20040416Volume XIV Part II.pdf

COMMI S S lONER SMITH:We will go back on
the record.Mr.Budge.
MR.BUDGE:We'd call on behal f of the
Idaho Irrigation Pumpers Association Anthony Yanke
ANTHONY J. YANKEL
produced as a witness at the instance of the Idaho
Irrigation Pumpers Association , having been first duly
sworn , was examined and testified as follows:
DIRECT EXAMINATION
BY MR. BUDGE:
Would you please state your name and
address for the record?
My name is Anthony J. Yankel , Y-a-n-k-e-
My address is 29814 Lake Road , Bay Village, Ohio, 44140.
Did you prefile testimony and exhibits on
behalf of the Idaho Irrigation Pumpers Association?
Yes , I prefiled both direct and rebuttal
testimony.
Did your direct testimony consist of pages
1 through 45 and your rebuttal testimony pages 1 through
IS?
Yes.
CSB REPORTING
Wilder , Idaho
2518 YANKEL (Di)Irrigators83676
And did you also file Exhibits 301 through
312 with your direct testimony and 313 with your rebuttal
testimony?
Yes.
Do you have any corrections you wish to
make to your testimony or exhibits?
Flying out on the plane yesterday, I went
through everything, all my notes and I found one
correction and I had a senior moment and I left my
testimony and everything on the plane, so someplace
within my testimony there is a word "less" and it should
be "more" and as I recall -- no , 1'm serious -- it was
very obvious from the writing what it was.
Despi te the fact that you I ve been here for
two days now , you can I t find it?
I just discovered that this morning that
lost everything.
All right; so if it I s subsequently
discovered , we'll correct it at that point?
Yes.
Mr.Yankel were to ask you today the
same questions that are your direct and rebuttal
testimony, would your answers be the same?
Yes, barring that one change.
And are those answers true and correct to
CSB REPORTING
Wilder, Idaho
2519 YANKEL (Di)Irrigators83676
the best of your knowledge and belief?
Yes , they are.
MR. BUDGE:With that, Madam Chair , we
would move to spread the testimony of Mr. Yankel on the
record and identify Exhibits 301 through 312 and tender
him for cross-examination.
COMMISSIONER SMITH:Didn I t he al so have
rebuttal?
MR. BUDGE:Yes, the direct and rebuttal
testimony.
COMMISSIONER SMITH:Okay, you did that
together?
MR. BUDGE:Yes.
COMMISSIONER SMITH:All right , then we
will spread both the direct and rebuttal testimony of
Mr. Yanke 1 across the record as if read and identify the
exhibits.
MR. BUDGE:Thank you.
(The following prefiled direct and
rebuttal testimony of Mr. Anthony Yankel is spread upon
the record.
CSB REPORTING
Wilder , Idaho
2520 YANKEL (Di)Irrigators83676
INTRODUCT I ON
PLEASE STATE YOUR NAME , ADDRESS , AND EMPLOYMENT.
I am Anthony J. Yankel.I am President of Yankel
and Associates, Inc.My address is 29814 Lake Road, Bay
Village , Ohio , 44140.
WOULD YOU BRIEFLY DESCRIBE YOUR EDUCATIONAL
BACKGROUND AND PROFESSIONAL EXPERIENCE?
I received a Bachelor of Science Degree in
Electrical Engineering from Carnegie Institute of
Technology in 1969 and a Master of Science Degree in
Chemical Engineering from the Uni versi ty of Idaho in
1972.From 1969 through 1972 , I was employed by the Air
Correction Division of Universal Oil Products as a
product design engineer.My chief responsibilities were
in the areas of design , start-up, and repair of new and
existing product lines for coal-fired power plants.From
1973 through 1977 , I was employed by the Bureau of Air
Quality for the Idaho Department of Health & Welfare
Division of Environment.As Chief Engineer of the
Bureau , my responsibilities covered a wide range of
investigati ve functions.From 1978 through June 1979 , I
2521 Yankel , DI Irrigators
was employed as the Director of the Idaho Electrical
Consumers Office.In that capacity, I was responsible
for all organizational and technical aspects of
advocating a variety of positions before various
governmental bodies that represented the interests of the
consumers in the State of Idaho.From July 1979 through
October 1980 , I was a partner in the firm of Yankel
Eddy, and Associates.Since that time , I have been in
business for
2522 Yanke 1 , DI Irrigators
myself.I am a registered Professional Engineer in the
states of Ohio and Idaho.I have presented testimony
before the Federal Energy Regulatory Commission (FERC) ,
as well as the State Public Utility Commissions of Idaho,
Montana , Ohio, Pennsylvania , Utah , and West Virginia.
ON WHOSE BEHALF ARE YOU TESTIFYING?
I am testifying on behalf of the Idaho Irrigation
Pumpers Association (" Irrigators"
) .
WHAT IS THE PURPOSE OF YOUR TESTIMONY IN THIS
PROCEED ING?
The purpose of my testimony is to propose an
adjustment to the expense levels that Idaho Power has
filed in this case and address data and other problems
wi th the Company's class cost -of - service study.
PLEASE SUMMAR I ZE YOUR TESTIMONY.
A. 1.With respect to the Company's filed 6-month
actual , 6 -month budgeted non- fuel expenses, I found that
there was no removal of inappropriate expenses or
normalization.The Company I s historic data shows
2523 Yankel, DI Irrigators
mul tiple instances where expenses are abnormally high one
month, only to be reversed in a following period.As a
result , the reliance on specific monthly data is not
reflective of overall costs.
2524 Yanke 1 , DI Irrigators
recommend that the Company I s filed non- fuel expenses be
reduced by $5,794 724 in order to reflect the levelized
trend in these costs over the previous five years.
With respect to class cost-of-service, I address a
host of problems , starting with the fact that the
Company I s cost -of - service study produces erroneous and
unreliable results.
I address the allocation methodology proposed by the
Company for generation and transmission costs.
recommend the continued use of an unweighted 12 -CP method
as is used for jurisdictional allocation purposes.
I next address the lack of ability to review in any
meaningful way the Company I s load research data that is
contained in a proprietary program to which none of the
parties in this case have access.This is followed by a
discussion of the mismatch between using actual 2002 peak
load data to define demand responsibility while using
lower revenues , based upon 2003 normalized energy.After
this I address specific problems or oversights with the
way some distribution costs are allocated to Irrigators.
Al though I address a number of problems, I cannot
provide an al ternati ve allocation method for each.As a
result of those areas where a specific allocation method
could be developed , a rate of return for the Irrigation
class was calculated that is above the jurisdictional
2525 Yanke 1 , DI Irrigators
average My ultimate recommendation with respect to
class cost -of - service is that far more study needs to be
done , and until that is done , there should be an even
percentage increase to all classes.I further address
the rate design of Irrigation customers and recommend
that no more than the average rate increase be placed
upon the demand and customer charges for the Irrigation
class.
2526 Yanke 1 , DI Irrigators
TEST YEAR EXPENSES
WHAT IS YOUR UNDERSTANDING OF THE COMPANY'
NON-POWER O&M EXPENSE DATA (ACCOUNTS 500-935)FILED IN
THIS CASE?
The Company filed 6-months of "actual" data and
-months of budget data. Subsequently, the Company
provided 9-months of actual data (January-September 2003)
and 3 -months of budget data (October-December 2003) in
response to a Staff data request.It is my understanding
from Exhibit 26 that there were no adjustments to this
data for normalizing any of the non-power O&M expenses
involved.
IS THIS AN ACCEPTABLE PROCEDURE?
No.First
, "
actual" data is more accurate and
reliable to use than budget data because it is known and
measurable. Budget data that is at the end of the year is
even less reliable because it is further removed from the
time the budget was actually made.Second , and more
importantly, there were no adj ustments made to either the
budget or "actual" data that would normalize/remove the
impact of non-routine events.There is no assurance that
2527 Yankel , DI Irrigators
all of these expenses are reflective of normal , ongoing
costs.
HAS THE COMMISSION EVER ADDRESSED THE ISSUE OF NOT
RELYING UPON HISTORICAL TEST-YEAR DATA?
2528 Yankel , DI Irrigators
Yes.In Idaho Power I s last rate case the Irrigators
questioned the use of the historical expense data.After
reviewing the evidence in the last case , the Commission
stated:
Al though fair questions were raised by
Irrigators regarding the increases in 1993 O&M
expenses, no evidence was presented to show
these expenses were improperly or artificiallyinflated, nor was it demonstrated that they
would be less in the future. The Commissionhas traditionally relied on historical test-
year data adjusted for specific known and
measurable adjustments and has, with the
exception of weather and stream-flow sensitive
revenue and expenses , rej ected adj ustments to
historical data based strictly on statistical
analyses. We find no reason to change that
policy in this case. Accordingly, we will not
adjust the 1993 O&M expenses.
DO YOU ALSO TAKE ISSUE WITH THE "ACTUAL" COSTS FILED
BY THE COMPANY?
Yes.There are essentially two problems.First
al though these expenses are labeled as "actual", in fact
they appear to be merely "as-booked" expenses that may
reflect estimates or in some other way be reversed at a
later time.Second, just because an expense is "actual"
that does not mean that it is reflective of normal
operations.
2529 Yanke 1 , DI Irrigators
PLEASE GIVE AN EXAMPLE OF WHY THE USE OF UNADJUSTED
"ACTUAL" EXPENSES MAY NOT BE APPROPRIATE FOR RATE MAKING
PURPOSES.
Figure 1 depicts actual" expenses by month for
Account 500 (Operation and Supervisory Engineering-Steam)
for the five years prior to the test year.
larder No. 25880 at page 6.
2530 Yankel , DI Irrigators
$300 000
$200 000
$100 000
$(100 000)
Figure 1
Acct. 500 (1998-2002)
It)
......
CJ)
oot It)r--It)
Month
Note that although there was a steady decline in
these expenses, there were significant fluctuations in
individual monthly data around this decline.Depending
upon which 6, 9, or 12 -month period one chooses, the
outcome could be very different.
Figure 2 depicts the same data for Account 500 with
the addition of the six months of "actual data" that was
filed by Idaho Power in this case.
2531 Yanke 1 , DI Irrigators
. 'C''Y"""""C'~"'C""""
.,.,:,.
Figure 2
Acct. 500 (5-Years plus 6-months filed)
500 000
000 000
$500,000
10
"r"
(V)
"'"
('f)
"r"
$(500 000)
Month
Al though the data for the first 60 months listed on
Figure 2 is exactly the same as that found on Figure
these graphs look dramatically different because the
magnitude of the expenses listed in the first 6-months of
the test year are significantly different than that
witnessed over the previous five years.Al though there
were wide fluctuations from month to month during the
previous five years , these fluctuations become pale in
comparison to the increases that were found in the
actual" data as originally filed by the Company.The
June 2003 expense for Account 500 could be considered
2532 Yanke 1 , DI Irrigators
.......---------.....----.--.....,..,. ....- "--- """ -""" ...
off the chart" and yet , there was no adjustments made
for abnormal expenses.
Figure 3 depicts the same data for Account 500 with
the addition of 3 months of "actual" data as obtained
from the Company's response to Staff Request 85.
2533 Yanke 1 , DI Irrigators
, ~
Figure 3
Acct. 500 (5-years plus 9-months actual)
500 000
000 000
$500 000
$(500 000)
$(1 000 000)
$(1 500 000)
$(2 000 000)
Months
The addition of 3 more months of "actual" data
introduces further fluctuations into these expense values
with an extremely large negative entry, followed by a
second negative entry.To a large extent , the negative
entries in August and September 2003 erase the impact of
the extremely high positive entries in June and July
2003.However , note that the Company does not use these
three additional months in its case.
HAS THE COMPANY OFFERED ANY EXPLANATION REGARDING THE
DRAMATIC SWINGS IN THE DATA FOR ACCOUNT 500?
2534 Yankel , DI Irrigators
-" "",..,"":'",':"'-""_.."'-"-."'-'-""~~~~-~~-----"- -'--'" """---""""""""""""""""
Yes.The Company's response to Irrigator Request 22
addresses these data swings.First, the Company stated
that the declining trend is driven by decreases in labor
costs.With respect to the large fluctuations that
started in June 2003, the Company offered the following:
The actual charges for Account 500 through June
2003 include a large entry in June for the
Bridger Plant. This entry, for $1 134 000represents a temporary accrual of annual
overhaul costs. This accrual has been reversedin the following months. Following thisreversal, the annual charges to Account 500 for
Bridger should be similar to the levels
experienced in 2001 and 2002.
Accordingly, the actual" costs used by the Company are
as booked" by the Company and may be considered
actual I', but they are subj ect to change/reversal in a
later period.Thus , looking at a limited timeframe the
Company'actual" costs at times do not reflect ongoing
expenses.
PLEASE GIVE A SECOND EXAMPLE OF WHY THE USE OF
UNADJUSTED " ACTUAL" EXPENSES MAY NOT BE APPROPRIATE FOR
RATE MAKING PURPOSES.
Figure 4 depicts actual expenses for Account 502
(Steam Expense) for the 5 -years prior to the test year
the 6-months of "actual" data filed by the Company, plus
3 additional months.
2535 Yanke 1 , DI Irrigators
Figure 4
Acct 502 (5-years plus 9-months actual)
000 000
500 000
000 000
500 000
(500 000)
000 000)
500 000)
T"" coco
Months
As with Account 500, it can be seen that although
there is a relatively consistent level of expense
associated with Account 502, there can also be huge
variations around this level.This variation can be seen
to be as great as $1,500 000 per month.
As with Account 500, even when using "actual" data,
the use of a different 6, 9, or 12 -month period can
produce very different results with respect to what level
of expense is used for ratemaking purposes.As can be
seen from Figure 4 , the "as filed" expenses for Account
502 have some months that are significantly higher than
2536 Yanke 1 , DI Irrigators
---- -
'C"'w.,
"-'" ".-~--,
the overall trend.If the next three months of actual
data are included (the last three data points on Figure
4), it greatly reduces the impact of what appears to be
abnormally high expenses for April, May, and June 2003.
However , these last three months are not included in the
Company I s filing.
2537 Yankel , DI 10aIrrigators
WHAT EXPLANATION HAS THE COMPANY OFFERED REGARDING
THE DRAMATIC SWINGS IN THE DATA FOR ACCOUNT 502?
The Company I s response to Irrigator Request 21
addresses these data swings.The explanation is similar
to that offered regarding the swings in the data for
Account 500.
FERC Account 502 contains the costs
of operating the boiler and associated
equipment at each of Idaho Power I s threejointly owned steam plants. The costs in thisaccount are based on the amounts reported to
Idaho Power by the operating partner at eachplant. The significant components of the
expenses booked in Account 502 are chemicals to
maintain the quality of the water used to
produce steam and the labor costs to operate
the boiler. The chemical costs vary with
changes in generation , while the labor costs
remain fairly constant. For accountingpurposes, we estimate O&M expenditures for the
month and then adjust those estimates to the
actual amounts in the following month when the
actual amounts are known. For simplicity, onlya few accounts are used for estimating
purposes: Account 502 is one of those accounts.This estimating process can cause year-to-yearvariations.
In 2000, Account 502 increased
284 718 over 1999. All of this increase canbe attributed to the Bridger Plant, whichincreased $1 302 415 over 1999. The increaseat Bridger is due to an increase in actual
charges of $577 000 a reversal of accruals of$214 000 made in 1999 that did not recur in
2000 , and an increase in the estimate of
expenses for December that was $506 000 greaterthan the corresponding period in1999.
2538 Yankel, DI Irrigators
In 2002 Account 502 decreased
$1,751 360 - Bridger decreased $1,150,000 andValmy decreased $602,000. Bridger I s decrease
is the result of a decrease in actual charges
of $436,000 and a decrease in the amount
estimated for December 2002 of $804 000 overDecember 2001. The decrease at Valmy is due to
actual charges for 2002 being $508,000 less
than 2001 charges, while the reversal of the
prior months estimate in January of 2002 was
$97 000 greater than the corresponding period
in 2001.
Once again , just because a particular level of expense is
"booked" in one month , does not mean that it will not be
reversed in the future.Addi tionally, some of the
expenses "booked" may in fact be estimates that are to be
trued up at a later time.Obviously, there are wide
variations in
2539 Yankel, DI llaIrrigators
the level of expenses from year to year , even in an
account such as 502 that only contains the cost of
operating (not maintaining) the boilers.
ARE THERE EXPENSES CONTAINED IN ACCOUNTS 500-935 THAT
DO NOT REFLECT NORMAL EXPENSE?
Yes.Unfortunately, the Company has not identified
in its filing (nor has it made any adjustment) to reflect
abnormal expenses.One such area of abnormal expenses
can be found in Account 536 (Water for Power) Figure 5
illustrates the monthly expenses "booked" to this account
for the five years prior to the test year as well as the
first 9-months of the test year.
000 000
$900 000
$800 000
$700 000
$600 000
$500 000
$400 000
$300,000
$200 000
$100 000
Figure 5
Acct. 536 (5-years previous plus 9-months actual)
"r"
"'"
T"""
"'"
('f)
T"""T"""
L()
C\I
T""" "'"('f) ('f)
Month
('f)L()
L()
2540 Yankel , DI Irrigators
Not only from Figure 5, but also from the response
to Irrigator Request 24 , it can be seen that this Account
536 contains a lot of abnormal activity:
The decreasing trend in Account 536
expenses since 1997 can be traced to three mainfactors: refinanced American Falls debtobligation, conclusion of the amortization of
FERC headwaters benefits , and reduced incentive
royal ty payments for Milner.
Idaho Power is realizing lower
interest expenses related to the American Falls
debt obligation. This obligation was
refinanced with a variable rate instrument in
2000 and interest rates have been very lowrecently.
An assessment for use of Federal
water impoundments (headwater benefits) was
instituted in the late 1980 's. Retroactive
FERC headwater benefits through 1988 were
computed and paid in 1990. Based on IPUC Order23224, this cost was amortized over 120 months.
