BOEHM, KURTZ & LOWRY ATTORNEYS AT LAW 36 EAST SEVENTH STREET SUITE 1510 CINCINNATI, omo 45202 TELEPHONE (513) 421-2255 TELECOPIER (513) 421-2764 Via Overnight Mail October 16, 2019 Mr. Reece McAlister, Executive Secretary Georgia Public Service Commission 244 Washington Street, S.W. Atlanta, Georgia 30334-570 1 Re: Georgia Power Company’s 2019 Rate Case; Docket No. 42516 Dear Mr. McAlister: Please fmd enclosed the original and fifteen (15) copies of the DIRECT TESTIMONY AND EXHIBITS OF KEVIN C. HIGGINS on behalf of THE KROGER CO. for filing in the above-referenced matter. I also enclose a CD containing same in .Word format and .Pdf format. By copy of this letter, all parties listed on the Certificate of Service have been served. Please place this document of file. Very T y Yours rt J. Boehm, Esq. Jody Kyler Cohn, Esq. BOEHM, KURTZ & LOWRY MLKkew Attachment cc: Certificate of Service BEFORE THE GEORGIA PUBLIC SERVICE COMMISSION In The Matter of Georgia Power Company’s 2019 Rate Case ) ) ) Docket No. 42516 Direct Testimony of Kevin C. Higgins on behalf of The Kroger Co. October 17, 2019 DIRECT TESTIMONY OF KEVIN C. HIGGINS 1 2 3 INTRODUCTION 4 Q. 5 A. 7 Q. 8 A. BY WHOM ARE YOU EMPLOYED AND IN WHAT CAPACITY? I am a Principal in the firm of Energy Strategies, LLC. Energy Strategies is a private consulting finii specializing in economic and policy analysis 9 applicable to energy production, transportation, and consumption. 10 Q. ON WHOSE BEHALF ARE YOU TESTIFYING IN THIS PHASE OF THE PROCEEDING? 12 13 My name is Kevin C. Higgins. My business address is 215 South Street, Suite 200, Salt Lake City, Utah, 84111. 6 11 PLEASE STATE YOUR NAME AND BUSINESS ADDRESS. A. My testimony is being sponsored by The Kroger Co. (“Kroger”). Kroger 14 is one of the largest retail grocers in the United States and purchases more than 15 200 million kWh annually from Georgia Power Company (“Georgia Power”) to 16 serve more than 100 accounts. Kroger takes service under various tariffs, 17 including Power & Light Medium (“PLM”), Time-of-Use High Load Factor 18 (“TOU-HLF”), Power & Light Small (“PLS”) and Outdoor Lighting. Kroger also 19 participates in Georgia Power’s Real Time Pricing (“RTP”) program. 20 Q. QUALIFICATIONS. 21 22 23 PLEASE DESCRIBE YOUR PROFESSIONAL EXPERIENCE AND A. My academic background is in economics, and I have completed all coursework and field examinations toward the Ph.D. in Economics at the Direct testimony of Kevin C. Higgins On behalf of The Kroger Co. Georgia Public Service Commission Docket No. 42516 Page 1 ofl2 1 University of Utah. In addition, I have served on the adjunct faculties of both the 2 University of Utah and Westminster College, where I taught undergraduate and 3 graduate courses in economics. Ijoined Energy Strategies in 1995, where I assist 4 private and public sector clients in the areas of energy-related economic and 5 policy analysis, including evaluation of electric and gas utility rate matters. Prior to joining Energy Strategies, I held policy positions in state and local 6 7 government. From 1983 to 1990, I was economist, then assistant director, for the 8 Utah Energy Office, where I helped develop and implement state energy policy. 9 From 1991 to 1994, I was chief of staff to the chairman of the Salt Lake County 10 Commission, where I was responsible for development and implementation of a 11 broad spectrum of public policy at the local government level. 12 Q. HAVE YOU PREVIOUSLY TESTIFIED BEFORE THIS COMMISSION? 13 A. Yes. I testified in Georgia Power’s 2013 rate case,1 2010 rate case,2 2007 14 rate case,3 2004 rate case,4 and 2001 rate case,5 as well as the Savannah Electric & 15 Power 2001 rate case.6 16 Q. COMMISSIONS IN OTHER STATES? 