20060417Vol I.pdf

ORIGINAL
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
) CASE
'.'
IN THE MATTER OF THE APPLICATION
OF IDAHO POWER COMPANY FOR
AUTHORITY TO INCREASE ITS BASE
RATES AND CHARGES FOR ELECTRIC
SERVICE IN THE STATE OF IDAHO
NO. IPC-E- 05 -
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BEFORE
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COMMISSIONER MARSHA SMITH (Presiding)
COMMISSIONER PAUL KJELLANDER
COMMISSIONER DENNIS HANSEN
PLACE:Commission Hearing Room
472 West Washington
Boise , Idaho
DATE:April 11, 2006
VOLUME I - Pages 1 - 83
CSB REpORTING
Constance S. Bucy, CSR No. 187
17688 Allendale Road * Wilder, Idaho 83676
[phone] * [phone]
Email csb~spro.net
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For the Staff:Donald L. Howell, II, Esq.
and Cecelia A. Gassner, Esq.
Deputy Attorney Generals
472 West WashingtonBoise, Idaho 83720 - 0074
Barton L. Kline, Esq.
and Monica B. Moen, Esq.
Idaho Power Company
Post Office Box 70
Boise , Idaho 83707-0070
RI CHARDSON & 0 I LEARY
by Peter J. Richardson, Esq.
Post Office Box 7218
Boise , Idaho 83702
RACINE , OLSEN , NYE , BUDGE
& BAI LEY
by Randall C. Budge, Esq.
Post Office Box 1391
Pocatello, Idaho 83204-1391
Lawrence A. Gollomp, Esq.
Assistant General Counsel
U. S. Department of Energy
1000 Independence Ave., SWWashington, DC 20585
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:
(Telephonically)
For The United States
Department of Energy:(Telephonically)
For NW Energy Coalition:
For Micron Technology,
Inc. :
CSB REPORTING
Wilder , Idaho 83676 APPEARANCES
WITNESS EXAMINATION BY PAGE
Anthony Yankel(Irrigators)Prefiled Testimony
Randy Lobb(Staff)Mr. Howell (Direct)
Prefiled Testimony
Commissioner Smith
John R. Gale
Idaho Powe r )
Mr. Kline (Direct)
Prefiled Testimony
Commissioner Smith
CSB REPORTING
Wilder , ID 83676 INDEX
Premarked
Admi t ted
Premarked
Admi t ted
premarked
Admi t ted
Premarked
Admitted
PAGENUMBERDESCRIPTION
FOR THE STAFF:
101. Motion for Approval of Stipulation
102. IPCo , Summary of Revenue Impact
Settlement Proposal
FOR THE IDAHO IRRIGATION PUMPERS:
201. IPCo, Development of Weighted
Demand & Engery Allocators
202. IPCo, Class Cost of Service Study
CSB REPORTING
Wilder, Idaho 83676 EXHIBITS
BOISE, IDAHO, TUESDAY, APRIL 11,2006,9:30 A. M.
COMMISSIONER SMITH:Good morning.This
is the time and place set for a hearing before the Idaho
Public Utilities Commission in Case No. IPC-05-28,
further identified as in the matter of the application of
Idaho Power Company for authority to increase its base
rates and charges for electric service in the State of
Idaho.
We'll begin this morning by taking the
appearances of the parties and we'll begin with the
Company.
MR. KLINE:Barton L. Kline appearing on
behalf of Idaho Power.
COMMISSIONER SMITH:And for the Staff.
MR . HOWELL:For the Commission Staff,
Donald L. Howell , Deputy Attorney General , and Cece
Gassner, Deputy Attorney General.
MR. EDDIE:William Eddie here on behalf
of Northwest Energy Coalition.
COMMISSIONER SMITH:You re getting ahead
of me, Mr. Eddie.How about forI have a system here.
the Idaho Irrigation Pumpers Association?
MR. BUDGE:Randy Budge via conference
CSB REPORTING
Wilder, Idaho
COLLOQUY83676
call.
COMMI S S lONER SMI TH :Welcome , Mr. Budge.
I can barely hear you.I don't know if that's my problem
or if you could just speak a little louder when you wish
to be heard.
MR. BUDGE:Thank you.I III speak
louder.
COMMISSIONER SMITH:That's better.Thank
you.How about the Industrial Customers of Idaho Power
Company?
MR. RICHARDSON:Good morning,
Madam Chairman.Peter Richardson on behal f of the
Industrial Customers of Idaho Power.
COMMISSIONER SMITH:And for Micron.
MR. WARD:Conley Ward for Micron.
COMMISSIONER SMITH:And for the United
States Department of Energy.
MR . GOLLOMP:Good morning, Commissioners.
Lawrence Gollomp on behalf of the DOE.
COMMI S S lONER SMI TH :Welcome, Mr. Gollomp.
Sorry we couldn t arrange to have you here in person.
MR. GOLLOMP:I would have loved to have
been there.
COMMISSIONER SMITH:Okay, and finally,
for Kroger Company?I s there anyone appearing on behal
CSB REPORTING
Wilder , Idaho
COLLOQUY
83676
of Kroger?Let the record reflect that there is no one
representing the party Kroger , and with that, it appears
that all parties have been accounted for.
Mr. Kline, is there any preliminary
matters that need to come before the Commission before we
begin with the testimony and do the parties have an
agreement on the order of the testimony?
MR. KLINE:m not aware of any
preliminary matters , Madam Chairman , and we haven
discussed an order of presentation.I think
COMMISSIONER SMITH:Normally the Company
goes first , but it appeared to me that Mr. Gale responded
to the testimony of others , so it occurred to me that we
could do it either way.
MR. KLINE:I have no preference, but I
think you are correct.Mr. Gale filed both supporting
testimony and rebuttal testimony.
MR . HOWELL:Madam Chairman, the only
preliminary matter that the Staff is aware is possibly
taking up the Irrigators I motion to excuse Mr. Yankel.
don't know if you want to do that at this time or when
you call upon them.
COMMISSIONER SMITH:Mr. Budge, do you
have a druthers on that?
MR. BUDGE:No preference either way,
CSB REPORTING
Wilder , Idaho
COLLOQUY83676
whichever the Chair prefers.
COMMISSIONER SMITH:Okay, why don't we
start with you , then, Mr. Budge.
MR. BUDGE:Thank you , Madam Chair and
members of the Commission.We did file on behalf of the
Irrigators last Friday, I believe, a motion to spread the
testimony of Tony Yankel and excuse him as a witness and
prior to filing that , we did receive confirmation from
the Company, Mr. Kline, and also the Staff through
Mr. Howell that they would have no obj ection to that
motion.We did serve it on all parties electronically as
well and inquired if they had any obj ection to please
notify us so we could make other arrangements and none
was received back , no response was received back and so
we assume that there's no objection, and our motion was
primarily intended to save time and expense of appearing
in Boi se wi th Mr. Yankel as well as mysel f, and I would
mention for the benefit of the Chair and the parties we
do contemplate filing probably tomorrow just some brief
comments along with our application for intervenor
funding and those comments will address , again, our
support for the settlement stipulation unequivocally and
provide further explanation for why the testimony was
filed in the first place which relates to the support of
our intervenor funding application and I don't think we
CSB REPORTING
Wilder , Idaho COLLOQUY83676
need to go into that now , but I simply wanted to make
that explanation because there was some confusion as to
why that would have been filed after the settlement
stipulation and I will provide separate explanation on
that.
COMMISSIONER SMITH:Okay, we'll just
confirm with the parties now.Is there any obj ection to
the motion of the Idaho Irrigation Pumpers?
MR. RI CHARDSON :We have none , Your Honor.
COMMI S S lONER SMI TH :Thank you.
MR. KLINE:Nor does Idaho Power.
COMMISSIONER SMITH:Mr. Ward?
MR. WARD:I don't have an obj ection to
the motion.I just would like to at some point, and this
seems as good a place as any, to make it clear that the
fact that we have not responded to Mr. Yankel' s testimony
does not mean acquiescence in any way, shape or form.
are simply trying to get one of the benefits of the
settlement which is to get rid of further litigation
costs , so that I s the sole reason why we have not
responded to that testimony.That being said , I have no
obj ection to the motion.
