20131114Volume II.pdf

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BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF IDAHO POWER
COMPANYIS APPLICATION FOR A
CERTIFICATE OF PUBLIC
CONVENIENCE AND NECESSITY FOR
THE INVESTMENT IN SELECTIVE
CATALYTIC REDUCTION CONTROLS ON
.JIM BRIDGER UNITS 3 AND 4.
CASE NO.
rPC-E-13-1 6
TECHNICAL HEARING
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c,.)
(.,J1
HEARING BEFORE
COMMISSIONER MARSHA H. SMITH (Presiding)
COMMISSIONER MACK A. REDFORD
COMMISSIONER PAUL KJELLANDER
PLACE:Commission Hearing Room
472 Vflest Washington StreetBoise, Idaho
November 'l , 20L3
rr Pages 206 361
DATE:
VOLUME
,a-t-\
EII
-nl.^HE POST OFFICE BOX 578
BOISE, IDAHO 83701
208-336-9208
HEDRICK
COURT REPORTING
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HEDRICK COURT REPORTING
P. O. BOX 578, BOTSE, rD
APPEARANCES
For the Staff:KRISTINE A. SASSER, Esq.
Deputy Attorney General-
412 West Washj-ngton
Boise, Idaho 83102
LISA D. NORDSTROM, Esq.
-and-
JENNIFER REINHARDT-TESSMER, Esq.
Idaho Power Company
L22L West Idaho Street
Boise, Idaho 83702
For ldaho Power Company:
For Industrial Customers
Idaho Power:
of RICHARDSON ADAMS, PLLC
by PETER J. RICHARDSON, Esq.
5l-5 North Twenty-seventh Street
Boise, Idaho 83616
For Idaho Conservation
League:
BENJAMIN J. OTTO, Esq.
fdaho Conservation League
710 North Sixth Street
Boise, Idaho 83102
McDEVITT & MILLER, LLPby DEAN J. MILLER, Esq.
420 Vfest Bannock Street
Boise, Idaho 83702
For Snake River Alliance:
83701
APPEARANCES
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INDEX
WITNESS EXAMINATION BY PAGE
Michael \T. Youngblood(Idaho Power Company)
Ms. Reinhardt-TessmerPrefiled DirectPrefiled RebuttalMr. Richardson (Cross)
Mr. Miller (Cross)
Mr. Otto (Cross)
Ms. Reinhardt-TessmerMr. Mi1ler (Recross)
Ms. Sasser (Direct)
Prefiled Direct
Ms. Reinhardt-TessmerMr. Mil-l-er (Cross )Ms. Sasser (Redirect)
Ms. Sasser (Direct)
Prefil-ed Direct
Ms. Reinhardt-TessmerMr. Richardson (Cross)
Mr. MiIler (Cross)
Mr. Otto (Cross)
Ms. Sasser (Redirect)
( Direct ) 206
209
23]-
243
250
265(Redi) 27L
272
213
275
(Cross) 28L
284
285
286
288
(Cross ) 322
325
326
329
336
Patricia Harms
( Staff )
Mike Louis
( Staff)
Dr. Don Reading
( Industrj-al- Customers
fdaho Power)
of
Mr. Richardson (Direct)
Prefiled Direct
Ms. Sasser (Cross)
Ms. Nordstrom (Cross)
Commissioner Smith
EXHIBITS
340
342
351
354
35s
NUMBER PAGE
Fgr, Idaho Power Company:
1 . (Conf idential- )
For Staff:
PremarkedAdmitted 243
l-01.( Confidential )PremarkedAdmitted 322
HEDRICK COURT REPORTING
P. O. BOX 578, BOTSE, rD
INDEX
EXHIBITS83701
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HEDRICK COURT REPORTINGP. O. BOX 578, BOTSE, rD
702.
103.
(Conf idential- )
(Confidential )
PremarkedAdmitted 322
Premarked
Admitted 322
Eor IndustriaL Customers of Idaho Power:
201-.Don C. Reading Curricul-um Vitae, 4 pgs PremarkedAdmitted 351
For Idaho Conservation League:
301-.(Renumbered from Exhibit No. 302)Marked 359Admitted 359
For Snake River Alliance:
401
403 472
Admitted 359
Admitted 359
83701
EXHIBITS
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HEDRICK COURT REPORTING
P. O. BOX 578, BOTSE, rD
YOUNGBLOOD (Di)
IPC
BOTSE, TDAHO, NOVEMBER 7, 20t3, ]-245 p.M.
COMMISSIONER SMITH: Wel-come back. Werre ready
to begin again. Ms. Nordstrom, I believe werre wj-th you.
MS. NORDSTROM: Ms. Reinhardt-Tessmer will be
taking it from here.
COMMISSIONER SMITH: Oh.
MS. REINHARDT-TESSMER: Idaho Power cal-Is Michael-
Youngblood.
COMMISSIONER SMITH: And weLcome to our hearing
room.
MS. REfNHARDT-TESSMER: Thank you.
M]CHAEL J. YOUNGBLOOD,
produced as a witness at the instance of Idaho Power Company,
being first duly sworn, was examined and testified as fo11ows:
DTRECT EXAMINATION
BY MS. REINHARDT-TESSMER:
O. Good afternoon, Mike.
A. Good afternoon.
O. Can you please state your name and speI1 your
l-ast name for the record?
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HEDRICK COURT REPORTING
P. O. BOX 578, BOTSE, rD
YOUNGBLOOD (Di)
IPC
A. Michael- J. Youngblood. Last name is spelled
Y-O-U-N-G-B-L-O-O-D.
O. By whom are you employed and what is your current
position?
A. I'm employed with Idaho Power Company, and my
current position is I am the manager of regulatory projects.
O. Are you the same Michael Youngblood that filed
direct and rebuttal- testimony in this case?
A. f am.
O. Do you have any corrections or additions to that
testimony?
A. I do not.
O. And if I were to ask you the same questions that
are outlined in your prefiled testimony, woul-d your responses
be the same today?
A. Yes, they wou1d.
MS. REINHARDT-TESSMER: If it would please the
Commission, I move for Michael YoungbJ-ood's prefiled direct
testimony along with Exhibit 7 and his prefiled rebuttal-
testimony be admitted onto the record and into evidence.
COMMISSIONER SMITH: Without objection, we wil-1
spread the prefil-ed direct and rebuttal testlmony of
Mr. Youngblood upon the record as if read, and admit
Exhibit 7.
(The fol-lowing prefiled dj-rect and
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rebuttal testj-mony of Mr. Youngblood is spread upon the
record. )
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HEDRICK COURT REPORTING
P. O. BOX 578, BOTSE, rD
YOUNGBLOOD (Di)
IPC
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83701
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1 Q. Please state your name and business address.
2 A. My name is Michael J. Youngblood and my
3 business address is L22l West Idaho Street, Boise, Idaho.
4 Q. By whom are you employed and in what
5 capacity?
5 A. I am employed by Idaho Power Company ("Idaho
? Power" or "Company") as the Manager of Regulatory Projects
8 in the Regulatory Affairs Department.
9 Q. Please describe your educati-onal background.
10 A. In May of L917, I received a Bachelor of
11 Science Degree in Mathematics and CompuEer Science from the
12 University of Idaho. Erom 1994 through L996, I was a
13 graduate student in the Executive MBA program of Colorado
14 State University. Over the years, f have attended numerous
15 industry conferences and training sessions, including
16 Edison Electric Institute's "Electric Rates Advanced
L'l Course. "
18 O. Please describe your work experience with
19 Idaho Power Company.
20 A. I began my employment with Idaho Power in
2L 1911. During my career, I have worked in several
22 departments of the Company and subsidiaries of IDACORP,
23 including Systems Development., Demand Planning, Strategic
24 Planning and IDACORP Solutions. From 1981 to 1988, I
25 worked as a Rate Analyst in the Rates and Planning
YOUNGBLOOD, Dr 1
Idaho Power Company
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1- Department where I was responsible for the preparation of
2 electric rate design studies and bill frequency analyses.
3 I was also responsible for the validation and analysls of
4 t,he Load research data used for cost, of service
5 allocations.
6 From L98B through I99L, I worked in Demand Planning
7 and was responsible for the load research and load
B forecasting functions of the Company, including sample
9 design, implemenEaLion, data retrieval, analysis, and
10 reporting. I was responsible for the preparation of the
11 five-year and twenty-year Ioad forecasts used in revenue
12 projections and resource plans as welI as the present,ation
13 of these forecasts to the public and regulatory
\4 commissions.
15 From 1991 through 1998, r worked in Strategic
16 Planning. As a Strat,egic Planning Assoeiate, f coordinated
11 the complex efforts of acquiring Prairie Power Cooperative,
18 the first acquisit.ion of its kind for the Company in forty
19 years. I was Ehe team leader on combined departmental
20 efforts responsible for evaluating performance based
2L regulation and reviewing potential telecommunications
22 business opportunities as a direct resulE of changes in
23 telecommunication legislation. Erom L996 to 1998, as a
24 part of a Strategic Planning initiative, I helped develop
25 and provide two-way communication between cust,omers and
YOUNGBLOOD, DI 2
Idaho Power Company
2L0
L energy providers using advanced computer technologies and
2 teleconmunications.
3 From 1998 to 2000, I was a General Manager of
4 IDACORP Solutions, a subsidiary of fDACORP, reporting to
5 the VP of Marketing. I was directly responsible for the
6 direction and management of the Commercial & Industrial
1 (*C&I") Business Solutions division. f had the overall
B responsi.bility for the research, development and
9 implementation of new products and services for C&I
10 customers. These new products and services included energy
11 information services, biII payment and management products,
12 facility monitoring, telecommunication and interne!
13 services, onsite generation and power quality analysis. I
L4 was directly involved in the direction and product
15 development of the Allied Utilities Network, an alliance of
16 utilities with the common goal of providing products and
L1 services for their respective customers as well as the
1B growth of those services into new territories, including
19 national and regional accounts.
20 fn 2001, I returned to the Regulatory Affairs
2l Department and worked on special projects related to
22 deregulation, the Company's Integrated Resource Plan, and
23 filings with both the Idaho Public Utilities Commission
24 ("Commission" or 'IPUC") and the Public Utility Commission
25 of Oregon (*OPUC").
yoUNGBLOOD, Dr 3
Idaho Power Company
27L
L In 2008, T was promoted Eo the position of Manager
2 of Rate Design for Idaho Power. In that posiEion I was
3 responslble for the management of the rate design
4 strategies of the Contpany as well as the oversight of aII
5 tariff administration.
6 In January of 2012, I became the Manager of
7 Regulatory ProJects for Idaho Power, which is my current
8 position. In this position, I provide the regulatory
9 support for many of the large individual projects and
10 issues currently facing the Company. Most recently that
11 has included providing regulatory support for the inclusion
LZ of the Langley Gulch pohrer plant investment in rate base
13 and supporting t,he Company's efforts to address numerous
14 issues involving Qualifying Facillties (*QF") as defined
15 under the Public Utility Regulatory Policies Act of 1978
16 ("PURPA") , including t.he Company's efforts in Case No. GNR-
l7 E-11-03, the review of PURPA QF contract provisions.
18 I. O\IERVIEI.I
L9 0. What it the purpose of your testimony in
20 this matt,er?
2L A. The Company is reguesting t,he IPUC issue a
22 Cert,ificate of Public Convenience and NecessiLy (*CPCN")
23 related to the Selective Catalytie Reduction ('SCR")
24 invest.rnents planned for Jim Bridger Unit 3 and Jirn Bridger
25 Unit 4 ("the Project"). In my testimony, I will briefly
YOUNGBLOOD, DI 4
Idaho Power Company
2t2
1 describe the portfolio analysis of coal-fired generation
2 alternatives developed for the Company's 2013 Integrated
3 Resource Plan (*2013 fRP"). The 2013 IRP is being filed
4 concurrently with this filing in Case No. IPC-E-13-15 and
5 is Attachment 4 to the Application in this case.
6 In addition, I wiII present the cost estj-mates for
7 the Jim Bridger SCR systems and the estimated revenue
I requirement impact of including that investment in the
9 Company's rate base. Finally, I wiII discuss the Company's
10 request for the Commission to provide authorization and
lL binding ratemaking treatment for the Company's SCR
12 investments in Jim Bridger Units 3 and 4 pursuant to Idaho
13 Code S 61-54L.
14 a. The Company has filed a number of CPCNs for
15 peaking facilities over the last decade, and most recently,
16 for the Company's combined-cycle combustion turbine project
11 at the Langley Gulch power plant. fs this request for a
18 CPCN different from those requests?
79 A. Yes it is. Most of the Company's previous
20 requests for a CPCN were for new generating plants. This
21 requesE is different in that it is for the addition of
22 emj-ssion equipment required for the Company to remain
23 compliant with environmental regulations at an existing
24 generation resource. The Jim Bridger Plant is already a
25 valued part of the Company's generation fleet, and in fact,
YOUNGBLOOD, Dr 5
Idaho Power Company
2L3
1 as noted in Ms. Lisa Grow's testimony, is the Company's
2 lowest cost thermal plant. The Jim Bridger Plant is
3 currently included as production plant in the Company's
4 rate base. Ongoing operation and maintenance of the plant,
5 including the invest,ment in emission controls mandated by
6 state or federal environmentaJ. regulations, would noE
7 typically be an investmenE for which the Company would
8 request a CPCN.
9 Q. why then is the Company reguesting a CPCN at
10 this time?
11 A. As described in Ms. Grow's testimony, the
12 Company is requesting a CPCN for the SCR investment beeause
13 of the magnitude of the investment and the uncert,ainty
14 surrounding coal-fired generation in today's politisal and
15 social environment, as weII as the amount of interest
16 expressed by stakeholders.
L7 O. P1ease generally describe the Project, for
18 which the Company is requesting a CPCN.
19 A. The Project refers to the Company's
20 investment in SCR systems Eo reduce the emissions of
2l nit.rogen oxide for Jim Bridger Units 3 and 4. A complete
22 discussion of the specific emission conErols and equipment
23 reguired for the Project can be found in Mr. Tom Harvey's
24 testlmony.
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YOUNGBLOOD, DI 6
Idaho Power Company
21,4
1 Q. Why are the investments in SCR systems at
2 Jim Bridger Units 3 and 4 necessary?
3 A. The Best Available Retrofit Technology
4 Appeal Settlement Agreement and the Wyoming Regional Haze
5 State Implementati-on Plan ("Wyoming Regional Haze SIP-)
5 require the inst.allation of SCR systems on ,.Iim Bridger
7 Unit 3 by the end of 2015 and on Jim Bridger Unit 4 by the
8 end of 2016. On ltlay 23, 201-3, the Environmental
9 Protection Agency (*EPA") proposed to approve t.he Wyoming
10 Regional Haze SIP for installation of SCR systems on Jim
11 Bridger Units 3 and 4 in 2015 and 2016, respectively, as
l2 outlined in the SIP- The EPA has indicated it wiII sign
13 a not,ice of final rulemaking on November 2L, 2OL3. This
t4 would make these emission reduction reguirements at, Jim
15 Bridger Units 3 and 4 federally enforceable as we1l. This
16 is discussed more fully in Mr. Harvey's t.estimony. fn
Ll order for the continued operation of the plant to be
1B compliant with environmental regulation, it will be
19 mandatory for the SCR systems to be installed at Jim
20 Bridger Units 3 and 4.
2L O. When do the SCR emission control systems for
22 Jim Bridger Units 3 and 4 need to be installed and
23 operational?
24 A. fn order to be compliant with these current
25 state and anticipated future environmental regulations, and
2L5
YOUNGBLOOD, Dr '1
Idaho Power ComPany
1 enable continued operation of the Jim Bridger Plant, the
2 SCR emission control systems for Jim Bridger Units 3 and 4
3 must be installed and operational by December 31, 2015, and
4 December 31-, 20L6, respectively.
5 Q. Is Idaho Power solely responsible for the
6 SCR investments for the Project.?
1 A. No. Idaho Power is not the sole owner of
I the Jim Bridger Plant. The Company is a one-third partial
9 owner of the plant, the remaining two-thirds being owned by
10 PacifiCorp. PacifiCorp is also the operating partner of
11, the plant. Nevertheless, while the decision to add SCR
L2 systems to Jim Bridger Units 3 and 4 does not solely reside
13 with Idaho Power, t,he Company did conduct its own
L4 independenr analysis to determine if the additiqn of SCR
15 systems was econornically prudent - This analysis is
16 discussed in greater detail in Mr. Harvey's testimony.
11 O. What did the Company conclude from the
18 results of the economic analysis discussed by Mr. Harvey?
19 A. Based upon the economic analysis discussed
20 in Mr. Harvey's testimony regarding both the Science
21 Applications International Corporation (*SAIC") and Idaho
22 Power evaluations analyzing the installation of SCR systems
23 at rlim Bridger Units 3 and 4, t.he Company's conclusion is
24 that compared to alternative compliance options, the
25 installation of the SCR systems is the lowest incremental
YOUNGBLOOD, DI 8
Idaho Power Company
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cost and least risk option, and therefore, a prudent
economic decision for t,he ongoing operation of the Jim
Bridger Plant.
II. 2OL3 IRP A}IALYSIS
o.Subsequent to the Company's conclusion that
the installation of SCR systems is the prudent economic
decision for the ongoing operation of the Jim Bridger
Plant, did the Company nonetheless evaluate any potential
reduction or early retirement of its existing coal-fired
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10 resources?
A.Yes. As part of the development of the
Company's 2013 fRP, the Company included four resource
planning portfolios that explored options for reducing the
amount of coal-fired generation in Idaho Power's generation
portfolio. The options to reduce t,he reliance on coal
included replacement with natural gas-fired generation,
increased demand-side measures including demand response,
changing the fuel at the North Valmy plant to natural 9ds,
and the Boardman to Hemingway transmissj-on line. Two of
the portfolios specifically ceased coal-fired operations at
the Company's Jim Bridger and North VaImy coal plants (the
Boardman coal plant ceases coal-fired operations at year-
end 2020 in aII resource portfolios).
YOUNGBLOOD, DI 9
Idaho Power Company
2L7
1 O. What were the results of the 20L3 IRP
2 analysis with regard to the portfolios that eliminated a
3 coal-fired resource at the Jim Bridger P1ant?
4 A. As described on pages 93-94 of Attachment 4
5 to the Application, Portfolios 6 and 7 ceased coal-fired
6 operations at the Company's Jim Bridger and North Valmy
7 coal plants. These tbro portfolios ranked as the two
I highest cost resource portfolios of the nine portfolios
9 analyzed. As shown on Table 9.2 on page 98 of Attachment
10 4, PortfoLio 6 had a net present value for the 20-year
11 planning period (20L3-24321 that was S1r5L2,173,000 more
LZ costly than the Company's preferred portfolio, and
13 Portfolio 7 was $1,785,578,000 more costly.
14 O. Based upon the analysis conducted in the
15 20L3 IRP, ls rhe continued operatlon of the coal-fired
16 resource aE the Jim Bridger Plant cost-effective?
L1 A. Yes. As noEed on page 113 of Attachment 4,
18 the Company's preferred resource portfolio in the 20L3 IRP
19 is Portfolio 2. Resource Portfolio 2 includes continued
20 operations at the Jim Bridger and North Valmy coal plants.
2L Idaho Power intends to operate it,s facilities, including
22 the coal-fired generation plants, in full compliance wit,h
23 environmental regulations.
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YOUNGBLOOD, DI 10
Idaho Power Company
2'18
O. Do you believe the 2013 IRP was sufficient
2 Ln analyzing the complexities surrounding coal-fired
3 generation?
A. Yes. I believe the 2013 IRP, in addition to
5 the previously fileci Coal Study, adequately analyzes the
6 Company's options for compliance while supporting its
7 obligation to reliably serve the electricity needs of its
8 customers. The ldaho Power resource planning process has
9 four primary goals:
10 (1) Identify sufficient resources to
11 reliably serve the growing demand for energy within the
12 Idaho Power service area throughout the 20-year planning
O 13 period.
14 (2\ Ensure the selected resource portfolio
15 balances cost, risk, and environmental concerns.
15 (3) Give equal and balaneed treatment to
17 supply-side resources, demand-side measures, and
1B transmissi-on resources.
19 (4) Involve the public in the planning
20 process in a meaningful way.
2L IRP analyses are conducted by the Company on an
22 ongoing basis with the formal fRP document being filed for
23 acceptance with the IPUC and acknowledgement with the OPUC
24 every two years.
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YOUNGBLOOD, DI 11
Idaho Power Company
III. PROJECT COST ESTIIATE
O. Has the Company determined a total project
cost estimate for Idaho Power's share of the Project
("Project Cost") ?
A.Yes. The total cost of the Project, before
Allowance for Funds Used During Construction ("AEUDC") is
9353,843,886. fdaho Power's share of that amount, the
Project Cost, is one-third, or $117,947,962, comprised of a
$57,649,113 investment in Jim Bridger Unit 3 and a
$60,298,849 investment in .lim Bridger Unit 4r before AFUDC.
