19910715Technical Hearing Vol II.pdf

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HEDRICK COURT REPORTING
P.O. Box 578, Boise, ID 8370L
INDEX
Don Reading
( rEPr )
Mr. Richardson (Direct)Prefiled Test,imonyl{r. Richardson (Direct-Cont,d)
I{r. K1ine (Cross)
Mr. Woodbury (Cross)
Commissioner Miller
Commlssloner NelsonI{r. Richardson (Redirect)
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30
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David Hattaway
( staff )
Mr. Woodbury (Direct)Prefiled TestimonyI{r. Kline (Cross)Mr. Richardson (Cross)
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67
69
Thomas Fau1l
( staff )
Mr. Woodbury (Direct)Prefiled TestimonyMr. Kline (Cross)I{r. Richardson (Cross )Commissioner Nelson
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87
98
99
Robert M. Spann
(Idaho Power)
Mr. Kline (Direct)Prefiled TestimonyMr. Richardson (Cross)
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INDEX
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HEDRTCK COURT REPORTING
P.O. Box 578, Boise, ID 8370L
EXHIBITS
FOR THE INDEPENDENT ENERGY PRODUCERS OF IDAHO:
501-. Idaho Power Company, Components Premarkedof Company Proposed O&M Charge
& Recommended O&M Charge ( 3 pagres )
602.Workpapers of Dr. Don Reading(3 pages)
Premarked
603.Letter from Barton K1ine to A11Parties of Record, dated
November 5, L99L
Identified 42
604.Excerpt of Pages 30 - 40 of
Dr. Peseau's testimony in
IPC-E-89-11, with attachedExhibits 7oL - 7oB (27 pages)
Identified L32
FOR THE STAFF:
l-OL. Qualifications of Thomas G.Faul1, P.E. (3 pages)
Premarked
LO2.Idaho Power Company, Va1my
Generating Station, Investment
as of L2-3L-8L
Premarked
Lo3.Memorandum from Tom Faull to
Working Fi1e, Subject:
Interconnect Costs in Avoided
Cost Rates (6 pages)
Premarked
L04.The Washington Water Power
Company, Transmission/Substation
Investment at Colstrip
Premarked
l-05.Idaho Power Company, Non-Level
O&M Rates
Premarked
106.Idaho Power Company, QFInterconnect Costs (2 pages)
Premarked
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EXHIBITS
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HEDRICK COURT REPORTING
P.O. Box 578, Boise, ID 8370L
EXHIBITS (Continued)
FOR IDAHO POWER COMPANY:
2. Qualifications of Dr. Robert
It{. spann (6 pages)
Premarked
3. Idaho Power Company, CSPP Survey Premarked
EXHIBITS
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HEDRICK COURT REPORTING
P.O. Box 578, Boise, ID 8370L
BOISE, IDAHO, T}IURSDAY, NOVEMBER 7. ]-99]., 9:30 A. M.
COMITIISSIONER NELSON: Good morning. This is
the time and place set for Idaho Public Utilities Commission
Hearing IPC-E-90-2O, formally entitled in the matter of the
application of Idaho Power Company for approval of an
interconnection tariff for non-utility generation,
Schedule 72.
Let,s take the appearances of the parties
today. Mr. Kline.
MR. KLINE: Thank you, Mr. Chairman.
Appearing on behalf of the Idaho Power Company is Barton L.
Kline.
COMMISSIONER NELSON: Thank your and,
Mr. Richardson.
MR. RICHARDSON: Thank you, Mr. Chairman. On
behalf of the Independent Energy Producers of fdaho, Roy L.
Eiguren and Peter J. Richardson of the firm Davis Wright
Tremaine, Peter J. Richardson appearing.
COMMISSIONER NELSON: Thank you.
Mr. Woodbury.
MR. WOODBURY: Scott Woodbury, Deputy Attorney
General, for Commission Staff.
COMI,IISSIONER NELSON: It appears that a couple
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of the parties are not with us todayi is that right,
Mr. Woodbury? Mr. Arkoosh representing A. W. Brown is not
here.
MR. WOODBURY: Yeah, there are four other
parties to this case, Water Power, Utah Power & Light,
Pacific Power & Light and A. W. Brown. I've had
conversations with Mr. Arkoosh's office who represents
A. W. Brown. He has indicated that there are other demands
on his time and he won't be here today.
I also spoke with John Eriksson this morning
and there were two matters that were identified by the
Commission in its order on reconsideration and those were
the inclusion -- one of them was the inclusion of
interconnect costs in the administratively-determined
avoided cost rate. Mr. Eriksson felt that that was the only
issue that affected his company. His review of the
testimony that was filed, he saw that that was not really at
issue or disputed by anyone. Mr. Eriksson has decided that
his presence was not needed here today.
COMMISSIONER NELSON: All right.
MR. WOODBURY: But he did indicate that he
agrees with the positions of Idaho Power and Commission
Staff regarding that issue.
COMI{ISSIONER NELSON: And you haven't spoken
to Mr. Strong?
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HEDRICK COT'RT REPORTING
P.O. Box 578, Boise, ID 83701-
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I[R. WOODBURY: I haven't spoken to Mr. Strong,
no, nor Jim FelI.
COI{MISSfONER NELSON: Okay. Well
MR. KLINE: Mr. Chairman, we probably, and we
donrt have to do it now, I think it may be appropriate to do
it kind of at the end of this proceeding, but we need to
maybe sort out the status of the A. W. Brown testimony that
was originally filed in this docket and bifurcated, and
let,s talk about how we handle that for purposes of our
record perhaps at the end of the proceeding, unless you want
to do it now. I don't care.
COMMISSIONER NELSON: WeII, maybe at the
break, why, the Commissioners could talk about that for a
moment.
It{R. WOODBURY: On that, issue, it would be
Staff's position that there is nobody here to sponsor that
testimony and that the testimony should not be spread.
COMIIISSIONER NELSON: You might find some
agreement from Idaho Power on that issue.
},IR. WOODBURY: Yes.
COMMISSIONER NELSON: Okay, werJ.l discuss that
at the end of the hearing. Are there any prelj-minary
matters before we take the Company's application and
witnesses? If not, why, Mr. Kline would you like to
I[R. KLINE: Mr. Chairman, this, of course, is
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HEDRICK COURT REPORTING
P.o. Box 578, Boise, ID 8370L
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a case on reconsideration and so I think it night make more
sense for the parties that initiated the reconsideration who
have both direct and rebuttal testimony to perhaps go
first. That would be the Staff and the intervenors, if
that's the Chair's pleasure.
MR. RICHARDSON: Mr. Chairman.
COMMISSIONER NELSON: Mr. Richardson.
Ir{R. RICHARDSON: The party who initiated this
reconsideration, obviously, is not here. The Independent
Energy Producers of Idaho did see fit to file testimony as a
result of your granting reconsideration on the issues. As a
result of that, we have direct testimony on
reconsideration. The Company has filed rebuttal testimony
to our direct, I mean -- that's right and then we filed --
excuse me. The Company filed direct testimony and then we
filed rebuttal testimony. I think it would be appropriate
if the Independent Energy Producers lead off with their
witness followed by the Staff , follornred by the CompdDy,
followed by our rebuttal.
COMMISSIONER NELSON: A11 right, fine. If
there,s no objection, then, Mr. Richardson, do you want to
call your witness?
MR. RICHARDSON: Thank you, Mr. Chairman. The
Independent Energy Producers of fdaho caII Dr. Don Reading
to the stand.
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HEDRICK COURT REPORTING
P.O. Box 578, Boise, ID 8370L
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HEDRICK COURT REPORTING
P.O. Box 578, Boise, ID 8370L
READTNG (Di)
IEPI
DON READING,
produced as a witness at the instance of the Independent
Energy Producers of ldaho, having been first duly sworn, was
examined and testified as follows:
DIRECT EXAMINATION
BY MR. RICHARDSON:
A Good morning, Dr. Reading.
A Good morning.
A Are you the same Don Reading who has eaused
prefiled testimony on reconsideration to be prepared and
filed in this case?
A Yes.
a Was that prefiled testimony prepared by you or
under your direction?
A Yes.
a Do you have any corrections or additions to
make to your prefiled testimony?
A Not at this time, Do.
a Did you also cause to be prepared an appendix
showing your qualifications to your testimony?
A Yeah.
a And also an exhibit indicated in the upper
right-hand corner Exhibit No. DR-l-, schedule L, which Ir11
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ask to be identified, for identification purposes be marked
as Exhibit No. 5ol-?
A Yes.
a Did you also prepare workpapers that are also
attached to your testimony consisting of three pages, urhich
IrIl ask to be marked for identification purposes as Exhibit
No. 602?
A Yes.
a To the best of your knowledge, are the
contents of your workpapers and exhibit true and correct?
A Yes.
a Do you have any corrections or additions to
make to your workpapers or to your exhibit?
A NO.
MR. RICHARDSON: Mr. Chairman, with that, Ir11
ask that the prepared prefiled direct testimony on
reconsideration of Dr. Reading and Exhibits No. 60l- and 602
be spread upon the record as if they were read in fuII and
the exhibits marked for identification purposes.
COMI,IISSIONER NELSON: ThanK you. We would
order Mr. Dr. Reading's testimony spread as if read and mark
Exhibits 601- and 602, which we have in our file but which
weren't previously marked.
MR. RICHARDSON: My apologies for that,
Mr. Chairman. Exhibit 601- should be the three-page
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HEDRICK COURT REPORTING
P.O. Box 578, Boise, ID 83701-
READTNG (Di)
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HEDRICK COURT REPORTING
P.O. Box 578, Boise, ID 83701-
READTNG (Di)
IEPI
document. It begins with a cover page entitled trExhibitrtt
followed by a second page indicating Schedule l- of
Exhibit DR-l- and Schedule 2 of DR-l-. That I would ask be
identified as Exhibit 60l-, those three pages.
COMMISSIONER NELSON: A11 right, r think that
they're clearly marked when we come to them.
I{R. RICHARDSON: They are.
COI{MISSIONER NELSON: So we'1I mark those at
this time.
I[R. RICHARDSON: Thank you, Mr. Chairman.
(The following prefiled testimony of
Dr. Don Reading is spread upon the record. )
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Case No. IPC-E-9O-2O READING-I
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rEsrruollrr or
DOlr BEArrnrG, PE.D.
On Behalf of the
I1III)TPEIIIDTN':I EIIIEBGY PB,ODUGTBS OT IDAEO
Before ttrre
IDAEO PI'BI,IC IIIII.IIITS GO}II'IISSIOTV
Idabo Power Gompany
Gase trfo.IPG-E-9O-8O
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a. woULD YOrI PtEAflE STATE YOrrR NAME A_IID ADDRESS?
A. Don Readin8, 15lI North 18th Street, Boise, IdaJro 8670?.
a. EAVT YOU PREPAIED AII APPENDIX WErgE DESCRIBES
YOIIR QUALtrTCATIONS?
A. Yes. Appendix I, attached to my testim.ony, was prepared
for tJris purpose.
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BEN JOHNSON A^SSOCUTTES, INC.O
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2A
Case No. IPC-E-90-2O READINeT-e
a. HAVE YOU PREPARED Alr EXEIBTT rN SIIPPORT OF YOIIR
TES:fIMOITY?
A. Yes. I have an exhibit, corlsisting of 2 schedules, that will
serve this purpose. It was prepared under my supervision aad ls
correct to the best of m5r knowledge.
a. WEAII Ifl TEE PURPOSE OF yOrIR TESTIMOITT?
A. The firm of Ben elobrrson Associates, Inc. has been re-
tained. by the Ind.epend.ent Energy Producers of Id.aho CIEPD. We
h.ave been asked to a-nahrze the charge to conglenerators and
small power producers (CSPPS) assessed by Idaho Power Com-
pa.Dy @C or the Company) for tJre operation and maintena,nce of
interconnection equipment.
My testiroony ls orgaDized as follows. First, I briefl3r ex-
plain IPC's charge a.nd how it is calsulated. Next, I explajn wW
this cba.r,ge i,s trcousistent with this Qgmmlsslon'g prlor dlreotlves
and vstth the intent of tlre Public Utflity RegUlatory Pollcy Ac,b
GTIRPA) to encourage cogeneratlon a,nd small power production.
FiDally, I present my recomrnenda,ti.ons.
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BEN JOENSON ASSOCIAIES, INC.O
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Case No. IPC-E-9O-2O READINH
a. TURNING TO TEE FIRST PART OF YOIIR TESTfl\,fOI\fY'
WOI]LD YOU DESCRIBE TEE OPERATION AI{D MAIIITENA}ICE
(O&M) CHARGE THAT IPC ASSESSES TO COGENEHATORS AND
SMALL POWER PRODUCEN,S?
A. Yes. IPC's pncposed tariff Schedule 72 includes a montb$r
charge for the operation and maintenance (O&M) of intercorurec-
tion equipment provided to CSPPS. The charge ls equal to .7% of
the lnstaUed cost of the equipment. AccordlnS! to IPC's reeponse to
comments offered by A.W. Brown and the Independent Energy
Producers of Idalro, tJrirs charge is intended to recover "IdaJro
Power's average costs of operation a,nd maintenance of equipment
and facilities of a similar size a,nd brpe to tJrose provided to QF's."
@, Febrtrary e8, 1991, p. 5.1 The Compan;r
e:rplained tJre basls for the charEle as follows:
The O&M percentage charge includes phgrsical majnte-
nance as well ag anr allocation for ta,xes, 1rrglrpa,rl@,
and other overheads tJrat are legitlmate costs paid by
the Company. tlbid.l
Tbe charge apparent\r Includ.es djrect O&M e:q>enses for
overhead,lln6g, various administratlve and. general costs assocl-
ated witJr the ]ines (tn accor:nts 92O, 921, 925, 925, 926, 960.2,
95I, a.nd 955), e.nd a.n allocated share of paSrroll and propertSr
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BEN JOENSON ASSOCIAIES, INC.O
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Case No. IPC-E-90-20 READINH
taxes. These experues were divided by IPC's investment in over.
head lines (includin€lgeneral pl,ant assig!.ed to overhead.line
investment) to derive tbe percentage O&M charge.
Schedule I of my exhibit shows that the annual expenaes
included. in the Compargr's calculation arrs 7.862% of the over
head line investment. Dividing this percentage by 12 and
ror:ndinSlyie1ds the montb[r .7% O&M charge assessed by IPC.
The same schedule breaJ<s the annual expense down: dlrect O&M
experuies are 58% of the total proposed. charge (4.54896 of IPC's
overhead line investraent), artministrative and general expenses
are 2796, property ta:ces ar.e L2%, and pa5rroU ls 5%.
a. Do you AGREE VrrrE TEE PROPOSED O&M CEARGE?
A. No. tr'rom IPC's pr€sentation lt is clear that the proposed
charge is based upon an avera4le embedded cost calsuletion. I con-
sider that approach a viotration of tJre spirit, lf not the letter, of
tlre Federal Energy Re€U1atory Commisslon @ERC) nrles rel,atln$
to tJre approprlate cost basirs for interconaectlon chargles. The
IERC rules, which lmplement sectlons 2Ol and 210 of PUBPA on
cogeneration and small power productlon, require reimbursement
for intereonnectlon costs on an incremental cost basr,s, not on an
average cost basis. The PURPA objecblve was a,nd.ls to promote
cost-effective cogeneratlon and. small power productlon; a key to
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BEN JOHNSON ASS@IAIIES, INC.O
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Case No. IPC-E-9O-8O READINCT-5
that is charelrng the CSPPs on$r the additlonal lnterconnection
costs that they cause.
\Iflhat the Company is t$dng to do, by the way it
calsulates the O&M char$e, ls maJre the CSPPs pay for costs t'hat
lt would have incrrrned whetJrer or not tJre CSPPs wele intercon-
nected. This h'igher O&M charge increases tJre cost burden placed
on CSPPs and reduces their lncentive to participate.
a. DoES Tm COMPAT\rrS APPnOACE TRUSTnATE Tm
II\ITEMI OF Tm I'ERC RULES?
A. Yes" I believe so. Sectlon 292.506 of the I'ERC rules
require qualifyin€ facilities to
pay any interconnection costs which the State reelrla-
tory authority ... or nonreglulated electric utility may
assess agatnst tJre quallfyin$ faclliry on a aondiscrinl-
Datoqf basis with respest to other sustomers with
sirn l]ar load. characterlstics.
Citing tJre trERC's dissusgion of tJrese nrles contained Io
tb.e Federal ReE[ster, tbe IPUC has interpreted this ru]e as fo]Iowg:
TLls means tJrat tJre cogenerator or small power
producer is responsible for the "net tncreased
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Case No. IPC-E-9O-20 READINffi
lnterconnectlon costs" imposed on the utillty "com-
pared to those costs it would trave tneumed had it gen-
erated the eaerggr itself or purchased an equivalent
a.mount' from another sour€e.... Moreover, tJtese costs
include "ouJ;r those additional interronnectlon experues
insumed by the utility as a result of the purchase."