In 2000, the amortization period finished and
expense dropped accordingly.
Drought conditions throughout Idaho
in recent years have affected streamflows and
generation at Milner. Since 2000, generation
has fallen below the threshold requiringpayment of incentive royal ties to Milner DamInc.
Account 536 expenses in the test year
are higher than the preceding two years due tothe cloud seeding program. The cloud seeding
program was started in late 2002 , but the testyear (2003) includes expenses for a full yearof operation. Cloud Seeding Program costs more
than offset the expense reductions previously
noted.
Obviously, the "norm" for this account is anything
but consistency.Cloud seeding is not a regular activity
and should not be included as a normal test year expense.
Likewise, including the full incentive royalty payments
2541 Yankel , DI Irrigators
for Milner Dam Inc. should possibly be reflected.
The problem is defining a level of expense that can
be considered normal for test year purposes.A possible
solution would be to define an overall level of expense
that is "normal" without specifying the exact amount that
must be included in each FERC account for the exact
expense for every item on the Company I s books.
2542 Yanke 1 , DI 13aIrrigators
WHAT IS YOUR RECOMMENDATION FOR THE RATE MAKING
TREATMENT OF NON-POWER COST ACCOUNTS 500-935 EXPENSES SO
THAT THEY ARE REFLECTIVE OF COSTS FOR RATE MAKING
PURPOSES?
As pointed out above, "as booked" values may not be
as reflective of expenses that one would wish to use for
rate making purposes.Additionally, "as booked" expenses
may contain expenses that are not reflective of normal
operations.These abnormalities in "as booked" costs can
best be smoothed out by using an historic trend for these
expenses.
In order to do this, I have compiled the data for
each month of the previous five years for all non-power
costs accounts (excluding Accounts 501 , 547 , 555, and
557) .Figure 6 illustrates the summation of these
accounts and the trend that results.It shoul d be
remembered that these are still "as booked" values so the
major fluctuations that have been demonstrated above are
still included in the monthly data.The purpose of this
analysis is not to remove the individual fluctuations
but to define the overall trend that exists in spite of
individual monthly variations.
2543 Yankel, DI Irrigators
$25 000 000
$20 000 000
$15,000 000
$10 000 000
$5,000 000
HOW DO THE ACTUAL EXPENSES INCURRED DURING THE FIRST
Figure 6
All Non-Power Costs Test
Year
..........,..........(")
"d"
....................(").....
"d"
..........
Month
NINE MONTHS OF THE TEST YEAR (AS WELL AS THE REMAINING
3 -MONTHS OF BUDGET DATA) COMPARE WITH THIS TREND
ANALYSIS?
As can be observed from Figure 6, the test year data
and the trend data are generally in agreement.Exhibi t
301 contains a numerical comparison of the values derived
from the trend analysis with the budgeted and actual data
filed by the Company.' As can be seen from column "B" of
Exhibit 301, the "as filed" expense data (6-months actual
and 6 -months budget) are $5,794 724 or about 2.7% greater
2544 Yankel , DI Irrigators
than that derived by the trend analysis.The data in
column "C" of Exhibit 301 indicates that if the "
filed" data were updated to 9-months actual and 3 -months
budgeted data, then these expenses would exceed the trend
by $4 788 244 or 2.2%.
2545 Yankel , DI 15aIrrigators
WHAT ARE YOUR RECOMMENDATIONS WITH RESPECT TO MAKING
AN ADJUSTMENT TO THE "AS FILED" TEST YEAR EXPENSES?
I recommend that the "as filed" values (actual and
budget) not be used for rate making purposes.
demonstrated above , even the Company I s actual/booked data
is subj ect to estimation and reversal.The trend
analysis over the last five years gives a much clearer
long-term picture of the expenses that are being incurred
on a normal basis.I recommend that at a minimum the
Company's "as filed" non-power cost expense data be
reduced for rate making purposes by $5,794 724.
PLEASE EXPLAIN HOW YOU ARRIVED AT YOUR PROPOSED $ 5 . 8
MILLION REDUCTION IN EXPENSES.
Using the 5-years of previous monthly data , I let the
computer do a trend analysis.Graphically, this is
represented by the straight line on Figure The
computer analysis also gave me an equation that
represented this line.Using this equation , I calculated
the amount of expense that would be expected if the trend
over the previous five years were expected to continue.
Note, calculated expense for each month increases as the
trend over the past 5 -years has been increasing.The
2546 Yanke 1 , DI Irrigators
results for the individual months of the test year from
the trend analysis are listed on Exhibit 301.
WHY DO YOU CONSIDER THE ABOVE ADJUSTMENT TO BE A
"MINIMUM" ?
2547 Yankel , DI 16aIrrigators
Al though I reviewed far more accounts than I have
addressed in my testimony, I did not make a detailed
review of all of the Company's accounts.There could
very likely be accounts where data was included in my
trend analysis that was higher than normal or not normal
like cloud seeding.In fact, from my experience,
assume that many additional (non-normal) costs were
incurred during the drought conditions since 2000 that
are included in my trend analysis.For example, the
Company I S response to Irrigator Request 21 addresses the
swings in Account 502 expenses and it states in part:
The decrease in expense in 1995 from 1994 of
$840 596 is a result of decreased generation at
each of the plants primarily due to good hydro
condi tions , resulting in reduced chemicalcosts.
Obviously, the drought conditions of the last few years
may have greatly added to the Company I s non-power cost
expenses, and thus, added expenses to this trend
analysis.
2548 Yanke 1 , DI Irrigators
ALLOCATION OF EXPENSES TO CLASSES
Overview
PLEASE GIVE AN OVERVIEW OR REALITY CHECK OF WHAT
THE COMPANY IS PROPOSING IN SUPPORT OF THE PROPOSED HUGE
AND DISPROPORTIONATE RATE INCREASE FOR THE IRRIGATION
CLASS
Idaho Power claims that it is attempting to prevent
rate shock" by limiting the rate increase to the
Irrigation class to "only a 25% increase" compared to the
67.1% increase that the Company I s cost -of - service study
claims is needed from these customers.I f the Company'
cost-of-service results were accurate , this translates
into a rate of 62 mills kWh for Irrigators and 59 mills
per kWh for Residential customers2 Thus , Residential
customers would be paying less for electricity than
Irrigation customers , in spite of the fact that
Irrigation customers:
1. Are large users at a single location , withlower distribution and customer related
costs per kWh;
2. Do not even use the secondary distribution
system;
3. Generally have a much higher load factor
(ratio of average use to non-coincident
use); and
2549 Yanke 1 , DI Irrigators
4. Generally have a much higher coincidentfactor (ratio of average use to coincidentpeak use) .
A similar comparison can be made with the rates that are
shown by the Company's cost-of -service study for the
Schedule 9-Secondary customers.The Company I s
cost-of-service study shows that these customers should
only be paying 39 mills compared to the 62 mills shown
for the Irrigation customers.Thus , Irrigators would be
paying almost
2Company Exhibit 41 page 1 line 237.
2550 Yanke 1 , DI 18aIrrigators
60% higher rates for service in spite of the fact that
when compared to the Schedule 9 - Secondary customers
Irrigators:
Use approximately the same level of energy
per customer;
Do not even use the secondary distributionsystem (as is recognized in the Company 'cost-of-service study);
Generally have a higher load factor (ratio
of average use to non-coincident use); and
Generally have a higher coincident factor
(ratio of average use to coincident peak
use) .
It is absurd to suggest that Irrigators should pay 60%
more for energy than the Schedule 9 Secondary customers
as well as more than Residential customers.According to
the Company I s 2002 FERC Form 1 the Irrigators are paying
an average of 51 mill per kWh-they would be very happy to
pay the 39 mills per kWh that the Company'
cost-of-service study suggests the Schedule 9-Secondary
customers should pay.This clearly demonstrates there
are major flaws in the Company's cost allocation
methodology and/or data.
ARE THERE OTHER RATES THAT YOU CAN POINT TO THAT
COULD SHED ADDITIONAL LIGHT UPON THE ILLOGICAL RESULTS
THAT ARE PRODUCED BY THE COMPANY IS COST-OF-SERVICE STUDY?
2551 Yanke 1 , DI Irrigators
Yes.This Commission is well acquainted with
PacifiCorp as it regulates that utilityl s service area in
Idaho.I have spent the last 15 years working for the
Committee of Consumer Services (The Committee) in Utah on
various PacifiCorp cases.The Committee represents
residential , small commercial, and irrigation interests
in Utah.I have testified on behalf of these rate
classes as a witness for the Committee.There have been
a number of PacifiCorp rate cases
2552 Yankel , DI 19aIrrigators
in Utah over the last 15 years.These have provided
regular and thorough review of PacifiCorp' s allocation
methodology, models, and data.Addi tionally, various
Task Forces have been established where such things as
data analysis and load research data were thoroughly
reviewed in a non-rate case setting by technical people
representing various parties.The net result of all of
this acti vi ty has been:
A clear understanding that the data that is
being incorporated into the cost-of-servicestudy is reliable;
A reasonable assurance that most of the data
being utilized is reflective of cost causation;and
A recognition that there are limits to the use
and validity of some of the data, especiallythe load research data.
After all of this review , the rates in Utah for
Residential (Rl) customers averaged 67 mills , while for
Irrigation (R24) customers they averaged 43 mills, i. e.
Thus , Residential rates in Utah are about 60% more
expensive than the Irrigation rates in Utah.This is not
a discrepancy in rates that needs to be changed over
time.There is an agreement in place between the various
parties in Utah that reviewed PacifiCorp I s cost of
service data and load research data.In exchange for not
needing to collect further load research data for the
Irrigation class in Utah , the Irrigation customers will
2553 Yankel , DI Irrigators
simply be given the average system rate change in all
future cases.Thus, the relative difference between
Irrigation rates and Residential rates in Utah will
remain relatively unchanged with Irrigation rates being
significantly below Residential rates.
Idaho Power has not undergone this level of
scrutiny.As I will discuss later in my testimony, there
are major gaps in the ability of the Company'
cost-of-service study to produce results that can or
should be relied upon for setting rates.
2554 Yankel , DI 2 OaIrrigators
IS GROWTH IN IRRIGATION LOAD FUELING THE NEED FOR A
RATE INCREASE?
No.Idaho Power proj ects the need for significant
plant additions over the next ten years.During the next
three years alone, it estimates that its capital
expenditures will be $675 million3 The Company proj ects
an annual growth rate over the next 10 years of 2.3% per
year4 .This annual growth rate is broken down as
follows:
Residential
CommercialIndustrialIrrigation
Even this small proj ected growth in the Irrigation load
in light of current proceedings before the Idaho
Department of Water Resources and the Snake River Basin
Adjudication Court which may result in an actual decline
in irrigation from groundwater in order to satisfy prior
surface water rights.It is also my understanding that
I daho Power proj ected zero growth in normal i zed
Irrigation load between 2002 and 2003.Clearly, the
Irrigators are not primary drivers in the need for
additional capital expenditures.There is no basis from
a marginal cost or forward looking perspective to
significantly increase rates to Irrigators.
2555 Yanke 1 , DI Irrigators
HAVE YOU REVIEWED THE BASIS FOR THE COMPANY I S RATE
SPREAD PROPOSAL?
3Keen testimony at page 27.4*Idaho Powers 2002 IRP page 9.
2556 Yanke 1 , DI 21aIrrigators
Yes.I have reviewed the Company I s cost-of-service
computer model and its various methodologies for
functionali zing, classifying, and allocating costs, as
well as the specific data sources used to supply the data
for the model.
HAVE YOU FOUND ANY PROBLEMS WITH THE VARIOUS
COMPONENTS THAT WENT INTO DEVELOPING THE COMPANY'
PROPOSED RATE SPREAD?
Yes , I have found maj or problems with virtually all
components the Company used to develop its rate-spread
proposal.Most of the problems are not class specific
but universal to all classes or multiple classes.
reason of these widespread problems, it is impossible to
define cost causation in any accurate and reliable way.
Accordingly, the only fair and reasonable thing to do is
to spread any rate increase evenly to all customer
classes.If the Commission is interested in adjusting
rates between the customer classes , a separate procedure
should be initiated to address these technical problems.
Modeling Problems
HAVE YOU DISCOVERED ANY PROBLEMS WITH THE COMPANY I S
COST-OF-SERVICE COMPUTER MODEL IN THIS CASE?
2557 Yankel, DI Irrigators
Yes, the Companyl s computer model is fatally flawed
and cannot be relied upon to give accurate results, even
if one were to agree with all allocation methodologies
and data inputs.I am not speaking here of the data used
or a difference of opinion on how to allocate costs.
am speaking of computational or logic errors wi thin the
program that cause it to produce counter-
2558 Yanke 1 , DI 22aIrrigators
intuitive results. An example of such a counter-intuitive
result would be to have a class I rate of return increase
or decrease when it should not have, given input data
changes.computer modelThe lack of an accurate
obviously affects all customer classes.
HAVE YOU ATTEMPTED TO FIND THE ERROR OR ERRORS IN THE
COMPANY I S COMPUTER MODEL IN ORDER TO CORRECT THI
PROBLEM?
I have made such an attempt, but the Company's model
is far from "user friendly" and such a task is well
beyond the capability of most intervenors or the Staff to
address.I have been doing cost-of-service studies for
over 25 years and I have never been faced with such a
computer model that was impossible to follow (except in
the last case where Idaho Power used essentially this
same model) .A cost-of-service model should be no more
than a huge collection of simple additions, subtractions,
mul tiplications , and divisions.The Company'
cost-of-service model is little better than a "Black
Box" .
When I discovered in the course of my investigation
in this case that the Company I s model was not producing
reliable results, I began to look into the model further.
2559 Yanke 1 , DI Irrigators
Exhibit 30 is the Company's jurisdictional
cost-of-service study in this case and it allocates costs
by FERC account in a traditional and understandable
manner.Exhibit 39 consists of 42 pages and it is where
the Company demonstrates how it allocated costs to
various classes.As can be seen on page 3 through 40 of
that exhibit , the Company's class cost -of - service study
does not allocate costs based upon FERC account , but by
functional categories that were developed in Exhibit 37.
One would think that this two-step procedure should
be a small complication , but one that can be easily
followed.In reality, it is far more complicated.The
Company also provided a
2560 Yanke 1 , DI 23aIrrigators
copy of its class cost -of - service model in electronic
form so that the formulas and logic could be readily
followed.At this point I began to run into the "Black
Box" .Al though the Company's computer model produced the
42 pages that are contained on Exhibit 39 , only 14 of
these 42 pages can be found in the computer model.
I am
told that the model somehow writes over itself so that it
produces some information like page 3 (allocation of
plant in service) and then immediately destroys it.
is impossible to see how the computer links the various
data in the different cells together in order to produce
the results that are presented.
The complete lack of transparency of this model does
all parties a disservice.One can only proceed on faith
that the model is accurately defining the cost causation
as prescribed by the methodologies and data advocated by
various parties.It is completely inappropriate to say
that Irrigation customers , or any group of customers
should have their rates increased by "X" amount and that
one has to take the increase based upon faith.When the
model begins producing erroneous results , one must
abandon all faith in the model.
HAVE YOU DEVELOPED A COST-OF-SERVICE MODEL IN THIS
CASE?
2561 Yanke 1 , DI Irrigators
Yes , I have developed a straightforward
cost-of-service model to utilize in place of the
Company I s Black Box model.I have made this study
available to all parties as an electronic file as one of
my workpapers.I classified and allocated all costs in
the same manner as suggested by the Company'
Jurisdictional cost -of - service study.Exhibi t 302
contains a comparison of the rate of return for each
class as calculated by the Company I s class
cost-of-service model (Column A) and those calculated
under my "Basic" model (Column B) .I would
2562 Yankel , DI 24aIrrigators
not expect the results of these two models to be the
same.In spite of this expectation, the results of both
models are very similar.
Q. WHAT DOES THIS COMPARISON DEMONSTRATE?
For the Irrigation class , the Company I s model
calculated a rate of return of - 0 . 58 while my model
(using all of the Company's assumptions) placed their
rate of return at - 0.42%.For the Residential class, the
Company's model calculated a rate of return of 5.62%
while my model (using all of the Company's assumptions)
placed that rate of return at 5.20%.For all customer
classes, the difference between rates of return between
my model and that offered by the Company were similar.
IS THE COMPANY'S CLASS COST-OF-SERVICE COMPUTER MODEL
THE ONLY THING THAT NEEDS TO BE TAKEN ON FAITH WITH
RESPECT TO DEFINING A RATE SPREAD IN THIS CASE?
No, unfortunately, the Company I s load research data
is also not subj ect to scrutiny.The Company I s Load
Research data is contained in a proprietary computer
program known as Lodestar.It is my understanding that
only one person in the Company knows how to operate this
2563 Yankel, DI Irrigators
program wi th an addi t ional person act ing as backup.
have asked for the raw load research data to be provided
in a usable electronic format and have been given the
data as an output to Lodestar only.This means that
would need to manually transcribe hundreds of thousands
of data points by hand into a usable Excel or Access
format.It is not that the Company is refusing
2564 Yanke 1 , DI 25aIrrigators
to supply the information, it's that the Lodestar program
that the Company has chosen to process this data cannot
be operated , scrutinized or verified by Staff and
intervenors , rendering it another "Black Box.
WHY IS IT IMPORTANT THAT THE DATA BE AVAILABLE IN A
STANDARD PC FORMAT?
The Company I s load research data is the foundation
upon which the all important demand allocators are based.
Unlike other data used in a rate case, the load research
data is a sample that is purportedly designed to
accurately reflect the population as a whole.The sample
design for the load research program should generate
reliable statistical results.However , a good sample
design does not insure acceptable results.If the actual
sample is not a true reflection of the population in
general , then the data is useless.It is imperative that
the Staff and intervenors have an opportunity to review
the data gathered to insure that it is reflective of the
general population.
