20090319IPC to Staff 31-35.pdf

LISA D. NORDSTROM
Senior Counsel
March 18, 2009
VIA HAND DELIVERY
Jean D. Jewell, Secretary
Idaho Public Utilities Commission
472 West Washington Street
P.O. Box 83720
Boise, Idaho 83720-0074
Re: Case No. IPC-E-08-22
RuleH
Dear Ms. Jewell:
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An IDACORP Company
Enclosed for filing please find an original and three (3) copies of Idaho Power's
Response to the Commission Staffs Second Production Request to Idaho Power
Company in the above matter.
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Enclosures
Very truly yours,~l)7¿~
Lisa D. Nordstrom
P.O. Box 70 (83707)
1221 W. Idaho St.
Boise, ID 83702
LISA D. NORDSTROM, ISB No. 5733
BARTON L. KLINE, ISB No. 1526
Idaho Power Company
P.O. Box 70
Boise, Idaho 83707
Tel: [phone]
Fax: [phone]
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Attorneys for Idaho Power Company
Street Address for Express Mail:
1221 West Idaho Street
Boise, Idaho 83702
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MADER OF THE APPLICATION )
OF IDAHO POWER COMPANY FOR ) CASE NO. IPC-E-08-22
AUTHORITY TO MODIFY ITS RULE H )
TARIFF RELATED TO NEW SERVICE ) IDAHO POWER COMPANY'S
ADACHMENTS AND DISTRIBUTION ) RESPONSE TO THE COMMISSION
LINE INSTALLATIONS OR ALTERATIONS ) STAFF'S SECOND PRODUCTION
) REQUEST TO IDAHO POWER
) COMPANY
)
COMES NOW, Idaho Power Company ("Idaho Power" or "the Company"), and in
response to the Second Production Request of the Commission Staff to Idaho Power
Company dated February 26,2009, herewith submits the following information:
IDAHO POWER COMPANY'S RESPONSE TO THE COMMISSION
STAFF'S SECOND PRODUCTION REQUEST TO IDAHO POWER COMPANY - 1
REQUEST NO. 31: Please provide a copy of the time and motion study relied on
by Idaho Power as the source for the labor component of the Compatible Units used by
the Company in preparing cost estimates for line extensions. In addition, please answer
the following:
a. When was the study completed?
b. Who performed the study?
c. From whom did Idaho Power purchase or obtain the study?
d. Has the study ever been updated? If so, when?
e. Has Idaho Power adjusted or supplemented results from the study
for use in its own cost estimation system?
f. Did the study contain labor time estimates for the entire list of
Compatible Units currently used by Idaho Power, or has the Company assigned labor
time estimates to some Compatible Units based on its own judgment?
RESPONSE TO REQUEST NO. 31: Time and motion studies are a continuous
process in which updates are performed as new equipment is installed. The Company
provided the time and motion "study" results to Staff in Compatible Unit Codes and the
Cost Estimate by Labor Hours in its response to Request No. 25 in Staffs First
Production Request. In the past, the Company purchased a time and motion evaluation
process that it has used in developing its own time and motion "studies."
a. Time and motion "studies" are a continuous process in which
updates are preformed as new equipment is installed. As such, there is no set
completion date.
IDAHO POWER COMPANY'S RESPONSE TO THE COMMISSION
STAFF'S SECOND PRODUCTION REQUEST TO IDAHO POWER COMPANY - 2
b. Time and motion studies are the responsibility of the Idaho Power
Methods and Materials Department. Time and motion studies are completed for all new
equipment not previously installed by the Company.
c. The reference guide used in developing time and motion costs was
purchased from Integrated Management Systems, Inc. - Lakeland, Florida (now
defunct).
d. The reference guide purchased from Integrated Management
Systems, Inc., has not been updated.
e. Yes. Basic compatible units ("CU") were developed by conducting
actual stopwatch timing for labor hours. The Company uses the following two step
process when developing new CU codes:
1. If a new code is comparable to an existing code, the
Company copies the existing code, renames it, and chahges the material to reflect the
new code. An example would be when there is a need for a CU code for a 25 KVA
transformer. The Company would copy the CU code for a 15 KVA transformer, rename
the code, and change the material to a 25 KVA transformer. This process can be done
because the time and motion for labor hours is the same for a 15 KV A transformer and
25 KVA transformer.
2. When creating a code for a new compatible unit and there is
no comparable existing code, the labor hours are determined by actual timed events.
f. No. The study did not contain labor time estimates for the entire list
of compatible units currently used by the Company. As mentioned above, the reference
IDAHO POWER COMPANY'S RESPONSE TO THE COMMISSION
STAFF'S SECOND PRODUCTION REQUEST TO IDAHO POWER COMPANY - 3
guide was used as a reference and the Company has assigned some time estimates
based on results from its own time and motion studies.
