20190610Schuh Direct.pdf

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DAVID J. MEYER
VICE PRESIDENT AND CHIEF COLINSEL FOR
REGULATORY & GOVERNMENTAL AFFAIRS
AVISTA CORPORATION
P .O. BOX 3727
1411 EAST MISSION AVENUE
SPOKANE, WASHINGTON 99220-37 27
TELEPHONE: [phone]t6
FACSIMILE: (s09)49s-88s1
DAVID.MEYER@AVI STACORP. COM
;OI9 JUil I
TIL,I
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION
OF AVISTA CORPORATION FOR THE
AUTHORITY TO INCREASE ITS RATES
AND CHARGES FOR ELECTRIC SERVICE
TO ELECTRIC CUSTOMERS IN THE
STATE OF IDAHO
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CASE NO. AVU-E-19-04
DIRECT TESTIMONY
OF
KAREN K. SCHUH
FOR AVISTA CORPORATION
(ELECTRIC)
RECEIVED
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I.INTRODUCTION
a. Please state your name, employer and business address.
A. My name is Karen K. Schuh. I am employed by Avista Corporation as
Manager of Regulatory Affairs in the State and Federal Regulation Department. My business
address is l4l I East Mission, Spokane, Washington.
a. Please briefly describe your educational background and professional
experience.
A. I graduated from Eastern Washington University in 1999 with a Bachelor of
Arts Degree in Business Administration, majoring in Accounting. After spending six years
in the public accounting sector, I joined Avista in January of 2006. Since 2006, I have worked
in various positions within the Company in the Finance Department (Plant Accounting and
Resource Accounting) and joined the State and Federal Regulation Department as a
Regulatory Analyst in 2008. Currently, as Manager of Regulatory Affairs, I am responsible
for, among other things, preparing the capital adjustments in general rate cases for the Idaho
and Washington j urisdictions.
a. What is the scope of your testimony?
A. My testimony will explains how the Company's capital investments in utility
plant from December 3 1 , 20 1 8 through December 37 ,2019 are incorporated into the proposed
revenue requirement in this case. Company witness Ms. Andrews has included adjustments
prepared by me to reflect these investments in her electric revenue requirement for the
Company for the 2020 Rate Year. A table of contents for my testimony is as follows:
Schuh, Di 1
Avista Corporation
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Table of Contents Pase
I. INTRODUCTION I
II. WITNESSES TESTIFYING TO CAPITAL ADDITIONS................ 3
III. CAPITAL ADJUSTMENTS 12
IV. DEPRECIATION STUDY 14
a. What is driving the investment in utility plant in Idaho?
A. As Company witnesses Mr. Thies, Mr. Thackston, Ms. Rosentrater and Mr.
Kensok explain in their testimony, it is necessary to add or upgrade generation facilities and
expand transmission and distribution facilities, due in part to asset management programs,
compliance with state and federal requirements, improvements and efficiencies, reliability,
maintenance, resource supply, and safety and security. Specifically, Idaho "gross" electric
plant additions through December 31,2019, increases plant in-service by approximately $93.3
million, as compared to what is currently embedded in base retail rates.
a. As Avista removes old equipment and replaces it with new, does the
depreciation component currently included in retail rates cover the cost to replace
facilities?
A. No. As Mr. Thies also discusses, the depreciation component currently
included in retail rates generally covers a very small amount of the new facilities and
equipment placed into service, especially for the long-lived assets. Avista's retail rates are
cost-based, which means the prices customers are paying today for transformers, distribution
poles, substations, and transmission lines, among other facilities, are based on the cost to
install those facilities, in some cases , 40, 50, and even 60 years ago. The costs of the same
equipment and facilities today are many times more expensive. The depreciation component
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Avista Corporation
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built into retail rates today is based on the much lower cost to install those facilities many
years ago. Therefore, the depreciation component in retail rates covers only a small fraction
of the annual costs associated with the new investment in facilities.
a. What conclusions have you drawn regarding the increased capital
investment included in this case?
A. The Company is making substantial levels of capital investment in its electric
system infrastructure to address customer growth, replacement and maintenance of Avista's
aging system, and to sustain reliability and safety. As soon as this new plant is placed in
service, the Company must start depreciating the new plant and incur other costs related to the
investment. Unless this new investment is reflected in retail rates in a timely manner, it has a
negative impact on Avista's earnings, particularly because the new plant is typically far more
costly to install than the cost of similar plant that was embedded in rates decades earlier. As
plant is completed and is providing service to customers, it is appropriate for the Company to
receive timely recovery of the costs associated with that plant.
