TESTIMONY AND EXHIBITS OF RONALD J. BINZ ON BEHALF OF THE YMCA OF THE ROCKIES

Transcription

1 BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STTE OF COLORDO YMC OF THE ROCKIES, v. Complainant, XCEL ENERGY (d/b/a PUBLIC SERVICE COMPNY OF COLORDO, Respondent Docket No. 05F-67G TESTIMONY ND EXHIBITS OF RONLD J. BINZ ON BEHLF OF THE YMC OF THE ROCKIES Filed: June 20, 2005

2 TESTIMONY OF RONLD J. BINZ 2 What is your name and address? My name is Ronald J. Binz. My business address is Eudora Street, Denver, Colorado On whose behalf are you testifying in this case? I am testifying on behalf of YMC of the Rockies ( YMC. 6 What is your occupation? 7 I am President of Public Policy Consulting, a firm specializing in energy and telecommunications regulatory matters. I provide consulting services to a variety of public-sector and private-sector clients in the energy and telecommunications industries, primarily in the regulatory arena. My consulting practice dates to 979, except for the years when I served as Colorado Consumer Counsel. 2 Please summarize your experience in utility regulation. For eleven years prior to Public Policy Consulting, I was Consumer Counsel for the State of Colorado. In that role, I represented the interests of residential small business and agricultural consumers of telecommunications and energy before the Colorado Public Utilities Commission, the Federal Communications Commission (FCC, the Federal Energy Regulatory Commission (FERC, the courts and legislative bodies. During my tenure as Consumer Counsel I served as the President of the National ssociation of State Utility Consumer dvocates (NSUC for two years and chaired the organization s Telecommunications Committee for three years. In addition, I have --

3 testified fifteen times before Congressional committees on energy and telecommunications matters. Prior to my work with the Office of Consumer Counsel, I was a consulting utility rate analyst. I have testified before regulatory commissions, courts and arbitration panels in Colorado and in other western states on behalf of a variety of clients. These include consumer organizations, senior citizen groups, agricultural utility consumers, homebuilders, telecommunications resellers and local governments. I am a frequent speaker and presenter at industry, regulatory and legislative conferences and symposia. I am a member of the Harvard Electricity Policy Group and recently served on two advisory commissions to the Federal Communications Commission. My resume is attached as ppendix to this testimony. 2 What is your educational background? I received a B. in Philosophy from St. Louis University in 97. I received M in Mathematics from the University of Colorado in 978. I entered the Masters Program in Economics in 980 and completed 27 hours of graduate work. I was researching my Masters Thesis on Regulated Industries in 98 when I was appointed to the Public Utilities Commission by Colorado Governor Richard Lamm. My nomination was opposed by the state s largest regulated utilities and was defeated in a confirmation vote in the Colorado Senate. Five months later I was appointed by the ttorney General to be Colorado s first consumer counsel What is the purpose of your testimony in this case? I was asked by YMC to examine its Complaint against Public Service Company 2 of Colorado ( PSCo or Company to consider PSCo s response and to make -2-

4 2 5 recommendations to the Commission. In the testimony that follows, I discuss what this dispute means financially to YMC, analyze the issues raised by PSCo s termination of its existing gas transportation agreement with YMC, analyze the equities involved in this case and recommend several solutions to the Commission that I think would be equitable both to YMC, but also to PSCo and the balance of PSCo s gas customers. 6 7 Mr. Binz, why is this case important to YMC? YMC is a non-profit corporation that owns and operates Snow Mountain Ranch (SMR near Winter Park, a year-round conference center and family vacation center. Snow Mountain Ranch consists of four lodges and sixty family cabins, among other structures, in a campus setting on 5,000 acres in Grand County. I have attached a map of a portion of the SMR facilities as Exhibit RJB-. YMC is a natural gas customer of PSCo, purchasing transportation service under a consolidated meter arrangement. Details aside, YMC expects to pay approximately $8,000 to PSCo in 2005 for gas transportation under its agreement. In addition, Snow Mountain Ranch has contracted with Kerr-McGee to supply the natural gas that PSCo will transport. Including the cost of gas, Snow Mountain Ranch s 2005 total gas bill will likely be approximately $227,000 under the current contracts with PSCo and Kerr-McGee. s I show in my testimony, PSCo s decision to cancel the transportation agreement and rescind the consolidated meter arrangement will raise Snow Mountain Ranch s costs between $70,000 and $00,000 per year an increase of % to % in YMC s annual gas bill. The increase could be even larger if natural gas prices rise above current levels. --

5 For this reason, this case is very important to YMC. 2 How is your testimony organized? First, I present a summary of my findings and recommendations. Next, I describe the arrangement under which YMC takes gas service from PSCo and estimate the impact to YMC of the contract cancellation. Third, I examine PSCo s stated reasons for canceling the transportation contract. Finally, I develop recommendations for the Commission in resolving this matter. I. INTRODUCTION ND SUMMRY OF TESTIMONY 8 9 Please summarize your findings and recommendations to the Commission. fter reviewing YMC s Complaint and all of the information produced in 0 discovery in this case, I have developed the following conclusions and recommendations to the Commission: lthough the consolidated meter arrangement between PSCo and YMC is relatively unusual in Colorado, there is no policy reason why it should be discontinued. In other words, there are no policy conflicts if the existing arrangements are continued. PSCo s action removes most of the financial incentives under which YMC entered into a natural gas purchase contract with Kerr-McGee. It is not equitable to deprive YMC of the benefits of its efforts and the risk it undertook in contracting for natural gas in the competitive market. Requiring YMC to enter into separate transportation contracts for each of the eighty delivery points within the SMR campus creates irrational costs not needed by YMC or PSCo: o telecommunications to add daily electronic meter access; o additional metering costs; --

