S an F er nando Va l l ey S ta t e Co l le g e
THE REVENUE REQ UI REMENT:
\\
A S ens i tivi ty Ana ly s is
;
i'
A thes i s s ub mi tt e d i n p a r t i a l s at i s f ac t io n o f the
r equirem ents f o r the d e g r e e o f Mas te r o f S cience i n
B us i ne s s Admi nis tration
by
Kar l Arne Gulb r and
I
J un e ,
1970
I
'-··��··w�.·�•••••••••·--.•-"--•--•·--•••--···-"--•·•�--..-·.,�··•·--•--•·•----··•·-•••""'"'-" '""""""'"""•·•·''''"'"'"''"''""'' ,,, ..,_, ..... ,. . . ,, .... ,
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The thesis of Karl Arne Gulbrand
is approved:
Committee Chairman
San Fernando Valley
June,
State Col lege
1970
1......-- ---- ---- -----------------�-
ii
AB STRACT
THE REVENUE REQUI REMENT:
A S ens i tivity Analys is
by
Karl Arne Gulb rand
Mas ter of S ci ence in Bus ines s Adminis tration
June ,
1970
P ub lic Uti l i ty engineering econo m i c s tudies are
frequent ly deve loped on an annual co s t b a s i s us ing th e
annua l revenue reqpirement method .
Th e annual revenue
requirement is de f ined as tha t annua l amount of money
required to pay al l expenses a s s o ciated w i th the inves tment al ternative p lus the minimum acceptab le re turn on
th e capital us ed to f i nance the a l terna tive .
Th i s
s tudy i s a n app li cation o f th e Hert z s ens itivity or
risk analys is technique to th e components o f the annual
revenue requirement .
developed to :
components ,
( 1)
As a res u l t , a meth od h as b een
tes t the e f f ect o f uncerta inty in the
and ( 2 )
demons trate the practica l i ty of us ing
ris k or s ens itivity analys i s i n future ut i li ty engineering
economic s tudies .
iii
Acknow ledgments
The writer w i s hes to thank the S outhern Ca li forni a
E di s on Company and esp e c i a l ly acknow ledge Mes s rs . Rob ert
P . O'Brien , W i lli am M . Marriott , and Earl R.
S amp le for
their approva l o f , and as s i s tance in the accomp l i s hment
of this s tudy .
Als o , Mr . A . E . Hammarlund of the
Company des erves thanks for the prep aration of a computer
program to perform the required s ens itivity ana lyses .
Las tly , a s pe c i a l note o f thanks to my w1fe , Caro l ,
wi thout w hos e patience and help th e attainment o f thi s
d egree would not have been pos s ib le .
iv
TABLE OF CONTENTS
Chapter
I.
INTRODUCT ION .
1
.
Bas is o f S tudy
I nves tment Ana lys is
D e f i nitions
T he s i s O rg ani z ation
II .
HIS TORI CAL DATA .
.
•
.
12
.
Avai lab le I nformation
L imitations
III .
STUDIES OF INDIVIDUAL PARAMETERS
•
.
19
Return o n Averag e I nves ted Cap i tal vs .
Average Cos t o f Deb t
Depreciation Mortali ty Curves
Adminis trative and G eneral Expens e
Insurance Expens e
Ad Va lorem T axes
B e ta D i s t r ibution Func tions
Summary
IV.
52
DE S CRIP T I ON OF RES ULTS .
B a s e Cas e D i s t r ibution
E f fe c t of a Change i n Return
E f fe c t of a Change in Depre ciation
L i f e time
v
1
Chap ter
P age
E f f e c t of a Change i n Admini s trative
and General Expens e s
E f f e c t o f a Change i n I nsurance
Expense
Ef f e c t of a C hange i n Ad Va lorem
Tax Expense
Unexpected Outcome s
V.
SUMMARY .
.
.
.
.
.
.
107
Economic S tud i e s Based on the Annua l
Revenue Requirement Method
F i ndings and Conc lus i ons
Future Work Required to Deve lop
Practical App lications
FOOTNOTES
.
L I ST OF REFERENCES
APPENDIX .
.
.
.
.
.
.
.
.
.
.
.
.
.
114
.
116
.
1 18
vi
L I S T OF TABLES
P age
Table
1.
2.
3.
S outhern California Edison Company Return
on Averag e I nves ted Capital and Average
Emb edded Co s t of Deb t .
. . . . .
.
•
Return on Average Inves ted Capital vs .
Aver ag e Cos t of Long Term Deb t Regres s ion and Correlation Analy s is .
Adminis trative and General Expens e vs .
Ave rage I nves ted Capital - Regres s ion
and Correlation Analy s is
.
.
4.
.
•
•
•
.
Ad Valorem Tax S tudy Summary
6.
Summary of S ensitivity Analy s es
Rate o f Return
9
•
10 .
.
.
.
•
.
•
.
•
Summary o f S ens itivity Analys es
Depreciation Lif e time . . . .
S ummary o f S ens itivity Analy s es
Adminis trative and General Expens e
S ummary o f S ens itivity Analy s es
. . . .
Insurance Expen s e
•
20 I
23
29
34
4
5.
8.
•
Ins urance Exp en s e vs . Average Inves ted
Capital - Regres s ion and Correlation
. . . . . .
Analy s is
•
7.
•
.
I
.
S ummary o f S ens itivity Analy s es
Ad Valorem T ax E xpen s e
2
I
6 31
721I
791
I
88
1
971
I
I
vii
LIST OF ILL US TRATIONS
Page
Fi gure
Ad Va lorem Taxes as a P ercent of Ori ginal
Cos t and Pro j e cted to a 4 0 y ear
. . . .
P lant L i f e . .
39
2.
B e ta Functions
48
3.
Rat e o f Re turn
55
4.
Depreci a ti on L i f e
56
5.
Admi nis trative and General
6.
Ins urance
58
7.
Ad Va lorem Taxes
59
1.
•
57
.
Tes t o f Ra te o f Re turn
6 4-69
1 4-1 8 .
T es t o f D epre ci ation L i f e
73-77
19- 25 .
Tes t o f Admi nis trative and Genera l
26-32 .
T es t o f I ns urance
3 3-39 .
T e s t o f Ad Va lorem Taxes
8- 1 3 .
•
.
80 - 8 6
89 - 9 5
viii
.
9 8 - 10 4
INTRODUCT ION
Bas i s of S tudy
Many cap i t a l inves tment ana ly s i s techniques are
us ed in evaluati ng a lternative i nves tments.
One technique
commonly us ed in the e l e ctri c uti l i ty i ndus try is the
The annual revenue
annua l revenue requirement method .
requirement is de f i ned as that amount of money required
to pay al l expenses as s oci ated with the i nves tmen t alternative p lus the minimum acceptab le return on the cap i ta l
used to f inance the a lternat ive .
This s tudy is a s ens i-
tivity ana lys is o f tho s e components o f the annua l revenue
requirement cons idered to vary in direct proportion to the
amount o f capi tal required for the inves tment alternative .
I nves tment Ana lys is
As is we·ll known in pos t-mortems of inves tment
dec is ions , the criteria by whi ch the dec is ion w as made
are not o ften met .
c i pated ,
S ome i nves tments do b e tter than anti -
f ew do exa c t ly as anti c ip ated and s ome i nves tmen t
res ults are tot a l ly uns atis f a c tory .
Propos a ls for capi t a l
inves tments are ana ly z ed in a numb er o f ways to de termine
1
w hich alternative w i l l b e s e lected .
1
.
·
--·-·----�----..-��---------------------------·-------�--------------�----�----······
·····-····----................... .........
I
The type of ana ly s is
conducted can range f rom a s ub j e ctive j udgment on the part
of the pers on res pons ib l e for the dec i s ion to a complex
ana lys is requiring many man-hours o f labor and extens ive
calcu lations performed on s o me type of digita l computer .
However ,
the range o f ana lys is me thods can b e divi ded
i nto two types : de termini s t i c and s tocha s t i c .
De termini s t i c Me thods
De terminis ti c methods as s ume that each component
of an ana lys is is certain to occur exac t ly a s as s umed .
" Br e ak- eve n" analy s e s ,
l inear programming prob l ems , and
l eas e vs . buy prob lems are common but not exhaus tive
examp l es of determinis ti c prob l ems .
I n each cas e two or
more s ets o f a lternatives are compared aga{ns t pre s e lected
cri teria , and the a l ternative wi th the minimum cos t is
c hos en as the mos t economical .
For this s tudy ,
i t is
as s umed that all cho i ces w i l l be made us ing a me thod of
ana lys is that cons iders the t ime va lue o f money .
T he determinis t i c methods that 'l.vi l l lead to the
ma thematic a l ly correct dec i s ion in every cas e are :
1.
Dis counted Cas h F lmv
2.
Revenue Requi rements
The dis counted cas h f low method ca lcu lates the pres ent
L
value of a s eries of cas h out lays required for the
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3
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e i th er the current cos t o f cap i t a l or s ome des ired return
es tab l ished by management po l i cy .
The a lternative w i th
the minimum pres ent worth o f future cos ts is the mos t
f avorab l e choice.
equiva l ent annual cos t b as i s .
The inves tment al ternative with th e low e s t annual revenue
requirement is the mos t economical cho i ce .
the ne ces s ary mathema ti cal computations ,
To s imp l i fy
the annual
I
revenue requirement f or thos e components varying directly
as the amount o f cap i ta l required can b e expres s e d as a
uni form equival ent annual perce ntage o f th e initi a l i nvestment .
The dire c t ly vary ing components are:
Depre c i a tion ;
Return:
Inco me Tax ; I ns urance ; Adminis trative and
General Expens e s ; and T axes oth er than I ncome Taxes .
The
s ix prec eding components are comb i ned w i th a l l o ther neces s ary expens e s to f orm the annual revenue requirement o f a
propos ed inves tment .
!
I
I
1
Th is s tudy is limited to an ana lys is
of the direc tly vary ing components of th e annual revenue
requirement .
S to ch a s t i c Methods
t
Stochas t i c meth ods of analy s i s do not as s ume
.�-----·--····--------.----�--------·-·····--. .·----. . ·------·
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4
Ris k analy s i s uti l i ze s Monte Carlo s i mulation
combi ned w i th d e f i n ing the i nput f ac tors as continuous
probab i l i ty dis trib utions to deve lop the resulting
probab i l i ty di s tr ibution o f the outcome .
I n 19 6 4 ,
David B . Hert z wrote an a rt i c l e titled 11 Ri s k Ana ly s i s in
Cap ital Inve s tment . n l
I n thi s art i c l e Mr . Hertz des crib e s
5
the g enera l ly us ed me thods o f analy zing capital inve s t­
ments .
As H e r t z apt ly s tates ,
progre s s e d ,
" as thes e te chniques h ave
the mathematics invo lved has b ecome more and
more precis e ,
so that we can now ca lculate dis counted
r e turns to a f raction o f a per cent . " 2
However ,
little thought is neces s ary to s ee that
th e data us ed in comparing inves tments is not as precis e
a s the mathematical c a l cu la tions wou ld indicate .
As a
res u l t , a choice is made b etwe e n alternative s b as ed either
o n the de cis ion - maker's judgmen t o r a s ub j ective inter­
pretation of intangib le factors .
Such a means of choice
returns the decis ion to th e "s eat of the pants " category ,
and the choice is only as good a decis io n as the intui tion
o f the decision maker .
I t s e ems to b e an unnec e s s ary
method when with o n ly s light ly more e f fort , an ana ly s is
o f the inves tments may b e made bas ed on prob ab ility
dis tributions r epres enting the degree to which the input
data is uncertain .
The result o f s uch a prob abilis tic analy s is wil l
tel l the decision maker more about the risk invo lved in
each of th e inves tment a l ternatives .
He may then make
his choic e b a s ed on a clearer understanding of the mos t
like ly outcome and the dis trib ution o f the oth er pos s ib l e
outcome s that migh t o ccur .
6
Hert z d e s cribe s h i s approach to risk analy s i s as
one which meets th e fo l lowing ob j ective :
"
to give a clear pi cture o f the
re lative ri s k and the probab l e odds o f
coming out ahead o r behind i n the light
o f uncertain f oreknow l e dg e . " 3
•
Three s teps are ne cess ary to conduct an analy s is
bas ed on th e Hertz technique :
1 . Es timate th e range o f values for each o f the
input fac tors .
2 . From each prob ab i l i ty dis trib ution , s e le c t
one value at random .
Comb ine th e randomly
s e lec ted values to form one " outcome . "
3 . Repeat th e preceding two s teps a s u f f i c i ent
number of times to es tab l i s h a prob ab i lity
di s trib ution for th e resu lting range o f
"outcomes . "
This b a s i c s et o f s teps can b e adapted to generate
almos t any form o f end product ( e . g . , P ercentage Re turn
on Inves tment , Do l l ar Return on I nves tment , Earnings per
S h are o f Equi ty , Mi l ls per kwh energy cos ts ) .
I n th is s tudy th e H ert z technique i s limited to
a s ens i tivity ana ly s is o f th e c omponents of a parti cular
type of engineering economic ana ly s i s frequently us ed
by pub l i c uti l i ti e s .
[.,
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7
Definitions
Average I nves ted C apital - The average of two year
end values o f the s um o f a l l long term deb t ,
pre ferred and common equ i ty , re ta ined earnings ,
and intere s t ch arged to cons truction .
Revenue Requirement - The annua l revenue requi red
to cover al l e xpen s e s a s s o c i ated w i th the inves tment p lus the minimum acceptab l e p ercentage return
on the amount of cap i ta l required by the inves tment .
For this paper , the revenue requirement
wi l l be expres s e d as a uni form equivalent annua l
p ercentage o f the invested cap ita l .
I
Re turn - The minimum acceptab l e percentage return
on the inves ted cap i tal .
o f capita l ,
Als o termed the cos t
the discoun t rate ,
and the interes t
rate .
Deprec iation - The s inking fund annui ty expre s s ed
as a percentage o f th e inves te d capi tal R
( 1+R) n - 1
C ap i tal Re covery F actor - The sum o f the return and
s inking fund deprec i at i on c omponents ( l+R) n - 1
R (l+ R) h
-��-----------.---�-----�------------------------------------------�-------.-----·----------·-·--·-----
· ····--·-·····-------- --····--···---·-----------------------------·
_____
j
8
Income Tax - The income tax component o f the annual
revenue requirement expres s ed as a uni form equiva­
lent annua l p ercentage o f the inves ted cap i ta l .
This component w i l l account for acce lerated
depreciation and is bas ed on f low - through account­
ing .
S e e Appendix A for a mathemati c a l development
of th i s component .
Adminis trative and General Expens e - Thos e
expens e s as s o c iated w i th th e executives ' s a larie s ,
m i s c e l laneous materi a ls and s upp li e s ,
and any
o ther expens e s not dire c t ly ident i f i ab le or
as s ignab le to the o ther f ive components .
Admini­
s trative and General Expens e wi l l be expre s s ed
as a percentage o f inves ted cap i ta l.
Insurance Expens e - That portion of the revenue
requirement a s s o ci ated w i th properly insuring the
investment agains t f ire , equipment f ai lure , pub l ic
liab i l i ty , property damage , and any o ther ins urance
neces s ary to th e inves tment under consideration .
Insurance expens e w i l l be expres s e d as a p ercentage
o f inve s ted cap i ta l .
Taxes Other than I ncome Taxes - This expens e wi l l
account for property-re lated taxes, payro ll taxe s ,
and other m i s c e l laneous taxes other than income
9
----·------·---·-·········-----�····---.. ·············-··········--r�-----------------···--------------�·----·----�--··---
or franch i s e taxes .
Franch i s e taxes w i l l b e
inc luded i n th e Adminis trative and General
Expens es component .
The T axes - Oth er component
w i l l b e expres sed as a percentage of th e inves ted
cap i ta l .
Cap i ta l Cos t - Thos e cos ts p ermi tted to be p laced
!
I
in e le ctri c p l ant accounts as de f ined in the
F e dera l Power Commis s ion ' s Uni form Sys tem o f
Ac counts for C l a s s A and B E le ctri c U t i l i ties . 4
I nves tment- Rel a ted Components - Thos e components
o f the annual revenue requirement .vary ing directly
w i th the amount o f cap i ta l inves tment ; e . g . ,
Operation and Maintenance Expens e � not re lated
directly to th e cap i ta l inves tmen t .
Fuel expense
is genera l ly invers e ly related to the cap ital
inves tment .
Th e revenue requirement meth od is one me thod by
wh ich engineering e conomic analys es are made .
I t is th e
only exac t me thod o f comparing engineering al ternatives
on an annua l cos t b as is .
The annual revenue requirement
for the directly vary ing components ,
l ike th e mathematical
t e chniques des crib ed by Hert z , S can b e mathemati c a l ly
d erived to any degree o f accuracy .
I
[_
Th e input f actors ,
however , are as much s ub j e c t to uncertainty as are any
es timates o f s a le s , pro f i t , or cos t .
·--···-·····-·---.-·-···---·----.--··---------····
A know ledge o f the
--··---· ----�------···-··--�-·-···--------·-·-··-········--········ ·-··· ................... ··--·-·······
..................
I
I
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10
e f f e c t a change in each component vari ab le has on the
total revenue requirement is des irab le for a proper
management appra i s a l of the merit of the inves tment .
The s is Organ i z ation
Th i s s tudy is an app lication of the Hertz s ens i­
tivity analys is technique to the annua l revenue require­
ment .
The current de termin i s tic approach to engineering
economic s tudi e s can be improved by the app l i ca tion of
s ens i tivity ana lys is .
Th e inves tment rel ated components
of th e annua l revenue requirement are not certain but
current u s e o f the revenue requirements me thod as s umes
certainty .
A method has been deve loped to :
e f f ec t o f unc ertainty in th e components ,
(2)
(1)
tes t the
demons trate
th e prac t i c a l i ty o f us ing s en s i t ivity or ri sk analy s i s
i n future economic ana lys es .
I n order to l imi t th e s cope o f th is the s is ,
the s tatis tica l and s en s i tivity ana lys i s w i l l b e res tri cted
to the annua l revenue requirement for fos s i l - fue l
generating plants . 6
The s ame method wou ld b e app licab le
to any type o f p lant a l though the individual component
values migh t require adj us tment .
This s tudy has b een developed in two s teps , an
inves tigation o f the h i s tori c a l b eh avior o f each inves t­
ment re lated component , and ana ly s i s o f the e ff e c t o f
11
i ndividua l component ch ange on the total revenue
requirement .
The f irs t s tep required s tatis tical analy s e s o f
each componen t .
Thes e ana lys e s are des cribed i n detai l
in Chapters 2 and 3 .
The s econd s tep w as a s ens i tivity analy s i s o f the
annual revenue requirement due to ch ange s made in e a ch
individual component .
Th is ana lys is i s dis cus s e d in
deta i l in Chapter 4 .
Chapter 5 i s devoted to a s ummary and review o f
the results with s ome dis cus s ion re lating to expans ion
o f the Hert z technique into o th er economi c ana ly s e s .
CHAPTER I I
H I STORI CAL DATA
I n any economic s tudy , pro j ections into the future
are frequently a s s is ted by analys is o f his torica l data .
His torical data c an provide a pic ture o f trends , re la tionships b e tween variab les , and long- term averages .
I t is
desirab le that records us ed for a his torica l ana lys is b e
maintained in a cons is tent manner if they are t o b e used
for future pro j e c tions , but s el dom are his torica l records
exac t ly equiva l ent for any l engthy period .
I n the e l e ctric
utility bus ines s , however , s t ate and federal regu lation
s erve to dampen mos t ch anges and records are either cons is tently maintained or relative ly easy to recons truct .
Availab l e Information
The data us ed in this s tudy covers the tw enty
year period from 1 9 48 th rough 1 9 6 7 .
s tudy was b e gun ,
availab le .
At th e time this
the year 19 6 7 was the late s t information
I n res earch o f the twenty -year perio d ,
th ose
y ears prior to and inc luding 1 9 6 0 us e d a dif ferent account
numbering sys tem than y ears after 1 9 6 0 .
I
A cros s- indexing
shee t , avail ab l e in th e Uniform Sy s tem of Ac counts , ?
t
_______�-----·-----·--------�---�-----------------------------·-----------�------------------------------�-----------�--
12
····-··-··-----·····------ ------
--------- ----------
13
provided th e inf o rmation neces s ary to deve lop comparab le
data for th e 19 4 8 - 1 9 67 period .
A primary source for information on an e le ctric
utility is the "Annual Report to the Federa l Power Com­
mis s io n . " 8
"Form 1 . "
This s ource is f requently r e ferred to as
E a ch e lectric utility mus t file a report or
"Fo rm 1" in accordance with ins tructions f urnished by the
Federal Power Commi s s ion .
The C la s s A and B
( Annu a l
e l e c tric operating revenues greater than $ 1 , 0 0 0 , 0 0 0 p e r
year)
e l ectric utilities' annual reports e ach f i l l a
vo lume containing approxima t e ly 2 0 0 pages o f informatio n .
Contained within the report is b a lance sheet information ,
revenue and e xpens e data , operating data , p lant data , and
s tatis tica l data of various type s .
S ome o f the pages
re levent to this the s is have been rep roduced and appear
in Appendix B .
"Form 1" h as been a valuab le source in
deve loping th e his torical data used for corre la tions
b e tween the variab les de fined in Chapter 1 .
As va luab le as the "Form 1 " is , it lacks sufficient
detail to analy z e certain expense data attrib utab le to
individual fos s i l- fue l fired generating s ta tions .
According ly , it was neces s ary to u s e spe cialized reports
p repared by various Divisions and Depa rtments within the
S outhern Ca lifornia Edis on Company .
One o f the s e reports
is prepared annua lly by the Tax Divis ion of th e T reas ure r ' s
14
Dep artment .
The s ub j e c t repo rt is a record o f recorded
book value ,
as s es s e d va lue , and property taxes p aid for
each fo s s i l - fu e l fired generating s tation of the Company's
generating system .
This spe cia l report was us ed t o deve lop
a his toric al picture o f the e f f ec tive property
( ad va lorem)
tax rate app licab le to s ix o f the existing ten s ta tions .
The data for the remaining four s tations was not
us ab le for the f o l lowing rea s o ns :
1.
I nsuf f icient data due to a recent
merger with another utility
(3
s t ations ) .
2.
Data re l ated only to a city- co l l e cted
tax and not to th e total tax p aid
( 1 s tation ) .
The usab l e ad va lorem tax data covers the period
f rom 19 5 6 to th e pres ent with various amounts of data ,
depending upon the individua l s ta tion being cons idered
and its year of cons t ructio n .
