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Home My WebLink About20101223Vol X Technical Hearing pp 2025-2205.pdfORIGINAL e BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION IN THE MATTER OF THE APPLICATION OF PACIFICORP DBA ROCKY MOUNTAIN POWER FOR APPROVAL OF CHANGES TO ITS ELECTRIC SERVICE SCHEDULES CASE NO. PAC-E-10-07 .~. . NTECHNICAL H~~IN~-- ~.C-:.::.. 0_\L.. 14"~':~'~'. n\.\1::.,;:~'. ÑÑ HEARING BEFORE COMMISSIONER MARSHA H. SMITH (Presiding) COMMISSIONER MACK A. REDFORD COMMISSIONER JIM D. KEMPTON e PLACE:Commission Hearing Room 472 West Washington Street Boise, Idaho DATE:December 2, 2010 VOLUME X - Pages 2025 - 2205 '-i.f -11~~POST OFFICE BOX 578 BOISE. IDAHO 83701 208-336"9208 :e HEDRICK COURT REPORTING cfl1~ tk ¥ ()Hf(lIt.iit 198 . . . 17 18 19 20 21 22 23 24 25 1 APPEARANCES 2 For the Staff: 3 4 5 6 For PacifiCorp dba Rocky Mountain Power (RMP) : SCOTT WOODBURY, Esq. and NEIL PRICE, Esq. Deputy Attorneys General 472 West Washington Boise, Idaho 83702 HICKEY & EVANS, LLP by PAUL J. HICKEY, Esq. Post Office Box 467 Cheyenne, Wyoming 82003 -and- DANIEL E. SOLANDER, Esq. ROCKY MOUNTAIN POWER 201 South Main Street, Suite 2300 Salt Lake City, Utah 84111 RACINE, OLSON, NYE, BUDGE & BAILEY by RANDALL C. BUDGE, Esq. Post Office Box 1391 Pocatello, Idaho 83204-1391 RACINE, OLSON, NYE, BUDGE by ERIC L. OLSEN, Esq. Post Office Box 1391 Pocatello, Idaho 83204-1391 BENJAMIN J. OTTO, Esq. IDAHO CONSERVATION LEAGUE 710 North Sixth Street Boise, Idaho 83702 WILLIAMS BRADBURY, PC by RONALD L. WILLIAMS, Esq. 1015 West Hays Street Boise, Idaho 83702 -and- DA VI SON VAN CLEVE, PC by MELINDA J. DAVISON, Esq. 333 Southwest Taylor, Suite 400 Portland, Oregon 97204 BRAD M. PURDY, Esq. Attorney at Law 2019 North Seventeenth Street Boise, Idaho 83702 7 8 9 10 For Monsanto: 11 12 13 14 For Idaho Irrigation Pumpers Association (IIPA): 15 16 For Idaho Conservation League (ICL): For PacifiCorp Idaho Industrial Customers (PIIC): For Community Action Partnership Association of Idaho (CAPAI): HEDRICK COURT REPORTING P. O. BOX 578, BOISE, 10 83701 APPEARANCES .1 I N D E X 2 WITNESS EXAMINATION BY PAGE 3 Cecily Vaughn Mr.Woodbury (Direct)2025 4 (Staff)Prefiled Direct 2027 5 Marilyn Parker Mr.Woodbury (Direct)2046 (Staff)Prefiled Direct 2048 6 Curtis Thaden Mr.Woodbury (Direct)2068 7 (Staff)Prefiled Direct 2079 8 Beverly Barker Mr.Woodbury (Direct)2099 (Staff)Prefiled Rebuttal 2101 9 Mr.Purdy (Cross)2109 10 Lynn Anderson Mr.Woodbury (Direct)2113 (Staff)Prefiled Direct (Grayson)2115 11 Mr.Otto (Cross)2125 12 Kei th Hessing Mr.Woodbury (Direct)2127 (Staff)Prefiled Direct 2129.13 Terri Carlock Mr.Woodbury (Direct)2134 14 (Staff)Prefiled Direct 2137 Mr.Hickey (Cross)2160 15 Steven McDougal Sworn 2166 16 (RMP-Surrebuttal)Mr.Hickey (Direct)2167 Mr.Budge (Cross)2171 17 Gregory Duvall Mr.Hickey (Direct)2172 18 (RMP-Surrebuttal)Mr.Woodbury (Cross)2179 Commissioner Smith 2181 19 Darrell Gerrard Mr.Hickey ( Direct)2182 20 (RMP-Surrebuttal)Mr.Williams (Cross)2192 Mr.Woodbury (Cross)2193 21 Mr.Budge (Cross)2195 Mr.Hickey (Redirect)2196 22 23 24.25 HEDRICK COURT REPORTING P. O. BOX 578, BOISE, 10 83701 INDEX . . . 19 20 21 22 23 24 25 1 EXHIBITS 2 NUMBER For Rocky Mountain Power: PAGE 3 4 Premarked Admit 2204 Premarked Admit 2204 Premarked Admit 2204 Premarked Admit 2204 Premarked Admit 2204 Premarked Admit 2204 Premarked Admit 2204 Premarked Admit 2204 Premarked Admit 2204 Premarked Admit 2204 Premarked Admit 2204 Premarked Admit 2204 Premarked Admit 2204 Premarked Admit 2204 1 Revenue Requirement Summary, 3 pgs 5 6 2 Revenue Requirement, voluminous 7 3 Confidential 8 9 4 LGAR Calculation 10 5 Cost of Long Term Debt Summary, 3 pgs 11 12 6 Standard & Poor's Ratings Direct Rating Factors 13 7 Standard & Poor's Ratings Direct PPA Debt Imputation, 7 pgs14 15 8 PCRB Variable Rates, 3 pgs 16 9 Cost of Preferred Stock 17 18 10 Comparable Company Fundamentals 11 Capi tal Market Costs, 3 pgs 12 GOP Growth Rate 13 Discounted Cash Flow Analysis, 5 pgs 14 Risk Premium Analysis HEDRICK COURT REPORTING P. O. BOX 578, BOISE, 10 83701 EXHIBITS .1 15 Confidential Premarked Admit 2204 2 16 Confidential Premarked 3 Admit 2204 4 17 Confidential Premarked Admit 2204 5 18 Confidential Premarked 6 Admit 2204 7 19 Confidential Premarked Admit 2204 8 20 Confidential Premarked 9 Admit 2204 10 21 Confidential Premarked Admit 220411 22 Confidential Premarked 12 Admit 2204.13 23 Confidential Premarked Admit 2204 14 24 Confidential Premarked 15 Admit 2204 16 25 Confidential Premarked Admit 2204 17 26 Confidential Premarked 18 Admit 2204 19 27 Confidential Premarked Admit 2204 20 28 Confidential Premarked 21 Admit 2204 22 29 Confidential Premarked Admit 2204 23 30 Confidential Premarked 24 Admit 2204.25 31 Confidential Premarked Admit 2204 HEDRICK COURT REPORTING P. O. BOX 578, BOISE, 10 83701 EXHIBITS . . 18 19 20 21 22 23 24.25 1 Confidential32 2 33 Gateway Map Premarked Admit 2204 Premarked Admit 2204 Premarked Admit 2204 Premarked Admit 2204 Premarked Admit 2204 Premarked Admit 2204 Premarked Admit 2204 Premarked Admit 2204 Premarked Admit 2204 Premarked Admit 2204 Premarked Admit 2204 Premarked Admit 2204 Premarked Admit 2204 Premarked Admit 2204 Premarked Admit 2204 Premarked Admit 2204 Premarked Admit 2204 3 4 34 Populus to Terminal Map 5 35 DOE Congestion on Western Paths Map 6 7 36 Incentive Rate Order, 29 pgs 8 37 Populus to Terminal Cost Summary 9 10 38 Summary of Bidder Evaluations, 7 pgs 11 39 Proj ect Photos 12 13 40 Confidential 14 41 Confidential 15 16 42 Confidential 17 43 Illustration of Section 481 (a) Accounting 44 Repairs Deduction Impact, 3 pgs 45 Normalization vs Flow-Through Impact, 3 pgs 46 Normalization Impact, 4 pgs 47 Cost of Service Summary by Rate Schedule, 2 pgs 48 Cost of Service Summary by Function, 6 pgs HEDRICK COURT REPORTING P. o. BOX 578, BOISE, 10 83701 EXHIBITS . . . 1 Cost of Service Study, voluminous49 2 50 Estimated Effect of Propposed Changes 3 4 Proposed Revisions to Tariffs, Clean, 26 pgs 51 5 52 Proposed Revisions to Tariffs, Legislati ve, 31 pgs6 7 Residential Customer Service Charge53 8 54 Customer Impact of Proposed Changes, 9 pgs9 10 Billing Determinants, 6 pgs55 11 56 2008, 2009 Energy Efficiency Program Results, 4 pgs12 13 Economic Data, 3 pgs57 14 58 Updated Gorman ROE Results, 7 pgs 15 16 Discounted Cash Flow Analysis, 5 pgs59 17 60 Risk Premium Analysis, 3 pgs 18 19 Dunlap Ranch Map61 20 62 O&M Costs by Wind Facility 21 22 Average O&M Costs per Facility63 23 64 Fuel Stock Balances 24 25 65 Path C Transfer, 2 pgs Premarked Admit 2204 Premarked Admit 2204 Premarked Admit 2204 Premarked Admit 2204 Premarked Admit 2204 Premarked Admit 2204 Premarked Admit 2204 Premarked Admit 2204 Premarked Admit 2204 Premarked Admit 2204 Premarked Admit 2204 Premarked Admit 2204 Premarked Admit 2204 Premarked Admit 2204 Premarked Admit 2204 Premarked Admit 2204 Premarked Admit 2204 HEDRICK COURT REPORTING P.O. BOX 578, BO IS E , 10 83701 EXHIBITS . . 19 20 21 22 23 24.25 1 Al ternati ve Cost Options66 2 67 Foundational Proj ect Map Premarked Admit 2204 Premarked Admit 2204 Premarked Admit 2204 Premarked Admit 2204 Premarked Admit 2204 Premarked Admit 2204 Premarked Admit 2204 Premarked Admit 2204 Premarked Admit 2204 Premarked Admit 2204 Premarked Admit 2204 Premarked Admit 2204 Premarked Admit 2204 Premarked Admit 2204 Premarked Admit 2204 81 Rebuttal COS, Summary by Rate Schedule, Premarked2 pgs Admi t 2204 HEDRICK COURT REPORTING P. O. BOX 578, BOISE, 10 83701 Premarked Admit 2204 3 4 68 Example of an Engineer Goals, 5 pgs 5 69 Example of Six Employee Goals, 22 pgs 6 7 70 2009 Merit Analysis 8 71 NPC Summary 9 10 72 Black Hills Power 11 73 Black Hills Average Energy 12 13 74 Black Hills HLH 14 75 Black Hills LLH 15 16 76 Consumer Information Brochure, 2 pgs 17 77 Disconnect Notice, 2 pgs 18 78 Revenue Requirement Summary 79 Results of Operations Summary, voluminous 80 Updated LGAR Calculation, 3 pgs 82 Rebuttal COS, Summary by Function, 6 pgs EXHIBITS .1 83 IIPA Data Request 16 Premarked Admit 2204 2 84 Rebuttal Rate Spread,Rate Design and Premarked 3 Monthly Billing Comparisons,21 pgs Admit 2204 4 85 -93 Admitted 2204 5 For Staff: 6 101 Updated In-service and Costs Premarked 7 Admit 2204 8 102 Confidential Premarked Admit 2204 9 103 Confidential Premarked 10 Admit 2204 11 104 Summary of D.English Adj ustments Premarked Admit 2204 12 105 Adj ustment to Pension Expense Premarked.13 Admit 2204 14 106 Confidential Premarked Admit 2204 15 107 Affiliated MEHC Management Fees Premarked 16 Admit 2204 17 108 Idaho Revenue Requirement and Premarked Summary of Adj ustments,2 pgs Admit 2204 18 109 Comparison of Present Rate Structure,Premarked 19 3 pgs Admit 2204 20 110 Monthly Billing Comparison,Schedule 1 Premarked Admit 2204 21 111 Monthly Billing Comparison,Schedule 36 Premarked 22 Admit 2204 23 112 2006-2009 Complaints and Inquiries Premarked Admit 2204 24 113 Complaints and Inquiries by Company Premarked.25 Admit 2204 HEDRICK COURT REPORTING P. o. BOX 578, BOISE, 10 83701 EXHIBITS . . 18 19 20 21 22 23 24.25 1 11/30/09 RMP Billing Statement, 2 pgs114 2 115 2010 Demographics, 2 pgs Premarked Admit 2204 Premarked Admit 2204 Premarked Admit 2204 Premarked Admit 2204 Premarked Admit 2204 Premarked Admit 2204 Premarked Admit 2204 Premarked Admit 2204 Premarked Admit 2204 Premarked Admit 2204 Premarked Admit 2204 Premarked Admit 2204 Premarked Admit 2204 Premarked Admit 2204 Premarked Admit 2204 Premarked Admit 2204 Premarked Admit 2204 3 4 116 2010 Federal Poverty Level Guidelines 5 117 RMP Service Area Map 6 7 118 Voices 8 119 RMP Advertisement 9 10 120 Lend A Hand Envelope 11 121 9/28/10 Idaho Power Billing Statement 12 13 122 Avista Winter Payment Plan, 2 pgs 14 123 Winter Moratorium and Payment Plan 15 16 124 RMP Payment Plan Options 17 125 Voices 126 Walj e Letter to Editor 127 Homes Weatherized with RMP Funding 128 Residential Energy Efficiency Program, 2 pgs 129 I PUC Staff Cost of Service Results 130 IPUC Staff Proposal HEDRICK COURT REPORTING P. O. BOX 578, BOISE, 10 83701 EXHIBITS . . . 18 19 20 21 22 23 24 25 1311 IPUC Staff Estimated Impact of Proposed Revenues Premarked Admit 2204 Premarked Admit 2204 Admitted 2204 Premarked Admit 2204 Premarked Admit 2204 Premarked Admit 2204 Premarked Admit 2204 Premarked Admit 2204 Premarked Admit 2204 Premarked Admit 2204 Premarked Admit 2204 Premarked Admit 2204 Premarked Admit 2204 Premarked Admit 2204 Premarked Admit 2204 Premarked 2 132 PacifiCorp Pro Forma Cost of Long-Term Debt Detail, 4 pgs3 4 133 5 For Monsanto: 6 201 Schematic, Phosphorus Manufacturing Process7 8 202 Rate of Return, 2 pgs 9 203 Proxy Group 10 11 204 Growth Rates 12 205 Constant Growth DCF Model 13 14 206 Electricity Sales are Linked to US Economic Growth 15 207 Proxy Group Payout Ratios 16 17 208 Sustainable Grown Rates, 2 pgs 209 Sustainable Constant Growth DCF Model 210 Mul tistage Growth DCF Model 211 Electric Utility Market/Book Ratio 212 Electric Equity Risk Premium, Treasury Bond 213 Electric Equity Risk Premium, Utili ty Bond HEDRICK COURT REPORTING P. O. BOX 578, BOISE, 10 83701 EXHIBITS . . 18 19 20 21 22 23 24.25 1 214 Utility Bond Yield Spreads Premarked Admit 2204 2 215 Utili ty and Treasury Bond Yields, 3 pgs Premarked Admit 22043 4 216 Value Line Beta Premarked Admit 2204 5 217 CAPM Return Premarked Admit 22046 7 218 Stand & Poor i s Credit Metrics, 4 pgs Premarked Admit 2204 8 219 Adj usted Hadaway DCF, 4 pgs Premarked Admit 22049 10 220 Accuracy of Interest Rate Forecasts Premarked Admit 2204 11 221 Proposed Energy Gateway, 2 pgs Premarked Admit 220412 13 222 Proposed Gateway West Premarked Admit 2204 14 223 Proposed Gateway South Premarked Admit 220415 16 224 Idaho MEHC Acquisiiton Order No. 29973, Premarkedpgs 6 and 7, 3 pgs Admit 2204 17 225 Comparative Investment Per Mile Premarked Admit 2204 226 Western US Competing Transmission Lines Map Premarked Admit 2204 227 PacifiCorp Response to Monsanto Data Request 4.5 Premarked Admit 2204 228 Qualifications of Widmer, 7 pgs Premarked Admit 2204 229 History of Monsanto Increases and Average Costs Premarked Admit 2204 230 Idaho Results with Monsanto Adj ustments, 4 pgs Premarked Admit 2204 HEDRICK COURT REPORTING P. O. BOX 578, BOISE, 10 83701 EXHIBITS . . 18 2311 Summary, Idaho Class Cost of Service Study 2 232 Value of Monsanto Curtailment Based on Avoided Peakers3 4 233 Value of Monsanto Curtailment Based on QF Rates in Utah 5 234 Confidential 6 7 235 8/31/09 Wind Integration Cost Study, 2 pgs 8 236 Reserve Shutdown Adj ustment 9 10 237 - 253 11 12 For Idaho Irrigation Pumpers Association: 301 Forecasted Weather Normalized Residential Sales versus Actual13 14 302 Change in Residential Customers 15 303 PacifiCorp Idaho 2007 Loss Analysis, 6 pgs16 17 304 10/15/09 Letter, Larsen to IIPA, 7 pgs 19 For Idaho Conservation League: 20 21 501 Qualifications of D. Reading, 3 pgs 22 For PacifiCorp Idaho Industrial Customers: 23 24.25 601 Qualifications of Schoenbeck, 2 pgs PremarkedAdmit 2(204 Premarked Admit 2204 Premarked Admit 2204 Premarked Admit 2204 Premarked Admit 2204 Premarked Admit 2204 Admitted 2204 Premarked Admitted 2204 Premarked Admit 2204 Premarked Admit 2204 Premarked Admit 2204 Premarked Admit 2204 Premarked Admit 2204 602 Cost of Service by Rate Schedule, 2 pgs Premarked Admit 2204 HEDRICK COURT REPORTING P. O. BOX 578, BOISE, ID 83701 EXHIBITS .1 603 IIPA Data Request 2,4 pgs Premarked Admit 2204 2 604 IIPA Data Request 8 Premarked 3 Admit 2204 4 605 Qualifications of Falkenberg,11 pgs Premarked Admit 2204 5 606 OCS Data Request 2.5,5 pgs Premarked 6 Admit 2204 7 607 OPUC Data Request 22,3 pgs Premarked Admit 2204 8 608 ICNU Data Request 1.33,9 pgs Premarked 9 Admit 2204 10 609 Net Power Costs Workpapers and Premarked Supporting Documents,4 pgs Admit 2204 11 610 Qualifications of Meyer,2 pgs Premarked 12 Admit 2204.13 611 ArarenUE Rate Base Schedule,4 pgs Premarked Admit 2204 14 612 ArarenUE Missouri Jurisdictional Premarked 15 Original Cost Rate Base,3 pgs Admit 2204 16 613 Performan Factors,2 pgs Premarked Admit 2204 17 614 WUTC Data Request 25,12 pgs Premarked 18 Admit 2204 19 615 Public Counsel Data Request 103,2 pgs Premarked Adr::it 2204 20 616 -623 Admitted 2204 21 22 For Community Action Partnership Association of Idaho:- 23 701 Adm L tted 2204 24.25 HEDRICK COURT REPORTING P. O. BOX 578, BOISE, 10 83701 EXHIBITS . . . 1 BOISE, IDAHO, THURSDAY, DECEMBER 2, 2010, 8:35 A.M. 2 3 4 MR. WOODBURY: Madam Chair, Staff's next witness 5 is Cecily Vaughn. 6 7 CECILY VAUGHN, 8 produced as a witness at the instance of Staff, being first 9 duly sworn, was examined and testified as follows: 10 11 DIRECT EXAMINATION 12 13 BY MR. WOODBURY: 14 Q. Ms. Vaughn, could you please state your full name 15 and spell both of your names? 16 A.Cecily -- C-E-C-I-L-Y -- last name Vaughn -- 17 V-A-U-G-H-N. 18 19 Q.And for whom do you work and in what capacity? A.I work for the Idaho Public Utilities Commission 20 as a staff auditor. 21 Q.And in that capacity, did you have occasion to 22 prepare and prefile testimony on October 14th consisting of 23 18 pages and one exhibit, 108? 24 25 A.Yes. Q.And have you had the occasion to review that 2025 HEDRICK COURT REPORTING P. O. BOX 578, BOISE, 10 83701 VAUGHN (Di)Staff . . . 18 19 20 21 22 23 24 25 1 testimony and exhibit prior to this hearing? 2 A. Yes. 3 Q.And if I were to ask you the questions set forth 4 in your testimony, would your answers be the same? 5 A.They would. 6 MR. WOODBURY: Madam Chair, I'd ask that 7 Ms. Vaughn's testimony be spread on the record, and the exhibit 8 identified. 9 COMMISSIONER SMITH: If there's no objection, it 10 is so ordered. 11 (The following prefiled direct testimony 12 of Ms. Vaughn is spread upon the record.) 13 14 15 16 17 2026 HEDRICK COURT REPORTING P. O. BOX 578, BOISE, ID 83701 VAUGHN (Di)Staff . . . 1 Q.Please state your name and business address for 2 the record. 3 A.My name is Cecily Vaughn. My business address is 4 472 West Washington Street, Boise, Idaho. 5 Q.By whom are you employed and in what capacity? I am employed by the Idaho Public Utilities6A. 7 Commission (Commission) as a senior auditor in the Utilities 8 Division. 9 Q.What is your educational and experience 10 background? 11 A.I graduated from Washington State University in 12 1974 with a Bachelors of Science degree in Veterinary 13 Science i I received my degree as a Doctor of Veterinary Medicine at the same time. I practiced as a veterinarian in14 15 the State of Washington until approximately 1987. From 1993 16 until 1996 I attended the College of Business and Economics 17 at the University of Arkansas in Fayetteville, Arkansas. 18 From 1996 until 1997 I studied at the College of Business at 19 Boise State University with an emphasis in accounting. I 20 passed the Uniform CPA exam in the fall of 1997 i I am 21 currently a licensed CPA in the State of Idaho. 22 I was employed as a financial analyst by Hewlett 23 Packard from 1998 until 2000. In this position I provided 24 sole financial support for the HP test lab located in Boise, 25 a cost center with an annual budget in excess of $50 2027 CASE NO. PAC-E-10-710/14/10 VAUGHN, C. (Di) 1 STAFF . . . 1 million. I was solely responsible for coordinating the 2 semi-annual budgeting process, for developing and 3 implementing the allocation system used to distribute costs 4 to multiple profit centers, and for ensuring that costs 5 incurred were appropriate and met budgetary goals. During 6 this time I also served as inventory analyst for the 7 Personal LaserJet Division, a $2 billion per year profit 8 center. In this role, I was responsible for accurate 9 valuation of worldwide inventory and for removal of 10 intracorporate profit included in inventory value. 11 From 2000 until 2003 I was employed as Grants 12 Accountant (Financial Specialist) for the Center for 13 Geophysical Investigation of the Shallow Subsurface at Boise 14 State UniversitYi I was promoted to Senior Financial 15 Specialist in 2002. In this role, I was responsible for all 16 aspects of grant accounting for the Center, including 17 budgeting, submission, and ensuring that grant funds were 18 expended and accounted for in accordance with funding agency 19 regulations. I also assisted in the preparation of the BSU 20 F&A (Facilities and Administration) request used to set the 21 overhead rate applied to all federal grants awarded the 22 University. 23 I have been employed by the Commission as an 24 auditor since June 2007. I attended the annual regulatory 25 studies program sponsored by the National Association of 2028 CASE NO. PAC-E-10-710/14/10 VAUGHN, C. (Di) 2 STAFF Regulatory Utility Commissioners (NARUC) at Michigan State University in August 2007. SUMy Q. What is the primary purpose of your testimony? A. The purpose of my testimony is to summarize the adjustments of all Staff members, to present the impact on . ,the Idaho revenue requirement of each individual's adjustments, and to develbp the final Idaho revenue requirement that includes all Staff adjustments. I will present in detail the specific adjustments that I propose. Q. How were you able to determine the revenue requirement effect of each of Staff's recommendations? A. I determined what accounts in the rate case would be changed by each adjustment. Using the linked Revenue Adjustment Model and the Jurisdictional Allocation Model (RA-JAM), I then determined the effect on revenue requirement resulting from each adjustment. Q. Please summarize the final Idaho revenue requirement and compare that to the revenue requirement proposed by the Company. A. The Company requested an Idaho revenue increase of $17,146,306 or $27,697,872 when grossed up for taxesi this request resulted in an Idaho revenue increase of 13.66%. The adjustments proposed by Staff result in an Idaho 2029 CASE NO. PAC-E-l0-710/14/10 VAUGHN, C. (Di) 3 STAFF . . . 1 deficiency of $9,106,977 or $14,711,2671 when grossed up for 2 taxes i Staf f' s case results in an Idaho required revenue 3 increase of 7.25%. Staff's case reduces the Company 4 proposal by $8,039,329 or $12,986,605 when grossed up for 5 taxesi this represents a 47% reduction to the Idaho revenue 6 increase originally requested by the Company. 7 8 Q.Are you sponsoring any additional testimony? A.Yes. I reviewed several specific areas of the 9 Company's filing that will be further discussed in my 10 testimony. 11 Q.Would you please summarize your recommendations in 13 12 those areas of the rate case that you personally reviewed? 14 15 16 17 18 19 20 21 22 23 24 25 A. My recommendations affecting revenue requirement are as follows: (1) Avian Settlement. In 2009 the Company and the u. S. Attorney for Wyoming reached an agreement associated with increasing protection for wildlife habitat in and around the Company's transmission and distribution assets. The Company requested recovery of $500,000 in O&M expense and $1,352,283 in rate base related to this agreement. I believe the $500,000 is a non-recurring O&M expense and recommend the $500,000 be removed from the current test year expenses. This 1 The difference between this revenue requirement of $14,711,267 and the $14,802,287 shown in other Staff testimonies is due to the $1,603,785 adjustment recommended by Staff witness Donn English. CASE NO. PAC-E-10-7 10/14/10 2030 VAUGHN, C. (Di) 4 STAFF reduces the revenue requirement by $500,000 on a system basis, thus reducing the Idaho revenue requirement by $26,961. In addition, I believe the $1,352,283 in transmission facility improvement should not be added to rate base in this case since the accumulation of minor transmission improvements falls below the $5,000,000 threshold for pro-formed 2010 major plant additions. This rate base reduction results in a reduction to Idaho revenue requirement of $6,339. (2) Bridger Coal Stripping. In Case No. PAC-E-09-08, the Company filed for an Accounting Order authorizing the Company to record, as a regulatory asset, the costs associated with the removal of overburden and waste materials at its affiliate coal mines. In January 2010, the Commission authorized the Company in Order No. 30987 to record the removal costs as a regulatory asset associated with its fuel account. Because this regulatory asset was created by a change in accounting procedures (EITF-04-6), I believe it would be inappropriate for the asset to accrue a carrying charge subsequent to inclusion in base rates. Therefore, I recommend removing $1,169,114 from rate baseithis adjustment decreases Idaho revenue requirement by $6,133. (3) Medicare Subsidy. On March 23, 2010, the Patient 2031 CASE NO. PAC-E-10-710/14/10 VAUGHN, C. (Di) 5 STAFF . . . 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Protection and Affordable Care Act (PPACA) was signed into law. The Act, including a subsequent amendment to the Act (the amendment is known as the Health Care and Education Reconciliation Act signed into law March 30, 2010), changes the deductibility of certain costs incurred for post-retirement prescription drug coverage. In Case No. PAC-E-10-04, the Company filed for an accounting Order authorizing the Company to create a regulatory asset and amortize the expenses associated with the change in deductibility of retiree drug benefits resulting from passage of the PPACA. In this case, the Company calculated the amortization for 2011 to be $209,966. Staff believes that this amount should be reduced by $4,999 because the Company calculated the tax impact from January 1, 2010, rather than from March 31, 2010 when the Act went into effect. Because this was a situs allocation, this reduces Idaho revenue requirement by $4,999. Q.Are you sponsoring any Exhibits? Yes, I am sponsoring Staff Exhibit No. 108.A. 22 21 STAF SUMY OF ADJUSTMNTS 23 Q.Please summarize the case filed by the Company. A.On a system basis, the Company reported 24 $4,117,757,655 in operating revenues, $3,386,414,150 in 25 operating expenses, and a rate base of $10,228,783,324. 2032CASE NO. PAC-E-10-7 10/14/10 VAUGHN, C.(Di) 6 STAFF This resulted in an unadjusted return on rate base of 7.1499%. See Exhibit No. 108, Column (a). On an Idaho basis, the Company reported $261,796,035 in operating revenues, $223,164,426 in operating expenses, and a rate base of $667,459,415. This resulted in an unadjusted return on rate base of 5.7879%. The Company requested 10.6% return on equity which resulted in a request for an 8.3568% overall return on rate base. Applying this return to the reported rate base, the Company needed operating revenues of $55,777,9.15 in order to achieve the requested rate of return. Since the Company reported actual net operating revenues for return of $38,631,609, this resulted in a revenue requirement of $17,146,306 or $27,697,872 when grossed up for taxes. The Idaho revenue requirement requested by the Company is a 13.66% increase over current base rates. See Exhibit No. 108, Column (b). Q. Please describe the Staff adjustment shown in Exhibit No. 108, Column (c). A. Staff witness Terri Carlock is sponsoring the adjustment shown in Exhibit No. 108, Column (c). This adjustment shows a decrease in the return on equity from the 10.6% requested by the Company to 10.0%. This results in a decrease in revenue requirement of $2,167,989 (line 67) or $3,502,135 when grosse? up for taxes (line 69). The impact of this adjustment is to decrease revenue requirement by 2033 CASE NO. PAC-E-10-710/14/10 VAUGHN, C. (D i) 7 STAFF 1. 73 % ( line 70). Q. Please describe the Staff adjustments shown in Exhibit No. lOS, Column (d). A. Staff witnesses Marilyn Parker and Donn English are sponsoring the adjustments shown in Exhibit No. 108, Column (d). Staff witness Parker is sponsoring an imputed revenue increase of $90,000 (line 2) from untimely disconnect of power when properties are vacant. This adjustment is discussed in detail in Staff witness Parker's direct testimony. Staff witness English is sponsoring several adjustments. The largest adjustment reduces Operating and Maintenance Expense (O&M) by removing wage, incentive, benefit, and pension increases from 2009 and 2010 ¡this adjustment equals $70,954,556 on a system basis and $4,079,517 when allocated to Idaho. This adjustment is spread across multiple accounts and is shown in lines 9-1S. Other smaller adjustments to imputed revenue (line 5), property tax (line 24), and the Affiliate Management Fee (line lS) further reduce revenue requirement. These adjustments are discussed in detail in Staff witness English's direct testimony. Staff witness English proposes an additional adjustment to injuries and damages of $l,603,7S5 on a system basis and $90,728 on an Idaho basis. This adjustment is 2034CASE NO. PAC-E-10-710/14/10 VAUGHN, C. (Di) S STAFF discussed in detail by Staff witness English in his testimony and is reflected in the Idaho revenue requirement of $14,711,267 shown on Exhibit No. 108, Column (j), line 69. However, this adjustment is not included in the testimonies and exhibits of other Staff witnessesi and this adjustment is not considered in the cost of service or rate design recommendations. The adjustments proposed by Staff witnesses Parker and English increase operating revenues on an Idaho basis by $97 i 826 (line 6) and reduce operating.expenses on an Idaho basis by $2,499,892 (line 31). These adjustments result in a decrease in revenue requirement of $2,600,250 (line 67) or $4,200,403 when grossed up for taxes (line 69). The impact of these adjustments is to decrease the Idaho revenue requirement by 2.03% (line 70) . Q. Please describe the Staff adjustment shown in Exhibit No. 108, Column (e). A. Staff witness Bryan Lanspery is sponsoring the adjustment shown in Exhibit No. 108, Column (e). He proposes adjustments to Net Power Costs (NPC), and are discussed in detail in Mr. Lanspery's direct testimony. The NPC adjustments decrease NPC on a system basis by $40,903,589 and on an Idaho basis by $2,512,922 (line 20 minus line 4). These adjustments result in a decrease in Idaho revenue requirement of $1,560,189 (line 67) or 2035 CASE NO. PAC-E-10-710/14/10 VAUGHN, C. (Di) 9 STAFF . . . 1 $2,520,305 when grossed up for taxes (line 69). The impact 2 of this adjustment is to decrease the Idaho revenue 3 requirement by 1.24% (line 70) . 4 Q.Please describe the Staff adjustment shown in 5 Exhibit No. 108, Column (f). 6 A.Staff witnesses Randy Lobb and Joe Leckie are 7 sponsoring the adjustment shown in Exhibit No. 108, Column 8 (f). The majority of the adjustments reduce rate base and 9 are discussed in detail in Mr. Lobb's and Mr. Leckie's 10 testimonies. The amount of the Popul~s-Terminal 11 transmission line included for return on rate base is 12 reduced by 50% as proposed by Mr. Lobb. This results in a 13 rate base decrease of $400,765,483 on a system basis and 14 $23,444,781 on an Idaho basis (the majority of lines 36 and 15 37). Several other rate base items, including the Dunlap I 16 Wind Project and other rate base updates, are reduced by a 17 total of $34,976,054 on a system basis and $2,046,099 on an 18 Idaho basis (included in lines 36 and 37). Also, the coal 19 stockpile inventory is reduced by $15,970,759 on a system 20 basis or $1,015,344 on an Idaho basis (line 42). In 21 addi tion to the rate base adj ustments, Mr. Leckie proposes a 22 reduction to generation overhaul expense, reducing O&M by 23 $662,119 on a system basis and $49,154 on an Idaho basis 24 (line 12). 25 The adjustments proposed by Staff witnesses Lobb 2036CASE NO. PAC-E-10-7 10/14/10 VAUGHN, C. (Di) 10 STAFF . . . 1 and Leckie reduce O&M expenses on an Idaho basis by $49,154 2 (line 20) and reduce Idaho rate base by $25,028,230 (line 3 61). These adjustments result in a decrease in revenue 4 requirement of $1,801,208 (line 67) or $2,909,643 when 5 grossed up for taxes (line 69). The impact of this 6 adj ustment is to decrease the Idaho revenue requirement by 7 1. 43 % ( line 70). 8 Q.Please describe the Staff adjustment shown in 9 Exhibit No. 108, Column (g). 