Until data can be provided in a format that is
usable to Staff and intervenors , it will simply be data
that is provided in a "Black Box" that we are asked to
accept on faith.Unlike the cost-of-service study that I
2565 Yankel , DI Irrigators
was able to develop, there is no such possibility to
develop an al ternati ve to the Company I s load research
data.All parties in this case are forced to use the
Company I S load research data without the opportunity to
verify its validity.Because these all important"
demand related factors are not verifiable, they should
not be used to shift cost responsibilities.
2566 Yankel, DI 26aIrrigators
Methodology Problems
WHAT ALLOCATION METHODOLOGY DO YOU RECOMMEND FOR
ALLOCATING DEMAND RELATED GENERATION AND TRANSMISSION
COSTS TO CUSTOMER CLASSES IN THIS CASE?
I recommend the use of the 12 -Coincident Peak (12 -CP)
method.This method has been used in Idaho for reviewing
the allocation of generation and transmission costs
between jurisdictions and between customer classes for
approximately 25 years.Although no specific method has
been endorsed for class cost-of-service purposes, the
12 -CP appears to be the only accepted and utilized method
for allocating these costs between jurisdictions.
DOES THE COMPANY USE THE 12 -CP ALLOCATION METHOD IN
THIS CASE FOR DEMAND RELATED GENERATION AND TRANSMISSION
COSTS?
Idaho Power does use a 12 -CP method for allocating
generation and transmission demand related costs on a
jurisdictional basis.However , the Company only puts up
the pretense of using this method for class
cost-of-service purposes.Because the Company claims the
need to "weight" each month's coincident peak value for
class cost -of.. service purposes, and because it "weights"
2567 Yanke 1 , DI Irrigators
most months by ", it effectively only uses a 5-
method for allocating generation costs and a 3-CP method
for allocating transmission costs.In the last rate case
(Case No. IPC-94-5) the Company s development of its
allocation factors stopped here.In this case, it
appears, that this "weighting" approach produced an
unrealistic result , so the Company is only using half the
weighted value and half the unweighted value to
ul timately produce an allocator.The fact
2568 Yankel , DI 27aIrrigators
that the Company needs to temper the results of its own
marginal weights confirms how inappropriate the results
are.
The use of two different methods of allocating the
same costs (between jurisdictions and classes) can and
does cause mismatches in who pays for what costs.For
example, Idaho Power has a significant space-heating load
and the Idaho jurisdiction has allocated costs based upon
that space-heating load as well as other loads.However
according to the Company I S 3 -CP method, "0" transmission
costs are allocated to space-heating customers in the
marginal weighting process, in spite of the fact that the
whole jurisdiction has allocated costs based, in part, on
space - heat ing usage.This is neither just nor
reasonable.
DOES THE WEIGHTING USED BY IDAHO POWER FIT THE LOAD
PROFILE PLACED UPON THE COMPANY I S GENERATION RESOURCES?
No.The graph below lists the average System peaks
over the last four years.
2569 Yankel , DI Irrigators
500
000
500
8 ~
000
:i 500
000
500
Figure 7
Load plus Maintenance Requirement
Average 1999-2002
Load
Maintenance
---.
2570 Yanke 1 , DI 28aIrrigators
,..",..' ':'
0':"
::,;:,
'::',0;-'::""""0'::""'::'
:""';"'"';";"""""~"::"';'::"",;',,,,"'-- "--",",,,,,,
P""'
"""""""""""
As can be seen from Figure 7, the monthly peak loads are
all of similar magnitudes The lowest average peaks
occur in April and they are 2/3rd the level of the peak
month.Maintenance is performed throughout the year,
with some valley filling in April and May, but also
during the 5-months that the Company designated as having
capaci ty deficits.As a matter of fact, the Company has
averaged more maintenance at the time of the November and
December (two of its capacity deficit months) than it
does in January, February, March, and September
(non-deficit months) There is nothing in this data that
supports the Company I s use of only a 5 -CP method for
allocating generation costs and a 3 -CP method for
allocating transmission costs under its "marginal cost"
weighting scheme.
THE COMPANY CLAIMS6 THAT ITS MARGINAL COST WEIGHTING
FACTORS ARE BASED UPON THE CAPACITY DEFICITS FOUND IN ITS
2002 INTEGRATED RESOURCE PLAN (IRP) FOR THE SUMMER MONTHS
OF JUNE, JULY , AND AUGUST, AS WELL AS THE WINTER MONTHS
OF NOVEMBER AND DECEMBER.IS THAT WHAT THE COMPANY IS IRP
DEMONSTRATES?
No.In fact, the Company I S IRp7 only addresses
resource deficits during four months and not five months.
2571 Yanke 1 , DI Irrigators
These months are June, July, November and December-August
is not included.
Exhibit 303 contains two graphs from page 29 of the
Company's 2002 IRP.These graphs represent the 50th
Percentile of Water and Load.For purposes of developing
marginal
5Numerical values listed on Exhibit 305.
6Brilz testimony at page 15.
7See for example the 2002 IRP at pages 3 , 4, 6, and 28.
2572 Yankel, DI 29aIrrigators
costs in this case, the Company only focused on the
year timeframe of 2003-20078 From Exhibit 303 it can
be seen that the only energy deficits found during this
timeframe in the 2002 IRP occurred in December 2006 and
November and December 2007.It also shows regular peak
capacity deficits during June and July with some deficits
in November and December of this timeframe.
The Company s 2002 IRP also addresses a 70th
Percentile Water and Load condition.Graphs associated
with conditions that are not expected to be exceeded 70%
of the time (a probability of being exceeded 30% of the
time) can be found on Exhibit 304.Under the 70th
percentile condition there are more energy deficits in
both the summer as well as the winter months.There is a
slight energy deficit at the end of this period
associated with August, but it is pale in comparison to
the other months and much smaller than the September
energy deficit.With respect to a capacity deficit under
the 70th percentile condition, August only shows one small
deficit in the 4th year, and often has more of a surplus9
than other months.
From all of the above, it can be concluded that the
Company misinterpreted its own 2002 IRP.That IRP
clearly and repeatedly stated that Idaho Power had
capacity deficits in only the four months of June , July,
2573 Yankel, DI Irrigators
November, and December.
THE COMPANY CLAIMSlo THAT ITS TRANSMISSION RELATED
MARGINAL COST WEIGHTING FACTORS ARE BASED UPON DEFICITS
FOUND IN ITS 2002 INTEGRATED RESOURCE PLAN (IRP) FOR THE
SUMMER MONTHS OF
BResponse to Federal Executive Agencies Request 1-d at page
9In 2007 under the 70th percentile condition August has more of a
surpl us than January, February, and September.
lOBrilz testimony at page 16.
2574 Yankel, DI 3 OaIrrigators
JUNE, JULY , AND AUGUST.I S THAT WHAT THE COMPANY'S IRP
DEMONSTRATES?
Exhibit 306 is a copy of page 33 from theNo.
Company's 2002 IRP that depicts the transmission deficit
under the 50th and 70th percentile conditions.As can be
seen from both graphs, the only predicted transmission
deficits during the 2003-2007 timeframe occur in July.
can only assume that the Company chose to use three
months to allocate transmission costs because it felt
that a l-CP method would look too ridiculous.
Basically, the entire notion of placing " 0" weight
on certain months that do not show up as a deficit in the
Company I S IRP is absurd.The purpose of the IRP is to
identify resource shortfalls and to plan to correct for
them.There will always be resource shortfalls over the
horizon that need to be addressed.That does not mean
that times with no shortfalls demonstrated should be
given free electric service.
I S THE COMPANY'S TREATMENT OF ITS ENERGY COSTS
APPROPRIATE?
The Company I s proposed treatment/weighting of energy
costs is far more appropriate than its treatment of
2575 Yanke 1 , DI Irrigators
demand related generation and transmission charges, even
though the Company used only the weighted "marginal cost"
values and did not split the allocators 50:50 with the
unweighted" usage.In spi te of the winter energy
deficits shown under the 50th percentile condition and the
summer/winter deficits shown under the 70th percentile
condition, the Company proposed to use the energy in each
month to allocate costs.This is consistent with what
the Company should have done with demand related
generation and transmission costs.
2576 Yanke 1 , DI 31aIrrigators
However , the use of marginal costs as weighting
factors is not appropriate.The energy costs contained
in any cost -of - service study are the average costs and
not the marginal costs.It is improper to spread the
entire energy usage of a class over the cost of the last
or marginal unit produced.The vast maj ori ty of the
energy consumed by all of Idaho Power I s customers is
either hydro (at zero fuel cost) or Company-owned thermal
(with minimal fuel cost per kWh) .It is not proper to
allocate these average fuel costs based upon the price of
the last unit of generation.Additionally, this provides
a mismatch with the PCA rates that are based on an
average cost per kWh.
WHAT ARE YOUR OVERALL RECOMMENDATIONS WITH RESPECT TO
ALLOCATING GENERATION AND TRANMISSION RELATED COSTS FOR
CLASS COST OF SERVICE PURPOSES?
I recommend that the 12 -CP method be used for all
generation and transmission costs.I recommend that no
marginal" weighting factors be applied to either the
demand or energy component of these costs.In this
manner the class allocation process would be consistent
with the jurisdictional allocation procedures that
assigned these overall costs to Idaho Jurisdiction in the
2577 Yankel, DI Irrigators
first place.Addi tionally, the use of unweighted costs
is far more reflective of cost causation than the
weighted allocation factors proposed by the Company.
USING YOUR COST-OF-SERVICE STUDY , WHAT IS THE RESULT
OF USING UNWEIGHTED ALLOCATION FACTORS FOR SPREADING
GENERATION AND TRANSMISSION COSTS?
2578 Yankel, DI 32aIrrigators
Using my cost -of - service study and simply removing
the weightings that the Company has applied has a maj or
impact upon the rate of return calculated for the
Irrigation customers.As can be seen from Exhibit 302
column "C", the rate of return for the Irrigators goes
from -42% in my "Base" cost-of-service study with no
changes to any of the Company I s methods or data to 2.11%
or half way from where it was to the overall system
average rate of return.This is an extremely significant
change and demonstrates the impact that the Company'
weighting factors have on the Irrigation class.No other
rate schedule experienced anywhere near the magnitude of
this impact by changing the weighting factors.
Data Problems
BEYOND THE COMPUTER MODELING PROBLEMS AND THE
METHODOLOGICAL PROBLEMS, DOES THE COMPANY I S COST
ASSIGNMENT TO CUSTOMER CLASSES SUFFER FROM ANY ADDITIONAL
PROBLEMS?
The Company I s cost assignment procedures sufferYes.
additionally from critical input data problems.If the
input data is wrong, it does not matter how accurate the
computer model or how appropriate the methodology.
would be unj ust and unreasonable to make determinations
2579 Yankel , DI Irrigators
of relative cost responsibility based upon inaccurate
information.
PLEASE GIVE AN EXAMPLE OF THESE DATA PROBLEMS THAT
CAUSE DISTORTIONS IN THE OVERALL COST RESPONSIBILITY THAT
IS ASSIGNED TO VARIOUS CUSTOMER CLASSES.
2580 Yanke 1 , DI 33aIrrigators
One example can be found in the raw data that is used
to define the monthly coincident peak usage for
Irrigators as well as other customer classes.Basically,
the load research data that the Company asks us to accept
on faith" is a reflection of actual 2002 usage and not
normalized usage.However , the energy and associated
revenue that is used for rate making purposes in this
case is based upon normalized usage.Everyone knows that
the 2002 summer was very hot and dry compared to normal.
Thus, the Irrigators are faced with being credited
normalized revenue, but charged with demand levels that
are well above normal.
IS THERE A CORRELATION BETWEEN OVERALL CONSUMPTION
AND DEMAND FOR THE IRRIGATION CLASS AS A WHOLE?
Yes , there is a strong correlation for the Irrigation
class as a whole.Admittedly, on a single month basis
there may be very little correlation for an individual
Irrigator that has one piece of equipment and a fixed
demand that does not vary if he operates 1 hour or 744
hours in the month.However , load research and cost
allocation looks at the class as a whole.Irrigators
will not turn-on their pumps under given conditions or
will postpone operation until the beginning of another
2581 Yanke 1 , DI Irrigators
billing cycle if conditions are right.On an aggregated
basis this results in a strong correlation between kWh
usage and kW demand levels as can be seen from the
following graph:
2582 Yankel, DI 34aIrrigators
",,-
000 000
800 000
600 000
400 000
200 000
Figure 8
Irrigation In-Season
Billing and Average Demand
Billing Demand
Year
As can be seen from Figure 8 , the overall billing demand
for the Irrigators is highly correlated to the overall
energy usage.If the Company is going to normalize
energy and revenue for rate making purposes , then it must
also normalize the demands that are assigned to the
various customer classes.
Exhibit 307 details the results of this
normalization of Irrigation demand based upon the exact
same method the Company used for establishing coincident
2583 Yanke 1 , DI Irrigators
o' "
'- -
o' - ...... ..--.." :,
"":,, ","""..;:..;:.",;"
0"-
" "' '
..;:..0",
demand, except starting with normalized energies as
opposed to 2002 energy levels.As can be seen from
Exhibi t 307, there is a difference of 9.1% between the
sum of the 12 -coincident peaks that are normalized and
those that are not normalized.I f one were to compare
the difference between normalized values and actual 2002
coincident demand values for Irrigation customers for
only the 5-coincident peaks that the Company used in its
filing, then that difference grows to 16.2%.
2584 Yankel , DI 35aIrrigators
ARE THERE OTHER NORMALIZING ADJUSTMENTS THAT SHOULD
BE MADE TO THE COINCIDENT PEAK DEMAND FOR OTHER CLASSES?
Yes, there are two other types of normalizing
adjustments that need to be made.First, there were
several other rate groups (Residential, Schedule
Schedule 9-Primary and Schedule 9-Secondary) where energy
levels and revenues were normalized, but 2002 actual
coincident demands were used to establish class
coincident peaks in the Company s cost-of-service study.
These schedules also need to have their demands
normal i zed.The calculationll for normalizing each of
these schedules is presented in Exhibit 308 through
Exhibit 311.
The second normalization adjustment that needs to be
made is to normalize the non-coincident peak data that is
developed in the same manner by the Company for these
same schedules.The maximum non-coincident peak data is
used in the Company s cost-of-service study for purposes
of allocating demand related distribution plant.The
maximum non-coincident peak (based upon normalized usage)
for Irrigation, Residential, Schedule 7, Schedule
Primary, and Schedule 9-Secondary are highlighted in
Column M of Exhibit 307 through Exhibit 311.
2585 Yankel, DI Irrigators
WHAT IMPACT DOES USING NORMALIZED DEMAND DATA (TO BE
CONSISTENT WITH USING NORMALIZED ENERGY AND REVENUE DATA)
HAVE ON THE RATE OF RETURN FOR THE IRRIGATORS AND OTHER
CLASSES?
llBased upon the same methodology as used by Idaho Power except
starting with normalized demands.
2586 Yanke 1 , DI 36aIrrigators
As can be seen from Exhibit 302 Column "D", by using
normalized demands, 12 the rate of return for the
Irrigation customers is increased to 3.50% with the
jurisdictional average at 4.97%.This adjustment brings
the Irrigation rate of return up another 25% from where
the Company s cost-of-service study placed it compared to
the jurisdictional average.Again , the impact of using
normalized demand values upon the Irrigation customers is
far greater than on the other classes.
ARE THERE OTHER DATA PROBLEMS THAT YOU HAVE
IDENTIFIED?
There are a number of problems with theYes.
classification of some distribution plant as proposed by
the Company.Some of these classification problems are
found on page 12 of the workpapers of Company witness
Brilz that I have included in my testimony as Exhibit
Near the bottom of that exhibit is a listing of the312.
amount of plant that is considered to be associated with
Primary Distribution and the amount of plant that is
considered related to Secondary Distribution.As can be
seen from Exhibit 312 , there is $135.8 million classified
as Primary related Account 364 (Poles, Towers, and
Fixtures) with $14.0 million (8.4%) classified as
2587 Yankel, DI Irrigators
Secondary related.Exhibit 312 also shows $72.7 million
classified as Primary related Account 365 (Overhead
Conductors & Devices) with $14.7 million (16.9%)
classified as Secondary related.
The first thing that seems odd about these values is
that the relative amount of Secondary Conductors and
Devices is twice that of the Poles and Towers.
response to Irrigator Request 41-c the Company stated:
l2These demand and energy values are unweighted.
2588 Yanke 1 , DI 37 aIrrigators
If a pole or tower carried both primary and
secondary lines, it would be assigned to the
primary component. In this situation, the pole
or tower would need to be constructed to thestandards necessary to support primary lines.
As such, it would be classified as primary.
Thus, the Company's classification scheme for
Account 364 completely ignores any Secondary
responsibili ty for dual-purpose poles.Addi tionally, all
Poles and Towers are booked to Account 364, even if they
are part of a Service Drop to a specific customer13
IS THIS TREATMENT OF ACCOUNT 364 COSTS APPROPRIATE?
No.Obviously, this procedure is bias toward placing
more plant costs into the Primary component.
Unfortunately, there is insufficient information
available to correct this bias.
ARE THERE OTHER APPARENT PROBLEMS WITH THE
CLASSIFICATION OF COSTS FOR ACCOUNTS 364 AND 365?
Yes.The Response to Irrigator Request 42 provides a
breakdown of "Pole Miles" and "Wire Miles" by Primary and
Secondary components.The breakdown was as follows:
Secondary
359
659
Primary
19,075
48,596
Pole Miles
Wire Miles
2589 Yankel , DI Irrigators
In and of itself , these values would be accepted at face
value.However , the rest of the Response to Irrigator
Request 42 places these values into question.It states
that " Pole Miles"
2590 Yankel, DI 38aIrrigators
refers to the distances between poles, which is
understandable.It further states that Wire Miles is the
distance between poles times the number of wire phases,
which also makes sense.The response goes on to give an
example:
For example, a 100 foot span of three-phase
conductor would equal 100 feet of pole miles
and 400 feet of wire miles (i. e., three wires
plus the neutral or four times the poledistance)
When one applies this definition and example to the "Pole
Miles" listed in the response, one would expect the "Wire
Miles" to be significantly larger than those provided.