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What is included in the Project Cost?
Confidential Exhibit 7 shows the budget,
projections for each cost description by year for Jim
Bridger Units 3 and 4. The largest portions of the total
Project Cost estimate are the costs included under the
engineer, procure and construct contract ('EPC Contract")
0.Has a contracL been signed with an EPC
18 Contractor?
19 A.Yes.As discussed in Mr. Harvey's
of the extent of the Project and the
time it takes to plan, permit,
and construcE SCR systems, and the
final ruling from t.he EPA on approval
the Wyomlng Regional Haze SIP that
systems at Jim Bridger Units 3 and 4, a
YOUNGBLOOD, Dr L2
Idaho Power Company
20 testimony, because
2L extended period of
22 engineer, procure,
23 uncertaint,y of Ehe
24 of the portion of
25 addresses the SCR
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1 Limited Notice to Proceed (*LNTP") contract, was signed
2 with the successful bidder on May 31, 20L3.
O. Has PacifiCorp, the majority ohrner and plant
4 operator, made regulatory filings similar to this filing by
5 Idaho Power?
6 A. Yes. As indicated by Mr. Harvey, in August
1 20L2, PacifiCorp, d/b/a Rocky Mountain Power, filed a CPCN
I with the lrlyoming PubIic Service Commission ("Wyoming
9 Commj-ssion") to construct two SCR systems on units 3 and 4
10 of the Jim Bridger Plant, ds weII as a "voluntary request
lL for approval of resource decision to construct SCR systems
L2 on Jim Bridger units 3 and 4" with the Public Service
13 Commission of Utah ("Utah Commission").
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O. 9{hat. were the results of those filings?
A. On May 10, 2013, the Utah Commission issued
Based on the foregoing discussion andthe evidence presented in this case, w€
approve the Company's resource decision
to construct SCR systems to achieve
0.07 Ibs,/MMBIu limits at Bridger Unit 3
by 2015, and Unit 4 by 20L6, as
described in the Application. We find
the Company has demonstrated the
Bridger SCR Project is the least-cost
means, adjusted for risk, to meet the
emlssions limits for Bridger Units 3
YOUNGBLOOD, Dr 13
Idaho Power Company
L6 a final Report and Order approving the resource decision to
L1 construct the SCR systems, which is included as Attachment
l-B 2 lo the Application. The Utah Commission's conclusions
79 are provided below:
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Company's proposed t,iming forcompleting t,he Project wilI benefitratepayers by avoiding increasedProject cost due to the requirernents ofa compressed construcEion schedule andpossible additional outages.
Coordinat.ing the timing of the Projectwith the four-year maintenanceschedules of the Bridger P1ant alsowill manage costs and risks associatedwith potential replacement power costwhile the Project is implemented.Importantly, this timing will also
ensure the Project is completed in timeto meet the Wyoming SIP deadlines.
No. L2-035-92, Commission Report and Order, issued
2013, pdge 32).
on May 29, 2013, the Wyoming Commission issued a
and 4 established by
emission standards. We
UIe conclude there
addltional service
the wyomingalso find the
is need forwhich warrants
23 final order approving the CPCN for Ehe SCR upgrades, which
24 ls included as Attashment 3 to the Appllcatlon. A summary
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of the Wyoming Comrnission's conclusions is provided below:
construction of the proposed SCR
upgrades to Bridger Units 3 and 4 based
upon our findings, which are supportedby the t.estimony of the intervenors asweII as the Application and testimony
and exhibits of RMP.
We concl-ude that: Ii ] the proposed
expenditures are reasonable and in thepublic int,erest, Iii ] the present andfuture public convenience and necessityreguire the construction and operationof SCR upgrades to Bridger Units 3 and4, and tiiil a CPCN should be issued inthis case. RMP has carried its burdertsof proof and persuasion. It is in thepublic interest that the certificate be
YOUNGBLOOD, DI 14
Idaho Power Company
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issued. (Docker No. 20000-418-EA-1_2,
Record No. 13314 paragraphs 84-86).
What amount has the Company determined to be
Cost includinq AEUDC ("Total Commitment5 the Project
6 Estimate") ?
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A.The Total Commitment Estimate for the
Project is the Project Cost of $L1,7,941 ,962 plus
$11,889,43L in AFUDC. The Total Commitment Estimate for
the Project, including AFUDC, is $129,837,393. Of this
amount, $62,923,521 is the Commitment Estimate for Jim
Bridger Unit 3 and $66,913,866 is the Commitment Estimate
A.Based on the EPC Contract, actual eosts
incurred in the development phase and the forecast
estimates of the work to be completed, Idaho Power is able
to make a reliable estimate of the total capital cost of
the Project. As it has done in prior CPCN applications,
fdaho Power has termed this estimate a "Commitment
Estimate." The Commitment Estimate is a good faith
estimate of Idaho Power's total capital cost, including
AFUDC, and additional costs the Company anticipaEes it wiIl
incur but cannot quantify with precision at this time.
YOUNGBLOOD, DI ]-5
Idaho Power Company
13 for Jim Bridger Unit 4.
L4 O. Please clarify what you mean by the term
15 Commitment Estimate.
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L Idaho Power's Total Cornmj-tment Estimate for the Project is
2 $t29,831,393.
3 Q. What is the estimated revenue requirement
4 impact of these proposed additions to the Company's rate
5 base?
6 A. Based upon the system invesEment stated
7 above, Ehe Company performed a high-IeveI jurisdictional
8 revenue requirement analysis. Based upon the current
9 )urisdictional split between Idaho and Oregon, the Idaho
10 jurisdictional addition to productlon plant would be
11 $60, L96,724 for investments at Jim Bridger Unit, 3 and
L2 $64,0L4,LAL for investment at Jim Bridger Unit 4. At the
13 Company's current rate of return, the additional annual
14 revenue requlrement for Jim Bridger Units 3 and 4 would be
15 approxi-mately $9-1 million and 99.7 million, respectively.
16 rV. RTQTTESTED REGUT.ATOBY TREAtt{Elfil
11 O. What regulatory treatment is the Company
18 requesLing as part, of this CPCN request?
19 A. The Company is requesting that the
20 Commission issue a CPCN order by November 29, 2013.
2L Pursuant to ldaho Code S 67-547, Ehe Company is requesting
22 that Ehe Commission provide Idaho Power with aut,horization
23 and a binding commitmenE to provide rate base treatment for
24 the Company's capital investment in the SCR sysEems at Jim
25 Bridger Units 3 and 4 in the amount of the Total Commitrnent
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Estimate of 5129,837,393. Of that amount, the Commitment
Estimate of $62,923,52'7 for the investment in Jim Bridger
Unit 3 would be closed-to-plant and authorized for cost
recovery on or after January 1, 20L6, and the Commitment
Estimate of $66,913,866 for the investment in Jim Bridger
Unit 4 would be closed-to-plant and authorized for cost
recovery on or after January L, 2OL1.
If binding ratemaking is approved for the Total
Commitment Estimate of $129,83'1,393, the Company could be
assured that amounts incurred up to the Commitment Estimate
amount would be determined to be prudent. Should the cost
of the ProjecL be less than the Corunitment Estimate, the
savings would directly benefit the customer through a lower
amount in rate base- on the other hand, should the Project
come in over the Conunitment, Estimate, fdaho Power would
have to demonstrate to the Commission that amounts above
the Commitment Estimate were prudently incurred and should
be recovered in rates.
The return on equity the Company expects to earn on
the Project investment is the authorized rate in effect at
the time the Project is placed in service. Idaho Power
wiIl depreciate the investments over the remaining Iife of
the Jim Bridger Plant in accordance with the IPUC-approved
depreciation rates in effect at the time the investment is
YOUNGBLOOD, DI L7
Idaho Power Company
225
t closed-to-plant. The Company's current deprecj.ation rates
2 were approved in Case No. IPC-E-12-08, Order No. 32559.
3 Q. Why is the Company requesting a CPCN order
4 by November 29, 20L3?
5 A. The LNTP concept described above was used
6 to reduce the risk and upfront cosEs of a FuIl Notice to
7 Proceed ("ENTP") until the final ruling from the EPA is
8 released, and to ensure the EPC Contractor can meet t,he
9 deadlines for installation as per the ldyoming Regional
10 Haze SfP. A provision in the LNTP states that December 1,
11 2013, which is defined as che FNTP Date, is Lhe deadllne by
L2 which the FNTP must be issued in order for the EPC
13 Contractor t.o attain the Project completion guaranLee dates
14 without requiring a contract change. Idaho Power and
15 PacifiCorp have agreed thatr ds long as the FNTP is issued
16 on or before DeeeftU)eE l, 2013, neither the EPC Contracc
L1 price nor the Project guarantee dates wiII be adjusted.
lB The Company is requesEing a CPCN order by November 29,
19 2013, so that in the event that a favorabLe CPCN order is
20 issued, the Company will be able to approve PacifiCorp's
2l execution of the FNTP by December L, 2013.
22 O. Why is the Company reguesting the Commission
23 provide authorization and binding ratemaking treatmenL for
24 t.he Company's SCR investments in.Iim Bridger Units 3 and 4
25 pursuant to ldaho Code S 51-541?
YOUNGBLOOD, DI 18
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1 A. Because of the uncertainty and political
2 realities surrounding the topic of coal-fired generation
3 described in the testimony of Ms. Grow, the Company is
4 concerned that decisions made today may be second guessed
5 in the future. Even with a favorable determination
6 provided with a certificate, the risk of disallowance at a
7 future date is a concern for the Company. For that reason,
8 the Company is requesting that the Commission provide
9 binding ratemaking treatment under ldaho Code S 61-541.
L0 O. Does Idaho Code S 61-54i- require the
lL Commission to make certain determinations regarding Idaho
72 Power's activities as a regulated utility?
13 A. The Iaw provides that the Commission wiII
L4 determine r.rhether: (1) the utility has a Commission-
15 accepted integrated resource plan in effect. (2) the
15 Project is in the public interest, (3) the utility has
L] considered other resources, (4) the Project is reasonable
18 compared to other resource options such as energy
19 efficiency, demand-side management, and other alternative
20 sources of supply or transmiss.ion, and (5) the utility
2L participates in regional transmission planning.
22 O. Based upon the informati-on the Company has
23 presented in this case, will Ehe Commission be able to make
24 these determinatj.ons with regard to Idaho Power?
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A. Yes. This information has been addressed in
the Company's test,imony, and in the Coal Study and 2013 IRP
that are filed with this case.
V. SUI!!}!ARY
A.
In summary, what specifically is the Company
Commission to include in its cpctl order?
Idaho Power believes that the results of the
CoaI Study conducted by the Company (SAIC analysis and
Idaho Power's Aurora simulation) and the portfol-io costs
ident,ified in the 2013 rRP clearly demonstrate that the
investment in SCR systems at .Iim Bridger Units 3 and 4
represent the most cost-effecCive means of assuring
continued operation of the Jim Bridger Plant to provide
sufficient, resourees to reliably serve the growlng demand
for energy within ldaho Poh,er's service area. Even so, the
Company believes thar rhe current political and
environmenEal climate provides addit.ional risk of future
recovery of Company investments and necessitates a
transparent public process to review the results that
support the Company's conclusion. Therefore, the Company
requests the Commission evaluate the merit.s of providing a
favorable CPCN order. Specifically, Idaho Power requests
Ehat the Commission issue an order approving a CerEificate
of Public Convenience and Necessity by November 29, 20L3,
which finds that,:
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requesting the
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1 (1) The installation of Selective Catalytic
2 Reduction systems planned for Jim Bridger UnJ-ts 3 and 4 is
3 consistent with Idaho Power's resource plans and is an
4 appropriate invest.ment to assure the ongoing compliant
5 operation of the Jim Bridger Pl-ant to reliably serve its
6 customers.
1 (21 Existing wyoming and ant.icipated
8 federal regulations require the installation of Selective
9 Catalytic Reduction systems for Jim Bridger Units 3 and 4
10 by December 3L, 2015, and December 3L, 2OL6, respectively.
11 (3) The approved Total Commitment Estimate
L2 for the Project, including $11,889,43L in AFUDC is
13 $L29,83'1,393, which includes a Commitment Estimate for Jim
L4 Bridger Unit 3 of $62,923,527 and a Commitment Estimate for
15 Jim Bridger Unit 4 of $66,913,866.
L6 (4) Pursuant to rdaho Code S 61-541, the
L'7 Commission provides Idaho Power with authorization and a
18 binding commitment to provide rate base treatment, as
19 described previously in my testimony, for the Company's
20 capital investment in SCR controls at Jim Bridger Units 3
2L and 4 and related facilities up to the amount of the Total
22 Commitment Estimate of $129,837,393 at such time the plant
23 is placed into operation. Retail customers wiII receive
24 the full benefit of the Project being completed under the
25 Total Commitment Estimate, while the Company will have the
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opportunity
Estimate as
o.
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to justify any costs above the Total Commitment
prudently incurred for recovery.
Does this conclude your testimony?
Yes, it does.
YOUNGBLOOD, DI 22
Idaho Power Company
230
1 O. Please state your name and business address.
2 A. My name is Michael J. Youngblood and my
3 business address is L221 West fdaho Street, Boj.se, Idaho
4 83702.
5 Q. By whom are you employed and in what
6 capacity?
7 A. I am employed by Idaho Power Company ("Idaho
I Power" or "Company") as the Manager of Regulatory Projects
9 in the Regulatory Affairs Department.
10 O. Are you the same Michael Youngblood that
11 previously filed direct testimony in this docket.?
L2 A. Yes I am-
13 A. what is the purpose of your testimony in
L4 this matter?
15 A. The purpose of my rebuttal testimony is to
15 address certain issues raised in the direct testimony of
11 Idaho Public Utilities Commission ("Comrnission") Staff
18 witness Mike Louis and the direct testimony of the
19 Industrial Customers of Idaho Polrer (*ICIP") witness Dr.
20 Don Reading. Specifically, I will address the issues
2l raised concerning the authorization and binding ratemaking
22 treatment for the Company's Selective Catalytic Reduction
23 ('SCR") J-nvestments in Jim Bridger Units 3 and 4 pursuant,
24 to ldaho Code S 61-541 and the issue regarding the
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suggestion of
Equity (*ROE")
an adjustment to the Company's Return on
o.Please describe the recommendations of Staff
witness Mr. touis.
A.The Company recognizes that Mr. Louis
supports the Company's decision to move forward with the
emission controL investment project for ,.]im Bridger Units 3
and 4 as prudent action, and that he supports authorization
of a Certificate of PubIic Convenience and Necessity
('CPCN") issued under ldaho Code S 6L-526. However, Mr.
Louis recommends that only of the
of direct costs requested by the Company be authorized for
binding ratemaking treatment under Idaho Code S 61-541.
0.what rationaLe did Mr. Louis give for not
recomrnendinq the full of direct costs
requested by the Company for binding ratemaking treatment?
A.On page 20 of his direct testimony, Mr.
Louis states that he believes binding ratemaking treatment
should be limited to only those expense categories that are
necessary, and known and measurable, with a high level of
certainty. Based upon that belief, Mr. Louis states that
uncertain budgeted amounts for individual project
categories should be excluded from preapproval because
preapproval of budgeted amounts that are set using "liberal
estimating methods or that include slack from contingency
YOUNGBLOOD, REB 2
Idaho Power Company
232
1 amounts" allow project managers to spend up to the amount
2 of their authorized budget without regard for potential
3 savings.
4 Q. Does Mr. Louis offer any evidence that the
5 Company's budgeted amounts were established using "liberal
6 estimating methods" or that the contingency dollars
7 included "slack" amounts?
B A. No, he did not.
9 Q. Did Mr. Louis offer any explanation for
1.0 suggesting that if the expense categories he recommended to
11 be excluded from preapproved ratemaking were approved and
LZ binding, that the project managers would disregard
13 opportunlties to achleve reduetions in costs relatlve to
14 Company commitment estimates?
15 A. No, he did not.
16 a- Is it realistic to assume that exp€nses will
71 be incurred in the categories that Mr. Louis has excluded?
18 A. Yes. While f agree with Mr. Louis that
19 preapproval should be based on expense categories that are
20 determined to be necessary, I believe t,hat Mr. Louis'
2L standard for certainty of costs related to necessary
22 expense categories is unreasonabLe. While the cost
23 ,magnitude of necessary expense categories that are yet to
24 be incurred may not be easily quantifiable, uncertainty
25 does not negate the necessity of those items as part of the
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installation cost of the SCRs. Mr. Tom Harvey describes
categories excluded by Mr. Louis ineach of the expense
more detail in his
are necessary.
rebuttal testimony and explains why they
o.What amount does the Company recommend the
Comrnission consider for preapproved ratemaking treatment?
A.The Company stil} requests the Commission
provide fdaho Power with authorization and binding
commitment to provide rate base treatment pursuant to ldaho
Code S 6L-54L, for the Company's capital investment in the
SCRs at Jim Bridger Units 3 and 4 in the amount of
$L29,837,393, which includes $11,889,431 in Allowance for
Funds Used During Construction (*AEUDC"). However, if the
Commission rrere to eonsider another approach in determining
an appropriate amount for preapproval as suggested by Mr.
Louis, the Company would encourage the Commission to
consider an approach consistent with the way "uncertain"
expense categories were handled in Case No. IPC-E-09-03,
the Langley Gulch CPCN case. ltlhile some costs were
uncertain or not quantifiable at the time of the
appli-cation, Staff and the Commission recognj-zed that those
cost categories were prudent and that some amount of
expense would be incurred. In Order No. 30892, the
Commj-ssion approved Staff's recommendation of an amount for
preapproved ratemaking which refl-ected 50 percent of the
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costs t,hat were known with reasonable certainty would
occur, but were not quantifiable at that time. This
approach seems more reasonable than to include no costs at
aII for expense estimates in categories that are certain to
be incurred.
O. Using this approach, what additional amounts
should be included in the Staff's recommendation for
preapproved ratemaking?
A. With the uncertainty of whether or not the
Low Temperature Economlzer wiII be necessary at all, and
uith the unknown nature of the estimates for the
Contingency category, it is understandable that Mr. Louis
wouLd .recommend excluding these two categories. llowever,
in providing treatment consistent with that used in the
Langley Gul.ch CPCN dockeL, the additional amounts that
should appropriately be included in the Staff's
reconrmendatj.on for preapproved ratemaking would include
half of the amounts estimated for: the Boiler and Air Pre-
heater Reinforcement , the
the Flue GasEconomizer Upgrade
Reinforcement t.he Spare Parts
Allowance and Other Costs (which
include lubricants and ammonia reagent,, contracted site
construction management and inspection services, cosL for
removal and disposal of existing hazardous waste materials
YOUNGBLOOD, REB 5
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encountered,
conrmunication
cost of supplementary plant security and
features, etc. ) expense
. Under this approach, the
Company also recommends including half of the AFUDC amount
in excess of tn. I of AFUDC calculated for the actual
these reduced amounts
Staf f 's recotnmendation,
costs incurred through May 31-, 20L3
The sum of
would be added to the
resultS-ng in an amount of
ratemaking treatment.
for preapproved
o.Do you agree with Mr. Louls' assertion that
ofaexcluding unsertain amounts protects against recovery
fuII preapproved amount if actual costs are less?
A.No. The assertion Mr. Louis makes assumes
that just because an amount is preapproved for binding
ratemaking treatment, it is the amount that would then be
automatically included in rate base. fdaho Power does not
believe this is an accurate assumpti-on. fn fact, as Mr.
Louis later points out i-n the Company's application, Idaho
Power states that if the costs of the project are less than
the cost estimate, the savings would directly benefit the
customer through a lower amount in rate base. Only the
costs that are actually incurred will- be included in rate
base, regardless of whether a higher amount was
preapproved.
YOUNGBLOOD, REB 6
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a.ICIP witness Dr. Reading testified that
there is no compelling reason for preapproved ratemaking
treatment at this time because a full vetting of contested
issues could equally occur at the time the Company requests
the investment be. included in rates. Do you agree with
this conclusion?
A. No. The risks inherent in these
construction investments are compelling and the subject of
national and local debate. The Company understands that
absent its CPCN application, a fulI vetting of the
contested issues could have occurred post-construction when
the Company reguested the investment.s be included in rate
base. Houeuer, beeause of the magnitude of the investment,
the uncertainty surroundlng coal-fired generation in
today's political and social environment,, and the amount of
interest expressed by stakeholders, the Company chose to
request a CPCN with binding ratemaking treatment prior to
incurring those expenses. This CPCN filing allows
interested parties to fully vet the controversial issues
prior to the Commission making a decision. It is important
to the Company that customers and stakeholders have an
opportunity to participate in the public process before the
Company undertakes a significant investment llke that
required for these SCRs. It is also important for the
Company to receive assurance from the Commission that its
237 yOUNGBLOOD, REB 't
Idaho Power Company
1 continued investment in coal-fired generation will obtain
2 rate base treatment prior to proceeding with such large
3 expenditures. By filing its application, the Company.
