition of the P lant and its capacity to generate power, which would be ' engineering factors. (Tr. 911) He stated, ho��ever, that he , had not obtained the assistance of an engineer in his determ- ination of the proper classification for the Prairie Island � plant. (Tr. 912) � The witness indicated that he did not know whether the condition of the plant on the date that it was classified , was the controlling factor in determining whether the plant was ready for service. (Tr. 913) Instead, he felt that the ' relevant time period in regard to the classification of plant � would be "reasonable period prior to the reclassification and a hindsight look at the subsequent operations of it. " (Tr. 914) � He indicated that it might be possible to reverse an opi�lion as to the classification of a plant if subsequent events showed � that the plant was not operational. (Tr. 914) -3a2- � � ' Mr. Rising acknowledged that prior to December 16 expenses relating to the Prairie Island plant and AFDC items ' were capitalized and reported as revenue. (Tr. 915) Subsequent ' to December 16, 1973, the witness indicated awareness that the company had flowed expenses for the Prairie Island plant through � into the income statement. (Tr. 916) Thus , after December 16 no further expenses were capitalized or added into the cost of ' the plant to thus become part of the rate base. (Tr. 916) � Mr. Rising indicated that he had no knowledge as to whether or not the company could reverse its classification of a plant � or if the FPC rules provided for a reversal of a plant c�.assifi- cation at a subsequent date. (Tr. 916-917) ' Mr. Rising stated that he had not specifically inquired ' as to whether or not NSP engineers approved of the reclassifi- cation of the Prairie Island plant, or whether or not NSP' s � independent auditors had reviewed that classification. (Tr. 917- 919) Neither had he inquired as to whether the classification , had been reported to the FPC. (Tr. 919) However, he did agree 1 that the accounting treatment of Prairie Island expenses and AFDC, both before and after classification, was consistent with � requirements of the FPC and with good accounting practice. (Tr. 920-921) ' Mr. Rising agreed that NSP was no longer capitalizing ' any AFDC items in regard to unit number 1 of Prarie Island. He did not agree, however, that NSP would receive no return ' on the Prairie Island plant if it were not included in the rate base. (Tr. 921} Rather, he indicated that NSP would start to � earn a return on the Prairie Island plant once it started to � generate revenues . ('�r. 921) He further stated that because -343- � he felt the revenues and expenses attributable to the Prairie , Island plant were not easily estimated, his best course of action was to simply eliminate the plant from the rate base , and remove any expenses associated with the plant from Decem- , ber 16 through December 31 so that he would have test period revenues and expenses that would be properly matched with the ' rate base. (Tr. 922-923) Mr. Rising stated that because he could only estimate ' revenues and expenses for the Prairie Island plant, he could � not say with certainty that the plant would have generated its own return. (Tr. 924) He could only guess, based on average � figures for revenues per kilowatt hour and the expenses per kilowatt hour for the Prairie Island plant, that there would ' be a good chance that the plant would provide its own return. , (Tr. 926) However, he could not state a specific amount of return for the year 1974 because the Prairie Island plant was � still down. (Tr. 927) Mr. Rising agreed that if the Prairie Island plant were , not classified as construction work in progress , then it would � not get any returns through the capitalization of expenses or AFDC items . (Tr. 928) He further agreed that whatever � items of plant were not included in '-�.he rate base during this particular hearing would not get a return as a result of the ' rate to be determined during the present proceedings. (Tr. 931) , In reviewing the condition of the Prairie Island plant as of December 16 , 1973, Mr. Rising stated that he had requested , from NSP information relating to the production of the plant. (Tr. 931) He also indicated that he had reviewed a license , which authorized the plant; to operate up to 20� of capacity. (Tr. 932 -344- � ' � However, he stated that these twa items were not really relevant in his decision as to whether or not to include ' Prai 'rie Island in the rate base. Instead, he based his � decision upon his determination th�t it was not possible to aceurately estimate the normalizing adjustments to revenues ' and expenses . (Tr. 933-935) He stated that he made no particu- lar determination as to whether or not P�airie Island was ' operational on December 16 , 1973. (Tr. 935-936) ' Mr. Rising indicated an unfamiliarity with the pre- operative testing which the Prairie Island plant had undergone. � (Tr. 936-937) Neither had he examined figures relating to peak generation of the plant. (Tr. 937-939) He also stated , that he had made no examination of the minimal and customary , down time for nuclear generating plants, although he did realize that it is a necessary part of the operation of a � nuclear plant to have it down for service, maintenance, and refueling. (Tr. 939-941) ' The witness acknowledged that there were other items � of plant which came into service during the year 1973, but were not in service for the full year, that were included in ' his recommended rate base. He did not, however, indicate any specific piece of property. (Tr. 941-942) He indicated that � with regard to these items of plant, he had not specifically � restated revenues or expenses to reflect their inclusion in the rate base. He pointed out that he could take this course ' of action because these items of plant were not ne�rly as material as the Prairie Island plant by itself. (Tr. 942) ' Mr. Rising explained that NSP would obtain a double return from its Prairie Island plant if: � � thF plant were ' -345- ' included in the rate base and ratepayers would be charged 1 rates to cover a rate of return on the plant without benefit of production from the �lant; and 2) t'he plant came into ' production and created kilowatt hours which were then sold ' to customers, thus creating a second rate of return. (Tr. 943-944) With regard to this second rate of return, Mr. Rising indicated ' that he could compute figures for the normalized test year, indicating that there would be a return, but he wouldn' t have ' the confidence in those numbers to put them into the rate base ' and into the operating statement. (Tr. 944-945) Mr. Rising speculated that had Prairie Island been in � service for all of 1973, there would have been additional revenues earned by NSP in the City of St. Paul . He indicated ' that he felt the addition of the plant would have made more � power available that the company could sell to other companies. This additional power would also have reduced NSP 's demand for � purchased power. (Tr. 946) He stated that he had made some attempt to normalize revenues and expenses for 1973 had � Prairie Island been included in the rate base. He stated that � he had requested a study to be made of what the annualized revenues would be if the plant were to be operating at 70$ , ' 80$ , and 90� capacity. (Tr. 948) He indicated that :ze had also made an attempt to determine the operating expenses for � Prairie Island at the same levels of operation. (Tr. 948-949) � He stated that the result of these studies was to indicate that a profit could be made on the Prairie Island plant if it � were operating at 80� or 90� of capacity and if �production we�e priced at 20 mills. (Tr. 949) Finally, Mr. Rising concluded � that were he able to come up with reasonably known and determi- , -346- � ' nable figures for revenues and expenses on an annualized basis for the Prairie Island plant, he could have included that , plant in the rate base. (Tr. 950) ' Mr. Rising agreed that NSP had included in its filing 45 days of operation and maintenance expenses as working � capital. He further agreed that he had offset accrued taxes against the amount of working capital, thus eliminating the ' working capital items entirely. This amounted to an elimina- � tion of $5. 3 million from the rate base. (Tr. 951) Mr. Rising indicated that the 45 day method of computing � working capital is regarded as a standard method. (Tr. 951) Generally, he felt that it was used because in the absence of , a detailed lead lag study it was difficult to determine precisely ' the working capital. (Tr. 952) The witness agreed that one of the things that would be , part of a lead lag study would be the accounts payable of the company as well as the time span between the incurring of such ' an account and the actual paying of it. (Tr. 952) Also, the � receivables of a company would be studied, as well as the normal time lag between the rendering of services and the actual collection � of dollars. (Tr. 953) He indicated that the purpose of such a study would be to determine what money was actually being ' provided by the investors af the company to support its cash ' f1ow. (Tr. 953) Mr. Rising concurred that he had offset the working ' capital elements by only one liability amount, and that was accrued taxes , which related to real estate, personal property and gross ' earnings taxes . (Tr. 954) He indicated that he had made that offset because he felt that since that particular current , -347- a liability existed, there would be dollars available to NSP , to support its working capital requirements. Those dollars would be supplied by persons other than the investors . (Tr. 954) � Mr. Rising stated that he had made no comparison of , the current asset items which would offset the accrued taxes because he indicated that once it is decided to use the "rule ' of thumb" of 45 days, then one foregoes making any particular study about current assets• or current liabilities . (Tr. 954) ' . He further indicated that he had not taken into account, in � making the offset, items of unbilled receivables for services rendered by NSP but not yet billed, minimum bank balances , or � accounts and balances which are unavailable for current cash flow purposes. (Tr. 955-956) Although Mr. Rising indicated � a familiarity with the billing cycle of NSP, which provides ' for bills being sent out after the service is rendered, he stated that he had not considered it necessary to include these unbilled � receivables in his considerations . (Tr. 957) Mr. Rising acknowledged that he was familiar with past ' practice in St. Paul rate hearings which provided for the � inclusion of working capital on the basis of the 45 day rule without offset for tax accruals . (Tr. 957-958) � Mr. Rising testified that in computing his offset for accrued taxes, it had been his intention to use the 13 month , average of the outstanding liability. (Tr. 958) He acknow- , ledged that it would be possible that there would be some months during the period being averaged when the accrued tax balances ' would be less than the working capital elements of the company. (Tr. 959) He indicated that he did not know whether or not ' this situation would mean that during some months of this ' -348- ' period the working capital needs of the company would have � to be supplied by the investor. (Tr. 960) � Mr. Rising stated that in his opinion good rate making procedures would not include property held for future use , in the rate base until it was used and useful to the consumer. He indicated that he had excluded $333, 000 of property held 1 for future use from the rate base, although he had not made � a specific study to determine what items were reflected in that account. He stated that he did not know whether or not � it was true that the rules of the FPC provided for the inclusion of plant held for future use as part of the rate base. (Tr. 963) � Neither did he know whether or not in the last rate hearing in � St. Paul plant held for future use had been allowed in the rate base. (Tr. 954) ` Mr. Rising stated that he had made a $145, 000 adjustment for the investment tax credit. He indicated that this adjust- � ment was made in order to treat the tax credit in the same , manner as deferred income tax savings on accelerated deprecia- tion. (Tr. 964) He testified that there had been no change ' in the Internal Revenue Code with respect to the unamortized investment tax credit, although there had been a revenue ruling � that the job development investment tax credit should not be � deducted from the rate base. (Tr. 964-965) Mr. Rising acknowledged that the factor of 218. 5� which ' he had used to show the tax effect on net income had not in- cluded the gross earnings tax applicable in the City of St. Paul. , (Tr. 966) He stated that this failure to include the 8� tax ' was an error and that the minimum and maximum revenue require- ments would have to be restated. (Tr. 967) ' -349- , � Redirect Examination of Mr. Norman G. Risin by Mr. Stearns ' Mr. Rising explained that the rules and regulations of the , Federal Power Commission pertain to accounting procedures ' used by those companies which deal in interstate trans- mission or generation of power. (Tr. 970) He indicated � that the states are generally left to regulate themselves � under their own rules. Thus, the Federal Power Commission would not purport to rule on issues of local rate setting. � (Tr. 971) He indicated, for example, that the concept of the test period is a prerogative of local rate setting and � is not part of general accounting procedures as established by the FPC. Other examples would be the rate base, the , working capital elements, or allocations between the various � jurisdictions. (Tr. 972) Referring to the 1972 gas case, Mr. Rising indicated t that it had been the hearing examiner ' s opinion in that case to exclude construction work in progress from the rate base. � (Tr. 972-973) � Mr. Rising then quoted figures from his studies of the prairie Island plant based on schedules of 70, 80, and 90 � percent capacity. He stated that he had also included an 84 percent rate of return. If the study was done at 70 ' percent of capacity, Mr. Rising stated that the rate of � return and expenses added together amounted to about 19 mills. At 80 percent of capacity, the rate of return and � -350- � ' ' expenses amounted to 18. 6 mills. This compared with average � sale prices per kilowatt hour of 25 . 9 mills per residential customer or 21.7 mills for total retail sales. Thus, he , concluded that there was a good likelihood that the prairie Island plant would be capable of providing its own rate of � return once it achieved a "r�asonable" level of production. � (Tr. 974) Mr. Rising stated that he knew of no reason why the � expenses not capitalized into the Prairie Island plant after December of 1973 could not be capitalized into the � plant for rate-making purposes when the plant does become 1 operative. He indicated that he was not aware of any FPC ruling which would bear on the possibility of capitalizing � those expenses. (Tr. 978) Mr. Rising supported his opinion that the Prairie � Island plant should not be included in the rate base by � referring to Mr. Glass ' s testimony as well as to a newspaper article of approximately March 10, which indicated that the � plant had been shut down because of recurring turbine blade problems. (Tr. 978-980) tMr. Rising referred to the 1972 gas case, in which operating expenses sufficient to cover a period of 45 days � �::as allowed as cash working capital. He pointed out, � however, that the examiner had recommended that this particular issue remain an open question, subject to re-examination in lthe future. (�r. 980-981) He further indicated that the 1 offset which he had proposed was really the traditional one, as opposed to the gas case in which there was a comparison � of a number of current liabilities in order to determine the -351- . , offset. (Tr. 981) He explained that the reason for the , use of accrued taxes is that such expenses have been charged � to the customers on a current basis. However, the company has a substantial lag period in which to use these funds, ! and may use the funds free of charge. (Tr. 981-982) � � � , , r � � � � � � � -352- � r ' � Recross Examination of Mr. Rising � by Mr. Hanson � Mr. Rising indicated that an established plant which was not operating temporarily would not be taken out of the � rate base. However, he indicated that it might be possible � to take the plant out of the rate base if it had just been placed in service and was not operating properly. (Tr. 982- � 983) He agreed that it was a matter of management discretion as to whether or not a plant should be cl.assified as plant ' in service. (Tr. 983) ' Mr. Rising contended that the FPC System of Accounts has application only in regard to recordkeeping, but does not � have control over the rate-making process. (Tr. 983-984) He agreed that NSP is required to keep its books under the � �ystem of Accounts. He further stated that certain accounting � matters have a direct impact on rate-making proceedings. (Tr. 984) For example, he agreed that the System of Accounts � controls the treatment of the capitalization of AFDC items relative to construction work in progress and plant in iservice, regardless of whether or not the local regulatory body � classified the plant as part of the rate base. (Tr. 984-985) Mr. Rising agreed that since December 16, 1973, NSP 1 has not taken AFDC on unit 1 of the Prairie •Island plant as revenue for book purposes . Nor has it been allowed since � that time by the System of Accounts to report AFDC items as � revenue. He agreed that this would be true even if the Prairie Island plant w�s eliminated from the rate base. � (Tr. 987) -353- , Mr. Rising stated that if the 1974 test year were used, � then the problem of whether Prairie Island should be in or out of the rate base would not be an issue. (Tr. 988) � In response to questions regarding his studies of the profitability of the Prairie Island plant, Mr. Rising � indicated that he felt the results of these tests were too � speculative to allow him to annualize Prairie Island in the rate base. However, he did feel that they gave him enough � information to support his conclusion that the plant would be profitable and could therefore be taken out of the rate � base. (Tr. 989-992) ' Mr. Rising stated that in making his tests as to the profitability of the prairie Island plant, he had looked I only at the revenues and expenses relating to that single plant. (Tr. 992) Although he indicated that the Prairie � Island plant was a part of the entire NSP system, he � stated that he had ignored Prair.�e Island ' s effect upon revenues earned by other plants that were in operation � before prairie Island went on the line. (Tr. 992-994) Responding to a question regarding his failure to � include the 8 percent gross earnings tax in his computation � of revenue requirements, Mr. Rising noted the changes which would have to be made in his Schedule NGR-9. First of all, � the tax factor would be changed to 237 . 5; secondly, minimum revenue requirements would be increased to � $411,000; thirdly, maximum increased revenue requirements � would be changed to $1,636,000. (Tr. 996) � -354- � � , Cross-Examination of Mr. Risin � by Mr. Mahlum , Mr. Rising testified that when his firm made investigations for a rate hearing, it studied the rate base, the plant and � equipment in service, accumulated depreciation, working � capital, capitalization of the company, historical financial data, test year adjustment, taxes, allocation factors, and � rate structure being proposed. (Tr. 998) He stated that he had direct supervision of the indivicivals which he had � appointed to take the lead in various areas of responsibility. ' (Tr. 1000-1001) He testified that in his rate case experience, allocation problems were not unique. (Tr. 1002) � The witness indicated that he hadassumed that NSP would provide him with any information which he requested. � (Tr. 1002) He pointed out that he and others from his firm � had been provided with the FPC Form � for 1972, 1971, and 1970. Although the form had not been prepa.red for 1973, he � wa� provided with copies of draft pages for that report. (Tr. 1003) He stated that he had not personally reviewed the rbudgets which the various NSP departments had set for the � year of 1974. He indicated that he felt � it much more useful to look at the historical test year. (Tr. 1004-1005) � Mr. Rising explained that part of the reason why he had overlooked the inclusion of the 8 percent franchise fee, � was that he had been used to using a composite tax figure. � Further, he indicated that franchise fees are somewhat un- commnn. (Tr. 1006) He indicated, though, that he was confident � in the rest of his figures . (Tr. 1007) -355- � Cross Examination of Mr. Klaren Alexander , by Mr. Hanson , Mr. Alexander stated that it was his purpose to recompute 1973 income and expenses to reflect the annualization � for certain items which affected only part of the test year. � He indicated that he had nottestimony relative to NSP' s proposed test year of 1974. (Tr. 1009) � Mr. Alexander testified that some of the adjustments which he had made were made to correspond to the effect of � certain adjustments made by Mr. Rising to the rate base. � For example, the elimination from revenues of AFDC items, was made to reflect the fact that Mr. Rising had eliminated , construction work in progress from the rate base. (Tr. 1011-1012) In addition, adjustment 5, which eliminated some expense items � on the prairie Island plant, was based on Mr. Rising' s exclusion � of the plant from the rate base. (Tr. 1012) Finally, adjustment number 13 was based upon Mr. Rising ' s exclusion � of the plant from the rate base, in that an allowance for depreciation for the Prairie Island plant was excluded from � Mr. Alexander ' s calculations of depreciation. (Tr. 1013) � Mr. Alexander agreed that adjustments 1 and 2 were made to include actual figures for the month of December as well � as to incorporate Year-end allocation factors. (Tr. 101r 1013) Mr. Alexander indicated that adjustment number 3 added � approximately $131,000 to NSP income. He stated � that the adjustment was made in order to match revenues and expenses derived from sales by NSP to nonassociated utilities. � (Tr. 1014) -356- � � ' He explained that NSP had not included revenues from the sales. Neither did they include energy related expense�, ' although they did include demand related expenses as well as , the plant investment necessary to produce the nonassociated utilities revenues. Thus, the entry was necessary in order � to get the proper matching. (Tr. 1017) In rega�d to the sales to nonassociated utilities, ' Mr. Alexander indicated that the sales were made incidental � to the pool agreements of NSP. He did not characterize them as erratic sales or short-term sales. (Tr. 1015) Neither � did he agree that the sales were made only when excess energy was available. Mr. Alexander indicated uncertainty � as to whether or not the sales contributed to NSP ' s peak. He stated that he could not be sure that there were no sales � to nonassociated utilities at periods of peak demand. I (Tr. 1016-1017) Mr. Alexander stated that he recalled that no adjustment � had been proposed having to do with sales to nonassociated utilities during the last rate hearing. (Tr. 1018) � Mr. Alexander characterized adjustment number 6 as � a reflection of certain payments made by NSP to General Electric Company relative to the Monticello plant. (Tr. 1018) , He indicated that under the terms of the NSP-GE contract, fuel is supplied by General Electric. He explained that the � contract provided for payment of additional fuel expenses if � the plant was not maintained at an average of 88 percent capacity. Mr. Alexander indicated that there were probably 1 other options open to NSP at the time when the contract was made with GE. (Tr. 1019) - However, he stated that he did not ' know w,'.7ether or not NSP had had the option of prepaying fuel -3�7- � expenses at the time the Monticello plant was put on the line. � He stated that he could not judge whether the prepayment ' alternative would be more expensive than the 88 percent clause. (Tr. 1020) , The witness stated that his theory in making adjustment number 6 had been that the inability of the plant to meet the � 88 percent factor was an abnormal circumstan�e. He indicated , that it was his understanding that a nuclear plant should be able to operate at between 85 and 90 percent of annual � capacity. (Tr. 1021) However, he stated that he didn' t believe Monticello had ever operated at 88 percent at any ' time since it had been put on the �line. (Tr. 1022) Further, � he pointed out that it appeared that the plant would be down for an additional period of time during 1974, due to refueling � and the construction of pollution control equipment. However, he stated that the Monticello plant should be reaching the stage t of maturity where it would be possible to operate the plant at � 85 to 90 percent of capacity. (Tr. 1023) Mr. Alexander explained that the basis for his adjustment � number 11 was to compare the year-end customers of 1973 to year-end customers of 1972. (Tr. 1024) This comparison , revealed that there had been a decrease in the small commercial , and industrial customer category, and an increase of 11 customers in the large commercial and industrial category. � He explained that some of this increase would be due to customers in the small commercial and industrial class "growing r to a size in terms of kilowatt hour usage that would put them , -358- ' � ' by definition into the large commercial and industrial class. '� � (Tr. 1025) The witness stated that he did not know how many of the 11 new customers had moved from one category to the ' other as a result of grow�th ,in the electrical usage. (Tr. 1025) Mr. Alexander explained that in order to make his adjustment, ' he had applied the a�lerage revenue generated by customers in ' the large commercial and industrial class to half of the 11 new customers. However, he indicated that he had not examined � the identity of the new customers, nor had he inv�stigated to discover whether or not they had purchased sufficient , quantities of energy to match the average of the large � commercial and industrial factor which Mr. Alexander had applied to them. (Tr. 1026-1028) He indicated that he � did not know whether these new customers would come into the lower, middle, or higher range of consumption for the , large commercial and industrial class. (Tr. 1028) � Mr. Alexander indicated that adjustment number 14 was made to restate the real estate and personal property taxes � based upon property reflecting the yeaz-end valuation of plant in service. (Tr. 1028) This adjustment increased , tax expenses by $118,000. He acknow�edged that � in his calculations he had not included any tax on distribution property. (Tr. 1029) He stated that it now appears, howeve�, ' that there should be additional property taxes relating to St. Paul distribution plant. He indicated that this additional � expense would be $47,000. He pointed out that the , plant valuation which he had used to arrive at that figure was $3,747,000. (Tr. 1030) , -359- � The witness stated that adjustments 15 and 16 were ' wage adjustments, num�er 15 covering wages, and number 16 covering associated payroll costs attributable to increased � salaries. (Tr. 1031) The witness agreed that the effect , of his adjustment was to restate the wage:.expense as though the wage level to become effective under the union contract , effective January 1 of 1974, had been present throughout the entire year 1973. (Tr. 1031-1032) He explained that ' he had included union hourly employees paid on an hourly ' basis, union employees paid on a salary basis, and nonunion employees paid on an hourly basis. Figures for nonunion � employees paid on a salary basis were adjusted to reflect the level of pay at December 31, 1973. (Tr. 1034) � Mr. Alexander did not agree that NSP gives increases � to its nonunion salary employees to correspond with union contracts increases. (Tr. 1034) However, he indicated that , a salaried nonunion employee is given an increase, but the increase is not based on the union contract, and does not t become effective at the same time as the contract for hourly union employees. (Tr. 1035-1036) He indicated � that he did not recall whether or not he had asked for , salary increase figures for nonunion salaried employees for the year 1974. (Tr. 1036) , , ' , -360- � , Mr. Alexander acknowledged that under the terms of , the wage contract, there was the prospect of an additional , increase of 2. 6 percent in the event that the wage controls were not continued. However, Mr. Alexander pointed out that ' the discontinuation of the wage controls was something which was not known and determinable. Therefore he had � not provided for adjustments to reflect the additional , increase. (Tr. 1037) The witness stated that adjustment number 18 related � to a recomputation of the federal and state income taxes, decreasing these taxes by $855,000. This would ' have the effect of reducing revenue requirements by approx- , imately double that amount. (Tr. 1038) Mr. Alexander agreed that NSP had taken as a deduction � in their income tax computation the interest relating to construction work in progress, which they had included in ' their rate base. He acknowledged that the interest would , be part of the AFDC for book purposes. He further agreed that although the interest is deductible under the tax � laws, it is still capitalized for book purposes so that interest expense can be matched with the construction work , in pragress investment. (Tr. 1039-1040� � Although the witness agreed that he had made his adjustment based on the assumption that construction work � in progress was not included in the rate base, he stated that he continued to take as a deduction against income � taxes the interest portion allocable to construction work , in progress. (Tr. 1040) He stated that he had not determined what that amount would be in his computations of interest ' deductions. (Tr. 1041} -361- ' Next, Mr. Rising referred to adjustments number 9, 10, , and 19, which all relate to the fuel clause rider. He acknowledged that the effect of this rider is to permit NSP ' to pass on to its customers increases in the cost of certain fuels by increasing rates. (Tr. 1041) Mr. , Alexander agreed that his adjustments had incorporated two � phases. 1) the first was to recompute the fuel costs (the expense side) for the whole year of 1973 based upon , the levels of fuel costs that existed at the end of the year; and 2) restate the revenues as though the fuel clause had � been used to recapture increases in costs based upon year-end , levels of cost. (Tr. 1041 1042) The witness acknowledged that it was his conclusion that had fuel costs during all of , 1973 been what they were at the end of the year, the fuel adjustment rider would have over-recovered revenues in ! relationship to the cost increases. The net result of his ' adjustment, then, was to give NSP an additional $781,000 of revenue. (Tr. 1041) He agreed that the net result of � these adjustments would thus reduce NSP' s revenue requirements by about one and a half or two million dollars. (Tr. 1042-10�3) t Mr. Alexander stated that the present fuel clause rider applies to fossil fuels recorded under the FPC Chart of � Accounts nos. 501 and 547. (Tr. 1043) These two accounts � would include coal, gas, and oil. Mr. Alexander indicated that coal is purchased by tons; natural gas by the cubic foot; , and oil by the gallon. (Tr. 1044) He indicated that a base cost can be figured by converting the fuel into terms of heat � content, i.e. in terms of BTU' s generated from the fuel. ' -362- � ' , Thus, the cost is based per million BTU. He indicated that the base cost under the present fuel clause rider is 31 ' cents per million BTU. (Tr. 1045) , Mr. Alexander pointed out that fuels are booked into the FPC accounts during the manths that they are used in � a plant, not at the time they are purchased. He acknowledged that this could be known as an "as consumed" cost. He ' agreed that the as consumed cost is the average of the ' costs of the particular fuel in current inventory as of the time that it is used by the plant. (Tr. 1046) He also � stated that there would be an incremental cost, which would generally be the most recent price at which a particular tfuel had been purchased. (Tr. 1047) Mr. Alexander agreed that the fuel clause rider measures Iincreases in the as consumed costs, not the incremental costs. , Mr. Alexander stated that for every one cent perlmillion BTU that the as consumed costs increased, under the current rider � .013 cents is added to kilowatt hour sales in the city of St. Paul. (Tr. 1048) � � The witness indicated that there is in the fuel c?�t�se � rider a provision relating to the det�rmination of a 12-month average. He stated that the fossil fuel cost increase per ' million BTU relates to the average cost for the last 12 month period. (Tr. 1049) The witness agreed to the ! following example; If there were to be a 5 cent increase in , the month of December 1973 in the fuel expense as booked into Account 501 or 547, the fuel clause rider would not operate 1 to trigger a � cent increase in the rate. Rather, it would � -363- , be necessary to look back for a 12-month period, taking ' the sum total of the costs during that period, dividing by 12, in order to determine the average cost increase. (Tr. 1050- ' 1051) Mr. Alexander agreed that if it were assumed that fuel � costs were constantly rising, there would always be a lag � under the present fuel clause rider in the collection of rates to offset the cost increases. (Tr. 1051-1052) ' The witness, however, commented that he was not sure that historically NSP' s fuel costs were always increasing. , (Tr. 1052) Responding to a hypothetical posed by Mr. Hanson � which assumed that fuel costs were constantly increasing, Mr. Alexander replied that the amount of the adjustment , that would be available for revenues under the current fuel clause rider would be less than the actual cost increase. ' (Tr. 1055) Only as time passed and the 12-month average , allowed a greater weighting to current fuel costs, would the revenue match up with the cost of the fuel. (Tr. 1055-1056) , Mr. Alexander concurred that with the current fuel clause rider there are two lag periods : 1) a lag �y reason of � the 12-month average; 2) a two month lag caused by the � billing cycle. (Tr. 1056-1057) Mr. Alexander did not agree that in a purely rising , cost situation, that the fuel clause rider would necessarily under-recover rising fuel costs. He indicated that if costs � were rising slowly, it would be possible to get an over- ' recovery even in a period of rising costs. (Tr. 1059-1060) � -364- � , � Mr. Alexander explained that his adjustment 9 normalized fuel costs and fuel cost revenues at the level being billed � during December, 1973, "which really reflects the 12 months ' ending October 1973. " (Tr. 1060) Thus, what is represented in Schedule KKA-9, page 2, is not the cost that NSP was � booking for fuel consumed in December 1973. Instead, Mr. Alexander indicated that he had applied to NSP' s fuel , cost the 12 month moving average formula contained in the � fuel rider, (Tr. 1063) Mr. Alexander testified that the expenses booked by � NSP in December of 1973 were booked on an as consumed basis, representing the average of inventory rather than a 12 month � moving average cost. He agreed that NSP' s fuel clause rider � does not permit NSP to book its fuel expenses on a 12 month moving average. (Tr. 1064) Thus, Mr. Alexander concurred ' that his adjustment no. 9, when considered by itself, does not accurately reflect the 1973 fuel cost expenses on the , basis of what was being booked in December of 1973. (Tr. 1064- 1065) , Mr. Alexander stated that in making his computations for � fuel costs as well as revenues to be obtained by operation of the fuel clause rider in 1973, he had included both accounts ! 501 and 547. He indicated that he understood that NSP had chosen not to apply Account 547 during the year 1973, although � he further stated that the company had begun to apply that , account since 1973 . (Tr. 1067) , � -365- ' Referring to his schedule no. 9, Mr. Alexander stated � that line 8, giving a figure of 44. 15 cents� is "the sum � of the fossil fuel costs recorded in 501 and 547 for the twelve-month period ended October, 1973, divided by , millions of BTU to come up with cost per BTU. " (Tr. 1068) In regard to revenues, on the same schedule, Mr. Alexander � explained that what he had done in the adjustment was to ' cause the revenues to be level throughout 1973 based on year-end costs. (Tr. 1069) For example, he indicated that � the revenues which had been billed in January 1973 were billed at a level of .078 cents per kilowatt hour less � thanthe December, 1973, level. Since he was attempting to ' make the test year levels equal to the year-end billing rate, he therefore needed to bill an additional .07 cents � to level January revenues at the year-end billing rate. (Tr. 1070) , Referring again to expenses, Mr. Alexander stated that � the 40 cent cost per million BTUs for January 1973 represents the level at which the fuel clause rider was being applied , in January, 1973. ��We have then recognized or ]�vveled that to the yea.r-end level under which the fuel clause rider was � being adjusted which would be on the basis of 44 cents, and , applying that differential to the January kilowatt hours as billed, would give us our revenue adjustment for January. �� (Tr. 1071) In this way, the adjustment eliminates the two lags (i.e, the two month billing cycle lag and the 12 month ' moving a��erage lag) . Elimination of this lag creates , -366- � � iadditional costs of $433,000. (Tr. 1073) � Mr. Alexander did not agree that his comparison of revenues and expenses by eliminating the lag was not trulv � representative of what happened under the operation of the fuel clause rider. (Tr. 1073) Because 1973 was a year � of rising fuel costs, Mr. Alexander stated that the � $43�,000 adjustment for fuel costs was "to bring that lag whole. " (Tr. 1074) , Mr. Alexander conceded that under the operation of the fuel clause rider when costs are increa�ing, there is a ' definite lag. However, when costs are decreasing, the � lag would operate to keep billing at a level higher than fuel costs until there would be an offset. (Tr. 1076) , He agreed that the net result for 1973 of fuel cost has been an increase. (Tr. 1076) � Mr. Alexander agreed that if he had made his adjustment � no. 9 on a basis of computing the full year 1973 at the cost being booked in December of 1973, his figures would have � shown . greater expenses than what is shown in his f2gures in adjustment 9. (Tr. 1078) ! Mr. Alexander stated that if he had recomputed 1973 � revenue on a basis of the December, 1973, cost of fuel, then the revenue would increase just as fuel costs would do. � However, he did not agree that revenue would be increased at a lesser amount than fuel costs. (Tr. 1079) He explained � that the fuel c�atise rider could over-recover revenues ' because it is "triggered by a rise in cost on fossil fuel cast and is applied to all kilowatt hours generated, including � kilowatt hours generated by nuclear and hydso means, which -367- � at this point is. . .a cheaper cost per� mill.ion BTUs than � fossil fuel costs, therefore recovering a greater amount of revenue by operation or application to the current fuel � clause rider. " (Tr. 1079-1080) The witness stated that fossil fuel costs booked for � the month of December were 46. 57 per million BTU. (Tr. 1082) � He agreed that if he had used that figure to compute total expenses for the year, the results would be higher than the � figures which he had used in his adjustment no. 9. (Tr. 1083) He also stated that the average fossil fuel cost for 1972 was , 40. 66 cents per million BTU. (Tr. 1084) ' If revenues were to be recomputed by using the 46.57 cent figure for January and averaging that with the 12 month � average of 40.66 cents, the result would be to average down the higher figure. (Tr. 1085-1086) Thus, in March when the � rates would go into effect which would reflect this increase � that haPpened in January, re��enue would be at a lower level than the 46.57 cent figure because that figure would have � been a�.�eraged down. (Tr. 1086) Thus, NSP' s January and February billing.s would not reflect the additional costs � recognized in January of 1973 . (Tr. 1086-1087) Mr. � Alexander agreed that even in March, when billings did reflect cost experienced in January of 1973, the cost � would still not be equivalent to the total amount of the increase because of the averaging down of that figure, i (Tr. 1087) Thus, assuming a constancy of 40 . 66 cents for � 1972 and 46. 57 cents for 1973, it would be 12 months before � -368- � � ' the revenue corresponding to the cost increase got to the , point where it matched the increase itself. (Tr. 1087) Mr. Alexander maintained that his adjustment had � assumed a period of rising prices where the year-end price level would be higher than the 12 month �lling average. ' He stated that his adjustment of $433,000 had � eliminated the cost lag and brought it up to a level of year-end prices. (Tr. 1088) ' Mr. Alexander did not agree that what was necessary was the reevaluation of the 12 months to accurately reflect how � the fuel cost would operate under true circumstances . Instead, , he stated that his adjustment reflected the necessity of using a test year and eliminating suppositions such as anticipating a , continued cost increase. (Tr. 1090) Mr. Alexander agreed that under the situation just ! discussed, there would be a loss of revenue in January and , February to the full extent of the differential between the 40. 66 cent figure and 46.57 cent figure, and for the other � ten months of the year to a partial extent of the differential. However, he indicated that his answer would be true only if ' fuel costs continued to increase. (Tr. 1091) The witness , stated that because he had calculated expenses in the same way as he had calcuaated revenues, he had eliminated the , practical effect of any lag in the operation of the rider. He pointed out that that was the purpose of the test-year iadjustment. He acknowledged that in an increasing cost � situation, however, such an elimination of the lag would never happen in reality. (Tr. 1092-1093) � -369- � i Tarning to adjustment 10, Mr. Alexander explained that ' it differs from adjustment 9 by recognizing fuel costs in evidence on December 31, 1973 and the associative offset ' to be provided through operation of the current fuel cla�se rider. The figure of 55. 92 cents, he explained, is not the � as consumed cost, but rather the incremental cost of fossil ' fuel. (Tr. 1093) Mr. Alexander explained that he had used the incremental cost to recompute the expenses and E revenues arising out of fossil fuel purchases for 1973. (Tr. 1095) The witness indicated that NSP could use incremental , cost in triggering the fuel clause rider only as one � compo�ent of the as consumed price. He stated that the incremental cost figure would �not precisely reflect NSP ' s ' condition with respect to book cost of fue� . (Tr. 1095) Mr. Alexander indicated that he had also used incremental ' prices in referring to fuel expenses in his adjustment no. 10. � (Tr. 1096-1097) The witness agreed that if incremental costs were used ' in determining fossil fuel cost increases, there would be a greater increase in revenues during that year than if ' actual book costs were used, assuming rising prices. t (Tr. 1097-1098) He also agreed that when calculating expenses and revenues relative to fuel items, it would be � necessary to use either incremental costs consistently or book costs consistently. (Tr. 1098) � ' � -370- � ' , Mr. Alexander stated that the figure for purchased power, ' �ine 14 of Schedule 9, was based on information provided to the witness by NSP. It indicates purchased power prices � prevailing at December 31, 1973, and does not represent the purchases actually made during that month. (Tr. 1099-1102) ' The witness indicated that he was not aware of whether ' or not contracts which NSP has for the purchase of power contain automatic adjustment for fuel increases. (Tr. 1102) , He explained that NSP purchases Qower from other utilities under 21 different types of contracts. These contracts , vary in terms of time or type of power that is being ' contracted for. Thus, he felt it possible that a restatement of fossil fuel costs at year-end prices would involve an � increase of 25 percent, while a restatement of purchased power costs at year-end prices could involve only a 2 percent � increase. (Tr. 1104) ' Referring to information filed in FPC Form 1, the witness recalled that there were not a substantial number of contraets , which had a fuel clause adjustment operative for 1973. (Tr. 1105) However, he indicated that participation power is ' purchased at the cost of the unit at the time it is delivered ' to NSP. Thus, the cost of the unit would have in it as a component part the fuel cost to the supplier. (Tr. 1106) � Mr. Alexander stated that at no time during 1973 did the as consumed cost of fuel reach the figure of 55.92 cents ' which he had identified as the incremental cost of fuel. ' (Tr. 1106) He stated that adjustment 10 shows revenues and expenses for fossil fuel under the assumption that they could ' be computed on incremental cost basis. However, he also agreed -371- ' that in reality, under the fuel clause rider NSP could never ' compute either expenses or revenues on an incremental basis . (Tr. 1107) He also indicated that incremental cost does not ' play a part in the fuel clause rider except as it is part of the � average cost that is booked. (Tr. 1107-1108) Mr. Alexander explained that his adjustment no. 19 ' was done to reflect the nuclear and hydro generation adjustment clauses contained in the proposed fuel clause rider. He � indicated that under the proposed rider, the 12 month moving ' average is eliminated. (Tr. 1109) He pointed out that because his adjustments 9 and 10 had already eliminated ' the effect of the 12 month mo %ing a•.%erage lag, then the result of adjustment 19 would be to apply the new fuel clause rider ' without any 12 month moving average lag. (Tr. 1111) The witness indicated that in his adjustment 19, he had ' used the fossil fuel cost base of 31 cents, which was the , base used under the old fuel clause rider in conjunction with the 12 month moving a��erage provision. (Tr. 1111) , Mr. Alexander stated that he had been "very careful to go back to the same data that NSP considered in making their ' fuel clause adjustment relationships. " He did indicate, � however, that the 55 . 92 cent incremental cost figure and the 44. 15 cent figure had not been used by NSP in fuel clause ' computations during 1973. (Tr. 1114-1115) � ' ' -372- ' , , Redirect Examination of Mr. Alexander by Mr. Stearns 1 Mr. Alexander stated that he had concluded that the Monticello plant had had an unusual outage in 1973 . He , indicated that that outage was the basis for making an ' elimination of the penalty which NSP had paid to GE. (Tr. 1117) � Mr. Alexander reexplained his adjustment 9 by first of all outlining the changes in the amount which NSP billed ' per kilowatt hour from January through December of 1973 . ' (Tr. 1119-1120) Secondly, he indicated that expenses based on a 12 month moving average, had gone from 40 cents per � million BTU in January, 1973 to 44.15 cents per million BTU in December. Thus, "adjustment number 9 levels this r�venue and � fills in or recognizes the revenue or additional revenue of � $1, 192, 000 to bring what was actually billed in the month for fuel clause revenues to a level that would have been billed � at the year-end level of billing. Now, associative with that we recognize or leveled the fuel costs or, in other words, we ' recognize additional costs to bring the 12-month rolling average � up to a level as though that level had existed throughout the year. This resulted in additional expenses of $433, 000. . . " � (Tr. 1120) He then explained that adjustment 10 brought the fuel ' cost up to the level of 55. 92 cents per million BTU for the � entire year. In addition, revenues then had to be increased by .013 cents times the differential between fuel costs. � (Tr. 1120-1121) The effect then is to recognize for NSP both i -373- ' fuel costs and revenues at their year-end level for 1973. � (Tr. 1121) ' Mr. Alexander pointed out that: his figures do not show a two-month lag, since this w�uld signify that prices are ' always rising. He indicated that he was not in a position to project the future. (Tr. 1121) , Mr. Alexander pointed out that in making a test year � adjustment it is necessary to bring the year whole. Thus, he gave recognition to additional fuel costs at the 55. 92 ' cents level and assumed that level would be in existence throughout 1973. On the other hand, he also figured revenues ' related to that fuel cost, on the basis of the same 12 month ' period. This, he indicated, would result in an increase of revenue over what NSP actually received. (Tr. 1124) � � � , � � ' � ' -374- i ' ' Recross Examination of Mr. Alexander ' by Mr. Hanson Mr. Alexander agreed that what he had done was to compare ' increments and expen5es to increments and revenues, to come up with an overall difference. (Tr. 1125) He stated thatas ' part of his increment to revenues, he had included Account ' 547. (Tr.� 1125) He maintained that he had also included Account 547 in the incremental part of the FxpensPS. , (Tr. 1127) Mr. Alexander agreed that his 44.15 cents figure was the � average for 12 months ending in October 1973, thus including � the two months of November and December, 1972. (Tr. 1128) He indicated that 46. 57 cents was the cost of fuel for the ' month of December only. This was the level of cost being booked in that month. (Tr. 1130) Thus, he agreed that to irestate the expenses that were being booked at the end of the year, it would be necessary to use the 46.57 cent figure, and ' also make additional revenue ad 'ustments J . (Tr. 1131) He 1 indicated that he would also use the 46. 57 cent figure as a basis for making his revenue adjustment. He stated that he ' would do so because in a test year adjustment, no recognition is given to a lag. (Tr. 1131-1132) � Mr. Alexander agreed that the validit of his ad ' Y �ustment , rides on whether or not the lag must be recognized. He agreed that there had been a net increase in fuel costs for 1973 . ` (Tr. 1132) Using these figures, then, there would be a lag existing during 1973. However, h+e indicated that he had given , recognition to the lag by reporting an additional 4 $ 33,000 in ' expenses. (Tr. 1133) He did state,however, that a lag existed -375- , ' in adjustm�nt 9 by not using th� December, 1973 book expenses, which were shown to havF beF�n 46. 57 cents . � (Tr. 1134) ' ' , � , � � � , ' ' � -376- ' � � , , , Redirect Examination of Mr. Alexander by Mr. Stearns � The witness testified that NSP had reactivated Account � 547 in January, 1974. (Tr. 1135) Mr. Alexander testified that there could be a lag ' both when fuel costs are increasing and when they are decreasing. When fuel .costs are decreasing the lag reflects itself in , additional revenues being billed which are not recognized � until the costs decrease for a two--month period, at which time there will be an adjustment down in the fuel clause ' rider. (Tr. 1137) He indicated that this condition had prevailed during the year 1973. (Tr. 1138) ' i i 1 . � 1 1 i 1 1 , -377- ' Recross Examination of Mr. Alexander , by Mr. Hanson In response to questions from Mr. Hanson, the witness � indicated that he had made no computation to determine whether or not there had been an overchar e durin 1973. � g 9 (Tr. 1139j However, he did state that there had been a ' net increase in fuel costs from the beginna.ng of the year to the end of the year. (Tr. 1139) � i 1 1 1 1 1� 1 1 1 1 1 t -378- � , � � Cross-Examination of Mr. Alan Sherr by Mr. Hanson ' Mr.Sherr stated that he had no basic disagreement with ' NSP' s suggested change in the fuel clause, and he stated that his testimony assumes that the new rate schedule will � incorporate the new fuel clause rider. (Tr. 1143) 1 Mr. Sherr stated that he was not opposed to seasonal rate design, but he did not feel that NSP' s proposed seasonal , rate design answered the roblem of eak load ricin . Tr. 1144 P P P 9 � ) ' Mr. Sherr also indicated that he was not really opposed ' to NSP' s shortening of the rate blocks. (Tr. 1144) The witness state that prior to his engagement in this � proceeding, he had had no previous experience in rate design. � He indicated that the total of his experience in the field of rate design had been research which he had conducted in ' preparation for his testimony. (Tr. 1145-1146) , Mr. Sherr indicated that he basically agreed with the concept of seasonal rates; however, he advocated e�ual metering , as the best method of peak load pricing. (Tr. 1147-1148) He , explained that with dual metering, each customer would have two meters. When the system reached a certain load which , would be considered peak, the peak meter would go into � operation, thus charging the customer a different rate than when the system was at a normal load. (Tr. 1148) ' -379- . , � Mr. Sherr stated that he felt dual metering was � technologically feasible, although he understood that it ' was "still on the drawing board. " (Tr. 1148-1149) Mr. Sherr stated that he did not feel that the use of ' a seasonal rate concept would have much influence on ' customers' use of energy during the peak period. (Tr. 1149) Mr. Sherr stated that he had compared June with the � other months of the year on the basis of total kilowatt hours ' sold during that period. He had not, however, examined the month of June to determine how it had ranked in the year , with respect to peak. (Tr. 1160) ' The witness agreed that cooling degree days are a way of comparing the various temperature variations for periods of � time. (Tr. 1152) He indicated that the month of June would � rank within the top four months in terms of cooling degree days. (Tr. 1153) He also agreed that the billing months of , June, July, August and September have substantially , more cooling degree days than any other months in the ye$r. (Tr. 1153-1154) � Mr. Sherr agreed that the new seasonal rates would apply , to each of the four rate classifications which he had indicated as being the source of substantially all of NSP' s revenues � and sales, with the exception of firm and interruptible � seasonal rates being based on demand only. (Tr. 1155) , -380- ' ' ' In response to questions regarding his schedule 1, Mr. , Sherr replied that column A showed actual revenues for 1973. Column B showed these revenues recomputed to incorporate , the 50.5 cent fuel cost base proposed as a part of the new ' fuel clause rider. Column C showed revenues recomputed with the same fuel cost base, but under the proposed rates. , (Tr. 1156-1157) He explained that he had then subtracted , column A from column C to yield $13 million in additional revenues. (Tr. 1157) tSince column C represented two adjustments to actual ' revenues, Mr. Sherr agreed that he thought it might have been more proper to compare column B with column C in order � to isolate the change in rate levels between the present , rates on 1973 figures and the proposed rates. (Tr. 1158) ' ' ' ' , ' ' -381- ' ' Redirect Examination of Mr. Sherr ' by Mr. Stearns Mr. Sherr listed the rate schedules which are billed ' strictly on kilowatt hours consumed. He indicated that the ' residential rates are billed on kilowatt hours only. (Tr. 1160-1162) � i 1 1 1 1 1 i 1 1 1 1 1 1 -382- � ! 1 1 1 1 1 1 1 1 V. � NORTHERN STATFS POWER COMPANY'S REBUTTAL TESTIMONY ' , ' ' � ' ' ' � ! , NSP' s REBUTTAL Direct Examination of Dr. Henry Herz � by Mr. Hanson ' Dr. Herz summarized four major reasons for disagreeing with the conclusions reached by Dr. Robertson- � l. Dr. Robertson did not use all the information � available to him regarding what returns investors have required in the past and are currently requiring. � 2. "B a 1 in a market based measurement of r t Y PP Y g e urn � requirements to a book value rate base, . . . CDr. Robertson� ' has recommended a practice which is certain to result in driving the market prices of utility equities down to, and , below book values . . . . " ' 3. Dr. Robertson ' s earnings price ratios are incorrect and compound the tendency to drive stock value below book ' value. ' 4. Dr. Robertson understated the risks to which utilities are exposed and overstated the attractiveness of ' utility equities. (Tr. 1166-1167) ' Dr. Herz stated that he disagreed with Dr. Robertson' s utilization of information applicable only to NSP and NSP 's ' c�mmon stock. (Tr. 1168) The witness conceded that while , it may be less ambiguous to confine one ' s attention to �9P' s common stock, in determining a fair rate of return, it is , desirable to take advantage of the "perspective afforded by � -383- ! a consideration of broad market trends and the investment , appraisals of other media having generally cQmparable � investment qualities with NSP' s securities. " (Tr. 1169) He indicated that it is widely conceded that return requirements ' of investors on generally comparable issues can afford the , necessary guidance and constraints in determining a proper rate of return. (Tr. 1169) � Dr. H�rz testified that comparing market prices of common � stock to earnings prospects gives evidence of a current return requirement. However, such market based tests do not provide � a test for fair treatment of capital which has already been , invested. To rely on market based data in setting a rate of return, will have the effect of driving market price down to ' or below the book values; this, in turn, will warn investors ' that their commitment may not maintain its value and that , they will have no claim "to a return sufficient to provide growth in earnings to offset, in part, the erosion of ' investment by inflation." (Tr. 1170) , Dr. Herz explained hnw the application of Dr. Robertson' s method would result in pushing market price down to book value , by citing the following example: If market price of a stock ' was 25, book value 20, and earnings of $2.30, the earnings on market value would be 9.2 percent while the earnings on , book value wouId be 11.5 percent. If, however, a book � value rate base is used, it is equivalent to telling the ' -384- � ' investor that he will not be earning on the $25 .00 he paid ! for the stock, but rather on the $20.00 which is represented ' on the books. Thus, he will never collect the 11.5 percent, but rather the 9.2 percent. (Tr. 1171-1172) � The witness pointed out that it is not desirable to have � the market price fall below book value, because this would dilute the interests of the previous stockholders. (Tr. 1172) , Referring to NSP Exhibit 9, Dr. Herz indicated that he � had listed the seven most recent NSP stock issues, along with Dr. Robertson' s measure of the cost of common stock, Dr. Herz ` s � measure of the cost of the stock determined by his yield � growth method, and earnings rates on book values of the stock for a five year period. (Tr. 1175-1176) He also stated � that he had included in the Exhibit simple and wei hted 9 ' averages for the seven issues. (Tr. 1176) Dr. Henz referred to his Exhibit 9 in pointing out that ' had Dr. Robertson used the ield rowth method Y g , his averages � of historical cost of common stock equity would have shifted from 8. 916 percent to 11.7 percent. The witness also stated ' that he felt the earnin s rates o g n book value, which indicated � a considerably higher rate of return, should be considered as � a separate and independent measure of the cost as capital. (Tr. 1177) Next, Dr. Herz pointed out that Dr. Robertson � had "accentuated his downward bias by giving equal weight � -385- ' ' in his averages of the issues before 1970 with the larger post-1969 issues. " He noted that if the percentages were � weighted by the number of �hares, not by dollars, the result � would be a weighted average of 9.755, as opposed to Dr. Robertson 's simple average of 8.916. (Tr. 1178) The witness � indicated that he felt his yield growth method was far ! more stable than the price ratio method, and traced the market more accuratel . (Tr. 1179) ' Y Dr. Herz mentioned several ways in which Dr. Robertson � had underestimated the risk to utility stockholders. First � of all, he indicated that Dr. Robertson had not mentioned the regulatory risk. Dr. Herz indicated that he felt this ' particular risk took the form of revenue increases which were � too little and too late, with no regard to "rampant inflationary decreases . . . in the value of the dollar and its impact ' upon willingness of investors to buy securities -- particularly , common stock -- of public utilities so regulated. " (Tr. 1180) Dr. Herz stated that many jurisdictions have seriously impeded ! the financ�al prospects of the utilities by setting rates of , return far too low to attract investors. (Tr. 1181) "Another risk that Dr. Robertson has not considered but which is � implicit in this energy crisis situation is the risk of � deteriorating sales . . , . " (Tr. 1181) He pointed out that electric utilities have found it necessary to keep building � in order to meet growth, but "the building ahead that is � -386- ' � d.one in the past four or five or six years may have been , somewhat in excess of present requirements, and this is a ' real risk. " (Tr. 1181-1182) The witness characterized NSP Exhibit 10 as paralleling ' the method which Hr. Robertson had used in his schedule l, ' with the exception of changing the approach to measuring common stock requirements. (Tr. 1182-1184) Dr. Herz explained 1 that if Dr. Robertson' s own method were used, substituting � the 1973 yield growth figure for the current cost of common stock equity, the cost of capital estimate would be 8.73 percent. � If the 1972 yield growth figure were used for the current ' cost of common stock equity, then the cost of capital would be 8.90 percent. (Tr. 1186) The witness indicated, however, ' that these figures still could not be applied to an original ' cost rate base. (Tr. 1187) Dr. Herz testified that he felt Dr. Robertson' s approach ' could be a reasonable guide to a fair rate of return on ' original cost if two adjustments were made. (Tr. 1187) First, Dr. Herz would use an allowance for the current cost of ' preferred stock at about the same level as for debt. He � indicated that there has been a recent tendency for these 1 costs to be approximately equal. Secondly, he indicated that he would c7isregard any historical cost of common stock equity ' as irrelevant. He explained that he would do so because 1 -387- ' � common stockholders have no contractual claim to a particular return. (Tr. 1188) ' Dr. Herz testified tha t he had made these changes to ' Dr. Robertson' s method in NSP Exhibit 11. His results were 8.31 as the historical cost of capital, and 9. 99 perc�t � as the current cost of capital. (Tr. 1189) He indicated ' that the average of the historical and current cost was 9.15 percent, one tenth of one percent below th e 9. 25 percent ' which Dr. Herz had indicated would be a fair return. ' (Tr. 1190) � ' , ' ' ' � � � -388- ' . ' ' ' ' Direct Examin ati�n of James O. Cox by Mr. Hanson ' Mr. Cox outlined his reasons for disagreeing with Dr. ' Robertson' s statement that the use of his rate of return would provide the necessary attraction of funds for NSP. ' Referring to the first two months of 1974, Mr. Cox indicated ' that earnings per share were down 22 �ents a share from the first two months of last year. (Tr. 1192-1193) He also ' pointed out that net income was down $3,800,000. , Retail kilowatt sales were 6 tenths of a percent less than for the first two months of 1973, while at the same time, ' operating expenses were up 7� percent and interest charges ' up 22 perCent. The witness also stated that if normal weather were assumed, as well as standard electric rates, � and a three percent growth rate in electric retail kilowatt ' hour sales for the entire year, earnings per share in 1974 ' would still be less than those earned in 1973. (Tr. 1193-1194) ' He pointed out that such a level of earnings would have an 1 adverse impact on the sale of securities at a reasona}a1e cost to the company. (Tr. 1194) , ' ' ' -389- ' Direct Examination of Arthur V. Dienhart ' by Mr. Hanson Mr. Dienhart indicated that he is the vice president - ' engineering for Northern States Power Company. He outlined ' his educational and occupational background, indicating that orthern States Power Com any since 194h in , he has worked for N P various engineering capacities. He stated that in his various ' assignments, he has had responsibility for the selection ' and development of sites for nuclear, coal burning , and hydroelectric power plants, for the design and construction ' of these facilities as well as office and service buildings � and structures for t1E transformation and transmission of electrical energy. (Tr. 1196-1197) He stated that in his , present positi�on he has overall management responsibility ' for the design and construction of the major electric utility plant facilities of NSP. (Tr. 1197-1198) � Mr. Dienhart stated that he hacl management responsibility ' for the design, construction, guality assurance and pre- operational testing for the Prairie Island project. (Tr. 1198) ' He explained that the Prairie Island plant project involves � the development of a two unit nuclear generating plant, each unit having a capability of 560 megawatts. (Tr. 1198) ' He stated that his respDnsibility for the project began with ' its inception in 1966, and his responsibility for the ' -390- , ' ' completed work of unit number one terminated when that unit , was synchronized as a part of NSP ' s electrical system on December 4, 1973. At that time, the responsibility for the , plant was transferred to NSP ' s power production departm ent. , (Tr. 1198-1200) A4r. Dienhart testified that at the time the plan was , authorized by the NSP Board of Directors, early in 1967 , the ' schedule provided that unit number 1 of the Prairie Island plant would be ready for service May l, 1972. He explained , that this in-service date was, at the time, a reasonable � ' estimate of the earliest date on which the project could be ready for service, assuming no significant difficulties, , changes in regulations put out by the Atomic Energy ' Commission, or any other delays. (Tr. 1201-1202) Mr. Dienhart then listed the various projected dates ' for the completion of the Prairie Island plant. He indicated ' that the first revision to the original schedule was issued in October of 1970, extending the in-service date to ' October, 1972. (Tr. 1202) The next scheduled revision was ' issued in July, 1971, revising the in-service date to ' December, 1972. An additional revision was issued in April, 1972, delaying the in-service date to August, 1973. ' Another revision took place in October, 1972, revising the in-service date to October, 1973. The final schedule ' ' -391- ' revision took place in January, 1973, delaying the in- , service date to December, 1973. He pointed out that � scheduling of such projects is accomplished through sophisticated computer programming, which can take into its program all , of the impacts which are known to the scheduler in terms of , material and equipment supply, man power availability, and regulatory effects. (Tr. 1202-1203) , Mr. Dienhart explained that there were three major types ' of factors which influenced the scheduling of the Prairie Island project. The first category was effects of licensing ' and regulation. He pointed out that the Atomic Energy , Commission exercises a very high degree of control over all aspects of nu�lear power plant design, construction and operation. ' (Tr. 1204) He stated that one of the major causes for lengthening , the period of design and construction for the Prairie Island project, was the "extreme detail with whi� the AEC conducted ' its safety review of this project. " (Tr. 1205) Another ' AEC impact was the development by the commission of a policy requiring nuclear power pl�ts to treat radio-active , wastes so that releases would be held to levels which were ' as low as practicable. (Tr. 1205-1206) This called for a , redesign of systems which had been earlier designed to meet previous criteria of the AEC. Another significant change occurred �, December, 1972, when the AEC adopted very conservative criteria ' -392- ' ' ' to protect against pipe breaks outside of the reactor ' containment. This required "extensive redesign effort and extensive material procurement and field construction effort. " , (Tr. 1208) , At the state level, delays were caused by a delay in a consideration by the Minnesota Pollution Control Agency of ' NSP' s application to discharge cooling water required by the � plant. Two years after NSP had submitted its application, the agency decided that closed cycle cooling facilities would ' be required. This had a further effect in delaying the project. ' , (Tr. 1206-1207) The witness indicatedthat the second major factor which ' caused delays in the project was the area of vendor performance. ' He indicated that as the project progressed, it became apparent that suppliers in certain areasof material and equipment ' would not be able to live up to their pre�iously promised delivery ' schedules. This was caused by vendors having more orders than they had production facilities for. Or, it could also be ' caused by the fact that more effort was required of the vendors , to satisfy the quality assurance requirements which the AEC was developing whiYe the project was under construction. (Tr. 1207) , He pointed out that the third area causing delays was a 1 constraint in man power, including both professional personnel as well as skilled craftsmen. (Tr. 1208) He pointed out that ' the rofessional ersonnel were "hard ressed to continue to P P P ' -393- ' answ�r and respond to all the regulatory questions from the ' Atomic Energy Commission, and at the same time to attempt to ' hold to the production of the designs and working drawings for the continuance of' the work in the field. (Tr. 1208-1209) ' He pointed out that many craftsmen are also in short supply � on a nation-wide basis. (Tr. 1209) Mr. Dienhart testified that testing of a plant is carried � on cnncurrentZy with construction in other parts of the project. � Thus, testing actually begins before the construction is completed, and continues until after the plant is placed in , service. (Tr. 1210) He further pointed out that a nuclear ' plant must be tested throughout its life, because of the safety requirements of the Atomic Energy Commission. (Tr. 1211) ' Mr. Dienhart described NSP Exhibit 12 as a graphical ' representation of some of the more important dates on which si nificant tests or p ' g grou s of tests were done in regard to the Prairie Island plant. (Tr. 1211) He explained that Exhibit No.13 , was a list of tests, generally called pre-op�ational tests, , which were completed on the Prairie Island unit No. 1 prior to its initial operation on December 4. (Tr. 1213) The ' witness noted that Exhibit 14 is a graphic representation of ' the tests which had been listed in Exhibit 13. (Tr. 1213) The witness stated that Exhibit 12 deals primarily with , testing and operation of the turbine generator. According to ' -3 94- � , , the Exhibit, pre-operational tests actually began in January, ' 1973. In March, 1973, the various systems began to be tested using hot fluids. In July, 1973, the vessel which surrounds ' the reactor and the steam generators were tested to assure , leak tightness at elevated pressures. Fuel loading began on August 29, 1973. On December l, 1973, the nuclear chain , reaction was begun in the reactor vessel. (Tr. 1216) On ' December 4, 1973, the turbine generator was synchronized into the NSP interconnected system to begin delivering kilowatt � hours. (Tr. 1217) , Mr. Dienhart stated that the testing program is developed by Northern States Power Company on the basis of information , supplied by the equipment manufacturers. (Tr. 1217 He ) ' indicated that if discrepancies are discovered during the testing, these discrepancies must be corrected and the testing r repeated until the s stem is determined to be read for Y y , operation. (Tr. 1218) ' The witness indicated that between the start of pre-op testing in January, 1973, and the completion of testing on , D�ecember 3, 1973, 124 formal tests were run on unit No. 1 of ' the Prairie Island plant. He indicated that other testing would have been performed by the manufacturers of particular pieces of ' equipment. (Tr. 1218) ' Mr. Dienhart then explained the steps leading up to the synchronization of the turbine on December 4, 1973. He explained � -39�- ' that the large turbine generator is first rotated at a ' very slow speed. (Tr. 1219) Then, steam is admitted slowly while the turbine continues to rotate at a relatively ' slow speed allowing the machine to undergo thermal expansion. ' Eventually, the process reaches the pdnt where the turbine generator will rotate at its designed synchronized speed. ' (Tr. 1220) At that point, voltages in the generator rotor and in the generator stator are balanced. When the ' voltages and phases of NSP ' s three �hase power system are , in the proper sequence, the electrical switch is closed, enabling the generator to produce energy and transfer the , energy into NSP' s system. (Tr. 1220-1221) Mr. Dienhart called this process synchronization. When it is accomplished, ' a plant is then generating kilowatt hours in the same fashion , as any other generating plant on NSP ' s system. (Tr. 12211 Mr. Dienhart stated that the manufacturer of the turbine ' generator considers the time of synchronization as the initial operation of the turbine generator. That point in time is , specifically used in the manufacturer' s warranty on the turbine generator. (Tr. 1222) ' The witness stated that once a unit reaches synchronizatio� his responsibility ceases with respect to the completed work, and the unit passes on to the jurisdiction of the plant ' manager who is an employee of NSP' s power production department. (Tr. 1224) ' ' ' -396- � � � ' , Cross-Examination of Dr. Henry Herz ' by Mr. Stearns Dr. Herz stated that he felt a prior investor has a � strong interest in the rate base because a common stock ' investor buys a property interest. (Tr. 1230) For this reason, Dr. Herz stated that he felt the rate base should ' be matched with the rate of return. (Tr. 1232) Dr. Herz ' did not agree that he was adjusting his recommended rate base to suit earlier stockholders, while adjusting the rate ' of return to suit current stockholders. (Tr. 1233) ' The witness testified that it was necessary to provide ' a higher return on an original cost rate base in order to attraGt stockholders on a basis which would not deteriorate , the interest of past committed investors . (Tr. 1234) � He indicated that all a current stockholder is entitled to is to earn the currently required market rate of return ' on equity. "He is not entitled to any consideration in terms ' of what past investment has committed because that is already taken into account in the fair value rate base. . . . " (Tr. 1235) � He indicated that in the long run, his aim would be to allow ' a common stockholder the same return on a fair value rate , -39?- ' base as he would obtain on an original cost rate base. (Tr. 1236) , He agreed, however, that the revenue which he had computed . ' as derived from fair value and orginal cost rate bases was not the same; the fair value return was higher. (Tr. 1236) ' Dr. Herz explained that in his own Exhibit 9, by cutting , off the two earlier stock offerings which Dr. Robertson had included, he was giving greater weight to the remaining seven , issues. Thus, he would be weighting the low cost issues , as well as the high cost issues. (Tr. 1237-1239) Dr. Herz stated that utilities are bought and sold only � under very stringent regulations laid down by the SEC. He , stated that the market value of a utility is not dependent on a rate base except "as to the impact of the quality of ' a rate base upon investors. " (Tr. 1244) He indicated that ' the market value which investors are in terested in is the value thev lace on the earnings which they will be receivin g ' - P in the future. (Tr. 1244-1245) He pointed out that the ' investment in dollars in a book means nothing to an investor. , He stated that an investor is not buying the plant. If he were, then it would �tarobably be necessary to have an appraisal , of the plant. He indicated that as far as he knew, there was , no appraisal made of NSP. (Tr. 1245) Dr. Herz reiterated that when a current investor purchases � common stock, he is not looking at Handy-Whitman Indexes or ' -398- , � - � at the buying ar selling price of the plant. Rather, he ' looks at the price of the share he is buying and tries to evaluate what incane he can expect in the future. He pointed ! out, however, that these statements would not be applied , to a past investor. (Tr. 1247) Dr. Herz explained that he had, in adjusting Dr. Robertson ' s ' computations, merely changed his method of computing the ' market based return requirement from the earnings price ratio basis to the yield growth basis. (Tr. 1248) He indicated , that if Dr. Robertson had used a proper method for estimating , the current cost of capital, "he would have come up with a much different answer and he would not have been that far ' away from my� conclusion. " (Tr. 1248-1249) ' . Dr. Herz stated that customers are required to carry the cost of investments, including the annual requirements , in interest, operational maintenance expenses, depreciation, � and all other payments necessary to provide a return on the capital invested. (Tr. 1249-1250) He further agreed that ' prior issues of stock have been issued and purchased primarily , for construction work. (Tr. 1250) Dr. Herz indicated that it would be possible for NSP to lose. � even on its fuel cost, if the consumer economizes on energy. ' (Tr. 1253-1254) Dr. Herz stated that he felt that NSP was a successful , � -399- ' company up to last year, when it fell into the same problems � which are facing all of the utilities. He indicated that part of that problem would be the question of when rate , determinations are made. (Tr. 1256) , , , ' ' _ , ' , , ' ' � i 1 1 -400- � � ' Direct Examination of Arthur V. Dienhart (continued) � by Mr. Hanson The witness explained that prior to December 4, 1973, ' the Prairie Island plant had not generated any power into ' the NSP system. (Tr. 1260) Following synchronization on December 4, the load on the turbine generator was gradually ' increased so that it delivered increasing amounts of energy � into the system, reaching a production rating of about 50 percent of its expected full load capacity on December 15 , � 1973 . (Tr. 1261) , Mr. Dienhart explained that on December 16, it was decided by NSP ' s power production departmer�t to reclassify ' the plant as in "commercial operatirn " , (Tr. 1261) He � indicated that this reclassificatiQn had no effect on operating procedures, but rather affected the accounting area of the � company. (Tr. 1262) � In response to a question regarding the licensing of the Prairie Island plant, Mr. Dienhart stated that the primary ' licensing activit for the lant rests Y p with the Atomic Energy ' Commission. (Tr. 1262) He indicated that the first significant , event in the licensing area occurred on March 29, 1967, when NSP filed its initial application for a construction permit . ! On July 26, 1967 the license was amended to incorporate the � second unit of the Prairie Island plant. He explained that ' � -401- � at this time the AEC staff began an intensive safety � review of NSP' s application, this review extending throughout � the entire licensing history of the project. (Tr. 1263) After a public hearing in Red Wing in May, 1968, the ' AEC issued a construction permit in June, 1968. (Tr. 1263- , 1264) Mr. Dienhart indicated that in February, 1971 NSP requested the conversion of the construction permit to an ' operating license. Eighteen months later, in October, 1972, ' the AEC issued a notice for a public hearing to be held in connection with the applicatinn for an operating license. � Mr. Dienhart stated that it was at this time that intervention ' developed. (Tr. 1264) Because of the delay involved in preparing for a public hearing to include the intervenors, � on August 9, 1973 the AEC granted NSP an interim license which , allowed the company to operate the Prairie Island plant for � testing purposes to a maximum of 90 percent of ra�ed capacity and to generate power at a steady state level of 20 per cent. , (Tr. 1264-1265) The witness indicated that the purpose of � the interim license was to allow testing to continue even though a public hearing had not been convened. He pointed out , that an interim l�:cense also permitted the generation of a , substantial amount of energy from the plant during the time the hearing procedures were in progress. (Tr. 1266) � � -402- . � � � Mr. Dienhart testified that the public hearing began in � Red Wing on September 17, 1973 and was adjourned on November 8, 1973. (Tr. 1266) He stated that it was recognized at the � time of the ad 'ournment that there would be a substantial 7 iperiod of time before a decision would be issued by the hearing board. Thus, � NSP applied for a second interim license which � would ermit the lant to o erate at 90 ercent of ca acit . P P P P P Y ! This second interim license was granted on December 14, 1973, � allowing the plant to be operated at a steady state power level of 90 percent of capacity. (Tr. 1267) ! The witness testified that in his opinion, Prairie Island � was ready for service. He indicated that it had been producing power since December 4, 1973 and as of December 16, 1973 was � used and useful in provic7ing electric service to NSP' s system. � (Tr. 1269) Mr. Dienhart went on to testify that as of December 16 , the turbine generator had been performing in an expected manner ' and NSP had no reason tn believe that any unusual ditficu�ties would occur with the generator. (Tr. 1270) However, on ' December 17 it was discovered that there had been damage to some , of the internal parts of the turbine, apparently resulting from unexpected vibrations. The manufacturer of the turbine � generator, Westinghouse Electric Corporation, proceeded to repai� � the damage. These repairs lasted until February 4, 1974. (Tr. 1270) � -403- � The witness indicated that the principle of turbine r�es�gn , is funaamentally the same, whether the plant is nuclear or ' fossil fueled. The principal differences are the speed of the turbines as well as differences in the characterization � of the steam. (Tr. 1271) i The witness stated that on February 4, 1974 the power ' ascension phase was resumed, with the unit reaching about 50 percent of capacity. (Tr. 1271-1272) This level was � maintained until March 1 when the plant was shut down to repair � a feed water pump. On March 4, the unit was restarted. (Tr. 1272) On March 9, however, the Westinghouse specialists � determined that the plant should again be shut down, in order ' to determine the cause of �ibrations in a turbine. (Tr. 1272) Repair work was completed early in April, with the plant i resuming power production on April 7, 1974. (Tr. 1272-1273) � Mr. Dienhart stated that the Prairie Island plant is operating today at approximately 60 percent of capacity. (Tr. 1273) � Mr. Dienhart testified that on April 2, 1974 the board , issued its initial decision subsequent to the public hearing of last fall. The board indicated that the AEC �birector of ' Regulation should issue a full term, full power operating ' license for the Prairie Island plant. This was done on April 5, 1974. (Tr. 1273) Mr. Dienhart indicated that this new � license allows the plant to operate at 100 percent of capacity• ! (Tr. 1274) -404- � � ' Mr. Dienhart outlined the remaining licenses and permits ' which NSP had obtained for the Prairie Island plant prior to December 16. (Tr. 1274-1275) ' The witness pointed out that construction and operation ' of the Prairie Island plant and the Monticello plant did not differ greatly. However, there was a difference between the ' two plants in terms of contractual relationships. He stated ' that the Monticello project is termed a turn key project. In that case, NSP and General Electric company agreed that ' GE would design and contruct a plant which would then be turned � over to NSP as a completed facility. In the case of Prairie Island, however, NSP had the primary responsibility for design, � procurement, construction, and startup. (Tr. 1275-1276) � The witness further pointed out that in the case of the Prairie Island plant, overall plant performance was completely ' subject to the control of NSP, and the decision as to when the , plant was used and useful was made purely on the basis of the � physical condition of the Prairie Island plant. With the � Monticello plant, however, NSP' s contract with GE required 1 �eneral Electric to bring the plant to a certain level of performance before NSP would agree to accept the plant and � place it in service. (Tr. 1276-1277) ' Mr. Dienhart indicated that the full power license, issued on April 5, 1974 applies to both unit 1 and unit 2 of ' the Prairie Island ro 'ect. Tr. 1278 P J � ) � -405- � Mr. Dienhart stated that it was the intention to o erate ' P the Prairie Island plant so that it will be of maximum overall ' benefit to the NSP system; thus, it is possible that the plant ' could, at various tim es, be shut down, operating at partial load, or operating at full capacity. Because of this ' variability, �Mr. Dienhart indicated that he could not give a ' forecast as to the rate of power ascension or the loading for the Prairie Island plant. (Tr. 1279) , The witness testified that NSP expected to have unit No. 2 ' of the Prairie Island project in service by December of this year. (Tr. 1280) , Following a recess Mr. Dienhart clarified his previous ' testimony by explaining that the public hearing held last fall and the licensing review process by the Atomic Safety , arcid Licensing Board had addressed a two unit facility. He indicate� that there will be no additional consideration of the matters that were settled as a result of the hearing and licensing ' process involving the two unit facility. (Tr. 1281) However, � because the Atomic Energy Commission Director of Regulation cannot issue a licensefor a facility not yet fully completed � and tested, the license issued on April 5 permits operation of � Unit 1 only. (Tr. 1281-1282) He stated that "when NSP is ready to place Unit 2 in service, the Atomic Energy Commission ' will perform the required inspections and reviews and issue a , similar operating license at that time for U nit 2. " (Tr. 1282) � -406- ' , Direct Examination of Frank P. Vixo ' by Mr. Hanson Mr. Vixo stated that he did not agree with the use of the � 1973 test year. He indicatecl that because rates must be made for 1974, the test year should reflect expected 1974 conditions, � especially because of current inflation and changing conditions. ' (Tr. 1283-1284) � Mr. Vixo indicated that if 1973 were to be used as the test year, he would agree with Mr. Alexander ' s adjustments 1 ' and 2, which update data to year end 1973. (Tr. 1284) ' Mr. Vixo indicated his disagreement with Mr. Alexander ' s adjustment 3, which allocated a portion of the sales to non- ' associated utilities and related expenses to the City of St. Paul. ' He stated that these sales are in the nature of whole�ale sales. They are under the jurisdiction of the Federal Power Commission � and are in no way subject to the jurisdiction of St. Paul. , He pointed out that the sales are relatively shortin nature and are designed to meet the immediate efficiency needs of pool ' members in their season-to-season activity. (Tr. 1285) He � added that the cost of transmitting the energy from the point of generation to entry into the power supply system of the ' customer, as well as the costs of administration and mariagement ' of the details connected to sales of this nature should have been included. (Tr. 1286) Further, Mr. Vixo stated that , , -407- ' all sales, not just sales to non-associated utilities, are , made on a demand and energy basis. (Tr. 1286-1287) Mr. Vixo suggested that any adjustment in regard to AFDC , should be taken in conjunction with whether or not construction � work in progress is included in the rate base. (Tr. 1287) Mr. Vixo stated that he did not agree with the adjustm ent , 6, � relating to the Monticello plant. He stated that when , the Monticello plant began operations, NSP could have borrowed the mone to urchase a roximatel $74 million of fuel for � Y P PP Y a ten-year period or NSP "could have entered into a contract � which in effect had General Electric assist with or be , responsible for the financing of the carrying of the fuel costs. And this is what NSP elected to do. " (Tr. 1289) , Mr. Vixo explained that this option "carried with it the � requirements to pay carrying costs which General Electric had to carry if NSP did not use the fuel on an assumed scheduled i basis . . . . Not using it and paying it on a use basis, General , Electric would have been deprived of their earnings return which they expected under the contract. " Thus, Mr. Vixo indicated , that the "penalty" was merely the functio ning of a fuel purchase � contract. He added tha t the contract with GE has an option allowing the period for utilization of the fuel to be extended. , Mr. Vixo contended that the payment was not a penalty but ' rather part of a reasonable year-by-year pricing of the fuel ' -408- . ' ' ' over the period of time that is intencled to be used. (Tr. 1290) � Mr. Vixo indicated that, according to his information, it would have cost more to have borrowed monev at the tcurrent market price than to have this option in the contract. , It was his recommendation to eliminate Mr. Alexander' s adjustment, because he felt the "penalty" is merely the jfunctioning of the contract fuel costs. (Tr. 1291) , Mr. Vixo expressed an agreement with Mr. Alexander ' s adjustment 7, in regard to expenses of the shareholders ' Imeetings. (Tr. 1291) ' Mr. Vixo stated that he did not agree with the adjustment 8, amortizing the rate case expenses over a two-year period. , (Tr. 1291) He stated that since the $85 thousand figure will ' probably show up next year as a cost in connection with NSP' s efforts to maintain a reasonable earnings, and because there � is an anticipated $50 thousand additional fee, it was his ' recommendation that a one-year amortizatiai program would be appropriate. (Tr. 1292) , The witness testified that he could not a ree with g � adjustment 11, adjusting revenues to reflect the increases in the number of customers at year end 1973. (Tr. 1292) He � stated that the intent of usin a ear end rate base is to g Y ' recognize attrition. However, to pick up additional revenues � from new customers is to negate the impact which a year-end test year would have on attition. (Tr. 1293) ' -409- ' � Mr. Vixo also indicated disagreement with the manner in which estimates of revenues per customer had been made. He � stated that where a comparatively large number of customers � is involved, average revenue per customer is relatively small. In this case, a statistical approach to estimating the annual ' revenues from such new custaners is practical and suitable. � However, in the case of large commercial or industrial custome rs, there is an average revenue of $40,599 per customer. He ' indicated that the blind application of statistical averaging , techniques might not be applicable to such customers. (Tr. 1293- 1294) ' The witness testified that when a small comm� cial and , industrial customer�s: KVA demand consistently exceeds 100, then that customer is automaticall transferred to the lar e commercial , Y g and industrial customer classification. (Tr. 1295) � Referring to NSP Exhibit 16, the witness explained that he ' had revised adjustment ll, by first of all determining tha t there had been a net increase of 11 customers in the large , commercial and industrial classification. Mr. Vixo then computed � the average of these customers within their own group, rather than totalling the revenues for all customers in all groups. � Thus, the average annual revenue of the customers was $25, 957 . ' (Tr. 1297-1298) Then following the same procedure used by ' -410- , ' 1 Mr. Alexander, Mr. Vixo concluded that the annual increase in ' revenues was $167,631. (Tr. 1298) , Mr. Vixo indicated that while he did not agree with the concept of recognizing only the incremental production costs � as the increased costs for aclding year end customers, he had ' followed the consultant' s approach by assuming that all costs came from purchases. He divided the total cost of purchase � power by the total kilowatt hours urchased to determi P ne the � cost per mil as 9. 