20061208Part I.pdf

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BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE PETITION OF
IDAHO POWER COMPANY FOR MODIFICATION)
OF THE LOAD GROWTH ADJUSTMENT FACTOR)
WITHIN THE POWER COST ADJUSTMENT(PCA) METHODOLOGY
Place:
DATE:
HEARING BEFORE
CASE NO. IPC-E-06-
COMMISSIONER MARSHA H. SMITH (Presiding)
COMMISSIONER DENNIS S. HANSEN
COMMISSIONER PAUL KJELLANDER
Commission Hearing Room
472 W. Washington Street
Boise, Idaho
October 30, 2006
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POST OFFICE BOX 578
BOISE, IDAHO 83701
208-336-9208
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ARAN
For the Staff:OFFICE OF ATTORNEY GENERAL
Scot t D. Woodbury
Deputy Attorney General
472 W. Washington StreetBoise, Idaho 83720
For Idaho Power Company:
IDAHO POWER COMPANY
Bart Kline
Senior Attorney
O. Box 70Boise, Idaho 83702
For Northwest Energy Coalition:
ADVOCATES FOR THE WESTWilliam M. Eddie (ISB#5800)
610 SW Alder Street, Suite 910Portland, Oregon 97205
For the Industrial Customers:
RICHARDSON & 0' LEARY
Peter Richardson
Mark R. Thompson
O. Box 7218Boise, Idaho 83702
WITNESS EXAMINATION BY PAGE
GREG SAI D
DX By
CX By
CX By
CX By
CX By
CX By
CX By
CX By
RD By
DR. DON READING
Mr. Kline..................
Mr. Woodbury..............
Mr. Thompson..............
Mr. Eddie................109
Commissioner Hansen..... .120
Commissioner Kj ellander. .125
Commissioner Smith.......125
Commissioner Kj ellander. .127
Mr. Kline................129
DX By Mr. Thompson............ .133
CX By Mr. Woodbury.............170
CX By Mr. Kline................172
PETER WEISS
DX By Mr. Eddie................174
CX By Mr. Wood.................208
CX By Mr. Klein................213
CX By Commissioner Smith....... 216
KEITH HESSING
DX By Mr. Woodbury.............217
CX By Mr. Eddie................240
CX By Mr. Kline................244
CX By Commissioner Smith....... 251
Identified
Said X-1..........
Said X-2..........
Said X-3..........
Reading X-201. . .134
Reading X-205. . .134
Reading X-206...134
Weiss X-301..... 176
Weiss X-302.....176
Weiss X-303.... .176
Hessing X-101. . .218
Hessing X-102... 218
Hessing X-103... 218
INDEX OF EXHIBITS
BOISE, IDAHO, MONDAY , OCTOBER 30, 2006, 9:30 A.
COMMISSIONER SMITH: Good morning, ladies andgentlemen. This is this time and place for public hearing in
Idaho Public Utili ties Commission Case No. IPC-E-O 6-8, further
identified as In The Matter Of The Petition Of Idaho Power
Company For The Modification Of The Load Growth Adjustment
Factor Wi thin The Power Cost Adj ustment (PCA) Methodology.
ll begin this morning -- with introductions,
m Marsha Smith, one of the three commissioners on the Idaho
Commission , and I'm today ' s Chair. To my right is DennisHansen. And to my left is the President of the Commission, PaulKjellander.
So with that, we will begin with the appearancesof the parties.
And we ll begin with Mr. Kline.
MR. KLINE: Thank you, Madam Chairman. My name
m appearing on behalf of Idaho Power Company.
THE COURT: For the staff?
MR. WOODBURY: Scott Woodbury, Deputy Attorney
General for Commission Staff.
COMMISSIONER SMITH: Mr. Eddie.
MR. EDDIE: Good morning. My name is WilliamEddie. I'm here on behalf of the Northwest Energy Coalition.
And with me is Steve Weiss also for the Northwest Energy
Coalition.
is Bart Kline.
COMMISSIONER SMITH:And for the IndustrialCustomers?
MR. RICHARDSON: Thank you, Madam Chair. Peter
Richardson with the firm Richardson & 0' Leary. And Mark
Thompson , also with the firm Richardson & 0 I Leary.
Mr. Thompson is appearing under my supervision.
He is a licensed attorney in Oregon and has a pending
application to sit for the Bar in Idaho.
COMMISSIONER SMITH: Thank you.
Welcome, Mr. Thompson.
MR. THOMPSON: Thank you.
COMMISSIONER SMITH: Are there preliminary
matters that need to be brought up before we begin taking
testimony of the witnesses?
(No response.
COMMISSIONER SMITH: I'm assuming, Mr. Kline, we
will start with your witness?
MR. KLINE: Thank you , Madam Chairman.
I will call Greg Said.
GREGORY W. SAID
produced as a witness at the instance of the Joint Applicants,
being first duly sworn , was examined and testified as follows:
DIRECT EXAMINATION
BY MR. KLINE:Q. Mr. Said, would you, please state your full name and
spell your last name for the court reporter?A. Gregory W. Said, S-A-I-D.Q. And by whom and in what capacity are you employed?A. I I m employed by Idaho Power Company as the Manager of
Revenue Requirement.Q. Mr. Said, in this case you have filed both a direct
and a rebuttal testimony; is that correct?A. Yes, it is.
MR. KLINE: And it is our intention, Madam
Chair, to spread both the direct and rebuttal testimony of
Mr. Said in this case and have him available for cross on both
of those testimonies.Q. (MR. KLINE) Your direct testimony, Mr. Said, consisted
of 16 pages; is that correct?A. Yes.Q. And there were no exhibits that were a part of your
direct testimony; correct?A. Yes.Q. Do you have any additions or corrections that you need
to make to your direct testimony?A. No.Q. Now, with respect to your rebuttal testimony, you
filed 30 pages -- pre-filed 30 pages of rebuttal testimony; is
that correct?A. Yes, it is.Q. And also accompanying your rebuttal testimony were
three exhibits; is that correct?A. Yes.Q. And those were Exhibits 1, 2 , and
Are there any corrections that you would like to make
to your rebuttal testimony?A. Just one. On page 7, line 22 , the pre-filed testimonyread: The Company agreed that. The agreed should be changed to
agrees, so the D should be an Q. Wi th that change, are there any other corrections you
need to make to your rebuttal testimony?A. No.
MR. KLINE: Madam Chairman, with that
would move to spread the direct testimony and the rebuttal
testimony of Greg Said onto the record as read into itsentirety.
And I would the request that the Commission
and 3 for identification.
COMMISSIONER SMITH: If there is no
spread the pre-filed direct and rebuttal
record as it reads and identify Exhibits 1
mark Exhibits 1 , 2,
obj ection , we will
testimony upon the
, and
.25
(The following pre-filed direct and
rebuttal testimony of Mr. Said is spread upon the record.
Please state your name and business address.
My name is Gregory W. Said 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 as the
Manager of Revenue Requirement in the Pricing and Regulatory
Services Department.
Please describe your educational background.
In May of 1975, I received a Bachelor of
Science Degree in Mathematics with honors from Boise State
Uni versi ty.In 1999, I attended the Public Utility
Executives Course at the University of Idaho.
Please describe your work experience with
Idaho Power Company.
I became employed by Idaho Power Company in
1980 as an analyst in the Resource Planning Department.
1985, the Company applied for a general revenue requirement
increase.I was the Company witness addressing power supply
expenses.
In August of 1989, after nine years in the
Resource Planning Department, I was offered and I accepted a
position in the Company s Rate Department.Wi th the
Company s application for a temporary rate increase in 1992
my responsibilities as a witness were expanded.While I
SAID, DI
Idaho Power Company
continued to be the Company witness concerning power supply
expenses , I also sponsored the Company s rate computations
and proposed tariff schedules in that case.
Because of my combined Resource Planning and
Rate Department experience , I was asked to design a Power
Cost Adjustment (PCA) which would impact customers ' rates
based upon changes in the Company s net power supply
expenses.I presented my recommendations to the Idaho
Public Utili ties Commission in 1992 at which time the
Commission established the PCA as an annual adjustment to
the Company s rates.I sponsored the Company s annual PCA
adjustment in each of the years 1996 through 2004 and
supervised the preparation of the PCA adjustment in 2005 and
2006.
In 1996, I was promoted to Director of
Revenue Requirement.At year-end 2002 , I was promoted to
Manager of Revenue Requirement.
What topic do you discuss in your testimony
in this proceeding?
There is only one topic in this proceeding
and that topic is the determination of the appropriate load
growth adjustment rate used for true-up computations wi thin
the power cost adjustment (PCA).
Why did the Company make this filing?
The load growth adjustment rate was raised as
SAID, DI
Idaho Power Company
an issue during the negotiations leading to the Settlement
Stipulation among the parties in Case No. IPC-05-28.
Section 6 (d) of the Stipulation, the Parties agreed that
the PCA load growth rate issue will be addressed
contemporaneously with the Company s upcoming PCA
proceeding, which will be filed on or about April 15, 2006.
This petition for Commission review of the load growth
adjustment rate is being filed contemporaneously with the
Company s PCA application in compliance with the
Stipulation.
Why did the Company file this petition under
a different docket than its PCA Application?
The PCA Application anticipates normal
Commission review with new PCA rates to be implemented on
June 1, 2006.Commission review of the load growth
adjustment rate does not require a conclusion by June 1
2006.
What is the appropriate load growth
adjustment rate at this time?
Idaho Power believes that the appropriate
load growth adjustment rate is $6.81/MWh, the current
embedded PCA-related cost of serving load.
Does the current load growth adjustment
methodology use the embedded PCA-related cost of serving
load you are recommending?
SAID, DI
Idaho Power Company
No.The current load growth adjustment
methodology uses predicted marginal costs of serving load
rather than embedded cost of serving load.The current
approved load growth adjustment rate is $16.84 per MWh.
Please summarize why the Company believes
that the current use of predicted marginal costs of serving
load to determine the load growth adjustment rate is unfair
and should be changed?
The use of predicted marginal costs in the
PCA credits customers with the higher , marginal PCA-related
cost of serving new customer loads even though the Company
is only allowed to recover the lower, embedded PCA-related
costs of serving new customer loads.This mismatch
automatically penalizes the Company when it serves new
cus tomer loads.The Company should be afforded a reasonable
opportuni ty to recover its PCA-related expenses associated
wi th serving new customer loads in a timely manner.The
best way to do this is to match the load growth adjustment
rate to the Company s actual ability to recover its costs by
uslng embedded costs to determine the load growth adjustment
rate.
Historical Backqround of the PCA
Were you the Company witness who recommended
a PCA methodology to the Commission when the PCA was
originally implemented in Case No. IPC-92-25?
SAID , DI
Idaho Power Company
Yes, I was one of three Company witnesses in
Case No. IPC-92-25 ("the original PCA case
testimony introduced the Company-proposed methodology for
the original PCA.
Please define the term "power supply
expenses " as the Company and the Commission have used the
term historically.
The Company and the Commission have used the
term "power supply expenses " to refer to the sum of fuel
expenses (FERC accounts 501 and 547) and purchased power
expenses (FERC account 555) excluding PURPA qualifying
facilities (QF) expenses minus surplus sales revenues (FERC
account 447).For ra temaking purposes, QF expenses have
been quantified separately from other power supply expenses
and are treated as fixed inputs to power supply modeling
rather than variable outputs.
How do PCA expenses differ from power supply
expenses?
PCA expenses include both power supply
expenses and QF expenses.
In the original PCA case, did the Company-
proposed PCA methodology include a load growth adjustment
rate?
No.Under the Company-proposed PCA
methodology, the PCA mechanism would have compared the
SAID , DI
Idaho Power Company
actual PCA uni t cost of serving load in dollars per
megawatt-hour (actual PCA expenses/actual MWh) to the
normalized PCA unit cost of serving load in dollars per
megawatt-hour (normalized PCA expense/normalized MWh.The
difference between the two rates would become the PCA rate.
Under its proposed PCA methodology, the Company envisioned
that 100 percent of the variation in power supply expenses
(including QF purchases) would have been reflected in the
PCA rate.
Did the Commission adopt the PCA methodology
proposed by the Company in the original PCA case?
No.While the Commission adopted many
aspects of the PCA methodology proposed by the Company, the
Commission determined that 100 percent tracking of power
supply expenses would remove any incentive for the Company
to seek the lowest-cost power supply opportunities.As a
result, the Commission adopted a 90 percent sharing
methodology for non-QF power supply expenses.QF expenses,
however , were viewed differently by the Commission.Because
the Company has no discretion whether to enter into QF
contracts, the Commission determined that 100 percent of QF
purchased power expense deviations from base would flow
through the PCA.
Another Commission-adopted methodology
difference from the PCA the Company proposed in the original
SAID , DI
Idaho Power Company
PCA case was that, instead of comparing actual variable PCA
unit costs (in $/MWh) to normalized PCA supply unit costs
(in $/MWh), the Commission adopted a methodology that
compared actual PCA expenses (in dollars) to normalized PCA
expenses (in dollars) This introduces some confusion, at
times, because the terms costs and expenses are often used
interchangeably.
A problem with comparing PCA expenses rather
than comparing PCA unit costs is that the two PCA expense
levels being compared correspond to two different load
levels (i. e., actual and normalized) The Commission
ul timately decided that the actual PCA expense level should
be adjusted to reflect a proxy PCA expense of serving
normalized load levels. In that manner , the proxy for actual
PCA expense of serving normalized loads would be compared to
the normalized PCA expense of serving normalized load and
the difference between the two would be divided by the
normalized sales level to determine the PCA rate.
Other adjustments to the Company s proposed
methodology such as the natural logarithmic function for
forecasting annual power supply expenses were also adopted
by the Commission.Those adjustments are not at dispute in
thi s proceeding.
In the original PCA case, how was the actual
PCA expense of serving actual loads adjusted to arrive at
SAID , DI
Idaho Power Company
the proxy for actual PCA expense of serving normalized
loads?
The difference between actual loads and
normalized loads would be determined monthly as part of the
PCA true-up.It was assumed that typically loads would grow
over time and a load growth adjustment would reduce actual
PCA expenses of serving actual loads to the proxy for actual
PCA expenses of serving normalized loads at the rate of
$16.84 per megawatt-hour for each megawatt-hour of load
growth.
How was the load growth adjustment rate of
$16.84 per megawatt-hour determined?
The $16.84 per MWh load growth adjustment
rate was determined by averaging the Boardman and Valmy fuel
costs.
Did the Staff contend that a load growth
adjustment was required to insure that the Company did not
recover its costs twice?
Yes.Order No. 24806 issued in Case No. IPC-
92-25 recaps the Staff contention as follows:
Staff argues that the power supply costs of serving
differences between normal and actual firm retail
load should be factored out of the PCA. Differences
from normalized firm retail load are caused by
factors such as changes in load and abnormalweather. Staff contends that some differences in
power supply costs are caused by changes in load and
that the associated differences in power supply
costs are not appropriate for PCA treatment. If the
SAID, DI
Idaho Power Company
Company is allowed to increase rates to account for
the power supply costs of serving additional load
and to recover base rates which also include power
supply costs, the Company is double recovering thosecosts. Fuel costs (a component of net power supply
costs) are first paid when load growth customers pay
their electric bills at the end of the month. They
are again paid in the following year after the
Company captures them in its year-end true-up and
spreads them to ratepayers.
wi thout a load growth adjustment , could the
Company double-recover the costs of load growth?
If the Company-proposed methodology had been
adopted, the Company believes that a load growth adjustment
would not have been required and no double recovery would
have occurred.However , because the PCA methodology
originally proposed by the Company was modified to create an
adjustment based upon changes in expense (dollars) levels
rather than changes in unit costs ($/MWh), a potential for
double collection was created.
As growth occurs, how does the Company
recover its power costs?
