WCB Cost Model Virtual Workshop 2012 - Determining the Annualized Cost of Capital Investments

Please provide comments to the issue below as part of the 2012 WCB cost model virtual workshop for inclusion in the record. Comments are moderated for conformity to the workshop’s guidelines.

Background

Hybrid Cost Proxy Model: The HCPM adopts a straight line equal-life-group method of depreciation, using Gomerpertz-Makeham curves. These standard curves describe generalized mortality patterns and are used to determine the probable frequency of plant mortality. To estimate depreciation expenses, the HCPM uses the projected lives and future net salvage percentages for the asset accounts in Part 32 of the Commission's rules. The HCPM also selects a particular set of Annual Charge Factors (ACFs) based on a methodology that is user adjustable and reflects the sum for the three inputs: depreciation, cost of capital, and maintenance costs.

CQBAT: The CQBAT model uses the same approach as the HCPM. It adopts a straight-line equal-life-group method with expected mortality curves. The lifetimes are also set by the HCPM's values. The Bureau notes that the CQBAT model as submitted in the record does not make public the calculations used to set particular input values in the event a lifetime changes.

Questions for Comment

1. Some of the HCPM values (which also are used by the CQBAT model) may no longer be appropriate (e.g., a 9-year lifetime for a DSLAM). Which, if any, of the projected lives used in the HCPM are outdated and should be modified? If so, what specific modifications would you recommend, and what is the rationale for such change? What additional evidence, if any, would be needed to justify such changes?