They do unot include aqr portion of the intereonnection
costs for which tJre qualifying facility has already paid
through its retafl rat€s." [Order No. 15746, p. 58;
quotes from 45 Federal Register at I22l7.I
This interpretation clear\r sugffests an incremental, as op
posed to a.n average, cost standard. for determining
interconnection charges, iasluding tJre O&M-rel,ated. portloa of
those charges.
Q. WOTTLD YOU rre*ry rN CIREATER DETATL rEE
DIIITINCITON BETWIIEIV INCRIIMEI\ITAI AIID A]I.EINAC}E COST?
A. CertahJy. Incremental cost i,s der{ved from the economlc
concept of marginal cost. Technically, marglnal cost ls tJre rate of
increase in' total cost renrltint!from tacreased ou@ut, where oub
put ls increased by aa ortreme)gr sma]] a.mount. Incr.emental cost,
the increase in total cost assocl,ated witJr a larger increase in
outputr-an lncrement lgganlnEfirl to the nna'lyslg, ls the usual
35
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Case No. IPC-E-9O-2O READING.T
way to measure the cost of a changfe (increase or decrease) in outr
put. It obviousl;r excludes fixed and sunk costs-those that don't
vary with the level of output.
Average cost ls an entlrel;r different concept. In economlc
tems, it reflects the total cost of a given quantit5r of output, di-
vided by the quantity. Thus, ratJrer tJran measurin8 on[r the
costs that result from a chan6ie in output, a.vera€le cost tacludes
fixed and sunk cost"s as well.
The FERC nrles and IPUC order tJrat I quoted earlier
clearly presume an incremental costin€ approach, since they
focus on the increased costs of taterconnectlon that CSPPs impose
on the utility. In theory, you fi€lure such costs by first measurin€l
tJre utility's total cost asn:.mingfno interconnections with CSPPS.
Then you nJeasure the utility's. total cost including tJre interconrlee
tion costs. fhe differeace is tJre lncremental cost from the lnten '
connectlons. fhe same kind of calculation ca.rr d.erive Just the
O&M-rel,ated costs of lnterconnection.
The Company's approach to the O&M interconnectioa
cb.arge doesn't derive this incrcmental cost; instead 1t seems to be
a.I} averaele costing metJrod. As I noted ea,rller, tJre Company has
added tn certain fixed eosts that are unaffected by its decislon to
interconnect witb CSPPS. Il. partiorlar, lt bas tncluded an alloca-
tion of admlnistratlve a.nd general expenses, even though these
costs would be insumed in anJr case.
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Case No. IPC-E-9O-30 READINH
Additiona\r, whiIe some palrncll ta^:<es may be appropri-
ately included-if the Compar5r incurs additional l,abor costs for
the operation and maintenance of interconnection facilities-IPC
has included pa5rcoll taxes not just for labor costs of tJre dlrect op
eration and maintenance of overhead lines but also fe3 sdmiris-
trative and general e:q>ensss. [ fhink the A&Grel,ated pa;froll
taxes should be excluded from the charge imposed on tJre CSPPS,
for the same reason that A&G expenses should not be recovered.
through thls char$e.
a. rs IT YoIIR oPrMoN TEAT rm EXCESSTSE O&M
CEARGES IMPOSED BY IPC ON CSPPg TLOTTV TO Tffi COMPAIIY
IN THE FORM OF EXCESSI\IE PROETTS?
A. General$r speakjng, no. The costs recovered by IPC
throu€h the interconnestion cbarges are lncluded as part of tJre
Sgmpan$'s overe.]] revenue requiremeot which forms the basls
for all its rates. To tD.e e:rtent the CorrpanSr is char€fn€ CSPPg too
much for interconnectlons, the excess will simply reduce tJre
a.morrlt of revenues t'hat must be colested tbrcugh other. rates
a.nd charges. Of course, if a new CSPP is assessed excessive O&M
charges between rate cases, the Compan;r'g stockb.olders will
temporari[r benefit.
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Case No. IPC-E-9O-20 REA-DINer-9
a. EA\rE YOU DEqELOPED A RECOTnrnNDED O&M-RE-
LATED INTERCONNECTION CEARGE CONSIIITEIVT WITE AI{
INCRET\,/TFINTAL COSTING APPROACE?
A. Yes. With the Company's calsulations &s a startJng potnt, I
have developed a recorruDended. O&M charge that ls more consis-
tent witJr the spirit of the FERC nrles rcgardjng interronnection
cost recoveqr. Schedule 2 of my exhiblt shows tJre calsulation of
my recommended char€fe. I have included all of the dlrect O&M ex-
penses associated with overhead lines, as did IPC. Eowever, un-
Iike the Company, I have excluded administrative and general
expenses, which are essentially fixed overhead costs r:naffected
by the interconnection of CSPPS. I b.ave also excluded the A&CF .
retrated paSrroll taxes.
In order to be consistent witJr my recommended exclusion
of administrative and general expenses in tJre num.erator, I have
excluded from 1,[s dsagminator (investanent in overhead llnes)
the allocated portion of general pIa,nt costs tbat IPC included. tB its
calsulatioa.
My recommended approach results ln a.a annual O&M ex-
pense-to-investment ratio of 5.954%. piyirrln€ by 13 yields tJre
montbJ;r O&M charge that I recommend: O.5%.
38
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Case No. IPC-E-9O-2O
a. DoEs TErfl ooMPL.ETE YOIIR DrruCT TESTIMOIfY?
A. Yes, it does.
READINCT-IO
39
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HEDRICK COURT REPORTING
P.O. Box 578, Boise, ID 83701-
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(The following proceedings were had in
open hearing. )
COMMfSSIONER NELSON: Okay, is Dr. Reading
available for cross?
MR. RICHARDSON: Not yet, Ur. Chairman.
MR. RICHARDSON: Dr. Reading -- Mr. Chairman,
may I approach the witness?
COMMISSIONER NELSON: Excuse me?
MR. RICHARDSON: May I approach the witness?
COMMISSIONER NELSON: Yes.
Ir{R. RICHARDSON: Mr. Chairman, Irilr handing out
a one-page document. It's a letter dated November 5 to all
parties of record in this proceeding from Barton Kline.
DIRECT EXAMINATION
BY l[R. RICHARDSON: (Continued)
a Dr. Reading, have you had an opportunity to
review this letter?
A Yes.
a I'11 direct your attention specifically to the
portion of the letter in which counsel for Idaho Power
states that no party has filed any testimony challenging the
basic methodology that Idaho Power has used to compute
the .7 percent interconnection charge. Have you read that,
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portion of this letter?
A Yes.
a Is it your position, Dr. Reading, that you
have in fact challenged the basic methodology supporting the
computation of the .7 percent charge?
A Yes.
A Would you please explain why you think that
this sentence is incorrect in Idaho Power,s letter?
A I think the heart of the matter on what is
rea1ly a pretty, I think, narrow and basic philosophical
issue is the methodological approach. As I explained in my
direct testimony, I'm proposing that the calculation of the
monthly O&M charge be based on an incremental approach
rather than an average approach.
The Company in its testimony on
reconsideration pulls out the fact that the only adjustment
to the method that was used by Idaho Power was the
elimination of A&G charges. Factually, that,,s correct.
What I was attempting to do was pick a surrogate for an
incremental cost study and so it is still in my mind a
methodological approach. The reason that I selected A&G is
that they're mostly fixed costs, not entirely fixed costs,
and the calculation, it's an approximation anyway.
The Company used aI1 overhead Iine data as a
surrogate. They didn't do a specific study on interconnect
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P.O. Box 578, Boise, ID 83701-
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HEDRICK COURT REPORTING
P.O. Box 578, Boise, ID 8370L
READTNG (Di)
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Iines, several other things; so it's an approximation; so I
still think it's a basic methodological argrument that I'm
making and, therefore, I would disagree with the statements
in this letter.
I,IR. RICHARDSON: Mr. Chairman, I'11 ask that,
the letter dated November 5, l-991-, addressed to aII parties
of record in IPUC Case IPC-E-90-20 be marked for
identification purposes as Exhibit 603.
COMMISSIONER NELSON: Okay, w€'11 mark this
Ietter as Exhibit 603.
I{R. RICHARDSON: Thank you, Mr. Chairman.
(Independent Energy Producers of Idaho
Exhibit No. 603 was marked for identification. )
Im,. RICHARDSON: With that, Dr. Reading is
available for cross-examination, Mr. Chairman.
COMMISSIONER NELSON: Okay, Mr. Woodbury, do
you have questions of Dr. Reading?
MR. WOODBURY: I do, Mr. Chairman, but I think
that perhaps Idaho Power should go first given that it's
their proposed schedule. I think it would perhaps eliminate
a 1ot of mine.
COMI,IISSIONER NELSON: If you don,t have any
objection, why, go ahead, Mr. Kline.
MR. KLINE: I have no objection.
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HEDRICK COURT REPORTING
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CROSS-EXAMINATION
BY I4R. KLINE:
a Dr. Reading, following this morning's
testimony, I think it will be a good idea for us to spend a
Iittle time making sure that we understand the difference
between Idaho Power's proposed O&M charge in this case and
your recornmended O&M charge, and what I'd like to do is,
first of aII, look at what you did differently than what
Idaho Power did and then talk a little bit about why you did
it that way; so I will be asking both of those questions.
There won't be any need to anticipate those in your
responses. Let's first look at your Exhibit 5Ol-. Let's go
doram through those a little bit.
A Yesr
a Do you have them there?
A Yes.
A Okay, let's look at your, dt Schedule 2 which
is your recommended O&M charge.
A Correct.
A And I want to compare that to Schedule l- which
is Idaho Pourer's recommended O&M charge. Now, the first
item in comparing those two that stands out is the deletion
of the 2.L33 percent amount that's contained in the Idaho
Power proposal is deleted from your proposal; is that
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correct? It's called administrative and general.
A I'm just making sure I,ve got the right,
number. Yes, that is correct.
O Okay, then when you compare the lines
entitled, ttDirect Payroll Taxesrt in your reconmended O&M
charge, Schedule 2, with that same entry on Schedule L,
which is the Idaho Power proposal, they are a little bit
different direct payroll taxes.
A Correct.
O And it,s my understanding from your testimony
that the reason for that difference is that you have deleted
payroll-related A&G costs from the Idaho Power number; is
that correct?
A Correct.
a A11 right. Then the other differential
appears to be in the line item entitled ttDirect O&M
Expenses.rr Yours on your Schedule 2 is slightly higher than
it is on the Idaho Power schedule. Could you please explain
the difference between those two?
A I used a different denominator in the
calculation. Because I eliminated general plant in the
numerator above the line, I then used as the divisor or the
denominator the expenditures less general planti so that my
divisor was 1-45 plus mi11ion, whereas the Company was
L52.8 million.
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a And that, again, would be related to the
deletions of the A&G costs in the other components?
A Right, to match them and keep them even; so
that then Ied to a slightly higher number when f divided
into the same number the Pourer company used.
a AlI right; so except for the deletion of A&G
costs let's start over again. Except for the deletion of
A&G costs, your recommended o&M charge is identical and the
calculation of that charge is identical to Idaho Power's O&M
chargre; isn't that correct?
A Yes.
a all right; so now that we kind of know what
you did, let's talk about why you did it that way. In your
direct testimony, Page 9, let's take a look at that, and f'm
specifically referring to the sentence that starts on
Line 10, and it's an important one. Let me read it to you
to make sure that we're focusing on the same language here.
The sentence starts, rrHowever, unlike the CompaDy, I have
excluded administrative and general expenses, which are
essentially fixed overhead costs unaffected by the
interconnection of CSPPs. rr
Is it your testimony, Dr. Reading, that when
Idaho Power inLerconnects with a CSPP, purchases power from
that CSPP, there is no change in Idaho Power's
administrative and general costs?
45
HEDRICK COIIRT REPORTING
P.O. Box 578, Boise, ID 83701-
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A No.
a There is no change or that's not your
testimony?
A That's not my testimony.
a A11 right, let me take a look at this, then.
Let me read the sentence back to you. rrl have excluded A&G
costs, which are essentially fixed overhead costs unaffected
by the interconnection of CSPPsrtt and my question was when
Idaho Power interconnects with a CSPP to purehase power from
that CSPP, it's your testimony there's no change in Idaho
Power's A&G costs?
A NO.
a A11 right. Could you please explain why your
sentence in your testimony is different than what I thought
was a restatement of your sentence in the testimony?
A Certainly, and what I'm talking about is
absolute binomial, it is or it isn't. It's my position that,
the correct methodology to follow in the calculation of
monthly O&M charges is an incremental approach. To do that
the trright wayrr would involve a relatively-sophisticated,
relatively-expensive, relatively-involved calculation of
what is marginal cost and what isn't marginal cost or
incremental cost.
As a surrogate or as an approximation,
because, ds I stated earlier, there's lots of approximations
46
HEDRTCK COURT REPORTING
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that are occurring in the calculation of this charge, the
Company has stated in other testimony that they haven't
calculated or done a study on what the o&M is for
interconnects alone. At I stated earlier, this is based on
overhead Iines. I took out A&G as that approximation. In a
real incremental study, a larqe portion of the A&G would
come out. There are other items, such as supervisory and
engineering, that also may come out that I left in; so as a
proxy, I took A&G out.
A WeII, Dr. Reading, I appreciate what you,re
saying is what you would have liked to have done, but what
we're talking about here today is what you actually did.
A Yeah, and I took A&G out.
a That's correct, and in so doing and according
to your testimony, fdaho Power's A&G costs are unaffected by
the interconnection of CSPPs. Is that your testimony?
A No. In reality, no. As an approximation
method to get to incremental cost, I took them out. rt was
a judgrment call period.
O And so what you're saying is in fact A&G costs
when Idaho Power interconnects a CSPP, there are changes in
the A&G costs?
A There are some A&G cost changes, I'[I sure.
a Okay. Now, you didn't take out some A&G
costs. You took out l-00 percent of the A&G costs, didn't
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HEDRTCK COURT REPORTING
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you?
A I took out the A&G costs that they included,
yes.
a And in your testimony, in your workpapers, you
really made no effort whatsoever to try and identify these,
well, some A&G costs mi-ght come out, you just took them all
out; right?
A As a proxy, yesr €rs a surrogate for
incremental cost, and I made no other adjustment to any
other accounts, which also could be affected in incremental
cost.
a Just to make sure that we,re clear on your
testimony here, Dr. Reading, you are aware, are you not,
that in computing Idaho Power's avoided costs, the
Commission allows and includes as a part of Idaho Power's
avoided costs the deferral of the A&G costs associated with
the surrogate avoided resource, you're aware of that?
A Yes.
a And you don't think that,s inconsistent with
what you're doing?
A NO.
a It's okay to include A&G costs on the avoided
cost side, but they are deleted when we're computing the
cost of O&M for Idaho Power?
A lt's a function of what, A&G costs we,re
48
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considering. My understanding and reading of the Commission
orders is that those A&G costs that are associated with the
SAR are included in avoided cost. Those A&G costs that are
not associated with the SAR are not included in avoided
cost. We are dealing with distribution line A&G.
a Is that the difference that you,re drawing,
that distribution A&G costs are different than generation
and transmission A&G costs?
A They are subsets. I mean, A&G costs are
spread out over the whole set. What my point is is that all
of the Company's A&G costs are not included in the SAR. AIl
of the Company's A&G costs are not included in their
calculation of the O&M monthly charge; so we have a
situation where some A&G costs are in the SAR, some A&G
costs are in the o&M. f will go back to my philosophical
point and as judgment, ds a simplified method of trying to
arrive at what I consider a more fair method of calculation
of monthly O&M, I removed a subset of accounting that is
Iargely fixed and I took it out.
a Wouldn't it be appropriate, then, if it,s
largely fixed, if A&G costs are fixed costs, and don't vary
with the size of the facility that is being added, wouldn't
it also then be fair to remove those A&G costs out of the
avoided cost?
A I would have to look at the theoretical basis,
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which I have not done, of the calculation of what the costs
are for Lhe SAR, which A&G costs would be included and which
A&G costs would not be included. This was a battle between
Dr. Willmorth and Dr. Peseau in another case. The
Commission order states they can't untangle it.
O But we're talking about the whole concept of
interconnecting avoided cost facilities or facilities for
which are being paid avoided cost.
A Sure.
a And you didn,t look at the A&G costs that are
included in the avoided cost and compare that methodology
before you came up with your reconmendation here?
A I looked at it briefly. I did not dig through
it technically and line item each one to each one, Do, I did
not. I based my approach on a Commission order that stated
that they couldn't untangle the argument between
Dr. Willnorth and Dr. Peseau.
Im,. KLINE: That's all I have, Mr. Chairman.
COMMISSIONER NELSON: Thank your Mr. K1ine.
Mr. Woodbury.
MR. WOODBURY: Thank you, Mr. Chairman.
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CROSS.EXAMINATION
BY MR. WOODBURY:
a Dr. Reading, so that we can know what language
of the Commission that you're interpreting, do you have a
direct cite as to the order and the page?
