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Home My WebLink About20040416Volume XIII Part I.pdfORIGINAL BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION IN THE MATTER OF THE APPLICATION OF IDAHO POWER COMPANY FOR AUTHORITY TO INCREASE ITS INTERIM AND BASE RATES AND CHARGES FOR ELECTRIC SERVICE. ) CASE NO.IPC-O3- Idaho Public Utilities Commission Office of the SecretaryRECEIVED , APR 1 5 2004 Boise, Idaho BEFORE COMMISSIONER MARSHA SMITH (Presiding) COMMISSIONER PAUL KJELLANDER COMMISSIONER DENNIS HANSEN PLACE:Commission Hearing Room 472 West Washington Boise, Idaho DATE:April 1, 2004 VOLUME XIII - Pages 2040 - 2417 CSB. REpORTING Constance S.Bucy, CSR No. 187 17688 Allendale Road * Wilder, Idaho 83676 (208) 890-5198 *(208) 337-4807 Email csb~spro.net For the Staff:Lisa Nordstrom, Esq. and Weldon Stutzman, Esq. Deputy Attorney Generals 472 West Washington Bo is e , Idaho 8 3 72 0 0 Barton L. Kline, Esq. and Monica B. Moen, Esq. Idaho Power Company Post Office Box 70 Boise, Idaho 83707-0070 RICHARDSON & 0 I LEARY by Peter J. Richardson, Esq. Post Office Box 1849Eagle, Idaho 83616 RACINE, OLSEN , NYE , BUDGE & BAI LEY by Randall C. Budge, Esq. Post Office Box 1391 pocatello , Idaho 83204-1391 Lawrence A. Gollomp, Esq. Assistant General Counsel U. S. Department of Energy 1000 Independence Ave., SW Washington , DC 20585 McDEVITT & MILLER by Dean J. Miller, Esq. Post Office Box 2564Boise, Idaho 83701 William M. Eddie Advocates for the West Post Office Box 1612Boise, Idaho 83701 GIVENS PURSLEY LLP by Conley E. Ward, Esq. Post Office Box 2720 Boise, Idaho 83701-2720 For Idaho Power Company: For Industrial Customers of Idaho Power: For Idaho Irrigation Pumpers Association: For The United States Department of Energy: For United Water Idaho,Inc: For NW Energy Coalition: For Micron Technology, Inc. : CSB REPORTING Wilder , Idaho 83676 APPEARANCES :""'=:" ~",~"m..~, ""'..'"..,.. ," "'" "'" """"'~,,:'::::::::: ::i' ::::"':::~::~, ::::~:;::;r~'"::' '::::: .':.'::7:JW:i'::"'.:~" ::':~' Y'; (?".'~,~:;"'~:..~::,::::' :f:~:F:~:::~~;:;L PAGE 2042 2044 2065 2067 2080 2082 2084 2103 2105 2109 2114 2131 2136 2139 2140 2143 2148 2151 2155 2157 2160 2184 2186 2201 2204 2206 2209 2212 2249 2251 2261 2263 2271 2274 WITNESS EXAMINATION BY Kevin Higgins (Publ ic) Mr. Boehm (Direct) Prefiled Direct Testimony Mr. Kl ine (Cross) Prefiled Rebuttal Testimony Mr. Kline (Cross-Cont Teri Ottens (CAPAI) Mr. Purdy (Direct) Prefiled Direct Testimony Ms. Nordstrom (Cross) Ms. Moen (Cross) Ken Robinette (CAPAI) Mr. Purdy (Direct) Prefiled Direct Testimony Ms. Nordstrom (Cross) Ms. Moen (Cross) Commissloner Hansen Commissioner Kj ellanderMr. Purdy (Redirect) Clyde Dailey (AARP) Mr. Purdy (Redirect) Prefiled Direct Testimony Ms. Moen (Cross) Nancy Hirsh (NWEC) Mr. Eddie (Direct) Prefiled Direct Testimony Mr. Eddie (Direct -Cont I d) Prefiled Rebuttal Testimony Mr. Eddie (Direct -Cont Commissioner Kj ellanderCommissioner Smith Dennis Goins (DOE) Mr. Gollomp (Direct) Prefiled Direct Testimony Mr. Gollomp (Direct -Cont I Prefiled Rebuttal Testimony Mr. Ward (Cross)Mr. Richardson (Cross) Mr. Kline (Cross) Commissioner Smith CSB REPORTING Wilder , Idaho 83676 INDEX I N D E X (Continued) PAGE 2279 2281 2292 2298 2300 2303 2306 2378 2400 2401 2402 2405 2411 WITNESS EXAMINATION BY Jeremiah Healy (United Water) Mr. Miller (Direct) Prefiled Rebuttal Testimony Mr. Kline (Cross-Reb) Mr. Miller (Redirect) Commissioner Hansen Thomas M. Power (AARP) Mr. Purdy (Direct) Prefiled Testimony Mr. Budge (Cross) Mr. Stutzman (Cross)Mr. Eddie (Cross) Mr. Kline (Cross) Commissioner Smith Mr. Purdy (Redirect) CSB REPORTING Wilder , Idaho 83676 INDEX PAGE Premarked Admi t ted 2278 Premarked Admitted 2278 Premarked Admi t ted 2278 Premarked Admitted 2278 PremarkedAdmitted 2278 Premarked Premarked Premarked Premarked Admi t ted 2148 Premarked Admitted 2148 Premarked Admi t ted 2148 NUMBER DESCRIPTION FOR THE UNITED STATES DEPARTMENT OF ENERGY: 401. Allocation Factors by Methodology 402. IPC Present Rates - Proformed Normal i zed 403. FEA Proposed Rates - First Pass Revenue Allocation 404. Annual Load Factors Using Coincident Peaks 12 Months Ending Dec. 31 , 2003 405. Residential vs Irrigation Peaks FOR NORTHWEST ENERGY COALITION: 605. Letter from Paul Curl , WUTC, to Julian Ajello, California PUC dated June 11 , 1992 606. Charging for Distribution UtilityServices: Issues in Rate Design 607. Puget Sound Energy, Schedule 7 Residential Service FOR COMMUNITY ACTION PARTNERSHIP & AARP: 801. Curriculum Vitae of Teri L. Ottens 802. 100 Percent , 110 Percent, etc., ofthe 2003 HHS Poverty Guidelines 803. Calculation of 61 000 Households at or Below 150% of Poverty Level CSB REPORTING Wilder , Idaho 83676 EXHIBITS E X H I B T S (Continued) NUMBER DESCRIPTION PAGE (Continued) Premarked Admitted 2148 Premarked Admi t t ed 2148 Premarked Admitted 2148 Premar ked Admitted 2148 PremarkedAdmitted 2148 Premarked Premarked Premarked Premarked FOR COMMUNITY ACTION PARTNERSHIP & AARP: 804. 2002 LIHEAP Figures - Idaho 805. On The Brink , The Home Energy Affordability Gap in Idaho 806. Idaho Power LIWA Statistics April 1 , 1989 to December 31 , 1994 807. Meetings to Discuss Contract Design & Changes with Idaho Power and Community Action Agencies 808. EA-4 Energy Audit Approved by U. S. Department of Energy Utilized by Community Action Agencies FOR KROGER COMPANY: 901. Curriculum Vitae of Kevin C. Higgins 902. Example of Three-Year Phase-Toward Cost -of - Service Rates 903. Rate 9 Primary Discount Under Current & Staff Proposed Rate 904. Summary of Schedule 9 Rate Spread Using IPUC Staff 1 s Proposed RevenueRequirement CSB REPORTING Wilder , Idaho 83676 EXHIBITS BOISE, IDAHO, THURSDAY , APRIL 1 2004,9:10 A. COMMISSIONER SMITH:Good morning, ladies and gentlemen.ThisWe I 11 be back on the record. morning we I re going to take up the witnesses of the intervenors that we have , and I see that Mr. Healy is here , but Mr. Kline is not.Do you have any time constraints today, Mr. Healy? MR. HEALY:Not really, no. COMMISSIONER SMITH:It had been our intention to start with Mr. Purdy s witnesses , but we find that the Kroger Company witness is here and does have a time constraint, so we'll begin with him.And would you please identify yourself for the court reporter? MR. BOEHM:Yes, Your Honor, my name is David Boehm.I I m with the law firm of Boehm , Kursz & Lowry, Suite 2110, 36 East 7th Street, Cincinnati. here on behalf of Kroger doing business as Fred Meyer. And did we receive aCOMMISSIONER SMITH: motion for you to be admitted? MR. BOEHM:Yes, Your Honor. COMMISSIONER SMITH:And have you taken care of whatever you need to with the Bar Association? CSB REPORTING Wilder, Idaho 2040 COLLOQUY 83676 MR. BOEHM:ve met wi th the Bar Association and my understanding everything is okay over there. COMMISSIONER SMITH:And just to help me out, would you please spell your last name? MR. BOEHM:Yes, Your Honor.h-m. COMMISSIONER SMITH: Thank you , Mr. Boehm. MR. BOEHM:Boehm, it I S pronounced Boehm. COMMISSIONER SMITH:Thank you.We I pretty informal here, so you don't need to stand up.And you can just call me Chairman , or Commissioner, don' need to call me Your Honor. COMMISSIONER KJELLANDER:Genuflection is okay. MR. BOEHM:I certainly appreciate the Commission's indulgence in this matter.m sorry if I didn't communicate clearly with respect to the restraint on my witness I s time.Thank you very much. COMMISSIONER SMITH:We'd be happy to call him right now. MR. BOEHM:Yes, thank you. CSB REPORTING Wilder , Idaho 2041 COLLOQUY 83676 KEVIN C. HIGGINS, produced as a witness at the instance of the Kroger Company, having been first duly sworn , was examined and testified as follows: BY MR. BOEHM: DIRECT EXAMINATION Mr. Higgins , would you state your name and spell your name for the court reporter? CSB REPORTING Wilder , Idaho My name is Kevin C. Higgins, Mr. Higgins, are you appearing here today on behalf of the Kroger Company doing business as Fred Meyer and Smi th ' s? Yes, I am. And do you have in front of you, Mr. Higgins, two documents.One entitled direct testimony of Kevin C. Higgins and the other entitled rebuttal testimony of Kevin C. Higgins? Yes, I do. And did you cause these documents to be prepared under your direction and control? Yes, I did. I f I were to - - are the answers contained n-s. 2042 HIGGINS (Di) Kroger Company83676 therein true and correct to the best of your knowledge and belief? Yes. Mr. Higgins, if I were to ask you the questions contained therein would your answers be the same? Yes, they would. MR. BOEHM:Your Honor, I'd ask to - - I I d like to introduce, I guess we've called it Kroger Exhibit No., direct testimony. COMMISSIONER SMITH:No, it I S actually not. Mr. Boehm , I I d be happy to grant your motion to spread Mr. Higgins' testimony across the record as if read , and identify for the record Exhibits 901 through 904. (The following prefiled direct testimony of Mr. Kevin Higgins is spread upon the record. CSB REPORTING Wilder , Idaho 2043 HIGGINS (Di) Kroger Company83676 In troduc tion Please state your name and business address. Kevin C. Higgins, 39 Market Street, Suite 200, Salt Lake City, Utah, 84101. By whom are you employed and in what capacity? I am a Principal in the firm of Energy Strategies, LLC.Energy Strategies is a private consulting firm specializing in economic and policy analysis applicable to energy production, transportation, and consumption. On whose behalf are you testifying in this proceeding? My testimony is being sponsored by The Kroger ("Kroger"), doing business as Fred Meyer andCo. , Smith's. Kroger is one of the largest grocers in the United States. Kroger has over 25 accounts served by Idaho Power , which together consume over 40 million kwh per year. Please describe your professional experience and qualifications. My academic background is in economics , and I have completed all coursework and field examinations toward a Ph.D. in Economics at the University of Utah. In addition, I have served on the adjunct faculties of both the University of Utah and Westminster College, where 2044 taught undergraduate and graduate courses in economics from 1981 to 1995. I joined Energy Strategies in 1995, where I assist private and public sector clients in the areas of energy-related 2045 economic and policy analysis,including evaluation of electric and gas utility rate matters. Prior to oinlng Energy Strategies,held policy positions in state and local government.From 1983 to 1990, I was economist, then assistant director , for the Utah Energy Office, where I helped develop and implement state energy policy.From 1991 to 1994 , I was chief of staff to the chairman of the Salt Lake County Commission, where I was responsible for development and implementation of a broad spectrum of public policy at the local government level. Have you testified before utility regulatory commissions in other states? Yes. I have testified numerous times on the subj ect of electric utility rates before state utility regulators in Arizona, Colorado , Georgia, Indiana, Michigan , Nevada, New York , Ohio, Oregon , South Carolina, Utah, Washington , and Wyoming. A more detailed description of my qualifications is contained in Kroger Exhibit No. 901, attached to this testimony. Overview and conclusions What is the purpose of your testimony in this proceeding? 2046 I have been asked to evaluate the merits of the rate spread and rate design proposed in Idaho Power I general rate case filing, with particular emphasis on Schedule 9 impacts. I also have been asked to recommend any adj ustments to the Company s proposals that might be necessary to ensure results that are just and reasonable. Absence of comment on my part regarding a particular issue does not 2047 signify support (or opposition) toward the Company' filing with respect to the non-discussed issue. What conclusions have you reached in your analysis of Idaho Power s rate spread and rate design proposals? (1) With respect to rate spread, Idaho Power proposes a significant subsidy to the Irrigation class. According to the Company s cost-of-service analysis, it would require a 67 percent increase in Irrigation base rates for this class to fully recover its costs if the Company's requested overall base-rate increase of 18 percent is approved. To mitigate the impact of the base-rate increase for this class, the Company proposes to cap the Irrigation increase at 25 percent, with the difference spread to the other rate classes.I agree that mitigating the impact of a large rate increase for this class is reasonable, but propose some modifications to the Company s proposal that:(1) would apply in the event the Company s proposed rate increase is reduced by the Commission, and (2) provide for an additional phase-in toward cost-of-service rates in subsequent years. (2 )With respect to rate design, I generally agree with Idaho Power's approach to weighting any rate increases relatively more heavily on the demand charge, as opposed to the energy charge, for those rate schedules 2048 with demand meters. This approach reflects the composition of the Company's underlying costs , and thus is consistent with cost causation. (3 )Idaho Power proposes to make time-of-use rates mandatory for Schedule 19 in order to send improved price signals. The Company also has an optional time-of-use rate for Irrigation service that is in place on a pilot basis.Yet there are no 2049 time-of -use options available for Schedule 9, which consumes 26 percent of the retail energy on the Company I system. I recommend adopting a voluntary time-of-use option for Schedule 9 that offers peak , mid-peak, and off-peak energy prices that properly reflect time-of-use cost differences. At a minimum, such a rate should be made available to Schedule 9 customers on a pilot proj ect basis. Irrigation subsidy Please describe Idaho Power's proposal for subsidizing Irrigation rates. According to the Company's cost-of-service analysis, it would require a 67 percent increase in Irrigation base rates for this class to fully recover its costs if the Company s requested overall base-rate increase of 18 percent is approved.To mitigate the rate impact on this class, the Company proposes to cap the Irrigation base-rate increase at 25 percent, with the difference spread to the other rate classes, as shown in Idaho Power Exhibit No. 61. What is your assessment of the Company s proposal to mitigate the impact of the requested rate increase on Irrigation customers? Capping the base rate increase at 25 percent 2050 for any customer class for the purpose of limiting rate shock is reasonable. However , I think it is also important to adopt additional guidelines for spreading rates in the event that the Company I s proposed overall rate increase is reduced by the Commission. What approach to rate mitigation do you recommend if the Company's proposed overall rate increase is reduced by the Commission? 1 Pre-filed direct testimony of John R. Gale, p. 11, lines 2- Idaho Power Exhibit No. 41 , p. 1 , line 233. Also 2051 If the Company's proposed rate increase is reduced by the Commission, I recommend that the base-rate increase to Irrigation should be capped at 25 percent, or twice the system average increase, whichever is less. This would retain the 25 percent cap proposed by the Company, but would also apply a sliding scale to the Irrigation increase that would lessen the amount of the subsidy to the extent the rate increase grew smaller. So, for example, if the Commission approved an overall base-rate increase of 10 percent, the base-rate increase to Irrigation would be capped at 20 percent. please describe the phase-in toward cost-of-service rates that you are also recommending. While it is reasonable to lessen the initial impact of moving Irrigation rates toward cost-of-service, I think it is also reasonable to adopt a multi-year phase-in toward cost-of-service rates to relieve other classes of the subsidy costs over time.This could be accomplished by setting a cost-of-service target and taking incremental steps toward that target over several years. Specifically, I recommend adopting a rate plan that moves Irrigation base-rates one-third of the way to full cost-of-service rates in three steps over three years, measured from the initial rates approved in this proceeding. The revenue from the annual adjustments would 2052 be used to alleviate the subsidy paid by the other rate classes by reducing their rates on an equal percentage basis each of the three years. Can you provide an example of how this would work? Yes. The maximum phase-in adjustment would occur if the Company's proposed base-rate increase of 18 percent is adopted. This case is illustrated in 2053 Kroger Exhibit No. 902. In this case, Irrigation customers would require a 67 percent base-rate increase to move to cost-of-service rates, but would only receive a 25 percent initial increase. Movement to full cost-of-service rates would require another 42 percent increase , one-third of which is 14 percent. The latter would represent the phase- in target, which would be reached in three installments over three years of 4. percent per year. The revenues from the 4.7 percent annual phase- would be used to reduce the subsidy from other classes, amounting to a .67 percent annual base-rate decrease for those classes each year , for a cumulative base-rate reduct ion of 2 percent. Why should a phase-in be adopted instead of simply making appropriate adjustments in future rate cases? There is no assurance that a rate case will be filed in the next three years. Indeed, it has been about ten years since the last Idaho Power rate case. Locking in a significant subsidy for an indefinite period of time is not reasonable to the customer classes providing the subsidy. The phase- in approach accomplishes the worthwhile goal of blunting the initial impact on an under-recovering class, while continuing to move toward cost-of-service rates over time. 2054 If a rate case is filed during the phase-in period, then any rates approved from that case should supercede the phase-in rates, as of the rate-effective period associated with the new case. 2055 Rate design: demand vs. energy What is your assessment of the Company I s proposal to weight any rate increases relatively more heavily on the demand charge, as opposed to the energy charge, for those rate schedules with demand meters? I agree with the Company s basic approach in this regard. Weighting any increase toward the demand charge would tend to reflect the composition of the Company's underlying costs, as shown in Idaho Power Exhibit No. 42 , and discussed in the pre-filed direct testimony of Maggie Brilz. For thi s reason , if there is an increase, weighting it toward the demand charge is preferable to weighting it toward the energy charge. Time-of -use rates for Schedule 9 What is your assessment of the Company I s approach to time-of-use rates? Idaho Power is proposing mandatory time-of-use rates for Schedule 19 in order to send improved price signals to customers. The Company also has an optional time-of -use rate for Irrigation service that is in place on a pilot basis.However, the Company neither has, nor proposes , any time-of -use options for Schedule 9 customers, who represent 26 percent of the retail energy consumed on the Idaho Power system. 2056 In my opinion, it would be beneficial for time-of -use rates to be available to Schedule 9 customers, so that these customers could better respond to price 2Pre-filed direct testimony of Maggie Brilz, p. 50, lines 18-25. 3Derived from Idaho Power Exhibit No. 43, p.l, col. 2057 signals, as well as pay rates that are more closely aligned with the costs they cause. Why is it important that improved price signals be available to Schedule 9 customers? Energy costs vary across the hours of the day, with the most expensive hours typically occurring from the late morning to early evening. Designing the energy price to end-use customers to reflect these variations in energy costs sends the proper signal to customers regarding the relative cost to operate the system during the peak, mid-peak, and off-peak hours. Customers would then use this pricing information to alter their discretionary patterns of usage, increasing efficiency and lowering the overall cost of energy to the system. As Schedule 9 customers represent over a quarter of the retail energy consumption on the Idaho Power system the failure to offer time-of -use rates to them deprives this class of customers of the opportunity to save money by responding to appropriate price signals. It also deprives the system of the benefit of a more efficient load pattern that would result from this responsive behavior. Are there other reasons besides economic efficiency to make time-of-use rates available to Schedule 9 customers? 2058 Yes. Basic fairness dictates that customers whose patterns of energy consumption is less expensive to serve than the average in their class should see that lower cost reflected in their bills. Idaho Power is moving in this direction for Schedule 19. The Company should also take steps in this direction for Schedule 2059 Are time-of-use rates widely available for customers of comparable size to Schedule 9 in other western states? Yes. Time-of-use rates are widely available throughout the west for customers of comparable size to Schedule 9. Table KCH-1 below is a partial list of other western utili ties that offer time-of -use rates to customers with billing demands of 1000 kw of less, comparable to Schedule Table KCH- Western Utilities with Time-of-Use Rates for Customers with Billing Demands of 1000 kw or less State Utility Type Ari zona Arizona Arizona Arizona Public Service Sal t River proj ect Tucson Electric Power Pilot * Optional Optional CaliforniaCaliforniaCaliforniaCaliforniaCaliforniaCaliforniaCaliforniaCalifornia California Optional 0:::500 kw Mandatory ~500 kwOptional 0:::500 kw Mandatory ~500 kw Optional 0:::500 kw Mandatory ~500 kw Optional 0:::500 kw Mandatory ~500 kw Manda tory LADWP LADWP PG&E PG&E SDG&E SDG&E So. Cal.So. Cal. SMUD Edi son Edison Colorado Public Service Colorado Optional Nevada Sierra Pacific Optional Oregon Oregon PacifiCorp Portland General Optional Optional Utah PacifiCorp Optional * Permanent Tau rate proposed in pending rate case 2060 In Idaho, PacifiCorp offers an optional time-of -use rate, but the rate design only differentiates between on-peak and off-peak demand - not energy. As such, it is not a design I am recommending here. How should a time-of -use rate for Schedule 9 be implemented? I recognize that with such a large class it is impractical to mandate an immediate change to time-of -use rates. Therefore , Schedule 9 time-of -use rates should be made available for the upcoming rate-effective period on a voluntary basis. At a minimum , such a rate should be offered as part of a pilot program, which could be used to gather information on the price responsiveness and benefits derivable from expanding time-of-use rates more broadly to Schedule 9 customers. How should such a rate be designed? I recommend adopting a voluntary time-of-use option for Schedule 9 that offers peak , mid-peak, and off -peak energy prices that properly reflect time-of -use cost differences. I do not believe it is necessary to add the complexity of the two-tiered demand charge that the Company is proposing for Schedule 19. Instead of adopting a voluntary time-of-use rate now , should this issue simply be studied and adopted at some later time? 2061 No. A general rate case is the best time to adopt a new time-of-use rate, as it allows for the full consideration of the revenue effects that accompany the creation of a new rate schedule.In addition , Idaho Power has noted its increased gas price risk in recent years associated with purchased power , with the attendant 2062 11a higher energy costs. It is important to take appropriate rate design steps now, rather than delaying. If it is another ten years until the next Idaho Power rate case, and this issue is simply deferred for later action, the opportunity to send efficient price signals for Schedule 9 customers could be delayed a decade. What recommendation do you make to the Commission on the issue? The Commission should order Idaho Power , as part of any compliance filing in this case, to file a voluntary time-of-use rate for Schedule 9 customers that provides peak, mid-peak , and off-peak energy prices that properly reflect time-of -use cost differences. Does this conclude your direct testimony? Yes, it does. 4See, for example, pre-filed direct testimony of J. LaMont Keen p. 5, line 21 - p. 6, line 20. 2063 open hearing. (The following proceedings were had in MR. BOEHM:Madame Chairman , I'd present Mr. Higgins for cross-examination. Thank you, Mr. Boehm. Do you have questions Mr. Budge? 2064 83676 MR. BUDGE:, I do not. Mr. Eddie. MR. EDDIE:, thank you. Mr. Purdy. Mr. Gollomp. MR . GOLLOMP:No questions, Your Honor. Mr. Ward. MR. WARD:No questions, thank you. Mr. Miller. MR. MILLER:No questions. Mr. Ri chardson . MR. RICHARDSON:No questions, Are there questions MS. NORDSTROM:None from Staff. How about f rom Idaho Madame Chairman. from the Staff? Power? CSB REPORTING Wilder, Idaho COMMISSIONER SMITH: COMMISSIONER SMITH: COMMISSIONER SMITH: MR. PURDY:I do not. COMMISSIONER SMITH: COMMISSIONER SMITH: COMMISSIONER SMITH: COMMISSIONER SMITH: COMMISSIONER SMITH: COMMISSIONER SMITH: HIGGINS Kroger Company MR. KLINE:Well, I hate to be the last hold-out, but I do have just a couple and they re very short. CROSS-EXAMINATION Mr. Higgins, in your Exhibit 901 you list numerous states where you I ve testified as an expert CSB REPORTING Wilder, Idaho COMMI S S lONER SMI TH :Excuse me, Mr. Kline, BY MR. KLINE: I think there's been an oversight.He also had rebuttal testimony. MR. BOEHM:Yes. wi tness . done that, too. COMMISSIONER SMITH:And we should have MR. BOEHM:m sorry. COMMISSIONER SMITH:And I neglected to. MR. BOEHM:I I m sorry, I thought that direct testimony was 901 and rebuttal was 904.Am I mistaken? COMMISSIONER SMITH:Actual testimony doesn't have exhibit numbers. MR. BOEHM:, okay. COMMISSIONER SMITH:So we will also 2065 HIGGINS (X) Kroger Company83676 spread the prefiled rebuttal testimony if Mr. Higgins across the record as if read. (The following prefiled rebuttal testimony of Mr. Kevin Higgins is spread upon the record. CSB REPORTING Wilder , Idaho HIGGINS (X) Kroger Company 2066 83676 REBUTTAL TESTIMONY OF KEVIN C. HIGGINS In troduc tion Q. Please state your name and business address. Kevin C. Higgins, 39 Market Street, Suite 200, Salt Lake City, Utah , 84101. Q. By whom are you employed and in what capacity? I am a Principal in the firm of Energy Strategies, LLC. Q. On whose behalf are you testifying in this proceeding? My testimony is being sponsored by The Kroger Co., Kroger ), doing business as Fred Meyer and Smith' Q. Are you the same Kevin C. Higgins who has previously filed direct testimony in this proceeding? Yes, I am. Q. What is the purpose of your rebuttal testimony? I am recommending a modification to Staff's rate spread proposal for Rate Q. What recommendation do you make in your rebuttal testimony? Staff witness Dave Schunke recommends a 0.13 percent rate reduction for Rate 9-S and a 13.31 percent rate increase for Rates 9-P and 9-T. I point out in my rebuttal testimony that if the Commission adopts this recommended change without modification, the price differential between primary service and secondary 2067 service will all but disappear for Rate 9 customers. In my view , this 2068 would result in an irrational price signal, because all other things equal, primary service is less expensive to serve than secondary service. As an alternative, I suggest that Rates 9-S, 9- and 9-T be combined for rate spread purposes. The same revenue that would be generated from Mr. Schunke ' s overall proposal for Rate 9 can be achieved with a 1. percent increase on all the Rate 9 customers. This approach would retain a rational price differential between Rate 9-S and 9- Ra te spread for Rate 9 Q. What rate spread has Staff proposed for Rate As I stated in the Introduction above, Staff has recommended a 0.13 percent rate reduction for Rate 9- and a 13.31 percent rate increase for Rates 9-P and 9- This proposal is described in the direct testimony of Mr. Schunke . Q. What is the basis of Staff's recommendation? My understanding is that it is based on Staff' cost-of-service analysis, adjusted to incorporate the Irrigation subsidy paid by Rate Q. What comments do you have regarding Staff's rate spread recommendation for Rate I agree with Staff that cost-of-service analysis should be given a very strong weight in determining rate 2069 spread. However, it is also important to have a rational pricing regime within rate schedules. In the case of the relationship between secondary and primary service within a rate schedule (such as between 9-S and 9-P) it is important for prices to indicate that for any given customer, lPre-filed direct testimony of Dave Schunke, p. 3, line 24 - p. 4, line 2. 