Limitations
I t mus t be recognized tha t limitations exis t in
any s ta tis tic a l s tudy .
fundamenta l .
The f ir s t limitation is quite
S tatis tica l data is neces s a rily his torical .
As such , it repres ents the pas t , no t the future .
s tudies are a lw ay s p ro j e c tions into the future .
Economic
Without
15
recognition o f th e dynamic forces of change exis ting in
our economy , pure s ta tis tica l pro j e c tions are meaning l es s .
E a ch e s timat e o r ana ly s is mus t b e b a s ed on sub j ective
evaluatio n on the s tatis tica l data temp ered by expectations
o f future events .
For this purpos e it woul d s e em prudent
to b roaden the s cope of an engineering economic analy s is
by recognizing the unce rtaintie s inh e rent in an e s timate .
Es tab l ish ing a range o f expectation and the mos t l ike ly
value for each component in an economic s tudy would de s­
c ribe a great dea l more about the component th an a mere
s ingl e point or "b e s t gues s . "
A regre s s io n l ine and co nfidence l imits about the
r egre s sion line can fulfill th e ob j ective by d e s crib ing
pas t performance o f the variab l e under s tudy .
Sub s equent
utiliz ation o f th e Hertz te chnique then permits a b e tter
picture o f the e f f ec t of a numb er o f thes e uncertain
es timates on the end product o f the s tudy .
I n addition
to th e limitations o f historical data per s e , much o f the
ac counting data used in th es e s tatis tical s tudies is not
s u f f icient ly de tai led to ide ntify it with th e specific
variab l e under s tudy .
Company ,
I n th e S outhern Calif ornia Edis o n
certain expenses are kept f o r the tot a l company ,
s ome o f which canno t b e dir ec t ly as s igned to a particular
type o f cons truction program .
An examp le o f this prob lem
in expens e a l location is demons trated by the Adminis trative
and General expens e s .
Adminis trative and General e xpenses
16
are compris ed o f uti li ty operating expense i tems no t
capab l e o f b eing charge d directly to an operating
function .
An exampl e o f an operating function wou ld b e
the s al aries o f a l l pers onne l invo lved directly i n the
production , transmi s s io n , or dis tribution o f e le ctric
energy to the consumer .
Nonope rating functions wou ld b e
the s al a r i e s o f s ervi ce and s uppo rt pers onn e l s uch as
a c countants , mark eting and s a l e s pers onne l , regu latory
l i a i s on ,
and indus trial r e lations .
The actual makeup of
the Adminis trative and G eneral expens e is show n by F edera l
Power Commis s ion Account in Appendix C .
Correlating th is
expens e to the Company 's average inve s ted cap i tal provides
us w i th a us e f u l p i cture of the change in Adminis trative
and Genera l expens e to the Company ' s total mix of cap i ta l .
Unfortunate ly , i t does not te l l us anyth ing about the
r e lationship of Adminis trative and General expens e s to the
inves tment in fos s i l - fu e l generating s t ations , trans ­
m i s s ion l ines , o r d i s t r ibution tr ans formers .
I n pro­
j ec ting th e margi na l increase in Adminis trative and G eneral
expens e s to the margina l increa s e i n the dollar v a lue of
foss i l- fu e l generat i ng s tations , s ome j udgment mus t b e
us ed .
However , knowl edge o f the pas t rel ati onship b e tween
th e annu a l expens e s and the i nves ted capital can be us e f u l
i n e s t imating l imits o f the expens e range .
A th ird area o f unce rta inty is th at o f the u s e ful
e conomic l ives for cap i t a l i nves tments .
The Edi so n
17
Company keeps its depreciation records b as ed on the do l lar
v a lue of p la n t conta ined with i n each ac count of the Federal
P ower Commis s ion Uni f orm S;(s tem of Accounts , no t by
i ndividua l p i e ces of equipment.
As a r e s u lt ,
i t is quite
di f f i cu l t to deve lop detai led actuaria l ana ly s e s o f pas t
p lant i n s ta l lations.
Therefore ,
i t i s neces s ary to
deprec iate property units b a s ed on a genera l i z ed mo rta l i ty
curve w i th a certain mean l i f e for each p lant a c count.
A
number o f thes e morta l i ty curves have b e e n deve loped by
the Iow a S ta te Univers i ty.9
S ome c la s s es o f p lant , such
a s e l ec trical generating s tations , do no t s h ow s u f f icient
expe rience to b e ab le to deve lop accurate actuar i a l- type
l i f e s tudies.
S ome o f the reas ons for th is l imi tation in
experience are as fo l low s :
1.
Rap id technologica l chang e s .
2.
I ns u f f i c i e n t uni ts o f property for
va l i d s t ati s tical analys is , and
3.
D i f f ering methods of cons truction.
For fos s i l- f ired generating s tation s , the depre c i a tion
l i f etimes and mo rta l i ty curves us ed in the Company ' s
r ecord keeping a s s ume a cons tant yearly per centage fai lure
of the group of uni ts b eginning the y e ar.
The mathematical
formu la tion o f th e depre c i at i on mo rta l i ty curve b e comes
a negative e xponent i a l function.
Th i s is the Company ' s
b es t current j udgment a s to the true c omponent f a i lure
rate.
Such a method mak e s no d i f f e renti ation for the
18
d i f fe r ent k inds o f f os s i l- f i re d gene r ating p l ant currently
b ei ng us ed on the S ou the rn C a l i f ornia Ed i s on electric
s y s tem .
Ana ly s is o f the h i s to r i c a l data h as prov i ded
sub s tantiation for us e o f component va lues p revious ly
e s tab lished by j udgment .
I n addi tion , a b etter under­
s t andi ng o f the lo ng term trends of annual expens e
data has been made pos s ib le by this s tudy .
CHAPTE R I I I
STUDIES OF INDIVIDUAL PARAMETERS
Return on Average I nve s ted Capita l
v s . Average Cos t of Deb t
I n order t o determine whether a re lationship
b e tween the return on average inves ted capi tal and the
average cos t of long- term deb t exi s ted , the twenty-year
period 1 9 4 8 to 1 9 6 7 was us ed as a bas i s for s tudy.
The b a s e parameters s e l e cted were :
1.
Net income af ter taxe s but be fore
interes t charge s.
2.
Capital s tock--net book va lue f or
equi ty.
3.
Long- term deb t--ne t book value f or
long- term deb t.
Th e average return on inves ted cap i tal wa s determined as shown in Tab le 1 .
Th is T ab l e i s an examp le o f
th e deve lopment o f th e data required f o r a regres s ion and
corre l ation analy s i s .
A comp l ete summary o f al l values
used in the deve lopment o f the data for th e correlation
s tudy may be found in Appendix D.
19
TABLE
1
SOUTHERN CALIFORNIA EDISON COMPANY RETURN ON
AVERAGE INVESTED CAPITAL
AND AVERAGE EMBEDDED COST OF DEBT
Source
F.P.C. Form
1947
1948
M
$ 1 5876
Construction
M
$
Net Income
M
$ 16330
181 5 3
Capital Stock
M
$1790 3 1
1991 1 1
M
$
M
$1380 0 0
M
$
Net Income before Interest
1
Line
Account
114
34
114
41
111
13
111
9
2 2 1, 2 2 3,274
2 19
24
181, 2 5 1
211
Total of Accts
175 6 4
Charges
Interest Charged to
(Discount)
- Capital
454
( 2 486)
589
432
( 2 579)
Stock
Long Term Debt
(Discount),
Premium on
( 6 181)
203000
( 5 1 6 2)
181 and 2 5 1
Long Term Debt
1978 38
Total Long Term Debt
M
Total Capital
$ 3 083 6 4
394 3 7 0
3 5 1 3 67
Average Capital
Sum of Capital
Stock
+ Long Term Debt
Average of Current year + Previous
year
Return on Average Capital
5 . 17%
- %
Interest Paid on Debt
M
$
4 2 15
5364
Total Long Term Debt
M
$ 1 3 1819
1978 38
1 6 4839
Average Debt
Net Income
2 2 1, 2 2 3, 2 2 4
x
100./Average Capital
24
2 19
From above
Average of Current year + Previous
year
Average Cost of Debt
-
%
3 . 4 2%
Interest Paid
x
100/Average Debt
�
0
21
As s uming a linear r e lations hip b e tween the vari ­
abl es , the next s tep was to de termine the equa tion for
a regre s s ion l i ne and the corres ponding coef f i cient o f
determination ( r 2 )
us i ng the twenty s e ts o f data point s .
The return was s e t a s the i ndependent variab le
(x)
w i th the bond i nterest rate a s the dependent var iab le
(y)
•
The result ing equation for the regre s s ion l ine
was of th e form :
y
=
0 . 5 9 6x - 0 . 14 1
Th e coef f i cient o f de termination was 0 . 7 0 7 and the correl­
ation co e f f i cient w a s equ a l to V . 7 0 7 or 0 . 8 4 1 .
Appendix G , Ri chmond ,
From
1 0 for twenty pieces o f data , the
cri tical va lue o f the corre lation coef f i cient at the
1 percent l evel o f s i gni f i cance is 0 . 5 6 1 .
S ince the
s amp le co rrelation coe f f i c ie nt is greater than 0 . 5 6 1 ,
i t may b e as s umed that the s amp l e bond inter e s t rate
and the r e turn are re lated and can b e des cribed by the
regre s s ion line .
S i nce we a r e rea l ly i nteres ted in marg ina l increas e s
in r e turn and bond inte r e s t r a t e for engineering e conomic
s tud ies , the s lope of the regres s ion line is of the mos t
s igni f i cance i n th i s s tudy .
The s lope i s the rate o f
change i n the dependent variab l e f o r marginal increas e s o r
decreas e s in the i ndepende n t var i ab l e .
Thus a uni t change
i n x w i l l b e accompanied by a ch ange o f 0 . 59 6 in y .
22
I n e conom i c s tudies ,
i t is cus tomary to project
the expe cted return o r the d i s count rate a s a parameter
to be us ed in the s tudy .
change of re turn ,
Bas e d o n the margi na l rate o f
i t i s now pos s ib le t o p la ce a reas on­
ab l e expectation on the marg i na l va lue o f the bond interes t
rate .
A time - s haring computer p rogram w as us e d to
e s tab l i sh the regre s s io n line a nd co rre latio n coe f f i c i ent
for th is variab l e ,
manu a l ca lcu lation .
appears in Tab le 2 .
and the results were confirmed by a
A s ummary o f the computer output
----------------- -
TABLE. 2
RETURN ON AVERAGE INVES TED CAPITAL
VS . AVERAGE COS T OF LONG TERM DEBT
Regr e s s i on and Corr e l a ti o n Ana l y s i s
Equ a ti o n :
y = A
+
Bx
y = 0 . 5 9 6 x - 0.141
Twenty o b s ervations o n e a c h var i ab l e .
Variable
Mean
Var i ance
S tand ard
Deviation
X
6.2 0 2
0.401
0 . 6 33
y
3. 5 53
0.193
0.44 0
Coe f f i c i e nt o f
D e termination
0.7 0 7
Parameter
Exp l a i ned
Var i ance
0.137
Value
Unexpl a i ned
Var i a n c e
0.057
S tandard
Error
0 . 23 8
9 5 P e r cent Conf i d e n c e L i m i t s
A
- 0.141
- 0. 2 5 3
- 0. 0 2 9
B
0. 5 9 6
0.41 9
0.7 7 2
IV
w
24
The results o f th i s ana ly s i s provide a guide for
bond interes t e s timates to b e used in an income tax
computatio n .
For e conom i c s tudi e s b as ed on the annua l
revenue requirement , an annu i ty i s required whi ch ref lects
the revenue requi rement for i ncome taxe s .
The mathe­
mat i c a l deve lopment of the annuity equation is contained
in Appendix A .
Depreciation Mortal i ty Curves
Component L i f e
As mentioned e a r l i er ,
th e Company b a s e s p lant
component l i f etimes for a fos s i l-fue l generating s tation
on an exponentia l curve o f th e form:
f ( x)
=
e - O . OOSx
Where x is the y e ar o f l i f e o f th e s ta tion and f ( x)
is
the decimal f raction repres enting th e percentage o f the
dollar value o f o r i ginal components remaining e ach y e ar .
Th i s curve is the b e s t current approxima tion of
the experienced mor t a l i ty in terms of do l l ar amounts for
fos s i l - fue l generating s ta tions .
I n o rder to determine
the shape of a probabi l i ty d i s tribution b e s t representi ng
th is exponentia l function ,
i t i s nece s s a ry to know the
equival ent l i fetime o f a l l o r i ginal components in the
s tatio n .
Thes e are th e g iven as s umptions :
25
1.
Al l l ives a r e equal to o r g re a ter
than 0 y ears
( each component h as s ome
l i fe time )
2.
The actual f rac tion of origina l com­
ponents remaining is repres ented by
the curve :
3.
f ( x)
=
e - . 0 0 5x , and
The expecte d maximum l i fe time for any
new ins ta l la tion is forty ( 4 0 )
y ears.
I ntegrating the survivor curve function ,
f ( x)
=
e - . o o sx , b e tween the limi ts o f 0 and 40 y ears , w i ll
result i n th e calcu lation o f an equiva lent l i f e time for
the do l lar value of all original p l ant comp o nents .
I t can b e show n th at integration o f th e survivor
curve function as des crib e d above w i l l result in an
equival ent l i f e time for a l l o ri g inal p lant components
of 36 y e ars.
Any chang e in l i f e parameters a f f e c ting
e i ther the annu a l morta l i ty rate o r the maximum l i f etime
w i l l af f e c t the equiva l ent l i f e .
The result o f this s tudy p e rmits us to s imulate a
p robab i l i ty d i s tribution function repre senting the
l ik e l ihood that s inking fund depreciation charges w i l l
recover any initial i nves tment in the per iod of t ime
b e tween 0 and 4 0 y ears .
26
O th e r Types o f Uti l i ty P lant
S imi lar s tudi es may be conduc ted on oth e r types
of p lant equipment res u l ting i n a comp l e te ana lys is of
the mortal i ty function and th e prob ab i li ty dis tributi ons
that may be us ed to repres ent tho s e ·functi ons .
I n th e
uti l ity b us ines s , many types o f equipment are us ed in
order to furnish the end product , e lectricity , to th e
consumer .
I t is w e l l known that wood poles do no t h ave
the s ame mo rta l i ty di spe rs i on or l i f etime as nuc lear
reactors .
I t mak e s s e ns e , then , to conduct econom i c
analy s e s bas ed on the a c tua l repre s entation o f li f e time s
o f the equipment i nvo lved , not jus t at th e b e s t e s timate
of li f e , but through the enti re range o f prob ab le l ives.
D i f f er e nt equiva l e nt lives and mortal i ty dispers ions
w i ll probab ly requi re d i f f e re n t answers in terms o f
engineering des ign i n order t o make the mos t e f f i ci ent
u s e o f a limited amount of cap i ta l .
I t is als o pos s ib le
that two di f ferent p ieces o f equipment will h ave equiva­
lent l ives , but comp letely di f f erent l i f etime probab i l i ty
distributions .
I t i s tech n i ca l ly incorrect to as s ume
that th e s ame eng i ne e ri ng des ign cri teri a should b e
appl ied to each p i e ce o f equipment , but that wou ld
be th e res ult of us i ng the current b e s t es timate o r
s ingle-point ca l c u l atio n .
27
Th erefor e , each a l te rnative s houl d b e as s igned
a prob ab i li ty dis tribution b es t repres enting the anti­
cipa ted mortal i ty b ehavi or of the ori ginal i nve s tment .
Admi nis trative and General Expens e
Accounts U s ed
E conomi c s tudies b as ed on th e revenue require­
ment method mus t cons ider all expen s e s a s s o c i ated w i th
the a l ternatives .
I n th e e l e ctric uti l i ty indus try , the
Uniform Sys tem of A ccounts es tab l i shed by the Federal
P ower Comm i s s ion uti li zes Accounts 9 2 0 through 9 3 2 to
record a l l expens e s not directly related to an operating
function o f th e uti l i ty .
Th i s category of e xpen s e s i s
ca l l ed " Adminis trative and Genera l Expenses , " and
inc ludes the s a l aries o f o f f i cers and s ta f f p e r s onne l ,
o f f i ce supp l i e s and expens e s , ins urance expens es , and
maintenance of the general plant i tems .
A comp lete
s ummary of the expens e s i nc luded i n Accounts 9 2 0 through
9 3 2 may b e found in Appendix C .
I t has b e e n h i s tori cal ly ob s e rved th at the
Adminis trative and Genera l expens e s do vary w i th time .
The que s tion be come s :
Do the s e expenses vary w i th the
amount o f inves ted capi tal and , i f s o , by how much?
di s cus s ed in Chapter 2 , there is no way to as sociate
As
28
thes e e xp ens es w i th any particular inves tment in p lant ,
nor to any pa rticular type of p l ant ins t a l le d .
For s tudie s b as ed on the revenue requi rements
me thod , Adminis trative and General expens e s mus t b e
inc luded ,
and s ome know l edge o f th eir h is to r i c a l b ehavior
is es s ential .
and 9 2 5 ,
For the purpos e s o f th is paper Accounts 9 2 4
re lating to Ins urance e xpens es , h ave b e e n tre ated
s epa rate ly and w i l l b e dis cus s ed in a f o l low i ng s ec t i on .
The remaining accounts , excludi ng Accounts 9 2 4 and 9 2 5 ,
are cons i dered to b e " Adminis trative and General
Expenses . "
Appendix E p rovides a comp l ete s ummary o f e ach
account and the annual total o f thos e a c counts .
This
data was correlated w i th th e average inves ted capi tal to
determine i f a r e l ations hip exis ted b e tween the two
variab l es and th e parameters for s uch a re lations h ip .
A time sharing computer p rogram was us ed to
determine wh ich o f s ix di f f erent curve types b e s t f i t
the data .
The res u lt s showed a s i gni f i cant corre lation
for curves of th e form :
1.
y = A + Bx
2.
y = AxB
Wh ere x w as the average inve s ted capital and y was th e
Adminis trative and General expens e .
A s ummary o f th e res ults f o l lows in Tab le 3 .
29
TABLE 3
ADMINI STRATIVE AND GENERAL EXPENSE VS .
AVERAGE INVESTED CAP ITAL
Regr e s s ion and Corre lation Ana ly s i s
Curve
Type
Number
1
y
=
A+Bx
2
y
=
Ae
3
y
=
AX
4
y
=
5
y
=
6
y
=
Coe f f i c i e nt o f
D etermination
B
A
0 . 9 83
-2220 .
1 . 7 56 (10)
0 . 850
4079 .
1 . 151 (10)
0 . 9 83
2 . 30 0 ( 1 0 )
A+�
0 . 73 5
3031 0 .
1
A+Bx
X
Ax+B
0
1 . 844 (10)
Bx
B
X
0 . 97 8
-7 . 0 83 ( 1 0 )
-3
-2
-6
1 . 136
-1 . 1 4 6
-4
-6
-9 . 24 8 ( 1 0 )
75 . 98
-l
30
The l inear function , y = O . O l 7 6 x - 2 2 2 0 . , w as
s e l e cted for two reas ons :
(1)
its s imp l i c ity and ,
( 2)
an i ns uf fi c i ent di f f e rence in the coe f f i c i ent of deter­
mination b etween th e linear function and th e power
function .
Recal ling th e critica l va lue for the correlation
coe f fi c i ent as b e ing 0 . 5 6 1 1 1 1 , th e corre lation can b e
cons idered s igni f i cant at th e 1 percent leve l .
Margina l Administrative and General Expens e
The function y = 0 . 0 1 7 6 x - 2 2 2 0 . may b e us ed to
approximate the h i s torical ch ange expected in th e depen­
dent vari ab le , y , when th e independent variab le , x ,
changed .
is
For economi c s tudi es w e are interes ted in th e
margina l rate o f ch ange i ncurred i n th e value o f Admini­
strative and General expens e s , y ,
invested capita l , x .
for a ch ange in average
To obtain this va lue , th e s lope
of the function y = 0 . 0 1 7 6 x - 2 2 2 0 . , is calcu lated to b e
0 . 0 1 7 6 , o r , a one unit change i n x wi l l ch ang e y by
0 . 0 1 7 6 units .
S i nc e s tudy va lues are usua lly expres s ed in
percentage terms , the margina l re lations hip i ndi cates
that a unit ch ange in average i nvested capital res u lts
i n a 1 . 7 6 per cent change in Adminis trative and General
e xp ens es.
31
Reca l l ing the contents o f Chapter 2 and th e
p revious dis cus s io n o f the equipment l i fetime or mor­
tal ity dis pers ion p rob l em ,
it should be rememb ered that
the s l ope of the regres s ion l i ne repres ents only the
h i s to r i c a l c ompany average for a l l types o f i nves tments .
I t does not r e l ate di f f erent types o f p lant to a change
in the Adminis trative and General expens e s .
I t is obvious ,
howeve r , that us e o f a marginal value lower than the
h istorical s lope f o r c e rta in p i ec es of equipment requi res
the us e o f a h i gher value than the average for other
types o f equipment analy s es .
S imp ly ,
i f s ome investments
add les s than average Admin i strative and General expens e s ,
other i nvestments mus t require g reater th an average
Admin i s trative and General expens es .
The j udgment i nvolved in an arb itrary al location
b etween equipment types can b e recogni z e d by uti l i z ing a
prob ab i l ity dis tribution with a mean equal to the h i s tori­
ca l ave r age and havi ng oth e r parameters r e f l ecting the
prior prob ab i l ity distribution o f the variab l e .
I nsurance Expen s e
Ac counts U s ed
I n conj unction w i th th e preceeding s ecti on on
Administrative and General expens e s , I ns urance expens e is
inc luded i n the Uni form System o f Accounts as Administra-
32
tive and General expens e .
However , th e divergent ins urance
requirements r e s u lt i ng f rom d i f f erent types of i nves tments
w arrants a s eparate annua l revenue requi rement for
ins uran c e expens e .
S eparate treatment make s i t pos s ib l e
to d i f f e rentiate b etween th e types o f i nve s tment a lterna­
tives and the r i s k e ach places on the corporation .
For this reason I ns urance exp e ns e is treated
s eparately from the remainder o f the Admi nis trative and
General expens es .
A ccounts 9 2 4 and 9 2 5 , P roperty I ns urance
and I nj uries and Damages ,
respectively , repres ent the
annual exp ens e o f providing for th e requirements o f
ins urance premiums .
S imi lar ly to Admi n i strative and
Genera l expens es , th e tw enty y ear per iod 19 4 8 - 1 9 6 7
was us ed fo r regres s ion and co rre l ation ana lys is w i th
average inve sted capita l .