4 intended to provide the Commission with the ability to
5 evaluate whether this investment is economically, socially,
6 and politically prudent, and in the best interest of the
7 Company and its customers, before the investment is made.
I Q. Is the Company requesting a specified ROE
9 related to this filing?
10 A. As I stated in my direct testimony, the ROE
11 the Company expects to earn on this investment is the
12 authorized rate in effect at the time the project is placed
13 in service.
14 A. Has the Commissj-on typically addressed ROE
15 prior to completion of a capital project?
16 A. In the Commission's Order for the Langley
L7 Gulch CPCN docket, Order No. 30892, the Commission found it
18 reasonable to authorize an ROE that would be the same ROE
19 authorized for the rest of the Company's rate base when the
20 project was placed in service and achieved commercial
2L operation. The ROE would change over the life of the plant
22 facilities $rith Commission-authorized changes to the
23 Company's ROE for other rate base items.
24
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O. Should the SCR j-nvestment and ROE be
determined in tandem as fCIP's witness Dr. Reading suggests
on page 8 of his direct testimony?
A.No. In a general rate case, the Commission
approves an overall rate of return that is applied to the
Company's rate base included in the rate case test year.
If approved, the SCRs should receive the same RoE
authorized for the rest of the Company's rate base at the
time the project is placed into service.
o.What is the purpose of setting a reasonable
ROE?
A.?he ROE compensates investors for the use of
their capital to finance bhe plant and equipment necessary
to provide utility service. A reasonable ROE aIlows the
Company to fairly compensate its investors, attract new
capital on reasonable terms, and maintain the Company's
financial standing.
o. Do you agree with ICIP that an investment
with regulatory preapproval is less risky for the utility,
and therefore, should earn a lower return?
A.No, I do not. If the Company were to use
Dr. Reading's 1ogic, aII other investments, regardless of
size, wi.thout regulat.ory preapproval would be considered
"riskier" and the ROE should be adjusted upward. The truth
of the matter may be that, based upon the current
239 yoUNGBLOoD, REB 9
fdaho Power Company
1 uncertainty surrounding coal-fired generation in today's
2 political and social environment and the amount of concern
3 expressed by stakeholders on this issue, the magnitude of
4 investment the Company anticipates making in the emission
5 controls at the Jim Bridger plant may provide more risk to
6 the Company. That would suggest the Company's ROE, or at
7 least, the return on this investment, should be higher.
8 The Company's request for binding ratemaking treatment for
9 this investment helps bring the risk associated with this
10 investment back in line wj-th the Company's overall risk and
1,1 return.
L2 Regulatory preapproval under ldaho Code S 61-541
13 does not reduce the overall risk for the Company. By
14 issuing a CPCN under Idaho Code S 6L-526 and authorization
15 for preapproved binding ratemaking treatment under ldaho
16 Code S 61-541, the Commission has determined that the
11 investment is prudent and in the best interest of Idaho
18 Power's customers. The Company may then proceed with the
19 emissions project; however, it does not give the Company a
20 free pass to act in an imprudent manner simply because it
2L has regulatory preapproval. The Company must stilI
22 initiate a regulatory proceeding with the Commission to
23 place the SCR investments into rates once they are
24 completed. At that time, the Commission wiLL conduct a
25 thorough review and audit of aII actual expenses incurred,
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and will determine the actual amount to be added to rate
base and recoverable through rates.
o.Do you believe t.hat preapproved ratemaking
treatment for the SCRs at Jim Bridger Units 3 and 4 sets a
precedent for Units I and 2 at a later point in time?
A.Despite Dr. Reading's suggestion to the
contrary, I do not believe preapproved ratemaking treatment
at Jim Bridger Units 3 and 4 will estabLish a precedent for
future investments in SCRs at Units 1 and 2. The Company
will have to go through the same analysis to determine if
those investments, at that time, are the least cost and
lowest risk alternative for compliance with environmental
laws and regulations. The Company would have to decide on
an approprlate course of action based on the existing
political and regulatory environment at Ehat future time-
o.Does the Company need assurance of binding
ratemaking treatment for financing the SCRs?
A.Yes. A Commission order providing assurance
of recovery and binding ratemaking treatment demonstrates
ongoing regulatory support to the rating agencies and to
the external financial community, thereby reducing the risk
of unfavorable financing costs not only for the SCR
controls, but also for Idaho Power's total construction
program. In this manner, Idaho Power and its customers
both benefit. But financing risk is not the primary reason
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the Company seeks preapproved ratemaking treatment - the
current social and regulatory risk associated with coal-
fired investments is.
o.
A.
Does this conclude your testimony?
Yes, it does.
YOUNGBLOOD, REB 12
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HEDRTCK COURT REPORTINGP. O. BOX 578, BOTSE, rD
YOUNGBLOOD (X)
IPC
(The following proceedings were had in
open hearing. )
(Idaho Power Company Exhibit No. 7, having
been premarked for identification, was admitted into evidence. )
MS. REINHARDT-TESSMER: Thank you. This witness
is available for cross-exam.
COMMISSIONER SMITH: Thank you.
Ms. Sasser, do you have questions?
MS. SASSER: No questions, Madam Chair.
COMMISSIONER SMITH: Mr. Richardson, do you have
questJ-ons?
MR. RICHARDSON: Thank you, Madam Chair.
CROSS-EXAMINATION
BY MR. RICHARDSON:
A. Good afternoon, Mr. Youngblood.
A. Good afternoon, Mr. Richardson.
A. fs that a Boise State tie?
A. We11, I went to U of I but my daughter goes to
Boise Stater so it's my supporting colors now.
COMMISSIONER SMfTH: I was just going to object
that it's beyond the scope of his testimony.
MR. RICHARDSON: That was in the nature of an
impeachment.
243
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HEDRICK COURT REPORTINGP. O. BOX 578, BOTSE, rD
YOUNGBLOOD (X)
rPC
O. BY MR. RICHARDSON: Mr. Youngblood, on page 71 of
your direct testimony at line 4, you state that should the cost
of the project be less than the commitment estimate, the
savings would directly benefit the customer through a lower
amount in rate base. Do you recaIl that?
A.
o.
A.
Seventeen, Iine 4?
Eleven, excuse me.
Seventeen, Iine 11.Yes. "Should the cost'r --
that j-s correct, yes.
o.Can you telI me specifically what the economlc
proj ect onl j-ne at aincentive is for the Company to bring the
cost less than the commitment estimate?
A.We1I, the economic incentj-ve is that we woul-d be
abl-e to recover those costs. The Company would not be all-owed
to put anything into rate base that is not prudently incurred.
o.Right, but you say that if you bring the project
on fess than the commj-tment estj-mate. And Irm assuming that by
that you're referring to a commitment esti-mate thatrs blessed
by the Commission through regulatory preapproval?
A.That is correct.
O. And if you bring the project j-n at the commitment
estimate, the entire project goes into rate base. Correct?
A. If those costs were prudently incurred at the
tj-me the Company would come to ask for those to be put into
rate base, yes.
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O. So you're not asking for regulatory preapproval
then?
A. We are asking for regulatory preapproval, bindj-ng
ratemaking treatment under Idaho Code 541, but we are asking
So Irm curious what your question was again,
please. We are asking for preapproval yes.
O. Right. And you said that if you bring the
project in at the commitment estimate level-, that you wouldn't
be able to put that j-nto rates until- a prudency review was
conducted?
A. When you say if it came in at the commitment
estimater my assumption there is that the prudently-incurred
costs were at the commitment estj-mate, and then the Company
would come at that poj-nt in time to have those moved into rate
base. The preapproval would say that there coul-d not be
second-guessed at that poj-nt in time, that prudently-i-ncurred
costs woul-d be allowed within rate base as J-ong as they were
below the at or below the commitment estimate.
O. So when you say "prudently lncurred costsr " when
is that decision or when does that decision get made?
A. It is the Company's understanding that right now
we're asking for binding ratemaking treatment of what our
commitment estimate is. That does not mean that the Company
can go out and imprudently incur costs up to that amount; and
that if that amount was approved for binding ratemaking
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treatment, that it would be allowed in rate base regardless.
The Company's understandj-ng is that it would say that those
costs, Lf they continue to be incurred in a prudent manner, if
they were at or below that commltment estimate, would be
allowed to be put j-n rate base at the time that the project is
used and useful, put into service.
a. So you do anticipate a subsequent prudency review
of these investments?
A. I anticipate an audit of the costs that have been
incurred, a review of the costs that have been incurred at that
time, yeS.
O. And so the prudency revj-ew is just -- wouJ-d be
how broad, just an audit to see that the money was spent r ox
how the money was spent r or whether the money should have been
spent in the first place given new developments?
A. Not the latter, not the last. That the costs
incurred were prudently incurred, meanJ-ng that those costs were
needed and necessary; that the costs that incurred were not
incurred j-n a haphazard manner; and that they were at or below
the commitment estimate.
The latter that you said is that if situations
had changed or, you know, different regulations or whatever may
have happened during that time. That is why the Company is
asking for at this point in time binding ratemaking treatment,
so that the Company doesnrt incur all of the risk of a
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potential where things may change and cou1d be second-guessed
at a later point in time.
O. Would you say the prudency includes questions
such as whether the investment was needed or necessary?
A. I bel-ieve that under the CPCN that the Company is
requesting right now, it would be determined, if the Commission
were to rule favorabl-y on the CPCN, that it j-s determined by
the Commission that it is prudent for the Company to proceed on
this lnvestment. We have established a commitment estimate
that we believe is a fair estimate of what the costs to be
incurred are. The Company has put that forth as its commitment
estimate saying that the costs that we would incur would be at
or below that amount, and at a later point in time when there
is a review of the numbers that the actuals that the
Company -- the actual costs that are incurred by the Company,
that there wouldn't be a second-guessing at that point in time
of whether or not it shoul-d have been done.
0. So, second-guess by whom?
A. By any future Commj-ssion or Intervenors or
O. Is it your position that future Commissions will
not act 1n a reasonable and prudent manner in reviewing your
investment in the future?
A. It j-s my posi-tion that the statute, the bj-nding
ratemaking authorJ-ty, says that that decision would be made now
and woul-d be binding on future Commissions.
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O. And you said that you were concerned about
second-guessing by future Commissions. And my question was are
you concerned that future Commissions, future Idaho Publ-ic
Utility Commissions, wil-l- not make a reasonable and prudent
decisj-ons regarding your investments down the road?
A. f would hope and antj-cipate that future
regulatory Commi-ssions wil-I always make prudent and wise
decisions. However, the Company has experj-enced, for example,
in Oregon, as has been brought up earlier in testimony, where a
decision to invest in plant was changed by a Commission at a
later point in time or there was a question about the prudency
of an actj-on that had already occurred.
O. And do you think that restricting future
Commissions' ability to make prudency decisions is good
ratemaking?
A. I believe that is good ratemaking and i-t is a
provision of the statute that is in place now.
O. And it's good ratemaking because it shifts risks
from the shareholders to the ratepayers?
A. Not that it shifts risks; that it shares risks.
There are risksr ds you mention, especially with somethj-ng Iike
this that is highly socia11y, environmental-Iy contentiousr ds
evj-denced by this proceeding, and that the Company is sayi-ng
letrs get that out in the open now, letrs decide that now. In
any future Commission, the makeup of the Commission may change
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over time. In any makeup of the Commission that may change,
Iet's donrt aIl-ow decisions that are made now for the Company
to invest in the resource or the additions to the resource that
is considered to be economically prudent to do at this point i-n
time to be second-guessed by a later Commission or other
Intervenors at a later point 1n time.
O. And Ir11 ask you the same questJ_on I asked
Ms. Grow this morning, and that is assume you come in at or
under your commitment estimate, you buil-t the environmental
upgrades, and a year later for some reason the plant is closed.
Will the ratepayers still- be responsible for paying for these?
A. And I want to make sure where the year later was
in time. The year l-ater is af ter j-t's all done and it's in
service?
a. A year after the project is completed and in
service.
A. The Company would stil-l- need to come back to ask
for that to be put into rate base so that it could be again
earnj-ng recovery of that.
O. WeIl-, 1et I s assume that j-t ' s in rate base .
A. Then, y€s, the customers would be paying for that
addition that had been determined at this tj-me to be prudent
and economically vj-able to do.
O. So future ratepayers, if that plant turns out not
to be used and useful, are going to be eontinuing to pay for
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this one-hundred-and-some-mj-llion-dollar investment even though
it's not used to serve the customers?
A. And future ratepayers will benefit from that
decision as well if the costs of any other alternate resource
or regulatj-on does not come into play or whatever the future
may ho1d.
What we're saying is knowing what we know today,
is this a prudent and wise decision to do, and, if sor l-etrs
bind that for preapproved ratemaking at the commitment
estimate.
O. Thank you. I have no further questions.
COMMISSfONER SMITH: Mr. Miller. Do you have
questJ-ons ?
MR. MILLER: Thank you, Madam Chairman.
CROSS-EXAMINATION
BY MR. MILLER:
O. Good afternoon, Mr. Youngblood.
A. Good afternoon, Mr. Miller.
O. Do you have both your direct and rebuttal
testimony with you?
A. f do.
O. Would you turn to page 16 of your dj-rect
testimony.
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A. I'm there.
0. And if we l-ook at your answer starting on page L2
and going through line 15
A. I'm sorry, you direct me to page L6. Are we on
page 72 now?
a. Oh, my error. Page 16, line 12 through 15.
A. Okay.
0. And as I understand it, there your at a high
level, attempt to estimate an annual revenue requirement for
these two projects. One woul-d be $9.1 mj-11ion, and one would
be $9.7 mi11ion, approximately. Correct?
A. That is the high-Ievel estimate with the
assumptions that it was at the Company's current rate of return
and is if those moneys went into rate base today, which we are
not asking, but that was the high-Ieve1 assumption there.
O. That would be the revenue requirement when we get
to the stage of actually putting this in rates?
A. That is correct.
O. Could I direct your attentj-on now to Exhibit 405,
should be included in that packet of documents.
A. Yes, I have it.
A. And is the first page of Exhibit 405 a staff
discovery request asking for more detail in how you calculated
the 9.1 and 9.7 million do]lars?
A. Yes, it is.
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O. And is the second
to that request contaj-ning more
A. Yes, the response
Excel file containing requested.
And page 2 of your
page of Exhibit 405 responsive
detai-1s of the cal-cul-ations?
is: Please see the attached
exhibit here is a copy of that
Excel fi1e.
O. Rj-ght. Good. .fust so we can understand it, let
me direct your attention to the fj-rst column of the exhibit,
and for those of us who are sometimes baffled by utility
accounting, could you just explain for us how the calculation
works?
A.Wel-lr ds I am often baffled by utility
accounting, the amounts that we have talked about previously,
the 62.9 mill-ion for Jim Bridger 3 and 66.9 million for Jim
Bridger 4, that j-s the total- amount, and so for this example
herer w€ have taken the Idaho jurisdictj-ona1 share of that. We
have used the current allocation between ldaho and Oregon to
determj-ne the amount of plant that would go j-nvestment or r
into rate base. And so of the 62.9 milIion, the Idaho share of
that or Idaho portion would be the 60.1 millj-on as you see at
the top of that
o.
A.
Right.
col-umn
As we come down, this is what would go into
production p1ant.
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This is Jim Bridger. Did I mj-sspeak?
COMMISSIONER SMITH: You said "Oregonr" so Irm
confused.
THE WITNESS: We took the Idaho jurisdictional
share of the total- amount for this analysis here.
COMMISSIONER SMITH: And why i-s Oregon
THE WITNESS: Because of the 62.9 million for
Jim Bridger 3 --
COMMISSIONER SMITH: Oh, I've got it.
THE WITNESS: approxj-mately 95 percent of that
woul-d be recovered f rom Idaho.
COMMISSIONER SMITH: Okay, I got it. Sorry.
THE V{ITNESS: And that 95 represents the
60,196,724.
There's the accumul-ated depreciation, one year's
accumulated deprecj-ation there, resulting in the net el-ectric
plant in service of the 59.4.
There is depreciation expenses, there is current
income taxes, €t cetera, coming down to a rate of return as
filed of minus two percent. The Company has used the using the
current authorized overall rate of return of 7.86 to get an
earnings deficiency of 5.5 miIlion. That is then grossed up to
account for taxes using the L.642 tax mul-tiplier to end up with
$9.1 million of additional- income or revenue recovery, revenue
requlrement.
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O. BY MR. MILLER: That's helpful to me. f do
notice in your calculation that in the column of net income,
you are not showing any revenue associated with these
investments. Is this what is known in regulatory accounting
parlance as a nonrevenue-producj-ng investment?
A. I'm not familiar with the termi however, there
would be no additional revenue that woul-d be included from
putting this investment in p1ace. This is a determination of
the revenue requirement.
O. Right. So this is sort of a long walk down a
short pier, but the basic poi-nt here is that the entire
investment goes into retail rates not offsetted by -- not
offset by any other revenue?
A. It goes into rate base. This is the revenue
requirement that would be asked for to go into rate base.
There would be a rate i-ncrease that would be associated with
that additional revenue requirement.
Did that answer that questj-on?
O. The revenue deficiency is the number by which
rates woul-d be increased if if, eventually, when we get to
the inclusion of rates?
A. It is the amount that the revenue would be
increased, yes.
O. A11 right, 9ot it. Could I now dj-rect your
attention to Exhibit 406 that's in front of you.
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A.
a.
Company's response?
A.
o.
A.
o.
project will
response to
A.
o.
Yes.
And is this a Staff discovery request and the
Yes, it is.
Number 18?
Yes.
And the question asks "Please describe how the
be financed, " and then the answer fol-Iows after
Request No. 18. Correct?
That is correct.
And is thi-s stiIl an accurate statement of how
this project wj-II be financed, to your knowledge?
A. WeI1, I believe the way it says that it is going
to be financed is that the Company has not determined how it
would be financed. It would be financed with internal and
external financing, that is not looked into any alternative
financing for this project. So, yes, that is still correct.
o.So there arenrt any alternative financing
arrangements contemplated for this project?
A.No, there is not, not at thj-s time.
O. Now 1et me direct your attention to Exhibit 407,
which is a request again from Staff to the Company, asking for
copJ-es of minutes of the Idaho Power board of directors at
which the project was discussed. And the answer is somewhat
lengthy, but please turn to page 4.At the bottom, there is a
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reference ta the 20r.3 capital budget approval?
A. Yes. ,fust for clarity, the bottom of page 4 is a
response in response to Request No . 20, which is not the
request that you had asked about originally. You had requested
l_9.
O. My error once again. I'm referring to Request
No. 20 and the response to No. 20.
A. Yes. And at the bottom of page SRA Exhibit 407,
page 4, there is a 20L3 capital budget approval, yes.
MR. MILLER: Now we're going to, Madam Chaj-rman,
head into a semidelicate area and I'11 ask for your guidance on
how to do it.
O. BY MR. MILLER: Let me direct your attention to
Exhibit 408.
COMMISSIONER SMITH: So 1et's go off the record
just for a second.
(Discussion off the record. )
COMMISSIONER SMITH: Back on.
O. BY MR. MILLER: Are you stil-l- with me?
A. f am right here with you.
O. Okay, good. On page 2 of four of the
Exhibit 408, therers a line item entitled Bridger Selective
Catalytic Reduction.
A. ,Just below the word "thermal. "
O. Just bel-ow the word "thermal-."
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A. Yes.
O. And then in a corresponding column, there is a
number, a doll-ar val-ue.
A. Yes.
A. And to the best of your knowledge, is that the
dollar value number thatrs approved in this 2013 budget?
A. That is the dol-l-ar amount that was part of the
overal-l- capital expenditures, O&M and capital expenditures,
that were approved for the 20L3 budget, yes.
A. And at the very bottom of page 2 of four, there
is a line that reads "Total Idaho Power capital
expenditures " ?
A. Yes.
O. And across from that is another number?
A. Yes.
O. And to your knowledge, is that the correct val-ue
of the approved total capital expenditures for 201,3?
A. Yes, just I was checking to see who responded
to Request No. 20. I believe it might have been Pat
Harrington, the corporate secretary. I did check with
Mr. Harrington prj-or to this and just to make sure that these
were the numbers that were in approved by the board of
directors of Idaho Power and, y€sr they were.
O. And I guess it's obvious but just for clarity,
the val-ues that are shown on page 2 of four are in millions of
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dol-1ars. Correct?
A. Yes, at the top of the page, it indicates that
all- of the numbers there are in mill-ions, yes oxt actuaIly,
in thousands.
O. Now I'd like to go to, if you don't mind -- give
me a moment -- page 4 of your direct testimony and direct your
attention to line 12.