6 o higher costs for transportation with no change in the physical arrangements; o less accurate estimates of pipeline capacity required to serve SMR Requiring YMC to move to a gas sales arrangement (CG rates creates irrational costs that are not needed by YMC or PSCo. o additional metering costs o multiple unwanted bills o stranded investment for the existing consolidated meter The current Specific Service and Facilities Charge calculated by PSCo appears to reimburse PSCo fully for the distribution facilities needed by PSCo to distribute gas from the consolidated meter to the eighty distribution points within SMR; ssuming PSCo s gas transportation tariffs are compensatory and that the Special Service and Facilities Charge is calculated correctly, the existing consolidated meter arrangement is not subsidized by other rate classes; Recommendation: The Commission should require PSCo to continue its consolidated meter arrangement with YMC; o The Company should recalculate the Specific Service and Facility Charge to include the cost of mains and service laterals, but eliminate the investment for meters not used to provide its service. Recommendation: If the Commission allows PSCo to terminate its consolidated meter arrangement, it should require the Company to grandfather the YMC arrangement at least for the period of YMC s current gas purchase agreement with Kerr-McGee. Recommendation: If the Commission allows PSCo to terminate the consolidated meter arrangement, it should require the Company to offer to sell its distribution system to YMC at a price reflecting the remaining useful life of the facilities used to distribute gas from the consolidated meter to the eighty distribution points within SMR. -5-

7 II. THE IMPCT OF PSCO S CTION ON YMC S COSTS 2 Please state your understanding of the gas transportation arrangement that exists between PSCo and YMC. In the early 990 s the Federal Energy Regulatory Commission and the Colorado Public Utilities Commission began to require pipeline companies and utilities to unbundle their natural gas service, permitting end-use customers to acquire their natural gas supplies separately from competing gas suppliers. Pipelines and utilities began to provide unbundled transportation service in addition to traditional bundled sales service. PSCo has transported gas for its retail customers since at least 992. Beginning in 995, PSCo developed a policy that enabled some of its sales customers to profitably convert from sales service to transportation service. The policy applied to those customers, like YMC, with multiple sales meters within a campus-type setting. These customers targeted by PSCo did not resell the gas each of their locations taking gas at various distribution points (at least in the case of SMR were all part of the same larger entity. 6 7 Is this arrangement similar to other situations involving master meters? Yes, this arrangement bears a close resemblance to master meter operators such as operators of mobile home parks and some apartment buildings. In each case PSCo delivers (or sells gas to a customer at a master meter; the master meter operator then distributes the gas further to the final end-users. The consolidated meter arrangement differs from the MMO situation in that the distribution facilities downstream from the consolidated meter are owned and operated by PSCo, not by the entity that is billed for the gas delivered to the master meter. Except for the ownership issue, the physical -6-

8 arrangements are the same, whether the MMO is a sales customer of a transportation customer of PSCo. In light of this difference in facilities ownership, PSCo began to charge such customers a specific service and facility charge, intended to pay for the cost of a new consolidated meter (if one was needed and also to cover the Company s costs of its facilities downstream from the consolidated meter. Under this arrangement, the consolidated meter customer would be rendered a single bill and would pay a single Service and Facilities Charge for the consolidated meter under the Firm Transportation Tariff. The customer would no longer pay a separate S&F charge at each of the meters formerly used to measure the gas sold or delivered. In fact, the downstream meters were no longer needed for billing purposes. 2 When did YMC become a transportation customer of PSCo? s Mr. Pope testified, PSCo approached YMC in 997 and offered a consolidated meter arrangement. YMC eventually accepted the offer and became a firm transportation customer of PSCo in 998, contracting for natural gas supply from a shipper called Western Natural Gas. In 999 PSCo installed a consolidated meter at an initial cost of $6,70 and moved all of SMR s gas transportation to a single consolidated bill. This arrangement continued until Western discontinued gas service in late 2000 (followed by its eventual bankruptcy. Rather than attempting to find another shipper on short notice, YMC reverted to sales service with PSCo for one year the minimum term during calendar year 200. While YMC was a sales customer, PSCo continued the consolidated meter arrangement, this time using the CG sales tariff to calculate YMC monthly bill. -7-

9 YMC arranged to purchase its own gas supplies again beginning on January, 2002 and signed a firm transportation agreement with PSCo that survives to this day. The gas supplier has changed during the contract and is now Kerr-McGee. YMC renewed the terms of its gas purchase contract with Kerr-McGee in 200, extending the gas supply at a fixed price through YMC now pays Kerr-McGee $.77 per Decatherm (Dth for specific gas volumes that vary each month. The current transportation contract with PSCo follows the standard contract found in tariffs approved by the Commission. The Company delivers natural gas to SMR for a price that depends on YMC s estimated Peak Day uantity (PD and the actual volume of gas used. YMC pays this tariffed transportation rate plus the Specific S&F charge first calculated by PSCo in 999. The transportation price has changed over the years as PSCo s overall rates have changed. Similarly, the Specific S&F charge has changed as PSCo s overall rates have changed and as facilities were added to the SMR campus. Currently, YMC pays about $25,02 per year for gas transportation and $2,677 for its Specific S&F charge. 6 What did PSCo propose in November 200? 7 YMC was notified in November 200 that PSCo intends to terminate its transportation contract with YMC for SMR. The Company states that, for several reasons, it wishes to eliminate the consolidated meter arrangement. The cancellation letter suggests that YMC avail itself of a combination of two options: i enter into transportation contracts for some or all of the eighty delivery points on its campus; or ii revert to sales (CG service for some or all of its delivery points. -8-

10 2 What is the impact of PSCo s decision on YMC s cost of gas supply? Either of the options offered by PSCo creates huge increases in the cost of natural gas for YMC. The move to sales service destroy the hedge value of YMC s arrangement and expose YMC to the fluctuations in the gas market it sought to eliminate by contracting for natural gas. To the extent that YMC designates multiple delivery points for new transportation contracts, it will incur sharply higher non-gas costs with PSCo. Further, disaggregating the transportation load into 80 smaller loads will increase YMC s PD estimate since the peak day load for each smaller load will have to be calculated separately, depriving YMC of the diversity benefit that the consolidated load produces. The situation is complicated even more: since 999, YMC has not had had data on the gas usage at each of the eighty delivery points. nd since modifications have been made to the facilities and their use since 999, it will be very difficult to project the peak daily use for many of the buildings. Finally, YMC will have to install a separate phone line to each of the eighty meters at its own expense and then deal with eighty monthly bills, contrary to its preference as a PSCo consolidated meter customer. To the extent that YMC reverts to sales service under the CG tariff with PSCo, it will pay much higher natural gas supply costs, in addition to higher payments to PSCo for non-gas costs. s mentioned previously, YMC has locked in a price of $.77 per MMBTU for natural gas from its supplier. In contrast, the current cost of gas supplied by PSCo to its retail customers under the CG tariff is $6.87 per MMBTU, as proposed by PSCo in its July Gas Cost djustment (GC filing. It is important to note in this regard, that there would be no change in peak day load at the consolidated meter and no change in PSCo s actual operation on peak day; only the arithmetic changes the cost of YMC s capacity payment to PSCo. -9-

