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Home My WebLink About20040416Volume XVI Part I.pdf: 1 OR\G\NAl BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION IN THE MATTER OF TaE 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- IcIahO Public Utilities Commission Office of the SecretaryRECEIVED APR 1 5 2004 Boise, Idaho BEFORE COMMISSIONER MARSHA SMITH (Presiding) COMMISSIONER PAUL KJELLANDER COMMISSIONER DENNIS HANSEN PLACE:Commission Hearing Room 472 West Washington Boise, Idaho DATE:April 5, 2004 . VOLUME XVI - Pages 2924 - 3201 CSB. REpORTING Constance S. Bucy, CSR No. 187 17688 Allendale Road * Wilder, Idaho 83676 (208) 890-5198 * (208) 337-4807 Email csb~spro.net : ~~~.;~~~, For the Staff:Lisa Nordstrom, Esq. and Weldon Stutzman, Esq. Deputy Attorney Generals 472 West WashingtonBoise, Idaho 83720 - 0 074 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 .--"...-"~,- c,~,,,,"C"C". ;,:.. '.~=,...,p.,.'" j-""--"-"" c-c'"""z."-'""::,,;',c, ,",~,;'" "" - ," ",":,;n;., -" :,-::, c:;:' ..,..."':.;:~:;:,,:;,~ ,c, :..;,, ..-.. -...... --..-:;;., " A P P A R N C E S (Continued) For Community ActionPartnership 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 2110 Cincinnati , Ohio 45202 CSB REPORTING Wilder, Idaho APPEARANCES 83676 :' "-"'".."""-";":;' ,"C" !:', :;m::'..":,;,' - ".::,,,,' ,c"- " ' " WITNESS Bruce MacMahon Idaho Powe r ) Larry D.Ripley ( I daho Power) Maggie Brilz Idaho Power) Susan Fullen (Idaho Power) John R.Gale Idaho Powe r ) EXAMINATION BY Ms. Nordstrom (Cross-Reb) Commissioner Smith Mr. Kline (Redirect -Reb) Commissioner Kj ellander Mr. Kline (Direct-Reb) Prefiled Rebuttal Testimony Ms. Nordstrom (Cross-Reb) Mr. Kline (Direct -Reb) Prefiled Rebuttal TestimonyMr. Kline (Direct-Reb-Cont I d)Mr. Budge (Cross-Reb)Mr. Richardson (Cross-Reb)Mr. Ward (Cross-Reb) Mr. Miller (Cross-Reb)Mr. Purdy (Cross-Reb)Mr. Eddie (Cross-Reb) Commissioner Hansen Commissioner Kj ellander Commissioner Smith Ms. Moen (Direct-Reb) Prefiled Rebuttal Testimony Ms. Moen (Direct-Reb-Cont I Mr. Purdy (Cross-Reb)Mr. Eddie (Cross-Reb)Ms. Nordstrom (Cross-Reb) Commissioner Hansen Commissioner Smith Mr. Kline (Direct-Reb) Prefiled Rebuttal Testimony Mr. Budge (Cross-Reb)Mr. Purdy (Cros s - Reb)Mr. Eddie (Cross-Reb)Ms. Nordstrom (Cross-Reb) PAGE 2924 2930 2933 2934 2936 2938 2951 2952 2954 2995 3004 3020 3035 3040 3050 3065 3071 3074 3079 3086 3088 3102 3107 3115 3117 3119 3122 3123 3127 3184 3188 3194 3197 CSB REPORTING Wilder, Idaho 83676 INDEX NUMBER DESCRIPTION FOR IDAHO POWER COMPANY: 62.- 71.Admi t ted Premarked Admi t ted Premarked Admi t ted Premarked Admi t ted Premarked Admi t ted Premarked Admitted Premarked Admi t ted Premarked Admi t ted Premarked Admitted Premarked Admi t ted PAGE 3200 3200 3200 3200 3200 3200 3200 3200 3200 3200 Identified 3002Admitted 3200 Identified 3105Admitted 3200 72. 73. 74. 75. 76. 77. 78. 79. 80. 82. 83. Order No. 25339 Order No. 21364 Order No. 21651 Cost of Serving Load Growth Residential Bill Frequency Analysis Sample Bill , Seasonal Proration Sample Bill , Spanish Text IPCo Response to 3rd Production Request of Commission Staff Request 40 Summary of Idaho Power Company I Revenue Requirement Position onRebuttal IPC, Average Use Per Customer Summit Blue Consulting, Findings and Report CSB REPORTING Wilder, Idaho 83676 EXHIBITS (Continued) NUMBER DESCRIPTION PAGE FOR THE STAFF: 145.- 146.Admitted 3200 FOR THE IDAHO IRRIGATION PUMPERS: 314. Integrated Resource Plan for June 2 002 , page s 3 0 & 3 Identified 3008Admitted 3200 315. Report to IPUC on Replacing the Garnet PPA , page 8 Identified 3008Admitted 3200 FOR MI CRON TECHNOLOGY , INC. 715.Admitted 3200 CSB REPORTING Wilder , Idaho EXHIBITS83676 BOISE , IDAHO , MONDAY , APRIL 5 , 2004 , 1:15 P. M. COMMISSIONER SMITH:We I 11 go back on the record.I believe we I re ready for Ms. Nordstrom I questions for Mr. MacMahon. MS. NORDSTROM:Thank you. BRUCE E. MacMAHON produced as a rebuttal 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: CROSS - EXAMINATION BY MS. NORDSTROM: Good afternoon. Good afternoon. Directing your attention to page 3, line 18, you mentioned the book-to-tax or the M-1 adjustments. Approximately how many book-to-tax or M-1 adjustments were listed for the last tax return filed in the year 2002? In the general neighborhood - - I don I t CSB REPORTING Wilder , Idaho 2924 MACMAHON (X-Reb) Idaho Power Company83676 have those numbers right in front of me, but it would probably be in the neighborhood of 50 to 70, depending on which year. So these M-1 adj ustments are fairly common , are they not? Some are.Some are unique to a tax year. Starting on page 7 , line 15, you discuss items that are excluded from the flow-through treatment. Does the Internal Revenue Code or Notices specify what items must be flowed through? No. Other than the items specifically excluded from flow-through treatment as you discuss there on page , doesn I t the Company initially make an election to flow through or to normal i ze? No. Well , how does that work? There is tax law , which I think is what you I re hinting at, when we file the tax returns, we I re following a body of law that I s the Internal Revenue Code. The idea of flow-through versus normalization is , for the most part, a regulatory process distinction with the exception of the requirement to normalize for accelerated tax depreciation , so the - - never mind. CSB REPORTING Wilder , Idaho 2925 MACMAHON (X-Reb) Idaho Power Company83676 So does the IRS code require the Company to flow this through? CSB REPORTING Wilder , Idaho "This " being what? This tax methodology change. No, it is not a requirement that it be for regulatory accounting purposes under So this was something that the Company , the Company followed a prior Commission Order in doing that. Isn I t the requirement for normalization specific to those items being normalized, such as accelerated and bonus depreciation or contributions in aid of construction? The tax code does authori ze and require that those specific adjustments be normalized for regulatory ratemaking purposes. Could you repeat that for me again? The tax code does require that those kinds of adj ustments, CIACs and accelerated depreciation timing expenses, be normalized for regulatory ratemaking Is that for the method change that we I re flowed through the tax code. elected to do? purposes. talking about? 2926 MACMAHON (X - Reb ) Idaho Power Company83676 No.Accelerated depreciation is a different timing difference than the deduction of overhead costs as they relate to plant. So if I were to summarize the normalization requirement , is it true that it essentially mandates that depreciation benefits for those items required to be normalized by the Internal Revenue Code not be flowed through to customers faster than if they were normalized? That I S correct. How does this requirement pertain to flow-through items? Flow-through items are other timing differences that are not specifically named in the normalization provisions of the Internal Revenue Code and would refer to essentially all other timing differences besides depreciation , CIAC and ITC. Does the Company have a private letter ruling that it can provide that specifically addresses normalization violations when a regulatory commission chooses to extend the period when customers receive a tax break to a longer time than what the Company has utilized? Are you asking for a specific reference to a specific ruling or one that the Company has obtained? CSB REPORTING Wilder , Idaho MACMAHON (X - Reb ) Idaho Power Company 2927 83676 Either. The Company obtained a rul ing a number of years ago pertaining to a normalization violation where there were inconsistent amounts used between deferred tax expense and the adjustment to accumulated deferred income taxes and that ruling was issued , I believe, in 1995. Wasn I t that letter ruling related to Valmy- related items that the parties proposed to flow through rather than normalize? There was a , I believe, and just going off my memory here , there was a number of months of expense allowed in the deferred tax expense that was different than the number of months allowed in the rate base component , so there were inconsistent numbers of months between the two and the Internal Revenue Code requires consistency between those two calculations. Okay, and I just want to make sure that I ve got my time frames straight here , is it correct to say that the change in tax methodology when applied to the years 1987 through 2000 created a tax adjustment that was recognized on the 2001 tax return that was recorded on the books in 2002? Tha t 'correct. correct that this adj ustment recorded 2002 was flowed through to shareholder CSB REPORTING Wilder , Idaho 2928 MACMAHON (X - Reb ) Idaho Power Company83676 earnings in 2002? We followed the tax method of flow-through in recording the financial effects of it. So is it true that with the changed tax methodology, this deduction was taken all at once rather than deducting depreciation expense in these and future tax years as the old method allowed? Rephrase that again because I think there I S a couple of things that I would disagree with the way you characterized that , but try me again. So with the change in tax methodology, this flow-through methodology, this deduction was essentially taken all at once rather than deducting depreciation expense in these years and future years as was done under the old method? When the Company changed its method, it changed it as of January 1 , 2001 , so it made a computation of what the new method would yield at that date had it been followed during the years 1987 through the year 2000, so the cumulative effect of the change was recorded at January 1 , 2001 , as a January 1 , 2001 adj ustment . The future effect of that, if you asking about the depreciation, that would have resulted had we not changed the method that now won It result CSB REPORTING Wilder , Idaho 2929 MACMAHON (X - Reb ) Idaho Power Company83676 because we've taken the deduction in 2001 , there will be an effect on depreciation in the future. MS. NORDSTROM:Thank you.No further questions. COMMISSIONER SMITH:Are there questions from the Commission? EXAMINATION BY COMMISSIONER SMITH: Well , I have to try just one.m not an accountant , so this is kind of baffling, but think about a situation where rates have been provided , where rates have provided something you called this morning a legally required minimum amount of tax expense and the Company enj oys accelerated depreciation for tax purposes and then the assets go away, what happens then? When an asset for regulatory purposes may be depreciated over 30 years, let I s say a production facili ty, for book purposes or regulatory accounting purposes , you would take 1/3 Oth of this expense each year for 30 years. Exactly. For tax purposes, it would be depreciated over 20 and it would have an accelerated method as well CSB REPORTING Wilder , Idaho 2930 MACMAHON ( Com - Reb) Idaho Power Company83676 as a shorter life, so the method would be a 150 percent declining balance , if you will.It has the effect of recording a larger tax deduction than book. Exactly so the customers are actually providing the Company with more money to pay taxes than the Company has actually paid? Yes, that's true with respect to deferred taxes.These are the deferred taxes. And then say you got rid of that asset, what happens to the money that the customers paid that was going to be used for taxes and will now never be used for taxes because the asset is gone? The retirement of assets and the associated deferred taxes with them are reversed when the timing difference goes away, so the difference, the amount of taxes that have been built up for retirements end up being returned , if you will , back into the deferred tax expense as a negative expense in the year of retirement.Does that help? Sort of so is that what happened here or is this different? That is essentially what happened here. There was - - a certain amount of the Company's property had been essentially retired or expensed in the method change and so that one-time deduction to put the CSB REPORTING Wilder , Idaho 2931 MACMAHON ( Com - Reb ) Idaho Power Company83676 Company I S method on to the new method took place on the 01 return and then each years later thereafter continues to provide deductions on an ongoing basis. Okay; so at the time when you made this change, the ratepayers were long in the sense that they had provided more funds for taxes than were paid; is that yes? Yes. And so are you telling me now that that amount that they were long - - is that you again , Mr. Hawke? MR. HAWKE:I hit all the buttons to kill it, I'm sorry. BY COMMISSIONER SMITH:So you I re saying that all the money that the ratepayers are essentially long, paid is going to go back in and be added to the deferred tax account so that the Company will , they'll in a sense have already paid that and they don I t have to pay it again? The retirement of deferred taxes in this case would have reduced the accumulated deferred income tax reserve that is in rate base , so rate base would have gone up In this case. COMMISSIONER SMITH:That makes absolutely no sense whatsoever to me. CSB REPORTING Wilder , Idaho 2932 MACMAHON ( Com - Reb) Idaho Power Company83676 Mr. Kl ine , do you have any redirect? MR. KLINE:Just one clarification. REDIRECT EXAMINATION BY MR. KLINE: Bruce , in response to a question from Ms. Nordstrom , you talked about a private letter ruling and I think you identified the date for that as 1995. Isn I t that private letter ruling the same one that' addressed in Mr. Ripley I s Exhibit No. 74 which is referred to -- which is the Order in Case U-1006-265 or is that a different private letter ruling that we' talking about here?Let me just show it to you because that was back in 1978. (Mr. Kline approached the witness. THE WITNESS:1987? BY MR. KLINE:87, yes. Yes, that's correct. MR. KLINE:I'll leave that alone and let Mr. Ripley respond to any additional questions on that. I think that I s it.No more questions. COMMISSIONER SMITH:Commissioner Kj ellander. CSB REPORTING Wilder , Idaho 2933 MACMAHON (D i - Reb ) Idaho Power Company83676 EXAMINATION BY COMMISSIONER KJELLANDER: ve got to go back to the 1 ine of questioning that Commissioner Smith was on and maybe just completely misheard you and I apologi ze if I' wasting your time with this question , but I guess my confusion rests with the customers are contributing to the deferral on specific assets as far as taxes are concerned and now that in essence has been recovered and paid for , that asset is no longer in essence on the books in part as far as the tax consequences , how is it , and maybe this is what I misheard , how is it that rate base could go up?Shouldn't rate base come down? The portion that the deferred tax balance represents , the way I characterize it, as an interest free loan basically from the government that has been used over time to fund rate base, which is the main reason , I believe , there's a subtraction from rate base for accumulated deferred income taxes.That portion of rate base has been funded by the government by the allowance of accelerated deductions. This particular method change was also an acceleration of a deduction , so the - - it I S not protected acceleration of a deduction , however , as it CSB REPORTING Wilder , Idaho 2934 MACMAHON ( Com - Reb ) Idaho Power Company83676 relates to the cost of an asset being expensed rather than the depreciation, accelerated depreciation , of an asset, so in that regard, it falls outside of the normalization requirements of Internal Revenue Code. COMMISSIONER SMITH:So what happened to the money that the ratepayers paid?Where did it go? THE WITNESS:Yes. COMMISSIONER SMITH:Where is the ratepayers I money? THE WITNESS:The retirement of deferred taxes is essentially returned to tax expense as a credit and so tax expense went down in the year of the method change. COMMISSIONER SMITH:But that was not test year was it? THE WITNESS:No. COMMISSIONER SMITH:And rates didn change that year did they? THE WITNESS:No. COMMI S S IONER SMI TH :So the ratepayers essentially lost that? THE WITNESS:If you looked only at that one line item. COMMISSIONER SMITH:Okay, now I've got it.Thank you. CSB REPORTING Wilder , Idaho 2935 MACMAHON ( Com - Reb ) Idaho Power Company83676 Mr. MacMahon. MR. KLINE:I have nothing else. COMMISSIONER SMITH:Okay, thank you, (The witness left the stand. MR. KLINE:m calling Larry Ripley. LARRY D. RI PLEY , produced as a rebuttal witness at the instance of the CSB REPORTING Wilder , Idaho Idaho Power Company, having been first duly sworn , was examined and testified as follows: THE WITNESS:When my kid was about six and a freshman - - not a freshman , he went to the first grade and the teacher said what I s your dad do for a living, and he said he I S a liar.Okay, I'll be good DIRECT EXAMINATION Would you please state your name for the Larry D. Ripley. And Mr. Ripley, you are participating in this case as an expert witness on behalf of Idaho Power; now. BY MR. KLINE: record , please? 2936 RIPLEY (Di-Reb) Idaho Power Company83676 is that correct? Yes , I am. Mr. Ripley, you previously filed rebuttal testimony in this case, nine pages of rebuttal testimony, and Exhibits 72 through 74 , did you not? That I S correct. And do you have any changes or additions you need to make to either your prefiled rebuttal testimony or those exhibits? , I do not. MR. KLINE:Madam Chairman, with that, Idaho Power would request that Mr. Ripley s prefiled rebut tal testimony and Exhibits 72 through - - be spread on the record as if read in its entirety and that Exhibits 72 through 74 be marked for identification. COMMISSIONER SMITH:If there I s no obj ection , the prefiled rebuttal testimony of Mr. Ripley will be spread upon the record and the exhibits are identified. (The following prefiled rebuttal testimony of Mr. Larry Ripley is spread upon the record. CSB REPORTING Wilder , Idaho 2937 RIPLEY (Di-Reb) I daho Power Company83676 Please state your name and business address. My name is Larry D. Ripley and my business address is 1221 West Idaho Street, Boise, Idaho 83702. What is your educational background? I received a B. S. in business from the University of Idaho in 1960 and my LL.B. in 1962.I have attended numerous conferences and seminars throughout the years concerning public utility regulatory matters. Please outline your business experience. I was admitted to the Idaho State Bar in 1962 and after a short time in the Army Reserve , I was employed by the Idaho Attorney General's office in mid-1963 as legal counsel for the Idaho Public Utilities Commission and Idaho State Tax Commission.In 1965 I transferred to the Idaho Public Utilities Commission as a salaried employee with the title of Assistant Attorney General assigned to the Idaho Public Utilities Commission.In late 1971 , I left the Idaho Public Utilities Commission and joined a law firm. represented Idaho Power Company as a private attorney for a number of years and became a salaried Idaho Power Company employee-attorney in March of 1992.I retired from Idaho Power Company in May of 2003 but agreed to continue to handle certain matters which I had been engaged in prior to my retirement.Since 1963 to date my 2938 RIPLEY , Di-Reb Idaho Power Company practice has been primarily involved in public utility regulatory law before 2939 RIPLEY, Di-Reb Idaho Power Company the Idaho Public Utilities Commission and other regulatory agencies , and in court litigation involving public utility regulatory law. Did Idaho Power Company request that you review the Staff I s proposed income tax methodology as set forth in Mr. Holm's prepared testimony, pp. 25 through 33, in this proceeding? Yes. What is your understanding as to the income tax methodology that Staff is proposing for this proceeding? Staff is proposing that Idaho Power I s income tax expense that is used to determine the Company I revenue requirement be based upon what Staff terms the average effective tax rate over the last five years including 2003 " which in reality is simply the ratio that is obtained when Staff compares income taxes to 1 7 regulatory income for those years.Staff proposed that this ratio be used as the tax gross-up rate on the revenue deficiency as well. In your opinion , should Staff I s proposal be accepted by the Commission? No.Staff's proposal is a violation of the test year methodology that the Commission must utilize in determining Idaho Power's revenue requirement. Q. Why do you contend that Staff I s proposal would be a violation of the test year methodology? 2940 RIPLEY, Di-Reb Idaho Power Company The Commission utilizes a test year adjusted for known and measurable changes to arrive at a revenue requirement that is used to determine the rates Idaho Power should charge for the future.Neither revenue nor expense items based on past events, which are extraordinary and will not occur in the future, can be used to determine a utility's revenue requirement; in this case Idaho Power I s revenue requirement.I will not burden this record with a number of legal citations that state this fundamental proposition.It is sufficient to refer to the Idaho Supreme Court case,Utah Power Light v. Idaho Public Utili ties Commission 685 P. 2d 276, 107 Idaho 47 In that proceeding the Idaho Commission(1984). had ruled that there was a general prohibition against setting rates based on previous periods of unreasonably high or unreasonably low rates.The Idaho Supreme Court affirmed this concept by stating that to take into account previous extraordinary revenues or expenses, which will not reoccur , would be retroactive ratemaking. In the instant proceeding Staff has obviously been influenced by a large income tax deduction Idaho Power included in its 2001 income tax return, resulting in a refund which was paid in 2002. In your opinion, can Staff take into account the one-time out-of-period income tax deduction? 