icipbond.pdf

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A. My name is David Hawk and my business address is 999 Main Street,
Boise, Idaho.
Q. By whom are you employed and in what capacity?
A. I am employed by the J. R. Simplot Company as the Director of Natural
Resources and Energy. I have held this position for eighteen years.
Q. On whose behalf are you testifying?
A. I am testifying as the policy witness for the Industrial Customers of Idaho
Power, which are also known as the ICIP.
Q. Please describe the ICIP.
A. The ICIP is an unincorporated association of large industrial customers who take
their electric service from Idaho Power Company under that utility’s electric service Schedule
No. 19.
Q. What is the purpose of your testimony?

A. I want to make the following points for the Commission’s consideration: 1)
Express the ICIP’s support for the “securitization” through Idaho Power’s proposed bonding of
its extraordinary PCA deferrals; (2) Encourage the Commission to adopt a five year pay back
period for the securitized amount; (3) We also would like to have an option in place, for those
customers who would like the opportunity, to opt out of the securitization process and satisfy
their deferral through the annual PCA; (4) We urge the Commission to not make any
programmatic changes in this docket, or in the alternative to extend the decision making time
frame in this docket on programmatic issues; and finally, (5) We, once again, express our support
for ongoing cost recover of DSM programs, while at the same time permitting the industrial class
HAWK – DI
ICIP
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to self-direct the dollars collected from our class for DSM purposes.
Q. Why does the ICIP support securitization?

