20040109Sterling Direct.pdf

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BEFORE THE
IDAHO PUBLIC UTILITIES COMMISSION
Complainant
) CASE NO. IPC-QQ-
KIMBALL PROPERTIES LIMITED
PARTNERSHIP, AND HEWLETT PACKARD
COMPANY,
vs.
IDAHO POWER COMPANY
Respondent.
DIRECT TESTIMONY OF RICK STERLING
IDAHO PUBLIC UTILITIES COMMISSION
JANUARY 8 2004
Please state your name and business address for
the record.
My name is Rick Sterling.My business address is
472 West Washington Street, Boise, Idaho.
By whom are you employed and in what capacity?
I am employed by the Idaho Public Utilities
Commission as a Staff engineer.
What is YOUF- educational and professional
background?
I received a Bachelor of Science degree in Civil
Engineering from the University of Idaho in 1981 and a
Master of Science degree in Civil Engineering from the
University of Idaho in 1983.I worked for the Idaho
Department of Water Resources from 1983 to 1994.In 1988,
I became licensed in Idaho as a registered professional
Civil Engineer.I began working at the Idaho Public
Utilities Commission in 1994.My duties at the Commission
include analysis of utility applications and customer
petitions
What is the purpose of your testimony in this
proceeding?
The purpose of my testimony is to offer my
opinion on how I believe costs of the Bethel Court
substation should be shared between Idaho Power and Hewlett
Packard/Kimball Properties Limited Partnership
CASE NO. IPC-00-1/8/04 STERLING, R (Di)
STAFF
(HP jKimball) I also discuss and offer solutions to what
believe are problems with current policies regarding
contributions for substations and transmission facilities
for Schedule 19 customers.Finally, I make recommendations
for further proceedings.
Please describe all Idaho Power tariffs and
Commission-approved rules that you believe are relevant to
this case.
The relevant Idaho Power tariff is Schedule 19,
Large Power.Wi th regard to substations, Schedule
provides as follows:
AVAILABILITY
Service under this schedule is available at
points on the Company s interconnectedsystem wi thin the State of Idaho where
existing facilities of adequate capacity
and desired phase and voltage areavailable. If additional distribution
facilities are required to supply the
desired service, those facilities provided
for under Rule H will be provided under the
terms and conditions of that rule. To the
extent that additional facilities not
provided for under Rule H, including
transmission and/or substation facilities,
are required to provide the requested
service, special arrangements will be made
in a separate agreement between the
Customer and the Company. (Emphasis added)
A complete copy of Schedule 19 is attached to
Idaho Power witness Said's testimony as Exhibit No. 104.
Rule H , New Service Attachments and Distribution
Line Installations or Alterations, sometimes generally
CASE NO. IPC-00-1/8/04 STERLING, R (Di)
STAFF
referred to as the Company s line extension rules, has been
frequently referred to in this case.In part, it states,
This rule applies to requests for electric
service under Schedules 1, 7, 9, 19, 24
45, and 46 that require the installation,al teration , relocation , removal , or
attachment of Company-owned distribution
facilities. New construction beyond the
Point of Delivery for Schedule 9 or
Schedule 19 is subj ect to the provisions
for facilites charges under those
schedules. This rule does not apply to
transmission or substation facilities, or
to requests for electric service that are
of a speculative nature. (Emphasis added)
A complete copy of Rule H is attached to Idaho
Power witness Said's testimony as Exhibit No. 103.
Do you believe Rule H applies in this case?
No, not directly.Rule H very clearly states that
it does not apply to transmission or substation facilities.
Therefore, Rule H does not apply since this complaint
concerns costs associated with the Bethel Court substation.
How are the four HP/Kimball buildings billed by
Idaho Power?
It is my understanding that two buildings (HP #26
and #29) are metered through a single meter and billed
together as a single Schedule 9 primary customer.The other
two buildings (HP #27 and #28) are billed individually as
Schedule 9 primary customers.None of the buildings have
ever been billed under Schedule 19.
