GALE--PCA TESTIMONY.doc

BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION

IN THE MATTER OF THE APPLICATION )
OF IDAHO POWER COMPANY FOR A )
REFUNDABLE EMERGENCY ENERGY ) CASE NO. IPC-E-01-07
CHARGE FOR THE RECOVERY OF )
EXTRAORDINARY POWER SUPPLY )
EXPENSES. )
)
)
IN THE MATTER OF THE APPLICATION )
OF IDAHO POWER COMPANY FOR )
AUTHORITY TO IMPLEMENT AN EARLY ) CASE NO. IPC-E-01-11
POWER COST ADJUSTMENT RATE FOR )
ELECTRIC SERVICE TO CUSTOMERS IN )
THE STATE OF IDAHO FOR THE PERIOD )
MAY 1, 2001 THROUGH MAY 15, 2002 )
)

IDAHO POWER COMPANY

DIRECT TESTIMONY

OF

JOHN R. GALE

Q. Please state your name and business address.
A. My name is John R. Gale and my business address is 1221 West Idaho Street, Boise, Idaho.
Q. By whom are you employed and in what capacity?
A. I am employed by Idaho Power Company; as the Vice President of Regulatory Affairs.
Q. Please describe your work experience.
A. In October 1983, I accepted a position as Rate Analyst with Idaho Power Company. In March 1990, I was assigned to the Company’s Meridian District Office for one year where I held the position of Meridian Manager. In March 1991, I was promoted to Manager of Rates. In July 1997, I was named General Manager of Pricing and Regulatory Services. In March of 2001, I was promoted to Vice President of Regulatory Affairs. As Vice President of Regulatory Affairs, I am responsible for the overall coordination and direction of the department, including development of jurisdictional revenue requirements and class cost-of-service studies, preparation of rate design analyses, and administration of tariffs and customer contracts. In my current position, I am actively involved with restructuring activities throughout our service territory.
Q. Are you familiar with the Electricity Supply Management Agreement (“Agreement”) between IDACORP Energy Solutions LP ("IES") and Idaho Power Company?
A. Yes, I was actively involved in the development of the Agreement that I have enclosed as Exhibit 16.
Q. What was the purpose of the Agreement?
A. The Agreement outlines the provisions for interactions between the utility, Idaho Power Company, and the affiliate, IES. These transactions allow the affiliate to continue to provide power supply management services to the utility under specific terms and conditions.
Q. Why is the Agreement necessary?
A. The Agreement is necessary in order to move the trading function out from the utility and into a separate affiliate. The Agreement is part of a long-term plan for separation of the trading activity from the utility. The primary reason that separation is desirable is that it aligns risk and reward appropriately between the two entities. The utility is insulated from the more speculative transactions inherent in the trading business. The second benefit of the separation is that it allows both the utility and the affiliate to achieve the benefits of the economies of one trading floor.
Q. Please summarize the process undertaken in Case No. IPC-E-00-13.
A. From the start, Idaho Power pursued a settlement process in this case because the Company desired that the parties be comfortable with the way Idaho Power and IES conducted business transactions. The Company discussed its view of the affiliate arrangement with customers ahead of any formal action, filed a straw-man application, conducted informational workshops, and pursued a settlement stipulation. Ultimately, all parties involved in the case, but one, signed the Stipulation previously identified as Exhibit 12.
Q. What were the issues involved in seeking settlement in this case?
A. The primary issues were: (1) what were to be the customer benefits of the transaction, (2) what would be the annual charges for services provided by IES, (3) how would transmission reservations be undertaken, and (4) general contract provisions.
Q. Please describe the customer benefits envisioned by the Stipulation in Case No. IPC-E-00-13.
A. The Stipulation provides both direct and indirect benefits to the customer. First, the Stipulation outlines Idaho Power's commitment to facilitate commission audits. Such a provision assures commission staff adequate access to books and records for audit purposes and assures procedures, transactions and prices are reasonable. Second, the Stipulation addresses economic dispatch of system resources by providing a mechanism to assure that system assets are secured for the benefit of native load customers and that surplus power from system resources is sold at prices that are reasonable and consistent with prudent utility practice. Third, the Idaho retail customers receive a direct benefit of $2,000,000 annually that will flow back coincidental with Idaho Power’s PCA until the Company’s next general rate proceeding.
Q. Please describe the annual charges for services provided by IDACORP Energy Solutions.
