UNITED STATES OF AMERICA
BEFORE THE
FEDERAL ENERGY REGULATORY COMMISSION

California Independent System Operator	)		Docket No. ER98-211-002
    Corporation				)			(Phase I)
						)
California Power Exchange Corporation	)		Docket No. ER98-210-000

PREPARED DIRECT TESTIMONY OF
WILLIAM W. HUCKINS

Q.	Please state your name and business address.
A.	My name is William W. Huckins and my business address is 333 Market Street, Suite 2100, San Francisco, California  94105.
Q.	Please describe your education and employment background.
A.	I received a Bachelor of Science Degree, cum laude, in Business from the University of Colorado and I am a Certified Public Accountant.  I am a Manager in the Financial Advisory Services practice of Coopers & Lybrand, LLP (“C&L”) in San Francisco, concentrating in the areas of business reorganizations, restructurings, workouts and acquisition advisory services.  I have over ten years of public accounting experience working with both public and private entities across a wide array of industries, including the energy, real estate, construction, retail and distribution, and manufacturing sectors.
Q.	Please describe your relationship to the California Independent System Operator Corporation (“ISO”) and the California Power Exchange Corporation (“PX”).
A.	C&L was retained by the ISO and the PX to, among other things, provide accounting and financial advisory services related to the organizations’ filings before this Commission in Docket Nos. ER98-211-000 and ER98-210-000, respectively.  I have been the engagement manager at C&L responsible for providing such services to the ISO.  I also worked on the allocation of ongoing operating costs between the PX and the ISO to be incurred under agreements between MCI, the PX and the ISO.
Q.	What is the purpose of your testimony?
A.	The purpose of my testimony is to describe and comment on the reasonableness of the allocation between the ISO and the PX of certain ongoing operating costs included in the Communications Infrastructure Systems and Services Agreement Between the Independent System Operator Restructuring Trust and MCI Telecommunications Corporation (“MCI”), dated February 13, 1997 (the “ISO/MCI Agreement”) to be incurred by the organizations after the commencement of commercial operations.  
Q.	ARE YOU DESCRIBING ANY OF THE MCI START UP AND DEVELOPMENT COSTS?
A.	No.  The prepared testimonies of Philip R. Leiber, Ex. PI-1, and Lynn M. Miller, Ex. P-6 (LMM-1), discuss the treatment and allocation of the start-up and development costs related to this contract.  My testimony only covers the ongoing operating costs related to the MCI agreements.
Q.	Do the ISO and the PX each have separate contracts with MCI to provide telecommunications services to the respective entities?
A.	Yes.  Under both the ISO/MCI Agreement and the Communications Infrastructure Systems and Services Agreement Between the Western Power Exchange Restructuring Trust and MCI, dated February 13, 1997 (the “PX/MCI Agreement”), MCI has agreed to provide certain telecommunication services to the ISO and the PX, respectively. 
Q.	Please describe the services to be provided exclusively to the ISO after the commencement of commercial operations under the ISO/MCI Agreement?
A.	Under the ISO/MCI Agreement, MCI will provide the ISO with (1) wide area network access services (i.e., access to statewide data transport, including data transport between the ISO’s primary and secondary facilities and grid operations control centers), (2) data equipment, facilities wiring and related operations, maintenance and support services, and (3) telephone and voice equipment and related operations, maintenance and support services.  The approximate annual costs of such services are $961,000 for wide area network access services, $13,300,000 for data equipment and services, and $750,000 for voice equipment and services.
Q.	Please describe the services to be provided exclusively to the PX after the commencement of commercial operations under the PX/MCI Agreement?
A.	Under the PX/MCI Agreement, MCI will provide the PX with (1) wide area network access services (i.e., access to statewide data transport, including data transport between the PX’s primary and secondary facilities); (2) data equipment, facilities wiring and related operations, maintenance and support services, and (3) telephone and voice equipment and related operations, maintenance and support services.  The approximate annual costs of such services are $1,076,000 for wide area network access services, $700,000 for data equipment and services, and $80,000 for voice equipment and services.

Q.	Are there other services that MCI will provide to the ISO and the PX after the commencement of operations under either the ISO/MCI Agreement or the PX/MCI Agreement?
A.	Yes.  Under the ISO/MCI Agreement, MCI also will provide wide area network services to connect the ISO, the PX, Communication Subscribers (“CSs”), and the three Area Control Centers (“ACCs”), including Pacific Gas & Electric (“PG & E”), Southern California Edison (“SCE”), and San Diego Gas & Electric (“SDG&E”).  Such services, referred to as “Backbone Services” and “Shared Network Services” under the ISO/MCI Agreement, will allow intranet communications among users of the system backbone (i.e., the data transport infrastructure) and provide the necessary network support services (i.e., network management services).  These services, while included only within the ISO/MCI agreement, benefit all entities that share data or communicate through the wide area network related to power transmission and market activity, including the PX.
Q.	What are the approximate annual costs of the Backbone Services and Shared Network Services included in the ISO/MCI Agreement?
A.	Under the ISO/MCI agreement, the approximate annual cost of the Backbone Services is $11,170,000 and the approximate annual cost of the Shared Network Services is $4,000,000.