I t was f ound that the year
19 6 7 showed a s ubs tant i a l deviation f rom th e regre s s ion
line , w ith th e coef f i ci ent of determination for th e
twenty y ear period equa l to 0. 6 3 9
f i c i ent = 0 . 7 9 9 ) .
( Corre lation Coe f ­
A s econd computation e liminating th e
year 1 9 6 7 y i e lded a co e f f i c ient o f determination o f
0 . 9 1 1 ( Correlation Co e f f i c i ent = 0 . 9 5 4 ) .
F o r the
n ineteen-po int tria l , the critical va lue o f the corre la­
tion co e f f i c ient at the 0 . 01 l eve l of s i gni f i cance should
be equa l to or greater than 0 . 5 7 5 1 2 .
B as ed on the
nineteen-point tri a l , th e regres s ion l ine b e s t de fi ning
th e data w as a l i near fun ctio n .
33
A s ummary o f the re sults o f the regres s ion and
corre l ation ana ly s i s for the ninete e n- po i nt data tri al
are shown in Tab l e 4.
34
TABLE 4
INSURANCE EXPENSE VS . AVERAGE INVESTED CAP ITAL
Regre s s ion and Corre lation Ana lys i s
Curve
Type
Number
1
y
=
A+Bx
2
y
=
Ae
3
y
=
Ax
4
y
=
5
y
=
6
y
=
Coe f f ic ient o f
Determinati o n
B
A
0 . 911
133 . 1
6 . 739 (10)
0 . 8 52
309 . 0
8 . 75 2 ( 10)
0 . 910
0 . 011
0 . 8 14
A+�
0 . 748
1331 .
1
A+Bx
0
2 . 756 (10)
0 . 902
2 . 67 2 (10)
Bx
B
X
X
Ax+B
- 4 . 164 ( 1 0 )
-3
-4
-1 . 28 0 ( 1 0 )
-4
-7
8
-9
951 . 8
A comp lete summary of the data u s ed for thi s analys i s may
be found in Appendix E .
35
Marg i n a l I ns urance E xpe ns e
Once aga i n th e marginal expens e i s o f the greates t
i nteres t .
T ak ing the s lope o f the function ,
y = 0 . 0 0 0 6 7 4x + 1 3 3 . 1 , y i e lds 0 . 0 0 0 6 7 .
Converting to a
percentage value r e s ults i n a one unit change in x
changing y by 0 . 0 6 7 4 percent .
B a s e d on the preceding analy s i s ,
a whole s a le
genera li z ation attempting to s ay th at a l l pro j e cts have
a revenue requirement o f 0 . 0 6 7 percent o f average invested
capita l per year is incorrect .
Rath e r , it is quite
l ike ly that no individu a l pro j e ct w i l l b e exactly equa l
to the averag e .
The s lope mer e ly provides an initi a l
e stimate o f th e mean .
Ad Valo rem T axes
B a ckground
One of the components o f th e annua l revenue
requirement is taxes oth e r than income taxes .
S uch taxes
wou ld inc lude ad valorem or property re lated taxe s ,
payro l l taxe s , and any s ort o f oth e r taxes excludi ng
franchis e taxe s .
F ranch i s e tax requirements are categor­
i z ed as a component of Adminis trative and General Expens e .
The larges t s in g l e component of th e T axes - Oth er category
is th e Ad Valorem o r P roperty T ax .
36
It is general ly the on ly tax cons i dered to b e
directly r e l ated to the inves tment.
The other taxes
compris ing this category are us ual ly exc luded as a
portion o f inves tment re lated expens es .
I t is then
proper to us e only the ad valorem tax as a component
o f the annual revenue requirement.
Ad valor em tax rates
are e s tab l i s hed by indivi dual counties for each o f the
special d i s tricts compris ing the part i cu lar tax code
a rea.
The s um tota l o f each o f the individual com­
ponents y i e l ds the tota l tax r ate for the tax code area.
As may b e s urmi s e d by now , this tax p re s ents a numb er o f
prob l ems :
1.
It is s ub je ct to annual changes as a
function o f the tax do l lar needs o f
the dis tri ct.
2.
I t i s s ubject to changes i n the methods
us ed to as s es s the va lue o f the
propert i e s .
3.
A l imited numb er o f f os s i l- fuel gen­
erating s tations are b ui lt res ulting
in a l imited amount o f data s ince the
locations of the s tations are b e coming
more divers e.
4.
Forty y ears o f data does not e x i s t
f o r one s tation , much l e s s f o r the
s i x stations avai lab l e for study.
37
5.
Ad valorem taxes cannot b e i n ferred
to be cons i s tent o r s tab le over any
period o f t ime .
Th is s tudy has attempted to deve lop reas onab l e
expectations bas ed on the l imi ted amount o f data
ava i l ab le .
Curve Fit and P rojection
The f i rst s t ep in analy s is of th e ad va lorem
tax data was to gath e r the ava i lab le data w i th i n the
Company .
S uch information cons is ted o f the tax y e a r , th e
book value o f th e properties under cons i de ration , th e
as s e s s ed value o f th os e properties ,
and the actual
do l lar value of taxes paid on thos e properties .
Th e rat io o f th e a ctual taxes paid to th e book
va lue of th e p l ant under study x 1 0 0 gives the percentage
that the tax was to the plant investment .
By k now ing
th e f i r s t tax year in wh ich the generating s tation was
placed in s e rvice ,
a time-re lated function of th e percent­
age tax ver sus p lant l i f e may be deve lop e d .
The po ints
repres enting th is function are s hown in F igure 1 .
B ecaus e
the maximum l i f e ava i lab l e is the twenty - s ixth year o f
taxes for any station ,
some es timate o f the future trend
of taxe s is neces s a ry .
For th is s tudy f our proj ections
were made .
The f irst pro j e ction as s umed th at e f fe ctive
38
a d va lorem tax rates wou ld remain constant and equal to
the e f fe ctive rate exis ting during the last year o f
ava i lab le data .
Th e s e cond a s s umption was that the
e f fective tax rate would increas e continuous ly to the
fortieth yea r at a rate equal to the estimated rate o f
change exis ting dur ing the latter years o f ava i lab l e
data .
The th i rd as s umption increas e d th e e f fe ctive tax
rate to the peak o f th e recorded data for f ive of th e
s ix s tations at th e forti eth yea r .
Th e fourth ass umption
increa sed the e f f e ctive tax rate to the peak o f the tota l
data at the fortieth year .
a ls o s hown in Figure 1 .
The four proj ections are
FIGURE 1
AD VALOREM TAXES AS A PER CENT OF ORIGINAL COST
AND PROJEC T ED TO A _.0 YEAR PLANT LIFE
S.O r-------�--�--�
....
en
0
4.0
8
0
0
1&.
0
o
0
o
/
0
0
0
....
z
0
ILl
u
ac: 3.0
ILl
>
j:
u
ILl
1&.
1&.
ILl
�
2.0
.;
en
�
ILl
�
ac:
)(
�
0
0
_,.-'
,
�'\0
-� .
"
. .
'&
� �..
•
r- -
/'0
0
0
,.,."'
.,."'
/
/
/
/
/
/
/
_,"
4
0
�
REDONDO PEAK
REDONDO BEACH
DATA
//
0
_
_ ...........
_
_
.,..
//'
,...,...'"""
PEAK OF OAT A
-......_
/­
..
..
c
0
0
0
�_
0
0
ALAMI TOS, ET
HUNTINGTON
•
0
0
�
�
__
- -
-
-A S SUMPTION 1
CONSTANT
EL SEGUNDO,
::����·MANDALA
Y
1.0
.o .........-........-........-........-.................-........-........r
0
5
10
15
20
YEAR OF LIFE
25
30
35
40
APRILIO, 1970
\.N
1.0
40
A l l four e s timated functions can b e approximated
by a cub i c functio n .
A s eries o f 40 s ets o f data points
were extracted from ea ch curve and used in a polynomi a l
curve f itting p rogram t o estab lish th e coef f i ci ents
for e ach estimated fun ction .
Th e data points us ed are
tabulated in Appendix F .
Th e equations wh ich b e s t repres e nt each es t imate
ar e tab u lated b e low :
=
0 . 0 0 0 1 2 lx 3 - 0 . 0 0 7 4 9 x 2 + 0 . 1 2 lx + 1 . 7 7
y ( tangent)
=
0 . 0 0 0 0 9 6 5x 3 - 0 . 0 0 59 6 x 2 + 0 . 10 5x + 1 . 8 0
3.
y
=
0 . 0 0 0 0 8 8 6 x 3 - 0 . 0 0 5 16 x 2 + 0 . 0 9 4 5 x + 1 . 8 3
4.
y ( pe ak o f Redondo data )
1.
y
2.
( constant )
( peak )
=
0 . 0 0 0 2 0 5x 3 O . O l l lx 2 + O . l9 0 x + 1 . 4 0
For an economic s tudy on an annua l cost b as is
it is des i rab le to obtain a s ingle numb e r b es t repres ent­
ing the anti cipated expens e for th e l i f e of the inves tment .
Th e preceding equati ons w i l l e ach generate forty di f f erent
y early e f fe ctive tax rates .
Th e prob lem is to s e l e ct
th e uni form equiva l ent annua l rate which w i l l res u lt in
th e s ame pres ent wo rth of a l l expenditures as th e s um
o f th e pres ent worths o f each expenditure .
Each y ear's
expens e is dis c ounted at th e appropriate dis count f actor
and accumu lated .
The accumulation o f the tota l is th en
divi ded by the uni fo rm s er i es pres ent w o rth f a ctor to
41
" spread" the pres ent worth back to a uni fo rm equivalent
annua l expens e .
A s ummary o f e ach year's e f fe ctive tax rate as
repres ented by th e tax equations and the equivalent
un i f o rm annua l value for each s eries are shown in
Tab le 5 .
The equi valent uni form annua l rates for each
o f the f our tria ls are so c l o s e as to b e e s s enti al ly
equal .
42
TABLE 5
AD VALOREM TAX S TUDY SUMMARY
Year
Y Constant
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
Y Tansent
l. 8 8
l. 9 8
l. 9 0
l. 9 9
2.07
2.14
2.20
2.25
2.29
2.32
2.34
2.3 5
2.36
2. 3 5
2.3 4
2. 3 3
2.3 1
2.28
2.26
2.23
2.20
2.16
2.13
2.10
2.06
2.03
2.00
l. 9 8
l. 96
l. 94
l. 9 3
l. 9 3
l. 9 3
l. 9 4
1.95
l. 9 8
2.02
2.06
2.12
2.19
2.27
2.3 7
2.06
2.13
2.19
2.24
2.2 8
2.3 1
2. 3 3
2. 3 5
2. 36
2.3 7
2.3 7
2.3 7
2. 3 6
2.3 5
2.3 4
2. 3 2
2.31
2.29
2.27
2.25
2.24
2.22
2.21
2.20
2.1 9
2.19
2.1 9
2.19
2.20
2.22
2.24
2.27
2.3 1
2.3 6
2.41
2.48
2.5 5
2.64
Y Peak
l. 92
2.00
2.07
2.13
2.18
2.23
2.27
2.30
2.3 3
2. 3 5
2.36
2. 3 7
2.3 8
2. 3 8
2.3 9
2.3 8
2.3 8
2.3 8
2. 3 7
2.3 6
2.36
2. 3 5
2.3 5
2. 3 5
2. 3 5
2.36
2.3 6
2.3 8
2.3 9
2.41
2.44
2.47
2.51
2. 56
2.62
2.68
2.7 5
2.8 3
2.9 2
3 .02
Y Peak o f
A l l Data
1.5 8
l. 7 4
l. 8 8
2.00
2.10
2.18
2.26
2.3 1
2. 36
2.3 9
2.42
2.44
2.44
2.45
2.44
2.44
2.43
2.42
2.41
2.40
2. 3 9
2.3 9
2.3 9
2.40
2.42
2.44
2.47
2.52
2.5 7
2.65
2.7 3
2. 8 3
2. 9 5
3.09
3.24
3 .42
3.62
3.84
4.09
4.3 6
The uni form equiva lent ad v a lorem t a x f or e a c h preceding
equa t i on f o l lows :
Y Constant
y Tangent
y Peak
y Peak Redondo
2.17
2.22
2.26
2.25
43
Us e o f Th i s Data in S ens itivity Tes t P rogram
I n order to proceed f rom th is point , a s ingle
repres entative curve mus t b e s e lected .
Th e current and
future e xpected ass es sment ratio ( as s es s ed value/book
va lue )
has been s et at 2 5 percent of th e reported b ook
value by the C a l i fornia S tate B oard of Equa l i zation .
H i s tori c a l ly th is ratio h a s b ee n as h igh as 5 0 percent
for e le ctric uti lities ; but court dec is ions prec lude
dis criminatory taxation , and the ratio is current ly b e ing
reduced to 2 5 percent .
There f ore , i f a l l e f f ective annua l
tax rates are divided by 0 . 2 5 , a mathemati cal function
repre s enting the annual local tax rate may be approximated .
The curve that , i n the author's opinion , b e st represents
both current and future es timated tax rates is the y
( peak )
equatio n .
This equati on , divided by 0 . 2 5 equa l s ,
y = 0 . 0 0 0 3 5 4 4x 3 - 0 . 0 2 0 6x 2 + 0 . 3 7 8x + 7 . 3 2 ,
and has been used to approximate the ad valorem tax
functi on for a l l s ub s equent studi es .
Compensation for future ch anges in ad valorem tax
rates may be made in th ree way s :
1.
Compute the pres ent worth o f a 4 0 -year
s eries of tax rates and ob tai n an
equivalent annuity .
Then multiply
the annui ty by the 0 . 2 5 as s e ssment
ratio f o r us e in the s tudy .
44
2.
Compute th e p re s e nt worth o f a 4 0 -y ear
s eries o f taxes , multip ly ing e a ch
year's tax rate by 0 . 2 5 .
Then compute
the equival ent annuity and us e the
equival ent annuity directly .
Compute the 4 0 -year annual equivalent
3.
of a s er ies of tax rates as in
Method 1 .
Th en compute the e f f e ctive
as s e s s me nt ratio as f o l lows :
Equiva lent Annuity o f General Equati on
1 s t Year ' s Tax Rate for General Equation
Multiply th e 1st y e ar ' s tax rate for
th e s ite location unde r s tudy by the
e f f ective a s s es sment ratio .
Us e
thi s p roduct in the study .
B as ed on th e y
( pe ak )
equation repres enting th e
tax rates for th e compos ite o f f ive generating s tati ons ,
th e es timated e f f e ctive as s es sment rati o under Meth od 3
des crib ed above would b e
2 . 1 7/ ( 1 . 9 2/ . 2 5 )
= 0 . 2 5 ( 2 . 1 7 ) /1 . 9 2
=
0 . 2 85
or , s ay 2 9 percent .
Future studi es c an b e made by any meth od , a l though
Methods 1 and 2 are to b e pre f e rred b ecause o f the i r
direct compens ati on for th e time va lue o f money .
Method 3
would requi re an analy s is o f th e ch ange i n the e f fe ctive
as s es s ment ratio each time th e dis count rate is ch ange d .
45
The ad valorem tax rates us ed for furth e r s tudy
are b as ed o n es timates o f reas onab le maximum and minimum
tax rates th at mi ght b e expe cted i n a typ i c al coas ta l
l ocatio n .
Coastal ad valorem tax rate s are g enera l ly
h igh er th an oth e r l ocations avai lab le to Edison b e caus e
o f th e i r proximity to ma j or population centers i n S outhern
C a l i forn i a .
A 3 0 percent e f f ective as s es sment ratio was
us ed in th is analy s i s for two r e as ons .
1.
Th is particular analy s i s is not an
e conomic s tudy , mer e ly an attempt to
determine wh at e f f ect ad valorem taxes
h ave o n th e tota l revenue requirement .
Fo r th is purpo s e the method chos en is
immateri al .
2.
Us e o f an e f f ective as s es sment ratio
s imp li f i ed th e programming requi red
for th e s ens itivity analy s is .
S e ns itivity analys es mad e for economi c s tudi es should b e
b as ed on e i ther Meth ods 1 o r 2 as des crib e d on th e
previous page .
B eta Dis tributi on Functi ons
The preceding s ections have des cribed th e s ource
and development o f th e parameters needed to deve lop an
annual revenue requi rement .
A b etter ins i gh t has b een
obta ined b ecaus e of thes e ana ly s es .
How ever , i n order
46
to develop a prob ab i lity distrib ution fo r th e annual
revenue requirement , a Monte Carlo s imulatio n mus t b e
performe d .
No as s umptions h ave been made about th e type
o f d i s tribution for each variab le , y e t var iati ons do
o ccur w ith in th e da ta us ed .
S ome means mus t b e deve loped
by wh ich a prob ab i lity dis trib uti on can be e s tab l i s h ed
for each o f the variab les i n th e revenue requi rement .
Ins u f f i c i ent data exis t to es tab l ish th at a normal dis tribution would repres ent each va riab l e .
Therefo re , s ome
probab i l i ty dis tribution mus t be found whi ch w i l l mee t
th e criteria out l i ned b e low :
1.
S impl e to u s e
2.
Capab le o f rep r e s enting a lmos t any
as sumed probab i li ty dis tribution
3.
Capab le o f extreme f lexibi l ity
Formulae
Res earch i nto th is p rob l em res ulted in a B eta
di s tribution function being u s ed to des c rib e th e probab i l i ty distrib ution o f each o f the parameters .
The B e ta
Function takes the form
a (m,
n)
=
'
JX xm- 1
0
( 1 -x ) n- 1 dx
Th is function cannot b e integrated . l 3
H ow ever , i f m
and n a re i nteger values greater th an 0 , the area under
th e B eta Function is equa l to r.
( m)
r
r
( n)
( m+n )
14
T ab les o f
Gamma functions a r e readi ly avai lab le f o r th i s ca lculation .
47
The probab i li ty dis trib ution f o r any point , x , exis ting
i n a B e ta function may b e c a l culated by numerical i n tegra­
tion o f the area under th e B e ta function f rom the ini tia l
po int o f th e B e ta function to x and dividing the integrated
area by
r (m)
r ( n)
I r ( m+n )
•
A digital computer is very u s eful i n performing the
probab i lity c a l culations .
Capab i l i ty and Limitations
The B eta D i s tribution can b e molded to f i t any
range and probab i l i ty dis trib ution by proper s e lecti on o f
the parameters m- 1 , n- 1 , and th e interval ove r wh i ch the
value , x ,
i s di s tributed .
Fi gure 2 shows the e ff e c t o f
changes i n th e m- 1 , n - 1 parame ters f o r th e interval 0 t o 1 .
For th is s tudy o f s ens i t ivity a computer routi ne w as
developed wh i ch would derive th e prob ab i l i ty dis tribution
function for each variab l e b as ed on given input data f or
th e B eta Dis tributi on parameters m- 1 , n- 1 ,
and th e i n terval
ove r wh i ch th e dis trib ution was to exis t .
Once the
probab i li ty dis tr ib utions h ave b e e n es tab l ished , th e
Monte Carlo s imulation may b e performed .
A va lue is
s el ec ted at random f rom e ach variab le ' s p robab i l ity
dis tributio n .
Each value s el e c ted i s comb ined w i th the
o th er nece s s a ry values to cal culate a s ingle annual
revenue requirement .
In th is s tudy th e proce s s is
(7,1 )
FI GURE 2
BETA PROBABILITY DI STRIBUTIONS
LEFT SKEWED
3.0 ,.------,--r---1- --\-----.
2D
1.0
.o '
.0
<'T
cuo
rl<'"
0.40
I
I
0.60
0.10
> I
1.00
3.0
0.20
0...0
0.60
0.10
1.00
•
), "w
0.20
I
I
0.40
0.60
RIGHT SKEWE D
I
o.ao
1.00
�
(X)
49
repeated two tho us a nd t imes .
The res u l t is a f requency
dis tribution function repres enting th e prob ab i l i ty tha t
th e annual revenue requi remen t w i ll b e equal t o o r
greater than any po int o n the interval b e tw e e n the minimum
and max imum revenue requirement .
The compute r ana ly s i s p rogram h as the f o l low ing
l im i ts :
1.
2 , 0 0 0 i te rations or c a l c u la ti ons for
th e annua l revenue requi rement .
2.
Beta p arameters m- 1 and n - 1 l imi ted
to integer value s th e s um of wh i ch
cannot exceed 1 5 .
3.
I ncome Tax Annui ty limi ted to acce l ­
erated depre c i ation f o r tax purp o s es
and s traigh t l i ne depre ci ation for
b ook purpos e s .
Tax L i f e = 2 8 y ears .
A copy o f the computer p ro gram us ed for th e tes ts o f
s ens i tiv i ty appears in Appendix G .
Sununary
Th e data and analy s e s contained in th is ch apter
have res u lted i n the f o l lowing determinations :
1.
The average b ond inter es t r a te and the
r e turn on average i nve s te d cap i tal
50
are r e la ted as d e f ined by the
equation :
y = 0 . 59 6x - 0 . 14 1
Coef f i c i ent o f Determination = 0 . 7 0 7
Coe f f i cient o f C o rre lation = 0 . 8 4 1
The rate o f ch ange o f bond inte res t
rate to a o ne percent ch ange in
return on average i nves ted capi tal
i s 0 . 59 6 or 0 . 6 percent per 1
percent chang e in r e turn .
2.
The equivalent depreci ation l i f e time
for fos s i l - fu e l generating s ta tions
a c counts wh os e mortal i ty dis pers ion
is repres ented by the equation ,
f (x)
3.
= e- . o o sx ,
i s 3 6 y ears .
Adminis trative and Gene r a l expens e s _
were relate d to average inves ted
cap i ta l by th e equation :
y = 0 . 0 1 7 7x- 2 2 2 0 .
Coe f f i c 1 en t o f Determination = 0 . 9 8 3
Coe f f i ci ent o f Correlation = 0 . 9 9 1
The rate o f ch ange o f Admi n i s trative
and Genera l e xpens e s to a uni t ch ange
in averag e inves ted capital is 1 . 7 6
percent .
4.
I ns urance expens e s were r e lated to
average i nve s ted capital by the
51
equatio n :
y = 0 . 00 0 6 7 4
X
+133 . 1
Coe f f i ci ent o f De termination = 0 . 9 11
Coe f f i ci ent o f Corre l a tion = 0 . 9 5 4
The rate o f ch ange o f I ns urance expens e s
t o a unit change in average i nves ted
capi tal i s 0 . 0 6 7 percen t .