17 18 HAVE YOU TESTIFIED BEFORE UTILITY REGULATORY A. Yes. I have testified in approximately 230 proceedings on the subjects of utility rates and regulatory policy before state utility regulators in Alaska, 19 “In the Matter of Georgia Power Company’s 2013 Rate Case,” Docket No. 36989. “In the Matter of Georgia Power Company’s 2010 Rate Case,” Docket No. 31958. “In the Matter of Georgia Power Company’s 2007 Rate Case,” Docket No. 25060-U. ““In the Matter of Georgia Power Company’s 2004 Rate Case,” Docket No. 18300-U. “In the Matter of Georgia Power Company’s 2001 Rate Case,” Docket No. 14000-U. 6 “In the Matter of Savannah Electric & Power Company’s 2001 Rate Case,” Docket No. 14618-U. 2 Direct testimony of Kevin C. Higgins On behalf of The Kroger Co. Georgia Public Service Commission Docket No. 42516 Page 2 ofl2 1 Arizona, Arkansas, Colorado, Idaho, Illinois, Indiana, Kansas, Kentucky, 2 Michigan, Minnesota, Missouri, Montana, Nevada, New Mexico, New York, 3 North Carolina, Ohio, Oklahoma, Oregon, Pennsylvania, South Carolina, Texas, 4 Utah, Virginia, Washington, West Virginia, and Wyoming. I have also prepared 5 affidavits that have been filed with the Federal Energy Regulatory Commission. 6 7 OVERVIEW AND CONCLUSIONS 8 Q. PROCEEDING? 9 10 WHAT IS THE PURPOSE OF YOUR TESTIMONY IN THIS A. My testimony addresses the following issues: 11 (1) The appropriate ratemaking treatment of wholesale sales margins; and 12 (2) The basic service charge for the PLM tariff. 13 With respect to these issues, I offer recommendations to the Commission 14 in support of a just and reasonable outcome. Although I do not offer testimony 15 recommending a specific cost of capital, I note here that the 10.9% return on 16 equity requested by Georgia Power is 12$ basis points greater than the median 17 return on equity of 9.62% approved for vertically-integrated electric utilities by 18 state regulatory commissions in the United States over the past year and, if 19 approved, would be the single highest return on equity approved over that period.7 20 Absence of comment on my part regarding any other particular issue does not 21 signify support (or opposition) toward the Company’s filing with respect to the 22 non-discussed issue. Returns on equity for the 12-month period ending September 30, 2019 as reported by S&P Global Market Intelligence. The highest return on equity reported for this period was 10%. See Exhibit_(KCH-1). Direct testimony of Kevin C. Higgins On behalf of The Kroger Co. Georgia Public Service Commission Docket No. 42516 Page 3 ofl2 i Q. TESTIMONY. 2 3 PLEASE SUMMARIZE THE PRIMARY CONCLUSIONS IN YOUR (1) Georgia Power’s ratemaking treatment of wholesale sales margins A. 4 should be modified. Going forward, I recommend that the Commission require 5 Georgia Power to credit customers with: (a) 100% of projected test year profits 6 from economy energy/opportunity sales; and (b) 100% of projected test year 7 capacity revenues from market-based tariff sales. To the extent that the 8 Commission wishes to provide Georgia Power with an opportunity to share in the 9 margins from such sales, then I recommend that the Commission adopt a sharing 10 provision in which deviations from the level of margins projected in the test 11 period are shared between customers and the Company on an 80% customer/20% 12 Company basis. (2) Georgia Power’s proposed increase in the basic service charge for the 13 14 PLM tariff from $19.00 per month to $38.00 per month is a step in the right 15 direction for aligning costs and rates. However, the basic service charge for this 16 tariff is still well below cost-of-service, which is $136.13 per month.8 I 17 recommend that the basic service charge for the PLM tariffs be increased to 50% 18 of cost ($68.00 per month), with an offsetting reduction to the hours-use energy 19 charges in the tariff on a proportionate basis. further, to the extent that the 20 revenue requirement requested by Georgia Power is reduced in this proceeding, I 21 recommend that the basic service charge be set at $68.00 per month as I have 8 See Exhibit LTL-1. Direct testimony of Kevin C. Higgins On behalf of The Kroger Co. Georgia Public Service Commission Docket No. 42516 Page 4 of 12 1 proposed and any reduction to the PLM tariff be applied on an equal percentage 2 basis to the hours-use energy charges. 