II. WITNESSES TESTIFYING TO CAPITAL ADDITIONS
a. Would you please provide a brief summary of the witnesses who provide
testimony related to capital expenditures and additions in this proceeding?
A. Yes. The following witnesses are presenting direct testimony supporting
capital expenditures and additions in this case:
Mr. Mark Thies, Senior Vice President, Chief Financial Officer and Treasurer,
provides an overview of our capital expendifure program, the need for capital investments and
how prioritization for capital investments on a company wide basis occurs.
Schuh, Di
Avista Corporation
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o I Mr. Jason Thackston, Senior Vice President of Energy Resources, will address the
2 generation capital projects described in this case, including Colstrip capital projects, for 2019.
3 Generation projects represents approximately l1%o of all capital transfers-to-plant in2019-
4 Ms. Heather Rosentrater, Vice President of Energy Delivery, will explain capital
5 additions related to electric transmission and distribution, facilities, fleet, as well as general
6 plant. The projects under Ms. Rosentrater's different areas represent approximately 43% of
7 all capital transfers-to-plant in2019.
8 Mr. James Kensok, Vice President and Chief Information and Security Officer, will
9 provide an overview of Avista's Information Service/Information Technology (IS/IT)
l0 programs and projects. This includes summaries of the Company's capital investments for a
1 I range of IS/IT systems used by the Company. The IS/IT projects represent approximately 18%
12 of all capital transfers-to-plant in2019.
13 a. Mr. Thies discusses capital expenditures in his testimony. How is that
14 presented differently in your testimony?
15 A. Mr. Thies has presented capital expenditures whereas, I and the other capital
16 witnesses have presented transfers-to-plant. There is a timing difference between when the
17 dollars are spent (capital expenditures), and when the various capital projects are completed
l8 and transferred to plant-in-service.
19 a. How have the remaining capital witnesses presented the transfers-to-plant
20 in their testimony?
2l A. Mr. Thackston, Ms. Rosentrater and Mr. Kensok present capital transfers-to-
22 plant (gross plant additions) on a calendar year basis from January 1,2019 through December
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Avista Corporation
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31,2019 on a total system basis (i.e, the totals include all planned transfers-to-plant for electric
and common plant for the Idaho, Washington and Oregon jurisdictions).
Table No. 1 below reflects the calendar year transfers-to-plant totals that are
represented in each witness' testimony, on a system basisl (projects related to nafural gas
operations have not been included):
Table No. l:
10
Capital Projects (System) in $(000's)
Functional Group Name Witness 2019
Generatior/ Production
Transmission
Electric Distrbution
GeneralPlant
Other Plant
Enterprise Technolory
Mr. Thackston
Ms. Rosentrater
Ms. Rosentrater
Ms. Rosentrater
Ms. Rosentrater
Mr. Kersok
40,295
59,223
55,463
35,937
13,312
70,8931l
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projects.
A.
Please provide a summary of the January through December 2019 capital
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14 A listing of the capital projects and their system costs are provided below:
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Generation:
The electric generation projects that will transfer to plant-in-service are described in
detail in Mr. Thackston's direct testimony. A listing of these projects on a system basis
are included in Table No. 2 below.
o I Transfers to plant listed in Table No. I generally exclude projects related to customer growth and productivity
projects.
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Avista Corporation
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Table No.2 Generation Capital Additions2:
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Schuh, Di
Avista Corporation
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Ge ne ratio n and Environme ntal Capital Additions
(System) In $(000's)
Business Case Name 2019
C olstrp C apital Additions
Coyote Sprinp 2 Caprtal Inprovements
Nine Mile Redevelopnrent
Base Hydro
Regulating Hydro
Base I-oad Therrnal
Peaking Generation
Little Falls Powerhorse Redevelopment
Inng t ake Phnt Upgrades
Generation Direct Current Supplied System Upgrade
Post Falls Redeveloprnent
Cabinet Gorge IIED - Ganxy Crane Rephcernent
Ar{onntion Rephcement
Cabinet Gorge FIED Statbn Servi'ce Replacernent
Cabinet Gorge FIED - Replace Headgates
Noxon Rapids mD Spillgate Refinbishnrent
Long Iake I{ED Stability Enhancement
Resource Metering Telernefiy, and Controls Upgrade
Hrnran Machine Interfrce Control Software
Kettle Falls Boiler Tube Maintenance (Economizer section)
Kettle Falls Fuel Yard Equpnrent Rephcenrent
Cabinet Gorge Unit 3 Protection & Contol Upgrade
Environrnental C onp liarrc e B hnket
Hydro Generation Minor Bhnket
Chrk Fork License Inplenrentation
Spokane River Licerse lnplernentation
Total Planned Generation Capital Pmjects
$ 3,500
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1,166
4,091
2,894
506
9,047
(101)
(80)
379
5,000
134
(264)
193
1,060
(146)
1,081
502
355
1,208
2,296
217
50
4,457
1,556
o 2 HED: Hydroelectric Development
$ 40,295
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Electric Transmission:
The electric transmission projects that will transfer to plant-in-service are described in
detail in Ms. Rosentrater's direct testimony. A listing of these projects and system
costs are included in Table No. 3 below.