5.
The ad va lorem taxes for any s i te
location can b e approximated by the
cub i c function
y =
( 0 . 0 0 3 5 4 4 x 3 - 0 . 0 2 0 6x 2 +0 . 3 7 8x+ 7 . 3 2 )
times
( Tax Rate for S ite under
S tudy / 7 . 3 2 ) .
The uni form equivalent
annua l e f f e ctive tax rate for th e 4 0
y ear p ro j e c ted l i f e time i s approx­
imate ly 30 percent of the initi a l
y e ar tax ra te .
6.
Th e B eta Di s tributi on can b e us e d to
des cribe the sub j e c tive prob ab i l i ty
dis tribution function for any o f the
input variab les o f the annual revenue
requi rement .
CHAPTER IV
DES C RIPT ION OF RESULTS
B a s e Cas e Dis tribution
P arameters
A s ens i tivi ty analys i s
the e ffects
to
of
a change
th e to tal or
s uch an e f f ec t ,
"base"
requires
in one of
pres e l e c ted parameters mus t be
s uch a
va riab les
for the annua l revenue
certa i n .
It
cho i ces
"base"
the
ab l e .
s e l ec tion of
involved .
input
and only one value
any variable .
Theref ore ,
and mean
under cons ideration .
s tati s t i c a l ana ly s e s h ave provided
for s e le ction of
a
f ive
in s e lecting the range
f ive variab les
However ,
The
us ed to
requirement are not
s aid tha t one
the behavior of
Chapter Three ' s
a ba s i s
dis tr ibution .
can no t be
mus t be made
value of
input variab les
In order to ob s erve
dis tribution .
es tab l i sh
can des c ribe
the
obs ervation of
the dis tributions
cons iderab l e
th e parame ters
amount of
of each vari­
j udgment in the
for each variab le
is
s ti l l
The s ub s equent s ens i t iv i ty tes ts w i l l show
e f f e c t on th e total
dis tr ibution of
variab l e ' s dis trib u t io n .
a change
the
in each
The e f f e c t o f j udgment o n the
52
53
outcome may th en b e shown to b e e i ther s igni f i cant or
negl igib l e .
Furth e r ana ly t i c s tudies o f th e variab les
could b e us ed to reduce the e f f e c t o f j udgme n t ,
if
necess ary .
Th e b a s e parameters s el e c ted for each variab l e
w i l l b e des crib ed and th en wi l l b e fol low e d b y des crip­
tions o f th e e f f ect o f changes in each o f thos e var i ­
ab l e ' s parame ters .
Th e values u s ed for th e variab l e s i n the b a s e
dis trib ution are s ummari z ed a s fo l low s :
1.
Return - Symmetrica l D is tribution
Mean = 8 . 0 0 percent
Range = 7 . 0 0 to 9 . 0 0 percent
B e ta Function Parame ters
a
=1
). = 1
2.
Depreci a ti o n L i f etime - Left S kewed
D i s tribution
Mean = 3 5 . 3 y ears
Range = 0 to 4 0 y ears
Median = 3 6 . 8 years
B e ta Function P arame ters
a
=12
). = 1
3.
Adminis trative and General Expens e s Symmetri cal Dis trib ution
Mean = 1 . 2 5 percent
54
Range = 0 . 50 to 2 . 0 0 percent
Beta Functions P arameters
ex
=1
). = 1
4.
I ns urance Expens e - Righ t S kewed
Dis tribution
Mea n = 0 . 1 1 percent
Range = 0 . 0 5 to 0 . 2 5 percent
Median = 0 . 1 0 percent
Beta Function P arame ters
a
=1
). = 3
5.
Ad Va lorem Taxes - Symme trical
Dis tribut ion
Mean = $ 9 . 0 0/ $ 10 0 as ses s ed value
Range = $ 7 . 50 to $ 10 . 5 0 / $ 1 0 0
as s es s ed value
B e ta Funct ion P aramet ers
!:1.
=1
). = 1
A g raph o f each variab l e ' s b as e cumula tive
dis tribut ion funct ion f o l l ows in F i gures 3 through 7 .
55
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60
The s ens i tivi ty tes ts us ed i n th is s tudy were as
fol lows :
1.
An expans ion of th e range .
2.
A contraction o f th e range .
3.
A more peaked di s trib ution over the
o r i g i na l range .
4.
Th e mos t peaked s ymme tr i c a l di s tribu­
tion pos s ib le by the program
(
5.
a
= 7 , >.
=7)
over the original range .
A s h i ft i ng o f the mean u s i ng the
o riginal range .
Each tes t was graphed and compared to th e b as e
c as e .
C r i ter ia
Th e crite r i a us ed to determine the degr ee o f
s ens i tivi ty wh i ch the tot a l annua l revenue requir ement
d i s p l ayed to each va riab le is as fo l lows :
1.
Th e change i n the mean of the
annual revenue r equirement.
2.
The change a t th e 9 0 pe rcenti l e
l eve l o f the annua l revenue require­
ment .
3.
S h i fts in the dis tributi on o f th e
annual revenue requireme n t .
4.
P revious ly unanti cipated cha nges
61
in th e annua l revenue requi reme n t .
E f f e c t o f a Change in Return
The e f f ect of a ch ange in th e mean re turn res ults
in a s ubs tan t i a l change in th e distribution of the r evenue
requi rement .
The reason for th is occurrence is th e
compound e f f ect o f return on b o th th e s inking fund
deprec iation component and the i ncome tax annu i ty .
The ini tial ch anges in range accounted for an equivalent
change in th e range o f the annua l revenue requi rement
but no ch ange i n the mean .
A greater concentration of
th e prob ab i l i ty dis trib ution ab out th e mean r e s u lti ng
f rom incre a s ing the p eakednes s ,
reduced the range o f
the annua l revenue requi reme n t .
Th e greates t obs erved ch ange o c curred when the
mean was s h i f te d to 7 . 4 0 percent .
between 7 . 0 0 and 9 . 0 0 perce n t .
Th e range remai ned
The 0 . 6 0 percent reduction
in th e mean reduced th e mean annua l revenue requi remen t
by approximately 1 . 0 p ercent .
A t e s t u s i ng a range o f
7 . 0 t o 8 . 0 percent w ith a mean equal t o 7 . 4 0 percent
r e s ulted in an equa l change of 1 . 0 percent to th e mean
revenue requi rement as we l l a s reduc i ng the upper
l imit of th e revenue requirement by approximate ly 0 . 5
per cent .
62
Tab l e 6 s ummari z es th e e f f ec ts o f e ach tes t made
by changing th e r e turn .
Figures 8 through 1 3 p i c tori a l ly
dis p l ay th e e ff e c t o f each tes t o n th e to ta l annual
revenue requi rement a s comp are d to th e " b as e " cas e .
TABLE
SUMMARY OF
6
SENS I T IVITY ANALYS E S
RATE O F RETURN
RATE OF RETURN
BASE PARAME TERS
MEAN
PERCENT
RANGE
PERCENT
ANNUAL REVENUE REQU I REMENT
C HANGE MADE
!!..
1..
OUTCOME AT
MEAN
90 P E RC EN T I LE
15 . 4 %
16 . 6 %
15 . 4 %
17 . 5 %
Reduced Range by 1 percent
15 . 4 %
16 . 2 %
3
I n c r e a s e d P eakedne s s
15 . 4 %
16 . 4 %
7
7
Mo s t P e aked D i s t r ibution P o s s ib l e
15 . 4 %
16.2 %
1
6
Skew D i s tr i bution to Med ian o f
14 . 5 %
15 . 3 %
14 . 4 %
15 . 2 %
8 . 00
7 . 00- 9 . 00
1
1
8 . 00
6 . 00-10 . 00
1
1
I nc r e a s ed Range by
8 . 00
7 . 50- 8 . 50
l
l
8 . 00
7 . 00- 9 . 00
3
8 . 00
7 . 00- 9 . 00
7 . 40
7 . 00- 9 . 00
BASE CASE
2 perc ent
o f Re turn
7 . 35
7 . 39
7 . 00- 8 . 00
1
2
Skew D i s t r ibu t i on to Med ian o f
7 . 3 5 a n d reduce upper limi t o f
range by
1 0 percent
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70
E f f ect o f a Change in Depreci ation L i f e time
An increas e o f 5 y ears in th e maximum li f e time
res u lted in an ins ignif icant change at th e mean revenue
requi rement and an increas e o f approximate ly 0 . 2 5 percent
( 1 6 . 6 0 percent to 1 6 . 8 5 percent)
at th e 9 0 percent level
( revenue requi rement greater th an 1 6 . 8 5 percent only
10 percent o f th e time ) .
A reduction o f 5 years in both th e maximum li fe­
time and the mean l i f e time reduced th e ent i re annual
revenue requirement by 0 . 3 0 percent .
An i ncreas e i n the maximum l i f e time to 6 0 y ears
w i th a mean l i f etime o f 30 years res u l ted in a ch ange o f
0 . 3 0 perce nt at th e mean revenue re qui r emen t and a 1 . 3 0
percent change at th e 9 0 percent leve l .
Th is is no t a
likely o ccurrence f o r th is type o f p lant but i t does show
th e e f f e c t o f a s ub s tantial increa s e in the economi c
l i f etime .
A ch ange i n the B e ta function parame ters
from
( 31 3 )
i n the p revi ous cas e to ( 7 1 7 )
( a ,A
res u l ted i n a
0 . 3 0 perc ent change at the mean and a 0 . 7 0 percent ch ange
at the 9 0 percent leve l .
A more p eaked curve shap e or a
clos er dis tr ibution about th e mean res u lted in a s igni f i ­
c an t s h i f t i n the revenue requirement .
71
The f o l low ing parameters were us ed in a final
tes t .
A
symme t ri c a l dis tr ibutio n o f 0 to 4 0 y ears w ith
a = 7 and A = 7 res u lted in a change of 1 . 50 percent
a t the mean revenue requirement and a change o f approxi ­
mat e ly 2 . 50 percent at th e 9 0 percent leve l .
I t is obvi ous f rom Fi gures 1 4 through 1 8 th at
changes to th e e conomi c li f etimes can res u l t i n s ub ­
s tantial changes to the annua l revenue requirements .
TABLE 7
SUMMARY OF S EN S I T IVITY ANALYSES
DEPRECIAT I ON LIFET IME
DEPRECIATION LIFETIME
BASE PARAMETERS
MEAN
YEARS
RANGE
YEARS
CHANGE MADE
g_
.A.
ANNUAL REVENUE REQU IREMENT
OUTCOME AT
35
0 to 40
12
1
35
0 to 45
5
1
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to 45 ye ar s
30
0 to 3 5
9
1
Reduced upper l imit of r ange
to 3 5 year s and reduced mean
to 30 years
30
0 to 60
3
3
Increased upper l imi t o f range
to 60 years and made a symmetr i ­
c a l d i s tr ibution
30
0 to 60
7
7
Increased upper l imi t o f r ange
to 60 years and made mo s t peaked
symme tr i c a l d i s tribution
20
0 to 40
7
7
Reduced upper l imit of range to
40 year s , reduc ed mea n to 20
years and made mo s t peaked d i s ­
tribution
BASE CASE
MEAN
90 PERCENTILE
15 . 4 %
16 . 6 %
15 . 4 %
16 . 9 %
%
17 . 0 %
15 . 7 %
17 . 9 %
15 . 7 %
17 . 3 %
17 . 0 %
19 . 1 %
15 . 7
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78
E ff e c t o f a Ch ange in Adminis trative
and Genera l Expens es
A 1 percent i ncreas e in th e range o f Admi n is trati ve and G eneral expens es res u lts in no ch ange to th e
mea n revenue requirement and an increa s e o f app roximately
0 . 1 percent at th e 9 0 percent leve l .
An identi c a l reduction in the range ( 1 percent)
res u l ts i n a reduc tio n o f app roximate ly 0 . 1 percent at
the 90 percent leve l .
A reduction o f 0 . 5 0 percent i n the mean va lue and
a reduction in the range of 1 p ercent results in a reduction
o f the annual revenue r equi rement by 0 . 5 0 perce n t .
Ch anging the peakedn es s
( o r B e ta Function P aramete rs )
o f th e dis tr ibution results in a negli gib le change i n
the annual revenue requireme n t .
A reduction o f 0 . 2 5 per cent to th e mean and 0 . 50
percent to th e upper l imi t o f th e range res u l ts i n a
0 . 2 5 percent reduction at the mean annual revenue requirement and a 0 . 50 p e rcent reduction i n th e upper limi t of
the annual revenue requirement .
TABLE 8
SUMMARY OF SEN S I T IV ITY ANALYSES
ADMIN I S TRATIVE AND GENERAL EXPENSE
ADMINISTRAT IVE AND GENERAL EXPENSE
BASE PARAMETERS
RANGE
PERCENT
.a.
A..
1. 25
0 . 50- 2 . 00
1
1
1. 25
0 . 00- 2 . 50
1
1
1. 25
1 . 00-1 . 50
1
0.75
0 . 2 5 -1 . 2 5
1.25
MEAN
PERCENT
CHANGES MADE
ANNUAL REVENUE REQUIREMENT
OUTCOME AT
MEAN
9 0 PERCENTILE
15 . 4 %
16 . 6 %
Increased range by 1 percent
15 . 4 %
16 . 7 %
1
Reduced r ange by 1 percent
15 . 4 %
16.6 %
1
1
Changed range to 0 . 2 5 to 1 . 2 5
percent and reduced mean to
0 . 7 5 percent
14 . 9 %
16 . 1 %
0 . 50- 2 . 00
3
3
Ba s e case w i th increased
p e akedne s s
15 . 4 %
16 . 6 %
1. 25
0 . 50- 2 . 00
7
7
B a s e c a s e w i th mo s t p eaked
d i s tr ibution
15 . 4 %
16 . 5 %
1 . 00
0 . 5 0-1 . 50
3
3
Reduced upper l imit o f range
to 1 . 50 percent w i th inc reased
peakedne s s
15 . 2 %
16 . 3 %
1. 59
0 . 5 0- 2 . 00
4
1
Skewed mean from 1 . 2 5 percent to
1 . 5 9 percent
15 . 8 %
16 . 9 %
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87
E f f ect o f a Change in I ns uran c e Expens e s
B ecaus e th e I ns uran c e e xpense component o f the
annual revenue requirement is treated i n a s imi lar manner
to Adminis trative and Gener al expens es ,
it is anticipated
that th e annua l revenue requi rement w i l l rea c t i n
a
s imi l ar manner to changes in I nsurance e xpens e as to
Adminis trative and General expens e s .
Th e res ults o f the tes ts confi rm th i s hypothes is
as shown i n F igures 2 6 th rough 3 2 .
Howeve r , I ns urance
expens e appears to b e s uch a sma l l percentage of th e
. average inves ted cap i ta l tha t i t i s o f minor s igni f i cance
in the determination o f the annu a l revenue requirement
for fos s i l - fi red genera ting s tations .
I n the s even cas e s tes t e d , th e s ens i t ivity analy s i s
o f I ns uranc e expen s e never res u l ted i n a ch ange t o the
revenue requi rement greater than 0 . 1 percent for all
reasonab le comb inati ons attemp ted .
I t is conc luded th at i n s urance expens e is not a
s ig n i f i cant part o f the tot a l annual revenue r equi rement
for fos s i l - fired generating s tations .
·
/"""--·-- ··---·-----,----··-- ·
TABLE 9
SUMMARY OF SENS I T IVITY ANALYSE S
INSURANCE EXPENSE
INSURANCE EXPENSE
BASE PARAMETERS
ANNUAL REVENUE REQUIREMENT
OUTCOME AT
CHANGES MADE
RANGE
PERCENT
it
A
0 . 11
0 . 05 - 0 . 25
1
3
0 . 07
0 . 00-0 . 40
1
7
I ncreased limits of range ( 0 . 00
to 0 . 40 percent) and reduced mean
to 0 . 07 percent
0 . 05
0 . 00-0 . 10
1
1
0 . 15
0 . 05 - 0 . 2 5
1
0 . 20
0 . 00-0 . 40
0 . 20
�.ffiAN
PERCENT
MEAN
90 PERCENT I LE
15 . 4 %
16 . 6 %
15 . 4 %
16 . 5 %
Reduced l imits of range ( 0 . 00 to
0 . 10 percent) and reduced mean
to 0 . 05 percent
15 . 4 %
16 . 5 %
1
Base case range w i th a mean of
0 . 15 percent
15 . 4 %
16 . 6 %
1
1
Increased l imi ts of range ( 0 . 00
to 0 . 40 percent) with a mean o f
0 . 20 percent
15 . 5 %
16 . 7 %
0 . 00-0 . 40
3
3
I nc r e a s ed l imi ts of range ( 0 . 00
to 0 . 40 percent ) , me an equal to
0 . 20 percent , and increased
peakedne s s
15 . 5 %
16 . 7 %
0 . 20
0 . 00-0 . 40
7
7
Increased range , increased mean
and mo s t peaked d i s tribution
15 . 5 %
16 . 7
0 . 06
0 . 00-0 . 12
7
7
Reduced range , reduced mean ,
mo s t peaked d i s tribu tion
15 . 4 %
16 . 5 %
BASE CASE
and
%
00
00
0
0
�
f i GUR E
lANGE
TEST Of
26
=
0 . 0 0 TO 0 . 4 0
�
c
....
0
0
.
0
..,
f-­
z
w
u
0::: 0
w 0.
Q.. �
t1EAN
1\
\
fD
D A T E 0 4/ 08/70
I NSURANC E
=
A L P HA = 1 . LAMBDA =
Q . 080
7.
•
T E S T CA S E t1EAN = 1 5 . 34
BASE CAS E t1ERN = 1 5 . 3 7
9 0 PERCENT I L E
• TES T
CASE
� BASE CASE
X
I
�
>­
...... 0
...... 0
.
_. 0
..... •
\\
m
a:
m
D0
0::: 0
a.. 0
.
N
'
0
0
.
'1. 2 . oo
1 3 . 00
1 4 - 00
RNNUAL
1 5 . 00
REVENUE
1 6 . 00
......._
1 1 . 00
R EQU I R EM EN T
-
1 8 . 00
1 9 - 00
2 0 . 00
PERCENT
CX>
1.0
0
0
�
0
...
F I GUR E 2 7
TES T Uf
RANGE = 0 00 TO 0 1 0
c
•
t1EAN
•
I NSURANCE
=
D A T E 0 4 / 0 8/70
0 . 050
ALPHA = 1 . LAMBDA =
1 .
-�
1\
0
.
0
I- CD
-\
z
lJJ
u
o::: o
�0
..
CL �
CD
•
T E S T CAS E t1EAN = 1 5 - 3 1
BASE CA S E t1EAN = 1 5 . 37
90 PERC E N T I L E
� BASE C A S E
.a. T E S T
CASE
X
I
�
.&:
.&:
>­
t- c
_c
.&:
_J �
\�
--·
aJ
a:
aJ
Oc
o::: c
..
a.. c
·
N
'
.
c
c
� 2 . 00
1 3 . 00
1 4 - 00
ANNUAL
1 5 . 00
REVENUE
1 6 . 00
..._
1 1 . 00
R E QU I R E M E N T
-
1 8 . 00
1 9 . 00
20 . 00
P ERCENT
1.0
0
0
0
F I GUR E
0 tANGE
28
=
0 .05
TO
0
...
0
0
.
0
1-
0 .25
�
t1EAN
=
DATE
0 - 1 50
ALPHA =
1.
0 4/08/70
LAMBDA = 1 .
1\
\l
Q)
z
lJJ
u
a::: o
lJJ O
�
«l.. CD
.
I NSURANCE
T ES J ' Df
TEST CASE t1EAN = 1 5 - 4 1
BASE CAS E t1EAN = 1 5 - 37
90 PERC ENT I L E
t
CASE
.a. TES T
� BASE CASE
•
X
>-
1- C
-�
\.a
\
.....J c
....
.
OJ
a:
OJ
Oc
a::: c
a... �
N
"'
c
c
'\2 .00
�
1 3 . 00
1 4 - 00
ANNUAL
1 5 - 00
R EV ENUE
1 6 . 00
�
1 7 .00
R E Q U I R E M EN T
-
1 8 . 00
1 9 .00
20 - 00
P ER C E N T
\.0
1-'
0
0
�
.29
F I GUR E
lANGE
0
=
T E S T OF
�
0
0
.
0
I- CD
ALPHA =
1 . LRNBOA =
!
\
u
o::: o
wo
a.. �
CD
1 .
I
r\.
z
w
T E S T CASE NEAN = 1 5 . 46
X BA SE CAS E NEAN = 1 5 . 37
I
90 PERCENT I L E
CASE
4 TEST
- BASE CAS E
•
1\£
�
II
£
•
>-
•
1- 0
-�
....J o
•
'\��
-·
aJ
a:
aJ
&
Oo
o::: o
a_ �
N
'
0
0
.
'1. 2 . o o
DATE 0 4/ 08/70
NEAN = 0 . 200
Q . O O TO 0 . 40
�
I NSURANCE
1 3 . 00
1 4 . 00
ANNUAL
1 5 . 00
R EV ENUE
1 6 . 00
�
1 1 . 00
REQU I REMENT
-
1 8 . 00
1 9 . 00
20 . 00
P ER C EN T
1.0
I\)
.....
.
.
0
0
30
F I GU R E
.; ltANGE
=
0 . 0 0 TO 0 . 40
�
0
0
0
0
I- CD
z
lLJ
u
MEAN
=
DA T E 0 4 / 08 / 7 0
0 .200
ALPHA = 3 .
LAMBDA
=
3.
r\.
\
Q::: O
LLJ O
....
1\•
lA
a_ o
(D
>­
t-o
- c:'
_Jo
•
TEST CASE MEAN = 1 5 - 46
BASE CASE MEAN = 1 5 - 3 7
I
90 PERCENT I LE
- B A S E CAS E
CASE
• TEST
X
....
\���
_ ..,.
m
cr:
m
Oo
�
£t:: O
a.. .;
"'
I
'
0
0
0
1 2 . oo
I NS U R A N C E
T E S T Of
1 3 . 00
1 4 -00
RNNUAL
1 5 -00
REVENUE
1 6 . 00
�
1 1 . 00
R EQU I REMEN T
-
1 8 -00
PERCENT
1 9 -00
I
20 . 00
1.0
w
....
0
0
�
F I GU R E .3 1
TEST OF
RANGE = 0 - 0 0 TO 0 - 4 0
�
0
0
0
0
� CD
z
MEAN
ALPHA = 7 .
0 - 200
LAMBDA = 7 .
1\.
