20040416Volume XV Part I.pdf

ORIGINAL
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION OF
IDAHO POWER COMPANY FOR AUTHORITY
TO INCREASE ITS INTERIM AND BASE
RATES AND CHARGES FOR ELECTRIC
SERVI CE .
) CASE NO.IPC-E-O3 -
Idaho Public Utllm"Comml8llon
Offloe of the SecretaryRECEIVED
APR 1 5 2004
Boise, Idaho
BEFORE
COMMISSIONER MARSHA SMITH (Presiding)
COMMISSIONER PAUL KJELLANDER
COMMISSIONER DENNIS HANSEN
PLACE:Commission Hearing Room
472 West Washington
Boise , Idaho
DATE:April 5, 2004
.. VOLUME XV - Pages 2698 - 2923
. CSB REpORTING
Constance S.Bucy, CSR No. 187
17688 Allendale Road * Wilder, Idaho 83676
[phone] * [phone]
Email csb~spro.net
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For the Staff:Lisa Nordstrom, Esq.
and Weldon Stutzman, Esq.
Deputy Attorney Generals
472 West Washington
Boise, Idaho 83720-0074
Barton L. Kline, Esq.
and Monica B. Moen, Esq.
Idaho Power Company
Post Office Box 70
Boise , Idaho 83707-0070
RI CHARDSON & 0' LEARY
by Peter J. Richardson, Esq.
Post Office Box 1849
Eagle , Idaho 83616
RACINE , OLSEN , NYE , BUDGE
& BAILEY
by Randall C. Budge, Esq.
Post Office Box 1391Pocatello, Idaho 83204 -13 91
Lot Cooke, Esq.
Assistant General Counsel
U. S. Department of Energy
1000 Independence Ave., SW
Washington , DC 20585
McDEVITT & MILLER
by Dean J. Miller, Esq.
Post Office Box 2564
Boise , Idaho 83701
William M. Eddie
Advocates for the West
Post Office Box 1612Boise, Idaho 83701
GIVENS PURSLEY LLP
by Conley E. Ward, Esq.
Post Office Box 2720
Boise, Idaho 83701-2720
For Idaho Power
Company:
For Industrial Customers
of Idaho Power:
For Idaho Irrigation
Pumpers Association:
For The United States
Department of Energy:
For United Water Idaho
Inc:
For NW Energy Coalition:
For Micron Technology,Inc.
CSB REPORTING
Wilder , Idaho 83676
APPEARANCES
A P P A RA N C E S (Continued)
For Community Action
Partnership Association
0 f I daho and AARP:
Brad M. Purdy, Esq.
Attorney at Law
2019 North 17th StreetBoise, Idaho 83702
For Kroger Company:
(Of Record)
BOEHM , KURSZ & LOWRY
by Kurt J. Boehm, Esq.
36 E. Seventh Street
Suite 2110Cincinnati , Ohio 45202
CSB REPORTING
Wilder , Idaho
APPEARANCES
83676
WITNESS EXAMINATION BY
Mr. Eddie (Direct)
Prefiled Direct Testimony
Mr. Ward (Cross)
Mr. Kline (Cross)Commissioner Smith
Mr. Kline (Direct-Reb)
Prefiled Rebuttal TestimonyMr. Kline (Direct-Reb-Cont'd)Mr. Ward (Cross-Reb)Mr. Richardson (Cross-Reb)Ms. Nordstrom (Cross-Reb)Commissioner SmithMr. Kline (Redirect-Reb)
Mr. Kline (Direct-Reb)
Prefiled Rebuttal Testimony
Mr. Budge (Cros s - Reb)Mr. Ward (Cross-Reb)Ms. Nordstrom (Cross-Reb)Mr. Kline (Redirect-Reb)
Mr. Kline (Direct-Reb)
Prefiled Rebuttal TestimonyMr. Kline (Direct-Reb-Cont'd)Mr. Ward (Cross-Reb)Ms. Nordstrom (Cross-Reb)
Commissioner Hansen
Commissioner Smith
Mr. Kline (Direct-Reb)
Prefiled Rebuttal TestimonyMr. Kline (Direct-Cont'd)Mr. Ward (Cross-Reb)Ms. Nordstrom (Cross-Reb)
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Mr. Kline (Direct-Reb) 2889Prefiled Rebuttal Testimony 2892Mr. Kline (Direct-Reb-Cont'd) 2919
Ralph Cavanagh
(NWEC)
Dennis Gribble
(Idaho Power)
Phil Obenchain
( I daho Power)
Daniel Minor
(Idaho Power)
Bradley Fowler
(Idaho Power)
Bruce MacMahon
(Idaho Power)
CSB REPORTING
Wilder , Idaho 83676 INDEX
Premarked
Premarked
Premarked
Premarked
Premarked
Premarked
Premarked
Premarked
Premarked
PAGE
Identified 2807
Identified 2808
Premarked
Admi t t ed
Premarked
Admi t ted
2740
2740
NUMBER DESCRIPTION
FOR IDAHO POWER COMPANY:
62.Utility Regulatory News
Capi tal Structure Analysis
Variable Rate History
63.
64.
65.Year-End Rates for Variable
Rate Debt
66.Long-Term Debt
67.Long-Term Debt - BMA Average
68.American Falls Series 2000
70.Actuarial Earnings Rate of Return
on Plan Assets
71.Clearing Up, February 23, 2004
FOR THE STAFF:
145. Rate Case Template Final , Known& Measurables
146. Rate Case Template Final
Annualizing Adj.
FOR NORTHWEST ENERGY COALITION:
601. Idaho Power Response to NWEC
Discovery Request #1
602. Letter to NARUC Commissioners from
the Edison Electric Institute & the
Natural Resources Defense Council
CSB REPORTING
Wilder , Idaho 83676 EXHIBITS
(Continued)
Premarked
Admi t ted
Premarked
Admitted
PAGE
2740
2740
Identified 2765
NUMBER DESCRIPTION
603. Idaho Power Response to NWEC
Discovery Request #2
604. Idaho Power Response to NWEC
Discovery Request #3
FOR MI CRON TECHNOLOGY, INC.
715. Barron'Market Week
CSB REPORTING
Wilder , Idaho 83676 EXHIBITS
BOISE , IDAHO, MONDAY, APRIL 5, 2004 , 9: 30 A.
COMMISSIONER SMITH:Good morning.'ll
resume our hearing in the Idaho Power case.I see we
have a new face for the Federal Agencies.
MR. COOKE:Commissioner, I'm Lot
Cooke.Larry couldn't be here this week, so I 1
sitting in for him.Thank you.
COMMISSIONER SMITH:Welcome , Mr. Cooke.
We're very informal here, so there's no need to stand,
but there is a need to get really close to that mike if
you ever want to say anything so people can hear you.
Thank you.
Mr. Eddie , I believe we're ready
for your witness.
Thank you.Northwest EnergyMR. EDDIE:
Coalition will call Ralph Cavanagh.
CSB REPORTINGWilder Idaho 83676
2698 COLLOQUY
RALPH CAVANAGH,
produced as a witness at the instance of the Northwest
Energy Coalition , having been first duly sworn, was
examined and testified as follows:
BY MR. EDDIE:
DIRECT EXAMINATION
Ralph, will you state your name and spell
your last name for the record?
CSB REPORTING
Wilder Idaho
My name is Ralph Cavanagh and my last name
is spelled C-v-a-n-a-
Are you the same Ralph Cavanagh that
prefiled 16 pages of direct testimony along with four
exhibi ts in this case?
Yes.
You have no corrections to make to that
testimony at this time?
No.
If I were to ask you the same questions
today as were asked in that testimony, would your answers
Yes.
MR. EDDIE:Madam Chair , I move that the
prefiled testimony of Ralph Cavanagh be spread in this
be the same?
2699 CAVANAGH (Di)
NW Energy Coal t ion83676
case and that Exhibits 601 through 604 be marked for
identification.
COMMISSIONER SMITH:If there is no
objection , it is so ordered.
(The following prefiled direct testimony
of Mr. Ralph Cavanagh is spread upon the record.
CSB REPORTING
Wilder , Idaho
2700 CAVANAGH (Di)
NW Energy Coal tion83676
PLEASE STATE YOUR NAME, ADDRESS, AND
EMPLOYMENT.
My name is Ralph Cavanagh. I am the Energy
Program Director for the Natural Resources Defense
Council , 71 Stevenson Street #1825, San Francisco, CA
94105.
PLEASE OUTLINE YOUR EDUCATIONAL BACKGROUND AND
PROFESSIONAL EXPERIENCE.
I am a graduate of Yale College and Yale Law
School , and I joined NRDC in 1979. I am a member of the
faculty of the University of Idaho s Utility Executive
Course, and I have been a Visiting Professor of Law at
Stanford and UC Berkeley (Boalt Hall). From 1993-2003 I
served as a member of the U. S. Secretary of Energy
Advisory Board. My current board memberships include the
Bonneville Environmental Foundation , the Center for
Energy Efficiency and Renewable Technologies, the
Electricity Innovation Institute , and the Northwest
Energy Coalition. I have received the Heinz Award for
Public Policy (1996) and the Bonneville Power
Administration s Award for Exceptional Public Service
(1986). I appeared before the Idaho Public Utilities
Commission in 1987 as a Commission staff - sponsored
wi tness on energy conservation issues in case No.
1500-165, and I am currently a member of Idaho Power
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Cavanagh, Ralph -
NW Energy Coalition
Integrated Resource Plan Advisory Council.
ON WHOSE BEHALF ARE YOU TESTIFYING?
I am testifying for the Northwest Energy
Coalition and the Natural Resources Defense Council
(which has more than 2 500 individual members in Idaho) .
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Cavanagh, Ralph -
NW Energy Coalition
WHAT I S THE PURPOSE OF YOUR TESTIMONY IN THI S
PROCEEDING?
My testimony identifies significant financial
disincentives to sustained investments in cost-effective
energy efficiency and small- scale "distributed"
generating resources by the Idaho Power Company
(hereafter "the Company ), and proposes a solution.