COMMISSIONER SMITH:Thank you, Mr. Ward.
Seeing no other obj ection , any questions or comments by
the Commission?Then we will grant the motion of the
CSB REPORTING
Wilder , Idaho COLLOQUY83676
Idaho Irrigation Pumpers to excuse Mr. Yankel and we I 11
note that I think comments by Mr. Ward and in the
testimony of Mr. Gale indicate that the silence does not
denote acceptance of any of the controversial issues
which may appear in Mr. Yankell s testimony.
MR. GOLLOMP:Madam Chairman , this is Mr.
Gollomp.I I m sorry to interrupt you because I can't see
what I s going on , but I want to concur in the acquiescence
statements made by Mr. Ward and others regarding the
acceptance of Mr. Yankel' s testimony.
COMMISSIONER SMITH:Well , thank you,
Mr. Gollomp, appreciate it.You'll just have to barge in
the best you can if you need to.
MR. GOLLOMP:I III stay quiet.
COMMISSIONER SMITH:Okay; so with that
then , we will spread the testimony of Mr. Yankel across
the record as if it has been read and without objection
tha t is so ordered.
(The following prefiled testimony of Mr.
Anthony Yankel is spread upon the record.
CSB REPORTING
Wilder , Idaho
COLLOQUY83676
PLEASE STATE YOUR NAME, ADDRESS , AND
EMPLOYMENT.
I am Anthony J. Yankel.I am
President of Yankel and Associates, Inc.My address is
29814 Lake Road, Bay Village, Ohio , 44140.
WOULD YOU BRIEFLY DESCRIBE YOUR
EDUCATIONAL BACKGROUND AND PROFESSIONAL EXPERIENCE?
I received a Bachelor of Science
Degree in Electrical Engineering from Carnegie Institute
of Technology in 1969 and a Master of Science Degree in
Chemical Engineering from the University of Idaho in
1972.From 1969 through 1972, I was employed by the Air
Correction Division of Universal Oil Products as a
product design engineer.My chief responsibilities were
in the areas of design , start-up, and repair of new and
existing product lines for coal-fired power plants.From
1973 through 1977 , I was employed by the Bureau of Air
Quality for the Idaho Department of Health & Welfare,
Division of Environment.As Chief Engineer of the
Bureau , my responsibilities covered a wide range of
investigative functions.From 1978 through June 1979 , I
was employed as the Director of the Idaho Electrical
Consumers Office.In that capacity, I was responsible
for all organizational and technical aspects of
advocating a variety of positions before various
Yankel , DI Irrigators
governmental bodies that represented the interests of the
consumers in the State of Idaho.From July 1979 through
October 1980, I was a partner in the firm of Yankel
Eddy, and Associates.Since that time, I have been in
business for myself.I am a registered Professional
Engineer in the states of Ohio and Idaho.I have
presented testimony before the Federal Energy Regulatory
Commission (FERC) , as well as the
Yankel , DI Irrigators
State Public Utility Commissions of Idaho, Montana , Ohio,
Pennsylvania, Utah, and West Virginia.
ON WHOSE BEHALF ARE YOU TESTIFYING?
I am testifying on behalf of the
Idaho Irrigation Pumpers Association , Inc.(Irrigators)
WHAT I S THE PURPOSE OF YOUR TESTIMONY
IN THIS PROCEEDING?
My testimony supports the Stipulation
in this case.In support of the Stipulation , I address
the following areas that were reviewed by the Irrigators
and that the Irrigators believe the Stipulation
adequately addresses the competing issues in this case.
Power supply costs
Disproportionate growth and
allocation of growth between classes
The Irrigation Load Curtailment
Program
Yanke 1 , DI Irrigators
POWER SUPPLY COSTS
WERE POWER SUPPLY COSTS AN IMPORTANT
ISSUE IN THIS CASE?
Yes.The Irrigators put fort a great
deal of effort addressing the calculation of power supply
costs in this case.The concerns raised in the Company I
filing centered around needing a higher rate of return,
because (according to the Company) the actual results of
the 90: 10 sharing mechanism were not symmetrical.From
the Irrigators perspective the Power Supply Cost mode 1
appeared bias,resulting lnappropriate test year
cost and thus a bias in the 90: 10 sharlng mechanism.
DOES THE STIPULATION SPECIFICALLY
ADDRESS POWER SUPPLY ISSUES THAT WOULD HAVE BEEN RAISED
BY THE IRRIGATORS IF THIS WERE A CONTESTED CASE?
The issues that would have been
raised by the Irrigators are not directly addressed in
the Stipulation.However , Paragraphs 6a and 6d
adequately serve as compromises for purposes of this
case.
Yankel, DI Irrigators
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DISPROPORTIONATE GROWTH ON THE SYSTEM
BEEN UNIFORM?
HAS GROWTH ON THE IDAHO POWER SYSTEM
No.For more than two decades there
has been a maj or imbalance in the growth on the Idaho
Power system between customer classes.
UPON WHAT DO YOU BASE YOUR STATEMENT
THAT THERE HAS BEEN AN IMBALANCE OF GROWTH ON THE SYSTEM
FOR DECADES?
Even the most casual observer should
note that there has been strong and persistent growth on
the Idaho Power system for years and this growth has not
occurred in the Irrigation load.This is most easily
demonstrated by observing the following graphl
000
500
000
500
000
3: 500
000
500
000
500
000
Historic Growth
1980 1985 1990 1995 2000
lHistoric usage data taken from Appendix B of Idaho Power 's 2004 IRP.
Yankel , DI Irrigators
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Over the last 2 5 years , the Irrigation load has been
basically flat, Residential load has increased 45% and
the combined Commercial/Industrial load has doubled.All
customer classes, except the Irrigation class, have
caused the phenomenal growth on the Idaho Power system.
HAS THI S GROWTH IN LOAD BEEN
ACCOMPANIED BY GROWTH IN UTILITY PLANT-IN-SERVICE?
In order to keep up with this growth
there have been significant increases in Plant-In-Service
at all functions as demonstrated by the following graph2
Historic Plant in Service
600
1 ,400 Generation
200
g 1 000
800
T""
600
400
200
1980
Transmission
1985 1990 1995 2000
In the last 25 years , Generation plant has increased $660
million or 80%, Transmission plant has increased $313
million (more than doubled its 1980 level), and
Yanke 1 , DI Irrigators
Distribution plant has increased the most by adding an
additional $685 million (over tripled its 1980 level).
2Data taken from FERC Form 1 for years 1980-2004.
Yanke 1 , DI Irrigators
Gi ven the huge growth in Distribution Plant In
Service , it is worthwhile to look at these accounts in
more detail:
200
150
or-
.,. 100
Distribution Account Values
300
250
UG conduit
1980 1985 1990 1995 2000
As can be seen from the above graph , the
increase in plant in service has occurred in all aspects
of Distribution Plant.What is not readily apparent from
the above graph is the percentage change in various
accounts.The Overhead Conductor account has doubled
while the Poles and Line Transformer accounts have
tripled in the last 25 years.However , the Underground
accounts have gone up to 700% of its level from 25 years.
DOES THE COMPANY I S ALLOCATION METHODS
AND COST OF SERVICE STUDIES PROPERLY REFLECT THE IMPACT
OF THESE GROWTH RATES ON COSTS TO CUSTOMER CLASSES?
Yankel , DI Irrigators
No.Inappropriately, the Company I
cost of service study not only allocates this growth to
the Irrigation class but , in some cases, it actually
allocates a higher percentage of this growth than what is
allocated to non-irrigation customers.This result is on
its face counter- intui ti ve.
WAS THE WORKSHOP THAT WAS INITIATED
AS A RESULT OF THE LAST RATE CASE ABLE TO COME TO ANY
CONCLUSIONS REGARDING THE TREATMENT OF THIS GROWTH?