10 A.I am sponsoring the adj ustments shown in Exhibit 11 No. 108, Column (g), and I will discuss these adjustments in 12 detail in my direct testimony to follow. In summary, my 13 adj ustments result in a decrease in Idaho revenue 14 requirement of $30,974 (line 67) or $50,035 when grossed up 15 for taxes (line 69). The impact of these adjustments is to 16 decrease revenue requirement by 0.02% (line 70). 17 Q.Please describe the Staff adjustment shown in 18 Exhibi t No. 108, Column (h). 19 A.Staff witness Terri Carlock is sponsoring the 20 adjustments shown in Exhibit No. 108, Column (h). These 21 adjustments result from treating the Idaho Irrigation Load 22 Control costs as power supply expense and reversing the 23 irrigator load decrement from normalized to actual loads. 24 This changes the system generation (SG) allocator for Idaho 25 from 5.5085% to 5.9056%. As shown in Column (h) i this CASE NO. PAC-E-10-710/14/10 2037 VAUGHN, C. (Di) 11 STAFF affects the adjustment amount of nearly every account. These adjustments are discussed in detail in Staff witness Carlock's direct testimony. On an Idaho basis, this adj ustment increases operating revenues by $4,191,848 (line 6), increases total operating expenses by $1,095,478 (line 31), and increases rate base by $40,095,425 (line 61). This results in an increase in revenue requirement of $65,116 (line 67) or $105,188 when grossed up for taxes (line 69). The impact of this adjustment is to increase revenue requirement by 0.05% (line 70). Q. Please summarize the final Idaho revenue requirement and compare that to the revenue requirement proposed by the Company. A. As shown in Exhibit No. 108, Column (b), the Company requested an Idaho revenue increase of $17,146,306 (line 67) or $27,697,872 (line 69) when grossed up for taxes i this request resulted in an Idaho revenue increase of 13.66% (line 70). As shown in Exhibit No. 108, Column (j), the adjustments proposed by Staff result in an Idaho revenue requirement of $9,106,977 (line 67) or $14,711,267 (line 69) when grossed up for taxesi Staff's case results in an Idaho required revenue increase of 7.25% (line 70). Staff's case reduces the Company proposal by $8,039,329 or $12,986,605 when grossed up for taxes i this is a 47% reduction in Idaho 2038 CASE NO. PAC-E-10-710/14/10 VAUGHN, C. (Di) 12 STAFF revenue requirement increase originally requested by the Company. Q. Please describe the adj ustments you recommend in Exhibit No. 108, Column (g). A. These adj ustments are discussed below. AVIAN SETTLENT Q. Please describe the nature of the Avian Settlement. A. In 2009 the Company and the U. S. Attorney for Wyoming agreed to settle Case No. 09CR1 74 -B that was filed wi th the United States District Court for the District of Wyoming. Under the terms of the agreement, PacifiCorp agreed to increase protection for wildlife habitat in and around the Company's transmission and distribution assets. In addition, the Company agreed to provide funds to various wildlife agencies in Wyoming as well as Idaho, Utah and Montana to support improvements to design and the construction of avian-safe power lines. Q. What were the Company adjustments associated with the Avian Settlement? A. The Company requested recovery of $500,000 for injuries and damages related to Case No. 09CR174-B. I believe this is a non-recurring expense that should be removed from expenses for rate setting purposes. This reduces the revenue requirement by $500,000 on a system 2039 CASE NO. PAC-E-10-710/14/10 VAUGHN, C. (Di) 13 STAFF . . . 1 basis, thus reducing the Idaho revenue requirement by 2 $26,961. 3 Q.Were there any other adjustments associated with 4 the Avian Settlement? 5 A.Yes. The Company requested an adjustment to rate 6 base of $1,352,283 for capital improvements of existing 7 power lines. The Company argues that these improvements 8 will benefit customers by protecting wild life habitat and 9 reducing avian related outages. See Company witness 10 McDougal, Di., pg. 25, lines 22-23, a~d pg. 26, line 1. 11 Q.Do you agree with the Company's request? No. Al though the improvements will provide some12A. 13 benefit to customers, they should not be included in this general rate case. The improvements described by the14 15 Company consis.t of a number of small independent proj ects 16 rather than a single large proj ect i the need for each 1 7 individuai proj ect is based on the findings of field studies 18 that survey "avian incidents," including bird fatalities 19 caused by power lines and damage to power facilities caused 20 by bird activity. Although I believe avian-related 21 improvements are reasonable, I believe this addition to rate 22 base is premature and should not be included for the 23 following reasons. First, because of the diverse nature of 24 the many projects contributing to this adjustment, the exact 25 cost of the project and date the project will be placed in CASE NO. PAC-E-10-710/14/10 2040 VAUGHN, C. (Di) 14 STAFF service is neither known nor measurable. In addition, the amount requested is pro-formed for 2010 and falls far below the $5,000,000 threshold used to include maj or plant additions expected to be placed in service during 2010. Therefore, I believe the $1,352,283 should be removed from rate base for this case, and this type of capital improvement be included in the next general rate case. My adjustment results in a rate base decrease for Idaho in the amount of $79,860 and a reduction in depreciation expense of $1,605 i the revenue requirement for Idaho decreases by $8,194. EITF-04-6: BRIDGER COAL STRIPPING AMORTIZATION Q. Please describe the Bridger Coal Stripping Amortization. A. In Case No. PAC-E-09-08, the Company filed for an Accounting Order authorizing the Company to record, as a regulatory asset, the costs associated with the removal of overburden and waste materials at its affiliate coal mines. In January 2010, the Commission authorized the Company in Order No. 30987 to record the removal costs as a regulatory asset associated with its fuel account. The costs associated with coal stripping were to be expensed through Account 501, Fuel Expense, as the coal was extracted from the mine and placed in inventory. Q. Has the Company proposed an adjustment associated 2041 CASE NO. PAC-E-10-710/14/10 VAUGHN, C. (Di) 15 STAFF with the Bridger Coal Stripping Amortization? A. Yes. The Company has added $1,169,114 to system rate base for the costs related to coal strippingi $74,327 of this amount is allocated to Idaho. Q. Do you agree with the Company's adjustment? A. No. In its original filing, the Company did not request a carrying charge on the regulatory asset associated wi th mine stripping costs. I believe a carrying charge is not justified or required. Because this regulatory asset is created by a change in accounting procedures, I believe recovery of the costs through a regulatory asset is adequate and it is inappropriate for the asset to be included in rate base or accrue a carrying charge. Therefore I recommend that $1,169,114 be removed from rate base at the system level, resulting in a reduction of rate base allocated to Idaho of $74,327. This adjustment reduces the Idaho revenue requirement by $6,133. MEDICA SUBSIDY Q. Please describe the Medicare Subsidy Amortization. A. In the Medicare Modernization Act (MM) of 2003, the federal government provided a 28 percent subsidy to companies that provided a retiree drug discount. Subsequent to negotiations related to the MM, companies were allowed to deduct 100 percent of the cost of the drug benefit provided to their retirees even though the companies were 2042 CASE NO. PAC-E-10-710/14/10 VAUGHN, C. (Di) 16 STAFF paying only 72 percent of the benefits. On March 23, 2010, the Patient Protection and Affordable Care Act (PPACA) was signed into law. Due to provisions included in the PPACA, including a subsequent amendment (the amendment is known as the Health Care and Education Reconciliation Act signed into law March 30, 2010), the portion of the expense offset by. the 28 percent subsidy is no longer deductible for tax purposes. Companies may deduct only the net amount of the drug costs. Therefore, companies must reduce the post-retirement benefit obligation on the balance sheet by the amount of the actuarially-determined subsidy to be received. In Case No. PAC-E-10-04, the Company filed for an Accounting Order authorizing the Company to record, as a regulatory asset, the tax expense associated with enactment of the PPACAi in addition, the Company requested that they be allowed to amortize the expense over a four-year period beginning January 1, 2011. In July 2010, the Commission authorized the Company in Order No. 32028 to record costs associated with the PPACA as a regulatory asset and to amortize the expense over a four-year period beginning January 1, 2011. Q. Has the Company proposed an adjustment associated with the Medicare Subsidy (PPACA) amortization? A. Yes. The Company has proposed to expense $209,996 2043 CASE NO. PAC-E-10-710/14/10 VAUGHN, C. (Di) 17 STAFF .1 2 3 4 5 6 7 8 9 10 11 12 .'13 14 15 16 17 18 19 20 21 22 23 24 25. in 2011 as the first of four expense amortizations. Q. Does you propose an adjustment to the Company adjustment? A. Yes. The amount of the adjustment was calculated as of January 1, 2010. However, the PPACA and the subsequent amendment did not go into effect until March 31, 2010. In response to an audit request from Staff, the Company calculated the amount of the adjustment effective March 31, 2010 as $819,988 to be amortized over four years, or $204,997 per year. Because this amount was calculated on an Idaho basis, this results in a Staff adjustment of $4,999 to Idaho expense ($209,996 - $204,997 = $4,999) and an equi valent reduction to Idaho revenue requirement. Q. Does this conclude your direct testimony in this proceeding? A. Yes, it does. 2044 CASE NO. PAC-E-10-710/14/10 VAUGHN, C . (D i) 18 STAFF . . . 18 19 20 21 22 23 24 25 1 (The following proceedings were had in 2 open hearing.) 3 MR. WOODBURY: And I would present Ms. Vaughn for 4 cross-examination. 5 COMMISSIONER SMITH: Mr. Otto, do you have 6 questions? 7 MR. OTTO: I do not. 8 COMMISSIONER SMITH: Mr. Olsen. 9 MR. OLSEN: No, Madam Chairman. 10 COMMISSIONER SMITH: Williams. 11 MR. WILLIAMS: No, Madam Chairman. 12 COMMISSIONER SMITH: Purdy. 13 MR.PURDY:No. COMMISSIONER SMITH:Budge? MR.BUDGE:No. COMMISSIONER SMITH:Company? MR.HICKEY:No. COMMISSIONER SMITH:From the Commission? 14 15 16 17 COMMISSIONER KEMPTON: No. COMMISSIONER REDFORD: No. COMMISSIONER SMITH: Nor I.. Thank you, Ms. Vaughn. THE WITNESS: You're welcome. COMMISSIONER SMITH: Appreciate your help. THE WITNESS: Wow. 2045 HEDRICK COURT REPORTING P. O. BOX 578, BOISE, ID 83701 VAUGHN (Di)Staff . . . 1 COMMISSIONER SMITH: Pays to go later in the day, 2 doesn't it? 3 THE WITNESS: It does. 4 (Laughter. ) 5 (The witness left the stand.) 6 MR. HICKEY: Timing is everything. 7 COMMISSIONER SMITH: Mr. Woodbury. 8 MR. WOODBURY: Staff's next witness is 9 Marilyn Parker. 10 11 MARILYN PARKER, 12 produced as a witness at the instance of Staff, being first 13 duly sworn, was examined and testified as follows: 14 15 DIRECT EXAMINATION 16 1 7 BY MR. WOODBURY: 18 Q.Ms. Parker, will you please state your name and 19 spell your first and last name for the record? 20 A.My name is Marilyn Parker: M-A-R-I-L-Y-N; 21 Parker, P-A-R-K-E-R. 22 23 24 25 Q.And for whom do you work and in what capacity? Oh. For whom do you work and in what capacity? A.I work for the Idaho Public Utili ties Commission as a utilities compliance investigator. 2046 HEDRICK COURT REPORTING P. O. BOX 578, BOISE, 10 83701 PARKER (Di)Staff . . . 1 Q. And in that capacity, did you have occasion to 2 prepare prefiled testimony consisting of 19 pages and three 3 exhibits, 112 through 114? 4 A.That's correct. 5 Q.And you filed that testimony on October 14th? 6 A.Right. 7 Q.And have you had the occasion prior to this 8 hearing to review that testimony and exhibits? 9 A.Yes. 10 Q.And if I were to ask you the questions set forth 11 in your testimony, would your answers be the same? 12 A.Yes. 13 MR. WOODBURY: Madam Chair, I would ask that 14 Ms. Parker's testimony be spread on the record, and the 15 exhibits identified. 16 COMMISSIONER SMITH: If there's no objection, it 17 is so ordered. 18 (The following pre filed direct testimony 19 of Ms. Parker is spread upon the record.) 20 21 22 23 24 25 2047 HEDRICK COURT REPORTING P. O. BOX 578, BOISE, ID 83701 PARKER (Di)Staff .1 2 3 4 5 6 7 8 9 10 11 12.13 14 15 16 17 18 19 20 21 22 23 24 25. Q. Please state your name and address for the record. A. My name is Marilyn Parker. 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 Utilities Compliance Investigator. I accepted that position with the Consumer Assistance Staff in November 2002. Q. What is your educational and professional background? A. Prior to my employment with the Idaho Public Utilities Commission, I had twenty years experience working in private industry for three different utility companies. In 1973 and 1974, I was employed by Central Alaska Utilities, a water company in Anchorage, Alaska, as the Executive Secretary to the President of the company. From 1982 until 1987, I was employed as a Customer Service Representative for Idaho Power Company in Salmon, Idaho. From February 1989 until November 2002, I was employed by Intermountain Gas Company in Customer Services. During my last six years at Intermountain Gas, I supervised representatives at the Customer Service Center's Emergency Answering Service. I received a Bachelor of Arts Degree in 2048 CASE NO. PAC-E-10-0710/14/10 PARKER, M. (Di) 1 STAFF . . . 1 Management and Organizational Leadership from George Fox 2 University in Boise, Idaho in June of 2002. 3 In June 2003 and June 2006, I attended the 4 National Low Income Energy Consortium Anual Conference in 5 Sacramento, California and Washington, D. C., respectively. 6 Q.Have you previously testified before the 7 Commission? 8 A.Yes, I have. 9 Q.What is the purpose of your testimony in this 10 proceeding? 11 I will address the following topics:A.(1 ) 12 customer comments received by the Idaho Public Utilities 13 Commission regarding this casei (2) Rocky Mountain Power's 14 (RMP) customer relationsi (3) RMP's Landlord Programi (4) 15 RMP's rebilling policYi and (5) RMP's policy of leaving 16 meters on between customers and the resulting unbilled 17 usage. 18 Q.Please summarize your testimony and 19 recommendations to the Commission. 20 A.I reviewed customers' comments regarding the 21 proposed rate increase. Customers are unhappy with the 22 prospect of another rate hike, especially in light of the 23 current economic conditions in eastern Idaho. I reviewed 24 the Company's call center telephone answering statistics 25 and found them to be commendable. Also notable is RMP's 2049CASE NO. PAC-E-10-0710/14/10 PARKER, M. (Di) 2 STAFF relatively low number of customer complaints filed with the IPUC in 2009. With respect to the Company's Landlord Program, I recommend that RMP review its policy of allowing landlords to submit applications for service to the Company on behalf of their tenants and report its findings to the Commission Staff no later than 60 days following issuance of the Commission's final order in this case. Staff also recommends that RMP retain the Application for Service form for a minimum of four years so that it will be available for review in the event there is a dispute later regarding responsibility for bill payment. I discuss my concerns regarding RMP's procedures for rebilling customers whose meters failed or whose bills were prepared inaccurately. I make several recommendations to improve communication with customers and improve the accuracy of billing estimates. I also recommend that within 60 days of the final date of the Commission's order in this case, the Company meet with Staff to discuss how its rebilling policy can be revised. I recommend that RMP discontinue its practice of routinely allowing service to remain connected between customers. I recommend that the Commission direct RMP to develop a policy that discourages energy waste, reduces unbilled revenue, improves billing accuracy by reducing 2050 CASE NO. PAC-E-10-07 10/14/10 PARKER, M. (Di) 3 STAFF the number of estimated bills, and manages the Company's resources in a cost-effective manner. Customer Comments Regarding the Proposed Rate Increase Q. Have you reviewed the written customer comments that have been received by the Commission regarding this case? A. Yes, as of September 29, 2010, 56 customers had commented on the case. More than one-half of those commenting were on the Time-of-Use (TOU) Schedule 36, which is a residential rate that allows customers to receive a lower rate when electric consumption is moved to "off peak" time periods. These TOU customers were upset because RMP is proposing to raise their rate by 15.6%, almost double the percentage increase proposed for residential rate Schedule 1. The perception by many of the TOU customers is that RMP was, for some reason, punishing them. One-half of those commenting also mentioned the bad timing of the requested rate increase and cited poor economic conditions as a reason that the increase in rates should be denied. Many customers suggested that the utility needs to tighten its own belt first before asking its customers to pick up the extra money it needs. Other comments were from low and fixed income customers worried about another increase in rates and how they would be able to pay any 2051 CASE NO. PAC-E-10-0710/14/10 PARKER, M. (Di) 4 STAFF more money for electricity than they are already paying. Q. Has the Staff considered the concerns expressed by customers? A. Yes, the Staff shares the concerns expressed by customers regarding energy affordability, rate design, and the Company's efforts to control costs. Staff witnesses discuss reduction of Company expenses and investments to control cost and make energy more affordable. Staff also proposes modifications to revenue spread and rate design to better assure equity among customers. Customer Relations \Q. What is RMP's current telephone Customer Service Level? A. Customer Service Level is the percent of calls a utility answers within a specified length of time. RMP's service level goal is to answer 80% of its calls within 30 seconds. This service level is one of the Customer Service Performance Standards established in PAC-E-04-07. RMP consistently has met or exceeded its performance targets over time. Since 2007, RMP has reached 85% or better in one-third of the months. It has averaged more than 80% in each year. In only one month in the past three years did RMP drop below 80%, and in that month (January 2007) RMP had a service level of 79%. Overall, in the past three years, RMP has maintained commendable 2052 CASE NO. PAC-E-10-07 10/14/10 PARKER, M. (Di) 5 STAFF .1 2 3 4 5 6 7 8 9 10 11 12.13 14 15 16 17 18 19 20 21 22 23 24 25. service levels. Q. What were the total number of complaints and inquiries filed with the IPUC's Consumer Assistance Staff in 2009? A. The Consumer Assistance Staff received 43 complaints and 8 inquiries for a combined total of 51 contacts with RMP's customers in 2009. Of the 43 complaints received, two-thirds involved either credit and collection issues (e.g., deposits, disconnections, payment arrangements) or billing issues (e.g. ~ high bills, rebilling, billing at the wrong rate, line item charges) . Q. How does this compare to prior years? A. The number of complaints and inquiries decreased from 72 in 2008 to 51 in 2009. In 2007, there were 62 complaints and inquiries and in 2006 there were 34. See Staff Exhibit No. 112. Q. In 2009, how does RMP' s total number of complaints and inquiries filed with the IPUC's Consumer Assistance Staff compare with other major regulated energy companies in Idaho? A. On a per one-thousand customer basis, Rocky Mountain Power had the lowest number of complaints and inquiries. In three of the last four years, Rocky Mountain has had fewer complaints and inquiries than the other three companies. See Staff Exhibit No. 113. CASE NO. PAC-E-10-07 10/14/10 2053 PARKER, M. (Di) 6 STAFF . . . 1 2 Landlord Program 3 Q.Please briefly describe RMP's Landlord Program. 4 A.RMP calls its program the uLandlord Interim 5 Billing Agreement". When a landlord signs up for this 6 program, the landlord can choose to have electric service 7 at his or her rental properties transfer automatically 8 into the landlord's name when a tenant discontinues 9 service. In those situations, if the landlord has the 10 Landlord Interim Billing Agreement in -place, the 11 electricity is not physically disconnected when the tenant 12 moves out. At that point, the tenant's account is closed 13 and a final bill is prepared for the tenant. The 14 financial responsibility then transfers to the landlord on 15 the date the tenant requested to be disconnected. From 16 that point forward, the landlord is the responsible party 17 for service until a new tenant moves in and assumes 18 financial responsibility. There is no charge to the 19 landlord for transferring service into or out of the 20 landlord's name. 21 Q.What are the benefits of a Landlord Program? For the landlord, the major benefit is that it22A. 23 protects the landlord's property from freezing if a tenant 24 moves out and requests disconnection of service during the 25 winter. Another benefit is that it allows electricity to 2054 CASE NO. PAC-E-10-0710/14/10 PARKER, M. (Di) 7 STAFF stay on between tenants, allowing landlords to clean and perform maintenance on the premises after a tenant has moved out and show the property to prospective tenants. Q. Does Staff have any concerns regarding RMP's Landlord Program? A. Yes. RMP allows landlords to obtain a tenant's Application for Service from the tenant and submit it by fax to RMP. Staff is concerned that RMP may not have proof in some situations that the tenant has granted permission to the landlord to submit billing and signup information on the tenant's behalf or that the information provided is accurate. Staff believes the best practice is one where the utility communicates directly with the person who will be financially responsible for the billing. Accepting Applications for Service from third parties is a questionable business practice. Staff is also concerned that RMP may not have adequate checks and balances in place to meet the requirements of the Federal Trade Commission's (FTC) "Red Flag Rule". Q. What is the FTC's Red Flag Rule? A. The FTC issued regulations (the Red Flag Rule) requiring financial institutions and creditors to develop and implement written identity theft prevention programs as part of the Fair and Accurate Credit Transactions Act of 2003. A program must provide for the identification, 2055 CASE NO. PAC-E-10-0710/14/10 PARKER, M. (Di) 8 STAFF detection, and response to patterns, practices or specific acti vi ties known as "red flags" that could indicate identity theft. The Red Flag Rule applies to creditors that defer paYments for goods or services. Because utilities bill customers after services are provided, they are considered creditors. Q. Does Staff have any recommendations regarding the Company's policy of accepting Applications for Service from landlords on behalf of tenants? A. Yes. Staff recommends that _the Company review its policy to make sure that the information it obtains from landlords is accurate and is provided with the full knowledge and permission of tenants as well as to insure compliance with the Red Flag Rule. The Company's findings should be reported to the Commission Staff no later than 60 days following issuance of the Commission's final order in this case. Staff also recommends that RMP retain the Application for Service form for a minimum of four years so that it will be available for review in the event there is a dispute later regarding responsibility for bill paYment. Rebilling in Accordance with the Idaho Public Utili ties Commission's Utility Customer Relations Rule 204 (UCRR) Q. What concerns did Staff identify in its investigation of RMP's procedure to rebill its customers 2056 CASE NO. PAC-E-10-0710/14/10 PARKER, M. (Di) 9 STAFF when a customer's bill is prepared inaccurately due to reasons such as a meter malfunction or metering equipment that was incorrectly installed or programmed? A. RMP does not follow an obj ecti ve or independently verifiable methodology when preparing estimated bills. Its process entails using electric consumption at the premises from prior years to establish electric usage trends in its rebilling calculation. RMP does not apply a weather normalization factor based on Heating or Cooling Degree Days obtained from the National Weather Service. To come up with its estimate of the amount of electricity the customer used, RMP compares electric usage trends of other residents in the neighborhood during the same time period. Q. Why does Staff believe the current method of rebilling employed by RMP is problematic? A. Staff believes there are more accurate ways to prepare corrected billings. Both Avista Utilities and Intermountain Gas Company have implemented rebilling mechanisms that have been accepted by Commission Staff. Both Avista Utilities and Intermountain Gas employ in their methodologies, among other factors, the National Weather Service's Heating and Cooling Degree Days tailored to specific regions of their service territories. Unlike usage data gathered from a customer's neighbors, this 2057 CASE NO. PAC-E-10-0710/14/10 PARKER, M. (Di) 10 STAFF weather data is both objective and verifiable. Q. Does RMP adequately communicate with customers whose meters malfunctioned and who will be rebilled? A. No. RMP told Staff it informs those customers who will be rebilled by means of the customers' billing statements. However, it is Staff's opinion that the brief, non-descript message on the statement is not an acceptable explanation. The billing statement is usually the first notification the customer receives indicating that some of the previous months' bills have been wrong. RMP's current procedure is to print a brief message on the customer's bill stating that the customer should call RMP for an explanation of the added charges if the customer desires additional information. Staff Exhibit No.114 is a redacted copy of a customer's bill. Q. What suggestions does Staff have for improving RMP's rebilling policy? A. At a minimum, Staff recommends that each affected customer be sent a letter of explanation along wi th a spreadsheet comparing usage and dollars previously billed with the estimated usage and rebilled dollar amount. This information should be mailed out prior to the actual rebilling by the Company. This provides the customer an opportunity to contact the Company if there are any questions or disagreement with the usage estimate. 2058CASE NO. PAC-E-10-0710/14/10 PARKER, M. (Di) 11 STAFF . . . 1 It also allows the Company to revise its estimate if 2 necessary before the customer is actually billed, thereby 3 avoiding the additional step of having to prepare a 4 revised rebilling statement. Staff also recommends that 5 the Company attempt to contact the customer by phone if 6 the rebilling covers more than a three-month period or is 7 for a significant dollar amount. This would allow the 8 customer to discuss with the Company any unusual 9 circumstances that might affect the rebilling. Currently, 10 RMP calls the customer if the rebilled amount is more than 11 $10,000 i Staff believes the threshold should be much 12 lower. 13 Staff recommends that the letter of explanation 14 make it clear to the customer that in accordance with UCRR 15 204, payment arrangements are available for a period of 16 time that may extend to the length of time that the 17 underbilled amount accrued or the customer was not billed. 18 Staff recommends RMP meet with Staff within 60 19 days from the date of the final order in this case to 20 discuss development of acceptable policies with respect to 21 estimating usage and rebilling. 22 Unbilled Usage Due to Leaving Service Connected 23 Q.What is RMP's policy regarding allowing service 24 to remain connected between customers? 25 A.RMP does not routinely physically disconnect 2059 CASE NO. PAC-E-10-07 10/14/10 PARKER, M. (Di) 12 STAFF . . . 1 service when a customer closes an account. As a result, 2 energy continues to be used even though there is no 3 customer to bill for that usage. 4 Q.What is RMP's justification for this policy? 5 A.RMP maintains that most premises are only vacant 6 for a few days between customers. According to the 7 Company, by not disconnecting service after a customer 8 discontinues service, RMP saves the time of service 9 technicians and vehicle mileage associated with having to 10 disconnect and subsequently reconnect _service within a 11 relatively short period of time. From the Company's point 12 of view, the dollar savings in employee time and vehicle 13 mileage outweigh the lost revenue associated with the 14 unbilled energy. 15 Q.What did Staff find in its investigation of this 16 policy? 17 A.The presumed net benefit of RMP's policy of not 18 disconnecting service may be more myth than fact. Staff 19 found that in many instances, not much time and mileage, 20 if any, was saved. The Company continues to send a 21 technician to the premises monthly to read the meter. 