A. The contract charges initially established in the Agreement between Idaho Power and IES provide that IES will be paid $300,696.30 per month for services rendered to Idaho Power. IES will pay Idaho Power $87,293.53 per month for non-power goods and services provided by Idaho Power. The dollar amount will be reviewed and established each year. The payment to IES of $3,608,355.60 annually ($300,696.30*12) is less than the $4,870,263 cost for these services included in the last rate case. The contract cost is also significantly less than the total amount incurred by Idaho Power in 1999 for all transactions. The Stipulation also provides that the annual charge paid to IES from Idaho Power will not exceed $5,000,000 in the next rate case.
Q. Please describe the transmission provisions in the Stipulation.
A. The Transmission Reservations provision in the Stipulation requires Idaho Power to take the necessary steps to ensure that the Agreement between Idaho Power and IES will not result in any reduction in Idaho Power’s allocation of capacity in its transmission system for Idaho Power’s retail customers.
Q. Please describe the other general provisions to the Agreement.
A. Under the General Provisions of the Stipulation the Parties agree that the Stipulation and the Agreement between Idaho Power and IES is in the public interest. The Parties also agree to cooperate and support approval of the Application and Agreement in any comments they submit.
Q. What is the status of the Agreement before the regulators that are involved in approving the Agreement?
A. The Stipulation was approved by the Idaho Public Utilities Commission ("IPUC") at the conclusion of Case No. IPC-E-00-13 on December 19, 2000. The case is before the Oregon Public Utility Commission ("OPUC") at present and an order is expected to be issued by the end of June. The issue before the Federal Energy Regulatory Commission ("FERC") is different from the state commissions, in that the issue before the FERC is the granting of a power marketer's license to IES. The Company received authority for that license on April 27, 2001. Idaho Power has made compliance filings with the FERC on May 14, 2001. At this time, IES may conduct business under a power marketer's license and under the provisions established by the FERC.
Q. As a result of the Agreement being approved by the Idaho Public Utilities Commission in Case No. IPC-E-00-13, were any of the provisions of the Agreement utilized by the Company for transfer pricing?
A. Yes, the Company adopted the transfer price for real-time hourly transactions once the IPUC approved the Electricity Supply Management Agreement. This change was implemented not because the Agreement had become effective, but because once the Agreement and the transfer pricing were approved by the IPUC, the Company viewed the new real-time transfer price as the appropriate price.
Q. When did the Company make the change to the real-time hourly pricing?
A. The Company made the change in December 2000.
Q. Please describe the transfer price used prior to December 2000.
A. Prior to December 2000, there were relatively few real-time transactions occurring between the “operating” and “non-operating” business groups. All real-time transactions (but for a few specifically tagged as non-operating) were classified as operating.
Q. Please describe the transfer price used after December 2000.
A. The weighted average of real-time prices in the relevant market at which IES bought and sold power to non-affiliates. The average of these transactions is indicative of the market price for that time period and its use provides appropriate protection against affiliate abuse. It is a price established by third party criteria, which I believe is in the public interest.
Q. How are Idaho retail customers impacted by hourly transfer pricing?
A. The transfer price multiplied by the quantity becomes either the power purchase or surplus sale value used for Power Cost Adjustment (“PCA”) computations.
Q. Turning to the conclusion of this case, once the Idaho Public Utilities Commission has made its determination as to the $59,211,603 in deferred expenses, what are the ratemaking options available?
A. I recommend the Idaho Public Utilities Commission take one of two courses of action. The first would be to authorize a rate to collect the additional amount over one year with implementation occurring shortly after the issuance of the appropriate IPUC order. The equivalent rate for the full $59 million would be .5481 cents per kilowatt-hour before any additional interest for the period from March 1, 2001 to the time of implementation. I have been advised that due to cash flow and capitalization concerns, the Company’s preference is to implement a one-year rate change as soon as possible. The second method would be to include the amount in the appropriate month of the PCA deferral account and to continue to defer the amount until the next rate action. That rate action could be next year's Power Cost Adjustment filing or it could be a securitization filing submitted prior to the next PCA rate change.
Q. Does this conclude your testimony?
A. Yes, it does.
GALE, DI 9
Idaho Power Company

GALE, DI 1
IDAHO POWER COMPANY