WHAT MATERIALS HAVE YOU REVIEWED IN PREPARATION
FOR THIS TESTIMONY?
I have reviewed the Company s Application in
this proceeding and its responses to the discovery
requests of the Northwest Energy Coalition, which are
cited below where relevant.
II. Summary of Conclusions and Recommendations
SUMMARIZE YOUR CONCLUSIONS AND RECOMMENDATIONS.
One of the Company s most important
responsibilities involves what it calls "integrated
resource planning : assembling a diversified mix of
demand- and supply-side resources designed to minimize
the societal costs of reliable electricity supplies.1 The
Company is effectively a resource portfolio manager for
its customers, and in the volatile financial markets of
the early twenty- first century, the stakes and challenges
have never been more daunting. Yet the regulatory status
quo undercuts sound portfolio management by penalizing
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Cavanagh, Ralph -
NW Energy Coalition
utility shareholders for reductions in electricity
throughput over the distribution system regardless of
the cost-effectiveness of any contributing
energy-efficiency, distributed-generation or fuel
substitution measures.2 From customers ' perspective,
increases in throughput (above those
1 See, e. g., Idaho Power 2002 Integrated Resource Plan (June 2002)
2 This by no means exhausts the barriers to cost-effective resource
portfolio management, and I hope for future opportunities to work
with the Commission and interested parties on the full range of
issues. One example is the way that the regulatory status quo
penalizes shareholders for buying electricity from independent
providers as opposed to owning generation , since there is a prospect
of returns on investment only for owned (and rate-based) resources.
2704
Cavanagh , Ralph - Di
NW Energy Coalition
contemplated when rates were established) result
inappropriately in an uncompensated over-recovery of
fixed costs by their utility. And from an integrated
resource planning perspective, a grave if unintended
pathology of current ratemaking practice is the linkage
of utilities ' financial health to retail electricity
throughput. Increased retail electricity sales produce
higher fixed cost recovery and reduced sales have the
opposi te effect. To address all these problems,
recommend that the Commission adopt a simple system of
periodic true-ups in electric rates , designed to correct
for disparities between the Company s actual fixed cost
recoveries and the revenue requirement approved by the
Commission in this proceeding. The true-ups would either
restore to the Company or give back to customers the
dollars that were under- or over-recovered as a result of
annual throughput fluctuations.
III. Eliminating Financial Disincentives for Idaho
Power s Demand-Side Investments
a. The Nature of the Problem
WHAT IS THE BASIS FOR YOUR CONCLUSION THAT
IDAHO POWER'S FIXED COST RECOVERY IS STRONGLY TIED TO ITS
RETAIL SALES VOLUMES?
Like most utili ties , Idaho Power recovers most
of its fixed costs through the rates it charges per kWh.
2705
Cavanagh, Ralph -
NW Energy Coal it ion
In other words, a part of the cost of every kWh
represents the system s fixed charges for existing plant
and equipment the rest collects the variable cost of
producing that kilowatt-hour. After approving a
fixed-cost revenue requirement, the Idaho PUC sets rates
based on assumptions about annual kilowatt-hour sales. If
sales lag below those assumptions , the Company will not
recover its approved fixed-cost revenue requirement. By
contrast , if the Company were successful in promoting
consumption increases above regulators ' expectations, its
shareholders would earn a windfall in the form of cost
recovery that exceeded the approved
2706
Cavanagh, Ralph -
NW Energy Coalition
requirement. And whether consumption ends up above or
below regulators ' expectations , every reduction in sales
from efficiency improvements yields a corresponding
reduction in cost recovery, to the detriment of
shareholders.
WHY RECOVER FIXED COSTS IN VOLUMETRIC CHARGES
AT ALL? WHY NOT SIMPLY MAKE THEM FIXED CHARGES?
Idaho Power is indeed proposing a move in that
direction , but I agree with NWEC witness Nancy Hirsh that
the Commission should decline that invitation and
substitute instead a true-up mechanism , as described
below. Note that recovering all or most fixed costs as
fixed charges would require radical changes in rate
designi Attachment 1 to my testimony shows that more than
56% of the Company s proposed revenue requirement from
the five maj or customer groups represents fixed costs of
distribution , transmission and generation ($303 million
out of $541 million). Current fixed charges would recover
less than five percent of this fixed-cost revenue
requirement ($13.2 million out of $303 million), and even
the Company s proposed increase in fixed charges would
only recover about 17 percent ($51 million out of $303
million)
BUT DOESN'T CONTINUING TO RECOVER FIXED COSTS
AS PART OF VOLUMETRIC CHARGES MAKE ADDITIONAL CONSUMPTION
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NW Energy Coalition
LOOK MORE COSTLY THAN IT SHOULD?
That amounts to contending that the Commission
is suppressing societally beneficial increases in
electrici ty use through its rate structure, and
strongly disagree. The rationale for integrated resource
planning rests in part on the conclusion that extensive
market failures continue to block energy savings that are
much cheaper than additional energy production at today
electricity prices. We would make a bad situation worse
by reducing
2708
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NW Energy Coalition
customers I rewards for conserving electricity, which is
precisely what would happen if the Company shifted costs
from volumetric to fixed charges. The ability of
customers to reduce or alter energy consumption should be
viewed as an important element of the Company s resource
portfolio, and volumetric charges help ensure that
customers will remain motivated to participate fully in
that role.
DESCRIBE THE EVIDENCE THAT MARKET FAILURES
CONTINUE TO BLOCK HIGHLY COST-EFFECTIVE ENERGY SAVINGS AT
TODAY'S ELECTRICITY PRICES.
Overwhelming evidence has been marshaled in
recent years by the National Research Council of the
National Academy of Sciences, the U. S. Congress s Office
of Technology Assessment , the National Association of
Regulatory Util i ty Commissioners , and the national
laboratories, among many others. Although " (t) he
efficiency of practically every end use of energy can be
improved relatively inexpensively," 3 "customers are
generally not motivated to undertake investments in
end-use efficiency unless the payback time is very short
six months to three years... The phenomenon is not only
independent of the customer sector , but also is found
irrespective of the particular end uses and technologies
involved."4 Customers typically are demanding rates of
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Cavanagh , Ralph - Di
NW Energy Coalition
return of 40 -100+%, and such expectations differ sharply
from those of investors in electric generation.
Util i ties ' returns on capital average 12 percent or less.
The imbalance between the perspectives of consumers and
utili ties invite large, relatively low-return investments
in generation that could be displaced with more lucrative
energy efficiency.
3 u. S. National Academy of Sciences Committee on Science, Engineering
and Public Policy, Policy Implications of Greenhouse Warming , p. 74
(1991). A more recent review of energy-efficiency opportunities and
barriers appears in National Research Council Energy Research at
DOE: Was it Worth It?(September 2001) .
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NW Energy Coalition
These widely documented market failures generate
systematic underinvestment in energy efficiency,
resulting in electricity consumption at least 20-40%
higher than cost-minimizing levels.
There are many explanations for the almost universal
reluctance to make long-term energy efficiency
investments.6 Decisions about efficiency levels often are
made by people who will not be paying the electricity
bills, such as landlords or developers of commercial
office space. Many buildings are occupied for their
entireli ves by very temporary owners or renters, each
unwilling to make long-term improvements that would
mostly reward subsequent users. And sometimes what looks
like apathy about efficiency merely reflects inadequate
information or time to evaluate it, as everyone knows who
has rushed to replace a broken water heater , furnace or
refrigerator.
Market failures like these mean that energy prices
alone are a grossly insufficient incentive to exploit a
continental pool of inexpensive savings: "a 2 -year
payback customer paying average rates of 7 cents/kWh can
be expected to forego demand-side measures with costs of
conserved energy of more than 0.9 cents/kWh."7 That is,
energy prices would have to increase about eightfold to
overcome the gap that typically emerges in practice
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Cavanagh , Ralph - Di
NW Energy Coalition
between the perspectives of investors in energy
efficiency and production , respectively.
ARE YOU ADVOCATING PUNITIVELY HIGH ELECTRICITY
RATES AS A SOLUTION TO THESE MARKET FAILURES?
4 National Association of Regulatory Utility Commissioners, Least
Cost Utility Planning Handbook , Vol. II , p. II-9 (December 1988) .
5 See M. Levine , J. Koomey, J. McMahon , A. Sans tad & E. Hirst, Energy
Efficiency Policy and Market Failures , 20 Annual Review of Energy and
the Environment 535, 536 & 547 (1995).
6 An extensive assessment appears in U. S. Congress, Office of
Technology Assessment, Building Energy Efficiency , at pp. 73 -
(1992) .
7 National Association of Regulatory Utility Commissioners , note 4
above, p. I I-I 0 .
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NW Energy Coalition
Certainly not, any more than I advocate changes
in rate structure that . would reduce rewards for saving
electrici ty. Instead, I urge increased reliance on the
very solution that the Commission and the Company have
endorsed through Idaho s use of integrated resource
planning: pursuit of cost-effective energy efficiency
through utility investments rather than punitive prices.
WHAT WOULD HAPPEN TO THE COMPANY'S PROSPECTS
FOR RECOVERING AUTHORIZED FIXED COSTS IF IT WERE TO
EXPLOIT THE HUGE POTENTIAL FOR COST-EFFECTIVE ELECTRICITY
SAVINGS?
Although the societal and customer benefits
would be significant , including avoided pollution and
savings in both generation purchases and grid
infrastructure investment, every additional unsold
kilowatt-hour would reduce the company s fixed cost
recovery and undercut shareholder welfare, unless the
Commission changed current ratemaking policies. Until
this problem is solved, Idaho Power will lag in both
aspirations and achievements on the demand side.
b. The Potential Magnitude of the Problem
HOW SUBSTANTIAL ARE POTENTIAL SHAREHOLDER
LOSSES FROM REDUCED KILOWATT-HOUR SALES?