Q.	Were the costs of the Backbone Services and Shared Network Services allocated to the entities that benefit from the services to be provided?
A.	Yes.  The costs of the Backbone Services and Shared Network Services are allocated to the ISO (including the ACCs), the PX and the CSs based upon each entity’s specific design capacity requirements.
Q.	Why are the costs of these services attributable to entities other than the ISO?
A.	As explained previously, Backbone Services provide the data transport infrastructure that facilitates participation in the deregulated energy market and Shared Network Services provide the management and support of such infrastructure.  The Backbone and Shared Network Services were included in the ISO/MCI Agreement because the contracting parties wanted a common entity to administer and be financially responsible for such services, and the ISO was perceived to be a long-lived, regulated entity that met these criteria.
Q.	What ARE the design capacity requirements for each of the aforementioned types of system users?
A.	The design capacity requirements and relative percentages for each of the aforementioned types of system users are as follows:
	ISO			135.0 Mbps		20.38%
ACCs			136.5 Mbps		20.60%
CSs			256.0 Mbps		38.64%
		Subtotal	527.5 Mbps		79.62%

PX			135.0 Mbps		20.38%
Total		662.5 Mbps	          100.00%

Q.	How were these design capacity requirements determined?
A.	The design capacity requirements were determined by the Communications Infrastructure team of the WEPEX Steering Committee and its retained consultants.  The prepared testimony of Mr. Bill Boswell discusses the development of and design specifications included in the ISO/MCI Agreement.
Q.	Based upon these design capacity requirements, how were the estimated annual costs for the Backbone Services and Shared Network Services allocated to the types of system users?
A.	The estimated annual costs of the Backbone Services and Shared Network Services under the ISO/MCI agreement, the aggregate amount of which is $15,170,000, were allocated to the types of system users as follows:
	ISO			$ 3,091,646			20.38%
ACCs			$ 3,125,020			20.60%
CSs			$ 5,861,688			38.64%
Subtotal         $12,078,354			79.62%

PX			$ 3,091,646			20.38%
Total	           $15,170,000		          100.00%

Q.	Do you believe that it is reasonable to allocate the estimated annual costs of Backbone Services and Shared Network Services under the ISO/MCI agreement on the basis of design capacity requirements of the system users?
A.	Yes.  The costs of Backbone Services and Shared Network Services under the ISO/MCI agreement are fixed amounts based upon the design capacity requirements of the system users and do not vary by usage.  Accordingly, it is reasonable to allocate the costs of such services on the basis of the design specifications attributable to the various users of the system included in the ISO/MCI agreement (i.e., using the design capacity requirements for the users of the system).
Q.	Why is the ISO bearing the costs of the Backbone Services and Shared Network Services attributable to the ACCs AND CSs?
A.	The estimated annual costs of the Backbone Services and Shared Network Services to be borne by the ISO will be $12,078,354.  Such amount includes the costs of the Backbone Services and Shared Network Services attributable to the ISO, ACCs and CSs.  The Backbone Services and Shared Network Services attributable to the ACCs enable the ISO to manage grid operations within the transmission areas under its control.  Accordingly, the costs associated with such services should be borne by the ISO as these are necessary for it to discharge its responsibilities as the independent system operator.  The Backbone Services and Shared Network Services attributable to the CSs provide the telecommunications framework to facilitate market transactions.  At the outset of commercial operations, the ISO will initially bear the costs of such capacity.  However, as CSs begin to participate in market activities, they will assume the costs of their respective capacity.  It is my understanding that the costs initially borne by the ISO and subsequently defrayed to CSs will be recovered as revenue credits against the ISO’s cost of service.

Q.	HOW DOES THE ALLOCATION OF THE SHARED NETWORK AND BACKBONE SERVICES BETWEEN THE ISO AND PX COMPARE WITH WHAT WAS FILED BY THE ISO AND PX ON OCTOBER 17, 1997?
A.	In Ex. LMM-3, the percentage allocated to the PX for shared network and backbone services (described in LMM-3 as Bandwidth and WAN Infrastructure) was 11.9%.  As I stated above, the percentage allocable to the PX for those services should be 20.38%.  
Q.	WHY DID THE ALLOCATION PERCENTAGE CHANGE? 
A.	The percentage changed because the network capacity allocable to system users included in the calculation underlying the October 17, 1997 filing was incorrect. 
Q.	WHAT IS THE EFFECT OF THIS CHANGE ON THE COSTS ALLOCABLE TO THE ISO AND THE PX? 
A.	The effect of this change was to increase the costs allocable to the PX by approximately $1.3 million annually and decrease the cost initially borne by the ISO by approximately $1.3 million. 
Q.	Does this conclude your testimony?
A.	Yes.