As loads grow, the Company first recovers PCA
expenses to serve that load growth at the normalized,
embedded PCA-related cost of service rate included in the
base rates of the Company.The PCA true-up mechanism then
tracks actual PCA expenses that include the additional
expenses to serve load growth. Without a credit for the
revenues already received (embedded) the Company would
SAID, DI
Idaho Power Company
collect the fully tracked additional expenses (disregarding
90% sharing) providing, in essence, a second collection of
expenses.The first collection would be at embedded cost
and the second collection would be at actual cost.
What does the Company view as a primary
intent of the PCA?
The Company believes that a primary intent of
the PCA is to allow rates to change annually to replace the
normalized PCA component of base rates with a PCA component
reflective of current (actual) PCA expenses.
In order to remove double collection of PCA
expenses and also be consistent with the PCA intent you have
discussed, what is the appropriate load growth adjustment
rate?
The appropriate load growth adjustment rate
is equal to the normalized embedded PCA-related cost-of-
service expense-rate component of base rates.By crediting
load growth at the normalized, embedded PCA-related cost of
service, expense-rate component of base rates, the Company
recovers current (actual) PCA expenses.
In the original PCA case, did the Staff
propose use of the embedded PCA-related cost of serving load
as the appropriate load growth adjustment rate when they
proposed altering the Company-proposed PCA methodology?
No.The Staff proposed use of the marginal
SAID, DI
Idaho Power Company
cost of serving customer energy requirements as the
appropriate load growth adjustment rate.
In the original PCA case, did the Company
state a position regarding the appropriateness of the Staff-
proposed load growth adjustment rate?
No.At the time the PCA was created, the
Staff's proposed marginal load growth adjustment rate seemed
like a small detail compared to the larger goal of
establishing a PCA mechanism.It was only after some time
had passed that the Company came to realize the impacts of
the penalty introduced by setting the load growth adjustment
at a marginal level rather than an embedded level.
Company Recommendation
Does the Company believe it is appropriate to
credi t the actual costs of serving new customer loads and
recover only the embedded PCA related cost of serving new
customer loads?
No.The Company believes that such a credit
penalizes the Company for serving new customer loads while
at the same time the Company has an obligation to serve
those cus tomers .Just as the Company has no discretion with
regard to QF pricing, the Company also has no discretion not
to serve new customer loads.The Company should be afforded
a reasonable opportunity to recover the expenses associated
wi th serving new cus tomer loads.
SAID, DI
Idaho Power Company
please describe the PCA penalty that results
from use of a predicted marginal cost load growth adjustment
rate as opposed to an embedded cost load growth adjustment
rate.
As loads grow following a test year, the
Company is obligated to serve the additional loads and
receives revenue at the embedded cost levels established for
the test year (for example the $5.24 per MWh established in
1992) .At the same time, the Company incurs additional
costs associated with serving the additional load (these
costs have varied greatly, but let's assume an individual
year actual cost of $30/MWh).These $30 /MWh costs are
included in the PCA, but a credit of $16.84/MWh also occurs
so PCA cost recovery is for $13.16/MWH ($30-$16.84 per MWh)
Adding base rate recovery to PCA recovery results in total
recovery at $18.40/MWh ($5.24+$13.16 per MWh) and a penalty
(non-recovery) of $11.60 /MWh ($30-$18.40 per MWh)
Please note that this penalty is equal to the
difference between the known embedded PCA related cost of
$5.24 and the approved load growth adjustment rate of
$16.84/MWh.If the load growth adjustment rate were equal
to the embedded PCA related cost , no penalty would exist.
The Company has an obligation to serve additional loads but
based upon a load growth adjustment rate higher than the
embedded PCA related costs included in base rates, is denied
SAID , DI
Idaho Power Company
the opportunity to recover the additional expenses incurred
to serve the additional loads.
What was the embedded PCA related cost of
serving customer load requirements at the time the PCA was
originally established?
The normalized level of PCA expenses was
$73,079,128 and the normalized load was 13,952,283 MWh.
Based upon these numbers , the embedded PCA related cost of
serving customer load requirements was $5.24 per MWh.
How does this compare with the current
embedded PCA related cost of serving customer load
requirements?
Consistent with the Stipulation in Case No.
IPC-05-28, the 2005 normalized level of PCA expenses is
$100,916,495 and the normalized load is 14,819,152 MWh.
Based upon these 2005 normalized values, the current
embedded PCA related cost of serving customer load
requirements is $6.81 per MWh.
What has been the change in the normalized
PCA cost of serving normalized load growth during the period
of time between 1993 and 2005?
The normalized PCA cost of serving has
increased from $5.24 per MWh to $6.81 per MWh.
Please describe the incremental changes in
PCA expenses since 1993.
SAID, DI
Idaho Power Company
The change in normalized PCA expenses since
1993 has been an increase of $27,837 367.The change in
normalized loads has been 866,869 MWh.The incremental
change in the normalized PCA cost of serving the additional
886,869 MWh of normalized load growth has been $31.39 per
MWh.
What are the reasons for the increases in
normalized PCA expenses over the last 12 years?
Normalized PCA expenses have increased by
$27 837,367 because normalized power supply expenses have
increased by $7 319,370 and normalized QF expenses have
increased by $20,517,997.
What portion of the load growth from 1993 to
2005 has been served by QF generation?
QF generation in 1993 was 574 710 MWh.
2005, QF generation was 957 041 MWh.Growth in QF
generation has provided 382 331 MWh (43 percent) of the
886,869 MWh of load growth.
What has been the incremental rate for QF
growth?
QF expenses have increased by $20,517,997.
QF generation has increased by 382,331 MWh.The incremental
rate for QF growth has been $53.67 /MWh.
What portion of the load growth from 1993 to
2005 has been served by power supply excluding QF
SAID, DI
Idaho Power Company
generation?
Growth in non-QF generation has provided
504 538 MWh (57 percent) of the 886,869 MWh of load growth.
What has been the incremental rate for non-QF
growth?
Non-QF expenses have increased by $7,319,370.
Non-QF generation has increased by 504 538 MWh.The
incremental rate for non-QF served load growth has been
$14.51 per MWh.
Is the future actual cost of serving load
growth known?
No.
Was the future actual cost of serving load
growth known in 1993?
No.However , we now know tha t the $16. 84
load growth adjustment rate was higher than the $14.51 per
MWh incremental non-QF power supply cost of serving load
growth over the 12 years.
Does this historical reVlew of incremental
non-QF power supply costs change the Company view as to the
appropriateness of estimating a future marginal power supply
cost rate for use as the load growth adjustment rate?
No.The penalty the Company faces when an
estimated future marginal power supply cost is used as the
load growth adjustment rate remains regardless of the
SAID, DI
Idaho Power Company
accuracy of the estimate of future marginal power supply
cost.My discussion of the last 12 years of history merely
points out that the penalty the Company hqs experienced was
greater than the penalty would have been if the estimate of
future marginal power supply cost had been closer to the
embedded PCA-related cost at which the Company served loads.
What is the Company s recommendation for the
appropriate load growth adjustment rate?
The Company recommends a load growth
adjustment rate of $6. 81/MWh, the current embedded PCA
related cost of serving load.
Does this conclude your direct rebuttal
testimony?
Yes, it does.
SAID , DI
Idaho Power Company
Please state your name and business address.
My name is Gregory W. Said and my business
address is 1221 West Idaho Street, Boise, Idaho.
Are you the same Gregory W. Said who
previously submitted direct testimony in this proceeding?
Yes, I am.
What is the purpose of your rebuttal
testimony?
I will respond to what I believe are
incorrect or inappropriate assumptions and conclusions
contained in the testimonies of Commission Staff Witness
Hessing, Industrial Customers of Idaho Power (ICIP) Witness
Reading and NW Energy Coalition Witness Weiss.
Are you sponsoring any exhibi ts wi th your
rebuttal testimony.
Yes.I am sponsoring three exhibits.
Exhibi t No.1 provides documentation for several numbers I
have included in my testimony.Exhibi t 2 is a copy of a
summary opinion by Moody Investment Service describing the
potential adverse ramifications of changes in the PCA
mechanism.Exhibit 3 shows how the fixed cost expense Idaho
Power incurs due to load growth is greater than the revenue
it receives from load growth.
At line 14 on page 3 of his testimony, Mr.
Hessing states that there two parts to the decision the
SAID, Di-Reb
Idaho Power Company
Commission is being asked to make in this case.Do you
agree?
In this case, Idaho Power Company has asked
the Commission to determine the appropriate load growth
adjustment rate to be utilized within the Power Cost
Adjustment (PCA) methodology.Mr. Hessing has stated that
prior to answering this question, the Commission should
first determine whether the Company should be allowed to
recover through the PCA any variable power supply costs
associated with load growth.Based on the filed direct
testimony it is apparent that the parties have differing
opinions as to the purpose to be served by the load growth
adjustment rate.The parties ' recommendations in their
testimony as to the appropriate load growth adjustment rate
are driven by their views regarding the role the load growth
adjustment rate should play in recovering Idaho Power
variable power supply expenses.As a resul t , it appears
that the Commission will need to address the purpose of the
load growth adjustment rate as well as Idaho Power s request
for a determination of the appropriate local growth
adjustment rate.
Please summarize your recollections of the
historical intent of the load growth adjustment rate.
As I stated in my direct testimony, in 1992
the Staff recommended a number of modifications to the
SAID , Di-Reb
Idaho Power Company
Company s original proposal for a PCA, many of which were
adopt~d by the Idaho Commission.One maj or change the Staff
recommended and the Commission accepted was to create an
adjustment mechanism based upon changes in expense levels
(dollars) rather than changes in unit costs ($/MWh).
Adoption of an adjustment mechanism based on expenses levels
created the potential for double collection of power supply
expenses from cus tomers .Idaho Power believes that the
intent of the load growth adjustment rate was to eliminate
the possibility of double collection of power supply
expenses.
Do the other witnesses in this case agree
that eliminating the possibility of double collection of
power supply expenses from customers has been a historical
intent of the load growth adjustment rate?
Yes.At line 1 on page 6 of Dr. Reading
testimony, he states,The load growth adjustment was
implemented by the Commission to prevent the Company from
double-collecting certain costs under the PCA.Mr. Hessing
states at line 12 on page 5 of his testimony that,. "without
the adjustment the Company would double recover the
normalized cost of power supply.NW Energy Coali tion
wi tness Weiss is silent with regard to the historical
purpose of the PCA load growth adjustment rate.
Does Staff Witness Hessing contend that there
SAID, Di-Reb
Idaho Power Company
is an addi tional purpose for the load growth adjustment
rate?
Yes.Mr. Hessing states at line 10 page 9 of
his direct testimony that he does not believe that Idaho
Power Company should be allowed to recover any power supply
costs associated with load growth through the PCA mechanism.
This implies that Staff believes that an additional purpose
of the load growth adjustment rate is to remove from the PCA
the power supply expenses incurred to serve load growth that
occurs between rate cases.
One of the reasons Mr. Hessing cites in
support of his position that Idaho Power Company should not
be allowed to recover the power supply costs of load growth
in the PCA is that "Load growth related power supply costs
are addressed in a general rate case.(Hessing Direct page
, line Please comment on this statement.
Mr. Hessing s statement is incorrect.The
incremental costs of serving load growth between rate cases
is not addressed in general rate cases.In my experience
all of Idaho Power s general rate cases have been based upon
historical test years.As such, normalized power supply
expenses are set using historic periods of time and do not
reflect any expenses associated with prospective load
growth.As a result , the PCA mechanism is the appropriate
and only vehicle for addressing the incremental power
SAID , Di - Reb
Idaho Power Company
supply costs caused by load growth that occurs between
general rate cases.
Another reason Mr. Hessing gives for his
belief that Idaho Power Company should not be allowed to
recover power supply costs attributable to load growth is
that hundreds of utility accounts must be "trued up " in a
general rate case.Is that what occurs in a general rate
case?
Again, Mr. Hessing s statement is incorrect.
The term "trued up " has specific meaning in a PCA context.
In the PCA context , actual variable power supply expenses
are tracked and matched to corresponding variable power
supply revenues.There is no such "true up " in a general
rate case.Rather, the variable power supply component of
rates is established based upon a relatively current, but
historic and normalized, level of variable power supply
expenses.
The Company has no opportuni ty to true-
incremental variable power supply expenses associated with
load growth that occurs between rate cases other than in the
PCA.
Mr. Hessing states at line 25 on page 10 of
his testimony that "It is not fair or reasonable to
exclusively select one group of costs or the other " for
tracking through annual rate adjustments.He states that
SAID, Di-Reb
Idaho Power Company
The only fair way to establish rates is to look at all the
utili ties costs together as is done in a general rate case.
Please comment on these statements.
These statements suggest a misunderstanding
of historic Commission practice and a bias against
adjustment mechanisms in general.The Commission for many
years has successfully used adjustment mechanisms to address
cost recovery between general rate cases for several of the
utili ties it regulates.Intermountain Gas, Avista and Idaho
Power all have variable cost adjustment mechanisms.This
practice indicates that the Commission has already
determined that it is indeed fair, just and reasonable to
isolate individual cost component~ such as purchased natural
gas on power supply costs for specific review outside a
general rate case.
In your prior answer you mentioned
Intermountain Gas Company.Does Intermountain Gas Company
have the ability to recover its purchased gas expense
associated with load growth occurring between rate cases?
Yes.It is my understanding that the
variable gas costs associated with serving additional gas
loads are recoverable through Intermountain Gas s Purchase
Gas Adjustment mechanism (PGA).
Does Intermountain Gas Company s PGA contain
any adjustment that looks like a load growth adjustment?
SAID, Di - Reb
Idaho Power Company
For fixed costs, yes.I believe that
Intermountain Gas a position where additional
consumption by existing or new customers actually reduces
per uni t fixed costs.Intermountain Gas Company estimates
this fixed cost per unit reduction as part of its PGA
mechanism.Idaho Power does not experience declining fixed
costs per unit of consumption as I will discuss later in my
rebuttal testimony.
Does Mr. Hessing cite any other basis for his
posi tion that variable power supply expenses associated with
load growth that occurs between rate cases should not be
recoverable in the PCA?
In my opinion, the only remaining basis for
Mr. Hessing s position that variable power supply expenses
associated with load growth between rate cases should not be
recovered is his interpretation of the Commission s intent
expressed in Order No. 29602 issued in Case No. IPC-92-25.
please explain the basis for your opinion.
As I noted in my direct testimony, there were
many contested issues at the time Idaho Power s initial PCA
was approved.The load growth adjustment rate was only one
of those issues.The Company agreed that, wi th a change
from the Company-proposed PCA based upon changes in costs
per megawatt-hour to the Staff-proposed PCA based upon
changes in expenses (dollars) rather than costs per MWh,
SAID , Di-Reb
Idaho Power Company
there was a potential for double collection of power supply
expenses related to load growth.All parties st~ll agree on
this point.What the Company did not fully appreciate or
address at that time was the Staff's apparent belief that
all power supply costs associated with load growth that
occurs between rate cases should be non-recoverable in the
PCA.As I have stated, The PCA is the only vehicle the
Company has available to recover power supply expenses
associated with load growth occurring between rate cases.
Did Staff address this issue in the Company
general rate case that followed the initial implementation
of the PCA?
No.Mr. Hessing states in his testimony in
the paragraph beginning at line 17 on page 6 that Staff
reviewed marginal power costs as part of its preparation for
Case No. IPC-94-At that time , Staff believed that
their computation of marginal costs at $16. 22/MWh was close
enough to the $16. 84/MWh load growth adjustment rate used
for PCA computation to not require testimony in that case.
The Company also proposed no change to the load growth
adjustment rate in that case.As a result, nei ther the
Company nor the Staff had a clear understanding as to the
position of the other with regard to the appropriate or
intended purpose of the PCA load growth adjustment rate.
When did the Company discover that Staff had
SAID , Di-Reb
Idaho Power Company
a different opinion than that of the Company concerning the
intent of the load growth adjustment rate?
It was only after Staff presented testimony
in the IPC-03-13 case, some nine years later, that the
Company fully understood the difference of opinion that
Staff and the Company had with regard to the application of
the load growth adjustment rate.In the IPC-03-13 case,
the parties proposed that the issue be tabled for future
review.The Commission agreed and the review of that
dispute is the subj ect of this proceeding.