A. Line L2?
O. Line 72.
A. Yes.
O. And this portion of your testimony, of course,
relates to your qualifications and experience, and here you
j-ndicate that you provided regulatory support for j-nclusion of
the Langley Gul-ch power plant in rate base. Correct?
A. That i-s correct.
O. So you are generally familiar with the
circumstances surrounding the Langley Gul-ch project?
A. Yes, I am.
O. Would you care to contrast for us the size of the
Langley Gulch investment relat j-ve to the Company's total-
construction budget versus the size of the j-nvestment 1n the
SCRs relative to the Company's construction budget?
A. Clarification: Yourre asking me to take the
amount of the Langley investment and compare that to the 201"3
O&M and capj-tal budget that we just identified?
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0. WeII, 1et me ask it perhaps a different way:
In leveI of magnitudes, was the Langley Gulch
investment larger rel-ative to the Company's overall
construction budget than are the SCR investments?
A. I don't know what the overall capital budget was
at the time Langley went in, but in if you're asking for a
compari-son of the amount of the Langley capital investment
compared to the capital investment of the SCRs, Langley was
significantly larger.
0. Right. That's what frm
trying to get to. Thanks for helping
the economy at
consideration
A.
me
exactly what I was
out.
Would you contrast for us the general state of
the time the Langley Gulch plant was under
by the Commission compared to today?
The state of the economy was in poorer shape, Lf
you will; it was not quite as certain as perhaps today. Today,
I thj-nk, I believe, that we are looking up j-n the economy.
O. Could you contrast for us the f'm not sure
exactly what the right words here are, but I'11 try these and
if you need something better, let me know.
But could you contrast for us the general state
of the flnancial markets at the time the Langley Gulch
investment was being considered versus today?
A.It was a concern for the Company for to be
able to finance the Langley Gulch project at that point in
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time.
0. Could you contrast for us the length of time that
was required to construct the Langley facility compared to the
length of time that is required to construct the SCR
investments ?
A. Donrt have the exact amounts, but the length of
time to construct an entire 300 megawatt generating pIant,
combine cycle combustion turbine generating p1ant, is longer
than it does than it is to add the additions of selecti-ve
reductive catalytic reduction at Jim Bridger p1ant.
a. Okay. Thank you very much. Now 1et me direct
your attention to Exhibit 409.
A. Yes.
O. Have you found that?
A. I have that, yes.
O. Does IDACORP, the parent company of Idaho Power
Company, perj-odica11y publish or make public its financial
results for the preceding financial period?
A. "Financial period" bej-ng a quarter?
O. Quarter.
A. Yes. they do.
O. Is Exhibit 409 the dated November 5th the
Company's most recent publj-c dj-sclosure of financial results
for the preceding quarter?
A. Yes, it is, for the third quarter of 2073.
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O. I won't ask you necessarily to read it into the
record, but letrs just take a collective minute and all read
the third ful-I paragraph of Exhibit 409.
And, again, this perhaps is belaboring the
obvious, but it's not the case that Idaho Power needs binding
ratemaking treatment because Idaho Power is in financial-
distress, is it?
A. f hear two things in your question Ird lj-ke to
clarify.
O. Sure.
A. The Company does believe that they need binding
ratemaking treatment. No, the Company is not in financial
stress currentl-y at this point in time.
A. But financial- distress is not the reason for the
need for binding ratemaking treatment?
A. That is correct. The financial- situation today
is different than it was with Langley. Those are not the
reasons that the Company has asked for binding ratemaking
treatment here.
O. Got it. Now, mercifully, we're coming close to
the end. Coul-d you turn to page 1l- of your rebuttal testimony.
A. Irm there.
O. WeI1, I guess it would help if I looked at your
test j-mony, not Mr. Harvey's .
A. Hj-s may be more interesting.
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HEDRICK COURT REPORTING
P. O. BOX 578, BOTSE, rD
YOUNGBLOOD (X)
IPC
a. I thought he was a very engaging witness.
On line 20, you say that binding ratemaking
treatment demonstrates ongoing regulatory support to rating
agencies. Correct?
A. Yes, in response to the question "Does the
Company need assurance of binding ratemaking treatment for
financing the SCRs?" I respond and say "Yes, the Commission
order providing assurance of recovery and binding ratemaking
treatment demonstrates ongoing regulatory support for the
ratJ-ng agencies and to the external- financial community,
thereby reducing the risk of unfavorable financing costs not
only for the SCR controls, but al-so for Idaho Powerrs total-
construction program. "
A. A11 right. V'lel-l-, you've done a fine job of
reading that for us.
Have any representatives of any rating agencies
said to Idaho Power in writing that the fai-l-ure to secure
binding ratemaking treatment wiII result j-n unfavorable ratlng
actions ?
A. I am not aware if they have or have not.
O. Then as you have read, binding ratemaking
treatment woul-d provide support to the external financing
community. Who do you mean by "the externaf financing
community" and why is it relevant when the Company is not
seeking external financing?
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HEDRICK COURT REPORTTNG
P. O. BOX 578, BOTSE, rD
YOUNGBLOOD (X)
IPC
A. I believe my response for how the Company was to
finance this was both with internal and external financing, so
it is not seeking so1ely externa1 financing. So it woul-d be
both with internal and external financing.
And as we are statj-ng here, that the binding
ratemaking treatment would provide an assurance that the
Commission is supportive of the Companyrs decision for the
investment and that it is prudent to incur this investment at
this point in time. That would affect the rates that would be
treated -- that the Company would have for not only partial or
fuII support of financing of this project, but also of our
entire construction project.
O. Now, I think we established when we looked at
that one exhibit that these projects are not being financed
separately, but being financed as part of the overall capital
budget. Correct?
A. I believe what we looked at was the 20L3 budget
that had been approved by the board of directors, and that
there was a do1Iar amount in that for the year 20L3.
O. Has any representative of whoever this external-
financing community is said to Idaho Power that the failure to
secure binding ratemaking treatment wiII jeopardize or make
more expensj-ve external financing?
A. I am not aware if anyone has or has not.
O. To your knowledge, they have not?
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HEDRICK COURT REPORTING
P. O. BOX 578, BOTSE, rD
YOUNGBLOOD (X)
IPC
A. To my knowledge, I am not aware that they have or
have not.
O. If they had, woul-dn't you think you'd know about
it?
A. That is not my job with regard to the financing
department, and so had someone who is dealing directly with the
financial- institutions received that information, I am not sure
that they would come and tell- me.
O. A11 right. If you hear of anything like that,
will you 1et us know?
A. Absolutely.
O. Then you read part of this, your paragraph,
starts on page 18. Woul-d you now read the l-ast sentence?
A. "In this manner, Idaho Power and its customers
both benefit." I'm sorry, apologize. "But financing rj-sk is
not the primary reason the Company seeks preapproved ratemaking
treatment; the current social and regulatory risk associated
with coal--fired investments is. "
a. WeII, thank you, Mr. Youngblood. It's always a
pleasure to visit with you.
A. With you too, sir.
COMMISS]ONER SM]TH: Mr. Otto.
MR. OTTO: Thank you, Madam Commissioner. I just
have a few questions this time.
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HEDRICK COURT REPORTING
P. O. BOX 578, BOTSE, rD
YOUNGBLOOD (X)
IPC
CROSS-EXAMINAT]ON
BY MR. OTTO:
O. Hell-o, Mr. Youngblood.
A. He11o, Mr. Otto.
O. I'm going to ask you about IRP, because you talk
about that in your dj-rect testimony, pages 9 and 10.
A. Yes, sj-r.
O. f'11 just give everyone a minute to get there.
A. frm there, thank you.
O. Okay. Would you agree that the key to
determining the prudence j-s to compare a preferred course of
action with alternati-ves?
A. P1ease just state that again so I can think about
it again.
O. Do you agree that a key to determining the
prudence of an investment is to compare that preferred course
with alternative courses?
A. In comparison j-n light of other other factors,
I mean, other social, economic factors, and looki-ng at other
alternatives, yes, I woul-d think that would be a determination
of prudence: Prudent, economically viabl-e, yes.
a. The comparj-son plays a big role, of course not
the only rol-e, but a big rol-e?
A. Yes. Yes.
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HEDRICK COURTP. O. BOX 578,
REPORTTNG
BOISE, ID
YOUNGBLOOD (X)
IPC
O. So in determining -- is the resource position the
beginning of how you design an al-ternative portfolio, like
l-et me ask this a different way.
Eor Idaho Power's IRP, does the design of the
alternative portfolios begin with determining the Utility's
current resource position compared to loads?
A. I don't know that it's the design of the resource
portfolj-os. The beginning of the IRP process, the whole
integrated resource process, begins with the load forecastr ds
you know, and l-ooks at the l-oad resource balance at that point
in tj-me. So in that regard, we look at the a load resource
balance j-s determined, yes.
O. And then from there, you begin designing
alternative portfolios?
A. Through thisr w€ looked at different means of
achieving. We looked at different technologj-es to meet that
Ioad prlor to designing the portfolios. We l-ooked at different
ways to technologically meet a comparative analysis.
So, for example, we did a group of scenarios --
not scenarios group of analyses with regard to different
technologies at a 200 megawatt leveI, all looking at those and
seeing what i-s the most cost effectj-ve technology at that point
in time, and then used those technol-ogies, the Jower cost ones,
to go ahead and implement or begin lookj-ng at different
alternative scenarios.
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HEDRICK COURT REPORTINGP. O. BOX 578, BOTSE, rD
YOUNGBLOOD (X)
IPC
When I discuss scenarios, I'm talking across the
fuII 2O-year planning period, okay.
A. Sure. So maybe to put a finer point on it: The
Company develops it was nine portfolios?
A. That is correct.
0. And they're comprised of a suite of different
resources?
A. Each of them, y€sr uh-huh.
0. And the megawatts for each resource is sorry,
Iet me ask:
That suite of resources and the megawatts that is
represented there are designed to match or they're desi-gned
based on the load and resource bal-ance as determined in the
rRP?
A. The load and resource balance is the beginning,
as you said. The Company has an obligation to serve. And so
when the Company sees that there are deficits with regard to
that, then we are trying to l-ook at different kinds of
technologies, different scenarios, to meet that. A11 nine of
those scenarios woul-d meet -- would meet the objective of
meeting the load by eliminating the deficits.
O. OkaY-
A. And just to contj-nue oDr we look at the 2O-year
period oL, 2O-year net present va1ue of each of those and
that's how those are compared.
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HEDRTCK COURT REPORTING
P. O. BOX 578, BOTSE, rD
YOUNGBLOOD (X)
IPC
O. In determining the resource position, did the
Company include the existing demand response programs?
A. Demand response programs? There were some
scenarios that had demand response in them, y€sr including the
preferred portfolio.
O. Sorry, the questj-on might have been unclear. The
resource posi-tion that was the beginning before you designed
the portfol-ios, that resource posi-tion, was it determined with
or without demand response?
A. It was determined wj-thout demand response at that
point in time because the Company had asked for suspension of
the demand response programs.
O. But at that time, the Company knew that it had
access to over 400 megawatts of demand response?
A. We knew that the Company had had access to 200
over 400 approxi-mateJ-y, 400 megawatts. The Company had
requested a suspension of that that plan or that program,
the demand response program, at that point in tj-me, because as
it looked at its load resource balance in the near future
anyway, the demand response programs were not needed. And so
rather than incur those costs for our customers, the Company
asked for suspensJ-on of that program until- we could reevaluate
with the fntervenors and the stakeholders within those programs
and redesign those programs, which we have now done and has
been filed for approval a settl-ement approval.
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HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, rD
YOUNGBLOOD (X)
IPC
O. Sorry, f feel like I got off on a tangent there.
I'm trying to puII it back. So, okay, here's the point:
Here's what werre doing here: We have a
portfolio or, we have a preferred course of action
l-et's continue, 1et's j-nvest the money in Bridger and
forward; and we're comparing that to other portfolios
don't have coal- in them. Is that a fair assessment?
that says
continue
that
A.
o.
o.
comparj-ng to
it that for
fn this docket here?
Yeah.
A. This docket is specifically with regard to the
investment of the sel-ective SCR investment in Bridger's 3
and 4. As part of that analysis, the Company has conducted a
coal study with a third party, SAIC, its own internal coal-
study that added to that, and added to that the scenario
analysis that was done in the 20L3 IRP. Atl of that, together,
is used for the Company's decisj-on that the best course of
acti-on for
and for Jim
this docket here is to invest in the SCR investment
Bridger 3 and 4.
And the resource, the portfolios that you were
the cont j-nued ..Iim Brj-dger portfolio l-et's cal1
simplicity's sake those were designed assuming
zero demand response?
A. No, the scenarios have demand response j-n them.
And, in fact, the preferred portfolio has demand response in
ir.
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HEDRICK COURT REPORTING
P. O. BOX 578, BOTSE, rD
YOUNGBLOOD (X)
]PC
O. What I was aski-ng about was the origj-naI load and
resource balance before you designed the portfolios, so just
the portfolios have to meet our design to rectify a resource
deficit. That resource deficit is the l-oad and resource
balance Irm talking about, and that one was calculated with no
demand response in it.
A. That is correct. As I stated before, dt that
point in time the Company had asked for those to be suspended.
O. So you knew they existed and you elected to ask
to suspend them?
A. The Company saw that those programs had
flexibility and those programs were j-ncurrj-ng costs and woul-d
not be needed in the short term, so asked the Commission if we
could suspend those programs so that we could meet with the
stakeholders, redesign those programs to be more cost
effective, and meet the needs of the Company.
O. Fair. Thatrs all I have.
COMMfSSIONER SMITH: Thank you, Mr. Otto.
Are there questions from the Commission?
COMMISSIONER KJELLANDER: NO.
COMMISSIONER REDFORD: No.
COMMISSIONER SMITH: Nor f.
Redirect?
MS. REINHARDT-TESSMER: I have just a couple of
quest j-ons.
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HEDRICK COURT REPORTING
P. O. BOX 578, BOTSE, rD
YOUNGBLOOD (Dj- )
IPC
REDIRECT EXAMINATION
BY MS. REINHARDT-TESSMER:
A, Mike, I'm going to refer you back to SRA's
Exhibit 408. And just so we're cl-ear, it l-ooks like these
numbers are expressed in the thousands and not mj-I1ions. fs
that correct?
A. We're on page 2 of 408?
O. Correct.
A. And, y€s, I misspoke. I apologize. There are a
doIlar sign and three zeros at the top of the page, indicating
that these are in thousands. So i-t would be thousands of
thousands if it was millions, so
a. And do projects of the magnitude of the SCRs
typically span more than one budget year?
A. Yes, they do.
O. And are the budget items listed here financed
both internally and externally?
A. Yes, they are. This is the Company's capital and
O&M budget, and they are financed both with internal and
external financing.
MS. REINHARDT-TESSMER: I have no further
questi-ons.
COMMISSIONER SMITH: Thank you, Mr. Youngblood;
appreciate your he1p.
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HEDRICK COURT REPORTING
P. O. BOX 578, BOTSE, rD
YOUNGBLOOD (X)
IPC
RECROSS-EXAMINATION
BY MR. MILLER:
O. ,Just so we're cfear on thj-s point
COMMISSIONER SMITH: Mr. Mill-er.
O. BY MR. MILLER: -- on 408, Exhibit 408, you just
added three zeros to each of these numbers to see what they
were. Riqht?
A. That is correct. You would add three zeros to
the end of each of the numbers on that page.
O. Got it.
(The witness left the stand. )
COMMISSIONER SMITH: Does that concl-ude the
Company' s presentation?
MS. REINHARDT-TESSMER: It does.
COMMISSIONER SMITH: Thank you.
f was going to go to Staff, but, Mr. Richardson,
if you would like Dr. Reading to go now or if he's on a
schedule, w€ could do that. Your pleasure.
MR. RICHARDSON : Dr . Reading I s f lex j-ble, so we
can go to Staf f if you l-ike.
COMMfSSIONER SMITH: Okay. Ms. Sasser.
MS. SASSER: Thank you, Madam Chair. Commission
Staff caIls Patricia Harms to the stand.
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HEDRICK COURT REPORTINGP. O. BOX 578, BOTSE, rD
HARMS (Di)
Staff
PATRICIA HARMS,
produced as a witness at the instance of the Staff, being fj-rst
duly sworn, was examined and testified as follows:
DIRECT EXAMINATION
BY MS. SASSER:
O. Good afternoon.
A. Good afternoon.
A. Could you please state your name and spe1I your
last name for the record?
A. My name is Patricia Harms, H-A-R-M-S.
O. And with whom are you employed and in what
capacity?
A. Irm employed by the fdaho Public Utilities
Commission as a principal financial specj-alist, s1ash, senior
auditor.
O. Are you the same Patri-cia Harms that filed direct
testimony on October 11, 20L3, with the Commission?
A. Yes, I am.
O. And are there any changes or corrections to your
testimony?
A. No.
O. If I were to ask you the questions laid out in
your prefiled direct testimony, woul-d your answers be the same
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HEDRICK COURT
P. O. BOX 578,
REPORTING
BOTSE, rD
HARMS (Di)
Staff
today?
A. Yes.
MS. SASSER: Madam Chair, I would move that
Ms. Harms'prefiled direct testimony be spread on the record as
if read.
COMMISSIONER SMfTH: If there is no objection, it
is so ordered.
(The following prefiled testimony of
Ms. Harms is spread upon the record. )
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O. Please state your name and address for the
record.
A. My name is Patricia Harms. My business address
is 4?2 west washingt,on SEreet, Boise, Idaho.
O. By whom are you employed and in what capacity?
A. I am empLoyed by the Idaho Public Util-ities
Commission (Commission) as a Principal Financial
Specialist/Senior Audj.tor.
a. Please give a brief description of your
educational background and experience.
A. I graduated from Boise State University, Boj.se,
Idaho in 198L with a B.A. degree in Business
Administration, emphasi-s in Account,ing. f am a Certified
Public Accountant licensed by the State of ldaho. Prior
tro joining the Commission Staff in 2000, I was employed
by the State of Alaska as an In Charge Auditor and
performed both financial and performance audiE,s of
governmental agencies. I was responsible for projecE
management of many of E,hose audits. I have attended many
seminars and classes involving audit,ing and accounting.
While at t,he Commission I have audited a number of
ut,iliE,ies j,ncluding water, electric, 9as and E.elephone
utiliEies and provided commenEs and t,est,imony in a number
of cases that, dealt with general rates, hook-up fees,
accounting issues, and other regulatory issues including
cAsE NO. rPC-E-L3-1"5
t0 /LL/L3
HARMS, P. (Di) 1
STAFF
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CerEificates of Public Convenience and Necessity (CPCNs).
I have also completed E.he National Association of
Regulatory Utility Commissioners' (N]\RUC) annual
regulatory studies program at Michigan State University.
I also regularly at,t,end meet,ings of NARUC's Staf f
Subcommj-ttee on Accounting and Finance and serve as
secretary f or the Subcommj-tEee.
O. What is the purpose of your test,imony?
A. The purpose of my testj.mony is Eo present
Staff's recommendations regarding the treatment of return
on equity, depreciation and the Allowance for Funds Used
During Construction (AF[DC) in Idaho Power's reguest for
a CPCN authorizing investment, in Selective Catalytic
Reduct,ion (SCR) controls in Jim Bridger Units 3 and 4
(Project) and inclusion of the ProjecE's cests in rate
base once the SCR controls are installed and operational.
O. Please explain Staff's recommendation for the
return on equity in this case.
A. The ratemaking E,reatment requested by Idaho
Power for the Project under ldaho Code S 61-541 includes
a detrermination of the method or the actual return on
common equity for the Project in section (2) (b) (i) ..The
return on common equity investment or method of
determj.ning t,he return on common eguity investment.,,
St,af f supports Company witness Youngblood, s expectat,ion
cAsE NO. rPC-E-13-15
t0 /LL/13
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STAFF
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t,hat, t.he ProjecE earn the authorlzed reEurn in effect, at,
t,he time the Project is placed in service. Adopting the
methodology where t,he ret,urn on eguity (ROE) for the
Project is t,he same as aut.horized for ot.her rate base
items is consi-stent, wit,h normal rate base treatment and
is appropriate. Staff recommends the Order for a CPCN
and ratemaking Ereatment, if approved, authorize a return
on equity for Ehe Project the same as t,he ROE aut,horized
for the rest of Ehe Company's rate base when the Project,
is placed in service. Staff also recommends that Ehe ROE
change with Commission-authorized changes eo the
Company' s ROE over the l,if e of the plant,.
O. Please explain Staff's recommendation for
depreciation in this case.
A. The ratemaking t,reaEment requested by Idaho
Power for the ProjecE, under Idaho Code S 61-54L (section
(2) (b) (ii) ) includes *the depreciation life or schedule."