The Company s proposed fixed cost revenue
requirement for the five major customer groups (see
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NW Energy Coalition
Attachment 1 to this testimony (Exhibit 601)) is $303
million, of which $290 million would be recovered from
variable demand and energy charges if current fixed
charges are retained energy charges alone would account
for more than $235 million. Every one percent reduction
in electricity use and demand on the Company s system
would cut fixed
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NW Energy Coalition
cost recovery by about $3 millioni every one percent
increase would have the opposite effect. Since many
efficiency measures last ten years or more, these
one-year impacts must be multiplied at least tenfold when
assessing shareholder interests.
But the losses get even worse in the context of
multi-year programs initiated under a long-term resource
plan. Consider a five-year program that pursues annual
savings equivalent to one percent of system load, with
each year adding new savings equivalent to the savings
achieved during the previous year, and all savings
persisting for at least five years. The first year impact
on fixed cost recovery is then about three million
dollars , followed by six million dollars in the second
year (as an equal amount of savings is added), and so on:
the automatic five-year loss to shareholders from this
steady-state utility investment program would be about
forty-five million dollars, with shareholder losses
continuing to escalate in succeeding years as initial
electrici ty savings persisted (with some gradual erosion)
and more savings were added. Note that the shareholders
would be absorbing these losses even as society gained
from substituting less costly energy efficiency for more
costly generation.
WOULD THE COMPANY'S PROPOSED INCREASE IN FIXED
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NW Energy Coalition
CHARGES SOLVE THIS PROBLEM?
No, the losses would drop by less than fifteen
percent.8 In the hypothetical five-year scenario, losses
would still exceed thirty-seven million dollars. As noted
earlier , I emphatically do not advocate still higher
fixed charges as a partial solutionj as explained further
below , modest rate true-ups offer a full solution without
distorting rate structures.
8 See Attachment 1 (Exhibit 601) (Company s proposed fixed charges
would still leave more than $250 million/year in fixed charges to be
recovered in energy and demand charges) .
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Cavanagh , Ralph - Di
NW Energy Coal it ion
WHAT MAKES YOU THINK UTILITIES CAN SUSTAIN
COST-EFFECTIVE ENERGY EFFICIENCY PROGRAMS EQUIVALENT TO
ABOUT ONE PERCENT OF SYSTEM CONSUMPTION?
The California Energy Commission has already
recommended more ambitious targets for California
utilities. Proposed electricity savings targets are 1.08%
of system load in 2007 , ramping up to 1.13% in 2013. By
comparison , for 2004 and 2005, the savings targets
already adopted for California s investor-owned utilities
represent about 0.85% of system load.9 The Northwest
Power Planning Council staff's latest estimate of
cost-effective and achievable regional potential is of
the same magnitude, even though it largely excludes the
industrial sector. 10 Moreover , given previous levels of
energy efficiency investment in the two states and
comparative electricity prices , I would expect Idaho to
have untapped energy efficiency opportunities at least
equal to California , in relative terms.
WOULD COST-EFFECTIVE FUEL SUBSTITUTION AND
DISTRIBUTED GENERATION PROGRAMS HAVE THE SAME KIND OF
ADVERSE EFFECT ON COMPANY EARNINGS?
Yes substituting efficient gas applications
for electricity, or adding distributed generation on the
customer s side of the meter , reduces retail
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Cavanagh, Ralph -
NW Energy Coalition
kilowatt-hour sales and has
9 See CEC Staff Report Proposed Energy Savings Goals for Energy
Efficiency Programs in California , (Publication #100-03-021: October, 2003). The recommended annual energy savings target in 2007 is
000 GWh (1.08% of load) and 3 400 GWh in 2013 (1.13% of load). Theannual energy savings for the 04-05 programs are from California
Public Utilities Commission , D.03-12-062 (2003); the demand forecast
for 2004-05 is from CEC, California Energy Demand 2003-2013 Forecast(Publication #100-03-002: 2003), Appendix A.
2718
10 The Council staff estimates the achievable
, cost-effectiveregional energy efficiency potential at 3200 average MW over the next
20 years , equivalent to just under one percent of current system
loads per year , and this figure assumes only a five percent
improvement in average industrial sector efficiency over that period.Personal communication with Tom Eckman , Northwest Power PlanningCouncil, February 6, 2003.
Cavanagh , Ralph - Di
NW Energy Coalition
adverse effects on fixed cost recovery that are identical
(per kWh of lost retail sales) to those described above.
c. The Solution: Removing Disincentives with Rate
True-Ups
IF YOU OPPOSE HIGHER FIXED CHARGES, HOW WOULD
YOU PROPOSE TO REMOVE THE FINANCIAL DISINCENTIVES
DESCRIBED IN EARLIER SECTIONS OF YOUR TESTIMONY?
I support the j oint recommendation of the
Natural Resources Defense Council and the Edison Electric
Institute to the National Association of Regulatory
Utility Commissioners in November 2003: "To eliminate a
powerful disincentive for energy efficiency and
distributed-resource investment, we both support the use
of modest , regular true-ups in rates to ensure that any
fixed costs recovered in kilowatt-hour charges are not
held hostage to sales volumes." 11 The state regulatory
communi ty has more than two decades of experience with
such mechanisms, which involve a simple comparison of
actual sales to predicted sales, followed by an equally
simple determination of actual versus authorized fixed
cost recovery during the period under review. The
difference is then either refunded to customers or
restored to the Company. Note that the true-up can go in
either direction , depending on whether actual retail
sales are above or below regulators ' initial
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NW Energy Coalition
expectations.
WOULD THE TRUE-UPS INTRODUCE SIGNIFICANT NEW
VOLATILITY IN ELECTRICITY RATES?
No, because consumption does not fluctuate
enough from year to year to require disruptive true-ups.
Even aggressive conservation programs will not reduce
loads by more than about one percent per year, as
discussed above, and even under the extraordinary
conditions
11 Letter to NARUC Commissioners from the Edison Electric Institute
and the Natural Resources Defense Council , November 18 , 2003, p. 3
(see Attachment 2 (Exhibit 602))
2720 lOa
Cavanagh , Ralph - Di
NW Energy Coal it ion
prevailing in some recent years, Idaho Power s retail
electricity sales never dropped by more than two
percent.12 My assessment of recent trends in Idaho Power
system sales indicates that the largest plausible annual
impact of a true-up mechanism would be less than two
percent of retail rates (i. e., less than 1.5 mills per
kilowatt-hour ). By contrast , the Company s Power Cost
Adjustment has increased rates by as much as 12 mills per
kWh in recent years (with five rate increases of two
mills or more since March 1998) .13 The need for rate
adjustments can be reduced further by integrating
cost-effective energy efficiency targets into the
forecasts developed for purposes of setting retail rates
in this proceeding.
EXPLAIN YOUR CONCLUSION ABOUT THE PLAUSIBLE
16 - RATE IMPACT LIMITS OF A TRUE-UP MECHANISM.
A true-up mechanism would give back or restore
the difference between authorized fixed cost recovery and
actual recovery based on actual sales. Assuming that the
Commission approves the Company s requested fixed cost
revenue requirement of $303 million for the five major
customer classes (see Attachment 1 (Exhibit 601)), and
assuming that current fixed charges are not increased,
about $290 million annually must be recovered from energy
and demand charges. This means that about $2.9 million
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Cavanagh , Ralph - Di
NW Energy Coalition
would be lost or gained for every one percent by which
sales diverged from assumptions used to set rates.
Under these assumptions , a "worst case " annual rate
impact of a true-up mechanism would come in a year
comparable to 2002, when retail sales dropped by two
percent at a time when the Company was just beginning to
ramp up energy efficiency programs. Assuming that such
impacts were added to those of robust efficiency programs
wi th savings equivalent to one percent of system-wide
consumption , the true-up mechanism would still only have
to restore
12 See Attachment 4 (Exhibit 604), which provides normalized annual
electricity sales since 1992. Normalized retail kWh sales (exclusive
of special contracts) dropped by two percent in 2002 after increasing
in every year since 1993 (with an average annual growth rate over
1993-2002 of about two percent)
2722 11a
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NW Energy Coalition
about $8.7 million to compensate for a three percent
reduction in Consumption and associated fixed cost
recovery (and less if the initial forecast had
anticipated the energy-efficiency impacts). With total
system revenues of $537 million (assuming that the
Company s request is granted), this implies an average
rate increase of 1.5% for the true-up under worst-case
condi tions. Under more typical circumstances in which
consumption increases outpaced efficiency impacts , of
course, the true-up could easily result in a modest rate
reduction. Since 1993, electricity use on the Idaho Power
system has increased by an average of about two percent
annually (see Attachment 4 (Exhibit 604)). As shown in
the illustrative calculation above , rate impacts up or
down under a true-up mechanism will necessarily be modest
as long as corrections occur on a regular basis and
balances do not accumulate over multiple years.
IS THERE RELEVANT RECENT EXPERIENCE IN
NEIGHBORING STATES?
The most recent regional experience with this
type of true-up mechanism came in Oregon with
PacifiCorp s "Alternative Form of Regulation," which was
adopted in 1998.14 Initial rate impacts of the Oregon
mechanism were extremely modest for all classes , and (as
predicted) went in both directions:
2723
Cavanagh , Ralph - Di
NW Energy Coalition
1999 2000 2001
+1.90%+1.85%
22%+0.06%
31%+0.09%
+0.33%30%
+0.25%- 0 .20%
Residential:-0.39%
Small General Service:60%
General Service:-0.83%
Large General Service:+0.61%
Irrigation:+0.45%
13 See Attachment 3 (Exhibit 603)
2724 12aCavanagh, Ralph - Di
NW Energy Coalition
I should note also that PacifiCorp s recent General Rate
Case filing in Washington includes testimony by CEO Judi
Johansen endorsing a similar mechanism:
The Company's objectives in filing this rate case
(include) eliminat (ing) financial disincentives to
promoting energy efficiency improvements throughout
the company I s service territory... From a
least-cost planning perspective , the problem with
current ratemaking practice is the linkage of
utilities I financial health to retail electricity
throughput. Increased retail electricity sales
produce higher fixed cost recovery and reduced sales
have the opposite effect. To remove a conservation
disincentive , we would propose that the parties
agree to and the Commission endorse the adoption of
a simple system of periodic true-ups to electric
rates , designed to correct for the disparities
between utilities I actual fixed cost recoveries and
the revenue requirement approved by this Commission.