Why is the load growth adjustment rate wi thin
the PCA so significant that it merits its own regulatory
hearing?
Because even relatively small changes in the
rate can shift large dollar amounts.
Please explain.
As page 1 of my Exhibit 1 shows, in Case No.
IPC-06-, the 2006 PCA case, load growth for the April
2005 through March 2006 time period was 611 114 MWh.Based
upon Mr. Hessing s recommendation of a load growth
adjustment rate of $40.87 /MWh, expenses would have been
credi ted by nearly $25 million (611,114 MWh * $40.87 /MWh ~
$24 976,229) .Actual loads were 14,718,687 MWh served at a
net power supply expense of $82 723,371.Accepting Mr.
Hessings proposal would suggest that base level loads of
SAID, Di - Reb
Idaho Power Company
14,107 573 MWh (14 718,687 - 611,114) were served at an
expense of $57,747,142 ($82 723,371 - $24,976,229) and at a
rate of $4.09 MWh.Accepting Mr. Hessing s proposal would
also suggest that the additional load of 611,114 MWh was
served at $40.87 /MWh. Under Mr. Hessing s proposal, the
final 4% of load (611, 114 / 14,718,687 MWh) is assumed to be
served at 30% of total power supply expenses.Under Mr.
Hessing s proposal, only $4.2 million (611 114 MWh x
$6. 81/MWh) out of this nearly $25 million power supply
expense would be recovered by the Company through base rates
while over $20 million would be non-recoverable.The
Company believes that the Commission never intended to
exclude 25 percent of the Company s power supply expense
from recovery in the PCA.To avoid that punitive result the
Commission should now confirm that the intent of the PCA
load growth adjustment rate is to eliminate the possibility
of double collection of revenues and not to eliminate the
Company s ability to recover variable power supply expenses
associated with load growth between rate cases.As my
previous testimony shows, the PCA is the only way the
Company can recover those expenses.
Please quantify the amount of variable power
supply expense Idaho Power can recover through the PCA
mechanism.
Currently, Idaho Power only has a PCA
SAID, Di-Reb
Idaho Power Company
mechanism in its Idaho jurisdiction.As a resul t, the
Company is limited in its ability to collect upward
deviations in power supply expenses to 94% (the Idaho
jurisdictional amount) .A second limiting factor is the 90%
sharing of non-QF power supply expenses.The combination of
the jurisdictional factor and the sharing factor result in a
cap on collection equal to 84.6% (94% * 90%) of the
varia tion in power supply expenses.
The 84.6% collection of variations in power
supply expenses is further reduced by crediting load growth
at greater than the embedded variable power supply costs
rate of $6. 81/MWh.
Based on those percentages , what was the
actual percentage of variation in power supply expenses
allowed for recovery via the PCA and base rates in 2006?
The Company was allowed to recover just under
$21 million via the PCA and nearly $4.2 million (611,114 MWh
x $6. 81/MWh) variable power supply related base rates or
$25.1 million out of the $35 million variation in power
supply expenses.This equates to 71.7%.
What would the percentage have been if Mr.
Hessing s proposed Load growth adjustment rate had been in
place?
The Company would have been allowed to
recover only $10 million via the PCA and nearly $4.2 million
SAID, Di-Reb
Idaho Power Company
via variable power supply related base rates or $14.
million of the $35 million variation in power supply
expenses.This would equate to only 40.6%.
Is the Company concerned that a change to the
load growth adjustment rate in the magnitude proposed by
Staff Wi tness Hessing could have other negative impacts?
There are indications that such a change
could have a negative impact on Idaho Power s credit rating.
The financial community has indicated that it will look very
carefully at any material change to the PCA.For example
my Exhibit 2 is a copy of the October 6, 2006 Summary
Opinion on Idaho Power Company from Moody s Investment
Service.In that report on Pages 2 and 3 under the heading
What Could Change the Rate - Down Moody s includes
...
any
unexpected change that comprises the PCA mechanism. . ." as
one of the events that could adversely affect Idaho Power
credit rating.
Let's move next to Dr. Reading s testimony.
At line 8 on page 7 of his testimony, Dr. Reading states
that the load growth adjustment rate in the PCA prevents the
Company from "collecting an amount that would automatically
compensate the Company for the marginal costs it incurs to
meet new loads.Do you agree?
Yes.Dr. Reading is pointing to the very
penalty for load growth I described in my direct testimony.
SAID, Di-Reb
Idaho Power Company
Dr. Reading acknowledges in his statement that the Company
incurs variable power supply expenses that it has no
opportuni ty to recover in the PCA.The PCA is the very
mechanism designed to review variable power supply expenses.
As I have testified, the Company has no opportunity to
recover these expenses in general rate cases or by any means
other than the PCA.
Dr. Reading suggests at line 14 on page 8 of
his testimony that if the power supply costs associated with
load growth are not removed from the PCA, "Idaho Power
customers would lose the opportunity to be involved in the
review of the prudency of those costs.Is this true?
No.The prudency of power supply costs
included in PCA computations is reviewed every year by PUC
Staff.Historically, when Staff, in its review of power
supply expense has identified specific power supply expenses
that require additional review beyond the PCA time frames,
the Commission has allowed additional time for a more in-
depth review of such expenses.Parties other than Staff
also have the same opportunity to review power supply
expenses.
More importantly, power supply costs
associated with load growth are not differentiated from
power supply costs to serve existing loads.There is no
reason that the prudency review for one component of power
SAID, Di - Reb
Idaho Power Company
supply costs (i. e., load growth) should be different than
the review of another component of power supply costs (i. e. ,
test year loads)
You have stated in your rebuttal testimony
that the Company did not fully understand the Staff position
on the load growth adjustment rate in 1992 when the
Commission adopted the Staff position on that issue.Dr.
Reading states at line 13 on page 10 of his testimony that
the Commission had ample opportunity to consider, and
decide, on the record that the load growth adjustment should
not be based upon embedded average costs.Has Dr. Reading
accurately described the record in that case?
No.Dr. Reading cites Commission Order No.
24806 to support his contention.Order No. 24806 actually
states that the Commission adopted the load growth
adjustment rate proposed by Staff because "it was the only
method proposed.(Reading Direct Page 9 line 13 quoting
IPUC Order No. 24806, p. 20.A load growth adjustment rate
based upon embedded average costs was not presented in the
original PCA case.I believe that Dr. Reading is
overstating the level of Commission review of the issue in
1992 in order to suggest that this issues does not need to
be fully reviewed by the Commission at this time.
Dr. Reading testifies at line 20 on page
of his testimony that nothing has changed since 1992 that
SAID, Di-Reb
Idaho Power Company
should suggest the Commission revisit the load growth
adjustment rate issue.Do you agree?
No.Dr. Reading ignores the fact that only
one load growth adjustment rate position was presented in
the IPC-92-25 case.He also ignores the fact that there
were different interpretations by the parties with regard to
the intent of the load growth adjustment rate.He concludes
that Idaho Power should have no right to ask for additional
review on the issue now.Mr. Hessing and I disagree with
Dr. Reading on this point and believe that the Commission
should determine the purpose of the load growth adjustment
rate.The Company does not believe that the Commission
intended to create a penalty to the Company for serving
addi tional load.
What load growth adjustment rate does Mr.
Hessing propose for approval at this time?
Mr. Hessing recommends a load growth
adjustment rate of $40.87/MWh.
What load growth adjustment rate does Dr.
Reading propose?
Dr. Reading suggests that the appropriate
load growth adjustment rate could be anywhere from
$36.42/MWh to $48. 81/MWh.
Were ei ther Mr. Hes sing s or Dr. Reading
recommendations for the appropriate load growth adjustment
SAID, Di-Reb
Idaho Power Company
rate determined in conformance with the methodology utilized
by the Commission in 1192 to determine a load growth
adjustment rate of $16. 84/MWh?
No.The Commission s determination in 1992
of $16. 84/MWh as the appropriate load growth adjustment rate
was based on a marginal cost of Idaho Power resources that
could serve additional loads.The methodology used an
average of the costs of Idaho Power Company s two most
expensive base load resources, Valmy and Boardman.Mr.
Hessing now recommends a change of methodology to a marginal
cost approach that compares two power supply model runs.
This new method introduces marginal surplus sales revenues
and marginal purchased power expenses contained in the model
runs to a methodology that previously only looked at the
costs of Company-owned resources on the margin.Dr. Reading
offers two other new methods and suggests that the
Commission adopt a value somewhere in the range suggested by
the two methods.
It should be noted that , whatever methodology
the Commission adopts in this Case , the methodology should
be driven by the purpose for the PCA.Al though Dr. Reading
suggests that the Company cannot now question the
Commission s intent underlying the PCA load growth
adjustment rate expressed in 1992, both he and Mr. Hessing
are comfortable proposing alternate methodologies for
SAID , Di-Reb
Idaho Power Compal~
computing the load growth adjustment rate without presenting
the load growth adjustment rate that would result from a
methodology consistent with the current Commission-approved
methodology.
What would the load growth adjustment rate be
based upon the 1992 adopted methodology?
The Company s two highest cost base-load
resources continue to be Valmy and Boardman. In the IPC-
05-28 case, Valmy cost was $16. 51/MWh and Boardman cost was
$12.62/MWh.The average of these two numbers is $14.57 /MWh.
If the Commission does not choose to confirm
that the sole intent of the load growth adjustment is to
remove the potential for double collection of power supply
expenses that could occur due to load growth , does the
Company believe it is appropriate to change the current
method by which the load growth adjustment rate is
determined?
No.
please describe the fundamental difference
between the currently approved Commisslon methodology for
determinlng the load growth adjustment rate and the
methodology proposed by Mr.Hessing.
under the currently approved Commission
methodology for determining the load growth adjustment rate,
the Commission considered the marginal cost of Company-owned
SAID, Di - Reb
Idaho Power Company
base-load resources likely to be dispatched to meet
addi tional loads.Mr. Hessing s newly recommended
methodology introduces marginal purchased power expenses and
the marginal value of surplus sales into the equation.
please quantify the impacts of introducing
marginal purchased power expenses and marginal surplus sales
revenues in Mr. Hessing s newly proposed methodology.
Under Mr. Hessing s newly proposed
methodology, a base case power supply model run based upon
2005 normalized test year is compared to a second power
supply model run with loads incremented by 10 megawatts.
His result of $40.87 /MWh is what he considers to be the
marginal cost of serving the additional 10 megawatts of
load.However, closer evaluation shows that nearly 7 of the
additional 10 megawatts of load growth, i. e., new native
load, would be served by generation that would otherwise
have gone to surplus sales.Mr. Hessing s proposed
methodology suggests that existing loads should be
guaranteed the value of surplus sales that no longer occur
once the Company has an obligation to serve new native
loads.The Company s cost of serving new native load from
resources that would otherwise be available for surplus
sales should be the resource cost not the surplus sales
value.Similarly, the inclusion of marginal purchased power
costs introduces costs that were not included in the current
SAID, Di - Reb
Idaho Power Company
Commission-approved methodology.Removing surplus sales and
off-system purchases from the equation and just looking
the marginal cost of Company-owned resources results in a
rate of $17 .15 /MWh. This amount is higher than the average
of Boardman and Valmy fuel costs at $14.57 /MWh and reflects
the occasional operation of the Company s combustion turbine
units.The computation of the $17 . 15/MWh amount is shown on
Page 2 of Exhibit
Please compare the two marginal cost
methodologies Dr. Reading recommends to the current
Commission-approved methodology for computing the load
growth adjustment rate.
In a similar manner to Mr. Hessing
approach, Dr. Reading s first methodology recommends
inclusion of marginal purchased power costs and marginal
surplus sales benefits in addi tion to the Commission
methodology that looks only at the marginal cost of Company
owned resources.Dr. Reading s second methodology
recommends the use of Bennett Mountain power plant costs as
the appropriate marginal cost resource.Because Bennett
Mountain is a peaking unit, and would only run a few hours a
year , it is clear that Bennett Mountain would not be the
resource utilized to meet load growth during all hours of
the year.Dr. Reading s use of Bennett Mountain in his
second method sets an artificially high load growth
SAID , Di-Reb
Idaho Power Company
adjustment rate based upon an inaccurate assumption that a
peaking unit is the typical marginal resource throughout the
year.
Does Mr. Weiss have a recommendation for the
appropriate load growth adjustment rate?
No.Instead, Mr. Weiss recommends a major
PCA redesign to create different load growth adjustment
rates by customer class and to further differentiate by
ei ther new loads of existing customers or new loads of new
customers wi thin each class.
Is this recommendation appropriate?
No.
Is Mr. Weiss s recommendation for a major PCA
redesign to create different load growth adjustment rates
for new loads of new customers and new loads of existing
customers in each customer class appropriate?
No.First , to create an appropriate load
growth adjustment rate , the Company believes the incremental
revenue that the Company receives is more appropriately
considered than is the incremental cost of serving new load.
(i. e., eliminate the potential for double collection of
variable power supply expenses associated with load growth
rate cases.
Second, Mr. Weiss seems confused on the
concept of incremental costs as they relate to this issue.
SAID, Di-Reb
Idaho Power Company
A new kilowatt-hour of consumption at any specific point in
time will have the same incremental variable power supply
cost regardless of the customer type (new or existing) or
customer class (residential or commercial for example)
consuming the power.Differences in class cost of service
arise from costs that are evaluated outside of the PCA such
as facilities required to serve customers, rather than
commodi ty price.The infusion of non-power supply expenses
into the PCA mechanism which is designed to address only
power supply expenses is inappropriate.
Much of Mr. Weiss s testimony in this case is
directed at evaluating the additional revenue that the
Company receives as a result of load growth.Please comment
on this testimony.
Unlike Dr. Reading and Mr. Hessing, who for
the most part ignore the revenue side of the equation , Mr.
Weiss focused his attention on revenues generated by load
growth.Because this is a PCA case, the Company believes it
is appropriate to look only at the revenue generated by the
component of rates associated with power supply expenses,
(i. e., the embedded power supply cost of $6. 81/MWh) .
However , Mr. Weiss considers the total additional revenue
generated by the full customer rates as a potential credit
to variable power supply expenses.Idaho Power contends
that other components of the total customer rate are
SAID , Di-Reb
Idaho Power Company
intended to recover costs other than variable power supply
expenses such as distribution, transmission, general and
administrative expenses.These costs should not be credited
to variable power supply expenses.
Please give an example of how Mr. Weiss
considers load growth revenues that are generated by rate
components other than power supply expenses.
On pages 5, 6 and 7 of his testimony, Mr.
Weiss describes what he believes is a reasonable example of
how the Company benefits from load growth.In his example,
he assumes that the Company receives 6.5 cents for all kWh'
of load growth.In response to a Company data request, Mr.
Weiss explained that the 6.5 cents/kWh was his estimation of
the average summer residential rate.This class specific
summer rate includes the 0.681 cents/kWh associated with
power supply expenses and another 5.82 cents/kWh of non-
variable power supply expense related costs.
Is Mr. Weiss s 6.5 cents/kWh total revenue
assumption representative of true Idaho total incremental
revenues.
No.Mr. Weiss's assumption that all load
growth in the residential class occurs during the summer
season immediately skews his analysis.Year round load
growth in the residential class due to increased use of
instant start" televisions and other electronic devices is
SAID, Di-Reb
Idaho Power Company
one example of why Mr. Weiss s assumption is poor.A more
reasonable approach that recognizes that growth can occur in
any class and at any time of year would be to use the Idaho
jurisdictional average retail rate of 4.57 cents/kWh.Page
3 of Exhibit 1 shows ' the computation of the average retail
rate.
Mr. Weiss concludes at line 6 on page 7 of
his testimony that incremental costs incurred by the Company
were 4.5 cents/kWh and as a result the Company would realize
2 cents/kWh of net revenue for residential customers.Is he
correct?
Based upon the 2 cents/kWh correction to Mr.