22 When unbilled usage at a premise exceeds 1,000 kWh, a 23 technician is dispatched to disconnect the meter. In 24 those instances where the threshold is reached, the 25 Company does not save any time and mileage costs because a 2060 CASE NO. PAC-E-10-0710/14/10 PARKER, M. (Di) 13 STAFF technician eventually had to be dispatched to turn off the meter anyway, and a technician eventually would have been required to turn the meter back on when a new customer established service. Not only does RMP not save the time and mileage costs in those instances, it loses a considerable amount of revenue for electricity that went unbilled. Q. Has RMP's threshold always been 1,000 kilowatt hours? A. No. Until a few years ago, ..the threshold was 400 kWh. This means that during a time period of increasing upward pressure on rates, the Company more than doubled the amount of energy and associated revenue it was willing to lose before taking action. Q. How much energy goes unbilled due to RMP' s policy? A.. In 2009, there were 835 instances where usage exceeded 1,000 kWh, meaning at least 835,000 kWh was unbilled. The majority of affected accounts were residential. At RMP' scurrent average residential rate, that is a minimum retail loss in revenue of $75,818. The Company did not identify how much additional energy was used in excess of the 1,000 kWh threshold before it actually disconnected service, nor did it provide the total amount of unbilled usage attributable to situations 2061CASE NO. PAC-E-10-0710/14/10 PARKER, M. (Di) 14 STAFF I. . . 1 where the 1, 000 kWh threshold was not exceeded before a 2 new customer signed up for service. Staff estimates that 3 in excess of 1,000,000 kWh goes unbilled annually due to 4 this policy. Based on the current average residential 5 rate, more than $90,000 in revenue was foregone by the 6 Company in 2009. 7 Q.What other concerns were found regarding RMP's 8 meter reading and billing policies as they pertain to 9 leaving meters connected between customers? 10 A.Staff questioned RMP regarding the meter reading 11 it uses for billing purposes when an account is opened and 12 closed if a technician is not sent to the premises to 13 obtain a meter reading. RMP stated that it uses the actual monthly cyclical meter reading obtained on the14 15 regular meter reading day to estimate a beginning or 16 ending read when a customer requests connection or 17 disconnection within five days of the regular monthly 18 meter reading date. Affected customers are billed based 19 on estimated rather than actual usage. 20 If a customer requests connection or 21 disconnection outside of this ten day window (five days 22 before or after a regular meter reading), RMP sends a 23 technician out to obtain a reading. In other words, in 20 24 out of 30 days in a billing cycle, there are no savings in 25 employee time and vehicle mileage because an out-of-cycle CASE NO. PAC-E-10-07 10/14/10 2062 PARKER, M. (Di) 15 STAFF meter reading had to be obtained. Q. Why is Staff concerned about this policy at this time? A. When this policy was implemented, energy rates were lower than they are today and RMP was not capaci ty- constrained. Now, customers are constantly reminded about the importance of using energy wisely. RMP has a number of programs in place to encourage energy efficiency and conservation. RMP sends mixed messages to customers when it encourages conservation on one hand and on the other hand, leaves service connected when there is no customer paying for or beneficially using the energy being delivered to the premises. Staff recommends that the Commission direct RMP to develop a policy that discourages energy waste, reduces unbilled usage, improves billing accuracy by reducing the number of estimated bills, and manages the Company's workforce and equipment in a cost- effective manner. Staff is willing to work with the Company to devise an acceptable policy. Q. Is Staff recommending that the Company immediately dispatch an employee to read a meter or disconnect service when a customer establishes or discontinues service? A. No. The Company needs a reasonable length of time to respond to a customer's request. For residential 2063CASE NO. PAC-E-10-0710/14/10 PARKER, M. (Di) 16 STAFF and small commercial customers, a work completion interval of up to three calendar days is reasonable in the maj ori ty of c ircums tances . An interval of up to five calendar days is reasonable for those situations where weather, the customer's remote location, or some other out-of-the- ordinary issue may delay work. For other types of customers, e. g., irrigation customers, a work completion interval of up to ten calendar days would be reasonable. Staff believes these intervals are realistic based on Idaho Power's reported success in using these same intervals to manage its performance. Q. Does RMP employ any of the newer advanced meter reading technologies? A. No. RMP has limited technical capability at this time. Currently, RMP has approximately 16,000 residential and commercial meters that can be read by its meter readers with handheld devices. However, obtaining those meter readings still requires a meter reader to be near the meter to operate the electronic device. Approximately 57,000 meters in Idaho are still read by a meter reader standing in front of the meter. Q. Would newer metering technologies solve some of the metering and billing issues raised by Staff? A. Yes, many of the issues mentioned would be less problematic and in some cases eliminated with advanced 2064 CASE NO. PAC-E-10-07 10/14/10 PARKER, M. (Di) 17 STAFF . . . 1 meter reading technologies. To Staff's knowledge, 2 however, RMP has no immediate plans to upgrade its meters 3 to allow for remote meter reading or remote disconnection 4 and reconnection of service. 5 Q.If RMP is required to disconnect service wi thin 6 a reasonable interval after a customer discontinues 7 service, won't this increase workload and expense to the 8 Company? 9 A.As Staff pointed out earlier, the Company may 10 not be saving as much time and money as it believes bý 11 leaving meters on between customers. To the extent that 12 RMP's costs do increase, there are ways in which the 13 Company can recover at least a portion of its costs 14 directly from customers who are causing those costs. 15 Both Idaho Power and Intermountain Gas assess an 16 account initiation fee when a new account is opened to 17 help cover the costs associated with connecting and 18 disconnecting meters. Currently, RMP customers are not 19 charged an account initiation fee if an account is opened 20 during regular working hours. Based on the total number 21 of RMP accounts opened in 2009, which includes accounts 22 that required an actual connection of the meter as well as 23 those accounts that did not require an actual meter 24 connection but required a reading or estimated reading to 25 complete the transfer of service, the Company would have 2065CASE NO. PAC-E-10-07 10/14/10 PARKER, M. (Di) 18 STAFF received approximately $288,000 in additional revenue if it had in place a $20 account initiation fee. Q. What do the other regulated gas and electric companies in Idaho charge residential customers to open an account? A. Idaho Power's fee is $20 for accounts initiated during working hours and Intermountain's fee is $14 for accounts opened during regular office hours. Avista Utilities is currently considering implementation of such a charge. Q. Does this conclude your direct testimony in this proceeding? A. Yes, it doe s . 2066 CASE NO. PAC-E-10-0710/14/10 PARKER, M. (Di) 19 STAFF . . . 19 20 21 22 23 1 (The following proceedings were had in 2 open hearing.) 3 MR. WOODBURY: And I would present Ms. Parker for 4 cross-examination. 5 COMMISSIONER SMITH: Mr. Purdy. 6 MR. PURDY: No. Thank you. 7 COMMISSIONER SMITH: Williams. 8 MR. WILLIAMS: No questions. 9 COMMISSIONER SMITH: Olsen. 10 MR. OLSEN: No questions. 11 COMMISSIONER SMITH: Otto. Budge. 12 MR. BUDGE: No questions. 13 COMMISSIONER SMITH: For the Company. 14 MR. SOLANDER: No questions. 15 COMMISSIONER SMITH: How about from the 16 Commissioners? 17 COMMISSIONER REDFORD: No. 18 COMMISSIONER KEMPTON: Absolutely not. COMMISSIONER SMITH: Thank you, Ms. Parker. THE WITNESS: That was too easy. (The witness left the stand.) COMMISSIONER SMITH: Mr. Woodbury. MR. WOODBURY: Staff's next witness is 24 Curtis Thaden. 25 2067 HEDRICK COURT REPORTING P. O. BOX 578, BOISE, ID 83701 PARKER (Di)Staff . . . 20 1 CURTIS THADEN, 2 produced as a witness at the instance of Staff, being first 3 duly sworn, was examined and testified as follows: 4 5 DIRECT EXAMINATION 6 7 BY MR. WOODBURY: 8 Q.Mr. Thaden, will you please state your name and 9 spell it for the court reporter? 10 A.Curtis Thaden: C-U-R-T-I-S, T-H-A-D-E-N. 11 Q.And for whom do you work and in what capacity? 12 A.Idaho Public Utilities Commission as a utility 13 compliance investigator. 14 Q.And in that capacity, did you have occasion to 15 prefile on October 14th direct testimony consisting of 28 16 pages, and 13 exhibits, 115 through 128? 17 A.Yes, I did. 18 COMMISSIONER REDFORD: Is your speaker on? 19 MR. WOODBURY: Thank you, Commissioner. Q.BY MR. WOODBURY: And have you had the 21 opportuni ty to review that testimony and exhibits prior to this 22 hearing? 23 24 25 A.Yes, I have. Q.And if I were to ask you the questions set forth in your testimony, would your answers be the same? 2068 HEDRICK COURT REPORTING P. O. BOX 578, BOISE, ID 83701 THADEN (Di)Staff . .\ . 20 21 22 23 24 25 1 A.Yes, they would. 2 MR. WOODBURY: Madam Chair, I'd ask that 3 Mr. Thaden's testimony be spread on the record, and exhibits 4 identified. 5 COMMISSIONER 'SMITH: If there's no obj ection, 6 that is so ordered. 7 (The following prefiled direct testimony 8 of Mr. Thaden is spread upon the record.) 9 10 11 12 13 14 15 16 17 18 19 2069 HEDRICK COURT REPORTING P.O. BOX 57 8, BO IS E , I D 8 3 7 0 1 THADEN (Di)Staff Q. Please state your name and business address for the record. A. My name is Curtis Thaden. 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 Utili ties Compliance Investigator. I accepted that position with the Consumer Assistance Staff in July 2007. Q. What is your professional- and educational background? A. Prior to my employment with the Idaho Public Utili ties Commission, I had eighteen years experience working in private industry for Hewlett Packard in a variety of manufacturing positions. I received an Associate of Science Degree in Electronic Engineering Technology from Links School of Business (now known as ITT Technical Institute) in Boise, Idaho, in September of 1983. Addi tiona1ly, I am a licensed real estate agent in the State of Idaho. Q. Have you previously testified before the Commission? A. Yes, I have. Q. What is the purpose of your testimony in this proceeding? 2070 CASE NO. PAC-E-10-0710/14/10 THAEN, C. (Di) 1 STAFF A. I will be addressing the following: (1) demographics of the 13 Idaho counties in Rocky Mountain Power's (RMP) service territoryi (2) factors affecting customers' ability to pay their billsi (3) programs offering financial assistance to RMP's Idaho customersi (4) programs, payment plans and payment arrangements offered by RMP to its customersi (5) energy conservation education for low income customersi and (6) Low-Income Weatherization and other Energy Efficiency Programs. Q. Please summarize your recommendations to the Commission as discussed in your testimony. A. Staff recommends that the Commission: (1) direct Rocky Mountain Power to ensure that the Company more effectively communicates information regarding the Idaho MoratOrium and the Winter Payment Plan to its customers by revising its annual Customer Information brochure and providing .bi11 inserts with disconnect notices i 2) encourage the Company to increase funding for the Lend-A-Hand program by making changes to the way customers can contribute i 3) direct Staff to convene a workshop to examine how best to provide energy conservation education to low income customers ¡and 4) provide no additional funding for low income energy conservation education at this time. 2071 CASE NO. PAC-E-10-0710/14/10 THAEN, C. (Di) 2 STAFF . . . 14 15 1 Demographics and Factors Affecting Bill Payment 2 Q.Has the Staff prepared a demographic profile 3 of Rocky Mountain Power's service territory in Idaho? 4 A.Yes. Exhibit No. 115 includes both 5 demographics obtained from the most recent Census Bureau 6 data and unemployment data obtained from the Idaho 7 Department of Labor for each of the counties served by 8 Rocky Mountain Power. For comparison, this Exibit also 9 includes statistics for the State of Idaho and the United 10 States. Exhibit No. 116 shows the 20io Federal poverty 11 Level (FPL) Guidelines. For purposes of Staff's analysis, 12 income at or below 100% of poverty was used. A map of the 13 13 counties served by Rocky Mountain Power can be found in Exhibit No. 117. Q.In reviewing the data, what stands out as 16 particularly noteworthy? 17 A.The 13 counties that comprise the area that 18 Rocky Mountain Power serves have the state'.s lowest .average 19 unemployment rate (7.3 %) 1. Seven counties have poverty 20 rates exceeding the statewide average (12.5%). The low 21 unemployment rate coupled with high poverty rates suggest 22 that these counties have a large percentage of "working 23 poor" , individuals who are, employed but unable to meet 24 life's basic needs (food, clothing, shelter...) due to low 25 lThough RMP' s region has the lowest average unemployment rate in the state, the region's unemployment has doubled during the past two years. 2072 CASE NO. PAC-E-10-0710/14/10 THAEN, C. (Di) 3 STAFF wages, inadequate benefits, and little opportunity of economic advancement. Relatively low paying jobs in these largely rural and agricultural communi ties help explain the situation. Twel ve out of the 13 counties wi thin the service territory are below the July 2010 seasonally adjusted state average unemployment rate of 8.8%.2 Five of these 12 counties (Bear Lake, Butte, Franklin, Oneida and Teton) have unemployment rates less than 6.8%, ranking among the lowest unemployment rates in the state. Regarding the region ' s average poverty rate, seven of the 13 counties exceed the state average of 12.5%. Five counties (Bannock, Butte, Clark, Lemhi, and Madison) have poverty rates in excess of 14%, ranking them in the state's top twenty counties with the highest poverty rates. Three of these counties (Clark, Lemhi, and Madison) rank in the top ten. Madison County has the highest poverty rate in the state, a staggering 25.1%, although that may be affected by the BYU Idaho student population. The poverty data used in this demographic profile dates back to 2008. Current poverty rates are likely to be much higher due to the sharp rise in unemployment that has occurred in the region and across the state during the last two years. Those who fall below the Federal Poverty Levels are now 2 At the time this testimony was written, the most recent unemployment data available was from July 2010. 2073 CASE NO. PAC-E-10-07 10/14/10 THAEN, C. (Di) 4 STAFF likely to be full-time workers who are unable to earn enough to meet life's basic needs or are middle class wage earners who have either lost their job or had diminished incomes.3 These individuals face high energy burdens. 4 Q. Do the Federal Poverty Level Guidelines reflect an accurate gauge of poverty in the United States and Idaho? A. Not necessarily. The 100% of poverty level is regarded by social service organizations as underestimating what it costs to maintain a basic standard of living. Realizing this, federal and state agencies charged with the responsibi1i ty to protect human health and welfare set household income eligibility limits for social service programs at levels that exceed the Federal Poverty Guideline's benchmark of 100% of poverty. As previously stated in my testimony, seven of the 13 counties in Rocky Mountain's service territory underestimation, the actual number of those who live in poverty in Rocky Mountain Power's service terri tory is even greater. 3 Source: Idaho Statesman (9/17/10), article titled, "Census: 1 in 7 Americans lives in poverty."4 Energy Burden is the percentage of a household's income that is spent on all home energy expenses, which includes all energy used for space heating and cooling, lighting, and water heating. 2074 CASE NO. PAC-E-10-0710/14/10 THAEN, C. (Di) 5 STAFF An example of the underestimation of those Ii ving in poverty can be seen by comparing the Federal Poverty Level Guideline's (FPL) estimation of Idaho households living in poverty to the state's LIHEAP (Low Income Home Energy Assistance Program) estimation of those Ii ving in poverty and eligible for financial assistance. Under the FPL, 54,829 households in Idaho are below 100% of poverty. 5 Under Idaho's bIHEAP Program calculations (which were based upon 150% of poverty), 106,481 households qualify for benefits6. The difference. between these two estimates is 51,562 households statewide. Q. What conclusion can be drawn from these demographi c s? A. Customers who are living in poverty and/or are unemployed have limited or diminished financial resources with which to pay utility bills. Given the ongoing economic turmoil, Staff believes that the Census data, although somewhat lagging, provides a fairly good picture of RMP's customers today. In fact, there is reason to believe that customers may be worse off in the future. Staff is concerned that a significant number of RMP's customers will have problems paying their electric bills, 5 Source: LIHEAP Home Energy Notebook for FY 2007: Appendix B: Income Eligible Household Estimates. Average of 2006, 2007, 2008 State-level estimates for Idaho.6 Source: On the Brink 2009; The Home Energy Affordability GAP April 2009; published 2010 Fisher, Sheehan & Coltron. 2075 CASE NO. PAC-E-10-0710/14/10 THAEN, C. (Di) 6 STAFF especially when faced with increasing rates. Q. What do you see as the greatest threat that could impact the ability of customers to pay their utility bills? A. UnemploYment continues to be a great concern. Current Idaho Department of Labor data as of July 2010 shows a continued and sustained high unemployment rate, which now stands near the highest levels in 27 years (8.8%) . An increase in the unemployment rate can lead to an increase in the percentage of RMP customers who fall below the Federal Poverty Level. As a result, more strain will be placed upon agencies that provide financial assistance for paYment of utility bills. The number of disconnections has the potential to increase as people experience difficulty paying their bills. Even people who were high wage earners can find themselves in a tight financial situation following a layoff. Higher unemployment, rising fuel costs and increasing food costs are additional stresses that will have an impact on people's finances. Q. Has the number of Past Due and Final Notices sent to customers increased or decreased? A. The total number of Past Due and Final Notices sent to Idaho residential customers has fluctuated over the 2076 CASE NO. PAC-E-10-0710/14/10 THAEN, C. (Di) 7 STAFF past 3 calendar years (2007-2009), with the net result being an overall increase. Past Due notices sent to customers increased by 8.5% and Final Notices sent to customers increased by 11%. In comparison, Past Due notices sent to low income customers (defined here as customers who have received energy assistance benefits within the past 12 months) increased by 49% and Final Notices sent to customers receiving energy assistance increased by 50%. The two tables below reflect the amount of Past Due and Final Notices sent to-customers. Past Due Notices Sent Non Low Income 56,141 61,927 59,961 to Residen tial Low Income 2,427 3,229 3,,615 Customers Total 58,568 65,156 63,576 Year 2007 2008 2009 Final Notices Sent to Non Low Income 46,389 51,501 50,529 Residential CustomersLow Income Total2,069 48,4582,771 54,2723,118 53,647 Year 2007 2008 2009 The increase in notifications is indicative of customers struggling to make their payments in a timely manner or to even be able to make their payments at all. Q. Has the number of customers who have been disconnected for non-payment increased or decreased? A. The total number of Idaho Rocky Mountain Power residential customers disconnected for non-payment has steadily increased over the past three calendar years (2007-2009) from 2,021 to 2,490. This represents a 23% 2077 CASE NO. PAC-E-10-0710/14/10 THAEN, C. (Di) 8 STAFF increase in the number of disconnections; During the same time period, the number of customers receiving energy assistance who were disconnected for non-payment increased from 160 to 245, a 53% increase. Customers who received energy assistance comprise a small percentage of the total number of disconnections in each calendar year. This suggests that disconnection of service due to non-payment is not an issue for low income customers only. The table below reflects the number of customers who were disconnected during the last three years. Year 2007 2008 2009 Disconnections for Residential Customers Non Low Income Low Income 1,861 (92%) 160 (8%) 1,992 (91%) 196 (9%) 2,245 (88%) 296 (12%) Total 2,021 2,188 2,490 As the economic downturn continues and more customers struggle financially, it is apparent that there is a greater need to provide help for those seeking financial assistance within the community. This also presents an opportuni ty for RMP to address the issue of disconnects due to non-payment. As discussed later in this testimony, RMP has taken a first step to address the issue of disconnects resulting from non-payment. Staff encourages RMP to continue its efforts. Programs Offering Financial Assistance Q. What resources are available to help customers pay their energy bills? 2078 CASE NO. PAC-E-10-0710/14/10 THAEN, C. (Di) 9 STAFF A. The Low Income Home Energy Assistance Program (LIHEAP) is funded by the federal government through a grant to the State of Idaho. Unlike the situation in other states, state government funding is not available in Idaho to help customers pay energy bills at any time of year. For the 2009/2010 heating season, Staff anticipated a decrease in federal funding for LIHEAP. During the previous heating season (2008/2009) , what was thought to be a one-time funding increase to the yearly LIHEAP grant occurred?, allowing for larger benefit amounts to be given to each participant. In addition, eligibility guidelines changed to allow for more households to participate in the LIHEAP program. The level at which a household was eligible to receive assistance changed from a maximum of 150% to 160% of the Federal Poverty Level Guidelines. Instead of returning to the normal historical funding level, federal funding for LIHEAP for the 2009/2010 winter heating season remained the same as that of the 2008/2009 heating seasons. Due to the ongoing economic downturn in the economy, eligibility guidelines were 7 An increase in LIHEAP Funding for 2008/2009 heating' was authorized on September 30, 2008, by HR 2638, The Consolidated Security, Disaster Assistance, and Continuing Appropriations Act, 2009. As a result, funds available to state of Idaho for the winter heating season increased from $12,376,499 to $29,939,480.8 Fuding for the 2009/2010 heating season continued to fund at a record level of $26,939,480 which was authorized on December 19, 2009 by HR 3288, The Consolidated Appropriations Act of 2010. 2079 CASE NO. PAC-E-10-07 10/14/10 THAEN, C. (Di) 10 STAFF changed to be in alignment with the Weatherization Assistance Program eligibility guidelines. The level at which a household is eligible to receive assistance changed from a maximum of 160% of the Federal Poverty Level Guidelines to 60% of the estimated state medium income9. (Estimated state income is close to 175% of the Federal Poverty Guidelines). The higher funding level and change in the eligibility guidelines allowed for more households to participate in the LIHEAP program. At this time, Staff is uncertain whether future LIHEAP funding will increase, decrease or stay at current funding levels. For the 2009/2010 winter heating season, $1,058,386 in LIHEAP funding was distributed to 1,474 Rocky Mountain Power customers in Idaho to help pay home heating bills. The average amount paid to each participant was $598. Both the benefit amount given to each participant and the number of participants were at an all time high. The table below reflects the number of Rocky Mountain Power customers in Idaho who received LIHEAP benefits and the average dollar amount allocated during the last three heating seasons. ~ 60% of estimated state medium income: 1 person family $19,985, 2 person family $24,708, 3 person family $30,522, 4 person family $36,366, 5 person family $42,150, 6 person family $47,964. 2080 CASE NO. PAC-E-10-07 10/14/10 THAEN, C. (Di) 11 STAFF LIHEA Program Year Funding 2007/2008 $374,385 2008/2009 $661,265 2009/201010 $1,058,386 FundingParticipants 1,1781,4741,769 Avg. Benefit $318 $449 $598 LIHEAP does not sufficiently meet the energy needs of low income customers. Therefore, Crisis Funding benefits are available to customers whose circumstances qualify them for additional financial assistance under LIHEAP. Money is not always available for Crisis Funding. Even when funds are available, the number of people who can be helped is quite small. For the 2009/2010 winter heating season, $5,643 in Crisis Funding benefits was distributed to 16 Rocky Mountain Power customers in Idaho. The average amount paid to each participating customer in 2009/2010 was $353. Q. Are there other programs in place that can help Idaho customers? A. Yes. In Rocky Mountain Power's service territory, two CAP Agencies-Southeastern Idaho Community Action Agency (SEICA) and Eastern Idaho Community Action Partnership (EICAP) -administer both the LIHEAP and Lend-A- Hand Programs. The Lend-A-Hand Program provides financial 10 First year of new Pilot Project that has allowed customers to apply for LIHEAP benefits throughout the year or until funds run out. Each year the heating season ends on March 31st which is reflected in the LIHEAP Chart above. As of 7/30/10, LIHEAP funding is $1,185,395, the number of participants is 1,960, and the average benefit amount is$605. 2081 CASE NO. PAC-E-10-07 10/14/10 THAEN, C. (Di) 12 STAFF assistance to RMP customers who use electric space heat as their primary heat source. To be eligible, recipients must be at or below 150% of the Federal Poverty Level Guidelines. Recipients can receive an annual household benefit of up to $600. All money collected, with the exception of administration costs, goes back to the community. In the past three program years (2007-2009), RMP shareholders donated $97,269 to Lend-A-Hand for Idahoi RMP customers in Idaho donated $22,112. and "other sources" donated $907.11 Of the total amount collected ($120,000), $3,000 was paid to the two CAP agencies for administering the program ($500 each annually). The table below reflects total dollar amounts donated by. RMP customers and its shareholders in the. past three program years (July 1 - June 30). Fiscal Year 2007/2008 2008/2009 2009/2010 Lend-A-Hand DonationsCustomer\Other Shareholders $6,413 $33,587$9,283 $30,717$7,035 $32,965 Total Grants $40,000 140 $40,000 173 $40,000 188 Q. What efforts does Rocky Mountain Power put forth to make its customers and the community aware of Lend - A-Hand? A. Rocky Mountain Power publicizes Lend-A-Hand 11 "Other Sources" consist of employee donations through the Company's annual giving campaign and the associated Pacific Corp Foundation match. Donations: 2007/2008 -$82, 2008/2009-$207, 2009/2010-$618. 