The true-ups would either restore to the utilities
or give back to customers the dollars that were
under- or over-recovered as a result of annual
throughput fluctuations.
California has embraced this policy for all its
investor-owned utilities , and New York State s regulators
2725
Cavanagh , Ralph - Di
NW Energy Coalition
are conducting a rulemaking on the issue, with a decision
slated for spring of 2004.16 In New York , proponents of a
true-up mechanism form a diverse coalition of over
stakeholders including Carrier Corporation, Johnson
Controls the Real Estate Board of New York,the Power
Authori ty,and the New York Attorney General.
14 Oregon PUC, Order No. 98-191 (May 5, 1998) (covering 1998 - 2001) .
These rate impact data were supplied to the author by PacifiCorpPaul Wrigley.
15 See pp. 3 & 6 of the Direct Testimony of Judith A. Johansen
Washington Utilities and Transportation Comm'n v. PacifiCorp, Docket
No. UE-032065 (December 2003) .
16 See California Public Utilities Code section 739.10; New York
Public Service Commission , Order Instituting Proceeding, Case
03 -E-0640 (Proceeding on Motion of the Commission to Investigate
Potential Electric Delivery Rate Disincentives Against the Promotion
of Energy Efficiency, Renewable Technologies and Distributed
Generation (May 2 , 2003)).
2726 13a
Cavanagh , Ralph - Di
NW Energy Coalition
WHY DON'T MORE STATES HAVE TRUE-UP MECHANISMS
IN PLACE TO ELIMINATE DISINCENTIVES FOR UTILITY
INVESTMENT IN DEMAND-SIDE RESOURCES?
A strong trend in that direction was
interrupted in the mid-1990s by a stampede toward an
industry restructuring model (pioneered in California)
that denied utilities any substantial role in resource
planning or investment. On that theory, there was no
reason to worry about utilities ' energy efficiency
incentives , because utili ties would be transferring their
resource management responsibilities to unregulated
participants in wholesale and retail electricity markets.
The Western electricity crisis of 2000-2001 has
discredi ted that model , which in any case never took hold
in Idaho. Most states are now restoring full or at least
significant utility responsibility for resource portfolio
management, and interest in true-up mechanisms is
reviving, as illustrated by Attachment 2 (Exhibit 602)
(Letter from Edison Electric Institute and Natural
Resources Defense Council to NARUC) .
WHAT ARE THE MOST IMPORTANT DESIGN ISSUES THAT
THE COMMISSION NEEDS TO RESOLVE IN CREATING A TRUE-
MECHANISM FOR IDAHO POWER?
Once the Commission has approved an initial
fixed-cost revenue requirement and established retail
2727
Cavanagh , Ralph - Di
NW Energy Coalition
rates based on an estimate of retail sales,several basic
questions remain to be resolved:
17 See also National Commission on Energy Policy, Reviving the
Electricity Sector (Fall 2003), p. 3: "Regulated distribution
companies can be compensated independently of increased electricity
sales (for example, utilities ' fixed-cost recovery can be made
independent of retail electricity use, through the mechanism of small
periodic upward or downward adjustments in distribution rates)
2728 14a
Cavanagh , Ralph - Di
NW Energy Coalition
How will the approved fixed cost revenue
requirement be adj usted between rate cases to
reflect changing conditions, including system
growth (options include adjustments to reflect
inflation or customer growth)?
For purposes of calculating and applying the
true-ups, will the Commission merge all five
maj or customer classes or treat each one
separately?
Will annual retail sales be adjusted for
weather-driven fluctuations before the true-ups
are calculated?
How often will true-ups occur , and will they be
capped at some level of maximum annual rate
impact , with balances carried forward as
necessary?
IV. Specific Recommendations for the Commission
HOW WOULD YOU RESOLVE THE QUESTIONS THAT YOU
HAVE JUST POSED , AND WHAT SPECIFIC TRUE-UP MECHANISM DO
YOU RECOMMEND THAT THE COMMISSION ADOPT IN THIS
PROCEEDING?
Each question is straightforward and an
abundance of analysis and experience shows that there is
more than one reasonable solution.18 Rather than proposing
my own resolution here, I recommend that the Commission
2729
Cavanagh , Ralph - Di
NW Energy Coalition
make the basic policy decision that a true-up mechanism
to eliminate financial disincentives for demand-side
solutions is in the public interest. The Commission could
then provide a reasonable period
e. three to six
months)for the Company and interested parties to seek as
much consensus as possible on design
18 See , e. g., E. Hirst, Statistical Recoupling: A New Way to Break
the Link Between Electric-Utility Sales and Revenues (Oak RidgeNational Laboratory: September 1993); S. Carter , Breaking theConsumption Habit: Ratemaking for Efficient Resource Decisions,Electricity Journal (December 2001), pp. 66-74; J. Eto, S. Stoft &T. Belden , The Theory and Practice of Decoupling (Lawrence BerkeleyNational Laboratory: January 1994); Marnay & Comnes, Ratemaking for
Conservation: The California ERAM Experience (Lawrence BerkeleyNational
2730 15aCavanagh, Ralph - DiNW Energy Coal i t ion
recommendations for the Commission s consideration. I
believe that if the Commission resolves the fundamental
policy question , the Company and other interested parties
will be able either to identify a preferred solution with
wide support, or at minimum to narrow and frame the
issues in ways that will help the Commission achieve a
swift and sound resolution.
DOES THAT CONCLUDE YOUR TESTIMONY?
Yes.
Laboratory: March 1990) Oregon PUC , Order No. 98-191 (May 5, 1998)(establishing a true-up mechanism for PacifiCorp)
2731
Cavanagh , Ralph - Di
NW Energy Coalition
(The following proceedings were had in
open hearing.
MR. EDDIE:And with that , Mr. Cavanagh is
available for cross-examination.
COMMISSIONER SMITH:Mr. Cooke , do you
have questions?
MR. COOKE:, I don I Thanks.
COMMISSIONER SMITH:Mr. Ward.
MR. WARD:Yes , just a couple.
CROSS -EXAMINATION
BY MR. WARD:
Mr. Cavanagh , you're aware , are you not,
that this Commission has a long history with PURPA
resources and the acquisition thereof of by Idaho
utili ties?
Yes.
And it seems to me your decoupl ing
proposal addresses one part of the problem with the
incentive for DSM and similar programs, but not the
other , which is that the utilities have generally
well , would you agree with me that the utilities have
generally resisted the acquisition of PURPA proj ects
because they don t earn on it?
CSB REPORTING
Wilder , Idaho
2732 CAVANAGH (X)
NW Energy Coal tion83676
Yes.
And don I t we have the same problem with
DSM even if we have decoupl ing?
We do, although the problem is reduced
substantially, in my opinion , because on the energy
efficiency side , the largest financial disincentive is
associated with the reduced recovery of fixed costs from
reduced sales, but Mr. Ward, I think you're absolutely
right that simply removing a disincentive is not all that
ideally one would want to do.One would also want to
create performance-based incentives tied to overall
resource procurement and one would want to pick up both
demand side and supply side resources in such a
mechanism.
MR. WARD:You anticipated my final
question.Thank you.
THE WITNESS:Thank you.
COMMISSIONER SMITH:Mr. Richardson.
MR. RICHARDSON:No questions,
Madam Chairman.
COMMISSIONER SMITH:Mr. Budge.
MR. BUDGE:No questions.
COMMISSIONER SMITH:From the Staff.
MS. NORDSTROM:None from Staff.
COMMISSIONER SMITH:Seeing no other
CSB REPORTING
Wilder , Idaho
2733 CAVANAGH (X)
NW Energy Coaltion83676
lawyers, I turn to Mr. Kline.
MR. KLINE:Thank you.Madam Cha i rman .
do have a couple of questions, Mr. Cavanagh.
CSB REPORTING
Wilder , Idaho
CROSS -EXAMINATION
You are a member of Idaho Power Company
Integrated Resource Plan Advisory Council, are you not?
Yes.
And you re currently involved with the
other members of that advisory council in developing the
Company s 2004 integrated resource plan?
Yes.
And I believe that gets filed in June
that your understanding?
I m not sure of the exact schedule.
All right, and it's my understanding that
you also monitor Idaho Power's DSM planning process, the
Energy Efficiency Advisory Council , some of those
Not as closely because I'm not a member.
Have you read Mr. Gale I s rebuttal
testimony in this case?
Yes.
BY MR. KLINE:
things?
2734 CAVANAGH (X)
NW Energy Coal t ion83676
In his testimony, Mr. Gale makes a couple
of suggestions.First of all , he refers to a report
that's on decoupling that Idaho Power has retained Eric
Hirst to produce and then he also suggests that once we
have that report, that it might make sense for this
for the decoupl ing proposal to be considered in a
workshop process.Are you aware of that part of his
testimony?
Yes.
All right , do you agree that the
Commission would probably be better able to determine how
it wants to proceed further with decoupling after it
receives the Hirst report and the input from the
process?
That suggestion is slightly different from
the one I made in my testimony and so let me be clear on
what I think we should do , although I agree the Hirst
report will be extremely helpful.It is my opinion that
in order for an informal workshop process to have the
best chance of succeeding and providing useful guidance
to the Commission , the Commission should make a policy
call going in that it believes that the financial
disincentives identified in the Northwest Energy
Coalition testimony are a significant problem , that a
solution is needed and that it is looking to the parties
CSB REPORTING
Wilder , Idaho
2735 CAVANAGH (X)
NW Energy Coal tion83676
in workshops to propose either a consensus-based solution
or al ternati ves that have different sponsorship, but that
would at minimum clarify the decisions that the
Commission needs to make.
I would not advise the Commission simply
to send the parties into an open-ended sequence of
workshops without having made any indication of its views
on the significance of the problem or the importance of a
solution , because I think it's much less likely that we
can come to a productive outcome if everything is on the
table., on the other hand, the Commission is prepared
to say we want to see proposed solutions to this problem
and we want the parties to come forward with them , then I
have every expectation that the workshop process
identified by Mr. Gale aided by Mr. Hirst's report could
come to a very useful result for the Commission.
