Zhang.pdf

Q. Please state your name. 1
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A. My name is James Z. Zhang.
Q. What is your business address and by whom are you employed?
A. My business address is 825 NE Multnomah Avenue, Portland, Oregon. I am
employed by PacifiCorp (the Company).
Qualifications
Q. What is your current position with PacifiCorp?
A. My current position is Pricing Consultant in the Regulation Department.
Q. What is your educational and professional background?
A. I earned a Bachelor of Science degree in Mechanical Engineering from Beijing
University of Chemical Technology in 1982, a Master of Science degree in
Engineering Management from Tsinghua University in 1985 and a Ph.D. in
Economics from Oregon State University in 1994. I joined the Company in the
Regulation Department in August 1997.
Q. Have you appeared as a witness in previous regulatory proceedings?
A. No. Since 1997, with levels of increasing responsibility, I have developed and
implemented a number of rate spread and rate design proposals throughout the
Company’s six state service territory.
Purpose of Testimony
Q. What is the purpose of your testimony?
A. The purpose of my testimony is to address the Company’s proposed rate spread in
this case and to propose price changes for the affected rate schedules.
Q. Please describe PacifiCorp’s pricing objectives in this case.
Zhang, Di 1
PacifiCorp

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A. The Company’s pricing objectives in this case are to implement, over two years, a
cost of service-based redesign of the Company’s prices along with the proposed
power cost adjustment, while also implementing the revised BPA credit. The
Company’s overall goal is to implement these three elements in such a way that no
customer class will see a price increase.
Q. How does the Company propose to redesign rates based on cost of service?
A. Based on the cost of service (COS) study introduced by Mr. Taylor, the Company
proposes to redesign its rates so that all customer classes fall within five percent of
their cost of service. Specifically, for rate schedules that are currently paying more
than 105% of COS, the Company proposes to reduce their rates to 105% of COS.
Similarly, for rate schedules that are currently paying less than 95% of COS, the
Company proposes to increase their rates to 95% of COS. For rate schedules that
currently fall between 95% and 105% of COS, the Company proposes no change to
present base rates. The COS redesign will be fully implemented in the first year and
has been designed to be revenue neutral; that is, the Company’s total revenues will be
unchanged as a result of this rate redesign.
Q. Why did the Company choose to bring all rate schedules within five percent of cost of
service rather than proposing that all rate schedules be at 100% of cost of service?
A. Due to the changing makeup of customer classes, variations in usage and other
factors, cost of service results can vary from year to year. A customer class that was
at 100 percent of cost of service in one year can be higher or lower than that in the
following year. The Company chose the five percent cost of service threshold as a
way to balance cost of service precision and appropriate cost responsibility for
Zhang, Di 2
PacifiCorp

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customer classes. We believe it makes reasonable movement toward bringing each
customer class closer to cost of service, while recognizing the inherent variability
from year to year.
Q. Please describe the Company’s proposed power cost adjustment (PCA).
A. Mr. Widmer provides testimony regarding the Company’s need to recover
approximately $38 million in excess power costs. The Company proposes to recover
these costs over a two-year period in which 70 percent, or $27 million, is recovered in
the first year and the remaining 30 percent, or $11 million, is recovered in the second
year. This 70/30 split is designed in conjunction with a rate mitigation adjustment
(discussed below) to achieve the goal of customer classes not seeing any price
increases as a result of these changes in either year.
Q. On what basis does the Company propose to collect the PCA from customers?
A. Because the excess power costs are energy related, the Company proposes to collect
them through a cents per kilowatt-hour adjustment (PCA) based on customers’
service voltage levels. The PCA rates are obtained by dividing the total excess power
costs by the total kilowatt-hours at the generator and then adding an adjustment for
voltage losses. The PCA will be applied to all customer classes and to all energy
usage.
Q. Please describe the Company’s proposed distribution of the credit from the
Bonneville Power Administration (BPA).
A. In year one, the Company proposes to distribute the $34 million of Idaho BPA credit
based on historic allocations, with 57 percent going to irrigation customers and 43
percent going to other qualifying (residential and qualifying small commercial)
Zhang, Di 3
PacifiCorp