CASE NO. IPC-00-1/8/04 STERLING, R (Di)
STAFF
If none of the four HP/Kimball buildings have ever
been billed as Schedule 19 customers, why is Schedule 19
relevant in this case rather than Schedule
Schedule 19 is relevant because at the time the
request for new service was made, HP /Kimball informed Idaho
Power that its load at the location would be approximately
four megawatts.Because a one-megawatt load qualifies a
customer for Schedule 19, both Idaho Power and HP/Kimball
believed that the new buildings would be served under
Schedule 19.Under Schedule 19, special arrangements are to
be made to establish charges for substations and
transmission facilities.
Although Idaho Power and HP/Kimball both initially
thought the buildings would be served under Schedule 19, all
of the buildings have been served under Schedule Why
weren t the rules for Schedule 9 customers applied in this
case?
At the time the request for service was made, both
Idaho Power and HP/Kimball believed the load would be
sufficient to qualify for Schedule 19.Idaho Power
proceeded to design and construct the necessary facilities
to serve a four-megawatt load, and assessed charges for the
Bethel Court substation as if HP/Kimball was a Schedule 19
customer.It was not until after the Bethel Court
substation had been constructed that it became apparent that
CASE NO. IPC-00-1/8/04 STERLING, R (Di)
STAFF
HP /Kimball would not be a Schedule 19 customer.The four
megawatts of load never materialized, however , so Idaho
Power was left with extra substation capacity.Neither
Idaho Power nor HP/Kimball dispute that the initial service
request was made assuming service would be provided under
Schedule 19.
What difference does it make whether HP Kimball is
treated as a Schedule 19 or a Schedule 9 customer?
Schedule 19 requires that Idaho Power and
HP/Kimball make special arrangements for substation costs.
Under Schedule 9, HP/Kimball would not be assessed anything
for the Bethel Court substation.Stated another way, Idaho
Power has required Schedule 19 customers to pay for their
share of substation costs through up-front charges when
capacity is not available, while Schedule 9 customers pay
nothing up-front and instead pay for substations over time
through rates, as do other customer classes.
Do you believe Idaho Power violated any tariffs or
rules by seeking a substation contribution from HP/Kimball?
No, technically Idaho Power has not violated any
tariffs or rules.Idaho Power exercised its judgment in
determining that additional substation facilities were
needed to provide service.Anytime the Company is allowed
to use its discretion to make such a determination
questions can arise regarding discrimination or preferential
CASE NO. IPC-00-1/8/04 STERLING, R (Di)
STAFF
treatment.
The applicable rule , I believe, is the requirement
in Schedule 19 that special arrangements shall be made in
instances where new substation or transmission facilities
are needed in order to provide service.By seeking a
contribution from HP /Kimball, Idaho Power was, in effect,
making "special arrangements.
I firmly believe, however, that there is an
expectation that those special arrangements will be fair and
non-discriminatory.Special arrangements " does not mean
that any arrangements are acceptable. Idaho Code 561-315
prohibits discrimination and preference amongst customers.
Further, Idaho Code 561-502 requires that utilities ' rules,
regulations, practices and rates be just and reasonable.
instances where a utility s rules or tariff is unclear or
not specific , I believe these basic principles of the Idaho
Code should be relied on as a guide to establishing fair
treatment for customers.
What do you believe is a fair way to resolve this
dispute?
I believe a fair resolution would be for Idaho
Power to refund to HP /Kimball an amount proportionate to the
share of substation capacity that HP/Kimball is actually
using.This seems fair since HP/Kimball is (and has been)
paying for this share of substation costs through its rates
CASE NO. IPC-00-1/8/04 STERLING, R (Di)
STAFF
as a Schedule 9 customer.For that share of substation
capacity that HP/Kimball requested and paid for but never
utilized, I recommend that HP/Kimball not be permitted a
refund.
What is the combined load of the four HP /Kimball
buildings?
The highest monthly combined load of the four
buildings (three metering locations) is 1519 kW , which
occurred in July 2003.I believe that the highest monthly
combined load of the four buildings most accurately
represents the amount of substation capacity utilized by
HP /Kimball.
What amount do you recommend be refunded to
HP/Kimball?
Because HP /Kimball' s request was for four MW, I
recommend HP /Kimball be refunded an amount equal to
1519/4000 or 37.98 percent of the amount it paid toward
substation costs.The recommended refund amount, therefore,
is 0.3798 * $490,824 = $186,390.