2070 taking service at primary voltage is less expensive for the utility to serve than taking service at secondary service. Unfortunately, however, Staff's rate spread proposal for Rate 9 would cause the price differential between primary service and secondary service to all but disappear. This result would not only lead to irrational pricing wi thin Rate 9, it would be unfair to customers who invested in the necessary equipment to take primary service based on the current price differential. By making the investment in such equipment themselves, primary service customers allow the utility to conserve capital and slow the growth in distribution system rate base. Q. To what extent does Staff's proposal change the price differential between Rates 9-S and 9- In Kroger Rebut tal Exhibit No. 903 , I calculate the price differential between Rates 9-S and 9-P under current rates and under Staff's proposed rates. The analysis utilizes hypothetical customers of various sizes and load factors. A summary of the results is shown in Table KCH-R1, on the next page. The results show that under current rates, primary service is about 9 to 13 percent less expensive than secondary for any given customer. But under Staff' proposal, this differential is virtually eliminated. In 2071 fact, in many cases, primary service would actually become more expensive than secondary. 2072 Table KCH-Rl 1 Comparison of Rates 9-S and 9-P (Positive % indicates Primary is less expensive than Secondary) Current Primary Discount Staff Proposed Primary DiscountCus tomer 500 kw,45%1. f. 500 60%1. f. 500 75%1. f. 750 45%1. f. 750 60%1. f. 750 75%1. f. 1000 kw,45%1. f. 1000 kw,60%1. f. 1000 75%1. f. 80% 11% 39% 41% 11.20% 12.41% 61% - 0 . 54 84% 87% 11.57% 12.72 % 07% - 0 . 11% 21% 10.10% 11.78% 12.87% Q. But doesn t Staff's analysis indicate that under its proposal, the average price per kwh for Rate 9- customers would be less than Rate 9- Yes. Staff Exhibit No. 127 shows that under its proposal, the average price per kwh for Rate 9 - S would be 645 cents per kwh , and the average price per kwh for Rate 9-P would be 3.369 cents per kwh. At first glance, this information might appear to contradict the table above. However, there is no contradiction. The lower average price for Rate 9-P reflects the larger size and higher load factor of the average customer in this group relative to Rate 9-S. These same customers would have lower-than-average rates if they were on secondary service, as well, given their load characteristics. The problem I am pointing out is that under Staff's proposal 2073 for each of these primary customers individually, the primary and secondary rates would become almost indistinguishable, even though for each of these customers , primary service is less expensive to provide. 2074 Q. Why is primary service less expensive to serve than secondary service , all other things equal? Primary service is less expensive to provide than secondary service for two main reasons:(1) Primary service requires fewer utility-provided facilities, as primary customers provide their own transformers, thereby reducing the amount of utility capital expenditures needed to provide distribution service; and (2) primary service incurs fewer line losses to the customers ' meter meaning that for each hundred kilowatt-hours delivered to a customer s meter , the utility needs to generate fewer kilowatt-hours to serve a customer on primary service than on secondary service. On Idaho Power s system , the line loss differential between primary and secondary service is about 3 percent. Q. If primary service is less expensive to serve than secondary, how can a cost -of - service study produce a resul t that leads Staff to propose raising 9 - P so much that the differential between 9-S and 9-P disappears? Cost -of - service analysis allocates system costs to groupings of customers based on a series of allocation factors. Generally, allocation factors are intended to capture information about the pattern of usage of each customer group taken as a whole , such as relative usage during a monthly system p~ak hour. During the test year, 2075 the Rate 9-P group, taken as a whole, exhibited a usage pattern that was allocated a greater increase in cost responsibility relative to current revenues than 2Said Workpapers, pp. 3 - 4 . 2076 Rate 9-S. This was due, in part, to a higher per-unit allocation of production costs. Q. Should this result be the final word on the rate spread between and Rate 9-S and Rate 9- Not in this case. As I stated above, is important to have a rational pricing regime that recognizes that for any given customer, taking service at primary voltage is less expensive for the utility to serve than taking service at secondary service. It is also important to recognize that, theoretically, for any sub-group of Rate 9, a cost-of-service allocation could be performed that would produce results that varied from the results for Rate 9 as a whole. These results would reflect the mix of customers in the sub-group. An important question , then is whether the most appropriate criteria are being used to define the sub-group. For example, it is useful to avoid categorizing customers into relatively small sub-groups of otherwise similarly-situated customers. Smaller groups tend to have less diversity with respect to their coincident peaks and their non-coincident demands. A lack of diversity adversely impacts the per-uni t charges derived for the group from the allocation of peak-related costs. Q. What do you propose to address this problem? 2077 In addition to providing time-of-use price signals which I addressed in my direct testimony, it is important that customers be grouped , for cost-of-service purposes in a manner that minimizes the likelihood of anomalous resul ts. 31 base this conclusion on my review of Idaho Power Exhibit No. 42, pp. 4- which uses a production allocation methodology similar to Staff. 2078 In the case of Rate 9, the customer qualifications to take service under Rates 9-S, Rate 9-, and Rate 9- are identical , except for the voltage level at which service is taken. In addition , Rate 9-S is a much larger group than either 9-P or 9-T. In this situation allocating a demand-related function (such as production) to Rate 9-P separately from the rest of Rate 9 might lead to anomalous results. I recommend that for rate spread purposes , Rates S, 9-P, and 9-T be combined, and that a reasonable, cost-based price differential be retained among them. This price differential would recognize that for any given customer taking service at primary voltage is less expensive for the utility to serve than taking service secondary service. In Kroger Rebuttal Exhibit No. 904 , I apply the same overall revenue requirement to the aggregate of 9-, 9- and 9-T as in Staff's recommendation, but spread it on an equal percentage basis across the entire Rate 9. This resul ts in a 1.16 percent increase on all the Rate 9 customers. This approach would retain a reasonable price differential between Rate 9-S and 9-P. I recommend that this modification to Staff's Rate 9 rate spread be adopted by the Commission. Q. Does this conclude your rebuttal testimony?A. Yes, it does. 2079 open hearing. (The following proceedings were had in COMMISSIONER SMITH:Now , Mr. Kline, we' ready. MR. KLINE:Thank you, Madame Chairman. BY MR. KLINE: CROSS-EXAMINATION (Continued) I was referring to Kroger Exhibit 901 which is an exhibit to your direct testimony in which you CSB REPORTING Wilder , Idaho list numerous states where you I ve testified as an expert Yes. Are you familiar with that exhibit? Yes, I am. Mr. Higgins, do you know if the utilities in any of those states have implemented mandatory time-of-use rates for customers with loads larger than I I d have to go back and look at the list here.Well , in some instances there are mandatory time-of-use rates with which I'm familiar.For example, in Arizona the Salt River Project has mandatory time-of-use rates for larger customers.That is the only wi tness. 1000 kilowatts? 2080 HIGGINS (X) Kroger Company83676 one to my knowledge that has got mandatory time-of -use rates in the states in which I list there. And in your experience in the state of Arizona , if you know, have the large customers been able to accommodate time-of-use rates without major dislocation to their business operations? To my knowledge , yeah.Yes. Thank you. MR. KLINE:That I S all I have. COMMISSIONER SMITH:Were there questions from the Commission. Any redirect? MR. BOEHM:None , Your Honor. COMMISSIONER SMITH:We got you out of here fast.Thank you , Mr. Higgins. THE WITNESS:Thank you. (The witness left the stand. COMMISSIONER SMITH:Mr. Purdy, I think we're ready for your witnesses. MR. PURDY:Thank you, Madame Chair.The Community Action Partnership Association of Idaho will proceed first.And we III call Terry Ottens to the stand. CSB REPORTING Wilder, Idaho 2081 HIGGINS (X) Kroger Company83676 TERI OTTENS, produced as a witness at the instance of the Community Action Partnership, having been first duly sworn , was examined and testified as follows: BY MR.PURDY: name? Ottens? DIRECT EXAMINATION Would you please state and spell your Teri Ottens, T-e-r-i, O-t-t-e-n- And what is your business address, Ms. 600 North Curtis, Suite 175, Boise, Idaho. And you are here representing Community Action Partnership Association of Idaho and not AARP; is CSB REPORTING Wilder, Idaho That's correct. All right.Now, have you previously that correct? prefiled direct testimony in this proceeding? I have. And does that consist of 11 pages of text? It does. And you also have filed Exhibits 801 through 805, is that correct? 2082 OTTENS (Di) CAPAI83676 I have. If I were to ask you the same questions as contained in your prefiled direct testimony today would CSB REPORTING Wilder, Idaho your answers be the same? They would. Do you have any changes or modifications to your direct testimony? No, I do not. All right. MR. PURDY:With that , Madame Chair, I would ask that the direct testimony of Teri Ottens be spread upon the record as if read.And Exhibits 801 through 805 identified. COMMISSIONER SMITH:If there's no objection , it is so ordered. (The following prefiled direct testimony of Ms. Teri Ottens is spread upon the record. 2083 OTTENS (Di) CAPAI83676 Please state your name and business address. My name is Teri Ottens.I am the Executive Director of the Community Action Partnersip Association of Idaho located at 600 North Curtis, Suite 175, Boise Idaho, 83 7 0 6 . On whose behalf are you testifying? The Community Action Partnership Association of Idaho (CAPAI) board of directors asked me to present the views of an expert on, and advocate for, low income customers of Idaho Power Company in this proceeding. This reflects CAPAI' s view that low income people are an important part of Idaho Power I s customer base , and that these customers may be uniquely impacted by the Company' s proposed rate increase. The Community Action Partnership Association of Idaho is an association of Idaho I s six Community Action Partnerships, the Idaho Migrant Council and Canyon County Organization on Aging, Weatherization and Human Services all dedicated to promoting self-sufficiency through removing the causes and conditions of poverty in Idaho' communities. Community Action Partnerships (CAPs) are private, nonprofit organizations that fight poverty.Each CAP has a designated service area and , all Idaho areas combined CAPs serve every county in Idaho.CAPs design programs 2084 DIRECT TESTIMONY OF TERI OTTENS to meet the unique needs of their communi ties , so not every CAP provides all of the following services , but all work with people wi thin their area to promote and support increased self -sufficiency.Programs provided by CAPs include:emploYment preparation and dispatch , education assistance, child care , emergency food , senior independence and support, clothing, home weatherization energy assistance, affordable housing, health care access, and much more. CAPAI is intervening in this rate case to encourage the recognition of the value that low income assistance programs play in helping our seniors, disabled and low-income families to become and to remain self sufficient.In Idaho, these programs have included Weatherization and energy assistance programs.Without assistance from these programs, seniors and low 2085 DIRECT TESTIMONY OF TERI OTTENS income families can experience higher energy costs, pay a higher proportion of their income for energy and subsequently are in greater danger of being forced to be a further drain on the welfare assistance system or even into homelessness. What is your relevant experience to this case before the Commission? The Community Action Partnership Association of Idaho has been involved in low income issues, including energy related issues, since the early 1980' s.Communi ty Action Partnerships have been involved in the distribution of Weatherization and Low Income Home Energy Assistance Program payments for over three decades. As the Executive Director of CAPAI , I am responsible as the statewide administrator of the federal Community Service Block Grant, the Emergency Food Assistance Program, the Idaho Telecommunication Services Assistance Program and working with the six Community Action Partnerships and Canyon County Organization on Aging in the distribution of the Low Income Home Energy Assistance and the Weatherization funds.These and other service programs administered and/or provided by CAPAI and our communi ty action partnerships all deal with the needs of the low income in Idaho.Previously I worked as the Energy Director for the Association Idaho of Cities 2086 DIRECT TESTIMONY OF TERI OTTENS working with 2002 cities and 44 counties to address energy and conservation issues within their jurisdictions.Before that I have worked with several local government entities in Idaho , Wyoming and California dealing with both low income and energy related issues.Attached hereto as Exhibit 801 is a copy of my curriculum vitae. Please summarize your testimony? My testimony will establish: 1 )that the proposed rate increase has significant implications for low- income customers of Idaho Power; 2 )that these low-income customers are at risk of paying too large of a percentage of 2087 DIRECT TESTIMONY OF TERI OTTENS their income for this basic need commodity, exposing them to potential paYment arrears, disconnection of electricity, and even homelessness, and; 3 )that there is a significant number of residential customers that are low income and are in need of assistance in lowering their energy bills through Weatherization and other means. What definition are you using to describe a "low income household" and how many of these households are located within the service area of the affected companies? The State of Idaho uses an income definition to define eligibility for low-income weatherization and energy assistance as 150% of federal poverty guidelines as established by the Federal Office of Management and Budget.Exhibit 802 is a chart of these incomes. According to the Idaho Department of Commerce, 12 % of the State I s population, when using the 2000 Census , falls within federal poverty guidelines and 21% fall within the state guidelines set at 150% of poverty levels.The Idaho 2000 Census shows that those living in poverty are categorized as follows: 8.3% are elderly, 13.8% are children , 35.3% are single mothers , and 8.3% are all other families and, 34% other. In response to a CAPAI production request, Idaho 2088 DIRECT TESTIMONY OF TERI OTTENS Power's stated that there were 336 204 residential customers (households) served in 2002.Of the residential customers in Idaho Power service area, based on census figures, it is estimated that almost 61 000 households, or 18% of customers in Idaho Power I s service area , meet 150% of federal poverty guidelines.Exhibi t No. 803 explains how these calculations were derived. According to LIHEAP (Department of Health and Welfare) 2002 statistics 91,923 households were eligible in Idaho for assistance and 29,867 households (74,693 people) statewide received assistance.In the Idaho Power service area approximately 18,000 households actually received LIHEAP assistance (Exhibit 804 showing Health and Welfare figures). These LIHEAP recipients represent approximately 29.5% of all citizens eligible for LIHEAP wi thin the Idaho Power service area (18,000 of the approximately 61 000 households that are income 2089 DIRECT TESTIMONY OF TERI OTTENS eligible for LIHEAP funding) .Of these in 2003, according to Idaho Power I s discovery answers, 9,592 were Idaho Power customers. According to the Department of Energy the affordability burden" for total home energy is set nationwide at 6% of gross household income and the burden for home heating is set at 2% of gross household income. The affordability gap is determined by subtracting affordable energy bills (set at 6%) from actual home energy bills. According to the Idaho LIHEAP data provided by the Idaho Department of Health and Welfare, 7.6% of all LIHEAP program participants fell into the "High" energy burden category in 2003.High energy burden is defined by the Department as paying 11% or more of their annual income for utilities (medium burden is determined at 5 to 10% of annual income and low is considered at less than 5% .The Department does not keep statistics for medium or low burdens) These figures also support a recent study conducted nationwide by Fisher, Sheehan & Colton, a public finance and general economics consulting firm , the following statistics apply to Idaho: 2090 DIRECT TESTIMONY OF TERI OTTENS Percentage of Percentage of Number of Income Based Income Paid on Households on Federal Poverty Home Heat ing in Leve 1 s 2002 50% of Poverty Level 45%000 50 to 75% of Poverty 18%000 Leve 1 2091 DIRECT TESTIMONY OF TERI OTTENS 75 to 100% of Poverty 16% Leve 1 100 to 125% of 11% Poverty Level 125 to 150% of Poverty Level Total for 75 to 150% of Poverty Level is 19,000 households The relevant portion of the foregoing study is included as Exhibit 805. There is currently a gap of $96 000,000 between what Idahoans could afford to pay (based on the federal standards of no more than 6% of their annual income) for energy in 2002 and what they actually paid.This gap is expected to increase to $113 million in 2003 based on rising energy costs.Currently the LIHEAP program sends only $10.5 million (for energy assistance, Weatherization and administration) to Idaho providing an average benefit $202 towards closing this gap. In 2003 Project Share contributed $187 616 to 1 465 Idaho Power customers for an average benefit of $128 to 2092 DIRECT TESTIMONY OF TERI OTTENS help close this gap. In 2002 , due to the higher energy bills, $278,481 was contributed to 2 111 customers for an average benefit of $132.proj ect Share reached less than 3% of Idaho Power customers who qualified for assistance due to low or extremely low incomes in 2003. What are some other relevant demographics about this population? According to the 2000 Census, about 37% of homes in Idaho Power Service area heat with electricity. Almost all households that are low-income have electricity for lighting, refrigeration and small appliances.In Idaho in 2002 , according to the US Department of Energy website , 1487 homes were weatherized with Department of Energy funds totally $1 997 798 at an average of $1 344 a home.An additional 995 were weatherized by LIHEAP funds and 132 2093 DIRECT TESTIMONY OF TERI OTTENS by Bonneville Power Administration funds (for 2002 and 2003 only - program administered through Idaho Power) . To date , according to Company discovery response, approximately 4 107 households in Idaho Power I s service area have had Weatherization efficiency measures installed by Company programs since 1989.Over 9,500 households applied for LIHEAP in 2003 making all eligible for Weatherization measures, and it is estimated over 000 households in Idaho Power I s territory are currently eligible.At an average rate of 316 a year (based upon the past performance of the Idaho Power LIWA program) it would take well over 150 years to weatherize all homes that are eligible. There is also a strong upward trend for the Company since 1998 for uncollectibles, a figure that has almost doubled in the past five years.In 2003 there were 19 874 disconnects and only 13 518 reconnects indicating that some customers are slipping through the cracks due to inability to pay their utility bill. According to the 2000 Census , more than 26, 000 of the households in Idaho Power service territory have an annual income at less than $9,000.According to the "Affordability Gap" study mentioned previously in this testimony, the average yearly energy bill for low-income customers is $1607 with 30 to 35% of that amount spent on 2094 DIRECT TESTIMONY OF TERI OTTENS home heat alone. Though they are easier described in statistical terms, as in the above paragraph , low income people are our neighbors, relatives, friends... and when considering the possibilities of accidents, ill health loss of emploYment , etc.potentially each of us. According to the State of Idaho Department of Health and Welfare, there are approximately 57 000 households (the approximately 61 000 eligible households minus the 100 households already weatherized under Idaho Power I LIWA program) may be in Idaho Power I s service area that remain to be weatherized.According to Idaho Power discovery response, 4 107 units have been weatherized to date with company funds. These funds have been supplemented with federal weatherization funds. 2095 DIRECT TESTIMONY OF TERI OTTENS These households pay the highest percentage of their income for energy costs compared to other income groups and are the most vulnerable and at risk to change in a competi ti ve market.They live in society's worst case housing stock, are most at risk to hypothermia and indoor air quality problems.Coupled with an array of other financial burdens (cost of child care , lack of affordable housing, lack of living wage jobs, cutbacks in federal assistance of most kinds, etc.) they are increasingly moving closer to homelessness.Often, the affordability of a utility bill can mean the difference of eating, a medical prescription, having a roof over the i r heads or 1 i ving in a car, or worse.When calculating the average take-home pay of a low income head of household and deducting basic living expenses such as housing (often 70% of their income), childcare and food, they are in financial crisis before even looking at the cost of utilities , clothing, transportation , and other basic needs. I want to give some real life examples of the circumstances Idaho families are facing: Twin Falls Area: A husband and wife where both are disabled to some degree.The husband is 62 and has bad heart his wife is 56 and has lost an arm.He is collecting Social Security and receives Medicare and she 2096 DIRECT TESTIMONY OF TERI OTTENS works part-time and has no insurance.Their income is $941 a month.They have a mortgage paYment of $325.00 a month and multiple medical bills and prescriptions.Her doctor has told her to quit working all together as she now needs to have rotator cuff surgery on her one remaining arm.However , with no insurance to help pay for this cost, she will probably not have it done.Their home is all electric and last year their consumption was 000.00.Their bill forThis is a high energy burden. Nov 21st thru Dec. 22nd was $289.00, this was before it got really cold.Now that she is unable to work at all, their income will put more limitations what will get paid and what medication will be purchased. Treasure Valley Area: Edith is an 85 -year-old woman who lives by herself.She is retired and she gets $442 a month in social security.Thi s year has been a very hard year for Edith.She has been very careful with every precious penny she gets.She is an Idaho Power customer. 