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customers. Moreover, residential and qualifying small commercial customers receive
an additional credit benefit in year one equal to four months of their year-one BPA
credit. This additional amount is being applied in order to distribute funds
accumulated since implementation of increases in the BPA benefit in September 2001
and will be spread evenly over the twelve months of year one. In addition, $1.6
million of previously collected BPA exchange benefit is to be distributed in year one
with the historic 57/43 percent split. The total amount of BPA credit the Company
proposes to distribute to qualifying customers in year one is $40.6 million.
In year two, the Company proposes to adjust the BPA credit to distribute the
$35.1 million of allowed benefits using the same historic 57/43 percent split between
irrigation and other qualifying (residential and qualifying small commercial)
customers.
Q. What is the purpose of the rate mitigation adjustment (RMA)?
A. The combination of the COS redesign, the PCA and the BPA credit as described
above results in changes to most customer prices and in some cases increases occur.
The RMA is designed to offset those changes and to balance revenues so that no
customer class will see a price increase in the first two years. The RMA is also
designed to maintain greater price stability by minimizing price fluctuations from
year to year.
Q. How does the RMA work?
A. The RMA is a surcharge or surcredit applied on a cents per kilowatt-hour basis to
each rate schedule. It has been designed to mitigate and moderate price impacts that
may occur and to achieve the goal that no customer class receives a price increase for
Zhang, Di 4
PacifiCorp

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the next two years. In fact, most customers will see significant price decreases in
both year one and year two.
Q. Has the Company implemented an RMA in any of its other jurisdictions?
A. Yes. The Company implemented an RMA in Oregon in late 2001 in order to
minimize price fluctuations across customer classes.
Q. Please describe Exhibit No. 17.
A. Exhibit No. 17 details the Company’s proposed changes and the development of the
RMA, based on the 12 month test period ending March 2001, to be implemented over
a two year period. Table 1 shows the changes in year one; Table 2 shows the changes
in year two. On an overall basis in year one, these revisions produce a 4.2 percent net
price decrease. In year two, an overall net price decrease of 7.2 percent is achieved.
Tables 3 to 18 contain monthly billing comparisons for each of the affected rate
schedules showing the net impact of the proposed prices at various usage levels.
Q. Please describe Exhibit No. 18.
A. Exhibit No. 18 contains the Company’s proposed revised tariffs in this case.
Q. Please describe the overall change that customers will see in their prices in year one
of the Company’s proposal.
A. In year one, residential customers will see an average price decrease of eight percent.
Irrigation customers on average will also see a price decrease of eight percent while,
overall, commercial and industrial customers will see a decrease of three percent.
Lighting customers will see an overall decrease of nine percent.
Q. Please describe the change customers will see in year two of the Company’s proposal.
Zhang, Di 5
PacifiCorp

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A. In year two, the residential customer class will see a decrease of 15 percent from
prices at the end of year one. Irrigation customers will also see an average decrease
of 15 percent, while commercial and industrial customers overall will see a decrease
of four percent from prices in effect at the end of year one. Lighting customers
overall will see a decrease of another 15 percent.
Q. What happens to these customers’ bills when the PCA and the RMA go away at the
end of two years?
A. In the third year, prices will continue to decline. Residential prices will decrease by
19 percent. Irrigators will see a decrease of 21 percent while commercial and
industrial customers will see, overall, a decrease of six percent. Lighting customers
will see, overall, a decrease of 17 percent. It should be noted that this discussion
about the decreases that will be seen by customer classes reflects the effective price
paid by customers, taking all adjustments into account.
Q. Please summarize these changes over the course of three years for the major rate
schedules.
A. The following table summarizes these percentages:
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Customer Class Year One Year Two Year Three
Residential -7.8% -14.6% -18.8%

General Service
Schedule 6 0.0% 0.0% 0.0%
Schedule 9 0.0% 0.0% 0.0%
Schedule 23 -7.1% -6.2% -5.0%
Irrigation
Schedule 10 -7.8% -14.6% -21.2%
Commercial &
Industrial Total -2.8% -4.4% -5.7%