A Give me one minute and Ir11 find it. Maybe I
will ask counsel for help. I know I have it.
MR. RICHARDSON: Mr. Chairman, ildy I have
permission to approach the witness?
THE WITNESS: I found it, thank you. On
Page 30 of Order 23357 is the quote I will read. On
Pages 29 through 30 is an explanation in general of the
dispute between Dr. Peseau and Dr. Willmorth, then the last
two sentences on Page 30, I'I1 read the first part,
ItAlthough the evidence is insufficient to fu1ly resolve the
issue; therefore, A&G expenses not included in SAR direct
expenses are not to be considered as avoidable in
determining QF rates. rr
a BY I[R. WOODBURY: Of the two issues on
reconsideration in this case, those being the inclusion of
interconnect costs in the administratively-determined
avoided cost rate and the calculation and reasonableness of
the Schedule 72 O&M service charg€s, would it be fair to say
that IEP is not challenging the first issue?
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A Yes.
O With respect to IEP,s position that A&G be
eliminated from the 0.7 percent distribution component of
interconnect costs, it's also your position that there
should be no similar elimination of A&G costs from the
O.4 percent transmission component?
A I didnrt look at it. If the Commission
theoretically establishes a procedure, it would be fair and
equitable that that same procedure would apply to both.
A In your analysJ-s you didn,t consider that we
were looking at both components?
A Right, and I'm racking my brain. I'm not sure
Idaho Power has any individuals under that other one. I
didn't look at it, Do, but I would think that the
methodology would be fair to both. It would be easy to do.
a Would you accept, subject to, I guess, check,
that there are several QFs
A Subject to check, certainly.
O -- that do have this transmission O.4 percent?
A f would yield that, y€s. f guess my answer is
I didn't specifically crank through it, but it would
certainly be easy to do.
a With respect to the position that you,re
taking on reconsideration, do you feel that that plays at
all into the Commission's rejection in the Schedule L7O or
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Schedule 15OO-l-70 case of the projected marginal cost or
differential revenue method for determining avoided costs?
Did you review that particular order, Order 22636?
A NO.
MR. RfCHARDSON: Mr. Chairman, I,11 ask for a
show of relevance here.
MR. WOODBURY: I,m just trying to determine
what he's taken into consideration. The Commission did in
determining which methodology to adopt, the SAR methodology,
which it did adopt, it did reject a number of other
methodologies which were proposed.
THE I{fTNESS: f have not reviewed that record.
COMI,IISSIONER NELSON: I think the question is
relevant.
l[R. WOODBURY: Mr. Chairman, I have no further
questions.
COMMISSIONER NELSON: Okay, thank you. Any
questions from the Commission. Commissioner Miller.
COMMISSIONER MILLER: WeIl, just one.
EXAMINATION
BY COMMISSIONER MILLER:
a I think I understand the theoretical debate or
difference between you and Dr. Spann, but, I,m havingl a
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J-ittle difficulty not being an accountant or an economist
figruring out which point of view makes most sense kind of
intuitively, and in order to -- and I think the reason that
I,m having difficulty is that I don't fu1ly understand what
costs are included in A&G costs; that is, for me to come to
a conclusion that removal of A&G costs is an appropriate
surrogate for an incremental cost study, it would be helpful
for me to understand what those costs are just almost
anecdotally or by way of illustration, which I don,t think
is really explained in any of the testimony; so just from
kind of a layman's point of view, what are the costs that
we,re talking about and in everyday langruage, why is it true
that those are less variable than other costs?
A Okay. I'm looking at the list that was
provided by Idaho Power in Exhibit L of their first
production request and I'11 read a couple of line items and
then I'I1 get to the sort of, in general, gut level,
whatever.
a Is that something we have as part of our
exhibits or records?
MR. KLINE: It's in your fi1es, but it would
not be an exhibit.
MR. RICHARDSON: Production requests,
Mr. Chairman, are not part of the official record that the
Commissioners see. I wiII be happy to make this response an
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exhlbit to Dr. Reading's testimony if you so desire when
hers finished with his response to his Commissioner Miller's
question.
THE WITNESS: Item under A&G, Item 92O,
administrative and general salaries i 92L, office supplies
and expenditures i 923, outsi-de services employed. I g"uess
the best example, one that comes off the head, would be the
salary of the CEO or general office supply expenses or --
COMMISSIONER NELSON: How about the cost of
these hearings?
THE WITNESS: In the calculation that the
Company made of the O&It{, they eliminated regulatory expenses
as part of the A&G to alIocate. It escapes me why that was
eliminated, but it was; so it's those kinds of things that
if a cogenerator was there or was not there would not change
because of it.
A BY COMMISSIONER MILLER: Why is it then that
Dr. Peseau's statistical study shows they do change,
although less than others?
A WeIl, what Dr. Peseau's statistical study
showed is that when Idaho Power -- maybe that's taking it
too far -- that when -- because his subset, I can't remember
whether Idaho Power was part of that subset. His
statistical study shows that when a power company builds its
oh,n resources, its A&G expenses go up significantly more
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than when it purchases the equivalent amount of power from a
cogenerator, and it's equivalently two-thirds to one-third,
aI1 right, and Dr. Spann used that as an example to refute
or show an inconsistency in what I uras doing.
In my mind, it supports what I was trying to
do because it showed that the administrative and general
expenses are sigmificantly higher when the Company does its
own thing as far as generation relative to when it goes out
and buys from a CSPP, yet in the calculation of the amount
that,s allocated, they do it on an average or total basis;
so to the extent that Dr. Peseau's study is believable,
two-thirds of it was included that shouldn't be included.
And as I stated, I used A&G as a surrogate. A
real incremental study, I believe, would show some other
items also would not necessarily go up as much, because the
Company used its expense in all distribution overhead lines
and said that's what it is for interconnect. Interconnects,
potentially anln^ray, have a different costing allocation.
Does that make -- you aren't looking that happy.
A I guess I'm getting closer.
A So philosophically, in my mind, the proper
approach is that an independent power producer wants to
interconnect with Idaho Power or signs a contract to
interconnect. The question is what changes in the costs to
Idaho Power are there for the interconnection part of that.
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What happens to Idaho Power's O&M expenditures because of
that,, and the spirit and logic of avoided cost is what is
the change in the cost to the Company for doing it; so I
tried to take out, my methodology took out, a surrogate for
those costs that wouldn't change because they hooked up,
which to me is the logical, consistent, straightforward way
to do it.
COMI,IISSfONER MILLER: Okay, thanks. Thatrs
all I had, Mr. Chairman.
COMMISSIONER NELSON: Thank you.
COMMISSIONER SMITH: I have no questions.
COI,TMISSIONER NELSON: ThanK you.
EXAMINATION
BY COMIT{ISSIONER NELSON:
a I had a question on that, but it,s changed
now. Then if you take Dr. Peseau's theory and you try to
apply that to this case, it seems to me like -- weII, Iet me
ask it this way: For the period of time that you're taking
the o&M expenses, was Idaho Power building any new
generation or major transmission that would incur
administrative expenses?
A This is based on '89, I think. No, they
wouldn,t have been. They've been investigating it. I mean,
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they're looking to build, but they wouldn't be building.
a I guess I,m starting from the theory in my
mind, you're using incremental expense in your mind, the
amount of extra administrative expense that would be
incurred in order to hook up this CSPP.
A Right, it would be broader than that. Irm
trying to look at the extra expense for hooking up the --
the extra expense in O&M for having this CSPP there. That,s
what I'm looking at. It's the change in the O&M costs to
the Power Company for having a CSPP hooked to the system.
a f guess in my mind, f rrn starting from looking
at the change in O&M costs to the Company from implementing
PURPA as a beginning point and just intuitively, I think
that took a Iot of time.
A Sure.
O And I see hooking that independent power
producer up as just a part of that.
A Okay.
a And so that if you look at the additional
costs incurred, perhaps rather than in Dr. Peseau's theory
of being only one-third as much, maybe it's the other way
around.
A OkaY.
a You're just doing this intuitively, aren,t
you?
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HEDRICK COURT REPORTING
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A Right, because there has been -- Dr. Spann
testifies that Idaho Power was using the incremental
approach. I think that's incorrect. r think it,s pretty
plain that they were using the average approach. There has
been no incremental study done for hooking up a CSPP. The
Company hasn't done it and we have not done it.
O That,s what I understood.
A So I took what their methodology was ttratrs
based on average and then tried to use a proxy to convert it
to incremental.
a Okay. It,s Mr. Faull that talks about
levelizing these sosts, isn't it?
A Yes.
COI,IMISSfONER NELSON: f wonrt ask you any
questions on that, then. Okay, dtry redirect,
Mr. Richardson?
MR. RICHARDSON: Just a couple, Mr. Chairman,
thank you.
REDIRECT EXAMINATION
BY MR. RICHARDSON:
a Dr. Reading, you responded to a question from
Commissioner Miller that you said something to the effect of
two-thirds of it were included that shouldn't be included
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and you were referring to a study by Dr. Peseau. Wtren you
said two-thirds of it, can you be more specific?
A Oh, the A&G allocated to O&M expenditures.
I{R. RICHARDSON: That's all I have,
Mr. Chairman.
COMI,IISSIONER NELSON: OKay, thanK YoU,
Mr. Richardson. Dr. Reading, thank you for your testimony.
THE WITNESS: Thank you.
(The witness left the stand. )
COMMISSIONER NELSON: And he is your only
witness?
MR. RICHARDSON: Mr. Chairman, that concludes
our direct case on reconsideration and we will have rebuttal
testimony from Dr. Reading later in the day.
COMMISSIONER NELSON: All right, thank you.
We'II go to Mr. Woodbury.
l{R. WOODBURY: Staff would call Dave
Hattaway.
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P.O. Box 578, Boise, ID 8370L
HATTAWAY (Di )Staff
DAVID HATTAWAY,
produced as a witness at the instance of the Staff, having
been first duly sworn, was examined and testified as
follows:
DIRECT EXAI,IINATION
BY MR. WOODBURY:
a Mr. Hattaway, would you please state your name
for the record?
A My name is David Hattaway.
a And for whom do you work and in what capacity?
A I'm a senior auditor with the Idaho Public
Utilities Commission.
a And in that capacity, did you have occasion to
prefile testimony in this case consisting of four pages?
A Yes, I did.
a And have you had the opportunity to review
that testimony prior to this hearing?
A Yes.
a And if I t'rere to ask you the questions in that
testimony, would your answers be the same?
A Yes, they wou1d.
MR. WOODBURY: Mr. Chairman, Ird ask that the
testimony be spread on the record and I'd present
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Mr. Hattaway for cross-examination.
COII0{fSSIONER NELSON: Thank you. Werd order
Mr. Hattaway's testimony spread on the record as if read.
(The following prefiled testimony of
Mr. David Hattaway is spread upon the record. )
62
HEDRTCK COURT REPORTING
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O. Please state your name and business address for the record.
A. My name is David Hattaway. My business address is 472 West
Washington Street, Boise, ldaho.
O. By whom are you employed and in what capacity?
A. I am employed by the ldaho Public Utilities Commission as an
auditor in the Accounting Section of the Utilities Division.
O. What is your educational and experience background?
A. I received a Bachelor of Science degree with a major in
accounting from Brigham Young University in 1972. In 1980, I earned a
Master of Business Administration from Pepperdine University.
I have over 15 years of experience in accounting and
management with companies ranging in size from very small to one of the
largest Fortune 500 companies. Over those years, I have worked as a statf
accountant, senior financial analyst, credit manager, accounting supervisor
and controller.
O. What is your responsibility in this case now before the
Commission?
A. My responsibility is to perform the staff analysis of financial data
submitted by ldaho Power Company (lPCo) showing the development of
lPOo's rate for Operation and Maintenance (O&M) costs.
O. What is the purpose of your testimony?
A. The purpose of my testimony is to comment on lP0o's
calculation and methodology to determine the O&M factor used for
recovering costs associated with distribution and transmission.
O. What are the O&M factors you are addressing?
rPc-E-90-20
8-19-91
HATTAWAY, Di 1
Staff
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A. I am addressing the rates for the non-utility generation,
Schedule No. 72, interconnection tariff mentioned in lPCo's application.
Specifically, the rates are 0.7"/" for distribution and the 0.4% for transmission.
O. What are your conclusions?
A. The calculations are reasonable and based on correct data.
The methodology used is logical and appropriate.
O. What is the source of the data used for the calculation?
A. The data is from the books and records of lPCo as of
December 31 , 1989. The books and records are kept in accordance with
Federal Energy Regulatory Commission (FERC) Uniform System of Accounts
(usoA).
O. What is the methodology used to determine the above
mentioned rates?
A. The methodology is to divide distribution and transmission
related O&M expenses by lPCo's investment in associated assets. The
USOA does not separate Qualified Facilities' (QF) interconnect costs or O&M
expenses from general utility expenses of this type. Therefore some
judgments were made by lPCo based on experience (what plant in service is
typically used to interconnect a QF), the relation of USOA Accounts to QF
construction and operation, and cost accounting conventions (like relating
overhead costs to appropriate cost obiectives). In my opinion those
judgments were and still are reasonable.
O. Why use the methodology described above?
A. I considered four common cost allocation methods.
1) lnvestment,2) Direct Labor,3) Units of Production, and 4) Line Length.
rPC-E-90,20
8-19-91
HATTAWAY, Di 2
Staff64
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The method used by lPCo where investment is the basis for
allocation, offered the best of all options. !t is logical and verifiable. lt is
simple to derive and to understand. lt results in the most realistic and fair
allocation.
O. Please explain the other three options and your reasoning for
rejecting them.
A. Direct labor is a common basis for allocation of cost pools. An
allocation factor could be developed by dividing direct labor costs on QF
facilities by total direct labor for lPCo. Labor costs for QFs are not shown in
a separate USOA account and lPCo does not capture the specific payroll
data to determine QF labor hours or amounts. A direct labor allocation factor
can not be calculated with the available data.
Another common basis for atlocation of cost pools is units of
production. Units of production in this case would be kilowatt hours
generated. The factor is determined by dividing kilowatt hours generated by
QFs by total lPCo system generation. The problem with this method is that
it does not recognize that electricity llowing through the interconnect
equipment does not directly atfect O&M costs. The interconnect equipment
may require O&M expense even if the QF does not generate any power.
A third method might be to allocate O&M by dividing the length
of line used for a QF's interconnect by the number of miles of line in the lPCo
system. This method would not reflect realities of terrain, accessibility and
dollars of investment.
O. Do any other utilities you know of use a method similar to
lPCo's?
rPc-E-90-20
8-19-91
65 HATTAWAY, Di 3
Staff
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A. Yes. Several other utilities operating in ldaho use a similar
method for calculating O&M rates for use in QF contracts with resulls similar
to those of ldaho Power.
O&M Rates Based on lnvestment
Company
----------O&M Rates--
(o/o per Month)
Distribution Transmission
ldaho Power Co.
Utah Power & Light
Pacific Power & Light
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Washington Water Power (WWP) does not have an O&M rate
for QFs in effect at this time. WWP permits QFs, on a case by case basis, to
build and maintain their own lines and interconnect subject to VVWP
specifications.
O. Does this conclude your testimony?
A. Yes, it does.
tPc-E-90-20
8-19-91
HAII-TAWAY, Di 4
Staff66
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HEDRICK COURT REPORTING
P.O. Box 578, Boise, ID 8370L
HATTAWAY (X)Staff
(The following proceedings were had in
open hearing. )
COMMISSIONER NELSON: We'II go to Mr. K1ine.
I4R. KLINE: Thank you, Mr. Chairman.
CROSS-EXAMINATION
BY MR. KLINE:
a Mr. Hattaway, when you did your review of
fdaho Power's computation of the proposed O&M charges that
werre discussing today, you recognized, I assume, that Idaho
Power's proposed charge included an A&G component, did you
not; in other words, the O&M costs do include A&G costs?
A That's correct.
O Now, have you read Dr. Reading,s testimony in
this case?
A Yes, I have.
O A11 right, and in his testimony, Dr. Reading
testifies that A&G costs should be deleted from the
computation of O&M costs that are assessed on CSPP
interconnections. Do you agree with Dr. Reading's analysis?
A No, I do not.
a And so you're, I guess, standing by your
testimony that Idaho Power's methodologry is both logical and
appropriatei is that correct?
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A That's correct.
a Dr. Reading also, I guess, infers that there
should have been an incremental cost study done that would
have pinned all of this down. Did you consider whether an
incremental cost study ought to have been done rather than
what Idaho Power proposed here?
l{R. RICHARDSON: Mr. Chairman, I believe that
counsel for Idaho Power has mischaracterized Dr. Reading's
testimony.
MR. KLINE: A11 right.
O BY l[R. KLfNE: fn your judgrment -- strike the
question. In your judgrment, Mr. Hattaway, do you think it's
necessary to do an incremental cost study in order to
compute a fair O&M charge to be assessed against CSPPs?