163, rather than 5.618 as determined by the c�onsultant. (Tr. 1298-1299) This results in increased costs ' of approximatel $66,000. Tr. 1299 Y � ) , However, Mr. Vixo disagreed with recognizing the addition , of a customer by only recognizing the additional kilowatt hour energy and demand energy required by the new customer. He � pointed out that while a customer may be an incremental customer ' today, tomorrow that customer will be an average customer, absorbing his share of all costs, not just the production costs. i (Tr. 1300) � Mr. Vixo pointed out that taking the incremental approach in new customers was one problem of using a test year which is jnot a projected test year. (Tr. 1301) � ' -411- ' ' Mr. Vixo expressed his disagreement with adjustment ` 12, relating to donations. He advocated the elimination ' of the adjustment for two reasons. First of all, he indicated that there had originally been a duplication of the charges. , �Iawever, when the consultants made adjustments 1 and 2, shifting to current allocation factors, Mr. Vixo wondered � if they had� not in fact wiped out the duplication of � charges . Secondly, he pointed out that NSP had made many other contributions which it had not included in its , expenses. (Tr. 1302-1303) Mr. Vixo indicated that adjustment 13, relating , to depreciation based on year-end values, was a reasonable , estimate of the amount. (Tr. 1304) However, he did not agree with the $118,000 figure shown for adjustment 14, � relating to property taxes based on the year-end property. (Tr. 1304) ' Referring to NSP Exhibit 17, Mr. Vixo explained that it was his best estimate of the additional property tax , which NSP would incur if the plant in service at the end � of the year were to be used as a basis for estimating additional property tax. He stated that he had utilized � the schedule from Mr. Alexander' s work papers, but had extended it to include additional property tax on Power � Division 20 and 21, part of the power supply system, , and also to recognize the fact that the property taxes on di�tribution plant within the city of St. Paul would i go up. (Tr. 1305-1306) Thus, the net amount of his , -412- r � , adjustment was $212, 000. (Tr. 1306) Turning to adjustment 15, Mr. ��ixo - indicated that , he agreed with it, but that he felt it was not. complete. ' (Tr. 1306) He pointed out that it was inconsistent to allow recognition of wage increases for non-union � hourly wage employees, but to exclude wage increases for salaried non-union employees . (Tr. 1307) He indicated ' that non-union employees will be receiving a wage increase in 1974. (Tr. 1308) Mr. Vixo stated that he � had brought Mr. Alexander ' s adjustments up to date by � including in NSP Exhibit 18 the effect of increases to non-union salaried employees . (Tr. 1_308) � The witness stated that Mr. Alexander ' s confusion might have resulted from the new merit system which is , being implemented by NSP. He explained that the 6 percent , raise, as provided for in the contract for union employees, would be assigned to each department. The manager of , that department would then distribute the funds in such a way as to equalize pay scales within his area and reward ' employees on the basis of inerit. (Tr. 1311-1312) , It was Mr. Vixo ' s recommendation that the figure $409,000 be recognized as the increase in wages. He indicated, � however, that in the event the price stabilization program is not continued beyond April 30, 1974, the union contract has a Iprovision raising the 6 percent to an 8.8 percent increase. ' (Tr. 1312) � , -413- � Turning to adjustment 16, Mr. Vixo stated that he , had prepared NSP Exhibit 19 to restate the computations � arrived at by Mr. Alexander. He explained that he had multiplied the $409,000 figure developed in Exhibit 18 � by the same 9. 2 percent used by the consultant to arrive at $38,000 in additional pension expenses. � (Tr. 1313) Adjusting this figure by $25, 000 in payroll ' taxes, Mr. Vixo ' s final recommendation was to recognize an additional $12, 000 for pension costs on the increases � in wages which he had recommended. (Tr. 1313-1314) Referring to Mr. Rising ' s adjustment in the rate , base, Mr. Vixo indicated disagreement with the � elimination of the prairie Island plant from the rate base. He stated that prairie Island is classified as in-service. � Further, it is his judgment that when a plant in service has a temporary outage, it should still be considered ' as plant in service. (Tr. 131�) � Mr. Vixo stated that he agreed with Mr. Rising as to the impropriety of having Prairie Island in the rate � base without having it in annual operation for a full year. (Tr. 1315-1316) For that reason, Mr. Vixo had , prepared computations to show the effect of having � Prairie Island in the rate base for a full year. (Tr. 1316) He indicated that this had been done at the request of � the city consultants, who were interested in computing the Prairie Island revenues and expenses had the plant ' been in service for a full year. (Tr. 1317) i -414- , ' , Mr. Vixo indicated that there had been several meetings ' between NSP employees and the city consultants in order to determine the conditions and assumptions to be used in , running a model of 1973 expenses and revenues including the Prairie Island plant. He stated that NSP had also developed ' a computer program in order to accomplish the proposed , study, He stated that the results of the programs which were run according to the provisions provided to NSP by , the consultants were supplied to the consultants and used by them to make their adjustments 9, 10, and 19. i (Tr. 1320-1322) � Mr. Vixo identified NSP Exhibit 20 as the request which the consultants had supplied to NSP to get the ' program started. He indicated that Exhibit2l was a restatement of the request in greater detail. (Tr. 1322- ' 1323) , Mr. Vixo �estified that the four procedures requested in Exhibit 20 were done and results supplied to the � city' s consultants. (Tr. 1323) He testified that the information obtained as a result of simulating year-end � fuel costs was used to implement the adjustments 9, 10 � and 19 regarding fuel clause revenues . (Tr. 1323-1324) The witness stated that he felt the results of the � studies run at the request of the city' s consultants gave a reasonable approximation of revenues and expenses 1 for 1973, assuming the inclusion of Prairie Island. (Tr. 1324) r � -415- � Mr. Vixo also expressed disagreement with Mr. Rising ' s , testimony that were Prairie Island to be left in the rate base with1973as test year there would be a double , rate of return for NSP. (Tr. 1324-132�) The wi�ess ' explained that "the nature of the utility business is such that there is no market to dump your energy on if ' you were to put a large unit on the system. " (Tr� 132�) He pointed out that normal salestrends do not show a biq , jump every time a new unit is put on the line. This � would indicate that it is impossible to go out and sell energy. He further indicated that NSP ' s construction ' program is tied in with the needs of other pool members . Finally, he stated that selling a great deal of new energy � would be contrary to recent orders of the FPC which require ' a l� percent reduction in sales . (Tr. 132�-1326) Mr. Vixo stated that he disagreed with Mr. Rising ' s � adjustment 2, eliminating construction " work in progress from the rate base. He stated that "the inclusion of , construction wnrk in progress in the rate base serves the function of le��elizing the cost requirements of the � company to the extent that as a practical matter it is � impossible without undue costs to capitalize AFDC on every project. Moreover, the capitalization of interest� � on projects does not permit that you take interest on interest. " (Tr. 1327) � � -416- ' r ' ' The witness did not disagree with adjustment 3, which annualized depreciation expenses . (Tr. 1328) ' Mr. Vixo did not agree with adjustment 4, ' regarding the investment tax credit. (Tr. 1328) Mr. Vixo stated that under a new law, "the net effect is that the ' investment tax credit taken must be deferred or amortized pver the li,fe of the plant from which it arose. Moreover, , the unamortized balance cannot be taken from the rate base � when setting rates, since this is but a way of depriving the utility of the benefit which Congress intended it to ' have. " (Tr. 1329) Thus, Mr. Vixo recommended that the unamortized investment credit not be deducted from the ' rate base. (Tr. 1330) � Mr. Vixo stated that he did not agree with Mr. Rising ' s ad�ustmet�t 6, which reduced working capital requirements ' to zera. (Tr. 1332) The witness indicated that since Mr. Rising had used accounts on the liability side of the balance Isheet to offset working capital, he believed that it was � only fair "that the cash and accounts receivable representing amounts advanced for services be considered as cash working , capital which must also be covered b y (the) tax accrual when , measuring the extent to which working capital is supplied by the investors. " (Tr. 1333) ' Mr. Vixo explained that he had based his Exhibit �2 on , City Exhibit 12-A, Schedule NGR-1, to which he had added an ' amount for service provided but not billed at the end of the � -417- ' year, which he characterized as unbilled receivables. (Tr. 1333) f He indicated that this amount was $20,420, 000, a figure ' supplied to him by NSP' s public accountant. (Tr. 1334) When these items are added together and multiplied by the appropriate , factor for St. Paul, the total is $5,801,000 applicable � to the city. Mr. Vixo then added to that total fuel on hand, materials, supplies, and prepayments, also found in Mr. Rising ' s , Exhibit, amounting to a total of $9,541,000 . Offsetting this � is $7, 242, 000 in taxes, leaving a total working capital requirement in excess of accrued tax offsets of about $2, 300, 000. , (Tr. 1335) ' From these calculations, Mr. Vixo determined that when working capital requirements are figured on the same accounting � basis as the offset of accrued taxes, NSP' s working capital , requirements are shown to be reasonable and should be included in the rate base. (Tr. 1336) � Mr. Vixo stated that he did not agree with Mr. Rising � that the plant held for future use in the amount of $333, 000 should not be included in a rate base. (Tr. 1336) Mr. Vixo � explained that NS� had not originally identified this amount ' as plant held for futt�re use, but this did not mean that the amount was not in a rate base nor did NSP not intend to have � it included. (Tr. 1337) � Mr. Vixo referred to FPC order 420 regarding a procedure , -418- ' ' � for permitting the gains and loses from the sale of property to accrue to rate pay�rsupon final disposition. (Tr. 1337- � 1339) Further, the order states "in general, it will be our ' policy to allow the rate-making treatment of land held for future use to attract the accounting treatment prescribed � therefore insofar as such treatment is reasonable and is � consistent with the evidence developed in each individual case. " (Tr. 1339) Therefore, Mr. Vixo recommended that � the amount for plant held for future use be included in the , rate base. (Tr. 1340) Mr. Vixo also objected to Mr. Rising ' s computation of ' the revenue re uirement. He indicated that his method of q , determining the revenue requirements was not equitable � because it preserved an inadequate tax resulting from an inadequate return. (Tr. 1340) ' Mr. Vixo identified NSP Exhibit 23 as a restatement of the 1973 test year. He indicated that schedule 1 was a , summary of all the adjustments on the income statement. , Schedule 2 was designed to adjust the r.ate base. Schedule 3 � showed the determination of income taxes, and schedule 4 the determination of revenue requirement. (Tr. 1341) , Referring to NSP Exhibit 23, Mr. Vixo explainecl that , NSP had no dispute with the consultant ' s figures up through column D of the exhibit. (Tr. 1346) Mr. Vixo then outlined , , -419- ' the adjustments made by the city with which he was in , agreement. (Tr. 1346-1347) He then listed items which he � had omitted from his exhibit because he felt they were not appropriate. These included: l.) Adjustment No. 3, relating ' to sales to nonassociated utilities; 2 .) Adjustment 6, � relating to the "penalty" for Mont�.cello; 3 .) Adjustment No. 8, referring to normalized rate case expenses; 4.) Adjustment 12, � relating to donations; and 5 .) the Adjustment re.lating to , unamortized investment tax credit. (Tr. 1347-1349) Mr. Vixo explained that the information contained in ' his columns E, F, and G was based on an output that was ' provided the consultants as a result of their request for a simulation which would include Prairie Island for the � entire year. He then indicated that the purpose of Column � E was to reflect the request of the consultants to use year end fuel costs. He indicated this would increase roduction ' P costs by a million and a half dollars. Activating the fuel � clause however, would also increase the revenues in the , categories as indicated. (Tr. 1350-1351) Moving on to column F, Mr. Vixo explained that because � of the cheaper fuel in the cost of fuel in the Prairie Island , simulation, there would be a savings of about $1.5 million in fuel costs, reflected in the revenue in column F. He pointed , out that increased costs in the administrative area were , due largely to the cost of insurance. (Tr. 1351) -420- ` ' � The witness then noted an increase in real estate property , tax, a decrease in the gross earnings fee associated with reduced revenues, and an increase in provisions for deferred iincome tax, as well as the provision for the full effect of � depreciation and amortization. (Tr. 1351-1352) The net result of these adjustments is outlined in , column G, revealing a decrease in net operating income of , $1, 308, 000. (Tr. 1352) Mr. Vixo stated that column O reflects the impact of , the proposed fuel clause. He indicated that the figures , there provide for the activation of the new fuel clause to year end f�l costs as reflected in column E. (Tr. 1353) ' This would provide additional revenues of about $819,000. � The result of these various adjustments is to allocate to the City of 5t. Paul a net operating income of $7,614,000. ' (Tr. 1353) ' Referring to page 2 of his Exhibit, Mr. Vixo pointed out that the adjustment of $330,000 in additional accumulated ' deferred income taxes resulted from the implementation of � the Prairie Island plant in service for a full year. (Tr. 1454) Going on to page 3, Mr. Vixo commented that it was his Iopinion that because NSP does not have an adequate earning, , it would not have any taxable income. (Tr. 1354) He stipulated that it was not proper to have a negative income tax. (Tr. 1354) � -421- � � Mr. Vixo explained that the interest cost inciuded ' in the incame tax computation was an appropriate amount if � construction work in progress were to be included in the rate base. If, however, construction work in progress was � not to be included, then appropriate interest would be ' $4, 199,000.. (Tr. 1355) Mr. Vixo then explained that on page 4 of his Exhibit , he had illustrated the manner in which he believed the , revenue requirement should be stated. He indicated that this page of the Exhibit starts out with a rate of return at � 82 percent, and then establishes the revenue requirement, or , cost of service at that rate of return, recognizing the appropriate composite income tax rate and recognizing that , AFDC is non-taxable. (Tr. 1355-1356) � , , , � � ' � _422_ � i 1 Direct Examination of Edward C. Glass iby Mr. Hanson � Mr. Glass indicated his disagreement with Mr. Rising' s � conclusion that the operation of the Prairie Island plant at a 70 percent level would generate a profit sufficient to , create its own return. (Tr. 1361) He explained that the � basic philosophy of NSP is to install base load generator units which are as large as possible in order to maintain the ' cost of generation as low as possible. Thus, base load units ' are approximately twice the size the annual system load growth. This results in thc scheduled installation of base load ' units about every other year. In the alternate years, purchases ' are made from other utilities in order to satisfy requirements . (Tr. 1361) ' Mr. Glass explained that the Prairie Island plant wi 11 � generate about 3.4 billion kilowatt hours at Mr. Rising ' s 70 percent capacity factor. He indicated that this energy , would be used in 3 areas. First, it would be used to supply � additional customer load in 1974, forecasted to be about 1 �illion kilowatt hours larger than 1973. Second, the plant � wou3d su 1 a load which was bein served b urchases PPY g YP , from other utilities in 1973. Third, it would replace energy , being generated on less efficient generator units, including those newly retired. (Tr. 1362) � -423- � Mr. Glass reiterated Mr. Rising' s predictions that , total retail sales growth at an average revenue per kilowatt � hour of 21.7 mills would support a 19 mill per kilowatt hour cost. (Tr. 1362-1363) Howeve�, Mr. Glass pointed out that � revenue growth in the St. Paul area is due to increased use � per customer rather than increased number of customers. Thus the revenue from that growth is less than the average, because ' it occurs in the middle and in the end steps of the rate. ' Secondly, Mr. Glass indicated that the revenue referred to of 21.7 mills supports not only producticaz costs, but also , transmission, distribution, system operations, system losses, ' administration and general expenses . (Tr. 1363) Assuming that 30 percent of the energy produced by the � Prairie Island plant would be consumed by increased customer , use in 1974, and assuming an energy allocation factor 13 percen�., "Mr. Rising' s reasoning would require an increase in St. Paul ' sales of 21 percent in 1974. . . . " Such growth would be several ' times greater than that which has been experienced in the past, explained Mr. Glass. (Tr. 1363-1364) , If Prairie Island were used to replace energy previously � purchased from other utilities, Mr. Glass pointed out that purchase costs for the year 1973 averaged 8.4 mills per � kilowatt hour, far short of 19 mills. (Tr. 1364) , ' -424- � � ! Moving on to the third category, that of replacing � generation of less efficient units, Mr. Glass pointed out that the savings in this category would be less than 10 mills iper kilowatt hour, and probably less. (Tr. 1364) � Mr. Glass tl�en alluded to the possibility of selling the energy from Prairie Island to other utilities. He indicated � that in this type of a situation the ener must be sold gY , as economy energy. He pointed out that this type of sale takes place at a break-even point. He stated that NSP is � willing to do so because this type of sale then allows NSP � to buy from other parties. (Tr. 1364-1365) Mr. Glass indicated that sales of economy energy would be at a maximum per � kilowatt hour of 5.8 mills. (Tr. 1365-1366) In summary, ' Mr. Glass stated that the Prairie Island plant cnuld not possibly generate its own revenue requirements in 1974. (Tr. 1366) � Mr. Glass explained that a simulation model had been � developed which would account for the operation of the Prairie Island plant for all of 1973. He indicated that if a � new generator is added to the simulation model the ro ram � P g ' would fit that generation in and dete rnnine the effect on all � other generations in the same way as the system would operate.' (Tr. 1366-1367) He further pointed out that this simulation ' model is used continuously in NSP' s routine business. ' (Tr. 1367) -425- � # Mr. Glass explained that at the request of the ' city' s consultants, the simulation model was used to pro- duce two adjusted 1973 cases, one with Prairie Island in , and one with Prairie Island out. He stated that both , of the cases reflect the use of the consultant ' s incrPmF�ntal prices, low gas availability, and an adjustm�nt of fuel pricFS � from an incremental basis to a� as consumed basis . How�vFr, at a later date the consultants decided to use an � early trial run, rather than either of the officially ' requested cases. (Tr. 1368) Thus, Mr. Glass indicated that this decision on the � part of the consultants indicated a satisfaction as to the validity of NSP' s simulation program. He also i pointed out that the consultants ' determination now rests not on either of the completed cases, but rather on an � incomplete trial run. (Tr. 1368-1369) , It was Mr. Glass ' s opinion that the simulation which was completed and which included Prairie Island as a , plant in service for the full year reasonably represented the appropriate adjustments to revenues and expenses. � (Tr. 1369) � Mr. Glass also pointed out that the incomplete trial run was also utiIized by the consultants to determine a ' projected fuel clause adjustment. Although the cost of fuel was figured on the basis of current prices rather � than on an as consumed basis, the sellers' as consumed ' prices were introduced. Thus, according to Mr. Glass, the ' -426- � ' ' trial run contained "a mixture of apples and oranges. " ' (Tr. 1370) Mr. Glass emphasized that the consultants had ' ignored the fact that the cost of energy which NSP would be purchasing in 1974 would rise along with NSP ' s fuel ! costs . (Tr. 1370) Mr. Glass stated; "Of the total cost of the purchases made in 1973 , 80 percent of the ' cost was related to ener and 20 ercent to the gY p , demand charge. Now the increases in demand charges are averaging 6 percent per year. The price for the , energy is either related to the fuel cost that the ' seller is incurring for the sale, or is related to NSP ' s fuel cost, or are a combination of the two. " ' (Tr. 1371-1372) Thus, it was Mr, Glass ' s conclusion that there was an inconsistency in the prices being ' used for figuring the fuel cost adjustment and for ' figuring purchases and their effect on the fuel cost. (Tr. 1373) ' Mr. Glass testified that the term "capacity" means the level of power generation of which a unit is capable. � For example, the prairie Island No. 1 is capable of � 550 megawatts in the winter season and �30 megawatts in the summer season. The term capacity factor indicates � the proportion of actual e�ergy to possible enF�rgy and is calculated by dividing the energy output by the ' total possible output during a given period. Thus, the latter term reco�nizes both scheduled and unscheduled ' outages . (Tr. 1374) , -427- ' Mr. Glass explained that for nuclear unit5, scheduled outages ' will amount to 10 weeks during the first year and improve to about 6 weeks after 4 years . Unscheduled outages usually average ' about 6 weeks at first and improve to 4 weeks. (Tr. 1374) Thus, the capacity factor for Prairie Island will initially be ' about 70 percent, and will improve in three or four years to 80 percent. (Tr. 1374-1375) As a result, however, of outaqes ' experienced during the early part of 1974, Mr. Glass explained � that it is expected that the prairie Island unit will show a 60 percent capacity factor. He pointed out that this compares ' favorably with the national average capacity factor for all nuclear units during their first year of operation of about , 50 percent. (Tr. 1375-1376) ' Mr. Glass explained that scheduled outage refers to an outage scheduled for annual maintenance or annual fuel loading. (Tr. 1376) ' He testified that unscheduled outages are a combination of forced outages and outages which were not planned for but could be � postponed beyond the weekend of the week during which the trouble , arose. He pointed out that this is a national definition of unscheduled outages. (Tr. 1377) � � � � ' ' -428- ' 1 , Direct Examination of Mr. Burnell L. Larson , by Mr. Hanson Mr. Larson testified that he is a CPA with the firm of ' Haskins and Sells and has been the partner responsible for his firm' s engagement with NSP for the last 6 years . (Tr. 1378) � Mr. Larson explaineathat he had reviewed the classification � of the Prairie Island plant as plant in service. He indicated that as part of his review, he had examined the completion report ' prepared either by the �bnstruction Department or the Production Department. (Tr. 1379-1380) In doing so, he explained that he ' reviewed the construction expenditures, the transfer of cost into ' the plant in service account, operating permits or licenses required, testing, accounting of expenses during the test period, ' and proper cut-off of expenses. (Tr. 1380) Mr. Larson testified that NSP is under the jurisdiction of ithe Federal Power Commission, and thus its accounting system ' must follow the Uniform System of Accounts. (Tr. 1381) Mr. Larson stated that during the construction period, � all of the construction costs, including labor, material, contract work, overhead costs, allowance for funds, are accummulated and ' maintained in Account 107, Construction Work in Progress. When the plant is transferred to plant in service, the construction , costs must be transferred out of Account 107 and into the Plant � in S`rvice account. At that time there would be no further construction costs added to construction work in progress for the , particular project. (Tr. 1381) ' -429- ' ' The witness also explained that when a plant is ready for ' service, the allowance for funds during construction is stopped, ' as required by the Federal Power Commission. (Tr. 1382) Mr. Larson testified that based upon his audit and examination , of the records, it was his opinion that the accounting treatment of prairie Island as of December 16, 1973, was consistent with � the requirements of the Uniform System of Accounts and with good � accounting practices. (Tr. 1382-1383) Mr. Larson testified that there is no provision under the , FPC Uniform System of Accounts for a declassification of the plant out of Plant in Service back to Construction Work in ' Progress. Once a plant has been placed in service, NSP is no ' longer allowed to capitalize any AFDC. (Tr. 1384) It was Mr. Larson ' s opinion that it would not be proper to return � the Prairie Island plant to the �onstruction �ork in progress account. (Tr. 1385) i � , , ' � � -430- ' ' ' ' , CROSS EXAMINATION OF EDWARD C. GLASS ' BY MR. STEARNS: � Mr. Glass stated that the Monticello plant came on the line in. 1971, although it had originally been scheduled , for 1970. When it did operate for a full year, the net output for the plant was 3 . 6 billion kilowatt hours . � (Tr. 1389) He indicated that he felt it likely that the , Prairie Island plant, when it came on the line, would pro- duce approximately 3. 4 billion kilowatt hours in a year. , (Tr. 1390) He explained that Prairie Island is expected to run at full load most of the time, but so far has been op- � erating at about 2/3 capacity. (Tr. 1391) iThe witness pointed out that NSP has already cut its , purchases of power, due to putting the Prairie Island unit on the line. (Tr. 1391) He indicated, however, that the � possibility of selling excess power to, for example, the East C�ast was minimal. This was due to the fact that trans- � mission between Chicago and the East Coast is limited. He � further pointed out that within the immediate area, there is approximately a 28� reserve capacity for 1974 , indicating ' that NSP 's ability to sell participation power in the NSP region is nil. (Tr. 1392) � Had Prairie Island come on the line in 1973 , Mr. � Glass indicated that NSP would have used all the electricity ' -431- ' ' produced by the plant within its own system, thereby ' replacing the 400,000 kilowatt hour purchases that the ' company had made. (Tr. 1393-94) Any excess power produced by the plant would have enabled NSP to shut down older � equipment on its system. (Tr. 1394) � The witness explained that by "'shut down" he meant that a unit would either be taken off the line or operated at a � lower level. He indicated that a portion of the High Bridge plant would have been either shut down or the generation � lowered �ad Prairie Island been on the line. (Tr. 1394-1395) , Thua, Prairie Island would have enabled the company to save expenses on its mo�t expensive plants. (Tr. 1395) � Mr. Glass agreed that Prairie Island was intended to � be part of the integrated system. (Tr. 1395) Thus, revenues would be made out of the entire system and expenses would also ' be incurred from the entire system. (Tr. 1395-1396) 1 Mr. Glass stated that he did not disagree with Mr. Rising' s explanation that 19 or 20 mills would be the average � cost of energy from Prairi� Island. (Tr. 1397) , Mr. Glass explained that the simulation program, which makes it possible for NS� to determine the necessary adjust- , ments for 1973 with Prairie Island on the line, covers fuel � costs and implemental maintenance. (Tr. 1397-98) It does not, however, include the transmission costs, distribution costs, � -432- , r , , customer accounts, sales expense, depreciation, and in- ' surance expense. According to Mr. Glass, the program simply simulates the operation of the generation on the 1 NSP system. (Tr. 1398-99) � Mr. Glass testified that with Prairie Island on the line in 1973, NSP would have experienced a savings of � approximately 3 to 4 million dollars in purchase power. (Tr. 1400) He also pointed out that according to the jsimulation program, if Prairie Island were on the line, � it , would save the company approximately l to 2 million dollars per month, or 15 to 20 million dollars per year. (Tr. 1400-01) IIn response to a question by Mr. Hanson, the witness 1 explained the various simulation programs which had been run by NSP at the request of the consultants. He pointed � out that first NSP was asked to simulate the actual operations of the system as they existed in 1973. Next, a trial run � , was made using numbers established by the consultants as � being the incremental figures. Next, a trial run was made to determine the effect of reduced gas consumption. In , addition to these trial runs, the witness stated that two completed runs had been made, using the consultant' s numbers 1 for incremental costs. Iie stated that reduced gas availability � was used as well as as consumPd prices. In addition, on� program was run with Prairie Island and one program was run , without Prairie Islan d(Tr. 1402). , -433- � ' Responding to Mr. Stearns, the witness reiterated , that the simulation program covers fuel cost, scheduled , outages, and unscheduled outages. It does not include the revenue requirements associated with capital. (Tr. 1403) � r � � � � � 1 1 1 1 1 � 1 -434- , � , RE-DIRECT EXAMINATION OF MR. BURNELL LARSON by Mr. Stearns ' Mr. Larson stated that according to FPC Rules, dvhnn construction is completed the accumulat�d costs of that complFtFd , construction should be removed as soon as practicabl� from con- � struction work in progress to plant in-service. He indicatc�d that he felt a plant should be placed in sFrvice� when it is compl�ted � and ready for service, althouqh hP did not believ� that thP Federal Power Commission rFquirF•d a plant to be plac�-d in servic� � as soon as the operational tests are commenced. Hn agr� �d that th� � decision to put a plant in servic� is a judgm�nt madF by p�rsonnFl working for the company. (Tr. 1404-05) ' Mr. Larson stated that he had not be�n pr�s�nt at thF Prairie Island plant site whrn it was det�rmined to br ready for � service. (Tr. 1405) RefE-�rring to a completion r�port submittFd , by a professional engineer on th� 18th of DPCF•mber, Mr. Larson pointed out that on December 14, 1973 h� originally saw a draft ' of the report, then dated the 13th of the month. (Tr. 1405-06) At that time, Mr. Larson was aware that the FnginF�r had stated � that the plant had perform�d at certain levels and that it was 1 his judment that the plant should bF placed in sPrvice. (Tr. 1406) Mr. Larson stated that it would not necF�ssariiy hav� made � much differFnce to him in evaluating thF engineFr ' s r�port had hF known that on DE�cember 17th the turbine devFlopPd problrms and th� ' plant had to be shut down. (Tr. 1406-07) He statFd that hF did , not know whether or not the plant had first op�rated at 50% ' -43�- � , ' capacity on December 16th. HP pointFd out that during th� period from December 4th through thF 16th or 17th, thF plant � had operated at various lcvels. (Tr. 1407) He stat� d that if the engineer felt the plant was ready for servicF , he had , no reason to challenge that professional opinion. (Tr. 1407) � Mr. Larson tPstified that he could not point out any portion of thP FPC System of Accounts which prohibits or � authorizes the� reversal of a plant classification. (Tr. 1408) He agreed that normally a classification is assum�d to b� corrFCt � in the first instance. How��vF�r, if he discovFred that a plant � should not have becn classified as plant in sFrvicF�, hF would view that as an error in the classification and h� would have to ' request that an adjusting journal �ntry bc made to th� books of account. (Tr. 1408-09) � On rPdirect, Mr. Larson tF�stifi^d that no corrc�cting �ntry was , appropriat� for the classification of Praire Island. HF� also stat�d that he knew of no instance when the FPC had p�rmitted � the rF-versal of an entry classifyinq a plant as plant in service. (Tr. 1411) � In answer to a question from Mr. StFarns, Mr. Larson statFd � that he felt that if a journal �ntry had bFFn rFCOrd�d to thF Federal Power Commission,. it would be necessary to q� t FPC � permission to make a corr�ction. He did not know, howFVer, if that was a requirFment of the Uniform Syst�m of Accounts . (Tr. 1412) , � ' -436- , ' � , CROSS EXANiINATION OF ARTHUR V. DIIENHART _ ' BY MR. STEARNS: Mr. Dienhart did not agree that the power ascension � phase is a test. He pointed out that it is not uncommon ' to have tests made on a plant when the unit is ascending in power. He further stated that the power ascension phase � can occur at several times in the life of a plant. (Tr. 1414) However, Mr.Dienhartdid agree that there were certain tests � to be performed at various levels of operation which he called � power ascension verification tests. (Tr. 1414-15) Mr. Dienhart indicated that the tests which were listed � in his exhibits all involved plant performance and occurred ' prior to synchronization on December 4 , 1973. (Tr. 1415) He agreed with Mr. Stearns that several of these tests occurred � over a period of several months. He painted out, however, that such tests were usually run sporar�'ically during the ' period indicated. (Tr. 1416-19) The witness stated that the � plant could not be synchronized and placed into initial operation until all pre-operatonal tests were satisfactorily ' completed. (Tr. 1419) However, he indicated that during the time span for each individual test, it would be natural , that adjustments, revisions, or modifications would have � to be made. He indicated that once the appropriate changes and adjustments are made, the tests are repeated until the � , -437- , ' system is declared to be satisfactory. (Tr. 1420) , The witness testified that unit number 2 of the � Prairie Island plant is now in the pre-operational testing phase, and is trailing unit number 1 by about one year. � (Tr. 1420) � The witness stated that his Plant Engineering and Construction Department analyzes construction schedules � and issues scheduled in-service dates. (Tr. 1422) � He indicated that when there is a significant change in cost or schedule, the Board of Directors is orally advised , at one of the regular board meetings. (Tr. 1423) He pointed out that the 6 changes in scheduled in-service � dates for the Prairie Island plant varied in significance, ' according to the length of the postponement called for by the new schedule. (Tr. 1423-24) Mr. Dienhart agreed � that there had been "significant difficulties" in the construction of Prairie Island unit number l. (Tr. 1425) , He further stated that, "I think we should understand that , the nature of these projects is such that one cannot expect an extreme degree of precision in forecasting schedules of , events that are to occur several months and years in advance of the time of the schedule . " (Tr. 142F) , Turning to a discussion of the Monticello plant, the , witness stated that that plant was a turn key project, � -438- ' i 1 ` originally scheduled for 1970. (Tr. 1426-27) He stated that it was synchronized into the system on March 5 , 1971. , Because of the contractualconsiderations resulting from the � turn key nature of the project, the plant was not considered to be in service until June 30, 1971. (Tr. 1427-28) He � indicated that the in service date was established by a letter dai:ed July 6, 1971, from the manager of the NSP Fower P,roduc- , tion Department, which indicated that the in service date � for the plant would be June 30, 1971. (Tr. 1428-30) ' Mr. Dienhart explained that because of the nature of the turn key project, all of the equipment, components, and � systems received by NSP from General Electric had to achieve a certain level of performance before the plant would be ' accepted by NSP. (Tr. 1430) � Recalling the contract with General Electric Company, the witness stated that the warranty provision had provided ' that GE would guarantee a certain level of output at certain � conditions and that NSP would agree that General Electric had fulfilled its contract if these conditions were achieved , for 100 consecutive hours. Mr. Dienk�art indicated that he felt the plant would have been operated at abode 50� of � capacity for 100 uninterrupted hours. (Tr. 1432) tMr. Dienhart recalled that it was necessary to repair � Monticello' s turbine generator, but he thought that the repair -439- � � ' was done after the plant had been accepted by NSP. (Tr. 1433) , Mr. Dienhart testified that as a plant progresses � through the power ascension phase, tests and observations � are made at various power levels, including 5� , 10� , 20� , 30� , 50�, 75$ , 90� , and 100� of the active power. (Tr. 1434) ' Mr. Dien hart agreed that PrairiP Island had to be shut down on , the 17th of December, 2 days after it had reached a 500 of capacity level. He indicated that the shut down was � due to excessive vibrations in the turbine generator, and was not related to the nuclear steam supply system or the , nuclear portion of the plant. (Tr. 1435-36) He added that almost all of the power ascension tests are related to the � reactor portion of the plant. (Tr. 1436) � Referring to the letter written on December 18th and , declaring the plant to be in service on the 16th, Mr. Dien- hart agreed that the date the letter was written was the date ' when the plant actually was not generating power. However, he pointed out that the wording of the letter referred to the ` fact that the plant had previously been in operation and was � considered ready for transfer to the jurisdiction of the Power Production Department on December 16th. (Tr. 1436) , Actually, Mr. Dienhart . stated that the plant was used � and useful on December 4 , 1973, and continued in that condition from that time on. He indicated that the P�wer Production � -440- � , ' � Department had decided for ac3ministrative reasons to , accept responsibility for operation of the plant on December 16 , 1973. (Tr. 1438) He pointed out that tlhese � administrative reasons included a simplification of personnel ' and accounting matters. If the change occurred in the middle of the month, personnel and other costs for the , period prior to the middle of the month could be considered part of the construction project, and all costs subsequent , to the middle of the month would be considered operating , expenses. This did not mean, however, that the plant was not used and useful prior to December 16th. (Tr. 1438-39) ' It was Mr. Dienhart' s contention that a plant is ' used and useful from the moment that it delivers kilowatt hours into the system for commercial use. The fact that , the plant was out of service for maintenance and repairs did not affect his opinion, since he indicated that such ' occurre nces would happen many times during the life a , plant. He further pointed out that NSP has had other new plants which have had maintenance problems early in life. , (Tr. 1440) � Mr. Dier.hart testified that the current series of verification tests in the power ascension phase are tscheduled to continue through lOQo of reactor power. ' He indicated that the tests have presently been completed ' -441- � ' up to the 75$ level. He pointed out, however, that ! electrical output into the NSP system is at the 65$ level. , (Tr. 1441-42) P�ir. Dienhart agreed that NSP presently has a 100$ ' license for the Prairie Island plant. He stated that , although NSP had hoped to obtain a new license in February, the license had in fact been issued in April of 1974 due ' to the length of time it took the Atomic Safety and Licensing Board to render its decision. (Tr. 1443-44) , Mr. Dienhart explained that once the full term, full ' power operating license was received, the intention would be to operate the Prairie Island plant at rated capacity, , which would be 100$ of capacity. (Tr. 1444-45) , Mr. Dien hart agreed that the Prairie Island plant was , off the line on March 9th due to turbine vibrations. (Tr. 1446) ' ' ' � � -442- ' ' � , Recross Examination of Mr. Vixo by Mr. Stearns � Mr. Vixo explained the revisions which had been made in NSP Exhibit 23. The major changes included: (l. ) A � revision of the rate base to 177, 606, 000 dollars• 2. , � ) � A change in the amount of interest allocated to � , 261 , 000 dollars; (3. ) A revision of the interest related to tconstruction work in progress to 4, 167, 000 dollars; (4. ) A change in the total cost of service to 63, OR2, 000 dollars, � a decrease in revenue requirements of 185, 000 dollars. � (Tr. 1450-1452) With reference to the adjustments made by Klaren ' Alexander to the operating gtatementof NSP, Mr. Vixo stated that he agreed with adjustments 1 and 2. However, he ' indicated that he did not agree with adjustment No. 3, � regarding sales to non-associated utilities. He indicated that although he felt the allocation of revenue from � those sales should not be made to the city of St. Paul, he nevertheless had no dispute with the method of allocation. ' (Tr. 1453) � He indicated that the consultant for the city should have prepared a fully-allocated cost study so that costs � attributable to the revenues would be offset against the gross revenue that was included. These costs would include ' the costs of accounting, sales, administration and general � expenses assignable to the sales involved. Mr. Vixo indicated that "fully distributed costs should follow the , re��enues. . .wherever they go. " (Tr. 1454) He explained ' -443- � that when sales to non-associated utilities had been ' excluded from the operating statement, no attempt had been � made to remove any of the assigned costs, because they had not been included in the statement. (Tr. 1455) � However, Mr. Vixo pointed out that if revenues were returned to the city, there would be additional costs � which would also have to be returned. (Tr. 14�5) ' Mr. Vixo agreed that adjustment No. 4 would be correct if construction work in progress is excluded � from the rate base. (Tr. 14�6) Referring to adjustment 6, Mr. Vixo explained that � the fuel contract which NSP has with GE incorporates ' two levels, for the first ten years of the plant the level is 88 percent, and for the remaining iife of the , plant the level is presumed to be 76 percent. (Tr. 1458) Mr. Vixo agreed that the contract could be characterized ' as a "take or pay" contract. (Tr. 1459) Mr. Vixo identified city Exhibit 17 as a voucher � for interest paid under the contract with GE. He agreed ' that it was an interest payment made because of the deviation from the 88 percent level . (Tr. 1460) � Mr. Vixo stated that this type of interest, relating � to operations, is considered an operational expense and not a below the line expense. (Tr. 1460-1461) ' � -444- ' � i � Mr. Vixo stated that had the Monticello plant been � in service rather than out of service for such a long period of time, net revenues to NSP would have been increased. � (Tr. 1461-1463) Mr. Vixo explained that he had made no adjustment , to the costs concerning the Monticello plant, even though , it had been out of service , an unusually long time. He pointed out that the interest paid to GE was not an ' abnormal cost, but rather was an "annual measure of the true cost of fuel consumed during any one calendar period ' during the life of the contract. " (Tr. 1464) � Mr. Vixo stated that because of the new state law, NSP would no longer be making an $85, 000 payment for , rate case expenses. However, the company will instead be making additional similar payments, as required by the � new law. (Tr. 1465-1466) For this reason, Mr. Vixo � denied the rate case expenses were nonrecurring expenses and should thus be excluded from the operating statement. ' (Tr. 1467) Mr. Vixo agreed that the city ' s position is to consider , revenues, expenses, costs at the end of the year in con- ' junction with end of year rate base. (Tr. 1467) Mr. Vixo stated, however, that it was NSP ' s decision to treat ' revenue exactly as it would had an average year rate base been used. He denied, however, that in doing so he had ' accepted partly year-end procedures and partly average year procedures. Instead, he stated that he felt a , year-end rate base should compensate for attrition and � -445- � not make an attempt to recognize growth. He agreed with � the definition of attrition as future changes in costs � and rate base that do not reflect themselves in revenue. (Tr. 1468) ' In regard to adjustment No. 12, referring to donations , Mr. Vixo agreed with the city' s computation of $40, 362. 95 . � In regard to the duplication of charges, Mr. Vixo agreed to ' discuss it with the consultant. (Tr. 1470) Moving on to adjustment No. 15, Mr. Vixo agreed that � the non-union salaried employees have anniversary dates corresponding to their salary increases . He agreed that , not all non-union salaried employees get the same percentage , increase. He further agreed that not all the increases committed in 1974 would be paid in full in 1974. He ' indicated that approximately �6 percent of the non-union employees would receive raises during the calendar year. , (Tr. 1471) � Mr. Vixo agreed that under the merit program, not all employees would get the same percentage increase . However, , regardless of how the 6 percent increase is distributed within one department, the increases will still total 6 , percent when they are added up for the entirP company. (Tr. 1473� Mr. Vixo agreed that it was improper to have Prairie Island in the rate base without having it in annual operation , for a full year. (Tr. 1473) He indicated that if one wants to determine actual historic revenues and expenses connected ' with the Prairie Island plant, it would be necessary to have ' the plant in actual operation. However, if the problem is a test year problem, then a study would have to be made � -446- � � to show what effect the lant would have on o erations P p . � (Tr. 1474-147�) Mr. Vixo stated that although it is not possible to ' trace kilowatt hours or dollars from one area to another, his Exhibit 23 does reveal the re��enues and expenses that ' would be incurred by Prairie Island in an ac+tual year of � operation by showing the sharing of cost savings and revenues obtained from the sharing of these costs . (Tr. 1478- ' 1479) He stated that he could not point to a specific figure, however, which would match up with the revenues ' which Prairie Island would be expected to produce. Rather, , these revenues would be a prorata portion of all the amounts in column A as well as lines 2, 3, 4 and 5 of NSP Exhibit ' 23. (Tr. 1479-1480) Mr. Vixo agreed that NSP is in a favorable position ' with regard to fuel . Thus, if there is a market for , electricity, the company would be in a favorable position for selling electricity. (Tr. 1480-1481) ' Mr. Vixo stated that his method of computing 45 days of operating expenses in order to determine cash-working , capital is a substitution of one method for other possible � methods such as a lead lag study. (Tr. 1481-1482) He stated that the 45 day method is not an actual representation ' of working capital, but is rather, a technique for determining the amount of working capital. (Tr. 1483) ' � -447- � � The witness stated that unbilled r�ceivables ar� n�v� r � expens�s. HowPver, the services and costs connFCted with � unbill��d recPivables are opFrating �xpens� s . (Tr. 1484-1485) Mr. Vixo also stated that accruFd taxes are availabl� to i offset the 45 days of operating exp�nses. (Tr. 148�) Mr. Vixo testified that although construction work in ' progress was not included in the ratP base in thc� last ratF � hearing, construction work in progr�ss was used in th� allocation of interest usFd in a deduction in the computation ' of income taxes. (Tr. 1486) Responding to a question by Mr. Hanson in r� gard to ' unbilled receivables, Mr. Vixo statFd that the costs ' connected with unbilled receivables would be listFd as of December 30, 1973 as expenses. At the be�ginning of the nFxt ' year, however, unbilled receivables of the previous yFar would appear as revenues for the current yFar. (Tr. 1486-1487) ' ' , , ' ' , ' -448- � .. . � . ...;� „ �I; . ... � ♦ . ' .. .. ' ' , , � � � , ' , I '� � 1 ' , ' ' , ' ' � �' , � i I ' i : � � � �� 1 . 1 1 � � � � � � �f 1 1 1 . 1 _ 1 � ; 1 1 i 1 . � 1 1 , i 1. �► � � s � � � � 3�� . � � � � 3 i _a.,�__v.._�._______..__..M.�______.�....e � In �� Mat�� f �l��h�r� S��`��s Po�rer Comp�ny ' s P�� r� �o t�� ic� �c� cou►�� o� sa� n� ��u� �:c� Fi@V��Ebf �iJIi��1391J/ � a ��ti.�.$°3 C �� P�r/ ,� Op2;�a�io�rs an� $� �p� •�ti�� R��s�- �bl � Rat�a f�� S�3�s ��'� El��d�ia� � Er�ergy ir� S��t Pa�l . ,. � _�._ ______�a_�_..__..�e��. . �m_...�...�.._. � � . 1� � 1�. � I� j ► �� i � �:� � ., �.� ;; � �' �r�r�sc�z �� ' ��ocQ�d� ngs h�d i� th� t�ea�ir�g og �.� i , � ��: ��a��s�� ;��:! n�f��+� t,.��'�� H��a^ing E�ea�n�c�e�^ l.�ona.rd E . - �.�:: ; - �� ,ir��r�u��t o� �h� 8th d�,� ��; : � }.,��nb�r°, i973 , �3n Coue�troem �301 n t, �� m�� 2��ns�� o��y Coa�r��c�;gse � S�a';n� �'��:'� � M»n�s�� 5��(�ZA �:omm�ncing ��:. ��# �� ! �� a'�Pr�x�m�teiy 9 :� � �° e�l�r� � ra t�� :��p�naa� . ;3� s?�? �' � �� , � �� { �_ � � 9 r � C"� � r ... . w {y.y � d= � � G N �� j "�' t�i�y � � �� Y 9 �' � t� :rir !# . 2 � APPEA�tANCESe � � L�onard J . K�y�s y ��q�i r�, of the fi�m �f � B�-�3ggs & Mor�ana d�t�o�^n�ys �� .tiw� �t-2200 F�trs� Na�ion�1 5 �ank �3taiiding , 5�� Paul � i�3nn�sa�� s app��i��d r�p�e��r�t�n� � N�v�t�re�� Sta��s �o�� C�mpa��. 7' . � 7h�mas � . S��ar��s , �s�u r r�, Ci ty f�� 1 �nd � � Cs�c��us� , �aira� �'a�� Q Mi �a��s��at app�ar�d ��n��r�g �.f? $�i� �a�y �i�' S�1i�G �c�.tJl , �.1 �.� �� t�� . r�an��►, ��or�n�y a� �.a�� ,�o�� E. �.3 � �a°��F� s ��rn�y �� Law, �� Cv��r°�� i 1 d�r�g , S�i n$ �� P��'t , I�ii��cs��, a��+�ar�e9 rep��±1�n��3n� Int�r��s��d Ci�ti ��ns a-� G��s o �� - �7 t",LSO PR�SEF�T: �� =� L�u�^�t�� R. Rd�3c��C�t , Esq�airt� ��' Fr��r� P, V��t� �� Thni��s C�r�rz�e3ly � Cour�cl3�r��r� R€��7 $rs� Sc�tie� 2� �� 9 Za 1 EXHIBITS t9ARKE�1 FQR IDE�d1'YFICRTION � - 3 C1 ty° s Exh'E bi t Nae 1 3 4 Ci$y° S EXh�bi$ Nt�. � � � City ` s Exh�b�# N�. � � f> -. a � � - �.� �� I� , �4 �� .1:i` � �/ �'�+ �� G.L � �� ,�� <, � 9 i � � 3 's i � � FiR. �T£ARfdS: As �an �r�trod�cto�y matt�r w �thi s i s � rcq�a�s� �� tta� ��r� of Ndr z�t�wt� Sta��s A�s��° � Ct�mpaa�y �� have a�k a�cE^��se af �^at�s p�rsuant t� �ts 4 Prarac�9�� O�din�n�� Na. � i5319 , proc��dinq u�der fi�� pv°ov�s ��n o�" S�c�iQ�i 7 th�reo�. � � # � a.h�r��c �s av� �nto^�ductt�ry prac�d�r� �r� � � sh��]d have a� a�i f�� c�f ��@ �ppl i ca��n �f LP�e cc�:npany, � �� h _ �� as i� t�s pu� �n �� eca�,d. � i D��t e �:�YES : 'T�e �p�l i ca�i ort #s i r� �Ft� _ � 1�► �� C�E�'�0�y U� '��1�: C'6 �,;j6, �.3. � MR o S?�AR�S o A� 1 �igf�t. Th�n I O��e+� got , !{ :�� opy w�i cis I wi � 1 s�abni E a�d th�n r�+� wi l t get � ��ri- �.;� ��d ��py fr�m �h€k �l�rk . �.`�� 1� , ��E� . C�rt�i�ly. I hav� r�� bjection �� a �9t��. 3� ��. �T�AR�S : Mt�y I have �his m�a�ked - �,� �i�y ° s Exh#b# t �I�, °� . :�f� (C�ty c�� Sain� Faul €xhi�it N�. 1 �.�3 � s�a v�k�d fpr i denti f�cati on . E 1 ��:� � �iv�, I:E�'�S � �!� sh�uld note n�p��v��r��es . 4 �,`� � �3�. .:'t�A�N� : I thi nk �1 � th� app��anGe� . , �''��. � M�o KE�ES: Absolutely. �� ii�. sTIEARN� : Car� �a� hav� a nota�io� of th� �d-!'� � ��n��s m�d� 1r� t�� re�t�a°d? �'�res �� ._ � Mt�< 9��Y�S e i�� na�n� i s �.�ona�rd J . K�;y�s . I � � �� 3 , �` { '� � � ti �. !, � � r� � !) a i� � i, �� .. .. .. ,4`' .rf __ ��.'_ ��: ii� f G�i�';°1"�1 at .� �� '"y:M:1`;° ,` � _y�°� � � � ;P , 'r � , . . . _ � _ ...':: +_' _ , ,. �� 'a .37 .. �;;. �k'c�a3f: T.,:i': �s4' i'il:;� ,3�� ' �; 5: .; :i �:- ; ; ;� -. °" > >. . � . , , t. .:ei;,�� 'i!�?�' •.��'f.ia "'•:i � _ t� . . . . � t � �'�" 1 ;� . _ .. , E.'- a ,� �, :�'E'i3¢:��5 b ii�<'�' � .''��r3 "'� r � � i, . . ' s . w. �i � ;?�4 , � �� .. '.;' . • ,. . . , �. . .��' , � ;'', t � . . .. �G e�i t..Cy p�i . 3�.i .!;�•��Y�i �4 � :i:<:2 � � � � . !�. . .. . , _ . . - � � . . ... . _ ., . ,. . �.�.':_ .: � � ..... -.� � tu� d �,;: .;� ii� �.��i{. .:? . �. .,y , ..,. .. _ . T i _ .. < ... . t>�. �'�.. f � �.� ;� , V i .;Y . . .l, •�� , .�� ,," � � :'.'Y"`.i t'��+£7t�,. � . x .�� 4:'�ti 5ii�.. � � � . .. �. _ ; ., , . , . . . . ,# �.�''' �, . .::�s�J'�,..� .4.�� o..� w� .;h ��"`t„� S�3� t;; � . i, �-�. 8 _ �., t j .., , . . , _ , , # . ' � �. _ N ;':�� a..`•`.;;,% ,, ci � , � .�` �`°� � 6.: `: . ' , � , , ;. . . ,,. ,. . { �� - ,•,: , + ( . 3 �.t , ,:� ' . . .f . u . .. . � _ _ „ _ .. . ._ _ . , . �. V � .j , . � ',s .��. •��p .3 - 'ty . � ' b�.� n o_. . .... � ., .. ,,�- _ .,�. .,t, .�.� -�z �L'.��y� � ,_ i a;r. i - �i R .... :�j , .. ... . . . . � . . . . . � . -!1 . . . . � � . . `� . � , !,. a � `.?� � � :, � $ . , i ��:a:��.E�f,�, ';;t`w � ...., s i ., .. � .. ,.. . .. . . . . . t > .._ i a � a.r ;G d is�K..... `v�I.. �,:e t 1 ��d:.V�.� �t��; �. �. "rs � � � �� .. „ _ .. . .�a : �. _ _. ..�-�h.4 ;i�z...• .�'„e�,s::i��t,+t' �Jd ` •h � R... �'� ' . .. . ;i � - ,� ,I j .,. . .�,`x..-. , � . . . , , .:� ,' ,s?p;v, �;t:d�"s: e�5"i��x�:;W'. � ._, `' . .. � _.. . _ �. � ..d . � :.�14,��2 i.� . 3 �-i��"r�., � �.��s a 1 . �.. . . . ..�. _ „ . _ ��- .. � . ... .. -'i�' 9 ";`, �� ..'v�..7 �� k ,. o � _ � CY��.' r ... . , ' .. . „ �.��a'�,i"� b 5�� tiY�i, 4 �.� .i a. , f� , . '4` , ,,i . , . , v� ::: , , �4::€ w �;:i < ;;; �,'c_,n�'.' w``i w`; !`� ., ,. . ,,. .,. ; ,-, „ ��. . t,... '� ,. . - ... „ . f��. �. . -. .. . ,�., k:i.�?.� r .,p=;`c� . �e;'� o�e�� €:�'Y` �,� - tj :� ¢ j . .. j._� .. ._ . .. , i. �." ... , . � , w . ��._"Li a oe 4x C i,.n. 0 C.i�� '.;a ,. '�� ' � i t:,.a. 4 �'.9 �„ .. :� _ 1, '��5� -� . 2'L 4 S��`°�i . C ) . .. . . . . . . t; ., . . ... ... „ , .s i . . . .. � ... �. ,. t , �S �I "a�i t'�i F°�� .,4��4, _ j` . R F ) . � . � � " �, � 1 ner�as� i r, �1�c�r� � ��tes t�y ��he publ i c u�i 1 i �� 9 �nd I � �m n�#; cc�a�c�:dirsq �� t�� r ��ha� the C�ty <<ccep�s or � aga��s 1to �he �i�za�°�� i rt � � ar the �ae� sh�� somcal led ,�. �nc� ��r��. � MR. K��,S : Ns� �b ject'i an to �he �xt�f bi t r goie�q i� > T4�� p�t°��s� ef th� �xhibi� �s ta es�ab� ish �. � �h� jtar��ci�c��rn �c�� L4�is �earing �nd , as w� ir�� c�t�d � _ � i r� �� t��i � > �15�' d�� s�r�� t4�� i ght �s� u�da�e i ts g data �� h� ��;;� ca,� �€�� for�tal F��ar� ��. � �p � �'�a' t��;k�LU��: t�� obj�C�lo�a, ._ 1 _ �� f�R. �7EART2S : A�d I wr�ui rt 1 i k� ��urth�r �o �� m�ke ? �~�� a,¢ ��e �t�ari�g �xaan3e��r �o b� abl� to �3 �? t��K�w �h� ��ba � �e�d substitut� a copy. �,� � �:��'��'�E€i LIP��QUIST : V�ry w�'tl . �� C��' s ��hibits Nas . 2 and 3 r�arked �� € ��v° i den�.i �i c�t��r3 . ) � � �� 9�R < ��"�ARR� : Gi �y ' s Exh� bit Na. 2 is a _ �g i �°�s�i ��iat1 0�° � ��3� c�f a r��tion , Counc� l F� 1@ No. � �� i 2�24�;� , �`�i� c� s��1$ �h� ��z�oi��m�a�� L�onard E . �.indquisfi �� N��e�� Exas��s��° ��t�a�r� ��9 by the Ci �y C�unci 1 of �� t�� C�d �y° �f aai�� . � o��r° that with th� req�est rr�a tha��. i � rn�y �� `a��°�wn �nd sutstitute � copy> _� �� t�R. ��'E5 � Wiql yau senJ m� a copy of thts? �„� ��. S3'�ARN� : Y�s . �;� �?R. ��'ESo No �b��tio�r. i� i � � f i E�I :� , iz ., :� �� T�33�,a: ,„ -� � 6 �' M�t, 1�9A�LU�I: No objec�ior�, �.��m. I �ssume we ` w�.l� have ce�pie� of a�.l t�F,ze�e? � N4�� S�'��1�i5: �11 �ight. Th�n taking City°s � Exhibit i�c�. 3, �tna.� i�, � �:apy of �he_ franchise ordinance � �x�endnng �.��r�u:�� .37� �nd tertnin��ing D�cembe� 31, 1973; �' anc� undez �hi� ��d�.s�a�ce, the p�oc�eding that w� are � at�endixag t�a�:,. :�naz-ning and cond�ac��.ng, i3 p�operly �ander- _ � tak�r� by� `fi��:�a� ca� tkie p�c��;�asioras o� Sec�ioa� 70 � `� �w�.�j z �f��m�;� �h3s with the ��pe that it can �� b� �ithc�raw� r�rx� s�.a��i.�u�ed in �.t� place o �� l�i�.m ��'�a �T�� obj ec�ion to the ordin�nce. 2�= MR o 2��i]LU�i: I�o ob j ection. �°� ��t��R3E� I:T�D�?UISTe No objection: Received 1� M�a ��.'EeA??;��: �kay o �� A.��3�r2 �il��;fIJYST s Is this one m�rked �� (inc�i�a�ing� � - �t` I��?o 5��: °�he r�ales wa�� the Xerox x� ma��.i�a� w�.� r��: a.a� th� �c�st of shape, so � w'ill give you f`� a �ub�t��ate o �� 9�... �Y��. S would suggest it verould be �� ca3.�.�d gr��a��c� ru�.�s� �G 2��.� S`��ARi�t�: �roposed rules o Even th� �� l...g 6...t� +.�9i�ya�7 Ll�.��.a ��' ��^.� �tao�,a�.ci � c;o through �hese one by one , - , �_ � ��' �.s ��rE d:�� he��:�� nc� s�.�� iS: ��e a�e any c�b�ec�tio�s � 1 � � � � �m� . , � 7 , � � ; � � 'v �. � �O ��e17�? � � � ��'�.A2�N��. T,�ND�UIST: Unless the p�sties � � i tvUtalci c��n� rc� �-ev�.�ur ��n ��nd indicate fis� t�e Examiner �. :�f you �av� �.a�� obj�c�e��ns ar clarifi�atiuns o �; �� i�?m �CE'��S� A� � �xnd�rstar�d it, 1�irr. S�earns i g� � -�-- I 'c�l}�e� t� �� ar� �.�a� �:e.i.�phone �este�day� °_ these � � �re �h� ��le� �h�-� qh��:'�a �di�►p�ed b�r �'udge Sheran after � � ;j arg��n��s af �:1�� a��i�:; i::� �.he electric rate hea�ring? - �i �� Pi17, 5��RI��o �'h�t is r.orrect. Y�s, ancl ; � �,�, � Y�� i�l n��e c�� .h� �.�.��. �aqe o which i.s pag� �.0, I put { , ;��, ; ��. i.n i�h.� "m�y'`� o T�`i�t i.� �,�*h�t he C3fie Otlt w�tth. It hdd .a �� bc�en "wi3.1" . � , � � F�;A,R�I��d�F: �I23D;�L1�5T: What are you looking �:� ; !� ��;, r; �� s�o�a a ;j ��} f� M�to �Tk:1°�RNS e Pac,e 1Q c�f the rules. _ ,� _�� i� ��T� ar� �.�.lkinc� �b�u� f.��ni�,gs of fact ar�d the passibilit �f _ �,� S; �s a�.�crr�3t� fi.�c��,ri��, b�n raq�cst of t;he council. %1 ��; c� E��3�NEI-� .iAT.NB�UTST: Oh, I :�es. •�� p� t�S�tm I�:F�Y'I.�d f3r �t�ia� point, �.f Z rn�ght be �' °�� ;� �i€�a�c�3a �: 'm x�-�er�i�r ta ru3.� 1?». �. - ,�� ;�.?M�r1EI� �,7:�ID�uTST: Ali rig1��o ;I a� i; .�'c�. It�Y�S: Ttae �xaaniner ma�� a�so make ; tl�„�; ?� a�.�er�a�E �iric�xng� �� .�t a�d alternate ra•te recommen�.a i� �sr. �� .ion� ��.�h ��..�1 k�e �;��-ap�?a�e e ��;�L=� � �k3 c��sps�:�� ch�� ovision in �he �l�ctric , I � i {' �� ;� i � �y . { 8 { � � � 1 � � � �a�te h�arinqs OT`a tne ��i� i_l�.a� w� felt it �a�s at� � '� ok��iga�.iozz �� Yae Exaa�i.�� r� �.his m�atter tc� act like an � e:�amin�� c�o�s in all maL��r� ar�,d come up with findings 4 ar�d r�cu��urte��ldatiori�. � � Jad � �hexar� c<aanc;ed a mandator �shall" � � ., Y � t� 'r�na�"a �'�s i� r�fl�c�:�c� �n this o an�l at ��e end of � t�a� el.�ct�ir. r.�� hea�iY�� ;�� c�id no� come up ��,•ith an _ � � al��rn��e f�n�inc�s aa�d. :��ce��?�rr�er.dations o �h�n ir� the '� i s�seq�.z�n� r��.�^a.x�c�, f:�� }o��: a�proximate hearing to the �t� o�.e ea� age h�vsr.c� �ao�vo �:x�~ii.c,�7 wa� �he gas ra�e �earing �.� ; in vto �a�l, k�ta�r.� Judg� Sh<�r�r,. �lso presided, �nd :;.� � in ti��-�� he��.n� t�� adop��? �a��e �ame rules tt�at dere had :�.� � ir. t;he c1.��Fric �e�,r�.ns,� ��c�p"c for one change a a�d I 1 �� w�uld 3.i.k� �do �~�ac� •th�.�c f�nt�� trat r.ecord a� �t�-i�s time. �.5 `� ��xc�g� She�:<��i s�aated -° .And thi� �� a.n x•� �� r�gard �vn �Y^.� q�:� •�-at� a��?.nc� --The rules �are going to � - ?�' � �� a.c��.�c� �ha�. we.rP �dt�rf--�c� at �he el�ctric� rate i� A� � h��rir��; �i�� c�r�e ��ce�fii�r�, "It is furth�r uz�de�stood �� t ��8� z�,�.�s �i� �roeee��ax°e which govern �he electric �'"� ; r�t� iac�ri�.g �i��.�1 be m�df.f:%�d i.n �his p�rticular: The ; ��. � �Yae �±��ra.na� ��a�i�n�r wi�1. b�� xpected fio �ake specific � �'? j �in�ir,�� °�:,. �on��.�isao.l� cf law and s�pecA�'ic � �� x�ccmx��n�.at�.c�n�� i�h r�.�pec�'!e t�c� �he aaat��r of rates o �� t b��.x�� cst�c�c� �tl�� hi�; ��ar� �.n �act done at th� last r '�:� � �ae�i�irigy �:1�hocac;Ya �k�� 1�s s.a� force wciulc€ �aave pernaitte � 6 2-4 9 ;� al.t�rna�e ��c�an�a�nd��g�..r��a " � 2 �, �;�� •�� :�t�.3.�s w� c�t��ra�ed �s�d�., a�� i� 1.a:�t I � � hea�ingg i� p��e�ec�ex�� rn�ar�s axa��ine�, d�I��:d �.he � � provisian, e�en �h� t��rrni��i�re pe�r�issi��s, �a� a��c�xr�a�;�t. 5 rate re�o�aenc�aticrn�. � a,xzd �h�^ �e��on., �� cou�s�, I Uro�alr� b� ? oPPos�d tu a�.i.`rna�� z��om.r�er��.at�_�rs b�� tn� ��?atta.z�.�� $ I just do�°t u�d��st��ia� °�ah�t tYa�t mea��rm ��gnils�;� �x�t 9 territosy �r�� ar�� s��a:�-rissian. pr�.�c'�i�� °� ��'� ea� 3.0 or any arba.tr,�tion ��cti�e I Br�l a�warE of. 11 �X��MIN��t. ��i�i�QU3S�'� M�o Stearzas� d.t> �o��. �� :�.:�ve any ccanunent? 1.^� ��.o �"�'�''l�S��°I �E:�. �a �IC-� ��.�. l$IlC�.E:Y'!3�:ia?1C�'[o },4 in �.?�is ��:iculd� ��se �he Yt�ariz�g �xa�nia��e�: is �a�ir�q 15 a rec:��a�'�d�.'�•F ora �a �the city council o th� u�.timate r�t�: �.6 bady, and�r �:a,�.� �'��;��n tltil,x�.ies St�te� ca�e v�e��a� �7 '�as�ca. �+� :� t}.aw� ��a�►c3�ted �.I�� idea �.r� �:his �ag��.c�ul��: 18 praceec�i»g t�.�t th� r:ouncil, if �.t sa det�rmines �ha� � �,g � it �as�a�:� te� �ualse � cxi:�f�ren� c�nclusioz� or ma�ke � 2O dif�f�r�:�t: ci�t��:min��:�an, shc�ul.d have f'the vp�i.crr� �f 21 requf�stin� a:� ame�ded .f`indiiag o� al.ternate f��s, as 22 you say, �n th� �inal proceeding. 23 Naw t3�at wou�.d be don+e by counci�. 24. resolutian, It wc��Idn`t be a formal p�'aceeding. �t 2� would merel� be a ��se of putting before zt v��at a.t �ax� ! ��;� , 10 A�, 1 l�ok atc ir� 4h� u1t�aQ.aat� finc3inc of fact and �n*�c7lusion 2 treat it adopts. 3 �4RQ M�iH�.UM: I join with Tom in that. T � �ink ?� M�r e Ke�r s cioe�n'� ur..de�rstand v�hat it i.� about - 5 I guess z could clari�y i� £c�� him -- In the e�en� arn 6 item such �� a.ra.crinal co�t ?es� depreciated value was �' nt�� adop��c� b� �:� ex�miY�ae�, T thi.n}c th� counci�. has a $ legitim�te �xgh� z� rev�e�finc� �he examiner's r�commencla- 9 ti.on in �.i�ht af wrhethe� vr r�o� t:hey accept so�ne of the ��p uraderlxing cv�ac�.u.sions �s g�o hc�w ta measure th� value �3 0� '�he g��x�.y o �� h�� ma� com� k�ack and say we would like �.� ta 7cna��a he� ye�a �oula �a�� yc�ur recommendati.on £ar �.� ora.g�.n�1 c?e�Y�:r:.E.�.��d; anca I �raink that is wY�at �.t is �� abQUt� �� `h��efo�e, � w�l�lc� hopc that we co�ald keep - �� the elect�eic �a�:� �ul� �k�a�t wa�; us�d in �he 197�. case �� a.n ��o�rc�e �.� f��'l:�I�iER I,�Nt)QCT�:ST: Are the�e otheg �;� m��.'te�s of di��ence re:�atin�g to the praposed rules? �g r��c� KEYES: '.�hrre are. �?Z � l+��t� 5TLA12AiS: �.e� me make a 3tat�ment first � �� . c�rc��xlcl like to s�y I c�id have to c�ange � � wi h th� 1973 �p� $ th� r�ales �or►z�v�h�t to �rake the� �oir�cide t �� pxeacec�d�.ng��e E��1ier p f�� Yample, we had two ca�es d � i x � i 6 r . i� 2-6 � 1 t� det�rr«ne, a�d or�� had tc3 �e d�terinin�c� h� ��gte�rlae�: 2 24th, � �e�.i��, o� �hai. pa�:ticu�.a� y�aro T rnad� •�.��s� 3 chany.�s. 4 I wo�lci �k�:e •+a� liaere •th�: a�.��e��.�:=;;•s �e�•��i�w 5 these rul.es and t�.e� no�e wh��her th�°� hav€� �.i�y 6 clari£i��tiana !� EXX3MTNI:� �r��}'Q��o3 i°S C��1y C1C"�Y"1 ��y �J�Jfva �E!�;. G� � time tr��n. that would ue ��?�opr..i�� c� Iook �Y��:n c��r��:�8� 9 ar�d if ;yc�u �ave any e�ommgner.ts give �h��n �tra me �.n tara�3nc�.-� _ 1� if you �^ould a41d � �+ri1.1 mak� �h� d�te�manat�.os� �easrl �x�ir�c� 1tI t�e� tc� fi:he �e:�� meet�.nc�� 22 M:�?. MA�i:�UMz That Ps fin�, Z3 I�:te �:E��S a I dc� thiilk on� thing prc�b�ly ��1. shoul�� b�: 3zid this marning, and tM�.t i.s thEre h�s �e�n 1� a tim+� l�.mi.� �.��a the�,� zrca�tte�s far interv�na�s �t� m�l�� 15 thesr ap��ea�a��ces: �rzd � thin}c maybe we cou�.d set th�� 1� today in o�de� �h��t we kn�w who -is going �a b� �r� t�e 1�t cas�e - ],g � E�g�'�Z� �,�1V�UT�7`s A1I r1.i�Yit a , 2p MRe STF.��IS, Tha� is on p�ag� �� th� fi.a�s�t 21 Paragraph. 7C gave �hea� � m�nt�h. �ou nc��ice in th� �.a� r �2 sente:�� i� says Decc�znb�z: �B �.973. 23 M�2. �EYE�: WilA y�u r�ote the �ppearance end 2 2�6 �f Caunc�.Iman Butle�c, R��.lie �u�lera � , ! � .. . � , � f � 1 < < I� , �W t �� t � EXRMZNER LIP�DQUIST , Dan ' t we have to decide � �'� rst how we ��: g�,i ng t� pr oc�ed 9�ere? 3 MR. �TEARP�S : I haye gflfi that comi�g up � n�xt< 5 , E�AMINER LIND�UIST ; l.et's l�s�k a� ��rat 6 �•i rs� �h��. � M�. �:EY£S : Y th� nk a �nos�th i a w�y too �ong. _ � M�t. �7EARP�S : Ai � �•i ghi� 9 the sch�dul e that � I propc�s�� d�r ��z� cf reu�stanc�s at �he p��s�s�� ime �� ak�s �nt� a��u�� hat �h� ��pair�tmer�t of t�e �or�s�ltant �,�. ��r �h� �� tv � � c��tq t� b� ci�t�rr,�i ned today o�^ sb�ortly �.� �h�r��a�t�v�, �n� tfi�� re have h�d nn f� i ing aa ye� of what �� I�� c;�s� �� h� t�� i i �y �s . Th�y fi 1�d a s�at�m�nt and �� apP' a��,tt�n �� ra�,�r�� g ror�. Y5 Ta�� we w� 11 haa�� c;�rt�i n i nfo�r��t�on re- `s'.� qu�s�;s a�� h�� i s a c�roti n,yee��,y there. It d�p�nds when :�� vl� g�e�: �� `�q��s� �n��a�t°�� 3s �� when w� se� th� first �.� � in��t�� 9 f�:a: #��r� �s the sCh�dJl� I outlin�d : �� sum� �hat th�y mlght be ��iling their �'� p�°�pat�d tec��or�y �aday g �hf ch i � November fi , 1973 . lJe ��1 w� ii �fic�c th� ��s€.�� ant ana� ser��d aut an infc�rma��on �� °��u�s� by Nca��e�n�� 26 , � 9134 Eys�r in�estiga��it�n wi11 be �y3 �anduc�;e� sir�c�l ��.��us1y. °�� ia��es�igation wfill be �� 9 �r�;�np��;�d by J��a�y � 1 , 1��. I ass�m� tha� th� i nfar- 1 �'� � ��ti�a� r�q�a�s� �vi � � b� a�s��•�� y ��at tfm� , , � �+ ,y y1 f� � , . � � a3 � Th� di r�ec� ca�� then we �v�uld prapose � go�° Januar,� i6 , 1974 ; th� Cfi�,y 's cro�s-examinat�an would 3 �e Januar,� 29g �974 ; �h� Ci�y ° s dire�t exami�at�on w�uld 4 , bs F�brta�ry 159 � �?4 ; th� No�t�hern St�t�s Pow�r cross� 5 �xa�i�atien �auld �e F�t��r,� 22 , t974 ; th� Y�buttai 6 by td�rth�rn 5�at�s F�we�° �v�n�a�y wouid be Fe�ruargr 28, 193�; � �he Cf �,y °� ��:�s�.��a�nin��o�o af �the �ub�a��l avo�aid b� g �l�r�h 1 , �974 ; b�ri��F� sc�br�itte� P�4�reh 2(? , 19�4 , ��d � �iear�rag �xam�n�r ' s r�cor�n��nrl�t3o� to co�ns�l Aprii ]Q , � �,p a 974. �.1 Na�v p 1 wo�al d i i �x2 �o ��k� a �o�m�nt about �,� � vaha� w� ha�� d�a7�9�d in �h�s Gase beca��e it is mare 13 �ha� vre �ad �� t�� f� rs� �1e�ct�ie cas�. We n�t �r�1y ar� 2,� rolnrv �o hav� �h� ve��nu� o� r�t�s s�ti under th3� 1� proe��d� �� 9 G��: �h�� h�s b�en ir�elud�d in �h� appYieation �,6 of Pd�rt��r°� 5�� P�w�r �ornpan�v � r�qu�st fo� th� change - �� ;� '��e ��s�� a�� s��iu�e. This m�►ae�5 �her� �nay be -- �g � � am ant� ��pa��'�� fi��ir t�sti�nc��y+ -� a cost �f s�rvice �,g ` :��ud� m��J� f��► ��t��s�g �nd �r� w��i � have ta ch�ck �t. � 2f3 ; °�� o�a1 d a15o 3�av� to go i ntc► thi� addi ti onal �� 4��atu�°en �ri I 3a��+� prop��d thi � sch�dult w�th �hat all � � i� �n�indA �3 � MP. KfYES : � �h��ek the r�ctt�d �h�u7d show � �,� ; tMa� �h� ord3n��c� �rt��ch is i� �vider�c� in th�s on�tt�r � ��; ( ��q�� r�� d��r�i �+at�or� �� b� �ade �y the Cou�� l within � t � x � i7 {� I� . { � I 3-� � - 14 1 11 �0 dd�aS 0#' �I�� f� 'iipg 0�' ��1� p��;�`�10C1 . fUOm� a �h� petition 2 �as �i3ed ih �� s �t�t�er can t�ct�bc�r 12. D a3mo�� hr�e weeics � ag�. �I� &tav� �1 �°r��y lost ��aou•�: �hi rty days . A d�ry 4 � f cursc�ry g�ar�r„� �� p��p�s�d �ct��d�ale of �t�e Ci �y shoevs i 5 � ��t �r� a�� w�� i b�ror�d �� z5U ciays under fi�s p�an . Under �' t�ti� �rc�f��c� �h� �ti 1 i ty �aas �h� rfig�t to r�qu�st '� ir��er�im r�� d Qf �Op3 days 1f it looks like w� _ � a�� s�o� g��ng �� ¢� �l�i s r��a�� a�p i n ] 5a � a� ��QUgh as � a pra,eti�� n�� nd�� p�opased schedul� � � i � ' s T� a�s�ptec� b,� th� �x��i��n�r� �ev� w�lc��'id �r�we a right to go �n on �� t�,,� 100th day , aa�� hat �.>��d� �3otald hav� bee� �ix�d as �� f' Ldda,y. �-� � et�,e ��EARN�� r �J�1 ? 9 �et �re wead �h�t part. 1`� y �� sh��o+� �'� ��p�ar �i�h��a 1Qtl �ays afte� sucb fi � ing 15 � t�4., � � t t�� Ca�nc� � �� e be car��i�} �a pr�s�r�be rates wi thin ��' � s��d 15�J-da,y ��e°i�d, �i�� ec��€�p�ray may r�yu��t the Cour�cil - 1;' � to �ta��a�°�a� � J�6��d�1� of ��t�s prt�po�ed by ccamp�r�y in r _ . �� i �s p�� i o� . �� ,y do h�� z�$ ri ght ta ma�et the 1�'?� ��r�t��.��. �"� � �t��rR I �hi �k: �'r�n ooar �xper�ienc� w�rking ��' ��'��t�►��' ��d ��'�� r��Cfi�c� �rit� t�e Hearing Examin�r ' s offic ��? � �tAs dand�rs��d I �.�v� r��r� �n�d� �� p�rsor�al r°��u�st for 2� ' �i � ate��y p�e��c�Ear�ss i h�v� alwr�ys tak�n th� sch�dule �'�' � �r�� s€;��,k by $�, �� h� s i� �ar��sed b�cause of the ��' . c�i•rfi�;�`� ty a� �lz,� �r:��t�w t�er"m�� aa� and the se�io�sn�ss o�' i.� �� . �i 3-�r �t " g � � �P�e o�s�come of tF►i � particular h@i3�`3P1g. As w� all g kn�w� �h� S�ate i s �hf nk�r�g a�� t�b:#ng �der �°egui atf on � o�' our h�aring� a�r� s�t'�i�g r��es at �h�e Sfat� lev�l at a ,� cas� f�r in �x�e�s r�� w4�at �v� pa�r< W� wi11 be watch�d r by �h� S�at�� b�e �r� al so �t�� pr�ri imi r�ary hearing for , � i a� 1 '�h� c:om�n�nit��s �roe�� ir�t �'aul , ��cluding Minnea- � � palis . So I am �ery ��ri�t�s about �h� schedule and I g urge tha't $he uti 1 fi ty gc� �1 ��g wi �:h �e and i f they w'i sh g to m�k� a �equest a� th� �r�d of th� 300 d�ys , I c�ertai�ly �,,� � �h�nk t�ey �r� ent��l�d �� i� ur�d�r° the fr�nchise. �1 MR. KEY�Se I wo�sId ] ike ta point �ut that �2 � �tr. Ste��ns has not be�r� d� I�tor�+ ar�d has st�ck with al ] }3 � th� 9ch�c��al�s e bu� r��t t�� sch�d�l�s �e has ro osed. R � �� T�� c�'�d�1�s h� h�s �r�pE�s�d hav� nat be�r� adopt�d in �5 ` �3�h�r �t��ring. Tf��y h�v� been short�n+�d consider�bly 3G by �th� ��ring E�a�tin�r. i evo�aid sugg�st �hat we have an Z7 o��o�t�r�i�y �m 1��0c this c��r. �g EXA�1'tNER LINDQUIS�' ; Very well . Then you �g �n�y �br�me�at. I rr�ui d thi o�k yo�ar comm�r�ts coui d be 2p � p�es��a�ad �o tFae ti�ari ng �x�m1 ner i n wr�ti ng wi th thi s a �'1 � ��td o�he� tn�tt�rs ��1 v�d wi th �he prcaposed rul es . � �ta�w m�ch ti�n� do yr��a wan�� Do you �ant a week? 2� ` fl9R. i�EYES: Gotsld dve he�e a week? � �� R4Ro E��A�E.U�: A ��t; is �'ir�e, wi�h the �� and�rs�ac��is�g ��1 � a�� kn�w �h� �; lo�s ia more detail mv� �� 1 ar� r�al �� a� � i�ss �� kn�wi►�+g t��h�� w� �r� o�csrfcir�g w1 �h . 2 M�. @CE�ES : T u�ad�o^s�and Y 3 ��. ST�:t�R[�S : P��•h��s I s�eauld s��d Q�t a � �tspy of w��t I hav� h�r�� '�o the a��Q�e��.y� . � EXAMINEf� LI��QUIST : �iel � � t�� +�yi � g�t i� � fn th� '�t��res�a�fp� � I aJs�am�. 7 �R. �E�'CS : �e will t��ve fil�� dir�cg 8 t�sti�ony �� h ��e N�:�a�i�g �xamiroe�° with�� a ��;� �rar� toda, � g witi� th� e��e��yoet o� th� �@stic�or��v of �wo ��rr�ss�s g ].O �n� i n r��a�d �� fu�:��^� �h��eal �7 ant a��qu��d a ��d �:he Z� ot�er� n r°�g�rct �2� th� r��t� st�°uctu��. °fh�s� ar� � � be �2 fi ��d �s �o�t� ��: pASSiblem btat w� �r� 11 �s�ve ��s�'�m�� a5 13 �o rat� b�s�, a� to �at� of rettarn �r�d �he a��rs�iT �,4 �es�im��y o�f 9�:,. Corrr��lly or� Yh� �yst�m and al �t� �h� 15 �»est�r►�any oF t�� treasurer vf �he c�rpo��ati��z f� r°�gar� 16 '�o antic��a�ed �;api�� ds . 17 �kAMIf�ER L.It��QUYS'T : Cast rae �r�av� � d��inite Z� da�� f�r �h�3� ��d i i�g? - I9 FiR. tCEY�Se �ould a �a��k fr�m today be 20 �axi��ct�r,y? 21 CXAMINE� I.IN�QUI�T : Th�n T wi13 �� v� � ad�i ti�r�a1 �im� for ca��;ent. 23 MR. STEARNS: Is th�r� g��rrg �� b� a filing ��. ora th� ra�e s�h�dul�s? 2� t�R. VIXQ: Not at th�t ti�ne. � � � F S � a • '9 � � d , i � ` f d �q d � � �li� . ST��i��S : ��!��a� �+�: � °� w� h�U;�� }t��? � � �� P��a ��e �� v,� s��t�� cYy � � � r��i.�i]� '�� o'� �'�� `� ��?a:.��?i3��'o ��5�� » Q�V" ��'�`��9� . � 4 ��i,�-.�.�d�� F..��5� : �I�'�°j�' b�t�'� �i w$��Fiv ��1� 5 �� 1 °;�a� �r� �'��r��r•:� �a�� °� � � b� �:��'�h i s� � �x�� d � d� w,ra� ��; �� da�,�s •�� o�° ;��a�^ ��i �°�� _��►+��?''�� A tse� � . � + a��; ��°�n �°,�� •��°� ��a r,�r °�;�°�� c;�.�n��a��:a�t�� 4�1� . �� 4 ��3e�� 3� '�'��:1�e��;f�€�� 6V�$�i 1 � , � �S. �.:� �9�t, 59��U�90 � ta��t � ap�c��:$�6tr� ��'a � �d��k � �4p{,.+t:�.) :'Y+1dYB��B 'bIIIC. 0 .+' Cr69� C\ �� c�� D�u��'o �y� �� . �t�a� 13 s�ss�ar�si�� y�� '�� ,�c�t�r ir�°f��c��iaa�t � �� °�€� �� t�day sx� c�uid �t�;s� �� as�i#',��a ��ts ��'��ar3 �o �h� �� r��ss��z� s�:#�� d �'��a� ��i�g �o ��,y ��t�w� �� h� �� t�p�s�� r�;��s ��: !�Q� �� ts c�s€n��t �� , i��di�s� �� r �s��•�h�� s��t�� ;�o�a �a�y ��i��a �� k� r�l��g �� 3��r:sgr��h � 2 ��d ��s ��a�� rr�at�� f �� d�nqs � - �� '�. S'��6��;�5 o M�� I �a�v� a��t� a�th�r dis��s- �� s��E�? i�� a�� ^��ari��g �+� oc��gi�a1 �� the �°�zo�� r�d I �� r! l �p;� �Co �re�� E��c� r��M� ��pi�� i�� H�ariri� E��r;i��r � �ri��'e� r�r:t�� , �� A��E� �.��DQUIST : t�el � 9 t�r. W�ld�ch �rial �� bt� t��r°�:�r�g w�'�h ��. �� h�Ra 5I'��R��S : �1f �ight, �1r. �a1d�� , t��o? �! �� 3 �� ;� �1 '� � ;s � � �, ; w �� I~, .i a� _. .. ,... , � ..... .. ., i , � _ . „ . Y ,`� .. , .� ., ,. .� ...�. �r ��1 :+ � � Qr [� .. Y-. L ��? , . .s . .. � � � �y k _ . > �.. . _ . .. _ , . o . -• _ __a � f� � - .� �� .,. . , �;. 3 '1 . �� a.i . < <. . .. . . ci �� , ._ _q, .. i � � � �� . � ... ,:t i. f�C ,: r :�� > _ , � � . . P� �� ., o . . t ..... . . . � ,u ^ u, # t a. ; � !r � �� , r't,. 4_ �� .. _ � � � � i S � �C �� ' ��t, w .� _�v� a � ,t;. f � w � ._ , .> � . , i�` . . „ . ., i t . � .� L. �, u { Pa �t `:��iy F . t . �..� '� y 3 'f � �� $ ..s '� c . . �y. . .., � _ ... ,.. � .� . . . ._ . . ..t; ... F; , .:.., 4-� � � �f S� r;�.. .a y. , , .. , � ,.. . " � .� , . 3 . . .: 3�.- �.`. �W ' . ;` ( ` � �t #� ,�r '" \ ( ., � y� �: � < �. �.. a, _ .. . ,,.. . _ . . ... ,r a,� .. „ . � 0 . .�!w i+ V�k.,s �,. C .... •*J ., .. ..i .� F e. t.. � . ��j 4. ,., r � � �,�., �� , E .a . ..r . .. .. . .. ..a��.� e ,, u'�f.;M4'.�. ..s.pd . �- e .. ,�� .b � .�.�ls � � �3 � � � .�.� }� -'•`��t , _ ,e �,. �. . : x_ , n � � � . � _ � .r4 . _. ._ �.}:�.'W . . � . . . �.,�, . �'� � �}�}� �� .,. q ��ti �: �6s? � „r ,a"1� y . . . . �_ � ,.� r., ..�s>_�[, ._.., _�t:. , .. 1 1 t.� .� ; .> te i w' "�e ,'�. a � �. . � � , ,� 'd�� ta.t 4x"i :} .. ,3 z � . �: . ,., r�. _ k . . � K _ ��? ,"� . ° r t i � �� e" �. �� k , u � � . r v v ... ..., r t': tl + � a ,t� �� v '.. � a � ;� $�' �' . � � ; �-. . ,, _ _. . . . . � `` . t . ,. � � zt. _ . . F� . , . 4 �i.,,. .r 5 . a w.�.: i,i-�J h.� � ( �� . . � �� ! Y.��,.. .. .,t. ...t , r . . . .... � ? . . < 7 _ . «� . :, .> ❑ i .�, +.' , v .!t_� . �-, � . . f• - F� � i ,c�� i � t� � . ;,1...�.� �� . _,... .., .,�i . �. ...._.. a ... �.r. . ,�C�� :.j.::t. ir ... w . ..%. .s;;:' 'i C . ..d� �..o :_i �� s p i'� �� C-�'�s'. ! ..a' _ �r .... ..,, r y'�^ �r:� r. _ _ i �,�z � ..� «+��k;�',�<��._ ts �� . ,�`.. ��, ,. S }� ' C�&, � +�.J� F . �n i ..� c.. . ...,��v .. . . . . 'i i., 1 .0 ...�i 1 v _.�l.. fa•C � _ Y . 4.`. ..�.7 a_� � {f L.� a). � .-a . n ,� t n , . ;�'A�,'' ( ee F , i.� , tti�, s E's i.�. ., . '� . _ _,. . �, _'. �!° . :'. :J 3=�. "u��3 ,,��1:;' � : �� .. f �� atG,�t' A � �.�� 9,.F'Y� F 4�;f^ ..._-.;w ...�� .,. l. �: � . o �.�y�..:� v.l �.."�� l.:��.;,� lr`.Yr'�Y.lu�: .. - �' ... C�'{�, �:i t,Yv...':'`�:;r�`uS":��. . � � � p � �,r, i ,j. � �.; � 6.. , $E � F +� � �. l�...r .�r ., s--i .�i-: .. , ..�`9� o '7� x t^` ,:y,.��:" a � , � � ; {I �� ' } ' 19 Y r��;�. r�at�LU�t• i ��, s��.�e t �� ° � n�� 2 �h��. 3 ��3. ST�ARHS : 1�� tv� l � �r��id� y�� t�� 4 �O�ZI f�iP' ��re9 ��L �Pi� 7'�S'�, �lh�� ,� ne�d f�; �� W� 5 CQUn�� l�rin , r�� ] 1 i��r� ��e�a. s � 8 • � - 10 az �2 �� 15 . 16 37 18 �.9 24 �� 2� 23 24 2a .4�-�. 20 1 EXA��:R L2IYD�QL3�STs N�� vwe s�i:�_�, hav+�n �i� � :�eso'u.��:cl �.1°c� r�tt�� of �am� faY �.nte�v��a��s o �nu 3 �r�a�ac,s�, ��. S��a��x�, that such p�ti.t��.Qx� ��. �e �i.��3 � 4 � � on o�c befo�� ce�a�� tP�? � j 5 MR. �'��tNS: �L gav� fi:h�z� �a mc��n.a T . 6 �.t�ouc�h� �ha�� wras r��r�ab�e, �Ub jec�. �e� �� ;�a�s�ge��.�n� 7` c�n �11e par� ca� �e a�the� par�ie�. 8 MYZ. �-��IILLII�S: �s a p�:act:.c�� r�a�.��far, fc�e � 9 pe;ap:�e �►hca �� gt��a�g to in�exvexae �Y��ulc� �o �o nava , �O beca�s� o� �.�5� com�,�exity the Yna�ter �ap��n� �aa b� at l I at �lais s�agE a 22 � a,qr��o we should �.�:a�� it o��a �or other I3 p�r�:e.;, t�xa� gr� xn'�e��sted a.n cvn�ing i�d �i� •,�e could �4 agr�E� on Rul� 4, we ��ao�zZd le� people kn�w �bQtat that 1� as snc�. �� p�ssib�.e� eith�r b�r es�ficial. pribl.ica�ion or 1V �l.�E��'a.cCS4� d�J�o . . 17 � c�m ��ell ir�gine8 wi�h the pa�c�posec� I� i.ncrc:ase a�id the ss.�e o� �tn tha� tk�ere ma� be sorae � 1g comp��ni.es �ho wruld c�i�h �ca at :��as� mtsmitor the 2a procc>.�dirng G � �x 2�1tZ. S'.�EA1�1�: Suppo�ce y propfls� this: -��- 22 Y can't do �t this w��k beca�s� �ae are tmo late fox 23 �ub1:�C�tiOri+ but by ne�� at�rd�.y �re coulc� ��t a notice �4 in ttae I.egal Ledge� to �h� eff�c� that 1vSF filed �n � ' app��catian fc�r � r�a�e �.ncrea�e with the �i�y o£ St. Pau p � ��-z � 2�. � i , i and an� pa�t�� who ��a.s}i �ca �.n��rv�n� thr�agh x�presea��E 2 tsve a�to�:��rs� m�y �nake a reques� °-� ��:, ��i3aly 3 pa�ti�s wh+� w��i,sh t�► int��ve�e -- m�ke a ��t �o be i4 admittmd �zd �xam3ne �he pe�tition whi^� i.� u� f3�.� �.� 5 the oi�y c3e��.°s office, �o��hing 1�:�� th��a 5 ��AP�4II��R TaINDQUSST: AI�. �':�.gY`a�o P�s�� yot� 7 are sti1� ha�.c��.ng tli�ra �t�o th� necember �� i�n�? 8 i�?t, STEAI�L�TS o I •�d2ot��ht that. w�� ent�ugh t�.m , . 9 E�XI�I�R LINDQUYS�: �n7e110 � t��.rsk . �.O certairl�' i� �.s e�acau�h �ime. �1 �R. KEYE�: You �an'� w�it too ��ng, �nd 12 Y will ��:� �'�ta �hy. We woul� like tc� 3cnc��a �.ti�ao are 13 going ��a b� �.r� �is lawsui� with us. Z�. �s ��i�g �o be S.�t rather r3�f��:ult �or u� tQ �i]L� our ��.r�c� �a.thout 1� knowir�� r�a� �u� op�as�tiara is o 1� �Tow a.� yvu �aant �� qo b�ck �.ra tc� h�.�t�ry, 17 in tY�e e;3.��t��ic �at� he��ing, �he da�es that �.h� �u�es 1� adopte� ws� i�he las�. day for in�erven�ic�n� 3n th� gas Ig � hea�inc�� =��°r� c��eYs �a� e�ivenp which �:e �ou:r��C�r was 2� exce�din�l�r �mple at that time. I��b�dy did in��vene 2:f �.n �l�e gas ��se at a�.�. There was one i;n�ervenor in 2� the el��a.� ��se. 2� I th�.n,� �.f we have �a file a11 �ur direct 24 tes'�imony atxrl everyth�,nc� else witho�� k�vwisY� waha the 25 oth�r l.iti.g�,�ts ��e, that is going to pu� tx:� �� a 22 � 4-3, � da.st�aa��: di�a�3�ar�ta�g�o �+T� Fac�a3.ci. �c��g�;��. �. ��k. 2 I�Iit. 1'��iI,UM: I waalc� prc�p�� i�a� :.�� T 3 t�►�.nk Fh� s��aai�ld p�1i�h r��der �he ci��wn�t:�ra��;�.c �.nd, � th�r�f�:�e.�a � ��au�a ma36� � me�t�c�a� ti7aE�. �'onr �z��, p•�1i�ha 5 APPar��W�,�y$ �c��, y�u �c�a��.�. �u�g3ish d�. '6 MR. :i`I'1;.AI�1S: °i'hdt i�a CA7'�'E:��o � �i�t, MA�;L�.tMa And a retur;� da�.+� a� �_r�e 2��h, $ in wri��?�e� �k.%� the h��ing eacait�fn�ro �`h� g��a.�ciQr� wczuld . � � seem �� 1�e �c��e$b 7.� •�o m�e. . IO �i3E EX,�.�MII�EFt� Yes. Yl �4�3I�';t".TL��I�fAN ROS�Y� BiJ�'TfFg: � t.hink th� �.� wa� to ��:� �.�*.�s ��a� �f �h� c��r is �o �.s��e � �s��s ; 13 rc�leas� t�c��.��. I t�.�n1: w� �o�x3d hav� �xa�.d�� cov�rage 14 th�n in� f�.h� Z�z�al Ib�d�eg m T �1�in�C a 6�.at� �.� �er.� 15 nec�ss�� :c�� izs��s��aor,o �5 I�'�k�a �TL�s2NSo So w� a�rr�� on ��a� �6�h? . �7� P�3�'te �:EYES; ��3�11, t�r:o o:E yo� la�v�e x$ � ag�e� wi�lz Mrs< Butler, �ha� n�t everybod 19 raho re��: �:�a� �egal ��1g�� wos.i�d b� �s��d i� 24 in�erve�i�.r�Q�� ar:d h�:� �.d�a of a pxess re�.ease ce�tainly 2I should p�ovx�?� su�f�.�;ient notice. 2� � w�uld :�ugg�st rath�r t�kaan ttie 26th, which 23 is �Ivnd�y �a� i.� th�� ght? 24 �R� �T�A�.D1S: 7.'hat is ecxrecto �5 MR� �EYES: I would suggesg �.h� 19gk�e � I � i >c:; � . � � �4 i Tha�'� �:evF�x� day�. 2 `.��E ��,:,�i`�i�NE�t: W�II� tfi� '��c��.��,� �.s �� .r� 3 not go�.n:; �v get ��aa•��a t�SP L�g�i7. L�dg�� a��s.�, v�f�a�. �d�.� � is it? � ��n ��'.��ti��o �he 17th. � 6 `�I�� ;��C.?��.T�1:�R: 'I°?�� 17th. L�t`� :�.e� a.� � � _�. � star�d ��. t��3 ?6�Y�, •r�� m�: ��aat axny �u�2� p�°��a�� far $ inf:erv�:9zrt::a.�� »h4c��.c� �,� ��l��. • '�" �i�N� 1�:.�3 �G�1R E�.&Jf��4 ..�lx..7�`.a.�� eh�� G�L�I'�.�.n � �O relatir.� �:� �.h� r��y�s. 11 A��^ r��:e�iuir�g yo�zr_• coaxrrn�n��, �th� �xam�n�r 12 wall de��::sd� �sn th� r�I.�� n� �,��.�1. icr�r��z��.� �Ya�:ra �c� yau, 13 or �lsv�� s�r� �,�:i3.1 ��.t i:��. � ��e��.s�g her� at�d I w:i.�l �a:ans°- �4 mi� t;h�•�a a�t �h�� .�+�o � �v�i�.:� r��.i.�r� ye�� o�.��t� �5 no �Lat��i tI�at�a Nov�r�.��x l��h, a� �uns�ur��aAd i�y �xsd �� c�aabl.y w�� e�u?c� c�ra��n� �ust a.nfr�rYnally a��in on the _ 27 I �6�h. r.t'�Za.�. �:a �� c�� t whic� t�me -�- �tel�., w� b�ttex t �8 wai� v.z��.l �� 2,�kx, � supgo��e or �he 2�3+�:x, �nd ac�opt YJ th� ru�.e�; azs<� ��k� �a�-e o£ an� ot�Aer rna�t��r� �ha� need � modif�c��•Lion or c�a��.�icatio� at tha� timeo �� qRa �,��C�l�qs '1'�ae 27th is a p�rt�.culagly � good d�� r n��o 23 A��. ��ARN�: Let me get i� aga.�-�. ��hen 24 is the p:�c��cs�d �e�timany coming? A w�ek2 25 MRo KE'kE�: F3y th� 15�h< Probah�.y goir�g �o � ?4 �i 4°� . ; i • �i f � V � be be�'�are tk18�o � �X1�,..�[�NE£� I��:I��t�:�'S�: th� fi.he 27�th then I 3 � would expec� uo adngt �.he �ule:�, adc�p� tYie schedules. � ( Wha� �b+�u-L° a ��t�m+en� �� issues, is that � � pr�esent3ng a ��c��.�m? � r F � ��R. �TEARi��: ��s�ibl.y we can receive that '' � w��an �r� xe��*i�r� ��i�s.r f:I�ci �estimanyw �3 �y �:X.�,MIN�I2 I.�z��?t�IS'�s If ��re �xge aray � � �aram�rats �:h�ra 4f c].a��.f:�_ca�i�n �.ssues we can di�euss � � :�O � �a� e�rs tne 27��a �7s�A �.�. ��: k�aEt. �:�YES a �'�.x`s�, . I �,� b �;�P�M%NER 5.��a€;�AS'I'; D�.d y0u q�+ in tQ �an� # B 1� � gre-°��ia1 ��i�:�� can yo�x� �.��w L heariaxg? , � i; �..� �� .. YFYE�� Tn�c� �'lt1 AO't, , �° �� as '�lti.. S`.€`EARI"�:�e 3��:s� we t31.d. ;; �� I� '� � ��o �.E�tE�, �"�.�-tr�al �briefs? �� ;r �; ��sP:. �`.�E.�Ytt�aS r I�at a bri.e£, but a recitata.on i a.� � esf �k�� his�:o��, � �.h�.r�lc� ��;,� del.iv��eci tc► y�u, Larry. . �� .�'�' �� +FRe 6��d�.�i�t.��,:�s '��:.s, I s�ein to r�c;�ll that �; � �i la�� i.r�� t�� re �a�,�.�Eg�; rv:bmitt�d on th� qu�stion f; ?� �� c�f w�aa.ch �.:��r.�� wrc��.d ��y c�c�r.,�ider�d in term� ot interim �� ;; �:a�e, o� �e�n��`.l�inqm �� +J +i J.']l`to i\�lis�°u .L��6C.sl.. o.� g�.�.Ll6.a �' �� ;: �Yk. ��P.>T�i��n E`�.:�d gav� y�u a ha.story o� �, ;' �� a1� e�� 'he ��.cs��:�dia�q� �Ffc�x�hand. ,�� :r �! ;F ii �� , � , Gb � ` � 4-6 � Z r�Ro G�tAF,llOCH a Fes. 2 N�Rd ;fiF,A,Ri�TS a And what we tl�oug�xt was a 3 little bi� a� th� l�w. � riR. K�YE�: �de had a lot �f s�ick� �roblems 5 iax �.he I��t ca�e c,�hich� �roc�d�rallyo .3oesn°t a�g�ct � �his casea par.�a.��.ala��y the interim ra�e ma�ter whi�h is � not 4��re. , � £�,�I�I��R �,7�?�QU��Ts llo y�z�z �ee & problea� � ak�c�u� �tha d�f�.� a� -�e �ssues in re�a�i�n to the �.� � ��a�3'fG�.�dbt'all�T t�.3�4�; 'trarC3TtR�.� �D�: �'��'I1l�E'� �� i�1�.��Y�S: � �ea I ly do�'�t �ee �n�a �� i I da�'� �r�n� t�a b� �ca� ��i�a.�aistic l�eree ; �� € ��E�t �,�i�L�t��1T�2 s criell, ther� wi2�. be � �4 ; o;�p��:�if:� �r� �h�t �f�c�r �►e�u have rec�ived •�he �a.Iings. �� i � a°�t°�ti�e �ra� �dopted a ti�e fc�r th� daily � �� r ��a�.��.E�� .� b�r�sg�t� v�� c3�y. �o you w�nt to disc�ss � -�� i ��t a� a�.Y? � be1.�.�v� last year y�a� us�d 9 a 30 to ` :�� I 4: 3n; �s� �h�.t ��.r�'�� 4 �J � P��te ��F��.��o � �h,ink t�:a�� in�i�ed wi�h �� R ��ie t�.n^3r�� in ��:.�� or��. �� .�IT€�ER �s��3�QU��: All ra.ght e Fine a Is �'� � ��t E°z:�.�. Z'_'ic�'�t., �;iiZ? �-� � 1�1�. M3Iilstl�� .'��t °s �ri.n�, 9 e 30 i�o 4: 30. a ��' ; �7a..�:��?��2 �Y,2di�$��TTST': The hQa�inc�� hene ! �� o •m�� l�rac;�t.�: c�� Yze I�x�a��xg�� we wi:��. pg�c;�ed as you f � ;� 25 �f "SZ°'C �� a h�.ve i.xx the p��ste �rad ��3�.�.� �.he aon�.rac�t f�r�e �so the 2 hearings wi15. ��: fr�m �; :�G tc= 4: 30 p,mo e �nd we will � tak� af:E time ��° a �arac��s�.r,h �s you des�rEB �.n hc,tir. � k�.� T s�� .'.� �:3��n �r� wil,i, u�les� �h�:�� is � sc�m�t�eia�g �ur�.3ze�a gnee� ��.i�a �n Tue�day, Nc��r�rnber 2?th, � g: 30 <x.mm T c��a�s:� v» �ill have to �eav� i� to you, �' ) T�mp �� .v wh��-� �v� �i�.�. r��.o � � � �i�o S��AR��;�: � �ril l be g�.ad t� ar.gar►ge ; 9 � cr�urt�c�cams m • �0 f �2Ro N��ES B � �u�e hope J�dge G:�affc is ! 11 � b�t�er.-n �� :�;A�1'�I�7ER �.�:I:iYTaQ'��: Is there anyL-hing �� R.l.z't�'1G?"? �� 1�o K�Y��: ��s . How max�y capie� caf eaur `.� ��.�Y1if��!� G�� i��d �R''€�.771�g '�'f�?"t?«�' °�� t. STEAItIo�So o�: tne fili�gs? � �� iFt> �EYE�a �:'e�o . �� ,�.�qlt�E� ��:'�I�QT3��fi: �ae wc�uld lgke t� have `� � �E�,�. � �� . �'.��',�iFt�3�:: �� a��uming tlaa� ��y � �'� � a4�4u�.�ant �v�t��,� ��reE =�a.i�;h A��ro Sto�lee. Put i� down 3 �'-� ! �� wa.�.� t�.�.� c��.�. ��pi�w,a I� �� 1�� a..�"P''.e�"'.�'a ��Ku��,Y� �0�8 '��l'cl't 1T1C.°�.1$d� �l� �=�` j� �T'�..7.�.1�'� �OYt3I[[�.'��E2�:°�? i �� E� 1�SZa �`1.'EA�2cc`�T i a �'�'��E: C0�7].eS o P €1 � �E k �� ,�,•: !�3 �;. . �1 2 7 �� il�.y d��oU�l� �I`i�'.o � € �:,��:��:r1�R :�,:��:��: �rw�o � � M�.m K�� `:;�a� °� eigh�a Do �ruu �a�it ten? � i� ��L��l';�JG�Gi�'i��7 RC��?�,LIE BU�LF:RD As C�aa�rrrnan � � �� : '��h�: �td P��x� ��-��i�it�� t"�e�r�►�..�.�t�ae, I wc>u1d Tgk�: �o s�y � �� a��e��9.�.nc� ��a ��1 �� p�r�l.e i�:��r��lved ir� this o � � � � c��,u�.r� tr�i:�;.� Y��r_�� we wou�.a come �p wi�� a �i � `� ��yt.'fAL:.h.�..�..-' �iTris'� �� i1�f�'°��F.:�:�,!�' �:� �31� 21riC� e"�1.80 $p1c'�'� N�F � .. w' 6; dcs�, :raa�� is��-�r�. t��.� .��e;��:.� �ans3e� �he �raac�iis� ta file �� " � J aC� i� fu� irr,�e�a�� .��•0 3 ��:�x:.;�k �;�_�a :�ave �o realis.Q that tne E� :�.�. k� �::�.g�r �.a, g�aa.z�� ,o .��r� �.n.�,sc:�:-.�°��c1 ;n elec�ic�ns in ��Se sga�is�g, :'��? ! ar�� 1;��e ��s��r� �P�� c�� ,�� R�f g�ett�nq �.hem�el�rey i :.� t4 �.ra�ca3�r�� i.� ��?a`:�9��_;�.�.1 �-��.��x°i�,u, and '� �:ha.nk �� lo�e �� :��?. �� :�.�iz� c;f ��:� �:��,�� :_�sr��, ��.�ea�.�r2ci he�em I �o�tJ.d �ate to �s f� :,:-;� a� ��: �1-��.�� ,f��:�-�� :l� t�.a.z=�.�•�. �1°�� *�taracis �auld b� mo�t 1 :.ca i� ��:1��'�:<°�� :-�� .�at��;m�, �-�;.�es. I hc�g� we ct�u�� w�rk . �' :E �a�� :��. �e�h��.��: �.i��3. �a�a:c�. �E� .��eeable �o th� ga�wer 14 �,� �� rc�?�,��:xr�r �:?� �� a.n��t°Fr��c��-5 and �te� 4.he ciiy that �;�ill _,� "� ;es�t "s:�x�,°� �?�aA:=�r; �.:� a`�.1� x:r.�x �r1 t�.�X�.�n t�.te�o F� �� -� il �[ w��.�3 u��1 g�cs�.:. a11. �o work tov�ar�rls that i� �,4� E c:._ ! e.�t3�..�... ��:.. �# �:;'��:�;rrR IR:�;.tx�Q�3��T: Ve�y welia �j x�; �� :�� ,l��-�5� ��:�,ro.c�� +.;�,mo you �aay k9ant to gi�e kp ._ '� �'� i� �'�ar��kx��- �:��1.�.r�:�.��,��F r�c��:��:�� xc:�.r;ting tc� �:he scl�edul� that r� �_ �? � -s � �;�e>e.� s��.�, �:��d.:i.��>. � ��r� ',t �::,ro.�w e wo�ld it b� Yae].pful i; �� la r 2 .. ��9- � tc� the examine� or to ikaP pa�:`�ies, other par�ties? 2 But yv�z have �et forth a 4�en�:atige schedule and you have s a bas�s �oar i�� Z assu�►�. � MRe STEAR�S: WeY1, I have a ba�is out of 5 experi.ence anr� the fac� tha�c we have last a month to � � d�te anc� there is n� f i�.3.rsg. � � �� E�IAIER �..Tr�LQU�ST: Yes. � � �� NIRo STEI�.RI�a m �e;� I'm in a littl� spot 3 � bea�e�� do�x't �ran� tc� ��r� �ny prejusi�ce a�ainst the � � �� i �ity b�cause n� th� de�i��: �c� appear t�at I can handle k I1 � i.t in a �hor�� g�riod o� �:i�:��. I �vould l�.ke �o �.� � co�xsi��x i�� ao� and i� t:he�� is any way �t a�.l we can �.� �hart�n a.t� a� t�rs . But:�e� inc�.:�cated, w� certainly wi11 1� do soo 15 E�.AA�iTNER �:�tUQ�7�:��Te Ve�ry well. Ys �there �C� a�yt�2ng fur�he�? + Z� I�a M�,FILF3t�Rv No�::.�iAg. . 1� ��. �FYES� ��o�l°�Y_ng �urth�r. �.� � �;��I�3ER :��?�L�QU.��-�T: 7�han� you very much. �� ,! d�c� �r� wil.� m�� thera. T�ca�rE;rnb�� 27th. �i ��2. P.�YES; �"harak you, s3:�'e �� ;�3 � � �r f. , 6�� . �� e � �� , � � 3S( � ' ' ;, � ;, ; �: t � ,o �, �; � .� f � �� 3 � �� i � .. �1 6: +!� � 1� � � !� _ ....s._�" 't.��.._....__.,.d..., .�_...,.. �....a_ . ..�.._,, � ,., �+ .�� ,F;�; i a'��5;^ � � ,'r�,, � t� , r; �� F,� .. i �t�U"uV i'�'.Y' t,r) �t i�u�i� ' C �� E:� � ' ± €, 4•� � w^�:s C� �� ,� t�jr ��zw.,�,.�i. i � �� f7� 7 1 L , fa�. .. `�;�� . � I ` k i �;�tf;�� t ��i�,� $'.; 5 � i � c : ;, � � s � �;�° ` I� ��. . � M ;; � E�(1�i -,� : r 1a <y�'oEi �� ';�il l,��s'� p7,r,' F�ic—° � � i'�� ' �.a <� � �a� aC; lt .ei S✓' . .�'.�" � 's �: � ;�_ �' L.Ei'�1�� . �7 J� i y�i k ��'i.1.:�� a 4;, ;' �� i {i �, j' .. _._.�_.,...�_,....._ ._..... ...�,__. .., ..._ ......a.�...........�_. _., ; �;, s ,, fM. �; ` �:- �; �,f� �� =.�,.. f , � p� � 3.:'. .. �a �� :� �.°6 ;; 3 3 � �... �f ' 4+ � 1; `� � t'. � 1 p 3�. i! � ji �.... : i> .$ p ' ;' 6 F ..<i;v,' , . i,''( ('�! /j i"�5*��60�(e i i�� lS 4.1 9 ?`C �,d��cG i h�..'ed Y 0 C'g i� C t F ? , :t.3 . �;i; �c: �+L?i a� + � i �'i� ,ti� a w„<;:� �''�:? I'�Y'�� 4`�E�'c3� r f'B�,' �Y cR€11"i ;`?�Y' �€:.��a`�c'3 k'C� � . i �� . o .� ,'1. j �i3? a�"6� ti l _. ....�s. Y t..' � ... .�`vt�iGll. l� � . ,I eJ 4'��E S1� P� 9 {(�"� /��f�o � ._. .. . . �..9 °r '. , �,r Q. i�+;• j 'T 1 3 '� t e �' . � � � ` ��% �� l/6!S � 1 P ' � � d.tF`.. 4 € .,.,5'•.t �=.�,,1 F,, _ �, . �i�°k^:,, 'e�' . 5�.<R.3.L �C{� € 3 �'F`j aZ��'�.i�� eJJ� �� ( ._..... P F ,' � � ; t.t::.?1��.�.., 1ysC, t i�[ry!`�, C;:;7t. %a. F:,�u �:y l :1 . :it° £; ' �.',1 %��o-�. 1k'� ��'t�� 'f�'1'i'f��1�Qi3 . ._� �� .. ..., `� � �j ...k. �f � � �� ;' �. ry:: ..s-F-, ;+ � r..:..� �i i �; � �� ; i; i� f 9 ; � i �� ;1 f � �4 �� t � �j I-�P�`E�,`��;�,i�C_�:S! ;� � c.'-'. (� � �i � 4 �,.. . ;.. —y r „. �— ,{� .. � P C� 6 4:�e�'L� L+ w 3�ti.sv� �w 3 n 4='S f�t9� k�'� � l%P C�F�i�' i �� c"Ti7 (��d� �� . � L�''� Ct fl:; �'_c }'�L a _ _:: , t`t.. ..C'��3�,�� Ca':. ..C.':! , ';:',t.��(}t� �'= T'S �: r1 d�'� ��a� i E `C�''uii�; �j[!3 E f�'d ��if' `•',s s�i'� �d�,f � ¢ �° S it:1;:SJ�3 9 t�l7ji�c��'�Q� t��3C'�S�'P�i i i'lg � t:; �� u,+�i l'i,;a� t a, \:},: �'�f��,,>i ;�; to # ` � � �'§il��l;�w,„3�^"i �`k' i. ,. �r, � a. .,� 6.�i��' e .y,. � 9' _ ; `^'� R! k��'i�3'i 4 s; m :?L�r ";i` L: �?C�ig'9 ("t;y � �„'�' `o-�;;r $,i e�� P�� , �! �J'�e`"�:�'1CJ=.��;= � �' < ii"'r"� ��rc ., 1 . ` . 4°'�tE5t7�!;� � �(?fl�uF"�°d ��:''s3t'"=�5��';�1YlC� � �rs �� :',. C"� ��Y 3 3� r;_'t"a T t. �� _ ;i € . i ri � �.-� �I 3 :fi.� r 4 �l r��'s. �, �i?'.-1't:�/1 , f+ ..€�'�'"s"ti�N �:.a. �f.�`,�i , L"`f� C.E)fTl�7 e'�. P"��? � '�� `� Y'RU ! c �s�rib�� a ?C?� ;�2�1. �:�E.' : �� ;t.`','-.. t±e.,� �.J� { ) i CY�(m�f�G;i�F;'�wy f "`°" � � �� . �� ` � t a i a.�c• i .;�.��i �.,� f";,!j i:'? ��'�"4�;`�'t; . `.t;f;� .E.��:;r, Fz ,,��.(�'6 S ��3 l`� t�-i�''�;:':��?;^ S:3� 11 t: ! , +;;ti r�:'3�.5� �' ,"'t , i�� '`... �'.' '!i;z � �a��' . i � y r ' 1 S"..i ! � "�7 . t�!.....);� Y "�'w�)a.��d� a .t.J �_....._.,._.._.._._._.._..__��...�._.. . i .�.r' . � ;� �.r�`t,�'°�'< �t,'_. f� . S'� .� C�:�i1!"17 i,�� y'� rr„>.�} r`', g ^�i, `_ o f 1�j's:��n r. `;i �- ia; ;;"!c '� 1�'� S', �11� G,�� ,` �;� i� . �� : �S' 1 i ij i `�•3 4 I �; 1 �f �i - � , 3�c ` 13 � ;I �.i � ii f� :i i� � �. f� i�t � Pi LtiiiAF:w � f+ �`�t-'��5.� fC�� . Y �U �f �_.e._..a. _�e ._.V. �� li 4,s �F �; ;i �=" �:,y ` ; P��r , `� 3% 3� ' �i I� r-- '•; •-� i f E .° }J� 'a` ,� ^ f� ;f iJ ;� � I �,�"`.�: {� � }S � ^'} [� �+ �� zj a� i� }i "1.,'.� 'i � �� :, �i ...� :{ iR �� .i�`: r{ �� .,�; e� i = ; w° {� �' � , _, .. � -t`=' � ;i �d:f..! �.i . 'i ?} �,� { 'i i� �,,.� ;� �^.;,£ ,i �i r'�;� 1 ['_,••. :i fi f� ;�3 ij! ;j ig ;l. � �` $ ;; � �j ;� :�� ;� .t ;;! � i� �! �a4 �: ';; l,J a a�.�F�i 4'+��,� , �:�i,, ^�•, .4�°i•.r� t�c; ;, ,"�a s��wb�:'i r;�s �d�� 4=� ;i E�� '�r i�� : � ;j . .. �� 'Y :� �3 �� .. o. -< � �� ;� ;M1 M1,.' , ��.r`�i:t'�:;i . � .� ;.;'i�� €3�"7 £"i�i i X€1 iTi t f�''�'.Y` i'i�7 E! � � _ � �� d i k g'c �:ti) �3 i t�C�.'�'s.i . �:�1 << i� .�a i,F,�; '� a 1�i ::�'i a.`,°r14� :,;.;1�?�� f 1 i'S`L � ,� t� �6 ! Y!`� •€ § `�;;j��t <. r �. �� t_ _',. `a:��5 �1 i?"�l�' C y?i s? , ;i ff{�C�Ci a � � i.. S tl f� 1 � dl i"P f� . "� q� �j � E� ��L�4"d �l^1F i+��.: ��4'i''!:� A i�i�� }�'«=is�i�E �� ;'�i�[ Cj�3�i��f�G� t.o 'e)4� in�l`� S�I��Cl�� • � e� �;1:• p U� �; ; �n�!.,��,, .��._t qy • .,7 �t� j 1 3^. S��?c�Y'�i S , =t �� 1�.i�1!'��V�t'. .i t v�!tl�' .i..) 7 . i'i : � p o �1 i m, s :� j� ;-i i^S f; � �,:� ,Ti�,, ,.a i?C`, . _;F.�,; ty�'s i� „ j)��:�.':� �rl� �X fz��i t s�o:'i" °1 3 S 3"`�'C�'� ��.'i� � (� C 'S F+�, t� " ° c. V, . .t.� �{ .c : :1�i.Ve �)�, � i �i rJ �o ��l��ti �! ��t� �i,�'r <.: t Z :�}� E y J f j �17� �f��,!07��S �� 1 �� p �'�� '��i 1 � i?`�:`R a'�i � d.t r � � ��'` rs r i�` E't ��, i "'•� ^"` � 1 . . , t.._ � s .,.i �"i �;� C��' �11 dl t�a.�E .s a � -�� .,,: � Z"'�i t 'p 4"'�if• t�I"G't i j'U I.d g �fi i� s ��'!fu' �'L;�i i �`"S i9 Y ��1� � '� �� I:i '�,� �;`.i7 1 �)2 i",� s , �� , �tiCi .j � &t�i t C�i I+i�-33"f' �'t£%�:i19'��iaC� �flC� i"�?��3 Vk."J1L� �� } � .� .. j}�i ca?. ui,��' 5 ��:�� 3i- .6" Li= .. f��i �v�-flaif �`i`��' C) � C�ff� �S��a �,5� ��;�� 7l � � ii � �� j �:' �. ��y3 c a ,�;?;3�'�S.'��. F 3�.... :+�'i l";�t :i�3 . W { � � Y s •t 1 Z �°�) � ��`i;"6 J�:; C�i i �';� � ,�` � ..,.r� � _ � ,. � ��.L'�L�C! �� 1 � _ _.a � e�,±1"� ...Cx i A�e?:il�'.�";y . �l�:r,� �I'i r�� t��s,ss�;I � r:� ��t�Y'3 i1?( �7'c�i7�i�OE3f 1 i? �`,�'lt9 � � d �p� �i i�1?��3��.1��'� ,:S 9�+C: {�µt'., S .,i'`�." 4. �:i��C; „i.�� L �,:,d L, a� 1 i. n u�W S� Si�e+�3 Q� �� t �Fi �� :'�Y��°: 's�'{�i'�i i'c�i'"��1��'�i v'i.i�i�'S �!�lJ�?^ �G(1 �[13 Y � i� P .✓ �"?;� E� a�;r. .=?� �`�� '�,:'iC� f:P;�; � `:':x U"� ��tR? �4k"f"n1��"�'.� �`��:,`6�i��?j 0� 'G�1� ��'i� — '� . _ ^ . .�..; o p R�f y'` y°� ¢ [' r� G:r_ i :l�:r� di�� i�N7e� aR�aF:� �-rY.� .=� . �E:2i�^•�l {7'�t�!, a 6-C�� ' i`e� C:.� �' 1 �Zti��3�0(� g i! �� i �T e :`�: �.�:i i s�:.;� ��l , fs �J rw Ci E.��t� i.� f ., .. ��; '� ='r�_.;.i?; f'' , 'J� :�c� , s�� ryf��C K 71 ;i��;�r��r�•.s ; <F i � ��'si,�� :��,j i`'i€ t� . `` � ?{�=�,�s � ��7'"�F"i G�Q E.i S" S ��' Y9 t�R �.Q3 S �e y ;� '� 1 � �I � s f;. ,� � ;! � �i � 3 t �� 3� I ` ; E� � i J�;m�s 0 . Cax , G�r��ral ��ancial RequfrF- i i � i rrE�n�s . ,� ?i c�.<r�h��, �'r�� riggs ar�c� �"csrg�r� I r�ceid�d �c �z.. ;; eamments a� �f�� •r�o�us�d f�ul�s �f Procedur� and th� �f !� h�arin�; schedul � , ar�c! � � t~es�or�s� �hereto a ]e��er from ` al �^ '� P�;�� St�arrs s�:a�� n�� h� s E�osi �ion �n Rul�s of �'roc�dure _ �' +� � � ;� ar�d tt;� hear� �� chvd�l� . t t u � P;�2 . KEYES : Di d ��ou serau mL � coPy of tha�? � , � > T c�on ° `'t b�i i�:�� ;�av�: oc��. � � �,� � �9i?. ST�Ei�:R�S : Yes , I w� 11 c��t yosa ar� extra � �,�. ; �c��;y o�� t. � �� E ��',e KE',(ES : I d�n ' t think I c�ot one . I .�� P�f�? . ��LAf?TdS : � ►�ri 11 g�t you one. I tcl d �� my gZr'i �.� sen� ,��u cr�� . �;�, �:°='i�`IN�R � IN�QUIS7 : I hav� an nx�ra copy �C'� I( CY 7 t�t c7'� �i�C°� . � I j.;.' �� t-4�� . �;EYESs I� I may hav� � � , I w�uld _ �,�; 4� aPPo��c� a�� 7 t . � ;�:, �� P!�� . ;T��2qlSa Su�^e1y . Sh� has a dfs�ribu�io a �t;� �i �fite�� i�'rd �or'rna� i;,� ih�,y �� mu� �u everyb��iy . � ��-� � Ea��P��PJER �, TNDQl9IS�' : JOh�'� a d0 y0U hdV� d COp ��ps,� �� J {s�G J�� ....-A.• �� Paf{ , �SRl�UC�f : Y�s , I do , Your Honor. �W I �:t ' E�ra��I�JEP, ��r�nQurs�r : Ai � �;gnt , a�,d then � �� r�c�z �� a P�� c�n t� Ir��a�v�r�� -- and I assumed you d t � i� � . t� i� � ` p 33 �. g�n�i��r��n 9�ad r�c�� le� t!�§ s --- ;caE�mi t��d by Wi 11 i am P4 . � � f�Rah� u�� and ,�ol��r� E < f3�^aur.h . This , I b�li�v�, �is th� or�ly � � p�t�it� on . aP ��al� . S�'E�;RP�S : That ` s correc�. t w:; � E�AP�1iP�C�: LIP�DQUIST : As of ti�is �ime . Now, � � n+a.y I ri �^s� �n�;�� -�� as t� vah�;h�r there are any �b j�cti ons ;� ( �c� ��° p�ti �i�€� �,r� i.