Al though there was general consensus
among the workshop participants on a number of issues,
the only agreement regarding the treatment of growth in
the Company I s cost of service study is that there is a
disconnect between the classes that were growing and
causing the costs to be incurred and the allocation of
those costs.Regarding whether new growth was properly
covering its cost of service, "The Parties I Final Report
in IPC-04-23" stated:
Most of the workshop time was devoted to
discussion of this issue. The parties agreed that there
was something inherently troubling with the way costs,associated with growth, were allocated. This is
evidenced by the relatively large increase in revenue
requirement allocated to customers whose load and energy
requirements were unchanged or grew only slightly. While
there was agreement that the cost of growth did not
necessarily get allocated to the customer classes that
grew , we were unable to devise a technical remedy to the
allocation procedure that would also satisfy the courts.
Yanke 1 , DI Irrigators
The parties were unable to devise and agree to a
cost -of - service allocation methodology that would
properly allocate the cost of growth , without making a
distinction between new and old customers. Even a search
of what others , around the country, were doing produced
little in the way of an acceptable solution. Therefore
it was concluded that the only remedy is a policysolution. The parties were not willing to agree to the
particulars of such a policy and recommend that the
Commission formulate such a policy in the next rateproceeding. (Emphasis added)
Yanke 1 , DI Irrigators
WERE THE WORKSHOP PARTICIPANTS ABLE
TO DEVELOP A CONSENSUS POSITION THAT DEFINED THE COST
IMPACTS OF GROWTH?
No.As pointed out above, the
workshop participants were not able to develop a
consensus method for allocating the cost of growth in a
manner that was acceptable to all parties.The problem
with attempting to develop a consensus was recognized by
various participants at the workshop.Al though there was
general consensus that there was something inherently
very wrong with the present allocation scheme as related
to its ability to allocate the cost of growth , no one
felt that they could go back to their clients and admit
that they agreed to a methodology that would cost their
client more money-this decision was left to the
Commission.
PLEASE EXPLAIN HOW THE RESULTS OF THE
COMPANY'S CLASS COST OF SERVICE STUDY ARE COUNTER-
INTUITIVE.
The Company's last rate case was only
two years ago.Following the trend that has been in
place for more than two decades, the non- Irrigation load
has increased, while the Irrigation load has either
stayed even or decreased.The following is a comparison
of the coincident demand data utilized in both this case
Yankel , DI Irrigators
and the last case:
Sum of 12 CP I s (MW) 3 2003 2005 Change
153,061 93.
22,071,766 102.
Irrigation 376,732
Non- Irrigation 21,540,493
32003 data comes from Case No. IPC-E-03-13, Company Exhibit 40, the
unweighted data on page 1 , while 2005 data comes from Case No.
IPC-05-, Company Exhibit 41 , the unweighted data on page
Yanke 1 , DI Irrigators
From the above, it can be seen that during the last two
years the coincident demand (MW I S) of the Irrigation load
has decreased 6., while the Non- Irrigation coincident
demands have increased 2. 5 % A similar pattern can be
seen with respect to the annual system peak demand that
occurs in July:
Annual System Peak 2003 2005 Change
Irrigation 783,467 676,221 86.
Non- Irrigation 959,000 048,404 104.6 %
As can be seem from above , the changes in load at the
time of the single annual system peak are even more
striking.During the last two years, the annual
coincident demand of the Irrigation load has decreased
13.7%, while the Non-Irrigation annual coincident demands
have increased 4. 6 % .A similar pattern can be seen with
respect to the annual energy consumption:
Annual Energy Usage 2003 2005 Change
Irrigation 797 613 745,679 97.
Non- Irrigation 477 393 204 846 106.
As can be seem from above, the changes in annual
energy usage follow the same pattern.Over the last two
years the Irrigation usage has decreased 2.9% while
Non-Irrigation usage has increased 6.3%.
Contrary to this outright reduction in demand and
energy responsibility for the Irrigation customers over
Yankel, DI Irrigators
the last two years , the Company's cost of service study
produced counter-intuitive results.A comparison of the
allocated demand related production costs between this
case and the case from just two years ago reveals the
following:
Yankel , DI Irrigators
Production costs! (x$1000)2003 2005 Change
Irrigation $116,616 $124 965 107.
Non- Irrigation $581,685 $589,525 101.
The following chart depicts the fact that the that these
billing determinants have all decreased for the
Irrigators since the last case, but the percentage
increase in production related costs have gone up more
for the Irrigators than the rest of the customers on the
system-basically, the Irrigators are being allocated more
while using less:
110%
Comparison of Allocator Changes
105%
----------
CI) 100%
III
(.)
90%CI)
(.)
CI)
85%
80%
75%
l)..l)..
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Thus, in spite of the fact that over the last two year
the Irrigation demand has decreased (both on a 12 -
basis as well as a peak month basis), while the
Non-Irrigation demand has increased , and overall energy
use has followed the same pattern; the Company's cost of
Yanke 1 , DI Irrigators
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service study assigns an increase in demand related
production cost to the Irrigators of 7% while the rest of
the customers (that actually increased demand and energy
consumption) only get an increase of 1%.
42003 data comes from Case No. IPC-03 -13, Company Exhibit 39, page
3 lines 70 and 71 , while 2005 data comes from Case No. IPC-05-28,
Company Exhibit 37 , page 3 lines 60 and 61.
Yanke 1 , DI lOaIrrigators
This result is not only absurd, but it demonstrates the
inability of the Company I s cost of service model to
address the imbalance of growth that has been taking
place on the Idaho Power system for decades.
DID THE WORKSHOP PARTICIPANTS
RECOGNIZE OR ADDRESS THE ABSURDITY OF THIS RESULT IN THE
COMPANY I S COST OF SERVICE STUDY?
No.It should be pointed out that
the workshop participants did not have before them the
information showing that since the last rate case the
Irrigation load had decreased , while its allocated
percentage increase in costs was larger than that of the
system as a whole.Even without this information , the
workshop participants recognized that there was a problem
regarding the allocation of growth related costs that
needed to be addressed.
DOES THE COMPANY I S COST OF SERVICE
STUDY ATTEMPT TO REFLECT BOTH ACTUAL AS WELL AS MARGINAL
COSTS IN ITS ALLOCATION OF PRODUCTION AND TRANSMISSION
RELATED COSTS?
Yes.It is the Company's position
that the use of both actual and marginally weighted
monthly peak demands and energy usage levels is
appropriate for the allocation of Generation and
Transmission related costs.Ms. Brilz testified:
Yankel, DIIrrigators
The use of marginal cost weighting is
intended to strike a balance between
backward-looking costs already incurredand forward-looking costs to be incurredin the future.
5Brilz direct testimony at page 19.
Yanke 1 , DI 11aIrrigators
I agree with the Company's approach to strike a balance
between backward-looking costs already incurred and
forward-looking costs to be incurred in the future.
Given the uneven growth on the Idaho Power system , I
recommend that the Commission adopt a similar position.
However , as has been demonstrated above , the Company I
present cost of service study does not accomplish this
goal.
The balance between historic and forward looking
costs that is struck in the Company I s study is based upon
half of the allocation being based upon an unweighted
12 -CP allocation that is designed to reflect today' s
share of cost causation on the system6 It is the other
half of the allocation that purports to reflect
forward-looking cost where the maj or problem occurs.The
Company I S method inappropriately takes the same test-year
12 -CP usage characteristics (present day usage) and
combines it with marginal weighting factors that reflect
"forward-looking costs to be incurred in the future" in
order to meet growth.Thus, the Irrigators (as well as
all classes) get assigned costs, based upon weighting
factors designed to reflect growth that is going to be
incurred by the System in the future, but not based upon
the usage/growth that is going to create those costs.
Thus , unrealistic results occur where the Irrigation load
Yankel , DI Irrigators
is decreasing, but the cost of the system growth is being
assigned to it, not based upon future growth of the
Irrigators over the next five years, but based upon the
historic usage of the Irrigators and all other classes.
HOW COULD THE COMPANY I S ALLOCATION
METHODOLOGY BE BETTER ALIGNED TO REFLECT ITS STATED
PURPOSE OF US ING "BACKWARD - LOOKING COSTS ALREADY INCURRED
AND FORWARD-LOOKING COSTS TO BE INCURRED IN THE FUTURE"?