2082 CASE NO. PAC-E-10-0710/14/10 THAEN, C. (Di) 13 STAFF through its home webpage, on-line payment webpage, ~ustomer newsletters, press releases, and monthly customer billings, which include donation envelopes for the months of November, February and June. The program is also part of the Company's annual Employee Giving Campaign. In addition, the Company's call center staff directs customers in need of assistance to SEICA and EICAP. RMP is doing a good job in marketing Lend-A- Hand. Staff encourages the Company to continue promoting the program. Examples of the Company'.s marketing efforts can be found in Exhibit Nos. 118 and 119. Staft encourages the Company to investigate additional ways to increase the total funding amount, which would also include an increase in shareholder donations, especially in these challenging economic times when more of the Company customers are in greater need of financial assistance and are struggling to pay their utility bills. Q. Does Staff have any suggestions as to how RMP can increase customer donations for the Lend-A-Hand program? A. The donation envelopes that RMP includes with the bills during the months of November, February and June have an Oregon mailing address (Exhibit No. 120). An out of state address might be perceived by Idaho customers as meaning that donations are not necessarily helping Idaho 2083 CASE NO. PAC-E-10-0710/14/10 THAEN, C. (Di) 14 STAFF RMP customers, thus potentially decreasing the number of contributions. RMP should consider changing the donation envelope mailing address to an Idaho mailing address. The Company currently provides customers with the option of adding monthly donations in a fixed dollar amount ($1, $2, $5, $10) to each of their electric bills. To do so, the customers must first take the initiative to contact the Company before the next billing cycle to ensure the donation amount is added to the monthly billing statement. To make a one-time donation, the customer has the option of simply increasing their payment amount by a fixed dollar amount when paying their bill. There is a sentence in small print on the billing statement that informs customers of this option. To better bring attention to the opportunity to donate on the monthly billing and to make it easier for customers to make donations, RMP should consider adding a separate Lend-A- Hand section on the monthly billing statement with a donation check off box. A good example of this can be found in Exhibit No. 121. Programs, Payment Plans and Payment Arrangements Q. What utility programs are in place to help customers avoid being disconnected during the winter months? A. Besides LIHEAP and Lend-A-Hand, the Idaho 2084 CASE NO. PAC-E-10-0710/14/10 THAEN, C. (Di) 15 STAFF Moratorium and Winter Payment Plan also address this issue. Idaho's Moratorium allows residential customers whose household includes children, elderly or the inf irm to be protected from disconnection during the months of December through February if they declare that they are unable to pay their utility bill in full. However, customers are not absolved of paying their utility debt. The Winter Payment Plan allows customers who have declared eligibility for the Moratorium an additional two months of protection (November and March) if they agree to accept and follow through on monthly payments that are equal to half of the normal level pay mount (monthly average of the previous 12 months' billings). A brochure entitled "Consumer Information", with information on both the Idaho Moratorium Program and Winter Payment Plan; is sent to all residential customers annually. All customers that receive a Final Disconnection Notice during the months of November through February are made aware of the Idaho Moratorium Program via a small printed statement located on the second page of the bill. Staff believes that both the annual brochure and billing statement do not sufficiently focus customers' attention on the critical information being provided. Staff recommends that all residential customers who receive a Final Disconnection Notice during 2085 CASE NO. PAC-E-10-07 10/14/10 THAEN, C. (Di) 16 STAFF the months of November through February be made aware of the Idaho Moratorium and the Winter Payment Plan through a bill insert with the notice. For those customers who have declared eligibility for the Moratorium, Staff recommends that an insert on the Winter Payment Plan be provided with the December, January and February billings. A good example of a bill insert can be found in Exhibit No. 122. Lastly, concerning the RMP's Consumer Information brochure, the current format contains Idaho Moratorium information in the Disconnection Section. Staff recommends that the Company revise its brochure so that the Idaho Moratorium information is a separate section, similar to the stand alone section for the Winter Payment Plan, thereby decreasing the possibility that this information will be overlooked by customers. Q. Has the number of customers who have declared eligibility for the Moratorium increased or decreased? A. The number ofRMP customers in Idaho who declared eligibility for the Moratorium during the 2009/2010 winter heating season totaled 929. This represents an 11% increase in comparison to the previous winter heating season (2008/2009) and a 63% increase in comparison to the 2007/2008 winter heating season. The increase in the number of those requesting winter protection could be attributed to more people struggling 2086 CASE NO. PAC-Ê-10-0710/14/10 THAEN, C. (Di) 17 STAFF financially, as was previously discussed in this testimony. Staff anticipates that the number of individuals who declare eligibility for the Moratorium will increase next winter heating season if LIHEAP funding levels are reduced or economic conditions do not improve. Exhibit No. 123 reflects the total number of Moratorium participants in the past three winter heating seasons. Q. Has the number of customers participating in the Winter Payment Plan increased or decreased? A. Of the 929 participants who declared eligibility for the Moratorium in the 2009/2010 winter heating season, only 9% elected to be placed on the Winter Payment Plan. This is significantly lower than the previous winter heating season when 20% of Moratorium participants had a Winter Payment Plan. The number of participants in the Winter Payment Plan over the past three winter heating seasons has averaged only 14%. The most recent decrease in pårticipation could be attributed to more participants receiving LIHEAP benefits and larger grants, customer inability to make a payment, or a lack of effort by the Company to promote and get customers signed up on the Winter Payment Plan when a customer declares the need for winter protection. Exhibit No. 123 reflects the total number of plan participants and the percentage of customers who signed up for the plan after declaring 2087 CASE NO. PAC-E-10-07 10/14/10 THAEN, C. (Di) 18 STAFF eligibili ty for the Moratorium in the past three winter heating seasons. Q. Have customers on the Winter Payment Plan been able to successfully pay down their outstanding account balances before the end of the winter protection period on March 31? A. Of the 81 participants who elected to be placed on the Winter Payment Plan during the 2009/2010 winter heating season, 100% were not able to meet their monthly payment. In the previous winter heating season, of the 167 participants who elected to be placed on the Winter Payment Plan, 100% were unable to meet their monthly payment. Such high default percentages cause concern about the effectiveness and success of the Winter Payment Plan. Q. Have the number. of residential payment arrangement agreements and defaulted payment arrangements increased? A. Yes. Al though the number of Idaho RMP residential customers increased by over 10% over the past three calendar years (2006-2009), the number of payment arrangements agreements and defaulted payment arrangements increased by much higher percentages. The number of payment arrangement agreements increased by 31% and the number of defaulted payment arrangements increased by 44%. A customer can have more than one payment 2088 CASE NO. PAC-E-10-0710/14/10 THAEN, C. (Di) 19 STAFF arrangement in a given month for an account and customers can have more than one account. Because of this, the number of payment arrangement agreements and payment arrangement defaults do not correlate to the actual number of customers. The table below reflects the number of customers, payment arrangements, and payment arrangement defaults. Year 2007 2008 2009 Arrangements 6,1317,9998,032 Defaults 4,6056,2986,650 Percentage of Defaults 75% 79% 83% Q. What can be done to help reduce the number of customers who default on their payment arrangement agreements? A. At this time, Staff is not sure why customers are not meeting the terms of payment arrangements. It may be that a more diligent effort by RMP to provide monthly customer reminder calls would be beneficial, allowing the Company to assèss each customer's situation and reinforce to each customer the importance of making the agreed upon payment. However, it may be that customers do not have the money to make payments and have found that agreeing to a payment arrangement is simply a way to delay a pending disconnection. Whether customers are doing so because they feel they have no choice but to agree to terms suggested by the Company, are using payment arrangements as a means to 2089 CASE NO. PAC-E-10-0710/14/10 THAEN, C. (Di) 20 STAFF defer disconnection, or some other reason, more study is required to determine why so many arrangements result in defaul t. During the last three years, the percentage of payment arrangement defaults has remained relatively high, ranging between 75% and 83%. Unless an effort is put forth by the Company to address the reason as to why so many payment arrangements end in default, the number will remain high. Q. What payment options are in place to assist customers who have fallen behind on their monthly payments and are struggling to pay down their arrearages? A. In addition to the Winter Payment Plan, RMP offers the Time Payment Program and the Equal Time Payment Program to customers with arrearages. Both payment plans allow customers up to 12 months to pay off a past due balance. The Time Payment Plan, which is used most often, allows customers the flexibility to pay a past due balance over a 12-month period in addition to their current monthly bills which are based on actual usage. This option differs from the Equal Time Payment Program in that monthly bills are based on arrearage and estimated annual usage with the monthly payment being the same amount each month. Just as with the Time Payment Plan Program, the Equal Time Payment Program allows customers the flexibility to pay a past due balance over a 12 -month period. 2090 CASE NO. PAC-E-10-07 10/14/10 THAEN, C. (Di) 21 STAFF RMP has shown great flexibility in allowing its customers to take up to twelve months to payoff arrearages. For example, of the 5,314 accounts that were signed up for the Time Payment Program in 2009, 73% (3,894) had arrangements greater than six months. Exhibit No. 123 shows the number and percentage of accounts on the Time Payment Program with payment arrangements under six months and at six months or greater. Staff believes that by providing customers with greater flexibility, especially in these challenging economic times, customers who are financially stressed are benefited by being offered a better opportunity to payoff past due balances. As previously stated, more study by RMP is required to determine why so many arrangements result in default. A brief summary of each payment plan offered by RMP can also be found in Exhibit No. 124. Q. What new effort has Rocky Mountain Power taken to educate its customers about the available programs intended to help both lower and pay energy bills? A. In 2009, due to the ongoing recession, RMP stepped up its educational efforts to assist customers. The Company focused on 3 key areas: 1) bill reduction; 2) bill managementi and 3) financial assistance. The Company's website as well as customer service representatives provide customers with additional 2091 CASE NO. PAC-E-10-0710/14/10 THAEN, C.(Di) 22 STAFF energy efficiency tips to help reduce usage, explanations of payment plan options, financial assistance information, and referrals to local agencies. The Company also further publicized its Gift Giving Program by providing information more frequently in the Company's newsletters and monthly bills. The program allows an individual to donate by making a payment on another customer's RMP account. Exhibit No. 125 contains a copy of RMP's uVoices" newsletter that contains a brief summary detailing the program. In February 2009 and February 2010, RMP President Rich Walje wrote a letter to the Editor, which was published by the Post Register in Idaho Falls, Idaho, to encourage customers to contact the Company at the first sign that the customer was having difficulty in paying their bills. Both letters outlined the Company's concern and effort in providing assistance to its customers during the economic downturn. The letters were also sent to local television and radio stations in Idaho. A copy of the February 2010 letter to the Editor can be found in Exhibit No. 126. Q. What other steps has the Company taken to further assist its customers? A. In an effort to help prevent customers from being disconnected, RMP modified its disconnect 2092 CASE NO. PAC-E-10-07 10/14/10 THAEN, C. (Di) 23 STAFF notification process. In addition to the required process that a utility must follow prior to disconnecting a customer12, RMP added 2 additional notification steps to the process. An outbound call is made to the customer 96 hours prior to the disconnect date and a 48-hour notice is hand-delivered to the customer's residence. Energy Conservation Education Q. What is the status of the Energy Conservation Education program that was approved by Commission Order No.. 30783 in RMP's previous rate case. (PAC-E-08-01)? A. As part of the rate case settlement (PAC-E-08-01), RMP agreed to support an Energy Conservation Education program in Idaho by providing $50,000 in anual funding through its DSM tariff rider to SEICA and EICAP. The purpose of the program is to provide conservation education to LIHEAP participants who have not yet received weatherization services. Though RMP is not responsible for the implementation of the program, the Company has attempted to work with Community Action Partnership of Idaho (CAPAI) in developing the program 12 Rule 309 states that an initial written notice must be mailed to a customer 7 days prior to disconnection and a final notice must be mailed 3 day's before the proposed date of termination. 24 hours before the proposed date of termination, the utility shall attempt to contact the customer either in person for by phone. 2093 CASE NO. PAC-E-10-0710/14/10 THAEN, C. (Di) 24 STAFF design, goals, and evaluation criteria. According to RMP, SEICA and EICAP were participating in the development and implementation of both energy conservation education and energy conservation kit distribution for Idaho Power customers, and CAPAI wanted to ensure that the 2 CAP agencies were not overwhelmed by instituting two separate programs. For that reason, CAPAI decided to delay implementation for RMP customers. Staff is concerned that CAPAI, SEICA and EICAP are looking at energy conservation education for RMP and Idaho Power customers as two different and distinct programs. Approaching the program as two separate programs rather than one has the potential to increase the overall cost while reducing the effectiveness of the program. This situation raises the question of whether low income energy conservation education should be provided on a localized utility by utility, CAP by CAP basis. Staff recommends that the Commission direct Staff to hold a workshop with utili ties and other interested parties to determine how best to provide energy conservation education targeted to low income customers throughout the state. Q. Of the $50 i 000 in Energy Conseryation Education Funding that was allocated in 2009 and again in 2010, how much money has been utilized for the program? A. To date, RMP has been billed for and paid 2094 CASE NO. PAC-E-10-0710/14/10 THAEN, C. (Di) 25 STAFF $7,500 to be used for the purchase of 500 energy conservation kits that will be distributed by the two agencies to qualifying RMP customers at some future date. Staff is concerned that the money that has been allocated for Energy Conservation Education for 2009 and 2010 ($100,000 total) has not been utilized in a timely manner. Staff recommends that while the annual funding amount should be maintained at its current level of $50,000 i the funding level should not be increased at this time. Furthermore, Staff recommends that RMP include this funding amount in its budget but that no further expenditures be made until a workshop is held and a decision made on how to best provide energy conservation education statewide. Low Income Weatherization and Energy Efficiency Q. What other RMP programs are available to assist low income customers? A. Energy efficiency programs can make bills more affordable by decreasing usage, thereby lowering energy costs. The Low Income Weatherization Program offers financial assistance to qualifying low income customers with both natural gas and electrically-heated homes for weatherization of their homes. . A household whose income is 60% of the estimated state medium income or less qualifies to receive weatherization services. This program is 2095 CASE NO. PAC-E-10-0710/14/10 THAEN, C. (Di) 26 STAFF administered by SEICA and EICAP in RMP's service territory. In Case No. PAC-E-Os-01, the Commission approved annual funding for low income weatherization of $150,000. Funding for the low income weatherization program comes from the Company's existing DSM tariff rider (Schedule 21). The total number of dwellings weatherized in Idaho from 2007- 2009 was 257 i the amount billed by the CAP agencies totaled $434,06113. This amount includes CAP administration costs but does not include RMP' s administrative costs. A breakdown of the totals for each of the three years can be found in Exhibit No. 127. Funding for the Federal Weatherization Assistance Program (WAP) that came from the American Recovery and Reinvestment Act (ARRA) will be expiring on March 31, 2011. Although Staff anticipates a return to normal funding levels for WAP after ARRA funds are exhausted, the enhanced service delivery capacity that was made possible by AR will enable CAPs throughout the state to readily expand their utility-funded weatherization programs if additional funds are made available. RMP offers its Idaho customers additional energy efficiency programs that are available to households of aii income levels. Such programs include: 1) Home 13The CAP agencies are allowed to bill RMP up to $150,000 for each program year which runs from April 1 through March 31. On a calendar year basis, the payments may be greater than the $150,000. 2096 CASE NO. PAC-E-10-0710/14/10 THAEN, C. (Di) 27 STAFF . 1 2 3 4 5 6 7 8 9 10 11 12.13 14 15 16 17 18 19 20 21 22 23 24 25. Energy Savings i 2) Refrigerator/Freezer Recycling i 3) Idaho Time-of-Day Meteringi and 4) On-line and Mail-in Energy Analysis. More detailed summaries of the programs can be found in Exhibit No. 128. Q. Does Rocky Mountain Power adequately address the needs of its customers through its various programs? A. Although there is always more that can be done, RMP' s programs do help customers in a variety of different ways. Q. Will an increase in Rocky Mountain Power's rates affect customers' ability to pay their bills? A. Yes. There are many factors affecting customers' ability to pay, and a rate increase will add to the financial difficulties faced by customers. The Company will need to continue to be flexible in making payment arrangements. It will need to work with the customers to ensure that payments can be made based upon schedules that fi t the customers ' individual circumstances and needs. Staff recommends that the Company be encouraged to look for new and creative ways to increase energy efficiency and provide assistance to customers, particularly those customers who are economically disadvantaged. Q. Does this conclude your testimony? A. Yes, it does. 2097 CASE NO. PAC-E-10-0710/14/10 THAEN, C. (Di) 28 STAFF . . . 25 1 (The following proceedings were had in 2 open hearing.) 3 MR. WOODBURY: And I'd present Mr. Thaden for 4 cross-examination. 5 COMMISSIONER SMITH: Do you have questions, 6 Mr. Purdy? 7 MR. PURDY: No. Thank you. 8 MR. WILLIAMS: No questions. 9 COMMISSIONER SMITH: Olsen. 10 MR. OLSEN: No questions. 11 COMMISSIONER SMITH: Otto. 12 MR. OTTO: No. 13 COMMISSIONER SMITH: Budge. 14 MR. BUDGE: No questions. 15 COMMISSIONER SMITH: For the Company. 16 MR. HICKEY: No, thank you. 17 COMMISSIONER SMITH: For the Commissioners. 18 COMMISSIONER REDFORD: No. 19 COMMISSIONER KEMPTON: No. 20 COMMISSIONER SMITH: Thank you, Mr. Thaden. 21 THE WITNESS: Thank you. 22 (The witness left the stand.) 23 COMMISSIONER SMITH: Madam Chair, Staff's next 24 witness is Beverly Barker. 2098 HEDRICK COURT REPORTING P. O. BOX 578, BOISE, ID 83701 THADEN (Di)Staff . . . 1 BEVERLY BARKER, 2 produced as a witness at the instance of Staff, being first 3 duly sworn, was examined and testified as follows: 4 5 DIRECT EXAMINATION 6 7 BY MR. WOODBURY: 8 Q.Will you please state your full name and spell 9 your name for the record? 10 A.It i s -- yes. My name is Beverly Barker. It's 11 B-E-V-E-R-L-Y, B-A-R-K-E-R. 12 Q.And for whom do you work and in what capacity? 13 A.I work for the Idaho Public Utili ties Commission 14 as a director of consumer assistance. 15 Q.And in that capacity, did you have occasion to 16 prepare rebuttal testimony consisting of eight pages? 17 A.Yes, I did. 18 Q.And have you had the occasion to review that 19 testimony prior to this hearing? 20 21 A.Yes. Q.And if I were to ask you the questions set forth 22 in your testimony, would your answers be the same? 23 24 25 A.Yes, they would. MR. WOODBURY: Madam Chair, I would ask that Ms. Barker i s testimony be spread on the record. 2099 HEDRICK COURT REPORTING P. O. BOX 578, BOISE, ID 83701 BARKER (Di) Staff .1 COMMISSIONER SMITH:Seeing no obj ection,it is 2 so ordered. 3 (The following prefiled rebuttal testimony 4 of Ms.Barker is spread upon the record.) 5 6 7 8 9 10 11 12.13 14 15 16 17 18 19 20 21 22 23 24.25 2100 HEDRICK COURT REPORTING BARKER (Di) P.O.BOX 578,BOISE,ID 83701 Staff .1 Q.Please state your name and address for the 2 record. 3 A.My name is Beverly Barker and my business address 4 is 472 West Washington Street, Boise, Idaho. 5 Q.By whom are you employed and in what capacity? I am employed by the Idaho Public Utilities6A. 7 Commission as Director of Consumer Assistance. 8.Q.Please give a brief description of your 9 educational background and experience. 10 A.I received a Bachelor of Arts Degree in Political 11 Science and Sociology from Indiana University in 1974. I 12 am a Certified Professional Mediator. I have attended the.13 NARUC Regulatory Studies Program and have taken many 14 professional and gradu~te~level courses on public 15 administration, management, conflict resolution and 16 consumer affairs. I have served on the faculty of the 17 Center for Public Utilities at New- Mexico State University 18 and the NARUC Regulat9ry Studies Program at Michigan State 19 University. I served as Chair of the NARUC Staff 20 Subcommittee on Consumer, Affairs from 1990-1993 and am 21 still a member of that subcommittee. I have been employed 22 by the Commission since 1976 and have been in my present 23 position since January 1983. 24 Q.What issues will you be addressing in your 25 testimony?. CASE NO. PAC-E-10-07 11/16/10 2101 BARKER, B (Reb.) 1 STAFF .1 A.i will be addressing two issues raised by Teri 2 Ottens in her direct testimony on behalf of the Community 3 Action Partnership Association of Idaho (CAPAI). Those 4 issues are:(1) increased funding for Low Income 5 Weatherization Assistance, and (2) Rocky Mountain Power's 6 limitation on how much it will pay for individual low 7 income weatherization proj ects. 8 Q.Do you agree with CAPAI that funding for low 9 income weatherization should be increased? 10 A.Yes, I do. Both of the community action agencies 11 that provide assistance to low income customers wi thin 12 Rocky Mountain Power's service territory (the Southeastern.13 Idaho Community Action A~ency (SEICAA) and the Eastern Idaho Community Action Partnership (EICAP)) have enhanced 15 capacity to provide weatherization services by virtue of 14 16 the America Reinvestment and Recovery Act (ARRA) funds 17 received during the past two years . Ms. Ottens and Staff 18 witness Curtis Thaden both discuss ARRA funding in their 19 direct testimonies, so I will not provide details here. I 20 agree with both Ms. Ottens and Mr. Thaden that there now 21 exists a unique opportunity to retain the existing 22 weatherization capacity that may be lost after the ARRA 23 funds are exhausted in March 2011. 24 Q.Do you agree with the amount of funding requested 25 by CAPAI?. CASE NO. PAC-E-10-07 11/16/10 2102 BARKER, B (Reb.) 2 STAFF .1 A.As of this writing, it is unclear exactly what 2 dollar amount CAPAI is requesting. On page 5, Ms. Ottens 3 recommends funding of $6.64 per residential customer 4 ( $ 3 7 6 , 588), whereas on page 1 7, she recommends funding 0 f 5 $4.08 per residential customer ($231,397). The $6.64, . . 6 funding per residential customer is based on what she 7 calculates to be Avista' s expenditure per customer for its 8 low income weatherization program.However, Avista' s 9 annual funding level of $700,000 covers both its electric 10 and natural gas programs. Approximately 60% of Avista's 11 funding ($420,000) covers weatherization for its low income 12 electric customers, which translates into an expenditure of.13 $3.98 per residential customer. Using CAPAI' s methodology, the recommended f~nding level for RMP would be 15 approximately $230,000. 14 16 While I do support additional funding, I don't 17 necessarily agree with the amount requested, nor do I agree 18 with the methodology sugs-ested by CAPAI, i. e., that funding 19 be based on a calculation of dollars per number of 20 residential utility customers. There is no direct 21 relationship between the number of residential customers 22 and DSM funding in general or low income weatherization in 23 particular. In the case of RMP, funding comes from the 24 Company's Customer Efficiency Service Rate Adjustment, 25 Schedule 191, which is a 4.72% surcharge on most. CASE NO. PAC-E-10-07 11/16/10 '2103 BARKER,B (Reb.) 3 STAFF .1 residential and non-residential customers' bills. 2 Q.In her testimony, Ms. Ottens maintains that 3 utility funding for low income weatherization be 4 "relatively equal"l among Avista, Idaho Power, and Rocky 5 Mountain Power. Do you agree? 6 A.The premise that funding should be somehow 7 proportional makes sense. However, it raises the question 8 of how to determine what an appropriate funding level 9 should be. This is the question CAPAI has tried to answer. 10 Among the other ways of determining proportionality are by 11 comparing the funding for low income weatherization to 12 funding for the residential DSM portfolio of programs or ... .; 13 all DSM programs. Other. factors, such as the number of low 14 income customers, number of homes needing weatherization, 15 the source of funding (tariff rider vs. base rates), 16 covered measures, and program restrictions, which vary by 17 utili ty, might need to ~e taken into consideration as well. 18 Q.Do you think the Commission needs to endorse a 19 particular methodology for determining the appropriate 20 funding level for low income weatherization in this pending 21 rate case? 22 A.No, I do not. Accepting a methodology in this 23 rate case might be viewed as. setting a precedent for future 24 cases. I am sure that other utilities and other parties 25.1 Pg. 5, line 5, Ottens Direct Testimony CASE NO. PAC-E-10-0711/16/10 2104 BARKER, B (Reb.) 4 STAFF .1 that are not participating in this rate case would like to 2 be part of any discussion about funding levels and have the 3 opportunity to communicate' their views to the Commission. 4 An informal collaborative effort by interested parties to 5 explore this topic and perhaps other topics relative to 6 utility-funded low income weatherization would be one way 7 to address this issue. 8 In this rate case, I believe it is sufficient for 9 the Commission to determine an appropriate funding amount, 10 taking into consideration the current level of need for low 11 income weatherization, the current opportunity to take 12 advantage of the capacity to provide weatherization.13 services, and how it will impact the DSM tariff rider. .'..i 14 Q. What is the level of need for low income 15 weatherization in RMP's Idaho service territory? 16 A.Both SEICA anq EICAP maintain waiting lists of 17 eligible clients needing weatherization services. Of those 18 eligible clients who have electric space heating and are 19 served by RMP, SEICAA identified 741 customers and EICAP 20 identified 233 customers. In 2007, 52 homes were 21 weatherized, while a total of 205 homes were weatherized in 22 2008 and 2009 due to the availability of ARRA funding. 23 Even with no new homes being identified in the future, an 24 unmet need certainly exists. It i~ clear that utility 25 funding alone is unltkely to fully meet the need for low. CASE NO. PAC-E- 10 - 0711/16/10 2105 BARKER, B (Reb.) 5 STAFF .1 income weatherization services. Therefore, the 2 Commission's focus should be on providing a reasonable 3 level of funding. The average RMP weatherization 4 investment per home is about $1,700.2 If the Commission 5 were to double the current annual RMP funding level to 6 $300,000, SEICAA and EICAP will be in a much better 7 position to sustain their existing capacity to weatherize 8 homes. The loss of ARRA funds will significantly decrease 9 the ability to leverage utility funds with other funding 10 sources. Given the goal of installing all appropriate 11 cost-effective measures in every home weatherized, it is 12 probable that the average RMP investment per home will.13 increase in the future, making it difficult to predict the 14 impact of pro~iding additional funding at this time. 15 However, increased funding certainly will prevent the 16 number of homes weather~zed from declining to the pre-ARRA 17 levels of about SO homes per year. 18 Q.Does RMP currently limit the amount of its funds 19 that can be used to weatherize a home? 20 A.Yes. The Company currently caps the amount it 21 will pay on a home weatherization project at 75% of the 22 installed costs for approved measures. 23 24 2 If all funding sources are included, the total average investment per home is much higher. According to CAPAI, EICAP weatherized 329 at an average cost of $4,139 per home in 2009. SEICAA weatherized 331 homes at an average cost of $4,135 per home. 25. CASE NO. PAC-E-10-07 11/16/10 2106 BARKER, B (Reb.) 6 STAFF .1 Q.Do you agree with CAPAI' s recommendation that the 2 cap be removed? 3 A.Staff agrees that removing the spending 4 limitation would provide more administrative flexibility to 5 the CAPs. However, in Case No. PAC-E-06-10, the Company 6 argued that removing the' spending limit would reduce the 7 number of homes weatherized and decrease the cost- 8 effectiveness of the low income weatherization program. An 9 impact evaluation of the program is scheduled to be 10 completed by year end 2010. That evaluation will provide 11 the Commission with additional information about the 12 program, including cost-effectiveness, from an independent.13 third party evaluator. 14 In light of. the Company's concerns about cost- 15 effectiveness and CAPAI's concerns about administrative 16 flexibility, the Commission might wish to consider 17 increasing the spending cap to 85% to be consistent with 18 Idaho Power's current cap. This would increase the amount 19 of RMP funds that would be available for each proj ect. 20 Since SEICAA's clientele includes customers of both RMP and 21 Idaho Power, having the, same spending cap for both 22 companies would ease SEICAA's administrative burden 23 somewhat. 24 Q.Does this conclude your rebuttal testimony in 25 this proceeding?. CASE NO. PAC-E-10-07 11/16/10 2107 BARKER, B (Reb.) 7 STAFF .1 A.Yes,it does. 2 3 4 5 6 7 8 9 10 11 12.13 14 15 16 17 18 19 20 21 22 23 24 25. CASE NO.PAC-E- 10 - 07 2108 BARKER,B (Reb. )811/16/10 STAFF . . . 