2941 RIPLEY , Di-Reb Idaho Power Company No.Since this proceeding does not involve either 2001 or 2002, the deduction must be considered a one-time out-of-period event.The position advanced by the Staff is a violation of years of revenue requirement determinations by this Commission.This Commission has observed that it will not take into account prior extraordinary events which have increased the utility I expenses unless appropriate orders have been obtained to amortize these expenses over a period of time.The Commission I S pronouncements have been clear that any attempts to obtain this authorization after the fact will not be permi t ted .The same is equally true of extraordinary revenue items.The Commission has observed that it cannot capture extraordinary revenues that are non-reoccurring outside of a test year.A test year adj usted for known and measurable changes which will occur in the future, is the proper procedure by which a utili ty I S revenue requirement, and thus its rates , are determined.Staff's proposal to reach back in time and capture a past reduction in income tax expense which will not reoccur in the future is a clear violation of the Commission I S and the Supreme Court I s pronouncements that the establishment of Idaho Power's revenue requirement will be determined utilizing a test year adjusted for known and measurable changes that will occur in the 2942 RIPLEY , Di-Reb ' 4 Idaho Power Company future. Do you agree that Staff I s proposal to change 2943 RIPLEY , Di-Reb Idaho Power Company the tax gross-up factor on the revenue deficiency is reasonable and appropriate? No, I do not.The Staff proposal to change the tax gross-up factor is not reasonable for the same reasons I have just discussed.The Commission is setting rates for the future , and if the revenue requirement upon which those rates are based is artificially low , clearly confiscation will occur.If the Commission adopts Staff I S proposal to use a tax gross-up rate which is lower than the actual rate upon which Idaho Power ' income will be taxed , the Company will not have an opportunity to attain the revenue requirement which the Commission will have determined Idaho Power is entitled. A built-in discount by using a past income tax deduction which will not occur in the future , to determine Idaho Power's revenue deficiency is unreasonable and in my opinion unlawful. During the period that you represented Idaho Power Company before this Commission , have there been occasions when the Commission has reviewed Idaho Power Company I S revenue requirement based on a change in the income tax rates? Yes.The Commission has ruled in the past that an adj ustment to Idaho Power Company s rates or revenue requirement is appropriate taking into account a change 2944 RIPLEY , Di-Reb Idaho Power Company in newly enacted income tax rates.Such adjustments were prospective , not retroactive. Could you briefly describe those proceedings. Case No. IPC-93-24 involved an increase in Idaho Power Company s revenue requirement as the result of the federal income tax rate being increased from 34 percent to 35 percent.The Commission stated that it can process a single-issue rate case based on a change in Idaho Power Company s actual income tax rates.A copy of Commission Order No. 25339 that was issued in that proceeding is attached as Exhibit 72.In Case No. 1500-164 the Commission determined that it could investigate Idaho Power Company I s revenue requirement based on a reduction in the federal income tax rate from 46 percent to 34 percent.The final order in that case was Order No. 21364 , a copy of which is.. attached Exhibit 73. Did the Commission in either of these proceedings use an average ratio of income tax expense over a period of years? No.The Commission based its consideration upon the actual income tax rates that would be in effect during the year under investigation.The Commission determined that this was the appropriate method to determine Idaho Power Company I s revenue requirement for 2945 RIPLEY, Di -Reb Idaho Power Company the future due to a change in income tax rates.Staff I s proposed methodology is contrary to the Commission I determinations 2946 RIPLEY , Di-Reb Idaho Power Company in those proceedings. Did the Commission in these proceedings allude to retroactive ratemaking? Yes.The Commission observed that it could not use prior years income tax rates , whether more or less, to determine Idaho Power Company's revenue requirement. Has the Commission ever used anything other than currently enacted income tax rates to determine Idaho Power I s revenue requirement? The Commission has always used currently enacted income tax rates that reflect actual or known changes to determine Idaho Power's revenue requirement. Has Staff recommended amortization of the tax def iciency payment included in Idaho Power Company ' revenue requirement over a three-year period? Yes. Do you believe this is consistent with previous Commission orders? No.In Order No. 17499 issued in Case No. 1006-185 (1982), the Commission specifically opined that it would not recognize tax contingencies for ratemaking purposes and rej ected them.The Commission did state that it would include income tax deficiencies that had been paid in the test year in the test year revenue requirement.Since the Commission I s ruling on 2947 RIPLEY, Di -Reb Idaho Power Company that issue is very short and succinct, I will quote from the pertinent part of that Order: We find that recognizing these contingencies for ratemaking purposes is not reasonable and rej ect them. We will allow the Company to recover as a tax expense any contingency actually paid in the year that itis paid. But, in the meantime , we find that it is not just and reasonable to charge ratepayers for these contingencies until they are paid. Order No.1 7 499, p. 24. Mr. MacMahon has stated that the Staff income tax proposals cause a violation of the Internal Revenue Code normalization provisions.Has the Commission ever had occasion to rule upon the action it will take if it is determined that Idaho Power Company I s income taxes for revenue requirement purposes have been calculated based upon an unauthorized flow-through of tax benefits prohibited by the Internal Revenue Code? Yes.Al though not pleased with the result , the Commission observed in Order No. 21651 that it would not require a flow-through treatment of an income tax adjustment where the flow-through would be a violation of the Internal Revenue Code.A copy of Order No. 21651 is attached as Exhibit 74.The reason for the Commission' action described in Order No. 21651 is equally apparent. If the Company is required to flow through a tax benefit which is required to be normalized under the federal tax code, the utility, in this case Idaho Power Company, 2948 RIPLEY , Di-Reb Idaho Power Company loses the tax benefit and thus the Commission I calculation utilizing flow-through is erroneous and would resul t in an increase in revenue requirement. What income tax rates should the Commission use to compute Idaho Power Company I s income tax expense for purposes of determining Idaho Power Company I s revenue requirement? The Commission should use the currently enacted federal and state statutory rates which are the rates that Idaho Power Company used to compute its income tax expense for purposes of determining its revenue requirement in this proceeding.The Commission should also use the gross-up rate of 642 that results when the existing composite statutory rates are used. Does this conclude your direct rebuttal testimony in this case? Yes, it does. 2949 RIPLEY, Di -Reb Idaho Power Company (The following proceedings were had in open hearing. And Mr. Ripley is available COMMISSIONER SMITH:Thank you, Mr. Kline. CSB REPORTING Wilder , Idaho 83676 MR. KLINE: No questions.Thanks. for cross-examination. COMMISSIONER SMITH:Mr. Purdy. As deeply as it pains me to say this, I have no questions. No questions. COMMISSIONER SMITH:Mr. Ward , you I re not It pains me, too , the COMMISSIONER SMITH:Mr. Richardson. MR. RI CHARDSON :No questions, COMMISSIONER SMITH:Mr. Budge. Just one.I note , Mr. Ripley, Mr. Eddie? this nine-page document , not quite nine-page , would it be accurate to say this is the shortest document you I ve ever And if so , I I m wondering if your compensation mechanism is different for - - MR. EDDIE: MR. PURDY: MR. COOKE: to let this go by. Mr. WARD: opportunity of a lifetime. Madam Chairman. MR. BUDGE: filed with the Commission? withdraw that question. 2950 RIPLEY Idaho Power Company COMMISSIONER SMITH:Thank you, Mr. Budge. Ms. Nordstrom. MS. NORDSTROM:While Staff believes that Mr. Ripley I s testimony is perhaps most appropriately addressed in a legal brief , we do have one clarification that we think needs to be made on the record. CROSS -EXAMINATION BY MS. NORDSTROM: The last page , page 9 , you refer to the 642 gross-up rate that results when existing composite statutory rates are used and isn I t it true that the 1.642 gross-up rate is calculated by Mr. Obenchain using the federal and state effective tax rates rather than the statutory tax rates? There I S a long answer to that in which I ve got to give you and that is the federal statutory rate that Mr. Obenchain uses has taken from it the deduction for state income taxes, so when he says it' the effective federal income tax rate, what he I s talking about is the federal statutory rate with the deduction from income taxes recognized in that composite rate and that's the difference. MS. NORDSTROM:Staff would like to note CSB REPORTING Wilder , Idaho 2951 RIPLEY (X-Reb) Idaho Power Company83676 for the record that we don I t agree with Mr. Ripley I answer and we III address it in a brief. much. COMMISSIONER SMITH:Okay, thank you very Do we have questions from the Commission? I guess I don't either.Thank you. Mr. Ripley. Redirect , Mr. Kline? MR. KLINE:No redirect.No questions. Maggie Brilz. COMMISSIONER SMITH:Thank you (The witness left the stand. MR. KLINE:Idaho Power s next witness is MAGGIE BRILZ produced as a rebuttal witness at the instance of the CSB REPORTING Wilder , Idaho Idaho Power Company, having been previously duly sworn resumed the stand and was further examined and testified DIRECT EXAMINATION Would you please state your name for the as follows: BY MR. KLINE: record , please? 2952 BRILZ (Di-Reb) Idaho Power Company83676 My name is Maggie Brilz. And are you the same Maggie Brilz that has previously presented direct testimony in this case? Yes , I am. And in this instance you prefiled rebuttal testimony consisting of 27 pages and Exhibits 76 and 77 did you not? That is correct. And do you have any additions or corrections that you need to make to either your prefiled CSB REPORTING Wilder , Idaho rebuttal testimony or Exhibits 76 or 77? , I do not. MR. KLINE:With that, Madam Chairman , I would request that Ms. Brilz I s direct rebuttal testimony be spread on the record as if read in its entirety and that Exhibits 76 and 77 be marked for identification. COMMISSIONER SMITH:If there is no objection , it is so ordered. (The following prefiled rebuttal testimony of Ms. Maggie Brilz is spread upon the record. 2953 BRILZ (Di-Reb) Idaho Power Company83676 Please state your name. My name is Maggie Brilz. Are you the same Maggie Brilz that has previously presented direct testimony in this case? Yes, I am. Have you had the opportunity to review the pre- filed direct testimony of Micron Technology, Inc. witness Dr. Peseau , Industrial Customers of Idaho Power witnesses Dr. Reading and Mr. Teinert, Idaho Irrigation Pumpers Association witness Mr. Yankel , Kroger Company wi tness Mr. Higgins, Federal Executive Agencies witness Dr. Goins, AARP witness Dr. Power , and Commission Staff wi tnesses Mr. Hessing, Mr. Schunke, and Ms. Parker? Yes, I have. What is the scope of your rebuttal testimony? My testimony will focus on issues raised by the intervening parties and the Commission Staff regarding the Company I s cost-of -service study and rate design proposals as well as several issues raised specifically by the Industrial Customers of Idaho Power.It should be noted that any omission on my part in addressing issues raised by the parties does not indicate my concurrence with those issues. Are you sponsoring any exhibits with your direct rebuttal testimony? 2954 BRILZ , Di-Reb Idaho Power Company Yes.I am sponsoring Exhibi t Nos. 76 and 77. COST-OF- SERVICE Weighted 12 CP Methodology Weighted generation and transmission demand-related allocation factors were derived for use in the cost -of - service study by averaging the actual coincident demands and the coincident demands weighted by marginal costs.Staff witness Mr. Hessing and Federal Executi ve Agencies witness Dr. Goins recommend the Commission approve this weighted 12 CP methodology. any witnesses recommend the Commission adopt a different methodology? Yes. Micron Technology witness Dr. Peseau and Irrigation witness Mr. Yankel do not support this methodology. What methodology does Dr. Peseau recommend? Dr. Peseau contends that in each of the past three Idaho Power Company general rate cases the Commission has endorsed the weighted 12 CP methodology and not an al ternati ve methodology or some averaging of different methodologies.Dr. Peseau urges the Commission to continue to endorse the weighted 12 CP methodology. Has the Commission ever approved a variation to the weighted 12 CP methodology? A. Yes. In Case No. IPC-94-5 the Company computed the weighted 12 CP demand allocation factors by 2955 BRILZ , Di -Reb Idaho Power Company multiplying the monthly coincident peaks by the corresponding monthly marginal costs.The Company I s analysis indicated no capacity-related marginal costs for the months of September and October resulting in a zero weighting for those two months.In Order No. 25880 issued in Case No. IPC-94-5, the Commission found the use of zero weighting factors to be inconsistent with the purpose of spreading cost responsibility on a seasonal basis and assigned weighting factors to the months of September and October equal to the weighting factors for the months of April and May. Do you believe the Commission should approve the weighted 12 CP methodology used by the Company in this case? Yes , I do.The Commission has in the past found a variation in the determination of the weighted CP allocation factors to be reasonable.I believe the variation used by the Company in this case is also reasonable and should be approved by the Commission. Do you concur with Dr. Peseau ' s finding that using the weighted 12 CP allocation factors as he recommends rather than the average weighted factors used by the Company results In a lower cost of service for all customer classes other than the irrigation class and a higher cost of service for the irrigation class? 2956 BRILZ , Di -Reb Idaho Power Company Yes, I do. What methodology does Mr. Yankel recommend? Mr. Yankel recommends the use of the 12 CP methodology instead of the weighted 12 CP methodology. Has the Commission previously approved the use of the 12 CP methodology in an Idaho Power general rate case proceeding? To my knowledge, the Commission has not previously approved the use of the 12 CP methodology in an Idaho Power proceeding.The weighted 12 CP methodology, or some variation of that weighted methodology, was approved by the Commission for setting Idaho Power's rates in Case No. U-1006-185 , Case No. 1006-265A , and Case No. IPC-94-In Case No. 1006-159 the Commission did not approve a specific methodology but did indicate its inclination to use the results of the "positive excess demand"(PED) and 12 CP methods to select rate levels for customer classes. However , in utilizing the results of the PED and 12 CP methods , the Commission stressed the failure of the embedded studies to deal with the phenomenon of time and to address non-historic cost considerations (Order No. 16688) . Classification and Allocation of Distribution Plant In his direct testimony Irrigation witness Mr. 2957 BRILZ , Di-Reb Idaho Power Company Yanke 1 recommends that 16.86 percent of the Company I s investment recorded in FERC Account 364 be classified as 2958 BRILZ , Di-Reb Idaho Power Company secondary- related.This recommendation would increase the amount of FERC Account 364 investment classified as Secondary by $14,273,651 for a total investment classified as Secondary of $28 305,647.Is Mr. Yankel' recommendation reasonable? No.Mr. Yankel asserts that simply because the amount of investment in FERC Account 364 classified as Secondary is 8.4 percent and the amount of investment in FERC Account 365 classified as Secondary is 16.9 percent the investment in FERC Account 364 classified as Secondary is incorrect.Mr. Yankel's recommendation to reclassify over $14 million of the investment in FERC Account 364 to Secondary based on the percentage of investment in FERC Account 365 classified as Secondary is arbi trary. What would be the effect of reclassifying over $14 million in FERC Account 364 investment from Primary to Secondary? The revenue requirement for customer classes that utilize the secondary distribution system , such as residential, small commercial, and Schedule 9 Secondary Service Level customers, would increase while the revenue requirement for customer classes that do not utilize the secondary distribution system , such as Schedules 9 and 19 Primary and Transmission Service Level customers and irrigation customers, would decrease. 2959 BRILZ , Di-Reb I daho Power Company Irrigation witness Mr. Yankel also recommends that no costs associated with the Company I s investment in underground facilities recorded in FERC Accounts 366 and 367 be allocated to the irrigation class.Do you agree with Mr. Yankel's recommendation? No.Mr. Yankel has proposed a one-sided adjustment to the factors used to allocate distribution plant to the various customer classes.I believe this adjustment is inappropriate. Please explain. Since the Company began preparing class cost -of - service studies , the demand- related investment in distribution plant has been allocated to the various customer classes based on the non-coincident peak demands of each customer class.This methodology recognizes that local area loads are the major factors in sizing distribution facilities.Consequently, no class - specific characteristics or demographics , such as rural versus urban location , average number of distribution line miles per customer in each class, or customer density per feeder, are utilized in the derivation of the class non-coincident peak demand allocation factors.Rather the methodology relies entirely on the class non-coincident peak demands for assigning costs.All demand-related distribution plant , including bothoverhead and underground facilities, is allocated based 2960 BRILZ , Di-Reb Idaho Power Company on the class non-coincident peak demands.All customer- related distribution plant is allocated based on the number of customers in each class.While this allocation method is not flawless , I believe it is a reasonable methodology for allocating distribution costs. Why do you believe Mr. Yankel's recommended adjustment is inappropriate? Mr. Yankel recommends that the allocation factors used to assign underground facilities costs be set to zero for the irrigation class since irrigation customers utilize very few underground facilities. However , he does not recommend a corresponding adj ustment to the allocation factors used to assign overhead facilities cost to the irrigation class in recognition of the fact that irrigation customers are rural and tend to have fewer customers served per line mile.Mr. Yanke 1 I S adjustment is one-sided and should not be adopted. What effect would Mr. Yankel' s adj ustment have on the revenue requirement of the various customer classes? Mr. Yankel' s adj ustment would decrease the revenue requirement for the irrigation class and increase the revenue requirement for all other standard tariff customer classes. What methodology do you recommend the 2961 BRILZ , Di-Reb Idaho Power Company Commission approve for allocating distribution costs to customer classes? I recommend the Commission approve the methodology used by the Company in the cost-of-service study filed in this case. Normal i zed Peak Demand Industrial witness Dr. Reading and Irrigation witness Mr. Yankel suggest that the Company utilize normalized peak demands in developing its cost-of-service analysis.What is the Company I s response to this suggestion? The Company s load research experts believe that the present method using actual peak data is sufficient to accurately assign costs and has several advantages including the fact that it is a simple, straightforward, and transparent analysis. Do you support Mr. Yankel's development of normalized demand values as detailed on his Exhibit Nos. 307 through 311? No.While Mr. Yankel' s methodology for computing normalized peak demands may be conceptually reasonable for a quick and simple analysis, his actual development of normalized demand values has several errors.As a starting point in his analysis , Mr. Yankel attempts to adjust energy data into calendar months. 