Even if the entire distribution system was 2 -phase, this
would mean 3 "Wire Miles" for each IIpole Mile", yet the
total "Wire Miles " provided are closer to 2 times the
"Pole Miles II than they are to "3 times.Wi thin the
limits of this case, it has not been possible to
delineate the source of this discrepancy.
GIVEN THE DISCREPANCIES YOU HAVE POINTED OUT WITH
RESPECT TO THE BASE DATA ASSOCIATED WITH ACCOUNTS 364 AND
365, WHAT ARE YOUR RECOMMENDATIONS?
Significant shortcomings exist and the data and the
development of the numbers that go into the Company'
2591 Yankel , DI Irrigators
cost -of - service case require much greater review and
analysis.Account 364 and Account 365 costs need to be
further investigated and a reliable set of numbers needs
to be produced.
For purposes of this case, I recommend that 16.86%
of Account 364 costs be classified as Secondary related.
This is the same percentage as is classified as Secondary
related for Account
l3See Response to Irrigator Request 41-
2592 Yankel, DI 39aIrrigators
365.My general feeling is that this percentage is low
but some number has to be picked and 16.86% at least
moves Account 364 costs in the right direction.
ARE THERE ANY OTHER PROBLEMS WITH DISTRIBUTION
RELATED COSTS?
Yes.Account 366 deals with Underground Conduit and
Account 367 deals with Underground Conductors.As can be
seen from Exhibit 312, 63.1% of Underground Conduit
(Account 366) is classified as Secondary, while only
19.6% of Underground Conductor (Account 367) is
classified as Secondary.Because one would expect
Secondary Condui t to carry Secondary Conductors, one
would expect that the ratio of Secondary Conduit to be
similar to that of Secondary Conductor.As seen from
Exhibit 312 , the ratio of Secondary Conduit is over
3 -times that of Secondary Conductor.No explanation is
provided for this wide discrepancy, which needs to be
investigated.Because of the lack of additional
information , I have made no adjustment to the
classification that the Company has proposed for these
accounts.
SHOULD IRRIGATORS BE ALLOCATED ANY ACCOUNT 366 OR
2593 Yanke 1 , DI Irrigators
ACCOUNT 367 COSTS?
Irrigators do not use underground conduit andNo.
conductors so they should not be allocated any of these
costs.In addressing this issue the Company stated in
Response to Irrigator Request 58-a:
Idaho Power s current property accounting
records do not identify investments in poles,
overhead conductors, underground condui t, or
2594 Yankel , DI 40aIrrigators
underground conductors by customer class nor by
customer characteristics such as rural versusurban location , number of customers per feeder
average number of line miles per customer in
each class, etc. Because this specific data is
not available , Idaho Power has historically
allocated all of the investments in FERC
Accounts 364, 365, 366, and 367 using class
non-coincident peak demand (or coincident group
peak demand) methodology described in the
National Association of Regulatory Utility
Commissioner s Electric Utility Cost AllocationManual. ... The methodology does not recogni zeclass-specific characteristics or demographics.
Should it be desirable to recognize
class-specific characteristics such as rural
versus urban location or average number of line
miles per customer in each class, a methodology
other than the non-coincident peak demand
methodology would need to be developed to
recognize that certain classes utilize, or do
not utilize, the components of the distribution
system is used by the irrigation class while at
the same time recognizing that a larger portion
0 the overhead system is used by the irrigation
class on a per-customer basis than by the otherclasses of customers. (Emphasis added)
It is not appropriate to assign costs to Irrigators
for plant that they do not use because "this specific
data is not available" and the Company believes that it
is under-allocating costs in another area.I agree that
non-coincident peak demand is widely used for
distribution plant allocation and I am not taking
exception to the overall allocation method.However
just like Schedule 9 - Primary customers are not allocated
costs with respect to secondary lines (because they do
not use them), Irrigators should not be allocated costs
2595 Yankel, DI Irrigators
associated with underground distribution equipment.This
does not destroy the integrity of the non-coincident peak
method; it just recognizes that some customer groups do
not use certain equipment.
I recommend " zero " underground distribution plant
being allocated to the Irrigation class.I f the Company
feels that specific data is not available" to properly
allocate distribution costs, then this specific data
should be gathered in the future.
ARE THERE ANY OTHER PROBLEMS WITH THE COMPANY I S DATA
THAT WOULD TEND TO OVER-ALLOCATE COSTS TO THE IRRIGATION
CLASS?
2596 Yankel , DI 41aIrrigators
Yes.Irrigators typically have Service Drop
that goes from the Line Transformer on a Pole,down the
Pole,and ending a Meter on the same Pole.do not
have an exact number for this distance, but I would
estimate it to be a maximum of 30 feet.When Idaho
Power developed its allocation factor for Services, it
computed the cost based upon an assumed Service Drop
length of 70 feet14 Response to Irrigator Request 44-c
stated:
The Company does not maintain the detailed data
on the length of the service drop for each
customer and therefore cannot calculate the
actual average service drop length by customerclass. However, based on the expertise of the
Company s agricultural representatives and
their knowledge of the Company I s customers, it
is believed that no service drop for irrigation
customers exceeds 120 feet or would be less
than 10 feet and on average would be
approximately 60 feet in length. (Emphasis
added)
Al though I disagree with the Company I S ultimate
estimate that the Service Drop for Irrigators would
average 60 feet, there are two things upon which we
First, the Company does not have good data uponagree.
which to allocate Services.Second, the average length
of a Service for an Irrigation customer is less than what
was used to allocate costs to Irrigators.
I am not making a specific recommendation to change
this allocation factor in this case , but I recommend that
2597 Yankel, DI Irrigators
this be another one of those areas that gets serious
attention in the future.
WHAT IS THE OVERALL RATE OF RETURN FOR IRRIGATORS AND
OTHER CUSTOMER CLASSES, BASED UPON THE ADDITIONAL CHANGES
YOU HAVE RECOMMENDED TO THE DISTRIBUTION DATA?
l4See Response to Irrigator Request 44 -
2598 Yankel, DI 42aIrrigators
Al though I have pointed out a number of problem areas
in the allocation of distribution costs, I have only
recommended two changes:
Increase the classification of Secondary
related Poles and Towers (Account 364) up to
the same level as used for Secondary related
Overhead Conductors (Account 365); and
Assign " zero " cost responsibility to Irrigation
customers with respect to Underground equipment
(Accounts 366 and 367) .
Based upon making only these two additional
adjustments to the distribution data, the rate of return
for each customer class is demonstrated on Exhibit 302
Column "E"The rate of return for the Irrigation class
becomes 5 .11% compared to a jurisdictional average of
97% .Once again , these two adjustments had a
significant impact upon the Irrigation customers while
having a much smaller impact upon other customer classes.
WHAT ARE YOUR OVERALL RECOMMENDATIONS WITH RESPECT TO
COST ALLOCATION IN THIS CASE?
I recommend an across the board increase to all
customer classes.This is based upon two factors.
First , in spite of all of the data problems, all the
2599 Yankel, DI Irrigators
maj or customer groupings have a rate of return that is
relatively near the system average.Second , because of
all of the data problems, no customer grouping should be
gi ven a disproportionate increase or decrease.
Idaho Power has not had its rates and supporting
cost-of-service data reviewed for 10 years.All customer
groups deserve to have their rates based upon true
cost -of - service.The
2600 Yankel , DI 43aIrrigators
Company s cost -of - service study does not rise to this
level.To insure that that happens in the future the
necessary effort should be required.
Rate Design
IS THE RATE DESIGN PROPOSED BY THE COMPANY
APPROPRIATE FOR THE IRRIGATION CUSTOMERS?
The rate design proposed by the Company placesNo.
far too much emphasis upon fixed charges and not enough
on energy charges.Demand charges are designed to
recover demand costs as well as keep peak demand in check
by giving a customer a chance to save money by keeping
his demand as low as practical.It is well known that
individual Irrigators have only one appliance (a pump) to
turn either "off" or "on"In this context , pricing
demand to keep peak load in check is somewhat
meaningless.Once an Irrigator turns on his pump, his
demand charges will be the same if he operates 1 hour or
744 hours in the month.
I recommend that the demand and customer component
of Irrigator's rates be increased by no more than the
average rate increase.In this manner , more emphasis
(charges) will be placed on energy consumption, the only
commodity that Irrigation customers can control.
2601 Yankel , DI Irrigators
SUMMARY OF RECOMMENDATIONS
PLEASE SUMMARIZE THE IRRIGATORS RECOMMENDATIONS TO
THE COMMISSION IN THIS CASE.
1. The Company s overall rate request should be
reduced by at least $5,794 724 in order to
reflect more realistic O&M expense figures on a
going forward basis.
2. The Company s cost-of-service study and its
load research data must be put in an electronic
format that is understandable and transparent
to all parties so that they can be fully
scrutini zed.
3. A comprehensive study needs to be made of the
data that is used as input to the
cost -of - service study.
4. Any rate increase should be spread evenly
between the customer classes until such time as
better information is available.If a
disproportionate rate increase were to occur in
this case , the corrections that I have proposed
should be incorporated into any such analysis.
5. The customer charge or demand charge for
Irrigators should not exceed the system average
2602 Yanke 1 , DI Irrigators
Yes.
rate increase.This properly places monetary
impact upon the one cost component over which
Irrigators have control.
DOES THI S CONCLUDE YOU DIRECT TESTIMONY?
2603 Yanke 1 , DI 45aIrrigators
EMPLOYMENT.
PLEASE STATE YOUR NAME , ADDRESS, AND
I am Anthony J. Yankel.I am President of
Yanke 1 and Associates , Inc.My address is 29814 Lake
Road , Bay Village, Ohio, 44140.
ARE YOU THE SAME ANTHONY YANKEL THAT FILED
DIRECT TESTIMONY IN THIS CASE?
Yes.I am filing rebuttal testimony in order
to address oversights or inaccuracies in the testimony
that was filed on February 20, 2004 by various
intervenors and the Commission Staff.
PLEASE SUMMARIZE THE TESTIMONY OF OTHER
INTERVENORS AS THEY ADDRESSED THE COMPANY '
COST-OF-SERVICE RESULTS AS IT IMPACTED THE IRRIGATORS.
None of the other Intervenors have made a
significant attempt to analyze or scrutinize the validity
of the Company s cost-of-service study.Instead , they
blindly accept the results (which help their customer
class) and argue that the rate increase should be placed
entirely on the back of the Irrigators.Unfortunately,
2604 Yanke 1 , Reb Irrigators
in this case there is a glaring lack of review and
validation of the Company I s cost-of-service study
compared with other general rate cases.
2605 Yankel , Reb Irrigators
PLEASE GIVE AN EXAMPLE OF THIS LACK OF SCRUTINY
OF THE COMPANY'S COST-OF-SERVICE MODEL AND ITS INPUTS.
Dr. Peseau, on behalf of Micron , points out
that (contrary to the Company I s claim) Idaho Power never
used an "averaged" weighted 12-CP allocator for
generation and transmission demand costs where the
average was 50% based upon a marginal cost weighting and
50% based upon an unweighted 12-CP method.Dr. Peseau is
correct.
He goes on to state that:
I can only assume that Idaho Power Company made
the decision to change allocation methods in
this case to understate the severity of the
problem with irrigation rates.
I fully agree with this statement as well.I made a
similar statement in my direct testimony regarding this
swi tch in Company methodology2 I found a similar desire
on the part of the Company to temper results with respect
to its transmission allocator by using a 3 -CP method,
when a review of the Company's 2002 IRP (in combination
with its espoused methodology) would result in a l-
method3 It would appear that the Company is picking and
choosing data and methods that fit its desired results.
Dr. Peseau ' s lack of scrutiny is demonstrated by the
results he advocated.Based upon his "correction " of the
2606 Yankel , Reb Irrigators
averaging that Idaho Power utilized, Dr. Peseau proposed
that the demand allocator for generation for the
Irrigators be increased by 19%4 and the
lDirect testimony of
2Direct testimony of
3Direct testimony of
40.1984/0.1670=1.188
Peseau at page 23 lines 4-
Yanke 1 at page 27.
Yanke 1 at page 30.
2607 Yankel , Reb Irrigators
allocator for transmission plant be increased by 33%5
As most people involved in ratemaking understand, this is
a dramatic shift in costs to this class.However , the
results of the cost-of-service run that Dr. Peseau made
(using Idaho Power's model) showed that these changes had
a minimal effect on the results to the Irrigation class,
with the desired rate from the Irrigators now being
calculated to be 68.74 mills/kWh compared to the 62.
mills/kWh calculated by the Company.
As it turns out , the Company's cost -of - service study
is flawed, but Dr. Peseau and others did not bother to
question the results, or any of the input that goes into
this model.
THE COMMISSION STAFF DID A SENSITIVITY STUDY
WITH THE COMPANY'S COST-OF-SERVICE STUDY TO DETERMINE HOW
SENSITIVE THE IRRIGATION CLASS WAS TO SOME OF THE
ASSUMPTIONS AND/OR DATA USED.PLEASE COMMENT ON THE
THREE COST-OF-SERVICE STUDIES THAT STAFF CONDUCTED FOR
THI S PURPOSE.
The first study conducted by the Staff (Exhibit
120) calculates a required increase for the Irrigation
customers of 47.22%.This study merely mimics the
Company I s cost -of - service study (but based upon an
2608 Yanke 1 , Reb Irrigators
overall revenue increase of only 3.14%) .
The Staff's second study (Exhibit 121) calculates a
required increase for the Irrigation customers of 44.45%.
This study is based upon the assumption of weighting only
four months of the 12 -coincident peaks (July, August
November , and December)
50.2686/0.2021=1.329
2609 Yanke 1 , Reb Irrigators
do not know why the Staff chose these four months, when
the Company s 2002 IRP suggests that there are capacity
deficits in the four months of June, July, November and
December.I assume that if one leaves out the month of
August versus the month of June it would make little
difference in the overall result, but this lack of
sensitivity should not be taken to mean that all is well
wi th the method or underlying assumptions.
The Staff's third study (Exhibit 122) is an
unweighted 12 -CP method and it calculated the required
increase for the Irrigators at 29.38% or about 62% of the
increase needed if the Companyl s weightings were used.
By comparison, my cost-of service study computer run,
using the same unweighted assumptions as the Staff, move
the increase needed down to 53% of that required by the
Company s weighting factors.The difference here is
strictly a function of the model used and not the data or
assumptions that are inputted into the model.The
Company I S computer model has some internal
inconsistencies and one of the results of those
inconsistencies is that it is not as sensi ti ve to change
in allocation factors as it should be.
DOES THE STAFF'S COST-OF-SERVICE STUDIES INCLUDE
ANY OF THE OTHER ADJUSTMENTS YOU MADE IN YOUR DIRECT
2610 Yanke 1 , Reb Irrigators
TESTIMONY?
No, the Staff's cost-of-service studies do not
attempt to normalize Irrigator (or any class demand) to
be consistent with sales and revenue levels, nor does it
address the fact that Irrigators do not use, for all
practical purposes , the Company I s underground
distribution system.
2611 Yanke 1 , Reb Irrigators
THE STAFF'S POSITION ON USING WEIGHTING FACTORS
SEEMS TO BE SUMMAR I ZED AS FOLLOWS:ANY ANALYSIS THAT
DOES NOT WEIGHT THE CRITICAL MONTHS MORE HEAVILY THAN
SHOULDER MONTHS DOES NOT CORRECTLY REFLECT
FORWARD-LOOKING DEMAND RELATED COSTS6 DO YOU AGREE
WITH THIS STATEMENT?
No.First, if we are going to reflect
"forward-looking demand related costs" then we should be
allocating them to classes that are causing those costs.
Second, it is one thing to weight some months more
heavily than others if , in fact, costs are more heavily
incurred in some months than in others , but costs in this
case are certainly not heavily incurred in five months
with absolutely no marginal demand costs incurred in
seven other months.A 5 -CP method simply does not
reflect cost causation on the Idaho Power system.
Furthermore, if one looks at the "unweighted" data, it
can be seen that December, which is used in the Company'
5 - CP method, has a lower demand than January, February,
May and September (which are not included).November is
included as one of the 5-CP's, but there is only one
month with a lower coincident peak.
2612 Yankel , Reb Irrigators
January
February
March
April
May
JuneJuly
August
September
October
November
December
989 MW
996
847
636
209
627
742
315
184
769
706
896
6Hessing Direct Testimony ~ page 15 lines 6-
2613 Yanke 1 , Reb Irrigators
i6 20
CI)
I;:CI) 10
::0.I C
20 I a.
IF ONE WERE GOING TO APPLY ADDITIONAL WEIGHTS
TO THESE FIGURES, WHERE SHOULD ONE TURN FOR DATA?
If one were to apply weights to these monthly
coincident values that are already self -weighting, then
these weights should be based upon the costs that Idaho
Power actually pays for its last increment of power on
the hour of each monthly peak.Idaho Power has provided
such data7 Figure 9 below is the average8 of the highest
single price Idaho Power paid for short-term or
intermediate-term firm power at the hour of each monthly
coincident peak during 2002 and 2003.
Figure 9
Highest Marginal Price Paid at Hour of System Peak
vs. Company Defined Marginal Cost
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nav Dee
60.
ItS50.00
ItS
40.00 ~
D. 1"*,'
",,"'
Derived
30.00 i6
5 -+- Actual
...
20.00 ~ .
::J10.00 1:)
c:t
7 See Response to Irrigator Request 36.
8For example the January figure is the average of the highest rate paid on
January 29, 2002 at 0800 ($28. 75/MW) and the highest rate paid on January 7
2003 at 0800 ($36. 788/MW) for an average of $32.
,C'"C" '
2614 Yankel , Reb Irrigators
"'--,~,,---, """-
"'0"""'("'7,",'-;---"'-'---
" "..,
r."