20 1 (The following proceedings were had in 2 open hearing.) 3 MR. WOODBURY: And I would present her for 4 cross-examination. 5 COMMISSIONER SMITH: Mr. Purdy, do you have 6 questions? 7 MR. PURDY: Just a few. I'll make it brief. 8 Thank you. 9 10 CROSS-EXAMINATION 11 12 BY MR. PURDY: 13 Q.Ms. Barker, I assume that you heard the cross -- 14 or, I'm sorry, the additional direct examination of Ms. Ottens 15 a little bit ago, and specifically I'm asking you about her 16 clarification of the six dollars and forty -- $6.64 versus 17 $4.08. Did that clear up any confusion that you had and that 18 was expressed in your rebuttal testimony? 19 A.Yes, that makes her recommendations consistent. Q.Thank you. And in your rebuttal testimony, 21 you-- 22 COMMISSIONER SMITH: I'm sorry. Consistent with 23 what? 24 25 THE WITNESS: In her prefiled testimony, she had different numbers. 2109 HEDRICK COURT REPORTING P. O. BOX 578, BOISE, ID 83701 BARKER (X)Staff . . . 1 COMMISSIONER SMITH: Okay. So it's internal. 2 THE WITNESS: Yes. 3 Q.BY MR. PURDY: Yes. Just to be clear, I'm not 4 asking that you necessarily agree with everything that she said 5 substantively. 6 A.Uh-huh. 7 Q.And in your rebuttal testimony, you proposed, as 8 I understand, some type of a collaborative, perhaps another 9 proceeding, to set a formula or agree upon various formulas for 10 the utili ties to look to or apply to come up with proper LIWA 11 funding. Is that right? 12 A. Yes, I do. 13 Q. All right. And I realize I'm paraphrasing here 14 to get through this quickly, but is it fair to say though that 15 whether or not such a collaborative is undertaken, that it 16 doesn't justify increasing Rocky Mountain Power's amount of 17 LIWA funding in the mean time? 18 A.Are you asking whether that would preclude 19 increasing funding in this case? 20 21 22 Q.In your opinion, yes. A.No. Q.All right. Then if you could turn quickly to 23 page 7 of your rebuttal, and specifically line 10 -- actually, 24 a little before that -- you talk a little about the third-party 25 evaluation that Ms. Coughlin and Ms. Hunter testified to, 2110 HEDRICK COURT REPORTING P. O. BOX 578, BOISE, ID 83701 BARKER (X)Staff . . . 1 evaluation being of the low-income weatherization program. Do 2 you see that? 3 A.Yes. 4 Q.And you characterize that on line 12 as coming 5 from an independent, third-party evaluator. 6 Do you know who that evaluator is? 7 A.Cadmus. 8 Q.Did you know that when you filed your direct 9 testimony? 10 A.Yes. 11 Q.You did. All right. Do you have much 12 substantive knowledge as to what that evaluation will tell 13 us? 14 A.No, I don't, at this time. 15 Q.All right. Do you know anything about Cadmus? 16 A.I know a little bit about them, yes. 17 Q.Do you know if they're related to Quantec or 18 not? 19 A.My understanding is Quantec changed their name to 20 Cadmus. 21 22 23 24 25 Q.Thank you. Thank you for that. MR. PURDY: And excuse me, Madam Chair. COMMISSIONER SMITH: No problem. Q.BY MR. PURDY: Then, finally, in your rebuttal, up above page 7, line 10, it looks like you anticipated when 2111 HEDRICK COURT REPORTING P. O. BOX 578, BOISE, ID 83701 BARKER (X)Staff . . . i you prepared your testimony that the evaluation by Cadmus would 2 be completed by the end of this year i yet I believe now that 3 we've heard it could be as early as February of next year or 4 perhaps sometime after that. 5 Why were you under the impression that it would 6 be done at the end of this year? 7 A. I believe I relied upon Company witness Hedman's 8 testimony. He indicated that he thought the evaluation will be 9 completed by the end of the year. I think there's been some 10 different dates mentioned during the course of the hearing and 11 in different testimony. I don't know how much of that is 12 related to the difference between completing the evaluation and 13 the Company submitting that to the Commission as a formal 14 report. I don't know if there has been some confusion on that 15 point, but the date at which the evaluation is going to take 16 place has been somewhat of a moving target for some time now. 17 Q.Does that cause you any concern? 18 A.I think now they have certainly had all the 19 indications that the Commission is expecting to see an 20 evaluation soon. 21 Q.Okay. Thank you very much, Ms. Barker. 22 COMMISSIONER SMITH: Mr. Williams. 23 MR. WILLIAMS: No questions. 24 COMMISSIONER SMITH: Olsen. 25 MR. OLSEN: No questions. 2112 HEDRICK COURT REPORTING P. O. BOX 578, BOISE, 10 83701 BARKER (X)Staff . . . 1 COMMISSIONER SMITH: Otto. 2 MR. OTTO: No questions. 3 COMMISSIONER SMITH: Budge. 4 MR. BUDGE: No questions. 5 COMMISSIONER SMITH: How about for the Company? 6 MR. SOLANDER: No questions. 7 COMMISSIONER SMITH: Any from the Commissioners? 8 COMMISSIONER REDFORD: No questions. 9 COMMISSIONER SMITH: Thank you, Ms. Barker. 10 Did you have redirect? 11 MR. WOODBURY: No redirect, thank you. 12 COMMISSIONER SMITH: All right, thank you. 13 (The witness left the stand.) 14 MR. WOODBURY: Madam Chair, Staff's next witness 15 was Gary Grayson. Adopting his testimony will be Lynn 16 Anderson. 17 18 LYNN ANDERSON, 19 produced as a witness at the instance of Staff, being first 20 duly sworn, was examined and testified as follows: 21 22 23 DIRECT EXAMINATION 24 BY MR. WOODBURY: 25 Q.Mr. Anderson, will you please state your name and 2113 HEDRICK COURT REPORTING P. O. BOX 578, BOISE, ID 83701 ANDERSON (DI )Staff . . 1 speii your name for the recorder? 2 A. Lynn Anderson: L-Y-N-N, A-N-D-E-R-S-O-N. 3 Q.And for whom do you work and in what capacity? 4 A.For the Idaho Public Utili ties Commission as an 5 economist. 6 Q.And are you familiar with prepared direct 7 testimony filed by Gary Grayson on October 14th consisting of 8 ten pages? 9 A.Yes. 10 Q.And have you reviewed that testimony? 11 A.Yes. 12 Q.And are you willing to adopt that testimony? 13 A.Yes. 14 MR. WOODBURY: Madam Chair, I'd ask that the 15 testimony be spread upon the record. 16 COMMISSIONER SMITH: Okay, without obj ection, the 17 testimony filed by Gary Grayson and now adopted by Lynn 18 Anderson will be spread upon the record as if read. 19 (The following prefiled direct testimony 20 of Mr. Grayson is spread upon the record.) 21 22 23 24 . 25 2114 HEDRICK COURT REPORTING P. O. BOX 578, BOISE, ID 83701 ANDERSON (01)Staff - . ~ . 1 Q.Please state your name and business address for 2 the record. 3 A.My name is Gary Grayson and my business address 4 is 472 West Washington Street, Boise, Idaho. 5 Q.By whom are you employed? 6 A.I am employed by the Idaho Public Utilities 7 Commission as a Utilities Analyst. 8 Q.What is your educational and professional 9 background? 10 A.I received a Bachelor of Arts Degree in Business 11 Management from Fresno Pacific College in 1986 and have 12 completed advanced training from Michigan State and New 13 Mexico State Universities regarding utility regulation, 14 forecasting, planning, operations, and energy efficiency 15 program evaluation. I was employed by Southern California 16 Edison as an Energy Efficiency Program Manager and Major 17 Accounts Executive from July of 1982 to March of 1997. I 18 also worked for a consulting firm responsible for the 19 design and delivery of energy efficiency programs from 20 April of 1997 to September 2005. Most recently, I was 21 employed by the Idaho Office of Energy Resources as an 22 Energy Specialist from September of 2008 until I began my 23 employment with the Idaho Public Utilities èommission in 24 April of 2010. My duties at the Commission currently 25 include the review of prudency and the evaluation of CASE NO. PAC-E-10-0710/14/10 2115 GRAYSON, G. (Di) 1 STAFF . ./ .. ~~'-. .J . 1 electric utility demand-side-management (DSM) programs and 2 analysis of utility incentive programs. I currently 3 represent Staff at the Northwest Energy Efficiency 4 Alliance i s Cost-Effectiveness Committee, Avista Utilities i 5 External Energy Efficiency Board, Idaho Power's Energy 6 Efficiency Advisory Group, the Northwest Power and 7 Conservation Council's Regional Technical Forum, and the 8 Avista Evaluation, Measurement and Verification 9 collaborati ve . 10 Q.What is the purpose of your testimony in this 11 case? 12 13 14 A.The purpose of my testimony is to assess Rocky Mountain Power's contention that its demand-side-management 15 incurred. I will also provide observations regarding the (DSM) expenses and efforts for 2008 and 2009 were prudently 16 enhancement of Rocky Mountains' programs in the future. 17 Q.Please describe the Company's portfolio of 18 programs, expenditures for each program, and how thesè 19 expenditures are recovered by the Company. 20 A.Currently, Rocky Mountain Power offers seven DSM 21 programs in Idaho as the least cost alternative to the 22 acquisition of new supply-side resources. These programs 23 encompass all major customer classifications including 24 residential and low- income, commercial, industrial, and 25 irrigation. Additionally, the Company contributes to the CASE NO. PAC-E-10-07 10/14/10 2116 GRAYSON, G. (Di) 2 STAFF . .. 'i- .," . 1 Northwest Energy Efficiency Alliance's efforts to transform 2 energy markets in the region. All of the costs associated 3 wi th programs are eligible for recovery through the 4 Customer Efficiency Service Rate Adjustment (Schedule 191) 5 wi th the exception of the Load Control Service Credits 6 which are recovered through base rates. Annual 7 expendi tures for each program were derived from the 8 Company's 2008 and 2009 annual Demand-Side-Management 9 reports and are shown below (rounded to nearest dollar) : 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Program 2008 Expendi tures 2009Expeñ'ures Irrigation LoadControl (includesparticipationcredits) $ 8,908,216 $11,140,894 Low IncomeWeatherization $ 164,578 $ 197,819 RefrigeratorRecycling $$113,296 108,126 Home EnergySavings $$490,101 593,564 Energy FinAswer $$ $ 121,192 358,426 FinAswerExpress $ 1,302,858 263,904 Agricultural $ Energy Services $268,068 807,238 Northwest Energy $EfficiencyAlliance $317,339 287,190 Totals $11,685,648 $13,757 1163 CASE NO. PAC-E-10-0710/14/10 2117 GRAYSON, G. (Di) 3 STAFF . .- .) . 1 Q.Why are formal evaluations of energy efficiency 2 programs important? 3 A.Credible and transparent program evaluations are 4 crucial for the optimization of program performance and for 5 assurance to all stakeholders that actual program results 6 are as claimed. Unlike energy consumption, energy 7 efficiency program results cannot generally be metered. 8 Instead, their impacts can only be estimated through a 9 combination of engineering measurements, deemed values, 10 verification of installations, assumptions made, and 11 overall program evaluation. Programs that are not properly 12 evaluated will suffer from unreliable cost-effectiveness 13 estimates and will not likely be administered and improved to their optimum performance levels.14 15 Q.How are energy efficiency programs evaluated? 16 A.Energy efficiency programs are evaluated using a 17 cost and benefit analysis viewpoint and cost-effectiveness 18 calculations from four maj or perspectives. These 19 perspectives include the Participant, Ratepayer, Utility, 20 and the Total Resource Cost. The results of each 21 perspective are expressed in several ways including a 22 cost/benefit ratio and net present value of program impacts 23 over the lifecycle of the energy efficiency measures. 24 These tests are not intended to be used in isolation but 25 should be compared to one another in an effort to gain a CASE NO. PAC-E-10-0710/14/10 2118 GRAYSON, G. (Di) 4 STAFF . . . 1 comprehensive, multi-perspective of each measure/program 2 and the portfolio as a whole. Evaluation results should be 3 used to both refine pre-program estimates of cost- 4 effectiveness from all perspectives and to find ways to 5 further improve programs as they mature. 6 Q.Has the Company provided sufficient evidence of 7 evaluations of its programs for 2008 through 2009? 8 A.Over the past several years, there developed an 9 apparent disconnect between what Staff viewed as sufficient 10 evaluations and what Rocky Mountain Power and other 11 utilities viewed as sufficient. On October 5, 2009, Staff 12 convened a workshop to fully vet the issues of evaluations 13 and cost-effectiveness expectations. With utility input, 14 Staff hired a nationally-respected energy efficiency 15 program evaluation expert to facilitate the workshop. 16 Several representatives from the Staff and representatives 17 from Idaho Power, Avista Utilities, and Rocky Mountain 18 Power, participated in the workshop. The result was a 19 Memorandum of Understanding (MOU) signed by each of the 20 utilities agreeing to formally evaluate all of their 21 programs on regular, multi-year cycles and to report the 22 resul ts of those evaluations in their annual DSM reports 23 that are filed with the Commission. In exchange for the 24 utility commitments, Staff agreed that if the evaluation 25 and reporting commitments are fulfilled and if there is no CASE NO. PAC-E-10-07 10/14/10 2119 GRAYSON, G. (Di) 5 STAFF . . . 1 evidence of imprudence, then, when requested by the 2 utilities, Staff would recommend that DSM expenditures be 3 found prudent by the Commission. Although the Company has 4 not yet achieved all of the established goals as outlined 5 in the MOU, Staff believes the Company has made significant 6 progress and is on a reasonable pathway to achieve these 7 goals moving forward. 8 Q.Have you reviewed the cost-effectiveness and 9 prudency of expenditures regarding Rocky Mountain Power's 10 demand-side-management programs for 2008 and 2009? 11 A.Yes, I have. 12 Q.Wha t were your findings? 13 A. As indicated in the Company's 2008 and 2009 14 annual DSM reports and the testimony of Brian Hedman from 15 the Cadmus Group, all programs appear to have met three of 16 the four cost-effectiveness tests with the exception of the 17 2009 Agricultural Energy Services program which passed only 18 two of the four tests. The irrigation Load Control program 19 however, passed all four tests including the very difficult 20 Ratepayer Impact Measure (RIM) test, meaning that it 21 results in lower electricity rates as well as providing a 22 net system benefit. In total, the Company's DSM programs 23 in 2009 have produced an estimated $17.1 million in net 24 benefits over the life of the savings compared to gross 25 costs of $13.7 million. CASE NO. PAC-E-10-0710/14/10 2120 GRAYSON, G. (Di) 6 STAFF . . . 1 Q.Based on your overall assessment, does it appear 2 that the Company's DSM program expenses for 2008 and 2009 3 were prudently incurred? 4 A.Yes. After review and verification of all 5 available program results, and considering progress made 6 toward meeting the guidelines set forth in the MOU, Staff 7 believes that Rocky Mountain Power's demand-side-management 8 programs and efforts in 2008 and 2009 were generally 9 prudent and cost-effective. 10 Q.Are there any other issues you would like to 11 address in your testimony? 12 A.Yes. I would like to address issues related to 13 customer segment equity and the Customer Efficiency 14 Services Rate (Schedule 191). 15 Customer Segment Equity - Although this market 16 segment has shown to be extremely cost-effective, there is 17 a huge disparity between the resources provided to the 18 irrigation segment as compared to the other customer 19 segments. The data provided by the Company in their 2009 20 Annual DSM report shows 81% of total DSM expenditures were 21 allocated to the Irrigation Load Control program while 22 only 6.5% was provided to the residential market, 4.5% to 23 commercial/industrial,S. 9% to. agricultural and 2.1% to 24 market transformation. These totals include $7.3 million 25 provided in load control credits to irrigators which are CASE NO. PAC-E-10-0710/14/10 2121 GRAYSON, G. (Di) 7 STAFF . . . 1 recovered through base rates. In the future, the Company 2 should endeavor to find ways to pursue all cost-effective 3 DSM while striving toward greater balance with regard to 4 customer segment equity. 5 Customer Efficiency Services Rate (Schedule 191) 6 The Customer Efficiency Services rate or "tariff rider" was 7 established in 2006 (Order No. 29976) at a time when the 8 Company was increasing its commitment to pursue DSM 9 initiatives. The Tariff Rider was designed to provide 10 Rocky Mountain Power front-end financing for its DSM 11 programs and to enable them to better manage those programs 12 rather than having to continually adjust its programs to 13 match budgets. The rider appears on customer bills as an 14 unbundled charge based on a percentage of the customers' 15 monthly bill. The rider was established at 1.5% and raised 16 to 3.72% in 2008. 17 In February 2010, the Company applied to the 18 Idaho Public Utilities Commission (Case No. PAC-E-10-03) 19 for approval to raise the Customer Efficiency Services Rate 20 (Schedule 191) from 3.72% to 5.85%, an increase of 2.13%. 21 The increase was requested in an effort to decrease the DSM 22 balancing account deficit from $3.5 million to $2.25 23 million by April, 2011, and to provide an estimated $8.25 24 million per year toward the Company's DSM initiatives. The 25 Commission approved an increase of 1.0% (Final Order CASE NO. PAC-E-10-07 10/14/10 2122 GRAYSON, G.(Di)8 STAFF . . . 1 No. 32023), raising the collection rate from 3.72% to 4.72% 2 for all customers subject to Schedule 191. The approved 3 rate will provide an estimated $6.86 million in DSM funding 4 for program year 2010 at the Staff proposed revenue 5 requirement. Staff believes that this level of tariff 6 rider funding is not sufficient to reduce existing DSM 7 deficit balances and could actually increase the deficit 8 balance at the expected level of DSM expenditures. 9 When the rider was originally introduced, Staff 10 believed an unbundled charge on the customer bill would 11 help notify customers of available energy efficiency 12 programs and provide an additional layer of transparency 13 regarding Company DSM initiatives. As a line item on the 14 customers' bill, the Customer Efficiency Services charge 15 does draw the attention of customers, particularly those 16 who do not participate in any of the Company's DSM 17 programs. Non-participants do not see how DSM programs 18 personally benefit them, since they perceive a bill 19 increase rather than a bill reduction. Most customers are 20 not familiar with the rationale justifying implementation 21 of energy conservation and efficiency programs, with its 22 long term focus on keeping energy rates lower than they 23 would be otherwise if load growth was served with higher 24 cost supply- side resources. As the amount invested in DSM 25 has grown, the tariff rider percentage has increased and so CASE NO. PAC-E-10-0710/14/10 2123 GRAYSON, G. (Di) 9 STAFF . . . 1 has customer opposition. Moreover, not all customers are 2 subj ect to the tariff rider. Special contract customers 3 pay for DSM when the expenses are collected through base 4 rates but do not when costs are recovered through the 5 tariff rider. The Commission may need to reconsider 6 whether the Tariff Rider, in its current form, should be 7 continued. Staff believes alternative recovery mechanisms 8 for Company DSM expenditures should be explored, including 9 the possibility of expensing DSM expenditures in base 10 rates. 11 Q.Does this conclude your direct testimony in this 12 proceeding? 13 14 15 16 17 18 19 20 21 22 23 24 25 A.Yes, it does. CASE NO. PAC-E-10-07 10/14/10 2124 GRAYSON, G. (Di) 10 STAFF . . . i (The following proceedings were had in 2 open hearing.) 3 MR. WOODBURY: And I'd present Mr. Anderson for 4 cross-examination on Mr. Grayson's testimony. 5 COMMISSIONER SMITH: Thank you. 6 Mr. Purdy. 7 MR. PURDY: No questions. 8 COMMISSIONER SMITH: Williams. 9 MR. WILLIAMS: No questions. 10 COMMISSIONER SMITH: Olsen. 11 MR. OLSEN: No questions. 12 COMMISSIONER SMITH: Otto. 13 MR. OTTO: I do, actually. 14 COMMISSIONER SMITH: Mr. Otto. 15 MR. OTTO: I just had two or three questions. 16 17 CROSS-EXAMINATION 18 19 BY MR. OTTO: 20 Q.Hello, Mr. Anderson. Here we are. You're fine 21 if you go back to your table. There you go, we're lined up. 22 On pages 9 through 10 of Mr. Grayson's testimony, 23 he talked about how the current level of funding may be -- 24 well, it is outpacing the DSM expenditures, and that I think he 25 ends with that the Staff believes alternative recovery 2125 HEDRICK COURT REPORTING P. O. BOX 578, BOISE, ID 83701 ANDERSON (X)Staff . . . 20 21 22 23 1 mechanisms should be explored. He addresses a possibility of 2 expensing expenditures in rate base. 3 Would you -- do you have a specific example or 4 further suggestion on that? 5 A.Not really at this time. There i s a variety of 6 ways that could be done. Back in the 1980s and '90s -- 7 primarily the '90s -- dSM expenses were capitalized and/or 8 expensed as they occurred. 9 Q.Okay. And then were you present for Ms. Hunter's 10 testimony? 11 A.For some of it. 12 Q.For some of it. And then part of that testimony, 13 she discussed the mechanism in Washington where they don't use 14 a rider but it's part of rates. Were you here for that part? 15 A.I was not. 16 Q.You were not. Okay, that's fine. 17 MR. OTTO: That's all the questions I have. 18 COMMISSIONER SMITH: Thank you. 19 Mr. Budge. MR. BUDGE: No questions. COMMISSIONER SMITH: For the Company? MR. SOLANDER: No questions. 24 the Commission? COMMISSIONER SMITH: Do we have questions from 25 COMMISSIONER REDFORD: No questions. 2126 HEDRICK COURT REPORTING P. O. BOX 578, BOISE, ID 83701 ANDERSON (X) Staff . . . 1 COMMISSIONER KEMPTON: No. 2 COMMISSIONER SMITH: Nor I. 3 Redirect, Mr. Woodbury. 4 MR. WOODBURY: No redirect. 5 COMMISSIONER SMITH: Thank you, Mr. Anderson. 6 (The witness left the stand.) 7 MR. WOODBURY: Staff would call as its next 8 wi tness Keith Hessing. 9 10 KEITH HESSING, 11 produced as a witness at the instance of Staff, being first 12 duly sworn, was examined and testified as follows: 13 14 DIRECT EXAMINATION 15 16 BY MR. WOODBURY: 17 Q.Mr. Hessing, will you please state your full name 18 and spell it for the reporter? 19 A.My name is Keith Hessing. My last name is 20 spelled H-E-S-S-I-N-G. 21 22 23 24 25 Q.Okay. And your first name is spelled? A.K-E-I-T-H. E before I, except after K. Q.And for whom do you work and in what capacity? A.I work for the Idaho Public Utili ties Commission. I'm a staff engineer. 2127 HEDRICK COURT REPORTING P. O. BOX 578, BOISE, ID 83701 HESSING (Di)Staff . . 1 Q.And in that capacity, did you have occasion to 2 prepare prefiled testimony on October 14th consisting of five 3 pages, and three exhibits, Exhibits 129 through 131? 4 A.Yes. 5 Q.And have you had the opportunity to review that 6 testimony and those exhibits prior to this hearing? 7 A.Yes. 8 Q.And is it necessary to make any changes or 9 corrections? 10 A.No. 11 Q.And if I were to ask you the questions set forth 12 in your testimony, would your answers be the same? 13 A.Yes. 14 MR. WOODBURY: Madam Chair, I would ask that 15 Mr. Hessing's testimony be spread on the record, and that the 16 exhibits be identified. 17 COMMISSIONER SMITH: If there's no obj ection, it 18 is so ordered. 19 (The following prefiled direct testimony 20 of Mr. Hessing is spread upon the record.) 21 22 23 24 . 25 2128 HEDRICK COURT REPORTING P. O. BOX 578, BOISE, ID 83701 HESSING (Di)Staff . .\ . 1 Q.Please state your name and business address for 2 the record. 3 A.My name is Keith D. Hessing and my business 4 address is 472 West Washington Street, Boise, Idaho. 5 Q.By whom are you employed and in what capacity? I am employed by the Idaho Public Utilities6A. 7 Commission as a Public Utilities Engineer. 8 Q.What is your education and experience 9 background? 10 A.I am a Registered Professional Engineer in the 11 State of Idaho. I received a Bachelor of Science Degree 12 in Civil Engineering from the University of Idaho in 1974. 13 14 Since then, I worked six years for the Idaho Department of 15 have been continuously employed at the Commission since Water Resources, and two years for Morrison-Knudsen. I 16 August 1983. 17 As a member of the Commission Staff, my primary 18 areas of responsibility have been electric utility power 19 supply, cost of service, revenue allocation and rate 21 20 design. Q.What is the purpose of your testimony in this 22 proceeding? 23 A.My testimony addresses customer class cost of 24 service and the allocation of the Staff proposed revenue 25 requirement to the various customer classes. CASE NO. PAC-E-10-0710/14/10 2129 HESSING, K. (Di) 1 STAFF . e.'. .' . 1 COST OF SERVICE 2 Q.What cost of service methodology do you support 3 in this case? 4 A.I support the methodology presented by the 5 Company's witness Craig Paice. The basic methodology is 6 the same used in the Revised Protocol jurisdictional 7 allocation process. The jurisdictional allocation 8 methodology was developed in collaboration with the other 9 state jurisdictions in which PacifiCorp provides service. 10 The cost of service methodology presented by the Company 11 is the same methodology accepted by the Commission in 13 12 recent general rate case decisions. 14 15 Q. Are there advantages to not changing the Cost of Service methodology? A.Yes. Aside from the fact that it simplifies the 16 case, it allows the Cost of Service results to be driven 17 by class energy, demand and customer characteristics and 18 changes in Company costs. When the methodology is 19 changed, cost of service results for customer classes may 20 change significantly without any change in customer usage 22 21 characteristics or underlying service costs. 23 Q.What cost of service results do you propose? A.Staff Exhibit No. 129 contains my cost of 24 service results. These results are based on a Staff 25 revenue requirement increase of approximately $14.8 CASE NO. PAC-E-10-07 10/14/10 2130 HESSING, K. (Di) 2 STAFF . . . 1 million and are calculated using the same model and 2 methodology proposed by the Company. 3 RENU SPRE 4 Q.What is revenue spread? 5 A.Revenue spread is the determination of the 6 revenue amount that needs to be collected from each 7 customer class. It is driven by a class cost of service 8 result. 9 Q.What revenue spread does the Company propose? The Company proposes to move all customer10A. 11 classes to nearly full cost of service except the Street 12 and Area Lighting class (Schedules 7, 11, 12) that would 13 14 receive a rate reduction in a full cost of service move. 15 requirement and to re-spread the lighting decrease, that The Company proposes no change in the lighting revenue 16 would otherwise occur, to all other customer classes to 17 achieve the recovery of the full revenue requirement. 18 Therefore, the final move is to nearly full cost of 20 19 service for all classes receiving an increase. 21 Q.What is your revenue spread proposal? A.I propose to use the same methodology presented 22 by the Company with one difference. My proposal is to 23 allow no class revenue requirement decreases while moving 24 customer classes requiring increases toward full cost of 25 service with uniform percentage offsets to balance the CASE NO. PAC-E-10-07 10/14/10 2131 HESSING, K. (Di) 3 STAFF . . . 1 revenue requirement for the lighting class reduction not 2 given. The difference between my proposal and the 3 Company's proposal is that I would assign Residential 4 customers taking service under Schedules 1 and 36 equal 5 percentage increases. Staff witness Bryan Lanspery 6 provides testimony in support of this position. 7 As shown on Staff Exhibit No. 129, only the 8 Street and Area Lighting class (Schedules 7, 11, 12) would 9 receive a decrease in a full cost of service move. That 10 decrease amounts to $173,064. Staff Exhibit No. 130 shows 11 the revenue spread that I propose. Column H shows the 12 spread of the proposed increase and Column I shows the 13 14 resulting percentage increase for each class. This is the 15 use in rate design calculations. rate spread presented to Staff witness Bryan Lanspery for 16 18 17 this case? Q.Did you prepare any other revenue spreads for A.Yes. It is fairly common practice to move only 19 part way to full cost of service to mitigate the shock of 20 large increases. The trade-off is that a partial move to 21 cost of service is an acceptance that some classes will 22 subsidize others. Staff Exhibit No. 131 shows a revenue 23 spread that moves half way to full cost of service while 24 gi ving no decreases and levelizing the increase to the two 25 residential classes. CASE NO. PAC-E-10-07 10/14/10 2132 HESSING, K. (Dil 4 STAFF . . . 18 19 i (The following proceedings were had in 2 open hearing.) 3 MR. WOODBURY: And I would present Mr. Hessing 4 for cross-examination. 5 COMMISSIONER SMITH: Mr. Purdy, do you have 6 questions? 7 MR. PURDY: I don't, thank you. 8 COMMISSIONER SMITH: Mr. Williams. 9 MR. WILLIAMS: No questions. 10 COMMISSIONER SMITH: Mr. Olsen. 11 MR. OLSEN: No questions. 12 COMMISSIONER SMITH: Mr. Otto. 13 MR. OTTO: No questions. 14 COMMISSIONER SMITH: Mr. Budge. 15 MR. BUDGE: No questions. 16 COMMISSIONER SMITH: Does the Company have any 17 cross-examination for Mr. Hessing? MR. HICKEY: No. COMMISSIONER SMITH: Do the Commissioners have 20 any questions for Mr. Hessing? 21 22 23 24 25 COMMISSIONER KEMPTON: No. COMMISSIONER REDFORD: No questions. COMMISSIONER SMITH: Thank you, Mr. Hessing. THE WITNESS: Thank you very much. COMMISSIONER SMITH: Try to the contain your . 2134 HEDRICK COURT REPORTING P. O. BOX 578, BOISE, 10 83701 HESSING (Di)Staff . . . 19 1 disappointment. 2 THE WITNESS: Okay. 3 (The witness left the stand.) 4 COMMISSIONER SMITH: Mr. Woodbury. 5 MR. WOODBURY: Madam Chair, Staff's last witness 6 is Terri Carlock. 