Staff supports Company wltness Youngblood's statemenE
that Idaho Power will depreciate the invesEments over the
remaining life of E,he 'Jim Bridger P1ant, in accordance
wiEh the Commission-approved depreciation rates in effect
at the time the investment is closed-to-plant. St,aff
also recommends that t,he depreciation ratee change with
Commission-authorized changes t,o the Company' s
depreciation rates over the llfe of the plant whether
cAsE NO. rPC-E-13-15
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STAFF
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those changes occur as a result of deprecj-ation rate
cases like Case No. IPC-E-12-08 or as part of other
cases.
O. Please explain St.aff 's recommendaE,ion for AFIIDC
in this case.
A. Staff witness Louis is the primary wi-tness
addressj-ng the Project and, among oE.her things,
recommends issuance of a CPC-![ and t,he ratemaking
treatment including Staf f 's proposed Commitment Est,imat,e.
SEaff recommends that the Company accrue actual
AFUDC based upon the actual capitaI expenditures of the
Project. (excluding PacifiCorp's AFUDC) as iE is under
construction. This is Staff's understanding of the
method Idaho Power current,Iy uses to accrue AFUDC on the
Project. When Idaho Power seeks cost recovery in rates
after t,he Project is placed in service, the monthly
expenditures would be subjected Eo a prudency review of
the amounEs to which the AFUDC raEe is applied except for
those plant amounts approved ln this proceeding. Absent
specific rat,emaking authority, AFUDC will cease when the
plant is placed in service. Staff also recommends Ehat,
the actual AFUDC rates applied during the course of Ehe
Project be reviewed by SEaff when the ProJect is broughE,
bef ore the Commi.ssion for inclusion wit,hin rat,es.
O. What is AFUDC?
cAsE NO. IPC-E-13-L5
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A. AFUDC is an accounting mechanism which
recognizes capital costs associated with financing
construction. Generally, the capital costs recognized by
AFLTDC include int,erest charges on borrowed funds and the
cost of eguity funds used by a ut,ility for purposes of
constructj.on. The main purposes of AFUDC are to
capitalize with each projects the costs of financing that
consLructioni separate the effects of the construction
program from currenE operat,ions; and to allocate current
capital costs to future periods when t,hese capital
facilities are in service, useful and producing revenue.
AFUDC represenes Ehe cost of funds used during the
construction period before plant and plant addit.ions go
into service. When it is placed in service, the entire
cost of the plant and plant additions, includj-ng AFUDC,
is added to rate base, where it earns a rate of return
and is depreciated over t.he life of the plant/p1ant
addition.
O. How does Idaho Power calculate the AFUDC rate
it. applies to projects?
A. Idaho Power calculates t,he Company's AFUDC rate
on a monthly basis consistent with Ehe AFUDC formula
established by the Federal Energy Regulatory Commission
(FERC) . Annually t,he annualized AFIIDC rates are
calculaEed and compared to the mont,hly AFUDC raEes to
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determine reasonableness and ensure the AFUDC amount,s are
calculated using the met,hod set, by the Idaho Commission.
O. WhaE has fdaho Power requested in this case for
AFUDC?
A. Idaho Power has included in its reguest, for a
CPCN and binding ratemaking treatment, a Commitment,
Estimate including $11,889,43t in AFUDC.
O. How has Idaho Power calculated the $11,889,43L?
A. Generally speaking, Idaho Power has taken t.he
current Project estimates by year (less current charges
through May 30, 20L3) and calculated a monthly amount on
which they applied an AFUDC rate. The AFUDC rate applied
was calculaEed from actual charges through May 30, 20L3.
A. Has any portion of fdaho Power's Commitment
Estimat,e of $11,889,437 in AFUDC actually been incurred?
A. Yes. According to Ehe Company's response Eo
Production Request No. 15, approximately $40,000 of the
almost $12 million AFUDC has been incurred as of May 30,
20L3. If the Commissj-on chooses to include any AFTDC
within binding ratemaking in this case, Staff recommends
that, the actual AFIIDC incurred (approximately $40,000) be
Ehe amount included for binding ratemakj.ng treatmenE.
O. Does this conclude your direct testimony in
this proceeding?
A. Yes, it, does.
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HEDRICK COURT REPORTING
P. O. BOX 578, BOTSE, ID
HARMS (X)
Staff
(The fol-l-owing proceedj-ngs were had in
open hearing. )
MS. SASSER: And f would al-Iow Ms. Harms to be
open for cross.
COMMISSIONER SMITH: Thank you.
Are there any questions from the Company?
MS. REINHARDT-TESSMER: .fust a few.
CROSS-EXAMINATION
BY MS. RE]NHARDT-TESSMER:
a. Ms. Harms, I have a couple of questions relating
to Idaho Power's request for an allowance for funds used during
construction, which I'11 refer to here as "AEUDC."
Do you believe it is reasonabl-e for the Company
to expect recovery of AEUDC on expenses incurred up through the
time the SCRs are online?
A. Yes, and my testimony suggests that the Company,
if the Commission approves regulatory ratemaking, include
actuals that are occurred by the Company and that those be
subject to an audit in terms of the rates applied.
O. And in his prefiled testimony, Mr. Louis
recommends binding ratemaking treatment for the amount of the
EPC contract and actua1 costs already incurred in the
development phase. Correct?
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HEDRICK COURT REPORTING
P. O. BOX 578, BOTSE, rD
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Staff
A. Correct.
O. You agree with that reconrmendation?
A. Yes.
O. And do you agree that AEUDC in an amount
commensurate with that recommendation should be given binding
ratemaking treatment?
A. The reconrmendation that I have in my testimony is
to include the amount of AFUDC that would be associated with
the actual-s and consistent with his testimony, and that going
forward, the actual AEUDC when the Company comes in for
recovery of the project and costs be a1lowed for actual amounts
and audited for the application and calculatj-on of the rates
over the period of time of the project.
0. Okay. And just so I can be clear though, the
AEUDC that corresponds to actuals is a much smal-ler number than
that that woul-d be commensurate with Mr. Louis's
reconrmendation. Correct?
A. His recommendatlon I believe i-s also for actual
AFUDC through May 31 , 20L3.
A. Plus the EPC contract amount. Correct?
A. Yes, the contract amount.
A. And have you run the calculation to see what a
reasonabl-e estimate of the AEUDC wou]d be on the EPC contract
amount plus the actual- costs incurred?
A. I haven't run a cal-culation of the AFUDC
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HEDRICK COURT REPORTING
P. O. BOX 5'78, BOTSE, rD
HARMS (X)
Staff
associated with the EPC contract because that contract spans
multiple years and the AFUDC rate is calculated each month,
and
O. Do you consider the AEUDC rate to be particularly
volati-l-e?
A. It varies from month to month and year to year.
O. Does it fluctuate sharply though?
A. It does fluctuate.
O. Sharply?
A. In my review, it does fl-uctuate.
O. Would you agree, subject to check of course, that
the AFUDC that corresponds to the amount reconrmended by
Mr. Louis for binding ratemakj-ng treatment would be around
8.1 million?
A. Yes, I would agree, subject to check.
0. Thank you, Ms. Harms.
COMMISSIONER SMITH: Mr. Richardson, do you have
questions?
MR. RICHARDSON: No guestions, Madam Chair.
COMMISSIONER SMITH: Mr. Mill-er.
MR. MILLER: Thank you, Madam Chairman.
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HEDRTCK COURT REPORT]NGP. O. BOX 518, BOTSE, rD
HARMS (X)
Staff
CROSS-EXAMINATION
BY MR. MILLER:
O. Ms. Harms, after reading your testimony, I take
it that the purpose of your testimony is to make
recommendations for various accounting treatments assuming that
the Commission decides to grant the Company's request for
binding ratemaking treatment under Idaho Code 61-541. Is that
the purpose of your testimony?
A. Correct.
MR. MILLER: Madam Chairman, young lawyers often
ask me for tips on how to cross-examj-ne an expert.
COMMISSIONER SMITH: Those are the ones that
donrt know you. Right?
MR. MILLER: Now Irm going to make this exact
point: My first advice is always think twice about examining
an expert who is smarter than you are. And I'm going to follow
my advice in this case and not have any questions for
Ms. Harms.
COMMISSIONER SMITH: Mr. Otto, have you asked
Mr. Mil-ler for any advice?
MR. OTTO: In fact, I have, and he gave me the
same advice, and I'm golng to folIow his lead and do the same.
I have no questions for Ms. Harms.
COMMISSIONER SMITH: A11 right. Do we have any
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HEDRICK COURT REPORTING
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Staff
from the Commission?
COMMfSSIONER REDFORD: No.
COMMISSIONER SMITH: Any redirect?
MS. SASSER: Only one, Madam Chaj-r.
REDIRECT EXAMINATION
BY MS. SASSER:
O. And that is, Ms. Harms
COMMISSIONER SMITH: Remember, this is the
hardest one.
MS. SASSER: Yeah.
O. BY MS. SASSER: Would you believe me, subject to
check, that Mr. Louis's testimony does not refer to AFUDC in
any regard but speaks to actual- costs?
A. I actually do belj-eve that and recall that, y€s,
I do.
O. That' s al-l- I have. Thank you.
COMMISSIONER SMITH: Okay. Thank you, Ms. Harms.
(The witness left the stand. )
MS. SASSER: Staff cal-l-s Mr. Louis to the stand.
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HEDRTCK COURT REPORTING
P. O. BOX 578, BOTSE, rD
LOUrS (Di)
Staff
MIKE LOUIS,
produced as a witness at the instance of the Staff, being first
duly sworn, was examined and testified as follows:
DIRECT EXAMINATION
BY MS. SASSER:
O. Hell-o .
A. Hel-lo.
O. Mr. Louis, would you please state your name and
spe1l your last name for the record?
A. My name is Mike Louis. My last name is spelled
L-O-U-I-S.
A. Which we need to give our own internal Staff a
memo of, since we spelled it wrong on the initial direct filed
testimony.
A. Ird gj-ve her a pass though.
O. I know it did. Vfith whom are you employed and in
what capacity?
A. I'm employed with the Idaho Public Utilities
Commission as a util-ity analyst.
O. And are you the same Mike Louis that filed direct
testimony on October LL, 2013, along with Exhibits 101, !02,
and 103, with the Commission?
A. f am, and yes.
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HEDRICK COURT REPORTING
P. O. BOX 578, BOTSE, rD
LOUIS (Di)
Staff
O. Are there any changes or corrections to your
testimony?
A. I have one correction: On page 10, line 8, it
says "afl of the Company's generation resources." It should
read "af1 of the Company's thermal generation resources."
That's the onJ-y correction that I have.
O. Okay, thank you. And if I were to ask you the
questions laid out in your prefiled direct testimony, would
your answers be the same today?
A. They would.
MS. SASSER: Madam Chair, I move that Mr. Louis's
prefiled direct testimony be spread on the record as if read,
and I would also ask that Exhibits L02 oh, 101, L02, and 103
be admitted and marked for the record.
COMMfSSIONER SMITH: If there is no objection, it
is so ordered.
(The fol-lowing prefiled testj-mony of
Mr. Louis is spread upon the record. )
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O. Please state your name and business address for
the record.
A. My name is Mike Louis. My business address is
472 West Washingt.on Street, Boise, Idaho.
a. By whom are you employed and in what capacity?
A. I am employed by the Idaho Public Utilities
Commj-ssion as a Utilit j-es Analyst.
O. What is your educational and professional
background?
A. I recej-ved my Bachelor and Master of Science
degrees in fndustrial Engineering with concentrations ln
manufacturing syst,ems and engineering economj-cs from Purdue
University in 1985 and 1-992, respectively. I also received
my Masters in Public Policy and Administration at Boise
State University in 2005. In addition to my formal
education, I have attended Michigan State University
fnstitute of Public Utilities Annual Regulatory Studies
Program, NARUC Utility Rate School, Electricity Grid
School, and Advanced Regulatory Studies Program.
My work experience includes 18 years of
industrial/commercial practice developing and managing
manufacturJ-ng systems and operatj-ons, planning processes,
and supply chains for General Motors, Hewlett-Packard,
,Jabi1 Circuit, and Albertsons Companj-es. I also have spent
six years administrating and conducting energy policy
CASE NO. IPC-E-]-3-15
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research wit,h the Energy Policy Institute at Boise State
University. As part of my manufacturing and academia
experience is Lhe management of departmental budgets as a
mid-leve1 manager and project, budgets as a manager of
several large strategically-orlented projects. I have also
taughE classes in program and project management in the
Department of Public Policy and Administratj-on at Boise
State University.
At, the Idaho Public Utilities Commission, my work
responsJ-bilities have included a variety of elecLric and
natural gas cases including integrated resource p1ans,
purchased gas and power cost adjustment cases, prudence
reviews of power plant investmenEs, and several general
rate cases looking specifically at emission control
investments.
O. What is the purpose of your testimony in this
proceeding?
A. The purpose of my test,imony is to describe
Staff's analysj-s as to the prudence of the Company's
proposed investment in selective catalytic reduction (SCR)
controls on Jim Bridger Units 3 and 4. In addition, I
provide recommendations related Eo the issuance of a
Certificate of Public Convenience and Necessity (CPCN) and
propose ratemaking treatment.
O. Please summarize your test.imony in this case.
CASE NO. IPC-E-13-15
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A. I believe the Company's decision to move forward
with the emission control investment project for Jim
Bridger Units 3 and 4 j-s prudent; supporting authorization
of a CPCN issued under ldaho Code 561-526. However, I only
recommend authorization of $81,378,000 in direct project
cosEs of the $L17,947,962 requested in the Company's
Application based on provisions for binding ratemaking
treatment under ldaho Code 561-541. I have also made
several recommendations related to t,he handling of
variances between the Commitment Estimate and actual costs.
O. What documents did you analyze that lead to your
recommendation?
A. I examined the following documents:
l-. The Company's Applicat j-on, direct. testimony
of Company wi-tnesses, and accompanying
exhibits;
2. Idaho Power's 20L3 Integrated Resource Plan;
3. Discovery by Staff and intervening parties
including but not limited to the Company's most
recent business p1an, Engineering, Procurement,
and Construction (EPC) contractor evaluatj-on
documents, EPC Contract, and the Jim Bridger
operations contract between fdaho Power Company
and Pacifj-Corp;
4. PacifiCorp's CPCN cases in Wyoming and Utah
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including the Application, testimony,
discovery requests, and orders;
5. Idaho's CPCN statutes including ldaho Code
$ot-set, and SS0r -526 through 5L-530,.
6. Environmental Protection Agency's (EPA)
proposed rule on the Wyoming SIP contained in the
Federal Register (Vo1 . 7I , No . l-11-, ,June 1"0 ) .
O. How will your testimony be organized?
A. My testimony can be broken down to an analysis of
two object.ives related to concepts of prudency: l-) whether
or not lt is prudent to recommend issuance of a CPCN
pursuant to ldaho Code Sef-sZe and 2) whether and to what
extent t,he Company's proposed budget should be pre-approved
for bindi-ng ratemaking treatment pursuant to ldaho Code
551- s41, .
I begin by considering questions related to
whether or not a CPCN should be issued. I consider if the
Company's decision to invest in emission cont.rols is
necessary and whether the project is least cost and least
risk for customers over the long-term when compared to
othe:: alternatives given inf ormati-on known at. this time.
The second objective considers factors that
ensure the project is consLructed and deployed in a cost
effective manner. First, under ldaho Code 56L-541
CASE NO. IPC-E-13-16
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(2) (b) (iii) , I analyze whether any or all of the Company's
proposed budget for the SCR investments should be pre-
approved by the Commission. Second, under ldaho Code
S5l--541- (2) (b) (iv), I recommend an approach for handling
project variances. A table of contents is provided beIow.
Table of Contents Page No.
Prudence of Proposed Investment
Drivers for Investment.
Sufficiency of Company Analysis
Prudence of the Project Budget
Maximum Pre-approved Amount
Method of Handling Project Variances
Summary and Recommendations
Prudence of Proposed Investment
Drivers for Investment
page 5
page 5
page 6
page 20
page 20
page 29
page 32
LOUTS, M. (Dl)
STAFF
O. Please describe the primary drivers for the need
to invest in SCR emission conErols for Jim Bridger
generating Units 3 and 4.
A. In complj-ance with Clean Air Act Regional Haze
(RH) rules, The Wyoming Department of EnvironmenEal Quality
(WDEQ) through its State Implementation Plan (SIP) requires
Ehe Company to install SCR emission controls by December
201,5 on Jim Bridger Unit 3 and by December 20L5 on Unit 4
to limit Nitrogen Oxide (NOx) emissions to 0.07 lbs/MMBtu
(on a 30-day rolling average). Because the SIP is
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enforceable by the State of Wyoming, the Company must
discontinue operatj-on or install the necessary controls by
the dates stipulated in the SIP to continue operation.
The Company relies on L'74 MW and 177 MW of net
dependable baseload capacity from Units 3 and 4,
respectively. This represents approxj-mately L0? of Idaho
Power's total system generation capacity and approximately
L9e< of the Company's baseload capacity. The Company would
need to maintain at least an equivalent amount of baseload
capacity to contj-nue to reliably and economically meet
customer's electricity needs. Therefore, permanently
halting operation of Bridger Units 3 and 4 without
replacing its generation capacity is not an option.
Sufficiency of Company Analysis
O. Please provide a brief description of the
Company's analysis.
A. The Company's analysis consisted of two separate
types of studies: (1) a static unit by unit analysis
performed by an outside consultant, and (2) a system
analysis using fixed cost assumptions from the static
analysis combined with variable costs derived from the
Company' s AURORA modeI.
For both studies, net present value (NPV) cost
comparisons were made using alternatives to j-nvesting in
SCR controls. Nine different combinations of natural gas
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and carbon price forecasts were examined. The NPV costs
were calculated across a twenty-year tj-me period from the
year 2Ol3 through 2032.
The static analysis looked at each Jim Bridger
unit individually. This analysis provides a cost
comparison for each alternative resource as if it is
dispatched in exactly the same way as the Jim Bridger unit
lt is assumed to replace. Although this analysis
illustrates the operating characteristic differences
between the different alternatives, its value is limited
because the calculated NPV costs are not representaEive of
how the alternative would be realistically dispatched
within the Company's overall system.
By contrast, the system analysis dispatches each
generati-on resource based on j-ts own costs and operating
characEeristics. For example, ga.s generation alternatives
are dispatched according to their respective fuel costs and
heat rates, insEead of being dispatched like the coal units
they are intended to replace. Because of these reasons,
the Company's system analysis more realistically reflects
how each alternative mj-ght actually operate in the
Company's system. This provides more realistj-c NPV
comparJ-sons when testing sensitivit,y t,o natural gas and
carbon prJ-ces.
O. What alternatives to the "Upgrade" proposal,
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investing in SCR controls for Jim Bridger Units 3 and 4 on
the SIP complj-ance deadlines, did the Company choose to
compare?
A. Idaho Power analyzed and compared the following
four different alternatives to the "Upgrade" proposal:
1. Natural Gas Conversion - Each Jim Bridger
unit j-s converted to natural gas fuel by the SIP
compliance deadlines.
2. Retire and Replace Each Jim Bridger
unit is retired and replaced by an equal-sized
combined cycle combustion turbj-ne (CCCT) gas
plant with operating characteristics simj-Iar to
the Langley Gulch CCCT plant by the SIP
compliance deadlines.
3. CTA Natural Gas Conversion - This i-s a
compliance timing alternative (CTA) that is
identical to the "natural gas conversion"
alternatj-ve described in number 1 above,
except it is assumed the SfP compliance deadline
can be delayed by five years.
4. CTA Retire and Replace This is a
compliance timing alternatj-ve (CTA) that
is j-dentical to the "retire and replace"
alternative described in No. 2 above, except it
is assumed the SIP compliance deadline can be
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delayed by five years.
O. Were the number and type of resource alternatives
reasonable for comparison purposes?
A. I believe so. Based on fdaho Power's analysis
methodology, I believe the goal was more to confj-rm the
inst.al-lation of emission controls as the most economical
solution given current and future circumstances rather than
to ident,ify the one best solution using a clean sheet
approach. By using an incremental approach, the Company
was able to use a minimal set of highly feasible
alternatives to get an indication it was choosing the best
course of actj-on. The strength of that indication, which
in this case is the magnit,ude of difference in NPV between
each alternative and the "Upgrade" proposal, told the
Company if it was making t.he best decision or if a more
detailed and rigorous analysis was waranted.
O. How did you assess if the alternatives used were
feasible and suitable for comparison?
A. I identified four factors that are important to
test feasibility. To be feasible, the alternatj-ve needed
to meet all four criteria. First, all the alternatives
needed to meet the reliability needs of Idaho customers.
As explained previously, Jim Bridger Units 3 and 4 provide
approximately 19* of the Company's baseload generation
capacity. In addition, fdaho Power already has a large
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amount of seasonal or intermittent hydropower and wind
resources. Alternatj-ve resources considered as part of the
analysis must be dispatchable and reliable year round.