2962 BRILZ , Di-Reb Idaho Power Company then uses the adjusted data in his computation of normal i zed peaks.However , the energy data that he uses has already been adjusted into calendar months.As a resul t , his analysis uses data that is distorted due to this "double" adjustment.Second, Mr. Yanke 1 includes in his analysis several months of customer level irrigation data that is greater than the monthly generation level irrigation data.Generation level data is simply the customer level data adj usted for losses.It is not possible for the customer level usage to be greater than the generation level usage.And third, Mr. Yankel uses an incorrect loss factor in his analysis for the Schedule 9 Primary Service Level normalized peak demands.As a resul t of these errors, Mr. Yankel' s analysis produces incorrect results and his recommended adjustments to the peak demand values are not appropriate. RATE DESIGN Service Charge AARP witness Dr. Power states in his direct testimony that the Company is seeking to collect distribution costs that are not demand-related through a monthly service charge.Pleas& clarify the Company I intent regarding the costs included in the proposed monthly service charge? It is the Company I s intent to include in the 2963 BRILZ , Di-Reb Idaho Power Company service charge a portion of the investment in distribution 2964 BRILZ , Di-Reb Idaho Power Company facili ties , the investment in meters and service drops, and meter reading, billing, and other customer service related expenses.For customer classes that are billed demand charges , the portion of the distribution system classified as demand-related is included in the demand charge while the portion of the distribution system classified as customer-related is included in the service charge.For residential and small commercial classes all of the costs associated with the distribution system are classified for inclusion in the service charge.The Company has not stated that only "customer-related" costs be included in the service charge. Blocked Rates Both Staff witness Mr. Schunke and AARP witness Dr. Power recommend the Commission approve a blocked rate structure, although each witness recommends a slightly different version.Does the Company support the implementation of blocked rates? No.The Company believes that the proposed blocked rates have no cost basis , penalize customers who utilize electric energy for space heating, and provide an artificially low price signal to customers who use less than the second-block threshold amount. Please explain your assertion that blocked rates have no cost basis. 2965 BRILZ , Di-Reb Idaho Power Company The cost of energy is based on several variables, including the time of day and time of year during which it is produced or purchased, the balance between supply and demand , and the availability of transmission capacity.The total quantity of energy consumed by an iridi vidual customer does not determine the total cost incurred to provide that energy.Rather , it is a combination of variables , such as those previously mentioned, that determines the total cost.The cost to serve a customer who consumes 400 kWh a month but whose consumption occurs mainly during the peak hours can be greater than the cost to serve a customer who consumes 000 kWh a month but whose consumption occurs mainly during the off-peak hours.There simply is no cost basis for establishing variable energy prices based solely on the quantity of energy consumed by a customer. How do blocked rates unfairly penalize customers who utilize electric energy for space heating? Al though some customers with electric space heat may have the ability to conserve some energy without endangering their health by lowering their thermostats, they do not necessarily have more ability to conserve electrici ty than do other customers who use other fuel sources for space heating. Blocked rates simply cause customers with electric space heat, many of whom do not 2966 BRILZ , Di-Reb Idaho Power Company have an al ternati ve form of space heating available, to pay higher bills while other 2967 BRILZ , Di-Reb lla Idaho Power Company customers with other forms of space heat receive an artificially low price signal. Dr. Power has recommended an initial block of 400 kWh with all usage above 400 kWh priced at a rate percent higher than the initial block rate.Does this block structure provide a benefit to electric space heat customers? No.The blocked rate structure proposed by Dr. Power , compared to the flat rate structure proposed by the Company, provides a benefit to customers who consume less than 876 kWh a month during the non-summer months (reference Power , Direct, p. 35).Most customers who utilize electricity for space heating consume more than 876 kWh per month during the winter heating season. How does a blocked rate structure provide an artificially low price signal to customers who use less than the initial block threshold level? A blocked rate structure implies that the energy consumed by high-use customers is more valuable than energy consumed by low-use customers and, therefore provides more emphasis on energy conservation by high-use customers than by low-use customers.I believe all customers should receive the same price signal to conserve energy.The flat, seasonal rates proposed by the Company for residential and small commercial 2968 BRILZ , Di-Reb Idaho Power Company customers conveys to all customers that each kilowatt-hour of energy that is conserved has value without placing the onus for conservation on customers with usage above the threshold level. In his testimony, Mr. Schunke recommends the implementation of blocked rates only during the summer months.He proposes an initial block of 800 kilowatt-hours with all usage above 800 kWh charged a rate that is 20 percent higher than the initial block rate.Does Mr. Schunke I s proposal convey the same price signal to customers during the summer months as does the Company s proposal? The blocked rate proposal recommended by Mr. Schunke would provide the price signal that energy consumption during the summer becomes more expensive as more is used.However , it would only convey this message to customers who use more than 800 kWh.Customers who routinely use less than 800 kWh would receive no price signal during the summer to encourage reduced consumption.Exhibit No. 76, which utilizes the residential bill frequency data provided in the Company I Response to Request No. 76 of Staff I s Third Production Request, demonstrates that almost 45 percent of customers would see no increase in price over the course of the three -month summer period under Mr. Schunke I s proposal. 2969 BRILZ , Di-Reb Idaho Power Company Under the Company's proposal , all customers would receive a price signal during the three- 2970 BRILZ , Di -Reb 13a Idaho Power Company month summer period. Do you still recommend the implementation of flat , seasonal rates for residential and small commercial customers? Yes , I do. Proration of Bills on Customer Statements Staff witness Ms. Parker raises concerns regarding the appearance of customer bills in regards to seasonal rates that would take effect on June 1 and then again on September Ms. Parker recommends that in order to avoid the prorating of charges on customer bills, and therefore customer confusion over understanding their bills, the seasonal rates become effective on a rolling basis coincident with each customer s meter reading date.As an acceptable alternative to implementing seasonal rates on a rolling basis, Ms. Parker has suggested the Company alter its billing system so that any fixed charges or credits not affected by the seasonal change are not prorated due to seasonal rates.What are your thoughts regarding Ms. Parker s recommendations? Ms. Parker has raised legitimate issues regarding the Company's prorated bills and customers difficulty in understanding them.As Ms. Parker noted, the Company s current billing setup will result in 2971 BRILZ , Di-Reb Idaho Power Company prorated bills when the Power Cost Adjustment (PCA) rate goes into 2972 BRILZ, Di -Reb 14a Idaho Power Company effect.Since the PCA rate will become effective on June 1 coincident with the effective date of the summer rates, customers ' bills will be prorated each June.However, this proration will occur only once a year when the PCA changes.At the end of the summer season when the non-summer rates as proposed by the Company become effective, only the seasonal components will prorate. For example, for residential customers, the bill prepared when the non- summer rates become effective will not include prorated fixed charges or credits; only the seasonal components will be prorated in this situation. I have included as Exhibit No. 77 a sample residential bill that illustrates how seasonal charges will appear when the non-summer rates become effective.As stated by Ms. Fullen in her direct rebuttal testimony, the Company is exploring ways to address the issues identified by Ms. Parker regarding prorated bills. Does the bill presentation you have just described match the option Ms. Parker has suggested as an acceptable al ternati ve to Staff's recommendation to implement seasonal rates on a rolling basis? Generally, yes.I believe Ms. Parker' alternative option is met for the bills that are prepared when the non-summer rates become effective.However under the Company I s current billing process, the bills 2973 BRILZ, Di-Reb Idaho Power Company that are prepared when the PCA rate changes, which will be coincident 2974 BRILZ , Di -Reb 15a I daho Power Company with when the summer rates become effective, will still show the proration for all components. Do you believe Staff's proposal to make seasonal rates effective on each customer I s meter reading date would be less confusing to customers than the alternative option you have just described? I believe it would be very confusing toNo. customers to have to track their meter reading schedule in order to know when the seasonal rates become effective. Time -of -Use Rates Witnesses Dr. Power , Mr. Higgins, and Staff support the Company s proposal to adopt mandatory time-of -use rates for all Schedule 19 customers.ICIP wi tness Mr. Teinert opposes the adoption of time-of -use rates for Schedule 19 customers and instead recommends the continuation of the flat , non- seasonal rate structure currently in place.Mr. Teinert' s rationale for a continued flat rate is that the Schedule 19 customers contribute very little seasonal variance to the Company I load shape.Do you agree with Mr. Teinert I s rationale? Time-of-use rates are intended to moreNo. closely match the price of energy with the cost of energy throughout the periods of the day and across the different seasons.Matching the price charged for energy 2975 BRILZ , Di-Reb Idaho Power Company during a particular period of the day with the cost of energy for 2976 BRILZ, Di-Reb 16a Idaho Power Company that same period better matches the cost to serve an individual customer , based on that customer I s usage pattern, with the prlces charged an individual customer. Time-of-use rates simply better match price with cost. The fact that a customer class I s load shape is fairly constant throughout the year does not mean that the costs to serve that class are constant across the day or across seasons. In his direct testimony, Mr. Teinert states that the proposed mandatory time-of-use rates proposed for Schedule 19 are radically different from those currently in place.Do you believe this difference is a valid reason to rej ect the Company I S time-of-use proposal? No.I agree with Mr. Teinert that the proposed rate design is different from that in place today. believe , however , that Schedule 19 customers are able to understand the pricing.It is not uncommon for customers taking service under Schedule 19 to have staff devoted to managing energy consumption.In addition , several Schedule 19 customers have facilities in other states where time-of-use rates are already in place.Gi ven the sophistication and experience of the Schedule 19 customers , I do not believe a change in rate structure a val id reason to rej ect the proposal. 2977 BRILZ , Di -Reb Idaho Power Company Given Mr. Teinert' s opposition to mandatory time-of-use pricing, do you believe it would be appropriate 2978 BRILZ, Di-Reb 17a Idaho Power Company to make time-of -use pricing available to Schedule customers on a voluntary basis? No.Voluntary time-of-use programs generally attract participation from customers whose electric bills would be lower without any change in consumption. Although the lower electric bills reflect the fact that the customers I usage patterns are less expensive to serve than the class average, the result is a reduction in revenue for the Company without any corresponding benefit.Mandatory time-of-use rates match the price of energy with the cost of energy for all customers in the class.Those customers whose cost to serve is lower due to their patterns of energy consumption pay less.Those customers whose cost to serve is higher due to their patterns of energy consumption either pay more or have an incentive to shift their usage patterns in order to reduce their bills. Are mandatory time-of-use rates fairly common for customers of comparable size to Schedule 19 in other western states? Yes.In Table KCH-1 included at page 10 of his direct testimony, Mr. Higgins identified several utilities that require time-of-use rates for customers with loads greater than 500 kw.In addition to the numerous California utilities listed by Mr. Higgins, 2979 BRILZ, Di -Reb Idaho Power Company other neighboring utilities that require time-of-use pricing for 2980 BRILZ , Di-Reb 18a Idaho Power Company customers with loads of 1 000 kW or more are Sierra Pacific Power in Nevada and Pacific Power & Light in Washington and Wyoming. Mr. Teinert has indicated that the Company has not met with its customers to fully explain its proposed time-of -use rates and the potential financial impact of that proposal.Do you agree with Mr. Teinert I s assertion? No.Members of Idaho Power s management including Mr. Gale and myself , met with the Industrial Customers of Idaho Power at their September 2 , 2003 meet ing .At that meeting, the time-of -use proposal for Schedule 19 was discussed in detail.Several members of the organization shared their thoughts and concerns wi th the Company regarding the proposal.In addition, following the filing of this case , the Company's Delivery Services Representatives provided detailed information on the time-of -use proposal to over 70 percent of the Schedule 19 customers through a direct mailing or a personal visit.In addition , customers were informed that a detailed spreadsheet showing the potential financial impact of the proposal on their specific facil i ty was available.Over 35 percent of the Company I Schedule 19 customers requested and received the spreadsheet detailing the potential financial impact of 2981 BRILZ , Di-Reb Idaho Power Company the proposal. Mr. Higgins recommends voluntary time-of-use 2982 BRILZ, Di-~eb 19a Idaho Power Company rates be made available as part of this proceeding for Schedule 9 customers.Do you support Mr. Higgins' recommendation? No.I believe the implementation of time-of -use rates should be taken in steps.While the Company is fully prepared to implement time-of-use rates for Schedule 19 customers, I appreciate that any new rate design creates the need for increased customer communication and assistance as well as potential system issues that cannot be identified until implementation occurs.I recommend time-of-use rates for Schedule 19 customers be implemented and evaluated prior to offering time -of -use rates to Schedule 9 customers. If the Commission were to decide that time-of -use rates should be made available to Schedule customers as part of this proceeding, are there any issues which you believe should be considered? Yes.Time-of -use pricing requires that metering equipment be in place to correctly record the amount of usage consumed during the various periods of the day.Customers taking service under Schedule 9 Primary and Transmission Service Levels currently have the metering in place to facilitate time-of -use pricing. Should the Commission decide time -of -use rates should be made available to Schedule 9 customers as part of this 2983 BRILZ , Di-Reb Idaho Power Company proceeding, I recommend it be limited to Primary and Transmission Service 2984 BRILZ , Di-Reb 20aI daho Power Company Level customers. Relationship Between Schedule 9 and Schedule 19 Rates In its proposal for Schedule 9 and Schedule 19 rates , the Company attempted to maintain the relationship between the Service, Basic , and Demand Charges for the corresponding Service Levels on each schedule.For example, the Company proposed a $0.65 Basic Charge for Primary Service for both Schedule 9 and Schedule 19. Staff's proposed rates for Schedules 9 and 19 do not maintain this relationship.Does this proposal cause you any concerns? In order to respond I believe it is necessary to provide some background.Service levels were first implemented in May 1995 as a result of the outcome of the Company s last general rate case , Case No. IPC-94- Prior to May 1995 all customers on Schedule 9 were charged the same rates as were all customers taking service under Schedule 19.Service levels were added to more accurately match prices to the costs associated with taking service at various voltage levels , to facilitate the movement of customers between Schedule 9 and Schedule , and to reduce the discrepancy in prices between Schedule 9 and Schedule 19 so there was limited incentive for a customer to use additional energy in order to qualify for Schedule 19.Experience over the past nine 2985 BRILZ , Di-Reb Idaho Power Company years has shown that the service level pricing strategy has been successful.The 2986 BRILZ, Di -Reb 21a Idaho Power Company Company r S proposed rates for Schedules 9 and 19 attempt to maintain the service level relationships between Schedules 9 and 19, specifically for the Service and Basic Charges.The introduction of time-of -use rates for Schedule 19 has made it more difficult to maintain the service level relationships for the Energy and Demand Charges. Given this background, do you have concerns regarding Staff I s proposed rates for Schedules 9 and 19? While I would prefer to keep the existing service level relationships between the Service and Basic Charges on Schedules 9 and 19 , I do not believe the relationships between Staff's proposed rates are inappropriate , particularly in conjunction with the adoption of mandatory time-of -use pricing for Schedule 19.My main concern regarding the relationship in the rates between Schedule 9 and Schedule 19 is that the service level obj ecti ves be kept in mind so that the issues that existed prior to the adoption of service levels do not reappear. Would your view of the relationships between Staff I S proposed rates for Schedule 9 and Schedule 19 change if the Commission were to decide not to approve mandatory time-of -use rates for Schedule 19? Yes, it would.The introduction of mandatory 2987 BRILZ , Di -Reb Idaho Power Company time-of -use rates for Schedule 19 creates a fundamental difference between the service offered under Schedule 9 and 2988 BRILZ , Di -Reb 22a Idaho Power Company the service offered under Schedule 19.This difference makes it difficult to evaluate any uneconomic incentive to move from one rate schedule to another.However , if mandatory time-of -use rates are not approved for Schedule 19, the evaluation becomes quite simple.In that situation I would recommend the service level relationship between the Service, Basic, and Demand Charges currently in place between Schedules 9 and 19 be maintained with any difference in revenue requirement balanced on the Energy Charge. Tariff Language Changes Staff witness Ms. Parker has recommended several language changes to the tariffs proposed by the Company.Would you please identify the recommended changes? Yes.First , Staff recommends that the Company I S proposed Service Reconnection Charge" be renamed Service Connection Charge"Second, Staff recommends that the sentence "The Company reserves the right to modify meter reading schedules as required by changing conditions" not be added to Rule And third Staff suggests some al ternati ve language to the Company proposed Rule L as detailed in Staff's Exhibit No. 141. Does the Company agree with Staff I s recommenda t ions? 2989 BRILZ , Di-Reb Idaho Power Company Yes.The Company agrees with all three of Staff's recommendations. 2990 BRILZ , Di-Reb 23a Idaho Power Company Miscellaneous ICIP witness Mr. Teinert states that he disagrees with the Company s line extension provisions included in the proposed Schedule 19.Is the Company proposing any changes to its line extension policy as part of this general rate case? No.The specific language in Schedule referring to additional facilities was first approved in January 1993.No changes have been made or proposed since that time. In his direct testimony Mr. Teinert concludes that transformer capacity for Schedule 19 customers is percent greater than Schedule 19 peak demand.Is Mr. Teinert I S conclusion based on sound analysis? No.Mr. Teinert has used the system coincident peak for Schedule 19 for the month of July, which measures the total load of the Schedule 19 class at the time of the system coincident peak, as the measure of total distribution transformer capacity requirements. then divides this value into the total capacity of Company-owned transformers installed at each customer I service location.Transformers installed at the customer s location are sized to meet the specific needs of the customer at that location.In order for Mr. Teinert I S analysis to be conceptually correct, he would need to divide the total capacity of 2991 BRILZ , Di-Reb Idaho Power Company transformers installed at each customer's location by the sum of each customer's peak billing demand. Mr. Teinert relies on his conclusion that transformer capacity for Schedule 19 customers far exceeds the capacity needed in asserting that Schedule 19 customers are overcharged for transformer capacity through Contribution in Aid of Construction (CIAC) charges and inflated distribution rate base.Is Mr. Teinert I S assertion correct? No.First , the transformer capacity Mr. Teinert refers to is the capacity of the transformers installed on the customers I property to serve the specific needs of each customer.Customers do not make CIAC payments for these transformers; rather , they pay monthly facilities charges based on the total investment in the facilities.Second , the investment in transformers installed on Schedule 19 customers' property is directly assigned to the Schedule 19 customer class along with the revenue derived from the monthly facilities charges.The direct assignment of the specific investment in transformers to the Schedule 19 class results in a matching of the rate base attributed to the Schedule 19 customer class with the facilities used by the Schedule 19 customer class and does not resul t in an inflated distribution rate base as Mr.Teinert asserts. 