7 8 TERRI CARLOCK, 9 produced as a witness at the instance of Staff, being first 10 duly sworn, was examined and testified as follows: 11 12 DIRECT EXAMINATION 13 14 BY MR. WOODBURY: 15 Q.Ms. Carlock, will you please state your name and 16 spell your name for the reporter? 17 A.Terri Carlock: T-E-R-R-I, C-A-R-L-O-C-K. 18 Q.And for whom do you work and in what capacity? A.I work for the Idaho Public Utili ties Commission 20 as deputy administrator for the utilities division. 21 Q.And in that capacity, did you have occasion to 22 prefile on October 14th direct testimony consisting of 23 23 pages, and one exhibit, 132? 24 25 A.That's correct. Q.And did you also on November 24th file a revision 2135 HEDRICK COURT REPORTING P. O. BOX 578, BOISE, 10 83701 CARLOCK (Di )Staff . . 1 of pages 3, 21, and 22, and Exhibit 132, Schedule 3? 2 A.That's correct. 3 Q.And have you had the occasion to review the 4 testimony and revision prior to this hearing? 5 A.Yes. 6 Q.And is it necessary for any changes or 7 corrections? 8 A.No. 9 Q.If I were to ask you the questions set forth in 10 your testimony as revised, would your answers be the same? 11 A.Yes. 12 MR. WOODBURY: Madam Chair, I'd ask that the 13 testimony be spread on the record, and the exhibit be 14 identified. 15 COMMISSIONER SMITH: Hearing no obj ection, the 16 prefiled testimony of Terri Carlock will be spread upon the 17 record as if read, and Exhibit 132 is identified. 18 (The following prefiled direct testimony 19 of Ms. Carlock is spread upon the record.) 20 21 22 23 24 . 25 2136 HEDRICK COURT REPORTING P. O. BOX 578, BOISE, ID 83701 CARLOCK (Di)Staff . . . 1 Q.Please state your name and address for the 2 record. 3 A.My name is Terri Carlock. My business address 4 is 472 West Washington Street, Boise, Idaho. 5 Q.By whom are you employed and in what capacity? I am the Deputy Administrator of the Utili ties6A. 7 Division at the Idaho Public Utilities Commission. I am 8 responsible for the Accounting/Audit Section and 9 coordinating Staff's policy positions with Staff 10 Administrator Randy Lobb. 11 Q.Please outline your educational background and 12 experience. 13 A. I graduated from Boise State University in 14 1980, with B.B.A. Degrees in Accounting and Finance.I 15 have attended various regulatory, accounting, rate of 16 return, economics, finance, and ratings programs. I am 17 currently the Chair of the National Association of 18 Regulatory Utility Commissioners (NARUC) Staff 19 Subcommittee on Accounting and Finance. I also Co-chair 20 . the Task Force on International Financial Reporting 21 Standards. I previously chaired the NARUC Staff 22 Subcommittee on Economics and Finance for more than 3 23 years. Under this subcommittee, I also chaired the Ad 24 Hoc Committee on Diversification. I have been a 25 presenter for the Institute of Public Utilities at CASE NO. PAC-E-10-0710/14/10 2137 CALOCK, T (Di) 1 STAFF . . . 1 Michigan State University and for many other conferences. 2 Since joining the Commission Staff in May 1980, I have 3 participated in audits, performed financial analysis on 4 various companies, and have presented testimony before 5 this Commission on numerous occasions. 6 Q.What is the purpose of your testimony in this 7 proceeding? 8 A.The purpose of my testimony is to present the 9 Staff's recommendation related to the return on equity 10 and overall cost of capital for PacifiCorp to be used to 11 determine the Staff proposed revenue requirement in this 12 case, PAC-E-10-07. I will address the appropriate 13 14 capital structure, cost rates and the overall rate of 15 Program. return. I also discuss the Idaho Irrigation Load Control 16 17 Q.Please summarize your testimony. A.In my testimony I support the Staff 18 recommendation that the Idaho Irrigation Load Control 19 20 21 22 23 Program be assigned as a power supply cost. I discuss this recommendation in terms of the Revised Protocol Allocation Methodology and the Multi-State Process (MSP). I also present testimony on the capital 24 of return. I am recommending a return on common equity structure and cost components comprising the overall rate 25 (ROE) in the range of 9.5% - 10.5% with a point estimate CASE NO. PAC-E-10-0710/14/10 CARLOCK, T (Di) 2 STAFF2138 .1 of 10.0%. The Staff recommended 10% ROE compares to the 2 Company-proposed 10.6% ROE. I accept the Company's 3 proposed capital structure and updated the cost rates. I 4 recommend an overall weighted cost of capital in the 5 range of 7.769% - 8.29% with a point estimate of 8.03% 6 to be applied to the rate base for the test year. The 7 Company proposes an 8.357% overall weighted cost of 8 capital. 9 Q.Are you sponsoring any exhibits to accompany 10 your testimony? 11 A.Yes, I am sponsoring Staff Exhibit No. 132 12 consisting of 3 schedules,.~...13 Idaho Irrigation Load Control P~ogram 14 Q. Staff witness Randy Lobb discusses the Idaho 15 Irrigation Load Control Program and recommends the 16 program costs being treated ,as power supply costs. 17 First, do you believe this recommendation is supportable 18 under Revised Protocol and through the Multi-State 19 Process using the concepts in the Revised Protocol? 20 A.Yes. The Idaho Irrigation Load Control Program 21 has evolved since inception to the point it now provides 22 PacifiCorp a valuable system resource. With the program 23 changes through 2008, the dispatchable service 24 interruptions under Schedule 72A contracts allow 25 PacifiCorp to reduce loads during peak periods and during. CASE NO. PAC-E-10-07 11/24/10 2139 CARLOCK, T (Rev.) 3 STAFF . . . 1 outages at generation plants. These contracts provide 2 system flexibility. The interruptions are large enough 3 (over 200 MW load reduction capability) and are reliable 4 enough to allow PacifiCorp to utilize these interruptions 5 as a resource for planning purposes in the Integrated 6 Resource Plan (IRP). The Idaho Irrigation Load Control 7 Program contracts are more like power purchase agreements 8 or ancillary service contracts and should be classified 9 as such and treated the same for allocation purposes. 10 Q.How is the Idaho Irrigation Load Control 11 Program currently allocated by PacifiCorp? 12 A.The Idaho Irrigation Load Control Program is 13 currently identif ied as a Demand Side Management Program (DSM). All DSM is treated as a State Resource under the14 15 Revised Protocol and assigned situs to the state in which 16 the investment is made. 17 PacifiCorp identifies the Idaho Irrigation Load 18 Control Program as Class 1 DSM. Depending on 19 dispatchability, reliability of results, term of load 20 reduction, and persistence over time, PacifiCorp divides 21 DSM into classes for IRP purposes. The definition for 22 Class 1 DSM is defined as: 23 Resources from fully dispatchable or scheduled firm capacity prodùct offerings/programs - Class 1 pr.ograms are those for which capacity savings occur as a resul t of active Company control or advanced scheduling. Once customers agree to 24 25 CASE NO. PAC-E-10-0710/14/10 2140 CALOCK, T (Di) 4 STAFF . . . 1 participate in a class 1 DSM program, the timing and persistence of the load reduction is involuntary on their part within the agreed limits and parameters of the program. In most cases, loads are shifted rather thanavoided. 2 3 4 5 Q. Please explain why this allocation isn' t 6 acceptable? 7 A. This identif ication may be adequate for IRP and 8 DSM reporting purposes but it is inadequate for 9 allocation purposes in a state where the state loads are 10 a small percentage of the system operations but the load 11 interruptions are a growing percentage. The program 12 success has outgrown the benefits that can be attributed 13 to Idaho alone. The system operations rather than the 14 state loads are the driver to evaluate cost 15 effectiveness. As a result the system receives a benefit 16 from the program of approximately $20 million as reported 17 in the 2009 DSM Report due to avoidance or delay of 18 generation. Therefore, base rates for all of the 19 Company's customers are lower than they would have been 20 absent the program. The total program costs, including 21 irrigation payments for interruption, are $11.4 million. 22 Idaho customers pay the full out of pocket program cost 23 of $11.4 million. The Idaho benefits are received 24 through the load decrements in the dynamic allocation 25 model. The resulting change in system allocators and the CASE NO. PAC-E-10-07 10/14/10 2141 CALOCK, T (Di) 5 STAFF .1 allocated costs results in the $7.5 million benefit to 2 Idaho customers. This system resource is provided at a 3 net cost to Idaho customers because costs exceed the 4 benefits by $3.9 million. These costs are recovered 5 entirely from Idaho customers through base rates and the 6 Idaho tariff rider. This simple cost/benefit analysis 7 shows how the costs do not follow the system benefits, 8 creating a mismatch to the detriment of Idaho customers. 9 This mismatch needs to be corrected so this valuable 10 system resource is not lost. 11 Q.What is the next step? Although the program has changed and it is12A..13 identified as Class 1 DSM, the classification of the 14 contracts for allocation purposes has not changed. Based 15 on my participation in all of the MSP Standing Committee 16 and Workgroup discussions, along with my work analyzing 17 the options to ultimately support the Revised Protocol, I 18 believe a classification change would be allowed under 19 Revised Protocol. 20 If PacifiCorp wants assurance it will be allowed the 21 opportunity to recover its costs as a power supply 22 expense, qualifications to the Revised Protocol could be 23 requested through the MSP process. Now is a good time to 24 make the distinctions related to the Idaho Irrigation 25 Load Control Program as part of the MSP and the 2010. CASE NO. PAC-E-10-0710/14/10 2142 CALOCK, T (Di) 6 STAFF . . . 1 2 the various state commissions. This filing before the Amendments to the Revised Protocol currently filed before 4 3 Idaho Commission is Case No. PAC-E-10-09. Q.Is a change in allocation for the Idaho 5 Irrigation Load Control Program a new concept before MSP 6 since it is not currently part of the 2010 Amendments 7 proposed in PAC-E-10-09? 8 A.No. The Idaho Irrigation Load Control Program 9 and allocation methodology have been discussed on 10 numerous occasions within the MSP forum. The discussions 11 revolved around differences between investments in DSM 12 13 14 15 16 17 18 19 20 21 22 23 24 25 where a capital investment saves energy and instances Iwhere there are contracts for the purchase of po,er or services associated wi th interruptions. I The 2010 Amendments to Revised Protocol are !based in part on a concept agreement that is the ¡ basis of ii the current filing in PAC-E-10-9. The 2010 Amen~ments to !Revised Protocol allows for state specific items I to !Revised Protocol but the Idaho Irrigation Load C~ntrol i Program was not originally anticipated to be one lof those !specific items. I Q. How does the timeline for the ratification of ! iRevised Protocol compare to the timeline for changes in Ithe Idaho Irrigation Load Control Program. i iiA. Revised Protocol was approved by the iaaho CA. Locif.' T (Di') 7CASE NO. PAC-E-10-07 214310/14/10 STAFF i I .1 Commission on February 28, 2005 in Case No. PAC-E-02-3, 2 Order No. 29708. In addition to Idaho, the Revised 3 Protocol was ratified by Oregon, Utah and Wyoming. 4 As discussed previously, the Idaho Irrigation 5 Load Control Program has evolved. Contract changes in 6 2008 created greater system operational benefits with 7 dispatchable interruptions. Staff witness Lobb shows the 8 increase in contract participants and the annual MWs 9 available for interruptions. Between 2007 and 2009, the 10 annual MWs increased from 78 MW to 276 MW or more than a 11 250% increase. 12 Q.Does this proposed power supply cost treatment.13 for the Idaho Irrigation Load Control Program result in 14 increased risk for the Company? 15 A.Yes and no. It results in some increased 16 recovery and financial risks. However, these increased 17 risks should be short-term risks associated with timing. 18 Q.Are there other allocation issues to address? 19 A.The newly proposed 2010 Allocation Study is 20 presented in Case No. PAC-E-10-09. This 2010 Amendment 21 starting with a rolled-in allocation methodology will 22 reduce the Idaho Allocated costs. That case is a 23 separate proceeding and a timeline for processing has yet 24 to be established. The Company requests that the 25 Commission issue an Or:der no later than March 31, 2011.. CASE NO. PAC-E-10-0710/14/10 2144 CALOCK, T (Di) 8 STAFF . . . 1 If PAC-E-10-09 were to be completed before the Commission 2 issued an Order in this case, the reductions could be 3 reflected in prospective 2011 rates. 4 Rate of Return 5 Q.Have you reviewed the testimony and exhibits of 6 PacifiCorp witnesses Hadaway and Williams associated with 7 the return components? 8 A.Yes. Much of the theoretical approach used by 9 PacifiCorp witnesses Hadaway and Williams in their 10 respective testimony and exhibits is generally similar to 11 what I have used. My return on equity analysis is based 12 primarily on the DCF analysis. My judgment in some areas 13 of application results in different outcomes. Q. What capital structure are you recommending be14 15 used to calculate the overall rate of return? 16 A.I recommend a capital structure consisting of 17 47.6% debt, 0.3% preferred equity and 52.1% common 18 equity. This is the same capital structure proposed by 19 Company witness Williams. I compared this capital 20 structure to the actual June 30, 2010 capital structure 21 of 47.5% debt, 0.3% preferred equity and 52.2% common 22 equity finding the proposed capital structure to be 23 reasonable. A common equity ratio of 52.1% supports 24 PacifiCorp's bond rating even when debt is imputed for 25 Purchase Power Agreements in the Standard and Poor's CASE NO. PAC-E-10-0710/14/10 2145 CARLOCK, T (Di) 9 STAFF . . . 1 ratio analysis. 2 Q.Please discuss the general impact on PacifiCorp 3 of being a wholly-owned subsidiary of PPW Holdings, LLC, 4 an entity owned by MidAmerican Holdings Company (MEHC). 5 A.PacifiCorp does not have publicly traded stock 6 as a wholly-owned subsidiary. Therefore, only comparable 7 companies can be utilized when evaluating the required 8 cost of equity for PacifiCorp. PacifiCorp has received 9 cash equity contributions from MEHC, has retained 10 earnings in PacifiCorp and has not paid dividends or made 11 distributions. Overall, I believe the relationship has a 12 positive impact on ratings and PacifiCorp's ability to 13 finance debt at reasonable rates. 14 Q. Did you consider double or triple leveraging of 15 PacifiCorp's common equity since it is wholly-owned and 16 does not raise common equity in the market? 17 A.Yes, I considered double and triple leveraging 18 of PacifiCorp's common equity. Leveraging ultimately 19 reflects additional debt costs in the overall weighted 20 cost of capital. To maintain reasonable cash flow levels 21 and earnings, I do not believe a leveraging adjustment is 22 reasonable. 23 Q.What legal standards have been established for 24 determining a fair and reasonable rate of return? 25 A.The legal test of a fair rate of return for a CASE NO. PAC-E-10-0710/14/10 2146 CALOCK, T (Di) 10 STAFF . . . 1 utility company was established in the Bluefield Water 2 Works decision of the United States Supreme Court and is 3 repeated specifically in Hope Na tural Gas. 4 In Bluefield Water Works and Improvement Co. v. 5 West Virginia Public Service Commission, 262 U.S. 679, 6 692, 43 S. Ct. 675, 67 L. Ed. 1176 ( 1923), the Supreme 8 7 Court stated: 9 10 11 12 13 14 15 16 17 18 19 A public utility is entitled to such rates as will permit it to earn a return on the value of the property which it employs for the convenience of the public equal to that generally being made at the same time and in the same general part of the country on investments in other business undertakingswhich are at tended by corresponding risks and uncertaintiesi but it has no constitutional right to profits such as are realized or anticipated in highly profitable enterprises or speculative ventures. The return should be reasonably sufficient to assure confidence in the financial soundness of the utility and should be adequate, under efficient and economical management, to maintain and support its credit and enable it to raise the money necessary for the proper discharge of its public duties. A rate of return may be reasonable at one time and become too high or too low by changes affecting opportunities for investment, the money market and businessconditions generally. 20 The Court stated in FPC v.' Hope Natural Gas Company, 320 21 U.S. 591, 603, 64 S.Ct. 281, 88 L.Ed. 333 (194~): 22 23 24 25 From the investor or company point of view it is important that there be enough revenue not only for operating expenses but also for the capital costs of the business. These include service on the debt and dividends on thestock.. .. By that standard the return to the equity owner should be commensurate with returns on CASE NO. PAC-E-10-0710/14/10 2147 CARLOCK, T (D1) 11 STAFF . . . 1 investments in other enterprises having corresponding risks. That return, moreover, should be sufficient to assure confidence in the financial integrity of the enterprise, so as to maintain its credit and to attract capital. (Citations omitted.) 2 3 4 5 The Supreme Court decisions in Bluefield Water 6 Works and Hope Natural Gas have been affirmed in In re 7 Permian Basin Area Rate Case, 390 U.S. 747, 88 S.Ct 1344, 8 20 L.Ed 2d 312 (1968), and Duquesne Light Co. v. Barasch, 9 488 U. S. 299, 109 S.Ct. 609, 102 L.Ed.2d. 646 (1989). 10 The Idaho Supreme Court has also adopted the principles 11 established in Bluefield Water Works and Hope Natural 12 Gas. See In re Mountain States Tel. & Tel. Co. 76 Idaho 13 474, 284 P.2d 681 (1955) i General Telephone Co. v. IPUC, 109 Idaho 942, 712 P. 2d 643 1986) i Hayden Pines Water14 15 Company v. IPUC, 122 Idaho 356, 834 P.2d 873 (1992). 16 As a result of these United States and Idaho 17 Supreme Court decisions, three standards have evolved for 18 determining a fair and reasonable rate of return: 19 (1) The Financial Integrity or Credit Maintenance 20 Standardi (2) the Capital Attraction Standardi and, 21 (3) The Comparable Earnings Standard. If the Comparable 22 Earnings Standard is met, the Financial Integrity or 23 Credit Maintenance Standard and the Capital Attraction 24 Standard will also be met, as they are an integral part 25 of the Comparable Earnings Standard. CASE NO. PAC-E-10-07 10/14/10 2148 CALOCK, T (Di) 12 STAFF . . . 1 Q.Have you considered these standards in your 2 recommendation? 3 A.Yes. These criteria have been thoroughly 4 considered in the analysis upon which my recommendations 5 are based. It is also important to recognize that the 6 fair rate of return that allows the utility company to 7 maintain its financial integrity and to attract capital 8 is established assuming efficient and economic 9 management, as specified by the Supreme Court in 10 Bl uefield Wa ter Works. 11 Q.Why is the return on equity calculation 12 important? 13 A. The return on equity and the overall rate of 14 return provides the method for calculating the return 15 authorized. This return provides the level of 16 compensation to investors for the use of the capital 17 invested in the utility plant and equipment to serve 18 customers. The actual return investors receive is 19 derived from dividends a~d growth in stock price when the 20 shares are sold. Since the direct required return is not 21 a contractual calculation, the authorized return on 22 equity serves as the proxy. 23 Q.What approach have you used to determine the 24 cost of equity for PacifiCorp? 25 A.I have primarily evaluated two methods: I CASE NO. PAC-E-10-0710/14/10 2149 CARLOCK, T (Di) 13 STAFF .1 utilized the Discounted Cash Flow (DCF) method and also 2 tested its reasonableness with the Comparable Earnings 3 method. 4 Q.Please explain the Comparable Earnings method 5 and how the cost of equity is determined using this 6 approach. 7 A.The Comparable Earnings method for determining 8 the cost of equity is based upon the premise that a given 9 investment should earn its opportunity costs. In 10 competitive markets, if the return earned by a firm is 11 not equal to the return being earned on other investments 12 of similar risk, the flow of funds will be toward those.13 investments earning the higher returns. Therefore, for a utility to be competitive in the financial markets, it14 15 should be allowed to earn a return on equity equal to the 16 average return earned by other firms of similar risk. 17 The Comparable Earnings approach is supported by the 18 Bluefield Water Works and Hope Natural Gas decisions as a 19 basis for determining those average returns. 20 Industrial returns tend to fluctuate with 21 business cycles, increasing as the economy improves and 22 decreasing as the economy declines. Utility returns are 23 not as sensitive to fluctuations in the business cycle 24 because the demand for utility services generally tends 25 to be more stable and predictable. However, returns have. CASE NO. PAC-E-10-0710/14/10 2150 CALOCK, T (Di) 14 STAFF . . . i fluctuated since 2000 partially due to the price 2 volatility in the electricity markets. Electricity 3 prices lately have been less volatile so earnings have 4 tended to be more stable. 5 Q.Please evaluate interest rate trends. 6 A.The u. S. prime interest rate has been stable at 7 3.25% since December 16, 2008. The federal funds rate 8 and other rates have been low and fairly flat during 9 2010. 10 Q.Please provide the current index levels for the 11 Dow Jones Industrial Average and the Dow Jones Utility 12 Average. 13 A. The Dow Jones Industrial Average (DJIA) closed at 10,751.27 on October 4, 2010. The DJIA all-time high14 15 of 14,164.53 was reached on October 9, 2007. The Dow 16 Jones Utility Average closed on October 4, 2010 at 17 398.88. The 52-week high was 406.72 for the Dow Jones 18 Utili ty Average. 19 Q.Please explain the risk differentials between 20 industrials and utilities. 21 A. Risk is a degree of uncertainty relative to ,a 22 company. The lower risk level associated with utilities 23 is attributable to many factors even though the 24 difference is not as great as it used to be. Utilities 25 continue to have limited competition for distribution of CASE NO. PAC-E-10-07.10/14/10 2151 CARLOCK, T (Di) 15 STAFF . . . 1 utility services within the certificated area. With 2 limited competition for regulated serVices, there is less 3 chance of losses related to pricing practices, marketing 4 strategy and advertising policies. The competitive risks 5 for electric utilities have changed with increasing non- 6 utility generation, deregulation in some states, open 7 transmission access, and changes in electricity markets. 8 However, demand has declined during the recession. 9 Recently utility demand for some customers has been flat 10 with forecasts of slight growth in usage. Competitive 11 risks continue to be limited for the utility operations 12 in general. The demand for electric utility services is 13 relatively stable and certain compared to that of unregulated firms.14 15 For PacifiCorp specifically, competitive risks 16 continue to be average primarily because of the lower- 17 cost source of power and the low retail rates compared to 18 national averages. The risk differential between 19 PacifiCorp and other electric utilities is based on the 20 resource mix and the cost of those. resources. All 21 resource mixes have risks specific to resources chosen. 22 Under regulation, utilities are generally 23 allowed to recover through rates, reasonable, prudent and 24 justifiable cost expenditures related to regulated 25 services. PacifiCorp has been authorized an Energy Cost CASE NO. PAC-E-10-0710/14/10 2152 CALOCK, T (Di) 16 STAFF . . . 1 Adjustment Mechanism (ECA) in Idaho. Recovery 2 mechanisms have been approved also in Oregon and Wyoming. 3 A mechanism is being reviewed in Utah. Recovery 4 mechanisms reduce PacifiCorp's recovery risk from the 5 level it was at before the mechanisms were adopted. 6 compared to other utilities with recovery mechanisms, the 7 risk differential will be minimal but the overall risk 8 has still been reduced for PacifiCorp. Unregulated firms 9 have no such assurance. Utilities in general are 10 sheltered by regulation for reasonable cost recovery 11 risks, even if it isn' t 100%, making the average utility 12 less risky than the average unregulated industrial firm. 13 As everyone is aware, current market trends and 14 earnings levels have dramatically declined. I believe 15 PacifiCorp continues to be in a better position than many 16 utilities to fund its near-term capital requirements with 17 its current debt authority and equity levels. The 18 current credit and investment markets are positive for 19 utility capitalization at reasonable rates. Based on the 20 Value Line industry rank for electric utilities, 21 investors have reevaluated their investment portfolios, 22 ranking utilities higher in probable performance. This 23 indicates utility stocks with the primary operation being 24 the utility will be favored over higher risk operations. 25 Authorized returns by State Commissions for CASE NO. PAC-E-10-0710/14/10 CALOCK, T (Di) 17 STAFF2153 . . . 1 electric utilities during the last quarter of 2009 and 2 2010 to date, range from 9.4% in Connecticut to 11.0% in 3 Michigan. Many of the decisions authorized a return on 4 equity between 10% and 10.25%. 5 Earnings comparisons for the Value Line 6 electric utilities with a financial strength of A is 7 around 10.5%. The earnings comparison for the electric 8 utilities in the west, including Idaho utilities, is 9 around 8. 6 % - 9 % . 10 Considering all of these comparisons, I believe 11 the most reasonable return on equity range attributed to 12 PacifiCorp is 9.0% - 10.5% under the Comparable Earnings 13 method. 14 Q.You indicated that the Discounted Cash Flow 15 method is utilized in your analysis. Please explain this 16 method. 17 A.The Discounted Cash Flow (DCF) method is based 18 upon the theory that (1) stocks are bought for the income 19 they provide (i. e., both dividends and/or gains from the 20 sale of the stock), and (2) the market price of stocks 21 equals the discounted value of all future incomes. The 22 discount rate, or cost of equity, equates the present 23 value of the stream of income to the current market price 24 of the stock. The formula to accomplish this goal is: 25 CASE NO. PAC-E-10-07 10/14/10 CALOCK, T (Di) 18 STAFF2154 . . . 1 D D D P 1 2 N N Po =PV =-------+-------+.. .+------+------ (l+ks) 1 (l+ks) 2 (l+ks)N (l+ks) N2 3 Po =Current Price D =Dividend ks =Capitalization Rate,Discount Rate,or Required Rate of Return N =Latest Year Considered 4 5 6 7 8 The pattern of the future income stream is the 9 key factor that must be estimated in this approach. Some 10 simplifying assumptions for ratemaking purposes can be 11 made without sacrificing the validity of the results. 12 Two such assumptions are: (1) dividends per share grow 13 at a constant rate in perpetuity and (2) prices track earnings. These assumptions lead to the simplified DCF.14 15 formula, where the required return is the dividend yield 16 plus the growth rate (g):17 D 18 ks = + g Po 19 Q.What is your estimate of the current cost of 20 capital for PacifiCorp using the Discounted Cash Flow 21 method? 22 A.The current cost of equity capital for 23 PacifiCorp using the Discounted Cas~ Flow method is 24 between 8.8% - 9.3%. The range is calculated using the 25 Value Line electric utilities with an A financial CASE NO. PAC-E-10-0710/14/10 CALOCK, T (Di) 19 STAFF2155 . . . strength. Due to ongoing capital requirements, the low 2 end of the range is not the most reasonable and 1 3 representative. I recommend the 9.3% as the point 4 estimate using the comparable DCF. 5 Q.How is the growth rate (g) determined? The growth rate is the factor that requires the6A. 7 most extensive analysis in the DCF' method. It is 8 important that the growth rate used in the model be 9 consistent with the dividend yield so that investor 10 expectations are accurately reflected and the growth rate 11 is not too large or too small. 12 I have used the average expected growth rate of 13 4.4%. This expected growth rate was derived from an 14 analysis of various projected growth indicators, 15 including growth in earnings per share, growth in cash 16 dividends per share, growth in book value per share and 17 growth in cash flow. 18 Q.What are the costs related to the capital 19 structure for debt? 20 A.I updated the cost of debt rate to reflect 21 current information. The recommended cost of debt is 22 5.88% as shown on Staff Exhibit No. 132, Schedule 1. 23 Q.What are the costs related to the capital 24 structure for preferred equity? 25 A.I updated the cost of preferred equity rate to CASE NO. PAC-E-10-0710/14/10 CALOCK, T (Di) 20 STAFF2156 . . . 1 reflect current information. The recommended cost of 2 preferred equity is 5.42% as shown on Staff Exhibit 3 No. 132, Schedule 2. 4 Q.You indicated the cost of common equity range 5 for PacifiCorp is 9.0% - 10.5% under the Comparable 6 Earnings method and 8.8% - 9.3% under the Discounted 7 Cash Flow method. What is the cost of common equity 8 capi tal you are recommending? 9 A.The fair and reasonable cost of common equity 10 capital I am recommending for PacifiCorp is in the range 11 of 9.5% - 10.5%. Although any point within this range is 12 reasonable, the return on equity granted would not 14 13 normally be at either extreme of the fair and reasonable range. I utilized a point estimate of 10.0% in 15 calculating the overall rate of return for the revenue 16 requirement. 17 Q.What is the basis for your point estimate being 18 10.0% when your range is 9.5% - 10. S%? 