2097 DIRECT TESTIMONY OF TERI OTTENS This year she has been very careful with her energy Her energy bill was down $210 for the year.usage.When she came in for her annual energy assistance appointment, she found this year her LIHEAP benefit would be lower because her consumption had gone down.Edith's benefit was $129 for the winter.Her average monthly bill is $122 per month.Edith spends about 25% of her monthly income on her power bill.This leaves little money for food, medical bills , and any other bill she may have. Maria is a young single parent , with three young children.Her husband recently left them, and she is trying everything she can to get by.Maria is currently working full-time at a janitorial company, and part-time at a fast food restaurant.She must pay the mortgage on her mobile home , and pay the space rent.It is important that she provides a place for her children to call home. The heat in her home is all-electric, and the mobile home she lives in is not very efficient.She pays about $139 a month for electric.Al though she is working two jobs, she still must choose between paying her utility bills and buying food for her children.Maria's income prevents her from receiving food stamps. These are but three examples of the challenge that low income people in this state face, and the impact of their monthly electric bill on their limited financial 2098 DIRECT TESTIMONY OF TERI OTTENS resources. What is the need for electrically heated weatherization and efficiency retrofits in Idaho Power I service territory? According to the State of Idaho Department of Health and Welfare, there are approximately 55,000 households may be in Idaho Power's service area that remain to be weatherized.According to Idaho Power data 107 units have been weatherized to date with company funds. These funds have been supplemented with federal weatherization funds.The details of Idaho Power's LIWA program are set forth in the testimony of Mr. Ken Robinet te . In its response to CAPAI' s discovery request #1 (a) , Idaho Power states that its gross operating revenue for 2002 was $812 863 191.The Comprehensive Review of the Northwest 2099 DIRECT TESTIMONY OF TERI OTTENS Energy System, sponsored by each of the Governors of the four Northwest States asked for each utility to spend 3 percent of its gross operating revenues for public purpose energy programs.Of that 3 percent, 14% was to be spent for low-income weatherization.The corresponding figure then for Idaho Power suggests a LIWA spending level of $3,414 025. As set forth in the testimony of Mr. Robinette, Idaho Power's current level of LIWA funding is a small fraction of this amount.Consequently, CAPAI recommends that the amount of Company funding for LIWA be increased as set forth below , and in Mr. Robinette I s testimony. Aside from your belief that LIWA is under-funded, do you have any other concerns about the Company's proposed general rate increase? Yes.CAPAI opposes the Company's proposed increase to the minimum monthly Customer Charge from $2.51 to $10., an increase of roughly 300%.For low income residential customers who, as demonstrated above, live day to day struggling to provide themselves and their families with the most basic of human necessities will be the hardest hit by this annual increase of roughly $90.00.Because it is a charge not directly correlated to the level of actual energy usage, low income customers cannot compensate by simply turning the 2100 DIRECT TESTIMONY OF TERI OTTENS lights off and the heat down.CAPAI recommends that the Commission leave Idaho Power's Customer Charge at its current level. Do you have any recommendations to make to the Commission regarding this proceeding? Yes.They are listed below. Do not approve an Idaho Power rate increase that fails to take into account the unique circumstances , and ability to pay, of Idaho Powerl s low-income customers. The proposed increase does not allow low-income households to utilize energy conservation methods to keep their bills low by forcing them to pay for fixed costs beyond their control. 2101 DIRECT TESTIMONY OF TERI OTTENS lOa Increase LIWA funding from its current levels to an annual amount of $1.2 million as proposed by CAPAI wi tness Ken Robinet te ; DOES THAT CONCLUDE YOUR TESTIMONY? Yes , it does.I thank the Commission for the opportuni ty to submit this testimony. 2102 DIRECT TESTIMONY OF TERI OTTENS (The following proceedings were had in open hearing. And I turn Ms. Ottens over forMR. PURDY: cross. Mr. Boehm, do youCOMMISSIONER SMITH: have questions? No questions.MR. BOEHM: Mr. Budge.COMMI S S IONER SMI TH : No questions.MR. BUDGE: COMMISSIONER SMITH:Mr. Eddie. MR. EDDIE:No questions. COMMISSIONER SMITH:Mr. Gollomp. No questions.MR . GOLLOMP: Mr. Ward.COMMISSIONER SMITH: No questions.MR. WARD: QuestionsCOMMISSIONER SMITH: from the Staff? Yes, thank you.MS. NORDSTROM: CROSS-EXAMINATION BY MS. NORDSTROM: Good morning,Ms.Ottens. Good morning. This Commlssion origlnally set LIWA CSB REPORTING Wilder, Idaho OTTENS (X) CAPAI 2103 83676 funding for approximately $320,000 per year in 1989 with the potential to increase the amount to $500,000 at a later date.Yet the Commission reduced that amount in 1998 to $212 000 based on an average of actual amounts used in 1996 and 1997. What is your understanding of why the full amount of funding was not utilized in those years? Well, I have to say that that was before the time that I came to work for the Committee Action Partnerships.We do have a witness that will be following me that was not only working within the LIWA program at that time but is considered a LIWA expert. I I m going to defer that question to him. What steps would need to be taken in order for agencies to be able to perform more weatherization jobs in order to fully utilize the 1.2 million dollars in funding that your party has requested? That's an excellent question.Once again our witness Ken Robinette has actually worked out the steps that would - - it would take to ramp up to 1. million. MS. NORDSTROM:With that, I think I'll save my questions for Mr. Robinette.Thank you. COMMISSIONER SMITH:Thank you, Ms. Nordstrom. CSB REPORTING Wilder , Idaho 2104 OTTENS (X) CAPAI83676 BY MS. MOEN: Mr. Kline?Ms. Moen. MS. MOEN:Thank you, Madame Chair. CROSS - EXAMINATION Ms. Ot tens, you I ve made re f erence in your testimony to the LIHEAP Program. CSB REPORTING Wilder , Idaho That's correct. And that program , I understand, is funded by the State legislature? That's incorrect.The program is actually funded by the federal government, the Health and Human It I S a pass-through program that comes through the State Health and Welfare Department. Okay.And then so you' re dependent upon the revenue that that particular federal agency passes on to you in order to distribute among Idaho residents, When you say that we' re dependent could The amounts.Do you request amounts on an annual basis or are you granted amounts on an annual We are granted moments on an annual basis. Services. correct? you clarify? basis? 2105 OTTENS (X) CAPAI83676 Okay.I also have some questions with regard to just general characteristics of the clients that you serve.Were you in attendance at last night I s public hearing conducted by the Commission on Idaho Power I S rate case? I was. And then would you agree with me that at that public hearing there were a number of low income low and moderate income individual present at that hearing? That's correct. And that many of those people testified at that time is that right? That's right. And would you say that among those that did testify did many represent that they had high electric bills? Well , high is relative to income.I think that what several of them were attesting to is that their income was so low that their energy bills were high. We typically see, with low income, that while they may be somewhat inefficient users due to the fact that they live in poor housing stock often times. They often times have really old appliances that are not energy efficient.The percentage of what they pay for CSB REPORTING Wilder , Idaho 2106 OTTENS (X) CAPAI83676 energy is much higher than , to their income, than what we see typically.That I S one of the reasons that we think that low income should be looked at slightly differently particularly in rate cases as to the impact of those increases than maybe the rest of the residential class. Thank you.Would it be fair to say that of those that presented testimony at least night's public hearing, that many of them indicated that they heated and cooled their homes with electricity? The ones that were testifying I believe that question was asked of several of them and they were all electric. And al so there were several that testified , that indicated, they lived in manufactured housing or mobile homes , correct? That correct. And would you say that based on your experience that those that testified last night and indicated that they heated and cooled their homes with electrici ty, and that a fair number of them lived in manufactured housing, or some housing that perhaps has not met some of the residential standards, that that is kind of typical of a material number of the low-income individuals that live in the State of Idaho? Well , I think that what we find is , yes, CSB REPORTING Wilder , Idaho 2107 OTTENS (X) CAPAI83676 that you do find low-income tending to live in the less - - substandard housing stock.The older homes, manufactured homes , which is all the more reason for the weatherization program. Thank you. Okay. I have no further questions. COMMISSIONER SMITH: 83676 Do you have redirect I do not. COMMISSIONER SMITH:Thank you.I started forgetting the Commissioners might have questions. MS. MOEN: MR. PURDY: All right.Thank you. (The witness left the stand. MR. PURDY: would call Ken Robinette. Community Action Partnership Mr. Purdy? CSB REPORTING Wilder , Idaho 2108 OTTENS (X) CAPAI KEN ROBINETTE produced as a witness at the instance of the Community Action Partnership Association of Idaho, having been previously duly sworn, was examined and testified as follows: DIRECT EXAMINATION Would you please state and spell your Ken Robinette, K-e-n , R-o-i-n-e-t-e. And what is your business address, Mr. We have an office in Twin Falls at 550 Washington Street South. CSB REPORTING Wilder , Idaho And have you previously prefiled direct testimony in this proceeding consisting of 10 pages of I have. And you also filed Exhibits 806 through 808; is that correct? That is correct. If I were to ask you the same questions contained in your direct testimony today, would your BY MR.PURDY: name? Robinette? text? 2109 ROBINETTE (Di) CAPAI83676 answers be the same? Yes.Yes, they would. Okay. MR. PURDY:Madame Chair , I would ask that under the circumstances , I be allowed to ask two or three CSB REPORTING Wilder , Idaho addition direct questions of Mr. Robinette. COMMISSIONER SMITH:Please proceed. BY MR. PURDY: MR. PURDY:Thank you. Mr. Robinette, is it your understanding that Idaho Power did not really address the LIWA program until its rebuttal testimony in this case? Could you rephrase that for me? Is it your understanding - - well , let me restate the question. Did Idaho Power propose any changes to the LIWA program in its direct filing in this case? No.Not to my knowledge. They didn I t - - and so Community Action Partnership is the only party to propose changes to LIWA; is that correct? Tha t is correct. And Idaho Power responded to your proposals through the testimony of Ms. Fullen; is that right? 2110 ROBINETTE (Di) CAPAI83676 Yes. All right.Now , my first question to you is if Idaho - - and Community Action is asking for an additional one million dollars annually for LIWA; is that right? Well , actually we're asking for an overall amount of 1.2 million.So it's an additional amount of 800 plus. All right.If the Commission were to grant that request , is the Community Action Partnership prepared to ramp up and make use of those funds? We are.And indeed over the years working wi th the federal funding through the Department of Energy, we've been on a rollercoaster of funding that each agency has basically had to face head on and either ramp up their crews or down size their crews without off-setting or disrupting their day-to-day production levels. The agency has an infrastructure put in place.Most of the agencies , we have six weatherization agencies across the State of Idaho, these weatherization agencies have infrastructure put in place that have trained veterans for as many as probably 20 years , 20 plus years for a good number of the employees working for the weatherization programs.Wi th this type of veterans CSB REPORTING Wilder, Idaho 2111 ROBINETTE (Di) CAPAI83676 on board , bringing on new people to train and get them out to increase the production , is not a problem. Now , is it your understanding that Idaho Power I S response to your LIWA proposal has been that the Commission should not make a ruling in this case but should instead defer the matter to the Energy Efficiency Advisory Group? Yes.Unfortunately I have to disagree with that.Al though the EEAG is an excellent group, I have served on that group for the past two years.What ve found with the EEAG is that a lot of the proj ects that come before that group are proj ects that Idaho Power is looking to implement , to do energy conservation programs.And the EEAG group, as you may know , is made up of the four different classes.You have your industrial classes , commercial , irrigators , and residential.And I represent the low income of that residential group. I believe that where Idaho Power is not currently in favor of increasing the weatherization funding, the LIWA funding, it may not get the same fair and equal treatment that some of the other programs that Idaho Power brings to the group that they are in favor of. And when you say it may not get the same CSB REPORTING Wilder , Idaho 2112 ROBINETTE (Di) CAPAI83676 fair and equal treatment , you're talking about if the matter is referred to the EEAG? Correct. MR. PURDY:Wi th that, Madame Chair , I have no further additional direct. (The following prefiled direct testimony of Mr. Ken Robinette is spread upon the record. CSB REPORTING Wilder , Idaho 2113 ROBINETTE (Di) CAPAI83676 Please state your name and business address. My name is Ken Robinette.I am the Executi Director of the South Central Community Action Partnership (SCCAP) located at 550 Washington St. So. Twin Falls, Idaho.SCCAP is a private non-profit organization that provides services to low-income elderly, disabled and families of the 8 magic valley counties of Idaho. SCCAP is 1 of 5 community action agencies along with the Idaho Migrant Council and Canyon County Office on Aging in Idaho that have been working to alleviate the effects of poverty since 1967.The Executive Directors of these 7 organizations represent the Board of Director I s of the Community Action Partnership of Idaho (CAPAI). On whose behalf are you testifying? The Community Action Partnership Association of Idaho (CAPAI) board of directors asked me to present the views of an expert on , and advocate for , low-income customers of Idaho Power in this proceeding. Whereas, am the chairman of the CAPAI Energy Committee and have served as the lead for statewide , regional , and national low-income weatherization policy and program design , my testimony will reflect CAPAI' s view that low- income people are an important part of Idaho Power's customer base, and that these customers may be uniquely impacted 2114 DIRECT TESTIMONY OF KEN ROBINETTE by the proposed rate increase. What is your relevant experience to this case before the Commission? As the Executive Director of SCCAP for the past 3 years, I am responsible for the administration of the federal Community Service Block Grant (CSBG), the Low Income Home Energy Assistance Program (LIHEAP), and the Department of Energy Weatherization Assistance Program (WAP) in the local counties of Blaine , Camas , Cassia Gooding, Jerome , Lincoln , Minidoka , and Twin Falls Previously I worked as the Energy Director for SCCAP I s weatherization program for 22 years.I have served on the State of Idaho I s Governor I s Weatherization Advisory Council for the past 8 years. In 2115 DIRECT TESTIMONY OF KEN ROBINETTE 1997 I was appointed to the Consumer and Public Purposes Subcommittee of the Governor's Council on Hydroelectric and River Resources.I am also the chair of the CAPAI Energy Committee.I currently serve on Idaho Power I Energy Efficiency Advisory Group (EEAG) as the low-income residential representative.I have also represented Idaho as a board member for the regional U. S. Department of Energy I s Technical Peer Exchange for the past years. Please summarize your testimony? My testimony will establish: 1) That the existing program design and funding levels of the Idaho Power Low Income Weatherization program (LIWA) are inadequate to address the needs of Idaho Power I s low income residential customers 2) Program design and funding level recommendations that will meet the need of these households 3) The testimony will conclude with specific recommendations for the Commission to adopt. What are the different types of funding sources and programs for low-income weatherization that are available in the Idaho Power service area? There are 3 maj or funding sources for low-income weatherization that Community Action Agencies have available in the Idaho Power service territory. 2116 DIRECT TESTIMONY OF KEN ROBINETTE The United States Department of Energy Low-Income Weatherization Assistance Program known as DOE WAP. This funding has been provided to all states since 1978.The regulations and requirements listed under CFR Part 440 of DOE are the standards for which the state has adopted as its requirements for the weatherization programs in the state. 2117 DIRECT TESTIMONY OF KEN ROBINETTE The Low- Income Home Energy Assistance Program (LIHEAP), which is a block grant from the Federal Department of Heal th and Human Services and has funded states since 1980.The State of Idaho Department of Heal th and Welfare (IDHW) has jurisdiction over these 2 programs.With LIHEAP , Idaho has the option , and has chosen to take the maximum % of this block grant that lS primarily targeted for energy assistance towards home heating of low- income households to go into the low-income weatherization programs. 3. The Idaho Power Low-Income Weatherization Assistance Program (LIWA).This program started in April 1989 and is currently designed to "piggyback" and provide addi tional leveraging of funds on the above-mentioned federal programs.It is only this program that the Commission has control over. What is the history of the current low-income weatherization program funded by Idaho Power? In 1989 Idaho Power determined it should participate with the State of Idaho I s Low-income Weatherization Program (WAP) funded by the U. Department of Energy (DOE) and administered by the Idaho Department of Health and Welfare (IDHW) to provide a full range of eligible energy conservation measures to low-income families in Idaho Power's service territory. 2118 DIRECT TESTIMONY OF KEN ROBINETTE Idaho Power proposed to participate in the WAP for a period of 5 years by providing annual grants of $320,000 to the 8 Idaho non-profit weatherization agencies to weatherize electrically heated homes.An additional $75 would be paid for administrative expenses on each home weatherized with Idaho Power grant funds. Idaho Power also proposed to increase its funding to $500,000 annually after 2 years of operation if determined by the Idaho Public Utilities Commission (IPUC) after their 2119 DIRECT TESTIMONY OF KEN ROBINETTE review of the program.Idaho Power estimated that the funding provided would assist in weatherizing 560 homes per year with approved conservation measures. In April of 1989, the Community Action Agencies contracted with Idaho Power to provide weatherization to low-income electrically heated homes in its service territory, commonly known as the "LIWA contract.This began a partnership that has continued through 2004 to provide energy conservation to Idaho I s low-income residents.In the first five years, from April 1 , 1989 to December 31, 1994 , Idaho community action weatherization programs had completed 1785 electrically heated homes (357 homes pre year) using Idaho Power funding. The total investment from Idaho Power including administration fees for that same period was $1 440,457. The average annual investment was $288,091 and provided an average cost of $807 per home that accounted for an average of 4076 KWH's saved per home.(see Exhibit 806) Through the 14 years of partnership with Idaho Power , the Community Action Weatherization programs continued to provide cost effective energy conservation to eligible households with Idaho Power funds.However, during the journey the Agencies faced funding cuts from DOE and Idaho Power making it more difficult to provide service to our growing population of low-income residents. 2120 DIRECT TESTIMONY OF KEN ROBINETTE 1998 IDHW had to downsize its state weatherization programs from 9 agencies to 6 due to federal funding cuts. IDHW also had to restructure the counties for agencies so continued services would be provided to all 44 counties of the state. During that same time the weatherization programs were experiencing barriers in successfully completing the contracts for Idaho Power and met with IDHW and Idaho Power officials in October of 1998 to address the issues that agencies were having.Those barriers included contracts delivered late to agencies from Idaho Power agencies not turning in small cost homes, and the fact that the program design did not 2121 DIRECT TESTIMONY OF KEN ROBINETTE allow for an actual 50% of paYment for job completion depending on measures installed. Also discussed was the administration fee of $75 that was still being applied since1989 and was not meeting the proj ected administration cost of the agencies at which time was determined to be $146 per project. The October 1998 meeting ended with no changes as it was reported that the contracts for 1999 had already been decided and were being prepared.(see Exhibit 807). In October 1999 , the community action agencies met again with Idaho Power staff to discuss the weatherization needs in Idaho Power I s service territory and its current program design , barriers and program changes that would improve the program effectiveness. This meeting proved to be effective for some new program design changes and added clarification of contract language.However , for contract year 2000 , CAPAI' s agencies experienced our greatest LIWA contract reduction to date. Several agencies were faced with as much as 50% reduction while others received a slight increase.This was due to the population shift in the Idaho Power service territory. In addition to the shift of funding, agencies also had to adhere to new changes in the contract required by Idaho Power. The majority of the changes were positive. One change, however, had negative consequences.Under 2122 DIRECT TESTIMONY OF KEN ROBINETTE this change , community action agencies where required to achieve a 1.1 or greater Savings to Investment Ratio (SIR) instead of the allowed DOE requirement of 1.0 SIR. In response to our continued request for additional funding, Idaho Power increased our 2001 contracts by $100,000 for a total of $297 534.In 2002 , however , we once again had our contracts cut by more than 20% and, if not for some added funding provided to Idaho Power from the Bonneville Power Administration , our agencies would have seen a 50% cut in our total contract amounts. From 2002 to 2004 2123 DIRECT TESTIMONY OF KEN ROBINETTE our LIWA contracts have maintained the same level of funding of $247 534 , which is still well below the original $320 000 and far short of the proposed $500,000. What improvements are needed to make LIWA a more effective program? Increase the base funding from the current 2004 level of $247 532.00 (Idaho only) to $1.2 million. This is the approximate equivalent of weatherizing 440 units (State average cost per unit of $2730) at full funding (not the 50% match). Even at this level of funding, it would take 12.5 years to meet the number of low- income households present today in the Idaho Power service area that are in need of weatherization. These numbers represent actual low-income households that received an Energy Assistance benefit in the contract year 2002/2003 for electrically heated homes (9592 less 4107 homes previously weatherized with Idaho Power funds leaves 5485 still eligible to be weatherized as of last year). This does not include additional homes being added to the already lengthy waiting list that the community action agencies now have. It also does not include homes that are heated with other fuel sources such as natural gas. How does LIWA benefit the low-income customers it serves as well as other Idaho Power ratepayers? The DOE regularly conducts evaluations of the 2124 DIRECT TESTIMONY OF KEN ROBINETTE Weatherization Assistance Program in order to verify energy savings and maximize service to the low-income weatherization clients. These evaluations are conducted by DOE I s , Oak Ridge National Laboratory (ORNL).The evaluations are critical to establish the efficacy of energy efficiency measures for establishing cost-benefit ratios for the program as a whole. In terms of energy savings , weatherization clients save $1.83 for every dollar of investment. With these kinds of savings to low-income customers it is easy to see that 2125 DIRECT TESTIMONY OF KEN ROBINETTE the savings from having their residence weatherized can make an impact on their ability to stay current with their utility bills. Due to the very nature, low- income households are usually faced with having to reside in the older housing stock and many times in homes that are sub-standard because of affordabili ty. The maj ori ty of these older homes are the most energy inefficient housing stock due to the lack of proper insulation throughout the building envelope , which includes: attic , walls, floors, heating ducts, windows and doors. When the utility bills start building up and become unmanageable, then too often these households fall into arrears , which can lead to termination of service. When low-income households fall off the system because they are unable to pay their fair share of Idaho Power I s distribution cost then all remaining ratepayers are left to pick up the difference.Therefore, supporting programs such as LIWA helps low-income customers keep their utility bill affordable by having an energy efficient residence, which at the same time keeps other ratepayers from paying additional cost for distribution , as the energy saved in each residence will continue into perpetuity. In addition to the energy savings from conservation 2126 DIRECT TESTIMONY OF KEN ROBINETTE measures installed, there are also many non-energy benefits of low-income weatherization.In a recent analysis from ORNL , it was documented that benefits to utili ty ratepayers, the economy, and the environment are in addition to the energy benefits that reduce the energy bills of low-income customers by increasing the energy efficiency of their homes.They concluded that for every dollar invested, there are non-energy benefits worth $1.88.With an established $1.83 for every dollar invested for energy savings and when added to the $1. for non-energy related benefits the total return for every dollar invested in low-income weatherization is $3.71. 2127 DIRECT TESTIMONY OF KEN ROBINETTE The utility ratepayers benefits include lower bad debt write-offs, reduced carrying cost on arrearages, fewer late notices and customer calls , fewer shut-offs and reconnections for delinquency, and reduced collection cost as well as the cost of administration of paYment programs.Lastly, by improving the energy efficiency of low-income residences it also improves other aspects of the resident's lives such as health and safety. There are many relatively unique issues and problems that low-income people face on a daily basis.Low- income status is often correlated with circumstances such as: low education , unemploYment, poor health and language and cuI tural barriers.A more energy efficient residence can also lead to greater health benefits, especially to children and elderly who are most susceptible to the ill effects of the winter cold and summer heat.Better health for children will result in greater attendance at school , and for the elderly, improved efficiency can lead to lower medical cost and nursing care. While we understand that it is not the role of the IPUC to consider and differentiate between classes of residential customers, however we believe all consideration should be given towards the overall benefits of providing assistance through the LIWA program. 2128 DIRECT TESTIMONY OF KEN ROBINETTE Program design and funding level recommendations that will meet the need of these households Allow Idaho Community Action Programs that receive DOE funding to have the flexibility to submit payment request that LIWA funds up to the full cost for work completed as determined by the EA4 energy audit, which is the approved DOE computerized energy audit utilized by community action agencies.