�i�.erv�ne on b�ha7 � of th� Interested ! - � � Cs�nst�m�� Gr�o��ps:� �� t�1�?.. €tE�ES : Pdc�t�th�rn Sta$�s �'ov.er has no ��'y �� eb;�ct� �r� �� -.� �� i �r� . �7 ��l�. S�'�ARP�S : '�h� City has no s�bjec�ion �.� �� e�i t: :��? e �.._ �� EX:�iv�I��R �IPdDQUTST : Very we11 b the Petit�on 7.=' � �� n��rv�r�� s �r��a�� . �F,�, � f�iR. �Rf-',l��s9 e T�ra9�ic you. �� E��h9lf�F� LItd�QUIST : Go ahead , �'a�+, and ' - �xp� a�n �h�� . ��' � .�, � n _ 7,�'; P��.. STEA�tP?J a F�11 o�a i nc� the ] as� �neeti ng I �_�� , had �� mbl i e�-�;i os�� fi� ;_�ga i L�dg�r of �h� �Eoti ce f�or � w4:.� � �r��rv��c�r� �:a �� i� �l� �h �f�� N�aring �xa�i n�r by November .�.. +� 2'� , �nd I avi13 g�� co�y ��f �ha� f�om the City �lerk and °"✓ k_ � ,�,., �� s�ibmi t i � a� r��cti.� � �-E�:� ��re w��rd . _ _ ,; ,�,,� � i�� `ac� P`��s • ��a�l�," had a pr�ss r�l��ase on �.�� .,: �j 7�i��sd�3y e Pre�.��,ib��-° 8 a 1973 9 no�i fyi na� a�ry i nt�v°est�d ��. ;� ��a:ALi�s tra�� h�y m��y i n��r�e�� y fi 1 i ng wi th L,�onard �{ i ! i id i� ! , i I 3� ;� , Li r:dqu� s�. by Pde��m�,er� 26 �F;�� r a nten�i or� �o i n��rvene . So � � � I wi 11 af�Fer �h€�s� ��ro . I wi 1 i subrni � them 1 a�er, but y � maybe tv� can �nar4t �h�rn a��, ai ve them a n�e�b�r ��o�r or � .. �� som�$h� r�c� �o �i�za�; ��,��'�c� , and ti�er� I t•�i � 1 su��n�t �hem � ; � � iat�r . �u� f�a#: just i �►di�at�s the natice to athee, p�rties � � o i the a r ri gh�s ��d t�� i � the,y haven ' t fi 1�d by thi s ; � ts��, ��n th�,y �tf� r�t� 1��,�er �a�rini �ted �o � nt�rv�r�e. � . � . EX;��°��f' �T�dDQl3IST : Tha� as tr«e. The time 1 �y ` for �nf,�rv�n�.�� n f�a�`i�g passe� and havi �g bee� prop�rly �� pub� i sFr€ad , �h�� s�'! � t nt�rT✓�r�ars �P7en on b�ha� f di th� �� ` Irr'��r�s��d Cc�asc�nA�� aap� ar�� t�rea�er Sain� Pa�+l F�� r � �� Ra�� Corn��ni �t�� 9 s �ti'i 1 � � afn P-�e �ta;�� um and J�hra � . Brauch . r �� Ar� yo� i n th� s�+�� 1 �w �� v�in? � y,�t t�?R . ��aUC�� PJ� , I am not , Your N�nc�r. I ��.� � am a fla�r b�ac�� . �� , ��Af�tTd�ER L�d�1DQUIST ; �I s�e . - ��o� i� �iR. �`iEARP�J : Th�n shou�d I expla°tn about _ .:t;-: 4 �`�� sc�€��s�7�? ��,,, 4 �X��€�IPdEi� L�:P�DQUTST � Y�s , pl�as�. . y:,� �� P,��?. S'."�A2N� : What h�Pper��d was we met this � �,� f r,:�r�sai �� ai th Pgr. ��y�s �r�€� wi �h iny �onsul tants . The,� � �,:�� " i""�v1 a S+�_� �::�'i� S G�3�C.Y,'�� i �,�� `, ��€t . K��'ES : Exc�se m�9 aisc, w�th the iltiliti s �,+.3 } C��i�sn y 4.d��. �� «-�-• 3(� ��F a S�k�AE2�5S e A�1� $�e Uti 1 i tips Comm� ��ee. w L.�.F 3 '' �� 4 � � �� i 1 , �" � � 35 � �h� c�r�sul �an�s r�evis�� h� s�h�d�a7e � had �r��ared � ex��nc�� ng � t �:o �,,�v � J f�i� �h� recamm��da�i on c�f th� � F��a.rif�c� �,am� ��p e !�� iscuss�� vario�s m�thocis o� m�eting �� "( �he prob? em c�� h� 7 50 days , and th� r�eomm��nda�i or� that I � i ti�r�s �a�s�ei �y �� tl�� li �i�s C�tnsn� tt�� a�s �ha# at �he t�me � �h►� o�r�ir�an�€� i � �rs�rc�du��i , alhich is �°�►v 17 , 'i9749 �- �h� rat�s bas�d L�;ryrn �:h� Fn��ei^ r�adinc�s ��ould b�com� effec- - � j �� v� as of P^G��h 1 ? , ? �3�3 $ an� c�li��d s$�v��n� �s saon i �, �; as �h� fi rs� ri��:,^ ►^��di ►z�� s fnade a��:�r �h� �1ay 17 dat�. 3.v� � o F��r� �;tsu b�iG:��;€� t��:r��► ��;�c;t; ? 7 and $h� f� r�� ol l��tian �� cl�t� 9 � t �h��°�: �� s ur�,y cP•t�,�g� i � v°ates = �ti��sl � b� ,�morti �ed FE �� ;� ��r� � ��oc� �, ;� y��r aR�d a�r�ed or s�btra��i �r�m the : � 1�:� ;i ��at�s ��r �� i�:�,� 1 i' da��. � �,�, } ��c��r � :�rha� tv� �i1��°Fid to da � s pr��r�� h� samE �� , �; �; �hi�g �� h� ��;�;�3 � �;h•i � ►n��r�� ri� w'sth �ny r�comm�yr�dation ia 7;� �€ d�°e�' 5E±� Y "�F �bt�.?�'� ';� �,F'Iy c):�j�C�°� i�tl $0 i.hc�� . PdS� �idS advi sed - ��-� �� m� �hat ��:n�� ;� anr°��a�3a� �o ��ha� procedur� . Tf�at :wa.y w� d � 1� _ �j !; can h�� n �s��r�u�a�� c��pca�°tur�ity �� ex�rnine th� rnaterial „ ' �..:� �( ��°�� a°��t�� a+�� t�� f�� r��?r �nd sfii � l r►�$ p��jt�dic� �hem �� ' �r uray r::t� c��'f ��c.�� y ha�� comi ng i s� reg�r� t� the �:`.,) ;I 1 �r, � ��'i�G'��Fl . �� Y�1i��t:P, [..��!�Q€J�Sa : Ca�e� d 4�� go �i��o fur- �'� 3 I ( �;_, �j th�� c��,.�� th�� 9 ti��E�. S��r�� y �~ei a�i ng �� he t�dme �.W., � i �,,� �� sc.l��t��l�? .��. ' a��;, S'TEA��:; e ,�� i r°� ght , I wi 11 b� gldd t0. c...o.. � a �� . ;; ,� ;i s; ;� ' i� 36 � ii 1 � �. � �""�� d�� ar� ��s ��'� ? r�u:�s : 12�3/73 , NS�' f� liny €�� he � � � s�ca�� pur� c,�`' �k;�°� �° �c;�� d ��r ii�► d �a�ric �k�t�ii?F1$ 11g ; � � :=��,°��ry � , � ��49 compi��:ic�n of °�'i�ld a�ork ; � � a'��s��t��°y � 3 , � 97� , tV�P c�� r�ct ��s�isnony ; �; i ��,ri��.•��3y �'� , � 97� , Cif:� ° s �r�� rvenor' s � c�osa :is Pdor��rt��;�� SLa��s �0��,�6:r• wi �n�ess�� Gan I go of� � �6�� ^rc�0�'d � �r!� �z,;�,�i �3 � ��"�� s:��i �r� F��d ��fi the ��°��ord . � � ! i�'?� . S'i��.F�i�� e tia�`h 11 , �974 , Ci� ' s and Y :�.� � Iii��i^�fs>^��Y' ' S :�`d i~Fl��a i'�Y'C�l 4 9 � 97� � '�'i � Z6ec�f' a�" I�t'��1"1l�t101^' S �.� � � �r�� C� ��y ` � d� ��:�� . '��;��v �:r� �u� t�f ati~d��v� ther� . � - � �.t= ;��t . �;EYrSn �Jas it �h� 4�.h or '�<<� is�? �.::E �� ,�"�?, ��L,�,�2��5 e �d�� i , `�� s�� 'i s � aa��rcl�y �,.�. l�9 :�� ;�r� �hr�c��:� t �u '�:� �1��:�y� . t,sa:�eh Z2 , ? �37�+ , �1SP cros5 of !` �::. �� y 311G ��:�,r^v�:.�+�°` s �� r��c� 9 � �,g.; r��;�r�:�� '2�, � �7� , t�iSP rebu t��i ; �.�, r�if��°r � i 9 �� C��y �nd tn�terve��' s �rnss- , _ ��: � �::�r��r�� c�r� c?�3 �� :�rau��'► ; ��:� �� f�,Y.�k' � i �f".: ' � �� 7'�C�Sy Ii� '�',�; {{ E�9��.y ? G ,, 1 ��4 , ��comm�nda��i an by Nsar�f ng �+ �, j� �';c G:r�a r��.r�� . �� s<•�� E�?�,tl � ;% , � �3�'4 � c�rd��c� i��r�d�a��d. ....�. �� .`:=, � �'�c;<�J ; � s��;r��e tf�� is �yw��able to PiSP �.�;. � �t��r� � �. g e�� ~��:��r�� , �s I s��d , �s °�ve �ai ked �{°�� t��? .�.._. � . . f �` � ��. it �$ t; :� � �� 37 � I i � � � �:?i�o l��ES : Ye� . �, �� Rr`1i�fili��F' �. �:T��Qi1ISTe Ho'�► is �ha� , r�r. Brauch � �I.�e. ��"iL'•Cl-{ : That ys agr��eable �rY��h the � � I�t�r�enors g ��s�np �-Ir�r7�r. �a �� l��i�1liv�:P. ! ��Ql1IST : I�. �.ppears Lf�a� the '� � � H�arirr4 Ex��r�; �a�r� d�rr�Ra� � b� ��a1� �o operatc� witn� n �h�s � � �ch�di�� ais� , sc� � � ° s acar��ble with us . ' � �� 'C . S`fC��RfJS : Z 6��v� a pr°obl�m. I am "� � �. i ��ppos�d �� c�7 s:°�Fss �h� s �� th �h2 Coue�ei 1 thi s rrorni n9 , i� �� a�c� I �rur�c��r s��id s �a�� is tim� �o go �own th�re and P �� $� icry �c� r��v ar� ��nr•��c'� �� proval ? i� °-?��i�;�3��R i �NL�QUIST : F'�ne . Is ��a� all righ , i�'� ;E F� �:( .�.� t! W ' �� ,yC�i,i? ��, ; i'�� o K�YFSa Certa�ia�ly. 'j �i _ �r� �� 4c'+'ZUY'Z T'L�:.'L�'" �aJ �!'��C�'D1 . � I 4 �: (� j+:��t . �,I�t:�R�!:�� : 4'1�aUid y0�a n':'d�^k t{1� S? i! - �� €; ��:� �� ' s Ex�'� bi t No. 4 mark�d for ;; , ;� i d�n�3 �� a�9 on . � _ '�.�.:., �r ;� ° I'.�R. S�'Et�R��a;� e I wi 11 o��'er thi s l��gal , "� !i ,; ;' !_�d�n�� wh� �h � s �:E�+�: t��f3 �i a 1 �ubl i ca�i on �f th� �o��ce to �;'a �� •,�,,; ?� �;h� I�a'��r��c� ��s �,r� ctisc��s�d e�rl �er°. ,..._ f ;r ' ?�X�'t�<<��!�_(� ��NaQUIST : R�� ved. ,.,�,, ;� !i �� (�; �go ° s Ex4��bit P�o. 4 rec�ived in ��..�. �i �Ni��.�� . ) ��.--: ;, �s �,�Q ��e f�'�R. i`��f��:5 a A�i�i th�n r��r�ewiny tti�hat hap�en d ��w 6 ;; �� ` kf X 4 fi Sa 38 � wh�n I left �h� s h��r� �g , I went to th� City C�uncil �nd � �eceiv�d app��a� �o �roce�d according �o the snanner � d�scri ��d ea�li�� f rn�v� �� the ordinan�� intr��uc�d b� � Nay 17 , 1974 , w� �h �h� ra$�S b�ing co1l�c�ed as of that � time a�d any �etcr�as� �� decreas� retroactive �o F1arch ll , � 19�4 ; and t�� o�°r��r card��i�ns of the situation , if there � �er� ��t an ��i ��r�c� ��reduc�d , we 4ao�id be able to � ��c�� with •�i�� s^a��s yr,u appli�d for cr a lessew amount, c� e►k�y? �p P��. K�:'�ES : �n other wnr�s e th� agr�ement ;,r� �� a � f�� par�3 a�� ;h� a�r°�er��r�� w� reaeSied in tei� gas 3.� cas� , as I und�r��ar�d y t? �3 ��1i� . ST�ARf�S : It �wi 11 be paral le� to that �,� � wi �h � f��j �h��a��s �s� pP►r�s�nc� becaus� c�� the 53 tuati on -�� ir� �i�y� �+ar^ti �.�� ^ �� . ��, ��!? . KE'�ES ; Ob;ay , and ar� you goi�g to do it - �;� � by con��ct? _ �� f�l�a �TERRP�'�� . By �on�ract and by r�solu�ion �.s� �a thEs C�urocy � . �� C�:r`ar�9�ra�� LINDQUIST : Well , is that agreeable �� 1�?. �EYES : 5atisfactory . � �r� ; hi�;. �P,AUCH : h�o abj�ction . �� EXAh�iTNEi2 LIPJi�QUIST : So o�dered. �:;. P�� o ST�ARPlS : The next problem was the � ,�� ,� €tul�� ofi Pr�c�c�c�w�, � �atr� r�cei ��zi a comm�n� by Leonard � - � f I j � 3 I E� i� ' � � 39 1 Keyes �� rr�y Ru1�5 �f Proceduv�p dated Novemb�r � 6 , i973 , P aroc� also �n� �r��r �t�� ^v��or. N04Y shall SN� start it? : EY,A��IN�:R �.IN�QUIST : Why d�r� ' t you sta�� your posi �ion r�� nc� t� first the mat��r of the alt�r- � nate �indin�s �a�� cam�er�datio�s? C: �"gj e S��.R��S : 1�l�� , I i�av� farwarded a s l��t�r �u th�.9 p��s . Apparentiy somc�hinc� went wron� � � a�ith f�"r. ��y�, ' E ��, b�et T wyll s�nd him a copy . And � � � my posi ti�r� ��:�� i�� e��Fec� that i n view of ��e fact � ;� � i�� ^ �ha.t �d��r� mc;;� �,�� u s� �u�ti c►� w��re the C�uo�c'i 3 �xpressly �x 1s � d�s� r�s �t� r��;+�� r� a"� ��r°r��te �`i ndi ng mac�� b� tt�e Exami ner 1c � and �h� ExaEr�� w��^ 6��y a11 �h� a n�orrr+at�on upnn ��hi ch th� 1,'� ; f�ndi n,g car� b��; E�o�s,�� 5 �h��; I w�irl� l i k� to �av� that i �.i�. }� pt��is� �r� k��,� °irA ��~� fJr �he si�uation ��i` a p�ssibil �ty . ;� I�; �i �•�: x��v�r��•i�s ►�s to have a f� �ding b�sed ,l l� '� �+po�? sc��thi rc� pG�ss� b iy a�ferri ng to tii� �est y�ar or �o ' i�� i I1 '� ��'i� ��p� o� a��'�e: ��:;a ��a•r �nay �o� be ir� �he particu3a� . 1� y� �QCOmm��d �'�ti �n�+n ��c{s U� �;�� Ex��n�n��^. 4 ��; i� E��r�i�9iNER t� T�JDQUIST : What � s your position I �t� ;,� or� thi s? s; �;+ :;� P�?�� . E�F:��UCH o W� support Mr. S��r�s i n thi s d ?� �} r�gat•ri. �� 2� ;� P9�.. }:E�ES : W�11 � again , �cur p��i$ion of PdSP ��. 'i i > s�� r�h �� t�� Io��n>>er 16 let�ero I just ��rould like ; �� ,i �� ►�� s��: w,k��; � �o�`� b�if��e ,you can s�parat� these �� 4 �i �j �� t ,$ � � � � � 40 �. �hi n�s ; for �;?�amp3 �, �a�� a-� ��urn i s som�thi r�g depe�dent :,. � o� the �yp� c�� r�c� �ase used ar�s3 so �For�� , anrl I think -� th� a�kle bor�� s c��nec��d with the shin bo�� i1 th� :� � ar�y u�a , but I ��v� expla� ned �ha�. . , �'Xt;i�S��lER LTNDQU�:;T : All righ� , ��e Examiner � h�as revT�w�d rt�� r�g��nts and w� i 1 adopt �he Fi ndi nqs � of Fact and R��a�r��nda�� o�1s as pi�oposed by th� City , No. 12 - � � �' a�st�m� I wi 1 � b� g�aid�d by wha� oecurs 3 c ; aE�d I car� s�� a;�r��:,��ii� �r�cJ und�=rstand the �osit�on �f �i3 '� PJSP i'� �he ma�'��r� �r�d also �h� �ositian �f the C� �y , a�d � �'! �� ; I wo�1d r��h�r� le�v� �i�� discr�ti �n op�;� . ;t �,�� }�,� s �� !,+i � 1 prac�ed �o t(�e c�nyici�ra��o� ;� �.� �; �7= •�;h� Zn��r ` c c�g�nr��r�ts . �,,�, �;Ro S'!'�ARlVS : I �hink , Jo��n , you cao� � � p�°c►E�ab7y F��nd�e y�;�r�� b`o cr�$�g cl�wt� th� �I �ne . �� ;;9� � n�=;i��;� � C��ai �ly. 4l�11 , I �o�l d ask • ��. l6; nrd�c^ t� s��c� �;� ma�c6s Lime as possi �i7�� , are there any _ .�� o��c��ar°�s to an,y c,f �h� �r�pos�d ame��r��snts that w� have? ;�;� P��. S7'L:AFtN� : I hav� to p��rase �hi s a 1 �ttle �� ei�y b�ca�se T ��r ° � �r��dr wha� the Cour��:i i i s �m�ng about ,��r� s� �{ �� Ra�"��p�g �9�� C�t� �� h� manner o� p�ss i ng the ��, !; r�sUlu��Qr �� °s � f,�e�t^� the Counc� l . Th� onty q��stion :�� c��l � h�v� �:�e�� a�7 ��Y� co5� o� the r;;�;�osit�ons . I � �ry�.� � a�; ra�� in � pc�st �� ;� �Q ,�y �� his time ��at th� City� ^,�t.; � �.. a, c�n pay �c�r ya�r e��os��a�s . Tha�t ass�rres that deposftion �� .. ;, �, �? 1� �� ' 41 � ar� ado��ed. � � �� E��1F� . ��?�1liC�� : (?ka.y . �.' �3 �, �� 1�e STE�iRP3S : I discus��c! �t w� �h A1r, 1� �, !{ �'��z �� , �(� �h��c�r�°� ��: ?�ial�� b� a 1�ga� �xpens� a�d h� had `.� �# �.ir��acl,� ��°f��c�r� �rk c,�a� aa�� tha� w� ar� r�o� in a pos� t�on 4� � p� �c� �i �°� a��t��^��`s i � .�cldi �� an �o myse s f v°�pres�rrti ng �he r, � C;� t�{. G� � �?�2 . K��E5 w �xcus� m� . C�f� you sa.y hjr. �,, � C��r��_, �h��agP�L, � �;, �a��al �i b� a l�ga� or � 11��a1 ? � � .+� 'e. �.�' . . �� ° �'., . :� � ��F�P�,!S : ,� i�gal ex��nse , ard �r� i �{ `I� �tir��l d� ° t �i� 6�b'� -� �;�� a��'��y i t b�ca��se � u�t+ul d �e repr�ser�t- �� {� �r�cx �ha Ci �;y � �a;°i� �r� �rn ` fi �a�t� ��di�io�:ai a��rneys ( M,.. �� .tr►��r �� s �� ,�;i . ,:� �� ,., � ;a� . BF'�,i��a ; I am �or ry. I am c�nf��d . Ar .�� „ �� y�u sa�r��crA 'i°��i , ��'�?�z: c�u;° �r�t�osed a��nclm�nt �� Ru1� No . �,�> ;{ ��' r2 �r i � � s ��: � �°� ro �r�� r:i�i� or �!�e Cit� �;t�rorney r�o� legai . ( �:� , , � a�si i; ;t �< . Y; '` �,:1�; . �s�fi;�2�,� : No . ��r� �s what I am � �f y�� : Z� �� s � ��ai ��:p��rse. Yo� �r� actir�g as at�or- _ :�� i� i( ,� ;? r�:�rs �h��a yr�E� a�°:� �.�k�rq �h� �e�os� t��a►, ��d und�r h� s �� R �. 4 c�,% r�� yG��Ea� �;.:�= t��h��° d�,y h� Ys �ot ti°�comm��d9 �g th� � �3�� ;i ;; ��Qe��g�r:3�4�� `� t;�:,: ,��nrr��ys as sueh . �y, ;� � ,..,, ��j � ��lv7bP�EP� �iNDQl1i�'ta Johr, , I pr�f�r �h�t e�e .a� _� �,.�., ;i �� v�v� �a�h ��:: i��°� so w� �►;�v� � complet� underst��ding r,»."r '` ,�„ "i �s �;� ��6��r� �:'s'�ti �� t . �r��os�d Rvl� ��. 1 ti � �atisfac- �..w.> ;� �r. �� ;v� �;l� y�ta~ �•��i�ra�:s ��e ? �i` ct�u�^s�� . Do ,y�u h��ee t�..r �� . €s f� {�r i� �; . ;� , ,� � 42 �� ► �� , �� V('il�Y' c�l��t: ��1v'1"t��a �a � E+�Et. �3�A,Uer,'�' : ��S . �, E};�P��I��ER �.Z��DQI��ST : Pr�p�sed ��,tle 2? :� �`�; . ER1�UCi-� o T�xr� and � , sa$� sf�r�o�y. No. � � I 4 , Yos.�r H�rsor. � �; ��'��?tf'a�f2 LiPd�QUIST> A� 1 r�gh� � N�. 4 . �' �� i��E?. �3R�l��i : I b�� e�►e t�-�� t�e �ommen�s on � !� Rul� 4 �t�� ac��`�� c �� $�1� s ma€n�r�t b�ca�as� ofi�� fact � �� hat w� ��_� , i :�r r�c� ..� �� d�a� s wyth in��v�r�� o� , I �� `l�ur H��r�e�s �_��r�� a r�� e �f,� �h�' only i�d$ vid�:�il s wha have ��, j� p��i �,ic��d �"�� €��°��#�s� , i� s��ms t� �re that -.. �� .�? �� :'�::�F�i?�P�FR �. ICVDQUI�T : Do you w�ra� that por- � 3.r3 �� 3�n ��,t�ck f>°��sM ��c1s "�=a� sF��ui d summar°� ze �he t�stimany ��. '� �� b� ��s�n�;�:w�r� �ay �h� �r�'�ere��rac�r�'°? I� , �.�; }� t��a�:. �R/�UCN : Exactly , Your Honar. So we �.;; '� �r� � � 4yai �+� ��-� s�r�� c��ar �m�ndm��iL to R�7 � �ta. 4 . R�l�s 5 ` ;: ' � i� �°T '� � , �r�d � ar�� N��:�:�� . W� �, ;� _ �� ;� '°,`�;z��•�Ti4CR P.T�DQUISI' : As T und��^s��nd � t then i? r;� ?� ��ahrs , ��r�� r�°�� 3�.�°c��at�r� �� a�� r2�1� 4 stand as i t i s i �-�:� �� :c�� , �f ��.��r�� a �+� ��5g�cl t�� De��i�be�^ e3 , � 973, date F� fi�;�, ;� f:�i I�0't�t`;iL�Y` "e� ; `I '�i'3? �� ',� il€"t . �R�IiC�� : Y�s . Rul�!s 5 , 6 , �n� ? d�'e � �� f; ;:�i �� u��5��i€�� Q #�t; �� a��d R�a7� 8 '� S a�•��Eptabl� , bu� w�a w0uid ,� ��;�. 1;� a�z��r�d r�� w� v�rF.��'� � �d� a r��tN �ect'i�� t� 8a �t�� r�ul d provid �� ;�� t��;�s 26 �; �?;� ; 2�i5 2� , 30 , 3� � 32n 33 , �4 , 34� , and 37 �� t, �i� � !k ' {� ! � 43 � ; � � �f �h� Rul�s �� d�r� �or t�� pistrict Cou��s of � ! ��ir�n�s�ta ar� ��p��d f�� his hearing . I � E��i�NEFtLINDQUIST : And yo� also wa►r�: �he � additi�n�i s`�a��7i��; pra��ided �nere is na basis in writ� ng � p�^c�vi d�ed? �i �A€t . �t�R�lCi� : Y�s . r C:?taaP9lt�� . irdDQuiST : Aa1 r� ght, 9 an� 10 I ' ' �W� s�:�.'isf�c�:�ry;, � �� '� 's"-��? . ��1�C?� o Yes , and Ruie �d� . 11 we would 53 ;� �n �� am�nd �o st��:� 4;��a�: �h� Ci ty wi 1 i bear the exp�nses for �^,- �� {�� e�s� t�r �:�^�°asr:ri ��s � n conn�cti�n wi �h �ha�. �� ,° �',;.��,��'F? �. I�dDQIJIST: W� can ma�c� �o ruiing ; �� un �ha� at ��a�� m�. Yo� can deal wi th P"r. S��arns ' ' pQS i �i r�n and �h� �,�s��on of �h� Ci�y Co�ncy 1 . �.4 s �� t� ��.< 3RAl1��10 5o i f I may proce�d , i t wou] d �� i� a��a�^ �t�a� �:�� F7°��t arne��l�n�nt �hat w� propus� that ; ��, ?� s�c��1d b� dis�a.�sd��i a� �h� s �ime is addin� P,uies 26 , 27 �� in seq�J��ac� �:� ��r�� 8 Q� �ii� Praposed Rui�s of Procedur�e fo �� :6.�� :i�is r��aa^��g. , �� ;�<t�i�N�R LIND(�UIST: Mr. S��arns , do you hav s� F� a��y cc�c�m�� r��i:? :� 4�4s�. ��EAFii�� : No , i ha�e no comr��nt. I woul ,.�.� � �_ �i �;.r }i �Si��t�l"� �t`� �'1 . ;� �;i��.t`�� G d9 S 1�� ! . iE ��r ;i �':;�s�1�N�R 9� I�iDQUIST : P9r. K�yes? '� ,'c; . K�YES : 4�e1 � 9 we ob ec� to a �� y j proposed � : - i , � E ,, �� i� �. � �� 4a �, s � $ � am�ndm��:. T� �9�� r�st plac� , it ` s mean�ngl�ss in many � � i �sta��es . For �x,amp7e9 fn prior h@ari� s whe� ¢h� Inter- � � ,� v�raar r�r �h� C�: �y `�rari�e� ar�y�P�ing fram NS� , tn�y asked us e�. �nd �h�� go� i �. I � �h� pr�posed Rul� 34 appl ��s itc would ;; have ta apply t� �h� Cour� fo� an Ord�r of PrQduction , �; �vhich 7 dos� ' i: ��i ,rk �piyb��,r �,�nts t4 do . They want t� put ; � �n R�a�� 37. "Ch�� s a cc��t�mp� provision . � � � �°�� oth�� rc�bieins -- and I do� ° t waret to be I �i �� ck� ab�u� ��is §, but thos� are some of the broad problems . �,� t� Th� 1a�s� ph�^�s� 5 �tPid � qc�� : "Uni�ss otherw�s� a�reed �Y I'# �� u by 4;��► p�r�•iFae� fl�d u�orr aral �xarnination tl�t� transcript I �.? � �hall b� tr�e��e�i iri aceo��c�c� vaii:h R�l� 11 . `� :td, ' EAi�ll , F,u� � 11 is the r�ie gnver►�� r�g th� s�gn �.:�. ; Sr►g of YE�C�� . I� sa,�, a�h�n an attorn�y s�gns a �.�, ;� pl�ad� r�gs �t ��•i �C��s i �G accurary . I don ' � know what in ; ��-� � �h�� wa�•�r d- ' �� s �;�e�44x"dEi� �.�raDQUISY : I� ° s �eferr�nq �o !�� , �sw, ,`� Pt^��ss�d R�al� T � . tj �� ;j 9�1R > �;��ES : �h9 I see. �! ��y .'� f�� . aRI�UCi-1 : 'Yes . i �� ,� �:Y�`��ER !_bNDQUIST : At 1�as� , �:hat is the �r> ; w�,� I �°��d i � �� s.�� rF�� w� 7 Z bear the expe�se. � G�; k h�Ra K�:�'ES � W�1 1 , ag�i n , T don ' t thi nk we ' i 1 i ��^ ; ��s^ g�i �td ��;:qi��s'�s�e� about wh� b�a�rs �h� exper�s� �� '� ��ra�as� I �F►� ��; ...., � �m sp.�� th� �x��o� ner i� muc�+ mo�� (� f� � ! . � � 45 .� far.ril ;�r 6V� �f7 �h� R�� c,� P�°�►Ge�ur� ��nd Admir,istrative �� '��c�� ngs �h�s� T � �r�d t hav� never i��ard af d�position � anc� •�u1i -scaic ci� �i•o�ery b�i�g �ake� �°igh$ to the middle � ��' a rat� cas� , ar-d I ��ast don 't beli�v� the wi�ole � p6i� ims�phy 1��,a� �� f -- th� formal ��y� �v�n r�q�a's rec! by � �hcws� R�ies o� ��~+.,,r..�c��re rr�u1 d lend i �s�'! f t� �hi s ��rpe o�F � isro�'orr�al hear; ;a a�d � rforrnal pro�edures for tE�e p�od�ction ' � c:f d�c!am�nts , �� e wh� ia:�� eas� , ag�in , ev�rytliinc� that �� nybod,y a�a,�,��d ��J got. Th�� was or�e problem in regard �.� �o dis�lQ� �r� a� �sn� � ��rn irhict� v�ould have violated SEC ;f, r�u► �s . 4:do w�,^e �� e^�c�istra��o� and we co�alc�n ' � disc3ose �.3 s�r,�� p��et� ��a:� ��; �,ha� ��me. �1� g�� an o�^d�r fr�m �,� S�s��ar� �.vhich ��d �h� ��e�� of re? iev� ng PdSP �'ram crimina� -� r- 1 i��' ''+ tSf . A�r � +.3 If �' 3cr�� ' � �� r��; a�� av�n� to b�r�d �urse� v�s - �.� � ��r� i,t�� r°igi �J�i��y �s Rul�s af Pro��dtare o�' th� �istriet . �� G '.rt . d� � I�X,�;%eINFR LI�lDQUIST : Let m� comm�nt for a �,p� � ?i ��:��d. Y�u ;�c� y�»g to ��av� w�itter� posi�ions , �nd then °,�,:k. � y'�� a�°� ��ir�c� �o F�av� �h� ci�r�ct testimony and a�t�r tha� � ��o� �� oing ��3 h�t`� a w��k or° �wa t� rediew that. �:V .�:� � P��a�� 3 y f wn��l d s��m ta me tha� �ha� pre�ty � � ,�,� �� m�s�� c�s caf�� c-� a�sy pas�� b�13�y af surpr�s� or the ,.,� ° k9n� of facts ti�� g�� c� �a b� presen�ed and so forth �� i{ ! S� � �i " 46 afi �� :i �� . �� a�� t�� right �� cros�--examin� relating to t�e iss�e and �� :ii � 4._ � � ac�s tha� ar� presemted. I�F a p�obl�m comes vp I c3 ; ��r�a�a7d v�a�h�r ��,�v� �.n just ��f �� p cf my ��ad naw , ar�d , �. � ��t making a ��r�ir�a�i�� , I am just throwing this out � g �or discuss�o� -w d�t ° s ieav� it open . Tf there is a f � a��y pr�sb�em � �:��lv��d 3� get�ing the infar�na�ion that you i � ; cl�ssi r� a� th_�.� a � r��i�va�� tc� 'th� i ss�aes , present i t t� . � � 9 thc E�a�n°n��^ at �iza'� �fm� and �� a�ill mak� a e�uling on it. r � � MF�. �3RAUCi� : P�1ay I comment on that , Your �.t> .� Nc�nor? r 1.:� � E��-Sx�l�R L�NDQUTS°1' � Yes . � I� , t��i. BRAUCN : This was my ide� , not Mr. i �.;,3 ' �i�hittt�t' ': s 3�td �0 I ��d�tt �� :nak� $ha� Ci@ar. I fel � thd$ �; ;�d� ; �r�i � �„.s a �r,�a�c<�! r��r�€�t am��dment b�c�use o� the !� � �_;�, ! ��a�dt�a�d 2h��: � t tivoul�l pr��vyde �o us and th� star�dard that �,t; � � � aac��:��d �ro�'� d� •t�r �h�e H�a�i nc� Exa�ni n�r i n maki ng � - i 1� � u��i ��s , on� � as �� w�a� sart� of materia� w� perhaps - �� ;: m� y`�� ;"�'��9� ��c��n N�r�:ht��n Sta��s Po�er, a standard for € �� Pd�rth�r� Statc�� P�F,�er � n !��3 ng y ts determi r�a��on as to i �� ar9-E��h�r ��is ��s pra��°ly �ri �h�� th� purview of �he hearing �� ! ��e� f� r�ally � 5t�r��d t�� w�u� d provide to the Hear�ng �L.: � �r :�s�� r��^ a ba:�i � i4r :��k��q h�is d�termination . �� I °�a�� ;�ot ��art of �he 19a1 hearing . I i ?�� ; k� ��e �r, th� ��st �J��^•�h�r� S�a�es Power co�rsp� i�d fu� ly and �t, +��.�.�;;�s��y �� :h f,��a .^�p�.��<;ts ��r ��tforrnation � �u� I �e1t � f i 1 r t v c "'f 7 1 that i � was impo�^�ar��: �h�� we have some sar� o` recagr�ized � ��°oce��r� , ar�d �r �� s i��orta��3y , a r�cag�ized standard W �o ir�i �ia�� ur r��:quests f�r in��rmation . � h9R o KEYES : P-1y only comment �n yha� i s , I � d��n ° t b�l ��e �h� z�uies s�� any s�and�a�d at al ? . The _ �-� s��nda�d is s�ii � ��1� Juclq� . � P�2a BRAUCE? : Well m I wauld assume that the � reai�s , tha� tw�� ,��aic�8ai , that �h�se c�ecisi�ns that have , � �� Fac:� � in��pr��d �h� ��l�s , a�c�uld be inco�pQratcd by �C� ��ar ad�pting df ��s� rul �s so �he st�ndard , you know -- �� you lcn�w , �h�E�� is a scanuard that has be�n s�ti through �.�: va�ious judlc�ia� F,r�c�dev��a� and f� ' s �hat s�andard that �� asn ��l �irig �b�u•�: , `�r, K4y�� . �ut if i �' s th� think�ng �.� �p �h� Exami ��r �6�a� ave �r�ce�ci dc�wn '�he pa�h , I guess , 1� r�� th�r ��a�i ;�gg �h�� w� �aait ur�t� l such �ime as a r�quest P �.�. � � � �ad�� an� �� ` s ��'! � by ��ha$�evev� pdr�y �hd� reqa�es� i S mad �.� , ��a� �hi s i s no� v,i t�� tri s 3 nfnrmati on cann�t or wi 11 � � _ 3.� i rr�� be mari� a�aa� i �y�l� , whl9 �h�r� we can come to a�► ago^e�- � �.� j' ni�r,�. f ��:� �� P��R . S7EI�R�d'� : Coul dn °t you send your i nt�r- � �:4. I r��to��s o�� `� �� s�a�°t of i t a�d s�e whe�her you can � f ?r, � g�t yo�a:� in�o�^�r�a�� :' �:'7 � M�Z. �RAUCH , That ° s fi�e , �oo. B�t againe ��- ii ��; som� >»ir�� : ��a �e,�c�Mr , � � �us� seems kind of c1ea� �o hav i! 2v� � � �: �r�::�� ,��at�l�: as �,� �f'��t s�a;r,d�r� we ar� goi�g to usea 4 !i i 1 �� t f . ��8 � � � � t,9�. �T�A��S ; Yf �� f� �� h� � s 'ig� � c�� •t��F� -�. � � cult spot c�ul � �� h�v� �ha�: p�^�a�n�ec1 ��a�ar� 1 �:��;��? j , 3 EXAP�g�:c��k�t �.T�vG�t3iST ; Tfz�� w�P. �y� ��r��s��E i ' Fy 4 4 P1r. Stear�s , Lh�� cv� ��r� ��e ma�tter o��n �'�� ;a�sP ��R��;�rs��, � should a pr�bl��:� �;� s� � ao�d I am �� l � � �i� �c► � f u � ��a� ��,Fr r� � ( 6 r�view� �y �i�� o^�aZ�s ;�r�a re•��r �o �nd �i�� Ae1�si �1�S�.a'��3v� � _ � 7 Procedure Art a�� a�D �°�lgs �and��^ tita� �c� c.o�� vf;�� ; � • � woul d eo�sro d�r ��rup�� a°�a� 4�f � �c:,�i r�� , b��: y�� <F°�r,�� s � �= �g,�� 9 haven ' t ha� a�y p,�ob�� y s�i�y , 1e� ' s i �a�� h� <i5�i';;�r� >�►;�� IO and if a probl�� :r�i ��s �h� SMxaan� r�� r� '� 3 r�c��s�id��• �r;� � 2Z adopt pr�pr�s�d �,u��s f�� th� g�i �f��c�e a�' r�;� �7wai^�:r�c� . � 1� '`�1R. BftA�9�;;l : T�a� is rnnr� �ha� a�r°e��afa';;� � 13 with �as , Yo�r H"��:^, � i I4 ��E�a��f Z M E n L i id D Q U 1 S'�' : V E r y �r�T � , ;�, �i�� ,�r��'; 15 able? �.6 f•�R. f�EY�'S > ��rt�� i,� . . 17 E?;AMIfi;E� �.�P1�)QUISTa lNr. S�ea��s? 18 f�R. S�'Ef��FJS : Th�4: i� �'a°�e�b�� t�t� th �;'►��, :t9 �C i ty. �O MR. �F:Rl1�� : Perhaps , Y��r No��ti^, i �, l � gha� �1 of �he �omme��s by P�9i. 5y�ar�ns w� �ou3�1 d�fer �u��.F��.r �2 discuss'� an of o�s�• ��r�dr�i�n� to R�ie I�a, ii ur��.� l s�ch ��r� 23 �s �he Ci�y Cc��r��fi l d��raes w{hether th�v ar�� ga� ��g �� 4 provide s�m� ��ds �o �f►� I�t�rv�nr�rs . �� R. K��f S o I �uond�r i f �hi s ;i��~� ��.�� xas�� r��r� • 4 s 3€ I �� ; � ' � � � 49 � has �n� aaa�hat°� �y ct' a�y k� i�� p �OW�� 9 �:� rna�� s�cF+ a � ru": i�g �ara�i i sr� ' .� �.i�� a �rta��r c�r �t°y �!a�� ac�s•e��m�r�t b��w��n � �r�� In��°v�t�o� a�c� �y� i:i �� :�unci i r�atf�� .ha� a ynat�tr 4` f� r rt��a �F�r �€��s ��a�� g? L�d� w�u�d a`31 lik� n�o�abi� 4 �� 7� �� he rtai �s �-��;n�v�d tc��a�✓ . _ � � P�9Ro ��t��H : (}kay . � � ��`�o ��'�� : ;� just si9gges� ��: . , - . � ��°�;��.d.f'��. �.It��?�tI�ST ; �'eS , I �e�$a+ n�y ��r0u� ci � � 1 �ot cons: �� 7 �c wi �:�� :� my �� nc� �c o�d�r �i�� Ci �y o� `.±�3 ' $�31 R4�; �r3k1� �;t� �1�y yii� CG'S'�5 . �.�. ; �;�:. ::��'�:�;k��; : � ti�� ll b� �� aJ t� su��ni � � Y t� ��, � ��,� (;i�i�a t��:€ic� 3 �-��' t.� �°� �^�r��ct a�d pv�oc��d a� d� �°�ct�d. ; �� i�9�?. r��%:�r;��l ; Tha`'� 'i� aqr��b� e , yaur� N�r��ro �. ��;PG�.,`�t�� LI��iUiST : Very we� 1 th�n . Is �.�. �' y_: � ?�:� �) ff�� ,y ��v��i�� s��.��r,�� i ng �v th� rtal�s? -,F.. }',�� . �w��'�� : 1�s�8�&� i t"0 Fit �S�. _�_ � � ' �r�r�� 9��u� s�r : Aai �^ygrit. s,7 ;i � y� !�f�. 5`�E�`IRNSo �dar�e �rorn �h� �i �y . i ;� �� h�1�;. I�1f�L�0�6i : � th�nk fiher� es a � i ��l� bi � �' ;�t� �� a-F ti.��f�,, �c,r� �� h; 5 Ra�� . I t6�»3k � P�1r. Brauch 9 y�u �-,n �� s�a�hy� �;�a¢ Ru�c, 4 �i � ;cc�r��:s;�a� � �� i s , a�d i r� i ts pr�s��t r,.,... � :y,,,� �� ;'!�� :� �°a r��rs ��a � ��inn�ary E�s� �i�� e�t�mony �o b� pr�- � !I , n�� S��1r.E�� p° '�i'1� IG4��F°z��aF'ta)!^o ... �; �,� �# 1l��v P ,�r�u y�� s�,,�f �►e� �ha� yo� ar� 11 �;�ow� de� . ' r.,,... �; s�scl� ;� si�f�r��.3�ry , �r � s �e�a� �9�s��i�� s�� 13 ��a� ,y�z� ►��ald ��:�: C �� • I € i �� k E r 1 � 1 prQ�°�� o have t6�fa� �ec�.i �r�t ��d? � I cRR. �a�At7�N: �?a , I 'm s�r°�^y . Thank yots5, 3 � Lar°t� . � P��R. K�Y€:S o ! �z$ t�ht bE d�le t� S�� ve th►i e, . � ; � NSP ��r� i � v�ai v� t�i� �t� � �i r�e� o•r �r€y su�nmarv anrJ I a�n sur� �, � , th� C� �y a�i71 0 i � ; EXI��I�JEI� I.��;G;Ql1�'��i� : t�17 r3ght. , w� will + � s��^i !�e ��a� ��°��i�iaia '�h�� . � t� i�iR. ��AJCI�, � �`h��k y�� , La�ry . � ?.) EX��R !_��[�QUI�� : All righ�, �ny un��^- �� .� s��d� �g � s �h�:�� t�� rt�� ;°�:� �� a�ri 11 bc �m��ded , �he rul�s � pro��s�c' U.� �h�: �.i �:�� <�� : � as� me��i �g o� �lo��be� � ��" j� u�� 4 uai 11 i�� a��nd�ci ��,� as '�� E7�� 3� � � � str� ki nq �;€�at par.. ? �� ora � � c�� 8 a��x�° �� s "a�d sno�1 d s�mma=^i z� th� `�;. ';� �_ '� �es�i m�r,;a �a b�: r,r�^��°a�:�c� 1�; �� r��ra�ent�r ,�� th�:�� bei ng l`:y ; a F'�r� oci �he� f�f��r� t�� r�r�9 "��rti c� pate . ° �✓ ! �u:^�i°s�d s '�6��f� �4z� D��;m��r 8 dat� ae �ha�ge� . ..�, �a tc� N�a��r��r 2C ��f ��t3� � �s� � � ►�e �a�F 4�. �_c� �� O��P�►vfi �� a1�� :s �a^�pr�sed wi 11 s�ana a ..� i �J�m c�n � �s�� h;�� a�� i � i romm�� on ��^u�ry i � , �:� �: '� Rc�'� � � � of �5�� p��!��s�d �� s , ��y�uar�� 13 , 9 �30 a .m. , an� �_2 R 2� ' t�?�� th� �� , �+e� ad��t��ci �s �� star�i�g t��n�. Mr. �'3 � S��a��s � � �o ad+>� s� �;s as �� •�a�ci � iti�s tc� be �sec� . •;� ��e ST�;��5 : Y�s , 'i �F �� S this �OOm I �_� _� � aEr: �r��d I e�r� ��1.;� ��t a � �`� ic� :OC� a .m. t: a. � . 51 � 1 EXAi'•9�NER LIND�t;IS7 : 4lFia��ver. � (Dis�ussian ha�d �f� the �ecord. } � � ' EX�i��ItvER LTPdDQ�JI5T : Or� �hE r�cord. � N�R. STEARi�� a ��a.y i � b� s�i �ul at�d and 5 ers��t°�d t�po� the record �ha� in �he sch�clule �he da$�s , _ 6 �; arr� b��s�g chang�d frc►m F�br��y 13 to February li 9 19�4 , � . �o� f�5P d�� r�et ��s�;3r,ic,ny ��c� f�t�m f�bruary 26 to F�bruarY � ?_1 , � 9�� , •For Ci ty "• s ��d I��a�°v�nor ' s cr�ss-exami na�i on � , o�' tuor��{��n S�ates Po��r tit� �n�ss�s . I �O � EXAP�I�dER LI��DQUTST : P�o. 14 wi1Z r�ad : y � ' }�9�Eer+�gs wi � 1 c.or�n3c��c� on F��b�°u�v�y* 11 , 9 : 30 a .m. , 1974. � �� R. S i�W�NS : 4!� wi 1 i draf� a cant�a�� 4� �� €i�� 'F�c:� and h�v� � � °r��°i �w��d by fdSP an� �h�� ft�r �� i � ' � �x�c:�w��i � dri � i i�a�� opy s�n� �� th� H�ar��r�g � .�� Y�min��. � D 3 �� EX�;�IE�1EC? ��Pra�l1lS�': Th� I��aring E�a�nirter ` � .�� ;�i � 1 s��d n�at 2; s�r��f �� 1 � :�v a� �h� par�.i�s who si�o�l d be � �W s��v�a ��!i �i� ar+y r��rs •9 � �h� ma��r and , fur�h�r , wi 11 i.�a s��c� �l►�� R�� s �o� �r��c��3^� as adop�� at th� s m��ti�� . ,��,� ��4r. Y.�y�s ��,r� �#�� st e� �he par�i�s , i �:'s �� "i � �c� �:� �� yo� si •� ��B�ar� ��r�vi o�€s to °th� o��ni ng ,.�.,, �� he i��ar��g �r� F�br�a�y 1 � ��d haue a stat�m��rt �f �f�� ---�- � ��, is�uc: �s ��r� r�f ;��u� m��:�� s�a��m�nt. I t�� rsk I ��. ( u�r��s��d w��t �h� i �� i s , �u� $h��e i s no r�ason , I 2 a � ��J�� d $'"��nk , vr�y �f�� pav�� car� ' � agr�� hat �h� s i s th� i � � I; 3 i I af i i v � �� ;2 � ma�t;�r that will b� be�or� the Examiner for considerati�n. 2 ! MR. KEYES : We will do that . 3 MR. STEARN� : That will be all right. Yes , 4 we v+ill be prepared at the opening date. 5 EXAMINE� LI�dDQUIST : Ar� there a�y oth�r . g ma�s>�rs for consid�rat�on o� thi5 me�ting on grour�d rul�s? � � MR. KEYFS : None �rom NSP . s � MR. STEARNS . Nor�� from the City. � MR. �RAUCH : Non� from the Interver�ors . �G� EX,4MTNER L�NQQUIS�' : Very cv�l � , we wi � 1 �� s�� you on F�t�ruary i 1 and � �n�i st� you al l a Nappy Hol iday. la PiR. �RAUCH : Thanic you. �� P1R. KEYES � Thank yo� . 1� ttft. STEARN� : Ti�a��k you. 1°.3 � * :� 1� . � , i� � 4 �� , ,� �� ! i� � 2 2�. 2� f �� {� 2:3 ;, << �; �� i �� F' � f P � 1 y � ab3slb k �� ; ., i� � f � ��, � 1 � :� ,� � � � } i � � E ...._��_�..._�._A��.�..��.,.R.a,�,�.._._ �.�_,«. ..�,�a i 1 �ei �� '��:w :�•i� l�d�:��"'�;�4:z"'i'� 4'%� ci'��.x � � �#al'd��' l.,�ici��:.is�� :"a ro�`�; i;'s ':r';e `�.�� '-:,�''s� j � �� 0";�,�' ��.I�3�� 1 �3'i �r�?6i� ' �f ¢ `�r.� j '., jj ��1��s 'l.��s1��:'a'3?�f ° � :�p+P�ai'�� s�ii : �� ' � � �F "}'&� �i`� s�3#� tu,� YY�3$�t'�`.��'�� i'..C). g�a�'° ' 11��`��"ea a ti:�c.s � ) r§[l R 6: [�t�t'z,+��3 P d i� �c�. �m t E �! � 3� �.A .{�5 G ¢� a f ��'i�i"�y 3sd �4� � �q� �".�� ? <> � t S � ....�.v....o�.,.a.m,m....,�.............,......a.�a..�,...n.... .�..�.-.�...... � � � E f , � f � �.� i� ? � ' �� '' � � � - /� 3 � �d.. 3 i1 • �� ! �,� �' i 3 ..tP �i i �.� �� a��"i3�'e�<�t��a,°`�,�: �� ;3Y"J:�'�'�tsaa�� c�at� °�3"k `e�'.��^ s�;�o'� i7� �� r'� �� 'a�d� �L��°{.;F�5�� '� �€�w'+� E� *..t��i �S?,5 t 't r'tA S?�,<°t. r��' s� �ai C'i%E"��'3'�� '�:.+i'i f�u i"aJ t,°�. c ; � � � � . • .,.p) III �i �� ;� �� ti°.:;� ca'�;�' �� `��S.3IP4.��,R;;� , ��a�� •� s:°ti�� v J � r ! lR '°b .j1� S � 4 i� .� '� ✓ �'�� .,$ �'�''��i �`� �t3'� ;t.i.';��' b,,�+�6�i t��'3 >t��;a'�ti�s,� �$ �e� a t'1�. � �,�.9� y �'��`i,��.,a g3�� I � �� 3l� �� `�JFJ� �'� � s�l��si�i'E::�i'1� e3e> �tY#'�:'r'.;'si�`Eet�°.,��,f f ? q .�� ' ��'e�i ��1 �'s-B�': ��"�C?43@. �/� Rf Gy� �t. ` �� ' �� I s R �� ' � � � � � $ �� 0 �� ' � � r �'tP��R��:��.� r ;, a.�.,__.__...._A.� i �.. � t� �S ` .�.,..�"'�. e��.�.��'� .'�� v� i a��,}�r�•:'� � �' �?�.'aa s �� :; �d�''s� �4"��:' S n�f`�g>�u 2 s l • ..e ,y . � � . �� . �. �"° sR 't" :� � a y ` iN �'�"� r `$,'f e 't� t�;'S $ 6r �.�� 4 ��" y 4_a'� '�9.. d f �Q°��e �' �� ;3�' 's � � �'14 �'��v.l l$ � � �1 ��Y �%� �� ! . ^ :� &.'a�'r.S.�S � '�,��,G."&t!'� ��t S":�s;: f'd��a�:.$;1 e�,3 SJ s'3 9�d'\ 3�.,�, Y' �� d?C� 1 «e+d"� ��4� S'u�.; 3 y fp 1 �e !'1��3��+C�ad�.(� g ¢��l�7i ��i��'�LI ��(j/F'�''t`CO''!F"�'°��v6 �9� °}��'��.�66�.:��i v,�Lf._'+�6::Se i" �'��Y:. + ��i�"t(�'��6y`. � � I's"��.'SE��'� t� o �J e'�;i"ca:� , :°a�9t�a 6''�� ,� t`':�� c'��Ct i �.�' ��tde�:�C��i��» � �c1sE°? _. ��t� � 9�'��'i[.a;:�G3�.u , �:��;z'�C� 1"�'�b°��€��f"i�3:;� T - �.3. �D 0 fa�. 4.r Yt�� t,Y� �id 'F' `o"��.'�v $�F'��ti a . ' �� .. . � . . . . � � ':� + Q F•�T � � � j _ � ti, t. � .�.� €a a �� d ak:? ��m 7'4`.�ft� .5:.< a P';�'��'e�'"59FJ;i' �:1� e.�`t�� a �° � , .:�fi1�i,�.s1�'t:�'.' �� Q€��i �c��.yq �� `�� , r�� s�;•:.�� , r��;r� �c?�:; � < ��a€��ir , ��, �.� a��;� �� L�:�; e �� `�:.:s:r��R�� , � ��£� , :��;� p��a s �*��€ ��3�.�� , 4 : �V � la}/�'��..f��'�.�°-� �"'°.�a�'�i�''�:d`e-�'.'.��y �.3�+.��f�� a`.;'63 F.e�'f��4+!s!�i�6-�'..'�' t„�',��L'i�3:"� �€!�.a � ��ry � C�� i �� P:�:�� w�� :�� '��: ��;��. I� 1� ,�I,.�t� �'�'CS�� , � �� ,��ra�G� �. G�� :ta€�o ; E�� '� �, /-�� f.i�! S� • v`1riJ4y{ C � C PA£E � �j L�� ! � 55 � 2 I N D E X 3 _ � � ��T��SS DTt€2ECi' � ? � Thom�s �. ��a�� 1y� g� � Edwarrf C. G�� J��s �D. C�� 6 �{� Jt��a� �o �� 49 T ��, D�°, N�ztr,� ��r� 1�� - �� ' 1�� ExN��I'1'S �� r ;f I ZFs � ez�y �To. �lw� �8, , 1.e �SP I�3�s� l, �� 3s �}a 1�-°As �CJ �J ��Ai V� ( S `�'9 �o ! and B--A l�� G� , 2� � �� .. 2� �4 �� _ � , � �� s � E � 1 �, �=' i� � �.; �� : `d � �> f� �, � ....v.��.a.�.....�_ _�.��.�..,...,._�.__�.__.... � � w � � � :�"�idt��'� �.S;i:.� ��l�,��f z ��'� '��€�' �c�.4�'i�?4"?� ��'�C.9;s � � . w ! �- �€9 ��'�S��a�� i ��i�, . S��'i�i(�a�d i�'s u :;z'•�;� . �� r�i��iy �M , � � f��;. 1��°?v�a : `�I��; �� t � �� •�;�E��+� � �' ; �•i�' �?��- � �.'° �t<� €��;�:�°��,� �� E°��;?. ,, < < �„o �,�. � � �3 �' � E;.�9�3'� `�„P��i. Y ��l},�e.� A«,y.•i a ? �� 8-� i i��"'d .��,Y� i � �� '� �7 � w� � �:�}�`�iA��a�� a�.� v<�"J�6€��6..�1'n��'� t�`tl ��A�F ��:.�� 3 �F,a � � •y !� F!�. [`� p �� .. � ,t.e 5�`+o. C.�.. � 9 ".�e.,`I� e CJ i� W 4 ' i a""��l�.��1��ii��i� � � d� t o7 i'cC��.�? �Vui��" ?a�i?iYj��7�'�� '��d°d~ uii�i �� tf"_F�k��i,�'�3�: i 3� � �� i.'�W�` <� 'v�i"� `'a+ 1�,Y'� 9 i 7 l�. t i�6s�b J Il i� 1',�,�g 4� `s 9@.�� G.* {. �i'•`-�N E i.� . I"�i'�'.�,.� d �:��Y��b�ES i t�`n ��r� Si 7 6S•6 tl�,'.FX B e%v L: � � �.� � �a3° �� C� �;�� :ca�r¢�� ] ��,, � ,3`;t,� � �p�:�� r��a�r�� 7 � � ?� 1 l�e'3 $ c<�� ta�iia��.5 ` k�� :��;i�� d�� . ��G�` ��,�� ,y � � � `�� h�; C�f� t��.�� =q ��x��.rF;�:= � , ��c� b a�� a�►r�°�� ,�a �� ?� � ��r �� ;c,��.:�,��,�° � a � ��. i � Z� C�dr�� r �� rsa�-, 9 � �.��Q e f9;,,w� �,w �f� � � � � , ��;� �,��:��.��° � �� , .+��s �. � , �iT !"�LlC"��3� ':71�`�.�{;2�?�� ti�4 � �� i��tr'f:_'-.'�t7(3�"f' � � �� i� ��ka'tf��'J�C' �4� s � �.�'s �9d3. �:J � €"1 �� e M Y�K: �u 84�d 9��4.''.�t�l�� E / � �b��..''1 y YY°�' v J�Cr 2C� � °��r• ��r�;��,`�� h�� °t�� °�:i ��c� �� ;��r�� i �� 3 �h� � 1 �� h��6� �� , �� '��i��i�� .r��r�� r�� k��m��ct by �� 22 Gr�a�;�� :��'. �'��,�� .�� r r��s C�►��iY�;�t�� e r��;y�c:��d L�y ` �3 h��°. �lfi � � a?rig �t. 1�i�7€�� i�� k�r�< �ohr� �. ��°��:�� , c�� h� � �h� ��3� �resbr�� 3�;� ,��it�s�. �,��i��1y , ��f� G��'��° �•�. ��c,l �� 'air° R�'a:�:.= C�3�:�t��: i��s b�� ;��r:��d p��F��s��s� �� 1 � � �� 1 � � � � �t��°N.F '�. � �i`.`�.iria '�'�IY .�.�..a� ��tdD{ t �%'� �;`,? '.i ��rs''?��" 7 �»�'�'�'ta�te`:3d's ; � f'',T"�y^3° �;�°si::>��C'<�� r:'t;''�� i�'0 ��P�t�t y�'��;'::� �"s3�;;3:i'i��'�� m.% �� 1.s:S � Ea 9�� .r� LY Yx,�° " � F `' ,.3 S'P ( ,�J.y, •t �f� i9�"= i� �� u,�j' 9 �� 8b I�.n m :�;� ? C � 's�f� 1. . C.w`�'w��E, a:� a �i � � i _ L�' Q't�' 4'�'P 0'�K.'�'l,�ia�'� d:.d 6'.. E;,'s,;u2 ri,'3;ts"5 i�w CI '" :!°,,,.�, '�q� ;_ ' s_.a';?4 p1 0 '�`�v.,� � , �`,��r � i 8 aY a✓"�w� 6F�v+i-:e � M t �3 a � i a�t�l�� 3°�c:`� •�v:^ ��r�� a��•�� ; �=;w�� k�� :�e � r=��°a3�s w�� +, g �, c :�; t� r• n r�ta y a .�F }' >:, ,, � s � � t'� 'J e7�:+�:� G�'�b�'+1��`li � ��.`'.' '.�,�a "Y. .:� �t�v+� ✓e a ..y. u i �'.� a. �_t�J°`�>��i..�.9 4a�� k�f� 4 f,Y i'. � �` a�;��a�p�� 'n;��'`�,�� , �:,� ,�::.<<i�'��':> �� tiE�� ,a�f:�6 ¢: �� a'$��F� � � ��3 �9'�?5��`��: ��'=;�E:�s:`i�s s:': �f.'.k �;i C:e�i�t:„ 's � � `��;l1��:�'�� €�`�' �l��16:Se�'•.�.1Eb� iJ� ��5��d��'S'3�j` u��► '��° �.� � p��:9 g,�� =.�g�� ,�; �ar;� �::.�.� ��.��yf� ��es� �:h� €,�t�+ � :, �'�' `s 2^c„ ¢ r, Fy d [3�, b w: ,g�p.�u. g �. *e2�� .:iw �c�Sr'd°..."a �i.., I �FPRd �� " Gi�.a , @»�r �s�''c:�i=?B &6'.�a.t�v'" �i�� 12�� e �� u� ��6�.5� 8� �Gje,. PJ�� a''5 .��".�.� a�'� s:��; 6'4�4a7�"� �v� g'�r'a1.�� '��e ' �..�+ { � i��d.�a 5 �^ �.�:o�'� u.a "v�t�;7` l,?e �iaui'�;.t:6f.: .°�l��i�` < �'€ 8 8 8 Q � �I _�. � ,��9a'e�� $�� e�Y' s�(3�y a�s,.a�`i:�: s•..s �s'��'�f;::±'c� 4 (` . gy � ° r �°p¢'a �g k,'a" s t �°� �. `"�t "�'t��' i`k:,�'f C ��a�:$`6 R<@ iZ� °�' �'C�A• c9 6 C.i�F'�Sd�.� o f��$7�t .'��+ � �.'� E '<f3 �� ;d��? � ,'�t�:,� El c a:�� '3 5; �3�.t i � � � .bt� . �'liE. ib�`S�E:.� . �','��ii�Pli"�,� C!. 1�°:��i?�> Ri�B� .:1�`..�t��'sx�w� �.8 ��E�563F`� '�s��3�°��`�-`.'��§�� :'�"ti4'�':"',. `m.:'��5 ��;a+6��' 4��i��e�,� e ��- s�-1 i't e !"9 P'a��5A��6`�o re i a G d�i�.� �'T�5'� ! Zj Ea� �?�,�1�� S.�� _ � a �Ct �('f�� `'�'�'��:�b'��t�'`..�9�C.8�i�? ��4.t�� 'Lt��b�s�.£f ti�t"1'.3✓�o t 1 ��. � �t��. ��:��; i�1 �� r��°q ��a� �� a• �2 �� ty ��; S��ai� ��+�� o � �3 � ��f��3E€� t,��:��t��`�': � b�� e s ��°. St��s 4 �,G'r � �0 i� �'1 s��'� � �itt�`��'��i ,`�f�,''FA E�'��; ?:.d �3��TI�� q 1 �� r � � .�� ; �; i �� ; ;: �. � if 4� �E � �� i� � �. 4( . T��._ .v��,. �,... _.,., 1�.: � �.C,,.s.E., .`:.=_.. _ .. -�J�.::_ .� `, �� i � �� ..� ..� �......�'4 . +...i � . _.��. _.�... �. ..,. "�7.�. �:i..... .,..,_ _ _. .. r e � ,.� , , _i .._ . � � � � f� •� � i � .,;; , °s - ;, . � .,,. � , ._ .� �.. _ ._„ _ t' .�t<...i .._ t , i ,..�... _£_Ci i � �� k � . .3 . �� ', . � . � � ^ � `� _ J ._ . �� l, ! £ k � t� . ... a :iJ_`a , .... _ . _. ..... .� -...._ � ..v IL�_:.7'�.i'-. .....1^_ . _�.�_ � �"� {� �1:�3,_�:,:�. _ c_�T.I` � .::;? . �. .. .,_._ <... i.;'�Jl_.k1'�C.r.?.�.''�.?. L �.ri, ._.. :.. i".�i .�.i:. :. ! !I = ;� �� :��`i�V�.l.`> � .)y,. �i`..i _: a '-- __ -- _ ..,.. �_.� )_� ! .__�. ., 1?`t� ..�'�. , _ _ .',.,... ; :S �� r_ .,.�_ :c"3'�(..� .a_. �1,�..a'?tl .. C;`__._'�__ _�. . �..3�.i .�_ , 2;1.'`_�� __ <'7.._�_� ...�.c=:_ d g! � �S ?_ _ �-: �i:,1t�;_:: ..:�rt:t:� , i �� .,�F"� ri � � '--,. ��i1:t.'.. ..�_.�;. _..„ L�_�tt i�� ..,s_��, ll��..'-tl�� P.. ...:��i;. _';.'i.J z � } 4 1 � f� � � � �� F� 3-';� ,� :_.}_.s_ ,�c� , _:t_.. ..�'_?=!.� # ;" �� '`�ti.. _,+ �_._r,_:., i:.. _._ c" � . y t ,.!_C: ,3; ( . �� : - . e � ,. �� :.� ,"t.��... .1 � : '. �� .�_ .+�1?:._:.4:a:.4._ , _.. i.�.<'1 i�':�' .L� � -�`�E f �' 1 t i�, i` l��'tL...�i.'3..�.�_i:.! •:.C..�_C� ��°...c;1�.�._. .`L.3�3'.'•=?<t.�� G`. � ...)�'.S��Zf_:�e... f�...��:�.�.�_ ,c:�?C`,)�� f .y � _ t _ .gn -� . �� ,e.,.�!.<<.3.f't`�.: !.'17�;.ti:: ,?�i�:_C� tJ� } S�5 �� 1.��.�:t��.��`S iL�:'.4�d _...1� i_..-_4,'.i1ry..�� .. , :, 1 t ��.�� i �i.,.�, i�1_.._4��;v��,_ E)a. :z .�,.anr �:�� ;4 � :L! �� 1'i... "1F�1..._�;:I.: r'':.':."t1�..-�y" ��"a`..�1� � , I� ' � -� � , z �. x { _ .� :. %,��"�,,, ;) !•�..� �,.1�_.:.:�_.f ,., _t_ v.<_ >�;3;�C:__ � �°... c.t.l�: _..;a�t.- �f �! c�;�r �-�^ _ c,r� �•. �:� r. �� _, ° .r_ .b � � � ` s :� yS A_ :.i� a 't l,: i' .,a %� , al.� �. �,. i •�� i �� a3J ,._n) .�.��a%;_X:�j � y� )� .�'':�:o,I;"'_.i'l+,_a .�.C.'.. L.�?i:. t��1 ��.}�,� �.l.a_:��i'?r,:-';;pa ._C.::� .`.C�.,_'�'!lE'..�:�1 ��a�::.e�'S � � 1 • � r)r-9*" .,'�.., '"1 . �? <' ' �.. ..�.,., ..`r y � {�:.� �':_�.. �.�° '�"�-� _ `•t....•��, �€ _ .lv...,:� l t_et :.,.-'C�}.s.� �.�:� ,.:'_ ' l±� .1 Cv.:. .(� .. � � �l��b ��. �L 1.�.�1 S ��'� �� .�..JUi.i��,.�'�. .i_!i I,.�.F-.: liC?i�l��s..i�,,....��.�i(" �C�!.�^,�.�..c ~ ��..� f� ... ^'v�'�U �`�/'d`Y^`Cd-�--',C ...�i��f��a�.a7�� e��7� �ai.r:'�v1�s3 '�A.Y� �� . �� l:?:c S:,?i�'t:.. u.S '�;.i1'.:.5' :1+�t?�.t� �� _i.�� ci:P�i' :L`c..2't,�w: C.`�.St?o f,�� r �1 1, .,�i��.r'...0 1:�{ c `�' �1 _z'sr �-1.:�r� „ °x.k7(-`Ci isY� .1"ji °N�1..7.`s.� �� tJ�"r'�.G°�L� � a..'+.� ;� - _ . ' _ t `i � a �i I' �� ?i ; � l �' � 3 a ! � { � � � � E} � � : a„ . . � .. s� s..4� 7_:;:�t�:::, '�' 1�z `. _1:.�_,_E <.;.._'- . . � `' ?" � <? .. � x� ` ._ . . . , _ .. ,. . . _ . . ��"° - � . , ::::,Y.��a.:2��:, :, t;i z ' i c_... '=`�. ._ .9 . t _.:i �a._� ,i. � . . , .. . � ^ t � _ __ _. . , � .. � _L � .. . _ C573� ...?c..r� _ `, �:' �iY: .��_ .,.._ i C''f- � �. � , r. .Y.�, � E� 4'iJ{}�..F� c3 :. t�_,.�,-� _��1'•'-'� _I��; e3-�1�.;'� � �_ `r._.1. "i:_<�iE!'t .7 ;: E:v ..' . . _ :,i�`-,�. `� � C^9 ? °" ?! :�.�C<.S.Ei�.�'i`:i'�. �-��'�.Y(�: $.i:7.�_ .Le'� _�a. i:'.�, __� . _ :�� y - ��5c;� ��c�::7.�... �.t-�'t� I ::r.:i � r� �� # �' �1 ,'Cc;.�(:'�Y7�-�.e, _�..i�, C>.L �.,._. _� ? . _. .. _ ..'J.,_ �.��.,` ._?F. � L..?m� ,� .I?sa� � f }' � �5 ' � ;� �:c��1_� �=�v., . . :�rcw'� � r'_:,. �3'_> >`i; ,_�t:.�. _.��^_, ��.K�3 �.3�...�.�.�_.�. .. ;t�i.�. E �� i t ' , . . ., _ . �.:i �1 �...l�a;. �.:�11.C.j._1....,�4�__.�`.i:. ,: �. �i � _.- , ,_._ ... �,%�1�+:__t-� �_�i}�E� k:C3 �`! ,�:'�, e.,ii�� j =�� iE _ � ,. 7 � Ei f'_•..`..z �_.�12_ ... C�{. .. i 1_:.__ r.R._l._.. .. 'v,. .......:3_�J _ ��,''L. ...1�12.''. �._�.. �� , �i't'.:;t- f Sl.d �� .._��'- ,�. -��=�.t�Cl. lJt� l l.�_' �.�� .��.�'�. � r .Li:�i+. .,_.:`c.�.._'.ZZ.`._4,� ':i?_�'..13 C�..�l.� �4_�'_CCt. � 5 � p � �f r s. � . ' .- .., ., . . � � ' ' � �1�.11':^.i�� f_'.- :�. �.�.�i. _.d. �� .tii�C� t.... .. ,��t f.l�� l. _""' �:'✓� r-lA1:. .�5._� ... t.`�i_ � -�'� �� ` - - < .3 a � � � �-Et�1.•.Ji1"l� �JF��?.'.t��.._?` ��2.:,`wbai �1 � � S :.� .L_ �.t� , � :'7f::�.? ��.'�., j_)�fi'�.'.ti,�ri?`�L"� � . � � �� , _ .. ... _ � � �� 1:] � �i" �.�_�__iat' - - � - - � � .. � ��. � .�_ v �Jci� � l f,Le� ti. }' ;`-: !.Ji . }3"'7 ��`—�.i, l.�i .'.i:. } � ! �`, �f � 5'.3'"�'�)�'.�;.. ??"' .r.°'' .;?�-C.' ,,, r 3 4 �...� � � .f+.''ti `•� i..: �=f F'. i t C . -✓ . _ ,.s... � _a'•�;l .�_ � �..�..: � . d.-.a.,.t. ri%„`.,_ � �� _ . � � � �.� �I "a�H:i= T.s..'�.! f_S:, F... _ ?".i� ?. .. .'....::i« _' ._,. �`I'.."i`..3 .:i`X .�.`,' f��:.�i� u t: �... �: � � ,S! , ,� y j ° �,. . .V, ,3' 1 , a_ `° .'1 �'t..Ef��i ��t:.�D�+J�'�' ��lc.:�,_��, _._ RFa�,, i=«� .. _ a.,3.� ..t� __ .1's�;�.'� ,.,;�.� �� l.�'tl�. =i`I�T .i'.�_,.. -,.'s-'�'L.._::�.. :l:i.c . 6 s'� �! :4i� . i'�. r?sC:?:"s` '„1z:).�+ :;N�:c"i4._ l"� T11�7 ECC:�3.°?`L:t {rY1Y:G..'-u"� � 3 �� I�S �i�i�E'� _i. 42t-i`+jc �JR a�'F':�. a.'., ?__� '�:..:1=�. -i�`�:.r:::'t!�5"i.�."N�� il°i�a��'C��i��°� � ti � ' �, , r � ' �� Lt: .?!�°n, c:. .._ I ,.�.:,i..',..�7' .~�,7;� �'�:t!j_�'t; J,? (��'�.. ::��'c°�.�''��iC� L:�:c�If'A:.Y2�=�q � ,� . . . �' ; :+: �.da��z�.��s,ws� �,r i.r7 �l�a;� r�.��:��:€� -v1'r: .�� Y.'A.� ��U�'��znc�i�y on •c:c�� ' �� , ��c3�"'`:�.�_.LJ.�.i �,jf'�+"��3 ��:� C:tF ciI'an�� ?... i�.'C�1:�:'i�:F''ia 'I.?�T >�u��B �3.?1U'' � ��' if ;.. � __ o � � '��,;'' _I .w�f��" '�.� �� 1itt�::�"ii_ �� ' '.i'hi✓ �?"ff3�:.7 ij '""'g�:aCa� ct�_i11� .`'.�5��.� �'�i f'i�� _C%'"1. 3 i.S.a. � (� : ; ! ` C � � . �� ? �� S 4 �+ a ;� � . . � �g . . ,. _ . . �t �AJ��}k-,..�...e� �., ..��:..11a..�..�. i.._' � ..�:.�_w. ._.:.. �, ..E_.:., r. �R.i..:> L� ... 1 f.,-�..e .l.:. ... t..'�f�Yi.l�r.� e _ � � r l • t � ...i . . . . . l � �. ... ' � ,� . .. �. ... - � -a / � �!�:T.`d��}�Yi �,1.s_,3 .rl.....��,r��..}....y.0. ._:.�, .�'''.. , n'.�40..��_ll�..�..��`° �...!:�.s.a.. .t�-.�.? . .>.,:4..} _t):,,� 6 � — ;� t �2�', ��- � �:-:_��.��: �>� _. '_. ��., ��`:. _._.� ._.__ r��a.;_°�. �_ v.��_. a_ � �'r 4:�:�4. � � � n �?. � i;:':1Z7Jt�.?'t.\r , ...t: :�'...�.._ _, 7�:. .,_.��_t . .. �.s _ _.Tiit "t',.'.t. :� �. i.:,� . .__ _ i'._.: . �� .. ,,.�., . - _ ��. .:1i '��.�.:_�_._ f_)�..'.,= t .._C. ,.��_; ._� . �<<it.5.- �.. ��.. .. .. �:.:. .,..:u . �� ,,.'t�si_: ,_ .. _��, ��s.,��.. i ... . - - �' ��' � � I I 1 � 3✓',�_�_5..:.... !..,�:`... �_��_° . ..,._ ,.. , c°_:J_...._,. ._:. i� . ,.. ,.":.F.�ri.o # � . . - ,.. � �� -: �..- ,-.. . . �. � _ f � +.. �!_�3..�.. . .._..;. _, v�? � ;9 i;�. i.�:- .?_.... .,... . _ �C•L's�-- .. >. {F p��F�: e. €� � r. . i � �� CY� _�"it�t F;Ci _CiC? cz _,�E�Mk-`' '!:?.'`'_..r .`:: ...�I.[� ' �?:�_i� . 'F��.� �:�.�r3 , _ �?,��c��_�: � �Y �� °:�:'s�o �.�1�....__ ... .`�. i�L+"_• r.{-,.:i....s..._L .... ..'t. .-i� t�y� .�f__� ... ��:. .......�:=g�..� i - �� ! � .�� i.?:�' c`':=":'. E�:i}i:.L't_-°-=�C� Y�"4�: c! "�::.�?s..`:}'. j � n ` t � •�_.: �. l�+: -''..�S.. �...'T .:_, t. _ � r`�. �.e.,.. ��e�i.r,.i_ _ �.. . .. .,.._ _.. G��.�c:: r . . _. _. .......�y '._ '._ f i� _ , y '�_%��3_ ::.� ,�f,:,i.� �� . - .7. � �� r d f � � : ...... . , e:.- .� �_� ,._..�!..:� i-? ..:.....j :��,.�z:` ��:i� q�.t_t...+FV��tz .-...:v _ .:.�r�. ..;��Zt��'.�'.'.:a 2. . � . ........� r ..... �t i ' r a�_. ,...._,., i" _._.� ... 1'+.7 •f-.�� t:. �!..... ..i.t!t.^� ._? .a�'�t...G V.�.� 4.�}� t.� .,�"f_"'' � ,�c:., ;j�t i.:.f_:4e _�.3.�:..1. y,��i:� ...�_�.. �.ti ..�� _.;.�...��'. �-� t.. ...., c ��=t�? l.iZ1�_.�.�!�:._.:.�,_:t .:,.�..E�si�. G:�,. � ! # �� v i��Ei`-j_.SiC;' 'G.�_ . A....e_.�' �i:..�,.�a.��:.�t...�y, a.��v �::� }��iP'_. A:� C.�..d.,�� f'.t� � � , ' ,� .. ��7 - C' � .. "•t s t.: •'� I °t S 1 ��: !'•� f.'.1 �� ::°�J'�.t..:� :.i{,.�1(:� '�..�iJ. v`tp. r'1'�lLi_:_:.4 � 4��a..-_a �?,..� e, (�GSa.�,__',, _ �_., �" .: �!�I'��._. � ,'�°� �� W;�.Fa;,� .,.:;"L. _._:<3.S�2,r` ��:{"9 ! :. � .A. 4 1.7�:. . rEi,1��. (.�.J�:� . �_..�....1.. ..,.�L�_!YiS�. 4.LIt.x.,. l��ii..�� u�,l � �� S �� ; iiiY'� c3��.. �_ ..:a?.`.�.�.�.t :.1'.i�i ..F- �1 f:�:� �7':tt��M1 ;y�� 1'la;.�'F�: ��.i:ryL +'.�'.<>c�.l�� :id.'�f'� j ' f ^�• fi': ie.=J _�..�^.."��1 �,.j.lt`� o.'�. 'i:C'r.��? C' ..,w t'::��: C.;a'e �J:;,. .C:�'��. �s c,�;�1';5:. � y i� i �'� � f:.°t��:' r'i�.�u'.,,. i.1`s" `.!:1'�:::�i:_ �.'.. ��z1t`,' f��i�.i��'.e C'J:Z esc..L?i��L::�: � ^ ' ��✓ ��:.?,?t`�� c�.:: �r?.:_ :�..a �si?�.:T`r:_y ? s;�V ;�1�i.i1'�.f�r `j€?c'St'31:%3_i_ 1 c,.�..:'�:: •�1�'� ' , y � , ._ � •''5.3 � G''�Y�,L:w s_��€..:;,a � �L?. I 'T°� :_' c. `� �- -e +^ c„ _, �r,;...a r, .c�r,�' �..' _ � A _ C:'°��'L`ACY f L 'i:sx�,.st.. .,c:., c. C��..L �. .t°�:'��..�;�.��.C.asA 9 9 _ � � ��`4 � YY�13x.ai21 1.1}.`.1�.S��i..:i��.L.l�:�`:. �.oS14�C., f� �.rylw.. ��f4.t.. (.i �:?`�� C:: 19 i�l�LEw�iV•.�.� 3 ... .n�.J t k3 j f� � � ,..x�: s� �; :� ft j� ii ai i� , (� ��....,�a r�:'".' :?.:.:.:��" _.�'�.�.�, �%'c'� i'.�..li.I'its�'1..�.K:'C�C�i-C..'s"7� i=ilci:. �"c��, L�7E?�'� � �-� !i c � -7� • a`a ' � �.... y. �._ ii �u. � :i ,.:�it ,_::}`:' t..,.:,x'i, iJ:i. �:LC�'M y t�t�. 1.(� .�,'C �c"�o .JEt�.'�. r j f' Yx..:C�,�1.. . �`�� ....�.`_ t �.._. �_�..r',��s.o i:._. j.. .?�r..:_��i.�rd ...� 1'1?.a ��._Cl.`�7`r_'�. .1-LC� V} — . , i� S �1.Ct ---, �T'sr _.!.� 3,;.;._iz';, �;.?.,.�.. , �_i"l.w.�. 't�Tc�i�o �I �� .��J. L �.� ii !7 5 j ..�+_.`,`j a + �i ,� �¢ , �k 1 �` ( ;{ � �. �) � � � I ... .F '.j � c ^ .�-.L i j � � � , _- '' � � �...._. 'f �. :.> � _ �� ;i _ ,... - .. . 1 i i S; � ; �r f j� ff -3.. .� • 1� � �..• � I� � ` 3...... I� �I r.r 'i �.._... �i i': ;i ii i� pi i! :� ±� k` y' } 3_� �3 � b a i � E ,r � ! �: � :, �� `s";± -�� .�i; z. , ?'�?f, �t�p a s. � e�a�6$J a! 3 : { R<��L �� '��'�la��d'-.��e, � Yy 4�`!� t e j_'�;d�'� ��': ��a J 'a � 3 } n p � � � �. � � s�. �; ��•� ,� ��-. h��g�� ,, ��5�� a � � � - � �'� � ��E;?> ��°�;cs;�a`.iE' s,�i�i;�: `a'u.��'��`� �&"'�:��'��:��Jf :�'je�&i� i`i��3� � �; Y€i �"��" °ta4:;�;:'�'�t� �?x£ '`; R�� sS_:� 4�a� d��,''e �,s`�,. g ��3�5`�.�,i,`n��t;�� L3i 5 1"��n� �'1 ¢;i°��'k! . � ,b��!'e � a u,`� :i ;°'r�i;; r . 't.��a �3 1... ; S$^- � ,. �Y9!�nz r C:�°i t��t�+ " t �+ r+, ,�`j � ��£��'c�w..:��!3 4"t � c':;�� c"-��3.`�'�ti�s3 a,;��.-e .�E i��:�; 6`°��;� � °�'�:�*�i",,� i��t�y Fm��t�f°.. � s Sn�� . m � � '+o'wdSOk387�s� S.� �i� 9:b��'4�.�+`�2��.l.ra� . � t;2� � 8'd v.�`('3 � �� '� 6.a �i �.�y"�,� ��;;M �,�� .'F �3+G 3 �� .:yt i>��'��.S � � � � k� �� a� ��a��v�: �?��x��:�,� �:��€ � � � e.�:�`�� .� � ��i�4��i r3� ��t��;� �� w€�� r�� E:�.a �:� � � :3r� F2�';�°��`35�;F�;'� , � .'iaE�3ig � i � . ��. �:1��tl�'9£4 �;��a:'�: �s�: �€x� $.�'?��; ,;�E:i�`a �€�� °3`�dsaa�., ;�°E� ��;3: c�� 6 • �y'�.� i {.�b �[� �t�4� a Y!�"�� 5 a s i i�a'� `d � ��=,5 �� si� h o�$�.'.� �e g; &� " Ff�w k�G,�1�q ' 4 { � L b: a 4 'Jx�';;.', �4 a ia b�. ` �.e.� �` �� +e�4'1*:� i {�'.s��fii ��i��t� q i�i��5 f3�'l�.`��'€Y��::' �:i� ��il'5.�, 9;3 ��6�a�� /�:+5'� � ,t,r? � �!�s�,t�i"� �.c:4� �:?�3 S�?'v s s�'� �";�3 do*<? �e � �'��'*a',:Y 2,��€�� S v "�d��'�°;�[Y�� 9� �C�� ,�?�;�;�� ;£?�'�; �� ir' �.d:��+}.i=s� �:@.$��1 �� ":';�?�,Y� �t;��,'`�� at�g��s �'3�+ Q �.� �td�� : �K� `i,� ��;�� c;e:� e^o r t��'i�;'�: `�:�a E„� �. Si� �`3��v y� fi 1.?:,i�ks� cd ��i''�3� �9 ��'a.+' Sr.E�':�m�.��5' y ��f � p 3� ��<��t�E�:�a� �►�� vt��5;�;� �� t� ;;;n��;�� <� p��d I9 �°��:, m �'��°� �� t>��r E o4�� r� :P��r°o-y ��s��a��w�t�g ��o�� } �►�;'�s�;3,�; e�' �"�'�� a 2i �� f;d� ��5�� =r� �� !<� ��s�� s�� a�� a �s � ?� ��3E� a��3� � �� 3 � �.y � .:�°�'�i�,� �c?'�°i:�:� :�p�� c�t��i�� e ��.s��ri:ra— - �� i�e� o�' �f��:�d , ��.�� s�� '��a' ��'a� ��2��' r� ��:�� 2� P��°�:ai��g �� s�t��;�� 3 ��9c��r�r�� , ��°� �aW ��t �r �°��'��G�o � ! � s , 'i � �'i i � ' f �' Y ( � } � � �p F1 ..r I� � � t � r7S�J'�:r � � `�` r�c ��C�?: �6,iat;��A P3�•�i �I�;�;�i� 8�� f # '.6 t � `��3S6�g tid �: is��,: �� a,�"�:�,� �ac�.+"�.� , "'9,? �; : s�:�� €�ti-.:��.`�:r:zt� ��3�.r� :ic� � �. — � j�i �ig Y,�f �'s' .:��' �„��9� Y° 6" c >.��F"•�a �t:F�� "�` c.�<<��' F�a':� , 4 `'��.F� � ��`t4 � Gg � ��b J i 9��.�i��.� ��mi tpf f' Zfi,'?p! q ��i ��s 6'S � '� �,^s�.. i as �-,�,y� ,� d � e . � a;. a 9 6t��.'-� 5�i c 4 � _' � '6�s. 5� � tA - � & Cit �� f ik ��y;, � a:, � "�a'� �'� � . b�C� ��bs �:�s1��s"'�Q .� t��a'�s e ��:`3;, �i�:� x„,•',.3�t ;�:3c;�'� � # � �� @3�"��l�'s�:?C� a��g: �t; c� 3 r�.� ' �:;;� �r:l �€� �:�.�e�+a�''�'.i ��"e��? �''��a ��?�i� «� � � i � 6'��i'f� �i.9 �w'i� i�'t;€� �C;�:�'��'�� , i 4 � �j m ��3b�t3 '��`;�?� ! ,`1C`3ae;.� �'1_'E ;"�� ° :.;�. €� '�°i:� ' �":;aT"`��,f� ,r�:_ � ,ef ra . '� �°�$�>��y"3�a:; P.:�P €`*.�"t:iW?� ��,j� si'f^.�� +�'se `�� 4"��a'� `�'.{� �"f�:'�� d3� �.t+a;�t' $� ��s�ql�c��ti.J� S�;i��'�;�3 �t�£� +�:t°e � , a�7��: ��:�"`aa t�.�� `� `�.�,�3�a ��' � � .A 7 R ' S� � � '� •- �,�„ � . �.�8��f�e,� '�: t'm�:3 ��i e�d``:�z.� ��,s'.�a a Q �G. s f:i�. :'t�i01�V�`�lo �`i':� ��:��b� � �Y �l�?� ��:� �E�i' 4ci8�' �� i�'�t��d�� E:�f�f ::�� i��%� '��a��r; t�`?t� ';"'; � i��f�i t?:?v �:f�?�� i�s��isti�c�'�� g j 7y ��,,w ¢�,p ,�.; j � { ,n /�. y �r, � � ,E,°Y +1' i�'3 t �l!5.�d�6s�' o �7�W tid 6 i� f +('i+�� 'l.��.:t�ca 4't �f�:%:R��..F d E��4Y 6��9�Cn Y ��u..�,'�a � �,�; �� TlY � �'�'�� `� w ES��' '6F,d�°sr�� e.:D'� '�s '��...:�' ��+�d �� i3�!@'� 3� � @i� 6.� 9.Sa G,$�iq:' , a�ai� wtif�W �' �:. �v�a•� ��Y�S» F��.�'s��,9�a�� 0.+ :`�`i��,r� �,.:,( � ��:��Y� �,.�'t 4:�Y'�u a�°.s'��;�cn 8�9 ' :�, w �re�i'�� C�s�i�3 iv� �.�'�9 ia��G,4 "�d�.�f �S'�'�d�� 1� �It�M. !8�'6�i��r'� ��k.��J' e�`:3;'��'�' �:� � i �rrF�� x3 t� ��'�:`t.a`. �OI +��aC� S��1r �v! �`.'��' � `�w�� :�.A6L� �4.��4`�.°4C� 1 �''��.gd�rS�fioSS�+' f�i�LS If°e�'':%'� � �4"i �"s6�.�� L•�F.fiF� ��&��•S .�.63 �+4Gis '4IItl16o"BI �5!'�',� �f.itl �S �{ �taln6V 5s63� Ji i '�fT.�'.f:A�+s� � @n '4�MV� �V*�i' �w8eq�:. 1 �o�b �?� i�� !'i � � �€.3�: $ t� � S�iD�° `�� tb i,��J'��t€'� �'� Ev�t��' G2�' ��'� 2� '�h�� fi� 3s�� €:�� a� s�� :a��1 �� ca��,� �w�c� �i�s�;�ri� ' �� p��R�'t� Q�' �'�� ta , �� 9 �e��:� �;� � � �� st�s�� ic��r��,� �5 �;F� �'S �F? �;;'e'� � ��;' ��35�� 9a ��'��b ��'� �� `C��'1�'� b`"'�� I � t �� i g 7,I�� C�� •.� �R4��.:ai��.�i�� e ta� ?�';��5$ Vs'.��9 ;3 �Y,,r� �' Y:,,"k�YR� a�.1.+�,� � �6� ��G� �9 �t` E c.cl�s:� g �i�C.� :�.'� i�s;`:. �'�33i ��'�3 �6�;°y' n`� e a ;iJ� '�� ,;�€1;�° - � �� f��r` �F1� ��5`�6:F�'1E. ."��a� �i�.r��;;<t , I ' � � t".��t;: a: J� 4 3 �lPa�.�'`'�'` t�ii�� :a C'Y�� :��t��"��k+,C�� lo 5 :3��$i :i� � �P7�' �<.g.�i� g d��;t �i�� fY� i � �U�� :��rt;�:+ l� ��6�.>�.�� 6@s c�}'� '@'.;�� ;+t�°w�b r�j ��e��G �t�� .€ �y ` S :"�1€3U:�� i�PbS s�€'��Y�: �� ra �li�t�:: � ir� b�°�?`�' i � al ��•��i��: ��k�� a� Fd.:i�;s��s �:�:z� �� j� �z�� E�:�� g e�r pa��s��; �<�c�q ��r«? %��r�: ��r� o�tS� i;�� =� a� �:;�:� g�� .�.� � �3B` �� `��a�;t a��;�c? E�i' �h� �'�1�:;�� . ��; �'l�dal3 s' ;�`�: � '� � a�E",(X q �c'� csf c��. � a:�c� �� 5� �°��a� �,�;�� °� �' �, €�� e� � �� H �I��b� 3r`E�:� GiCEu �f93� �W.� �:iue'r.6�G+id `c.: pr�".F:f .YOI PP�a ie�:{i8 �� i��9� �C4�>Ia: s�i��M'6is�ti�47F� �ft '�Efi;�a �$�s'��'€"'�� Ea�S'��i: e i� �i3�.° (��R�k.� �3v�''�'s�' `��;�'3s� a3� w�'t� !9 ��1a?� a��1� �� °�ea�a�� •�a� °+ r� ��c ��:� �� R ��3 ��'a�a° �� 4 �� k�n �h� �.� iss�� 9 �-�:3a� d3��s:;��•��4 �s:�� `��;� i�St;S�.:� P �t: �+a t�d� ��cur , �� a;�� .�� ;� as��w�� ir �z�,� �a�� . '�� d �iz�� r�� I� �� '��" ��,��s �� .�� -��z�s� ��{��n'��:�rr; ��?°��;� ��r�r �3 ��t�t�5 b�?��'� �'h� � '��'�f�t,��a�$ �t�,�a �s:::� ��cc° � pe��aa��u��s , . ..��^�. .. Vl�[13 �i7 9�� (i f !.i�Ve Y I��a 1�°GU�Lti A � %. 7 �� 5r��'W� .3r�A�aedi� {i�7,lSI�'� b6Agi4a�yl�� 2Q �f ��n� '��a�r � �9�� f��s a,i�: �d�� - �1 �nr� �� i a� �4��= �r�� a�c;��:� ��. �� s��, �io�; j�st � �h�s� ��ci��°��c� ��t'��:. °�� `. y�'a"7�&��C EJ'`��. 4�'� � � �7� c��?�� aif'.� ��t�K� ��i J 5 €1717�'� �� r" �0 ��?� ��i3"f� �S w'�C�l� ��;;� €36� . � �� E��Ii�� a..��d��i�To 6'�� ,�� 1 . � � � � t � � � � �� 3 $ � : 3r, � �-�i��e::+:� � 4l&;:�ya�' �i�;:�fF�:'y 0�.'"1: �.�:.; a >:�ri�°�i-a� �v� � � �� .t ':'� d B �� . .. � y � G: ,� ��C'9�. F.�� i G�.��".t�.;n+��.« r.� i^ t�. 4. .i"st . . a�g ; �': tTS�. .. `c�'F��fi� z d� i �~c's � ;,$� 2 �� a + " :� f �•a;�� ?�.t�f.� :�c_?,ea _ .. _ i.."l .z; n�� tiA��,�.°.� .;�" y '; _'�2$!' ?"�`1 .fl�4AE� ��`�`� ei:e�d'l�s� � � �� ?;a G`c�r"�,`� d�E^:;;� e�;;-, a . ��`! , .. �,'.`''.' a..'� ,..�� s"i x�� ' � +��E' �:>2,?N' � � � �� . � !� x�`c�i;�� sr.�� .�F:`. .;..r �`A�'� �+.�;��i; , .:x,��be ;:? t: '��:� `�.� ':.��: �<� �" .��6°d �;:�a � i� fy y ; �1 �� "'.�x4 �9 �4�� E� t��tf;1 �'?,c. �" ��vm£ B 3,3 . uY ' ±r :i4 Aa"[ �,r_. -�f�6.4' e �ae' � '��,!�`& �46�`a 3 ,'' i� ��$� .ra�at,� �,'3Cz:; �ti ,i� ��gg:� � w''e'�� . L o"�.::;; 6 �i:$'c°. �� -, F4 . �,`o �"i#�'+T�9wy d � �' � s �� p�, y� y.. q ,�, � '�';. �1 2va8�.'w� $��.r��:�[:.�,'q�i :� m �,7�m,@a ��v�' �.v.+� G �� sc�_�' 4y.::° 7itl�'Y �;3 .�.SiYC. � .W�4!'a'. s �.�(°�. i � � e'iuL'� �:i<��%`_�c�i �F:", �,'>i�yd �r ��t ,.bo`��S'ce� ti�� f�L�3ie '�:sS' `�,. _'�'� .T�� L �� t'3�.� �tiV��i�«�,ti 8 m� Y t:r�7'� ��b �i'V e �.a 6 � k G" e µi�r k-3f, l� -�a��iy 2 12e.°.'k��p�fr.�7 5 t �- ib�. ��C1'� b�G��N �P � `.I 'i��.'`i`� er.i � �,`,�,::a f,s[� _ •z.�,*�,� � �,F,:: F ' 'fr tP y:� my�y�v�gp ! e.3 . .. c;:w � i C .se f�t' �fkct�C�"� 1..f1�" Vii (11� � [ :.� _� '��? �:6:'�e c �?�',. �;: °�"a r ti a�i�: � �< e��:`- �,1'?� 0 ,.:; �. ":'1� � !� '.�?�' �ti i•s��k"� � y � �� . _ � �:� �� :��.•�.��+� �i� ei ;#�r�'�t�':'�$;. E[..' ��.��''' k3�'��1�ta 4^ t41:�� t'iii'r."' :k.e'r�' �`�- J �r��i�4�a m�F..�€�ldi IA� bi9�: ! . � ?� f {��"�3?s:��'�i�,'-�;�;' s°i£�:f'� , F�:. :� ��?1�.`� '��' si�� 31��: ;'.�� ntt�'� �;e,� �� P� � � s� � �;�i:!��'G'' !Y°�:4�� t �'","s°��;7 P>d s:°:,'',. .,"�4:; �°w��.�c ..i � ^^r��`C�•V''3 � �c:�''4d'`o�� i r j r�' f� e:� ��t3�;°,�� .: e'� fi',' ,�''��'V'�:�;�, �:i s;`:� €9 i i�f�s'P��i€��iF �,i E;'i��f9�e'�ii�"�" � �� `��"8�? a a?, �� ; .0 . �'!�,'�;`°�C, :�' a �S� €�'d€� J 5 a`'�ti ��"e �:!'?a� y d C'%c�'i a'�� 3' ��2� � < F `� �A�5. � y�+' d�R�*"%3 a i �>a.i 4 E �~� 0 l�9�. !�6i i.s f;i i� ��..i' $ �j�>f 1`J' �. - L . r� .S: `3 4, �g,�+ C� :'S�. ae, ...��Su�.. * i.4 tl +�..�� z`L�_I�`�� Si F�3 F..�W J�' �Zi �� 4�J�'� �'e�A �A€�F:� v 1 i�� :�.�"' ; C) �f�� `; a„ ` � � ,1 � .� �� ' �� .� n3'�� €�6 � 1)�:.fiy'��'�d3� °t�w� v i,� Ed t�6"�� '��9 i y.,;��'�8�,'s"�:i;7�. `��'�� C.€,�:. � �:,;P:�e�a'` `� X i � �s�w `�� '�P",F s `�'t7 �'� � � 2_2 p�t�s�?t��-� �� a�: �'� sa��:•�`.�;�� m E � �� :f�:��, �� :�f -�€,; :�� ' -;� � ,�. � � . �� c� . � � .��a�.y � E. �,�� '�� `,� �j �i�� $'i£?E:�", ��`ll� `e'o�s '�� `'t;r 3£t e:i�:�;° �'� ��SD��°'�':�r:'�i e�E.� f �' �+� � �� `��i� t�€6 t �� `� �€�s� �°�a��° �3� �.F� ° .<° � � � ��c� ��J��t� �� h� s � � �� .,a �3�i�;F�'oaA � ! � ia i � � � � � � � i t ' �� # � � s z � .�a�t3�° s�'i s'�' *i ��3� ; s'�:' `��.)�� "�r'i",�?� �,?�" t� ��' s�� " � �� ! �' �d f l�uo4wa��1��'� Q�i [ .st� �,a ,�.�` � '��' ��'c�C� �j�F� �94��aS`��''£S �'�€.3 �t�E� �'�i��0.% � ��3i��.��a f�a� Fi9;� � �.eF�, �, � � �J j y F � ." � d �$i4'�j�3"��t�c�� `�, � z � �' r iF`;�% a �c"�s� 8 !:�1 �° '3'• �;Y� C�'�67 f� ��3 a��,.`"- ��;z ,?'� � �a'�C� S J ��w�7e'r° Fi'6��'� �;it� `a #ii�:h'#�A l�i�' .�.?i.�e '? � 8 :i �iG� � �.:`:i ,�'.`2�,�� ks:i �. S 6 � L3§"4 t��:"S"�a�62=1 � �, d 'f�d":i ��E-v �, $ ;� � -�,F.��:� c si`.. ��'a S ,;, � 1 � � �E: `; �� s°� '�' "` v�,�.�.a .s� � a i � � �;, : �� t� ,.. • � `� �'� ��'c��''r3�i'' � r.: ��' J :`,�, 3�y r,6>'? �`�� u7�:.' 'Di�'�� '��1� [i.": fays , � ` �.- S t.3 ; � '�'��' iJ��S 0 �'u� �� 6�€.�i�+'�� C'::is�.t �'��i�Ei ` r^3. � r`r6�g 3 �„ �i . . � i>'.iSQ`� y��.+ �1 �k��*.E $'�n4.�0., i�-� �� '�� .�ti�� ;;$' �#; ;a>='a��g gZ �..� Ir` t �a r� � 4 �� ,� d , r��y �r, � 6n�L.. ,°:v � ;�� .:�Tr C: �v c��1 t�.. �u i s��i'�°'kL��t�: � �.Q # '�.t3 �"�'��6.� is :,�:««i'.`�"�d��: e � u'�t.`.em ti $S .. ��. :+f" N,5i1;� � � �3"�W}. r�3 ��"<'�tiE# �� +�::�:��.'�.'a,� `�''� F � t.. sB� � �� ..��Y4i3iliT'96L;'Y� v'Y�'�1�7 �35��'��}�: �.9yA�97? Es� A� a •S .�' `t; �. � ,4"I;, .. M. �} � d � t° � Go,� F� w 8,�'z.. E'�` o is ift5t'�ij °�tl.. . e �t aag �F ,,r g d.� �'3�. i'L�J�a�'�:�E� f 2i��y �< Y>� �a ' `�' �. Y �t"c; 5�:i!J�''i` €:�;� 'd.d7�5� f :��`'v e"�.3�� 9 a;�s a '� � ,� >, �j Ev s �? { .L� ` y�1�� ',1:E;�d�` � ^r., r �: �� o�„�:�;�:'�:;1�;P'a m 6 i�?9' �'i,,,t�t� �i?� fo'rt j3 r i i°�lS�3� �,�a � 0 `�.� ��. C�6e�V� �3`::�� .�.�� i..�.� ��'°A �� 5:.. 1cR.C�2�� :ti�we�.t�r �� are�':,' �wk��'a��a"� 7� � ' 3 �.� 4'�dD�' 6"t+�� v<."-.S� �� »i'2�,t��r:;� v � JI� ou C� S'"�'t�E?i:s.�� ;r$�«'9 F�..°�,�3:; ��F �`�.7�" y� ^si�. d�'£�dti� � �.� gc��°�;�1 �;�� f�� ;�°�r�p°��.i �€+�� a. �n � > �. � ��d#�,�� i 3�N�'E� 9 t:;� �a � �.� tdt'3 c'�� e��-?5�'l,��„ � ae',l�fi�? '��°°,1 � a �r� ¢�1 �a .� e �:s`� � c.. €J. ��'1�l`°; �3�� , � B �°'� � '�f� �io�� E�ra ��c�� r� ��<�� t�� ;�� crt�}�� r 2� ��k��°��;aa d�� r�� ;�� 5'.�� r�� sig� �.�d ��, � G�6� ii� 6��f f�i ld�Y � 3 ��S:S i y7�a3��Si Y �Hi� E�i 1 � Y 17 b�� Y rr F'i�wT �� tl�� " �3 p�37�d �*�f��° ��r�� t�� l � ��: y�� b�d�y �� l�o �'T � .`.�v.�. �i3�i�"� a�ZL'e� �''3:�'ok�E �v �`'a� 6 ��6f��is+a �.� F.�� v�� g 6�:.7 � �36"� €.3i t�vt� �.� �?}"u�.�'.�t��w , 1�iE'im�i��'A' i��'��"J��fs�P �i�'itf�B'§�1�Rr��+�9 ba�� ! � 6� � . I ! � 2 � ,�°+�� !�' `tk��4a�+ � CZ P ��c�t+�- ��9�k�'" °��'a ��6; . , � � �J�i`+�.A � t'.a�.�2 � �."4'� 'J @� 9 9r��u.. .£F1 f."r•� � �4 Ci:r.''C;� r'� '�!p��"p �"�.6�Ti � i � - � ii��1 t�� 3��t��i fiA k� �`�� :��?�� Ss�:"f �� :, ��,�� 3��; ,3��i��9 ��y��'��t�� =.�_:. � �{d 4�1` �Y�S�'�}+:A� C i:+CSL'�� .�ACrCiS� �;,�u;3�+ ER�'be�3 ;j w'��l' VSf L`� CE6CCt� �'y dw��BJ �Ni�p�� i S��C�� '� �'�� i��t�'1�'� t+�� i€a��,;+�'��%�F.# S'.�$ �`i�6:o�� E�i:s'3 ,f•;,'� � � � �. ,�G,� . �',S;t'� ; �� !ii�i `�:r ifE�°`�`, ��;��c�x�. �s.�'j�' r;;;�l.9.F" �3�!��„a � U� bi7�.. RoO �� k�l�i� �g P��3�VH, i5i �:i�3�' 's` S{ 3 c gt' S� �:j"+t !° �3`4`��'i�,1��. i ... � �J � �� 4� . �.r� ,{ � 6��'� �� ?��c��Li �� ii J Yn`a;�,�F, 'S� `�v.a �.'�7' �'Oa �Ay lrti+wSx��.., �JSk;��i6:;��.T ` � e ' y i ��adgc��v �� a��E3��aq �r �d�� s�:a��aa��: E,��.�f�e�� ;��; ��'�roe�� 3Q �� r€�s � � ��• ��w rmi;�l�"{. ��'7�i� �k�lia �:'��t'�� CJi+� E�o i�� iJ,�' d*e'e �`� _ �5��G�F � C.��1 "�.' �� .��S u.1 3�'':`. �[4 � V y� � 4 pp . . �. k. '� 4 ti � �� {� i i i 4 ��4„ i . �� f I� Pu .�'L e.1 hiw ��; .�� :°��;��3y�� ,�,� :��v�� a:s��:� � �4 E��'�.�a a•�,�p��> ��3 {':4R�_� ��:�a�r�� w�a�;� � �� ° y � �5 „ ( r��l �y za �:�ia°iy �� i�� 9 d�;��§� ��s:� e� �� g� ��n��f; �� ;�� k��.� ��?=s�� ;��. �a�� :i��;� -►"-�� a � 1� - �i�31"11/1� �iC�?'� fs.S'3� S'c�t,�� '��" ��;� b°'"c:�ka��: �`Q ��r :��' � i��;��,?t��s�� .�8 � �6�@A.�J �.`s �;�`� ��f��E��f�" �zcp�S�i�, �C��`�w��;�i*► �ti�at �3 1� � �rou�i��t �r; �:,� i��s�� a• ��t�2,a e �� ;� � �� a�,� � �� r�str��i�re �Y�� b� �� ; �� r;� ? c:��►��i t� �� 1 _ �� h5gh�� i�ts�e G� us� ��°1E►g i�� y��;°, r:�� GC�m�. f b,� 9 �� 10� Cn W�..'�i�i��3e��,'�� i" k F � �i e!''L!�b�� y {�P , ��`�}��ii�t� 9� . �� g�d c��h�rv ��c��a a� �� rr�'��_� ��at�y;��ra�� t� �� 6� a�r�� t�i� ftsa� S;S�a�� c��^�:y�� °�� bia��g�� 25 dt��i�g ��6�.�:� ��°��d� �'' �h� y�;�� •��e� �as� ��3vh� �� F� � �� $ �� 3 �� i � � � i s��,v°��' 6��'�� r i � � S � - :?:� �z t t '�3�t •�', 6 W �� n a 4� ` �'u� �aat�a_„ t�' �� ...>. Bf�;:;3ve,�� ;� Ri:':�� x h>�3 : � G. � � 9 � �4.+ l,��:�e� C9L �1 ��; �ESvI� �7 �j.•'�F 1{4 "'va�.. (H fi�Q }n�. �} � � U� F� Y4: A .�.w1,p 8fa .+N � � � X Pt'�C Lv '«�y' CA d , . .v+C J c1� 'l9.S�G:E9 j { B v b� v! � , S �L P Y �Vet 9 `�+ { � �,�'`r r. �F:, e�L�[i u�� u.�u�� ea�.a d�y:?�B!:?� R 'v.a., �Y� .�:�>1 f�D.3' '�.��,':t'�€w�L'r �.�:�� ts�Y\: `�'`v.�r L�'.'` a £ � i� ��`G� f4�i�' ��iPiQ��'�'� ,.�;9�a'''�� Y �.�F`.. �:s''1�� _ {i�xx� �t�!a a °ag G:w,�:d3<. 4� �'�a��; � � � ��-'� �� 9 �� 6'e �i<»�.��:`,:4�� :�� e��a;,+�� #3 ;;' �S� ��s � '�:��t ti , � b.: m � �.�:;Y. ��a'�.. � � .� ".'�ri1�8��,�� v r��s� � t F>�'' � t �:+t�:i�c, 6 �.:,�� r"' Y�'?�"v� ��t �+b•+},, f- e:c-. 7.. , � � � t»Y 1 1„ �l _ 4! i .S.s �-7 a.vi o;' � �S o �� `�� i� id�`.�:<.b C;F>i t s� _4 �3�:i.:.. �3 i'�t'g �' ' C'�Y fi ir �F,� � ' � �� ' � '6: dQ,.�� L d7;� �t ac" �t�+. � ii� � Cfl��^�n ks'� i'i3 i l y:�S: �3ia�i�.a if':k 7� �a `w'� �L�`Y t��. � 0�S 5�.:v. �.a a�•`O•�� RD� F�`��t�.� �2w Y i-� � ! � .� .�1 ��Et;'i��'+ ��9 � �':i�:3'��:�e' �:'��; � �:?"� �.,�e �,3�"k�:�.�:a�„ s y�° w:�_ `i<,ita rf��;'�''� s - F.� b�,i�� 4°,�E9� d�Pa�f's' �a�'.-�.,��..�4g « En� �'�,y�.�: `�'�c+s4.,?4+,�a.,.'?'��'_ �'a'i6 +k.�4 �ic��i ti:�}iW`4,{e;43�vo�l �� Y �■ � �w^� 'v 4 t C�67 a�'tra� t�..� I 6!3 i �C�7 t e� �Jn��$::.�� J �g .iL�o� 4�kF� e � e 9 S ��5 n N.�-�0��y e p y �:� �� s`�:;' �$�.zi �; �;y ;."e v,lf�. �'�s"W''��Fi(�� F'`�?�.�: g<s ��+�'fi„� i �� 3��,� `�;� w�3e�a��;� �<,� �;t:�:� ��.:��:, �Ji> .� �'�'�'�s d��' ��"E��: �3�?c��? ��tw� � y i � 3�`4�.�. f!� � i'�";aP�� '�re cs�':��i i''c�.w��,,�s�'�;��'{ �`t�� i��ao ��d« �v'�c.��± i E1�' 1,;�C''_��.L.N�2�'' � .i.�`.3 !f ��ea a�:�a £i�r�A:'d 4 �E a y s g � ��i�`c��.� �"M$�.�v i��:��! �<y'`�: � �$'��'%� � 3 G� 4 �� +��x.+`��Vo�ba�-'�'.'ib � p A :�.i� � 2"�'a ��m�l�; �v��sat� �43W�' , «�¢i `�:3�'�: "�F?`�. ��'»��aS��'8v'«� t�� ?.�f.��';:a �i3 �P3��3 ��'��t;� "�� 'st��Ae �F�ti:k'i�� ? 5`: �'i � �;4:fr:�;��'��;?�� '�ti�i�:� �:�� D��C vd b�(! � .E.� Fo bdii,.�Y3 6�tiv�lsiW� t�>E�i�� "i��-� ��P��Y b8E!�lYe" v �O�G Q?ie�9ayt-' �J�''3��e !t'1 � {�,l6� "��+� �N$� :,°'��6:�� '� �' � G°��St�:'ti��F1'�9 ��. �� r�pa��: �::s�° �s� ��°�E°�� b� a°��.� �� aa�� s �� t� Gi �F;�i� 7�b� �'�a 4�Y�ri � � �ir.°°�£"� �"��-�i S�lYO.`�'+��E/ c ' �?� ��a�� 9 �� .� ��d ��,� ��r. 2� �2c�s�€�.��€� �� a�� o��ti�r� �� t�s� �� °�� a 2� �:�p��t� i � �Fh�� t��t°��€, ��: �� .�� °�� aE�}��i��e. 3 � �1 �� {Sf I � �� . E �i� ��.t'��s��5 �k� h`�� +�;�-r°3bit 1��3� �e��tC�p� ¢�� C� ��s�5 �of �. �j ��s�c,:�� , �� €�� f�� e�� a�s� <�s a� �lem�nt �f _ i � � �€�� r" p��;wie�;�y ��ca� ��er9J� 9 ��d �h� graw� rag - �; ! r��i�� ti��ad �;��, �:��e�°.�'�. �� ° I� . �w��rpg �� f'�c� �, +� .��i�s�i3e�� °s�s&aS ��i�,..�� ia3C� '�a'�P $�� '8S�t3ii��k"S WhQ t15� � � �� c��t:?r°;;c� �t� ��'{��:� �'�s � ��r'fi t�f �t�t� C��t �ha� 1S d, f ;� �°�� <�i �:� � �. ; ,� � f� � p:��:� ��..�� a� � � �� Qt� b� � ,f � t! � a��3�u; :�r;��t�s��ta '��'S �!�'r';.' �`'�L� G�� .� T �� 01;l�� ,1 t -- ��? j ��::��.��:�� p� �� ;�� =.s�-��i� b�� 3�y ��s �a�31 �a��arm�d , �I �.�. �� a��L€'�, i��ta ;�?��►•,.�,� � t • �'`�•�� i��1.i d ��i,:�� Sa�fiY e� �� r� �.��5 IY��"�� : � � � � 1� ; �,;� �;�� ;��s�� ;�F� ��;�,�p ��;�y �� son ti�� 1 ` �� i ��s�:i�'��'::� r'��"�f� tJ.,s{��-�• �`2�`� b� S��D,�,'.��'�.;� $Y� . b �'f�:A� � 4Qf US ' �� ?� �� '�� €�� .^��<b��;��;�� np��3�� h� r�t�s �etd �r�� ?,;,� ; �r.� ��a� �t��°�� :,7� �,�� a��°�� a� �h� ��ns��ea^a �nd � �`s�' �� e3�� =�s.��,° ¢._h�,�� :� �� s�� r� �h�s �� if ,, j.::; �d '�� ` S g'"�:'�S�� ,;� u;��t�' �,a�� 3�l '�':"'��t� �ff'E t� �1��; (�'�S�?�S�'t� 0'� :i i�^ �� f:' �:`s's ; ��i�` �!,� , �?`r t° '�S`9'1,� ��'�Qi+�;s€C°.� 1 5 ��i�R2 �$`i . -. f� ��_. ; f� �� 1 �� j �� ;� �, �� '� � �� ;� � � � � i� �'` �'F ,J `{ �.�� 4 tF f ;� k 3 � C i ��-� � 1� ; t� !f j� S � � !� i f` i� __ -� 4;,-e .y: y " .t^ {� _<•.��......_i.'_.�li ._. . .., r.,,. .. ��.. � � _ �.. _ . ... ., .... _.. j , �` � i n I�q e . �; , _. .. _ _ .ix.... .,... .. . .. < . ..,. -. ,� i �:°�.:i.i tt �l.�l� �_:..i.S. !.�_ � ,._� i..�'.. ... � _ ... _._. . ., . s:� t �� C '+ • 1,:.^��; � s ��.C: �_ 1 ;�:e�i.,y`. ._ s ii<".�:ST € _ � i ��ia;.,.�.", _+J_ .�lLi-., y �,; l� ?t�.-�_ .; '.-: _ . _. . ... .,... .u_, s 4 ` i , � - �� }�. ..._.EY��.Y .. ��t�v ,. _. _ v. _ . _�� .._ , "'�-'` C_��' ; ,:� � ��,i;�� _ _. . _ ,. . ,, :.!�. _ 3 � �� _ _ . _. ,.. .�.. .r. � ..� i. ,, , �r�>.c..,_, Y :} _�. _"C, ' '`�t 't, „�,',* �i.�,.�4.:.��.�d..S.i�ii ...1:; _�?�.._ _. . ,.. _ .. . . , ..` {3':- �a� y C....,......� �...7'`' ,.t:.,'� .i:k': _. ._ `�.'S.�.r` _... .5.1- ✓ �.�.'�,. 'li,`�[ a' , �...'� l'i�'� i., -_. __ ., . � .. � . ?jt � �y Y�i?'�" g`x ��.t.: ��i, !4�r :,; a:.�>_ ...... �-i... � ._, �R. .._ 4 tf'E- � i. S f� ta�?'� t l. � <i� -... (.. ... . ._ 1 �... . - , - [ Ca � eC��r.�,.. ��i `�� ^.il il` s £ .,..1': ...� . :.J i -- . r i .v.:`.�;_r. .i7t:;; '. �'.�!.(...'_:.(,� ,'.�:L=:�'! t��_,'ci � O � ! �:�.t i .1 t i_ . : �1 q 73 ��± �ja4:� � ��..ty�;l'..�...�.at, t ..�7 � 5: ... .., �- ._ ' . � l — ._� ;..i 4_��.��c' .�.�-..F "� � �.. .. � . ��- f s : . ..,.- : <� .. � � � . .. .. � . . � .. � � _ ' .._t..... - `___ ,._ � . , _ �{ '� 1 -� 1 '+ia' �'i:. C3 ti � Z'�.._.. - i.�.._. w�; _ _ .___. . '1 „ . -,.. � _ ' ' �c-. � , :ti.... i� _...- -- ° -- _ .. c. � � {l+ f ,��"��i? }.');7 � :.�: �j E�'t;I�'t _;;��:,-a <�i �:;'� �t... ... �. ..._...., _ . _ _.. r-: ,,. .. _ _ � � .s r„ lf . � •a N L ..._t. � ... .. ti _ ��.:.: ._.._';��.:..s�=. ,.r s. .�lit ._.i� .,s'.'a�..., F _. w i� ��'�. .?..1.l1ti.,�._ i ..1. - - 10 �_€� �j -` ��1� �..fl�.? +..,y. �. . .��ik . Li 1„ t x$�. ....._ � � �� i::S:�_"�,,.{'.. ,. t � � "' ��i- , ` i:il_ :. ?"� f:,i.f�.c � ��l' � :� � �t J:It.'-� ',�..�_k_-�._°�-._ ., i,L.:�..� . .. _ ._ . i .,.- �� d �!�'� 1 i � i , �:;F1..5.� i3. ± �� 1:�I.. '�L�A 1,U �I H`i;iCp�r :l.w y{: .,t�.., c.._ . ..._ �. . _, . .. . _,.. ... . � ,�"'T I �t '' .. ...._ -, o' ...� i)-��.f.L. C. .,`.:,�?.r.+..�L.!v _ . .;� C',.°i°` �C�_, '�.��.' i.xi��1:�4�" ' / .V�:�� U.i�'al.!. �.:i� =) 5., � % t� g, (> '�,,',' r.i�i'M�Y '+;ir ( �� ..A;�_" �5�' ,:.�3 �� i��A..�.��.t� ...Ai.�', u}.k....:Tt:,��,..�.� .._N....�{.3�:...)� �,�.:�o� .��E, �1 �....: " 1 i � 1', `- -' � "� .,i�� .?l..i�.EJ�.)t�W :s � !��..�.�� t �.'�,�i 1 �i`l��t°� _�w :i`.. S!?i�.�:» ..,_ � .N. .�_ .. .:. . ( 1 µ , `:�`t ay�'�:l'i. r!7�? :�:l.I1c1�. � ,C� � 1�a.'u':i`�A:�� .'rw i'..�t :L ��ta.��l� . >> �.�. . l � .... � f� -� � � .�. S. . '_ ... . � ��°-�--.Yic`>xli.., r-'"'9.''.�iC�S��'.`c�(� �i °"n..3.� �' l�.'u�E�:i Ilt "�c .:J.,i '. [:Y 1 �` fr� C. .�4 �a ,_l fl �� i� i..��l'�.° t9 �;�' r.�" _�P�..._�_ r1.,.F*'t !'F C:'�,f_.i.sg�� '!1? X:��t".'�1 i�i.�..s.1�^.7 :,,ti1C� �.�y � �� i '-'� �'� - �'` " r+} "'y??.t: 't:=Y:��::?C':i�j r,s.c?T:�'.?'ll#��i' x,� .+1v.3.�_ 1 - ,,?�j �, ;�TM ':�.°s,l�. ,.:1�.�'.��i' '� .. „ . ? �t � e�, .6 <, i "•-, ..;:i" ,�t.:'i: '�„�3 L'i;7;rJ�%.�: t+w��:.�.�'a.��.(�d7 e .�n x.g_.._.3 _c<':. � c.l. �� _�, �j �:±,�� .. - �� 1 - n •f,�.'��. "�':w C:a��'cr':'..��:+... L..3_:�'�:z:` `3' ;:>:tt... c,:. _,.'!..`� �'1:Le��i. x >'F:.�.:s § �i '� � � ;' � � ; i� i: �: , i' i �; ,, .:�; i �, .. ..- :� ^i �� i �; � �� ; ;, r: F+ d �' Y �. f� , , ,_ :; . _.- .,...;. ,... .. �,�.. 1'�..c. . �. , i `.c�.i. `� _.. �``. � `'i_ ;�'�,tt_:;� _s�. � �� s �,� j � t� sr �,SP�.� � '�., � � �C_�� l..?_F.,� ��°?......� .t ._ ..,� ....., t. : :y..a�_ ..`.1 .._, - 7 1..�, . ..._,... . .. ,..... i ii � � �li1�G? N '� 9 R 3�,i. .. .�... ..�:....i,.. .. ...... � .... Ei...r�� %1..�.�.�. l..r.� .,.i e.,.. ... �'• A �. v♦ .h.r...�....�... .,.. C. ..i ... .. .. �.- � . j! . t . . � ;. . L ...1� � '� . -..... � ....� ��. a..< � i C=5 �.l.� '`# I i ...L) .�..�J`...�.... ,. ......�.. c,W..� . ,. ., . ._, . _ .. � �7� � - ; ,�y"f' �i d': . .. _.°i. ... ......._,. _... . �_.._. .�J,� "l.�.-. _� .i ..::3, ..... � t.� i ,'• �t}} 3, C W . ._ ,__.. tl:.�. -�f` 't- � � j^.. i1 '��r., �_.lF...- t.,.....�,� ..J.-�. ., . t .,..-.,« ....o.. �_ . . ..., _ . . .. .. • " j` � �� 1, � �� ,,�� ,. t '�i�� _.. :,�� _ ^i s. .... ,� ii iYi t�,..v..�.. ,�i - -f. .� _ i -_:t.. . .. .�...,..:i.a. <_. _ .. .. :i —� v ^ `s ' {i 6 �.� y u tta ? t� ' ' i� F_. �i:.i.! .?" .'_ . ..<:�_. �'�.. ..,,.. _.,.:?.'- _ ,.. � ... . , e .,... i t,� � i s 1 _. .�:a .. i. . . . _...., ..., ._ .. i �� e CJ4 ��( =r- .�l d,�.,.-..: � �ti_::,_��_�?y € a ,�-.:�y P �M. _..�. ..;�ii... :s_ . ._. _ _. . "" �� -�3..,�9.��I,.�. .�._ ��. s .. �� .�-�l' �� T.� . �•.'l:, 1��.�_L ��7�j! „ 3 �.' ..-. 6..�� .:..i:.: ._'._'Y . . ._.t .- I ,�.., � � �: 'd l 4: �i . : -., � 0 2�.�t.. '.....�._ .. (.:�. ` e. � � ` � � '�.. _ �.,� � �_ _ .�_ .. . �___ �.. � �..w_ _ ..._. �t ri�':;� �_..__�_`� ,.�� ..._ �;�. .�. � ..�_ _ -� � �z` �I: I��T, .., a.., 1...._ �`� �..._ � . ... ....,�:__': ,.le..G<.�1.Y... _l, .r.�_ � ._ � a . .'.?... �l''�,—�C__.. s ..�iLr' .�..;.� �.` �5.. a ,,. �� , (j . - �, .., .�� a =� � � -__.._it?�. ..L , e _ ,_ � -� y.. � ; :.eS �� ?;i� .,:a�!� ..,C��_ � t� _ t ... .��., .>e�� _ ...��.i��S _ __. . � _ . �! � c-' r�,c', ,-r ,a .i�c �.�_ � ',Y �� ...��.. .p...�i'.' ,i�t:J ... �.3... '.�� .._ P.�........ ..... _ � . .. �.. ' 1 . . y i .f _ �� _ �. .� ` �F.�.,� _....,:� 5_....,._.?1:. �i',f� �.._? ._.[��ci� i jm- �_... �� , s.,, .i'._.i_ S . � t �..t:. C. s.�. '� ��i w 'i .�. . � - , < ..��.._. a:..� ._m �_r.._.,e. ,.,� C:�3�e��,.,..7,� g i �- . ,�,r- , ..: _x... r� .,. , r �i j ,, � �, � !.t ;; �� Tc.= r�, �� i� �. .s ! , y ,� - i <,>c, t..a W. � ��F � a 1 �`� %]. .� „ti_t ;A�....,�zt' ��y .f,'.W�}�. . � u, _} ,�.t ! ' . _ � . .. �. � — � �i 1 �{ ,:;'`v 3C.';v��s �. "`�' k��E��. .�_. _. .1..`_'9 r-....�e f' _�..:�i ._ _' i :.1�2_��i�.�' ��'�t.'"`.�L.._'.`-`' � ,� 4� �_ ,.: „-+� �rc�$: C�'� � �;��: �.�,� 1! ._c`. � _�..' � �'Al�, �..'L3L:_�'.._,.... _, :ti'.._.v __.. =i:�. ..,.. . .. � t;. : ;.� E' " ,,"�I _ .. _ . _. - A ; _{"? _..,-s.�2�.A. U. ... . �i W�. .� F �� S:��.l.L�-�"� 1 L'1"fy �r'{1 1' + .� �.. ...... ....... .. .. .. . .. .. ..... . i �. L.... ,.._.. ' '� S S� r 1 ' . :. T. �, " • y�� =� , {;��. _e.. e %?t�€�r.�.,,�,� ��r.r� tz'�.S..L�-c� r ,�7.. '� I..l.��...'i...L M�� .I.' .�1 Li�� \'e'_!�.J ., . . . . ., . ^ ��°,�'3 i.� '�7.. P4.! 'i"' Y`is..�.l;.. �?. �..L1:. � ..... . ?i�1�.: �n..;'f"?.d.a . ! .� �: � ,� { �a . _.. 6 „ _ . cT�� 1 3�t a, ` . � yY C...r�r' �� _. ,,. �o ��.1�i. L f'.��_'d �f.�t�'-� k,..I..... _... __..�.. _ «„s 1...�M _,..�... _, y� � ,..w.+ is �^ �� a -a,�=r* �;Y, f:t�',� c ji _. }� y ::3 a .. ��;CC:_.�: :a� �'; I� �wC�,'L'n;;l;,''i,_ :t:�al::5'.:{: 'S , � � . `' �i t y �. .. .. � � r'�; �' i i� "''L..;,,, i:;:�<�.. e... .3'.,. ::�.._:` :.f� '6..A�� ...�.:'�.. ..:.�) �l.`��.1'EJ� � ..,,..� �� .� �.�?:C.;...+ G.:t�3...L'�.y.:"' x�e ,. . �� 1 �{ � e � i � �� i . �� —� ;l _!., f e; �:: �; f :� ,� ; 'Y E. �5 �� i� I� .;� �� . ....i. ....�t.:.... . •...li .... ,.�e.. .. _ . . _... . ,..�_J.... ...5.'. ,�a ..e..�.�.,.S�.i 1�.�4...�.,:.;J i t� � �l <'l ,�;�a, -�..�;r� ; !; `" � ... ,, - "`' �Ii ' ;?':'C. _ _ .. . . .�E�� `__�,:�].1:;z�. _.4-. �°�:�,wI'� ; 4 ' . . : �f �� y�..E �`S :i j 1 � �^. . �� .,_ .. _ . .. .�� ......, . ...�...� '�r�... .,., �.. .......," .. .� .._..... _e ?_.. ..,� �4.. ��c,. 4� i �j ^ { .l � : r+ � ... I} _ ' . ' �.. ..., �. • f ,s ��,_ss_iF . �L 4 rl,_.��s__. �_. <_, .._... � ._ � . ..., __ .<. . ..��... l.f-..� ,.3.�.� .;'-a? /'`4�: _'. i; _. � ;'-, i;' ia.�.u_�> `` �c''....',1 _... . . .,_ ? �.:. � _..'.;_. .�. _ A`a.� �. � i �i 'c �,� �� M._ _,! C . � J. o . ... . t .. . y a .�:.: .'��, �� .. :__i, "'; _. ' _ .. � '� - , i-..... � �.." +.i F� _...,5. C�.t.: �!f il:,:^: i � �� >) a sE r. � � ��t.j...s_�..-• . �. � .. ;� ...� C�J... ... ..:1?.,,_. .. -�-- .�t''-. ..' .,_�L. , �� _ t:_.!� sG_..��.�'.:. p. _,.,_ .� i� �� f' �..:._4..� ��.lt�t _. ,,� _G�,., _ a�A��::� _ L,�. , ....��_ .t°,..�.. :`:.. . �:� .a.� _. . _ � •, �; �F� ;� �. �,-�s,.t..�_��., .... F_�:� _, ._ ...._.. .� _. s ._. .,�,. ,.._ r�.,.� f___.?., , ... �� ... 5 ;, �, ,� ,I , ,`s .,.� �, „ , .:. ` r . t _ t r_E,.__ . . s . ,.i..v' '' � '�s�.. ._` . .. ._ �_. .._,.._.___ ,_ � �'A�_� ! «..,� k � 1 1 .� .. _>i.� �......c3 � ._..�i _ � ? ..��.. t .. r" . _ �� ! �i � f• �"� .1 - ,_ , . , '; ; �,{ i=�t-'��:�_�€..;�. �_f�' c�.:,� .+_"s.::� t� �%_%� ¢ � 't i •� r ...v.: tI ,-. .,_,..�_ ;..�: .a ,:?=r._ -_ , ', -. , � i. � .._._. . _. �s::c, ..�U . ,,a..,�t _..r,.._.E._1 . 1 ,, ii — - '��4. �� (.`Js�)W,..;��1.?t��_..� c1=�i�p ^.... ..t�� .�. .,:.�__ .�..�� . .. �E.��:..?r.__ r 4�:�..ra..�.YP�..�.,�>L�' ,� ! iti + ^'`v. �1 v . e._ � �� ... ? �•T'i__..�. �.�.... _i�..'�..r�.. .... _ _. __.. .;',t ..x?.�."_, . .? .....'. _..._°� _i�._.<}.i.>�_?. ....__i1 .�_t; :ieSl�... � i! � 5.:.� �� y(�. .�r.::�a .. '_1!�.`_}e_. ...�_ _..._ ... �. ��-� ......4:_e. ..7.�... .4��, ��._.�n.. ��1.. $,F'.:�� .iyf.ryC.,_�.:?;:� �.'�i�YS� ! �j � r� { ' i' �`�' ��2t� ?.....__Y 's.4�i ..'c'i�s:..it:ti;� s ?Is? ":51.� ;?�3'.; e":_'i�f:t' c:�� `s"�:.'i:.!':��y:s j . _ , . 1� -�� .�., � I�._,. ._.. . ,._if _ ._� _ �f.. ,.�: ,=--:i1:'r.,:i' `s'i��?�J`a �.... �'%t3��;�12�:�� Cy''. �! t�-•`� �!- ..i_ ' .t 1.'�?f.4 .�� _.:('. " �:��-"4'' �-�.� ..��r�;':� �n5,�,�..� � �t •- -� ,... ` +'.S�''i;.:i.e ......�.t.�y .,.�...;'.. . i1. �.i; i .. L, � �i i �:.:s.rt' 1� i:ii��,s....,..L�� 4..":�.:; l.r.''._`- ...�.._�'R�._�V � -5��y' ��:s.3,.L.�� ss�,a�_�.�.Lj'li i= �t�?.!€��'.." t�a�.�t.�`�.-�'� i i, ' ' - A'.�.: i� i�.�J il�:, t.��.�.....�i e::i�,.s��.'��W� _�[.,31�..1_ ... , .s��.-`� _.:.__..:i� _.h� i3�.._ _��'�� '+,i: s— � !i . . . �i._.. , . .C.^..... ''"'-� �j ?�r-'f Emt..� !r"'.z.t5,: i.�._ .E._ _3�.t L:��=T......F�.=1 ..c.;:3..is��Si2.`.4�:�. ?��1 .3.G`" C!�_,::i"" � • �� L.L�.��.::,.°.Qii .LG.f� ,B, ^.r 3y . .�,'� e,, r . � .i � .. . � _ ..�. !,._._.. _ t . . .:;l.�'.� .. ..Jw. ....C`.�. .J,S� �S`�C�d�g��i'� i ��' � �''.�.-�:;6...��`1,;."( 9 i_"i t� .:�d ��_ �.5�.:.�� <;<�r.-��^ L.ns?- J �� .._ .. . , .. _.o w __._ ...._. �. _c..... a a �f � rr�..«".3 f ti;.i.E> . .m rs ,� � -e s_x_ . f t�:b r� � �' _ ._ . x_ ...�.,. . .�.�:._ _ a _z�c ��a� . �. �._��;�i,��3.� C 9 i � � � �� ai � 7{ �} 1�: �^3„ :1 `z 4� �q Y �� i ;( 1� :� .., }? �t . i.t�._.._._ !'crt�+�� m . ..�..' r•. y ._ __:C'.:�) . ,> 3'y�. _ !�cs"�1.i f�¢� ,e�.�:.3.%=3F?:i, ��1fTw.°s`d i ry �i >.. ?; .5..:� \- . .....f�.�^'. �.. �. _.f.'� 6.�,:.wn.C_,,.:�...� .1 i�F��1C+.C3G..t�w.?�G�. (..:�.1,. E. �C.i.�J' ''� .LJ _ i'��. ~t �� L.�._.. . ._ ..:::� .f,.l^';". ._ _.. _..... ... S ..W �.._i.s i�.:�.� -i 1-A .,`_'._.�;, '�1?�'' .f-�':i i.i.t�t: �t! � i , f' _ ��; � � - .� _ . +i' I `��:.C. .. �:+ :�r.t�i: �. i i'..: d ...��_'i,s,.lt..:?... '"!"�.;? �T;':��i..E.� �s:'c,�.':.'' t�'i:}_ ��C."' _ _, _,. ,..._ t! i _> j; �°:.. .:�3`��.o g �?} � _ .. -,r�. - � � -. _ . � i �-_ � - '�' a _��" .. t� e't; ,.e�z:�.:°.�.�'=Ea1 v"��"-��:�"r�.�.7_�,�.�3Y� __ ;. �. ;r ! ., ., � . � ,., r,�" �r . .�., �� .� t. � c..!c:1, ,ti�:> . , � .._ .1; . _, .�u ..� �� , _ �'i�� .f�'ci';:t�_� ��<�.t* 4�S�L:3'�C".�� . t. ' _ ., , -- . . . c •::;m � � J�. rl��:..��....., _ � A �.{ l f ' i? .� �s''a'{�..,., �i 4 �. .�!�d..s.,. I_a:..4.1.�7_!l k,R�ia.r`,r . .._. _... .. ;. �. � } . �, i ;, . � _.� li ,� 1 ... � ,,. . . i �- .�.A. -� t,�'.0 T� .._Y E�... } ..x� ; i � , � ....... ,...._..r_ " ,� � • . _.. .._ _�, _. � ._. ,a a:..?t`z4'a�?v' �':.�s. �:fa�S�' �..'.rl�.�,'�s �.. .; � j? e _ . . � � � , � _ , :, .. ,_. z ' _ , • �.s i ,a,8e ,�._:�'1. � �� ,_...c��._..C't�: �.'�_.€.�.. ._. . _.�� _. � .... _ .., f' - _ _ .� t_ F t,; ._.... t�'. .. .��>�. . ... ... c�$t c..;.. ._._ _a.:.?f.._d�... .. 't d�tr F")ti _��:.�°5!tA.. '� ^� � ' S. ' �l`S .�.� �� i ,. � �; k ,; „ ,. :. �, _ ,.. , , . I-. _.:.E �.>�.,. :: ,.�. �s,., '�il. .... 'c •_' r •J.� .t. �- :e.. . . ... :.z.� � ..a 3 . .. _ �..`..'k. ..._�(.. 3=�C�1...... a R, � _, . . ..:.r.1:._ .,.. ...�1"_ l.::'�l"[� o L�''ti.�..�?_'C.1� b:i G�1 �C3a°"`a�i. F 2 ,, t : i; . �. .<�.. r.; - . : : . .. �_ .... _ . ( � .,_ .,_.�,?...� .,. , u..r._.. ...._ �... . k::? � __:i �_d27C:°��'i?`"�:'�:.�.�.� E� ! '` � �' t . ... ,, t. % _ . . ..._. L ._� . ..... c:._ _.€.J_ 3f? „�LT:.G " J �SE�: � �:' •Grr�, c.',tiu�� E r �. F::E..� , _. { � -.. . ._ .. _ ., _ .L .w � ..._ .... ... A ..tt.�. , _., v .d c .�'rw�v tlr."".�...' �.3 . ��i�'wJ' ��.'.��`T �. � � � y:' t � ... _,,,t l ..., ^,, :" y 8.:�' ,� � --... ... . _ _�..__.. .�... ...� . ..i.. ._, _., 7�� ._.is....�7�,c! ., .35,."1 y ,:�;'L?:"J.6.° z � � ._...___ C,..,� '�- .. ` - - .' i _ r�.;':''r. .. ... t';_._,.!. .,i...i..-"T:� "�.�� ..cg� ��°"ia.rC'.�E�:.�V�t?n ._ . £ �., ;! �i .. .. . :�i .. .��3. . .i t� .....s. c.{.:�..S..c'_-�.'c:i �- 5:.-:`.1:_:� ��"L , E i' ?. .:?.:..�7�._ „ . .. ��.�: .... :.�.s � ,��....._..._..... ,. �J:'nG. .w:w... .�j� • 'i ,� `� �� .. - � � _ ... �� u� �3. i; .,. �.� C z_.�.:.-' '� ..,� ,�S„"Y „.. !,i.�...._.,o �.��..f�_.._...� .1:. b':-,�t.i�. ��i�S,.:�.w'�:�.. ��?GI� � , i;' } "' . -: ',. � - - _ ,�r._.�_.�. : : ;:; , :: :: ....._ ,_ .. .. ,ir�?�"F��A3�- , --� ;,a._31 � -� �� •a ; � e y� - �.w..J" �� P! ♦ ._,i 3 , ' F .. y . �.4e t�} g..• �}- ,. ., .. <.. . ....� _ - . _.,., _f._. �... :t .._.._ +.�3 !'�....._�......,. ��lr.i'lrCALt4`'�i'.2�w�.D ;; F �3 _. .� _ ,' . .,_ ..._ � a , ".'-�_ "'�e;"�:.f, ,..'r... .:�_ � a...�' .::� we_:id i:?�s� `a�'i53�>_ ��V � �i � i� � s; i `� $ ;; si ; 5 t $1 t ?± � ,f :� . . ��y.;M �� ( �j _� {S �s f� � �`°.t�, t r� s. ;;: �. , !,. �. _ A;'.i, . ,.i\; �E.'....€.. +el". �;�i � .. : ...�.i '4.a� �_. :J ..... . .. .. ._,.. . ..., . . .. ,. .- I� � :� .t. 1� • Y ,;,; . p �•: �. <F, t � . :- ' � . .... .�._ _ _ .., 1 . _�.._... :y '..! I...._. . �.�'. . � .:.[l_,.-.:.... . -1 _.. .. ; '•' `:J" )u.+ i �.� . _. '- , � I � . .Y.. 1 l l._�_ 0�_.)..,, �l� �.1C_ . .... .. .,.,... .. ._ . . ......... ..�.l . .. ., tn. �j'. _'1.. i r„ ` ., , ... ' ..,... -, �-�,. '; w i� .... �...._ . -. �i S �� ,raq�. � - t ., �„k...f�.�..`� ..:�.._, } r", 4� � '��: � , ._u� k- :E ; _ _ _. .,,�ti . .,_ .,. . ..,., . ... . _ . � � �4 C.,,,,a €i .�d'�,):"! '$C... h ES£ '...�L .,_.. '0 .,',.J ,'__ ...._.,.. �f i �� ;t a �R; w� ,J.». . ._.. �...,.t..� ... .�,�-...�� .�.��.e... a,:��r°. .� ' S �� ._m. > L.-� , _. ,__. ..... , l �� 'q � . � i � .... . ... . v... .�.. 1 .��.. .�.._. _... _. .. �'��'..��.� `J, � .. � '. . �.i.��..� �. � L�_ .� �;L �n.�S� �i �_. �� :ry _4�.; E JI �S . q +AP'w^1"5 'i .?.•�G:��, ��.i,.�+ u{`..._.E...... t..�..�?.A .. ., . ,r, ....� .. . _ ..._,..<......,.. .._ ., .x , � � `� ^�ja 3. - -I.._� `...f _,.(, ,_.,-,. 1 � �,'1�i3.C.:;%a ,>�i' it.. �3: ,� �.. .. ... � . .�; ._ _ _ ...�,... .x . � t .3 � , . 3 � ,, . ; �. �( '•"°,^s'�r,'�'s .i�'Fft 5�.,. ��:�t.:: <,.�_�.1.�::_._.,. ,.... ....� � ._. _ ,., at.�..C.<.�... ..... y..:.. .,. _.._ . .__ .. -.+ 3 ,�L t:....v._ � . y. �g fa ��'C;`° ' ._,. ... .(. .�.., �.,,.. ....... .?._ ._ J,.._��.'_ . ._ _�.. _._.',,... ... �(�.,''ti" Sq - �� +.,y ,se' F �� f� ti`� .�,._C� . ..,��......:�= t:°ti.+,..I e,_» +.,_.�_ ._ . _��ir}...<<. _ .. l'. �!' �. _..E�.��. .,2.. <,�l.i �L�.�i��.�''.' 1 J „ f� ^_ .- ° � � . . �� - � „ ' - i 1J't y ' -: � � ., .. � _ __._ .,. .,.. . . __ _ � '""1 t s�; p '�` � ..t:..... �� :.; t.. :.: t 1?:'.e.�, �c._`., � �. ... �. _ .. . .�1. >� ; _ r "1.;1-' �'' � ,t �.w.'S �` ..,l .. �-- � J y �-, � ;^t c�" Y ..`� ' Y �.. ; �I ;tt; �o.., .i� l?�'"_ ♦4's.'.�.:._ ...__, :n3;. ....,,.. ., ?.._.�.i ..�.._ ._ , . , d. , .t�.._ ...s- S fC �i . f � _, u � F, i. (ji,i:.�..x�..E�.:. +:.'?;1,._...__. � .,� � _ y�� 4 .?.,. _::..o._ ..,. . .__ . .� C.�.�E„�.:.i`?��s..:. _,)?''.r:.�'-.�.�.�e'i.`-� tRi�:'l.��". ( � I� J . ., i . .� . ,.M�F � i�t , .. .. ._,.Ay .. .1 ,..... _.� � 5 � r "d �lr __a.... ..... r!..L ��<. ,.. �` "-.x��...._.�.. �, ..... .. . _s.�... „ . . . �� ,....�r 21.__..?t..�:� i. ._._ _ _,. ._ _y a _. _. .. .... '." _.��:.`'' --�" ^.��s'i"i �-'-� ��`t� �JL'1�.`aa: ? ,, ; f.� �t 1 , , '4 i ; iE.`t �iS .r�:� h•^a3: !:JQ 9 i ':. ' � �.d... .�....� �_._.1._. :.�...E ...,..�._ _7_....y!..__.,..o . .r . ;, f ,.e."*�7�p � � l � Z ..�.sC.. �� . � �"._.. �i� . .3 � . - . .,,,. � t'<.i_ s ^.'" � ��t. '�.� . U__.. . _3 :aa>a;� 5°:...�-- �..,.r_ =��:. �.,.. �=��I`:s'�3, � c:��3 � . �p �� "5.��1C:1ii'��Y..��..�_ J'.5"+. �.�}C„�=! .....�.....ti I._�.... S a.J';�a �}�'�.S a '..-".,.tv,''(�.�-i�w'?.f: 3:�C.1.'.-L? : -- �� .-t • rr,r -s r . . . ��'L °1!�...1 s.J:......_.b.i`1 f';{'ai�:i � �� ` di�" 11�:�`.�5.7,�c=� C�,....� �_1�-t,. .._ .._..�.7.�. .. ._..,_._,. ` i il - �W r .. �s cs�'a;t,`_` � � � '�3�� :�.:�.sc'..'.L.f.b;��i. "f..C) � .;' _4' ��°Y° �.f)�?..�+...A'.'_?W_�:i 4.�1.�"_ �._ i�"�S:��i.. C;76. .� _. .0 „t..:. � C.+.�,� �� .... 1 , ' p � +'; s ' ?: `�� c. 1.��;,�..-_r'.��L.�.�:".= J�i ,�'a:aa _;s:?':?t'1' .f_ � ��r �` �`;::t':� .i?�,45 r��i''l."-f..i. ;13: i:.tl.r_ . . . .� ' t I S G:w�'3 --� '" ...... �' � � ., . ? ,.. z` .,._,�,... �E 1.L�"?:.� :�:�)`"'"e:.�� ;�.:s:..�,i:i."E..�'�. � � :s.L?1 E.'�.'..�.� t�,.C� f�. L� ��_"r +o- .._t.4 .�.:. . Y �E � �i 1 �i � i t i � ii �; � :; � � �.we� ' ?� a ii ;i ;I � ;I ;: j� z. ;� �,�._i.:7 _:i....;=� .,i�" : ��__,_ ��°::S;....^.�:., _:�1� :''�:�:i::�.C�Z'�j 1:1 �'`�o�c2't��. ,E E '` .i.;.2 ..�5�;_,t l'f�.'�.._.f�.i...,, ::,'t.?:i"i,�.��,. o I( ' f -y ;� r ," ' "'"r ''..�, s , ' �_ ^ ._.., r.;7 r � �.3 UC�. ��.! i t:: i�£��S'l:�+�C:3�;�r 'Lry C�..A� 'ta�u� 1.'�`a - '� .y�:t��t..�:.r' :�... ? ...._. r.��,a .�,;.�;�_ ..,.. �.:..s�:<<i"�: l:s�."d�"� l�� .�1:� m'Q3'2�.�:1.G�i°r,131C�r ii !; .. ;r _ '' '' t.,,l_±..� � . %� y.. .. � � �.tf _, „ .� .J_ ' 7 ' ��"' L+'.' c —�' : a_<�.._ .,._,._ � __c:...1:.L�E_.i_ _�.E.4::t.T':��.' �:�_s..� sr.�Y? '�.ai7..� k� - ;{ � .1�.a�=Lr _4°C_ :�.� :_.?-r?:� �_F'.?';i ._�3 .�_ itri'.,;- q 1-D..='.r��'. r�i'iCt �tCl;'.1.�. c��y�7�.1�11C:�.`3 0 i! - - !' �� T��'__�,�e� �-*"_'!:? L. �:L�gCi�C;�: �� Si:.b�:S.Cj.7.c7�'Ii �£y�UF?�u 1Y1 :! ":!� 9_ " .. ...`,,: . ,...._,.,. _� '"'_...:. __ , , � �11:a ; �t'.. ..t._r' r ? � i�;', � l,l.: •?E::�ic o` �'7':L°:�� (e`°i�PE t;c..�°i�L3��u � � �� `�'�l'_: s...�... � 4:�_t_F_'.. ..,.—_ ��+�:ki.„ ...1.......o .'..�E7 °��'. ='Ci.a�.., i�r��.i.i.�..�. .�� ..��:.�. � 'i � . ,j �, .i.�:..��.. ..t.; . v:..i .d._.. :'.r°s..'i.�. il�.�.'. ;'I i:��<t.%�E3�: 3��y l:v>'�_'r a �3�7 i.-�3G'� �r'.�.�� (2T1C� � t ' _ ;{ � � `- �i L, ,-";ca �.� �,s •1� e'._>. _ �� S - § f+ � Y':.,. �.._�,�. .. ?_ l�'�- 'i:ar:r° l..�°'u'C j;�^-�%:�3' Sn�_c',�'L`3s^.Y.`:.e i j� � i�n �t ; 1 � t. ...�.. i .. . ��, ,9� ¢� ,s. (..s t_y., �r i ..... _. , z�_.,, s..� �. ,. � .r�.Y� --�:�.�c•:_ z;_.� z,_��:_6.�.. L�+l' ��1 . �'L3L.�.c1'.ao i �; . � ., - : �:. ., � � ' Z � �a , .! i..�_... :�...s_{... ..�a..� ��- ;�.�.. .,. r.:a .; C?. z.�.:�� ...s. .. �.��.L �rf�`.:�C' � G C:.'�?.�i71. � 7.� ; �i t f _ j: .� :' ....t _... .v.. �. � i_... .._ . r�s t..4v., _.,:5 ±.3;=' ;t�F?�ti3l?�'i'!i�, ?R�IaL'' �'e��.�C� ti ,� 1�. � j �'... ti _�i� _.� ., z..1..a..E,'�.. ��. ,...x..,G✓�...�3(3 C3L.Gt_ N`��•L�SZ QLLl ��..�s`,.r{:.��.`SLt� Ytli'.Z.J ' ..t �' s. _.._.. 4 �.°�.�::�.°��._.P �;��._.. ��:� .r c��: r,�<:;- j,:" �:a��4 �j�:3.�.� 5�c�b�.� aY4t� � 1�1c'� S f ..' ? . ..,.. G `1_ , .,..�. . . �r. ,_ .�,..x�f".._._.''s:._ �. ._`F: �"i:=;:L�if :?�'�rca�3'3.+�C� '��3� �S�' � i = c `". � � `s � r. ,.> l i.�i� .,__ ?.. _, .. _._� � `....,�'� �'�::.c' I',`1 L'!''3.'c.L�`F2 i..C7 1.Ils-��cz��.ald.f'� i . . i' 1 .:4.:'�:__ .. i.'. "'. ...r .�.in....;� b .�v _k)L:;?.�t_.._.�:�,,3,?.��.':.'. ��: .Y'i3�i :LC�'.lj�,�° �6:. ( � � .. � s�.;_..�.. ,. ..,. ._. ,. ._f__.. � _ :;"!: 2`.:. "`.`�?�? C'rJ�,� :E..'� t.i"1C�? .�.��Q �.f'a y € ! � � . � �. , :.�J . .•� _..� . ..._ _ ::��:_.....W�F�y� ��c:a� 9..... �9`?�;-o � ..ZF...f.. .__. ;:��.�a a,�:i ��. �3t�a 7n��iJ,�.�. r,� �v c?lU.��3CSn 3 - _i1"7=` �d.� � j � ' � _, r :,� E r. �� _.f?.sr �.' �Y`�_L_3_ r.�s1'�l.t_`,Vl ?�'2c�.` �r'�,.3.SL21P.r'�<u" ' - .. •y `_ __ �... i_..c.._�1,� � i.).... .._. ..., � � i: � -• �`> _ ,�!.._�t::.,. . E.�x_�,.._ .,ai.W, _..1�s:!_�vai�..... �e�1�._ :�?.:� 4:I�s:a i��.7:"��i��:?_x��T �?_3.C:�' S3� � i` :i ji �g � �� 7 ' � ,a 4� � �� ,1 i " �j ; _a � . � �,a, y � �� .a'?n� c"�... ��'.� ��.a�:z , _.�:::" .��, ��- .l Y _ i _�� . _.._ i2 ' . ..r � , � � . .� . ,. ,:? . ..� , .. __ �. `'� �� .t.� � � ��_: _.,,. .�.,{�..a,..� . na `-� e� � - �a2:C.��_ .,��i`� _ �. .�?_._�i., � � _ _.. _ _ _.� . — � .� �� ' .-- _ _ i . ..s ,-,.�,,,.,�..._ � ;• -. , �. ., * 1 - � � .. ,_ •.�.:....�..a,.+: .. _ .� .v._� .�.,li y ;}. � ✓<�.O.J ta�.:�.:....L ' '�� -�.�,.. �.�i.V�� ... , . � � ` .... �_. i__.. ,...._4...� .. 1.� . :.'.t'. i i � `f'� � ',�t,..:2.. r '�; .' � _1�i�. .. -.�-� C r I..s'':- - t c�`;; .:'s..., .. ._,. �,r.�'�.�,o.�_'`..t.�'. ..._.s ,'.1<r``• k � � �,.�._ . . _. � - - _� Y-; p� . .., � __ _ . � i ` 2�.::�.�.;.� -;_?+_ ...;..� .,. ._�:!. .�f� ;. �.. �f;" � ,. t._ , � ..L _. ..,.`,e. .s` �.._ _. ...».. ? �..`�j 9 -� /. �'� p` . ... `, � � 41 ij t�,� 5..!..7..i, ?.�L.......:_:. � � f ''_. ��.:; y...�::; .�e'- ,..._...... ..:.4.,��..�,i..�' ..;� � ...i::4....._,-?s u f � � !� , � � � �� i3��,.�? z c..�'v L..`.... ..� .,.._�... _ _ .. ;��.ss�` .�_��§. �..zi": ,Law.> �:1.a r', � E�� 1,i.�cl.s.'.€� �.,rG..�... �_ _ ...'#.C�,... ,...._. ,:�� .ti.°';�.:'_�1.'� i....�?:��.,..c.,fA� i ��.=�a ?-..:.��.....v,.a,. �s.�..��c�'.'.YS+� j ,s� 1e 4... {f _ � .,.. . _... _..._ _. ? . . ... �- .�„ ,.,1 � r��.�`�_'.�.�...__r�a..l �.ea��r�n� ,, ea, z: _a� "`� '�4'� "3�` �Cel±��t:;�F. °�� -�"�� ' , EJ � j .�;a �` � � �` . . _ �. r_ �, .� ; _<. ;; � i r2.3.i: :t` .)�.F;� :t...t l,.�_t;�e, �=: a,_'. r i sr '��.�.:'sAE i�;:� .7„�__. i�.P..;. .a_k,�=�:. :,:iC;.t,+..:.,6::� d — � ; �; ..��~ ...��..w .�_a.:�..i. ...).��..}..,-..S.i .r .�.� ......... J s.�G.�.. .. .a. �� iJ��.+V�.�1� !� ...]`d _��i�..4`4.v��.{A1.4� A !r � �� '} ! � � � ,__ .; :f s. .�e.;' ��;C.'.�?.�:_C�.... '..�`f :`;a,. �. :.;f.. ±. .. �. . �"�`'_;s. ., .,__Yk ... s ; ._...'.;'G. 4 r ,, ; ,�, M� .. +� �f C'.f: \:f:',R�:ta�_�1�' ��c i.,.t�:,�a _ .,.L ._.4.,r_.�__, c...... . !.`c' .�.J.i�. u?ti.L_}�... .'",S.�r.��....6'.: .1'..an:��22�_tdt-.,-.'s ! «�. ,�...�.�„ .. s -' � ,1 � �.'�T }� ...7 w �, ��E.._��:.��.,...a�f.��' �3 i� c L �',t.:.! m.�:� . ..,. 9.,.S.4`..:�.. �i._ t?E:.:3.ti.�..,._'� w ..,,v S t+ ¢ i� � `.'.3 �i -,.�:....,.l."wi...��.......�. `_�}'' i:� .._..�C_'t, _..`...- t._.,�.. I � "`�'r_ i i '�� !� � ._.. :.<'; ..i !..�r_ ,�� C;�. ,.._:;st�� :=�' �'.+.�?.3`c'�' �.?3C'��.ra �,7 i )? i ., : ,� c t!s • .:. , - . f f� f:.Y7'�a,�C.E } ,'.��:..> .>.i�?. �.r..��. ��: °._...� .kW .:_ u�f,.��.�. ....�s.� ..._.i,.�.__J a:1.� r��.LC:;:�"' yCj � ��'' �� -��.t F`2 ?� .1� .." r� _l.�_:�.`�.�..t�.t:; . ..G'`",.,... ��.... . � �9.� .�r�J��'p °:J°�,�:� '"U'a.��C:.�s:'i:: �� . __ �� , _ . _, F 5`� �1 `h�...�.�„ �,,...3'�a'r ....2_?.i. ��:?.,c��4{qL� I e_Is� i I__f. e, ....�ilt.:x ...C'.��i� �� „ "i?'�:5._..`^»kE.C� 4 �� f' �- � t . , . .. ,: „ ., � , ' , _.' . +._. < � �.� ° � :..l., t9_'�.... :n-� ?Z :: z..�... :t..,; �'.:> t.L+F' �4_ ..� ..�.'a..4 n.._�c.:=C!'3+' E�:_�.. ? . i'f.i?� F y� _ , i ^ ; �E �# AA�t��.i.:.?`�' .-•;� �i:i� �.�:.� 1i344f�1., c.l::. .:;:I't U .��+�1;..:i_��1.1�, w:7.?ii� .9L�"2 r.�.97.�'�.�' � �� } '8�.��'" a.,` �. .� � , . ' ✓r t� •r ip z;^ �r+�� 3 r. '�^7 n �� ..�� ''�+'_, ._.1 ,..4.. _,.N :.}i. _%,. .;ep .i1.. 'i . � 's.._d+.'�zi?.....iv., �.k1.rLl.,::�'�.� .t��, i � F _ r�.�y ( .. � • z...w � C��.R��.:',`l�t.�t ..�..�.� -�t�`1�...�.:...."' a�.�' { ..i ..Yy. . i ,7K t^ t,y� p�,,t�n. 's � , _�'.:: .'t.} t�';.�J Cm )-a C�_.. '',.�.c�__ 1��T d �,-°:? �4 t;:Z"�„t...-�t'� ��$;,.. .,_:l�. 3, .... �'.,_. � __�., ...W.:��f �L�P��":<'�_� '��W"2 �'�-".�M�::;ad�°ti.��' ' �' �. .. 5•� .` .J ` t t � ' t'�;�9 �w ? l�;i '� °'e'��..._ �.i e,.;�. �.Y �. �"' �, F _..�}�.�a 1 Ii 3 �f �, i � ' t ff t 4i S : , i !�. `i ,' �� j d � �; a �' � k; F i i i ; ij ; n ' `S i� �� a�;.. ...drJ.. �..c�:2�+ "'1.'_ S _., :�EL'�'.°;.c�.'..�. .VCt.'ftra C3.� i.li�.'-` � �i 1 j� .� � �t ..c .-'.�' -,-�...i . . .., x . . c_• i j 1..�..�C,: '�=L1 l.?c;:r�2�...Y.�...!' 'L".:;c_w.�.1.. ' /. "-. � .:. .a.�_,-..c, �,. �. ___.�..a, �_,� ,e��F;: ��....�.��:�� .�?�.�.cs�% t��.:��ho � t £ ' =: ,� , � � ; , ` ..,• � �x`;�'J;�1..� t�s:i..�i� t:::L�.a .l ...+?ii(.i..L�.):2 �. ' .."�i �.-..., c�,•-a ^ . '3 ^�'4>:ar � � , �...fir .{,L, .3 �_1..�, 1,.... .Lit �V°.�.F� G?3 �.ti.��.`...:a � r ;i .' _ � . • �� j�` ?(� i;i?.;=_'. ...�_ .., f'yi'. :°1.4�..K �(.. � YaI�C� I�y ,_:L�Z "`i � t.� -,y t"�;l.�rttt f�,d.. C:� �.��S_ '-� �j :�L_t�:'�, .....'.�f.C�_..� .. .. �'��:..,a ; , ._ ,. �', ��f�nr�rt �` w�^"., � '.i`.l 13�.. t,. iiC i�_;+..iL`:C;w � ...f-,:: .S.C2�-ix�,7Sit��Et'�. li 1 �� l2�':'4�:. : .:s'.. .,._t:t, .,l t.`.:�1, ...P__..� �;�:�, ..�� :r�.s.:,°�..l.?_i7�'� L:t�o�'3.(3 �:� �.�Y:�j7 :�Tlf� � �' � � {� q- ! � �j �.:tr�.)'� f a�.;.�.;'L �.'.:�� l , ;�.,_ Y��: ,t1.,Y.._.,�r�S.3.:.d��s�i'_�;_>o - f; ;� � _ .':� ;:i.�' i �� .,.__�:.k;.. ?..��.L�:.�a,;;�l:i:a C�'�.'i2:a.�'.E3 f:'�,".-?CL�"s.Co�'.�. i i� ! � �•' �.r..3:... �1! .>_,t..... .. _ _1,.._ .Y C=�.�. .. _. ..` ..,, 6 L...:f'.'�It. 11Y:..�t.�...tit.�_:.i ^:4T�.�...�5. ��`��.1,3� � :� � s. �3� �j 'Z,.i:t .,�.,r.,r..._.. ,��. :, �,.t...:c ..'�'..Y (- ,...'s'd�.a_:f_�):.:�Y.,�.�f.Cj' ».'+� �x��:�..r`s'w C?.��ly�u i i� �; i 3 .. V� '� ..i��_..., f.�: j.,?.'... . �� ..tr_,..... :.�.t.,,.._. ._„t.,��r ,..1�' r'1..�'�,v�`.`'.''..�...,...�:r�3. �d��::4�� '��Z r ; � , % . ��• r�� ,, l.w:".:.W ..:{R' l..�_.�;. �:-� �j�.. �� Y ' �t c °`9""_.. t..?�a� .c.�,.� :��.:..^..fl.ti:,�r�i�'.y..A.v�`'J'`o _ '. ...�,...� .. _...,. ,.._n_ , ....._ � t .., �� .L,�_t.��....�:it"tr�3 __ . __ _...._�. ...%S L s.•�,� _�,f.._. ?�tl.:i�... Q:�' L.�L�Cii.�.�..°e.':`� .��.�. 43� i� r �� `-- -_.,_.. _ .�i �..,r._ � i ...,. �:?..:� a.._.'_,...�".,4t� 2"'. .�:�a.:_!....::st'''-:. :=1:7r�: �C'.fa1.2�i!?:I.C;:�.�. f k � - ii � ..�_�JJY �._ ...».5. .il..J e. �...b,�.a.,..9 .:�i..,.f...:�,e.J `vJ. F�.. `�lll'�.65,�,�l4�eLJ1�� X�ES.:+eJ� Y.sS.fAl�...wL.�2.1�� 5� < � � ... �; ....., 1.,; , a...�t.. ...t�. _ l'_ .-.i.i _�... ._ ..n.,dv.s ._..ti.,,� .,�:.= Ca1..LiI�°Z�Lt W+��:,�L �...�Vt.:;✓�,4$ ! . Z i; �i �r �'1 �J.�....f..�..� a.,..I,:'s. .;��ti . � ..3.3 �51�?:...:.F..e�.., .. ..�J ... � 4 ._;W...i,.._.�,:�.).'�"�'� 'd�C��v . I; _. ;� , � . , _. .,. . ., � � .. . . i' E�,_�.S„l.tr.'. �i,+� .�. � �, i3.:; aC;+.�.'��Z.�.S,r:. .��.'�a�:i 'W"CP l' i; �ii ,,* 1.;! � y 2.. .} '{ 2y . cq-1/� �,�Y��'''?�1 �'� L�Y' ��-" �X�L7.1?,.C"�5..' � 2..tih.�C..S�;''.'� �.�.� _:.E: .l __'`�L�..'�'.1 ;�._ . J � ?L�:. �.� C.�. :,.'v- �.� ,.4�i � a � r - (� � f .; .�� t.,t � _.. _..6s.;_'a C._. _.i..�� ,_...�,1 S� �.`:�'S':�c � 1 �-- `' .!��. ..�_ , .�.�,..,=�c::�.x� +�1�:.�:,tr^r,:��a;_^�,�c� ��,��t, 73�:� �v�.�� . . : ....�..J:. .1_.. .. �._, , a _... ..._) 3�:l;�_-..:� S.r" " � �...�..�...$,q.iY�o�..�:�� `e.YS.�iiL�w�v�� p�-1L6� � o t� F J � .R' �}.,E .)'°o . �� t _��'a ......�1' J ....... � ...t.�._ �.i� �C.S. c i j _3:_ �r_:`. s.:':� +7.: .�;: k��..�:'.,�:�.5,r'„ ��:� �:7 �':'fi�' T�37c`�� 4 �.... ...._ a t�..... .� ..5�..� t .,__�. .�.�< ...^.a.� ..L., e.., ..� 4t�_A..�..% ,1.v.:a3�.t...t��P�.�. �� p 5 � � 1yQ i �'+i 1p :3 S it � + �� # i� � i� � � f;u,c; ; ,y�, ; �F � � ` ! �:i i, J5 i ai f P' ,� i � 'j 'I i . , � ..� . .,.. .,- � _ - :, . .... . . . ,.., . .. r: i. _,.`:...:.:-... ,��.. .':'.,s.. i..cJ_�.. �:�. .��..r.:.E. . L;��.. .�.,.'_`y . �.,.';.i.. c��..-,. �.. c. �_...d . . .., a �liij. 3 ii .,. ,. :. . ' . - �j i �i ) ... �� :1I� .�.:9_�!.1 izi! ..i ._ r.. . .t:i . �..,�c... .,.._. ,. ..... ,� -t...,, �' �,; . . ... . � ". j i E._ .. . .. . .. __ :. .. ..,... _. .. .� �:-,:..w ,_�.,, _.. . .�.._,. ,..�c... .._,!. i . ; • , { � . . fl � �.r 't,._ _? j'_. .:, ._ . ?. ____ . .,.._ _,_- `.. .. �:.t? _°. .. 7,. __. _.._ . i . ^ �' " � ` � r_? t ,I . ' " �; °.. �...'e.i.� 5 ` . 'r . '�. '.. . ` t� . .. ,.. .,i s_�_ ._ _;�.. �._.. .�...:_. 6. . i� .., :. -, -.� t. -, , ... :... ,... . . ,.., t. '�',/n ' ..:.. � ., ��} �� • �� . vn..�'.E `. .. i.. �� .i�3: . .�. ., _ _ �.... .z.� .. . 3._ o ,.._. ..,.>._.... ,�:.__.. <.°.t �,. r�^'S.L;� `. i i ». i� ,� - - - ,. " , f� � '� �i i�....�.� �;, ...c. S�.; �.._..,:.:_? . ._��:...�. e_:..i_ . _.�.�_:. .:.�..'gt . :. ��-, ��..�.�.':. _�.__,._az�� .:.:.;.4 ,� . i� " - - ` S r �� l,.l..�.._��<2 ..,.+ri�.i a. ...�, ..... - .�...._. .n. . , L.�f f�7:_ b_ t�...�«,. ;,5 a 'i' l c ? i E C��- _ . .. , � . . .. . i ..: .:. . �. � _ � ,� .. : � Et W € . i� (t j,rii't`i+� �i - : „ �� . �.. . .,.. ._ .. ..r._ . .} �.,�_ ,... ., ��.r �� _ .� A :� ..._r, � _.s......_., C.. �� _ _ _.. - -- u'.-:. _:1' .... . ...__...:.t�� . _ 7 � �t ♦ � � i� l7... N�.:.._ ..L .,,,.,.j...Y -.. - 1„%.`,. l..li:-.� ... .... ....:. - . �..,1. �...i.� ...:..'..,.y i.1.a . L.:. .., f;'..., :. f ' i ..L p � } 1 �� {� / r . �-y ...� if Li}..._�1....J ��L.,� .1�.. .. .�_ t.... .,. .a.. tl -9 � ..... � .. .-._ _ . ..-.'..J . ..:��. ..i�._� E ?':� i l . E _..y ;� L+ �;.�� ,T:,:: �..:'✓ .. ., � ' 1t ... . .._....., _ ir , ..,_.�.�3 ..�' �i ',:rsGi: ?. .l_ _l.;. ; 3....W.C: k �i ,, : {`! � i! .. , . .. ,� .., - •, y^ '. a � '. � $� .l.i.. i...� .:: �l�•^ k _Ai....�i;il .<.ti L.�:.. s:3.L...��.d.J.i.�....,:�........ .. '�...:.. { +l ♦ l. ..� ..c._. ..+,..,. ,..a _ ��... � ...n. .. .... , r t� f( � t` �I ,_F� ..�. .�...;Xi�. ..., s�_ °� �� _ v . _,_e.. :?�a �s_ 'i+. fl...,. Y r' r,u�'�. v.'��:.� ._+:!E....�3� ,' li t ; °�.. €i _a..�-t.�_ ..�...,�_t.. � i.. .. .�� }� .'�"' _.._ .....�..., �._....V /�...,,�.,�..... �:.. ..�x�... L .,. � `t r fi""� �! e.�_., .� ?i.'.�.. ...,. _ _.3°.., .... . '_�,......�. �a`. �.1 ,....., :1„ E_;,a ... ..5;., ..'�.. .�_i.4r,....t.0 tj /� � .��` i! f�... , 4 ��:.,�c.:. ��_7 ,�..:��`', .., . ._:k�.:i''� .. ......�ti.�.�' �-5... !'•'.i�"i. y��.��;`e ... �,;L i�a�`... i �i . , . �.... . �_ . .._ i t � `?y�.� I� y'7::.€.,:�o.,.i`i.��. t`.t°5. �-'�i ..::�� .{.. ..'_��i`�....,vj_ ... .,. _a.._ �.i'. .�iti _`s.._`, .a.._;�t�..i.. j , i ' ' ' . E >. . i = �' { !'��r �!. s..'.�. :'� :c f�'d;: �c� ! � .�.,.�?..�_. :��:!� .a._�� ... y C� ix_`v" .�.Vc..� .`.+., .7 ._ . :'a:��f`�'��..��,' ..,..... .., , x r ' 4� � . . ' ; ' '-�`'� �� ;:! ? c{1't, � r14�3...'.,.�'S ?�., G:+�±..�.r?:'t° i_ ��ti . . r � v, � 1 f 9 C < � „ .."> �� -.. _ ..4 e.. _sA .:_ �.a._�_� .��,. .''�L� €� ._�. ...._ .,�g� s`�Tz':.(.:t?:?�-.i:'a �� E ,..•t.� tf .f�.`:�'� �.n.. �+i,�L1......� �,.A��..� ....� .- ?�-'�.t-"�u ... ... i.�._.?.. � .�?_..._ ~� i..-�T ...�.i� .. `� '�.._'s.. `:JX�z t �� ii . . �a �`�`°�' �I �,�'�..�.:�:�' �.�.`^�x� e-:.�_,..�.i .:_:.._ .-:......i.�..L.�.,.� �3'_. :'��..� :FC:.=%'�.7U' ��a.r.l._3'.-..:s« .�.i�@:a:=:°::�'i ;i - � r i ,� � i ! f � I� � 1' �LJ ' R i i ; '# � ;I i o t ^ �M�� ; �j � i t; � i; �..��1'W �.t. -,.r.._s..:i.� S. ,.�.��.....�1, .�y. �._'. ,._-..._�i'�.. t.t.t..��.�i v...,�:?.r .._��i-ii_'`As` :��:a_.,�.. »;4..�Y_",'.: �i r� � ci� s"�7?R:.�..::"�..:.:r;"3. �;..::.' i;?.s°+.�,. :r; . _.. :xt.,��__::� a=r,+ �:: k_r.�;i;,E2�:_� fJ _.. ":L?R�i �3 .. .. ��,� �� ; ' �� i : ,_-�._,,,, t� . 3 �� , ;'4. _ :. r � .� ��?��._o�.. E��i.�.-.a.�e tE._a.n ._..:�.i....n�...a _, ,.�� '.�._.._ _ ,��i�) <.=.�t.. _.. _€'._.�.i ,.v...�..�,.'_. __. �f.��. ,� � ;� � - `: j� !7-�.3�;t?`� 7 . + .._ �; :.� �l e.t•� 7'r� �.,. ° i�.`., . ;, �:. '.,.f;ii.�... .;;_�<T _3 F�. �..rCY..,...a�i-�, t' .., o _:.'G.-.._t_ .._... ,_ . _ ... . . t�? i� 4::�C;:il I:a._�t'A.a l _<:il ,- '�'�� , ...�.i � �_..�.i .,1(:i,,,: ;>i?_... i_�_ _.._ i W� `i 4=??'�;._::i.�.:� f`,:<.3 �i). _�� __ � c�3_�_ ..�3.t'-_. ,,}._ __ �:'ts_�'r'`�c :�f.. :�"`�� ;�r _:;:ti,� � . �� ,� � _ _ �,. 3 �� ., • , +:7 �� :1�. r.i i�'e.{�_.L �u:.......`,_w-'.: r�C..��..�.�. 1.:�, i.��>�:�. i,.;. ��.<:f_ '"'_S,/r�_� �_a. ..t:��:�.:��,. .�`,..1. ;:,��i � `� � e;, � sv��._a��.�� .�:�.,a. __::aH W. �.�o:._ .+��_ ,.r-�.: ._:��. r;�t �� Y_�.�° ..�� ..�. _s.z� , � ��'' wi?i 1..� z ..� � T F. j.�i., iv.i (��-. ^-.