\•
•
•
u
�0
w�
a... o
CD
I
II
\..
w
>­
�0
-�
-1o
CD
a:
CD
Do
•
T E S T C A S E M E A N = 1 5 - 46
B A S E C A S E M E A N = 1 5 . 37
SD P E R C E N T I L E
4 TEST
CAS E
- B A S E CAS E
X
I
•
•
\'\
-·
•
��
O... o
N
'
0
0
0
1 2 . 00
:
D A T E 0 4/ 08/70
I NSURANCE
1 3 . 00
1 4 - 00
ANNUAL
1 5 - 00
REVENUE
1 6 - 00
�
1 7 . 00
REQU I REMENT
-
...... . ..
1 8 -00
1 9 - 00
2 0 - 00
P E R C EN T
1.0
.,.
.
0
0
c;;
F I GU R E
.3 2
T E S T OF
ftANGE = 0 0 0 TO 0 . 1 2
MEAN
•
0
-�
0
0
0
1- CI)
z
w
(J
�0
we
Q.. o
1\
\
&0
I NSURANCE
=
D A T E 0 4/ 0 8 / 7 0
0 . 060
ALPHA = 7 .
LAMBDA = 7 .
•
T E S T C A S E MEAN = 1 5 . 3 2
B A S E C A S E M EAN = 1 5 . 3 7
9 0 P ER C E N T I L E
- BASE CASE
"' TES T C A S E
X
I
�
I
.!1
&
>­
t-o
-�
_J o
m
a:
m
Do
�0
a... c;;
\
....... ....
0
0
01 2
�
'
"'
.
oo
1 3 . 00
1 4 - 00
ANNUAL
1 5 - 00
REVENUE
I
1 6 - 00
�
1 7 . 00
REQU I REMENT
-
1 8 -00
1 9 -00
2 0 . 00
PERCENT
1.0
(.11
96
E f f e c t o f a Change in Ad Va lorem T ax Expens e
I t is to b e exp e c ted tha t ch anges to th e ad
valorem tax rates w i l l res u lt i n direct ch anges to the
annual revenue requi rement .
I t has been determined
by th e tes ts made that the magni tude o f the change i s
dampened s omewh at b ecaus e o f the app l i ca tion o f the
a s s es sment rati o
(As s es s ed Value )
( Ma rket Value )
As a resu l t , to ob tain a 1 percent change i n the annual
revenue requirement ,
the ad valo rem tax rate mus t be
changed by approximate ly $3 per $ 10 0 as s e s s e d value
( 3 percent) .
F i gures 3 3 th rough 30 a ls o depi c t a neg l i -
gib le ch ange in th e annual revenue requi rement r e s u l ting
from a ch ange in the peakednes s o f th e ad va lo rem tax
dis tr ibution .
TABLE 1 0
SUMMARY OF SEN S IT IVITY ANALYSES
AD VALOREM TAX EXPENSE
AD VALOREM TAX RATE
BASE PARAMETERS
MEAN
PERCENT
RANGE
PERCENT
CHANGES MADE
jl
.l
ANNUAL REVENUE REQUIREMENT
OUTCOME . AT
MEAN
9 0 PERCENT ILE
9 . 00
7 . 5 0- 1 0 . 5 0
1
1
BASE CASE
15 . 4 %
16 . 6 %
9 . 00
7 . 0 0- 1 1 . 0 0
1
1
I ncrea s ed range
15 . 4 %
16 . 6 %
9 . 00
8 . 00-10 . 0 0
1
1
Reduced range
15 . 4 %
16 . 6 %
9 . 00
7 . 5 0- 1 0 . 5 0
3
3
I ncrea s ed P e akedne s s
15 . 4 %
16 . 6 %
9 . 00
7 . 50-10 . 50
7
7
Mo s t P eaked D i stribution
15 . 4 %
16 . 6 %
10 . 00
9 . 00-11 . 0 0
1
1
I ncreased l imits of range
and means
15 . 7 %
16 . 9 %
8 . 04
7 . 50-10 . 50
1
8
Skew mean f rom 9 . 0 0 percent
to 8 . 0 4 percent
15 . 2 %
16 . 3 %
10 . 00
7 . 50-10 . 50
8
1
Skew mean f rom 9 . 0 0 percent
to 1 0 . 0 0 percent
15 . 7 %
16 . 9 %
1.0
-...)
.
0
0
�
0
F l GURE 3 3
TES T Of AO VALUREN TAXES
RANGE = '7 . 00 TO
-�
0
0
0
I- GO
ALP HA =
MEAN = 9 - 000
1 1 - 00
ORTE 0 4 / 2 4/10
1 . LANBOA =
L .
r\
\
z
w
u
a::: o
w�
a.. o
ID
•
TES T CAS E NEAN = 1 5 - 3 '7
BASE CAS E NERN = 1 5 - 3 7
t
9 0 P ERCEN T I LE
- BASE CAS E
A TES T
CAS E
x
\
>1-0
_o
..Jo
_ ..
\f\
(I)
a:
(I)
Do
a::: o
0... �
('.1
'
0
0
0
1 2 . 00
1 3 . 00
1 4 - 00 -
1 5 - 00
1 6 - 00
�
} 7 . 00
......... ... _
.&
1 6 - 00
R N N U R L R E V E N U E R E Q U I R E ME N T - P E R CE N T
1 9 - 00
...__ ......_ _..__ ...
20 . 00
1.0
00
o F I GUR E
0
� RANGE =
-
.34-
T E S T Of AO V AL O R E M TAXES
8 . 0 0 TO
1 0 .00
�
0
0
0
.
0
t- G)
z
w
u
Q:: O
wt:?
MEAN
i\
\
a.. o
CD
=
O A T E 0 4 /0 8 / 7 0
9 - 000
ALPHA =
1 .
L A MBDA = 1 .
•
T E S T C A S E M E AN = 1 5 . 37
B A S E C A S E M E AN = 1 5 . 37
t
9 0 P ER C E N T I L E
• TES T
CASE
- B A S E CAS E
X
'
>­
t- c
- C?
-l c
m
a:
m
Do
Q:: O
a_ .;,
(\,1
I
�
0
0
0
1 2 . oo
'
\\
- ·
1 3 . 00
1 4 -00
ANNUAL
1 5 . 00
REVENUE
1 6 . 00
�
1 7 . 00
REQU I REMENT
-
.. . .. .. .. .. . .
1 8 .00
1 9 . 00
2 0 . 00
PERCENT
1.0
1.0
0
35
F I GUR E
C)
c:i RANGE
C)
=
7 . 50 T O
1 0 . 50
�
�
C)
C)
.
C)
I- GO
z
w
u
Q:: C
w
TEST OF
e
MEAN
1\
\
a... ID
c:i
D A T E 0 4/ 0 8 / 7 0
AD V A L OR EM TAXES
=
9 - 000
ALPHA
=
3.
L AMBDA
=
3.
I
•
X
\
t
�
T E S T C A S E M EA N = 1 5 - 37
B A S E C A S E M EAN = 1 5 . 37
90 P E R C E N T I L E
BASE CASE
• TES T
CAS E
iI
I
I!
>-
1- 0
..... o
_J
c:i
_ ...,.
m
a:
m
Oo
Q:: O
a.... c;;
\\
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�
c
c
01 2 . 00
1 3 . 00
1 4 . 00
ANNUAL
1 5 .00
REVENUE
1 6 -00
......._
1 7 � 00
REQU I REMENT
-
.. .. ..._..._
__.___
1 8 . 00
1 9 . 00
.. ....._.__.___...
20 . 00
PERCENT
1-'
0
0
0
0
....
�
F I GU R E
ftAN GE
..36
=
7 . 50
T ES T O F AD V A L OREM TAXES
TO
0
0
0
0
I- GO
1 0 . 50
"'
MEAN
=
D A T E 0 4 /08/70
9 - 000
A L P HA
=
7 . L AM B D A
=
7.
1\
\
z
w
u
a:::: o
o
w
a_ CD
�
•
T E S T CAS E M EAN = 1 5 - 37
B A S E C A S E M EAN = 1 5 . 3 7
9 0 PERC E NT I L E
- BASE CASE
"" T E S T C A S E
X
I
'
i
I
I
>­
t- o
..,.... o
.-J o
-·
\\
m
a:
m
Do
a:::: o
·
a.. 0
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�
0
0
0
t2 . 00
�
1 3 . 00
1 4 - 00
ANNUAL
1 5 -00
REVENUE
1 6 .00
1 7 . 00
REQU I REMENT
-
1 8 .00
1 9 .00
20 . 0 0
PERCENT
I-'
0
I-'
0
0
�
F I GU R E 3 7
T E S T OF
RANGE = 9 . 00 T O
... ...
0
�
MEAN =
1 1 . 00
�
0
0
.
0
t- CD
AD V AL OR E M TAXES
D A T E 0 4/08/70
1 0 . 000
ALPHA =
1 .
L A M BD A =
1 .
�\
\
I&
z
w
u
a::: o
o
w
a.. o
co
•
T E S T C A S E M EAN = 1 5 . 6 7
B A S E C A S E M E AN = 1 5 . 3 7
9 0 P ERCENT I L E
- B A S E CASE
• TES T
CAS E
..
X
I
..
\
..
-
...
•
I
1E
r­
..
t- o
- c:::'
...
_1 o
\\
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£D
a:
m
...
..
Do
a::: o
a... �
C\1
0
0
--
0
1 2 . oo
--
-
·--
--
1 3 .00
-
-
ANNUAL
·�
�
L_
1 4 . 00
..
-
1 5 .00
R EV E N U E
1 6 . 00
-
...
�........ . ...
1 7 .00
REQU I REMENT
-
1 8 .00
1 9 . 00
2 0 . 00
P ERCENT
1-'
0
1\.)
0
0
�
F I GURE
.3 8
TEST O F
ftANGE = 7 . 50 TO
....
••
0
0
0
t:- CIO
�
\
·4·
z
w
u
Q:: O
e
w
Q... o
A
-
fD
A L P HA =
1 .
L A M BD A = 8 .
•
T E S T C A S E M EA N = 1 5 . 0 9
B A S E C A S E M EA N = 1 5 . 37
90 PERCENT I L E
1- B A S E C A S E
• TES T
CASE
X
I
f\
�
•
>­
t:- o
A
A
-�
-..\1\
_l o
_ .....
m
a:
m
Do
-
A
Q:: O
a... �
...
"'
0
0
D A T E 0 4/08/70
MEAN = 8 - 0 4 5
1 0 . 50
·- �
·
0
...
AD V A L OR E M TAXES
-
0
1 2 . 00
----
1 3 .00
-
_ .__
1 4 - 00
ANNUAL
1 5 . 00
REVENUE
--
·�.��
- ----
1 6 - 00
1 7 . 00
REQU I REMENT
-
1 8 . 00
19 -00
2 0 . 00
PERCENT
1-'
0
w
0
C)
�
0
...
F I GURE
RANGE
.3 9
=
" TE S T O F AD V A L O R E M TAXES
7 50 T O 1 0 . 5 0
.
0
0
.
0
1-- GD
�
=
MEAN
DATE 0 4/ 0 8 / 7 0
9 - 955
ALPHA = 8 .
LAMBDA =
1 -
....
\...
\
z
lLJ
u
�0
O
LLI
Q.. o
CD
•
�
..
..
1\
T E S T C A S E M EA N = 1 5 . 6 6
B A S E CASE M E A N = 1 5 .37
90 P E R C EN T I L E
- BASE CASE
4 TEST
CASE
X
I
..
..
.&.
'*
>-
1-- 0
.&.
_o
.&.
......J o
\i\
-·
m
a:
m
I
..
I
.&.
Do
�0
a_�
C\1
I
.&.
..
�
0
0
0
12 .00
.&.
�.
1 3 . 00
1 4 . 00
ANNUAL
1 5 -00
REVENUE
1 6 - 00
r--•.a.......
1 1 . 00
REQU I REMENT
-
..
.. .. .. .. .. .. .. .. .. .....
..____.___.___.__.. ......____
1 8 . 00
19 .00
20 .00
PERC ENT
1-'
0
�
10 5
Unexpected Outcomes
As a res u l t o f th e tes ts condu c te d , s everal
res u lts appeared wh ich w ere no t e nti r e ly expected a t th e
b eg i nning o f the tes ts .
The f i rs t w as th e magnitude o f th e r e l ative s igni ­
f i c anc e of return o n th e annual r evenue requi reme nt .
Th e ch ange i n th e mean return ( 0 . 6 0 percent)
a far greater s h i f t ( 1 . 0 percent)
requir ement than e xpe cted .
resulted in
in the annual revenue
As previous ly s tated , th e
reas o n f o r th is occurrence i s the compound e f fe c t o f
return o n b oth the s inking f und depreciation component
and the income tax annui ty .
The s econd unexpe cted outcome was th e impact o f
a change i n th e mean and/or range of the depre c i ation
l i fetimes on th e annual revenue requirement .
A five
year reduction in th e mean l i fe time res u l ted in a 0 . 3 0
percent ch ange to the mean annual revenue requi rement .
Th e th ird unexpected outcome was the re lative
ins ign i f i cance of th e ad valorem tax component o n the
revenue requi rement .
Wh i le th is variab le can b e a s igni­
f i cant portion of th e to tal annual revenue requi rement ,
ch anges t o th e i n i t i a l value mus t b e much greater than
o riginally anti c ip ated to res u l t in a s ig n i f i cant ch ange
106
to th e annua l revenue requirement .
Retro spect eas i ly
identi f i es th e reason for th is r e lat ive lack o f s igni f i ­
cance a s the e f f e c t o f th e product o f the ass es sment
ratio and th e change in ad valo rem tax rate .
The
product is sma l l e r than the ch ange in th e ad valorem tax
rate by an amount equal to th e reciproc a l o f the as s es s ­
ment ratio .
CHAPTE R V
S UMMARY
Economi c S tudies B as ed on th e Annual
Revenue Requirement Method
Current pub li c uti l i ty eng ineering e conomi c
s tudies are f requently deve loped on a uni form equivalent
annual co s t b as is .
Th e revenue requirement method is the
on ly exac t me tho d o f compari ng the alternatives on a
uni form equivalent annual cos t b a s i s .
defined in Ch apter 1 ,
As previous ly
th e annual revenue requi rement i s
that amount o f money requi red t o pay a l l expens es as s oc i ated w i th the inves tment a lternative p lus the minimum
Th e mos t
acceptab l e r e turn on the i nve s ted cap i ta l .
economical a lternative is that h aving the minimum annua l
revenue r equirement .
Th i s th es is i s concerned w i th :
(1)
tes ting the
e f f e c t o f uncertainty in the components o f th e annual
revenue requireme n t , and ( 2 )
demons trating th e practi-
c a l i ty of us i ng s ens itivity o r risk analys i s in future
pub l ic uti l i ty e ngi neering eco nomi c s tudi es .
The l im i ta tions o f current meth ods o f ana lys is
are that th ey s imply do no t provide a comp l e te p i c ture o f
10 7
10 8
th e po ss ib l e annua l cos t o f any i nves tment a l te rna tive .
The H er t z t e chnique r e l i es on a s ub j e c ti ve determination
o f the initial variabl es of the annual revenue requ i re ment , b u t th e outcome doe s ref le ct the uncertain ti e s
inh erent i n e a ch o f th e component variab les .
The Hertz
tech n ique canno t provide a c l e ar , s ingl e answer to the
prob l em o f economi c analy s i s b ecaus e al l pro j e ctions
into th e future are neces s ar i ly uncertain .
H ow ever ,
i t s eems more appropri a te to r e cogn i z e
th e uncertainti e s in the ana ly s is and make a decis ion
b a s ed on know ledge o f the pos s ib le outcome s than to
ignore th e unc ertai nties s imply becaus e th ey a r e uncertai n .
Th e H er t z technique c anno t make a decis ion .
It
can provide the dec i s ion maker w i th an unders tanding o f
the pos s ib le outcomes o f h is dec i s i on a n d th e l ike l ihood
of thos e outcomes .
Fi ndings and Conclus ions
The ana lys e s conducted in th is the s is have es tab lis hed
the fo l lowing :
1.
The us e o f values for th e i ndependent vari ab l e s
previous ly es tab l is he d b y j udgment h as b een
genera l ly s ubs tantiated .
2.
B as es were es tab l i s h ed for deve loping th e
magni tude o f ch anges made i n each variab l e
f o r individual tes ts o f s ens i t ivity .
109
3.
Th e s e ns i tivity analys es performed have ranked
the individua l variab les in terms of th e i r
r e lative e f f e c t on the total annu a l revenue
requi rement .
The ranking is as fo l low s
( from
mos t s ens itive to l e as t s ens i tive ) :
a.
Return
b.
Depreci ation ( E conomi c )
c.
Adminis trative and General Expens e
d.
Ad Valo rem Tax
e.
I nsurance Expens e
Thus ,
L i f etime
th e total annual revenue requirement is
mos t s en s i tive to changes in the Rate of
Return and leas t s ens itive to ch anges in
I ns urance expens e .
S pe c i f i ca l ly , th e s tudy can be s ummari z e d in the
fo l l owing manner :
Greate s t Change
in Annual
Revenue Requ irement
Variab l e
Greatest Change
in Mean
Return
0 . 6 0 percent
0 . 9 0 percent
Deprec i ation
L i f e time
15 years
( 5 7 percen t )
1 . 6 percent
Adminis trative and
General Expens e
0 . 5 0 percent
0 . 5 0 percent
Ad Valorem T ax
0 . 6 0 percent l 5
0 . 2 0 percent
I ns urance Expens e
0 . 0 9 percent
0 . 10 percent
1 10
F rom th is ranki ng i t may b e argued th at no cone lus ive r e s u l ts c an be drawn reg ardi ng th e relative
rank i ng d i f ferences b etween Depre ciation L i f etime , Adminis trative and General Expens e , and Ad Va lorem T ax .
Th e
rel ative rank ing of th e variab les is concurrently bas ed
on a cons ideration o f the limitations o f th e avai lab le
data for s tudy .
I t w a s pointed out in Chapte r 3 th at
es s entially no s ta t i s t i cal ly valid informatio n is ava i l ab l e f o r a n actuarial analys is o f the total economi c
l i f e time f o r f o s s i l fue l generating s tations .
This
unc ertainty , w e i gh ed w i th th e greater amount o f information avai lab le for Adminis trat ive and General Exp ens e ,
and th e lega l tax limi ts for Ad Va lorem T axes ,
leads
to th e re l ative rank ing o f impo rtance or s en s i tivity .
I t has a l s o been demons trated th at th e variab les
may be comb i n e d , uti li z i ng the f lexib le B e ta P rob ab i l i ty
D i s tribut ion Function ,
to deve lop a w ork ing tool f o r
engineering economi c analys is i n th is particu lar f ie l d .
Future Work Require d to D eve lop
P ract i cal App li c at i ons
The preceding s tudy o f th e variab les compris ing
the annual capita l r e l a ted revenue requi rement only
s cratches th e surface in developing a us e fu l too l for
engineer ing e conomic analys is in general .
For pra cti cal
app l ic a tion of th e H e r t z technique i n th e pres ent s i tuation
111
additional variab les mus t b e added .
woul d inc lude operatio n , ma intenance ,
The added variab l es
fuel , e le c tri c
power , and o th e r mis c e llaneous expens e s releve nt to each
parti cular s tudy .
As is a l s o apparent , much additional w ork should
be undertaken to b e tter def i ne the parame ters us ed f o r
each var iab l e .
C r i teria for return should b e s pe ci f i c
a s to th e type o f p l ant involved and sh ou ld r e f lect th e
r i sk th at management i s wi l l ing to accept in any new
venture .
D epre ciatio n l i fe times should b e s tudi ed in more
deta i l w i th an ey e toward a c curately predicting th e
e conomi c l i fetime o f th e tot a l p lant i nves tmen t under
cons ideratio n .
Many actuar i a l s tudi e s h ave been made
on smal l e r types of p lant-- trans formers , poles , and
automotive equipment--but rela tively l ittle appears
to have b e en accomp l is hed o n ma j o r faci l ities s uch as
generation and transmis s ion plant .
Common expens e s ,
such as Admin i s trative and
Gene r a l expenses and I ns uranc e , should be s tudi ed i n
greater depth to determine wh i ch typ e o f p lant inves t­
ment is rea lly a s s o c iated w i th increas e s in th os e common
expen s es .
112
Ad valorem taxes should b e s tudied to determine
wheth er h i s to r i cal p atterns exi s t wh i ch migh t b e of s ome
as s i s tance in mathematica l ly predi cting the anticipated
future b eh avior of thos e expe ns es .
The H e rt z s ens itivity analy s is c an b e a us eful
tool i n provi ding th e decis ion maker w i th informa tion
re l ating to the po s s ib l e magnitude of outcomes when he
mus t choos e b e tween alternative s .
H e mus t make the
decis ion but he is b etter informed as to th e imp l i cations
of h is decis i on .
B as ed on th e author ' s experi e nc e i n the e le c tri c
uti l i ty i ndus try , many pos s ib i l i ti e s exis t for app li cation
of a s ens i tivity analys i s .
Deci s ions are made to i ns tall
maj or generating s ta tions of one e ne rgy consuming type
( nu c lear ,
fos s i l , or hydro e lectri c )
of energy de l ivered to the " s ys tem" .
adequate but could b e improved .
on a re lative cos t
Th is approach is
A l l s tudies of delivered
energy cos ts for various a lternatives are b as e d on a
large numb er o f " b e s t gues s " es timate s .
Comb ining thes e
mutual ly exc lus ive es timates to deve lop a s ingl e " b e s t
gue s s " f o r th e r e l ative cost o f e ne rgy resu lts i n a very
low probab i li ty th at the cos t w i l l turn out as exactly
as anticipated .
For examp l e , comb ining f ive mutual ly
exc lus ive es tima te s , ea ch o f whi ch h a s a p rob ab i l i ty of
0 . 9 0 , res ul ts in a probab i l i ty o f
( 0 . 9 0 ) 5 , o r 53 percent ,
11 3
tha t the end result w i l l o ccur exac tly a s anticipated .
W i th the ava i l ab i l i ty of th e computer to as s is t i n our
economic a na lys es , advantage should b e taken o f i t s
capab i l i t i e s where th e s i z e a n d compl e x i ty o f the s tudy
would j us tify s uch detailed ana lys e s .
Many o ther app l ications could b e found i n competitive b idding , product pri c ing determinations ,
and
e conomic trade-off s tudi es b e tw een a l ternative s .
C ertainly management could make b ette r , more con f i dent
decis ions w i th a know l edge of th e expected range of
outcomes in any inves tment a l terna tive .