11 Have you prepared an exhibit that illustrates the cost to YMC of PSCo s 2 decision to abrogate the transportation contract? Yes. Exhibit RJB-2 shows the calculation. The results are summarized in the 5 table below. I calculated the impact under current rates and also under the rates PSCo has proposed in its pending gas rate case. nnual Cost to YMC at Snow Mountain Ranch Current Rates Proposed Rates Existing Contract nnual Cost $ 226,956 $ 225,855 Option : Individual Transportation nnual Cost $ 297,25 $ 00,69 Increase over existing $ 70,279 $ 7,79 Percentage increase % % Option 2: Sales Service nnual Cost $ 8,57 $ 26,06 Increase over existing $ 9,59 $ 00,208 Percentage increase 0% % s one can see, the two options recommended by PSCo will be very costly to YMC. Depending on the option selected by YMC, the annual cost increase may exceed $00,000 an increase of % in YMC s yearly gas bill. If natural gas prices go up from today s levels, the increases under Option 2 will be even larger. These increases are especially vexing since the new arrangements will be new only in the financial sense. The cancellation of the consolidated meter arrangement will have no impact on the physical system or its operation. The exact same quantities of gas will flow to exactly the same users. On the other hand, PSCo will likely have to incur additional costs for metering and billing exactly the costs YMC (and PSCo in 997 sought to avoid with transportation and the consolidated metering option. -0-

12 In addition to the higher charges associated with either option proffered by PSCo, there will be additional irrational costs borne by PSCo and YMC. In my view, these additional costs are little more than make work for PSCo and YMC. For example, YMC will have to install eighty new phone lines so that PSCo can poll each of the eighty meters every day to confirm that the daily load at the meter does not exceed the PD for which YMC is paying and to ensure that Kerr-McGee is supplying the correct amount of natural gas to the system. PSCo will have to prepare and send out eighty bills instead of one bill, with the attendant costs and charges. This is especially unfortunate since YMC has no interest in receiving a separate bill for each of its eighty delivery points. The existing consolidated meter, with an original installed cost of $6,70 will no longer be needed. PSCo will either have to remove and repurpose the meter or consider it to be stranded investment. III. Reasons for PSCo s Decision to Terminate YMC s Contract What reasons has PSCo given for its decision to terminate the transportation 5 contract and eliminate the consolidated meter arrangement? 6 Based on my review of the termination letter provided to YMC and the documents produced in the case, it appears PSCo provides the following arguments: The arrangement is discriminatory; The arrangement is not compensatory; The arrangement is inconsistent with PSCo s tariffs --

13 2 Do you agree with PSCo s analysis? No. First, I do not think that the consolidated meter arrangement is discriminatory. Second, my analysis shows that, under reasonable assumptions about the cost of the actual distribution facilities in place at SMR, the Specific S&F charge currently being charged to YMC is likely to be fully compensatory. Even if it is not, there is no impediment to PSCo increasing the Specific S&F charge. The third argument that the arrangement is inconsistent with PSCo s tariffs is a legal argument that I will not address. However, I think that the consolidated meter arrangement is consistent with sound regulatory principles and does not lead to subsidization of one customer group by another. 2 Why do you think that the arrangement is not discriminatory? When PSCo began offering the consolidated meter option, its policy described the types of customers that were eligible for the arrangement. These major characteristics of eligible customers include: The customer is a single entity and all loads past the consolidated meter are controlled by the customer; The customer must be willing to receive one bill for service; The customer must agree to pay an additional Specific Service and Facility Charge to reflect the cost of facilities needed to provide the service; PSCo must have right of ingress and egress from the site ll loads must be located on contiguous property owned or controlled by the customer. s long as PSCo offers a consolidated meter arrangement to any party who qualifies under these requirements, I do not believe the policy is discriminatory. The qualifications outlined in these (and other eligibility guidelines have rational bases and are not dissimilar to application restrictions contained in other tariffs. s an -2-

14 example of such rational bases, consider the first and fifth requirements above that the load be controlled by the customer and be located on property owned or controlled by the customer. This is a reasonable requirement since the credit profile of a single entity with financial control is likely to be quite different than an entity that relies on payment from downstream customers. Similarly, it is reasonable to offer this arrangement only to entities that control the downstream loads; otherwise the Company is exposed to a fluctuating master load that cannot be controlled by the customer. The contiguous property requirement is reasonable since otherwise the overhead costs of calculating the customer s Specific S&F could be quite high. Similar comments apply to the other eligibility requirements. s I will discuss below, I also think that the consolidated meter arrangement (properly implemented does not give preferential cost treatment to customers served under this agreement. This lack of subsidization is another reason to conclude that the consolidated meter arrangement is not discriminatory. 5 Why do you think the consolidated meter arrangement adequately 6 compensates PSCo? 7 In his deposition, Mr. Niemi claimed that the Specific Service and Facility Charge did not fully compensate PSCo for its costs since the charge does not include an increment for the investment in mains and service laterals downstream from the consolidated meter. Mr. Niemi is correct that the worksheets used by PSCo to calculate the Specific Service and Facility Charge for YMC zero out the cost of those facilities. But this is not the whole story. --

15 Curiously, while the Specific S&F arguably may not charge YMC for the cost of mains and service laterals that are used, it does charge YMC for the cost of eighty meters that are not used or needed. To determine whether the current Specific S&F charge is compensatory, it is necessary to analyze the cost of three components: service laterals, distribution mains and meters needed to supply the service. In addition, the Specific S&F should consider expenses, such as administrative and general expenses, in addition to the capital costs. Unfortunately, the record in this case does not contain detailed information about the exact inventory of physical plant used by PSCo to provide distribution with the consolidated meter option at Snow Mountain Ranch. Therefore, my estimate of the cost relies on information that applies more generally to distribution facilities on the PSCo system. s discussed later, this estimate should eventually be improved by the Company by considering actual facilities and their associated costs. Mr. Binz, have you estimated the annual revenue requirement associated 5 with service laterals at Snow Mountain Ranch? 6 Yes, Exhibit RJB-, page contains an estimate of the cost of the eighty service laterals at Snow Mountain Ranch. The exhibit shows that, under reasonable assumptions about the Company s gross investment in the laterals and a reasonable revenue requirements factor, the annual cost of the service laterals would be approximately $5,. This estimate attempts to capture the investment made at Snow Mountain Ranch for laterals by observing that PSCo s average investment system-wide in service laterals is approximately $9 per service lateral. On the other hand, there is a difference --