The response to this Request was prepared under the direction of Scott Sparks,
Senior Pricing Analyst, Idaho Power Company, in consultation with Lisa D. Nordstrom,
Senior Counsel, Idaho Power Company.
IDAHO POWER COMPANY'S RESPONSE TO THE COMMISSION
STAFF'S SECOND PRODUCTION REQUEST TO IDAHO POWER COMPANY - 4
REQUEST NO. 32: Please explain the basis for the "vehicles" or "equipment"
component of line extension cost estimates. What is the source for the assumptions of
vehicle/equipment requirements and costs associated with the Compatible Units used
for preparing cost estimates for line extensions? Have vehicle/equipment requirements
and costs been changed or updated since Idaho Power's last major Rule H case in
1995? If so, please explain how and when these assumptions and costs have changed
and the basis for those changes.
RESPONSE TO REQUEST NO. 32: The vehicle component of line extension
cost estimates is based on standard equipment utilized by Company line crews. This
includes one line truck and one bucket truck, the two vehicles essential for all line
extensions.Vehicle/equipment requirements have not changed since 1995.
Vehicle/equipment costs are continuously updated approximately every two months by
determining the previous twelve months' vehicle costs and mileage (4000 Series
vehicles) or hours of operations (6000 Series vehicles). In turn, updated costs per mile
and costs per hour of operation are included in Rule H work orders.
The response to this Request was prepared under the direction of Scott Sparks,
Senior Pricing Analyst, Idaho Power Company, in consultation with Lisa D. Nordstrom,
Senior Counsel, Idaho Power Company.
IDAHO POWER COMPANY'S RESPONSE TO THE COMMISSION
STAFF'S SECOND PRODUCTION REQUEST TO IDAHO POWER COMPANY - 5
REQUEST NO. 33: In Request No. 20, Idaho Power was asked to explain any
competitive process used for purchasing major materials such as poles, transformers
and conductor used in line extension construction. The Company's response briefly
discussed a "strategic sourcing methodology" using a "total cost of ownership model
approach." Unfortunately, the Company's response does not describe any competitive
processes in a way that is understandable or meaningful to Commission Staff. Please
supplement the Company's original answer using explanations and terminology that
would be readily understandable by a typical Idaho Power customer. In your response,
please specifically discuss at least the following:
a. Please identify those materials used for line extensions that are
procured through a competitive process.
b. Please describe the competitive process for each major material
group identified in part a above. Describe specifically whether requests for proposals
(RFPs) are used, whether bids are required, the number of suppliers who bid on each
major material group, the frequency of RFP and bid processes (annual, biannual, etc.),
the length of any materials supply agreements, and any other process or practice that
the Company believes could provide assurance to customers that materials costs are
reasonable.
RESPONSE TO REQUEST NO. 33:
a. Wood poles, distribution transformers, cable/conductor, and line hardware.
b. See attached Strategic Sourcing review.
IDAHO POWER COMPANY'S RESPONSE TO THE COMMISSION
STAFF'S SECOND PRODUCTION REQUEST TO IDAHO POWER COMPANY - 6
The response to this Request was prepared by Deb Kunkler, Procurement
Manager, Idaho Power Company, in consultation with Lisa D. Nordstrom, Senior
Counsel, Idaho Power Company.
IDAHO POWER COMPANY'S RESPONSE TO THE COMMISSION
STAFF'S SECOND PRODUCTION REQUEST TO IDAHO POWER COMPANY-7
REQUEST NO. 34: Please explain any process used by Idaho Power to
reconcile whether the actual line extension costs biled to customers are higher or lower
than the actual costs incurred by the Company, either for individual line extensions
based on a sampling of jobs or collectively over the course of a year. In other words,
has Idaho Power ever done any analysis to determine whether the practice of billng
customers based on pre-construction estimates leads to a systematic over-collection or
under-collection of actual costs? If so, please provide a copy of that analysis.
RESPONSE TO REQUEST NO. 34: After a work order is completed, it goes
through a reconcilation process. This process is done to ensure that the appropriate
labor, materials, and equipment costs are charged to the work order. This helps
guarantee that customers are charged only for materials and work related to their
project. In addition, a Sarbannes-Oxley ("SOX") control is being used to review a
selection of work orders where actual costs are greater than or less than estimated
costs. This selection of work orders is reviewed and variances are investigated to
ensure that the original estimate charged to the customer reasonably represents costs
of the services provided. This review is used to verify that the work order estimates
developed by the Distribution Designers are appropriate.