,",'....""",..-" ..""----..,~----,---
As can be seen from Figure 9 , all months but March and
April have at the time of the system monthly peak a price
of more than $30/MW with the highest cost being in July
at under $52/MW.It is also interesting to note that
al though the Company did not assign any marginal costs to
the months of January, February, May, September, and
October; the actual marginal costs incurred at the times
of these monthly peaks were very similar to the actual
marginal cost that was incurred during the August peaks.
Furthermore, the Company assigned less weighting to
August than November and December in spite of the fact
that these months had higher marginal demand costs.
WHAT IMPACT WOULD USING WEIGHTING FACTORS BASED
UPON ACTUALLY INCURRED MARGINAL COSTS HAVE ON THE RESULTS
OF THE COST-OF-SERVICE STUDY THAT YOU RAN?
Although I do not believe that there should be
any weighting of the coincident peak values , I have
produced a cost-of-service study using these actual
marginal costs in order to demonstrate how distorted the
Company I S weighting factors are.I combined these with
the normalization of all demand values and the removal of
the allocation of underground distribution plant to the
Irrigators.The resulting rate of return of 4.80% for
2615 Yankel, Reb Irrigators
the Irrigators compares favorably with the overall system
average rate of return of 4.97%.If the Staff insists
that weighting factors must be used, then the weighting
factors should be based upon actual cost causation, as
opposed to a theory that is inconsistently applied and
assigns zero costs in over half of the months.
2616 Yanke 1 , Reb Irrigators
HAVE OTHER WITNESSES ADDRESSED THE
APPROPRIATENESS OF USING MARGINAL OR INCREMENTAL COSTS IN
THE SETTING OF RATES?
Yes.Dr. Power for AARP has extensively
advocated considering the marginal or incremental cost of
future usage in the rate setting process-both
cost-of-service and rate design.He quotes Idaho Power
President J. Lamont Keen as stating:
Clearly, growth has not paid for itself. The
incremental costs of adding, operating, and
maintaining generation, transmission and
distribution plant are greater than the
embedded costs associated with generation
transmission and distribution plant that have
been the basis of Company rates over the last
ten years.
I fully agree with Dr. Power that the embedded cost
of serving present and future customers will exceed the
embedded cos t s As pointed out by the Company, Idaho
Power has undergone significant growth over the last 10
years.As further pointed out , there have been
reductions in load (specifically FMC and FERC Full
Requirements customers) that have balanced out this
growth.Thus, in spite of the fact that the normalized
residential load has grown 17% since the last case and
Schedule 9 load has grown 44%, there has been very little
change in overall system load.Until recently this
2617 Yanke 1 , Reb Irrigators
scenario only caused large increases in distribution
plant with much smaller increases in generation and
transmission plant.Now that the surplus created by
eliminating most of the FERC and FMC loads has been
absorbed, significant increases in generation and
transmission plant costs will be required as well.
Because incremental growth (past and present) has had an
impact since the last rate case , that growth should be
reviewed.
2618 Yanke 1 , Reb Irrigators
Jan
Feb
, Mar
Apr2 1 May
Jun22 Jul
Aug23 Sept
Oct
2 4 Nov
Dee
HOW HAS THE GROWTH IN THE IDAHO JURISDICTION
BEEN DISTRIBUTED SINCE THE LAST CASE?
The following graph shows the percentage load
growth by class since the last case.
Figure
Load Growth 1993-2003
1,400 000
200 000
000,000
800,000
600 000
400 000
200 000
200 000
~(j
General General Lar e Power
Residential Service Service Service Irrigation
(1)(7)(9)(19)(24)DOE/INEL Simplot Micron Total
14%48%24%131%37%27%149%17%13%52%21%39%16%30%143%15%16%54%26%69%49%28%158%17%21%52%30%37%12%28%122%20%27%56%26%18%29%130%22%31%56%32%14%15%111%34%35%61%31%-5%22%144%11%31%20%62%24%17%68%27%131%16%21%14%63%26%27%22%106%15%13%19%50%23%17%27%28%128%13%16%46%20%108%25%30%113%15%46%24%727%35%27%142%
2619 Yanke 1 , Reb Irrigators
, -
"c,
=-'-- -'--"
As can be seen from Figure 10, the normalized energy for
the Irrigation class has remained virtually unchanged
since the last case.The incremental growth and
associated costs over the last ten years has been
associated with three customer classes and one special
contract customer.From the above table, it can be seen
that there was a disproportionate amount of this growth
that took place during the summer months.
WILL THE IRRIGATORS BE A MAJOR CONTRIBUTOR TO
GROWTH AND INCREMENTAL COSTS IN THE FUTURE?
Under the Company s present forecast the
Irrigation class is only expected to grow at a rate of
0 .4% per year compared to:
Residential
CommercialIndustrial
Under this forecast, the Irrigation class will contribute
far less to incremental costs than all of the other main
customer groups.Because Dr. Power believes that 11 it is
important to find ways of signaling to customers the
higher incremental cost associated with providing them
wi th the electric service they seek" 9 , I suggest that Dr.
Power put more of a cost burden on those classes that
have caused the growth in the last 10 years and are
2620 Yanke 1 , Reb Irrigators
expected to continue to do so.
However, Dr. Power seems quite willing to ignore who
is causing this growth, with its associated costs, and
merely suggests that this increased burden be shoved off
9Dr. Power's direct testimony page 12 lines 8 and
2621 Yanke 1 , Reb IDaIrrigators
the Irrigators.He goes so far as to diminish the impact
his proposal would have by declaringlo
But in rural areas, where irrigated agriculture
is a more dominant part of the local economy,
don I t lower irrigation costs stimulate the
local economy?
That is unlikely. "Rural" no longer meansagricul tural .Most rural residents are notirrigators. Most rural businesses are notirrigated farms. The rural economy is
increasingly diverse and non-agricultural. The
economic connection between the rural economy
and agriculture has increasingly reversed so
that the diversity in the non-agricultural
local economy, including the urban economies
wi thin commuting distance, supports farm
families rather than the other way around.
Farm and ranch families increasingly supplement
their household income and stay engaged in
agricul ture by taking jobs in the
non-agricultural sectors of the surrounding
economy. In that sense, promoting the
non-agricultural economy is crucial to the
survival of family farms and ranches.
It is only appropriate to accurately define
cost-of-service first and then make regulatory judgments
second.It appears as if Dr. Power and others have made
no attempt to define cost-of-service , but blindly
accepted the Company s study because it offers them a
short-term benefit.I am not one to make predictions
regarding rate impacts , but reading between the lines of
Dr. Power's statement, one may sense that the impact of
his suggestion could mean a drastic reduction , if not
almost complete elimination of the Irrigation class.
With a possible 67% increase over 5-years , this is not at
2622 Yankel , Reb Irrigators
all unlikely.
WHAT WOULD BE THE IMPACT OF THE ELIMINATION OF
THE IRRIGATION CLASS?
lODr. Power I s direct testimony beginning on page 23 line 23.
2623 Yanke 1 , Reb l1aIrrigators
I will leave to others the question of what
would happen to the farm economy in the Idaho Power
service area.However , from a rate perspective, there
are a few things that will obviously happen.
There will be more electricity available on the
Idaho Power system for the other customers.As a matter
of fact, there will be (on a normalized basis) about
798,000 MWH available or approximately the same amount
as FMC made available when it ceased operation.This
amount of additional energy is enough to offset the
expected growth for the next five years.Thi s woul d be
benefit to all of the other customer classes because far
less additions to generation and transmission plant would
be required.It would have very little impact upon the
requirement for additional distribution plant.
WHAT HAPPENS AFTER FIVE YEARS?
Depending on how the Irrigation load would be
eliminated, Idaho Power may need one or more rate cases
during this timeframe in order to just keep itself
revenue neutral.For discussion purposes , I will make a
simplifying assumption that there will not be a rate case
for five years-the point at which there are no Irrigators
and the point where the growth of the other classes just
2624 Yanke 1 , Reb Irrigators
catches up to the load lost from the Irrigation class.
will make an additional simplifying assumption that there
will be no increase in any rate base or expenses between
now and then.However , it should be remembered that
there was a 68% ($351.2 millionll) increase in Idaho
jurisdictional distribution plant investment (underground
investment almost tripled by adding $100 million of
llExhibit 20 pages 6 line 191 in the last case lists the distribution
investment in the Idaho jurisdiction at $513 403,825.
2625 Yankel, Reb 12aIrrigators
investment) over the last ten years, when there was
negligible system load growth and no Idaho Irrigation
growth.I f the proj ected growth takes place and is
offset by a reduction in Irrigation load, this will have
very little impact upon the $400 million in distribution
plant investment that is expected in the next 6 years12
In summary, I am assuming that load grows as proj ected,
the Irrigation load goes to zero , and rate base and
expenses stay the same.
Basically, this amounts to reallocating present
costs under the new load scenario.The resulting energy
and demand levels13 are detailed in Exhibit 313.The
following is a listing of the percentage changes that
would be needed to the main energy and demand allocators
using the Company's weightings under such a scenario:
Energy (EI0)Demand (DID) 14.
Residential 16%40%
General Service-26%20%
General Service-21%
Large Power-11%
DOE 47%
Simplot 29%
Micron 12%
WHY WOULD THERE BE SUCH A SIGNIFICANT SHIFT IN
2626 Yankel , Reb Irrigators
DEMAND ALLOCATORS IF THE GROWTH WAS RELATIVELY THE SAME
FOR EACH CUSTOMER GROUP?
l2Direct Testimony of Keen at page 17 lines 1-3.
13Demand values based upon the same load factor relationship that exists
today,
l4The negative growth figures reflect the actual experience over the last 10
years where some classes grew in energy usage , but displayed decreases in
peak demand.
2627 Yanke 1 , Reb 13aIrrigators
Al though growth in energy may be relatively
equivalent, growth in coincident demand has been far more
lopsided over the past 10 years.The need for such
significant and disproportionate changes to the demand
allocators with no increase in ratebase or expenses
points up a shortcoming in the overall allocation
process.Basically, we are allocating embedded costs in
an environment where growth is costing substantially more
per unit.At present, the Irrigation class is a maj or
customer group and has a large portion of costs (both
historic as well as newer) allocated to it.I f there
were a reliable method to separately allocate historic
and recent costs, the revenue responsibility for the
Irrigation class would be a lot less-such a method does
not exist.However, as pointed out above, by removing
this large class (that helps to absorb these newer costs
without causing them) a more exaggerated shift in revenue
responsibility is made toward the class or classes that
are causing that growth.All this Commission can do is
recognize this shortcoming in its deliberations.
AFTER REVIEWING ALL OF THE DIRECT TESTIMONY OF
STAFF AND INTERVENORS, HAVE YOUR ORIGINAL RECOMMENDATIONS
CHANGED?
2628 Yankel, Reb Irrigators
No.The Commission should not give a
disproportionate increase in this case , but establish a
separate procedure to give various parties time to work
out some of the details and data problems with respect to
cost-of-service.After those details have been
addressed, the Commission could then hold a hearing to
address the disputed issues and then adj ust rates as
appropriate.If a small increase were given as suggested
by Staff
2629 Yankel , Reb 14aIrrigators
this would be an ideal time to make such a review.
indiscriminately give a significant rate increase to the
Irrigation class based upon poor data and methodology
would not only be unj ust and unreasonable, but it could
cause disruptions of an irreversible nature.
DOES THIS CONCLUDE YOU REBUTTAL TESTIMONY?
Yes.
2630 Yankel , Reb Irrigators
open hearing.
(The following proceedings were had in
COMMISSIONER SMITH:Mr. Gollomp, do you
have questions?
MR . GOLLOMP:Yes, I have a few
questions.
CROSS-EXAMINATION
Good afternoon, Mr. Yankel.
Good afternoon.
I have a few questions directed towards
your direct testimony.I'd like to direct your attention
CSB REPORTING
Wilder , Idaho
now to page 23, lines 13, 14.You state - - do you have
Yes , I do.
-- li The Company s cost of service model is
Ii t tIe better than a 'Black Box do you see that
Yes.
Now , if you turn to page 24 of your direct
testimony, lines 1 7 through 18 , you say, "I have
developed a straightforward cost of service model to
utilize in place of the Company I s Black Box model"; do
BY MR. GOLLOMP:
that before you?
testimony?
2631 YANKEL (X)Irrigators83676
you see that testimony?
Yes.
Does the basic model which you refer to
and which appears on page 24 , line 22 -- do you see
that?
Yes.
- - represent your attempt to replicate
Idaho Power's cost of service study?
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Wilder, Idaho
Yes, it does.
With respect to the irrigation class, are
the results of your basic model and the IPC' s black box
model , as you characterize it , similar?
Under this particular set of
circumstances , yes, they are.
Would you agree in general that both your
basic model and IPC' s cost study show that rates for
irrigation customers are well below cost of service?
Under the particular scenario which is my
base case, yes.
Thank you.I have just a few questions
regarding your participation in Utah.
Yes.
At pages 19 and 20 of your direct
testimony, you discuss your work for the irrigation
customers in Utah and also mention an agreement in Utah
2632 YANKEL (X)Irrigators83676
among various customers regarding rate increases for
irrigation customers.
Actually, what I talk about there is my
work for the committee.I really don I t work for
irrigation customers in Utah.I work for a state agency
and it's called the Committee of Consumer Services.
represents residential , small commercial , which would be
kind of similar to the Schedule 7 here, and irrigation
customers, so I I ve represented all three classes,
sometimes simultaneously and sometimes not
simul taneously, but I represent them actually for the
Consumer Council is who I work for.
In that role you've participated in recent
Utah Power rate cases?
Yes, probably for at least the last 10
years , every one that they've had.
Is it not true that in Utah I s latest rate
case the results of the cost study filed by the Company
in that case indicated that present rates for the
irrigation customers are below Utah's cost of service?
I believe they were quite a bit below is
what the filing showed , but again , the agreement, and
it's basically reflected in the numbers, is the Company
quit doing any kind of load research data or collecting
any kind of data for the irrigation customers in Utah a
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Wilder , Idaho
2633 YANKEL (X)Irrigators83676
couple of years ago, actually, it was more than a couple
of years ago , but the agreement came out a couple of
years ago, so the data is, for all practical purposes,
everybody recognizes nonexistent and they just pass on an
even increase to the irrigation customers.
That agreement , by the way, is discussed
by you at page 20 , lines 18 and 19; am I correct?
Yes.
Has the Commission in Utah ever formally
recognized the agreement you referred to in a rate
case?
m not positive of that.I do know, as
you I ve just indicated , that there was a recent case in
Utah that was settled, for all practical purposes, and
the settlement had an even increase for the irrigation
customers and that was accepted by the Commission.
But to your knowledge , you don't recall
any adoption by the commission or affirmation of the
agreement by the commission; is that correct?
Oftentimes in the task force , I'm not sure
where those reports go other than to the task force
whether or not the commission ever does anything with
them or responds, I don I t know , so to be more direct , no,
I do not know if the commission ever adopted or agreed to
anything in that task force.
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Wilder , Idaho
2634 YANKEL (X)Irrigators83676
I now direct your attention to page 20,
line 16 of your testimony.
Okay.
Do you have that before you?
Yes.
There you state that residential rates in
Utah are about 60 percent more expensive than irrigation
rates in Utah.
That I S correct.
Is it not true that residential rates in
Utah are set close to Utah Power's cost of service while
the irrigation rates are set below cost of service?
No, that is not correct.The irrigation
rates, again, over , say, three , four rate cases, there
was a lot of discussion as to what was an appropriate
cost of service for the irrigators.There was a lot of
information that was looked at in these task forces in
between cases; for example , billing collection for
irrigation customers or meter reading for irrigation
customers was looked at in great detail , how the meters
are read, how much time it takes to read a meter for an
irrigation customer versus a residential customer.
The load research data was looked at and
again , the company pretty much came back and said it has
very poor load research for the irrigation customers,
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Wilder, Idaho
2635 YANKEL (X)Irrigators83676
it's too expensive for them to do load research on the
irrigation customers and the agreement is what it is.
was believed pretty much by most people or accepted by
most people that the irrigation rates would just be
increased proportionately.
Just to understand your response to my
question, when you said my question as posed was not
correct in its assumption , was it not correct that the
residential rates are not close to cost of service or was
not correct that irrigators' rates are set below cost of
service?I wasn I t quite sure what you meant when you
said it was not correct.
I was taking exception with your
irrigation rates being below cost of service.Where the
residential rates fell out, I don't recall.They were,
you know , someplace.They weren I t far out one way our
the other.I don t recall what the residential rates
were in the last case.
Would it be fair to say, Mr. Yankel , that
in Idaho the irrigation class is a far more significant
part of IPC I S total sales revenues compared to the share
of total revenues provided by the irrigation class served
by Utah Power?
Yes, it is and when you look at PacifiCorp
down in that area, it I S primarily the Wasatch Front.
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Wilder , Idaho
2636 YANKEL (X)Irrigators83676
Residential, commercial is very huge.Irrigation is
scattered quite a bit.The irrigation load I I m not
positive, but I just would guess it at two percent
versus , say, maybe 15 percent for the irrigation load in
Idaho for the Idaho Power service area.
MR . GOLLOMP:Thank you.That completes
my cross-examination.Thank you.
COMMISSIONER SMITH:Mr. Ward, do you have
questions?
MR. WARD:I have a few.
CROSS-EXAMINATION
BY MR. WARD:
Mr. Yanke 1 , if you would turn to Page 41
of your direct testimony.
Yes.
Now, here you're completing a discussion
of the background for your recommendation which appears
on line 27 that the irrigation class should be assigned
no underground distribution plant.Do you see that?
Yes.
And I take it the basic of your rationale
is that the irrigation customers , with possibly a rare
exception here or there, don t use underground
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Wilder , Idaho
2637 YANKEL (X)Irrigators83676
distribution plant.
That would be basically my logic, yes.
But since Idaho Power allocates the
entirety of distribution plant , isn't it a mathematical
fact that if the irrigators don t use underground
distribution, they must use a disproportionate amount of
the above-ground distribution plant?Stated another way,
it I S a zero sum game, is it not?