So the difference , really, is - - well
strike that.
That I S all the questions I have.
COMMISSIONER SMITH:Thank you.Do we
have questions from the Commission?
CSB REPORTING
Wilder , Idaho
2736 CAVANAGH (X)
NW Energy Coal tion83676
EXAMINATION
BY COMMISSIONER SMITH:
I guess one thing I wondered about,
Mr. Cavanagh , is the issue of seasonality with regard to
Idaho Power I s rates.It seems like on a hot, summer day,
it helps everybody if people save money and if we spend
money to have a program to do that, but in a cool, spring
day, it probably doesnl t save anybody money if people
conserve and it were to probably cost them money if we
spending money to have a program for them to do that, so
what about seasonality?
Actually, Commissioner , it's my view that
what seasonal i ty appropriately does is signal a different
value of efficiency, but the value never goes to zero.
On a cool , spring day, we are still paying for the cost
of fuel to generate the electricity, we're still paying
to maintain the system over which it flows.There are
always variable costs, and if we look over the integrated
resource planning lifetime, as Idaho Power is now doing,
then it I S precisely those cool , spring days over time
that drive the system need for base load power , so I
agree with you that one would pay less for savings on a
cool , spring day, but the value isn't zero and , of
course , a perverse feature of the system we have now is
that Idaho Power loses money on both peak savings and off
CSB REPORTING
Wilder , Idaho
2737 CAVANAGH (Com)
NW Energy Coal tion83676
peak savings.
Fixed cost recovery is associated with
both of those sales.The approach that we recommend is
one that would use the integrated resource planning
process to pick the best buys in energy efficiency and
drive incentives there, but Commissioner , also, that
would ensure that the Company I s financial welfare is at
least in some way linked to its success in meeting those
obj ecti ves , and what's distressing to me personally is
that no matter how cost effective the savings are , either
on peak or off peak, given the system we have, there are
automatic financial losses associated with savings in
both categories and that's what the proposal we've given
you is designed to solve.
I guess one thought I've had over the
years, maybe because of that consequence to the Company
they've been less than enthusiastic about doing some of
these things , is to instead of having the Company try and
do it, have a third party, that you go out for bids and
you just have ~omebody else administer these kinds of
programs.
And Commissioner, some states have done
that.I III tell you why that I s not my first preference.
I think , and this is , it seems to me , integral to the
whole philosophy of integrated resource planning in
CSB REPORTING
Wilder , Idaho
2738 CAVANAGH (Com)
NW Energy Coal tion83676
Idaho , that you want the utility to be treating energy
efficiency as a resource for the system.You want it to
be trading it off against power generation and grid
investment.You want it to be picking the best buys
first.
Idaho Power is the electric resource
portfolio manager for its system.If you believe that
energy efficiency is one of those resources and
potentially one of the best, it seems to me that the
first preference would be to create the right incentives
for the portfolio manager to do the investing itself and
to do the trade-offs against generation rather than
delegate that to a third party, because once you make the
delegation to a third party, I think the integration of
energy efficiency in the resource portfolio is much more
difficul t, so if there were no way to solve the problem
of disincentives for energy efficiency and demand side
resources, I might be inclined in your direction , but
because I think there is a straightforward solution , I
would encourage you to consider adopting it and then
giving Idaho Power a chance to show what it can do when
the incentives are set right and to see if that gets us
off what I think you properly characterize as a real
roller coaster pattern of investment and motivation over
the 20 years or so we've been doing this together.
CSB REPORTING
Wilder , Idaho
2739 CAVANAGH (Com)
NW Energy Coal tion83676
COMMISSIONER SMITH:Thank you.
Do you have redirect Mr. Eddie?
MR. EDD IE:No redirect.I also move that
Exhibits 601 through 604 filed with Mr. Cavanaghl
testimony be admitted in the official record of this
case.
COMMISSIONER SMITH:If there is no
objection , it is ordered.
(Northwest Energy Coalition Exhibit
Nos. 601-604 were admitted into evidence.
MR. EDDIE:May Mr. Cavanagh be dismissed
from the hearing?
COMMISSIONER SMITH:Seeing no obj ection,
Mr. Cavanagh may be excused.
THE WITNESS:Thank you.
COMMISSIONER SMITH:Thank you.
(The witness left the stand.
COMMISSIONER SMITH:All right , I think
that brings us back to the Company s rebuttal
wi tnesses .
MR. KLINE:It does.I did pass out to
folks a list that shows the order of the Company I
rebuttal witnesses since we have a number of them , and
'll start with the first name on that list and that'
Dennis Gribble.
CSB REPORTING
Wilder , Idaho
2740 CAVANAGH (Com)
NW Energy Coaltion83676
DENNIS C. GRIBBLE
produced as a rebut tal witness at the instance of the
Idaho Power Company, having been previously duly sworn
resumed the stand and was further examined and testified
as follows:
DIRECT EXAMINATION
For the record , Mr. Gribble, could you
state your name , please?
CSB REPORTING
Wilder , Idaho
Dennis C. Gribble.
And you are the same Dennis Gribble that
previously presented direct testimony in this proceeding,
Yes, I am.
All right, and in this case have you
previously prefiled 12 pages of rebuttal testimony and
Exhibits 62 through 68?
Yes , I ha ve .
And do you have any addi t ions or
corrections that you need to make to your prefiled
rebuttal testimony?
No, I do not.
Mr. Gribble, if I were to ask you the same
BY MR. KLINE:
are you not?
2741 GRIBBLE (Di-Reb)
Idaho Power Company83676
questions contained in your prefiled rebuttal testimony
today, would your answers be the same?
Yes, they would.
MR. KLINE:With that, Madam Chairman , I
would request that Mr. Gribble's prefiled rebuttal
testimony be spread on the record as if read in its
entirety and that Exhibits 62 through 68 be marked for
identification.
COMMISSIONER SMITH:Without obj ection , it
is so ordered.
(The following prefiled rebuttal
testimony of Mr. Dennis Gribble is spread upon the
record.
CSB REPORTING
Wilder , Idaho
2742 GRIBBLE (Di-Reb)
Idaho Power Company83676
Please state your name, address and present
occupation?
My name is Dennis C. Gribble and my business
address is 1221 West Idaho Street, Boise, Idaho.I am
employed by Idaho Power Company as Assistant Treasurer.
Are you the same Dennis C. Gribble that has
previously presented direct testimony in this proceeding?
Yes , I am.
Do you have comments concerning the direct
testimony of Staff witness Carlock , Staff witness
English, and Micron Technology witness Peseau?
Yes , but I must point out that due to the press
of time , just because I have not addressed an issue
raised in their testimony in my rebuttal testimony,
should not be taken as agreement with their testimony.
Do you agree with Ms. Carlock I s and Dr.
Peseau's recommended range of common equity for Idaho
Power Company in this proceeding?
No.Ms. Carlock's cost of common equity range
of 9.5% to 10.5% and Dr. Peseau I s range of 8.4% to 10.6%,
are both too low in light of current financial market
condi tions
Upon what do you base your opinion that Ms.
Carlock I S and Dr. Peseau' s recommended cost of equity
ranges are too low?
2743 GRIBBLE , Di-Reb
Idaho Power Company
There are a number of reasons that lead me to
my conclusion:(1) the direct and rebut tal testimony of
the Company s witness Mr. Avera strongly supports a
higher cost of equity range (2) recent regulatory
actions in the region support a higher cost of equity
range (3) the unique risks facing Idaho Power support
recognition of a higher cost of equity range, and (4)
capi tal market trends.
Are you aware of recent regulatory actions in
the region that support your belief that a higher cost of
common equity is reasonable in today I s regulatory
environment?
Yes.On December 17 , 2003, the Utah Public
Service Commission granted $65 million of additional
annual revenues to PacifiCorp based upon an all-parties
settlement which included a return on common equity of
10.7% (Docket 03-2035-, January 30, 2004).On August
26, 2003, Pacific Power & Light was authorized a 10.
return on common equity by the Oregon Public Utilities
Commission (UE147 , August 26, 2003). On March 6 , 2003
PacifiCorp was authorized a 10.75% return on common
equity in its Wyoming jurisdiction (2000-ER-02-184 , March
6, 2003).A recently published report.(Exhibit No. 62)
for the 12 -month period October 2002 through September
2003, for electric and gas rate cases (II A Survey of
2744 GRIBBLE, Di-Reb
Idaho Power Company
Recent PUC Rulings," PUR Utility Regulatory News,
December 26, 2003, pp.5) showed the following results
for
2745 GRIBBLE , Di -Reb
Idaho Power Company
45 rate cases in which a granted rate of return on common
equi ty was identified:
Number of Cases Range of ROE
8 - 8.
10-10.
11-11.
12-12.
I have attached a copy of the PUR survey as Exhibit
62 to my testimony.
Although the Company is still recommending a return
of common equity of 11., clearly, recent regulatory
orders in other jurisdictions indicate justification for
a return on common equity higher than those recommended
by Ms. Carlock or Dr. Peseau.
Do you agree with Ms. Carlock's position that
the main risk factors for Idaho Power has been and will
continue to be primarily due to non-regulated operations?
No.Al though , non-regulated operations do
present a different risk profile than regulated
operations, Idaho Power faces a set of unique risk
factors that the investment community watches very
closely.First and foremost , the largest risk factor is
adequate snow pack and water flow conditions.
primarily hydro-based system does provide for a low-cost
source of power, but reliance upon
2746 GRIBBLE, Di-Reb
Idaho Power Company
the vagaries of the weather and water conditions to
recover power supply costs is a significant risk to
investors.Obviously, the PCA mechanism does mitigate a
large portion of this risk , but still ten percent of
extra-ordinary power supply costs in the Idaho
jurisdiction are at risk.And, although this Commission
has shown historical support of extra-ordinary power
supply cost recovery through the PCA mechanism, the risk
of regulatory under-recovery does add to the investor I s
risk assessment.Most utilities have some form of fuel
cost adj ustment clauses similar to the PCA, but they
recover 100% of the prudently incurred fuel related
costs.As mentioned in my direct testimony, the
Company I S PCA 10% sharing mechanism in the Idaho
jurisdiction had a tremendous negative financial impact
to Idaho Power during the recent California energy
crisis.