- 7 u � � �� ss2`�- •-'-- �t.._.. TJ: �,.. �.M_. ,° _: , ..x,..:7_.._ +9 f _ t.�. �� .... t?E.r:i7. ._.�� 1� � __+..'S,. _�Ct�:�____�.�. __�� .. `� .�.-....�°v'".�c,�''�'� 3 .�[� E� M�L S.��inry ��,�.....�.1�f.'.1 YJ..'..�..�. ._?t��,. .i �1.�...I k.. ..�:�Y...3...i�_�....1�� i�..2..� (�:�l:f.,�.t-1� � _ �� ¢ � 4.:> ( !�u_T'` c jJ3��ii a:,_,�� .S�<ie: � �'ie . ','Ci�.�+_;3, .;.'.. �l"�..,1...�. '��.£;ti t:.i.._?'�i:' �C'.�:.�; {{ I � �•� ��'::�'F�'•J�>i?C� ?Tii�?:�;a�?i�:�:si��':Il,'e:�r '"1 �.'t'`.2'�..€? .^°.a''t'�:i"t1::'i i%:'E�j, _.3"1�.'L�r?i::i.liC€" Y`..I�.L-'' .. � � � i ±� �.A'!��'i�:1';:?li::�_=�i'1 t:'1fi _�6'�:14.,t,'..;..:>'.. Lc':,.'...,.i �...�:::� ?"�L�:.�� I?}f;?.f?.u"�5�.:3 �`:?. � � .�,"� � �`.�3'CF:;... C:•�a.,��_F._i.:�'��__.� t°t�. y"�e,. ,,....:'? .'_ .1' �.Y4 ��'C:y .��tL"',3.� `Y.'il';'_ .�"c'2�i`�� i �f'�� y��»'3.C'�F_:+.�lx:f'�e� �3;f Y�'�'1.o ..Y.l:�'=_i-6''..'.^.':�Jo�^...__f.t �� .w.�'.,�''e��.)i�E�?"l\i' ('vjC}"4.��.�_i.�. Lt..7i�`q°�C.Aj�E�.'.`�'l�.' � I � "!-°��,,j` :aa?.�a::t.i��_.,.�'x�C .,°�??°..'_.,'.�.'?�. .�<� " ,."5.,... . i4.��r3 :.�C� E::t�2'1';.,_t.�iiz� 'L�J G;C332�iA�L. � �:.�.� � .�'��: �.�.E3 G"'l:.t. '_�., L) J .2m;,?f.__.:C'r,ji �!z`� �..r l.." '��..:�'j:�7 C?`i. .'�"'�s`�a ��"1-.'i S�. ^ � � � y �ii c�!%_ � � C„°W �<:�.t._�.__�"..�.��}'t.. j:;�aXYA'�C.,.�_ ,� � - G.�, �. ,�£.:�:`J 4°r��ul.i�.i..�t.: �.�'�'d��.� � i..V��`.:.�.di.Ci��j' �b'.f..�� `�CiZ��°'.lZN � r�y f 5� �c:%, �i...�(. _��3 l. W..,4t'et�G :'� `.v .e-� 7 yc,, a 1n..� Gl� j `+�. �? :(� 'i: ° b�L�t'. .,. }= G?�J1.SP�.� ��F.S�:Ji:iCy'c;?.��'? -�.v �I.1.��5�3�a:.1.'� � !E - . � � L�i� �j ik��3.�'.�E: �'v'Y.l,;��. 4.t.'��c_Z' 't".s2w.'s1 u�;'v'��'a 11?-"t��;-•? �:G'i.�;s«�'L:��.. .�... �el� ��w.l� j r.�. i •- � N ,, _.� ., .�, .-, ,v_,.:�.� � G—!. �?�UC3�'�..�''. f)� c:�:za_I . s�:a�;ia.t c:.i,y c. �,:...,.3.^��.f�' f��l°�' e'y�'1?�'li .'.'�-","rW3,��S �S� �:"�,2.�::Z a �., .,.. � •�V r, x r�,_, �. � ."-s�: S ��: .4'_�sit.:.�?�:s.:� ��i:'^.'.1 ��?^ ��.'�� .Y+_�l`:7,:'T��C�v:" �1. L.a',+'_' E;.'i;}.d?�Sf�'1� �' �s� � � � �� 1� � � �� _ 'i i � 4 3 4�-11 � � � �' P �,��;,�*,_f_ti w>cT�,;�� j ..�. .. _ , ._ � � �.. �_ � ,,. „;,. .., .. . � - _ _. . _ . . _ _.. ,: _ ��' _ ._+��` . i � � r!.'110 5�'_.i. �L+".`^ .�"`,; s J_ ;e°• C n°.i�` . ;.;'c F ....r+.'_•.. ... ��l t�'�d"'".s i i� t'•1:i..[..! � � - 3 _�r�v�_�r��.•.�.1 i�� s�,� ,� s ;- �,� r �� h � -� ,.c"it_ E_ .3 , ='�rb ',. ,:, F,':i'�.v1:'i:l_c- ;.ii:ji�_c'L� � � ��' 1t: C:taSt.'(i�Tj(�i':j � ...�` i....._ �,��!�...1 "�' '1 '� _. .�:? _ � �t'1 ., � 5 ( permif. i�.s c��n�rs a.n�. ��-�-�,';i �- - _ � • ,.� s � _ .._�r.�-, _. a�.� �.c.�_��xF; e�z� �hc�r � ? .I?2�i�'-'.� i?:7. '1�.'•1'�c,..�. .l � .'T ? K �" . .s.;., �f� � I _ .�y . ...,,_ . . ..b.��.�._�.�.�.' r.�..�� rt i'.?.E�.1��[;� �' (:..�„i ��,i�! .. �'L � �� .�C.%r .. �oF':.-..C... :.�'.� _'':.. , ;.:,:..._ o � � I C7 ! i i 1;'':; `L)}i 7.a + .._, �? . �.ic?.��',:i �.��.=. lsE.' ! _'.i.3';i:1';.i�� i :S.'�'rC) •'3tr?_•�;.'r�_i� �.:�t�: �`�"`i�� . ��.. , r�: t - - '�� 'C.i � ;? °,r 4 �I ..... ,.. ._. � . .- " -- — � �, ; �{) � . . , t .� ..». � .,_ ,r '3 l s 1 `�C C 1 �; � i � _ ,. _ T : t" ; t i:5 .Ls 1 r. r c3 .i < , `',�� 1:��;.:�:': , _ �i�_ �� w • � E '�.�...1.:?.�`)�!`'f� } .J.`"�.NC .._�i � k?�1:'� tt!`;C^�t_Tt... ��e_,.i' -�..�"..�.'', �t.}! `;il£1 i Y•� �� .Il'[.;� 'f �r.E"-� ��. ._. f�7.F��1'.Csh.: 1.'1� ' ;t :.f:i?.. 1� _ ._ � r��_ . . ! t"="' 'z^ � i� ... ;.. . . ..�,�_ ,.. . _�s. .• m.rn .. ..,.::.�_�c�� `3 �i �_] 'Tf"tc:t:� j l,i? �f , _ i I �;T��o :i`.L"t�.;:t.�_d�:`�: �� __!1�..�:'��_ �:5�.. "�.�1f�iEi JLY> Yt i .4.J i ��.1E' f.'. i�}+ {s_.C?laC 9.� C3i?"��;'', <�.,::t'_ _f� _?..�,,Gt�'<-.?' 'C, ....� .�-- m l�:iXiXIE'�k 14� � }.� � �r= . . . .. , � � s---�.e�i �t�.: c,� ;.hr.�,r, ....ti•�._ .. . ( � f � t� ) y � ..? ( .-,, }� y t � 1��.:��`. 1.i'U�`i�.��.�.J.'.J.LJCi o ..2 t.l�s`.:�:��.7 _t. �..1.6f.�� 5 �u � P•�.1:� L`i+�;�:�i:=� , �r:?.C> �� :_.�..�,- �'`:'ka �..,. �f)I�.T�� , � .._. ._ _.i - - �:(7 �.� � c`iC�-Yy.�`u il"..`: ci'. TACt".'�it, �:��?t:£ .L . �? t..Ll ��" s' ^,'i%F=` L`i°i^.�cc Y) '" S � _ � .J'E_ C-. _ �!�"�1�.L��.2.:� : ��.� { C�O��,2T;lf?I?1:.� C};�� 4;:�...! L"?.'t+_: °::iE"rF`, E^:%::..�:t`i �:'x"dL t:�..'t2�c'.::a� !�f ��b�' ? • 21. ?1�j.Z�_��.y �z:::i<<�: �:_�� i:4 ;^-. , �..�:�;?_i::��9�2�c� ,�. ::t.v� c�� y�i:,e 2��t��'ej � ' � 2'-' ' !'?I:. i��`.=L;.'. F,�.`_ :".$��.�; ;:'.YTtt� ��1 �� Wi�?-,. tb.at ' � �� 'I.IP'::�?�'Se;.c3°'sC�a_%:'iL;a :d� Ci<=:�.: 'G ic:"° E'::<;.Y��.i.?'�; 1.`,.°+.� 4ZE.' ��r;aU�.�. �.?.�4� '�Co i t ��'' C��)S31i.�C�.t�.4:v'' �'V.JI.�.l� �i�.:2_l� .,. .'.`t-CiE-:._.,�::� .._� �_��. ..�i.�� ,.'.�i�."�;.L�a��:'?��.`;7�;k '(r�.' L'j � 1�_� � 61C� � �� ' ' ; � :.i"iE: �ir;��'�;�5;�' ::!'��L�t:ti'i"'�3"„ ' � S tO�..S v � i; � ii t� �+ , 5-1 �� :�, ��c��`vs�:: v 3��'�� e�a e;?�a ��a�1:`,�� a�� $, �q g,,, y ,.� g p�.� t � � b�6F��PE� b :��3�?..- i1�'�{�� .�� t�� E;�e'� d €��i.�i�• � :ea�3'�'�. :'t�'QY �°db��i.! �°�e2�� . � & Es�64 ��a�`S�w� �lI �s;6�':+ �L6'�k'��':2 t�.. P�%�'rw� .�..3 4�� kn � i�17� 3. 8.V.i3 �Y su�s�i� �� s��a��? �6�;��:�' �� m��>�� Povra Ra ;r..�� e�:t� �f7�� p€�►� na� ��°�:�..��3� €�� Y,x�� r d��. �i � Ya�SV � ��G�."� �a�"';? :a�$�i� ��''��i�i:P1�5 L ,.'•;�l�A�' ��?r'�D � ie� ��,� ��ea:��tf� �a�a�� `;4�a �i��€:��r.k . � d��a ' t w�€at � �€� ��°��;a�� ° ��+��r s�e�� a� `�s��,� ��; ��, � ��;� �� .��y°-��F ��:�°��;�t:; ��.�a � €;h� ��. �� 9,�s�� te�� 2� ��d��r��atd�� . �� °� r:��E:� ��°.,� �t��;�� 3g y��a, � µ�i � 1 �.1 a°€��r�� i� �� u d�r�'�� ::��: �� t�� : ��d��ir.� �� '��F�d`��a€� o ��, F�€�. t��Ots : � �,e�,s�� i��?; e��:� �� ;� _ �,,�' G`l��'.�t�i��.�S'�� E � ��'��t�i�u�Lo-0��,^ r�p�: L D� �i i��::i. , b.[9�w �`i�a?� �'f f'�4 �f �£��.�;i!'f�.'�'(i �.� ��s ��,c��v� w a�� a4;r� �: ;v.�.�;� �;�N�;��a�d ��s r�=.�s�� g �aac� � � 7i� aelc�,``a+�`s� �C�'6�1`i�� 9";� '��#� �A:�� a?�'FP`t�a �f' 9°��li��'i".�i �i� ��iA� 3.'� �:h� �i��z��,��e ��a �c��.��: `�� ;r�. ��_�� €�:�;b�r a �;tm� e;�r��,�e� �.€� ��3��tu�s�`�� . 1.9 �� s �s;� 'Fr��r��:�� F' �a��s��s �� a� ��'� � ��:�tis�� 3 �°a `.h� �dQ��° ��a�� a K��€�� e��►�:d �� ...�_i �,il.�iW Fa6d �d-��6it� ii� 4e�1P�65�1 ��+1 9�� '9 ��b` Rsi��'r `�LJT� o��`C'1`i�9l7u� {r�� • � �°$�� b t�'�S°�x�.�;'� ��c �€;ef��C$°`� �°g t�6 1�a�>a�L�i u _ • �� `�h� s��:�e�� d �a�t �e� Q��s�i�n 4�r�d �ra��r�r �4 �� a t�� a� ��:4�� s�� 1 � �� o��w�i�g ea�r�at� ye �� a�� a�� s�z�� ;:•ra� :��a��:��s ��a� �� 7 � ��a g 1�o� a� ip # �� F33 � E�.�(el'.H��u!�� d Ps i i�a ��.'.3!4. �.`�S�i�A�G 4 t 4�y ,*"w��::9 in[6 k`s; re 4 67*s b�•a Y�� '4��i�.P's� ilt t 1� &i�� R.;, fy�.{} k v P � � . !�a't�:� °r��R��;� i3��??;3� ��z� :�a, �;€'�: 9; &� �� :� s�;:`��'�? ��.'�� :c� . � ��i�K�a E�� f'`s�` '��:, rT? �`�i"�'. �i c� r��i'`�i�l�'ie"'r:�� G�4i»��€N��'' a _ �' �iv�, �i� 4a�".�'d`'> w'� ta � 8 `L��ir0� �s�W'i� .y PI+.�r �r� � � . � � .g �1 t ,�'P . M � ai+ ^�.. rp {' �, ��.Rt �� 1 �� :a i g�L�� b 3� ��a Yi�.�i�i,: �.�'.� 6.4�'�d:n w i;::�'S� i�s�e�# �3�'i�e.°.�'s :,}� �.:�:ti�� .�.'�, .. Cs��' � � �e�i�� a � � � '� . .3 4,3 F:.'�i't 'X�a+'e a �tZ,#,i'�3 S�v 5'��b��f C.2 � W � �°44.e°uF,�5 6�w ��€!�7,�! B R.� 3 i � yfp� � �(�{h'9f � �ry ¢�E qq �y ° YhT �A R>L�"'. a !�3x t^y 2�'dz �+�y� �y ° "i's"+�k Ce y yC(� � � �1 �i PS�Y,s ��°"a'i �fElr� 9 Md �.1 ��@i+�.'l�r.c �a� N.C��O'�9�"wne 4:ia`�.� � � �t.aB 9 J" �48��G345 � �� c�€� �� .� �q.�r��ro�°�c�g �� :�:3'��:� � ��5&� "�;:;��a�°� ��. � � E'�"r ��3�� +i� �'� � �'�,C��' b F�`.;f�,��-'.'1''3 �:�w'�,� �'�t�.�'� T� 9�� ;;�' �'�Y'. ��r�.'s��n �°..� ' . � ��! i��.�i q�".� s4 �Yd�'a��b 9 �{Fl e 6�. i:�� A '��i�id e"7:�a ��v�t7�i 1�0 �a�.� w� 'r� �'ef�C ��r�� Cs��4��a.r[9 y .fi'�" ��.�. �a ��t`� 9�Tt°��'��3� ��w�'i�.:o'i!; 9��' �IS", ¢a� ��S � i�i. � y `�� :..� � ,�a;��3�� .p°��r� ��:��:`� �3 Eta�� ' �;r�.� � ��:c; ��. �vr�, , �� s �.�,. ;g q +� S �n ^� �� -g' yy � { [a (+� P � n vtlK�� Y��SFG:eY'��.d� 6'�G P ��?�GC r,�<.3+!¢ikfE`v>`�� g 7�Yi/♦ �..�a kPu�' tL':� 9 4��if .�J�Gi/��F��fl� �.� �� it7i. ��'�s�� iaQ's� ��:, �T�� a�s� �ERC3�s�::T:�:6`�� >�e�tY��3�� . � e �� FD't�� $�s�g �?'a� u��`i EaBa�;� �^`✓%r '�a..��.c ��.� �1� ri�t�'e 6:3`�r 6�':�+�8s9 u��. ds �9� �� a ��f��r:��t �,�� •. 6-�xn� m ��a. �� ;�� g 1� �y ��. R�s��;►�c�l�s �:�� :�. �w�� ap��s,�� - �� GC.,tJF3V fR � 4Ci5� tFA �'IuAS {��-��,'C''i'a'Vlse� Ci � E3 t^�F 0��5.�.9� �G:s� fir�P�t'683i� . 2� :�� a��€�a� ��4a� �� 9 ��^ �a��3�� , �y �� G.�. 1'�1 r`. �ir�1�� i E� R�w�i Q�� a 1;�� 0.��v"��w � . • G!'� �i��i�L1�G.1�; .^�.�1�jt��59S.7a e �� - fw�xb: Y��61�.�k� �6�'i.�� • �� i�� f '�`MJ f i . � � � � 5�-3 � �� e � T�'��'iE':� �;. �:�;��.��,$' P � � .�...�....�...�.�...__.e...�. _......_...� � � �� °�� :� Q� �� .��Y� � � �'�:�;� 1 p� > . � E�U'��"��.��:>� lta:�a�.�i�' t�13C.�� m?�.��" _ ��+ i �'3t�'�'�i�f,� ��E? '{�F a';�� '�:s��" ��?�"ro � ;i ��,,��i �i�� z�=;a� o � � � ; � �I��.'�' ��-��s3��T�� j �_�....�.....�...W_.,�_.._ � � By �"�. M��s��i .� ! �.t� � � � q9 ��g ��+, ,9 ,,�� _ 8S � Ctf(:�G�� '+�� "��'�� f�'i'�(y Ok� ��Z t��666� S'�i�XS f,�t,l:l,�°'�a3 ;. l9�.� ial�� 6 d�8 � 1� �± �fiy �s��: �a�; `��a€�� ,. �:��o �;} ��c�� Y ��:�� 2��6 �� A�a�� k., �s�d �� :� �� :� ��g�s�� , t� Q #a@�� y'�ca� ��°��sg`� �t,:g� E��'��? I 3� A Y �s� 5��€��; P�u 1 ��t��$:� <`�;r-,�:3��;ti�� H�� ca��:��m3�^�� a`��s �� P�t��° C;��?��. �.� Q 43��a 1�� y�ss� ��t �� F7��►��y-d�� F� A I h�v� €a�� fi��sit�r� 8�� s3�� d�, �7a�n� � n ?9 Q W��ld ��t� ��a� c��s�ea� b�°�»�7� �f�� s�� r• �� 2a i i�«�ckgr.a��? �� A Y�� . � ha�1�� 3��1�E' ��' Ei��r��3 ��g�t�� i��g�'�� 22 f�a�� tE�� ilr��$��s��y a�� i�»�� a� ��.8 ��-�� EJ� � 1 ��m � 23 @Riteh�� eg� Q�= L��. 24 , Q Y�� F��e�� f� �� 3a� t��s �r��di�g , c�� ,�� n�t, a �OM Ptl1 � Q�SFrOd 7��i��'w�'YIIbiA� �6Y i �'r��tQ�p W!f"iJ� ]971��8i3� • . i �t � 5-4 �� A �'�s a ! �'� > ' 2 � Q � . �°�fi�r �� :�� £:�9�� : � . ��c_� ,�� a �e��s� erf t�� . � - � 7�4 �'i`oBi� �+� !�a3t9? r � � j A Y�� 4 T �c�. i � �' Q G� �fl� �c�� ,� �:p:�� a��;�� r�� o��n}fi �� (' A `��s , �� a^o � ! � � � Q '��a�'�.a�� p��;��d �g� r�,� ,3m ?.�.��:r� ��t�� €p�;��zf��°: � ��s � �? � I� i �� A Y�s � �� r��.� » ! i � Q I da�r�t �� c�� ;ra��ac�h �� r��°�1 `�� A ��3�90 �e�;�gs�� e;� , i�i j �.o � � �a�ar �r�a� ��wi��y. C��od �°�:� r�� rs� �� 6�; �;��s��'�b•acsg � a . �.Z� �07` t.S� 3� � �s;;C��'e3� '��° 3�#:�� '�?',� C�r.�� F'J:? �� a�$� $5 t161t� " I� �p �."Fw �'30'?1Fl '�`�M f3'pJ��"t.��b�:'Y �`�S .�� f'y�i�;�i t _ � �.� A, Y�� . N�a�°��a°� ��'��s l�a�� f��3��,�� a�� i��:��°��d �.� � s��i1 ��y ,��;� c6; �ti��c�� r��+� 9 �� ¢ ��:�� h��ir�g ��d �� . � 9�i�•��'.e�fD'id¢tF� a7>FwP 4" 00.v� �a5 3� �°•s+Ni ".L��j� ��l U'� Ykr4 �}' 'w�':61 val9 6L�� LYO�f � �'. �� J ��J�� i�o�� a�3,6i�Y'� �i�� ;� . � �tl� ��'�� `��6�� i � � I ��' � 3 I7 �� a�� : �� p�� r�:si�i�� G �c�€r��r�Ysa�� e�� h S� +� 45 7 6C 7 ii i�a Gi b'6T b'� �� i'I t y p p p•`��(.QA 9 9y B al F�i i J l !0 � {�iJ l �i� !au R i 4i a2 V tiB W i 7 4 � �.9 �� Daka�� . �O . �v�r° �ix�y ��c�� F �h� p��a�'@�� ra s��^t��d �� S ��Ca3��f$ '��9 ��1� T��1 C��'�l �'�r��1 O�f93 �'�c.Yi c�i"��4 ! �IIS� ��G1� 22 �5 �e�� s�� a�� ric ��rn��td �� b� ��;r��c.�� o � �� t�ose Ct��a��°� . 24 �� a� ��it�� t�r�� cn� � 3iQ� p�o�l� ir� 25 ��r se�°��c� a�� aa;i�r��a�ly �Q� nt3��? �r� ��d �n th�e I � E 5-5 �� F. _ � ], C�$`�' �.t .�at',�$�� c�l..�� . � ��:G��'�� 's'�� '�� B"��t��€� "�'.� � c � � �his s�� ,� � ��a��°Pc ��' ��e��°��rg ��i a ��v � � . � ��z�s��s��o 7 g��s , s��:��sa� �� i��rib��a� :�;�a��p.�� Q �d+��d ��s d��^�� r �s:� ��a�� :e��°� €�; ��°�� m � � ��s �� .rYs�;�� h�� ar� ��;t��° _,�� @�� s��:? j i °� , � � A �l�i 3 , �6�� ,�� t�r�c� �� 4��#,� ��:�� P�� Co��pd�� `� � � ; �' g�e��' �'y��s� �s �r�s�$��d by �8�� €��_,� ��i�a�� e�� . . � Y ��iY�f �•�Tiw ""�47 �f 6Y� { �'hE ��C�YO� ��YC�4l9�ur L �'��F� C19 6i1784,{ Tj�A��FF1 � g �ossii �u�� e��a°�� b�� e T�� r��r��s �¢9� �a�ppl�- �+� I�te�a�ed 6:�;� �'6 p��f�a�y ��s�� t�i '��i9�"G��4� ��ydr'�B pl ��,�S . _ �.�. 7'h� ru��r�r �t��a��c��aer��;�� ad�� % ��,;��.y9 K#�a�9 �� v�� ,� �id� , �i�c� ��jc9�� Q� �� , �r� �� c��d 1� ti;� 13 .ne��o�� i �� a�a��. T�� `��g �� s �� a��t�d 1� �� c3 4�e�� V��6"�� C1�f '$b"�aes��1:$��I � $�i�� &Cit� 5E��3S��'��L�fiS �� l�'�;�9 �1 �.°��8'�a p�+t1��' SS:�3�j '��`� �p�F�d��S�€� �EO �'�c�►l�c. S$�$�� . 1� �$�4$S �6"b°e��8��.��i�� w�� t9c��fa` ��`��3��'T3 $��t�S 1� P��r �e�r��E�� €�� p��a ��a�� a�pii��g ta 18 ��s��°� r�1 ��bi � i�y ¢��' s��v�� e;ee?��ai��ti�, c��ir�� 1� �r�r �,y��z7 ��v�1��r��5��. 20 Q W�a��c! ,ye� th�� s�� v� � g��ta� �� h� ��p��r�c� 2I �f �fie e��y �r� ��r�s �� d�e��nd o� i�S c��OC��rs �� or ��,��1��i e�a��y ��rd v��la�� h�� p�c�fi��11y �o - �3 Sai�� Pa€a� �s g�� l? 24 A Th� high��t t1�c�r�� c��;� �v�r ��p�r��n��d on our system �5 w��. 3a87� ,�C�O k� i��a��J €��3�h ��d �n P,�g�st 7 , 1973. �� 87 .. A� �� +f" Q�-�s ��x��r�� +�rd ��ar ��r�pae�y was purchas_ _'- i�g ��c�u�� 5��JQO k� 1��2�s fr�sr� ��h�r° �l�ctwic suppl �iers . �3 �'�Ri �� ad� �k�e �r�r�t�al irt�r�ase ° �� $� �i��t�°°�� t�e��d ��' �t'i� P��P 5�s�;��t Ftr�s b��t� a�p�^oxi��tel `� i� 9 p��°��. `�� €��°�caJ� �'�+� t�� a�xt �er� ��r� indiea�es �> j � g�^��ua'� ��:��s� �� 7 p�rc��t �n 1981 a El��r�c us� �' � ��a �� C�� f ��; P�E�� raas ��n g��w��og at t�� rate �f �� i�. �� p��:�� ki ��r��t ��r sa�as ie� i962 amount- a . �' � �� 9�;.�� ,�� 972 ��e��sir�g �� i ,�76 ,934 ,A00. , �.C� � �,; �'E�e�a �� ;��: ��.�� a�� ;�a�� g��lly wh�t the �� r�� $;$ ��a� ��p��,� �as �e�� i� ��°r�s G� cos� �f �; �� , �:�.. }� ��s��.�� e�� €�y��at��€�';�? ��' i �fi flka,�. °�d�11 � �� e� �� i��:��n� f�� 3�c��°�� rvice con- a"o �� i��a�� p� �i�a�� 1�� a� ��:� ��a�°� 9 th� �as� �� doing ��' �� .�� =��a ��a�� F�-' � ��s� . DE��i�g ��r� p�rfod �-�� 9�t� •�� e�� e��l ��sRa��r� �x��ses �:ogether� �;' � �z� �� ;�d� ��€��:�� :�°�:� hg�� rd� �€p o�r�;�r 30 p�r�:�nt. � ��; �I T��s �� ; ��: ��.��;�3 �� d� ��t o� ��1 �rad p�archas�d i� �,c s� ��.^g� �a►`s��a �Sry;� �:��r��!��i �� 53 ,p�l�'�:�r��, c�t�d �xp�etd� � �C � �� o'�'�° ��°��:��c�� .��i��s h�v� 1n�r��S�d av�r � ` '�s �� :�+��m o i �' �� T� ��e��r� �h� ��s� �� n�n�y �anti nca�s �� + � `��°� b�a �9�� .� �Ea. 's�r�� s�;s b�yr� � �Q p��c�nt incr�ase in �'� �ti��r�s� �p�� :;�� a�0a ��s�d c�ns4�^uctiott �� a�5ts ��, t€� ��,�.�� ro �ai �� d�t ��tt��i � g prote��ion r ; A � i rv �� E I 88 � �os�sy 6��a�� y� i�c��s�� h� i��t�� led irat�estmcnt �'- caa�� p�� ;3 ��a��'� �i� g��ra�ifag pia�s �n�t ��°� ��cp�cted :� �� '�i��r�� a�: ��. . �; ��• ��p�� .�a� �il��a �a K��g Pl�nt �� t��c� ��; b+a�3 � � i� �96E c�� 6 �� k5dlow��.�, �ahile E� ��e S��At,�� y� P��Pa� ��iyh is �t��r �artder e��s�ructio� :�' 1� �x��:�.�� b�t��, ��55 ��r� k� t�v��t�. Th� i�scr�as� E� � is� �.�� ;��r� ��a ��3 �t�� r��+�� das�i�m��a� is �lso pres�nt �� yh 3�� F��a�� r� S�i�t F'aul �rl?�r� �� ha��e IC� ��ra�3 «#�.�€�� r `l , 1 �� b�a� d�� 1�rs ��r�� '�h� pas� t�a� y�ars:: � � •�� .�. �� 'h� a Yii��°{�,J� �+a� �p�� a. �ca� �1�ct�os�atic - ��'. � �i"SGi�� :�a��!''� 8 � �°9�'�d S-�s�� c�8�� '3� � t9P2�A��'��1� e�C'� � '� '�'�g�s � 1: � '�� 6�e3�9i+ c�::; ��3�,' �S3►�v'��i.t��t�.6'" ��"5��9"� v�t�� k%��C�1 '�5 @B��SS�6"� �.� ��r �� ipiy ��f�8� �� t�t��st�� ol �uti�st C��rol ?� � ��r�� o 1E � k��lc� ,y�� .�;��be �F��r� p �S�°o ��s�� iy, �� ce�struction 17 p,p�g�°�m �� :i�� t2�r��y+ �� p=�� y i�� tnand i�creases? �� , �a°��i 9 i� �rd�� + ��s�� g��ai�� d��e�d fo� �1�ct�ic �c ! w�� :.��aA�:��i�� p��i �u�A�s �av� a��raged �bo�t �C � �: 7� �� ic��g �� 4 �;��' �'�r �� et �Fi P .� � �.� ve y��°s . �t �s •�� i��:�� : 1 �►�� t� sp^�Eic� a� �v��°ag� �� 244 �� a3 � �a�� :�;r �•v��° ��a° �h�� r°iod 19�3 th��oeagh 1977. In . , �� p�� a�• ��r��s �s� �� c�ur ��st��er� in th� ��! �i �►��'t°��:��: �� t��yy �F�� t�� e��' �t��+se �xp�tt�d�tuw�s �.`.3 �� l��`s7il��; � r� 3 � I � I� �� I �9 1 � A�� d�� i�r, P�� C�rn�a�� y, wi th �� rat� d�s i g� o� z � �� t�s;�� i � ��a� �� hi� h�a�°��ga � v { �a Y�S A 1 �r�. � ' _ c. � � A�d �� ai �°�� asp��t �f that �� irtg? � �� `�� sta � � � R�� ;•e ti�� `� °��`i��° ��' �� t��p�t�t th$� r�fi��r��nt nf the � �"a!�� 9G5$��4� � ,� �3�� 9 �i�� 'J�� +�sW �� s�a�a� g�� 1��ici�y has � ��c�a�?�� e�� u��,�i�;� ��d s��tc� tt�ee� -� I should �.G �� ,� �h�� s��3a� �� h�s r��o�ra 1�rg�r �nd larger �� .�. i i 4a �°��q�sr �� r�5�� a��fl '��# � rg�� i�a� �n�� pa��r _ 3.� � p�� a:� ��s��m��a� �� s��ssi ora 1 i�es ha�e �o b� �3 � �� r�� E ��3��: ��9 �r�d 9 �� a�rs� , �� a^ �,4 �( ��2'�tf� `�g'��"d�€�t� �a �;5�ti� �a��CiF" Er.�f��a� �P� ��1�� QW�� • 9 i� � �3� ��a�:�� t�a�� 2�� a seas��al r��Ce i ' �' � �°t�� ,:.��:�5!�°�� ;� ��'�;�t wh� ��:��r cc��ts a��oci �t�d �� ,_ ;; , �� ni�� G�t{� �s�� °�� n Rh� s�m�r�r��m�. ff �� i � ��a��, t s �� ti��a�� p ��e� ��s� ti��o�s �ha� �o� m�n • �� E� �; ��€3R��.� c�t ��°,��w��•�� _� ��t� and �i��g c�sts ,. t; �� i� �y �:E� �� a°��.� �� 3��#o� �h�� ,y�� i e� �n �hi s prts��e�i ng? �1 !� �< �f�� , �� r��-�kL�� u �� it��°��s�c� �� e°��ent� �or !tl �..� �� :1�� a�;��°�c��.� �� s� ��gs ov Sai�►�� Pa�� v�� el �hat we �� f r��s� �� ;��'�� r�� s�+��i��n �t� c�r��d� ��rafil�u� �o �� .� `� ��i� � �3�±�� f�:�� p �+�� h� a� � �nd ��t�r pollut�on ;: �^ `� ?°�q�� °�ci:��;� Y, �.�� p�„� �f��° •��c�� ap�t�� and �p�ratir�g �� !� �� €� � 89 � ��s�s a�fi e�it�� ad��a�� ds�o �, �. . ::a [�€�� f��dS�N9 I h�v� r�a ��rthe� qu�stions - ��. �� a��t�� , �� I�O�F� l.;��a�Q�l�S`�': Cr��s—�n�mira�t�on? �> �1�Q �`�E��NSo 3°�a�r dio�o�,, u�d�� th� s�P��dule `>' �f�� ,s��d�x��;�iF��1�� .r� ll b� d��ra��d un�il �, F��r�� . � �X��Is"�3ER I��DQUISfm f�r�� la�ificat�on of �.�� q�a��o�� ,� "4�. ��'��Na � �� g �h� c��stit�ns and - S�. �i �Fi:3�l��°S ;�� .C-��°� S °.3�� ,� �� 0 i� {.�� b��`� �m �� } �� #a�t�SG�� : Y�� do:a ' � ��ipul��e? �5 "��. ��E�a�N� : I c�b� ° � s�� pc��a'�� tt� ��°thing. �� ,��t�R�� L��!iDQU�Sfi : 4'�rs' a��ll , J�haa? �.7 � F��. �5�2�li�3�to �� +pport �-3s. S��s B �i.f � :f4� Kr�d!Y��$r a �.� �X�1��9�f��R �.�F�DQ�l�S� a V��a �� 1 , You ar� 2� ��g�;s€�� 1 ��t��s� �x��stcd. � �2 . �3�20 l��r�S�i�. �� aw�uid �� lr. G1ass as our �� a:� �1�m�� , Y�a�� -��t��. � �� !� � 9 � t� . � 90 � 3 �DW��D C . GLASS � w�� 1 ��d as a wi t��s� i ra �h� 3 �t��v�-��1�d ��t#��a artd , ��er° - 4 ��ir�g b€�� f� ws� �ui� sw�rn , v i ��'�� g��c9 �s �o� 1 t�vas : � s' ! a�RCCY �l��aM�[�RTIO� ,� —�'---'°`° 3 � I� � �� .��.�'. �a c3�a��l a t �� 's 31 l� � ��a� !�� s�� y�ca�� d�� 1 �am� ��d addr��s ft�r ��+e t� - �.� � t��d, ��. �.� � d`� �� n��: �� '�i��f �� G�� . � r�s 3 d� �� 264G� Pe�°ry Av�nue �� M ��z�� r� ��cc�� :i 1�,�. ;I� �� a�� y�Q� ,��•� �:�E�Y��y�� b� �� ffi �� r�� s �� . f� �.I �; �=� �� c�� i=��r �� t cr��n;��;�? i{ ��' i� �' � a��► �� E°��:a �a E= q��i�t��.. �.� �; �� y�t�a� ��s� �4;'Q � �� €�r��'�ya ;�e�� d��ir�r�� b��kgrot�nd? ��? j� �`� er�� . A ��:y� ►,s�c� �:�� r �p £l�ct��a� Engi a�e�rfing ��. ,�e �3��:°��; �'�cse� �Ca�� Ua�� v��i�y� �f i�S��s��aR � �r� p��se�tti�+ �� ^2 ;! +� �^��F��;� �?�'�s�'�a��'�+�� i��1��' i�:� �h� St�� i3f Minn�- . � �� 5�2�F�, 1 �?�. (j ':; �i�� +��sa� ab�;�� ,��9 �xp�a��c� �+��=�ir� tF� cam�a�y , NSP? E ��'a � ��.'� �� ,�� 'c�� u�s��. ��P' �9�5 � p ��9�� , 1 91 � R I �mi�B�d Pd�rr��-r� �'e�t�� ° j� 1947 �s an �ngine�r 2 $P! ths� $��$(�r� �p��a�3�� D�p��°�m��i$. I ��ld 5��@�dl � :3 po��io�� 3�� t °��pa�� a�� l 1962 e��n I was tr��s- - � ��°a^�d �� °��a��b�g ��a��€��k a� geE9��°�] s��i�rint�r�der�fi 5 � i � � � �dha� a�°� �h� u��s��s$b� l �� Q� �ha�2 j�b as Dir�ct�� of � Pi�s��a��`? � ,� 7��s� ��gao�� 1 ��s in��i� th� �or��:�s�ing of power � ��d �a��v��y ��,�a�1��a�� , �� Q��r��B�g f��r g�ra�ra��on , :��3 ��1s�� a:d p��9�� t�� ?��sn��n��ons , r�tg��ia@ing �.� �� a��l�� r��:�s��a�sg �5��$�� a��d��o� atith oth�r - i.� ��n��r ��«� ��i b�°��it��1 �ca��,�v� p�� fl b�dg��in� p€�w�r .L� �� !W.j ��:�a l.6'��'t..',�i��{ �d��'��E.! 0 8.��s q �9�'��s`�J� 8 �i� ��" Supi°�J ��;t �r°�� ,3��:�:� � ��,�el�l �r�g ��r�s�r��t�on ��ets , �J �� d��f�� ai � ��R ��p�l� ��se 1� ;� ��y �°� �� r��d;�� r�� °� �:?z�s� �l�ta m�7��o��d f�r��s�ing �,� �ital�Vdw'!" ��^� �f"s�'�`��a;�' q"�'£�i�'��P-�i��.'�i r`;� . �Cai�l f� �'�@� ��3�d� 91 �ElS� �� ! �t�i��,� ��c� ��v� �:g ��a� �€t�f a�� ha� i� ��d �i�hin the �.� � ��pc►t�yi �`C� � � �°�� F T�a�� °��,�v��i �,y �� a ��ra��e��io� ��' �l�� pas� t '�=�- �$"��P��a g �ftr��"�s�� Ca?�'�"-;��CF� �:a �'V�G�;3�@��a `��}i' '��1E V`dl"�71��ORS 2� �� +��ti�€�P ,�a�.�i�� r°ti��s�as ��r �� ts� ctsstg�ers , 2� � ��a�i�s� �� ti�g� ��s�ge,� ��s �y��s �� 1�a�1s 9 �uch �� ►��.,�� d�� i� �e�� 3 �k�, ��d pr�,�e�ting �� b�C�� M'� ea � �� L"��.�' ��`4a��vbi e��.+ �U+d06 " ! ��• �§ i i �� t �2 1 Q �`;r�� 3�� a�s� a�� a�� f�w�cas�� tt th� <' �r°d��s �p��a��, �f �h� ��si��ss of t�SP� �� Th�� a��c�� °� �h� t�a�� r d�ve'�cap��g th� �xpae�- . � � s��n� �? t�� a��;i�g �ar� 1 i ti�� ar�d ��r �h� �xpae�s ion � � t�f �� tt-��ss�� o �� E�� f�� c� �� t�� af °�� '��sti��r�y th�t yeu have pre- � �d�'�� '�i'� �$id5 €;�S'�� l � �� dc�c°�� +�� h� ��r€c��t of oaar gr��th �' �n� �d, �� ;�s�� ;��i �� t�� r.r� �r� pr�s�nt7y 1G ��a��t��3s2� . � ��. � ��1 G3��@ ��i�?�3i�e''�� a �'fel��' ��3�3 f�k3�'.9 d W�'��;�PB �`�a�'�18'!�Plt A'� - �� ,�°�?9� ��i:��I�Pi!�'`� I: f F� I �� ; �.� � �p 84n� �s`:�. h�s ��;�?�� r^�� 3� ��e r°�c�r� �5 Exhib�@t 3y , �: 1� f� C��+�� f � �?�: �� :Fs� d�� I� �� , �� . � a f { :,,E &+9� �P 1��.� �P:.�'�t�' Fr'�6�Ri� � � ��'��d. �� Sl Q'�.� �3 � �p S.� � !^i 0�"�w� p �.� j! �� €��a� ��:�� ,y y��¢ �� r��sionT fi �� , �; �'�� 4 ,; ,, . ��. ? .�a �►� �►�� '��`;. �� s y��,�°° ��r;a ��i�or;� i� �h�s proceQd- � ; 2� � �s��' d; Fs �� j i 3 ��a � �` �.�, �� ;� �� ;�s a��:�f��i� �� s��s �5��. �� as� � b�ginr�ir�g by a �� j�� r��:�t�r� � �� u ��?��d � ��' �F�c+� ��rae��i�g syste� o� i� � � � E�� 93 1 �SP , e�h�� y�� ca� 1�r3 tih� i�?t�grat�c� �p�ra�ion? � A Fir�� , ��st �f �h� n��iora '� �iec�r� c ta�� lit��s ar�� nteg- ' � r��d �e�� c+�a�� s�+��;�m ��d �ai �ni� this syst�tn . 4 tFt� ��tri� s�� i�s h�� ed po��, p�ol s b�r whi ch the � �� comrdfin��e �:t�� n�g�� s��^��t�o� � ��ad vp�ration ir� C � a m�s�r��° arh r �t�a �p�e o��a �hat �f � sinc�l� ��et�fic � u�i 1 � �,�,� c�S��rr. � �'� �� d�� h� u�i i�3�C3�� h�v� made sub- � s�a��ia� g�$�� t� ��app�y�� ;�r� �co:a��r•ic ��d � e��l�abie �L �A��`d'A� ��'��'7,� aLi�pd� �e� M.sll�ig° ��.'Sb��t'� . it9� a{p� � �.1 � c��r��c�� a�c�«��1 ��Ps��c� �h��s� g�a�s a��th min�mum _ 22 � �d��s� �s�p�� i��; ��v� ��onm�r��. 13 � '��a� ��c��.� ��s �P�� se 1n order �o i �� d�r°�� %�.5 ��:�s�� 3�:., �� ac� �f �qu� �m��t s�z�e ��►d i 35 �� r°��aq �� ,� � �� . T�� bii ��r �o a��k� �s� of l�a la�� g��c�a��c�� ;�� E��h ��'8 �� r�n��iss�t�� low�*rs 1�' , �� h� ��r��m�g �� w s°��1�,� in ar� �mprove- i� `! n��a� o� r�� $ � �� s ;�qe�i�m�� q�i r�d f�r° ?� r°�s�� :.��:��;�, 2� � �`a�L t��s�1��a��;;� a��n� �� tt��,�� b�n��S .�1 j# ��a�� bc� �� ;�� a�y�Prm�a� � °��y �ig4� l��vel af e�ordie�a�ion sys^� 1 y GG �T��11�� l�� "B � � �C�w 5�� 6��'�, �� ? �3h�� e� ��+�� ;�S�E� �� ha�irag asf f�� l i��s 9 ��o�t as°� �4 � ��i 1 at��s �.�� C�� y��a �tast ��plair� t��at a ma�e�t? i r �� Ail ��c��;, ��a� �r�EL�•3�g ofi �ac� l � �i�5 e�� b� ��theo by � � � � a _ 94 :i m�ans o� a ,�€�� w��h�� s� a fac� ii�y dr �t can be �? ! �y m�a�� of ��-�:��e��,a ie� $h� ins�alla�ion o� �acil �fies � 3 ` wt�i�h ��x�� h� s�rn� g��r�Z ar��. � • •� Q S� �ia��5� ar-� �:��aE��i o�s� �� a^ ��l i t�es and :� �� fa�9� i��s �f ��:�r ac�� i ��s �n thi s a:��? 1i � � €� ` �� Y�s . W� �� .a�y ��.��3•c��n� v m��y 1e��e1� of �' �Q1 �� a�a�� g �:i� �� ►�1� �� a�� i �fi�s w�thi�r mur own �� u� �s° �� c��fi��°e bc+� �h�� r� �� used �a t1e �� ± th� p��'��ir�� r��i 6 �� m s� �&��st� �� c�t�� pool s 1 n o$her � �� it) � ��gio�-�S e �:'. � Ok�y. �R�a��.� .�� ,r�� t�� tas th�� pQav�� p�� - �.�? Lh�� t�5� �� Y ��; �� :� �!��; r��t�n? �.:3 � � 3�i� � :l..i � �� ;��i �� y je �l �.� ,f �� ►! ��s !s ' �� .�;. �j - E f t �G3 !p s �i � �� ' ��. r� �oi f� � � � � SS i� i! �� (� .� � � � � j �� P.l� 7:'�.�3:tx�o ��t� ��°��.e��::�k,�:� �ao�. i� kraawn �s ghe� ! � j i�tic--::c�.r��.�.ra��:�a�. .�r��-a '�c2�dy�.:� �'c�c�:Lo �'a:� a�:canvm is P�t1�P�4 ! µ � � �� 1.'.[?G?"� c;.'��.'L,-' �!. 1L'�.-'Yi1'.�'c"''.x +�.�.1?..1.C�.£S l_ll a,�ZZfJ ,�211.1,.`1C:Ll�.t1x' YJC7Ci�.o , �� ! 17lC`:�t?G.�.I"t� i�.�`�� 4t7.<1:�.°:�1 `,.~�>�3:'vA iu�Ll_'L.�'� 1.`}c3.{C.C)�� u�1�'��`3 ��^^.�LO��,g � �� ' �f l��:iX^.�'s�.':s•'.'.1'e:�a t. �/J��;-c�L <'j�F``':�i."4��.`"a''tS:r� c�I�.C: �?c a'':a �3 i �'ZC321 Cia22e3.o � � �� "�3�.��'33`i��'�'9 c.a"i�. .9.��:�.5lt7:��.��+, t�?�L~.f'.:dPl �rl1.� �G�S�.L 'cl�"_'E..' 3.°+„°1.V�S�C)°s"° f � � � o«��:� u��.g_.��.��r es�s�v-�.��.��s�xs <<.�d i:��nsmi��.o� coop��atives � � � � n�:}�c �.acr�,�.t. �:.:5��_i.c�i, �:-�a �� Uo S e i3-W��at,a c�r �E � '�' i� It�r�'�.t��.��a�o �s��.�, ��_�:�W�.� � c�� P��i�F-� ��^a omrai•>>�ec� t� .,, ,i �^ ti � ,�,__ y �� 's� i� CcvC%�:'c;7.1?.-3'��i-a�. �=v�j.;�{.7°a's'�:s.'f.?� Gi �:�c�Ik��CtZti:`cl�.i1 ci:�l"u� C�7ff!��E,-'Y'�l'rl.Ori �` � � �� ,� ��.G:t:�_�.:�:?_�:� �wf?_:.� ��:�.t1i. �ir:�st�r_51,.i� w•hz�e f��s�.k�l�o � i' � , �� ii ��,��.::t��i�_�zo� f�a��:��.�y �a c��sE�z: �h� lo�d of s� ��' �� a:�� r:,��t:, x�:rz�.5_ �.s :�_�.��_��Yd ��c� ar�"��7 �ha� a��o�.uY.ea.y ;3 -�� °•��a,_._.�c� _.�_ <�z�Md ir��_�, �_� ;�a��azic�'r_� r�a��tt �y �th� outpu� of f� � _ :i�� :3��r� �.?£��.�.�g �.�:� _�°� �.,��.�,1. ��ay c�r �� pa��i.�;�i�ar ua�it, which „ :�.� �� _, �;:�c�"$�� .�:j.e� i:�-��s.?� �,-£ '�:.�� ?��.�s� >at�_i�.�� beir�g sold j� I' .�:'s �i `�:� %.m'�.'� 1�,'��.�.��' ��71�?.;_. Y"ic1� u. I1k.�::� z,tyr�C'�1 .��3 Yl�� C��g.�� 'C�13d1 ,�'.�_e �; 'i.t� $a'.i`!=�' �'`:?�.�.C'�.'`t:� 4�.i" s� �.��'�f' t�r��.�.: � } y�� =•=v; �f `r'a>'- ��.'i��5 �1��kFlU}�?.L� :llfiC3 t�C�22.'�c.'ti�'-'. P��?llOi(l�PS �:'� �� :I_!"3 Cs:w�.::.�"::i4:7?�i'f a:'t:3 1t�':;:.��.�. e+s:: ��.�c"3Y?a�.�s2'1C�' },:,��7 �c3:t{].r1C� a3'�'i7'c`131�.c3.C3'Q Ug � �'� �i �t?��-':::' a;.3:3P:+.`a�.t�.�::."Lf�'"Zs:� '.�v�'i��'a �i"€: o^�+_"itiE?C� d°e� �i1E: E:esc��.ange Uf i � � � ';�'� �� Cyf"�i:�a�c3�'(E'3'" ��v;.:.i:'C�}}' �''.s'at:� G�C: �:'ii=a�.:_`.�;.�t e:��" Cc'�pa'rR i�ej e :i • � • � 3± .�°: � � G �:i 9 e' ° 1.. �.. i �� -��..dae�.ae �r_."ac:�.�c�� o,.,c�xr '-hea� wh�rever !! �,.z i C�%ar:: `�?``:��.:r.�a.z� ^.�_i :�.}� �:a '�C�'r_��.'�'.7 �Y; '�L�3 C2'��T2�.'.Y'r3��.' s�it cl ,.C3W�'1: C05� �R �� ,� ` (, i:� }� e'2c't°! r_;:t.�.�5`t'.;�'W s:G �,�a' t•.frs?17 3.'4. �,c3 .�.�i:��..�'7��1 =�+"�l �3�'�V�..�� er�er9Y ! �� {� �".. �� r � �i ti i; �! �6 � i � �. �� -s- -;, A�_ , I; �_.c� ��vc��,mr�:�a��.�: a �=��a�c��.�lc�c� :��:.�a�t�je or a�a �me�gzncy outage � � j �� g�:n��:�a�:�.��c; �c��?.��s.��nF��.�o ThF• �u��ss�.r� co�s°d�ination � � � �.��.� ak�� a s r�cs�:+.:�r_F�� i�, �r�.v�r •�a �ff��°� ��hes� ��aa�s- I a . •�- �' y,� b. � t�.��..�i,3as>i J..1�. � .�:,�.lt�.i.).''� �1 Csi�.�ZS�.Z. �J brt��.�.gh•r G^�tfJ�U�� 6.��u�h 3 j� -�ia� t;_;�-t� �'��•v:��.�.'�7.c�� C�:,�i��a�, �,alsa.�n is �.nca�ed a.ra � f � :� f �:7C:`r3I�'s;s�"F'r'I� l,s.;�.�tY�G:�•:a�'f7�..?S� �.:'1C7 12�5 r3 �'t".'c'.i� �7� ?Q �:echrnical � � �� (R ��x� :�.��-:R�;_:zi��,m�:�=::i�� w_�-�aT��a ��;�i;.i-� �c3�nmu;�z.ca�?ons then '' �� te> ��=zb:.'�:a c?f �;.��:�- r�x;=rit�i�� a��,:�.:�:��ies a � �° _ _ .,. fl •�x��?�� :�:�.E_�� 3'.�� Tz�s con=,utex facili•t�.�s i� �'°� �y g't: �C�i�:i"t��.s.��a� 'i.�,.;� �'l=:C:C..�S,�:_�7 C:C�:iCil7lci�:3�_'1 lI3 �sllE,.T YCIf�.��a�: � �� i �a.f�"y"c?:��.��:E?%� s`�c..:l.iii3::='� ;:i;:1��3.t:+�� 1:�j.p..�t�..�C�, i:EJ ^y�13_S ��11GY71 1S �l�' .�l3 �� `n ` i � _ �� :t;ost,..`'t� e..f.`s�� J::'3 :�e<.;4d=e�,a_1.t�x1 i.��:s' �3%?� �s�lll'±'L'� IL rlc'.C'.E�iS�I'� L3�" :x.,_ �� c��.�..��:j±� :�.� _y_,�?��;��; uF •�c, �a ��°c�n�t o�F if.:s leq�.ire- '�-i �� .,. . . `' `_ ii 1t1i:�6,.:�� 2e�� c�,~1�7 C;':'LST,:�i1 �'it:+?�±'o � ._ :� j� L. �i� td::'.c.i::. �..:"�..�� _'.�3�.:?i_: a;.�'fc."�„ ;�fat3 ii��.'3➢.'�C].CjTI�'>C�� 1.S �hat Zl)Ce�.� ;� fi .!".7 f; 't`_t`� �?,:' c"i`;Tcl��.«::k�3 �'�a.. '��1 �,;��.W "r��i�i"L"� �O 1'G�1�� .c�n�8 -�he �.'? ; �:��.:d:�..�c�� i�c� ��_��r�:;:�e rr�i•.T�:� tc� ti�e ��en��:, af �5 percent of e.i> �1 t'.�3.fi:: :..ca-Vg1:A.Y°�s�Y=e..,..:=� :i�C"�:� ,�'I.�_''�`3 ;� .�``�i i� '�> �.��-.. �..:. ��.';vf�"� �.:._.�:+.-.�..L?r� i..�"]e;�i.2': �.� a1t2:� .��11 '�.�.n 'G�"hE? �1c3S't. �V2 �i ' �'.� i� iS:�;F}s� �'.,'��'sis'°': '�'S]'�=: �-^TCttW:::��F..'Tla.`_°.w�i ,a�t'�tx�''��z c.^<T1CZ $hv E:6:.�TT�O1Tly' c�.SP�C�$ � �' '. �� L�?r'i��.;..'_: d;'�:3.�.? ��': 'r';,'��:l:i��i_��.i� i=i`� �:�..� }_T� �i3@ Ctl�ll��r..'� _ {� �'�'_' �i �`5, iti+:s'iv' �_:C�'i�.0 `;J�7't�. 2'�:4:?•:,.'? jC? f''•:t?. �<3 C!a-u°'-(,..`'7t`Z.b� �'F��W '��:?S St1PQ�y r: . ;�`;- �� C4'�':. .t:1 '�.f!"ci;y �p�e_y'_1 :':'sc?.Y%� ':i'�_.'�:£.'c� ��3�'z7'� �S S!?3CFT].F34J S�. �'�.U�. s. f' ._ . s ��r�.�_�Y:.�� -w��: �:�.;..�r , ��-� �i �, Y4 a �, S_nz��1<3�_ �.� :�:,��1�� :r��:��, �:�xc p��re� is :�upposed �co i I , � M� �� ' � �� [ t �-3 ! g� � � � 6:71� �;lt`..� �.3A �f:.o :�'��3'�7.� a1� �"tI-v��3i�S d5�' ;�1cP ° S �ri��'C��_"cl't.'.@C� � i �C'..iF�'�I1:�TR1.<^'"a`°aa�..Lg31 .E'yC—.�.�P7�"J?"�Se f�i�id '�a�.1� tx�'�itdQ1L'=C C�Tl.'�].S'�5 CD� • � .i.iT!�:S c:17� aL7�J;��,".��..'�:C2S C�� v�.`z'1C)i3 i VO�.L3L�GS Gdh1.7.C:Y1 9 . � ��s�nd thw� �r� tC�� .ras4��?d:.«r�ec:��;.; ��rr��:�ds �n�� i� pla�es � ��l�Z �'� Z�'J`s' ��'�:'�..`��..t:. ��..}ehs�:� i,4.�k�.'�'`.'�.tt�i a�i�'� YJ�r1��T1�er �lA��r` � o�et+.� �i:� i��?� .,>��r�;f��rr�� `T';°��+ `�'t"i�3_u�2�..��A. 1::€"c:�ivT!t3.SS]_Csri :.'1��'�'t��k �,_ �.; �y��ry ��:�w�� c��.:��ya.za��.s.:�� ,�I�a��ris wi�l�i.ri �I�e Ci�y of � i � i�:.. �°�ut7.�.o '1`�5��2°c: i�.i� �"+_ I1=.:.c%Tt3,.a"E-1: t�� ;13�.�1 St1�7S1G,�'�].GYIu -�� 3��'�'Ibt� �s.�i',_;:� w;_ii:y'v rii+�'a:3.�'.:.`17l i:=+�",�th,.>'�Ci'_'P.i ��.-L' ��'c3YlS;RI.�sS1()23 � � � �� y_�� ,°��.��.�, i::ca f��^-� i.�.��°� �'�:iif:�'i��_s�,� ctx5" a��4��ii�ut�.11g '� . � .� ._� � = ro ��, �.< , ,� � .l.�.., f i��':byl�...l �.�"7 1�..:.7° �;..'s�::7�:.�+i1;,;35" �.�3�.��':'sy�1i o a.�"1_L�✓ �i;3s...L�.'� gl'0�..�c].C�e... �.�'V�..�..� i .t.�.� 'P��.�.��y. .L� �.�...�..`k:.}�e. !.� i:.'c�1....�.��.�� '`��i"d:'.�.4.� �Q �M•.Sl� C.l.1,LJ'�O��re~7 c Or t�1 � `•� �; �..��:� :�.�e.:G�_�.c�n5 �.�, c��_c.;�. •��a� �.>�?r�za�z�y �3�s�ribat�on v�.ltage, "i:� �� _�� .a.��:� <;��:r_�r-�� ..��. �e:,�� a_�.�d dis�xa.:�u�.xon �::s �� :��;f?-.:��;� + .�"' ,� xi.�� :��:.t.�€�� F��n ��c�i��v po�-,a•e� fr��ca th.e `"� �� 's ti'�-3 .. s�:� 4,'�" `y �'�': `" $'G�"�,�Zl��.�'J�1 '�Y'3.Y1S�° :�:.� c.�s�:�:kt,.z�i. b .;:� c��,•� 3:, x: �...g.: c�i �i. ;; .t.%'� �I :��t:IT:��'a "-t..��`t�'. F.-�:�'��3.�:.:L' ��.�:�«o j� 'F� � �1e L�C•[di `e:'L?.�"T� ;�''t°�il .::`�'<�:t9�':.:!.t'°:=�k:.i3 'd✓�1�` f:t�e:::i�'`1?11�`� �i3E.''t.Ld'E'tiYi ��].E: C�E�'T1E.'x'�.�. , �� :'�; i �:.?.ti3:._ �!I'�� _..�?%?��.?:i.�;::3�.G"zl�. ��f1'tT.�_� ��;3€2 �?��aliCi @J�l�t: '�YY�.� 2�+s _ � r?� � �s�.'`��.y�,� . i �'*'`'-,== qi �'�, k't:,.':� z }=asT T`:"=v'�l7':�.':3 t3i 'i;�'�'' �+.21�,:�?:.'"�4?11P;�:�r�:7 J%1S GY� �1c2j3'�' ;nTl�� {; ,.... . �� t�IsE::i° B:;`��E..�...i:.�?_ar� c=.'s:�.q.i i�??�:� C9V'�Y_�A�� as'3�G-�C��'�'��C� "��c"'lEZSIIi3.SS�.f�l1 �': �� 'ti�im�s�: <. ... U��c:�? c�'u.�.+';' :'.:3 C3'�'!a t"r"3�.t:' :rY"s.��il ca 2T'ci.�tG.til �'£.'�l1tPEC�. "� } 1 � � 9� 98 �� ! � s � � m��q�a� cb:� :�Ez�e�.:v� c:r ��n��:.;_�ag f�L? � I.iLy and ��ans- � ; . . r�.i s�l c?r� ��i;�.�.��.;�:� ��4��;;� c:� t�n� Sh�zlilf� c�h�.ch takes - :� i . �:�� <:��-rs �;�� 4�;�; :��.c� �'i1�.ch ar� �.n�er�nnnec-L-�d. . � �< ��i1E'.�1 �UL1 �a'`c;a�� P.?..-7.;"�;"s..:?a 1_'�`Sva?;'; e',"° r?� _. �1��<._ �re, �.n f-.he sa��ty factory :�� L�y��:r� �oL3�_ c��.�::�.��;:y �� h2 or�� hanel ar�d �he expected � r�; � ; c��;nK-?r�,��, r�� :�� 1��; �� :��•�� f�.�.r �a�y �a ta3�ls abouf s' � �,��a E � � f ,':�e �':�� o C,:� '� �• .�a F�':.•�:i,�`� c"� �:,�_;9�;�z;:'',G'_a.�R ,"i i°1 t -; ' - - i • c� 'C�'«P2 %.21c'3'k: a c:ki� Y?�•t7 D�JE'..��`t.' 1,7Y1C�EY':� J�,. ,i a �v ��. `SY�� . �.r� :c"•�c�:•;� �.�,� �� s�r �he ,' a ��__. � i_;� 7. c:.�.�3:?�:i!.�. Ilta 1' Il it r , �`t j i S,s 47�.a I�.�,�.� } Y o � . af �.�- =i �3�.�,,�',i7,.*�. �;3�1:�.:�'.i'I 1.� �P.E':CC?:;�s.3.TTtc3L`°��r �l� �J�.°Y'CE.'11t. '�;7 �� `� �� ;--, r��;�z�� ,�;r:-,� =k�='� :��c� ��... �yy� �yy �Yry �} /�y / p�rcent A�_>. C�.• .L..:.1 C� iN i�..16 �� V 1✓.8. !u� �� 4� i� �"i�.:.'�:s'.�"i��o �:;�. c�. l.�J:�.f.��.°.,l.�`��'.�'�'�.� L)u.S.TZ.� """" ��+i� �.8da� lJ��:C1uSe !' �-`=' ;? �� ;_r�� :�.�v�:G�_�.�:v o�._ �.��r_�t e.r::i�r;h R�;i��s b�=twe�ri Lhe i -�� f' t��.��._�.��'.�� --..� ;�rf_: �.::_�_ :�a�.�.� =��z�xi z� ��-a�� o,?ith � �caea�:r y; .� ;. �� ;i :r.��z,�€� � :� :�.� �- ,��,,.- :- �:� �; � ��t..,:Y�.�:_ .�.��:r�ve, e�r� � i�c.i--�c�inc:�d�ntal ;�;; �, ii ��.c�.;v, :z:; �� r� ��°�, E�_€��.: :-, :.� �w� �� iz��- � � ; ca.`4� ti 1 `" X��.c3;:?.?'� -� �.t� Ci"_.i�FA�'I._`3°L�C�::1.Gf`d �'Ol:i Wi1L?,�.t� ;� is ,, , _. . � b�.�.�?.i�? fi�fJ i1�t�i•�: i� :E��:':>"f�:�Wd"►•�:. iTtC's�d? ,:.%�J�C:�� rs�12 �7G11S' -=t} j� �3:iti:9`;{=t.:;t:,m�. s:.�r"�;c17�c'1"S'.�.� �'�� 3^'° .If:r" o �^��'i...`� ..':i __... t:.�..'�s.I t�i� �.�.Z e. i", •1 C ,I r _ •^ r:v� :� _��.��a.:��.�.m r�f ia �e�cer��. �� <=�4'' ,� s^�:��-'�y"cy cE.�.L,�.�.r_ ' ; �,��+ � e�`.a `� �� iv��r'<d �3:;`�?1�::?° 'K�� 5e.}"t :1'.�: �'i` �. I� .. r�e �c.>:�rr��.:�ora c�� s� p��er (; �;?r�;: ;i 'r�` 5� �:.r's��. F�.�� - ' ', :.�c .�� :��: ��,e Y��t°��-�� ;T:��: �� x�+��ma1�.y d��l� with? i �� '�� .. �'��.�:�• :.�:• :��:�:" ?:�� .�°:rk :��-��r=�a��-�ri ��i�h c.�Lh�r atc�.�is�ies a !� ( 1 i f ! E S • x� ,. .�-._`� �; � 9 S s �'+ 1 4 ! � s � i wl.1a.�.�� d,r:�s ��.�� n�s�� 1�r�s�e�r o� �7e MA��? �aol, our f � � ��5iw�'�T-t,.' ;11�!.e'_'�.J�_5,`i� '�r��!"� :�?'iPiY1IT1C� �Qy �J �7-L��C�'1'!� tdZtl'1 - ;� � c:c.it:��.��.�;:�;r ��r«.�..�.�r �r�at�.� �.�aa� �,� hav� ��wv �li�h � � �� vur .�.a��e ��i.Y:.s gti7,J ��vu :.<��d�x�.l��y o�ea� �hat ��pe af � � � rr�a��~�� .�eq�..��c�a � � ! �. �44.e�a1r., t�ee�c�y �.�`-�� i�a�. :��:�e�.�.sf.�d ?.cac� gr�va��l� :i o� ��xe� � �a�a�a��=,� a�,�r� ?.:1;t� ��:. :��v��. ��:��? � � �:� �_6�� . l;'.°�:�?�� 'i�L:i »j�a .';?: a::3 i�C�:s�.�t?_.'.^.Gs ;'Otl�' -L'OY'�C�aS�o fJ�.E.'aS@? I �,� ; .��, 1�ii :L�g:�� :�?:i:� �;��°��;�� .�:��:s Lc, �re la�te� par� of ! i� ��_c��`s,4 =��c��. �,i3.�.� ��:a:��d�ns�� •�ra.r l��x�c��3 ��poz� a f4�rec�st of � �� ,'1 � C1y.]�" �:�ci.£S�aC° =�t�'�,�:Ei?:"+ .;��c.:t 1.C3 inTrl:),.��3 oJ� 3fG $:�'!3� �:3.Ili� dCZt�v�C�. - �� , �•� i! 't:51.4? :iI?Ci_k?�i�:r�.C� C�i��%4Lyt? �_C�'clf� �F�'33C27 4J� W��'� Z.YICLIP_'Y'1I1CJ �^r �� :C�'cz.:.�-�," 0:.. 't`..3'1�. €��.?v�fl3i:zsi'c �1P��a .�.-� . €#� " - � ` y i� 'A'�Z:..� r!�.:C�":�L:.�e... 1.'"Jc;.'1' •r;esv:.?1 �''t`1S C.;:�e�t�a_3e��.�y �.;dZS@� OLl� , ; �� I � �,,� �i .�r� ��.;� :��?��:�°,�: t.�:> �ct�� c�>t�r�4� �h�;.�. if� �aas a��umsed to :t.:+ � 3�e °��..LE. �c�s.ti�:�.=�.�:�.r��s�:.�_ �3�;�'��b�� :3.��? 1�� :��7.�o N��a �.he �r�wth � �� , � �1 �� .:�a<: �;a�-�.v ��,�:.�..:rr c��.� �:�sr��r.�=��r� �b �.�.7 ��rcent, �.� {�! ��i�''k:?_ti:'.�"t f„?C;�,,;?,'=�"x'4�".'i,� Ci`.:."�li.tCj i;si� '�L'iFiYIEI't��' g".o�i.l��„ .�.:� �� _ , I !� �;. °�i�r?.se�l: .�_>'i ci �C.4r",�.:.,c'g';."�i;��E`c'�. .�3u'� ��a."t� �yL3�U��w�p �u �,�� x� f� z (� d A. �L r�,.�.� c �s.'�s• i; r; •�± �` ��. ��,5..� .i.�� s'�:i`.°.L.�. . �I _ 4' r� C� ��. :3c�� ;��: �1�.r.�;�,; � �,��r��.i��s�•rr h�yw� �nE;�x� of L�� a�ta�a�. � �� 3'C!�:7:?.`sttt�:i°: ��.�":C'tG�.SP4�Y� 3.>� ?'i:�w�3S ,`..`° C�v"�t;�2� "t11sM' c'�M'ra��S e3X'� a �hou�and �::� {f c3 �� ac�..��;_.� _.<. :s -•-� .�:;� �;�:��r��v�.�� 4�h.ess� �-.F�a� �;��e fa��a��ed, f �� li �� l� i �i �.00 c��s �i .� ; S 4 i �. � la� ��a t�zi� �;�,:� ��he �r��.:�s ��t�� h�c�ia�h �.973� �i � �� c�. ��ta :;��:� :�•e;:�:�:�:ff�y r1�� .a�,� �_� �i�� a�le o� �age i af your � ' :� � ��?��.:�� wi r �t_ ��i1�� cc�:r�r��:'�e' _ � � �1� �e�,a �.i'c;:c ��.�rY•:.,�:_?s.°.�, c4� izda�a��e tha� an I9�9 our i ;i � �j �o:��:;?N-;.. u>�� ,�� I� ��s� ��c��:.;�.i ��ra�; ��3o In 1970 1 v 4•LL4 .LJ.��iC::.".S� �i"�;'e:LiJ .�^S"�f� Ali"7.'�C�w'Jtl�t�.�i�� GL�S� y�1� ��l..�Ci� IN�J � �.isUC� o x3? 1.�s`o 'w:'3iy iC:-:��E°�S� '-.�t�� 396 lnc?C3�`W��fCS� �rid � �h� ��.�::i.��a:.�. x,r��s ��';�� .�rs��z_r<::�-a�.��.�� . Tn �97�� kaP forc�cas� � �� g.��,� ��:i`�:: r�..�c��.�<�a��;� ��-� °:.:�aa� .��.1a.� �ra� 3�7� i�.iQgawatts o 1�.� 1� �21�_G�;� '�:�.IE✓ ".`t"�.CJ�.'t��4�� Evcxv .��E °c.3t2.C4 t:.�l� r�C$ �� e �lcg.�. OXl aIl 3.a. �� 413.�4.i.��,'i.:,v.:.�`..''i�. ..T[�:.::�� i`�ic?3 ..."„�i.1.°�.� �,';p°CjGi`ud'��G�o {� �.r, �j � �<i:l� ,."i'ii'' �t',.�'<'L�'.;:i::�h�`�.. .:(7��:ri^.i 1"!�::3t�E: `��"..Q aTp'tF O� ��:R€]S� ��C�11�-L'u i ?-�'i �; �:c�::: �Y�;=s��:a�-:.� �f,��_-.�;:��.. r��c�i��s.�3�s e �r a�na��aa1 ��ea�cher �� .:pf }� ��zn,±C�.Y.'Sr�?f:dr'Y:� ��:z'e'.;�A'�.h� '�::.i�£� ��.'�.ia�'e .�'_� �� '�: `�'��'i.'"..=�w� �1; *<� ` 't-;:C2 i�C��ll��:.��a �i:��: W� �1c1�T� ¢C31,1I1{�. lt W@ �� :t`r ';S�°"i". �S"..'•<: ��a I� iricl;:`.—.. ��:. �'��'�b"�°'::��✓_" ;?�;�.'a`IL'=^ rC3L�'��:�1_Ox1S .�5� ��1�?:f� ilgL11"ES / .?.�'� � `�.��:'sc�::. '�:�"L�� 1��?:�'�"�:.�.� t�lJiTt�Ja�'3.:��s"1 :�� A3iE��'t3CT�?'�e � �;`> � +�, ?;ai�"ie�3. j+'�l;. �';.::?.:y ` s,?t�t��F:�,FErCS E�g 'SJ'l.Z.c1'ts t�Ci ��'t� IT1t:�;.T3 J�;� �4I1e1�? . �,� i� �_� �r��:�.s a .:.T>��f y.:z�,`: ,��,�.a.-:�c��; el.,�v�.,:�v,;.fa�r b�i�c�� -tPzF7 t�c�ua� an3 r'��.� �� .a�''� .i� �"a("�^. .d..;�i ,k ..�. �� . �... �i �l. �a.. .f1.!_S.C,.-aC:;'9 t. , ... .+.._�'7:.i ..5.?��._c �� . if ��, ?9.s� �=�.Ci:;3'�, ;€�.t�` . :ht:: ��Ci? c?��S".f�?A;?.`. xC:�:t 1L'�1� C�l3f�E?Z'�12�2 }3��W'�E'11 �'� 1 r_ 7 :��.� '""� � .r...� ��,��-e q .'° '.5 '", >" � ..+ J �� d.C"'_'4.:;� . �.ak.}. �. d. q:....� �t:s _ �^ � r�:.." x. I: . � �?'v: � �; �bsx��.:�� :rn,u ��.i�:?�:��:� �� :��`�:s ��a.� ;r��€�h�� ,�ras rt�t ta�p vo the � ; �<? !; ��.��.�.�. �a�a�: ��: :r��.��..c�� :��: i.� �:��u�:�:ed durai�e� �he p�ak i C: ��i �f 2?�'.-?;'�_f"...�� .id':�?ra';. �� , z.:'i� ��'�a�.:z:°�1f: '��'at:<� ��lE' ZaiC�°�i,lc�.._ �.t?�l(i W$S { r ! 3 � i � � �� !' ` 103. �� ;p� �{ � ! � 4 � .. � ��c��f.:°w� r�oc �,ra_�.�r i�c=s��,a�� o�' t:he w��.�h�r, ��. alsa �� 2 � �pc;ar�s� o� ��1�� t�!i.5� �7s� �f ��ay� Pz-r�g�am �ha� we have � � � bc:�i� �s�.��?cip�?�.�.6te; a.na - �`�' f Q� 1n r�.h�� ;;s-�:�a i,:. �r�;u ��;�� o m�:f.� a wa�a��heb adjtzsfi� � t 111�Y�.� �:t3 '��1=x's'� �:�w;l3:it� Y�t). 'r7f�i2�_C; c'ut�A��. S�� o3I1��1'C.'IC �BC:�t�S' i . � i' ��.lA:i�.fl2 C�.��4�,- ,1.i:'•r �'a._�`2��'.`�..? � � � �.z_ -- � � � Is� Yr�� Q� �,:��.j..,_�3.3r �U::° '•?;a�. �t`L';•F�,�..� ��b1.�. , �.i�..,'G?�;�� i:�'1� ��? �S� O� `''� � £ Tj� �` �,.� �' �• ' C' ^y �� '' '�� C.Sl'� ��r��0'�1 T�?IG3:��P �C��.C`c3i:� <1I� I1C:f"v�' 'C.Z�t. �°zr�,.� �.:�L�A_.'��. <� li .�Ci `' ' r° � ,= �; z Z 1 , �,- ' , . .� ,..� j s 1�,G. c:.._, c:d.. 1�;.'�1'�. ��J�;E.�.'�E.',.� :�_�.. i' •> t �•�• �i az. `..i�i3::; b'v�c.rc:: �.I��;� +�".�``' �;42•�Lri't�.. -��,;C;.%:i3Ii1 L:� c'�, pY't��s'c�;Tl 6r7�.1C�'1 '4r1�S _ � . f`� �� ;"t1�;�Gc�'s`:.�'C� .�. ?1�.',�:.:� c3"�f� i� �1c'�� ?t'_' �;.C+TC7 r.."�l�S? 3iT �:2 �'�ft1Y'� tC� t �� j i�il4:i:3::�' �.�3.et1. �.:?:!��;i.71'„^7•vi �Vt?Y,� bl?.i��.i3C� '`G�1� �3�$Y`. �:IC� Il1C'iSt i� `?,f`` �t r,-.r.,.S.7:.i y]�:?1 t. i?.S�T: �7`: C�i:;.l: �%��li�3:�?.� ( a'�) �_i: �r7�.t�> 't.`�:':i'� �:,�=" .�.�a� r.�l. ��1:'�r�:�L":��S�C�g O� '�%1� �I1��C�� ': �i h � �' �' .(..°�"?!t�i� cM.a `'t�"�r.' ��'�'.��'r±A�.�.'� �CI^.-.Q�v ?_�. Qi1:L' �12C��Tt!?�1�. O� ��10 �'•''P �j }°�s:=iA.a�'�i� U:ii: ��!:}_w� �j3=::aa�.�i:et�it :�t� ��?.c�": 'i:�.�Z'E' �I��u- �v'�!I] � �i �;� ; e3��3�ct ��:�.L.;��.�:.��s ��. •�.�a� er�i�t��Gy ta��p b�� i�� appeaxs �i I. -�•� �; ��'„G us::. �-;2SL> t�i: � :i��:c"t��.L:,:a.4:,�gR �e":A '��1E: '��?Tii�YiQ l2SE.' 3T2 'C�1E.' � ��^� i �llii�,.:�3�"� �„.., s ,�,.. �� '�. l�d�u? °.�f°..s��i f: w'�3�, ``.s'8:.��' c� :,��lt:i�l�3?�� c.y-°�P1C.� �Xp�a.3.Y1 W�'A�t `C..11C,' I t�.:� E� ��..��.. l.�,.:.�':�.:...�.'t.,�43.�'. �..•°:� k.�.}.�''.,'�1�.:.�,'�4'w!a `�'4�i�4'�.�:5.:� �.��: C.�.ZZU. ��Z��'� �°.'�.�� 'J^ . i; ,.< ik G:� j ��7C315 �dc`3`�.+"> ,�`.�'l.-''� �.i�.:'v':�:.'' '�"sJ'"3 i:�.a.�?l�a o �� i� Fr� !?,��. .:°�CJi1'�:.. ._.rC� �:%?��''L�'`,� i?a�G., 3 L ��i�: W2�'� .�.O�.�i1X1CJ u� �1� �' �r} ?; :�'.`s��L�� ra" .�1i. . -.`;�'L �[:� �_�3r•�E'�..��. i!f?�ii:'� '�'�lFK�'`_'� '��l.7..€i "�l��s' �T�l`�F:I'3 �f ' � _ . � �? �t �� tl !� ;�y ) �f �liG s �� 4 ��.0� �,%��r a•ti cr�?�z��ct �� csx�:�3.d�:z�ir�g �ch� ma�cimum i� , � �E de:cc�r_�s� th�� ;c.a,�:�� in ��y ��x� r��y as ccsm��ar��. �a �he � �� , � i� �:s:E;Fi":?C�Z�� c'��A ��'n :�.:Ci 'Li22 :�1:sI112Tl�K` �.'� 15 Ut11' ]LiC1CJY,.�Ilt . � �; �.��c� �:�4.:c �v.?-��. •.=��c ��.:i�.s� i:� ��L �izminish�d �.s rrtu�h as �! � �� .h� .��:�•q�Y �:�c��aiy��d�:��E� ��c��s� e�i the �ac� the cus�cnmer � `�' �� ?P�L��.:�� t� ;:�� a�.l.:��ac� a.-ra �ec�bac�? k�a:� �ase of� say, air � � - - � �c�;^c��=<�r�:i.�,,; �� ti�.�� .r�a.r�t; }��:-u �.f thc da�r i� e��remely �� . � �� `SC�`i;.�. 1.� c3. a:'e?�� p�,rr�<� �k"; d:L� C�.7%@C�l�°i.C?f1$�'P '��?� 31� C(3riC�ltl011e` 'i � �� .1�a �3 t�.t Y:°� i.`„'� i.�.�a=, C3,�'.•�., 1} � �� c��t. l��j:�° _�..r.: - °�� . r��l�x°�� z �thi� r�ra�ti ran� csn �the L 1S i i � '7 C.'_., `e :.::. '� �-.::.� -r t" J � .L _ �i a�. �� ano'a��;�. z��zml.3��- c�si r::�_1.=.�.arz�.'� nr��Y-s, csr h�caev�r you t�lk �, t • �� ?� ��J%':'�; "�;.i°.c?''�., �`3.i??°��rj 'a:.I1t� z�k�c°:.r' �;.�'2.e�.Y1 °�1�1t7� �2clVE: OY�. Gdr'1£..'}�-G' tf:tE? �l -°-"= `s;f �G:,-:i�C �;.C:'T�n�! ;�:�_ {=:�zC zt7ez:i.t,iTt3?°?'4 :1.,;; C.''fl c5�1�� L)3l�.' G'.e��? � -�.°'�• ;� �'�� .��'.�C;X�.'�e� %�S �.:c.=: c�� .i!� �L.1Sfi't��?'' .'_5 �:`U'1GE'.7'ri�'C�.. °:4 s�:> ;� t�?�Y c=F:; _�:r� te:{ �� .?�.��a �;°c�EZ� a,��e �� ha� ��ae ur� :� l�+ ii ;. �3��<'s;F:+-w3: ;'�?:��4 R,.I?c" `�"Y.��-$��'�YZ; c�.Y.S+.',Ri '�11t? ��C� �k1r31'C C)11�' den��nd i1 ,� '�' �� w��.��:� ��,�, �:,�� 1.��.�.;°zcy �.� �h��°e �� c ��aan �he ener9Y, �; °.<�'+ !i Y'�"°'a__:� ?:-=>°::i?:.�:,� .;.:�''� �:��.r_• a�'�i�;.�aTtl �,.�.�ad i:�.G�O]" b�l.ng r�dL�ced; �� I� F�? �; �r�� .� r��.�`,�:�:c:��. �?�a�� °�.h��r� �s b�ix�� ed less �, :,'�'s �� :�i'.�"w,C:;i:Ji..S?c'.=��'� li �.� (� �F�li�'T��fyY::;��.. -;v rd�,�.:ra i��`I�� .:��',fi CC>�'�: C3� �Qt11.�IL��l1�. �pZ'�:s'3C� �� i ( GC �; C9�.f:.?:d: i::E��C;�s z:.l..S.�AVJt�,��.'1'. �"it�t2�:' uc�-...4_t?5 ai,'.��3' �'�►'�:I:s2�G-' P�=OS� ��' ' jj r-:R�: !; �7 ��..i �j yt.9..t��.1�C'��..{.. �:`.l.Ie..+.�� .�i...� .�l.A''J,L'i'..Eii).i:��C.ls 'i r �_''. �' f�� !�'��fl;�.t...' �ib;`^ ;e�:''t;: =icc;:��.".i�:"^��:3� '�t31� S.�"� ��c�� '��'A� z'a�7:�s"".G-�k�i �.OdCZ �� •- �::3 t; ��.�',�.:>'.�' �.� a:E-.'�s.:?>� ._"�.:�.�"43F��-�?�? �i ' �; 1 �i i� �� Ei _l�3 � 6-9 � �io `i'h� '�.�a;.� fa�:��r, b,y cic��i�.�:��?c�n e 'che an:3u�1 :load factor, � fcor :.�.ns��c:�, i� ;.h� ��ae:��.�� kii��rat� :liou:� �:e�uiremerat ` 3 �a��ri c�9:��'i.�y :�� a° �.iy�ac�� a�r �h� �n�axa.�tim kil.c�watt . � ho�� _��ai:��:�-�n�. -��k�?°► c�3,��zri� �.?��e �ca�c, � i ¢ O'�ay o F��,� ��.� �� .:z-� t��s�.�; c�i ��.ose fs.�u::��s ar�d � j �t�dya ��c�� a�c�;�sy��.�r�� :i�r ].��'� loac� e;rr��h? �' A. �es , %� f �, ��3c+L�� ,�,, ��';4_ a�°s �r��s��•� a:�-�� n� m�::j�a�- i=�c�ox�s �Y��a� � i �n.�+_:?�r�:�� I��r:� ��7°�j�a°�:�c� rc�� f;.z�u��: g�aw�h csf � �3.�.�+ ¢� ��e.i:ri.c:,��r. 5 0:�?�m ti.�. �� ,> Td�T� ��::'�G �i.v:l^] 7:i:�.��:. ��::.�i:^is.4a�f�::� SSI:�`�C'' �r`� �r25� .�.�C�� g�0�1�.1dp _ �I �.:� �� uz�� ar �Jaxy t::�; :.s a �:��v.u�� ;.� cT�.��:z�as� �h� ��ro�a�th; and �' �`3 � f:��.�n� c�a::t�44r ;�o��a�, ��.=:,��r �.�� q�_ctv:��g s:c�nc�rn fc�r th� f 1� �! c�yr�t:��z��_Y.��:r ��r ��:��-��a '�5 � T� :c��.r��-�.f °.�� ce �:�a:�.�:�i��.y � �a:��y �:o �:Ize effc�r� Z�`.�' � 'i.�3 �"e^c:.iFM:. :a'I'#:* �'�4,�1.5„f.��t`'-. :;��ttt?1:3C75� t:.1)� CZ1��Q��t�':�'� o � �I :±T �� T;c�°;�p c.�� i�.�::�r� �:€��:.R��c;:��.� ��.I::i.� �.Yp� af a'��.�'��ad� o�a 1; :��3 �; a ��:�� .� ir�.�c� ��.:�: ��;��c.�s��a� U�hi.ch �•r� �:r� assu��ning .�."� �' �!�i.t� ��.'�' G:�r�.�..F�t..�.�.+�..�.� 6��C�t� �.�L b.S.�.'yCt��G.� �.� .�9��.°dl C�� .�{i.�'�4 �ldC�l� �^y � 3 '�} �g .n. y y a. .�.,L, ..''.*wl � ��.�. �.�ii��3 �bY�..13.L l.E.y.,i:Z.�s�..'.��:.�ti g` �L.l�i<:�.�. �.c., T`tT:l..L1 �'�� ru��..C�� als t.11�.�J ,°�_...'1. �; �,�.� �;`�.'?."�:r;:f1{W� �� 4"Y� }.7"t�•��?.:c.�L-dCA :�, Sc1"i�.l.l�c�.�::3Y'a fs�: �:�.i �:JZlt�3.i'..3.�rilE2Cj� W@ . f� . �es #i :�r��;:��3e��:c� t:-.�2� c:��2��:��;��.rac� �:� c3�� c;ta��o�rte�s �hexnselveso �'� t� '�`i^.?.:> :C't�"�.'?.f� ':�.'±::'s�. �i1;'�� :i_,`-_-.`. :�S't t�L:-r �(:3—C.`s3�J..�.�C� oL�i�ial !` � �?� ?= Ts'�c C� L'C:�tt?4°'•�,�':., �:�t!i.:e.�.Kl ��e`'� i:�7'�:�' �"S.E?�'G� �G(� s�S 01a:C' 1��K'EYic1�l`7E � � � . �. t �1: v °.r�� ,� �� 1C�4 �� I !! �. �1 ! E:��s��1 �."�:.=:��Q,�a.:.>y,r <:�:;�c� •�I�2; �h��.f� � ��adu<�.� �~�duc�ion then , ? i �':��cEz �3�� c��F°a.c;:��.�� m y? .��:��r�t c��J�r3. �a � �ercnaa� I�y ' .�-�.� � ��'��a a,3;.C1 �.!��2�. �1�i�°:'.•.t �� r3 �7 1:.)e?:t"C'�T1�: C�'��t:�r�� "+� Z9g�.o �tt �f d. �� iVtlt�Yr L�.s�;E:Mr �.�s�..�'If.aY� �il��.i .t��.��_�..i�'='1�.�''6..�. t�lAG�� ^J �� :�"A� r.:;E%�:st:�.;�'i,:w� s�z1..4c?t,:�,:.s,(��10 t1I"st7 'v}3'3.� 3.a C)�S€.' [.��k�.' `L�1v° � i .�3 �^::��u�. :-�!?.��°�4> �.r��.1 C`� t�.��fl.�pi3:R1 �°3T1� rc'a� g'LSC?l��'CE.'S � �4 � � fi - 4 � { �R�i �:�:3.i' ":�.�.os`i?''�;;�,, �1�"E'?± :zY?t� �C.3.� ��1,f� ::D�.Yl�a.'.�°�T t"�. S c3 'W�l.O�.Ga 6 C�''`a � ��e.�-3.d G:ii'�i'k'�".°�n �le�s� �?tit": �� _'GC� ;�.;:p 'j'�'r."i�P7: E'� i � �•� ..�.'C�Y'1C t? � �� ti,1S�-' "`�4j :f."w�`..9�2;'p"i.:'i��.�?3i,�'^ � r��._� . �- �. o ;; � �.�3 �� .'2��.�.;� �d�:r:�E�•� W__. �;z a �ti.x��-�:;.<y�z :w� inc��a�� he demarad. E .. j._�. �t 117i. L�.�:d�:�r. �LL l.�'�w CLt..'�.F'��: l.� ��f�i°L''1 €� '{'6 ' C _ � c�.V J:^ �.;�2,1... ��/�� O� c3 ::? �� :��'�f:.c:::'� i.a; c:''i.:�."��?.�'3T"t:�' •rF-C.' �2�`c�'fii:�c?.ZEi'�e�3..i]��t� s3E°xCs�'tl��' �0��.'C3S� �ClY' 1:� �` :��;�.�s.�.�:w._;. �a�°�::�.''�c�c�.�.^ ��;,.��, 'a3.cyt� .�.� �:��'�:�'�`ed t� as �� ' `:�j `rL�.1 ;<t; �? �4z3_ :tP4:;'r�s.x_i.�;�s:� :[�e��c� �°�:c��d �,•s�z�c�� eant�aAU�� he �r��xd fi �;r; � :�-W 4�, �� - ::c;�c:.�:n:,� �.s-i J��%;�.�;h s�s� �:s�� r€a3�:�a�g �u� g�c�liminary ,� �� ., �� : .�c; i� �:,�I�c�,..��.�a�� ..�: ..t.a��::��a�ra:�� .�.°�4�:� �c; tha� s�hed ��.e with ai �� j± '�;Z.`�'.. �";:?�"�.�'he�-�CC';� �.��'3 I!r:�.:.�9'� t'�u i•J�; '��?�. 1;:1'l.E:�� 'v'Y1C�^o �3k.'C(?IC1G � _ �;� i1 ��t �.�_. l`.2F..::.L . i.i.��.Z a t''^.?... Tb�L'� �'.+�..�d 1.2.��Arr�.L^ �.:.�C�.1� S�OwLd�� /J� f.Z �( "..�:? �; �%`_:�±" :�2' `FG��, '➢.-: ir7�:�a''-c3Eia�s 3.a " c3qt3?.�'�c�9 �Il C?YC��' '�O �i __ ,`"•:�("3 �'I i:��".,""�"�^1l`'it�.i?:�fz%�'i... ''r.�2:',. zrJi's-'"�=. C�r.'.�"v-�r°'..�2E?r�"s'SC��,.�j'a, C7� '�J.�3�' ��"��.°��'u� �� '.. (! L.�'1c�f.`_ �:I.nie_. � tl `�.``�,c.'. �� -'• �v��yC}&� �_��1":L.12� `�'C`l=�ab`_, a e��9.?°i'tti.p �°��:i ai��g.�.1C�Y1 '��'1� C,�..�Tfi3.P1�S�11IlC� it _ �, �;�1 �� .C?�� ,:3,�t z"t;�;it�'x� ��. i:`.Y'��'a:: t�3,L�t: ��:'�Q�6 f[:�lt� C:�1�:�C.-'�S7Ei'�].�I� i r'�f� �� s'7.': �°I��:�'�.�oa I:�:�i�:; �,°1:c1'� %i?,:�'2�'i "Gr!c?:'Z:. ��'i:? �'".t3�,�i�. il�� 0� en�rgY �� S� ��'s de�3�r.��a.� i)s :��.�(6i,�:,Y 'CaYi'c: �i�"iC?. �°�.�� C3� �'�E�7`Gdl (� .. e � S C71' 1Y1C:�'�t'3S�' �iI (� !(I (�I i� 1; ��:� �� iG5 �' � oi ��;� �ac.� y�.:?r i,., c��cr��_Y�g� � �, Al.�. �:�crh'�o '�:'r!i:� ��r��1c� ha�i�� i.•�� FaE��cic u�on �"r±� .� ?:a.'�� .fr i C�f k'��v'��'1 �3�7f.'�° '��1�: �is'y"a�..C3�.:�a 'Y-L�'-c17'. . �'� ¢. N��, �ao�.x�.�. �c�� r��w..r. �� z� �,.a ��?��E. •��b3� �� pag� 7 and r �= �x�b��a.�^a ie�s ��, �:t��,��. -E,�rr� f.o�y�:cz=.��s �h��c �r�u have, +�ne � � Hi��:��.c;a�. ":�o�;a� C��cr��s �t��ed��is� �+xid t1�� N�r�n�ti�e � � C�'�5��'i r'C3:rc�c:;�'�:7 4 � �. z�'�;� . �:�� c�.k:,��.��.�,�n �f�. ��n�� .��t �.s rh� Hi�•��r�cal Lo�d �� G.a.C3tv";;.i2 �'=t��"',^�'r3,`?�;, 'i.�'�.� �t7?'�a�c�1�� iJtlt7_�Yl :13 d Cl,�#11id�.c3.t1V� � i ��J ,3 9.?_E ��a:� cjr��.�-.:;� �l•a e�.r Iea�.c� �;i�:��ax �.o �tcn� ��ype �-� i o� r�;�cac�°wI� ��n"r_��: ��;� `f�a�.r� had �.��rirY� �� as�� A�d ��aer� , �+ "•�� oz'2 =w:��: �':�e;�Ft, �:t��,t�,�:i�2� G�:;� �h� �:c�_c rE�pc3i�c�it�g ?��d fo3ce— '�:3 � �;��.� �c��- �=,.xc:t� ;_��:� ��'7� ��.::�GUe�hy.983, �rhick� are �ased � � �� u�r-s�� .�S�P�2:�;��,.�� c:�i��ae��f� grr�ti��.e � :;� �� :�c� ��.�r� ��. ��r��.� �c�ir.� �ak��°� au� ��'wt�z �.��s 9 01 i � r �`'�r� � ��:z�€:r�;a ��{, 3.9`:'� :�5�z,� cj K°�c��t�.�j� c��c�ea��7. �ow�� c� �.r' ! `� �a��s:c°�?�.� �.��. _.9�3:i.e .r.�� ?. `.�Ct2 ='�'��:�_"c?r�i, � �:^��.E�zi�: ±�c�.z'6�_�'9", �O O��1S:�.2t� farecast. i !� ��-`�' �� a�za�� :-;�,:��;��a��-.��:t. �s� �ii:� �.c�1.�rnsb �e�ign��::<� Norma�iv�? ��; I! ;�a ''2'�•;� � �j �,� �! i �?2�� A,T1 't;.�"14; �a�:'2.s-`�i� t71`' da:1:1.C:Z�4.,� 1.� '�'.27�.�C �O:��C:dB� �1� '�l�E' ! � _ fi �'�,c`:: �� t•��..�t.:E. e�.3��a(f'� i�i.:_(�,"�_A C.� .hi:�Q7"� _ �� d e�;°a f(l F�. ��?".��:?�� ?`?�'�' 'Y"t i�'�Cd��: .�..� �1.��.� �rJl.'t�3 ��i e i� ��`' I1 �:c�.�, :�.�ciE� =��:s. �1�� r�.;��c:a:�� t a��r� n�za we ha�e ,� c:� � '� �^ ' =r = r � �- ' c �-r�. F ^ ^�. f�� iC;,,:' :�_�.'t;�._.��. �F.3�.ie�'f�.��a�.� a..4'°oti.,.� C� 'L".,.z4=� it?1"�Cc;:..� �r j i � �� .L� j� f� �06 �j f � � � 1 �h� .�� r�� 5`�'�r �y��y s�y�w:��rts frc�m �`�a� sh,�w�aa i � ° �'��s r�-�r��:�n�c� ;�. ��c?Lti r � � _ �_i.�n i� �i�� u.,e of �he �a��omers � . � ; . � �:s��; ��_:�_��c€��;='� �f c�qz.��.�n�` ra�he� �l�ar� a chu.nge • '� � �sz br3v�.�r �e:a�:.�d c��;;��.�m � � ,vc�� r�;�� ;�.:i;:4:��.i�oa�. s.a ;a�na� �this �.?ap�c��d ugiliza- F� { . � �iraz ca:� �r.�t.�i.�=�:�-��aa��. r��.B?.� ��.��•i ir,�e �a� a�e��l�aes° yea� a�d '� j �I�z�?� �� s�I:rv4�. �.��t ��a i��:�t��;� �� ar� �3.:�c�.rir_ I.pac� dtae � i .R. � l..�.� t,.,li:.a°�. :t:�,��':°ji�.�.�!�. =�b+�::�% r�L�.� ''�+�'1�1I��. t;�l��.i� .P',��.��:5 u � `-� 1�Ie�s�r � ,;c��.a c! :�.::'c� ��s �€e�.c� �h%.:�o �.'t:a� �t�.t r:Pq�i.x�enterat !� S.'s� �� ..� 4..1�,?.�f�... �r�r{�: �.X�7iAt.�L�.G�F�� r�� :7.3..�i� �5�� r�ls �ufi. �C�.�P..rJ L �0�4.1 f � `! _ 1.� !� �,:�:�E�fti�.�-�,o '��:.� ��yt=l� d�s�;c. �� i.p�?.1 1�t �:af 1�`l 3 a On �� i� , �a>�.?. :�.-�c ,�.� s.�f.� �.e��L:i}:� �.lsl �� .�� e�c-:��:r7 c u`�.li�ies f:� �� _x'l '+�o.f'�.2 M(.sLZ.:�7y?"_i c�...� 3"�r�:�.�_s`?r,.� L.t� ��.£.-' ��J:��L�'2 �`�L ��"I�':L�' 'F ., I� ,,_ r '.c�.c.:.G;� ?°�Jy"r�l:e::";f_ ... . {j N o {E f� . P;..� �� !'_S�t��JilG;7is'�L 6c.`�'s €.3�.i�' �;��'°ttii..l?. 2.S '�:G�YA��.II'�c2��.� �E�.F1C�' 11 - ��.:� �� :�s..z�.;;�,;�s �;i4,_�� :� �.I��.� ��a a�:ila9_�.i 1y �.h.-�n tha� �hen '�he �-' �� °�.��:a�=� �.�.. :�:.:.�_�.:� z,�.��sf. .��: �� Z ils� f:h��e �t►�.� be :� j l�, ^R :^u � ¢i;'3 �p ��t=s�1�_�' �t'�:i;C�'.� �.�>:c:i?�;'�� 21caCx:d e:.C+ 'i-�'��' C(:��"�C+�c�S`L i3u �3s� U3°_� �TG-'�x'o ��Y �€��.;� m �- �i �� Sj �-� �� i; - ji �:?;7 j� f' �i r�3 �I �i 3 , �f; �� rv:� �j �i� � i, c 1 �{! `�. � _1 107 � 1 � Q Taki�g ��zos� �'�r��st� �he� fnt� c�nsid�ra�ion hav� you 2 pa�ti��p�te� i� �� p1ar��3flg s�� ade�itional gen�r�ting � 3 ��ili��s �y �^��san o� wh�t �� r��al@d by th� forecasts . 4 ��dfl if ��, �ro�� d y��a d�s��ib� wS�a� �ho�� plans are? 5 ,� A Y�s . We sh�� gr��h fro� �h� y�ar 1�73 t� �he ye�r � 6 i 198�, a ��r�� riodm o� 4377 m�gawa�ts : Now , that is � ir� ��e� �� t��c�s�. N��a g��i��°atio� �h�n is requlred ta � �!. c��°�r ��i�� 7a �n�ig�wa�ts . �ddi�i�nal �o that io�d re- � �1 , qs� e r�a:9�� r� mc�� c��•ry �h� i5 �S�r�Qr�t �°es�v�v� �ha� we i �.C� l c��5��s�� e�m� ��sts��s ag� �� p��id� �'or th� for�ed �1 � o�� A� ��ai p�s��a�;, �e�d �;�i s 15 p�rc�n�: r�s�srve thtn . $� � ��c�� s��t�� 6�B ��a�a�� t� �he r�q�� mer�t fc�r new � I3 � ��a��. � �� _�� "�� w� ha�� qui ��mer�� of 632 megawatts � �� or �u� ��#�� r��rsfl d�t��ng �hbs p�r�c�d pro�ect�d �or 1� i �� r��i��s �v�� '��j� s a°�� e�� om�s about because of the �� b;�o'��s��v�y �� q�a�p�rl�� nd ��eaus� of the envir�n- , f� � �� '��:�� ,^�qu� ��s rrhi �.h canr�6t �'easibiy be �° � n�& �� h�� rd ��sy��. r'�� 1 ;�� his �h�� ontributes �� °�� r� ��3�m� ��° �� °�.�i�n � ��. �; . , .� � ��3ra � tiy , ig� 19�3 a�� w�r� purchasir�g 550 ( �� an�g;�i�� ,�� as�d �hf� �e r��e fi�el t��d�s the reserv� � �?� } �F�a� �� t��h�,:� �� st�sn� ��' tM� ��r��hasss ; so our tru� �� °�r �c��a ��i�� !s '�fi�� d�d�3tidn of a� l af these 2� �� i��f� �� a��1�� o�� 'a� �t�e �utur�� ro�n � a 108 � ot��r �� ii �#�s �� us� a��t n�n-�xist�n�. In fact, e: �� e�� + p��pZ� �al � a�g �S �� p��Ch�S@ pG��r f0� �h� ' �� a �� h�� w� t��a1 t�es� ��w f�� lities required . �. �� hav� �n <��g��ga�� requ� ��m�� o•� 6?61 ��g�watts . �� t�o�s �o ��cr ��s o•�q�i r�me�t �hese �; g��'�'�i�g b�� °�� b�A� co�na�i��d ana are u�der i ��o�as��^�a��o� �r� ��;� b�� pi�c�d 1� ope�ation s�nce �h� �; �97� ��z�� ad ��;�t��. 'f�� f� �s� �ccur �t t�►e Pra� rie �a I�1 ae�s� �?��i�� ,3� �� h�� pabi l i ty of 1510 �.C; p�i�g��s ; ��a� ��p� �sla�cd i'��ac1�� Piant in Wisconsin _ �� ic� ��6as��.s �a� �;�nb�s��e� ��bi��s ard has a capacit,� . �� s�f � 3� �r,��.� ; •��n ��o� L��C� �]a��, �nz� aga�n a �� '�b��L��. �°�4�'�� $� M��n�so�� of 187 megatwatts ; �� :� �h� :��a�� ;'o��;� P�ar�� c��1-burnfe�g plan� of �.v � �6� €�r��°='�� . �� ±� �� h� ��;��t�� r��hin�s tk�en , �b� eoonmita :t� � �� €��a�� r^�:�� °��3 �a��g��s as ��m��ed �o �:he � �.� i �7�� 3��c?6Fdi�:�� .53"�,��'��C$ �� Y`��U�i 7'�[�l��I�. � �a� � � �c��s �� t4�� a�Er� ��n �s��;a�d. i�11�a� do�s t�a� me�n� ; �?� � �a `:"E�i s ��4 v r��4��°�� ;� �'�a�;,��d ��raugh t�� oard of Di r- �1. � c��S'ss'� , 22 i 4 I��.1F �l��gh�:e Tit��°�s �� dd� �i�� o �hc�s� yo� h�v� somt � � , ; �� t �a�� 4�� ►i��ry�r�� b��d? ; �4� ; �a �'�i��t�o &�� a� �� 7�� 1�€�ks �*�r�� ar� �� h� prac��s ; � �5 �i �� 6�� r.��;�s��;�;� � �i �� : '�h� H�a�ad��son Pa �s�� , �fli�h 9 s � � ; {� �� 09 � a ��a7Qb��g �1��L flf 1600 ��gaw�2� e�p��i�y; and the 2 Tyro�e E��r�� N�c1��w Pi �� i� Wisco�5in which has � 3 � ��p��i�y �f 230Q ��g��ss of w�ich �� ie9pa�� . � � NSP �m��d ��r� �� 7Q� m�ga��tt� e 7h�se t�o pla�ts 5 �� th�� 33Q0 m�g��$s . 6 � �� d3i�fi�� 7y w� ar� cons�der�ng tha � sha�i�� p g��e� ��i�� h� eh ar� loc�ted E � ��s� �� c�� a s��eJie� �r°�� a� � r�'�h�►r �t��ra�� iev�i 9 � +�fi o�rst�r°:��i�. �'� �r� ��a��d��°�t�g �h� i�st�l3�ti�n of 20 � ��s�� i��a� �s�a� �� on �� g �mmta��i�r� �urbin� plants i � �3. ` a�� c�di�� r°� �i��c� c�n�►c��+ �ri �h M�ritaba Hydv�� and , �� go��:i�� ea�^ �� bt�� i��etg �af �:��ra i��gh voitsge I! a� �� i�t��r�t��t�:�9 :�� th� R�ss�ci9:�s� ��' p�e��r ��►m �la�i�obs �4 �! E�y�r�e .� �� Q f�� 3��;�� h �h�s� ��a�ts and �lane�ir�g have f�fl 1� � ��a �� 1��:�� ; �� e�� 4' ��r ��i 1 � ti e� a�d € � '��' ! �� i€� �� a��? f �.� � � ��s o T�n� ��:� � �-��; , ��i�:�� g ��r5��v�s 9 ar� c�ertai n1y :�.� � �� '�� .� � v�ratfi��u� r��ca'a��i�� oF costs . &!e �� i� �� +��. �s��a� �h� ��s� s��i y°�ars th�t th�s� E� �� .� e�� ,� �� `��o�• ��a ��a�i a� �� u�: 7 ��°�� p�r ye��r, whi �h mea�s «. �� r��'� �F�� :;q��n� �� ab� �o�g �v� cost ev�ry t�n �4 .��°� o 1 �S 'st�� d �� 1 ] a�di ��o��l and r � 11� � ��p�nsiv� ��°�� s°��n��r��ai p��ti��t�on �q��pm�nt �dds to 2 ��5� ��c��`�� °�ces . Cd9w� �q�ipm�r�� wF�iCf� COSts ^ 3 �146 ��r° �i �� r, �r��a11 i� 3968 fs �s�ima�ed to , ,� ��5� ��r�y �3d€f ;��?r k�3�� i� ��76 at�d Ov�r -�- w�li , 5 � ov�!� .�.��6fl p�r k'� 1��.:�� t ��i�l . �.ar�e t3xp�ng�s alst� � � ar� b�fi s�� °t��a �n�a� t� �°ate�fi'i� �xi st�ng �1 ants wi th pol l u- � ��a� cc�a��a�� c�q��3�� r� �i°�� '� anew F�d�ra� at��9 ai J�a�� y" ��ii1�� 9 �� yv�f��UG'�.r�6I� • r Q Yo� c��n�� n��t� �h�,� ��r ��c� i ��s b�ir�g planr�ed z� �� 1�Y°� ��y°� �� 4°?�iM ��i�L�9S�s��9 ��ii'b�i3�5 �l�y��"!d ��105� - �1 p��.��,� ��.��>� . �'��a�� y��a �x�l �ir� wehy �hat is? � I� � A �� c��'b�a�� a�� a��:� �hat ar� � r°�s�a��B b��n ; � � Y 9 �.3 l� �� tia��e,��i �� i�oc��: t�� y�ar�s age �r gr�at�r. �4 �i E�� m�� e� �bc�� wo �rc��rs �go th�t becaus� �.� �4 � �f�e� ��a�°;�� b'i��n v�� t�a� sca�rit� �f p�trc�leum -�� 3 t�'aa�� +�'�� `c`. �t�� t� ��d� �"�t�e��l �t �-burni�tg �quipme�t. 37' �� T�t� �� ;e�� t�r�� es �r�� ar� exc��di�t 1 ��rac- 41 - g �' �� ; ��s�� ;�t�i�� '��+�� t�, yt3�' ��a� c�p�1�i �y c�� +�►�'y mod�� Fe �9 ':� ��S��ct� ��w ;� �J ;� �;��; �tr�� °�i� f�� b�� r�.n�� as ar� , �2 � 1��'�e�9�'� � ��1$� �� '��v��y'��c�� i1�� U�k�� J�! ��F� �P6C1"@�S8 � � :9h�� r�� t��^is�� ;� ��st �f :��ply�d�g ��lectrfc 2� �;�a��^gg+m �� ',��9 b�� p��t ��° ��r�Kb��sa i�a �dd�tio� to those �� Ca�tN �4�s�)��'c1'�'�?&� 'a:�P;� � �'�i�S n 4��1�� 9'� �1i[I fA t$ $�9 ��1� 3 0"�c'! I . ,i � il � �sf tr�r�sr��i s�i or�? .- � A Each gert�r��rtg pl�� r�q�;i res � ts ow� aut�� faci � i ti�s . ~ 3 So i� par�li�l �� ;l� �h� ��gnir� ��' �t�js r��w g@c�er�t��on . 4 will b� ��;� d�s�g�i�g �� w ��ansm�ssi�o� facfliti�s and � �� p��ali�l �.��:� ��,e i��l �ati�a oi' �h� ger��rating �qui�menl � �ei � l b� ihe �a�s��liatio� 4�' e�� °ansmissfon faciliti�s � 6"�gL�� l°�t� �� (?� ��i" $:�t� �tf�l�S�ti�SS��1?� SyS$�� pd't4'�OUSIy � C��C6"��@t�. � � f�.��r, v�� i€� �� czs�� isia tt��s by �aicing 1U � . a k ��`��g� �� : �� ,r�i�. That�r�a�s using high _ �� 3t�� s��r�s�a� li��s as �s ��t�7�, �r�d u�ilizing . 12 �x�s��g ��s �� y ��^��r p�s.��l�. Se�� e��r� �a 33 �h�� s�°� ��a��.sa��i�y ��t��di�:�e�� v��d b�c�tos� 3.� } �i�i�r� has b�� v� ��;��c�� a��r��s� ir� th� cs�s� of 15 � � #��r�� ar,s�a�� e°a�� €�s� s i i gb��ly iess 1� � �hs�� ts3' �t��t��`�s a��'s. 1� � �'�� 1 �� pt�in� out ��e that �us� 1$ { �n �� p�� c� ��is��;�ta eaa�v� �sei�� 'or ��t Ls��nsn�issio� 19 � ��a��;�� a�� :�� 0 r��o �t? � T�� i� 3� p}��°e�� 1� �o�� r��s� �� '�s . �2 � C� a�� 3��a �� A 4��r� �;�c� i� °�e� � � a � � c��aS� #�� b��n I�rm�yht about becauS�r of 1 �� ; ��la��c�a� as �a�:� 1 ,�� h� ��d �o �n��t �nore string�nt E �� i ��a��;��1 ��q�� r�e��s , � 34� v40� �ol� i i�� t�� c� cost i t( � � t� � � 112 s• �pAroxim��e�;� �5590QQ a mi �� eo b�� ld for 1967 s�rvice ''- � $s �s�im�#�� $� �r�� $� 10�J�� p�r �ii� �'or 1977 service. � :3 � Th�s e�s� w� � 1 �a� �o��thi a�e� hi gher r�fl�eti ng �h� v�ry _ L� � l��s� �s��m�� t'�� w� ar� r��c��vi�g •Fro�n day to day. I &� i' Nev�r�P��ss a �r��n�c�i�� o� s��l� t��l� tQ �nld down f 1�� a�ivn�r�r ��'��s>�s �� h� p�w�� suppl�• cos�s . � Q I� ad�#�i�� 6��s� c��c�i�� costs �h�� y�� h�v� mer�- � � t��r��, ha�� €�u �'sn ��n��d��d i� c��r�e��i c��r wf�h your � ' �l�r��r�g �i�� E�a��s i� ttp�r��►t� €�xp��5? 4 �« i � Y�S . 3�� s._:e�� s �a�i��, �s�� sh��g up �he eap�tal + � = �'� � c��a ar� p�°��a�c�e�e� ��r �:��g�� i n �p�ra�i r�g �xp�n�� , ' .:C9 i al3� �t�'�� t��'��.° �?��' 6�'e�� 0 4�b i�� 9 k�.11� @ r��IQi��Y�l� i p Y'��Q�.Ct�� U � �.:� { �h� ��c•�� °��. ��g� ��4c� is c��si�� v�ry ste�dy j r�- j ir��r�� w��a�� g��°��p� th� �a�il �tt�s . ! �.�� I� ��t�;�t��°�� r ��g�� cam�i��d w��h �.�> e� ��;� ��°�� °�€.��i pr�� e� �� sc�r°c��y o� natur�al �.i' �� g�� d ��:�^��a�t ��z i� p�.�dt$o�g �p �F�� Ct�st of �'��1 ?.�; �'�� ,yas��i �q�� ;�#��i �P�?�ic, ;�a�i�n . ; ,. �.� � �'c�r� ��}��€:�, �� psr�c� ��f �� 1 r�ext ,year, 2.� � �h a�� 'B�� , �r�� y��r° �s e��pa�°�d �a �h� �a�e o� the �?1 &� 1 �� e�� sr�r�� 9 � � p��d t� b� d��b�e and "�� tr�fi �� h�� a��e�, �+p y��d i� 1 � � � C°i �L1 i � • l. 2�, , �� :�� r��ra� �fn�� i1 �s bei�g purchas�d �4 at t�i� ��zabr �:d ��°��:� ar�� , ta� ��ts�s� � �i � w�s avaitable �� '�� m��ay� ��;��;� �v�v� �;t�� p�°�� r�f �� dos:�b9�d ��^ice � � i13 � which v�� hav� d��'�`��d �� rchas�. Add�tfonal �y , fin 2 o�°��r• *o t�� h� ��t� �� as�d F��eral ai r qual it� ` � r�qcsi ��n�s �� m�a�� m�� iow-s�al�hur westere� coal wit� . �? �as�:�rr� �a�� ar°�� ^�du�� stack dischar�g� within 5 � t�t� �pgrop��'�� r��sl ��io:�� e � T�a ��o�+��te the ��^a�s�or��,�ian o� I � c��st��r� ��a� �� K��a� P�� d t� oi�� Hi gh �ri dg� E � ' Pl��a� �r�d ti� �u�° �� k �o� �'l��t , � co�� ra�sf�r stat�on � � �� r��c��d �� r��o�d �h� �c+�a ��m c�nf2 °�rai�s9 b� �0 ��ic� �h� ��7 �a k�r��ag�� ro�n �h� �i�e� to �ir�n�so�t� , - ' 11 �t�t� b�r��s � ar�d �;fi��s ��i � ��,y 1� �laetat�d te be ove�td by ; . :�2 � �t�� 5�firs� P��i ��°� ��ri�,y ��d i�� te ltSP . 1.3 � �'h� �ta�� of� �o�� t ith� ��xisting pl�n'�s r � �,4. � a� � ��s�� c►� ��tm ��d �'��- io��s�i �k�ur ena� , th� pr�ss�r� �� f o� �te�� :�a�t°�� e�a�� h� ��<��city cf l�vam�ul ��s�r 16 4 �31 ��'�i �� °� ��i��e'� ��1��ing r°e�t�ir�men�s �� , :i� �r�d�c�� ;�� a�� c,� ��3�� h� e�� a�^� �1�a�� do�abl� tPat�se �.� �� E� �'�`�-�-,�a � �a�;'�(�o �� ; � ��s�� ,�� ? �°r��t , �9�°. ��Dass � ��a$ is y�ur es�nelusic�n as �O �� i�� :�� ;� :��t;��a� �� c��s��°�c�i�� program o� �h� �1 ��t��,�r �2 �; i�� 9 �� ;��aasi�a� �� a ��r°y r��7 ��c�ssi�ty �� antic� � � 23 �� 4� �� gve� o��° p��da�c�. �� tt�¢��ting to bu� ld 2�. ��s� �� 1 ��, �� $h� r�� f��fi�e rr�ana��°, a�d the �� s�e�ne�� ay whi�t� �;� �� c� �h�3� �,o r��orkir�g w�3th oth�r 114 1 �a�� l �� a��ci b� ��ir�g adva��ag� a� �� la��s� �echnoi�9Y _' ar°� sig�� f��v�� 9 �ea� y�� h�s� �av4�gs ��ill ap��a� to be ` :} sma11 ir� co��ar�s�� ai �� ;�i� ��s�wu�tir�� ana op�ra�ing • �� ca��s ►��r��h �r� �sth��i��ng d�ub3ing ��r�d��ci�� . �> T�e �s�S��b� l � �y e��' ,�� 1y ar�d a S�b— E� S'�s�91$�a�� 1�'�$ �(T � p7'�d,�d3ti:�F�c�ti'�� ,'��C��C �COf10ITl�/ s � ��v�v��°, a�e �� t�k�� s�p�r��i�� ma�rat�is� a �� sys��a� �«�pa�� i��g �h�� r��:�< �o � � qs�ci y�� a� �� t€�� b�a� �h� ��bFy�#��a�1or� o� �.�� 1 ��c�;� �',�� ra ��e�'�°•3�i��r as a �� t? f �� .�. � � F�� .� ��F� ��°�� a� i �� €�t��;�°f��,y. . �� i ,. � �:� � ��a ��r��o�a � � �� o ��tn�� st��,s � ��?. �� °��xy�s� ;, ��:� �x�rta��°. � ��' �� X��iyET�'E� ��t?1l�t�J��T : "��rg� w�1 � . s hat�� ' y�+�� P,�< �1�� . �°�� °� ��c��, 9.��`:� g� �ff �he rec�rd. � s �' � y��i ��iE�.�S '�-�E(�4��'f� . � ; � �� f ��#��u�s�� a� of� �� r�co�^d. ) i� I� ' ��;Ea�i��'�F' L�<�C�Q�IS� : Q�c�,y+ m fh�;n �+� �►111 be , i �C � sr� ��_° ��;i��a��al� �� p gz�f�� i1 �rs�t��d 4 :�Q? .��- ;!R o ST��R�� > �� th�r� p a ck f�; �� i f �e have �� , �� E9��'m�d d . t f �� R. �'�P��?N : F�ett�e � �� -� � ��:�r�� re�� w�k�� 12015 P .M. � ��-r, i �� r E fj , � i � � � �` .� +� �� 3 � ( � --------------------------------- In the Matter of Northern States Power Company�s Petition to the City Council of Saint- Paul To Re.view Company's �Zectric Utility Operations and to t�pprove Reasonable Rates for Sales o£ Electric Energy in Saint Paul ----------------------------�----- TRI{1L BRIEF CITY UF SAINT PAUL R. SCOTT DAVIES City Attorney THOMAS J. STEARNS Public Utility Rate �xpert, Assistant City Attorney May 1, 19 7 4 . � t v C 0 N T E N T S Pa�e T PREFAC� 1 II REGtJLATORY LAW 3 III TEST XEAR 8 IV PRAIRIi: ISLAND NUCLEAR GENERATING PLANT (UNIT 1) 15 V RAT� BASE 27 A. Original Cost Vs. Fair Value 27 B. Construction Worlc In Progress 28 C. 3% LJna.mortized Investment Tax Credit 30 D. Worlcing Capital 31 E. Plant Held for Future Use 34 VI INCOME ST.ATEMENT 36 A. Sales for Resaln 36 B. Abnormal Cost D�e to Monti::ello Outage 38 C. Rate Case Expenses 39 D. Annualize Fuel. Costs and Fuel Clause Rider Revenues 40 E. Year-end Customers 46 F. Donations . 48 G. Increased l�'ages 50 H. Tncome Taxes 52 VII RATE OF RETURN 53 VIII RATE DLSIGN 61 � { � • I PREFACE This is a rate proceeding brought under the interlaced provisions of the statutes of the State of Minnesota, Minnesota Statutes s� 300.03 and 300.04, the Charter of the City of Saint Paul, Section 16.01 et sequa, and the franchises� issued by the City of Saint Paul to the Northern States Power Company for the years of 1973 and 1974. Being a natural monopoly engaged in the generation and distribution of electrical energy, as well as other services, this power company has been able to guide its own operatiion and dynamic e�ansion over a four state area of Minnesota, Wisconsin, North Dakota and South Dakota without having any consequential restraints imposed on it. In North Dakota and Wisconsin some extent of regulation is exercised in regard to the rates it can charge by the public service commission of those states. Minnesota had not provided for even this limitation on its actions until quite recently. In fact, in our state, the only rate hearing to date which directly examined the revenue expectations and its expenses was found in the City of Saint Paul. (Tr. Connelly, February 21, 1974, page 271, line 25 to page 272, line 1) . The customers there represented approximately 7% to 8% of the system demand. (Tr. Connelly, February 21, 1974, page 257-258, line 3) . Outside of Saint Paul, the introduction of new rate increases followed a rather summary pro- cedure. The imposition of those rates was left to the Company and, as a result, there was never the slightest trace of regulatory lag, since, as explained by Witness Rosenwald, they could be set for all of Minnesota (except for the North Dakota Division) simultaneouslya (Tr. Rosenwald, February 26, 1974, page 570, line 18 through page 573, line 13) . Saint Paul procedures are established through identical provisions of its 1973 and 1974 franchises which are found in Section 7 of each. As outlined, . in case of disputed rate increases, a rate hearing is conducted with the expectation that the City Council will ultimately make a determination that includes an ascertainment of "revenue sufficient to provide a fair and reasonable return to the Company and to cover its reasonable costs and operation expenses allocable to the City". The basic authority for this concept lies in -1- ! � Section 16.04 of the City Charter which prescribes the setting of reasonable rates by the City Council, Limitations on the operation of the Company in the two franchises are confined to simple procedures at the local level. In the main, they describe the conditions under which the Company can occupy the public streets and places, as well as the manner in which it can conduct its business within the confines of the City of Saint Paul. The rate of growth of the monopoly, the areas to be serviced, the capitalization and the conduct of business outside of the City of Saint Paul are, by necessity, left to the discretion of the investors and the management of the Company. The risks that accompany the exercise of these perogatives in investment and financial consequences of such extensive undertakings are neither assumed by the Saint Paul consumers nor placed upon them by any law, charter provisions or franchise directives. They remain with those who can operate with a free hand in making the determination. Following the procedures provided in the franchise, the Northern States Power Company presented its petition for an increase in its electric rates to the City of Saint Paul on October 12, 1973, Documents accompanying this petition were filed then, and also in December of 1973, and in January of 1974. The earlier ones called for an increase in rates of 20% for the City of Saint Paul (Tr. Vixo, February 28, 1974, page 602, line 14) ; whereas, the later ones set the increase at 28%. (Tr. Rosenwald, February 26, 1974, page 582, line 8). The rest of the service area had rates established at a 15% increase on March 19, 1974. (Tr, Rosenwald, February 26, 1974, page 582, line 13). No explanation was offered justifying the 13% difference between the rates proposed for Saint Paul and those set in the rest of the system (Tr. Rosenwald, February 26, 1974, page 582, line 23), nor the absolute difference in rates for Minneapolis over those in Saint Paul. (Tr. Rosenwald, February 26, 1974, page 577, line 19 through page 578, line 15) . The only explanation that Mr. Rosenwald could propose was that there were different rates set for Minneapolis over Saint Paul, because more revenue was wanted from Saint Paulo (Tr. Rosenwald, February 26, 1974, page 577, line 19 through page 578, line 16). The hearing commenced on February 12, 1974 and was completed on April 20, 1974. -2- ` ♦ . II REGULATORY LAW Basic to the principles that support utility rate setting by municipal bodies or state agencies is the requirement for them to undertake to weigh the interests and responsibilities of the consumers and of the investors. The investors are not expected to suffer any financial losses by having the business property subjected to confiscation under the form of arbitrary restrictions being placed on their returns to the investment. On the other hand, the consumers, who have no voice in the management of the company, should not be construed as underwriters if excessive dividends, depletion of retained earnings, company policies, costly ventures or market miscalculations end up in creating a pressure for higher and higher rates. Neither one is to be penalized for the consequences of the acts of the other. Thus, it goes without saying that the balancing process is not designed to act as a guarantee for the business owners that a profit will be received regardless of the circumstances, nor is anything meant to remove the element of risk from the investment that is made. This observation was expressed early in regulation history with the leading decision of the United States Supreme Court of Federal Power Commission et al vs. Hope Natural Gas Co., 1944, 320 US 591, 603, 88 L.ed. 333, 345, 64 S.Ct. 281, 288: "The rate making process under the act, i.e. the fixing of 'just and reasonable' rates involves the balancing of the investor and the consumer interests thus re-stated in the Natural Gas Pipeline Company case that 'regulation does not insure that the business shall produce net revenues. "' (Underlining added) No commission order can then be expected to substitute itself for the operation of the stock market or eliminate the fluctuations that may occur in regard to the value of risk capital. James C. Bonbright summarized the function of the commissions and their limitations aptly in Principles of Public Utility Rates, (Columbia University Press, 1961) with the following warning (page 255) : "In the first place, commissions cannot forecast, except within wide limits, the effect of their rate orders on the ma.rket appraisals of the stocks of the companies subject to these orders. �lit� iIi �uc^. �i�:�:o�u glace, W:lutuver I:i7e ir.itial -3- ti � 1 . market appraisals may be, they are sure to ehange not only with the changing prospects of earnings but with the changing outlook of a volatile stock market. In short, market prices are beyond the control, though not beyond the influence of, rate regulation. Moreover, even if a commission did possess the power of control, any attempt to exercise it in the manner �ust suggested would result in harmful, uneconomic shifts in public utility rate levels." Throughout the rulings and orders of these commissions methods have been adopted to reflect the many complexities of the investment and the operation of our public utilities. �nce more, in the Hope Natur�l Gas Co. case, the �nited States Supreme Court advised that a method of calculating the net earnings should not become so mechanical that it supplants judgment and the "end result" of the order concerned. See: Federal Power Commission et al vs. Hope Natural Gas Co., 1944, 320 US 591, 601, 88 L.ed. 333, 344, 64 S.Ct. 281, 287: "It does, however, indicate that 'fair value' is the end product of the process of .rate- making not the starting point as the Circuit Court of Appeals held." The Court continued at (US 602, L.ed. 345, S.Ct, 288): "Under the statutory standard of 'just and reasonable' it is the result reached not the method employed which is controlling . . . (cases cited) . . . It is not theory but the impact of the rate order which counts. If the total effect of the rate order cannot be said to be unjust and unreasonable, judicial inquiry under the act is at an end." Thus, accounting procedures that may serve to facilitate audits or prevent corporate manipulations are not necessarily the basis for automatic formulae to be accepted without qualification in the rate proceeding either. In instances of such companies as the Northern States Power Company, which occupies an imposing position in interstate commerce, Federal law has made it subject to compliance with uniform practices. At the same time, the express limitations in that law have removed the Federal directives and regulations from application to rate determination practices under the jurisdiction of the States or their subdivisions. See: Principles of Public Utility Regulations (The Michie Company, Charlottesville, Virginia, 1969) by A.J.G. Priest, page 596: -4- + , , "Any suggestion that the FPC has statutory authority to determine the rate base (except to fix rates for the sale of electric energy at wholesale in interstate commerce) of a sub3ect utility seems aberrant. That concept is negatived by the express language of ss 824 of the Act. (16 USC ss 824 (a) & (b) (1960). 16 USC ss 825 a (a). And there seems to be no decisions of courts of last resort which even purport to confer on the FPC any responsibility direct or _ indirect, over the sale of ener�y� in intra- state commerce. Specifically, ss 824 (a) says that Federal regulation is 'to extend only to those matters which are not subject to regulation by the States' and ss 824 (b) adds that the FPC 'shall not have jurisdiction' ---with specific exceptions not relevant to � this issue---over 'facilities used for the generation of electric energy or over facilities used in local distribution or only for the transmission of electric energy in intrastate commerce. "' This observation certainly finds support in reason, for it would un- doubtedly not be feasible for a state body or the City Council to be forced to bind itself to a guide which is established for other purposes by the Federal Power Commission. As stated by the Minnesota Supreme Court in the recent decision of In Re Application of Northwestern Bell Telephone Company vs. State of Minnesota, filed March 22, 1974, page 23 "Rate making is a legislative and not a judicial function". The judgment on the proper method and the weight to be given it, must accordingly lie with the City or the hearing body that exercises its discretion on the question of the "end result". In view of the fact that change in the existing rates or rate structure is aimed at benefitting the party requesting the change, and may result in financial detriment to the other, orders of commissions have emphasized that the party making the request must bear the burden of proving the propriety of the change. Note the following cases: Re Green Mountain Pawer Corporation, 1973, Vt PSB , 98 PUR 3d 291, 299, 300: "It is the opinion of this board that a utility must be prepared to justify the rate design proposed in any rate case whether or not such rate design constitutes a change from the prior design." -5- � � Re Southwestern Bell Telephone Co. of St. Louis, 1972, Mo PSC , 95 PUR 3d 328, 332: "The commission concludes that as this is a new tariff now under suspension, Bell has the burden of proof to show the reasonableness of the proposed change." (A new tariff for hotel service) � City af Fort Smith vs. Southwestern Bell Telephone, 1952, 220 Ark 70, 89, 247 SW 2d 474, 485: "When a utility seeks an increase of existing rates, the burden is, of course, on the utility not only to offer all evidence to justify such increase, but also to comply with all reasonable requests of the Commission for full disclosure." United Fuel Gas Co. vs. Public Service Commission, 1969, W.Va. , 174 SE 2d 304, 311: "In a hearing of this nature the burden is on the Company to justify any rate increase requested from the Commission . . . This in part stems from the nature of its relationship just mentioned and also from the fact that it has possession of all pertinent records." Metropolitan Dist. Comm. vs. Department of Public Utilities, 1967, 352 Mass. 18, 24, 25, 224 NE 2d 502, 507: "It is true that when new rates are initially subject to scrutiny by the department for their 'propriety' under G.L.c. 164 s 94, the burden is on the utility to show that they are proper . . . But that 'rule is only a part of the general rule regarding the burden of proof, namely, that the moving party must prove its case. Thus, when a reduction or other adjustment is sought in an existing rate . . , which has been approved for general application, the party seeking the benefit of such an adjustment has the burden of proving that the existing rate should be changed." In accord: Sayne Land Co. vs. Pennsylvania Public Utility Commission, 1961, 196 Pa Super 417, 442, 175 At 2d 307, 320; Public Serv. Commission vs. Pu�et Sound Power & Light Co., 1960, 33 PUR 3d 1Z3, 118. Besides the establishment of the reasonableness of rate changes and rate structure changes, in Minnesota the Court has held that bearing the burden extends to all elements of the case. See: Minneapolis Street Railway Companv vs. City of Minneapolis, 1957, 251 Minn 43, 58, 59, 86 NW 2d 657, 668: -6- . . � . "We cannot say, however, that it is unreasonable for the commission to place the burden upon the company of establishing to the reasonable satisfaction of the commission that the book losses represent an actual loss of prudently invested funds, particularly where the city has raised considerable doubt about the reliability of certain portions of those books . . . If the commission does impose this burden on the company and the company fails to sustain it in regard to any property on which a loss is claimed, the commission ma.y reasonably refuse to accept such portion of the company books as proof of actual loss." Thus, in the development of the law of rate regulation, ance the burden of proof has been placed on the shoulders of the party requesting the change, a lack of proof must necessarily leave him without the relief he seeks. -7- . • III • T�ST YEAR In filing for the present rate increases, the Northern States Power Company has endeavored to draw a fine line between its selection of a fore- cas.ted 1974 test year and a 1973 test year which it submitted, by rebuttal testimony, was what the City should have proposed. It is not uncommon for a company to file more than one test year with a commission. Note: Re Orange &� Rockland Utilities, 1973, NY PSC , 98 PUR 3d 335, 337 where an electric company filed data for three test years, a 1971 historical calendar year, a 1y72 partially forecasted test year and a 1973 fully fore- casted test year. The actual 1971 test year was approved in view of the fact that at the time of the report of the examiner, there was only 10 months actual and two months forecasted data available for 1972. The test year procedure is merely a method of examining normal net revenues of an operating company to determine if a continuation of the existing rates affords it an adequate return. No one seriously questions that a final determination is directed toward the future; but experience is often the . best and sometimes the only precise criterion for anticipating what the future may bring. In the past, the actual costs of a utility's operation are subject to accurate calculations, the revenues are readily ascertainable and any deviations from the normal conduct of the business can be observed and adjusted to provide a suitable guide. Forecasts of revenues to be gained from revenue producing plants and of any expenses to be incurred from even the most stable of areas of internal operations invariably have proved wrong again and again. One of the best examples of the shortcomings of forecasts and their utter uselessness for accurate computations came to light in the two filings of Witness Frank Vixo. On October 12, 1973, Witness Vixo submitted his "Income Statement" as Schedule 1 of NSP Exhibit 5, and in January of 1974 by NSP Exhibit SA he had to correct the schedule by changing every figure contained in it. This change only concerned three months of operation since the October filing consisted of eight months actual and one month projected (or estimated) data. The January filing consisted of eleven months actual and one month projected (or estimated) data. (Tr. Vixo, February 28, 1974, page 610, � lines 13-16). -8- . . The dynamic changes (for 1973) appear as follows: October 1973 January 1974 Operating Revenues Total Electric Revenues $43,093,000 $42,929,000 Total Operating Revenues $47,059,000 $46,682,000 � * * * � * * Operating Expenses Production $17,232,000 $17,078,000 Administrative & General 2,746,000 2,811,000 Taxes: Real Estate & Personal Property 4,582,000 5,022,000 Looking at solely Administrative and General expenses, it is difficult to imagine what could account for the difference in four months of $65,000. This is principally an allocated figure (Tr. Vixo, February 28, 1974, page 614, line 25 to page 615, line 6) (Tr. Vixo, February 28, 1974, page 669, line 2) , and does not include the fully allocated franchise fee. (Tr. Vixo, February 28, 1974, page 692, 19nes 2-7) . What it does cover are administrative and general salaries, office supplies and expenses, administrative expenses, transferred credit, outside services employed, property insurance, injuries and damages, employees' pensions and benefits, franchise requirements, regulatory commission expenses and mi.scellaneous expenses. (Tr. Vixo, February 28, 1974, page 614, line 6) . Although the change must have been extensive, company-wide, even after it occurred, Witness Vixo could not recollect anything of any drastic nature that brought it about. (Tr. Vixo, February 28, 1974, page 617, line 6) . Probably more emphatic of the unrealiability of forecasts as a basis for rate setting are the Production Expenses that show up in Witness Vixo's two schedules. In October of 1973 they were estimated as $17,232,000 and by January of 1974 they came to $17,078,000, a decrease of $154,000. It should be remembered that the later filing was based in part on higher fuel costs that occurred exclusive of the ones covered by the fuel adjustment clause. (Tr. Vixo, February 28, 1974, page 602, line 20) . This means that where there was a decrease of $154,000 in Production Expenses, since fuel costs had gone up, the decrease must have been greater in everything other than fuel. Once more it was not so impressive that Witness Vixo could recall what occasioned -9- , , , it in a four-month period. (Tr. Vixo, February 28, 1974, page 611, lines 9-21) . Northern States Power Company has looked beyond a short period of four months forecasts in setting up its proposed test year. It has assumed and tried to visualize the effect of bringing unit 2 of Prairie Island on the line (Tr. Vixo, February 28, 1974, page 627, lines 1-6) , operating unit 1 of Prairie Island at 70% of capacity (Tr. Glass, April 18, 1974, page 1390, line 21) , and continuing an increase in service of what it now says is 3% to 4%. (Tr. Cox, February 25, 1974, page 497, line 20) . The history of Prairie Island, unit l, should certainly provide a strong indication of what to expect with unit 2, which has been included in the rate base by Witness Vixo in November of 1974. (Tr. Vixo, February 28, 1974, page 627, line 1) . As explained by Witness Dienhart, Prairie Island unit 1 was put to 124 pre-operational tests of varying degrees of length. (Tr. Dienhart, April 18, 1974, page 1416, lines 11-ZO) . During the course of the testing, adjustments had to be made (Tr. Dienhart, April 18, 1974, page 1420, lines 1-17) , and changes in the schedule introducted because of "significant difficulties." (Tr. Dienhart, April 18, 1974, page 1425, line 3) The changes that occurred in the scheduling were explained extensively in the testimony of Witness Edward C. Glass. He first revealed that Prairie Island was to be put on the line in the su�ner of 1972 and added as to later schedules (Tr. Glass, February 21, 1974, page 310, line 10) : "Q. There wasn't anything that set it up definitely for November of 1972? A. Well, this was the best estimate at the time. And likewise, we could presumably point to several other schedule dates that you may have in your hands, and each of these then were the best estimate at the time." (Tr. Glass, February 21, 1974, page 312, Zine 14) : "Q. Yet at the time that this 1971 rate case was filed you did not know whether or not there was going to be Prairie Island on the line? A. I presume that we had that knowledge. In other words, I think I mentioned to you before that the plants are changing continuously, and I would presume that between the time of this rate case filing of 1971 and now that probably our capa- bility figures have changed maybe 15 or 20 times. It is very difticult for me to go back and pinpoint one paxti.cul.