19 A.My recommended range and 10.0% return on equity 20 point estimate is based on a, review of market data and 21 comparables, average risk characteristics for PacifiCorp, 22 operating characteristics, and the capital structure. It 23 also considers the reduced risk of PacifiCorp itself for the implementation of the ECA and the increased risk for PacifiCorp itself for the. recovery risk caused by the 24 25 CASE NO. PAC-E-10-0711/24/10 CALOCK, T (Rev.) 21 STAFF2157 . . . 1 recommended change in allocation. I considered all Staff 2 adjustments to determine if recovery risk increased. The 3 adj ustments moving plant in service to plant held for 4 future use will delay recovery and impact cash flows. 5 Q.What is the overall weighted cost of capital 6 recommended for PacifiCorp? 7 A.My recommended overall weighted cost of capital 8 is in the range of 7.769% - 8.29%. For use in 9 calculating the revenue requirement, a point estimate 10 consisting of a return on equity of 10.0% and a resulting 11 overall rate of return of 8.03% was utilized as shown on 12 Staff Exhibit No. 132, Schedule 3. 13 Q. Many customer comments indicate the return earned by the Company should not be much higher than14 15 deposit rates they are aple to obtain. Please explain 16 how that view fits with your return on equity 17 recommendation of 10%? 18 A.Any comparison must be based on risk 19 assessment. The assessment also includes the cash volume 20 available to invest and the length of time you are 21 willing to tie up the cash in the investment. For 22 instance, individuals are able to invest in different 23 financial institutions at different interest rates. The 24 basic savings account will.. typically have the lowest 25 interest rate offered. As the volume of cash and the CASE NO. PAC-E-10-0711/24/10 CARLOCK, T (Rev.) 22 STAFF21S8 . . . 1 length of time available for the cash to be held at the 2 insti tution increase, the higher the interest rate that 3 will be available. As you add additional risk, the 4 safety and ability to get your money back goes down and 5 the return required goes up. Utilities require 6 significant levels of cash to invest in the 7 infrastructure to assure customers receive electric 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 service with a safe and reliable system.Even when the economy is slow,a base level of investment is still required.The required return on equity for a utility will vary but will not swing like earnings for competitive companies,including 'Mom and Pop'stores. Q. Does / this conclude your direct testimony in this proceeding? A.Yes, it does. CASE NO. PAC-E-10-0710/14/10 2159 CARLOCK, T (Di) 23 STAFF . . . 19 1 (The following proceedings were had in 2 open hearing.) 3 MR. WOODBURY: And I would present Ms. Carlock 4 for cross-examination. 5 COMMISSIONER SMITH: Mr. Purdy. 6 MR. PURDY: I have no questions. 7 COMMISSIONER SMITH: Williams. 8 MR. WILLIAMS: No questions. 9 COMMISSIONER SMITH: Olsen. 10 MR. OLSEN: No questions. 11 COMMISSIONER SMITH: Otto. 12 MR. OTTO: No questions. 13 COMMISSIONER SMITH: Budge. 14 MR. BUDGE: No questions. 15 COMMISSIONER SMITH: From the Company. 16 MR. HICKEY: Just a few, thank you, Chairman. 17 18 CROSS-EXAMINATION 20 BY MR. HICKEY: 21 22 23 24 25 Q.Good afternoon, Ms. Carlock. A.Good afternoon. Q.I have a few foundational questions: It's a fact, isn't it, that the Commission in Idaho has adopted the revised protocol? 2160 HEDRICK COURT REPORTING P. O. BOX 578, BOISE, ID 83701 CARLOCK (X)Staff . . . i A.Yes. 2 Q.And I understand that you are a member of the MSP 3 standing committee, Ms. Carlock? 4 A.From the beginning, yes. 5 Q.And could you briefly, for the record, state what 6 the purpose of that committee is? 7 A.The purpose of the committee is to look at 8 allocation methodologies and to determine whether there are 9 changes or modifications needed to revise protocol, and then to 10 work through those issues. 11 Q.And you and Mr. Lobb have proposed revising the 12 allocation of the Idaho irrigation program. Isn't that true? 13 A.That's correct. 14 Q.And it's true that you recently raised that issue 15 at an MSP standing committee meeting? 16 A.I did. I raised ita couple years ago and I 17 raised it again. 18 Q.Do you know if there are similar programs to the 19 irrigators program that exists in Idaho in any of the other 20 operating states of Rocky Mountain Power and its affiliated 21 division? 22 A.PacifiCorp distinguishes its DSM by classes. 23 Class 1 is the class that the Idaho irrigation program falls 24 under. 25 There are two other programs in Utah that are 2161 HEDRICK COURT REPORTING P. O. BOX 578, BOISE, ID 83701 CARLOCK (X)Staff . . . 1 also Class 1 programs, but I don't believe they're exactly the 2 same. I should say they don't provide exactly the same 3 benefits. 4 Q.The Utah program is situs based though, isn't it, 5 as a DSM program? 6 A.It is, and I believe that the situs basing of 7 interruptible or load control programs is somewhat of a 8 discretionary basis for the Company. 9 Q.But it at least, to try to maybe set the 10 perspectives here 11 Isn't it true that all of the DSM programs that 12 the Company presently has in place in any of the states are 13 si tus based and allocated? 14 A.That is true. The DSM programs are situs based 15 under revised protocol, but the programs that are Class 1, and 16 particularly the Idaho irrigation load control program, is not 17 the same as it was when revised protocol was adopted. 18 Q.Do you see any problems in the MSP process if the 19 Idaho irrigation program all of a sudden became system 20 allocated without a consistent treatment that all of the other 21 DSM programs that the Company has in its other five states? 22 A.I believe that there is not a potential concern 23 right now unless you are following all of the Company's 24 determinations for DSM. If it is determined as the valuation 25 like a power supply interruptible program, then other 2162 HEDRICK COURT REPORTING P. O. BOX 578, BOISE, ID 83701 CARLOCK (X)Staff . . . 23 24 25 1 parties -- other states, I should say -- do not have 2 disagreement with that i but there does need to be a 3 clarification as to whether this is this Class 1 program is 4 a DSM program or if it fits into an interruptible program that 5 would be agreed as a power supply allocation, and that process 6 has started. 7 We currently have a case going on in Idaho that 8 is dealing with some changes to revised protocol, and the other 9 states indicate that this is something that could be worked 10 through as that process goes forward and does not need a 11 clarification to MSP, in their opinion. 12 Q.But to the extent that this program and the Utah 13 program were both found to be of the same category of DSM 14 programs, you would agree then that there would need to be a 15 consistency in treatment. Correct? 16 A.Yes, if they were found to be the same type of 17 program, then there should be consistency. 18 Q.Sure. 19 MR. HICKEY: Thanks. That's all I had, 20 Madam Chair. 21 COMMISSIONER SMITH: Questions from the 22 Commissioners? COMMISSIONER REDFORD: Not from me, thank you. COMMISSIONER KEMPTON: No. COMMISSIONER SMITH: None? 2163 HEDRICK COURT REPORTING P. O. BOX 578, BOISE, 10 83701 CARLOCK (X)Staff . . . 1 Redirect, Mr. Woodbury. 2 MR. WOODBURY: None. 3 COMMISSIONER SMITH: Thank you, Ms. Carlock. 4 (The witness left the stand.) 5 MR. WOODBURY: That completes the Staff's case. 6 COMMISSIONER SMITH: Yes, it does. 7 I think I'm cemented to the chair, so should we 8 just keep finding more witnesses or -- 9 MR. HICKEY: I-- 10 COMMISSIONER SMITH: Mr. Hickey. 11 MR. HICKEY: I would endorse that concept, and at 12 the point that you're ready to hear from the Company again, 13 we i re eagerly awaiting the chance to address the next phase of 14 the case. 15 COMMISSIONER REDFORD: You want to start over? 16 (Laughter. ) 17 MR. HICKEY: Gosh, I hope I don't need to. 18 COMMISSIONER SMITH: Is the Company intending to 19 call any more sur-surrebuttal? 20 21 22 MR. HICKEY: We are. COMMISSIONER SMITH: Okay. MR. HICKEY: We have three witnesses that I think 23 will be brief, and I've been, with the good help of 24 Mr. Solander, trying to focus these witnesses tightly, and they 25 are ready to testify this evening if it's the pleasure of the 2164 HEDRICK COURT REPORTING P. O. BOX 578, BOISE, ID 83701 CARLOCK (X)Staff . . 1 Commission to take them. 2 COMMISSIONER SMITH: Could we -- let's take a 3 break till 5: 15. 4 Wendy, would that work for you? 5 THE COURT REPORTER:(Indicating. ) 6 COMMISSIONER SMITH: Okay. I assume that 7 everyone's preference is we just stick it out till we're done 8 tonight and not have to show up tomorrow. 9 MR. BUDGE: Yes. 10 MR. HICKEY: Certainly would be ours. 11 COMMISSIONER SMITH: Okay. 12 MR. HICKEY: Thank you. 13 COMMISSIONER SMITH: 5: 15. 14 (Recess.) 15 COMMISSIONER SMITH: All right, we'll go back on 16 the record. Mr. Hickey. 17 MR. HICKEY: Thank you, Madam Chair, members of 18 the Commission. We are at the point of where Rocky Mountain 19 Power would call its first rebuttal witness, and that first 20 rebuttal witness will be Steve McDougal and I have very limited 21 examination for him. 22 COMMISSIONER SMITH: Okay. Mr. McDougal, you're 23 already sworn. 24 . 25 MR. McDOUGAL: Yes. 2165 HEDRICK COURT REPORTING P. O. BOX 578, BOISE, 10 83701 CARLOCK (X)Staff . . . 1 STEVEN McDOUGAL, 2 recalled as a witness at the instance of Rocky Mountain Power, 3 having been previously duly sworn, was further examined and 4 testified as follows: 5 6 MR. BUDGE: Madam Chairman -- excuse me, Counsel, 7 for interrupting -- is my understanding correct that this 8 addi tional rebuttal would only relate to the surrebuttal 9 testimony that was accepted, and of course clarifying any 10 things up? 11 COMMISSIONER SMITH: Well, I guess it's my 12 understanding that the Company gets the last word, so anything 13 that was in the cross or the answers of witnesses that came 14 after the Company i s witnesses is fair game at this time. 15 MR. BUDGE: Okay. 16 MR. HICKEY: Thank you, Madam Chair. 17 COMMISSIONER SMITH: But certainly it's not an 18 opportuni ty to just repeat your direct testimony or review your 19 position. 20 21 COMMISSIONER REDFORD: Woodshedding. MR. HICKEY: I appreciate the ruling from the 22 Bench and it was my understanding prior to when you made that 23 comment, but I assure aii of you at the Bench and the parties 24 that we will be respectful of the hour of the day and the need 25 to bring this case to conclusion. 2166 HEDRICK COURT REPORTING P. O. BOX 578, BOISE, ID 83701 McDOUGAL (Di-Reb) RMP . . . 1 DIRECT EXAMINATION 2 3 BY MR. HICKEY: 4 Q.First of all, Mr. McDougal, were you here when 5 Ms. Iverson testified this afternoon? 6 A.Yes, I was. 7 Q.And did you have an opportunity to hear her view 8 of how to allocate the Monsanto load? 9 A.Yes, I did. 10 Q.Could you just frame that issue for us again? 11 A.What Ms. Iverson was proposing and my 12 interpretation was to remove Monsanto loads from the allocation 13 factors and at the same time remove XX out of 25 million 14 dollars worth of Monsanto demand revenues. 15 COMMISSIONER SMITH: Okay, so is this number no 16 longer secret? 17 MR. HICKEY: And that's a fair comment. 18 Q.BY MR. HICKEY: Mr. McDougal, these points were 19 handled in a sealed transcript this afternoon. 20 COMMISSIONER SMITH: I mean, I guess I'm a little 21 distressed by what seem to be the Company's disregard of the 22 proprietary nature of this number, so how are we going to do 23 this? Mr. Budge. 24 25 MR. BUDGE: I'd ask what you're going into specifically number-wise. 2167 HEDRICK COURT REPORTING P. O. BOX 578, BOISE, ID 83701 McDOUGAL (Di - Reb) RMP . . . 1 MR. HICKEY: Well, I think the numbers were what 2 Mr. McDougal just identified, and I would again ask that this 3 page of the transcript be sealed again. And certainly those in 4 the room on behalf of the Company are bound by the 5 Confidentiali ty Agreement that we acknowledge and would adhere 6 to. 7 COMMISSIONER SMITH: As I assume are the Counsel 8 for the other parties. All right. 9 MR. BUDGE: Sounds sufficient. Thank you. 10 Q.BY MR. HICKEY: So mindful, Mr. McDougal, that 11 you're in a treacherous area here of figures that Monsanto has 12 identified as proprietary, the issue is again what? 13 A. On Exhibit 84, there is listed $25 million for 14 Schedule 400. 15 Q.Okay. And that's -- we're still wi thin a sealed 16 transcript, Mr. McDougal. 17 A.Okay. Ms. Iverson proposes to remove XXXXXXXXXX 18 of that amount, leaving XXXXXXXXXX in the state of Idaho. At 19 the same time, she removes aii of the load from the allocation 20 factors, in effect moving all of those costs to the other 21 states. So, she is leaving costs or moving costs to other 22 states while leaving revenues in Idaho, and I do not believe 23 that is allowed under the allocation methodology. 24 25 Q.Okay. What provision, if any, of the allocation methodology do you believe that is not consistent with? 2168 HEDRICK COURT REPORTING P. O. BOX 578, BOISE, ID 83701 McDOUGAL (Di-Reb) RMP . . . 1 A.Well, there's a couple of different items. One 2 of them is Appendix 0, which talks about special contracts and 3 how to allocate special contracts. In Appendix 0, you can see 4 a direct matching in that they basically give two options: 5 Either leave allocation factors or remove them. But what they 6 are trying to do is make sure that whichever way you go the 7 cost and benefits are the same. So either the costs and the 8 benefi t are all on a system basis, or they're on a 9 jurisdictional basis, not a combinationi and I believe her 10 methodology is a combination. 11 Q.Wi thout identifying the proprietary figures 12 again, would you tell us what the consequence, in your view, is 13 of Ms. Iverson's methodology? 14 MR. BUDGE: Excuse me for obj ecting, but this 15 seems to go far beyond the cross-examination of Counsel of 16 Mrs. Iverson, and the witness is simply reiterating what he has 17 already testified to on his rebuttal testimony. 18 COMMISSIONER SMITH: Mr. Hickey. 19 MR. HICKEY: I would suggest that this is a very 20 limi ted area of rebuttal given the position that Ms. Iverson 21 took during the course of the cross-examination that I had with 22 her, and Mr. McDougal is being called for the limited purpose 23 of rebutting the methodology that she identified on how she 24 chose to pursue this issue of allocation. 25 COMMISSIONER SMITH: Did he rebut this already in 2169 HEDRICK COURT REPORTING P. O. BOX 578, BOISE, ID 83701 McDOUGAL (Di-Reb) RMP . . . 19 1 his rebuttal? 2 MR. HICKEY: I'll let the witness respond 3 directly to you. 4 THE WITNESS: It was mentioned in the rebuttal, 5 but at the same time, she was asked the question on the stand 6 should she remove the full 25 million and she said, "No," and 7 so that's what we're somewhat trying to clarify. 8 MR. HICKEY: That's exactly the issue that we 9 framed. 10 COMMISSIONER SMITH: Okay, I've got the 11 clarification. Is there more? 12 MR. HICKEY: I just would like him to respond to 13 the last outstanding question that was there before the 14 obj ection. 15 COMMISSIONER SMITH: All right. 16 THE WITNESS: And the last, as I understand the 17 last question, is what's happening is she's leaving XXXXXXXXXX 18 in Idaho but allocating the costs to other states. 20 Mr. McDougal. MR. HICKEY: I have no further questions of 21 22 23 24 25 COMMISSIONER SMITH: Thank you. MR. HICKEY: And he's available for examination. COMMISSIONER SMITH: Anybody in the back row? MR. OLSEN: No. MR. OTTO: No. 2170 HEDRICK COURT REPORTING P. O. BOX 578, BOISE, ID 83701 McDOUGAL (Di-Reb) RMP . . . 1 COMMISSIONER SMITH: Mr. Woodbury. 2 MR. WOODBURY: I have no questions. 3 COMMISSIONER SMITH: Okay. Mr. Budge. 4 5 CROS S - EXAMINAT I ON 6 7 BY MR. BUDGE: 8 Q.Isn't it a fact, Mr. McDougal, that the testimony 9 of Mrs. Iverson removed only the coincident peak and left all 10 of the energy load? 11 A.Correct. 12 MR. BUDGE: No further questions. 13 COMMISSIONER SMITH: Okay. Do we have questions 14 from the Commissioners? 15 COMMISSIONER REDFORD: No. 16 COMMISSIONER KEMPTON: No. 17 COMMISSIONER SMITH: Okay. 18 MR. HICKEY: We'd ask that Mr. McDougal be 19 excused. 20 21 22 23 24 25 COMMISSIONER SMITH: Excused again. THE WITNESS: Again. COMMISSIONER SMITH: He is. Thank you. (The witness left the stand.) MR. HICKEY: And we would next call Mr. Greg Duvall as our next witness. 2171 HEDRICK COURT REPORTING P. O. BOX 578, BOISE, 10 83701 McDOUGAL (X-Reb) RMP . . . 20 21 1 COMMISSIONER SMITH: You're still under oath, 2 Mr. Duvall. 3 MR. DUVALL: Thank you. 4 5 GREGORY DUVALL, 6 recalled as a witness at the instance of Rocky Mountain Power, 7 having been previously duly sworn, was further examined and 8 testified as follows: 9 10 DIRECT EXAMINATION 11 12 BY MR. HICKEY: 13 Q.Mr. Duvall, are you prepared to address the 14 surrebuttal testimony that was allowed to become a part of the 15 record, spread into the record in this case, that was filed by 16 both Mr. Widmer and by Mr. Falkenberg? 17 A.Yes, I am. 18 Q.And you've reviewed that surrebuttal testimony 19 that was delivered to us on Tuesday? A.I have. Q.And what comments, first of all, do you have in 22 response to the witness sponsored by Monsanto, Mr. Widmer? 23 A.Okay, Mr. Widmer i shad 15 pages of surrebuttal 24 with two exhibits. He's gone through a number of his items 25 with some further comments. I will try to zip through my 2172 HEDRICK COURT REPORTING P. O. BOX 578, BOISE, 10 83701 DUVALL (Di-Reb) RMP . . . i sur-surrebuttal of that as quickly as possible. 2 The first and probably biggest issue is the wind 3 integration cost and there's been some discussion of that 4 today, and the bottom line is Monsanto has proposed that we 5 that there not be included any wind integration costs in the 6 base net power cost. And we heard from Mr. Widmer today that 7 he thought the -- in regard to the 10 percent haircut that kind 8 of falls out of that, that because the Company has been 9 negligent, I believe, he indicated, that that was a fair 10 penal ty to the Company. So I don't believe that that makes any 11 sense. 12 I think we also found that in Wyoming, he 13 proposed a $26 million of wind integration costs in the last 14 general rate case. In this, he's proposing zero. He claimed 15 that the difference is that Idaho has an ECAM and Wyoming 16 doesn't, but they have a PCAM. So, there's really no reason 17 why it should be different. 18 And he's also acknowledged that those costs are 19 rural, so -- 20 On the -- his adj ustment 2A, which is the open 21 access transmission tariff wind integration, he is asking to 22 preclude that basically by looking at -- at -- looking at it in 23 hindsight. That's basically what his surrebuttal looks at. 24 And, unfortunately, we are required to provide that service by 25 FERC and we're precluded from charging separately for that 2173 HEDRICK COURT REPORTING P. O. BOX 578, BOISE, ID 83701 DUVALL (Di-Reb) RMP . . . 1 service by FERC as well, so we're kind of in the middle there. 2 His testimony is that we should have gone to FERC 3 and got a charge for it. I don't think looking at what we've 4 seen come out of FERC on the NOPR that Ms. Shu -- Dr. Shu -- 5 talked about that there is really any chance that we could get 6 that charge in any short order. 7 Some of these others I would skip. The double 8 counting and balancing, that was, I think, just sort of 9 repetitive. 10 Reserve shutdown and the forced outage rate, he 11 puts in a new example in there. What this issue is is how do 12 you determine the outage rate of natural gas plants, I guess, 13 and coal plants, but it's really focused on natural gas plants. 14 We calculate the forced outage rate as how often it breaks down 15 when it's asked to operate. And so if you ask it to operate 16 and it breaks down ten percent of the time, our forced outage 17 rate would be ten percent. 18 This reserve shutdown issue is when it's not 19 being asked to operate, that's when it's on reserve shutdown. 20 Then it has zero forced outage rate. And what Mr. Widmer does 21 is takes that zero forced outage rate and averages it with the 22 forced outage rate we calculated, so it waters it down to get a 23 lower forced outage rate, and that is just unreasonable. 24 I would also note that Mr. Falkenberg and his 25 clients in Oregon in the forced outage docket we've spoke about 2174 HEDRICK COURT REPORTING P. O. BOX 578, BOISE, ID 83701 DUVALL ( Di - Reb) RMP . . . 1 before agrees with the Company's approach on that. 2 On Mr. Widmer's Item 7, which is the Cal iso 3 fees, his surrebuttal testimony basically makes it clear that 4 he fully misunderstands this issue. He suggests in his 5 testimony that we need to actually wheel from Four Corners, 6 which is over in Arizona, to South Path 15, which is in 7 California; and if we don't actually move power, then we can't 8 have any Cal iSO charges. 9 That's absolutely incorrect. We incur Cal iso 10 charges because we do business with the Cal iSO buying and 11 selling power. So every time we buy or sell power with the Cal 12 iSO as a counterparty, we include these charges. And so they 13 occur year after year, and all's we do is we include the last, 14 most recent 12-month history in the test period. So those -- 15 those should remain in there. 16 There i s no new arguments on the Cholla 4 17 capaci ty. 18 On the Morgan Stanley calls, this one he looks at 19 also the prudence to be determined in hindsight. And i think 20 there was a good point brought up by i forget which attorney it 21 was, but talking about the irrigators and the interruptibles 22 are a lot like the Morgan Stanley issue: You pay a premium for 23 the product whether you use it or not. So there's really no 24 difference between these, and we would suggest that we leave 25 the premiums in for Morgan Stanley. 2175 HEDRICK COURT REPORTING P. O. BOX 578, BOISE, ID 83701 DUVALL ( Di - Reb) RMP . . . 1 On the Bear River, his adj ustment number 12 has 2 to do with flood control, and he refuses to accept that flood 3 control is an operating constraint on the Bear River. We have 4 no control over whether we get flood-controlled water unless 5 it's under contract that we get flood-controlled water. And it 6 requires the Bear Lake to be at a certain elevation. 7 It is far below that elevation. There's 8 absolutely, you know, very, very minimal probability that we 9 will see flood control in the near future. We haven't seen it 10 for the past ten to 11 years. And to assume that the hydro 11 level of the Bear River will include flood control waters is 12 unreasonable. 13 And then, finally, on the Black Hills shaping, 14 there is really nothing new on that. 15 So, on to Mr. Falkenberg -- and this will be much 16 shorter -- and I would just turn to page 3 of Mr. Falkenberg's i 7 surrebuttal testimony if you care to do that. This is where he 18 has restated or corrected his original table. 19 If you notice down under the Section C, he's made 20 some adjustments. That was basically to agree to a couple of 21 our -- basically to remove Stateline, which was in Dr. Shu's 22 rebuttal. 23 Down below Item 14 under number G, that's deleted 24 as well, that adjustment where he agreed with the Company. 25 The only two I have concerns about are number one 2176 HEDRICK COURT REPORTING P. O. BOX 578, BOISE, ID 83701 DUVALL (Di-Reb) RMP . . . 1 and number two. Number one, which is the comri tment logic 2 screen, he's made a change here. Comri tment logic is all about 3 starting up gas plants and making sure that those are economic 4 when you start them up; and part of the cost of starting them 5 up is the fuel and the extra wear and tear, and those are just 6 standard sort of pieces. 7 What he's done in his surrebuttal is remove the 8 wear and tear costs, and so there's a lot more starts and there 9 are a lot more economic and so it reduces net power costs below 10 what we could achieve. 11 And then on number two, the start-up energy, what 12 he has done there is he's just changed the number of starts 13 from what he had in his case to what we had in our rebuttal 14 case so there's not much difference, but he claims that 15 Dr. Shu's in the -- on the start-up energy -- this is the value 16 of the start-up energy in GRID -- GRID starts up 17 instantaneously, but in reality gas plants take two to three 18 hours to start up. So if you're going to include the value of 19 start-up energy, you have to include the time to start up. And 20 so that was in Dr. Shu's rebuttal and that was $4. 7 million 21 worth of additional cost if you added that start-up time into 22 the GRID. 23 What he is -- in his rebuttal testimony, the very 24 bottom, Footnote 2, he says, well, even if you put in that 25 extra time, it still reduces net power costs. But if you look 2177 HEDRICK COURT REPORTING P. O. BOX 578, BOISE, ID 83701 DUVALL (Di-Reb) RMP . . 22 23 24 . 25 1 closely at Footnote 2 and read his testimony closely, in the 2 original he assumed that start-up energy was worth the 3 avoidance of coal. So if you bring up a gas plant, you're 4 backing down a coal plant, that's your avoided cost. 5 What he's assumed in his al ternati ve study where 6 he's added the time in the GRID is that you could actually sell 7 that into the market, and you can't sell. There is no market 8 intrahour, wi thin the hour. You can only market power on the 9 hour. And so as you're starting up a unit during the hour, you 10 can't take it to market because there is no market; you can 11 only back down coal units. 12 That concludes my sur-surrebuttal. 13 MR. HICKEY: So, Chairman, Mr. Duvall is 14 available for examination. 15 COMMISSIONER SMITH: Mr. Purdy, Williams. 16 MR. WILLIAMS: No questions. 17 MR. OLSEN: No questions. 18 COMMISSIONER SMITH: Olsen, Otto. 19 MR. OTTO: None. 20 COMMISSIONER SMITH: Woodbury. 21 MR. WOODBURY: Thank you, Madam Chair. 2178 HEDRICK COURT REPORTING P. O. BOX 578, BOISE, ID 83701 DUVALL (Di-Reb) RMP . . . 1 CROSS-EXAMINATION 2 3 BY MR. WOODBURY: 4 Q.Mr. Duvall, you addressed early on, I guess, 5 the -- in your discussion of wind integration costs the tariff 6 that the Company has for wholesale transmission and the 7 proposed, I guess, impending rate case that you intend to file 8 asking for recovery of wind integration costs in that, and 9 FERC' s requirement that the Company present a study showing 10 actual costs, wind integration costs. 11 Do you think it would be reasonable for this 12 Commission to require that the Company present a study showing 13 actual costs before it allowed any recovery of costs to the 14 Company? 15 A.Well, I think this Commission -- my answer would 16 be, "No," and I think this Commission and other Commissions 1 7 have already allowed wind integration costs based on study work 18 that folks have done, wind integration studies that folks have 19 done, and I think those are -- they give a reasonable estimate. 20 What FERC has asked for folks to do is actually 21 change how they operate their system -- they go to a 15-minute 22 scheduling -- and then also get data from all of the 23 third-party wind generators so that they can actually forecast. 24 This is all real new stuff and, my understanding, we're still 25 investigating it, but I think that there's a lot of dollars 2179 HEDRICK COURT REPORTING P. O. BOX 578, BOISE, ID 83701 DUVALL (Xi - Reb) RMP . . 20 i involved. 2 And then once you get that all set up, then 3 you've got to operate for a year, collect data, and then use 4 that data as the basis of your wind integration charge if you 5 want such a charge with FERC. 6 Q.Is PacifiCorp going to continue with its stated 7 intention to request wind integration costs and prepare such a 8 study for them? 9 A.Well, that's under review, but this has put a 10 real big kink in it. 11 And I think in Dr. Shu i s testimony, I believe she 12 said, you know, consistent with FERC guidance, and that was 13 you know, that's -- our intention was to file along in our 14 general rate case in June of 2011, but this has really put a 15 kink in it and we i re reviewing our opportunities here. 16 Q.Thank you. 17 A.You're welcome. 18 COMMISSIONER SMITH: Mr. Budge. 19 MR. BUDGE: No questions. 21 Commissioners. COMMISSIONER SMITH: Questions from 22 23 24 ~ 25 COMMISSIONER REDFORD: No questions. 2180 HEDRICK COURT REPORTING P. O. BOX 578, BOISE, 10 83701 DUVALL (Xi - Reb) RMP . . . 22 23 1 EXAMINATION 2 3 BY COMMISSIONER SMITH: 4 Q.I just have one. I guess I know the FERC Order 5 is new, but are you aware of the Joint Initiative? 6 A.I'm -- I'm aware of it. 7 Q.Okay. Because they have been working for a long 8 time on intrahour scheduling and dynamic system scheduling, 9 so -- but you're saying there's no market. That might be 10 different from the scheduling. So you want to put the two 11 together for me? Because I think part of the impetus for the 12 FERC i S Order was the activities of the Joint Initiative with 13 regard to DSS and the intrahour scheduling. 14 A.Yeah, I think you're referring to where I said 15 there's no intrahour market, and that was with regard to 16 starting up gas plants and what do you do with that energy. i 7 There is no intrahour market today. There are discussions 18 about creating an intrahour market, and that's, I believe, what 19 you're talking about, but it's not there, and it takes quite a 20 bi t of, you know, infrastructure and cooperation to get there. 21 Q.Right. A.But maybe this FERC -- Q.So that would be more along the lines of the 24 economic dispatch study that's also going on? 25 A.Correct. 2181 HEDRICK COURT REPORTING P. O. BOX 578, BOISE, 10 83701 DUVALL (Com-Reb) RMP . . . 18 19 20 1 Q. Okay.And so all the bilateral sales are done 2 only on the hour? 3 A.That's correct. 4 Q.Aii right. Thank you. 5 COMMISSIONER SMITH: Redirect? 6 MR. HICKEY: I have none. 7 COMMISSIONER SMITH: Thank you. 8 Thank you for your help. 9 THE WITNESS: You're welcome. 10 (The witness left the stand.) 