2992 BRILZ , Di-Reb Idaho Power Company Mr. Teinert disagrees with the Company' proposal to increase the power factor requirement from percent to 90 percent and states that since the Company has offered no evidence that its delivery system is capaci ty constrained due to power factor , the change is not warranted.Do you agree with Mr. Teinert? No.The 2002 IRP identified multiple delivery system capacity constraints.Addi tionally, Idaho Power' distribution system is typically voltage and capacity constrained.The Company I s distribution planning engineer has informed me that these constraints require the reactive loads on Idaho Power I s distribution system to be fully compensated. In order to minimize losses and maintain system capacity, Idaho Power must install capaci tors to correct for loads with less than unity power factors.The increase in the minimum power factor from 85 percent to 90 percent brings the requirement for reactive load for individual customers closer to the system requirement. Did the Company take the power factor requirements of neighboring utilities into account in making its determination to increase the minimum power factor from 85 percent to 90 percent? Yes.The listing below shows the sample of utilities reviewed. 2993 BRILZ, Di-Reb Idaho Power Company Utility Power Factor Requirement Nevada Power Utah Power (ID)Portland General Electric Pacific Gas & ElectricSierra Pacific (NV and CA) San Diego Gas & ElectricAvista Pacific Power & Light 95% 85% 93% 85% 90% 90% 80% 93% Mr. Teinert states that Idaho Power does not administer any conservation programs for Schedule 19 customers and therefore should not be required to contribute Energy Efficiency Rider funds.Is Mr. Teinert correct in his understanding of the availability of conservation programs for Schedule 19 customers? No.Idaho Power s Industrial Efficiency program was launched in October 2003.Thi s program targeted specifically at customers with 500 kW or more of load.This program allows customers to propose energy efficiency measures tailored specifically to their own processes.Currently, two proposals have been approved for implementation and an additional three proposals are undergoing the approval process. Does this conclude your direct rebuttal testimony? Yes , it does. 2994 BRILZ , Di-Reb Idaho Power Company (The following proceedings were had in open hearing. MR. KLINE:Madam Chairman , I do have just a couple of questions for Ms. Brilz , if I could, please. COMMISSIONER SMITH:Please proceed. MR. KLINE:Thank you. DIRECT EXAMINATION BY MR. KLINE:(Continued) Ms. Brilz , last week Mr. Richardson on behalf of the Industrial Customers of Idaho Power suggested that a grace period be adopted to allow Schedule 19 customers an opportunity to kind of get used to time of use rates before they actually became effective and I believe you agreed that the Company could support that suggestion.When you agreed to the ICIP' s suggestion , did you have in mind any thoughts on how that would be done or how long that grace period should be? Yes, I did.When Mr. Richardson suggested the grace period , he made reference to the fact that the Company had also suggested that the increase in power factor requirement be delayed until November 1st and suggested that a delay until November 1st for time of use CSB REPORTING Wilder , Idaho 2995 BRILZ (Di-Reb) Idaho Power Company83676 rates would also be appropriate and I would agree that that is a totally reasonable length of time. The Company does have hourly Day tel data for each of its Schedule 19 customers and certainly, during that five-month grace period , we could put together both historic information for customers as well as a month-to-month on a current basis information to fully give them information that will help them understand what impact time of use pricing would have on them. In addition , our delivery services reps which currently work one on one with our customers would work with them also during this grace period and believe through that process five months or until November 1st would be reasonable. Now , I'd also like to ask you a question about the irrigation , several irrigation questions. several occasions last week , Commissioner Smith raised the issue of diversity within the irrigation class and the fact that some customers with very small pumps received service on the same rates as other irrigation customers who use very large pumps with high load factors.Do you believe that it would be appropriate to create separate irrigation schedules that would target pump size? CSB REPORTING Wilder , Idaho 2996 BRILZ (Di-Reb) Idaho Power Company83676 No, I don It , particularly at this point in time.Really, when you look at irrigation customers, size isn't really the main determinant of cost.What is a more appropriate or specific factor is really the load factor of the individual customer , and quite simply, customers that have a high load factor cost less to serve than customers with a low load factor , and I would suggest that the pricing structure that the Company has proposed where we've recommended an increase in the demand charge specifically targets those customers with a high load factor , so I would not at this point recommend trying to break the irrigation schedule into a series of schedules based on the size of the customer , but rather use the rate design within the schedule to target those customers that are more efficient versus those that are not. There s also been , again along the line of the irrigation customers, quite a bit of discussion about subsidies between customer classes.Isn't it true that subsidies can also exist within customer classes? Yes , that I s true.The particular rate design wi thin any customer class is really the determinant as to what extent there is or is not a subsidy wi thin any particular class, and the farther that the rate components are set from cost, the greater you CSB REPORTING Wilder , Idaho 2997 BRILZ (Di-Reb) Idaho Power Company83676 have a subsidy between the customers wi thin that customer class. Are there - - are the current subsidies within classes comparable for all rate schedules? , I would say that the subsidies between the residential and -sm~ll commercial customers are larger by virtue of the fact that we only have two billing components on those two schedules.When we only have an energy charge and a service charge , you don I t have as much opportunity to address the intraclass subsidies which I would argue are just as important or impact customers just as significantly as cross - class subsidies. On the schedules where we have a demand charge , the industrial , commercial and irrigation, we I re able to try to address the intraclass subsidies more specifically because we have more billing components , but the intraclass subsidies are there and in my view will stay there until we're able to get our pricing components set closer to cost. Last week during your cross-examination of your direct testimony, Commissioner Hansen asked you a number of questions regarding line extensions for irrlgation customers and whether contributions, relocation contributions things like that made irrlgation customers were subsidizing the growth other CSB REPORTING Wilder , Idaho 2998 BRILZ (Di-Reb) Idaho Power Company83676 customer classes.To address this issue and to make sure that the Company s line extension provisions are clear do you have an exhibit that details the allowances that are funded by the Company for distribution line installations? Yes, I do, and it might help to turn to my Exhibit 49 , page 23 that describes the line extension allowances that we currently have in place for each of our customer classes.These allowances were adopted in order to bring equity to the customers wi thin each customer class so that any customer receiving an allowance -- COMMISSIONER SMITH:What page was that? THE WITNESS:m sorry, page 23, Exhibit 49. MR. KLINE:Are you there? COMMISSIONER SMITH:m there. THE WITNESS:These particular allowances are established in order to help bring equity to all customers wi thin a customer class so that any customer needing a line extension receives a comparable allowance from the Company, and if we look at the particular provisions, for single-phase face service, the allowances are based upon the cost of the overhead terminal facili ties , so , for example, residential customers get CSB REPORTING Wilder , Idaho 2999 BRILZ (Di-Reb) Idaho Power Company83676 overhead terminal facilities, plus either 1 000 or $1 300 depending on whether or not they have non-electric or all-electric space heat. For the small general service customers again they get all of the overhead terminal facilities as part of their allowances.Large general service customers and irrigation customers receive an allowance of $1 726 , and then when we look at three-phase service, all customer classes that require three-phase service get an allowance equal to 80 percent of terminal facilities, al though irrigation customers receive 100 percent of terminal facilities. BY MR. KLINE:One of the concerns that Commissioner Hansen particularly identified that he had heard from particularly irrigation customers was the fact that the customers felt that they were having to pay 100 percent of relocation expenses and this seemed like double counting to them.Do any customer classes receive allowances for requests to relocate distribution facil i ties? , all customers are required to pay 100 percent of any relocation of existing facilities , and the concept there is that we pay for the initial extension of the facilities, but to also pay for the relocation would give individual customers wi thin a class more CSB REPORTING Wilder , Idaho 3000 BRILZ (Di-Reb) Idaho Power Company83676 contribution from the Company than others, so all customers are required to pay 100 percent for relocation. And is it correct to say that part of what is troubling irrigation customers is they re having to do more relocations because of the installation of center pivots, they have to get everything else cleared off so they can install them? Yes, that's true and in talking with our folks in the field, apparently this time of the year we do receive several requests for relocation of facilities so that pivots can be installed. Now , since you presented your direct testimony, have you had an opportunity to look at the amount of contributions made by irrigation customers to determine if they are subsidizing growth for other customer classes? Yes, we did.We were able to look at the line extensions for 2003 and in taking a sampling of those line extensions, we were able to determine that the total contribution made by irrigation customers was about 19 percent of the total contributions for line extensions.When I looked at the cost of service study that the Company prepared and filed in this case and the way that the contributions are allocated to irrigation CSB REPORTING Wilder , Idaho BRILZ (Di-Reb) Idaho Power Company 3001 83676 customers , it showed that about 13 percent of the contributions were allocated to irrigation customers and so it's my conclusion that because these numbers are so similar that irrigation customers truly are not subsidizing line extensions for other customer classes. I have just one more question and I I d like to have Ms. Moen go ahead and distribute a document which I think we 'd like to have -- I believe our last exhibit was 81 and this would be Exhibit 82. COMMISSIONER SMITH:That I S correct. (Ms. Moen distributing documents. (Idaho Power Company Exhibit No. 82 was marked for identification. BY MR. KLINE:Ms. Bril z, during his cross-examination of Nancy Hirsh , Mr. Eddie introduced a report entitled Energy Consumption and Expenditures by Low Income Customers written by Roger D. Colton.Do you recall that? I do. And in his cross-examination of Ms. Hirsh Mr. Eddie asked her to read a section from the report that stated, and I'm just going to read it,According to the LIHEAP report, low income households use considerably less energy for home heating than do their non-low income counterparts.Do you recall that? CSB REPORTING 3002 BRILZ (Di-Reb)Wilder Idaho 83676 Idaho Power Company I do. And also included in that same paragraph that Mr. Eddie had Ms. Hirsh read, the statement was also incl uded that " low income households use less than average residential consumption.Do you recall that? Yes , I do. Does Idaho Power I s data specific to its customers that receive LIHEAP funding support the findings of Mr. Colton's study? No, it does not, and while I don t dispute the findings that Mr. Colton had in his study, he did look at data by region.He identified the West region although I was not able in looking at the article to determine exactly what he included in his definition of the West, but when we look at Idaho Power Company specific customers who received LIHEAP funding during the 2002 -2003 heating system , our data shows that those customers use more energy than residential customers on average. Is a summary of your analysis, is that what Exhibit 82 is? Yes, Exhibit 82 takes information from both bill frequency information that the Company provided in response to Staff's third production request, request No. 76, and also Exhibit No. 79 which Mr. Gale has CSB REPORTING Wilder , Idaho 3003 BRILZ (Di-Reb) Idaho Power Company83676 submi t ted as part of his testimony. That's all of the additionalMR. KLINE: questions I have and Ms. Brilz would be available for cross-examination. Thank you very much.COMMISSIONER SMITH: Mr. Budge, do you have questions? I do, thank you, along twoMR. BUDGE: lines and one with the indulgence from the Commission and the Company actually relates to some of her direct concerning the IRP , but as you 'll recall , they were going to provide and did in fact provide the update of the IRP that wasn I t available for me to review to cross-examine before and so I would like to go into that briefly, if could. COMMISSIONER SMITH:Certainly. CROSS-EXAMINATION BY MR. BUDGE: Ms. Bril z , just to review and refresh a little, make sure my understanding is correct, my understanding is that the Company, and you in particular used the 2002 IRP in order to try to identify the capacity deficit months that then in turn were weighted under the W12CP allocation method; is that correct? CSB REPORTING Wilder, Idaho 3004 BRILZ (X-Reb) Idaho Power Company83676 Yes. And believe we also identified that the five-year time frame the Company was looking at determine capacity deficit was 2003 through 2007? I cannot speak to the IRP.I would have to have - - I'm not involved in the development of the IRP - - the marginal costs that the Company calculated to cover that time frame. Just for the record and I think I reviewed this with Mr. Said before and I was going to ask him here , but I know he s crossed off the list, so I III come to you with it , but just for the record, I think the Company I s DOE data request 1-, page 6 indicated that that was the five-year time frame involved , and let me just take one step further.My understanding that the graph that was being looked at insofar as the load and the water supply was the 70th percentile graph for water and for load; is that correct? In what reference are you making?m not following, Mr. Budge. In the IRP.In the IRP when you were determining the capacity deficit months , you looked at the 70th percentile water and 70th percentile load. believe that was the testimony Mr. Said gave before. And that could well be.I relied on CSB REPORTING Wilder , Idaho 3005 BRILZ (X-Reb) Idaho Power Company83676 Mr. Said I s information to me in determining those months, so whatever he relied upon in looking at the IRP , I would accept. COMMISSIONER SMITH:Mr. Budge, Mr. Said is not crossed off my list. MR. KLINE:I apologize. COMMISSIONER SMITH:So I think he I S coming back. MR. KLINE:Well , we I 11 bring him back if you'd like him. MR. BUDGE:I just noticed they took him off. COMMISSIONER SMITH:Well , I saw that , but he I S not crossed off my list. MR. KLINE:I was going to hope I could get him off your list , but maybe we I re not going to be able to do that. COMMISSIONER SMITH:He has rebuttal testimony. MR. KLINE:He does , but his rebuttal testimony was limited specifically to that COMMISSIONER SMITH:Rule H? MR. KLINE:, the EARG that was a part of the PCA and right at the start of this proceeding, the Commission agreed to move that discussion on the EARG to CSB REPORTING Wilder , Idaho 3006 BRILZ (X-Reb) Idaho Power Company83676 another proceeding, so what I s in Mr. Said I s rebut tal testimony essentially is not COMMISSIONER SMITH:We don't want it spread. MR. KLINE:We don t need it anymore, that's right, so that I s why I apologize.Now , if you'd like to have Mr. Said testify anyway COMMISSIONER SMITH:Tha t 's up to Mr. Budge. MR. KLINE:- - he's here. MR. BUDGE:I think before it was more properly directed to Mr. Said , but when I reached the point with Mr. Said why August was there, he deferred to Ms. Brilz , so I went ahead with Ms. Brilz , so why don t I give it a try with Ms. Brilz and if she wants to defer back to him as long as I have a chance for that , I'll come back that way. COMMISSIONER SMITH:Let I S do it that way, then. MR. BUDGE:Can I approach the witness, please? COMMISSIONER SMITH:Yes , you may. MR. BUDGE:m going to identify two exhibits marked as Exhibits 314 and 315 , and I III represent that Exhibit 314 is the cover page from the CSB REPORTING Wilder , Idaho 3007 BRILZ (X-Reb) Idaho Power Company83676 2002 IRP , coupled with page 30 from the IRP which is the 70th percentile water and load we've been discussing and Exhibit 315 is the update of that that was provided to me off the record during the course of the proceedings that was provided to reflect the changes that occurred after the Garnet plant was removed, and I'm providing simply the cover page and page 8 from that exhibit because it was stamped confidential and the information that was confidential, none of that is included and with the Chair's permission , I'll approach the witness and also provide her with the actual original of the IRP and the report just so that she 'll have an opportunity to confirm that I got my exhibits right. (Mr. Budge approached the witness. (Idaho Irrigation Pumpers Association Exhibit Nos. 314 and 315 were marked for identification. BY MR. BUDGE:Ms. Brilz , did you have an opportunity to check those exhibits and confirm that accurately represented that Exhibit 314 contains page 30 and 31 from the 2002 IRP? Exhibit 314? Yes. It appears to be so, yes. And with respect to Exhibit 315, does it accurately contain a copy of page 8 from what' CSB REPORTING Wilder , Idaho 3008 BRILZ (X-Reb) Idaho Power Company83676 identified as the report to the PUC on replacing Garnet? Yes. I f we go to Exhibit 314 , please, the bottom graph is the one that we had discussed before which is Figure 5, 70th Percentile Water and Load, Existing Resources with Garnet, and if you 'll look with me to the ye~r 2007 , which would have been the last year of the five-year period we were looking at, I had noted before that August did not appear as a deficit month. you recall that? Yes. And then I think Mr. Said deferred to you and you explained during your testimony, if I recall correctly, that the reason that was the case was because this was prepared with Garnet in and after the Garnet plant was canceled , the IRP was updated and the update would then reflect August being a deficit month.Do you recall that testimony? Yes, I do. And then during the course of the proceedings at my request, the Company did in fact provide the report it was referring to with Garnet removed and if you will turn to Exhibit 315, the bottom chart.Now, as I looked through the update report, I could not find the graph updating the 70th percentile CSB REPORTING Wilder , Idaho 3009 BRILZ (X-Reb) Idaho Power Company83676 water and load without Garnet.Do you have an explanation of that? No, I do not, although I agree that there is no graph showing the 70th percentile water in the document. And if we look to the 90th percentile water which is shown on the bottom graph , if you look to the year 2006 , do you see that August and September show up, but November does not? Uh-huh , yes. And go to the year 2007, you 'll see the There are actually six deficit months shown insame? 