OGE Energy : PUD 2021-00164 - Direct Testimony of John Spanos

BEFORE THE CORPORATION COMMISSION OF THE STATE OF OKLAHOMA

IN THE MATTER OF THE APPLICATION OF	)
OKLAHOMA GAS AND ELECTRIC COMPANY	)
FOR AN ORDER OF THE COMMISSION	) CAUSE NO. PUD 202100164
AUTHORIZING APPLICANT TO MODIFY ITS	)
RATES, CHARGES, AND TARIFFS FOR RETAIL	)
ELECTRIC SERVICE IN OKLAHOMA	)

Direct Testimony

of

John J. Spanos

on behalf of

Oklahoma Gas and Electric Company

December 30, 2021

Direct Testimony of John J. Spanos	Page 1 of 27
Cause No. PUD 202100164

TABLE OF CONTENTS

SUBJECT	PAGE
I. INTRODUCTION AND PURPOSE ....................................................................................	3
II. ADEQUACY OF CURRENT DEPRECIATION RATES ..................................................	8
III. DEPRECIATION STUDY ...............................................................................................	11
IV. CONCLUSION.................................................................................................................	23

EXHIBITS
EXHIBIT	DESCRIPTION
Direct Exhibit JJS-1	Witness Qualifications
Direct Exhibit JJS-2	Depreciation Study

Direct Testimony of John J. Spanos	Page 2 of 23
Cause No. PUD 202100164

1. INTRODUCTION AND PURPOSE

1. Q. Please state your name and address.
2. A. My name is John J. Spanos. My business address is 207 Senate Avenue, Camp Hill,

3	Pennsylvania, 17011.
4

1. Q. Are you associated with any firm?
2. A. Yes. I am associated with the firm of Gannett Fleming Valuation and Rate Consultants,

7	LLC ("Gannett Fleming").
8

1. Q. How long have you been associated with Gannett Fleming?
2. A. I have been associated with the firm since June 1986.

11

1. Q. What is your position with the firm?
2. A. I am President.

14

1. Q. On whose behalf are you testifying in this case?
2. A. I am testifying on behalf of Oklahoma Gas and Electric Company ("OG&E" or the

17	"Company").
18

1. Q. Please state your qualifications.
2. A. I have over 35 years of depreciation experience which includes giving expert testimony in

21	over 380 cases before 41 regulatory commissions, including this Commission. These cases
22	included depreciation studies in the electric, gas, water, wastewater, and pipeline
23	industries. In addition to cases where I have submitted testimony, I have also supervised
24	over 700 other depreciation or valuation assignments. Please refer to Direct Exhibit JJS-
25	1 for my qualification statement, which includes further information with respect to my
26	work history, case experience and leadership in the Society of Depreciation Professionals.

Direct Testimony of John J. Spanos	Page 3 of 23
Cause No. PUD 202100164

1. Q. What is the purpose of your testimony in this proceeding?
2. A. I sponsor the depreciation study performed for Oklahoma Gas and Electric Company

3	attached hereto as Direct Exhibit JJS-2 ("Depreciation Study"). The Depreciation Study
4	sets forth the calculated annual depreciation accrual rates by account as of December 31,
5	2020. The proposed rates appropriately reflect the rates at which OG&E's assets should
6	be depreciated over their useful lives and are based on the most commonly used methods
7	and procedures for determining depreciation rates.
8	The development of depreciation rates in the Depreciation Study utilizes the
9	straight-line method. Average service life procedure and the life and net salvage
10	parameters were developed consistently with past practices for Oklahoma Gas and Electric
11	Company. These methods for conducting life and net salvage analyses are consistent with
12	practices across the United States.
13

1. Q. Please summarize your testimony.
2. A. My testimony presents the results of the Depreciation Study, which is based on established

16	and supported methods and procedures, and results in the most reasonable depreciation
17	rates for the Company's assets. The life and net salvage estimates in this study set forth a
18	recovery pattern that matches utilization of the asset with recovery of the assets, which is
19	fair to all generations of customers. The overall result of the Depreciation Study is a net
20	increase in depreciation expense. However, this is in large part the result of some
21	unreasonable service life cycles and net salvage estimates that form the basis of the current
22	depreciation rates.
23	The Company's currently approved depreciation rates based on estimates from
24	Cause No. PUD 201500273 are, for some accounts, outside the range of industry norms
25	and as a result will not properly or equitably recover the cost of the Company's assets over
26	their service lives. For this reason, an increase in depreciation expense is necessary in order
27	to bring the Company's depreciation rates more in line with reasonable and appropriate life
28	cycles and net salvage expectation for the Company's assets. The Depreciation Study that
29	I support in this case achieves this objective and produces the most appropriate depreciation
30	rates for the Company's assets.

Direct Testimony of John J. Spanos	Page 4 of 23
Cause No. PUD 202100164

1 Q. Will you summarize the impact on depreciation rates based on the Depreciation

2		Study?
3	A.	Yes. Table 1 below sets forth a comparison of the current depreciation rates and resultant
4		expense to the proposed depreciation rates and expense by function as of December 31,
5		2020.

	Table 1
		Current		Proposed
		Proforma
Function	Rates	Expense	Rates	Expense
Intangible	6.94*	16,967,336	- *	16,789,716
Steam	1.98	62,767,903	3.21	101,760,007
Other	4.03	87,350,648	4.16	90,163,264
Transmission	1.99	58,083,890	2.54	73,938,939
Distribution	2.62	124,077,377	3.00	142,126,912
General	5.82	27,398,557	6.35	29,929,749
Total		376,645,711		454,708,587

*Composite Rate reflects some assets that are fully depreciated.

1. Q. Please explain some of the major factors that contribute to the need to change
2. depreciation rates.

8 A. One of the most significant factors is the adoption of certain parties'

1. recommendations for depreciation rates in Cause No. PUD 201500273.1 which
2. resulted in depreciation parameters that were, for many accounts, far outside the

11range of reasonableness for the Company's assets. These unreasonable

1. depreciation parameters were not changed in OG&E's subsequent rate cases2 and
2. continue today.

1. In Order No. 660259, the Commission adopted OIEC witness Pous' recommendations for production, transmission and general plant, and PUD witness Garrett's recommendations for distribution plant. The wind production rates adopted were those recommended by the Company.
2. Cause Nos. PUD 201700496 and PUD 201800140.

Direct Testimony of John J. Spanos	Page 5 of 23
Cause No. PUD 202100164