�r. time and say what our specific knowledge was at that time. -10- # z ♦ � Q. Well, them what you are saying is your plants chanse daily according to the installation period. A. Some days. Q. This is according to your large plant; is that correct? A. That is according to al� of our plants." (Tr. Glass, February 21, 1974, page 315, line 1): . "Q. All right. So going back, do you have any plans about the Prairie Island contribution to your 1973 power supply? A. At one time Prairie Island was in the projected capability to meet the 1973 peak demand. Q. So at one time it was to be considered to be coming on the line during the whole year, is that correct? A. Yes. Q. And that is your first unit, is that right? A. That is unit No. 1. Q. And if it had been on the line in '73 it would have cut this purchase of 523,000 kilowatts, is that correct? A. Yes. Q. Now, this is where you and I don't communicate. How much would it cut it by? A. I would estimate it at being close to 400,000 kvw. (Tr. Glass, February 21, 1974, page 315, line 24) : "Q Now, my information was that the Prairie • Island was to come on the line in March of 1973 after it didn't get out there in November of 1972. Is that according to your recollection? A. Yes. Q. And that again was the one unit? Ao Yes. Q. What happened? A. It didn't make ito" (Tr. Glass, February 21, 1974, page 318, line 3): "Q. All right, so it didn't come on the line in March of 1973. When was the next time it was supposed to come on the line? -11- � � . ' A. Well, this is a continuous process. I would have to go back and review our papers to find out. I recall late summer of '73. I also recall --- Q. It was scheduled for later summer of '73 A. Yes, October. * � � * � � * Q. It didn't come on in that October, did it? A. No." The rescheduling was then adjusted to December of 1973, and it began its operational tests until it broke down on December 17, 1974. (Tr. Dienhart, April 18, 1974, page 1435, line 8). The analogy between unit 1 being set into the rate base in the projected 1972 test year adopted by Northern States Power Company in the 1971 rate case, and unit 2 being set into the rate base in the projected 1974 test year in the instant case seems most appropriate. Who can predict all the adjustments that will have to be made while unit 2 is proceeding with its preoperational tests, and all the schedule changes that will occur, from now on, Following the testimony above that displays the impossibility to anticipate costs and revenues, the case of Re Potomac Electric Power Co., June 10, 1966, 64 PUR 3d 364 reviewed the problem as follows (PUR 3d 367) : "If accurate projections could be made, it would not be necessary to rely upon figures from the past. However, the commission realizes the improbability of accurately forecasting rate base, revenues, and expenses. Rather than establish rates based upon such � unreliable conjecture, we deem it best to use actual figures for the latest available .12 month period, adjusted to a normal level." Similarly, where the order was issued in 1973, the Commission denied the company the use of a projected income statement and investment for the full year of 1973 in Ex Parte South Central Bell Telephone Co., 1973, La PSC , 98 PUR 3d 185. Instead, it adjusted 1972 to year-end December 31, 1972, a historical test period. Again, in Re Indiana & Michigan Electric Co., 1973, Mich PSC , 98 PUR 3d 475, the Michigan Commission adopted a historical test year acknowledging (PUR 3d 479): -12- , "In every rate proceeding it is necessary to select a test period and to adjust the operating results for known changes in revenue and cost levels so that the adjusted operating results of the test period will be representative of the future, and thereby aff ord a.reasonable basis upon which to predicate rates which will be effective during a future period." Also, see: Re Iowa Telephone Co., 1972, Ia PSC , 95 PUR 221, 224; Re Public Service Compan of New Hampshire, 1972, New Hamp PSC , 95 PUR 3d 401, 437; Re South .Central Bell Telephone Co., 1972, Tenn PSC , 95 PUR 3d 32, 36. The practicality of such an approach was repeated in Re Connecticut Natural Gas Corporation, 1970, Conn PSC , 86 PUR 3d 147 where the Commission rejected a projection of six months, saying (PUR 3d 154) : "Under the circumstances, we conclude that our determination should be based on revenues and expenses related to the June 30, 1970, customers, our reason being that this is the most appropriate and desirable way of evaluating future operation without having to resort to speculation and conjecture concerning future investment and operating levels." In the 1971 Saint Paul rate hearing, Northern States Power Company pro- posed a fully projected test year with Prairie Island unit 1 coming on the line in November of 1972. (City's Exhibit 7) (Tr. Connelly, February 21, 1974, page 270, line 21 to page 271, line 22) . Such a huge investment necessarily affected the size of a proposed rate base which would have to be assumed completely on the basis of surmise and guess-worlc. The hearing examiner disallowed it by adopting a 1970 test year with an adjustment for any possible attrition from additions to the rate base by accepting year-end data. The Saint Paul City Council approved the recotrnnendation. Now, in the present hearing, the same issue is brought before the hearing examiner. What has been raised in regard to prospective test year should be disposed of inerely by looking at the experience Northern States Power Company had with unit 1 of Prairie Island. Considering there is growth in the company, any projection including revenue producing plants, particularly those operating on the non-petroleum base fuels of uranium can only lead to supposition rather than precise ascertainmento The witnesses of NSP agree that it does not -13- . � have to rely heavily on the scarce fuels. Therefore, it stands in a very favorable position for the coming years. (Tr. Vixo, April 20, 1974, page i4s1, line 9} . Supporting the uncertainty of future data is the fact that even the ordinary revenues and expenses, for the shortest periods of time, defy precise computation. Therefore, the City urges the hearing examiner to select a test period of year-end 1973 as the proper test year subject to the adjustments that the City has proposed. -14- . . � IV PRAIRIE ISLAND NUCLEAR GENERATING PLANT (UNIT 1) Considerable testimony was introduced by witnesses for both the City of Saint Paul and Northern States Power Company concerning the Prairie Island Nuclear Generating Plant (Unit 1). The principal issues that need to be considered in this proceeding are: To what extent should Prairie Island be considered as an element of the rate base and to what extent should elements of ' revenue and expense be considered in the net income of the Company? The principal issues are surrounded by the underlying issues of: A, Was the Prairie Island generating plant used and useful to the present ratepayers? B. What is the validity of the adjustments that would be required to recognize Prairie Island as a plant-in-service during the test period; C. What will be the impact to the respective positions of the Company and to the rate- payers under alternative decisions to either: 1) include Prairie Island in the test period, or 2) exclude Prairie Island from the test period; The underlying issues will be discussed in order to provide a logical conclusion to the principal issue. A, Was the Prairie Island generating plant used and useful to the present ratepayers? The conclusion that the Prairie Island generating plant was not used and useful to the present ratepayers is clearly .set forth in the record. The facts are clearly presented by Witness Norman G. Rising where he testifies at (Tr. Rising, March 11, 1974, page 752, lines 20-227 and page 753, lines 1-6) that the net production of the Prairie Island plant for December 1973 was a negative 506,000 KWH and for January 1974 was a negative 6,639,000 KWH. -15- . � � This data clearly indicates that the plant certainly could n�t be considered used and useful to the present ratepayers when, in fact, it consumed more energy from the system than it has produced. Additional testimony has been introduced that the plant has not been used and useful to the ratepayers to date. NSP's witness, Mr. Arthur V. Dienhart, has outlined substantial problems with the Prairie Island plant since the testing phase began. A summary of the outages follows: (Tr. Dienhart, April 9, 1974, page 127Q, lines 8-23) : "However, on December 17 the instrument in the control room at the plant showed excessive vibration and the manufacturer. . . indicated that the machine should be shut down . . . and it required a period until February 4, 1974, for them to complete the repairs . . ." (Tr. Dienhart, April 9, 1974, page 1271, line 25, page 1272 lines 1-25 and page 1272, lines 1-3) : "Well, on February 4, 1974, the power ascension phase was resumed and was again loaded to about 50 percent of its rated capacity and continued to supply power into the NSP system. It operated at this level until March l, 1974. At this time there was evidence of maintenance work required on the feed water pump, and in order to perform this work the turbine genera- tor was shut down until March 4, 1974 . . . and the unit was restarted and resumed its power ascension. . . . After it resumed operation on March 4, � 1974, they detected abnormal vibration occurring. They decided at that time that it would be necessary to take another outage . . . to determine the cause of this vibration, and � that outage took place on March 9, 1974. . . . the repair work, which was completed early in April 1974, to permit the unit to be started again and resume power production on April 7, 1974." The City will further stipulate that NSP has again closed down the Prairie Island Nuclear Plant on April 27, 1974 when vibrations developed. It is obvious that the plant is not used and useful to the present rate- payers in that the plant has been shut down approximately 66 out of the first 97 days of 1974 and only operated at partial loads while testing. This is certainly an indication that there are substantial difficulties. -16- . ' � The criteria Northern States Power utilized in determining when the plant was to be placed in service cannot be construed in any sense to suggest they considered the plant used and useful. NSP's witness, Arthur V. Dienhart, testifies the basic premise for placing the plant into service was to facilitate administrative procedures (Tr, Dienhart, April 18, 1974, page 1439, lines 1-22) where he states: "Q. What were the administrative reasons that you spoke of for declaring the plant to be used and useful on a particular day? A. Well, as I understand the reasoning of Mr. Gilberts, the Manager of the Power Production Department, who made this decision, he was looking primarily at personnel and accounting matters, which indicated to him that it would greatly simplify administration if the change took place in the middle of the month and personnel and expenses and all other costs for the period prior to the middle of the month would be considered to be part of the construction project and all costs subsequent to the middle of the month would be con- sidered operating expenses. And this fundamentally was his reason for choosing December 16th as the date when his organization would take over the res onsibility. It did not, as I understand it and as I view the physical circumstances, in any way indicate that the plant was not producing kilowatt hours prior to that time, or t�at there was any . reason or apprehension in his mind that the plant wouldn't continue to operate." (Underling added) B. What is the validity of the ad'ustments that would be required to recognize Prairie Island as a plant-in-service during the test ep riod? NSP and the City agree that Prairie Island should not be included in the rate base without having recognition of revenues and e�rpenses for a full year of operation. (Tr. Rising, April 2, 1974, page 950, lines 13-20) (Tr. Vixo, April 9, 1974, page 1315, lines 24-25 and page 1316, lines 1-2). The impression was repeatedly left by NSP throughout the record that the simulation program developed by NSP could simulate all the ramifications that would need to be considered as adjustments if Prairie Island were to be considered in the test period. NSP's witness, Edward C. Glass, very clearly pointed this out at (Tr. Glass, April 9, 1974, page 1366, lir.es 14-25, page L^68, lines 1-�5 and page 1367, line 1) where he states: -17- ` � . "Q. Let's then go, Mr. Glass, to the next step, and referring to rir. Rising's testimony to the effect that he ad�usted Prairie Island out of the rate base because the revenues and expenses attributable to Prairie Island if it had been all year, 1973, were not reasonably determinable. Do you agree with him that you would be unable to determine the revenues and expenses attributable to Prairie Island for all of 1973? A. Mr. Rising's testimony has been given to the effect that adjustments to 1973 to account for the operation of Prairie � Island would be very difficult. Now, as a matter of fact, the simula- tion model available for this case, and, in fact, employed for the consultants in this case, was designed for that very level of difficulty. In the day-to-day operation of a power system the production of energy is in accordance with the varying load require- ments of the customers and in accordance with the specific cost of generation on '`�` a unit-by-unit basis as those units are available for service. The simulation program does, as its name suggests, it simulates the operation of all the generation in accordance with the same parameters used to operate the �stem in real life. A well recognized and widely used probabilistic approach is employed here to reflect the varying unscheduled outages of equipment after the scheduled outages are taken care of. If a new generator, for instance, Prairie Island, is added to the model, the program fits that generation in, and determines the effect on all other genera- tions in the same way that the system . operates or would operate it. This simulation model is used continuously in NSP's routine business. Q. Is that kind of simulation work done by your department? A. Yes, this is done under the responsibility of one of my departments." (Underlining added) Under cross-examination, however, Mr. Glass disclosed the true nature of the simulation as only considering fuel costs and not considering all revenue -].8- . and expense factors that would need to be considered. This disclosure is stated very clearly by Mr. Glass at (Tr. Glass, April 18, 1974, page 1397, lines 16-25, page 1398, lines 1-25 and page 1399, lines 1-5) : "Q. Going to your simulation program, you state that the program makes it possible for you to give effect to the adjustments necessary for 1973 with Prairie Island in, isn�t that right? A. Yes. Q. And that is a computation made through IBM process, isn�t it? A. �t makes use of a computer, yes. Q. And also it depends upon the accuracy and the type of facts that you feed into the roP gram? A. Yes. Q. As far as the simulation is concerned, it does cover fuel costs, is that correct? A. Yes. Qo What about other production costs? A. It has the incremental maintenance included. Q. Well, what about production costs? A. No. Q. Transmission costs? A. Are not included. These are added to the total package. Q. Distribution costs? A. These are also -- You understand, this simulation program is a program which simulates the operation of the generation on the system. Q. You are not tallcing about the effect it has on these costs though? A�. Right. It does not simulate the operations of the transmission or the distribution or the general office, of what have ou. Q. Customer accounts? A. Right. It does not simulate these things. Q. Sales expense? A. I say the only thing this program does is to simulate the operation of the generation on this system. -19- ♦ 1 Q. So then as far as depreciation and insurance expense are concerned, it does not simulate them? A. That is absolutely right. Q. Now, one I saw was fuel costs, and that is one that it does? A. Fuel costs, yes." (Underlining added) The conclusion we draw from this discussion is that there is not a tool available to automatically provide all of the valid entries necessary to be ma.de. The problem of developing normalization adjustments that are known and determinable and refineable to acceptable levels of precision, still remains. The problem of attempting to provide adjustments satisfactory to meet ' the test of being known and determinable was considered by the Georgia Public Service Commi.ssion when it dealt with a very similar situation in Re Savannah Electric and Power Company, 1972, 96 PUR 3d 464, where it begins its discussion at (PUR 3d 466) : " (1) In presenting the rate base for the test year, the company made several pro forma adjustments that were designed to reclassify its investment in j` the Port Wentworth Unit Number 4 from construction work in progress to plant in service. These adjustments included entries: (a) Eliminating from income and construction work in progress the portion of the allowance for funds used during construction that was capitalized during the seven-month period being adjusted. (b) Providing an increase in depreciation expense and the depreciation reservea (c) Making a reduetion to the operating expense to reflect a savings that might have been realized in overtime labor, purchased power costs, and the Georgia Power capacity credit. (d) Providing for the transfer of the remaining dollars of investment in the unit from construction work in progress to plant in service. The company takes the position that the only reason this plant was not in service during the test year was tlr&t it had a defective boiler feed pump, which kept the unit from operating above approximately SO percent of its capacity. It contends, therefore, that it should not be penalized by having this investment excluded from plant in service and thereUy be forced to postpone tlie earning of a return on its -20- Y 1 investment until the plant is 100 percent completed, actually transferred to plant in service, and becomes used and useful to the ratepayer. The adjustments made by the company were not designed to project any additional operati.ng revenues that the company could have received as a result of the potential sale of the additional energy that could have been generated if the unit could have been operated at full capacity. The only potential additional revenues the company did recognize were the capacity credits that it would have realized from its interchange contract with the Georgia Power Company. The effect of these adj ustments, if they are recognized by the commission, is to increase the rate base of the compan_y upon which it would be entitled to earn a rate of return. It would also bring about the recognition of certain expense items that may only be hypothesized without making any similar allocaance for the sale of additional energy that would have been available � for sale if any of the company's consumers, including Georgia Power, had demanded it. Since it would be extremely difficult to make any estimate of the additional energy that the company would have sold and to what class of consumer it would have been sold, it would be unrealistic to make an associated revenue projections. In general, good accounting practice requires that, to the extent possible, revenues and their associated expenses be ma.tched. The commission has historically followed this practice as is illustrated by its requiring the utilities that it regulates to "normalize" rather than "flow through" the tax benefits of accelerated depreciation and the investment tax credits. Therefore, the commission finds that all of the com�any adjustments associated with the reclassification of Port Wentworth Unit Number 4 from construction work in progress to plant in service are inappropriate and are disallowed." (Underlining added) The City of Saint Paul's position is that any attempt to provide satisfactory entries, particularly with respect to revenue entries, is impossible because too many judgmental factors would necessarily have to enter into any proposed entries. C. What will be the impact to the respective_positions of the Company and to the rate a ers under alternative decisions to either: 1) Include Prairie Island in the test period, or 2) Exclude Prairie Island from the test period; -21- l. Effect on the Company and tlie ratepayer by including Prairie Tsland in the test period. The e£fect on NSP by including Prairie Island in the rate base is clearly stated by Witness Norman G. Rising at (Tr. Rising, March 11, 1974, page 755, lines 6-24): "Q. t4r. Rising, what would be the effect on NSP if you did not eliminate Prairie Island from the rate base? A. The effect would be to give NSP a double return on their Prairie Island investment. As we can see from Schedule NGR-7, Prairie Island did not contribute any net KWH to production during December 1973, but in fact consumed 506,000 KWH more from the system than it contributed to the system. To grant NSP revenue from present ratepayers to cover a rate of return on Prairie Island without the benefit of power production, and then for NSP to be allowed to collect revenues from ratepayers for power production from Prairie Island in a future period when the unit is actually producing power would result in a double rate of return to NSP. In summary, Prairie Island does not belong in the 1973 test year without the benefit of a full year`s production in revenues." (Underlining added) Mr. Rising further defines how the double rate of return to NSP would result at (Tr. Rising, April 2, 1974, pages 943-944). The courts recognize the possibility of a double rate of return and observe that any such property should be excluded from the rate base in Re New England Tele�hone & Telegraph Co., 1949, Vt , 66 A2d 135, 142, 79 PUR ns 508, 518: "If at the time of a rate hearing it should appear from the evidence that certain property under construction will be available for use in the way of furnishing service during the period in which the rates in question will be in effect, such property should be included in the rate base . , ... But such property should not be so included if the inclusion would result in a double return to � the company because interest upon the unfinished construction has been capitalized by tlie company . . . Nor should it be incl_uded if a double return is to be realized because of additional revenue resultin from such property then under construction durin� the rate period in question." (Underlining added) -22- The conclusion can only be that, if Prairie Island is included in the rate base without the benefit of a full year's production in revenues, a double return would be produced for NSP and this, of course, would be paid by the ratepayer. 2. Effect on the Company and the ratepayer by excluding Prairie Island from the test period. NSP. will earn a rate of return on Prairie Island when it goes into production. This conclusion is lucidly stated by Witness Norma.n G. Rising at (Tr, Rising, March 11, 1974, page 756, lines 7-23) : . "Q. If Prairie Island is not included in your 1973 rate base, will NSP be denied a return on the unit when it actually does go into full production? A. No. When the unit gets into a reasonably high level of operation it will create its own return and profits. In discussion with NSP personnel, the break even point for Prairie Island is approximately 70 percent of capacity. Furthermore, in discussion with NSP personnel, the unit at 80-90 percent capacity should have a KWH mill cost of something less than 15 mills. T.he average revenue per KWH for 1973 for total NSP was approximately 20 mills. The net conclusion is that Prairie Island will provide its own profit as soon as it gets to approximately 70 percent of capacity and therefore should not be included in the 1973 test year." (Underlining added) The effect of this to the ratepayer, then, is that the ratepayer will be paying a return to the Company on the basis of the investment used to provide the ratepayer service. This, of course, is true because the allowed rate of return applied to the plant investment needs to be considered a cost that needs to be recovered in any breakeven analysis (Tr. Rising, April 3, 1974, page 974, lines 3-8). An argument repeatedly posed by NSP was that there would not be a market for the kilowatt output of this large unit. At (Tr. Vixo, April 9, 1974, page 1325, lines 23-25) Mr. Vixo states: "And there is no such thing as a wide open market to sell a lot of excess energy to some takers unknown to the industry." -23- This argument was as well repeatedly contradicted by NSP's witnesses. At (Tr. Glass, February 12, 1974, page 107, lines 1-25 and page 108, lines 1-4) , Mr. Glass clearly demonstrates that there is a real demand for energy when he states: "Q. Taking those forecasts then into consideration have you participated in the planning of additional generating facilities by reason of what is revealed by the forecasts and, if so, would you describe what those plans are? A. Yes. We show a growth from the year 1973 to the year 1983, a ten-year period, of 4377 megawatts. Now, that is in the lower forecast. New generation then is required to cover that 4377 megawatts. Additional to that load requirement we must carry the 15 percent reserve that we discussed a few minutes ago to provide for the forced outage of equipment, and this 15 percent reserve then adds another 657 megawatts to the requirement for new generation. Then we have a requirement of 632 megawatts of existing generation during this period projected for retirement, and this retire- ment comes about because of the obsolescence of the equipment and because of the environmental protection requirements which cannot feasibly be met with this old equip- ment. All of this then contributes to the need for new generation. Finally, in 1973 we were purchasing 550 megawatts of �ower and this figure includes the reserve that is attached to some of the purchases; so our true need for new genera- tion is the addition of all of these items inasmuch as surplus power for the future from other utilities is just about non- existent. In fact, we have many geople calling us to purchase power foi the future. So then as we total these new f acilities required we have an aggregate requirement of 6261 megawattso" (Underlining added) Other references by NSP to the extent of the demand for energy are found throughout the record. At (Tr. Cox, February 12, 1974, page 121, lines 16-24) Mr. James 0. Cox states: "Q. Looking beyond then 1974, is it your opinion that this declining rate of growth in retail sales will continue indefinitely? -24- A. No. We believe that it is probable that there will be a shift to the scarcer fuels, oil and gas, toward elecL-rical energy, and that as this shift would follow that after the initial slowdown in 1974, that the �rowth rate would probably return to past trends and even increase." (Underlining added) The City's position is that excluding Prairie Island from test period consideration is equitable for both the utility and the ratepayer in that: 1) the utility will earn a return on its investment when it goes into production; and, 2) the ratepayer will pay a return on plant investment that is used in providing the service he has used. Further, the City maintains that there is sufficient evidence presented to indicate that sufficient market demand will exist enabling the Company to sell its generation from the Prairie Island generating plant. The City of Saint Paul feels obliged to point out that the period of time the rates considered in this hearing will be in effect can only be defined as the future which may be 2, 3, 5 or 10 years and not only 1974, as stated by NSP (Tr. Vixo, February 13, 1974, page 204, lines 5-7) where Mr. Vixo states: "I have utilized in this presentation the projected year 1974 as a test year for making rates for 1974." (Underlining added) The City feels this general principle of making rates for the future must be held clearly in perspective when considering the impact of a large generating plant as an element of the rate base. Any error in judgment at this point will be compounded by the length of time those rates remain in . effect. Conclusion It becomes apparent, after considering the underlying issues, that Prairie Island should not be considered as an element of the rate base and all elements of revenue and expense should be removed from the test period. The basis for this conclusion lies in the facts that: 1) Prairie Island was not used and useful to the ratepayers considered in the test year proposed by the City. 2) Ad�ustments of revenues and expense to provide inclusion of Prairie Island is impossible because of the wide array of judgmentaZ factors that would need to be considered. -25- 3) Inclusion o� Trairie Is].and in the test period, without the benefit of a fu11 year's production in revenues, would provide a double return for NSP and an un�ust treatment of the ratepayers. 4) Exclusion of Prairie Island from the test period will treat both the Company and the ratepayer equitably. Therefore, the City of Saint Paul urges the hearing examiner to eliminate Prairie Island from consideration on the basis of adjustments proposed by the City. -26- � V RATE BASE A, ORIGINAL COST VS. FAIR VALUE The objective of this proceeding is to determine what amount of money NSP should be permitted to charge the ratepayers of the City of Saint Paul for electric service. The amount charged should be sufficient to compensate NSP for the services performed and to yield a fair return to their investors for the capital they have supplied for furnishing of these services. That return must be fair both to NSP's investors and to its customers. The amount of compensation to which NSP is entitled is an appropriate overall dollar amount. Traditionally, the dollar return to a utility is determined by the application of a factor (rate of return) to a propPrty value referred to as rate base (Tr. Rising, March 11, 1974, page 740, lines 12-25 and page 741, line 1) . Because the rate base is a factor in determining an overall return. to the investors of NSP, the specific method of determining any rate base should contain a minimum of imponderables. The original cost rate base consists of the actual cost of the utility plant in service less accrued depreciation based on information taken directly from the books and records of NSP. NSP's consultant, Dr. Henry Herz, states, "that the return sought should be reasonable relative to the rate base sought". (Tr. Herz, February 21, 1974, page 357, lines 9-11) . The fair value rate base involves the use of judgmental and speculative factors and an overriding assumption that the existing plant would be re- produced as of the test year. There is no reason to assume that the same utility plant would be reproduced in the same place and operated in the same way. If the utility plant were to lie reconstructed today, prudent management would not build plants to render equivalent service when technical improvements and knowledge of events which have occurred subsequent to past decisions could have a material impact on the system. Utilization of a fair�value rate base additionally carries an inherent danger of providing windfall profits to the utility at the expense of the ratepayers. The potential wind.fall to stockholders when a trended original cost rate base is used in determining revenue requirements is reflected in the -27- Commissioner's decision of Re Pacific Power & Light Co., 1960, 34 PUR 3d 36, where it related at (PUR 3d 55) : "The method of trending the original cost of plant in service, based upon the use of certain cost indexes lacks definiteness and stability. It would have the effect, in periods of rising costs, of inflating the value of the dollars invested in plant to meet an approximate present cost. It would, in today's economy, allow the company to reap a return on dollars never invested in plant and require customers to pag for dollars never spent. In an economy with declining prices and costs it could be argued that it would be equally unfair to the company to use this method of establishing a rate base, since the result would be to deny the company a return on dollars actually invested in plant." The City believes that an original cost depreciated rate base should be the basis for setting returns in this proceeding because: 1) it is a rate base that can be determined with reasonable accuracy; 2) it would avoid intentional or unintentional windfalls to the common stockholder; 3) it is a rate base used in prior City of Saint Paul rate proceedings; and 4) the use of a fair value or cost rate base should have the same result in any event. B. CONSTRUCTION WORK IN PROGRESS NSP included construction work in progress as an element of their rate base in this proceeding. This was the first proceeding filed with the City of Saint Paul that they included construction work in progress. Inclusion of construction work in progress in the rate base will effect a double return to NSP on their investment when this property actually goes into service. During the construction period, the Company is allowed to capitalize an allowance for funds used during construction, thereby stepping up the basis of the property when it actually goes into service. The Company will receive a return on the stepped-up basis over the useful life of the property to compensate for the construction period and more properly will charge customers who use and receive the benefits of a particular unit of construction. (Tr. Rising, March 11, 1974, page 757, lines 12-22) . Construction work in progress will become productive when placed in service and will generate revenues for NSP as a productive asset. -2g_ To allow NSP a return on property that is not yet in service and not yet producing revenues and then to allow NSP to keep revenues in the future when the construction work in progress becomes productive is to allow NSP a double rate of return on that investment. (Tr. Rising, March 11, 1974, page 757, lines 4-9). . The Georgia Superior Court stated the recognized position on construction work in progress in its decision of Georgia Power Company vs. Georgia Public Service Commission, 1973, 99 PUR 3d 263, where it stated at (PUR 3d 277) : "Present ratepayers are not required to � compensate the company for investment in plant not presently serving them and which will not provide service until construction is completed in the future." The Florida Public Service Commission recognized the inequity of including construction work in progress in its decision Re Florida Gas Company, 1973, 2 PUR 4th 150, where it stated at (PUR 4th 156) : "If interest during construction is charged to a project and that same project is included in the rate base during the con- struction period, a double allowance is permitted. It is generally accepted regulatory philosophy that such an - - allowance is definitely improper. There- fore we conclude that construction work in progress on which interest has been charged should be eliminated from the rate base." (Underlining added) The Massachusetts Commissioners of the Department of Public Utilities also recognizes that the ratepayer should not be charged for plant under construction from which it has not received benefit in its decision Re New England Telephone & Telegraph Company, 1973, 100 PUR 3d, 189, where it stated at (PUR 3d 191) : "We have not included the item of plant under construction for the reasons stated in 84 PUR 3d, 130, in which the department said: 'Customers should not be obliged to pay an entrepreneur a profit on plant the benefit of which has yet to be made available to them. "' -29- The City believes that construction work in progress should not be included as an element of the rate base because: 1) it will allow NSP to earn a double rate of return when it actually goes in service; and, 2) it charges current ratepayers for a return on an investment for which they receive no benefit. C. 3 PERC�NT UNAMORTIZED INVESTM��NT TAX CREDIT The City recognizes a deduction from the rate base for the unamortized portion of the three percent investment credit consistent with the method utilized by NSP in its electric proceedings of 1971 before the City o£ Saint Paul and consistent with current regulatory practices. NSP argued that it was the intent of Congress at the time it provided for the new Job Development Investment Credit to have the same procedure, as far as ratema.king practices are concerned, extend back to the old investment credit. (Tr. Vixo, April 9, 1974, pages 1328-1330). The City's position and the position of current decisions on regulati�n is stated concisely by the Georgia Superior Ccurt in its decision of Georgia Power Company vs. Georgia. Public Service Cor.imission, 1973, 99 PUR 3d 263, where it stated its position, with respect to the Commission's exclusion of the unamortized balance of the investment credit from the rate base, at (PUR 3d 278) : � "The court concludes that the commission�s exclusion of the unamortized balance of the investment tax credit under the Revenue Act of 1962 as amended in 1964 is not contrary to any federal direction that a different treatment be accorded. As Georgia Power Company admits, even though Congress was aware of the states' actions, there was a complete absence of congressional direction as to the states' regulatory treatment of the credit prior to the Revenue Act of 1971. Then, Congress in re-enacting the credit made�pecific provision for the regulatory treatment of the credit talcen under the 1971 act but again gave aUsolutely no direction as to the credit taken under the Revenue Act of 1962. The conspicuous absence of federal direction cannot be converted into a direction� The commission's treatment is not contrary to federal law and is in accord witti tlie overwlielming autliority from other. Zurisdictions. See, e.g. , New �ngland Teleph. & Teleg. Co. v. Massachusetts Dept. of Publ. Utilities (1971) --Mass--, 92 PUR 3d 113, 275 N�2d 493, 505, 506 (and cases clt�d) ." (U�id�rlintng added) --30- D. WORKING CAPITAL Working capital consists of investments in cash, materials and supplies on hand, fuel on hand and prepayments required to keep operating and main- tenance expenses paid currently and to operate economically and efficiently. The exact amount of working capital required in a particular utility's business is dependent upon the average length of time between the provision of service and the receipt of cash for such service. To determine the amount of working capital necessary would require an extensive study over a period of time. The only points of issue between the City's position and the position of NSP in their originally filed position is in the areas of: 1) inclusion of prepayments as a working capital element; and, 2) offset of working capital by average accrued tax liabilities. The question of the inclusion of prepayments as a working capital element was proposed by the City as investments for insurance premiums and other items for which payment is made in advance of their allowability as an operating expense of the utility and are ordinary and necessary in operatian of the utility. The City's position was that NSP should be allowed a return on these prepayments similar to the other working capital elements of fuel on hand and materials and supplies on hand. The City's proposal to include prepayments as a working capital element was not contested by NSP. The City also recognized offsets to working capital for accrued tax liabilities provided by the ratepayers and not by the investors. The reason for offsetting working capital by accrued tax liability balances is clear. Rates are prescribed and paid by ratepayers to cover all costs of service including taxes. These revenues are collected on a monthly basis from the ratepayers, however, the taxes are not paid for a longer period of time. Therefore, monies are received from the ratepayers monthly and held for three or six months before Ueing paid to the various taxing authorities. These accruals of tax create a permanent source of working capital. Specifically, for the offsets the City is proposing, the payment terms are as follows: real estate and personal property taxes are paid every six months and gross earnings taxes are paid quarterly, To allow the utility a return on working capital without providing an offset for accrued tax liabilities would be to allow a -31- return to the utii�cy from the ratepayers that the ratepayers themselves have provided. The position is lucidly stated by the Kansas State Corporation Commission in Re The Gas Service Company, 1973, 100 PUR 3d 316, where it related at (PUR 3d 321) : "The need for working capital arises from the time-lag between payments by the applicant of its expenses and the recipient by applicant • of payment for services in respect for which expenses were incurred. There are, however, time lags which work in favor of the applicant, as indicated by the tax accrual account, If customers of applicant were obliged to pay a return on this working capital, it would be tantamount to a return of funds on funds which they themselves have supplied and it would constitute an unjust enrichment to applicant." The Iowa Supreme Court upheld the Iowa State Commerce Commission's position of applying offsets to working capital in Davenport Water Company vs. Iowa State Commerce Commission, 1971, 190 N.W. 2d 583, where the Commission's position was detailed at 190 N.W. 2d 583, 606: "It is next claimed by Utility, trial court erred in af£irming Commission's holding to the effect working capital should not be added to the rate base because offset by Utility's constant property tax accruals. On this point Commission, in holding adverse to Utility, stated: 'Staff and Company (Utility) do not differ greatly as to the amounts required for cash working capital and for materials and supplies for ordinary operation and maintenance. The combined amounts are in the range of $151,850 to $158,000. The dis- agreement arises, not from the exact amount, however, but as to whether any allowance for working capital is required as a rate base component under the record in this proceeding. ' "If investors must provide the funds for working capital, the investors are entitled to a return on these advances and this is accomplished by including the working capital requirement in the rate base. If, however, warkin� capital funds are availaUle from other sources and relieve the investor of the necessity for pro- viding them, no allowance in the rate base for working capital is required. On these principles there is no disagreement between Company (Utility) and Staff, -32- "The evidence shows that at a11 times di�ring the test year, 1966, the 'lag' between collec- tion and payment of property tax alone ranged between $311,411 and $549,910, or a monthly avera�e of $424,217, a sum f ar in excess of eithcr the Staff's or Company's (Utility's) working capital computation. These funds, produced by rates collected from consumers, are available to Company (Utilitv) for worlcing capital purposes. Company (Utility) agrees that accrued property taxes, if available, may be used to offset the need for a worlcing capital allowance, but it argues that such offset may be applied only against the cash working capital component . and not against the materials and supplies. We find that working capital actually pro- vided through the la in payment of accrued property taxes is available in an amount sufficient to eliminate the need for a working capital allowance in the rate base. We find also that Company's (Utility's) argument is untenable. We believe that such argument does not meet the fundamental rationale involved. We believe there is no distinction between the two components insof ar as the credit for tax accruals is concerned because the equitable and controlling consideration is whether investors or rate payers do in fact supply the capital to Company (Utility) . To the extent that the rate pa� ers are the contributors, they are entitled to have that contribution taken into account. Therefore, we find that no allowance for either component of working capital should be included in the rate base." (29) For utility rate purposes �working capital_` is commonly defined as the amount of capital investors are required to put into a business, over and above investment in plant and intangibles, so as to cover any ga.p between cash expenditures in production and delivery of the services and collection of revenues from service sales� See 2 Whitten & Wilcox, Valuation of Public Service Corporations, ss 780, at 1520 (2d ed. 1928), (30) Instantly, Commission held, funds supplied by others than investors, i.e., customers, provided more than enough working capital required by Utility for normal operations. That finding stands as a matter of judgment under existing facts and circumstances. See w [dhitten & Wilcox, Valuation of Public Service Corporations, ss 781, at 1524 (2d ed. 1928) . Had Commission held other than it did, Utility's customers would be unr�asonably required to pay a return on funds already supplied by them in the form of prepaid taxes. Trial court correctly affirmed Commission on this issue." (Underlining added) -33- Through rn_?;uttal testi��ony, NSP submiL-ted an alternative computation of worlcing capital requirements. (Tr. Vixo, April 9, 1974, page 1334, Exhibit 22} � This part-icular computation appears arbitrary and introduces elements beyond the scope of proper consideration. NSP, in �xhibit 22, contemplates inclusion of additional balance sheet items for which forty- five days of cash requiring expenses represent. If one were to consider this computation at all, one would have to begin by noting the conspicuous omission of accounts payable as a deduction from the working capital items presented. The City of Saint Paul wo�ild urge the Hearing Examiner to maintain the accepted calculation of cash working capital on the basis of forty-five days of the operation and maintenance expenses, to additionally allow working capital requirements for investments in materials and supplies on hand, fuel on hand and prepayments and to offset working capital by average accrued tax liabilities which have been provided by the ratepayer. E. PLANT HELD FOR FUTURE USE The City of Saint Paul eliminated Plant Held for Future Use as an element of the rate base of the utility. It seems unrealistic to charge the current ratepayers for a return on investments the Company has seen fit -to make when these investments are clearly not used and useful to the present ratepayc�rs. The Company did not attempt to show any benefit to current ratepayers or identify the specific investments in plant held for future use that would portray prudent ma.nagement decisions in this proceeding. Further, the Company did not present through rebuttal testimony any evidence as to what purposes the amounts classified as plant held for future use would eventually be used. Perhaps a reason for not identifying the property or its intended use is because plans regarding a particular investment will frequently change as a result of the passage of time. The fact that management's contemplated decision will change is brought . o forth by the Kansas State Corporation Commission in its decision in Re Southwestern Bell Telephone Companv, 1973, 98 PUR 3d 30, where it stated at (PUR 3d 37) : -34- "There is no ded-i.cation to public service when land or other property is purchased for possible future use planned. Plans can and do change, and on occasions, contemplated dedication does not materialize. Tlie holding of property for future use is one o€ the risks of the business which the app]_icant must bear and which may not be transferred to the ratepayer. The imminent use of the property in question was not estaUlished and apparently none of the property is revenue producing. In the overall view of this case, we feel it appropriate to delete property held for future use from rate base." The City of Saint Paul urges the Hearing Examiner to exclude plant held for future use from the rate ba�e because it is not used and useful to the current ratepayers and because the Company did not show any benefit to current ratepayers. � -35- � VI TNCOME S'1'AT�MENT A. SALES FOR 12ESAL� The City of Saint Paul takes issue with the Company's presentation of sales for resaleo The principal reason for dispute with the Company's presentation lies in the fact that the Comp�ny did not allocate any demand � related costs or any share of the plant investment associated with the production of energy to the sales for resale. The effect of this treatment is obvi.ous; the City of Saint Paul is not receiving benefit of the revenue of sales for resale yet is contributing to the demand related expenses as well as providing a return on the appropriate share of plant in service. Any allocation of plant and expenses among various jurisdictional areas must meet various tests of reasonableness. The first principle stated by Dr. Henry Herz, a consultant to NSP, in his article "Impact of Cost Allocation on Gas Pricing," 58 Public Utilities Fortnightly 6$5, 692-694 (1956) as quoted in Public Utility Economics, (Prentice-Hall, 1964) , p.163 is that "All utility customers should contribute to capacity costs." The treatment of demand (or capacity) costs by NSP relative to sales for r.esale clearly does not meet this test of reasonableness. In recognizing this problem, the City of Saint Paul had two possible courses of action. First, certain demand costs and related plant investments could have been allocated to sales for resale. Second, revenues and energy expenses associated with sales for resale could be allocated to the City of Saint Paul. Either course of action would result in a proper matching of revenues, expenses and plant investments with sales for resale. In light of the complexities of preparing demand allocation factors, the easier and more precise method of allocating revenues and energy expenses to the City of Saint Paul was chosen. In rebuttal, NSP states that certain other costs would need to be allocated to Saint Paul to arrive at a fully allocated cost study and further lists those as costs of accounting, sales administration and general expenses. (Tr. Vixo, April 9, 1974, page 1286, lines 16-21). However, the record is also clear that these costs are insignificant. The relationship of wholesale customers to total customers is infinitesimal. Mr. Rosenwald states that NSP -36- served 830,590 average customers (excluding wholesale customers) and only sixteen nongenerating wholesale customers and approximately fourteen or fifteen generating (Tr. Rosenwald, February 26, 1974, page 538, lines 9-19) . Even if administratian of wholesale customers were more complex, any attempt at allocation of administrative costs would be insignificant to the demand related costs and investment in plant that should be allocated to these sales for resale. The Company's argument that these sales are in the nature o€ wholesale sales and are under the jurisdiction of the Federal Power Commission as such and in no way subject to the jurisdiction of the City of Saint Paul (Tr. Vixo, April 9, 1974, page 1285, lines 9-12) is not relevant to the issue. The issue is not the setting o£ rates for the customers involved in sales for resale, but is rather the proper matching of costs and investment to revenues. The concept that wholesale revenues should be consolidated into appropriate jurisdictions is stated by the Georgia Public Service Commission in its decision of Re Georgia Power Company, 1972, 98 PUR 3d 195, where it states at (PUR 3d 2Q1) : "The textile interveners contend that because Georgia Power Company has failed to present , to the Georgia Public Service Commission detailed separation studies allocating all revenues and cost of service between retail and wholesale business, the company must adjust its earnings, in this retail case, to reflect � the entire amount of the wholesale revenue increase now sought before the Federal Power Commission, including the full annualized amount of rate increases which will become effective as wholesale contracts e�pire progressively through the years 1972 through 1975. Georgia Power on the other hand contends that there is no basis for the inclusion of revenues anticipated in future years through 1975. It should be observed that the commission has always permitted consolidated presentation of rate base, expenses and revenues. Therefor.e, this commission finds that the wholesale revenues reflected in the company's presentation are appropriate." (Underlining added) The City of Saint Paul would urge the Hearing �xaminer to allow proper matching of revenues, expenses and plant investment Uy including revenues from sales for resale and the related energy expenses in the City of Saint Paul as proposed by the City's ad�ustment No. 3. (City Exhibit 1jA, Schedul^ KKA-5). -37- , B. ABNORA4t1L COST DUE TO MONTICELLO OUTAGL' The City of Saint Paul proposes an adjustment (Adjustment No. 6, City Exhibit 13A, Schedule KKA-7) be made to the operating expenses of NSP to normalize production expenses relating to the Monticello Nuclear Power Plant. The necessity of this entry is to eliminate an extraordinary expense from the test year. The basis of the issue is whether the Monticello plant will achieve a normal operating capacity near 88%. The record is clear that Monticello is becoming a mature plant in the testimony of Witness Edward C. Glass (Tr. Glass, February 21, 1974, page 329, lines 8-17) : "Q. Well, now then have I got this right: you would have a period of five or six weeks from March 3, 1973 as a normal snutdown period? A. If we were involved with a plant that the maintenance personnel had performed a number of maintenance activities on so they were completely familiar with it we are hoping for a maintenance period of five or six weeks. When these plants are new it is going to take longer than five or six weeks for the maintenance and refueling." (Tr. Glass, February 21, 1974, page 340, lines 4-6) : "Q. Weather e�ense was due to what? A. Probably related to the outages, lon er than scheduled outages, at the Monticello and King generating plants. At least that would have been part of the reason." (Underlining added) The expected capacity factor as testified to by Witness Edward C, Glass on rebuttal clearly indicates that a capacity of 80 percent or better is expected (Tr. Glass, April 9, 1974, page 1376, lines 5-10): "Now after three or four years of operation we anticipate an 80 percent, or even better, capacity factor operation. And this three or four year break-in period is well recognized as common to nuclear units and, in fact, other units before performing at the 80 percent capacity factor." Whatever options NSP had at the time of- acquiring nuclear fuel for the Monticello plant are not relevant to this proceeding. The only issue that needs to be considered is the expected capacity of �ionticello. it is obvious -3g- 1 irom the City's Lxhibit 17 that any capacity factor above 66.14762% will substantially reduce the penalty. --- Because of the unusual outage at the Monticello Nuclear Power Plant in 1973 and because evidence presented establishes a substantially higher capacity factor for the plant, the City of Saint Paul urges the Hearing Examiner to allow the adjustment for abnormal costs due to the Monticello outage as proposed by tl�e City. C. RATE CASE EXP�NSES The City of Saint Paul proposed an adjustment to amortize rate case expenses of $85,000 pertaining to the City over a two-year period. Many jurisdictions are providing amortization of rate case expenses over longer periods of three to five years. (Re Capital City Water Co. , 1973, 100 PUR 3d 124, Pennsylvania Public Utility Commission v. Peo les Natural Gas Co. , 1973, 100 PUR 3d 476) . The City, however, relied on its own recent history where the last electric rate proceeding was initiated in 1971 and this electric rate proceeding was initiated in 1973 or a two-year period between proceedings. NSP further eluded that additional expenses concerning this rate pro- ceeding may be charged to NSP (Tr. Vixo, April 9, 1974, page 1292, lines 9-16) . Such a statement involves speculation and does not stand the test of being known and determinable. Any other period selected for amortization of rate case expenses or the inclusion of additional expenses, would involve speculation and uncertainty, particularly with the introduction of state regulation. The City of Saint Paul would urge the Hearing Examiner to allow the adjustment of rate case e�enses as proposed by the City. -39- , , D. ANNUALT.ZI� I�U1.T COSTS AND l?[JLL Cl�!IUSL RIDI;R 1:CVIsI1U�S The City of: Saint Pau1 proposed three ad�ustmen.ts to NSP filed iniorma.- tion to annualize year--end f.uel costs and offsettin� revenues to be con- sidered as proper adjustments in this proceeding. T12ese were adjustments 9, 10 and 19 presented in City's Exhibit 13A �n schedules 9 and 16 . The issues presented by the proposition of these entries are as follows: 1) Is it appropriate to adjust revenues a.nd expenses to year-end levels2 2) To what level should fuel costs be adjusted: a) Cost of fuel as consumed in December. 1973 b) Cost of fuel at December 31, 1973 incremental costs 3) Should operation of the fuel clause rider�with respect to revenues�give eftect to the 1ag of the twelve-month rolling average used in computing appropriate f uel costs. 4) Should operation of the fuel clause ridc_r with respect to the nuclear-hydro ratio provision contained in the fuel clause rider under consideration in this proceeding be considered for any proposed revenue adjustmen.t2 1) Is it appropriate to adjust reven.ties and expe.nses to year-end levels? Underlying the proposed City adjustments is the neecl to consider the appropriateness of adjusting revenues and expenses to year-end levels, thus matching the revenues and expenses with tl�e rate base selected. The City would argue that revenue and expenses must be matched with the rate base (Tro Risin�, April 2, 1974, page 897, line 12) , The fundamental concept to be considering in making test year adjustments was clearly stated by the Iowa State Commerce Commission in its decision Re Davenport Water Company, 1968, 76 PUP. 3d 209, where it stated at (PUR 3d 226) : "It is fundament-al to a proper test year that costs (both investment and operating) and revenues match, i.e. that they be consistent with each other. Unless there is a matching of costs and revenues, the test year is not _/�.p_ � , c a proper one for fixing just and reason�ble rates. The inclusion of cost:� without matchin�; revenues will produce excessive rates. The inclusion of revenues, without the matching costs, will deny the utility reasonable rates. The relationship between cost and revenue for tYie test period used for thc test period used and the validity of that relationship constitutes one of the most vital areas in the determination of just and reasonable rates." (Underlining added) Tliis philosophy of matching year-end rate base, revenues and expenses is shared by NSP as testified to by Witness Frank P. Vixo where he states at (Tr. Vixo, April 9, 1974, page 1321, lines 17-21) : "One of those, as appeared throughout here several times in this hearing, is the use of year-end prices consistent with this idea in the test year, historical test year, bringing up to the end of the year." It is therefore the conclusion of the City that it is indeed proper and necessary to match year-end revenues and expenses with the proposed year-end rate base. 2) To what level should fuel costs be ad,-iusted? �ao general measurements of year-end fuel costs were discussed at length in the record; first, measurement of fuel costs based on an "as consumed basis" and; second, measurement of fuel costs based on incremental costs recognized by the Company at December 31, 1973. The basic difference in these two measurement bases is that incremental (most recent) purchases of fuel are added to the average of prior purchases of fuel. The combined average of these fuel purchases consumed in a given time period is defined as the "as consumed cost." The City's position �;-ould be that the incremental prices in effect at December 31, 1973 provide the measure to most accurately provide a ma.tching of expenses with the year-end rate base. Any averaging of these incremental prices with prior fuel purchases would involve ramifica- tions involving specific quantities on hand at the given point in time as well as the rate of increase or decrease in cost of prior purchases. -41.-- � , c 3) Stioul,d oPera Lion of tlie fuel cl�iuse rider wi t.h�respect to revenues��i_ve effect to the la; of thc twelve-monttt rollin; average i.ised in computing appropriate fuel costs? It is the City's position that any lag the utility may realize as a result of increased or decreased prices shauld not be recognized in ap�lying a fuel clause rider for purposes of test year adjustments. The City's position is repeatedly stated in the record by Witness Klaren K. Alexander at (Tr. Alexander, Apri1 3, 1974, page 1090, lines 4-18) : "Q. Isn't ttie only thing that would be helpful to us in this proceeding a re-evaluation of these 12 months which would accurately ref lect how the fuel clause �aould actually operate under true circumstances? A. No, because in identifying a test year you ne�d to carve a given 12-month period out of the life of the utility; and if you are to make a supposition that the cost will continue to increase over decrease, that becomes beyond the realm of making this type of adjustment. So you bring them level to the year-end level. And the whole purpose I think of this type of entry is that you cannot make a supposition about future costs. If the costs begin to go down beyond that test year, you wi11 have over-recovery of revenues." Again, Mr. Alexander states at (Tr. Alexander, April 3, 1974, page 1107, lines 23°25 and page 1108, lines 1-7) : "Q. In other words, incremental cost does not play a part of the fuel clause rider in any respect except as it might show up as part of the average cost that is booked? A. That is right. But in our effort to identify the situation, the fuel cost, current fuel cost of NSP as of December 31, 1973, we had to recognize what the fuel costs were at that point in time and, accordingly, what portion of those fuel costs would be recovered or the machinery that was already existent to recover those fuel costs." The premise for not recognizing a lag in the application of fuel clause riders to fuel costs is obvious: no one can speculate about what future fuel costs will do. To recognize a lag in a test period where costs have increased could provide windfall profits to the utility if fuel costs were to go down in future periods. -42- . , Ttiis fact is clear.ly recoSnized by the New Yorlc Publ.ic Service Commission in its decision of Re Niagara Mohawlc Power CorPoration, 1971, 92 PUR 3d 461 where it states at (PUR 3d 468) : "As we stated in the Rochester case, (Rochester Gas and Electric Corporation, Case 25595, 11 NY YSC 149, 158 (1971 : 'In a rate proceeding, we attempt to attain the most representative relationshi_p between revenues and costs.' "We believe that the most effectzve way to achieve this goal in the present situation is to take into account the 1ag between the time costs are incurred and associated revenues are billed. The approach taken by the company is faulty because it presumes that fuel costs will continue to rise indefinitely in the same pattern that they rose in the test year. We are not convinced this will be the case. Moreover, we feel it would be improper to speculate whether fuel prices will rise or fall, or the rate at which these chan�es may occur, during the period the rates granted herein may be in effect. We believe the staff's adjustment is an appropriate way to adjust for the lag in associated revenues inherent in the fuel adjustment and the proposal will be adopted." (Underlining added) The Georgia Superior Court upheld the Public Service Commission's adjustment of fuel adjustment rider revenues in its decision of Georgia Power Company vs. Georgi_a Public Service Commission, 1973, 99 PUR 3d 263, where the Commission's position cvas stated at (PUR 3d 270) : "Because the fuel adjustment rider is based on a 12-month "rolling" average, however, there is a lag between the increase in fuel costs and the corresponding increase in rates to reflect the full impact of fuel cost increases. This lag on October 31, 1972, amounted to $5.5 million. Because of this lag, Georgia Power did not bill $5.5 million of fuel costs incurred in the test year but will automatically increase its rates by that amount in the twelve months following the test year. Thus, the commission found, earnings at October 31, 1972 must be increased by that amount in order more accurately to predict what year- end rate base will earn in the future and, therefore, in orcler to determine the amount of increase to be granted. Unless such an adjustment is made earnings available for -43- ' . return as sl�ocan by the tesC year are � reduced by fuel expense incurred dtiring that period. Si.nce tlic er,��nse ixlcur.red wilI. be recaPtur.c�d in Liie s��cceedii�� tt�rc::lve monl.lis, c�arnin��. :ivaila�le Lor rc�turn are understated. Ta pr.edicate a rate incrcase on L-hat unclerstat�ment would produce an excessive r.ate incrc,ase. "The company asserts that as long as fuel costs continue to rise, that the lag under the fuel adjustment rider will never disappear and, therefore, the commission's adjustment is er_roneous. The disappearance of the lag, however, is not the premise on whi.ch tlie ad j us tment was made. I t is the existence of the lag that creates the need for tlze adjustment. On October 31, '1973, ' the lag may be more or less - depending on the rapidity and size of fuel costs increase - than the $505 million lag on October 31, 1972. But, the fuel costs reflected in the lag existing on OctoUer 31, 1972, will have been by that time fully reflected in the retail rates of Georgia Power, increasing its retail revenues by that amount. The lag itself �vas immaterial to the adjustment exce�� insofar as its � existence and the use of year-end rate base required the ad,Zustment made by the commission." (Underlining added) The City's position and the position of regulatory findings is clear. An increase in revenues must be recognized to match fuel costs that will be recovered by the utility in future periods. The City of Saint Paul urges the Hearing Examiner to accept the City�s adjustments nine and ten to properly consider revenue requirements of the City of Saint Paul. A graph portraying the effect of the City's adjustments 9 and 10 as discussed at (Tr. Alexander, April 3g 1974, p��es 1119 through 1I21) is included on page 45. It is obvious from the graph and from the record (Tr. Alexander, April 3, 1974, page 1061, line 14), that con- sideration of the two adjustments must be taken as a whole and not separated.. 4) Should operation of the fuel clause rider with respect to the nuclear-hydro ratio pi-ovision contained in the fuel clause rider under consideration in this proceeding be consi.dered for zny ' proposed ret ��nue adjustment. The City proposes an adjustment (Adjustment No. 19) to reflect the impact of the nuclear-hydro provision contained in the proposed fuel clause rider to the extent that revenues and expenses have been adjusted to year-end levels. The City's position would be that if the proposed fuel clause rider is allowed Uy the IIearing Examiner that this adjustment sliould be allowed but only on the I�remise that revenues and expenses l►ave been adiust:ed t.� vear-�nci levels av hc�i'et�tnr� d�,e.r.i.he�i. -44_ �jf,� � N� � � n c: �� rr� � � tt, �v racnoc� c� � 1c� <,� r�i � .� �� rjr-+ � r� v� r, yrc� r� t� � � � N ... . . . . . . . . . . . . � O 1-� F-' 1--' I--' F-' N N N N N W W W �.~i W � L� l!t ln O� �O F-' W ln V � h-' W V� v �D ►--� N l� V� O ln O u� G O O O O O O O O O U O O O U � — •- — �\-- fD Fi � w� � ._ �_� � � — w rt rt � O � � � rt Q, rt � � w n � 7+ H w n • n � � 0 � � � � N• G � f--� �o cD N � b r-n ,� G n � ~' �D w � � ~ � � � � � o � c� � m � — c� r+ m n n c°n � ~ a a m a � n � � �, � `� ai m ui m � rt r� C C � m N N c�o � a � c�u N o m m m H fD �"! c� m a' � n ai c�n � m � � m a a � n �p • p c.,. u. r• p G G G y O rr P� fD �n � H � � rt � �„ ,* — �d �s ru cu � cn � � a. a o —a � � `� `� G F-�' — G n n �C � — r�-r �C P� r�r rt v4 � cn `C `C W � � N o' cn cn N � � F~-� W N a w c m m �; a wG c�u a� w a' cGn m m r,, � a � � � � � � � � � � N rt � � � N � ro � � 'L7 � rt . . Q, � m N � n n K� � n � � � � 0 � 1't �l1 1'j f7 N 't7 O N rS O � n rr O �-7 a' C N �i '�-� O � N � N �i C1 N n . (D � � . (D rj , ,--- _ ___. ` E. Y�nx LNn cLrs�rarrr.i�s The City of Saint Pau1 proposes an adjizstment to recognize customers at the year end levels (Adjustment No. 11, City Exhibit 13A, Schedule KKA-10) . The criteria for adjustment is the same as proposed under part D (1) where the point is clearly established that year-end levels of revenue and expense must be matched with the selection of a year-end rate base. The propriety of adjusting the growth in the number of customers is discussed by the MicYiigan Public Service Conunission in Re Indiana & Michigan Electric Company, 1973, 98 PUR 3d 475, where it states at (PUR 3d 479): "Applica.�t, in utilizing a year-end rate base, ad tusted revenues and expenses to year-end levels by annualizing its net electric operati_n�incorne to year-end to reilect Uoth growrh in number of customers and growth i_n custome:° usa;e to end-of-perio;i levels. "In periods of accelerating expenses and expenditures for construction there are reasons for the use of a year-end rate base with the appr_opriate adjustments to bring net operating income to year-end levels." NSP, in considerin.� this adjustment, proposed two changes be made to the entry ws proposed by the City. First, NSP proposed that the change, with respect to customers in the large commercial arid industx'ial classification, be considered with respect to averages of their individual groupTS averages and second, that the cost of additional kilowatt hours be provided on the basis of purchased energy costs (Tr. Vixo, April 9, 1974, pages 1297-1300) . The City's position, with respect to the averaging method, is that th� net addition to the large commercial and indu�trial classifica�ion came primarily from the small commercial and industrial class and an average of the total class as presented by the City is reasonable and should be allowed. If a small eommercial and industrial customer increases its usage sufficient to be reclassified into the large commercial and industrial class, it is obvious that their inclusion in the large commercial class wi21 tend to weight the usage per customer down. The City�s position, with respect to the proposition that the cost of additional kilowatt hours be provided on the basis of purchased energy cost, is that th�_s assumption is cleaxly arbitrary and addj.tional costs should be Uased on variable cost o£ generation as proposed by the City in its mill ccst of 5.618 pc;: K[ti��I. -46- ✓ To suggest that the cost- of any additional kilowatt hour requirements would have come from purchased energy completely discounts the concept of utilizing the most efficient- source to provide energy. The cost that shoulc-t be used is the average of all variable costs of production, including purchases, to arrive at the average system cost for the test year. -�}7d , F. DONA'rTONS In its filing, NSP included $79,000 of donarions �as additional operating expenses under the classification of administrative and general expenses. (Tr. Vixo, I�'ebruary 28, 1974, page 645, lines 7-16) . The City proposes an adjustment (Adjustment No. 8, Exhibit 13A, Schedule KKA-11) to remove a double inclusion of $I4,Q00 erroneously included by NSP and to eliminate the final payment made to the Saint Paul United F`und - Building Fund that was included by NSP in the amount of $18,000. Certain donations were included that should not have been included because they were already classified into administrative and general expenses and had previously been allocated into the City of Saint Paul jurisdiction. This is clearly pointed out by NSP�s witness, Frank P. Vixo at (Tr. Vixo, February 28, 1974, page 671, lines 16-25 and page 672, lines 1-7) where he states: "Q. Do you remember what they were? A. Yes, I will tell you. I am talking now of the April -- or January 11 filing in 1974. We picked up the Saint Paul United Fund, which wa.s in our budget at $92,250. And then I see here we did picic up some- thing which we probably shouldn't have now. � Q. Like what was that? I'm afraid to ask. A. You are afraid to ask. No. I am going to tell you because I think if you want to correct it, it should be done. Edison Electric Institute, National Associacion of Electric Companies, North Central Electric Association and North Central Electric League. Now, those are already in A&G, and when we outlined pickin� up donations apparently those who did this thought this was below the line. I am not excusing anybody. I will take the blame myself, but it is not my handwriting. But that amounts to $14,000." NSP, on rebu�tal, states that the $I4,000 elimination should not be allowed on tlie basis that they are not clear whether it has been wi_ped out by a shift in allocation factors. It is difficult to conceive that this could not be understood by mere reference to adjustments made on the City's T'xhibit 13A, Schedules KKA-4 and Schedules KKA-5. To clarify this issue we wil.l step through the arithmetic to show th�r, thiG i_r_em l�a� n�t been elim3.nated prior to the City's adjustment No. 8: -4t3- � Administrative �nd general expexzses per NSP's Exhibit 5A, Scltcciule 1 $2,811,000 � City's adjustment No. 1 30,000 City's adjustment No. 2 (106,000) Administrative and general expense as adjusted by the City in adjustments 1 and 2 2,735,000 Administrative and general expense as normally allocated, following revision of allocation factors (City�s ExhibiL- 13A, Schedule KKA-4, line 16, Column �) 2,656,000 Additional expenses added by NSP and not removed by the Czty in adjustments 1 and 2 �79 000 On the basis of the fact that these expenses clearly have not been eliminated by the City prior to Adjustment No. 8 and on the admission by NSP that the inclusion of these expenses, to the extexit of $14,000, are clearly in error, we recommend that these expenses be removed by the Hearing Examiner. Additionally, the City proposes elimi��ation of a donation that was included by NSY that is not contributed on a. recurring Uasis. $18,000 of the donations inclucled represents the final pa3�nent by NSP of a five-year pledge to the Saint Paul United L�and - Building Fund (Tr. Vixo, April 9, 1974, page 1302, lines 20-25) . The Citq did allow the inclusion of $47,000 by NSP that represents their annual pledge to the Saint Paul United Fund (Tr. Alexander, Marc�i 11,� 1974, page 789, lines 15-19) . Many jurisdictions completely elimii�ate donations from consideration as an expense for rate-ma.king purposes referencPd by Re Southern California Edison Co, , 1973, 100 PUR 3d 257, by Re Iowa - Illinois Gas and Electric Co. , 1973, 100 PUR 3d, 1, and by Re Pacific Northwest Bell Telephone Co. , 1973, . � 100 PUR 3d, 82. The City did not, however, wish to completely discourage the utility from maintaining a position of responsi.bility in the community and, therefore, allowed the recurring portion of the donations included by NSI' in its original filing as an expense for rate-making purposes. The City would argue that any donation allowed as an expense for rate- making purposes should be restricted to cllaritable organizations tYiat maintain a broad base of service to ttie cocmnunity, such as the Unitecl l,und. F.�rther, the City would ar�ize that the uL-ility should not be allowed to place additional donations for consid.ea-ation into the case ttiat apparently were not considered by the utility �s proper rate-m�lci.n� expenses in its or�.�;i��al filing. _49- Accordingly, the City of Saint Paul urges the Iiearing Lxaminer to allow Adjustment No. 8 as proposed by the City to properly consider elements of the revenue requirements for L-he City o� Saint Paul. G. INCREASED WAGES The only poinL- of issue between the City's position and NSP's position is the allowance of a proposed wage increase for nonunion salaried employees. Any increase in salaries allowed to nonunion salaried employees is given to that employee on his particular anniversary date with the Company (Tr. Alexander, April 3, 1974, page 1035, lines 11-21) and the amount further depends on his particular merit performance within his departmenr_. All other labor classifications are granted an increase effective January 1 of each year and these amounts are subject to audit and review as of that date. The City's position was to recognize known. and determinable payroll cost increases that would affect the utility. This limits consideration to the employees whose payroll increases were being paid as of January l. Further, the City recognized in its computation of Adjustment No. 15 the annualization of nonunion salaries at the December 31, 1973 level (Tr. Alexander, April 3, 1974, pa.ge 1034, lines 10-14) . The effect of annualizing nonunian salaried personnel salaries to December 31, 1973 level is to recognize as an expense the unpaid portion of any increase previously granted due to that employee's anniversary date falling after January 1, 1973. To accept NSP's proposal that this annualized salary level should be further increased by 6% would be to allow NSP to recover costs that would not be realized by NSP in the year 1974; indeed, perhaps not realized until October of 1975. This fact is testified to by NSP� s witness, Frank P. Vixo, where he states at (Tr. Vixo, April 20, 1974, page 1471, lines 4-25 and page 1472, lines 1-4) : "Q. Then we will go on to 15. Now there you are talking about the City's agreement of nonunion salaried employees; is that right? A. Yes. -`i(l- ! Q. Now th��se people have anniversary dates pertaining to salary increases at various times during thc year; isn' t that righL? A. Yes. Q. Do they all get the same percentage increase? A. No, sir. Q. So wlien we came to 1974 the increases granted during that year would not be paid in full in 1974, would they? A. No. The conunitment to pay them would have been made. Q. That's right. They only �et pax t of it_depending upon their ann.iversary date; is that r�ht? A. Yes, sir. The salaried employees. Q. Do you have any i.dea wl.iat �ercenta.�e of raises are paid in the cale.nd�r year with respect to these n.onunion employees? A. I believe that' s 56, but when Mr. Alexander was in our office he mentioned -- I mean 56. He mentioned 54. Let me see what my notes tell me. Q. A11 right. A. I have 56." (Underlining added) The City�s position with respect to nor�union salaried employee compensation is that the level of compensation of these employees at December 31, 1973 should be recognized (and has been in City's Adjustment No. 15) and that any wage increase these employees may get is too remote from test period to consider in setting rates as well as not being susceptible to precise computation. Accordingly, the City of Saint Paul urges the Hearing Examiner to consider the City's Adjustment No. 15 as being proper in determining revenue requirements, -5 l_- �t. INCQML �raxLs The only issue regarding the computation of income taxes between the method utilized by the City in Exhibit 13A, Scl�edule KKA--15 and the method utilized by NSP in its �xhibit 23, page 4 of 4 is the tieatment of interest as a deduction. NSP proposes that if construction work in progress is not in the rate base, interest allowed as a deduction for tax purposes should be reduced (Tr. Vixo, April 9, 1974, page 1355, lines 9-14) . The City�s position is consistent �vith the findings of fact in the 1971 �lectric Rate Proceedings in the City o£ Saint Paul where the fact was stated �s fol.Iows: "That the appropriate method of i_ncome tax determination in this proceeding is the method outlined by the consultants for the City, under jThich the current tax benefits derived h�the utility from such deductions as interest on below-th�-line constniction work in pro�;ress arc. current.l� refl.ected for rate makin� purposes, using ta�. raL-es in effect for 1970." This same posii;ion was furthcr. allowed in the Gas Rat` Proceeding of 1972 in the City of Saint Paul where the fact was similarly stated. The City' s position, thereforE,. is clear and should be maint�ined in this rate proceedin.go _SZ_ , vzz xAr.� or x$TU�uv One of the fund��nental guides to the determination of the revenue a utility nught expect to earn from its investment in the particular community is the rate base and the rate of return to be applied to it. Although these guides are useful in helping the City Council to ascertain what the "end result" should be, the procedures do propound guidelines rather than unvarying mathema.tical formulae. The Minnesota Supreme Court has observed the judgment factor in the final computation in its latest decision of In Re Application of Northwestern Bell Telephone Compan� vs. State of Min.nesota et al, filed March 22, 1974, Minn at (page 23): "We have previously noted that the fixing of a fair rate of return cannot be determined with precision, since it is not derived from a formula, but must be reached through the exercise of a reasonable judgment, applying the criteria to which we have referred." The criteria that the Court referred to were adopted from tl�e rule of the Hope Natural Gas case in the following manner: "The process by which rates are fixed is, first, to determine the value of the company's property represented by the equity of its stockholders; second, to establish a fair rate of return which will provide earnings to investors comparable to those realized in other business which are . attended by similar risks, will allow the company to attract new capital as required, and will maintain the company's financial integrity; and third, to compute corporate taxes, depreciation reserves and other expenses of operating the company. The rates charged subscribers are thereupon authorized in an amount which wi11 equal the sum of the return to investors, and the company�s operating expenses." In Re Application of Northwestern Bell Telephone Company vs. State of Minnesota et al, filed March 22, 1974, Minn , pages 4 and 5. In applying the rate of return proposed by the economists in rate proceedings to a rate base, it has been recognized that a rate of return can only be taken in conjunction with the rate base to which it is to be applied. Witness Herz explained the need for such adjustment in NSP Exhibit 7, where he stated on (page 10) : -5 3-- . "Again, sl.nce the f air rate of re turn i.s a ratio, while the fair rerurn is an amount in dollars, it is accordingly important to recognize that a rate of return cannot be defined without specification of the rate base to which it is to be applied. In other words, I cannot reach Lhe same rate of return on a r.ate base measured in nominal book value dollars that I would reach on a basis �ahich recognizes the higher dollar values of past investment." (Underlining added) Witness Herz' observation is in line with the considerations e�ressed by Dr. Phillips in The Economics of Regulation by Charles r. Phillips, Jr. (Richard D. Irwin, Inc. , Homewood, Illinois, Rev. Ed., 1969) at (page 268) : "In discussing the rate of return it must be emphasized that any rate by itseZf is meaning- less unless considered in connection with the type of rate base employed in a particular case. Obviously a 6.5 percent rate of return, say, on an ariginal cost rate base of $1 million is far different from the same rate on a $2 million reproduction cost on fa-�r value rate base." In professing his preference for an original cost rate base, Bonbright looked at the alternatives as follows in Principles of Public Uti]_i.� Rates, by James C. Bonbright (Columbia University Press, 1961) at (page 277) : "The perfect antidote, of course, would be a precise offset, with the result that a company which establishes a high, fair value rate base would be allowed exactly the same annual dollar return to which it would be entitled on an actual-cost basis." Witness Herz did admit that his computations, as applied to a fair value rate base, would give the Company a higher yield if fair valu.e were used than if original costs were used in ce,:�lputing the investor's interesto See: (Tr. Herz, February 21, 1974, page 359, line 11) : "Q. Now, as far as this end result that you are talking about is concerned, does it make any difference at all whether you use a 50/50 rate base or a 33-1/3 66-2/3 rate Uase? A, I presume it would in dollar�. Q. Which would be higher, Doctor? A. If the percentages were both measured against boolc tYten obviously the 50 pe�ccnt o.ie :aould be his.ier. -54_ . ' Q. Aud tlx<lt would g,ive you a hi_£;her return to the st-ocl.cl�olciers, ts that ri�ht? A. Than if the 33 1/3 percent of- Uook value used, yes." Witness Herz amplified the comparison of original cost and fair value in the present case at another point (Tr. Herz, April 6, 1974, page 1236, line 9) : "Q. In your own computation where you made the original recanunendation both on fair value and original cost, the revenue that was to come out of the two was not the same; is that iight? A. No, that�s true. Lt may be different at different times according as to wliether the current cost of equity is. If it is consistently following through a number of rate cases, the results should be if the same principles fo1lo�,r. � iQ. In this particular case the fair value return is higher, isn't it? A� I thinlc so, in dollars." The difference that either makes to the rate of return on original cost comm�n equity was brought out in City Exhibit, Sci�edule NGR-8, 12A, where Witness Herz' 8.75% rate of return on a fair value 1973 rate base is shown to be equivalent to 9.52% on a 1973 original cost rate base. Despite the pragmatic windfall that Witness Herz' computations allowed the Company, Witness Vixo still agreed that the revenue requirements �vere the primary con�:�ideration in the Company�s revenue request. (Tr. Vixo, February 28, 1974, page 656, line 14) . A. Property Valuation-Rate of Return Earlier in this brief, the City has presented its arguments for the adoption of an original cost rate base as the guide for ascertaining the extent of the investment on which a rate of return should be applied. It refers the Hearing Examiner to those arguments in lieu of repeating them in full. Witness Herz has proposed a 9.25% rate of return on an original cost rate base. (Tr. Herz, February 12, 1R74, page 163, line 20) . In conjunction with the return computations he was to make, Northern States Power Company provided him with an average year rate base for 1974. (Tr. Vixo, lebruary 13, 1974, -55- 5G- . , . adopted January 2£3, 1972. I�icorporated into the findings was a reconunendation of a rate of return of 8.2% on the net operating investment rate base, That recommendation wa� in line with the rate of retur.n proposed by Witness Robertson. Iie deemed the appropriate range to be between 8.00% and 8.5%. (Tr. Robertson, March 11, 1974, page 730, line 19) . B. Capital Attraction The City believes that its recommended rate of return is more than adequate to attract the new capital needed for expansion. Witness Herz has quite emphatically admitted that the attraction is related to the return to stockholders in the form of earnings and dividends. (Tr. Herz, February 21, 1974, paoe 365, line 25). The interest of the stockholders appears as retained earnings and dividends. (Tr. Herz, February 21, 1974, page 347, line 1 to page 348, line 12) . During the course of recent years, Witness Herz acknowledged that the Northern States Power Company had been a "£airly successful" company. (Tr. Herz, Apri1 .6, 1974, page 1255, line 11) . Success in itself would relate to the financial standing of the Company and the standing it has in relationship to the other utiliti.es. Thus, what Northe�.� States Power Company has experienced has been very favorable to date on a comparative basis. Witness Herz has reviewed the return requirements in expressing his constraints on judgment. By NSP Exhibit 7, Schedule A-3 with reference to his attached Schedules E-8, E-9 and �-10 he has shown the position that Northern States Power Company has taken under its present rate of return that places it far ahead of other utilities in dividend earnings. The average dividend yield for it during 1970, 1971 and 1972 were 7.04%, 6.38% and 6.52% respectively. Eighteen other electric utilities ranged during the same period as 6.22%, 5.92% and 6.31%. (NSP Exhibit 7, E-8 and E-9). The capital attraction quality seems self-evident. In making adjustments to his computations, it should be noted that Witness Iierz does make adjustments which are not related to factual determina- tions. For example, for market pressure he boldly selects a percentage of .8% to reach his "conclusions" on A-4. The addition of .8% for this type of cost is unreasonable, since it is certainly not necessary to give such an -57- ,. • allowance to cal�ital already attracted and included in capital of the Company. In addition, he includes .8% to .9% spr_ead as an increment on top of the current bond yield. The different approaches of a bondholder and an equity investor are , known to most of us. A bondholder normally seeks a prolonged, fixed return with no anticipated appreciation in value over the years. His return requirement includes his principal anticipation against inflation. There- fore, it can be assumed that ttie rise in long-term interest rates experienced in the last several years constitutes the bondholder's guard against that inflation. But the common equity holders are basing their investment on several other considerations besides the type of spread theory advanced by Witness Her_z. As he has ultimately admitted, they seek: 1) a dividend and retained earnings level; 2) a growth in that earnings level which is related to the total earnings per share; and 3) a growth in market value as a result of inflation. There is really no basis for arguing that a set amount of .8% should be assumed for returns on common equitya Once more, comparing Northern States Power Company with the other utilities in dividends and retained earnings sets up a far better guide for cahat a stockholder might desire in connection with the operation of the Company. _�g_ . C. Financial Intebrit.y In his presentation of the proper rate of return, �Jitness Robertson averaged the historic cost of capital and then averaged the result with the current cost of capital. (City Exhibit 11 - Schedule Exhibit 1) . This procedure places greater emphasis on the current capital costs, and would be equivalent to accepting a year-end test year where significant attrition was involved. His emphasis on today's capital costs afforded him a guide that came to 8.01% rather than 6.91%. Under his method, it means that substantial capital cai11 be available for the finan.cial operation of the Company if a rate of return between 8.0% and 8.5% were to be applied to the investment adjusted rate base. If interest rates at current levels continue, the average imbedded cost of such capital may increase over the period of tl�e next ten years. At the same time, despite the extremely modest estimate of growth for 1974 by Witness Cox, there still is an estimate on his part of an e�•pansion in services and resulting revenues of 7.7% in the years ahead. (Tr. Cox, February 12, 1974, page 1I9, line 24) . During the last ten years through 1972, the sales have increased at an annual rate of 8.8% per year. (Tr. Cox, February 12, 1974, page 119, line 6) a As testified by Witness Vixo, budgets and forecasts change frequently, and as displayed in the extreme variances in the operating expenses in his attached schedules of October and December, 1973, adjustments have to be made as soon as the facts are known. (NSP Exhibits 5 and 5A). The City submits that the best guide for what can be expected in the future is what occurred in the most recent period, from 1969 to 1973. There the average annual growth was 6.6% system wide. (Tr. Cox, February 25, 1974, page 474, line 9) . Such growth with the coincident increase in revenue would make it appear that the financial integrity of the Company is well insured. D. Comparable Earnings Minnesota has become the 48th state to adopt state resulation of public utilities supplying gas and electricity to the consumers. Since regulation is thus so extensive, the City of Saint Paul submits tliat a good guide for deciding whether the earnings of the Northern SL-ates Power Company, under the -59- , , • proposed rate of r.eturn, arc� sufficient in comp��rison with rates and returns on common equity granted by public service commissions across ttie country. The following are noted: � Re Geor�;ia Power Company, 1972, Ga PSC , 98 POR 3d 195, 204. f.ate of return of 8.26% on an investment rate base representing 11.5% return on common equity. Re Orange & Rockland Utilities, 1973, NY PSC , 98 PUR 3d 335, 347. Rate of return of 8.3% on an investment rate base representing 12.2% return an common equity. Re Indiana & Michigan Electric Co., i.973, Mich PSC , 98 PUR 3d 475, 485. Rate of return of 7.57% representing 12.4% return on common equity. Re Wisconsin Electric Power Co. , 1973, Wisc PSC , 98 PUIZ 3d, 492, 500. Rate of return of 8.07% representing 12% earnings on coin�non equity (page 499) . Re Loiiisvi.l.l.e Gas & E. Co> , Z973, Ky PSC , 99 PUR 3d, 104. Rate of return of 7.7% on net investment rate base representing 11.6% return on common equity. Re Dukc• �?ower Co., 1973, IQCar UC , 99 PUR 3d, 32:�. Rate of return of 7.54% on original cost investment representing 11% return on book value common equity. Re Long Island Li�hting Co., 1973, NY PSC , 99 PUR 3d, 457, 466, 467. Rate of return of 7.97% on capital structure representing 12% return on equity. Re Iowa-Illinois Gas and EI_ectric Company, 1973, Ia CC , 100 PUR 3d, 1, 16, 17. Rate of return of 8.26% on original cost base representing 11.7% return on equity. Re Southern California Edison Company, 1973, Ca PUC , I00 PUR 3d, 257, 296. Rate of return of 8.2% on jurisdictional rate base representing 12.25% return on equity. In view of the fact that the 1972 decision allowed the Northern States Pawer Company to realize a rate of return of 8.2% representing 14.3% return on common equity, the City of Saint Paul believes that the area proposed by Witness Robertson in a return on the year-end 1973 rate base, is fully reasonable and consistent with what could be expected to be earned in alternative invest- ments in other uti.lity companies. -GO-• , , � � VIII RA`PE D�STGN In £raming its request for additional revenues, Northern States Power Company has proposed a schedule of rates which are descriUed by Witness Rosenwald as an extreme change from the historic schedules (Tr. Rosenwald, _ February 26, 1974, page 541, line 4) : "Q. I guess that was during the opening statement when you weren't available. Do you consider this a basi_c change in the rates this year? A. E�bsolutely. Pardon me, are you speaking of the minimum bill now, or are you speaking of the entire--- Q. I am spealcing of the higher rates and different classifications. A. Are you speaking of a substantial, or a change in the overall? Q. In the overall as far as your treatment of summer and winter is concerned, and as far as your blocks are concerned. A. My answer stands. Absolutely." Seasonal rates, involving a June, July, August and September summer variation, were introduced for Al1-electric residential service, the General service, the All-electric General Service and the Large General Service, and the Firm and Interruptible Large General Service. (Tr. Rosenwald, February 26, 1974, page 542, line 12}. On the other hand, no summer winter change is evidenced in riultiple Dwelling Service, Automatic Protective Lighting Service, Large All-electric General Service, Large Commercial Service, Commercial Lighting Service, and General Power Service. (Tr. Rosenwald, FeUruary 26, 1974, page 542, line 12) . Originally, Witness Rosencaald stated that he proposed the summer-winter change because of the peak demand that occurred in electric use during the summer. (Tr. Rosenwald, February 26, 1974, page 222, line I.6). He then explained how the basic costs for providing electric service can be divided into three components: customer related costs, demand-related costs, and energy-related costs. (Tr. Rosenwald, February 26, 1974, page 219, line 17) 0 These are further described in his direct testimony at (Tr. Rosenwald, FeUruary 13, 1974, page 219, line 21) : -61- s . `�� 1 "Q. Would you �.xplain f-or us then the custon:er-related costs? A. Surely. 'i'he customer costs, which exist regardless of demand or ener�y usage, include such items as the cost of the service wires to the buildin�, tlze cost of reading fihe meter and the cost of preparing the bill. Costs are essentially the same for each customer of a given class. Q. What are the demand costs that you referred to? A. Demand costs are those associated with the investment in facilities such as power plants and transmission and distribution lines. An invest- ment in these utilities is related to a customer's peak demand for electricity. � � � � � � � Q. And the other category of energy costs, what does tha.t refer to? A. Energy costs measure the variaUle costs such as fuel and operating and main- taining expenses required to produce each kilowatt hour of electricity consumed." Previously, when rate changes were made in 1971, there were minor adjustments to the structure, and what was adopted adhered to the historical pattern. (Tr. RosEnwald, February 26, 1974, page 224, line 7). However, now Witness Rosen�vald has deemed that changes should be made because with "unusually high demand-related costs, the cost of service during the peak period must be weighed more heavily" (Tr. Rosenwald, February 26, 1974, page 225, line 6) . He then took all of these cost matters into account in reaching the seasonal rate concept. (Tr. Rosenwald, February 26, 1974, page 226, lines 1-10) . His conclusion was (Tr. Rosenwald, February 26, 1974, page 226, line 21) : "In other words, consumers will pay rates more in keeping with the cost of providing service. A seasonal rate schedule permits consumers to control growth by their purchase of additional electric service at its reasonably true cost." In no part of the testimony did Witness Rosenwald diwlge what "reasonably true" cost af service study actually adduced the specific rates set up in his new rate schedules. He did not provide any such cost study to the City of Saint Paul ncr submit any in Lhe c�•idence. (Tr. Sherr, Apri1 5, 1974, page 1162, line 4) . IL soes w3.thout saying that a change in rate schedules -G 7.- :j M � � can only result in a prejudice to some customers over others, particularly when the changes vary from group to �roup or Ulock to blocic. The City's examination of the costs that it was able to conduct revealed that charges to North Star Steel Company, an interruptible customer, were expected to be made at a rate substantially below the cost of generation at the most expensive base load plant (Exhibit 14A, Schedule ALS-3). Such practice under the proposed rates would mean that North Star Steel was to be subsidized by other customers in Saint Paul. (Tr. Sherr, March 11, 1974, page 810, line 6) . Here'again, no cost study justifying the treatment or the subsidy in the least way was presented by the utility. Aceordingly, the City believes that, under the evidence presented in this hearing, Northern States Power Company has not met its burden of proving the propriety of the particular changes in the rate schedules which it has proposed. The decisions elsewhere support the proposition that cost of service studies must be a foundation to the establishment of the schedule itself. In instances, Commissions have required it in every case. See: Vermont Public Service Board, 1973, Vt PSB , 98 PUR 3d 291, 299, 300. If consideration of the value of service concept is to be introduced into the determina.tion of a rate schedule, such value can only be ascertained with particularity "if the rates charged are related ta the costs to serve." Re Ne�a England Telephone and Tele�raph Company, 1973, Vt PSB , 99 PUR 3d 309, 313. Lacking the presentation of a cost of service study, the New Jersey Commission refused the type of summer winter rate adjustment, as proposed by NSP here. See: Re Jersey Central Power & Light Company, 1973, N.J. , 2 PUR 4th 70. There, the proposal was for a summer residential differential over 500 KW hours per month. Thus, the City of Saint Paul urges the hearing examiner to disallow the type of rate schedule proposed in Northern States Power CompanyTs presentation. It submits that if additional revenue is to be granted, the rates to be established to afford such increase should a�lhere to the historical schedules. Respectfully submitted, ' R. SCOTT DAVIES City Attorney THOMAS J. STLARNS Public Utility Rate rxpert, l�s5is��u� �:i�y A�Lurr��y 210 Courthouse Saint Paul, Minnesota 55101 -G3- . , � calculations submitted by NSP with respect to this matter � should be adopted in making this adjustment rather than those submitted by the City. NSP' s calculations as indicated in � NSP Exhibit #16 result in an upward adjustment in revenues � of approximately $125, 000. Since these calculations were based upon a more specific analysis of actual changes in numbers , � of customers than were the City' s calculations, the method used by the utility is adopted by the Examiner for purposes of this � adjustment. � D. Proposed Adjustment Relating to Donations. � . With respect to charitable donations by NSP, the � City proposes an adjustment to remove a $14 , 000 amount which was duplicated elsewhere in NSP' s operating statement and an ' $18, OG0 amount involving NSP' s final payment to the St. Paul � United Fund Building Fund. The City did not object to the inclusion of certain other items of charitable contributions � such as NSP' s annual pledge to the St. Paul United Fund. It is the conclusion of the Examiner that the � evidence supports the position of the City with respect to the $14, 000 amount which was apparently included in two � laces in NSP' s o eratin statement. The testimon of NSP' s P � Y � witness, Frank P. Vixo, appears to be consistent with the City' s position on this matter. � i - 32 - � � . � � It is the conclusion of the Examiner that the � adjustment relating to the United Fund Building Fund should also be made. As the testimony of the City indicated, the � payment involved was the final installment of a pledge by NSP � with respect to a Building F'und. Since no further installments will be required on this pledge, it is appropriate to remove � the $18, 000 amount from test year expenses. � E. Pro osed Ad 'ustment Relatin to Wa e Increases. P J g g � Both the City and NSP agree that adjustments should be made to give recognition to wage increases which will become � effective during 1974. These adjustments are intended to reflect � present wage levels as though they had been in effect during the 1973 test year. � The City maintains, however, that no such allowance should be made with respect to proposed wage increases for non- � union salaried employees since increases allowed to such employees � are given not on January 1 each year but on the employment anni- versary date of each employee. The amount of the increase � depends upon the employee' s particular merit performance within his department. � NSP maintains that although the amounts of the in- ,� creases may vary by individual employees, the same overall per- centage wage increase granted to union employees is also granted � to non-union salaried employees. NSP also takes the position that since wage and price stabilization regulations ended on � - 33 - , . � April 30, 1974, another 2 .8� wage increase should be recognized � beginning May 1 , 1974 . It is the determination of the Hearing �xaminer that � the wage increases scheduled for non-union salaried employees � should be recognized as proposed by NSP, but only to the extent that such wage increases will actually be paid during 1974 . The � evidence established that because of the fact that wage increases scheduled for non-union salaried employees begin on the employment � anniversary date of each such employee rather than on January 1, � the amount paid by NSP as a result of such wage increases is only 56� of the amount which would result if all such raises ` became effective on January l. This 56� factor was therefore used in the calculations underlying the Findings of Fact and � Recommendations. The effect of this method is to recognize these � known salary increases for only one year beyond the test period. The recognition of such increased salary costs necessitates � a recognition of pension costs which are tied to salaries. This factor has also been recognized in the calculations underlying � the Findings of Fact and Recommendations. � With respect to NSP' s proposed adjustment resulting from the termination of wage price stabilization regulations, it � is the conclusion of the Examiner that the evidence does not justify the adoption of such an adjustment. � F. Proposed Adjustment Relating to Income Taxes. � The dispute between the City and NSP with respect to � i - 34 - � � income taxes relates to the treatment of interest incurred in jconnection with construction work in progress. NSP takes the position that if construction work in progress is not in the � rate base, interest deductions taken for tax purposes by NSP � should similarly be excluded from recognition for rate-making purl�oses. The City maintains that such an adjustment is inappro- � priate and that since such interest deductions for tax purposes are actually taken by NSP on its tax returns, they should be � recognized for rate-making purposes. � It is the conclusion of the Hearing Examiner that the posYtion of the City should be adopted with respect to this � issue. This determination follows the precedent s�t in the 1971 electric rate hearing in St. Paul where the Examiner deter- � mined that the appropriate method of income tax determination � is the method outlined by the City under which the current tax benefits derived by the utility from deductions such as interest � on construction in progress are currently recognized for rate- making purposes. Among the authoritiessupporting this position is � Re New England Telephone & Telegraph Co. , (1970) 84 PUR3d 130. � G. Proposed Adjustment Relating to Fuel Clause Rider. At the present time, a fuel clause rider to �TSP' s rate � schedule is in effect in th� City of St. Paul. This fuel clause � rider provides for autonatic rate adjustments based upon changes in t.he costs of certain fossil fuels, thus enabling NSP to pass � on to its customers increases or decreases in fossil fuel costs. � � - 35 - � � In this proceeding, NSP has proposed an amended fuel clause rider � which would involve three basic changes: (1) Under the present fuel clause rider, rate adjust- ' ments are based upon changes in fuel costs for the average of th� � most recent twelve-month period. As a result, rate adjustments lag significantly behind fuel cost changes. Under the proposed � amended fuel clause rider, this "twelve month rolling average" method would be replaced by a system involving a one-month cost � of fuel. This would largely eliminate the lag period. � (2) The present fuel clause rider applies to all kilowatt houLS, including those produced by nuclear and hydrogenerating � plants, even though the cost increases which trigger the adjust- ment relate only to fossil fuel. The proposed fuel clause would � eliminate kilowatt hours produced by nuclear and hydrogenerating � plants. (3) The proposed fuel clause would increase the base � cost of fuel to a level more accurately reflecting 1974 fossil fuel costs. � The City does not oppose the adoption of the new � fuel clause rider proposed by NSP. Moreover, it is the deter- mination of the Hearing Examiner that the proposed fuel clause � rider would accomplish its intended result in a more accurate � manner than does the current fuel clause rider. Thus, the fuel � clause rider proposed by NSP is adopted by the Hearing Examiner � for purposes of these proceedings. � - 36 - � � � Although the City agrees that the new fuel clause � rider should be adopted, it disagrees significantly with NSP with respect to the manner in which the fuel clause should be � treated in determining 1973 test year revenues and expenses. � The consultants for the City have proposed three adjustrnents which result in a net increase of $781, 000 in NSP's 1973 test � year revenues, thus reducing the deficit to be recovered by NSP by that amount. Those aspects of the adjustr.tents which are � disputed by NSP are based upon the following underlying assump- � tions: (1) That it is appropriate to determine the effect of � the fuel clause on the basis of the cost of fuel on Decemb�r 31, 1973 to match the year-end rate base; and � (2) That no recognition should be given to the effect � of tYie lag c�used by the twelve month rolling average used in computing fuel costs since such a lag is detrimental to the utility � � only in periods of rising fuel costs. ! As a result of these assumptions, the City' s calculations indicate � that on a test-year basis -- using year-end fuel costs and elim- inating the effect of the lag period -- the fuel clause would � result in an over-recovery of revenues. � NSP contends that the City's method of calculation with � respect to the fuel clause is erroneous and that the assumptions � underlying such calculations are invalid. NSP maintains that the basis for the City' s proposed adjustment is without foundation � , - 37 - � � ` � �. becau.