11 MR. HICKEY: And our last witness in the rebuttal 12 case is Darreii Gerrard. 13 14 DARRELL GERRARD, 15 recalled as a witness at the instance of Rocky Mountain Power, 16 having been previously duly sworn, was further examined and 17 testified as follows: DIRECT EXAMINATION 21 BY MR. HICKEY: 22 Q.You're also aware of the fact, Mr. Gerrard, that 23 you're still under oath? 24 25 A.Yes, I am. Q.Mr. Gerrard, do you agree with Mr. Peseau in his 2182 HEDRICK COURT REPORTING P. O. BOX 578, BOISE, 10 83701 GERRARD ( Di - Reb) RMP . . . 1 statement regarding the outages upon the system did not 2 demonstrate the need for Populus to Terminal? 3 A.No, I do not. I do not agree with Mr. Peseau. 4 And I would point out that we had five 5 disturbances on Path C -- those are detailed in my testimony 6 qui te specifically -- that impacted our two maj or customers 7 Nucor and Monsanto multiple times, more than 1,500 other 8 customers, they impacted more than a thousand megawatts of 9 generation multiple times on the system, and I think we have 10 buil t a track record on that path through its derating from 11 somewhere close to a thousand megawatts down to 575 on a firm 12 basis. I think that's a clear track record that there's a 13 problem there and it needed to be corrected. 14 Q.Another comment that's been made by Mr. Peseau 15 was his statement that loads in Utah and Idaho do not justify 16 the proj ect capacity for Populus to Terminal. Do you agree 17 with his statement in that regard? 18 A.Yes, I was quite surprised by that, that he 19 didn't see that the loads justified the proj ect. And I would 20 point to Section 3, page 25, and Table 3 of our IRP where all 21 of our load forecasts are located for the IRP, and they do show 22 significant load growths in some areas, some areas are down, 23 and there is an updated table in there that shows the change we 24 made in our most recent forecast as we updated our 2009 IRP in 25 March of this year. And I would also say that -- that that 2183 HEDRICK COURT REPORTING P. O. BOX 578, BOISE, ID 83701 GERRARD (Di - Reb) RMP . . . 1 table did reflect the economic conditions at the time. 2 I also mentioned yesterday that we're under a 3 requirement under our tariff to solicit loads and -- loads and 4 resource forecasts, and those are part of how we forecast 5 loads. So I don't see how he can say it's not driving the 6 project. 7 Q.You were here when Mr. Peseau was testifying, 8 weren't you? 9 A.Yes, I was. 10 Q.And did you hear his testimony today that 11 regarding his belief that there was no justification of the 12 need for Populus to Terminal? 13 A.Yes, I did hear him say there was no need for it. 14 Q.And what's your response to the testimony he 15 presented today? 16 A.I don't believe he presented any testimony that 17 showed that it was not needed. He strictly -- his two main 18 points on the justification for Populus-Terminal is a 19 MidArerican transaction commitment from 2005 and a cost per 20 mile on the project. That's the only justification for any 21 empirical engineering or technical data he provided about the 22 project. 23 Q.And there was additional testimony from 24 Mr. Peseau and a statement attributed to him where he had said 25 your testimony yesterday and your assessment of the proj ect ' s 2184 HEDRICK COURT REPORTING P. O. BOX 578, BOISE, ID 83701 GERRARD (Di - Reb) RMP . . . 1 capaci ties contribution to Path C. 2 Did you take any issue with Mr. Peseau' s 3 characterization of your testimony yesterday in that area of 4 the proj ect' s capacity contribution to Path C? 5 A.Yes. I did not agree with his statement. I 6 think he said something close to I did not provide a fair 7 assessment, and he uses "fair" somewhat the same way he uses 8 "oversized" or "overbuilt": There's no definition of what 9 ei ther one of those are. But I think I provided the operating 10 parameters and the operating conditions to this Commission, our 11 engineering facts data that showed our firm capacity was 575 12 and it is now 1,600. He did not provide any data that showed 13 that we did not increase the capacity by 1,040 megawatts. 14 Q.At least my characterization of Mr. Peseau' s 15 point was that it i s his contention that Energy Gateway is 16 speculati ve when compared to other proj ects. Did you agree 17 wi th that testimony of Mr. Peseau? 18 A. I did hear him say he thought that Gateway was 19 speculative. I don't recall if he was talking about a specific 20 segment, but he did say he thought it was speculative and I 21 guess 22 Q.My question is do you agree with it? 23 A.I do not agree with it. And I'd like to point 24 really quickly to my exhibit one more time if I may, which was 25 my Exhibit 67 and it got renamed as 88 during the 2185 HEDRICK COURT REPORTING P. O. BOX 578, BOISE, ID 83701 GERRARD (Di - Reb) RMP . . . 1 cross-examination. Can I refer to that? 2 Q.Certainly. I believe that's a map that was 3 prepared by a subcomri t tee of WECC? 4 A.It was prepared by the subregional coordination 5 group and provided to the TEPPC, which is Transmission 6 Expansion Planning Comri ttee of WECC. That's the map. 7 Q.Thank you for the correction. 8 A.Yeah. Sorry, I didn't get that to you. 9 Q.And that is Exhibit 88. Do you need a copy? 10 A.No, I have it here. I just wanted to point out 11 that if you look in the top, right-hand corner of that map, the 12 colored lines say NTTG -- Northern Tier Transmission Group -- 13 and there's a list of proj ects there, as you can read, that 14 consti tute the foundational proj ects. And the Gateway by the 15 end of -- 16 I also mentioned yesterday that we were required 17 to have a FERC license to operate, a FERC rating, so we have to 18 have a license from FERC to operate. And by the end of this 19 year, we will have -- PacifiCorp will have in its hand -- we 20 anticipate will have in its hand at the end of this year our 21 license from WECC to operate all segments of Energy Gateway. 22 So what that means in short is we've passed 23 through the Phase 1 regional planning process with Gateway. 24 We i ve gone through Phase 2, which demonstrates its 25 interconnectabili ty, its reliability, and its contribution to 2186 HEDRICK COURT REPORTING P. O. BOX 578, BOISE, 10 83701 GERRARD (Di - Reb) RMP . . . 1 the GRID. And we're into Phase 3 at the end of the year, which 2 is the construction phase, and we have a license to operate. 3 None of those other proj ects on that list do. 4 Q.Did you hear Mr. Peseau address the issue of 5 whether or not it would be a prudent practice of a utility 6 bringing a transmission resource onto its system to have excess 7 capaci ty in place at the time of the in-service date? 8 A.Yes, I thought I heard him say that was a good 9 idea or he would support that. 10 Q.Did you have a chance to identify any specific 11 examples of where you were aware from your own knowledge of 12 where that's actually occurred that a project either owned by 13 PacifiCorp or other utili ties had excess capacity at the time 14 of an in-service of a transmission resource? 15 A.Yes, I've either worked on or been around several 16 projects, and I'm familiar with a number. I've got a couple I 17 would speak to where we have built capacity in advance of 18 generation or we have transmission capacity installed ahead of 19 its demand. 20 And one of the examples I would use is one that's 21 pretty close to home, and that is our Jim Bridger system that 22 is located in Wyoming and transports all of its energy over to 23 Southeast Idaho. That project was built as three separate 345 24 lines, not too much unlike Populus in the sense of their 25 voltage and capacities. That's nearly a thousand miles long. 2187 HEDRICK COURT REPORTING P. O. BOX 578, BOISE, ID 83701 GERRARD (Di - Reb) RMP . . . 1 And we built it over three years: Started in '73 and we 2 finished it in '76. 3 The generation that went along with that took 4 fi ve years to build. We started in 94 and finished in '79. 5 Excuse me. We started in 1974 and finished in 1975 (sic). So, 6 a period of nearly five years. 7 That proj ect had excess capacity installed and we 8 grew into it. 9 Q.I'm going to have to let you go back, and I 10 understand your desire to be quick. 11 A.Sorry. 12 Q.But what were the years that that five years of 13 generation plant construction took? 14 A.Yeah, thank you for the clarity here. 15 MR. BUDGE: I'm going to obj ect. We're going way 16 beyond the surrebuttal. 17 MR. HICKEY: Well, he's rebutting the position 18 that Mr. Peseau took this afternoon that he thinks that there 19 is too much capacity at the time of the in-service date of 20 Populus to Terminal, and we're addressing that very point that 21 I understood Mr. Peseau to attempt to make. 22 MR. BUDGE: The witness is now going into 23 projects built in advance of resource, and I don't think that 24 was the subject of his rebuttal testimony nor his cross this 25 afternoon. 2188 HEDRICK COURT REPORTING P. O. BOX 578, BOISE, ID 83701 GERRARD (Di-Reb) RMP . . . 1 MR. HICKEY: But with all due respect, it goes 2 directly to the issue of capacity that was unused at the time 3 of the in-service date of the transmission resource. 4 COMMISSIONER SMITH: Okay, we'll let him finish 5 this example. 6 THE WITNESS: Okay, I will be quick, I promise. 7 So the dates that Mister excuse me. The dates 8 that were asked: The lines were built in 1973, '75, and '76. 9 The plants began construction and those were four units in 10 1974,' 75, '76, and three years later the fourth unit was built 11 in 1979. 12 So that proj ect had over 2,200 megawatts of 13 capaci ty when those lines were installed. We didn't use all of 14 that for a full five years until the plants were built. Those 15 proj ects did go in-service and in rates for us and Idaho Power. 16 The other one I would like to talk to you really 17 quickly, we had a proj ect in Southern Oregon which we were 18 joint with Bonneville Power in 1992 which was 100 miles of 19 500 kV, and we installed 500 megawatts of capacity. We've been 20 growing into that today and it's still it's being used up to 21 about 1,200. So our companies and our customers have been 22 growing into that for a number of years. Bonneville and 23 ourselves also put that in service, it was rate based, and to 24 the benefit of customers at the time it went in service. 25 Q.BY MR. HICKEY: And then, lastly, do you have any 2189 HEDRICK COURT REPORTING P. O. BOX 578, BOISE, 10 83701 GERRARD (Di-Reb) RMP . . . 1 rebuttal testimony to the position of the Staff, and 2 specifically Mr. Lobb, that based on a per-mile analysis, the 3 Populus to Terminal project -- again, his conclusion -- is at a 4 very high cost per mile? 5 A.Yes. I still disagree with Mr. Lobb' s conclusion 6 that he can determine that this proj ect is overbuilt strictly 7 on a cost-per-mile basis. A cost per mile is not a measure of 8 system capacity, nor performance, and he uses that in his 9 analogy or in his analysis and provides no other reason why 10 that proj ect is overbuilt. 11 Q.Do you have any other rebuttal testimony, 12 Mr. Gerrard? 13 A.Yes, I would. One other comment I would like to 14 make about Mr. Peseau's comment about loads driving Gateway: A 15 glaring absence in his comments, to me, was he didn't mention 16 anything about resources. It was strictly based -- he said the 17 proj ect was not based on loads. He didn't mention anything 18 about resources. 19 And he didn't mention that Southeast Idaho is 20 connected to PacifiCorp' s system on the two -- on two of the 21 top ten most constrained paths in the W-E-C-C. That's Bridger 22 West and it's the number one constrained path in the W-E-C-C, 23 and Path C is the No. 4 constrained path, and both of those 24 feed Idaho. So any resources that are going to serve Southern 25 Idaho are going to have to come from -- excuse me, Southeast 2190 HEDRICK COURT REPORTING P. O. BOX 578, BOISE, 10 83701 GERRARD (Di - Reb) RMP . . . 1 Idaho -- are going to have to come from outside of Southeast 2 Idaho. 3 So he failed to mention that the next resources 4 our Company has planned, the first one in Utah is over 140 5 miles from Southeast Idaho. The resources we're putting into 6 Wyoming are over 250 miles from Southeast Idaho. To me, that 7 clearly points out there has to be a transport mechanism 8 between where those resources are and where the loads are. I 9 think that was a glaring error. 10 The last thing and my final statement, 11 Mr. Hickey, is the study that was handed out during Mr. Lobb' s 12 cross by Berkeley National Laboratories. I would not sit here 13 and claim that I digested this and read it, but if the 14 Commission would, if it would help them as they think about 15 this, I would like to give you my opinion or my recommend on 16 it. 17 And on page 4 of the executive summary, it talks 18 about the authors used 40 detailed transmission studies to put 19 this report together. The last sentence of their paragraph 20 says: In doing so, we gloss over many important details and 21 differences among those studies in our example. 22 The thing that's not in here and I didn't find it 23 if it's in here, not one of these projects that they have 24 listed here I could find has ever been built, their studies. 25 So as you read this and compare it to Populus-Terminal, it's 2191 HEDRICK COURT REPORTING P. O. BOX 578, BOISE, ID 83701 GERRARD (Di-Reb) RMP . . . 1 been through concept, planning, in service, turned and test up, 2 it's energized, and we did not have the luxury to ignore simple 3 details. 4 So, with that, hopefully that will help your 5 read. 6 Q.Thank you, Mr. Gerrard. 7 MR. HICKEY: He's available for examination. 8 COMMISS IONER SMITH: Any questions, Mr. Purdy? 9 MR. PURDY: No. 10 COMMISSIONER SMITH: Mr. Williams. 11 MR. WILLIAMS: Yes. 12 13 CROSS-EXAMINATION 14 15 BY MR. WILLIAMS: 16 Q.Mr. Gerrard, I have one question: 17 Were you aware that in the recent all-source RFP, 18 your Company rejected a 240 megawatt power plant proposed in 19 the Soda Springs area? 20 A.I do not have detailed information on that. That 21 would have to come from our IRP folks. I'm not involved in 22 the -- in evaluation. 23 Q.But that goes to your statement that all loads 24 needed to serve Southeast Idaho are at least 140 megawatts 25 (sic) away. Is that correct? 2192 HEDRICK COURT REPORTING P. O. BOX 578, BOISE, 10 83701 GERRARD (X-Reb) RMP . . . 20 1 A.Would you say that one more time? 2 Q.You just testified in rebuttal that all loads 3 necessary to serve Eastern Idaho are more than 140 miles 4 away? 5 COMMISSIONER SMITH: Did you mean "resources"? 6 Q.BY MR. WILLIAMS: I'm sorry, resources. 7 A.I was specifically talking to the resources that 8 are listed in our integrated resource plan today. Thank you 9 for the clarification. That was my point. 10 Q.All right. 11 MR. WILLIAMS: Thank you. 12 MR. OLSEN: No questions. 13 MR. OTTO: No questions. 14 COMMISSIONER SMITH: Mr. Woodbury. 15 MR. WOODBURY: Thank you, Madam Chair. 16 i 7 CROSS-EXAMINATION 18 19 BY MR. WOODBURY: Q.Just to clarify things, would you accept that 21 Staff presented -- which has been marked as Exhibit 133 -- the 22 Ernest Orlando Lawrence Berkeley National Laboratories study on 23 the cost of transmission for wind energy, an excerpt from that; 24 was not challenging the cost of the Populus-Terminal 25 transmission line and its cost per mile analysis, but really 2193 HEDRICK COURT REPORTING P. O. BOX 578, BOISE, ID 83701 GERRARD (X-Reb) RMP . . . 18 1 Staff's testimony only challenges the amount that should be 2 presently rate based as used and useful in this rate case? 3 A.Is that a question? 4 Q.Yes. 5 A.Would you rephrase it? 6 Q.Would you accept that we didn't present this 7 study to challenge the cost of the Populus-Terminal line? 8 A.I thought it was aimed at cost. The table that 9 was pointed to was specifically referred to and pointed at cost 10 and cost differences, so that's what I heard. 11 Q.But don't you read Staff's testimony as really 12 not challenging the overall cost of the line, but only 13 addressing the amount that should be presently rate based? 14 A.That's how I understand the testimony, and my 15 disagreement is they are using the cost of the line, Mr. Lobb 16 is, to make his assessment of what should be -- what the 17 capaci ty should be placed in service. Q.I would concede that all of the proj ects that 19 were identified in their study are different than the Company's 20 Populus to Terminal line. 21 22 A.Uh-huh. Q.And that may be of an older vintage. But it, 23 nevertheless, doesn't change the result that the Company's line 24 is really much higher in cost per mile than any of those 25 others. 2194 HEDRICK COURT REPORTING P. O. BOX 578, BOISE, ID 83701 GERRARD (X-Reb) RMP . . . 1 And if the Company has studies showing that to be 2 otherwise an uncomparable line to the Populus-Terminal, I would 3 like to see. If you could provide that to Staff, we would like 4 to see it. 5 A.I do not have anything else to offer. 6 MR. WOODBURY: Thank you. 7 COMMISSIONER SMITH: Mr. Budge. 8 MR. BUDGE: One question. 9 10 CROSS-EXAMINATION 11 12 BY MR. BUDGE: 13 Q. Mr. Gerrard, did you not recognize also that 14 Dr. Peseau' s testimony similarly did not challenge the need or 15 the cost of the proj ect i he simply asserted that the rate base 16 treatment should be deferred because it's not used and useful? 17 Did you not read that in his testimony as well? 18 A.I did read in his testimony that he felt it 19 shouldn't be rate based because it was a speculative proj ect 20 and its capacity would not be useful. 21 Q.And wasn't his analysis in support of his 22 conclusion that it was not used and useful, not that it 23 shouldn't have been built? 24 25 A.I disagree. I don't believe he demonstrated at all that it wasn't used and useful. 2195 HEDRICK COURT REPORTING P. O. BOX 578, BOISE, ID 83701 GERRARD (X-Reb) RMP . . . 1 MR. BUDGE: No further questions. 2 COMMISSIONER SMITH: Thank you. 3 Do we have any further questions from the 4 Commissioners? 5 COMMISSIONER REDFORD: No. 6 COMMISSIONER KEMPTON: None. 7 COMMISSIONER SMITH: Any redirect? 8 MR. HICKEY: Just one. 9 10 REDIRECT EXAMINATION 11 12 BY MR. HICKEY: 13 Q.Do you have an opinion as to whether or not 14 Populus to Terminal is used and useful, and if so, what is it 15 based upon? 16 A.Yeah, my expert opinion with the experience I 17 have, more than 30 years, is that that proj ect is used and 18 useful. And I demonstrated that. 19 It is energized. The capacity can be used for 20 the benefit of all of our customers, including those in 21 Southeast Idaho, and that it is sized for the capacity that we 22 need today and the capacity that all of the information I have 23 today shows that we were going to need at least 20 years from 24 now. And I also provided economics that showed that it is the 25 right cost for what we've done. 2196 HEDRICK COURT REPORTING P. O. BOX 578, BOISE, 10 83701 GERRARD (Di-Reb) RMP . . . 1 Q.Thank you, Mr. Gerrard. 2 MR. HICKEY: That concludes our rebuttal case. 3 COMMISSIONER SMITH: Thank you very much. 4 We appreciate your help, Mr. Gerrard. 5 THE WITNESS: Thank you for your patience. 6 (The witness left the stand.) 7 COMMISSIONER SMITH: This brings us to the 8 conclusion of our technical hearing. I am assuming that no 9 party feels the need to file any brief. Is there a different 10 opinion out there? Mr. Purdy. 11 MR. PURDY: I'm afraid that there is. 12 COMMISSIONER SMITH: Okay. 13 MR. PURDY: And just for the record, if I might 14 very briefly enumerate the reasons why: 15 As I indicated at the outset, I think this case 16 is very appropriate, at least for my client's purposes, for a 17 posthearing brief. The four main reasons are as follows: 18 I think most of us would agree that this was a 19 somewhat complex case, especially in light of the Monsanto 20 issue and need to try to tip-toe between that specific matter 21 and everything else. 22 There was -- the hearing transcript record itself 23 will be rather voluminous and complex with all the 24 surrebuttals, and parties, including myself, my client, were 25 gi ven considerable latitude during additional direct to present 2197 HEDRICK COURT REPORTING P. O. BOX 578, BOISE, ID 83701 COLLOQUY . . . 1 exhibi ts and make arguments. And these are the kinds of things 2 that though the Commission comes into these hearings very well 3 prepared, so much happens during hearings like this that it is 4 important, I think, at the end to go back and very concisely, 5 in a very abbreviated fashion, capture using the hearing 6 transcript not only the things that were put on the record but 7 the things that were not, which can be equally important. 8 And with respect -- and, third, there were, I 9 believe, a number of legal issues raised that a lot of the 10 parties couldn't testify to but lawyers could quickly and 11 effectively address in a posthearing brief. 12 And, finally, with respect to Community Action's 13 interest, though Rocky Mountain Power I have to believe was or 14 should have been well aware that my client would intervene in 15 this case when it made its direct filing, and was well aware of 16 what my client's issues of concern are, when I went through the 17 ini tial filing and I simply typed in under the find box the 18 words "low income," I came up with virtually nothing. The 19 Company obviously chose -- it did not have a legal 20 requirement to make a filing regarding low-income 21 weatherization or any low-income issues, but it certainly knew 22 that my client would be here and would be interested in those 23 issues; it chose not to. 24 And what that effectively did, Madam Chair and 25 Commissioners, is it put the burden of proof on Community 2198 HEDRICK COURT REPORTING P. O. BOX 578, BOISE, ID 83701 COLLOQUY . . . 1 Action then to raise that for the first time in its direct 2 case, which then gave the Company essentially the last word on 3 an issue that I think really Community Action effectively 4 carries the burden on. And while the Commission again granted 5 us generous latitude and additional direct and whatnot, there's 6 really no substitute for a brief to go back through and point 7 out the things that, well, I think what were the deficiencies 8 in the Company's case and why it was difficult for my client to 9 respond to those deficiencies when the Company had the last 10 word. The posthearing brief would do a lot for assuaging those 11 concerns. 12 COMMISSIONER SMITH: Mr. Purdy, what legal -- 13 what specific legal issues are you thinking need to be briefed? 14 MR. PURDY: Well, among other things -- and I 15 honestly don't have them all listed out, Madam Chair, but I 16 think that for my client i s issues, it will be necessary to go 17 back and look at prior cases and prior cases' Orders and 18 attempt to determine what obligations Rocky Mountain Power had 19 with respect to various things like conducting evaluations of 20 the low-income weatherization program, did they meet those 21 obligations, did the Company follow prior Commission Orders in 22 other respects. 23 Yeah, I'm sorry, it's late and we're all tired, 24 but I just have a sense that there are some legal issues. And, 25 again, I think that the Commission could -- clearly, I know the 2199 HEDRICK COURT REPORTING P. O. BOX 578, BOISE, 10 83701 COLLOQUY . . . 20 1 Commission could -- limit the scope and length of the brief in 2 a way that would allow the parties a reasonable chance to just 3 get their issues out on paper quickly but not drag this out and 4 expand the scope of the case. 5 COMMISSIONER SMITH: So if we said a ten-page 6 brief on issues dealing with low-income weatherization, would 7 that satisfy you? 8 MR. PURDY: Yes, it would. 9 COMMISSIONER SMITH: Any other party feel the 10 need for brief? 11 MR. HICKEY: On behalf of the Applicant, we 12 don't. And with all due respect to Mr. Purdy, I don't think 13 he's articulated a legal issue that under the standard that I 14 understood posthearing briefs would be filed could be met. I 15 didn't hear a concise legal issue, but we'll follow the 16 direction of the Chair. We don't see a need for a brief. 17 COMMISSIONER SMITH: Let me caucus with my 18 colleagues. We'll go at ease for a few moments. 19 (Discussion off the record.) COMMISSIONER SMITH: All right, let's go back on 21 the record. 22 Mr. Purdy, the transcript will be ready two weeks 23 from tomorrow. So when did you plan that you could have any 24 written document to the Commission? 25 MR. PURDY: I would think that I'LL gladly work 2200 HEDRICK COURT REPORTING P. O. BOX 578, BOISE, 10 83701 COLLOQUY . . . 1 through the Christmas period if -- and I only need portions of 2 the transcript i perhaps I could work that out with the court 3 reporter to expedite that process. But regardless, once I 4 recei ve those transcripts, certainly wi thin seven to ten days I 5 can turn something around. 6 COMMISSIONER SMITH: Okay. 7 MR. PURDY: Quicker if you need me to. 8 COMMISSIONER SMITH: Everyone is aware, of 9 course, that it's the Commission's intention to issue an 10 interim Order before the first of the year putting into place 11 rates, except the one remaining issue is the economic value of 12 Monsanto's curtailment which will be held in a separate hearing 13 and then the final Order will go out after that hearing. So I 14 guess I'm trying to fit this in the schedule. And the 15 deliberations the Commission has already scheduled are on the 16 21st, 22nd, and 23rd of December. 17 MR. PURDY: All right. Today being the 2nd, if I 18 got the transcripts by the 16th. I mean, I can draft the 19 maj ori ty of the brief ahead of time, simply get my hands on the 20 transcript, fill in the blanks. I don't see why I couldn't get 21 that -- 16th -- to you -- 22 I'm sorry, Madam Chair, did you say the 23rd 23 you were going to 24 COMMISSIONER SMITH: 21st, -2nd, and -3rd. 25 MR. PURDY: 21st, -2nd, and -3rd. I i II do what 2201 HEDRICK COURT REPORTING P. O. BOX 578, BOISE, 10 83701 COLLOQUY . . . 1 it takes to get it to you by then. 2 COMMISSIONER SMITH: Okay. Well, then I guess we 3 are willing to accommodate your desire for a posthearing 4 filing, which I don't think will be a legal brief. I mean, we 5 don't see legal issues. But if you have any, you can raise 6 them in that. 7 And then the Company, of course, would have an 8 opportunity to respond. 9 MR. HICKEY: I honestly don't believe that 10 there's any need to respond to the brief, but I appreciate the 11 Commission affording us the opportunity. My sincere belief is 12 we probably won't be filing a Response to it. 13 COMMISSIONER SMITH: All right. And if you can 14 limi tit to ten to 12 pages, that would be our preference. 15 MR. PURDY: Yes, I can. Thank you. 16 COMMISSIONER SMITH: Excellent. 17 Are there any other matters to come before the 18 Commission before we close the technical phase of this hearing 19 and look forward to our four public hearings in Eastern Idaho? 20 MR. HICKEY: Just on behalf of the Applicant, if 21 I could express the appreciation on behalf of Rocky Mountain 22 Power and at a personal level of being accepted as an attorney 23 up here to practice in front of you under your special rules. 24 I want to say we all admire the work the Commission does and 25 thank you for the opportunity to present the case over these 2202 HEDRICK COURT REPORTING P. O. BOX 578, BOISE, ID 83701 COLLOQUY . . .25 1 last four days. 2 And I extend a similar appreciation to the 3 parties to the case and the Counsel that we have had the chance 4 to be in the room with the last four days. Thank you, all. 5 COMMISSIONER SMITH: Well, and we appreciate all 6 of you, but, Mr. Hickey, don't get feeling too special, because 7 if you give them money, the Bar will let anybody through, and a 8 very strong union. 9 MR. HICKEY: I'm properly minimized. 10 (Laughter. ) 11 COMMISSIONER SMITH: Okay, I want to thank 12 everybody for your cooperation for willing to work late on 13 these evenings so we could conclude by tonight and not go into 14 tomorrow. 15 And the Commission knows the significance of this 16 case and feels the burden that is on us, and we'll do our very 17 best to balance all of the interests that we are required to 18 balance. 19 And we want to especially thank Wendy -- 20 MR. HICKEY: Hear hear. 21 COMMISSIONER SMITH:for her perseverance. 22 So, probably won't see all of you in Shelley, 23 Rexburg, Grace, and Preston, but for those of you who will be 24 there, we'll see you then. COMMISSIONER KEMPTON: And if you miss those, you 2203 HEDRICK COURT REPORTING P. O. BOX 578, BOISE, 10 83701 COLLOQUY . . 19 20 21 22 23 24 . 25 1 can listen in on the night conference. 2 COMMISSIONER SMITH: Oh, yes, the telephonic 3 hearing on the 21st at seven 0' clock in the evening. 4 Thank you everyone. 5 We're adj ourned. 6 (All exhibits marked for identification 7 were admitted into evidence.) 8 (The hearing adj ourned at 6: 17 p.m.) 9 10 11 12 13 14 15 16 17 18 2204 HEDRICK COURT REPORTING P. O. BOX 578, BOISE, ID 83701 COLLOQUY . . 19 20 21 22 23 24 . 25 1 AUTHENTICATION 2 3 4 This is to certify that the foregoing 5 Volumes II through X are true and correct transcripts to the 6 best of my ability of the proceedings held in the matter of the 7 Application of PacifiCorp dba Rocky Mountain Power for approval 8 of changes to its electric service schedules, Case No. 9 PAC-E-10-07, commencing on Tuesday, November 30, 2010 through 10 Thursday, December 2, 2010, at the Commission Hearing Room, 472 11 West Washington, Boise, Idaho, and the originals thereof for 12 the file of the Commission. 13 Accuracy of all prefiled testimony as 14 originally submitted to this Reporter and incorporated herein 15 at the direction of the Commission is the sole responsibility 16 of the submitting parties. 17 18 WENDY J. N ta y Public in and for the t te of Idaho, residing at Meri ian, Idaho. My Commission expires 2-8-2014. Idaho CSR No. 475 2205 HEDRICK COURT REPORTING P. O. BOX 578, BOISE, 10 83701