It is i nevitab l e
th at s ens i tivity analys es w i l l eventu a l ly be us ed a s a n
a i d to dec is ion mak ing .
I
- 1
Foo tnotes
l.
David B . Hert z , " Ri s k Analy s i s in Cap i ta l I nves tment" ,
Harvard Bus i nes s Review , January - February 19 6 4 , as
r ep ri nted i n C apltal I nves tment Decis ions , 19 6 4 ,
pp . 1 7 5- 1 8 6 .
2.
Ibid .
I
p.
176 .
3.
Ib id .
I
p.
1 79 .
4.
Federal Powe r Commis s ion , Uniform Sys tem o f Accounts
P res crib ed for Pub li c Uti li ties and Licens ees
( C la s s A and C l as s B ) , i n e f fect on March 1 , 19 6 5
( U . S . Government P rinting Of f i c e , Wash ington :
19 65)
•
5.
H e rt z ,
" Ri s k Ana lys is , " p . 1 7 6 .
6.
Fos s i l fue l s are coa l , oi l , or natural gas fue ls .
7.
S e e Footnote 4 f o r comp lete documentation .
8.
S outhern C a l i fornia Edison Company , " Annual Report
to th e Federal Power Commis s ion" ( F . P . C . Form No . 1 ) .
9.
Rob ley Winfrey , S ta ti s t ical Ana ly s es of I ndus tri al
P roperty Reti rements ( Revis ed ed . ; Ames , I ow a :
Engineering Res earch I ns ti tute , I ow a S tate Univers i ty ,
19 6 7)
•
10 . S amuel B . Richmond , S tatis t i c a l Analy s i s , ( S e cond
ed . ; N ew York : The Ronald P res s Company , 1 9 6 4 ) ,
p . 58 2 .
11.
Ibid.
1 2 . Ibi d .
1 3 . Ri chard S tevens Buri ngton and Dona ld Cur tis May ,
Handbook o f P rob ab i li ty and S tati s ti cs w i th Tab l e s ,
{ S andus ky , Ohio : Handb ook Pub l is h ers , 1 9 5 8 ) p . 2 4 4 .
114
115
1 4 . Ib i d .
1 5 . A 2 . 0 0 percent ch ange in the a d va lo rem tax rate
mul tip l i ed by a 30 percent as s e s sment ratio equals
0 . 6 0 percent .
L is t o f References
Arti c les
B rennan , J . F .
"A Method of E s timating th e Optimum
Mean L i f e o f P l ant Groups " .
P aper for Ame ri can
S o c i ety of Mechanical Engineer s , 6 8 -Mg t-A , 19 6 8 .
Hertz , David B .
" Ris k Analy s i s in Cap ital I nve s tmen t " .
H a rvard Bus ines s Review , January -Feb ruary , 1 9 6 4 .
Hert z , David B .
" I nves tment P o l i c i es That P ay O f f " .
H arvard Bus ines s Revi ew , January -Feb ruary , 19 6 8 ,
pp . 9 6 - 10 8 .
Swa lm , Ra lph 0 .
" Ut i l i ty Theory - I ns igh ts into Ris k
Tak i ng " .
Harvard Bus iness Revi ew , N ovemb er­
Decemb e r , 19 6 6 , pp . 1 2 3 - 3 6 .
Books
Arch e r , S tephen H . and D ' Amb ros io , Ch arles A . , ed .
The Th eory o f Bus ines s F inance , a Book o f
New Y ork : Macmi ll an Company , 1 9 6 7 .
Readings .
E conomic Ana ly s is for Engineering and
Baris h , Norman N .
N ew York : McGraw-H i l l Book
Managerial Decis ions .
Company , I nc . , 19 6 2 .
Baume l , Wi lli am J .
E co nomic Theory and Operations
Analys i s .
2nd ed . New Jers ey : P rentice-H a l l ,
I nc . , 19 6 5 .
Burington , Ri ch ard S tevens and May , Dona ld Curtis .
H andbook o f P rob ab i l i ty and S ta tis tics w i th Tab les .
S andus ky , Oh io : H andb ook Pub l is h ers , 19 5 8 .
Gran t , Eugene L .
E conomy .
and I reson , W . Gran t .
Engineering
4 th ed . New York : Rona l d P res s , 19 6 0 .
116
117
Jey ne s , P au l H .
An Abb revia ted Cours e i n Engineering
Economi c s .
Ameri can I n s ti tute o f E l e c tr i c a l
Eng i ne ers , 19 6 1 .
( xerox copy )
Ri chmond , S amue l B .
S tatis ti cal Analys is .
New York : Rona l d P res s , 1 9 6 4 .
2nd ed .
Government Pub li c ations
u.
s.
Federa l Pow e r Commi s s ion .
" S outhern C al i fornia
Edis o n Company Annua l Report to the Federa l Power
Commi s s io n " .
F . P . C . Form No . 1, 19 4 7 through 1 9 6 7 .
U . S . Federal P ower Commi s s ion .
Uni form Sys tem o f
Accounts pres crib ed for Pub l i c Uti l i ti e s and
L ic ens ees ( C las s A and C las s B ) , in e f f e ct on
March 1 , 19 6 5 .
W ashington , D . C . : Governmen t
P rinti ng O f f i ce , 1 9 6 5 .
APPEND I X A
Deve lopment o f I ncome Tax expre s sed a s a Percentage o f
Cap ital I nve s tment :
Let :
T
(I)
=
Revenue Req ' t . for I nc . Tax a s a % o f
Cap i ta l I nves tme nt
( Leve l i z ed )
= ef fec tive total i ncome tax rate a s a %
t
o f n e t income .
r
=
r e turn a s a % o f capital inve s tment
b
=
bond i nter e s t expense a s a %
D
=
ratio o f debt in cap i tal s truc ture to
to tal inves ted cap i ta l
d
d
t
=
1
= s i nk ing fund depreciation r a te
2
= s traight line depreci ation r a te
( fed . income tax rate )
( 1 . - s tate tax rate )
+ s tate
tax rate
Cons ider ing s t . l ine depreciati on for book s and taxe s :
Tl =
t
1-t
(r + d
r-Db
r
--
- d )
2
1
=
gro s s r e turn - s t . l ine depre c ia tion
r-Db
r
=
% of capita l that i s taxable
t
1-t
=
revenue req ' t .
for income tax
118
119
S amp le c a l cu l at i on :
Federal Income Tax Rate o f 4 8 % + 1 0 %
surcharge
State Income Tax Rate o f 7 %
( .48 +
t
1-t
1.0 -
r =
. 08
b
. 065
D
. 55
. 04 8 )
. 56 10 =
.08 -
r -Db
:t
(1 . 0 -
( .55)
. 08
+
. 07 )
. 07
. 5610
. 43 9 0
( . 06 5 )
. 55312
for a 2 0 year l i f e :
( . 08 +
(
Tl
· 5 6 10
. 43 9 0
)
( . 5 5 3 12 )
. 02185 -
( . 0585)
=
. 05185
. 05 )
. 03665
or 3 . 6 6 5 % o f the i n i t i a l inve s tme nt
Cons idering S t .
Line Depre c i at i on for books and Doub l e -
d e c l ining b a l ance depre c i at ion wi th tran s f e r t o S t .
1 / 2 l i fe
for Tax e s
( No te :
t h i s g ive s a tax rate very c l o s e
to the r a t e i f optimum swi tchover i s u s ed ) .
T 2 = Tl
- Ad j u s tmen t f or Acce l e rated Depr e c i ation
Adj ustment =
(:)
1 t
Acce l e r ated Depr .
[(Pw
l ine @
of Depr
2 x St .
r + d
)
1
-d
2
]
Line Depre c i at ion Rate
120
$ 5 7 4 . 1 8 / $ 1 0 0 0 = 0 . 5 7 4 1 8 = P . W . of Depr .
Adj u s tment =
=
or
T2
=
(1 . 277 9 )
. 01084
3 . 665% -
( 10 0 )
[
( . 57418)
( . 01084 )
( . 08 + . 0218 5 )
2 . 581%
-
. 05
]
121
r-
Samp le Calculat ion :
!
f or 2 0 years :
I
II
I
I
I
Year
I
I
B . o f Yr .
Balance
r =
X 2 /N
2/2 0=0 . 1
Depr
x
8%
1
( l+r ) ll
PW of
Depre c i ation
$100
. 9259
$92 . 5 9
900
90
. 8573
77 . 16
3
810
81
. 7938
64 . 30
4
729
72 . 9 0
.7350
53 . 58
5
6 5 6 . 10
65 . 61
. 6 806
44 . 65
6
590 . 49
59 . 05
. 6302
37 . 21
7
5 3 1 . 44
5 3 . 14
. 5 835
3 1 . 01
8
478 . 30
4 7 . 83
. 54 0 3
25 . 8 4
9
430 . 47
43 . 05
. 5002
21 . 5 3
10
387 . 42
3 8 . 74
. 4 6 32
17 . 9 4
11
34 8 . 68
3 4 . 87
. 42 8 9
14 . 96
12
34 . 87
. 3971
13 . 85
13
3 4 . 87
. 3677
12 . 82
14
34 . 87
. 3405
11 . 87
15
3 4 . .8 7
. 3152
10 . 9 9
16
34 . 87
. 2 919
10 . 18
17
34 . 87
. 27 0 3
9 . 42
18
34 . 8 7
. 25 0 2
8 . 72
19
34 . 87
. 2317
8 . 08
34 . 85
. 2145
7 . 48
1
$1 , 000
2
20
34 . 85
0.1
$574 . 18
APPEND I X
COMPARATIVI BALANCE SHEET
AIHfl
Line
No.
1
3
4
5
6
7
and Other Dablts (-It cents)
Title of Account
Page
(a)
(b)
No.
UTILITY PLANT*
Utility Plant ( 10 1-107, 1 1 4) . . . . . . . . . . . . . . . . . . .........
Less Accumulated Provision for Depree., Amort.,
a n d Depletion ( 108- 1 1 3, 1 1 5 ) . . . . . . . . . . . . .. . . . . . . .
Net Utility Plant. . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gas Stored Underground-Noncurrent ( 1 1 7 ) . . . . . .
Utility Plant Adjustments ( 1 1 6 ) . . . . . . . . .. . . . . . . . . . . . . . .
Nonutility Property ( 1 2 1 ) (less Accum. Prov. for
9
Investment in Associated Companies ( 1 2 3 ) . . . . . . . . .
1 1
12
13
14
15
16
17
Depr. & Amort. incl. in ( 1 2 2 )
$.2.61.,309) ......
Other Investments ( 1 24) . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . .
1 13
1 13
207A
1 12
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ....
-
Special Deposits ( 1 32, 1 33, 1 34) . . . . . . . . . . . . . .. . . . . . .
Working Funds ( 1 3 5 ) . . . . .. . . . . . . . . . . . . . . . . . . . . . . .. . . . . . .
Temporary Cash Investment& ( 1 36 ) . . . . . . . . . . . . . . . . . .
Receivables from Assoc. Companies ( 145, 146 ) . . . . . .
21
Gas Stored Underground-Current ( 164) . . . . . . . . . . . .
Provision for UncoiL Accts. ) ( 1 41-144) . . . . . . . . .
Materials and Supplies ( 1 5 1 - 1 59, 1 6 3 ) . . . . . . . .. . . . . . .
-
202
204
206
207
207A
210
33
34
35
36
-
-
-
-
Interest and Dividends Receivable ( 1 7 1 ) . . . . . . . . . . . .
Accrued Utility Revenues ( 1 73 ) . . . . . . . . . . . . . . . . . . . . . . . .
.
..
DE FERRED DEBITS
Extraordinary Property Looses ( 1 8 2 ) . . . . . . . . . . . . . . . . . .
Prelim. Survey and Investigation Charges ( 1 83 ) . . .
Clearing Accounts ( 184) . .
.
. . . . . . . . . . . .... . . . . . . . . .
.
....
..
Temporary Facilities ( 1 8 5 ) . . . . . . . . . . . . . . . . . . . . . . .. . . . . . .
Miscellaneoua Deferred Debits ( 186) . . . . . . .. . . . . . . . . . .
Total Deferred Debits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total AISets and Other Debit!. . . . .
.
. . . . . ....
�<;c; : �;:
14 .664 .18Ii
8,213,187
744
221,612
24,ooo ,ooc
9,422 ,992
47 ,094 , 555
22 , 869
39,26o , 937
39,255 , 579
22 ,635
41, 525,145
-
220, 323
-
1,209,8o5
(744)
(1,289)
(24 ,000 , 000 )
( 7 ,838,976
(234
2 , 264,2o8
�
26 . 568 .021
124 .436. 1<54
1 , 720, 536
( 26 <;6��7�)
211
210
212
213
4 ,397 ,075
4 , 167 , 554
( 229, 521)
-
-
-
-
214
300 ,o46
300,o46
529, 320
196 ,023
44,o45
43,64€
3.853.522
'5 .114 647
8.894.487
10 051 437
2 257 . 6o8 16o 2 469. 285.299
• "11aele accounb are conformed to NARUC aa:ounb in which amCJU.DII recorded in FPC accounb 1 18 and 1 1 9
dK:aced under thit
607,169
1, 061, 120
( 884, 218)
":16 8":18
820:qog
24.847.48<;
1'50 . QQQ .,886
-
Total Current and Accrued Assets. . . .. . . . . . . . . . .
Unamort. Debt Discount and Expense ( 1 8 1 ) ... -. . ..
2 ,107 ,7o6
7 , 623,96C
4 , 576 , 96
210
Misc. Current and Accrued Assets ( 1 74) . . . . . . . . .
32
..
-
171, 305
(70,155)
(18,188)
26
31
50.954 . 616
238 576. Q12
-
Rents Receivable ( 1 72 ) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . --
30
289, 531, 528
7 ,278 ,610
126 ,257
16, 592
24
29
(o )
-
Prepayments ( 1 65 ) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
28
s
(DecreaN)
7,107 , 305
196,412
34, 78o
22
27
(d)
Increase
-
1,500 , 537
6, 562 , �9
5 , 461 ,181
u8 :7oB
H.84":! .27'i
201
202
202
CuRRENT AND AcCRUED AssETS
Cash ( 1 3 1 )
19
25
s
or
559. 361, 2&5
508,406,670
2,082,713,562 2 .321.290.474
Total Other Property and Investments . . . . . . . . .
Notes and Accounts Receivable ( less Accumulated
23
lalanco
End of Yoor
2 , 591,120,232 2 , 880,651, 76o
Special Funds ( 1 25, 1 26, 1 27, 1 28 ) . . . . . . . . . . . . . . . . . .
18
20
1 13
s
IaIance
Beginning of
Year
(c)
OTHER PROPERTY AND INVESTMENTS
8
10
67
. . Yoar on dod Docomber 3 1 , 19 .
.
STATIMENT A
2
B
. .�9P'SBN �llf� . �ISOl'J. COMPANY .
Annual report of .
c:aptioa..
1 10
are
-
-
333,297
399
( 1.261,125)
(1.156. 950 )
211.677 .139
cla.uifted to the accouou in-
Rev. ( 1 2-651
122
123
A P PEND I X B
SOO'DIBBN CALII'ORIIA
Annual report of .
Year oodod O.co,.ber
IDISOlf . COHPARY
I
Tl1le ol .._,...
......
(a)
(bl
PaoPJUI!:TARY CAPITAL
2
Common Stock Issued ( 20 1 )
..••.•.........•....•..••.•
3
Preferred Stock Issued (2041
. . . . . .• • • • . • . • . . . • • • • • • . . . •
�
s
Capital Stock Subocribed ( 202, 205)
...•..•.....•...•.
Stock Liability for Convenion ( 203, 206)
..........•.
6
Premium on Capital Stock (207)
.•..••••.•.•••••..•.•
7
Other Paid-In Capital ( 208-2 1 1 )
. . . . . . . . . . . .• • • • • . • . •
8
9
10
II
12
13
1�
Installment• Received on Capital Stock ( 2 1 2 )
.
Eamed Surplus ( 2 1 5, 2 1 6 )
. . • • . . . . . . . . . ..••.•..•...••
. . . . . . . . • • . . . . . . . . . ..•..••••••
Reacquired Capital Stock ( 2 1 7 )
...•..•.. ...........•..•
·
Advancea from A11oc. Companies ( 2 2 3 )
17
Other Lons·Term Debt (224)
••• . . . . . • • . .
Total Lons-Term Debt
reacquired (222) )
Notel Payable ( 23 1 )
21
Account• Payable (232)
. . . . . . • . . . . . • . . . . . . . . . . . . . . . . . . ..•....
. . . . . . . . . . . . . . . . . . . . .• • . • • . . . . • . .
Payable• to Assoc. Companies (233, 234) ...........
Taxea Accrued (236)
lntereat Accrued
.
. • • . . . . . . . . . • . . . . . . . . . . . . ...•...
...............•.....•.... ..•.•.....
(237)
Dividendo Declared ( 238) .... .........................
27
Matured Lons·Term Debt (239)
Matured Interest (240) ...................... ,
Tu Collections Payable ( 241 )
30
Miac. Current and Accrued Liabilities (242) .....
.
31
Total Current and Accrued Liabilitiea........
.
.
.
..... .
Dnaaa&D CREDITS
Unamortized Premium on Debt ( 25 1 )
3�
Cunomer Advance• for Conatruclion ( 252)
35
Accumula1ed Deferred loveslment Tax Credits(255)
36
Other Deferred Creditl (2.53)
.&3
.&4
.&S
.&6
.&7
.&1
"'
so
51
52
53
(
Total Deferred Creditl
.•....•..•.•...
•.••.•••.
• . . . . . . . . . . . • . . . . . • . . . . . ..
OP&IIATINO Runvu
•..•...........•.....
lnjurieo and Damqea Reserve (262)
Penoiona and Benefit• Reaerve ( 263)
.•.........•......
....••••••.•...•..
Amortiulion Reaerve-Federal ( 264)
•.•••.•.••.••.•
Miscellaneous Operatins lteaervea (26.5)
Total Operalins Jleaervu
Am or
Acc uMULATED Dar11aa&D
••••.•••••••
CoNanucTJoN
INCOM&
4,245,o42
37,4<>7,135
13 ,187, 027
11,713,4o1
4 ,654,327
32,929,158
13, 900 , 585
13,119,009
4o9,285
{4,477, m)
713,558
l,4o5 ,608
224
211
224
229
225
226
226
226
226
226
•.•.•....
Accelerated Amortiulion ( 28 1 )
Liberaliad Depreciation (212)
864
226
TAUI
Accumulated Defened Income Taxu:
•••••••••••••••••••.•
•••••.•••.••••••••.•.
• . . • . . • • . • . . • • • . .• • • . • . • • . . • • • • • •••••••••••.•
Total Accumulated Deferred Income Tuea
Total
77,500,000
7,829,209
• . • • • • • • . • . • • • • • • • •••••••.
Contribution• in Aid of Conllructioft ( 2 7 1 )
Other (283)
77,500 , 000
38,296,876
•..•......••.••••••.•......•..
Property Insurance Reserve ( 261 )
CoNTRI&UTION& IN
222
30,467, 667
.•..•••.•.
.......... ......
33
.&1
221
.
29
.&2
{ 25 )
. . . . . . . . .......••....
21
32
221
............... ......•.••.••.•...
26
.&0
25
10,787 , 500
{10,787 ,500)
. . . . . . .. . • . . . . . . . . . .......
Cuatomer Depouts ( 235)
39
141,853,792
20,920,652
141,853,817
20,920, 652
I•I
...•.............•...•..•....
22
31
312,357,383
187 '754, 950
s
...
23
37
312 ,357,358
1,76,967,450
10,787, 500
s
. . • . ..••..•.
CuanNT AND Accaum LtA&ILITI&B
20
25
tel
...._
cw (Dec-1
LoNo TERM Dan
16
24
s
IaIance
!od of Y(dl
. . . . . . • . . . . . . . • . . . . .•.....
Bonds (22 1 ) (leu $
19
215
215
216
216
216
217
216
218
218
117
215
v-
Total Proprietary Capital
15
II
.....•
Discount on Capital Stock ( 2 1 3 ) ......................
Capital Stock Expense ( 2 1 4 )
Ia!aft.
............ .,
No.
67
STATIMINT A
COMPAI.ATIYI IALANCI SHill
Llaltlllllee ancl Other CI'HIII (.mit cenll)
LIM
No.
3 1 , 19
LiabWtiea an d Other Crediu
...
•••••••..
227
227
227
46,904,495
44,837,oo4
{2,o67,491)
124
APPEND I X B
SOU'l'HEBN CALD'OBNIA
.
.
. . COMPANY
. . . EDISOH
.
. . .
Annual r•port of
.
.
.
.
,
.
,
.
.
.
.
.
.
Year ended Docombor 31
.
Explain If the lncntaHI and deere-• are not derived from previously reported figures.
Line
Account
Sch.
Pogo
No.
(a)
(b)
2
Operating Revenues (400)
3
Operating Expenses: _ _ _ _ _
-
--
. _ _ - - - _ _ . _ _ .
4
Operation Expense (401 ) - - - - - Maintenance Expense (402)
6
Depreciation Expense (403) _
8
- -- --- --- ---
.
.__
•
----
-
----------
.. _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
_
• • • • . .
--
. • . . .
_ _ - - - - - - -
-
-
1 1
Taxes Other Than Income Ta�es (408) - - - - - - - - - - - - - -
12
Income Taxes-Federal (409 ) . - - - - - - - - - - - - - - - - - - - - -
13
-Other (409).
_ _ _ _ _ _ _ _ _ _ _ _ _ _
_ _ _ _ _ _ _ _ _ _ _ _ _ . _ _ - - - - - - -
14
Provision for Dt>ferred Inc. Taxes (4 1 0) .I _
15
Income Taxes Def. in Prior Years-Cr. (4 1 1 ) _
16
_ _ _ _ _ _ _ _ _ _ _ _
_ _ _ _ _ _ _ _
Investment Tax Credit Adjustments-(Net) (4 1 1 . 1 ) . . . . . .
