Public Service Commission of West Virginia Charleston
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Of West Virginia 201 @roo&Street, P,0. Box812 Phone: (304) 340-0300 Charhston, Vb)v 25323 Fm (304) 340-0325 November 15,20 13 Ingrid Ferrell, Executive Secretary Public Service Commission P. 0. Box 812 Charleston, WV 25323 Re: Case No. 13-1325-E-P Felman Production, LLC Dear Ms. Ferrell: Enclosed for filing are the original and twelve (12) copies of the PUBLIC Version of the Prepared Direct Testimony of Jonathan McGuire. Copies have been served upon all parties of record. Sincerely, fohn D. Little Staff Attorney West Virginia State Bar I.D. No. 9907 JDL/cm Enclosures H:\JLittle\-CASES\13- 1325-E-PC (FELMAN)\-TESTIMONY\cguire DirectTestimony Ltr.docx PUBLIC SERVICE COMMISSION OF WEST VIRGINIA CHARLESTON CASE NO. 13-1325-E-P Felman Production, LLC CERTIFICATE OF SERVICE I, JOHN D. LITTLE, Staff Counsel for the Public Service Commission of West Virginia, hereby certifj that I have served a copy of the foregoing PUBLIC Version of the Prepared Direct Testimony of Jonathan McGuire upon all parties of record by First Class United States Mail, postage prepaid on 15* day of November, 20 13. James V. Kelsh, Esq. Gina E. Mazzei-Smith, Esq. Counsel, Felman Production, LLC Counsel, American Electric Power Bowles Rice McDavid Robinson & McElwee PLLC Graff & Love, LLP PO Box 1986 P.O. Box 1386 Charleston, WV 25327-1986 Charleston, WV 25325-1386 Charles K. Gould, Esq. William C. Porth, Esq. Counsel, SWVA Counsel, American Electric Power Jenkins Fenstermaker PLLC Robinson & McElwee PLLC 325 8* Street, 2ndFloor PO Box 1791 Huntington, WV 2570 1 Charleston, WV 25326 Damon E. Xenopoulos, Esq. Brian E. Calabrese, Esq. Brickfield, Burchette, Ritts & Stone, PC Counsel, American Electric Power Counsel, SWVA Robinson & McElwee PLLC 1025 Thomas Jefferson St., NW PO Box 1791 Eighth Floor, West Tower Charleston, WV 25326 Washington, DC 20007 Thomas E. Scarr, Esq. Derrick P. Williamson, Esq. Counsel, SWVA Counsel, WVEUG Jenkins Fenstermaker PLLC Spilman Thomas & Battle 325 Sth Street, 2ndFloor 1100 Bent Creek Blvd., Suite 101 Huntington, WV 2570 1 Mechanicsburg, PA 17050 Susan J. Riggs, Esq. Heather B. Osborn, Esq. Counsel, West Virginia Energy Users Group Consumer Advocate Division Spilman Thomas & Battle 700 Union Building PO Box 273 723 Kanawha Blvd, East Charleston, WV 25321-0273 Charleston, WV 25301 Barry A. Naum, Esq. Counsel, WVEUG Spilman Thomas & Battle 1100 Bent Creek Blvd., Suite 101 Mechanicsburg, PA 17050 JOHN D. LITTLE, Staff Attorney W.Va. State Bar I.D. No. 9907 CASE NO. 13-1325-E-PC FELMAN PRODUCTION, LLC. PUBLIC VERSION PREPARED DIRECT TESTIMONY BY JONATHAN B. MCGUIRE UTILITIES ANALYST UTILITIES DIVISION ON BEHALF OF THE STAFF OF THE PUBLIC SERVICE COMMISSION OF WEST VIRGINIA ***** November 15,20 13 201 Brooks Street, P. 0. Box 812, Charleston, WV 25323 Non-Confidential version CASE NUMBER: 13-1325-E-PC DIRECT TESTIMONY OF: JONATHAN MCGUIRE PAGE NO. 1 1 Q* WOULD YOU STATE YOUR NAME, BUSINESS ADDRESS, AND 2 OCCUPTION? 3 4 A. My name is Jonathan McGuire and my business address is 201 Brooks Street, Charleston, 5 West Virginia 25323. I am a Utilities Analyst for the Utilities Division of the Public 6 Service Commission of West Virginia. 7 8 Q- PLEASE DESCRIBE YOUR EDUCATIONAL BACKGROUND AND 9 PROFESSIONAL EXPERIENCE. 10 11 A. I graduated with a Bachelor of Science degree in Business Administration and an 12 Associate’s Degree in Accounting from the University of Charleston in 2008. In 13 addition, I graduated with a Masters in Business Administration degree from California 14 University of Pennsylvania in 2009. I have been employed by the Public Service 15 Commission of West Virginia for over two years specifically from March 20 11 to 16 present. Prior to my employment at the Commission, I was employed by HICHA 17 Associates, LLC as an Accounting Manager. 18 19 Q. WHAT ARE YOUR RESPONSIBILITIES IN YOUR CURRENT POSITION? 20 21 A. I am responsible for analyzing and preparing recommendations to the Commission 22 related to filings made by publicly owned or privately owned utilities operating within Non-Confidential version CASE NUMBER: 13-1325-E-PC DIRECT TESTIMONY OF: JONATHAN MCGUIRE PAGE NO. 2 1 the State of West Virginia. The recommendations consist of written testimony, 2 memorandums, accounting schedules and exhibits. 3 4 Q* DOES STAFF HAVE ANY INFORMATION DIRECTLY RELATED TO ITS 5 TESTIMONY THAT IT WOULD LIKE TO GET INTO THE RECORD? 6 7 A. Yes, before Staff begins its review it would like to note that Staff has used and referenced 8 materials that can be found online. Staff did not attach these documents as exhibits to its 9 testimony because of the size of each document. Staff referenced four documents which 10 are as follows: 11 1. U.S. International Trade Commission, Publication 4354, Investigation Nos. 73 1- 12 TA-67 1-673 (Third Review), Silicomanganese from Brazil, China, and Ukraine, 13 referenced herein as (ITC 4354), which can be found online at 14 (usitc.gov/publications/701-73 1/pub4354 .pdf). 