6For purposes of this discussion, I accept this part of the Company'method. However, this approach ignores the lopsided growth that has
taken place for over two decades on the system.
Yankel, DI 12aIrrigators
The simplest way to correct the
Company I S existing study would be to continue to define
"backward-looking costs" as test year costs and
"forward-looking costs" as those anticipated in the
Company's IRP for the next five years (the same five
years as presently used in developing the Company I
weighting factors) The "backward-looking costs" would
simply be costs as they exist today and allocated on the
basis of today ' s energy or 12 -CP as is presently done in
the Company I s cost of service study.The
"forward-looking costs" would be based upon the same
weighting factors developed by the Company associated
with the cost of growth anticipated over the next five
years, but would be allocated on the basis of only the
growth that is anticipated from each rate schedule over
the next five years.The relative share of historic
costs and anticipated costs related to growth would then
be averaged using the Company I s existing procedure in
order to develop a composite allocation factor for use in
spreading test year costs for allocation purposes.
this manner , present costs would be allocated on the
basis of present usage and future costs would be
allocated based upon those classes causing the additional
growth.
HOW COULD THE CHANGE THAT YOU PROPOSE
Yankel , DI Irrigators
BE IMPLEMENTED TO THE COMPANY I S COST OF SERVICE STUDY IN
ORDER TO INSURE THAT THESE COUNTER- INTUITIVE RESULTS DO
NOT OCCUR?
Yankel , DI 13aIrrigators
One very simple change could be made.
Instead of combining these growth related weighting
factors with existing billing determinants , they could be
combined with the same forecasted growth that served as a
basis for these forecasted costs in the first place.
The Company's 2004 IRP that served as a basis for
developing the weighted cost factors can also serve as
the source of the data for the forecasted growth as well.
In Exhibit AJY-, I have simply modified the Company'
allocation weighting procedure to apply the marginal cost
weightings developed by the Company to only the growth
that is expected over the next five years.For example,
the Company I s Exhibi t 46 page 1 takes the January
normalized demand for the Residential class and
multiplies it by a weighting of 0.05 in order to develop
a weighted demand of 55,2647 The original figure of
105 285 is a test year value and not reflective of the
growth that will take place over the next five years.
According to the Company's 2004 IRP8 , the average load
for the Residential class will increase from 513 to 568
average megawatts or 10.7% between 2004 and 2009.The
Company's billing unit of 1 105,285 needs to be modified
in order to reflect the fact that only 10.7% of this
figure will be associated with the cost of growth over
the next five years.
Yankel, DI Irrigators
WHAT GROWTH PERCENTAGE DID YOU
INCORPORATE INTO YOUR REVISION OF THE COMPANY'S COST OF
SERVICE STUDY?
Based upon the Company s 2004 IRp9
the following growth percentages were calculated:
105,285 x 0.05 = 55 264
8Idaho Powers 2004 IRP-Sales and Load Forecast page 33.
9Idaho Powers 2004 IRP-Sales and Load Forecast pages 33-47.
Yankel , DI 14aIrrigators
Residential 10.
Commercial (Sch. 7 , 9 , 40, 42)18.
Industrial (Sch. 19)16.
Irrigation
Special Contracts
System Load 12.
I utilized these percentages as the basis for calculating
the amount of growth (beyond test year billing
determinants) associated with the Generation and
Transmission plant.I made no calculation to reflect the
increase in Distribution plant that is almost as large as
the growth in Generation and Transmission plant combined.
WHAT I S THE IMPACT ON THE COMPANY I S
COST OF SERVICE STUDY WHEN GROWTH RELATED WEIGHTING
FACTORS ARE ONLY APPLIED TO THE GROWTH THAT IS ASSOCIATED
WITH THOSE COSTS AND HOW DO THOSE RESULTS COMPARE WITH
THE NORMALIZED STUDY IN THE COMPANY FILING?
As can be seen from Exhibit AJY-2 and
as summarized for the maj or rate schedules below , there
is a maj or difference between the indexed rates of return
that result from using properly aligned weighting factors
wi th expected growth compared to the Company's Normal i zed
study that does not link future marginal cost weighting
factors with growth.
Yanke 1 , DI Irrigators
Study Res.
329
133
Sch. 9(s)
383
005
Sch. 19 Irr.
Growth Corrected 465 191
Company s Normal i zed 971 571
Yankel , DI 15aIrrigators
Al though the difference between these two cost of service
runs is quite large for some rate schedules, it should
come as little surprise.It has been well recognized by
virtually all parties that the Company's present
allocation method does not properly address the cost of
growth and the fact that for over twenty years the
Irrigators have been getting saddled (under that method)
with costs that they have not placed upon the system.
By way of contrast, the Growth Corrected study
follows more intui ti ve logic.The growth on the system
over the last two-plus decades has not been even across
all classes.Irrigation load has been virtually flat,
Residential load has increased rapidly, but not as
rapidly as Commercial and Industrial load.Given the
growth in average system load10 of 12.7% that is
predicted over the next five years in the 2004 IRP , any
rate group that would be growing less than the average
should be getting a smaller share (compared to its size)
of the marginal costs, while those growing faster should
get a higher percentage.The Irrigation growth is very
low, Residential and Special Contract growth is less than
the average, with Commercial and Industrial load being
above average system growth.Given this picture of the
expected growth , Irrigators should get very little (if
any) of the marginal cost of new plants, Residential and
Yanke 1 , DI Irrigators
Special Contracts should get less than the system
average, and Commercial and Industrial should get a
higher percentage than system average.Gi ven the fact
that the Corrected Growth cost of service run recognizes
the link between growth and the growth related weighting
factors , the resulting indexed rates of return are quite
logical:
The Residential growth rate is somewhat less
than the system average; therefore , the indexed rate of
return goes up a little when compared to the Normalized
study.
10Idaho Powers 2004 IRP Sales and Forecast at page 47 shows sales in
2009 of 15,000 GWh compared to 13 283 GWh in 2004 for a difference of
12.7% .
Yanke 1 , DI 16aIrrigators
The Commercial growth rate is significantly
above system average; therefore , the indexed rate of
return for Schedule 9 significantly drops when compared
to the Normalized study.
The Industrial growth rate is above system
average (but not as much as Commercial); therefore , there
is a substantial drop in the indexed rate of return for
Schedule 19 when compared to the Normalized study.
The Irrigation growth rate is essentially
non-existent; therefore, the indexed rate of return goes
up a great deal when few of the growth related costs are
allocated to it compared to the Normalized study.
DO THE RESULTS OF THE COST OF SERVICE
STUDY IN EXHIBIT AJY-2 REFLECT THE GROWTH DIFFERENTIAL
THAT IS ASSOCIATED WITH THE DISTRIBUTION SYSTEM?
No.Exhibit AJY-2 only reflects
changes to the Company's cost of service study to reflect
growth on the Generation and Transmission system.Over
the last two-plus decades , the growth in Plant-in-Service
associated with the Distribution system has been almost
as great as the Generation and Transmission system
combined.A methodology needs to be adopted for
addressing the growth on the Distribution system as well.
It should be remembered that not only have the Irrigators
had very little impact for the past 20-plus years on the
Yankel , DI Irrigators
cost of the Company's distribution plant , the Irrigators
have virtually nothing to do with the costs associated
wi th the Company I s Underground Distribution costs.
Yankel , DI 17aIrrigators
DO YOU RECOMMEND THE USE OF THE
RESULTS OF EXHIBIT AJY-2 FOR PURPOSES OF DECISIONS
REGARDING RATE SPREAD IN THIS CASE?
If this case were contested, my
recommendations would be to use the results of Exhibit
AJY-2 as the basis for the rate spread.The Irrigators
have been targeted for disproportionate rate increases
for decades based upon studies that do not address the
disproportionate cost of growth on the system.The
Commission should not view the recommendation for an even
spread of the increase in this case as something that is
beneficial to the Irrigators.Such a view could only be
based upon cost of service results that do not account
for the disproportionate growth that has been taking
place on the Idaho Power system.Because the stipulated
increase in this case is small and for a number of other
reasons, the Irrigators are willing to accept an even
spread of the rate increase for purposes of this case
only.