(see Exhibit 808). This method allows weatherization agencies to maximize their leveraging of federal and private funds.CAPAI would like to IPUC to grant our request of 1.2 million annually.This will assist in weatherizing approximately 440 low-income households annually. 2129 DIRECT TESTIMONY OF KEN ROBINETTE Increase the administration cost to $150 per unit to meet the current fiscal requirements and auditing standards. Even at this rate of funding it would take over 12. years to reach all the eligible households today, who use electricity for it's primary heating source. When compared to the Comprehensive Review of the Northwest Energy System , sponsored by each of the Governors of the four Northwest State I s who asked each utility to spend percent (14 % of that, was to be spent for low- income weatherization) of their gross operating revenue then Idaho Power I s suggested level of spending according to 2002 revenues of $812 683,191 would be $3,414,028. VI.RECOMMENDATIONS TO THE COMMISSION Do you have any recommendations to make to the Commission regarding this proceeding? Yes.They are listed below. Fund electric low-income weatherization and efficiency retrofits from ratepayer funds at 1.2 million dollars annually Approve the program design recommendations as stated above effective wi thin three months of the Commission I final Order in this matter. DOES THAT CONCLUDE YOUR TESTIMONY? Yes, it does.I thank the Commission for the opportunity to submit this testimony. 2130 DIRECT TESTIMONY OF KEN ROBINETTE in open hearing. (The following proceedings were had MR. PURDY:And would turn Mr. Robinette over to cross. COMMISSIONER SMITH:Okay.Anyone have questions for Mr. Robinette?Ms. Nordstrom. BY MS. NORDSTROM: MS. NORDSTROM:Thank you. CROSS-EXAMINATION Good morning. Good morning. I think you heard my question posed to Ms. Ottens.Apparently the Community Action Agency has not CSB REPORTING Wilder, Idaho been able to use all the funds that were allocated to What is your understanding of that I believe the year you referenced was Correct. That was - - between ' 96 and 1 98 were some of our toughest years that we had had federal funding from Department of Energy.And we basically had to downsize tremendously.As a matter of fact, in 1998 we them in the past. situation? 1996? 2131 ROBINETTE (X) CAPAI83676 had to eliminate two weatherization agencies because there was not enough funding.With the downshift of the funding with the federal government we , of course, we have to spread our funding across all 44 counties in the State of Idaho.And we are required to meet a certain number of eligible families in each county. Well , Idaho Power doesn I t cover all 44 counties, obviously, but what we have been - - basically I think what has happened with the funding source there was Idaho Power gives us a 50/50 match for every home we weatherize that is electrically heated and if the primary source is electrical , though that was changed later, but if the primary heating source was electric, Idaho Power would match 50 percent and DOE would pick up the other 50 percent. In order to meet our contract requirements wi th Department of Energy we couldn't concentrate solely on Idaho Power homes.We had to go out and get the other homes that were eligible as well. Is that restriction currently in place? It is still in place , yes. At this time do the Community Action Agencies currently have capacity to significantly increase the number of weatherization jobs they perform? mentioned,we are very proficient CSB REPORTING 2132 ROB INETTE (X)Wilder Idaho 83676 CAPAI ramping up or downsizing if required.I do feel we can do that , yes. If the Commission were to require Idaho Power to increase low income weatherization funding by approximately one million dollars , how do you propose that the Company recover the additional revenue requirement that would result? I believe that I s out of my expertise. not familiar with that. What I might add is that for every home that is weatherized we're reducing the energy consumption in that home.And by every home that is weatherized the amount of energy that is reduced through consumption could be saved in future generation.That might be my best take on how to recover. Any additional increase in Idaho Power' rates resulting from increased funding for the low income weatherization program will have an effect on low-income customer's bill.If the Commission determines that residential rates should increase by 19 percent as proposed by the Company, do you think low- income customers would be further burdened by any additional increase caused by the increased program funding? I do.As an executive director of an organization in Twin Falls, we see approximately 9 000 CSB REPORTING Wilder, Idaho 2133 ROBINETTE (X) CAPAI83676 individual s annually.I expect that number to increase tremendously with this.We have a lot of utility assistance programs but those funds are tapped out very early through the season and we look for other ways to try to help these folks out , going through churches, going through other organizations , but our limited resources are usually taken away very early in the heat ing season. You understand though , that if the Commission were to increase LIWA funding that , you know it would add on to the rate increase that would otherwise be approved by the Commission? MR. PURDY:Madame Chair , I obj ect COMMISSION SMITH:Mr. Purdy. MR. PURDY:And the basis is that Mr. Robinette has already testified that he has no expertise in matters involving rate setting. COMMISSIONER SMITH:Ms. Nordstrom. MS. NORDSTROM:This isn't a technical question involving rate setting other than , you know , the total revenue requirement would increase if LIWA was increased. COMMISSIONER SMITH:Maybe you could ask it in that way. MS. NORDSTROM:If I can remember how I CSB REPORTING Wilder , Idaho 2134 ROBINETTE (X) CAPAI83676 said that. BY MS. NORDSTROM: Mr. Robinette, do you understand that overall customer rates would increase , including those of low-income customers, if LIWA funding was increased? I do.And with that I would say with the continued weatherization we're able to get out and reduce their heating bills by as much as 50 percent.We have recei ved numerous reports where after we I ve weatherized a home they have come back in when we do our follow- year.We are annually inspected by the federal government, State of Idaho, on the work that we do to make sure we're in compliance.One of the questions that is asked of each of the individuals that have been weatherized that have been selected for review , is did you see a reduction in your heating bill due to the weatherization.And in almost 100 percent of the cases the answer was yes.And by as much as 50 percent. So if there is going to be an increase , we can offset that by the savings of energy conservation put to the home that they will continue to have into perpetuity or as long as they reside in that home. So if I understand you correctly, you believe that the benefits would outweigh the additional burdens to low-income customers? CSB REPORTING Wilder , Idaho 2135 ROBINETTE (X) CAPAI83676 I do. Thank you. MS. NORDSTROM:No further questions. COMMISSIONER SMITH:Ms. Moen. MS. MOEN:Thank you, Madame Chair. CROSS-EXAMINATION BY MS. MOEN: Mr. Robinette, has Idaho Power historically in your experience with the South Central Communi ty Action Partnership been responsive to your group I S request for LIWA assistance? Well , we have had a great relationship with Idaho Power and hope to continue a great relationship with Idaho Power for the past 14 years, since 1989.We have approached Idaho Power numerous times to try to get the funding increased to try to get some program design changes done.Each time we approached we were denied.We did have -- I'd like to correct that statement , please.We did have one a couple of years ago , I believe it was 2000, where Idaho Power did allow us to go fuel blind.And I believe they added heal th and safety issues. Okay.Wi th regard to the LIWA program CSB REPORTING Wilder , Idaho 2136 ROBINETTE (X) CAPAI83676 you indicate that it I S your recommendation that instead of currently funding 50 percent of the proj ects that you undertake, that the Company be responsible to be paying for 100 percent of those costs? Yes. It' the funds that true , isn't it, that you can leverage you get from Idaho Power through the program from other - - with other sources of money from the federal government? We receive funding from Department of Energy and from Health and Human Services, known as LIHEAP , which is almost a branch of the low income assistance program heat bill plan. Yes, we can leverage those sources.But what we were hoping to do was to have - - we have contracts with Bonneville Power Administration that allows us to work in homes that are fully electrically heated in the BPA service territory.They allow us to do 100 percent of the job, which makes it more cost effective for us to get out and do those electrically heated homes with the BPA funds at 100 percent, allowing us, as I mentioned earlier we have to cover all of the counties that we have, allowing us to get into these other homes that are non-electrically heated that may be gas heated, wood heated , oil , whatever , so that we can CSB REPORTING Wilder, Idaho 2137 ROBINETTE (X) CAPAI83676 maximize our DOE money with that household. Thank you.Your counsel , Mr. Purdy, indicated or made reference to Ms. Fullen's rebuttal testimony.Have you had an opportunity to review that? Not in full length , no. Okay.Are you aware , I guess in her rebuttal testimony, that Idaho Power has indicated its interest in reducing the savings to investment ratio as you recommended from 1.1 to 1. O? Yes.I am aware of that.I did read that. In that rebuttal testimony are you also aware of Idaho Power's interest in dialogue with you and other CAPs with regard to increasing Idaho Power I administrative -- or the fee of $75 that Idaho Power pays toward administration? And I did read that , yes. MS. MOEN:I don I t have any further questions.Thank you. COMMISSIONER SMITH:Did the Commissioners have questions?Commissioner Hansen. CSB REPORTING Wilder , Idaho 2138 ROBINETTE (X) CAPAI83676 EXAMINATION BY COMMISSIONER HANSEN: I was just curious.I s there certain areas where more weather stripping is needed and required or requested in the State than others?Like, would this be centered more like in the Pocatello area of Idaho Power's service area than it would be, say, over here where the weather is milder? No.Because the requirement that we have, and I believe that Idaho Power has followed as far as allocating the funding is that what you mean Commissioner? The allocation of the funding is done by population and then by customer class.How many customers they have in that particular area.And each agency then has from the poverty statistics the number of eligible or potential eligible families that they have to work with in their own counties.So they try to target those higher - - counties that have more low income located. So that would be more of a determination than say the weather factor , like for example, I would think you would, the usage , the power usage in a colder climate more than in , say, a warmer climate in the winter CSB REPORTING Wilder, Idaho 2139 ROBINETTE (Com) CAPAI83676 months if it was weatherized properly.Would that be correct? If it's weatherized properly, which we are proficient in doing.We use state of the art diagnostic equipment to determine the infiltration or the air leakage into a home or out of a home.We al so use energy audit that as been designed by the State of Idaho and approved by Department of Energy that for every measure we install we have to have a cost savings of $1 or better before we can install that measure.So if we do go into a home that's in a warmer area , for example if we don't get that savings to investment ratio then we don't install that measure. COMMISSIONER SMITH:Mr. Kj ellander. EXAMINATION BY COMMISSIONER KJELLANDER: Mr. Robinette, did I hear you correctly. You said that you're a member of the Energy Efficiency Advisory Group? Yes,sir. Okay.And did also hear you correctly when you said that you didn I see that an appropriate venue seek the changes you were after? CSB REPORTING Wilder , Idaho 2140 ROBINETTE (Com) CAPAI83676 I did state that. Are you precluded from bringing proposals to the EEAG? At this point I don't believe so.One of the things that we did when we started the EEAG group, when I was asked to be a representative of that, Idaho Power had certain proj ects already in mind that they wanted to roll and we can I t get all the proj ects out right away.We started out with a light bulb program. I I m aware of that.I guess what I' getting at, and I appreciate your involvement and thank you for your role on that because I see it as a critical group.But if you're not precluded from bringing a proposal , my question then next would be have you tried to bring proposals?Because IDo you have one together? guess before I would try to say that that's not the appropriate group and abandon it for something like this because it would get to the point where the group is only as strong as its collective membership and their role on that. Are you sure that it I S not a group that couldn't be tailored to deal with some of these very specific issues? Again, my feeling, my gut feeling with the group is, although they're an excellent group of folks, CSB REPORTING Wilder , Idaho 2141 ROBINETTE (Com) CAPAI83676 each one is representing their class, the industrial , et cetera. While I don I t understand all of the needs of the irrigators, what they I re faced with, I believe it is also true that the other EEAG members are not really understanding or clear of what the low- income customers are faced with. Are you familiar with the concept of bargaining? Yes, sir. Okay.Thank you. We have approached the EEAG group informally saying when will we be able to really talk about low- income issues.There has not been a place yet set. One more follow-up.A while back , and I 1 not sure how long ago it was , either last summer or the summer before , there was some concern by members of the EEAG that things weren't moving in an appropriate fashion or fast enough so there was a motion brought to this Commission to take action and see if things could get back on track. Do you recall that? I do not., sir. Okay.I think Ms. Hirsh may recall that CSB REPORTING Wilder, Idaho 2142 ROBINETTE (Com) CAPAI83676 so maybe perhaps I'll address that question to her a little later.Thank you. COMMISSIONER SMITH:Redirect, Mr. Purdy? BY MR. PURDY: MR. PURDY:Just a couple. REDIRECT EXAMINATION Mr. Robinette , you were asked some questions about your proposal to change the match, 50/50 CSB REPORTING Wilder , Idaho matching attribute of LIWA.Do you recall that? Yes. All right.And I think that you mentioned the problem of uncertainty of federal funding.And federal funding over the years has not - - has not remained stable , is that No.As a matter of fact with the situation that has happened in Iraq we're probably facing more cuts in the future. All right.So you I ve al so proposed, have you not , to go from the 50/50 matching to 100 percent Idaho Power funded LIWA program? Yes. And that would alleviate your concerns about the uncertainty of federal funding? 2143 ROBINETTE (Di) CAPAI83676 It may not alleviate it , it will certainly help it.And with the loss of funding through the federal government, with continued funding through Idaho Power , Bonneville Power , of Avista, PacifiCorp, throughout the State of Idaho , we I re going to be able to continue to provide low-income weatherization to those that are qualified. You were asked a some questions by Ms. Nordstrom about the fact that - - in her mind anyway wouldn I t an increase in LIWA funding result in an increase to low-income customer I s rates. My question to you is , do you see a distinction between low-income customer 1 s bills and the overall rates they pay? You know , we're faced with countless folks coming into our offices every year with their utility bills to try to get energy assistance.A lot of times it I S because of the inadequate insulation and the windows in this home.Low- income people are some of the best energy conservers that we work with.During the wintertime they I re going to put drapes or blankets up over their windows , they're going to put -- throw blankets across the bottom of their doors so they can cut the air off.They'll take newspaper and stuff them into cracks wherever they can.They'll shut off rooms so that CSB REPORTING Wilder , Idaho 2144 ROBINETTE (Di) CAP AI83676 they can turn the heat off in those rooms and they III move family members to a central-located place.Is it going to affect their utility bill , or do I see a difference in the rates for - - if II m understanding you correctly are you talking about the $10? Let me ask the question differently. light of what you just said about their tendency to try to reduce their usage.Is it your testimony that those low-income customers who do, are allowed to take advantage of LIWA , typically see substantial decreases in their monthly bills? We do.And as I earlier stated, we can see some of the folks have reported back as much as 50 percent decrease in their utility cost. And assuming that any increase in LIWA funding by Idaho Power is spread across all customer classes, would you say that the benefit of the reduction in the bills outweighs any detrimental effect of spreading that rate , that LIWA funding increase across all customer classes would have? Yes, I do. All right.Now , Ms. Moen asked you some questions about whether you acknowledged that Idaho Power has indicated they would change the SIR from 1.1 to 1. and you noted that you had is that right? CSB REPORTING Wilder , Idaho 2145 ROBINETTE (Di) CAPAI83676 Yes. And also that Idaho Power might be willing to talk about increasing the administrative fee? Yes. And I'm assuming that you re not in opposition to those? , absolutely not.We I re pleased to see that. But in terms of the overall effect it will have on low-income customers who need weatherization, would you much rather see an increase in funding in the program itself? I would.And as far as the SIR from a 1. to a -- back to the DOE 1.0, in all actuality it is not a 50 percent match because anything that is below a 1. which is allowed by DOE to install , it is not allowed to be paid for by Idaho Power.So the 1.0 would be beneficial. And I just finally wanted to clear up a little confusion I had in response to a question that Commission Kj ellander ask you about going through the EEAG process. Didn I t you previously testify that you had asked or proposed to Idaho Power for an increase in LIWA funding through the EEAG and nothing came of it? CSB REPORTING Wilder , Idaho 2146 ROBINETTE (Di) CAPAI83676 , I did not. Okay.Have you - - but have you broached that possibility with the Company informally at any point? Informally we have talked to Darlene Nemnich and -- I'm sorry, I mispronounced her name Nemnich.Please apologize for me to Darlene.And it was just one of those things.I know that Idaho Power has got a lot of good programs that they want to roll out and get out to the customers.And eventually we're hoping that, yes, low-income will be put to the table and brought to the table for consideration. But thus far it has not? No. Okay. MR. PURDY:Tha ti s a 11 I have.Thank you. COMMISSIONER SMITH:Thank you , Mr. Purdy and Mr. Robinette. (The witness left the stand. MR. PURDY:Madame Chair , that concludes the Community Action case.And I note that Mr. Daily is here on behalf of AARP. COMMISSIONER SMITH:Did you want to do that now or wait until this afternoon when Mr. Power is here? CSB REPORTING Wilder , Idaho 2147 ROBINETTE (Di) CAPAI83676 MR. PURDY:It will only take a moment to get Mr.Daily on.We might as well now. COMMI S S IONER SMITH:Okay. MR.PURDY:Call Mr.Da i 1 y . CL YDE DAI LEY produced as a witness at the instance of AARP , having been first duly sworn , was examined and testified as follows: MR. PURDY:And, Madame Chair , as a matter of record keeping here , I forgot to ask that CAPAI I s Exhibit 801 through 808 be admitted. COMMISSIONER SMITH:Wi thout obj ection , it is so ordered. (Community Action Partnership Association of Idaho Exhibit Nos. 801-808 were admitted into evidence. DIRECT EXAMINATION BY MR. PURDY: Would you please state and spell your name, Mr. Dailey? Yeah.My name is Clyde Dailey. C- CSB REPORTING Wilder , Idaho 2148 DAILEY (Di) AARP83676 and then Dailey is D-a-l-e- What lS your business address? 3080 East Gentry Way in Meridian. And are you the same Clyde Dailey who has previously prefiled direct testimony in this case? I am. Consisting of three pages? Yes. Do you have any corrections to make to that testimony, Mr. Daily? I do.On page 3 we incorrectly brought forward a number from Dr. Power I s testimony where we have 600 kilowatt hours on line 19.We would 1 ike to change that to 400. COMMISSIONER SMITH:Actually, that appears on 1 ine 17. MR. PURDY:Yeah , I think THE WITNESS:I may have an older copy. m sorry. BY MR. PURDY: For the record that does appear on line So it I S your understanding that Dr. Power will make17. that correction? Yes. COMMISSIONER SMITH:What's the correct CSB REPORTING Wilder , Idaho 2149 DAILEY (Di) AARP83676 number? MR. PURDY:400. BY MR. PURDY: Other than that correction , Mr. Dailey, if I were to ask you the same questions today as contained in your prefiled direct testimony would your answers be the same? They would. And I note that you have no exhibits to your testimony; is that right? CSB REPORTING Wilder , Idaho Correct. MR. PURDY:Madame Chair , I ask that the testimony of Mr. Clyde Dailey be spread upon the record COMMISSIONER SMITH:If there I s no as if read. objection , it is so ordered. (The following prefiled direct testimony of Mr. Clyde Dailey is spread upon the record. 2150 DAILEY (Di) AARP83676 Please identify yourself for the record. My name is Clyde Dailey and I am the Director of AARP' s Idaho state office. Who is AARP representing in this proceeding? AARP Idaho represents more than 153,000 Idaho residents age 50 and over.AARP' s membership has a vested interest in ensuring that energy services are readily available for consumption and at prices that are just, reasonable and affordable.Our participation in this proceeding is extremely important considering, among other things , the ongoing effects of high and rising costs of electrical service. Why has AARP intervened in this proceeding? Older Americans are particularly susceptible to extremes in temperature.Research shows that seniors are more susceptible to health problems in extremes of heat and cold.Adequate heating and cooling are essential since older Americans rely on the ability to heat and cool homes for both comfort and well-being.Any degradation in utility services can pose serious health concerns.Likewise, increases in energy rates can be especially devastating for those living on fixed and low- incomes. According to research performed by AARP' s Public Policy Institute, for an average household , telephone, 2151 DIRECT TESTIMONY OF CLYDE DAILEY energy, water , and sewer services can account for more than 6 percent of the monthly household income.For some older Americans, this share can be as much as 23 percent of monthly income.Incredibly, some low-income households often spend a greater share of their income on utilities than on certain other necessities such as heal th care or property taxes.This is the case for increasing number of older persons, as the average expenditures for telephone , energy, water , and sewer services for households headed by persons age 65 and older increase at a faster rate than both the level of income in the households and inflation. Thus, when we were notified that Idaho Power had filed an application to increase rates by $86 million , we decided to intervene through our counsel and expert witness on behalf of our 2152 DIRECT TESTIMONY OF CLYDE DAILEY members specifically and residential consumers in general.We urge the Commission to take a hard look at the company's filing. AARP strongly urges the Commission to use its statutory discretion to render a decision in the best interest of residential consumers.The Commission must thoroughly review and evaluate all information and data offered to justify the company's proposals.Only prudent costs should be allowed recovery, and al ternati ve methods of recovery must be explored.Moreover , residential customers should only be required to pay their fair share of any increase approved by this commission. What are AARP I S specific recommendations in this case? As stated , AARP requests that the Commission take into consideration the effect that Idaho Power' requested rate increase will have on seniors, many of who live on a fixed income and who cannot significantly reduce or alter their energy use to avoid the financial effect that the rate increase will have on them.It is fair to state that AARP' s interests are coincidental with the residential class of customers.In this regard , AARP is concerned with the not only the overall amount of the requested rate increase , but also Idaho Power I s proposed allocation of its revenue requirement to the residential 2153 DIRECT TESTIMONY OF CLYDE DAILEY class.Finally, AARP is proposing a block rate structure for the first 400 kWh of usage for residential customers. AARP I S specific recommendations and supporting rationale are set forth in the testimony of our expert wi tness, Mr. Thomas Power. Does that conclude your testimony? Yes, it does.I thank the Commission for the opportunity to submit this testimony. 2154 DIRECT TESTIMONY OF CLYDE DAILEY (The following proceedings were had in open hearing. ) MR. PURDY:And I turn him over for any cross. COMMISSIONER SMITH:Thank you.Questions from Mr. Boehm. Ms. Moen. MS. MOEN:Thank you, Madame Chair. BY MS. MOEN: CROSS - EXAMINATION Good morning, Mr. Dailey. Good morning. I just have some questions concerning the extent of involvement of AARP in certain issues affecting CSB REPORTING Wilder , Idaho both older citizens and Idaho Power.Do you know whether AARP is a member of Idaho Power I s Customer Advisory are. And isn I t it true also that AARP is a member of Idaho Power I s Energy Efficiency Advisory Group? That I S correct as well. And AARP is al so a member of the Company I s Integrated Resource Plan and Advisory Committee, correct? Group? 