2006 and 2007 and November doesn t show up in either of those even using 90th percentile water which I understand is worse water conditions; is that correct? I can say that November doesn't show up. I cannot tell you what the 90th percentile for sure, what that represents. So am I accurate to conclude that the Company did not rely upon the IRP in identifying all of the def ici t months; in other words, the IRP is showing six deficit months and you utilized five in your weighted 12CP and furthermore, you used the month of November which doesn't appear in either of the IRPs here. My understanding in conferring with CSB REPORTING Wilder , Idaho 3010 BRILZ (X-Reb) Idaho Power Company83676 Mr. Said is that the IRP prior to the supplement identified November as one of the deficit months.When Garnet was taken out of the option list, August showed up as part of the months with deficits. But we don I t have the 70th percentile graph , it was not part of any update , so I guess I'm at a loss to where all this comes from. That is correct.Again , in conferring wi th Mr. Said , he indicated to me for transmission and capaci ty planning purposes , we do look to the 90th percentile water and looking at the energy requirements that we look at the 70th percentile. So where did August come from?Was it arbi trarily selected?It just doesn t seem to be supported by either the original IRP or the updated. No, I think if you look at the entire document that was submitted as a supplement , page 6 basically says that Idaho -- it specifically identifies that the Garnet power plant was designed to provide Idaho Power with firm capacity and energy within its service terri tory during June , July, August and December.With Garnet not providing that capacity, we had the need to find capacity someplace else. The report states that , but it I S not reflected in any of the deficit months; correct? CSB REPORTING Wilder , Idaho 3011 BRILZ (X-Reb) I daho Power Company83676 I don I t see it on the graph that you pointed out to me , no. Let me ask you one more question regarding the graph.If you lay those two exhibits side by side and look at the top graph on Exhibit 315 and if you would look at the top graph , Figure 6 which is Page 31 , the second page of Exhibit 314 , and lay those side by side those particular graphs purport to show the energy surplus or deficit under 90th percentile water and 70th percentile load.Do you see that? Could you ask that question again , please? Okay, if you look at Exhibit 314 , the third page in , which is page 31 from the 2002 IRP , the top graph , Figure 6 is purportedly showing the energy surplus or deficit under 90th percentile water and 70th percentile load.Do you see that? Yes. If you compare that with the top graph on the second page of Exhibit 315 , which is supposed to be portraying again the energy surplus under 90th percentile water and 70th percentile load , the graphs are identified as the exact same graph , both are with Garnet , but the information reflected in the graph , as you can see , is considerably different. There I S a significant difference between CSB REPORTING Wilder, Idaho 3012 BRILZ (X-Reb) Idaho Power Company83676 your two graphs.Your Exhibit 314, Figure 6 is monthly energy surplus or deficit and that graph on the top of page 8 of your Exhibit 315 is capacity, peak hour deficit. All right, I might have got you on the wrong page.I did get you on the wrong exhibit, excuse me.On the pages that you're looking at, it is the top graph on Exhibit 315 and the bottom graph on page 31 of Exhibi t 314; in other words, both are supposed to be showing 90th percentile water, 70th percentile load with Garnet and they I re both showing supposedly the same defici t, but as you can tell from what I s graphed, they I considerably different and I just was wondering if you had an explanation for that. I do not. One other question along this line, when you updated the IRP without Garnet , did you include Danskin? I can t answer that for you, Mr. Budge. just do not know what exactly was included in the update. Mr. Said would have to answer that and I m assuming that you wouldn't know whether or not Bennett Mountain is included either? I do not know. CSB REPORTING Wilder , Idaho 3013 BRILZ (X-Reb) Idaho Power Company83676 Well, when you did the graphs in the IRP in 2002 and you were reflecting with Garnet , it was scheduled to come on line in , was it, 2004? 2005, I believe. So it was being included in anticipation of a future use date, so it would seem to be consistent to update the graph it would reflect the inclusion of Danskin and Bennett Mountain?No?Only Danskin? MR. KLINE:Right. MR. BUDGE:Mr. Said is nodding and I'll accept that. COMMISSIONER SMITH:Well, you've got to be careful , remember earlier today, nodding meant no. MR. BUDGE:Is that nod to Ms. Brilz a yes or do I have to bring Mr. Said up that it does reflect Danskin and does not reflect Bennett Mountain? MR. SAID:Correct. MR. BUDGE:I'll leave that line. BY MR. BUDGE:I have just a couple other areas I wanted to bring up, if I may.Ms. Brilz , on page 5 of your direct rebuttal , you addressed Mr. Yanke 1 , s recommendation of reclassifying over $14 million of investment in FERC account 364 to account 365.Do you recall that testimony? Yes, I do. CSB REPORTING Wilder, Idaho 3014 BRILZ (X-Reb) Idaho Power Company83676 And you basically characterized his recommendation as being arbitrary Yes. - - is that correct?What I had the question about, if you'll look at account, FERC account, 364 , that is the secondary for distribution poles, as I understand it, and 365 is the secondary account for conductors , which would be the wires on the poles? Yes, that I s correct. And as a percentage basis , 364 was reflecting 8.4 percent of all of the poles; whereas account 365 was showing 16.9 percent of the wires on the poles and on a percentage basis, would you agree it would appear that there I s quite a bit of difference, one being about double of the other? There is a difference, yes. And I think you characterized Mr. Yankel' adjustment as arbitrary because he simply evened up the percentages to calculate the $14 million amount? Yes, Mr. Yankel assumed that because 16 percent of account 365 is classified as secondary, 16 percent of account 364 should also be classified as secondary. On a percentage basis, wouldn't you expect the same percent of secondary poles to be about the same CSB REPORTING Wilder , Idaho 3015 BRILZ (X-Reb) Idaho Power Company83676 percentage as secondary wires on the poles? No, I wouldn't.I don't believe that there's a one-for-one correspondence there.The facilities are. classified as primary or secondary based on a standard classification as to what their use is and their installation and I believe that the classification that the Company has reflects the utilization of those facilities. So are you telling me that if you have some poles out there that it may be carrying both primary wires and secondary wires and that explains the difference? That could explain the difference partially, yes. So then in that kind of a circumstance, is the Company allocating all of the costs or more of the costs to the secondary wires than the primary wires? The Company is taking the classification to particular facilities as they are and allocating them to customer classes. I understand that , but I guess you have some poles out there and then as a percentage basis , you would think that the percentage of poles on the secondary system as compared to the total would be somewhat similar to the percentage of secondary wires and here we have a CSB REPORTING Wilder, Idaho 3016 BRILZ (X-Reb) Idaho Power Company83676 big difference and if I understand what you I re saying, sometimes there are poles that carry both primary wires and secondary wires? That is correct. Well , aren I t the costs related to the primary wires allocated to that particular account and the secondary to that particular account or do we have some costs associated with carrying the primary wires that get allocated to the secondary account? The costs classified as primary are allocated based on the allocation for primary facilities. We don I t take secondary facilities and reclassify them as primary. Well , how do you split it up between the pole that carries both primary and secondary wires? Maybe that's a better question. If a pole is constructed to carry primary conductor, it has to be constructed to meet the specifications and requirements for that level , that voltage of a facility and in that case, those poles are classified as prlmary. So when you basically contend that Mr. Yankel was arbitrary in his cost shift, did you make any kind of an analysis to further identify or explain the problem or come up with the correct calculation? CSB REPORTING Wilder , Idaho 3017 BRILZ (X-Reb) Idaho Power Company83676 , I didn't make any attempt to do any type of an analysis.I simply pointed out that choosing to set the two equal was arbitrary. Okay, you also addressed a complaint that Mr. Yankel presented in his direct testimony where he criticized the assignment of some costs to the irrigators and if I can summarize up his complaint, as I understand , was that there was a mismatch between the cost assignment or demand and the revenue from the irrigation class and as I understand it , the Company uses a normalized revenue based on normalized /energy, but uses the actual demand data from 2003 in order to assign costs; is that correct? The Company as a standard practice has used actual demand data to calculate and determine its demand allocation factors , yes. And if in fact we had drought conditions in 2002 , which I think we know we did , would the effect of that type of an allocation method show higher costs and lower revenues to the irrigation class? Could you repeat what you asked, please? If in fact you re normalizing revenue, but you I re using actual demand with assigned costs in a drought year , for example , you would have because you' normalizing the revenue , you would have less revenue CSB REPORTING Wilder , Idaho 3018 BRILZ (X-Reb) Idaho Power Company83676 attributed to the irrigation class and higher cost because they re using more in a drought year? I wouldn't say that's necessarily always true. You state on page 8 of your testimony, beginning on line 20 is when you responded to that argument and you state that while Mr. Yanke 1 I s methodology for computing normalized peak demands may be conceptually reasonable , and you go on to say he made some errors , when you say conceptually reasonable," do you mean that it might be more accurate to use both actual costs and actual revenues or use both normalized costs and normalized revenues? , I was referring to the specific methodology that Mr. Yankel suggested as far as coming up with normalized demands and in discussing his methodology that he used , although there are mathematical and other errors in it, our load research experts believe that conceptually for a quick and simple way of looking at some type of weather normalization for peaks that it was conceptually reasonable. Just casting aside his mathematical errors as you claim , don t you think it I S more accurate if you do the same thing, either annualize both revenues and costs or you simply use actual revenues and actual costs CSB REPORTING Wilder , Idaho 3019 BRILZ (X-Reb) Idaho Power Company83676 instead of normalize one and use actual on the other, isn't that what you are referring to when you say that I s conceptually reasonable? No, I was referring specifically to the methodology that he had proposed. All right, you go on and basically say that he made several errors and as a result of that , he produced an incorrect result insofar as his mathematical calculations.Did you attempt to do any calculations to correct that? I did not.Our load research folks did take a look at his methodology. No further questions.MR. BUDGE:Thank you. COMMISSIONER SMITH:Thank you, Mr. Budge. Mr. Richardson. MR. RI CHARDSON :Thank you, Madam Chairman. CROSS -EXAMINATION BY MR. RICHARDSON: Ms. Brilz , at page 16, line 11 of your rebut tal testimony, you state that witnesses Dr. Power and Mr. Higgins support the Company I s proposal to adopt CSB REPORTING Wilder , Idaho 3020 BRILZ (X-Reb) Idaho Power Company83676 mandatory time of use rates for all Schedule 19 customers.Do you see that? Could you give me the line numbers again please? Beginnlng on line of page 16. Okay,yes. And would you agree that Dr.Power endorsed the Company I s time of use rate proposal only in the most very general of ways? Well, I would say that he did endorse the proposal. Could I quote what he said in his direct testimony for you?"Do you support I PC I Ss asked, proposals to make use of seasonal and time of use pricing? " And Dr. Power responded "Yes.That is one way to convey crucial information about how the costs associated with electrical use varies over the day and over the year"; so he didn It explicitly endorse the Company's recommendation for mandatory time of use rates for all Schedule 19 customers, did he? Well, he said that he supported pricing that reflected the time value. And with respect to Mr. Higgins, doesn' his testimony actually support the ICIP I s position that CSB REPORTING Wilder, Idaho 3021 BRILZ (X-Reb) Idaho Power Company83676 time of use rates should be implemented initially at least on a voluntary basis? No, Mr. Higgins suggested that time of use rates be implemented on a voluntary basis for Schedule 9 customers. Right , he was suggesting that time of use rates be implemented on an incremental or step-by-step basis on a voluntary basis and that I s actually just the opposi te of what the Company s proposing for their Schedule 19 customers , isn't it? The Company is proposing mandatory time of use rates for Schedule 19, yes. You state at page 19, line 10 that Idaho Power met with the ICIP to discuss time of use rates prior to filing the application; correct? Yes. Isn t it true that you filed your application just one month after that meeting? A month-and-a-half. And did the Industrial Customers of Idaho Power have any input as to how you designed those rates? The Company took into account the discussions that we had at that particular meeting in reviewing and determining what precisely we would file CSB REPORTING Wilder , Idaho 3022 BRILZ (X-Reb) Idaho Power Company83676 part of our proposal. Did you make those , your time of use rates , available to the Industrial Customers at that time? Did we make what available? Did you show the Industrial Customers that meeting the rates that you filed in the case? We did not show you the specific rates that we filed.No, those hadn t been determined yet. Wouldn't it be fair to characterize the tenure of that discussion such that the Industrial Customers were not generally in favor of mandatory time of use rates? As I recall, there were some who were expressing some concern , others who thought that there might be some potential for some benefit. And yet , at that time they didn I t have the specific proposal in front of them to really make an informed value judgment on that, did they? They didn I t have the specific prices. They had the time blocks and seasonal aspects that we had been working on at that point. On page 20 at line 4 of your rebuttal testimony, you state that you actually oppose time of use rates for the Schedule 19 customers because , as you state CSB REPORTING Wilder , Idaho 3023 BRILZ (X-Reb) Idaho Power Company83676 a t page 20 , 1 ine 4 "I believe the implementation of time of use rates should be taken in steps.Is it true, then , that you think mandatory time of use rates for every single Schedule customer simply a step? Actually,think you misrepresented little bit.said for Schedule customers felt that we should take time of use pricing in steps and that' why I was not recommending at this point that we adopt time of use pricing for Schedule 9 customers. , I actually meant to say Schedule was quoting your testimony where you state that time of use rates for Schedule 9 customers should be taken in steps, suggesting that you go slowly perhaps with a pilot program or something along those lines and I was asking you if you think mandatory time of use rates for every single Schedule 19 customer on a date certain is simply a step as you propose for Schedule What I I m referring to in my testimony is that I believe we should take particular customer groups in steps in implementing the time of use rates and my recommendation is to start with our Schedule 19 customers, continuing with our proposal to have mandatory time of use rates, but to have those rates in place for some period of time before we move to the next step which would include Schedule 9 customers. CSB REPORTING Wilder, Idaho 3024 BRILZ (X-Reb) I daho Power Company83676 So you I re essentially using Schedule 19 as a guinea pig schedule to see how you can implement it for other schedules? Schedule 19 will be the first group of customers that would have time of use pricing implemented and then we would move from that customer class to the next. Without a pilot program to begin with? it's necessary. Possibly with a pilot program. For Schedule 19? Not for Schedule 19 , no, I don t believe You state on page 17 , line 18 that "In addition , several Schedule 19 customers have facilities CSB REPORTING Wilder , Idaho in other states where time of use rates are already in place. "Do you know if those rates are mandatory or I do not know. voluntary? Were you here on Thursday when Mr. Henderson from ConAgra testified that his company would be unable to take advantage of time of use rates? yes. I was here when Mr. Henderson testified, And having a time of use schedule means that if one customer within the Schedule 19 class can 3025 BRILZ (X-Reb) Idaho Power Company83676 take advantage of that schedule, the rest of the members of that class who are unable to take advantage of it pay for the savings correct? all. Well, it is true that your proposal is to of the one customer who can use it; No, I wouldn't characterize it that way at be revenue neutral to Idaho Power relative to Schedule 19; correct? In designing the rates, using the hourly data we have for our Schedule 19 customers and identifying the usage within each block , with the rates we have proposed, we I re targeting the revenue requirement that we I ve recommended for that class , so yes, it' revenue neutral as a whole. So if one customer within that class is able to reduce their total revenue payments to the Company, another customer in that class is going to pick up the difference; right? No, what the time of use pricing does is match the prlce to serve a customer - - excuse me, the cost to serve a customer with the price the customer is paying.Those customers whose usage patterns more closely match the cost to serve throughout the day have a lower price basically because you ve matched the price CSB REPORTING Wilder , Idaho 3026 BRILZ (X-Reb) Idaho Power Company83676 wi th the cost.Customers whose usage patterns are such that they cost more to serve have a higher cost because they are paying the prices that match their cost causation on the Company's system. And let I s assume that you have a customer who is - - has a usage pattern that, as you say, that customer's rates are set to match costs, but this customer invests a lot of money in a new process so that they re able to shift load to off peak and they reduce the revenue they pay to Idaho Power by, say, hal f .Now you I re losing revenue that you otherwise receive from that class , who picks up that difference? Well , until you have the next rate proceeding, the Company is the one left holding the bag. What would ultimately happen in that situation is any customers that shift usage off peak will have those cost reductions reflected in the next cost of service study and should have lower costs allocated to the industrial class.In the meantime, the lower power supply costs that are incurred by shifting usage from the on peak to off peak will flow through the power cost adjustment and all customers will have a benefit. Get ting back to Mr. Henderson for one moment, he also testified that capital is scarce in an industrial concern and it's difficult to shift investment CSB REPORTING Wilder , Idaho 3027 BRILZ (X-Reb) Idaho Power Company83676 dollars to things other than processes in making the plant as efficient as possible to take advantage of different electric rates.Would the Company now support the Industrial Customers with that constraint in mind in their attempt to divert their conservation dollars to their individual plants? I think the mechanism that is currently in place for the Industrial Customers where they I re able to identify process specific conservation programs and submit those proposals to the Company for funding is the best way to go at this point in time. On page 18 of your rebuttal testimony, beginning on line 20 , you reference a table identified as KCH-1 that Mr. Higgins provided in his testimony. Yes. Do you have that table available to you? I do not. Could your counsel make that available to you? (Mr. Kline approached the witness. COMMISSIONER SMITH:Does that have an exhibi t number? MR. RI CHARDSON :It I S actually a table in his testimony on page 10 of Mr. Higgins ' direct testimony. CSB REPORTING Wilder , Idaho 3028 BRILZ (X-Reb) Idaho Power Company83676 BY MR. RI CHARD SON :Do you have that in front of you now? Yes, I do. First of all, looking at that table well, you state in your testimony at page 18, line 20 that Mr. Higgins identified several utilities that require time of use rates for customers with loads greater than 500 kW.Now , looking at Mr. Higgins I table, that table applies only, does it not, to utilities taking less than 1,000 kW , so it is inapplicable as a reference for the Industrial Customers of Idaho Power who all must take a minimum of 1 000 kW; isn I t that true? Mr. Higgins' table does say billing demands of 1 000 kW or less; however , in looking at the particular tariffs of these utilities , they also have mandatory time of use for customers that are of a size larger than 1 000 kW. I guess Mr. Higgins' table will have to the ambiguity is because the heading says for billing demands of 1,000 kw or less; correct? It does say that, yes. Do you know if any of these other mandatory time of use programs have other rate mitigating features, such as caps and ceilings on the amount of revenue the individual customer would be required to CSB REPORTING Wilder , Idaho 3029 BRILZ (X-Reb) Idaho Power Company83676 pay? , I do not. And your proposal has no such feature, doe s it? No, it doesn Swi tching gears a bit here, Ms. Bril z, in the answer to the question on power factor on page 26 of line 7 of your testimony, don I t you state that the 2002 IRP identified multiple delivery