Weiss s 6.5 cents/kWh revenue assumption I described in my
previous answer , his assumed 2 cents/kWh net revenue
conclusion disappears.In addition, there is also no
revenue to cover the additional costs of distribution and
transmission that would be required to serve the additional
loads.
At line 23 on page 8 of his testimony, Mr.
Weiss states in that incremental fixed costs are "certainly
less than embedded fixed costs.Do you agree wi th Mr.
Weiss s statement?
No.In its discovery in this case, the NW
Energy Coalition requested information regarding the
incremental fixed costs of serving new loads in recent
SAID , Di-Reb
Idaho Power Company
years.Under my supervision, data from the last two general
rate cases was evaluated to determine the incremental fixed
costs of serving new loads between the 2003 test year and
the 2005 test year.Exhibi t 3 contains the data utilized to
create the Company s response.Detail of embedded and
marginal costs by customer class, including separation of
distribution , transmission and generation fixed costs is
included in Exhibit Page 1 of Exhibit 3 shows fixed rate
components by class for the 2003 test year.For example,
the transmission fixed costs for the residential class in
2003 were $4.26/MWh. Page 2 of Exhibit 3 shows fixed rate
components by class for the 2005 test year.The comparable
transmission fixed costs for the residential class in 2005
were $5. 06/MWh.Page 3 of Exhibit 3 shows the incremental
fixed costs by class that occurred between rate cases.
What is the most important information
contained in Exhibit 3 for purposes of this case?
Witnesses in this case suggest that the
Company always benefits from load growth.This suggestion
is incorrect.
wi th the exception of the irrigation class,
the incremental fixed costs of serving new loads for every
component (distribution, transmission and generation)
between the 2003 test year and the 2005 test year were
higher than the embedded fixed costs of serving customers.
SAID , Di-Reb
Idaho Power Company
Mr. Weiss s statement that incremental fixed costs are
certainly less than embedded fixed costs is not supported by
any evidence and is certainly contradicted by Exhibit
The Company currently incurs greater expenses due to load
growth than it receives from load growth.Including
addi tional penal ties for load growth in the PCA methodology
is unwarranted.
Mr. Weiss recommends that the load growth
adjustment rate be increased by $10/MWh to provide the
Company wi th a clear incentive to encourage conservation.
Please comment on this recommendation.
Mr. Weiss suggests that the Company s ability
to recover its power supply expenses should be limited as a
means to encourage the Company to promote conservation
measures.Likewise, Mr. Hessing suggests that the Company
proposal to allow for recovery of prudently incurred power
supply expenses associated with load growth creates a
disincentive to DSM activity.
Currently, a separate case , IPC-04-15,
exists to address methods for removal of disincentives to
DSM activity.Creation of a PCA load growth penalty is not
a means of removing disincentives to DSM activity.Ra ther
it is an anti-growth position that penalizes the Company for
growth trends that are beyond its control such as
immigration to Idaho.DSM programs identified in the
SAID , Di-Reb
Idaho Power Company
Company s resource plan are not designed with the intent to
consistently eliminate load growth.Instead, the Company
DSM programs are intended to reshape or reduce consumption
in a cost-effective manner.The recommendations of Mr.
Weiss and Mr. Hessing to adopt an anti-load growth view are
counter to productive removal of disincentives to DSM
activity.
Are there any other concerns you have wi
Mr. Hessing s proposal?
I believe that Mr. Hessing s recommendation
of a $40.87 /MWh load growth adjustment rate might create a
perverse impact from a conservation perspective.As an
example, assume that all load growth occurs within the Large
Power Service class.(In light of current state and local
efforts to bring new businesses to Idaho, that is not a
completely spurious assumption) .The average Idaho Large
Power Service customer pays $30.90/MWh.For such a
customer, consumption of each additional megawatt-hour costs
$30.90 but results in a PCA credit of $40.78, part of which
flows back to the Large Power Service customer.The impact
is that the more energy the customer uses, the lower the
cost per megawatt-hour.I believe that a customer s ability
to decrease its rates by increasing consumption is not an
effective means to promote conservation.A more effective
conservation approach would be to let all customers
SAID, Di-Reb
Idaho Power Company
experience the true cost of variable power supply costs so
that they will take measures to avoid consumption during
periods of high price.Artificially lowering the price to
customers does not send appropriate price signals to promote
conservation by those customers.Creating PCA credits that
are greater than the embedded cost of variable power supply
artificially and unfairly lowers the price customers pay.
Creating PCA credits that are greater than the total rate
that a customer pays creates an incentive to customers to
consume more in order to reduce per unit costs.
Please summarize your rebuttal testimony.
All parties agree that a principal purpose of
the PCA load growth adjustment rate is to eliminate the
potential for double recovery of power supply expenses.
Idaho Power believes this should be the sole purpose of the
load growth adjustment rate.
Mr. Hessing believes that the Company should
not be allowed to recover any power supply expenses
associated with load growth based upon his contention that
the Company has such recovery opportuni ties in other
ra temaking proceedings.I have demonstrated that this is a
false assumption.
Mr. Reading believes that the Company should
not be allowed to recover any power supply expenses
associated with load growth based upon his contention that
SAID , Di - Reb
Idaho Power Company
such costs cannot be adequately reviewed for prudency wi thin
PCA timeframes. I have pointed out that power supply costs
associated with load growth are no different from other
power supply expenses which have been adequately reviewed
within PCA timeframes since inception of the PCA.
Mr. Weiss recommends a major modification to
the PCA methodology that I have shown to be inappropriate.
In the name of conservation, Mr. Hessing and
Mr. Weiss have recommended adoption of a load growth
adjustment rate that is greater than embedded costs and for
some classes, greater than their total r~te.I have
indicated that I believe their proposal is more in the veln
of a penalty imposed on Idaho Power for things beyond Idaho
Power s control, including its service areas growing
population. Their proposal suggests a punitive approach
rather than a true conservation effort.
Mr. Hessing and Mr. Reading have recommended
new methods for determining marginal costs of supplying
power based upon inclusion of marginal purchased power costs
and marginal surplus sales revenues rather than looking at
the marginal cost of Company-owned resources as was done by
the Commission in Case No. IPC-92-25.I have discussed
the inappropriate impacts of such a change in methodology.
Do you have any additional comments in light
of the testimonies of Mr. Hessing, Dr. Reading and Mr.
SAID, Di - Reb
Idaho Power Company
Weiss.
Yes.Setting the PCA load growth adjustment
at a level that is greater than the embedded variable power
supply component of base rates has precluded the Company
from recovering a portion of its prudently incurred power
supply expenses.While the Company seeks to remove such
non-recovery on a forward-going basis, the potential changes
in the magnitude of the PCA load growth adjustment rate
proposed by Mr. Hessing and Dr. Reading significantly reduce
the value of the PCA to the Company and its customers.
Penalizing Idaho Power for load growth that is beyond the
Company s control is not good regulatory policy nor is it
beneficial to Idaho residents.Idaho Power is pursuing
cost-effective DSM in accordance with its Integrated
Resource plan and the Orders of this Commission.
reali ty, including anti-growth posi tioning wi thin the PCA
will do nothing more than force the Company to file more
frequent rate cases.
Are annual general rate cases the answer to
this problem?
No.So long as historic test years are used
even annual rate cases will not allow the Company to recover
its additional variable costs attributable to load growth.
Please recap the Company s recommendations
regarding the appropriate load growth adjustment rate.
SAID, Di-Reb
Idaho Power Company
The PCA process provides the only opportunity
for the Company to recover variations in its variable power
supply expenses between rate cases , whether incurred to
serve existing loads or new loads.As such, the PCA load
growth adjustment rate should only eliminate the potential
for double recovery of variable power supply expenses.The
appropriate load growth adjustment rate based upon these
criteria is $6. 81/MWh which is the embedded variable power
supply rate.
If the Commission finds that the PCA load
growth adjustment rate should also remove costs associated
wi th serving additional loads, Company-owned baseload
resource costs should be the predominant drivers consistent
with the current approved PCA load growth adjustment rate
methodology.As such, the load growth adjustment rate
should be no higher than $17.15/MWh.
Does this conclude your direct rebuttal
tes timony?
Yes, it does.
SAID , Di-Reb
Idaho Power Company
53 & 54
THIS PAGES INTENTIONALLY LEFT BLANK
With that, I willMR. KLINE:Thank you.
make Mr. Said available for cross-examination.
COMMISSIONER SMITH:Mr. Woodbury, would you
like to start?
MR. WOODBURY:Thank you, Madam Chair.
CROSS- EXAMINAT ION
BY MR. WOODBURY:
Good morning,Mr.Said.
Good morning.
your direct testimony,you indicated that you were
the Company person who designed the PCA Proposal in 1992?
Yes , I was.
Have you reviewed the Commissions ' order establishing
PCA methodology in the 92-25 case?
case?
Yes, I have.
And that was Order No. 24806?
I believe that's correct.
And have you reviewed the Company s testimony in that
Yes.
And you were a Company witness in that case?
I was.
And were there other Company witnesses?
Mr. Gail and Mr. King were alsoYes, there were.
Company witnesses in that case.
Okay.Was it not your understanding that the PCA
approved by the Commission was to provide a mechanism for
recovery of power supply costs related to variations in
hydro-conditions?
I think variations in hydro-conditions was one of the
factors in deriving a PCA -- or establishing a PCA at that time,
yes.
In the
--
that was the factor that the Commission was
addressing in its order?
I think the Commission addressed more than just
variations in water.
It addressed also FMC, and there were other things to?
FMC, variations in fuel costs --
Okay.
-- variations in purchase power, surplus sales -- a
number of factors that could be influenced by more than just
water.
All right.Would you state that the issue for
determination in this case is the appropriate load growth
adjustment rate used for true-up; is that correct?
That I S correct.
And this matter is before the Commission in part
because of a settlement stipulation entered into in the
Company s 2005 case?
Yes.
And do you believe that the Company believes the
appropriate load growth $ 6.81 per MWh; is that correct?
That I S correct.
And that's the current embedded PCA-related cost of
serving load?
That is correct.
Okay.Does the current load growth adj ustment
methodology meet th~ embedded PCA-related cost of serving load
UR recommended?
No.The current load growth adjustment rate is $16.
per MWh , which was derived by taking the average of Boardman and
Valmy fuel costs that existed in 1992.
Okay.And so Idaho power is requesting the change in
the PCA methodology in this case?
Yes.re asking that it be reviewed, and a
determination made as to the appropriate level for the load
growth adj ustment rate.
And that is a change in the methodology because the
Commission in its PCA methodology indicated that the power
supply costs associated with changes in load were to be factored
out of the PCA; correct?
Yes.It is a request for a change in methodology and,
yes --
And that language is reflected in the Commission I
synopsis in that order on page Is that your recollection?
I don t recall page
Do you have a copy of the Commission s order before
you?
I do not.
You can just have that for your reference.Are
increased power supply costs due to growing load problems
associated with fluctuating water conditions?
In part, yes.
And if the water conditions were stable and your load
was increasing, would they be related to hydro-conditions?
If you I re -- 11 m sorry, the first part was if the
water conditions were stable?
Yeah.
If water conditions were stable then , no, they would
not have an impact on the cost of serving additional customers.
But from year to year water does vary; and, therefore, the cost
of serving new customers can be higher or lower based on which
resources are available to serve loads that are embedded and
loads on the margin.
On page 11 of your testimony, a question was asked:
In the original -- and this is your direct testimony:In the
original PCA case, did the Company state a position regarding
the appropriateness of the Staff-proposed load growth adjustment
rate?And your answer was no.Did the Company state a position
regarding Staff I s proposal to factor out of the PCA power supply
costs associated with changes in load?
Yes.We stated that the Company did not believe that
was appropriate.
In your rebuttal testimony on page 2 , you speak of
your recollections of the historical intents of the load growth
adj ustment rate.You stated that you reviewed the Commission
order , and you have reviewed the testimony in that case.And
you indicate that you believe the Commission I s intent was solely
to eliminate the possibility of double collection of the load
growth adjustment rate?
I believe that that was the impression of the Company
after receiving the order , yes.
And that staff believes the additional purpose of the
load growth adj ustment rate was to remove from the PCA the power
supply costs incurred to serve the load growth rate that occurs
between rate distances?
Yes.
And that was the Company I s understanding during the
PCA methodology case , wasn I t it?
We understood that Mr. Hessing s testimony
representing the staff was that the costs associated with load
growth should not be included in the PCA computation.
Okay.Because on page 8 of your rebuttal you ask:
What the Company
--
or you state:What the Company did not
fully appreciate or address at the time was Staff I s apparent
belief that all power supply costs associated with load growth
that occurs between rate cases should be nonrecoverable in the
PCA.That wasn I
--
that was quite apparent in that methodology
case that that was Staff's belief , wasn t it?
The intent of my response at page 8 is that we did not
fully appreciate the impacts of Mr. Hessing I s recommendations
nor did we fully address those aspects.We do believe that at
this point in time in this case Mr. Hessing has provided his
full rationale for his recommendations and that we have
responded to those , specifically with regard to Mr. Hessing I
belief that the load growth that occurs between rate cases can
be properly addressed in a general revenue requirement and that
those costs are somehow trued-up in a revenue requirement case,
which I have testified neither being the case.
On page 10 of your rebuttal testimony, you calculated
a number of
--
a dollar figure of $4. 09/MWh.And in that
calculation, is the uni-cost available to serve base load.
that correct?Tha t 's without CSPP?
Well, that figure is a figure that was backed into by
taking Mr. Hessing I s proposed adj ustment -- and assuming that
it's accurate in terms of quantifying the costs associated with
load being supplied at the margin and subtracting those from the
total costs to back into a base cost.
Is that what that number represents though is the
uni-cost available to serve base load?
Assuming
Taking Mr. Hessing s adjustment of $40.87?
Yes.
Yes.If I could refer you to your exhibit No.1 --
Rebuttal Exhibit No.And that is also identified as
--
the
first page of that exhibit, which is a Schwendiman Exhibit in
the '06 -- it doesn t say that, but that's the 06/07 case, PCA
True-up Calculations?
Yes.
And that's what this page represents?
Yes, it does.
And if I were to take the non QF system normalized net
supply cost, which is line 33, column O?
Yes.
It's 47 688,100?
Yep.
And also the system normalized base load, which is
line 11, column And that's 14 107,573 MWh?
Yes, I see that number.
And if I were to take that 14 million into the 47, I
would arrive subject to your check with a dollar figure per MWh
of $3.38.And would that be the system average cost of serving
base load based upon the Company s true-up calculations
submitted in this year s PCA?
load.
No.That would only be the non QF portion of the base
The non QF portion; that's correct.And the number
that you had, the $ 4.09, was also a non QF number; is that
correct?
Yes, it was.
So those would be comparable numbers.And so that
because you sort of leave it there at $4.09 in your direct
rebuttal testimony; but in fact there is sufficient money to
serve your system average cost of serving base load.It'
greater -- the $4.09 is greater than the 3.38 than the Company
requires.Would you agree?
m not sure you can Jump to that conclusion.The
examples are a little bit different.I would have to give it
some thought to see if they are comparable in the way that you
suggest.
Okay.You indicate that the Commission has allowed --
well , adj ustments for -- PCA adj ustments for both the Avista and
Intermountain Gas Company?
Yes.
And do you know whether or not the adj ustment for
Avista s electric is a marginal-based adj ustment or
embedded-based?
I believe that the orders with regard to the Avista
PCA do suggest that marginal is the basis as well as what our
current orders suggest.
Is based on the marginal adj ustment?
(Nods head.
And with respect to Intermountain Gas, would you agree
that all of the Company s gas supply is purchased?
Yes.
And that marginal cost is equivalent to the embedded
cost for Intermountain Gas?
No.I wouldn t agree with that.I reviewed the
embedded costs as the level that's included in rates at any
gi ven point in time.And the fact they adj ust suggests there is
a change.
But you wouldn t be asking that Intermountain
--
well,
that Idaho Power be treated in the same manner as a gas Company?