Second, the alternatives needed to have a cost
that can reasonably compete with an SCR equipped Bridger
unit to minimize rate impact to Idaho customers. The Jim
Bridger facillty currently has the lowest dispatch cost of
all of the Company's generation resources. The types of
alt,ernatives t,hat can compete economically while meeting
all the other criteria is realistically very limited, even
with the additional cost of SCR controls and potential
future environmental compliance costs.
Third, the alternatives needed to meet or surpass
all current and potential environmental regulations
relevant to each alternative, including regulatj-ons under
consideration for the Jim Bridger units.
Fina11y, all alternatives for comparison needed
to be constructed and operational by the SIP complj-ance
deadline.
O. Do you believe the compliance timing alternatives
considered by Idaho Power were realistic?
A. At one time t,here may have been an opportunity to
negotiate a delay in the Regional Haze compliance dates in
exchange for shutting down one or both units and replacing
them with an alternatj-ve resource. However, I believe the
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opportunity for delay no longer exists.
O. Why do you believe Lhe opportunity to delay
compliance no longer exists?
A. There are several reasons. First, the Wyoming
SIP carries the force of law in the State of Wyoming until
such time as the EPA approves it or replaces it with a
Federal Implementation P1an. Second, on May 23, 2013, the
EPA created additional certainty by re-proposing rules t,hat
will approve the Wyoming SIP making the SIP requirements
federally enforceable upon final approval. Third,
PacifJ-Corp, as a majority partner and owner-operator of the
Jim Bridger facilit,y, is moving forward with installing the
controls. It received a CPCN in both Utah and Wyoming on
May 29, 2OL3 and May 10, 201-3, respectively, and signed an
Engineering, Procurement, and Construction (EPC) contract
to install the controls. In reviewing the contractual
obligations between the two companj-es, f bel j-eve it would
be very difficult for Idaho Power to pursue a different
alternative than what PacifiCorp has already selected
without significant additional cost.
O. What would Idaho Power need to do if iE decided
not to participate in PacifiCorp's installation of
envlronmental controls?
A. I believe the most, feasible option would be for
Idaho Power to seII its share of the facility Eo PacifiCorp
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or a third party. Although the possibility exists, f
believe there is 1itt1e incentive for PacifiCorp or a third
party to buy out Idaho Power's share in the time frame
required. Moreover, Idaho Power would incur potential
costs associated with stranded assets, the additional cost
of replacing lost .Iim Bridger capacity, and damages owed to
PacifiCorp for breach of contract (See Company response to
St,aff Production Request No. 9 attached as Staff Exhibit
No. 101-) .
a. Despite your belief that negotiating a delay in
the compli-ance deadlj-nes in exchange for shutting down
Units 3 and 4 is not realistic, do you see value j-n
analyzing the compliance timing alternatives?
A. Yes I do. f believe the CTA analysis
demonstrates how much more cost effect,ive Idaho Power's
proposal is over the "natural gas conversion" or "retire
and replace" alternatives. WiEh the CTA option, the
"natural gas conversion" and "retire and replace"
alternatives allow operation of Jim Bridger Units 3 and 4
without additional operational and capital costs of SCR
controls for a period of five years. It also avoids five
years of carrying costs associated with the capital
required to build a CCCT plant or t.o convert Jim Bridger
Units 3 and 4 to burn natural gas. Even with these
advantages, the SCR "Upgrade" option was most economical,
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providing furt.her evidence justifying the Company's
proposal.
A. Please describe how Idaho Power evaluated risk
associated with each of the alternatives considered.
A. The Company's analysis focused on Ewo primary
risk factors that would cause significant NPV differences
between each of the alternatives: carbon dioxide (CO2)
price and natural gas price. These factors were chosen
because the alternatives being compared are primarily
fueled by coal or natural gas. The Company calculated nine
NPV results using combinations of three different CO2 and
three different natural gas price forecasts. Comparing the
NPV results across the nine alternative model runs provides
an effective evaluation of risk associated with each
resource alt,ernative .
Overall, I believe the factors chosen and the
methodology used to evaluate risk in the Company's analysis
are reasonable.
a. Do you believe the natural gas and CO2 price
forecasts used are reasonable?
A. I do, with some caveats related to the natural
gas price forecast. Fj-rst, the natural gas and CO2 price
forecasts were identical to the forecasts used to develop
the 201,3 Integrated Resource PIan (IRP). This means they
were reviewed publically through the IRP Advisory Council
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as part of the IRP development process.
Second, the forecast,s were based on data from
repuEable third party sources. The CO2 price forecast
utilized data from the "201-l-" and "207-2 Carbon Dioxide
Price Forecast" published by Synapse Energy Economics, Inc.
The nat,ural gas forecast was derived from the "Annual
Energy Outlook, 201-2" published by the US Energy
Information Administration (EIA) .
With respect to CO2, the Idaho Power CO2 price
forecast is somewhat more conservative when compared to the
forecast used by PacifiCorp in its 2Ol3 IRP. This favors
t,he "natural gas conversion" and "reEire and replace"
alternatives by phasing in CO2 cost earlier. ft also
provides a forecast t.hat is approxi-mately equal to the
PacifiCorp forecast in the low and planning CO2 cases and
consistently higher in the high CO2 case over the analysis
time period.
However, I believe the Company's natural gas
forecast may be less conservative by being higher than
other nominal forecasts. This favors investment in SCR
controls over natural gas fueled alternatives. The Company
applied a three percent inflation rate to the EIA forecast
in real 20lO dollars to get a nominal do11ar forecast over
the planning period. When compared to PacifiCorp or EIA's
nomj-na1 dol1ar forecast, Idaho Power's gas price forecast
CASE NO. IPC-E-13-]-5
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is considerably higher, especially in the out years.
Although I don't believe the Company's method is
necessarily unreasonable, I believe that uslng EIA's
nominal do11ar forecast is more transparent and uses an
inflation rate that is likeIy more accuraEe for natural
gas. For comparison purposes, these forecasts are
illustrated in Staff Exhibit No. 1-02.
O. How does Idaho Power's comparatively higher
natural gas price forecast affect the analysis?
A. To better understand how the natural gas forecast
affected the analysis, I looked at the "tipping point"
analysis provided by t,he Company in response to Staff
Production Request No. 44. The analysis determined how
much gas prices would need to decrease to make the next
best alternative more economical than investing in SCR
controls (the planning CO2 price forecast was used as t,he
baseline). The analysis showed that natural gas prices on
average would need to decrease by 52 percent in order to
make the "retire and replace" with a CCCT alternative more
economically favorable. Because this percentage decrease
is larger than the percentage difference between the
Company's gas price forecast and EIA's nominal forecast, I
concluded that the differences in the natural gas price
forecasts are not substantial enough to change the
Company's final recommendation. Regardless of the forecast
CASE NO. IPC-E-13-15
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used, the forecast would
O. Were there any
consj-der regarding risk?
have to be considerably 1ower.
other important factors to
A. The other important factor is the cost of
compliance for future environmental regulations beyond
Regional Haze. For some of the regulations, there is
considerable uncertainty about what will be required.
Potential future regulations subject to consideration for
,Jim Bridger Units 3 and 4 lnclude: (1) Mercury and Air
Toxic Standards (MATS) Ru1e, (2) Clean Water Act Section
3l-6 (b) , (3) Coal Combustion Residuals (CCR) , and (4) future
regulations to limit greenhouse gas emissions.
O. How did Idaho Power account for these potenEial
compliance costs?
A. With the exception of greenhouse gas regulations,
the Company included incremental capital and operation and
maintenance costs for controls required by each regulation
depending on the type and technology of each alternative
under considerat.ion. Most of the incremental cost
est,imates were originally developed by PacifiCorp.
However, the consultant hired by Idaho Power to do the
"static" analysj-s was tasked to review and valj-date all of
the capital and variable cost assumptions, including the
cost of replacement capacity and environmental compliance
costs for each alternative. Given the highly technical
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nature of environmental control technology, I believe this
approach provided reasonable assessment of potential future
environmental costs and added credibility to the Company's
analysis.
O. How did Idaho Power account for greenhouse gas
regulation compliance costs?
A. EPA Greenhouse gas regulations for exj-sting
sources are currently not expected to be finalized until
June of 2015. Nevertheless, the Company included a
surrogate CO2 cost adder to the variable cost of each
alternative on a do1lar per megawatt-hour basis with the
fu1I CO2 cost charged to coal-fueled alt.ernatives and 50?
of the cost charged to natural gas fueled alternatives
because CO2 emlssions for natural gas are approximately
half that of coal. As mentioned earlier, the coz cost was
included as a sensitivity variable. I believe this is
reasonable treatment for greenhouse gas compliance costs
until a framework for EPA rulemaking is proposed and
finalized.
O. Did higher CO2 prices affect the NPV results?
A. When high CO2 costs were combined with the Iow
natural gas price forecast j-n the Company's analysis, the
"retire and replace" was a better alternative economically
than the "upgrade" proposal based on the NPV results. To
understand the sensitivity of the analysis on CO2 price
CASE NO. IPC-E-13-15
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aIone, f requested the Company perform a "tipping point"
analysis to determine how much CO2 prices would need to
increase to make the next best alternative more economi-caI
than investing in SCR controls using the planning natural
gas price forecast case as a baselj-ne. The analysis showed
that CO2 prices on average would need to increase
approximately 423 percent in order to make the "retire and
replace" alternative more economically favorable.
O. Is there anything else you considered in the
Company's analysis leading to its decision Eo upgrade Jim
Bridger Units 3 and 4?
A. Yes. The EPA has not yet approved the Wyoming
SIP regarding NOX compliance for Bridger Units 3 and 4.
However, after several delays by the EPA, the agency
released a re-proposal to effectively approve SCR
installation on Units 3 and 4 by December 201-5 and 20L5,
respectively, by authorizing an emissj-on limit of 0.07
lbs/MMBtu. rf the EPA issues a notice of final rulemaking
on November 21, 201-3 as expected with no changes to the re-
proposal, it will effectively make j-nstallation of SCR
controls federally enforceable. In the unlikely event that
the EPA decides to change the Wyoming SfP, it would
probably make the requirements more stringent.
O. Did the Company consider this contingency?
A. Yes. The Company, through PacifiCorp as the
CASE NO. IPC-E-].3-].5
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operator of the pIant, has signed a Limited Notice to
Proceed (LNTP) contract with an EPC contractor to design
and install the controls. The LNTP alIows the Company
flexibility to make changes to the specifications of the
design and purchased equipment to meet a 0.05 Ibs/ttuetu NOX
limit up to the date the EPA is expected to issue its final
ruIes.
O. Would the additj-onaI cost of meeting a more
stringent emission limit change the outcome of the
alternative analysis performed by the Company?
A. I do not believe it wouId. Based on the
Company's response to Staff Production Request No. 5, t,he
incremental capital cost of meeting a 0.05 Ib/MMBtu NOX
limit is estimated to be less than $1.7 million per unit.
Amortized over the life of the unj-t, and brought back to
present value over the study period, the effect on the NPV
results for the "upgrade" proposal would not. make a
material difference.
a. What do you recommend based on your review of the
Company's analysis?
A. Based on the overall sufficiency and
reasonableness of the Company's analysis and also based on
the overall magnitude of difference in net present value
between each alternative and the "upgrade" proposal for the
different sensitivity scenarios, I agree with the Company's
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"upgrade" proposal and recommend the Commission issue a
CPCN pursuant to Idaho Code S6L-525.
Prudence of the Project Budget
Maximum Pre-approved Amount
O. How did you determine your recommended level of
project costs eligible for binding ratemaking treatment
pursuant to Idaho Code S6f -541-?
A. Pursuant to ldaho Code s51-541 (2) (b) (iii), the
Commission is to consider "the maximum amount of costs that
the Commission will include in rates at the time determined
by the Commission without the public utility having the
burden of moving forward with additional evidence of the
prudence and reasonableness of such costs." Based on this
guidance, I believe bj-nding ratemaking treatment in this
case should be limited to only those expense categories
that are necessary, and known and measurable with a high
Ieve1 of certainty. I also recommend that each category of
cosEs should be pre-approved individually rather than on a
total project cost perspective. This protects against
premature approval of budgeted amounts when actual costs on
an individual caEegory basis could be potentially lower.
This approach ensures the Commission's right to review the
prudency of actual cost before they are put into rates.
O. Why should uncertain budgeted amounts for
individual project categories be excluded from pre-
CASE NO. IPC-E-13-16
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approval?
A. There are two reasons. First, excluding
uncertain amounts incents the Company to contj-nue to find
cost-effective ways of implementing a project once lt is
underway. Pre-approval of budgeted amounts that are set
usj-ng liberal estimating methods or thaL include slack from
contj-ngency amounts a1low project managers to spend up to
the amount of their authorized budget without regard for
potential savings. Second, excludlng uncertain amounts
protects against recovery of a fuI1 pre-approved amount if
actual costs are l-ess. Consequently, I recommend that the
Commission conservatively set pre-approved project costs to
assure costs are reasonably incurred in aI1 cost item
categories throughout project development.
a. Will the Company have difficulty financing the
project if the Commission denies pre-approval of costs on a
total project basis?
A. Not necessarily in this case. In response to
Staff's Productlon Request No. 18, which asks how the
project will be flnanced, the Company said,
Idaho Power expects to finance this projectconsistent with the financing of its totalconstruction program. The Company expectsto finance it,s capital requirements with acomblnation of internally generated funds
and externally financed capital. Idaho
Power has not entered into any alternativefinancing agreements and therefore has not
developed a financing payment schedule basedon non-t.raditional f inancing schemes.
CASE NO. IPC-E-13-15
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Because Idaho Power is using a combinatj-on of
internally generated funds and capital from its overall
construction program budget and is not required to secure
financing specifically for this project, Ehe need for
binding ratemaking treatment to secure favorable financing
is reduced. Moreover, the Company's ability to secure
favorable financing is not a requirement of ldaho Code
s51-54L.
Therefore, more of the focus should be placed on
assuring that project costs are properly incurred and are
subject to review when actual costs are known. This means
t.hat uncertain budgeted amount.s should not be included in
the pre-approved total.
A. Does Idaho Power's shared ownership of Bridger
with PacifiCorp affect your recommendations in this case?
A. Yes. PacifiCorp, as the operat,or of the pIant,
has the responsibility to manage the project. However,
Idaho Power stil1 has a responsibility to make sure
PacifiCorp does everyt,hing it reasonably can to implement
the project cost-effectively.
A. Is there evidence that the Company has had
difficulty providing managerial oversight of its operating
partner's operating and investment decisj-ons in the past?
A. Yes. For example, in Oregon Case UE 233 (Order
No. 1,3-L32), the Oregon Commj-ssion dj-saIlowed Idaho Power
309CASE NO. IPC-E-].3-15
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management expenses because t.he Company was "unaware of the
existence of a key sEudy underlying the decision to upgrade
Bridger 3," in its general rate case.
O. What. amount do you recommend for pre-approval j-n
this case?
A. The only costs I recommend for binding rat.emaking
treatment are the amount of the EPC contract and actual
costs already incurred during the development phase. I
have illust,rated my recommendatj-ons for budget pre-approval
by expense category in Staff Exhibit No. 103.
O. Please explain how Staff Exhibit No. 103 is
organized relatj-ve to your testimony.
A. Staff Exhibit No. 103 illustrates amounts
included and excluded in Staff's proposed Commitment
Estimate by cost item category. Amounts included in
Staff's proposed Commitment Estimate are further broken
down by actual cost shown in Column 1 and by estj-mates from
competitive bids and contracts shown in Column 2 with
Staff's total proposed amounts shown in Column 3. Amounts
excluded from Staff's proposal are shown in Columns 4 and
5. Column 4 shows amounts that require both fu11 prudence
review and cost verj-fication because there are questions
whether the cost item is necessary. Column 5 reflects
amounts for cost item categories that I believe are
necessary; however, the amounts are uncertain at this time
CASE NO. IPC-E-13-15
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rates.
Second, in those proceediflgs, all actual
expenditures should be reviewed against pre-approved
amounts by cost item category. Any actual cost item
category that exceeds the pre-approved budget amount should
be reviewed to ensure any amount above the soft-cap for
each category is reasonable and prudent. Soft-cap j-s
defi-ned as the maximum amount the Commission will aIIow
without performing a prudence review of any excess amount
above the cap before being put into rates. This
recommendation is an augmentation of the soft-cap used in
the Langley Gulch CPCN case (IPC-E-09-03), where the soft-
cap was set for the total approved Commitment Estimate.
Unlike Langley Gu1ch, however, in which the project was
constructed mostly under a single EPC contract, this
project will possibly entail as many as four additional
contracts. Set,t,ing a sof t-cap for each cost category will
ensure a higher leve1 of cost control by not. allowing slack
in one expense category estimate to serve as a cost
contingency for another category with unrelated expenses.
Third, I recommend that the Commission allow
either all or none of the expense in any category to be
approved. If the Commission only pre-approves a percentage
of each category, it is 1ike1y the Company will exceed the
soft-cap for those categories requiring a fuII prudence
CASE NO. rPC-E-L3-l-5
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review of all expenses within that category at the time
they are put into rates.
Fourth, if the Commj-ssion does al1ow partial pre-
approval of the Company's estimate of a cost item category,
any amount put into rate base should not exceed the actual
cost of that category. The Company says in it.s Application
that, "Should Ehe cost of the project be less than the cost
est.j-maLe, the savings would direct,ly benefit the customer
through a lower amount in rate base." I agree with the
Company's proposal that any amount put into rate base
should not exceed act,ual cost. However, I recommend,
consistent with my earlier recommendation, that this apply
to each cost item category in isolation and not for the
total pre-approved amount.
Fifth, t,he Company should provide to the
Commission quarterly project updates that illustrate plan
vs. actual status of expenditures by cost item category and
for the overall project timeline. This will alert the
Commission of major difficulties, unseen clrcumstances or
changes in scope throughout the life of the project. It
will also provide better documentation when reviewing
prudence in a subsequent proceeding. Finally it will
ensure that Idaho Power is actively performing oversight of
a project PacifiCorp is managing.
O. Please discuss any other issues related to
CASE NO. IPC-E-13-16
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6. The Company should develop a method with its
partner, PacifiCorp, to ensure the ability to
track costs by cost item category and Work
Breakdown Structure element so that
prudency can be reviewed on an on-going basis.
O. Does this conclude your direct testimony in this
proceeding?
A. Yes, it does.
CASE NO. IPC-E-1.3-15
t0 / tt/ t3
LOUTS, M. (Di) 34
STAFF
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(The following proceedings were had in
open hearing. )
(Staff Exhibit Nos. 101 through 103,
havJ-ng been premarked for identification, were admitted into
evidence. )
MS. SASSER: And I would open him up for cross.
COMMISSIONER SMITH: Any questions from the
Company?
MS. REINHARDT-TESSMER: I have just a couple.
CROSS-EXAM]NATION
BY MS. REINHARDT-TESSMER:
O. Mr. Louis, is it fair to say that the Company's
commitment estimate provides a gauge to the Commission of
reasonable costs the Company bel-ieves it's necessary to incur
for a particular project?
A. I woul-d say for this particular project, parts of
it are what I would say known and measurabl-e, and some of them
are not.
0. But would you agree that, for example, it will be
necessary to incur additional expenses beyond that amount that
you recommended for binding ratemaking treatment in order to
reasonably construct ox, excuse me, implement the SCRs?
A. I be]ieve that thatrs I believe that that's a
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possibility, y€sr I do.
0. In other words, even though we can't measure them
with 100 percent accuracy, there's a substantial number of
items left out in your preapproved ratemaking recommendation
that wil-1 have to be incurred by the Company?
A.Potentially, yes. I believe that there will be
additional- costs that are represented in your commitment
estimate. I do believe that the uncertainty and the fact that
they are not fu1ly known and measurable, that that does beg a
question of whether or not they should be up for preapproval.
a.Would you agree that if the Commission approves
the Company's application in this proceeding j-n the ful1 amount
of the Company's commitment estimate, that the Company would
stil-l have a duty to execute the project in a prudent manner?
A. I bel-ieve that is the case, that they do have
that duty.
0. And if a party fel-t that they did not execute the
project in a prudent manner, they could challenge that during a
related rate case. Correct?
A. Parts of it cou1d be challenged, parts of it
couldn't. If we preapprove parts of the commitment estimate
that are not known and measurable, they may not be up for
challenge. They would not be up for challenge, depending upon
whether or not the amount above the commi-tment estimate
above the commitment estimate for the cost categories that I'm
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recommending be reviewed separately whether or not those were
exceeded or not.
A. Just so we can be clear: So the Company woul-d
stil1 have a duty to execute the implementation of the SCRs 1n
a prudent manner even if they obtained approval from this
Commission in the fuII amount of the Company's commitment
estimate. Correct?