Yanke 1 , DI Irrigators
IRRIGATION PEAK REWARDS PROGRAM
ARE THE IRRIGATORS SUPPORTIVE OF THE
COMPANY'S IRRIGATION PEAK REWARDS PROGRAM?
Yes.The Irrigators have been very
supportive of this program as well as the one offered in
the PacifiCorp service area that interrupts electricity
to irrigation pumps during the summer super-peak hours.
The Irrigation Peak Rewards Program is a workable DSM
program that produces tangible benefits for the Company
as well as all ratepayers.
DO THE IRRIGATORS FULLY AGREE WITH
HOW THE IRRIGATION PEAK REWARDS PROGRAM IS BEING
IMPLEMENTED?
No.Al though the Irrigators are very
supporti ve of the program in general , there are a number
of areas where the Irrigators believe that substantial
improvements can be made.The Irrigators believe that a
general rate case is an appropriate time and place to
review matters related to specific rate schedules such as
Schedule 23.However , the Irrigators recognize that it
is too late this year to make changes to the program that
could be put into effect for this year's irrigation
season.With this in mind, the Irrigators have agreed to
the provisions of paragraph 10 of the Stipulation which
calls for the convening of a working group to review this
program later this fall.
Yanke 1 , DI
Irrigators
open hearing.
(The following proceedings were had in
COMMISSIONER SMITH:Mr. Yanke 1 is not on
the phone; is that correct, Mr. Budge?
MR. BUDGE:Correct.
COMMISSIONER SMITH:So there's no
anticipation that anyone would ask him a question.
MR. BUDGE:That's correct.
COMMISSIONER SMITH:Okay.
MR. BUDGE:Thank you very much.
COMMISSIONER SMITH:You're welcome.
We III move to Mr. Howell.
MR . HOWELL:Thank you, Madam Chairman.
The Staff would call its witness Randy Lobb.
CSB REPORTING
Wilder , Idaho
RANDY LOBB
produced as a witness at the instance of the Staff
having been first duly sworn , was examined and testified
DIRECT EXAMINATION
Mr. Lobb, would you state your name and
spell your last for the record, please?
as follows:
BY MR. HOWELL:
LOBB (Di)
Staff83676
capaci ty?
My name is Randy Lobb.That's L-
Who are you employed by and in what
m employed by the Idaho Public Utilities
m the administrator of the utili ties
Are you the same Randy Lobb that filed
prepared direct testimony on March the 1st consisting of
CSB REPORTING
Wilder , Idaho
testimony and Exhibits 101 and 102?
Yes, I am.
Do you have any corrections to your
testimony and/or exhibits?
I have one correction on page 5 , line
It says, "Staff believes that the $18.1 proposed revenue
increase," it should be "million " so insert "million
So we're not able to slip that past the
Company?All right.
I chose not to try.
Do you have any other corrections to your
, I do not.
If I were to ask you the questions, would
your answers be the same as corrected?
Yes , they would.
Commission.
division.
after 18.
testimony?
LOBB (Di)Staff83676
MR . HOWELL:With that, Madam Chairman,
Mr. Lobb is available for cross-examination, if
necessary, and I would move that his exhibits 101 and 102
be marked for identification.
COMMISSIONER SMITH:Seeing no obj ection,
we will spread the prefiled testimony of Mr. Lobb across
the record as if read and admit Exhibits No. 101 and 102.
(Staff Exhibit Nos. 101 & 102 were
admitted into evidence.
(The following prefiled testimony of Mr.
Randy Lobb is spread upon the record.
CSB REPORTING
Wilder , Idaho LOBB (Di)Staff83676
Please state your name and business
address for the record.
My name is Randy Lobb and my business
address is 472 West Washington Street, Boise , Idaho.
By whom are you employed?
I am employed by the Idaho Public
Utilities Commission as Utilities Division Administrator.
What is your educational and
professional background?
I received a Bachelor of Science
Degree in Agricultural Engineering from the Uni versi ty of
Idaho in 1980 and worked for the Idaho Department of
Water Resources from June of 1980 to November of 1987.
recei ved my Idaho license as a registered professional
Civil Engineer in 1985 and began work at the Idaho Public
Utilities Commission in December of 1987.My duties at
the Commission currently include case management and
oversight of all technical Staff assigned to Commission
filings.I have conducted analysis of utility rate
appl ications, rate design , tariff analysis and customer
peti tions I have testified in numerous proceedings
before the Commission including cases dealing with rate
structure, cost of service , power supply, line
extensions, regulatory policy and facility acquisitions.
What is the purpose of your testimony
in this case?
CASE NO. IPC-E- 05 -03/01/06 LOBB , R.(Di)
STAFF
The purpose of my testimony is to
describe the process leading to the filed Stipulation
(the Proposed Settlement) signed by all parties in this
case and to explain the rationale for Staff I s support.
Please summarize your testimony.
Based on its review of Idaho Power'
rate case filing, a comprehensive audit of Company test
year results of operations and consideration of
outstanding rate case issues , Staff believes that the
comprehensive Proposed Settlement agreed to by all
parties is in the public interest and should be approved
by the Commission.The Company originally proposed a
revenue increase of $43.9 million with a uniform rate
increase of 7.8% to all customer classes.The Proposed
Settlement specifies an annual revenue requirement
increase of $18.1 million or 3.2% spread uniformly
across all customer classes without accepting any
specific class cost of service study.
The primary issues considered in arriving
at the stipulated revenue requirement included use of
actual test year costs in place of estimates, proper
pension expense levels, methods and magnitude of employee
compensation, cloud seeding costs and benefits and the
derivation of net power supply expenses.Staff -proposed
adj ustments for these and numerous other smaller issues
CASE NO. IPC-E- 05 -03/01/06 LOBB , R (Di)
STAFF
established the basis for the stipulated annual revenue
requirement, which represents
CASE NO. IPC-05-03/01/06 LOBB , R. (Di)
STAFF
a $26.9 million (or more than 60%) reduction from that
originally proposed by the Company.
Staff supports the rate design
relationships originally proposed by the Company along
with certain exceptions specified in the Proposed
Settlement: to increase the Schedule 1 and 7 customer
charge to $4.00, and to limit the increase in the energy
rate component for Schedule Staff deems these
exceptions to be reasonable under existing circumstances.
The Stipulation
What are the key components of the
Proposed Settlement?
The key components include:
recommending an annual revenue requirement increase of
$18.1 million or 3.2%; 2) agreement on an 8.1% overall
rate of return without specifically identifying return on
equity; 3) continued use of the previously approved
normalized annual net power supply cost of $45.3 million
including $1.9 million in cloud seeding benefits; and
set aside of the filed cost of service study in lieu of a
uniform revenue increase across all customer classes.
The Stipulation also covers a variety of other
issues including employee incentive pay concepts, the use
of proposed rate relationships with exceptions , Service
Reversion Charges for landlords or property managers, and
CASE NO. IPC-05-03/01/06 LOBB , R.(Di)
STAFF
Irrigation Peak Rewards Program review.The Stipulation
is attached as Staff Exhibit No. 101.
Revenue Requirement
How did Staff identify revenue
requirement issues and what were the primary
considerations in reaching agreement on the stipulated
revenue requirement?
Staff identified issues in this case
by reviewing the Company's rate case filing, conducting a
comprehensive audit of Company test year results of
operations and reexamining issues , recommendations and
Commission Orders associated with the Company's last
general rate case, Case No. IPC-03-13.Staff
identified over 30 potential issues with annual revenue
requirement impacts ranging from $6,000 to $11 million
for each issue.Many of the issues such as pension
expense, forecast vs. actual costs , return on equity and
incentive pay were similar to those addressed in the
previous general rate case.Other issues such as cloud
seeding benefits, normalized net power supply costs and
lease expenses were new to this case.