3 4 TREATMENT OF OFF-SYSTEM SALES MARGINS 5 Q. FROM OFF-SYSTEM SALES? 6 7 HOW DOES GEORGIA POWER PROPOSE TO TREAT MARGINS A. As described in the Direct Testimony of David P. Poroch, Sarah P. 8 Adams, and Michael B. Robinson, Georgia Power engages in three types of 9 wholesale sales transactions: economy energy/opportunity sales, market-based tariff sales, and wholesale block power and solar sales. The facilities used to 10 produce the latter are allocated a share of the Company’s production cost. In 12 contrast, the cost of the facilities used to make economy energy/opportunity sales 13 and market-based tariff sales is allocated to customers. The profit on the 14 economy energy/opportunity sales is split 75% to customers and 25% to the 15 Company and the capacity revenues from market-based tariff sales is split 80% to 16 customers and 20% to the Company. The discussion that follows is focused on 17 the treatment of these two types of wholesale transactions.9 18 Q. DO YOU BELIEVE THE PROPOSED TREATMENT OF MARGINS 19 FROM ECONOMY ENERGY/OPPORTUNITY SALES AND MARKET- 20 BASED TARIFF SALES IS REASONABLE? 21 22 A. No, it is not reasonable. Under Georgia Power’s proposed approach, the full profit from these sales that is likely to occur in the test period is not credited Direct Testimony of David P. Poroch, Sarah P. Adams, and Michael B. Robinson, pp. 63-64. Direct testimony of Kevin C. Higgins On behalf of The [(roger Co. Georgia Public Service Commission Docket No. 42516 Page 5 of 12 1 to customers even though customers bear the full responsibility for recovering the 2 jurisdictional fixed costs of these units. In making its proposal, Georgia Power 3 references prior Commission decisions that have allowed the type of sharing 4 arrangement the Company is seeking. In my opinion, a more reasonable and 5 conventional approach is to credit 100% of projected test period margins from 6 these sales to customers as an offset to rates. 7 Q. ARE YOU OPPOSED TO GEORGIA POWER RECEIVING A SHARE OF 8 OFF-SYSTEM SALES MARGINS AS AN INCENTIVE TO MAKE SUCH 9 SALES? 10 A. No, I am not opposed to Georgia Power receiving a share of off-system 11 sales margins as an incentive to make such sales. However, there is an important 12 and subtle difference between a reasonable incentive mechanism and what 13 Georgia Power is proposing. It can be reasonable to share off-system sales 14 margins that are based on deviations from the level of margins projected in the 15 test period. That is, if Georgia Power increases its off-system sales margins 16 above test period levels, then some sharing of the net proceeds from this increase 17 may be appropriate. Similarly, if Georgia Power’s off-system sales margins fall 18 below test period levels, some sharing of this burden maybe appropriate. 19 Properly structured, this type of sharing of deviations in off-system sales margins 20 relative to the test year level can provide a useful financial incentive to the utility 21 to maximize off-system sales margins. In fact, if the sharing percentages applied 22 to the deviations are the same sharing percentages proposed by Georgia Power to 23 the total margins, it provides just as strong an incentive for Georgia Power to Direct testimony of Kevin C. Higgins On behalf of The Kroger Co. Georgia Public Service Commission Docket No. 42516 Page 6 of 12 1 makes these sales as the Company’s proposal does, because the incremental 2 benefit to the Company of making an additional sale is the same under both 3 approaches (as is the incremental cost of failing to make a sale). What is 4 fundamentally different about the two approaches is their starting points: the 5 deviations-based approach starts from a more equitable position. In contrast, Georgia Power is seeking to build in to rates the presumption 6 7 that shareholders are entitled to retain 20%-25% of total test period margins, 8 rather than just the deviations in these margins from their reasonably projected 9 level. The Company’s proposed approach is unreasonable because customers are 10 responsible for 100 percent of the prudently incurred costs associated with the 11 assets that produced the test year benefits. Therefore, customers should be 12 credited with 100% of the test period margin on these sales. Any incentive 13 mechanism for the Company to make off-system sales should be designed with 14 this as a starting point. 