There are different factors for Intermountain Gas than
there are for Idaho Power; and, therefore, treatment isn
necessarily going to be identical.The point of my testimony on
Intermountain Gas is that they have a mechanism that's based on
a per-unit cost adjustment , which is what the Company proposed
in the original PCA case.And the methodology was changed to a
methodology based on total dollars rather than per unit cost.
Would you agree that Intermountain Gas Company has no
gas cost embedded in rates?
I guess the nature of that question is that is their
variable gas recovered solely through a power cost adj ustment
rather than having a base that has an adder or subtracter based
on variation in gas prices.
Would you accept subj ect to check that Intermountain
Gas has no gas costs embedded in its rates?
I think they have a rate in effect that includes an
embedded portion.Now , whether that comes from a general case
or a PCA , it may come entirely from a PCA case.
So your answer then is that you don t know?
No.My answer is that they do have an embedded gas
price in their rates at any given point in time.And that may
arise from a general or a PCA tracker case.
You present a number of al ternati ves, I guess, that
that the Commission could use, one of which is a $14.57 per MWh
figure, which is calculated by the average fuel costs of Valmy
and Boardman in the 05-28 rate case.And that's on page 17 of
your rebuttal.
Yes.That number would be an exact match in
methodology to what existed in the 92-25 case.
Do you understand that in the methodology case that
Staff's use of Valmy and Boardman was a surrogate for the
marginal costs that would have been , I guess, developed in the
study, which it didn t have access to?
In my review of that case, I never seen it described
in that manner.It does mention that Valmy and Boardman
represent the two highest cost base-load units on the Company
system at that point in time; and, therefore, are representative
of marginal costs.But the word "surrogate " never was
introduced to my recollection.
An additional number that you present is, I guess,
page 18, 19.It's a rate of $17.15, which you state is the
marginal cost of Company-owned resources; and that it's a higher
number than just the Boardman and Valmy because it reflects the
operation of the natural gas commissions ' codes?
That's correct.What I did to derive that number was
to look at the derivation of marginal costs that Mr. Hessing had
presented in his testimony based on comparison of two Aurora
Runs -- of power supply expenses.One at 2005 base levels, and
one with 2005 base levels incremented by 10 MW and noticed that
in his results he looked more -- he looked beyond just the costs
of the Company-owned generation fleet and looked to the value of
power in the marketplace, which I felt was a deviation from the
methodology in the 92-25 case.So to step back to your idea
that the average of Valmy and Boardman was a surrogate for
another determination , I felt that using the runs that
Mr. Hessing had requested, and removing the outside market
pressures from the computation would provide a number that was
more similar to the methodology approved by the Commission in
92.
If the Commission were to decide in this case going
forward that it would continue with its intent to factor out the
power supply costs associated with changes in load growth and
that the PCA that it approved in '93 was primarily related to
deal with changes in hydro-conditions , do you believe that
continued use of
--
I guess the best way to accomplish that
those costs are removed is continued use of Boardman and Valmy
that was used then; or the full costs average; or a more
accurate and sophisticated , I guess, method would be to
essentially adopt what Staff has proposed in this case?
Well , I don t think what Staff has proposed in this
case is appropriate at all.
Why?
Well, the reasons
--
the justifications that
Mr. Hessing has provided for using marginal are based on an
underlying assumption that the Company has an opportunity to
recover its prudently incurred expenses in another arena.And I
have demonstrated through my testimony that that isn t the case,
that the only arena that is available to the Company at this
point in time is the PCA.
And I understand that that's the Company I s position
wi th respect to the opportunity to recover those costs.But if
the Commission s intent is to factor those costs out of the PCA
so none of those costs are recovered, is the way the Staff
proposes in this case the most efficient way to do that?
The Staff has proposed removing expenses that I don '
believe were initially anticipated by the Commission in that
opportuni ty costs associated with selling power to customers
that are other than Idaho Power Customers should be locked in as
a benefit to Idaho Power customers.So if you are asking me if
the Commission decides that there are a level of expenses
greater than what it has authorized for removal from the PCA in
the past to accept Staff's recommendation , then clearly
accepting Staff's recommendation can best be done by Staff'
methodology.But I don t believe that the Commission should
determine that the quantification of the appropriate adj ustment
is correct for the reasons that I have stated in my testimony.
Do you
--
do you know how many general rate cases that
Idaho Power has had since ' 92?
believe just two.
had one 94,2003,2005?
was don know didn include
because I don t know as it was full general, but I guess perhaps
it was.We added a significant generation unit at that time.
And would I be incorrect then assuming that the
Company s load growth has averaged 2 1/2 to 3 percent each year
since then?
If you were to take a look at the loads today compared
to the loads in 1992, I'm not sure that you would see a steady
load growth of that nature.I think we have had some load
growth , and we have some significant load decline with the loss
of our FMC as a customer.
And that was about 290 MG?
It was about 172 MG, I believe.
Okay.
The full contract was for 250, but they weren t 100
percent load-factor customer.
Over the course of a year, what resources are used by
the Company to serve new load on the margin?
Well, in any given hour throughout the year, it could
be pretty much any resource on our system.It could be a
hydro-plant in a high water condition; it could be any of the
thermal plants; and it could occasionally be our gas-fired
uni t s .And it could on occasions be purchases.
So the two coal plants that are used as a basis for
the load growth adj ustments are used sometimes, but not all the
time?
the system?
On the margin?
Yes.
That's correct.
Would surplus sales decrease if new load was added to
Yes, it would.
If the Commission wants to remove from the PCA the net
power supply costs associated with serving new load, wouldn
the increased cost of generation and reduced revenue from
surplus sales have to be determined to identify the marginal
cost of serving the load?
I guess it depends on how you define "serving the
load. "
How do you define " serving the load"
In my mind the appropriate measurement of the cost of
serving the load is whether or not the Company has a resource to
serve that new load and what the cost of that resource is.The
idea that a resource that is surplus is now available to serve
native load , which the Company has an obligation to serve,
doesn t suggest to me that a benefit that the Company loses
based on an opportunity that it really can t make a choice in
should be used as a detriment to the Company in its ability to
recover its expenses.So in a lot of Mr. Hessing
computations , he would show that we would have the ability to
serve additional load with generation that would come from
potentially a Valmy or Boardman plant that under a base scenario
would be serving surplus.And in my mind the Company has the
abili ty to serve the new load at the cost of Valmy or Boardman
not the lost opportunity of selling to the surplus market at
some other price.
On page 11 of your testimony, you indicate that a
change to the load growth adj ustment rate of the magnitude
proposed by Staff could have an negative impact on Idaho Power
credi t rating?
That's correct.
And did you consult with anybody in including that
or --
Yes, I did.I spoke with Mr. Gail primarily.
And -- but if the purpose of the PCA was to continue,
which was to provide the Company with the revenue
--
not the --
related to changes in the normalized hydro-conditions, would
there be any reason for the financial community to be concerned?
Absolutely.The magnitude of the change that
Mr. Hessing is proposing is to more than double the adj ustment
that currently exists.The adjustment has the sole purpose of
removing expenses from the Company s ability to recover those
expenses.So the more expenses that the Company incurs that
it's not entitle to recover has influence on how we re perceived
by the financial community.
Did the Company provide a written or oral
interpretation of the Commission s order establishing the PCA
methodology to its financial ratings report?
That's possible.m not familiar with the document.
MR. WOODBURY:Madam Chair , Staff has no further
questions.
COMMISSIONER SMITH:Thank you, Mr. Woodbury.
Mr. Richardson?
Thank you, Madam Chairman.WithMR. RICHARDSON:
your indulgence, would you care if Mr. Thompson conducted
cross-examination?
MR. SMITH:That's fine.
Mr. Thompson.
MR. THOMPSON:Thank you.
CROSS-EXAMINATION
BY MR. THOMPSON:
Good morning, Mr. Said.
Good morning.
We have met before and I guess that's good since it'
not a good way to make a first impression is to cross-examine
somebody.Before we start I want to confirm we have a similar
understanding of the issue involved in this case.You can
obviously qualify this as we go throughout today, but would it
be a fair characterization for me to say that Idaho Power
proposes that the load growth adj ustment PCA be set at the level
of Idaho Power s embedded average PCA-related costs of serving
loads?
That's true.
And that's because Idaho Power wants the PCA to work
in a way that would allow it to recover through the PCA its
costs of power supply to serve loads that are new loads; is that
correct?
Yes.New loads incurred between rate cases.
I see.So the loads are in addition to the normalized
firm base loads determined in rate proceedings?
That's correct.And it should be noted that the
mechanism that tracks
growth or weather.
And do you want the PCA on a going-forward basis to
any variation in load, whether it's due
allow the Company to collect variations in power supply costs
that are due to changes in load?
That's correct.
And do you understand the ICIP , Industrial Customers
of Idaho Power and Staff, position believe that the load growth
adj ustment to the PCA should be based on Idaho Power s marginal
power supply cost of serving that new load; is that correct?
I do understand that that I s the position of those two
parties.
And do you understand that ICIP and Staff advocate
this because they believe the PCA should not allow Idaho Power
to collect the power supply costs for serving new loads through
the PCA and that the PCA should only allow Idaho Power to
collect the variable cost of power supply that are caused by
things other than changes in load between rate cases?
That is the position of the two parties.The part
that the Company struggles with is the contention that there is
the ability that the Company has to recover those expenses in
another form.And as my testimony has suggested, that's not the
case.
But you understand that's ICIP and Staff's position?
Yes.The positions of those two parties is that the
Company should not have an opportunity to recover its
prudently-incurred expenses.
Through the PCA?
Through the PCA or any other existing methodology.
And you agree that currently the load growth
adjustment is at a level that is based on marginal costs?
As I stated before, it's based on the average of Valmy
and Boardman costs in 1992 , which Mr. Hessing described as
approximately marginal at that time.
So in your direct testimony you state the current --
and I'm looking at page 4 , lines 1 through The current load
growth adj ustment methodology uses predicted marginal costs of
serving load rather than embedded costs of serving load; is that
correct?
Yes.
So in your direct testimony and in your rebuttal
testimony you make numerous references to the, quote, penalty
that Idaho Power suffers from having load growth adj ustment set
at a level that reflects the marginal CPA-related costs of
serving new load; is that correct?
Yes.
And first I would like to just spend a little time
understanding your use of the word penalty.From your
testimony
--
and actually Mr. Woodbury already went over this --
you were with Idaho Power at the time the PCA was implemented?
I was.
And you were also with Idaho Power prior to that time
and had experience with rate making before the PCA; is that
correct?
Yes.My first time as a witness on
power-supply-related matters was in 1985, I believe.
Okay.And isn t it true that before the PCA was
implemented, Idaho Power I s rates were based partially on a
normalized power supply costs from historical test years?
Yes.
And before the PCA , did Idaho Power have any
guarantees that its rates would allow it to collect all of its
power supply costs?
ve never have guarantees.What we did have prior
to the power cost adj ustment was the ability to request
surcharges based on circumstances where power supply expenses
would be greater than what was included in base rates.
And in the event the Company filed for a surcharge,
there is no guarantee that your rights would be set at a level
that would allow you to collect all of your power supply costs.
Isn t that correct?
That's correct.
And one of the reasons why Idaho Power s rates might
not recover all of its power supply costs is the fact that its
actual power supply costs might deviate even significantly from
its normalized power supply costs determined in a rate setting
proceeding.Isn t that right?
Actually, that's the very reason that the Company and
our customers wanted a power cost adj ustment because the power
supply expenses of the Company varied by over $100,000,000 from
high water to low.And, therefore, in some years the Company
had more than adequate recovery of its power supply expenses.
And in other years it had far less than adequate recovery of its
power supply expenses.So the purpose of a power cost
adj ustment was to smooth the recovery of power supply expenses
over the full range of possibilities.
And isn t it correct then that the establishment of
the PCA allowed Idaho Power to automatically adj ust its rates to
recover its actual power supply costs or at least a substantial
part of its power supply costs even if they are significantly
higher than its normalized power supply costs as determined in
the Company s last rate setting proceeding?
The Company did have the ability through the PCA to
recover some of the expenses that were incurred above base
levels.That amount would vary from year to year depending on
how the actual marginal costs of serving compared to the 16.
value that Mr. Hessing proposed
--
or that was adopted by the
Commission at that time.So that that percentage could change
depending on circumstances that occurred in any year.I ha ve
pointed out in my rebuttal testimony an example of how a change
in the assumption listed marginal costs could affect the level
of recovery that the Company would have just last year.
Right.And i sn 't it true, though, that with the
adoption of the PCA as compared to before the PCA was
implemented, Idaho Power had an increased ability to collect the
variation in its power supply costs as compared to the way it
was before the PCA was implemented without having to institute
or generate a proceeding or seek a surcharge?
That's probably true if you look only at the instances
when power supply expenses were greater than the base.When
power supply expenses are lower than the base, and you also have
a load growth adjustment factor involved on that side of the
equation.I think generally without a load growth adj ustment
factor, you would have symmetry around the base; and, therefore,
overall you would have greater collection.But with a load
growth adjustment factor that's greater than the revenue
--
the
rate we can actually recover from our customers, that
jeopardizes the total collection over time.
Well, I'm going to call it pre-PCA traditional rate
making.And going back to the idea of a penalty that is
introduced by the load growth adj ustment.As compared to the
tradi tional rate making, do you believe that it's appropriate to
characterize the current situation as penalizing the Company?
Wi thin the context of the PCA, I believe it is.As I
mentioned, without -- if the load growth adjustment rate were at
the rate that we actually recovered from customers in our base
rates, then I think there would be no penalty, that the PCA
would work as intended with symmetry around the base.Wi th
PCA load adj ustment rate that's greater than embedded, there
is -- it is not a symmetrical effect.Over time loads basically
grow , and so the adj ustment is always in the same direction.
And to the extent that the adj ustment rate is greater than the
rate that the Company can actually recover, then it's eroding
the earnings that would be associated with other rate
components.
So you have used the word penalty.But would it be a
fair characterization for me to say that Idaho Power s position
is that the PCA does not go far enough towards insuring that
Idaho Power can recover all of its power supply costs in between
rate cases?
I think that would be very similar to the penalty that
m describing, that I believe that the intent
--
or the proper
intent of the PCA would be to not penalize the Company for
serving additional firm load.
Would it be fair then also to say that Idaho Power
seeking to expand the operation of its PCA through this
proceeding?
No.I don t believe that we re expanding the PCA.
m just suggesting that this Commission review the previous
decision and look at a broader record of concerns related to the
load growth adjustment rate and set the appropriate rate on a
going-forward basis.
In addition to using the word penalty, you state in
your rebuttal testimony -- this is on page 10, line 14 -- that
the Commission should avoid the punitive result that would occur
if the load growth adj ustment were based on Idaho Power I s
marginal PCA-related costs.We discussed earlier that
tradi tional rate making would not ensure that Idaho Power was
able to recover in full with marginal power supply costs with
certain new loads.Would you then also describe traditional
rate making as punitive?
Tradi tional rate making, assumes -- without PCA
assumes that there will be instances where costs will be lower
than what are included for recovery from base rates, and times
when the opposite would occur.The concept of the PCA , as I
stated earlier , is to try and smooth the variations of power
supply expenses encountered by the Company over time.So I
think the description of the puni ti ve nature really is in the
context of the PCA mechanism itself in trying to have the best
power cost mechanism and most appropriate power cost mechanism
in place that can be done.It is not a statement as to whether
or not traditional rate making is puni ti ve or not.
So in other words the puni ti ve result is the way the
PCA operates now as compared to the way the Company believes it
should operate?
That's correct.
Now , it is my understanding that Idaho Power as well
as other investor-owned utili ties are allowed the opportunity to
earn a return on equity for their shareholders; is that correct?
Yes.
And the ROE has a return on equity that's intended to
compensate investors for the risks that are enhanced in the
utili ty industry; is that correct?
It is.
Do you believe that the risks that Idaho -- the risks
that Idaho Power s rates will not fully recover costs is one of
those risks?
It is.
Mr. Said, if the load growth adj ustment is altered as
Idaho Power proposes to allow the Company to automatically
collect its marginal power supply costs in serving new loads,
how much do you believe Idaho Power s return on equity should be
decreased?