A. Yes. I bel-ieve that the Company would dutifully
try to implement the project in a prudent manner. I bel-ieve
that that would be the intention of the Company. Whether or
not the incentives are there and in place to make sure that
they are the most cost effective ways, that they are to
implement the project, i-s in question because of the uncertain
amounts of some of the estimates.
O. Ir11 change directions. Do you bel-ieve that it
is reasonable for the Commission to grant the Company binding
ratemaking treatment that correl-ates to the amount that you've
recommended for binding ratemaking treatment?
A. I do.
MS. REINHARDT-TESSMER: I don't have anything
further.
COMMISSIONER SMITH: Thank you.
Mr. Richardson.
MR. RICHARDSON: Thank you, Madam Chair.
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CROSS-EXAMINATION
BY MR. RICHARDSON:
O. Good afternoon, Mr. Louis.
A. Good afternoon.
O. Just following up on your questions from Idaho
Power, if Idaho Power still if they -- if the Commission
grants blnding ratemaking treatment, you said that Idaho Power
would stil-l- have to show that it was invested in a prudent
manner?
COMMISSIONER SMITH: So while Mr. Louis i-s
thinking of that, President Kjellander has an important thing
to take care of and we'Il be off the record just for a moment.
(Discussion off the record. )
COMMISSIONER SMITH: Mr. Richardson, I apologize
for interrupting your cross.
MR. RICHARDSON: Not a problem, Madam Chair.
O. BY MR. RICHARDSON: Do you recall the question?
A. Could you please repeat it for me, please.
MR. RICHARDSON: Could you read the question
back.
(Whereupon, the requested portion of the
record was read by the court reporter. )
THE WITNESS: What I said was that parts of it,
they would have to, depending upon how the Commission approves
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the costs. I'm suggesting that in my testj-mony I'm
suggesting that they approve, track, and review those costs by
cost item category. Some of those cost item categories f
believe or at least one in particular I bel-j-eve is not -- may
not be necessary. There are several- that are uncertain. In
those cases, I am not recommending preapproval-.
MR. RICHARDSON: That's all I have, Madam Chair.
COMMISSIONER SMITH: Thank your Mr. Richardson.
Mr. Miller.
MR. MILLER: Thank you, Madam Chairman.
Hey, Rick, could you move just slightly?
CROSS_EXAMINATION
BY MR. MILLER:
O. Good afternoon.
A. Good afternoon, Mr. Mil-l-er.
O. Is the packet of Snake Rj-ver Al-liance exhibits
stil-I on the hearing stand?
A. It is.
O. Vfoul-d you dJ-rect your attention to Exhibit 410.
A. Okay.
A. Are you with me?
A. I'm with you.
O. AII right. During the course of this proceeding,
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did the Snake River A]Iiance submit to the Commission Staff
certain production requests numbered one through six?
A. They did.
O. And did the Staff prepare responses to those
requests?
A. Yes, we did.
0. And were you the primary author of a response in
consultation with other Staff members and Ms. Sasser?
A. I was.
A. Yes?
A. I was.
O. Were the answers to the questions that are set
forth in Exhibj-t 10 410 correct, to the best of your
knowledqe, when you wrote them?
A. Yes, they are.
O. Are they correct, to the best of your knowledge,
today?
A. They are. They have not changed.
O. In the in Staff 's opi-nion
WeII, those are all the questions f have on
Exhibit 4L0, and the Commission can read the questions and
answers without me having to spend time here.
Now, in Staffrs opinion, has the Company, Idaho
Power, made a compelling case that binding ratemaking treatment
is necessary in order to finance these investments?
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A. I believe that they have made an application,
which is their right to do so under state law. I believe that
they have the right to do so and I believe that under the
information that was presented, f believe that the that the
recommendations that I have made for the for the commitment
estimate are reasonable, as well- as the recommendations that I
made for tracking actuals versus the commitment estj-mate for
cost tracking purposes.
a. I understand your answer, I think. The question,
however, was I I 1l- rephrase it again has the Company made
a compelling case that binding ratemaking treatment is
necessary in order to fj-nance the projects?
A. In order to finance the project. f believe
that that it is not as compelling from a fj-nancing
perspective as it coul-d be.
O. A11 right. I'm going to foll-ow my own advj-ce
again and quit. Thank you for your time.
A. Youtre welcome.
COMMISSIONER SMITH: Ird say you were ahead on
that one, Mr. Mil-Ier.
Mr. Otto.
MR. OTTO: Irm not going to fol-l-ow Mr. Mi1ler's
advice this time and wade into uncharted waters.
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CROSS-EXAMINATION
BY MR. OTTO:
O. So, Mr. Louis, I do see you. Here we go. As
long as nobody moves, we're good. A11 right, there, fine, stay
right there.
So on your direct testimony on page 9, begins on
Iine 5, you describe the goal of Idaho Power's analysis?
A. Yes, I do.
A. And thatrs to confirm that the j-nstallatj-on of
the controls was most economical given current or future
circumstances, rather than identify using a clean sheet
approach?
A. That's correct.
O. Okay. Is it the Staff position that considering
the ability of existing capacity and energy to absorb coal
retirement is not a relevant factor?
A. I believe it is relevant, and I think the
analysj-s that the Company performed basically shows that
looking at all of the resources in concert working together
basically shows that is the lowest cost, lowest risk option.
O. WelI, is that the so the coal so the
Bridger investment standing alone is the l-owest cost option,
not in compari-son to an alternative?
A. Coul-d you repeat the questi-on, please?
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O. Are what you 1s what you're saying that the
analysis shows that looking just at the Bridger investment
alone, that just looks reasonable, not j-n comparison to
alternatives?
A.I think what I say in my testimony is that
looking at, for example, in the SAIC study that was completed,
I do not feel- like that is a very strong analysis because it
does not l-ook at the alternatives as wel-l- as the BrJ-dger with
the upgrades. It does not it does not provide a good net
present val-ue comparison as those alternatives would operate in
Idaho Power's system. I do believe that the net present val-ue
AURORA analysis that was performed by the Company does do that.
o.
A.
presented.
o.
considering
Company?
A.
o.
By comparing to alternatives?
By comparing it to the al-ternatives that they
So those alternatives, were they designed while
the existing capacity and energy position of the
I bel-ieve they were, y€s.
Even though they did not acknowledge that there
is excess energy and now we see excess capacity?
A. I bel-ieve that the analysis, the way it's
conducted, l-ooks at comparing those al-ternatives in the system
as they exist as they stand existingly. So as you compare
it against those al-ternatives, they consj-stently showed the
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Staff
l-owest net present vaJue. The upgrade, the Company's preferred
option that they recommend in this case, shows the lowest net
present value across the widest range of possj-ble futures.
o.And, sure, that makes sense, because you have one
option whj-ch is -- we covered with Ms. Grow there are l-56
average megawatts each unit, roughly. So, roughly 300 average
megawatts is Bridger, that's one optJ-on, but you paid out a
bunch of that plant so you've just got a little bit more to
keep that going. Then the other al-ternative is 300 average
megawatts of a gas plant. That's what the
A. Each one was basically each unit was compared
against a separate unit, a separate combined cycle pIant.
o.
A.
Of the same
Of the same capacity, with the same
characteristics as the Langley Gulch plant.
o.Would that comparison change if instead you
comparedr sEryr 100 megawatts of exj-sti-ng capacity and maybe 200
megawatts of new? Woul-d the alternative be a lower cost
al-ternative than the one compared in the coal study?
A. I didnrt perform that analysj-s: I could not teII
you what the result would be.
o.You're an expert in this area. Just based on
your understanding of this system, the portfol-io that starts
the 100 megawatts that already exist and adds 200 new, would
that be lower cost than a portfol-io that is 300 megawatts of
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new power; or to put it more simply, is a portfolio that is 200
megawatts of one resource l-ess cost than 300 megawatts of that
same resource?
A. Are you talking about from a
dollar-per-megawatt-hour or -megawatt perspective?
O. Any perspective that you want. You have two
resources.
A. I have two resources.
a. One is 200 megawatts. One is 300 megawatts.
A. Of wind, of the same types of capacity.
MS. SASSER: Madam Chair, these matters are
outside the scope of Mr. Louis's testimony. If Mr. Otto wanted
these analyses to be accomplished or wanted Mr. Louj-s's answers
to these questions, he coul-d have done it through the discovery
process and given Mr. Louis a fair opportunity to come to a
conclusion.
COMMISSIONER SMTTH: MT. Otto.
MR. OTTO: Mr. Louis testifies that he supports
the comparison the Company did of the different investment
alternatives, and I'm just exploring his understanding of the
comparative alternative.
COMMISSIONER SMITH: We11, I think if you could
tighten down your question it would he1p, because, frankly, I
got lost, and so I'm certain that maybe the wj-tness mJ-ght have
the same confusion that I experienced.
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MR. OTTO: Eair enough.
a. BY MR. OTTO: Letrs start over here. Herers what
I'm asking you:
You have the Bridger investment j-s one
alternatj-ve. You compare that to a different investment. Are
you with me?
A. Irm with you, yes.
A. Now we're talking about the different investment.
Idaho Power used one, yet that investment was designed to have
the same number of megawatts as Bridger?
A. Thatrs correct, in their analysi-s they did that
compari-son, yes, for two different alternatives.
O. And that analysis showed that the Bridger
investment was a lower net present value?
A. That's correct.
O. So what I'm asking is looking at that alternate
investment, woul-dn't it have been reasonable and informative
and 1ikeIy lower cost to use some of the existing capacity as
wel-1 as potentially new capacity as the replacement for
Bridger?
A. I don't understand the question because, first of
all, I haven't not I donrt understand which alternate
capacity you're talking about for new capacity and I have not
done that analysis. My testimony rests on reviewing the
Company's analysis. I did not perform my own analysis.
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0. Ir11 move on then. On page 10, line 22, you
admit that at one time the Company had the opportunity to
negotiate a delay in the complj-ance dates?
A. I said -- I would l-ike to requote that. What I
say is at one time there may have been an opportunity.
O. Fair enough. May have been?
A. Yes.
0. We heard today that the Company didn't ever
explore that opportunity?
A. Idaho Power, to my knowledge, did not, y€s.
WelI, Idaho Power, to my knowledge, did not have any
discussions. They did run an analysis of that as compliance
ti-ming alternatives in their coal- study.
O. In 20L3?
A. I belleve the study started in 2012.
O. Fair enough. So it's the Staff posj-tion that
Idaho Power should not bear any consequences for missing an
opportunity earller to explore al-ternative compliance dates?
MS. REINHARDT-TESSMER: Objection: It misstates
pri-or testimony regarding Idaho Powerrs efforts.
COMMISSIONER SMITH: Mr. Otto.
MR. OTTO: Irm not quite sure I understand the
objection. I didn't refer in that questj-on to Idaho Power's
testimony.
MS. REINHARDT-TESSMER: You're asking him what
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HEDRICK COURT REPORTING
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efforts Idaho Power made and his testimony responsive to that
on page 10. Earlier, an Idaho Power witness gave an
explanatj-on as to Idaho Power's analysis and compLiance with
that directive, and he has mj-sstated that in his question to
Mr. Louis.
MR. OTTO: I asked Mr. Louis whether the
Company -- whether he heard the Company say they did or did not
explore the complJ-ance alternati-ve, and he answered that he
heard -- weII, he answered the way he answered, that which, f
think my understanding, Mr. Louis accurately represented the
Company's position.
COMMISSIONER SMITH: So is there any way to ask
the question and get the answer to the question you want
without characterizing a previous witness's testimony, because,
frankly, the best place to look for what that witness said is
in the transcript, and the Commission can do that. Perhaps you
could formulate it as a hypothetical-.
MR. OTTO: How about that is a good
suggestion, but Irm going to ask j-t a different way.
Actually, I'm done. No more questions; no need
to answer.
COMMISSIONER SMITH: Are there questions from the
Commissioners?
COMMISSIONER REDFORD: No.
COMMISSIONER K,JELLANDER: No.
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COMMISSIONER SMITH: Ms. Sasser, do we have any
redirect?
MS. SASSER: Maybe one or two.
THE WITNESS: Okay.
REDIRECT EXAMTNATION
BY MS. SASSER:
O. We1I, I think that there was a little confusion
with some of the initial cross questions as to what Staff's
position is, what your testimony conveys regarding a
preapproved amount versus what the Company later has to come in
and ask for recovery of. Can you explain that for the people
here and the Commissi-oners?
If , as Staff 's testj-mony is, your testimony
reflects, there j-s a preapproved amount under 541, for 86
mil-l-ion, then and as you explaj-ned to Idaho Power, Staff 's
position is to break it down into categories
A. That's correct.
O. for a categoryr sdy, that is whol1y
preapproved, when Idaho Power l-ater comes to the Commission j-n
order to be abl-e to include those numbers in rates, is there a
prudency review, an additional prudency review, at that time of
those preapproved amounts, in your opinj-on i or is the prudency
review something that occurs prior to giving a preapproval
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under 54L?
A. So, my recommendatj-on, first of all, is that the
project over all j-s prudence is prudent from moving forward
in a project that's needed and necessary.
In terms of ratemaking treatment, what I am
suggesting is that the Commj-ssion preapprove by cost item
categTory. I have l-aid out in Exhibit 1-- 103 how -- the
amounts that f suggest for preapproval and the rational-e for
each of those cost item categories. I recommend that the EPC
contract and actual- costs to date, that those be preapproved.
Eor one of the cost item categories surrounding
the
O. Can I stop you, only so that I just don't think
it's necessary for you to go through each one individually
because
A. Okay. Excuse me. I have excuse me, go ahead.
Excuse me.
O. Hardest questi-ons are from your own lawyer.
So if the if an amount in a cost category
though is preapproved, does that require the Company to come
back in and prove prudency of those amounts again j-f j-t's
preapproved by the Commission under 54L, in your opinion?
A. Only if they -- rror they would not, for the most
part, unless they exceed that amount.
0. Thank you. That's what I was trying to get at.
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LOUIS (Di)
Staff
Thank you for that.
One other question:
Mr. Miller was askj-ng about whether
preapproval -- whether Idaho Power has proven that preapproval
j-s necessary for them to obtain financj-ng. Recognizi-ng that
you're not a lawyer but understanding that you've reviewed
Idaho Power's application and all of the evidence, 1s it your
understanding that in order to get binding ratemaking treatment
under 54L, Idaho Power has to prove that it's necessary for
them, that binding ratemaking treatment is necessary in order
for
A. I did not see anything i-n the statute.
MR. MILLER: Objection.
COMMISSIONER SMITH: Mr. Miller.
MR. MILLER: Thank you, Madam Chairman. I object
to the question as calling for a conclusion as to what the
statute does or doesnrt requj-re, which I think is a an
appropriate topic for the briefing that wil-l- come up and which
the Staff will- have a complete opportunity to brief, but I
don't think j-t's an appropriate topj-c f or thj-s witness who is
not a lawyer.
COMMISSIONER SMITH: Sustained.
O. BY MS. SASSER: Thatrs all I have. Thank you.
A. You're welcome, Ms. Sasser.
COMMISSIONER SMITH: Thank you, Mr. Louis, for
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your heIp.
(The witnes$ left the stand. )
COMMfSSIONER SMITH: Dr. Reading is our next
witness. Unless there is someone who thinks they have
extensive cross for Dr. ReadJ-ng, we will just proceed and not
take a break.
MR. RICHARDSON: Thank you, Madam Chairman. The
Industrial Customers of Idaho Power caII Dr. Reading to the
stand.
COMMISSIONER SMITH: While Dr. Readj-ng has taken
the stand, Mr. Otto, I have given thought to your witness,
Ms. White, and I have two alternatives that you could think
about and the other parties could think about, and then after
we're done with Dr. Reading we'11 decide.
The first is that the testimony could just be a
public comment that the Commission woul-d consider as it does
all written comments that are received.
The second is if you wish to have it be actual-
testj-mony and her appear, we have another hearing on the 25th
of November at 7:00 p.m. We could come maybe at 6:45 and have
her take the stand and be subject to cross-examination.
So not asking for any answers rj-ght now -- we'Il
go to Mr. Richardson and Dr. Reading -- but those are the two
alternatives I thought of.
MR. OTTO: Thank you for that, Madam Chair.
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HEDRICK COURT REPORTTNG
P . O. BOX 5'18 , BOTSE, rD
READING (Di)
ICI P
DR. DON READING,
produced as a witness at the instance of Industrial- Customers
of Idaho Power, being first duly sworn, was examined and
testif i-ed as foll-ows:
DIRECT EXAMINATION
BY MR. RICHARDSON:
O. Are you the same Dr. Readi-ng who caused prefiled
dj-rect testimony and Exhibit No. 20L to be fj-1ed in this case?
A. Yes.
O. And was that prefiled direct testimony prepared
by you or under your supervision?
A. Yes.
a. And was Exhibit 20L prepared by you or under your
supervision?
A. Correct.
O. And do you have any correctj-ons or additions to
make to your testimony and/or exhibits today?
A. Yes. If you look at the last two lines, t9 and
20, on page 9, they are should I smile, Rocky? they
are repeated on the top of the next page, page 10. So delete
the last two lines on page 9 for contJ-nuj-ty.
O. With those corrections
Does that concl-ude your corrections and
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HEDRICK COURT REPORTING
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additions?
A. Yes, it does.
a. And with those correctj-ons, if I were to ask you
the same questions today that you were asked in your prefiled
direct testimony, wou1d your answers be the same?
A. Yes, they would.
O. Thank you.
MR. RICHARDSON: With that, Madam Chairman, I
move that the prefil-ed direct testj-mony of Dr. Reading be
spread upon the record as if j-t were read in fuII, and Exhibit
201- be marked for identification purposes.
COMMISSIONER SMITH: If there is no objection, it
is so ordered.
(The following prefiled testimony of
Mr. Readj-ng is spread upon the record. )
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INTRODUCTION
a.
A.
PLEASE STATE YOUR NAME AND BUSINESS ADDRESS.
My name is Don Reading and my business address is Ben Johnson Associates. 6070 Hill
Road, Boise, Idaho. I am Vice President and Consulting Economist for Ben Johnson
Associates.
HAVE YOU PREPARED AN EXHIBIT OUTLTNING YOUR QUALIFICATIONS
AND BACKGROUND?
Yes. Exhibit 201 serves that purpose.
WHAT IS THE PURPOSE OF YOUR TESTTMONY IN THIS CASE?
I have been retained by the lndustrial Customers of ldaho Power ("ICIP") to review
ldaho Power's ("lPC" or the "Company") application for a certificate of public
convenience and necessity for investments in selective catalytic reduction controls
("SCR") on Jim Bridger units 3 and 4. I address the imprudence of this Commission's
locking in a ratemaking treatment fbr this proposed investment such that l'uture
commissions will effectively have their hands tied as to other, at the time, prudent
ratemaking decisions. I discuss the uncertain future of coalplant investments. While
not advocating the outright denial of the company's application, I urge the Commission
to proceed with great caution as to how it signals the future ratemaking treatment of this
investment.
Certificate of Public Convenience and Necessitv
DR. READING, COULD YOU BRIEFLY REVIEW WHAT IDAHO POWER'S
REQUEST IS IN THE CURR"ENT DOCKET?
Reading, Di
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A.Yes. The Company is asking for a Certificate of Public Convenience and Necessity
("CPCN") for the installation of selective catalytic reduction systems fbr Jim Bridger
units 3 and 4 to reduce nitrogen oxide ("NOx") emissions to comply with existing state
and proposed federal emission requirements. The Company expects the amount of this
investment to be $129.8 million for both units, and it is asking the Commission to accept
this amount as a "Commitment Estimate".
HOW DOES THE COMPANY DEFINE ITS *COMMITMENT ESTIMATE'?
According to Idaho Power's Application in this docket:
As it has done in prior CPCN applications, Idaho Power has termed this estimate
a "Commitment Estimate." The Commitment Estimate is a good faith estimate of
Idaho Power's total capital cost, including AFUDC, and additional costs the
Company anticipates it will incur but cannot quantify with precision at this time.r
However the $129.8 million "Commitment Estimate'' may or n"ray not be the eventuat
investment requested by ldaho Power in luture rate proceedings.
Q. DO yOU ASST.JME THE COMPANY WILL ASK FOR RATE RELIEF FOR rTS
SCR INVESTMENTS IN THE NEXT GENERAL RATE CASE?
A. At this point, when Idaho Power will ask the Commission to approve ratebase treatment
for the Bridger pollution control investments, is uncertain. In its response to an ICIP
production request the Company stated, "The Company has not determined the approach
by which future cost recovery will be requested."z Therefore it may be in a general rate
case or possibly in some other type of frling by Idaho Power
ldaho Power Application, IPC-E-13-16, Item 16, p 7 .
Idaho Power Response to ICIP's Iiirst Production Request No. 3-C.