17
Total Operating Expenses _ _
18
Ne-t Operating Revenuf"s _ _ _ _ _
19
-
---
- - - -
Total Utility Operating Income _
22
�erchandising, .Jobbing & Contract Income (415, 4 1 6) . . •
23
Income from Nonutility Operations (4 1 7 ) _ _ _
24
Nonoperating Rental Income ( 4 1 8) _
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ - - - -
25
Intcrf"st and Dividend Income (4 1 9)
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
26
lnvf"stment Tax Crf"dits (420)•
27
Total Other Income _ _ _ _
28
Total Income
_ _ _ _ _ _ _ _ _ _ _ _
__ - _ - - - - - - - - - - - - - - - - -
.\liscdlaneous Nonoperating Income (42 1 ) _
29
- - -- - - ----
_ _ _ _ _ _ _ _ _ _
�Iisrf"llaneous Amortization (425) _
32
Other Income Deductions (426)
33
-
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
--------
Total Income Deductions . _
Income Before Interest C hargeL _
H
•
-
-----
- -
-
-
-
-
-
--
-
-
----
-
--
- -
---
-
_ _ _ _ _
i Amon.
i Amort. of Prem. on Debt--Credit (429)
4 1 : I nt. Charged to C.onstr.-- Crerlit (432)
!
4. !
Total Interest Charges _
Net I ncome _
I Unappropriated
8 ,723, 978
4 ,259,628
4 , 857, 532
(1)
'5'52.24o.4'58
189,4o5,461
39,765, 724
68,741,279
-
-
6 , 982
-
-
-
-
-
-
-
-
141.o6o .947
- - -
--
-
-
--
- ---
-
--
----
_ _ _
- -
_ _ _ .
-
---
-
-
-
-
- -
-
- - -
--
-
-
-
--
211
21 1
304
304
---
EARNED SURPLUS
Earned Surplus (beg of period) ( 2 1 6)
Miscellaneous Debics to Surplus (435)
.C 9 ! Appropriations of Surplus i436) _ _
50 !
- - -
_ _ _ _ _ _ _ _ _ _
-
-
-
-
_ _ _
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
_ _ _ _ _ _ _ _ _ . _ _ _ _ _ _ _
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
-
-
-
-
-
-
- � - - - -
- -
- - -
!'<et Additions to Unappropriated Earned Surplus _ _ _ _
Div irlenrls Declared-Pref. Stock (437) . - - - - - - - - - - - - - - - -
52
Dividends Declared -Com. Stock (438) _
53
Una ppropriated Earned Surplus (at end of period) (2 1 6) . .
54
Appropriated Earned Surplus (at end of period) ( 2 1 5 ) _ _ _ _
55
Total Earned Surplus (2 1 5, 2 1 6) - - - - - - - - - - - - - -
_ _ _ _ _
•
( 35 , 967
(128 , 571
2 ,154 ,248
-
418 ,463
2 , 400 , 173
143 ,469.120
67, 361,290
4 , 334,548
37 ,655,000
(1,24o,465
8 , 569, 513
2 , 142 ,465
1,817
( 35,761
( 2 ,069,307
,184
1.628 .200
(: 31 1 ,000
22 .681.723 411.058.977
13,710,186 141,1.81,481
�
13.710.1.86 141.181.481
_ _ _ _ _ _ . _ _
• Accounts 404. 1 , 404.2, 404.3, 420, for natural gas companies.
1 17
117
1 17
117
117
1 17
117
1 17
117
1 14
-
(68,739
(14,708
867 ,648
-
418,4o8
1. 202 6og
14 . 912.795
�
14:3. 065 .143
222 ,125
472 .17Q (1
694:io4 ( 1
14 .218)�Q1 (1
49, 967,996
234, 54o
(136 ,057
1 , 945
430,366
(6,762 ,387
43,736,403
99.328.74o
7,698,794
24,468
261
(413
( 958, 590
(1,o82 , 986
5 ,6!:!1, 534
8. 536 . 957 (1)
242 , 340
161 6-:rr
403 �977
- -
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
47 ; �liscellaneous Credits t o Surplus (434)
51
�6.�Q1.QOQ
s
-
67,422,716
37,655,000
8 , 569, 513
1,817
(2 ,069,307
1.628.200
4.11.456.449
141, o6o, 947
304
304
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
! Balance Transferred from Income (433)
;
- - -
- -
- -
_ _ _ _ _ _ _ _ _
of Debt Disc. and Ex pens. (428)
39 i Int . on Dt-bt to Assoc. Companies (430) _ _ _ _ - - - _
•O ; Other Interest Expense ('43 1 ) - - - - - - - - - - - - - - - - -
Hi
- -
INTEREST CHARGES
36 : Intf"n•st on Long-Term Debt (427)
.4 8
(d)
-
-
303
303
303
228-9
303
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ -- _ _
31
,. 6
---
_ _ _ _ _ _ _ _ _ _ _ _ _
�11SCELLANEOUS INCOME DEDUCTIONS
30
45
301
_ _ _ _ _ _ _ _ _ _ _ _ _ _
s
Currtttt y11r
OTHER INCOME
21
A2
352
352
352
227
227
228-9
---- -----
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
Income from Util. Plant Leased to Others (4 1 2 , 4 1 3 ) _ _ _ _ _
20
38
552. 517 .�<16
Amort. of Util. Plant Acq. Adj . (406) - - - - - - - - - - - - - - - -
Amort. o f Conversion Expenses (407 .2)
37
(<)
Amort. and Depl. of Utility Plant (404 and 405 ) ' - - - - -
10
35
s
Amort. of Property Losses (40 7 . 1 ) _ _ _ _ _ _ _ _ _ _ _ _ . . . _ _ . .
9
lncrllst or decrust
from prectlllnt year
1.89,591,746
39,851,494
68,805 ,270
_ _ _ _ _ _ - - - - - - - - - - - - - - - - - - - - -
5
7
67
ELECTRIC
TOTAL
Curr111t year
No.
UTILITY OPERATING INCOME
1
19
STATEMENT OF I NCOME AND EARNED SURPLUS FOR THE YEAR
STATEMENT c
26Q 407 .217
99 , 328,740
I
37.707. '5Q'5
8 , 536 ,957 (1)
-
-
-
-
99.328.740
9,123,�5
51.070�76o
3o8, 541,212
-
-308 541.212
.
8. 536. 957 (1)
2 ,895 , 583
4 1214 1974
39,133, 995
-
39.133 .995
Rov. ( 10-66)
.
II
.J
.
125
Annual report of . . . . . . . . . . .
STATIMENT OP INCOME AND EAINED SUIPLUS POl THE YEAit (Centlnued)
lxplall11 If the IIICrH•a Clllcl decrHIH .,. net derived frempNvleualy reportecl ftturea
unuTY
Ill
36, 380 ,936
s
_ltl_
139 837
s
,_ ,...1.. .. ,..
I•I
4 .501
s
(I)
�-:rT . 101
•
UTILITY
IICfHII " """"
"
'"' ,....,��..
s
()
6 472
l.l.4 ,644
9,801
9,930
13 ,895
1, 558
3,452
71,641
75,969
54,o61
14,079
14,773
10,525
6 , 982
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
:11
-
13.772.033
9,276
-
(824 )
-
52,150 .
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
18.o81 . �..� _ A21
( 13 ,580) (l.l.6 ,720
� .7�Q
(48,267)
(13 .. �} lllbo720:
l�.2b7}
-
-
(kl
. . UTILITY
lacn111 " •uNit
"'
"'"' "'""
s
(I) .
Line
'"' No.
1
2
3
4
5
6
7
•
'
10
11
12
-
-
( 3 .tu.4 .
s
•
15 , 362
-
14� .6�1
(3,814)
.
STATEMENT C
-
-
4_, 320 ,Oll)
(1, 24o,465�
2 ,142 ,465
' 7��
,184
(.
�000�
22 .6o8 :QO�
13 ,772 ,033
.
,.,.., ,.,
'"'
8 ,696,oo4
4,243,297
4 , 843,555
-
(1 )
Ctrrnol ,.,
lltrllll ., .....
''"'"' ,..,
,,. ....1.. ,..,
s
w:-...�
ClAS UTILITY
llrrHII ., tllcrtall
•
13
u
15
16
17
11
-
"
20
1966 f'J.sure• have been :relltated iD accordu.ce with an opiDion 1a11Ued by
the AccountiDI Principle• Bo&l'd ot the .AIIerican In•titute ot Certified
Public .AcCOUDtUlt•• Bee llote 1/6, Pace ll2 .
N01e: If the column• are inouflicient for additional utility departmento, oupply the appropriate account tilleo, lineo 1 to 19, and
repon the infonnation
in the blank apace above or on an
inoert P"ll•·
1 15
.lo•. IICI-66)
1
·-·.·------�·--
A P PEND I X C
. SOUUDI . CA.LD'OIIlA.
Annual report of .
5
DISTlliBlmON EXPENSES
586 Meter
589 Renlll.
(O...tinued)
• • • • • • • • • • • • • • • • • ••••••••••••••••••••••• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •
l-::-:����1--:��
��!W:��!Lt.JU!-f--�!:!.JLC:!=ou.Ji.4
. . . . . . . . . . . . . . . . . • • . . . . . . . . . • . • . . . . . . . . . . . . . . . • . . . . • • • . . . . . • . . . . . . . • . . .••••••. . . . . . . . . . .
Total operatioa
. . . . . . . . .....•..•.•..••............................•.....•..•.•••.•....
Mailllnmt••
5f34,o64. 8o
3,363,504.39
122 . 88
257,
01
Maintenance or otructuRS
. .
.
633,464.
100,9ll . 52
lbinteDance of atation equipment..................................................... 2 1335,132. 66
126 ,268 .49
lhiatenance of overhead linea.......................................................... 91286,o67 .45
353,817 77
Maintenance of underpound liolea..
:
�.............. 11371,648 .43
199 ,664.80
1,543,194 .02
Maintenance of line tranaformen......................................................
( 2 ,474 . 68
Maintenance of otreet Ughting and airnal iiYitem.....................................
629, 858 37
44 4o1.2 5
Maintenance of meten....................................................................
210,243.61
2�1-:�::-::-:�4��H-I
Maintenance of miKellaneoua diotribution plant
I-:-:--:-:��!I'-"!
:::I
Total maintenuce
����'!"!-.!&'�H���2���
590 MainteDance eupervition
9
591
10
592
11
593
12
594
13
595
596
15
597
16
598
17
ud eqioeerin g.............................................
..••..•.•
................
•••••
.....
............................
•
• • •• • • • • • • • • • • • • • • • • • • • • • • • • • • •
•
• . . . . . . . • . . . • . . . .• . • . • . . . . ..•••••••.
. • . • . • . . • . . . . . • . . . . . . • • . • . . • . • . • • • • • • • • • • . • • • • • . • . . . . . • . • . • • ••••••.
Total dUtribution expeniU.
11
19
..•.••...•.•...•••..•.••••••.••.••.••...................
CUSTOMER ACCOUNTS
o,.riiJioll
20
EXPENSES
�4,::w.!.WiOR:U.::U..!-.!:ta.:.!AoiWlY!!5..a,;ll...l
889,876 .71
21
901 Superviaion
22
902 Meter reading expen""'···································································
. . . . . . . . . . .. . . . • . . . . . . . . . . . • . . • . . . . . • . . . . . . . . • . . ..••••••••..•...•••..•.......•....
23
903 Cuotomer recorda and collection expen""•·
24
904 Uncollectible accountl...................................................................
25
905 MioceUaneoua cuotomer accountl expenoeo
expenoeo
Total cuatomer accountl
26
. . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . • . . • • .
.................
.
21
.�-:-,=-";;:;��;..=..::;;:: hr-K-!.;<,M<-!..,0,0..:..;...-1
.
.
.........................
����!.:!;!.!.!����2.:��:.!..4
••••••••••••••••••••••••••••••••••••••••••••••••
SALES EXPENSES
o,.r.lion
27
83,867.08
3 , 592 ,699 . 58
Advenioing expen""'····
................ .... 3 , 581 J 518 70
- )
Revenues from men:handioing, jobbing and contract work ......................... (
,
.
29
9 1 1 Superviaion
30
9 1 2 Demonotrating and oelling expenoeo.....................................................
31
913
32
914
33
9 1 5 Coot and expenoeo of merchandioing, jobbins and contract work.................
34
9 1 6 Miocellaneouo uleo expenoeo
.......•................•.••.•.
...................
37
apenoeo
..
.
....
•
h.,.....;���if-t.l�Wrjf-���� �
f-.!.L=::L..:.:...:.:.�j--
.
......... ...... ...................... ... ..... 101 565 1272 75 11058 t 591.30
3,695 ,473.95
56 , 909.37
( 171, 511.26
Adminiotrative eq>en""l tranoferred--Cr
.
.. .
.. .
.
.. ( 11 '76515Q9.4o
Outaide aerviceo employed................................................................
4o7 1443.37
4o , 792 .76
Property inourance.
. .
.
. 2 ,7o6 ,94Q.48 2 ,082 , 421 . 32
lnjuriee and damaseo
. ...
:..............................................
228,302 . 86
931,639 . 17
903,182 . 26
Employee peneiona and benefitl
10, 522 ,()96 .64
216 ,549. 51
Franchi"' requirement�............................... . . . . ................................
3,744,6112 . 54
8,891.21
Resulatory commwion expen..,o.................... . . . . . . ..............................
41,444 .25
( 86 , 34o .oo
Duplicate chuwe�r .
..
.
.
. .
.(
241,874.04
Miocellaneoua seneral e><penaeo...
.. ...... ........................ ........ .. . 411791218 4o 1,296 1015 94
Rento
t-'=-:.-'����HI-=:-'-!2�!4l�
Total operation
+..:ll2.1Hl�.Q:I�iXI'i-2.3"4
920 Adminiotrative and seneral ularieo........
92 1
40
922
41
923
42
92+
43
925
44
926
45
927
46
928
•7
929
48
930
.,
931
54
........
. . . . . . • . . . . . . . . . . . . . . • . . . . . • • •. . . • . . . . . . . . . . . . . . . . . • . •...••••••..
39
53
.
. . . . . . . . . . . . • . . • . . . . . .• . • . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
31
52
. . . . . . .......
ADMINISTRATJVE AND GENERAL EXPENSES
o,.,,,ion
36
51
.
.....•............... ........•.......... .......
Total ule1
35
50
�tcrecue or
decremo hom
preceding year
c
. . . . . . . . . . . . . . . . . . . . .• . . . . . . . . . . . . . . • . . . • . . . . . . . . . . . . . . . .
7
u
expauoeo..
.67.
587 c...-.. instaUatiooo e.pen�e�
588 �hllleoua dUtribution expen""'····································-�·-············
6
a
AMount for ,_,
•
1
3
. . . . Voar ended December 3 1 , 1 9
.
-
Lifle
No.
2
IDX801 C(JWAifr .
.
Office
•
oupplies and expen..,l.............................................................
........
.......
..
.................
..........
..
.........
.
....
.
....
........
. . . . . . .. . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . .
......
. . . . . . . . . . . . . .....•......................................
...
....
....
.......................
.......
...
................
.• . . . . . . . . .
•
•
. . . • . . . . . . . . . . . . . . . . . . . . . . . • . • • • . . . • • . . . . . . . . . . . . . . . . . . . . . . . . • . . . . . . . •••...••.. . . . . . . . . . .
. . . .•••.......••••••......•.. . . • . . . . . . .• . . . . . . . . . • • • . . . . . • . . • . . . . . . . . .
Mlli•l•lln<•
932 Maintenance of 1eneral plant
• • . • • • • • . . • . . • • . . . • •••••••• . . . . . . • . . . . . . • • . . . . . . . • . • . . . • . . .
Total adminiotrative and seneral expenoeo
Total Electric Operation ud Maintenance Eapenoee
t---::a,�,._.,H-�EI-:-.l:=x��:;.:..,;;;r
bi,!..L����¥1-:-?-i��
F:.c..&.:..L=-a=L::��::.J.�.L&X:::.=�
..•.................................•.
........... .............•
126
127
APPENDIX D
SOUTHERN CALIFORNIA EDISON COMPANY
RETURN ON AVERAGE INVESTED CAPITAL
& AVERAGE EMBEDDED COST OF DEBT
1947 - 1967
Source
FPC
Form 1
Page
114 Net Income before Int.
charges
Interest charged to
Construction
Net Income
1947
M $
1948
1949
1950
1951
1952
1953
1954
1955
1956
1957
1958
1959
1960
1961
1962
1963
15876
17564
24718
25125
26473
32375
30044
35460
39861
44465
45659
55670
60959
71172
76551
84911
454
589
802
1099
989
1087
1442
1686
1107
2020
1984
3384
2943
2158
2328
2221
16330
18153
25520
26224
27462
33462
31486
37146
40968
46485
47643
59054
63902
73330
78879
87132
1964
1965
1966
1967
90088
109769
118035
128259
143065
2707
2357
3257
5679
6762
92795
112126
121292
133938
149827
111
Capital Stock
(Discount) - Capital
Stock
179031
(2486)
199111
(2579)
223911
(2661)
267993
(2748)
272055
(2748)
304644
(2826)
327021
(2900)
361133
(2978)
368019
(2978)
430175
(3128)
447586
(3208)
503414
(3397)
547167
(3487)
566487
(3489)
559770
627283
706155
796892
839573
931102
970482
219
211
Long Term Debt
(Discount), Premium
on Long Term Debt
138000
203000
203000
203000
268000
268000
298000
328000
365070
405070
510213
540465
537433
626806
656402
713883
735894
852884
950000
1104987
1184987
Total Capital
308364
(6181)
Average Capital
Return on Avg. Capital - %
219
Interest Paid on Debt
Total Long Term Debt
Average Debt
Average Cost of Debt - %
4215
131819
(5162)
(4609)
(4055)
(3130)
(2592)
(2354)
(1923)
(1594)
(1845)
(254)
(1075)
(444)
(1120)
(1161)
(1843)
(2205)
(2903)
(1658)
(2846)
(2724)
394370
419641
464190
534177
567226
619767
684232
728517
830272
954337
1039407
1080569
1188684
1215011
1339323
1439844
1646873
1787915
2033243
2152745
351367
407006
441916
499184
550702
593497
652000
706375
779395
892305
996872
1059988
1134627
1201848
1277167
1389584
1543358
1717394
1910579
2092994
5.17
6.27
5.93
5.50
6.08
5.31
5.70
5.80
5.96
5.34
5.92
6.03
6.46
6.56
6.82
6.68
7.27
7.06
7.01
7.16
5634
6215
6215
7359
8159
8518
9559
10799
12337
15284
18019
19443
21644
24483
26111!