I haven t analyzed any impacts on the ROE at this
point in time.
Mr. Said, if you don t have one with you -- you might
have one.I know Mr. Woodbury brought one.But I would like to
give you a copy of Commission order that the
--
the order number
is 24806 , the Commission s order in the original PCA proceeding.
I still have the copy that Mr. Woodbury supplied.
MR. THOMPSON:I have copies for the parties
as well as the Commission if they would like one.
(MR. THOMPSON) I think we already established,
Mr. Said, that in preparing your testimony in this proceeding
that you have reviewed this order?
I did.
I would ask you to look at page 20 and read the -- and
the first sentence under the bold word findings. "Mr. Said,
would you read that sentence for me?
We find that the net power supply costs associated
wi th serving differences in load between normal and actual
should be removed from the PCA.
I will note that in the copies we handed out to the
parties and Commissioners that that sentence has been
highlighted, and it was not highlighted in the original order.
But now in your rebuttal testimony, I want to read your
statement of what you want the Commission to do in this
proceeding.It states on page 10, starting on line 15, that you
believe that the Commission should now confirm that the intent
of the PCA load growth adj ustment rate is to eliminate the
possibili ty of double collection of revenue and not to eliminate
the Company s ability to recover variable power supply expenses
associated with load growth between rate cases.
Mr. Said , isn t it true that you state that
the Commission should confirm that it meant something that
appears to be the opposite of what it said in that passage I
just had you read?
I state that they should confirm the intent now , not
necessarily confirm what the intent was established in the
previous order.I think that what has been provided in this
case is a more full and detailed discussion of the subj ect
matter than took place in 1992 and that a review of the
testimony in this case might lead to different findings than are
contained in order 24806.The confusion that the Company has
had over time is that later in that same paragraph there are
statements
--
let's see.There is a statement that says:Idaho
Power s proposed PCA allows it to double-recover fuel costs
associated with load growth.And that'
--
in looking at the
order at the time, we saw the words that were there as to what
was being done.And the only words that described why it was
being done that we saw related to the double recovery or the
potential double recovery power supply expenses.And I think
that's what the Company saw and interpreted as the justification
for the finding that exists in line
As I have stated , I think that my review of
the record at that time shows that the subj ect wasn t discussed
at the level of detail that it is being discussed in this case
and that it is appropriate for the Commission to look at the
proper intent on a going-forward basis.
And again, I'm looking at -- and I don t want to put
words in your mouth , but I want to be able to reconcile these
two statements:Both the Commission s statement that it finds
that the power supply costs associated with serving differences
and loads should be removed from the PCA; and your statement
that it should confirm was the intent was not to do that.Are
you basically saying then your use of the word confirm meant
that you are asking the Commission to confirm that Idaho Power
interpretation is correct?
As you just stated the question , you said that my
testimony is to confirm that the intent of the PCA was to
eliminate.And my testimony actually is that they should
confirm that the intent is.And that suggests a perspective
determination rather than a confirmation of what was stated
years ago.
In your rebuttal testimony, you state that anti-growth
condi tioning wi thin the PCA will do nothing more than force the
Company to file more frequent rate cases; is that correct?
Yes.
And by anti-growth positioning, I assume that you
referring to Staff and ICIP' s suggestions that the load growth
adj ustments be based on Idaho Power s marginal power supply
costs of serving new loads?
Yes.In essence the recommendation is that Staff and
ICIP are to remove costs from consideration at a greater rate
than the Company has the ability to recover those expenses in
the first place.
So when you state that this would force the Company to
file more frequent rate cases, can you tell me how often you
mean?
Well , based on the quantification that, you know,
there could be $12,000,000 impact on an annual basis, it's not
outside the realm of possibility that we would be looking at
annual rate cases or that we would be looking at forward test
years to eliminate what we consider the puni ti ve impact of
having a load growth adj ustment rate too high.
You state that they will file more -- rate cases more
frequently.You think that they will file them more frequently
than what?
Well , as my testimony has come out today, we have had
three cases in the last dozen years , two in the last four.
if you are looking at recent frequency of once every other year
it easily could be every year.
Isn t it true that since the PCA was adopted that the
Company has chosen to wait up to a decade to file for a general
rate case?
Yep.There s a lot of things that contributed to that
during that decade.
I assume that when the Company is incurring
significant losses based on the fact that its rates are set too
low that it would have general incentive to file for a rate
case?
Could you repeat the question , please?
I assume that if the Company realized it were
incurring significant losses based on the fact that its rates
were set too low , it would have an incentive to file for a
general rate case; is that correct?
Yes.The implication that I'm getting from that
question is that over the last dozen years the circumstances
should be the same maybe as going forward.And the
circumstances today are not the same circumstances that we found
ourselves in twelve years ago.And the magnitude of the
adjustment to the rate -- to the load growth adjustment rate
proposed by Staff and ICIP is to more than double the rate.
a pretty drastic change in the rate coupled with different
circumstances that exist today suggest that our coming in for
general rate cases will be different than it was 12 years ago.
m going to move on.And in your rebuttal testimony
on page 11, lines 16 through 20, Mr. Woodbury refers to
--
you
state that -- I'm sorry, maybe you didn And you state that
under the PCA and load growth adj ustment as currently
configured , the Company was able to collect only 71.7 percent of
the variations in power supply expenses via the PCA and base
rates in 2006.Do you see that?
I do see that.You added the word only.I think I
just said 71. 7 percent.
I just want to make sure that I understand what you
talking about there.Is it accurate to say that the Company was
only able to recover 71. 7 percent of its power supply costs in
total?
No.We were entitled to recover our base power supply
expenses through base rates and then the variation from the base
is the percentage that I'm talking about.
Okay.Now , in calculating that 71. 7 percent number,
the Idaho Jurisdictional amount is factored in; is that correct?
That's true.
So in other words , what you re saying is that part of
the reason that Idaho Power collects only 71. 7 percent of the
variations in its power supply costs is that Idaho Power does
not have a PCA in Oregon; correct?
That's correct.What's not factored in here is that
we did have a deferral application in Oregon that has not been
fully decided at this point in time.There will be some
addi tional recovery related to that deferral.But not taking
that into consideration, the 71 percent reflects only the
recovery of Idaho -- in Idaho.
And another major factor in determining that 71.
percent figure is that Idaho Power is only able to collect
percent of its non QF power supply costs through the PCA; is
that correct?
Yes, it is.
Given your explanation as to the limited amount of
power supply costs the Company is allowed to recover under the
PCA, is it your position that the load growth adjustment should
be set at an embedded rate part partially to offset the affect
of the 90-10 sharing or the fact that Oregon does not have a
PCA?
No.
Do you believe that either of these two variables:
The 90-10 sharing or the fact that Idaho power does not have a
PCA Oregon -- are either of those at issue in this proceeding?
No.
Mr.Said,
rebuttal testimony?
would you please turn to page 9 of your
m there.
Lines 23 and 24.Here it appears that you are
offering some calculations that you used to describe the amount
of power supply costs that the Company might not be able to
recover under the PCA if the load growth adjustment were set at
the levels recommended by Mr. Hessing; is that correct?
Yes.
And does the -- you state on lines 23 and 24 that the
Company s load of 14.7 million MWh are certified in that power
supply expense of $83.7 million; correct?
Those were the actual numbers, yes.
Does the $83.7 million include the power supplies to
the companies submitted ISPP of QF Independent Power Producers?
No, it does not.
But doesn t QF Power serve Company loads?
It does.In the true-up mechanism, the load
adjustment rate is applied to the non-firm or the non QF power
supply expenses.And that's why I have isolated them here.
If you did include the QF power costs in your
calculation , then the values you show on lines 1 through 7 would
be different; correct?
Lines 1 through 7 on page 10?
I I m sorry, just one minute.Let me direct you to the
$4.90 per MWh that you calculated as a cost of serving base
load.That number would be different if you included QF power?
Tha t 's true.
And what percent of QF expenditures does the Company
recei ve through the PCA?
portion.
One hundred percent of the Idaho Jurisdictional
Mr. Said, on page 13 of your rebuttal testimony, you
respond to Dr. Reading s testimony where he states that
customers would lose the opportunity to be involved in a review
of the prudency of those costs if Idaho Power were allowed to
automatically collect this marginal power supply costs of
serving new load; is that right?
Yes.
All right.And you seem to be asserting the fact that
customers and the Commission can review those costs for prudency
during the PCA case; is that correct?
Not only can they, they do.
Would you agree that the time frame of a PCA case is
generally much shorter than a general rate case?
Absolutely.
You spoke earlier about how one of the risks that is
taken into account when determining return on equity in a
general rate case is the risk that the Company s rates will not
cover all of its expenses over a given time frame; is that
correct?
There are a lot of factors that go into the
determination of an appropriate ROE.
In a PCA proceeding, do you think it would be
appropriate for parties to review a change to Idaho Power
return on equity?
In a general revenue requirement, the case
--
the ROE
is always subj ect to testimony from all of the parties.
I as ked about in a PCA proceeding, do you think it
would be appropriate to raise such issues?
I think the issue of ROE is far broader than just the
impacts of power supply expenses.And, therefore, in terms of
trying to isolate one factor and then deal with it -- pulling
the ROE back in kind of expands beyond the scope of what
normally would be appropriate for a PCA case.So I guess, no, I
wouldn t recommend that the Commission adopt a policy of
reviewing the ROE every year as part of the PCA case.
My question was whether it would be appropriate to do
, and you are saying that it would not?
I think it would not.
Do you believe that the PCA proceeding was intended to
substi tute for a normal prudency review of Idaho s Power
marginal power supply costs?
Well , considering that there to my knowledge has never
been a review of marginal power supply expenses, replacing
something that doesn t exist wouldn t happen.What happens
every year is that the power supply expenses that the Company
actually incurs are reviewed for prudency.The test year power
supply expenses are prudently reviewed in a general revenue
requirement case.So the portion of your question that suggests
that the marginal power supply expenses are somehow reviewed in
a different manner from other power supply expenses makes that
question difficult to answer.
Then I will change the question a little bit.Do you
believe that the PCA proceeding was intended to substitute for
the normal prudency review of Idaho Power s power supply costs?
It doesn t replace it, but it augments it.Instead of
just having review at the time of general revenue requirement
cases , it's reviewed every year.
And are you aware that Order 24806, which you referred
to earlier , states that a PCA is not intended to replace the
prudency review process inherent in general rate cases?
Yes.That prudency review that I think the order
speaks to extends far beyond power supply expenses.
m kind of moving on.In your testimony you argue
that first that the load growth adjustment should be set at an
embedded cost level.But you also argue that if it is in fact
determined that it should be set as a marginal level , it should
be done in a certain way different from the way suggested by
Dr. Reading and Mr. Hessing; is that correct?
That is correct.
Specifically, in your rebuttal testimony, you
disapprove of Dr. Reading and Mr. Hessing s proposal to use a
marginal cost of power supply that is based on something other
than the , quote , Commission Approved Methodology; is that
correct?
That is correct.
In your direct testimony you state that the current
load growth adjustment methodology uses predicted marginal costs
of serving load rather than embedded costs of serving load; is
that correct?
Yes.
Do you think that Mr. Hessing and Dr. Reading
proposed numbers in this case are contrary to the, quote,
Commission Approved Methodology?
Yes.In the orgin order , the methodology was
specifically the average of two base-load resources.There was
no comparison of Aurora Runs; there was no looking at the
surrogate-avoided resource -- any of the methodologies proposed
by either Mr. Hessing or Dr. Reading in this case.So on the
one hand , witnesses have criticized my suggestion that the load
adjustment rate should be re-evaluated in terms of its purpose
and intent while at the same time I believe the other witnesses
have chosen to introduce new methodologies that are not
consistent with what was ordered in '92 either.
And do you claim that the companies two highest cost
base -- excuse me.Do you claim that the companies two highest
cost base-load resources continue to be Valmy and Boardman;
correct?
Tha t 's true.
And where can I find the quote:Commission Approved
Methodology that you are referring to?
Well, if you go to Boarder No. 24806, I believe that
you will find a statement saying that the 1684 is based on the
average of Boardman and Valmy.In fact, that exists on page
of the order.It says:1684 mils per kh , which is the average
of the fuel costs between Valmy and Boardman.
And then can you continue to read that -- the rest of
that sentence?
And then subtracting this result from the actual power
supply costs.
And then the next sentence states:Staff believes
that 16.84 mils per kw approximates fuel costs associated with
changes in load that should be adj usted out of the PCA.
Thank you for pointing that out.That's exactly my
point.It approximates fuel costs associated with changes in
load.It doesn t talk about opportunity sales.
So isn t your position that because the $16.84 number
approximated marginal costs at that time that the method by
which that number was developed has to be used in the future
regardless of whether it continues to approximate current
marginal fuel supply costs?
Well , what I have done is I have pointed out that the
average of the Boardman and Valmy is a value of 14 dollars and
something.And that looking at the fuel-only-related changes in
the runs that Mr. Hessing requested provides a number of 17.15.
So if the approximations were to take place based on the runs
that Mr. Hessing feels is appropriate, I believe that it would
still be appropriate to only use the fuel component and
ul timately come up with a load growth adj ustment rate of the
17.15 rather than 40.87 as recommended by Mr. Hessing.
Isn t it true , Mr. Said, that new load that comes on
to Idaho Power s system costs Idaho Power an amount
significantly more than $17.15 per MWh to serve?
No.I don t believe that's demonstrated by the run
that was requested by Mr. Hessing.
So you don t think that the $17.15 was a proxy for
what it costs the Company?
, I think it is.I think you asked me if it was too
high in general
--
or not high enough.
So if in fact it costs Idaho Power significantly more
than $17.15 per MWh to serve new load?
And my answer is the same.The answer is no.That
when you look at the cost of the resources that would be used to
serve the additional load based on those two runs, the
appropriate answer is 17.15.
And that's ignoring benefits from surplus sales or
costs of purchase power?
That's correct.Again , surplus sales are something
that exist only because we don t have additional loads.
don t have an obligation to those serve those surplus sales
customers.We do have an obligation to serve new firm loads.
And I think it is appropriate to look at what the cost to the
Company is of serving those loads, which can be done with its
own resources, not the value.The value which would represent
an opportunity to sell into a surplus sales market.But we
normally an opportunity cost suggests that there is a choice
that can be made , and that by choosing one action you forego an
opportunity.In this case we have no choice to be made.When
addi tional load comes on, we re required to serve it.And so
taking a theoretical opportunity cost and using that as a
detriment to recovery, I believe, is inappropriate.
COMMISSIONER SMITH:Mr. Thompson , I don t want
to interrupt at a critical juncture of your cross, but I would
like to take a ten minute break.Would this be a good time?
MR. THOMPSON:That will be fine.
COMMISSIONER SMITH:We will be in recess for ten
minutes.
(Brief recess.
COMMISSIONER SMITH:All right, we will resume
with Mr. Thompson.
MR. THOMPSON:Thank you, Madam Chair.
CROSS- EXAMINATION (continued)
BY MR. THOMPSON:
Mr. Said , I think we left off discussing the $17.
per MWh; is that correct?
I believe so.
Mr. Said, isn t it true that you created the $17.
per MWh number in this proceeding and that it is not used in
other contexts of the Company s reporting method costs?
Yes.I took the computer runs that Mr. Hessing used
to derive his $40.87 mils per MWh and removed the surplus sales
and purchase power impacts to derive the 17.15, and that 17.
is computed just for this case.
In your testimony you have criticized Dr. Reading
estimates of Idaho Power s marginal fuel costs; is that correct?
It is.
On page 19 of your rebuttal testimony, starting at
line 13, you state:Dr. Reading s first methodology recommends
inclusion of marginal purchase power costs and marginal surplus
sales benefits in addition to the Commission methodology that
looks only at the marginal costs of Company-owned resources.
you see that?
I do.
In Dr. Reading s first methodology that you refer to
is his suggestion of using the Company s marginal cost analysis;
is that correct?
Yes, it is.