Trans mission Capital Proje cts (Syste m)
In $(000's)
Business Case Name 2019
N oxon Switchyard Rebuild
Protection System Upgade
Rattlesnake Flat Wind Farm Project
South Region Vohage Confrol
Spokane Valley Transmission Reffircement
Storms
Substation - New Distribution Station Capacity Program
Substation - Station Rebuilds
Transmission Major Rebuild - Asset Condition
Transmission Minor Rebuild
Transmission NERC t ow-Risk Priorily Lines Mitigation
Tribal Permits and Settlements
Transmission Construction - Conpliance
Westside 230/ I I 5kY Station Rebuild
Total Planned Transmission Capital Projects
2,489
2,379
12,911
7,416
370
728
5,428
7,107
2,585
3,860
2,016
1,103
10,447
383
$ 59,223
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Schuh, Di
Avista Corporation
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Table No.3 Transmission Capital Additions:
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Electric Distribution:
The electric distribution projects that will transfer to plant-in-service are described in
detail in Ms. Rosentrater's direct testimony. A listing of these projects and system
costs are included in Table No. 4 below.
Table No. 4 Distribution Capital Additions:
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Distribution Capital Projects (System) In $(000's)
Business Case Name 2019
Distrfo rfr ion Grid Modemization
Distrfo dion Minor Rebuild
Distribdion Wood Pole Managernent
Electric Relocation and Replacenrent Program
LED Change Out Program
Meter Minor Blanket
Prinrary Underground Residential Development Cable Replacement
SCADA - System Operations Office & Backry Control Center
Segnrent Reconductor and Feeder Tie Program
Storms
Substation - Station Rebuilds
Transformer Change Out Program Related Distrfoution Rebuilds
Was hington Direct Busine ss Cases(l)
DowntownNetwork
Total Planned Electric Distribution Capital Projects
(1) Exchrded from revenue requirement in this case.
s 10,241
9,019
t0,521
2,989
585
300
750
1,203
5,058
2,s00
7,398
t,200
3,700
$ 55,463
Schuh, Di
Avista Corporation
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General Plant:
The detailed listing of the general plant projects that will transfer to plant-in-service
are described in detail in Ms. Rosentrater's direct testimony. A listing of these projects
and system costs are included in Table No. 5 below.
Table No. 5 General Plant Capital Arlditiots;
General Plant Capital Projects (System)
In $(000's)
Brsiness Case Narne 2019
Facilities Struchnes & Inprovernent, Office Fuminne
Stores, Tools Lab & Shop Equfirnent
Cental Office Facilities Long Term Restructuring Plan Phase 2
New Airport Hanger
Noxon and Clark Fork Living Faculty Renrodel
Ross Park Building Renovation(2)
Apprentice Craft Training
Subtotal: General Plant Capital Projects
Washington Direct Business Cases(' )
Deer Park Service Center
Washington State DOT Highway Franchise Consolidation
Dolhr Road Service Center Addition and Rernodel
Total Washington Direct Business Cases
Total Planned General Plant Capital Projects
(l) Excluded fromrevenrre requirement inthis case.
(2) Inadvertently inchrded in reverure requirernent in this case. Will be
removed dr.ning next rpdate to trarsfers-to-plant.
$ 1,932
2,065
16,052
83
1,266
200
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21,653
6,166
2,065
6,053
14,284
$ 35,937
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Avista Corporation
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Other Plant:
The detailed listing of the other plant projects and the system costs that will transfer
to plant-in-service are described in detail in Ms. Rosentrater's direct testimony. A
listing of these projects and system costs are included in Table No. 6 below,
Table No. 6 Other Plant Capital Additions:
Other Capital Projects (System)
In $(000's)
Business Case Name 2019
Fleet Capital Replacement Program
Strategic
Total Planned Other Capital Projects
$ 8,582
4,730
$ 13,312
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Schuh, Di
Avista Corporation
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IS/IT:
The IS/IT projects that will transfer to plant-in-service are described in detail in Mr.