constraints and that the distribution system is typically voltage and capacity constrained? Yes , I do state that. And didn't Mr. Prescott in his rebuttal testimony state that the Danskin plant provides voltage support close to the Treasure Valley and doesn't he go on to say that the reactive power cannot be served by remote generators and that Danskin can provide the necessary vol tage support? I don I t have his testimony in front of me, but I will assume that you have given me the correct information. That reference, for the record , is page , line 1 of Mr. Prescott I s rebuttal testimony, and doesn I t this indicate that Danskin is already providing the necessary vol tage support? CSB REPORTING Wilder , Idaho 3030 BRILZ (X-Reb) Idaho Power Company83676 Mr. Prescott indicated that Danskin provides voltage support.What I'm indicating here is that the reactive loads put on the system by any particular industrial customer needs to be addressed and the way that we address those is by installing capaci tors.What I'm recommending is that the power factor requirement for Industrial Customers be raised from 85 percent to 90 percent to more closely match the recovery of cost by those who are causing the cost because we do need to operate our distribution system at unity. In response to the Industrial Customers production request No. 48, don't we see that there s been a general improvement in the Company I s reliability indices that indicates that the voltage and capacity constraints have significantly diminished over the last four years? The response to the data request did show that those indices have improved; however , the fact of the matter is that reactive loads still need to be addressed on our system and the way that we address those is through capacitors and again , what I'm recommending is that the Industrial Customers have an increase in the requirement for the reactive loads that they put on our system. CSB REPORTING Wilder, Idaho 3031 BRILZ (X-Reb) Idaho Power Company83676 Don I t we see in your rebuttal testimony that Idaho's only two other investor-owned utili ties, UPL and Avista, have power correction clauses with 85 and percent minimums? Yes, the other utili ties that operate in Idaho have a lower power factor requirement than utilities in our neighboring states. To change gears one more time, Ms. Brilz, isn t it true that the Company uses weather normalized energy for resource planning and the calculation of revenue requirement? We use normalized energy for the calculation of the normalized revenues for revenue requirement purposes.I can't speak to the resource planning. And why do you use normalized weather? Because we attempt to make representation to what typically or on average can be expected as far as both the revenues and expenses of the Company. Now , wouldn t you agree that this case presents the Commission with a substantial change in the load profile of Idaho Power because ratepayers are being asked to pay increased fixed charges for peaking generation plant based on peak load? CSB REPORTING Wilder , Idaho BRILZ (X-Reb) Idaho Power Company 3032 83676 Well , the Company s loads have changed, the Company's resource portfolio has changed and our cost of service study reflects those changes through the revenue requirement identified by each customer class. In response to Dr. Reading I s testimony, on page 8 at line 12 of your rebuttal, you respond to Dr. Reading's recommendation to weather normalize peak and you cite as evidence opposing that recommendation and I'll quote you,"The Company s load research experts believe that the present method," et cetera , et cetera. Are any of these load research experts witnesses in this case? , they are not. So if we wanted to examine how they came by their beliefs, we re just out of luck? Well , they aren't here to answer your questions, that I s correct. And have you provided any of the studies these load research experts have used to support their conclusion that Dr. Reading s recommendation to weather normalize peak is invalid? I don t believe that that I s what I 1 saying in my testimony.What I am saying is that our load research experts believe that the present method is sufficient to accurately assign costs and there are CSB REPORTING Wilder, Idaho 3033 BRILZ (X-Reb) Idaho Power Company83676 several advantages to using actual peaks in that it is more transparent and easily verifiable by others. And these conclusions about advantageous simple , straightforward, these are all conclusions from your load research experts? Yes, based on their expertise. Who are these people? Individuals in our load research department.We have Paul Warner , we have Tom Noll to name a few. Were these people unavailable to be here today to testify as to their expertise? MR. KLINE:Madam Chairman, I'm going to obj ect .I think he I s just arguing with the witness at this point. COMMISSIONER SMITH:Mr. Richardson. MR. RI CHARDSON :Madam Chairman , I I m not going to object to move to strike Ms. Brilz ' s testimony based on hearsay, but I would ask that you take into account the fact that this is indeed unsubstantiated hearsay evidence and it I s directly refuted by both Dr. Reading I s testimony and Mr. Yanke 1 I s testimony on the need to weather normalize for peak load and that both of those individuals are witnesses in this proceeding and were available for cross-examination by the Company. CSB REPORTING Wilder, Idaho 3034 BRILZ (X-Reb) Idaho Power Company83676 COMMISSIONER SMITH:Thank you for m sure the Commission is capable of determining the amount of weight CSB REPORTING Wilder , Idaho 3035 83676 pointing this out, Mr. Richardson. MR. RI CHARDSON :Thank you, Madam Chairman.wi th that, that concludes my Thank you. Mr. Ward , do you have questions? How briefly? MR. WARD:Let's take a break. We will be back at We I 11 go back on the MR. WARD:Thank you, Madam Chair. I realize this isn I t my issue , but, Ms. Brilz , if you 'd pick up the exhibit that was handed that this testimony should be given. questions. COMMISSIONER SMITH: MR. WARD:Briefly. COMMISSIONER SMITH: COMMISSIONER SMITH: till 3:00. (Recess. ) COMMISSIONER SMITH: record.Mr. Ward. CROSS-EXAMINATION BY MR. WARD: out , I believe it's 82. BRILZ (X-Reb) Idaho Power Company All right. You'll forgive me for the bad habit of too many years scanning numbers for things that appear don' to add up.First of all , would you explain why there are so many more non-summer bills than summer?I assume that's all nine months or whatever that's outside the summer season. That I S correct , non- summer are all nlne months other than June, July and August. And so what you ve done is weighted those when you pulled your averages together? What I've done is taken information for the three summer months and the nine non-summer months and just represented what those actual numbers are. There I S no weighting to those numbers. Okay, I phrased it badly, but it' proportional to the summer and non-summer use correct? Yes. Do you we know when we look at the LIHEAP funding recipients whether they have a greater percentage of electric heat for space heating than the overall residential customer class? We don t have that specific demographic data available , no, although when we look at the bill frequency, we certainly see that there is usage during CSB REPORTING Wilder , Idaho 3036 BRILZ (X-Reb) Idaho Power Company83676 those non- summer months that would indicate electric space heat. Okay, and do we know whether that all-residential customer class would include some part -time residents? Yes, it would.The all-residential customers would include all customers, including the LIHEAP customers. Right, do we have at least some percentage of residential customers that depart this fair land in the winter? I understand that we do have some folks who head south for the winter, yes. Just a couple of questions about your rebuttal testimony.On page 4 , you re discussing Mr. Yankel's use , proposed use, of the 12CP methodolgy. If we were to use that methodology - - well , let I s turn the characterization around.If we were to use that methodology, would it imply that peak demands are not particularly important for Idaho Power I s cost of service? I f we were to use Mr. Yankel' recommendation to not weight the 12 coincident peaks and just use the 12 coincident peaks? Correct. CSB REPORTING Wilder , Idaho 3037 BRILZ (X-Reb) Idaho Power Company83676 What that would represent is that there is no greater value in any particular month of the peak load in that month compared to the other months. And under any circumstances, regardless of critiques about the methodology used in the IRP or otherwise, is that a realistic representation of Idaho Power's situation? No, it is not. Yesterday, I I 11 try to make this very quick , yesterday I had a short question and answer session with Mr. Yankel regarding his proposal to eliminate any allocation of underground facilities to the irrigation class.Were you in attendance? Yes, I was. And I asked him whether in fact the allocation of those distribution facilities as a whole is a zero sum game; that is , if you underweight a particular class's allocation for some portion of those facilities, isn't it a mathematical fact that they have to overweight the other facilities? That is correct.It is a pie that has to be sliced. And I also asked him some questions about the relative density of rural customers and irrigation customers in general and looking at your page 6 CSB REPORTING Wilder , Idaho BRILZ (X-Reb) Idaho Power Company 3038 83676 testimony, it appears you concur that if we were to actually begin assigning costs that customer density per feeder would be a significant factor. It definitely could be one factor you would look at if you were trying to identify a different methodology for assigning costs. And presumably, that would hurt the irrigators? Relative to not giving any weight to the demographics , yes, it would tend to influence their allocations more heavily. MR. WARD:That's all I have. COMMISSIONER SMITH:Thank you, Mr. Ward. Mr. Cooke. MR. COOKE:I have no questions. COMMISSIONER SMITH:Mr. Kline. I was just going to interruptMR. KLINE: before you started the next and see if it would be possible to excuse the Idaho Power income tax team from further attendance at the hearings. COMMISSIONER SMITH:You mean Mr. Ripley doesn I t want to stay until the bitter end? MR. KLINE:Madam Chairman , as a consul tant , his fees are such that we would like to have him go on home. CSB REPORTING Wilder , Idaho BRILZ (X-Reb) Idaho Power Company 3039 83676 COMMISSIONER SMITH:If there is no objection , the witnesses who previously testified may all be excused, except for Mr. Gale, I think, is our only victim left. MR. KLINE:Ms. Fullen as well. COMMISSIONER SMITH:Mr. Miller, you back. MR. MILLER:Much to everyone s chagrin I did, if I could, have a couple questions forI m sure. Ms. Brilz. COMMISSIONER SMITH:Help yourself. CROSS -EXAMINATION BY MR. MILLER: Ms. Bril z , I wanted to highl ight one topic to sort of prevent it from falling through the cracks, I guess, and that I s the Schedule 9 primary and secondary distinction.Just for the purpose of getting the issues before the Commission , I think there are essentially three different rate design proposals for Schedule 9 and for dealing with the 9 primary and 9 secondary issue. Just for the purpose of getting the issue back in our minds, could you summarize what you understand your current proposal to be , the Staff's proposal to be and CSB REPORTING Wilder , Idaho BRILZ (X-Reb) Idaho Power Company 3040 83676 then I believe Mr. Higgins had a proposal? Well , my proposal , basically we look at Schedvle 9 and we have three different service levels on Schedule 9:Whatsecondary, primary and transmission. we have proposed is that rates be adjusted for each of those service levels.As I recall , we've recommended a 20 percent increase for Schedule 9 primary and transmission service customers, and I believe a percent increase for the secondary service level customers. Staff has made its own recommendations. don I t have their specific recommendation in front of me, but they are continuing to have the service level distinctions and have recommended rates specific to those particular service levels. I don I t know that Mr. Higgins made a specific recommendation , although did he have some suggestions for how those rates should be set. I believe for rate setting purposes, he suggested an overall average increase for the class as opposed to a large increase for primary and a smaller increase for secondary. Yes , I would agree with that. Now that we ve gotten to the end of the case or I guess let me just ask you, what did you think CSB REPORTING Wilder, Idaho 3041 BRILZ (X-Reb) Idaho Power Company83676 of Mr. Higgins' approach?And let me just also clarify why I'm interested in this.Of course , United Water' Marden treatment plant is a 9 primary customer , so it I S a significant customer in that class, so I guess let me just ask you, what did you think of Mr. Higgins' approach? I didn't agree with Mr. Higgins recommendation to have the same percentage increase for all service levels and the reason is that the primary and transmission service level rates were established at the last general rate case and at that point in time we knew that the first customers on the primary service level component of that schedule were going to be customers that were moving from Schedule 19 to Schedule 9 because we had raised the threshold from 750 kw to 1,000 kW. In looking at 40 some customers that were going to be moved, we identified that they had a little bi t lower load factor than the other remaining Schedule 19 customers and so it was determined that for all intents and purposes , their rate should be same, excepting for the energy component which we had recommended to be set at a 5 percent difference from the Schedule 19 rate.Ultimately when the Commission issued' its Order , the rates were set at two-and-a-quarter percent difference , so the rates between Schedule 9 CSB REPORTING Wilder , Idaho 3042 BRILZ (X-Reb) Idaho Power Company83676 primary and Schedule 19 primary were very, very similar. We've had nine years now where we've had a subset of customers taking service under the primary service level on Schedule 9 and in fact, that group now is larger than the Schedule 19 customer group and it was felt that because of the size of that group and the fact that those customers are very similar in that they tend to be the ones that are the larger customers and they tend to be the ones that move to Schedule 19 as their businesses grow , we treated them as a separate customer class for cost of service purposes and that analysis indicated that their costs to serve were higher than what was being recovered through their rates, so our recommendation is to adjust the primary service level rates more so than the secondary service level and transmission would follow suit.There are not very many transmission service level customers, but our recommendation is to follow suit with them as well. And I believe on the sort of related topic of the other charges for the class , in your rebut tal testimony, you indicated that you would not obj ect to the Staff proposal , assuming that time of use rates were actually implemented. My concern is that we take into account the relationship between customers on Schedule 9 and CSB REPORTING Wilder, Idaho 3043 BRILZ (X-Reb) Idaho Power Company83676 Schedule 19, particularly with the primary and transmission service level customers.Those are the customers that tend to move back and forth between those two rate schedules.It is not common for Schedule 9 secondary customers to move on to Schedule 19.Generally if they are on Schedule 9 secondary, they tend to say there with very few exceptions and my concern is that we don't get back to the situation that we had before we implemented service levels and that was a situation where the rates on Schedule 19 were viewed as so attractive that customers would do whatever they could to spike their demand in order to qualify for Schedule 19, so my concern isn I t specifically with what Staff has proposed, per se, but rather recognizing that as the Commission make its determination as to what the revenue requirement will be and what the rate spread among the customer classes will be that that relationship between the Schedule 9 and Schedule 19 primary and transmission service level customers be kept in mind so that we don find ourselves back where we were almost 10 years ago now with incorrect price signals and customers motivated to do what we prefer them not to do. I apologize , I obviously haven I t been here the whole time , but I understand that or I recall earlier in the hearing you indicated that a grace period for CSB REPORTING Wilder, Idaho 3044 BRILZ (X-Reb) Idaho Power Company83676 implementing time of use rates would not be inappropriate? That is correct.We have agreed that that would be something that would be reasonable. Would it be reasonable particularly in light of a customer like the Marden plant that may find itself growing into Schedule 19 and all of a sudden being on Schedule 19 without any opportunity to prepare for time of use rates? The customers that move on to Schedule generally have a time period in which we are working closely with them to in fact see if they are going to move to Schedule 19.Currently customers, unless they requested to move to Schedule 19, need to have at least three months where their peak demand is 1,000 kW or more. Our delivery service reps monitor those primary service level customers very closely and as they see their loads grow , they immediately contact those customers to try to identify if in fact the growth that we see is something that will continue, and I believe that it would be appropriate for our folks that point introduce them the time use prlcing structure Schedule 19,work with them provide them as much information we would be providing our Schedule 19 customers during this grace period and help them adj ust to that process, so in a CSB REPORTING Wilder , Idaho BRILZ (X-Reb) Idaho Power Company 3045 83676 sense, they already have a grace period in that they got a several month I s time frame before they actually move to Schedule 19. And the Company is willing to work with customers like the United Marden plant when it transi tions to 19 to ensure that the transition is as non-disruptive as possible? Certainly. Thank you.Thank you,MR. MILLER: Madam Chair. Thank you,COMMISSIONER SMITH: Mr. Miller. Mr. Purdy, do you have questions? I do, Madam Chair, and I wouldMR. PURDY: like to start off by making a motion and that is to strike the Company 's Exhibit No. 82.The reason for my motion is as follows:This appears to be a computation derived from Exhibit No. 79, which I note is an exhibit to Mr. Gale's, I believe, rebuttal testimony.Perhaps more importantly, it pertains to information and the addi tional direct questions asked by Idaho Power I counsel and the conclusions that Ms. Brilz drew based on this exhibit are completely outside the scope of her rebuttal testimony.She doesn I t get into the specifics of LIHEAP , to my recollection , in her rebuttal and CSB REPORTING Wilder, Idaho BRILZ (X-Reb) Idaho Power Company 3046 83676 think that this was more appropriately, if at all appropriate , put before and presented by Mr. Gale and not Ms. Brilz and on that basis , I move to strike. COMMISSIONER SMITH:Mr. Kline. MR. KLINE:I think the exhibit is appropriate for Ms. Brilz.Certainly in her testimony there is a discussion about whether or not - - she responds to whether or not electric low income customers -- COMMISSIONER SMITH:Could you point us to that testimony, please? MR. KLINE:Could you do that, Maggie? (Pause in proceedings. MR. KLINE:I believe Ms. Brilz is talking about low use customers.Have you got it located, Maggie? THE WITNESS:I have a reference in my direct testimony referring to the proposed rate design and whether or not I believe that the increase in the service charge from $2.51 to $10.00 is detrimental to low lncome customers and I state that I do not. MR. KLINE:I think the reason that we needed to address it in Ms. Brilz I s testimony is the exhibi t that was introduced by Mr. Eddie via Ms. Hirsh was not an exhibit that was filed on direct, it was not CSB REPORTING Wilder , Idaho 3047 BRILZ (X-Reb) Idaho Power Company83676 presented in rebuttal , it came up for the first time as a part of the cross-examination of Ms. Hirsh.That's the first time we saw the report by Mr. Colton , so we really didn't have any other opportunity to bring this information to the Commission until Ms. Brilz was on the stand with respect to rebuttal testimony. COMMISSIONER SMITH:Mr. Purdy. MR. EDD IE:Madam Chair , could I make a clarification real quick? COMMISSIONER SMITH:Mr. Eddie. MR. EDDIE:That report was provided as a response to discovery, so it was available to all parties. MR. KLINE:I don I t dispute that at all, but it was not an exhibit, it was not a part of the record until such time as it was introduced via Ms. Hirsh's testimony. COMMISSIONER SMITH:Mr. Purdy, do you want to clarify your objection in light of his response? MR. PURDY:I do.Thank you.I don think it's particularly probative that it was introduced through Ms. Hirsh.I guess my point remains that this information that was attached to Mr. Gale's direct testimony and Ms. Brilz is drawing substantive concl us ions based on Mr. Gale I s exhibit and I would note CSB REPORTING Wilder , Idaho 3048 BRILZ (X-Reb) Idaho Power Company83676 that I believe the record contains ample evidence that Idaho Power has admitted through several witnesses that it does not have any definition of what constitutes a low income customer , does not track low income customers' usage characteristics and to the extent that Ms. Brilz in her direct testimony, and I'm crossing