What other unique risk factors are attributable
to Idaho Power?
As I have detailed in my direct testimony,
other areas of regulated risk unique to Idaho Power are
re-licensing of its hydro facilities , environmental laws
and regulations , and the risk of actual recovery of costs
through the regulatory process.
With the wind-down of IDACORP Energy and the intent
2747 GRIBBLE , Di-Reb
Idaho Power Company
to primarily focus on the regulated electric utility, in
the eyes of the investment community, the primary risks
2748 GRIBBLE , Di -Reb
Idaho Power Company
IDACORP are now Idaho Power s unique regulatory risks.
These unique Idaho Power risks , as seen by investors when
evaluating IDACORP as an investment, places the Company
as riskier than most electric utilities.
Do you agree with Ms. Carlock's assessment that
interest rates are at historical lows and no dramatic
increase is expected?
I agree that interest rates have trended
downward to historical lows over the last several years.
In fact, the Company I s overall cost of capital reflects
the prudent management of these capital costs by taking
advantage of the low interest rate environment.However
I disagree that no dramatic increase is expected.
Federal Reserve Chairman Alan Greenspan indicates that
interest rates are too low for long-term economic
stability and will have to rise at some point (Wall
Street Journal , March 3, 2004 , pg A3).Al so, Dr. Peseau
states in his direct testimony on behalf of Micron " I
expect interest rates to increase somewhat in the not too
distant future Predicting when interest rates will
increase is difficult , but the trend in future interest
rates appears upward.
Do you agree with the capital structure that
Ms. Carlock used to determine Idaho Power s overall cost
of capital?A. No.I am recommending, as detailed in
2749 GRIBBLE, Di -Reb
Idaho Power Company
Exhibi t 63 , that the capital structure be based upon an
actual 2003 year-end capital structure of 51.060% debt,
969% preferred stock and 45.971% common equity for
determining the overall cost of capital in these
proceedings.This is consistent with the Commission'
previous order that authorized an actual year-end capital
structure at December 31, 1993 for determining the
overall rate of return in the Company I s last rate
proceeding before this Commission (IPC-E- 94 -5, Order
25880
, pg
19) .
Do you agree with PUC Staff witness Donn
English's interest rate adjustments for variable rate
debt?
No.In a rising interest rate environment, Mr.
English I S recommendation to choose the actual variable
rate at year-end 2003 for the variable rate bonds will
penalize the Company by setting rates below the actual
variable rate costs.By using an appropriate precedent
over time both the shareowner and customer can share in
the benefits of lower cost variable rate securities by
using an estimated interest rate that is based upon an
average of variable interest rates over a historical
period of rising and lowering interest.
I f interest rates are proj ected to rise , would
the rate adjustment proposed in Mr. English's testimony
2750 GRIBBLE, Di -Reb
Idaho Power Company
set the Company s variable interest rate levels of
recovery below the actual cos~ of variable interest?
2751 GRIBBLE , Di -Reb
Idaho Power Company
Yes.As Mr. Engl ish correctly states in his
testimony,"interest rates have been trending downward
and are at all-time lows Interest rates are near
historical lows , and most economists believe that
interest rates will begin rising again , although the
timing and rate of the rise are up for debate.The
variable rate interest instruments Idaho Power has in its
debt portfolio, depending on the security, can reset that
securi ty I S interest rate daily, weekly or every 35 days.
When interest rates begin to rise , the actual cost of the
variable rate debt will rise also.Exhibi t 64 shows the
rate history of IPCo I s variable rate debt.
How do the actual interest rates for Idaho
Power I S variable rate debt as of the end of December 2003
compare with the actual rates that these instruments have
had in the past?
As depicted in Exhibit 65, in all instances
the variable rate at year-end December 2003 is lower than
the year-end rates observed for the variable rate bonds
in the past.
You state that the customer could be penalized
in future rate cases if the methodology that staff
witness English proposes is approved and used as a
precedent.Could you please elaborate?
As seen in Exhibit 65, the historical year-
2752 GRIBBLE , Di-Reb
Idaho Power Company
end rates have been higher in past years , around 5% as
recently as December 2000.For future rate cases , if
variable interest rates are at higher levels with
interest rates moving downward, and the actual year-end
variable rate was used for determining the Company's cost
of capital , the customer would be penal i zed.The
Company s proposal of using an average rate provides a
bet ter sharing of the variable rate benef its to both
customers and shareowners and should be continued as the
precedent for determining cost of capital for this and
future rate cases.
Has the Commission approved the use of an
average rate for variable rate instruments in the past?
Yes.In Case IPC-94-5, Order 25880, the
Commission accepted a five-year historical average for
the Company I s auction preferred stock (the auction
preferred stock variable rate reset every 49 days),
instead of using the a~tual rate as of the end of the
1993 test year.This auction preferred stock issue has
been redeemed and therefore is not part of the Company
current cost of capital.
Why doesn I t the Company issue all fixed-rate
debt to remove the risk of interest rate volatility?
Although variable interest rates on debt
instruments change often , over time they provide a less
expensi ve cost of debt than using fixed rate debt.
2753 GRIBBLE , Di-Reb
Idaho Power Company
Exhibit 66 shows what the debt cost would look like if
the Company had issued fixed rate debt at the time of
issue , instead of using variable rates for all of the
variable rate bonds.Assuming the Company had issued
fixed-rate securities rather than variable-rate
securi ties, the Company I s proposed cost of debt would
have been 6.247% vs. 5.973% (which assumes the Company
approved 10 -year average methodology) By undertaking
this variable-rate strategy, the Company has been able to
reduce the customer I s annual interest costs by
397 700.
The Company believes a portion of its debt portfolio
should be kept variable to lower the cost of capital , as
long as reasonable rate treatment is received.If the
Commission chooses to set the interest rate for its
variable-rate securities at the actual year-end variable
rate level , then the Company will have to re-evaluate the
use of variable rate debt due to the risk of recovery of
those costs.
Why does the Company propose using the 10-year
Bond Market Association (BMA)index plus a spread instead
of the actual historical rate of each bond?
The Company chose 10 years as a reasonable
period of time to include several interest rate cycles.
None of the variable rate bonds outstanding have 10 years
2754 GRIBBLE, Di-Reb
Idaho Power Company
of history, so a 10 -year BMA index with an observed
Company
2755 GRIBBLE, Di - Reb
I daho Power Company
spread over or under the index for each individual bond
was used.Although a 10-year average is the Company
preference , if the Commission determines that 10 years is
not the appropriate time period , the Company could
support a 5 -year average methodology, as long as that
methodology is applied consistently in future rate cases.
I f an average of the 5 -year BMA index was deemed
appropriate by the Commission , the Company s cost of debt
would be 5.908% as reflected in Exhibit 67.
Do your same recommendations related to the
determination of cost of capital for variable rate
interest debt hold true for the calculation of the
expense related to the American Falls bonds interest?
Yes.The interest cost expense related to the
American Falls bonds is based upon a variable interest
rate with the interest rate resetting on a weekly basis.
Since interest expense related to American Falls is
incl uded in the Company's expenses rather than as a
portion of the cost of capital , the Company proposed
through Ms. Smith direct testimony a known and measurable
adjustment that was based upon a 10-year average of the
BMA index. Staff witness English recommends the latest
variable rate of 2.35% as of January 20 , 2004 as the
basis for determining the appropriate expense recover.
Accepting Mr. English's recommendation , places the
2756 GRIBBLE , Di-Reb
Idaho Power Company
Company at risk of not recovering its actual American
Falls interest expense in a rising interest rate
environment.Again , the Company recommends the
Commission accept the Company I s known and measurable
expense adjustment for the American Falls interest rate
expense reflecting a 10-year historical average of
variable interest rates. This methodology provides a
consistent equitable sharing in the savings between
customers and shareowners in both increasing and
decreasing interest cycles.Exhibi t 68 shows the
significantly increased annual interest expense
requirement for the American Falls bond,had the Company
issued a fixed-rate security at the issue date of the
American Falls bond.Again , if the Commission determines
that 10 years is not the appropriate time period, the
Company could support a 5 -year average methodology for
determining the American Falls interest rate known and
measurable expense adj ustment. As seen in Exhibit 68,
using a 5-year historical average to calculate the
American Falls interest related expense yields a known
and measurable expense adjustment of $225,308.
Both Ms. Carlock and Dr. Peseau make a 2004
adjustment that reflects the Company refinancing its $50
million , 8.0%, First Mortgage Bond, that was due March
, 2004.Do you agree with this adjustment?
2757 GRIBBLE , Di-Reb
Idaho Power Company
Wi th interest rates at current low levels, it
is economical for the Company to refinance this $50
million
2758 GRIBBLE , Di-Reb 11a
Idaho Power Company
0% first mortgage bond.The Company paid-off the $50
mill ion , 8.0 % First Mortgage Bond on March 15, 2004 by
using proceeds received from issuing short-term
commercial paper.The Company is currently in the
process of permanently refinancing this obligation and
the rates chosen by Ms. Carlock (6.0%) appears reasonable
for a new 30-year single A rated first mortgage bond.
From a theoretical standpoint , I do not disagree with the
adjustment proposed by Ms. Carlock.However , from a
ratemaking standpoint , the Commission Staff appears
inconsistent in recommending this particular 2004
adj ustment but rej ecting other 2004 expense adj ustments
supported by the Company.
Does this conclude your direct rebuttal
testimony in this case?
Yes, it does.
2759 GRIBBLE , Di -Reb
Idaho Power Company
(The following proceedings were had in
open hearing.
MR. KLINE:Madam Chairman , prior to
making Mr.Gribble available for cross-examination,
would like ask just couple questions that came
during the course his direct testimony last time.
COMMISSIONER SMITH:Okay.
MR. KLINE:Thank you.