A I think any additional study would be valuable
enabling more precise definition of costs, but in the
absence of that, I would go with the costs as they were
presented in Idaho Power's presentation.
A A11 right. I'd like to take a look at Page 4
of your testimony, I,Ir. Hattaway, and you're talking in there
about the methods that other utilities in Idaho use to
assess O&M charges on QF interconnects, and in that case,
you show Utah Power and Pacific Power as having different
rates. Isn't it correct that they now have more or less
combined those two rates for purposes of the two companies?
6B
HEDRICK COURT REPORTTNG
P.O. Box 578, Boise, ID 8370L
HATTAWAY (X)Staff
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HEDRTCK COURT REPORTING
P.O. Box 578, Boise, ID 83701-
HATTAWAY (X)
Staff
A Yes, that's true. My numbers were gathered in
August at the time PacifiCorp was consolidating that
resource acquisition function. It's my understanding
talking with Kimball Rasmussen that the company will use a
standard systemwide number that they generated and that is
reflected in Idaho Power's exhibit.
O lt's the same as what is in Idaho Power's
exhibit, Dr. Spann's exhibj-t; is that correct?
A That's correct.
MR. KLINE: That's all the questions I have.
COMMISSIONER NELSON: Thank your Mr. Kline.
Mr. Richardson.
MR. RfCHARDSON: Thank you, Mr. Chairman.
CROSS-EXAMINATTON
BY I[R. RICHARDSON:
a What does Washington Water Power Company
assess a CSPP for O&M for interconnection facilities?
A They do not have an O&M rate, ds such.
a They don't charge anything, do they?
A (The witness shook his head from side to
side. )
a Do you know if this Commission has approved
any contracts between Washington Water Power Company and
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HEDRICK COURT REPORTING
P.O. Box 578, Boise, ID 83701-
HATTAWAY (X)
Staff
cSPPs that have no charge for this service?
A No, I do not. I'm not aware of that.
a You're not aware of any contracts between
Washington Water Power and CSPPs that this Commission has
approved?
A No, I am not.
MR. RICHARDSON: That,s all I have,
Mr. Chairman.
COMMISSIONER NELSON: Thank you,
Mr. Richardson. Any questions from the Commission? Any
redirect, Mr. Woodbury?
MR. WOODBIIRY: No redirect.
COMMISSIONER NELSON: Thank you,
Mr. Hattaway.
(The witness left the stand. )
MR. hIOODBURY: Staff would call Tom Faul1.
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HEDRICK COURT REPORTING
P.O. Box 578, Boise, ID 8370L
FAULL (Di)
Staff
THOI,IAS FAULL,
produced as a witness at the instance of the Staff, having
been first duly sworn, was examined and testified as
follows:
DIRECT EXAMINATION
BY !{R. WOODBURY:
a Mr. Faul1, will you please state your name for
the record?
A My name is Tom Faull.
A And for whom do you work and in what capacity?
A I work for the Idaho Public Utilities
commission as an engineer.
a And in that capacity, did you have occasion to
prepare prefiled testimony in this case consj-sting of,
direct testimony consisting of, L4 pages and six exhibits?
A Yes, I did.
a And the exhibits are exhibits numbered l-Ol-
consisting of three pages, LOz, l-03 consisting of six pages,
LO4, LOs and l-06 consisting of two pages; is that correct?
A It is.
a Did you have occasion to review your testimony
and exhibits prior to this hearing?
A Yes.
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HEDRICK COURT REPORTING
P.O. Box 578, Boise, ID 83701-
FAULL ( Di )Staff
72
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a And if I were to ask you those questions,
would your answers be the same?
A Yes.
MR. WoODBURY: Mr. Chairman, I'd ask that the
testimony, direct testimony, be spread on the record and I'd
present Mr. FauII for cross-examination.
COI,IMISSIONER NELSON: So ordered, and we
would -- did you ask that we mark these exhibits L0L through
l_o5?
MR. WOODBURY: Yes, I would ask that they be
identified.
COMMISSIONER NELSON: And we'd also mark
those.
(The following prefiled testimony of
Mr. Thomas Faull is spread upon the record. )
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O. Please state your name and busirless
address for the record.
A. My narne is Thomas Fau1l and my business
address is 472 West Washington Street, Boise, ldaho.
O. By whom are you employed and in whaL
capaci ty?
A. I am employed by the Idaho Pub1ic
Utilities Commission as a Public Utilities Engineer.
a. Have you included a statement of your
qualifications in this testimony?
A. Yes. Exhibit No. 101 is a statement of
my qualif ications.
A. Please summarize your testimony.
A. My testimony cliscusses the extent to
which interconnect costs were considered during the
adminisLrative determination of avoided cost rates and
concludes that Idaho's avoided cost rates include
reasonable interconnect costs as envisioned by the
Public Utilities Regulatory Policy Act of 1978
(PURPA). I also analyze the way in which ldaho Power
Company (IPCo) applies its operation and maintenance
(O&M) charges for interconnect facilities and conclude
that IPCo should charge non-level O&M rates rather
than the level O&M rates currently includetl in
Schedule 72.
FAUT,L ( Di )StaffrPC-E-90-20
8/ L9 /9L
T73
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INTERCONNECT
a.
Cases Nos.
the avoided
rPC-E-9 0-20
8/L9/9L
COSTS IIICLUDED IN AVOIDED COST
were you the staff's primary
U-1500-170 and IPC-E-89-1I that
cost rates currently being used
RATES:
wi tness in
established
by IPCo
for the purchase of power urrder PURPA?
A. Yes.
O. Do you believe that TiLle 18 of t.tre Code
of Federal Regulations (CFR), Part 292, requires
uLilities to pay the cost of interconnection for
Qualifying Facilities (QFs)?
A. No. 18 CFR 292 clearly lays the burden
of paying interconnection costs on the QF.
(a) Obligation to pay. Eachqualifying facility shall be obliqatedto pay any interconnection costs whichthe State regulatory authority...mayassess against the qualifying facilityolr a nondiscrj.minatory basis withrespect to cusbomers with similar loadcharacteristics.
(b) Rejmbursement of interconnectioncosts. Each State regulatory authority...sha11 determine the manner for
payments of interconnection costs,which may inc ltrde reimbursement over a
reasorrable period r-rf time. " [18 CFR
292.306)
'fnterconnection costs' means the
reasonable costs of connection,switching, metering, transmission,distribution, safety provisions and
FATTLL ( Di )Staff 274
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Interconnection costs .
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adrninistrative costs incurred by theelectric' trtili.ty dir:ectly related tothe installation arrd maintenanc:e of thephysical facilities necessary to permit
interconnected operal-ious with ttrequalif ying f aci 1iLy, to the exL,ent suchcosts are in excess of the
corresponrlirrg costs wlrich the el er-:tr icutility wotrld trave incrrrred if it tradnot engaged in inLerconnectedoperations, briL instearl generated anequivalent anrount of electri.c energyitsel f or purchased an eqrriva lent
amornlt of electric energy or capacity
f rorn other sources . Interconnect ioncosts do not incl ude any costs irrcludedin the calculation of avoided costs.
[18 CFR 2e2.L}r (b) (7)]
For QFs interconnecting with IPCo, the Commission
"assesses" interconnection costs by approving
contracts that include language requiring prepayment
of those costs. The QF is reimbursed for the
interconnection cosbs that " . . . the electric uti liLy
would have incurred if it had not engaged in
interconnected operations, but instead generated an
equivalent amount of electric energy itself..." over
the life of the contract through that portion of
avoided cost rates that results from including the
avoidable interconnection costs associated with the
Surrogate Avoidable Resource (SAR) in the "calculation
of avoided costs." IfA CFR 292,LOI (b), above.]
A. In your opinion, are reasonable
interconnect costs included in the administratively
rPe-E-9 0-20
8/L9/9L
FAUT,[, (Di) 3Staff75
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determined avoided cost rates?
A. Yes . All-hough srrbsequent resea rch
indicates that a srnall part of the interconnect costs
associated with the Colstrip power plant were
inadvertently left out of the avoided cost
computations, it is calculaLed that the overlooked
interconnect costs represent less than five percent
(5%) of the interconnect costs that aLe included in
the avoided cosL rates. Corrsidering the fact thaL the
reasonable range of interconnect costs considered in
Case No. IPC-E-89-I1 was approximately pltrs-or-mi-nus
thirty percent (301) of the ordered amount lOrder No.
23357, pp. I7-191, the inadvertent failure to consider
a small portion of the Colstrip interconneet costs
appears inconsequential.
A. What are the interconnect costs that
erere overlooked in the avoided cost computations?
A. fn Case No. U-1500-170 lorder No. 22636]
the Commission determined that ttre SurrogaLe Avoidable
Resource (SAR) would be a generic coal fired power
plant located in the Powtler River Basin of Wyoming.
The method selected by ttre Commission to estimate the
cost of the SAR was to blend the actual construction
costs of the Colstrip plant in Montana and the Val.nry
plant in Nevada (Order No. 22865, pp. 2-3 & 17).
FAULL (Di) 4StaffrPc-E-9 0-208/L9/9r 76
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Historically, interconttection substation (step-trp)
costs have been included in power plant costs for
avoided cost purposes irr Idaho. As shown in Exhibit
No. L02, IPCo followed that convention in providing
Valmy costs. As discussed in my memorandum to Messrs.
Woodbury and Purdy dated May 2, 1991 (attached as
Exhibit No. 103), it appears that all parties to
U-I500-I70 [including Washington hlater Power (wwP)]
believed that WWP was following the convention in
providing the costs of the Colstrip p1ant. However,
after becomilrg aware l-hat the issue of interconnection
was significant in this case, staff asked WWP to
double check its records pertaining to the issue. wWP
did so and discovered that the Colstrip interconnection
substation cosLs had been left out of the computations.
0. Do you believe that leaving the Colstrip
substation costs out of avoided costs was inadvertent?
A. Yes. The Pederal Energy Regulatory
Commission (FERC) Uniform System of Accourrts for
Electric Utilities requires utilities to book
interconnection subsEation accounts as transmission
expenses rather than generation expenses. Therefore,
I surmise that wwP's accountants simply forgot to
transfer the appropriate Lransmission accounts to the
Colstrip generation accounts for purposes of
FAULL (Di)
Staffr PC-E-9 0 -2 0
8/ t9 /9L
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estimatinq avoidable power plant construction costs.
0. How significant was WWP's oversight?
A. Exhibi t No . 104 i s a copy of t.he resu l ts
of an analysis WwP did and informally provided to
staff Lo shuw the interconnection substation costs
l-hat WWP fourrd to be associated with the Colstrip
plant. They amount to approxirnately $fgZkW of
Colstrip's installed capacity, in 1989 dol1ars.
The Lotal SAR plant cost included in
current avoided costs is $faSOlkw in 1989 doIIars, per
Order No. 22855. That amount was determined by a
simple averaging of the VaImy costs provided by IPCo
($faAL/kW) and the Colstrip costs provided by WWP
($1417,/kw) , rounded up f rom $raa9/kw. Thus, it would
be reasonable to assume that the Commission might have
found the SAR plant costs to be:
$taag + $tgtz r $ras8.50 -! $1450/kw.
This would indicate that the SAR plant costs are
understated by approximabely seven-tenths of a percent
(0.7?). However, in Case No. IPC-E-89-11 (Order No.
23428, pg. L2) the Commission determined that IPCo SAR
interconnect costs also include transmission expenses
of $Zfg/krw. Therefore, the error actually represents
an understatement of less than six-tenths of a percent
t$10/($fa00+$213) - 0.6%l . Again, considering the
rPc-E-9 0-20
8/ L9 /9L FAULL (Di)
Staf f 67B
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methodology employed to estimate total SAR capital
costs, rounding techniques used throughout the
process, and the reasonable ranges considered
(especially for estimaLing transmission system costs),
it appears that the overall interconnection costs
included in the avoided cost rates are just and
reasonable, even without Colstrip substaLion cosl-s.
a. WiIl you please sumrnarize the
interconnections costs associated with IPCo's SAR?
A. Yes. They are:
Colstrip
Va l.my ste
Transmi s s
step-up costs $rg. s 6/kw/2 =
$9. sg /kw/2 =
$ 9.28/kw
$ 4 .77 /kw
$2 r3 . 00/kw
$227.05/kw
$2-L7.77/!w
-up costs:on costs:
pi
O. How do the interconnection costs
included in the avoided cost rates compare to the
total interconnection costs actually paid to IPCo by
QFs?
A. As stated above, the interconnection
costs included in avoided cost rates are $218lkw. The
interconnection costs paid to IPCo by QFs range from
$I,789/kW for a I0kW QF to $tSZkW ror a 14,000 kW QF.
The maximum interconnect cost for projects 50 kW and
TOTAL:
TotaI included in avoided costs:
rPC-E-9 0-20
8/ L9 /9L
FAULL (Di)
Staff
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larger has been $qAltxw.Ihe average project
interconnection cost has been $150/kW. TIre toLal of
all interconnection costs compared to the total of all
QF capacity has been $43lkw. The Sunshine No. 2 QE
had interconnection costs of about $fAfZXw. (The
above estimates are based on a cornpilation of data
avaiLable in the Commission's files. ISee Exhibit No.
1061) Therefore, it appears that the irrterconnection
costs included in avoided cost rates generally exceeds
the interconnection costs paid by QFs. In summary:
Avoided Inberconnect Costs: $zfaZXw
Maximum QF Interconnect Cost: $1,789/kW
Ivlax. Over 50 kw QF Cost: $487/kw
Sunshine No. 2 lC Cost: $181/kW
Average QF Pro j ect IC Cost $I50,/kW
Cost to IC A11 QF Energy: $43/kW
tvtinimum QF Interconrrect Cost: $15/kw
O. Shouldn't IPCo be required to pay the
difference between the QF's interconnecEion costs and
the avoidable interconnection costs when the former
exceed the latter, based on the fact that IPCo
controls the QF's interconnection costs?
A. No. IPCo only controls the cost of the
facilities that are required, and then only to the
extent that it purchases efficiently or inefficiently
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wi-thin the marketplace. The maior dif f erences in the
interconnection costs amorrg QFs are (1) the distance
from the QF's Iocation arrd tire poirrt of interconnection
and (2) the voltage on the IPCo side of the inter-
connect j.on. Both of these f actors are under the QF's
control in that the QF selects the power plant site
relative to IPCo's existing Lrarrsmission and
distribution systems.
A. How significant would the changes to
avoided cost rates be if Lhe Commission decided to
recompute Ehem with the overlooked interconnect costs
i nc luded?
A. IPCo's avoided cost rates would increase
by amounts ranging from less than one-tenth of a nri1l
for short term contracts to slightly over three-tenths
of a mill for the longest term contracts coming
on-Iine in 1996. This represents rate changes of less
than one-half of one percent.
0. Do you recommend that the Corrunission
change avoided cost rates to include the overlooked
interconnect costs?
A. No. Cases Nos . U-1500-170, IPC-E-89-11,
WWP-E-89-5, and PPL-E-89 -3/UPL-E-89-5 were extremely
complex proceedings involving analyses of several
interrelated issues over a period of nearly four
rPC-E-9 0-20
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years, and resulted in carefully considered estimates
of the resource costs avoidable by each maior electric
utility with an Idaho service terriLory. To reopen
those cases for the sake of an insignificant oversight
in the development of the estimates would be
unreasonable and courrter-producti.ve. To simply make a
mathematical adjustment would ignore ttre interrelated
nature of the components of the variables that make up
avoided costs. ClearIy, the administrative risks of
tampering with those cases far exceeds any potential
benefit of mathematical purity associated with
correcting WWP's. inadvertent oversight.
0. Should IPCo be required to pay for part
of Qualifying Facilities' (QFs' ) interconnection
facilities Lo correcL for ttre oversight?
A. No. As stated above, the avoidable
interconnect costs included itr the avoided cosL rates
are reasonable. Therefore, no action is necessary in
response to the discovery of WwP's minor oversight.
O&IIT CIIARGES FOR INTERCONNECT FACI.LITIES:
a. Are operat ion and maintenance (O&lvI)
costs also included in the avoided cost rates?
A. Yes. Intercottnection O&I'1 was included
at the rate of $0.7Olkw-yr. [order No. 22357,
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Appendix B.l That rate arnounts to about 0.03% per
nronth of the SAR transmission investment cost.
Although that is substantially less than the 0.4o-o per
month suggested as the appropriate rate for QF
transmission plarrt O&M, the difference is reasonable
because ttre transmission plant associaLed with the SAR
is a 500 kV double circuit line rated at 2,000 lvlw,
which will require substantially less O&M on a "per
unit cost" basis than Lhe lower voltage and lower
capaciLy Iines typical of QFs.
a. Have you reviewed IPCo's operation and
mainLenance (O&M) charges for QF interconnect
faci Iities?