2155 DAILEY (X) AARP83676 Yes.We're pretty active. And I think you 'd agree with me too that AARP has been involved in various rate-making and workshop and settlement discussions with the Company in recent years correct? Yes, that's correct. I have no further questions.MS. MOEN: Thank you. Thank you.You bet.THE WITNESS: Are there questions fromCOMMISSIONER SMITH: the Commissioners. Thank you very much. Thank you.THE WITNESS: Wai t a minute.YouCOMMISSIONER SMITH: didn't have redirect? I did not.MR. PURDY: COMMI S S lONER SMITH:Okay. (The witness left the stand. MR.PURDY:And I note that Dr.Power still does not appear to be here.I anticipate that he III be here sometime around 10: 00. Well, we'll move onCOMMISSIONER SMITH: then to Mr. Eddie. Very good.Madame Chairman,MR. EDDIE: the Northwest Energy Coalition would call Nancy Hirsh. CSB REPORTING Wilder , Idaho DAILEY (X) AARP 2156 83676 NANCY HIRSH produced as a witness at the instance of the Northwest Energy Coalition , having been first duly sworn , was examined and testified as follows: BY MR. EDDIE: DIRECT EXAMINATION Good morning. Good morning. will you state your name and spe 11 your last name for the record? CSB REPORTING Wilder , Idaho Nancy Hirsh, H-i-r-s- And how are you employed? I I m a policy director at the Northwest Are you the same Nancy Hirsh that prefilled 13 pages of direct testimony along with three exhibits in this case? Yes, I am. Do you wish to make any corrections to that prefiled direct testimony? Yes, I do.I need to make a correction at page 3, lines 10 through 12 of my direct testimony. quoted from the electronic version of Mr. Gale I s direct Energy Coalition. 2157 HIRSH (Di) NW Energy Coalition83676 testimony, which did not match the official filing with the Commission. My page reference to Mr. Gale I s direct testimony is correct , but the quote I pulled from his testimony does not appear in his official testimony. However , the basic points made on page 11 of Mr. Gale I s official direct testimony remains the same. The stated motive behind the Company request for a large increase in the fixed charge is to more, and I quote , to move fixed and variable prices to be more reflective of fixed and variable costs, end quote. That quote was taken from Mr. Gale' official direct testimony page 11 , lines 21 and 22.This correction does not change the substance of my testimony at all. Okay.Noting that correctionThank you. if I were to ask you the same questions today as were asked in the prefiled direct testimony would your answers be the same? Yes. MR . EDD IE:Madame Chair, I move that the prefiled direct testimony of Nancy Hirsh as just corrected be spread upon the record as if read.And that Exhibits 605 through 607 be marked for identification. CSB REPORTING Wilder , Idaho 2158 HIRSH (Di) NW Energy Coalition83676 COMMISSIONER SMITH:If there I s no objection , it is so ordered. (The following prefiled direct testimony of Ms. Nancy Hirsh is spread upon the record. CSB REPORTING Wilder , Idaho 2159 HIRSH (Di) NW Energy Coal it ion83676 DIRECT TESTIMONY OF NANCY HIRSH I Qualifications and Background PLEASE STATE YOUR NAME , BUSINESS ADDRESS AND POSITION WITH THE NW ENERGY COALITION. My name is Nancy Hirsh. My business address is 219 First Ave. South, Suite 100 , Seattle, WA 98104. I am the policy director for the NW Energy Coalition (NWEC). PLEASE DESCRIBE YOUR EDUCATION, BUSINESS EXPERIENCE AND RESPONSIBILITIES. I have a Bachelor of Science degree from the School of Natural Resources at the University of Michigan. I spent twelve years in Washington, D. working for the National Wildlife Federation and Environmental Action Foundation on federal energy policy and electric utility issues, including providing assistance to state environmental and consumer organizations working on utility resource planning. I made numerous presentations to national and state audiences on the importance of least cost resource planning and the role of energy efficiency and renewable energy resource development in keeping utility customer bills affordable. Since 1996, I have been the policy director for the NW Energy Coalition , coordinating the work of the policy team in advocating for investments in clean and affordable energy services. I serve as Chair of 2160 Hirsh , Nancy - Di NW Energy Coalition the Board of the Renewable Northwest proj ect. I also am a member of Idaho Power s Energy Efficiency Advisory Group. PLEASE DESCRIBE THE NW ENERGY COALITION. 2161 Hirsh , Nancy - Di NW Energy Coalition The NW Energy Coalition is an alliance of more than 100 environmental , civic and human service organizations, progressive utilities and businesses from Oregon, Washington , Idaho, Montana , Alaska and British Columbia. We promote energy conservation and renewable energy resources , consumer and low- income protection and fish and wildlife restoration in the Columbia River Basin. The Coalition has 11 member organizations in Idaho, including groups such as Advocates for the West, League of Women Voters , Idaho Rural Council , and South Central Community Action Agency. HAVE YOU PREVIOUSLY TESTIFIED IN REGULATORY PROCEEDINGS? Yes. I have testified before the District of Columbia and Georgia Public Service Commissions, the Public Utility Commission of Oregon and the Washington Utilities and Transportation Commission. My previous testimony concerned integrated resource planning, rate design issues , utility sale of assets and the public benefit concerns from utility mergers. II Overview of Testimony CAN YOU SUMMARIZE YOUR TESTIMONY? Yes. Idaho Power is seeking to shift common variable costs into a fixed service charge. This move goes against standard rate design allocations for 2162 Hirsh , Nancy - Di NW Energy Coalition customer charges, reduces customers ' ability and willingness to implement energy saving and bill reduction measures, and unduly impacts low and fixed income households. I will only address the increase in the customer charge for residential customers, as they are a core constituency for the Coalition. 2163 Hirsh , Nancy - Di NW Energy Coalition III Residential Customer Charge HOW IS IDAHO POWER PROPOSING TO CHANGE ITS FIXED CUSTOMER CHARGE? A. Currently, residential customers pay a monthly customer charge of $2.51. In this case, the Company is proposing a service charge of $10.00 for residential customers in Schedule 1. This is a 300 percent increase in the fixed monthly charge residential customers see on their bill. WHY IS THE COMPANY PROPOSING SUCH A DRAMATIC INCREASE IN THE CUSTOMER CHARGE? On page 11 of his direct testimony, Mr. Gale states that the Company advocates "movement toward cost-of-service results which assign costs to those customers that cause the company to incur the costs. This proposed move to collect more revenues from fixed charges, rather than volumetric sales, will reduce revenue risk. Increasing the fixed portion of a customer's bill reduces revenue fluctuations by providing modest guaranteed minimum revenue regardless of weather, energy efficiency improvements and economic conditions. IS THIS THE BEST APPROACH FOR REDUCING REVENUE FLUCTUATIONS? No. As NW Energy Coalition witness , Ralph Cavanagh, articulates in his testimony, the Company can 2164 Hirsh , Nancy - Di NW Energy Coalition take a more comprehensive approach to address the need for more certainty in revenue collection without dramatically increasing the customer charge. Many jurisdictions have used forms of "decoupling . e. the separation of revenues from volumetric sales) to address this issue. Under decoupling, true-ups are 2165 Hirsh, Nancy - Di NW Energy Coalition used to provide the Company with its approved revenue requirement, even when consumption shifts due to weather energy efficiency improvements and economic conditions. Decoupling protects both the utility and its customers from under- or over-collection of approved revenues , and thus reduces the utility I s risk. This solution is a win-win for both customers and shareholders. WHAT APPROACH IS THE COMPANY USING TO CLASSIFY ITS COSTS AMONG CUSTOMER CLASSES? In her testimony, Ms. Brilz cites the National Association of Regulatory Utility Commissioners Electric Utility Cost Allocation Manual as the primary guide to the classification of customer costs. HAS THI S MANUAL BEEN FOLLOWED IN OTHER JURISDICTIONS WITH RESPECT TO THE DEVELOPMENT OF FIXED CUSTOMER CHARGES? NARUC is clearly a credible source of guidance for state regulators and those they regulate. However the 1992 Electric Utility Cost Allocation Manual includes some methodologies not widely supported by Commissions around the country. In 1992 , the Washington Utilities and Transportation Commission sent a letter explicitly rej ecting the u minimum distribution" and minimum-intercept" methods because they include costs beyond basic customer service. The WUTC letter states 2166 Hirsh, Nancy - Di NW Energy Coalition the only costs which should be considered customer- related are the costs of meters, services, meter 2167 Hirsh , Nancy - Di NW Energy Coalition reading and billing. Our staff believes that is the most common approach taken by Commissions around the country (emphasis in original).l (see Exhibit 605) DO YOU SHARE THE VIEW OF THE WUTC STAFF WITH RESPECT TO DESIGNATING CUSTOMER-RELATED CHARGES? Yes. Meters , line drops , meter reading and billing are the only costs that are customer-specific costs that do not vary directly with the number of customers served or with energy usage or demand. When developing the cost allocation methodology used in customer class rate spread analysis , some of the costs of poles, wires and transformers may be applied to the customer charge. However , when establishing rate design, it is inappropriate to allocate common, non-assignable costs to the fixed customer charge. For example, if my house burns down , the cost savings to the Company would be 1 imi ted to not having to provide the meter, meter services and billing. The poles and wires remain in place to serve the neighbors on either side of me. Similarly, if I subdivide my house, the additional cost to the Company would include a new meter, meter reading services and a new billing account , but no additional poles or wires. Costs related to distribution and other infrastructure may be appropriate costs to serve the residential class, but they do not belong in the fixed 2168 Hirsh , Nancy - Di NW Energy Coalition customer charge as they are not associated with specific customers. WHY SHOULD DISTRIBUTION FACILITY COSTS GENERALLY BE EXCLUDED FROM THE FIXED CUSTOMER CHARGE? 1 Letter from Paul Curl , Secretary of Washington Utilities and Transportation Commission , to Julian Ajello of the California Public Utility Commission , regarding review of the NARUC Electric Utility Cost Allocation Manual , June 11, 1992. 2169 Hirsh, Nancy - Di NW Energy Coalition These costs are j oint costs that cannot be specifically allocated to the customer paying the bill. The costs are real for the residential class but they are costs more associated with demand , number of customers, distance and density -- not an individual customer. Distribution system costs , such as transformers and substations, are driven by throughput and vary over the long-run depending on energy use. For example, transformer upgrades are usually driven by power supply costs and the need to reduce losses. These types of costs reflect area-wide conditions and cannot be attributed to an individual customer. Poles , wires and transformer costs may be fixed in the short-term but ultimately they are sized for long-term demand. A leading author in utility rate design is critical of the inclusion of a portion of annual maintenance and capi tal costs of the distribution system in customer cost calculations. In his book , Principles of Public Utility Rates , James Bonbright states "the inclusion of the costs of a minimum-sized distribution system among the customer-related costs seems to me clearly indefensible_" 2 WHAT COSTS DO THE OREGON AND WASHINGTON COMMISSIONS INCLUDE IN THE CUSTOMER CHARGE? The Washington and Oregon Commissions have 2170 Hirsh, Nancy - Di NW Energy Coal it ion general policies to allow only the inclusion of meters, line drops, billing and meter reading as part of the calculation of the customer charge. According to Bob Jenks, executive director of the Citizens Utility Board of Oregon, the policy of Oregon has been consistent for the past decade. As part of the Oregon Commission' overall rate design philosophy to send customers 2 Bonbright, James C.Principles of Public Utility Rates , New York, Columbia University Press , 1961 , p. 347. 2171 Hirsh , Nancy - Di NW Energy Coalition the appropriate price signal only directly assignable costs are included in the customer charge. ARE YOU PROPOS ING A HARD RULE THAT THE TOTAL COSTS OF METERS, LINE DROPS, METER READING AND BILLING SHOULD REPRESENT THE FIXED CHARGE? No. In my opinion , the sum of these costs represents the absolute maximum amount of a fixed charge. However , other factors , including the need to create appropriate incentives to guide energy usage , instruct that fixed customer charges should be less than the sum of those listed costs. When considering the question of whether customer charges should be increased and usage charges decreased , Frederick Weston, with the Regulatory Assistance Project , concluded: "for the most part, the answer is no, and even suggests that it may be appropriate in certain cases to reduce customer charges. "3 (See Exhibit 606). I further explain the policy reasons for this opinion later in my testimony. WHAT COSTS DOES THE COMPANY INCLUDE IN ITS COST OF SERVICE FOR RESIDENTIAL CUSTOMERS? In Ms. Brilz ' s Exhibit 42 - Cost of Service Unit Costs , the costs for Schedule 1 customers is outlined. This list includes substations , numerous line charges, services, meters and meter reading, customer accounts , uncollectibles, and customer assistance. 2172 Hirsh , Nancy - Di NW Energy Coalition 3 Weston, Frederick, Charging For Distribution Utili ty Services: Issues in Rate Design , Regulatory Assistance Project, December 2000, p. 46. 2173 Hirsh, Nancy - Di NW Energy Coalition WHAT PERCENTAGE OF THE COMPANY'S STATED TOTAL COST OF SERVICE FOR RESIDENTIAL CUSTOMERS WOULD BE COLLECTED THROUGH THE PROPOSED FIXED CHARGE? Exhibi t 42 shows that the total cost of service for residential customers is $24.61 per customer per month. A $10.00 service charge is about 41 percent of $24.61. HOW DOES THE COMPANY ARRIVE AT $10. OO? On pages 4&5 of her direct testimony, Ms. Brilz describes customer related costs as the "investment in meters , a portion of the investment associated with distribution facilities , the costs associated with meter reading and billing, and the costs associated with maintaining the availability of service regardless of whether service is actually taken." From reviewing the Company s testimony it is not clear how the $10 was derived. The costs of meters , meter reading, billing and line drops are specifically delineated in Exhibit 42 however it is not apparent how the company determined the portion of the investment associated with distribution facilities" and "costs associated with maintaining the availability of service regardless of whether service is actually taken" that were included in the proposed fixed charge. The Company appears to have summed all costs of service for Schedule 1 customers (less certain revenues), 2174 Hirsh , Nancy - Di NW Energy Coalition and then reduced that total amount ($24.61) by 40% to reach the figure of $10. The Company has not articulated a basis for this 40% multiplier factor , and I have not been able to independently determine its basis. 2175 Hirsh , Nancy - Di NW Energy Coalition WHAT ELEMENTS OF THE LISTED COSTS OF SERVICE FOR SCHEDULE 1 CUSTOMERS IN THE BRILZ EXHIBIT 42 COULD PROPERLY BE INCLUDED IN A FIXED CUSTOMER CHARGE? The table below identifies costs in Brilz Exhibit 42 , page 1 (Residential Service - Schedule that appear to correlate with categories of costs discussed above , which collectively form an absolute cap on any fixed charge. Line Service/Cust/MonthFunction 276 Meters 362850 278 Install on Cust. Premises 20761 281 Meter Reading 51315 282 Customer Accounts 68819 Total 7718 IS IT YOUR RECOMMENDATION THAT THE FIXED CUSTOMER CHARGE FOR SCHEDULE 1 CUSTOMERS SHOULD BE $6. 77? No. The figure of $6.77 is the maximum that could be justified based on the information submitted by the Company. For the policy reasons discussed further below , it is my opinion that the fixed charge should be considerably lower than this amount. 2176 Hirsh , Nancy - Di NW Energy Coalition ARE YOU FAMILIAR WITH THE CUSTOMER CHARGES OF SOME OF THE OTHER INVESTOR-OWNED UTILITIES OPERATING IN THE PACIFIC NORTHWEST? A. Yes (See Exhibit 607): puget Sound Energy: $ 5 . 50 Avista (Washington): $5. Avista (Idaho): $4. Pacific Power (Washington): $4. Pacific Power (Oregon): $7. Portland General Electric: $10.004 IV Adverse Impacts from Increasing the Fixed Customer Charge DOES MOVING A GREATER PROPORTION OF COST RECOVERY INTO A FIXED CUSTOMER CHARGE HAVE ADVERSE IMPACTS? Yes. There are a number of significant impacts on customers. First, the marginal cost of the next increment of peak demand and baseload energy is clearly more than the average system cost. Putting common costs into the energy charge gives a price signal to customers that reflects this reality. The Company s proposal reduces that price signal to customers , thereby reducing the incentive to increase energy efficiency and conserve 2177 Hirsh , Nancy - Di NW Energy Coalition energy. A high fixed portion of the bill gives the customer less control over his or her bill. Customers become less 4 In Commission order UE 155 , pages 21-, August , 2001 , the Commission agreed to the $10 customer charge in order to prevent a rate decrease for small use customers when all other customers were facing a rate increase. PGE originally proposed a $7.00 customer charge for line drop, meters , meter reading and billing. The customer charge was increased to $10.00 to compensate for a tiered rate structure adopted by the Commission which reduced the overall rate increase originally sought by PGE. 2178 lOaHirsh, Nancy - Di NW Energy Coalition motivated to reduce consumption and improve efficiency, therefore efficiency investments become more expensive as opportuni ties for increasing efficiency are lost. A high customer charge conflicts with the Company s demand-side management programs that invest in energy efficiency measures in customer homes and businesses. Over the past two years, the Company has changed its corporate focus to include a commitment to acquire energy savings as a resource for meeting customer supply needs and reducing peak load. With funds from the demand-side management tariff rider , the Company has initiated a more public energy efficiency campaign than at anytime in the last decade. The Energy Efficiency Advisory Group is working closely with the Company to help design the most effecti ve program offerings for customers. The Company is marketing and financing programs to encourage customers to participate in the rejuvenated Idaho Power energy efficiency programs. Yet, the increase in the fixed charge makes the job of the energy efficiency staff that much harder, as customers see less reward for participating in the Company s programs. Second, the Company s 2002 Integrated Resource Plan identified peak demand as a critical problem for the Company. Clearly, the introduction of seasonal rates is a direct attempt by the Company to address this problem. 2179 Hirsh , Nancy - Di NW Energy Coalition However , as mentioned above, increasing the fixed customer charge tells the customer that there is less cost associated with increased usage at the same time that the seasonal rates are trying to send the opposite signal. Perhaps a better approach would be to maintain the customer charge and the rate for the first 500 - 1000 kwh/month at current levels , and apply an increase only to the end-block of power during the peak season. An inverted 2180 11aHirsh, Nancy - Di NW Energy Coalition rate structure focuses customer attention on discretionary usage during the peak period. PacifiCorp in Oregon, Pacific Gas and Electric and Southern California Edison all use this approach. Inverted rates must be accompanied by aggressive energy efficiency programs to assist customers in responding to the price signal. Third, the increase from $2.51 to $10.00 is a 300 percent increase. That is quite a dramatic increase in a service territory known for some of the lowest rates in the country. The overall rate shock associated with the requested rate increase will be further exacerbated by the fact that customers can t do anything to reduce the service charge portion of their bill. If these costs are incorporated into the energy charge, then customers have the ability to reduce consumption through improved efficiency and reduce their overall bill. Fourth , low- and fixed-income households pay more for their energy costs as a percent of their income than non low- and fixed-income customers. An increase in the fixed charges would disproportionately impact low- and fixed- income customers. As discussed earlier , a high fixed charge that inappropriately includes costs that are really driven by usage - either energy or demand - will shift costs from high usage customers to this fixed charge. Small use customers in trailer courts 2181 Hirsh , Nancy - Di NW Energy Coalition multi-family buildings and in densely populated areas do not drive up demand and increase pressure on the distribution system in the same way that new sub-divisions with large housing stock cause upgrades. Small use customers, which may be fixed income seniors living in apartments or trailer courts , will see a greater increase in rates. By moving non-energy costs into the fixed service charge, the Company is rewarding high use customers wi th a lower percent increase in rates. This situation exacerbates 2182 12a Hirsh, Nancy - Di NW Energy Coalition the high percent of income paYment problems faced by low- and fixed-income households. DOES THIS CONCLUDE YOUR TESTIMONY? Yes. 2183 Hirsh , Nancy - Di NW Energy Coalition (The following proceedings were had in open hearing. DIRECT EXAMINATION BY MR. EDDIE:(Continued) Ms. Hirsh, we're also going to present direct and rebuttal at once for your information. You also prefiled 8 pages of rebuttal testimony in this case? Yes, I did. Do you wish to make any changes or corrections to that testimony? Yes.I do need to make a correct ion on page 7 , line 10 of my rebuttal.My reference to AARP wi tness Tom Power I s block rate proposal should have stated that the first 500 kilowatt hours - - or the first 400 kilowatt hours would be priced at a lower rate instead of the first 600 kilowatt hours. Okay.Thank you.Wi th that correction if I were to ask you the same questions today as were asked in your rebuttal testimony would your answers be the same? Yes, they would. MR. EDDIE:Madame Chair , I'd move that CSB REPORTING Wilder , Idaho 2184 HIRSH (Di) NW Energy Coalition83676 the prefiled rebuttal testimony of Nancy Hirsh be spread upon the record as if read. COMMISSIONER SMITH:If there's no obj ection, we I 11 spread the prefiled testimony upon the record as if read. (The following prefiled rebuttal testimony of Ms. Nancy Hirsh is spread upon the record. CSB REPORTING Wilder , Idaho 2185 HIRSH (Di) NW Energy Coalition83676 REBUTTAL TESTIMONY OF NANCY HIRSH PLEASE STATE YOUR NAME , BUSINESS ADDRESS AND POSITION WITH THE NW ENERGY COALITION. My name is Nancy Hirsh.My business address is 219 First Ave. South, Suite 100 , Seattle, WA 98104.I am the policy director for the NW Energy Coalition (NWEC). HAVE YOU PREVIOUSLY SUBMITTED TESTIMONY IN THIS CASE? Yes , I submitted direct testimony in this matter. My background and qualifications , as well as a description of NW Energy Coalition , are presented in that prior filing. PLEASE SUMMAR I ZE YOUR REBUTTAL TESTIMONY. My rebuttal testimony provides additional information and discussion in support of the Community Action Partnership Association of Idaho I s (CAPAI I s) requested increase in funding for the Low Income Weatherization Assistance Program.This testimony also responds to the direct testimony presented by Commission Staff and AARP with respect to fixed customer charges and rate design. LIWA Funding HAVE YOU REVIEWED THE TESTIMONY OF TERI OTTENS AND KEN ROBINETTE? Yes.In different ways, Ms. Ottens and Mr. Robinette make a strong case for increasing funding of 2186 Hirsh , Nancy - Rebuttal NW Energy Coalition Idaho Power's Low Income Weatherization Assistance (LIWA) program.Specifically, Mr. Robinette recommends increasing LIWA funding from 2187 Hirsh, Nancy - Rebuttal NW Energy Coalition approximately $250 000 to $300 000 annually (in recent years) up to $1.2 million annually. DOES NW ENERGY COALITION SUPPORT THIS REQUEST? AND IF SO , PLEASE STATE THE UNDERLYING POLICY REASONS FOR YOUR SUPPORT. Yes.Electric service is not an optional service in today I s society.Electricity provides refrigeration heating, cooling and lighting.Children cannot participate in school if they have no lights at home by which to do their homework.Home medical equipment must have reliable electricity service.Using al ternati ve heating and lighting methods , such as candles, open oven, and space heaters , often pose serious health and safety problems.Yet, it is established that low and fixed income households generally pay a greater percentage of their income for utilities. Well-marketed and promoted weatherization programs can significantly reduce the energy burden on low and fixed income families.In particular, targeting weatherization services to customers with high usage and those receiving LIHEAP bill assistance funds will ensure that weatherization services assist those with the greatest need. Low income weatherization is not a social program. It is a cost effective energy savings program that 2188 Hirsh , Nancy - Rebuttal NW Energy Coalition provides economic and energy benefits to both the customer and the utility. WHAT ARE THE BENEFITS TO THE UTILITY OF LOW INCOME WEATHER I ZATION PROGRAMS? 2189 Hirsh , Nancy - Rebuttal NW Energy Coalition There are cost savings to Idaho Power due to reduced costs of arrearages and disconnecting and reconnecting customers.Weatherization measures that lower a customer's bill make it more likely that the customer will make some paYment on current and arreared bills. Below is an excerpt of a paper written by Jerrold Oppenheim of Democracy and Regulation , in January 2002 for Entergy Corporation entitled Economics of Low-Income Electricity Efficiency Investment.(pp. 5-6)1 Arrearage reduction (cost of money,uncollectibles, collection costs) .2 A reviewof studies of arrearage reduction benefits conducted for the Boston Edison Settlement Board by the Tellus Institute shows that energy efficiency programs generate reductions in arrearages ranging from $0 to $469 per participating household. 3 An Oak Ridge National Laboratory study, for example , foundan average reduced arrearage value of $32 per weatherized low- income household relative to program costs of $1 550.Similarly, a study of a Pacific Gas and Electric low-income weatherization and education program found that reduced carrying charges on arrearages range between $4 and $63 per weatherized household. In Colorado write-offs dropped 18 percent at weatherized homes. Further , arrearages dropped 26 percent, emergency gas assistance calls dropped 74 percent , and bills were reduced 22percent. Total annual benefit to the utility is estimated at $30.56 per participating household on a $2417 per household cost, not counting reductions in complaints and collection costs , increases in comfort and heal th, and increases in di scret ionary income. Another study found that all benefitsassociated 2190 Hirsh , Nancy - Rebuttal NW Energy Coalition 1Due to the length of the paper, I have no included it as an attachment. It can be found at http:/ /www.democracyandregulation. com/detail. cfm?artid=14&row=0See e., Mass. DTE 98-100 Guideline 3.2(e) (i ii,iv). The Massachusetts commission has established guidelines for assessing cost-effectiveness of utility efficiency programs. 