A confidential copy of the recently completed internal SOX control final report,
titled Control #6 Work Order Estimated Costs versus Actual Costs, is available upon
request at Idaho Power's corporate offce. Because the majority of work orders fall
within expected cost parameters, this report is designed to look at the exceptions, and is
used to verify that only appropriate costs are being collected from the customers. It is
not intended to analyze the effectiveness of Idaho Power's construction billng practices
IDAHO POWER COMPANY'S RESPONSE TO THE COMMISSION
STAFF'S SECOND PRODUCTION REQUEST TO IDAHO POWER COMPANY - 8
using design cost estimates versus work order actuals. Two major differences between
customer cost estimates and actual work order costs are:
1. Cost allowances are given to the customer and are reflected in the
customer cost quotes, but not in the actual work order costs; and
2. Customer cost quotes include general overheads capped at 1.5
percent. The actual cost to Idaho Power for doing this work is significantly higher,
approximately 15.75 percent for general overheads.
The proposed changes to Rule H are designed to allow the actual cost of the
project to be more accurately represented in the design estimate.
The response to this Request was prepared by Ben D. Hendry, Methods &
Materials Engineering Leader, Idaho Power Company, in consultation with Lisa D.
Nordstrom, Senior Counsel, Idaho Power Company.
IDAHO POWER COMPANY'S RESPONSE TO THE COMMISSION
STAFF'S SECOND PRODUCTION REQUEST TO IDAHO POWER COMPANY - 9
REQUEST NO. 35: Are the travel time assumptions used in preparing line
extension cost estimates specific to each job based on a customer's location and
distance from a service center, or are travel time assumptions standard for all
customers and instead based on compatible unit codes?
RESPONSE TO REQUEST NO. 35: Travel time is based on actual distance
from a Service Center to each customer location.
The response to this Request was prepared under the direction of Scott Sparks,
Senior Pricing Analyst, Idaho Power Company, in consultation with Lisa D. Nordstrom,
Senior Counsel, Idaho Power Company.~
DATED at Boise, Idaho this Ji day of March 2009.
IDAHO POWER COMPANY'S RESPONSE TO THE COMMISSION
STAFF'S SECOND PRODUCTION REQUEST TO IDAHO POWER COMPANY - 10
CERTIFICATE OF SERVICE
Ir)~I HEREBY CERTIFY that on this -f day of March 2009 I served a true and
correct copy of IDAHO POWER COMPANY'S RESPONSE TO THE COMMISSION
STAFF'S SECOND PRODUCTION REQUEST TO IDAHO POWER COMPANY upon
the following named parties by the method indicated below, and addressed to the
following:
Commission Staff
Kristine A. Sasser
Deputy Attorney General
Idaho Public Utilties Commission
472 West Washington
P.O. Box 83720
Boise, Idaho 83720-0074
Building Contractors Association of
Southwestern Idaho
Michael C. Creamer
GIVENS PURSLEY, LLP
601 West Bannock Street
P.O. Box 2720
Boise, Idaho 83701-2720
City of Nampa AND
Association of Canyon County
Highway Districts
Matthew A. Johnson
Davis F. VanderVelde
WHITE PETERSON GIGRA Y
ROSSMAN NYE & NICHOLS, P.A.
5700 East Franklin Road, Suite 200
Nampa, Idaho 83687
Kroger Co.
Michael L. Kurt
Kurt J. Boehm
BOEHM, KURTZ & LOWRY
36 East Seventh Street, Suite 1510
Cincinnati, Ohio 45202
-lHand Delivered
U.S. Mail
_ Overnight Mail
FAX
-X Email kris.sasser(âpuc.idaho.gov
Hand Delivered
--U.S. Mail
_ Overnight Mail
FAX
-l Email mcc(âgivenspursley.com
Hand Delivered
--U.S. Mail
_ Overnight Mail
FAX
-l Email miohnson~whitepeterson.com
dvandervelde~whitepeterson.com
Hand Delivered
--U.S. Mail
_ Overnight Mail
FAX
-l Email mkurt~BKUawfirm.com
kboehm(âBKUawfirm .com
IDAHO POWER COMPANY'S RESPONSE TO THE COMMISSION
STAFF'S SECOND PRODUCTION REQUEST TO IDAHO POWER COMPANY - 11
Kevin Higgins
Energy Strategies, LLC
Parks ide Towers
215 South State Street, Suite 200
Salt Lake City, Utah 84111
-l U.S. Mail
_ Overnight Mail
FAX
-l Email khiggins~energystrat.com
~~drt~
Lisa D. Nordstrom
IDAHO POWER COMPANY'S RESPONSE TO THE COMMISSION
STAFF'S SECOND PRODUCTION REQUEST TO IDAHO POWER COMPANY - 12
BEFORE THE
IDAHO PUBLIC UTiliTIES COMMISSION
CASE NO. IPC-E-08-22
IDAHO POWER COMPANY
RESPONSE TO STAFF'S
PRODUCTION REQUEST NO. 33
RULE H RESPONSE TO QUESTION NO. 338
To more clearly illustrate how IPC utilizes our Strategic Sourcing methodology in practice, we
have given a high level overview of a Strategic Sourcing review that was completed in December
2008 on Wood Poles. IPC followed the 5 steps of strategic sourcing process illustrated below:
1. Team formation & stakeholder identification - Established a Cross functional team
(Engineering, Finance, Materials, Procurement, Lineman - field representation) to
ensure an enterprise wide perspective and value. Identified stakeholders with a vested
interest in outcome.