�e (a) i1SP did not actually over-recover fuel clause revenues ` in excess of fuel cost increases in 1973; (b) during periods of rising fuel costs, it is impossible under either the present � or proposed fuel clause rider to over-recover fuel clause 1 revenues because of the inevitable lag in adjusting revenues to increasing fuel prices; and (c) it is likely that fuel costs � will increase in 1974 . Another way of describing the dispute between the � parties on this cornplex matter is as follows: VSP argues that � calculations should be based upon conditions as they actually occur_red in 1973, which was a period of sharply rising fuel � costs. The City, on the other hand, argues that fuel costs may or may not continue to rise in the future, and that test � year revenues should therefore be calculated on the basis of � constant fuel costs, based upon the actual cost of fuel on December 31, 1973. � It is the determination of the Hearing Examiner that the contested issues concerning the treatment of the fuel clause � ridsr should be resolved as follows: � 1. Proposed �ity adjustment number 9 which normalizes fuel costs at the December 973 level corresponding to the amount � on which the fuel clause rider is based, should be adopted. 2. Proposed City adjustment number 10 which � ad�usts expenses and revenues as if the December 31, 1973 increr,lental prices for fuel and purchase pocaer had prevailed � throughout 1973, should not be accepted. 3. As recognized by both parties, the � a vantage of eliminating the twelve � - 38 - � . � month rolling average lag, should be recognized. ` The acceptance of proposed City adjustment number 9 has � the effect of normalizing fuel costs and fuel clause rider revenues f�r the 1973 test year at the December 1973 level. It is the con- � clusion of the Examiner that such normalization is consistent with the use of a year-end rate base and the annualization of expenses , and revenues to year end. By accepting this adjustment, the Examiner makes no assumption as to whether fuel costs will or will � not continue to rise as they did in 1973. This approach is consis- � tent with the decision of the New York Public Service Commission in Re Niagara Mohawk Power Corporation, 92 PUR3d 461 (1971) , cited , by the City in its brief. The City contends in its brief that the consideration of � adjustment 9 and 10 must be taken as a whole and that the two issues � should not be separated. It is the conclusion of the Hearing Examiner, however, that although the theoretical basis for adjustment ' number 9 is to some degree similar to the basis for adjustment number 10, adjustment number 10 is inconsistent with proper account- � ing methods as used by the utility, and must therefore be rejected. IAdjustment number 10 is intended to bring fuel costs to year end Ievels and treat these costs as if they had prevailed throughout , 1973. Since the fuel clause rider would have triggered an increase in rates if such fuel costs had prevailed throughout � 1973, the net effect of adjustment 10 is to significantly increase � test year operating revenues. The use of incremental fuel costs � , - 39 - � , - � as of December 31, 1973 in adjustment number 10 is, however, � incansistent with the accepted accounting practice of reflecting fuel costs on "as consumed" basis rather than on an incremental ' cost basis. Moreover, since the fuel clause rider is triggered by 1 "as consumed" costs, it would be inappropriate to recognize test year revenues on the basis of incremental cost increases. � Therefore, it is the determination of the Hearing �xaminer that the appropriate accounting method is to use the "as consumed" � cost rather than the incremental cost of fuel in this situation. ' Accordingly, proposed City adjustment number 10 must be rejected. Of course, it should be recognized that the figures , submitted by NSP do reflect the benefit of the adoption of the new fuel clause rider cahich has the effect of eliminating much Iof the lag associated with the twelve month rolling average method. � In view of the inclusion of the Prairie Island plant in the rate base, it is necessary to adopt the $753, 000. 00 addition to test � year net operating income as indicated by Column O on NSP Exhibit 23 (a) . � � VI. Rate Design. iIn connection with its request for rate increases, NSP � has also proposed certain changes in the rate design for the City of :�t. Paul. The proposed changes in rate design involve the � following matters: (A) A seasonal rate concept which provides for a higher � rate during June through September; � � - 40 - � . , (B) The elimination of certain promotional rates; and � (C) Revision of the fuel clause rider. The proposed changes in rate design would have no effect ' on the total revenues which NSP would receive for the period during , which the rates which result from this proceeding will be in effect. The changes d o, however, cause certain shifts in the rates to be � paid by various classes of customers. For example, the higher summer rates involved in the seasonal rate concept would izave a � greater effect upon heavy residential users of air conditioning � than on those residential customers without air conditioning. NSP presented evidence indicating that the proposed new ' rate structure would result in a closer relationship between rates paid by various classes of consumers and the cost of providing , service to each such class. Although witnesses for the City agreed � with the changes in rate design in principle, the City took the position in its Brief that no changes in rate design should be � permitted without the presentation of a cost of service study by the utility. � It is the determination of the Hearing Examiner that � the changes in ra'ce design proposed by NSP should be approved. While it is true that an extensive cost of service study might � produce additional useful information with respect to the question of rate design, the record contains significant evidence that the , proposed changes would be ben�ficial. For example, the pronosed � seasonal rate differentials are based upon the fact that peak demand � � - 41 - .f 1 , levels occur during the summer, primarily as a result of increasing use of air conditioners. It is this peak demand which is most � responsible for the need for constructing additional generating facilities. To the extent that wasteful uses of electricity during , the surruner may be discouraged by the higher summer rates, the need 1 for additional generating facilities to cover pealc demand periods may be reduced. In addition, reduced summer demand would have a � leveling effect on the company' s load factor which would in turn lower average costs. � No evidence was presented by witnesses for the City in regard , to the proposed elimination of certain promotional rates by NSP. In the view of the Examiner, the elimination of such promotional � ratES would be beneficial in that it would tend to discourage un- necessary and excessive uses of electricity. With respect to the , proposed changes concerning the fuel clause rider, witnesses for the � � City agreed' that such changes would be appropriate, although they disagreed with NSP in connection with certain test year calculations � involving the fuel clause rider as discussed above. As discussed above, it is the conclusion of the Examiner that the proposed changes ' in the fuel clause rider would more accurately match rate changes � with changes in fossil fuel costs, and should therefore be adopted. � 1 � 1 � - 42 - � . � VII. A ro ria pp p te Rate of Return. � Northern States Power Company, through the testimony of Dr. Henry Herz, takes the position that a fair and reasonable , rate of return on a net investment rate base in this proceeding Iwould be 9. 25�. This would result in a rate of return on common equity of 15 to 16 percent. NSP points out that in the 1971 � hearing, the Examiner recommended an 8.2� rate of return on an original cost rate base which was supported by a finding of t14. 3� as the rate of return on book common equity and 5. 35� on , senior securities. The company contends that since the cost of obtaining new capital has increased significantly since 1971, , a proportionatly higher rate of return is warranted in this proceeding. As indicated by NSP in its brief, the increase in ' the imbedded cost of senior capital would make it necessary to � set an overall rate of return substantially above 8. 2� if the company is to be allowed to maintain a 14. 3o rate of return on � common equity which was approved in the 1971 hearing. NSP further maintains that, as shown by 1973 adjusted test year figures, � the actual rate of return achieved by the company has declined � to a level well below the rate approved in the 1971 hearing. The utility argues that significant changes have occurred � since the previous electric rate case in St. Paul and cites the � following factors in support of its position that a rate of � return below the 9. 250 on an original cost rate base recommended 1 by Dr. Herz would be inadequate: (a) NSP' s declining bond interest coverage, which � reached an all-time low for NSP during 1973, threatens the company' s double A bond rating. Interest coverage computed under the terms � - 43 - � . � of existing bond indentures is currently approaching the level � below which no additional bonds can be sold. (b) A drastic decrease in earnings per share would , result in 1974 without adequate rate relief. Earnings per share for January and February of 1974 were $. 40, which is $. 22 � per share less than the same months in 1973. Even with the current � rate increase program going into effect on March 19, 1974, and assuming uniform rates at the increased level established throughout , the remainder of Minnesota, NSP would experience a decline in 1974 �enings below 1973 earnings. In addition, 1973 earnings � ($2. 61) declined from those in 1972 ($2.75) . , (c) The persistence of high inflation has compounded the difficulty of attracting common equity capital. ' (d) Continued attrition has decreased the desirability of public utility stocks and bonds as against other comparable � and available investments . The degree of attrition which occurred , between 1970 and 1973 is illustrated by the fact that during that period, NSP' s rate base increased at a substantially greater � rate than the increase in net operating income. Dr. Ross Rabertson, an expert witness for the City, � testified that in his opinion, the appropriate rate of return , in this proceeding, on an original cost rate base, lies within the range of 8. Oa to 8 . 5�. The City maintains that this � recommended rate of return is more than adequate to attract the new capital needed for expansion. It argues that NSP' s � experience in recent years from a financial standpoint has been � favorable in comparision with other utilities. In its brief, the City cites a number of recent decisions i _ �4 - � , in other juridictions in support of the rate of return recommended by Dr. Robertson. In addition, the City contends , that a rate of return on a year-end 1973 original cost rate � base within the range of 8. 0� to 8. 5� is reasonable and consistent with the decision in the previous hearing in St. Paul. iOn the basis of all the evidence presented, it is the determination of the Hearing Examiner that the appropriate , rate of return in this proceeding is 8. 1� . This results in a � rate of return on common equity of approximately 12. 64% on the basis of the 1973 year-end capital structure of the company. � Such a rate of return on common equity is, in the judgment of the Hearing Examiner, fair and reasonable in this situation. iAs stated recently byiize Minnesota Supreme Court in ' its decision in Re Application of Northwestern Bell Telephone Company vs. State of Minnesota, et al. , filed March 22 , 1974 , � Minn. , " . . .the fixing of a fair rate of return cannot be determined with precision, since it is not derived from a � formula, but must be reached through the exercise of a reasonable ' judgment. . . . " It is recognized that an 8. 10 rate of return is slightly below the 8. 2� rate of return allowed by the Examiner � in the 1971 hearing. It is inappropriate, however, to make direct comparisions with respect to the two hearings. In the , current hearing, the test period used ended just prior to the � presentation of evidence and only a few months prior to the issuance of this opinion. In the 1971 hearing, such recent figures were ' not available and the test period used therefore ended nearly a full year prior to the issuance of the decision. In addition, � the inc Lusion in the rate base of the Prairie Island Plant, which , � - 45 - ' , "went on the line" near the end of the 1973 test year, must be ' considered in compa�ison with the exclusion from the 1970 test year rate base in the previous hearing of the Monticello Plant , which was put in service shortly after the conclusion of the 1971 hearing. While there is no `inconsistency between the � inclusion of the Prairie Island Plant in this hearing and the ' exclusion of the Monticello Plant in the previous hearing, the timing of the current hearing is significantly more advantageous � to the utility than that of the previous hearing. In the opinion of the Hearing Examiner, this factor, as well as numerous other � factors, must be given consideration in determining an overall ' rate of return. On the other hand, it is the opinion of the Hearing tExaminer that an 8.1$ rate of return in this proceeding is not excessive, particularly in view of inflationary pressures � and the demonstrated effect of attrition which has occurred during � the past two years. . , , ' ' ' ' , ' - 46 - ' APPENDIX II " � COST OF SERVICE INCLUDING 8. 1 PERCENT RATE OF RETURN ON NET OPERATING INVESTMENT -- 1973 � Amount of Return Needed (In Thousands) ' 1. Net Operating Investment 133, 903 2. Return 10, 846 � Federal and State Income Taxes Required 3. Return from Line 2 10,846 , 4. Deduct: Allowance for Funds During Construction (AFDC) 5. Return: Line 2 less AFDC, Line 4 10, 846 � 6. Add: Nuclear Fuel Expense g52 7. Provision for Book Depreciation and Amortization 6, 074 , 8. Provision for Deferred Income Taxes 3,104 9. Deduct: Interest Cost 5, 312 10. Other Capitalized Items 1,258 11. Income Tax Depreciation 12,583 ' 12. Investment Tax Credit (Flow Through) 152 13. Preferred Dividend Credit 15 14. Income Tax Base 1,556 , 15. Preliminary Tax at 1. 185 �1� 1, 844 16. Deduct: Investment Tax Credit 152 17. Preferred Dividend Credit 15 , 18. Final Federal and State Income Taxes 1, 677 Gross Earnings Payment Required ' 19. Return from Line 5 10,846 20. Deduct: Other Operating Revenues 6,271 21. Add: Income Taxes from Line 18 1, 677 ' 22. Operating Expenses-Exc. Gross Earnings and Income Taxes 41, 940 23. Base for Gross Earnings Payment 48 ,192 ' 24. Gross Earnings Payment at . 087 �2� 4, 193 Cost of Service ' 25. Operating Expenses excluding Income Taxes � and Gross 26. Earnings Payments from Line 22 41,940 , 27. Gross Earnings Payment from Line 24 4,193 28. Income Taxes from Line 18 1, 677 29. Return from Line 2 10, 846 ' 30. Total Cost of Service 58 , 656 31. Portion attributable to Retail (Line 30 less 6271) 52, 385 32. Increase over 1973 test year retail � revenues of 45, 070 7, 315 33. Percent increase over 1973 test year revenue of 45, 070 16 . 2� � - 48 - � APPENDIX III , 1973 INCOME STATEMENT AS ADJUSTED � (In Thousands) , Operating Revenues Residential 14,873 ' Commercial and Industrial 28 , 974 Public State and Highway Lighting 492 Other Sales to Public Auth. 731 , Other Operating Revenue 6,271 Total Operating Revenue 51,341 ' Operating Expenses Production 19,452 Transmission 572 ' Distribution 2, 574 Customer Accounts 974 Sales 76 � Administration and General 2, 927 Total O&M Expenses 26, 575 ' Real Estate and Personal Property 5,763 Gross Earnings Tax 3, 606 Payroll and Franchise Tax 424 ' Prov. for Def. Income Tax 3,104 Federal and State Income Tax 0 Prov. . for Depr. and Amort. , 6, 074 � Total Operating Expenses 45, 546 ' Operating Income 5,795 AFDC 0 , Net Operating Income 5,795 1 . ' ' ' � - 49 - � � � � � � � � � I � NORTHERN STATES POWER COMPANY' S CASE IN CHIEF �' � � �� , � ' � NORTHERN ST�TES POWER COP•�PANY 'S CASE IN CHIEF � Mr. Keyes made the following opening statement on � behalf of Northern States Power Company: (Tr. , p. 71-81) "ti�Ie would then proceed with our case. I � would like to make a brief opening statement � if I might� outlining for the Hearing �� Examiner those elements of the case which NSP � expects to prove by the witnesses it will � put on the witness stand in this matter the next several weeks. � The ultimate function of this regulatory body � is to set el.ectric rates which are fair, � both to NSP and to its St. Paul custamers. In � order to determine the ultimate issue, however, a number of preliminary issu�s must be resolved, � The purpose of this hearing is to resolve dis- � puted issues so that the final determination � will be embodied a.n an ordinance adopted by � the City Council and binding on both utility and its St. Paul customers. As the Hearing Exami.ner � is well aware, utility rates are subject to � public regulation in order to obviate eith�r axbitrarily high rates or confiscatorily low rates. The law � • guarantF��s reasonable utility rates to consumers; the law entitlAs utilities to rates suffici.en� �o � � . � permit them to continue to provide the services � that they must provide. A Public utility has the obligation to provide � non-discriminatory service to all who pay far � it. In exchange, it is entitled to a level of rates which permi�s the attraction of capital �( necessary �to build and maintain the plant to provide that service. � We are here pursuant to the relevant provisions � of the City Charter and of the Franchise between � the City and Northern States Power. A great deal of the cost of these hearings will ultimately be � borne by the consumers of electricity in St. Paul. � The City Council and its Hearing Examiner have most important functions -- those of conducting � these hearings, receiving and weigha.ng evidence az�d eventually presc�ibin fair and reasonable � 5 electric rates. The Council' s role is similar to � that of th� Judge rather than that of an advocate for either the u��.lity or those who might seek to 1� deprive the utility of a fair return on its invest- ment. � ; �he law does not c�ntemplate that the Council assume � � an adversary role in thes� proceedings. It does � � contemplate that it put N�P to the test to prove ' � � r � _2_ � � � � �' its entitiem,�nt to t�ie a�:icrea�e i?z electi�ic r.ates rec;uested. ,� 'I'rE:SE p�0;�`F':�i�:c�; W=�rG CC7::tIX?E'_I'1C�`: Wrl£;? I`SP �1�.�'_C� �i `�' petition for rafie r��vic�w with t}:e City C�_�rk on October 12, 19;'� . ihE�re�fter the Cit4• eng«ged this � Hearir�g E�ar�,inz::� ar�r� rate experts a � The Ci�yT' s rate e��er�� have been at DTSP ' s affices � cantinual.ly for the past �everal manths e�aith ¢ul? and ccmplete access to ali pertirzent books and recc�Yc�s . � Today° s hearing is in acco�dance witY°A the rate schGdule promulgated bv the Hearinc� Examzner ar�d adopted by the � Citv C�uncil. _ � A utility ra*c� h�ariz�c� is a s�ecial�zed pr��ed�are. � Many -terms p�c�:li�r to utility accounfiing �;w1I bF � . , s:nc.�;: h�ar� Lr;�m the ��:ness st ar:d �nd in su}�s��j�.�� memoraz��za prep�reci c;n ?��-ha.lf. of the partie:� �nd, b�1 t}i�. `I�ar. J.r�g F'`_:'?`"''_r�i-:z , '�`h� �}hZ�a;:,^ '?'a�e ,�r returr:r i� 'r� �I r'<^::MC C,':lZ':(:".E:,J�. I�� .`t.�E'`:c?"M1?'1c3�1U7"'a �L'> C�JO'VF;x'I''EC� ?7Y' UtI_.'��+.��, c�.CCL�'':i?7''.1i:CT �1iiE'3.. ;'�Y'O?Y! ;:.f1f' ��;'?t��'X::"� �)�°c'SEy'Y;f.::'•.C�y ��1G � .y �C,C�-.._.+-'t.�C�'"'}% k` ,.:�' :Ci':S±' dS�:.,C�YI c�t f�i.�a.� :�.:C' �.'c1.1�".c' t'i I�'QYt...E'.Y';': � • _ � ; " ' "`f,; �c??� `d " , ��.:�:+�a I��:,E'''_ = i 3fi'' �J�3��' ti.Tl .r � �"�lc�,'t,:. J_5 > �ilc, V3�.L1E.'. ^� i��' �_:?"i7C4L':C}1(;ilr ��'3.i75??�t1.S�1c:I`� �:�� 1S�r'li'tl'::.'�.OZ7 � ¢ac�_l:�tiFS �;s`r an.e? u��yfu�. iri pre�-�i�3i�g Q�:.«��c�t��.ci.�Y � t:^ ��-. P�u�. L��n�nez s, / � -�i � � It must alsa determine the net income I�SP wi11 receive ��from its St. Paul operations. When the value of the operating investment or rate ba.se is divided into the � ne� operating income, the result in percentage figure constitut�s the overall rate of the return. �' Based on NSPPs 197Q electric:al operatians and its � 1971 gas operatians at St. Paul , this Council determined that an 8 . 2 percent overall ra�e return was fair and � reasonable. NSP` s testimony will shoca that, at present � rates, St. Paul electric operations will earn a rate of return of about 3-1f2 percent in 1974 in St. Paul. � That is, at the present rates. � � It has been said that a utility is a cost plus opera- ti�n; this, however, is inaccurate. A utility is a � . cost period operation since the amount that it must pay out. to attract capital is a necessary .and essential � cost of. its operations. An electric utili�y is, our � evidence �azll show, cap�ta�. intensive. It has no huge inventori�s or stne k irl trade. It � can only continue ta oper�te by the use of other �� peaple' s �ap�tal. Unless it can attr�ct that capital �n a highly competitive mon�y market, it caill soon be � . unabie to meet the demands which its customers ,� place upor ito m i h NSP must a to those � Therefore, the a Qunt wh c p y � -4- � who have lo�rPd zt nioney �r wh� h�ve �urchased � � pr�priPt�ry iz�terest in �.t is as much a � legitimate expens� of dc��.ng business in St. Paui ' as �he wag�s �t pays i�s employPes or the t{�x�s � i� pa��s toca3rds the operation �f Cit�= goverr�ment. � The only variable in determining the overall rate of retur:�P our testimony will srio�:, is the � rate to whic� cnmmon e uit is entitled. The amount �f Y � which NSY must pay to its senior equa.ty holders -- �hose who P-�ave purchased b�nds , deben;:ur�s or greferrec3 � stoc,k -- is known at t�ie time thase securities were � issuede Those ��y�YO obtair� a proprietary int�rest in the utility thro�agh the purchase of c�mr,ion stock, � however, d� so at greater risk and �aith �he expecta°- ti�n of greater rewards. � . In NSP' s 1:'°i0 �lectrical operations and its 1971 � ga� aperaticar�s :in St. �a�al, this Council det�rmir�ed ��aat. a 14 . 37 per�e�t ra�e r�f retur� on the bo�� t'�It�e � c�f NSP' � commoz� stock was ��ir and .reasor.ablc. � In �his �?ea:-incr �dS� wi�i ir.trc��.ice se-ve�.�.l tIT�'JiQVP_.- � T^ent.s �n t�"i� �'e,:1��°].riC�T St. P�.u� f�'lE?ctY'ic �<3��E' i � st�:uc�ure 3esa.�ned t� �h�Ft t�.� r�tc. ?�t�x��n f.Y��: �� s��1i�V t� ��r_�;e�::� cc�nst�mer� an a cost �� s�rvic� ba�t�so P�r� ar�.i parcel e�f �his :t� t�� ir�st�.tutiGZz iaf seas�nc-r1 rat�s to gartiall� ofts�t th� ��igli�� costs � C_ -.� � � � associated with meeting peak demands for electricity in St. Paul in the warmer months. � Consequently, those consumers whose use is summer � oriented, such as heavy users of air conditioning, � will see a relatively larger electric bill than those whose use is limited to light, heat and small appliances. � There are a number of subsidiary issues in this matter � which I wi11 discuss briefly. I can assure you they will be gone into in great detail by the witnesses � which will be produced by NSP, by the City and by the Intervenors. � � One issue is proper test year selection. It is , axiomatic that rates are made for the future. � The rates to be set as a result of these hearings will be in effect in 1974 and, to be �teaningful, must � ' reflect 1974 conditi�ns. A decade ago when our economy was less volatile, our energy demands were � quite stable and our capital requirements were easil obtai.ned the use af a ast or historic � Y ► P test year by which to measure future conditions was � permissib�e. It ��as fair; it made sense. This is not the case in the 1970' s, however, -- and especially �t � not in 1974. � Another i��ue will be method of evaluation of physical _ � _6_ � � � � plant. Our evidence wisl shcw �h�t fairn�s� demands that the diminut:.Qn i..rz th� purchasing price o:E the � dollar_ b�tu�een initial plant cons�ruction and in I574 be recognized. To value a praduction facility �rected �' in 192Q in 1920 c1o11ars �- anc� subtract fram tha� intervening depreciation -- is unrealistic an� unfair, � articularl to t�ose wl:o resentl ar� willing to P Y P Y � risk �heir. �.°74 dollars in the utility operatiaYZ. � Much more equitable is th� assigning to plant. va�u�tion an increment tending to reflect present production � costs. I am referring, of �ourse, to t�e fair value methocl of utility plant valuation recommended by our � legis�ature in the statute governi�.g telephone r<�zte � regul�tion, by Qur• SuprE�r�<� Court in a recent dd val�rem tax dec�.sian ar.d by our State Publi� Examiner ir� � � ariticizing St. Pau1' s m�thod of valuing its munici�ally owned w�tea util�t�. . � '�`her� ��i7.1. , c�f ��urse, be other ancilla�y pz�Ynuiples in � dis�lxt�. I wil� not dzta�l rior �ref�r to them in this � o�c:z�ing statemer.t. How�ver, ou� �vidence �aill sr.ow that avarshading and permPat�ng �v��ything a� these � hearir►c;s, is the present �nergy cr1 J�J a '"his hz�arirag is ta�ing �>la�� at an �.�ailpicic�us �ime in our histox�ya � The Unite�. State�, �,�h�se ph�nnme:^�al ind.ustrial growth � . _°�_ � � � and general prosperity have been fueled by abundant, cheap energy, is being forced to reconsider its power- � energy way of li£e. � � Our testimnny will detail some of the consequential realities of the present energy crunch. Among them are � a sudden sharp increase in local taxes and in the price � of fue1 , accompanied by a sudden sharp decrease in operating revenues. These phenomena have been � accompanied by the spiraling costs of long and short term capital requirements. � NSP' s projections indicate while electrical consumption • � will be affected, peak demands will continue to increase. Greatly contributing to these demands will be the long � term shifting to electrical energy from other sources, � particularly oil and its derivatives. Additional research faciiities must be financed in an effart � to secure and maintain efficient and economical energy saurces. This mean� that roduction must continue � P to be expanded to meet increased demands even though � daily average �onsumption may temporarily wane. � � There just is no possibl� basis for halting or retard.ing NSP' s prGposed construction schedule despite � � deczeasing revenues. � ' _ � -8- � � � _ a T� , 1 ,� It is pr_esen-tly contemplatec., i�hat tv.�P ��il_ c.._..1 ir� �; its case in chief the follo�•ring witnesscs , �.nd presumably in th_is order: � � Mr. Thomas A. Connelly. He is the manager of NSP ` s St. - Paul di�,rision. He will describe NSP ' s � present and corztemplated production and transmission systems and relate them to St. Paul. � Mr. Edward C. Glass. He is an electrical engiiieer � and NSP' s Director of Planning. He will discuss � lo�d growth for the nex�. several years , taking into account tne energy crisis. He will �ell us � about NSP' s requirements far additional generating and transmission facilities together with recPntly � encountered higher operating expenses. � � Mr. James 0 Cox. He is NSP ` s treasurer. He wil� � t�ll us o� NSP J s antici�ated f iz�ancing �ec�uiremerits � to meet NSP` s legal, obligation to pro��ide effirient �� s�xvice. � Mr. Frank P. Vix� is a cer�ifiea pu�lic ac.^..auntant and manager of N5P ' s �ate r�dmiraistrati�n Department; � he w�.11 proviae us with NSP ' s ne-t o��rating invest- ment in St. Paul. He wiZl also describe NSP ' s St. � Paul op�rating revenues, expens�s, and the resultan� � net operating income. From these he �caill show us � +�� that present rates, as I indicated �arlier, will � permit NSP a 1974 overall rate return of only about � ` 3-1/2 percent, a rate which is patently confiscatory. � Mr. John B. Gillett is a utility engineer. He is outside of NSP. He will qualify as an expert on the � use and reliability of the Handy-Whitman Indexes for utility plant evaluation. His testimony wi11 � serve as foundation for plant valuation on a trended � original cost basis, an element in arriving at a fair value rate base. �� Dr. Henry Herz, a consultin.g economist from Washington, � D.C. , will conclude that NSP is entitled to an overall rate of return of 8-3/4 percent on a fair � value rate base or of 9-1/4 percent if an original � cost rate base is selected by this Hearing Examiner and by the City Council. � Mr. Richard W. Rosenwald is a supervisor of rate � design with NSP. His testimony wi11 concern NSP ' s proposed rate schedule. He will describe the proposed � improvements in rate structure, including th� institu- • tion of seasonal rates and xate emphasis on larger � consumers of electricity in St. Paul. The rates proposed � by Mr. I�osenwald' s testimony would produce sufficient revenues ta permit NSP to continue to conduct its i electric operations in the City of St. Paul in an � efficient manner . � -io- � � . In essence NSP ' s testimony will shoV� that the � requirement for ca�ital attraction is probably more vital today than ever. New capital is the � life blood of any industry -- especially one �ahich � sells services rather than hard inventory. If NSP cannot comp�te equally on the open capital market � with others wh� seek to attract the investor ' s dollar, it will inevi�ably be unable to provide the energy � required by its customers. If its earnings are � such as to permit its owners and creditors a fair return on their invested capital, it will continue �; adequately to provide its essential serdices:' � � � . � � � . � � . � � -11- � � Northern 5tates Power Company (Minnesota) ,ti Electric Utility - City of 5t. Paul 5tatement of T. A. Connelly � St. Paul Division Manager � My name is Thomas A. Connelly and I am St. Paul Division Manager for Northern States Power Company. I have a Bachelor � of Electrical Engineering degree from the University of Minnesota and a LLB degree from Wm. Mitchell College of Law. I am a � registered Professional Engineer in Minnesota and am certified � to practice law in Minnesota. Northern States Power Compan is an Investor-Owned utilit � Y y which provides electric, gas, heating and telephone service in a four- � state service area covering about 40 ,000 square miles. This area includes nearly 3 million people residing in 630 communities � located in Minnesota, Wisconsin, North Dakota and South Dakota. Over 60� of the o ulation served is located in � P P the Twin Cities Metropolitan Area and about 65� of our electrical demand can be � attributed to these customers. Of the estimated 3 million people in the NSP service area, approximately 305,000 are located in the � City of St. Paul. Electric service is provided to this service area by a network of generating facilities , transmission lines , � substations and distribution systems. � The major source of NSP's generation is provided by the new Monticello Nuclear Plant and 16 fossil fuel enera ' � g ting plants. � -12- � � � � These plants are supplemented by 26 peaking plants and 14 hydro plants . �'he major steam generating plants (King, Riverside, � High Bridge and Black Dog) are all located in the metropolitan area. These generating plants are connected by a vast network � of transmission lines and substations with 32 electric ower P � suppliers operating in 8 states. This arrangement has enabled NSP to obtain power from other suppliers to assure reliability � of service and econoanically coordinate our system development. � The highest electric demand ever experienced on the NSP system was 3,836 ,�00 kilowatts on August 27 , 1973. At the time of this �, maximum demand, NSP received about 523,000 kilowatts from other electric supp�iers. For the last decade, the annual increase � in electric demand for the NSP system has been approximately 9$ . � � The forecast for the next 10 years indicates a gradual decrease ta ?$ in 1981. Electric use ir� the City of Saint Paul has been � growing at a rate of 8.5$ with kilowatt hour sales in 1962 amounting to 908,412,000 and in 1972 increasing to 1,976 ,934,00.0. � Whi�.e the dema.nd for electric service continues to double in less � than ten years , the cost of doir�g bu�i�ess also continues to � increase. During the period 1970°1.973 NSP 's total operating expenses together with intere�t cr�sts h�ve gone up over 30� . � Included in th�t tatal th� cos� of fuel �nd purchased energy has increased over 53$ and expenditures far maintenance and materials � have increased over 46$, In addition, the cost of rnoney continues , � -13- _ i :. � . � � to be very high. There has been a 60� increase in interest ,� payments since 1970. Increased construction costs due to - inflation, along with environmental protection costs , have � greatly increased the installed investment cost per KW of � generating plants and are expected to continue the trend. For example , the Allen S. King plant built in 1968 cost $146 per r . Kw while the Sherburne County plant now under construction is expected to cost about $265 per KW. The increase in cost due � to pollution control (non-revenue producing) is also present � at the High Bridge plant where $11 .1 million has been spent during the past 2 years for electrostatic precipitators , a new ,�, stack and for rail unloading facilities to handle low-sulphur _ western coal which is necessary to comply with MPCA standards. � In order to meet the growing demand for electric service, � construction expenditures have averaged $171 million per year for the last five years. It is estimated that NSP will spend � an ave-rage of $244 million per year for the period 1973 thru � 1977. In spite of our efforts to assist our customers in the conservation of energy, the need for these expenditures � continues . � Sin�e 1965, NSP 's peak demand for electricity has occurred during the summer, and since then the summer peak has grown � larger and larger in relation to winter use. This means more � power plants , substations and transmission lines have to be ' -14- � � � �� r„ r � built to serve summer requirements . Air conditioning is the main cause of this growth. We intend to institute a seasonal w � rate to artiall affset hi her c t p y g os s associated with the heavy � use of electricity in the summer. � In order to meet the increasing requirements for electri.c energy in the City of Saint P�ul, NSP must have adequate rate relief. � We cannot continue to build new faciiities , meet air and water pollution requirements and pay for increased capita:l and � operating costs without �.ncreas�d rates . � � � � � � � � � � � -15- � � NORTHERN STATES POWER C�MPANY (MINNESOTA) � ELECTRIC UTILITY - CITY OF 5T PAUL Statement of E C GlagS Di�ector of Planning � My naine is Edward C Glass. I am Director of Planning for � Northern States Power Cnmpany. I have a Bachelor of Electrical En ineerin de r�e fxom the Universit of Minnesota. I arn a � g 9 g Y r�gistered professional engineer in Minneso�a. � I joined Northern Sta�es Power Company in 1947 as an engineer � in �he System Oper�tinn Department. I held several positions in that department until 1962 when I was transferred to the � �Plarining Department as General Superintendent. In 1970 I was appointeci Director of Planning. My present responsibilities � include forecasting power and energy requirements, pl.anning � for �ener�tian, transmission and power pool interconnection� , negotiating p�wer supply agreem�nts, plann3ng coordination � with �ther pow�r sy°s�em� and regional �ower pools, buc�getirrg powe� s�pply cnnstructiora expenditures, processing power supply � pY•ojec� c�st �s�im�te�, �cheduling construction proje�ts, and � d��ermir�ing bulk pow�r sug�1y costs . �'rie purpose o� m�r appear�nce is ta pravide testimony on th� � m�ai�s of su�plying raower and en�rgy to NSP 's e�.ectric system � in supp�rt of the �asition tY�at the present rate "levels ia� �r�e City c�t St �aul are in�dec�uate tc� provide for the incr�ased � � �-16- � � � � facilities required to supply the future requirements of its customers . � Integrated Operation � Most of the nation' s utilities are integrated into a coast- � to-coast system. Within this system the utilities have formed power pools td coordinate their planning, construction, and � operation in a manner which approaches that of a single system. � In so doing the utilities have made substantial gains in sup- plying an economic and reliable electric energy supply to their � customers . We are committed to accomplishing these goals with minimum adverse impact on the environment. The principal tools � used to derive these benefits are equipment si�e and the sharinq � of facilities. The ability to make use of large generators and high voltage transmission lowers costs . The sharing of � facilities results in an improvement of reliability with less equipment necessary for reserve capacity. Obviously, none of � this would be possible without a very high level of coordination � among the utilities involved. The regional power pr�ol which serves �ur area as part of the � nationwide system is the Mid-Cax�tinent Area Power Pool (MAPP) , � NS� and the oth�r 20 anember �tilities serve North Dakota, South Dakota, Nebraska, Minnesota, and Iowa, and parts of � Montana, Wisc�nsin, and Illinois . MAPP membership includes � � -17- � � investor'owned electric utilities , generation and transmission � cooperatives , public power districts and the United States Bureau of Reclamation. The members of MAPP are committed to � coordinated planning of transmission and generation facilities with joint ownership where feasible. Generating capacity is � limited to just that absolutely required by selling the output � of power from a unit that has capacity surplus to the owning utility�s needs to utilities having needs less than those � necessary to require installation of a full unit. � MAPP members also achieve economies in operation by taking advantage of power transactions which are aimed at the exchange � of economy energy or the sharing of capacity. These occur whenever one utility is in a position to generate at a lower � cost than another and when necessary to provide energy to t e f neratin � accommodate a scheduled or an emergency ou ag o ge g equipment. The MAPP Coordination Center, located in downtown � Minneapolis , has a staff of 30 technical and administrative persons with communications to each of the member utilities � and the computer facilities to accomplish the necessary coor- dination in the most advanced manner possible. On occasion, � NSP has found it necessary or desirable to purchase well over � 25$ of its power requirements from other utilities. � � -18- � � � � � Power Su�Ply System to St Paul � Power is supplied to the City via NSP �s interconnected trans- mission network. This network consists of lines and substations � of various voltages responding to the instantaneous demands for electric power wherever and whenever they occur in the system. � Connected t� this transmission netwoxk are the distribution � substations. There are a number of these substations sprving the City which transform the transmission level voltage to ` one more suitable for distributing power to the customer's � location. This iatter voltage level is called the primary distribution voltage and the lines carrying it are termed � distribution feeders. The customer receives power from the distribution feeders by means of distribution transformers � and service lines. � This is the manner in which power is sugplied to NSP' s 5t Paul customers . By means of the interconnected transmission net- � work, NSP is able to operate in parallel with the rest of the � Uni.ted States and can a�commodate the reduced generation and transmission margir�s under which present day electric utilities � operat�. � �'oreoast of Load Growth � The basis frar NSP's planning ac�ivities is the forecast of laad growth. Since 1968 , NSP �s forecast of load ha� reflected � � -19- � � a forecast of the basic system load plus the increased defense � load resulting from the Vietnam war. The growth of the basic system was forecasted to be 9 . 17� with the increased defense � load diminishing to zero by 1973. NSP 's maximum demand occurs during the summer. A comparison of the actual maximum demands , in megawatts (mw) with those forecast is shown below. � 1968 Year �orecast Actual � 1969 28$3 mw 2873 mw 1970 3140 mw 3Y09 mw � 1971 3396 mw 3278 mw 1972 3678 mw 3674 mw � 1973 398� mw 3836 mw � If we were to correct the actual maximum demands to reflect � the normal weather conditions assumed in the forecast, it would improve the comparison. � The difference between the actual demand in 1973 and that � forecast is a result, we beli�ve , of not only the weather being somewhat less in its intensity than normal, but also � a result of NSP 's Wise Use of Energy Program. As the name suggests , the efforts of this program would be expected to � have their major impact on energy and a lesser impact on the � demand. The reason for this is that in the summer it appears that customers can be per�uaded to modify their cooling � requirements but when a v�ry hot day occurs, all of �he ai�° � -20- � � , � conditioners on the system w'ill be i'n operation. This results in the system load factor bein.g reduced and the electrical � plant being used less effectively. With fixed costs spread over fewer kilowatt�hour (kwhr) sales , the average cost per � kwhr is increased. � We recognize two majar influences upon the future growth of NSP 's electric load. First, �;a very real and growing concern � for the conservation of all energy forms and a radual condi- g ' tioning of attitudes to translate this concern into a deter- mination to use electric energy more efficiently. We have � reflected this in our offiaial load forecast, which we refer to as the Normative Load Forecast, This shows a projected � load growth which decreases from 9 .17� growth in ].972 to a � 7$ growth in 1981. The other major irifluence, which is becoming more evident each day, is that of the shor�age' of � natural gas and petroleum products . This energy crunch will cause a substantial movement away from the use of these � energy sources to that of electric energy. At tha.s point, � to determine th� quanti�ied effect of such a chanc;e is � abviously impossibl.e. "However, to prov�de fc�r tt3i� effect � occurring at �n early date , we maintai.n a parallel forecast whi�h is term�d the Ilistoxical Loa�, Growth Forecast, which � ccantinues the trend of r��°ow.th of 9.17�.• Our intention is � to schedule in 'n�w c�eneration in order to meet the higher f�rerast until s.ucr. ��im� that the trencis became more evident. � � -2�.- � � The evidence nf a lower trend then would pe�mit re-scheduling � of a plant to provide for a year's delay or so. Because of the 8-10 year lead time required, this intention is obviously 1 easier to describE than to place in effect. However, partici- pation in power pooling and interconnection mitigate against � any adverse consequence resulting from plant coming on line � that is in excess of requirements. Further, the delays being experienced by regulation make such a situation unlikely. � The two forecasts described are shown below. � Historical Load Year Growth Forecast Normat�ve � . � � Growt orecast 1972 3678 mw 9. 17 3678 mw 1973 4015 mw 9 .00 39$2 mw � 1974 4383 mw 8. 75 ' 4330 mw � 1975 4785 �w 8.50 4698 mw 1976 5Z24 mw 8.25 5086 mw � 1977 5703 mw 8.00 5493 mw 1978 6226 mw 7 .75 5919 mw , 1979 6797 mw 7. 50 6362 mw � 1980 7420 mw 7 .25 6824 mw 1981 8101 mw 7 .00 7301 mw � 1982 8844 mw 7 .00 7812 mw 1983 9655 mw 7 .00 8359 mw � Because of the 1973 swnmer maximum demand being lower than � forecasted, the forecast £or 1974 summer has been lowered � -22- � � � by 60 mw from that shown. This represents a reduction in use � of the customers ' existing equipment rather than a change in � basic load growth. One likelihood is that this improved utilization of equipment would continue for another year and � then be offset by an increase in electric load due to the movement away from other energy sources . As we look to the � future, we anticipate a strong determination to produce a major improvement in the efficient use of energy resources � • in this country but at the same time a need to reserve the � • fossil fuel resources in this country for certain forms of � transportation and for the petro-chemical industry. Whether � we desire it or not, electricity in the long-term will become � the dominant energy source. NSP 's position is not that of promoting this energy shift but of maintaining an ability `� to cope with it. � Additional Generating Facilitias Required ' From the forecast ot growth shown in the above normative fore- cast, an increase of 4377 n�w is shown for the 10 year period jfrom 1973 to 1983. New generation is required to cover this load growth. Additional to the load requirements , we must � carry 15g reserve to provide for the �forced outage of equip- � ment. This adds 657 mw to the requ.irement for new generation. � The retirement af 632 mw of existing generating eq�.zipment is � anticipated for this period. This retir_�ment comes about � � -23- - � � because of the obac�eaoen�e and Environmental protection require- � ments which cannot feasibly be met with thi5 old equipment, and contributes to the need for new generation. Continued � operation of this older equipment would further increase costs. Finally, 550 mw of purchased power was contracted for 1973 . � The continued availability of such surplus power is quite � unlikely. The total of the new generating facilities required, then, equals 6216 mw. To cover this requirement, the following � generating facilities have been committed and are under con- struction or in operation: � Prairie Island Plant (Nuclear) 1060 mw � French Island Plant (Combustion Turbines) 136 mw Blue Lake Plant (Combustion Turbines) 187 mw i Sherburne County Plant (Coal) 1360 mw 2743 mw � Additionally, these facilities are in the process of being � committed: Henderson Plant (Coal) 1600 mw � Tyrone Energy Park (Nuclear) 1700 mw (of 2300 mw) 3300 mw � Concurrently, a sharing in two generator units located outside � of our service area at a moderate level of ownership is being considered, the installation of waste heat boilers on existing � combustion turbine plants is being studied, and studies are � � -24- � � � � being conducted with Manitoba Hydro for the building of extra high voltage interconnections and the purchase of power. � The cost of new facilzties has been increasing due to labor � and material costs at a rate of about 7� per year, which means then that equipment is doubling in cost every 10 years. The � need to install addit�.onal and expensive environmental pro- - tection equipment adds to these prices . Equipment which cost � $146 per kw to install in 1968 is estimated to cost nearly � $300 per kw in 1976 and over $400 per kw in 1981. Large expenditures also are required to retrofit existing plants � with pollution control equipment to meet new federal and state air quality standards . � You will note that no new combustion turbines beyond those � presently committed are being cont�mplated. This decision to install no additional oil burning equipment was made two � ye�rs aga in recagnition of the pr�jscted scarcity of fue� � oil. The eZimination c+f this alternative for the providing of pea3Kiz�g capacity at �ery modest capital costs is a further � influex�ce on the �ub�tantial increase in the cost of supplying electrical er�ergy. � Add�,tional Transmission Facilities � In parallel �*ith ths installation of new generation will l�e � the in�tallat�on of n�w txansmission facilities d�signed to � � �5 ._ . . � � bolster the trans�is5ion systems previously described. The � aim is to accompli�th this by taking advantage of the benefits of scale and utilizing �:xisting rights of way wherever � possible . Even so, substantial expenditures will be required because there has been a continuing increase in the cost of � transmission construction at a rate just slightly less than tion. Here too the increase has been brought � that of genera , . about becaus� of infl.ation, as well as the need to meet more � stringent environmental requirements . A 345 ,000 volt line which cost approximately $55 ,000 a mile to build for 1967 � service is estimated now to cost $110�040 per mile for 1977 service. Nevertheles� , economies of scale help to hold down � inflationary effect� on power supply cost�. � H gher O�era^ ting Expenses i Thus far, discussion has cent�;red about constructican expen- ditures. The same forces pu:�hing these costs up are producing � major changes in op�rati�g e�pen�es. To reiterate , these � forces are inflation, �nvironmental protection, and the energy crunch. j Inflation is causing a steady increase in wages to operate � the electric system facilities. Further, higher wages combined with environmental protection and the scarcity of natural gas � and petroleum resources is causing the cost of fuels to � -26- � � , � seemingly go out of sight. The price of oil next year is 1 projectE�d to be double and triple that which we paid last � year. Oil now is being purchased at the dou�led price. � To meet new state and federal air quality requirements , low sulfur western coal must be mixed with eastern coals to � produce a stack discharge within the appropriate regulations . � To accommodate the transportation of this western coal to the King plant, the High Bridge plant, and the Black Dog � plant, a coal transfer station is needed to transload the coal from unit trains to barges . This facility is planned � to be owned by the St Paul Port Authority and leased to N5P . � The cost of coal at existing plants as a result of the need for low sulfur coal, the pressure on this resource because � of the scarcity of low sulfur alternatives , and more stringent mininq requirements are producing coal costs for 1974 which � are almost double those of five years ago. � Conclusion � In pianning for the expansion of the el.ectric sXstem, efforts are continuing to acaomplish the separate developments in the , m�s� effec�ive m�ner. The savings possible are significant and yet appear small in coanpari�on with construction and oper- � ating �osts e�ibiting doubling tendencies . The possibility � of an early and substantial shift to a predominantly electric econoqt�y, however, makes it imperative to maintain a system � capable of supplying thi�; need. � -27- . � Northern States Power Company (MinnesoCg) ` Electric Utility - City of St Paul Statement of J 0 Cox, Treasurer ` My name is Jatnes 0 Cox, age 46. I am Treasurer of Northern States � Pawer Company. I hold a Bachelor df Business Ad�inistration degree from the University of Minnesota. I am a m�mber of the Edison Electric Institute ` Investor Relations Comanittee and former chairrnan of the Edison Electric Institute Budgeting Cotmmittee. I am also a member of the Financial Execu- � tives Institute and Planning Executives Institute. � I joined North�rn States Power Comp�ny in i950 as an Engineering Aid ; ,in the P1ant Accountin� Department. I held several positions in thati ' department involving responsibilitiies in accounting and property records until 1957 when I was transferred eo the Operations Control Department as � - an op�ra�E�.ons= �a��st:. . �+ �5at�.�y �saFo�i��i�i.li't3�.�A:i� t�i�s p�s�.�ie�• vr,��C� . � related to bud.get centrol �tncl finara�ial �ore�as�s. Tn ].Xi6, I was apperinted � Manager of Budget Gontrq�. and Fore�ast�ng� In 1970, I was elected ,.Assi-�taret � Treasi�rer and in Febr�a 19ii, I wss elect�d to my pre<seat posi�tian as Y3' Treasurer. .. � My present responsibilities with the Ct�tnpatty incl�de economi,c studies, � �> depreciation policy, operating and �onstru�tion budg�tiiig., i�rt��range financ�al forecasts, adaiinistr�tion of sY��rt-terna borrowings through_bank , loans and the sale-of cornmereiaT paper, and substantial respons�.bi.litiy For , the planning and implemen,tatior� �f the s��.e of Gomgany stocks and bonds. � The purpose of rny appearance in this matter is to provide' testi.mon� on � the Company' s fiflanci.al requirem�nts in auppo�t of our. position that the present rate levels in the City of St Paul are inadequate. Immediate �a�d � substantiai rate increases are utrgeMtly needed far NSP to sustain investor � _�ort � � � � confidence in our securities and to continue to rovide the ualit of P Q Y � service to which our customers are entitled. In the course of my pre- sentation, I will discuss the financial implications of: (1) continuing � growth in electric energy and demand; (2) cost of facilities needed to provide additional enexgq; (3) increases in the cost of doing business; � (4) external financing needs of the Company; (5) financial performance � required to attract capital; and (6) the financial effect in 1974 of no rate increases. � Growth in Electric Ener and Demand �v � The growth rate in consumption of electric energy is estimated to decline both nationally and for the NSP service �area as compared to past jtrends. The growth rate for NSP is expected to exceed the growth rate of � the national trend, as it has in the past, although the difference between the NSP and national gr4wtti rate is estimated to narrow. � Retail kilc�watt-hour (Kwlt) sales in the Northern States Power Conapany s�rv�.�e area have grown a� an a4r�rage rate of 8.8Io ouer the past ten y�ars. � Nationally, sales graw�h aver the same period was about 7.5%. NSP use pex � residential customer i.n I972 ina:reasea to 7049 ICwh from 4146 Kwh in 1962, a 70% increase. Commercia�. and industri�l Kwh sales of 9.8 billion Kwh � were rer.orded in Z972, up 5.8 t�illinn from 1962. This is an increase of 144%. The growth in Kwh sa.les in. the City of St Paul has been about 8.5% over the � past 10 years which is cnnsistent with our total system growth. Recent projectians indicate that NSP' s retail Kwh sales growth will � average 7,7% over the next t�n years compared to a recent Electrical Wor1d � for�cast of na�iona� Kwh sales through 1980 of 7.OP/, per year. Growth in both use per residential customer and the number of customers s�rved is � —29— � , estimated to decline somewhat, resulting in an annual Kwh growth rate of I 6.2% as compared with 7.8% over the 1962-1972 period. Conanercial and industrial sales are estimated to continue strong with a growth of about � 8.9% per year compared to 9.6% the past ten years. � Although Kwh consumption generally parallels the need for new facilities the growth in the maximum system energy de�and specifically determines the � timing and size of power plants. Expenditures for production facilities and related transmission lines accounted for nearly 72% of NSP' s canstruction � expenditures in 1972. Our maximum system demand has grown at an average , annual rate of 8.9% for the past five years and an average of 8.7% for the past ten. This growth in demand is forecast to average slightly over 8% � per year through 1977 and gradually decline to 7% by 1981. NSP has an important responsib3lity to its customers to provide for their future service � requirements. In fact, the vitality of our entire service area can be ef- � fected by our ability to meet our customers' needs. Our present construction schedules for coal-fired plants are based upon an eight year period from inception to initial operation, �nd tes years for nuclear plants. This scheduling requires substantial outlays of capital so that the facilities will be available ' when needed. � Cost of Facilities Needed to Provide Additional Ener v Through the early 1960' s, economic benefits of size and technology more than � offset the cost increases due ta inflation that were being experienced by � utilities. Today, however, excessive inflation and the cost of pollution abate- ment equipment is exceeding the benefits of size and technology to the extent , that each new plant now costs much more than a similar plant did previously. � -30- � � � � Total In Service Cost Cost Per Fossil Units Date_ (Millions) Kw � Riverside �k8 1964 $ 27 $ 118 A. S. King 1968 82 146 � Sherburne #1 1976 360 265 � Sherburne ��2 1977 Nuclear � Monticello 1971 114 208 Prairie Island #1 1973 , 400 377 Prairie Island #2 1974 � The cost of Prairie Island nuclear plant is a good example of the rapid rise in construction caets e�cpsries�ced by the Company. I stated in � my testimony during our last tlectric rate increase application in St Paul � that the Prairie Island plant coets had increased from an estimate of $190 million in Z968 to $33S millicm in 1971. Primarily because of added � costs associated with de2ay of the plant and increased labor and material costs, the presettt estimate i� now $400 million. � Pollutian abatement expenditures will continue to require iarge amounts � of capital. For example, the cosC of pollution abatement equipment re- quired at our Prairie Island generating plant could be as high as 20% of � the plant's total cost. From 1968 to 1972 NSP has spent more than $54 million can existing and new generating plant� (incTuding $11 million at the St Paul � High Bridge plant) to comply with environmental standards. This equipment � reduces the available capability and increases operating costs of the generating plants, thus further increasing the overall cost of production. � .As Exhibit (JOC-1), Schedule 1 showa, the Consumer and WholQSale � -31- � Pri.ce Indices as well as the GNP Pxice Deflator Index have risen dramaticall � Y over the past few years. Also, long and short-term interest rates are presently � at historic highs reflecting the high cost of capital. The Handy-Whitman Index of construction costs shown also reflects th� sharp rise in con- � struction costs experienced by the industry during the past few years. � Schedule 2 lists construction expenditures for the past Five year period as well as forecast expen�iitures for the 1973-1977 period. Average forecast � expenditures from 1973 to 1977 exceed by $73 million per year those for the 1968-1972 period. � Increases in the Cost of Doing Business � Just as everyone else has experienced the effects of inflation, NSP as a purchaser of millions af dollars of goods and services is experiencing � a rapid increase in its costs of doing business. � Despite the fact that inflation has caused the per-unit cast of labor and material to increase at a rapid pa.ce, the Company, through operating � efficiencies, has managed to hold down operating expenses other than those created by the constructi�n program to about the same level as the increase t in revenues. � However, the costs created by the construction program are rising dramatically, The increases in construction expenditu�res which have occurred � in the past and wh�ch are expPCted to continue in tfie future, will probably mean that electric plant for the Company will grow from $1.3 billion in 1970 � to abaut $2.1 billir�n in 1974, an increase of about 62%. The costs associated with this rapid increase in electric plant wi1�. squeeze earriings severely. � The expense items on the income statement which will be most noticeably � affected are depreciation, interest and preferred dividead expenses, and property taxes. The table belo� shows the expected dollar amount for , � _32_ � � these items and t�e pd�rce�reta�ge i.�►c��a►se over the period. � Percent � Millions of Dollars Increase 1970 1974 Probable 1974 1970 Interest Expense $ 30.9 $ 54.2 75% � Preferred Dividends 7.7 11.9 55 Property Taxes 39.2 50.0 28 Depreciation 34.2 63.6 86 � $xternal Financ�iag Needs of the Companv � Schedule 3 details the t�.our�t snd kind of financing by the Company since 1944 includin� eurrent fin�nc3ng. Schedule 4 lists for the years 1 1973-1977 estimated canatruction expenditures, refinancing requirements, � estimated internally generated fusds and the resulting requirements for � external capital. Generatiott of internal funds is expected to improve � to 60% of conatruction e�cpelldit�re: �vri�� the periad of 1573-1977 a�_ compared to 48�'a durit�,g L`he �ICgt !°ive �rrears. This impr�vement in inttrnally � generated funds caFnpareb fatvorably with the utility industry and will result in smaller future rat� incr�a��s than would othezwvise be requireds Even so, � external financin� n��ds f�r the f��e y�mrs through 1977 ($621 milli4n) are about equal ta those fin�encir�g ne�ds cavez the past ten ye�ars ($6!!�. <�n,i2lion}. � Financial Performan�� Re�uired to AttracC Externa�l Capital � Before proceeding with a discussion of the financial performance required � by NSP to attract these large ainounts of external capital, I would like to digress for a moment and briefly discuss a few of the economic characteristics � of electric utilitiea that have an important bearing on the manner in which a utility raises capital. � One of the mcast important econvmic characteristics of public utilities 1 in general, and electric u�ilitie� in particular, is their lar�e investment in fixed capital. The typical electric utility needs three to four dollars � —33— � � invested in operating assets to derive one dollar of revenue over a period � of one year. (The actual ratio for NSP at the end of 1972 was $3.79 invested � in electric facilities for each dollar of electric revenue.) Stated differ- ently, an electric utility must operate between three and four years to pro- � duce revenues equivalent to its original capital investment in operating as- sets. By comparison, a typical manufacturing company requires about fifty � cents invested in plant facilities to produce one dollar of annual revenue, , or approximately six month� of operations to earn revenues equivalent to its original investment in operating assets. As an illustration, at the end � of 1972, Minnesota Mining & Manufacturing Company had thirty-seven cpnts in- vested in plant and equipment for each dollar of revenue received. Similarly, � Control Data Corporation generated a dollar in revenue for each half-dollar , invested in plant facilities. Thus, in terms of the foregoing comparison, an electric utility requires over six times the capital of a representative , manufacturer doing the same volume af business. For an industry or firm requiring a relatively large amount of capital � for each dollar of revenue �en�rated, the difference between its gross revenues � . and its operating �xpenses (i.�, , its return margin) must be greater than the return margin of a firm whose capital requirements are relatively low, � The reason for th�s i.s quite simple. A firm that does not require a large amount of capital can e3rn a r�asonable and satisfactory return for its in- � vestors by turzing aver its Gapital investment in gross revenues several � tiu�es during any parti�ular accounting period. In the case of an ele�tric utility, however, several accounting periods are required to generate revenues ' equivalent to the capital investment. Conaequently, the return margin on each revenue dollar for an electric utility must be greater than the return , margin of a firm or industry that is characterized by rapid capital turn- over if the two firms are to achieve a comparable return for their investors. , � -34- , . � As lon as a c g apital-intensive firm is able to maintain an adequate re- � turn margin, it can prudently finance a sizable portion of its capital re- quirements with debt securities. Conversely, the proportion of debt which a � firm can safely assume is reduced as return margins narrow and the firm's abilj.ty to meet its debt obligation becomes less assured. In addition to an adequate � return margin, electric utilities have traditionally been �udged to be rela- � tively low-risk enterprisee because they provide an indispensable service under quasi monopoly conditions. � These and other factors such as relatively stable earnings through 1972 are a few reasons why NSP ha� been able to support a substantial portion , of debt in its capital structure and, at the eame time, maintain its pre- � sent high grade (AA) bond rating. Including debt in the capital structure within limits that do not impair the financial stability of the Company, , results in lower costs of capital and incnme taxes, which in turn reduces the cost of service to our customers. At the end of 1972, the capital structure � for NSP was as follows: , Debt (bonds, debentures & short-term borrowings) 55.0� Preferred Stock 14.4. , Common Stock & Retained Earnings 30.6 , 100.0� ' By comparison, Minnesota Mining and Manufacturing Company had about 12% debt in its capital structure at th� e�d of 1972, while Control Data Corporation , h�d abaut 23Y at the clase of the sarne period. Although an electric utility can assume a proportionately greater debt , obligation than a less capital-intensive enterprise, the financial stability � of a company is primarily dependent upon the strength of its eommon equity base. � -35- ' Since bond interest payments have a prior claim on revenues before any preferred t dividends or common dividends can be paid, the bond holder looks toward � the common equity and preferred equity base as protection for the payment of interest. Accordingly, the percentage of gross operating revenues � available for the payment of common and preferred dividends is an important measure of the equity base which in turn dictates the amount of debt that i a firm can safely assum�. In the case of NSP, this margin of protection that a bond holder sees has steadily deteriorated even though the Company � has been successful in maintaining a f.airly stable return margin per revenue � dollar. FIGURE 1 PERCENT OF GROSS OPERATING REVENUES AVAILABLE FOR THE PROTECTION OF INTEREST EXPENSE � 1963 1972 � �Income Taxes, �Income Taxes Available for Available for � Common and Preferred� Common and Preferred—Y 11.4°'0 8 7% 10.1% 14.3% � Interest Interest g,g��o Expense—'� /5.1% Expense--� 69.2% � 71.4% Operating�J� Operating_� � Exgenses Expenses � Thus, as shown in Figure 1, despite a modest increase in the return , a�argin (t.e. , gress ogerating revenues less operating expenses and incnme taxes) from about �9.4% to 19.9% of each revenue dollar, the gross operating � revenue available for payment of �ommon and preferred dividends h�s fallen � -36- , � ' sharply from 14.3% at ttie end af 1963, to a current level of about 10.1%. But, as any astute bond investor knaws, the impact of this decline is even � more ronounced if the abilit of P y NSP to service its debt obligation is � measured on a pre-tax basis. Referring again to Figure 1, we see that income taxes as a percent €�f gross operating revenues have dropped from 11.4% in � 1963 to 8.7% in 1972. Tt�us, the actual before-tax protection of interest payments (i.e. , percent of gross operating revenues available for common � and preferred plus income taxes has declined from 2 ° ° ) 5.7f in 1953 to 18.8/ � in 1972, while interest expense itself as a percent of gross operating revenue has nearly doubled. ! The explanation for this deterioration in bond protection is, of course, , that interest rates on both long and short-term debt have skyrocketed over the past ten years, resulting in a near doubling since 1963 of the portion , of each revenue dollar that is earmarked for the payment of interest expense. This dramatic increase in the cost of debt capital is further evidenced by a ` comparison of the embedded cost of debt for the Company at the close o£ 1963 and the current embedded cost. Sinee 1963, the composite embedded cost of debt � has increased from a}�out 3.62Y ta a current 5.93r, which represents an � increase of about sixty-four percent. Perhaps the best �ndication of the amount of debt that a firm can assume � and still maintain financial stability is provided in the bond ratings that are assigned to the firm's debt securities �by Moody's and Standard and � Poor's -- tcao well knawn and independent bond-rating agencies, These rating � agencies analyze the financis:l. condition of a company - past, �resent and future - and then assign a r�tin$ to indicate the quAlity of the security. � AAA is the highe�t quality bond, AA is the next highest and so on for a total of nine ratings. These xatings are extremely important to a campany which , � —37— � issues bonds because: (2) the iower� the ratin� the il!�` - rh�� i�:�s�r�s� � cost paid by the company, with a particularly large spread during times of � tight money; and, (2) if a company's bond rating is lowered, it makes the value of all its outstanding bonds lower, and the current holders are then � less w�lling to buy new br�nds. Although the bond-rating agencies do not disclose exactly how bonds are � rated, it is generally knawn that the two most important factors are capital � structure and interest coverage. The importance of capital structure (i.e. , a strong equity basea, as it relates to the quality of a deht security can be � inferred from Schedule 5, which indicates the equity ratio of each electric utility with a Moody's Aa bond rating at the end of 1971. The average � equity base of these companies at the end of 19�1 was 34%, compared with � 29% for NSP. At the end of 1971, only three of these companies had equity positions , lower than NSP's, and they were rated AA by both Moody's and Standard and Poor's. As of April 1973, all three of these comp�nies lost their Stanc�ard � and Poor's AA rating. Schedule 6 indicate� the equity ratio �f each electric utility with a t Moody's .4a bond rating at the end of 1972, The avPr�g� .r3tie� f.or �h�se , companies was 35.8% comp<ared with a ratio of 32.0� £or NSP �t,he r.atio for NSP was 31% including short-term debt) . Of the five companies with equity � ratios lower than NSP's, three are eurrently rated A by S�t�ndard and Poor's. The second facto� of ma�or importance to the bond-r�tj.r.^ ,ag.;`nci�s , in asscsstr.� �:�-t,� '�:'��r..ci<a1 s;,.:�.bilit� of a company is interest coverage. Although � several �reac�ibed methods are widely used for determining coverage ratios, they are all i�tended to provide a measurement of the credit of a company in � terms of its current and future ability to pay fixed charges �u� a-�:f ^cr°-r�n;: , ��g � � ' earnings. Schedule 7 slaows inter�st coverage for NSP over a 1963-1973 � period with and without credit for Allowance for Funds Used During Construction (AFDC), both on a pre-tax and after-tax basis. � As AFDC has become a larger and larger factor in earnin�s for utilities aver the past few years, bond rating agencies have been calculating coverage � ratios both with AFDC and excluding AFDC. The ratios excluding AFDC are especially important when a given utility has a large increase in AFDC, when , AFDC is a large portion of re orted earnin s and when there is uncertaint P g , y , that rate regulation wiZl permit a fair return on investment when the facilities are placed in service. In relating these criteria to Northern � States Power, my contacts with rating agencies lead me to conclude that the 1 interest coverage ratios excluding AF'DC are the ratios of prime consideration. Just as NSF's equity position began to deteriorate in the mid-60°s, � the Company' s coverage ratio also began to dec2ine. '�he ratio continued to decline through 1971 and lc�veled off in 1972. We do, however, expect � a decline in pre-tax coverage, excluding AFDC, from 2.92 in 1972 to somewhere between 2.4 and 2.S in 1973. This decline in interest coverage over the � past ten years was due, prir►arily, to three causes: � (1) A rapid incre�se in the amount of financing to pay for canstruction programs. � �2) An increase in the debt to equity ratio as proportionately more debt enterer� into the Company's capita� structqire. , �3) A rapid increase in intere6t rstes on borrowed fuads, without a � correspandin,g incre�se in earningse � In my opznion, the conse�uences of deteriarating interest coverage can be � -39- � � seen in Schedule 8, which contains a list of companies that have been derated , by Moody's and Standard and Poor's during the last few years, along with their respective interest coverage at about the time of their derating. It also � shows the coverage for NSP calculated by the same method. NSP currently has , an AA rating of its bonds, by both Moody's and Standard and Poor's. However, a comparisan of NSP's coverage with those companies that have been derateci � from AA to A shows that NSP is not comfortably above those companies' coverage ratios and, in fact, in some cases is below. � In an August 1973 electric utilities study of bond quality ratings, for � the year 1972, published by Paine, Webber, Jackson & Curtis, a warning shot was fired at NSP, alerting investors of this potential weakness in the ability of ` NSP to service its debt obligation. The concluding remarks from this study directed at NSP were: , "In view of increaeing interest requirements, future rate � relief will be necessary to maintafn debt parameters which are currently average for this rating category." Interest coverage is critical not only from the standpoint of bond � ratings, but also from the atandpoint o£ being able to issue any bonds. Mortgage debt cannot be issued in unlimited amounts; the issuance of NSP � mortgage bonds is restricted by bond interest coverage minimums as well � as by the amount of mortgageable property. The NSP (Minn) indenture re- quires a minimum interest coverage of two times, including interest on bonds , being sold; otherwise, new bonds cannot be issued. The following figure (Figure 2) shows interest coverage calculations at the time of each bond , sale 3n the past ten years, computed in the manner specified in the mortgage � indenture. Coverage in 1974, excluding rate increases, would decline close to the point where there would be no margin of safety. , , -40- � , � FIGURE 2 � NSP BOND INTEREST COVERAGE CALCULATED AS REQU9RED BY M�RTGAGE INDENTURE � (at time of bond sales) N 7 T � � � V 6 6 .. N d � � � 5 5 -� d . v � � 4 � N T C � �E 3 3 o I W a s 2 2 � ~ NO BONDS CAN BE 58LD WHEN ° lNTEREST COVERAGE IS LESS THAN 2 TIMES .a � 1 , E 0 Z � � � 63 64 65 66 67 68 69 70 ?I 72 T3 74 (est.) While adequa�te interest coverage is extremely ia�ortant in the sale , of debt securities, it plays an equally important role in the sale of � Freferred storlc. F.arniags of 1.5 times the total annual interest on all indebtedness and dividends on outstanding preferred stock has long , been the accepted minimum test for buyers of utility preferred stock. In some cases, ho;aever, coverage requirements are even more stringent. For � example, in September 1971, NSP sold $35 million of preferred stock when its , dividend coverage was 1.64 Ci�es. �ut these securitiss could not be purck�ased by New York �avings banks because of ina�equ�te coverage. As of September , Z973, low co�rer.a�� still prohibits New Yark savings banks from purchasing IvSP preferred sto�k. Fu�thermore, Articles of Incorporation for NSP contain , � —41— ' � a provision that if dividend covera�e falls below 1.5 times on a pro forma basis (including any proposed new issues) then the consent of the , holders of at least two-thirds of the present preferred stock outstanding , is required before any new preferred stock can be issued. It is, therefore, extremely important that NSP maintain adequate coverage � on both indebtedness and preferred stock. If the situation arises where PdSP cannot sell these types of securities when needed, it may be forced to sell � higher cost unsecured debt or common stock on whatever terms the going �arket � demands. In addition to a sound capital structure and sufficient interest coverage, � adequate earnings growth is essential to the financial stability of an expanding electric utility. It is the prospect of earnings growth and subsequent dividend � increases which attracta the ccmnaon stockholder to invest in the Company. � This equity investment is the riakiest component of the corporate capital structure which the inveator can choose. The likelihood of continuing and � increasing dividends and the prospect of market appreciation provided by continued earnings growth, must be sufficient to o£fset the risk that the , equity holder assumes. The Company's ob�ective for 1973 was $2.85 per ahare. Even if the objective were achieved, it would mean an increase in earnings per � share of only 10� or 3.6X over the $2.75 earned in 1972. In my opinion, this � is not an adequate increase over an extended period for the Company to attract the capital that it r.eeds on a satisfactory basis. Moreover, the Company � announced on July 13, 1973, that, due to abnormal weather and other factors, it would not now be able to achieve the $2.85 ob�ective. As we discussed in , our third quarter 1973 interim report to shareholders, earnings per share for � the year ended September 1973 were $2.73, down from $2.80 a year ago. � —42— � , , During the past five y�ars, �he price earnings multiple of NSP � common stock has been consistently below the averag� of the ma�or electric utilities even though the Company has shown comparatively stable annual ' earnings growth during thfs period. In my apinion, an interruption of the Company's earnings growth in 1973 and 1974 would depress the price earnings � multiple signi£icantly as related to other electric utilities. � As I have outlined in this section of my testimony, a sound capital structure, sufficient inter�st and preferred dividend coverage, and adequate � growth and earnings are all essential to the attraction of external capital. I should emphasize, however, that these factors cannot be viewed as ' independent of each other. They �re all necessary conditions to attract ' external capital, but noae of them, by itaelf, is sufficient to accomplish this. � Financial Effect in 1974 of No Rate Increases ' �he above discussion has emphasized the need for reasonable growth in earnings per° share and for a sufficient level of interest coverage nec- ' essary to attract the large amounts of capital required to finance the sonstruction program. Assuming the Company does not increase rates in ' 1974 in St Paul or in other Minn�sota Company areas, the following � financial res�ilts far 1974 would likely occur: ' , ' � —43— � , � , 1974 Probable Actual Without Rate Comment � 1972 Increases Number Earnings Per Share (Average) $ 2.75 $ 2.13 (1) � Pretax Coverages With AFDC 3.41 2.75 (2) Without AFDC 2.92 2.35 (3) � Coverage-Indenture Methods(Xr.End) Mortgage Bonds 2.96 2.48 (4) Preferred Stock 1.89 1,78 (5) , Stock Price $27.125* $19.17�* (6) Book Value of , Coam�on $20.84 $22.21 Ratio of Price to Book Value 1.30 .86 (7) * 1972 - Average of 12 months high and low price (the new stock issue sold , at a subscription price of $23.50) ** 19�4 - Based on nin� times earnings, an optimistic ratio considering � the earnings deterioration shown. Comments: ' (1) These earnings would be 23% lower than 1972 and the lowest since 1968. (2) This coverage would be an all time low for the Company and lower than two-thirds of the year-end 1972 Moody's Aa-rated electric utilities. , ($100 million in revenue or more) (3) This coverage would be an all ti.me low for the Company and lower than , three-quarters of Moody' s Aa-Rated electric utilities at year-end 1972. ($100 million in revenue or more) (4) This coverage corresponds to the lowest point on the graph in Figure 2 � on page 14 and leaves practically no margin of safety between it and the point at which bonds cannot be sold. (5) A distressingly low coverage that would restrict flexibility to ' market preferred stock. (5) At this price, 41% more shares would have to be sold in a stock � offering to raise the same acnount that $27.125 per share would raise. This would result in significantly greater dilution to the common stock. ' � —44— � � � (7) The sale of stock beXow book value is detrimental to all present shareholders, particularly those who have purchase� stock at , prices in excess of book value. Expectations of future sales at or below book value would reflect itself in reduced market value. This, in turn, would become an additional cost to future rate � payers as more shares would be sold to raise equity capital. If the financial results shown above for 1974 were to become a reality ' it is my opinion that: 1. The Company would be a prime candidate for losing its AA bond ' rating. The xesult would be costlier future debt financings, , the possibility of a smaller market for NSP bonds, and reduced market value for present outstanding debt and preferred ' securities. Moreover, it would be probable that the Company' s commercial paper ratings would be lowered, which would increase , short-texm borrowing costs. , 2. The drastic reduction in earnings would have a vezy unfavorable effect on the market price of the Company' s common stock, ' always a reflection of present and prospective stockholders' appraisal of the Company. Unnecessary dilution would occur as • ' a greater nutnber of shares of common stock wauld be sold to raise necessary equity capital. Again, the cost of .financing ' would be incr.eased significantly. ' Ir� short, for a company that must raise ].axge amounts of capital each year, and as a m�mber of an industry that raises about- 3U% of all new corporate , capital in the Jxzate� States, the opportunit}r for a sound investment with reasanable earning� is a minimum inducement to be offer�d today' s ' investor. ' Summa�y ' As the energy requirements of our customers continue to grow, NSP must plan, build and finance th� facilities n��essary to satisfy these demands. i -45- ' As the need for new ��nera�i.on, �ransmi.�sion and distribu�ion fa�I],_�r;.e�; � is increasing,,unit costs of facilities are also increasing duG to irz- , flation, high interest rates and environmental constraints. Expenses of operating these facilities are rising rapidly for the same reasons. It , is necessary, therefore, to sell increasingly large amounts of debt and equity securities to investors to finance the Company's construction program. , The i.mpact of these increasing construction costs, expenses, and , financing needs is adversely affecting NSP's earnings and earnings per share. If rate increases are not obtained in 1974, earnings and earnings , per share will drop markedly. In my opinion, inadequate earnings in 1974 would mean that present ' bond holders would be in serious danger of facing losses from a bond de- � . rating due to inadequate interest coverage. This would mean higher inter- est costs in the future and a smaller market for Campany bonds. In addi- ' tion, it would diminish the financial flexibility that is necessary to be able to raise capital in bad times as well as good. , Moreover, in my opinion, a reduction in earnings per share in 1974 � would adversely affect the market pri�e of the Company's common stock. This, in tum, would create dilution of present stockholder's investment, , asmore conanon stock would be issued just to maintain the present proportion of common equity in the overall capital structure. This can casily become a , downward cycle in which it is more and more difficult to attain reasonable year-to-year improvements in earnings per share. , I conclude, therefore, that inadequate earnings in 1974 would be detri- ' mental to investors and customers alike, If customers are to have the service they are entitled to, at reasonable cost to them, the Company must be able ' —46— , i � ' to raise capital at all times and be able to do so on favorable terms. , I am convinced that these objectives cannot be achieved without ade- quate rate relief, ' ' ' ' � ' � ' ' � ' 1 ' . , � " 1 _47_ Exhibit (JOC-1) � Sched.zle 1 Measures of Cost Increases ' 1969-1972 ' 1969 1970 1971 1972 1973 Interest rates: ' AA bonds (1) 7.34% 8.52% 8.00% 7.60% 7.92%* Prime rate (Year End) (2) 8,50°10 6.7570 5.25% 6.00% 10,00%* ' Consumer price index (3) 109.8 116.3 121.3 125.3 132.7** , Wholesale price index 106.5 110.4 113.9 119.1 134.9** GNP price deflator index (4) 128.2 135.3 141.6 146.1 152.5** ' Electric utility construction costs (Total Plant - All Steata Generation) 1949 = 100 (5) 212 226 2�7 253 263** ' 1969 = 100 100 107 117 119 124** ' *As of 9/25/73 ' **As of 7/1/73 , � Notes; � (1) Moody's annual average yields on public utility bonds. (2) Interest rates charged by comcnercial banks to their best customers ' for short-tercn borrowings. (3) Source - Economic Indicators, prepared by Council of Economic Advisers. ' (4) Source - Economic Indicatoxs, prepared by Council of Economic Advisers, (GNP in current prices divided by GM' in 1958 prices.) ' (5) Source - Cost Trends of Electric Light and Power Construction, North Central Div�.sion - Handy Whitman Bulletin No. 97. ' , -48- � ' Exhi�zt (JOC-1) Schedule 2 ' , Northern States Pnw�r Company ' Construction Expenditures Actual 196$ - 1972 Estimated 1973 - 1977 , � Construction Average Ye�r Expenditures Per Year (millions) ' Actual 1968 $113 ' 1969 154 1970 165 � 1971 210 1972 212 ' Total 1968 - 1972 �4 $171 � Estimates 1973 245 ' J.974 275 19T5 229 � 14g5 202 � 19T7 268 Total 1�73 - 1977 57,21� $244 ' 19i0 through 1�7'1 Includes Nuc�ea� Fue1 �xpense� � � ' —49— , Exhibit (JOC-1)� Schedule 3 ' Northern States Power CompBny Summary of Financing ' (Outstanding Sectirities) 1944-1973 NSP (Minn) NSP Preferred Common (Wis) ' Year Bonds Debentures Stock Stock Bonds Total (Millions of Dollars) ' 1944 $ 5 $ 5 1945 75 75 1946 $ 27 $ 49(1) 76 � 1947 $ 14 14 1948 10 10 1949 15 16 8 39 ' 1950 18 18 1952 22 12 34 1954 20 35 17 72 ' 1956 15 10 11 36 1957 3(3) 8 11 � 1958 30(2) 30 1959 21 �. 21 1960 35 [�(t�) , 39 ' 1961 20 ` 20 1962 15 15 1963 15 15 � 1964 15 1(5) 14 . 30 1965 26 26 1966 45 45 , 1967 60 60 1968 45 20 65 � 1969 45 20 29 10 104 1970 $ 45 25 37 ' 107 1971 100 35 -1 134 1972 50 45 95 � 'Totals 622 45 205 271 53 1 196 � 1973 86 �1 2g 166 Totals S708 �,S_ �S� � ,�$,� $1�.62 , (1) Outstanding at end of 1946 � (2) $18 million used to refund 1957 bond issue. (3) Wisconsin Hydro acquisition (4) Mississippi Va11ey Public Service Co. acquisition , (5) Deichen Power acquisition � —SU— . , Exhibit , (JOC-1) Schedule 4 � Northern States Power Compsny � Forecast of Construction � Financing Requirements 1973 - 1977 ' � Millions of Dollars Construction Refinancing Internal External � Year Expenditures Revuirements Funds(1), Financing(2) 1973 $ 245 $ 0 $ 97 $ 148 � 1974 275 50 155 170 1975 229 75 156 148 � 1976 202 0 152 50 � 1977 268 13 176 105 $1 219 $ 138 $ 736 $ 621 � � � ' r � � (1) Assumes continuation of current incane tax laws ' (2) Assumes no significant change in short-term financing. Per�anent financing for 1973-1977 is estimated to be ' about $625 million ' -51- ' Exhibi±: �JOC-1)� Schedule 5 . . � 1971 Year-End Equity Percentage � Moody's Aa First Mortgage Bond Rating , Company % Equity Company % Equity ' West Texas Utilities 46.2 Hartford Electric 32.9 Montana Power 44.5 Iowa Elec Lt & Pwr 32.9 Pub Serv of Oklahoma 43,4 Dayton Power & Light 32.7 � Kansas Power & Light 43.3 Iowa I11 Gas & Elec 32.7 Kentucky Utilities 40.4 Atlantic City Elec 32.6 Central Pwr & Lt 40.2 Georgis Power 32,3 � Southwestern E1 Pwr 39.2 N Y State E & G 32.0 Oklahoma Gas & Elec 38.8 Connectibut Lt & Pwr 31,9 � Florida Power & Light 38.4 P S of Colorado 31,9 Madison Gas & Elec 37.3 Duquesne Light 31.5 Northern Indiana P S 3�.2 Long Island Ltg 31.5 � E1 Paso Electric 36.7 Pennsylvania Pwr 31.3 Idaho Power 36.3 West Fenn Power 31,0 Fla Power Corp 36.1 Union Electric 30.6 � Southern Calif Edison 36.1 Delmarva Pwr & Lt 30.3 Gulf States Utilities 35.7 San Diego Gas & Elec 30.2 Kansas Gas & Elec 35,5 Columbus & S Ohio E1 30.1 � Pub Serv of Indiana 35.5 Toledo Edison 29.9 Pacific Gas & Elec 35.4 Penn Pwr & Lt 29.3 Philadelphia Elec 35.2 Tampa Electric 29,0 � Western Mass Elec 35.1 New England Power 28.9 Illinois Power 34.9 NORTHERN STATES POWER . 28.9 , Central Illinois Lt 34.8 Duke Power 28.8 Pub Serv Elec & Gas 34.6 Boston Edison 27.8 Southern Indiana G & E 34.4 Central Hudson G & E 27.2 Central Illinois P S 34.1 Average 34.2 � Iowa Pwr & Lt 34.1 Southwestern P S 34.1 , Indianapolis Pwr & Lt 33.9 Virginia Electric 33.8 Detroit Edison 33.7 , Gulf Power 33.7 Kansas City Pwr & Lt 33.5 Wisconsin Elec Pwr 33.1 ' Wisconsin Pwr & Lt 33.0 Source : Loeb Rhoades Electric Utility Notes , Bond Coverages, September, 1972 Moody's Public Utility Manual, 1972 -52- ' � Exhibit (JOC-1) Schedule 6 � , 1972 Year-End Equity Percentage Moody' s Aa First Moatgage $ond Rating � Company % Equity Company % Equity � Iowa Southern Utilities 56.7 Delmarva Power & Light 34,1 West Texas Utilities 47,5 Central Hudson Gas & E1ec 34.0 Montana Power 46.0 Central Illinois Public Serv 34.0 Kansas Power & Light 45.5 Detroit Edison 33.9 � Central Power & Light 41.5 Southwestern Public Service 33.9 Public Service Oklahoma 41.5 Florida Power 33.8 � Southwestern Electric Power 40.8 Atlantic City Electric 33.7 Madison Gas & Electric 40.4 Kansas City Power & Light 33.6 Florida Power & Light 40.3 Columbus & Southern Ohio 33.5 , Wisconsin Electric Power 39.2 Virginia Electric & Power 33.2 E1 Paso Elect 'ric 38.5 Indianapolis Power & Light 32.9 Public Service Indian$ 38.1 Kansas Gas & Electric 32.9 � Southern Indiana Gas & Elec 37.7 Toledo Edison 32,9 Dayton Power & Light 37.5 N. Y. State Electric & Gas 32.8 Iowa - Illinois Gas & Elec 37.1 San Diego Gas & Electric 32.7 � Oklahoma Gas & Electric 37.0 Central Illinois Light 32.6 Illinois Power 36.6 Unian Electric 32.4 � New England Power 36.4 West Penn Power 32.4 Hartford Electric Light 35.9 Pennsylvania Power & Light 32.2 Western Massachusetts Elec 35.9 'Tampa Electric 32.2 � Wisconsin Power & L,ight 35,9 NORTHERN STATES POWER 32,0 Northern Indiana Public S�rv 35.8 Duquesne Light Company 31,5 Connecticut I�ight & Fower 35.6 Public Service Colorado 31,0 � Idaho Pow�r 35.6 Pennsylvania Power 30.6 Kentucky Uti�ities 3�.6 Duke Power 30.4 , Gulf State Utilities 35,4 Iowa Electric Light & Power 28.3 Pacific G�s & F.lectric 35.3 Phiiadelphia Etectric 35.3 Av�rage 35.8 Bc�ston Edi�on 35.0 � Gu1f Power 35.0 Iowa Power & Lig�t 35.Q � Long Island Lightii�g 34.8 Publi.c Service Electr.ic & Gas 34.8 Southern Cali.fornia Edisan 34.8 1 Consum�zs Power 34.7 Saurc�; Moody's Fublic Utility Manusl,, 1973 � � -53- Exhibit (JOC-1)� Schedule 7 � Northern States Power Company Interest Coverage � 1963-1973 � Interest Coverage ' Pr�-Tax After-Tax With AFDC* Without AFDC With AFDC Without AFDC 1963 6.04 5 87 � . 