Kensok's direct testimony. A listing ofthese projects and the system costs are included
in Table No. 7 below:
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Enterprise Technology Capital Proiects (System) In $(000's)
2019
Information Technologz Refresh Program
Enterprise Business C ontinuity
Enterprise Security
Endpoint Compute and Productil,ity Systems
Enerry Delivery Modemization
Enerry Delivery Operational Eficiency & Shared Services
Enerry Resornces Modemization & Operational Effciency
Enterprise & Control Network Infrastructure
Enterprise C onnrunication Systems
Environrnental Control & Monitoring Systems
ET Modemization & Operational Efficiency - Technolory
Fiber Network kase Service Rephcement
Financial & Accounting Technologz
Hurnan Resources Teclmolory
l,and Mobile Radio & Real Time Connnnication Systems
Ingal & C onrpliance Technolory
Security Systems
Facilities and Storage Locatiors Secrriry
Generation, Substation & Gas Location Secrrity
Telecommrnication & Network Distrbution Secuity
Facffies Driven Technologz Inprovements
Infrastructure Technolory Failed Assets
Microwave Replacement widr Fiber
High Vohage Protection Upgrade
Project Atlas (Avista Facilities Marngement Replacenrent)
Customer Facing Technolory
Payment Card Industry
Criti'cal Infrastructru:e Protection v5 Transition - Cyber Asset Electronic
Critical Infrastructue Protection 14vl - High Inrpact Assets
Data Center Conprffe and Storage Systems
Digital GriJ Network Exparsion
Total Planned Enterprise Technology Capital Projects
$ 3,550
523
3,647
10,324
2,160
3,276
1,634
7,609
2,499
283
2,288
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l,7gg
401
2,596
151
3,940
1,245
330
113
153
557
261
265
944
t1,344
730
1,239
750
3,289
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$ 70,893
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Avista Corporation
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III. CAPITAL ADJUSTMENTS
a. How were the capital additions for the 2020 Rate Year developed in this
case?
A. The transfers-to-plant adjustments presented in my testimony have been
included using ldaho's electric share. Mr. Thackston, Ms. Rosentrater and Mr. Kensok discuss
their respective area transfers-to-plant on a system basis for the year ended December 31,
2019, and I have incorporated the Idaho share of these investments for the Rate Year
beginning January l, 2020.
As in prior rate cases, Avista started with rate base for the historical test year, which,
for this case, is the average-of-monthly-averages ("AMA") for the l2-months-ended
December 31, 2018, making the following adjustments as described below:
(1) 2018 Plant in Service - The 2018 AMA plant in service balance is adjusted to
a2019 End of Period ("EOP") balance for the Rate-Year beginning January l,
2020. This is done by first walking forward the accumulated depreciation
("AD") and accumulated deferred federal income taxes ("ADFIT") to a 2018
EOP balance, then to a 2019 EOP balance3, which is incorporated into the
rate based calculation for retail rates effective January 1,2020.4
(2) 2019 Capital Additions EOP Basis - This adjustment adds capital additions
to plant in service during 2019,s including the AD, depreciation expense and
ADFIT associated with these additions, ona2019 EOP basis. Also included is
3 Included in Ms. Andrews Adjustment 1.04.
a Included in Ms. Andrews Adjustment 3.09.
5 For each of the rate base adjustments for the periods 2018 AMA through 2019 EOP, distribution-related capital
expenditures associated with connecting new customers to the Company's system were excluded. The Pro Forma
adjustments do not include the increase in revenues from growth in the number of customers from the historical
test year to the 2020 rate year, and therefore, the growth in plant investment associated with customer growth
should also be excluded.
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Schuh, Di
Avista Corporation
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o I an adjustment for the impact of asset retirements in2019.6 This adjustment also
2 includes annualizing depreciation expense on the plant-in-service at December
3 31,2018.
4 a. What is the net impact to electric rate base for the l2-months-ended
5 December 31,2018, in order to restate capital to an end-of-period basis, as well as the
6 impact of the 2019 additions?
7 A. Electric net rate base for capital investment as of year-end December 31, 2018
8 increased $40,393,000, from $779,941,000 on a December 31,2018 AMA basis to
9 $820,334,000 on a December 31,2019 EOP basis, as shown in Table No. 8 below.