Won t additional growth in customer loads
eventually utilize the extra substation capacity that
HP/Kimball has not used?
Yes, it will.In fact , as a result of shifting
load between surrounding substations, Idaho Power now
reports that over 80 percent of the capacity of the
CASE NO. IPC-00-1/8/04 STERLING, R (Di)
STAFF
substation is now being used.
If most of the extra substation capacity unused by
HP /Kimball is now being used to serve other customers, won
Idaho Power eventually be able to recover the associated
share of substation costs from new customers?
Assuming a portion of HP /Kimball' s contribution
refunded, yes, Idaho Power will not only recover that share
of the investment from other customers, but will also earn a
return on the investment.The entire cost of the Bethel
Court substation will be rate based, and any contributions
received from HP/Kimball will be booked as a contribution in
aid of construction (CIAC).CIAC directly offsets rate
base, so effectively, Idaho Power will only earn a return on
the net rate base.
If the extra capacity will eventually be used
anyway, why should HP /Kimball be required to make any
contribution?
If other customers eventually use the extra
capacity and no contribution is required from HP/Kimball
the cost of the substation capacity will be rate based and
recovered through rates from other customers.This increase
in rate base will cause rates for other customers to
eventually be higher than they otherwise would be.This is
generally true for all plant added to serve new customers.
The marginal cost of new plant is always higher than the
CASE NO. IPC-00-1/8/04
STERLING, R (Di)
STAFF
embedded cost included in rates.
In addition, if no contribution had been required
from HP/Kimball , Idaho Power would have borne the full risk
that enough other customers would eventually materialize to
utilize the excess capacity.Al though most of the excess
capacity is now apparently being used, I suspect it is being
used by a combination of both new customers as well as
existing customers who were previously served from other
substations.
Finally, unless some contribution is required from
new Schedule 19 customers, there is no incentive for
customers to accurately estimate their loads when they
request service.Customers could request service and
possibly trigger construction of new facilities to serve the
ultimate maximum load expected, and face no consequences if
only a part of the load (and revenue that goes along with
it) materialized.
I believe that the risk of speculative development
should be on the customer requesting service, not on Idaho
Power.It might be argued that there was minimal or no risk
that there would not be additional development in the case
of the Bethel Court substation, because it is located west
?f the Boise Towne Square Mall in a rapidly developing area.
That will not always be the case for other substations,
however.Requiring a contribution from all new Schedule 19
CASE NO. IPC-00-1/8/04 STERLING , R (Di)
STAFF
customers will eliminate the need for Idaho Power to assess
the degree of speculation in each instance, and avoid the
possibility for discriminatory treatment that could result.
Certainly at least some of the unused capacity
that HP/Kimball originally requested is now being used to
serve other new customers who, in turn , are generating
revenue, a portion of which goes towards recovery of
substation costs.Why shouldn t HP /Kimball be granted a
refund for this portion of the substation capacity?
Notwithstanding my earlier recommendation,
believe there could, in fact, be some justification for a
refund for this portion of the contribution.However , there
simply is no current rule or mechanism in place to provide
for such a refund or to determine the proper amount.It is
extremely difficult, for example, to determine exactly how
much of the excess capacity has now been utilized by new
customers.Although 80 percent of the substation capacity
is now used, some of the excess capacity previously at the
Bethel Court substation has now been shifted to other
substations.It would also be very difficult to determine
the amount of excess capacity used by new loads versus
existing loads.Furthermore, the amount of substation
capacity use will change over time; presumably, nearly all
of the substation capacity will eventually be used.
CASE NO. IPC-00-
1/8/04
STERLING, R (Di)
STAFF
I f there were rules in place to provide for vested
interest refunds, both the amount and timing of refunds to
HP /Kimball could be determined.In the absence of such
rules , I do not believe it is reasonable to retroactively
recommend a refund for the cost of excess substation
capacity that may eventually be used by other new customers.
If the Commission decides that Idaho Power should
not refund any substation costs to HP /Kimball, and
HP/Kimball continues to take service as a Schedule 9
customer and thus pay for substations through a portion of
its rates, won t HP/Kimball pay twice and Idaho Power
collect twice for the cost of the substation?