Reading, Di
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ARE YOU SAYING, FOR WANT OF A BETTER TERM, THE COMPANY IS
NOT ASKING FOR THE $129.8 MILLION BE A HARD COMMITMENT,
RATHER A SOFT COMMITMENT, WHERE IT MAY WELL ASK FOR MORE
THAN THIS AMOUNT SHOULD THE COSTS EXCEED ITS ESTIMATE ?
That appears to be true. According to the Company's testimony:
If binding ratemaking is approved for the Total Commitment Estimate of
$ I 29,837.393, the C'ompany could be assured that amounts incurred up to the
Commitment Estimate amount would be determined to be prudent. Should the
cost of the Project be less than the Commitment Estimate, the savings would
directly benefit the customcr through a lower amount in rate base. On the other
hand, should the Project come in over the Commitment Estimate, Idaho Power
would have to demonstrate to the Commission that amounts above the
Commitment Estimate were prudently incurred and should be recovered in rates. 3
Therefore, Idaho Power is stating the Commission may need to engage in additional
examination of the prudence of the pollution control investment for Bridger 3 and 4
sometime in the future. 'l'he Company will be asking that its proposed investment in SCR
equipment be put into rates at some future time. When that happens, it will then be the
time to examine the prudence of the total investment. A review of part of the investment
in this docket and part of the investment at a later unspecified time is simply not prudent.
A. IS THE COMMISSION REQUIRED TO IMPLEMENT PRE-APPROVAL OF
THE INVESTMENT IF THE COMPANY REQUESTS SUCH TREATMENT?
A. No. Idaho Code Section 6l-541 states:
3 Direct 'festimony of ldaho Power Witness Mike Youngblood, IPC-E-13-l 6, p. 17.
Reading" Di
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Based upon the hearing record, the commission shall issue an order that addresses
the proposed ratemaking treatments. 'fhe commission may accept, deny or
modify a proposed ratemaking treatment requested by the utility. In determining
the proposed ratemaking treatments, the commission shall maintain a fair, just and
reasonable balance of interests between the requesting utility and the utility's
ratepayers.4
Therefore, the Commission can approve the requested CPCN without pre-approving the
requested "Commitment Estimate" of $128.9 million. The examination of the prudence
of the SCR emission investments would then take place at the time the Company requests
it to be placed into rates.
A DID THE COMPANY NEED TO REQUEST THE COMMISSION ISSUE A CPCN
BEFORE IT WOULD BE ALLOWED TO INVEST IN THE SCR's FOR
BRIDGER 3 AND 4?
A. No. In fact ldaho Power is installing pollution control equipment at its Northem Nevada
Valmy coal plant without first requesting a CPCN for those investments. As Idaho
Power witness Grow stated:
a.ARE EMISSION CONTROL INVESTMENTS AT VALMY PART OF THE
COMPANY'S CURRENT CPCN APPLICATION?
No. While the Valmy plant is nol a part clf the Company's request fcrr a CPCN for
the SCR investments at Jim Bridger Units 3 and 4, the Nevada legislation
associated with NV Energy's announcement is yet another indication of the
Reading, Di
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changing climate with regard to coal-fired generation.5
Witness Grow was referring to the announcement by the Company's partner in the
Valmy Plant, NV Energy, of its intent to remove coal from its generation portfolio. It
was ldaho Poweros choice to ask this Commission for a CPCN for Bridger Units 3 and 4.
WHY DID IDAHO POWER CHOOSE TO ASK FOR A CPCN AT THIS TIME?
According to Idaho Power:
The Company is requesting a CPCN and binding ratemaking treatment under
Idaho Cttde $ 6l-541 for the SCR investment because of the magnitude of the
investment, the uncertainty surrounding coal--fired generation in today's political
and socialenvironment. and the amount of interest expressed by stakeholders.
With the magnitude of the investment and the changing climate for investments in
coal-fired generation, the Company has chosen to request a CPCN even though it
does not believe it is required to do soby ldaho Code $ 6l-526.ln this way. a
public process is initiated to provide the Company. Commission, and interested
parties a regulatory forum to i'ully vet these contested issues.6
ldaho Power asserts that by filing for a CPCN the Company would be able to use ldaho
Code section 6l -541 in asking the Commission for pre-approval of its pollution control
investments for Bridger. ldaho Power states by doing so it will provide for a regulatory
forum to fully vet the prudence of its investment. However what the Company does not
say. is that a full vetting of the contested issues, could equally occur at the time it
requests the investments be included in rates. There is no compelling reason the
s Direct testimony of ldaho Power witness Grow, I PC-E- I 3- I 6 at p I 9.
6 lbid, p. 15.
Reading, Di
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Commission needs to bind itself or future Commissions with these investments at this
time.
THE COMPANY APPEARS TO BE SEEKING TO REDUCE INVESTMENT
RISK GIVEN THE *CHANGING CLIMATE FOR INVESTMBNTS IN COAL-
FIRED GENERATION'BY ASKING FOR PRE-APPROVAL FOR ITS COAL
PLANT POLLUTION CONTROL INVESTMENTS. DO YOU THINK THIS IS A
RATIONAL STRATEGY TOR THE COMPANY TO FOLLOW?
From the shareholders perspective yes: however it is not rational from the perspective of
the ratepayer. Idaho Power, Iike all other regulated utilities, is allowed the opportunity to
eam a return on its investments. The Commission sets the utility's retum on equity
(ROE) in a general rate case setting. The ROE is designed to. among other things,
compensate ldaho Power's shareholders for the risk they take by investing in the
Company. The Commission sets the levelof the Company's ROE so that it is high
enough to attract investors who are in the market evaluating their investment
opportunities compared to other places they could invest their funds. The Commission
also considers a level of ROE low enough that the regulated monopoly cannot take
advantage of its captive ratepayers.
Idaho Power cunently enjoys a Power Cost Adjustment (PCA) that recovers its
net power supply costs on an annual basis. It also enjoys a liixed Cost Adjustment (FCA)
for residential and small commercial customers that compensate it for some of the fixed
investments that are impacted by declines in loads outside of a general rate case. The
PCA significantly reduces risks to the Cornpany tbr changes in a major part on their
variable cost. The PCIA essentially holds ldaho Power harmless from the vagaries of the
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volatile wholesale market. ln addition. the FCA reduces risks for sonle of their
investments in plant on an annual basis. As noted, the return on equity fbr the utility is
determined in a general rate case. Also the amount of plant that is included in ratebase is
likewise determined in a general rate case, The two need to be considered in tandem.
Pre-approving the SCR Bridger investments at this time would not allow the Commission
to f'ully weigh the investment and the ROE together. If the Commission were to pre-
approve these investments it should. at a minimum, take this binding commitment into
account and adjust the ROE level of downward accordingly.
ARE THERE OTHER CONSIDERATIONS THE COMMISSION SHOULD
TAKf, INTO ACCOUNT IN DETERMINING WHETHER TO GRANT PRE-
APPROVAL FOR THE SCR INVESTMENTS IN BRIDGER UNITS 3 AND 4?
Yes. The Company indicates it will need additional investments in pollution control
installations fbr Bridger units 1 and 2 in2022 and202l.7 'fhese expected emission
compliance costs are based on current regulations and therefore the decision before the
Commission should not be looked at in isolation from the other already-on the-drawing-
boards future pollution control expenditures. Granting pre-approval can tend to establish
precedent for f'uture filings by the Company. It would be good regulatory policy to
evaluate the level of these expenditures at the time Idaho Power asks them to be included
in rates.
The Company's coal studies indicate, in present value terms, the SCR
installations at Bridger are the lowest cost path. However, under the "Low Gas/High
Carbon" scenario it is not the lowest cost path. Under that scenario the lowest cost path
7 Investor Meeting Power Point. San Francisco, September 25,2013.
Reading, Di
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is to convert the units to natural gas rather than install the SCRs.8 As an economist, I
have learned the only thing true about economic forecasts is that they are not very good
about accurately predicting the future.e No one is prescient. It is possible the low
gas/high carbon scenario will come to fruition. Other scenarios could play out, even in
the near term, that makes the SCR option uneconomic. One likely scenario that could
impact the prudence of the SCR investment are tighter environmental requirements. I"he
Con'rmission should avoid locking itself in and locking in all future Commissions with
these expenditures by pre-approving them in this proceeding
IS THE ICIP OPPOSING THE ISSUANCE OF A CPCN FOR BRIDGER UNITS 3
AND 4 AT THIS TIME?
No. However, we are asking the Commission to not pre-approve the requested
expenditures. For the reasons stated above we believe it is bad regulatory policy for such
pre-approval and will deny the Commission and intervenors the opportunity to examine
the reasonableness of the expected expenditures when the Company asks that they be
placed into rates.
DO YOU HAVE ANY THOUGHTS ON THE APPROPRIATE RATEMAKING
TREATMENT IF THN COMMISSION DOES CHOOSE TO GO DOWN THE
PRE-APPROVAL PATH?
Yes. Reference my testimony earlier on risk and rate of retum. Should the Commission
go down that path. which I strongly oppose, Irecommend this $129.8 million investment
a Idaho Power Coal Linit Environmental Analysis for the Jim Ilridger and North Valmy
Coal-Fired Plants. 201 I IRP Update. p. 15.
e When I was an in-house economist for this very Commission, one of the
Commissioner's I worked for was fond of saying that an economic fbrecast is like a broken
clock: it is right twice a day whether it meant to or not.
Reading. Di
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Yes. Reference my testimony earlier on risk and rate of return. Should the Commission
go down that path, which I strongly oppose, I recommend this $129.8 million investment
be placed into rate base, at the appropriate time. and be allowed to earn a fiaction of the
Company's overall rate of return. The Company's overall rate of return assumes much
riskier investments than one with regulatory pre-approval that ties the hands of future
commissions from questioning the prudence of this investment. Such favored regulatory
treatment surely does not carry the same risk as standard investments that must wait until
they are in the ground/used and useful and proven prudent after the fact.
a. DOES THIS END YOUR- TESTTMONY AS OF OCTOBER 11,2013?
A. Yes.
Reading, Di
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HEDRICK COURT REPORTING
P. O. BOX 578, BOTSE, rD
READING (X)
]CIP
(The following proceedings were had in
open hearing. )
(Industri-al Customers of Idaho Power
Exhibit No. 20L, having been premarked for identification, was
admitted into evidence. )
MR. RICHARDSON: Thank you, Madam Chair.
Dr. Reading is now avail-ab1e for cross-examination.
COMMISSIONER SMITH: Thank you.
Mr. Otto, do you have any questions?
MR. OTTO: I have no questions.
COMMISSIONER SMITH: Ms. Sasser.
MS. SASSER: Thank you, Madam Chair.
CROSS-EXAMINATTON
BY MS. SASSER:
a. Good afternoon, Dr. Reading.
A. Good afternoon.
O. Nice to have you here. I just have one, which
may become two-part, but on page 4 of your testimony, l-ine 18,
you go through an analysls in the preceding paragraph about
preapproval, and the l-ast sentence says, line 18 says: A
review of part of the investment in this docket and part of the
investment at a later unspecif ied t j-me j-s simply not prudent.
Can you explain what about a partial preapproval
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is imprudent, to you?
A.
o.
question that
A.
Mr. Louis's
A.
What line is it? Let me
Line 18 and L9, the last
begins on line 20.
That the prudence review
sentence prior to the
I do not see why the
prudence revj-ew shoul-dn't occur s j-mul-taneously when they put it
into rates. I see this as a hearing for a certificate and the
Company is asking for preapprovalr so we're going through a
prudence review. Then we go to the next stage when it goes
into rates and, as we heard on some of the cross-examj-nation
here, that there will be another prudence review.
What my experience is and what I heard in the
explanation was the next stage was more an accounting prudence
review, which I consider different than prudence on whether
this is this is a investment that shoul-d be made or
shouldn't be made. If there is preapproval, my understanding
of the process j-s the accountants make sure the money is spent
correctl-y and invoiced correctly and those kinds of things,
which is a different anj-mal; and what I'm asking for is rather
than having two parts, let's just do it all- at once when it
goes into rate base.
o.Would it change your opinion at all
We11, f should first ask have you reviewed
testimony?
Yes, I have.
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O. So does it change your opini-on at aII about the
imprudence of preapproval if you utilize known and
measurable if you only preapprove known and measurable
amounts such as Mr. Louis is recommending?
A. Okay, wj-thout stringing the answer out too 1ong,
in some ways Mr. Louis and I are getting to the same place in
different ways.
I'm saying that none of it should be preapproved
at thls point, and then due to the lowering of risksr dfl
adjustment could be made on the rate of return.
Mr. Louj-s is saying, wel-l-, it's okay to
preapprove part of it, and not the other part of it.
So I disagree with Mr. Louis to the extent that
any should be preapproved at this particular stage, but if it
is, I like I like part of it better than all of it, I guess
is a better way to put it.
A. Okay. Thank you, Dr. Reading. That's all I
have.
COMMISSIONER SMITH: Mr. Miller, did you have
questions?
MR. MILLER: I have no guestions, thank you.
COMMISSIONER SMITH: And from the Company.
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CROSS-EXAMINATION
BY MS. NORDSTROM:
O. Good afternoon, Dr. Reading.
A. Good afternoon.
O. Werve been talking about when is the appropriate
time to do a prudence review, and would you agree that regional
and natj-onal policj-es rel-ated to coal-fired generation have
been and are currently undergoing significant change?
A. Yes.
a. Then woul,dn't it be wj-se for a1I parties,
including investors and ratepayers that rely upon access to
cheap capital and for the Company and partj-es here today, to
know whether the Commission will al-low these investments to be
recovered in rates before the investments actually occur?
A. No.
0. Thank you. I have no further questions.
COMMISSIONER SMITH: Are there questions from the
Commission?
COMMISSIONER REDFORD: No.
COMMISSIONER KJELLANDER: NO.
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EXAMINATION
BY COMM]SSIONER SMITH:
O. So if it was pre-2009, Dr. Reading, would we even
be here?
A. Pre-2009 what? I didn't
O. Would we even been here, before this
A. Oh, before the mel-tdown and the passing of the
law? Yeah, we wou.l-dn't even be here.
O. Section 54L?
A. Yeah, if that law hadn't been I'l-l- be
tactful lobbied through the legislature, we wouldn't be
here.
O. What would be the process without this statute?
A. The Commission wou]d be asked to issue a
certificate, and then at the time of it went into rate base,
there woul-d be a discussion on whether or not that is a
prudent, rational, intelligent thing to be put into rate base.
O. And assuming that the legislature's action in
giving us Section 541 was a prudent and intelligent action, how
do you think the Commission should approach this, because there
must have been a purpose for it.
A. Certaj-nl-y there was a purpose, and the purpose
that was lobbied through the Legisl-ature was the assurity i-f
the Commj-ssion so thought to preapprove a expenditure.
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I rm not a lawyer but I can read, and when I read
the statute, it is very explicit that it gives the Commission
the ability to the Commission may accept in who1e, accept in
part r ox modify.
So, to me, the 1aw is passed. It is there for
the Company to come in and -- and do their requesting. Reading
the Commissionrs order in Langley Gu1ch, the reason one of
the major reasons at least in the section where you rejected
what we recommended was the need for financing was a big part
of it; and it's clear in this case that that is not in the
forefront. In fact, Mr. Youngblood says thatfs not one of the
major reasons.
So I think the Commj-ssion i-n many ways is i-n the
same positi-on before that law was passed because as I read the
statute, you certainl-y have the ability to thumbs up, thumbs
down, cut it in half, mutate it, come up with a new solutj-on
based on your best judgment.
O. Thank you.
COMMISSIONER SMITH: Do you have any redirect,
Mr. Richardson?
MR. RICHARDSON: I do not, Madam Chair.
COMMISSIONER SMITH: Thank you for your he1p,
Dr. Reading.
THE WITNESS: Thank you.
(The wi-tness l-eft the stand.)
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MR. RICHARDSON: That concludes the Industrial
Customers' case.
COMMISSfONER SMITH: So, werre at the end.
Mr. Otto, did you give any thought to your
preferred course of action for your witness?
MR. OTTO: I have, and I | 11 add one more fact
into this and I apologize if I hand-fisted this whole process a
Iittle bit:
I had sent to the other parties an affidavit of
the veracity of Ms. Whiters testimony. I neglected to provide
that to the Commission. I don't know if that woul-d be helpful
or not, but thatrs there.
I'm inclined to choose option one, which is to
submit it as a public comment, unless the Commission woul-d find
val-ue in havj-ng a conversation wj-th Ms. White.
COMMISSIONER SMITH: I think itrs up to you, but
I think public comment would work weII. And so we'l-I treat the
prefiled testimony of Ms. White as a written public comment
submitted in this matter. Okay.
MR. OTTO: Thank you for those opti-ons.
COMMISSIONER SMITH: Sure.
Mr. Miller mentioned briefs.
MR. MILLER: Yes, Madam Chairman. I believe the
existing schedule provides for briefs I believe a week from
today. Is that right?
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COMMISSIONER SMITH:
I donrt see it.
Let me l-ook.
MS. REINHARDT_TESSMER:I believe it's one week
from tomorrow.
COMMISSIONER SMITH: One week from tomorrow.
MS. REINHARDT-TESSMER: On the 15th.
COMMISSIONER SMITH: Ah, there it is, November
l-sth, one week from tomorrow.
MR. MILLER: And we had welcomed the opportunity
for a brief and structured our evidentiary presentation with
that in mind to keep the hearing as short as possible, and so
we do l-ook forward to that opportunity.
I think there are a number of j-nteresting topics
for briefing: That is, what, exactly, is the scope and effect
of a certificate of public convenience and necessity, and can
that change depending on the facts of particular cases; and I
think the legislative hj-story of Section 541 and what it was
intended to do was a interesting topj-c for brlefing. So we
l-ook forward to the opportunity to submit a brlef on those and
rel-ated matters.
I would like at this moment to move for the
admission of Snake River Alliance hearing Exhibits 401 and
403-4L2, and commend them for your consideratlon.
COMMISSIONER SMITH: Thank you, Mr. Mi11er. It's
at this point of the hearing where our rules of procedure save
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me from any error and -- but I will say it out loud that all
exhibits previously identified are now hereby admitted.
(Snake River Al-liance Exhibit Nos. 401- and
403 through 4L2 were admitted into evidence. )
COMMISSIONER SMITH: Mr. Otto.
MR. OTTO: Just real-ized an error: We'd entered
the page from the IRP as Exhibit 302. It's actually 301-, just
so there's no confusi-on.
COMMISSIONER SMITH: Okay. r think I labeled it
301, but we'II correct that if we need to.
MR. OTTO: ,fust wanted to make sure that that was
clear.
COMMISSIONER SMITH: Thank you.
(Idaho Conservation League
previously-marked Exhibit 302 was now marked as Exhibit 301 and
admitted into evldence. )
COMMISSIONER SMITH: And f do look forward to the
presentatj-on of the partj-es' briefs on the Iega1 issuesr ds you
know that this is a relatively new statute in the Commissionrs
toolbox, and so I think there are many questions with regard to
what it requires, what it means, and how I hate to use this
word how conservatively the Commission should exercise its
abilities under that statute to provide preapproval. So I do
look forward to hearing the part j-es' views', especially on those
issues, because I think it's not exactly a first impression,
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but it's certainly early; and I think itrs good that the
Commission considers those and to the extent it feels
comfortable in expressing a long-term view, it shoul-d do so for
the benefit of all- of the parties.
Are there any other matters to come before the
Commission?
COMMISSIONER K.JELLANDER: NO .
COMMISSIONER SMITH: With that, I thank everyone
for their participation and their patience and assj-stance. As
we said, we'Il get those briefs on the 15th. We have a public
hearing schedu.l-ed at 7:00 p.m. on the 25th. At the close of
the public hearing, the record in this case will be closed.
The Commission will- delj-berate as speedj-1y as it can,
recognizing the deadl-ine the Company has asked for, but of
course feeling we arenrt necessarily bound by that depending on
how fast we can go.
And we appreciate all your heIp, and the hearing
is adjourned.
(The hearing adjourned at 3:31 p.m.)
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AUTHENTICATION
This is to certify that the foregoing
Volumes I and II are a true and correct transcript to the best
of my ability of the proceedings hel-d in the matter of Idaho
Power Company's applicatj-on for a certificate of public
convenlence and necessity for the investment in selective
catal-ytic reduction controls on .Iim Bridger Units 3 and 4, Case
No. IPC-E-L3-L6, commencing on Thursday, November 7, 201"3, dt
the Commission Hearj-ng Room, 412 West Washington, Boise, Idaho,
and the originals thereof for the file of the Commission.
Accuracy of all prefiled testimony as
originally submitted to thj-s Reporter and j-ncorporated herein
at the direction of the Commj-ssj-on is the sole responsibility
of the submitting parties.
WENDY J. MURRA otin and for th ate
ry Public
of Idaho,residing at Meridian, Idaho.
My Commission expires 2-8-20L4.
Idaho CSR No. 475
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AUTHENTICATION