And Dr. Reading s first methodology produces a value
of $40.96 per MWh; is that correct?
I believe so, yes.
And do you know how the Company found the $40.96 per
MWh marginal cost for power supply to which Dr. Reading
referred?
The marginal cost study that he refers to , I believe
was computed by looking at a base case run based on a median
water condition and then incrementing the load by 50 MW over a
fi ve-year period of time and then taking the five year numbers
and computing a single marginal cost.
Thank you.And did you review that number and the
methodology in preparing your testimony?
I reviewed the methodology.I didn t evaluate the
number.
Do you have a copy of the Company s marginal cost
analysis with you?
No, I don
MR. THOMPSON:Madam Chair , may I please
approach the witness --
COMMISSIONER SMITH:Yes, you may.
MR. THOMPSON: -- and hand out copies of the
marginal cost analysis?
And I would like this to be identified as
Exhibit No. 202 for the record.
COMMISSIONER SMITH:We will mark this as
Exhibi t 202.
MR. THOMPSON:And I will note that I have
highlighted marginal costs of the analysis.I will note that
last week I distributed copies of this document to the parties
in the case to give them notice that we would be referring to
this.
(BY MR. THOMPSON) Mr. Said, would you please look at
the bottom of the first page and read the highlighted portion
under marginal cost of energy?
The marginal cost of energy was determined from the
simulated operation of the Company s power supply system for the
five-year period 2005 through 2009.Base case in that power
supply expenses were quantified, and the model was run a second
time with 50 MW of load added across all hours.The difference
in monthly power supply expenses and the difference in the
monthly MWh was then calculated and averaged across the
fi ve-year period to produce an average monthly marginal cost per
MWh.A 50 MW increment in the load was used because it
approximates the forecast annual growth and load reflected in
the IRP.
Thank you very much.Would you please turn to
Schedule 1 of the Marginal Cost Analysis a few pages back?
you see under line 5 it says, Marginal energy cost at generation
levels?
do.
you
Yes.
Would
these two rows?
you agree that the numbers are the same across
see at line 10 where it says , Power supply?
They are.
I also assume you see the $40.96 that Dr. Reading
refers to in his testimony there at the right under annual
average?
I do.
Do you have any reasons to doubt that those numbers
are accurate or were at least accurate when determined?
No.I never questioned their accuracy; I questioned
their appropriate use in this proceeding.
Gi ven that the marginal cost analysis itself states,
as you read it, that those numbers estimate the average monthly
marginal average cost per MWh of power supply expenses, can you
explain why using those numbers for the Company s marginal costs
of power supply is not reasonable?
I think I have already answered that question in this
proceeding.These costs do include opportunity sales , surplus
sales to customers that the Company is not obligated to serve.
And I don t believe that including opportunity sales in the
calculation of a load growth adjustment rate is appropriate in
this proceeding.
Is it your position then that the Company I s costs and
revenues are not effected by marginal purchase power costs and
marginal surplus sales benefits?
No.Power supply expenses are affected by those
factors.The point is that I don t believe that native load
customers should be guaranteed the benefits of surplus sales
. 25
that the Company loses the opportunity to make due to load
growth between rate cases.The Company has an obligation to
serve the new loads , does not have an obligation to serve
opportuni ty loads.And locking in that benefit to customers
when the Company only has the right to recover at embedded rates
rather than recovering at marginal costs is a penalty.
In your testimony you state that Dr. Reading s use of
the cost of Minute Mountain as a proxy for Idaho Power
marginal power supply cost is inappropriate; is that correct?
That's correct.
Mr. Said, did you file testimony in Case No.
IPCE-06-09, that application for a certificate to build the
Hemming 70 MW
, $
60 million Evander Andrews Peaker Plant?
I did.
I have a copy of that testimony.
MR. THOMPSON:Madam Chair , may I approach
the witness?
COMMISSIONER SMITH:Yes , you may.
MR. THOMPSON:Just as a general note that
portions of that testimony have been highlighted.And I would
ask that this be marked as No. 203 for identification in the
record.
COMMISSIONER SMITH:We will mark this as
Exhibit 203.
(MR. THOMPSON) Mr. Said, I will be referring to pages
100
3 and 4 where I have highlighted sentences.In that testimony,
starting on page 3, line 25; through page 4, line 1, you state
that customer growth is the primary driving force behind Idaho
Power s Company needs for additional resources; is that correct?
It is.
Then on page 4 , line 5, you state that Idaho Power
must acquire additional physical resources to meet the
electrical demands of these additional customers; is that
correct?
It is.
Mr. Said, if additional load growth is the reason for
building peaker plants , why shouldn t it be reasonable to use
their costs as a proxy for marginal costs?
Well, because when you look at a plant like Bennett
Mountain , and you look at the anticipated running of that plant,
it's really only anticipated to run for a small number of hours
over the course of the year.It is a peaking resource that is
indeed on the margin in some hours of the year, but certainly
not all hours of the year.In fact, my recollection is that the
anticipated use of Bennett Mountain was that it would be in less
than 10 percent of the hours throughout the year.So using that
as the marginal resource during all hours of the year certainly
overstates the true marginal costs over an annual period of time
experienced by the Company.
Would you agree that if load growth had not occurred
101
then the Bennett Mountain Peaker Plant and the Evander Andrews
Plant would not be needed?
That's true.I f our loads remain the same, we had
adequate resources to supply those loads.But the matter -- the
fact of the matter is that that's not the case.Loads have
grown, and our loads have grown during our peak hours throughout
the year at a greater pace than the other hours throughout the
year.So the acquisition of peaking resources to meet those
specific periods of time when the Company is unable to meet its
resources was required.
At the time that PCA was first implemented, did the
Company have any peaking units?
Just our hydro plants.
So at the time the base load plants -- so at that time
the base load plants were essentially the marginal units; is
that correct?
In most hours of the year that's correct.
So it may have been more reasonable at that time -- at
the time the PCA was originally implemented to assume that the
Company s marginal power supply costs were close to the average
fuel costs of Boardman and Valmy.Isn t that right?
At that point in time Valmy and Boardman were usually
the resources on the margin.And I think that that could still
be the case today.However , there are hours when Minute
Mountain or Danskin are on the peak -- are serving the peak and
102
therefore are on the margin.But as I stated earlier in my
testimony, at any given point in time throughout the year the
resource on the margin could be pretty much any resource that
the Company owns.It's probably getting less likely that hydro
would be on the margin , but there are still times with high
water conditions when we would otherwise spill.
And you would admit , wouldn t you, that the Company
has acquired new resources since the time the PCA was first
implemented that have considerably higher fuel costs on a per
MWh basis; right?
We have added some with higher and one with lower , I
believe.
Wouldn t you also admit that the power supply cost
number we discussed earlier from the marginal cost analysis --
and I'm referring to the $40.96 -- that that number is much
closer the cost the Bennet t Mountain Plant than
$17.number that you calculated the company s marginal fuel
costs that the load growth adj ustment should be based on?
have mentioned quite bit in my testimony this
morning, I believe that the 40.96 or the 40.87 presented by
Mr. Hessing both are highly influenced by market price.And the
market price that is anticipated at this point in time is highly
correlated to gas prices.So it is not surprising that the
surplus sales market is somewhat close to the cost of a peaking
uni t, which is based on gas.
103
So the answer to the question , no, you would admit
that the $40.96 from the marginal cost analysis is closer to the
cost of Bennett Mountain than it is to the $17.15 number you
calculated?
Yes, I would admit that.
And you did read Dr. Reading s testimony as ultimately
recommending use of the Company s latest marginal cost analysis;
is that correct?
I did.And, again , as I have stated on numerous
occasions, I believe that's inappropriate.
Mr. Said, on page 12 of your rebuttal testimony, lines
7 through 17, you state that if the Commission were to adopt
Mr. Hessing s or Dr. Reading s recommendation then this would
be -- that such a determination might have an negative impact on
Idaho Power s credit rating; is that correct?
Yes.
Mr. Said , would you please look at page 12, line
First of all , on lines 13 through 17 , you quote from a Moody
Report.And you use the word comprises on line 15.Was that a
typographical error and you meant compromises?
Well , let me look at the exhibit.
Okay.
And maybe if you could help me in the exhibit; it'
not leaping out at me.
Sure.I believe it's at the end where it says what
104
could change the ratings down.It's the very last page of
Exhibi t No. -- I'm sorry, it might be Exhibit No.
Yes.The correct word in that exhibit is compromises.
Okay.So you indicate then in your testimony that you
think cutting the load growth adj ustment to the PCA at a level
like that suggested by Dr. Reading and Mr. Hessing may
compromise the PCA , leading to a negative impact on Idaho
Power s credit rating; is that correct?
m just stating what Moody said.They obviously look
at how the Company is regulated , and they look at changes in
regulation.And based on this statement and the testimony that
exists in this case of moving the load growth adjustment rate
from 16.84 to something closer to $ 41 would be a potentially
unexpected change that they would consider in their evaluation
of the Company.
And you stated in your testimony, and I think you did
just now , that you think that the financial community looks very
carefully at the PCA; correct?
They do.
Do you know how long this case has been pending,
Mr. Said?
Well, we filed in April.
And this lssue was also
--
the issue involved in this
case was also at issue in the general rate case?
It was not raised directly in the general case until
105
the settlement discussions took place, at which point in time
the parties recognized that the prior Commission order suggested
that we hold a hearing to discuss this very question.
To support your concerns then about Idaho Power
credi t rating, you cite the statement in the Moody s Investors
Service Summary, which states that among various other things
that may cause , quote, negative pressure to Idaho Power
rating, one is the unexpected change that compromises the PCA;
is that correct?
Yes.
Mr. Said, if the rating agencies were concerned about
the outcome of this proceeding, which determines the appropriate
level of an existing adj ustment to the PCA , don t you think they
would have at least mentioned this issue in their report?
Well, they don t necessarily have an expectation of a
maj or change at this point in time.They know that it is an
issue.But until they are aware of the magnitude of the change
that the Commission ultimately orders, I don t know that it
necessarily rose to the level that they thought it needed to be
mentioned directly in a report.
But you think that they -- given that they watch Idaho
Power very closely, isn t it strange that they don t mention
this particular case and instead speak generally about
unexpected changes that may compromise the PCA?
Excuse me while I kill a spider.
106
COMMISSIONER SMITH:Is it large?
MR. SAID:Fairly.
I can t really speak for Moody s in terms of what they
consider important to include in their reports at any given
point in time.And why they chose not to address the specifics
of the various recommendations in the case at this point in
time, I don t know.However, the end result is certainly not
known at this point in time , so I don t know what their
expectation is in terms of the Commission result.I think the
language suggests that they re expecting that -- that a major
change won t take place and that they will see the Company
abili ty to recover its prudently incurred power supply expenses
to be at comparable levels to what they have been in the past.
MR. THOMPSON:I would like to introduce one
more document, and I would like this to be marked for
identification purposes as Exhibit No. 204.
COMMISSIONER SMITH:Okay, we will mark this
as Exhibit 204.
(MR. THOMPSON) It states on the cover, Moody
Investors Service Summary Opinion, May 11 , 2005.This was filed
by Idaho Power Company in Case No. IPC-E-05-28.And I have left
the cover sheet on there , but it's included in the Moody
Investors Service Summary Opinion.Now, this summary opinion
was dated 11th of May, 2005.Mr. Said, if you could turn to the
last page of the exhibit, underneath the heading, What could
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change the ratings down?Do you see there, it says, Any
unexpected change that compromises the PCA mechanisms?
I do.
Wouldn t you agree that this is the same language that
appeared recently?
Yes.
MR. THOMPSON:Madam Chair, The Industrial
Customers of Idaho Power have concluded their cross of Mr. Said.
COMMISSIONER SMITH:Thank you.
Mr. Eddie?
MR. EDDIE:Thank you.
CROSS- EXAMINATION
BY MR. EDDIE:
Mr. Said, I have a few questions.I will focus on
your rebuttal testimony.Starting with page 2 , lines 17 through
, given the parties differing opinions on the purpose of the
load growth adj ustment, the Commission needs to decide what that
purpose is; correct?
Yes.
And you agree that whatever that methodology the
Commission adopts in this case should be a product -- or be
driven by that purpose?
Yes, I do.
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I will try another
--
Counsel have summarized your
view in this matter.But is it your view that the intent of the
PCA is to allow the Company to recover variable power supply
expenses associated with load growth between rate cases; and the
load growth adj ustment should simply prevent double collection
of revenues that are collected for that purpose?
In terms of this case, that is the focus.Obviously,
the intent of the PCA has greater scope than just recovery of
the incremental costs associated with loads between rate cases.
But in terms of looking at the load growth adj ustment factor,
your statement is correct.
Okay.Now , I understand you are not a witness in the
Company s Decoupling Case 04-, so I'm not going to go into any
details there.But you would agree that one maj or purpose of
decoupling mechanism is to remove the Company s disincentive to
encourage conservation measures?
Yes.
Would you agree that the way the Company does that is
to ensure that the Company ' s margins or that the contribution
rates that covers fixed costs per customer -- make sure that
amount is recovered and neither more nor less than that amount
regardless of changes in per-customer use?
Yes.The intent in that case is to look at fixed
costs -- a different segment of the Company s costs than are
addressed in this case and look at restructuring rates
109
associated with those costs to be decoupling from energy
consumption and recupled with a different measure.
The overall thrust would be to make the Company
economically different to changes in energy sales?
MR. RI CHARDSON :Madam Chair, I would like to
obj ect.This witness doesn t discuss decoupling in his direct
testimony or his rebuttal testimony -- he doesn I t discuss that
proceeding.
MR. EDDIE:I believe he does in at least Exhibit
303 filed, he addresses his costs -- the recovery of fixed
I think this is fair game.costs.And I'm not going to
continue on this vane very long.
COMMISSIONER SMITH:Okay.So we will overrule
the obj ection.
Could you repeat the question , please?
Yes.The overall thrust or intent of decoupling is to
make the Company essentially economically indifferent to changes
in energy sales?
As they relate to the fixed cost recovery, yes.
And did the Company not favor decoupling, which was
asking seeking approval so they can more strongly pursue
conservation measures without overall detriment to its revenues?
Yes.
If that is the goal of the Company s docket in the
decoupling case, would it not be counterproductive if the end
110
resul t of this case were to essentially reverse that role by
making increasing sales more attractive to the Company?
MR. RICHARDSON:I would like to obj ect
again.I think we are getting into the effects of the
Decoupling case, which aren t at issue in this proceeding.
COMMISSIONER SMITH:Well , I don t think
that was the question.I will let the question stand.
MR. EDDIE:Thank you.
I think the answer comes down to how you define making
addi tional sales more attractive to the Company.Right now the
Company has the ability to recover -- at least when you isolate
the variable power supply expenses -- has the ability to recover
those at a rate of $6.81 per MWh.And the current adj ustment
for load growth is $16.84.So right now there is existing
reduction to power supply expenses that's greater than the
recovery of that component of rates.Right off that suggests
that there isn t an incentive at least on that component of
rates to make additional sales.If your question is along the
lines of should the rate that the Commission determines now be
the same, that 716.84, so that you are not further incenting the
Company to make sales compared to what it's had in the past then
I think that's a little bit different question.
That was the thrust of my question whether taking
today s baseline v. the Commission adopting the Company
proposal, those two position that
--
your position would make
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increasing sales more attractive than the baseline of today?
It would make it more attractive in that the Company
would be able to recover more of its prudently incurred expenses
than it is allowed to recover today.
Thank you.I would like to turn to your rebuttal
testimony where you, to some extent, challenge the testimony of
the Energy Coalition s witness, Steve Weiss.You note on page
, lines 11 through 14 -- you note that Mr. Weiss is concerned
not only with discussing the cost of serving loads but also the
addi tional revenue that the Company receives from that load
growth.Is that your understanding?
Yes.
Is it the Company s position on the other hand,
beginning on page 20 at lines 18 through 23 of your rebuttal
testimony
--
you state the position is as follows -- quote, The
Company believes the incremental revenue that the Company
receives is more appropriately considered than is the
incremental cost of serving new load; is that correct?