15 Q. WHY SHOULD YOUR PROPOSAL BE ADOPTED, GIVEN THAT 16 GEORGIA POWER HAS BEEN PERMITTED TO RETAIN A SHARE OF 17 TEST PERIOD MARGINS IN PAST RATE CASES? 18 In support of the Company’s treatment of market-based tariff sales, the A. 19 Georgia Power witnesses cite to the Commission’s treatment of off-system sales 20 margins in Docket No. 21 Reconsideration in Docket No. 3397, the Commission recognized that there is a 22 valid argument that 100 percent of these margins should be credited to customers: 3397b0 However, in addressing this issue in its Order on p. 63. Direct testimony of Kevin C. Higgins On behalf of The Kroger Co. Georgia Public Service Commission Docket No. 42516 Page 7 of 12 1 “As the ratepayer contributes a return on the plants from which alternate energy 2 sales are made, the ratepayer is entitled to the profits from these sales.” The 3 Commission then went on to make it clear that its approval of the sharing of 4 margins with shareholders in that docket did not establish a precedent of 5 stockholder entitlement to these funds: 6 7 8 9 10 However, pending further consideration of this matter and without establishing a precedent ofstockholder entitlement to a share of these funds, the Commission will split the benefits of these rates between ratepayers and stockholders, and as a result, the Company’s net income after taxes will be increased by $584,000.12 [Emphasis added] 11 In light of the Commission’s express statement that a precedent of 12 stockholder entitlement to these margins was not established, I believe it is useful 13 to reconsider the premise under which any sharing of margins would occur. My 14 proposal would accommodate an efficient sharing mechanism based on deviations 15 from expected test period profits from economy energy/opportunity sales and 16 market-based tariff sales. This approach, which is fairer to customers than the 17 Company’s proposal, should not be precluded simply because a different basis for 18 sharing margins has been in place in prior cases. 19 Q. DO OTHER SOUTHERN COMPANY UTILITIES TREAT OFF-SYSTEM 20 SALES MARGINS IN A MANNER SIMILAR TO WHAT YOU ARE 21 PROPOSING? 22 A. Yes. According to the Company’s Response to STf-L&A-l-55, attached as Exhibit 23 12 (KCH-2), 100 percent of capacity margins earned by Alabama Power Georgia Public Service Commission, Docket No. 3397, Order on Reconsideration at 16. at 16. Direct testimony of Kevin C. Higgins On behalf of The Kroger Co. Georgia Public Service Commission Docket No. 42516 Page 8 of 12 1 Company are credited to customers.13 Similarly, 100 percent of the margins from 2 opportunity sales are credited to Mississippi Power Company and Alabama Power 3 Company customers. Significantly, according to the Company’s data response, 4 none of the other Southern Company utilities automatically retains a portion of 5 test period economy sales margins as Georgia Power does. 6 Q. 7 A. WHAT RATE IMPACT IS LIKELY IF YOUR PROPOSAL IS ADOPTED? Based on information provided by Georgia Power in response to 8 Discovery Request STF-L&A-4.1, the retail cost of service should be reduced by 9 $1.21 9 million to reflect additional economy energy sales revenue and by $1 .024 million to reflect additional short-term capacity sales revenue.14 10 11 Q. THIS ISSUE? 