Yes, HP /Kimball will effectively pay twice, but
no, Idaho Power won t collect twice.HP /Kimball will have
paid once through up-front charges and will effectively pay
a second time for a share of substation costs built into the
rates paid by it and all other Schedule 9 customers.
Idaho Power won t collect twice, but it will
however, have to collect less in the future from its other
Schedule 9 customers if it retains HP /Kimball' s
contribution.HP /Kimball' s contribution will reduce rate
base , and the substation revenue requirement for all other
Schedule 9 customers will be less by the amount of
HP /Kimball' s contribution.
CASE NO. IPC-00-1/8/04
STERLING, R (Di)
STAFF
HP/Kimball contends that , even if it were a
Schedule 19 customer , it should not have to pay for a share
of substation costs because Idaho Power s application of the
Schedule 19 rule is arbitrary and unfair.Do you agree that
the rule is unfair?
The requirement in Schedule 19 requiring
substation contributions, the amounts of which are
determined on a case-by-case basis, is not unfair by itself.
However, Idaho Power s application of the rule causes unfair
resul ts.Idaho Power charges Schedule 19 customers who
request new service when substation and transmission
capaci ty is not adequate, but imposes no up- front charges
when adequate capacity already exists.By applying the rule
in this way, whether a customer is asked to make an up- front
payment truly is a matter of timing.All customers need
substations in order to receive service; therefore, all
customers should make proportionate contributions toward
substation costs either in up-front charges or through
rates.To the extent some Schedule 19 customers make no
contribution either up- front or through rates, that is
unfair.
Do you have any suggestions on how the problem of
some customers being required to make contributions for
substations while others are not might be resolved in the
future?
CASE NO. IPC-E- 00 -1/8/04 STERLING, R (Di)
STAFF
There are several methods that could be
implemented that I believe would be more equitable.One
method would simply be to not require a contribution from
any new customer for transmission and substation costs.
The Company s investment in substations and transmission
would then be recovered through rates from all customers
wi thin a class.This would be the same method as is now
used for all classes except Schedule 19.The most logical
way to build substation and transmission costs into the rate
would be to include it in the demand charge.As a component
of the demand charge, large customers would pay more and
small customers less, proportionate to each customer
demand.This method would not address the problem of
speculative commercial development or existing Schedule 19
customers that have already contributed substation costs.
Another method would be to implement a standard
charge, most likely an amount per kilowatt of load, that
would be charged to all new Schedule 19 customers at the
time they request service.Under this approach , all new
customers would be required to make a contribution,
regardless of whether sufficient substation capacity exists
or not , and the amount of the contribution would be
proportionate to the size of the customer s load.This
method would require that a proxy substation cost be
established and updated periodically.
CASE NO. IPC-00-1/8/04 STERLING, R (Di)
STAFF
A third method would be to require Schedule 19
customers to make contributions based on the share of
substation capacity utilized by each respective customer.
Such contributions would have to be made regardless of
whether sufficient substation capacity already exists.
cases where a Schedule 19 customer s request triggers the
need to construct a new substation, the customer would be
assessed a charge based on its required share of capacity,
and any remaining excess capacity would be held by Idaho
Power as a vested interest.Subsequent Schedule 19
customers would then have to effectively "purchase " a
portion of Idaho Power s vested interest in order to receive
service.I would recommend that this method be restricted
to only Schedule 19 customers in order to keep
administration simple.Under such a policy, all Schedule 19
customers would make an up-front contribution to substation
costs.Unlike the previous suggested method, costs under
this method would be based on the specific substation from
which service is provided.
Why does it make any difference to Idaho Power
whether it recovers its investment through up-front charges
or through rates charged to customers?
Up-front investment provides Idaho Power with
immediate funds that can be used to construct the
substation, thus partially alleviating the Company s problem
CASE NO. IPC-00-1/8/04 STERLING, R (Di)
STAFF
of having to redirect funds already budgeted for other
system improvements.On the other hand, Idaho Power does
not earn a return on plant contributed by customers like it
does for plant investment it makes itself.Recovering
substation investment through up-front charges also closely
matches the cost causers with the cost payers, rather than
spreading the same amount of substation cost across entire
customer classes.Finally, because each new substation is
generally more expensive to construct, upward pressure on
rates is reduced whenever up-front contributions are
collected from new customers.