I'll grant you that -- well, just because
they use zero doesn't mean they use a disproportionate
amount of other plant, no.For example, if we allocate
distribution plant, we have primary and secondary
customers.Primary customers do not use secondary plant
so you can I t say that therefore they use more primary
plant because of that.
Let me ask it another way:If I I m a
residential customer and I happen to be using underground
facilities in a new subdivision, nevertheless, as a
member of the residential class , I'm going to be
allocated some above-ground or aerial facilities; isn'
that true?
That's true, and chances are that they'
used them as well.
And so let's assume I'm a member of or a
resident of a subdivision that doesn I t have any aerial
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Wilder, Idaho
2638 YANKEL (X)Irrigators83676
distribution , I don't use aerial distribution any more
than your irrigation customer doesn't use underground;
isn't that a fact?
I don't know if that's a fact or not
because usually those subdivisions , there isn I t
substation right next to where it comes right out of the
substation underground all the way to the entire
subdivision.I'll grant you, say, 50 percent, a large
proportion, I I m not going to argue that.
Okay.Now, in the following two lines you
say, "If the Company feels that specific data is not
available to properly allocate distribution costs, then
this specific data should be gathered in the future.
And by "specific data," I assume you're talking about
data specific to the irrigation class and the irrigation
customers and distribution facilities?
I would say distribution facilities in
general.You know , the Company I s continuing property
records should be looked at, either a study or what have
you.
Now , if we had specific enough data, we
could directly assign these distribution facilities,
could we not , or large portions of them?
If we had enough , we could do that, yes.
Now , under the heading of being careful
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Wilder , Idaho
2639 YANKEL (X)Irrigators83676
what you wish for , let me tell you that in the other half
of my practice , I represent small rural telephone
companies and as the Commission is well aware, these
companies have much higher costs , generally speaking, by
orders of magnitude than companies like Qwest that serve
both rural and urban facilities.I take it that wouldn't
surprise you?
That does not surprise me at all.We have
the same problem in Cleveland where most
- -
actually
cities if you get outside of the inner core of the major
downtown area, most telephone companies don't want to
serve the newer utilities.
Let me also represent to you that one of
the reasons for this enormous cost disparity is the huge
cost disparity in the amount of cable per customers for
these small telcos , the cable being roughly similar in
function to distribution facilities, in fact it I s often
hung on power lines, and I take it you've seen that fact,
that telephone
pole?
Yes.
Now how do you think the irrigators would
and electric facilities share the same
fare with a direct assignment of distribution facilities
that was analogous to what happens with the cable costs
for rural telephone companies?
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Wilder, Idaho
2640 YANKEL (X)Irrigators83676
Well, if you I re asking me to speculate , I
can'speculate.What I would ike to see study.
think the Company needs to do that as opposed to arguing
and assuming that those costs are very high for the
irrigation customers.There s a lot of other people out
there.When you look at a farmer , again, at least the
smaller farmers, you've got one house, you ve got one
barn, he has a pump, there may be three different meters
out there for that particular distribution line.Is that
entire distribution line, are we going to allocate that
to the irrigator because he's out there?I think we need
a study and I would be happy to go along with the results
of the study, but to say that oh , I think it would be a
lot higher , so therefore, I don't want to do it, I think
that's inappropriate.
Well, let me ask you this:In an area
where telephone service customers may number two per
square mile, which is roughly the average for my clients,
don I t you think it obvious that the irrigation class were
we to directly assign distribution facilities, the
irrigation class which is located primarily in rural
areas would get crushed by that assignment?
I don't believe it would.I believe that
we would probably come out very similar to where we are
at now on the non-coincident peak method the Company is
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2641 YANKEL (X)Irrigators83676
, 19
using.
On a more general note, how many years
have you been participating in Idaho Power rate cases, do
you remember , roughly?
Roughly 25.
In that time frame has any party other
than yourself ever submitted a cost study that showed the
Idaho Power irrigation class at full cost of service?
Probably not.
And granting for the moment that other
intervenors preparing cost of service studies may be
self-interested, would the Staff or the Company have any
obvious or not obvious motive to overstate irrigation
costs?
I could not say what their motivations
are.I can point out, as I did in my testimony, three
areas which I felt that should be addressed, actually
there's a lot more areas that I felt should be addressed,
but I made some corrections to three areas that I think
were very obvious.One is the Company's study, and
that I s the one everyone has used , has used drought
conditions as far as demand goes for the demand
allocators and yet, brought the revenues down to
normalized revenues, much lower revenues than what
occurred in the year 2002.I mean , that's just an
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2642 YANKEL (X)Irrigators83676
obvious problem, a mismatch between revenues and expense
allocation.
Let me follow up with an intriguing point
that Commissioner Smith first brought up in this
proceeding.Among the 13 000 plus Idaho Power irrigation
pumpers , isn't it true that there's quite a disparity in
both size and types of usage?
Certainly in size; types of usage, that
could be.I I m not sure what you mean by "types of
Basically, they I re pumping water.usage. "You know
some are from different things, but they re pumping water
during the growing season, so they I re fairly similar , but
again, I would assume we're from five horsepower up to
know well over 2 000 horsepower.
By type of usage, I'm referring to the
fact that if you re a small enough user , you may not run
24/7.
That's correct.
Now, I recognize that your testimony
disputes the contention that there is a subsidy, or
really, we should say cross-subsidy, of the irrigation
class , but for purposes of this question , accept that
there is some subsidization going on.
Okay.
All right.Now, Dr. Power touched on a
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Wilder, Idaho
2643 YANKEL (X)Irrigators83676
similar consideration , but I want to approach it from the
other end of the scale.He talked about the fact that
very big users can be actually family farms, you heard
that discussion?
Yes.
At the other end of the scale, you have
people like myself and up until two years ago , we
irrigated a very small farm , probably never more than 50
acres under irrigation and, of course , obviously, none of
us, my brothers and I own it, none of us drive our
livelihood from that farm.We all work other jobs.
there is subsidization going on , does it make any sense
regardless of whether we should be considering the
legitimacy of subsidies for other people, does it make
any sense whatsoever to subsidize me?
I don't believe anybody is being
subsidized more than the other.m trying to accept the
subsidization argument that you I re doing here, but I
donl t see where it makes a difference with respect to
what we're talking about.We don I t have the information
as far as I'm concerned to say whether or not your rate
as a small farmer irrigating 50 acres, casually
irrigating or however you do that, is more or less than
the irrigation class as a whole.I mean, you could be
paying more than your fair share compared to someone
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2644 YANKEL (X)Irrigators83676
else.
We found that, again, in Utah some of the
work we I ve done and it was more in the residential end,
but we looked at the concept of large users are causing
more of a problem on the system and should incur more
costs , basically the inverted block rate, and what we
found was it was at least 1,000 kilowatt-hours a month
before we saw any additional contribution to system peak
than what was taking place on the smaller users, but we
only found that in about three months of the year.
Now , those three months turned out to be
the summer months, so you need to really look at the data
to say whether or not a small farmer is really paying his
fair share or maybe a large farmer is paying their fair
share.The rates are pretty flat for the irrigators.
I understand, but you're talking about
most of that answer had to do wi thin the class of
irrigators.
I I m sorry, I thought that's where you
went.
Let me suggest to you that if we drive
either south or west of Boise, we don't have to get very
far before we're going to see a lot of areas that are
like the area where I currently live where there are many
people, not an insignificant number of people, let me put
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2645 YANKEL (X)Irrigators83676
it that way, who live on the same types of small acreages
or tiny farms or large acreages, whichever way you want
to look at it, and irrigate and clearly are doing it for
life-style reasons, not economic sustenance , you can
accept that hypothesis , can t you?
I can accept that.
And my question again is even if we
believed or accepted that there's some reason to
subsidize full-time legitimate farmers , is there any
reason to subsidize an attorney like myself?
Assuming that we I re subsidizing people
obviously, there I s no reason to subsidize an attorney
like yourself.
I thought that would come a little easier
if I put it that way.
Threw the attorney part in there , yes.
Let me ask you just a couple more items.
This has to do with your rebuttal testimony at page 11.
I don't have it in front of me , but I think I can do it
anyway, and at this point you begin a discussion of what
would happen if the irrigators, as you put it in one
section
, "
went away or go away.Now, I try diligently
to resist questions that begin with a question of have
you conducted a study, but since your counsel asked that
question of Dr. Power in the reverse , that is, have you
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2646 YANKEL (X)Irrigators83676
conducted a study of the economic consequences for the
irrigation class of disproportionate increases, do we
have any evidence on the record here that would indicate
to what extent the irrigation class would be devastated
or even eliminated by disproportionate increases in this
case?
MR. BUDGE:Are you referring to in this
hearing or are you encompassing the public hearings?
in fact you're encompassing the public hearings, then
would obj ect to your characterization that there's no
evidence in the record that some irrigators may in fact
be jeopardized by the rate increase.
BY MR. WARD:Okay, assuming that you want
to answer my question, which had to do with is there any
evidence , by referring to the public hearings, go ahead
and do so, Mr. Yankel.
I have not provided any information or
done any studies that would suggest one way or the other
what the economic impact would be on irrigation
customers.I have no way of knowing what the impact
would be, whether or not people would be going out of
farming, whether people would farm more because it's more
expensive electricity.I mean , I have no way of knowing.
There was certainly testimony, I saw part of the
testimony last night and there was certainly testimony
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Wilder , Idaho
2647 YANKEL (X)Irrigators83676
last night that would suggest to me that there are
farmers at the edge and one guy did say that he had just
sold off 50 acres of his farm just to keep maintaining it
and he was taking a second job and whatnot, so I would
assume that this would put some people over the edge, but
again , that I s just basic economics.ve done no
studies.
And certainly, no one disputes I don '
think in this proceeding the possibility that there will
be economic impacts of both basic increases or
disproportionate increases , that's a fact of life for all
economic endeavors, is it not?
I would believe it is.
Let me ask you one more thing and I '
going to have to refer to something that I s probably local
know 1 edge.Let me represent to you, and your counsel is
much more knowledgeable about this than me, so he can
object if I misstate it, that over the past couple of
years we have had, I think it I S fair to say, heightened
water controversies culminating for the moment in a very
recent development which the media basically has labeled
as a water crisis and that had to do with the possibility
that senior appropriators of water might be able to
successfully force the termination of water use by junior
appropriators.Do you know anything about that?
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2648 YANKEL (X)-Irrigators83676
ve heard about it a little bit.I do
understand the concept.Li ving here for as long as I
did, I certainly understand the concept.
And again , I I m not personally
knowledgeable about this, but the reports, of course, are
that under the auspices of legislative leadership, a
compromise was broke red this last year which with the
infusion of some public money has at least for a year
averted the potential crisis, would you accept my
representation there?
I'll accept it.m unaware of that.
Now, again , I I d like you to accept just
for my question, accept my hypothesis that there's some
cross-subsidization of the irrigation class going on
does it make economic sense and can you think of any
economic theory that would justify a situation in which
we are both subsidizing an activity and threatening to
curtail it on non-economic grounds?
Could you redo the question a little more
simply for the old people?
Well , does it make any economic sense
ei ther from the view of the other ratepayers, the
taxpayers or economic theory, again, I I m asking you to
accept for the purposes of this question there's some
cross-subsidization for us to both subsidize irrigation
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Wilder , Idaho
2649 YANKEL (X)Irrigators83676
pumping and at the same time be headed down a road in
which we may have to curtail irrigation pumping, not on
the grounds of who s most efficient , but on the grounds
of who has the most senior water right, does that make
economic sense regardless of whether it may be the policy
or not, does it make economic sense?
They're completely unrelated.It may seem
as you stand back , it may seem not to make any sense , but
again , this Commission is looking at one thing, I'm not
sure who is looking at the other side of the fence.
Senior water rights are senior water rights.I mean, I
do understand and respect that concept and if there is a
water crisis in the state , then that's just kind of the
law of the land for the last 100 years or so , so I do
understand that and that makes sense, so I'm not sure
that the two really even mix, though , because there would
be less irrigation pumping whether or not there's a
subsidy and again, I fully don I t agree with the subsidy,
but I guess I don't see as much of a problem or a clash
there.They I re two very different things.
Let me just ask it one more way and then
I'll abandon it.Don't you think the overwhelming
majority of economists if asked to look at that question
in the abstract would say the sensible thing to do is to
allow economics and economic efficiencies to determine
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Wilder , Idaho
2650 YANKEL (X)Irrigators83676
who stays on the system and in order to do that, you have
to remove the subsidies?
There I S a couple of different layers in
that question.Yes, that's what the economists would
say.I don I t agree with what the economists would say.
It I S not that I don't necessarily agree.I understand
the economic principles, but there I s law, tradition and
whatnot that says that you do not give it to the most
efficient pumpers, whoever these people may be, or the
most efficient irrigators , that there are seniority
rights on the take of the water , so I think that's a
number one thing that is just going to happen.
That really has no question in my mind or
no relationship to whether or not there is or is not a
subsidy.YouIf there was a subsidy, there's a subsidy.
know , it shouldn t make any difference whether or not a
person with senior water rights takes water away from a
junior water right holder.
MR. WARD:That I S all I have.
COMMISSIONER SMITH:Thank you
Mr. Ward.
Mr. Richardson.
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Wilder , Idaho
2651 YANKEL (X)Irrigators83676
CROSS -EXAMINATION
BY MR. RI CHARDSON :
One question , Mr. Yankel.What happens to
the sugar beet factory if the sugar beet growers go
away?
Well, they can ship sugar beets from God
knows where , which is obviously way too expensive to do
or they'll close down.
MR. RICHARDSON:Thank you
Madam Chairman.That's all I have.
COMMISSIONER SMITH:Staff.
MR. STUTZMAN:Staff has no questions.
COMMISSIONER SMITH:How about questions
from the Company?
MR. KLINE:The Company has no
questions.
COMMISSIONER SMITH:How about from the
Commission?Commissioner Hansen.
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2652 YANKEL (X)Irrigators83676
EXAMINATION
BY COMMISSIONER HANSEN:
Mr. Yanke 1 , from the public testimony that
we received both in pocatello and Jerome and even last
night, I I ve got ten the impression that irrigation rates,
if irrigation rates rise as proposed by Idaho Power
Company or the Staff that it would put many farmers out
of business, do you agree?
I agree it would put some out of business.
I can I t say many or how many.m just not a farm
economist , so I couldn't venture to say, but certainly if
you I re looking at a 67 percent rate increase for the
irrigators, whether it's over five years or one year
doesn't to me probably make a whole lot of difference, it
would be such a rate shock even within five years that
you 'd probably be nicer to people just to give them a 67
percent increase and have them drop off right away as
opposed to stringing them out for a couple of years.
Would you agree that through the ' 80s and
'90s that the irrigation rates that Utah Power & Light
charged Idaho irrigation customers were much , much higher
than the irrigation rates charged by Idaho Power?
I would go back further than that.
least when I started doing this 25 years ago or so, Utah
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Wilder , Idaho
2653 YANKEL ( Com)Irrigators83676
Power & Light's rates were much higher all the way
through and I I m not sure exactly where they are today in
Idaho, but historically, for , say, 25 years have been
much higher than Idaho Power I
Subj ect to check, would you accept that
the base rate for irrigation customers in southeastern
Idaho for Utah Power & Light starting on June the 4th is
32 or $6.32 per kilowatt?
Yes, I'd accept that.
Which wouldn I t that even be higher than
what even the Company is proposing here for irrigation
customers?
Yes, but there I s two things I think you
need to think about there.One, and again, I'm not a
farmer , but this is my understanding of some of the
farming things that are taking place there, a lot of the
farming that is done there is either dry land or it I s
done differently than a lot of the stuff in southeastern
Idaho, so therefore , it's less water intensive,
therefore, they can use less electricity.
The other thing is the BPA credit that'
in place on the Utah Power & Light system in Idaho which
greatly reduces that rate and brings it down much closer
to the Idaho Power rate , possibly below it.m not sure
exactly where it I S at right now.It fluctuates year to
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2654 YANKEL ( Com)Irrigators83676
year depending on the credi t .
Are you aware that probably in the year
2000 that that probably was about one,let'see,it was
probably just around 1. 00 per kWh the credi t ?
I would accept that , subj ect to check.
Again , I don I t know.I just know that there is the
credit and it is significant.It's not infinitesimal.
It is a significant credit.
I guess that brings me to this question
that I kind of need to get clear in my mind and that is
how have the Idaho irrigation customers that have been
served by Utah Power & Light, how have they survived with
these higher rates over the past 30 years and currently,
right now, tremendously high rates where their nearby
farmers and friends, I mean , you get over in the Aberdeen
area, Pocatello area , that line goes right down
- -
some
farmers have some of their farm on Idaho Power and some
of them on Utah Power & Light and some just across the
street , how have these farmers been able to stay in
business and survive with these higher rates where we'
given the impression today if the irrigation rates go up,
it's going to just throw the whole economy into
disruption?
Well, one of the things that the farmers
in the Utah Power & Light area have had , also, another
CSB REPORTING
Wilder, Idaho
2655 YANKEL ( Com)Irrigators83676
great advantage that they've had and I believe it started
in 19-, I was going to say, 78, but it was probably about
1978, there was a load interruptibility program that
started and if you recall , it was the A, B , C rate:
being the firm rate; B being interrupted one day a week
on a designated day; and C being interrupted any time two
times a week or three times a week for up to 12 hours.
Most farmers , when I say most, I would say
it was over 90 percent of the load was on its C rate and
that C rate was very low.It was not the firm rate.
was a very low rate.It was probably like a 40 percent
discount.I 1 m just kind of guessing right now without
looking at it.The B rate, there were a few farmers on
that, and then there was very few farmers on the A rate.
For one reason or another, they couldn I t afford any
interruptions.