A. Yes, although Staff witness Hattaway has
done an extensive accounEing analysis of the O&tvl
charges included in Schedule 72, which he discusses in
his testimony. I concur with Mr. Hattaway's
conclusion that the methodology and results used by
IPCo are reasonable. Therefore, my testimony on this
subject is limited to the method of application of the
O&M rates. SpecificaIIy, my testimony is concerned
with the relationship of cost inflation to the
application of the rates.
0. How does inflation affect the O&M rates?
A. As discussed by llr. Hattaway, Lhe O&M
FAIJLL ( Di )Staffr PC-E- 9 0-2 0
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rates are established by dividing appropriate O&M
expenses by the gross plant associated with those
expenses. Althougtr O&M expenses are relaLively
current (i.e., include 1i.tt1e inflation effect) ttre
related gross plant accounts i.nclude plant costs
incurred for a period of over 30 years. Obviously,
the amount included in the plant accourrt- for
investments made over 30 years ago vastly understate
the replacement value of the assets they represenL.
Therefore, the rate established by IPCo's methodology
is a levelized rate; applicable only over a period
equal to the average planb life for each category of
pIant.
a. Is using such a rate appropriate for
determining O&M charges?
A. Yes, provided the charges and the asset
usage will continue for at least the average asset
Iife used to determine the rate. However, if the QF
interconnect plant usage is less than the average
plant life the levelized methodology used by IPCo
results in overpayment by the QF to IPCo in the same
way that levelized avoided cost rates can result in
overpayment by IPCo to the QF in the evenL of
premature reduction of the QF's level of generation.
r Pc-E-9 0-2 0
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0. Is it likeIy that QFs will nrake
significant overpayments as a result of level O&M
cha rges?
A. Yes. In cases where the QF cotrtract is
less than Lhe average asset life, such overpayment is
a certainty. In other cases it is a possibility.
A. How do you recommend that t-he Comrnission
solve this problem?
A. By requiring IPCo to de-levelize the O&M
charge rate. The Consumer Price Index (CPI) over the
past 30 years indicates thaL the average annual
inflation rate is approximately 5.4% per year. Using
that rate in conjunction with an IPCo weighted cost of
capital of 11.45% per year as required by Order No.
23357 for avoided cost purposes yields the
non-Ievelized O&lvl rates shown in Exhibit No. 105.
Applying the Exhibit I05 non-levelized
O&l,l rates to QF contracLs would eliminate the
overpayment requiremerrt currently being thrust on QFs,
would more accurately match IPCo's O&Ivl revenues with
its O&M expenses, and would help encourage the QF
industry by reducing QF expenses during the early
"debt service" years of l-he contract. I theref ore
recommend that the Commission require that Exhibit 105
be the rates included in Schedule 72 rather than the
rPc-E-9 0-208/L9/9L B5 FAULL (Di)
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level rates ProPosed by IPCo.
0. Do you recommend that the Comrnission
require IPCo to retroactively change Ievelized O&M
rates in existing contracts?
A. No. The Cornmission's authority to
change contract rates is Iimi.ted Eo cases where the
contract rates would have a significant negative
impact on the public inberest if left unchanged. I do
not believe that levelized O&M rates for QF
interconnection assets have such an impact.
Therefore, my recommendation is interrded to apply only
p rospect ive Iy.
a. Do you reconunend that non-level rates be
considered for O&M charges applied to interconnection
assets used by IPCo's retail customers (e.9., Schedule
7L)?
A. No. Retai I customers' faci IiLies are
presumed to interconnect for periods exceeding btre
average life of the plant assets used to determine the
O&I,t rate. Therefore, the Ievelized rate is
appropriate for retai I applications.
A. Does this conclude your direct testimony
in this case?
A. Yes.
r PC-E-9 0 -2 08/L9/9L
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HEDRICK COURT REPORTING
P.O. Box 578, Boise, ID 83701-
FAULL (X)
Staff
(The following proceedings were had in
open hearing. )
COIr{MISSIONER NELSON: Mr. Richardson, Iet's go
to you first.
I4R. RICHARDSON: Thank you, Mr. Chairman. The
Independent Energy Producers of Idaho has no questions for
Mr. FauII.
COMMISSIONER NELSON: Thank you. Mr. Kline.
l[R. KLINE: Thank you.
CROSS-EXAMINATION
BY MR. KLINE:
A Mr. Faull, you were the Staff,s primary
witness on the avoided cost methodology that was developed
by the Commission and thereby used to set Idaho Power's
avoided cost ratesi is that correct?
A Yes.
a Now, recollecting that case, do fdaho Power
Company's avoided costs and their avoided cost rates include
a component for avoided O&M costs which are associated with
the surrogate avoided resource?
A Yes, both for transmission and for generation.
a And do those O&M costs include administrative
and general costs?
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A Yes, they do.
a And I take it, then, that the existing avoided
cost methodology for Idaho Power Company assumes that by
purchasinq power from a CSPP, Idaho Power avoids some A&c
costs that are attributable to the sAR; is that correct?
A That is correct.
a And one of the questions that's been discussed
here with Dr. Reading is if you're looking at whether or not
A&G costs, at A&G costs specifically, the issue is if the
utility adds a CSPP resource, are its A&G costs affected.
Now, with that, Iet's take the example of a very small QF
facility, LOO kilowatts, that attaches to Idaho Power's
system and it is paid Idaho Power's avoided cost rates.
Does the avoided cost methodology assume that even that very
small QF alIows Idaho Power to avoid some A&G eosts?
A Yes, it does.
A And the small power producer is compensated
for those avoided A&G costsi isn't that correct?
A That is correct.
a And the size of the QF and whether it actually
does or doesn't avoid an A&G cost, the methodology assumes
that it does; is that correct?
A That is correct, and in fact, that's the whole
point of A&G. If it was a directly assignable cost, it
would be directty assigned.
88
HEDRICK COURT REPORTING
P.O. Box 578, Boise, ID 8370L
FAULL (x)Staff
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MR. RICHARDSON: Mr. Chairman.
COMMISSIONER NELSON: Mr. Richardson.
MR. RICHARDSON: Mr. Faull has not addressed
the issue that he's being cross-examined on now in his
direct testimony. This is borderline friendly
cross-examination and I'11 object to the Iine.
Ir{R. KLINE: WeIl, Mr. Fau11 did in fact -- is
the Staff's primary witness on avoided costs. He's
testifying in this case on the interaction between O&M
charges and small power producers. I think his testimony is
certainly relevant.
It{R. RICHARDSON: Wtrether or not his direct
testimony is relevant is not the issue. Mr. Faull is being
cross-examined on testimony that he hasn't filed.
COMII{ISSIONER NELSON: Mr. Richardson, I agree
with you that we're not covering his prefiled testimony
here, but I think these questions are relevant. I think it
goes a lot to Dr. Reading's testimony; so I'm going to allow
these questions and I'm going to allow you a chance for
further cross when Mr. Kline is through.
Ir[R. RICHARDSON: Mr. Chairman, I'I1 be happy
to reca11 Dr. Reading if counsel for Idaho Power would like
to ask Dr. Reading questions about Dr. Reading's testimony.
I,1I renew my objection to allowing Mr. Kline to inquire of
Mr. FauII on Dr. Reading's testimony.
89
HEDRTCK COURT REPORTING
P.O. Box 578, Boise, ID 83701-
FAULL (x)
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Ir{R. WOODBURY: Mr. Chairman, I think that
between two witnesses, one of whom participated in the
avoided cost case and one who did not, Mr. Faull is perhaps
the best witness for Mr. Kline's questions.
COMMISSIONER NELSON: I think the questions
are relevant, and if you'd like to ask further questions
when he's through, I'11 allow that.
!tR. RICHARDSON: Thank you, Mr. Chairman.
I{R. KLINE: And I'11 leave the question of the
setting of avoided costs and the methodology with respect to
further questions to Mr. Fau1l.
a BY UR. KLINE: I direct your attention to
Page l-O of your direct testimony, Ur. Fau11, the bottom of
the page starting on Line 2Li do you see where we are?
A Yes.
A It does look like you do have some testimony
regarding O&M charges as part of the avoided cost rates.
A Yes.
a Now, the avoided cost rate methodology
requires Idaho Potrer to pay CSPPs for avoided O&M costs on a
level basis; isn't that correct?
A Yeah.
a Now, in your testimony you are advocating that
the cost that Idaho Power Company incurs for operating and
maintaining CSPP facilities should be recovered by Idaho
90
HEDRICK COURT REPORTING
P.o. Box 578, Boise, ID 8370L
FAULL (x)Staff
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Power from the CSPP developer on a non-Ieve1 basis; isn't
that correct?
A That is correct, yes.
a A11 right, and one of the reasons that you
cite in your testimony, I believe, for the non-Ievel
treatment is that it reduces the risk that CSPP developers
will overpay for o&M costs over time; isn't that right?
A Yes, and that ratepayers will have their risk
of overpaying also reduced.
a So we're talking a little bit about risks and
risk reduction and risk allocation. Now, with level or
levelized avoided cost payments, there is a risk that Idaho
Power will overpay the small power producer in the event the
smalI power producer doesn't produce for the full term;
isn't that one of the risks?
A Yes, it is.
O And one of the risks that we,ve just discussed
with respect to your proposal about recovery of CSPP O&M
charges is that it decreases the risk to CSPP developers.
Haven,t you got kind of a heads, I win, tails, you lose
situation here, Mr. Faull? On the one side, the utility has
the higher risk of overpayment due to level rates, but your
recommendation, which de-levelizes the recovery of O&M
costs, decreases the risk to the smaIl power producer. I'm
questioning, isn't that an inconsistent approach?
9L
HEDRICK COURT REPORTING
P.O. Box 578, Boise, ID 83701-
FAULL (x)Staff
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A No, it's not. There are substanti-al
differences between the two. The levelization of the CSPP
payment rate is consistent with the length of the contract
and the risk of overpalanent is protected against as a result
of one of our favorite history lessons, the 292 case; so
that has been taken into account.
The risk involved with the O&M payment, the
levelization is based on the life of the comparable
resources in Idaho Power's inventory, the comparable assets,
and has nothing to do with the contract lengthi so the risk
is not -- the contract length may put the risk on the side
of the QF or it may put the risk on the side of the
ratepayer. 35-year conLracts typically put the ratepayer at
risk. 2O-year contracts put the QF at risk.
a But by de-Ievelizing the O&M charge, one of
the conscious reasons that you did that was to reduce the
risk to the CSPP developer; correct?
A It was to reduce the risk of all parties.
a Okay. I'd like to spend a little time
discussing how your proposal for a de-levelized O&M charge
would kind of actually operate j-n a tariff situation. Now,
as I understand it, under your proposal each CSPP at the
time that he entered into the contract with Idaho Power, we
would compute a monthly O&M charge that would change every
year during the life of the CSPP contracti is that correct?
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HEDRICK COURT REPORTING
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FAULL (X)
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A Actually that rate would be part of a tariff
and j-t would not have to be computed each time you signed a
contract. ft would be tariffed.
a But each year you'd have to change the rate at
which you were charging the CSPPi is that correct?
A Correct.
a As it now stands, it would be a level charge
throughout the life of the contract, ds Idaho Power has
proposed it, it would be a level charge throughout the life
of the contract. Maybe it wouldn't change for the full
term. Under your proposal, it will definitely change every
year; isn't that correct?
A That's correct.
a All right. And those changes, then, ds I
understand your proposal would be based or -- Iet me back
up. The rate that you've computed is based on three
variables: The first variable is the contract term. The
second variable would be the capitalization rate that was in
effect at the time, the first contract yeari is that the
second variable?
A You've lost me.
O I'm sorry.
A Could we st,art over?
a Sure. Three variables as I see it: The first,
one we agreed on was the term of the contract.
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HEDRICK COURT REPORTING
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A Three variables to compute --
a Computing the O&M charge under your proposal.
A For the level or the non-Ieve1?
a For your proposal.
A For my proposal. No, Iength of contract is
not a vari-able involved in that.
a Okay; so in drafting the tariff, thoughr you
would have, ds I understand it, kind of a chart that would
have 1 through, sdy, 35 years and each of those years would
have a multiplier that would affect the rate; eorrect?
A Correct.
O So for Idaho Power to compute the charge to a
specific small power producer, it is going to have to look
at the contract number of years to see whether or not it has
to change the rate that yeari is that correct?
A No, it has to look at the year of the
contract, the difference between the current year and the
year the project came on Iine, to determine what the rate
is, but that will be the same regardless of contract length.
a Okay, I understand. All right, now, also in
computing the rate and preparing the chart, you would have
to consider the capitalization rate that was in effect at
the time that the Commission approved the chart; is that
correct?
A In developing the chart -- I,ve forgotten now,
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I don,t believe capitalization rate was included in that,
but I could check that. In fact, it's fairly easy to do.
okay, y€s, capitalization rate is included in creating the
chart. Once the chart is created, you don't have to think
about it again.
COMMISSIONER NELSON: Excuse me, is this your
Exhibit L05 that goes through this variable computation?
THE WITNESS: Yes, it is.
COII{MISSIONER NELSON: ThanK you.
a BY IIIR. KLINE: Letrs talk about that a little
bit later. The other thing that you would use to develop
the chart would be whatever percentage O&M charge the
Commission would determine to be the proper one; in other
words, either t-he 7/LO or the S/LO of a percent, that would
be the other variable that would be used to determine the
chargre and create the chart; correct?
A Correct. My methodology is one more step
added on to the fdaho Power methodology.
a Now, we've got the chart in place.
A Okay.
a Sma1l power producer sigrns a contract and the
Idaho Power accounting person who's going to send the bill
out each month for the O&M chargie or deduct it from the
payment or whatever is going to look at the chart and he's
going to see, okay, this year this is the amount that I
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muJ-tiply times the investment cost for my charge this year;
is that how that would work?
A I certainly hope not.
O I'm sorry.
A I hope you've got computers j-n your
organization and he would just put the bill in the mail.
O I understand. I mean, your rebuttal testimony
did talk about the computerization of all of this, but I,m
just trying to understand, I guess, the basics of how it
would work.
A That's what the computer would do, yes.
a A11 right. Now, during the life of this
tariff, and I guess one of the reasons that we want to put
this whole thing in a tariff is that it does provide a more
reasonable and easily accessible method for making
modifications to the O&M charge over the life of the
contract. Would you only change over time as, sdy, O&M
charges, the Company's O&M chargesr 90 up, you could change
the percent,age and thereby change the O&M charge, you would
contemplate that occurring?
A Which percent,age?
a Ehe 7/Lo or the 4/Lo.
A Okay, it's possible that that will chanqe,
yes.
a AIl right. How about the capitalization rate,
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would you change that as the Company's capitalization rate
changed over time?
A Yes.
a You'd change both of those?
A Yes.
O A11 right. Would those changes be prospective
only?
A Yes.
MR. KLINE: One second, I'rr sorry.
(Off the record. )
a BY UR. KLINE: Let,s turn to your Exhibit 105,
Mr. FauII.
A Okay.
a Now, in your Exhibit l-05, up in the top there
you talk about the assumptions that went into the
computation of the rates, and there is a reference to a
33-year, 33-year term?
A Thirty-three years is the weighted average
life of the distribution plant assumed for this particular
exhibit.
a A11 right, then assuming the 7/LO of a percent
figure that Idaho Power has proposed in this case, a 33-year
contract, would recover those amounts; is that correct?
A A 33-year contract would be indifferent as to
whether we used a level or non-Ievel rate.
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A And every contract for less than 33 years
would also be indifferent?
A No, less than 33 years the QF would overpay
for his O&M costs on a level rate.
MR. KLINE: That,s all the questions I have.
COMMISSfONER NELSON: Thank you. Why donrt we
take a break now for ten minutes or so and then werll come
back.
(Recess. )
COMITIISSIONER NELSON: Okay, letrs go back on
the record. Mr. Richardson, did you have some follow-up
questions you wanted to ask Mr. Faull?
Ir{R. RICHARDSON: One, Mr. Chairman, with your
indulgence.
CROSS-EXAMINATION
BY MR. RICHARDSON:
a Mr. FauII, in your view, do changes in A&G
costs increase at a greater rate when the Company builds its
own resources as opposed to acquiring an equivalent amount
of resources from a CSPP?
A I don,t know the answer to that question. ff
we,re referring to Dr. Peseau's testimony and analysis,
Staff position on that testimony was that the study was
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FAULL (con)Staff
flawed and I haven't changed that position.
A What was the Commission's ruling on that?
A I believe it was as Dr. Reading read, that the
information was not sufficient to make a determination.
MR. RICHARDSON: Thank you, Mr. Chairman.
That's all I have.
COMIrIISSIONER NELSON: Thank you. Questions,
Commissioner Srnith?
COMITIISSIONER SMITH: I have no questions.
EXAUINATION
BY COMMISSIONER NELSON:
a I wanted to ask you, Mr. Faull, oD your
Exhibit l-05, if we're going to start changing the variables,
such as cost of capital, over time, why have a tilted rate?
Why not just redetermine the o&M cost on a yearly basis?