12 13 WHAT IS YOUR RECOMMENDATION TO THE COMMISSION ON A. I recommend that the Commission require Georgia Power to credit 14 customers with: (1) 100% of projected test year profits from economy 15 energy/opportunity sales; and (2) 100% of projected test year capacity revenues 16 from market-based tariff sales. These credits should be reflected in the energy 17 charges in the base rates established in this case. The Commission should require 18 Georgia Power to calculate the impact of this change in treatment in a compliance 19 filing, consistent with the information provided by the Company in response to 20 STF-L&A-4.l, WP 13 and WP 22. To the extent that the Commission wishes to 21 provide Georgia Power with an opportunity to share in the margins from such 22 sales, then I recommend that the Commission adopt a sharing provision in which 14 Mississippi Power Company retains 25% of the short-term capacity sales revenues. Georgia Power Response to STf-L&A-4.1, WP 13 and WP 22, attached as Exhibit Direct testimony of Kevin C. Higgins On behalf of The Kroger Co. Georgia Public Service Commission Docket No. 42516 Page 9 of 12 (KCH-3). 1 deviations from the level of margins projected in the test period are shared 2 between customers and the Company on an 80% customer/20% Company basis. 3 4 PIM Basic Service Charge 5 Q. What has Georgia Power proposed regarding the PLM basic service charge? 6 A. Georgia Power has proposed to increase this charge from $19.00 per month to $38.Oopermonth. 7 8 Q. Do you agree with the proposed change? 9 A. Georgia Power’s proposed increase in the basic service charge for the PLM tariff 10 is a step in the right direction for aligning costs and rates. However, the 11 Company’s cost-of-service study indicates that customer-related costs for this 12 tariff the basic service charge for this tariff are $136.13 per month. Consequently, 13 the Company’s proposed basic service charge for PLM is still well below cost of 14 service. In my opinion, a more significant step toward aligning costs and charges 15 is warranted. 16 Q. causation? 17 18 Why is it important for rate design to be representative of underlying cost A. Rate design for any tariff should be representative of cost causation, to the 19 maximum extent practicable. That is, demand-related costs are most 20 appropriately collected via demand-related charges (i.e., kW or the demand 21 component of an hours-use energy charge), energy-related costs collected through 22 energy charges (i.e., kwh), and customer-related costs collected via customer 23 charges (i.e., basic service charge). Direct testimony of Kevin C. Higgins On behalf of The Kroger Co. Georgia Public Service Commission Docket No. 42516 Page 10 of 12 Aligning rate design with underlying cost causation improves efficiency 2 because it sends proper price signals. It is also important for ensuring equity 3 among customers, because properly aligning with costs minimizes cross-subsidies 4 among customers within the same class. For example, if customer-related costs 5 are understated in utility rates, the costs are made up elsewhere 6 energy or demand rates. When this happens, higher volume customers in the 7 class are forced to pay the demand-related costs of lower volume customers. This 8 amounts to a cross-subsidy that is fundamentally inequitable. — typically in 9 Q. What is your recommendation regarding the PLM basic service charge? 10 A. I recommend that this charge be increased to $68.00 per month, which is 50% of 11 cost. While cost causation would justify increasing this charge to its full cost of 12 service of$136.13 per month, I am recommending a move to only 50% of cost at 13 this time in the interest of gradualism. The increase in the basic service charge to 14 $68.00 per month should be offset by a revenue neutral reduction to the PLM 15 hours-use energy charges on a pro rata basis. I estimate that the reduction to each 16 of the hours-use energy blocks necessary to accomplish this would be a little less 17 than 2% relative to Georgia Power’s proposed PLM hours-use energy charges. 18 Q. charges that Kroger pays to Georgia Power? 