For a number of years, and I can't say how
many, but let I s say it started about 1980 as far as when
the program actually got underway, at least 15 years'
worth there was very few interruptions that took place,
so farmers, you know , being smart people like they really
are, they went on to the C rate like crazy expecting no
interruptions.At some point there was a concern here
with the Commission , again my history of timing, I don
remember exactly, but there was a concern raised about
CSB REPORTING
Wilder , Idaho
2656 YANKEL (Com)Irrigators83676
this.The company was instructed - - the Commission found
out that these interruptible meters or radio control
devices didnl t even work.Most of them just didn't work.
They were sitting out there and not
working, so the company was ordered to get those
operating and start interrupting and they've been
interrupting and I may be getting this mixed up a little
bit, but they started interrupting and then there was a
time frame fairly recently where the company tried to do
away totally with that interruptibility rate and I
believe they started to come back with something now , so
we I re kind of in a flux down there, but for a long time
there's been some options , I guess is what I'm trying to
say, where the farmers have been able to greatly reduce
their rates in Utah with the C rate, coupled with the BPA
credit really helped them out quite a bit.
So are you saying, really, in this
situation we I re in now with the cost of service widening
that gap for the irrigation customer that this may be the
only solution here is to come up with more interruptible
rates?
Possibly that.Time of use rates would be
very helpful as well, but I continue to take exception
with the subsidy getting larger.ve heard that from a
lot of witnesses and one of the witnesses indicated and
CSB REPORTING
Wilder , Idaho
2657 YANKEL (Com)Irrigators83676
believe it was true that in the last case , there was a
subsidy or we were down 24 percent on rate of return, we
needed a 24 percent rate increase is what the irrigators
needed and we got a 10 percent rate increase.We got an
above average rate increase and now the Company is coming
in and saying we need a 67 percent rate increase.
mean, how did the gap get bigger when the irrigators
didn't grow , and all I can come back to is some of the
stuff that I've seen , the data is inappropriate.
You know , we need to look at the data.
You can I t charge irrigators for drought condition demands
and then reduce the revenues down to normalized levels
so I think there's a lot of problems, but I think in the
long term, I think interruptible, like we had the A, B , C
rates , I think time of day rates would be very
beneficial.There may be some other options out there
that irrigators could probably do better with than
residential customers because they're like an industrial
customer to some extent, they can design into their
program , you know , into their pumps some kind of capacity
to do something.
A residential customer usually when it
gets hot, the residential customer is going to turn on
the air ,condi tioner , so I see more benefit to the Company
in general, to the entire system in general, to try to do
CSB REPORTING
Wilder , Idaho
2658 YANKEL ( Com)Irrigators83676
some kind of time of day rates or interruptible rates for
the irrigation customers.
If you were convinced that there really
did exist this large a gap between the cost of service,
would you be willing to or would you think it would be
wise to pursue narrowing that disparity and coming up
with a plan to bring the irrigation customers closer to
cost of service?
Let me glve you an alternative just from
what you've said in this conversation we've had.Part of
the irrigation load control program that came up in 1978
when they first started that and started looking at that
was because at least Utah Power & Light kind of felt like
Idaho Power that the irrigators I rate of return was very
low and had this problem of we need to greatly raise
these rates and as an alternative came up with the A , B
C rate which greatly reduced the cost of service for the
irrigation customers because essentially they became
interruptible , and so I think maybe instead of increasing
the rates maybe finding other alternative mechanisms may
be much better which would be beneficial to the system
and would not cause such a rate increase.
COMMISSIONER HANSEN:Thank you.Tha ti
all I have.
CSB REPORTING
Wilder , Idaho
2659 YANKEL (Com)Irrigators83676
EXAMINATION
BY COMMISSIONER SMITH:
Mr. Yankel , that's an interesting
discussion and idea to come up with programs to help the
irrigators dampen, I guess, the effects of any rate
increases or movement towards cost of service pricing,
but would you agree that the interruptible rates you
talked about and the time of use rates you talked about
won't work for, I think , probably a large number of
irrigators who maybe take out of a canal company and they
order their water 24 hours at a time?
That would be difficult for those people
and I believe that may have been the ones, again , on the
A rate in the Utah area that had to stay on the A rate.
So there could be some irrigators for whom
we probably maybe couldn't think of any program to kind
of give them some control over their destiny with regard
to irrigation rates.
I wouldn't want to go that far, but the
ones we 've identified , the very simple ones of
interruptibility and time of use , probably not.
You had a discussion with Mr. Ward about
his place, so I have to discuss mine, but it did occur to
me that when we bought our property, for various
CSB REPORTING
Wilder, Idaho
2660 YANKEL (Com)Irrigators83676
historical reasons having to do with land contracts , a
portion of our place is a four-acre parcel that I s
separately identified on the tax rolls, so we have to
periodically certify to them that it is indeed
agricul tural farm irrigated land and so we can get taxed
at the irrigated ag rate, which is much less than the
small-parcel-held- for-development rate which is extremely
high, but I just was wondering if we try to do any kind
of segregation of the irrigation class, it seemed to me,
I just can't get my arms around the administrative
feasibility of doing that.Do you have any insights?
mean , do you think that would be administratively
feasible?
As a thought and I actually thought Conley
was going to come up with this in the conversation, Dr.
Power said , and I think very correctly, that there are a
lot of family farms there are very expensive, very large
and they I re family farms, so you can't make this
distinction of large farms , corporate farms and there are
a lot of corporate farms that are family farms as far as
that goes, but you may make the distinction on the other
end that somebody with a five horsepower or one
horsepower pump is not really a large farm , they're not
doing this for farming for subsistence-type farming or
whatever.
CSB REPORTING
Wilder , Idaho
2661 YANKEL (Com)Irrigators83676
Well , all farming is subsistent.
Okay, you know, one might make a
distinction there which would be administratively a lot
easier than trying to go through and have people certify
or do whatever.Again , though , I think before that I s
done , it would be a good idea to have data to see how
those pumps operate versus the very large pumps.Those
pumps may be, again , on and off, they may be more on peak
and they may really need to have their rates higher.
So your thought would be don I t look at
number of acres or who owns it , but just look at pump
size on the meters and maybe have some segregation by
pump size?
Right , you could do that.Again , in Utah
what we were looking at, again it was more the air
condi tioning load, but the usage load.If you look at
usage characteristics, pump size may be one of them
maybe overall kilowatt-hours, but if you look at the data
and load research data, you can really determine a lot of
what's happening and then how that relates to cost.
So is this information the Company would
already have?Do they know that about these irrigation
customers?
In my opinion, they have the data and
that I S part of my testimony.It's locked up in its Load
CSB REPORTING
Wilder, Idaho
2662 YANKEL ( Com)Irrigators83676
Star program.I don I t know if they can get that out to
do much with it, but basically you could work off the
load research data that they have.Assuming that they
have load research data , and 1'm assuming they do, for
their smaller customers as well as their larger, you can
look at it on an individual customer basis , see how each
one of those customers operate, you know, aggregate them
up and down and just kind of draw lines across and say
well , these people seem to all be doing this and those
people seem to be doing that and there I s things you can
do and I would assume they have the data.
Okay, and finally, when you responded to
some of Commissioner Hansen s questions , you kept
mentioning a 67 percent rate increase.Is that what you
think is being proposed by the parties here?
Well , that's what the Company has in their
cost of service study and most people
So you re talking about the distance from
the Company I s cost of service study?
The Company s cost of service study showed
67 percent and --
Right, but they re not proposing a 67
percent increase in the irrigation rates, are they?
They are not, but a lot of the intervenors
are targeting that 67 percent, Dr. Power targeted
CSB REPORTING
Wilder , Idaho
2663 YANKEL ( Com)Irrigators83676
two-thirds of the 67 percent, so I think most people are
looking at the 67.
That's not the rate increase that'
proposed?
The Company has proposed 25.
And the Staff has proposed?
Fifteen.
All right, thank you.COMMISSIONER SMITH:
Do you have redirect , Mr. Budge?
REDIRECT EXAMINATION
BY MR. BUDGE:
Just one point of clarification to make
sure I understand your answer in response to Commissioner
Hansen I S inquiry as to how eastern Idaho irrigators could
survive given rates on the PacifiCorp-Utah Power system
are substantially higher than Idaho Power I s system.When
you gave your response to that question, were you
assuming that that comparison was looking at the firm
rate on the PacifiCorp system without the benefit of the
BPA credit and simply comparing that firm rate with the
Idaho Power rate?
Yes, my understanding was he said the base
rate and so , therefore, I assumed the firm base rate,
CSB REPORTING
Wilder , Idaho
YANKEL (Di)Irrigators2664
83676
yes.
And over the past, at least two or three
decades, haven t most all of the eastern Idaho irrigators
on the Pacificorp-Utah Power system participated in the
BPA credit program?
Yes, and most, meaning 85, 90 percent,
have been in the C rate , as I recall.
And while I appreciate it I S rather
difficult to paint with a broad brush because that credit
applies differently based upon pump size and the credit
itself has gone up and down over the years, do you have
just a rough idea of what type of percentage reduction in
rates those that qualify for the program got from the
firm rate?
I don t have
- -
I have a general
understanding.I don't knowI don r t have a good feel.
any exact numbers , but my general understanding is with
the BPA credit, being on the C rate , it was often
possible to have rates lower than Idaho Power.
And you referred to the A, B, C rates and
just to clarify what that is , is my understanding correct
that those irrigators who chose the A rate in effect
received firm power?
Yes.
And there were very few that ever were
CSB REPORTING
Wilder , Idaho
YANKEL (Di)Irrigators2665
83676
enrolled in that particular program; is that correct?
I can I t say in the beginning, but
certainly, wi thin a couple years there were very few that
were on the A rate.
And those that chose the B rate were
interrupted on a designated day each week for a
particular number of hours?
If they were interrupted at all, yes , but
they had a designated day.
And those on C rates could be interrupted
at the companyl s option any time during the week within a
certain hour limit?
Three times a week up to 12 hours a
week.
So the maj ori ty of the irrigators that I
think you testified ended up on C rates were able to take
advantage of rates that were some considerable amount
lower than those that were on the firm A rate?
Yes, my recollection is it was at least a
40 percent reduction.
So when it came down to the bottom line
bill that the average irrigator paid on the Utah Power
system as opposed to the Idaho Power system , while
there I S some disparity, would it be accurate to say that
there was not typically a great disparity because of the
CSB REPORTING
Wilder , Idaho
YANKEL (Di)Irrigators2666
83676
net effect of the BPA credit with the interruptible
rates?
Right , and it actually could have been
cheaper on the Utah Power & Light system because of
that.
Thank you.I have nothingMR. BUDGE:
further.
COMMISSIONER SMITH:Thank you, Mr. Budge.
Thank you, Mr. Yankel.I assume you would like to have
him excused.
If I may, thank you.MR. BUDGE:
Yes, certainly, he I sCOMMISSIONER SMITH:
excused.
(The witness left the stand.
We I 11 take anotherCOMMISSIONER SMITH:
six-minute break and then we'll come back and finish up
with Mr. Richardson's rebuttal testimony.
(Recess. )
All right, let's goCOMMISSIONER SMITH:
back on the record.Mr. Richardson.
Thank you,MR. RICHARDSON:
Madam Chairman.The Industrial Customers of Idaho Power
recalls Dr. Reading to the stand.
Dr. Reading remembersCOMMISSIONER SMITH:
that he I s still under oath.
CSB REPORTING
Wilder, Idaho
YANKEL (Di)Irrigators2667
83676
DON READING,
produced as a rebuttal witness at the instance of the
Industrial Customers of Idaho Power , having been
previously duly sworn , resumed the stand and was further
examined and testified as follows:
DIRECT EXAMINATION
BY MR. RI CHARDSON :
Are you the same Dr. Reading who caused
prefiled rebuttal testimony to be filed in this matter?
I hope so.
And do you have any correct ions
additions to make to your rebuttal testimony?
One small correction.On page 3, 1 ine
the word "by " in the question should be changed to
"been " b-e-e-n.
with that correction , if I were to ask you
the same questions that you were asked in your prepared
testimony today, would your answers be the same?
Yes.
Thank you , Dr. Reading.MR. RICHARDSON:
Madam Chair , Dr. Reading is now available
for cross-examination.He has no exhibits with his
testimony.
CSB REPORTING
Wilder, Idaho
READING (Di-Reb)
ICIP
2668
83676
Would you like us toCOMMISSIONER SMITH:
put this testimony in the record?
I would move thatMR. RI CHARD SON :
Dr. Reading I s testimony be spread on the record as if it
were read in full.
COMMISSIONER SMITH:Okay, without
objection, so ordered.
(The following prefiled rebuttal testimony
of Dr. Don Reading is spread upon the record.
CSB REPORTING
Wilder, Idaho
2669 READING (Di-Reb)
ICIP83676
Rebuttal Testimony of Don Reading, Ph.
On Behalf of ICIP , Case No. IPC-03-
Are you the same Don Reading who previously filed
Direct Testimony on behalf of the Industrial Customers of
Idaho Power (ICIP) in this Docket?
Yes.
What is the purpose of your Rebuttal Testimony?
This Testimony will focus on the Direct Testimony of
Staff Witness Rick Sterling pages 7 through 19 that
address ratemaking treatment of Idaho Power I S Danskin
Station Generating facility.
Could you briefly summarize the conclusions about
the viability of the Danskin facility found in Staff
Witness Sterling's Direct Testimony?
Staff Witness Sterling believes Danskin Station will
remain useful after the proposed Bennett Mountain plant
becomes operational.He states, "Small peak loads needs
might be more economically met.
. .
" by running Danskin
even given its higher costs than Bennett Mountain.
(emphasis added , Direct Testimony of Rick Sterling, Idaho
Public Utilities Commission, pgs. 18,19, IPC-03-13.
He comes to this conclusion without discussing the full
economic cost of Danskin I s output other than to say the
actual cost of the facility to date have been "much
closer" to the upper limit presented by Idaho Power
2670
Rebuttal Testimony of Don Reading, Ph.
On Behalf of ICIP Case No. IPC-03 -
during the permitting process.(Ibid, p. 11.
Do you agree with his conclusions?
His acceptance for the inclusion of Danskin inNo.
rates is not based on the economics of the plant as
presented in this Docket by Idaho Power but rather on the
fact the cost of construction met the Company's estimates
and that deferral balances accruing to the PCA were very
high in early 2001.
Could you be more specific about your criticism of
Staff Witness Sterling's Direct Testimony?
2671
Rebuttal Testimony of Don Reading, Ph.
On Behalf of ICIP , Case No. IPC-E-03 -
He begins his analysis by quoting the Commissions
Order 28773 that states,
We are unconvinced that the best measure of the cost of
al ternati ve resources is market price estimates in
effect at the time the decision to proceed was made.
The record supporting such a finding remains to be
developed.
And
We find that there is insufficient record to assess and
determine the reasonableness of the Company's commitment
estimate and cannot therefore provide the Company with a
dollar amount of rate base assurance.... The Company
needs to provide the Commission with more information.
What other alternatives were considered? What was the
Company's forecasted need? (Idaho Public Utilities
Commission Order No. 28773, IPC-E-01-, July, 2001.
He goes on to say that Idaho Power to date has not
provide the additional information requested by the
Commission. Therefore the Staff will do the job of the
Company because,
Danskin r S plant cost recovery represents a large portion
of increased revenue requirement requested in thiscase. Staff believes it is important to address the
issue and provide the Commission with the Staff position.
(Direct Testimony of Rick Sterling, Idaho Public
utili ties Commission , pg. 8 , IPC-E- 03 -13. )
Do you feel the Staff adequately filled in for the
Company and provided the Commission with the information
2672
Rebuttal Testimony of Don Reading, Ph.
On Behalf of ICIP , Case No. IPC-E-03-
they requested?
A large portion of Staff I s testimony isNo.
directed at the reasonableness of capital costs of the
plant and the request for proposals process for the
construction of the plant.Staff I S conclusion is that
the capital cost portion of the plant was reasonable
given the time frame of construction.Staff did not
present an analysis of the cost of output from
2673
Rebuttal Testimony of Don Reading, Ph.
On Behalf of ICIP, Case No. IPC-03 -
Danskin as presented by the Company in this case and how
these costs stack up against other al ternati ves such as
conservation , load shedding, interruptability, etc..
pointed out in my Direct Testimony filed in this Docket
the proj ected average normalized cost of Danskin of
$13.65 per kWh is so high that reasonable alternatives
cry out to be considered.
How does Staff explain the fact that the actual
costs of Danskin to date have been "much closer" to the
upper limit of those estimated before construction?
Staff presents two reasons. First that it is a
peaking plant and therefore would be expected to have
higher costs than a base load plant.The second reason
stated by Staff was the chaotic conditions in the energy
markets during the planning of the plant.Staff however
failed to discuss cost of output from the plant that are
being assigned to rates in this case.
Do you accept Staff I s reasoning?
Staff's analysis is incomplete.It is true that
peaking facilities should reasonably be expected to cost
more than base load plant.The real question is how much
more expensive and what could be the cost effective
al ternati ves to the cost of output.Staff failed to
2674
Rebuttal Testimony of Don Reading, Ph.
On Behalf of ICIP Case No. IPC-03 -
address these issues as requested of the Company by the
Commission.
Staff is correct that conditions during the later part of
2000 and the first half of 2001 were in turmoil as
discussed in my Direct Testimony on pages 9 and 10.
However Staff focuses on the deferrals in the PCA as the
cost measure for justifying the plant and not cost of the
plant itself or cost effectiveness of alternatives.This
proxy measure while important is not the proper standard
to measure the cost effectiveness of a generation
facil i ty.Any generation plant, Danskin included, needs
to be measured based on its own economics compared to its
need and the costs of alternatives.Both Staff and the
Company have failed to provide this analysis that would
address the concerns of the Commission at the time it
issued Order 28773.
2675
Rebuttal Testimony of Don Reading, Ph.
On Behalf of ICIP, Case No. IPC-03-
You pointed out above that Staff stated there would
need for Danskin to meet II Small peak loads needs" after
Bennett Mountain comes on line.What analysis do they
provide to justify this statement?