28472
34512
37086
42269
49968
265408
295646
326077
363476
403225
509959
539390
536989
625686
655241
712040
733689
849981
948342
1102141
1182263
899162
1025242
1142202
4.12
4.12
4.37
197838
198391
198945
264870
164829
198115
198668
231908
265139
280527
310867
344777
383350
456592
524675
538190
581338
640464
683641
722865
791835
3.42
3.14
3.13
3.17
3.08
3.04
3.07
3.13
3.22
3.35
3.43
3.61
3. 72
3.82
3.82
3.94
4.36
3/20/69
128
APPENJ;llX !;;
ADMINISTRATIVE & GENERAL EXPENSES
UTILITY PLANT INVESTMENT
1948 - 1967
Item
Source
FPC Form 1
1947
M $
Average Invested Capita1 (see Appendix D)
4/5/69
1948
1949
1950
1951
1952
1953
1954
1955
1956
1957
1958
351367
407006
441916
499184
550702
593497
652000
706375
779395
892305
996872
2412
2709
2825
3280
3607
3813
3788
4078
4340
4795
4968
5310
5762
6110
6476
6652
425
556
585
644
684
1390
884
976
1102
1187
1312
1442
1477
1471
1613
1709
(815)
(1020)
(1098)
(1194)
(1258)
(1285)
(1527)
(1701)
(1944)
(2107)
(2288)
(2467)
(2757)
(3232)
(3519)
(3560)
64
145
159
1530
435
16
(1)
411
24
4805
91
203
179
2698
527
15
(5)
463
27
6443
92
328
182
2502
530
11
(74)
523
21
6427
85
267
185
1842
612
3
(15)
490
25
6224
157
266
344
2299
724
2
(8)
723
26
7566
187
258
281
2508
788
145
(18)
699
35
8801
272
303
211
2964
833
174
(28)
910
29
8813
346
328
208
2941
954
63
(20)
988
43
9204
348
352
460
3312
1141
44
(26)
781
40
9950
307
356
262
3840
1262
74
(25)
1543
31
11525
291
391
320
5341
1540
37
(74)
4583
33
16454
336
406
483
5093
1800
47
(157)
2315
38
14646
324
485
407
6713
1936
27
(29)
2529
43
16917
356
624
407
7198
2169
25
(23)
2865
434
18404
369
393
737
472
10652
2421
38
(33)
3937
398
23814
180
343
352
356
450
475
504
485
597
756
724
748
739
908
1127
1259
4985
6786
6779
6580
8016
9276
9317
9689
10547
12281
17178
15394
17656
19312
23193
25073
304
382
510
452
610
539
514
536
812
618
711
889
892
1031
8~5
1209
1058
1440
1328
3639
4681
6404
6269
6128
7406
8737
8803
9153
9735
11663
16467
14505
16764
18281
222~8
23864
25488
28710
31058
33828
1959
1059988
1960
1961
1962
1963
1134627
1201848
1277167
1389584
1964
1965
1966
1967
1717394
1910579
2092994
8380
8891
9507
10565
2363
2768
3639
3695
(4577)
(5489)
(1594)
(1766)
39
436
622
10464
3033
22
(39)
3694
488
24926
321
736
704
13819
3068
19
(14)
3090
694
28607
367
625
703
9619
3528
33
(156)
3483
584
30337
407
2707
932
10522
3745
41
(242)
4779
295
35682
1620
1543
2049
1785
26546
30150
32386
37467
1543358
p 419
~
920
921
922
923
924
925
926
927
928
929
930
931
932
62M 1 i GEN'L EXPENSES
A & G Salaries (790,791)
Office Supp. & Expenses
(792,793)
Adm. Expenses Transferred
(Cr.) (807)
Outside Services Employed
(794,795,796)
Property Insurance (798)
Injuries & Damages (799)
Employee Pen. & Benefits (800)
Franchise Requirements (805)
Regulatory Comm. Expenses (797)
Duplicate Charges (Cr.) (806)
Misc. Gen'l Expenses (801)
(803)
Rents
Total Operation
Maint. of Gen'l Plant (802)
Total A & G
924 &
Total Insurance
925
Total A & G less Insurance
4r
4 6
96 1
22l7
(j~)
3916
3~1
220.6
(�-----·
·�-----------
APPEND I X F
AD VALOREM TAX DATA
F O S S IL-FUEL S TEAM GENERAT I NG STATI ONS
EFFECTIVE TAX RATE - TAX/ORI G . COST
ALAMITOS
EL
SEGUNDO
ETIWANDA
HUNTINGTON
BEACH
MANDALAY
REDONDO
BEACH
--
1968-69
2 . 04
2 . 09
2 . 22
2 . 29
2 . 21
2 . 85
68
2 . 11
2 . 01
2 . 21
2 . 34
2 . 23
3 . 47
67
2 . 17
2 . 04
2 . 16
2 . 57
2 . 37
2 . 98
66
2 . 24
2 . 13
2 . 29
2 . 47
2.40
3 . 29
65
2 . 37
2 . 23
2 . 15
2 . 48
2 . 47
3 . 41
64
2 . 35
2 . 30
2 . 25
2 . 54
2 .62
3 . 54
63
2 . 21
2 . 43
2 . 51
2 . 67
2 . 78
3 . 65
62
2 . 28
2 .44
2 . 45
2 . 40
2 . 52
3 . 73
61
2 . 33
2 . 43
2 . 53
2 . 26
2 . 37
3 . 86
60
2 . 39
2 . 50
2 . 58
2 . 22
1 . 88
3 . 98
59
2 . 48
2 . 36
2 . 24
1 . 51
1 . 71
3 . 72
58
2 . 08
2 .42
2 . 13
1 . 53
57
1 . 53
2 . 10
1 . 98
4 . 03
56
1. 46
1 . 61
1 . 59
3 .63
1956
1955
1953
Year F ir s t
Uni t S tar ted
1958
3 . 55
1959
1948
1-'
N
1..0
130
�· '""�"'��.,,��·�••c•n�--�·��-��� -��-����-"-''"��-,.-��------�--�---�-----�'--"'�;·•�.,�··-·-·---�----- ��=--�-�-·�--�--- ••••-•••�---·�-"<•'"<'=• ·-�--��·-=-�- oO --
,.,
• v .,., • , . .,
- ,.., . .,,_,. '�' •
APPENDI X F
AD VALOREM TAX DATA TO BE
USED IN CURVE F I T P RO GRAM
y
( x)
Y ea r
Cons t ant
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
1. 65
1 . 88
2.08
2 . 25
2 . 38
2 . 45
2 . 48
2 . 45
2. 36
2 . 30
2 . 26
2 . 22
2 . 20
2 . 20
2 . 20
2 . 20
2 . 20
2 . 20
2 . 20
2 . 20
2 . 20
2 . 20
2 . 20
2 . 20
2 . 20
2 . 20
2 . 20
2. 20
2 . 20
2 . 20
2 . 20
2 . 20
2 . 20
2 . 20
2 . 20
2 . 20
2 . 20
2 . 20
2 . 20
2 . 20
� '·- . ---�"------���-£--�--"- �--�-�--�-----��
y
Tangent
1 . 65
1 . 88
2.08
2 . 25
2 . 38
2 . 45
2. 48
2 . 45
2 . 36
2 . 30
2 . 26
2 . 22
2 . 20
2 . 20
2 . 20
2 . 22
2 . 23
2. 24
2 . 25
2 . 26
2 . 26
2 . 27
2. 27
2.28
2 . 29
2 . 29
2 . 30
2 . 31
2 . 32
2 . 33
2 . 34
2 . 35
2 . 36
2 . 37
2 . 38
2 . 38
2 . 38
2 . 39
2 . 39
2 . 40
••·-•-r•••-�•�"'' •-•-•-- �•-n•••••-•••••-•
••
y
y
P e ak
Redo ndo
P e ak
1 . 65
1. 88
2.08
2 . 25
2 . 38
2 . 45
2 . 48
2 . 45
2 . 36
2 . 30
2 . 26
2 . 22
2 . 20
2 . 20
2 . 20
2 . 22
2 . 24
2 . 26
2 . 28
2 . 30
2 . 35
2 . 40
2 . 45
2 . 52
2 . 58
2 . 66
2 . 74
2 . 82
2 . 88
2.92
3.01
3 . 10
3 . 19
3 . 28
3 . 38
3 . 50
3 . 62
3 . 74
3 . 86
4 . 00
1 . 65
1. 88
2.08
2 . 25
2 . 38
2 . 45
2 . 48
2 . 45
2 . 36
2 . 30
2 . 26
2 . 22
2 . 20
2 . 20
2 . 20
2 . 24
2 . 26
2 . 29
2 . 31
2 . 33
2 . 36
2 . 38
2 . 40
2 . 43
2 . 45
2 . 47
2 . 50
2 . 52
2 . 54
2 . 57
2 . 59
2 . 61
2. 64
2 . 66
2 . 68
2 . 71
2. 73
2 . 75
2 . 77
2 . 80
·---
- - - --·---·=·--·-·
· -
. ------� " - ... "
-
131
DATE 0 1 / 0 3 1 7 0
PROGRAM 8649
EXTERNAL BETA
COMMON/ 10/ l N t i P A t l PU t MT l t MTi tMTJ t l TW l t i TWO
D I MENS I ON 1 ALPHA C 6 J i l iiTA C I ) t lL l M C 6 J t U L I M C 6 l t ! N i l )
F AC C 6 l t END C � O l
1
DATA l END• O t
7777777777777777B t 6 1 436 1 436 1 436 1 438 , 6 1 436 1 436 1 436 1 43B t
S
1
6 1 43 6 1 436 1 4 3 1 1 411 t 60t360 0 3 6 0 0 36 0 0 3B , O t
2
0 0 0 0 0 0 � 0 777777771 t 177777777 0 00 74 0 0 8 , 360 0 1 7 0 0 0740 0360B t
O l 7 0 0 07400l60 0 1 71 t 0 0 0 7 0 007777777778 , 7777777 7 0 0 0 0 0 0 0 0 B t
3
4
Ot
77777177777777778 , 6 0 0 3 6 0 03600360 03B t
5
6 0 0360 0 3 6 0 0 3 6 0 03B t 600 36 0 03 7 0 0 7 7 0 07B , 37 76 3776 1 77 4 1 7748 )
D I MENS I O N VAL C 1 0 2 l t FREQ C l O Z l- t VAL 1 C l 02 ) t AREA C 1 02 l
D I MENS I O N ACC C 20 0 2 l
DATA C f AC• e O l t e O l t e O l t e 00 3 0 t l • t e O l l
OATA C T I TLE•Z4HAATE Of RETURN ,
24HADM l N l iTRA T I VE • GENERAL t
2
3
24H lNSURANC E
4
24HAD VALOREM TAXES
'
5
1 7HDEPREC l A T l 0 N Ll'E
'
1 8HBOND i N TEREST �ATE
)
6
OATA C LENGTH• 1 4 t 24� 9 , 16 t l T t 1 8 )
DATA C l N• 60 t 6 l t 6 2 t 50 t 5 � t l 0 t 6 l t ! 4 t
D I ME N S I O N TABLE C l O Oi t 6 t t TEMP C l O OZ t 3 l t T l TLt C 3 t 6 l t LENGTH C 6 t
D I MENS I O N CARO l l O )
C0MMON/MLM/ l BUF C l 077. ).
RIAL LOWER
c
D649 C A t 8 t C t D t E t F ) •A�i • C • D • S�P. C A t l t •C649 C A , O e t O e t O e t 21 , , F )
RETURN
A
ADM I N I STRAT I O N AND GENERAL
8
C
I NSURANCE
0
AD VALOREM TAXES
E
DEPRE C I A T I ON L I ,E
BOND I N TEREST RA T E
F
c
c
c
c
c
c
•
•
•
•
•
•
S FP C A t E ) •A/ C i l • • A t ••E • l e l
2
3
4
5
6
1
50
L I M I T•ZO O O
RL I M I T• l e /L I M I T
CALL PLOT S C I BUf t l 07T t 5 l l
REAO C I N t 5 l CARD
I F C EOF t l N l 4 t 3
WA I TE C MT 1 t 5 t CARD
�A l TE I I PR t 6 l CARD
GO TO 2
END F l LE M T l
REW I ND M T l
F ORMAT U DA l l
FORMAT C l O X t ! O A i l
CONT I NUE
CALL SCE l
.
CALL AANFSET C l l
READ C MT l t l O t I I ALPHA C l l t I BE TA C I ) t XL l M C l l t UL l M C I I t I • l t 6 l
I f C EOF t MT l t ! O O O t 50
CONT I NUE
132
�TN 1 e 4
AP P E ND I X G
DATE 0 1 /0J/70
AT
1• 1443
WFI I T E I IPR t 2 0 ) C C T l TLE I J t l i �J• l ; l l t l ALPHA i l ) t l BETA i l l t XL I M i l l t
1
UL I M� l l t 1• l e 6 J
1 0 FORMAT I 1 X t 6 1 X t 2 1 2 t Z,4 t Z l t X )
2 0 f 0RMA T I 1 0 X t lAI// 1 2 Xt5HALPHA
t i ll
/ l2 X t 6 H L AMBDA
1
t l lZ
/ l2X t *L O WEA L l M I T * t f 7 o 2
2
3
/ l2X t *UPPER L · � l T* t F7 o 2/ / )
30 F0RMAT I 6 1 2X t 3A 8 t 2X ) )
C
F I LL T ABLE
DO 300 h l t 6
x• o .
OXa , O O l
Y •X L l M U I
DY• I UL I M I I I •Y I •DX
Z• l o
l h i ALPHA I I I
I B • I BETA U I
DO 2 0 0 J • l t l O O O
TEMP I J t l i •Y •Y •DY
TEMP I J t l i •X•X•DX
TEMP I J t 2 1 •BETA I X t l A t l 8 )
TABL E I J t i i •Z•Z•AlS I MSON I � • o O O l t X t l O t BE T A t. l A t l B I
1 0 0 F 0RMA T I I 6 , 4F 2 0 e & j
2 0 0 CONT I NUE
W R I TE i l PR t l OJ I I T I TLE I K t l l t K • l t 3 )
1 03 F0RMAT C 1 H l t 34 X t lA8// )
WFI I TE C I P R t l 04 1 PROBAB I L I TY
CUMULA T I VE * ) /
6X t • RANDOM
1 0 4 FORMAT I 3X t 2 1
1
3X t 2 1
6X t *V AR I ABLE
DENS I T Y
PROBAB l L I T Y * I / 1
WR I T E I I PA t l 02 ) I I TEMP I J e K i t K• l e 2 1 t TABLE C J t i i t i TEMP C J+50
. 0 t K l t K• l • 2 l t
TABLE I J• 5 0 0 t i l t J•2 0 t 5 0 0 t 2 0 1
1
1 02 F0RMAT C 5 C 3 X t 2 C f l l o l t F l 2 o 5 t F l l e 5 t 2X l / l l
CALL SCALE I TEMP C l t l l t l O e t l O O O t l l
CALL SCALE I TEMP C l t Z
. i t l O o t l OO O t l l
TEMP I 1 0 0 l e 2 1 • 0 •
TABLE i l O O l t i i • O e S TAB LE i l O O Z t i i • o l
CALL L I NE I TEMP C l t l l t TEMP i l t Z l t l O O O t l t O t O l
CALL L I NE C TE MP i l t l l t f A B LE I � t l l t l O O O t l t O t O )
CALL A X I S I O t t O e t T I T L£ C l t i i t •LENGTH C i l t l O o , o . ,
TEMP I 1 00 l t 1 l , TEMP I 1 0 02 t l l l
1
CA LL A X I S i l O , , O , l 3HdET A FUNC T I ON t • l l t l 0 o t 90 e t
TEMP I ! O O l t 2 ) , TEMP i l 0 02 e 2 1 1
1
CA LL A X I S I O e t O e t l OH l • I NTEGR A L t
+ 1 0 t l 0 e t 90 o t
T ABLE i l O O l t l l t TABLE i l O OZ t l l l
1
ALPH A • I ALPHA I I I
CALL SYMBOL i l O e 5 t 9 e 8 t e l t 7HALPHA • t O o t S ) .
CA LL NUMBER I 999 o t 999 o t e l t ALPHA t O a t O I
ALPH A• I BE T A i l )
CALL SYMBOL I 1 0 e 5 t 9 e . t a l t 8HLAMBDA • t 0 a t 8 l
CALL NUMBER C 999 o t 999 ! t a l t ALPHA t O e t 0 )
CALL PLOT I 1 2
- e 8 t 0 t •3 ).
3 0 0 CONT I NUE
DO 3 1 0 l • l t 6
UL I M i l i •UL I M C I I *FAC i l l
XL I M I I I •X L I M C I I *FAC I I I
3 1 0 CONT I NUE
�
.
133
APPEND I X
FTN
l e4
G
AT
14 1443
.
.
D A T E O l / 03/70
UP PER•D6 49 C UL I M C l l t UL I M I Z i t UL i M C J l t UL l M I 4 1 t XL I M I 5 l t XL l M C 6 ) )
L 0 W E R•D649 C X L I M C l l t X L I M I 2 1 t XL I M C J ) , XL I M C 4 1 t UL I M I 5 ) t U L I M I 6 l l
WR I TE C I PR t l 0 1 ) UPPER t L O WER .
1 0 1 FORMA T C * l U P � E R •* t E2 0 e l t * L O W ER •* t E 2 0 , 8 1
DO 3 7 0 J • l t L I M l T
D O 350 I • l t 6
.
35 0 V A L C I I •X L I M C I I • I UL I M I I ) •X L I M I I I I *YPWL I RANF I • 1 ) t T ABLE i l t l l e TEMP i l t 3 1 l
ll l
A C C C J I •D649 1 V A L C l l t V AL C 2 1 t V AL I 3 1 t V AL C 4 1 t V A L C 5 1 t V A L C 6 1 )
3 7 0 CONT I NU E
CA LL S C A L E C A CC t 1 0 0 e t L I M 1 T t l l
X •A C C C L I M I T + 1 ) + ACC I L 1 M I T + 2 ) /� o
D O 390 I • h 1 0 0
FREQ C i i • O
V A L C I I •X
.
3 9 0 X • X + AC C C L I M I T + 2 )
D O 3 8 0 J• 1 t L l M l T
N• I A CC I J ) • A C C C L I M I T + l ) ) /ACC I L I M I T • 2 l • l •
3 8 0 F R EQ C N l •FREQ C N l +RL I M I T
CA LL S C A L E C V A L t l O e t 1 0 0 t 1 1
CALL SCALE C FREQ t l O e. t 1 0 0 t l l
F R EQ 1 1 0 1 1 •0 •
CAL L L I NE C VA L t FR EQ e l O O t l t • l t l l
A• l e
X•ACC C L I M I T + l l
DO 4 0 11 I • l t l O O
V A L l l l i •X • X • A C C C L I M I T + Z I
AREA C l i • A •A•F�EQ C l l
4 0 0 CO N T I NUE
A R E A 1 1 0 1 1 •0 •
AREA C l O Z I a , 1
V AL 1 C l 0 l i • V A L C 1 0 1 1
V A L 1 C l 0 2 1 • V A L C 1 02 1
CALL L I NE C V AL 1 t AREA t l O O t l t • l t l l l
CALL A X I S I O e t O t t ZZHANNUAL C A RRY I NG CHARGE , •Z 2 t l O t t O • t V AL 1 1 0 1 I t 1/ A L
1 C l021 1
CALL A X I S C 1 0 • o 0 t t l ZHD I S T R I BUT l ON t • l 2 t 1 0 e t 9 0 e t FR EQ C 1 0 1 1 t F R EQ C l 0 2 1 1
CALL A X I S I O o t O o t l OH 1 • I N TEGRA� t + l O t l O • t 9 0 o t O • t • l l
WA I T E C I PR t 50 2 )
5 0 2 fORMAT C l H l )
WR I T E U PR t S O l I
*
ANNUAL* t l 7 X
* A NNUAL
C�MULA T I IIE* I /
5 0 1 F0RMAT C 2 1 5 X t
C A R R Y I NG
FREQUENCY* ) ) /
2 1 5X t 2 1 *
1
CHARGE* t l 2 X I I / )
2 C 5X t 2 1 *
2
WA I TE C I PR t 50 0 1 C V AL C l l t FR EQ C l l t V AL 1 C l l t AREA C I I t V AL C I • 5 0 i t F REQ C I + S O I
1 t V A L l l l +S O i t A REA C 1 • 5 11 1 t i • 1 t 5 0 t 1 1
5 0 0 FORMAT I 2 C 5 X t 2 C 2 F 1 1 e 4 t X l l l
C A L L PLO T C O e t O e t 999 l
GO TO 1
l O O O CONT I NUE
C ALL M I CK E Y S
CAL L E X I T
END
1 34
APPEND I X G
FTN l e 4
AT
1 4 1443
DATE 0 1 /03/70
FUNCT I ON C649 C R E T U RN t AG t i NS t A. V T A X t L I F E t BONO I
REAL l NS t L I FE
OATA C T • e 56 1 1
O A T A C D RA T I O • e 55 ) t C O l • o 0 2 1 8 5 l t C D2• o OS I
CALCU L A T E T O T A L T AXE$ 1
C
T 2 • T l • ADJUSTMENT FOH ACCELERATED D E PRE C I A T I O N
C
C
Tl•
C
T • C FEDERAL
C
T
R•D•B
( •• • ) C ••••• ) C R • U l •D2 )
R
l •T
I NCO�E T A X R A T E ! C l • •S T A T E T A X R A TE I • C S T A T E T A X R A T E )
CALCULATE T l
D l •RET URN/ C C l , • R E TURN I •• L I F E • l o l
02• l o / L l FE
T l • T/ C l •T l * C RE T URN•DRA T I O•IONO I / R ETURN* C RE T U R N • D l •D2 )
CALCULATE ADJUSTMEN T t
C
C
AF
T
ADJUSTMENT• C •• • l t C P W OF DEPR I C R • D l l •D2 l
C
l •T
PW • O o
M• L I I"E / 2 e
C l • C Z • l o / C l •RETUR N I
BOFYRBAL• l •
DO 1 0 0 I • l t M
DE PR• BOFYRBAL*2 e / L I F- E
P W • P W • C l *DEPR
BO F YR�AL •�O F Y R�AL•UEPR
C l •C l *C 2
1 0 0 CON T I NU E
N •L I F E
YR S•N•M
M•M • l
DE PR•�OFYRBAL / Y R S
DO 2 0 0 I •M t N
P W • P W • DEPR * C l
C hC l •C 2
2 0 0 CO N T I NUE
A F • T/ C l e • T l • C PW* C RE TURN • D l l • DZ I
C649•T2 • T l •A
-F
RETURN
EN D
·
135
AP P END I X G
P'TN 1 • 4
D A T E 0 1 / 03170
AT
1 4 1 4 43
FUNC T I ON YPWL I X t XDATA t YD A TA I
W
NE
SUBROUT I NE FOR P I EC£• I S E L I
A R REPRESE N T A T I O N OF A FUNC T I ON
XDATA MUST BE 1N DECt.ND I NG ORDER IN T H I S R OU T I NE .
X
D I MENS ION Y D A T A i l i � - DA TA i l l - C
CHECK TO MAKE SURE X IS W I TH I
- - N RANGE OF D A T A
NDATA• 1 0 0 0
I F I X OA TA i l i •X I 1 2 0 t l 0 5 t l l 0
Y• YDATA i l l
1 05
GO TO 1 45
I F I X D A T A I NOA TA I •X I 1 3 0� 1 1 5 t 1 2 0
110
Y•YDA T A I NDAT A I
1 15
GO T O 1 45
PR INT 1 25 t X t X DA TA i l l t XDAT A I ND A T A I
120
El5o8
1 2 5 FORMAT I l H O t 2 2 H I NDEPENDENT VAR IABLE • t
1 2 7 H N O T W I TH I N SPE C I F IED RANGE
- e 2E 1 5 o 8 / l
CALL EX I T
C
F INO LEAST D A T A P O I N T W H I C H l S GREATER THAN X
130
D O 1 35 1 •2 t ND A T A
I F I X DATA l l i •X l 1 40 t 1 3 5 t 1 3!5
CONT I NU E
135
C
EX TRAPOLATE BETWEEN VALUES TO P' l ND Y
IM• I • l
140
Y • YDATA I I M I + I YD A T A I I I •YDA TA I 1 M ) I • I X•XDATA I I M I I / I XO A T- A C1 1 •
1
XOA TA I I M I I
1 4 5 YPWL a Y
RETURN
EN O
C
C
YPWL O O O O
YPWLOO l O
YPWL 0 1 0 4
YPWL O l l O
YPWL 0 1 2 0
YPWL 0 1 25
WPWL.0 1 26
YPWL0 1 33
YPWL O l 't5
YPWL 0 1 5 0
1 36
AP P E ND I X G
c
C
C
C
c
DATE 0 1 /0l/70
1 4 1 44 3
AT
FUNCT I ON B E T A C l t l A t l l l
.
D I M E N S I ON GAMMA C 1 6 )
DA T A C GAMMA•
1,,
2o t
1..
1
720 o t
1�0 . ,
24 . .
2
. 3628@ 0 . ,
36288 0 0 , ,
3
4 0 320 o t
87 1 7 829 1 2 0 0 · •
4 79 0 0 1 6 0 0 . .
6227 02 0 8 0 0 , ,
4
BET A C X l
IA
IB
GAMMA C l A + I B + Z l
C 1 •X l
• ····• • • • • •••• •• • ••• • • • X
GAMMA C l A + 1 ) GAMMA ( l B + l )
6o t
5040 , ,
. 399 1 68 0 0 , ,
1 3 0 7 674368 0 0 0 . 1
O S XS l
I C• I A • I B + 2
BE T A • X** I A * C l , • X l ** I B •GAMMA i l C l /GAMMA C l A + 1 ) / GAM M A ( l �+ 1 )
RETURN
END
137
APPEND I X G
FTN
1 o4
C
c
C
C
c
c
UATE O l / 0 3 / 7 0
AT
1 4 1 4 43
FUNC T I O N A 3S I MS O N C X A t XB t i TEH t F t l t J I
S I MPSON S COMPO S I TE FORMU� A I
A3S I MSON•
S
A
H
8
3
•
[ F C A I + 4 F I A •H • 2F I A + 2H I •4F I A + JH + o o o + F C B I ]
H I TER • I TER
OX• C X�·XA I /H I TE R
H•OXI 2 o
SUM • � •
X •XA
DO 1 1 0 K • 1 t i TER
SUMaSUM +F I X t i t J I + 4 o. •F C X +H t l t J
- l. +F I X+OX t l t J I
X • X+OX
1 1 0 CON T I NUE
A J S I MSON•SUM•Hi l o
RETURN
END
AlSI
AJSI
AJSI
AlSl
AJS I
AJSI
AJS l
AJSI
AlSl
AJS I
AlSI
AlSI
AlSl
USI
AlSl
AlSI
USI
AlSI
000
010
020
030
040
050
ObO
070
080
090
1 10
1 15
120
130
140
150
160
170