19 20 Is a $68 per month basic service charge out of line with other basic service A. it is significantly less than the basic service charge that Kroger pays Georgia 21 Power for service on TOU-HLF, which is currently set at $251 per month. In this 22 proceeding, Georgia Power is proposing to reduce the TOU-HLf basic service 23 charge to $238 per month, which would be 100% of cost. Direct testimony of Kevin C. Higgins On behalf of The Kroger Co. Georgia Public Service Commission Docket No. 42516 Page 11 ofl2 1 Q. If the Commission prefers not to move to a $68 per month basic service 2 charge for PLM in a single step, is there an alternative approach that could 3 be adopted? 4 A. Yes. While I believe that moving to a $68 per month basic service charge for in a single step is reasonable and appropriate, in the alternative, it could be 5 PLM 6 accomplished in three steps over the course of the rate plan that Georgia Power is 7 proposing.’5 Under this alternative, the first-year increase would be to the $38 per 8 month proposed by Georgia Power. The increase in each of the subsequent two 9 years would be further increases of$15 per month to $53 per month and then $68 10 per month, respectively. Of course, each of these step increases would be 11 accompanied by revenue neutral reductions in the hours-use energy charges on a 12 proportionate basis. 13 Q. relative to Georgia Power’s request in this case? 14 15 What is your recommendation if the PLM revenue requirement is reduced A. If the PLM revenue requirement is reduced relative to Georgia Power’s request in 16 this case, I recommend that the basic service charge be set at $68.00 per month as 17 1 have proposed and the reduction in PLM revenue requirement be effectuated 18 through an equal percentage reduction in the hours-use energy charges. 19 Q. DOES THIS CONCLUDE YOUR DIRECT TESTIMONY? 20 A. Yes, it does. 15 Georgia Power is proposing a similar three-year phase-in of its proposed basic service charge for the Domestic Group. See the Direct Testimony of Larry T. Legg, pp. 7-8. Direct testimony of Kevin C. Higgins On behalf of The Kroger Co. Georgia Public Service Commission Docket No. 42516 Page 12 of 12 BEFORE THE GEORGIA PUBLIC SERVICE COMMISSION IN TFIE MATTER Of GEORGIA POWER COMPANY’S 2019 RATE CASE ) Docket No. 42516 AFFIDAVIT Of KEVIN C. HIGGINS STATE Of UTAH COUNTY Of SALT LAKE ) ) ) Kevin C. Higgins, being first duly sworn, deposes and states that: 1. He is a Principal with Energy Strategies, L.L.C., in Salt Lake City, Utah; 2. He is the witness who sponsors the accompanying testimony entitled “Direct Testimony of Kevin C. Higgins;” 3. Said testimony was prepared by him and under his direction and supervision; 4. If inquiries were made as to the facts and schedules in said testimony he would respond as therein set forth; and 5. The aforesaid testimony and schedules arc true and correct to the best of his knowledge, information and belief. Subscribed and sworn to or affirmed before me this C. Higgins. Notary Public Mv Commission No.: 1OS7 I Mv Commission Expires: I IOZ3 th day of October, 2019, by Kevin ) No.iyPu; A. I9*tOVIC I a.. . CommissIon #705871 Exhibit_KCII- 1 Docket No. 42516 Returns on Equity for the 12Month Period Ending September 30, 2019 as reported by S&P Global Market Intelligence. Exhibit KCH- I Docket No, 42516 Page 1 of I Vertically Integrated Electric Utility Rate Case Summary 12 Months Ending September 30, 2019 Decision Date 1031/2018 12/13/2018 12/14.2018 l/9i2019 2’27/20 19 3/14’20l9 4/30/20 19 4/30/20 19 5/1/2019 52’20l9 5/82019 5/14/2019 5/16/2019 5/23/2019 8/29/2019 9,4:20 19 Cases with ROE Determinations as Reported by S&P Global Market tntelligence Common Equity/Total Cap Case Identification Company State (%) Indiana Kansas Oregon Michigan West Virginia Oklahoma Kentucky Kentucky South Carolina Ivlichigan South Carolina South Dakota Hawaii Michigan Vermont Wisconsin Indianapolis Power& Light Co. Kansas City Power & Light