Staff evaluated each of these issues and
the justification for the proposed revenue requirement
adj ustment to determine at what level they could be
successfully supported at hearing.Staff established an
CASE NO. IPC-E- 05 -03/01/06 LOBB , R (Di)
STAFF
overall revenue requirement target that it believed could
be achieved with reasonable certainty and then negotiated
CASE NO. IPC-05-03/01/06 LOBB , R.(Di)
STAFF
additional less certain adjustments to arrive at an
overall revenue requirement compromise.Staff believes
that the stipulated increase in revenue requirement of
, or some $27 million less than that originally
proposed by the Company represents a reasonable
Settlement in this case.Staff believes that the $18.
million proposed revenue increase balances the needs of
the Company for more revenue with insuring that
ratepayers pay rates based upon reasonable costs.
What was Staff's rationale for
supporting the incentive pay concept described in the
Stipulation?
Staff agreed to accept the employee
pay-at-risk or "incentive pay'l concept because
represents a reasonable shift from a shareholder based
incenti ve plan to a customer satisfaction- and cost
efficiency-based plan.The employee incentive goals
proposed by the Company in this case are directed at cost
efficiencies and customer service considerations that
align the incentives with customer interests consistent
with Commission Order No. 29505.Senior management or
executive pay incentives were excluded from the revenue
requirement.Staff will continue to evaluate the
customer satisfaction obj ecti ves , expense reduction goals
and target incentive levels to assure that they are
reasonable.
CASE NO. IPC-E- 05-2803/01/06 LOBB , R.(Di)
STAFF
Return On Equi
What is the return on equity
specified in the Proposed Settlement?
The Proposed Settlement does not
provide a specific return on equity; rather it specifies
an overall rate of return of 8.1%.The overall rate of
return approved by the Commission in the last general
rate case was 7.85%.
Why have the parties agreed to
establish an overall rate of return but not specifically
state a return on equity?
Of all the revenue requirement issues
addressed by the parties in the Proposed Settlement
return on equity (ROE) was the most contentious.The
Company had proposed a ROE of 11.25% and Staff believed
the current ROE of 10.25% was all that was warranted.
Specifying an overall rate of return is a compromise that
serves all parties interests by eliminating the precedent
of specifically stating the return on equity.
Net Power Supply Cost
Please explain how net power supply
costs were established at stipulated levels.
As a result of its review of the
Company s filing, Staff determined that the net annual
power supply costs of $52 million proposed by the Company
CASE NO. IPC-E- 05-03/01/06 LOBB , R (Di)
STAFF
could not be supported by its power supply cost
methodology.In fact the
CASE NO. IPC-05-
03/01/06 LOBB , R. (Di)
STAFF
methodology seemed to support net power supply costs
significantly lower than the $47.5 million currently
included in rates.Staff also recognized the
considerable discrepancy in calculated net power supply
costs with modest changes in input variables and the lack
of verified methodology results using above-normal water
conditions.
Consequently, Staff could neither support
the Company's power supply cost proposal nor reliably
propose power supply costs below those previously
approved by the Commission.A reasonable compromise was
to continue using the $47.5 million net power supply cost
level and attempt to reevaluate and verify the power
supply cost methodology under above-normal water
conditions.
When might evaluation and
verification be sufficiently completed to establish a
more accurate and reliable net power supply cost level?
Both the Staff and the Company
believe that water conditions at "normal" or
above-normal" levels such as those expected for
2005/2006 may provide an opportunity to either verify the
current power supply cost methodology or provide insight
as to how it might be modified.It is anticipated that
revised or verified methodology will be available for the
CASE NO. IPC-05-03/01/06 LOBB , R (Di)
STAFF
next general rate case.In the meantime, the Power Cost
Adjustment (PCA) mechanism will continue to true-up
annual power supply costs to the extent actual costs
CASE NO. IPC-05-03/01/06 LOBB , R.(Di)
STAFF
vary from those collected in base rates.
Are there any other issues associated
with power supply cost that are addressed in the
Stipulation?
Yes, there are several other issues
addressed by the Stipulation.The first is an additional
reduction in annual net power supply costs of $1.
million to reflect the power supply cost benefits of the
Company's cloud seeding activities.Including this
amount consistently applies the expected cloud seeding
benefit to cost ratio to cloud seeding expenses already
proposed for inclusion in normalized base power supply
costs.
The second issue agreed to as part of the
Stipulation simply updates the normalized annual load
used in the PCA to reflect a 2005 load level of
14,819 152 Mwh. Finally, modification of the PCA load
growth adjustment, raised by the Staff in this case due
to its connection with normalized net power supply costs,
was agreed to be addressed in the 2005/2006 PCA case.
Idaho Power has agreed to file testimony on this issue.
The parties recognize that a determination whether to
modify the current growth adjustment of $16. 84/Mwh will
not be completed before June 1, 2006.
Cost Of Service And Rate Design
CASE NO. IPC-E- 05 -03/01/06 LOBB, R (Di)
STAFF
What have the parties agreed to as
part of the Stipulation with respect to cost of service?
CASE NO. IPC-05-03/01/06 LOBB , R. (Di)
STAFF
The parties have agreed to spread the
revenue requirement increase on a uniform basis to all
customer classes rather than try to apply the results
from the various cost of service studies provided by the
Company.The parties have further agreed that none of
the cost of service studies provided in this case will
constitute precedent in any future rate case.
Why have the parties chosen to
disregard the results of the filed cost of service
studies?
The parties could not agree that the
methodology used in the studies properly allocated costs
to the individual classes.Although modifications in the
study proposed by the Company generally reduced the
allocation to the irrigation class, the irrigation class
was still shown to be charged rates well below cost of
service even though the class received a larger than
average increase in the last general rate case.
Moreover , the cost shift away from the
irrigation class resulted in higher cost allocation to
the large industrial and special contract customers.
Parties representing these classes did not believe an
increase in cost allocation to high load factor customers
was reasonable.The compromise was to agree to a small
uniform increase for all customer classes in this case.
CASE NO. IPC-E- 05 -2 803/01/06 LOBB, R.(Di)
STAFF
The Summary of Revenue Impact by customer class is
attached as Staff
CASE NO. IPC-05-03/01/06 LOBB, R.(Di)
STAFF
Exhibit No. 102.
Given recent attempts to resolve cost
of service differences among the parties, is it
reasonable to delay consideration of cost of service in
this case.
Yes, I believe that it is.Cost of
service was a contentious issue in the last general rate
case, Case No. IPC-E- 03 -13 and yet the Commission applied
a non-uniform rate spread based on cost of service
results.None of the parties believed that cost of
service studies filed in this case sufficiently improved
on the class allocations previously approved by the
Commission.Despite recent attempts to reach consensus
on cost of service methodology, disagreement continues in
this case and will likely continue in the next general
rate case.All parties including Staff agree that a
uniform spread is reasonable under the circumstances.
However , in preparation for future electric rate cases
including those of Idaho Power , Staff intends to
intensify its evaluation of various cost of service
methodologies for presentation and recommendation to the
Commission.
Do the parties to the Stipulation
agree with the rate relationships proposed by the Company
in its direct case?
CASE NO. IPC-05-03/01/06 (Di)LOBB , R.
STAFF
Yes, with a few exceptions.The
parties have agreed to increase the Schedule 1 and 7
customer charge from
CASE NO. IPC-05-03/01/06 LOBB , R (Di)lOa
STAFF
$3.30 per month to $4.00 per month.Al though the
percentage is relatively large the monthly rate impact is
relatively small.In addition, the charge mirrors that
assessed Avista' s electric residential customers in Idaho
and is consistent with Staff I s position that customer
charges should attempt to recover costs associated with
meter reading and billing.The $4.00 amount is still
well below the $5 to $6 level that could be justified on
that basis.
The second exception to the uniform rate
component increase is the change proposed in the
stipulation for Schedule As a compromise in this
case, the parties have agreed to limit the increase in
the energy rate by increasing the other rate components
within the class to levels originally proposed by the
Company in its Application.The energy rate component
would only be increased to achieve the overall 3.
lncrease in the Schedule 9 revenue requirement.Staff
does not oppose this exception originally proposed by a
Schedule 9 party to the case.
Miscellaneous Provisions
Are there any other provisions in the
Stipulation that you wish to address?