A Because the methodology that we use to
determine it now is a level rate and it does overcharge at
the beginning of the contract and it does undercharge at the
end of the contract. If we were going to redetermine it
every year, we would have to take into account in some way
the changes in the, the inflationary changes in the, basis.
I really describe that more fully in my rebuttal testimony.
A When we talk about A&G and O&M, are those
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interchangeable terms?
A No, A&G is the, as you know, are the types of
costs that the Company incurs as a part of doing business
that really have no direct relationship to the production of
the product.
A So A&G is a part of O&M?
A Yes, and a part of everything else that the
Company does.
a Is this interconnection cost a part of the
contract that the CSPP signs?
A Yes, it is. It's part of Appendix B which is
the specific description of the plant and the requirements
to interconnect the plant, and in that contract, the costs
of interconnecting the Idaho Power part of the
interconnection are specifically determined and stated as a
contract term.
a So these costs as they're determined will be a
part of the contract?
A Correct.
O But under your methodology, those costs would
get changed from time to time as capital costs changed,
perhaps as O&M changes?
A No, that's not correet. The contract cost is
the physical, the cost of constructing the physical
interconnect. The O&M rate then is a percentage of that
l_00
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specific cost and that cost never changes.
O So the O&M is not a part of the contract, but
rather it's part of the tariff that we're here discussing?
A Correct.
a And in order to change that, Idaho Power would
have to change their tariff?
A If the tariff were published -- my concept is
that the tariff would be published as a two-column tariff
similar to my Appendix L05, except that the level O&M rate
and the annual tilted O&M rate would be deleted and you
would have one column being contract year and the other
column being o&M rate, and that would be tariffed and it
would apply to all contracts prospectively and would only
change if there was a substantial change in either the cost
of capital or the average distribution plant life or the
relative cost of O&M to the basis.
a I think it's starting to come clear to mei so
if they file a tariff for either a monthly or an annual O&M
charge, it could be like any other tariff, it could be in
effect until it was changed.
A Correct.
a It could be changed on application by itself
or it eould be changed in a rate case.
A Correct.
COMMISSfONER NELSON: Okay, thank you. Any
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HEDRICK COURT REPORTING
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HEDRICK COURT REPORTING
P.O. Box 578, Boise, ID 83701-
SPANN (Di)
Idaho Power Co.
redirect, Mr. Woodbury?
llR. WOODBURY: No redirect.
COMIIIISSIONER NELSON: ThanK YoU, Mr. Faull.
(The witness left the stand. )
It{R. WOODBURY: The Staff has no further
witnesses on direct.
COMIT{ISSIONER NELSON: A11 right, then werll go
to you, Mr. Kline.
It{R. KLINE: Fine. Our first witness is
Dr. Robert Spann.
ROBERT M. SPANN,
produced as a witness at the instance of the Idaho Power
Company, having been first duly sworn, was examined and
testified as follows:
DIRECT EXAMINATION
BY MR. KLINE:
O Could you please state your name and business
address for the record?
A My name is Robert M. Spann, S-p-a-n-n. My
business address is 555 L3th Street, Northwest, Washington,
D. C.
A And by whom are you employed, Dr. Spann?
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A I'm an independent economic consultant
affiliated with Charles River Associates, which is an
economic consulting firm.
a And did you cause to have filed with the
Corurrission certain testimony in this case?
A Yes.
a And did you also have filed exhibits,
specifically two exhibits identified as Exhibits 2 and 3?
A Yes.
A Do you have any additions or corrections you'd
like to make to your prefiled testimony in this case,
Dr. Spann?
A NO.
a Are there any additions or corrections to the
two exhibits that you have previously filed?
A No.
a And if I were to ask you the questions that
r^rere in your prefiled testimony today, would there be any
difference in your answers?
A No, there rnrould not be.
MR. KLINE: With that, Mr. Chairman, I would
request that Dr. Spann's testimony be spread on the record
as if read in its entirety and that the two exhibits filed
by Dr. Spann be marked for identification as Exhibits 2 and
3.
l-03
HEDRICK COT'RT REPORTING
P.O. Box 578, Boise, ID 8370L
SPANN (Di)
Idaho Power Co.
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I[R. RICHARDSON: Mr. Chairman?
COMMISSIONER NELSON: So ordered. Excuse me,
do you have an objection?
MR. RICHARDSON: I may, Mr. Chairman. I do in
fact have an objection to a portion of Dr. Spann's
testimony. I would ask that the sentence on Page 9,
beginning on Line 13, that begins with the words ttThe
analysisrt be stricken from Dr. Spann's prefiled testimony.
This sentence is not an assertion of belief or even an offer
by Dr. Spann to interpret what Dr. Peseau said in the -l-l-
case. Rather this sentence is a direct characterization of
Dr. Peseau's testimony that is grossly inaccurate and is
misleading in the extreme.
It has all of the negative characteristics of
hearsay testimony without any indicia of reliability. It is
not relevant. It is offered out of context when
Dr. Peseau's testimony is of record and is available at the
Commission's office as part of the record of another
proceeding. There is simply no need for Dr. Spann to teII
you what Dr. Peseau said.
MR. KLINE: Mr. Chairman, if I might respond.
COMMISSIONER NELSON: Yes, MF. Kline.
I[R. KLINE: Dr. Spann is available here for
cross-examination; so the fact that whether the testimony is
hearsay or not, Dt. Spann can certainly be cross-examined as
l_04
HEDRICK COURT REPORTING
P.O. Box 578, Boise, ID 83701-
SPANN (Di)
Idaho Power Co.
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to whether or not it is an accurate representation of what
is said. There's no reason to strike the testimony. If
Mr. Richardson is correct, then it's a misrepresentation.
He certainly can elicit that in cross-examination from
Dr. Spann, but striking the testimony is not a proper
response on this case.
I[R. RICHARDSON: Ur. Chairman, I note that
counsel for Idaho Power did not ask for the exhibit that
Dr. Spann refers to in his testimony to be introduced as an
exhibit to his testimony. I think that makes Dr. Spann's
testimony even more misleading.
MR. KLINE: It's not an exhibit and you can
certainly take administrative notice of this exhibit that's
been prefiled with you. Dr. Spann attached it as a
convenience for the parties.
COMMISSIONER NELSON: That is what was
premarked as nxhibit 4; is that correct?
I{R. KLINE: No. I'm assuming that what
Mr. Richardson is referring to is the copy of Exhibit 705
which was included with Dr. Spann's testimony, which is
Exhibit 705 in Case No. IPC-E-89-LL, which has been filed
with this Commission and has been accepted by this
Commission and is in the record and you can certainly take
administrative notice of it.
COMMISSIONER NELSON: Well
l_05
HEDRICK COURT REPORTING
P.O. Box 578, Boise, ID 8370L
SPANN (Di)
Idaho Pohrer Co.
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HEDRTCK COURT REPORTING
P.O. Box 578, Boise, ID 8370L
SPANN (Di)
Idaho Power Co.
MR. RICHARDSON: There i-s no Exhibit 4.
COMUISSIONER NELSON: -- as far as Exhibit 4,
I would just say that whoever put the notebook together for
me marked it as Exhibit 4.
Mr. Chairman.
testimony.
MR. RICHARDSON: It is misleading,
There is no Exhibit 4 to Dr. Spannrs
MR. KLINE: We didn't mark it as Exhibit a.
COMMISSIONER NELSON: AIl right.
MR. KLfNE: But again, it's in the record.
Whether it's an exhibit or not, you can take administrative
notice of it, if you want to.
T,IR. RICHARDSON: Mr. Chairman, may I
COMMISSIONER NELSON: Yes.
I[R. RICHARDSON: -- to assist things.
COMMISSIONER NELSON: One more round.
I[R. RTCHARDSON: I'd be willing to withdraw my
objection, Mr. Chairman, if we could introduce into the
record of this case as an exhibit from the Independent
Energy Producers the complete text of Dr. Peseau's testimony
on this issue from the case in which Dr. Spann is
referring. I'm prepared to do that now with your leave,
Mr. Chairman.
I[R. KLINE: Mr. Chairman, I don't think we
need to burden our record in this case with that entire set
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SPANN (Di)
Idaho Power Co.
HEDRICK COURT REPORTING
P.O. Box 578, Boise, ID 8370L
of testimony. Again, you can take administrative notice of
it. It, doesn't have to be an exhibit. If he has some
questions about it, Iet him go ahead and ask them.
COMITIISSIONER NELSON: I think what f 'm going
to do here, Mr. Richardson, is allow this statement as
Mr. Spann's opinion and that's what it is. He says, trThe
analysis contained in that exhibit indicates,tt and that's
his opinion. I think that if you would like to question him
on that opinion, v/hy, you may do that.
MR. RfCHARDSON: Thank you, Mr. Chairman.
MR. KLfNE: I guess my request that
Dr. Spann's testimony be spread and his exhibits marked is
still pending.
COMITIISSIONER NELSON: Okay, and we will order
that testimony spread on the record as if read and mark
Exhibits 2 and 3.
(The following prefiled testimony of
Dr. Robert Spann is spread upon the record. )
LO7
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a
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Please state your name and business address.
My name js Robert l'l. Spann. My busjness address is Charles
River Assoc'iates, 555 l3th Street, N.W., l,lashington, D.C.
By whom are you employed?
I am an i ndependent economj c consul tant aff i I j ated wi th
Charles River Assoc'iates, an economic consulting firm with
offjces jn l,lashington and Boston.
Please descrjbe your educational background and prior work
experi ence.
I rece'ived both my Bachelors and Masters Degrees in Economics
f rom North Carol i na State Uni vers'ity i n 1970. I rece'ived my
Ph.D. in Economics, with a co-major jn Stat'istjcs, from the
same Univers j ty i n 1973 . l.lhi I e do'ing graduate work at North
Carol'ina State, I taught courses in principles of economics.
I was also the recipient of a Nat'ional Science Foundation
Fel lowship and a Resources for the Future Di ssertat'ion
Fellowship. I have served on the faculties of Virginia
Polytechnic Institute and State Univers'ity, Montana State
Universjty, the Unjvers'ity of Chicago, and George Washington
University. I have taught courses jn econometrics, econom'ic
theory, appl'ied microeconomics, and regulatory economjcs.
During the period 1975-1989, I was a Prjncipal of ICF
Incorporated, a Washington D.C. consulting firm. I have been
act'ive1y involved as a consultant in the areas of energy,
uti I i ty, and ant'itrust economi cs s'ince 1972. Duri ng the 1 ast
Spann, Di -Recon
Idaho Power Company
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18 years I have performed consulting assignments for state
regulatory bodjes, federal government agencies, regulated
util jtjes, energy companies, and util ity consumers. I have
testified before state and federal regulatory bodjes and
courts on numerous occas'ions.
I am a member of the Amerjcan Econom'ic Association, the
International Assocjatjon of Energy Economists, and am an
associate member of the American Bar Association Section on
Anti trust.
I have publ i shed numerous articl es on regul atory
economics jn profess'iona1 journal s. Exhibjt 2 (Rl,lS-t) 'is my
resume.
Are you familiar with PURPA and cogeneratjon and small power
production (CSPP) issues?
Yes. I was a consultant to the Department of Energy during
the drafting and implementat'ion of the FERC rules cjted by
Dr. Reading. One of my assignments was advising the
Department of Energy's Poljcy Offjce on issues regarding the
implementatjon of PURPA Sectjon 210 (Cogeneration and Small
Power Production). During the last twelve years I have served
as a consul tant to vari ous cogenerators and smal I power
producers'in a number of states, served as a consultant to a
number of State PUCs on PURPA implementat'ion issues and worked
with numerous electric utilities on CSPP issues. I have
testified for Idaho Power on several occas'ions before this
109 Spann, Di -Recon
Idaho Power Company
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Commission. I have also testified on behalf of CSPPs before
the New York Publjc Service Comm'ission, the Florida Publjc
Service Commjssion, the Pennsylvania Publjc Utjljties
Comm'ission and the Federal Energy Regulatory Commission. The
issues I have addressed on behalf of CSPPs in prior testimony
has jncluded avoided costs, standby rates, and the economjc
i mpact of mi n i mum fl ows at a smal t hydro s'i te .
I have also done a substantial amount of work for CSPPs
that djd not involve test'imony. For the past n'ine years, I
have worked with a major Virginia cogenerator, ass'isting in
contract negotiat'ions and in analyz'ing filings made by
Virginia Power. I have worked with other cogenerators
performing econom'ic evaluatjons of potential cogeneration
projects, analyzing transmission issues, and varjous other
matters.
Fjnally, I assisted the New Jersey Board of Public
Util'ities and the South Carol'ina Publ ic Service Commiss'ion in
the design and implementatjon of avoided cost rates for CSPPs
in those states.
What js the purpose of your test'imony 'in this proceeding?
Idaho Power Company asked me to revjew the testimony of
Dr. Reading, prepared on behalf of the Independent Energy
Producers of Idaho. In additjon, I will be discussjng the
manner in wh'ich CSPPs in other states are charged for
interconnection costs.
110 Spann, Di -Recon
Idaho Power Company
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Please summarize your comments on Dr. Reading's testimony.
My conciusions can be summarized as:
o Much of Dr. Reading's testimony regarding PURPA
and average costs versus i ncremental costs 'i s
simply an i rrel evant smoke screen. That
d j scuss j on has noth i ng to do wi th the actual
issues in dispute'in this proceeding.
o At the concl us'ion of Dr. Reading's test'imony he
performs exactly the same type of calculation as
does Idaho Power--djvjding current expenses for
djstrjbution and transmission operation and
maintenance (0&M) by existing plant investment to
obtajn a percentage charge for 0&M expenses.
The only substantive di fference between
Dr. Reading's calculations and Idaho Power's is
that Dr. Read'ing omits Adminjstrative and General
(A & G) expenses from his calculations.
o In Case No. I PC- E-89- I 1 , Idaho Power' s I ast
avoided cost case, Dr. Dennjs Peseau testified
for the Independent Energy Producers of Idaho.
In that case, Dr. Peseau testjfied that Idaho
Power's A & G costs must be included in setting
Idaho Power's avo'ided costs. Al I of the
arguments that Dr. Peseau made for including
A & G expenses in the avo'ided costs that Idaho
Spann, Di -Recon
Idaho Power Company
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Power pays to CSPPs apply equal 1y wel I to
includjng A & G expenses in the interconnection
costs that CSPPs pay to Idaho Power. Thus 'if
A & G costs are i ncl uded i n the avo'ided cost
rates Idaho Power Company pays to CSPPs, they
should be included in the jnterconnect'ion charges
CSPPs pay to Idaho Power Company.
o If A&G costs are not 'included in the
jnterconnectjon charges CSPPs pay to Idaho Power
Company, they shoul d not be i ncl uded 'in the
avoided cost rates Idaho Power Company pays to
CSPPS.
Please summarize your test'imony regarding the practices of
other util ities regarding interconnectjon costs.
My genera'l experi ence i s that 'it i s common practi ce for
utjlities to charge CSPPs for both the capita1 and 0 & M costs
of j nterconnecti ons. In addi ti on, Idaho Power Company
personnel, at my request, have conducted a survey of the
practices of the eleven other major electric utjlit'ies in the
Pacific Northwest and the West. The results of the survey can
be summarized as:
o All of these utiljties charge the CSPP for the
cap'ita1 costs of j nterconnecti ons.
o W'ith the sole exception of the Wash'ington Water
Power Company, al I el even uti I 'iti es charge the
Spann, Di -Recon
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CSPP for 0 & M costs.
o Five of the utilitjes charge the CSPP a monthly
percentage 0 & M rate. In four of these cases,
the rate 'is virtually identical to the rate Idaho
Power Company has proposed 'in thjs proceeding.
o Fjve of the utilities charge the CSPP actual
0 & M costs. These utilities have a much smaller
number of CSPP contracts than the utilities which
charge a percentage rate s'imilar to that proposed
by Idaho Power Company 'in thjs proceeding.
t,lhy do you state that much of Dr. Reading's testimony
regard'ing PURPA and average versus incremental costs is simply
an imelevant smoke screen?
Because Dr. Reading 'is attempting to divert attentjon from the
real issue by portraying the dispute jn theoretical terms,
i.e., average cost versus jncrementa'l cost. The jssue in this
proceeding is not average costs versus incremental costs. The
sole issue raised in Dr. Read'ing's testimony is whether or not
A & G costs should be included in the charges to CSPPs for
interconnection equipment. Idaho Power Company includes these
costs. Dr. Read'ing makes them disappear.
How does Dr. Reading's calculation of a monthly 0 & M charge
of 0.5 percent of jnterconnect'ion capital investment differ
from Idaho Power Company's proposed 0.7 percent monthly
charge?
Spann, D'i -Recon
Idaho Power Company
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A The sole difference js the treatment of A & G expenses. Idaho
Power Company divides 0 & M expenses'including A & G expenses
by distribut'ion plant to obtain the proposed .7 percent per
month charge. Dr. Readjng ef imjnates A & G expenses from the
cal cul at i on .