16 between the average investment for residential laterals and commercial laterals. For my estimate at SMR, I assumed that the sixty family cabins at SMR are served by residential-sized laterals and that the rest of the structures are served by commercialsized service laterals. This assumption is consistent with the line extension work paper (CREGS produced by PSCo in discovery in this case. The CREGS worksheet shows that the Company used ¾ piping when it added six residences to the SMR campus in 999. I have attached a copy of the CREGS worksheet as exhibit RJB Did you estimate the annual revenue requirement associated with mains at 9 Snow Mountain Ranch? 0 Yes. I first note that the Capacity and Commodity charges in the transportation tariff TF already compensate the Company for its investment in system mains on the input side of the consolidated meter. Since these Capacity and Commodity charges vary with YMC s firm capacity reservation and also with gas throughput, it is clear that SMR is paying its fair share of the system costs on the PSCo system side of the consolidated meter through its TF tariff payments. This also means that it is not possible to use the same estimation method that was used for laterals, (viz. the Company s average investment in laterals per customer because a large fraction of the total main investment is addressed by the TF charges. To estimate the cost of the main investment, I assumed that the length of the mains on the output side of the consolidated meter is half the combined length of all the laterals. I also assumed that the cost per foot of mains is the same as the cost per foot of 2 The CREGS worksheet also shows that the YMC paid upfront for 8% of the cost of the extension in 999, leaving PSCo with an investment of only $27 for six new laterals and 500 feet of distribution main. -5-

17 2 commercial service laterals. This produces an annual revenue requirement of $5,289 for the distribution mains, as shown on Exhibit RJB-, page 2. Have you estimated the annual revenue requirement associated with meters at Snow Mountain Ranch? 5 Yes. Exhibit RJB-, page contains an estimate of the annual cost of the consolidated meter installed by PSCo at the time YMC was offered the option consolidated metering. YMC has been paying a monthly charge (currently $2.87 for the cost of the consolidated meter each month since its installation. The Company also incurs various operating expenses (e.g., dministrative and General Expenses associated with the consolidated meter. I used the current monthly payment of $.29 for this expense. Since these prices may arguably be dated, I increased each of these monthly expenses by 6.02%, which is half the percentage increase sought by PSCo in its current gas rate increase case. Under these assumptions, the annual revenue requirement associated with the consolidated meter is $, Does your estimate include the cost of the eighty check meters located on 6 the YMC property? 7 No. The meters downstream from the consolidated meter have not been read by PSCo or used otherwise since 999. Since they are not required to provide consolidated metering service for YMC, I excluded the investment associated with those meters. lthough the Company s current Specific S&F charge is based mainly on these meters, I included piping instead and excluded these unused meters, reasoning that the Company can salvage the meters and use them elsewhere. -6-

18 Please summarize your estimate of the cost to PSCo of distribution facilities 2 downstream from the consolidated meter. Combining my estimates of the annual cost of laterals, distribution mains and the consolidated meter, I estimate that the total annual cost of these facilities is $,26. The calculation is shown on Exhibit RJB-, page. This total is only $79 per year more than the annual Specific S&F charge paid by YMC today. In other words, these estimates show that the current Specific S&F Charge levied by PSCo on YMC is likely compensatory. To be clear, the point of this analysis is to test PSCo s claim that the current Specific S&F charge is not compensatory. I do not advocate setting a new Specific Service and Facilities Charge based on these estimates. The Company should base a revised Specific S&F charge (if required on the actual investment in the consolidated meter and the facilities below the consolidated meter needed to move the gas to the eighty distribution points at Snow Mountain Ranch. The revenue requirement should be based on the actual investment and Revenue Requirements Factor(s that follow from a rate case. The cost should also be offset by any contribution to these costs that are paid in the Capacity and Commodity charges in the TF tariff. 8 Please turn to PSCo s third reason for canceling the transportation 9 20 agreement with YMC. Do you think the consolidated meter arrangement is inconsistent with PSCo s tariffs? 2 s mentioned earlier, I will not argue the legal points inherent in this question However, I would argue that the consolidated meter arrangement is consistent with good regulatory practice and ought to be continued. If the Commission concludes that there is -7-

19 2 a question about whether the tariff explicitly authorizes this arrangement, I recommend that PSCo clarify its tariff, instead of eliminating this valuable service option. Why do you think the consolidated meter arrangement is consistent with good regulatory practice? 5 First, the consolidated meter arrangement lowers total costs. By eliminating unnecessary metering and billing costs, the practice lowers the cost of service to YMC without raising the cost to others. Second, the consolidate meter arrangement (with the associated Specific Service and Facility Charge improves the accuracy of utility rates. Rather than charge YMC an average distribution charge that may either over-collect or under-collect YMC s actual costs, this arrangement essentially directly assigns the correct distribution costs to YMC. Regulation obviously cannot produce customer-specific costs for each customer on the gas system because of the large costs of measuring and billing individual customers costs. Most customers (e.g., millions of residential customers, or tens of thousands of commercial customers are properly charged average rates for such items as distribution costs and metering and billing costs. But for large customers such as YMC, the cost of estimating specific costs is much lower as a percentage of revenues. 9 You testified that YMC s costs would be substantially higher if it were 20 2 converted to the CG rate. Doesn t that mean that YMC is subsidized under its current arrangement? 22 Not at all. This difference is due to four facts: i YMC profited from its choice 2 to lock-in gas prices; ii the CG rate provides services (eighty monthly bills that YMC -8-