her on rebuttal not direct, to the extent that she talked about whatever she means by low income customers , I don I t see how that, how she has any foundation to talk about LIHEAP now which might be something entirely different in her rebuttal. think, again , this is Mr. Gale s exhibit, Mr. Gale should testify to it. Well, if it's just aCOMMISSIONER SMITH: procedural kind of thing, I mean, the exhibit won I t admitted, we could hold the admission until after Mr. Gale testifies if that cures your obj ection. MR. PURDY:Well , again , I felt for the record I was - - it was important to make that obj ection, though I think because she did draw substantive conclusions about it, that complicates the record a bit. All right, thank youCOMMISSIONER SMITH: for drawing that to our attention , Mr. Purdy.Do you pave questions for Ms. Brilz? Having anticipated I might notMR. PURDY: prevail , I as a matter of fact do. CSB REPORTING Wilder , Idaho BRILZ (X-Reb) I daho Power Company 3049 83676 CROSS-EXAMINATION BY MR. PURDY: Ms. Brilz, do you agree with what I just said, that the Company does not have any independent definition of what constitutes a low income customer? The Company doesn't have an independent definition that we utilize in trying to track low income customers through our system.The only information we have is those customers who receive LIHEAP funding. That I S your sole indicator , if you will for what constitutes a low income customer? That is the information we have available for low lncome customers, yes. All right, and I think you just said that you don't attempt to track , therefore, low income customers r usage characteristics , that sort of thing? We do not track within our customer information system any type of flag that would indicate a customer is low income or not , so no , we don t have information tying low income status to billing information. Flags might include, for example, customers who receive food stamps or who are on disabili ty? CSB REPORTING Wilder , Idaho BRILZ (X-Reb) Idaho Power Company 3050 83676 , we do not track that. So I guess to cut to the chase, isn 't it possible that a LIHEAP - - that there are low income customers depending on the usage that you rely upon and think you re well aware that Community Action Partnership agencies have relied upon a certain percentage of the federal poverty guidel ines, are you not? Yes. Depending upon the definition to be utilized, isn't it possible that the Company has a considerable number of low income customers that are not LIHEAP applicants or recipients? It is very possible that the Company has low income customers that do not receive LIHEAP, yes. Okay, and isn't it possible that LIHEAP customers constitute an aberration in the sense that perhaps they live in the worst and most energy inefficient housing stock? I don I t know that you could necessarily draw those conclusions.You could also say that they tend to be the ones that are most willing to seek aid. just don t know what conclusions you can draw. And I think we established earlier through another witness that LIHEAP is a first-come, first-served program , once the money runs out it I S gone; correct? CSB REPORTING Wilder, Idaho 3051 BRILZ (X-Reb) Idaho Power Company83676 I heard that earlier , that's correct. You have no reason to believe that's not true? I don I Could it be , therefore, that LIHEAP customers do in fact live in the most energy inefficient housing stock and, therefore, are the earliest in the year , particularly the winter months, to come forth and seek financial assistance? Again , they could or they could not be. just do not have the demographics on LIHEAP customers. You don t know, all right.Do you know of the number of people who apply for LIHEAP assistance the percentage that ultimately receives funding under that program? No, I do not. All right, and again, because you don know what necessarily constitutes low income customers for Idaho Power , you have no idea of the number of LIHEAP low income versus non-LIHEAP low income customers; correct? That's correct. Okay, and I don't know if you were asked this by another attorney, but you don't track data as to the type of space heating that LIHEAP or perhaps other CSB REPORTING Wilder, Idaho 3052 BRILZ (X-Reb) Idaho Power Company83676 low income customers rely upon? We don t have any recent data that would indicate the type of space heat the customer or space heat usage for low income customers or other customers no. Do you know how the LIHEAP program works? No, I do not. You don t have any idea how one goes about obtaining funding for LIHEAP? I don't know the specific steps.I know that they contact the agencies and through that process assistance is granted in certain cases , but no , I don I t know the particulars of that process. Given that you have testified about the Company 's Exhibit 82 and it apparently came from Mr. Gal e 's Exhibi t No.7 9 , do you know where you obtained this data or where Mr. Gale obtained this data? Yes, I do know where the data came from. There was a process during the 2002-2003 season , heating season , where the utilities in Idaho were required to track information regarding the customers that receive LIHEAP funding as part of an evaluation of the winter moratorium process and Idaho Power complied with that requirement to track our customers and gain information CSB REPORTING Wilder , Idaho 3053 BRILZ (X-Reb) Idaho Power Company83676 from them.This information is particularly from that tracking that was done during that time frame. And would you agree that it's at least possible that there are people out there who might qualify for LIHEAP , but for any number of reasons because they apply too late or perhaps they I re too proud to consider themselves low income that they don t come forward and seek LIHEAP funding? That is very possible and what we have to work with is the data that we gather based on those customers that do in fact pursue and receive LIHEAP funding, and the purpose for this exhibit is basically to show that specific to Idaho Power Company, our results don't comport with what was in the study that Mr. Eddie introduced. Now, when you say this exhibit," are you 1 7 jumping over to Exhibit No. 79? No, Exhibit No. 82 , when you take the data from Exhibit 79 and put it in a form that shows average usage by customer group, the results that you see are shown here on Exhibit 82. Your two groups being LIHEAP and non-LIHEAP residential customers? Customers receiving LIHEAP funding and all other residential customers. CSB REPORTING Wilder , Idaho 3054 BRILZ (X-Reb) Idaho Power Company83676 And don t we in fact show a lower average use for LIHEAP customers during the summer months? Yes. And obviously,you show a higher usage during winter months.nothing else,doesn that provide some justification for increasing LIWA funding? What this basically shows is that for the customers on Idaho Power s system who received LIHEAP funding, their average usage during the non-summer months , which includes the heating season, is greater than the average residential customer and that is the purpose for this exhibit.A conclusion that was drawn in the study that Mr. Eddie passed out was that LIHEAP customers use less than average.Our study, our data for Idaho Power Company specifically does not show that same resul t and that is the purpose for this study. What it basically is showing is that when you look at tpe particular rate design that you have for residential customers and looking at some of the proposals that have been made that will try to do blocking of those energy rates, you have customers who are low income, receiving funding who would not benefit from the blocking of the rates. m sorry, but I didn I t ask you about blocked rates.AllYoure getting a little ahead of me. CSB REPORTING Wilder , Idaho 3055 BRILZ (X-Reb) Idaho Power Company83676 I asked was whether or not - - well, several things, but let me ask you this:Do you think if you could accept for the purpose of this discussion that low income customers are people on the lower end of the income scale generally, people who have less discretionary funds their disposal, would you agree with me that it's just simply intuitive that they are going to be more judicious in their use of electricity, they I re probably not as ikely to have a hot tub, a heated garage, a s, 000 square foot home than a wealthier residential customer,doesn I that just make sense you? It would probably be more likely that that assumption is correct , yes. So now I'm not talking LIHEAP versus non-LIHEAP low income, Il m just talking generally about the concept of a low income customer.Gi ven that, that intuitive point, isn t it, therefore, logical to assume that low income customers typically use less electricity than non-low income residential customers? Well, since the only data I have on low income customers are those customers that recel ve LIHEAP my data doesn't support that assumption. So your data is not exactly very complete, is it? My data does not encompass all low income CSB REPORTING Wilder , Idaho BRILZ (X-Reb) I daho Power Company 3056 83676 customers, no. Okay, you started to talk about the blocked rate proposal and I would like you to turn , if you would, to page 10 of your rebuttal , line 18.Do you have that? Yes. Can I characterize that as saying that you oppose the blocked rates proposed by Dr. Power for the residential class because it sends an artificially low price signal to, and I I m quoting,customers who use less than the second-block threshold amount" I actually state in my testimony a number of reasons why I do not support the blocked rates that have been proposed by the other parties in this case and one being there is no cost basis.I do believe it penalizes customers who utilize space heat who have no options and it does provide, in my view , an artificially low price signal for the customers that use below that second block or third block , wherever you set your blocking for the rates. Do you agree that Dr. Power s block is 400 kilowatt-hours per month? Yes. So I want to focus on that last point you made , that it doesn I t send the proper price signal to CSB REPORTING Wilder , Idaho BRILZ (X-Reb) Idaho Power Company 3057 83676 those who are operating within that block.Can you please turn to page 12 , line 15?Would you just read that question there? Yes , the question reads How does a blocked rate structure provide an artificially low price signal to customers who use less than the initial block threshold level?" Well , isn't it true that roughly 96 percent of the Company s customers utilize more than 400 kilowatt-hours per month? No, I believe the way that Mr. Power represented it is that 96 percent of the energy consumed is above the 400 kilowatt-hour level. m sorry, did I say use less than 400? You said customers. Okay. There's a difference between the number of customers and kilowatt-hours and where those kilowatt-hours fall. All right.Well , then either way that you look at it , isn t it fair to state that there are very few customers using less than 400 kilowatt-hours per month; isn I t that true? There are customers, I don't know if I I got - - well, actually, you can probably look at my - - CSB REPORTING Wilder, Idaho 3058 BRILZ (X-Reb) Idaho Power Company83676 don't have my bill frequency data with me, but generally, there's approximately 15 to 20 percent of customers who use below the 400 kilowatt-hour. Fifteen to twenty percent of all customers? Uh-huh. You I re not just talking about residential? I m sorry, residential. Residential , all right.Didnl t Mr. Gale testify that most customers utilize more than 700 kilowatt-hours per month , do you recall? I believe he was referencing - - I don' have his testimony in front of me.I do recall that he had some reference in his testimony, but I don't remember the specifics at this point. Fine, I can ask him that.Thank you. ve heard quite a bit during the course of this hearing about the economic impact that any given revenue allocation or rate design might have on different customer classes , haven't we? Yes. My question , then , is did the Company conduct any economic analysis of the impact that increasing the fixed monthly customer charge of $2.50 to CSB REPORTING Wilder , Idaho 3059 BRILZ (X-Reb) Idaho Power Company83676 $10.00 would have to either low income or residential customers? No, the Company did not try to identify subsets of customer groups and look at any impact of any rate design on those customer subsets. Two more brief areas.Now , am I to understand your testimony that ultimately Idaho Power wants to roll all of its fixed costs into a monthly charge that ultimately they would like to characterize as an access charge? That's not totally correct.Wha t Idaho Power has suggested and has recommended is that the components of the distribution system and other customer-related expenses be included in a fixed charge component, specifically the service charge, and we have not proposed that the capacity-related costs of generation at this point be included in that fixed cost, also. At this pointand so when I asked the question the other day, I said something to the effect , I asked the witness, it might have been you on direct, why not include everything, you know , the cost of the dams, of the coal-fired plants and that might have seemed a little odd, but I guess the point I'm trying to make is do we have a camel'nose-in-the-tent problem here? CSB REPORTING Wilder , Idaho 3060 BRILZ (X-Reb) Idaho Power Company83676 mean , once we start down the path of rolling fixed costs over into fixed charges, we I re going to end up with an extraordinarily high monthly charge that has no correlation to actual usage. I don't think that that's actually a fair representation.What we I re proposing and recommending is that we make a movement in that direction.Wel identified a number of costs that we believe are appropriate to include in a fixed monthly service charge. We recommended 40 percent, 40 percent of that cost be inc 1 uded .My view is that putsThat equates to $10.00. us in the right direction and gets us moving there. certainly does not require all customers at this point to pay the entire fixed cost component on a single charge. Would you agree with me that you fixed, you've set a fairly subj ecti ve stop point with respect what fixed charges to recover through the fixed monthly charge? We looked at what we felt was a reasonable movement and proposed a cap, if you will, on that rate, but I think that we still believe that all of the components of fixed service are appropriate to include in the charge.We just set a cap at $10.00 in order not to have it move to the full amount in one step. And when you say all the components of CSB REPORTING Wilder , Idaho 3061 BRILZ (X-Reb) Idaho Power Company83676 fixed costs , are you talking about only distribution? Distribution and customer-related expenses. Okay.Finally, your own counsel asked you some questions on additional rebuttal about whether there exists subsidies wi thin a given class, intraclass subsidies and I bel ieve your answer was sure, there are and you identif ied the residential class as one; is that right? That's correct. So that I understand the point, I guess you re making, is it your belief that - - well, let me back up.Would you agree that low income customers no matter how we try to define them are more or less lumped into the residential class for Idaho Power? Yes. All right, is it your belief that low income customers are somehow creating a subsidy that has to be shouldered by others within the residential class or is it the other way around, perhaps? No, when I talk about a subsidy within the residential class, I I m not identifying any demographic or subgroup of customers.What I I m basically saying is that when you have almost all of your costs recovered through the energy rate, even though there are fixed cost CSB REPORTING Wilder , Idaho BRILZ (X-Reb) Idaho Power Company 3062 83676 components with providing service, you are having customers that use more energy pay a disproportionate amount of the fixed costs which, in essence, they subsidizing those customers with lower use who don I t pay their full share , if you will , of their fixed cost components for providing service. Well, if you are saying, as the Company has said, that during both the winter and the summer peak the residential class is driving the peak and, therefore, requiring the Company to acquire higher cost marginal resources, don I t those who use more within a class, wi thin the residential class , contribute more to that peak? It depends on when they use their energy. It I S very possible that customers that use more energy are using hot tubs and they're doing all their consumption off peak.There really isn I t necessarily a one-for-one correlation between using a certain amount and causing the peak. But again , intuitively, somebody who has a very large home in the middle of July who's got a central air conditioning system , aren I t they going to be driving the summer peak more than a low energy user? Someone who is using energy on peak will have more influence on driving the peak than someone not CSB REPORTING Wilder , Idaho BRILZ (X-Reb) Idaho Power Company 3063 83676 using on peak , yes. And the residential class because it is, it does have a summer peak is allocated costs during the cost of service study process based on that fact, that they are driving the summer peak somewhat; isn't that true? Their cost allocation is based on their proportionate share of the total system peak and it is based on what load is on at the time of that hourly peak. And to the extent that I s true, then the larger users are in essence creating the subsidy? , you can have low use customers who happen to have air conditioning on during the summer peak , the hour of the peak and they have no other appl iances , just as much you have a customer with high overall monthly consumption is on at the Bummer peak , but the maj ori ty of their consumption is off peak because of the appliances that they have, so really, the absolute amounts of consumption doesn't necessarily mean that they are driving the peak more so than others.It's when the consumption takes place. Do you think that large users versus low users wi thin the residential class necessarily use their power at different times during the day, their CSB REPORTING Wilder , Idaho BRILZ (X-Reb) Idaho Power Company 3064 83676 electrici ty; is that what you're saying? Certainly, they could, yes. Can you draw some generalizations that the low users tend to use their power at night versus the middle of the day or vice versa? No.What I can say is that you can't assume that someone who has a certain level of consumption during the month is driving the peak any more than someone who has a different level.It all depends on when that consumption takes place. MR. PURDY:All right, thank you very much.Tha t 's a 11 I have. COMMISSIONER SMITH:Thank you, Mr. Purdy. Mr. Eddie. CROSS - EXAMINATION BY MR. EDDIE: Ms. Brilz , my first question is really a clarification.You note at page 11 and moving over on to page 12 of your testimony that blocked rates penalize customers who utilize electric energy for space heating. That criticism is really in response to Dr. Power' proposal as opposed to Mr. Schunke I Dr. Power is the one that has recommended CSB REPORTING Wilder , Idaho 3065 BRILZ (X-Reb) Idaho Power Company83676 a blocked rate throughout the entire year , so from that perspect i ve, yes. It wouldn I t be an issue if the Commission were to adopt Staff witness Schunke' s proposal for a summertime blocked rate; correct? Staff witness Schunke' s proposal does not affect the winter consumption or non-summer consumption as far as blocked rates go, that's correct. Page lines 8 through 12, Mr. Purdy touched on this as well , but you suggest a hypothetical that a customer consuming 400 kilowatt-hours during peak time could be more expensive to serve than one consuming 000 kilowatt-hours during off peak.Is that a usage pattern the Company sees regularly? , this is purely a hypothetical to get the point across that it's really when consumption is used that influences the cost, not necessarily the total quantity of energy consumed. And surely there are examples out there, but isn t it more typical to find that it's the heavy use of air conditioning in the summertime that creates the residential class s responsibility for the peak hour problem? During the summer months air conditioning load generally is the usage that is on coincident with CSB REPORTING Wilder , Idaho 3066 BRILZ (X-Reb) Idaho Power Company83676 the system peak. And that's why the Company is pursuing an air conditioner cycling pilot program , for example, because it seems like an area to target for peak shaving? The air conditioning cycling is a good program to target for residential customers in trying to manage overall peak for the system as a whole, yes. m trying to understand the difference between the Company s position and Mr. Schunke' position.As a residential customer , it seems to me that my usage is pretty much flat throughout the year with respect to my appliances , my lighting, perhaps my lighting goes down in the summertime, but I know my bill goes up in the summer and I know that I s because of air conditioning.Wouldn t it be fair for me as a customer to say I know if I control my air conditioner and I keep the thermostat a little higher in the summer that I can keep my bi 11 down? Certainly, adj usting the thermostat on your air conditioner is one way that you or any other customer who has air conditioning could reduce their overall bill. So I I m trying to understand the difference between your position and Mr. Schunke' s position , because CSB REPORTING Wilder , Idaho 3067 BRILZ (X-Reb) Idaho Power Company83676 I felt that he had made a compelling case that