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Q. Please state your name and business address for
the record.
A. My name is David Schunke and my business
address is 472 West Washington Street, Boise, Idaho.
Q. By whom are you employed and in what capacity?
A. I am employed by the Idaho Public Utilities
Commission as a Public Utilities Engineer.
Q. What is your educational and experience
background?
A. I received my Bachelor of Science Degree in
Civil Engineering at Montana State University in 1972. I
have been licensed as a Registered Professional Engineer
in Idaho since 1977. I have worked in various
capacities, including a Cost and Materials Engineer with
Morrison Knudsen Co., Inc. and a consulting engineer with
Stevens, Thompson & Runyan (STRAAM Engineers). As a
consultant, I worked as Project Engineer on numerous
civil engineering projects in Idaho and Oregon for more
than six years.
Since joining the Commission Staff as a
Utilities Engineer in 1979, I have been continuously
involved in rate design and regulatory matters with
virtually all the water, gas and electric utilities
regulated by the Commission. I served as the Engineering
Section Supervisor from 1983 to 1991, Utilities Division
CASE NOS. IPC-E-02-2/IPC-E-02-3 SCHUNKE, D (Di) 1
4/22/02 Staff
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Deputy Administrator from 1991 through 2000 and Engineer
Manager from 2001 to present.
Q. What is the purpose of your testimony?
A. My testimony will describe the Staff proposal
for rate design in this Idaho Power Company (IPC,
Company) case. Staff recommends that all customer energy
rates, except those in the residential schedule, be
increased on a uniform cents per kWh basis. I propose a
modification to the existing three-tiered residential
rate.
Q. What is the history of Power Cost Adjustment
(PCA) cost recovery through rates?
A. Except for the residential class in 2001-2002,
PCA costs have historically been recovered on a uniform
cents per kWh basis. Last year the Commission ordered
recovery of the PCA cost for the residential class
through a three-tiered inverted block rate.
Q. What was the Commission’s basis for not
spreading the PCA increase to the Residential schedules
on a uniform cents per kWh basis last year?
A. At this time last year, water conditions were
among the lowest on record and the Company was still
purchasing power in the market at very high prices.
These conditions prompted the Company and the Commission
to implement the various buy-back programs in order to
CASE NOS. IPC-E-02-2/IPC-E-02-3 SCHUNKE, D (Di) 2
4/22/02 Staff
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avoid some of these high market purchases. Similarly,
any energy savings from conservation would also enable
the Company to avoid high priced market purchases. This
made conservation very valuable.
The Commission stated in Order No. 28722 (p.24)
that “tiered-rates provide residential customers with
appropriate price signals to conserve electricity. This
structure provides an effective and efficient means of
providing customers with incentives to conserve
electricity.”
Q. Have the water and market circumstances present
during implementation of last year’s PCA changed?
A. Yes. Market prices have returned to normal and
water conditions have improved. Inflows into Brownlee
are expected to be better than last year, although the
forecast is still only 58% of normal.
Q. With these improved conditions, do you believe
that a price signal is still needed to conserve energy?
A. Yes. Clearly conditions have improved and the
urgency of the energy crisis has abated for now.
Consequently, I am proposing a modification to the tiered
rates. However, I believe it is important to preserve
the conservation signal provided by the tiered rate
structure.
Q. Please explain why you believe it is
CASE NOS. IPC-E-02-2/IPC-E-02-3 SCHUNKE, D (Di) 3
4/22/02 Staff
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appropriate to preserve a conservation price signal?
A. These past two years have revealed just how
volatile the market can be. Tiered rates reduce the
Company’s exposure to this potentially volatile market at
a cost far below the cost of many alternate power
sources. While market prices have currently returned to
normal, hydro conditions have not.
Although the benefits of the tiered rates have
not been formally quantified, their effectiveness is
clear. Almost without exception, people testified in the
Twin Falls and Pocatello hearings that they were doing
everything they could to conserve energy. Whether they
were for or against tiered rates, customers credited them
for the “conservation signal” they were receiving. It is
Staff’s goal to preserve a reasonable signal while
reducing the cost burden on high energy users.
Q. Should the tiered rates be discontinued until
high market prices return?
A. No. I do not support discontinuance of tiered
rates because it would create an inconsistent price
signal. People make two types of decisions that affect
their energy use. Operational decisions, such as setting
the thermostat back, taking shorter showers, and turning
off the lights, can easily be reversed and have few
lasting consequences.
CASE NOS. IPC-E-02-2/IPC-E-02-3 SCHUNKE, D (Di) 4
4/22/02 Staff
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Idaho Power Customers also make purchasing
decisions every day to buy appliances, equipment and
homes with varying levels of efficiency. The efficiency
consequence of these decisions will be in place for
years. Most homes, appliances, and equipment owned by
Idaho Power customers during the recent energy crisis
were purchased prior to the crisis when energy prices
were low. Without a conservation signal, those decisions
were probably made without much consideration to
efficiency. By providing a continuous conservation
signal with tiered rates, customers are more likely to
make energy efficient purchases.
Q. How do you propose to reduce the cost burden on
high energy users?