20 does not need or desire; and iii the average CG distribution charge overstates the system cost actually caused by YMC, compared to the direct assignment -style charge of the (correctly calculated Specific Service and Facility Charge.; and iv the consolidated meter arrangement appropriately gives YMC credit for the diversity of its load at the point of the consolidated meter. Simply put, there is no merit or justification in incorrectly charging YMC so that other customers might benefit. 8 You stated previously that the consolidated meter arrangement differs from 9 0 the master meter arrangement only in the fact that the MMO owns the facilities downstream from the master meter. Is it possible that YMC could purchase the distribution facilities from PSCo? 2 Depending on the sale price, this would appear to be a solution that would help PSCo and YMC to resolve this dispute. However, PSCo has declined to sell its downstream distribution facilities, leaving YMC with no realistic option. PSCo states that it is concerned about its liability attached to the sold facilities. While this is a reasonable concern, it is clearly one that can be addressed in the sale arrangement. I would also note that PSCo s reluctance to sell the facilities could be related to the fact that the Company will profit from either of the two options offered to YMC in its termination letter. PSCo is refusing to continue the consolidated meter option and simultaneously refusing to allow YMC to purchase the facilities that would make it possible to operate a master meter. The result is sharply higher prices for YMC, greater costs and greater revenues for PSCo, all without any change in the physical arrangement or in gas consumption of YMC. -9-

21 IV. CONCLUSIONS ND RECOMMENDTIONS 2 Mr. Binz, please summarize your findings. Based on my analysis, I offer these findings: lthough the consolidated meter arrangement between PSCo and YMC is relatively unusual in Colorado, there is no policy reason why it must be discontinued. PSCo s decision to abrogate the transportation contract with YMC removes most of the financial incentives under which YMC entered into a natural gas purchase contract with Kerr-McGee. It is not equitable to deprive YMC of the benefits of its efforts and the risk it undertook in contracting for natural gas in the competitive market. The options listed by PSCo in its termination letter are very costly to YMC, raising its cost of natural gas by $70,000 to $00,000 per year increases of % to %. Requiring YMC to enter into separate transportation contracts for each of the eighty delivery points on the SMR campus creates irrational costs not needed by YMC or PSCo: o telecommunications to add daily electronic meter access; o additional metering costs; o higher costs for transportation with no change in the physical arrangements; o less accurate estimates of pipeline capacity required to serve SMR. Requiring YMC to move to a gas sales arrangement (CG rates creates irrational costs that are not needed by YMC or PSCo. o additional metering costs o multiple unwanted bills o stranded investment for the existing consolidated meter The current Specific Service and Facilities Charge calculated by PSCo likely reimburses PSCo for the distribution facilities needed by PSCo to distribute -20-

22 gas from the consolidated meter to the eighty distribution points within SMR; in any event, there is no impediment to PSCo revising the charge if needed; ssuming PSCo s gas transportation tariffs are compensatory and that the Special Service and Facilities Charge is calculated correctly, the consolidated meter arrangement is not subsidized by other rate classes. What are your recommendations to the Commission? Primary recommendation: The Commission should not permit PSCo to discontinue the consolidated meter arrangements for customers meeting PSCo s guidelines. While there does not appear to be any inconsistency with existing tariffs, the tariffs should be modified to permit the existing practice if the Commission finds in necessary to do so. The Commission should determine whether the Specific Service and Facility Charge fully compensate the Company; if not, it should be recalculated to include the cost of mains and service laterals, but eliminate the investment in facilities, such as check meters, not used to provide service Secondary recommendation: If the Commission allows PSCo to terminate its consolidated meter arrangements, then the Commission should require the Company to grandfather the YMC arrangement for the period of YMC s current gas purchase agreement with Kerr-McGee. Further, the Commission should require the Company to make available for sale to YMC its downstream distribution system. These facilities should be offered at a price that reflects original cost and the remaining useful life of the facilities needed to distribute gas from the consolidated meter to the distribution points within SMR. Finally, the sale should be structured to accommodate PSCo s concerns about its future liability Does this conclude your testimony? Yes. -2-

23 Ronald J. Binz Eudora Street Denver, Colorado (H (O ppendix to Testimony of Ronald Binz Page of 0 Employment History 995-present President, Public Policy Consulting Public policy consultant, specializing in energy and telecommunications issues. ssignments include strategic counsel to clients and research and testimony before regulatory and legislative bodies. Since 995, a wide range of clients has included: consumer advocate offices, rural electric utilities, senior citizen advocacy groups, industrial electric users, homebuilders, telecommunications resellers, an incumbent local exchange company, low-income advocacy organizations, and municipal utilities. 996-present President and Policy Director, Competition Policy Institute Competition Policy Institute is an independent non-profit organization that advocates state and federal policies to bring competition to energy and telecommunications markets in ways that benefit consumers. Duties include: determining the organization s policy position on a wide range of telecommunications and energy issues; conducting research, producing policy papers, presenting testimony in regulatory and legislative forums, hosting educational symposia for state regulators and state legislators Director, Colorado Office of Consumer Counsel Director of Colorado's first state-funded utility consumer advocate office. By statute, the OCC represents residential, small business and agricultural utility consumers before state and federal regulatory agencies. The office has been a party to more than two hundred legal cases before the Colorado Public Utilities Commission, the Federal Communications Commission, the Federal Energy Regulatory Commission and the courts. nnual office budget was more than $ million. Managed a staff of eleven, including attorneys, economists, and rate analysts who conduct economic, financial and engineering research in public utility matters. Testified as an expert witness on subjects of utility rates and regulation. Negotiated rate settlement agreements with utility companies. Regularly testified before the Colorado general assembly and spoke to professional business and consumer organizations on utility rate matters. Consulted with advisory board of consumer leaders from around the state. Leadership role in National ssociation of State Utility Consumer dvocates. Member of high-level advisory boards to Federal Communications Commission (Network Reliability Council and Environmental Protection gency (cid Rain dvisory Council. Frequent witness before --