there basically a base load level of consumption that can be served with relatively inexpensive resources , but it' the air conditioning that really kicks up the Company need to rely on the more expensive resources, 1 ike Danskin or the market, whatever that may be priced at. Well , again , you have to realize that not all customers fit into the same mold.There are customers who utilize air conditioning that don I t exceed 800 kilowatt-hours a month and what my position is is that any energy consumed during the summer has value and that in order to have more equity amongst all customers within the class, I believe it's more reasonable to give all customers a price signal that their energy consumption in the summer has value and that any conserving that they can do of their consumption , whether it's air conditioning, clothes drying, dishwashing, whatever it is that they might be doing during the day when we have our peak that all of those consumptions are valuable and that they re consuming energy and that they all should have the same price signal to try to reduce their consumption to lower their bill and to lower our peak. Would you agree that a customer who' consuming on average 400 kilowatt-hours per month is less CSB REPORTING Wilder , Idaho BRILZ (X-Reb) Idaho Power Company 3068 83676 able to seriously reduce that bill and I I m talking by 25 percent or more? You know , it all depends specifically on what that customer has.You know, there are so many variables in the process.I can I t honestly say that someone who is consuming 400 ki Iowa t t - hours can Wha t degree they can conserve, I don I t knowconserve. that either , but certainly to say that only those who use more should be encouraged to conserve is something that don t agree with. But even if they were to conserve, the 400 kilowatt-hour customer , even if they were to conserve 50 percent of their bill, that I s only 200 kilowatt-hours and by comparison to a customer , and I'll note in your Exhibit 76 which I'd like to get to in a moment , there are quite a few customers on the grid that consume 3,000 kilowatt-hours plus, if those people were to conserve even 10 percent , their savings are the equivalent of one or more customers that are in the 400 kilowatt-hour range, wouldn't you agree that it I S entirely appropriate to send the incentive to the high using customer? Well, again , you re assuming that the energy conserved by those high use customers has more value than the energy conserved by someone who is a lower use customer and I just donlt agree with that.I think CSB REPORTING Wilder, Idaho BRILZ (X-Reb) Idaho Power Company 3069 83676 all conservation that can be done has the same value. Okay, turning briefly to what may be almost a dead horse, but the Colton study, you did review that?It's 608. I did read that, yes. Would you agree that Mr. Colton looked not only at the LIHEAP report that was issued in July 2001 but he also looked at two other sources of federal data? The pagination is roughly 73, 74 on his study.One set of data was the U. S. Department of Labor , Consumer Expendi tures Survey and the other being the Residential Energy Consumption Survey conducted by the Department of Energy? I'll accept that. Mr. Purdy asked you questions related to the LIHEAP program and that it has certain peculiar aspects; for example, it's self-selective, customers can choose to participate in it and would you agree that other more random sets of data , such as the Consumer Expendi tures Survey or the Residential Energy Survey that do not include that social or self-selection aspect, might be a more fair judge of the true energy consumption patterns of all customers? Well, those other means could be a way to get the data.Allm not trying to discredit those. CSB REPORTING Wilder , Idaho BRILZ (X-Reb) Idaho Power Company 3070 83676 that I am saying is that the conclusions that were drawn specifically in relation to customers receiving LIHEAP funds and their relation to the average residential customer , do not hold for the data that Idaho Power has on its own system. MR. EDDIE:That's all.Thank you. COMMISSIONER SMITH:Thank you, Mr. Eddie. Ms. Nordstrom. MS. NORDSTROM:No questions from the Staff. COMMISSIONER SMITH:Questions from the Commission.Commissioner Hansen. COMMISSIONER HANSEN:Just a couple. EXAMINATION BY COMMISSIONER HANSEN: Do you believe that a person might be using, like, 3,000 kilowatts a month and yet , they may have many conservation measures that they re using to keep the kilowatts down? They may or may not.My sense is that the conservation or usage patterns of our customers can vary tremendously, so customers that use 3 000 kilowatt-hours a month may or may not be using efficient appliances or CSB REPORTING Wilder , Idaho 3071 BRILZ (Com-Reb) Idaho Power Company83676 trying to minimize their consumption either through heating or cooling. If I understand you correctly, the amount of kilowatts used by a customer doesnl t really give you too much of an indication whether or not they' conserving in certain areas or not? , customers who have high use may have chosen energy efficient appliances.They may just have a whole bunch of them. I'd like to just ask you , earlier you commented about payments made by the irrigation customer for new service or moves or relocation of power paid by them and would you please tell me again what the 13 and 19 percent represented that you mentioned at that time? Certainly.What we did is we took a look at the work orders for line installations for 2003 and based on the data that we have for those line extensions identified that approximately 19 percent of the dollars received in contributions for line extensions came from irrigation customers.The 13 percent comes from looking at the cost of service study and looking at the contributions that are allocated to the irrigation class and what we found is that 13 percent of the dollars that we allocate back to customer classes that were received from contributions went back to the irrigation customer CSB REPORTING Wilder , Idaho 3072 BRILZ (Com-Reb) I daho Power Company83676 class, so for 2003 , we received 19 percent of the dollars from irrigation customers and the cost of service study is attributing 13 percent back to them. So by those numbers, then, would you would that mean that the irrigation customers I payments for relocation of their lines and a movement of their lines are pretty much in total being allocated back to their cost of service? The payments for the installation of the lines , I would conclude , are pretty close.You know , 13 versus 19 percent is pretty close when you I re looking at the global allocation process.For the actual relocations , they pay 100 percent of those , so there isn't - - that component isn t there for allocating back. They pay it and it doesn't get on the books in the first place. COMMISSIONER HANSEN:Okay,thank you. That'all have. COMMISSIONER SMITH:Commlssioner Kj ellander. CSB REPORTING Wilder, Idaho 3073 BRILZ (Com-Reb) Idaho Power Company83676 EXAMINATION BY COMMISSIONER KJELLANDER: Ms. Brilz , I had a question again relating to Schedule 19 and the mandatory time of use program and wi th the grace period that you said the Company, at least I believe the Company said they 'd be willing to participate in , that grace period was designed to do what, to gather some data to share with the Industrial Customers? The Industrial Customers, at least those that took us up on our offer to get the detailed data, currently received a year I s worth of data that showed each monthly impact as well as the annual impact based on their 2002 actual usage pattern of applying our time of use pricing proposal.What I would recommend during the grace period that we do is give them updated information for 2002.We could use 2003.We could go back to 2001 if they wanted three years worth of data, but take their actual usage data for whatever time frame they would feel would be appropriate and do the analysis where we would apply to their usage pattern as it currently is the time of use proposal that would be adopted.They could have that immediately, in essence, upon adoption of the time of use pricing. CSB REPORTING Wilder, Idaho BRILZ (Com-Reb) Idaho Power Company 3074 83676 can then each month during the grace period for that particular month give them what the i r actual bill would be under a non-time of use scenarlO and also price it under a time of use scenario, so they could have not only multiple years of historic data, but also month to month during that grace period time frame, the actual comparison under the two scenarios. What happens if the Company gets it wrong with regards to the time of use pricing if the Commission approves it?I think you mentioned that if they get it wrong in one direction , the Company ends up eating it until they come back and do a cost of service study in a future rate case, what happens if the other side of the coin hits? Well , the other side of the coin would be that customers change their current usage pattern, so they increase their consumption during the on peak period rather than move it from on peak to off peak.In that situation , we actually would have higher costs than we expected because our current costs are based on the assumption that they would not shift or not increase their consumption, but would move it to the off peak , but if we have it set such that customers actually increase their consumption during the on peak and pay higher prices , then that means the Company has additional CSB REPORTING Wilder , Idaho 3075 BRILZ (Com-Reb) Idaho Power Company83676 dollars that come In the door that weren't anticipated. I don I t know the likelihood of that happening.I guess it potentially could.I would not expect that to be the direction that any movement would be taken. So the Company feels today that the pricing schedule as identified, then , for the time of use program is as close to accurate as they can imagine? Well, it's as close to accurate as we can get based on looking at the specific hourly data of that group of customers, yes. Since it doesn I t appear as if many of the Industrial Customers are fired up about a time of use program and since we've learned from other dealings that when you have a group that isn t necessarily fired up about something that they don t normally do their best to help achieve the end result you 'd like.m wondering if maybe that grace period , instead of implementing the program and then going through the grace period, you collect that data and demonstrate to everybody what would happen, if that grace period weren t an opportunity for everybody to get a really strong sense of where things are actually going to shake out and then allow the Company to look at what they see , come up with a finer tune time of use pricing and then bring it to the Commission for approval and move forward from there, CSB REPORTING Wilder, Idaho 3076 BRILZ (Com-Reb) Idaho Power Company83676 wouldn t that give you more certainty with regards to revenue collections in relationship to the time of use program that might then avoid the need to have to come back to this Commission for a costly rate case in one, two , three years down the road? The suggestion that you make would assume that perhaps 2003 data would be better to use in designing the rates than 2002.m not certain that we can make that assumption.If you just rely on the data that you would collect during a grace period, you wouldn I t have an entire year's worth of data and whether customers would make an attempt to do some shifting during that time frame in order to reflect some better data, I just don't know that that could happen.I am not certain that that proposal that you suggested would actually get us to any better spot than we are with what we've proposed using the data that we utilized in our analysis. Thank you.ve got one final question and it deals in part with the higher access fee as relates to conservation.One of the things that I think we learned during the energy crisis and the subsequent years which we I re still in in terms of recovering from those purchased power costs with rates that are far above base rates is that if you have a conservation message CSB REPORTING Wilder , Idaho 3077 BRILZ (Com-Reb) Idaho Power Company83676 you're more apt to get people to conserve when prices are higher and since prices are higher , wouldn I t the assumption ring true that as far as conservation is concerned , we're already getting that low-lying proof that the price signal is already out there for conservation to be occurring on an ongoing basis and with that said , if you up the access fee and in theory, you already getting that low-lying proof , where then do you get the additional conservation on a going forward basis? Well , I would say that no matter what the kilowatt-hour charge is, whether you set a $10.00 service fee or something less than that , every kilowatt-hour consumed is going to be billed and customers can reduce their bills by conserving whether you have a higher service charge or not.My sense is that a higher service charge helps address the intraclass subsidy.My view is it I S more equitable to try to price the components closer to cost and have customers pay based on that closer association to cost, but the conservation would come from or the reduction in bills would come from the fact that every kilowatt-hour is charged.It may be a lower rate wi th a higher service charge , but nonetheless , customers can reduce their bills by conserving. COMMISSIONER KJELLANDER:Thanks. CSB REPORTING Wilder , Idaho 3078 BRILZ (Com-Reb) Idaho Power CGmpany83676 EXAMINATION BY COMMISSIONER SMITH: Ms. Brilz , would you look at page 11 of your testimony?I guess I was struck by the sentence that begins at line 13,"There simply is no cost basis for establishing variable energy pr~ces based Bolely on the quantity of energy consumed by a customer," and this is part of your discussion where you express your dislike of blocked rates.Would you disagree totally with Dr. Power's statement that cost studies are inherently inaccurate? Cost studies are an art, they are not a science, and I have not found one that is absolutely perfectly accurate myself. So you might slightly agree with that statement or mostly agree with that statement? With Dr. Power s statement? Uh-huh. I I d mostly agree with that statement. Well , then when the Commission sitsOkay. down to make rates , it's one thing, then , to know what this artistically-designed cost study says and it's quite another thing to set the rates and do you think we should consider maybe public interest or public policy issues CSB REPORTING Wilder , Idaho 3079 BRILZ (Com-Reb) Idaho Power Company83676 when we set those rates? Certainly, the Commission has the ability to consider public policy, public issues in setting the rates.What attempting to suggest rates that have cost basis starting point for the rates that are set for Idaho Power Company. And to the extent that generally the Commission set rates that are in proportion to the cost study, we ve kind of used that for our basis, too; right? That is correct.There are two components to setting rates, however.The first is setting the revenue requirement for the class and the second is then within the class how do you set rates to get fair and equitable treatment for all the customers or as many customers in the class as you can. Well , I want to talk about within the class and the blocked rates because this is not - - this is something we have experience with with another utility where we set a 25 percent higher rate in the summer for every little drop of water that gets used and it's been difficult for me to listen to the customers who don like it saying my usage is steady year-round and why am being penalized in the summer , so it occurs to me that it's kind of philosophical how you view the peak. CSB REPORTING Wilder , Idaho 3080 BRILZ (Com-Reb) Idaho Power Company83676 Do you view the peak as that usage that' over the remainder of the year usage or you can have the philosophical view that every single kilowatt-hour contributes to the peak and, therefore, you must pay more for every single kilowatt, so I assume you re in the latter camp? My view is that it isn I t the absolute quantity that you consume that really determines the cost, it's when.We currently don I t have the ability for residential customers to capture the when part.We do not have the time of use in place for residential customers. So this sounds like a perfect argument, one I think I I ve been making, for a quick deployment of smart meters in the residential class. My belief is that moving to seasonal rates where we do not have blocking, but we have the seasonal rates that starts getting residential customers tuned into the idea that there's some time component to their rates, to the costs of providing them service, is a good starting point and is a logical step for them moving into a time of use rate structure for residential customers and with the deployment of the automatic meter reading phase one in our Emmett and McCall areas this summer, that sets the perfect stage for preparing them for that CSB REPORTING Wilder , Idaho 3081 BRILZ (Com-Reb) Idaho Power Company83676 next step, so my statement that I don't believe there s a cost basis for blocked rates is that you don't know when that kilowatt-hour consumed takes place and customers that just happen to get over that threshold may be doing everything they can to conserve, but because of when their meter is read, they jump into that next block , they aren't able to control that total bill by conserving because it's a fact that they ve gone over that block that increases their bill.When all kilowatt-hours have the same price signal and are valued the same , customers have the ability, I believe, to manage their bills more directly. Well , I think we re going to disagree on that point, but I'd like to look at your Exhibit No. 76 and I guess my first question is this is for June through August, do you have data for the other months of the year? I have data. looks like. And if you were in the camp that thought I don't have it wi th me. Because I'd just like to see what that Okay. that some blocking might be appropriate in order not to be too regressive on people who might use below a certain kilowatt-hour usage each month, it looks to me like maybe CSB REPORTING Wilder , Idaho 3082 BRILZ (Com-Reb) Idaho Power Company83676 300 would be a good block , because you've got about, what , 13 percent on average through the summer use this much or less which means , what, 87 percent of people use more , so you're still getting your price signal, but to the extent you have people who don - - who just use this much year-round, then they I re not being asked to pay the higher summer surcharge.Do you want to respond to that idea? Yes, I'll respond to that.I still do not support blocked rates , would not recommend them in this proceeding; however , I would say that 300 kilowatt-hours is a better level if you I re going to set blocked rates than 800 kilowatt-hours as proposed by Staff. Well , and even I can see that.All right, when you talked about your intraclass subsidies, you clarified under questions I think by Mr. Purdy what you meant in the residential class , is that what you mean in the other classes, too? That certain customers within a class are paying more than their cost of service and others are paying less, yes. It's all related to how you set the costs or the cost recovery for the fixed portion of the costs? Well , for residential and small CSB REPORTING Wilder , Idaho 3083 BRILZ (Com-Reb) Idaho Power Company83676 commercial , it is because there's only those two components.When you get to the other classes that have demand metered service, then you have another component that you can address in trying to minimize that intraclass subsidy. But you still think there's intraclass subsidies there? , yes. And what is that result? It results from not having the individual rate components set equal to cost.The energy component on our customer service schedules still tend to include more than just energy costs. So it is all kind of related to loading your definition of fixed costs into an energy rate? For the rate designs that we have in place, yes. Okay, I guess my final question is we know you don I t like blocked rates , we know the Company didn' propose them , but if the Commission wants to do it, can you?Is your bill - - I mean , in my experience , billing systems are sometimes very difficult in terms of things you want to do. Yes , we can do that.I I ve been assured that our billing system can handle blocked seasonal CSB REPORTING Wilder , Idaho 3084 BRILZ (Com-Reb) Idaho Power Company83676 rates. And on page 20 of your testimony, you recommend time of use rates for Schedule 19 customers be implemented and evaluated prior to offering them to Schedule 9.How long do you think that would take? You know , I don I t have a specific set time in mind, although I would suggest that probably 12 months would not be unreasonable to have in place for Schedule 19 before we suggest moving to Schedule Would that be 12 months of rates , final rates, in place or 12 months including the pilot if the Commission decided to go that way? Well , it would be my preference to have it 12 months after we finally get the rates in place. COMMISSIONER SMITH:Thank you. Do you have redirect, Mr. Kline? MR. KLINE:No. COMMISSIONER SMITH:Thank you. (The witness left the stand. MR. KLINE:Madam Chairman, we have two witnesses remaining, Ms. Fullen and then Mr. Gale, and I guess we need to finally be sure that Mr. Said is done. As we had discussed previously, it was not our intention to spread Mr. Said's testimony for the reasons that we had stated.I m assuming that I s still the Commission' CSB REPORTING Wilder, Idaho 3085 BRILZ (Com-Reb) I daho Power Company83676