Portland General Electric Co. Consumers Energy Co. Appalachian Power Co. Public Service Co. of OK Kentucky Utilities Co. Louisville Gas & Electric Co. Duke Energy Carolinas LLC DTE Electric Co. Duke Energy Progress LLC Otter Tail PowerCo. Maui Electric Company Ltd Upper Peninsula Power Co. Green Mountain PowerCorp. Northern States Power Co WI - Ca-45029 D-18-KCPE-480-RTS D-UE-335 C-U-20 134 C-I 8-0646-E421 Ca-PUD2OI$00097 C-20l8-00294 C-20l8-00295 (dec.) D-20l8-319-E C-U-20162 D-20l8-318-E D-ELI8-021 D-20l7-0150 C-U-20276 C-l9-1932-TF D- 4220-UR- 124 (Elec) MEDIAN: MEAN: OBSERVATIONS: 39.67 49.09 50.00 NA 50.16 NA NA NA 53 37.94 53 52,92 57.02 NA 49.46 52.52 Return on Equity 9.99 9.30 9.50 10.00 9.75 9.40 9.73 9.73 9.50 10.00 9.50 8.75 9.50 9.90 9.06 10.00 9.62 9.60 16 I II I Exhibit_KCH-2 Docket No. 42516 Georgia Power Response to Staff Discovery Request GEORGIA POWER COMPANY Docket No. 42516 Georgia Power Company’s 2019 Rate Case Staff Data Request No. STF-L&A-1-55 Exhibit KCH-2 Docket No. 42516 Page 1 of 2 STF-L&A-1-55 Question: In the same format and detail as per the response to STF-RCS-l-44 in Docket No. 36989, please provide the current ratemaking treatments for off-system Economy Energy/Opportunity sales and revenues from FERC market-based tariff capacity and energy sales in the jurisdictions in which GPC’s affiliate Southern Company operating companies are operating. In addition, explain since when these ratemaking treatments have been in effect and how many times and to what extent these ratemaking treatments have been changed since their inception. Response: The current ratemaking treatment for the jurisdictions of the Company’s affiliates for off system Economy/Opportunity sales and revenues is provided in Attachment STF-L&A-l 55. for Georgia Power, the Commission’s Order in Docket No. 3840 established that 75% of the retail portion of economy sales profits is returned to retail customers through the Fuel Over/Under Recovery mechanism, which is the treatment currently in effect. Based on the Commission’s Order in Docket No. 18300, the Company has also included 80% of the capacity revenues from off-system sales as a credit to retail customers. Future long-term wholesale revenue markups from contract-defined energy pricing of retail assets will also be shared with 80% credited to customers. Prior to Docket No. 18300, the Company followed the Commission’s Order in Docket No. 3397 and included 60% of capacity revenues from off-system sales as a credit to retail customers. Contact: Richard Dodd Page 1 of 1 Mississippi These provisions have been in place since 1986. Energy: All margins from opportunity sales are returned to retail ratepayers Fuel revenues and expenses flow through the fuel clause. Capacity: excluded from retail ratemaking. 75% of short-term non-territorial capacity sales are returned to retail ratepayers, with 25% - Investor owned utilities Mississippi Power Company These provisions have been in place since 1983. Energy: All margins from opportunity sales are returned to retail ratepayers. ‘Wholesale transactions are excluded from retail ratemaking. Fuel revenues and expenses flow through the fuel clause. Capacity: All margins from capacity sales are returned to retail ratepayers. - s and Short Term Capacity sales Affiliate regulatory treatments for Economy I Opportunity energy margin Attachment STf-L&A- 1-55 Investor owned utilities Alabama Power Company Alabama Exhibit_KCH-2 Docket No. 42516 Page 2 of 2 Exhibit KCH-3 Docket No. 42516 Georgia Power Response to Staff Discovery Request $TF-L&A-4.1 (WP 13 and WP 22) GEORGIA POWER COMPANY Docket No. 42516 Georgia Power Company’s 2019 Rate Case Staff Data Request No. STf-L&A-4 Docket No. 42516 Page 1 of 3 STF-L&A-4-1 Question: Refer to DPA-SPA-MBR-2, page 2. Show in detail how each of the following items in Footnote A! was derived and include complete supporting calculations and workpapers: a. b. c. U. e. f. Nuclear Construction Cost Recovery Carrying