HP/Kimball witness Teinert suggests that Idaho
Power s policy of requiring a contribution in aid of
construction for substations is capricious and
discriminatory.Idaho Power witness Said disagrees.What
is your opinion?
I agree with Mr. Teinert.It is discriminatory
whenever one customer has to pay for substation facilities
and another customer, who may require the same or even
larger substation capacity, does not have to pay just
because extra substation capacity is already available.
While Idaho Power may attempt to honestly and fairly apply
its pol icy, the results are inconsistent and discriminatory.
Couldn t a customer, by bringing its load on in
phases, avoid or pay substantially lower charges for
CASE NO. IPC-E- 00 -1/8/04 STERLING, R (Di)
STAFF
substations under the rules as now implemented by Idaho
Power?
Yes, conceivably.A Schedule 19 customer could
request to use only as much capacity is currently available.
As other non-Schedule 19 loads materialize, Idaho Power
would be forced to upgrade substation capacity at its own
expense.Once substation capacity has been upgraded, the
Schedule 19 customer could then request to use the increased
capacity.
If Idaho Power had elected to serve the HP/Kimball
buildings from an existing substation, wouldn t HP/Kimball
have been required to pay substantial line extension charges
under Rule H?
Yes, they would have.Moreover, the costs of
doing so would have been higher according to Idaho Power.
Do you wish to weigh in on the issue of whether a
new substation was actually needed to serve HP/Kimball
instead of serving HP/Kimball from existing substations?
No, except to say that I believe Idaho Power
should be granted discretion in system engineering design
issues since it , not its customers or the Commission, is
ul timately responsible for the system s reliability and
safety and is responsible in the event of failures or
inadequate service.
CASE NO. IPC-00-1/8/04 STERLING, R (Di)
STAFF
How do you propose that rules for establishing and
charging substation costs be developed and implemented going
forward?
I believe it is necessary to open a new docket.
Al though I have suggested possible approaches that could be
taken to resolve the problem, I believe it is important to
provide an opportunity for the Staff, the Company and other
interested parties to collaborate in developing details.
do not believe it is possible for Staff on its own to
identify all of the potential implementation problems, nor
do I believe it is advisable for Staff to unilaterally come
up with substation contribution rules to be forced upon the
Company.Even if no agreement can be reached , I think the
issue merits a lively debate amongst various parties.
Please summarize your recommendations.
I recommend that Idaho Power be required to refund
to HP/Kimball $186,390, an amount equal to 38 percent of the
amount previously contributed by HP/Kimball toward
substation costs.The amount paid by HP/Kimball for line
extension of distribution facilities is not in dispute and
therefore no refund for this portion of the costs is
recommended.
I also recommend that a separate docket be
established by the Commission for the purpose of clarifying
the rules on how substation costs should be charged to
CASE NO. IPC-00-
1/8/04
STERLING, R (Di)
STAFF
customers.
Does this conclude your direct testimony in this
proceeding?
Yes,it does.
CASE NO.IPC-E- 00-STERLING,(Di)
1/8/04 STAFF
CERTIFICATE OF SERVICE
HEREBY CERTIFY THAT I HAVE THIS 8TH DAY OF JANUARY 2004
SERVED THE FOREGOING DIRECT TESTIMONY OF RICK STERLING, IN CASE
NO. IPC-00-, BY MAILING A COpy THEREOF, POSTAGE PREPAID, TO THE
FOLLOWING:
PETER J RICHARDSON
RICHARDSON & O'LEARY
PO BOX 1849
EAGLE ill 83616
GREGORY W SAID, DIRECTOR
REVENUE REQUIREMENT
IDAHO POWER COMPANY
PO BOX 70
BOISE ID 83707-0070
BRIAN GRAHAM
HEWLETT PACKARD COMPANY
11311 CHINDEN BLVD
BOISE ID 83714
MONICA MOEN
IDAHO POWER COMPANY
PO BOX 70
BOISE, ID 83707-0070
CERTIFICATE OF SERVICE