3.81 3.65 1964 5.82 5.65 3.77 3.60 � 1965 5.71 5.55 3.82 3.65 1966 5.59 5.43 3.71 3.55 ' 1967 4.50 4.24 3.18 2.92 � 1968 4.03 3.84 2.79 2.60 1969 4.06 3.75 2.85 2.53 � 1970 3.48 3.09 2.62 2.22 � 1971 3.28 2.81 2.55 2.08 1972 3.41 2.92 2.54 2.03 � 1973 (est? 3.0-3.1 2.4-2.5 2.4-2.5 1.8-1.9 � � � r � * AFDC - Allowance for Funds Used During Construction ` -54- � � • � ` Exhibit (JOC-1) Schedule $ � W � '-1r1r-� �-dri NNNNNNNNNN c+7Cr1Cr1 O � I� t� I� I� 1� 1`� 1� t� r� 1� t� I� 1� t� I� t� 1� 1� OJ +-� .� C+ 9a 1-i J.� D G'+ � .0 3+ H �, �, � U e� ia �+ q A � �-�i � �0 'X.�.� titifsi �." :E.' � � `I�. AA � d' ti � � � � � O U f� �t N O 1� O\ CT O op ►�. c'� �O M �O �D 1� �O �/1 c'7 • .[ E] I� Op N �O O O � I� � � pp ap u'1 �O O c'n c*1 O O .-+ 1.1 w . . . . . . . . . . . , . 1 �"� Q�' � �"� N .—� N N N �—�1 N r-1 rd r--1 r—I r-1 N r-1 r-� N N 0p � 3 � � Ei � x+ � ' L W G1 a y � � .� UII� M �t �' �1' OMv1ri �Or-+ .y' c'� �7 �t r-itOM �' � � 1J ((� O N �' O ''-� C7 C'� CT N Op �y' N r-� O �--� (*'1 O U1 u'1 N •..1 Fy • • • • • • • • • • • • • • • 1 � � O '�3C QNNNNN NN � N .-INNNNN NNN N �' V N � � � O rA � 7 l�+ � � � H � � O U t� c�'1 O �t c*1 O� �G N �O d' C� �y' I� CO u1 I� �t u1 N • � .0 [� 00 O� .--� O� O� M M 00 N ap Crf �t f� O� O c�"1 u'1 N C� N a� w • • • • • • • • • • • • • • • • • • • I 3Q', rl .-� M .-� N NN � CV r-� NN � � M r°1e-IN N �7' k N � � H N � a � � .0 UII� N N CO r"� �' O t� O� t�i f� r--1 pp V1 �t r-� �i' c"'1 �-�1 • � A +-�1 M M M O eD u'1 O N N O� 00 C�'1 Cr1 �-1 f"'1 N M �t C�'1 •,a frr • • • s • • • • • • • • • • • • • • • 1 ,3QNN �'''fNc'�'1 CV NtV NNNNNNc'r1 NNN c'�1 O �vi � W HId66 <Cd d66d � d6 � � 6 � � � cv .�. � • �t3 C� a� � �� v � M � � � � � H� � � b � O O � � �C c0 RV af <C s� cC cd co a! c0 �d c� 6 cC n4 q � � � <+'< 6 � d <C6 � 6 � 6d6 66 a � � U K1 C1. �a V V C� oD r� O f.� O .-a •� S-� � � � U � W U W :� O U � � � +� G � f.7 �?S t�+ O CJ U ti-I U O P�G � �..i �2J N r3 O C9 f�i .0 '-+ � ��.�i 1�.t r-�i a _� D, Gl N Pa � �2S U � .�t O W C7 u U N W aNi � �+ ao v� a +� 0 3 0 � � v �+ � ,� q �, � �+ o�o � � r� m ca cn •�a �3 ,--+ aJ �+ W o +� al t� ro .� c� o •� w 3 +� � •�+ +� q �+ � � � o �ts q � s+ o u .c •a c� �n � Sr � cd a1 p x � i-r •r+ cd N W w N u b � o � a g •�+ cd � m v .-+ p on � r.+ �+ W u '�; O� � O u� p r-+ cd � +� ,-+ r� '�7 O cd W '�.'. 'r� � U r-� y,P� p �r�l t� },+ .o m H ?,'� P4 �rl p � N �� o °u o c� � o`�n � .� 3 � � x o � b ai .� � .�n � � � �+ u� ►+ 3 � afr+ � r� w� w a � •� coo a� � aooa� ►-� wo3c� �-, � zc.� a ►-+ a � AC7c.`�i Hr°� 6 z° � -55- � Northern States Power Company (Minnesota) � Electric Utility - City of St Paul Supplement to Statement of J 0 Cox, Treasurer � This supplement is prepared to recognize certain changes that have taken � place since the preparation of the original testimony which materially affect electric operations in St Paul in 1974. � Growth in Electric Enerqv and Demand � Projections in kilowatt hour sales made as recently as August 1973 recognize � a general decrease in the annual kilowatt hour growth rate. The projection for 1974, included in the original testimony, assumed a moderate decline in � business activity and the continuation of conservation of energy practices by � customers. The estimated retail electric sales for 1974 increased about 6% over 1973. � Since President Nixon's messages on the energy crisis, made in November, there � has been a marked increase in the awareness of the crisis and in efforts and plans to reduce energy use. This has already created a noticeable decrease in � kilowatt hour energy consumption and will undoubtedly have a significant impact on 1974 k�lowatt hour sales. On November 29, 1973, the Federal Power Commission � issued Order No. 496 which is designed as an emergency measure to conserve petroleum / and natural gas fuel resources by electric utilities over the next twelve months. This order requests each electric utility to report specific plans to effect � immediate reduction in electric utility usage. The FPC objective is to reduce over-all nation-wide electric energy consumption by 10%. Because of these � developments retail kilowatt hour sales for 1974 are now estimated to increase � by only 3 to 4q over 1973. Moreover, it now appears that the energy crisis will curtail economic activi,�y which will further reduce kilowatt hour sales. � � —56— � � e b li that there will be a shift Look�ng beyond 1974, w e eve that �t is probable � from scarce fuels toward electrical energy. As this shift to electricity does develop, it follows that after the initial slowdown of electric consumption in � 1974, the Qrowth rate will probably return to past trends and may even increase. jThis present slowdown of kilowatt hour consumption does not affect the need for constructing facilities to meet future demand. Only, if there were a continued � slowdown in electrical energ.y consumption, and if this caused a corresp�ndina reduction in peak demand requirements, could plans for constructing facilities � be modified significantly. However, because of the long lead time for construction � of generating plants and because of the potential urgency of having these plants available to alleviate the shortage of other fuel sources, it is now important � that construction continue on schedule to meet those anticipated needs. In � addition, it is essentiat to be in a position to accelerate the building af plants if it becomes necessary. � Finance Performance Re uired to Attract External Ca ital � My original statement includes considerable discussion on the importance of � maintaining adequate inter°est coverage. It also discusses the general deterioration of coverage fo�r NSP that has occurred during the past several years. � In 1954 the SEC first permitted �he use of an S-9 registration statement for � companies meeting �ertain condit�ens. Generally, in the issuance of debt securities, an S�9 and an S-7 both require that the issuers be stable, well- � established and well-knawn companies, �ut use of the S-9 is more restrictive than an S-7 registratian statement in tha� it requires that the issuer's ratio � of earr.ings to interest requirements be at least 3.0. Since 1954, the Company � has �een able to use an S-9 registration statement for every bond issue until -57- � � � June of 1971 . At that time, the interest coverage ratio calculated by the SEC method fell to 2.78 on a pro-forma basis and the Company was therefore � not qualified to use an S-9 registration statement for its $50 million bond issue sold in June 1971 . � Although rate relief had been obtained starting in the middle of 1971 , the � Company still did not qualify to file an S-9 for its bond issue in February of 1972. In January of 1973, when the full annu 1 ' � a impact of rate relief had been realized, the Company barely met the requirements of interest coverage for filing � an S-9 registration statement. But now, one year later, the effect of increased costs without rate relief has resulted in deteriorating interest coverage to � an all time low of 2.63; hence an S-7 had to be used for the filing on November 30, 1973 for the issue of $75 million of First Mortgage Bonds in Januar , Y of 1974. The filing of an S-7 registration statement calls attention to the � fact that the protection to bondholders has decreased. � Also, at the time of this filing, interest coverage for indenture purposes was at an all time low of 2.47 which leaves little working margin from the 2.0 coverage i at which point bonds cannot be fssued. � Financial Effects in 1974 of No Rate Increases Because of reduced kilowatt hour sales and increased costs of roducin en r � P 9 e 9Y� the table depicting the financial effect in 1974 of no rate increases is up-dated � as follows: � —58— � � � i � 1974 Probable � Actual Without Rate Comment 1972 Increases Number Earnings per � Share (Average) $ 2.75 $ 1 .77 (1 ) Pretax Coverages � With AFDC 3.41 2.28 (2) Without AFDC 2.92 1 .87 (3) Coverage-Indenture Methods (Yr.End) Mortgage Bonds 2.96 1 .86 (4) � Preferred Stock 1 .89 1 .58 (5) Stock Price $27.125* $16.00** (6) � Book Value of Common $20.84 $22.35 � Ratio of Price to Book Value 1 .30 .72 (7) * 1972 - Average of 12 months high and low price (the new stock issue sold at a subscription price of $23.50) � ** 1974 - Based on nine times earnings, an optirnistic r^atio considering the earnings deterioration shown. � Comments: 1 These earnings would be 36� lower than 1972 and the lowest since 1962. (2) This coverage would be an all time low for the Company and lower than � 85% of the yEar-end 1972 Moody's Aa-Rated electric utilities. ($100 �nillion in revenue or more) � (3) This coverage v�ouid be ar� all time low for the Gompany and l�wer than �2q of Moody'; Ra-Rated electric utilities at year-�nd 1972. ($100 millian in r��re�ue or mQre) � (d) No bonds can be �old wher� irtiterest coverage is less than 2 times. �5) A preferred d�vidend ccver�ye of less than 1 .5 will require the consent � of at leas± two-thirds of the present preferred stock holders before any new preferre� stock can be issued. � (6) A� ti�is pr�ce, 70q mare shares wc�u�d have to be sold in a stock offering to raise the sa�ne amount vhat $27.125 p�r share w�uld raise. This wQ�ld resuit in significantly greater diluti�n to the common stock. � (7} The sale mf stock be?ow book value zs detr�mental to all present shar�holders , part�cularly those who have purch�sed stock at prices ;n excess of book value. Expectations of future sales at ar below � book v�lue w��1d reflect itself i� reduced market value. This, in turn, would becor�e a� additional cost to future rate payers as more shares wo�ld be sold to raise equity capital . � � —59— � � Northern States Power Company (Minnesota) Electric Utility � City of St. Paul � Backcjround � My name is Frank P. Vixo. I am presently Manager of the Rate � Administration Department of Northern States Power Company. My training, business experience , background, and professional � affiliations are detailed more fully on the last page of this statement. � The books and records of Northern States Power Company are kept � in accordance with the Uniform System of Accounts prescribed by the Federal Power Commission. Mr. Connelly has outlined the � nature of Northern States Power Company's operations in furnishing � electric utility service to the City of St. Paul. My data will present the results of operations within the City of St. Paul � as electric utility service is furnished from the overall power supply as discussed by Mr. Connelly. � Organization of My Presentation � I ! My remarks will coneern the data in NSP Exhibit (FPV-1) . I will first discuss each schedule briefly so that the nature � and scope of my overall presentatiori will be clear, and then I � will return to each schedule and discuss it more fully. Schedule 1 summarizes the results of operation of the electric � utility in the City of St. Paul as it is expected to occur for � � -60- � ! 1 � 1974 and for 1973 . Schedule 2 shows the fair value net � operating investment for 1974, while Schedule 3 is the fair value net operating investment as of Dece:nber 31, 1973. � Test Year � As an aid for pricing utility service for tomorrow, regulation has made use of the concept of the test year. The test year � is an attempt to carve out of the life of a utility a representative year of operation which is used as the basis to measure the � revenues to which a utility is entitled. � Until recently, regulation has utilized the data for the most � recently available twelve-month period as the basis for the test year. These actual data were then adjusted to remove therefrom � any abnormal situation which would make it unrepresentative of an annual period of operation. Since this twelve-month period � of time was to be used as a test period to measure the revenues � which could be expected for the future, it was further considered appropriate to adjust this past year to take into account those � conditions or situations which were anticipated to take place or exist during the year immediately ahead. After these adjustments � were made for the past and for the future, the year' s operations were considered as a reasonable basis for measuring rates for � the future and the level of cost to which the Company was � entitled was based upon this period of time. This procedure was founded upon the basic assumption that the growth in � , -61- ! t revenues which would take place in the year ahead would fully � cover all costs which would be incurred during that year to � provide these additional services. As long as the growth in revenues and increase in costs were � actually progressing together on a relatively even pace, the � use of the historical test year continued to provide a reasonable basis for making rates for the future . In fact, ` this parallel of revenues and costs reflecting growth unincumbered by the impact of significant changes in cost patterns appeared � to work satisfactorily until rapid increases in inflation took � over beginning about 1967. From that time on, the influence of the rising cost of labor, materials , interest costs , etc. ' progressed so rapidly that they began to offset the economies of larger generating units to the end that the application for � rate increases became a more frequent occurrence. � Even so, some of the economies of large-scale operation were � able to counter these in-roads upon earnings by offsetting the delays met in securing increased rates. As the cost spiral � increased, this delay between the time of an application for a rate increase and a final adjudication of the application became � more and more significant because the costs were eroding the earnings of the Company even as it was awaiting the results � of its application for a rate increase . It is clear that under , such circumstances, a test year based upon past operations and _ � -62- � I 1 , founded upon the assumption that �rowth �.n revenues would , compensate for increasing business was no longer reaZistic or suitable when establishing rates for the future. Now that the � utility business has arrived at this position where costs are crowding revenues, it is abundantly clear that the utility � business is entitled to and should make rates based upon costs which it will experience under the conditions when new rates � are to go into effect. NSP has followed this ractice in P � ratemaking in North Dakota; the Federal Power Commissior� has recently adopted rules prescribing a future or projected year ' for ratemaking, and other regulatory commissions have adopted the projected year. In keeping with this trend to refle�t the � true future coats of the period for which rates are being made, � I have utilized in �his presentation the projected year 1974 as the test year for making rates for 1974 . � Incom e Statement � Schedule 1 of Exhibit �� (FPV-1) is an Income Statement showing the revenues which would be received and the expenses which would ibe incurred in connection with supplying electric utility service during 1973 and 1974 in the City of St. Paul. The data for 1973 � reflects eight months of actual revenues and ei ht months of g � actual expenses with the bal�nce of the year based upon the updated budgeted figure for those four months . The data for 1974 , reflects the revenues and operating expen�es for that test year. These data have been developed by Co�npany personnel who are 1 � -63- t r responsible in the regular course of their work for estimate; . � These data are those which the Company utilizes in making its � plans and decisions . The operating revenues are shown for the usual account classes � required to be recorded by the Uniform System of Accounts . It � will be seen that the total electric revenue anticipated for 1974 is $46 ,253 , 000 and for 1973 $43 ,093 ,000 . Included in other � operating revenues is $4 , 617 , 000 for 1974 and $3 , 763, 000 for 1.973 , � reflecting revenues received from NSP (W) for energy and transmission services provided it by NSP (M) through the use of � its generating and transmission facilities . These revenues represent the payment which NSP (M) received from NSP (W) in � connection with the sharing of the output cf facilities con_structed by NSP (M) to meet the needs of NSP (W) as a part of an overall � plan to meet the electric needs of all of our customers . � The operating expenses total $43 ,767 ,000 for 1974 and $39 ,982 , Q00 � for 1973 . They have been reported in the usual functional categories specified in the Uniform System of Accounts . When � these expenses are deducted from the total operating revenues , an operating income of $7 ,310 ,000 is shown for 1974 and $7 , 077 ,000 , for 1973. � To the operating income is added the Allowance for FL�nds U:�ed During Construction to provide the total amount available for , return. For 1974 this amounts to $10 ,173 ,000 and for 1973 * � -64- � , 1 � $9 ,951� 000. ' On the next line is shown the net operating investment on a fair value basis of $211,150 ,000 for 1974 and $197 ,268,000 � for 1973, as detailed on Schedules 2 and 3 of this Exhibit. � The rate of return measured by a fair value net operating investment is shown can �he bottom line to be 4. 82$ for 1974 � and 5 . 04� fnr 1973. � Allowance for Funds Used During Construction It will be noted that on Schedule 1 I have added Allowance for , Funds Used Duxing Construction (AFDC) to the operating income . � AFDC represents an amount added to the cost of plant while it is in the process of construction. Its purpose is to make provision � for the recovery of cost of capital during the period of construction with the understanding that this' amount would then � be recovered through depreciation charges during the future as the plant is used to provide utility service. � Projections � In order to plan its operations and to utilize the planning � sectors as a basis for cost control, the budgeting practices and procedures of NSP were designed so that management of � distinct areas of responsibility could be utilized for the purpose of miniznizing costs and maximizing the efficiency of , operation. To a�complish this , the cost classifications were � categorized in te�ms of controllable types of expenses, such � -65- , , as labor, materials and supplies , services received, etc . � Budgeting and forecasting is made on the basis of these ' classifications of expenses and costs so that the knowa_edgeablr� and responsible employees could make the estimates of fut.ure � costs and be account,able therefor. In order to utilize the budgeting processes for the purpose of ratemaking in terms of � functional FPC accounting , it is first necessary to convert the ' budget cost classifications to FPC account classifications . This distribution of costs was made on the basis of the past ! experience of NSP. In other words , NSP has made its budgets on trie basis of its budgetary accounting classifi.cations over the � past and the actual bookkeeping has recorded the charges � historically in te.rms of the functional account classes af the Uniform System of Accounts. The past relationships of �these � classifications indicate that there has been a fairly stable relationship between the ratio of these convers�ons, and , t therefore , these ratios have been used to convert the budget � to the FPC accounts for the last four months of 197� �nd for the year 1974 . This practice utilizes the experiencP of the , departmental and divisional managers in arriving at the budc�eted amounts which are , in turn, expressed in terms of. FPC accounts ` as the expenses are actually incurred. � In some instances, some items of budgetary classifications were identical with the FPC account classifications , such as � in the case of fuel � purchased Energy, etc . and required no � Y6�� , � , ' � such reclassification. Once the respansibility account , classifications reflected in the budgetary accounting were expressed in terms of the electric utility FPC accounts , the � amounts were allocated to the City of St. Paul. To the extent that expenses were incurred solely for the City of St. Paul, Ifor example, the gross earnings fee, they were assigned directly � thereto. Where allocations were required, factors reflecting causative relationships to each expense were used. � Net O�erating Investment - Fair Value . 1 It is necessary to prepare the original cost net operating investment to compute the fair value rate base for purposes of � IJSP �s direct case. � Schedules 2 and 3 show the development of the fair value net operating investment for 1974 and 1973, respectively. In , these determinations, original cost was weighted at 67� and � trended original cost at 33$. The 33$ weight given trended oric�inal cost is approximately equal to the common equity � portion of NSP�s total capitalization. The trended original cost was determined by the Depreciation � and Economics De artment af N5P. P � As Mr. John Gillett has testified, the practices followed and � the procedures observed in the development of this trended original cost used in developing a fair value are consistent � � -67- , , � with the intended use of the Handy-Whitman Indices for these purposes . t A fair value net operating investment is the evidence of value , that should be �onsidered in determining a fair rate of return. � The Minnesota Public Service Commission utilizes fair value in the regulation of telephone utility operations in the State of r Minnesota. Fair value is used in other regulatory jurisdictions as the base for determining cost of service , and it should be � utilized for that purpose here. , � , � � � , ' � � -6'8- � ' � � BUSINESS EXPERIENCE AND BACKGROUND F. P. Vixo 414 Nicollet Mall � ' Minneapolis, Minnesota 55401 � I hold a B. A. Degree with a major in commerce from State College, Minot, North Dakota, and a Master's Degree in commerce � with a major in accounting from the University of Denver. I am a Certified Public Accountant and a member of the American 1 Institute of Certified Public Accountants. � For about three and one-half years I was employed as a Special Agent for the Federal Bureau of Investigation. This ' work consisted chiefly of investigative accounting, including , testifying on accounting matters in Federal courts. For a number of years, I taught accounting, leaving a position as head of � the Accounting Department of Western Michigan College to accept employment as chief accountant for the North Dakota Public � Service Commission in July 1949. In this position I represented the Public Service Commission in all accounting matters, , conducting examinations of utility exhibits and developing 1 exhibits and testimony for presentation as a staff inember of the Commission. , On Jul 1, 1972 I assumed m resent osition as Mana er Y � Y P P 9 � of the Rate Administration Department. I have made and supervised the preparation of special studies relative to rate matters and � � -69- � � , conducted basic research and economic studies for the purpose � of assisting management in making decisions. I participate , in hearings involving rates and other matters before regulatory bodies and assist with the preparation of exhibits and ` testimony presented. r � � � � � � � � � � t _�o_ � � � Exhibit (FPV-1 ) Schedule�— � , Northern States Power Company (Minnesota) Electric Utility - City of St. Paul INCOME STATEMENT WITH PRESENT RATES ' 1974 Test Year and 1973 Probable (In Thousands) � � 1974 1973 OPERATING REVENUES ' Residential $ 15 142 $ 14 472 Com¢nercial & Industrial 29 827 27 386 Public Street & Highway Lighting 497 493 , Other Sales to Public Authorities 787 742 Total Electric Revenues �6 253 '�3 pg3 Other Operating Revenues 4 824 3 966 � Total Operating Revenues �� OPERATING EXPENSES , Production 17 251 17 232 Transmission 599 579 Distribution 2 497 2 473 Customer Accounts 905 890 ' Sales 163 152 Administrative & General 3 187 2 746 Taxes : � Real Estate & Personal Property 5 315 4 582 Gross Earnings 3 700 3 447 Payroll & Franchise 433 426 Federal & State Income Taxes Deferred 3 315 2 672 , Provision for Depreciation & Amortization 6 402 4 783 Total Operating Expenses �� -"�g g� � OPERATING INCOME 7 310 7 077 � ADD: ALLOWANCE FOR FUNDS USED DURING CONSTRUCTION 2 g63 2 g�4 TOTAL AVAILABLE FOR RETURN 10 173 9 951 � NET OPERATING INVESTMENT - FAIR VALUE 211 150 197 268 � RATE OF RETURN 4. 82$ 5 .04� � , � -71- � Exhibit (FPV-1) Schedule�— � Northern States Power Com an (Minnesota , P Y ) Electric Utility - City of St. Paul FAIR VALUE NET OPERATING INVESTMENT , 1974 (In Thousands) , Trended , Original Original Fair Cost Cost Value ELECTRIC UTILITY PLANT Production $115 388 $175 895 $135 355, Transmission 28 939 45 257 34 324 Distribution 53 544 97 188 67 947 General 3 620 4 858 4 029 Common 2 889 5 124 3 627` Construction Work in Progress 33 878 33 878 33 878 Total 2�$�.�8 � 279 1 0 RESERVE FOR DEPRECIATION ' Production 19 606 55 489 31 447 Transmission � 5 215 10 417 6 932 Distribution 13 389 41 O10 22 504, General 1 061 1 278 1 133 Common 686 1 459 941 Total 39 957 109 653 _ 62 957 � NET ELECTRIC UTILITY PLANT 198 301 252 547 216 203 Deduct: ' Contributions in Aid of Construction 401 Accumulated Deferred Income Taxes 10 751 , Add Other Capital Requirements : Cash Working Capital 2 393 , Materials and Supplies 796 Average Fuel on Hand 2 443 Deferred Research and Development Cost 467 � NET OPERATING INVESTMENT - FAIR VALUE 211 150 i 1 1 _�2_ � � � Northern States Power Company (Minnesota) ' Electric Utility - City of St. Paul , In its letter of October 12 to the St. Paul City Council requesting an increase in rates for electric utility service, � Northern States �ower Company reserved the right to update the forecast data used in the preparation of its exhibits. The , ' exhibits originally filed in this case included eight months � actual and four months budgeted data for 1973 and the best estimates available for 1974 based upon a long-range forecast � reflecting conditions then existing. Since these exhibits were prepared, three additional months of actual data and experience i are available. � When these exhibits were being prepared, there were indications of a serious energy shortage, reflected in revenue and cost � trends. Attempts were being made by industry to realign the � energy picture through usual channels of allocations, curtailments and pricing. Government participation was largely in the area of � surveys and studies. But these turned out to be only mild indications of the actual state of affairs which have drastically f influenced cost trends beyond what was then known from the market � place. In November 1973 the President delivered his energy messages, the � Middle East war flared up and subsided and a mounting critical � energy shortage emerged. Governmental intervention is now showing � -74- , ' Exhibit (FPV-1) � Schedule 3 ' Northern States Power Com an (Minnesota P Y ) Electric Utility - City of St. Paul , FAIR VALUE NET OPERATING INVESTMENT December 31, 1973 (In Thousands) � Tr.:nded Original Ori��inal Fair , Cost Cost Value ELECTRIC UTILITY PLANT Production $ 99 780 $154 128 $117 715 � Transmission 27 627 41 946 32 352 Distribution 51 934 91 878 65 116 General 3 507 4 668 3 890 Common 2 816 4 855 3 489 � Construction Work in Progress 35 671 35 671 35 671 Total 221 335 333 1 6 258 233 � RESERVE FOR DEPRECIATION Production 17 040 49 772 27 842 Transmission 4 896 9 447 6 398 Distribution 12 795 38 002 21 113 , General 1 019 1 289 1 108 Common 641 1 337 871 Total 36 391 99 8 7 57 332 , NET ELECTRIC UTILITY PLANT 184 944 233 299 200 901 ' Deduct: Contributions in Aid of Construction 375 � Accumulated Deferred Income Taxes 9 012 Add Other Capital Requirements : Cash Working Capital 2 137 , Materials and Supplies 796 Average Fuel on Hand 2 304 Deferred Research & Development Cost 517 , NET OPERATING INVESTMENT - FAIR VALUE 197 268 � � , -73- � , i , itself in a number of ways . The energy realignment and its impact upon costs require that NSP reevaluate its situation , with respect to meeting the electric needs of the City of � St. Paul for 1974 . Moreover, since our initial filing, the annual budgeted , estimates have been requested by the Budget Department as , normally scheduled for this time of the year. These have come in from the Division and Department Managers and reflect ithe impact in terms of reduced sales of the reaction of our customers to energy-conserving publicity and directives. At � the same time, the market's reaction in terms of the usual � response of rising prices to a shortage situation resulted in higher estimated costs than those reflected in my initial � exhibit. � The impact of this abrupt and definite change in attitude toward the use of energy of all kinds is included in my updated exhibits . , The severity of this impact has been somewhat mitigated by the influence upon revenues of the fuel clause since the increased � cost of fuel expresses itself in increased revenues . , The increases in costs have been pri.ncipally in the area of , fuel costs and property taxes. The finalization of plans to man new plants coming on the line in the immediate future also ' influences these increased costs. In the case of the rate base items, updated information as to planned in-service dates of � certain projects is included in the exhibit. � -75- � . i In order that the record might be as current as possible and ' that all parties have a reasonable opportunity to review these data, I have prepared updated exhibits reflecting NSP 's costs � of providing electric utility service within the City of St. Paul. � These give effec.t to the current energy situation and costs. These data are shown in Exhibit (FPV-2) . This exhibit t is identical in organization and format to Exhibit (FPV-1) , except that the amounts reflect the impact of the current � situation. � The net effect of these changes which I have discussed is to reduce the operating income for the test year 1974 from � $7,310,000 as initially reported to $4, 233,000 and to reduce � . the net operating investment from $211,150,000 to $208 ,094 , 000. This reduced the rates of return from 4. 82� to 3. 43$ for 1974 . � , ' � , i 1 1 -76- � , , Exhibit (FPV-2) Schedule 1 , Northern States Power Company (Minnesota) ' Electric Utility - City of St. Paul INCOME STATEMENT WITH PRESENT RATES 1974 Test Year and 1973 Probable (In Thousands) � � 1974 1973 , OPERATING REVENUES � � Residential $ 14 860 $ 14 437 , Commercial & Industrial 29 974 27 286 Public Street & Highway Lighting 434 492 Other Sales to Public Authorities 784 714 ' Total Electric Revenues 46 052 42 929 Other Operating Revenues 4 584 3 753 Total Operating Revenues 50 636 46 682 , OPERATING EXPENSES Production 18 953 17 078 Transmission 619 563 ' Distribution 2 587 2 461 Customer Accounts 944 884 Sales 167 151 Administrative & General 3 213 2 811 � Taxes: Real Estate & Personal Property 5 962 5 022 Gross Earnings 3 684 3 434 ' Payroll & Franchise 433 424 Federal & State Income Taxes Deferred 3 548 2 690 Provision for Depreciation & , Amortization 6 293 4 761 Total Operating Expenses 46 403 40 279 OPERATING INCONIE 4 233 6 403 IADD: ALLOWANCE FOR FUNDS USED DURING CONSTRUCTION 2 899 2 705 ' TOTAL AVAILABLE FOR RETURN 7 132 9 108 ' NET OPERATING INVESTMENT - FAIR VALUE 208 094 194 438 RATE OF RETURN 3. 43� 4 . 68$ i 1 � _„_ . � . Exhibit (FPV-2) Schedule 2 , � Northern States Power Company (Minnesota) Electric Utility - City of St. Paul , FAIR VALUE NET OPERATING INVESTMENT 1974 (In Thousands) . � � Trended ' Original Original F'air Cost Cost Value ELECTRIC UTILITY PI,ANT ' Production $112 723 $171 463 $132 107 Transmission 27 723 43 638 32 975 Distribution 53 632 97 276 68 035 , General 3 516 4 775 3 931 Common 2 899 5 133 3 636 Construction Work in Progress 34 399 34 399 34 399 Total 2-3�-892 356 68 275 083 ' RESERVE FOR DEPRECIATION Production 19 019 54 057 30 582 , Transmission 5 087 10 168 6 764 Distribution 13 646 41 O11 22 676 General 1 054 1 326 1 144 Common 687 1 459 942 ' Total 39 9 -3�8 021 � NET ELECTRIC UTILITY PLANT 195 399 248 663 212 975 � Deduct: Contributions in Aid of � Construction 401 Accumulated Deferred Income Taxes 10 831 Add Other Capital Requirements : ' Cash Working Capital 2 565 . Materials and Supplies 921 Average Fuel on Hand 2 408 ' Deferred Research and Development Cost 457 NET OPERATING INVESTMENT - FAIR VALUE 208 094 ' � , -78- � ' Exhibit (FPV-2) � Schedule 3 � Northern States Power Company (Minnesota) , Electric Utility - City of St. Paul FAIR VALUE NET OPERATING INVESTMENT December 31, 1973 (In Thousands) � Trended ' Original Original Fair Cost Cost Value , ELECTRIC UTILITY PLANT Production $ 97 013 $150 355 $114 616 Transmission 26 622 40 658 31 254 Distribution 51 936 91 878 65 117 ' General 3 382 4 683 3 811 Common 2 797 4 957 3 510 Construction Work in Progress 37 122 37 122 37 122 ' Total 218 872 329 653 255 430 RESERVE FOR DEPRECIATION ' Production 17 136 49 543 27 830 Transmission 4 800 9 266 6 274 Distribution 13 066 38 002 21 295 General 1 015 1 319 1 115 ' Common 641 1 371 882 Total 36 658 99 501 57 396 ' NET ELECTRIC UTILITY PLANT 182 214 230 152 198 034 Deduct: ' Contributions in Aid of Construction 375 Accumulated Deferred Income Taxes 8 980 ' Add Other Capital Requirements: Cash Working Capital 2 131 Materials and Supplies 916 ' Average Fuel on Hand 2 207 Deferred Research and Development Cost 505 NET OPERATING INVESTMENT - FAIR VALUE 194 438 � a ' ' ' -7 9- ' � Northern States Power Company (Minnesota) Electric Utility - City of St. Paul � Q-1 Please state your name and occupation. ' A John B. Gillett, Associate Engineer and i�Iana�er of ��at,e� �,r,d Va=Luation with Whitman, Requardt and Associates o1' ��c�lt`:noi�e, ' Maryland. Q-2 How long have you been witn Whitman, Requardt and Assoc;ate�': ' A Since 1951. ' Q-3 What did you do prior to that? A I graduated from North Carolina State University in 1;�+f? as �� , Bachelor of Civil Engineering. From 1948 to 1951 I taas empl_oy�ed on steam generating station construction in North and South ' Carolina for the Duke Power Company. ' Q-4 Ar.e you a registered professional engineer? A Yes. I am a registered professional engineer in Delaware, ' Maryland, New York, and Virginia, and have a Certificat� of R�g- istration from the Na+ional Boa.rd of Engineering Registrati�n. ' �-5 Are you a member of any professional engineers' societies" ' A Yes. I am a Fellow in the American Society of Civil Engineei�s, a member of the Nationai Society of Professional Engineers anu , Engineering Society of Baltimore. I am also a member of t?�e joint Depreciation Committee of the Edison Electric Ir.stitute , and the Americar, Gas Association. ' �,h j,r,��± Experience have you had in public utility z�aluati_or.? A I have prepared or supervised the preparation of trended cos� � and depreciation studies for the following electric utilitie�: ' —80— , WN17E - CITY CLERK � PINK - FINANCE COl1I1C11 263516 BLUERY-MAYORTMENT GITY OF SAINT PAZTL . File NO. o cil Resolution Presented By ` l Referred To Committee: Date Out of Committee By Date RESOLVID, That the Council of the City of Saint Paul, in the Matter of the Petition of Northern States Power Company (Minnesota) Electric Utility, City of Saint Paul, for an increase in its electric rates, filed October 12, 1973, hereby accepts for consideration by this Council as its determination in said matter, the Findings of Fact and Conclusions ; of Law promulgated by the Hearing Examiner, Leonard E. Lindquist, a copy of which Findings and Conclusions is attached hereto as Exhibit "A", and incorporated herein; and be it FURTHER RESOLVED, �hat pursuant to said Findings of Fact and Conclusions of Law, the Franchise Ordinance No. 15475, approved November l, 1973, � � be amended to prescribe that, subject to the public hearing to be afforded all interested parties and to the final adoption and approval of the amending ordinance, Northern States Power Company be entitled to an increase in revenues of 16.2� above the 1973 test year revenues from electric service in the City of Saint Paul and the reasonable rates which would provide such revenue over and above that of the test year of 1973 for said company to commence taking effect, as the Ordinance so provides, as amended; and be it FURTHER RESOLVED, 'I'hat the City Clerk is directed forthwith to transmit three copies of the aforesaid Findings of Fact and Conclusions of Law to Leonard J. Keyes, attorney for Northern States Power Company. CO�CILMEN " Yeas � er Nays Requested by Department of: �t� Konopatzki [n Favor �rMi�r. Meredith �� Against BY � Rcedler Tedesco Mme.President-But�er- Ht�pt MAY 1 5 197�4 Form Ap • y City At rney Adopted by Council: Date Certified P Council Secretary ' BY i By � Approve MaXor• Date Y Approved by Mayor for Submission to Council By BY pustrsHEa MAY 18 1974 � . ., . , :� �p� .. - _�..Y : ,�.,. � -. y � � w �'�� E � ' . � � � �'�{o'��'i b �' �° } t ' , � .b � �: , , � , ;;� , j' � . , ; . � . ,� � , _�.; a , _ � � � , � , F .. 'y , y . , � , .. �, I _ ,: �f , � � � � �� ', � � ' � �� , � ;' . - . , : - , , . ; �, , . � _ �.� ; . . , _ , , . , � ,: � � .� �� •. ' .. ; - , . , ' �! . . � � ` . � J.1 . . ' . , �� I �r f+ , . � - ,. ' �1 .. . ' I . . � . , ..� . . � � ` � . . .. , I \��. . .,r �, �' � . ' � .r�/ ' . a ' .. " . . i . . �. � , ,.•, . . . . .l .. � ' . � . \. � . . � . . . . , . . . '. � , , , .. . . _ 'I .. , . . . . , ' . . . � �. ' � . '�f � � ' . . " . ' . . : � . . �. . ,' � . .. . .. . . . . , . .� • . ��? � , . . . � � . - ` � . . . � � �: � ... . .. . 1� . .. . � ��I �� . . ,. ' . i . �,f :;' 4: . � � . . . . . . . .. . , . � . ' , � ( i `.. . ' � I � � . . .. . . i' � \ . . .. . . ' . . ' � . . :l" ' . ' / . � . � . . - . � � t . . . . I t � . . . . . .. . . . . . ., .. . . . . . . .. . � . . � . . 1 . � . '� . �t'b:� : . . ' � , � .. ` . \ .' . . . I , . ' . . � I . .. . . . � �y� 7 ayL ! I , \. • . . ' _ ! � r � , �°�a#. , , . • ��'. ' � . ' . ` � � � } �� ' ,� ' , . Ii��t�ra��li�e�1 81�t �t�. � . � � . � �� ,8+�n� P+1►u�.,� l�efe+lo►� ,� • � . , . � � ;; j�'. . � . - �" �"�'_ , I : � , . , . � '�'li'�l �1'�� ii'� '�'r0! ^ElO�i� �1! '�'�� ,�0�' �'�0'� � ` � , , � � . � - � �� , ��,� • . ` ... `N � � . .. ... � ��1 � I�� M � " . . . •. ; . • . / . ., � . , � �� /. � ' '��1 �+ / . �1 � � . � � '�!. �' �; � I ` ; � � ��}` . . ' . ` . ! _• 'T l , : , ' �► , �� , 1�; - �. . . �;c , , � , � , �,: . � � a � � . - , � ' . .. ,, ` , � ' , . ' .�. . "` . �' ' �' t ,. ., � �,1 . � - � . �� . . � .. . . � .. . . I . . ' . . ' , .. �t . . ' . / , � � ' ' ' . . ' ,. , .. . • ' ' ' V �1 . .. � . .. . . i . . . - . . . .. . � .. . . . . � � _ . . . , � � r 'Y . • i il f,4; . ', , �"� _ ,�'�; � . s, � ;- � � \ ' i r»; � ! i . d ' r, �. � . . • � : . . . � � , , , . . ... . . - , �� . � � � �. .�. ` . , I.4 � �I . . . � - � ,. . � ' � . � � .. � � � � � . . �§� , , . . - . � ,. , � . � . � . ' �e"� . r�, �' �: . . . ' . . . . , t , � � . . .. .,. .'/ ' � , .. ( . ,.. . . , . . . , .. .� . �rl i ... . . , , . �. .. , E�J�� . .. ._ . . . . . �.- . . . _.. . . . . . . . . . ... ... . . ..._ . .. . . . .- . �.. �.. . �,. ._.. t _...a„. .. . , .. - .. . . . . , . _ . . :;ti. - f5 ;�f r"j �:��+� i '�"`,�l+�ve�vq`�pFv ��,-�F*"--'s) ,`.xs„r x+ . . . . � . � . . , � � ��'�5�:; , , � , � � , , �. ; F 'C=: �� . .. ' . . . . . . . ' .. . {� .. �'� K � ��Mrl�� , ,� � t...,,; . E:: , i�' ,w; t� ,;� � . ,s , . .. , ' � � , � i A` ; i � �� . , � ' y � � � I� ± �� I � � i , I �. . . �� ::f , _ �. :. � _ . � ' � the. .�la�.tiA�s: a�_ a, ) " ; _ _ p��Y�.�:.:.�+p� _ , , r _ , , . . ) . ; . � , � ' :� - : .t,�. Ci��,� �+uaci��. ..�o�;.�a� � �� . , �:'�.: Cc�p�,�'e �1�..�:+c .�. �.. ��dr�:s 3 ` � a�d td A,�,��v� i�s�►m� � ) , � ; for 8�3:+�� t�i i�,�,e�i� r�p : .3,z� y ; . � . ��' 9��.n� �aul. � ) i �7 �' , I � � ��- i ! � . . . .. . _.: _ � , i � ' ;,�. , f 1 ,'�: . , ( . ..... • `� .. .. . .� � ' 1 „°, � �F IQ�N � ; =� . , , � t�� . � , :a �ti .. . . ' ,.. . �. � I . . . + ,�i . � . ' . F ��.. .. � . � . .. . . I . . . . . , I �' ya , . . � ! . . . � .. . . . . � � � . I- . .. .E) � ,. ' � I�1 � a� ?� i I , -, , � I � , � g. . I � , � ,,f( r,� i I ; ;i i ' . � ' �� i � � ' , � ' � I ' < ; � j i � h� 5 i I I � �� H+�#4r�s , : � �, L�,��i�.�;t , ; I �� r �.� ' , �.�,�� i ; r . � , ; , :. �: � � �� .�� ` �; ::� �� :- t��T tk�► � � k � , 1 ; : f �� ; � . . �� ;� i i � ; � X •i � . . . ' . � ! . � i � � � . , .. � �I ; _ � �r�..�� . � . . . . � .�� . . . . . ' �.. . . � � �` ` ... ' . . . . , � '.. . . : � � . . tix ( �X�, � _ ,2,r i h . . �� . � , � � . ' . . . .. . . ..R. . � . 1 . �... .�� . ... { . ; - � � � .. ,,. . , . � h ... :�. . .... . . Y_�i�.. > . . ... . , � . . . ... , . .C . - . .. . . � � ..,.. , v. .�_. �. . n. _..v j::':..r.4 vsb.. �. � � ' t � , � � �6�516 � � � � � - , APPEARANCES: Thomas J. Stearns, Public Utility Rate ' Expert, Assistant City Attorney, Office of the City Attorney, Saint Paul, ' . Minnesota, appeared representing the City of Saint Paul. , , William M. Mahlum and John E. Brauch, 904 Commerce Building, 6aint Paul, ' Minnesota, appeared representing the Greater St. Paul Fair Rates Committee. ' ' Leonard J. Keyes and Samuel L. Hanson, of the firm of Briggs & Morgan, Attorneys ' at Law, 220 First National Bank Building, ' Saint Paul, Minnesota, appeared represent- ing Northern States Power Company. ' ' ' ' ' ' . ' . ' TABLE OF CONTENTS , � PART ONE � Page ' Report of Hearing Examiner. . . . . . . . . . . . . 1 ' Findings of Fact and Recommendations. . . . . . . . 2 � Background. . . . . . . . . . . . . . . . . . . . . 8 , Opinion . . . . . . . . . . . . . . . . . . . . . . 10 , ' , ' ' . ' � . ' ' , , ' , . ' 1 . ' ' ' REPORT OF HEARING EXAMINER The undersigned, Leonard E. Lindquist, having , been appointed by the Mayor and Council of the City of St. Paul to conduct hearings with respect to a ,' Petition for an increase in electricity rates by ' Northern States Power Company in the City of 5t. Paul reports as follows: ' That Northern 5tates Power Company is entitled to an increase in revenues of $7 ,315, 000 above , the 1973 test year revenues from its electricity ' operations in the City of St. Paul. This recom- mended increase is based upon the determination e ' of the Hearing Examiner that the appropriate overall rate of return on an original cost rate , base is 8. 1�. Additional revenues of $7,315 , 000 � would amount to a 16. 2� increase in revenues on ,' �� the basis of the 1973 test year figures. This ' , figure compares with the 28g increase applied for by Northern States Power Company. ' This report is based upon the Findings of Fact and Conclusions of Law hereto attached. A summary of 1 the evidence reviewed in preparing the Findings of Fact and Conclusions of Law is enclosed with this report. , � ' /'✓L-��.i � /C/:,::� 1iC.iJ'� Leonard E. Liri q ist ' May 10, 1974. - I � . 1 , ' , FINDINGS OF FACT AND CONCLUSIONS OF LAW On the basis of the record made in this hearing and the , supporting opinion attached hereto, the Hearing Examiner has ' reached the following: FINDINGS OF FACT ' 1. The appropriate test year in this proceeding is the 1973 test year, adjusted to year-end , figures with respect to net operating investment ' and certain aspects of revenues and expenses. 2. The original cost less accumulated depreciation � method is the appropriate method of determining the rate base in this proceeding. ' 3. The investment relati�g to the Prairie Island Unit No. 1 Plant should properly be included in the 1 test-year rate base. ' 4. Construction work in progress should be excluded from the rate base in this situation. , 5. It is appropriate to annualize depreciation on the � basis of year-end plant investment in view of the u�e of a year-end rate base. , 6. A reduction of $145, 000 in the test-year rata base to reflect the unamortized 3� investment tax credit � in the rate base elements is appropriate. , 7. It is appropriate to offset working capital items in the rate base with average accrued tax liabiiities. ' ' - 2 - , . ' 8. Property held for future use should be included � ti in the rate base in this situation. , 9. It is appropriate to increase test year revenues by $131,000 to reflect revenues received by NSP from , wholesale sales to other utilities. � 10. No deduction should be allowed from test year operating ' expenses in connection with the $37,000 fuel "penalty" , associate.d with the Monticello Plant. 11. It is appropriate to recognize the number of customers ' existing at year-end 1973 to match the use of a year- end rate base. This adjustment increases test year , revenues by approximately $125,000. 12. With respect to donations, it is appropriate to deduct ' a $14 000 amount which was du licated in NSP' s o eratin , P P g , statement, and the $18,000 amount relating to N5P' s final 1973 payment to the St. Paul United Fund , Building Fund. , 13. Wage increases scheduled to become effective during 1974 for non-union salaried employees should be recognized ias are wage increases for other employees, but only to the extent that such wage increases will actually ' be paid during 1974. � , 14. Tax savings resulting from deductions of interest relating to construction work in progress should be recognized 1 in determining test year net operating income. 1 . 1 - 3 - , • ' 15. Proposed City adjustment No. 9, which normalizes fuel costs at the December 1973 level corresponding , to the amount on which the fuel clause rider is � based, should be adopted. 16. Proposed City adjustment No. 10, which adjusts , expenses and revenues as if the December 31, 1973 , incremental prices for fuel and purchase power had ' prevailed throughout 1973 should not be adopted. ' 17. The net operating investment of the utility used and useful in conducting its electricity operations , in St. Paul as of December 31, 1973, as calculated on the basis of the acquisition cast depreciated method ' was $133, 903, 000. ' 18. The net operating income for the test year 1973 earned by the utility in St. Paul from its electricity opera- ' tions was $5,795, 000. 19. The capital structure of the utility as of December 31, � 1973 was as follows: , Debt - 52.82� Preferred Stock - 14. 90� ' Common Equity - 32.28� 20. The overall rate of return to the utility in its St. � Paul electricity operations during the 1973 test year , was 4. 33$. 21. An overall rate of return of 8.1� is fair and reasonable � �in this situation. 22. On the� basis of the December 31, 1973 capital structure, , an overall rate of return of 8.1� would result in a ' - 4 - ' , � , , rate of return on book common equity of approximately ' 12. 6�. 23. An increase in revenues of $7,315,000 above the 1973 , test year revenues is necessary to raise the rate of , return of the company on its St. Paul electricity operations to 8. 1$ on the net operating irivestment ! of $133, 903,000. 24. Additional revenues of $7,315, 000 would amount to a � 16. 2� increase in revenues on the basis of the 197e� ' test year figures. This� figure compares with the 28$ increase applied for by Northern States Power Company. 1 ' ' , � ' 1 ' , ' I - 5 - � �� ' ! � CONCLUSIONS OF LAW , 1. The net operating investment of the utility used and useful on conducting its electricity operations � in St. Paul as of December 31, 1973, as calculated � on the basis of the acquisition cost depreciated method was $133,903, 000. ' 2. The net operating income for the test year 1973 earned by the utility in St. Paul from its electricity opera- ' tions was $5,795, 000. , 3. An increase in revenues of $7,�315, 000 above the 1973 test year revenues is necessary to raise the rate of return � of the company on its St. Paul electricity operations to 8.1$ on the net operating investment of $133, 903,000. , 4. Additional revenues of $7,315, 000 would amount to a • 16. 2� increase in revenues on the basis of the 197�� , test ear fi ures. This figure compares with the Y g � 28$ increase applied for by Northern States Power Company. 5. An overall rate of return of 8.1$ is fair and reasonable tin this situation. 6. The changes in rate design proposed by NSP are reasonable ' and a ro riate and should therefore be approved. PP P ' ' On the basis of the foregoing Findings of Fact and Conclusions ' of Law, the undersigned Hearing Examiner recommends that the � � � -6- ' I , ' City Council grant an increase in rates to provide a 16. 2$ � , increase in test year 'revenues from the electricity operations of Northern States Power Company in the City of St. Paul. , ' , � -- f� , S. �� . � r �- -z � � ; . , ..__ ,_ - Leonard E. L�indqu' st , i , � 1 1 . 1 1 1 � 1 1 f � 1 - 1 1 - � _ . , I I � 26�516 � � ' BACKGROUND � On October 12, 1973, Northern States Power Company petitioned the St. Paul City Council for a review of the , Company' s operations and for an increase in rates. The Company stated that without the proposed rate � increases, serious revenue deficiencies would result, potentially , affecting its ability �to serve the future needs of customers. The last rate increase granted to the Company in January of i1972 had been based on 1970 expenses and operations. Since that time equipment and materials costs, labor costs and interest , costs have risen markedly. In addition, the Company has had to install millions of dollars worth of pollution control equip- , ment. The utility stated that these factors, coupled with a � sizab3e construction program and decreasing revenues resulting from current conservation measures, led to its decision to 1 petition for an increase in its electric rates. � The Petition was filed pursuant to Section 7 of Ordinance No. 15319, which had been approved by the City Council on February 7, , 1973. This Ordinance provided for the issuance to Northern States Power Company of a franchise to use the city streets and other , property for the purpose of providing electric energy from � 3anuary 1, 1973 to December 31, 1973. The Ordinance also provided for a review of the Company' s rates upon the Company's request, ' such review to be conducted before a qualified hearing examiner, and further stated that at the conclusion of the hearing, "the � hearing examiner shall . . . make recommendations to the City , . - 8 - � � � Council which in turn shall review the record and prepare an ordinance setting reasonable rates to be charged by the Company. . . . " ' In compliance with the ordinance, and pursuant to , Council Resolution No. 262467 , Mr. Leonard Lindquist was appointed Hearing Examiner on November 1, 1974. Initial meetings regarding � the Rules of Procedure and other preliminary matters were held on November 8 and November 30, 1973. � � U on the submission of a timely Petition to Intervene, P / the Greater St. Paul Fair Rates Committee was granted permission to participate in the hearing as a party-intervenor. ` On January 11, 1974, NSP submitted revised and updated information, and increased its request to a 28 percent increase � in electri� rates. This inerease, according to Narthern States ' Power Company officials was made necessary by higher fuel costs, . reduced electricity consumption, and rising property taxes. , The hearing was begun on February 12, 1974, and was conducted in accordance with the schedule and Rules of Procedure � agreed to by all parties and adopted by the Examiner on November 30. � By agreement between the City and NSP, a deadline of May 10, 1974 was set for the submission of the Hearing Examiner' s recommendations ' to the City Council. The ordinance putting into effect the new rates is scheduled to be enacted an May 17, 1973. The new rates , are to become effective March 11, 1974 but are not to be collected ' until the first meter readings made after May 17 . The agreement provides that any change in rates will be amortized over a period ! of twelve months following May 17. , � - 9 - � � , , , OPIIJION , In reaching the Findings of Fact and Recommendations ' set forth above, it has been necessary to resolve a variety of , issues which were subjects of controversy among the parties. While each such issue is di�cussed separately below, it is ! important to recognize that the resolution of each issue bears � directly upon the overall recommendations with respect to the .appropriate level of rates. Thus, each issue must be viewed in � the context of the overall result. Basically, the effort to arrive at fair and reasonable ielectricity rates to be charged by Northern States Po�aer Cornpany ' (NSP) in the City•of St. Paul {City) involves determinations in three major areas. � l. The determination of a "rate base" during an appropriate test period. The rate base is compris�d � of the amount of investment by the utility devoted to � the production and distribution of electricity to consumers within the City. � 2. The determination of net o eratin reven�es for P g ' the test period within the City. � 3. The determination of a� appropriate rate of return to be applied to the rate base. i l � _ �o - __ _ _ ___ _ _ _,�.. . , � By multiplying the rate base by the rate of return recommended '� by the Hearing Examiner, one arriues at the amount of net revenue , ' which would be produced if that rate of return had been in effect during the test period. If this amount exceeds the amount ' of actual revenue earned during the test period, as it did in the present instance, the difference between the recommended revenue � and the actual revenue is referred to as a "revenue deficiency" . Under such conditions, the rates charged by the utility must then i - be adjusted upward to a level sufficient to eliminate the revenue � deficiency under t�st period conditions. Pursuant to this general approach, the issues set forth ' below have been resolved as follows: ' I. Determination of an Appropriate Test Year. ! Northern States Power. Company takes the position that the appropriate test year for this hearing is 1974 . The utility ' argues that revenues and expenses should be determined on the � basis of projected 1974 figures and that the rate base shoul3 be determined on the basis of the average investment projected to ' be in effect during 1974. The use of a 1974 test year would, in NSP's view, produce a more appropriate result since the test ' period would be the actual period during which the proposed rat�s ' will be in effect. NSP acknowledges that in the past, the use of the most ' recent twelve month period as a test year was normally accepted. Such a hist4rical t�est year would then be adjuste3 to exclude or , � - 11 - ' � � normalize any abnormal. conditions occurring within that year and ' to include any known changes in conditions whicn were anticipated for the following year. The use of an a3justed prior test year for ' determinin future rates was acce table to the utilit as lon as 9 P Y g , the growth in revenues during the next year rose at approximately the same rate as the increasing cost of providing additional service. ' NSP contends, however, that under current inflationary ' conditions, revenues are no longer keeping pace Taith increasing costs. It is asserted that the use of a projected test year is ' necessary in view of rising interest rates, rising costs of labor and material, and increasing capital requirements in such areas ' as gollution control equipment. These factors, in addition to ' regulatory lag, the time which elapses between the occurrence of conditians justifying a rate increase and the granting of such an , increase by the regulatory authority, are now causing "attrition", which refers to an erosion of earnings below the level approved by ' the regulatory body. ' The City takes the posi�ion that the appropriate test year is 1973, with two adjustments: ' (1) The rate base should be measured by plant in service at year end rather than on an average year , basis; and ' (2) Adjustments should be made in ti�e test year for ' known and determinable chan es. g ' The City contends that these two adjustments adequately meet the problem of attrition, since the adjustments tend to increase the � rate base and expenses while having little effect on revenues. ' - 12 - ' ' ' The primary objection of the City to a future test ' year is that such a test period must necessarily be based upon projected figures with respect to the rate base as well as revenues , and expenses. It is argued that in order to avoid speculation, the test period should be based upon the most recent twelve-month ' period for which complete actual figures are available. These ' figures are then adjusted to remove conditions which prevailed in the past but which are not expected to recur and to include any , known changes which are anticipated within the reasonable period �ollowing the test year. ' It is the determination of the Hearing Examiner that , an.adjusted 1973 test year as set forth by the City is the appro- priate test period in this proceeding. The use of a future test ' year would, in the opinion of the Examiner, add substantial elements of uncertainty and speculation to the complex matter of prescribing ' reasonable and fair rates: In this instance, 1973 represents the , most recent twelve-month period for which actual f igures regarding revenues, expenses and the rate base are available. The following ' authorities are consistent with the use of a past test year: Re North Carolina Natural Gas Corporation (1973) 99 PUR3d 237 , 247. Re ' Baltimore Gas and Electric Company (1971) 89 PUR3d 340, 345. , In view of the need to recognize the effects of attrition and inflation, however, it is the conclusion of the Examiner that ' the rate base should be determined on the basis o£ year-end 1973 figures rather than average year figures. As mentioned above, the , ' ' - 13 - ' . ' . City concedes that the• use of a year-end rate base is appropriate. ' As stated by the P�tichigan Public Service Commission in Re Indiana and Michigan Electric Company, (1973) 98 PUR3d 475, the use of ' ear-end rate base with a ro riate ad 'ustments to bring net a Y PP P 7 ' operating income to year-end levels is appropriate in periods of accelerating expenses for construction. The use of a year-end ' rate base enables the regulatory authority to make use of more , current data to reflect the current investment of the utility. The use of the most recent available historical test ' year is consistent with the decisions of the Hearing Examiner in the 1971 NSP electric rate hearing and the 1972 NSP gas rate , hearing in St. Paul. ' II. Determination of an A ro riate Rate Base. r r ' The City argues that the rate base should be deterrnined on the basis of the original cost less depreciation method. The , original cost method was used in the 1971 and 1972 electricity , and gas rate hearings in St. Paul and, according to the witnesses for the City, involves a minimur.t of imponderables. The City points ' out that no speculation is involved in determining the rate base under the original cost less depreciation rnethod since the figures , can be taken directly from the books and records of the company. ' Dr. Robertson, an expert witness for the City, testified that the use of an original cost rate base requires rate making author- ' ities to state the true rate of return which is being allowed. ' ' - 14 - ' ' . He testified that the use of inethods which inflate the rate ,' base result in an overall stated rate of return which is less , than the actual rate of return. NSP takes the position that the "fair value" method , should be used to determine the rate base. NSP witnesses testified that in the present situation the fair value rate base should ' be determined by giving two-thirds weight to original cost figures and one-third weight to "trended original cost" figures. The � trended original cost portion of the formula is determined through , the use of the Handy-Whitman Index which measures cost trends in connection with the type of plant and equipment utilized by ' NSP in the production and distribution of electricity. Dr. Herz, ' testifying for NSP, stated that such a method is necessary to give the common stockholder an opportunity to earn a return in ' current dollars on a rate base which is also measured in terms of current dollars. ' It is the conclusion of the Hearing Examiner that , the original cost less accumulated depreciation method of deter- mining the rate base should be adopted in this . proceeding. , Although the original cost method may understate the rate base to some degree as a result of inflationary pre�sures, it is the ' conclusion of the Examiner that this factor should be considered ' in setting the overall rate of return rather than by adopting an estimated "fair value" rate base. It does not appear, for example, , that any definite standards exist for determining the "mix" of ' � - 15 - , . , , the original cost and re.production cost factors which are combined to produce the fair value base. Althoug� the utility indicated , that the 2/3-1/3 mix in this case was based upon the ratio of debt to common equity which is also approximately 2/3-1/3, the capital ' structure does not appear to be sufficiently related to the manner ' of determining the rate base to provide any definite standard. In the 1971 electricity hearing, for example, the utility took the ' position that a fair value rate base should be based upon a 50-50 mix of original cost and reproduction cost. Further, it is the � opinion of the Examiner that the use of the original cost method , reduces the amount of speculation involved in determining the rate � base. For these reasons, it is concluded that the original cost ' method shou�d be used to determine the rate base in this situation as it has been in previous St. Paul hearings. Among the authorities , supporting the use of an original cost rate base are the following: , Re Northwestern Bell Telephone Company �1972) 97 PUR3d 444, 447 . Re General Telephone Company of the Northwest, Inc. (1973) 99 PUR3d ' 147, 149. ' III. Proposed Adjustments to the Rate Base Mr. Norman G. Rising, consultant to the City, recom- ' mended that six adjustments be made to the rate base, five of which would decrease the amount of the rate base. The net ' effect of the adjustments recommended by Mr. Rising would be ' to reduce the rate base by approximately $75 million. This ' ' - 16 - , . � � would reduce the original cost rate base from approximately ' $178 million to approximately $103 million at year-end 1973. The six proposed adjustments are discussed separately below. ' A. Proposed Elimination of Prairie Island Unit No. 1 , The proposal by the City to eliminate Prairie Island , Unit No. 1 from the year-end 1973 rate base constitutes one of the major areas of dispute in the case. The elimination of ' Prairie Island Unit No. 1 from the rate base would remove $31,848,000 from the St. Paul year-end 1973 rate base. ' As in the case with respect to all aspects of the rate ' base, revenues and income and adjustments thereto, the portion attributable to St. Paul is derived through the application of ' allocation factors based upon the proportion of NSP's total system which is represented by the City of St. Paul. These allocation ' factors were agreed upon by the utility and the City. The City contends that since the Prairie Island Plant , was not in service during most of 1973, it should not be included ' in the year-end 1973 test year rate base. It maintains that if the Prairie Island Plant had been in service for all _ . ' of 1973, NSP �vould have earned additional revenues allocable to � St. Paul, since the addition of the plant would have made more power available for sale to other utilities and would have reduced ' NSP's demand for purchased power. The City concludes that the addition of the Prairie Island Plant to the rate base for the , 1973 test year would distort the test year since it is not � � ' - 17 - , ' possible to determine what the revenues and expenses relating to , the plant would have been during the year if the plant had actually , been in service. Witnesses for the City testified that in view of the speculative natur.e of any attempt to estimate test year ' revenues and expenses attributable to the Prairie Island Plant, the plant should simply be eliminated from the rate base. They , argue that once the plant reaches a reasonable level of operation, , it will generate sufficient revenue to provide an adequate rate of return on the funds invested in the plant. , NSP maintains that Prairie Island Unit No. 1 was properly classified as plant in service at t�e end of 1973, and that it was , used and useful in providing electric energy to NSP's St. Paul ' customers since December 4 , 1973, and must therefore be included in the rate base. �SP 's vice president of engineering, Mr. A. V. ' Dienhart, testified that in his opinion, tne plant was "operational and ready for service" an3 was "used and useful in providing utility � service" on and after December 4 , 1973. ' Much of the dispute concerning the Prairie Island Plant arises from the fact that serious mechanical difficulties have , occurred at the plant resulting in extended periods of shutdown since the attempt was made to put the plant in service in December, � 1973. Testimony presented by the City indicated that IdSP does ' not expect the plant to reach 75� of capacity until June, 1974 and full capacity is not expected until October, 1974. ' � � - 18 - � , : � . On the other• hand, the plant has been classified as � operational and ready for service from an accounting standpoint since December, 1973. While a rate-making authority need not ' necessarily adopt the time period specified by the utility as the ' time at which a plant "goes on the line" , it is true that significant accaunting consequences flow from the designation of ' a plant as operational and ready for service. Additional expenses incurred in connection with the plant, for example, are no longer ' capitalized, but are considered operating expenses from an accounting ' standpoint. It is the conclusion of the Hearing Examiner that the ' Prairie Island Unit No. 1 Plant should properly be included in the test year rate base. The evidence demonstrated that some degree of ' mechanical difficulty is normally experienced in connection with the , commencement of operations of a complex nuclear generating plant. These operational problems would normally be expected to cause ' some reduction in the output of the plant and in many cases periods of shutdown would be encountered. Although the problems relating ' to the Prairie Island Plant appear to be substantially rnore serious ' than would normally be expected, it is the opinion of the Examiner that it would be unreasonable to remove the entire plant from the rate � base for the entire period during which the rates set in this ' proceeding would be in effect. The evidence indicates that an "immature" period is to be expected in the early years of the life , of a nuclear generating plant. During this period, the incidence of inechanical failure is higher than would normally be expected in , , - 19 - , � � / , later years. Of course, it would not be ro er to exclude such a P P ' plant from the rate base during this "immature" period. Such a practice would add considerable difficulty to the task of financing ' large new electrical generating plants and would create the need for unnecessarily large rate increases in future years. ' B. Proposed Elimination of Construction Work in Progress. ' Another major item of dispute with respect to the rate base involves the question of whether construction work in progress, , in the amount of $37,653, 000, should be included in the 1973 test year rate base. The issues relating to the question of whether , construction work in progress should be included in the rate base ' are somewhat similar to the issues discussed above with respect to Prairie Island Unit No. 1. An important difference, however, is , the fact that the items referred to in the construction work in progress category can in no way be considered operational or ready � for service either at the present time or at any time during the ' test year. Standard accounting procedures used in the industry _ ' provide a method for recognizing the fact that the utility has substantial amounts of capital invested in plant under construction � � � � � for which it receives no direct return. During the period of � construction, the company is allowed to capitalize a certain amount to cover the approximate interest costs on money advanced for ' construction work in progress. This amount is referred to as "allowance for funds used during construction" (AFDC) . At the ' � - 20 - � � ..��_,.___._.._ __. _ @._.: , � , �6��16 � present time, NSP capitalizes its allowance for funds used during ' construction at the rate of eight percent. The net effect of this accounting procedure is to increase the basis of the project in ' question. Once the project is completed and becomes part of the ' rate base, the utility is allowed a rate of return on the total capital costs incurred in connection with the project, including � the allowance for funds used during construction. It is the conclusion of the Hearing Examiner that con- � struction work in progress should be excluded from the rate base ' in this situation. It is recognized that some regulatory authorities have recently begun to give increased recognition to construction � work in progress in view of the fact that utilities can be expected to face large and growing construction work in progress balanees ' for the forseeable future in attempts to meet expanding demands for � energy. In addition, NSP has pointed out that the nsw Minnesota statute providing for state regulation of utilities requires the iCommission to "give due consideration �to evidence of . . . construc- tion work in progress" . Minnesota Statutes, Chapter No. 429, ' section 16 subd. 6. That Act has no application to this proceeding, ' however, and there is therefore no necessity to consider its potential influence upon the issue. ' The conclusion of the Examiner with respect to construction work in progress is based in significant part upon the fact that ' the accounting procedure relating to allowance for funds used ' during construction provides a mechanism for giving appropriate ' - 21 - � � - ' ' recognition to the problem of having large sums of' capital invested in construction pro7ec�ts which do not yet provide any revenue ' to the utility. In addition, it appears that the traditional approach ' of regulatory bodies has been to include in the rate base only those items which are "on the line" and are used and useful in pro- ' viding utility services to customers. In the 1971 electricity rate hearing in St. Paul, for example, I�SP took the position that con- ' struction work in progress was not a component of the rate base. Additional authorities consistent with the exclusion of construction ' work in ro ress from the rate base include: Re Northwestern Bell P g , Telephone Company (1972) 93 PUR3d 106, 109. Re Hartford Electric Light Company (1970) 85 PUR3d 416, 422. ' ' C. Annualization of Depreciation on Year-End Plant. Witnesse�s for both the City and NSP agree that it is , appropriate to annualize depreciation on the basis of year-end plant investment if a year-end base is to be used. Because plant ' additions made throughout 1973 require a showing of increased ; depreciation expense at year-end, it is necessary to increase the accumulated depreciation in a like amount in order to properly , match the income statement and rate_ base. This approach has therefore been followed by the Hearing Examiner in determining the rate �ase. , ' D. Inclusion of Unamortized Investment Tax Credit (3$) The City proposes that the rate base be reduced by $145,000 ' to reflect the unamortized 3� investment tax credit in the rate base ' � • 22 - - .____.____. ._ �_______ _ _ _ ,,_ , ' ' . elements. The City contend5 that the 3� investment tax credit repre- isents tax savings similar to tax savings on accelerated dep=eciation � and should be recognized in the rate base computation. NSP maintains that to deduct this amount from the rate base ' would in effect negate the intent of Congress with respect to the investment tax credit, citing the case of Re Narragansett Electric � Company, (1973 R.I. P.U.C.1 PU.R. 4th 60, 67, ) in support of its � position. It is the conclusion of the Hearing Examiner that ' the adjustment to reflect the unamortized three percent invest- ment tax credit in the rate base should be made as proposed by ' the City. This approach reflects the tax benefit as it was actually received by the utility. In the opinion of the Examiner, , the evidence does not support the contention that Congress intended , to prevent recognition of this tax benefit for rate-making purposes. The following authorities are consistent with this position: Re ' Iowa Public Service Company, (1972) 96 PUR3d 124; Re United Cities Gas Company, (1973) 99 PUR3d 51. ' E. Adjustment Relating to S�Iorking Capital. , The City has proposed a net reduction in the amount allowable in the rate base for cash working capital of $5,601,000. ' � This proposed reduction is based on the City s contention that the � allowance in the rate base for working capital should be offset by funds available to NSP as a result of the time lag �between the � ' • . ' - 23 ' _ , � , a nt of taxes and collection of funds from customers for the p yme ' the actual payment of such taxes. NSP maintains that cash working capital should be , allowed in the rate base in an amount determined by the FPC ' approved 45-day formula for determining cash working capital. Under this formula, which was adopted in the two �revious St. Paul � rate hearings, an artount equivalent to 45 days of operating expenses is allowed as cash working capital. NSP argues that � this formula takes into account such factors as the amount of funds available on an average basis as a result of the time lag , between collection and payment of taxes. � Although the City agrees th�t it is appropriate to calculate cash working capital on the basis of the 45-day formula, � , and further, that it is appropriate to allow working capital � requirements for investment in materials and supplies on hand, fuel on hand and pre-payments, it argues that it is nevertheless 1 necessary to offset working capital by the amount of average accrued tax liabilities which have been provided by the rate payers . � It is the conclusion of the Hearing Examiner that the average accrued tax liabilities should be deducted to offset working , capital as proposed by the City. Although there is some question ' as to whether such funds are in fact �available for investment in day-to-day operations of the business, the collection of such amounts � from rate payers in advance of the payment of taxes to governmental bodies creates a permanent fund, on an average basis, which has , � - 24 - . , � -- � , �/ � ' been provided by rate payers. Recognition of this amount to , offset working capital for rate making purposes prevents the utility from obtaining a rate of return on an amount contributed not by 1 investors but by rate payers themseZves. The following authorities , are consistent with this position: Re Southwestern Bell Telephone Company (1973) 98 PUR3d 30; Re Interstate Power Company, (1972) 97 PUR3d 6. , F. Property Held For Future Use � In its proposed rate base figures, the City deducted � $333, 000 representing property held for future use allocable to St. Paul. While this matter was not specifically addressed , in the testimony of the City, NSP argues that the exclusion of such property is improper. NSP states in its brief that the 1 property in question has been included in the rate bas� under � FPC Order No. 420 which states as follows: "In general, it will be our policy to allow the rate making treatment of land held for future � use to track the accounting treatment prescribed therefore insofar as such treatment is reasonable and is consistent with the evidence developed in � each individual case. " It is the conclusion of the Hearing Examiner that no � 3euuction should be made from the rate base with respect to property held for future use. No evidence was presented to � indicate that NSP' s decision to acquire the pro ert in question P Y 1 was unreasonable. As pointec� out by NSP in its brief, the Minnesota Supreme Court held in Re Application of Northwestern Bell Telephone jGo. , Minn. , N.W.2d , (#44155 and #44192, filed � March 22, "1974) , that the classification of_ such property con- stitutes a judgment decision which management must make and that ' � - 25 - I . �I' , , ' unless the evidence establishes that the managerial decision � "has outstripped aJ.l Iikelihood of reasonabl imminent use . " Y . . � , such decision will not be interfered with by regulatory bodies or courts. i , Summary of Rate Base Items As a result of the determinations discussed above, the � Hearing Examiner finds that the net operating investment of the utility allocable to the City of St. Paul for the year- , end 1973 test year, was $133,903,000. The specifi� items which comprise this total are shown at the end of this Opinion in � Appendix One. � � � � , � � � i , - 26 - ; � ' IV. Adjustments Proposed � the City to Statement of Operating Income. — � The Cit throu h Mr. Klaren Alexande P y, g r, C A, p r o p o s e d � 19 adjustments to the statement of operating income as submitted by Northern States Power Company. A number of these adjustments were , considered proper by the utility and have therefore been adopted ' by the Hearing Examiner and incorpoYated in the calculations underlying the Findings of Fact. These uncontested adjustments � included the following: (a) A decrease in operating expenses re- lating to unusual expenses incurred �in connection with the annual , shareholders ' meeting lzeld during 1973; (b) an increase in expenses , relating to rate case costs, amortized over a two-year period; (c) an adjustment in depreciation exgenses based upon year-end 1 plant in service; (d) an adjustment of property taxes on the basis of year-end plant in service; and (e) an adjustment relating to � an increase in postage rates. The net effect of these uncontested , adjustments is to decrease net operating income for the test year by $403,000. � In addition. to the undisputed items mentioned in the above paragraph, certain adjustments must be made to the statement of � operating income as a result of determinations made with respect � to rate base items. For example, since construction. work in progress was not included in the rate base, the allowance for funds used � during construction has not been included in net operating income. Witnesses for both the City and NSP agreed that the treatment of � allowance for funds used during construction must be tied to the � _ , _ 2, _ � � treatment of construction work in progress in this manner. � In addition, the inclusion of the Prairie Island Plant in the rate base requires the recognition of certain revenues and , expense items in the statement of operating income. The net effect , of such adjustments is to decrease revenue, as a result of less use of expensive fossil fuels which would activate the fuel clause � rider, and increase expenses relating to depreciation, taxes and other items . While the City does not dispute that such adjustments � are appropriate if the Prairie Island plant is included in the rate base, it argues that the plant should be excluded from the rate base � since these expenses are not matched by increased revenue throughout � the test year. In the opinion of the Examiner, however, . no evidence was presented to establish that the addition of a new generating ipl.ant would cause any direct increase in revenues . Revenues are, of course, determined by sales of electricity. The evidence did not , establish that such sales would in any way be affected by the Icommencement of operations of a new generating plant. The items below describe the resolution by the Examiner , of the disputed items concerning operating income. � A. Sales to Other Utilities. The City proposes that test year revenues be increased , by $131, 000 to reflect revenues received by NSP from wholesale sales � to other utilities. The City maintains that NSP's treatment of such revenues deprives the City of the benefit of the revenue �ahile � failing to give proper credit to the City for demand-related 1 , - 2$ - � . , expenses and for providing a return on the appropriate share of � plant in service. ' NSP argues that because these sales are subject to the jurisdiction of the Federal Power Commission as to the rate and the , return allowable on them and because such sales are short-term and are part of the energy exchange accomplished through the power pool , for the joint benefit of all members, neither the revenues nor the � expenses relating to such sales should be recognized in the St. Paul rate hearing. In addition, NSP maintains that if such revenues are , to be recognized, additional costs of accounting, sales, adminis- tration and general expenses would properly be assignable to them � and would offset the showing of net revenues. � It is the determination of the Hearing Examiner that revenues from wholesale sales should be recognized as proposed � by the City. As argued by the consultants for the City, the removal of wholesale sales revenues without a corresponding 1 reduction of demand-related expenses and plant in service fails , to give proper credit to the City for such expenses and for providing a return on the portion of plant in service which should � be allocated to wholesale sales. Although it may be appropriate, as NSP maintains, to assign additional costs of accounting, sales, � administration and general expenses to such revenues, no evidence was � introduced by the utility to enable the Examiner to determine the amount of such expenses. No evidence was introduced to indicate � that such expenses would constitute a significant portion of the revenues involved. i i _ 29 - ' ; . 1 ' . � B. Pro osed Ad 'ustrnents Relatin to Monticello Fuel Costs. � � The City proposes that $37, 000 of operating expenses should � be deducted in connection with fuel costs at the Monticello Plant incurred during the 1973 test year. These costs arose in connection � with the contract under which NSP "rents" fuel from General Electric for use at the r�onticello Plant. The City characterizes such costs , as a penalty which NSP must pay to General Electric when the Monti- � cello Plant operates at less than 88� of capacity. The City main- tains that payment of such costs is an extraordinary expense since � it resulted from abnormal shutdown periods at the plant. Since these abnormal outages would not be expected to recur, the City urges that ` such costs should be removed from the test year operating expenses. , NSP argues that the operation of the plant during 1973 was not abnormal and that the normal capacity factor for a nuclear , generating plant in its early years of operating would be about 70�, i.mproving to a capacity factor of about 80$ after three or four years. , In addition, IJSP argues that the payment made was not a penalty but ir�terely the normal functioning of the fuel purchase contract, and is ' more in the nature of an interest payment. IIt is the conclusion of the Hearing Examiner that the � Monticello £uel cost adjustment should not be made. The evidence established that the performance of the Monticello Plant during 1973 � was not abnormal for a nuclear generating plant in its early years of operation. In addition, NSP's contract with General Electric would , � - 30 - i _ ____ . . _ .�, . j , � I , � � appear to be more favorable to NSP than alternative types of contracts ' which might have been entered into to avoid charges such as those , incurred in this situation. While it may turn out that as the plant continues to mature over the next few years, such charges will be , reduced or eliminated, it is the opinion of the Hearing Examiner that such charges cannot be considered abnormal for the situation in 1973 , and that the adjustments proposed by the City would therefore be inappro- � priate. C. Adjustments for Year-End Customers. � The City proposes that an adjustment must be made to ' recognize the number of customers at year-end 1973 to n�atch the use of a year-end rate base. NSP opposes this adjustment on , the basis that such an adjustment would defeat the purpose of a ' year-end rate base which is intended to give consideration to attrition by not attempting to reflect growth. The utility � further argues that if the adjustment were appropriate, it was incorrectly determined in the City' s presentation. ' It is the opinion of the Hearing Examiner that this adjustment is appropriate' in this situation. While each issue � � must be considered separately, it is generally appropriate to � match the use of a year-end rate base by recognizing various aspects of e x pe nses and revenues on a year-end basis as well. Authorities ` consistent with this position include: Re Duke Power Company (1971) � 88 PUR3d 230; Re The Detroit Edison Company (1970) 83 PUR3d 463. It is the opinion of the Examiner, however, that the , � 31 ; , , � calculations submitted by NSP with respect to this matter 1 should be adopted in making this adjustment rather than those � submitted by the City. NSP' s calculations as indicated in NSP Exhibit #16 result in an upward adjustment in revenues ' of approximately $125,000. Since these calculations were based upon a more specific analysis of actual changes in numbers 1 of customers than were the City' s calculations, the method used � by the utility is adopted by the Examiner for purposes of this adjustment. . � D. Proposed Adjustment Relating to Donations. ' With respect to charitable donations by NSP, the � City proposes an adjustment to remove a $14,000 amount which � was duplicated elsewhere in NSP' s operating statement and an $18, 000 amount involving NSP' s final payment to the St. Paul � United Fund Building Fund. The City did not object to the inclusion of certain other items of charitable contributions ' such as NSP' s annual pledge to the St. Paul United Fund. � It is the conclusion of the Examiner that the evidence su�ports the position of the City with respect , to the $14, 000 amount which was apparently included in two . places in NSP' s operating statement. The testimony of NSP' s � witness, Frank P. Vixo, appears to be consistent with the � City' s position on this matter. , � _ 32 - � � � It is the conclusion of the Examiner that the , adjustment relating to the United Fund Building Fund should , also be made. As the testimony of the City indicated, the payment involved was the final installment of a pledge by NSP , with respect to a Building Fund. Since no further installments will be required on this pledge, it is appropriate to remove 1 the $18, 000 amount from test year expenses. , E. Proposed Adjustment Relating to Wage Increases. , Both the City and NSP agree that adjustments should be made to give recognition to wage increases which will become Ieffec�ive during 1974. These adjustments are intended to reflect � present wage levels as though they had been in e€fect during the 1973 test year. � The City maintains, however, that no such allowance should be made with respect to proposed wage increases for non- � union salaried employees since increases allowed to such employees are given not on January 1 each year but on the employment anni- � versary date of each employee. The amount of the increase ' depends upon the employee' s particular merit performance within his department. � NSP maintains that although the amounts of the in- � creases may vary by individual employees, the same overall per- centage wage increase granted to union employees is also granted , to non-union salaried employees. NSP also takes the position that since wage and price stabilization regulations ended on � _ 33 _ � � � � April 30, 1974, another 2 .8� wage increase should be recognized beginning May 1, 1974 . � It is the determination of the Hearin Examiner that � the wage increases scheduled for non-union salaried employees should be recognized as proposed by IdSP, but only to the extent � that such wage increases will actually be paid during 1974. The � evidence established that because of the fact that wage increases scheduled for non-union salaried employees begin on the employment 1 anniversary date of each such employee rather than on January 1, the amount paid by NSP as a result of such wage increases is � only 56� of the amount which would result if all such raises became effective on January 1. This 56� factor was therefore , 'n he calculations underl in the Findin s of Fact and used i t y g g � Recommendations. The effect of this method is to recognize these known salary increases for only one year beyond the test period. ` The recognition of such increased salary costs necessitates , a recognition of pension costs which are tied to salaries. .This factor has also been recognized in the calculations underlying 1 the Findings of Fact and Recommendations. - - With respect to NSP's propbsed �adjustment resulting w . . __ � from the termination of wage price stabilization regulations, it 1 is the conclusion of the Examiner that the evidence does not justify the adoption of such an ad�ustment. IF. Pro osed Ad 'ustment Relating to Income Taxes. � The dispute between the City and NSP with respect to , - 34 - � _...:_._, ._ ___._ �,.. ! � . 1 income taxes relates ta the treatment of interest incurred in ' connection with construction work in progress. NSP takes the position that if construction work in progress is not in the � rate base, interest deductions taken for tax purposes by NSP � should similarly be excluded from recognition for rate-making purposes. The City maintains that such an adjustment is inappro- � priate and that since such interest deductions for tax purposes are actually taken by NSP on its tax returns, they should be � recognized for rate-making purposes. � It is the conclusion of the Hearing Examiner that the position of the City should be adopted with respect to this ! issue. This determination follows the precedent set in the 1971 electric rate hearing in St. Paul where the Examiner deter- 1 .mined that the appropriate method of income tax determination � is the method autlined by the City under which the current tax benefits derived by the utility from deductions such as interest , on construction in progress are currently recognized for rate- making purposes. Among the authoriti�es supporting this position is � Re New England Telephone & Telegraph Co. , (1970) 84 PUR3d 130. , G., Proposed Adjustment Relating to Fuel Clause Rider. � At the present time, a fuel clause rider to NSP' s rate sc he du le is in e f fec t in t he Ci ty o f S t. Pau l. T his fue l c la u s e ! rider provides for automatic rate adjustments based upon changes in the costs of certain fossil fuels, thus enabling NSP to pass � on to its customers increases or decreases in fossil fuel costs. � � - 35 - 1 � zs35_1 s 1 In this proceeding, NSP has proposed an amended fuel clause rider ' which would involve three basic changes: (1) Under the present fuel clause rider, rate adjust- ' ments are based u on chan es in fuel costs for the average of the P g � most recent twelve-month period. As a result, rate adjustments lag significantly behind fuel cost changes. Under the proposed iamended fuel clause rider, this "twelve month rolling average" � method would be replaced by a system involving a one-month cost of fuel. This would largely eliminate the lag period. � (2) The present fuel clause rider applies to all kilowatt hours, including� those produced by nuclear and hydrogenerating � plants, even though the cost increases which trigger the adjust- ment re�late only to fossil fuel. The proposed fuel clause would � eliminate kilowatt hours produced by nuclear and hydrogenerating , plants. . (3) The proposed fuel clause would increase the base ' cost of fuel to a level more accurately reflecting 1974 fossil � fuel costs. The City does not oppose the adoption of the new � fuel clause rider proposed by NSP. Moreover, it is the deter- mination of the Hearing Examiner that the proposed fuel clause �, rider would accomplish its intended result in a more accurat'e � manner than does the current fuel clause rider. Thus, the fuel clause rider proposed by NSP is adopted by the Hearing Examiner � for purposes of these proceedings. i � - 36 - . f � � � Althou h the City agrees that the new fuel clause g ' rider should be adopted, it disagrees significantly with NSP with respect to the manner in which the fuel clause should be � treated in determining 1973 test year revenues and expenses. , The consultants for the City have proposed three adjustments which result in a net increase of $781,000 in NSP's 1973 test , year revenues, thus reducing the deficit to be recovered by NSP by that amount. Those aspects of the adjustments which are ! disputed by NSP are based upon the following underlying assump- � tions: (1) That it is appropriate to determine the effect of ' the fuel clause on the basis of the cost of fuel on December 31, 1973 to match the year-end rate base; and ' (2) That no recognition should be given to the effect � of the lag caused by the twelve month rolling average used in computing fuel costs since such a lag is detrimental to the utility , only in periods of rising fuel costs. � As a result of these assumptions, the City's calculations indicate that on a test-year basis -- using year-end fuel costs and elim- � 'natin the �effect of the la eriod -- the fuel clause would �. g 9 P ' result in an over-recovery of revenues. , NSP contends that the City's method of calculation with � respect to the fuel clause is erroneous and that the assumptions � underlying such calculations are invalid. NSP maintains that the basis for the City's proposed adjustment is without foundation ' ' - 37 - - S ' because (a) NSP did not actually over-recover fuel clause revenues � in excess of fuel cost increases in 1973; (b) during periods of � rising fuel costs, it is impossible under either the present or proposed fuel clause rider to over-recover fuel clause ' revenues because of the inevitable lag in adjusting revenues to increasing fuel prices; and (c) it is likely that fuel costs � will increase in 1974 . Another wa� of describing the dispute between the , arties on this conl lex matter is as follows: NSP argues that P p ' calculations should be based upon conditions as they actually occurred in 1973, which was a period of sharply rising fuel , costs. The City, on the other hand, argues that fuel costs ' may or may not continue to rise in the future, and that test year revenues should therefore be calculated on the basis of , constant fuel costs, based upon the actual cost of fuel on December 31, 1973. ' It is the determination of the Hearing Examiner that � the contested issues concerning the treatment of the fuel clause rider should be resolved as follows: ' 1. Proposed �ity adjustment number 9 which normalizes �.uel costs at the December � 73 level corresponding to the amount ' on which the fuel clause rider is based, s ould be adopted. 