Charge on Under-recovered Fuel Balance Economy Energy Profits Short-term Capacity Sales Southern Company Generation Canying Charge on Over-recovered DSM Response: Please see the following pages in Attachment STF-L&A-4- 1 from the Amended 2018 ASR filing submitted to the Georgia PSC on April 15, 2019: a. b. c. d. e. f. Nuclear Construction Cost Recovery Page 9 Carrying Charge on Under-recovered Fuel Balance Page 17 Economy Energy Profits Page 13 Short-term Capacity Sales Page 22 Southern Company Generation Page 15 Carrying Charge on Over-recovered DSM Page 10 — — — — — — The attachment is provided in electronic format only due to volume. Contact: Richard Dodd Page 1 of 1 Exhibit KCH-3 Docket No. 42516 Page 2 of 3 Attachment STF-L&A-4- 1 2018 Amended ASR Workpaper 13 GEORGIA POWER COMPANY ECONOMY & OPPORTUNITY SALES ENERGY PROFITS TWELVE MONTHS ENDED DECEMBER 31,201$ (AMOUNTS [N THOUSANDS) Based on the 75/25 allocation of economy profits established in Commission’s Order in Docket No. 3840, 25% of the economy energy profits were removed from the retail cost of service. Profits Month Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun-18 Jul-18 Aug-18 Sep-18 Oct-18 Nov-18 Dec-18 $ S 254 428 324 292 114 436 317 161 1132 756 672 109 4,996 Retail Profits Retail Allocator 97.60% 97.60% 97.60% 97.60% 97.60% 97.60% 97.60% 97.60% 97.60% 97.60% 97.60% 97.60% $ S 24$ 418 316 285 111 426 310 157 1105 738 656 107 75% 75% 75% 75% 75% 75% 75% 75% 75% 75% 75% 75% 4,876 federal Income Taxes Payable State Income Taxes Payable Page 13 25% Allocation Retail Credit Retail % $ 186 313 237 213 84 319 232 118 829 554 492 80 $ (62) (104) (79) (71) (28) (106) (77) (39) (276) (185) (164) (27) S 3,657 S (1,219) $ $ (242) (69) Exhibit KCH-3 Docket No. 42516 Page 3 of3 Attachment STf-L&A-4- 1 201$ Amended ASR Workpaper 22 GEORGIA POWER COMPANY SHORT TERM CAPACITY SALES TWELVE MONTHS ENDED DECEMBER 31, 201$ (AMOUNTS IN THOUSANDS) Based on the 80/20 allocation of short term capacity sales established in Commission’s Order in Docket No. 18300, 20% of the short term capacity sales were removed from the retail cost of service. Month Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun-18 Jul-18 Aug-18 Sep-18 Oct-18 Nov-18 Dec-18 Short Term Capacity Sales $ S 770 46 407 407 490 415 407 408 479 456 427 411 Retail Credit Retail % 20% Allocation 616 37 325 326 392 332 325 327 383 365 341 329 $ 4,097 $ (1,024) federal Income Taxes Payable $ State Income Taxes Payable $ (203) (58) 80.00% 80.00% 80.00% 80.00% 80.00% 80.00% 80.00% 80.00% 80.00% 80.00% 80.00% 80.00% 5,121 S $ Page 22 (154) (9) (81) (81) (98) (83) (81) (82) (96) (91) ($5) (82) CERTIFICATE OF SERVICE I certify that on the 1 7th day of October, 2019 I served the foregoing DIRECT TESTIMONY AN]) EXHIBITS Of KEVIN C. HIGGINS ON BEHALF Of THE KROGER CO. via e-mail (when available) or by depositing same, postage prepaid, in the United States Mail record at their addresses shown below: Kurt J.’Boehm, Esq. Jody Kyler Cohn, Esq. Reece McAlister Jeff Stair Georgia Public Service Commission reecem(c4psc.state.ga.us ieffreys@psc.state.ga.us Mr. G. L. Bowen, III Charles B. Jones, III Georgia Association of Manufacturers rbowen(ägamfg.org ci ones(à)gamfg. org Kevin C. Greene, Esq. Brandon Marzo, Esq. kevin. greene(troutmansanders.com brandon.marzo(troutmansanders.com Randall D. Quintrell, Esq. randy. guintrell@sutherland.com Robert B. Baker Southern Alliance for Clean Energy sara(acleanenergy. org bobby@robertbaker.com Jill Kysor Kurt Ebersbach Stacy Shelton Southern Environmental Law Center jkysor(äselcga.org Ebersbach(selcga.org Mr. Jeffry C. Pollock jpollock@jpollockinc.com Ms. Liz Coyle Ms. Berneta L. Haynes, ID lcoyle(dgeorgiawatch.org bhaynes@georgiawatch.org Charles Jones, III Georgia Traditional Manufactures’ Assoc. ciones@gtma.org Jim Clarkston Resource Supply Management jclarkson(i)rsmenergy.com Ben J Stockton, PE, MBA encomanaer13(dgmail.com Steven C Prenovitz, MBA scprenovitz(dgmail.com