A. The ICIP supports the concept of spreading this rate increase over a period of
years. It appears that doing so through the newly authorized process of bonding is a fair and
equitable way to accomplish this goal with minimal financial impact on Idaho Power and its
ratepayers.
Q. Has the ICIP made similar recommendations in the past?
A. Yes. Although the bonding concept was only just authorized by the Idaho
Legislature, we recommended spreading extraordinary PCA deferrals over a period of years in
both of the last two PCA dockets. We recognized the truly extraordinary circumstances the
Company found itself in last year and urged the Commission to take the extraordinary step of
deferring the PCA deferrals over a period of five years. We again urge the Commission to
spread this securitized bond recovery over a five-year period.
Q. Would spreading the PCA deferral over a period of five years be beneficial to
Idaho Power’s ratepayers?
A. Absolutely. Idaho’s industry has been put at a serious competitive disadvantage
because of Idaho Power’s rate increases.
Q. Aren’t all business similarly affected?
A. No. It is important for the Commission to understand that the price effect of the
western energy crisis is only hurting companies with operations in western states. We compete
with facilities in the mid-west and Canada – as well as all over the world. Those facilities have
not had similar rate increases and they are posing a serious competitive thereat to our western
operations. I fear we may lose more industry and more jobs if a rate reduction is not
HAWK – DI
ICIP
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immediately forthcoming.
Q. Idaho Power testifies that it does not want a pay back over a period any
longer than three years. Do you have any response to their concerns about a longer pay
back period?
A. Yes. Idaho Power is concerned that there may be another unusually large PCA
increase before this one is paid off. The possibility of a pan caked PCA rate increase is not
sufficient reason to deny extending the pay back period to five years for several reasons. First,
the extreme possibility of another extraordinary rate jump exists no matter over how many years
one chooses to recover this deferral. But more importantly, pan caked rates are not necessarily a
bad thing. For instance gas, consumers have lived with pan caked interstate pipeline rates for
years. Also I understand there were pan caked rates in the electric industry in the 1980s. They
are not inherently bad. In fact, the benefits of extending the pay back and further lowering our
rates far outweigh the perceived harm from pan caked rates. We need immediate rate relief and
we need as much rate relief as possible. Industrial customers are willing to accept the risk of pan
caked rates in exchange for lower rates now.
Q. Do you have an understanding of the additional rate reduction ratepayers
would enjoy if the payback were extended to five years?
A. I have not personally done an analysis of that question, but I understand the
additional two years on the payback period would give Idaho Power’s ratepayers an overall
13.5% rate reduction rather than the 10% being proposed by Idaho Power. In addition, the
industrial class would see its rate reduction increased from 12% to 16%. This additional rate
reduction would help Idaho’s industry be more competitive and may be enough to keep some
facilities in operation. It would also signal the industry that the Commission shares our concerns
HAWK – DI
ICIP
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about the continued viability of Idaho’s industry. We must all work together to work our way
through the effects of last year’s energy crisis. The crisis took several years in coming, it might
as well take several years in going.
Q. Do you have any other comments on the pay back period?
A. Yes. The Commission itself suggested longer deferrals of PCA balances
when it issued its initial order approving the PCA mechanism in 1993. In Order No. 24806 the
Commission explicitly stated that any PCA increase in excess of seven percent would trigger an
examination of whether that PCA increase should be deferred. I believe the Commission was
wise when it expressed concern about PCA rate increase in excess of seven percent. This is not
the time to retreat from that original position. Because of the securitization process, Idaho Power
is completely indifferent on the question of the appropriate pay back period. In addition, the
ratepayers will benefit by the longer payback period with no negative influence on the power
company.
Q. Why do you want to allow some industrial customers to opt out of the
secritization and five year pay back proposal?
A. Our plant managers tell me that we need rate relief today in order to remain
competitive. However, the ICIP is a diverse group, some industrial customers may decide that
their internal rate of return or cost of money is such that they would be better off paying the PCA
deferrals in one year rather than financing it through the securitization process. That seems like
a reasonable option to give those customers. Once again, the Commission should listen to the
ratepayers. This is a very serious situation in which we find ourselves, we urge the Commission
to take all necessary and prudent actions possible to help heal the competitive wounds suffered
by Idaho industry due to these anomalous rate increases.
HAWK – DI
ICIP
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Q. What do you mean when you sate that the Commission should not make any
“programmatic” changes in the PCA in this docket?
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A. PCA proceedings move very quickly – and necessarily so. We have had only one
week in which to review Idaho Power’s filing, prepare a response, and draft testimony. Our
analysis is therefore necessarily limited to the most basic and fundamental issues surrounding the
PCA. Addressing significant and far reaching issues such as, interest accruals on PCA balances,
and the magnitude of interest on deferred balances cannot be thoroughly addressed over the
course of one week.
Q. Can you give us an example of your concerns?
A. Yes. Idaho Power seeks to impose its overall rate of return on deferral balances.
That rate of return is 9.2 percent. Right now Idaho Power recovers the same interest rate on
deferral balances as it pays on customer deposits, which is currently 4 percent. The overall rate
of return is what Idaho Power earns on ratebase, or on actual plant used to serve ratepayers.
Deferred excess power supply costs are more akin to a loan made by Idaho Power to ratepayers.
I am not sure that the power company’s overall rate of return is the proper amount to charge
ratepayers for deferred excess power supply costs. In addition, I understand that Idaho Power is
planning on filing a general rate case next year. It has been almost a decade since the company’s
last rate case. Therefore the overall rate of return number may be stale.
Q. What do you recommend the Commission do with Idaho Power’s proposed
programmatic changes to the PCA mechanism?
A. There simply isn’t enough time to thoroughly understand the issues and their
implications for these programmatic changes in the course of an expedited PCA proceeding.
Q. Does that mean the ICIP supports charging interest on deferral amounts?
HAWK – DI
ICIP
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HAWK – DI
ICIP
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A. Yes. The ICIP has always supported Idaho Power’s attempts to be made whole.
We believe charging interest on deferrals that the Commission has found to be reasonable and
prudent is fair to Idaho Power and fair to the ratepayers.
Q. What is the ICIP’s position on DSM recovery?
A. The ICIP has consistently taken the position that DSM costs should be recovered
by Idaho Power on an ongoing basis. We Support the Company in its efforts to not increase
deferrals of such costs.
Q. Does the ICIP have any concerns about DSM programs?
A. Yes. We believe the industrial class should be permitted to self-direct all funds
collected from it for DSM purposes. The administration and approval process needed for such a
venture can be minimal. We believe that the money collected from the industrial class can be
better spent by the industrial class customers themselves thereby achieving more conservation
per dollar than funneling it through other agencies.
Q. Does this conclude your testimony?
A. Yes, it does.