2. Perform internal & external interviews - Internal interviews were conducted with 22
stakeholders to identify& improve internal processes which in turn would improve
service and provide the best value to IPC customers. External interviews were
conducted with 5 suppliers (including incumbent) and 4 peer utilities to identify industry
best practices and market opportunities.
3. Develop sourcing strategy - Developed RFP to include expectations from internal
(stakeholder) interviews, and best practices from external interviews in order to get
responses from suppliers that allow us to evaluate the Total Cost of Ownership (best
value).
4. Supplier screening (RFP & negotiations) - The RFP was sent to 5 suppliers, of which 4
responded with proposals. The cross functional team evaluated the proposals in the
areas of: price, technical capabilities, delivery capabilties, security of supply and
strategic partner. IPC conducted several rounds of negotiations that included face to
face negotiations with the top 2 suppliers. We leveraged our positions and gave both
suppliers the opportunity to provide a best and final proposal. From the team's final
evaluation a recommendation was made to the sponsor and executive steering
committee to award the business to McFarland Cascade. Both committees approved the
recommendation.
5. Final agreement and contract implementation - After final agreement was reached,
including the supplier signing a final contract, IPC awarded a 3 year contract to
McFarland Cascade. Wood Poles are slated to be reviewed again in 2012.
As it relates to Rule H, IPC follows the same process for these other major categories (Cable/
Conductor, Transformers, and line Hardware). So we are not redundant in covering the strategic
sourcing process for each of these major categories, we have given the highlights below to
demonstrate the competitiveness of these reviews and ensure Idaho Powers customers are
receiving the best value for our services.
Pole Line Hardware:
. Last Bid date: 2007
. Number of Suppliers included in RFP process and initial negotiations: 15
. Number of Suppliers involved in Presentations and Final Negotiations: 2
. Number of Suppliers Awarded Business: 1(3 year contract with 2 optional 1 year
renewals)
. Next Bid Date: 20tO
Cable/Conductor:
. Last Bid date: 2005
. Number of Qualified Suppliers included in the RFP process and initial negotiations: 5
. Number of Suppliers involved in Presentations and Final Negotiations: 2
. Number of Suppliers Awarded Business: 1(3 year contract with 2 optional 1 year
renewals)
. Next Bid Date: In Process, expected to be completed in Nov. 2009
. Any Market related pricing mechanisms: All products are tied to a pricing mechanisms
which adjusts on a quarterly basis based on market indices (Copper, Aluminum)
Transformers:
. Last Bid date: 2003
. Number of Qualified Suppliers included in the RFP process and initial negotiations: 7
. Number of Suppliers involved in Presentations and Final Negotiations: 2
. Number of Suppliers Awarded Business: 1 (3 year contract with 2 optional 1 year
renewals)
. Market Conditions: Decision in 2006 was to negotiate one on one w/ incumbent
supplier and extend contract due to limited capacity of the entire market brought on by
silcon steel shortages and hurricane damage and restoration. Qualified Suppliers were
solicited and stated they were at max capacity.
In 2008, a cross functional team reviewed the implications of the new Department of
Energy ruling for more efficient transformers and it was determined that it would be
more prudent to ensure security of supply during this transition period and then take
out to bid in 2011 once all market adjustments had taken place. One on One
negotiations took place to ensure security of supply while reducing inventory costs in
the supply chain.
. Next Bid Date: 2011
. Any Market related pricing mechanisms: All products are tied to a pricing mechanisms
which adjusts on a quarterly basis based on market indices listed below:
Carbon steel
Silcon steel
Copper
Aluminum
Mineral oil
FR3 fluid