DIRECT EXAMINATION
BY MR. KLINE:Continued)
Last week , Mr. Gribble , when you presented
your direct testimony, you advised the Commission that
the Company had just recently completed the refinancing
of some of its 8 percent first mortgage bonds.Do you
recall that?
Yes.
And since that time, have you had an
opportunity to look at how that refinancing will affect
the Company I s overall rate of return?
Yes, I ha ve .
And could you please advise us as to what
changes that would make?
Yes.If you would turn to my Exhibit 63,
CSB REPORTING
Wilder , Idaho
2760 GRIBBLE (Di -Reb)
Idaho Power Company83676
page 1 of 1 , I can give you the updated cost of capital
numbers to reflect the 5.5 percent first mortgage bond to
be issued on March 26th.
MR. WARD:Could you speak up a little
bit?
THE WITNESS:Yes.If you 'd look on
Exhibit No. 63, page 1 of 1, I'll give you the updated
numbers to reflect the 5.5 percent first mortgage bond
that we issued on March 26th.If you look on line No.
column 4, the embedded cost of debt for long-term debt
would go from 5.973 to 5.830, and if you work through the
remainder of the calculation , on line No., column No.
, the weighted cost of capital would go from 8.393 down
to 8.320.
BY MR. KLINE:Thank you , Mr. Gribble.
Last week you were present in the room when Dr. Peseau
testified on behalf of Micron , were you not?
Yes.
And in discussing Micron's proposal to
defer revenues associated with the irrigation class
revenue deficiency, Dr. Peseau expressed his opinion that
the investment community doesn I t really make much
distinction between deferred revenues and current cash
flow.Do you agree with that?
, I think I have a different perspective
CSB REPORTING
Wilder , Idaho
2761 GRIBBLE (Di-Reb)
Idaho Power Company83676
on that.
Could you please advise us?
Well , I think if you look at the
investment community, I think certainly, they are a
greedy bunch , I guess , is a good way to look at it, but
certainly, from a regulatory standpoint , cash or cash on
revenues or cash on deferred expenses is the appropriate
way to look at the return back to the actual company, so
cash in the view of the investment community is king.
The second alternative for either a
deferred revenue or a deferred expense is to have that
deferred revenue or expense securitized or in some way
collateralized so that the utility can then take that
deferred order and turn that into cash through a banking
insti tution or whatever.
The third alternative is , of course, the
deferred revenue or deferred expense, and the last
option , obviously, is a denial of either a deferred
revenue or expense , so in order of preference, obviously,
cash is number one , a deferred revenue or expense with
some kind of a collateralization or securitization tied
to it is second.Third would be a deferred order for
ei ther revenue or expense and last would be a denial of
that.
MR. KLINE:Thank you.With that,
CSB REPORTING
Wilder , Idaho
2762 GRIBBLE (Di-Reb)
Idaho Power Company83676
Madam Chairman , Mr. Gribble is available for
cross-examination.
COMMISSIONER SMITH:Okay, let's see if
there are questions.Mr. Purdy.
CSB REPORTING
Wilder, Idaho
MR. PURDY:I have none.Thank you.
BY MR. WARD:
COMMISSIONER SMITH:Mr. Cooke.
MR. COOKE:I have none.
COMMISSIONER SMITH:Mr. Ward.
MR. WARD:I have some.
CROSS-EXAMINATION
Mr. Gribble, if you would turn to page 2
of your testimony
Okay.
- - there beginning on pages - - I mean on
lines 4 through 5 , you discuss recent regulatory actions
in the region supporting a higher cost of equity range.
Do you recall that testimony?
Yes, I do.
In fact , you discuss the recent actions
that you re referring to in the subsequent question and
answer is that correct?
Yes.
2763 GRIBBLE (X-Reb)
Idaho Power Company83676
Now , I see that one of the examples you
give is a 10.7 percent equity return by the Utah
Commission on December 17th, 2003 is that true?
Yes.
Is it true that all the other examples are
from the October 2002 through September 2003 period?
That is correct.
Okay, where did utility markets stand
during that time frame, that is, October 2002 through
September 2003 compared to today?
The best indicator I have is looking at
certainly, the bond market and I know in my experience of
going out and issuing bonds in May of 2003, we were able
to issue bonds at pretty much the same rates that we
actually were issued about two weeks ago , so the bond
market itself has pretty much stayed exactly where it is.
In terms of the actual risk profile , I think for in terms
of Idaho Power, I think you would look at the fact that
Idaho Power has moved from IDACORP to more of a Idaho
Power focus over that time frame.
MR. WARD:Madam Chair , may I approach?
COMMISSIONER SMITH:Certainly.
(Mr. Ward distributing documents.
MR. WARD:Madam Chair , I believe our next
number is 715.
CSB REPORTING
Wilder , Idaho
2764 GRIBBLE (X-Reb)
Idaho Power Company83676
COMMISSIONER SMITH:What happened to 714?
Is there a 714?
MR. WARD:m pretty sure it's 15, but
let's mark it 15 and leave a gap just in case.
COMMISSIONER SMITH:All right
(Micron Technology Exhibit No. 715 was
marked for identification.
MR. WARD:Now , let me explain what I'
handed out , Madam Chair.First of all , I apologize for
the quality of the copies.These are pages reproduced
from this week's Barron I s which comes out on Sunday, so
these are my home copier.
BY MR. WARD:Do you recognize - - well
Mr. Gribble would you first explain what Barron I s is to
the Commission?
Well , Barron's is a reputable financial
publication.
And it's a sister publication to the Wall
Street Journal is that correct?
Certainly.
All right.Now , I I ve handed you a
three-page excerpt from this week I s Barron s and on the
first page , I'd like you to look at the starred item
have in the 1eft-hand column.What does that show in
terms of a difference between the bond yield of a year
CSB REPORTING
Wilder , Idaho
2765 GRIBBLE (X-Reb)
Idaho Power Company83676
ago and today on intermediate grade bonds?
It appears that it shows a 6.29 versus an
67.
That I S a drop of more than 200 basis
points, is it not?
Yes.
Let I S turn to the second page.Again, we
have a starred item on the left-hand side of the page.
Obviously, those stars are my marks.If you would turn
to the Dow Jones Utility Averages column , how does that
compare - - how does last week's reading compare with a
year ago?
Which particular category would you like
in that?
Let I S go ahead and just use the index
price , the very first figure.
The averages?
Yes.
Okay, last week was 281.99 and a year ago
it was 211.79.
That looks to me to be roughly a 25
percent lncrease more,would you agree?
Subj ect to your calculation.
Now the third page.Again have
starred item the right -hand side and let represent
CSB REPORTING
Wilder , Idaho
2766 GRIBBLE (X-Reb)
Idaho Power Company83676
that the two lines that are drawn in the middle of the
graph are mine, that is , the one below September 3 Oth
2002 and the one below September 30, 2003.Now , wi thin
those 1 ines is the period that roughly coincides with the
common equity determination results you've given in your
testimony, would you agree with me?
October of
exception.
Would you repeat that question, please?
As you III recall , your examples occur from
2002 through September of 2003 with one
Yes.
All right.Now , you see the lines that
ve drawn under the two September 3 Oth quarters?
Yes.
And that I s roughly coterminous with the
October 2002 and September 2003 period, is it not?
That's correct.
Would you agree with me that just looking
at the , again at the, index that at the beginning of that
period it stood at 215 as opposed to 281 today?
That I S correct for the numbers , yes.
And all in all , that was a pretty horrible
period for utili ties , wouldn I t you agree?
Well , I think there probably have been
better times, yes.
CSB REPORTING
Wilder , Idaho
2767 GRIBBLE (X-Reb)
Idaho Power Company83676
Now , Mr. Gribble , would you agree with me
that, all other things being equal, when prices rise,
return on assets and return on equity falls?
Prices , what are you referring to?
Stock prices.
Well , that's a hard correlation to come up
with.I mean , I don I t have a specific study to come back
and say that because there are so many factors that go
into a stock price that I don I t think you can correlate
those exactly 100 percent together.
But all other things being equal and
recogni ze there are other factors, as a mathematical
matter , if the price rises , return on assets and return
on equity drops?
Tha t 's true.
Now , I I d like to turn over to page 7 of
your testimony, and here generally, you I re talking about
a proposed adj ustment you would make to the variable
rates in the Company s cost of capital is that
correct?
Tha t 's correct.
And you ve suggested that we should
average those rates because A , rates are at a multi-year
low , and B , you expect them to rise?
Well , I think that I s part of the equation.
CSB REPORTING
Wilder, Idaho
2768 GRIBBLE (X-Reb)
Idaho Power Company83676
I think there s other factors that go into it.
Certainly, when the Company enters into variable rate
debt, just as anyone would enter into a variable rate
home mortgage or whatever , you do take on some risk with
that, and so what we I re looking at is obviously, if we
could average that over some period of time, then we'd be
able to share that savings with both the customers of
Idaho Power along with the shareowners of Idaho Power, so
really, what I m looking at is more of a consistency and
a ratemaking methodology as opposed to trying to find a
specific point in time.
Isn't that true that on page 6, line 12 of
your testimony, you argue that in a rising interest rate
environment, this is an appropriate adj ustment , that is,
using an average?
Well , yes.I think it's both in a rising
and in a lowering interest rate environment, because
again , if it's in a rising interest rate environment, the
Company s shareowners are at risk.In a lowering rate
interest environment, the Company I s customers are at
risk , so I think it's a two-edged sword.
In the last Idaho Power rate case, did the
Company propose a similar averaging for these same
variable rates?
Not for exactly the same variable rates
CSB REPORTING
Wilder , Idaho
2769 GRIBBLE (X-Reb)
Idaho Power Company83676
because at that point in time the only variable rate
securi ty had was auction preferred stock and did
propose that time five-year average for that
particular cost that security and that was accepted by
the Commission in that particular Order.
Okay.Now , the last area I want to
discuss with you , Mr. Gribble, is your assertion that
we I re in a rising interest rate environment and in fact
on page 5, line 13 of your testimony, 12 and 13, you say,
However , I disagree that no dramatic increase is
expected. "I take it stating that in the positive form
you believe that a dramatic increase is expected?