Lighting -8.5% -14.9% -17.3%

Zhang, Di 6
PacifiCorp

Residential Prices 1
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Q. Please describe the Company’s proposed residential price design changes.
A. For residential customers, the Company proposes to implement the COS redesign
decrease by reducing the energy charges, while keeping the current ratio between
summer/winter energy charges and on-peak/off-peak energy charges for the optional
time of day schedule. The Company proposes no changes to the minimum charge,
service charge or seasonal service charge minimums in the residential schedules.
Q. How does the Company propose to implement the PCA and the RMA?
A. Proposed Schedule 93 contains the PCA, a cents per kilowatt-hour adjustment based
on the customer’s voltage level. (All residential customers are served at the
secondary level.) Proposed Schedule 94 contains the RMA, a cents per kilowatt-hour
adjustment based on rate schedule. Both schedules have columns indicating different
prices for year one and year two and are proposed to expire 24 months after these
tariffs go into effect. These tariffs are included in Exhibit No. 18.
General Service & Irrigation Prices
Q. Please describe the Company’s proposed price design changes for commercial and
industrial customers.
A. To implement the COS changes, for Schedules 19 and 23, the Company proposes to
decrease the energy charges while keeping the same summer/winter ratio. To
implement the COS changes for Schedule 8, the Company proposes to increase the
demand charges as well as the energy charges, again while keeping the same seasonal
ratios.
Q. Why does the Company propose to change the demand charges for Schedule 8?
Zhang, Di 7
PacifiCorp

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A. An increase in the demand charge as well as the energy charge for Schedule 8 will
bring Schedule 8’s prices more closely in line with the cost of service results.
Q. What are the Company’s proposed price design changes for irrigation customers.
A. The Company proposes to consolidate the three rates currently contained in irrigation
Schedule 10 into one firm service rate. The proposed service charges and demand
charge are the average of the three current rates, proportioned for the amount of usage
under each of the three rate options.
Q. What does the Company propose for the energy charge in Schedule 10?
A. The Company proposes to recover the COS redesign increase through the energy
charge while keeping the same relationship between the current average on-season
and off-season revenues. The charge for off-season energy has consequently been
increased to 5.2459 cents per kWh. Also, the two-block current on-season energy
charge has been revised to a three-block energy charge. The three-block energy
charge will more closely track cost of service while giving more uniform price signals
to large irrigation customers. The first block covers the first 25,000 kilowatt-hours,
the same as the current design. The second block covers the next 225,000 kilowatt-
hours, and the third block covers all kilowatt-hours over 250,000. The proposed rates
for on-season kilowatt-hours are 5.9485 cents per kWh for the first tier, 4.7588 cents
per kWh for the second tier and 2.5000 cents per kWh for the last tier.
Q. How are the PCA and the RMA applied to general service and irrigation customers?
A. As with residential customers, for general service and irrigation customers the PCA is
applied as a cents per kilowatt-hour adjustment based on the customer’s voltage level.
Zhang, Di 8
PacifiCorp

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The RMA is applied as a cents per kilowatt-hour adjustment by rate schedule. The
PCA and RMA adjustments are contained in Schedules 93 and 94, respectively.
Q. If Schedule 10 is proposed to be a firm service rate, what does the Company propose
for the current load control program?
A. The Company is developing an optional load control credit for irrigation customers
that will replace the load control program. We have been engaged in discussions
with customers and Commission staff, and plan to file a program later this year.
Other Changes
Q. What price changes does the Company propose for lighting customers?
A. The appropriate COS redesign percentage change has been applied to the current per
lamp charges in each of the lighting schedules. The PCA and RMA for lighting
schedules are contained in Schedules 93 and 94 as cents per kilowatt-hour charges
and credits.
Q. Please explain Exhibit No. 19.
A. In Exhibit No. 19, Table 1 details the billing determinants used in preparing the
pricing proposals in this case. It shows billing quantities and prices at present rates
and proposed rates. Table 2 and Table 3 show the development of Company’s
proposed BPA credit and PCA surcharge, respectively.
Q. Does this conclude your testimony?
A. Yes, it does.
Zhang, Di 9
PacifiCorp