Both Idaho Power and Dr. Reading are trying to est'imate
the incremental annual 0 & M expenses which are jncurred by
Idaho Power Company when Idaho Power Company is jnterconnected
to a CSPP. Both Idaho Power and Dr. Reading estimate these
incremental costs by establishing the ratjo of expenses in
certa j n FERC accounts to ex'ist'ing 'investment.
Is 'it standard practice in the uti'lity industry to include
A & G costs in the calculation of incremental costs?
Yes. In calculat'ing avojded or incremental costs, utility
analysts would not ask the question 'what specific costs are
avojded when a specific one or two Mw CSPP connects to the
utility system?' Rather, they use a general relationship
between costs and load to calculate the costs that would be
avojded by the typical QF. Th'is would generally include A & G
costs.
The exact same reasoning applies to 'interconnection
costs. A utifity wjth more jnterconnections, and greater
jnvestment 'in interconnectjons would generally have higher
A & G costs than a uti l i ty wi th fewerinterconnecti ons and
less investment'in interconnections.
Spann, Di -Recon
idaho Power Company
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a Are A & G expenses included in the jncremental cost
calculations used to set the avoided cost rates that Idaho
Power Company pays to CSPPs for the purchase of power from
CSPPs?
Yes, they are.
IfA & G expenses are jncluded in the avoided costs rates that
Idaho Power Company pays to CSPPs, should they also be
jncluded'in the interconnectjon costs Idaho Power Company
charges CSPPs?
Yes. The same iogic appl ies jn both sjtuatjons. If Idaho
Power avojds A & G expenses when jt avo'ids investing in a
power plant due to the purchase of power from a CSPP,
obviously Idaho Power's A & G expenses increase when Idaho
Power increases its investment in distributjon plant in order
to interconnect a CSPP.
As such, if A & G costs are 'included jn the avoided
costs rates CSPPs are paid, they should be'included in the
interconnectjon costs that CSPPs pay Idaho Power.
If A & G costs are not included in the interconnection costs
that CSPPS pay to Idaho Power, should they be included in the
avoided cost rates that Idaho Power pays to CSPPs?
Clearly not. Dr. Reading's logic js that A & G costs are
fixed. If they are fixed and don't vary with output, they are
not avojded when CSPPs supply power to Idaho Power Company.
Thus under Dr. Reading's approach, A & G costs would be
115 Spann, D'i -Recon
Idaho Power Company
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excluded from the calculation of avoided costs and excluded
from the rates paid CSPPs.
Does Dr. Reading present any data or analysis to support his
claim that Idaho Power's A & G costs are unaffected by
'interconnecti ng wi th CSPPs?
No. He simply makes this statement 'in order to reduce the
rates CSPPs must pay Idaho Power. His testimony does not
conta'in any data or analys'is whjch even remotely supports this
assumption.
Have you rev'iewed Exhibit 705 attached to the prefiled direct
test'imony of Independent Energy Producers' wjtness Peseau in
Case No. iPC-E-89-11?
Yes, I have. The analysis contained in that exh'ib'it indicates
that A & G expenses should beincluded in the rates CSPPs pay
Idaho Power Company folinterconnectjon costs. As such, the
analysis that Dr. Peseau presented in that Docket directly
contradicts Dr. Reading's test'imony in this case. For the
conven'ience of the parties, I have attached a copy of
Dr. Peseau's Exhibit 705.
Please explain why Independent Energy Producers' witness
Peseau's analysis jn Case No. IPC-E-89-ll d'irectly contradicts
Dr. Reading's testimony jn thjs proceeding.
Dr. Read'ing has testjfied that when a ut'i1ity increases its
distrjbutjon plant due to jnterconnecting a CSPP, there is no
increase jn the uti'lity's A & G expenses. Dr. Peseau's
Spann, Di -Recon
Idaho Power Company
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analys'is shows that thjs assertion by Dr. Readjng simply isn't
true.
In Case No. IPC-E-89-11, Dr. Peseau testified that:
"I have examjned the relationship between
A & G expenses and general plant withgenerated and purchased power and wjthproduction. transm'ission and distribut'ionplant using regression analysis. ...The
purpose of the analysis was to determjne
the extent to which additional 'investment
i n oroduct i on tran smi s s i on and
di stri butjon ol ant and additional power
purchases were assocj ated wi th greater
levels of A & G expenses and general plantjnvestment" IPeseau Direct, p. 34, l'ine 20
through p. 35, l'ine 12, emphasis addedl.
Dr. Peseau's Exhibit 705 shows that an increase 'in plant
'investment, regardless of whether jt js production,
distribut'ion or transm'ission plant increases A & G expenses.
Do other utilit'ies charge CSPPs for interconnection 0 & M
costs?
Yes. As I previously test'ified, except for tlashington Water
Power, all eleven utiljt'ies we contacted charge CSPPs for
interconnection 0 & M costs.
Are the rates charged CSPPs for jnterconnectjon 0 & M costs
sjmjlar to those proposed by Idaho Power?
Yes. Five of the utjlit'ies we surveyed follow the same
genera'l procedure for charging interconnection 0 & M costs as
does Idaho Power. All but one of the five utjljties charge
for distribution 0 & l'l at a rate that is roughly .7 percent of
interconnection capital investment per month. This is
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virtually ident'ical to the rate proposed by Idaho Power. All
but one of these utilitjes charge an 0 & M rate for
transmission level interconnections that is between .34 and .5
percent of interconnection capital investment per month. This
is virtually ident'ica1 to the rate proposed by Idaho Power.
The other five utiljties charge CSPPs actual 0 & l,|
costs. As a genera'l rule, these utjlities have only a small
number of CSPP contracts--many fewer CSPP contracts than do
e'ither Idaho Power or the other utiljties whjch charge 0 & l'|
on a percentage basis.
Have you prepared an exhibit that summarizes the results of
your survey?
Yes, that exhjbit js attached to my test'imony as Exhjbit 3.
Does th'is conclude your rebuttal testimony?
Yes, it does.
Spann, Dj -Recon
Idaho Power Company118 1l
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HEDRICK COURT REPORTTNG
P.O. Box 578, Boise, ID 8370L
SPANN (X)
Idaho Power Co.
(The following proceedings trere had in
open hearing. )
COMI,IISSIONER NELSON: And we,II go immediately
to Mr. Richardson.
Ir[R. RfCHARDSON: Thank your Mr. Chairman.
CROSS-EXAMINATION
BY UR. RICHARDSON:
a Good morning, Dr. Spann.
A Good morning, !Ir. Richardson.
a In your testimony at, in your prefiled
testimony at, Page 8
A Page 8?
a Page 8 -- beginning at the top of the page,
Line L, you state that A&G expenses are included in the
calculation of the avoided cost rates that Idaho Power pays
to independent power producersi correct?
A Yes.
a You then state that if A&G costs are included
in the avoided cost rates, then they should also be included
in the interconnection costs; correct?
A Yes.
a You suggest that because Idaho Power avoids
A&G expenses when it avoids construction of its own
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generation plant, then it must also follow that Idaho
Power's A&G expenses increase when Idaho Power increases its
investment in distribution plant in order to interconnect an
independent power producer; is that, a fair characterization
of your testimony?
A Yes.
a You conclude that if A&c costs are included in
the avoided cost rates, then they should also be included in
the interconnection o&M costs that independent power
producers pay Idaho Power; correct?
A Correct.
O Now, have you calculated what those A&G costs
arei that is, do you know what the A&G costs of
interconnection are?
A WeII, I have not made a calculation of them.
That calculation was made by Idaho Power Company using
basically the standard procedures one would use in an
incremental cost study.
O When rtere those figures calculated by Idaho
Power Company?
A I wouldn't have that knowledge. I wasn't
involved in those calculations.
O Are those calculations a part of the record in
this proceeding?
A I'd have to defer to counsel. That's a legal
. l_20
HEDRICK COURT REPORTING
P.O. Box 578, Boise, ID 8370L
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Idaho Power Co.
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issue.
a They're not in your testimony, are they,
Dr. Spann?
l[R. KLINE: They would be the material that
was filed in the production requests that Dr. Reading relied
on as well.
a BY MR. RICHARDSON: They're not in your
testimony, are they, Dr. Spann?
A NO.
O So you don,t realIy know what level of A&G
costs are associated with interconnection o&M, do you?
A WeII, it depends on what your question is. If
your question is could I go out and look at each
interconnect and determine what A&G costs were or were not
incurred, the answer is no, just like if you looked at any
individual QF and said what A&G costs were avoided when you
connect a l-00 kilowatt or one megawatt, QF, no; however, oD
the other hand, what is normally done in incremental cost
studies is you look at some overall average level of A&G
costs relative to investment or some other basis and use
that as a proxy, just like in the case of the avoided cost
rates. Those are the A&G costs in the avoided cost rates
and a similar concept applies on both sides of the
equation. If you're including A&G costs in the avoided cost
rates, they ought to be included in the interconnect rates.
L2L
HEDRICK COURT REPORTING
P.O. Box 578, Boise, ID 8370L
SPANN (X)
Idaho Power Co.
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a You reviewed the record in the -l-l- case, I
Presume.
A Not the entire recordr Do. AIso what is
the I'm not famili-ar with the shorthand -- what is the
-l-L case?
a Idaho Public Utilities Case IPC-E-90-l-l- from
which you quoted Dr. Peseau.
I{R. KLINE: 89-l-l-.
MR. RICHARDSON: Excuse me, pardon me, 89-LL.
I,m not familiar with it either.
THE WITNESS: I have not reviewed the entire
record of that case, although I have reviewed some of the
testimony in that case.
A BY MR. RICHARDSON: Did you review the
testimony in that case dealing with the issue of A&G costs?
A I reviewed Dr. Willnorth's testimony on that
issue as well as Dr. Peseau's testimony.
A And do you recall Dr. Willmorth testifying on
that issue that Idaho Power has not calculated what the A&G
costs are that are associated with QF interconnections?
A What I recaIl his testimony beingr is that you
could make an argument that you should reduce the rates QFs
are paid slightly below avoided cost to take account of the
fact that when Idaho Power purchases from a QF, it incurs
certain expenses it would not incur if it generated power on
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HEDRICK COURT REPORTING
P.O. Box 578, Boise, ID 8370L
SPANN (x)
fdaho Power Co.
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its own. It has to administer the contract and everything
else. They did not do that which, in effect, gTives the QF a
break.
A So you are testifying that Idaho Power has not
calculated what those costs are; correct?
A No, what they've done is actually given
probably a slight break to the QFs by not making a reduction
in the avoided cost rate to take account of the A&G costs
that they incur to administer the conLract and all of the
other costs associated with that purchase.
a You said no to the answer to my question. Do
you really mean to say yes when I asked you that Idaho Power
has not calculated what the A&G cost,s are associated with
the interconnection of QFs?
A Okay, weII, Iet's distinguish carefully what
we mean by interconnection. There are two different A&c
cost issues and it's important to keep them separate because
Dr. Reading has meshed them together in a way that's fairly
inaccurate. one A&G issue is that when Idaho Power
purchases from a QF, there are certain A&G costs it incurs.
It has to administer the contract and everything e1se. That
was an issue potentially in the 89-l-l- case and it's not an
issue here. That's not what we're talking about here.
What we're talking about here is a completely
separate A&G issue. That issue is when Idaho Power Company
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HEDRICK COURT REPORTING
P.O. Box 578, Boise, ID 83701
SPANN (x)
Idaho Power Co.
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goes out and builds additional distribution line or builds
additional transmission line to physically hook the QF up to
Idaho Power's system, do its A&G costs go up. That's the
issue we're talking about here, which j-s a different issue
than what you asked me about Dr. Willmorth's testimony in
the 89-11- case.
a On Page 9 of your testimony, you were asked a
question relating to whether Dr. Reading had made any
calculations to support his conclusion that A&G costs should
be removed from interconnection costs; correct?
A I'm asked that question, y€s.
a And you eonclude that Dr. Reading had not done
the necessary homework to support hj-s conclusion that A&G
should be excluded from interconnection costsi correct?
A Yeah, all he does in his testimony is say A&G
costs are fixed; therefore, I eliminate them.
a WelI, let me ask you the same question,
Dr. Spann: Have you prepared any data or conducted any
analysis to support your proposal to include L00 percent of
the A&G costs associated with interconnection O&M in the
interconnection expense?
A Yes.
A Where is that, Dr. Spann?
A WeIl, Iet me answer your question. First of
aI1, I revierlred the avoided cost tarif f s and what is in
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those tariffs, because in one sense, we can approach this on
two levels. We can get in long and involved theoretical
debates about whether such and such an expense changes when
you add a one megawatt QF. That's one way of approaching it
and, frankly, I don't think really the right way to approach
ir.
The right way to approach it is from a little
bit of just common sense and common business practice, and
that is to sdy, 1et's look at the entire picture. On the
side of the equation where Idaho Power Company is paying the
QF where we make an avoided cost calculation or incremental
cost calculation, we assume that avoiding investment avoids
A&c or that if Idaho Power Company had to build more
production and transmission plant, it would incur more A&G
costs; so if we're going to say that on the side of the
Iedger when the Company is paying the QF, just consistency
and common sense means you ought to recognize that when
Idaho Power Company builds more distribution plant to
physically hook up the QF, its A&G costs go up, because if
you just look at this case, stepping back from aII sorts of
theoretical arguments and things I refer to as smoke screens
and just look at the common sense, here's what Dr. Reading
is saying.
He,s saying if Idaho Power Company has to go
out and build several hundred feet of distribution line to
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hook up a QF plant, nothing happens to its A&G costsi so
let's ignore them; however, if you look at what happens on
the side of the equation where the QF is paid for energy,
yourre assuming that if Idaho Power company didn't buy this
QF energy and went out and built a power plant and the
associated transmission line to get it into its service
territory, it would incur A&G cosLs. Wellr oD a common
sense level, you can't have it both ways. You can't say
that when Idaho Power Company builds plant it incurs A&G
costs, but then, wait a minute, if it's building plant for a
QF, there are no A&G costs. It just doesn't make sense.
O You referred earlier in your answer to
theoretical foundations as smoke and mirrors.
A No, I referred to Dr. Reading's testimony as
smoke and mirrors.
A Oh. Now, your testimony, though, is based
upon your common sense understanding of how QFs interconnect
in the setting of avoided cost rates. ft's not based upon
an actual incremental study of what A&G costs are incurred
by Idaho Power Company when they interconnect a QF; correct?
A No, but if you look at the way A&G costs are
quite often included in incremental cost studies, quite
often you would do exactly what Idaho Power Company has
done. You would look at the existing ratio of A&G or O&M
expenses to pIant. If then the incremental plant is fairly
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similar to the existing plant, you would use that ratio,
i.e., a percentage, multiplied by the cost of the
incremental plant to estimate the o&M or A&G. It's exactly
what Dr. Reading did. The only difference between
Dr. Reading and Idaho Power is that he pulls one component
out. That's the only difference.
A Assuming that the two new kinds of plant are
similar?
A YES.
A You mean utility-built plant and CSPP-acquired
energy?
A No, that's not the comparison in this ease,
and this is another place where Dr. Reading just is really
distorting the facts. This case has nothing to do about the
A&G that Idaho Power incurs when it purchases QF resources,
nothing to do with that. What this case has to do with is
what happens to Idaho Power's A&G plant when they have to
increase the size of their distribution system or the size
of their transmission system to bring the QF power to their
load center.
a Let's get back to my original question in this
dialogue. Have you prepared an incremental study showing
what those A&G costs are when Idaho Power interconnects with
A QF?
A I have not prepared such a study --
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a Thank you.
A -- but what I have said is that what Idaho
Power has done is what you would do if you were estimating
an incremental cost study on this issue.
a Has anyone in this case prepared such a study,
Dr. Spann, to your knowledge?
A No one has done a specific study of what A&G
costs are avoided. What one has done is just like what was
done in the settingr of the avoided cost rates is look at the
ratio of A&G expenses to plant or existing A&G expenses for
purposes of setting the rate.
a Hasn,t the Company included l-OO percent of the
A&G costs that are allocated?
A Yes, just like in the case of the surrogate
avoided resource, it includes J-00 percent of the A&G costs
that they're bilIed by Sierra Pacific.
A And Dr. Reading has included zero percent;
correct?
A Yeah.
a And you've included J-00 percent?
A The Company has included 100 percent.
A And you,re support,ing that in your testimony;
correct?
A That is correct, just like 1-00 percent of the
A&G costs Idaho Power Company is bi1led on Valmy were in the
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cost of the surrogate avoided resource.
O Now, you rely on Dr. Peseau's presentation in,
if I may use the shorthand, the -Ll- case
A Yes.
O -- for your conclusion that A&G costs ought to
be included in the interconnection o&M costs; correct?
A Yes, because A&G varies with the leve1 of
production, transmission and distribution plant.
a I assume you've read his testimony in the -l-l-
case.
A Yes.
a And do you have a copy of it with you?
A Yes.
A Do you have a copy -- strike that. Do you
reeall if pr. Peseau in his testimony in the -LL case ever
discussed what the proper leve1 of interconnection O&M costs
should be?