24 ppendix to Testimony of Ronald Binz Page 2 of 0 congressional committees and invited speaker before national industry and regulatory forums Consulting Utility Rate nalyst Represented clients in public utility rate cases and testified as an expert witness in more than twenty utility cases before regulatory commissions in Utah, Wyoming, Colorado and South Dakota Clients included state and local governments, low income advocacy groups, irrigation farmers and consumer groups. Testimony spanned topics of telephone rate design, electric cost-of-service studies, avoided cost valuation of nuclear generation, electric rate design for irrigation customers and municipal water rate design Instructor in Mathematics Taught mathematics at the University of Colorado, Denver and Boulder campuses. Nominated three times for outstanding part-time faculty member Manager, Blue Cross and Blue Shield Managed major medical claims processing department. Responsibilities included budgets, hiring, training, managing supervisors, and coordinating with medical peer review committee. Other Business Interests 99-present Managing Partner, Trail Ridge Winery Partner and Secretary/Treasurer of Trail Ridge Winery. Trail Ridge is a Colorado winery located in Loveland, Colorado, producing a variety of wines from Colorado-grown grapes. Duties include service on board of directors; duties of corporate secretary/treasurer; development of business plans; legislative, regulatory and other external affairs; assistance in winery operations and tasting room; assistance in public relations and marketing. Education M. (Mathematics 977. University of Colorado. Course requirements met for Ph.D. Graduate courses toward M. in Economics University of Colorado. Twenty-seven hours including Economics of Regulated Industries, Natural Resource Economics, Econometrics. -2-

25 ppendix to Testimony of Ronald Binz Page of 0 dvanced Course in Utility Regulation 986. National ssociation of Regulatory Utility Commissioners. B. with Honors (Philosophy 97. St. Louis University. Diploma 967. Catholic High School, Little Rock, rkansas. Professional ssociations and ctivities Colorado Legislative Task Force on Information Policy, Gubernatorial ppointee National ssociation of State Utility Consumer dvocates President , Vice-President 990, Treasurer Chair, Telecommunications Committee Network Reliability Council to the Federal Communications Commission North merican Numbering Council to Federal Communications Commission, Co-Chair Harvard Electric Policy Group, John F. Kennedy School, Harvard University Denver Mayor's Council on Telecommunications Policy Exchange Carriers Standards ssociation Network Reliability Steering Committee Colorado Telecommunications Working Group, Gubernatorial ppointee Colorado Energy ssistance Foundation, Board Member, Past President Legislative Commission on Low-Income Energy ssistance, Past President Colorado Public Interest Research Foundation, Board Member Colorado Common Cause, Board Member cid Rain dvisory Council to the Environmental Protection gency Outreach Committee, Western States Coordinating Council Regional Planning Committee Total Compensation dvisory Council to the State of Colorado Department of Personnel New Mexico State University Public Utilities Program, Faculty and dvisory Council --

26 ppendix to Testimony of Ronald Binz Page of 0 spen Institute for Humanistic Studies, Telecommunications Policy Meetings Who's Who in Denver Business Council on Economic Regulation, Past Fellow Colorado Wine Industry Development Board, Chairman merican Vintners ssociation, Executive Committee, Membership Chair --

27 ppendix to Testimony of Ronald Binz Page 5 of 0 Legislative and Congressional Testimony 2 United States House of Representatives Judiciary Committee, November 999. Testimony concerning H.R. 25, The Fairness in Telecommunications License Transfer ct of 999. United States Senate Judiciary Committee; ntitrust, Business Rights and Competition Subcommittee, pril 999. Testimony concerning S.67, The ntitrust Merger Review ct. United States Senate Commerce Committee, Telecommunications Subcommittee, May 998. Testimony in oversight hearings concerning the performance of the Common Carrier Bureau of the Federal Communications Commission. United States Senate Judiciary Committee, Washington, D.C., September 996. Presented testimony on behalf of the Competition Policy Institute on the competitive impact of proposed mergers of Regional Bell Operating Companies. United States House of Representatives Subcommittee on Telecommunications and Finance of the Committee on Commerce, May 995. Testimony presenting NSUC=s position on H.R. 555 by Representative Fields. United States Senate Subcommittee on ntitrust, Washington, D.C., September 99. Testimony presenting NSUC's position on S. 822 by Senator Hollings. United States House of Representatives Subcommittee on Telecommunications and Finance of the House Energy and Commerce Committee, Washington, D.C., February 99. Presented testimony on H.R. 66. United States House of Representatives Subcommittee on Economics and Commercial Law, Washington, D.C., October 992. Supplemental testimony presenting NSUC's position on legislation concerning the Modified Final Judgment introduced by Representative Brooks. United States House of Representatives Subcommittee on Telecommunications and Finance, Washington, D.C., October 99. Testimony on RBOC entry into telecommunications manufacturing and information services. United States House of Representatives Subcommittee on Economics and Commercial Law, Washington, D.C., ugust 99. Testimony presenting NSUC's position on possible federal legislation concerning the Modified Final Judgment. United States Senate Subcommittee on Energy Regulation and Conservation, Denver, Colorado, pril 99. Testimony presenting NSUC's position on federal legislation concerning regulation of the natural gas industry, introduced by Senator Wirth. United States Senate Communications Subcommittee, Washington, D.C., February 99. Testimony on behalf of NSUC concerning S.7, telecommunications legislation

28 ppendix to Testimony of Ronald Binz Page 6 of 0 introduced by Senator Ernest Hollings. United States Senate Communications Subcommittee, Washington, D.C., July 990. Testimony on behalf of NSUC concerning S.2800, telecommunications legislation introduced by Senator Conrad Burns. United States House of Representatives Subcommittee on Telecommunications and Finance, July 988. Testimony on the FCC Price Cap proposal. Georgia State Legislature Interim Committee on Natural Gas Competition. Fall 996. Testimony on the consumer impacts of restructuring the natural gas industry in Georgia Iowa General ssembly, Des Moines, Iowa, November 992. Testimony on legislation concerning incentive regulation. merican Legislative Exchange Council, November 999. "The Changing Role of Public Utilities Commissions" merican Legislative Exchange Council concerning Rights-of-Way and Competition in Telecommunications, July 998. merican Legislative Exchange Council Committee on Rights of Way. May 998. Testimony on rights of way policies, taxation and telecommunications development. Colorado State Senate and Colorado House of Representatives Frequent witness on variety of energy and telecommunications issues. Recent Regulatory Testimony and Presentations Since 977, Mr. Binz has participated in more than 50 regulatory proceedings before the Federal Energy Regulatory Commission, the Federal Communications Commission, State and Federal District Courts, the 8 th Circuit and D.C. Circuit Courts of ppeal, the U.S. Supreme Court and state regulatory commissions in California, Colorado, Georgia, Maine, New York, South Dakota, Texas, Utah, and Wyoming. He has filed testimony in approximately fifty proceedings before these bodies. His testimony and comments have addressed a wide variety of technical and policy issues in telecommunications, electricity, natural gas and water regulation. Following is a sample of recent testimony and presentations before regulatory bodies. Testimony Before the Colorado Public Utilities Commission. Testimony on behalf of Colorado Energy Consumers in the Matter of the pplication of Public Service Company of Colorado For n