3Biewald et al. , " Non-Price Factors of Boston Edison I s Demand-Side Management Programs: A Review of the Societal Benefits of Energy Efficiency," (1995), at pp. 14-2, 14-5. The authors issue numerous caveats regarding the comparison of results from different studies. For example, they cite differences in the measures installed and information provided through different programs , other administrative and programmatic distinctions, and variations of benefit measurement methodologies. 4Linda G. Berry, et al., "Progress Report of the National Weatherization Assistance Program," at 38, 45 (Oak Ridge National Laboratory, 1997).SList A. Skumatz , Chris Ann Dickerson , " Extra! Extra! Non-Energy Benefits Swamp Load Impacts for PG&E Program!" 1998 Summer Study on Energy Efficiency in Buildings Proceeding,pp. 8.301-8.307 (American Council for an Energy Efficient Economy, 1998). (Present values were calculated based on a ten year lifetime, discounted at four percent annually)6J.K. Magouirk , " Evaluation of Non-energy benefits from the Energy Savings Partners Program 1995 Energy Program Evaluation Conference, Chicago, pp. 155-175 (1995). 2191 Hirsh , Nancy - Rebuttal NW Energy Coalition with reduced uncollectibles range between $16and $58 per weatherized household. Massachusetts Electric Co. I (MECo' s) impactevaluation of non-energy benefits from its Appliance Management program8 includes a broad review of the non-energy benefits at efficiency programs that target customers in arrears as opposed to those programs that do not sotarget.9 The study found that arrearages arereduced as a resul t of both kinds of programs but that the targeted programs produce about 5 times the benefit as non-targeted programs.The evaluation also found that MECO' non-targeted program resulted in average arrearage reductions of $7.60. Weatherized homes, with larger savings , will reap greaterbenefits, $22 (not targeted) to $210 (targeted), on average. For this analysis , weused the conservative results of an Oak Ridge National Laboratory Study, $32 savings on a $1550 investment (about two percent) . Si te visits for terminations , reconnections. At least two site visits are required each time a customer is terminated for non-paYment and then reconnected. Typically, such site visits cost at least $35. Total savings, then , are thenumber of terminations avoided as a result of the program times $35. MECo assumes the incidence of low-income termination is twice that of other residential customers , which is 3percent. Thus we compute this benefit (peraverage participant) as 6 percent times $35 , or$2.10. PLEASE COMPARE CAPAI I S REQUESTED $1.2 MILLION LIWA PROGRAM TO SIMILAR PROGRAMS FUNDED BY INVESTOR-OWNED UTILITIES IN THE REGION. CAPAI's request is comfortably within the range of other utilities in this region. In Oregon , state law requires collection of a total of $6 million per year 2192 Hirsh , Nancy - Rebuttal NW Energy Coalition from Pacific Power (421 000 customers)and Portland General Electric (645,000 customers) 7Lisa A. Skumatz (Skumatz Economic Research Associates), Chris Ann Dickerson (PG&E), "Extra! Extra! Non-Energy Benefits Swamp Load Impacts for PG&E Program!" 1998 Summer Study on Energy Efficiency in Buildings Proceeding p. 8.307 (American Council for and Energy Efficient Economy, 1998). 8Jane Peters, et al., "Final Report: Non-Energy Benefits Accruing to Massachusets Electric Company From the Appliance Management Program" (Research Into Action, Dec. 1999). 9At pp. 8-15. 10L. Berry, M. Brown, L. Kinney, "Progress Report of the National Weatherization Assistance Program" (1997)USee ~, DTE 98-100 Guideline 3.2(e) (iii) (Mass). 2193 Hirsh , Nancy - Rebuttal NW Energy Coal it ion customers for investment in low income weatherization services in the service territory of the two utilities. In Washington , Avista Utilities (219 000 total Washington customers) invests over $780,000 in limited income weatherization.puget Sound Energy (860 000 electric customers) invests $2.05 million per year (including $300 000 from utility shareholders). In Washington, Pacific Power invests up to $1 million per year in low income weatherization for its 97 000 customers.State statute in Montana directs NorthWestern Energy collect 4 percent of retail revenues for certain system benefits.NorthWestern Energy invests at least $584 000 per year and has 300,000 residential customers. II.FIXED CUSTOMER CHARGES PLEASE SUMMARIZE THE TESTIMONY OF AARP WITNESS THOMAS POWER AND COMMISSION STAFF WITNESS DAVID SCHUNKE WITH RESPECT TO IDAHO POWER'S FIXED CUSTOMER CHARGE PROPOSALS. Mr. Power , Mr. Schunke , and I all approached the issue of fixed customer charges in a similar manner. all attempted to identify specific costs which could be viewed as a "ceiling" for any potential fixed customer charge , and then asserted that the fixed charge should be lower than the total of those specific costs for various policy reasons.Mr. Power (at pages 33 -34) and Mr. 2194 Hirsh, Nancy - Rebuttal NW Energy Coalition Schunke (at pages 17-18) both recommend the fixed charge for Schedule 1 customers be increased from $2.51 to $3.00. IN YOUR DIRECT TESTIMONY YOU IDENTIFIED A FIXED CHARGE "CEILING" OF $6., WHILE MR. SCHUNKE IDENTIFIED A SIMILAR AMOUNT OF $4.20.FOR PURPOSES OF THE COMMISSION' 2195 Hirsh , Nancy - Rebuttal NW Energy Coalition CONSIDERATION OF THE FIXED CHARGE ISSUE , IS THIS DIFFERENCE MEANINGFUL IN YOUR VIEW? No.The difference is easily explainable and largely insignificant:I included the costs of meters and their installation as customer-related costs , and Mr. Schunke did not.The key point is that we both attempted to use actual facts from Idaho Power I s application in this case as a starting point for our analyses.And Mr. Power and I seem to strenuously agree that Idaho Power's proposed fixed charge of $10 is unexplainable on the facts the Company has presented. Furthermore , Mr. Schunke , Mr. Power , and I all agree that sound rate policy dictates that the fixed charge be set lower than $10 , $6., or $4.20.I explained these policies in my direct testimony and will not reiterate them here. DO YOU AGREE WITH MR. SCHUNKE I S AND MR. POWER I S RECOMMENDATIONS FOR A $3.00 FIXED CHARGE FOR SCHEDULE CUSTOMERS? I believe a $3.00 fixed charge is defensible, although even that figure is based on some degree of guesswork.However, I want to reiterate that the goals largely shared by Staff , NW Energy Coalition , AARP , and CAPAI - to preserve customer control over their bills and protect low usage customers from a greater proportional 2196 Hirsh , Nancy - Rebuttal NW Energy Coalition rate hike - can be best met via the type of rate design proposals put forward in my testimony and that of Mr. Power and Mr. Schunke.Furthermore , Idaho Power's desire for more certainty in its collection of the fixed costs of service can be met through the performance based rate proposal presented by NW Energy Coalition witness Ralph 2197 Hirsh , Nancy - Rebuttal NW Energy Coal it ion Cavanagh.Mr. Cavanagh I s proposal also protects customers against potential over-collection of such costs. III.BLOCK RATE DESIGN PLEASE SUMMARIZE THE TESTIMONY OF AARP WITNESS THOMAS POWER AND COMMISSION STAFF WITNESS DAVID SCHUNKE WITH RESPECT TO THEIR RECOMMENDATIONS FOR BLOCK RATE DESIGN. Both Mr. Power (at pages 28-31 of his testimony) and Mr. Schunke (at pages 18-21 of his testimony), recommend block rate designs but differ in details.Mr. Power recommends a block rate that would apply uniformly throughout the year , with the first 400 kWh consumed priced at 4.834 cents per kWh; and all additional kilowatt hours priced at 6.445 cents per kWh.Mr. Schunke I S proposed block rate would apply only during the summer season , and impose a 20% higher rate on all kilowatt hours consumed above 800 kWh during that time period.Mr. Schunke' s proposal is more similar to Idaho Power I S proposed summer rate. WHAT IS NWEC I S POSITION WITH RESPECT TO THESE ALTERNATIVE RATE DESIGN PROPOSALS? As I stated in my direct testimony (on pages 11-12), the Coalition supports consideration of a minimum block rate design as an al ternati ve to a high customer charge 2198 Hirsh , Nancy - Rebuttal NW Energy Coal i t ion and as a way to alert customers to the high cost of power during peak load hours.This price signal must be accompanied with strong energy efficiency and low income energy services programs to assist customers with high usage in reducing their consumption and thereby their bill.The Coalition has supported block rate 2199 Hirsh , Nancy - Rebuttal NW Energy Coalition proposals and seasonal rate designs in utility proceedings in Washington and Oregon.The rate design proposal recommended by Mr. Powers reflects a more comprehensive approach to managing Idaho Power I s peak load by recognizing the fact that Idaho Power I s winter peak has been steadily growing and expanding over time. This trend is likely to continue and should be addressed by the block rate structure.For example , a higher rate second block may encourage more new construction to use gas heat and more energy efficient building practices thereby reducing the winter peak. DOES THI S CONCLUDE YOUR REBUTTAL TESTIMONY? Yes. 2200 Hirsh, Nancy - Rebuttal NW Energy Coalition (The following proceedings were had in open hearing. MR. EDDIE:Thank you.And al so wi th your indulgence , Madame Chairman, I would like to ask Ms. Hirsh a couple of preliminary questions concerning they're well within the scope of her direct testimony. COMMISSIONER SMITH:Please proceed. DIRECT EXAMINATION BY MR. EDDIE:(Continued) Ms. Hirsh , do you have in front of you a document entitled Energy Consumption and Expenditures by Low-Income Customers? Yes , I do. MR. EDDIE:And Madame Chair , this document I circulated around the Commission room yesterday.It was - - I had requested it be marked as Exhibit 608.So I believe all the parties have it and believe it's been marked as Exhibit 608. COMMISSIONER SMITH:All right. BY MR. EDDIE: Ms. Hirsh , does the analysis in this article form part of the basis of your testimony in this case as it relates to the impact of Idaho Power I s rate CSB REPORTING Wilder, Idaho 2201 HIRSH (Di) NW Energy Coalition83676 proposals on low-income customers? Yes, it does. Is it fair to say, just to characterize the piece generally, that Mr. Colton analyzed three different sets of federal data analyzing the usage patterns of people who have low income? Yes, that's correct. If you could just turn to the last page of Mr. Colton's article , the pagination is 75 , but the last page. Yes. And if you don I t mind just read the summary of that article into the record. It says, summary.The available federal data on a national and regional basis supports the conclusion that low-income households consume less energy whether heating energy or total household energy, than do households on average.And certainly less than non-low-income households.As a result , it is necessary to find that proposals to ~ove a greater proportion of utility bills to fixed-monthly charges are aggressive in nature and will tend to impose adverse impacts on low- income consumers. Thank you.In your experience working on energy policy issues around the northwest and indeed CSB REPORTING Wilder , Idaho 2202 HIRSH (Di) NW Energy Coalition83676 nationally, has Mr. Colton I s analysis been relied upon by other regulators or other energy policy analysts? Yes.In my experience Mr. Colton is a widely utilized economic witness in many utility proceedings across the country.He is known nationally as an expert in low-income impacts relating to energy not just -- well , relating to utilities.He also works on water and telecommunication issues.But in the electric sector he I S one of the national experts on low-income energy impacts. And this study generally has been well received? Yes, it has. Thank you. MR. EDDIE:With that , I tender Ms. Hirsh for cross-examination. COMMISSIONER SMITH:Thank you, Mr. Eddie. Questions for Ms. Hirsh? MS. MOEN:No questions from Idaho Power thank you. COMMISSIONER SMITH:No questions from Idaho Power either. Commissioner Kj ellander? CSB REPORTING Wilder , Idaho 2203 HIRSH (Di) NW Energy Coalition83676 EXAMINATION BY COMMISSIONER KJELLANDER: Ms.Hirsh good morning. Good morning. think you I re the appropriate person to ask this question.And if I recall , you were involved with a concern that was raised to the Commission about the Energy Efficiency Advisory Group either last summer or the summer before is that correct? Two years ago. Two years ago.With that I guess my general question is , when there I s a concern that you have in relationship to the function of the EEAG do you feel that you have recourse to get the Commission I s attention and has the Commission been responsive when you I ve sought our attention? Well initially, I believe the matter you're referring to was concerns raised by public interest groups in Idaho and the Energy Coalition, regarding Idaho Power's energy investments in general. And as an outcome the Commission moved forward with the Company in establishing the tariff rider , which then also subsequently established the Energy Efficiency Advisory Group.And you know , the Commission and the Company were CSB REPORTING Wilder , Idaho 2204 HIRSH (Com) NW Energy Coalition83676 responsive to the petitions submitted at that time , yes. And you're presently a member of the EEAG? Yes , I am. If as a member you sensed that there was a problem going forward , would you feel comfortable in coming to this Commission and seeking resolution? Certainly. Okay.Wi th regards to the EEAG as being an appropriate venue for some of the things that were brought up in previous testimony from Mr. Robinette , my question is , if this Commission were to put some language in its final order - - I don't know what that language would look like but portend to low-income and energy efficiency -- do you think that the EEAG with Idaho Power engaged would be responsive to that language in light of it coming from the Commission's order? I think they would be responsive, absolutely. The EEAG at the moment is limited by the size of the tariff rider.There are only so many programs that can be implemented given the rider funds.And we I re involved in the integrated resource planning process which we hope will identify the opportunity for more energy efficiency opportunities.But right now , I don' believe that there would be an opportunity for the EEAG to engage in any expansion of the low- income CSB REPORTING Wilder , Idaho 2205 HIRSH (Com) NW Energy Coalition83676 weatherization program because there all the funds for the rider are currently committed out into the future with the rollout of the programs that Idaho Power is currently planning to implement. Okay.Thank you. EXAMINATION BY COMMISSIONER SMITH: Ms. Hirsh , when I looked at your direct testimony on page 5, line 5, you make a statement that CSB REPORTING Wilder , Idaho meters, line drops , meter reading, and billing, are the only costs that are customer specific.And I wondered, guess your conclusion is they don't belong in the They do.Those are the specific costs. customer charge. But no other costs belong in the customer In a fixed monthly customer charge. there I S some j oint and common costs? Do you have any sense or recognition that Yes. That might -- Absolutely.In addressing rate spread charge? Tha ti correct. 2206 HIRSH (Com) NW Energy Coalition83676 issues and looking at customer allocation , clearly there are more costs that are identified with customers that are joint.And those , we believe, should be in the energy charge , not in the direct fixed charge. Finally, I don 1 t think you were here earlier in the week but there have been some suggestions made by the industrial customers and their witnesses, that the surcharge for energy efficiency programs, that should be used - - their money should only be used for their proj ects.And I wonder if you have a reaction or posi tion on that? Certainly the bulk of industrial contributions to an energy efficiency program should be spent in the industrial sector.But there are elements to the cost of the system that are driven by industrial loads and industrial customers as there are costs associated with each customer class.And because of that there is some portion of those funds from each class that should be spread and you should target the energy savings that are most cost effective regardless of the sector that they're in. I guess I've always had the general hope that energy efficiency measures , regardless of the class were beneficial to the entire customer body as a whole -- Right. CSB REPORTING Wilder , Idaho 2207 HIRSH (Com) NW Energy Coalition83676 - - because when we do things more efficient and better it helps everybody. That's right. No customer class should expect if it puts in a dollar it I s going to get that back for itself. Right. COMMISSIONER SMITH:Redirect, Mr. Eddie? MR. EDDIE:I do not. COMMISSIONER SMITH:Okay.Thank you, Ms. Hirsh. (The witness left the stand. MR. EDDIE:Madame Chair , may Ms. Hirsh be excused from the hearing? COMMISSIONER SMITH:If there I s no obj ection , Ms. Hirsh is excused. MR. EDDIE:Thank you.I also move that Ms. Hirsh's Exhibits 605 through 608 be admitted into the official for this matter. COMMISSIONER SMITH:Okay.Wi thout objection , it is so ordered.The exhibits are admitted. (Northwest Energy Coalition Exhibit Nos. 605-608 were admitted into evidence. MR. EDDIE:Thank you.Northwest Energy Coalition I S case will continue on Monday. MR. PURDY:Madame Chair , I note Dr. Power CSB REPORTING Wilder , Idaho 2208 HIRSH (Com) NW Energy Coalition83676 has arrived.Would you like him to testify now? COMMISSIONER SMITH:Maybe we could let him settle in and get Mr. Gollomp I s witness. MR. PURDY:Okay.That's fine. MR . GOLLOMP:Call Dr. Goins. DENNIS W. GOINS produced as a witness at the instance of the United States Department of Energy, having been first duly sworn , was examined and testified as follows: DIRECT EXAMINATION BY MR. GOLLOMP: Dr. Goins , could you please state your full name for the record and your business address? My name is - - excuse me.My name is Dennis Goins , spelled G-My address is , business address is 5801 Westchester Street , Alexandria , Virginia 22310. Dr. Goins, do you have before you a document entitled Direct Testimony of Dr. Dennis W. Goins on behalf of the United States Department of Energy? I do. Consisting of 22 pages of testimony and CSB REPORTING Wilder , Idaho 2209 GOINS (Di) DOE83676 attached Exhibits 401 , 402 , 403? Yes. Do you have any corrections to be made to that document? The original testimony that I filed, direct testimony contained a number of format and pagination errors in it that have subsequently been revised. MR . GOLLOMP:Commissioner , I have reprinted Dr. Goins direct testimony and e-mailed it to all the parties which reflects the corrected pagination format. Would it be possible to substitute -- I have copies here in the hearing - - that document for the prefiled testimony? COMMISSIONER SMITH:I guess as long as it doesn't disrupt their prepared cross that they use the previous version.I guess I III just look around. donl t see any objections so that sounds good. Yes , we III allow that.I don't see an obj ection. MR . GOLLOMP:I believe all the parties have a copy, Your Honor. COMMISSIONER SMITH:Okay. MR . GOLLOMP:Except the Commission. CSB REPORTING Wilder , Idaho 2210 GOINS (Di) DOE83676 supplied a copy to the reporter.I apologize for that. BY MR. GOLLOMP: Dr. Goins, if I were to ask you the questions set forth in your prefiled direct testimony, would your answers today be the same as set forth therein? They woul d . Dr. Goins , are Exhibits 401 , 402 , were they prepared by you? They were. And you adopt them as your exhibits this presentation , this proceeding? I do. MR . GOLLOMP:Madame Chairman , I ask that Dr. Goins I prefiled direct testimony be spread on the record as though read.And Exhibits 401 , 402 and 403 be marked for identification. COMMISSIONER SMITH:If there I s no obj ection , it is so ordered. (The following prefiled direct testimony of Dennis Goins is spread upon the record. CSB REPORTING Wilder , Idaho 2211 GOINS (Di) DOE83676 INTRODUCTION AND QUALIFICATIONS PLEASE STATE YOUR NAME , OCCUPATION , AND BUSINESS ADDRESS. My name is Dennis W. Goins.I operate Potomac Management Group, an economic and management consulting firm.My business address is 5801 Westchester Street Alexandria, Virginia 22310. PLEASE DESCRIBE YOUR EDUCATIONAL AND PROFESSIONAL BACKGROUND. I received a Ph.D. degree in economics and a Master of Economics degree from North Carolina State Uni versi ty.I also earned a B.A. degree with honors in economics from Wake Forest Uni versi ty.From 1974 through 1977 I worked as a staff economist at the North Carolina Utilities Commission.During my tenure at the Commission , I testified in numerous cases involving electric , gas , and telephone utilities on such issues as cost of service , rate design , intercorporate transactions , and load forecasting.While at the Commission, I also served as a member of the Ratemaking Task Force in the national Electric Utility Rate 2212 Case No. IPC-E- 03 -13 Dennis W. Goins - DOE-Di Page 1 Design Study sponsored by the Electric Power Research Insti tute (EPRI) and the National Association of Regulatory Utility Commissioners (NARUC). Since 1978 I have worked as an economic and management consultant to firms and organizations in the private and public sectors.My assignments focus primarily on market structure , planning, pricing, and policy issues involving firms that operate in energy markets.For example, I have conducted detailed analyses of product pricing, cost of service , rate design , and interutili ty planning, operations , and pricing prepared analyses related to utility mergers, transmission access and pricing, and the emergence of competi ti ve markets; evaluated and developed regulatory incentive mechanisms applicable to utility operations and assisted clients in analyzing and negotiating interchange agreements and power and fuel supply contracts.I have also assisted clients on electric power market restructuring issues in Arkansas, New Jersey, New York, South Carol ina , Texas, and Virginia. I have submitted testimony and affidavits in more than 100 proceedings before state and federal agencies as an expert in cost of service , rate design , utility pI anning and operating pract i ce s , regul a tory pol icy, and competi ti ve market issues.These agencies include the 2213 Case No. IPC-E- 03 -13 Dennis W. Goins - DOE- Page 2 Federal Energy Regulatory Commission (FERC), the General Accounting Office, the Circuit Court of Kanawha County, West Virginia , and regulatory agencies in Arizona Arkansas, Georgia , Illinois , Kentucky, Louisiana, Maine Massachusetts , Minnesota, Mississippi , New Jersey, New York , North Carolina , Ohio , Oklahoma, South Carolina Texas , Utah, Vermont, Virginia , and the District of Columbia.A listing of my participation in regulatory and court proceedings is presented in Appendix ON WHOSE BEHALF ARE YOU APPEARING IN THI PROCEEDING? 2214 Case No. IPC-E- 03 -13 Dennis W. Goins - DOE-Di Page 2a I AM APPEARING ON BEHALF OF THE USDOE, WHICH IS COMPRISED OF ALL FEDERAL FACILITIES SERVED BY IDAHO POWER COMPANY (IPC).TWO OF THE LARGER FEA FACILITIES ARE THE DEPARTMENT OF ENERGY I S IDAHO NATIONAL ENGINEERING AND ENVIRONMENTAL LABORATORY (DOE/INEEL) AND MOUNTAIN HOME AIR FORCE BASE.IPC SERVES DOE/INEEL UNDER A SPECIAL CONTRACT , AND SERVES THE BULK OF MOUNTAIN HOME AFB I S LOAD UNDER SCHEDULE 19 LARGE POWER SERVI CE . WHAT ASSIGNMENT WERE YOU GIVEN WHEN YOU WERE RETAINED? I was asked to undertake two primary tasks: Review IPC's proposed cost-of-service analyses (including pro forma adjustments) and related rates. Identify any major deficiencies in the cost analyses and proposed rates and suggest recommended changes. WHAT SPECIFIC INFORMATION DID YOU REVIEW IN CONDUCTING YOUR EVALUATION? I reviewed IPC' s application , testimony, exhibi ts , and responses to requests for information related to cost of service , revenue spread , and rate design issues. CONCLUSIONS WHAT CONCLUSIONS HAVE YOU REACHED? 2215 Case No. IPC-E- 03 -13 Dennis W. Goins - DOE- Page 3 On the basis of my review and evaluation, I have concluded the following: Cost -of -Service.IPC has proposed increasing base revenues by approximately $85.6 million (17.7 percent) In developing proposed rates 2216 Case No. IPC-E- 03 - Dennis W. Goins - DOE-Di Page 3a for its retail electric services, IPC first conducted a cost-of-service study for the test year ending December 31 , 2003.In this cost analysis , IPC allocated and/or directly assigned its costs to functional segments of its retail electric business.The re turn component of IPC' s costs reflects a requested 334 percent return on its retail jurisdictional rate base (using an 11.2 percent return on common equity) . In its cost study, IPC classified steam and hydro production costs as demand- and energy-related costs.IPC set the energy-related component of these costs equal to the Idaho jurisdictional load factor (55. percent), with the residual (1 - load factor) classified as demand-related costs.IPC asserted that the Commission has approved this classification scheme in prior rate cases.IPC classified transmission costs as demand-related costs and distribution costs as demand- or customer-related costs. In allocating demand-related production costs to maj or customer classes, IPC used a weighted 12 -month coincident peak (W12CP) 2217 Case No. IPC-E- 03 - Dennis W. Goins - DOE-Di Page 4 methodology.This methodology develops class allocation factors using the simple average of seasonal allocators derived from two different costing approaches-a traditional 12CP methodology and a methodology that weights class monthly coincident peak demands by IPC I estimated generation-related marginal cost. IPC claims that its marginal generation cost is positive (non-zero) only in the five months in which its projects capacity deficits (June July, August, November , and December) IPC' estimated marginal generation cost in all other months is zero.As a result, the marginal cost component of IPC I S demand-related generation cost allocation methodology is effectively a weighted 5CP methodology, 1Maggie Brilz , direct testimony at pages 8-9. 