Yes.I think in that regard, Mr. Weiss and I have a
similar perspective.
So in other words, the Company s position is that only
the additional revenues received that are embedded in the power
supply cost 681 per MWh should be considered in the PCA.Did I
characterize that correctly?
The question really speaks to an underlying assumption
112
by all of the parties other than Idaho Power that the Company
always makes money when they sell additional power to customers.
And my understanding of the intent of the PCA has always been to
isolate power supply expenses for unique review outside of
evaluating all of the other cost areas that the Company actually
encounters.So from that standpoint, my testimony states that
really what the Commission should look at is the revenue that is
generated associated with variable power supply expenses and not
look at the other cost components.Mr. Weiss has gone beyond
that and looked at the costs associated with transmission and
generation over time.Mr. Hessing suggests that generation and
transmission come on in lumpy increments and therefore suggest
that the Company has the ability to always make money on
addi tional sales.And so in response to your group through the
data requests , we ve provided information that's been summarized
in my Exhibit No.3 that shows that if you don t look at only
power supply expenses , but look at the other cost areas that the
Company has and look at the marginal costs of serving new loads
in those other areas that what you discover is that the marginal
cost in those other areas is also greater than the embedded
costs of serving existing customers; and, therefore, there is no
excess revenues that the Company is generating that should
somehow be credited back at the time of the PCA.
I was going to ask you my next question about it, so
why don t we turn back to Exhibit 3 of your rebuttal testimony,
113
page 2 of that exhibit.And let I s put aside for a moment
whether including
--
m going to ask you to read it.But at
the top you ve titled:Fixed Cost of Serving Residential
Customers in 2005 test year.And that total was $33.78 per MWh;
is that correct?
Yes.
And by the word fixed, you can essentially translate
that to me mean costs that do not vary?
Right.It's investment levels.
Now, Idaho Power s current residential rate is higher
in the summertime, but it is a little over 5 cents per KWh -- is
that fair to say -- or $50 MWh?Somewhere in that range?
Yes.I think that if you look at Exhibit 1, page
you will see that the average residential service rate is
currently $ 5 9 per MWh.
And so if existing residential customers use an extra
MWh of energy, wouldn t the net revenue received by the Company
be about $59 for those customers that are in the fixed costs?
Well , if you look at individual customers, it is
fairly difficult to determine the exact marginal costs on a
per-customer basis.What I have attempted to do in Exhibit 3 is
look at the total change in customer consumption.The problem
that you have is that Idaho Power is an aging system; so not
only do we have incremental costs associated with building new
transmission or generation facilities driven solely by load
114
growth , we also have a system that needs to be rebuilt apart in
time if you will.And so there are costs associated with and
investments that the Company makes on behalf of existing
customers in order to maintain current levels of service.
there are costs potentially of serving existing customers even
though all you are doing is replacing existing equipment with
new equipment as it fails?
Do you have an estimated calculated for that service?
No.As I mentioned it's pretty difficult to
differientiate the two.The Company makes lots of investments,
some that are brand new and some that are replacing existing
equipment.And the Company hasn t made an effort to try and
distinguish between those two.
But just taking the difference between your calculated
value on Exhibit 3 of $32.38 of cost v. $59 per KWh , the Company
would receive from load growth adj ustment.There is a
difference there that could be used to support purchase of power
(inaudible) ?
Well , our total rate recovers more than just the fixed
cost, so it covers the variable costs.So to the extent that
the variable costs and the fixed costs are covered through
existing rates and there has been additional revenue generated
that's potentially the case.But I don t think you can conclude
that just by looking at the fixed costs and comparing it to the
overall rate.
115
So if it is additional revenue over and above the
fixed costs, would it not be prudent for the Commission to
consider adj usting the PCA to account for those additional
recoveries or are we talking about existing customers and a load
growth (inaudible)?
I believe that that's the nature of the load growth
adj ustment for Intermountain Gas.There is -- Intermountain Gas
is in a position where when they add additional load, their
fixed cost per customer goes down.What Exhibit 3 attempts to
show is that if you look at the fixed cost components by rate
class over the last two years and you compare the marginal costs
of supplying additional loads that the marginal costs in
essentially every category is greater than the embedded costs
included in rates today.So the margin that supposedly the
Company is getting through load growth isn t demonstrated by the
records over the last two years.
I don t fully understand your point there because it
seems to me the marginal fixed cost for residential customers
existing was in the range of $34 per MWh?
Well , if you look at page 1 of Exhibit 3, you can see
that the embedded cost of serving fixed cost for residential
customers in 2003 was $31.98 per MWh.If you look at page 2 and
the corresponding number, you can see that the embedded cost of
serving residential customers grew from $31.98 per MWh to $33.
Page 3 then shows that if you took the difference inper MWh.
116
load and difference in dollars and just computed the incremental
costs that existed, that the incremental cost was $54.32.
the Company was supplying energy to new customers, receiving
$31.98 for the fixed cost recovery while at the same time it was
paying $54.32 for new customers.So as a result at least on the
fixed cost portion of the rates, the Company was losing money on
every new customer in its residential class.
And I think I wanted to focus you before I moved on on
this issue on assuming that load growth occurs with existing
customers only and not considering impacts of new customers.
Wouldn t it be prudent for the Commission to consider a scenario
where Idaho Power Company experience in load growth for existing
customers -- which I understand is not the trend today, but it
could be.But would it not be prudent to consider the overall
impact on Idaho Power s revenues on load growth of existing
customers?
Well, under the circumstances that the Company finds
itself in today, I think the answer is no.The Commission
shouldn t consider or give weight to a premise that is not
consistent with what we are experiencing today.And what the
Company is experiencing today is rapid growth of not just
consumption by existing customers, but additional customers to
our system.And as I have mentioned , we re adding investment on
behalf of our customers both to supply new equipment and to
replace aging equipment.
117
This one has now come up for review 14 years after it
was adopted, taking a long-term view on a long-term policy.
Trends do change, would you agree.
Trends do change, and that's part of the reason that
re reviewing this issue today is that it's important for the
Commission to consider the circumstances that exist today in
terms of setting a rate for the near-term future.
Okay, I have just a few more questions.
Characterizing the energy coalition witness Steve Weiss
regarding the PCA' s means to encourage the company
conservation.If I could turn your attention to page 25, lines
8 through 11.You state that Mr. Weiss, quote, recommends that
the load growth adj ustment rate be increased to encourage
conservation that Mr. Hessing and staff as being a similar
recommendation or position.The reason that this would have
effect is that it would cost the Company load growth to slower
v. That growth.Am I characterizing it correctly?
Well , I think the proposals are generally are to not
allow the Company to recover its prudently-incurred expenses.
And that's done to varying degrees by the witnesses.Mr. Weiss
suggests $10 worth of non-recovery, and Mr. Hessing
recommendation is considerably higher.
Do you have a copy of Mr. Weiss s testimony before
you?
I don
118
May I hand him a copy for theMR. EDDIE:
record?
COMMISSIONER SMITH:Please.
(BY MR. EDDIE) Mr. Weiss s direct testimony, page 16,
lines 3 through Isn t it true that Mr. Weiss was actually
offered this $10 suggestion as one of his two choices?
That's true.
MR. EDDIE:That's all I have.
COMMISSIONER SMITH:Thank you,
Mr. Eddie.
Do we have questions from the Commissioners?
Commissioner Hansen?
Just a couple ofCOMMISSIONER HANSEN:
follow-up questions.
CROSS-EXAMINATION
BY COMMISSIONER HANSEN:
I guess if you were to get your proposed methodology
approved with the exception of the need of new capital, what
would really impact Idaho Power in the future to initiate a rate
case where you have covered supply costs and load growth and you
Whathave come in for just new capital before a case for that.
other factors would ever even bring Idaho Power to a real need
for another rate case?
119
Well, obviously, power supply expenses are a maj or
component of our overall expense level.But there are a
significant level of expenses other than power-supply expenses
that come into play.I think power-supply expenses are about
$50 million.So if you you are up toCOGIN is another 50.
about $100 million.And I think there is another $100-150
million of non-power supply-related expenses that could move
And then , obviously, the levels of investment andover time.
the return on those investment generate not only return issues,
So their power supply expenses dobut additional expenses.
represent a good portion of our revenue requirement but still
So it would be the movement of all of thoseonly a percentage.
other factors that would determine the timing of the general
revenue requirement cases.
I guess another question I have got then is the
customers now fairly have a good understanding I think of the
current PCA as it is.And they pretty much relate it to the
water year and what kind of water year and the cost of
purchasing power on the market to serve the load.Do you see
that
--
and when that exists they know that if power prices are
down lower or Idaho Power has had a good water year that they
are probably going to get a credit?
Right.
And they know the opposites come in effect.But if
this methodology is approved, do you see that there could be a
120
good water year; there could be not excessive high power rates,
and yet it would be an increase, a surcharge to the customer on
the CPA by this methodology being put into the calculation?
I guess I don t see that.I don t see movements in
the load growth adj ustment ultimately swinging the overall
magni tude of power supply expenses.However , the interesting
thing is that in the first couple of years that we had a power
cost adj ustment we saw total power cost adj ustment movement in
the $10-15 million range.And Mr. Hessing s proposal in this
case would adj ust collection from current levels by somewhere in
the $10-12 million range.So what we re seeing is that the
proposed change in the rate as presented by staff and others is
such a large change from existing levels to where recoveries
could be substantially reduced.On the opposite end of the
scale, the Company does have a proposed reduction in the load
growth adjustment rate , which would suggest that the Company
could recover more of its prudently-incurred expenses then we
have in the past.
Okay.One other question , and I know you discussed
this, and you are probably say, this is third or fourth time
have gone over it.But I just need a follow-up:On your
rebuttal testimony on page lines through 24.And
guess just need you clarify that.And guess my question
here:Are you saying here that adding the new native load
penali zes Idaho Power its effect surplus sales?that
121
what you are saying?
Yes.That's close to what I'm saying.The issue,
think, in this case is that in current times, market prices are
And right now market prices are fairly high.highly volatile.
And so in computing marginal costs and including the benefits of
surplus sales in the load growth adjustment rate suggests a
higher cost of serving customers than I think truly exists.
load growth occurs, the Company does have adequate resources to
Not all.We have growingsupply some of those growing loads.
peek concerns that currently require additional peak generation.
And we do have in our forecast need for base-load resources and
other resources down the line.But at the point in time that
you have a general revenue requirement proceeding, you wal k into
fairly current market price assumptions.And the idea that the
Company serves a new customer at the value that it loses from
making a surplus sale I think is incorrect.Our true cost of
serving that new customer is the resource that's used to serve
that customer , not the value that it has in a setting that the
Company really has no control over or any decision to be made.
So if I'm following you correctly on this, then what
you are saying, though , would take away a current benefit from
the customer that they are receiving right now in the PCA; is
that right?
No, I don t believe so.Because the original load
growth adjustment rate didn t include a determination of the
122
value on the market of Valmy and Boardman.It looked only at
So it looked at the costthe fuel costs of Valmy and Boardman.
of the Idaho Power resources that would be used to serve the
And so my al ternati ve suggestion in this case isnext loads.
that you do something comparable today and look at the cost of
the resources that the Company would use to serve the next loads
rather than their value in the marketplace.
Wouldn t that be fairlyJust one little follow-up.
difficul t to pinpoint what the resources would be?Couldn t it
be quite a variety?
And that's why at least in theOh, absolutely.
methodology proposed by Mr. Hessing we look at a base load and
an aurora output that would show all of the resources in
different hours that would be used to serve those loads and then
how resources would be dispatched if the loads was incremented
In that methodology there is recognition that at timesby ten.
that Bennett Mountain or Danskin maybe on the margin; but at
other times it is Valmy or Boardman.So it does look at the
resources that ultimately would be used to serve those increases
My only criticism of the use of model is that itin loads.
includes the market value of power at any given time rather than
the resource cost that that the Company would use.
That's all I have.COMMISSIONER HANSEN:
Do you have a question?COMMISSIONER SMITH:
123
CROS S - EXAM INA T ION
BY COMMISSIONER KJELLENDAR:
Mr. Said, in your testimony you touched on the
potential impact on credit ratings.I had a few questions in
the cross that dealt with that as well.And in that the point
kept coming back in terms of the down possibility in the credit
rating dealt specifically with the
--
what we would be referred
to as unexpected changes in the PCU mechanism.Wha t happens if
at the of the day and at the end of this case there is no
dramatic change
--
in fact, the status quo is the outcome?What
is your perception of what happens to potential credit ratings
if that's the outcome?
I would assume there would be no change in the credit
ratings if things were the same as before the case -- all other
factors being.
COMMISSIONER KJELLANDAR:Okay, that's it.
COMMISSIONER SMITH:And I just have one or two.
CROSS-EXAMINATION
BY COMMISSIONER SMITH:
And I guess -- I think it's actually a lot of them to
go back and review what was done in the past now knowing
circumstances have changed; but I hope that in doing so we don
124
mischaracterize the history.So I know sometimes it is hard to
cast your mind back before Order 1880, before the year 2000 and
But if you do that, then do you still want to testify2001.
that the Idaho Power Company wanted a PCA?
Well, I think in a lot of respects we did.The
history as I remember it is that we had come in on at least two
occasions --
At least.
asking for surcharges and that we were criticized
for only coming in when power supply costs were high and not
recognizing that there were benefits associated with high water
condi tions that the Company benefitted from and did not share
So we were certainly encouraged to pursue awi th its customers.
PCA , but I think we were convinced that it was also a good thing
to pursue and ultimately adopted that position.
Well , yes, as one of the convincers.And I think it
might be pretty simplistic -- and maybe I don t want everyone to
know how simplistic commission-thought process might be -- but
if you turn on page 25 of order 24806, the second sentence of
the paragraph that's under the heading Conclusions, I think,
summarizes entirely what was in our minds at that time.Do you
want to read that for me?
In this proceeding
The second sentence.
, the second sentence.The PCA we adopt today will
125
provide earning stability for the Company in low water years and
provide rate payer benefits in high water years through reduced
ra tes.
That's my recollection.None of that to imply that
why we re here today isn t necessary or worthwhile.
Commissioner Kjellander?
I did have oneCOMMISSIONER KJELLANDER:
additional question.
RECROSS- EXAMINATION
BY COMMISSIONER KJELLANDER:
I believe somewhere in your cross-examination response
today, you mentioned that if you don t get some relief with
regards to how you deal with the load growth that that would
mean more frequent rate cases, perhaps on the order of one new
rate case every year and that would result in having to have
forecast test years.
And I guess I'm wondering based on what
re seeing today -- whereas I recall we often see rate cases
filed with six months actuals and then six months forecast, by
the time we finish the case you end up with the ability to
true-up all on actual -- why that wouldn t work if we did end up
in a scenario where for a period of time based on load growth
assuming that we may see load growth as a trend and then it may
126
back off , as Mr. Eddie referred to, why the current scenario of
six month actual, six month forecast wouldn t work to
accommodate the need for rate cases on a more regular basis?
Well , in essence , what you end up with is a one-year
lag.You do have ultimately rates that are based on a previous
year ending December 31st and rates being implemented on June
1st of the following year.So the load growth that you would
see for the first PCA would be reflective of the year after the
So it is one year worth of load growth.Andtest year.
depending on the magnitude of the rate, the load adjustment
rate, you would have varying impact on how much of your
potentially prudently-incurred expenses you wouldn t be able to
recover by having a load adjust rate that was greater than the
level included in the rate.The greater the amount, the more
pressure there is on requiring an additional rate case.
COMMISSIONER KJELLANDER:Okay.
Okay.As much as COMMISSIONER KLINE:
hate to do it, Mr. Kline, the Commission is now late for the
conference call , which we have to take at noon.So we will
adjourn for lunch.And we have scheduled a brief decision
meeting at one thirty, so the hearing will take up again
approximately at 1: 35.
(Recess was had for the noon hour.
COMMISSIONER SMITH:All right, let's go
back on the record.The Commission appreciates the parties