A No, but what he did do
a You do not recall or he did not do that?
A Let me explain what he did. What he did is he
talked about the relationship between A&G expenses and
production, transmission and distribution plant. That's
what he did.
O And do you recall if he ever once in that
testimony discussed what the proper level of interconnection
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O&M costs should be?
A No, he did not, but his testimony shows that
A&G expenses change when distribution plant changes.
Dr. Reading says they don't change at all.
A And do you recaIl if Or. Peseau in that
testimony ever once discussed whether A&G expenses are
properly charged against QFs as part of their
interconnection o&M costs?
A That case didn't deal with interconnection,
but as directly quoting Dr. Peseau's testimony, he t'ras
attempting to determine the extent to which additional
investment in production, transmission and distribution
plant were associated with greater leve1s of A&G expenses,
and what Dr. Peseau found and what his statistical
regression show, when Idaho Power Company has more or when a
ut,ility on average has more production, transmission and
distribution plant, its A&G expenses are higher.
Dr. Reading is saying increasing the utility's transmission
and distribution plant has no impact on A&G expenses. Those
two things directly contradict each other.
A But you would agree that the issue of
interconnection costs was never raised in that case or at
Ieast in the portion of that case that Dr. Peseau addressed?
A That is correct, but interconnection costs are
increased transmission and distribution plant and
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Dr. Peseau's testimony clearly states at Pages 34 and 35
that increases in transmission and distribution plant
increase A&G expenses. Dr. Reading says that isn't true.
MR. RICHARDSON: Mr. Chairman, dt this point I
would like your indulgence to offer as Exhibit tto. 604 of
the Independent Energy Producers of Idaho the complete
portion of Dr. Peseau's testimony dealing with A&G costs.
Dr. Spann is quoting liberaIIy from his testimony. I
understand that the Commission can take official notice of
it. I have copies here that are from his testimony. I
think it would make matters much more convenient for all if
we had it available to peruse.
COMMISSIONER NELSON: You would like to
introduce a portion of his testimony?
MR. RICHARDSON: I'd like marked for
identification purposes Exhibit 604, which is that portion
of Dr. Peseau's testimony dealing with this issue. It is
not the complete testimony or anything like that. It's
26 pages long, 27 pages long.
MR. KLINE: f certainly wouldn't have any
objection if he wants to distribute copies for us to look
at. I'm not sure that it's necessary to introduce them as
an exhibit.
MR. RICHARDSON: My understanding of the
Commission's rules is that objections to exhibits are
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reserved for the conclusion of the hearing.
UR. KLINE: Fine.
MR. RICHARDSON: The notation at the bottom of
the page what is premarked as Page 30 in handwritten
notation says rrTR L87rrr that's the transsript reference.
(Independent Energy Producers of Idaho
Exhibit No. 604 was marked for identification. )
a BY MR. RICHARDSON: Dr. Spann, dt Page 9,
Line l-5 of your prefiled testimony, you state, rrAs such, the
analysis that Dr. Peseau presented in that docket directly
contradicts Dr. Reading's testimony in this case. For the
convenience of the parties, I have attached a copy of
Dr. Peseau's Exhibit 705. tt
When you used the phrase, rrthe analysis, tt are
you referring to the analysis found just on Exhibit 705 or
are you also referring to the analysis contained in the
narrative of Dr. Peseau's prefiled testimony in that case?
A I am referring to the regression equation in
Exhibit 705 and Dr. Peseau's description of what the
variables are and what they mean.
a So you're referring not just to Exhibit 7O5,
but to understand that exhibit, we must see Dr. Peseau's
prefiled testimony in that case; correct?
A Wel1r you can also look at the quote I have on
Page L0.
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a Isn't that quote on Page l-0 from Dr. Peseau's
prefiled testimony in that case?
A Yes.
A So you've got to look at them both, don't you,
to understand what Exhibit 705 means?
A I had to read the testimony to know what the
variables were in Exhibit 705, of course.
a And Dr. Peseau, again on Exhibit 705, never
discusses interconnection costs, does he?
A He discusses transmission and distribution
investment, which are the accounts to which the interconnect
investment would be booked.
a Do you know if Or. Peseau filed other exhibits
in that testimony, in that docket, dealing with A&G
expenses?
A I believe he may have.
a Do you know if any of those other exhibits
discussed interconnection costs?
A Not to my knowledge.
a Is it your testimony that Dr. Peseau would
concur with your statement at Page 9, Line 13, that I moved
to strike earlier today?
A I certainly hope he wouId, because that's what
his regression says is that increased transmission and
distribution investment, which is what an interconnection
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HEDRICK COI]RT REPORTTNG
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cost is, increases A&G expenses.
a You said you hoped he would. I assume that
means you did not actually diseuss this with him, did you?
A No, I didn,t discuss it with him because the
statements in his testimony and his regression are clear.
He says that increased transmission and distribution
investment increases A&G expenses.
A Were you present at the hearings at which
Dr. Peseau testified and presented his testimony?
A No, I hras not.
a Didn,t Dr. Peseau testify that there are A&c
costs that have not been captured in the calculation of the
SAR avoided cost rates?
It{R. KLINE: Objection. f Lhink werre going
way far afield from the Peseau testimony discussing A&G
that,s relevant to this proceeding.
MR. RICHARDSON: Mr. Chairman, this is
directly on point to what this witness is addressing in his
testimony. He's attempting to te1l you what Dr. Peseau
said --
COMMISSIONER NELSON: Do you have a place in
your exhibit that you can point to where Dr. Peseau says
this? Otherwise, if you're quoting him, I think we,re
outside the scope of your exhibit here.
MR. RICHARDSON: I didn,t hear what, you said.
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COMMISSIONER NELSON: It sounds like you,re
quoting Dr. Peseau. It sounds like unless it's in here,
you're outside the scope of your exhibit.
I{R. RICHARDSON: It is in there,
Mr. Chairman. If you grive me a moment, I can find it for
you.
COM},IISSIONER NELSON: All right.
Ir{R. RICHARDSON: Beginning on Page 35 of
Dr. Peseau's prefiled testimony, Line 20, through Page 36,
Line 20, if you'd take a moment to review that testimony,
then I'11 proceed with my question.
COMMISSIONER NELSON: I think we,re ready.
MR. RICHARDSON: I'1I repeat the question.
a BY Ir{R. RICHARDSON: Dr. Spann, didnrt
Dr. Peseau testify in the -l-l- case that there are A&G costs
that have not been captured in the calculation of the SAR
avoided cost rate?
A That was Dr. Peseau's testimony and then there
!{as subsequent rebuttal testimony by Dr. Willmorth pointing
out where the A&G expenses associated with the SAR were
booked.
a You quote Dr. Peseau in your direct testimony
to support your position here; correct?
A I look at his regression and the implications
of his regression, yes.
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a And you quoted him and you said that that
testimony directly contradicts Dr. Reading; correct?
A Yes, it does.
A Okay, and he said in his testimony that there
are A&G costs that aren't captured in the avoided cost rate;
correct?
A You have correctly stated what is in his
testimony.
a And didnrt he also testify that the actual or
true avoided cost rate should be increased to capture those
lost, if you will, A&G costs?
A That was his testimony and there was also
subsequent rebuttal testimony on the part of the Company
pointing out the problems with where the A&G costs are
actually booked given that the SAR is based upon a plant
which fdaho Power jointly owns with another utility.
a You state at Page 10, Line 18 of your
testimony, that Dr. Peseau's exhibit shows that an increase
in plant investment increases A&G costs; correct?
A Yes.
a And Dr. Peseaurs testimony also shows that,
according to Dr. Peseau, that, the avoided cost rates that
the Commission ultimately approved in that case were
understated by a significant amount; correct?
A Could you give me a reference?
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A Yes, if you would refer to Dr. Peseaurs
exhibit numbered 7O7, it wilJ. give a comparison of what the
avoided cost rates were with and without A&G costs.
A That is his Exhibit 7o7, but I might add that
there was subsequent rebuttal testimony of Dr. Willmorth
that where the issue is there is because fdaho Power Company
is not the operator of Valmy, Sierra Pacifi-c is, the A&G
expenses instead of being booked by Idaho Power Company in
its A&G accounts are booked by Sierra Pacific in its A&G
accounts. Sierra Pacific then sends Idaho Power Company a
bill for operating expenses that includes A&c, which are
then booked in steam production expenses, and I think the
quote in Dr. Willmorth,s testimony that may have also been
in the Commission order is just because an account does not
have A&G expenses in its name does not mean that A&G
expenses are not booked there.
a So you,re not endorsing that part of
Dr. Peseau's testimony in which he asserts that the avoided
cost rates are understated, are you?
A No, I am not.
O And the Comurission disagreed with Dr. peseau,
didn't it?
A Yes.
a It wrote against Dr. Peseau by saying the
evidence was inconclusive; correct?
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HEDRTCK COURT REPORTING
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A Let me get my copy of the order to check,
because when Dr. Reading read the order before, he really
Ieft out the middle of a sentence.
a Page 30, Order 23357.
A Yes. Let me read the complete two sentences
putting in the key phrase that Dr. Reading neglected not to
read. rrAlthough the evidence is insufficient to fully
resolve this issue, we find the combination of the IPCo and
Staff arguments persuasive; therefore, A&G expenses not
included in SAR direct expenses are not to be considered as
avoidable costs in determining QF rates.tt
O So the Commission concluded that to the extent
these costs are not included in avoided cost rates, they
should not be considered avoidablei correct?
A No. First of aII, the order, obviously,
speaks for itself. The Commission found the combination of
the Idaho Power Company and the Staff arguments persuasive.
That's the phrase that Dr. Reading neglected to read.
a Why don't you read the first part of the
sentence as well, Dt. Spann.
A I did. I read the complete sentence.
ItAlthough the evidence is insufficient to fully resolve this
issue, w€ find the combination of the IPCo and Staff
argruments persuasive.rt That's the entire sentence.
a Correct.
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Idaho Power Co.
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A Now, one of the IPCo argiuments which was
contained in Dr. Willmorth's testimony, which I repeated
earlier, is that Idaho Power Company with regard to
production plant is in a slightly different situation than
most other utilities in this regTion. Idaho Power Company
owns primarily a hydro system. The thermal plants which
Idaho Power Company owns are all plants in which it jointly
owns with another utility for which another utility is the
operator of the planti so things like the cost of
supervising the staff there and everything else don't show
up on Idaho Power Company's books. They show up in the case
of the SAR, which is based on Valmy, on Sierra Pacific's
books. Sierra Pacific then sends Idaho Power Company a bill
and that was one of the Idaho Power Company arguments in
that case.
a Under your theory, the cost is not included in
the avoided cost rate and if the cost is not avoidable, then
they shouldn't be included in the interconnection O&M costs;
correct?
A WeII, there are two assumptions in that
statement that you want to separate. My point j-s since you
inctude A&G cost in the avoided cost rates that QFs are
paid, they ought to be included in calculating the o&M
expenses associated with interconnect costs. There ought to
be consistency on both sides of the equation.
1_39
HEDRICK COURT REPORTING
P.O. Box 578, Boise, ID 83701-
SPANN (x)
Idaho Power Co.
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a Is that a yes, Dr. Spann? Let me restate the
question. If costs are not included in avoided cost rates
and if they are not avoidable, then under your theory, they
should not be included in the interconnection O&M costs; is
that correct?
A That would be correct.
a Changing subjects a bit, Mr. Chairman,
referring to your Exhibit 1o3, your survey --
A Yes.
a -- did you conduct the survey?
l{R. KLINE: I think itrs just Exhibit 3.
l[R. RICIIARDSON: Pardon me, Exhibit 3.
a BY I[R. RICHARDSON: Did you conduct this
survey?
A I did not personally conduct it. Actually I
had John Ferree at Idaho Power Company contact these other
utilities for me.
A Were there any workpapers generated as a
result of this survey?
A There would have been a table very similar to
this that was sent to me.
a Were there any workpapers associated with the
production of that table?
A Not on my part.
a No on your part. Do you know if the
l_40
HEDRICK COURT REPORTING
P.O. Box 578, Boise, ID 83701-
SPANN (x)
Idaho Power Co.
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Commission has required all the parties to this case to file
their workpapers with their testimony and exhibits?
A f have no knowledge of whether that,s correct
or incorrect.
A l-etrs talk about the survey for a moment. You
state that five of the utilities fo1low the same general
procedures as Idaho Power does; correct?
A Yes.
a You also state that all but one of those five
utilities charges a rate that's roughly equivalent to Idaho
Power's charge; correct?
A Yeah.
a It,s true, though, isn,t it, that all of those
five utilities charge a rate that's less than Idaho Power,s
rate?
A Rounding to one decimal place, it,s the same.
I mean, you're right, .68 percent is less than .7 percent.
a So they aII charge less than Idaho Power? Do
any of them charge .7 percent, Dr. Spann?
A No, they're all slightly less.
a What would Idaho Power,s rate be if it were
rounded to an equivalent decimal point as the others?
A I honestly don't know.
a Would you accept, subject to check, that it
would be 6.55 6.55, pardon me?
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P.O. Box 578, Boise, ID 83701-
SPANN (X)
Idaho Power Co.
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A I will accept that, subject to check. I just
don't know for a fact myself.
a Now, we've got five on your survey that using
a system roughly simj-Iar to Idaho Potrer's system, four on
your survey use actual numbers, don't they?
A Four on the survey do. They tend to be
utilities that have a much smaller number of QF contracts
than Idaho Pohler does.
a And Idaho Power's position is that it opposes
use of an actual figure; correct?
A That is my understanding.
A So about half of the surveyed utilities use a
system that Idaho Power opposes and about half use a system
that you agree with?
A That's one way of characterizing it. Another
way of characterizing it is that most of the utilit,ies which
have a substantial number of QF contracts, which is how I'd
characterize Idaho Power, use the system Idaho Power Company
is proposing. The utilities that use actuals tend to be
utilities that have a smaller number of QF contracts. I
think that would be a more accurate characterization.
a The column on your survey, the right-hand
column, number of projects
A Yes.
A -- do you mean number of contracts or what
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HEDRICK COURT REPORTING
P.O. Box 578, Boise, ID 83701-
SPANN (x)
Idaho Power Co.
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HEDRICK COURT REPORTING
P.O. Box 578, Boise, ID 83701-
SPANN (X)
Idaho Power Co.
does that mean?
A That would mean the number of QFs that they
are buying power from.
O Pursuant to what sort of arrangement, do you
know?
A It would be pursuant either to a contract or a
standard tariff.
a Do you know for the utilities operating in the
Idaho jurisdiction what they are? Are they standard
tariffs? Are they contracts?
A I wouldn't know for each one.
a For each one, meaning --
A For the ones in the Idaho jurisdiction and you
could have situations where while the purchase is pursuant
to the standard tariff, there is also a contract.
a What's meant on your survey by the line under
Washington Water Power ttCapital Costs Onlytt?
A What that means is that Washington Water Power
does not charge O&M expenses on the interconnection.
a None?
A That is correct.
O Number of projects I see on your Washington
Water Power line is Ll-.
A Yes.
a Do you know whether or not any of those are
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pursuant to contract?
A I would presume most, if not all, there is a
contract that has been signed. That would be my assumption.
a Do you know whether or not this Commission
approves those contracts as containing reasonable terms?
A I would presume that the ones in Idaho or that
could affect Idaho rates would either be approved by this
Commission or, if not, could be subject to review for
prudence in rate cases.
MR. RICHARDSON: Thank you, Dr. Spann. Thank
your Mr. Chairman.
COMI,IISSIONER NELSON: Thank you,
Mr. Richardson. How much cross do you anticipate,
Mr. Woodbury?
l[R. WOODBI]RY: None.
COMMISSIONER NELSON: None?
I[R. WOODBIIRY: Everything has been asked.
COMMISSIONER NELSON: Questions from the
Commission. Commissioner MiIIer.
COMMISSIONER IVTILLER: Would you have any
interest in changing the subject to lunch?
COMIT{ISSIONER NELSON: If you would like to
wait, that would be fine with me. In that case, we will
recess for lunch. We will take up again at l-:30.
(Noon recess. )
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P.O. Box 578, Boise, ID 83701-
SPANN (x)
fdaho Power Co.
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HEDRICK COURT REPORTTNG
P.O. Box 578, Boise, ID 8370L
APPEARANCES
For the Staff:SCOTT WOODBURY, Esq.
Deputy Attorney General
472 West WashingtonBoise, Idaho 83720
For Idaho Power
Company:
EVANS, KEANE, KOONTZ, BOYD
SIUKO & RIPLEYby BARTON L. KLINE, Esq.
Idaho First Plaza-Suite LTOL
LOL south Capitol BoulevardBoise, Idaho a37O2
For the Independent
Energy Producersof Idaho:
DAVIS I{RIGHT TREMAINE
by PETER J. RICHARDSON, Esq.
702 West Idaho Street-Suite 700Boise, Idaho 83702
APPEARANCES
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