Well , certainly, I can I t sit here and
forecast what interest rates are going to do.Certainly,
I know that interest rates are at an all-time historic
low level and everything that I have read and have heard
from economists and proj ection forecasters are that once
the economy does begin to turn around , interest rates
will begin to rise and rise dramatically, certainly in
the short-term interest rate section.
But if we knew that, either one of us,
Mr. Gribble, if we knew whether that was true or not, we
wouldnl t be wasting our time working for a living, would
we?
We would have a much better time.
CSB REPORTING
Wilder , Idaho
2770 GRIBBLE (X-Reb)
Idaho Power Company83676
Yes , and isn I t it true that the Federal
Reserve , while it's made some slight changes in its
policy statement , nevertheless , in the most recent
federal open market meeting said that it can afford to be
patient on interest rates?
Again , I I m not going to pretend that I can
predict interest rates.All I simply know is for these
particular securities that they are short term in nature
and the volatility in the interest rate market over the
last five to seven years has dramatically increased , so
as interest rates can rise and fall very quickly, so
would be the Company at risk for these particular
variable rate instruments.
MR. WARD:Tha t 's a 11 I have.
COMMISSIONER SMITH:Thank you, Mr. Ward.
Mr. Richardson.
MR. RI CHARDSON :Thank you,
Madam Chairman , I do have a couple.
CROSS - EXAMINATION
BY MR. RICHARDSON:
Mr. Gribble, Mr. Ward initially pointed
you to page 2 of your direct testimony, if you I d go back
there for me for a moment.
CSB REPORTING
Wilder , Idaho
2771 GRIBBLE (X-Reb)
Idaho Power Company83676
Okay.
There in that paragraph you note recent
return on equity amounts of 10.7 percent in Utah, 10.5 in
Oregon and 10. 75 in Wyoming.Isn't it true that all
these numbers are much closer to Ms. Carlock's 10.
recommendation than the Company s 11.
Well , certainly.I mean, I'm simply in
here giving you a replication of what the current
environment was.I think Ms. Carlock's recommendation
was 9. 5 to 10. 5 was her range.Also , I think if you go
and look at the survey on page 3, you can see the survey
that I've cited there from the PUR Utility Regulatory
News shows a range all the way from 8 percent all the way
up to 13 percent with the majority of those falling
within 10 to 12 percent.There was 19 cited cases from
11 to 11., so I think it gives you a range that
certainly is in the mid 10' s to higher range in terms of
cost of equity.
That table is taken from your Exhibit 62
isn't it?
That's correct.
Let I S turn to Exhibit 62 for a moment.
you would go to page 3 , is that the survey you were
referencing in your testimony?
Yes , it is.
CSB REPORTING
Wilder , Idaho
2772 GRIBBLE (X-Reb)
Idaho Power Company83676
Looking down the list, it looks like more
than half of those utilities are gas utilities, not
CSB REPORTING
Wilder , Idaho
electric correct?
Again , the survey is both of electric and
So would you agree that the risk of a gas
utility would depend on some factors that are different
from the risk of an electric utility?
m certain they have other
characteristics, they I re different than electric
utili ties , but certainly, they do have the same
characteristics of a regulated utility.
Let's look at your list of utilities here.
Going down the list , let's go to the first electric
utility surveyed on that list , do you see that?
Pacific Gas & Electric?
Yes, and what is the return on equity
granted to Pacific Gas & Electric by the California
11.
And isn I t that the same rate of return
you re asking for in this case?
Yes, it is.
So do you believe that Idaho Power and
Pacific Gas & Electric have the same return on equity
gas utilities.
PUC?
2773 GRIBBLE (X-Reb)
Idaho Power Company83676
requirement?
I did not go back and try to ascertain
exactly what all the factors were in terms of Pacific Gas
CSB REPORTING
Wilder , Idaho
& Electric coming in with an 11.The purpose of this
exhibi t is to just simply point out that it's in the same
range as what I am proposing.
But it just happens that your recommended
return on equity for Idaho Power is the same as that for
that the California Commission granted to Pacific Gas &
Would you agree with the statement that
Pacific Gas & Electric I s financial integrity is
It I S not in the best of times.
Electric.
Pardon me?
shattered?
It's not very good.
Would you agree that their financial
integrity is shattered?
Yes.
Would you agree with the statement that
Pacific Gas & Electric is an extreme example of sharply
increased risk perceptions by investors?
I think for utility investors, Pacific Gas
& Electric would be a very risky investment.
So you would agree with that statement?
Yes.
2774 GRIBBLE (X-Reb)
Idaho Power Company83676
And would you agree, do you recall that
those statements, those characterizations of Pacific Gas
& Electric were made by Dr. Avera in this proceeding last
week?
In what format?
In his direct testimony.
Yes.
And you are a ware, aren I t you, that
Pacific Gas & Electric is still in the process of
emerging from Chapter 11 bankruptcy?
Yes, I think that I s correct.
And despite the fact that Pacific Gas &
Electric is 1 i terally bankrupt, you bel ieve Idaho Power
is in the same ranks as that company when it comes to
return on equity?
Well , I think at this point in time,
obviously, I mean, Pacific Gas & Electric is in a
different financial status as Idaho Power.I think going
through the survey and picking one particular utility and
trying to make a correlation between that utility and
Idaho Power is no different than, say, going on to page 4
and going down to Oklahoma Empire District Electric that
had an 11.3 percent ROE and trying to make the same
correlation.I think , obviously, Pacific Gas & Electric
is more risky, but in terms of determining the overall
CSB REPORTING
Wilder , Idaho
2775 GRIBBLE (X-Reb)
Idaho Power Company83676
rate of return, I I m not sure you can make the exact
one - for-one comparison.
MR. RI CHARDSON :Thank you , Mr. Gribble.
That's all I have , Madam Chairman.
COMMISSIONER SMITH:Thank you, Mr.
Richardson.
Mr. Budge?Ms. Nordstrom.
MS. NORDSTROM:Thank you.I just had a
follow-up question to that of Mr. Ward.
CROSS - EXAMINATION
BY MS. NORDSTROM:
Isn't it true that Idaho Power was able to
save interest expense over that reflected in rates by
using the variable rate bond from the date of issuance
through today?
That I S correct, because the rates have not
changed since the time we actually issued those
particular bonds.
MS. NORDSTROM:Thank you.No further
questions.
COMMISSIONER SMITH:Do we have questions
from the Commission?
COMMISSIONER SMITH:I just had one.
CSB REPORTING
Wilder , Idaho
2776 GRIBBLE (X-Reb)
Idaho Power Company83676
EXAMINATION
BY COMMISSIONER SMITH:
Mr. Gribble on - - well no, actually, I
have two.On page 4 of your testimony about line 9, you
start a sentence that says,Most utilities
...
, but they
recover 100 percent " so now we're back to this
mysterious most and 100 percent , so are these utilities
g~s utilities , electric utilities or both?
I wish I could give you an exact answer on
exactly which utilities are 100 percent and where they
are in the continuum and I thought about this question
over the last week as everybody has tried to come up with
the right comparison and I think the best thing I can
simply say is from an investor standpoint , if you look at
a utility
, I'm trying to get at who are these
utilities.Do you have a list of these utilities?
I think what we had, we had actually a
survey of the actual fuel adjustment clauses and
production cost adjustment clauses and I think we were
going to provide that for you and I don I t know whether
we've done that yet or not.
So will this tell me whether they I re
electric company or gas company?
CSB REPORTING
Wilder , Idaho
2777 GRIBBLE (Com-Reb)
Idaho Power Company83676
Yes.
And whether they get 100 percent?
It will get you closer than what I can
tell you.
And whether they're just utilities in the
West or whether they I re utili ties nationwide?
Utilities nationwide and also including
the West.
All right.Well , I can only wait for it.
Okay.
On page 5 of your testimony, you know , you
kind of went over this with Mr. Ward, I guess is there
anything to stop the Company from coming back if you see
these increases?
Well , I don't think there's anything that
precludes the Company from coming back for general rate
increases.Obviously, I think the same would be if we
were setting a rate case , say, two years from now in a
high interest rate environment and rates were coming
down , that would not preclude the Company from coming in
and trying to adjust rates down , so again , I think the
proposal is to look at more of an averaging concept over
time and not try to put either the customer or the
shareowner at risk.
Well, the Commission always tries to be
CSB REPORTING
Wilder , Idaho
2778 GRIBBLE (Com-Reb)
Idaho Power Company83676
fair to both sides of that coin , but it just makes me
wonder how long now you expect us to plan for and be fair
about.
Boy, I don I t have that answer for you
sorry.
COMMISSIONER SMITH:Thank you.
Redirect, Mr. Kline?
MR. KLINE:Just a couple.
REDIRECT EXAMINATION
BY MR. KLINE:
Mr. Ward asked you a couple of questions
on cross about average indices and in his Exhibit 715 , he
identified a number of indices that were contained in the
Barron I S report.
Yes.
And I guess my question is , is this
industry data, does it directly correlate to Idaho
Power's specific situation in your opinion?
No.I mean, certainly, it can give you
transient points in time, but when you look across an
entire industry and try to take an average of that, I
mean , there are many different factors that go into that
averaging concept.
CSB REPORTING
Wilder , Idaho
2779 GRIBBLE (Di-Reb)
Idaho Power Company83676
Mr. Ward al so asked you a number of
questions about the expectation of interest rates rising.
Isn't it true, Mr. Gribble , that Micron's own witness
Dr. Peseau also indicated that he believed that interest
rates are on a rising curve?
Yes, he did in his direct testimony as
well as Staff witness English also indicated that
interest rates were on their way up.
MR. KLINE:That I S all I have.
COMMISSIONER SMITH:Thank you , Mr. Kline.
Thank you, Mr. Gribble.
THE WITNESS:Thank you.
(The witness left the stand.
MR. KLINE:Idaho Power I s next witness is
Phil Obenchain , if you re ready, Madam Chairman.
COMMISSIONER SMITH:m ready.
MR. KLINE:All right.
CSB REPORTING
Wilder , Idaho
2780 GRIBBLE (Di-Reb)
Idaho Power Company83676