A. I propose to continue the tiered rate structure
but to flatten the rate difference between the blocks.
This would preserve the “conservation signal” while
greatly reducing the cost to high energy users.
Currently the rate difference between the first and third
block is 2.2 cents per kWh. I propose to reduce that
difference to approximately 1 cent per kWh.
Q. Under the Staff PCA cost recovery proposal
Option No. 4, what effect would the proposed rate design
changes have on customers?
CASE NOS. IPC-E-02-2/IPC-E-02-3 SCHUNKE, D (Di) 5
4/22/02 Staff
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A. The Staff proposal for PCA cost recovery would
create an overall decrease in rates of 9.6%. With this
cost recovery option, Staff Exhibit No. 110 shows what a
customer’s bill would be under the existing rates and
under three rate options - a three-tiered rate, a two-
tiered rate and a flat rate. Staff Exhibit No. 111 shows
this same information graphically. Because the two-
tiered rate and the three-tiered rate are so close, it is
difficult to distinguish between them on the graph.
From zero usage to approximately 6000 kWh, the
difference between the proposed three-tiered rate and the
two-tiered rate is never more than three dollars.
Customers using between approximately 1200 and 6000 kWh
would pay less under the three-tiered rate than the two-
tiered rate.
Up to about 1600 kWh of usage, the proposed
three-tiered rate is less than the flat rate by up to two
dollars. While the flat rate is lower for higher usage,
it is only $20 dollars less at 4500 kWh.
Q. Have you done a similar comparison for any of
the other cost recovery options discussed by Staff
witness Hessing?
A. Yes. Staff Exhibit Nos. 112 and 113 are a
table and a graph comparing the existing rates and the
three rate options using the traditional one-year PCA
CASE NOS. IPC-E-02-2/IPC-E-02-3 SCHUNKE, D (Di) 6
4/22/02 Staff
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cost recovery Option No. 2.
Traditional rate recovery (Option No. 2) would
result in a 3.54% increase in rates overall. As seen on
Staff Exhibit Nos. 112 and 113, the two-tiered rate and
three-tiered rate are very close to one another. The
three-tiered rate is less expensive than the two-tiered
rate up to about 5000 kWh of usage.
Both tiered rate options would be slightly
higher than the existing rates up to about 3000 kWh.
Above that amount the proposed tiered rates would produce
lower bills than the existing rate.
Q. Were there other things that you considered in
making your proposal to modify the three-tiered rate
design?
A. Yes. The Commission held public meetings
throughout the Company’s service area, both last year
when the three-tiered rates were put into place and again
this year. The Commission also received many phone
calls, letters and e-mails on this subject. Although
only 4% of residential bills registered more than 3000
kWh per month, these customers were the most vocal.
I am sympathetic to customers who heat their
homes with electricity or have other reasons for using
more electricity than the average customer. I have heard
their concerns and attempted to respond by
CASE NOS. IPC-E-02-2/IPC-E-02-3 SCHUNKE, D (Di) 7
4/22/02 Staff
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proposing a modification to the existing tiered rates.
Q. What is your proposal for cost recovery from
the non-residential schedules?
A. I concur with Staff witness Hessing that all
nonresidential rate schedules be increased on a uniform
cents-per kWh basis. The commercial and industrial
schedules include a very diverse group of customers that
are fairly sophisticated. Current rates should provide
them with an adequate conservation signal without the use
of tiered rates. This issue can be analyzed further in a
general rate case.
Q. How would the Company’s proposal for a Demand-
Side Management (DSM) rider affect rates?
A. If the Commission chooses to recover the PCA
costs in a single year and approves a DSM rider, the
rates of all customers would increase uniformly by the
amount of the rider. If the Commission chooses a two-
year cost recovery period, multiple options exist. The
amount of the DSM rider could be added to the first year
rates, or additional PCA costs could be deferred to the
second year. Staff’s exhibits comparing the various rate
designs do not include the DSM rider.
Q. Does the lag between when the PCA costs are
incurred and when they are recovered cause the Staff
concern?
CASE NOS. IPC-E-02-2/IPC-E-02-3 SCHUNKE, D (Di) 8
4/22/02 Staff
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CASE NOS. IPC-E-02-2/IPC-E-02-3 SCHUNKE, D (Di) 9
4/22/02 Staff
A. Yes. When PCA costs were small, this lag was
not a particular concern. The forecast portion of the
PCA attempted to anticipate what variable power supply
costs would be in the coming year. The true-up portion
of the rate did not overshadow the total PCA and the PCA
adjustment generally reflected power supply costs.
However, the PCA costs of the last two years
have been very large and were not adequately predicted in
the forecast. The delay built into the PCA mechanism
allowed rates to remain at near base levels while market
prices soared. Now that market prices have returned to
normal, rates will remain high for at least another year
to pay off the deferred balances in the PCA.
When deferred PCA amounts grow large, the delay
in recovery becomes a problem. This lag in cost recovery
can result in sending the wrong price signal. This issue
is currently being addressed in the IPC-E-01-16 case.
Q. Does this conclude your direct testimony in
this proceeding?
A. Yes, it does.