29 ppendix to Testimony of Ronald Binz Page 7 of 0 Order uthorizing It To Implement Purchased Capacity Cost djustment Rider In Its PUC No. 7 Electric Tariff. Docket No. 0-6E. (filed: March 200 Before the Wyoming Public Service Commission. Testimony on behalf of Wyoming Industrial Energy Consumers (WIEC and RP In the Matter of the pplication of PacifiCorp for pproval of a Power Cost djustment Mechanism. Docket No ET (filed: January 200. Before the Colorado Public Utilities Commission. Testimony on behalf of the Colorado Office of Consumer Counsel Regarding The Unbundling Obligations Of Incumbent Local Exchange Carriers Pursuant To The Triennial Review Order Initial Commission Review. Docket No. 0I-78T. (January 200 Before the Wyoming Public Service Commission. Testimony on behalf of RP in the matter of The pplication Of PacifiCorp For Retail Electric Utility Rate Increase Of $.8 Million Per Year Docket No ER-0-98 (January 200. Before the Wyoming Public Service Commission. Testimony on behalf of RP in the matter of an application by Kinder Morgan to modify the provider selection process in its Choice Gas Program. (December 200. Before the Public Service Commission of North Dakota Testimony on behalf of RP in the matter of In the Matter of the Notice of Montana-Dakota Utilities Co. for an Electric Rate Change. Case No. PU (October 200 Before the Colorado Public Utilities Commission. Testimony in the matter of Public Service Company of Colorado s dvice Letter N. 598 Natural Gas Extension Policy. Docket No. 02S-57G. (March 200 Before the Colorado Public Utilities Commission. Testimony in the remand hearings in the formal complaint case of the Homebuilders ssociation of Metropolitan Denver against Public Service Company. Docket 0F-07G. (January 200 Before the Wyoming Public Service Commission. Testimony on behalf of RP in the matter of an application by PacifiCorp to increase rates, recover excess net power costs, and recover purchase power costs related to the Hunter Unit outage. Docket No ER Testimony Concerning Proposed General Rate Increase nd Surcharge For Previous Power Costs. (November Before the Wyoming Public Service Commission. Testimony on behalf of RP in the matter of an application by PacifiCorp to increase rates, recover excess net power costs, and recover purchase power costs related to the Hunter Unit outage. Docket No ER Testimony Concerning Hunter Unit Issues. (November Before the Colorado Public Utilities Commission.. Comments on behalf of the Colorado Energy ssistance Foundation. Docket No. 02R-96G. In the Matter of the Proposed Repeal and Reenactment of the Rules Regulating Gas Utilities. (November 2002

30 ppendix to Testimony of Ronald Binz Page 8 of 0 Before the Colorado Public Utilities Commission.. Testimony on behalf of Colorado Energy ssistance Foundation and Catholic Charities of the rchdiocese of Denver. Docket No E. In the Matter of the pplication of Public Service Company of Colorado for an Order to Revise its Incentive Cost djustment. (pril 2002 Before the Idaho Public Utilities Commission. Testimony on behalf of staris, in the matter of Case No. IPC-E-0- concerning the buy back rates under an electric load reduction program. (January 2002 Before the Colorado Public Utilities Commission. Testimony in matter of the investigation of dvice Letters 579 and 58 of Xcel Energy on behalf of Homebuilders ssociation of Denver. Dockets 0S-65G and 0S-0G. (January 2002 Before the Colorado Public Utilities Commission. Testimony in the formal complaint case of the Homebuilders ssociation of Metropolitan Denver against Public Service Company. Docket 0F-07G. (ugust 2, 200 Before the Colorado Public Utilities Commission. Testimony in the matter of the investigation and suspension of dvice Letter No. 566 of Xcel Energy on behalf of the Homebuilders ssociation of Metropolitan Denver. Docket No. 00S-22G. (November 2000 Before the merican rbitration ssociation. In the Matter of Univance Telecommunications, Inc. v. Venture Group Enterprises, Inc. rbitration No. 77 Y (November 2000 Testimony of Ronald Binz at FCC Public Forum on SBC/meritech merger (May 6, 999 Docket No TC -- Testimony of Ron Binz before New Mexico State Corporation Commission on Investigation Concerning USWest's Compliance with Section 27(c of the Telecommunications ct (July 27, 998 Before the Colorado Public Utilities Commission. Testimony Concerning the Investigation of Telephone Numbering Policies. (March 26, 998 Docket No. 677-U C Testimony before the Georgia Public Service Commission Concerning the Service Provider Selection Plan of tlanta Gas Company. (January 0, 997 Case 96-C-060 and Case 96-C Testimony of Ronald J. Binz on behalf of CPI before the New York State Public Service Commission concerning the Bell tlantic/nynex Merger (November 25, 996 Docket No Direct Testimony of Ronald J. Binz, CPI, On Behalf of the Office of the Public dvocate (October 5, 996 State of Maine, Public Utilities Commission Joint Petition of New England Telephone and Telegraph Company and NYNEX Corporation for pproval of the Proposed Merger of a Wholly-Owned Subsidiary of Bell tlantic