2218 Case No. IPC-E- 03 -13 Dennis W. Goins - DOE- Page 4a which , as noted earlier , is averaged with unweighted 12CP allocation factors to derive the class W12CP factors (that is, the D10 factors) IPC also used a W12CP methodology to allocate demand-related transmission costs. However , in developing the marginal cost component of these allocators , IPC I methodology focused on three months-June, July, and Augus t - in whi ch it proj ect s t ransmi s s ion deficits.IPC's estimated marginal transmission cost was posi ti ve only in these three months and zero in the remaining nine months.IPC set the transmission cost class allocation factors (D13 factors) equal to the simple average of the unweighted and weighted class coincident demand components. IPC allocated energy-related costs using allocation factors (E10 factors) reflecting monthly energy use by class weighted by IPC I estimated monthly marginal energy cost. Unlike its estimates of marginal generation and transmission costs, IPC' s estimated marginal energy cost is posi ti ve in each month. Finally, IPC allocated demand-related costs 2219 Case No. IPC-E- 03 -13 Dennis W. Goins - DOE- Page 5 associated with distribution plant on the basis of coincident group peak demands, while it allocated customer-related distribution plant costs using average number of customers. Revenue Spread.IPC spread its proposed revenue increase among rate classes using the following 4-step sequential approach: Identify sales revenue increases (or decreases) necessary to match total revenue from each class with IPC' s estimated cost of serving the class as determined in IPC' s class cost-of -service study (COSS). Set a 25-percent limit on the rate increase to Schedule 24 Irrigation Service customers instead of the 67.1 percent increase indicated by 2IPC developed seasonal D10 factors (D10S and D10NS) to facilitateidentifying seasonal cost responsibility. 3IPC also developed seasonal E10 factors (E10S and E10NS) to facilitate identifying seasonal cost responsibility. 2220 Case No. IPC-E- 03 -13Dennis W. Goins - DOE- Page Sa the COSS. Hold revenues from the small unmetered classes (Schedules 4, 7 , and 8) at test-year levels under present rates instead of decreasing revenues as indicated by the COSS results-that is, give no initial increase to these schedules. Spread the revenue shortfall caused by the 25-percent cap on Schedule 24 I S rate increase across all other schedules (including the unmetered classes and Special Contracts) Two undesirable results occur under IPC' s proposed revenue spread.First , the proposed spread perpetuates a $25 million annual subsidy paid to Irrigation customers by all other customer classes.That is , test -year revenue from IPC I S proposed Irrigation Schedule 24 is slightly more than $25 million less than IPC' s cost (as determined in its COSS) of serving this class. IPC makes up this shortfall by overcharging all other customers.These interclass subsidies are unjustified and should be eliminated-or at a minimum, mitigated by 2221 Case No. IPC-E- 03 - Dennis W. Goins - DOE- Page 6 moving rates for each class much closer to cost of service than IPC has proposed.Second, IPC's revenue spread moves rates for Residential (Schedule 1) and Small General Service (Schedule 7) customers farther from cost of service and dramatically increases the subsidy these classes pay to Irrigation customers.This outcome is directly related to IPC's decision to set a 25-percent limit on the rate increase for Schedule 24 Irrigation customers. Rate Design: Schedule 19.I PC has proposed maj or changes for Schedule 19 Large Power Service , which is applicable to customers with average billing demands of 1 MW or greater. Under IPC' s proposal , Schedule 19 4As I demonstrate later in my testimony, the subsidy to Irrigation customers under present rates is also about $25 million. 2222 Case No. IPC-E- 03 - Dennis W. Goins - DOE- Page 6a will become a mandatory time-of-use rate with seasonal demand charges, an on-peak demand charge applicable in summer months (June-August), and energy charges differentiated both seasonally and diurnally. The proposed rate retains its Basic Charge (at an increased level), and , effective November 2004 , increases the power factor (going from 85 percent to 90 percent) at which the Power Factor Adj ustment is triggered. RECOMMENDATIONS WHAT DO YOU RECOMMEND ON THE BASIS OF THESE CONCLUSIONS? I recommend that the Commission: Approve IPC I S weighted 12CP methodology to allocate demand-related production and transmission costs , and its weighted energy-related cost allocation methodology. Al though the methodologies are not widely used, they appear to yield reasonable results. Rej ect IPC I s classification of hydro and steam production plant costs as demand- and energy-related costs.Instead , all hydro and steam production plant costs should be classified as demand-related costs.IPC I s 2223 Case No. IPC-E- 03 - Dennis W. Goins - DOE- Page 7 proposed classification scheme suffers from at least two defects.First, the scheme arbi trarily assumes that higher load factor customers receive a disproportionate share of the cheap energy benefits of baseload and intermediate capacity without paying a proportionate share of the higher capital costs of such capacity-particularly if demand-related capaci ty costs are allocated on the basis of peak demands.Second , the classification scheme arbitrarily assumes that IPC' s system load factor somehow identifies the portion of generation plant costs that are 2224 Case No. IPC-E- 03 -Dennis W. Goins - DOE- Page 7 supposedly energy-related costs.Nei ther assumption is intuitively obvious or empirically supported in this case. Rej ect IPC' s proposed revenue spread.As I noted earlier , under IPC I S proposal , Irrigation customers receive approximately $25 million in interclass revenue subsidies from other classes (especially Residential customers) The Commission should require IPC to spread the allowed revenue increase such that rates for Schedule 24 customers are increased by twice the average system rate increase.For example if IPC receives its requested 17. 68-percent increase in base revenues, the Irrigation class should get a 35. 36-percent increase instead of the 25-percent increase that IPC proposed.The revenue shortfall after accounting for Schedule 24 revenues should be spread using the sequential step approach proposed by IPC and adopted by me.Details of how to implement this revenue spread approach are presented later in my testimony. Adopt IPC I S proposed Schedule 19 subj ect to the following condition.Specifically, the Commission should require IPC to prepare and 2225 Case No. IPC-03- Dennis W. Goins - DOE- Page 8 file semiannual reports for the first year in which the rate is in effect concerning the implementation of the new TOU rate.At a minimum , these reports should include not only analyses of how well customers understand and respond to the new rate , but also detailed customer billing analyses that would enable the Commission to evaluate whether the rate is creating unanticipated and unacceptable hardship on some customers. COST OF SERVICE DID IPC ESTIMATE ITS COST OF SERVING DIFFERENT CUSTOMER CLASSES? 2226 Case No. IPC-E- 03 - Dennis W. Goins - DOE- Page 8a YES.IPC CONDUCTED A DETAILED COST-OF-SERVICE STUDY USING DATA (ADJUSTED IN MANY CASES) FOR THE TEST YEAR ENDING DECEMBER 31 , 2003.IN THIS COST ANALYSIS, IPC CLASSIFIED AND THEN ALLOCATED AND/OR DIRECTLY ASSIGNED ITS COSTS TO FUNCTIONAL SEGMENTS OF ITS RETAIL ELECTRIC BUSINESS.THE RETURN COMPONENT OF I PC I S COSTS REFLECTS A REQUESTED 8.334 PERCENT RETURN ON ITS IDAHO RETAIL JURISDICTIONAL RATE BASE (USING AN 11.2 PERCENT RETURN ON COMMON EQUI TY) . DID IPC FOLLOW REASONABLE GUIDELINES IN CONDUCTING ITS COST STUDY? Yes.The cost study basically follows guidelines set in the NARUC Electric Utility Cost Allocation Manual. WHY IS THE REASONABLENESS OF A COST-OF-SERVICE METHODOLOGY IMPORTANT? Cost of service identifies and assigns cost responsibility to customer classes.Specific rates can then be developed to recover each class' cost-based revenue requirement, resulting in prices that recover the utility I s cost of service in an equitable and efficient manner.If the cost-of-service methodology does not allocate and assign cost responsibility in a reasonable manner , then interclass revenue subsidies are created and specific class rates are either over- or 2227 Case No. IPC-E- 03 - Dennis W. Goins - DOE- Page 9 under-priced-thereby causing customers to make inefficient electricity investment and consumption decisions. IPC has employed a reasonable cost-of -service methodology in this case to allocate and assign its costs to customer classes.However, as I discuss in more detail later , IPC deviated from the results of its cost study in assigning its 2228 Case No. IPC-E- 03 - Dennis W. Goins - DOE- Page 9a proposed revenue increase to customer classes. HOW DID IPC ALLOCATE ITS DEMAND-RELATED PRODUCTION COSTS? IPC used a weighted 12 -month coincident peak (W12CP) methodology to allocate demand-related production costs to maj or customer classes.Under this methodology, class allocation factors are set equal to the simple average of seasonal allocators derived from two different costing approaches-a traditional 12CP methodology and a methodology that weights class monthly coincident peak demands by IPC' s estimated generation-related marginal capacity cost. DOES IPC INCUR MARGINAL GENERATION CAPACITY COST EACH MONTH? IPC I S analysis indicates that its marginal generation cost is positive (non-zero) only in the five months in which its projects capacity deficits (June, July, August , November , and December) IPC's estimated marginal generation cost in all other months is zero. a result , the marginal cost component of IPC I demand-related generation cost allocation methodology is effectively a weighted 5CP methodology, which, as noted earlier , is averaged with unweighted 12CP allocation factors to derive the class W12CP factors (that is , the D10 factors). 2229 Case No. IPC-E- 03 - Dennis W. Goins - DOE- Page 10 DID IPC USE A SIMILAR METHODOLOGY TO ALLOCATE DEMAND-RELATED TRANSMISSION COSTS? Yes.However, in developing the marginal cost component of these allocators, IPC I S methodology focused on three months-June , July, and August-in which it proj ects transmission deficits.That is, IPC' s estimated marginal transmission cost is posi ti ve only in these three months and zero in the remaining nine months.IPC set the transmission cost class allocation factors (D13 factors) equal to the 5As I noted earlier, IPC developed D10 factors (D10S and D10NS) to facilitate identifying seasonal cost responsibility. 2230 Case No. IPC-E- 03 - Dennis W. Goins - DOE- Page lOa coincident demand components. IS IPC' S WEIGHTED 12CP METHODOLOGY REASONABLE? Yes.Although the methodology is not widely used , it appears to yield reasonable results.For example , I compared allocation factors derived under the W12CP methodology with allocation factors derived using three other methodologies-a weighted 5CP methodology (using coincident peak demands only in IPC' s five capacity deficit months), an unweighted 12CP methodology, and an unweighted 5CP methodology.As shown in Exhibi Goins-DOE-401 , class allocation factors under the W12CP are reasonably similar to allocation factors under the W5CP , 12CP , and 5CP methodologies for all classes except the Irrigation class. SHOULD THE COMMISSION ADOPT IPC' S W12CP ALLOCATION METHODOLOGY? Yes. HOW DID IPC ALLOCATE ITS ENERGY-RELATED COSTS? IPC used allocation factors (E10 factors) based on class monthly energy use weighted by IPC' s estimated monthly marginal energy cost to allocate its energy-related costs. Unlike its estimates of marginal generation and transmission costs, IPC' s estimated marginal energy cost is positive in each month. 2231 Case No. IPC-E- 03 - Dennis W. Goins - DOE- Page 11 IS THIS ALLOCATION METHODOLOGY CONSISTENT WITH THE W12CP METHODOLOGY IPC USED TO ALLOCATE DEMAND-RELATED PRODUCTION AND TRANSMISSION COSTS? Yes.Both methodologies weight selected customer usage measures (peak demands and energy consumption) by relevant marginal cost-s.This approach reflects a reasonable attempt to introduce a dynamic costing element to IPC I GAs I noted earlier, IPC developed E10 factors (E10S and E10NS) to facilitate identifying seasonal cost responsibility. 2232 Case No. IPC-E- 03 Dennis W. Goins - DOE-Di Page 11a analysis of historical embedded costs.I recommend that the Commission approve IPC' s proposed energy cost allocation methodology. HOW DID IPC CLASSIFY ITS HYDRO AND STEAM PRODUCTION PLANT COSTS? In its cost study, IPC classified hydro and steam production costs as demand- and energy-related costs.IPC set the energy-related component of these costs equal to the Idaho jurisdictional load factor (55.26 percent), with the residual (1 - load factor) classified as demand-related costs. WHY DID IPC CHOOSE THIS CLASSIFICATION SCHEME? IPC asserted that the Commission has approved this classification scheme in prior rate cases. 7 DO YOU AGREE WITH IPC' S CLASSIFICATION OF HYDRO AND STEAM PRODUCTION PLANT COSTS? No.IPC I s classification scheme rests on questionable assumptions, the validity of which is neither intuitively obvious nor empirically demonstrated in thi s case.Proponents of classifying production plant costs as energy-related costs typically rely on two key-but arbitrary-assumptions: Higher load factor customers receive a disproportionate share of the cheaper energy benefits of baseload and intermediate capacity 2233 Case No. IPC-E- 03 - Dennis W. Goins - DOE- Page 12 wi thout paying a proportionate share of the higher capital costs of such capacity-particularly if demand-related capacity costs are allocated on the basis of peak demands. IPC's system load factor somehow identifies the portion of generation plant costs that are supposedly energy-related costs. Regarding the first assumption,baseload and intermediate plants are planned 7For example, see Idaho Public Utilities Commission , Case No. IPC-94-, Order No. 25880 at page 26. 2234 Case No. IPC-E- 03 - Dennis W. Goins - DOE- Page 12a and designed to operate during more than peak demand periods, and higher load factor customers use energy from such plants in non-peak periods.However, whether higher load factor customers benefit disproportionately from cheaper baseload and intermediate plant energy is an empirical question that IPC has not addressed in this case.Moreover , in addressing this question, the method used to allocate energy-related costs must be considered. For example, if production plant costs are classified as energy-related costs and all energy costs are allocated on the basis of average energy use , then low load factor customers will likely receive the benefits of cheaper baseload and intermediate energy without paying a fair share of the capital costs for these plants. Regarding the second assumption , using IPC I s system load factor to identify the portion of production plant costs to classify as energy-related costs is totally arbi trary For example, in IPC I S last general rate case, the system load factor used to classify these costs was 67.57 percent, 8 versus a system load factor of 55. percent in this case.System load factor is an indicator of the relative use of supply resources (production plant) over time, and does not provide an economic or engineering rationale for classifying production plant costs. 2235 Case No. IPC-E- 03 -13 Dennis W. Goins - DOE- Page 13 IF THE COMMISSION REJECTS YOUR RECOMMENDATION HOW SHOULD THE ENERGY-RELATED COMPONENT OF PRODUCTION PLANT COSTS BE IDENTIFIED? Let me reiterate-in my opinion , all production plant costs should be classified as demand-related costS.Nonetheless , if part of IPC' s production plant costs is classified as energy-related costs, I recommend setting the percentage of such plant costs classified as energy-related costs equal to the ratio of IPC I S weighted energy allocators in non-capacity deficit months-that is, all months other than 8Idaho Public Utilities Commission , Case No. IPC-94-5, Order No.25880 at page 26. 9However , I have not conducted an empirical analysis to determine whether higher load factor customers benefit disproportionately fromthe cheaper energy of baseload and intermediate capacity. 2236 Case No. IPC-E- 03 - Dennis W. Goins - DOE- Page 13a June , July, August , November , and December- the weighted 12 -month allocator.This approach provides at least some intuitive linkage between the energy cost of production plant and high load factor energy use. WHAT IS THE RESULT OF USING THIS APPROACH? Under this approach, 49.82 percent of IPC I hydro and steam production plant costs would be classified as energy-related costs.This percentage is derived as follows: In IPC's Exhibit No. 40 , page 5 , sum the weighted retail jurisdiction energy factors for the seven non-capacity deficit months-that is all months other than June , July, August November , and December.This value is 223 894 387. Divide 223 894 387 by 449,420,534-the sum of weighted retail jurisdiction energy use for all 12 months.The resulting value is 49. percent. REVENUE SPREAD WHAT ARE INTERCLASS REVENUE SUBSIDIES? Interclass subsidies reflect the amount by which revenue from a customer class exceeds or falls short of the class I cost responsibility, which is 2237 Case No. IPC-E- 03 - Dennis W. Goins - DOE- Page 14 determined in IPC' s class cost -of - service study. general , a class receives (pays) an interclass subsidy if its rate revenue is less than (greater than) its assigned cost of service at the system average rate of return. The existence of large class rate of return differentials often indicates the presence of large interclass revenue subsidies. ARE RATE OF RETURN DIFFERENTIALS AND INTERCLASS REVENUE SUBSIDIES SIGNIFICANT UNDER PRESENT RATES? Yes.Present rates for all classes except Irrigation customers are around $25 2238 Case No. IPC-E- 03 - Dennis W. Goins - DOE- Page 14a million above cost of service.(See Table 1 below and Exhibit Goins-DOE-402 , page 1.The rate of return (ROR) indexes for these above-cost classes range from 101 to 404.In contrast , rates for the Irrigation class (ROR index of minus 12) are more than $25 million higher than IPC's cost of service.Around 27 percent of the subsidy to Irrigation customers is currently paid by Residential customers.Since IPC' s present rates have been in effect for about 10 years, a reasonable assumption is that the subsidy paid to Irrigation customers in that period may exceed $250 million. Table Interclass Subsidies Under Present Rates ($000) Class RORI Subsidy Res iden tial 113 (6,850) Sm Gen Service 101 (32) Lg Gen Service 130 942) DTD 404 490)Lg Pwr Service 135 956)Irrigation (12)25,168Unmetered302(333) Muni St Lt 280 (429) Traffic Lt 136 (25)Micron 154 889)JR Simplot 175 (899)DOE/INEEL 130 (324) Total Retail 100 Note: positive (negative) number reflects subsidyreceived (paid) Source: Exhibit Goins-DOE-402 , page 2239 Case No. IPC-E- 03 - Dennis W. Goins - DOE- Page 15 How did IPC spread the proposed revenue increase among customer classes? IPC used a 4-step sequential approach to spread its proposed $85.6 million revenue increase (17. percent) among rate classes.More specifically, IPC: Identified sales revenue increases (or decreases) that were necessary to match class revenues and cost of service as determined in IPC's class COSS.(See Exhibit Goins-DOE-402, page 2 , and IPC Exhibit No. 61 , page 2. Set a 25-percent limit on the rate increase to Schedule 24 Irrigation Service customers instead of the 67.1 percent increase indicated by the COSS.(See Exhibit Goins-DOE-402 , page , and IPC Exhibit No. 61 , page 3. Held revenues from the small unmetered classes (Schedules 4 , 7 , and 8) at test -year levels under present rates instead of decreasing revenues as indicated by the COSS results-that IPC gave give no initial increase to these schedules.(See Exhibit Goins-DOE-402 , page and IPC Exhibit No. 61, page 3. Spread the revenue shortfall caused by the 25-percent cap on the increase to Schedule 24 across all other schedules (including the 2240 Case No. IPC-E- 03 - Dennis W. Goins - DOE- Page 16 unmetered classes and Special Contracts) .(See Exhibit Goins-DOE-2, page 4 , and IPC Exhibit No. 61, page 4. DOES THIS INTERCLASS SUBSIDY SITUATION IMPROVE UNDER IPC' S PROPOSED REVENUE SPREAD? No.IPC I S proposed revenue spread perpetuates the $25 million annual subsidy currently paid to Irrigation customers by all other customer classes.That , revenue under IPC I S proposed Irrigation Schedule 24 is slightly more than $25 million less than IPC' s cost of serving this class (as determined in its COSS) .IPC makes up this shortfall by overcharging all other customers.These interclass 2241 Case No. IPC-E- 03 Dennis W. Goins - DOE- Page 16a subsidies are unjustified and should be eliminated-or at a minimum, mitigated by moving rates for each class much closer to cost of service than IPC has proposed. addition , IPC' s revenue spread moves rates for Residential (Schedule 1) and Small General Service (Schedule 7) customers farther from cost of service and dramatically increases the subsidy these classes pay to Irrigation customers.(See Table 2 below and Exhibit Goins-DOE-402, page 4.For example, the subsidy that Residential customers pay under present rates increases from $6.9 million to $12.1 million under IPC' s proposed rates.This outcome is directly related to IPC' s decision to set a 25-percent limit on the rate increase for Schedule 24 Irrigation customers. Table Interclass Subsidies Under IPC I S ProposedSpread ($000) Class RORI Subsidy Residential 114 (12,121) Sm Gen Service 115 (966) Lg Gen Service 113 886) DTD 873 (1,482)Lg Pwr Service 113 (2,980)Irrigation 383Unmetered196(266) Muni St Lt 190 (358) Traffic Lt 113 (15)Micron 114 (832)JR Simplot III (227) DOE/INEEL 114 (251) Total Retail 100 2242 Case No. IPC-E- 03 - Dennis W. Goins - DOE- Page 1 Note: positive (negative) number reflects subsidyreceived (paid) Source: Exhibit Goins-DOE-402 , page 4. SHOULD THE COMMISSION ADOPT IPC' S PROPOSED REVENUE SPREAD? No.No set of reasonable and fair ratemaking obj ecti ves can include forcing customers to pay more than $25 million annually to subsidize energy consumption by the Irrigation class.The Commission should rej ect IPC I proposed revenue spread and adopt a spread that mitigates the interclass subsidies while moving classes closer to cost of service. HAVE YOU DEVELOPED AN ALTERNATIVE REVENUE SPREAD? Yes.To take a first and reasonable step in addressing the Irrigation subsidy problem , the Commission should require IPC to spread the allowed revenue increase such that the Irrigation class receives an increase twice as large as the overall average system increase.Under this proposal, if IPC receives its requested 17. percent increase in retail base revenues , the Irrigation class should get a 35.36 percent increase.The revenue shortfall after accounting for Schedule 24 revenues should be spread using the sequential step approach proposed by IPC.(See Exhibit Goins-DOE-403, pages 1 and 2. ) 2243 Case No. IPC-E- 03 - Dennis W. Goins - DOE- Page 18 WHAT EFFECT WOULD YOUR RECOMMENDED REVENUE SPREAD HAVE ON THE COST-TRACKING AND SUBSIDY PROBLEMS THAT RESULT FROM IPC' S PROPOSAL? Relative to IPC's revenue spread, my proposed revenue spread moves rates for each class closer to cost of service , and also creates meaningful reductions in interclass revenue subsidies.Moreover , my recommended revenue spread creates a more equitable and efficient distribution of IPC' s proposed sales revenue 2244 Case No. IPC-E- 03 - Dennis W. Goins - DOE- Page 18a increase without imposing unj ust and unreasonable increases on the Irrigation class.(See Table 3 below and Exhibit Goins-DOE-403, page 2. Table Interclass Subsidies Under FEA' ProposedSpread ($000)RORI SubsidyClass Residential Sm Gen Service Lg Gen Service DTD Lg Pwr ServiceIrrigation Umnetered Muni St Lt Traffic Lt Micron JR Simplot DOE/INEEL 110III 110 863 109 192 184 110 110 108 110 (8,897) (709) (4,321) (1,463) 187) 19,138 (254 ) (333) (11 ) (610) (167) (184) Total Retail 100 Note: positive (negative) number reflects subsidyreceived (paid) Source: Exhibit Goins-DOE-403, page 2. DOES YOUR RECOMMENDED REVENUE SPREAD ELIMINATE INTERCLASS SUBSIDIES? No.My recommended revenue spread only reduces the subsidies by about 25 percent.As shown in Table above, Irrigation customers would still receive a subsidy of more than $19 million.Under my proposed spread Residential customers would pay a subsidy of about $8. million , compared to $12.1 million 2245 Case No. IPC-03- Dennis W. Goins - DOE- Page 19 under I PC I S proposal. IF THE COMMISSION ALLOWS LESS THAN IPC I S REQUESTED SALES REVENUE INCREASE , HOW SHOULD THE APPROVED INCREASE BE SPREAD? If IPC I S retail base revenue increase is below 17.68 percent , I recommend using the same 4-step sequential approach that I used to develop the FEA revenue spread shown in Exhibit Goins-DOE-403. RATE DESIGN: SCHEDULE 19 HAS IPC PROPOSED A MAJOR REDESIGN OF SCHEDULE 19? Yes.IPC has proposed maj or changes for Schedule 19 Large Power Service, which is applicable to customers with average billing demands of 1 MW or greater.Under IPC' s proposal , Schedule 19 will become a mandatory time-of-use rate with seasonal demand charges, an on-peak demand charge applicable in summer months (June-August), and energy charges differentiated both seasonally and diurnally.The proposed rate retains its Basic Charge (at an increased level), and, effective November 1, 2004, increases the power factor (going from 85 percent to 90 percent) at which the Power Factor Adjustment is triggered. DO YOU HAVE ANY MAJOR CONCERN WITH THE PROPOSAL TO MAKE SCHEDULE 19 A TIME-OF-USE RATE? 2246 Case No. IPC-E- 03 - Dennis W. Goins - DOE- Page 20 Yes.While I do not obj ect to the manner in which IPC designed the rate, I am concerned about the law of unintended consequences.IPC claims that the new rate design is revenue neutral.However , if IPC' s large commercial and industrial customers are not prepared to operate cost-effectively under the new rate, they may incur unexpected and unacceptably high bills for their energy use.In other words, customers will likely have to move up a learning curve to ensure 10See IPC I S response to Industrial Customers data request 1. 