Yes, there are two.The first is a
Staff-requested provision for a 60-day delay in the
CASE NO. IPC-05-03/01/06 (Di)LOBB , R
STAFF
Company-proposed implementation of a $10 Continuous
Service
CASE NO. IPC-05-
03/01/06 LOBB , R (Di)11a
STAFF
Reversion Charge.This proposal represents a new charge
for landlords and property managers who request
continuous service when tenants leave and the property
becomes temporarily unoccupied.While Staff agrees with
the purpose and supports the amount of the charge, we
believe that these customers should be made aware of the
changes prior to implementation.
The second provision provides for review
of the Company's Irrigation Peak Rewards Program.The
review to address current operation, program results and
program parameters such as incentive payments and
irrigation system size eligibility was proposed by the
Idaho Irrigation Pumpers Association (IIPA) and supported
by Staff.Staff believes that the review is both timely
and appropriate given that the program has been in place
for a full irrigation season.
Does this conclude your testimony in
this proceeding?
Yes, it does.
CASE NO. IPC-05-03/01/06 (Di)LOBB, R
STAFF
open hearing.
(The following proceedings were had in
COMMISSIONER SMITH:
have any questions?
Mr. Eddie, do you
MR. EDD IE:No questions.Thank you.
83676
Mr. Richardson?
No questions, Your
Mr. Ward?
MR. WARD:No questions.
Mr. Budge?
MR. BUDGE:No questions.
And Mr. Gollomp?
MR. GOLLOMP:No questions.
And Mr. Kline?
MR. KLINE:No questions.
Questions from the
None?Boy, you re getting off easy.I just
In the compensation program for the
employees of Idaho Power Company that the Staff
COMMISSIONER SMITH:
MR. RICHARDSON:
COMMISSIONER SMITH:
COMMISSIONER SMITH:
COMMISSIONER SMITH:
COMMISSIONER SMITH:
COMMISSIONER SMITH:
had one, actually.
EXAMINATION
BY COMMISSIONER SMITH:
Honor.
Commission?
CSB REPORTING
Wilder, Idaho
LOBB ( Com)Staff
supported, in your knowledge of that , could increases of
the employees be tied just to maybe improving water
conditions or good water or is it actually some other
measure by which their compensation could be increased?
My understanding is that the compensation
for employees is tied to expense reductions outside of
good water conditions or improvements in customer service
cri teria and standards.
COMMISSIONER SMITH:Okay,thank you.
Any redirect?
MR.HOWELL:None,Madam Chairman.
COMMISSIONER SMITH:Thank you, Mr. Lobb.
(The witness left the stand.
COMMISSIONER SMITH:Now we'll go to
Mr. Kl i ne .
MR. KLINE:Call Mr. Gale to the stand.
CSB REPORTING
Wilder , Idaho
LOBB (Com)Staff83676
JOHN R. GALE,
produced as a witness at the instance of the Idaho Power
Company, having been first duly sworn, was examined and
testified as follows:
BY MR. KLINE:
DIRECT EXAMINATION
Mr. Gale, could you please state your name
and spell the last name for the record?
CSB REPORTING
Wilder , Idaho
John R. Gale , G-a-
And you are employed by Idaho Power
Company is that correct?
That's correct.
And Mr. Gale, on or about March 16th , did
you prefile testimony consisting of eight pages
testimony in support of the settlement stipulation and
rebuttal testimony?
Yes, I did.
And were there any exhibits that went
along with your testimony?ThereLet me rephrase that.
were no exhibits that went along with your testimony; is
No exhibits.
Okay, thank you.
that correct?
GALE (Di)
Idaho Power Company83676
You made me look, though.
Mr. Gale, do you have any additions or
corrections that you need to make to your prefiled
testimony in support of the settlement stipulation and
your rebuttal testimony?
I don't believe so.
I f I were then to ask you the same
questions today that were contained in your prefiled
testimony, would your answers be the same today?
Yes, they would.
MR. KLINE:With that, Madam Chairman , I
would request that Mr. Gale's prefiled testimony in
support of the settlement stipulation and rebuttal
testimony be spread on the record as if read in its
entirety.
COMMISSIONER SMITH:I f there is no
objection , it is so ordered.
(The following prefiled testimony of Mr.
John R. Gale is spread upon the record.
CSB REPORTING
Wilder , Idaho
GALE (Di)
Idaho Power Company83676
Please state your name and business
address.
My name is John R. Gale and my business
address is 1221 West Idaho Street, Boise, Idaho.
By whom are you employed and in what
capaci ty?
I am employed by Idaho Power Company
(Idaho Power or the Company) as the Vice President of
Regulatory Affairs.
Are you the same John R. Gale that
previously submitted testimony in this proceeding?
Yes, I submitted direct testimony on
behalf of Idaho Power supporting regulatory policy
matters related to the Company s request for general rate
relief.
What is the purpose of your testimony?
I want to express Idaho Power I s support
for the Stipulation that was filed by the parties to
settle all issues arising in this case (Proposed
Settlement) and to urge the Commission to adopt the
Proposed Settlement without material change or condition.
I will also address the testimony supporting the Proposed
Settlement filed by Idaho Public Utilities Commission
Staff Witness Randy Lobb and the Idaho Irrigation Pumpers
Association's Witness Yankel.In the case of Mr. Lobb' s
GALE, Di-Reb
Idaho Power Company
testimony, I want to amplify a few points from the
Company s perspective.
Do you believe that the Proposed
Settlement is in the public interest?
GALE, Di-Reb
Idaho Power Company
Yes.I say this because all parties to
the case have agreed to settle all issues , thus
indicating their satisfaction with the outcome.
believe that the Proposed Settlement is Idaho Power'
first general rate case settlement in its Idaho
jurisdiction.From the Company's particular perspective,
the Proposed Settlement provides the Company with the
ability to update its rates to better reflect current
costs and the ability to economically finance new
investments in infrastructure for its system.
Why was the Company willing to accept in
settlement a lower general rate increase than it
initially filed?
First of all , the Company's actual 2005
expendi tures were less than originally expected.Idaho
Power had originally filed a split test year in October
2005 that consisted of six months of 2005 actual
information and six months of forecast information.
2005 came to a conclusion , the actual expenditures for
2005 were ultimately less than originally forecast.
Other than the difference between the
projected 2005 test year results and the actual results
for 2005, were there other reasons why the Company was
willing to accept a lower revenue requirement?
Yes.The two other maj or adj ustments to
GALE, Di-Reb
Idaho Power Company
the test year were adj ustments to net power supply costs
and to
GALE, Di-Reb
Idaho Power Company
the overall rate of return.Both of these adjustments
are correctly described in Mr. Lobb' s testimony and both
are acceptable to the Company.
Please state why the Company is willing to
accept the adj ustment to its net power supply costs
contained in the Proposed Settlement.
The net power supply cost issue arises out
of the Company s current ability to appropriately model
its power supply costs and the relationship between power
supply costs, water conditions, and gas prices.Because
the Company has experienced an extended period of
drought, there are mixed views on the impact of gas
prices on normalized net power supply costs and the
degree to which gas prices influence electric power
prices in years when water is abundant.After many years
of drought , most parties are not very comfortable in
predicting what electric prices will do under better
water conditions.Because of this uncertainty, the
parties to this proceeding were willing to accept the
continuing use of the existing net power supply costs
until such time as the Company s net power supply cost
model can be reviewed more thoroughly after water
conditions actually improve.This solution was
acceptable to Idaho Power as long as the Company I s loads
were updated to 2005 levels.
GALE , Di-Reb
Idaho Power Company
Please explain the Company I s acceptance of
an overall rate of return that was less than originally
GALE, Di-Reb
Idaho Power Company
requested.
For purposes of the Settlement Proposal,
Idaho Power is willing to accept an overall rate of
return that is lower than originally requested because
the agreed-upon return is higher than the existing rate
and because Idaho Power believes that it can economically
finance its new electric facilities at the agreed-upon
rate of return until such time that either interest rates
and/or risk factors change.