10 Table No.8
Idaho Electric Adjustnrents in $(000's)
Accumulated
Adj # Plant in Service Depreciation
Deferred
Taxes Rate Base
Plant Balance
2018 AMA Balance (Test Year)
20 I 8 AMA-EOP Adjustrnent
2019 EOP Adjustnent
January 1,2020
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2,880
8,802
(s44,213)
(16,929)
(3 1,865)
(201,400)
423
(2,e18)
779,941
16,3741.04
3.09
1,623,236 (593,007) (209,895)
In addition to the explanation of adjustments provided herein, the Company has also
provided workpapers, both in hard copy and electronic formats, outlining the additional details
related to each of the adjustments.
a. How were the plant investment offsets determined for January 2019
through December 31, 2019?
A. Pro Forma capital additions was analyzed to determine any offsets (e.g.,
6 The 2018 test year and the adjustment from AMA 2018 to EOP 2018 captures the impacts of retirements for
2018. The adjustment to capital rate base through 2019 includes reducing rate base and depreciation expense
for the impact of retirements.
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Avista Corporation
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1 reduced O&M costs, reduced load losses, etc.). Maintenance records were reviewed to
2 determine whether any specific maintenance costs were incurred in the test period that would
3 be reduced or eliminated by the investment at the facility. Those costs were quantified and
4 included as a reduction to O&M costs in the O&M Savings Pro Forma Adjustment 3.10
5 included by Ms. Andrews in the revenue requirement as a part ofher electric Pro Forma Study.
6 The overall impact of this adjustment is an increase to Net Operating Income (NOI) of
7 approximately $59,000. The following projects were incorporated into the offsets adjustment:
8 . Little Falls
9 . Wood Pole Management
10 . Distribution Grid Modernization
11 . Dollar Road Service Center
12 . Central Office Facility Restructuring Phase 2
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14 IV. DEPRECIATION STUDY
l5 a. Would you please provide an overview of the Companyos most recent
depreciation study filed in Case Nos. AVU-E-18-03 and AVU-G-18-02?
A. Yes, on February 23,2078, Avista filed an application requesting authority to
revise its book depreciation rates in Case Nos. AVU-E-I8-03 and AVU-G-18-02. The Parties
in that proceeding ultimately reached agreement on revisions to the Company's book
depreciation rates following additional negotiations and recalculations of depreciation rates
for select accounts. The Settlement Agreement also included agleements by the Parties related
to Colstrip depreciation issues.
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Avista Corporation
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I On March 19,2019, the Commission issued Order No.34276, where the Commission
2 approved the Stipulation proposed by the parties. In accordance with the Stipulation, such
3 depreciation rates would constitute revised depreciation rates, which would become effective
4 for accounting purposes on April 1,2019, for both Idaho direct and common plant. Customer
5 rates, however, would not change to reflect the revised depreciation rates until inclusion in the
6 Company's next general rate case.7
7 The Commission also approved the proposed revised depreciation rates for Colstrip
8 units 3 and 4 that assumes a remaining useful life for depreciation purposed of December 31,
9 2027. In addition, the Commission approved the method proposes to recover the
l0 undepreciated balance for Colstrip Units 3 and 4. Ms. Andrews discusses the accounting
I I surrounding Colstrip Units 3 and 4 in further detail in her testimony.
12 a. Have you prepared an adjustment to reflect the impact of the new
13 depreciation rates in this case?
14 A. Yes, Adjustment 3.08 in Ms. Andrews revenue requirement, incorporates the
15 Company's recently approved depreciation rates for electric operations. This adjustment
16 reflects the impact of the 2018 level of depreciation expense updated for the new depreciation
17 rates effective April 1 , 2019 that will be in effect during the 2020 rate year. The effect of this
l8 adjustment increases NOI by $154,000 for electric. Also, the capital pro forma adjustments
19 for electric operations incorporate the new depreciation rates for those pro forma additions
7 As a part of the approved Stipulation, the Company is only allowed to absorb the natural gas reduction to
depreciation expense, until a change in rates as a result ofthe company's next gas general rate case, provided
that the Company has filed it next general rate case prior to the effective date of its 2019 Purchased Gas
Adjustment (PGA). The Company does not anticipate filing a natural gas general rate case prior to the effective
date for the Purchased Gas Adjustment of November 1,2019, and therefore will start to defer the decrease in
natural gas depreciation expense on November 1,2019.o
Schuh, Di
Avista Corporation
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o 1 being added in20l9. These amounts are embedded within the adjustments included in Ms.
2 Andrews electric Pro Forma Study at Adjustment 3.09.
3 Q. Does this conclude your pre-filed direct testimony?
4 A. Yes, it does.
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Schuh, Di
Avista Corporation
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