2247 Case No. IPC-E- 03 - Dennis W. Goins - DOE- Page 20a that they manage their electrici ty- intensive operations cost -effectively under the new rate.In my opinion, both IPC and the Commission should closely monitor how energy costs and consumption are affected by the new Schedule 19. SHOULD THE COMMISSION APPROVE IPC I S RECOMMENDED SCHEDULE 19? Yes.The Commission should adopt IPC' s proposed Schedule 19 subject to the following condition. Specifically, the Commission should require IPC to prepare and file semiannual reports for the first year in which the rate is in effect concerning the implementation of the new TOU rate.At a minimum , these reports should include not only analyses of how well customers understand and respond to the new rate, but also detailed customer billing analyses that would enable the Commission to evaluate whether the rate is creating unanticipated and unacceptable hardship on some customers. DOES THIS COMPLETE YOUR DIRECT TESTIMONY? Yes. 2248 Case No. IPC-E- 03 - Dennis W. Goins - DOE- Page 21 hearing. (The following proceedings were had in open DIRECT EXAMINATION (Continued) Dr. Goins , do you have before you a document entitled Rebuttal Testimony of Dr. Dennis W. CSB REPORTING Wilder , Idaho Goins on Behalf of the US DOE? I do. Which has been prefiled with the Commission and consists of five pages of testimony with the attached Exhibits 404 and 405? Yes. If I were to ask you the questions set forth therein today would your answers be the same as set forth therein today? They would. And were Exhibits 404 and 405 prepared by They were. And do you adopt Exhibits 404 and 405 as your exhibits in this proceeding? I do. MR . GOLLOMP:Madame Chairman , I ask that BY MR. GOLLOMP: you? 2249 GOINS (Di) DOE83676 Dr. Goins' rebuttal , prefiled rebuttal, testimony be spread on the record as though read, and Exhibits 404 and 405 be marked for identification. COMMISSIONER SMITH:I f there I s no objection, it I s so ordered. (The following prefiled rebuttal testimony of Mr. Dennis Goins is spread upon the record. CSB REPORTING Wilder, Idaho 2250 GOINS (Di) DOE83676 INTRODUCTION PLEASE STATE YOUR NAME, OCCUPATION , AND BUSINESS ADDRESS. name is Dennis W. Goins.I operate Potomac Management Group, an economic and management consulting firm.My business address is 5801 Westchester Street, Alexandria, Virginia 22310. ARE YOU THE SAME DENNIS W. GOINS WHO PREVIOUSLY FILED DIRECT TESTIMONY IN THIS CASE? Yes. ON WHOSE BEHALF ARE YOU APPEARING? I am appearing on behalf of the US Department of Energy representing the Federal Executive Agencies (FEA), which is comprised of all Federal facilities served by Idaho Power Company (IPC).Two of the larger FEA facilities are the Department of Energy 1 s Idaho National Engineering and Environmental Laboratory (DOE/INEEL) and Mountain Home Air Force Base.I PC serves DOE/ INEEL under a special contract, and serves the bulk of Mountain Home AFB I S load under Schedule 19 Large Power Service. WHAT IS THE PURPOSE OF YOUR REBUTTAL TESTIMONY? The purpose of my rebuttal testimony is to respond to certain statements and/or recommendations in the direct testimony filed by Anthony J. Yankel on behalf of the Idaho Irrigation Pumpers.In particular, I respond CSB REPORTING Wilder, Idaho 2251 GOINS (Di) DOE83676 to several of Mr. Yankel's criticisms of the cost-of-service study (COSS) performed by Idaho Power Company ( I PC) . CSB REPORTING Wilder , Idaho 2252 GOINS (Di) DOE83676 REBUTTAL TO ANTHONY YANKEL DOES MR. YANKEL GENERALLY IMPLY THAT IPC' S COST-OF-SERVICE STUDY IS FATALLY FLAWED? Yes.Mr. Yanke 1 criticizes practically every aspect of IPC' s cost -of - service study.For example, he states that IPC .. . cost-of-service model is little better than a "Black Box.(Yankel direct at page 23, lines 13-14) . . . cost-of -service study produces erroneous and unreliable results.(Yankel direct at page 3 , lines 4- . . . load research data is also not subj ect to scrutiny.(Yankel direct at page 25 line 17) DO YOU AGREE WITH MR. YANKELI S CRITICISMS? No.I reviewed Mr. Yanke 1 I s testimony regarding alleged deficiencies in IPC 1 s cost study.In my opinion he did not identify any major flaw in IPC 1 s costing model or methodology that renders them unusable in this proceeding.To the extent that he identified verifiable data errors , IPC should correct these errors and update its cost-of-service results.However, to the extent CSB REPORTING Wilder , Idaho 2253 GOINS (Di) DOE83676 that Mr. Yankel's criticisms do not reflect errors that can be empirically verified, his recommendations regarding IPC' s cost study should be rej ected. DOES IPC' S COST-OF-SERVICE STUDY CONTAIN ANY FLAWS? Yes.For example, the ability to examine each computational step in IPC' s cost study would be preferable to the Black Box approach that Mr. Yanke criticizes.Howeve r , CSB REPORTING Wilder , Idaho 2254 GOINS (Di) DOE83676 Mr. Yankel's own analysis rebuts his Black Box criticism. Specifically, when he conducted a class cost-of-service study using classification and allocation methodologies found in IPC' s jurisdictional COSS, Mr. Yankel found that the results from his Basic model were li very similar" to the results from IPC' s study. 1 Reasonableness-not flawlessness-should be the standard by hich we judge a cost study.I have never seen a flawless cost study, and I recognize that class cost responsibility cannot be determined with certainty. In my opinion , IPC 1 s cost study reflects a reasonable approximation of class cost responsibility. Under the flawless standard implied in Mr. Yankel' s testimony, the Commission should disregard any cost study that cannot determine class cost responsibility with certainty.This standard is unreasonable, not in the public interest, and should be rej ected. IS MR. YANKEL 1 S RECOMMENDED SYSTEM AVERAGE INCREASE IN IRRIGATION RATES SUPPORTED BY RESULTS FROM COST STUDIES PRESENTED BY STAFF AND MICRON? No.The Staff and Micron studies reach the same conclusion shown in the IPC study-Irrigation rates are significantly below cost of service and should get an above-average increase.This finding is not a surprise. Cost -of -service results from IPC' s previous rate case CSB REPORTING Wilder , Idaho 2255 GOINS (Di) DOE83676 showed that rates for Irrigation customers were well below cost of service.That trend continues today. Even Mr. Yankel' s Basic study3 indicates that Irrigation rates are well below cost of service.Mr. Yanke recommends a system average increase in Irrigation rates only after rej ecting his Basic cost study, making a host 1Anthony Yankel , direct testimony at page 24 I line 15 to page 25, line 2. 2Cost studies presented by Staff and reasonable efforts to identify IPC ' 3Anthony Yankel , direct testimony at 302, column B. Micron also appear to reflect class cost of service. page 25, lines 6-, and Exhibit CSB REPORTING Wilder , Idaho 2256 GOINS (Di) DOE83676 data and methodological adj ustments, and picking a 12CP cost allocation methodology that favors Irrigation customers. DOES MR. YANKEL PROVIDE A REASONABLE BASIS FOR CONCLUDING THAT THE AVERAGE ELECTRICITY PRICE PAID BY RESIDENTIAL CUSTOMERS SHOULD BE HIGHER THAN THE AVERAGE PRICE PAID BY IRRIGATION CUSTOMERS? No.Mr. Yankel suggests a 4 -point reali ty check that allegedly demonstrates why the average price per kWh paid by IPC 1 S Irrigation customers should be less than the average price paid by Residential customers. However , at least two parts of his 4 -part reali ty check are not supported by analysis or fact.More specifically, Mr. Yankel contends that Irrigation customers should pay a lower average price in part because they: "Are large users. . . with lower distribution and customer related costs per kWh.Mr. Yankel has conducted no study or analysis to support this statement. "Generally have a much higher load factor (ratio of average use to non-coincident use) Again, Mr. Yanke 1 has conducted no study or analysis to support this statement. Moreover an analysis of data from IPC I s Exhibit 40 CSB REPORTING Wilder , Idaho 2257 GOINS (Di) DOE83676 indicates that Mr. Yankel is wrong. As shown in Exhibit 404, the test-year load factor (using monthly maximum coincident peak demand) for Residential customers was almost 50 percent, while the load factor for 4Anthony Yankel, direct testimony at page 18, lines 14 -23.5IRPA response to IPC data request 1. 6IRPA response to IPC data request 1. CSB REPORTING Wilder , Idaho 2258 GOINS (Di) DOE83676 Irrigation customers was only about 26 percent-almost less than half the Residential load factor. WHY WAS THE IRRIGATION TEST-YEAR LOAD FACTOR SO LOW RELATIVE TO THE RESIDENTIAL LOAD FACTOR? Residential customers had relatively balanced loads throughout the year compared to Irrigation customers. (See Exhibit 405.For example, Irrigation loads in October-April were less than 20 percent of coincident peak loads during May- September.Irrigation customers impose significant demands on IPC' s supply resources during months in which the summer peak is almost certain to occur, yet these customers utilize very little of this demand in seven months of the year.As a result, I am not surprised that the average electricity price for Irrigation customers was higher that the average Residential price. DOES THE POOR IRRIGATION LOAD PROFILE SUGGEST WHY MR. YANKEL FAVORS THE 12CP METHOD TO ALLOCATE DEMAND-RELATED GENERATION AND TRANSMISSION COSTS? Yes.Under IPC' s proposed allocation methodologies (as well as the methodologies proposed by Staff and Micron), Irrigation customers cannot avoid their responsibility for IPC' s demand-related generation and transmission costs.In contrast , because Irrigation CSB REPORTING Wilder , Idaho 2259 GOINS (Di) DOE83676 loads fall dramatically in October-April, Mr. Yankell s recommended 12CP methodology would relieve Irrigation customers of a significant share of their responsibility for these costs. DOES THIS COMPLETE YOUR REBUTTAL TESTIMONY? Yes. CSB REPORTING Wilder , Idaho 2260 GOINS (Di) DOE83676 hearing. (The following proceedings were had in open MR. GOLLOMP:I tender Dr. Goins for cross-examination. have questions? COMMISSIONER SMITH:Mr. Eddie, do you MR. EDD IE:I do not.And Mr. Purdy informed me he does not either. CSB REPORTING Wilder , Idaho COMMISSIONER SMITH:Thank you. BY MR. WARD: Mr. Ward, do you have questions? MR. WARD:If I can find the mic. CROSS -EXAMINATION Dr. Goins, do you happen to have a copy of Dr. Peseau I s testimony with you on the stand? No, I don I Do you have that now? I do. Thank you.If you would turn to page 24 of Dr. Peseau 1 s testimony. I 1 m there. Okay.And also I'd like you to turn to page 15 of your testimony, direct testimony.Sorry. 2261 GOINS (X) DOE83676 I I m there. Okay.Now basically, interestingly enough, both you and Dr. Peseau prepared tables of interclass subsidies isn I t that correct? Yes. Now the difference is you looked at the interclass subsidy at the present rates, Dr. Peseau then listed it as subsidies that would be paid under the Company s proposed rate designj is that your understanding? No.Well , I looked at it both under present rates and proposed rates. Okay.All I really want to do, Dr. Goins, is if I look at, for instance, your table of the subsidy paid by residential customers I see a $6,850,000 figurej correct? Under present rates, that I s correct. Correct.And if I look at Dr. Peseau' s table of the residential subsidy paid under proposed rates it I $12 100,000j correct? That I S correct. And so notwithstanding the fact even if this Commission were to adopt the Idaho Power proposal for a disproportionate increase to irrigation customers, the fact of the matter is the absolute amount of the CSB REPORTING Wilder , Idaho 2262 GOINS (X) DOE83676 subsidy paid by the irrigation - - by the residential class would go up rather dramaticallYi would it not? Yes.In fact, I estimated the residential subsidy would be about 12.12 million. doubling? Correct. Under those rates. Okay.And that would be not quite a have questions? Right. Thank you. MR. WARD:That's all I have. Chairman. COMMISSIONER SMITH:Mr. Miller , do you MR. MILLER:No.Thank you. COMMISSIONER SMITH:Mr. Richardson. MR. RICHARDSON:Thank you, Madame I do have a couple of questions for Mr. Goins. CROSS-EXAMINATION BY MR. RI CHARDSON : CSB REPORTING Wilder , Idaho Mr. Goins , I'm the attorney for the Industrial Customers of Idaho Power.I have a couple of questions for you this morning. Based on your testimony beginning on page 6 2263 GOINS (X) DOE83676 line 17 , which is the summary of the proposed schedule 19 rate design that Idaho Power is proposing in terms of time-of -use rates.That summary leads you to conclude that the time-of-use rates are , as you characterize, a maj or change; is that correct? Yes. And am I correct in reading your testimony that the maj or change that you refer to in the portions of your testimony are the mandatory time-of-use rates with seasonal on-peak and demand charges, and an increase in the power factor adjustment from 85 to 90 percent. Are those the maj or changes basically you I re referring to? m not sure.I did not classify the power factor adj ustment as a maj or change.I classified the redesign of the rate as a maj or change. Okay.Thank you.On page 21 of your testimony you state that you are concerned about the law of unintended consequences relative to the proposed major change to the schedule 19 time-of -use rates; is that correct? Yes. And you go on to state that , if Schedule 19 customers are not prepared they may incur unexpected and unacceptably high bills; correct? CSB REPORTING Wilder, Idaho 2264 GOINS (X) DOE83676 Yes. And at the bot tom of page, I think it' 25.I can 1 t tell you what the page reference is.You state that in other words , customers will be likely to have to move up on the learning curve to insure that they manage their electric operations cost effectively under the new rates.Is that a fair characterization of your testimony? Can you point me to where that is so can COMMISSIONER SMITH:Page 22. MR. RI CHARD SON :The new one, I'm sorry. THE WITNESS:In the new , sorry. COMMISSIONER SMITH:Page 22. MR. RICHARDSON:Page 22. BY MR. RICHARDSON: Do you have that? Yes.You stated correctly. Thank you.What kind of unintended consequences do you have in mind relative to implementation of time-of-use rates to schedule 19? Everything essentially will be new because we don't have any historical documentation of having such a rate in place and providing data that we can analyze to determine how , in fact, customers adj usted to the rate, CSB REPORTING Wilder, Idaho 2265 GOINS (X) DOE83676 how they responded to the rate, and what the actual billing impacts were.All we have are historical 2002 data that were used to develop billing determinants for the various time periods.And to essentially, once the rates, once the prices for the various periods were set then to determine whether the revenues were produced on a historical basis to match what the Company had allocated to the schedule 19 class.When the rates go into effect two years after that billing data that were used to develop the rate actually occurred, we don't know exactly what will happen in terms of customer usage patterns, for example , since 2002 may have changed.Some customers will react dramatically in terms of trying to shift Some customers will find they're unable to.usage.And they'll simply remain static.Other customers will try and fail. So when I say unintended, we simply don I know what the actual effects may be.If, for example they were extremely high while the rates were - - if the summer were extremely hot, if a number of factors , any temperature-sensitive loads that the industrial may carry under Schedule 19 , then the revenues produced may be significantly greater than those which the Company has identified under the 2002 test-year billing determinants. And the billing impacts on those customers from the CSB REPORTING Wilder , Idaho 2266 GOINS (X) DOE83676 beginning point of the rate may be more dramatic than what had been anticipated. Time-of -use rates have been a subj ect much discussion in these hearings and one of the proposals that was put forth by one of the witnesses for Idaho Power on the stand, so it 1 S not in the testimony and you weren I t here until this morning correct? That 1 S true. So, one of the proposals put forth was to not implement time-of-use rates immediately for the industrial class, but to have a grace period, so to speak , where the industrial class would still be under the traditional Schedule 19 single demand single energy rate regimen, but they would receive two bills from the One with the actual bill , but one withPower Company. sort of a time of use bill had the customer been on-line - - had the time of use bill rates been in effect at that time for the customer to explore those responses to what you identified as those unintended consequences.Do you think that would be a reasonable approach to implementing time-of -use rates? It's a reasonable and rational approach. It 1 S been used before.Years ago and I can't remember the case or even the utility in Texas I ve worked in a number of cases down there.There was a swi tch by a CSB REPORTING Wilder , Idaho GOINS (X) DOE 2267 83676 utility to a time-of-day rate, but there was actually this double billing.One under the standard rate with a comparable sample billing under the new proposed rate so the customers could essentially see what would happen to them in a real world , real time situation. I certainly wouldn It obj ect to it. think it probably would provide everybody with a lot of information that we don I t have now. And for your rate class Schedule 9, you' suggesting voluntary time-of -use rates correct? No.That was Mr. Higgins. I misspoke.I 1 m sorry.And you would agree that the Schedule 19 class is comprised of a variety of different industrial concerns , some of whom are seasonal and some of who are year-round operations? Well , I haven I t done a detailed study. But simply looking at the billing data, it 1 s obvious that some of those factors that you just described are probably true. So a good grace period from your perspective would have to encompass all of the seasons the year in order to give all the customers in the schedule a fair opportunity to take advantage of examining the second billing, if you will? If you wanted to extend it for 12 months, CSB REPORTING Wilder , Idaho 2268 GOINS (X) DOE83676 that I S a possibility.The recommendation which I made essentially would have made the rate conditional anyway. And that is , that the difference being - - what I recommended was that the Company be required to file semiannual reports during the first year the rate was in effect to provide the information that we're talking abou t now.And my assumption , although I didn 1 t state it explicitly in my testimony, was that on the basis of those reports , the Company, the customers, and Commission could make a determination whether that rate should go forward. I guess But the only difference being is the customers would be in fact billed under that rate.And, yes, they would be subject to the unanticipated consequences. So is that something like putting the cart before the horse?Sort of like the year of study that you propose is that actually not a year study it I S a year of throwing us in the deep end and then we I 11 see what the result is, as opposed to let I s do the year of study with the dummy bills , if you will , and then make the determination whether we should go forward with the time-of -use rates , therefore avoiding those unintended consequences? CSB REPORTING Wilder, Idaho 2269 GOINS (X) DOE83676 Well, no.m not in total agreement. don t believe that the purpose of the time of use - - the decision whether the time of use rate should be put in effect is whether some customers get an above-average increase and some get a below-average increase under the That will be true of any rate.rate. I do believe that a time of use rate may be appropriate.I looked at the way the Company had designed it , I thought a reasonable effort had been made to design the rate.And in particular comparing, at least based on my experience and seeing rates of that type over various customers.But the fact is, that customers have to - - the cost of providing service varies by time of use.We know that and I don t think there I any dispute about it. The question that we re getting to though is that the rate will be put in effect on real-world companies.AndIt will have real-world consequences. those consequences may or may not be acceptable from a public policy standpoint.Even thought we know that a time of use rate would be preferable to a non-time-of-use rate in general.It's that public policy determination that has to be made. Thank you, Mr. Goins. MR. RI CHARDSON :Tha t 's all I have, Madame CSB REPORTING Wilder, Idaho 2270 GOINS (X) DOE83676 Chairman. COMMISSIONER SMITH:Thank you. questions? Mr. Budge, do you have questions? MR. BUDGE:No questions. Company? COMMISSIONER SMITH:Does Staff have Madame Chairman. MR. STUTZMAN:No questions. BY MR. KLINE: COMMISSIONER SMITH:Does the MR. KLINE:I do have a few questions, CROSS - EXAMINATION The first thing Ild like to do, Mr. Goins, is direct you to page 6 of your direct testimony. Especially line 14.Are you there? original? Are we on the revised version or the I hope so. Okay.m on the revised version. Mine says February 20th. II m speaking of the copy that was handed out today or the one that was actually filed. CSB REPORTING Wilder , Idaho 2271 GOINS (X) DOE83676 I think I have the one that was handed All right.m with you anyway. out. All right.And in that section of your testimony you re generally talking about the, what we CSB REPORTING Wilder , Idaho come to refer to, I guess, as the irrigation subsidy. Yes. And on line 14 you say IPC makes up the shortfall by overcharging all of its other customers. Mr. Goins, can a utility overcharge its customers if its charging the filed rates , the rates that have been approved by the regulatory commission? Sure.As an economist you I ve identified even in your study what the cost of serving someone is. I f you don I t charge them that cost, you I re undercharging them.If you charge someone else more than the results of what your cost of service indicates you Now , you may do that for a variety of reasons, but those are the terms that I use. So the use of the term overcharging is in an economic sense as compared to a legal sense? The later I wouldn't know about , the Okay.I ti s an -- overcharging. former I do. 2272 GOINS (X) DOE83676 The answer is yes. All right.In response to a question from Mr. Richardson, I think Mr. Richardson was trying to get you to say you need 12 months of phantom bills in order to do a good job of educating Schedule 19 customers about time-of -use rates. Wouldn't it be possible, Mr. Goins, to provide historical bills or comparisons of historical bills to current bills, do a number of things that would give the customer a good idea of what their going to face with time-of-use rates, without having to wait a whole year to defer implementation of time-of-use rates just so that you'd have 12 months of phantom bills or dummy bills? Would be one option. In your opinion , are Schedule 19 customers or customers of the size of Schedule 19 on Idaho Power 1 s system pretty sophisticated customers? Again, I haven t surveyed the customers so I don I t know.In general, customers served under a large industrial class, given the average cost on an annual basis of energy for those companies , in my experience they take energy costs seriously.And they simply don get the bill and pay it and ignore it. I do know that a number of companies , I CSB REPORTING Wilder, Idaho 2273 GOINS (X) DOE83676 don t know if all of them in Schedule 19 , they have energy managers whose sole responsibility or whose primary responsibility is to ensure that the company 1 s utilization of all industrial fuels, including electricity is done as efficiently and at as least cost as possible. Thank you. MR. KLINE:That 1 S all the questions have. COMMISSIONER SMITH:Do we have questions from the Commissioners? EXAMINATION BY COMMISSIONER SMITH: I guess I do, Mr. Goins.I was looking at page 18 of the handed-out testimony and pondering your chart on interclass subsidies.And I guess what we heard from the irrigation class is that, and I don 1 t know if they agree they I re being subsidized or not, probably they don t, but even if they are their answer is that what they do so fundamental to the economy of southern Idaho that if the Commission does something so drastic as adopt the rate design proposed by the Company, or even that proposed by the Staff, that it 1 s going to adversely CSB REPORTING Wilder, Idaho 2274 GOINS (Com) DOE83676 impact not only them , but the consequences of that will roll through the economy and be detrimental to everyone else, including all these other classes. And I thought that's kind of similar to that public policy discussion you just had with Mr. Richardson.And I'm wondering what do economists think when they encounter these kinds of dilemmas, or it I S not maybe a dilemma for an economist.You just see the truth and go for it. Thank you for the last statement but it a public policy issue.What I presented here is - - deals though , with public policy. I sat here this morning and listened to a number of people testify about low-income consumers.The need for weatherization programs that would be targeted to those consumers.Those consumers are being directly affected by the policy decisions to subsidies irrigators. My analysis and Dr. Peseau 1 s both show there's a 12 million dollar subsidy paid by residential customers. Some of that, at least, is being paid by low-income customers.So any time there 1 s a subsidy of this magnitude some customers, to change it, some customers will be hurt and some customers will be better off. The problem that I saw in particular in CSB REPORTING Wilder, Idaho 2275 GOINS (Com) DOE83676 this is that in looking at the case that appeared before this Commission ten years ago.The subsidy was huge even at that time.The arguments were about the irrigation subsidy, what was going to be done.Nothing much was done.And here we are ten years later arguing about the same issue.And at least among the intervenors the testimony filed by all of those parties representing residential through industrial came to the same conclusion.That as a public policy matter the subsidy had to end.And so the recommendations from all the intervenors on that score is almost unanimous. So, how to solve it?There I S a variety of proposals that are on the table here.And I don't know the best way to do it.Twenty- five years ago I did a study for Bonneville Power and it was looking at financing conservation , energy efficient conservation investments for irrigators.And as part of that study we talked to a number of irrigators in Washington and Oregon.And none in Idaho, we didn't come that far east. But the problems 25 years ago were there in terms of the - - because of the seasonality of the use, because of the need for water , and because a mechanized set of equipment had to be used to distribute that water powered by electrici ty, it became an integral component of the cost of doing business as an irrigator or a farmer.And so CSB REPORTING Wilder, Idaho 2276 GOINS (Com) DOE83676 the problem s not a new one.It's simply that in this case the magnitude of the problem is huge.And it I S being perpetuated and the question is do you want to continue a 25 million dollar annual subsidy to one select group of customers at the expense of all others. I guess if the answer was easy somebody would have found it in the last 25 years. That I S probably true. COMMISSIONER SMITH:Thank you for your thoughts. Do you have redirect, Mr. Gollomp? MR. GOLLOMP:No, Your Honor. MR. RICHARDSON:Madame Chairman. COMMISSIONER SMITH:Mr. Richardson. MR. RICHARDSON:Just a point.Mr. Goins mentioned that all classes of customers were opposed, have weighed in on this subsidy issue , as it's being called.And he specifically referenced the industrial class. Just for the record, the Industrial Customers of Idaho Power are silent on this.We haven 1 t weighed in at all one way or the other. THE WITNESS:I stand corrected.l s correct. COMMISSIONER SMITH:Thank you for the CSB REPORTING Wilder, Idaho 2277 GOINS (Com) DOE83676 clarification , Mr. Richardson. If there 1 s no obj ection , Dr. Goins will be excused. MR. GOLLOMP:We would ask that Exhibits 401, 402 , 403 , 404 and 405 be admitted in evidence. COMMISSIONER SMITH:We already did that. But we wi 11 admi t them now.So ordered. (Uni ted States Department of Energy Exhibit Nos. 401-405 were admitted into evidence. COMMISSIONER SMITH:Thank you, Dr. Goins. (The witness left the stand. COMMISSIONER SMITH:'ll take a ten-minute break. (Brief recess. COMMISSIONER SMITH:Back on the record.And we'll go to Mr. Miller. MR. MILLER:Thank you , Madame Chairman and members of the Commission.Uni ted Water Idaho would call Jeremiah Healy. CSB REPORTING Wilder, Idaho 2278 GOINS (Com) DOE83676