2. Pro osed City adjustment number 10 which , a �usts expenses and revenues as if the December 31, 1973 increMental prices or fuel and purchase po�oer had prevailed , throughout 1973, should not be accepted. 3. As recognized by both parties, the ' a vantage of eliminating the twelve � - 38 - ' � ' month rolling average lag, should be recognized. � ' The acceptance of proposed City adjustment number 9 has , the effect of normalizing fuel costs and fuel clause rider revenues for the 1973 test year at the December 1973 level. It is the con- ' clusion of the Examiner that such normalization is consistent with the use of a year-end rate base and the annualization of expenses ' and revenues to year end. By accepting this adjustment, the � Examiner makes no assumption as to whether fuel costs will or will not continue to rise as they did in 1973. This approach is consis- , tent with the decision of the New York Public Service Commission in Re Niagara Mohawk Power Corporation, 92 PUR3d 461 (1971) , cited ' by the City in its brief. ' The City contends in its brief that the consideration of adjustment 9 and 10 must be taken as a whole and that the two issues ' should not be separated. � It is the conclusion of the Hearing Examiner, however, that although the theoretical basis for adjustment ' number 9 is to some degree similar to the basis for adjustment ' number 10, adjustment number 10 is inconsistent with proper account- ing methods as used by the utility,. and must therefore be rejected. ' Adjustment number 10 is intended to bring. fuel costs to year end levels ancl treat these costs as if they had prevailed throughout ' 1973. Since the fuel clause rider would have triggered an' ' increase in rates if such fuel costs had prevailed throughout 1973, the net effect of adjustm�t 10 is to significantly increase ' test year operating revenues. The use of incremental fuel costs t . , - 39 - . ' ' as of December 31, 1973 in adjustment number 10 is, how�ver, ' inconsistent with the accepted accounting practice of reflecting ' fuel costs on "as consumed" basis rather than on an incremental cost basis. Moreover, since the fuel clause rider is triggered by ' "as consumed" costs, it would be inappropriate to recognize test year revenues on the basis of incremental cost increases. ' Therefore, it is the determination of the Hearing Examiner � that the appropriate accounting method is to use the "as consumed" cost rather than the incremental cost of fuel in this situation. ' Accordingly, proposed City adjustment number 10 must be rejected. Of course, it should be recognized� that the figures , submitted by NSP do reflect the benefit of the adoption of the ' new fuel clause rider which has the effect of eliminating much of the lag associated with the twelve month rolling average method. , In view of the inclusion of the Prairie Island plant in the rate ' base, it is necessary to adopt the $753,000. 00 addition to test year net operating income as indicated by Column 0 on NSP Exhibit , 23 (a) . _ ' VI. Rate Design. ` . In connection with its request for rate increases, NSP , has also proposed certain changes in the rate design for th� City of St. Paul. The proposed changes in rate design involve the ' following matters: , (A) A seasonal rate concept which provides for a higher rate during June through September; � . ' - 40 - , ' , (B) The elimination of certain promotional rates; and , (C) Revision of the fuel clause rider. The proposed changes in rate design would have no effect ' on the total revenues which NSP would receive for the period during ' which the rates which result from this proceeding will be in effect. The changes d o, however, cause certain shifts in the rates to be ' paid by various classes of customers. For example, the higher summer rates involved in the seasonal rate concept would have a ' greater effect upon heavy residential users of air conditioning , than on those residential customers without air conditioning. NSP presented evidence indicating that the proposed new ' rate structure would result in a closer relationship between rates paid by various classes of consumers and the cost of providing ' service to each such class. Although witnesses for the City agreed ' with the changes in rate design in principle, the City took the position in its Brief that no changes in rate design should be ' permitted without the presentation of a cost of service study by the utility. ' It is the determination of the Hearing Examiner that ' , the changes in rate design �proposed by NSP should be approved. Whi].e it is •true that an extensive cost of service study might , produce additional useful information with respect to the question of rate design, the record contains significant evidence that the tproposed changes would be beneficial. For example, the proposed , seasonal rate differentials are based upon the fact that peak demand , � ' - 41 - , , , levels occur during the summer, primarily as a result of increasing ' se of air conditioners. It is this eak demand which is most u p ' responsible for the need for constructing additional generating facilities. To the extent that wasteful uses of electricity during ' the summer may be discouraged by the higher summer rates, the need for additional generating facilities to cover pea}c demand periods ' ma be reduced. In addition reduced summer demand would have a Y . ' leveling effect on the company' s load factor which would in turn lower average costs. , No evidence was presented by witnesses for the City in regard , to the proposed elimination of certain promotional rates by NSP. In the view of the Examiner, the elimination of such promotional , rates would be beneficial in that it would tend to discourage un- nece5sary and excessive uses of electricity. With respect to the , proposed changes concerning the fuel clause rider, witnesses for the ' City agreed that such changes would be appropriate, although they disagreed with NSP in connection with certain test year calculations ' involving the fuel clause rider as discussed above. As discussed above, it is the conclusion of the Examiner that the proposed changes ' in the fuel clause rider would more accurately match rate changes ' with changes in fossil fuel costs, and should therefore be adopted. ' ' ' , - 42 - ' ' , VII. Appropriate Rate of Return. ' Northern States Power Company, through the testimony of Dr. Henry Herz, takes the position that a fair and reasonable ' rate of return on a net investment rate base in this proceeding ' would be 9. 25$. This would result in a rate of return on common equity of 15 to 16 percent. NSP points out that in the 1971 , hearing, the Examiner recommended an 8.2g rate of return on an original cost rate base which was supported by a finding of ' 14. 3$ as the rate of return on book common equity and 5.35$ on , senior securities. The company contends that since the cost of obtaining new capital has increased significantly since 1971, , a proportionatly higher rate of return is warranted in this , proceeding. As indicated by NSP in its brief, the increase in the imbedded cost of senior capital would make it necessary to ' set an overall rate of return substantially above 8. 2� if the company is to be allowed to maintain a 14.3$ rate of return on ' common equity which was approved in the 1971 hearing. NSP further maintains that, as shown by 1973 adjusted test year figures, , the actual rate of return achieved by the company has declined , to a level well below the rate approved in the 1971 hearing. The utility argues that significant changes have occurred ' since the previous electric rate case in St. Paul and cites the following factors in support of its position that a rate of , return below the 9.25� on an original cost rate base recommended ' by Dr. Herz would be inadequate: (a) NSP' s declining bond interest coverage, which ' reached an all-time low for NSP during 1973, threatens the company' s double A bond rating. Interest coverage computed under the terms , - 43 - � � ' of existing bond indentures is currently approaching the level ' below which no additional bonds can be sold. ' (b) A drastic decrease in earnings per share would result in 1974 without adeguate rate relief. Earnings per ' share for January and February of 1974 were $.40, which is $.22 per share less than the same months in 1973 . Even with the current , rate increase program going into effect on March 19, 1974, and ' assuming uniform rates at the increased level established throughout the remainder of Minnesota, NSP would experience a decline in ' 1974 earnings below 1973 earnings. In addition, 1973 earnings ($2. 61) declined from those in 1972 ($2.75) . ' (c) The persistence of high inflation has compounded ' the difficulty of attracting common equity capital. (d) Continued attrition has decreased the desirability � of public utility stocks and bonds as against other comparable and available investments. The degree of attrition which occurred ' between 1970 and 1973 is illustrated by the fact that during that , period, NSP' s rate base increased at a substantially greater rate than the increase in net operating income. ' Dr. Ross Robertson, an expert witness for the City, testified that in his opinion, the appropriate rate of return ' in this proceeding, on an original cost rate base, lies within ' the range of 8. 0� to 8.5$. The City maintains that this recommended rate of return is more than adequate ,to attract ' the new capital needed for expansion. It argues that NSP' s experi:ence in recent years from a financial standpoint has been ' favorable in comparision with other utilities. , In its brief, the City cites a number of recent decisions • - 44 - • ' ' in other juridictions in support of the rate of return recommended by Dr. Robertson. In addition, the City contends ' that a rate of return on a year-end 1973 original cost rate , base within the range of 8. 0� to 8. 5� is reasonable and consistent with the decision in the previous hearing in St. Paul. ' On the basis of all the evidence presented, it is the determination of the Hearing Examiner that the appropriate ' rate of return in this proceeding is 8.10 . This results in a ' rate of return on common equity of approximately 12. 64� on the basis of the 1973 year-end capital structure of the company. ' Such a rate of return on common equity is, in the judgment of the Hearing Examiner, fair and reasonable i� this situation. , As stated recently byti�e Minnesota Supreme Court in ' its decision in Re Application of Northwestern Bell Telephone Company vs. State of Minnesota, et al. , filed March 22, 1974 , ' Minn. , " . . .the fixing of a fair rate of return cannot be determined with precision, since it is not derived from a ' formula, but must be reached through the exercise of a reasonable , judgment. . . . " It is recognized that an 8.1$ rate of return is slightly below the 8. 2� rate of return allowed by the Examiner ' in the 1971 hearing. It is inappropriate, however, to make direct comparisions with respect to the two hearings. In the ' current hearing, the test period used ended just prior to �the , presentation of evidence and only a few months prior to the issuance of this opinion. In the 1971 hearing, such recent figures were ' not available and the test period used therefore ended nearly a full year prior to the issuance of the decision. In addition, ' the inclusion in the rate base of the Prairie Island Plant, which `• - 4 5 - � � 1 "went on the line" near the end of the 1973 test year, must be � considered in compa�ison with the exclusion from the 1970 test � � year rate base in the previous hearing of the Monticello Plant ' which was put in service shortly after the conclusion of the 1971 hearing. While there is no inconsistency between the � inclusion of the Prairie Island Plant in this hearing and the � exclusion of the Monticello Plant in the previous hearing, the timing of the current hearing is significantly more advantageous � to the utility than that of the previous hearing. In the opinion of the Hearing Examiner, this factor, as well as numerous other � factors, must be given consideration in determining an overall , rate of return. On the other hand, it is the opinion of the Hearing . , Examiner that an 8.1$ rate of return in this proceeding is not excessive, particularly in view of inflationary pressures ' and the demonstrated effect of attrition which has occurred during � the past two years. I 1 - . 1 � � � 1 � 1 � � 1 � � , _ _— - - 46 - � � 263516 � APPENDIX I , NET OPERATING INVESTMENT AT YEAR-END 1973 ' • Adjusted Rate Base ' (ThousandsJ ' Electric Utility Plant Production $ 97,194 � Transmission 26,726 Distribution 51,105 General 2,374 Common 3� 8 8 8 ' Plant Held For Future Use 333 Construction Work in Progress � 0 Total , � $181, 620 ' Reserve for Depreciation , Production $ 18 ,558 Transmission 4,912 - Distribution 13, 061 � General � 774 Common 974 Total $ 38,27,9 , Deduct: , Contributions in Aid of Construction $ 413 Accumulated Deferred Income Taxes 9,385 Accumulated Deferred Investment Tax Credit 145 , Add Other Gapital Requirements: ' Cash Working ,Capital $ 0 Fuel on Hand � � Materials and Supplies � � Prepayments 0 Deferred Research and Development 505 Net Operating Investment $133,903 � � ' - 47 - IAPPENDIX II � � COSfi OF SERVICE INCLUDING 8.1 PERCENT RATE OF RETURN ON NET �OPERATING INVESTMENT -- 1973 , � Amount of Return Needed (In Thousands) 1. Net Operating Investment 133,903 � 2. Return 10,846 Federal and State Income Taxes Required . , 3. Return from Line 2 10,846 4. Deduct: Allowance for Funds During Construction (AFDC) , 5. Return: Line 2 less AFDC, Line 4 10,846 6. Add: Nuclear Fuel Expense 852 7. Provision for Book Depreciation � and Amortization 6, 074 8. Provision for Deferred Income Taxes 3,104 9. Deduct: Interest Cost 5,312 10. Other Capitalized Items � 1,258 , 11. Income Tax Depreciation 12,583 12. Investment Tax Credit (Flow Through) 152 13�. Preferred Dividend Credit 15 ' 14. Income Tax Base 1,556 15. Preliminary Tax at 1.185 �1� 1,844 16. Deduct: Investment Tax Credit 152 ' 17. Preferred Dividend Credit 15 18. Final Federal and State Income Taxes 1,677 Gross Earnings Payment Required � 19. Return from Line 5 10,846 20. Deduct: Other Operating Revenues 6,271 , 21. Add: Income Taxes from Line 18 1,677 22. Operating Expenses-Exc. Gross Earnings and Ineome �'axes. 41,940 , 23. Base for Gross Earnings Payment 48,192 24. Gross Earnings Payment at . 087 �2� 4,193 , Cost of Service 25. Operating Expenses excluding Income Taxes and Gross ' 26. Earnings Payments from Line 22 41,9:40 Z7. Gross Earnings Payment from Line 24 4,193 28. Income Taxes from Line 18 1,677 , 29. Return from Line 2 10,846 30. Total Cost of Service 58,656 31. Portion attributable to Retail (Line 30 less 6271) 52,385 � 32. Increase over 1973 test year retail revenues of 45, 070 7,315 33. Percent increase over 1973 test year , redenue of 45, 070 16.2$ - 48 - . � � ' APPENDIX III " 1973 INCOME STATEMENT AS ADJUSTED ' (In Thousands) ' Operating Revenues ' Residential 14,873 Commercial and Industrial 28,974 � Public State and Highway Lighting 492 Other Sales to Public Auth. 731 ' Other Operating Revenue 6,271 Total Operating Revenue 51,341 � Operating Expenses Production 19,452 � Transmission 5�2 Distribution 2,574 Customer Accounts . � 9'14 , Sales 76 Administration and General 2,927 Total O&M Expenses 26,575 ' Real Estate and Personal Property 5,763 Gross Earnings Tax 3,606 ' Payroll and Franchise Tax 424 Prov. for Def. Income� Tax 3,104 Federal and State Income Tax 0 Prov. for Depr. and Amort. 6,074 ' Total Operating Expenses 45,546 ' Operating Income 5,795 AFDC • . � , Net Operating Income 5,795 � � , � � � - 49 - � . . .. .. , � ..l .'j d: P . .. . ', " . ,. � . � � .� . II I .. . � � + � � � ' . � . _. (. . . � . �.. . . . . , . . ' .. � � �� , � � � � , � , . ��"�r �� , � i . , � ; i; � �� i' n , � � � " � � . ; r � 1 , j � , � � � ' ; ` � � , ; �'� � � � � � � � � � � � � �� Q�//� �, t�Q � � � �, s � ' � � ,1 I'r!"�I`V'7 ��.r. � � � � � ' � � _ � ; � � � � � � ; � � , ; �. I� � ' � � � �' ��, � � ( � I � ' , � I l {. ; • �'' � 1 I " ' � j � , , ��' I . . . . i I . .. . . 1 . . . . . . . . ., . . C} . �. � . 1�. . . . ' ! . . . . . .. . . . , 7 . , . . . . . . . . .. . .. . F . � I. . . . . . ... . ��.. . . .. 1 ' .. . � � .. . , �, � . . . . . .. . . .i. �A : � the �a.��ut ±M� �. $�»�4�s. ; +) ` `'' s.. _ . � ; �: �'��' +C!p��: ��t: i� �� , �� w �� ' � � t�b. C:�� W�+��:�1 i�► ��.�!r�. ;� � � � _ , �� .G�p��'s � +�'��R� � ��.1�� 4pl��ra�3c�ls� ;) � � � � � �d to A,p� +�rv+�' 1�a a�b�.� Ra�c �) ,� �� f'�'� �� f �� .`��'9Y �� ' ,) � 8sin� ;��i I , �; � - �� },: �: � , �` ' . � i ; � � { ; ' , '� i I t�: .� � � � i � � � � , �:' , ; ' .. .. .. .. .. � . ,.._..�' �' �� ;� _ �'� �,� . . _ ;� y � , ,�: � � � i� ,,,. � a��z�r�� , � , � � , � , � . s , ��z � � t �� {S� � �,�1� �I�q!N'St� a � �� ' •� � 9�`I f�lilil�4ri�ilrl�wi��r� ,I. ' .. . . �I - � . � . � . . ' , .. �' . � � . ':�� . 5.. , . � � ... . .. . � � � ( � . ' .. �I �� F . � . . t� � . . � . . � i. ' . . . . _ "i . . . .i � } . i �; �� 1, �,. . - � � ' ' i . � � . � , � � . - . . �c � . . � - . � � �_ �. . �� j � . , . . . � }`� { ;{� � � , . � � � . � ��, �� i � i ; ' � ; �. ,* � :�. . ; � , � ; , � j `. '° i � �� ' � : , � � i � 1' ;�; � � � �� i � � Se�fore s � �l �. ��,�+q�tia�t� � � : � � � � ,. � �,:_ � � �` � � � � � �- � � ��i � � ; � � ��►�' ��r� _ � ;. , , , , � ,�:'� �,' �� . i 1 e , �� ,� � � � � ,� . i � , � .�r� : � � � � � � , , � �, � � � � � I '�I ;� � � �` � � � ��! � � � �� !�� ; � � �� i i � i � �' . ; " � . �k , , { 'I � ' � r { f . II � �' I� � � ' � f . ; � � , � . . , . � ,'s -i, . ., . E ..� ,__. �� ... , .-� � 1 �II.�D � �� 3� �� Y �r.�E��k�� FF�E ' �1�'�f��C[.r t��ia+V. ' APPEARANCES: Thomas J. Stearns, Public Utility Rate ' Expert, Assistant City Attorney, Office of the City Atto.rney, Saint Paul, ' Minnesota, appeared representing the ' City of Saint Paul. ' William M. Mahlum and John E. Brauch, 904 Commerce Building, Saint Paul, ' Minnesota, appeared representing the ' Greater St. Paul Fair Rates Committee. ' Leonard J. Keyes and Samu�l L. Hanson, of the firm of Briggs & Morgan, Attorneys ' at Law, 220 First National Bank Building, ' Saint Paul, Minnesota, appeared represent- ing Northern States Power Company. ' ' ' 1 � ' . ' TABLE OF CONTENTS ' PART ONE ' Page Report of Hearing Examiner. . . . . . . . . . . . . 1 ' Findings of Fact and Recommendations. . . . . . . . 2 Background. . . . . . . . . . . . . . . . . . . . . 8 ' Opinion . . . . . . . . . . . . . . . . . . . . . . 10 ' PART TWO SUMMARY OF TESTIMONY ' I. ' Northern States Power Company' s Case in Chief Northern States Power Com��ny' s Opening Statement . 1 ' Statement of Mr. Connelly . . . . . . . . . . . . . 12 Statement of Mr. Glass. . . . . . . . . . . . . . . 16 ' Statement of Mr. Cox . . . . . . . . . . . . . . . 28 ' Statement of Mr. Vixo . . . . . . . . . . . . . . . 60 Statement of Mr. Gillett. . . . . . . . . . . . . . 80 ' Statement of Dr. Herz . . . . . . . . . . . . . . . 94 Statement of Mr. Rosenwald. . . . . . . . . . . . . 139 ' II. ' City' s Case in Chief , Statement of Dr. Robertson . . . . . . . . . . . . 159 Statement of Mr. Rising . . . . . . . . . . . . . . 174 ' Statement of Mr. Alexander. . . . . . . . . . . . . 199 Statement of Mr. Sherr. . . . . . . . . . . . . . . 225 1 ' i � . Page ' III. ' Cross-Examination of Northern States Power Company' s Witnesses ' Cross-Examination of Mr. Connelly by Mr. Stearns . . 234 Cross-Examination of Mr. Connelly by Mr. Mahlum. . . 239 , Redirect Examination of Mr. Connelly by Mr. Hanson . 242 Recross-Examination of Mr. Connelly by Mr. Stearns . 243 ' Cross-Examination of Mr. Glass by Mr. Stearns. . . . 244 Cross-Examination of Dr. Herz by Mr. Stearns . . . . 251 � ' Cross-Examination of Dr. Herz by Mr. Brauch . . . . 263 , Redirect Examination of Dr. Herz by Mr. Hanson . . . 265 Recross-Examination of Dr. Herz by Mr. Stearns . . . 266 ' Cross-Examination of Mr. Gillett by Mr. Stearns. . . 267 ' Cross-Examination of Mr. Cox by Mr. Stearns. . . . . 276 Cross-Examination of Mr. Cox by Mr. Brauch . . . . . 284 ' Redirect Examination of Mr. Cox by Mr. Hanson. . . . 286 Recross-Examination of Mr. Cox by Mr. Stearns. . . . 28F '� Cross-Examination of Mr. Glass by Mr. Stearns. . . . 289 Cross-Examination of Mr. Glass by Mr. Brauch . . . . 294 ' Redirect Examination of Mr. Glass by Mr. Hanson. . . 296 ' � Recross-Examination of Mr. Glass by Mr. Stearns. . . 298 Cross-Examination of Mr. Rosenwald by Mr. Stearns. . 299 , Redirect Examination of Mr. Rosenwald by Mr. Hanson. 309 Recross-Examination of Mr. Rosenwald by Mr. Stearns. 311 ' Cross-Examination of Mr. Vixo by Mr. Stearns . . . . 312 ' Cross-Examination of Mr. Vixo by Mr. Mahlum . . . . 323 Redirect-Examination of Mr. Vixo by Mr. Hanson . . . 328 ' , _ ,; ' Page ' R ross-Examination of Mr. Vixo by Mr. Stearns . . . . 330 ec ' IV. ' Cross-Examination of City' s Witnesses Cross-Examination of Dr. Robertson by Mr. Hanson . . . 331 ' Redirect Examination of Dr. Robertson by Mr. Stearns . 337 ' Cross-Examination of Mr. Rising by Mr. Hanson. . . . . 338 Redirect-Examination of Mr. Rising by Mr. 5tearns. . . 350 . ' Recross-Examination of Mr. Rising by Mr. Hanson. . . . 353 Cross-Examination of Mr. Rising by Mr. Mahlum. . . . . 355 � Cross-Examination of Mr. Alexander by Mr. Hanson . . . 356 , Redirect-Examination of Mr. Alexander by Mr. Stearns . 373 Recross-Examination of Mr. Alexander by Mr. Hanson . . . 375 ' Redirect Examination of Mr. Alexander by Mr. 5tearns . 377 Recross-Examination of Mr. Alexander by Mr. Hanson . . 378 ' Cross-Examination of Mr. Sherr by Mr. Hanson . . . . . 379 � Redirect Examination of Mr. Sherr by Mr. Stearns . . . 382 � V. Northern States Power Company' s Rebuttal Testimony ' 1 . . Direct Examination of Dr. Herz by Mr. Hanson . . . 383 , Direct Examination of Mr. Cox by Mr. Hanson. . . . . . 389 Direct Examination o� Mr. Dienhart by Mr. Hanson . . . 390 , Cross-Examination of Dr. Herz by Mr. Stearns . . . . . 397 Direct Examination of Mr. Dienhart by Mr. Hanson . . . 401 ' Direct Examination of Mr. Vixo by Mr. Hanson . . . . . 407 � Direct Examination of Mr. Glass by Mr. Hanson. . . . . 423 � ' , Page Direct Examination of Mr. Larson by Mr. Hanson . . . . 429 ' Cross-Examination of Mr. Glass by Mr. Stearns . . . . 431 � Redirect Examination of Mr. Larson by Mr. Stearns. . . 435 Cross-Examination of Mr. Dienhart by Mr. Stearns . . . 437 ' Recross-Examination of Mr. Vixo by Mr. Stearns . . . . 443 � , 1 � � ' � �- � , � , � . � ` � ' ' ' REPORT OF HEARING EXAMINER The undersigned, Leonard E. Lindquist, having , been appointed by the Mayor and Council of the City of St. Paul to conduct hearings with respect to a ' Petition for an increase in electricity rates by ' Northern States Power Company in the City of 5t. Paul reports as follows: , That Northern States Power Company is entitled to an increase in revenues of $7 ,315, 000 above ' the 1973 test year revenues from its electricity � operations in the City of St. Paul. This recom- mended increase is based upon the determination ' of the Hearing Examiner that the appropriate overall rate of return on an original cost rate � base is 8. 1�. Additional revenues of $7,315 ,000 ' would amount to a 16. 2� increase in revenues on the basis of the 1973 test year figures. This ' . figure compares with the 28� increase applied for by Northern States Power Company. , This report is based upon the Findings of Fact � and Conclusions of Law hereto attached. A summary of the evidence reviewed in preparing the Findings of Fact ' and Conclusions of Law is enclosed with this report. � -� -, .r--e,-.__-.�°�� 1�' � 2-��s� , Leonard E. Lin ist ' May 10, 1974. � ' ' 8. Property held for future use should be included , in the rate base in this situation. ' 9. It is appropriate to increase test year revenues by $131, 000 to reflect revenues received by NSP from ' wholesale sales to other utilities. 10. No deduction should be allowed from test year operating , expenses in connection with the $37, 000 fuel "penalty" associated with the Monticello Plant. ' 11. It is appropriate to recognize the number of customers ' existing at year-end 1973 to match the use of a year- end rate base. This adjustment increases test year , revenues by approximately $125,000. 12. With respect to donations, it is appropriate to deduct ' a $14, 000 amount which was duplicated in N5P' s operating ' statement, and the $18, 000 amount relating to N5P' s final 1973 payment to the St. Paul United Fund ' Building Fund. 13. Wage increases scheduled to become effective during ' 1974 for non-union salaried employees should be recognized , as are wage increases for other employees, but only to the extent that such wage increases will actually , be paid during 1974. 14. Tax savings resulting from deductions of interest relating � to construction work in progress should be recognized , in determining test year net operating income. , , - 3 - ' ' 15. Proposed City adjustment No. 9, which normalizes ' fuel costs at the December 1973 level corresponding to the amount on which the fuel clause rider is ' based, should be adopted. 16. Proposed City adjustment No. 10, which adjusts ' expenses and revenues as if the December 31, 1973 ' incremental prices for fuel and purchase power had prevailed throughout 1973 should not be adopted. , 17. The net operating investment of the utility used and useful in conducting its electricity operations , in St. Paul as of December 31, 1973, as calculated , on the basis of the acquisition cost depreciated method was $133, 903,000. ' 18. The net operating income for the test year 1973 earned by the utility in 5t. Paul from its electricity opera- , tions was $5,795, 000. ' 19. The capital structure of the utility as of December 31, 1973 was as follows: ' Debt - 52.82� Preferred Stock - 14. 900 , Common Equity - 32.28$ 20. The overall rate of return to the utility in its St. , Paul electricity operations during the 1973 test year , was 4. 33�. 21. An overall rate of return of 8.1� is fair and reasonable , in this situation. 22. On the basis of the December 31, 1973 capital structure, , an overall rate of return of 8. 1� would result in a r - 4 - � ' rate of return on book common equity of approximately ' 12. 6�. 23. An increase in revenues of $7,315, 000 above the 1973 , test year revenues is necessary to raise the rate of , return of the company on its St. Paul electricity operations to 8.1� on the net operating investment ' of $133, 903, 000. 24. Additional revenues of $7 ,315, 000 would amount to a ' 16. 2$ increase in revenues on the basis of the 1972 , test year figures. This figure compares with the 28� increase applied for by Northern States Power Company. , , , ' ' , ' , ' ' ' - 5 - � CONCLUSIONS OF LAW � 1. The net operating investment of the utility used 1 and useful on conducting its electricity operations in St. Paul as of December 31, 1973, as calculated � on the basis of the acquisition cost depreciated method was $133, 903, 000. � 2. The net operating income for the test year 1973 earned ' by the utility in St. Paul from its electricity opera- tions was $5,795, 000. � 3. An increase in revenues of $7, 315, 000 above the 1973 test year revenues is necessary to raise the rate of return 1 of the company on its St. Paul electricity operations , to 8. 1� on the net operating investment of $133 , 903, 000. 4. Additional revenues of $7,315, 000 would amount to a . � 16• 2� increase in revenues on the basis of the 1972 I test year figures. This figure compares with the � 28� increase applied for by Northern States Power Company. 5. An overall rate of return of 8. 1$ is fair and reasonable in this situation. 6. The changes in rate design proposed by N5P are reasonable and appropriate and should therefore be approved. On the basis of the foregoing Findings of Fact and Conclusions of Law, the undersigned Hearing Examiner recommends that the -6- � - 7 - I ' . � ' OPIi1I0�1 ' In reaching the Findings of Fact and Recommendations set forth above, it has been necessary to resolve a variety of , issues which were subjects of controversy among the parties. While each such issue is discussed separately below, it is 1 important to recognize that the resolution of eacii issue bears ' directly upon the overall recommendations with respect to the approPriate level of rates. Thus, each issue must be viewed in ' the context of the overall result. Basically, the effort to arrive at fair and reasonable , electricity rates to be charged by ilort;iern States Power Company ' (NSP) in the City of St. Paul (City) involves determinations in three major areas: , l. The determination of a "rate base" during an appropriate test period. The rate base is comprissd ' of the amount of investment by the utility devoted to ' the production and distribution of electricity to consurners within the City. � 2. The determination of ne t operating revenaes for , the test period within the City. , 3 . The deter�nination of a:� appropriate rate of return to be applied to th� rate :�ase. ' ' ' - 10 - ' . ' By multiplying the rate base by the rate of return reco*nmended ' by the �iearing Examiner, one arrives at the amount of net revenue which would be produce3 if that rate of return had been in ' effect during the test perio3, If this amount e�tceeds the amoant ' of actual revenue earned during tiie test period, as it did in the present instance, the differenc� between tiie reco�runended revenue ' and the actual revenue is referred to as a "revenue deficiency" . Under such conditions, the rates charged by the utility must then � be adjusted upward to a level sufficient to eliminate the revenue ' deficiency under test period conditions. Pursuant to this general approach, the issues set forth ' below have been resolved as follows: ' I. Determination of an Appropriate Test Year. , Northern States Power Company takes the position that the appropriate test year for this hearing is 1974 . The utility � argues that revenues and expenses should be determined on the basis of projected 1974 figures and that the rate base should be ' determined on the basis of the average investment projected to 1 be in effect during 1974. The use of a 1974 test year would, in NSP 's view, prociuce a more appropriate result since the test � period would be the actual period during which the proposed rat�s will be in effect. ' NSP acknowledges that in the past, the use of tn� most � recent twelve month period as a test year caas normally accepted. Such a historical test year would then be adjusted to exclude or ' � - 11 - ' ' normalize any abnormal conditions occurring within that year and , to include any kno�vn changes in conditions whicii were anticipated for the following year. The use of an adjusted prior test year for ' determining future rates was acceptable to the utility as long as ' the growth in revenues during the next year rose at approximately the same rate as the increasing cost of providing a3ditional service. ' NSP contends, however, that under current inflationary conditions, revenues are no longer keeping pace with increasing ' costs. It is asserted that the use of a projected test year is � necessary in view of rising interest rates, rising costs of labor and material, and increasing capital requirements in such areas ' as pollution control equipment. These factors, in addition to regulatory lag, the time which elapses between the occurrence of ' conditions justifying a rate increase and the granting of such an ' increase by tiie regulatory authority, are now ca�ssing "attrition" , which refers to an erosion of earnings below the level approved by , the regulatory body. The City takes the posi�ion that the appropriate test , year is 1973 , with two adjustments: ' (1) The rate base should be measured by plant in service at year end rather than on an average year � basis; and " (2) Adjustments should be made in the test year for , known and determinable changes. 1 The City contends that these tvao adjustments adequately meet the problem of attrition, since the adjustments tend to increase the ' rate base and expenses while having little effect on revenues. ' - 12 - ' ' The primary objection of the City to a future test year is that such a test period must necessarily be based upon ' projected figures with respect to the rate base as well as revenues and expenses. It is argued that in order to avoid speculation, ' the test period should be based upon the most recent twelve-month ' period for which cornplete actual figures are available. These figures are then adjusted to remove conditions which prevailed in ' the past but �vhich are not eYpected to recur and to include any ' known changes which are anticipated within the reasonable period following the test year. , It is the determination of the Hearing Examiner that an adjusted 1973 test year as set forth by the City is the appro- ` priate test period in this proceeding. The use of a future test year would, in the opinion of the Examiner, add substantial elements � of uncertainty and speculation td the complex matter of prescribing , reasonable and fair rates. In this instance, 1973 represents the most recent twelve-month period for which actual figures regarding , revenues, expenses and the rate base are available. The following 1 authorities are consistent with the use of a past test year: Re North Carolina IJatural Gas Corporation (1973) 99 PUR3d 237 , 247. Re ' Baltimore Gas and Electric Company (1971) 89 PUR3d 340, 345. In view of the need to recognize the effects of attrition � and inf_lation, however, it is the conclusion of the Examiner that � the rate base should be determined on the basis of year-end 1973 figures rather than average year tigures. As mentioned above, the � , ' - 13 - ' . ' City concedes that the use of a year-end rate base is appropriate. ' As stated by the :•lichigan Public Service Commission in Re Indiana , and P�ichigan Electric Company, (1973) 98 PUR3d 475, the use of a year-end rate base with appropriate adjustments to bring net ' operating income to year-end levels is appropriate in periods of accelerating expenses for construction. The use of a year-end ` rate base enables the regulatory authority to make use of more , current data to reflect the current investment of the utility. The use of the most recent available historical test � year is consistent with the decisions of the Hearing Examiner in the 1971 NSP electric rate hearing and the 1972 NSP gas rate � hearing in St. Paul. , II. Determination of an A ro riate Rate Base — — PP P , The City argues that the rate base should be determined on the basis of the original cost less depreciation method. The , original cost method was used in the 1971 and 1972 electricity ' and gas rate hearings in St. Paul and, accorcling to the witnesses for the City, involves a minimur.l of imponderables. The City points � out that no speculation is involved in determining the rate base under the original cost less depreciation raethod since the figures , can be taken directly from the books and records of the company. , Dr. Robertson, an expert witness for the City, testified that the use of an original cost rate base requires rate making author- , ities to state the true rate of return which is being allowed. ' ' - 14 - ' • ' Iie testified that the use of inetliods which inflate the rate , base result in an overall stated rate of return which is less , than the actual rat� of return. NSP takes the position that the "fair value" method , should be used to determine the rate base. NSP witnesses testified that in the present situation the fair value rate base should ' be determined by giving two-thirds cveight to original cost figures ' and one-third weight to "trended original cost" figures. The trended original cost portion of the formula is determined through � the use of the Handy-Whitman Index whicli measurescost trends in connection with the type of plant and equipment utilized by INSP in the production and distribution of electricity. Dr. Herz, ' testifying for ZdSP, stated tnat such a method is necessary to give the comr;►on stockholder an opportunity to earn a return in , current dollars on a rate base which is also measured in terms of current dollars. , It is the conclusion of the Hearing Examiner that , the original cost less accumulated depreciation method of deter- mining the rate base should be adopted in this proceeding. 1 Although the original cost method may understate the rate base to some degree as a result of inflationary pressures, it is the , conclusion of the �xaminer that this factor should be considered ' in setting"the overall rate of return rather than by adopting an estimated fair value rate base. It does not appear, for eYample, , that any definite standards exist for determining the "mix" of � , - 15 - � , the original cost and reproduction cost factors which are combined ' to produce the fair value base. Although the utility indicated , that the 2/3-1/3 mix in this case was based upon the ratio of debt to common equity which is also approximately 2/3-1/3, the capital � structure does not appear to be sufficiently related to the manner of determining the rate base to provide any definite standard. In , the 1971 electricity hearing, for example, the utility took the 1 position that a fair value rate base should be based upon a 50-50 mix of original cost and reproduction cost. Further , it is the � opinion of the Examiner that the use of the original cost method reduces the amount of speculation involved in determining the rate , base. For these reasons, it is concluded that the original cost ' method should be used to determine the rate base in this situation as it has been in previous St. Paul hearings. Among the authorities ' supporting the use of an original cost rate base are the following: Re Northwestern Bell Telephone Company (1972) 97 PUR3d 444, 447 . Re ` General Telephone Company of the Northwest, Inc. (1973) 99 PUR3d � 147, 149. III. Proposed Adjustments to the Rate Base , Mr. Norman G. Rising, consultant to the City, recom- ' mended that six adjustments be made to the rate base, five of . which would decrease the amount of the rate base. The net ' effect of the adjustments recommended by Mr. Rising would be to reduce the rate base by approximately $75 million. This � , ' - 16 - , ' would reduce the original cost rate base from approximately � $178 million to appro:�ii:�ately $103 million at year-end 1973 . The six proposed adjiistments are discussed separately below. ' A. Proposed Elimination of Prairie Island Unit i1o. 1 � The proposal by the City to eliminate Prairie Island , Unit No. 1 from the year-end 1973 rate base constitutes one of the major areas of dispute in the case. The elimination of ' Prairie Island Unit No. 1 from the rate base would remove $31,848 , 000 from the St. Paul year-end 1973 rate base. , As in the case with respect to all aspects of the rate � base, revenues and income and adjustments thereto, the portion attributable to St. Paul is derived through the application of 1 allocation factors based upon the proportion of T1SP ' s total system which is represented by the City of St. Paul. These allocation , factors were agreed upon by the utility and the City. � �'he City contends that since the Prairie Island Plant was not in service during most of 1973, it should not be included , in the year-end 1973 test year rate base. It maintains that if the Prairie Island Plant had been in service for all � of 1973, NSP would have earned additional revenues allocahle to 1 St. Paul, since the addition of the plant would have made more . power available for sale to other utilities and would have reduced , NSP ' s demand ior purchased Power. The City concludes that the addition of the Prairie Island Plant to the rate base for the � 1973 test year would distort the test year since it is not I " , - 17 - � � possible to determine what the revenues and expenses relating to � the plant would have been during the year if the nlant had actually been in service. Witnesses for the City testified that in vie�� of 1 the speculative nature of any attempt to estimate test year , revenues and expenses attributable to the Prairie Island Plant, the plant should simply be eliminated from the rate base. They ' argue that once the plant reaches a reasonable level of operation, 1 it will generate sufficient revenue to provide an adeguate rate of return on the funds invested in the plant. � NSP maintains that Prairie Island Unit No. 1 was properly classified as plant in service at t�e end of 1973, and that it was , used and useful in providing electric energy to NSP' s St. Paul I customers since December 4 , 1973, and must therefore b� included in the rate base. �TSP 's vice president of engineering, Air. A. V. � Dienhart, testified that in his opinion, the plant was "operational and ready for service" and was "used and useful in providing utility � service" on and af ter December 4 , 1973. , Much of the dispute concerning the Prairie Island Plant arises from the fact that serious mechanical difficulties have joccurred at the plant resulting in extended periods of shutdown since the attempt �aas made to put the plant in service in Decemher, i1973 . Testimony presented by the City indicate3 that I1SP does �: ' not expect the plant to reach 75% of capacity until June, 1974 and full capacity is not expected until October, 1974 . � , , - 18 - ' � ' On the other hand, the plant has been classified as ' operational and ready for service from an accounting standpoint since December, 1973. �dhile a rate-making authority ne�d not , necessarily adopt the tirte period specified by the utility as the ' time at �ahich a plant "goes on the line" , it is true that significant accounting consequences flow from the designation of ' a plant as operational and ready for service. Additional expenses incurred in connection with the plant, for example, are no longer , capitalized, but are considered operating expenses from an accounting � standpoint. It is the conclusion of the Hearing Examiner that tiie ' Prairie Island Unit No. 1 Plant should properly be included in the test year rate base. The evidence demonstrated that some degree of , mechanical difficulty is normally experienced in connection with the � commencement of operations of a complex nuclear generating plant. These operational problems would normally be expected to cause , some reduction in the output of the plant and in many cases periods of shutdown would be encountered. Although the prohlems relating � to the Prairie Island Plant appear to be substantially more serious � than would normally be expected, it is the opinion of the Examiner that it would be unreasonable to remove the entire plant from the rate � base for the entire period during which the rates set in this � proceeding would be in effect. The evidence indicates that an , "immature" period is to be expected in the early years of the life � of a nuclear generating plant. During 'this period, the incidence of inechanical failure is higher than would normally be expected in ' � - 19 - ' • , later years. Of course, it would not be proper to exclude such a ' plant from the rate base during this "immature" period. Such a practice would add considerable difficulty to the task of financing ' large new electrical generating plants and would create the need for � unnecessarily large rate increases in future years. B. Proposed Elir,lination of Construction Work in Progress. , Another major item of dispute with respect to the rat� base involves the question of whether construction work in progress, ' in the amount of $37, 653, 000, should be included in the 1973 test ' year rate base. The issues relating to the question of whether construction work in progress should be included in the rate base 1 are somewhat similar to the issues discussed above with respect to Prairie Island Unit No. 1 . An important difference, however, is � the fact that the items referred to in the construction work in ' progress category can in no way be considered operational or ready for service either at the present time or at any time during the � test year. ' Standard accounting procedures used in the industry provide a methocl for recognizing the fact that the utility has � substantial amounts of capital invested in plant under construction for which it receives no direct return. During the period of , construction, the company is allowed to capitalize a certain amoant ' to cover the approximate interest costs on money advanced for construction work in progress. This amount is referred to as ' "allowance for funds used during construction" (AFDC) . At the ' - 20 - � ' , present time, N5P capitalizes its allo�aance for funds used during , construction at the rate of eight percent. The net effect of this , accounting procedure is to inerease the basis of the project in question. Once the project is completed and becomes part of the ' rate base, the utility is allowed a rate of return on the total capital costs incurred in connection with the project, including , the allowance for funds used during construction. , It is the conclusion of the iiearing Examiner that con- struction work in progress should be excluded from the rate base , in this situation. It is recognized that sor.le regulatory authorities have recently begun to give increased recognition to construction ' work in progress in view of the fact that utilities can be expected ' to face large and growing construction work in progress balances for the forseeable future in attempts to meet e..panding de:nands for , energy. In addition, NSP has pointed out that the new ?�'Iinnesota statute providing for state regulation of utilities requires the � Commission to "give due consideration to evidence of . . . construc- , tion work in progress" . P�Iinnesota Statutes, Chapter No. 429, section 16 subd. 6. That Act has no application to this proceeding, � however, and there is therefore no necessity to consider its potential influence upon the issue. , The conclusion of the Examiner with respect to construction ' work in progress i� based in significant part upon the fact that the accounting procedure relating to allowance for funds used ' during construction provides a mechanism for giving appropriate ' � - 21 - i � , recognition to the problem of having large sums of capital invested in construction projects vahich do not yet provide any revenue ' to the utility. In addition, it appears that the traditional approach , of regulatory bodies has been to include in the rate base only those items which are "on the line" and are used and useful in pro- , viding utility services to customers. In the 1971 electricity rate hearing in St. Paul, for example, iISP took the position that con- , struction work in progress was not a component of the rate base. ' Additional authoritie� consistent �aith the exclusion of construction work in progress from the rate base include: Re Northwestern Bell ' Telephone Company (1972) 93 PUR3d 106, 109. Re Hartford Electric Light Company (1970) 85 PUR3d 416, 422. ' , C. Annualization of Depreciation on Year-End Plant. Witnesses for both the City and NSP agree that it is / appropriate to annuali�e depreciation on the basis of year-end plant investment. if a year-end base is to be used. Because plant , additions made throughout 1973 require a sho�aing of increased � depreciation expense at year-end, it is necessary to increase the accumulated depreciation in a like amount in order to properly � match the income statement and rate base. This approach has therefore been followed �ay the Hearing Examiner in determining the rate �ase. � � D. Inclusion of Unamortized Investment Tax Credit (30) The City proposes that the rate base be reduced by $145, 000 � to reflect the unamortized 3o investment tax credit in the rate base ' � - 22 - � . , o elements. The City contends that the 3� investment tax credit repre- ' sents tax savings similar to ta�: savings on accelerated depreciation and should be recognized in the rate base cornputation. , NSP main�ains that to deduct this artount from the rate base would in effect negate the intent of Congress with respect to the , investment tax credit, citing the case of Re Narragansett Electric , Company, (1973 R.I. P,U.C1 Pli.P.. 4th 60, 67, ) in support of its position. ' It is the conclusion of the Iiearing Examiner that ' the adjustment to reflect the una�nortized three percent invest- ment tax credit in the rate base should be made as proposed by ' the City. This approach reflects the tax benefit as it was actually received by the utility. In the opinion of the Examiner, � the evidence does not support the contention that Congress intended , to prevent recognition of this tax benefit for rate-making purposes. The following authorities are consistent with this position: Re � Iowa Public Service Company, (1972) 96 PUR3d 124; Re United Cities Gas Company, (1973) 99 PUR3d 51. ' E. Adjustment Relating to T•7orking Capital. , The City has proposed a net reduction in the amount , allowable in the rate base for cash working capital of $5, 601, 000. This proposed reduction is based on the City' s contention that the ' allowance in the rate base for working capital should be offset by funds available to NSP as a result of the time lag between the ' ' ! - 23 - ' . ' collection of funds from customers for the a ent of taxes and P Ym ' the actual payment of such taxes. NSF inaintains that cash working capital should be , allowed in the rate base in an amount determined by the FFC ' approved 45-day formula for determining cash working capital. Under this formula, which was adopted in the two �revious St. Paul ' rate hearings, an amount equivalent to 45 days of operating expenses is allowed as cash working capital. NSP argues that ' this formula takes into account such factors as the amount of funds available on an average basis as a result of the time lag ' between collection and a ment of taxes. P Y ' Although the City agrees that it is appropriate to calculate cash working capital on the basis of the 45-day formula, � and further, that it is appropriate to allow working capital , requirements for investment in materials and supplies on han3, fuel on hand and pre-payments, it argues that it is nevertheless ' necessary to offset working capital by the amount of average accrued tax liabilities which have been provided by the rate payers . ' It is the conclusion of the Hearing Examiner that the , average accrued tax liabilities should be deducted to offset working capital as proposed by the City. Although there is some question ' as to whether such funds are in fact available for investment in day-to-day operations of the business, the collection of such amounts � from rate payers in advance of the payment of taxes to governmental ' bodies creates a permanent fund, on an average basis, which has , - 24 - � ' ' been provided by rate payers. Recognition of this amount to ' offset working capital for rate making purposes prevents the utility from obtaining a rate of return on an amount contributed not by ' investors but by rate payers themselves . The following authorities ' are consistent with this position: Re Southwestern Bell Telephone Compan�� (1973) 98 PUR3d 30; Re Interstate Power Company, (1972) 97 PUR3d 6. ' F. Property Held For Future Use � In its proposed rate base figures, the City deducted ' $333, 000 representing property held for future use allocable to St. Paul. While this matter was not specifically addressed ' in the testimony of the City, NSP argues that the exclusion o� such property is improper. NSP states in its brief that the ' property in qt�stion has been included in the rate base under � FPC Order No. 420 which states as follows: "In general, it will be our policy to allow the ' - rate making treatment of land held for future use to track the accounting treatment prescribed therefore insofar as such treatment is reasonable and is consistent with the evidence developed in ' each individual case. " It is the conclusion of the Hearing Examiner that no � u�u�ction should be made from the rate base with respect to ' property held for future use. No evidence was presented to , indicate that NSP' s decision to acquire the property in question , was unreasonable. As pointed out by NSP in its brief, the ►_Zinnesota Supreme Court held in Re Application of Northwestern Bell Telebhone ' Co. , r7inn. , N.tV.2d , (#44155 and #�44192, filed , March 22, 111974) , that the classification of such property con- stitutes a jiidgment decision which management must make" and that � - 25 - � , unless the evidence establishes that the managerial decision ' "has outstripped all likelihood of reasonably imminent use . . . " � , such decision will not be interfered with by regulatory bodies or courts. � Summary of Rate Base Items ' As a result of the determinations discussed above the . , Hearing Examiner .finds that the net operating investment of the utility allocable to the City of St. Paul for the year- , end 1973 test year, was $133,903,000. The specific items which � comprise this total are shown at the end of this Opinion in Appendix One. ' ' ' . ' ' ' � ' ' , � - 26 - ' ' IV. Adjustments Proposed � the City to Statement of Operating � Income. The City, through P�ir. Klaren Alexander, CPA, proposed ' 19 adjustments to the statement of operating income as submitted by Northern States Power Company. A number of these adjustments were ' considerec� proper by the utility and have therefore been adopted by the Hearing Examiner and incorporated in the calculations ' underlying the Findings of Fact. These uncontested ad 'ustments 7 ' included the following: (a) A decrease in operating expenses re- lating to unusual expenses incurred in connection with the annual ' shareholders ' meeting held during 1973; (b) an increase in expenses ' relating to rate case costs, amortized over a two-year period; (c) an adjustment in depreciation expenses based upon year-end ' plant in service; (d) an adjustment of property taxes on the basis of year-end plant in service; and (e) an adjustment relating to ' an increase in postage rates. The net effect of these uncontested ' � adjustments is to decrease net operating income for the test year by $403, 000. ' In addition to the undisputed items mentioned in the above paragraph, certain adjustments must be made to the statement of ' operating income as a result of determinations made with respect ' to rate base items. For example, since construction work in progress was not included in the rate base, the allowance for funds used , during construction has not been included in net operating income. �aitnesses for both the City and NSP agreed that the treatment of ' allowance for funds used during construction must be tied to the 1 � - 27 - � � treatment of construction work in progress in this manner. ' In addition, the inclusion of the Prairie Island Plant in the rate base requires the recognition of certain revenues and ' expense items in the statement of operating income. The net effect of such adjustments is to decrease revenue, as a result of less use � of expensive fossil fuels which would activate the fuel clause , rider, and increase expenses relating to depreciation, taxes and other items . While the City does not dispute that such adjustments ' are appropriate if the Prairie Island plant is included in the rate base, it argues that the plant should be excluded from the rate base � since these expenses are not matched by increased revenue throughout ' the test year. In the opinion of the Examiner, however, no evidence was presented to establish that the addition of a new generating ' plant would cause any direct increase in revenues . Revenues are, of course, determined by sales of electricity. The evidence did not � establish that such sales would in any way be affected by the ' � commencement of operations of a new generating plant. The items below describe the resolution by the Examiner ' of the disputed items concerning operating income. � , A. Sales to Other Utilities . . The City proposes that test year revenues be increased , by $131, 000 to reflect revenues received by NSP from wholesale sales 1 to other utilities. The City maintains that NSP ' s treatment of such revenues deprives the City of the benefit of the revenue �ahile , failing to give proper credit to the City for demand-related � ' - 28 - ' � expenses and for providing a return on the appropriate share of ' plant in service. , NSP argues that because these sal�s are subject to the jurisdiction of the Federal Power Commission as to the rate and the � return allowable on them and because such sales are short-term and are part of the energy exchange accomplished through the povaer pool , for the joint benefit of all membe'rs, neither the revenues nor the � expenses relating to such sales should be recognized in the St. Paul rate hearing. In addition, NSP maintains that if such revenues are � to be recognized, additional costs of accounting, sales, adminis- tration and general expenses would properly be assignable to them , and would offset the showing of net revenues. 1 It is the determination of the Hearing Examiner that revenues from whoZesale sales should be recognized as proposed 1 by the City. As argued by the consultants for the City, the removal of wholesale sales revenues without a corresponding ' reduction of demand-related expenses and plant in service fails � to give proper credit to the City for such expenses and for , providing a return on the portion of plant in service which should � be allocated to wholesale sales. Although it may be appropriate, as TJSP maintains, to assign additional costs of accounting, sales, � administration and general expenses to such revenues, no evidence was 1 introduced by the utility to enable the Examiner to determine the amount of such expenses. No evidence was introduced to indicate � that such expenses would constitute a significant portion of the revenues involved. � t - 29 - , � B. Proposed Adjustments Relating to T�lonticello Fuel , Costs. — The City proposes that $37, 000 of operating �xpenses should , be deducted in connection with fuel costs at the Monticello Plant incurred during the 1973 test year. These costs arose in connection � with the contract under which IJSP "rents" fuel from General Electric 1 for use at the P�onticello Plant. The City characterizes such costs as a penalty which NSP must pay to General Electric when the P�tonti- � cello Plant operates at less than 88� of capacity. The City main- tains that payment of such costs is an extraordinary expense since � it resulted from abnormal shutdown periods at the plant. Since these � abnormal outages would not be expected to recur, the City urges that such costs should be removed from the test year operating expenses. � NSP argues that the operation of the plant during 1973 was not abnormal and that the normal capacity factor for a nuclear � generating plant in its early years of operating would be about 700, � improving to a capacity factor of about 80o after three or four years. In addition, NSP argues that the payment made was not a penalty but � merely the normal functioning of the fuel purchase contract, and is more in the nature of an interest payment. � It is the conclusion of the Hearing Examiner that the � P�ionticello fuel cost adjustment should not be made. The evidence � established that the performance of the Monticello Plant during 1973 was not abnor;nal for a nuclear generating plant in its early years of � operation. In addition, NSP's contract ��ith General Electric would � � - 30 - ' . � appear to be more favorable to NSP than alternative types of contracts � which might have been enter�d into to avoid charges such as those incurred in this situation. While it may turn out that as the plant , continues to mature over the next few years, such charges will be � reduced or eliminated, it is the opinion of the Hearing Examiner that such charges cannot be considered abnormal for the situation in 1973 � and that the adjustments proposed by the City would therefore be inappro- priate. � C. Adjustments for Year-End Customers. � The City proposes that an adjustment must be made to � recognize the number of customers at year-end 1973 to nlatch the use of a year-end rate base. NSP opposes this adjustment on � the basis that such an adjustment would defeat the purpose of a year-end rate base which is intended to give consideration to jattrition by not attempting to reflect growth. The utility � further argues that if the adjustment were appropriate, it was incorrectly determined in the City's presentation. � It is the opinion of the Hearing Examiner that this adjustment is appropriate in this situation, tiVhile each issue � rlust be considered separately, it is generally appropriate to � match the use of a year-end rate base by recognizing various aspects of e x pe nses and revenues on a year-end basis as well. Authorities � consistent with this position include: Re Duke Power Company (1971) 88 PUR3d 230; Re The Detroit �dison Company (1970) 83 PUR3d 463. � It is the opinion of the Examiner, ho�aever, that the � ' - 31 - WHITE - CITV CLERK � PINK - FINANCE GITY OF SAINT PAITL Council 263516 CANARY - DEPARTMENT BLUE - MAYOR File NO. o cil Resolution Presented By , \ Referred To Committee: Date Out of Committee By Date RESOLVED, That the Council of the City of Saint Paul, in the Matter of the Petition of Northern States Power Company (Minnesota) Electric Utility, City of Saint Paul, for an increase in its electric rates, filed October 12, 1973, hereby accepts for consideration by this Council as its determination in said matter, the Findings of Fact and Conclusions , of Law promulgated by the Hearing Examiner, Leonard E. Lindquist, a copy of which Findings and Conclusions is attached hereto as Exhibit "A", and incorporated herein; and be it FURTHER RESOLVED, That pursuant to said Findings of Fact and Conclusions of Law, the Franchise Ordinance No. 15475, approved November 1, 1973, be amended to prescribe that, subject to the public hearing to be afforded all interested parties and to the final adoption and approval of the amending ordinance, Northern States Power Company be entitled to an increase in revenues of 16.2/ above the 1973 test year revenues from electric service in the City of Saint Paul and the reasonable rates which would provide such revenue over and above that of the test year of 1973 for said compan� to commence taking effect, as the Ordinance so provides, as amended; and be it FURTHER RESOLVED, '1'hat the City Clerk is directed forthwith to transmit three copies of the aforesaid Findings of Fact and Conclusions of Law to Leonard J. Keyes, attorney for Northern States Power Company. - CO�CILMEN Requested by Department of: � Yeas � �r Nays � fiu�t� Konopatzki In Favor �. Meredith �_ Against By � Roedler Tedesco Mme.President-Butler— Hgflt; MAY 1 5 1974 Form Ap y City At rney Adopted by Council: Date Certified P Council Secretary � BY i By � Approve MaXor• Date Y Approved by Mayor for Submission to Council By By pus�.rst�Ea MAY 18 1974 � � � �f ,� � , . , r � -��y � � ; �.. . . .� � ' • { � .� . ' 4 � � •. P ' I ' , . , s{ .�,'��/�' �� { f �'� i , r i, j �� , � J-� 1 F� � , � - . ,. . .. , . . � � � � . .. . ., � . � , , i�� . �Yxi � _ � , i ,��+` � � i ' ,.., , � , ,; _ . , ' � , � ,� .. , . , . , . . . . . , . .. . . . � . ... � + ,r'i � . . . . . . . � . , � . �� . �� , , �. �f � i. . , .. . � � . ' . �/ � � .. � � ! / i � , . . �. , .. /� . . .. . � , . / : � ' . . � . . I .' ... . . i � . . � � , . . . . �� ' .. . , �1�� .,.� . .. � . � . .�... . .a . . . , . . . . . . . , _� , � ' . ��. . � �. - , " . . � � � . . � - . . . Y a� , I / , i, 4 � ��s, . , I ' -` � � ,.'' . i � ��.��, , � _ ' , i �. � ; � � ..•, .r: • � a; , ,1` � ,, ' i . , + �,• � , ' i . . . � � �� \ ... ..� . . .. .. , �- , � � � . ... ,� h P � 4 � . , . . � � ' � ; . � . . � . .� �3 1 . 1. , . , � ... � . ' . �. � . �Y �� 9� i 1.�� _ � 't � � � I , . � � \ � �; � . . � . . � . . . . F �i . . � 1 .� � . . . . . .. � � � . . - . . . . � , . � 1.! . . .. . . � �. � . � .. . i , . . . . .. . ,�� .• : � . . . � , ' ' � � ` .�� ... . � . . . . . . ! F� t b' . .. . .. . . . . !!�� I - (. � ' . ' � �� i% -�' . , . • ��'' ` '. � I � f Y � � �� ' �' l �# �. . � , . ' . - ��'��►� � . � � + ` ��a�=� �.. ` � � ��+ ��.� �b� . , r r � , . , . � . . � k �t+N� � . . � . � . . � � . . .. . .. � . .. ' . t', i \� },""A� . � . .. . . � �� . . . . . " . �. . 1 .. 1 .� � � � �� • ''�Y � fi Nx . . • . ' - . ' . : . \ ��, .� , i . .. ��y,� X � � � ' ' � � � �� .�� T^� '� � � � � 4 ��. %i�,g� �d �EIIOw��uEy�M �' �tt 'J�pt 'I�et �� +�` �lM �t S�. . � • ,. , � �awe� ��y'�� le�• � . . , � / . . '' � , . �. , .� . �..J .� .�I . '� . . y + ' ' � . . . �/ . . ,: I �M� ` �. ' ��` �'� �!. `' �t , � � � � i � � � � � � � � � ; � �� ' � � �� I i , , ' r , I i 1 � �'� t � �� . �� . .. _ I � � - . . � � � � � � " . . '; . . � . .. • � , ... �r k,5`f�j9�. .. . . ' . � . . . � � . � . . . , . . • , . 1 . . � . . . , .. . .•� . . . . - . . . . ��'1N� . . , . . . �, . , � . . � . . . . . . . . . . �. . . . . � . . � � � - ' �� . � � ,. � � � . . � � � . ��,., . . . . . . . . . � . — �.� . , . . ,. ' . . . . . . . . � . . . ' . . . � d�i iu . . . . . .. � . . " ' . .. ._ . . ' . '. . " . : �I..?� . �.�I� . . � � � . '.. . � . ' .. . . . r � . . � . . � � � � � � ` � .� • � � .. . L . . . ., . y , � 7'Fr . � / b , . �� .. _ . . 1� , . � , �� ... ` . ' , � � . �. .. . �� i , _ . . �. . , , � � � i -� ' , , • �� ' � i ,. ; . . . . � � . . . . . . a, .f ( �'r � . . ' � - � � . � � . ,. �. �. � . • . . . ' , � . . . � $�`�:� " d �i, 1, / . y 4 \ r� ��.�� I . • , ' ( ' `. � �� , . _, . / ` � , . � , �..,.. ,� �� '� € �� ,''�t � ' � �� , t f > �`� ,. �, � �,�� , ' �,,:� � � � � , �� , �� i � v R��.�� .,. - �� , , �k� � { k � � � � � I� � � � f� �. � _�� . � � . . � .. �' .. � . ' - , . . � �.!i . . . . . ' . .. � � .. . . . . � . . � '�� . � � . . � . .. . � � .. 't' . . . .. � � . _ , � i , . . . . � . � ' � W Rt ' . . . . ' � . . . - . ,n �.h� 5 IA the -�a�t�t.� ' $�AG'�t_ ) f � ��, - �'�a�r C.��yrt��c. P��,�;�ti � ) -�� .r�. c��:�.:��.�. .,� ��, ) �� - � � � ��P�� t :1��. c�ra�3c�ns � .; �.� � � � ��h►� �a�e �� )�� :�ac, �,�s c'�f��I��c�°`R�ai � ) �si��- �Ilql�&.;� � ) �� fi ; � . .,� .. � � . 1 � . . . . . ` . . .. . ,4f +� . � i, i � , . . . . '. � .i . .. . � � � � . � � � . . _ � `:d� r � �t�� ! ;,C . � � � :: , i x ,.. h+N . . , � 1 �:.. .. .. .. . .. � .. ... . . . 4, �. .. . .. . � . .. . ..w,.,. � ��Jr�� . . � , . � '�,� �` .. .. . � , � � ' .. . , � � I � . r; � � . . _ _ , .a., �`:; .��.L�� : . . . . . �.{�. . . . . . . . . . �� , . . - . _ . , � � . . , . . � �r.��: 4 �. .. . . . . . . .. . . ' �t. `� � - s,��:,,, �a� �' �� . _ � .� ' � �� . ' '� � 4t; . `� � � � � . � E �� ; ; _ , � � � i � � f�� i ' � ' : � � x� , .. . � . � �. .. ... . _ • . . , . . � + : � . . � � � . . ��. � � � .. � . . � � � � . �. . � � �r . � . .. .. . . . . . � � .; . � � � . . � � � .� �(� . . . . . . . : � . .. � . + s•, . _ . . . . . � . � . I . . ' . . . � . � � '�.,�� 1 . . . . . . i.. . �.. ��.F'� +�!�� 1 �Mh�i��i � � ��h��; { 3.�g ��c��r �� , �14� =� ,� ; ; j ,;,, : � � , � � � .: j: ; �t,ue�. �. wi�,1t�I� , t; j � � e3� .�Q � � 5 � � ,1 �� , .: , , + '��3 ��!�1�' ; '� �" ' � i � �,k �� j , , ;� �Y �� . . . . . � . � . � . , . � . � . � , :F ��. , � , 1L;d , i�� f � � � 't y ' , '� �� , f ti �: � .. . . ' � � . � �� . { . . , . . r .. . ,:;��.�: ,, - . . _ �.�_.��.,,:..,.,. . .��. r � . . � ._ .... ., .: . � ' ._ . . . ._. �.. . i�..:. . '...: . .�.:: . '. .... i _.:. . „ . ;�..: ... ��... .. ..... . . _t.,..�.J�,�s+� �;�r; � ' FII.ED � �� 3� ��f � . �� iv�F�6 �Fp..��R� ��NO✓� ' ��h�+��.r��. , APPEARANCES: Thomas J. Stearns, Public Utility Rate ' Expert, Assistant City Attorney, Office of the City Attorney, Saint Paul, ' Minnesota, appeared representing the ' City of Saint Paul. ' William M. Mahlum and John E. Brauch, 904 Commerce Building, Saint Paul, ' Minnesota, appeared representing the ' Greater St. Paul Fair Rates Committee. ' Leonard J. Keyes and Samu�l L. Hanson, of the firm of Briggs & Morgan, Attorneys 1 at Law, 220 First National Bank Building, ' Saint Paul, Minnesota, appeared represent- ing Northern States Power Company. ' . 1 ' ' _, ' • ' TABLE OF CONTENTS ' PART ONE ' Page Report of Hearing Examiner. . . . . . . . . . . . . 1 , Findings of Fact and Recommendations. . . . . . . . 2 Background. . . . . . . . . . . . . . . . . . . . . 8 ' Opinion . . . . . . . . . . . . . . . . . . . . . . 10 ' PART TWO ' SUMMARY OF TESTIMONY I. ' Northern States Power Company' s Case in Chief Northern States Power Comp:�ny' s Opening Statement . 1 , Statement of Mr. Connelly . . . . . . . . . . . . . 12 Statement of Mr. G2as s. . . . . . . . . . . . . . . 16 ' Statement of Mr. Cox . . . . . . . . . . . . . . . 28 ' Statement of Mr. Vixo . . . . . . . . . . . . . . . 60 Statement of Mr. Gillett. . . . . . . . . . . . . . 80 ' Statement of Dr. Herz . . . . . . . . . . . . . . . 94 Statement of Mr. Rosenwald. . . . . . . . . . . . . 139 ' II. , City' s Case in Chief ' Statement of Dr. Robertson . . . . . . . . . . . . 159 Statement of Mr. Rising . . . . . . . . . . . . . . 174 , Statement of Mr. Alexander. . . . . . . . . . . . . 199 Statement of Mr. Sherr. . . . . . . . . . . . . . . 225 ' ' i � . Page ' III. ' Cross-Examination of Northern States Power Company' s Witnesses ' Cross-Examination of Mr. Connelly by Mr. Stearns . . 234 Cross-Examination of Mr. Connelly by Mr. Mahlum. . . 239 , Redirect Examination of Mr. Connelly by Mr. Hanson . 242 Recross-Examination of Mr. Connelly by Mr. Stearns . 243 ' Cross-Examination of Mr. Glass by Mr. Stearns. . . . 244 Cross-Examination of Dr. Herz by Mr. Stearns . . . . 251 ' Cross-Examination of Dr. Herz by Mr. Brauch . . . . 263 , Redirect Examination of Dr. Herz by Mr. Hanson . . . 265 Recross-Examination of Dr. Herz by Mr. Stearns . . . 266 ' Cross-Examination of Mr. Gillett by Mr. Stearns. . . 267 , Cross-Examination of Mr. Cox by Mr. Stearns. . . . . 276 Cross-Examination of Mr. Cox by Mr. Brauch . . . . . 284 ' Redirect Examination of Mr. Cox by Mr. Hanson. . . . 286 Recross-Examination of Mr. Cox by Mr. Stearns. . . . 28� '- Cross-Examination of Mr. Glass by Mr. Stearns. . . . 289 Cross-Examination of Mr. Glass by Mr. Brauch . . . . 294 ' Redirect Examination of Mr. Glass by Mr. Hanson. . . 296 ' � Recross-Examination of Mr. Glass by Mr. Stearns. . . 298 Cross-Examination of Mr. Rosenwald by Mr. Stearns. . 299 ' Redirect Examination of� Mr. Rosenwald by Mr. Hanson. 309 Recross-Examination of Mr. Rosenwald by Mr. Stearns. 311 ' Cross-Examination of Mr. Vixo by Mr. Stearns . . . . 312 ' Cross-Examination of Mr. Vixo by Mr. Mahlum . . . . 323 Redirect-Examination of Mr. Vixo by Mr. Hanson . . . 328 ' _ , , ' Page Recross-Examination of Mr. Vixo by Mr. Stearns . . . . 330 ' IV. ' Cross-Examination of City' s Witnesses ' Cross-Examination of Dr. Robertson by Mr. Hanson . . . 331 Redirect Examination of Dr. Robertson by Mr. Stearns . 337 ' Cross-Examination of Mr. Rising by Mr. Hanson. . . . . 338 Redirect-Examination of Mr. Rising by Mr. Stearns. . . 350 ' Recross-Examination of Mr. Rising by Mr. Hanson. . . . 353 Cross-Examination of Mr. Rising by Mr. Mahlum. . . . . 355 � Cross-Examination of Mr. Alexander by Mr. Hanson . . . 356 ' Redirect-Examination of Mr. Alexander by Mr. Stearns . 373 Recross-Examination of Mr. Alexander by Mr. Hanson . . . 375 � ' Redirect Examination of Mr. Alexander by Mr. Stearns . 377 Recross-Examination of Mr. Alexander by Mr. Hanson . . 378 , Cross-Examination of Mr. Sherr by Mr. Hanson . . . . . 379 � Redirect Examination of Mr. Sherr by Mr. Stearns . . . 382 ' V. Northern States Power Com�any' s Rebuttal Testimony , 1 Direct Examination of Dr. Herz by Mr. Hanson . . . . . 383 ' Direct Examination of Mr. Cox by Mr. Hanson. . . . . . 389 Direct Examination o� Mr. Dienhart by Mr. Hanson . . . 390 ' Cross-Examination of Dr. Herz by Mr. Stearns . . . . . 397 Direct Examination of Mr. Dienhart by Mr. Hanson . . . 401 � Direct Examination of Mr. Vixo by Mr. Hanson . . . . . 407 � Direct Examination of Mr. Glass by Mr. Hanson. . . . . 423 � ! ' Page Direct Examination of Mr. Larson by Mr. Hanson . . . . 429 � Cross-Examination of Mr. Glass by Mr. Stearns . . . . 431 � Redirect Examination of Mr. Larson by Mr. Stearns. . . 435 Cross-Examination of Mr. Dienhart by Mr. Stearns . . . 437 ' Recross-Examination of Mr. Vixo by Mr. Stearns . . . . 443 � ' ' � � ; , � �� ' ' � � . ' _ , ' 1 ' REPORT OF HEARING EXAMINER The undersigned, Leonard E. Lindquist, having ' been appointed by the Mayor and Council of the City of St. Paul to conduct hearings with respect to a ' Petition for an increase in electricity rates by ' Northern States Power Company in the City of St. Paul reports as follows: ' That Northern States Power Company is entitled to an increase in revenues of $7,315, 000 above ' the 1973 test year revenues from its electricity � operations in the City of St. Paul. This recom- mended increase is based upon the determination ' of the Hearing Examiner that the appropriate overall rate of return on an original cost rate � base is 8. 1�. Additional revenues of $7,315 ,000 ' would amount to a 16. 2$ increase in revenues on the basis of the 1973 test year figures. This ' , figure compares with the 28� increase applied for by Northern States Power Company. , This report is based upon the Findings of Fact � and Conclusions of Law hereto attached. A summary of the evidence reviewed in preparing the Findings of Fact ' and Conclusions of Law is enclosed with this report. � ./ -, ' .2-e,-.__-,''�� Zf' d�L.�� Leonard E. Lin ist , May 10, 1974. � ' ' ' FINDINGS OF FACT AND CONCLUSIONS OF LAW On the basis of the record made in this hearing and the , supporting opinion attached hereto, the Hearing Examiner has reached the following: ' FINDINGS OF FP,CT ' 1. The appropriate test year in this proceeding is the 1973 test year, adjusted to year-end , figures with respect to net operating investment and certain aspects of revenues and expenses. � 2. The original cost less accumulated depreciation � method is the appropriate method of determining the rate base in this proceeding. , 3. The investment relating to the Prairie Island Unit No. 1 Plant should properly be included in the � test-year rate base. 4. Construction work in progress should be excluded � from the rate base in this situation. ' 5. It is appropriate to annualize depreciation on the basis of year-end plant investment in view of the ' use of a year-end rate base. 6. A reduction of $145, 000 in the test-year rate base ' to reflect the unamortized 3$ investment tax credit ' in the rate base elements is appropriate. 7. It is appropriate to offset working capital items in ' the rate base with average accrued tax liabilities. , - 2 - ' ' , 8. Property held for future use should be included ' in the rate base in this situation. , 9. It is appropriate to increase test year revenues by $131, 000 to reflect revenues received by N5P from ' wholesale sales to other utilities. 10. No deduction should be allowed from test year operating � expenses in connection with the $37, 000 fuel "penalty" associated with the Monticello Plant. ' 11. It is appropriate to recognize the number of customers , existing at year-end 1973 to match the use of a year- end rate base. This adjustment increases test year , revenues by approximately $125, 000. 12. With respect to donations, it is appropriate to deduct , a $14, 000 amount which was duplicated in NSP' s operating ' statement, and the $18, 000 amount relating to NSP' s final 1973 payment to the St. Paul United Fund ' Building Fund. 13. Wage increases scheduled to become effective during ' 1974 for non-union salaried employees should be recognized , as are wage increases for other employees, but only to the extent that such wage increases will actually ' be paid during 1974. 14. Tax savings resulting from deductions of interest relating , to construction work in progress should be recognized , in determining test year net operating income. ' , - 3 - ' ' 15. Proposed City adjustment No. 9, which normalizes ' fuel costs at the December 1973 level corresponding to the amount on which the fuel clause rider is ' based, should be adopted. 16. Proposed City adjustment No. 10, which adjusts ' expenses and revenues as if the December 31, 1973 ' incremental prices for fuel and purchase power had prevailed throughout 1973 should not be adopted. ' 17. The net operating investment of the utility used and useful in conducting its electricity operations , in St. Paul as of December 31, 1973, as calculated , on the basis of the acquisition cost depreciated method was $133, 903, 000. , 18. The net operating income for the test year 1973 earned by the utility in St. Paul from its electricity opera- , tions was $5,795,000. ' 19. The capital structure of the utility as of December 31, 1973 was as follows: ' Debt - 52.82� Preferred Stock - 14. 90� , Common Equity - 32. 28� 20. The overall rate of return to the utility in its St. ' Paul electricity operations during the 1973 test year , was 4. 33�. 21. An overaZl rate of return of 8. 1$ is fair and reasonable , in this situation. 22. On the basis of the December 31, 1973 capital structure, , an overall rate of return of 8. 1� would result in a r - 4 - WHITE - CITV CLERK � PINK - FINANCE GITY OF SAINT PAITL Council 263516 CANARY - DEPARTMENT BLUE - MAYOR File NO. o cil Resolution Presented By , \ Referred To Committee: Date Out of Committee By Date RESOLVED, That the Council of the City of Saint Paul, in the Matter of the Petition of Northern States Power Company (Minnesota) Electric Utility, City of Saint Paul, for an increase in its electric rates, filed October 12, 1973, hereby accepts for consideration by this Council as its determination in said matter, the Findings of Fact and Conclusions , of Law promulgated by the Hearing Examiner, Leonard E. Lindquist, a copy of which Findings and Conclusions is attached hereto as Exhibit "A", and incorporated herein; and be it FURTHER RESOLVED, That pursuant to said Findings of Fact and Conclusions of Law, the Franchise Ordinance No. 15475, approved November 1, 1973, be amended to prescribe that, subject to the public hearing to be afforded all interested parties and to the final adoption and approval of the amending ordinance, Northern States Power Company be entitled to an increase in revenues of 16.2/ above the 1973 test year revenues from electric service in the City of Saint Paul and the reasonable rates which would provide such revenue over and above that of the test year of 1973 for said compan� to commence taking effect, as the Ordinance so provides, as amended; and be it FURTHER RESOLVED, '1'hat the City Clerk is directed forthwith to transmit three copies of the aforesaid Findings of Fact and Conclusions of Law to Leonard J. Keyes, attorney for Northern States Power Company. - CO�CILMEN Requested by Department of: � Yeas � �r Nays � fiu�t� Konopatzki In Favor �. Meredith �_ Against By � Roedler Tedesco Mme.President-Butler— Hgflt; MAY 1 5 1974 Form Ap y City At rney Adopted by Council: Date Certified P Council Secretary � BY i By � Approve MaXor• Date Y Approved by Mayor for Submission to Council By By pus�.rst�Ea MAY 18 1974 � � � �f ,� � , . , r � -��y � � ; �.. . . .� � ' • { � .� . ' 4 � � •. P ' I ' , . , s{ .�,'��/�' �� { f �'� i , r i, j �� , � J-� 1 F� � , � - . ,. . .. , . . � � � � . .. . ., � . � , , i�� . �Yxi � _ � , i ,��+` � � i ' ,.., , � , ,; _ . , ' � , � ,� .. , . , . , . . . . . , . .. . . . � . ... � + ,r'i � . . . . . . . � . , � . �� . �� , , �. �f � i. . , .. . � � . ' . �/ � � .. � � ! / i � , . . �. , .. /� . . .. . � , . / : � ' . . � . . I .' ... . . i � . . � � , . . . . �� ' .. . , �1�� .,.� . .. � . � . .�... . .a . . . , . . . . . . . , _� , � ' . ��. . � �. - , " . . � � � . . � - . . . Y a� , I / , i, 4 � ��s, . , I ' -` � � ,.'' . i � ��.��, , � _ ' , i �. � ; � � ..•, .r: • � a; , ,1` � ,, ' i . , + �,• � , ' i . . . � � �� \ ... ..� . . .. .. , �- , � � � . ... ,� h P � 4 � . , . . � � ' � ; . � . . � . .� �3 1 . 1. , . , � ... � . ' . �. � . �Y �� 9� i 1.�� _ � 't � � � I , . � � \ � �; � . . � . . � . . . . F �i . . � 1 .� � . . . . . .. � � � . . - . . . . � , . � 1.! . . .. . . � �. � . � .. . i , . . . . .. . ,�� .• : � . . . � , ' ' � � ` .�� ... . � . . . . . . ! F� t b' . .. . .. . . . . !!�� I - (. � ' . ' � �� i% -�' . , . • ��'' ` '. � I � f Y � � �� ' �' l �# �. . � , . ' . - ��'��►� � . � � + ` ��a�=� �.. ` � � ��+ ��.� �b� . , r r � , . , . � . . � k �t+N� � . . � . � . . � � . . .. . .. � . .. ' . t', i \� },""A� . � . .. . . � �� . . . . . " . �. . 1 .. 1 .� � � � �� • ''�Y � fi Nx . . • . ' - . ' . : . \ ��, .� , i . .. ��y,� X � � � ' ' � � � �� .�� T^� '� � � � � 4 ��. %i�,g� �d �EIIOw��uEy�M �' �tt 'J�pt 'I�et �� +�` �lM �t S�. . � • ,. , � �awe� ��y'�� le�• � . . , � / . . '' � , . �. , .� . �..J .� .�I . '� . . y + ' ' � . . . �/ . . ,: I �M� ` �. ' ��` �'� �!. `' �t , � � � � i � � � � � � � � � ; � �� ' � � �� I i , , ' r , I i 1 � �'� t � �� . �� . .. _ I � � - . . � � � � � � " . . '; . . � . .. • � , ... �r k,5`f�j9�. .. . . ' . � . . . � � . � . . . , . . • , . 1 . . � . . . , .. . .•� . . . . - . . . . ��'1N� . . , . . . �, . , � . . � . . . . . . . . . . �. . . . . � . . � � � - ' �� . � � ,. � � � . . � � � . ��,., . . . . . . . . . � . — �.� . , . . ,. ' . . . . . . . . � . . . ' . . . � d�i iu . . . . . .. � . . " ' . .. ._ . . ' . '. . " . : �I..?� . �.�I� . . � � � . '.. . � . ' .. . . . r � . . � . . � � � � � � ` � .� • � � .. . L . . . ., . y , � 7'Fr . � / b , . �� .. _ . . 1� , . � , �� ... ` . ' , � � . �. .. . �� i , _ . . �. . , , � � � i -� ' , , • �� ' � i ,. ; . . . . � � . . . . . . a, .f ( �'r � . . ' � - � � . � � . ,. �. �. � . • . . . ' , � . . . � $�`�:� " d �i, 1, / . y 4 \ r� ��.�� I . • , ' ( ' `. � �� , . _, . / ` � , . � , �..,.. ,� �� '� € �� ,''�t � ' � �� , t f > �`� ,. �, � �,�� , ' �,,:� � � � � , �� , �� i � v R��.�� .,. - �� , , �k� � { k � � � � � I� � � � f� �. � _�� . � � . . � .. �' .. � . ' - , . . � �.!i . . . . . ' . .. � � .. . . . . � . . � '�� . � � . . � . .. . � � .. 't' . . . .. � � . _ , � i , . . . . � . � ' � W Rt ' . . . . ' � . . . - . ,n �.h� 5 IA the -�a�t�t.� ' $�AG'�t_ ) f � ��, - �'�a�r C.��yrt��c. P��,�;�ti � ) -�� .r�. c��:�.:��.�. .,� ��, ) �� - � � � ��P�� t :1��. c�ra�3c�ns � .; �.� � � � ��h►� �a�e �� )�� :�ac, �,�s c'�f��I��c�°`R�ai � ) �si��- �Ilql�&.;� � ) �� fi ; � . .,� .. � � . 1 � . . . . . ` . . .. . ,4f +� . � i, i � , . . . . '. � .i . .. . � � � � . � � � . . _ � `:d� r � �t�� ! ;,C . � � � :: , i x ,.. h+N . . , � 1 �:.. .. .. .. . .. � .. ... . . . 4, �. .. . .. . � . .. . ..w,.,. � ��Jr�� . . � , . � '�,� �` .. .. . � , � � ' .. . , � � I � . r; � � . . _ _ , .a., �`:; .��.L�� : . . . . . �.{�. . . . . . . . . . �� , . . - . _ . , � � . . , . . � �r.��: 4 �. .. . . . . . . .. . . ' �t. `� � - s,��:,,, �a� �' �� . _ � .� ' � �� . ' '� � 4t; . `� � � � � . � E �� ; ; _ , � � � i � � f�� i ' � ' : � � x� , .. . � . � �. .. ... . _ • . . , . . � + : � . . � � � . . ��. � � � .. � . . � � � � . �. . � � �r . � . .. .. . . . . . � � .; . � � � . . � � � .� �(� . . . . . . . : � . .. � . + s•, . _ . . . . . � . � . I . . ' . . . � . � � '�.,�� 1 . . . . . . i.. . �.. ��.F'� +�!�� 1 �Mh�i��i � � ��h��; { 3.�g ��c��r �� , �14� =� ,� ; ; j ,;,, : � � , � � � .: j: ; �t,ue�. �. wi�,1t�I� , t; j � � e3� .�Q � � 5 � � ,1 �� , .: , , + '��3 ��!�1�' ; '� �" ' � i � �,k �� j , , ;� �Y �� . . . . . � . � . � . , . � . � . � , :F ��. , � , 1L;d , i�� f � � � 't y ' , '� �� , f ti �: � .. . . ' � � . � �� . { . . , . . r .. . ,:;��.�: ,, - . . _ �.�_.��.,,:..,.,. . .��. r � . . � ._ .... ., .: . � ' ._ . . . ._. �.. . i�..:. . '...: . .�.:: . '. .... i _.:. . „ . ;�..: ... ��... .. ..... . . _t.,..�.J�,�s+� �;�r; � ' FII.ED � �� 3� ��f � . �� iv�F�6 �Fp..��R� ��NO✓� ' ��h�+��.r��. , APPEARANCES: Thomas J. Stearns, Public Utility Rate ' Expert, Assistant City Attorney, Office of the City Attorney, Saint Paul, ' Minnesota, appeared representing the ' City of Saint Paul. ' William M. Mahlum and John E. Brauch, 904 Commerce Building, Saint Paul, ' Minnesota, appeared representing the ' Greater St. Paul Fair Rates Committee. ' Leonard J. Keyes and Samu�l L. Hanson, of the firm of Briggs & Morgan, Attorneys 1 at Law, 220 First National Bank Building, ' Saint Paul, Minnesota, appeared represent- ing Northern States Power Company. ' . 1 ' ' _, ' • ' TABLE OF CONTENTS ' PART ONE ' Page Report of Hearing Examiner. . . . . . . . . . . . . 1 , Findings of Fact and Recommendations. . . . . . . . 2 Background. . . . . . . . . . . . . . . . . . . . . 8 ' Opinion . . . . . . . . . . . . . . . . . . . . . . 10 ' PART TWO ' SUMMARY OF TESTIMONY I. ' Northern States Power Company' s Case in Chief Northern States Power Comp:�ny' s Opening Statement . 1 , Statement of Mr. Connelly . . . . . . . . . . . . . 12 Statement of Mr. G2as s. . . . . . . . . . . . . . . 16 ' Statement of Mr. Cox . . . . . . . . . . . . . . . 28 ' Statement of Mr. Vixo . . . . . . . . . . . . . . . 60 Statement of Mr. Gillett. . . . . . . . . . . . . . 80 ' Statement of Dr. Herz . . . . . . . . . . . . . . . 94 Statement of Mr. Rosenwald. . . . . . . . . . . . . 139 ' II. , City' s Case in Chief ' Statement of Dr. Robertson . . . . . . . . . . . . 159 Statement of Mr. Rising . . . . . . . . . . . . . . 174 , Statement of Mr. Alexander. . . . . . . . . . . . . 199 Statement of Mr. Sherr. . . . . . . . . . . . . . . 225 ' ' i � . Page ' III. ' Cross-Examination of Northern States Power Company' s Witnesses ' Cross-Examination of Mr. Connelly by Mr. Stearns . . 234 Cross-Examination of Mr. Connelly by Mr. Mahlum. . . 239 , Redirect Examination of Mr. Connelly by Mr. Hanson . 242 Recross-Examination of Mr. Connelly by Mr. Stearns . 243 ' Cross-Examination of Mr. Glass by Mr. Stearns. . . . 244 Cross-Examination of Dr. Herz by Mr. Stearns . . . . 251 ' Cross-Examination of Dr. Herz by Mr. Brauch . . . . 263 , Redirect Examination of Dr. Herz by Mr. Hanson . . . 265 Recross-Examination of Dr. Herz by Mr. Stearns . . . 266 ' Cross-Examination of Mr. Gillett by Mr. Stearns. . . 267 , Cross-Examination of Mr. Cox by Mr. Stearns. . . . . 276 Cross-Examination of Mr. Cox by Mr. Brauch . . . . . 284 ' Redirect Examination of Mr. Cox by Mr. Hanson. . . . 286 Recross-Examination of Mr. Cox by Mr. Stearns. . . . 28� '- Cross-Examination of Mr. Glass by Mr. Stearns. . . . 289 Cross-Examination of Mr. Glass by Mr. Brauch . . . . 294 ' Redirect Examination of Mr. Glass by Mr. Hanson. . . 296 ' � Recross-Examination of Mr. Glass by Mr. Stearns. . . 298 Cross-Examination of Mr. Rosenwald by Mr. Stearns. . 299 ' Redirect Examination of� Mr. Rosenwald by Mr. Hanson. 309 Recross-Examination of Mr. Rosenwald by Mr. Stearns. 311 ' Cross-Examination of Mr. Vixo by Mr. Stearns . . . . 312 ' Cross-Examination of Mr. Vixo by Mr. Mahlum . . . . 323 Redirect-Examination of Mr. Vixo by Mr. Hanson . . . 328 ' _ , , ' Page Recross-Examination of Mr. Vixo by Mr. Stearns . . . . 330 ' IV. ' Cross-Examination of City' s Witnesses ' Cross-Examination of Dr. Robertson by Mr. Hanson . . . 331 Redirect Examination of Dr. Robertson by Mr. Stearns . 337 ' Cross-Examination of Mr. Rising by Mr. Hanson. . . . . 338 Redirect-Examination of Mr. Rising by Mr. Stearns. . . 350 ' Recross-Examination of Mr. Rising by Mr. Hanson. . . . 353 Cross-Examination of Mr. Rising by Mr. Mahlum. . . . . 355 � Cross-Examination of Mr. Alexander by Mr. Hanson . . . 356 ' Redirect-Examination of Mr. Alexander by Mr. Stearns . 373 Recross-Examination of Mr. Alexander by Mr. Hanson . . . 375 � ' Redirect Examination of Mr. Alexander by Mr. Stearns . 377 Recross-Examination of Mr. Alexander by Mr. Hanson . . 378 , Cross-Examination of Mr. Sherr by Mr. Hanson . . . . . 379 � Redirect Examination of Mr. Sherr by Mr. Stearns . . . 382 ' V. Northern States Power Com�any' s Rebuttal Testimony , 1 Direct Examination of Dr. Herz by Mr. Hanson . . . . . 383 ' Direct Examination of Mr. Cox by Mr. Hanson. . . . . . 389 Direct Examination o� Mr. Dienhart by Mr. Hanson . . . 390 ' Cross-Examination of Dr. Herz by Mr. Stearns . . . . . 397 Direct Examination of Mr. Dienhart by Mr. Hanson . . . 401 � Direct Examination of Mr. Vixo by Mr. Hanson . . . . . 407 � Direct Examination of Mr. Glass by Mr. Hanson. . . . . 423 � ! ' Page Direct Examination of Mr. Larson by Mr. Hanson . . . . 429 � Cross-Examination of Mr. Glass by Mr. Stearns . . . . 431 � Redirect Examination of Mr. Larson by Mr. Stearns. . . 435 Cross-Examination of Mr. Dienhart by Mr. Stearns . . . 437 ' Recross-Examination of Mr. Vixo by Mr. Stearns . . . . 443 � ' ' � � ; , � �� ' ' � � . ' _ , ' 1 ' REPORT OF HEARING EXAMINER The undersigned, Leonard E. Lindquist, having ' been appointed by the Mayor and Council of the City of St. Paul to conduct hearings with respect to a ' Petition for an increase in electricity rates by ' Northern States Power Company in the City of St. Paul reports as follows: ' That Northern States Power Company is entitled to an increase in revenues of $7,315, 000 above ' the 1973 test year revenues from its electricity � operations in the City of St. Paul. This recom- mended increase is based upon the determination ' of the Hearing Examiner that the appropriate overall rate of return on an original cost rate � base is 8. 1�. Additional revenues of $7,315 ,000 ' would amount to a 16. 2$ increase in revenues on the basis of the 1973 test year figures. This ' , figure compares with the 28� increase applied for by Northern States Power Company. , This report is based upon the Findings of Fact � and Conclusions of Law hereto attached. A summary of the evidence reviewed in preparing the Findings of Fact ' and Conclusions of Law is enclosed with this report. � ./ -, ' .2-e,-.__-,''�� Zf' d�L.�� Leonard E. Lin ist , May 10, 1974. � ' ' ' FINDINGS OF FACT AND CONCLUSIONS OF LAW On the basis of the record made in this hearing and the , supporting opinion attached hereto, the Hearing Examiner has reached the following: ' FINDINGS OF FP,CT ' 1. The appropriate test year in this proceeding is the 1973 test year, adjusted to year-end , figures with respect to net operating investment and certain aspects of revenues and expenses. � 2. The original cost less accumulated depreciation � method is the appropriate method of determining the rate base in this proceeding. , 3. The investment relating to the Prairie Island Unit No. 1 Plant should properly be included in the � test-year rate base. 4. Construction work in progress should be excluded � from the rate base in this situation. ' 5. It is appropriate to annualize depreciation on the basis of year-end plant investment in view of the ' use of a year-end rate base. 6. A reduction of $145, 000 in the test-year rate base ' to reflect the unamortized 3$ investment tax credit ' in the rate base elements is appropriate. 7. It is appropriate to offset working capital items in ' the rate base with average accrued tax liabilities. , - 2 - ' ' , 8. Property held for future use should be included ' in the rate base in this situation. , 9. It is appropriate to increase test year revenues by $131, 000 to reflect revenues received by N5P from ' wholesale sales to other utilities. 10. No deduction should be allowed from test year operating � expenses in connection with the $37, 000 fuel "penalty" associated with the Monticello Plant. ' 11. It is appropriate to recognize the number of customers , existing at year-end 1973 to match the use of a year- end rate base. This adjustment increases test year , revenues by approximately $125, 000. 12. With respect to donations, it is appropriate to deduct , a $14, 000 amount which was duplicated in NSP' s operating ' statement, and the $18, 000 amount relating to NSP' s final 1973 payment to the St. Paul United Fund ' Building Fund. 13. Wage increases scheduled to become effective during ' 1974 for non-union salaried employees should be recognized , as are wage increases for other employees, but only to the extent that such wage increases will actually ' be paid during 1974. 14. Tax savings resulting from deductions of interest relating , to construction work in progress should be recognized , in determining test year net operating income. ' , - 3 - ' ' 15. Proposed City adjustment No. 9, which normalizes ' fuel costs at the December 1973 level corresponding to the amount on which the fuel clause rider is ' based, should be adopted. 16. Proposed City adjustment No. 10, which adjusts ' expenses and revenues as if the December 31, 1973 ' incremental prices for fuel and purchase power had prevailed throughout 1973 should not be adopted. ' 17. The net operating investment of the utility used and useful in conducting its electricity operations , in St. Paul as of December 31, 1973, as calculated , on the basis of the acquisition cost depreciated method was $133, 903, 000. , 18. The net operating income for the test year 1973 earned by the utility in St. Paul from its electricity opera- , tions was $5,795,000. ' 19. The capital structure of the utility as of December 31, 1973 was as follows: ' Debt - 52.82� Preferred Stock - 14. 90� , Common Equity - 32. 28� 20. The overall rate of return to the utility in its St. ' Paul electricity operations during the 1973 test year , was 4. 33�. 21. An overaZl rate of return of 8. 1$ is fair and reasonable , in this situation. 22. On the basis of the December 31, 1973 capital structure, , an overall rate of return of 8. 1� would result in a r - 4 -