15 2. U.S. International Trade Commission, publication 4244, dated September 20 13, 16 Investigation Nos. 73 1-TA-929-93 1 (Second Review), Silicomanganese from 17 India, Kazakhstan, and Venezuela, referenced herein as (ITC 4424) which can be 18 found at (www.usitc.gov/publications/70 1-73 1/4424.pdf). 19 3, U.S. International Trade Commission, hearing transcript dated September 5, 20 20 12, in Investigation Nos. 73 1-TA-67 1-673 (Third Review), Silicomanganese 21 from Brazil, China, and Ukraine, is referenced herein as (ITC 4354 Hearing), 22 which can be found online at Non-Confidential version CASE NUMBER: 13-1325-E-PC DIRECT TESTIMONY OF: JONATHAN MCGUIRE PAGE NO. 3 1 (http ://www .usitc .gov/trade_remedy/73 1 -ad-70 1- 2 cvd/investigations/201 2/silicomanganese-br-ch- 3 uk/PDF/Hearing%20(3rd%20Review)%2009-05-20 12.pdf). 4 4. U.S. International Trade Commission, hearing transcript dated July 18,2013, in 5 Investigation Nos. 73 1-TA-929-93 1 (Second Review), Silicomanganese from 6 India, Kazakhstan, and Venezuela, is referenced herein as (ITC 4424 Hearing) 7 which can be found online at 8 (http://www.usitc.gov/trade_remedy/73 1 -ad-70 1-cvd/investigations/20 12/silico 9 manganese~in~kz~ve/PDF/Hearing%20(2nd%2OReview)%2007-1 8- 10 20 13%20India-Kazakhstan-Venezuela.pdf), 11 12 Q. WHAT IS THE PURPOSE OF YOUR TESTIMONY IN THIS CASE? 13 14 A. The purpose of my testimony is to address and present Staffs position regarding the 15 petition by Felman Production, LLC (Felman) for approval of a special rate for the 16 purchase of electricity (Special Rate) from Appalachian Power Company & Wheeling 17 Power Company (APCo/WPCo). My testimony will explain why the Commission should 18 reject Felman’s petition on a regulatory basis and on an economic basis. 19 20 Q. WHY IS IT IMPORTANT TO DETERMINE FELMANS’S BASIS UPON WHICH 21 IT BELIEVES A SPECIAL RATE IS NECESSARY? 22 Non-Confidential version CASE NUMBER: 13-1325-E-PC DIRECT TESTIMONY OF: JONATHAN MCGUIRE PAGE NO. 4 1 A. This is the first step to help guide the Commission in its determination of “reasonable”. 2 In Case No. 12-0613-E-PC (Century Case) the Commission stated “The Commission is 3 charged with balancing a myriad of factors in determining a reasonable special rate. 4 “Reasonable” is not easily reduced to an objective test -there is no “five feet” or “fifteen 5 pounds” of reasonable. Nevertheless, while “reasonable” is a subjective standard, it is a 6 standard that this Commission is called upon frequently to apply and is the touchstone of 7 utility ratemaking.” Once the Commission has determined the proposed basis for the 8 Special Rate it can begin processing the information provided by Felman in its 9 determination of reasonableness. While reviewing Felman’ s petition the Commission 10 will determine if Felman has provided all the reasonable justification supporting the basis 11 of the Special Rate. 12 13 Q. WHAT DOES STAFF BELIEVE IS FELMAN’S BASIS FOR THE SPECIAL 14 RATE? 15 16 A. Staff believes the basis of the Special Rate as it has been proposed is merely for 17 providing a profit to Felman during market fluctuations of the price of silicomanganese 18 (SiMn). Felman, in return for profit, will continue operations which supports its 19 economies of scale. 20 21 Q. DESCRIBE FELMAN’S SPECIAL RATE REQUEST PROPOSED IN ITS 22 PETITION. Non-Confidential version CASE NUMBER: 13-1325-E-PC DIRECT TESTIMONY OF: JONATHAN MCGUIRE PAGE NO. 5 1 2 A. Felman’s proposed rate is based on historical experience from which a target gross 3 margin was developed and set to a level at which Felman would recover its expenses 4 plus [Begin confidential] [End confidential] return on invested capital. Felman 5 defines the gross margin as the selling price of SiMn less the cost of major raw materials 6 such as manganese ore, coke and coal. Felman used historical levels of data based on 7 20 1 1 and 201 2 operations. Felman used an average Gross Margin over a two year period 8 to determine the Gross Margin Value of $749 per ton of SiMn. Felman then added 9 [Begin confidential] =[End confidential] to arrive at a Target Gross Margin Index 10 Value of [Begin confidential] [End confidential] (Target Rate). Barry Nuss’s 11 testimony states “Felman would have needed, on average, to make an additional [ 12 ] per ton of SiMn sold in 201 1 and 2012 to recover 13 its expenses plus earn a [Begin confidential] [End confidential] return on invested 14 capital during those time periods.’’ Felman uses the Target Rate for SiMn of [ 15 confidential] [End confidential] versus the prior month gross margin to determine if 16 a premium or discount is needed for its cost of electricity.