Included in the settlement provisions, is
a statement regarding the appropriate inclusion of
incentive payments in a test year.Why was this
provision important to the Company?
Idaho Power believes that a pay-at-risk
component is important in an overall employee
compensation package because of its ability to positively
influence employee behavior and action.Whenever
pay-at-risk is included in a compensation package, the
question of how much of the pay-at-risk is appropriate to
include in the test year inevitably arises.After much
discussion and thought, the Company believes that a
pay-at-risk component based on customer-oriented
incentives (at their base or target levels) is the best
way to align employee incentives with customer interests.
The provision included in the Settlement Proposal is a
GALE , Di-Reb
Idaho Power Company
recognition of the Company s perspective on that issue by
the other parties to the proceeding.It was important
for the
GALE, Di-Reb
Idaho Power Company
Company to have this provision in the Settlement Proposal
so that Company management, on a going- forward basis,
will have some assurance that it is structuring employee
compensation appropriately.
Do you have any observations regarding the
rate spread provided for in the Proposed Settlement?
Given that this case is the second in a
series of general rate adjustments driven by
growth-related increases to capital and O&M budgets and
given that the Company had just completed a general rate
case in 2003 , when the Company began preparing this case
it recognized that there was a distinct possibility that
this case might settle.In order to facilitate
settlement and avoid unnecessary confrontational issues,
the Company's original filing proposed a uniform percent
increase approach to rate spread to the customer classes.
Further , as indicated in the Company I s original filing,
the Company's cost of service results reach some
different conclusions than past cost of service studies.
Idaho Power does not believe that these new results are
sufficiently conclusive at this time to make major shifts
in rate spread to the customer groups.Future cost of
service studies will help determine whether the 2005
resul ts presented in this case are an anomaly or if there
has been a structural change in the cost of service.
GALE , Di-Reb
Idaho Power Company
Do you have any concluding remarks
regarding
GALE , Di-Reb
Idaho Power Company
the Settlement Stipulation?
Yes.During this proceeding the Company
experienced a willingness by the Commission Staff and the
other parties to address the issues in this case in a
straight-forward manner and to approach the possibility
of settlement in a productive way.The Company is very
appreciative of these efforts by the Staff and the other
parties.
Have you reviewed the testimony of IPUC
Staff witness Randy Lobb?
Yes.
Would you please describe your reaction to
Mr. Lobb' s testimony?
I agree with Mr. Lobb's characterization
of the filed Stipulation that proposes to settle all
issues related to Case No. IPC-E-05-28 (Proposed
Settlement) as well as his description of the Proposed
Settlement process.
Have you read Mr. Yankel' s testimony filed
on behalf of the Idaho Irrigation Pumpers Association
(Irrigators) supporting the Settlement Stipulation?
Yes.
What is your response to Mr. Yankell
testimony?
Let me begin by saying that Idaho Power
GALE , Di-Reb
Idaho Power Company
appreciates the fact that consistent with their
commitment in
GALE , Di-Reb
Idaho Power Company
the Settlement Stipulation , the Irrigators filed
testimony stating that the Proposed Settlement is
reasonable and should be approved by the Commission.
That being said, I am disappointed that the Irrigators
used their testimony in support of the Proposed
Settlement as a vehicle to make a detailed presentation
of their position on several issues which would have been
the subj ect of contention if the parties had not been
able to reach the settlement.I am concerned that the
Irrigators I use of supporting testimony as a vehicle to
insert their side of contested positions into the record
may discourage future settlements of rate cases.
Please explain why you are concerned about
the impact of the Irrigators' testimony on future
settlement negotiations.
If this case had not settled before Staff
and the intervenors filed their direct testimony, I am
sure a number of the parties to this proceeding would
have presented testimony refuting the testimony Mr.
Yankel presented, particularly in the area of the cost of
serving the various customer classes.All of the
parties , in signing the Stipulation , agreed that the
settlement was a compromise of conflicting positions
agreed that the settlement does not set a precedent on
particular issues , and each of the parties essentially
GALE , Di-Reb
Idaho Power Company
agreed to forego presenting its individual positions on
contested issues in order to achieve a settlement
GALE, Di-Reb I daho Power Company
that was fair , just and reasonable.A settlement like
this one is something like a "black box" in which it is
the mutual understanding of the parties that they are all
agreeing to forego the opportunity to advocate their
individual positions in order to achieve a fair , just and
reasonable overall settlement.Some portions of the
Irrigators I testimony in support of the settlement goes
beyond that mutual understanding and , in my opinion
those portions of the testimony border on bad faith on
the part of the Irrigators.
How do you think the Commission should
treat the Irrigators I testimony in support of the
Stipulation?
I hope the Commission will acknowledge
those portions of the testimony that support the
reasonableness of the settlement embodied in the
Stipulation and ignore those parts of the testimony that
I believe are inappropriate for inclusion in testimony
filed to support a "black box" settlement.
Does this conclude your testimony?
Yes , it does.
GALE , Di-Reb
Idaho Power Company
open hearing.
(The following proceedings were had in
MR. KLINE:And since there are no
available for cross-examination.
exhibits to be identified, I would make Mr. Gale
CSB REPORTING
Wilder , Idaho
COMMISSIONER SMITH:
MR. WARD:
Mr. Ward , do you have
No questions.Thank you.
COMMISSIONER SMITH:
MR . RI CHARDSON :
COMMISSIONER SMITH:
MR. EDDIE:
Mr. Richardson?
No questions , Your
Mr. Eddie?
No questions.Thank you.
COMMISSIONER SMITH:
MR. BUDGE:
How about Mr. Budge?
No questions.
COMMISSIONER SMITH:
MR. GOLLOMP:
And Mr. Gollomp?
No questions.
COMMISSIONER SMITH:
MR . HOWELL:
And Mr. Howell?
No questions.
COMMISSIONER SMITH:
COMMISSIONER HANSEN:
And the Commission?
No questions.
COMMISSIONER KJELLANDER:
83676
No.
any questions?
Honor.
GALE
Idaho Power Company
EXAMINATION
BY COMMISSIONER SMITH:
So Mr. Gale, if I were to ask you the same
question I asked Mr. Lobb, what would your answer be?
To the extent that any employee
compensation was part of a rate filing, I agree
completely with Mr. Lobb.The employees can benefit
separately from good water conditions , but that's not
part of anything we would ask the customers to pay for.
COMMISSIONER SMITH:Okay, thank you.
Any redirect, Mr. Kline?
MR. KLINE:No, Madam Chair.
COMMISSIONER SMITH:I s there anything
else that needs to come before the Commission before we
close the hearing?
Mr. Budge, what do you want to do about
Mr. Yanke 1 , s exhibits?
MR. BUDGE:I think we had contemplated
that they would be spread on the record with his
testimony.
COMMISSIONER SMITH:Well , the exhibits
aren I t spread on the record, generally.
MR. BUDGE:, admitted, then.
COMMISSIONER SMITH:Okay, is there any
CSB REPORTING
Wilder , Idaho
GALE (Com)
Idaho Power Company83676
objection to the admission of Mr. Yankel's Exhibits 201
and 2 02 ?Seeing no objection , we will admit Exhibits 201
and 202 , also.
(Idaho Irrigation Pumpers Association
Exhibit Nos. 201 & 202 were admitted into evidence.
COMMISSIONER SMITH:Thank you for your
help, Mr. Gale.You're excused.
(The witness left the stand.
COMMISSIONER SMITH:Does any party see
the need for filing posthearing briefs?
MR. KLINE:No, Madam Chairman.
COMMISSIONER SMITH:I t seems to me that
this has to be a record for the fastest hearing dealing
wi th an Idaho Power rate case that this Commission has
ever seen , so I want to thank all the parties for the
hard work that I know made that possible and we will have
the public hearing tonight at 7: 00 p. m., and we are
anxiously looking forward to the filing of the PCA which
we hope will be better than any filing we've seen in the
past five or six years, so with that , the hearing is in
recess until 7: 00 p. m. tonight.Thank you.
(The Hearing recessed at 9: 45 a. m. )
CSB REPORTING
Wilder, Idaho COLLOQUY83676