31 ppendix to Testimony of Ronald Binz Page 9 of 0 Corporation into NYNEX Corporation. pplication No Direct Testimony of Ronald J. Binz, CPI, On Behalf of Intervener, Utility Consumers ction Network (September 0, 996 Before the Public Utilities Commission of the State of California In the Matter of the Joint pplication of Pacific Telesis Group (Telesis and SBC Communications (SBC for SBC to Control Pacific Bell (U 00 C, Which Will Occur Indirectly as a Result of Telesis' Merger With a Wholly Owned Subsidiary of SBC, SBC Communications (NV Inc. Presentation to Federal-State Joint Board on Universal Service (pril 2, 996 Testimony before the Texas Public Utility Commission on the Integrated Resource Planning Rule (March, 996 Presentations Section 27: Is it a 0 for Consumers? Presentation to the National ssociation of State Utility Consumer dvocates. Chicago, Illinois. November 2002 CLEC Market Share--What do the Numbers Say? Presentation to the Regional Oversight Committee of west state regulators. Santa Fe, New Mexico. pril 2002 Public Utility Regulation and Low Income Issues, Presentation of Ron Binz before the Colorado Public Utilities Commission on behalf of the Colorado Energy ssistance Foundation, December 5, 200. "Some Natural Gas Issues," Presentation by Ron Binz for the Western Conference of Public Service Commissioners, June, "Consumer Issues in Natural Gas Unbundling" -- Presentation of Ron Binz before the National ssociation of Regulatory Utility Commissioners (November 9, 999 Ron Binz Presentation to the 25th nnual Rate Symposium on Competition for small customers in natural gas markets (pril 27, 999 "Best Practices in Telecommunications Regulation"; Presentation before NRUC Communications Committee and National Regulatory Research Institute at NRUC Winter Meeting (February 999

32 ppendix to Testimony of Ronald Binz Page 0 of 0 Publications Mr. Binz has published two reports, funded by the Energy Foundation, of the impact of a renewable energy standard in Colorado: The Impact of the Renewable Energy Standard in mendment 7 on Electric Rates in Colorado. (September 200 The Impact a Renewable Energy Portfolio Standard On Retail Electric Rates In Colorado. (February 200 Mr. Binz is the co-author of two major reports on electric industry restructuring: Navigating a Course to Competition: Consumer Perspective on Electric Restructuring. ddressing Market Power: The Next Step in Electric Restructuring. In the telecommunications area, Mr. Binz published a major discussion paper entitled west, Consumers and Long Distance Entry: Discussion Paper. These publications (along with copies of other testimony and reports are available at the Public Policy Consulting website:

33 YMC OF THE ROCKIES, v. Complainant, XCEL ENERGY (d/b/a PUBLIC SERVICE COMPNY OF COLORDO, Respondent Docket No. 05F-67G Exhibit to the Testimony of Ronald J. Binz On Behalf of YMC of the Rockies Exhibit RJB- Map of Snow Mountain Ranch

34 Exhibit RJB- Page of

35 YMC OF THE ROCKIES, v. Complainant, XCEL ENERGY (d/b/a PUBLIC SERVICE COMPNY OF COLORDO, Respondent Docket No. 05F-67G Exhibit to the Testimony of Ronald J. Binz On Behalf of YMC of the Rockies Exhibit RJB-2 nalysis of the Cost of YMC s Options

36 nalysis of the Cost of YMC s Options Exhibit RJB-2 Page of Usage ssumptions Peak Day uantity (Dth 25 nnual uantity (Dth 925 Diversity Benefit % Scenarios Status uo ll Meters TF ll Meters CG Prices Current Rates Proposed Rates Current Rates Proposed Rates Current Rates Proposed Rates Service and Facility Charge/Meter/Mo Commodity Charge/Dth Capacity Charge/PD(Dth/Mo Specific Facilities Charge/Mo,056., Volumetric Distribution Charge/Dth Telecom Costs/Meter/Mo Purchased Gas/Dth GC/Dth Number of Meters Total Dth 9,25 9,25 9,25 9,25 9,25 9,25 Peak Day uantity (Dth nnual Bill Service and Facility Charge ,668 58,29 5,552 2,69 Commodity Charge 9,28 5, 9,28 5, - - Capacity Charge 5,065 8,060 20,07 2, Specific Facilities Charge 2,677 2, Telecom Costs - - 2,000 2, Volumetric Distribution Charge ,05 5,25 Non-gas Subtotal 7,709 6,608 07,988,02 9,60 57,9 Purchased Gas 86,625 86,625 86,625 86, GC 2,62 2,62 2,62 2,62 268,9 268,9 Gas Subtotal 89,27 89,27 89,27 89,27 268,9 268,9 Total nnual Bill (Includes Riders 226, , ,25 00,69 8,57 26,06 Increase over Status uo 70,279 7,79 9,59 00,208 Percent Change over Status uo.0%.0% 0.%.2%

37 YMC OF THE ROCKIES, v. Complainant, XCEL ENERGY (d/b/a PUBLIC SERVICE COMPNY OF COLORDO, Respondent Docket No. 05F-67G Exhibit to the Testimony of Ronald J. Binz On Behalf of YMC of the Rockies Exhibit RJB- Recalculation of Specific S&F Charge

38 Exhibit RJB- Page of Estimated nnual Cost of Service Laterals at Snow Mountain Ranch PSCo verage Gross Plant -- Residential Laterals $ 275 PSCo verage Gross Plant -- Commercial Laterals $ 86 "Residential-sized" laterals 60 "Commercial-sized" laterals 20 Total Lateral Investment 2,8 Revenue Requirements Factor 0.68 nnual Revenue Requirement for Service Laterals $ 5,

39 Exhibit RJB- Page 2 of Estimated nnual Cost of Distribution Mains at Snow Mountain Ranch Investment per Commercial Lateral $ 86 Number of Laterals 80 Equivalent Main Investment $ 2,60 Revenue Requirements Factor nnual Revenue Requirement for Distribution Mains $ 5,289

40 Exhibit RJB- Page of Estimated nnual Cost of Meters at Snow Mountain Ranch Existing nnual Charge for Consolidated Meter $ 2,806 Rate Case Inflator 6.02% nnual Capital Cost of Consolidated Meter $ 2,975 Existing First Meter nnual Expenses $ 59 Rate Case Inflator 6.02% nnual Expense for First Meter $ 55 Total nnual Cost of Metering $,526

41 Exhibit RJB- Page of Estimated Total Specific Service and Facility Costs at Snow Mountain Ranch nnual Revenue Requirement for Service Laterals $ 5, nnual Revenue Requirement for Distribution Mains $ 5,289 Total nnual Cost of Metering $,526 Total nnual Specific S&F Costs $,26

42 Exhibit RJB- Page of YMC OF THE ROCKIES, v. Complainant, XCEL ENERGY (d/b/a PUBLIC SERVICE COMPNY OF COLORDO, Respondent Docket No. 05F-67G Exhibit to the Direct Testimony of Ronald J. Binz On Behalf of YMC of the Rockies Exhibit RJB- Line Extension Worksheet from 999

43 Exhibit RJB- Page of