As pointed out in my direct testimony Staff
indicated in their comments in the Bennett Mountain
Docket that they felt that Danskin would operate at half
its current operations.The Company proj ects the plant
would operate on average less than 10 hours per year at a
cost of $13.65 per kWh.At these few hours and enormous
cost it seems reasonable that a more cost effective
alternative could be found.
Did Staff I s Direct Testimony cause you to change any
of your recommendations regarding the Danskin Generating
Station?
No.Staff did not focus the correct measures to
justify the cost of the plant and failed to examine the
costs the Company has ask ratepayers to shoulder relative
to the value received from the plant.They also failed
to consider the al ternati ves as requested by the
Commission.
Does this conclude your testimony on March 19, 2004.
Yes it does.
2676
open hearing.
(The following proceedings were had in
MR. RI CHARDSON :Now Dr. Reading is
available for cross-examination.
have questions?
COMMISSIONER SMITH:Mr. Gollomp, do you
Staff?
MR . GOLLOMP:No questions.
row?
redirect.
COMMISSIONER SMITH:How about Mr. Ward.
excused?
MR. WARD:No questions.Thank you.
COMMISSIONER SMITH:Anybody in the front
MR. STUTZMAN:No questions.
MR. KLINE:No questions.
COMMISSIONER SMITH:I assume there's no
MR. RICHARDSON:May Dr. Reading be
COMMISSIONER SMITH:Well , first of all , I
will ask my fellow Commissioners if they have questions
and we don 'Yes, he may be excused.
MR. RICHARDSON:And no, I have no
redirect.
(The witness left the stand.
MR. RI CHARDSON :The Industrial Customers
call Mr. pike Teinert to the stand.
CSB REPORTING
Wilder, Idaho
2677 READING
ICIP83676
PIKE TEINERT,
produced as a rebuttal witness at the instance of the
Industrial Customers of Idaho Power , having been
previously duly sworn, resumed the stand and was further
examined and testified as follows:
DIRECT EXAMINATION
BY MR. RI CHARDSON :
Mr. Teinert , are you the same Mr. Teinert
who caused prefiled testimony to be filed in this
CSB REPORTING
Wilder, Idaho
Yes.
- -
rebuttal testimony?Do you have any
matter --
corrections or additions to make to that testimony?
I do have one.On page 11, 1 ine 9, it is
not "Doe" as in a deer , but "DOE" as in the Department of
Thank you, and you also caused exhibits
marked as 209 through 212 to be filed and prepared as
Correct.
Do you have any corrections or additions
No, I don't.
Energy, D-
we 11 ?
to your exhibits?
2678 TEINERT (Di-Reb)
ICIP83676
Mr. Teinert, if I were to ask you the same
questions this afternoon that were asked in your prepared
testimony, would your answers be the same?
Yes.
Madam Chairman, I'd moveMR. RICHARDSON:
that Mr. Teinert' s testimony be spread upon the record as
if read in full and Exhibits 209 through 212 be marked
for identification.
If there is noCOMMISSIONER SMITH:
objection , it is so ordered.
(The following prefiled rebuttal
testimony of Mr. Pike Teinert is spread upon the record.
CSB REPORTING
Wilder , Idaho
TEINERT (Di-Reb)
ICIP
2679
83676
PLEASE STATE YOUR NAME AND BUSINESS ADDRESS.
My name is Pike Teinert and my business address
is 834 Harcourt Road Boise, Idaho 83702.
ARE YOU THE SAME PIKE TEINERT WHO FILED DIRECT
TESTIMONY AND EXHIBITS IN THIS MATTER?
Yes, I am.
Q. ARE YOU SPONSORING ANY EXHIBITS WITH THIS
TESTIMONY?
A. Yes. I am sponsoring Exhibits Nos. 209 through
212.
WHAT IS THE SCOPE OF YOUR REBUTTAL TESTIMONY?
The scope of my rebuttal addresses issues
wi thin the scope of the rate design of Idaho Power
proposed Schedule 19 including, mandatory TOU, service
charge and power factor adjustment. I will address the
discriminatory, unfair, unprecedented and inequitable
nature of Idaho Power s proposed Schedule 19 mandatory
TOU tariff. I will address an excessive, unprecedented
proposed increase in service charge for Schedule 19
Lastly, I will address the unsupportedcustomers.
proposed increase in Schedule 19 customer power factor
minimum from 85% to 90%.
2680 Teinert , Reb
IPC-E- 03 -
Q. WHY ARE YOU LIMITING YOUR REBUTTAL TO THE THREE
ISSUES OF MANDATORY TOU, SERVICE CHARGE AND POWER FACTOR
ADJUSTMENT?
A. Because they are the most discriminatory,
unsupported and egregious components in the proposed
Schedule 19.
Q. DID STAFF AND INTERVENER DIRECT TESTIMONY ADDRESS
MANDATORY TOU RATES?
A. Yes. However, both Staff and DOE direct testimony
recommend that the Commission adopt the Company
proposal for mandatory TOU rates for Schedule 19
customers even though there have been no supporting
studies and analyses undertaken by any of these parties
that can substantiate any benefit associated with
mandatory TOU rates for the Company and Schedule 19
customers.
Q. DOES THE DOE HAVE ANY MAJOR CONCERN WITH THE
PROPOSAL TO MAKE SCHEDULE 19 A TIME OF USE RATE?
A. Yes. Mr. Goins in his Direct Testimony on behalf
of DOE states beginning on page 20, line 21:
"While I do not obj ect to the manner in which IPC
designed the rate, I am concerned about the law of
2681 Teinert, Reb
IPC-03-
unintended consequences. IPC claims that the new rate
design is revenue neutral. However, if large commercial
and industrial customers are not prepared to operate
cost-effectively under the new rate,
2682 Teinert, Reb
IPC-E- 03 -
they may incur unexpected unacceptably high bills for
their energy use.
Q. WHAT IS YOUR OPINION OF THE DOE I S DIRECT
TESTIMONY ON THE MANDATORY TOU RATE FOR SCHEDULE 19
CUSTOMERS?
A. I find Mr. Goins' testimony on behalf of DOE to
be both surprising and perplexing. Since they represent
at least one Schedule 19 customer , it is surprising that
they offer no supporting analysis and study of the
proposed rate that confirms the benefits and costs for
the Company and Schedule 19 customers. I am perplexed
that the DOE cautions about the "law of unintended
consequences" but does not follow through and recommend a
cost/benefit analysis/study for all parties impacted by a
mandatory TOU rate before a tariff is proposed and
approved.
Q. WHAT IS YOUR OPINION ABOUT THE STAFF'
RECOMMENDATION THAT MANDATORY TOU RATES BE IMPLEMENTED
FOR SCHEDULE 19 CUSTOMERS?
A. Staff I s position is completely unsupported. The
Company has offered no study and analysis that calculates
the costs and benefits of mandatory TOU rates. The
Staff's direct testimony on rate design is also
contradictory.
2683 Teinert, Reb
IPC-E- 03 -
Q. DOESN'T STAFF TESTIMONY RECOMMEND THAT TOU RATES
BE IMPLEMENTED IN A MANNER CONSISTENT WITH THE COMPANY'S
PROPOSAL?
A. Yes.
2684 Teinert, Reb
IPC-E- 03 -
Q. HASN'T THE COMPANY IN ITS PROPOSAL OFFERED
ANALYSIS AND STUDIES THAT ANALYZE COSTS AND BENEFITS TO
SCHEDULE 19 CUSTOMERS AND THE COMPANY FOR MANDATORY TOU
RATES?
A. No. In response to ICIP' s Discovery Request No.
(Teinert Exhibit No. 209) regarding benefit and savings
from implementation of mandatory TOU rates, the Company
says:
No analyses attempting to identify any
potential benefits or savings associated with mandatory
time-of -use rates for Schedule 19 customers have been
performed. "
Addi tionally, in response to ICIP' s Discovery
Request No.(Teinert Exhibit No. 210) regarding TOU
studies for any rate class, the Company responded:
In September 2002, Idaho Power submitted to the
Commission a Residential Time-of Use Pricing Viability
Study. A copy of the study is enclosed with this
response. No other studies have been prepared.
(emphasis added)
These two responses by the Company and the Staff'
2685 Teinert , Reb
IPC-E- 03 -
recommendation to implement the proposed mandatory TOU
Schedule 19 tariff without rate class studies or analyses
are perplexing and uncharacteristic of the Staff.
2686 Teinert, Reb
IPC-E- 03 -
Q. WHY I S IT PERPLEXING?
A. The Staff's Rate Design direct testimony in this
case is replete with careful analysis of service charge
proposals, energy charge proposals, base usage rates
demand charges and rate increase caps. However, in its
rate design testimony its logic for implementing
mandatory TOU rates for only Scheduling 19 customers, the
staff states, beginning on page 28, line 24:
"TOU rates are most appropriate for Schedule 19
customers who are sophisticated enough to understand them
and where the metering equipment already exists.
The staff offers no independent supporting studies
and analysis for their recommendation to implement the
proposed TOU rate design.
Q. SHOULD THE STAFF RECOMMEND STUDIES THAT ANALYZE
THE COSTS AND BENEFITS OF TOU RATES FOR SCHEDULE 19
CUSTOMERS AND CUSTOMERS OF ANY RATE CLASS?
A. Yes. Staff witness Schunke comments in its
testimony that they recommend TOU rates "wherever they
are practical" and that "the first objective of rate
design is to set rates that are closely aligned to cost
of providing service." However , in regards to TOU for
Schedule 19 customers, no studies and analyses
2687 Teinert, Reb
IPC-E- 03 -
have been provided by any party in this case that confirm
that mandatory TOU rates are practical and aligned , with
the cost of providing service for Schedule 19 customers.
It is clearly discriminatory to select only Schedule
19 customers to experiment with mandatory TOU rates
without a competent study and analysis of Schedule 19 and
all other rate classes to determine the most effective
rate class (es) for TOU rate implementation.
Q. DO YOU HAVE OTHER CONCERNS ABOUT THE STAFF'S
TESTIMONY REGARDING MANDATORY TOU RATES FOR SCHEDULE 19
CUSTOMERS.
A. Yes. Staff's rate design testimony recommends
simplicity, minimizing rate shock, recognition of end use
characteristics to differentiate between rate classes and
pursui t of pilot programs and TOU rates. However , these
rate design recommendations in Staff's testimony are
contradictory to its recommendation to implement Schedule
19 mandatory TOU rates.
I am also concerned about Staff's oversimplification
of revenue neutrality for Schedule 19 customers.
Q. WHAT IS CONTARDICTORY ABOUT THE STAFF I S
RECOMMENDATION FOR SIMPLICITY AND MINIMIZING RATE SHOCK?
A. Beginning on page 6, line 24 Mr. Schunke states:
2688 Teinert, Reb
IPC-E- 03 -
"It is also an obj ecti ve to keep rates reasonable by
balancing the cost of service goals with goals for
simpl ici ty, for minimi zing rate shock and for promoting
conservation - especially during high cost periods.
However, beginning on page 28, line 24 Staff
testimony states:
"TOU rates are most appropriate for Schedule 19
customers who are sophisticated enough to understand them
and where metering equipment already exists.
In my direct testimony I contrast the existing
Schedule 19 rate with the proposed mandatory TOU for
Schedule 19 customers. The proposed rate has three demand
and five different energy charges while the existing rate
has only one demand and one energy charge. Clearly the
proposed rate does not meet the Staff I s recommendation
for simplicity.
Also, Schedule 19 customers will experience II rate
shock 11 if they must instantaneously begin on June 1 of
this year to understand and adjust to a rate that will
require maj or changes in their daily operations and
production to avoid much higher bills for peak hour
consumpt ion.
2689 Teinert , Reb
IPC-E- 03 -
Q. WHAT IS CONTRADICTORY IN THE STAFF'S
RECOMMENDATION THAT RATE DESIGN RECOGNIZE END-USE
CHARACTERISTICS TO DIFFERENTIATE BETWEEN RATE CLASSES?
A. Beginning on page 5, line 18 of Mr. Schunke
testimony, he explains Staff I s rate design obj ecti ve to
differentiate between residential and industrial customer
based on end-use characteristics. Clearly the end-use
characteristic that contributes most to peak load during
June, July and August is Residential air conditioning
load. However , the Staff recommends mandatory TOU rates
for the industrial, Schedule 19 customer class that has a
relatively flat load throughout the year. In contrast to
its testimony, the Staff recommendation places the
Residential end-use characteristic in the industrial
Schedule 19 rate design.
Q. WHAT IS CONTRADICTORY ABOUT STAFF'
RECOMMENDATION TO PURSUE PILOT PROGRAMS AND TOU RATES?
A. On page 13 , beginning on line 11 of his
testimony, Mr. Schunke enumerates the pilot programs and
TOU rates in existing Idaho Power tariffs as additional
support for its recommendation of the proposed Schedule
19 rate. However, these are voluntary pilot programs and
TOU rates that are optional within the rate class. In
contrast, the proposed mandatory TOU rate design
2690 Teinert, Reb
IPC-E- 03 -
supported by the Staff is neither optional nor a
voluntary pilot program. It is mandatory.
2691 Teinert , Reb
IPC-E- 03 -
Q. WHAT IS YOUR CONCERN ABOUT STAFF I S PERSPECTIVE OF
REVENUE NEUTRALITY IN THE PROPOSED SCHEDULE 19 RATE?
A. Although Mr. Schunke , beginning on page 28, line
19 of his direct testimony says that the proposed changes
for Schedule 19 rate design are revenue neutral, the
Company s response to ICIP I s Discovery Request No.
(Teinert Exhibit No. 211) demonstrates that the burden of
the mandatory TOU rate design is very unequally
distributed throughout the rate class. In fact based on
the information in Teinert Exhibit No. 211 , over 60% of
Schedule 19 customers rates will rise above the average
requested increase, 14% will see an increase
approximately equal to the average increase and only 26%
will experience an increase below the average increase
for the rate class. Revenue neutrality normally strives
for relative equity within a rate class. This rate design
clearly does not.
Q. DOES THE DOE OBJECT TO THE PROPOSED SERVICE CHARGE
FOR SCHEDULE 19 CUSTOMERS?
A. No. The Company s proposal to increase the
service charge for any rate class from 500%+ to 9000%+ is
unprecedented. They propose increased service charges for
other rate classes in this rate case. But, none approach
an increase of 9000%. The Company s move to include
2692 Teinert, Reb
IPC-E- 03 -
additional fixed costs in service charges for other
customer classes in this rate class has reached nowhere
near the 9000% increase level. This is clearly
2693 Teinert, Reb IDa
IPC-E- 03 -
discriminatory treatment of Schedule 91 secondary service
level customers. However, it is perplexing that even
though the DOE is a Schedule 19 customer, it does not
obj ect to a discriminatory and extremely large increase
in service charge. The Staff recommends no increase.
Q. WHY ARE YOU CONCERNED ABOUT THE UNSUPPORTED POWER
FACTOR ADJUSTMENT PROPOSAL IN SCHEDULE 19?
A. The DOE recommends approval of the increase in
the minimum from 85% to 90% for Schedule 19 customers,
even though they are a Schedule 19 customer and there is
no study and analysis verifying that the Company'
distribution system is constrained due to excessive
reactive power flow. On the contrary, excessive reactive
power flow would result in higher losses and reduce
system capacity. Idaho Power's response to ICIP' s
Discovery Request No. 48 (Teinert Exhibit No. 212)
indicates that system reliability indices , SAIDI and
SAIFI , have continuously improved over the last 4 years
by 38% and 29% respectively.
Q. DOES THIS END YOUR REBUTTAL TESTIMONY?
A. Yes , it does.
2694 Teinert , Reb
IPC-03-
(The following proceedings were had in
open hearing.
MR. RICHARDSON:Thank you , Madam
Chairman.Mr. Teinert is available for cross.
COMMISSIONER SMITH:Thank you.Are there
any questions in the back row.
How about in the front?
How about from the Commissioners?
COMMISSIONER HANSEN:I have about 40
questions.April Fools.
MR. RI CHARDSON :Thank you,
Madam Chairman.That concludes the case for the
Industrial Customers of Idaho Power.
COMMISSIONER SMITH:Thank you , Mr.
Richardson , and Mr. Teinert is also excused.
MR. RI CHARDSON :Thank you.
(The witness left the stand.
COMMISSIONER SMITH:We did good , so you
get tomorrow off, we'll back here on Monday, 9: 30.
MR. WARD:Madam Chair?
COMMISSIONER SMITH:Mr. Ward.
MR. WARD:I think I forgot to move for
the introduction of my exhibits, 701 through 710.
COMMISSIONER SMITH:How about if I just
take care of it by saying all the exhibits which
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2695 TEINERT
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heretofore been identified but not yet admitted are
hereby now admitted?
MR. WARD:Very good.
COMMISSIONER SMITH:Recognizing that it I s
a foolproof system ultimately because the rules would
admit all exhibits at the end of the hearing even if
have failed to do so.
(All exhibits previously marked for
identification were admitted into evidence.
COMMISSIONER SMITH:Mr. Gollomp.
MR. GOLLOMP:Yes , Madam Chairman , I ask
to be excused for the remainder of the hearings next week
and I want to enter the appearance of Mr. Lot Cooke
He will be here Monday morning.Well , he
will be here tomorrow morning.I could not reach him by
phone in time to terminate his flight.
COMMISSIONER SMITH:Well, I hope he'll
spend a beautiful weekend here in Boise.
MR. GOLLOMP:Well, I had intended to give
him a guided tour of the Hearing Room tomorrow morning.
COMMISSIONER SMITH:Well, we I 11 be here
if you want to give him a tour.
COMMISSIONER KJELLANDER:The doors will
be open.
COMMISSIONER SMITH:All right, I think
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2696 COLLOQUY
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we've had all the fun we can stand for one day, so we'll
see you all at 9: 30, Monday morning.
(The Hearing recessed at 4: 05 p. m.
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2697 COLLOQUY
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